Liberty Property Trust (LPT) 10-Q 2004 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

[     ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

Commission file numbers:	1-13130 (Liberty Property Trust)
	1-13132 (Liberty Property Limited Partnership)

LIBERTY PROPERTY TRUST
LIBERTY PROPERTY LIMITED PARTNERSHIP

(Exact name of registrants as specified in their governing documents)

MARYLAND(Liberty Property Trust)		23-7768996
PENNSYLVANIA(Liberty Property Limited Partnership)		23-2766549
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification Number)
65 Valley Stream Parkway, Suite 100,
Malvern, Pennsylvania		19355
(Address of Principal Executive Offices)	(Zip Code)
Registrants’ Telephone Number, Including Area Code	(610) 648-1700

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past ninety (90) days.
Yesü    NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yesü    NO

On May 3, 2004, 84,680,073 Common Shares of Beneficial Interest, par value $.001 per share, of Liberty Property Trust were outstanding.

Liberty Property Trust/Liberty Property Limited Partnership
Form 10-Q for the period ended March 31, 2004

Index		Page
Part I.	Financial Information
Item 1.	Financial Statements (unaudited)
	Consolidated balance sheets of Liberty Property Trust at March 31, 2004 and December 31, 2003		3
	Consolidated statements of operations of Liberty Property Trust for the three months ended March 31, 2004 and March 31, 2003		4
	Consolidated statements of cash flows of Liberty Property Trust for the three months ended March 31, 2004 and March 31, 2003		5
	Notes to Consolidated Financial Statements for Liberty Property Trust		6
	Consolidated balance sheets of Liberty Property Limited Partnership at March 31, 2004 and December 31, 2003		10
	Consolidated statements of operations of Liberty Property Limited Partnership at March 31, 2004 and December 31, 2003		11
	Consolidated statements of cash flows of Liberty Property Limited Partnership for the three months ended March 31, 2004 and March 31, 2003		12
	Notes to Consolidated Financial Statements for Liberty Property Limited Partnership		13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures about Market Risks		24
Item 4.	Controls and Procedures		24
Part II.	Other Information		25
Signatures for Liberty Property Trust			27
Signatures for Liberty Property Limited Partnership			28
Exhibit Index			29

2

CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(In thousands, except share amounts)

	March 31, 2004			December 31, 2003
	(Unaudited)
ASSETS
Real estate:
Land and land improvements	$	571,819		$	564,332
Building and improvements		3,398,613			3,363,608
Less accumulated depreciation		(613,856	)		(586,736	)
Operating real estate		3,356,576			3,341,204
Development in progress		68,051			56,869
Land held for development		163,166			162,483
Net real estate		3,587,793			3,560,556
Cash and cash equivalents		34,505			21,809
Restricted cash		22,696			15,292
Accounts receivable		14,947			10,896
Deferred rent receivable		60,647			58,015
Deferred financing and leasing costs, net of accumulated amortization (2004, $94,515; 2003, $89,650)		98,580			98,506
Investments in unconsolidated joint ventures		20,575			19,631
Prepaid expenses and other assets		53,872			49,303
Total assets	$	3,893,615		$	3,834,008
LIABILITIES
Mortgage loans	$	375,037		$	363,866
Unsecured notes		1,355,000			1,355,000
Credit facility		183,000			167,000
Accounts payable		35,487			14,685
Accrued interest		19,777			31,622
Dividend payable		53,191			52,384
Other liabilities		91,553			96,887
Total liabilities		2,113,045			2,081,444
Minority interest		208,040			207,667
SHAREHOLDERS’ EQUITY
Common shares of beneficial interest, $.001 par value, 191,200,000 shares authorized, 84,282,457 (includes 59,100 in treasury) and 83,071,491 (includes 59,100 in treasury) shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively		84			83
Additional paid-in capital		1,659,380			1,623,446
Accumulated other comprehensive income		19,182			14,710
Unearned compensation		(8,174	)		(3,497	)
Distributions in excess of net income		(96,615	)		(88,518	)
Common shares in treasury, at cost, 59,100 shares as of March 31, 2004 and December 31, 2003		(1,327	)		(1,327	)
Total shareholders’ equity		1,572,530			1,544,897
Total liabilities and shareholders’ equity	$	3,893,615		$	3,834,008

See accompanying notes.

3

CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)

	Three Months Ended
	March 31, 2004			March 31, 2003
OPERATING REVENUE
Rental	$	116,078		$	112,413
Operating expense reimbursement		46,236			43,750
Total operating revenue		162,314			156,163
OPERATING EXPENSE
Rental property		34,761			32,243
Real estate taxes		15,846			14,696
General and administrative		8,482			5,850
Depreciation and amortization		32,764			28,681
Total operating expenses		91,853			81,470
Operating income		70,461			74,693
OTHER INCOME (EXPENSE)
Interest and other income		2,597			1,909
Interest expense		(30,699	)		(30,487	)
Total other income (expense)		(28,102	)		(28,578	)
Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures		42,359			46,115
(Loss) gain on property dispositions		(330	)		598
Income taxes		(389	)		(578	)
Minority interest		(4,578	)		(5,587	)
Equity in earnings of unconsolidated joint ventures		(405	)		442
Income from continuing operations		36,657			40,990
Discontinued operations, net of minority interest (including net gain on property dispositions of $2,097 and $163 for the three months ended March 31, 2004 and 2003)		2,014			597
Net income	$	38,671		$	41,587
Earnings per common share
Basic:
Income from continuing operations	$	0.44		$	0.53
Income from discontinued operations		0.02			0.01
Income per common share – basic	$	0.46		$	0.54
Diluted:
Income from continuing operations	$	0.43		$	0.52
Income from discontinued operations		0.02			0.01
Income per common share – diluted	$	0.45		$	0.53
Weighted average number of common shares outstanding
Basic		83,480			76,814
Diluted		85,102			77,851

See accompanying notes.

4

CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)

	Three Months Ended
	March 31, 2004			March 31, 2003
OPERATING ACTIVITIES
Net income	$	38,671		$	41,587
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		32,841			29,029
Amortization of deferred financing costs		1,041			913
Equity in earnings of unconsolidated joint ventures		405			(442	)
Minority interest in net income		4,667			5,615
Gain on property dispositions		(1,767	)		(761	)
Noncash compensation		938			419
Changes in operating assets and liabilities:
Restricted cash		(7,404	)		(538	)
Accounts receivable		(4,051	)		(130	)
Deferred rent receivable		(2,632	)		(1,973	)
Prepaid expenses and other assets		(4,002	)		(2,389	)
Accounts payable		20,802			3,404
Accrued interest		(11,845	)		(12,613	)
Other liabilities		(5,334	)		(718	)
Net cash provided by operating activities		62,330			61,403
INVESTING ACTIVITIES
Investment in properties		(18,833	)		(23,345	)
Investment in unconsolidated joint ventures		(1,596	)		(1,145	)
Distributions from unconsolidated joint ventures		248			387
Proceeds from disposition of properties/land		6,063			5,040
Investment in development in progress		(19,681	)		(11,409	)
Investment in land held for development		(5,543	)		(925	)
Increase in deferred leasing costs		(4,740	)		(5,122	)
Net cash used in investing activities		(44,082	)		(36,519	)
FINANCING ACTIVITIES
Net proceeds from issuance of common shares		35,371			19,841
Proceeds from issuance of unsecured notes		—			3,683
Proceeds from mortgage loans		5,953			100
Repayments of mortgage loans		(8,061	)		(1,565	)
Proceeds from credit facility		65,500			202,000
Repayments on credit facility		(49,500	)		(176,000	)
Increase in deferred financing costs		(571	)		(2,492	)
Distributions paid on common shares		(50,146	)		(45,806	)
Distributions paid on units		(5,158	)		(6,189	)
Net cash used in financing activities		(6,612	)		(6,428	)
Increase in cash and cash equivalents		11,636			18,456
Increase (decrease) related to foreign currency translation		1,060			(225	)
Cash and cash equivalents at beginning of period		21,809			7,933
Cash and cash equivalents at end of period	$	34,505		$	26,164
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and deferred costs	$	698		$	3,962
Acquisition of properties		(11,305	)		(870	)
Assumption of mortgage loans		11,305			870

See accompanying notes.

5

Liberty Property Trust
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2004

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements of Liberty Property Trust (the “Trust”) and its subsidiaries, including Liberty Property Limited Partnership (the “Operating Partnership”) (the Trust, Operating Partnership and their respective subsidiaries referred to collectively as the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Trust and the Operating Partnership for the year ended December 31, 2003. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. Certain amounts from prior periods have been reclassified to conform to current period presentation.

Income per Common Share
The following table sets forth the computation of basic and diluted income per common share for the three months ended March 31, 2004 and 2003 (in thousands except per share amounts):

	For the Three Months Ended March 31, 2004						For the Three Months Ended March 31, 2003
			Weighted						Weighted
			Average						Average
	Income		Shares		Per		Income		Shares		Per
	(Numerator)		(Denominator)		Share		(Numerator)		(Denominator)		Share
Basic income from continuing operations
Income from continuing operations	$	36,657		83,480	$	0.44	$	40,990		76,814	$	0.53
Dillutive shares for long-term compensation plans		—		1,622				—		1,037
Diluted income from continuing operations
Income from continuing operations and assumed conversions		36,657		85,102	$	0.43		40,990		77,851	$	0.52
Basic income from discontinued operations
Discontinued operations net of minority interest		2,014		83,480	$	0.02		597		76,814	$	0.01
Dillutive shares for long-term compensation plans		—		1,622				—		1,037
Diluted income from discontinued operations
Discontinued operations net of minority interest		2,014		85,102	$	0.02		597		77,851	$	0.01
Basic income per common share
Net income		38,671		83,480	$	0.46		41,587		76,814	$	0.54
Dillutive shares for long-term compensation plans		—		1,622				—		1,037
Diluted income per common share
Net income and assumed conversions	$	38,671		85,102	$	0.45	$	41,587		77,851	$	0.53

6

Stock Based Compensation
At March 31, 2004, the Company had a share-based employee compensation plan. Prior to 2003, the Company accounted for the plan under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Effective January 1, 2003, the Company adopted the fair value recognition provisions of the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” prospectively for all employee option awards granted, modified, or settled after January 1, 2003. Option awards under the Company’s plan vest over three years. Therefore, the cost related to share-based employee compensation included in the determination of net income for 2004 and 2003 is less than that which would have been recognized if the fair value based method had been applied to all option awards since the original effective date of SFAS No. 123. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested option awards in each period (in thousands, except per share amount).

	Three Months Ended March 31,
	2004			2003
Net income	$	38,671		$	41,587
Add: Share-based employee compensation expense included in
reported net income		37			9
Deduct: Total share-based employee compensation expense
determined under fair value based method for all awards		(310	)		(500	)
Pro forma net income	$	38,398		$	41,096
Income per common share:
Basic – as reported	$	0.46		$	0.54
Basic – pro forma	$	0.46		$	0.54
Diluted – as reported	$	0.45		$	0.53
Diluted – pro forma	$	0.45		$	0.53

Foreign Operations
The functional currency for the Company’s United Kingdom operation is pounds sterling. The financial statements for the United Kingdom operation are translated into US dollars prior to the consolidation of these financial statements with those of the Company. Gains and losses resulting from this translation are included in accumulated other comprehensive income as a separate component of shareholders’ equity. Other comprehensive income was $4.5 million for the three months ended March 31, 2004 and other comprehensive loss was $3.6 million for the three months ended March 31, 2003.

Note 2: Organization

The Trust is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by the Operating Partnership. The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 95.8% of the common equity of the Operating Partnership at March 31, 2004. The Company provides leasing, property management, development, acquisition, and other tenant-related services for a portfolio of industrial and office properties which are located principally within the Mid-Atlantic, Southeastern and Midwestern United States.

Note 3: Segment Information

The Company operates its portfolio of properties primarily throughout the Mid-Atlantic, Southeastern and Midwestern United States. Additionally, the Company owns certain assets in the United Kingdom. The Company reviews the performance of the portfolio on a geographical basis, as such, the following regions are considered the Company’s reportable segments:

7

Reportable Segments	Markets
Delaware Valley	Southeastern Pennsylvania, New Jersey
Midwest	Lehigh Valley, Michigan, Minnesota, Milwaukee/Chicago
Mid-Atlantic	Maryland, Piedmont Triad, Greenville, S.C., Richmond/Roanoke, Virginia Beach
Florida	Jacksonville, Orlando, Boca Raton, Tampa, Texas
United Kingdom	County of Kent

The Company’s reportable segments are distinct business units which are each managed separately in order to concentrate market knowledge within a geographic area. Within these reportable segments, the Company derives its revenues from its two product types: industrial properties and office properties.

The Company evaluates the performance of the reportable segments based on property level operating income, which is calculated as rental revenue and operating expense reimbursement less rental property expenses and real estate taxes. The accounting policies of the reportable segments are the same as those for the Company on a consolidated basis. The operating information by segment is as follows (in thousands):

For the Three Months Ended March 31, 2004
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	46,314	$	8,859	$	18,663	$	30,232	$	29,617	$	24,140	$	4,489	$	162,314
Rental property expenses and real estate taxes		14,267		3,238		5,717		10,689		8,337		7,142		1,217		50,607
Property level operating income	$	32,047	$	5,621	$	12,946	$	19,543	$	21,280	$	16,998	$	3,272	$	111,707
Interest and other income																2,597
Interest expense																(30,699	)
General and administrative																(8,482	)
Depreciation and amortization																(32,764	)
Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																42,359
Loss on property dispositions																(330	)
Income taxes																(389	)
Minority interest																(4,578	)
Equity in earnings of unconsolidated joint ventures																(405	)
Discontinued operations, net of minority interest																2,014
Net income															$	38,671

For the Three Months Ended March 31, 2003
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	53,011	$	8,722	$	15,094	$	28,557	$	26,383	$	22,223	$	2,173	$	156,163
Rental property expenses and real estate taxes		15,295		3,325		4,344		9,683		7,345		6,613		334		46,939
Property level operating income	$	37,716	$	5,397	$	10,750	$	18,874	$	19,038	$	15,610	$	1,839	$	109,224
Interest and other income																1,909
Interest expense																(30,487	)
General and administrative																(5,850	)
Depreciation and amortization																(28,681	)
Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																46,115
Gain on property dispositions																598
Income taxes																(578	)
Minority interest																(5,587	)
Equity in earnings of unconsolidated joint ventures																442
Discontinued operations, net of minority interest																597
Net income															$	41,587

8

Note 4: SFAS No. 144, “Accounting For The Impairment Or Disposal Of Long-Lived Assets”

In accordance with SFAS No. 144, which the Company adopted on January 1, 2002, net income and gain/(loss) on the disposition of real estate for properties sold subsequent to December 31, 2001 are reflected in the consolidated statements of operations as discontinued operations. The proceeds from the disposition of properties for the three months ended March 31, 2004 were $5.5 million as compared to $3.7 million for the same period in 2003. Below is a summary of the results of operations of the properties disposed of through the respective disposition dates (in thousands):

	Three Months Ended
	March 31, 2004			March 31, 2003
Revenues	$	93		$	1,289
Operating expenses		(28	)		(344	)
Interest expense		(36	)		(135	)
Depreciation and amortization		(23	)		(348	)
Income before property dispositions and minority interest	$	6		$	462

Gain or loss on disposition on sales of land and development properties continue to be reflected as a component of income from continuing operations.

Note 5: Impact of Recently Issued Accounting Standards

In January 2003, the FASB issued Financial Interpretation No. 46 (“FIN No. 46”), “Consolidation of Variable Interest Entities.” The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. The FASB deferred the effective date for existing variable interest entities to periods ending after March 15, 2004. FIN No. 46 requires that a variable interest entity be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. The Company was not materially impacted by the provisions of FIN No. 46.

Note 6: Purchase of Rouse Kent Limited (“RKL”)

In July 2003, the Company exercised its option to purchase RKL for nominal consideration. RKL owns six buildings which contain 210,000 square feet of leaseable space and has planning permission for the development of additional commercial space. RKL is party to a contract with the County of Kent which contract entitles RKL to participate in proceeds realized from the sale of residential land parcels to homebuilders. During the three months ended March 31, 2004 the Company recognized $1.2 million in development fees in conjunction with the County of Kent’s sale of residential land.

9

CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(In thousands)

	March 31, 2004			December 31, 2003
	(Unaudited)
ASSETS
Real estate:
Land and land improvements	$	571,819		$	564,332
Building and improvements		3,398,613			3,363,608
Less accumulated depreciation		(613,856	)		(586,736	)
Operating real estate		3,356,576			3,341,204
Development in progress		68,051			56,869
Land held for development		163,166			162,483
Net real estate		3,587,793			3,560,556
Cash and cash equivalents		34,505			21,809
Restricted cash		22,696			15,292
Accounts receivable		14,947			10,896
Deferred rent receivable		60,647			58,015
Deferred financing and leasing costs, net of accumulated amortization (2004, $94,515; 2003, $89,650)		98,580			98,506
Investments in unconsolidated joint ventures		20,575			19,631
Prepaid expenses and other assets		53,872			49,303
Total assets	$	3,893,615		$	3,834,008
LIABILITIES
Mortgage loans	$	375,037		$	363,866
Unsecured notes		1,355,000			1,355,000
Credit facility		183,000			167,000
Accounts payable		35,487			14,685
Accrued interest		19,777			31,622
Distribution payable		53,191			52,384
Other liabilities		91,553			96,887
Total liabilities		2,113,045			2,081,444
Minority interest		3,456			3,455
OWNERS’ EQUITY
General partner’s equity – common units		1,572,530			1,544,897
Limited partners’ equity – preferred units		135,471			135,471
– common units		69,113			68,741
Total owners’ equity		1,777,114			1,749,109
Total liabilities and owners’ equity	$	3,893,615		$	3,834,008

See accompanying notes.

10

CONSOLIDATED STATEMENTS OF OPERATIONS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)

	Three Months Ended
	March 31, 2004			March 31, 2003
OPERATING REVENUE
Rental	$	116,078		$	112,413
Operating expense reimbursement		46,236			43,750
Total operating revenue		162,314			156,163
OPERATING EXPENSE
Rental property		34,761			32,243
Real estate taxes		15,846			14,696
General and administrative		8,482			5,850
Depreciation and amortization		32,764			28,681
Total operating expenses		91,853			81,470
Operating income		70,461			74,693
OTHER INCOME (EXPENSE)
Interest and other income		2,597			1,909
Interest expense		(30,699	)		(30,487	)
Total other income (expense)		(28,102	)		(28,578	)
Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures		42,359			46,115
(Loss) gain on property dispositions		(330	)		598
Income taxes		(389	)		(578	)
Minority interest		131			(518	)
Equity in earnings of unconsolidated joint ventures		(405	)		442
Income from continuing operations		41,366			46,059
Discontinued operations (including net gain on property dispositions of $2,097 and $163 for the three months ended March 31, 2004 and 2003)		2,103			625
Net income		43,469			46,684
Preferred unit distributions		3,104			3,104
Income available to common unitholders	$	40,365		$	43,580
Earnings per common unit
Basic:
Income from continuing operations	$	0.44		$	0.53
Income from discontinued operations		0.02			0.01
Income per common unit – basic	$	0.46		$	0.54
Diluted:
Income from continuing operations	$	0.43		$	0.52
Income from discontinued operations		0.02			0.01
Income per common unit – diluted	$	0.45		$	0.53
Weighted average number of common units outstanding
Basic		87,178			80,525
Diluted		88,800			81,562

See accompanying notes.

11

CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)

	Three Months Ended
	March 31, 2004			March 31, 2003
OPERATING ACTIVITIES
Net income	$	43,469		$	46,684
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		32,841			29,029
Amortization of deferred financing costs		1,041			913
Equity in earnings of unconsolidated joint ventures		405			(442	)
Minority interest in net income		(131	)		518
Gain on property dispositions		(1,767	)		(761	)
Noncash compensation		938			419
Changes in operating assets and liabilities:
Restricted cash		(7,404	)		(538	)
Accounts receivable		(4,051	)		(130	)
Deferred rent receivable		(2,632	)		(1,973	)
Prepaid expenses and other assets		(4,002	)		(2,389	)
Accounts payable		20,802			3,404
Accrued interest		(11,845	)		(12,613	)
Other liabilities		(5,334	)		(718	)
Net cash provided by operating activities		62,330			61,403
INVESTING ACTIVITIES
Investment in properties		(18,833	)		(23,345	)
Investment in unconsolidated joint ventures		(1,596	)		(1,145	)
Distributions from unconsolidated joint ventures		248			387
Proceeds from disposition of properties/land		6,063			5,040
Investment in development in progress		(19,681	)		(11,409	)
Investment in land held for development		(5,543	)		(925	)
Increase in deferred leasing costs		(4,740	)		(5,122	)
Net cash used in investing activities		(44,082	)		(36,519	)
FINANCING ACTIVITIES
Proceeds from issuance of unsecured notes		—			3,683
Proceeds from mortgage loans		5,953			100
Repayments of mortgage loans		(8,061	)		(1,565	)
Proceeds from credit facility		65,500			202,000
Repayments on credit facility		(49,500	)		(176,000	)
Increase in deferred financing costs		(571	)		(2,492	)
Capital contributions		35,371			19,841
Distributions to partners		(55,304	)		(51,995	)
Net cash used in financing activities		(6,612	)		(6,428	)
Increase in cash and cash equivalents		11,636			18,456
Increase (decrease) related to foreign currency translation		1,060			(225	)
Cash and cash equivalents at beginning of period		21,809			7,933
Cash and cash equivalents at end of period	$	34,505		$	26,164
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and deferred costs	$	698		$	3,962
Acquisition of properties		(11,305	)		(870	)
Assumption of mortgage loans		11,305			870

See accompanying notes.

12

Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2004

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements of Liberty Property Limited Partnership (the “Operating Partnership”) and its direct and indirect subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of Liberty Property Trust (the “Trust”) and the Operating Partnership for the year ended December 31, 2003. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. Certain amounts from prior periods have been reclassified to conform to current period presentation.

Income per Common Unit
The following table sets forth the computation of basic and diluted income per common unit for the three months ended March 31, 2004 and 2003 (in thousands, except per unit amounts):

	For the Three Months Ended March 31, 2004							For the Three Months Ended March 31, 2003
				Weighted							Weighted
				Average							Average
	Income			Units		Per		Income			Units		Per
	(Numerator)			(Denominator)		Unit		(Numerator)			(Denominator)		Unit
Income from continuing operations	$	41,366						$	46,059
Less: Preferred unit distributions		(3,104	)						(3,104	)
Basic income from continuing operations
Income from continuing operations available to common unitholders		38,262			87,178	$	0.44		42,955			80,525	$	0.53
Dillutive units for long-term compensation plans		—			1,622				—			1,037
Diluted income from continuing operations
Income from continuing operations available to common unitholders and assumed conversions		38,262			88,800	$	0.43		42,955			81,562	$	0.52
Basic income from discontinued operations
Discontinued operations		2,103			87,178	$	0.02		625			80,525	$	0.01
Dillutive units for long-term compensation plans		—			1,622				—			1,037
Diluted income from discontinued operations
Discontinued operations		2,103			88,800	$	0.02		625			81,562	$	0.01
Basic income per common unit
Income available to common unitholders		40,365			87,178	$	0.46		43,580			80,525	$	0.54
Dillutive units for long-term compensation plans		—			1,622				—			1,037			��
Diluted income per common unit
Income available to common unitholders and assumed conversions	$	40,365			88,800	$	0.45	$	43,580			81,562	$	0.53

Stock Based Compensation
The Trust has a share-based employee compensation plan and as such the Operating Partnership absorbs a proportionate share of the related compensation expense. Prior to 2003, the Trust accounted for the plan under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Effective January 1, 2003, the Trust adopted the fair value recognition provisions of the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting

13

for Stock-Based Compensation,” prospectively to all employee option awards granted, modified, or settled after January 1, 2003. Option awards under the Trust’s plan vest over three years. Therefore, the cost related to share-based employee compensation included in the determination of net income for 2004 and in 2003 is less than that which would have been recognized if the fair value based method had been applied to all option awards since the original effective date of SFAS No. 123.

The following table illustrates the effect on net income and earnings per unit if the fair value based method had been applied to all outstanding and unvested option awards in each period (in thousands, except per unit amounts).

	Three Months Ended March 31,
	2004			2003
Income available to common unitholders	$	40,365		$	43,580
Add: Share-based employee compensation expense included in
reported income available to common unitholders		37			9
Deduct: Total share-based employee compensation expense
determined under fair value based method for all awards		(310	)		(500	)
Pro forma income available to common unitholders	$	40,092		$	43,089
Income per common unit:
Basic – as reported	$	0.46		$	0.54
Basic – pro forma	$	0.46		$	0.54
Diluted – as reported	$	0.45		$	0.53
Diluted – pro forma	$	0.45		$	0.53

Foreign Operations
The functional currency for the Company’s United Kingdom operation is pounds sterling. The financial statements for the United Kingdom operation are translated into US dollars prior to the consolidation of these financial statements with those of the Company. Gains and losses resulting from this translation are included in accumulated other comprehensive income as a component of owners’ equity. Other comprehensive income was $4.5 million for the three months ended March 31, 2004 and other comprehensive loss was $3.6 million for the three months ended March 31, 2003.

Note 2: Organization

The Trust, the general partner of Liberty Property Limited Partnership, is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by the Operating Partnership (the Trust, Operating Partnership and their respective subsidiaries, referred to collectively as, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 95.8% of the common equity of the Operating Partnership at March 31, 2004. The Company provides leasing, property management, development, acquisition, and other tenant-related services for a portfolio of industrial and office properties which are located principally within the Mid-Atlantic, Southeastern and Midwestern United States.

Note 3: Segment Information

The Company operates its portfolio of properties primarily throughout the Mid-Atlantic, Southeastern and Midwestern United States. Additionally, the Company owns certain assets in the United Kingdom. The Company reviews the performance of the portfolio on a geographical basis, as such, the following regions are considered the Company’s reportable segments:

Reportable Segments	Markets
Delaware Valley	Southeastern Pennsylvania, New Jersey
Midwest	Lehigh Valley, Michigan, Minnesota, Milwaukee/Chicago
Mid-Atlantic	Maryland, Piedmont Triad, Greenville, S.C., Richmond/Roanoke, Virginia Beach
Florida	Jacksonville, Orlando, Boca Raton, Tampa, Texas
United Kingdom	County of Kent

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The Company’s reportable segments are distinct business units which are each managed separately in order to concentrate market knowledge within a geographic area. Within these reportable segments, the Company derives its revenues from its two product types: industrial properties and office properties.

The Company evaluates the performance of the reportable segments based on property level operating income, which is calculated as rental revenue and operating expense reimbursement less rental property expenses and real estate taxes. The accounting policies of the reportable segments are the same as those for the Company on a consolidated basis. The operating information for the Operating Partnership by segment is as follows (in thousands):

For the Three Months Ended March 31, 2004
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	46,314	$	8,859	$	18,663	$	30,232	$	29,617	$	24,140	$	4,489	$	162,314
Rental property expenses and real estate taxes		14,267		3,238		5,717		10,689		8,337		7,142		1,217		50,607
Property level operating income	$	32,047	$	5,621	$	12,946	$	19,543	$	21,280	$	16,998	$	3,272	$	111,707
Interest and other income																2,597
Interest expense																(30,699	)
General and administrative																(8,482	)
Depreciation and amortization																(32,764	)
Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																42,359
Loss on property dispositions																(330	)
Income taxes																(389	)
Minority interest																131
Equity in earnings of unconsolidated joint ventures																(405	)
Discontinued operations																2,103
Preferred unit distributions																(3,104	)
Income available to common unitholders															$	40,365

For the Three Months Ended March 31, 2003
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	53,011	$	8,722	$	15,094	$	28,557	$	26,383	$	22,223	$	2,173	$	156,163
Rental property expenses and real estate taxes		15,295		3,325		4,344		9,683		7,345		6,613		334		46,939
Property level operating income	$	37,716	$	5,397	$	10,750	$	18,874	$	19,038	$	15,610	$	1,839	$	109,224
Interest and other income																1,909
Interest expense																(30,487	)
General and administrative																(5,850	)
Depreciation and amortization																(28,681	)
Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																46,115
Gain on property dispositions																598
Income taxes																(578	)
Minority interest																(518	)
Equity in earnings of unconsolidated joint ventures																442
Discontinued operations																625
Preferred unit distributions																(3,104	)
Income available to common unitholders															$	43,580

Note 4: SFAS No. 144, “Accounting For The Impairment Or Disposal Of Long-Lived Assets”

In accordance with SFAS No. 144, which the Company adopted on January 1, 2002, net income and gain/(loss) on the disposition of real estate for properties sold subsequent to December 31, 2001 are reflected in the consolidated statements of operations as discontinued operations. The proceeds from the disposition of properties for the three months ended

15

March 31, 2004 were $5.5 million as compared to $3.7 million for the same period in 2003. Below is a summary of the results of operations of the properties disposed of through the respective disposition dates (in thousands):

	Three Months Ended
	March 31, 2004			March 31, 2003
Revenues	$	93		$	1,289
Operating expenses		(28	)		(344	)
Interest expense		(36	)		(135	)
Depreciation and amortization		(23	)		(348	)
Income before property dispositions	$	6		$	462

Gain or loss on disposition on sales of land and development properties continue to be reflected as a component of income from continuing operations.

Note 5: Impact of Recently Issued Accounting Standards

In January 2003, the FASB issued Financial Interpretation No. 46 (“FIN No. 46”), “Consolidation of Variable Interest Entities.” The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. The FASB deferred the effective date for existing variable interest entities to periods ending after March 15, 2004. FIN No. 46 requires that a variable interest entity be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. The Company was not materially impacted by the provisions of FIN No. 46.

Note 6: Purchase of Rouse Kent Limited (“RKL”)

In July 2003, the Company exercised its option to purchase RKL for nominal consideration. RKL owns six buildings which contain 210,000 square feet of leaseable space and has planning permission for the development of additional commercial space. RKL is party to a contract with the County of Kent which contract entitles RKL to participate in proceeds realized from the sale of residential land parcels to homebuilders. During the three months ended March 31, 2004 the Company recognized $1.2 million in development fees in conjunction with the County of Kent’s sale of residential land.

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

The Company has an ownership interest in and operates 432 industrial and 271 office properties located primarily in the Mid-Atlantic, Southeastern and Midwestern United States (the “Properties in Operation”) totaling approximately 57 million square feet. In addition, the Company has 14 properties under development (the “Properties under Development” and together with the Properties in Operation the “Properties”) and the Company owned 1,084 acres of land, substantially all of which is zoned for commercial use.

The Company focuses on creating value for shareholders and increasing profitability and cash flow. With respect to its Properties in Operation, the Company endeavors to maintain high occupancy levels while increasing rental rates. The Company pursues development opportunities that it believes will create value and yield high returns. The Company also acquires properties which it believes will create long-term value, and disposes of Properties which no longer fit within the Company’s strategic objectives or in situations where it can optimize cash proceeds. The Company’s operating results depend primarily upon income from rental operations and are substantially influenced by rental demand for the Properties in Operation.

During the first quarter of 2004, the Company continued to experience the effects of what has been a generally slow economy for the last several years. This economy has been particularly difficult for real estate landlords. These circumstances impacted many aspects of the Company’s business.

Our Properties in Operation, which represent over 95% of our revenue, were subjected to market conditions characterized by an oversupply of leaseable space and soft demand. These conditions resulted in downward pressure on rental rates and upward pressure on lease transaction costs related to tenant inducements (e.g. tenant improvement costs). In the face of these conditions, the Company successfully leased 2.5 million square feet and attained overall occupancy of 91.5%, which it believes represents performance which is substantially better than market. Property level operating income for the “Same Store” properties (properties owned since January 1, 2003) declined when compared to the first quarter of 2003 by 0.3% on a straight line basis and increased by 0.2% on a cash basis. The trend as to occupancy, rental rate and transaction costs remained generally consistent from quarter to quarter in 2003 and through the first quarter of 2004. See further discussion of Same Store results below. The Company believes that, although 2004 will be a year of transition, these trends for the Properties in Operation – downward pressure on rents, upward pressure on transaction costs – will continue in the aggregate, notwithstanding improvements in some markets. Nevertheless, the Company is hopeful that it will see some improvement in overall occupancy in the latter part of the year.

The conditions in 2004 for the acquisition of properties so far continue to be very competitive. During the first quarter of the year, the Company acquired three buildings representing 238,000 square feet for a total investment of $24.9 million. The Company believes that the level of acquisitions in 2004 will be in the $100 to $200 million range and will represent a positive contribution to earnings.

Dispositions of Properties that no longer fit within the Company’s strategic objectives or in situations where it can optimize cash proceeds continued in 2004. During the first quarter of 2004, the Company realized $6.3 million from the sale of Properties in Operation and land. The Company anticipates that dispositions will be in the $50 to $100 million range for 2004.

In 2004, the Company continued to pursue development opportunities, primarily on a build-to-suit basis. The Company delivered $10.2 million of development properties and initiated development of $5.4 million. This “pipeline” of development properties is at a relatively low level as compared to the Company’s historical pace of development. The Company believes that in 2004 build-to-suit activity will continue and that conditions in certain markets may support the initiation of inventory projects (i.e. projects that are less than 75% leased prior to the commencement of construction). The Company is also hopeful that it will be in a position in 2004 to initiate development of its proposed high-rise in Philadelphia’s central business district, One Pennsylvania Plaza. The Company is in detailed discussions with various prospective tenants, some of which are significant enough to justify the commencement of the development of the proposed 1.3 million square foot office tower. However, at this time, the Company has not entered into a lease with any tenant. The land and projected costs associated with this project aggregate approximately $425 million.

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The composition of the Company’s Properties in Operation as of March 31, 2004 and 2003 is as follows (in thousands, except dollars and percentages):

	Net Rent
	Per Square Foot				Total Square Feet				Percent Occupied
	March 31,				March 31,				March 31,
	2004		2003		2004		2003		2004			2003
Industrial-Distribution	$	4.41	$	4.54		25,068		23,723		93.0	%		88.7	%
Industrial-Flex	$	8.75	$	8.82		13,411		13,469		91.6	%		90.4	%
Office	$	14.34	$	14.23		18,903		17,674		89.4	%		89.0	%
	$	8.62	$	8.72		57,382		54,866		91.5	%		89.2	%

Geographic segment data for the three months ended March 31, 2004 and March 31, 2003 is included in Note 3 to the Liberty Property Trust and Liberty Property Limited Partnership financial statements.

FORWARD-LOOKING STATEMENTS

When used throughout this report, the words “believes,” “anticipates,” “hopes” and “expects” and similar expressions are intended to identify forward-looking statements. Such statements indicate that assumptions have been used that are subject to a number of risks and uncertainties which could cause actual financial results or management plans and objectives to differ materially from those projected or expressed herein, including: the effect of national and regional economic conditions; rental demand; the Company’s ability to identify and secure additional properties and sites that meet its criteria for acquisition or development; the availability and cost of capital; the effect of prevailing market interest rates; and other risks described from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”). Given these uncertainties, readers are cautioned not to place undue reliance on such statements.

CRITICAL ACCOUNTING POLICIES

Refer to the Company’s 2003 Annual Report on Form 10-K for a discussion of critical accounting policies which include capitalized costs, allowances for doubtful accounts and impairment of real estate. During the three months ended March 31, 2004 there were no material changes to these policies.

RESULTS OF OPERATIONS

The following discussion is based on the consolidated financial statements of the Company. It compares the results of operations of the Company for the three months ended March 31, 2004 with the results of operations of the Company for the three months ended March 31, 2003. As a result of the varying level of development, acquisition and disposition activities by the Company in 2004 and 2003, the overall operating results of the Company during such periods are not directly comparable. However, certain data, including the Same Store comparison, do lend themselves to direct comparison (see reconciliation to comparable GAAP financial measure below).

This information should be read in conjunction with the accompanying consolidated financial statements and notes included elsewhere in this report.

Comparison of the Three Months Ended March 31, 2004 to the Three Months Ended March 31, 2003.
The Company’s average gross investment in operating real estate owned for the three months ended March 31, 2004 increased to $3,949.2 million from $3,604.5 million at March 31, 2003. This increase resulted from the increased investment in real estate acquired or developed, partially offset by Property dispositions. This increased investment in operating real estate resulted in increases in rental revenue, rental property operating expenses and real estate taxes, and depreciation and amortization expense. Interest expense also increased due to the increased borrowings used to fund this increased investment in real estate.

Total operating revenue increased to $162.3 million for the three months ended March 31, 2004 from $156.2 million for the three months ended March 31, 2003. This $6.1 million increase was primarily due to the net increase in investment in real estate. This is somewhat offset by a decrease in “Termination Fees” accepted during the first quarter of 2004 totaling $1.8 million as compared to $6.1 million for the same period in 2003. “Termination Fees” are fees that the Company has agreed to accept in consideration for permitting certain tenants to terminate their leases prior to the contractual expiration date. Termination Fees are included in rental revenue.

18

The Company evaluates the performance of the Properties in Operation by reportable segment (see Note 3 to the Company’s financial statements). The property level operating income for the United Kingdom and Lehigh Valley segments increased by 77.9% and 20.4%, respectively, for the three months ended March 31, 2004 as compared to 2003. The increase in the United Kingdom is due to the purchase of Rouse Kent Limited on July 1, 2003. The increase in the Lehigh Valley is due to the delivery of $72.6 million in completed development during 2003. These increases are partially offset by a decrease in the operating results of the Delaware Valley segment due to a decrease in rental rates.

Property level operating income, exclusive of Termination Fees, for the Same Store properties decreased to $101.1 million for the three months ended March 31, 2004 from $101.4 million for the three months ended March 31, 2003, on a straight line basis (which recognizes rental revenue evenly over the life of the lease), and increased to $99.0 million for the three months ended March 31, 2004 from $98.8 million for the three months ended March 31, 2003 on a cash basis. This essentially flat performance resulted from decreases in rental rates offset by increases in average occupancy of the Same Store portfolio.

Management generally considers the performance of the Same Store properties to be a useful financial performance measure because the results are directly comparable from period to period. Management further believes that the performance comparison should exclude Termination Fees since they are more event specific and are not representative of ordinary performance results. In addition, Same Store property level operating income exclusive of Termination Fees is considered, by management, to be a more reliable indicator of the portfolio’s baseline performance. The Same Store properties consist of the 639 properties totaling approximately 50.4 million square feet owned since January 1, 2003.

Set forth below is a schedule comparing the property level operating income, on a straight line basis and on a cash basis, for the Same Store properties for the three months ended March 31, 2004 and 2003. Same Store property level income is a non-GAAP measure and does not represent income before property dispositions, income taxes and minority interest because it does not reflect the consolidated operations of the Company. Investors should review Same Store results, along with Funds from operations (see Liquidity and Resource section), GAAP net income and cash flow from operating activities, investing activities and financing activities when trying to understand the equity REIT’s operating performance. Also, set forth below is a reconciliation of Same Store property level operating income to net income (in thousands).

	Three Months Ended
	March 31, 2004			March 31, 2003
Same Store:
Rental revenue	$	104,330		$	104,043
Operating expenses:
Rental property expense		31,831			31,694
Real estate taxes		14,850			14,122
Operating expense recovery		(43,419	)		(43,129	)
Unrecovered operating expenses		3,262			2,687
Property level operating income		101,068			101,356
Less straight line rent		2,029			2,559
Cash basis property level operating income	$	99,039		$	98,797
Reconciliation of non-GAAP financial measure:
Property level operating income – same store	$	101,068		$	101,356
Property level operating income – properties purchased or developed subsequent to January 1, 2003		8,819			1,730
Termination fees		1,820			6,138
General and administrative expense		(8,482	)		(5,850	)
Deprecation and amortization expense		(32,764	)		(28,681	)
Other income (expense)		(28,102	)		(28,578	)
(Loss) gain on property dispositions		(330	)		598
Income taxes		(389	)		(578	)
Minority interest		(4,578	)		(5,587	)
Equity in earnings of unconsolidated joint ventures		(405	)		442
Discontinued operations, net of minority interest		2,014			597
Net income	$	38,671		$	41,587

19

General and administrative expenses increased to $8.5 million for the three months ended March 31, 2004 from $5.9 million for the three months ended March 31, 2003. These increases are primarily due to costs relating to the Company’s investment in an enterprise resource planning initiative to update company wide accounting and business process software, additional cancelled project costs incurred and costs related to marketing and tenant retention.

Costs directly related to the development of rental properties and land being readied for development are capitalized. Capitalized development costs include interest, development related salaries, property taxes, insurance and other directly identifiable costs during the period of development. Capitalized interest for the three months ended March 31, 2004 was $3.1 million as compared to $3.2 million for the three months ended March 31, 2003. Included in capitalized interest costs are the interest costs relating to the Company’s $67.1 million investment (as of March 31, 2004) in its proposed office tower in Philadelphia’s central business district. Capitalized development related salaries and benefits historically represent approximately 1% of the cost of developed properties brought into service.

As a result of the foregoing, the Company’s net income decreased to $38.7 million for the three months ended March 31, 2004 from $41.6 million for the three months ended March 31, 2003.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2004, the Company had cash and cash equivalents of $57.2 million, including $22.7 million in restricted cash.

Net cash flow provided by operating activities increased to $62.2 million for the three months ended March 31, 2004 from $61.4 million for the three months ended March 31, 2003. This $800,000 increase is primarily due to fluctuations in operating assets and liabilities during the respective periods. Net cash flow provided by operations is the primary source of liquidity to fund distributions to shareholders and for the recurring capital expenditures and leasing transaction costs for the Company’s Properties in Operation.

Net cash used in investing activities increased to $44.1 million for the three months ended March 31, 2004 from $36.5 million for the three months ended March 31, 2003. This increase primarily resulted from the increased investment in development in progress and land held for development.

Net cash used in financing activities increased to $6.6 million for the three months ended March 31, 2004 as compared to $6.4 million for the three months ended March 31, 2003. This $200,000 increase was primarily due to an increased level of net borrowings under mortgages, offset by the increase in proceeds from the issuance of common shares. Net cash provided by or used in financing activities includes proceeds from the issuance of equity and debt net of debt repayments and shareholder distributions. Cash provided by financing activities is a source of capital utilized by the Company to fund investment activities.

The Company funds its development and acquisitions with long-term capital sources including proceeds from the disposition of Properties. For the three months ended March 31, 2004, these activities were funded through a $350 million unsecured credit facility (the “$350 million Credit Facility”). The interest rate on borrowings under the $350 million Credit Facility fluctuates based upon ratings from Moody’s Investors Service, Inc. (“Moody’s”), Standard and Poor’s Ratings Group (“S&P”) and Fitch, Inc. (“Fitch”). The current ratings for the Company’s senior unsecured debt are Baa2, BBB and BBB from Moody’s, S&P and Fitch, respectively. At these ratings, the interest rate for borrowings under the $350 million Credit Facility is 70 basis points over LIBOR. The $350 million Credit Facility expires in January 2006.

The Company uses debt financing to lower its overall cost of capital in an attempt to increase the return to shareholders. The Company staggers its debt maturities and maintains debt levels it considers to be prudent. In determining its debt levels, the Company considers various financial measures including the debt to gross assets ratio and the earnings to fixed charge coverage ratio. As of March 31, 2004 the Company’s debt to gross assets ratio was 42.4%, and the earnings to fixed charge coverage ratio was 2.9x. Debt to gross assets equals total long-term debt and borrowings under the $350 million Credit Facility divided by total assets plus accumulated depreciation. Earnings to fixed charges equals income before property dispositions and minority interest, including operating activity from discontinued operations, plus interest expense and depreciation and amortization (including depreciation and amortization on unconsolidated joint ventures) divided by interest expense, including capitalized interest, plus distributions on preferred units.

20

As of March 31, 2004, $375.0 million in mortgage loans and $1,355.0 million in unsecured notes were outstanding with a weighted average interest rate of 7.3%. The interest rates on $1,655.8 million of mortgage loans and unsecured notes are fixed and range up to 8.8%. Interest rates on $74.2 million of mortgage loans float with the base rate of the respective lending bank or a municipal bond index. The weighted average remaining term for the mortgage loans and unsecured notes is 5.6 years.

The scheduled maturities and principal amortization of the Company’s mortgage loans, unsecured notes and borrowings under the $350 million Credit Facility and the related weighted average interest rates as of March 31, 2004 are as follows (in thousands, except percentages):

	Mortgages										Weighted
	Principal		Principal		Unsecured		Credit				Average
	Amortization		Maturities		Notes		Facility		Total		Interest Rate
2004 (9 months)	$	6,923	$	44,640	$	100,000	$	—	$	151,563		6.50	%
2005		8,215		115,039		—		—		123,254		7.58	%
2006		6,078		62,403		100,000		183,000		351,481		4.22	%
2007		5,200		1,553		100,000		—		106,753		7.27	%
2008		4,823		34,824		—		—		39,647		7.15	%
2009		2,500		42,119		270,000		—		314,619		7.82	%
2010		1,866		—		200,000		—		201,866		8.49	%
2011		1,650		3,533		250,000		—		255,183		7.26	%
2012		611		33,060		235,000		—		268,671		6.47	%
2018		—		—		100,000		—		100,000		7.50	%
	$	37,866	$	337,171	$	1,355,000	$	183,000	$	1,913,037		6.78	%

The Company anticipates that it will refinance or retire these maturities through its available sources of capital.

General

The Company has continued to focus on the performance of the Same Store portfolio. In addition, the Company has continued to pursue development and acquisition opportunities and the strategic disposition of certain properties. The Company attempts to outperform in its markets by maintaining higher than market occupancy levels and obtaining higher than market rental rates.

The expiring square feet and annual net rent by year for the Properties in Operation as of March 31, 2004 are as follows (in thousands):

	Industrial-				Industrial-
	Distribution				Flex				Office				Total
	Square		Annual		Square		Annual		Square		Annual		Square		Annual
	Feet		Net Rent		Feet		Net Rent		Feet		Net Rent		Feet		Net Rent
2004 (9 months)		1,829	$	7,979		1,455	$	11,615		1,472	$	19,825		4,756	$	39,419
2005		3,005		14,869		2,127		17,865		3,019		42,639		8,151		75,373
2006		2,838		12,632		2,150		21,613		1,611		22,818		6,599		57,063
2007		2,788		13,587		1,502		15,047		1,789		26,466		6,079		55,100
2008		3,714		16,039		2,201		21,552		2,310		35,351		8,225		72,942
2009		1,710		8,924		1,050		10,185		1,888		31,333		4,648		50,442
Thereafter		7,439		40,974		1,800		19,558		4,802		91,108		14,041		151,640
TOTAL		23,323	$	115,004		12,285	$	117,435		16,891	$	269,540		52,499	$	501,979

The Company believes that its existing sources of capital will provide sufficient funds to finance its continued development and acquisition activities. The scheduled deliveries of the 1.5 million square feet of Properties under Development as of March 31, 2004 are as follows (dollars in thousands):

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									Percent
	Square Feet								Leased at
Scheduled	Industrial-		Industrial-						March 31,			Total
In-Service Date	Distribution		Flex		Office		Total		2004			Investment
2nd Quarter 2004		—		75,400		35,000		110,400		100.0	%	$	12,454
3rd Quarter 2004		363,000		—		117,145		480,145		99.0	%		29,365
4th Quarter 2004		100,933		—		80,000		180,933		100.0	%		17,412
1st Quarter 2005		—		—		30,844		30,844		69.8	%		3,506
2nd Quarter 2005		346,500		—		176,168		522,668		8.4	%		36,754
3rd Quarter 2005		—		—		135,749		135,749		60.0	%		28,050
TOTAL		810,433		75,400		574,906		1,460,739		62.6	%	$	127,541

In July 2003, the Company exercised its option to purchase RKL for nominal consideration. RKL owns six buildings which contain 210,000 square feet of leaseable space and has planning permission for the development of additional commercial space. RKL is party to a contract with the County of Kent which contract entitles RKL to participate in proceeds realized from the sale of residential land parcels to homebuilders.

The Company’s existing sources of capital include the public debt and equity markets, proceeds from Property dispositions and net cash provided by operating activities. Additionally, the Company expects to incur variable rate debt, including borrowings under the $350 million Credit Facility from time to time.

The Company has an effective S-3 shelf registration statement on file with the SEC (the “Shelf Registration Statement”). As of April 29, 2004, pursuant to the Shelf Registration Statement, the Trust had the capacity to issue up to $586.1 million in equity securities and the Operating Partnership had the capacity to issue up to $324.3 million in debt securities.

Calculation of Funds from Operations
The National Association of Real Estate Investment Trusts (“NAREIT”) has issued a standard definition for Funds from operations (as defined below). The SEC has agreed to the disclosure of this non-GAAP financial measure on a per share basis in its Release No. 34-47226, Conditions for Use of Non-GAAP Financial Measures. The Company believes that the calculation of Funds from operations is helpful to investors and management as it is a measure of the Company’s operating performance that excludes depreciation and amortization and gains and losses from property dispositions. As a result, year over year comparison of Funds from operations reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, providing perspective not immediately apparent from net income. In addition, management believes that Funds from operations provides useful information to the investment community about the Company’s financial performance when compared to other REIT’s since Funds from operations is generally recognized as the standard for reporting the operating performance of a REIT. Funds from operations available to common shareholders is defined by NAREIT as net income (computed in accordance with generally accepted accounting principles (“GAAP”)), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Funds from operations available to common shareholders does not represent net income or cash flows from operations as defined by GAAP and does not necessarily indicate that cash flows will be sufficient to fund cash needs. It should not be considered as an alternative to net income as an indicator of the Company’s operating performance or to cash flows as a measure of liquidity. Funds from operations available to common shareholders also does not represent cash flows generated from operating, investing or financing activities as defined by GAAP. Funds from operations (“FFO”) available to common shareholders for the three months ended March 31, 2004 and 2003 are as follows (in thousands, except per share amounts):

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	Three Months Ended
	March 31, 2004			March 31, 2003
Reconciliation of net income to FFO – basic:
Basic: Net income	$	38,671		$	41,587
Basic – net income per weighted average share	$	.46		$	.54
Adjustments:
Depreciation and amortization of unconsolidated joint ventures		886			166
Depreciation and amortization		32,012			28,463
Gain on property dispositions		(1,767	)		(178	)
Minority interest share in addback for depreciation and amortization, and gain on property dispositions		(1,311	)		(1,286	)
Funds from operations available to common shareholders — basic	$	68,491		$	68,752
Basic Funds from operations available to common shareholders per weighted average share	$	.82		$	.90
Reconciliation of net income to FFO – diluted:
Diluted : Net income	$	38,671		$	41,587
Diluted – net income per weighted average share	$	.45		$	.53
Adjustments:
Depreciation and amortization of unconsolidated joint ventures		886			166
Depreciation and amortization		32,012			28,463
Gain on property dispositions		(1,767	)		(178	)
Minority interest less preferred share distributions		1,694			1,993
Funds from operations available to common shareholders — diluted	$	71,496		$	72,031
Diluted Funds from operations available to common shareholders per weighted average share	$	.81		$	.88
Reconciliation of weighted average shares:
Weighted average common shares – all basic calculations		83,480			76,814
Dillutive shares for long term compensation plans		1,622			1,037
Diluted shares for net income calculations		85,102			77,851
Weighted average common units		3,698			3,711
Diluted shares for Funds from operations calculations		88,800			81,562

Inflation

Inflation has remained relatively low during the last three years, and as a result, it has not had a significant impact on the Company during this period. The $350 million Credit Facility bears interest at a variable rate; therefore, the amount of interest payable under the $350 million Credit Facility will be influenced by changes in short-term interest rates, which tend to be sensitive to inflation. To the extent an increase in inflation would result in increased operating costs, such as in insurance, real estate taxes and utilities, substantially all of the tenants’ leases require the tenants to absorb these costs as part of their rental obligations. In addition, inflation also may have the effect of increasing market rental rates.

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Item 3: Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the Company’s exposure to market risk since its Annual Report on Form 10-K for the year ended December 31, 2003.

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that its disclosure controls and procedures, as of the end of the period covered by this report, are functioning effectively to provide reasonable assurance that information required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

It should be noted that the design of any system of controls is based in part on certain assumptions about the likelihood of future events. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute assurance, that the objectives of the control system will be met.

Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2004 that have materially affected or are reasonable likely to materially affect the Company’s internal control over financial reporting.

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Part II: Other Information

Item 1.	Legal Proceedings
	None.
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
	None.
Item 3.	Defaults upon Senior Securities
	None.
Item 4.	Submission of Matters to a Vote of Security Holders
	None.
Item 5.	Other Information
	None.
Item 6.	Exhibits and Reports on Form 8-K
	a.     Exhibits

31.1*	Certifications of the Chief Executive Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2*	Certifications of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.3*	Certifications of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.4*	Certifications of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1*	Certifications of the Chief Executive Officer of Liberty Property Trust required under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
32.2*	Certifications of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

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Item 6. Exhibits and Reports on Form 8-K — Continued

          a.          Exhibits — Continued

32.3*

Certifications of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

32.4*

Certifications of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

b.	Reports of Form 8-K
	On February 10, 2004, the Registrants furnished to the SEC Current Report on Form 8-K reporting Item 12 and containing as an Exhibit the Press Release dated February 9, 2004 issued by Liberty Property Trust and Liberty Property Limited Partnership.

                           
* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LIBERTY PROPERTY TRUST

/s/ WILLIAM P. HANKOWSKY	May 7, 2004
William P. Hankowsky President and Chief Executive Officer	Date
/s/ GEORGE J. ALBURGER, JR.	May 7, 2004
George J. Alburger, Jr. Executive Vice President and Chief Financial Officer	Date

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LIBERTY PROPERTY LIMITED PARTNERSHIP

BY: Liberty Property Trust
General Partner

/s/ WILLIAM P. HANKOWSKY	May 7, 2004
William P. Hankowsky President and Chief Executive Officer	Date
/s/ GEORGE J. ALBURGER, JR.	May 7, 2004
George J. Alburger, Jr. Executive Vice President and Chief Financial Officer	Date

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EXHIBIT INDEX

EXHIBIT NO.	DESCRIPTION
31.1	Certifications of the Chief Executive Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2	Certifications of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.3	Certifications of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.4	Certifications of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1	Certifications of the Chief Executive Officer of Liberty Property Trust required under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
32.2	Certifications of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
32.3	Certifications of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
32.4	Certifications of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

29