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, 2001
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 number: 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 of (I.R.S. Employer
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. YES X NO
On May 4, 2001, 70,352,376, Common Shares of Beneficial Interest, par
value $.001 per share, of Liberty Property Trust were outstanding.
2
LIBERTY PROPERTY TRUST/LIBERTY PROPERTY LIMITED PARTNERSHIP
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2001
INDEX
- -----
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements (unaudited) Page
----
Consolidated balance sheets of Liberty Property
Trust at March 31, 2001 and December 31, 2000. 4
Consolidated statements of operations of Liberty
Property Trust for the three months ended March
31, 2001 and March 31, 2000. 5
Consolidated statements of cash flows of Liberty
Property Trust for the three months ended March
31, 2001 and March 31, 2000. 6
Notes to consolidated financial statements for
Liberty Property Trust. 7
Consolidated balance sheets of Liberty Property
Limited Partnership at March 31, 2001 and
December 31, 2000. 10
Consolidated statements of operations of Liberty
Property Limited Partnership for the three months
ended March 31, 2001 and March 31, 2000. 11
Consolidated statements of cash flows of Liberty
Property Limited Partnership for the three months
ended March 31, 2001 and March 31, 2000. 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. 15
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 21
Part II. Other Information
- ---------------------------
Signatures 23
Exhibit Index 24
3
- -----------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in
this Quarterly Report on Form 10-Q and other materials filed or to be
filed by the Company (as defined below) with the Securities and Exchange
Commission (as well as information included in oral statements or other
written statements made or to be made by the Company) contain statements
that are or will be forward-looking, such as statements relating to
business development and real estate development activities,
acquisitions, dispositions, future capital expenditures, financing
sources and availability, and the effects of regulation (including
environmental regulation) and competition. Although Liberty Property
Trust and Liberty Property Limited Partnership (together, the "Company")
believe that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, it can give no assurance
that its expectations will be achieved. As forward-looking statements,
these statements involve important risks, uncertainties and other factors
that could cause actual results to differ materially from the expected
results and, accordingly, such results may differ from those expressed in
any forward-looking statements made by, or on behalf of the Company.
These risks, uncertainties and other factors include, without limitation,
uncertainties affecting real estate businesses generally (such as entry
into new leases, renewals of leases and dependence on tenants' business
operations), risks relating to our ability to maintain and increase
property occupancy and rental rates, risks relating to construction and
development activities, acquisition, disposition, possible environmental
liabilities, risks relating to leverage and debt service (including
availability of financing terms acceptable to the Company and sensitivity
of the Company's operations and financing arrangements to fluctuations in
interest rates), dependence on the primary markets in which the Company's
properties are located, the existence of complex regulations relating to
status as a REIT and the adverse consequences of the failure to qualify
as a REIT, and the potential adverse impact of market interest rates on
the market price for the Company's securities. The Company assumes no
obligation to update or supplement forward-looking statements that become
untrue because of subsequent events.
4
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 458,316 $ 443,057
Buildings and improvements 2,819,251 2,759,420
Less accumulated depreciation (355,006) (334,415)
---------- ----------
Operating real estate 2,922,561 2,868,062
Development in progress 220,657 208,486
Land held for development 157,870 137,402
---------- ----------
Net real estate 3,301,088 3,213,950
Cash and cash equivalents 3,410 4,638
Accounts receivable 16,604 12,624
Deferred financing and leasing costs,
net of accumulated amortization
(2001, $62,681; 2000, $59,071) 61,926 57,807
Prepaid expenses and other assets 80,380 107,336
---------- ----------
Total assets $3,463,408 $3,396,355
========== ==========
LIABILITIES
Mortgage loans $ 357,224 $ 362,025
Unsecured notes 1,345,000 1,095,000
Credit facility - 176,000
Convertible debentures 43,311 70,871
Accounts payable 27,733 15,672
Accrued interest 20,178 29,478
Dividend payable 44,091 43,220
Other liabilities 77,183 84,515
---------- ----------
Total liabilities 1,914,720 1,876,781
Minority interest 189,635 198,769
SHAREHOLDERS' EQUITY
Series A preferred shares, $.001 par value,
5,000,000 shares authorized, issued and
outstanding as of March 31, 2001 and
December 31, 2000 120,814 120,814
Common shares of beneficial interest, $.001
par value, 191,200,000 shares authorized,
70,259,559 (includes 59,100 in treasury)
and 68,272,079 (includes 59,100 in treasury)
shares issued and outstanding as of March 31,
2001 and December 31, 2000, respectively 70 68
Additional paid-in capital 1,262,943 1,223,191
Unearned compensation (1,576) (1,690)
Distributions in excess of net income (21,871) (20,251)
Common shares in treasury, at cost, 59,100 shares
as of March 31, 2001 and December 31, 2000 (1,327) (1,327)
---------- -----------
Total shareholders' equity 1,359,053 1,320,805
---------- -----------
Total liabilities and shareholders' equity $3,463,408 $ 3,396,355
========== ===========
See accompanying notes.
5
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
REVENUE
Rental $ 102,586 $ 91,972
Operating expense reimbursement 41,604 35,771
Interest and other 1,417 1,216
--------- ---------
Total revenue 145,607 128,959
--------- ---------
EXPENSES
Rental property 29,217 24,622
Real estate taxes 13,430 12,524
Interest 27,788 25,650
General and administrative 5,759 4,445
Depreciation and amortization 24,944 22,648
--------- ---------
Total expenses 101,138 89,889
--------- ---------
Income before property dispositions,
extraordinary item and minority interest 44,469 39,070
Gain on property dispositions 1,477 4,353
--------- ---------
Income before extraordinary item and
minority interest 45,946 43,423
Extraordinary item-loss on extinquishment of debt - 1,875
--------- ---------
Income before minority interest 45,946 41,548
Minority interest 4,830 4,679
--------- ---------
Net income 41,116 36,869
Preferred distributions 2,750 2,750
--------- ---------
Income available to common shareholders $ 38,366 $ 34,119
========= =========
Earnings per share
Basic:
Income before extraordinary item $ 0.56 $ 0.54
Extraordinary item - (0.03)
--------- ---------
Income available to common shareholders $ 0.56 $ 0.51
========= =========
Diluted:
Income before extraordinary item $ 0.55 $ 0.53
Extraordinary item - (0.02)
--------- ---------
Income available to common shareholders $ 0.55 $ 0.51
========= =========
Distributions declared per common share $ 0.57 $ 0.52
========= =========
Weighted average number of common shares outstanding
Basic 68,415 67,025
Diluted 72,600 67,275
========= =========
See accompanying notes.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
OPERATING ACTIVITIES
Net income $ 41,116 $ 36,869
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 24,944 22,648
Amortization of deferred financing costs 1,029 880
Minority interest in net income 4,830 4,679
Gain on sale (1,477) (4,353)
Noncash compensation 1,152 1,182
Changes in operating assets and liabilities:
Accounts receivable (3,980) (2,395)
Prepaid expenses and other assets 26,454 (367)
Accounts payable 12,061 2,110
Accrued interest (9,300) (5,409)
Other liabilities (7,332) (6,669)
--------- ---------
Net cash provided by operating activities 89,497 49,175
--------- ---------
INVESTING ACTIVITIES
Investment in properties (27,537) (57,820)
Proceeds from disposition of properties 13,271 30,743
Investment in development in progress (71,065) (31,662)
Investment in land held for development (21,713) (24,937)
Increase in deferred leasing costs (3,979) (3,479)
--------- ---------
Net cash used in investing activities (111,023) (87,155)
--------- ---------
FINANCING ACTIVITIES
Net proceeds from issuance of common shares 2,182 211
Retirement of convertible debentures - (9,750)
Proceeds from issuance of unsecured notes 250,000 -
Repayments of mortgage loans (5,129) (2,183)
Proceeds from credit facility 73,000 86,000
Repayments on credit facility (249,000) -
Decrease (increase) in deferred financing costs (3,965) 162
Distributions paid on common shares (38,849) (34,825)
Distributions paid on preferred shares (2,750) (2,750)
Distributions paid on units (5,191) (4,765)
--------- ---------
Net cash provided by financing activities 20,298 32,100
--------- ---------
Decrease in cash and cash equivalents (1,228) (5,880)
Cash and cash equivalents at beginning of period 4,638 9,064
--------- ---------
Cash and cash equivalents at end of period $ 3,410 $ 3,184
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 1,382 $ 7,062
Acquisition of properties (328) -
Assumption of mortgage loans 328 -
Conversion of convertible debentures 27,496 194
========= =========
See accompanying notes.
7
LIBERTY PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001
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, 2000. 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.
The following table sets forth the computation of basic and diluted
income per common share for the three months ended March 31, 2001 and
2000:
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, 2001 ENDED MARCH 31, 2000
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $ 41,116 $ 36,869
Less: Preferred
distributions 2,750 2,750
-------- --------
Basic income per
common share
Income available
to common share-
holders 38,366 68,415 $ 0.56 34,119 67,025 $ 0.51
====== ======
Dilutive shares
Long-term compen-
sation plans - 932 - 250
Convertible debentures 1,371 3,253 - -
------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 39,737 72,600 $ 0.55 $ 34,119 67,275 $ 0.51
======== ======= ====== ======== ======= ======
Diluted income per common share as of March 31, 2001 includes the
weighted average common shares, the dilutive effect of the outstanding
8
options and the dilutive effect of the conversion of the Exchangeable
Subordinate Debentures due 2001 of the Operating Partnership (the
"Convertible Debentures"), into common shares. Diluted income per common
share as of March 31, 2000 includes the weighted average common shares
and the dilutive effect of the outstanding options, and excludes the
effects of the conversion of the Convertible Debentures into common
shares, as to do so would have been antidilutive.
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 94.6% of the common equity
of the Operating Partnership at March 31, 2001. The Company provides
leasing, property management, development, acquisition, construction
management and design management for a portfolio of industrial and office
properties which are located principally within the Southeastern, Mid-
Atlantic and Midwestern United States.
NOTE 3 - SEGMENT INFORMATION
- ----------------------------
The Company operates its portfolio of properties throughout the
Southeastern, Mid-Atlantic and Midwestern United States. The Company
reviews performance of the portfolio on a geographical basis, as such,
the following regions are considered the Company's reportable segments:
Southeastern Pennsylvania; New Jersey; Lehigh Valley, Pennsylvania;
Virginia; the Carolinas; Jacksonville, Florida; Detroit, Michigan; and
all others combined (including Maryland; Tampa, Florida; South Florida;
Minneapolis, Minnesota; and the United Kingdom). The Company's
reportable segments are distinct business units, which are each managed
separately in order to concentrate market knowledge within a
geographical area. Within these reportable segments, the Company
derives its revenues from its two product types: industrial properties
and office properties.
The Company evaluates performance of the reportable segments based on
property-level net 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.
9
The operating information by segment is as follows (in thousands):
FOR THE THREE MONTHS ENDED MARCH 31, 2001
- ------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $43,094 $11,686 $14,665 $10,754 $10,982 $11,648 $14,177 $27,184 $144,190
Rental property
expenses and
real estate taxes 13,167 3,761 4,256 2,474 2,998 2,986 4,322 8,683 42,647
------- ------- ------- ------- ------- ------- ------- ------- --------
Property-level net
operating income 29,927 7,925 10,409 8,280 7,984 8,662 9,855 18,501 101,543
Other income/expenses, net 57,074
--------
Income before property dispositions, extraordinary item and minority interest 44,469
Gain on property dispositions 1,477
Extraordinary item-loss on extinguishment of debt -
Minority interest 4,830
Preferred distributions 2,750
--------
Income available to common shareholders $ 38,366
========
FOR THE THREE MONTHS ENDED MARCH 31, 2000
- ------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $35,374 $10,555 $12,316 $10,752 $ 9,621 $10,339 $13,958 $24,828 $127,743
Rental property
expenses and
real estate taxes 10,584 3,290 3,202 2,567 2,758 2,364 4,895 7,486 37,146
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 24,790 7,265 9,114 8,185 6,863 7,975 9,063 17,342 90,597
Other income/expenses, net 51,527
--------
Income before property dispositions, extraordinary item and minority interest 39,070
Gain on property dispositions 4,353
Extraordinary item-loss on extinguishment of debt 1,875
Minority interest 4,679
Preferred distributions 2,750
--------
Income available to common shareholders $34,119
========
NOTE 4 - ADOPTION OF ACCOUNTING STANDARD
- ----------------------------------------
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The Company adopted the
new Statement effective January 1, 2001. This Statement requires the
Company to recognize all derivatives on the balance sheet at fair value.
The adoption of this Statement did not have a material effect on the
Company's results of operations or financial position.
10
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(IN THOUSANDS)
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 458,316 $ 443,057
Buildings and improvements 2,819,251 2,759,420
Less accumulated depreciation (355,006) (334,415)
---------- ----------
Operating real estate 2,922,561 2,868,062
Development in progress 220,657 208,486
Land held for development 157,870 137,402
---------- ----------
Net real estate 3,301,088 3,213,950
Cash and cash equivalents 3,410 4,638
Accounts receivable 16,604 12,624
Deferred financing and leasing costs,
net of accumulated amortization
(2001, $62,681; 2000, $59,071) 61,926 57,807
Prepaid expenses and other assets 80,380 107,336
---------- ----------
Total assets $3,463,408 $3,396,355
========== ==========
LIABILITIES
Mortgage loans $ 357,224 $ 362,025
Unsecured notes 1,345,000 1,095,000
Credit facility - 176,000
Convertible debentures 43,311 70,871
Accounts payable 27,733 15,672
Accrued interest 20,178 29,478
Distributions payable 44,091 43,220
Other liabilities 77,183 84,515
---------- ----------
Total liabilities 1,914,720 1,876,781
OWNERS' EQUITY
General partner's equity - preferred units 120,814 120,814
- common units 1,238,239 1,199,991
Limited partners' equity - preferred units 112,512 112,516
- common units 77,123 86,253
---------- ----------
Total owners' equity 1,548,688 1,519,574
---------- ----------
Total liabilities and owners' equity $3,463,408 $3,396,355
========== ==========
See accompanying notes.
11
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
--------------- --------------
REVENUE
Rental $102,586 $ 91,972
Operating expense reimbursement 41,604 35,771
Interest and other 1,417 1,216
-------- --------
Total revenue 145,607 128,959
-------- --------
EXPENSES
Rental property 29,217 24,622
Real estate taxes 13,430 12,524
Interest 27,788 25,650
General and administrative 5,759 4,445
Depreciation and amortization 24,944 22,648
-------- --------
Total expenses 101,138 89,889
-------- --------
Income before property dispositions
and extraordinary item 44,469 39,070
Gain on property dispositions 1,477 4,353
-------- --------
Income before extraordinary item 45,946 43,423
Extraordinary item - loss on
extinguishment of debt - 1,875
======== ========
Net income $ 45,946 $ 41,548
======== ========
Net income allocated to general partner $ 41,116 $ 36,869
======== ========
Net income allocated to limited partners $ 4,830 $ 4,679
======== ========
See accompanying notes.
12
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
OPERATING ACTIVITIES
Net income $ 45,946 $ 41,548
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 24,944 22,648
Amortization of deferred financing costs 1,029 880
Gain on sale (1,477) (4,353)
Noncash compensation 1,152 1,182
Changes in operating assets and liabilities:
Accounts receivable (3,980) (2,395)
Prepaid expenses and other assets 26,454 (367)
Accounts payable 12,061 2,110
Accrued interest (9,300) (5,409)
Other liabilities (7,332) (6,669)
--------- ---------
Net cash provided by operating activities 89,497 49,175
--------- ---------
INVESTING ACTIVITIES
Investment in properties (27,537) (57,820)
Proceeds from disposition of properties 13,271 30,743
Investment in development in progress (71,065) (31,662)
Investment in land held for development (21,713) (24,937)
Increase in deferred leasing costs (3,979) (3,479)
--------- ---------
Net cash used in investing activities (111,023) (87,155)
--------- ---------
FINANCING ACTIVITIES
Retirement of Convertible Debentures - (9,750)
Proceeds from issuance of unsecured notes 250,000 -
Repayments of mortgage loans (5,129) (2,183)
Proceeds from credit facility 73,000 86,000
Repayments on credit facility (249,000) -
Decrease (increase) in deferred financing costs (3,965) 162
Capital contributions 2,182 211
Distributions to partners (46,790) (42,340)
--------- ---------
Net cash provided by financing activities 20,298 32,100
--------- ---------
Decrease in cash and cash equivalent (1,228) (5,880)
Cash and cash equivalents at beginning of period 4,638 9,064
--------- ---------
Cash and cash equivalents at end of period $ 3,410 $ 3,184
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 1,382 $ 7,062
Acquisition of properties (328) -
Assumption of mortgage loans 328 -
Conversion of convertible debentures 27,496 194
========= =========
See accompanying notes.
13
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001
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 the Trust and the Operating Partnership for the year ended
December 31, 2000. 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.
NOTE 2 - ORGANIZATION
- ---------------------
Liberty Property Trust (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, 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 94.6% of the common equity
of the Operating Partnership at March 31, 2001. The Company provides
leasing, property management, acquisition, development, construction
management and design management for a portfolio of industrial and office
properties which are located principally within the Southeastern, Mid-
Atlantic and Midwestern United States.
NOTE 3 - SEGMENT INFORMATION
- ----------------------------
The Company operates its portfolio of properties throughout the
Southeastern, Mid-Atlantic and Midwestern United States. The Company
reviews performance of the portfolio on a geographical basis, as such,
the following regions are considered the Company's reportable segments:
Southeastern Pennsylvania; New Jersey; Lehigh Valley, Pennsylvania;
Virginia; the Carolinas; Jacksonville, Florida; Detroit, Michigan; and
all others combined (including Maryland, Tampa, Florida; South Florida;
Minneapolis, Minnesota; and the United Kingdom). The Company's
reportable segments are distinct business units, which are each managed
separately in order to concentrate market knowledge within a
geographical area. Within these reportable segments, the Company
derives its revenues from its two product types: industrial and office
properties.
14
The Company evaluates performance of the reportable segments based on
property-level net 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, 2001
- ------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $ 43,094 $ 11,686 $ 14,665 $ 10,754 $ 10,982 $ 11,648 $ 14,177 $ 27,184 $144,190
Rental property
expenses and
real estate taxes 13,167 3,761 4,256 2,474 2,998 2,986 4,322 8,683 42,647
-------- -------- -------- -------- -------- -------- -------- --------- --------
Property-level net
operating income 29,927 7,925 10,409 8,280 7,984 8,662 9,855 18,501 101,543
Other income/expenses, net 57,074
--------
Income before property dispositions and extraordinary item 44,469
Gain on property dispositions 1,477
Extraordinary item-loss on extinguishment of debt -
--------
Net income $ 45,946
========
Net income allocated to general partner $ 41,116
========
Net income allocated to limited partners $ 4,830
========
FOR THE THREE MONTHS ENDED MARCH 31, 2000
- ------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- -------
Real estate
related revenues $ 35,374 $ 10,555 $ 12,316 $ 10,752 $ 9,621 $ 10,339 $ 13,958 $ 24,828 $127,743
Rental property
expenses and
real estate taxes 10,584 3,290 3,202 2,567 2,758 2,364 4,895 7,486 37,146
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 24,790 7,265 9,114 8,185 6,863 7,975 9,063 17,342 90,597
Other income/expenses, net 51,527
--------
Income before property dispositions and extraordinary item 39,070
Gain on property dispositions 4,353
Extraordinary item-loss on extinguishment of debt 1,875
--------
Net income $ 41,548
========
Net income allocated to general partner $ 36,869
========
Net income allocated to limited partners $ 4,679
========
NOTE 4 - ADOPTION OF ACCOUNTING STANDARD
- ----------------------------------------
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The Company adopted the
new Statement effective January 1, 2001. This Statement requires the
Company to recognize all derivatives on the balance sheet at fair value.
The adoption of this Statement did not have a material effect on the
Company's results of operations or financial position.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------
OVERVIEW
The following discussion and analysis is based on a consolidated view of
the Company. Geographic segment data for the three months ended March
31, 2001 and 2000 is included in Note 3 of the Notes to the Liberty
Property Trust and Liberty Property Limited Partnership Financial
Statements.
In 2001, the Company has continued to pursue development and acquisition
opportunities and has continued to focus on increasing the cash flow from
its properties in operation by increasing property occupancy and
increasing rental rates.
The composition of the Company's properties in operation as of March 31,
2001 and 2000 is as follows (in thousands):
TOTAL PERCENT OF TOTAL
SQUARE FEET SQUARE FEET PERCENT OCCUPIED
---------------- ---------------- ----------------
MARCH 31, MARCH 31, MARCH 31,
TYPE 2001 2000 2001 2000 2001 2000
- ------------------------- ------- ------- ------- ------- ------- -------
Industrial - Distribution 21,102 19,612 42.7% 41.6% 95.0% 94.9%
Industrial - Flex 12,657 12,759 25.6% 27.1% 96.1% 93.5%
Office 15,694 14,733 31.7% 31.3% 94.5% 94.9%
------- ------- ------- ------- ------- -------
Total 49,453 47,104 100.0% 100.0% 95.1% 94.5%
======= ======= ======= ======= ======= =======
The expiring square feet and annual base rent by year for the properties
in operation as of March 31, 2001 are as follows (in thousands):
INDUSTRIAL-
DISTRIBUTION INDUSTRIAL-FLEX OFFICE TOTAL
------------------ ------------------ ------------------ ------------------
SQUARE ANNUAL SQUARE ANNUAL SQUARE ANNUAL SQUARE ANNUAL
YEAR FEET BASE RENT FEET BASE RENT FEET BASE RENT FEET BASE RENT
- ---------- ------ --------- ------ --------- ------ --------- ------ ---------
2001 2,398 $11,048 1,675 $ 12,449 1 686 $ 21,078 5,759 $ 44,575
2002 3,336 13,731 1,949 16,025 1,670 21,296 6,955 51,052
2003 1,857 8,884 2,362 20,331 1,648 22,287 5,867 51,502
2004 2,244 11,111 1,811 16,614 1,460 22,608 5,515 50,333
2005 2,798 14,218 1,449 13,743 3,047 45,174 7,294 73,135
2006 1,965 8,654 1,170 12,407 920 13,534 4,055 34,595
Thereafter 5,448 29,351 1,749 18,311 4,395 74,083 11,592 121,745
------ ------- ------ -------- ------ -------- ------ --------
Total 20,046 $96,997 12,165 $109,880 14,826 $220,060 47,037 $426,937
====== ======= ====== ======== ====== ======== ====== ========
16
The scheduled deliveries of the 5.0 million square feet of properties
under development as of March 31, 2001 are as follows (in thousands):
SQUARE FEET
-----------------------------
SCHEDULED IND- IND- PERCENT PRE-LEASED
IN-SERVICE DATE DIST. FLEX OFFICE TOTAL MARCH 31, 2001 TOTAL INVESTMENT
- ---------------- ------ ------ ------- ------ ------------------ ----------------
2nd Quarter 2001 96 - 182 278 98.7% $ 31,284
3rd Quarter 2001 1,238 65 219 1,522 96.8% 91,116
4th Quarter 2001 96 93 142 331 49.6% 29,016
1st Quarter 2002 57 338 179 574 39.8% 58,906
Thereafter 1,064 382 881 2,327 10.0% 180,651
----- ----- ----- ----- ------ --------
Total 2,551 878 1,603 5,032 47.2% $390,973
===== ===== ===== ===== ====== ========
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, 2001 (unaudited) with the
results of operations of the Company for the three months ended March 31,
2000 (unaudited). As a result of the development, acquisition and
disposition activities by the Company in 2001 and 2000, 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. As used herein, the
term "Company" includes the Trust, the Operating Partnership and their
subsidiaries.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes included elsewhere in this
report.
For the three months ended March 31, 2001 compared to the three months
ended March 31, 2000.
- -----------------------------------------------------------------------
Total revenue (principally rental revenue and operating expense
reimbursement) increased to $145.6 million from $129.0 million for the
three months ended March 31, 2001 compared to the same period in 2000.
This increase is primarily due to the increase in the number of
properties in operation during the respective periods. As of March 31,
2001, the Company had 660 properties in operation compared to 645
properties at March 31, 2000. The following is a summary of the
Company's acquisition, development and disposition activity for the three
months ended March 31, 2001 and 2000:
2001 2000
----------------------------- -----------------------------
NO. OF TOTAL INVESTMENT (1) NO. OF TOTAL INVESTMENT (1)
BLDGS. OR PROCEEDS BLDGS. OR PROCEEDS
------ -------------------- ------ --------------------
(in millions) (in millions)
Properties owned as of:
Beginning January 1, 652 634
Acquisitions 3 $ 23.8 9 $ 55.4
Completed developments 7 56.7 5 55.6
Dispositions (2) 4.4 (3) 31.6
------ ------
Ending March 31, 660 645
====== ======
17
(1) The "Total Investment" for a property is defined as the property's purchase price plus
closing costs and management's estimate, as determined at the time of acquisition, of the
cost of necessary building improvements in the case of acquisitions, or land costs and land
and building improvement costs in the case of development projects, and where appropriate,
other development costs and carrying costs required to reach rent commencement.
Additionally, during the period from January 1, 2001 through March 31,
2001, the Company sold two parcels of land for approximately $1.2
million. From January 1, 2000 through March 31, 2000, the Company sold
one parcel of land for approximately $1.6 million.
Rental property and real estate tax expenses increased to $42.6 million
from $37.1 million for the three months ended March 31, 2001 compared to
the same period in 2000. This increase is due to the increase in the
number of properties owned during the respective periods, and an increase
in snow removal and other seasonal operating costs during the severe 2001
winter compared to the mild 2000 winter.
Property-level operating income for the "Same Store" properties
(properties owned as of January 1, 2000) increased to $90.0 million for
the three months ended March 31, 2001 from $85.8 million for the three
months ended March 31, 2000, on a straight line basis (which recognizes
rental revenue evenly over the life of the lease), and increased to $88.1
million for the three months ended March 31, 2000 from $83.5 million for
the three months ended March 31, 2000, on a cash basis. These increases
of 4.9% and 5.5%, respectively, are primarily due to increases in rental
rates for the properties and also due to increases in occupancy.
Set forth below is a schedule comparing the property-level operating
income for the "Same Store" properties for the three months ended March
31, 2001 and 2000 (in thousands).
STRAIGHT LINE BASIS CASH BASIS
--------------------- ---------------------
QUARTER ENDED QUARTER ENDED
--------------------- ---------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2001 2000 2001 2000
--------- --------- --------- ---------
Rental Revenue $ 91,125 $ 87,056 $ 89,164 $ 84,698
-------- -------- -------- --------
Operating expenses:
Rental property expense 26,772 23,662 26,772 23,662
Real estate taxes 11,889 11,647 11,889 11,647
Operating expense recovery (37,566) (34,085) (37,566) (34,085)
-------- -------- -------- --------
Unrecovered operating expenses 1,095 1,224 1,095 1,224
-------- -------- -------- --------
Property level operating income $ 90,030 $ 85,832 $ 88,069 $ 83,474
======== ======== ======== ========
General and administrative expenses increased to $5.8 million for the
three months ended March 31, 2001 from $4.4 million for the three months
ended March 31, 2000. This increase is due to the increase in personnel
and other related overhead costs necessitated by the increase in the
number of properties in operation during the respective periods, and the
funding of initiatives which the Company undertook relating to training,
internal assurance, property management, and marketing.
18
Depreciation and amortization expense increased to $24.9 million for the
three months ended March 31, 2001 from $22.6 million for the three months
ended March 31, 2000. This increase is due to an increase in the number
of properties owned during the respective periods.
Interest expense increased to $27.8 million for the three months ended
March 31, 2001 from $25.7 million for the three months ended March 31,
2000. This increase is due to an increase in the average debt
outstanding for the respective periods, which was $1,724.7 million for
the three months ended March 31, 2001 compared to $1,528.2 million for
the three months ended March 31, 2000. In addition, the weighted average
interest rates for the respective periods have increased from 7.33% for
the three months ended March 31, 2000 to 7.60% for the three months ended
March 31, 2001.
In the first quarter of 2001, the Company realized a gain on sale of $1.5
million, due to the sale of two properties, one development property and
two parcels of land for $13.6 million. In the first quarter of 2000, the
Company realized a gain on sale of $4.4 million, due to the sale of three
properties and one parcel of land for $31.6 million.
During the three months ended March 31, 2000, the Company repurchased
$9.8 million principal amount of the Exchangeable Subordinated Debentures
due 2001 of the Operating Partnership (the "Convertible Debentures").
This resulted in the recognition of an extraordinary loss in the three
months ended March 31, 2000 totaling $1.9 million. This loss represents
the redemption premium and the write-off of related deferred financing
costs. There were no extraordinary items during the first quarter of
2001.
As a result of the foregoing, the Company's income before minority
interest increased to $45.9 million for the three months ended
March 31, 2001 from $41.5 million for the three months ended March 31,
2000. In addition, net income increased to $41.1 million for the three
months ended March 31, 2001 from $36.9 million for the three months ended
March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001, the Company had cash and cash equivalents of $3.4
million.
Net cash flow provided by operating activities increased to $89.5
million for the three months ended March 31, 2001 from $49.2 million for
the three months ended March 31, 2000. This $40.3 million increase was
primarily due the increase in net income and to the fluctuations in
prepaid expenses during the respective periods.
Net cash used in investing activities increased to $111.0 million for the
three months ended March 31, 2001 from $87.2 million for the three months
ended March 31, 2000. This increase primarily resulted from an increase
in development in progress and decreased disposition activity in 2001.
Net cash provided by financing activities decreased to $20.3 million for
the three months ended March 31, 2001 from $32.1 million for the three
months ended March 31, 2000. This decrease is primarily due to the pay
down of the Credit Facility in 2001 with the proceeds from an unsecured
notes issuance and the funding of investing activities with the increased
funds provided by operations.
19
The Company believes that its undistributed cash flow from operations is
adequate to fund its short-term liquidity requirements.
The Company funds its acquisitions and completed developments with long-
term capital sources. During the three months ended March 31, 2001,
these activities were funded through a $450 million unsecured line of
credit (the "Credit Facility"). This facility was obtained in April
2000, replacing a $325 million unsecured line of credit and a $90 million
term loan due January 2001.
The interest rate on borrowings under the Credit Facility fluctuates
based upon the Company's leverage levels or ratings from Moody's
Investors Services, Inc. ("Moody's") and Standard & Poor's Ratings Group
("Standard & Poor's"). Moody's and Standard & Poor's currently assign
senior debt ratings to the Company of Baa3 and BBB, respectively. At
these ratings the interest rate for borrowings under the Credit Facility
is 115 basis points over LIBOR.
As of March 31, 2001, $357.2 million in mortgage loans and $1,345.0
million in unsecured notes were outstanding. The interest rates on
$1,696.2 million of mortgage loans and unsecured notes are fixed and
range from 6.0% to 8.8%. The interest rate on a $6.0 million mortgage
loan floats with a municipal bond index. The weighted average remaining
term for the mortgage loans and the unsecured notes is 7.6 years. The
scheduled maturities of principal amortization of the Company's mortgage
loans and the unsecured notes outstanding and the related weighted
average interest rates as of March 31, 2001 are as follows (in
thousands):
MORTGAGES WEIGHTED
-------------------------- UNSECURED AVERAGE
AMORTIZATION MATURITIES NOTES TOTAL INTEREST RATE
------------ ---------- ---------- ---------- --------------
2001 $ 6,941 $ 19,664 $ - $ 26,605 7.2%
2002 8,115 - 100,000 108,115 6.7%
2003 8,092 26,606 50,000 84,698 7.3%
2004 8,167 16,340 100,000 124,507 7.0%
2005 7,090 115,039 - 122,129 7.6%
2006 5,001 30,078 100,000 135,079 7.2%
2007 4,543 - 100,000 104,543 7.3%
2008 4,238 29,268 - 33,506 7.2%
2009 2,146 42,051 270,000 314,197 7.8%
2010 1,348 - 200,000 201,348 8.5%
2011 1,098 3,533 250,000 254,631 7.3%
2012 192 17,674 - 17,866 7.7%
2013 - - 75,000 (1) 75,000 6.4%
2018 - - 100,000 100,000 7.5%
------- -------- ---------- ---------- ------
$56,971 $300,253 $1,345,000 $1,702,224 7.5%
======= ======== ========== ========== ======
(1) Callable in 2003.
GENERAL
The Company believes that its existing sources of capital will provide
sufficient funds to finance its continued development and acquisition
activities. The Company's existing sources of capital include the public
debt and equity markets, proceeds from property dispositions and net
cash provided from its operating activities. Additionally, the Company
expects to incur variable rate debt, including borrowings under the
Credit Facility, from time to time.
20
In 2000, the Company received approximately $19.5 million in aggregate
net proceeds from the issuance of 9.125% Series C Cumulative Redeemable
Preferred Units, and approximately $197.1 million in aggregate net
proceeds from the issuance of unsecured notes. In 2001, the Company
received approximately $246.2 million in aggregate net proceeds from the
issuance of unsecured notes. The Company used the aggregate net proceeds
from issuance of the preferred units, and unsecured notes to fund the
Company's activities, including paying down the Credit Facility, which
funds development and acquisition activity.
In October 1999, the Board of Trustees authorized a share repurchase
program. Pursuant to the Plan, as amended, the Company may purchase up
to $100 million of the Company's Common Shares, Convertible Debentures or
Preferred Shares. Through May 4, 2001, the Company purchased 59,100
Common Shares and purchased Convertible Debentures exchangeable into
877,950 Common Shares. The total cost for the purchase of the Common
Shares and Convertible Debentures was approximately $21.9 million.
The Company has an effective S-3 shelf registration statement on file
with the Securities and Exchange Commission. As of May 4, 2001, the
Company had the capacity pursuant to this shelf registration statement to
issue $688.4 million in equity securities and the Operating Partnership
had the capacity to issue $261.1 million in debt securities.
CALCULATION OF FUNDS FROM OPERATIONS
Management generally considers Funds from operations (as defined below) a
useful financial performance measure of the operating performance of an
equity REIT, because, together with net income and cash flows, Funds from
operations provides investors with an additional basis to evaluate the
ability of a REIT to incur and service debt and to fund development,
acquisitions and capital expenditures. Funds from operations 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 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 also does not represent cash flows generated from operating,
investing or financing activities as defined by GAAP. Funds from
operations for the three months ended March 31, 2001 and March 31, 2000
are as follows (in thousands):
THREE MONTHS ENDED
(IN THOUSANDS)
-------------------------------
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
Income available to common shareholders $ 38,366 $ 34,119
Adjustments:
Minority interest less preferred unit distributions 2,177 2,482
Depreciation and amortization 24,533 22,262
Extraordinary item-loss on extinguishment of debt - 1,875
Gain on sale of property (1,477) (4,353)
======== ========
Funds from operations $ 63,599 $ 56,385
======== ========
21
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 Credit Facility bears interest at a variable rate; therefore,
the amount of interest payable under the 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.
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,
2000.
22
PART II: OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
In March 2001, Liberty Life Insurance Company acquired a total
of 466,980 common shares of beneficial interest of Liberty
Property Trust in exchange for the same number of units of
limited partnership interest in Liberty Property Limited
Partnership. Such person acquired these units of limited
partnership interest in connection with their contribution to
the Operating Partnership of certain assets in 1997. The
exchange of the common shares of beneficial interest for the
units of limited partnership interest is exempt from the
registration requirement of the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereunder.
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
Fifth Supplemental Indenture, dated as of March 14, 2001,
between the Operating Partnership, as Issuer, and Bank One
Trust Company, N.A., as Trustee, supplementing the Senior
Indenture, dated as of October 24, 1997, between the
Operating Partnership, as Obligor, and Bank One Trust
Company, N.A. (as successor to the First National bank of
Chicago), as Trustee, and relating to $250,000,000 principal
amount of 7.25% Senior Notes due 2011 of the Operating
Partnership. (Incorporated by reference to Exhibit 4.10
filed with the Registrants' Annual Report on Form 10-K for
the fiscal year ended December 31, 2000.)
b. Reports on Form 8-K
During the quarter ended March 31, 2001, the Registrants
filed one Current Report on Form 8-K dated March 12, 2001,
reporting Item 5 and containing as Exhibits the Underwriting
Agreement dated March 9, 2001 among the Registrants and the
Underwriters (as defined therein) and a Statement Re:
Computation of Ratio of Earnings to Fixed Charges.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIBERTY PROPERTY TRUST
/s/ WILLARD G. ROUSE III May 10, 2001
- ------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees,
President and Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. May 10, 2001
- ------------------------------------- --------------------------
George J. Alburger, Jr. Date
Chief Financial Officer and
Executive Vice President
LIBERTY PROPERTY LIMITED PARTNERSHIP
By: LIBERTY PROPERTY TRUST, GENERAL PARTNER
/s/ WILLARD G. ROUSE III May 10, 2001
- ------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees,
President and Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. May 10, 2001
- ------------------------------------- --------------------------
George J. Alburger, Jr. Date
Chief Financial Officer and
Executive Vice President
17