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 June 30, 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 July 31, 2001, 72,854,230, 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 JUNE 30, 2001
INDEX
- -----
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements (unaudited) Page
----
Consolidated balance sheets of Liberty Property
Trust at June 30, 2001 and December 31, 2000. 3
Consolidated statements of operations of Liberty
Property Trust for the three months ended June
30, 2001 and June 30, 2000. 4
Consolidated statements of operations of Liberty
Property Trust for the six months ended June 30,
2001 and June 30, 2000. 5
Consolidated statements of cash flows of Liberty
Property Trust for the six months ended June 30,
2001 and June 30, 2000. 6
Notes to consolidated financial statements for
Liberty Property Trust. 7
Consolidated balance sheets of Liberty Property
Limited Partnership at June 30, 2001 and
December 31, 2000. 11
Consolidated statements of operations of Liberty
Property Limited Partnership for the three months
ended June 30, 2001 and June 30, 2000. 12
Consolidated statements of operations of Liberty
Property Limited Partnership for the six months
ended June 30, 2001 and June 30, 2000. 13
Consolidated statements of cash flows of Liberty
Property Limited Partnership for the six months
ended June 30, 2001 and June 30, 2000. 14
Notes to consolidated financial statements for
Liberty Property Limited Partnership. 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 18
Item 3. Quantitative and Qualitative Disclosures About Market
Risk. 25
Part II. Other Information
- ---------------------------
Signatures 27
-2-
3
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 462,399 $ 443,057
Buildings and improvements 2,843,140 2,759,420
Less accumulated depreciation (366,949) (334,415)
---------- ----------
Operating real estate 2,938,590 2,868,062
Development in progress 215,804 208,486
Land held for development 154,413 137,402
---------- ----------
Net real estate 3,308,807 3,213,950
Cash and cash equivalents 36,131 4,638
Accounts receivable 16,501 12,624
Deferred financing and leasing costs,
net of accumulated amortization
(2001, $55,451; 2000, $59,071) 63,488 57,807
Prepaid expenses and other assets 84,443 107,336
---------- ----------
Total assets $3,509,370 $3,396,355
========== ==========
LIABILITIES
Mortgage loans $ 354,964 $ 362,025
Unsecured notes 1,345,000 1,095,000
Credit facility 12,000 176,000
Convertible debentures 41,743 70,871
Accounts payable 41,460 15,672
Accrued interest 33,096 29,478
Dividend payable 44,294 43,220
Other liabilities 80,871 84,515
---------- ----------
Total liabilities 1,953,428 1,876,781
Minority interest 189,738 198,769
SHAREHOLDERS' EQUITY
Series A preferred shares, $.001 par value,
5,000,000 shares authorized, issued and
outstanding as of June 30, 2001 and
December 31, 2000 120,814 120,814
Common shares of beneficial interest, $.001
par value, 191,200,000 shares authorized,
70,616,293 (includes 59,100 in treasury)
and 68,272,079 (includes 59,100 in treasury)
shares issued and outstanding as of June 30,
2001 and December 31, 2000, respectively 71 68
Additional paid-in capital 1,270,470 1,223,191
Unearned compensation (1,403) (1,690)
Distributions in excess of net income (22,421) (20,251)
Common shares in treasury, at cost, 59,100 shares
as of June 30, 2001 and December 31, 2000 (1,327) (1,327)
---------- ----------
Total shareholders' equity 1,366,204 1,320,805
---------- ----------
Total liabilities and shareholders' equity $3,509,370 $3,396,355
========== ==========
See accompanying notes.
-3-
4
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
REVENUE
Rental $ 104,759 $ 94,825
Operating expense reimbursement 37,609 34,837
Interest and other 1,285 1,384
--------- ---------
Total revenue 143,653 131,046
--------- ---------
EXPENSES
Rental property 25,504 23,217
Real estate taxes 13,201 12,452
Interest 28,107 26,367
General and administrative 5,455 4,817
Depreciation and amortization 24,804 22,806
--------- ---------
Total expenses 97,071 89,659
--------- ---------
Income before property dispositions,
extraordinary item and minority interest 46,582 41,387
Gain on property dispositions 717 4,395
--------- ---------
Income before extraordinary item and
minority interest 47,299 45,782
Extraordinary item-loss on extinquishment of debt - 228
--------- ---------
Income before minority interest 47,299 45,554
Minority interest 4,894 5,223
--------- ---------
Net income 42,405 40,331
Preferred distributions 2,750 2,750
--------- ---------
Income available to common shareholders $ 39,655 $ 37,581
========= =========
Earnings per share
Basic:
Income before extraordinary item $ 0.56 $ 0.56
Extraordinary item - -
--------- ---------
Income available to common shareholders $ 0.56 $ 0.56
========= =========
Diluted:
Income before extraordinary item $ 0.56 $ 0.55
Extraordinary item - -
--------- ---------
Income available to common shareholders $ 0.56 $ 0.55
========= =========
Distributions declared per common share $ 0.57 $ 0.52
========= =========
Weighted average number of common shares outstanding
Basic 70,241 67,322
Diluted 71,387 67,847
========= =========
See accompanying notes.
-4-
5
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
REVENUE
Rental $ 207,345 $ 186,797
Operating expense reimbursement 79,213 70,608
Interest and other 2,702 2,600
--------- ---------
Total revenue 289,260 260,005
--------- ---------
EXPENSES
Rental property 54,721 47,839
Real estate taxes 26,631 24,976
Interest 55,895 52,017
General and administrative 11,214 9,262
Depreciation and amortization 49,748 45,454
--------- ---------
Total expenses 198,209 179,548
--------- ---------
Income before property dispositions
extraordinary item and minority interest 91,051 80,457
Gain on property dispositions 2,194 8,748
--------- ---------
Income before extraordinary item and
minority interest 93,245 89,205
Extraordinary item-loss on extinquishment
of debt - 2,103
--------- ---------
Income before minority interest 93,245 87,102
Minority interest 9,724 9,902
--------- ---------
Net income 83,521 77,200
Preferred distributions 5,500 5,500
--------- ---------
Income available to common shareholders $ 78,021 $ 71,700
========= =========
Earnings per share
Basic:
Income before extraordinary item $ 1.12 $ 1.10
Extraordinary item - (.03)
--------- ---------
Income available to common shareholders $ 1.12 $ 1.07
========= =========
Diluted:
Income before extraordinary item $ 1.11 $ 1.09
Extraordinary item - (.03)
--------- ---------
Income available to common shareholders $ 1.11 $ 1.06
========= =========
Distributions declared per common share $ 1.14 $ 1.04
========= =========
Weighted average number of common shares
Outstanding
Basic 69,358 67,173
Diluted 72,949 67,574
========= =========
See accompanying notes.
-5-
6
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS)
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
OPERATING ACTIVITIES
Net income $ 83,521 $ 77,200
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 49,748 45,454
Amortization of deferred financing costs 2,117 1,757
Minority interest in net income 9,724 9,902
Gain on sale (2,194) (8,748)
Noncash compensation 1,491 1,556
Changes in operating assets and liabilities:
Accounts receivable (3,877) 8,526
Prepaid expenses and other assets 21,915 (5,763)
Accounts payable 25,788 (2,831)
Accrued interest 3,618 (392)
Other liabilities (3,644) (6,674)
---------- ---------
Net cash provided by operating activities 188,207 119,987
---------- ---------
INVESTING ACTIVITIES
Investment in properties (35,644) (55,743)
Proceeds from disposition of properties 73,854 48,179
Investment in development in progress (139,186) (80,411)
Investment in land held for development (34,751) (38,380)
Increase in deferred leasing costs (13,385) (7,395)
---------- ---------
Net cash used in investing activities (149,112) (133,750)
---------- ---------
FINANCING ACTIVITIES
Net proceeds from issuance of common shares 8,172 6,045
Proceeds from issuance of preferred units - 19,484
Retirement of convertible debentures - (10,914)
Proceeds from issuance of unsecured notes 250,000 -
Repayments of unsecured notes - (90,000)
Repayments of mortgage loans (7,389) (4,575)
Proceeds from credit facility 126,200 391,000
Repayments on credit facility (290,200) (213,000)
Decrease (increase) in deferred financing costs 142 (3,597)
Distributions paid on common shares (78,834) (69,686)
Distributions paid on preferred shares (5,500) (5,500)
Distributions paid on units (10,193) (9,903)
---------- ---------
Net cash (used) provided by financing activities (7,602) 9,354
---------- ---------
Increase (decrease) in cash and cash equivalents 31,493 (4,409)
Cash and cash equivalents at beginning of period 4,638 9,064
---------- ---------
Cash and cash equivalents at end of period $ 36,131 $ 4,655
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 22,199 $ 19,213
Acquisition of properties (328) -
Assumption of mortgage loans 328 -
Conversion of convertible debentures 29,063 194
========== =========
See accompanying notes.
-6-
7
LIBERTY PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 and six months ended June 30, 2001
and 2000:
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED JUNE 30, 2001 ENDED JUNE 30, 2000
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $ 42,405 $ 40,331
Less: Preferred
distributions 2,750 2,750
-------- --------
Basic income per
common share
Income available
to common share-
holders 39,655 70,241 $ 0.56 37,581 67,322 $ 0.56
====== ======
Dilutive shares
Long-term compen-
sation plans - 1,146 - 525
------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 39,655 71,387 $ 0.56 $ 37,581 67,847 $ 0.55
======== ======= ====== ======== ======= ======
-7-
8
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 2001 ENDED JUNE 30, 2000
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $ 83,521 $ 77,200
Less: preferred
distributions 5,500 5,500
------- --------
Basic income per
common share
Income available
to common share-
holders 78,021 69,358 $1.12 71,700 67,173 $ 1.07
===== ======
Dilutive shares
Long-term compen-
sation plans - 898 - 401
Convertible debentures 2,587 2,693 - -
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 80,608 72,949 $1.11 $ 71,700 67,574 $ 1.06
======== ======= ===== ======== ======= ======
For the three months ended June 30, 2001 and 2000, and for the six months
ended June 30, 2000, diluted income per common share includes the
weighted average common shares and the dilutive effect of long-term
compensation plans, and excludes the effects of the conversion of the
Exchangeable Subordinated Debentures due 2001 of the Operating
Partnership (the "Convertible Debentures"), into common shares, as to do
so would have been antidilutive. Diluted income per common share for the
six months ended June 30, 2001 includes the average weighted common
shares, the dilutive effect of long-term compensation plans and the
dilutive effect of the conversion of the Convertible Debentures into
common shares.
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 94.7% of the common equity
of the Operating Partnership at June 30, 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 reviews the performance of the portfolio on a geographic
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,
-8-
9
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 geographic 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.
The operating information by segment is as follows (in thousands):
FOR THE THREE MONTHS ENDED JUNE 30, 2001
- ------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $41,923 $10,999 $13,743 $11,192 $11,129 $11,236 $14,797 $27,349 $142,368
Rental property
expenses and
real estate taxes 11,562 3,030 2,939 2,702 2,906 2,963 4,365 8,238 38,705
------- ------- ------- ------- ------- ------- ------- ------- --------
Property-level net
operating income 30,361 7,969 10,804 8,490 8,223 8,273 10,432 19,111 103,663
Other income/expenses, net 57,081
--------
Income before property dispositions, extraordinary item and minority interest 46,582
Gain on property dispositions 717
Extraordinary item-loss on extinguishment of debt -
Minority interest 4,894
Preferred distributions 2,750
--------
Income available to common shareholders $ 39,655
========
FOR THE THREE MONTHS ENDED JUNE 30, 2000
- ------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real-estate
related revenues $35,686 $10,327 $12,326 $11,043 $10,103 $10,497 $14,076 $25,604 $129,662
Rental property
expenses and
real estate taxes 9,624 3,196 2,518 2,280 2,784 2,548 4,728 7,991 35,669
------- ------- ------- ------- ------- ------- ------- ------- --------
Property-level net
operating income 26,062 7,131 9,808 8,763 7,319 7,949 9,348 17,613 93,993
Other income/expenses, net 52,606
--------
Income before property dispositions, extraordinary item and minority interest 41,387
Gain on property dispositions 4,395
Extraordinary item-loss on extinguishment of debt 228
Minority interest 5,223
Preferred distributions 2,750
--------
Income available to common shareholders $ 37,581
========
-9-
10
FOR THE SIX MONTHS ENDED JUNE 30, 2001
- ------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $85,017 $22,685 $28,408 $21,946 $22,111 $22,884 $28,974 $54,533 $286,558
Rental property
expenses and
real estate taxes 24,729 6,791 7,195 5,176 5,904 5,949 8,687 16,921 81,352
------- ------- ------- ------- ------- ------- ------- ------- --------
Property-level net
operating income 60,288 15,894 21,213 16,770 16,207 16,935 20,287 37,612 205,206
Other income/expenses, net 114,155
--------
Income before property dispositions, extraordinary item and minority interest 91,051
Gain on property dispositions 2,194
Extraordinary item-loss on extinguishment of debt -
Minority interest 9,724
Preferred distributions 5,500
--------
Income available to common shareholders $ 78,021
========
FOR THE SIX MONTHS ENDED JUNE 30, 2000
- ------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real-estate
related revenues $71,060 $20,882 $24,642 $21,795 $19,724 $20,836 $28,034 $50,432 $257,405
Rental property
expenses and
real estate taxes 20,208 6,486 5,720 4,847 5,542 4,912 9,623 15,477 72,815
------- ------- ------- ------- ------- ------- ------- ------- --------
Property-level net
operating income 50,852 14,396 18,922 16,948 14,182 15,924 18,411 34,955 184,590
Other income/expenses, net 104,133
--------
Income before property dispositions, extraordinary item and minority interest 80,457
Gain on property dispositions 8,748
Extraordinary item-loss on extinguishment of debt 2,103
Minority interest 9,902
Preferred distributions 5,500
--------
Income available to common shareholders $ 71,700
========
NOTE 4 - SUBSEQUENT EVENTS
- ----------------------------------------
The $41.7 million of Convertible Debentures matured on July 1, 2001. Of
this amount, $41.1 million of Convertible Debentures converted into
2,057,300 common shares at a rate of one common share for each $20 of
Convertible Debentures outstanding and the $600,000 balance was settled
in cash.
-10-
11
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(IN THOUSANDS)
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 462,399 $ 443,057
Buildings and improvements 2,843,140 2,759,420
Less accumulated depreciation (366,949) (334,415)
---------- ----------
Operating real estate 2,938,590 2,868,062
Development in progress 215,804 208,486
Land held for development 154,413 137,402
---------- ----------
Net real estate 3,308,807 3,213,950
Cash and cash equivalents 36,131 4,638
Accounts receivable 16,501 12,624
Deferred financing and leasing costs,
net of accumulated amortization
(2001, $55,451; 2000, $59,071) 63,488 57,807
Prepaid expenses and other assets 84,443 107,336
---------- ----------
Total assets $3,509,370 $3,396,355
========== ==========
LIABILITIES
Mortgage loans $ 354,964 $ 362,025
Unsecured notes 1,345,000 1,095,000
Credit facility 12,000 176,000
Convertible debentures 41,743 70,871
Accounts payable 41,460 15,672
Accrued interest 33,096 29,478
Distributions payable 44,294 43,220
Other liabilities 80,871 84,515
---------- ----------
Total liabilities 1,953,428 1,876,781
OWNERS' EQUITY
General partner's equity - preferred units 120,814 120,814
- common units 1,245,390 1,199,991
Limited partners' equity - preferred units 112,516 112,516
- common units 77,222 86,253
---------- ----------
Total owners' equity 1,555,942 1,519,574
---------- ----------
Total liabilities and owners' equity $3,509,370 $3,396,355
========== ==========
See accompanying notes.
-11-
12
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
REVENUE
Rental $ 104,759 $ 94,825
Operating expense reimbursement 37,609 34,837
Interest and other 1,285 1,384
--------- ---------
Total revenue 143,653 131,046
--------- ---------
EXPENSES
Rental property 25,504 23,217
Real estate taxes 13,201 12,452
Interest 28,107 26,367
General and administrative 5,455 4,817
Depreciation and amortization 24,804 22,806
--------- ---------
Total expenses 97,071 89,659
--------- ---------
Income before property dispositions
and extraordinary item 46,582 41,387
Gain on property dispositions 717 4,395
--------- ---------
Income before extraordinary item 47,299 45,782
Extraordinary item-loss on extinguishment of debt - 228
========= =========
Net income $ 47,299 $ 45,554
========= =========
Net income allocated to general partner $ 42,405 $ 40,331
========= =========
Net income allocated to limited partners $ 4,894 $ 5,223
========= =========
See accompanying notes.
-12-
13
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
-------------- --------------
REVENUE
Rental $ 207,345 $ 186,797
Operating expense reimbursement 79,213 70,608
Interest and other 2,702 2,600
--------- ---------
Total revenue 289,260 260,005
--------- ---------
EXPENSES
Rental property 54,721 47,839
Real estate taxes 26,631 24,976
Interest 55,895 52,017
General and administrative 11,214 9,262
Depreciation and amortization 49,748 45,454
--------- ---------
Total expenses 198,209 179,548
--------- ---------
Income before property dispositions
and extraordinary item 91,051 80,457
Gain on property dispositions 2,194 8,748
--------- ---------
Income before extraordinary item 93,245 89,205
Extraordinary item-loss on extinguishment
of debt - 2,103
--------- ---------
Net income $ 93,245 $ 87,102
========= =========
Net income allocated to general partner $ 83,521 $ 77,200
========= =========
Net income allocated to limited partners $ 9,724 $ 9,902
========= =========
See accompanying notes.
-13-
14
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
OPERATING ACTIVITIES
Net income $ 93,245 $ 87,102
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 49,748 45,454
Amortization of deferred financing costs 2,117 1,757
Gain on sale (2,194) (8,748)
Noncash compensation 1,491 1,556
Changes in operating assets and liabilities:
Accounts receivable (3,877) 8,526
Prepaid expenses and other assets 21,915 (5,763)
Accounts payable 25,788 (2,831)
Accrued interest 3,618 (392)
Other liabilities (3,644) (6,674)
--------- ---------
Net cash provided by operating activities 188,207 119,987
--------- ---------
INVESTING ACTIVITIES
Investment in properties (35,644) (55,743)
Proceeds from disposition of properties 73,854 48,179
Investment in development in progress (139,186) (80,411)
Investment in land held for development (34,751) (38,380)
Increase in deferred leasing costs (13,385) (7,395)
--------- ---------
Net cash used in investing activities (149,112) (133,750)
--------- ---------
FINANCING ACTIVITIES
Retirement of convertible debentures - (10,914)
Proceeds from issuance of unsecured notes 250,000 -
Repayments of unsecured notes - (90,000)
Repayments of mortgage loans (7,389) (4,575)
Proceeds from credit facility 126,200 391,000
Repayments on credit facility (290,200) (213,000)
Decrease (increase) in deferred financing costs 142 (3,597)
Capital contributions 8,172 25,529
Distributions to partners (94,527) (85,089)
--------- ---------
Net cash (used) provided by financing activities (7,602) 9,354
--------- ---------
Increase (decrease) in cash and cash equivalent 31,493 (4,409)
Cash and cash equivalents at beginning of period 4,638 9,064
--------- ---------
Cash and cash equivalents at end of period $ 36,131 $ 4,655
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 22,199 $ 19,213
Acquisition of properties (328) -
Assumption of mortgage loans 328 -
Conversion of convertible debentures 29,063 194
========= =========
See accompanying notes.
-14-
15
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 94.7% of the common equity
of the Operating Partnership at June 30, 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 reviews the performance of the portfolio on a geographic
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 geographic area. Within these reportable segments, the Company
derives its revenues from its two product types: industrial and office
properties.
-15-
16
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 JUNE 30, 2001
- ------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $41,923 $10,999 $13,743 $11,192 $11,129 $11,236 $14,797 $27,349 $142,368
Rental property
expenses and
real estate taxes 11,562 3,030 2,939 2,702 2,906 2,963 4,365 8,238 38,705
------- ------- ------- ------- ------- ------- ------- ------- --------
Property-level net
operating income 30,361 7,969 10,804 8,490 8,223 8,273 10,432 19,111 103,663
Other income/expenses, net 57,081
--------
Income before property dispositions, extraordinary item and minority interest 46,582
Gain on property dispositions 717
Extraordinary item-loss on extinguishment of debt -
--------
Net income $ 47,299
========
Net income allocated to general partner $ 42,405
========
Net income allocated to limited partners $ 4,894
========
FOR THE THREE MONTHS ENDED JUNE 30, 2000
- ------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real-estate
related revenues $35,686 $10,327 $12,326 $11,043 $10,103 $10,497 $14,076 $25,604 $129,662
Rental property
expenses and
real estate taxes 9,624 3,196 2,518 2,280 2,784 2,548 4,728 7,991 35,669
------- ------- ------- ------- ------- ------- ------- ------- --------
Property-level net
operating income 26,062 7,131 9,808 8,763 7,319 7,949 9,348 17,613 93,993
Other income/expenses, net 52,606
--------
Income before property dispositions, extraordinary item and minority interest 41,387
Gain on property dispositions 4,395
Extraordinary item-loss on extinguishment of debt 228
--------
Net income $ 45,554
========
Net income allocated to general partner $ 40,331
========
Net income allocated to limited partners $ 5,223
========
-16-
17
FOR THE SIX MONTHS ENDED JUNE 30, 2001
- ------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $85,017 $22,685 $28,408 $21,946 $22,111 $22,884 $28,974 $54,533 $286,558
Rental property
expenses and
real estate taxes 24,729 6,791 7,195 5,176 5,904 5,949 8,687 16,921 81,352
------- ------- ------- ------- ------- ------- ------- ------- --------
Property-level net
operating income 60,288 15,894 21,213 16,770 16,207 16,935 20,287 37,612 205,206
Other income/expenses, net 114,155
--------
Income before property dispositions and extraordinary item 91,051
Gain on property dispositions 2,194
Extraordinary item-loss on extinguishment of debt -
--------
Net income $ 93,245
========
Net income allocated to general partner $ 83,521
========
Net income allocated to limited partners $ 9,724
========
FOR THE SIX MONTHS ENDED JUNE 30, 2000
- ------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real-estate
related revenues $71,060 $20,882 $24,642 $21,795 $19,724 $20,836 $28,034 $50,432 $257,405
Rental property
expenses and
real estate taxes 20,208 6,486 5,720 4,847 5,542 4,912 9,623 15,477 72,815
------- ------- ------- ------- ------- ------- ------- ------- --------
Property-level net
operating income 50,852 14,396 18,922 16,948 14,182 15,924 18,411 34,955 184,590
Other income/expenses, net 104,133
--------
Income before property dispositions and extraordinary item 80,457
Gain on property dispositions 8,748
Extraordinary item-loss on extinguishment of debt 2,103
--------
Net income $ 87,102
========
Net income allocated to general partner $ 77,200
========
Net income allocated to limited partners $ 9,902
========
NOTE 4 - SUBSEQUENT EVENTS
- ----------------------------------------
The $41.7 million of Convertible Debentures matured on July 1, 2001. Of
this amount, $41.1 million of Convertible Debentures converted into
2,057,300 common shares at a rate of one common share for each $20 of
Convertible Debentures outstanding and the $600,000 balance was settled
in cash.
-17-
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------
OVERVIEW
The following discussion and analysis of the consolidated financial
condition and consolidated results of operations should be read together
with the consolidated financial statements of the Company and notes
thereto contained in this Form 10-Q. Statements contained in this
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," which are not historical fact may be forward looking
statements within the meaning of Section 21E of the Securities Exchange
Act of 1934 (the "Exchange Act"). The Company intends such forward-
looking statements to be covered by the safe harbor provision for
forward-looking statements contained in Section 21E of the Exchange Act.
Although the Company believes 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. These
risks, uncertainties and other factors include, without limitation,
uncertainties affecting future economic conditions and the real estate
businesses generally (such as entry into new leases, renewals of leases,
tenant defaults, dependence on tenants' business operations and the cost
to complete and lease-up pending developments), 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 and risks relating to
leverage and debt service. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the
date hereof. The Company assumes no obligation to update or supplement
forward-looking statements that become untrue because of subsequent
events.
The Company's operating results depend primarily upon income from rental
operations. This income is substantially influenced by rental demand for
the properties in operation and properties under development. In
addition, the Company's continued growth is dependent upon its ability to
maintain property occupancy rates and increase rental rates on the
properties in operation.
The composition of the Company's properties in operation as of June 30,
2001 and 2000 is as follows (in thousands):
TOTAL PERCENT OF TOTAL
SQUARE FEET SQUARE FEET PERCENT OCCUPIED
---------------- ---------------- ----------------
JUNE 30, JUNE 30, JUNE 30,
TYPE 2001 2000 2001 2000 2001 2000
- ------------------------- ------- ------- ------- ------- ------- -------
Industrial - Distribution 21,302 19,616 43.1% 41.3% 96.4% 94.3%
Industrial - Flex 12,368 12,788 25.0% 26.9% 94.2% 94.4%
Office 15,765 15,067 31.9% 31.8% 92.8% 95.1%
------- ------- ------- ------- ------- -------
Total 49,435 47,471 100.0% 100.0% 94.7% 94.6%
======= ======= ======= ======= ======= =======
-18-
19
Geographic segment data for the three and six months ended June 30, 2001
and 2000 is included in Note 3 of the Notes to the Liberty Property Trust
and Liberty Property Limited Partnership Financial Statements.
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 and six months ended June 30, 2001 (unaudited) with
the results of operations of the Company for the three and six months
ended June 30, 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 and six months ended June 30, 2001 compared to the three
and six months ended June 30, 2000.
- -----------------------------------------------------------------------
Total revenue (principally rental revenue and operating expense
reimbursement) increased to $143.7 million from $131.0 million for the
three months ended June 30, 2001 compared to the same period in 2000, and
increased to $289.3 million from $260.0 million for the six months ended
June 30, 2001 compared to the same period in 2000. These increases are
primarily due to the increased net investment in properties developed,
acquired, or disposed of during the respective periods.
The following is a summary of the Company's acquisition, development and
disposition activity for the three and six months ended June 30, 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)
---- ----
March 31, 660 645
Acquisitions - $ - - $ -
Completed developments 6 90.5 7 53.0
Dispositions (26) (61.4) (3) (18.4)
---- ----
Ending June 30, 640 649
==== ====
(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.
-19-
20
Rental property and real estate tax expenses increased to $38.7 million
from $35.7 million for the three months ended June 30, 2001 compared to
the same period in 2000, and to $81.4 million from $72.8 million for the
six months ended June 30, 2001 compared to the same period in 2000. These
increases are due to the increase in the total investment in properties
owned during the respective periods.
Property-level operating income for the "Same Store" properties
(properties owned as of January 1, 2000) increased to $88.8 million for
the three months ended June 30, 2001 from $85.8 million for the three
months ended June 30, 2000, on a straight line basis, (which recognizes
rental revenue evenly over the life of the lease), and increased to $87.1
million for the three months ended June 30, 2001 from $83.8 million for
the three months ended June 30, 2000, on a cash basis. These increases
of 3.5% and 3.9%, respectively, are due to increases in rental rates for
the properties.
Property-level operating income for the "Same Store" properties increased
to $177.3 million for the six months ended June 30, 2001 from $170.0
million for the six months ended June 30, 2000, on a straight line basis
and increased to $173.7 million for the six months ended June 30, 2001
from $165.7 million for the six months ended June 30, 2000, on a cash
basis. These increases of 4.3% and 4.8%, respectively, are due to
increases in rental rates for the properties. In addition, the operating
expense recovery ratio has been approximately 98% during the respective
periods.
Set forth below is a schedule comparing the property-level operating
income for the "Same Store" properties for the three and six months ended
June 30, 2001 and 2000 (in thousands).
STRAIGHT LINE BASIS CASH BASIS
--------------------- ---------------------
QUARTER ENDED QUARTER ENDED
--------------------- ---------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Rental Revenue $ 89,540 $ 86,413 $ 87,850 $ 84,441
-------- -------- -------- --------
Operating expenses:
Rental property expense 22,733 21,824 22,733 21,824
Real estate taxes 11,527 11,314 11,527 11,314
Operating expense recovery (33,470) (32,507) (33,470) (32,507)
-------- -------- -------- --------
Unrecovered operating expenses 790 631 790 631
-------- -------- -------- --------
Property level operating income $ 88,750 $ 85,782 $ 87,060 $ 83,810
======== ======== ======== ========
-20-
21
STRAIGHT LINE BASIS CASH BASIS
--------------------- ---------------------
SIX MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Rental Revenue $ 178,681 $ 171,773 $ 175,071 $ 167,496
--------- --------- --------- ---------
Operating expenses:
Rental property expense 48,666 45,227 48,666 45,227
Real estate taxes 23,137 22,689 23,137 22,689
Operating expense recovery (70,413) (66,114) (70,413) (66,114)
--------- --------- --------- ---------
Unrecovered operating expenses 1,390 1,802 1,390 1,802
--------- --------- --------- ---------
Property level operating income $ 177,291 $ 169,971 $ 173,681 $ 165,694
========= ========= ========= =========
General and administrative expenses increased to $5.5 million for the
three months ended June 30, 2001 from $4.8 million compared to the same
period in 2000 and to $11.2 million from $9.3 million for the six months
ended June 30, 2001 compared to the same period in 2000. These increases
are primarily due to the funding of initiatives which the Company
undertook relating to training, internal assurance, property management,
and marketing.
Depreciation and amortization expense increased to $24.8 million from
$22.8 million for the three months ended June 30, 2001 compared to the
same period in 2000 and to $49.7 million from $45.5 million for the six
months ended June 30, 2001 compared to the same period in 2000. These
increases are primarily due to an increase in the investment in
properties owned during the respective periods.
Interest expense increased to $28.1 million from $26.4 million for the
three months ended June 30, 2001 compared to the same period in 2000, and
to $55.9 million from $52.0 million for the six months ended June 30,
2001 compared to the same period in 2000. These increases are due to an
increase in the average debt outstanding for the respective periods,
which was $1,749.6 million for the three months ended June 30, 2001
compared to $1,564.3 million for the same period in 2000 and $1,734.4
million for the six months ended June 30, 2001 compared to $1,540.0
million for the same period in 2000. In addition, the weighted average
interest rates for the respective periods have increased from 7.53% for
the three months ended June 30, 2000 to 7.54% for the three months ended
June 30, 2001, and from 7.52% for the six months ended June 30, 2000 to
7.58% for the six months ended June 30, 2001.
In the second quarter of 2001, the Company realized a gain on sale of
$717,000, due to the sale of 26 properties and two parcels of land for
$63.2 million. During the six months ended June 30, 2001, the Company
realized a gain on sale of $2.2 million, due to the sale of 28 operating
properties, one development property and four parcels of land for $76.8
million. In the second quarter of 2000, the Company realized a gain on
sale of $4.4 million, due to the sale of three properties and two parcels
of land for $18.4 million, and during the six months ended June 30, 2000,
the Company realized a gain on sale of $8.7 million, due to the sale of
six properties and three parcels of land for $50.0 million.
-21-
22
In the second quarter of 2000, the Company repurchased $1.2 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 second quarter of 2000
totaling $228,000. During the six months ended June 30, 2000, the
Company repurchased $10.9 million principal amount of the Convertible
Debentures, resulting in the recognition of an extraordinary loss
totaling $2.1 million. These losses represent the redemption premiums
and the write-off of related deferred financing costs. There were no
extraordinary items in the six months ended June 30, 2001.
As a result of the foregoing, the Company's income before minority
interest increased to $47.3 million for the three months ended
June 30, 2001 from $45.6 million for the three months ended June 30,
2000, and to $93.2 million for the six months ended June 30, 2001 from
$87.1 million for the six months ended June 30, 2000. In addition, net
income increased to $42.4 million for the three months ended June 30,
2001 from $40.3 million for the three months ended June 30, 2000 and to
$83.5 million for the six months ended June 30, 2001 from $77.2 million
for the six months ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, the Company had cash and cash equivalents of $36.1
million.
Net cash flow provided by operating activities increased to $188.2
million for the six months ended June 30, 2001 from $120.0 million for
the six months ended June 30, 2000. This $68.2 million increase was
primarily due the increase in net income and to the fluctuations in
prepaid expenses and accounts payable during the respective periods.
Net cash used in investing activities increased to $149.1 million for the
six months ended June 30, 2001 from $133.8 million for the six months
ended June 30, 2000. This increase primarily resulted from an increase
in development in progress in 2001.
Cash flows from financing activities decreased by $17.0 million for the
six months ended June 30, 2001 versus the six months ended June 30, 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.
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 six months ended June 30, 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 Baa2 and BBB, respectively. On
July 18, 2001, Fitch initiated coverage on the Company with a BBB senior
-22-
23
debt rating. At these ratings the interest rate for borrowings under the
Credit Facility is 105 basis points over LIBOR.
As of June 30, 2001, $355.0 million in mortgage loans and $1,345.0
million in unsecured notes were outstanding. The interest rates on
$1,693.9 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 7.4 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 June 30, 2001 are as follows (in thousands):
MORTGAGES WEIGHTED
-------------------------- UNSECURED AVERAGE
AMORTIZATION MATURITIES NOTES TOTAL INTEREST RATE
------------ ---------- ---------- ---------- --------------
2001 $ 4,680 $ 19,664 $ - $ 24,344 7.1%
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 1,099 3,533 250,000 254,632 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%
------- -------- ---------- ---------- ------
$54,711 $300,253 $1,345,000 $1,699,964 7.4%
======= ======== ========== ========== ======
(1) Callable in 2003.
GENERAL
The Company has continued to pursue development and acquisition
opportunities and the strategic disposition of certain properties. In
addition, the Company has continued to focus on improving the performance
of the "Same Store" portfolio by achieving and maintaining high occupancy
levels and maximizing rental rates.
The expiring square feet and annual base rent by year for the properties
in operation as of June 30, 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 1,647 $ 7,422 854 $ 6,449 1,024 $ 13,157 3,525 $ 27,028
2002 3,571 14,787 1,984 16,187 1,726 22,136 7,281 53,110
2003 1,549 7,822 2,311 20,343 1,643 22,477 5,503 50,642
2004 2,200 10,996 1,853 16,831 1,537 24,173 5,590 52,000
2005 2,662 13,759 1,370 12,744 3,018 44,503 7,050 71,006
2006 2,259 10,183 1,360 15,354 1,105 16,738 4,724 42,275
Thereafter 6,658 37,588 1,914 19,947 4,572 77,912 13,144 135,447
------ -------- ------ -------- ------ -------- ------ --------
Total 20,546 $102,557 11,646 $107,855 14,625 $221,096 46,817 $431,508
====== ======== ====== ======== ====== ======== ====== ========
-23-
<Page> 24
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 4.2 million square feet of
properties under development as of June 30, 2001 are as follows (in
thousands):
SQUARE FEET
-----------------------------
SCHEDULED IND- IND- PERCENT PRE-LEASED
IN-SERVICE DATE DIST. FLEX OFFICE TOTAL JUNE 30, 2001 TOTAL INVESTMENT
- ---------------- ------ ------ ------- ------ ------------------ ----------------
3rd Quarter 2001 254 65 275 594 92.7% $ 49,029
4th Quarter 2001 304 93 117 514 69.4% 37,124
1st Quarter 2002 - 395 108 503 35.5% 50,136
2nd Quarter 2002 - 170 283 453 44.7% 47,062
Thereafter 1,123 212 765 2,100 11.2% 167,704
----- ----- ----- ----- ------ --------
Total 1,681 935 1,548 4,164 36.6% $351,055
===== ===== ===== ===== ====== ========
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.
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 the 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 July 31, 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 July 31, 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
-24-
25
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 and six months ended June 30, 2001 and June 30,
2000 are as follows:
THREE MONTHS ENDED
(IN THOUSANDS)
------------------------------
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
Income available to common shareholders $ 39,655 $ 37,581
Adjustments:
Minority interest less preferred unit distributions 2,241 2,656
Depreciation and amortization 24,328 22,450
Extraordinary item-loss on extinguishment of debt - 228
Gain on sale of property (717) (4,395)
======== ========
Funds from operations $ 65,507 $ 58,520
======== ========
SIX MONTHS ENDED
(IN THOUSANDS)
------------------------------
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
Income available to common shareholders $ 78,021 $ 71,700
Adjustments:
Minority interest less preferred unit distributions 4,418 5,138
Depreciation and amortization 48,861 44,712
Extraordinary item-loss on extinguishment of debt - 2,103
Gain on sale of property (2,194) (8,748)
======== ========
Funds from operations $129,106 $114,905
======== ========
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.
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PART II: OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the 2001 Annual Meeting of Shareholders of the Trust, held on
May 16, 2001, the following matters were approved by the
requisite vote of the shareholders, as follows:
1. Management's nominees, Willard G. Rouse III, M. Leanne
Lachman and J. Anthony Hayden, were elected to fill the three
available positions as Class I trustees. Voting (expressed in
number of shares) was as follows: Mr. Rouse: 44,729,048 for,
15,123,310 against or withheld and no abstentions or broker non-
votes; Ms. Lachman: 59,288,756 for, 563,602 against or withheld
and no abstentions or broker non-votes; and Mr. Hayden:
59,286,884 for, 565,474 against or withheld and no abstentions
or broker non-votes.
2. The shareholders approved a proposal to amend the Liberty
Property Trust Amended and Restated Share Incentive Plan,
including an amendment to increase the number of shares
available for awards thereunder by 3,426,256 shares to 9,926,256
shares. Voting (expressed in number of shares) was as follows:
34,268,343 for, 19,289,301 against and 6,294,713 abstentions or
broker non-votes.
3. The shareholders approved a proposal to adopt the Liberty
Property Trust Employee Stock Purchase Plan. Voting (expressed
in number of shares) was as follows: 52,349,345 for, 1,236,942
against and 6,266,072 abstentions or broker non-votes.
4. The shareholders approved the ratification of Ernst & Young
LLP as the Trust's independent public accountants for 2001.
Voting (expressed in number of shares) was as follows:
59,640,774 for, 158,936 against and 52,648 abstentions or broker
non-votes.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
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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 August 6, 2001
- ------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees,
President and Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. August 6, 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 August 6, 2001
- ------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees,
President and Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. August 6, 2001
- ------------------------------------- --------------------------
George J. Alburger, Jr. Date
Chief Financial Officer and
Executive Vice President
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