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 September 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 November 2, 2001, 73,391,503 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 SEPTEMBER 30, 2001
INDEX
- -----
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements (unaudited) Page
----
Consolidated balance sheets of Liberty Property
Trust at September 30, 2001 and December 31, 2000. 3
Consolidated statements of operations of Liberty
Property Trust for the three months ended September
30, 2001 and September 30, 2000. 4
Consolidated statements of operations of Liberty
Property Trust for the nine months ended September 30,
2001 and September 30, 2000. 5
Consolidated statements of cash flows of Liberty
Property Trust for the nine months ended September 30,
2001 and September 30, 2000. 6
Notes to consolidated financial statements for
Liberty Property Trust. 7
Consolidated balance sheets of Liberty Property
Limited Partnership at September 30, 2001 and
December 31, 2000. 11
Consolidated statements of operations of Liberty
Property Limited Partnership for the three months
ended September 30, 2001 and September 30, 2000. 12
Consolidated statements of operations of Liberty
Property Limited Partnership for the nine months
ended September 30, 2001 and September 30, 2000. 13
Consolidated statements of cash flows of Liberty
Property Limited Partnership for the nine months
ended September 30, 2001 and September 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
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CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 472,627 $ 443,057
Buildings and improvements 2,898,836 2,759,420
Less accumulated depreciation (388,979) (334,415)
---------- ----------
Operating real estate 2,982,484 2,868,062
Development in progress 218,280 208,486
Land held for development 163,755 137,402
---------- ----------
Net real estate 3,364,519 3,213,950
Cash and cash equivalents 6,820 4,638
Accounts receivable 20,985 12,624
Deferred financing and leasing costs,
net of accumulated amortization
(2001, $59,340; 2000, $59,071) 63,497 57,807
Prepaid expenses and other assets 117,860 107,336
---------- ----------
Total assets $3,573,681 $3,396,355
========== ==========
LIABILITIES
Mortgage loans $ 348,450 $ 362,025
Unsecured notes 1,345,000 1,095,000
Credit facility 90,000 176,000
Convertible debentures - 70,871
Accounts payable 40,819 15,672
Accrued interest 18,869 29,478
Dividend payable 47,242 43,220
Other liabilities 79,617 84,515
---------- ----------
Total liabilities 1,969,997 1,876,781
Minority interest 188,415 198,769
SHAREHOLDERS' EQUITY
Series A preferred shares, $.001 par value,
5,000,000 shares authorized, issued and
outstanding as of September 30, 2001 and
December 31, 2000 120,814 120,814
Common shares of beneficial interest, $.001
par value, 191,200,000 shares authorized,
73,154,588 (includes 59,100 in treasury)
and 68,272,079 (includes 59,100 in treasury)
shares issued and outstanding as of September 30,
2001 and December 31, 2000, respectively 73 68
Additional paid-in capital 1,322,892 1,223,191
Unearned compensation (1,229) (1,690)
Distributions in excess of net income (25,954) (20,251)
Common shares in treasury, at cost, 59,100 shares
as of September 30, 2001 and December 31, 2000 (1,327) (1,327)
---------- ----------
Total shareholders' equity 1,415,269 1,320,805
---------- ----------
Total liabilities and shareholders' equity $3,573,681 $3,396,355
========== ==========
See accompanying notes.
-3-
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CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
REVENUE
Rental $ 105,775 $ 97,152
Operating expense reimbursement 40,721 36,219
Interest and other 1,916 1,523
--------- ---------
Total revenue 148,412 134,894
--------- ---------
EXPENSES
Rental property 27,809 24,541
Real estate taxes 15,270 12,946
Interest 27,697 27,518
General and administrative 4,953 4,736
Depreciation and amortization 25,734 22,934
--------- ---------
Total expenses 101,463 92,675
--------- ---------
Income before property dispositions
and minority interest 46,949 42,219
Gain on property dispositions 140 2,964
--------- ---------
Income before minority interest 47,089 45,183
Minority interest 4,775 5,092
--------- ---------
Net income 42,314 40,091
Preferred distributions 2,750 2,750
--------- ---------
Income available to common shareholders $ 39,564 $ 37,341
========= =========
Earnings per share:
Income per common share - basic $ 0.54 $ 0.55
========= =========
Income per common share - diluted $ 0.53 $ 0.54
========= =========
Distributions declared per common share $ 0.59 $ 0.57
========= =========
Weighted average number of common shares
outstanding
Basic 72,773 67,683
Diluted 73,977 68,699
========= =========
See accompanying notes.
-4-
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CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
REVENUE
Rental $ 313,120 $ 283,949
Operating expense reimbursement 119,934 106,827
Interest and other 4,618 4,123
--------- ---------
Total revenue 437,672 394,899
--------- ---------
EXPENSES
Rental property 82,530 72,380
Real estate taxes 41,901 37,922
Interest 83,592 79,535
General and administrative 16,167 13,998
Depreciation and amortization 75,482 68,388
--------- ---------
Total expenses 299,672 272,223
--------- ---------
Income before property dispositions
extraordinary item and minority interest 138,000 122,676
Gain on property dispositions 2,334 11,712
--------- ---------
Income before extraordinary item and
minority interest 140,334 134,388
Extraordinary item-loss on extinquishment
of debt - 2,103
--------- ---------
Income before minority interest 140,334 132,285
Minority interest 14,499 14,994
--------- ---------
Net income 125,835 117,291
Preferred distributions 8,250 8,250
--------- ---------
Income available to common shareholders $ 117,585 $ 109,041
========= =========
Earnings per share
Basic:
Income before extraordinary item $ 1.67 $ 1.65
Extraordinary item - (0.03)
--------- ---------
Income available to common shareholders $ 1.67 $ 1.62
========= =========
Diluted:
Income before extraordinary item $ 1.64 $ 1.63
Extraordinary item - (0.03)
--------- ---------
Income available to common shareholders $ 1.64 $ 1.60
========= =========
Distributions declared per common share $ 1.73 $ 1.61
========= =========
Weighted average number of common shares
Outstanding
Basic 70,487 67,253
Diluted 73,360 67,935
========= =========
See accompanying notes.
-5-
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CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
OPERATING ACTIVITIES
Net income $ 125,835 $ 117,291
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 75,482 68,388
Amortization of deferred financing costs 3,086 2,818
Minority interest in net income 14,499 14,994
Gain on sale (2,334) (11,712)
Noncash compensation 1,749 1,807
Changes in operating assets and liabilities:
Accounts receivable (8,361) 6,529
Prepaid expenses and other assets (11,971) (23,147)
Accounts payable 25,147 12,317
Accrued interest (10,609) (2,090)
Other liabilities (4,898) (190)
---------- ---------
Net cash provided by operating activities 207,625 187,005
---------- ---------
INVESTING ACTIVITIES
Investment in properties (59,264) (82,968)
Proceeds from disposition of properties 77,298 63,604
Investment in development in progress (187,116) (120,110)
Investment in land held for development (44,488) (71,013)
Increase in deferred leasing costs (17,495) (12,518)
---------- ---------
Net cash used in investing activities (231,065) (223,005)
---------- ---------
FINANCING ACTIVITIES
Net proceeds from issuance of common shares 18,178 10,855
Proceeds from issuance of preferred units - 19,470
Retirement of convertible debentures (597) (10,914)
Proceeds from issuance of unsecured notes 250,000 200,000
Repayments of unsecured notes - (90,000)
Repayments of mortgage loans (13,903) (7,520)
Proceeds from credit facility 253,200 450,000
Repayments on credit facility (339,200) (405,000)
Decrease (increase) in deferred financing costs 279 (6,593)
Distributions paid on common shares (119,022) (104,755)
Distributions paid on preferred shares (8,250) (8,250)
Distributions paid on units (15,063) (14,969)
---------- ---------
Net cash provided by financing activities 25,622 32,324
---------- ---------
Increase (decrease) in cash and cash equivalents 2,182 (3,676)
Cash and cash equivalents at beginning of period 4,638 9,064
---------- ---------
Cash and cash equivalents at end of period $ 6,820 $ 5,388
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 22,693 $ 21,518
Acquisition of properties (328) -
Assumption of mortgage loans 328 -
Conversion of convertible debentures 70,274 2,583
========== =========
See accompanying notes.
-6-
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LIBERTY PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 nine months ended September 30,
2001 and 2000:
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2001 ENDED SEPTEMBER 30, 2000
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $ 42,314 $ 40,091
Less: Preferred
distributions 2,750 2,750
-------- --------
Basic income per
common share
Income available
to common share-
holders 39,564 72,773 $ 0.54 37,341 67,683 $ 0.55
====== ======
Dilutive shares
Long-term compen-
sation plans - 1,181 - 1,016
Convertible debentures - 23 - -
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 39,564 73,977 $ 0.53 $ 37,341 68,699 $ 0.54
======== ======= ====== ======== ======= ======
-7-
8
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2001 ENDED SEPTEMBER 30, 2000
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $125,835 $117,291
Less: preferred
distributions 8,250 8,250
-------- --------
Basic income per
common share
Income available
to common share-
holders 117,585 70,487 $ 1.67 109,041 67,253 $ 1.62
====== ======
Dilutive shares
Long-term compen-
sation plans - 1,083 - 682
Convertible debentures 2,587 1,790 - -
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $120,172 73,360 $ 1.64 $109,041 67,935 $ 1.60
======== ======= ====== ======== ======= ======
For the three and nine months ended September 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 three and nine months ended September 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 94.9% of the common equity
of the Operating Partnership at September 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;
-8-
9
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 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 SEPTEMBER 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $ 43,771 $ 10,882 $ 14,725 $ 11,595 $ 11,687 $ 11,216 $ 15,693 $ 26,927 $146,496
Rental property
expenses and
real estate taxes 12,877 3,474 3,598 2,816 3,525 3,014 5,289 8,486 43,079
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 30,894 7,408 11,127 8,779 8,162 8,202 10,404 18,441 103,417
Other income/expenses, net 56,468
--------
Income before property dispositions and minority interest 46,949
Gain on property dispositions 140
Minority interest 4,775
Preferred distributions 2,750
--------
Income available to common shareholders $ 39,564
========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $ 37,563 $ 10,628 $ 12,918 $ 10,662 $ 10,780 $ 10,496 $ 14,477 $ 25,847 $133,371
Rental property
expenses and
real estate taxes 10,331 3,355 2,666 2,325 2,888 2,562 4,909 8,451 37,487
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 27,232 7,273 10,252 8,337 7,892 7,934 9,568 17,396 95,884
Other income/expenses, net 53,665
--------
Income before property dispositions and minority interest 42,219
Gain on property dispositions 2,964
Minority interest 5,092
Preferred distributions 2,750
--------
Income available to common shareholders $ 37,341
========
-9-
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $128,788 $ 33,567 $ 43,133 $ 33,541 $ 33,798 $ 34,100 $ 44,667 $ 81,460 $433,054
Rental property
expenses and
real estate taxes 37,606 10,265 10,793 7,992 9,429 8,963 13,976 25,407 124,431
-------- -------- -------- -------- -------- -------- -------- --------- --------
Property-level net
operating income 91,182 23,302 32,340 25,549 24,369 25,137 30,691 56,053 308,623
Other income/expenses, net 170,623
--------
Income before property dispositions, extraordinary item and minority interest 138,000
Gain on property dispositions 2,334
Extraordinary item-loss on extinguishment of debt -
Minority interest 14,499
Preferred distributions 8,250
--------
Income available to common shareholders $117,585
========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $108,623 $ 31,510 $ 37,560 $ 32,457 $ 30,504 $ 31,332 $ 42,511 $ 76,279 $390,776
Rental property
expenses and
real estate taxes 30,539 9,841 8,386 7,172 8,430 7,474 14,532 23,928 110,302
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 78,084 21,669 29,174 25,285 22,074 23,858 27,979 52,351 280,474
Other income/expenses, net 157,798
--------
Income before property dispositions, extraordinary item and minority interest 122,676
Gain on property dispositions 11,712
Extraordinary item-loss on extinguishment of debt 2,103
Minority interest 14,994
Preferred distributions 8,250
--------
Income available to common shareholders $109,041
========
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CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(IN THOUSANDS)
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 472,627 $ 443,057
Buildings and improvements 2,898,836 2,759,420
Less accumulated depreciation (388,979) (334,415)
---------- ----------
Operating real estate 2,982,484 2,868,062
Development in progress 218,280 208,486
Land held for development 163,755 137,402
---------- ----------
Net real estate 3,364,519 3,213,950
Cash and cash equivalents 6,820 4,638
Accounts receivable 20,985 12,624
Deferred financing and leasing costs,
net of accumulated amortization
(2001, $59,340; 2000, $59,071) 63,497 57,807
Prepaid expenses and other assets 117,860 107,336
---------- ----------
Total assets $3,573,681 $3,396,355
========== ==========
LIABILITIES
Mortgage loans $ 348,450 $ 362,025
Unsecured notes 1,345,000 1,095,000
Credit facility 90,000 176,000
Convertible debentures - 70,871
Accounts payable 40,819 15,672
Accrued interest 18,869 29,478
Distributions payable 47,242 43,220
Other liabilities 79,617 84,515
---------- ----------
Total liabilities 1,969,997 1,876,781
OWNERS' EQUITY
General partner's equity - preferred units 120,814 120,814
- common units 1,294,455 1,199,991
Limited partners' equity - preferred units 112,516 112,516
- common units 75,899 86,253
---------- ----------
Total owners' equity 1,603,684 1,519,574
---------- ----------
Total liabilities and owners' equity $3,573,681 $3,396,355
========== ==========
See accompanying notes.
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CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
REVENUE
Rental $ 105,775 $ 97,152
Operating expense reimbursement 40,721 36,219
Interest and other 1,916 1,523
--------- ---------
Total revenue 148,412 134,894
--------- ---------
EXPENSES
Rental property 27,809 24,541
Real estate taxes 15,270 12,946
Interest 27,697 27,518
General and administrative 4,953 4,736
Depreciation and amortization 25,734 22,934
--------- ---------
Total expenses 101,463 92,675
--------- ---------
Income before property dispositions 46,949 42,219
Gain on property dispositions 140 2,964
--------- ---------
Net income $ 47,089 $ 45,183
========= =========
Net income allocated to general partner $ 42,314 $ 40,091
========= =========
Net income allocated to limited partners $ 4,775 $ 5,092
========= =========
See accompanying notes.
-12-
13
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
REVENUE
Rental $ 313,120 $ 283,949
Operating expense reimbursement 119,934 106,827
Interest and other 4,618 4,123
--------- ---------
Total revenue 437,672 394,899
--------- ---------
EXPENSES
Rental property 82,530 72,380
Real estate taxes 41,901 37,922
Interest 83,592 79,535
General and administrative 16,167 13,998
Depreciation and amortization 75,482 68,388
--------- ---------
Total expenses 299,672 272,223
--------- ---------
Income before property dispositions
and extraordinary item 138,000 122,676
Gain on property dispositions 2,334 11,712
--------- ---------
Income before extraordinary item 140,334 134,388
Extraordinary item-loss on extinguishment of debt - 2,103
--------- ---------
Net income $ 140,334 $ 132,285
========= =========
Net income allocated to general partner $ 125,835 $ 117,291
========= =========
Net income allocated to limited partners $ 14,499 $ 14,994
========= =========
See accompanying notes.
-13-
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CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
OPERATING ACTIVITIES
Net income $ 140,334 $ 132,285
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 75,482 68,388
Amortization of deferred financing costs 3,086 2,818
Gain on sale (2,334) (11,712)
Noncash compensation 1,749 1,807
Changes in operating assets and liabilities:
Accounts receivable (8,361) 6,529
Prepaid expenses and other assets (11,971) (23,147)
Accounts payable 25,147 12,317
Accrued interest (10,609) (2,090)
Other liabilities (4,898) (190)
---------- ---------
Net cash provided by operating activities 207,625 187,005
---------- ---------
INVESTING ACTIVITIES
Investment in properties (59,264) (82,968)
Proceeds from disposition of properties 77,298 63,604
Investment in development in progress (187,116) (120,110)
Investment in land held for development (44,488) (71,013)
Increase in deferred leasing costs (17,495) (12,518)
---------- ---------
Net cash used in investing activities (231,065) (223,005)
---------- ---------
FINANCING ACTIVITIES
Retirement of convertible debentures (597) (10,914)
Proceeds from issuance of unsecured notes 250,000 200,000
Repayments of unsecured notes - (90,000)
Repayments of mortgage loans (13,903) (7,520)
Proceeds from credit facility 253,200 450,000
Repayments on credit facility (339,200) (405,000)
Decrease (increase) in deferred financing costs 279 (6,593)
Capital contributions 18,178 30,325
Distributions to partners (142,335) (127,974)
---------- ---------
Net cash provided by financing activities 25,622 32,324
---------- ---------
Increase (decrease) in cash and cash equivalent 2,182 (3,676)
Cash and cash equivalents at beginning of period 4,638 9,064
---------- ---------
Cash and cash equivalents at end of period $ 6,820 $ 5,388
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 22,693 $ 21,518
Acquisition of properties (328) -
Assumption of mortgage loans 328 -
Conversion of convertible debentures 70,274 2,583
========== =========
See accompanying notes.
-14-
15
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 94.9% of the common equity
of the Operating Partnership at September 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 properties
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 SEPTEMBER 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $ 43,771 $ 10,882 $ 14,725 $ 11,595 $ 11,687 $ 11,216 $ 15,693 $ 26,927 $146,496
Rental property
expenses and
real estate taxes 12,877 3,474 3,598 2,816 3,525 3,014 5,289 8,486 43,079
-------- -------- -------- -------- -------- -------- -------- --------- --------
Property-level net
operating income 30,894 7,408 11,127 8,779 8,162 8,202 10,404 18,441 103,417
Other income/expenses, net 56,468
--------
Income before property dispositions 46,949
Gain on property dispositions 140
--------
Net income $ 47,089
========
Net income allocated to general partner $ 42,314
========
Net income allocated to limited partners $ 4,775
========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $ 37,563 $ 10,628 $ 12,918 $ 10,662 $ 10,780 $ 10,496 $ 14,477 $ 25,847 $133,371
Rental property
expenses and real
estate taxes 10,331 3,355 2,666 2,325 2,888 2,562 4,909 8,451 37,487
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 27,232 7,273 10,252 8,337 7,892 7,934 9,568 17,396 95,884
Other income/expenses, net 53,665
--------
Income before property dispositions 42,219
Gain on property dispositions 2,964
--------
Net income $ 45,183
========
Net income allocated to general partner $ 40,091
========
Net income allocated to limited partners $ 5,092
========
-16-
17
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $128,788 $ 33,567 $ 43,133 $ 33,541 $ 33,798 $ 34,100 $ 44,667 $ 81,460 $433,054
Rental property
expenses and
real estate taxes 37,606 10,265 10,793 7,992 9,429 8,963 13,976 25,407 124,431
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 91,182 23,302 32,340 25,549 24,369 25,137 30,691 56,053 308,623
Other income/expenses, net 170,623
--------
Income before property dispositions and extraordinary item 138,000
Gain on property dispositions 2,334
Extraordinary item-loss on extinguishment of debt -
--------
Net income $140,334
========
Net income allocated to general partner $125,835
========
Net income allocated to limited partners $ 14,499
========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real estate
related revenues $108,623 $ 31,510 $ 37,560 $ 32,457 $ 30,504 $ 31,332 $ 42,511 $ 76,279 $390,776
Rental property
expenses and
real estate taxes 30,539 9,841 8,386 7,172 8,430 7,474 14,532 23,928 110,302
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 78,084 21,669 29,174 25,285 22,074 23,858 27,979 52,351 280,474
Other income/expenses, net 157,798
--------
Income before property dispositions and extraordinary item 122,676
Gain on property dispositions 11,712
Extraordinary item-loss on extinguishment of debt 2,103
--------
Net income $132,285
========
Net income allocated to general partner $117,291
========
Net income allocated to limited partners $ 14,994
========
-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'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 general slowdown in the economy may have a
negative effect on occupancy and rental rates. To the extent the
slowdown negatively affects office occupancy disproportionately to the
industrial occupancy, the negative effect on growth will be greater due
to the higher rental rates for office properties.
The composition of the Company's properties in operation as of September
30, 2001 and 2000 is as follows (in thousands):
TOTAL PERCENT OF TOTAL
SQUARE FEET SQUARE FEET PERCENT OCCUPIED
---------------- ---------------- ----------------
SEPT. 30, SEPT. 30, SEPT. 30,
TYPE 2001 2000 2001 2000 2001 2000
- ------------------------- ------- ------- ------- ------- ------- -------
Industrial - Distribution 21,409 20,164 42.8% 41.7% 97.4% 96.3%
Industrial - Flex 12,433 12,886 24.9% 26.7% 94.1% 94.3%
Office 16,134 15,289 32.3% 31.6% 92.1% 95.1%
------- ------- ------- ------- ------- -------
Total 49,976 48,339 100.0% 100.0% 94.8% 95.4%
======= ======= ======= ======= ======= =======
-18-
19
Geographic segment data for the three and nine months ended September 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 nine months ended September 30, 2001
(unaudited) with the results of operations of the Company for the three
and nine months ended September 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 nine months ended September 30, 2001 compared to the
three and nine months ended September 30, 2000.
- -----------------------------------------------------------------------
Total revenue (principally rental revenue and operating expense
reimbursement) increased to $148.4 million from $134.9 million for the
three months ended September 30, 2001 compared to the same period in
2000, and increased to $437.7 million from $394.9 million for the nine
months ended September 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 nine months ended September 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 13 147.2 12 108.6
Dispositions (28) (65.8) (6) (40.7)
---- ----
June 30, 640 649
Acquisitions 1 $ 13.1 3 $ 21.2
Completed developments 7 48.7 6 40.5
Dispositions (1) (3.3) (7) (13.3)
---- ----
Ending September 30, 647 651
==== ====
(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 $43.1 million
from $37.5 million for the three months ended September 30, 2001 compared
to the same period in 2000, and to $124.4 million from $110.3 million for
the nine months ended September 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 net operating income for the "Same Store" properties
(properties owned as of January 1, 2000) increased to $86.6 million for
the three months ended September 30, 2001 from $86.4 million for the
three months ended September 30, 2000, on a straight line basis, (which
recognizes rental revenue evenly over the life of the lease), and
increased to $85.2 million for the three months ended September 30, 2001
from $84.3 million for the three months ended September 30, 2000, on a
cash basis. These increases of 0.3% and 1.0%, respectively, are due to
increases in rental rates for the properties, partially offset by a
decrease in occupancy, primarily in the office portion of the portfolio.
Property-level net operating income for the Same Store properties
increased to $263.7 million for the nine months ended September 30, 2001
from $256.1 million for the nine months ended September 30, 2000, on a
straight line basis and increased to $258.6 million for the nine months
ended September 30, 2001 from $249.8 million for the nine months ended
September 30, 2000, on a cash basis. These increases of 2.9% and 3.5%,
respectively, are due to increases in rental rates for the properties,
partially offset by a decrease in occupancy, primarily in the office
portion of the portfolio.
Set forth below is a schedule comparing the property-level net operating
income for the Same Store properties for the three and nine months ended
September 30, 2001 and 2000 (in thousands).
STRAIGHT LINE BASIS CASH BASIS
--------------------- ---------------------
QUARTER ENDED QUARTER ENDED
--------------------- ---------------------
SEPT.30, SEPT.30, SEPT.30, SEPT.30,
2001 2000 2001 2000
--------- --------- --------- ---------
Rental Revenue $ 88,560 $ 87,285 $ 87,121 $ 85,246
-------- -------- -------- --------
Operating expenses:
Rental property expense 24,064 22,645 24,064 22,645
Real estate taxes 13,254 11,682 13,254 11,682
Operating expense recovery (35,364) (33,420) (35,364) (33,420)
-------- -------- -------- --------
Unrecovered operating expenses 1,954 907 1,954 907
-------- -------- -------- --------
Property-level net operating income $ 86,606 $ 86,378 $ 85,167 $ 84,339
======== ======== ======== ========
-20-
21
STRAIGHT LINE BASIS CASH BASIS
--------------------- ---------------------
NINE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
SEPT.30, SEPT.30, SEPT.30, SEPT.30,
2001 2000 2001 2000
--------- --------- --------- ---------
Rental Revenue $ 267,041 $ 258,858 $ 261,988 $ 252,542
--------- --------- --------- ---------
Operating expenses:
Rental property expense 72,730 67,872 72,730 67,872
Real estate taxes 36,391 34,371 36,391 34,371
Operating expense recovery (105,777) (99,534) (105,777) (99,534)
--------- --------- --------- ---------
Unrecovered operating expenses 3,344 2,709 3,344 2,709
--------- --------- --------- ---------
Property-level net operating income $ 263,697 $ 256,149 $ 258,644 $ 249,833
========= ========= ========= =========
General and administrative expenses increased to $5.0 million for the
three months ended September 30, 2001 from $4.7 million compared to the
same period in 2000 and to $16.2 million from $14.0 million for the nine
months ended September 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 $25.7 million from
$22.9 million for the three months ended September 30, 2001 compared to
the same period in 2000 and to $75.5 million from $68.4 million for the
nine months ended September 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 $27.7 million from $27.5 million for the
three months ended September 30, 2001 compared to the same period in
2000, and to $83.6 million from $79.5 million for the nine months ended
September 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 $1,768.6 million for the three months ended September
30, 2001 compared to $1,594.4 million for the same period in 2000 and
$1,746.6 million for the nine months ended September 30, 2001 compared to
$1,561.3 million for the same period in 2000. The affect of the increase
in the average debt outstanding was partially offset by a decrease in
interest rates. The weighted average interest rates for the respective
periods have decreased from 7.63% for the three months ended September
30, 2000 to 7.41% for the three months ended September 30, 2001, and from
7.55% for the nine months ended September 30, 2000 to 7.51% for the nine
months ended September 30, 2001.
In the third quarter of 2001, the Company realized a gain on sale of
$140,000, due to the sale of one property and two parcels of land for
$3.7 million. During the nine months ended September 30, 2001, the
Company realized a gain on sale of $2.3 million, due to the sale of 29
operating properties, one development property and six parcels of land
for $80.5 million. In the third quarter of 2000, the Company realized a
gain on sale of $3.0 million, due to the sale of seven properties and
three parcels of land for $16.4 million, and during the nine months ended
September 30, 2000, the Company realized a gain on sale of $11.7 million,
due to the sale of 13 properties and six parcels of land for $68.7
million.
-21-
22
During the nine months ended September 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 nine
months ended September 30, 2001.
As a result of the foregoing, the Company's income before minority
interest increased to $47.1 million for the three months ended
September 30, 2001 from $45.2 million for the three months ended
September 30, 2000, and to $140.3 million for the nine months ended
September 30, 2001 from $132.3 million for the nine months ended
September 30, 2000. In addition, net income increased to $42.3 million
for the three months ended September 30, 2001 from $40.1 million for the
three months ended September 30, 2000 and to $125.8 million for the nine
months ended September 30, 2001 from $117.3 million for the nine months
ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001, the Company had cash and cash equivalents of
$6.8 million.
Net cash flow provided by operating activities increased to $207.6
million for the nine months ended September 30, 2001 from $187.0 million
for the nine months ended September 30, 2000. This $20.6 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 $231.1 million for the
nine months ended September 30, 2001 from $223.0 million for the nine
months ended September 30, 2000. This increase primarily resulted from
an increase in development in progress in 2001.
Cash flows from financing activities decreased by $6.7 million for the
nine months ended September 30, 2001 versus the nine months ended
September 30, 2000. This decrease is primarily due to 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 nine months ended September 30, 2001,
these activities were funded through a $450 million unsecured line of
credit (the "Credit Facility").
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") and Fitch, Inc. ("Fitch"). 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 debt rating. At these ratings the interest
rate for borrowings under the Credit Facility on September 30, 2001 is
4.5%.
-22-
23
As of September 30, 2001, $348.5 million in mortgage loans and $1,345.0
million in unsecured notes were outstanding. The interest rates on
$1,687.5 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 7.1 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 September 30, 2001 are as follows (in
thousands):
MORTGAGES WEIGHTED
-------------------------- UNSECURED AVERAGE
AMORTIZATION MATURITIES NOTES TOTAL INTEREST RATE
------------ ---------- ---------- ---------- --------------
2001 $ 2,425 $ 15,406 $ - $ 17,831 6.9%
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 6.9%
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%
-------- --------- ---------- ---------- ------
$ 52,455 $ 295,995 $1,345,000 $1,693,450 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 September 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 647 $ 2,830 597 $ 4,350 583 $ 7,233 1,827 $ 14,413
2002 3,604 15,116 1,935 15,594 1,748 22,261 7,287 52,971
2003 1,866 8,686 2,423 21,456 1,625 22,326 5,914 52,468
2004 2,072 10,607 1,877 17,127 1,591 24,892 5,540 52,626
2005 2,708 13,979 1,366 12,616 3,017 44,577 7,091 71,172
2006 2,576 11,857 1,439 16,005 1,176 17,996 5,191 45,858
Thereafter 7,377 42,127 2,061 22,060 5,111 87,240 14,549 151,427
------ -------- ------ -------- ------ -------- ------ --------
Total 20,850 $105,202 11,698 $109,208 14,851 $226,525 47,399 $440,935
====== ======== ====== ======== ====== ======== ====== ========
-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 3.7 million square feet of
properties under development as of September 30, 2001 are as follows (in
thousands):
SQUARE FEET
-----------------------------
SCHEDULED IND- IND- PERCENT PRE-LEASED
IN-SERVICE DATE DIST. FLEX OFFICE TOTAL SEPTEMBER 30, 2001 TOTAL INVESTMENT
- ---------------- ------ ------ ------- ------ ------------------ ----------------
4th Quarter 2001 304 93 144 541 87.8% $ 41,228
1st Quarter 2002 - 394 166 560 44.9% 57,480
2nd Quarter 2002 - 170 233 403 45.2% 41,971
3rd Quarter 2002 300 339 216 855 7.8% 64,010
Thereafter 823 42 515 1,380 11.8% 119,730
----- ----- ----- ----- ------ --------
Total 1,427 1,038 1,274 3,739 30.4% $324,419
===== ===== ===== ===== ====== ========
The Company's 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 November 2, 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 November 2, 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.
In October 2001, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144). FAS 144 supercedes FAS 121 and
certain provisions of APB Opinion 30 with regards to reporting the
effects of a disposal of a segment. The Company will adopt FAS 144
effective January 1, 2002 and does not expect the adoption of this new
pronouncement to have a material affect on the financial position or
results of operations of the Company.
-24-
25
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 and nine months ended September 30, 2001 and
September 30, 2000 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS) (IN THOUSANDS)
-------------------- ---------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Income available to
common shareholders $ 39,564 $ 37,341 $117,585 $109,041
Adjustments:
Minority interest less
preferred unit distributions 2,122 2,439 6,540 7,577
Depreciation and amortization 25,264 22,598 74,125 67,310
Extraordinary item-loss on
extinguishment of debt - - - 2,103
Gain on sale of property (140) (2,964) (2,334) (11,712)
======== ======== ======== ========
Funds from operations $ 66,810 $ 59,414 $195,916 $174,319
======== ======== ======== ========
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
None.
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 November 9, 2001
- ------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees,
President and Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. November 9, 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 November 9, 2001
- ------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees,
President and Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. November 9, 2001
- ------------------------------------- --------------------------
George J. Alburger, Jr. Date
Chief Financial Officer and
Executive Vice President
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