*Explanatory Note: This Amendment is filed solely to include Exhibits
99.3 and 99.4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(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, 2002
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 August 6, 2002, 75,545,531 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, 2002
INDEX
- -----
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements (unaudited) Page
----
Consolidated balance sheets of Liberty Property
Trust at June 30, 2002 and December 31, 2001.............. 3
Consolidated statements of operations of Liberty
Property Trust for the three months ended June 30,
2002 and June 30, 2001.................................... 4
Consolidated statements of operations of Liberty
Property Trust for the six months ended June 30,
2002 and June 30, 2001.................................... 5
Consolidated statements of cash flows of Liberty
Property Trust for the six months ended June 30,
2002 and June 30, 2001.................................... 6
Notes to consolidated financial statements for
Liberty Property Trust.................................... 7
Consolidated balance sheets of Liberty Property
Limited Partnership at June 30, 2002 and
December 31, 2001......................................... 11
Consolidated statements of operations of Liberty
Property Limited Partnership for the three months
ended June 30, 2002 and June 30, 2001..................... 12
Consolidated statements of operations of Liberty
Property Limited Partnership for the six months
ended June 30, 2002 and June 30, 2001..................... 13
Consolidated statements of cash flows of Liberty
Property Limited Partnership for the six months
ended June 30, 2002 and June 30, 2001..................... 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...................................................... 27
Part II. Other Information
- ---------------------------
Signatures.......................................................... 31
Exhibit Index....................................................... 32
3
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 485,393 $ 467,311
Buildings and improvements 2,955,825 2,874,903
Less accumulated depreciation (450,032) (404,617)
---------- ----------
Operating real estate 2,991,186 2,937,597
Development in progress 241,406 252,789
Land held for development 160,803 163,547
---------- ----------
Net real estate 3,393,395 3,353,933
Cash and cash equivalents 30,742 19,390
Accounts receivable 8,786 15,470
Deferred financing and leasing costs,
net of accumulated amortization
(2002, $68,469; 2001, $60,488) 67,267 68,163
Prepaid expenses and other assets 110,127 95,869
---------- ----------
Total assets $3,610,317 $3,552,825
========== ==========
LIABILITIES
Mortgage loans $ 342,034 $ 340,131
Unsecured notes 1,245,000 1,345,000
Credit facility 166,000 68,000
Accounts payable 20,485 19,057
Accrued interest 29,257 31,392
Dividend payable 48,321 47,577
Other liabilities 90,683 83,852
---------- ----------
Total liabilities 1,941,780 1,935,009
Minority interest 217,654 194,394
SHAREHOLDERS' EQUITY
Series A preferred shares, $.001 par value, 5,000,000
shares authorized, issued and outstanding as of
June 30, 2002 and December 31, 2001 120,814 120,814
Common shares of beneficial interest, $.001 par
value, 191,200,000 shares authorized, 75,093,666
(includes 59,100 in treasury) and 73,721,045
(includes 59,100 in treasury) shares issued and
outstanding as of June 30, 2002 and December 31,
2001, respectively 75 74
Additional paid-in capital 1,371,653 1,336,350
Unearned compensation (2,064) (1,056)
Distributions in excess of net income (38,268) (31,433)
Common shares in treasury, at cost, 59,100 shares
as of June 30, 2002 and December 31, 2001 (1,327) (1,327)
---------- ----------
Total shareholders' equity 1,450,883 1,423,422
---------- ----------
Total liabilities and shareholders' equity $3,610,317 $3,552,825
========== ==========
See accompanying notes.
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, 2002 JUNE 30, 2001
------------- -------------
REVENUE
Rental $ 106,278 $ 104,149
Operating expense reimbursement 39,278 37,462
Interest and other 2,885 1,297
--------- ---------
Total revenue 148,441 142,908
--------- ---------
EXPENSES
Rental property 27,562 25,473
Real estate taxes 14,665 13,088
Interest 28,433 27,961
General and administrative 5,615 5,455
Depreciation and amortization 27,632 24,675
--------- ---------
Total expenses 103,907 96,652
--------- ---------
Income before property dispositions
and minority interest 44,534 46,256
Gain on disposition of properties 1,760 717
Minority interest (5,920) (4,877)
--------- ---------
Income from continuing operations 40,374 42,096
Discontinued operations net of minority interest
(including net gain on property dispositions of
$4,072 for the three months ended June 30, 2002) 4,130 309
--------- ---------
Net income 44,504 42,405
Preferred share distributions 2,750 2,750
--------- ---------
Income available to common shareholders $ 41,754 $ 39,655
========= =========
Earnings per share:
Basic income per common share:
Continuing operations $ 0.50 $ 0.56
Discontinued operations 0.06 -
--------- ---------
Total $ 0.56 $ 0.56
========= =========
Diluted income per common share:
Continuing operations $ 0.50 $ 0.56
Discontinued operations 0.05 -
--------- ---------
Total $ 0.55 $ 0.56
========= =========
Distributions declared per common share $ 0.59 $ 0.57
========= =========
Weighted average number of common shares outstanding
Basic 74,622 70,241
Diluted 76,187 71,387
========= =========
See accompanying notes.
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, 2002 JUNE 30, 2001
------------- -------------
REVENUE
Rental $ 212,393 $ 206,459
Operating expense reimbursement 79,478 78,976
Interest and other 4,527 2,725
--------- ---------
Total revenue 296,398 288,160
--------- ---------
EXPENSES
Rental property 55,088 54,641
Real estate taxes 29,051 26,481
Interest 56,385 55,663
General and administrative 11,571 11,214
Depreciation and amortization 54,012 49,540
--------- ---------
Total expenses 206,107 197,539
--------- ---------
Income before property dispositions
and minority interest 90,291 90,621
Gain on disposition of properties 1,242 2,194
Minority interest (10,567) (9,699)
--------- ---------
Income from continuing operations 80,966 83,116
Discontinued operations net of minority interest
(including net gain on property dispositions of
$5,389 for the six months ended June 30, 2002) 5,738 405
--------- ---------
Net income 86,704 83,521
Preferred share distributions 5,500 5,500
--------- ---------
Income available to common shareholders $ 81,204 $ 78,021
========= =========
Earnings per share:
Basic income per common share:
Continuing operations $ 1.01 $ 1.11
Discontinued operations 0.08 0.01
--------- ---------
Total $ 1.09 $ 1.12
========= =========
Diluted income per common share:
Continuing operations $ 0.99 $ 1.10
Discontinued operations 0.08 0.01
--------- ---------
Total $ 1.07 $ 1.11
========= =========
Distributions declared per common share $ 1.18 $ 1.14
========= =========
Weighted average number of common shares outstanding
Basic 74,263 69,358
Diluted 75,664 72,949
========= =========
See accompanying notes.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS)
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
OPERATING ACTIVITIES
Net income $ 86,704 $ 83,521
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 54,189 49,748
Amortization of deferred financing costs 1,810 2,117
Minority interest in net income 10,865 9,724
Gain on property dispositions (6,911) (2,194)
Noncash compensation 1,464 1,491
Changes in operating assets and liabilities:
Accounts receivable 6,684 (3,877)
Prepaid expenses and other assets (15,248) 21,915
Accounts payable 1,428 25,788
Accrued interest (2,135) 3,618
Other liabilities 6,831 (3,644)
---------- ---------
Net cash provided by operating activities 145,681 188,207
---------- ---------
INVESTING ACTIVITIES
Investment in properties (27,805) (35,644)
Proceeds from disposition of properties/land 56,470 73,854
Investment in development in progress (88,904) (139,186)
Investment in land held for development (18,161) (34,751)
Increase in deferred leasing costs (7,791) (13,385)
---------- ---------
Net cash used in investing activities (86,191) (149,112)
---------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common shares 31,884 8,172
Proceeds from issuance of preferred units 22,979 -
Proceeds from issuance of unsecured notes - 250,000
Repayments of unsecured notes (100,000) -
Proceeds from mortgage loans 5,733 -
Repayments of mortgage loans (3,830) (7,389)
Proceeds from credit facility 185,100 126,200
Repayments on credit facility (87,100) (290,200)
Decrease in deferred financing costs 2 142
Distributions paid on common shares (87,248) (78,834)
Distributions paid on preferred shares (5,500) (5,500)
Distributions paid on units (10,158) (10,193)
---------- ---------
Net cash used in financing activities (48,138) (7,602)
---------- ---------
Increase in cash and cash equivalents 11,352 31,493
Cash and cash equivalents at beginning of period 19,390 4,638
---------- ---------
Cash and cash equivalents at end of period $ 30,742 $ 36,131
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 2,701 $ 22,199
Acquisition of properties - (328)
Assumption of mortgage loans - 328
Conversion of convertible debentures - 29,063
========== =========
See accompanying notes.
7
LIBERTY PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
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, 2001. 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, 2002 and 2001:
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED JUNE 30, 2002 ENDED JUNE 30, 2001
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $ 44,504 $ 42,405
Less: Preferred
share distributions 2,750 2,750
-------- --------
Basic income per
common share
Income available
to common share-
holders 41,754 74,622 $ 0.56 39,655 70,241 $ 0.56
====== ======
Dilutive shares
Long-term compen-
sation plans - 1,565 - 1,146
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 41,754 76,187 $ 0.55 $ 39,655 71,387 $ 0.56
======== ======= ====== ======== ======= ======
8
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 2002 ENDED JUNE 30, 2001
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $ 86,704 $ 83,521
Less: Preferred
share distributions 5,500 5,500
-------- --------
Basic income per
common share
Income available
to common share-
holders 81,204 74,263 $ 1.09 78,021 69,358 $ 1.12
====== ======
Dilutive shares
Long-term compen-
sation plans - 1,401 - 898
Convertible
debentures - - 2,587 2,693
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 81,204 75,664 $ 1.07 $ 80,608 72,949 $ 1.11
======== ======= ====== ======== ======= ======
NOTE 2 - ORGANIZATION
- ---------------------
The Trust is a self-administered and self-managed Maryland real estate
investment trust (a "REIT"). Substantially all of the Trust's assets are
owned directly or indirectly, and substantially all of the Trust's
operations are conducted directly or indirectly, by the Operating
Partnership. The Trust is the sole general partner and also a limited
partner of the Operating Partnership, owning 95.1% of the common equity of
the Operating Partnership at June 30, 2002. The Company provides leasing,
property management, development, acquisition, and other tenant-related
services for a portfolio of industrial and office properties which are
located principally within the Southeastern, Mid-Atlantic and Midwestern
United States.
NOTE 3 - SEGMENT INFORMATION
- ----------------------------
The Company reviews the performance of the portfolio on a geographic
basis. The following regions are considered the Company's reportable
segments: Southeastern Pennsylvania; New Jersey; Lehigh Valley,
Pennsylvania; Virginia; the Carolinas; Jacksonville, Florida; Minneapolis,
Minnesota; Detroit, Michigan; and all others combined (including Maryland;
Tampa, Florida; South Florida; 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 the performance of the reportable segments based on
property level net operating income, which is calculated as rental revenue
and operating expense reimbursement less rental property expenses and real
estate taxes. The accounting policies of the reportable segments are the
same as those for the Company on a consolidated basis.
9
The operating information by segment is as follows (in thousands):
FOR THE THREE MONTHS ENDED JUNE 30, 2002
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 44,170 $ 11,231 $ 15,159 $ 12,285 $ 9,132 $ 11,335 $ 12,343 $ 15,185 $ 14,716 $145,556
Rental property
expenses and
real estate taxes 12,229 3,483 3,354 3,012 2,795 2,955 4,891 4,967 4,541 42,227
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 31,941 7,748 11,805 9,273 6,337 8,380 7,452 10,218 10,175 103,329
Other income/expenses, net 58,795
--------
Income before property dispositions and minority interest 44,534
Gain on disposition of properties 1,760
Minority interest 5,920
Discontinued operations net of minority interest 4,130
Preferred share distributions 2,750
--------
Income available to common shareholders $ 41,754
========
FOR THE THREE MONTHS ENDED JUNE 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 41,826 $ 10,849 $ 13,743 $ 11,193 $ 11,129 $ 11,149 $ 11,968 $ 14,373 $ 15,381 $141,611
Rental property
expenses and
real estate taxes 11,552 2,989 2,939 2,703 2,905 2,948 4,335 4,287 3,903 38,561
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 30,274 7,860 10,804 8,490 8,224 8,201 $ 7,633 10,086 11,478 103,050
Other income/expenses, net 56,794
--------
Income before property dispositions and minority interest 46,256
Gain on disposition of properties 717
Minority interest 4,877
Discontinued operations net of minority interest 309
Preferred share distributions 2,750
--------
Income available to common shareholders $ 39,655
========
FOR THE SIX MONTHS ENDED JUNE 30, 2002
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 89,050 $ 22,770 $ 30,093 $ 24,715 $ 18,162 $ 22,643 $ 24,697 $ 30,274 $ 29,467 $291,871
Rental property
expenses and
real estate taxes 25,041 7,173 6,605 6,164 5,510 5,562 9,421 9,841 8,822 84,139
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 64,009 15,597 23,488 18,551 12,652 17,081 15,276 20,433 20,645 207,732
Other income/expenses, net 117,441
--------
Income before property dispositions and minority interest 90,291
Gain on disposition of properties 1,242
Minority interest 10,567
Discontinued operations net of minority interest 5,738
Preferred share distributions 5,500
--------
Income available to common shareholders $ 81,204
========
10
FOR THE SIX MONTHS ENDED JUNE 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 84,826 $ 22,366 $ 28,409 $ 21,947 $ 22,112 $ 22,706 $ 23,891 $ 28,536 $ 30,642 $285,435
Rental property
expenses and
real estate taxes 24,710 6,689 7,196 5,177 5,904 5,915 8,904 8,610 8,017 81,122
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 60,116 15,677 21,213 16,770 16,208 16,791 $ 14,987 19,926 22,625 204,313
Other income/expenses, net 113,692
--------
Income before property dispositions and minority interest 90,621
Gain on disposition of properties 2,194
Minority interest 9,699
Discontinued operations net of minority interest 405
Preferred share distributions 5,500
--------
Income available to common shareholders $ 78,021
========
NOTE 4 - DISCONTINUED OPERATIONS
- --------------------------------
In accordance with SFAS 144 "Accounting for the Impairment or Disposal of
Long Lived Assets," effective for financial statements issued for fiscal
years beginning after December 15, 2001, net income and gain/(loss) on
disposition of real estate for properties sold subsequent to December 31,
2001 are reflected in the consolidated statements of operations as
discontinued operations. The proceeds from dispositions of properties for
the three and six months ended June 30, 2002 were $11.0 million and $23.8
million, respectively. Below is a summary of the results of operations of
the properties disposed of through their respective disposition dates (in
000's):
Quarter Ended Six Months Ended
--------------------- --------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Revenues $ 178 $ 745 $ 800 $1,100
Operating expenses (40) (144) (125) (230)
Interest expense (26) (146) (131) (232)
Depreciation and amortization (51) (129) (177) (208)
------ ------ ------ ------
Income from operations $ 61 $ 326 $ 367 $ 430
====== ====== ====== ======
NOTE 5 - SUBSEQUENT EVENTS
- --------------------------
On July 29, 2002, the Company called for the redemption of the 5,000,000
outstanding 8.80% Series A Cumulative Redeemable Preferred Shares. The
shares will be redeemed on August 28, 2002 at a price of $25.00 per share,
plus $0.165 per share in accrued and unpaid dividends, for an aggregate
redemption price of $25.165 per preferred share.
11
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(IN THOUSANDS)
JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 485,393 $ 467,311
Buildings and improvements 2,955,825 2,874,903
Less accumulated depreciation (450,032) (404,617)
---------- ----------
Operating real estate 2,991,186 2,937,597
Development in progress 241,406 252,789
Land held for development 160,803 163,547
---------- ----------
Net real estate 3,393,395 3,353,933
Cash and cash equivalents 30,742 19,390
Accounts receivable 8,786 15,470
Deferred financing and leasing costs,
net of accumulated amortization
(2002, $68,469; 2001, $60,488) 67,267 68,163
Prepaid expenses and other assets 110,127 95,869
---------- ----------
Total assets $3,610,317 $3,552,825
========== ==========
LIABILITIES
Mortgage loans $ 342,034 $ 340,131
Unsecured notes 1,245,000 1,345,000
Credit facility 166,000 68,000
Accounts payable 20,485 19,057
Accrued interest 29,257 31,392
Distributions payable 48,321 47,577
Other liabilities 90,683 83,852
---------- ----------
Total liabilities 1,941,780 1,935,009
Minority interest 7,884 6,173
OWNERS' EQUITY
General partner's equity - preferred units 120,814 120,814
- common units 1,330,069 1,302,608
Limited partners' equity - preferred units 135,495 112,516
- common units 74,275 75,705
---------- ----------
Total owners' equity 1,660,653 1,611,643
---------- ----------
Total liabilities and owners' equity $3,610,317 $3,552,825
========== ==========
See accompanying notes.
12
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
REVENUE
Rental $ 106,278 $ 104,149
Operating expense reimbursement 39,278 37,462
Interest and other 2,885 1,297
--------- ---------
Total revenue 148,441 142,908
--------- ---------
EXPENSES
Rental property 27,562 25,473
Real estate taxes 14,665 13,088
Interest 28,433 27,961
General and administrative 5,615 5,455
Depreciation and amortization 27,632 24,675
--------- ---------
Total expenses 103,907 96,652
--------- ---------
Income before property dispositions 44,534 46,256
Gain on disposition of properties 1,760 717
--------- ---------
Income from continuing operations 46,294 46,973
Discontinued operations (including net gain on
property dispositions of $4,280 for the
three months ended June 30, 2002) 4,341 326
--------- ---------
Net income $ 50,635 $ 47,299
========= =========
Net income allocated to general partner $ 44,504 $ 42,405
========= =========
Net income allocated to limited partners $ 6,131 $ 4,894
========= =========
See accompanying notes.
13
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
REVENUE
Rental $ 212,393 $ 206,459
Operating expense reimbursement 79,478 78,976
Interest and other 4,527 2,725
--------- ---------
Total revenue 296,398 288,160
--------- ---------
EXPENSES
Rental property 55,088 54,641
Real estate taxes 29,051 26,481
Interest 56,385 55,663
General and administrative 11,571 11,214
Depreciation and amortization 54,012 49,540
--------- ---------
Total expenses 206,107 197,539
--------- ---------
Income before property dispositions 90,291 90,621
Gain on disposition of properties 1,242 2,194
--------- ---------
Income from continuing operations 91,533 92,815
Discontinued operations (including net gain on
property dispositions of $5,669 for the six
months ended June 30, 2002) 6,036 430
--------- ---------
Net income $ 97,569 $ 93,245
========= =========
Net income allocated to general partner $ 86,704 $ 83,521
========= =========
Net income allocated to limited partners $ 10,865 $ 9,724
========= =========
See accompanying notes.
14
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
------------- --------------
OPERATING ACTIVITIES
Net income $ 97,569 $ 93,245
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 54,189 49,748
Amortization of deferred financing costs 1,810 2,117
Gain on property dispositions (6,911) (2,194)
Noncash compensation 1,464 1,491
Changes in operating assets and liabilities:
Accounts receivable 6,684 (3,877)
Prepaid expenses and other assets (15,248) 21,915
Accounts payable 1,428 25,788
Accrued interest (2,135) 3,618
Other liabilities 6,831 (3,644)
---------- ---------
Net cash provided by operating activities 145,681 188,207
---------- ---------
INVESTING ACTIVITIES
Investment in properties (27,805) (35,644)
Proceeds from disposition of properties/land 56,470 73,854
Investment in development in progress (88,904) (139,186)
Investment in land held for development (18,161) (34,751)
Increase in deferred leasing costs (7,791) (13,385)
---------- ---------
Net cash used in investing activities (86,191) (149,112)
---------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of unsecured notes - 250,000
Repayment of unsecured notes (100,000) -
Proceeds from mortgage loans 5,733 -
Repayments of mortgage loans (3,830) (7,389)
Proceeds from credit facility 185,100 126,200
Repayments on credit facility (87,100) (290,200)
Decrease in deferred financing costs 2 142
Capital contributions 54,863 8,172
Distributions to partners (102,906) (94,527)
---------- ---------
Net cash used in financing activities (48,138) (7,602)
---------- ---------
Increase in cash and cash equivalents 11,352 31,493
Cash and cash equivalents at beginning of period 19,390 4,638
---------- ---------
Cash and cash equivalents at end of period $ 30,742 $ 36,131
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 2,701 $ 22,199
Acquisition of properties - (328)
Assumption of mortgage loans - 328
Conversion of convertible debentures - 29,063
========== =========
See accompanying notes.
15
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
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, 2001. 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 95.1% of the common equity of
the Operating Partnership at June 30, 2002. The Company provides leasing,
property management, development, acquisition, and other tenant-related
services for a portfolio of industrial and office properties which are
located principally within the Southeastern, Mid-Atlantic and Midwestern
United States.
NOTE 3 - SEGMENT INFORMATION
- ----------------------------
The Company reviews the performance of the portfolio on a geographic
basis. The following regions are considered the Company's reportable
segments: Southeastern Pennsylvania; New Jersey; Lehigh Valley,
Pennsylvania; Virginia; the Carolinas; Jacksonville, Florida; Minneapolis,
Minnesota; Detroit, Michigan; and all others combined (including Maryland;
Tampa, Florida; South Florida; 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 the performance of the reportable segments based on
property level net operating income, which is calculated as rental revenue
16
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, 2002
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 44,170 $ 11,231 $ 15,159 $ 12,285 $ 9,132 $ 11,335 $ 12,343 $ 15,185 $ 14,716 $145,556
Rental property
expenses and
real estate taxes 12,229 3,483 3,354 3,012 2,795 2,955 4,891 4,967 4,541 42,227
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 31,941 7,748 11,805 9,273 6,337 8,380 7,452 10,218 10,175 103,329
Other income/expenses, net 58,795
--------
Income before property dispositions 44,534
Gain on disposition of properties 1,760
Discontinued operations 4,341
--------
Net income $ 50,635
========
Net income allocated to general partner $ 44,504
========
Net income allocated to limited partners $ 6,131
========
FOR THE THREE MONTHS ENDED JUNE 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 41,826 $ 10,849 $ 13,743 $ 11,193 $ 11,129 $ 11,149 $ 11,968 $ 14,373 $ 15,381 $141,611
Rental property
expenses and real
estate taxes 11,552 2,989 2,939 2,703 2,905 2,948 4,335 4,287 3,903 38,561
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 30,274 7,860 10,804 8,490 8,224 8,201 7,633 10,086 11,478 103,050
Other income/expenses, net 56,794
--------
Income before property dispositions 46,256
Gain on disposition of properties 717
Discontinued operations 326
--------
Net income $ 47,299
========
Net income allocated to general partner $ 42,405
========
Net income allocated to limited partners $ 4,894
========
FOR THE SIX MONTHS ENDED JUNE 30, 2002
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 89,050 $ 22,770 $ 30,093 $ 24,715 $ 18,162 $ 22,643 $ 24,697 $ 30,274 $ 29,467 $291,871
Rental property
expenses and
real estate taxes 25,041 7,173 6,605 6,164 5,510 5,562 9,421 9,841 8,822 84,139
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 64,009 15,597 23,488 18,551 12,652 17,081 15,276 20,433 20,645 207,732
Other income/expenses, net 117,441
--------
Income before property dispositions 90,291
Gain on disposition of properties 1,242
Discontinued operations 6,036
--------
Net income $ 97,569
========
Net income allocated to general partner $ 86,704
========
Net income allocated to limited partners $ 10,865
========
17
FOR THE SIX MONTHS ENDED JUNE 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 84,826 $ 22,366 $ 28,409 $ 21,947 $ 22,112 $ 22,706 $ 23,891 $ 28,536 $ 30,642 $285,435
Rental property
expenses and real
estate taxes 24,710 6,689 7,196 5,177 5,904 5,915 8,904 8,610 8,017 81,122
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 60,116 15,677 21,213 16,770 16,208 16,791 14,987 19,926 22,625 204,313
Other income/expenses, net 113,692
--------
Income before property dispositions 90,621
Gain on disposition of properties 2,194
Discontinued operations 430
--------
Net income $ 93,245
========
Net income allocated to general partner $ 83,521
========
Net income allocated to limited partners $ 9,724
========
NOTE 4 - DISCONTINUED OPERATIONS
- --------------------------------
In accordance with SFAS 144 "Accounting for the Impairment or Disposal of
Long Lived Assets," effective for financial statements issued for fiscal
years beginning after December 15, 2001, net income and gain/(loss) on
dispositions of real estate for properties sold subsequent to December 31,
2001 are reflected in the consolidated statements of operations as
discontinued operations. The proceeds from dispositions of properties for
the three and six months ended June 30, 2002 were $11.0 million and $23.8
million, respectively. Below is a summary of the results of operations of
the properties disposed of through their respective disposition dates (in
000's):
Quarter Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Revenues $ 178 $ 745 $ 800 $1,100
Operating expenses (40) (144) (125) (230)
Interest expense (26) (146) (131) (232)
Depreciation and amortization (51) (129) (177) (208)
------ ------ ------ ------
Income from operations $ 61 $ 326 $ 367 $ 430
====== ====== ====== ======
NOTE 5 - SUBSEQUENT EVENTS
- --------------------------
On July 29, 2002, the Company called for the redemption of the general
partner's preferred units. The units will be redeemed on August 28, 2002
for $125.0 million plus accrued dividends of $825,000.
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.
The Company's operating results depend primarily upon income from rental
operations and such results are substantially influenced by rental demand
for the properties in operation. The general slowdown in the economy has
negatively affected occupancy rates which as of June 30, 2002 and 2001 are
provided in the table below. The negative impact of declining occupancy on
rental operating results has been partially offset by the rental rate
increases the Company has realized on renewal and replacement leases. This
negative occupancy trend has been continuing for some time and as a result
property level operating income for the "Same Store" group of properties
has decreased.
The Company seeks to achieve growth in operating income from its
development pipeline activity. The decline in demand for real estate has
reduced the amount of speculative development the Company is undertaking.
The Company has been able to maintain an active development pipeline
through its build-to-suit initiatives.
The composition of the Company's properties in operation as of June 30,
2002 and 2001 is as follows (in thousands, expect percentages):
PERCENT
TOTAL OF TOTAL
SQUARE FEET SQUARE FEET PERCENT OCCUPIED
--------------- --------------- ----------------
JUNE 30, JUNE 30, JUNE 30,
TYPE 2002 2001 2002 2001 2002 2001
- ------------------------- ------- ------ ------ ------ ------ ------
Industrial - Distribution 21,325 21,302 42.2% 43.1% 96.5% 96.4%
Industrial - Flex 13,030 12,368 25.8% 25.0% 89.6% 94.2%
Office 16,201 15,765 32.0% 31.9% 89.4% 92.8%
------ ------ ------ ------ ------ ------
Total 50,556 49,435 100.0% 100.0% 92.5% 94.7%
====== ====== ====== ====== ====== ======
Geographic segment data for the three and six months ended June 30, 2002
and 2001 is included in Note 3 of the Notes to the Liberty Property Trust
and Liberty Property Limited Partnership Financial Statements.
FORWARD-LOOKING STATEMENTS
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
19
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.
CRITICAL ACCOUNTING POLICIES
Refer to the Company's 2001 Annual Report on Form 10-K for a discussion of
critical accounting policies, which include capitalized costs, allowance
for doubtful accounts, and impairment of real estate. During the six
months ended June 30, 2002, there were no material changes to these
policies.
RESULTS OF OPERATIONS
The following discussion is based on the consolidated financial statements
of the Company. It compares the results of operations of the Company for
the three and six months ended June 30, 2002 (unaudited) with the results
of operations of the Company for the three and six months ended June 30,
2001 (unaudited). As a result of the development, acquisition and
disposition activities by the Company in 2002 and 2001, 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, 2002 compared to the three and
six months ended June 30, 2001.
- --------------------------------------------------------------------------
Total revenue (principally rental revenue and operating expense
reimbursement) increased to $148.4 million from $142.9 million for the
three months ended June 30, 2002 compared to the same period in 2001, and
increased to $296.4 million from $288.2 million for the six months ended
June 30, 2002 compared to the same period in 2001. These increases are
primarily due to the net increased investment in properties developed,
acquired, or disposed of during the respective periods. The average gross
investment in operating real estate owned for the quarter ended June 30,
2002 was $3,420.4 million as compared to $3,291.6 million for the quarter
ended June 30, 2001. The average gross investment in operating real estate
owned for the six months ended June 30, 2002 was $3,394.4 million as
compared to $3,261.9 million for the six months ended June 30, 2001.
20
The operating expense recovery percentage (the ratio of operating expense
reimbursement to rental property expenses and real estate taxes) decreased
to 93.0% for the three months ended June 30, 2002 from 97.1% for the three
months ended June 30 2001, and to 94.5% from 97.4% for the six months ended
June 30, 2002 compared to the same period in 2001. These decreases are
primarily due to a decrease in average occupancy during the respective
periods.
Rental property and real estate tax expenses increased to $42.2 million
from $38.6 million for the three months ended June 30, 2002 compared to the
same period in 2001, and increased to $84.1 from $81.1 million for the six
months ended June 30, 2002 compared to the same period in 2001. These
increases are due to the increased investment in properties owned during
the respective periods.
Property level net operating income for the Same Store properties
(properties owned as of January 1, 2001) decreased to $91.8 million for the
three months ended June 30, 2002 from $94.9 million for the three months
ended June 30, 2001, on a straight line basis, (which recognizes rental
revenue evenly over the life of the lease), and decreased to $90.4 million
for the three months ended June 30, 2002 from $92.7 million for the three
months ended June 30, 2001, on a cash basis. These decreases of 3.3% and
2.6%, respectively, are primarily due to decreases in occupancy.
Property level net operating income for the Same Store properties decreased
to $185.9 million for the six months ended June 30, 2002 from $189.5
million for the six months ended June 30, 2001, on a straight line basis,
and decreased to $182.8 million for the six months ended June 30, 2002 from
$184.8 million for the six months ended June 30, 2001, on a cash basis.
These decreases of 1.9% and 1.1%, respectively, are primarily due to
decreases in occupancy.
Set forth below is a schedule comparing the property level net operating
income for the Same Store properties for the three and six months ended
June 30, 2002 and 2001 (in thousands).
STRAIGHT LINE BASIS CASH BASIS
------------------- -------------------
QUARTER ENDED QUARTER ENDED
------------------- -------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2002 2001 2002 2001
-------- -------- -------- --------
Rental Revenue $ 93,979 $ 95,954 $ 92,530 $ 93,742
-------- -------- -------- --------
Operating expenses:
Rental property expense 25,003 24,320 25,003 24,320
Real estate taxes 12,822 12,225 12,822 12,225
Operating expense recovery (35,646) (35,523) (35,646) (35,523)
-------- -------- -------- --------
Unrecovered operating expenses 2,179 1,022 2,179 1,022
-------- -------- -------- --------
Property level net operating income $ 91,800 $ 94,932 $ 90,351 $ 92,720
======== ======== ======== ========
21
STRAIGHT LINE BASIS CASH BASIS
------------------- -------------------
SIX MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2002 2001 2002 2001
-------- -------- -------- --------
Rental Revenue $189,381 $191,403 $186,266 $186,654
-------- -------- -------- --------
Operating expenses:
Rental property expense 50,676 52,058 50,676 52,058
Real estate taxes 25,638 24,735 25,638 24,735
Operating expense recovery (72,822) (74,929) (72,822) (74,929)
-------- -------- -------- --------
Unrecovered operating expenses 3,492 1,864 3,492 1,864
-------- -------- -------- --------
Property level net operating income $185,889 $189,539 $182,774 $184,790
======== ======== ======== ========
General and administrative expenses increased to $5.6 million for the three
months ended June 30, 2002 from $5.5 million compared to the same period in
2001, and to $11.6 million from $11.2 million for the six months ended June
30, 2002 compared to the same period in 2001. These increases are
primarily due to the ongoing funding of initiatives which the Company
undertook relating to training, property management and marketing.
Depreciation and amortization expense increased to $27.6 million from $24.7
million for the three months ended June 30, 2002 compared to the same
period in 2001, and to $54.0 million from $49.5 million for the six months
ended June 30, 2002 compared to the same period in 2001. These increases
are primarily due to the increases in the investment in properties owned
during the respective periods.
Interest expense increased to $28.4 million from $28.0 million for the
three months ended June 30, 2002 compared to the same period in 2001, and
to $56.4 million from $55.7 million for the six months ended June 30, 2002
compared to the same period in 2001. These increases are due to the
increases in the average debt outstanding for the respective periods, which
was $1,772.0 million for the three months ended June 30, 2002 compared to
$1,749.6 million for the same period in 2001, and to $1,765.7 million for
the six months ended June 30, 2002 compared to $1,734.4 million for the
same period in 2001. The effect of the increases in the average debt
outstanding was partially offset by decreases in interest rates. The
weighted average interest rates for the respective periods have decreased
from 7.54% for the three months ended June 30, 2001 to 7.12% for the three
months ended June 30, 2002, and from 7.58% for the six months ended June
30, 2001 to 7.17% for the six months ended June 30, 2002.
Costs directly related to the development of rental properties are
capitalized. Capitalized development costs include interest, salaries,
property taxes, insurance and other directly identifiable costs during the
period of development. Capitalized salaries historically represent
approximately 1% of the cost of developed properties brought into service.
These amounts are not included in general and administrative expenses as
discussed above. Capitalized interest for the three months ended June 30,
2002 was $4.4 million as compared to $5.6 million for the three months
ended June 30, 2001, and $9.4 million for the six months ended June 30,
2002 as compared to $11.4 million for the same period in 2001. These
costs are not included in the interest expense as discussed above.
22
Implementation of SFAS 144 "Accounting for the Impairment or Disposal of
Long Lived Assets" requires that the operating results of the disposition
of real estate sold after December 31, 2001 should be reflected as
discontinued operations. Sales occurring before December 31, 2001 as well
as sales of land and development properties continue to be reflected as a
component of income from continuing operations.
During the second quarter of 2002, the Company realized a gain on sale of
properties of $1.8 million due to the sale of two parcels of land and the
sale of a property developed for sale in the United Kingdom with a joint
venture partner. During the six months ended June 30, 2002, the Company
realized a gain on sale of properties of $1.2 million due to the sale of
five parcels of land and the sale of a property developed for sale in the
United Kingdom, as discussed above. During the second quarter of 2001, the
Company realized a gain on sale of properties of $717,000, due to the sale
of 26 properties and two parcels of land for $63.2 million, and during the
six months ended June 30, 2001, the Company realized a gain on sale of
properties 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 accordance with SFAS 144, net income and gain/(loss) on dispositions of
real estate for properties sold subsequent to December 31, 2001 are
reflected in the consolidated statement of operations as discontinued
operations for all periods presented. The proceeds from dispositions of
properties for the three and six months ended June 30, 2002 were $11.0
million and $23.8 million respectively. The increase in income from
discontinued operations of $3.8 million and $5.3 million for the three and
six months ended June 30, 2002, as compared to the same periods in 2001, is
primarily due to the gain on the sale of the properties sold in 2002.
As a result of the foregoing, the Company's net income increased to $44.5
million for the three months ended June 30, 2002 from $42.4 million for the
three months ended June 30, 2001, and to $86.7 million for the six months
ended June 30, 2002 from $83.5 million for the six months ended June 30,
2001.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002, the Company had cash and cash equivalents of $30.7
million.
Net cash flow provided by operating activities decreased to $145.7 million
for the six months ended June 30, 2002 from $188.2 million for the six
months ended June 30, 2001. This $42.5 million decrease was primarily due
to the fluctuations in prepaid expenses and other assets during the
respective periods. Net cash flow provided by operations is the primary
source of liquidity to fund distributions to shareholders and for the
recurring capital expenditures and leasing transaction costs for the
Company's properties in operation.
Net cash used in investing activities decreased to $86.2 million for the
six months ended June 30, 2002 from $149.1 million for the six months ended
June 30, 2001. This decrease primarily resulted from a decrease in
investment in development in progress and land held for development in
2002, which is consistent with the general economic slowdown.
Net cash used in financing activities equaled ($48.1 million) for the six
months ended June 30, 2002 versus ($7.6 million) for the six months ended
June 30, 2001. This change is consistent with the decrease in the level of
the Company's investment activities particularly in development as
23
described above. Net cash used in financing activities includes proceeds
from the issuance of equity and debt net of debt repayments and shareholder
distributions. It is a source of capital utilized by the Company to fund
investment activities. The Company believes that its undistributed cash
flow from operations is adequate to fund its operating needs.
The Company funds its development and acquisitions with long-term capital
sources to include proceeds from the disposition of properties. In 2000,
the Company increased its borrowing capacity and obtained a $450 million
unsecured credit facility, (the "Credit Facility"). The Company uses debt
financing to lower its overall cost of capital in an attempt to increase
the return to shareholders. The Company staggers its debt maturities and
maintains debt levels it considers to be prudent. In determining its debt
levels, the Company considers various financial measures to include debt to
gross assets and earnings to fixed charges ratios. As of June 30, 2002
the Company's debt to gross assets ratio was 43.2%, and for the quarter
ended June 30, 2002, the earnings to fixed charges ratio was 2.6x. Debt to
gross assets equals total long-term debt divided by total assets plus
accumulated depreciation. Earnings to fixed charges equals income before
property dispositions and minority interest plus interest expense and
depreciation and amortization divided by interest expense, including
capitalized interest, plus distributions on preferred shares and units.
The interest rate on borrowings under the Credit Facility fluctuates based
upon ratings from Moody's Investor Services, Inc. ("Moody's"), Standard and
Poor's Ratings Group ("S&P") and Fitch, Inc. ("Fitch"). Moody's, S&P and
Fitch currently assign senior debt ratings to the Company of BBB, Baa2, and
BBB, respectively. At the Company's current ratings, the interest rate for
borrowings under the Credit Facility is 105 basis points over LIBOR, or
2.9% on June 30, 2002.
As of June 30, 2002, $342.0 million in mortgage loans and $1,245.0 million
in unsecured notes were outstanding. The interest rates on $1,566.0
million of mortgage loans and unsecured notes are fixed and range from 6.0%
to 8.8%. Interest rates on $21.0 million of mortgage loans float with the
base rate of the respective lending bank or a municipal bond index. The
weighted average remaining term for the mortgage loans and the unsecured
notes is 6.8 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, 2002 are as follows
(in thousands, except percentages):
24
MORTGAGES WEIGHTED
-------------------------- UNSECURED AVERAGE
AMORTIZATION MATURITIES NOTES TOTAL INTEREST RATE
------------ ---------- ---------- ---------- --------------
2002 $ 4,237 $ - $ - $ 4,237 7.3%
2003 8,092 26,606 50,000 84,698 7.3%
2004 8,167 31,632 100,000 139,799 7.0%
2005 7,090 115,039 - 122,129 7.6%
2006 5,001 30,079 100,000 135,080 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%
--------- --------- ---------- ---------- ------
$ 46,152 $ 295,882 $1,245,000 $1,587,034 7.5%
========= ========= ========== ========== ======
(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 the performance of the Same
Store portfolio. The Company attempts to outperform in its markets by
maintaining higher than market occupancy levels and higher than market
rental rates.
The expiring square feet and annual base rent by year for the properties in
operation as of June 30, 2002 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
- ---------- ------ --------- ------ --------- ------ --------- ------ ---------
2002 2,557 $ 10,760 975 $ 8,111 810 $ 9,510 4,342 $ 28,381
2003 1,995 8,828 2,512 21,070 1,692 22,787 6,199 52,685
2004 2,227 11,036 2,000 17,641 1,875 29,065 6,102 57,742
2005 2,804 14,910 1,423 13,243 2,851 40,878 7,078 69,031
2006 2,640 11,975 1,696 18,860 1,238 18,679 5,574 49,514
2007 1,213 6,386 808 7,810 937 14,805 2,958 29,001
Thereafter 7,146 39,730 2,265 25,273 5,085 87,522 14,496 152,525
------ -------- ------ -------- ------ -------- ------ --------
Total 20,582 $103,625 11,679 $112,008 14,488 $223,246 46,749 $438,879
====== ======== ====== ======== ====== ======== ====== ========
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 3.2 million square feet of
properties under development as of June 30, 2002 are as follows (in
thousands, except percentages):
25
SQUARE FEET
----------------------------- PERCENT
SCHEDULED IND- IND- PRE-LEASED TOTAL
IN-SERVICE DATE DIST. FLEX OFFICE TOTAL JUNE 30, 2002 INVESTMENT
- ---------------- ------ ------ ------- ------ -------------- ----------
3rd Quarter 2002 300 376 442 1,118 69.7% $107,794
4th Quarter 2002 852 59 189 1,100 77.2% 70,117
1st Quarter 2003 55 - 792 847 80.2% 131,333
3rd Quarter 2003 - - 68 68 - 31,672
Thereafter - - 74 74 79.6% 11,659
----- ----- ----- ----- ------ --------
Total 1,207 435 1,565 3,207 73.8% $352,575
===== ===== ===== ===== ====== ========
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 2001, the Company received approximately $246.2 million in net proceeds
from the issuance of unsecured notes. The Company used the net proceeds to
pay down borrowings on the Credit Facility which is used to fund
development and acquisition activity.
During the second quarter of 2002, the Company received approximately $23.0
million in net proceeds from the issuance of 7.625% Series D Cumulative
Redeemable Preferred Units. The Company used the net proceeds
to pay down borrowings on the Credit Facility which is used to fund
development and acquisition activity.
The Company has authorized a share repurchase program whereby the Company
may purchase up to $100 million of the Company's common shares, convertible
debentures or preferred shares. Through August 6, 2002, 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 convertible debentures matured in July 2001.
Additionally, the Company has received authorization from the Board of
Trustees to redeem the 5,000,000 outstanding 8.80% Series A Cumulative
Preferred Shares. The shares will be redeemed August 28, 2002 at a price
of $25.00 per share plus $0.165 per share in accrued and unpaid dividends,
for an aggregate redemption price of $25.165 per preferred share.
The Company has an effective S-3 shelf registration statement on file with
the Securities and Exchange Commission (the "Shelf Registration
Statement"). As of August 6, 2002, pursuant to this Shelf Registration
Statement, the Trust had the capacity to issue up to $688.4 million in
equity securities and the Operating Partnership had the capacity to issue
up to $561.1 million in debt securities.
RELATED PARTY TRANSACTIONS
Pursuant to agreements, the Company has been retained by an affiliate
(Rouse Kent Limited) to provide development, management and other services.
For the six months ended June 30, 2002 and 2001, the fees for these
services were $150,000 per quarter. The Company had accounts receivable
and loans receivable from Rouse Kent Limited and affiliates with balances
of $4.8 million and $22.2 million, respectively, as of June 30, 2002 and
26
$5.4 million and $15.4 million, respectively, as of June 30, 2001. The
Company has the option to purchase this affiliate for nominal
consideration.
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 dividends and on-
going 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 the disposition of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Included in Funds from
operations is the Company's profit from its merchant building program. For
the second quarter of 2002, the Company realized a $1.3 million gain from
the disposition of a United Kingdom development property. 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, 2002 and June 30,
2001 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
(IN THOUSANDS) (IN THOUSANDS)
-------------------- -------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2002 2001 2002 2001
-------- -------- -------- --------
Income available to common shareholders $ 41,754 $ 39,655 $ 81,204 $ 78,021
Adjustments:
Minority interest less preferred unit
distributions 2,138 2,241 4,219 4,418
Depreciation and amortization 27,286 24,328 53,364 48,861
Gain on disposition of properties (3,536) (717) (4,407) (2,194)
======== ======== ======== ========
Funds from operations $ 67,642 $ 65,507 $134,380 $129,106
======== ======== ======== ========
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.
27
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,
2001.
28
PART II: OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
On June 10, 2002, the Operating Partnership issued 473,000 7.625%
Series D Cumulative Redeemable Preferred Units of Limited
Partnership Interest (the "Units"). The aggregate sale price of
the Units was $23.7 million. The Units were sold to an
institutional investor in a private placement in reliance on the
exemption from registration under Section 4(2) of the Securities
Act of 1933, as amended. The Units are convertible after ten
years (or, under limited circumstances, a shorter period of
time), on a one-for-one basis, into the 7.625% Series D
Cumulative Redeemable Preferred Shares of Beneficial Interest of
the Trust (the "Preferred Shares"), which were authorized for
issuance by the Trust in connection with this transaction. The
Units have identical rights, preferences and privileges as the
Preferred Shares. The Units do not include any mandatory
redemption or sinking fund provisions. The holders of the Units
have certain rights to cause the Trust to register the Preferred
Shares pursuant to the terms of a registration rights agreement
entered into in connection with this private placement.
The aggregate net proceeds of the sale of the Units,
approximately $23.0 million, were used to repay the borrowings
under the Credit Facility.
In connection with the sale of the Units, the Operating
Partnership amended its Second Restated and Amended Agreement of
Limited Partnership, as amended, pursuant to the Third Amendment
thereto, filed as Exhibit 3.1.1 to this Report. The Articles
Supplementary to the Amended and Restated Declaration of Trust of
the Trust creating the Preferred Shares are filed as Exhibit
3.1.2 to this Report.
The Units are pari passu with the 8.80% Series A Cumulative
Redeemable Preferred Units of Limited Partnership, the 9.25%
Series B Cumulative Redeemable Preferred Units of Limited
Partnership of the Operating Partnership and 9.125% Series C
Cumulative Redeemable Preferred Units of Limited Partnership of
the Operating Partnership, and senior to all other units of
limited partnership interest of the Operating Partnership. The
Preferred Shares are pari passu with the 8.80% Series A
Cumulative Redeemable Preferred Shares of Beneficial Interest,
the 9.25% Series B Cumulative Redeemable Preferred Shares of
Beneficial Interest of the Trust and the 9.125% Series C
Cumulative Redeemable Preferred Shares of Beneficial Interest of
the Trust, and senior to the Common Shares of Beneficial Interest
of the Trust.
29
PART II: OTHER INFORMATION - CONT'D
- -----------------------------------
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the 2002 Annual Meeting of Shareholders of the Trust, held on
May 22, 2002, the following matters were approved by the requisite
vote of the shareholders, as follows:
1. Management's nominees Frederick F. Buchholz; Thomas C.
DeLoach, Jr.; Daniel P. Garton; and Stephen B. Siegel, were
elected to fill the four available positions as Class II
trustees. Voting (expressed in number of shares) was as
follows: Mr. Buchholz: 62,944,446 for, and 1,692,871 abstain;
Mr. DeLoach: 62,941,043 for, and 1,696,274 abstain; Mr.
Garton: 62,896,415 for, and 1,740,901 abstain; and Mr. Siegel:
62,348,227 for, and 2,289,090 abstain.
2. The shareholders approved the ratification of Ernst & Young
LLP as the Trust's independent public accountants for 2002.
Voting (expressed in number of shares) was as follows:
62,207,466 for, 2,363,011 against, and 66,839 abstentions or
broker non-votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1.1 * Articles Supplementary to the Amended and Restated
Declaration of Trust of the Trust relating to the
7.625% Series D Cumulative Redeemable Preferred
Shares of Beneficial Interest.
3.1.2 * Third Amendment to Second Restated and Amended
Agreement of Limited Partnership of the Operating
Partnership.
10.1 * Liberty Property Trust Amended and Restated Share
Incentive Plan dated as of February 28, 2002.
99.1 * Certification of the Chief Executive Officer of
Liberty Property Trust pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 * Certification of the Chief Financial Officer of
Liberty Property Trust pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
PART II: OTHER INFORMATION - CONT'D
- -----------------------------------
99.3 Certification of the Chief Executive Officer of
Liberty Property Limited Partnership pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
99.4 Certification of the Chief Financial Officer of
Liberty Property Limited Partnership pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
- ------------------
* Previously Filed
b. Reports on Form 8-K
None
31
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 14, 2002
- ------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees and
Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. August 14, 2002
- ------------------------------------- --------------------------
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 14, 2002
- ------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees and
Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. August 14, 2002
- ------------------------------------- --------------------------
George J. Alburger, Jr. Date
Chief Financial Officer and
Executive Vice President
31
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------
99.3 Certification of the Chief Executive Officer of Liberty
Property Limited Partnership pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
99.4 Certification of the Chief Financial Officer of Liberty
Property Limited Partnership pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.