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, 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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
YES X NO
On November 6, 2002, 76,348,502 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, 2002
INDEX
- -----
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements (unaudited) PAGE
----
Consolidated balance sheets of Liberty Property
Trust at September 30, 2002 and December 31, 2001......... 4
Consolidated statements of operations of Liberty
Property Trust for the three months ended September 30,
2002 and September 30, 2001............................... 5
Consolidated statements of operations of Liberty
Property Trust for the nine months ended September 30,
2002 and September 30, 2001............................... 6
Consolidated statements of cash flows of Liberty
Property Trust for the nine months ended September 30,
2002 and September 30, 2001............................... 7
Notes to consolidated financial statements for
Liberty Property Trust.................................... 8
Consolidated balance sheets of Liberty Property
Limited Partnership at September 30, 2002 and
December 31, 2001......................................... 13
Consolidated statements of operations of Liberty
Property Limited Partnership for the three months
ended September 30, 2002 and September 30, 2001........... 14
Consolidated statements of operations of Liberty
Property Limited Partnership for the nine months
ended September 30, 2002 and September 30, 2001........... 15
Consolidated statements of cash flows of Liberty
Property Limited Partnership for the nine months
ended September 30, 2002 and September 30, 2001........... 16
Notes to consolidated financial statements for
Liberty Property Limited Partnership...................... 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 21
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 30
Item 4. Controls and Procedures................................... 30
3
LIBERTY PROPERTY TRUST/LIBERTY PROPERTY LIMITED PARTNERSHIP
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2002
INDEX - Continued PAGE
- ----------------- ----
Part II. Other Information
- ---------------------------
Signatures for Liberty Property Trust............................... 34
Certifications for Liberty Property Trust........................... 35
Signatures for Liberty Property Limited Partnership................. 37
Certifications for Liberty Property Limited Partnership............. 38
Exhibit Index....................................................... 40
4
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 485,741 $ 447,826
Buildings and improvements 2,967,365 2,778,430
Less accumulated depreciation (462,168) (395,065)
---------- ----------
Operating real estate 2,990,938 2,831,191
Development in progress 191,406 252,789
Land held for development 165,939 163,547
---------- ----------
Net real estate 3,348,283 3,247,527
Cash and cash equivalents 15,606 19,390
Accounts receivable 12,300 15,470
Deferred financing and leasing costs,
net of accumulated amortization
(2002, $71,733; 2001, $59,531) 71,317 66,991
Assets held for sale 121,474 107,972
Prepaid expenses and other assets 127,441 95,475
---------- ----------
Total assets $3,696,421 $3,552,825
========== ==========
LIABILITIES
Mortgage loans $ 341,418 $ 340,131
Unsecured notes 1,395,000 1,345,000
Credit facility 203,000 68,000
Accounts payable 35,846 19,057
Accrued interest 20,198 31,392
Dividend payable 47,690 47,577
Other liabilities 96,235 83,852
---------- ----------
Total liabilities 2,139,387 1,935,009
Minority interest 208,558 194,394
SHAREHOLDERS' EQUITY
Series A preferred shares, $.001 par value, 5,000,000
shares authorized, issued and outstanding as of
December 31, 2001 - 120,814
Common shares of beneficial interest, $.001 par
value, 191,200,000 shares authorized, 75,899,971
(includes 59,100 in treasury) and 73,721,045
(includes 59,100 in treasury) shares issued and
outstanding as of September 30, 2002 and December 31,
2001, respectively 76 74
Additional paid-in capital 1,395,428 1,336,350
Unearned compensation (1,907) (1,056)
Distributions in excess of net income (43,794) (31,433)
Common shares in treasury, at cost, 59,100 shares
as of September 30, 2002 and December 31, 2001 (1,327) (1,327)
---------- ----------
Total shareholders' equity 1,348,476 1,423,422
---------- ----------
Total liabilities and shareholders' equity $3,696,421 $3,552,825
========== ==========
See accompanying notes.
5
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------
REVENUE
Rental $ 114,580 $ 105,185
Operating expense reimbursement 41,014 40,619
Interest and other 2,050 1,824
--------- ---------
Total revenue 157,644 147,628
--------- ---------
EXPENSES
Rental property 27,285 27,752
Real estate taxes 15,912 15,214
Interest 29,396 27,549
General and administrative 5,250 4,951
Depreciation and amortization 28,195 25,675
--------- ---------
Total expenses 106,038 101,141
--------- ---------
Income before property dispositions
and minority interest 51,606 46,487
(Loss) gain on disposition of properties (5,414) 140
Minority interest (5,039) (4,751)
--------- ---------
Income from continuing operations 41,153 41,876
Discontinued operations net of minority interest
(including net gain on property dispositions of
$528 for the three months ended September 30, 2002) 487 438
--------- ---------
Net income 41,640 42,314
Preferred share distributions 1,742 2,750
--------- ---------
Income available to common shareholders $ 39,898 $ 39,564
========= =========
Earnings per share:
Basic income per common share:
Continuing operations $ 0.52 $ 0.53
Discontinued operations 0.01 0.01
--------- ---------
Total $ 0.53 $ 0.54
========= =========
Diluted income per common share:
Continuing operations $ 0.51 $ 0.52
Discontinued operations 0.01 0.01
--------- ---------
Total $ 0.52 $ 0.53
========= =========
Distributions declared per common share $ 0.60 $ 0.59
========= =========
Weighted average number of common shares outstanding
Basic 75,451 72,773
Diluted 76,651 73,977
========= =========
See accompanying notes.
6
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------
REVENUE
Rental $ 327,783 $ 311,686
Operating expense reimbursement 120,449 119,559
Interest and other 5,584 4,411
--------- ---------
Total revenue 453,816 435,656
--------- ---------
EXPENSES
Rental property 82,363 82,377
Real estate taxes 44,940 41,678
Interest 85,722 83,206
General and administrative 16,826 16,172
Depreciation and amortization 82,159 75,186
--------- ---------
Total expenses 312,010 298,619
--------- ---------
Income before property dispositions
and minority interest 141,806 137,037
(Loss) gain on disposition of properties (4,172) 2,334
Minority interest (15,606) (14,448)
--------- ---------
Income from continuing operations 122,028 124,923
Discontinued operations net of minority interest
(including net gain on property dispositions of
$6,197 for the nine months ended September 30,
2002) 6,316 912
--------- ---------
Net income 128,344 125,835
Preferred share distributions 7,242 8,250
--------- ---------
Income available to common shareholders $ 121,102 $ 117,585
========= =========
Earnings per share:
Basic income per common share:
Continuing operations $ 1.54 $ 1.66
Discontinued operations 0.08 0.01
--------- ---------
Total $ 1.62 $ 1.67
========= =========
Diluted income per common share:
Continuing operations $ 1.51 $ 1.63
Discontinued operations 0.08 0.01
--------- ---------
Total $ 1.59 $ 1.64
========= =========
Distributions declared per common share $ 1.78 $ 1.73
========= =========
Weighted average number of common shares outstanding
Basic 74,663 70,487
Diluted 75,972 73,360
========= =========
See accompanying notes.
7
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------
OPERATING ACTIVITIES
Net income $ 128,344 $ 125,835
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 82,393 75,482
Amortization of deferred financing costs 2,881 3,086
Minority interest in net income 15,928 14,499
Gain on property dispositions (2,025) (2,334)
Noncash compensation 1,654 1,749
Changes in operating assets and liabilities:
Accounts receivable 3,170 (8,361)
Prepaid expenses and other assets (33,512) (11,971)
Accounts payable 16,789 25,147
Accrued interest (11,194) (10,609)
Other liabilities 12,383 (4,898)
---------- ---------
Net cash provided by operating activities 216,811 207,625
---------- ---------
INVESTING ACTIVITIES
Investment in properties (86,596) (59,264)
Proceeds from disposition of properties/land 61,843 77,298
Investment in development in progress (133,706) (187,116)
Investment in land held for development (24,405) (44,488)
Increase in deferred leasing costs (16,129) (13,161)
---------- ---------
Net cash used in investing activities (198,993) (226,731)
---------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common shares 51,985 18,178
Proceeds from issuance of preferred units 22,954 -
Proceeds from issuance of unsecured notes 150,000 250,000
Repayments of unsecured notes (100,000) -
Redemption of preferred shares (125,063) -
Retirement of convertible debentures - (597)
Proceeds from mortgage loans 7,121 -
Repayments of mortgage loans (5,834) (13,903)
Proceeds from credit facility 391,000 253,200
Repayments on credit facility (256,000) (339,200)
Increase in deferred financing costs (1,823) (4,055)
Distributions paid on common shares (131,469) (119,022)
Distributions paid on preferred shares (9,075) (8,250)
Distributions paid on units (15,398) (15,063)
---------- ---------
Net cash (used in) provided by financing activities (21,602) 21,288
---------- ---------
(Decrease) increase in cash and cash equivalents (3,784) 2,182
Cash and cash equivalents at beginning of period 19,390 4,638
---------- ---------
Cash and cash equivalents at end of period $ 15,606 $ 6,820
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 3,565 $ 22,693
Acquisition of properties - (328)
Assumption of mortgage loans - 328
Conversion of convertible debentures - 70,274
========== =========
See accompanying notes.
8
LIBERTY PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 nine months ended September 30, 2002 and
2001:
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2002 ENDED SEPTEMBER 30, 2001
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $ 41,640 $ 42,314
Less: Preferred
share distributions 1,742 2,750
-------- --------
Basic income per
common share
Income available
to common share-
holders 39,898 75,451 $ 0.53 39,564 72,773 $ 0.54
====== ======
Dilutive shares
Long-term compen-
sation plans - 1,200 - 1,181
Convertible de-
bentures - - - 23
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 39,898 76,651 $ 0.52 $ 39,564 73,977 $ 0.53
======== ======= ====== ======== ======= ======
9
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2002 ENDED SEPTEMBER 30, 2001
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $128,344 $125,835
Less: Preferred
share distributions 7,242 8,250
-------- --------
Basic income per
common share
Income available
to common share-
holders 121,102 74,663 $ 1.62 117,585 70,487 $ 1.67
====== ======
Dilutive shares
Long-term compen-
sation plans - 1,309 - 1,083
Convertible de-
bentures - - 2,587 1,790
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $121,102 75,972 $ 1.59 $120,172 73,360 $ 1.64
======== ======= ====== ======== ======= ======
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 95.3% of the common equity of
the Operating Partnership at September 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.
10
The operating information by segment is as follows (in thousands):
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 46,322 $ 12,060 $ 19,257 $ 12,704 $ 9,019 $ 11,322 $ 12,497 $ 17,071 $ 15,342 $155,594
Rental property
expenses and
real estate taxes 12,432 3,672 3,484 3,061 2,649 3,001 4,694 5,731 4,473 43,197
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 33,890 8,388 15,773 9,643 6,370 8,321 7,803 11,340 10,869 112,397
Other income/expenses, net 60,791
--------
Income before property dispositions and minority interest 51,606
Loss on disposition of properties (5,414)
Minority interest (5,039)
Discontinued operations net of minority interest 487
Preferred share distributions (1,742)
--------
Income available to common shareholders $ 39,898
========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 43,651 $ 10,717 $ 14,725 $ 11,595 $ 11,687 $ 11,154 $ 12,337 $ 15,308 $ 14,630 $145,804
Rental property
expenses and
real estate taxes 12,869 3,421 3,598 2,816 3,525 2,978 4,506 5,273 3,980 42,966
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 30,782 7,296 11,127 8,779 8,162 8,176 7,831 10,035 10,650 102,838
Other income/expenses, net 56,351
--------
Income before property dispositions and minority interest 46,487
Gain on disposition of properties 140
Minority interest (4,751)
Discontinued operations net of minority interest 438
Preferred share distributions (2,750)
--------
Income available to common shareholders $ 39,564
========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $135,777 $ 34,830 $ 49,350 $ 37,419 $ 27,181 $ 33,996 $ 37,557 $ 47,225 $ 44,897 $448,232
Rental property
expenses and
real estate taxes 37,474 10,845 10,089 9,225 8,159 8,563 14,115 15,548 13,285 127,303
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 98,303 23,985 39,261 28,194 19,022 25,433 23,442 31,677 31,612 320,929
Other income/expenses, net 179,123
--------
Income before property dispositions and minority interest 141,806
Loss on disposition of properties (4,172)
Minority interest (15,606)
Discontinued operations net of minority interest 6,316
Preferred share distributions (7,242)
--------
Income available to common shareholders $121,102
========
11
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $128,477 $ 33,083 $ 43,134 $ 33,542 $ 33,799 $ 33,907 $ 36,235 $ 43,719 $ 45,349 $431,245
Rental property
expenses and
real estate taxes 37,579 10,110 10,794 7,993 9,428 8,893 13,410 13,853 11,995 124,055
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 90,898 22,973 32,340 25,549 24,371 25,014 22,825 29,866 33,354 307,190
Other income/expenses, net 170,153
--------
Income before property dispositions and minority interest 137,037
Gain on disposition of properties 2,334
Minority interest (14,448)
Discontinued operations net of minority interest 912
Preferred share distributions (8,250)
--------
Income available to common shareholders $117,585
========
NOTE 4 - ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
- ---------------------------------------------------------
ASSETS HELD FOR SALE
As of September 30, 2002, the Company had decided to sell 28 properties and
approximately 50 acres of land located in New Jersey with a net book value,
prior to adjustment, of $127.5 million. On September 30, 2002, the Company
determined that the plan of sale criteria in FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," had been
met. Accordingly, the carrying value of the assets was adjusted to its
fair value less costs to sell, amounting to $121.5 million, which was
determined based on the expected selling price of the assets. The
resulting $6.0 million write-down has been recorded as part of the loss on
disposition of properties in the accompanying statements of operations.
The carrying value of the assets that are held for sale is separately
presented in the "Assets held for sale" caption in the balance sheet. The
sale of the properties is subject to negotiation of acceptable terms and
other customary conditions. The operations of the assets held for sale are
included in income from continuing operations due to the fact that the
Company expects to retain an interest sufficient to enable the Company to
exert significant influence over the purchasing entity's operating and
financial policies.
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 nine months ended September 30, 2002 were $3.5 million and
$27.3 million, respectively. Below is a summary of the results of
operations of the properties disposed of through the respective
disposition dates (in 000's):
12
QUARTER ENDED NINE MONTHS ENDED
--------------------- ---------------------
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Revenues $ 15 $ 784 $1,041 $2,016
Operating expenses (11) (115) (164) (371)
Interest expense (12) (148) (202) (386)
Depreciation and amortization (9) (59) (234) (296)
------ ------ ------ ------
Income from operations $ (17) $ 462 $ 441 $ 963
====== ====== ====== ======
NOTE 5 - DEBT OFFERING
- ----------------------
On August 22, 2002, the Company sold $150 million principal amount of
6.375% senior unsecured notes due 2012.
NOTE 6 - REDEMPTION OF PREFERRED SHARES
- ---------------------------------------
On August 28, 2002, the Company redeemed for $125 million its outstanding
8.80% Series A Cumulative Redeemable Preferred Shares.
NOTE 7 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- -------------------------------------------------------
In April, 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4,
44, and 64, Amendment of FASB No. 13 and Technical Corrections. This
statement eliminates the requirement to report gains and losses from
extinguishment of debt as extraordinary unless they meet the criteria of
APB Opinion 30. Debt extinguishments that were classified as
extraordinary in prior periods presented that do not meet the criteria of
APB Opinion 30 shall be reclassified. FASB No. 145 is effective for
fiscal years beginning after May 15, 2002. The impact of the adoption of
FASB No. 145 is not expected to have a material impact on the Company's
financial position or results of operations.
13
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(IN THOUSANDS)
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 485,741 $ 447,826
Buildings and improvements 2,967,365 2,778,430
Less accumulated depreciation (462,168) (395,065)
---------- ----------
Operating real estate 2,990,938 2,831,191
Development in progress 191,406 252,789
Land held for development 165,939 163,547
---------- ----------
Net real estate 3,348,283 3,247,527
Cash and cash equivalents 15,606 19,390
Accounts receivable 12,300 15,470
Deferred financing and leasing costs,
net of accumulated amortization
(2002, $71,733; 2001, $59,531) 71,317 66,991
Assets held for sale 121,474 107,972
Prepaid expenses and other assets 127,441 95,475
---------- ----------
Total assets $3,696,421 $3,552,825
========== ==========
LIABILITIES
Mortgage loans $ 341,418 $ 340,131
Unsecured notes 1,395,000 1,345,000
Credit facility 203,000 68,000
Accounts payable 35,846 19,057
Accrued interest 20,198 31,392
Distributions payable 47,690 47,577
Other liabilities 96,235 83,852
---------- ----------
Total liabilities 2,139,387 1,935,009
Minority interest 6,880 6,173
OWNERS' EQUITY
General partner's equity - preferred units - 120,814
- common units 1,348,476 1,302,608
Limited partners' equity - preferred units 135,471 112,516
- common units 66,207 75,705
---------- ----------
Total owners' equity 1,550,154 1,611,643
---------- ----------
Total liabilities and owners' equity $3,696,421 $3,552,825
========== ==========
See accompanying notes.
14
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 20, 2001
------------------ ------------------
REVENUE
Rental $ 114,580 $ 105,185
Operating expense reimbursement 41,014 40,619
Interest and other 2,050 1,824
--------- ---------
Total revenue 157,644 147,628
--------- ---------
EXPENSES
Rental property 27,285 27,752
Real estate taxes 15,912 15,214
Interest 29,396 27,549
General and administrative 5,250 4,951
Depreciation and amortization 28,195 25,675
--------- ---------
Total expenses 106,038 101,141
--------- ---------
Income before property dispositions 51,606 46,487
(Loss) gain on disposition of properties (5,414) 140
--------- ---------
Income from continuing operations 46,192 46,627
Discontinued operations (including net gain on
property dispositions of $528 for the
three months ended September 30, 2002) 511 462
--------- ---------
Net income $ 46,703 $ 47,089
========= =========
Net income allocated to general partner $ 41,640 $ 42,314
========= =========
Net income allocated to limited partners $ 5,063 $ 4,775
========= =========
See accompanying notes.
15
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------
REVENUE
Rental $ 327,783 $ 311,686
Operating expense reimbursement 120,449 119,559
Interest and other 5,584 4,411
--------- ---------
Total revenue 453,816 435,656
--------- ---------
EXPENSES
Rental property 82,363 82,377
Real estate taxes 44,940 41,678
Interest 85,722 83,206
General and administrative 16,826 16,172
Depreciation and amortization 82,159 75,186
--------- ---------
Total expenses 312,010 298,619
--------- ---------
Income before property dispositions 141,806 137,037
(Loss) gain on disposition of properties (4,172) 2,334
--------- ---------
Income from continuing operations 137,634 139,371
Discontinued operations (including net gain on
property dispositions of $6,197 for the nine
months ended September 30, 2002) 6,638 963
--------- ---------
Net income $ 144,272 $ 140,334
========= =========
Net income allocated to general partner $ 128,344 $ 125,835
========= =========
Net income allocated to limited partners $ 15,928 $ 14,499
========= =========
See accompanying notes.
16
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------
OPERATING ACTIVITIES
Net income $ 144,272 $ 140,334
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 82,393 75,482
Amortization of deferred financing costs 2,881 3,086
Gain on property dispositions (2,025) (2,334)
Noncash compensation 1,654 1,749
Changes in operating assets and liabilities:
Accounts receivable 3,170 (8,361)
Prepaid expenses and other assets (33,512) (11,971)
Accounts payable 16,789 25,147
Accrued interest (11,194) (10,609)
Other liabilities 12,383 (4,898)
---------- ---------
Net cash provided by operating activities 216,811 207,625
---------- ---------
INVESTING ACTIVITIES
Investment in properties (86,596) (59,264)
Proceeds from disposition of properties/land 61,843 77,298
Investment in development in progress (133,706) (187,116)
Investment in land held for development (24,405) (44,488)
Increase in deferred leasing costs (16,129) (13,161)
---------- ---------
Net cash used in investing activities (198,993) (226,731)
---------- ---------
FINANCING ACTIVITIES
Redemption of preferred shares (125,063) -
Retirement of convertible debentures - (597)
Proceeds from issuance of unsecured notes 150,000 250,000
Repayment of unsecured notes (100,000) -
Proceeds from mortgage loans 7,121 -
Repayments of mortgage loans (5,834) (13,903)
Proceeds from credit facility 391,000 253,200
Repayments on credit facility (256,000) (339,200)
Increase in deferred financing costs (1,823) (4,055)
Capital contributions 74,939 18,178
Distributions to partners (155,942) (142,335)
---------- ---------
Net cash (used in) provided by financing activities (21,602) 21,288
---------- ---------
(Decrease) increase in cash and cash equivalents (3,784) 2,182
Cash and cash equivalents at beginning of period 19,390 4,638
---------- ---------
Cash and cash equivalents at end of period $ 15,606 $ 6,820
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 3,565 $ 22,693
Acquisition of properties - (328)
Assumption of mortgage loans - 328
Conversion of convertible debentures - 70,274
========== =========
See accompanying notes.
17
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 95.3% of the common equity of
the Operating Partnership at September 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
18
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, 2002
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 46,322 $ 12,060 $ 19,257 $ 12,704 $ 9,019 $ 11,322 $ 12,497 $ 17,071 $ 15,342 $155,594
Rental property
expenses and
real estate taxes 12,432 3,672 3,484 3,061 2,649 3,001 4,694 5,731 4,473 43,197
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 33,890 8,388 15,773 9,643 6,370 8,321 7,803 11,340 10,869 112,397
Other income/expenses, net 60,791
--------
Income before property dispositions 51,606
Loss on disposition of properties (5,414)
Discontinued operations 511
--------
Net income $ 46,703
========
Net income allocated to general partner $ 41,640
========
Net income allocated to limited partners $ 5,063
========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $ 43,651 $ 10,717 $ 14,725 $ 11,595 $ 11,687 $ 11,154 $ 12,337 $ 15,308 $ 14,630 $145,804
Rental property
expenses and
real estate taxes 12,869 3,421 3,598 2,816 3,525 2,978 4,506 5,273 3,980 42,966
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 30,782 7,296 11,127 8,779 8,162 8,176 7,831 10,035 10,650 102,838
Other income/expenses, net 56,351
--------
Income before property dispositions 46,487
Gain on disposition of properties 140
Discontinued operations 462
--------
Net income $ 47,089
========
Net income allocated to general partner $ 42,314
========
Net income allocated to limited partners $ 4,775
========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $135,777 $ 34,830 $ 49,350 $ 37,419 $ 27,181 $ 33,996 $ 37,557 $ 47,225 $ 44,897 $448,232
Rental property
expenses and
real estate taxes 37,474 10,845 10,089 9,225 8,159 8,563 14,115 15,548 13,285 127,303
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 98,303 23,985 39,261 28,194 19,022 25,433 23,442 31,677 31,612 320,929
Other income/expenses, net 179,123
--------
Income before property dispositions 141,806
Loss on disposition of properties (4,172)
Discontinued operations 6,638
--------
Net income $144,272
========
Net income allocated to general partner $128,344
========
Net income allocated to limited partners $ 15,928
========
19
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
SE New Lehigh The Jackson- Minne- All
Pennsyl. Jersey Valley Virginia Carolinas ville sota Michigan Others Total
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Real estate
related revenues $128,477 $ 33,083 $ 43,134 $ 33,542 $ 33,799 $ 33,907 $ 36,235 $ 43,719 $ 45,349 $431,245
Rental property
expenses and
real estate taxes 37,579 10,110 10,794 7,993 9,428 8,893 13,410 13,853 11,995 124,055
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Property level net
operating income 90,898 22,973 32,340 25,549 24,371 25,014 22,825 29,866 33,354 307,190
Other income/expenses, net 170,153
--------
Income before property dispositions 137,037
Gain on disposition of properties 2,334
Discontinued operations 963
--------
Net income $140,334
========
Net income allocated to general partner $125,835
========
Net income allocated to limited partners $ 14,499
========
NOTE 4 - ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
- ---------------------------------------------------------
ASSETS HELD FOR SALE
As of September 30, 2002, the Company had decided to sell 28 properties and
approximately 50 acres of land located in New Jersey with a net book value,
prior to adjustment, of $127.5 million. On September 30, 2002, the Company
determined that the plan of sale criteria in FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," had been
met. Accordingly, the carrying value of the assets was adjusted to its
fair value less costs to sell, amounting to $121.5 million, which was
determined based on the expected selling price of the assets. The
resulting $6.0 million write-down has been recorded as part of the loss on
disposition of properties in the accompanying statements of operations.
The carrying value of the assets that are held for sale is separately
presented in the "Assets held for sale" caption in the balance sheet. The
sale of the properties is subject to negotiation of acceptable terms and
other customary conditions. The operations of the assets held for sale are
included in income from continuing operations due to the fact that the
Company expects to retain an interest sufficient to enable the Company to
exert significant influence over the purchasing entity's operating and
financial policies.
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 nine months ended September 30, 2002 were $3.5 million and
$27.3 million, respectively. Below is a summary of the results of
operations of the properties disposed of through the respective
disposition dates (in 000's):
20
QUARTER ENDED NINE MONTHS ENDED
--------------------- ---------------------
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Revenues $ 15 $ 784 $1,041 $2,016
Operating expenses (11) (115) (164) (371)
Interest expense (12) (148) (202) (386)
Depreciation and amortization (9) (59) (234) (296)
------ ------ ------ ------
Income from operations $ (17) $ 462 $ 411 $ 963
====== ====== ====== ======
NOTE 5 - DEBT OFFERING
- ----------------------
On August 22, 2002, the Company sold $150 million principal amount of
6.375% senior unsecured notes due 2012.
NOTE 6 - REDEMPTION OF PREFERRED SHARES
- ---------------------------------------
On August 28, 2002, the Company redeemed the general partner's preferred
units. The units were redeemed for $125.0 million.
NOTE 7 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- -------------------------------------------------------
In April, 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4,
44, and 64, Amendment of FASB No. 13 and Technical Corrections. This
statement eliminates the requirement to report gains and losses from
extinguishment of debt as extraordinary unless they meet the criteria of
APB Opinion 30. Debt extinguishments that were classified as
extraordinary in prior periods presented that do not meet the criteria of
APB Opinion 30 shall be reclassified. FASB No. 145 is effective for
fiscal years beginning after May 15, 2002. The impact of the adoption of
FASB No. 145 is not expected to have a material impact on the Company's
financial position or results of operations.
21
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 September 30, 2002 and 2001
are provided in the table below. Additionally, as a result of the
imbalance between supply and demand, market rental rates have generally
declined. Although the Company has realized increases on some renewal and
replacement leases, the negative occupancy and rental rate trend has been
continuing for several quarters and as a result, property level operating
income for the "Same Store" group of properties has decreased.
The Company also seeks to achieve growth in operating income from its
development pipeline activity. The decline in demand for real estate has
reduced the amount of development the Company is undertaking. The size of
the development pipeline has continued to decrease as speculative
development has been significantly reduced and build to suit development
activity has been declining.
The composition of the Company's properties in operation as of September
30, 2002 and 2001 is as follows (in thousands, except percentages):
PERCENT
TOTAL OF TOTAL
SQUARE FEET SQUARE FEET PERCENT OCCUPIED
--------------- --------------- ----------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
TYPE 2002 2001 2002 2001 2002 2001
- ------------------------- ------- ------ ------ ------ ------ ------
Industrial - Distribution 22,513 21,409 42.8% 42.8% 91.3% 97.4%
Industrial - Flex 13,362 12,433 25.4% 24.9% 90.4% 94.1%
Office 16,739 16,134 31.8% 32.3% 89.9% 92.1%
------- ------ ------ ------ ------ ------
Total 52,614 49,976 100.0% 100.0% 90.6% 94.8%
======= ====== ====== ====== ====== ======
Geographic segment data for the three and nine months ended September 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
22
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.
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 nine
months ended September 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 nine months ended September 30, 2002 (unaudited) with the
results of operations of the Company for the three and nine months ended
September 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 nine months ended September 30, 2002 compared to the
three and nine months ended September 30, 2001.
- --------------------------------------------------------------------------
Total revenue (principally rental revenue and operating expense
reimbursement) increased to $157.6 million from $147.6 million for the
three months ended September 30, 2002 compared to the same period in 2001,
and increased to $453.8 million from $435.7 million for the nine months
ended September 30, 2002 compared to the same period in 2001. These
increases are primarily due to $7.2 million in lease termination fees
received during the three months ended September 30, 2002 and the net
increased investment in properties developed, acquired, or disposed of
during the respective periods. The average gross investment in operating
real estate owned, including assets held for sale, for the quarter ended
23
September 30, 2002 was $3,507.9 million as compared to $3,338.5 million
for the quarter ended September 30, 2001. The average gross investment in
operating real estate owned, including assets held for sale, for the nine
months ended September 30, 2002 was $3,437.4 million as compared to
$3,289.3 million for the nine months ended September 30, 2001.
The operating expense recovery percentage (the ratio of operating expense
reimbursement to rental property expenses and real estate taxes) increased
to 94.9% for the three months ended September 30, 2002 from 94.5% for the
three months ended September 30 2001, and decreased to 94.6% from 96.4% for
the nine months ended September 30, 2002 compared to the same period in
2001. While there was a modest increase in the recovery percentage for the
three month period, the overall trend as seen from the nine month
percentage is for a reduced recovery percentage. This reduction is
consistent with a reduction in occupancy.
Rental property and real estate tax expenses increased to $43.2 million
from $43.0 million for the three months ended September 30, 2002 compared
to the same period in 2001, and increased to $127.3 from $124.1 million for
the nine months ended September 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 $91.7 million for the
three months ended September 30, 2002 from $93.1 million for the three
months ended September 30, 2001, on a straight line basis, (which
recognizes rental revenue evenly over the life of the lease), and decreased
to $90.5 million for the three months ended September 30, 2002 from $91.3
million for the three months ended September 30, 2001, on a cash basis.
These decreases of 1.5% and 0.9%, respectively, are primarily due to
decreases in occupancy.
Property level net operating income for the Same Store properties decreased
to $277.5 million for the nine months ended September 30, 2002 from $282.6
million for the nine months ended September 30, 2001, on a straight line
basis, and decreased to $273.2 million for the nine months ended September
30, 2002 from $276.0 million for the nine months ended September 30, 2001,
on a cash basis. These decreases of 1.8% and 1.0%, respectively, are
primarily due to decreases in occupancy. At September 30, 2002, the
occupancy of the Same Store portfolio was 91.1% as compared to 94.7% at
September 30, 2001.
24
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, 2002 and 2001 (in thousands).
STRAIGHT LINE BASIS CASH BASIS
-------------------- --------------------
QUARTER ENDED QUARTER ENDED
-------------------- --------------------
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Rental Revenue $ 93,321 $ 95,083 $ 92,092 $ 93,278
-------- -------- -------- --------
Operating expenses:
Rental property expense 24,518 25,824 24,518 25,824
Real estate taxes 13,875 13,916 13,875 13,916
Operating expense recovery (36,819) (37,761) (36,819) (37,761)
-------- -------- -------- --------
Unrecovered operating expenses 1,574 1,979 1,574 1,979
-------- -------- -------- --------
Property level net operating income $ 91,747 $ 93,104 $ 90,518 $ 91,299
======== ======== ======== ========
STRAIGHT LINE BASIS CASH BASIS
-------------------- --------------------
NINE MONTHS ENDED NINE MONTHS ENDED
-------------------- --------------------
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Rental Revenue $ 282,612 $ 286,396 $ 278,268 $ 279,844
--------- --------- --------- ---------
Operating expenses:
Rental property expense 75,186 77,866 75,186 77,866
Real estate taxes 39,497 38,635 39,497 38,635
Operating expense recovery (109,611) (112,656) (109,611) (112,656)
--------- --------- --------- ---------
Unrecovered operating expenses 5,072 3,845 5,072 3,845
--------- --------- --------- ---------
Property level net operating income $ 277,540 $ 282,551 $ 273,196 $ 275,999
========= ========= ========= =========
General and administrative expenses increased to $5.3 million for the three
months ended September 30, 2002 from $5.0 million compared to the same
period in 2001, and to $16.8 million from $16.2 million for the nine months
ended September 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 technology, property management and
marketing.
Depreciation and amortization expense increased to $28.2 million from $25.7
million for the three months ended September 30, 2002 compared to the same
period in 2001, and to $82.2 million from $75.2 million for the nine months
ended September 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 $29.4 million from $27.5 million for the
three months ended September 30, 2002 compared to the same period in 2001,
and to $85.7 million from $83.2 million for the nine months ended September
30, 2002 compared to the same period in 2001. These increases are due to
25
the increases in the average debt outstanding for the respective periods,
which was $1,846.2 million for the three months ended September 30, 2002
compared to $1,768.6 million for the same period in 2001, and was $1,809.1
million for the nine months ended September 30, 2002 compared to $1,746.6
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 7.41% for the three months ended September 30, 2001 to 6.98%
for the three months ended September 30, 2002, and from 7.51% for the nine
months ended September 30, 2001 to 7.10% for the nine months ended
September 30, 2002.
Costs directly related to the development of rental properties are
capitalized. Capitalized development costs include interest, salaries and
benefits, property taxes, insurance and other directly identifiable costs
during the period of development. Capitalized salaries and benefits
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 September 30, 2002 was $3.8 million as compared to
$5.4 million for the three months ended September 30, 2001, and $13.2
million for the nine months ended September 30, 2002 as compared to $16.9
million for the same period in 2001. Included in capitalized interest
costs are the interest costs relating to the Company's $54.8 million
investment in its proposed downtown Philadelphia office tower.
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 third quarter of 2002, the Company realized a loss on
disposition of properties of $5.4 million due to the sale of three parcels
of land and a $6.0 million write-down of assets held for sale to their net
realizable value less costs to sell. During the nine months ended
September 30, 2002, the Company realized a loss on disposition of
properties of $4.2 million due to the sale of eight parcels of land, the
sale of a property developed for sale in the United Kingdom with a joint
venture partner, and the write-down of assets held for sale, as discussed
above. During the third quarter of 2001, the Company realized a gain on
disposition of properties of $140,000 due to the sale of one property and
two parcels of land for $3.7 million, and during the nine months ended
September 30, 2001, the Company realized a gain on disposition of
properties 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 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 statements of operations as discontinued
operations for all periods presented. The increase in income from
discontinued operations of $5.4 million for the nine months ended September
30, 2002, as compared to the same period in 2001, is primarily due to the
gain on the disposition of the properties sold in 2002.
26
As a result of the foregoing, the Company's net income decreased to $41.6
million for the three months ended September 30, 2002 from $42.3 million
for the three months ended September 30, 2001, and increased to $128.3
million for the nine months ended September 30, 2002 from $125.8 million
for the nine months ended September 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002, the Company had cash and cash equivalents of
$15.6 million.
Net cash flow provided by operating activities increased to $216.8 million
for the nine months ended September 30, 2002 from $207.6 million for the
nine months ended September 30, 2001. This $9.2 million increase was
primarily due to the fluctuations in operating assets and liabilities
during the respective periods. Net cash flow provided by operations is the
primary source of liquidity to fund distributions to shareholders and for
the recurring capital expenditures and leasing transaction costs for the
Company's properties in operation.
Net cash used in investing activities decreased to $199.0 million for the
nine months ended September 30, 2002 from $226.7 million for the nine
months ended September 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 was $21.6 million for the nine months
ended September 30, 2002 versus net cash provided by financing activities
of $21.3 million for the nine months ended September 30, 2001. This change
is consistent with the decrease in the level of the Company's investment
activities particularly in development as described above. Net cash
provided by or used in financing activities includes proceeds from the
issuance of equity and debt net of debt repayments and shareholder
distributions. Cash provided by financing activities is a source of
capital utilized by the Company to fund investment activities.
The Company 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. The
Company has borrowing capacity under its $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 September 30, 2002 the
Company's debt to gross assets ratio was 46.6%, and for the quarter ended
September 30, 2002, the earnings to fixed charges ratio was 2.9x. Debt to
gross assets equals total long-term debt and borrowings under the Credit
Facility 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.
27
The interest rate on borrowings under the Credit Facility fluctuates based
upon ratings from Moody's Investors Service, Inc. ("Moody's"), Standard and
Poor's Ratings Group ("S&P") and Fitch, Inc. ("Fitch"). 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 September 30, 2002. The Credit Facility expires in April, 2003.
As of September 30, 2002, $341.4 million in mortgage loans and $1,395.0
million in unsecured notes were outstanding. The interest rates on
$1,714.0 million of mortgage loans and unsecured notes are fixed and range
from 6.0% to 8.8%. Interest rates on $22.4 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 6.9 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, 2002 are as follows (in thousands, except percentages):
MORTGAGES WEIGHTED
-------------------------- UNSECURED AVERAGE
AMORTIZATION MATURITIES NOTES TOTAL INTEREST RATE
------------ ---------- ---------- ---------- --------------
2002 (3 mo's) $ 2,234 $ - $ - $ 2,234 7.0%
2003 8,092 26,606 50,000 84,698 7.3%
2004 8,168 33,019 100,000 141,187 7.0%
2005 7,090 115,039 - 122,129 7.6%
2006 5,001 30,078 100,000 135,079 7.2%
2007 4,543 - 100,000 104,543 7.3%
2008 4,238 29,268 - 33,506 7.2%
2009 2,146 42,051 270,000 314,197 7.8%
2010 1,348 - 200,000 201,348 8.5%
2011 1,098 3,533 250,000 254,631 7.3%
2012 192 17,674 150,000 167,866 6.5%
2013 - - 75,000 (1) 75,000 6.4%
2018 - - 100,000 100,000 7.5%
-------- --------- ---------- ---------- ------
$ 44,150 $ 297,268 $1,395,000 $1,736,418 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 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.
28
The expiring square feet and annual base rent by year for the properties in
operation as of September 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 (3 mo's) 1,051 $ 3,798 598 $ 5,357 542 $ 6,167 2,191 $ 15,322
2003 1,684 7,889 2,414 20,726 1,578 21,258 5,676 49,873
2004 2,427 11,975 1,954 17,389 1,826 28,162 6,207 57,526
2005 3,219 16,486 1,627 14,409 2,994 43,790 7,840 74,685
2006 2,530 11,253 1,705 18,416 1,175 17,945 5,410 47,614
2007 2,113 10,089 1,089 10,138 1,284 19,302 4,486 39,529
Thereafter 7,541 41,372 2,691 29,543 5,646 99,262 15,878 170,177
------ -------- ------ -------- ------ -------- ------ --------
Total 20,565 $102,862 12,078 $115,978 15,045 $235,886 47,688 $454,726
====== ======== ====== ======== ====== ======== ====== ========
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 2.1 million square feet of
properties under development as of September 30, 2002 are as follows (in
thousands, except percentages):
SQUARE FEET
----------------------------- PERCENT
SCHEDULED IND- IND- PRE-LEASED TOTAL
IN-SERVICE DATE DIST. FLEX OFFICE TOTAL SEPTEMBER 30, 2002 INVESTMENT
- ---------------- ------ ------ ------- ------ ------------------ ----------
4th Quarter 2002 776 44 189 1,009 78.1% $ 65,654
1st Quarter 2003 131 - 540 671 80.6% 88,901
2nd Quarter 2003 - 267 - 267 86.1% 61,480
3rd Quarter 2003 - - 68 68 - 34,847
4th Quarter 2003 - - - - - -
Thereafter - - 74 74 79.6% 11,651
----- ----- ----- ----- ------ --------
Total 907 311 871 2,089 77.4% $262,533
===== ===== ===== ===== ====== ========
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.
In 2002, the Company received approximately $23.0 million in net proceeds
from the issuance of 7.625% Series D Cumulative Redeemable Preferred Units
and approximately $148.4 million in net proceeds from the issuance of
6.375% senior unsecured notes due 2012. The Company used the net proceeds
from the issuance of preferred units and unsecured notes to pay down
borrowings on the Credit Facility which is used to fund development and
acquisition activity.
During the third quarter of 2002, the Company redeemed for $125 million,
its outstanding 8.80% Series A Cumulative Redeemable Preferred Shares.
29
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 November 6, 2002, the Company had
purchased 59,100 common shares and 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 remaining
convertible debentures matured in July 2001.
The Company has an effective S-3 shelf registration statement on file with
the Securities and Exchange Commission (the "Shelf Registration
Statement"). As of November 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 $411.7 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 nine months ended September 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 $5.4 million and $27.6 million, respectively, as of September 30, 2002
and $4.4 million and $24.8 million, respectively, as of September 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 the
National Association of Real Estate Investment Trusts ("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 nine months ended September 30, 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
30
operations for the three and nine months ended September 30, 2002 and
September 30, 2001 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS) (IN THOUSANDS)
-------------------- --------------------
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Income available to common shareholders $ 39,898 $ 39,564 $121,102 $117,585
Adjustments:
Minority interest less preferred unit
distributions 1,959 2,122 6,178 6,540
Depreciation and amortization 27,787 25,264 81,151 74,125
Loss (gain) on disposition of properties 4,886 (140) 479 (2,334)
======== ======== ======== ========
Funds from operations $ 74,530 $ 66,810 $208,910 $195,916
======== ======== ======== ========
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,
2001.
ITEM 4. CONTROLS AND PROCEDURES
- --------------------------------
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to provide
reasonable assurance that information required to be disclosed in the
reports we file with the SEC is recorded, processed, summarized and
reported within the time periods specified in the rules of the SEC. Within
90 days prior to the filing of this Quarterly Report on Form 10-Q, we
carried out an evaluation, under the supervision and the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the design and operation of these disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective in
alerting them in a timely manner to material information relating to the
company required to be included in our periodic SEC filings.
31
CHANGES IN INTERNAL CONTROLS
There were no significant changes in internal controls or other factors
that could significantly affect our internal controls subsequent to the
date of our evaluation.
32
PART II: OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
In August 2002, certain individuals acquired a total of 117,000
common shares of beneficial interest of Liberty Property Trust in
exchange for the same number of units of limited partnership
interest in Liberty Property Limited Partnership. Such persons
acquired these units of limited partnership interest in connection
with their contribution to the Operating Partnership of certain
assets in 1998. The exchange of the common shares of beneficial
interest for the units of limited partnership interest is exempt
from the registration requirement of the Securities Act of 1933,
as amended, pursuant to Section 4(2) thereunder.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1.1 Sixth Supplemental Indenture, dated as of August 22,
2002, between Liberty Property Limited Partnership, as
Issuer, and Bank One Trust Company, N.A., as Trustee,
supplementing the Senior Indenture, dated as of October
24, 1997, between Liberty Property Limited Partnership,
as Obligor, and Bank One Trust Company, N.A. (as
successor to the First National Bank of Chicago), as
Trustee, and relating to $150,000,000 principal amount
of 6.375% Senior Notes due 2012 of Liberty Property
Limited Partnership.
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.
33
PART II: OTHER INFORMATION
- --------------------------
99.3 Certification of the Chief Executive Officer of Liberty
Property Trust, in its capacity as the general partner
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 Trust, in its capacity as of the general
partner 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.
b. Reports of Form 8-K
During the quarter ended September 30, 2002, the Registrants
filed one Current Report on Form 8-K dated August 21, 2002,
reporting Items 5 and 7 and containing as Exhibits the
Underwriting Agreement dated August 19, 2002 among the
Registrants and the Underwriters (as defined therein) and a
Statement Re: Computation of Ratio of Earnings to Fixed
Charges.
34
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 12, 2002
- ------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees and
Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. November 12, 2002
- ------------------------------------- --------------------------
George J. Alburger, Jr. Date
Chief Financial Officer and
Executive Vice President
35
CERTIFICATION
I, Willard G. Rouse, III, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Liberty Property Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included
in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as
of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which
could adversely affect the registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report
whether or not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
Dated: November 12, 2002 By: /s/ WILLARD G. ROUSE, III
---------------------------------------
Willard G. Rouse, III
Chairman of the Board of Trustees and
Chief Executive Officer
36
CERTIFICATION
I, George J. Alburger, Jr., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Liberty Property Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included
in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as
of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which
could adversely affect the registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report
whether or not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
Dated: November 12, 2002 By: /s/ GEORGE J. ALBURGER, JR.
---------------------------------------
George J. Alburger, Jr.
Chief Financial Officer and
Executive Vice President
37
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 LIMITED PARTNERSHIP
By: LIBERTY PROPERTY TRUST, GENERAL PARTNER
/s/ WILLARD G. ROUSE III November 12, 2002
- ------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees and
Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. November 12, 2002
- ------------------------------------- --------------------------
George J. Alburger, Jr. Date
Chief Financial Officer and
Executive Vice President
38
CERTIFICATION
I, Willard G. Rouse, III, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Liberty Property Limited
Partnership;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included
in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as
of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which
could adversely affect the registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report
whether or not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
Dated: November 12, 2002 By: /s/ WILLARD G. ROUSE, III
---------------------------------------
Willard G. Rouse, III
Chairman of the Board of Trustees and
Chief Executive Officer
39
CERTIFICATION
I, George J. Alburger, Jr., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Liberty Property Limited
Partnership;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included
in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as
of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which
could adversely affect the registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report
whether or not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
Dated: November 12, 2002 By: /s/ GEORGE J. ALBURGER, JR.
---------------------------------------
George J. Alburger, Jr.
Chief Financial Officer and
Executive Vice President
40
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------
3.1.1 Sixth Supplemental Indenture, dated as of August 22, 2002,
between Liberty Property Limited Partnership, as Issuer, and
Bank One Trust Company, N.A., as Trustee, supplementing the
Senior Indenture, dated as of October 24, 1997, between
Liberty Property Limited Partnership, as Obligor, and Bank
One Trust Company, N.A. (as successor to the First National
Bank of Chicago), as Trustee, and relating to $150,000,000
principal amount of 6.375% Senior Notes due 2012 of Liberty
Property Limited Partnership.
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.
99.3 Certification of the Chief Executive Officer of Liberty
Property Trust, in its capacity as the general partner 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 Trust, in its capacity as the general partner 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.
39