UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND 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 incorporation or organization) (I.R.S. Employer 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 9, 1996, 29,855,091 Common Shares of Beneficial Interest, par value
$.001 per share, of Liberty Property Trust were outstanding.
LIBERTY PROPERTY TRUST/LIBERTY PROPERTY LIMITED PARTNERSHIP
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996
INDEX
Part I. Financial Information
- ------------------------------
Item 1. Financial Statements
Page
Consolidated balance sheet of Liberty Property Trust at
June 30, 1996 (unaudited) and December 31, 1995. 4
Consolidated statement of operations of Liberty Property
Trust for the three months ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited). 5
Consolidated statement of operations of Liberty Property
Trust for the six months ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited). 6
Consolidated statement of cash flows of Liberty Property
Trust for the six months ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited). 7
Notes to consolidated financial statements for Liberty
Property Trust. 8
Consolidated balance sheet of Liberty Property Limited
Partnership at June 30, 1996 (unaudited) and December 31,
1995. 9
Consolidated statement of operations of Liberty Property
Limited Partnership for the three months ended June 30,
1996 (unaudited) and June 30, 1995 (unaudited). 10
Consolidated statement of operations of Liberty Property
Limited Partnership for the six months ended June 30, 1996
(unaudited) and June 30, 1995 (unaudited). 11
Consolidated statement of cash flows of Liberty Property
Limited Partnership for the six months ended June 30, 1996
(unaudited) and June 30, 1995 (unaudited). 12
Notes to consolidated financial statements for Liberty
Property Limited Partnership. 13
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations. 14-17
Part II. Other Information 18
- ---------------------------
Signatures 19
- ----------
2
- ---------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this
Quarterly Report on Form 10-Q contain statements that are or will be forward-
looking, such as statements relating to acquisitions and other business
development activities, future capital expenditures and the effects of
regulation (including environmental regulation) and competition. Such
forward-looking information involves important risks and uncertainties
that could significantly affect anticipated results in the future and,
accordingly, such results may differ from those expressed in any forward-
looking statements made by, or on behalf of, the Company. These risks and
uncertainties include, but are not limited to, uncertainties affecting real
estate businesses generally (such as renewals of leases and dependence
on tenants' business operations), risks relating to acquisition, construction
and development activities, possible environmental liabilities, risks relating
to leverage and debt service (including sensitivity of the Company's
operations to fluctuations in interest rates), the potential for the use of
borrowings to make distributions necessary to qualify as a REIT, dependence
on the primary markets in which the Company's properties are located, the
existence of complex regulations relating to status as a REIT and the adverse
consequences of the failure to qualify as a REIT and the potential adverse
impact of market interest rates on the market price for the Company's
securities.
3
Consolidated Balance Sheet of Liberty Property Trust
(In thousands)
June 30, 1996 December 31, 1995
------------- -----------------
(unaudited)
ASSETS
Real estate:
Land and land improvements $ 118,179 $ 108,723
Buildings and improvements 772,234 715,908
Less accumulated depreciation (105,877) (94,183)
------------- ----------------
Operating real estate 784,536 730,448
Development in progress 73,327 67,021
Land held for development 35,386 28,578
------------- ----------------
Net real estate 893,249 826,047
Cash and cash equivalents 13,621 10,629
Accounts receivable 7,930 5,608
Deferred financing and leasing costs,
net of accumulated amortization
(1996, $27,082; 1995, $24,007) 24,569 26,363
Prepaid expenses and other assets 26,389 29,455
------------- ----------------
Total assets $ 965,758 $ 898,102
LIABILITIES
Mortgage loans $ 211,378 $ 172,115
Subordinated debentures 213,305 229,900
Line of credit 110,471 71,894
Accounts payable 3,985 4,577
Accrued interest 9,082 9,439
Dividend payable 13,080 12,668
Other liabilities 19,658 20,835
------------- ----------------
Total liabilities 580,959 521,428
Minority interest 40,750 41,153
SHAREHOLDER' EQUITY
Common shares of beneficial interest,
$.001 par value, 200,000,000 shares
authorized, 29,294,841 and 28,348,048
shares issued and outstanding as of
June 30, 1996 and December 31, 1995,
respectively 29 28
Additional paid-in capital 332,226 314,407
Unearned compensation (1,863) -
Retained earnings 13,657 21,086
------------- ----------------
Total shareholders' equity 344,049 335,521
------------- ----------------
Total liabilities and shareholders'
equity $ 965,758 $ 898,102
============= ================
See accompanying notes.
4
Consolidated Statement of Operations of Liberty Property Trust
(Unaudited and in thousands, except per share amounts)
Three Three
Months Ended Months Ended
June 30, 1996 June 30, 1995
------------- -------------
REVENUE
Rental $ 27,146 $ 22,261
Operating expense reimbursement 8,222 5,751
Management fees 361 158
Interest and other 921 565
------------- -------------
Total revenue 36,650 28,735
OPERATING EXPENSES
Rental property expenses 6,818 5,079
Real estate taxes 2,607 2,282
General and administrative 1,950 1,349
Depreciation and amortization 6,718 5,584
------------- -------------
Total operating expenses 18,093 14,294
------------- -------------
Operating income 18,557 14,441
Premium on debenture conversion 390 -
Interest expense 9,433 9,013
------------- -------------
Income before minority interest 8,734 5,428
Minority interest 925 760
------------- -------------
Net income $ 7,809 $ 4,668
============= =============
Net income per common share - primary $ 0.27 $ 0.22
============= =============
Dividends declared per common share $ 0.40 $ 0.40
============= =============
Weighted average number of common shares
outstanding 29,027 21,143
============= =============
See accompanying notes.
5
Consolidated Statement of Operations of Liberty Property Trust
(Unaudited and in thousands, except per share amounts)
Six Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
------------- -------------
REVENUE
Rental $ 53,098 $ 41,754
Operating expense reimbursement 17,127 11,162
Management fees 866 379
Interest and other 2,122 1,174
------------- -------------
Total revenue 73,213 54,469
OPERATING EXPENSES
Rental property expenses 14,635 9,624
Real estate taxes 5,172 4,498
General and administrative 3,587 2,273
Depreciation and amortization 13,174 10,474
------------- -------------
Total operating expenses 36,568 26,869
------------- -------------
Operating income 36,645 27,600
Premium on debenture conversion 390 -
Interest expense 18,567 17,407
------------- -------------
Income before minority interest 17,688 10,193
Minority interest 1,890 1,349
------------- -------------
Net income $ 15,798 $ 8,844
============= =============
Net income per common share - primary $ 0.55 $ 0.42
============= =============
Dividends declared per common share $ 0.80 $ 0.80
============= =============
Weighted average number of common
shares outstanding 28,750 21,143
============= =============
See accompanying notes.
6
Consolidated Statement of Cash Flows of Liberty Property Trust
(Unaudited and in thousands)
Six Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
------------- -------------
OPERATING ACTIVITIES
Net income $ 15,798 $ 8,844
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 13,174 10,474
Minority interest in net income 1,890 1,349
Gain on sale (377) -
Noncash compensation 250 -
Changes in operating assets and
liabilities:
Accounts receivable (2,322) 366
Prepaid expense and other assets 831 (1,209)
Accounts payable (592) 963
Accrued interest on existing debt (357) 2,710
Other liabilities (824) 1,145
------------- -------------
Net cash provided by operating activities 27,471 24,642
------------- -------------
INVESTING ACTIVITIES
Investment in properties (78,552) (145,687)
Increase in deferred leasing costs (1,893) (1,933)
------------- -------------
Net cash used by investing activities (80,445) (147,620)
------------- -------------
FINANCING ACTIVITIES
Proceeds from mortgage loans 39,650 57,700
Repayments of mortgage loans (387) (7,424)
Proceeds from line of credit 77,227 114,968
Repayments on line of credit (38,650) (35,000)
Deposits on pending acquisitions 2,156 19,307
Decrease (increase) in deferred financing
costs 1,452 (3,702)
Dividends (25,495) (19,132)
Other 13 -
------------- -------------
Net cash provided by financing activities 55,966 126,717
Increase in cash and cash equivalents 2,992 3,739
Cash and cash equivalents at beginning of
period 10,629 25,169
------------- -------------
Cash and cash equivalents at end of period $ 13,621 $ 28,908
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 650 $ 1,180
Acquisition of properties - (55,300)
Assumption of mortgage loans - 41,117
Issuance of operating partnership units - 14,183
Noncash compensation 353 -
Conversion of debentures 16,595 -
============= =============
See accompanying notes.
7
LIBERTY PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
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 generally accepted
accounting principles 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 generally
accepted accounting principles 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, 1995. 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 restated to
conform to current period presentation.
NOTE 2 - ORGANIZATION
- ---------------------
The Trust, a self-administered and self-managed real estate investment trust
(a "REIT"), was formed in the State of Maryland on March 28, 1994 and
commenced operations on June 23, 1994 upon completion of its
initial public offering (the "Share Offering"). The Trust conducts all of its
operations through the Operating Partnership. At June 30, 1996, the Trust
owned an 89.38% interest in the Operating Partnership as its sole general
partner and a .03% interest as a limited partner. Concurrent with the Share
Offering, the Operating Partnership completed a public offering of $230
million of Exchangeable Subordinated Debentures (the "Debentures") due 2001.
The Debentures are guaranteed by the Trust. After June 23, 1995, the
Debentures are exchangeable, at the option of the holder thereof, at any time
prior to maturity, into Common Shares at a rate of one share for each $20 out-
standing principal amount of Debentures, subject to certain adjustments. The
Company completed a secondary offering (the "Secondary Offering") on Novem-
ber 27, 1995 of 7,200,000 Common Shares.
8
CONSOLIDATED BALANCE SHEET OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(In thousands)
June 30, 1996 December 31, 1995
------------- -----------------
(unaudited)
ASSETS
Real estate:
Land and land improvements $ 118,179 $ 108,723
Buildings and improvements 772,234 715,908
Less accumulated depreciation (105,877) (94,183)
------------- -----------------
Operating real estate 784,536 730,448
Development in progress 73,327 67,021
Land held for development 35,386 28,578
------------- -----------------
Net real estate 893,249 826,047
Cash and cash equivalents 13,621 10,629
Accounts receivable 7,930 5,608
Deferred financing and leasing costs,
net ofaccumulated amortization
(1996, $27,082; 1995, $24,007) 24,569 26,363
Prepaid expenses and other assets 26,389 29,455
------------- -----------------
Total assets $ 965,758 $ 898,102
============= =================
LIABILITIES
Mortgage loans $ 211,378 $ 172,115
Subordinated debentures 213,305 229,900
Line of credit 110,471 71,894
Accounts payable 3,985 4,577
Accrued interest 9,082 9,439
Distributions payable 13,080 12,668
Other liabilities 19,658 20,835
------------- -----------------
Total liabilities 580,959 521,428
OWNERS' EQUITY
General partner's equity 344,049 335,521
Limited partners' equity 40,750 41,153
------------- -----------------
Total owners' equity 384,799 376,674
------------- -----------------
Total liabilities and owners' equity $ 965,758 $ 898,102
============= =================
See accompanying notes.
9
CONSOLIDATED STATEMENT OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
Three Three
Months Ended Months Ended
June 30, 1996 June 30, 1995
------------- -------------
REVENUE
Rental $ 27,146 $ 22,261
Operating expense reimbursement 8,222 5,751
Management fees 361 158
Interest and other 921 565
------------- -------------
Total revenue 36,650 28,735
OPERATING EXPENSES
Rental property expenses 6,818 5,079
Real estate taxes 2,607 2,282
General and administrative 1,950 1,349
Depreciation and amortization 6,718 5,584
------------- -------------
Total operating expenses 18,093 14,294
------------- -------------
Operating income 18,557 14,441
Premium on debenture conversion 390 -
Interest expense 9,433 9,013
------------- -------------
Net income $ 8,734 $ 5,428
============= =============
Net income allocated to general partner $ 7,809 $ 4,668
Net income allocated to limited partners 925 760
============= =============
See accompanying notes.
10
CONSOLIDATED STATEMENT OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
Six Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
------------- -------------
REVENUE
Rental $ 53,098 $ 41,754
Operating expense reimbursement 17,127 11,162
Management fees 866 379
Interest and other 2,122 1,174
------------- -------------
Total revenue 73,213 54,469
OPERATING EXPENSES
Rental property expenses 14,635 9,624
Real estate taxes 5,172 4,498
General and administrative 3,587 2,273
Depreciation and amortization 13,174 10,474
------------- -------------
Total operating expenses 36,568 26,869
Operating income 36,645 27,600
Premium on debenture conversion 390 -
Interest expense 18,567 17,407
------------- -------------
Net income $ 17,688 $ 10,193
============= =============
Net income allocated to general partner $ 15,798 $ 8,844
Net income allocated to limited partners 1,890 1,349
============= =============
See accompanying notes.
11
CONSOLIDATED STATEMENT OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
Six Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
------------- -------------
OPERATING ACTIVITIES
Net income $ 17,688 $ 10,193
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 13,174 10,474
Gain on sale (377) -
Noncash compensation 250 -
Changes in operating assets and
liabilities:
Accounts receivable (2,322) 366
Prepaid expense and other assets 831 (1,209)
Accounts payable (592) 963
Accrued interest on existing debt (357) 2,710
Other liabilities (824) 1,145
------------- -------------
Net cash provided by operating activities 27,471 24,642
------------- -------------
INVESTING ACTIVITIES
Investment in properties (78,552) (145,687)
Increase in deferred leasing costs (1,893) (1,933)
------------- -------------
Net cash used by investing activities (80,445) (147,620)
------------- -------------
FINANCING ACTIVITIES
Proceeds from mortgage loans 39,650 57,700
Repayments of mortgage loans (387) (7,424)
Proceeds from line of credit 77,227 114,968
Repayments on line of credit (38,650) (35,000)
Deposits on pending acquisitions 2,156 19,307
Decrease (increase) in deferred financing
costs 1,452 (3,702)
Distributions to partners (25,495) (19,132)
Other 13 -
------------- -------------
Net cash provided by financing activities 55,966 126,717
Increase in cash and cash equivalents 2,992 3,739
Cash and cash equivalents at beginning of
period 10,629 25,169
------------- -------------
Cash and cash equivalents at end of period $ 13,621 $ 28,908
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 650 $ 1,180
Acquisition of properties - (55,300)
Assumption of mortgage loans - 41,117
Issuance of operating partnership units - 14,183
Noncash compensation 353 -
Conversion of subordinated debentures 16,595 -
============= =============
See accompanying notes.
12
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
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, including Liberty Property Development Corporation,
have been prepared in accordance with generally accepted accounting
principles 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 generally accepted
accounting principles 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, 1995. In the opinion of manage-
ment, 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 restated to conform to current
period presentation.
NOTE 2 - ORGANIZATION
Liberty Property Trust (the "Trust", and together with the Operating Partner-
ship referred to as the "Company"), a self-administered and self-managed real
estate investment trust (a "REIT"), was formed in the State of Maryland on
March 28, 1994 and commenced operations on June 23, 1994 upon completion of
its initial public offering (the "Share Offering"). The Trust conducts all of
its operations through the Operating Partnership. At June 30, 1996, the Trust
owned an 89.38% interest in the Operating Partnership as its sole general part-
ner and a .03% interest as a limited partner. Concurrent with the Share
Offering, the Operating Partnership completed a public offering of $230
million of Exchangeable Subordinated Debentures (the "Debentures") due 2001.
The Debentures are guaranteed by the Trust. After June 23, 1995, the
Debentures are exchangeable, at the option of the holder thereof, at any time
prior to maturity, into Common Shares at a rate of one share for each $20
outstanding principal amount of Debentures, subject to certain adjustments.
The Company completed a secondary offering (the "Secondary Offering") on
November 27, 1995 of 7,200,000 Common Shares.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------
The following discussion compares the activities of the Company for the three
month and six month periods ended June 30, 1996 (unaudited) with the
activities of the Company for the three month and six month periods ended
June 30, 1995 (unaudited). 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 consoli-
dated financial statements and notes included elsewhere in this report.
RESULTS OF OPERATIONS
- ---------------------
For the three month and six month periods ended June 30, 1996 compared to
- -------------------------------------------------------------------------
the three month and six month periods ended June 30, 1995.
- ----------------------------------------------------------
Rental revenues increased from $22.3 million to $27.1 million, or by 22%,
for the three month periods ended June 30, 1995 to 1996 and increased from
$41.8 million to $53.1 million, or by 27%, for the six month periods
ended June 30, 1995 to 1996. These increases are primarily due to the
increase in the number of properties in operation during the respective
periods. As of June 30, 1995, the Company had 196 properties in operation
and as of June 30, 1996, the Company had 230 properties in operation. From
January 1, 1995 through March 31, 1995, and April 1, 1995 through June 30,
1995, the Company acquired 40 properties and 5 properties, for approximately
$141.8 and $23.8 million, respectively. From January 1, 1996 through
March 31, 1996, and April 1, 1996 through June 30, 1996, the Company
completed the development or acquired 5 properties and 11 properties, for
approximately $18.4 and $29.7 million, respectively.
Operating expense reimbursement increased from $5.8 million to $8.2 million for
the three month periods ended June 30, 1995 to 1996, and from $11.2 million
to $17.1 million for the six month periods ended June 30, 1995 to 1996.
This increase is a result of the reimbursement from tenants for increases in
rental property expense and real estate taxes.
Rental property expense increased from $5.1 million to $6.8 million for the
three month periods ended June 30, 1995 to 1996 and from $9.6 million to
$14.6 million for the six month periods ended June 30, 1995 to 1996. This
increase is due to the increase in properties owned during the respective
periods and because of significant snow removal and other seasonal operating
costs incurred as a result of the severe 1996 winter.
Real estate taxes increased from $2.3 million to $2.6 million for the three
month periods ended June 30, 1995 to 1996 and from $4.5 million to $5.2
million for the six month periods ended June 30, 1995 to 1996, due to the
increase in the number of properties owned.
Net operating income for the "Same Store" properties (properties owned since
January 1, 1995) increased from $33.3 million to $35.0 million, or 5.2%, for
the six month periods ended June 30, 1995 to 1996 (see table page 16). These
increases are due principally to increases in the occupancy of the properties
and to a lesser extent, the rental rates for the properties.
14
General and administrative expenses increased by $601,000 from the three
months ended June 30, 1995 and the comparable period in 1996, and by $1.3
million from the six months ended June 30, 1995 to the comparable period in
1996, due to the increase in personnel and other related overhead costs
necessitated by the increase in the number of properties owned during the
respective periods. Included in general and administrative expense for the
three months ended June 30, 1996 is a $228,000 noncash charge resulting from
the amortization of a stock award over its vesting period. There is no
corresponding charge for the three months ended June 30, 1995.
Interest expense increased from $9.0 million for the three months ended
June 30, 1995 to $9.4 million for the three months ended June 30, 1996,
and from $17.4 million for the six months ended June 30, 1995 to $18.6
million for the six months ended June 30, 1996. Interest expense was incurred
on the Line of Credit (which was used to fund property acquisitions and
development costs), on mortgage debt and on the Debentures. The increase in
interest expense is due to an increase in the average debt outstanding from
the second quarter of 1995 to the second quarter of 1996 which equalled
$465.6 million and $522.9 million, respectively. This increase is
partly offset by the lower interest rate on the outstanding debt, primarily
as a result of the 1% reduction in the interest rate on the Line of Credit
borrowings which became effective May 1, 1995.
Depreciation and amortization expense increased by $1.1 million for the
three month periods from $5.6 million for the three months ended June 30,
1995 to $6.7 million for the three months ended June 30, 1996, and by
$2.7 million for the six month periods, from $10.5 million for the six
months ended June 30, 1995 to $13.2 million for the six months ended June 30,
1996. These increases are due to an increase in the number of properties
owned during the respective periods.
As a result of the foregoing, the Company's operating income increased from
$14.4 million for the three months ended June 30, 1995 to $18.6 million for
the three months ended June 30,1996 and from $27.6 million for the six
months ended June 30, 1995 to $36.6 million for the six months ended June 30,
1996. In addition, income before minority interest for the three month
periods increased by 61%, from $5.4 million for the three months ended June 30,
1995 to $8.7 million for the three months ended June 30, 1996, and increased
by 74%, for the six month periods from $10.2 million for the six months ended
June 30, 1995 to $17.7 million for the six months ended June 30, 1996.
15
Set forth below is a schedule comparing the operating results for the Same
Store properties for the six month periods ended June 30, 1996 and 1995.
Six Months Ended
(In thousands)
------------------------------
June 30, 1996 June 30, 1995
------------- -------------
Rental Revenue $ 37,498 $ 36,041
Operating expense reimbursement 12,622 10,276
------------- -------------
50,120 46,317
Rental property expenses 11,218 8,962
Real estate taxes 3,887 4,062
------------- -------------
$ 35,015 $ 33,293
============= =============
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1996, the Company had cash and cash equivalents of $13.6
million. Working capital at June 30, 1996 was $8.5 million.
The Company has funded its property acquisition and development activities
primarily through its $250 million Line of Credit, which matures on June 15,
1998, subject to the Company's option to extend the maturity of the loan as
described below. As of June 30, 1996, $110.5 million was outstanding under
the Line of Credit and collateral had been approved to enable the Company to
borrow up to $191.0 million. The remaining amount of the Line of Credit,
above the pre-approved available capacity, is available for further borrow-
ings, subject to satisfaction of certain conditions. The Line of Credit is
recourse to the Company only with respect to 50% of the outstanding principal
amount thereof.
Funds borrowed under the Line of Credit bear interest at an annual rate of
175 basis points over LIBOR. Subject to certain conditions and the payment
of a fee equal to 0.5% of the then outstanding loan balance, the Company may
exercise a one-time option to convert the loan balance into a two-year term
loan upon the maturity of the Line of Credit. Following such conversion,
the interest rate on the term loan would be LIBOR plus 4%.
Additional sources of funds are available to the Company through mortgage
loan financing. As of June 30, 1996, $211.4 million in mortgage loans were
outstanding with maturities ranging from 1996 to 2013. The interest rates
on $201.0 million of mortgage loans are fixed and range from 6% to 10%.
Interest rates on $10.4 million of mortgage loans float with LIBOR or prime
and are subject to certain caps.
The Company expects to incur variable rate debt, including borrowings under
the Line of Credit, from time to time. The Company believes that its existing
sources of capital will provide sufficient funds to complete construction of
the properties under development. The Company believes that the amount
necessary to complete such construction is approximately $96.7 million at
June 30, 1996.
In July 1995, the Company filed a shelf registration with the Securities and
exchange Commission that enabled the Company to offer up to an aggregate of
$350,000,000 of securities, including common stock, preferred stock and debt.
16
On November 27, 1995, the Company completed a follow-on public offering of
7,200,000 common shares resulting in proceeds of $140.4 million. The
proceeds were primarily used to reduce the amount outstanding under the Line
of Credit. The remaining $209.6 million shelf registration is available for
future offerings. On February 8, 1996, Moody's Investors Service assigned a
prospective rating of Ba2 for senior unsecured debt issued by Liberty Property
Limited Partnership under the shelf registration.
In June, 1996, the Company closed a $39.7 million mortgage loan with a
12-year term bearing interest at 7.125% annually. The proceeds from this
loan were used to paydown a portion of the outstanding principal amount
under the Line of Credit.
During the three months ended June 30, 1996, the Company paid sums aggre-
gating $390,000 to facilitate the conversion of $11.5 million of Debentures
into 577,150 Common Shares.
Management considers funds from operations an appropriate measure of the
performance of an equity REIT. In March, 1995 NAREIT issued a clarification
of the definition of funds from operations. The clarification provides that
amortization of deferred financing costs and depreciation of non-real estate
assets are no longer to be added back to net income in arriving at funds from
operations. Funds from operations under the new definition for the three and
six month periods ended June 30, 1996 and 1995 are as follows:
Three Months Ended Six Months Ended
(In thousands) (In thousands)
---------------------------- ----------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
Net income $ 7,809 $ 4,668 $ 15,798 $ 8,844
Addback:
Minority interest 925 760 1,890 1,349
Depreciation and
amortization 6,639 5,531 13,027 10,381
Premium on deben-
ture conversion 390 - 390 -
Gain on sale - - (377) -
------------- ------------- ------------- -------------
Funds from
operations $ 15,763 $ 10,959 $ 30,728 $ 20,574
============= ============= ============= =============
INFLATION
Because inflation has remained relatively low during the last three years, it
has not had a significant impact on the Company during this period. Since
the Line of Credit bears interest at a variable rate, the amount of interest
payable under the Line of Credit 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 tenant
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.
17
PART II OTHER INFORMATION
- -----------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The 1996 Annual Meeting of Shareholders of the Trust was held
May 15, 1996. At the meeting, management's nominees, George F.
Congdon, Frederick F. Buchholz and Stephen B. Siegel, were elected
to fill the three available positions as Class II trustees. Voting
(expressed in numbers of shares) was as follows: Mr. Congdon --
24,455,574 for, 65,114 against or with and no abstentions or broker
non-votes; Mr. Buchholz -- 24,460,997 for, 59,691 against or with-
held and no abstentions or broker non-votes; and Mr. Siegel --
24,456,846 for, 63,842 against or withheld and no abstentions or
broker non-votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule (EDGAR VERSION ONLY)
b Reports on Form 8-K
None
18
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/ Joseph P. Denny August 12, 1996
- ---------------------------- ---------------------------
Joseph P. Denny Date
President
/s/ George J. Alburger, Jr. August 12, 1996
- ----------------------------- ---------------------------
George J. Alburger, Jr. Date
Chief Financial Officer
LIBERTY PROPERTY LIMITED PARTNERSHIP
By: LIBERTY PROPERTY TRUST, GENERAL PARTNER
/s/ Joseph P. Denny August 12, 1996
- ----------------------------- ---------------------------
Joseph P. Denny Date
President
/s/ George J. Alburger, Jr. August 12, 1996
- ----------------------------- ---------------------------
George J. Alburger, Jr. Date
Chief Financial Officer