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, 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 November 12, 1996, 30,779,072 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 SEPTEMBER 30, 1996
INDEX
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
PAGE
----
Consolidated balance sheet of Liberty Property Trust at
September 30, 1996 and December 31, 1995. 4
Consolidated statement of operations of Liberty Property
Trust for the three months ended September 30, 1996 and
September 30, 1995. 5
Consolidated statement of operations of Liberty Property
Trust for the nine months ended September 30, 1996 and
September 30, 1995. 6
Consolidated statement of cash flows of Liberty Property
Trust for the nine months ended September 30, 1996 and
September 30, 1995. 7
Notes to consolidated financial statements for Liberty
Property Trust. 8
Consolidated balance sheet of Liberty Property Limited
Partnership at September 30, 1996 and December 31, 1995. 9
Consolidated statement of operations of Liberty Property
Limited Partnership for the three months ended September
30, 1996 and September 30, 1995. 10
Consolidated statement of operations of Liberty Property
Limited Partnership for the nine months ended September 30,
1996 and September 30, 1995. 11
Consolidated statement of cash flows of Liberty Property
Limited Partnership for the nine months ended September 30,
1996 and September 30, 1995. 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. 14-18
PART II. OTHER INFORMATION 19
- ---------------------------
SIGNATURES 20
- ----------
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, financing sources and
availability, 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
availability of financing terms acceptable to the Company and 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)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
Assets
Real estate:
Land and land improvements $ 123,099 $108,723
Buildings and improvements 808,008 715,908
Less accumulated depreciation (112,175) (94,183)
---------- --------
Operating real estate 818,932 730,448
Development in progress 90,480 67,021
Land held for development 37,377 28,578
---------- --------
Net real estate 946,789 826,047
Cash and cash equivalents 7,973 10,629
Accounts receivable 6,117 5,608
Deferred financing and leasing costs,
net of accumulated amortization (1996,
$29,220; 1995, $24,007) 23,745 26,363
Prepaid expenses and other assets 38,515 29,455
---------- --------
Total assets $1,023,139 $898,102
========== ========
LIABILITIES
Mortgage loans $ 203,221 $172,115
Subordinated debentures 183,625 229,900
Line of credit 176,618 71,894
Accounts payable 5,572 4,577
Accrued interest 4,007 9,439
Dividend payable 13,993 12,668
Other liabilities 27,429 20,835
---------- --------
Total liabilities 614,465 521,428
Minority interest 41,399 41,153
SHAREHOLDER'S EQUITY
Common shares of beneficial interest,
$.001 par value, 200,000,000 shares
authorized, 30,779,072 and 28,348,048
shares issued and outstanding as of
September 30, 1996 and December 31, 1995,
respectively 31 28
Additional paid-in capital 359,472 314,407
Unearned compensation (1,636) -
Retained earnings 9,408 21,086
---------- --------
Total shareholders' equity 367,275 335,521
---------- --------
Total liabilities and shareholders' equity $1,023,139 $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
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
REVENUE
Rental $ 28,921 $ 23,206
Operating expense reimbursement 9,336 6,016
Management fees 324 226
Interest and other 958 543
------------- -------------
Total revenue 39,539 29,991
------------- -------------
OPERATING EXPENSES
Rental property expenses 7,523 4,776
Real estate taxes 3,004 2,348
General and administrative 2,094 1,375
Depreciation and amortization 7,261 5,855
------------- -------------
Total operating expenses 19,882 14,354
------------- -------------
Operating income 19,657 15,637
Premium on debenture conversion 637 -
Interest expense 9,707 10,046
------------- -------------
Income before minority interest 9,313 5,591
Minority interest 943 783
------------- -------------
Net income $ 8,370 $ 4,808
============= =============
Net income per common share - primary $ 0.28 $ 0.23
============= =============
Dividends declared per common share $ 0.41 $ 0.40
============= =============
Weighted average number of common shares
outstanding 29,994 21,166
============= =============
See accompanying notes.
5
CONSOLIDATED STATEMENT OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
REVENUE
Rental $ 82,019 $ 64,960
Operating expense reimbursement 26,463 17,178
Management fees 1,190 605
Interest and other 3,080 1,717
------------- -------------
Total revenue 112,752 84,460
------------- -------------
OPERATING EXPENSES
Rental property expenses 22,158 14,400
Real estate taxes 8,176 6,846
General and administrative 5,681 3,648
Depreciation and amortization 20,435 16,329
------------- -------------
Total operating expenses 56,450 41,223
------------- -------------
Operating income 56,302 43,237
Premium on debenture conversion 1,027 -
Interest expense 28,274 27,453
------------- -------------
Income before minority interest 27,001 15,784
Minority interest 2,833 2,132
------------- -------------
Net income $ 24,168 $ 13,652
============= =============
Net income per common share - primary $ 0.83 $ 0.65
============= =============
Dividends declared per common share $ 1.21 $ 1.20
============= =============
Weighted average number of common
shares outstanding 29,176 21,151
============= =============
See accompanying notes.
6
CONSOLIDATED STATEMENT OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
OPERATING ACTIVITIES
Net income $ 24,168 $ 13,652
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 20,435 16,329
Minority interest in net income 2,833 2,132
Gain on sale (577) -
Noncash compensation 477 -
Changes in operating assets and liabilities:
Accounts receivable (509) (15)
Prepaid expense and other assets (11,469) (4,710)
Accounts payable 995 400
Accrued interest on existing debt (5,432) (1,395)
Other liabilities 6,947 2,246
------------- -------------
Net cash provided by operating activities 37,868 28,639
------------- -------------
INVESTING ACTIVITIES
Investment in properties (138,190) (194,416)
Increase in deferred leasing costs (4,100) (2,042)
------------- -------------
Net cash used by investing activities (142,290) (196,458)
------------- -------------
FINANCING ACTIVITIES
Proceeds from mortgage loans 39,650 57,700
Repayments of mortgage loans (8,544) (7,511)
Proceeds from line of credit 143,374 166,110
Repayments on line of credit (38,650) (35,000)
Deposits on pending acquisitions 2,252 16,172
Decrease (increase) in deferred financing
costs 2,259 (4,993)
Dividends (38,575) (28,918)
------------- -------------
Net cash provided by financing activities 101,766 163,560
Decrease in cash and cash equivalents (2,656) (4,259)
Cash and cash equivalents at beginning of
period 10,629 25,169
------------- -------------
Cash and cash equivalents at end of period $ 7,973 $ 20,910
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 638 $ 2,162
Acquisition of properties - (55,300)
Assumption of mortgage loans - 41,117
Issuance of operating partnership units - 14,183
Noncash compensation 353 -
Conversion of debentures 46,275 100
============= =============
See accompanying notes.
7
LIBERTY PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 September 30, 1996, the Trust owned an
89.84% 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 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.
8
CONSOLIDATED BALANCE SHEET OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 123,099 $ 108,723
Buildings and improvements 808,008 715,908
Less accumulated depreciation (112,175) (94,183)
------------- ------------
Operating real estate 818,932 730,448
Development in progress 90,480 67,021
Land held for development 37,377 28,578
------------- ------------
Net real estate 946,789 826,047
Cash and cash equivalents 7,973 10,629
Accounts receivable 6,117 5,608
Deferred financing and leasing costs, net of
accumulated amortization (1996, $29,220;
1995, $24,007) 23,745 26,363
Prepaid expenses and other assets 38,515 29,455
------------- ------------
Total assets $ 1,023,139 $ 898,102
============= ============
LIABILITIES
Mortgage loans $ 203,221 $ 172,115
Subordinated debentures 183,625 229,900
Line of credit 176,618 71,894
Accounts payable 5,572 4,577
Accrued interest 4,007 9,439
Distributions payable 13,993 12,668
Other liabilities 27,429 20,835
------------- ------------
Total liabilities 614,465 521,428
OWNERS' EQUITY
General partner's equity 367,275 335,521
Limited partners' equity 41,399 41,153
------------- ------------
Total owners' equity 408,674 376,674
------------- ------------
Total liabilities and owners' equity $ 1,023,139 $ 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
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
REVENUE
Rental $ 28,921 $ 23,206
Operating expense reimbursement 9,336 6,016
Management fees 324 226
Interest and other 958 543
------------- -------------
Total revenue 39,539 29,991
------------- -------------
OPERATING EXPENSES
Rental property expenses 7,523 4,776
Real estate taxes 3,004 2,348
General and administrative 2,094 1,375
Depreciation and amortization 7,261 5,855
------------- -------------
Total operating expenses 19,882 14,354
------------- -------------
Operating income 19,657 15,637
Premium on debenture conversion 637 -
Interest expense 9,707 10,046
------------- -------------
Net income $ 9,313 $ 5,591
============= =============
Net income allocated to general partner $ 8,370 $ 4,808
Net income allocated to limited partners 943 783
============= =============
See accompanying notes
10
CONSOLIDATED STATEMENT OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
REVENUE
Rental $ 82,019 $ 64,960
Operating expense reimbursement 26,463 17,178
Management fees 1,190 605
Interest and other 3,080 1,717
------------- -------------
Total revenue 112,752 84,460
------------- -------------
OPERATING EXPENSES
Rental property expenses 22,158 14,400
Real estate taxes 8,176 6,846
General and administrative 5,681 3,648
Depreciation and amortization 20,435 16,329
------------- -------------
Total operating expenses 56,450 41,223
------------- -------------
Operating income 56,302 43,237
Premium on debenture conversion 1,027 -
Interest expense 28,274 27,453
------------- -------------
Net income $ 27,001 $ 15,784
============= =============
Net income allocated to general partner $ 24,168 $ 13,652
Net income allocated to limited partners 2,833 2,132
============= =============
See accompanying notes.
11
CONSOLIDATED STATEMENT OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
OPERATING ACTIVITIES
Net income $ 27,001 $ 15,784
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 20,435 16,329
Gain on sale (577) -
Noncash compensation 477 -
Changes in operating assets and liabilities:
Accounts receivable (509) (15)
Prepaid expense and other assets (11,469) (4,710)
Accounts payable 995 400
Accrued interest on existing debt (5,432) (1,395)
Other liabilities 6,947 2,246
------------- -------------
Net cash provided by operating activities 37,868 28,639
------------- -------------
INVESTING ACTIVITIES
Investment in properties (138,190) (194,416)
Increase in deferred leasing costs (4,100) (2,042)
------------- -------------
Net cash used by investing activities (142,290) (196,458)
------------- -------------
FINANCING ACTIVITIES
Proceeds from mortgage loans 39,650 57,700
Repayments of mortgage loans (8,544) (7,511)
Proceeds of line of credit 143,374 166,110
Repayments on line of credit (38,650) (35,000)
Deposits on pending acquisitions 2,252 16,172
Decrease (increase) in deferred financing
costs 2,259 (4,993)
Distributions to partners (38,575) (28,918)
------------- -------------
Net cash provided by financing activities 101,766 163,560
Decrease in cash and cash equivalents (2,656) (4,259)
Cash and cash equivalents at beginning of
period 10,629 25,169
------------- -------------
Cash and cash equivalents at end of period $ 7,973 $ 20,910
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 638 $ 2,162
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 46,275 100
============= =============
See accompanying notes.
12
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 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
- ---------------------
Liberty Property Trust (the "Trust", and together with the Operating
Partnership 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 September
30, 1996, the Trust owned an 89.84% 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
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 CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
The following discussion compares the activities of the Company for the three
month and nine month periods ended September 30, 1996 with the activities of
the Company for the three month and nine month periods ended September 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
consolidated financial statements and notes included elsewhere in this report.
RESULTS OF OPERATIONS
- ---------------------
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 COMPARED
- ----------------------------------------------------------------------------
TO THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995.
- -------------------------------------------------------------------
Rental revenues increased from $23.2 million to $28.9 million, or by 25% for
the three month periods ended September 30, 1995 to 1996 and increased from
$65.0 million to $82.0 million, or by 26% for the nine month periods ended
September 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
September 30, 1995, the Company had 200 properties in operation and as of
September 30, 1996, the Company had 242 properties in operation. From January
1, 1995 through September 30, 1995, the Company acquired or completed the
development on 51 properties, for approximately $191.6 million. From January
1, 1996 through September 30, 1996, the Company acquired or completed the
development on 34 properties for approximately $116.8 million.
Operating expense reimbursement increased from $6.0 million to $9.3 million
for the three month periods ended September 30, 1995 to 1996, and from $17.2
million to $26.5 million for the nine month periods ended September 30, 1995
to 1996. These increases are a result of the reimbursement from tenants for
increases in rental property expenses and real estate taxes. The operating
expense recovery percentage (the ratio of operating expense reimbursement to
rental property expenses and real estate taxes) increased from 84.5% for the
three months ended September 30, 1995 to 88.7% for the comparable period in
1996, and from 80.9% for the nine months ended September 30, 1996 to 87.2% for
the comparable period in 1996.
Rental property expense increased from $4.8 million to $7.5 million for the
three month periods ended September 30, 1995 to 1996 and from $14.4 million to
$22.2 million for the nine month periods ended September 30, 1995 to 1996.
These increases are due to the increase in properties owned during the
respective periods and, additionally for the nine month periods, 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 $3.0 million for the three
month periods ended September 30, 1995 to 1996 and from $6.8 million to $8.2
million for the nine month periods ended September 30, 1995 to 1996, due to
the increase in the number of properties owned.
14
Net operating income for the "Same Store" properties (properties owned since
January 1, 1995) increased from $50.6 million to $53.1 million, or by 5% for
the nine month periods ended September 30, 1995 to 1996 (see table on 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.
General and administrative expenses increased by $719,000 from the three
months ended September 30, 1995 to the comparable period in 1996, and by $2.0
million from the nine months ended September 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 expenses for the
three months ended September 30, 1996 is a $228,000 noncash charge ($477,000
for the nine months ended September 30, 1996) resulting from the amortization
of a stock award over its vesting period. There is no corresponding charge
for the three and nine month periods ended September 30, 1995.
Interest expense decreased from $10.0 million for the three months ended
September 30, 1995 to $9.7 million for the three months ended September 30,
1996 and increased from $27.5 million for the nine months ended September 30,
1995 to $28.3 million for the nine months ended September 30, 1996. The
decrease in interest expense between the three month periods is due to an
increase in the average outstanding Development in Progress balance, on which
interest is capitalized, which was partially offset by the increase in the
average debt outstanding from the third quarter of 1995 to the third quarter
of 1996, which equalled $517.7 million and $549.3 million, respectively. The
increase in interest expense from the nine months ended September 30, 1995 to
the nine months ended September 30, 1996 is due to an increase in the average
debt outstanding for the periods, which equalled $432.0 million and $518.7
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, and is also partly offset by the increase in the average outstanding
Development in Progress balance.
Depreciation and amortization expense increased by $1.4 million for the three
month periods from $5.9 million for the three months ended September 30, 1995
to $7.3 million for the three months ended September 30, 1996, and by $4.1
million for the nine month periods, from $16.3 million for the nine months
ended September 30, 1995 to $20.4 million for the nine months ended September
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
$15.6 million for the three months ended September 30, 1995 to $19.7 million
for the three months ended September 30, 1996 and from $43.2 million for the
nine months ended September 30, 1995 to $56.3 million for the nine months
ended September 30, 1996. In addition, income before minority interest for
the three month periods increased by 66%, from $5.6 million for the three
months ended September 30, 1995 to $9.3 million for the three months ended
September 30, 1996, and increased by 71% for the nine month periods, from
$15.8 million for the nine months ended September 30, 1995 to $27.0 million
for the nine months ended September 30, 1996.
15
Set forth below is a schedule comparing the operating results for the Same
Store properties for the nine month periods ended September 30, 1996 and 1995.
NINE MONTHS ENDED
(IN THOUSANDS)
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
Rental revenue $ 56,501 $ 54,363
Operating expense reimbursement 18,726 15,576
------------- -------------
Rental property expenses 16,245 13,291
Real estate taxes 5,860 6,079
------------- -------------
Property level operating income $ 53,122 $ 50,569
============= =============
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 1996, the Company had cash and cash equivalents of $8.0
million. Working capital at September 30, 1996 was $4.5 million.
Net cash provided by operating activities increased from $28.6 million for
the nine months ended September 30, 1995, to $37.9 million for the nine months
ended September 30, 1996. This $9.3 million increase was primarily due to the
cash provided by the additional operating properties in service during the
latter period.
Net cash used in investing activities decreased from $196.5 million for the
nine months ended September 30, 1995, to $142.3 million for the nine months
ended September 30, 1996. This decrease was a result of the $125 million
investment made in March 1995 in connection with the acquisition of the
Lingerfelt portfolio (there was no similar portfolio acquisition made in
1996), offset by increased development activity in 1996.
Net cash provided by financing activities decreased from $163.6 million for
the nine months ended September 30, 1995, to $101.8 million for the nine
months ended September 30, 1996. This decrease was attributable to the
aforementioned portfolio acquisition that was completed in March 1995.
The Company believes that its estimated cash flow from operations are adequate
to fund its short-term liquidity requirements.
The Company has funded its long-term liquidity requirements such as 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 September 30, 1996,
$176.6 million was outstanding under the Line of Credit. 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%.
16
Additional sources of funds are available to the Company through mortgage loan
financing. As of September 30, 1996, $203.2 million in mortgage loans were
outstanding with maturities ranging from 1996 to 2013. The interest rates on
$192.8 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 $74.0 million at
September 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.
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.
On October 15, 1996, the Company filed a Registration Statement to initiate a
Dividend and Interest Reinvestment Plan. The Plan offers a 3% discount for
the then market prices of the Shares on reinvested dividends. Optional cash
payments of no less than $250 and no greater than $7,500 per month may be made
with no discount to current market prices.
The Plan contains an open enrollment feature whereby a person can invest a
minimum of $1,000 and a maximum of $7,500 at current market prices. The
Company will pay for brokerage commissions and other administrative charges
incurred under the Plan. At the Company's discretion, shares under the plan
can be newly issued, thereby enhancing the Company's liquidity position, or
acquired in the open market.
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
month and nine month periods ended September 30, 1996 and 1995 are as follows:
17
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS) (IN THOUSANDS)
-------------------- --------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Net Income $ 8,370 $ 4,808 $ 24,168 $ 13,652
Add Back:
Minority Interest 943 783 2,833 2,132
Depreciation and amortization 7,170 5,794 20,197 16,175
Premium on debenture conversion 637 - 1,027 -
Gain on sale (200) - (577) -
-------- -------- -------- --------
Funds from operations $ 16,920 $ 11,385 $ 47,648 $ 31,959
======== ======== ======== ========
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.
18
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
None
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
19
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 November 12, 1996
- ---------------------------------- -------------------------------
Joseph P. Denny Date
President
/s/ George J. Alburger, Jr. November 12, 1996
- ---------------------------------- -------------------------------
George J. Alburger, Jr. Date
Chief Financial Officer
LIBERTY PROPERTY LIMITED PARTNERSHIP
BY: LIBERTY PROPERTY TRUST, GENERAL PARTNER
/s/ Joseph P. Denny November 12, 1996
- ---------------------------------- --------------------------------
Joseph P. Denny Date
President
/s/ George J. Alburger, Jr. November 12, 1996
- ---------------------------------- --------------------------------
George J. Alburger, Jr. Date
Chief Financial Officer
20