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 March 31, 1998
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 May 11, 1998, 60,681,514 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 MARCH 31, 1998
INDEX
- -----
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements (unaudited) Page
----
Consolidated balance sheets of Liberty Property
Trust at March 31, 1998 and December 31, 1997. 4
Consolidated statements of operations of Liberty
Property Trust for the three months ended March 31,
1998 and March 31, 1997. 5
Consolidated statements of cash flows of Liberty
Property Trust for the three months ended March 31,
1998 and March 31, 1997. 6
Notes to consolidated financial statements for
Liberty Property Trust. 7-9
Consolidated balance sheets of Liberty Property
Limited Partnership at March 31, 1998 and
December 31, 1997. 10
Consolidated statements of operations of Liberty
Property Limited Partnership for the three months
ended March 31, 1998 and March 31, 1997. 11
Consolidated statements of cash flows of Liberty
Property Limited Partnership for the three months
ended March 31, 1998 and March 31, 1997. 12
Notes to consolidated financial statements for
Liberty Property Limited Partnership. 13-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 14-20
Part II. Other Information 20-21
- ---------------------------
Signatures 22
- -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 entry into new leases, 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 SHEETS OF LIBERTY PROPERTY TRUST
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 278,866 $ 238,519
Buildings and improvements 1,907,192 1,649,512
Less accumulated depreciation (162,242) (149,311)
---------- ----------
Operating real estate 2,023,816 1,738,720
Development in progress 199,261 156,093
Land held for development 63,826 61,904
---------- ----------
Net real estate 2,286,903 l,956,717
Cash and cash equivalents 37,119 55,079
Accounts receivable 6,402 6,517
Deferred financing and leasing costs,
net of accumulated amortization (1998,
$42,792; 1997, $40,560) 31,865 32,536
Prepaid expenses and other assets 44,475 43,488
---------- ----------
Total assets $2,406,764 $2,094,337
========== ==========
LIABILITIES
Mortgage loans $ 376,701 $ 363,591
Unsecured notes 525,000 350,000
Credit facility 148,000 135,000
Convertible debentures 109,253 111,543
Accounts payable 17,643 14,544
Accrued interest 8,176 10,960
Dividend payable 27,672 25,927
Other liabilities 49,622 42,499
---------- ----------
Total liabilities 1,262,067 1,054,064
Minority interest 86,997 84,678
SHAREHOLDERS' EQUITY
8.8% Series A cumulative redeemable preferred
shares, $.001 par value, 5,000,000 shares
authorized; 5,000,000 shares issued and
outstanding as of March 31, 1998 and
December 31, 1997 120,814 120,814
Common shares of beneficial interest, $.001
par value, 200,000,000 shares authorized,
56,844,749 and 52,692,940 shares issued
and outstanding as of March 31, 1998
and December 31, 1997, respectively 57 53
Additional paid-in capital 950,829 846,949
Unearned compensation (879) (985)
Dividends in excess of net income (13,121) (11,236)
---------- -----------
Total shareholders' equity 1,057,700 955,595
---------- -----------
Total liabilities and shareholders' equity $2,406,764 $2,094,337
========== ===========
See accompanying notes.
- -4-
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
----------------- ---------------
REVENUE
Rental $ 61,015 $ 34,641
Operating expense reimbursement 20,250 10,849
Management fees 147 153
Interest and other 1,207 839
--------- ---------
Total revenue 82,619 46,482
--------- ---------
OPERATING EXPENSES
Rental property expenses 14,916 8,639
Real estate taxes 7,019 3,280
General and administrative 3,350 2,487
Depreciation and amortization 14,219 7,970
--------- ---------
Total operating expenses 39,504 22,376
--------- ---------
Operating income 43,115 24,106
Interest expense 16,566 12,582
--------- ---------
Income before minority interest 26,549 11,524
Minority interest 1,809 975
--------- ---------
Net income 24,740 10,549
Preferred dividend 2,750 -
--------- ---------
Income available to common shareholders $ 21,990 $ 10,549
========= =========
Income per common share - basic $ 0.40 $ 0.32
========= =========
Income per common share - diluted $ 0.40 $ 0.32
========= =========
Dividends declared per common share $ 0.42 $ 0.41
========= =========
Weighted average number of common shares
outstanding - basic 55,279 32,496
========= =========
Weighted average number of common shares
outstanding - diluted 55,667 32,781
========= =========
See accompanying notes.
- -5-
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
---------------- ---------------
OPERATING ACTIVITIES
Net income $ 24,740 $ 10,549
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 14,219 7,970
Amortization of deferred financing costs 1,103 1,139
Minority interest in net income 1,809 975
Noncash compensation 106 105
Changes in operating assets and liabilities:
Accounts receivable 115 (1,021)
Prepaid expenses and other assets (1,031) (1,854)
Accounts payable 3,099 2,156
Accrued interest (2,784) (3,492)
Other liabilities 7,810 5,624
---------- ---------
Net cash provided by operating activities 49,186 22,151
---------- ---------
INVESTING ACTIVITIES
Investment in properties (258,374) (68,887)
Investment in development in progress (68,249) (31,321)
Investment in land held for development (1,922) (5,609)
Increase in deferred leasing costs (2,195) (1,644)
---------- ---------
Net cash used in investing activities (330,740) (107,461)
---------- ---------
FINANCING ACTIVITIES
Net proceeds from issuance of common shares 103,438 174,173
Proceeds from issuance of unsecured notes 175,000 -
Proceeds from mortgage loans - 42,465
Repayments of mortgage loans (1,271) (647)
Proceeds from lines of credit 229,000 56,062
Repayments on lines of credit (216,000) (170,000)
Increase in deposits on pending acquisitions (95) (1,293)
Decrease (increase) in deferred financing costs 576 (390)
Common dividends (22,130) (12,862)
Preferred dividends (2,750) -
Distributions to partners (2,174) (1,664)
---------- ---------
Net cash provided by financing activities 263,594 85,844
Decrease (increase) in cash and cash equivalents (17,960) 534
Cash and cash equivalents at beginning of period 55,079 19,612
---------- ---------
Cash and cash equivalents at end of period $ 37,119 $ 20,146
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 20 $ 257
Acquisition of properties (14,612) (36,574)
Assumption of mortgage loans 14,381 31,041
Issuance of operating partnership units 231 5,533
Noncash compensation 687 567
Conversion of convertible debentures 2,212 20,051
========== =========
See accompanying notes.
- -6-
LIBERTY PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
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, 1997. 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.
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which replaced the
calculation of primary and fully diluted income per common share with
basic and diluted income per common share. Unlike primary income per
common share, basic income per common share excludes any dilutive effects
of options. Diluted income per common share generally includes the
weighted average common shares, the effect of the outstanding options,
and the conversion of the Units and Convertible Debentures into common
shares, unless the inclusion of such common share equivalents are
antidilutive for the period(s) presented.
- -7-
The following table sets forth the computation of basic and diluted
income per common share:
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, 1998 ENDED MARCH 31, 1997
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $ 24,740 $ 10,549
Less: Preferred
dividends 2,750 -
-------- --------
Basic income per
common share
Income available
to common share-
holders 21,990 55,279 $ 0.40 10,549 32,496 $ 0.32
======= =======
Effect of dilutive
securities
Options - 388 - 285
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 21,990 55,667 $ 0.40 $ 10,549 32,781 $ 0.32
======== ======= ======= ======== ======= =======
The EITF 97-11 ruling "Accounting for Internal Costs Relating to Real
Estate Property Acquisitions", effective March 19, 1998, requires the
expensing of internal acquisition costs. The Company has adopted this
release as of January 1, 1998 and accordingly, the results of operations
for the quarter reflect the expensing of internal acquisition costs. The
adoption of the ruling did not have a material effect on the results of
operations for the quarter ended March 31, 1998 and it is not anticipated
that it will have a material effect on the Company's results of
operations for future periods.
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 its subsidiary, Liberty Property Limited Partnership, a
Pennsylvania limited partnership (the "Operating Partnership" and,
together with the Trust, the "Company"). At March 31, 1998, the Trust
owned a 92.38% interest in the Operating Partnership as the sole general
partner and a 0.02% interest as a limited partner. The Company provides
leasing, property management, acquisition, development, construction
management and design management for a portfolio of industrial and office
properties which are located principally within the Southeastern, Mid-
Atlantic and Midwestern United States.
On January 22, 1998, the Company sold $75 million principal amount of
6.375% notes due 2013. Such notes are subject to mandatory repayment of
principal to the holders thereof in 2003 pursuant to a call/put option
relating to such notes. On January 23, 1998, the Company sold $100
million principal amount of 7.50% notes due 2018. The aggregate net
proceeds to the Company from such offerings were approximately $173.3
million.
- -8-
On January 21, 1998, the Company consummated a public offering of
2,300,000 common shares. The aggregate net proceeds to the Company from
such offering were approximately $60.4 million.
On February 23, 1998, the Company consummated a public offering of
1,702,128 common shares. The aggregate net proceeds to the Company from
such offering were approximately $42.7 million.
On April 24, 1998, the Company consummated a public offering of 3,750,000
common shares. The aggregate net proceeds to the Company from such
offering were approximately $94.1 million.
NOTE 3 - PRO FORMA INFORMATION (UNAUDITED)
- -----------------------------------------
The following unaudited pro forma information has been prepared assuming
the common and preferred shares offerings which were consummated in 1997
and the first three months of 1998 and the acquisitions of 170 properties
acquired in 1997 and 48 properties acquired during the first three months
of 1998, had occurred at January 1, 1997. The 1997 acquisitions were
acquired for a total investment of $727.9 million and the 1998
acquisitions were acquired for a total investment of $274.6 million.
THREE MONTHS ENDED
----------------------------------------
MARCH 31, 1998 MARCH 31, 1997
------------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total revenue $ 87,101 $ 77,565
Income available to common
shareholders 22,748 19,815
Income per share - basic (1) $ 0.40 $ 0.35
Income per share - diluted (1) 0.40 0.35
(1) Income in the per share calculations has been computed after a
deduction for minority interest.
This pro forma information is not necessarily indicative of what the
actual results of operations of the Company would have been, assuming the
Company had completed the common and preferred shares offerings of 1997
and the first three months of 1998 as of January 1, 1997, nor does it
purport to represent the results of operations of the Company for future
periods.
- -9-
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(IN THOUSANDS)
MARCH 31, 1998 DECEMBER 31, 1997
---------------- -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 278,866 $ 238,519
Buildings and improvements 1,907,192 1,649,512
Less accumulated depreciation (162,242) (149,311)
---------- ----------
Operating real estate 2,023,816 1,738,720
Development in progress 199,261 156,093
Land held for development 63,826 61,904
---------- ----------
Net real estate 2,286,903 l,956,717
Cash and cash equivalents 37,119 55,079
Accounts receivable 6,402 6,517
Deferred financing and leasing costs,
net of accumulated amortization
(1998, $42,792; 1997, $40,560) 31,865 32,536
Prepaid expenses and other assets 44,475 43,488
---------- ----------
Total assets $2,406,764 $2,094,337
========== ==========
LIABILITIES
Mortgage loans $ 376,701 $ 363,591
Unsecured notes 525,000 350,000
Credit facility 148,000 135,000
Convertible debentures 109,253 111,543
Accounts payable 17,643 14,544
Accrued interest 8,176 10,960
Dividend payable 27,672 25,927
Other liabilities 49,622 42,499
---------- ----------
Total liabilities 1,262,067 1,054,064
OWNERS' EQUITY
General partner's equity 1,057,700 955,595
Limited partners' equity 86,997 84,678
---------- ----------
Total owners' equity 1,144,697 1,040,273
---------- ----------
Total liabilities and owners' equity $2,406,764 $2,094,337
========== ==========
See accompanying notes.
- -10-
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
----------------- ------------------
REVENUE
Rental $ 61,015 $ 34,641
Operating expense reimbursement 20,250 10,849
Management fees 147 153
Interest and other 1,207 839
--------- ---------
Total revenue 82,619 46,482
--------- ---------
OPERATING EXPENSES
Rental property expenses 14,916 8,639
Real estate taxes 7,019 3,280
General and administrative 3,350 2,487
Depreciation and amortization 14,219 7,970
--------- ---------
Total operating expenses 39,504 22,376
--------- ---------
Operating income 43,115 24,106
Interest expense 16,566 12,582
--------- ---------
Net income $ 26,549 $ 11,524
========= =========
Net income allocated to general partner $ 24,740 $ 10,549
Net income allocated to limited partners 1,809 975
========= =========
See accompanying notes.
- -11-
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
---------------- ----------------
OPERATING ACTIVITIES
Net income $ 26,549 $ 11,524
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 14,219 7,970
Amortization of deferred financing costs 1,103 1,139
Noncash compensation 106 105
Changes in operating assets and liabilities:
Accounts receivable 115 (1,021)
Prepaid expenses and other assets (1,031) (1,854)
Accounts payable 3,099 2,156
Accrued interest (2,784) (3,492)
Other liabilities 7,810 5,624
---------- ---------
Net cash provided by operating activities 49,186 22,151
---------- ---------
INVESTING ACTIVITIES
Investment in properties (258,374) (68,887)
Investment in development in progress (68,249) (31,321)
Investment in land held for development (1,922) (5,609)
Increase in deferred leasing costs (2,195) (1,644)
---------- ---------
Net cash used in investing activities (330,740) (107,461)
---------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of unsecured notes 175,000 -
Proceeds from mortgage loans - 42,465
Repayments of mortgage loans (1,271) (647)
Proceeds from lines of credit 229,000 56,062
Repayments on lines of credit (216,000) (170,000)
Increase in deposits on pending acquisitions (95) (1,293)
Decrease (increase) in deferred financing costs 576 (390)
Capital contributions 103,438 174,173
Distributions to partners (27,054) (14,526)
---------- ---------
Net cash provided by financing activities 263,594 85,844
Increase (decrease) in cash and cash equivalents (17,960) 534
Cash and cash equivalents at beginning of period 55,079 19,612
---------- ---------
Cash and cash equivalents at end of period $ 37,119 $ 20,146
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 20 $ 257
Acquisition of properties (14,612) (36,574)
Assumption of mortgage loans 14,381 31,041
Issuance of operating partnership units 231 5,533
Noncash compensation 687 567
Conversion of convertible debentures 2,212 20,051
========== ==========
See accompanying notes.
- -12-
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
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 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, 1997. 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 presentations.
The EITF 97-11 ruling "Accounting for Internal Costs Relating to Real
Estate Property Acquisitions", effective Mar0ch 19, 1998, requires the
expensing of internal acquisition costs. The Company has adopted this
release as of January 1, 1998 and accordingly, the results of operations
for the quarter reflect the expensing of internal acquisition costs. The
adoption of the ruling did not have a material effect on the results of
operations for the quarter ended March 31, 1998 and it is not anticipated
that it will have a material effect on the Company's results of
operations for future periods.
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 its subsidiary, Liberty Property Limited Partnership, a
Pennsylvania limited partnership (the "Operating Partnership" and,
together with the Trust, the "Company"). At March 31, 1998, the Trust
owned a 92.38% interest in the Operating Partnership as the sole general
partner and a 0.02% interest as a limited partner. The Company provides
leasing, property management, acquisition, development, construction
management and design management for a portfolio of industrial and office
properties which are located principally within the Southeastern, Mid-
Atlantic and Midwestern United States.
On January 22, 1998, the Company sold $75 million principal amount of
6.375% notes due 2013. Such notes are subject to mandatory repayment of
principal to the holders thereof in 2003 pursuant to a call/put option
relating to such notes. On January 23, 1998, the Company sold $100
million principal amount of 7.50% notes due 2018. The aggregate net
- -13-
proceeds to the Company from such offerings were approximately $173.3
million.
On January 21, 1998, the Company consummated a public offering of
2,300,000 common shares. The aggregate net proceeds to the Company from
such offering were approximately $60.4 million.
On February 23, 1998, the Company consummated a public offering of
1,702,128 common shares. The aggregate net proceeds to the Company from
such offering were approximately $42.7 million.
On April 24, 1998, the Company consummated a public offering of 3,750,000
common shares. The aggregate net proceeds to the Company from such
offering were approximately $94.1 million.
NOTE 3 - PRO FORMA INFORMATION (UNAUDITED)
- ------------------------------------------
The following unaudited pro forma information has been prepared assuming
the common and preferred shares offerings which were consummated in 1997
and the first three months of 1998 and the acquisitions of 170 properties
acquired in 1997 and 48 properties acquired during the first three months
of 1998, had occurred at January 1, 1997. The 1997 acquisitions were
acquired for a total investment of $727.9 million and the 1998
acquisitions were acquired for a total investment of $274.6 million.
THREE MONTHS ENDED
---------------------------------------
MARCH 31, 1998 MARCH 31, 1997
------------------ ------------------
(IN THOUSANDS)
Total revenue $ 87,101 $ 77,565
Net income 25,498 22,565
This pro forma information is not necessarily indicative of what the
actual results of operations of the Company would have been, assuming the
Company had completed the common and preferred shares offerings of 1997
and the first three months of 1998 as of January 1, 1997, nor does it
purport to represent the results of operations of the Company for future
periods.
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 months ended March 31, 1998 (unaudited) with the activities of the
Company for the three months ended March 31, 1997 (unaudited). As a
result of the significant level of acquisition and development activities
by the Company in 1998 and 1997, 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.
- -14-
The composition of the Company's in-service portfolio of rental
properties as of March 31, 1998 and 1997 is as follows (in thousands):
TOTAL PERCENT OF TOTAL
SQUARE FEET SQUARE FEET PERCENT OCCUPIED
----------------- ---------------- -----------------
MARCH 31, MARCH 31, MARCH 31,
TYPE 1998 1997 1998 1997 1998 1997
- ------------------------- ------- ------- ------- ------- ------- -------
Industrial - Distribution 15,644 12,743 43.2% 54.1% 94.6% 96.6%
Industrial - Flex 10,108 5,153 28.0% 21.9% 94.7% 90.8%
Office 10,398 5,660 28.8% 24.0% 95.4% 86.4%
------ ------ ------- ------- ------- -------
Total 36,150 23,556 100.0% 100.0% 94.9% 92.9%
====== ====== ====== ====== ====== ======
The expiring square feet and annual base rent by year for the above in-
service portfolio of rental properties as of March 31, 1998 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
- ---------- ------ --------- ------ --------- ------ --------- ------ ---------
1998 1,758 $ 6,741 1,627 $ 11,111 1,230 $ 12,855 4,615 $ 30,707
1999 2,064 9,149 2,065 14,778 1,523 16,326 5,652 40,253
2000 1,915 9,032 1,716 12,501 2,125 28,367 5,756 49,900
2001 2,414 10,538 1,472 11,114 1,250 15,316 5,136 36,968
2002 1,463 6,475 923 7,545 992 11,686 3,378 25,706
2003 915 4,357 656 5,282 451 5,665 2,022 15,304
Thereafter 4,276 21,553 1,115 11,536 2,345 32,128 7,736 65,217
------ -------- ------ -------- ------ -------- ------ --------
Total 14,805 $ 67,845 9,574 $ 73,867 9,916 $122,343 34,295 $264,055
====== ======== ====== ======== ====== ======== ====== ========
The scheduled deliveries of the 4.5 million square feet of properties
under development as of March 31, 1998 are as follows (in thousands):
SQUARE FEET
-----------------------------
SCHEDULED IND- IND- PERCENT LEASED
IN-SERVICE DATE DIST. FLEX OFFICE TOTAL MARCH 31, 1998 TOTAL INVESTMENT
- ---------------- ----- ----- ------ ----- -------------- ----------------
2nd Quarter 1998 108 115 248 471 64.6% $ 41,802
3rd Quarter 1998 69 180 110 359 61.0% 29,888
4th Quarter 1998 800 - 407 1,207 79.2% 72,448
1st Quarter 1999 275 305 91 671 2.7% 38,930
Thereafter 271 644 908 1,823 46.3% 174,831
----- ----- ------ ----- ------ ---------
Total 1,523 1,244 1,764 4,531 51.7% $ 357,899
===== ===== ====== ===== ====== =========
RESULTS OF OPERATIONS
- ---------------------
For the three months ended March 31, 1998 compared to the three months
ended March 31, 1997.
- -----------------------------------------------------------------------
Rental revenues increased from $34.6 million to $61.0 million, or by 76%,
for the three months ended March 31, 1997 to 1998. This increase is
primarily due to the increase in the number of properties in operation
- -15-
("Operating Properties") during the respective periods. As of March 31,
1997, the Company had 285 Operating Properties and as of March 31, 1998,
the Company had 496 Operating Properties. From January 1, 1997 through
March 31, 1997, the Company acquired or completed the development on 26
properties, for a Total Investment (as defined below) of approximately
$158.9 million. From January 1, 1998 through March 31, 1998, the Company
acquired or completed the development on 55 properties, for a Total
Investment of approximately $301.6 million. The "Total Investment" for a
property is defined as the property's purchase price plus closing costs
and management's estimate, as determined at the time of acquisition, of
the cost of necessary building improvements in the case of acquisitions,
or land costs and land and building improvement costs in the case of
development projects, and where appropriate, other development costs and
carrying costs required to reach rent commencement.
Operating expense reimbursement increased from $10.8 million to $20.3
million for the three months ended March 31, 1997 to 1998. This increase
was 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 91.0% for the
three months ended March 31, 1997 to 92.3% for the three months ended
March 31, 1998 due to the increase in occupancy.
Rental property and real estate tax expenses increased from $11.9 million
to $21.9 million for the three months ended March 31, 1997 to 1998. This
increase was due to the increase in the number of properties owned during
the respective periods.
Property level operating income for the "Same Store" properties
(properties owned as of January 1, 1997) increased from $31.0 million to
$32.4 million for the three months ended March 31, 1997 to 1998, an
increase of 4.3%. This increase was due to increases in the rental rates
for the properties and increases in occupancy.
Set forth below is a schedule comparing the property level operating
income for the Same Store properties for the three month periods ended
March 31, 1998 and 1997.
THREE MONTHS ENDED
(IN THOUSANDS)
-------------------------------------
MARCH 31, 1998 MARCH 31, 1997
---------------- -----------------
Rental revenue $ 33,133 $ 31,977
Operating expense reimbursement 9,676 10,145
-------- --------
42,809 42,122
Rental property expenses 7,322 8,094
Real estate taxes 3,108 2,983
-------- --------
Property level operating income $ 32,379 $ 31,045
======== ========
General and administrative expenses increased from $2.5 million for the
three months ended March 31, 1997 to $3.4 million for the three months
ended March 31, 1998. This $900,000 increase was 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.
Additionally, the first quarter of 1998 reflects the expensing of
internal acquisition costs as of January 1, 1998 in compliance with EITF
- -16-
97-11, whereas these costs were previously capitalized. These increases
are somewhat mitigated by the benefit of certain economies of scale
experienced by the Company in owning and operating the properties.
Depreciation and amortization expense increased from $8.0 million for the
three months ended March 31, 1997 to $14.2 million for the three months
ended March 31, 1998. This increase was due to an increase in the number
of properties owned during the respective periods.
Interest expense increased from $12.6 million for the three months ended
March 31, 1997 to $16.6 million for the three months ended March 31,
1998. This increase was due to an increase in the average debt
outstanding for the first quarter of 1997 compared to the first quarter
of 1998, which equalled $647.7 million and $1,059.5 million,
respectively, partially offset by reduced interest rates. The reduction
in interest rates was partially the result of the Company receiving
investment grade ratings from both Standard & Poor's Rating Group ("S&P")
and Moody's Investor Service, Inc. ("Moody's") during mid-1997 which
enabled the Company to access public debt markets and other borrowings
more economically.
As a result of the foregoing, the Company's operating income increased
from $24.1 million for the three months ended March 31, 1997 to $43.1
million for the three months ended March 31, 1998. In addition, income
before minority interest for the three months increased from $11.5
million for the three months ended March 31, 1997 to $26.5 million for
the three months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had cash and cash equivalents of $37.1
million.
Net cash flow provided by operating activities increased from $22.2
million for the three months ended March 31, 1997 to $49.2 million for
the three months ended March 31, 1998. This $27.0 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 increased from $107.5 million for
the three months ended March 31, 1997 to $330.7 million for the three
months ended March 31, 1998. This increase primarily resulted from
increased acquisition activity in the first three months of 1998 as
compared to the first three months of 1997.
Net cash provided by financing activities increased from $85.8 million
for the three months ended March 31, 1997 to $263.6 million for the three
months ended March 31, 1998. This increase was attributable to the
issuance of $175 million principal amount of unsecured notes and the
issuance of 4,002,128 common shares which generated net proceeds of
$103.1 million during the three months ended March 31, 1998.
The Company believes that its undistributed cash flow from operations is
adequate to fund its short-term liquidity requirements.
The Company funds its long-term liquidity requirements such as property
acquisition and development activities primarily through its $325.0
million unsecured line of credit (the "Credit Facility"). The interest
rate on borrowings under the Credit Facility fluctuates based upon the
Company's leverage levels or ratings from Moody's and S&P. On June 23,
1997, Moody's raised its prospective senior debt rating of the Company to
- -17-
Baa3 from Ba2 and on July 22, 1997, S&P assigned a BBB- prospective
senior debt rating to the Company. At these ratings, the interest rate
for borrowings under the Credit Facility is 110 basis points over the
Eurodollar Rate.
Periodically, the Company pays down borrowings on the Credit Facility
with funds from long term capital sources. In the first quarter of 1998,
the Company used approximately $216.0 million of the proceeds from the
common share offerings and from medium-term note issuances to paydown the
Credit Facility.
As of March 31, 1998, $376.7 million in mortgage loans were outstanding
with maturities ranging from 1998 to 2018. The interest rates on $351.0
million of mortgage loans are fixed and range from 6% to 9.13%. Interest
rates on $25.7 million of mortgage loans float with LIBOR or prime, of
which $19.1 million is subject to certain caps. The weighted average
interest rate for the mortgage loans is 7.6%, and the weighted average
remaining term is 8.0 years.
General
The Company expects to incur variable rate debt, including borrowings
under the Credit Facility, from time to time. The Company believes that
its existing sources of capital, including public debt and equity
markets, will provide sufficient funds to finance its continued
acquisition and development activities. In this regard, the Company
continues to evaluate its long-term capital sources which generally
include the availability of debt financing and access to equity.
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 $350.0 million of securities, including common shares of
beneficial interest, preferred shares of beneficial interest and debt
(the "Initial Shelf Registration").
On February 21, 1997, the Company filed a shelf registration with the
Securities and Exchange Commission that enables the Company to offer up
to an aggregate of $850.0 million of securities, including common shares
of beneficial interest, preferred shares of beneficial interest and debt
(the "Second Shelf Registration").
On December 24, 1997 the Company filed a shelf registration statement
with the Securities and Exchange Commission that enables the Company to
offer up to an aggregate of $1.5 billion of securities, including common
shares of beneficial interest, preferred shares of beneficial interest
and debt (the "Third Shelf Registration"). The Third Shelf Registration
Statement became effective on January 4, 1998. Collectively, the Initial
Shelf Registration, the Second Shelf Registration and the Third Shelf
Registration are referred to as the "Shelf Registration Statement."
On January 12, 1998, the Company augmented its medium-term note program
to enable the Company to offer, in the aggregate, up to $450 million of
the Operating Partnership's medium-term notes. Under the program, on
January 22, 1998, the Company sold $75 million principal amount of 6.375%
notes due 2013. Such notes are subject to mandatory repayment of
principal to the holders thereof in 2003 pursuant to a call/put option
relating to such notes. Also under the program, on January 23, 1998, the
Company sold $100 million principal amount of 7.50% notes due 2018. The
aggregate net proceeds to the Company from such offerings were
approximately $173.3 million.
- -18-
On January 21, 1998, the Company consummated a public offering of
2,300,000 Common Shares. The aggregate net proceeds to the Company from
such offering were approximately $60.4 million.
On February 23, 1998, the Company consummated a public offering of
1,702,128 Common Shares. The aggregate net proceeds to the Company from
such offering were approximately $42.7 million.
On April 24, 1998, the Company consummated a public offering of 3,750,000
common shares. The aggregate net proceeds to the Company from such
offering were approximately $94.1 million.
Presently, the Company has the capacity pursuant to the Shelf
Registration Statement to issue up to $796.8 million in equity securities
and the Operating Partnership has the capacity to use up to $475.2
million in debt securities (including the $275.0 million of medium-term
notes available under the medium-term note program).
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 acquisitions and
capital expenditures. Funds from Operations is defined by NAREIT as net
income or loss after preferred dividends (computed in accordance with
generally accepted accounting principals ("GAAP")), excluding gains (or
losses) from debt restructuring and sales of property, plus real-estate
related depreciation and amortization and minority interest and excluding
significant non-recurring events that materially distort the comparative
measurement of the Company's performance over time. Funds from
Operations does not represent net income or cash flows from operations as
defined by GAAP and does not necessarily indicate that cash flows will be
sufficient to fund cash needs. It should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. Funds from
Operations also does not represent cash flows generated from operating,
investing or financing activities as defined by GAAP. Funds from
Operations for the three months ended March 31, 1998 and March 31, 1997
are as follows:
THREE MONTHS ENDED
(IN THOUSANDS)
--------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
Income available to common shareholders $ 21,990 $ 10,549
Addback:
Minority interest 1,809 975
Depreciation and amortization 14,080 7,859
======== ========
Funds from operations $ 37,879 $ 19,383
======== ========
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
- -19-
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.
PART II: OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
4.1 Second Supplemental Indenture, dated as of January
12, 1998, between Liberty Property Limited Partnership (the "Operating
Partnership"), as Issuer, and The First National Bank of Chicago ("First
Chicago"), as Trustee, supplementing the Senior Indenture, dated as of
October 24, 1997, between the Operating Partnership, as Obligor, and
First Chicago, as Trustee, and relating to the Fixed Rate and Floating
Rate Medium-Term Notes due Nine Months or more from Date of Issue of the
Operating Partnership.
4.2 Note, Relating to the Issuance by the Operating
Partnership, on January 22, 1998, of $75 Million Principal Amount of its
6.375% Medium-Term Notes due 2013, Putable/Callable 2003.
4.3 Note, Relating to the Issuance by the Operating
Partnership, on January 23, 1998, of $100 Million Principal Amount of its
7.50% Medium-Term Notes due 2018.
10 First Amendment to Amended and Restated Loan
Agreement, dated as of March 10, 1998, by and among the Operating
Partnership, the Trust, the Banks named therein and Bank Boston, N.A., as
agent for itself and the other lending institutions.
27 Financial Data Schedule (EDGAR VERSION ONLY)
- -20-
b. Reports on Form 8-K
During the quarter ended March 31, 1998, the Registrants
filed seven current reports on Form 8-K:
(i) report dated January 15, 1998 reporting Items 5 and 7
and containing as Exhibits the Distribution Agreement dated January 12,
1998 between the Registrants and the Agents (as defined therein) and the
Underwriting Agreement dated January 14, 1998 among the Registrants and
the Underwriters (as defined therein);
(ii) report dated January 16, 1998 reporting Items 5 and 7
and containing the Statement of Operating Revenues and Certain Operating
Expenses for the Liberty Center Properties (as defined therein) and
certain pro forma financial information;
(iii) report dated February 13, 1998 reporting Items 5 and
7 and containing the Statement of Operating Revenues and Certain
Operating Expenses for the Pompano/Cypress Parks Properties (as defined
therein) and certain pro forma financial information;
(iv) report dated February 17, 1998 reporting Items 5 and 7
and containing Historical Summaries of Gross Income and Direct Operating
Expenses for the First Industrial Properties (as defined therein) for
the nine months ended September 30, 1997 (unaudited) and for the year
ended December 31, 1996 and certain pro forma financial information;
(v) report dated February 20, 1998 reporting Items 5 and 7
and containing as an Exhibit the Underwriting Agreement dated February
18, 1998 among the Registrants and the Underwriters (as defined
therein);
(vi) report dated March 5, 1998 reporting Items 5 and 7 and
containing a Historical Summary of Gross Income and Direct Operating
Expenses for the First Industrial Properties (as defined therein) for
the year ended December 31, 1997 and certain pro forma financial
information; and
(vii) report dated March 12, 1998 reporting Items 5 and 7
and containing the Statement of Operating Revenues and certain expenses
for the Acquisition Properties (as defined therein) and certain pro
forma financial information.
- -21-
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 May 13, 1998
- ------------------------------ --------------------------------
Willard G. Rouse III Date
Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. May 13, 1998
- ------------------------------ --------------------------------
George J. Alburger, Jr. Date
Chief Financial Officer
LIBERTY PROPERTY LIMITED PARTNERSHIP
By: LIBERTY PROPERTY TRUST, GENERAL PARTNER
/s/ WILLARD G. ROUSE III May 13, 1998
- ------------------------------ --------------------------------
Willard G. Rouse III Date
Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. May 13, 1998
- ------------------------------ --------------------------------
George J. Alburger, Jr. Date
Chief Financial Officer
- -22-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------
4.1 Second Supplemental Indenture, dated as of January 12,
1998, between Liberty Property Limited Partnership
(the "Operating Partnership"), as Issuer, and The
First National Bank of Chicago ("First Chicago"), as
Trustee, supplementing the SeniorIndenture, dated as
of October 24, 1997, between the Operating
Partnership, as Obligor, and First Chicago, as
Trustee, and relating to the Fixed Rate and Floating
Rate Medium-Term Notes due Nine Months or more from
Date of Issue of the Operating Partnership.
4.2 Note, Relating to the Issuance by the Operating
Partnership, on January 22, 1998, of $75 Million
Principal Amount of its 6.375% Medium-Term Notes due
2013, Putable/Callable 2003.
4.3 Note, Relating to the Issuance by the Operating
Partnership, on January 23, 1998, of $100 Million
Principal Amount of its 7.50% Medium-Term Notes due
2018.
10 First Amendment to Amended and Restated Loan
Agreement, dated as of March 10, 1998, by and among
the Operating Partnership, the Trust, the Banks named
therein and Bank Boston, N.A., as agent for itself and
the other lending institutions.
27 Financial Data Schedule (EDGAR VERSION ONLY)