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, 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 November 4, 1998, 65,573,383 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, 1998
INDEX
- -----
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements (unaudited) Page
----
Consolidated balance sheets of Liberty Property
Trust at September 30, 1998 and December 31, 1997. 4
Consolidated statements of operations of Liberty
Property Trust for the three months ended September
30, 1998 and September 30, 1997. 5
Consolidated statements of operations of Liberty
Property Trust for the nine months ended September
30, 1998 and September 30, 1997. 6
Consolidated statements of cash flows of Liberty
Property Trust for the nine months ended September
30, 1998 and September 30, 1997. 7
Notes to consolidated financial statements for
Liberty Property Trust. 8-11
Consolidated balance sheets of Liberty Property
Limited Partnership at September 30, 1998 and
December 31, 1997. 12
Consolidated statements of operations of Liberty
Property Limited Partnership for the three months
ended September 30, 1998 and September 30, 1997. 13
Consolidated statements of operations of Liberty
Property Limited Partnership for the nine months
ended September 30, 1998 and September 30, 1997. 14
Consolidated statements of cash flows of Liberty
Property Limited Partnership for the nine months
ended September 30, 1998 and September 30, 1997. 15
Notes to consolidated financial statements for
Liberty Property Limited Partnership. 16-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 17-26
Part II. Other Information 27
- ---------------------------
Signatures 28
Exhibit Index 29
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, the costs
and risks associated with the Year 2000 issue, 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, Liberty Property Trust and Liberty Property Limited
Partnership (together, 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, the potential adverse impact of market
interest rates on the market price for the Company's securities and risks
relating to the Year 2000 issue.
3
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 345,795 $ 238,519
Buildings and improvements 2,255,566 1,649,512
Less accumulated depreciation (191,375) (149,311)
---------- ----------
Operating real estate 2,409,986 1,738,720
Development in progress 226,583 156,093
Land held for development 85,938 61,904
---------- ----------
Net real estate 2,722,507 l,956,717
Cash and cash equivalents 10,610 55,079
Accounts receivable 9,569 6,517
Deferred financing and leasing costs,
net of accumulated amortization (1998,
$47,007; 1997, $40,560) 35,513 32,536
Prepaid expenses and other assets 47,567 43,488
---------- ----------
Total assets $2,825,766 $2,094,337
========== ==========
LIABILITIES
Mortgage loans $ 414,917 $ 363,591
Unsecured notes 625,000 350,000
Credit facility 198,000 135,000
Convertible debentures 104,034 111,543
Accounts payable 21,737 14,544
Accrued interest 8,421 10,960
Dividend payable 33,573 25,927
Other liabilities 54,170 42,499
---------- ----------
Total liabilities 1,459,852 1,054,064
Minority interest 101,487 84,678
SHAREHOLDERS' EQUITY
8.80% Series A cumulative redeemable preferred
shares, $.001 par value, 5,000,000 shares
authorized; 5,000,000 shares issued and
outstanding as of September 30, 1998 and
December 31, 1997 120,814 120,814
Common shares of beneficial interest, $.001
par value, 200,000,000 shares authorized,
65,371,193 and 52,692,940 shares issued
and outstanding as of September 30, 1998
and December 31, 1997, respectively 65 53
Additional paid-in capital 1,162,897 846,949
Unearned compensation (667) (985)
Dividends in excess of net income (18,682) (11,236)
---------- -----------
Total shareholders' equity 1,264,427 955,595
---------- -----------
Total liabilities and shareholders' equity $2,825,766 $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
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
REVENUE
Rental $ 74,264 $ 45,241
Operating expense reimbursement 27,674 15,331
Management fees 150 205
Interest and other 1,458 1,654
--------- ---------
Total revenue 103,546 62,431
--------- ---------
OPERATING EXPENSES
Rental property expenses 20,147 11,934
Real estate taxes 9,228 4,815
General and administrative 4,362 2,820
Depreciation and amortization 18,070 11,499
--------- ---------
Total operating expenses 51,807 31,068
--------- ---------
Operating income 51,739 31,363
Premium on debenture conversion - 98
Write off of deferred financing costs - 353
Interest expense 20,836 13,341
--------- ---------
Income before minority interest 30,903 17,571
Minority interest 2,092 1,590
--------- ---------
Net income 28,811 15,981
Preferred dividend 2,750 1,497
--------- ---------
Income available to common shareholders $ 26,061 $ 14,484
========= =========
Income per common share - basic $ 0.41 $ 0.35
========= =========
Income per common share - diluted $ 0.41 $ 0.35
========= =========
Dividends declared per common share $ 0.45 $ 0.42
========= =========
Weighted average number of common shares
outstanding - basic 63,438 41,333
========= =========
Weighted average number of common shares
outstanding - diluted 63,671 41,661
========= =========
See accompanying notes.
5
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
REVENUE
Rental $203,297 $119,223
Operating expense reimbursement 71,048 38,121
Management fees 447 516
Interest and other 2,781 2,244
-------- --------
Total revenue 277,573 160,104
-------- --------
OPERATING EXPENSES
Rental property expenses 51,786 29,849
Real estate taxes 23,765 12,297
General and administrative 11,409 7,602
Depreciation and amortization 48,809 28,787
-------- --------
Total operating expenses 135,769 78,535
-------- --------
Operating income 141,804 81,569
Premium on debenture conversion - 98
Write off of deferred financing costs - 2,919
Interest expense 56,255 37,252
-------- --------
Income before minority interest 85,549 41,300
Minority interest 5,962 3,815
-------- --------
Net income 79,587 37,485
Preferred dividend 8,250 1,497
-------- --------
Income available to common shareholders $ 71,337 $ 35,988
======== ========
Income per common share - basic $ 1.20 $ 0.94
======== ========
Income per common share - diluted $ 1.19 $ 0.93
======== ========
Dividends declared per common share $ 1.29 $ 1.24
======== ========
Weighted average number of common shares
outstanding - basic 59,507 38,263
======== ========
Weighted average number of common shares
outstanding - diluted 59,810 38,551
======== ========
See accompanying notes.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
OPERATING ACTIVITIES
Net income $ 79,587 $ 37,485
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 48,809 28,787
Amortization of deferred financing costs 3,119 6,353
Minority interest in net income 5,962 3,815
Loss on sale 1,048 543
Noncash compensation 317 317
Changes in operating assets and liabilities:
Accounts receivable (3,052) (5,505)
Prepaid expenses and other assets (4,878) (4,455)
Accounts payable 7,193 6,294
Accrued interest (2,539) (3,017)
Other liabilities 12,625 20,143
---------- ---------
Net cash provided by operating activities 148,191 90,760
---------- ---------
INVESTING ACTIVITIES
Investment in properties (498,433) (400,310)
Disposition of properties 11,115 27,410
Investment in development in progress (198,718) (144,295)
Investment in land held for development (24,034) (12,785)
Increase in deferred leasing costs (9,356) (6,096)
---------- ---------
Net cash used in investing activities (719,426) (536,076)
---------- ---------
FINANCING ACTIVITIES
Net proceeds from issuance of common shares 297,567 187,592
Proceeds from issuance of preferred shares - 125,000
Proceeds from issuance of unsecured notes 275,000 200,000
Proceeds from mortgage loans - 124,815
Repayments of mortgage loans (21,961) (7,855)
Proceeds from lines of credit 567,000 600,017
Repayments on lines of credit (504,000) (720,709)
Increase in deposits on pending acquisitions (24) (146)
Increase deferred financing costs (745) (7,807)
Common dividends (71,498) (45,208)
Preferred dividends (8,250) (1,497)
Distributions to partners (6,323) (4,401)
---------- ---------
Net cash provided by financing activities 526,766 449,801
(Decrease) increase in cash and cash equivalents (44,469) 4,485
Cash and cash equivalents at beginning of period 55,079 19,612
---------- ---------
Cash and cash equivalents at end of period $ 10,610 $ 24,097
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 2,595 $ 6,232
Acquisition of properties (100,981) (62,084)
Assumption of mortgage loans 73,287 33,292
Issuance of operating partnership units 27,694 28,792
Noncash compensation 954 686
Conversion of convertible debentures 7,277 54,105
========== =========
See accompanying notes.
7
LIBERTY PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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 of limited partnership interest in the
Operating Partnership and Convertible Debentures into common shares,
unless the inclusion of such common share equivalents are antidilutive
for the period(s) presented.
8
The following tables set forth the computation of basic and diluted
income per common share for the three and nine month periods ended
September 30, 1998 and 1997:
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 ENDED SEPTEMBER 30, 1997
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $ 28,811 $ 15,981
Less: Preferred
dividends 2,750 1,497
-------- --------
Basic income per
common share
Income available
to common share-
holders 26,061 63,438 $ 0.41 14,484 41,333 $ 0.35
======= =======
Effect of dilutive
securities
Options - 233 - 328
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 26,061 63,671 $ 0.41 $ 14,484 41,661 $ 0.35
======== ======= ======= ======== ======= =======
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 ENDED SEPTEMBER 30, 1997
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $ 79,587 $ 37,485
Less: Preferred
dividends 8,250 1,497
-------- --------
Basic income per
common share
Income available
to common share-
holders 71,337 59,507 $ 1.20 35,988 38,263 $ 0.94
======= =======
Effect of dilutive
securities
Options - 303 - 288
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 71,337 59,810 $ 1.19 $ 35,988 38,551 $ 0.93
======== ======= ======= ======== ======= =======
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 and nine months ended September 30, 1998 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
or the nine months ended September 30, 1998, and it is not anticipated
that it will have a material effect on the Company's results of
operations for future periods.
9
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 September 30, 1998, the
Trust owned a 92.56% interest in the Operating Partnership as the sole
general partner and a 0.01% 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. On June 5, 1998, the
Company sold $100 million principal amount of 6.6% notes due 2002. The
aggregate net proceeds to the Company from such offerings were
approximately $272.7 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.
On August 4, 1998, the Company consummated a public offering of 3,960,820
common shares. The aggregate net proceeds to the Company from such
offering were approximately $99.2 million.
NOTE 3 - PRO FORMA INFORMATION
- ------------------------------
The following unaudited pro forma information has been prepared assuming
the common and preferred shares offerings which were consummated in 1997
and the first nine months of 1998 and the acquisitions of 170 properties
acquired in 1997 and 132 properties acquired during the first nine months
of 1998, had occurred at January 1, 1997. The 1997 acquisitions were
10
acquired for a total investment of $727.9 million and the 1998
acquisitions were acquired for a total investment of $554.8 million.
NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total revenue $295,900 $261,466
Income available to common
shareholders 77,995 65,676
Income per share - basic $ 1.19 $ 1.00
Income per share - diluted $ 1.19 $ 1.00
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 and the
acquisitions of 1997 and the first nine months of 1998 as of January 1,
1997, nor does it purport to represent the results of operations of the
Company for future periods.
11
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(IN THOUSANDS)
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
ASSETS
Real estate:
Land and land improvements $ 345,795 $ 238,519
Buildings and improvements 2,255,566 1,649,512
Less accumulated depreciation (191,375) (149,311)
---------- ----------
Operating real estate 2,409,986 1,738,720
Development in progress 226,583 156,093
Land held for development 85,938 61,904
---------- ----------
Net real estate 2,722,507 l,956,717
Cash and cash equivalents 10,610 55,079
Accounts receivable 9,569 6,517
Deferred financing and leasing costs,
net of accumulated amortization
(1998, $47,007; 1997, $40,560) 35,513 32,536
Prepaid expenses and other assets 47,567 43,488
---------- ----------
Total assets $2,825,766 $2,094,337
========== ==========
LIABILITIES
Mortgage loans $ 414,917 $ 363,591
Unsecured notes 625,000 350,000
Credit facility 198,000 135,000
Convertible debentures 104,034 111,543
Accounts payable 21,737 14,544
Accrued interest 8,421 10,960
Dividend payable 33,573 25,927
Other liabilities 54,170 42,499
---------- ----------
Total liabilities 1,459,852 1,054,064
OWNERS' EQUITY
General partner's equity 1,264,427 955,595
Limited partners' equity 101,487 84,678
---------- ----------
Total owners' equity 1,365,914 1,040,273
---------- ----------
Total liabilities and owners' equity $2,825,766 $2,094,337
========== ==========
See accompanying notes.
12
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
REVENUE
Rental $ 74,264 $ 45,241
Operating expense reimbursement 27,674 15,331
Management fees 150 205
Interest and other 1,458 1,654
--------- ---------
Total revenue 103,546 62,431
--------- ---------
OPERATING EXPENSES
Rental property expenses 20,147 11,934
Real estate taxes 9,228 4,815
General and administrative 4,362 2,820
Depreciation and amortization 18,070 11,499
--------- ---------
Total operating expenses 51,807 31,068
--------- ---------
Operating income 51,739 31,363
Premium on debenture conversions - 98
Write off of deferred financing costs - 353
Interest expense 20,836 13,341
--------- ---------
Net income $ 30,903 $ 17,571
========= =========
Net income allocated to general partner $ 28,811 $ 15,981
Net income allocated to limited partners 2,092 1,590
========= =========
See accompanying notes.
13
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
REVENUE
Rental $203,297 $ 119,223
Operating expense reimbursement 71,048 38,121
Management fees 447 516
Interest and other 2,781 2,244
-------- ---------
Total revenue 277,573 160,104
-------- ---------
OPERATING EXPENSES
Rental property expenses 51,786 29,849
Real estate taxes 23,765 12,297
General and administrative 11,409 7,602
Depreciation and amortization 48,809 28,787
-------- ---------
Total operating expenses 135,769 78,535
-------- ---------
Operating income 141,804 81,569
Premium on debenture conversion - 98
Write off of deferred financing costs - 2,919
Interest expense 56,255 37,252
-------- ---------
Net income $ 85,549 $ 41,300
======== =========
Net income allocated to general partner $ 79,587 $ 37,485
Net income allocated to limited partner 5,962 3,815
======== =========
14
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
OPERATING ACTIVITIES
Net income $ 85,549 $ 41,300
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 48,809 28,787
Amortization of deferred financing costs 3,119 6,353
Loss on sale 1,048 543
Noncash compensation 317 317
Changes in operating assets and liabilities:
Accounts receivable (3,052) (5,505)
Prepaid expenses and other assets (4,878) (4,455)
Accounts payable 7,193 6,294
Accrued interest (2,539) (3,017)
Other liabilities 12,625 20,143
---------- ---------
Net cash provided by operating activities 148,191 90,760
---------- ---------
INVESTING ACTIVITIES
Investment in properties (498,433) (400,310)
Disposition of properties 11,115 27,410
Investment in development in progress (198,718) (144,295)
Investment in land held for development (24,034) (12,785)
Increase in deferred leasing costs (9,356) (6,096)
---------- ---------
Net cash used in investing activities (719,426) (536,076)
---------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of unsecured notes 275,000 200,000
Proceeds from mortgage loans - 124,815
Repayments of mortgage loans (21,961) (7,855)
Proceeds from lines of credit 567,000 600,017
Repayments on lines of credit (504,000) (720,709)
Increase in deposits on pending acquisitions (24) (146)
Increase in deferred financing costs (745) (7,807)
Capital contributions 297,567 312,592
Distributions to partners (86,071) (51,106)
---------- ---------
Net cash provided by financing activities 526,766 449,801
(Decrease) increase in cash and cash equivalents (44,469) 4,485
Cash and cash equivalents at beginning of period 55,079 19,612
---------- ---------
Cash and cash equivalents at end of period $ 10,610 $ 24,097
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 2,595 $ 6,232
Acquisition of properties (100,981) (62,084)
Assumption of mortgage loans 73,287 33,292
Issuance of operating partnership units 27,694 28,792
Noncash compensation 954 686
Conversion of convertible debentures 7,277 54,105
========= =========
See accompanying notes.
15
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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 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 and nine months ended September 30, 1998 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
or the nine months ended September 30, 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 September 30, 1998, the
Trust owned a 92.56% interest in the Operating Partnership as the sole
general partner and a 0.01% 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. On June 5, 1998, the
16
Company sold $100 million principal amount of 6.60% notes due 2002. The
aggregate net proceeds to the Company from such offerings were
approximately $272.7 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.
On August 4, 1998, the Company consummated a public offering of 3,960,820
common shares. The aggregate net proceeds to the Company from such
offering were approximately $99.2 million.
NOTE 3 - PRO FORMA INFORMATION
- ------------------------------
The following unaudited pro forma information has been prepared assuming
the common and preferred shares offerings which were consummated in 1997
and the first nine months of 1998 and the acquisitions of 170 properties
acquired in 1997 and 132 properties acquired during the first nine 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 $554.8 million.
NINE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
(IN THOUSANDS)
Total revenue $295,900 $261,466
Net income 92,505 79,197
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 and the
acquisitions of 1997 and the nine 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 and nine months ended September 30, 1998 (unaudited) with the
activities of the Company for the three and nine months ended September
30, 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.
17
This information should be read in conjunction with the accompanying
consolidated financial statements and notes included elsewhere in this
report.
The composition of the Company's in-service portfolio of rental
properties as of September 30, 1998 and 1997 is as follows (in
thousands):
TOTAL PERCENT OF TOTAL
SQUARE FEET SQUARE FEET PERCENT OCCUPIED
----------------- ---------------- -----------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
TYPE 1998 1997 1998 1997 1998 1997
- ------------------------- ------- ------- ------- ------- ------- -------
Industrial - Distribution 17,852 13,947 42.4% 48.8% 95.4% 93.8%
Industrial - Flex 12,334 7,598 29.3% 26.6% 93.3% 94.0%
Office 11,905 7,043 28.3% 24.6% 95.8% 92.5%
------ ------ ------- ------- ------- -------
Total 42,091 28,588 100.0% 100.0% 94.9% 93.5%
====== ====== ====== ====== ====== ======
The expiring square feet and annual base rent by year for the above in-
service portfolio of rental properties as of September 30, 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 1,103 $ 4,415 1,138 $ 7,902 1,079 $ 11,304 3,320 $ 23,621
1999 2,443 10,852 2,067 14,636 1,665 17,696 6,175 43,184
2000 1,793 8,155 2,051 14,897 2,306 30,567 6,150 53,619
2001 2,917 13,335 2,096 15,232 1,369 16,896 6,382 45,463
2002 2,350 9,985 1,184 9,452 1,031 12,386 4,565 31,823
2003 1,505 7,444 1,195 10,461 851 10,833 3,551 28,738
Thereafter 4,918 24,374 1,773 17,710 3,104 44,381 9,795 86,465
------ -------- ------ -------- ------ -------- ------ --------
Total 17,029 $78,560 11,504 $90,290 11,405 $144,063 39,938 $312,913
====== ======= ====== ======= ====== ======== ====== ========
The scheduled deliveries of the 4.5 million square feet of properties
under development as of September 30, 1998 are as follows (in thousands):
SQUARE FEET
-----------------------------
SCHEDULED IND- IND- PERCENT LEASED
IN-SERVICE DATE DIST. FLEX OFFICE TOTAL SEPTEMBER 30, 1998 TOTAL INVESTMENT
- ---------------- ------ ------ ------- ------ ------------------ ----------------
4th Quarter 1998 1,118 43 494 1,655 85.1% $ 100,119
1st Quarter 1999 152 215 75 442 14.1% 27,226
2nd Quarter 1999 290 125 334 749 70.3% 66,548
3rd Quarter 1999 123 156 - 279 36.9% 13,148
Thereafter 170 - 1,168 1,338 36.3% 182,816
------ ------ ------- ------ ------ ----------
Total 1,853 539 2,071 4,463 58.0% $ 389,857
===== ===== ====== ===== ====== ==========
18
YEAR 2000
Background
In the past, many computer software programs were written using two
digits rather than four to define the applicable year. As a result,
date-sensitive computer software may recognize a date using "00" as the
year 1900 rather than the year 2000. This is generally referred to as
the Year 2000 issue. If this situation occurs, the potential exists for
computer system failures or miscalculations by computer programs, which
could disrupt operations.
Approach
The Company has established a group to coordinate the Company's response
to the Year 2000 issue. This group, which reports to the President and
Chief Operating Officer, includes the Company's MIS Director, a Vice-
President-Property Management and its General Counsel, as well as
support staff. The Company is in the process of implementing a Year
2000 compliance program at the Company's offices and properties
consisting of the following phases:
PHASE 1 Compilation of an inventory of information technology
(IT) and non-IT systems that may be sensitive to the Year 2000 problem.
PHASE 2 Identification and prioritization of the critical systems
from the systems inventory compiled in Phase 1 and inquiries of third
parties with whom the Company does significant business (i.e., vendors,
service providers and tenants) as to the state of their Year 2000
readiness.
PHASE 3 Analysis of critical systems to determine which systems
are not Year 2000 compliant and evaluation of the costs to repair or
replace those systems.
PHASE 4 Repair or replace noncompliant systems and testing of
critical systems.
Status
The Company's property management and accounting system uses four digit
year fields and consequently is believed to be Year 2000 compliant.
The Company has been reviewing and will continue to review its building
operating systems on a building by building basis in conjunction with
its annual maintenance program. The Company anticipates that this
review will be completed by the end of 1998.
Phases 1 and 2 are substantially complete but for the process of making
inquiries of significant third parties as to their Year 2000 readiness,
which is currently ongoing.
Phases 3 and 4 are ongoing and will continue through the first half of
calendar 1999. It is the Company's goal to have this project completed
by mid-1999. Based upon the analysis conducted to date, the Company
believes the major critical systems at the Company's properties are
currently compliant or will be compliant by mid-1999. The only
significant aspect of Year 2000 compliance of the Company that has been
identified to date is the need to replace energy management systems at
certain properties. These energy management systems where in any event
scheduled for replacement for other reasons in 1999.
19
Costs
The total cost to the Company of making its systems Year 2000 compliant
is currently estimated to be in the range of $200,000-$300,000. The
majority of this cost relates to repairing certain software, testing
systems and retrofiting or replacing energy management systems at
certain of the properties. The cost for the replacement of the
equipment and the software will be capitalized and depreciated over
their expected useful life. To the extent existing hardware or software
is replaced, the Company will write-off the cost incurred. This write-
off is included in the above cost estimate. Furthermore, all costs
related to software modification, as well as all costs associated with
the Company's administration of its Year 2000 project, are being
expensed as incurred and are likewise included in the cost estimate
above.
Risks Associated with the Year 2000 Problem
The Company utilizes computer systems in many aspects of its business.
As noted, the Company's property management and accounting systems use
four digit year fields and are believed to be Year 2000 compliant.
Additionally, with respect to the hardware and software systems utilized
by the Company in its management information systems, the Company's
assessment to date indicates that these systems are Year 2000 compliant
or can readily be made Year 2000 compliant on a stand-alone basis.
Testing of this preliminary assessment and of the operation of these
systems together is ongoing.
The Company's also utilizes microprocessors which are imbedded in
systems which are part of the building operations (e.g., a
microprocessors contained within the buildings' energy management
systems or fire and life safety systems.) In particular, Year 2000
problems in the HVAC, elevator, security or other such systems at the
properties could disrupt operations at the affected properties. The
properties generally consist of suburban office and industrial
properties. The properties are also principally single-story and low-
rise buildings. The Company has been reviewing and will continue to
review its building operating systems on a building by building basis in
conjunction with its annual maintenance program. The Company
anticipates that this assessment will be complete by the end of 1998.
At this point, based on the status of its assessment the Company does
not believe a material number of these systems will be non-compliant.
Additionally, many of these systems, which operate automatically, can be
operated manually and consequently in the event these systems experience
a failure as a result of the Year 2000 problem, the disruption caused by
such failure should not be material to the Company's operations.
The Company is also exposed to the risk that one or more of its vendors
or service providers could experience Year 2000 problems that impact the
ability of such vendor or service provider to provide goods and
services. Though this is not considered as significant a risk with
respect to the suppliers of goods, due to the availability of
alternative suppliers, the disruption of certain services, such as
utilities, could, depending upon the extent of the disruption, have a
material adverse impact on the Company's operations. To date, the
Company is not aware of any vendor or service provider Year 2000 issue
that management believes would have a material adverse impact on the
Company's operations. However, the Company has no means of ensuring
that its vendors or service providers will be Year 2000 ready. The
inability of vendors or service providers to complete their Year 2000
resolution process in a timely fashion could have a adverse impact on
20
the Company. The effect of non-compliance by vendors or service
providers is not determinable at this time.
In addition, the Company is exposed to the risk that one or more of its
tenants could experience Year 2000 problems that impact the ability of
such tenant to pay its rent to the Company in a timely fashion. The
Company does not believe that such a problem is likely to affect enough
tenants to pose a material problem for the Company. To date, the
Company is not aware of any tenant Year 2000 issue that would have a
material adverse impact on the Company's operations. However, the
Company has no means of ensuring that their tenants will be Year 2000
ready. The inability of tenants to complete their Year 2000 resolution
process in a timely fashion could have an adverse impact on the Company.
The effect of non-compliance by tenants is not determinable at this
time.
Widespread disruptions in the national or international economy,
including disruptions affecting the financial markets, resulting from
Year 2000 issues, or in certain industries, such as commercial or
investment banks, could also have an adverse impact on the Company. The
likelihood and effect of such disruptions is not determinable at this
time.
Readers are cautioned that forward-looking statements contained in the
Year 2000 discussion should be read in conjunction with the Company's
disclosures regarding forward-looking statements on page 3.
RESULTS OF OPERATIONS
- ---------------------
For the three and nine months ended September 30, 1998 compared to the
three and nine months ended September 30, 1997.
- -----------------------------------------------------------------------
Rental revenues increased from $45.2 million to $74.3 million, or by 64%,
for the three months ended September 30, 1997 to 1998 and increased from
$119.2 million to $203.3 million, or by 71%, for the nine months ended
September 30, 1997 to 1998. These increases are primarily due to the
increase in the number of properties in operation ("Operating
Properties") during the respective periods. As of September 30, 1997,
the Company had 380 Operating Properties and, as of September 30, 1998,
the Company had 598 Operating Properties. From January 1, 1997 through
June 30, 1997, and from July 1, 1997 through September 30, 1997, the
Company acquired or completed the development on 72 properties and 56
properties, respectively, for Total Investments (as defined below) of
approximately $418.4 million and $137.5 million, respectively. From
January 1, 1998 through June 30, 1998, and from July 1, 1998 through
September 30, 1998, the Company acquired or completed the development on
103 properties and 59 properties, respectively, for Total Investments of
approximately $526.4 million and $200.4 million, respectively. 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 $15.3 million to $27.7
million for the three months ended September 30, 1997 to 1998 and from
$38.1 million to $71.0 million for the nine months ended September 30,
1997 to 1998. These increases are a result of the reimbursement from
21
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 91.5% for the three months ended September 30, 1997 to
94.2% for the three months ended September 30, 1998, and from 90.4% for
the nine months ended September 30, 1997 to 94.0% for the nine months
ended September 30, 1998, due to the increase in occupancy.
Rental property and real estate tax expenses increased from $16.7 million
to $29.4 million for the three months ended September 30, 1997 to 1998
and from $42.1 million to $75.6 million for the nine months ended
September 30, 1997 to 1998. These increases are 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 $92.9 million to
$97.2 million for the nine months ended September 30, 1997 to 1998, an
increase of 4.7%. This increase is 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 nine month periods ended
September 30, 1998 and 1997.
NINE MONTHS ENDED
(IN THOUSANDS)
--------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
Rental revenue $ 99,011 $ 96,074
Operating expense reimbursement 30,821 29,831
-------- --------
129,832 125,905
Rental property expenses 23,217 24,077
Real estate taxes 9,373 8,903
-------- --------
Property level operating income $ 97,242 $ 92,925
======== ========
General and administrative expenses increased from $2.8 million for the
three months ended September 30, 1997 to $4.4 million for the three
months ended September 30, 1998, and from $7.6 million for the nine
months ended September 30, 1997 to $11.4 million for the nine months
ended September 30, 1998, 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 three
and nine month periods ended September 30, 1998 reflect the expensing of
internal acquisition costs as of January 1, 1998 in compliance with EITF
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 increased number
of properties.
Depreciation and amortization expense increased from $11.5 million for
the three months ended September 30, 1997 to $18.1 million for the three
months ended September 30, 1998, and from $28.8 million for the nine
months ended September 30, 1997 to $48.8 million for the nine months
ended September 30, 1998. These increases are due to an increase in the
number of properties owned during the respective periods.
22
Interest expense increased from $13.3 million for the three months ended
September 30, 1997 to $20.8 million for the three months ended September
30, 1998, and from $37.3 million for the nine months ended September 30,
1997 to $56.3 million for the nine months ended September 30, 1998.
These increases are due to increases in the average debt outstanding for
the third quarter of 1997 compared to the third quarter of 1998, from
$841.4 million to $1,311.8 million, and for the nine months ended
September 30, 1997 to September 30, 1998, from $744.6 million to $1,185.7
million. Such increases were 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 Ratings
Group ("S&P") and Moody's Investors 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 $31.4 million for the three months ended September 30, 1997 to $51.7
million for the three months ended September 30, 1998, and from $81.6
million for the nine months ended September 30, 1997 to $141.8 million
for the nine months ended September 30, 1998. In addition, income before
minority interest for the three months increased from $17.6 million for
the three months ended September 30, 1997 to $30.9 million for the three
months ended September 30, 1998, and from $41.3 million for the nine
months ended September 30, 1997 to $85.5 million for the nine months
ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash and cash equivalents of
$10.6 million.
Net cash flow provided by operating activities increased from $90.8
million for the nine months ended September 30, 1997 to $148.2 million
for the nine months ended September 30, 1998. This $57.4 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 $536.1 million for
the nine months ended September 30, 1997 to $719.4 million for the nine
months ended September 30, 1998. This increase primarily resulted from
increased acquisition activity in the first nine months of 1998 as
compared to the first nine months of 1997.
Net cash provided by financing activities increased from $449.8 million
for the nine months ended September 30, 1997 to $526.8 million for the
nine months ended September 30, 1998. This increase was attributable to
the issuance of $275 million principal amount of unsecured notes and the
issuance of 11,712,948 common shares which generated net proceeds of
$296.4 million during the nine months ended September 30, 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"), which Credit
Facility matures May, 1999, and can be extended for one year. 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 Baa3 from Ba2 and on July 22, 1997, S&P assigned a BBB-
23
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 nine months of
1998, the Company used approximately $504.0 million of the proceeds from
the common share offerings and from unsecured note issuances to paydown
the Credit Facility.
As of September 30, 1998, $414.9 million in mortgage loans were
outstanding with maturities ranging from 1999 to 2013. The interest rates
on $398.2 million of mortgage loans are fixed and range from 6.0% to
9.1%. Interest rates on $16.7 million of mortgage loans float with LIBOR
or prime, of which $10.1 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 7.4 years.
General
The Company believes that its existing sources of capital will provide
sufficient funds to finance its continued acquisition and development
activities. The Company's need for capital has been somewhat reduced by
a decline in acquisition activity throughout the year, resulting from a
general marketplace decline in initial returns on acquisitions. The
Company's existing sources of capital include the public debt and equity
markets, proceeds from property dispositions and net cash provided from
its operating activities. Additionally, the Company expects to incur
variable rate debt, including borrowings under the Credit Facility, from
time to time. Although the public equity and debt markets have recently
experienced a period of turmoil, the Company does not believe that this
turmoil will have an adverse impact on the ability of the Company to
fund its activities.
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 enabled 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
24
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. On
June 5, 1998, the Company sold $100 million principal amount of 6.6%
notes due 2002. The aggregate net proceeds to the Company from such
offerings were approximately $272.7 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.
On August 4, 1998, the Company consummated a public offering of 3,960,820
common shares. The aggregate net proceeds to the Company from such
offering were approximately $99.2 million.
Presently, the Company has the capacity pursuant to the Shelf
Registration Statement to issue $696.8 million in equity securities and
the Operating Partnership has the capacity to issue $375.7 million in
debt securities (including the $175.5 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
25
Operations for the three and nine months ended September 30, 1998 and
September 30, 1997 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS) (IN THOUSANDS)
---------------------- ---------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1998 1997
---------- ---------- ---------- ---------
Income available to common shareholders $ 26,061 $ 14,484 $ 71,337 $ 35,988
Addback:
Minority interest 2,092 1,590 5,962 3,815
Depreciation and amortization 17,707 11,374 47,986 28,442
(Gain) loss on sale - (600) 1,048 543
Premium on debenture conversion - 98 - 98
Write off of deferred financing costs - 353 - 2,919
======== ======== ========= =========
Funds from operations $ 45,860 $ 27,299 $ 126,333 $ 71,805
======== ======== ========= =========
INFLATION
- ---------
Inflation has remained relatively low during the last three years, and as
a result, it has not had a significant impact on the Company during this
period. The Credit Facility bears interest at a variable rate; therefore,
the amount of interest payable under the Credit Facility will be
influenced by changes in short-term interest rates, which tend to be
sensitive to inflation. To the extent an increase in inflation would
result in increased operating costs, such as in insurance, real estate
taxes and utilities, substantially all of the tenants' leases require the
tenants to absorb these costs as part of their rental obligations. In
addition, inflation also may have the effect of increasing market rental
rates.
26
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
10 Senior Management Change of Control Severance Plan
27 Financial Data Schedule (EDGAR VERSION ONLY)
b. Reports on Form 8-K
During the quarter ended September 30, 1998, the
Registrants filed one current reports on Form 8-K:
(i) report dated July 13, 1998 reporting Items 5 and 7 and
containing the Statement of Operating Revenues and Certain Operating
Expenses for the Acquisition Properties (as defined therein) and certain
pro forma financial information.
27
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 5, 1998
- ------------------------------ --------------------------------
Joseph P. Denny Date
President
/s/ GEORGE J. ALBURGER, JR. November 5, 1998
- ------------------------------ --------------------------------
George J. Alburger, Jr. Date
Chief Financial Officer
LIBERTY PROPERTY LIMITED PARTNERSHIP
By: LIBERTY PROPERTY TRUST, GENERAL PARTNER
/s/ JOSEPH P. DENNY November 5, 1998
- ------------------------------ --------------------------------
Joseph P. Denny Date
President
/s/ GEORGE J. ALBURGER, JR. November 5, 1998
- ------------------------------ --------------------------------
George J. Alburger, Jr. Date
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------
10 Senior Management Change of Control Severance Plan
27 Financial Data Schedule (EDGAR VERSION ONLY)