| • 10-Q • EXHIBIT 12.1 • EXHIBIT 31.1 • EXHIBIT 31.2 • EXHIBIT 31.3 • EXHIBIT 31.4 • EXHIBIT 32.1 • EXHIBIT 32.2 • EXHIBIT 32.3 • EXHIBIT 32.4 • XBRL INSTANCE DOCUMENT • XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT • XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________________________________ FORM 10-Q __________________________________________________________ (Mark One)
For the quarterly period ended March 31, 2012 OR
For the transition period from to Commission file numbers: 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) __________________________________________________________
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 o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x On April 30, 2012, 117,337,260 Common Shares of Beneficial Interest, par value $0.001 per share, of Liberty Property Trust were outstanding. EXPLANATORY NOTE This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2012 of Liberty Property Trust and Liberty Property Limited Partnership. Unless stated otherwise or the context otherwise requires, references to the "Trust”, mean Liberty Property Trust and its consolidated subsidiaries; and references to the “Operating Partnership” mean Liberty Property Limited Partnership and its consolidated subsidiaries. The terms the “Company,” “we”, “our” or “us” mean the Trust and the Operating Partnership, collectively. 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, the Operating Partnership, a Pennsylvania limited partnership. The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 96.8% of the common equity of the Operating Partnership at March 31, 2012. The common units of limited partnership interest in the Operating Partnership (the “Common Units”), other than those owned by the Trust, are exchangeable on a one-for-one basis (subject to anti-dilution protections) for the Trust's Common Shares of Beneficial Interest, $0.001 par value per share (the "Common Shares"). The Company has issued several series of Cumulative Redeemable Preferred Units of the Operating Partnership (the "Preferred Units"). The outstanding Preferred Units of each series are exchangeable on a one-for-one basis after stated dates into a corresponding series of Cumulative Redeemable Preferred Shares of the Trust except for the Series I-2 Preferred Units, which are not convertible or exchangeable into any other securities. The ownership of the holders of Common and Preferred Units is reflected on the Trust's financial statements as "noncontrolling interest - operating partnership" in mezzanine equity and as a component of total equity as "noncontrolling interest - operating partnership." The financial results of the Operating Partnership are consolidated into the financial statements of the Trust. The Trust has no significant assets other than its investment in the Operating Partnership. The Trust and the Operating Partnership are managed and operated as one entity. The Trust and the Operating Partnership have the same managers. The Trust's sole business purpose is to act as the general partner of the Operating Partnership. Net proceeds from equity issuances by the Trust are then contributed to the Operating Partnership in exchange for partnership units. The Trust itself does not issue any indebtedness, but guarantees certain of the unsecured debt of the Operating Partnership. We believe combining the quarterly reports on Form 10-Q of the Trust and the Operating Partnership into this single report results in the following benefits:
To help investors understand the significant differences between the Trust and the Operating Partnership, this report presents the following separate sections for each of the Trust and the Operating Partnership:
This report also includes separate Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Trust and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Trust and Operating Partnership are compliant with Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended. 2 Liberty Property Trust/Liberty Property Limited Partnership Form 10-Q for the period ended March 31, 2012
3
4 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST (In thousands, except share and unit amounts)
See accompanying notes. 5 CONSOLIDATED STATEMENTS OF INCOME OF LIBERTY PROPERTY TRUST (Unaudited and in thousands, except per share amounts)
See accompanying notes. 6 CONSOLIDATED STATEMENT OF EQUITY OF LIBERTY PROPERTY TRUST (Unaudited except as noted and in thousands)
See accompanying notes. 7 CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST (Unaudited and in thousands)
See accompanying notes. 8 CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP (In thousands, except unit amounts)
See accompanying notes. 9 CONSOLIDATED STATEMENTS OF INCOME OF LIBERTY PROPERTY LIMITED PARTNERSHIP (Unaudited and in thousands, except per unit amounts)
See accompanying notes. 10 CONSOLIDATED STATEMENT OF OWNERS’ EQUITY OF LIBERTY PROPERTY LIMITED PARTNERSHIP (Unaudited except as noted and in thousands)
See accompanying notes. 11 CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP (Unaudited and in thousands)
See accompanying notes. 12 Liberty Property Trust and Liberty Property Limited Partnership Notes to Consolidated Financial Statements (Unaudited) March 31, 2012 Note 1: Organization and Basis of Presentation 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 and their consolidated subsidiaries, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 96.8% of the common equity of the Operating Partnership at March 31, 2012. The Company provides leasing, property management, development, acquisition, and other tenant-related services for a portfolio of industrial and office properties which are located principally within the Mid-Atlantic, Southeastern, Midwestern and Southwestern United States and the United Kingdom. Unless otherwise indicated, the notes to the Consolidated Financial Statements apply to both the Trust and the Operating Partnership. The terms the "Company,” “we,” “our” or “us” mean the Trust and Operating Partnership collectively. Basis of Presentation The accompanying unaudited consolidated financial statements of Company have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2011. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. Certain amounts from prior periods have been reclassified to conform to the current period presentation including reclassifying the accompanying consolidated statements of income for discontinued operations. Recently Issued Accounting Standards ASU 2011-04 In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, “Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRS” (“ASU 2011-04”), which amends Accounting Standards Codification ("ASC") 820, “Fair Value Measurement” to converge US GAAP and International Financial Reporting Standards (“IFRS”) requirements for measuring accounts at fair value, including the disclosures regarding these measurements. ASU 2011-04 was effective for the Company beginning January 1, 2012. The Company's adoption of ASU 2011-04 did not have a material impact on its financial position or results of operations. ASU 2011-05 In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220), Presentation of Comprehensive Income” (“ASU 2011-05”), which will lead to converging guidance under US GAAP and IFRS related to presentation of comprehensive income. ASU 2011-05 was effective for the Company beginning January 1, 2012 and the provisions of ASU 2011-05 were adopted retrospectively. In adopting ASU 2011-05, the Company is required to disclose the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company's adoption of ASU 2011-05 did not have a material impact on its financial position or results of operations. 13 Note 2: Income per Common Share of the Trust The following table sets forth the computation of basic and diluted income per common share of the Trust (in thousands except per share amounts):
Dilutive shares for long-term compensation plans represent the unvested common shares outstanding during the year as well as the dilutive effect of outstanding options. The amounts of anti-dilutive options that were excluded from the computation of diluted income per common share for the three months ended March 31, 2012 was 1,384,000 as compared to 1,219,000 for the same period in 2011. During the three months ended March 31, 2012, 349,000 common shares were issued upon the exercise of options. During the year ended December 31, 2011, 256,000 common shares were issued upon the exercise of options. 14 Note 3: Income per Common Unit of the Operating Partnership The following table sets forth the computation of basic and diluted income per common unit of the Operating Partnership (in thousands, except per unit amounts):
Dilutive units for long-term compensation plans represent the unvested common units outstanding during the year as well as the dilutive effect of outstanding options. The amounts of anti-dilutive options that were excluded from the computation of diluted income per common unit for the three months ended March 31, 2012 was 1,384,000 as compared to 1,219,000 for the same period in 2011. During the three months ended March 31, 2012, 349,000 common units were issued upon the exercise of options. During the year ended December 31, 2011, 256,000 common units were issued upon the exercise of options. Note 4: Other Comprehensive Income of the Trust The functional currency of the Trust's United Kingdom operations is pounds sterling. The Trust translates the financial statements for the United Kingdom operations into US dollars. Gains and losses resulting from this translation are included in comprehensive income and are included in accumulated other comprehensive income (loss) as a separate component of equity. A proportionate amount of gain or loss is allocated to noncontrolling interest-common units. Accumulated other comprehensive income (loss) 15 consists solely of the foreign currency translation adjustments described above. Upon sale or upon complete or substantially complete liquidation of the Trust's foreign investment, the gain or loss on the sale will include the cumulative translation adjustments that have been previously recorded in accumulated other comprehensive income (loss) and noncontrolling interest-common units. Note 5: Other Comprehensive Income of the Operating Partnership The functional currency of the Operating Partnership’s United Kingdom operations is pounds sterling. The Operating Partnership translates the financial statements for the United Kingdom operations into US dollars. Gains and losses resulting from this translation are included in other comprehensive income within general partner’s equity – common units and limited partners’ equity-common units. Upon sale or upon complete or substantially complete liquidation of the Operating Partnership's foreign investment, the gain or loss on the sale will include the cumulative translation adjustments that have been previously recorded in general partner’s equity-common units and limited partners’ equity – common units. Note 6: Segment Information The Company operates its portfolio of properties primarily throughout the Mid-Atlantic, Southeastern, Midwestern and Southwestern United States. Additionally, the Company owns certain assets in the United Kingdom. The Company reviews the performance of the portfolio on a geographical basis. As such, the following are considered the Company’s reportable segments:
The Company evaluates the performance of its reportable segments based on net operating income. Net operating income includes operating revenue from external customers, real estate taxes, amortization of lease transaction costs and other operating expenses which relate directly to the management and operation of the assets within each reportable segment. The Company's accounting policies for the segments are the same as those used in the Company's Consolidated Financial Statements. There are no material inter-segment transactions. 16 The operating information by reportable segment is as follows (in thousands):
Note 7: Accounting for the Impairment or Disposal of Long-Lived Assets The operating results and gain/(loss) on disposition of real estate for properties sold and held for sale are reflected in the consolidated statements of income as discontinued operations. Prior period financial statements have been adjusted for discontinued operations. The proceeds from dispositions of operating properties for the three months ended March 31, 2012 were $6.5 million as compared to $3.6 million for the same period in 2011. Below is a summary of the results of operations for the properties held for sale and disposed of through the respective disposition dates (in thousands): 17
Eighteen properties totaling 957,000 square feet in the Company’s Central reportable segment, 16 properties totaling 980,000 square feet in the Company's South reportable segment and 16 properties totaling 633,000 square feet in the Company's Northeast - Other reportable segment were considered to be held for sale as of March 31, 2012. These properties had an aggregate cost basis of $200.8 million as of March 31, 2012 and were subject to contracts for sale for an aggregate of $199.1 million. Forty-nine of these properties were sold subsequent to March 31, 2012 for proceeds of $195.0 million. Interest expense is allocated to discontinued operations. The allocation of interest expense to discontinued operations was based on the ratio of net assets sold and held for sale (without continuing involvement) to the sum of total net assets plus consolidated debt. Asset Impairment During the three months ended March 31, 2012, the Company recognized $57,000 in impairment in the Company's South reportable segment. This impairment is included in discontinued operations in the Company’s consolidated statements of income. The Company determined this impairment through a comparison of the aggregate future cash flows (including quoted offer prices, a Level I input according to the fair value hierarchy established by the FASB in Topic 820, “Fair Value Measurements and Disclosures”) to be generated by the property to the carrying value of the properties. The Company has evaluated each of the properties and land held for development and has determined that there are no additional valuation adjustments necessary at March 31, 2012. During the three months ended March 31, 2011, the Company recognized an impairment charge of $550,000 related a property in the Central reportable segment. This impairment is included in discontinued operations in the Company's consolidated statements of income. Note 8: Noncontrolling Interests of the Trust Noncontrolling interests in the accompanying financial statements represent the interests of the common and preferred units in the Operating Partnership not held by the Trust. In addition, noncontrolling interests include third-party ownership interests in consolidated joint venture investments. Common units The common units outstanding of the Operating Partnership not held by the Trust as of March 31, 2012 have the same economic characteristics as common shares of the Trust. The 3,808,746 outstanding common units of the Operating Partnership not held by the Trust share proportionately in the net income or loss and in any distributions of the Operating Partnership. The common units of the Operating Partnership not held by the Trust are redeemable at any time at the option of the holder. The Trust, as the sole general partner of the Operating Partnership, may at its option elect to settle the redemption in cash or through the exchange on a one-for-one basis with unregistered common shares of the Trust. The market value of the 3,808,746 outstanding common units based on the closing price of the common shares of the Company at March 31, 2012 was $136.0 million. Preferred units The Trust had outstanding the following cumulative redeemable preferred units of the Operating Partnership (the “Equity Preferred Units”) as of March 31, 2012: 18
The Equity Preferred Units are callable at the Operating Partnership’s option after a stated period of time. The Trust as the sole general partner of the Operating Partnership may at its option elect to settle the redemption for cash or through the exchange on a one-for-one basis with unregistered preferred shares of the Trust. During the three months ended March 31, 2012, the Company redeemed $32.5 million of outstanding 6.65% Series F Cumulative Redeemable Preferred Units for $26.0 million. Also, the Company redeemed $95.0 million of outstanding 7.45% Series B Cumulative Redeemable Preferred Units at par. In connection with these redemptions, the Company recognized $3.7 million relating to the excess of preferred unit carrying amount over redemption price net of certain costs, which is included in Noncontrolling interest - operating partnership in the Trust's consolidated statements of income. Note 9: Limited Partners' Equity of the Operating Partnership Common units General and limited partners' equity - common units relates to limited partnership interests of the Operating Partnership issued in connection with the formation of the Operating Partnership and certain subsequent acquisitions. The common units outstanding as of March 31, 2012 have the same economic characteristics as common shares of the Trust. The 3,808,746 outstanding common units are the limited partners' equity - common units held by persons and entities other than the Trust, the general partner of the Operating Partnership, which holds a number of common units equal to the number of outstanding common shares of beneficial interest. Both the common units held by the Trust and the common units held by persons and entities other than the Trust are counted in the weighted average number of common units outstanding during any given period. The common units share proportionately in the net income or loss and in any distributions of the Operating Partnership and are exchangeable into the same number of common shares of the Trust. The market value of the 3,808,746 outstanding common units at March 31, 2012 based on the closing price of the common shares of the Company at March 31, 2012 was $136.0 million. Preferred units The following are the Equity Preferred Units as of March 31, 2012:
The Equity Preferred Units are callable at the Operating Partnership's option after a stated period of time. The Trust as the sole general partner of the Operating Partnership may at its option elect to settle the redemption for cash or through the exchange on a one-for-one basis with unregistered preferred shares of the Trust. During the three months ended March 31, 2012, the Company redeemed $32.5 million of outstanding 6.65% Series F Cumulative Redeemable Preferred Units for $26.0 million. Also, the Company redeemed $95.0 million of outstanding 7.45% Series B 19 Cumulative Redeemable Preferred Units at par. In connection with these redemptions, the Company recognized $3.7 million relating to the excess of preferred unit carrying amount over redemption price net of certain costs. Note 10: Noncontrolling Interest - Operating Partnership/Limited Partners' Equity - Preferred Units As of March 31, 2012, the following cumulative preferred units of the Operating Partnership were outstanding:
The preferred units are callable at the holder's option at any time and are callable at the Operating Partnership's option after a stated period of time for cash. Preferred distributions related to these units were $118,000 for the three months ended March 31, 2012. Note 11: Indebtedness Mortgage Loans During the three months ended March 31, 2012, the Company used proceeds from its unsecured credit facility together with available cash on hand to repay mortgage loans totaling $17.9 million bearing interest at an average rate of 7.70%. During the three months ended March 31, 2012, the Company closed on a mortgage with $45.0 million of available funds bearing interest at 4.84%. As of March 31, 2012, the Company had $11.2 million outstanding on this loan. The net proceeds from this mortgage were used for construction costs on a property under development. Note 12: Disclosure of Fair Value of Financial Instruments The following disclosure of estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the following estimates are not necessarily indicative of the amounts the Company could have realized on disposition of the financial instruments at March 31, 2012 and December 31, 2011. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued interest, dividend and distributions payable and other liabilities are reasonable estimates of fair value because of the short-term nature of these instruments. The carrying value of the Company's credit facility is also a reasonable estimate of fair value because interest rates float at a rate based on LIBOR. The Company used a discounted cash flow model to determine the estimated fair value of its debt as of March 31, 2012. This is a Level 3 fair value calculation. The inputs used in preparing the discounted cash flow model include actual maturity dates and scheduled cash flows as well as estimates for market value discount rates. The Company updates the discounted cash flow model on a quarterly basis to reflect any changes in the Company's debt holdings and changes to discount rate assumptions. The only significant unobservable input in the discounted cash flow model is the discount rate. For the fair value of the Company's unsecured notes, the Company uses a discount rate based on the indicative new issue pricing provided by lenders. For the Company's mortgage loans, the Company uses an estimate based on its knowledge of the mortgage market. The weighted average discount rate for the combined unsecured notes and mortgage loans used as of March 31, 2012 was approximately 3.92%. An increase in the discount rate used in the discounted cash flow model would result in a decrease to the fair value of the Company's long-term debt. A decrease in the discount rate used in the discounted cash flow model would result in an increase to the fair value of the Company's long-term debt. The following summarizes the changes in the fair value of the Company's long-term debt from December 31, 2011 to March 31, 2012 (in thousands): 20
(1) Does not include the Company's credit facility. Disclosure about fair value of financial instruments is based on pertinent information available to management as of March 31, 2012 and December 31, 2011. Although as of the date of this report, management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since March 31, 2012 and current estimates of fair value may differ significantly from the amounts presented herein. Note 13: Commitments and Contingencies Environmental Matters Substantially all of the Properties and land were subject to Phase I Environmental Assessments and when appropriate Phase II Environmental Assessments (collectively, the “Environmental Assessments”) obtained in contemplation of their acquisition by the Company. The Environmental Assessments did not reveal, nor is the Company aware of, any non-compliance with environmental laws, environmental liability or other environmental claim that the Company believes would likely have a material adverse effect on the Company. Operating Ground Lease Agreements Future minimum rental payments under the terms of all non-cancelable operating ground leases under which the Company is the lessee, as of March 31, 2012, were as follows (in thousands):
Operating ground lease expense during the three months ended March 31, 2012 was $96,000 as compared to $77,000 for the same period in 2011. Legal Matters From time to time, the Company is a party to a variety of legal proceedings, claims and assessments arising in the normal course of business. The Company believes that as of March 31, 2012 there were no legal proceedings, claims or assessments expected to have a material adverse effect on the Company’s business or financial statements. Other As of March 31, 2012, the Company had miscellaneous guarantees related to its unconsolidated joint ventures for up to a maximum of $350,000. As of March 31, 2012, the Company had letter of credit obligations of $6.3 million related to development requirements. The Company believes that it is remote that there will be a draw upon these letter of credit obligations. 21 As of March 31, 2012, the Company had initiated the development of 11 buildings. These buildings are expected to contain a total of 3.2 million square feet of leasable space and represent an anticipated aggregate investment of $294.3 million. At March 31, 2012, Development in progress totaled $138.6 million. In addition, as of March 31, 2012, the Company invested $5.2 million in deferred leasing costs related to these development buildings. Also, the Company has a signed commitment for a build-to-suit development not yet commenced for $6.7 million. As of March 31, 2012, the Company was committed to $2.1 million in improvements on certain land parcels. As of March 31, 2012, the Company was obligated to pay for tenant improvements not yet completed for a maximum of $23.9 million. The Company maintains cash and cash equivalents at financial institutions. The combined account balances at each institution typically exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes the risk is not significant. Note 14: Supplemental Disclosure to Statements of Cash Flows The following are supplemental disclosures to the statements of cash flows for the three months ended March 31, 2012 and 2011 (amounts in thousands):
Amounts paid in cash for deferred leasing costs incurred in connection with signed leases with tenants are paid in conjunction with improving (acquiring) property, plant and equipment. Such costs are not contained within net real estate. However, they are integral to the completion of a tenant lease and ultimately are related to the improvement and thus the value of the Company’s property, plant and equipment. They are therefore included in investing activities in the Company’s statements of cash flows. Note 15: Subsequent Events Subsequent to March 31, 2012, the Company completed the sale of 49 properties totaling 2.5 million square feet of leasable space in Wisconsin, Maryland, Virginia, North Carolina and New Jersey for approximately $195 million. The properties consist primarily of single-story and mid-rise office buildings and high-finish flex properties. The properties were 83% leased at the time of the sale. These properties were considered assets held for sale at March 31, 2012 and therefore the results of operations for these properties are included as discontinued operations in the accompanying statements of income. 22 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Liberty Property Trust (the “Trust”) is a self-administered and self-managed Maryland real estate investment trust (“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, collectively with the Trust and their consolidated subsidiaries, the “Company”). The Company operates primarily in the Mid-Atlantic, Southeastern, Midwestern and Southwestern United States. Additionally, the Company owns certain assets in the United Kingdom. As of March 31, 2012, the Company owned and operated 331 industrial and 264 office properties (the “Wholly Owned Properties in Operation”) totaling 65.1 million square feet. In addition, as of March 31, 2012, the Company owned 11 properties under development, which when completed are expected to comprise 3.2 million square feet (the “Wholly Owned Properties under Development”) and 1,447 acres of developable land, substantially all of which is zoned for commercial use. Additionally, as of March 31, 2012, the Company had an ownership interest, through unconsolidated joint ventures, in 47 industrial and 49 office properties totaling 14.2 million square feet (the “JV Properties in Operation” and, together with the Wholly Owned Properties in Operation, the “Properties in Operation”). The Company also has an ownership interest through unconsolidated joint ventures in 615 acres of developable land, substantially all of which is zoned for commercial use. The Company refers to the Wholly Owned Properties under Development and the Properties in Operation collectively as the "Properties." On April 3, 2012, the Company completed the sale of 49 properties totaling 2.5 million square feet of leasable space in Wisconsin, Maryland, Virginia, North Carolina and New Jersey for approximately $195 million. The properties consist primarily of single-story and mid-rise office buildings and high-finish flex properties. The Company focuses on creating value for shareholders and increasing profitability and cash flow. With respect to its Properties in Operation, the Company endeavors to maintain high occupancy levels while maximizing rental rates and controlling costs. The Company pursues development opportunities that it believes will create value and yield acceptable returns. The Company also acquires properties that it believes will create long-term value, and disposes of properties that no longer fit within the Company’s strategic objectives or in situations where it can optimize cash proceeds. The Company’s strategy with respect to product and market selection is expected generally to favor industrial and metro-office properties and markets with strong demographic and economic fundamentals. The Company’s operating results depend primarily upon income from rental operations and are substantially influenced by rental demand for the Properties in Operation. The economic disruption that commenced in 2008 continues to adversely impact the Company’s business. Although we have seen some improvement in the general economy, the economy as it impacts our business has not returned to pre-recession levels. Rental demand for the Properties in Operation remained relatively flat for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. During the three months ended March 31, 2012, the Company successfully leased 4.3 million square feet and, as of that date, attained occupancy of 91.2% for the Wholly Owned Properties in Operation and 87.1% for the JV Properties in Operation for a combined occupancy of 90.5% for the Properties in Operation. During the three months ended March 31, 2012, straight line rents on renewal and replacement leases were on average 4.0% lower than rents on expiring leases. At December 31, 2011, occupancy for the Wholly Owned Properties in Operation was 91.9% and for the JV Properties in Operation was 88.7% for a combined occupancy for the Properties in Operation of 91.3%. Consistent with its strategy, the Company has been an active seller of suburban office properties and it has acquired or commenced development of industrial and metro-office properties. The foregoing activity is anticipated to result in a decline in net cash provided by operating activities until the acquisition properties are stabilized and the development properties are completed and leased. Although the Company anticipates that its investment focus for the remainder of 2012 will be more on acquisitions than dispositions, the Company anticipates that, in the aggregate, for 2012 the net cash provided by operating activities, less customary capital expenditures and leasing transaction costs, will be less than dividend distributions. The Company will continue to evaluate these circumstances in light of its dividend distribution policy. WHOLLY OWNED CAPITAL ACTIVITY Acquisitions During the three months ended March 31, 2012, the Company did not acquire any properties. For 2012, the Company anticipates that wholly owned property acquisitions will range from $100 million to $300 million and believes that certain of its acquired properties will be either vacant or underleased. Dispositions 23 Disposition activity allows the Company to, among other things, (1) reduce its holdings in certain markets and product types within a market consistent with the Company's strategy; (2) lower the average age of the portfolio; (3) optimize the cash proceeds from the sale of certain assets; and (4) obtain funds for investment activities. During the three months ended March 31, 2012, the Company realized proceeds of $6.5 million from the sale of two operating properties representing 105,000 square feet. For 2012, the Company anticipates that wholly owned property dispositions will range from $250 million to $350 million. Development During the three months ended March 31, 2012, the Company did not bring any development projects into service but initiated one Wholly Owned Property under Development with a projected Total Investment of $7.8 million. As of March 31, 2012, the Company had 11 Wholly Owned Properties under Development with a projected Total Investment of $294.3 million. For 2012, the Company anticipates that wholly owned development deliveries will total between $30 million and $70 million and that during 2012 it will commence development on properties with an expected aggregate Total Investment in a range from $200 million to $300 million. “Total Investment” for a property is defined as the property’s purchase price plus closing costs (in the case of acquisitions if vacant) 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. UNCONSOLIDATED JOINT VENTURE CAPITAL ACTIVITY The Company periodically enters into unconsolidated joint venture relationships in connection with the execution of its real estate operating strategy. Acquisitions During the three months March 31, 2012, none of the unconsolidated joint ventures in which the Company held an interest acquired any properties. The Company does not anticipate that any unconsolidated joint ventures in which the Company holds an interest will acquire any properties in 2012. Dispositions During the three months ended March 31, 2012, none of the unconsolidated joint ventures in which the Company held an interest sold any properties. The Company does not anticipate that any unconsolidated joint ventures in which the Company holds an interest will dispose of any properties in 2012. Development During the three months ended March 31, 2012, none of the unconsolidated joint ventures in which the Company held an interest brought any properties into service or began any development activities. As of March 31, 2012, the Company has no unconsolidated joint venture properties under development. The Company does not anticipate that any unconsolidated joint ventures in which the Company holds an interest will bring any development properties into service or begin any development activities in 2012. 24 PROPERTIES IN OPERATION The composition of the Company’s Properties in Operation as of March 31, 2012 and 2011 was as follows (square feet in thousands):
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||