XNYS:LRY Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________
FORM 10-Q
__________________________________________________________
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the quarterly period ended June 30, 2012
  
OR

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
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)
__________________________________________________________
 
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)
 
 
500 Chesterfield Parkway
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  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):
  
Large Accelerated Filer
x
Accelerated Filer
o
Non-Accelerated Filer
o (Do not check if a smaller reporting company)
Smaller Reporting Company
o
    
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 July 27, 2012, 117,840,465 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 June 30, 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 96.9% of the common equity of the Operating Partnership at June 30, 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:
enhances investors' understanding of the Trust and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the Company's disclosure applies to both the Trust and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

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:
consolidated financial statements;
the following notes to the consolidated financial statements;
Income per Common Share of the Trust and Income per Common Unit of the Operating Partnership;
Other Comprehensive Income of the Trust and Other Comprehensive Income of the Operating Partnership; and
Noncontrolling Interests of the Trust and Limited Partners' Equity of 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 June 30, 2012
 
Index
 
Page
 
 
 
PART I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.

3


Index
 
Page
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
 
 
 
 
 
SECOND SUPPLEMENTAL INDENTURE, DATED AS OF JUNE 11, 2012, BETWEEN THE OPERATING PARTNERSHIP, AS ISSUER, AND U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, SUPPLEMENTING THE SENIOR INDENTURE, DATED AS OF SEPTEMBER 22, 2010, BETWEEN THE OPERATING PARTNERSHIP, , AS OBLIGOR, AND U.S. BANK NATINOAL ASSOCIATION, AS TRUSTEE, AND RELATING TO $400,000,000 PRINCIPAL AMOUNT OF 4.125% SENIOR NOTES DUE 2022 OF LIBERTY PROPERTY LIMITED PARTNERSHIP.
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
XBRL Instance Document
 
 
 
 
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
XBRL Extension Labels Linkbase
 
 
 
 
 
XBRL Taxonomy Extension Presentation Linkbase Document
 

4


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(In thousands, except share and unit amounts)
 
 
June 30, 2012
 
December 31, 2011
 
(Unaudited)
 
 
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
861,373

 
$
855,213

Building and improvements
4,146,819

 
4,109,783

Less accumulated depreciation
(1,116,593
)
 
(1,058,283
)
Operating real estate
3,891,599

 
3,906,713

Development in progress
198,472

 
88,848

Land held for development
222,090

 
219,375

Net real estate
4,312,161

 
4,214,936

Cash and cash equivalents
154,122

 
18,204

Restricted cash
39,604

 
63,659

Accounts receivable
12,424

 
8,192

Deferred rent receivable
106,243

 
103,002

Deferred financing and leasing costs, net of accumulated amortization (2012, $133,448; 2011, $123,822)
133,150

 
130,160

Investments in and advances to unconsolidated joint ventures
173,336

 
174,687

Assets held for sale

 
200,647

Prepaid expenses and other assets
77,272

 
76,186

Total assets
$
5,008,312

 
$
4,989,673

LIABILITIES
 
 
 
Mortgage loans
$
281,170

 
$
290,819

Unsecured notes
2,192,643

 
1,792,643

Credit facility

 
139,400

Accounts payable
35,600

 
23,418

Accrued interest
25,196

 
24,147

Dividend and distributions payable
57,610

 
56,958

Other liabilities
176,656

 
194,995

Total liabilities
2,768,875

 
2,522,380

Noncontrolling interest - operating partnership - 301,483 preferred units outstanding as of June 30, 2012 and December 31, 2011
7,537

 
7,537

EQUITY
 
 
 
Liberty Property Trust shareholders’ equity
 
 
 
Common shares of beneficial interest, $.001 par value, 183,987,000 shares authorized; 118,794,699 (includes 1,249,909 in treasury) and 117,352,353 (includes 1,249,909 in treasury) shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively
119

 
117

Additional paid-in capital
2,656,174

 
2,617,355

Accumulated other comprehensive income (loss)
346

 
(429
)
Distributions in excess of net income
(501,719
)
 
(461,498
)
Common shares in treasury, at cost, 1,249,909 shares as of June 30, 2012 and December 31, 2011
(51,951
)
 
(51,951
)
Total Liberty Property Trust shareholders’ equity
2,102,969

 
2,103,594

Noncontrolling interest – operating partnership
 
 
 
3,740,246 and 3,808,746 common units outstanding as of June 30, 2012 and December 31, 2011, respectively
61,891

 
64,428

1,290,000 and 9,740,000 preferred units outstanding as of June 30, 2012 and December 31, 2011, respectively
63,265

 
287,959

Noncontrolling interest – consolidated joint ventures
3,775

 
3,775

Total equity
2,231,900

 
2,459,756

Total liabilities, noncontrolling interest - operating partnership and equity
$
5,008,312

 
$
4,989,673


See accompanying notes.

5


CONSOLIDATED STATEMENTS OF INCOME OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 
Three Months Ended
 
June 30, 2012
 
June 30, 2011
OPERATING REVENUE
 
 
 
Rental
$
119,202

 
$
116,193

Operating expense reimbursement
49,997

 
48,234

Total operating revenue
169,199

 
164,427

OPERATING EXPENSE
 
 
 
Rental property
31,386

 
28,543

Real estate taxes
20,569

 
19,592

General and administrative
14,619

 
13,255

Depreciation and amortization
40,733

 
38,554

Total operating expenses
107,307

 
99,944

Operating income
61,892

 
64,483

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
2,567

 
2,340

Interest expense
(30,834
)
 
(29,358
)
Total other income (expense)
(28,267
)
 
(27,018
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
33,625

 
37,465

Gain on property dispositions
335

 
302

Income taxes
(146
)
 
(63
)
Equity in earnings of unconsolidated joint ventures
769

 
1,109

Income from continuing operations
34,583

 
38,813

Discontinued operations (including net gain on property dispositions of $2,981 and $50,157 for the three months ended June 30, 2012 and 2011, respectively)
3,097

 
54,028

Net income
37,680

 
92,841

Noncontrolling interest – operating partnership
(3,569
)
 
(8,120
)
Noncontrolling interest – consolidated joint ventures

 
257

Net income available to common shareholders
$
34,111

 
$
84,978

Net income
$
37,680

 
$
92,841

Other comprehensive (loss) income
(1,515
)
 
39

Comprehensive income
36,165

 
92,880

Less: comprehensive income attributable to noncontrolling interest
(3,522
)
 
(8,121
)
Comprehensive income attributable to common shareholders
$
32,643

 
$
84,759

Earnings per common share
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.26

 
$
0.28

Income from discontinued operations
0.03

 
0.46

Income per common share – basic
$
0.29

 
$
0.74

Diluted:
 
 
 
Income from continuing operations
$
0.26

 
$
0.28

Income from discontinued operations
0.03

 
0.46

Income per common share – diluted
$
0.29

 
$
0.74

Distributions per common share
$
0.475

 
$
0.475

Weighted average number of common shares outstanding
 
 
 
Basic
116,683

 
114,623

Diluted
117,559

 
115,406

Amounts attributable to common shareholders
 
 
 
Income from continuing operations
$
31,110

 
$
32,717

Discontinued operations
3,001

 
52,261

Net income available to common shareholders
$
34,111

 
$
84,978


See accompanying notes.

6



CONSOLIDATED STATEMENTS OF INCOME OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
OPERATING REVENUE
 
 
 
Rental
$
238,593

 
$
230,718

Operating expense reimbursement
100,293

 
99,595

Total operating revenue
338,886

 
330,313

OPERATING EXPENSE
 
 
 
Rental property
61,791

 
60,254

Real estate taxes
41,309

 
39,039

General and administrative
31,823

 
29,203

Depreciation and amortization
82,014

 
77,546

Total operating expenses
216,937

 
206,042

Operating income
121,949

 
124,271

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
5,328

 
4,928

Interest expense
(60,109
)
 
(62,200
)
Total other income (expense)
(54,781
)
 
(57,272
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
67,168

 
66,999

Gain on property dispositions
858

 
1,463

Income taxes
(324
)
 
(613
)
Equity in earnings of unconsolidated joint ventures
1,685

 
1,643

Income from continuing operations
69,387

 
69,492

Discontinued operations (including net gain on property dispositions of $4,045 and $50,627 for the six months ended June 30, 2012 and 2011, respectively)
7,895

 
58,292

Net income
77,282

 
127,784

Noncontrolling interest – operating partnership
(6,082
)
 
(14,355
)
Noncontrolling interest – consolidated joint ventures

 
458

Net income available to common shareholders
$
71,200

 
$
113,887

Net income
$
77,282

 
$
127,784

Other comprehensive income
801

 
2,183

Comprehensive income
78,083

 
129,967

Less: comprehensive income attributable to noncontrolling interest
(6,108
)
 
(14,427
)
Comprehensive income attributable to common shareholders
$
71,975

 
$
115,540

Earnings per common share
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.54

 
$
0.51

Income from discontinued operations
0.07

 
0.49

Income per common share – basic
$
0.61

 
$
1.00

Diluted:
 
 
 
Income from continuing operations
$
0.54

 
$
0.50

Income from discontinued operations
0.07

 
0.49

Income per common share – diluted
$
0.61

 
$
0.99

Distributions per common share
$
0.95

 
$
0.95

Weighted average number of common shares outstanding
 
 
 
Basic
116,359

 
114,285

Diluted
117,165

 
115,087

Amounts attributable to common shareholders
 
 
 
Income from continuing operations
$
63,551

 
$
57,513

Discontinued operations
7,649

 
56,374

Net income available to common shareholders
$
71,200

 
$
113,887


See accompanying notes.

7


CONSOLIDATED STATEMENT OF EQUITY OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
 
 
COMMON
SHARES OF
BENEFICIAL
INTEREST
 
ADDITIONAL
PAID-IN
CAPITAL
 
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
 
DISTRIBUTIONS
IN EXCESS OF
NET INCOME
 
COMMON
SHARES
HELD
IN
TREASURY
 
TOTAL
LIBERTY
PROPERTY
TRUST
SHAREHOLDERS’
EQUITY
 
NONCONTROLL-
ING INTEREST -
OPERATING
PARTNERSHIP-
COMMON
 
NONCONTROLL-
ING INTEREST -
OPERATING
PARTNERSHIP –
PREFERRED
 
NONCONTROLL-
ING INTEREST -
CONSOLIDATED
JOINT
VENTURES
 
TOTAL
EQUITY
Balance at January 1, 2012
 
$
117

 
$
2,617,355

 
$
(429
)
 
$
(461,498
)
 
$
(51,951
)
 
$
2,103,594

 
$
64,428

 
$
287,959

 
$
3,775

 
$
2,459,756

Net proceeds from the issuance of common shares
 
2

 
31,232

 

 

 

 
31,234

 

 

 

 
31,234

Net income
 

 

 

 
71,200

 

 
71,200

 
2,292

 
3,790

 

 
77,282

Distributions
 

 

 

 
(111,421
)
 

 
(111,421
)
 
(3,705
)
 
(7,484
)
 

 
(122,610
)
Share-based compensation
 

 
6,437

 

 

 

 
6,437

 

 

 

 
6,437

Foreign currency translation adjustment
 

 

 
775

 

 

 
775

 
26

 

 

 
801

Redemption of noncontrolling interests – common units
 

 
1,150

 

 

 

 
1,150

 
(1,150
)
 

 

 

Redemption of noncontrolling interest - preferred units
 

 

 

 

 

 

 

 
(224,689
)
 

 
(224,689
)
Excess of preferred unit carrying amount over redemption
 

 

 

 

 

 

 

 
3,689

 

 
3,689

Balance at June 30, 2012
 
$
119

 
$
2,656,174

 
$
346

 
$
(501,719
)
 
$
(51,951
)
 
$
2,102,969

 
$
61,891

 
$
63,265

 
$
3,775

 
$
2,231,900


See accompanying notes.

8


CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
OPERATING ACTIVITIES
 
 
 
Net income
$
77,282

 
$
127,784

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
82,963

 
86,795

Amortization of deferred financing costs
2,397

 
2,735

Equity in earnings of unconsolidated joint ventures
(1,685
)
 
(1,643
)
Distributions from unconsolidated joint ventures
208

 
305

Gain on property dispositions
(4,903
)
 
(52,090
)
Share-based compensation
6,437

 
6,172

Changes in operating assets and liabilities:
 
 
 
Restricted cash
24,101

 
(462
)
Accounts receivable
(4,241
)
 
(879
)
Deferred rent receivable
(3,398
)
 
(4,526
)
Prepaid expenses and other assets
(1,526
)
 
16,803

Accounts payable
12,196

 
4,921

Accrued interest
1,049

 
(5,446
)
Other liabilities
(30,230
)
 
(13,754
)
Net cash provided by operating activities
160,650

 
166,715

INVESTING ACTIVITIES
 
 
 
Investment in operating properties - acquisitions
(29,294
)
 
(34,151
)
Investment in operating properties - other
(27,898
)
 
(33,107
)
Investments in and advances to unconsolidated joint ventures
(2,575
)
 
(8,382
)
Distributions from unconsolidated joint ventures
5,472

 
6,391

Net proceeds from disposition of properties/land
214,877

 
264,419

Net advances on public reimbursement receivable/escrow
(78
)
 
(56,395
)
Investment in development in progress
(97,062
)
 
(10,310
)
Investment in land held for development
(10,791
)
 
(5,116
)
Investment in deferred leasing costs
(14,448
)
 
(10,844
)
Net cash provided by investing activities
38,203

 
112,505

FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares
31,234

 
24,580

Redemption of preferred units
(221,000
)
 

Proceeds from unsecured notes
400,000

 

Repayments of unsecured notes

 
(246,500
)
Proceeds from mortgage loans
17,311

 

Repayments of mortgage loans
(26,960
)
 
(26,976
)
Proceeds from credit facility
453,200

 
283,000

Repayments on credit facility
(592,600
)
 
(250,000
)
Increase in deferred financing costs
(4,272
)
 
(13
)
Distribution paid on common shares
(110,731
)
 
(108,881
)
Distribution paid on units
(10,130
)
 
(14,442
)
Net cash used in financing activities
(63,948
)
 
(339,232
)
Net increase (decrease) in cash and cash equivalents
134,905

 
(60,012
)
Increase in cash and cash equivalents related to foreign currency translation
1,013

 
1,498

Cash and cash equivalents at beginning of period
18,204

 
108,409

Cash and cash equivalents at end of period
$
154,122

 
$
49,895


See accompanying notes.

9


CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(In thousands, except unit amounts)
 
 
June 30, 2012
 
December 31, 2011
 
(Unaudited)
 
 
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
861,373

 
$
855,213

Building and improvements
4,146,819

 
4,109,783

Less accumulated depreciation
(1,116,593
)
 
(1,058,283
)
Operating real estate
3,891,599

 
3,906,713

Development in progress
198,472

 
88,848

Land held for development
222,090

 
219,375

Net real estate
4,312,161

 
4,214,936

Cash and cash equivalents
154,122

 
18,204

Restricted cash
39,604

 
63,659

Accounts receivable
12,424

 
8,192

Deferred rent receivable
106,243

 
103,002

Deferred financing and leasing costs, net of accumulated amortization (2012, $133,448; 2011, $123,822)
133,150

 
130,160

Investments in and advances to unconsolidated joint ventures
173,336

 
174,687

Assets held for sale

 
200,647

Prepaid expenses and other assets
77,272

 
76,186

Total assets
$
5,008,312

 
$
4,989,673

LIABILITIES
 
 
 
Mortgage loans
$
281,170

 
$
290,819

Unsecured notes
2,192,643

 
1,792,643

Credit facility

 
139,400

Accounts payable
35,600

 
23,418

Accrued interest
25,196

 
24,147

Distributions payable
57,610

 
56,958

Other liabilities
176,656

 
194,995

Total liabilities
2,768,875

 
2,522,380

Limited partners' equity - 301,483 preferred units outstanding as of June 30, 2012 and December 31, 2011
7,537

 
7,537

OWNERS’ EQUITY
 
 
 
General partner’s equity - 117,544,790 (net of 1,249,909 treasury units) and 116,102,444 (net of 1,249,909 treasury units) common units outstanding as of June 30, 2012 and December 31, 2011, respectively
2,102,969

 
2,103,594

Limited partners’ equity – 3,740,246 and 3,808,746 common units outstanding as of June 30, 2012 and December 31, 2011, respectively
61,891

 
64,428

Limited partners’ equity – 1,290,000 and 9,740,000 preferred units outstanding as of June 30, 2012 and December 31, 2011, respectively
63,265

 
287,959

Noncontrolling interest – consolidated joint ventures
3,775

 
3,775

Total owners’ equity
2,231,900

 
2,459,756

Total liabilities, limited partners' equity and owners’ equity
$
5,008,312

 
$
4,989,673


See accompanying notes.

10


CONSOLIDATED STATEMENTS OF INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
 
Three Months Ended
 
June 30, 2012
 
June 30, 2011
OPERATING REVENUE
 
 
 
Rental
$
119,202

 
$
116,193

Operating expense reimbursement
49,997

 
48,234

Total operating revenue
169,199

 
164,427

OPERATING EXPENSE
 
 
 
Rental property
31,386

 
28,543

Real estate taxes
20,569

 
19,592

General and administrative
14,619

 
13,255

Depreciation and amortization
40,733

 
38,554

Total operating expenses
107,307

 
99,944

Operating income
61,892

 
64,483

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
2,567

 
2,340

Interest expense
(30,834
)
 
(29,358
)
Total other income (expense)
(28,267
)
 
(27,018
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
33,625

 
37,465

Gain on property dispositions
335

 
302

Income taxes
(146
)
 
(63
)
Equity in earnings of unconsolidated joint ventures
769

 
1,109

Income from continuing operations
34,583

 
38,813

Discontinued operations (including net gain on property dispositions of $2,981 and $50,157 for the three months ended June 30, 2012 and 2011, respectively)
3,097

 
54,028

Net income
37,680

 
92,841

Noncontrolling interest – consolidated joint ventures

 
257

Preferred unit distributions
(2,444
)
 
(5,253
)
Excess of preferred unit redemption over carrying amount
(40
)
 

Income available to common unitholders
$
35,196

 
$
87,845

Net income
$
37,680

 
$
92,841

Other comprehensive income
(1,515
)
 
39

Comprehensive income
$
36,165

 
$
92,880

Earnings per common unit
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.26

 
$
0.28

Income from discontinued operations
0.03

 
0.46

Income per common unit - basic
$
0.29

 
$
0.74

Diluted:
 
 
 
Income from continuing operations
$
0.26

 
$
0.28

Income from discontinued operations
0.03

 
0.46

Income per common unit - diluted
$
0.29

 
$
0.74

Distributions per common unit
$
0.475

 
$
0.475

Weighted average number of common units outstanding
 
 
 
        Basic
120,450

 
118,549

        Diluted
121,326

 
119,332

Net income allocated to general partners
$
34,111

 
$
84,978

Net income allocated to limited partners
$
3,569

 
$
8,120


See accompanying notes.

11


CONSOLIDATED STATEMENTS OF INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
OPERATING REVENUE
 
 
 
Rental
$
238,593

 
$
230,718

Operating expense reimbursement
100,293

 
99,595

Total operating revenue
338,886

 
330,313

OPERATING EXPENSE
 
 
 
Rental property
61,791

 
60,254

Real estate taxes
41,309

 
39,039

General and administrative
31,823

 
29,203

Depreciation and amortization
82,014

 
77,546

Total operating expenses
216,937

 
206,042

Operating income
121,949

 
124,271

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
5,328

 
4,928

Interest expense
(60,109
)
 
(62,200
)
Total other income (expense)
(54,781
)
 
(57,272
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
67,168

 
66,999

Gain on property dispositions
858

 
1,463

Income taxes
(324
)
 
(613
)
Equity in earnings of unconsolidated joint ventures
1,685

 
1,643

Income from continuing operations
69,387

 
69,492

Discontinued operations (including net gain on property dispositions of $4,045 and $50,627 for the six months ended June 30, 2012 and 2011, respectively)
7,895

 
58,292

Net income
77,282

 
127,784

Noncontrolling interest – consolidated joint ventures

 
458

Preferred unit distributions
(7,479
)
 
(10,506
)
Excess of preferred unit carrying amount over redemption
3,689

 

Income available to common unitholders
$
73,492

 
$
117,736

Net income
$
77,282

 
$
127,784

Other comprehensive income
801

 
2,183

Comprehensive income
$
78,083

 
$
129,967

Earnings per common unit
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.54

 
$
0.51

Income from discontinued operations
0.07

 
0.49

Income per common unit - basic
$
0.61

 
$
1.00

Diluted:
 
 
 
Income from continuing operations
$
0.54

 
$
0.50

Income from discontinued operations
0.07

 
0.49

Income per common unit - diluted
$
0.61

 
$
0.99

Distributions per common unit
$
0.95

 
$
0.95

Weighted average number of common units outstanding
 
 
 
        Basic
120,147

 
118,212

        Diluted
120,953

 
119,014

Net income allocated to general partners
$
71,200

 
$
113,887

Net income allocated to limited partners
$
6,082

 
$
14,355


See accompanying notes.



12


CONSOLIDATED STATEMENT OF OWNERS’ EQUITY OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
GENERAL
PARTNER’S
EQUITY
 
LIMITED
PARTNERS’
EQUITY  –
COMMON
UNITS
 
LIMITED
PARTNERS’
EQUITY  –
PREFERRED
UNITS
 
NONCONTROLLING
INTEREST –
CONSOLIDATED
JOINT VENTURES
 
TOTAL
OWNERS’
EQUITY
Balance at January 1, 2012
$
2,103,594

 
$
64,428

 
$
287,959

 
$
3,775

 
$
2,459,756

Contributions from partners
37,671

 

 

 

 
37,671

Distributions to partners
(111,421
)
 
(3,705
)
 
(7,484
)
 

 
(122,610
)
Foreign currency translation adjustment
775

 
26

 

 

 
801

Net income
71,200

 
2,292

 
3,790

 

 
77,282

Redemption of limited partners common units for common shares
1,150

 
(1,150
)
 

 

 

Redemption of limited partners' preferred units

 

 
(224,689
)
 

 
(224,689
)
Excess of preferred unit carrying amount over redemption

 

 
3,689

 

 
3,689

Balance at June 30, 2012
$
2,102,969

 
$
61,891

 
$
63,265

 
$
3,775

 
$
2,231,900


See accompanying notes.

13


CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
OPERATING ACTIVITIES
 
 
 
Net income
$
77,282

 
$
127,784

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
82,963

 
86,795

Amortization of deferred financing costs
2,397

 
2,735

Equity in earnings of unconsolidated joint ventures
(1,685
)
 
(1,643
)
Distributions from unconsolidated joint ventures
208

 
305

Gain on property dispositions
(4,903
)
 
(52,090
)
Share-based compensation
6,437

 
6,172

Changes in operating assets and liabilities:
 
 
 
Restricted cash
24,101

 
(462
)
Accounts receivable
(4,241
)
 
(879
)
Deferred rent receivable
(3,398
)
 
(4,526
)
Prepaid expenses and other assets
(1,526
)
 
16,803

Accounts payable
12,196

 
4,921

Accrued interest
1,049

 
(5,446
)
Other liabilities
(30,230
)
 
(13,754
)
Net cash provided by operating activities
160,650

 
166,715

INVESTING ACTIVITIES
 
 
 
Investment in operating properties - acquisitions
(29,294
)
 
(34,151
)
Investment in operating properties - other
(27,898
)
 
(33,107
)
Investments in and advances to unconsolidated joint ventures
(2,575
)
 
(8,382
)
Distributions from unconsolidated joint ventures
5,472

 
6,391

Net proceeds from disposition of properties/land
214,877

 
264,419

Net advances on public reimbursement receivable/escrow
(78
)
 
(56,395
)
Investment in development in progress
(97,062
)
 
(10,310
)
Investment in land held for development
(10,791
)
 
(5,116
)
Investment in deferred leasing costs
(14,448
)
 
(10,844
)
Net cash provided by investing activities
38,203

 
112,505

FINANCING ACTIVITIES
 
 
 
Redemption of preferred units
(221,000
)
 

Proceeds from unsecured notes
400,000

 

Repayments of unsecured notes

 
(246,500
)
Proceeds from mortgage loans
17,311

 

Repayments of mortgage loans
(26,960
)
 
(26,976
)
Proceeds from credit facility
453,200

 
283,000

Repayments on credit facility
(592,600
)
 
(250,000
)
Increase in deferred financing costs
(4,272
)
 
(13
)
Capital contributions
31,234

 
24,580

Distributions to partners
(120,861
)
 
(123,323
)
Net cash used in financing activities
(63,948
)
 
(339,232
)
Net increase (decrease) in cash and cash equivalents
134,905

 
(60,012
)
Increase in cash and cash equivalents related to foreign currency translation
1,013

 
1,498

Cash and cash equivalents at beginning of period
18,204

 
108,409

Cash and cash equivalents at end of period
$
154,122

 
$
49,895


See accompanying notes.

14


Liberty Property Trust and Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
June 30, 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 96.9% of the common equity of the Operating Partnership at June 30, 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.




15


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):
 
 
For the Three Months Ended
 
For the Three Months Ended
 
June 30, 2012
 
June 30, 2011
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Basic income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
$
31,110

 
116,683

 
$
0.26

 
$
32,717

 
114,623

 
$
0.28

Dilutive shares for long-term compensation plans

 
876

 
 
 

 
783

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
31,110

 
117,559

 
$
0.26

 
32,717

 
115,406

 
$
0.28

Basic income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
3,001

 
116,683

 
$
0.03

 
52,261

 
114,623

 
$
0.46

Dilutive shares for long-term compensation plans

 
876

 
 
 

 
783

 
 
Diluted income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
3,001

 
117,559

 
$
0.03

 
52,261

 
115,406

 
$
0.46

Basic income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
34,111

 
116,683

 
$
0.29

 
84,978

 
114,623

 
$
0.74

Dilutive shares for long-term compensation plans

 
876

 
 
 

 
783

 
 
Diluted income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
34,111

 
117,559

 
$
0.29

 
$
84,978

 
115,406

 
$
0.74

 
 
 
 
 
 
 
 
 
 
 
 

16


 
For the Six Months Ended
 
For the Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Basic income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
$
63,551

 
116,359

 
$
0.54

 
$
57,513

 
114,285

 
$
0.51

Dilutive shares for long-term compensation plans

 
806

 
 
 

 
802

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
63,551

 
117,165

 
$
0.54

 
57,513

 
115,087

 
$
0.50

Basic income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
7,649

 
116,359

 
$
0.07

 
56,374

 
114,285

 
$
0.49

Dilutive shares for long-term compensation plans

 
806

 
 
 

 
802

 
 
Diluted income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
7,649

 
117,165

 
$
0.07

 
56,374

 
115,087

 
$
0.49

Basic income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
71,200

 
116,359

 
$
0.61

 
113,887

 
114,285

 
$
1.00

Dilutive shares for long-term compensation plans

 
806

 
 
 

 
802

 
 
Diluted income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
71,200

 
117,165

 
$
0.61

 
$
113,887

 
115,087

 
$
0.99


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 and six months ended June 30, 2012 were 953,000 and 925,000, respectively, as compared to 965,000 and 1,119,000, respectively, for the same periods in 2011.
During the three and six months ended June 30, 2012, 162,000 and 511,000 common shares, respectively, 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.



17


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):
 
 
For the Three Months Ended
 
For the Three Months Ended
 
June 30, 2012
 
June 30, 2011
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
Income from continuing operations net of noncontrolling interest
$
34,583

 
 
 
 
 
$
39,070

 
 
 
 
Less: Preferred unit distributions
(2,444
)
 
 
 
 
 
(5,253
)
 
 
 
 
Excess of preferred unit redemption over carrying amount
(40
)
 
 
 
 
 

 
 
 
 
Basic income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations available to common unitholders
32,099

 
120,450

 
$
0.26

 
33,817

 
118,549

 
$
0.28

Dilutive units for long-term compensation plans

 
876

 
 
 

 
783

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations available to common unitholders
32,099

 
121,326

 
$
0.26

 
33,817

 
119,332

 
$
0.28

Basic income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations
3,097

 
120,450

 
$
0.03

 
54,028

 
118,549

 
$
0.46

Dilutive units for long-term compensation plans

 
876

 
 
 

 
783

 
 
Diluted income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations
3,097

 
121,326

 
$
0.03

 
54,028

 
119,332

 
$
0.46

Basic income per common unit
 
 
 
 
 
 
 
 
 
 
 
Income available to common unitholders
35,196

 
120,450

 
$
0.29

 
87,845

 
118,549

 
$
0.74

Dilutive units for long-term compensation plans

 
876

 
 
 

 
783

 
 
Diluted income per common unit
 
 
 
 
 
 
 
 
 
 
 
Income available to common unitholders
$
35,196

 
121,326

 
$
0.29

 
$
87,845

 
119,332

 
$
0.74

 
 
 
 
 
 
 
 
 
 
 
 

18


 
For the Six Months Ended
 
For the Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
Income from continuing operations net of noncontrolling interest
$
69,387

 
 
 
 
 
$
69,950

 
 
 
 
Less: Preferred unit distributions
(7,479
)
 
 
 
 
 
(10,506
)
 
 
 
 
Excess of preferred unit carrying amount over redemption
3,689

 
 
 
 
 

 
 
 
 
Basic income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations available to common unitholders
65,597

 
120,147

 
$
0.54

 
59,444

 
118,212

 
$
0.51

Dilutive units for long-term compensation plans

 
806

 
 
 

 
802

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations available to common unitholders
65,597

 
120,953

 
$
0.54

 
59,444

 
119,014

 
$
0.50

Basic income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations
7,895

 
120,147

 
$
0.07

 
58,292

 
118,212

 
$
0.49

Dilutive units for long-term compensation plans

 
806

 
 
 

 
802

 
 
Diluted income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations
7,895

 
120,953

 
$
0.07

 
58,292

 
</