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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
     
o   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)
PENNSYLVANIA (Liberty Property Limited Partnership) 		  23-7768996
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 þ 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 registrant was required to submit and post such files.) Yes o 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 þ   Accelerated Filer o   Non-Accelerated Filer o   Smaller Reporting Company o
        (Do not check if a smaller
reporting company) 		   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
On August 5, 2009, 111,651,250 Common Shares of Beneficial Interest, par value $0.001 per share, of Liberty Property Trust were outstanding.
 
 

 

 

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Liberty Property Trust/Liberty Property Limited Partnership
Form 10-Q for the period ended June 30, 2009
         
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  Exhibit 10.2
  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

 

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(In thousands, except share amounts)
                 
    June 30, 2009     December 31, 2008  
    (Unaudited)        
ASSETS
               
Real estate:
               
Land and land improvements
  $ 824,906     $ 806,122  
Building and improvements
    4,301,270       4,218,839  
Less accumulated depreciation
    (1,040,218 )     (972,831 )
 
           
 
               
Operating real estate
    4,085,958       4,052,130  
 
               
Development in progress
    215,155       245,463  
Land held for development
    222,324       209,551  
 
           
 
               
Net real estate
    4,523,437       4,507,144  
 
               
Cash and cash equivalents
    124,536       15,794  
Restricted cash
    40,351       39,726  
Accounts receivable
    6,636       12,985  
Deferred rent receivable
    89,291       83,498  
Deferred financing and leasing costs, net of accumulated amortization (2009, $149,723; 2008, $139,346)
    134,700       133,293  
Investments in unconsolidated joint ventures
    255,419       266,602  
Assets held for sale
    25,750       75,526  
Prepaid expenses and other assets
    74,369       82,467  
 
           
 
               
Total assets
  $ 5,274,489     $ 5,217,035  
 
           
 
               
LIABILITIES
               
Mortgage loans
  $ 471,820     $ 198,560  
Unsecured notes
    1,846,339       2,131,607  
Credit facility
    140,000       260,000  
Accounts payable
    35,262       32,481  
Accrued interest
    31,315       36,474  
Dividend and distributions payable
    54,057       48,858  
Other liabilities
    169,880       182,549  
 
           
 
               
Total liabilities
    2,748,673       2,890,529  
 
               
EQUITY
               
Liberty Property Trust shareholders’ equity
               
Common shares of beneficial interest, $.001 par value, 183,987,000 shares authorized; 110,847,466 (includes 1,249,909 in treasury) and 100,034,404 (includes 1,249,909 in treasury) shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively
    111       101  
Additional paid-in capital
    2,391,615       2,162,820  
Accumulated other comprehensive income (loss)
    4,120       (5,378 )
Distributions in excess of net income
    (222,739 )     (185,721 )
Common shares in treasury, at cost, 1,249,909 shares as of June 30, 2009 and December 31, 2008
    (51,951 )     (51,951 )
 
           
 
               
Total Liberty Property Trust shareholders’ equity
    2,121,156       1,919,871  
 
               
Noncontrolling interest – operating partnership
               
4,017,354 and 4,074,967 common units outstanding as of June 30, 2009 and December 31, 2008, respectively
    115,991       117,546  
9,740,000 preferred units outstanding as of June 30, 2009 and December 31, 2008
    287,959       287,959  
Noncontrolling interest – consolidated joint ventures
    710       1,130  
 
           
 
               
Total equity
    2,525,816       2,326,506  
 
           
 
               
Total liabilities and equity
  $ 5,274,489     $ 5,217,035  
 
           
See accompanying notes.

 

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
                 
    Three Months Ended  
    June 30, 2009     June 30, 2008  
OPERATING REVENUE
               
Rental
  $ 130,846     $ 123,557  
Operating expense reimbursement
    54,818       56,438  
 
           
Total operating revenue
    185,664       179,995  
 
           
 
               
OPERATING EXPENSE
               
Rental property
    35,368       35,534  
Real estate taxes
    22,119       22,961  
General and administrative
    11,659       13,047  
Depreciation and amortization
    42,571       42,508  
 
           
Total operating expenses
    111,717       114,050  
 
           
 
               
Operating income
    73,947       65,945  
 
               
OTHER INCOME (EXPENSE)
               
Interest and other income
    2,520       3,009  
Debt extinguishment gain
    563       —  
Interest expense
    (37,300 )     (36,330 )
 
           
Total other income (expense)
    (34,217 )     (33,321 )
 
           
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
    39,730       32,624  
(Loss) gain on property dispositions
    (2,050 )     835  
Income taxes
    (127 )     (580 )
Equity in earnings of unconsolidated joint ventures
    1,192       1,010  
 
           
 
               
Income from continuing operations
    38,745       33,889  
 
               
Discontinued operations (including net gain on property dispositions of $3,670 and $2,793 for the three months ended June 30, 2009 and 2008, respectively)
    4,467       4,489  
 
           
 
               
Net income
    43,212       38,378  
Noncontrolling interest – operating partnership
    (6,597 )     (6,681 )
Noncontrolling interest – consolidated joint ventures
    56       (68 )
 
           
 
               
Net income available to common shareholders
  $ 36,671     $ 31,629  
 
           
 
               
Earnings per common share
               
Basic:
               
Income from continuing operations
  $ 0.31     $ 0.29  
Income from discontinued operations
    0.04       0.05  
 
           
 
               
Income per common share – basic
  $ 0.35     $ 0.34  
 
           
 
               
Diluted:
               
Income from continuing operations
  $ 0.31     $ 0.29  
Income from discontinued operations
    0.04       0.05  
 
           
 
               
Income per common share – diluted
  $ 0.35     $ 0.34  
 
           
 
               
Distributions per common share
  $ 0.475     $ 0.625  
 
           
 
               
Weighted average number of common shares outstanding
               
Basic
    105,768       92,322  
Diluted
    106,245       92,701  
 
               
Amounts attributable to common shareholders
               
Income from continuing operations
  $ 32,362     $ 27,333  
Discontinued operations
    4,309       4,296  
 
           
Net income available to common shareholders
  $ 36,671     $ 31,629  
 
           
See accompanying notes.

 

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
                 
    Six Months Ended  
    June 30, 2009     June 30, 2008  
OPERATING REVENUE
               
Rental
  $ 260,045     $ 254,847  
Operating expense reimbursement
    112,773       112,513  
 
           
Total operating revenue
    372,818       367,360  
 
           
 
               
OPERATING EXPENSE
               
Rental property
    74,515       74,219  
Real estate taxes
    44,244       43,104  
General and administrative
    27,222       27,083  
Depreciation and amortization
    85,705       85,174  
 
           
Total operating expenses
    231,686       229,580  
 
           
 
               
Operating income
    141,132       137,780  
 
               
OTHER INCOME (EXPENSE)
               
Interest and other income
    5,624       6,096  
Debt extinguishment gain
    1,092       —  
Interest expense
    (75,420 )     (77,679 )
 
           
Total other income (expense)
    (68,704 )     (71,583 )
 
           
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
    72,428       66,197  
(Loss) gain on property dispositions
    (2,344 )     1,476  
Income taxes
    (344 )     (1,064 )
Equity in earnings of unconsolidated joint ventures
    1,609       1,387  
 
           
 
               
Income from continuing operations
    71,349       67,996  
 
               
Discontinued operations (including net gain on property dispositions of $3,869 and $3,403 for the six months ended June 30, 2009 and 2008, respectively)
    5,705       6,778  
 
           
 
               
Net income
    77,054       74,774  
Noncontrolling interest – operating partnership
    (12,914 )     (13,286 )
Noncontrolling interest – consolidated joint ventures
    420       102  
 
           
 
               
Net income available to common shareholders
  $ 64,560     $ 61,590  
 
           
 
               
Earnings per common share
               
Basic:
               
Income from continuing operations
  $ 0.58     $ 0.60  
Income from discontinued operations
    0.05       0.07  
 
           
 
               
Income per common share – basic
  $ 0.63     $ 0.67  
 
           
 
               
Diluted:
               
Income from continuing operations
  $ 0.57     $ 0.60  
Income from discontinued operations
    0.05       0.07  
 
           
 
               
Income per common share – diluted
  $ 0.62     $ 0.67  
 
           
 
               
Distributions per common share
  $ 0.95     $ 1.25  
 
           
 
               
Weighted average number of common shares outstanding
               
Basic
    103,244       92,001  
Diluted
    103,625       92,248  
 
               
Amounts attributable to common shareholders
               
Income from continuing operations
  $ 59,062     $ 55,105  
Discontinued operations
    5,498       6,485  
 
           
Net income available to common shareholders
  $ 64,560     $ 61,590  
 
           
See accompanying notes.

 

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CONDENSED CONSOLIDATED STATEMENT OF EQUITY OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS)
                                                                         
    Common             Accumulated                     Total Liberty     Noncontrolling     Noncontrolling        
    Shares of     Additional     Other     Distributions     Common     Property Trust     Interest –     Interest –        
    Beneficial     Paid-In     Comprehensive     in Excess of     Shares Held     Shareholders’     Operating     Consolidated        
    Interest     Capital     Income (Loss)     Net Income     in Treasury     Equity     Partnership     Joint Ventures     Total Equity  
 
                                                                       
Balance at December 31, 2008
  $ 101     $ 2,162,820     $ (5,378 )   $ (185,721 )   $ (51,951 )   $ 1,919,871     $ 405,505     $ 1,130     $ 2,326,506  
 
                                                                       
Net proceeds from the issuance of common shares
    10       221,505       –       –       –       221,515       –       –       221,515  
 
                                                                       
Net income
    –       –       –       64,560       –       64,560       12,914       (420 )     77,054  
 
                                                                       
Distributions
    –       –       –       (101,578 )     –       (101,578 )     (14,469 )     –       (116,047 )
 
                                                                       
Noncash compensation
    –       7,290       –       –       –       7,290       –       –       7,290  
 
                                                                       
Foreign currency translation adjustment
    –       –       9,498       –       –       9,498       –       –       9,498  
 
                                                     
 
                                                                       
Balance at June 30, 2009
  $ 111     $ 2,391,615     $ 4,120     $ (222,739 )   $ (51,951 )   $ 2,121,156     $ 403,950     $ 710     $ 2,525,816  
 
                                                     
 
                                                                       
See accompanying notes.

 

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
                 
    Six Months Ended  
    June 30, 2009     June 30, 2008  
OPERATING ACTIVITIES
               
Net income
  $ 77,054     $ 74,774  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    86,306       87,374  
Amortization of deferred financing costs
    2,439       2,227  
Equity in earnings of unconsolidated joint ventures
    (1,607 )     (1,387 )
Distributions from unconsolidated joint ventures
    663       —  
Gain on property dispositions
    (1,526 )     (4,879 )
Noncash compensation
    9,790       5,603  
Changes in operating assets and liabilities:
               
Restricted cash
    970       (19,818 )
Accounts receivable
    6,208       (248 )
Deferred rent receivable
    (5,677 )     (7,195 )
Prepaid expenses and other assets
    8,958       (10,831 )
Accounts payable
    2,979       5,800  
Accrued interest
    (5,159 )     (1,909 )
Other liabilities
    (15,795 )     (15,979 )
 
           
Net cash provided by operating activities
    165,603       113,532  
 
           
 
               
INVESTING ACTIVITIES
               
Investment in properties
    (37,318 )     (37,752 )
Investments in unconsolidated joint ventures
    (4,017 )     (7,506 )
Distributions from unconsolidated joint ventures
    18,379       3,161  
Net proceeds from disposition of properties/land
    80,333       304,563  
Investment in development in progress
    (48,774 )     (138,035 )
Investment in land held for development
    (26,980 )     (18,717 )
Investment in deferred leasing costs
    (12,125 )     (14,271 )
 
           
Net cash (used in) provided by investing activities
    (30,502 )     91,443  
 
           
 
               
FINANCING ACTIVITIES
               
Net proceeds from issuance of common shares
    218,970       32,124  
Repayments of unsecured notes
    (285,268 )     —  
Proceeds from mortgage loans
    317,213       —  
Repayments of mortgage loans
    (44,121 )     (35,673 )
Proceeds from credit facility
    199,150       344,150  
Repayments on credit facility
    (319,150 )     (439,150 )
Increase in deferred financing costs
    (5,743 )     —  
Distribution paid on common shares
    (96,350 )     (114,867 )
Distribution paid on units
    (14,452 )     (15,941 )
 
           
Net cash used in financing activities
    (29,751 )     (229,357 )
 
           
 
               
Net increase (decrease) in cash and cash equivalents
    105,350       (24,382 )
Increase (decrease) in cash and cash equivalents related to foreign currency translation
    3,392       (28 )
Cash and cash equivalents at beginning of period
    15,794       37,989  
 
           
Cash and cash equivalents at end of period
  $ 124,536     $ 13,579  
 
           
See accompanying notes.

 

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Liberty Property Trust
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2009
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 Liberty Property Limited Partnership (the “Operating Partnership” and, collectively 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 96.5% of the common equity of the Operating Partnership at June 30, 2009. 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. See a description of the Company’s markets in Note 2 to the Company’s financial statements.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Trust and its subsidiaries, including the Operating Partnership, 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 Trust and the Operating Partnership for the year ended December 31, 2008, as amended. 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.
Subsequent events have been evaluated through August 7, 2009, the date of issuance of these interim financial statements.

 

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Income per Common Share
The following table sets forth the computation of basic and diluted income per common share (in thousands except per share amounts):
                                                 
    For the Three Months Ended June 30, 2009     For the Three Months Ended June 30, 2008  
            Weighted                     Weighted        
            Average                     Average        
    Income     Shares             Income     Shares        
    (Numerator)     (Denominator)     Per Share     (Numerator)     (Denominator)     Per Share  
Basic income from continuing operations
                                               
Income from continuing operations net of noncontrolling interest
  $ 32,362       105,768     $ 0.31     $ 27,333       92,322     $ 0.29  
 
                                           
Dilutive shares for long-term compensation plans
    —       477               —       379          
 
                                       
 
                                               
Diluted income from continuing operations
                                               
Income from continuing operations net of noncontrolling interest and assumed conversions
    32,362       106,245     $ 0.31       27,333       92,701     $ 0.29  
 
                                   
 
                                               
Basic income from discontinued operations
                                               
Discontinued operations net of noncontrolling interest
    4,309       105,768     $ 0.04       4,296       92,322     $ 0.05  
 
                                           
Dilutive shares for long-term compensation plans
    —       477               —       379          
 
                                       
 
                                               
Diluted income from discontinued operations
                                               
Discontinued operations net of noncontrolling interest
    4,309       106,245     $ 0.04       4,296       92,701     $ 0.05  
 
                                   
 
                                               
Basic income per common share
                                               
Net income available to common shareholders
    36,671       105,768     $ 0.35       31,629       92,322     $ 0.34  
 
                                           
Dilutive shares for long-term compensation plans
    —       477               —       379          
 
                                       
 
                                               
Diluted income per common share
                                               
Net income available to common shareholders and assumed conversions
  $ 36,671       106,245     $ 0.35     $ 31,629       92,701     $ 0.34  
 
                                   

 

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    For the Six Months Ended June 30, 2009     For the Six Months Ended June 30, 2008  
            Weighted                     Weighted        
            Average                     Average        
    Income     Shares             Income     Shares        
    (Numerator)     (Denominator)     Per Share     (Numerator)     (Denominator)     Per Share  
Basic income from continuing operations
                                               
Income from continuing operations net of noncontrolling interest
  $ 59,062       103,244     $ 0.58     $ 55,105       92,001     $ 0.60  
 
                                           
Dilutive shares for long-term compensation plans
    —       381               —       247          
 
                                       
 
                                               
Diluted income from continuing operations
                                               
Income from continuing operations net of noncontrolling interest and assumed conversions
    59,062       103,625     $ 0.57       55,105       92,248     $ 0.60  
 
                                   
 
                                               
Basic income from discontinued operations
                                               
Discontinued operations net of noncontrolling interest
    5,498       103,244     $ 0.05       6,485       92,001     $ 0.07  
 
                                           
Dilutive shares for long-term compensation plans
    —       381               —       247          
 
                                       
 
                                               
Diluted income from discontinued operations
                                               
Discontinued operations net of noncontrolling interest
    5,498       103,625     $ 0.05       6,485       92,248     $ 0.07  
 
                                   
 
                                               
Basic income per common share
                                               
Net income available to common shareholders
    64,560       103,244     $ 0.63       61,590       92,001     $ 0.67  
 
                                           
Dilutive shares for long-term compensation plans
    —       381               —       247          
 
                                       
 
                                               
Diluted income per common share
                                               
Net income available to common shareholders and assumed conversions
  $ 64,560       103,625     $ 0.62     $ 61,590       92,248     $ 0.67  
 
                                   
The amount of anti-dilutive options that were excluded from the computation of diluted income per common share for the three months ended June 30, 2009 and 2008 were 2,666,000 and 846,000, respectively, and were 2,857,000 and 876,000 for the six months ended June 30, 2009 and 2008, respectively.
Foreign Currency Translation
The functional currency of the Company’s United Kingdom operations is pounds sterling. The Company translates the financial statements for the United Kingdom operations into US dollars. Gains and losses resulting from this translation do not impact the results of operations and are included in accumulated other comprehensive income (loss) as a separate component of shareholders’ equity. Accumulated other comprehensive income (loss) consists solely of the foreign currency translation adjustments described. Other comprehensive income for the three months ended June 30, 2009 was $10.8 million as compared to $0.5 million for the same period in 2008 and was $9.5 million for the six months ended June 30, 2009 as compared to $0.3 million for the same period in 2008. Upon sale or upon complete or substantially complete liquidation of the Company’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).
SFAS No. 160
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 160, “ Accounting for Noncontrolling Interests ” (“SFAS No. 160”). SFAS No. 160 requires a noncontrolling interest in a subsidiary to be reported as equity and the amount of consolidated net income attributable to the noncontrolling interest is required to be identified in the consolidated financial statements. The Company adopted SFAS No. 160 on January 1, 2009. Along with adopting SFAS No. 160, the Company retroactively adopted the measurement principles detailed in EITF Topic D-98, “ Classification and Measurement of Redeemable Securities.” Redeemable noncontrolling interests are presented at the greater of their carrying amount or redemption value at the end of each reporting period.

 

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Note 2: 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 regions are considered the Company’s reportable segments:
     
Reportable Segments   Markets
Northeast
  Southeastern PA; Lehigh/Central PA; New Jersey
Midwest
  Minnesota; Milwaukee; Chicago
Mid-Atlantic
  Maryland; Carolinas; Richmond; Virginia Beach
South
  Jacksonville; Orlando; Boca Raton; Tampa; Texas; Arizona
Philadelphia
  Philadelphia; Northern Virginia/Washington, D.C.
United Kingdom
  County of Kent; West Midlands
The Company’s reportable segments are distinct business units which are each managed separately in order to concentrate market knowledge within a geographic area. Within these reportable segments, the Company derives its revenues from its two product types: industrial properties and office properties.
The Company evaluates performance of the reportable segments based on property level operating income, which is calculated as rental revenue and operating expense reimbursement less rental property expenses and real estate taxes. The accounting policies of the reportable segments are the same as those for the Company on a consolidated basis.
FOR THE THREE MONTHS ENDED JUNE 30, 2009
                                                                         
    Northeast                                            
            Lehigh/                                                  
    Southeastern     Central     New                             Phila-     United        
    PA     PA     Jersey     Midwest     Mid-Atlantic     South     delphia     Kingdom     Total  
Operating revenue
  $ 45,729     $ 24,683     $ 7,808     $ 21,056     $ 33,651     $ 46,554     $ 5,048     $ 1,135     $ 185,664  
Rental property expenses and real estate taxes
    14,169       6,440       2,941       7,908       9,343       15,233       1,193       260       57,487  
 
                                                     
 
                                                                       
Property level operating income
  $ 31,560     $ 18,243     $ 4,867     $ 13,148     $ 24,308     $ 31,321     $ 3,855     $ 875       128,177  
 
                                                     
 
                                                                       
Interest and other income
                                                                    2,520  
Debt extinguishment gain
                                                                    563  
Interest expense
                                                                    (37,300 )
General and administrative
                                                                    (11,659 )
Depreciation and amortization
                                                                    (42,571 )
 
                                                                     
 
                                                                       
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
                                                                    39,730  
Loss on property dispositions
                                                                    (2,050 )
Income taxes
                                                                    (127 )
Equity in earnings of unconsolidated joint ventures
                                                                    1,192  
Discontinued operations
                                                                    4,467  
 
                                                                     
 
       
Net income
                                                                  $ 43,212  
 
                                                                     

 

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FOR THE THREE MONTHS ENDED JUNE 30, 2008
                                                                         
    Northeast                                            
            Lehigh/                                                  
    Southeastern     Central     New                             Phila-     United        
    PA     PA     Jersey     Midwest     Mid-Atlantic     South     delphia     Kingdom     Total  
Operating revenue
  $ 43,265     $ 24,767     $ 7,939     $ 20,969     $ 34,467     $ 42,435     $ 4,745     $ 1,408     $ 179,995  
Rental property expenses and real estate taxes
    13,763       7,311       3,166       7,974       9,566       15,011       1,447       257       58,495  
 
                                                     
 
       
Property level operating income
  $ 29,502     $ 17,456     $ 4,773     $ 12,995     $ 24,901     $ 27,424     $ 3,298     $ 1,151       121,500  
 
                                                     
 
                                                                       
Interest and other income
                                                                    3,009  
Interest expense
                                                                    (36,330 )
General and administrative
                                                                    (13,047 )
Depreciation and amortization
                                                                    (42,508 )
 
                                                                     
 
                                                                       
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
                                                                    32,624  
Gain on property dispositions
                                                                    835  
Income taxes
                                                                    (580 )
Equity in earnings of unconsolidated joint ventures
                                                                    1,010  
Discontinued operations
                                                                    4,489  
 
                                                                     
 
                                                                       
Net income
                                                                  $ 38,378  
 
                                                                     
FOR THE SIX MONTHS ENDED JUNE 30, 2009
                                                                         
    Northeast                                            
            Lehigh/                                                  
    Southeastern     Central     New                             Phila-     United        
    PA     PA     Jersey     Midwest     Mid-Atlantic     South     delphia     Kingdom     Total  
Operating revenue
  $ 93,095     $ 49,845     $ 15,857     $ 42,046     $ 67,903     $ 92,053     $ 9,783     $ 2,236     $ 372,818  
Rental property expenses and real estate taxes
    29,996       14,060       6,340       15,764       20,148       29,588       2,373       490       118,759  
 
                                                     
 
                                                                       
Property level operating income
  $ 63,099     $ 35,785     $ 9,517     $ 26,282     $ 47,755     $ 62,465     $ 7,410     $ 1,746       254,059  
 
                                                     
 
                                                                       
Interest and other income
                                                                    5,624  
Debt extinguishment gain
                                                                    1,092  
Interest expense
                                                                    (75,420 )
General and administrative
                                                                    (27,222 )
Depreciation and amortization
                                                                    (85,705 )
 
                                                                     
 
       
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
                                                                    72,428  
Loss on property dispositions
                                                                    (2,344 )
Income taxes
                                                                    (344 )
Equity in earnings of unconsolidated joint ventures
                                                                    1,609  
Discontinued operations
                                                                    5,705  
 
                                                                     
 
       
Net income
                                                                  $ 77,054  
 
                                                                     

 

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FOR THE SIX MONTHS ENDED JUNE 30, 2008
                                                                         
    Northeast                                            
            Lehigh/                                                  
    Southeastern     Central     New                             Phila-     United        
    PA     PA     Jersey     Midwest     Mid-Atlantic     South     delphia     Kingdom     Total  
Operating revenue
  $ 87,392     $ 48,976     $ 15,705     $ 41,157     $ 69,127     $ 82,418     $ 20,133     $ 2,452     $ 367,360  
Rental property expenses and real estate taxes
    28,111       13,846       6,076       15,553       19,536       28,113       5,470       618       117,323  
 
                                                     
 
                                                                       
Property level operating income
  $ 59,281     $ 35,130     $ 9,629     $ 25,604     $ 49,591     $ 54,305     $ 14,663     $ 1,834       250,037  
 
                                                     
 
                                                                       
Interest and other income
                                                                    6,096  
Interest expense
                                                                    (77,679 )
General and administrative
                                                                    (27,083 )
Depreciation and amortization
                                                                    (85,174 )
 
                                                                     
 
                                                                       
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
                                                                    66,197  
Gain on property dispositions
                                                                    1,476  
Income taxes
                                                                    (1,064 )
Equity in earnings of unconsolidated joint ventures
                                                                    1,387  
Discontinued operations
                                                                    6,778  
 
                                                                     
 
                                                                       
Net income
                                                                  $ 74,774  
 
                                                                     
Note 3: SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
In accordance with SFAS No. 144, the operating results and gain/(loss) on disposition of real estate for properties sold and held for sale are reflected in the condensed consolidated statements of operations as discontinued operations. Prior period financial statements have been adjusted for discontinued operations. The proceeds from dispositions of operating properties with no continuing involvement for the three and six months ended June 30, 2009 were $34.7 million and $69.5 million, respectively, as compared to $5.3 million and $8.7 million, respectively, for the same periods in 2008.
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):
                                 
    Three Months Ended     Six Months Ended  
    June 30, 2009     June 30, 2008     June 30, 2009     June 30, 2008  
Revenues
  $ 1,875     $ 6,512     $ 5,052     $ 12,703  
Operating expenses
    (333 )     (2,408 )     (1,349 )     (4,456 )
Interest expense
    (300 )     (996 )     (863 )     (2,109 )
Depreciation and amortization
    (445 )     (1,412 )     (1,004 )     (2,763 )
 
                       
Income before property dispositions
  $ 797     $ 1,696     $ 1,836     $ 3,375  
 
                       
Two properties totaling 478,000 square feet located in the Company’s Northeast segment are considered to be held for sale as of June 30, 2009. One held for sale property was sold subsequent to June 30, 2009 for proceeds of $11 million.
Interest expense is allocated to discontinued operations as permitted under EITF Issue 87-24, “ Allocation of Interest to Discontinued Operations ,” and such interest expense has been included in computing income from discontinued operations. The allocation of interest expense to discontinued operations was based on the ratio of net assets sold (without continuing involvement) to the sum of total net assets plus consolidated debt.

 

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Asset Impairment
In accordance with SFAS No. 144, during the three months ended June 30, 2009, the Company recognized impairment losses of $3.8 million. No impairment losses were recognized during the three months ended June 30, 2008. The impairment losses of $3.8 million were related to a property in the Northeast segment, a property in the Midwest segment and a property in the Philadelphia segment. For the three months ended June 30, 2009, $1.4 million in impairment related to properties sold was included in discontinued operations in the Company’s statement of operations. During the six months ended June 30, 2009, the Company recognized impairment losses of $4.5 million. No impairment losses were recognized during the six months ended June 30, 2008. The impairment losses of $4.5 million were related to a property in the Northeast segment, two properties in the Midwest segment, a portfolio of properties in the Mid-Atlantic segment, a property in the Philadelphia segment and land in the Northeast segment. For the six months ended June 30, 2009, $1.5 million in impairment related to properties sold was included in discontinued operations in the Company’s statement of operations. The Company determined these impairments through a comparison of the aggregate future cash flows (including quoted offer prices) to be generated by the properties 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 June 30, 2009.
Note 4: Joint Ventures
The Company has an interest in several unconsolidated joint ventures which are described in its 2008 Annual Report on Form 10-K, as amended. Joint ventures in which the Company has an interest which were either formed or had significant activity during 2008 or 2009 are as follows:
Liberty/Commerz 1701 JFK Boulevard, LP
On April 13, 2006, the Company entered into a joint venture pursuant to which it sold an 80% interest in the equity of Comcast Center, a 1.25 million square foot office tower the Company was then developing in Philadelphia, Pennsylvania. The transaction valued the property at $512 million. Upon signing the joint venture agreement and through March 30, 2008, the criteria for sale recognition in accordance with SFAS No. 66, “Accounting for the Sales of Real Estate” (“SFAS No. 66”) had not been met and the transaction was accounted for as a financing arrangement.
On March 31, 2008, a $324 million, ten-year secured permanent financing at a rate of 6.15% for Comcast Center was funded. The proceeds from this financing were used to pay down outstanding borrowings on the Company’s credit facility.
On March 31, 2008, all conditions for sale treatment as outlined in SFAS No. 66 were satisfied and the Company recognized the sale of Comcast Center to an unconsolidated joint venture. Profit on the transaction was deferred until the costs of the project could be reasonably estimated. Profit on the sale was recognized in the fourth quarter of 2008.
As of June 30, 2009, the Company had a $3.3 million receivable from this joint venture. This related party receivable is due to the funding of joint venture development costs and is reflected in investments in unconsolidated joint ventures in the Company’s consolidated balance sheet.
Note 5: Indebtedness
Mortgage Loans
During the three months ended June 30, 2009, the Company did not close on any mortgages. During the six months ended June 30, 2009, the Company closed on mortgages totaling $317 million bearing interest at a weighted average rate of 7.1%. The mortgages encumber certain of the Company’s operating properties with a net book value of $580.4 million at June 30, 2009. The net proceeds from these mortgages were used to pay down outstanding borrowings under the Company’s unsecured credit facility and for general corporate purposes.
In total, as of June 30, 2009, the Company had mortgage loans with maturities ranging from 2009 to 2017 that were collateralized by and in some instances cross-collateralized by properties with a net book value of $820.6 million.
Unsecured Notes
During the three months ended June 30, 2009, the Company repaid $238.6 million of 7.75% senior unsecured notes due April 2009. During the six months ended June 30, 2009, the Company also repaid $20 million of 8.125% medium term unsecured notes due January 2009.

 

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During the three months ended June 30, 2009, the Company purchased $3.5 million of its 7.25% March 2011 senior unsecured notes and $4.9 million of its 6.375% August 2012 senior unsecured notes. During the six months ended June 30, 2009, the Company also purchased $11.4 million of its 7.75% April 2009 senior unsecured notes and $6.9 million of its 8.50% August 2010 senior unsecured notes. These notes were purchased at discounts of $0.6 million and $1.1 million for the three and six months ended June 30, 2009, respectively. These discounts are included in net income as a debt extinguishment gain.
Note 6: Noncontrolling interests
Noncontrolling interests in the accompanying financial statements represent the interests of the common and preferred units in Liberty Property Limited Partnership not held by the Trust. In addition, noncontrolling interests include third-party ownership interests in consolidated joint venture investments. Pursuant to the Company’s adoption on January 1, 2009 of SFAS No. 160, which establishes and expands the accounting and reporting standards of minority interests to be recharacterized as noncontrolling interests in a subsidiary and the deconsolidation of a subsidiary, the Company is presenting its noncontrolling interests as equity for all periods presented in these financial statements.
Common units
The common units outstanding as of June 30, 2009 have the same economic characteristics as common shares of the Trust. The 4,017,354 common units 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 4,017,354 common units based on the closing price of the shares of the Company at June 30, 2009 was $92.6 million.
Preferred units
The Company has outstanding the following Cumulative Redeemable Preferred Units of the Operating Partnership, (the “Preferred Units”):
                                                     
Date of                           Liquidation     Dividend     Redeemable        
Issue   Issue   Amount     Units     Preference     Rate     As of     Exchangeable after  
            (in 000’s)                                  
7/28/99
  Series B   $ 95,000       3,800     $ 25       7.45 %     8/31/09     8/31/13 into Series B Cumulative Redeemable Preferred Shares of the Trust  
6/16/05
  Series E   $ 20,000       400     $ 50       7.00 %     6/16/10     6/16/15 into Series E Cumulative Redeemable Preferred Shares of the Trust  
6/30/05
  Series F   $ 44,000       880     $ 50       6.65 %     6/30/10     12/12/15 into Series F Cumulative Redeemable Preferred Shares of the Trust  
8/23/05
  Series F   $ 6,000       120     $ 50       6.65 %     6/30/10     12/12/15 into Series F Cumulative Redeemable Preferred Shares of the Trust  
12/15/06
  Series G   $ 27,000       540     $ 50       6.70 %     12/12/11     12/12/16 into Series G Cumulative Redeemable Preferred Shares of the Trust  
8/21/07
  Series H   $ 100,000       4,000     $ 25       7.40 %     8/21/12     8/21/17 into Series H Cumulative Redeemable Preferred Shares of the Trust  
The Preferred Units are callable at the Operating Partnership’s option after a stated period of time and are also redeemable at the holder’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.

 

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Note 7: Continuous Equity Offering
During the three and six months ended June 30, 2009, the Company sold common shares pursuant to its continuous offering program described in the Company’s Form 10-K for the year ended December 31, 2008, as amended. In April 2009, the Company’s Board of Trustees approved the expansion of the Company’s continuous offering program. In addition to the original program, the expansion allowed for the sale of an additional $150 million in common shares. During the three and six months ended June 30, 2009, the Company sold 5.5 million and 10.0 million common shares, respectively, through this program. The net proceeds from the offering of $122.2 million and $214.0 million for the three and six months ended June 30, 2009, respectively, were used for general corporate purposes, including the funding of maturing senior note obligations.
Note 8: Disclosure of Fair Value of Financial Instruments
Effective April 2009, the Company adopted FASB Staff Position SFAS 107-1 and Accounting Principles Board (APB) Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” The FSP amends SFAS 107 to require disclosures about fair value of financial instruments in both interim and annual financial statements. This FSP also amends APB 28 to require those disclosures in summarized financial information at interim reporting periods.
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 June 30, 2009 and December 31, 2008. 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, dividends and distributions payable and other liabilities are reasonable estimates of fair value because of the short-term nature of these instruments. The fair value of the Company’s long-term debt is less than the aggregate carrying value by approximately $260.3 million and $713.1 million at June 30, 2009 and December 31, 2008, respectively. The fair value of the Company’s long-term debt is estimated using actual trading prices (where available) and using discounted cash flow analysis based on the borrowing rates currently available to the Company for loans with similar terms and maturities where actual trading prices are not available.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of June 30, 2009 and December 31, 2008. 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 June 30, 2009 and current estimates of fair value may differ significantly from the amounts presented herein.
Note 9: Recently Issued Accounting Standards
SFAS No. 141(R)
In December 2007, the FASB issued SFAS No. 141(R), “ Applying the Acquisition Method ” (“SFAS No. 141(R)”). This statement changes the accounting for acquisitions specifically eliminating the step acquisition model, changing the recognition of contingent consideration from being recognized when it is probable to being recognized at the time of acquisition, disallowing the capitalization of transaction costs and delays when restructurings related to acquisitions can be recognized. The Company adopted the provisions of SFAS No. 141(R) on January 1, 2009. The adoption of this statement did not have a material effect on the Company’s financial position or results of operations.
FSP EITF 03-6-1
In June 2008, the FASB issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) 03-6-1, “ Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities .” The FSP clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company adopted the provisions of FSP EITF 03-6-1 on January 1, 2009. The adoption of this statement did not have a material effect on the Company’s calculation of earnings per share.

 

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Note 10: Supplemental Disclosure to Statements of Cash Flows
The following are supplemental disclosures to the statements of cash flows for the six months ended June 30, 2009 and 2008 (amounts in thousands):
                 
Non-cash activity   2009     2008  
Write-off of fully depreciated property and deferred costs
  $ 17,476     $ 6,578  
Increase in investments in unconsolidated joint ventures
    —       (35,172 )
Disposition of properties/development in progress
    —       173,624  
Disposition of deferred leasing/financing costs
    —       12,526  
Reduction of accounts receivable
    —       7,854  
Reduction of deferred rent receivable
    —       6,580  
Reduction of prepaid and other assets
    —       38,486  
Reduction of credit facility
    —       (152,960 )
Reduction of other liabilities
    —       (50,938 )
Note 11: Subsequent Events
From July 1, 2009 to August 5, 2009, the Company sold 2.8 million common shares through its continuous offering program. The net proceeds from the offering of $69.2 million were used to pay down outstanding borrowings under the $600 million Credit Facility and for general corporate purposes, including the funding of maturing senior note obligations.

 

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CONDENSED CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(In thousands)
                 
    June 30, 2009     December 31, 2008  
    (Unaudited)        
ASSETS
               
Real estate:
               
Land and land improvements
  $ 824,906     $ 806,122  
Building and improvements
    4,301,270       4,218,839  
Less accumulated depreciation
    (1,040,218 )     (972,831 )
 
           
 
               
Operating real estate
    4,085,958       4,052,130  
 
               
Development in progress
    215,155       245,463  
Land held for development
    222,324       209,551  
 
           
 
               
Net real estate
    4,523,437       4,507,144  
 
               
Cash and cash equivalents
    124,536       15,794  
Restricted cash
    40,351       39,726  
Accounts receivable
    6,636       12,985  
Deferred rent receivable
    89,291       83,498  
Deferred financing and leasing costs, net of accumulated amortization (2009, $149,723; 2008, $139,346)
    134,700       133,293  
Investments in unconsolidated joint ventures
    255,419       266,602  
Assets held for sale
    25,750       75,526  
Prepaid expenses and other assets
    74,369       82,467  
 
           
 
               
Total assets
  $ 5,274,489     $ 5,217,035  
 
           
 
               
LIABILITIES
               
Mortgage loans
  $ 471,820     $ 198,560  
Unsecured notes
    1,846,339       2,131,607  
Credit facility
    140,000       260,000  
Accounts payable
    35,262       32,481  
Accrued interest
    31,315       36,474  
Distributions payable
    54,057       48,858  
Other liabilities
    169,880       182,549  
 
           
 
               
Total liabilities
    2,748,673       2,890,529  
 
               
Limited partners’ equity — preferred units, 9,740,000 preferred units outstanding as of June 30, 2009 and December 31, 2008
    287,959       287,959  
— common units, 4,017,354 and 4,074,967 common units outstanding as of June 30, 2009 and December 31, 2008, respectively
    115,991       117,546  
 
               
EQUITY
               
General partner’s equity — common units, 110,847,466 and 100,034,404 units outstanding as of June 30, 2009 and December 31, 2008, respectively
    2,121,156       1,919,871  
Noncontrolling interest — consolidated joint ventures
    710       1,130  
 
           
 
               
Total equity
    2,121,866       1,921,001  
 
           
 
               
Total liabilities, limited partners’ equity and equity
  $ 5,274,489     $ 5,217,035  
 
           
See accompanying notes.

 

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
                 
    Three Months Ended  
    June 30, 2009     June 30, 2008  
OPERATING REVENUE
               
Rental
  $ 130,846     $ 123,557  
Operating expense reimbursement
    54,818       56,438  
 
           
Total operating revenue
    185,664       179,995  
 
           
 
               
OPERATING EXPENSE
               
Rental property
    35,368       35,534  
Real estate taxes
    22,119       22,961  
General and administrative
    11,659       13,047  
Depreciation and amortization
    42,571       42,508  
 
           
Total operating expenses
    111,717       114,050  
 
           
 
               
Operating income
    73,947       65,945  
 
               
OTHER INCOME (EXPENSE)
               
Interest and other income
    2,520       3,009  
Debt extinguishment gain
    563       —  
Interest expense
    (37,300 )     (36,330 )
 
           
Total other income (expense)
    (34,217 )     (33,321 )
 
           
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
    39,730       32,624  
(Loss) gain on property dispositions
    (2,050 )     835  
Income taxes
    (127 )     (580 )
Equity in earnings of unconsolidated joint ventures
    1,192       1,010  
 
           
 
               
Income from continuing operations
    38,745       33,889  
 
               
Discontinued operations (including net gain on property dispositions of $3,670 and $2,793 for the three months ended June 30, 2009 and 2008, respectively)
    4,467       4,489  
 
           
 
               
Net income
    43,212       38,378  
 
               
Noncontrolling interest — consolidated joint ventures
    56       (68 )
Preferred unit distributions
    (5,253 )     (5,253 )
 
           
 
               
Income available to common unitholders
  $ 38,015     $ 33,057  
 
           
 
               
Earnings per common unit
               
Basic:
               
Income from continuing operations
  $ 0.31     $ 0.29  
Income from discontinued operations
    0.04       0.05  
 
           
 
       
Income per common unit — basic
  $ 0.35     $ 0.34  
 
           
 
       
Diluted:
               
Income from continuing operations
  $ 0.31     $ 0.29  
Income from discontinued operations
    0.04       0.05  
 
           
 
               
Income per common unit — diluted
  $ 0.35     $ 0.34  
 
           
 
               
Distributions per common unit
  $ 0.475     $ 0.625  
 
           
 
               
Weighted average number of common units outstanding
               
Basic
    109,785       96,512  
Diluted
    110,262       96,891  
See accompanying notes.

 

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
                 
    Six Months Ended  
    June 30, 2009     June 30, 2008  
OPERATING REVENUE
               
Rental
  $ 260,045     $ 254,847  
Operating expense reimbursement
    112,773       112,513  
 
           
Total operating revenue
    372,818       367,360  
 
           
 
       
OPERATING EXPENSE
               
Rental property
    74,515       74,219  
Real estate taxes
    44,244       43,104  
General and administrative
    27,222       27,083  
Depreciation and amortization
    85,705       85,174  
 
           
Total operating expenses
    231,686       229,580  
 
           
 
               
Operating income
    141,132       137,780  
 
               
OTHER INCOME (EXPENSE)
               
Interest and other income
    5,624       6,096  
Debt extinguishment gain
    1,092       —  
Interest expense
    (75,420 )     (77,679 )
 
           
Total other income (expense)
    (68,704 )     (71,583 )
 
           
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
    72,428       66,197  
(Loss) gain on property dispositions
    (2,344 )     1,476  
Income taxes
    (344 )     (1,064 )
Equity in earnings of unconsolidated joint ventures
    1,609       1,387  
 
           
 
               
Income from continuing operations
    71,349       67,996  
 
               
Discontinued operations (including net gain on property dispositions of $3,869 and $3,403 for the six months ended June 30, 2009 and 2008, respectively)
    5,705       6,778  
 
           
 
               
Net income
    77,054       74,774  
 
               
Noncontrolling interest — consolidated joint ventures
    420       102  
Preferred unit distributions
    (10,506 )     (10,506 )
 
           
 
               
Income available to common unitholders
  $ 66,968     $ 64,370  
 
           
 
               
Earnings per common unit
               
Basic:
               
Income from continuing operations
  $ 0.58     $ 0.60  
Income from discontinued operations
    0.05       0.07  
 
           
 
               
Income per common unit — basic
  $ 0.63     $ 0.67  
 
           
 
               
Diluted:
               
Income from continuing operations
  $ 0.57     $ 0.60  
Income from discontinued operations
    0.05       0.07  
 
           
 
               
Income per common unit — diluted
  $ 0.62     $ 0.67  
 
           
 
               
Distributions per common unit
  $ 0.95     $ 1.25  
 
           
 
               
Weighted average number of common units outstanding
               
Basic
    107,263       96,191  
Diluted
    107,644       96,438  
See accompanying notes.

 

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CONDENSED CONSOLIDATED STATEMENT OF EQUITY OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
                         
    General              
    Partner’s     Noncontrolling        
    Equity     Interest     Total Equity  
 
                       
Balance at December 31, 2008
  $ 1,919,871     $ 1,130     $ 1,921,001  
Contributions from partners
    228,805       —       228,805  
Distributions to partners
    (101,578 )     —       (101,578 )
Foreign currency translation adjustment
    9,498       —       9,498  
Net income (does not include $12,914 related to limited partners’ equity)
    64,560       (420 )     64,140  
 
                 
 
                       
Balance at June 30, 2009
  $ 2,121,156     $ 710     $ 2,121,866  
 
                 
See accompanying notes.

 

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
                 
    Six Months Ended  
    June 30, 2009     June 30, 2008  
OPERATING ACTIVITIES
               
Net income
  $ 77,054     $ 74,774  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    86,306       87,374  
Amortization of deferred financing costs
    2,439       2,227  
Equity in earnings of unconsolidated joint ventures
    (1,607 )     (1,387 )
Distributions from unconsolidated joint ventures
    663       —  
Gain on property dispositions
    (1,526 )     (4,879 )
Noncash compensation
    9,790       5,603  
Changes in operating assets and liabilities:
               
Restricted cash
    970       (19,818 )
Accounts receivable
    6,208       (248 )
Deferred rent receivable
    (5,677 )     (7,195 )
Prepaid expenses and other assets
    8,958       (10,831 )
Accounts payable
    2,979       5,800  
Accrued interest
    (5,159 )     (1,909 )
Other liabilities
    (15,795 )     (15,979 )
 
           
Net cash provided by operating activities
    165,603       113,532  
 
           
 
               
INVESTING ACTIVITIES
               
Investment in properties
    (37,318 )     (37,752 )
Investments in and advances to unconsolidated joint ventures
    (4,017 )     (7,506 )
Distributions from unconsolidated joint ventures
    18,379       3,161  
Net proceeds from disposition of properties/land
    80,333       304,563  
Investment in development in progress
    (48,774 )     (138,035 )
Investment in land held for development
    (26,980 )     (18,717 )
Investment in deferred leasing costs
    (12,125 )     (14,271 )
 
           
Net cash (used in) provided by investing activities
    (30,502 )     91,443  
 
           
 
               
FINANCING ACTIVITIES
               
Repayments of unsecured notes
    (285,268 )     —  
Proceeds from mortgage loans
    317,213       —  
Repayments of mortgage loans
    (44,121 )     (35,673 )
Proceeds from credit facility
    199,150       344,150  
Repayments on credit facility
    (319,150 )     (439,150 )
Increase in deferred financing costs
    (5,743 )     —  
Capital contributions
    218,970       32,124  
Distribution to partners
    (110,802 )     (130,808 )
 
           
Net cash used in financing activities
    (29,751 )     (229,357 )
 
           
 
               
Net increase (decrease) in cash and cash equivalents
    105,350       (24,382 )
Decrease in cash and cash equivalents related to foreign currency translation
    3,392       (28 )
Cash and cash equivalents at beginning of period
    15,794       37,989  
 
           
Cash and cash equivalents at end of period
  $ 124,536     $ 13,579  
 
           
See accompanying notes.

 

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Liberty Property Limited Partnership
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2009
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 Liberty Property Limited Partnership (the “Operating Partnership” and, collectively 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 96.5% of the common equity of the Operating Partnership at June 30, 2009. 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. See a description of the Company’s markets in Note 2 to the Company’s financial statements.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Operating Partnership and its subsidiaries 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 Trust and the Operating Partnership for the year ended December 31, 2008, as amended. 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.
Subsequent events have been evaluated through August 7, 2009, the date of issuance of these interim financial statements.

 

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Income per Common Unit
The following table sets forth the computation of basic and diluted income per common unit (in thousands, except per unit amounts):
                                                 
    For the Three Months Ended June 30, 2009     For the Three Months Ended June 30, 2008  
            Weighted                     Weighted        
    Income     Average Units             Income     Average Units        
    (Numerator)     (Denominator)     Per Unit     (Numerator)     (Denominator)     Per Unit  
Income from continuing operations
  $ 38,745                     $ 33,889                  
Add: Noncontrolling interest — consolidated joint ventures
    56                       (68 )                
Less: Preferred unit distributions
    (5,253 )                     (5,253 )                
 
                                           
 
                                               
Basic income from continuing operations
                                               
Income from continuing operations available to common unitholders
    33,548       109,785     $ 0.31       28,568       96,512     $ 0.29  
 
                                           
Dilutive units for long-term compensation plans
    —       477               —       379          
 
                                       
 
                                               
Diluted income from continuing operations
                                               
Income from continuing operations available to common unitholders and assumed conversions
    33,548       110,262     $ 0.31       28,568       96,891     $ 0.29  
 
                                   
 
                                               
Basic income from discontinued operations
                                               
Discontinued operations
    4,467       109,785     $ 0.04       4,489       96,512     $ 0.05  
 
                                           
Dilutive units for long-term compensation plans
    —       477               —       379          
 
                                       
 
                                               
Diluted income from discontinued operations
                                               
Discontinued operations
    4,467       110,262     $ 0.04       4,489       96,891     $ 0.05  
 
                                   
 
                                               
Basic income per common unit
                                               
Income available to common unitholders
    38,015       109,785     $ 0.35       33,057       96,512     $ 0.34  
 
                                           
 
                                               
Diluted units for long-term compensation plans
    —       477               —       379          
 
                                       
 
                                               
Diluted income per common unit
                                               
Income available to common unitholders and assumed conversions
  $ 38,015       110,262     $ 0.35     $ 33,057       96,891     $ 0.34  
 
                                   

 

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    For the Six Months Ended June 30, 2009     For the Six Months Ended June 30, 2008  
            Weighted                     Weighted        
    Income     Average Units             Income     Average Units        
    (Numerator)     (Denominator)     Per Unit     (Numerator)     (Denominator)     Per Unit  
Income from continuing operations
  $ 71,349                     $ 67,996                  
Add: Noncontrolling interest — consolidated joint ventures
    420                       102                  
Less: Preferred unit distributions
    (10,506 )                     (10,506 )                
 
                                           
 
                                               
Basic income from continuing operations
                                               
Income from continuing operations available to common unitholders
    61,263       107,263     $ 0.58       57,592       96,191     $ 0.60  
 
                                           
Dilutive units for long-term compensation plans
    —       381               —       247          
 
                                       
 
                                               
Diluted income from continuing operations
                                               
Income from continuing operations available to common unitholders and assumed conversions
    61,263       107,644     $ 0.57       57,592       96,438     $ 0.60  
 
                                   
 
                                               
Basic income from discontinued operations
                                               
Discontinued operations
    5,705       107,263     $ 0.05       6,778       96,191     $ 0.07  
 
                                           
Dilutive units for long-term compensation plans
    —       381               —       247          
 
                                       
 
                                               
Diluted income from discontinued operations
                                               
Discontinued operations
    5,705       107,644     $ 0.05       6,778       96,438     $ 0.07  
 
                                   
 
                                               
Basic income per common unit
                                               
Income available to common unitholders
    66,968       107,263     $ 0.63       64,370       96,191     $ 0.67  
 
                                           
Diluted units for long-term compensation plans
    —       381               —       247          
 
                                       
 
                                               
Diluted income per common unit
                                               
Income available to common unitholders and assumed conversions
  $ 66,968       107,644     $ 0.62     $ 64,370       96,438     $ 0.67  
 
                                   
Foreign Currency Translation
The functional currency of the Company’s United Kingdom operations is pounds sterling. The Company translates the financial statements for the United Kingdom operations into US dollars. Gains and losses resulting from this translation do not impact the results of operations and are included in general partner’s equity — common units. Other comprehensive income for the three months ended June 30, 2009 was $10.8 million as compared to $0.5 million for the same period in 2008 and was $9.5 million for the six months ended June 30, 2009 as compared to $0.3 million for the same period in 2008. Upon sale or upon complete or substantially complete liquidation of the Company’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.
SFAS No. 160
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 160, “ Accounting for Noncontrolling Interests ” (“SFAS No. 160”). SFAS No. 160 requires a noncontrolling interest in a subsidiary to be reported as equity and the amount of consolidated net income attributable to the noncontrolling interest is required to be identified in the consolidated financial statements. The Company adopted SFAS No. 160 on January 1, 2009. Along with adopting SFAS No. 160, the Company retroactively adopted the measurement principles detailed in EITF Topic D-98, “ Classification and Measurement of Redeemable Securities.” Redeemable noncontrolling interests are presented at the greater of their carrying amount or redemption value at the end of each reporting period.

 

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Note 2: 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 regions are considered the Company’s reportable segments:
     
Reportable Segments   Markets
 
   
Northeast
  Southeastern PA; Lehigh/Central PA; New Jersey
Midwest
  Minnesota; Milwaukee; Chicago
Mid-Atlantic
  Maryland; Carolinas; Richmond; Virginia Beach
South
  Jacksonville; Orlando; Boca Raton; Tampa; Texas; Arizona
Philadelphia
  Philadelphia; Northern Virginia/Washington, D.C.
United Kingdom
  County of Kent; West Midlands
The Company’s reportable segments are distinct business units which are each managed separately in order to concentrate market knowledge within a geographic area. Within these reportable segments, the Company derives its revenues from its two product types: industrial properties and office properties.
The Company evaluates performance of the reportable segments based on property level operating income, which is calculated as rental revenue and operating expense reimbursement less rental property expenses and real estate taxes. The accounting policies of the reportable segments are the same as those for the Company on a consolidated basis.
FOR THE THREE MONTHS ENDED JUNE 30, 2009
                                                                         
    Northeast                                            
            Lehigh/                                                  
    Southeastern     Central     New                             Phila-     United        
    PA     PA     Jersey     Midwest     Mid-Atlantic     South     delphia     Kingdom     Total  
Operating revenue
  $ 45,729     $ 24,683     $ 7,808     $ 21,056     $ 33,651     $ 46,554     $ 5,048     $ 1,135     $ 185,664  
Rental property expenses and real estate taxes
    14,169       6,440       2,941       7,908       9,343       15,233       1,193       260       57,487  
 
                                                     
 
                                                                       
Property level operating income
  $ 31,560     $ 18,243     $ 4,867     $ 13,148     $ 24,308     $ 31,321     $ 3,855     $ 875       128,177  
 
                                                     
 
                                                                       
Interest and other income
                                                                    2,520  
Debt extinguishment gain
                                                                    563  
Interest expense
                                                                    (37,300 )
General and administrative
                                                                    (11,659 )
Depreciation and amortization
                                                                    (42,571 )
 
                                                                     
 
                                                                       
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
                                                                    39,730  
Loss on property dispositions
                                                                    (2,050 )
Income taxes
                                                                    (127 )
Equity in earnings of unconsolidated joint ventures
                                                                    1,192  
Discontinued operations
                                                                    4,467  
 
                                                                     
 
                                                                       
Net income
                                                                  $ 43,212  
 
                                                                     

 

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FOR THE THREE MONTHS ENDED JUNE 30, 2008
                                                                         
    Northeast                                            
            Lehigh/                                                  
    Southeastern     Central     New                             Phila-     United        
    PA     PA     Jersey     Midwest     Mid-Atlantic     South     delphia     Kingdom     Total  
Operating revenue
  $ 43,265     $ 24,767     $ 7,939     $ 20,969     $ 34,467     $ 42,435     $ 4,745     $ 1,408     $ 179,995  
Rental property expenses and real estate taxes
    13,763       7,311       3,166       7,974       9,566       15,011       1,447       257       58,495  
 
                                                     
 
                                                                       
Property level operating income
  $ 29,502     $ 17,456     $ 4,773     $ 12,995     $ 24,901     $ 27,424     $ 3,298     $ 1,151       121,500  
 
                                                     
 
                                                                       
Interest and other income
                                                                    3,009  
Interest expense
                                                                    (36,330 )
General and administrative
                                                                    (13,047 )
Depreciation and amortization
                                                                    (42,508 )
 
                                                                     
 
                                                                       
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
                                                                    32,624  
Gain on property dispositions
                                                                    835  
Income taxes
                                                                    (580 )
Equity in earnings of unconsolidated joint ventures
                                                                    1,010  
Discontinued operations
                                                                    4,489  
 
                                                                     
 
                                                                       
Net income
                                                                  $ 38,378  
 
                                                                     
FOR THE SIX MONTHS ENDED JUNE 30, 2009
                                                                         
    Northeast                                            
            Lehigh/                                                  
    Southeastern     Central     New                             Phila-     United        
    PA     PA     Jersey     Midwest     Mid-Atlantic     South     delphia     Kingdom     Total  
Operating revenue
  $ 93,095     $ 49,845     $ 15,857     $ 42,046     $ 67,903     $ 92,053     $ 9,783     $ 2,236     $ 372,818  
Rental property expenses and real estate taxes
    29,996       14,060       6,340       15,764       20,148       29,588       2,373       490       118,759  
 
                                                     
 
                                                                       
Property level operating income
  $ 63,099     $ 35,785     $ 9,517     $ 26,282     $ 47,755     $ 62,465     $ 7,410     $ 1,746       254,059  
 
                                                     
 
                                                                       
Interest and other income
                                                                    5,624  
Debt extinguishment gain
                                                                    1,092  
Interest expense
                                                                    (75,420 )
General and administrative
                                                                    (27,222 )
Depreciation and amortization
                                                                    (85,705 )
 
                                                                     
 
                                                                       
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
                                                                    72,428  
Loss on property dispositions
                                                                    (2,344 )
Income taxes
                                                                    (344 )
Equity in earnings of unconsolidated joint ventures
                                                                    1,609  
Discontinued operations
                                                                    5,705  
 
                                                                     
 
                                                                       
Net income
                                                                  $ 77,054  
 
                                                                     

 

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FOR THE SIX MONTHS ENDED JUNE 30, 2008
                                                                         
    Northeast                                            
            Lehigh/                                                  
    Southeastern     Central     New                             Phila-     United        
    PA     PA     Jersey     Midwest     Mid-Atlantic     South     delphia     Kingdom     Total  
Operating revenue
  $ 87,392     $ 48,976     $ 15,705     $ 41,157     $ 69,127     $ 82,418     $ 20,133     $ 2,452     $ 367,360  
Rental property expenses and real estate taxes
    28,111       13,846       6,076       15,553       19,536       28,113       5,470       618       117,323  
 
                                                     
 
       
Property level operating income
  $ 59,281     $ 35,130     $ 9,629     $ 25,604     $ 49,591     $ 54,305     $ 14,663     $ 1,834       250,037  
 
                                                     
 
                                                                       
Interest and other income
                                                                    6,096  
Interest expense
                                                                    (77,679 )
General and administrative
                                                                    (27,083 )
Depreciation and amortization
                                                                    (85,174 )
 
                                                                     
 
                                                                       
Income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
                                                                    66,197  
Gain on property dispositions
                                                                    1,476  
Income taxes
                                                                    (1,064 )
Equity in earnings of unconsolidated joint ventures
                                                                    1,387  
Discontinued operations
                                                                    6,778  
 
                                                                     
 
                                                                       
Net income
                                                                  $ 74,774  
 
                                                                     
Note 3: SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
In accordance with SFAS No. 144, the operating results and gain/(loss) on disposition of real estate for properties sold and held for sale are reflected in the condensed consolidated statements of operations as discontinued operations. Prior period financial statements have been adjusted for discontinued operations. The proceeds from dispositions of operating properties with no continuing involvement for the three and six months ended June 30, 2009 were $34.7 million and $69.5 million, respectively, as compared to $5.3 million and $8.7 million, respectively, for the same periods in 2008.
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):
                                 
    Three Months Ended     Six Months Ended  
    June 30, 2009     June 30, 2008     June 30, 2009     June 30, 2008  
 
                               
Revenues
  $ 1,875     $ 6,512     $ 5,052     $ 12,703  
Operating expenses
    (333 )     (2,408 )     (1,349 )     (4,456 )
Interest expense
    (300 )     (996 )     (863 )     (2,109 )
Depreciation and amortization
    (445 )     (1,412 )     (1,004 )     (2,763 )
 
                       
Income before property dispositions
  $ 797     $ 1,696     $ 1,836     $ 3,375  
 
                       
Two properties totaling 478,000 square feet located in the Company’s Northeast segment are considered to be held for sale as of June 30, 2009. One held for sale property was sold subsequent to June 30, 2009 for proceeds of $11 million.
Interest expense is allocated to discontinued operations as permitted under EITF Issue 87-24, “ Allocation of Interest to Discontinued Operations ,” and such interest expense has been included in computing income from discontinued operations. The allocation of interest expense to discontinued operations was based on the ratio of net assets sold (without continuing involvement) to the sum of total net assets plus consolidated debt.

 

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Asset Impairment
In accordance with SFAS No. 144, during the three months ended June 30, 2009, the Company recognized impairment losses of $3.8 million. No impairment losses were recognized during the three months ended June 30, 2008. The impairment losses of $3.8 million were related to a property in the Northeast segment, a property in the Midwest segment and a property in the Philadelphia segment. For the three months ended June 30, 2009, $1.4 million in impairment related to properties sold was included in discontinued operations in the Company’s statement of operations. During the six months ended June 30, 2009, the Company recognized impairment losses of $4.5 million. No impairment losses were recognized during the six months ended June 30, 2008. The impairment losses of $4.5 million were related to a property in the Northeast segment, two properties in the Midwest segment, a portfolio of properties in the Mid-Atlantic segment, a property in the Philadelphia segment and land in the Northeast segment. For the six months ended June 30, 2009, $1.5 million in impairment related to properties sold was included in discontinued operations in the Company’s statement of operations. The Company determined these impairments through a comparison of the aggregate future cash flows (including quoted offer prices) to be generated by the properties 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 June 30, 2009.
Note 4: Joint Ventures
The Company has an interest in several unconsolidated joint ventures which are described in its 2008 Annual Report on Form 10-K, as amended. Joint ventures in which the Company has an interest which were either formed or had significant activity during 2008 or 2009 are as follows:
Liberty/Commerz 1701 JFK Boulevard, LP
On April 13, 2006, the Company entered into a joint venture pursuant to which it sold an 80% interest in the equity of Comcast Center, a 1.25 million square foot office tower the Company was then developing in Philadelphia, Pennsylvania. The transaction valued the property at $512 million. Upon signing the joint venture agreement and through March 30, 2008, the criteria for sale recognition in accordance with SFAS No. 66, “Accounting for the Sales of Real Estate” (“SFAS No. 66”) had not been met and the transaction was accounted for as a financing arrangement.
On March 31, 2008, a $324 million, ten year secured permanent financing at a rate of 6.15% for Comcast Center was funded. The proceeds from this financing were used to pay down outstanding borrowings on the Company’s credit facility.
On March 31, 2008, all conditions for sale treatment as outlined in SFAS No. 66 were satisfied and the Company recognized the sale of Comcast Center to an unconsolidated joint venture. Profit on the transaction was deferred until the costs of the project could be reasonably estimated. Profit on the sale was recognized in the fourth quarter of 2008.
As of June 30, 2009, the Company had a $3.3 million receivable from this joint venture. This related party receivable is due to the funding of joint venture development costs and is reflected in investments in unconsolidated joint ventures in the Company’s consolidated balance sheet.
Note 5: Indebtedness
Mortgage Loans
During the three months ended June 30, 2009, the Company did not close on any mortgages. During the six months ended June 30, 2009, the Company closed on mortgages totaling $317 million bearing interest at a weighted average rate of 7.1%. The mortgages encumber certain of the Company’s operating properties with a net book value of $580.4 million at June 30, 2009. The net proceeds from these mortgages were used to pay down outstanding borrowings under the Company’s unsecured credit facility and for general corporate purposes.
In total, as of June 30, 2009, the Company had mortgage loans with maturities ranging from 2009 to 2017 that were collateralized by and in some instances cross-collateralized by properties with a net book value of $820.6 million.
Unsecured Notes
During the three months ended June 30, 2009, the Company repaid $238.6 million of 7.75% senior unsecured notes due April 2009. During the six months ended June 30, 2009, the Company also repaid $20 million of 8.125% medium term unsecured notes due January 2009.
During the three months ended June 30, 2009, the Company purchased $3.5 million of its 7.25% March 2011 senior unsecured notes and $4.9 million of its 6.375% August 2012 senior unsecured notes. During the six months ended June 30, 2009, the Company also purchased $11.4 million of its 7.75% April 2009 senior unsecured notes and $6.9 million of its 8.50% August 2010 senior unsecured notes. These notes were purchased at discounts of $0.6 million and $1.1 million for the three and six months ended June 30, 2009, respectively. These discounts are included in net income as a debt extinguishment gain.

 

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Note 6: Limited partnership interests
Limited partnership interests in the accompanying financial statements represents the interests of the common and preferred units in Liberty Property Limited Partnership not held by the Trust.
The following details the change in limited partners’ equity for the six months ended June 30, 2009.
                 
    Limited     Limited  
    partners’ equity     partners’ equity  
    – preferred     – common  
    units     units  
 
       
Balance at December 31, 2008
  $ 287,959     $ 117,546  
Net income
    10,506       2,408  
Distributions
    (10,506 )     (3,963 )
 
           
 
               
Balance at June 30, 2009
  $ 287,959     $ 115,991  
 
           
Common units

The common units outstanding as of June 30, 2009 have the same economic characteristics as common shares of the Trust. The 4,017,354 common units 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 4,017,354 common units based on the closing price of the shares of the Company at June 30, 2009 was $92.6 million.
Preferred units

The Company has outstanding the following Cumulative Redeemable Preferred Units of the Operating Partnership, (the “Preferred Units”):
                                                     
Date of                       Liquidation     Dividend     Redeemable      
Issue   Issue   Amount     Units     Preference     Rate     As of     Exchangeable after
        (in 000’s)                        
7/28/99
  Series B   $ 95,000       3,800     $ 25       7.45 %     8/31/09     8/31/13 into Series B Cumulative Redeemable Preferred Shares of the Trust
6/16/05
  Series E   $ 20,000       400     $ 50       7.00 %     6/16/10     6/16/15 into Series E Cumulative Redeemable Preferred Shares of the Trust
6/30/05
  Series F   $ 44,000       880     $ 50       6.65 %     6/30/10     12/12/15 into Series F Cumulative Redeemable Preferred Shares of the Trust
8/23/05
  Series F   $ 6,000       120     $ 50       6.65 %     6/30/10     12/12/15 into Series F Cumulative Redeemable Preferred Shares of the Trust
12/15/06
  Series G   $ 27,000       540     $ 50       6.70 %     12/12/11     12/12/16 into Series G Cumulative Redeemable Preferred Shares of the Trust
8/21/07
  Series H   $ 100,000       4,000     $ 25       7.40 %     8/21/12     8/21/17 into Series H Cumulative Redeemable Preferred Shares of the Trust
The Preferred Units are callable at the Operating Partnership’s option after a stated period of time and are also redeemable at the holder’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.

 

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Note 7: Continuous Equity Offering
During the three and six months ended June 30, 2009, the Trust sold common shares pursuant to its continuous offering program described in the Company’s Form 10-K for the year ended December 31, 2008, as amended. In April 2009, the Company’s Board of Trustees approved the expansion of the Trust’s continuous offering program. In addition to the original program, the expansion allowed for the sale of an additional $150 million in common shares. During the three and six months ended June 30, 2009, the Trust sold 5.5 million and 10.0 million common shares, respectively, through this program. The net proceeds from the offering of $122.2 million and $214.0 million for the three and six months ended June 30, 2009, respectively, were used for general corporate purposes, including the funding of maturing senior note obligations.
Note 8: Disclosure of Fair Value of Financial Instruments
Effective April 2009, the Company adopted FASB Staff Position SFAS 107-1 and Accounting Principles Board (APB) Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” The FSP amends SFAS 107 to require disclosures about fair value of financial instruments in both interim and annual financial statements. This FSP also amends APB 28 to require those disclosures in summarized financial information at interim reporting periods.
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 June 30, 2009 and December 31, 2008. 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, dividends and distributions payable and other liabilities are reasonable estimates of fair value because of the short-term nature of these instruments. The fair value of the Company’s long-term debt is less than the aggregate carrying value by approximately $260.3 million and $713.1 million at June 30, 2009 and December 31, 2008, respectively. The fair value of the Company’s long-term debt is estimated using actual trading prices (where available) and using discounted cash flow analysis based on the borrowing rates currently available to the Company for loans with similar terms and maturities where actual trading prices are not available.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of June 30, 2009 and December 31, 2008. 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 June 30, 2009 and current estimates of fair value may differ significantly from the amounts presented herein.
Note 9: Recently Issued Accounting Standards
SFAS No. 141(R)
In December 2007, the FASB issued SFAS No. 141(R), “ Applying the Acquisition Method ” (“SFAS No. 141(R)”). This statement changes the accounting for acquisitions specifically eliminating the step acquisition model, changing the recognition of contingent consideration from being recognized when it is probable to being recognized at the time of acquisition, disallowing the capitalization of transaction costs and delays when restructurings related to acquisitions can be recognized. The Company adopted the provisions of SFAS No. 141(R) on January 1, 2009. The adoption of this statement did not have a material effect on the Company’s financial position or results of operations.
FSP EITF 03-6-1
In June 2008, the FASB issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” The FSP clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company adopted the provisions of FSP EITF 03-6-1 on January 1, 2009. The adoption of this statement did not have a material effect on the Company’s calculation of earnings per unit.

 

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Note 10: Supplemental Disclosure to Statements of Cash Flows
The following are supplemental disclosures to the statements of cash flows for the six months ended June 30, 2009 and 2008 (amounts in thousands):
                 
Non-cash activity   2009     2008  
Write-off of fully depreciated property and deferred costs
  $ 17,476     $ 6,578  
Increase in investments in unconsolidated joint ventures
    —       (35,172 )
Disposition of properties/development in progress
    —       173,624  
Disposition of deferred leasing/financing costs
    —       12,526  
Reduction of accounts receivable
    —       7,854  
Reduction of deferred rent receivable
    —       6,580  
Reduction of prepaid and other assets
    —       38,486  
Reduction of credit facility
    —       (152,960 )
Reduction of other liabilities
    —       (50,938 )
Note 11: Subsequent Events
From July 1, 2009 to August 5, 2009, Liberty Property Trust sold 2.8 million common shares through its continuous offering program. The net proceeds from the offering of $69.2 million were used to pay down outstanding borrowings under the $600 million Credit Facility and for general corporate purposes, including the funding of maturing senior note obligations.

 

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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 June 30, 2009, the Company owned and operated 353 industrial and 289 office properties (the “Wholly Owned Properties in Operation”) totaling 64.3 million square feet. In addition, as of June 30, 2009, the Company owned 14 properties under development, which are expected to comprise 2.0 million square feet when completed (the “Wholly Owned Properties under Development”) and 1,365 acres of developable land, substantially all of which is zoned for commercial use. Additionally, as of June 30, 2009, the Company had an ownership interest, through unconsolidated joint ventures, in 46 industrial and 49 office properties totaling 13.1 million square feet (the “JV Properties in Operation” and, collectively with the Wholly Owned Properties in Operation, the “Properties in Operation”), four properties under development, which are expected to comprise 1.4 million square feet when completed (the “JV Properties under Development” and, collectively with the Wholly Owned Properties under Development, the “Properties under Development”). The Company also has an ownership interest through unconsolidated joint ventures in 630 acres of developable land, substantially all of which is zoned for commercial use.
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 increasing rental rates and controlling costs. The Company’s operating results depend primarily upon income from rental operations and are substantially influenced by rental demand for the Properties in Operation. As a general matter, the Company pursues development opportunities that it believes will create value and yield acceptable returns. The Company also has historically acquired properties that it believes will create long-term value, and disposed of properties that no longer fit within the Company’s strategic objectives or in situations where it can optimize cash proceeds. Current market conditions are not favorable for acquisitions, dispositions and development and consequently the Company’s potential for growth in operating income from acquisitions and development is anticipated to be limited in 2009.
Current conditions in the global credit markets and declines and weakness in the general economy have negatively impacted the Company’s business. Although the credit markets have shown some improvement recently, conditions in the credit markets, and in particular the unsecured credit markets, remain considerably less favorable than they had been prior to the credit crisis and the Company has shifted its financing strategy to include more secured debt and equity sales in order to address its financing needs. Additionally, uncertainty about the pricing of commercial real estate and the absence of available financing to facilitate transactions has dramatically reduced the Company’s ability to rely on the proceeds from the sale of real estate to provide proceeds to fund investment opportunities.
Consistent with the dramatic slowdown in the United States and world economies, rental demand for the Properties in Operation declined for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008. Despite this trend, the Company successfully leased 4.2 million square feet during the three months ended June 30, 2009 and attained occupancy of 89.6% for the Wholly Owned Properties in Operation and 88.4% for the JV Properties in Operation for a combined occupancy of 89.4% for the Properties in Operation, all as of that date. At December 31, 2008, occupancy for the Wholly Owned Properties in Operation was 91.1% and for the JV Properties in Operation was 92.2% for a combined occupancy for the Properties in Operation of 91.3%. The Company believes that straight line rents on renewal and replacement leases for 2009 will decrease between 0% and 5% compared to rents on expiring leases. Furthermore, the Company believes that average occupancy for its Properties in Operation will decrease by no more than 2% for 2009 compared to 2008.

 

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WHOLLY OWNED CAPITAL ACTIVITY
Acquisitions
During the six months ended June 30, 2009, conditions for the acquisition of properties were unsettled because of adverse events in the credit markets and the Company did not acquire any operating properties and does not anticipate doing so for the remainder of 2009.
Dispositions
During the six months ended June 30, 2009, market conditions for dispositions were unsettled, which the Company again attributes to adverse conditions in the credit markets. Disposition activity allows the Company to, among other things, (1) reduce its holdings in certain markets and product types within a market; (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 June 30, 2009, the Company realized proceeds of $34.7 million from the sale of 10 operating properties representing 461,000 square feet. During the six months ended June 30, 2009, the Company realized proceeds of $80.3 million from the sale of 16 operating properties representing 757,000 square feet and 0.3 acres of land. For 2009, the Company believes that it will dispose of $125 million to $200 million of operating properties.
Development
During the three months ended June 30, 2009, the Company brought into service three Wholly Owned Properties under Development representing 1.1 million square feet and a Total Investment, as defined below, of $73.6 million, and initiated $12.3 million in real estate development. During the six months ended June 30, 2009, the Company brought into service four Wholly Owned Properties under Development representing 1.2 million square feet and a Total Investment, as defined below, of $89.3 million, and initiated $12.3 million in real estate development. As of June 30, 2009, the projected Total Investment of the Wholly Owned Properties under Development was $297.0 million. For 2009, the Company believes that it will bring into service from its development pipeline approximately $250 million to $350 million of Total Investment in operating real estate.
Although the Company continues to pursue development opportunities, current market conditions are not favorable for development, and the Company currently anticipates only a modest amount of development starts in 2009. Furthermore, any 2009 development starts will be substantially pre-leased. 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.
JOINT VENTURE CAPITAL ACTIVITY
The Company periodically enters into joint venture relationships in connection with the execution of its real estate operating strategy.
Acquisitions
During the three and six months ended June 30, 2009, none of the unconsolidated joint ventures in which the Company held an interest acquired any properties. For 2009, the Company believes that property acquisitions by unconsolidated joint ventures in which the Company has an interest will be in the $50 million to $100 million range.
Dispositions
During the three and six months ended June 30, 2009, none of the unconsolidated joint ventures in which the Company held an interest disposed of any properties and the Company does not anticipate doing so for the remainder of 2009.
Development
During the three and six months ended June 30, 2009, none of the unconsolidated joint ventures in which the Company held an interest brought any Properties under Development into service. As of June 30, 2009, the projected Total Investment of JV Properties under Development was $190.7 million. For 2009, the Company expects unconsolidated joint ventures in which it holds an interest to bring into service up to $50 million of Total Investment in operating properties.

 

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PROPERTIES IN OPERATION
The composition of the Company’s Properties in Operation as of June 30, 2009 and 2008 was as follows (in thousands, except dollars and percentages):
                                                 
    Net Rent              
    Per Square Foot     Total Square Feet     Percent Occupied  
    June 30     June 30     June 30  
    2009     2008     2009     2008     2009     2008  
Wholly Owned Properties in Operation:
                                               
Industrial-Distribution
  $ 4.34     $ 4.48       31,502       27,083       88.5 %     93.6 %
Industrial-Flex
  $ 9.18     $ 9.37       11,497       10,240       87.9 %     88.6 %
Office
  $ 14.35     $ 14.18       21,272       19,732       92.1 %     91.6 %
 
                                   
 
  $ 8.60     $ 8.71       64,271       57,055       89.6 %     92.0 %
 
                                   
                                                 
    Net Rent              
    Per Square Foot     Total Square Feet     Percent Occupied  
    June 30     June 30     June 30  
    2009     2008     2009     2008     2009     2008  
Joint Venture Properties in Operation:
                                               
Industrial-Distribution
  $ 4.23     $ 4.09       8,316       7,786       87.7 %     97.1 %
Industrial-Flex
  $ 27.86     $ 33.97       171       153       81.3 %     89.5 %
Office
  $ 25.00     $ 25.26       4,575       4,240       89.9 %     92.6 %
 
                                   
 
  $ 11.91     $ 11.83       13,062       12,179       88.4 %     95.4 %
 
                                   
                                                 
    Net Rent              
    Per Square Foot     Total Square Feet     Percent Occupied  
    June 30     June 30     June 30  
    2009     2008     2009     2008     2009     2008  
Properties in Operation:
                                               
Industrial-Distribution
  $ 4.32     $ 4.39       39,818       34,869       88.3 %     94.3 %
Industrial-Flex
  $ 9.43     $ 9.73       11,668       10,393       87.8 %     88.6 %
Office
  $ 16.20     $ 16.14       25,847       23,972       91.7 %     91.8 %
 
                                   
 
  $ 9.15     $ 9.26       77,333       69,234       89.4 %     92.5 %
 
                                   
Geographic segment data for the three and six months ended June 30, 2009 and 2008 are included in Note 2 to the Company’s financial statements.
Forward-Looking Statements
When used throughout this report, the words “believes,” “anticipates” and “expects” and similar expressions are intended to identify forward-looking statements. Such statements indicate that assumptions have been used that are subject to a number of risks and uncertainties that could cause actual financial results or management plans and objectives to differ materially from those projected or expressed herein, including: the effect of national and regional economic conditions; rental demand; the Company’s ability to identify, and enter into agreements with suitable joint venture partners in situations where it believes such arrangements are advantageous; the Company’s ability to identify and secure additional properties and sites, both for itself and the joint ventures to which it is a party, that meet its criteria for acquisition or development; the current credit crisis and its impact on the availability and cost of capital; the effect of prevailing market interest rates; risks related to the integration of the operations of entities that we have acquired or may acquire; risks related to litigation; and other risks described from time to time in the Company’s filings with the SEC. Given these uncertainties, readers are cautioned not to place undue reliance on such statements.

 

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Critical Accounting Policies and Estimates
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, as amended, for a discussion of critical accounting policies which include capitalized costs, revenue recognition, allowance for doubtful accounts, impairment of real estate, intangibles and investments in unconsolidated joint ventures. During the three months ended June 30, 2009, there were no material changes to these policies.
Results of Operations
The following discussion is based on the consolidated financial statements of the Company. It compares the results of operations of the Company for the three and six months ended June 30, 2009 with the results of operations of the Company for the three and six months ended June 30, 2008. As a result of the varying levels of development, acquisition and disposition activities by the Company in 2009 and 2008, 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.
This information should be read in conjunction with the accompanying condensed consolidated financial statements and notes included elsewhere in this report.
Comparison of Three and Six Months Ended June 30, 2009 to Three and Six Months Ended June 30, 2008
Overview
The Company’s average gross investment in operating real estate owned for the three months ended June 30, 2009 increased to $5,038.8 million from $4,972.1 million for the three months ended June 30, 2008. This increase in operating real estate resulted in increases in rental revenue, operating expense reimbursement and depreciation and amortization expense. Rental property expenses and real estate taxes were relatively unchanged. For the six months ended June 30, 2009, the Company’s average gross investment in real estate owned increased to $5,030.5 million from $5,010.3 million for the six months ended June 30, 2008. This increase in operating real estate resulted in increases in rental revenue, operating expense reimbursement, rental property expense, real estate taxes, and depreciation and amortization expense.
Total operating revenue increased to $185.7 million for the three months ended June 30, 2009 from $180.0 million for the three months ended June 30, 2008 and increased to $372.8 million for the six months ended June 30, 2009 from $367.4 million for the six months ended June 30, 2008. The $5.7 million increase during the three months ended June 30, 2009 compared to the same period in 2008 was primarily due to the increase in investment in operating real estate and the increase in operating revenue from the Same Store group of properties, discussed below, and an increase in “Termination Fees,” which totaled $1.0 million for the three months ended June 30, 2009 as compared to $0.7 million for the same period in 2008. The $5.4 million increase during the six months ended June 30, 2009 compared to the same period in 2008 was primarily due to the increase in investment in operating real estate and the increase in operating revenue from the Same Store group of properties, discussed below. These increases were offset by a decrease in “Termination Fees”, which totaled $1.4 million for the six months ended June 30, 2009 as compared to $1.9 million for the same period in 2008. Termination Fees are fees that the Company agrees to accept in consideration for permitting certain tenants to terminate their leases prior to the contractual expiration date. Termination Fees are included in rental revenue.

 

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Segments
The Company evaluates the performance of the Properties in Operation by reportable segment (see Note 2 to the Company’s financial statements for a reconciliation to net income). The following table identifies changes in reportable segments (dollars in thousands):
Property Level Operating Income:
                                                 
    Three Months Ended     Percentage     Six Months Ended     Percentage  
    June 30,     Increase     June 30,     Increase  
    2009     2008     (Decrease)     2009     2008     (Decrease)  
 
                                               
Northeast
                                               
— Southeastern PA
  $ 31,560     $ 29,502       7.0 %(1)   $ 63,099     $ 59,281       6.4 %(1)
— Lehigh/Central PA
    18,243       17,456       4.5 %(2)     35,785       35,130       1.9 %
— New Jersey
    4,867       4,773       2.0 %     9,517       9,629       (1.2 %)
Midwest
    13,148       12,995       1.2 %     26,282       25,604       2.6 %
Mid-Atlantic
    24,308       24,901       (2.4 %)     47,755       49,591       (3.7 %)(3)
South
    31,321       27,424       14.2 %(1)     62,465       54,305       15.0 %(1)
 
       
Philadelphia
    3,855       3,298       16.9 %(4)     7,410       14,663       (49.5 %)(5)
United Kingdom
    875       1,151       (24.0 %)(6)     1,746       1,834       (4.8 %)(6)
 
                                   
 
       
Total property level operating income
  $ 128,177     $ 121,500       5.5 %   $ 254,059     $ 250,037       1.6 %
 
                                   
     
(1)  
The increase for the three and six months ended June 30, 2009 versus the three and six months ended June 30, 2008 was primarily due to an increase in average gross investment in operating real estate, an increase in occupancy and an increase in rental rates.
 
(2)  
The increase for the three months ended June 30, 2009 versus the three months ended June 30, 2008 was primarily due to an increase in average gross investment in operating real estate. This increase was partially offset by a decrease in occupancy and a decrease in rental rates in 2009.
 
(3)  
The decrease for the six months ended June 30, 2009 versus the six months ended June 30, 2008 was primarily due to a decrease in occupancy. This decrease was partially offset by an increase in average gross investment in operating real estate and an increase in rental rates in 2009.
 
(4)  
The increase for the three months ended June 30, 2009 versus the three months ended June 30, 2008 was primarily due to an increase in average gross investment in operating real estate and an increase in rental rates. This increase was partially offset by a decrease in occupancy in 2009.
 
(5)  
The decrease for the six months ended June 30, 2009 versus the six months ended June 30, 2008 was due to the effect of Comcast Center operation during the relevant periods. Comcast Center was a wholly owned 1.25 million square foot property until March 30, 2008 when it was sold into an unconsolidated joint venture.
 
(6)  
The decrease for the three and six months ended June 30, 2009 versus the three and six months ended June 30, 2008 was primarily due to a decrease in average gross investment in operating real estate and a decrease in rental rates. This decrease was partially offset by an increase in occupancy in 2009.
Same Store
Property level operating income, exclusive of Termination Fees, for the Same Store properties increased to $122.8 million for the three months ended June 30, 2009 from $121.3 million for the three months ended June 30, 2008, on a straight line basis (which recognizes rental revenue evenly over the life of the lease), and increased to $119.4 million for the three months ended June 30, 2009 from $118.7 million for the three months ended June 30, 2008 on a cash basis. These increases of 1.2% and 0.5%, respectively, are primarily due to an increase in rental rates and an increase in occupancy in the office portfolio.
Property level operating income, exclusive of Termination Fees, for the Same Store properties increased to $245.3 million for the six months ended June 30, 2009 from $241.4 million for the six months ended June 30, 2008, on a straight line basis (which recognizes rental revenue evenly over the life of the lease), and increased to $238.4 million for the six months ended June 30, 2009 from $235.6 million for the six months ended June 30, 2008 on a cash basis. These increases of 1.6% and 1.2%, respectively, are primarily due to an increase in rental rates and an increase in occupancy in the office portfolio.
Management generally considers the performance of the Same Store properties to be a useful financial performance measure because the results are directly comparable from period to period. Management further believes that the performance comparison should exclude Termination Fees since they are more event specific and are not representative of ordinary performance results. In addition, Same Store property level operating income and Same Store cash basis property level operating income exclusive of Termination Fees is considered by management to be a more reliable indicator of the portfolio’s baseline performance. The Same Store properties consist of the 622 properties totaling approximately 59.8 million square feet owned on January 1, 2008, excluding properties sold through June 30, 2009.

 

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Set forth below is a schedule comparing the property level operating income, on a straight line basis and on a cash basis, for the Same Store properties for the three and six months ended June 30, 2009 and 2008. Same Store property level operating income and cash basis property level operating income are non-GAAP measures and do not represent income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures because they do not reflect the consolidated operations of the Company. Investors should review Same Store results, along with Funds from operations (see “Liquidity and Capital Resources” section), GAAP net income and cash flow from operating activities, investing activities and financing activities when considering the Company’s operating performance. Also, set forth below is a reconciliation of Same Store property level operating income and cash basis property level operating income to net income (in thousands).
                                 
    Three Months Ended     Six Months Ended  
    June 30, 2009     June 30, 2008     June 30, 2009     June 30, 2008  
Same Store:
                               
Rental revenue
  $ 125,295     $ 123,374     $ 250,609     $ 246,443  
Operating expenses:
                               
Rental property expense
    35,163       36,302       74,071       73,536  
Real estate taxes
    20,955       22,328       41,850       41,582  
Operating expense recovery
    (53,652 )     (56,577 )     (110,566 )     (110,085 )
 
                       
Unrecovered operating expenses
    2,466       2,053       5,355       5,033  
 
                       
 
                               
Property level operating income
    122,829       121,321       245,254       241,410  
Less straight line rent
    3,436       2,573       6,851       5,769  
 
                       
 
                               
Cash basis property level operating income
  $ 119,393     $ 118,748     $ 238,403     $ 235,641  
 
                       
 
                               
Reconciliation of non-GAAP financial measure — Same Store:
                               
Cash basis property level operating income
  $ 119,393     $ 118,748     $ 238,403     $ 235,641  
Straight line rent
    3,436       2,573       6,851       5,769  
 
                       
Property level operating income
    122,829       121,321       245,254       241,410  
 
       
Property level operating income — properties purchased or developed subsequent to January 1, 2008
    5,354       577       9,569       8,797  
Less: Property level operating income — properties held for sale at June 30, 2009
    (1,058 )     (1,059 )     (2,116 )     (2,112 )
Termination fees
    1,052        661       1,352       1,942  
General and administrative expense
    (11,659 )     (13,047 )     (27,222 )     (27,083 )
Depreciation and amortization expense
    (42,571 )     (42,508 )     (85,705 )     (85,174 )
Other income (expense)
    (34,217 )     (33,321 )     (68,704 )     (71,583 )
(Loss) gain on property dispositions
    (2,050 )     835       (2,344 )     1,476  
Income taxes
    (127 )     (580 )     (344 )     (1,064 )
Equity in earnings of unconsolidated joint ventures
    1,192       1,010       1,609       1,387  
Discontinued operations
    4,467       4,489       5,705       6,778  
 
                       
 
                               
Net income
  $ 43,212     $ 38,378     $ 77,054     $ 74,774  
 
                       
General and Administrative
General and administrative expenses decreased to $11.7 million for the three months ended June 30, 2009 compared to $13.0 million for the three months ended June 30, 2008. The decrease was primarily due to decreases in compensation expenses. General and administrative expenses increased to $27.2 million for the six months ended June 30, 2009 compared to $27.1 million for the six months ended June 30, 2008 as decreases in compensation expenses were offset by an increase due to accelerated vesting of long term incentive compensation due to the years of service and age of certain employees.

 

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Depreciation and Amortization
Depreciation and amortization increased to $42.6 million for the three months ended June 30, 2009 from $42.5 million for the three months ended June 30, 2008 and $85.7 million for the six months ended June 30, 2009 from $85.2 million for the six months ended June 30, 2008. The increase was primarily due to the increased investment in tenant improvement costs, which are depreciated over a shorter period than buildings.
Interest Expense
Interest expense increased to $37.3 million for the three months ended June 30, 2009 from $36.3 million for the three months ended June 30, 2008. This increase was related to an increase in the weighted average interest rate to 6.4% for the three months ended June 30, 2009 from 6.0% for the three months ended June 30, 2008 and a decrease in interest capitalized due to the decrease in development activity. The effect of the increase in the weighted average interest rate was partially offset by a decrease in the average debt outstanding to $2,513.2 million for the three months ended June 30, 2009 from $2,696.8 million for the three months ended June 30, 2008. Interest expense decreased to $75.4 million for the six months ended June 30, 2009 from $77.7 million for the six months ended June 30, 2008. This decrease was related to a decrease in the average debt outstanding, which was $2,538.8 million for the six months ended June 30, 2009, compared to $2,949.6 million for the six months ended June 30, 2008. The effect of the decrease in the average debt outstanding was partially offset by an increase in the weighted average interest rate to 6.3% for the six months ended June 30, 2009 from 6.2% for the six months ended June 30, 2008, as well as a decrease in interest capitalized due to the decrease in development activity.
Interest expense allocated to discontinued operations for the three months ended June 30, 2009 and 2008 was $0.3 million and $1.0 million, respectively, and for the six months ended June 30, 2009 and 2008 was $0.9 million and $2.1 million, respectively. These decreases were due to the decrease in the level of dispositions in 2009 compared to 2008.
Other
(Loss) gain on property dispositions decreased to a loss of $2.1 million for the three months ended June 30, 2009 from a gain of $0.8 million for the three months ended June 30, 2008 and to a loss of $2.3 million for the six months ended June 30, 2009 from a gain of $1.5 million for the six months ended June 30, 2008. The decreases for the three-month and six-month periods were primarily due to impairments recognized on certain of the Company’s properties in 2009 in connection with sales activities.
During the three months ended June 30, 2009, the Company purchased $3.5 million principal amount of its 7.25% March 2011 senior unsecured notes and $4.9 million principal amount of its 6.375% August 2012 senior unsecured notes. These notes were purchased at a $0.6 million discount. During the six months ended June 30, 2009, the Company purchased $6.9 million principal amount of its 8.50% August 2010 senior unsecured notes, $3.5 million principal amount of its 7.25% March 2011 senior unsecured notes and $4.9 million principal amount of its 6.375% August 2012 senior unsecured notes. These notes were purchased at a $1.1 million discount. These discounts are included in net income as a debt extinguishment gain.
Income from discontinued operations remained relatively unchanged at $4.5 million for the three months ended June 30, 2009 and the three months ended June 30, 2008 and decreased to $5.7 million for the six months ended June 30, 2009 from $6.8 million for the six months ended June 30, 2008. The decrease for the six month periods was due to lower operating income and was partially offset by an increase in gains recognized on sales which were $3.9 million for the six months ended June 30, 2009 compared to $3.4 million for the six months ended June 30, 2008.
As a result of the foregoing, the Company’s net income increased to $43.2 million for the three months ended June 30, 2009 from $38.4 million for the three months ended June 30, 2008 and increased to $77.1 million for the six months ended June 30, 2009 from $74.8 million for the six months ended June 30, 2008.

 

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Liquidity and Capital Resources
Overview
The Company has historically accessed capital primarily from the public unsecured debt markets. The uncertainty in the global credit market has negatively affected this market. As a result, the Company expects to access multiple sources of capital to meet its maturing debt obligations and to complete its development pipeline. The Company believes that it has a significant amount of borrowing capacity available to it from its real estate assets which are generally unsecured. The Company believes that additional capital sources include sources such as proceeds to be realized from the sale of real estate assets. Finally, the Company has accessed the equity markets through the sale of common shares under its continuous equity offering program. The $300 million program was fully sold as of August 5, 2009. The Company paid Citigroup Global Markets Inc. and UBS Securities LLC, its agents under this program, an aggregate of $2.5 million in fees with respect to the common shares sold through this program during the three months ended June 30, 2009. The Company paid these agents an additional $1.4 million in fees with respect to common shares sold through this program from July 1, 2009 to August 5, 2009. During the six months ended June 30, 2009, the Company raised $317.4 million from secured mortgage financings, it realized $80.3 million in proceeds from the sale of real estate and it raised net proceeds of $214.0 million from the sale of common shares.
Activity
As of June 30, 2009, the Company had cash and cash equivalents of $164.9 million, including $40.4 million in restricted cash.
Net cash flow provided by operating activities increased to $165.6 million for the six months ended June 30, 2009 from $113.5 million for the six months ended June 30, 2008. This $52.1 million increase was primarily due to a change in restricted cash and the change in other receivables during the respective periods. The change in restricted cash is due to the release of restriction of funds in the United Kingdom for the payment of infrastructure costs. There was no similar activity during the first half of 2009. Net cash flow provided by operating activities is the primary source of liquidity to fund distributions to shareholders and for the recurring capital expenditures and leasing transaction costs for the Company’s Wholly Owned Properties in Operation. In the fourth quarter of 2008, the Company reduced its quarterly dividend to $0.475 per share from $0.625 per share.
Net cash used by investing activities was $30.5 million for the six months ended June 30, 2009 compared to net cash provided of $91.4 million for the six months ended June 30, 2008. This $121.9 million decrease primarily resulted from a decrease in net proceeds from the disposition of properties/land offset by a reduction in investment in development in progress. Net cash from the disposition of properties for the six months ended June 30, 2008 was provided primarily through the sale of Comcast Center to an unconsolidated joint venture. The joint venture obtained the funds to purchase the property through the funding of a $324 million permanent financing. See Note 4 to the Company’s financial statements.
Net cash used in financing activities was $29.8 million for the six months ended June 30, 2009 compared to $229.4 million for the six months ended June 30, 2008. This $199.6 million decrease was primarily due to the net proceeds from the issuance of shares pursuant to the Company’s continuous equity offering program. See Note 7 to the Company’s financial statements. Net cash provided by or used in financing activities includes proceeds from the issuance of equity and debt, net of debt repayments, equity repurchases and shareholder distributions. Cash provided by financing activities is a source of capital utilized by the Company to fund investment activities.
The Company funds its development and acquisitions with long-term capital sources and proceeds from the disposition of properties. For the three months ended June 30, 2009, a portion of these activities were funded through a $600 million Credit Facility (the “Credit Facility”). The interest rate on borrowings under the Credit Facility fluctuates based upon ratings from Moody’s Investors Service, Inc. (“Moody’s”), Standard and Poor’s Ratings Group (“S&P”) and Fitch, Inc. (“Fitch”). The current ratings for the Company’s senior unsecured debt are Baa2, BBB and BBB+ from Moody’s, S&P and Fitch, respectively. At these ratings, the interest rate for borrowings under the Credit Facility is 65 basis points over LIBOR. The Credit Facility contains an accordion feature whereby the Company may borrow an additional $200 million. The Credit Facility expires in January 2010, and has a one-year extension option.

 

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Additionally, the Company has entered into an agreement to fund its planned improvements for the Kings Hill Phase 2 land development project. At June 30, 2009, the Company had drawn £2.5 million from a £7 million revolving credit facility. The facility expires on November 22, 2011.
The Company uses debt financing to lower its overall cost of capital in an attempt to increase the return to shareholders. The Company staggers its debt maturities and maintains debt levels it considers to be prudent. In determining its debt levels, the Company considers various financial measures including the debt to gross assets ratio and the fixed charge coverage ratio. As of June 30, 2009 the Company’s debt to gross assets ratio was 38.9%, and for the six months ended June 30, 2009, the fixed charge coverage ratio was 2.6x. Debt to gross assets equals total long-term debt, borrowings under the Credit Facility divided by total assets plus accumulated depreciation. The fixed charge coverage ratio equals income from continuing operations before property dispositions, including operating activity from discontinued operations, plus interest expense and depreciation and amortization, divided by interest expense, including capitalized interest, plus distributions on preferred units.
As of June 30, 2009, $471.8 million in mortgage loans and $1,846.3 million in unsecured notes were outstanding with a weighted average interest rate of 6.46%. The interest rates on $2,163.3 million of mortgage loans and unsecured notes are fixed and range from 5.00% to 8.75%. For $154.9 million of mortgage loans, the interest rate floats at a spread to LIBOR. The interest rate on these loans at June 30, 2009 was 6.78%. The weighted average remaining term for the mortgage loans and unsecured notes is 5.2 years.
The scheduled principal amortization and maturities of the Company’s mortgage loans, unsecured notes outstanding and the Credit Facility and the related weighted average interest rates as of June 30, 2009 are as follows (in thousands, except percentages):
                                                 
    MORTGAGES                             WEIGHTED  
    PRINCIPAL     PRINCIPAL     UNSECURED     CREDIT             AVERAGE  
    AMORTIZATION     MATURITIES     NOTES     FACILITY     TOTAL     INTEREST RATE  
2009 (6 months)
  $ 3,204     $ 42     $ —     $ —     $ 3,246       6.52 %
2010
    6,530       4,736       169,739       140,000 (1)     321,005       4.74 %
2011
    6,758       14,873       246,500       —       268,131       7.19 %
2012
    4,711       180,612 (2)     230,100       —       415,423       6.64 %
2013
    3,858       4,510       —       —       8,368       6.95 %
2014
    4,352       2,684       200,000       —       207,036       5.66 %
2015
    3,932       44,469       300,000       —       348,401       5.28 %
2016
    2,461       182,318       300,000       —       484,779       4.86 %
2017
    1,770       —       300,000       —       301,770       6.62 %
2018 & thereafter
    —       —       100,000       —       100,000       7.50 %
 
                                   
 
       
 
  $ 37,576     $ 434,244     $ 1,846,339     $ 140,000     $ 2,458,159       6.14 %
 
                                   
     
(1)  
The Credit Facility expires on January 16, 2010 and has a one year renewal option.
 
(2)  
There are two one — year extensions for $147,737 of mortgages.
On April 15, 2009, the Company repaid $238.6 million of maturing 7.75% April 2009 senior unsecured notes.
General
The Company has continued to focus on the performance of the Same Store portfolio. In addition, the Company has continued to pursue development and acquisition opportunities and the strategic disposition of certain properties. The Company endeavors to maintain high occupancy levels while increasing rental rates and controlling costs.

 

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The expiring square feet and annual net rent by year for the Properties in Operation as of June 30, 2009 are as follows (in thousands):
                                                                 
    Industrial-     Industrial-              
    Distribution     Flex     Office     Total  
Wholly Owned Properties   Square     Annual     Square     Annual     Square     Annual     Square     Annual  
in Operation:   Feet     Rent     Feet     Rent     Feet     Rent     Feet     Rent  
 
                                                               
2009 (6 months)
    1,664     $ 6,881       680     $ 5,840       969     $ 11,947       3,313     $ 24,668  
2010
    3,443       16,149       1,767       16,464       2,794       39,295       8,004       71,908  
2011
    3,178       14,343       1,291       12,392       2,287       35,029       6,756       61,764  
2012
    4,699       22,885       1,487       14,530       2,224       37,991       8,410       75,406  
2013
    2,065       10,369       1,495       15,331       2,574       43,142       6,134       68,842  
2014
    2,510       12,931       848       9,474       2,607       40,843       5,965       63,248  
Thereafter
    10,322       58,173       2,541       30,888       6,146       111,403       19,009       200,464  
 
                                               
TOTAL
    27,881     $ 141,731       10,109     $ 104,919       19,601     $ 319,650       57,591     $ 566,300  
 
                                               
                                                                 
    Industrial-     Industrial-              
    Distribution     Flex     Office     Total  
Joint Venture Properties   Square     Annual     Square     Annual     Square     Annual     Square     Annual  
in Operation:   Feet     Rent     Feet     Rent     Feet     Rent     Feet     Rent  
 
                                                               
2009 (6 months)
    414     $ 1,563       —     $ —        143     $ 3,358       557     $ 4,921  
2010
    1,349       5,331       24       759       425       9,518       1,798       15,608  
2011
    1,174       4,649       11       310       415       10,431       1,600       15,390  
2012
    373       1,788       63       1,758       179       4,602       615       8,148  
2013
    303       1,392       —       —       242       5,774       545       7,166  
2014
    1,103       5,087       5       149       342       9,555       1,450       14,791  
Thereafter
    2,581       13,761       36       1,049       2,366       78,178       4,983       92,988  
 
                                               
TOTAL
    7,297     $ 33,571       139     $ 4,025       4,112     $ 121,416       11,548     $ 159,012  
 
                                               
                                                                 
    Industrial-     Industrial-              
    Distribution     Flex     Office     Total  
Properties   Square     Annual     Square     Annual     Square     Annual     Square     Annual  
in Operation:   Feet     Rent     Feet     Rent     Feet     Rent     Feet     Rent  
 
                                                               
2009 (6 months)
    2,078     $ 8,444       680     $ 5,840       1,112     $ 15,305       3,870     $ 29,589  
2010
    4,792       21,480       1,791       17,223       3,219       48,813       9,802       87,516  
2011
    4,352       18,992       1,302       12,702       2,702       45,460       8,356       77,154  
2012
    5,072       24,673       1,550       16,288       2,403       42,593       9,025       83,554  
2013
    2,368       11,761       1,495       15,331       2,816       48,916       6,679       76,008  
2014
    3,613       18,018       853       9,623       2,949       50,398       7,415       78,039  
Thereafter
    12,903       71,934       2,577       31,937       8,512       189,581       23,992       293,452  
 
                                               
TOTAL
    35,178     $ 175,302       10,248     $ 108,944       23,713     $ 441,066       69,139     $ 725,312  
 
                                               

 

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The scheduled deliveries of the 3.4 million square feet of Properties under Development as of June 30, 2009 are as follows (dollars in thousands):
                                                     
        Square Feet              
    Scheduled   Industrial-     Industrial-                     Percent     Total  
    In-Service Date   Distribution     Flex     Office     Total     Leased     Investment  
Wholly Owned Properties under Development
  3rd Quarter 2009     100,000       68,700       332,711       501,411       15.4 %   $ 88,546  
 
  4th Quarter 2009     961,100       —       176,494       1,137,594       96.1 %     125,417  
 
  2nd Quarter 2010     —       —       170,261       170,261       90.9 %     36,764  
 
  4th Quarter 2010     —       —       211,236       211,236       50.8 %     46,224  
 
                                       
 
  TOTAL     1,061,100       68,700       890,702       2,020,502       70.9 %   $ 296,951  
 
                                       
 
                                                   
Joint Venture Properties under Development
  3rd Quarter 2009     500,000       —       —       500,000       100.0 %   $ 24,150  
 
  4th Quarter 2009     225,000       —       —       225,000       40.7 %     11,675  
 
  2nd Quarter 2010     463,636       —       —       463,636       —       25,085  
 
  3rd Quarter 2010     —       —       176,058       176,058       26.0 %     129,815  
 
                                       
 
  TOTAL     1,188,636       —       176,058       1,364,694       46.7 %   $ 190,725  
 
                                       
 
                                                   
Total Properties under Development
  TOTAL     2,249,736       68,700       1,066,760       3,385,196       61.1 %   $ 487,676  
 
                                       
The Company has an effective S-3 shelf registration statement on file with the SEC pursuant to which the Trust and the Operating Partnership may issue an unlimited amount of equity securities and debt securities.
Calculation of Funds from Operations
The National Association of Real Estate Investment Trusts (“NAREIT”) has issued a standard definition for Funds from operations (as defined below). The SEC has agreed to the disclosure of this non-GAAP financial measure on a per share basis in its Release No. 34-47226, Conditions for Use of Non-GAAP Financial Measures. The Company believes that the calculation of Funds from operations is helpful to investors and management as it is a measure of the Company’s operating performance that excludes depreciation and amortization and gains and losses from property dispositions. As a result, year over year comparison of Funds from operations reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, providing perspective not immediately apparent from net income. In addition, management believes that Funds from operations provides useful information to the investment community about the Company’s financial performance when compared to other REITs since Funds from operations is generally recognized as the standard for reporting the operating performance of a REIT. Funds from operations available to common shareholders is defined by NAREIT as net income (computed in accordance with generally accepted accounting principles (“GAAP”)), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Funds from operations available to common shareholders does not represent net income 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.

 

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Funds from operations (“FFO”) available to common shareholders also does not represent cash flows generated from operating, investing or financing activities as defined by GAAP. Funds from operations available to common shareholders for the three and six months ended June 30, 2009 and 2008 are as follows (in thousands, except per share amounts):
                                 
    Three Months Ended     Six Months Ended  
    June 30, 2009     June 30, 2008     June 30, 2009     June 30, 2008  
Reconciliation of net income to FFO — basic
                               
 
       
Net Income available to common shareholders
  $ 36,671     $ 31,629     $ 64,560     $ 61,590  
 
                       
Basic — Income available to common shareholders
    36,671       31,629       64,560       61,590  
Basic — income available to common shareholders per weighted average share
  $ 0.35     $ 0.34     $ 0.63     $ 0.67  
 
                               
Adjustments:
                               
Depreciation and amortization of unconsolidated joint ventures
    4,132       4,329       8,122       7,877  
Depreciation and amortization
    42,364       43,252       85,386       86,630  
Gain on property dispositions
    (5,067 )     (3,164 )     (5,375 )     (4,132 )
Noncontrolling interest share in addback for depreciation and amortization and gain on property dispositions
    (1,467 )     (1,914 )     (3,204 )     (3,909 )
 
                       
Funds from operations available to common shareholders — basic
  $ 76,633     $ 74,132     $ 149,489     $ 148,056  
 
                       
 
                               
Basic Funds from operations available to common shareholders per weighted average share
  $ 0.72     $ 0.80     $ 1.45     $ 1.61  
 
                               
Reconciliation of net income to FFO — diluted:
                               
 
                               
Net Income
  $ 36,671     $ 31,629     $ 64,560     $ 61,590  
 
                       
Diluted — income available to common shareholders
    36,671       31,629       64,560       61,590  
Diluted — income available to common shareholders per weighted average share
  $ 0.35     $ 0.34     $ 0.62     $ 0.67  
 
                               
Adjustments:
                               
Depreciation and amortization of unconsolidated joint ventures
    4,132       4,329       8,122       7,877  
Depreciation and amortization
    42,364       43,252       85,386       86,630  
Gain on property dispositions
    (5,067 )     (3,164 )     (5,375 )     (4,132 )
Noncontrolling interest less preferred share distributions
    1,345       1,428       2,409       2,780  
 
                       
 
                               
Funds from operations available to common shareholders — diluted
  $ 79,445     $ 77,474     $ 155,102     $ 154,745  
 
                       
 
                               
Diluted Funds from operations available to common shareholders per weighted average share
  $ 0.72     $ 0.80     $ 1.44     $ 1.60  
 
                               
Reconciliation of weighted average shares:
                               
Weighted average common shares — all basic calculations
    105,768       92,322       103,244       92,001  
Dilutive shares for long term compensation plans
    477       379       381       247  
 
                       
 
                               
Diluted shares for net income calculations
    106,245       92,701       103,625       92,248  
Weighted average common units
    4,017       4,190       4,019       4,190  
 
                       
 
                               
Diluted shares for Funds from operations calculations
    110,262       96,891       107,644       96,438  
 
                       

 

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Inflation
Inflation has remained relatively low in recent years, and as a result, it has not had a significant impact on the Company during this period. To the extent an increase in inflation would result in increased operating costs, such as 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the Company’s exposure to market risk since its Annual Report on Form 10-K for the year ended December 31, 2008, as amended.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that its disclosure controls and procedures, as of the end of the period covered by this report, are functioning effectively to provide reasonable assurance that information required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been substituted for Republic Property Trust, a Maryland real estate investment trust, and Republic Property Limited Partnership, a Delaware limited partnership, (together, “Republic”) as a party to certain litigation as a result of the Company’s acquisition of Republic on October 4, 2007. The litigation arises out of a dispute between Republic and certain parties, two of whom were members of Republic’s Board of Trustees and “founders” of Republic. The dispute includes claims arising from the termination of a development arrangement in West Palm Beach, Florida and an attempt by Republic to acquire a certain office property from an entity controlled by the aforementioned related parties pursuant to an option agreement entered into at the time of Republic’s formation. The litigation has been summarized in previous filings. Material developments in the litigation are summarized below.
As noted in prior filings, Republic filed a lawsuit against Messrs. Kramer and Grigg and Republic Properties Corporation in the United States District Court (“the Court”) for the District of Columbia. Republic Property Corporation, Messrs. Kramer and Grigg filed motions to dismiss this lawsuit. On March 31, 2008, the Court granted the motion to dismiss. The Company filed a motion for reconsideration of the grant of the motion to dismiss on April 14, 2008. On August 13, 2008, the Court denied the motion for reconsideration. The Company has appealed the Court’s decision. Oral agreement of this appeal took place on May 12, 2009. The Court’s decision will be handed down in due course.
As noted in prior filings, Republic filed a lawsuit against 25 Massachusetts Avenue Property LLC (the “Owner”) of Republic Square I in the Court of Chancery in the State of Delaware. The matter was tried in 2007. On April 7, 2008, the Court of Chancery issued an opinion concluding that neither party is entitled to relief and ordering that the Lis Pendens be lifted. On April 15, 2008, the Owner filed a notice of appeal from dismissal of its counterclaims. On April 20, 2009, the Court issued its opinion dismissing 25 Mass’ claims. On April 24, 2009, 25 Mass filed a motion for Rehearing En Banc. On April 29, 2009, the Court denied 25 Mass’ motion for Rehearing En Banc.
On December 12, 2008, 25 Mass filed a complaint in the Superior Court for the District of Columbia, alleging that 25 Mass had entered a purchase and sale agreement with a third party for the sale of Republic Square I, and that Republic’s lawsuit and its Lis Pendens, described above and in previous filings, prevented a closing by which Republic Square I could be sold under the terms of that purchase and sale agreement. The December 12, 2008 lawsuit alleges that by so doing, Republic committed tortuous interference with contract, tortuous interference with prospective contractual relations, malicious prosecution, abuse of process and a violation of the Washington D.C. Lis Pendens statute. The filed complaint seeks “no less than $85 million” in compensatory damages, and “no less than $85 million” in punitive damages, and attorneys’ fees for an improperly filed Lis Pendens under Washington D.C. Code § 42-1207(d). In April 2009, following the decision of the Supreme Court of the State of Delaware, 25 Mass voluntarily dismissed with prejudice all of its claims in this matter with the exception of its claim based on a claim of malicious prosecution. We believe that this claim is without merit and intend to defend vigorously against this litigation.
While management currently believes that resolving these matters will not have a material adverse impact on our financial position of our results of operations, the litigation noted above is subject to inherent uncertainties and management’s view of these matters may change in the future. Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on our financial position and the results of operations for the period in which the effect becomes capable of being reasonably estimated.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in Item 1A of Part 1 “Risk Factors,” in our Form 10-K for the year ended December 31, 2008, as amended.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.

 

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Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the 2009 Annual Meeting of Shareholders of the Trust, held on May 21, 2009, the following matters were approved by the requisite vote of the Shareholders, as follows.
  1.  
Management’s nominees, William P. Hankowsky, David L. Lingerfelt and Jose Mejia, were elected to fill the three available positions as Class II trustees. Voting (expressed in number of shares) was as follows: Mr. Hankowsky: 81,615,868 for, 802,177 against or withheld and no abstentions or broker non-votes; Mr. Lingerfelt: 82,162,967 for, 255,170 against or withheld and no abstentions or broker non-votes; and Mr. Mejia: 82,239,816 for, 178,230 against or withheld and no abstentions or broker non-votes.
  2.  
The shareholders approved a proposal to ratify the selection of Ernst & Young LLP as the Trust’s independent registered public accounting firm for 2009. Voting (expressed in number of shares) was as follows: 83,527,816 for, 291,722 against and 49,093 abstentions or broker non-votes.
  3.  
The shareholders approved a proposal to amend and restate the Liberty Property Trust Amended and Restated Share Incentive Plan (the “Share Incentive Plan”) to increase the 865,431 shares currently remaining available for issuance under the Share Incentive Plan by 8,300,000 shares, and to make other specified changes. Voting (expressed in number of shares) was as follows: 68,919,798 for; 8,870,897 against and 126,294 abstentions or broker non-votes.
Item 5. Other Information
None.

 

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Item 6. Exhibits
         
  10.1    
Liberty Property Trust Amended and Restated Share Incentive Plan as amended effective May 21, 2009 (Incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders held on May 21, 2009, filed with the Commission on April 17, 2009.
       
 
  10.2*    
Form of 2009 Long Term Incentive Plan Target Unit Award Agreement.
       
 
  12.1*    
Statement Re: Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges.
       
 
  31.1*    
Certification of the Chief Executive Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
       
 
  31.2*    
Certification of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
       
 
  31.3*    
Certification of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
       
 
  31.4*    
Certification of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
       
 
  32.1*    
Certification of the Chief Executive Officer of Liberty Property Trust required under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
       
 
  32.2*    
Certification of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
       
 
  32.3*    
Certification of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
       
 
  32.4*    
Certification of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 
     
*  
Filed herewith.

 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIBERTY PROPERTY TRUST
         
/s/ WILLIAM P. HANKOWSKY
 
William P. Hankowsky
President and Chief Executive Officer
  August 7, 2009
 
Date 		   
 
       
/s/ GEORGE J. ALBURGER, JR.
 
George J. Alburger, Jr.
Executive Vice President and Chief Financial Officer
  August 7, 2009
 
Date 		   

 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIBERTY PROPERTY LIMITED PARTNERSHIP
         
BY: Liberty Property Trust
      General Partner
       
 
       
/s/ WILLIAM P. HANKOWSKY
 
William P. Hankowsky
President and Chief Executive Officer
  August 7, 2009
 
Date 		   
 
       
/s/ GEORGE J. ALBURGER, JR.
 
George J. Alburger, Jr.
Executive Vice President and Chief Financial Officer
  August 7, 2009
 
Date 		   

 

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EXHIBIT INDEX
         
EXHIBIT    
NO.   DESCRIPTION
       
 
  10.2    
Form of 2009 Long Term Incentive Plan Target Unit Award Agreement.
       
 
  12.1    
Statement Re: Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges.
       
 
  31.1    
Certification of the Chief Executive Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
       
 
  31.2    
Certification of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
       
 
  31.3    
Certification of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
       
 
  31.4    
Certification of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
       
 
  32.1    
Certification of the Chief Executive Officer of Liberty Property Trust required under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
       
 
  32.2    
Certification of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
       
 
  32.3    
Certification of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
       
 
  32.4    
Certification of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

 

52

Exhibit 10.2
LIBERTY PROPERTY TRUST
2008 LONG TERM INCENTIVE PLAN
TARGET UNIT AWARD AGREEMENT
This TARGET UNIT AWARD AGREEMENT (the “Award Agreement”), dated as of                       _____, 20  _____  (the “Award Date”), is delivered by Liberty Property Trust, a Maryland real estate investment trust (the “Company”), to                      (the “Participant”).
RECITALS
A. The Liberty Property Trust 2008 Long Term Incentive Plan (the “Plan”) provides for the grant of Target Units.
B. The Compensation Committee of the Board of Directors (the “Committee”) has decided to make a Target Unit Award to the Participant as an inducement for the Participant to promote the best interests of the Company and its shareholders. The Participant may receive a copy of the Plan by contacting                      , at                      .
NOW, THEREFORE, the parties to this Award, intending to be legally bound hereby, agree as follows:
1.  Grant of Target Units . Subject to the terms and conditions set forth in this Award Agreement, the Company hereby grants to the Participant up to an aggregate maximum of                      units (the “Target Units”), based on the achievement of the performance goals established by the Committee and set forth on the attached Exhibit A (the “Performance Goals”). Each Target Unit shall be a phantom right and shall be equivalent to one common share of beneficial ownership, par value $0.001 per share, of the Company (the “Common Share”) on the Redemption Date (as defined below). The Target Units granted hereunder are intended to qualify as “qualified performance-based compensation” under section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The number of Target Units set forth in this Paragraph 1 is the maximum number of Common Shares payable under this Award Agreement. The actual number of Common Shares that may be paid to the Participant pursuant to this Award Agreement will depend on whether the Performance Goals are achieved and the satisfaction of other conditions as set forth below. The Committee shall not have discretion to increase the number of Common Shares payable based upon achievement of the Performance Goals, but the Committee may reduce the number of Common Shares that are payable based upon the Committee’s assessment.
2.  Target Unit Account . The Company shall establish and maintain a Target Unit account as a bookkeeping account on its records (the “Target Unit Account”) for the Participant and shall record in such Target Unit Account the number of Target Units granted to the Participant. The Participant shall not have any interest in any fund or specific assets of the Company by reason of this grant or the Target Unit Account established for the Participant.

 

 

 

3.  Vesting .
(a) Except as provided in subparagraph (b) below, in order to become vested in the Target Units, the Participant must continue to be employed by, or providing service to the Employer (as defined in the Plan) from the Award Date through the Redemption Date (as defined below); provided , however , that the number of Target Units that shall become vested shall be determined based on satisfaction of the Performance Goals. No vesting of the Target Units shall occur until the Committee has certified the level of achievement of the Performance Goals, which certification shall occur as soon as administratively practicable after the end of the applicable performance period, but not later than sixty (60) days following the end of the applicable performance period (the “Certification Date”). Any portion of the Target Units that do not become vested because of the failure to fully satisfy the Performance Goals shall be forfeited as of the Certification Date and the Participant shall have no rights with respect to redemption of the portion of the Target Units that have become forfeited.
(b) Except as provided in subparagraphs (c) and (d) below, if at any time prior to the Redemption Date the Participant’s employment or service with the Employer terminates for any reason other than death, Disability (as defined in the Plan) or Retirement (as defined in the Plan), all of the Target Units subject to this Award Agreement will be immediately forfeited and the Participant shall have no rights with respect to the redemption of any portion of the Target Units.
(c)
(i) Notwithstanding any provision to the contrary herein, if the Participant’s employment or service with the Company is terminated on account of the Participant’s Retirement and the Committee makes the determination described in clause (ii) of this subparagraph (c), then the Participant shall continue to be eligible to earn the Target Units, subject to and based on the level of achievement of the Performance Goals as certified by the Committee, and shall be eligible to receive payment of the Target Units as set forth herein; provided , that the portion of the Participant’s Target Units that the Participant shall be eligible to receive shall be determined based on the Participant’s age and term of employment with or service to the Company or an Affiliate of the Company, as set forth in the following clauses (1) — (6):
(1) In the event the Participant’s Retirement occurs after the Participant has attained age 55 or 56, with at least 10 years of employment or service for the Company or an Affiliate, the participant shall remain eligible to receive any Target Units as to which the applicable Redemption Date had already occurred at the date of Retirement or will occur prior to or on the first anniversary of the date of Retirement.
(2) In the event the Participant’s Retirement occurs after the Participant has attained age 57 or 58, with at least 8 years of employment or service for the Company or an Affiliate, the participant shall remain eligible to receive any Target Units as to which the applicable Redemption Date had already occurred at the date of Retirement or will occur prior to or on the second anniversary of the date of Retirement.

 

2

 

(3) In the event the Participant’s Retirement occurs after the Participant has attained age 59 or 60, with at least 6 years of employment or service for the Company or an Affiliate, the participant shall remain eligible to receive any Target Units as to which the applicable Redemption Date had already occurred at the date of Retirement or will occur prior to or on the third anniversary of the date of Retirement.
(4) In the event the Participant’s Retirement occurs after the Participant has attained age 61 or 62, with at least 4 years of employment or service for the Company or an Affiliate, the participant shall remain eligible to receive any Target Units as to which the applicable Redemption Date had already occurred at the date of Retirement or will occur prior to or on the third anniversary of the date of Retirement.
(5) In the event the Participant’s Retirement occurs after the Participant has attained age 63 or 64, with at least 2 years of employment or service for the Company or an Affiliate, the participant shall remain eligible to receive any Target Units as to which the applicable Redemption Date had already occurred at the date of Retirement or will occur prior to or on the third anniversary of the date of Retirement.
(6) In the event the Participant’s Retirement occurs after the Participant has attained age 65 or older, the participant shall remain eligible to receive any Target Units as to which the applicable Redemption Date had already occurred at the date of Retirement or will occur prior to or on the third anniversary of the date of Retirement.
(ii) In order for the Participant to continue to remain eligible to earn the Target Units following the Participant’s termination of employment or service on account of Retirement as set forth in this subparagraph (c), the Committee must make a determination, evidenced by an affirmative action on the part of the Committee, that such termination of employment or service constitutes termination of employment or other active for-profit service that is undertaken in good faith by the Participant, meaning, among other factors that may be taken into account in the sole discretion of the Committee, that the termination of employment or service is determined by the Committee, in its sole discretion, (i) not to be materially detrimental to the business interests of the Company, (ii) not to result in a violation of any obligations of the Participant to the Company, and (iii) to be motivated by the Participant’s intention, following such termination, to cease working on a full-time basis, for the Company or any other employer, or to provide services, whether on a consulting, independent contractor, employee or other basis to any entity engaged in the business of owning, operating or developing commercial real estate. Absent such an affirmative action on the part of the Committee, the Participant shall not remain eligible to earn the Target Units referred to in this subparagraph (c) and the Target Units will be immediately forfeited.
(d) Notwithstanding any provision to the contrary herein, if the Participant’s employment or service with the Company is terminated on account of the Participant’s death, or Disability, the Participant shall continue to be eligible to earn the Target Units based on the level of achievement of the Performance Goals as certified by the Committee, and shall receive payment of the Target Units as set forth herein.

 

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4.  Redemption . The Target Units shall be redeemed by the Company on the Certification Date or as soon as administratively practicable thereafter, but not later than thirty (30) days following the Certification Date (the “Redemption Date”). On the Redemption Date, all Target Units that have vested will be redeemed and converted to an equivalent number of Common Shares, and the Participant shall receive a single sum distribution of the Common Shares, which shall be issued under the Company’s Share Incentive Plan (as defined in the Plan) (or a successor plan thereto). All redemptions pursuant to this Award Agreement and the Plan shall be deemed a separate payment for purposes of section 409A of the Code.
5.  Dividend Equivalents . Unless otherwise determined by the Committee, cash, Common Shares or other property equal in value to the dividends paid with respect to the Common Shares underlying the Target Units (the “Dividend Equivalents”) shall be payable subject to the same Performance Goals and terms as the Target Units to which they relate. Dividend Equivalents shall be credited with respect to the Target Units to the Participant’s Target Unit Account from the Award Date until the Redemption Date. If and to the extent that the Target Units are forfeited, all related Dividend Equivalents shall also be forfeited. In no event shall the Participant accrue more than $                                           of such Dividend Equivalents during any calendar year.
6.  Non-Transferability of Target Unit Award . No Target Units or Dividend Equivalents awarded to the Participant under this Award Agreement may be transferred, assigned,pledged, encumber or exercised by the Participant and a Target Unit shall be redeemed and a Dividend Equivalent distributed during the Participant’s lifetime only for the benefit of the Participant . Any attempt to transfer, assign, pledge, or encumber the Target Units or Dividend Equivalent by the Participant shall be null, void and without effect.
7.  No Rights as Shareholder . The Participant shall not have any rights as a shareholder of the Company, including the right to any cash dividends (except as provided in Paragraph 5), or the right to vote, with respect to any Target Units.
8.  Change of Control . The provisions set forth in the Plan applicable to a Change in Control (as defined in the Plan) shall apply to the Target Units. In the event of a Change in Control, the Committee may take such actions as it deems appropriate in accordance with the terms of the Plan and consistent with the requirements of section 409A of the Code.
9.  Incorporation by Reference; Definitions . This Award Agreement shall be subject to the terms, conditions and limitations of the Plan, which are incorporated herein by reference, and in all respects shall be interpreted in accordance with the Plan. In the event of any contradiction, distinction or difference between this Award Agreement and the terms of the Plan, the terms of the Plan will control. Except as otherwise defined in this Award Agreement, the terms used in this Award Agreement shall have the meanings set forth in the Plan. The grant is subject to the interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with the provisions of the Plan. The Committee shall have the authority to interpret and construe the grant pursuant to the terms of the Plan, its decisions shall be conclusive as to any questions arising hereunder, and the Participant’s acceptance of this grant is the Participant’s agreement to be bound by the interpretations and decisions of the Committee with respect to this grant and the Plan.

 

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10.  Restrictions on Issuance or Transfer of Shares of Common Stock .
(a) The obligation of the Company to deliver Common Shares upon the redemption of the Target Units shall be subject to the condition that if at any time the Committee shall determine in its discretion that the listing, registration or qualification of the Common Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issue of Common Shares, the Common Shares may not be issued in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. The issuance of the shares of Common Shares to the Participant on the Redemption Date and the payment of cash to the Participant pursuant to this grant is subject to any applicable taxes and other laws or regulations of the United States or of any state having jurisdiction thereof.
(b) As a condition to receive any Common Shares on the Redemption Date, the Participant agrees to be bound by the Company’s policies regarding the transfer of the Common Shares and understands that there may be certain times during the year in which the Participant will be prohibited from selling, transferring, pledging, donating, assigning, mortgaging, hypothecating or otherwise encumbering the Common Shares.
(c) On, or as soon as administratively practicable following the Redemption Date, a certificate representing the Common Shares that are redeemed shall be issued to the Participant.
11.  Withholding . The Participant is required to pay to the Company, or make other arrangements satisfactory to the Employer to provide for the payment of, any federal, state, local or other taxes that the Employer is required to withhold with respect to the grant, vesting or redemption/distribution of the Target Units and Dividend Equivalents. Subject to Committee approval, the Participant may elect to satisfy any tax withholding obligation of the Company with respect to the redemption of the Target Units by having Common Shares withheld up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state, local and other tax liabilities.
12.  No Rights to Continued Employment or Service . The terms and conditions of this Award Agreement shall not be deemed to constitute a contract of employment between the Company or the Employer and the Participant. Such employment continues to be an “at will” employment relationship that can be terminated at any time for any reason, or no reason, with or without Cause (as defined in the Plan), and with or without notice, unless otherwise expressly provided for in the Participant’s Employment Agreement (as defined in the Plan). Nothing in this Award Agreement shall be deemed to give a Participant the right to be retained in the service of the Company or the Employer, or to interfere in any way with any right of the Company or the Employer to discipline or discharge the Participant at any time, subject to the terms of the Participant’s Employment Agreement (if applicable).
13.  Assignment by the Company . The rights and protections of the Company hereunder shall extend to any successors or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This grant may be assigned by the Company without the Participant’s consent.

 

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14.  Acknowledgment . By executing this Award Agreement, the Participant hereby acknowledges that with respect to any right to payment pursuant to this grant, the Participant is and shall be an unsecured general creditor of the Company without any preference as against other unsecured general creditors of the Company, and the Participant hereby covenants for the Participant, and anyone at any time claiming through or under the Participant not to claim any such preference, and hereby disclaims and waives any such preference which may at any time be at issue, to the fullest extent permitted by applicable law.
15.  Application of Section 409A . This Award Agreement and the Target Units is not intended to constitute or result in deferred compensation subject to the requirements of section 409A of the Code, by settling the Target Units within the short-term deferral exemption set forth in the regulations under section 409A of the Code, and this Award Agreement and the Target Units shall be interpreted on a basis consistent with such intent. However, to the extent any amount payable under this Award Agreement is subsequently determined to constitute deferred compensation subject to the requirements of section 409A of the Code, this Award Agreement shall be administered in accordance with the requirements of section 409A of the Code. In such case, distributions made under this Award Agreement may only be made in a manner and upon an event permitted by section 409A of the Code. To the extent that any provision of this Award Agreement would cause a conflict with the requirements of section 409A of the Code, or would cause the administration of this Award Agreement to fail to satisfy the requirements of section 409A of the Code, such provision shall be deemed null and void to the extent permitted by applicable law. In no event shall the Participant, directly or indirectly, designate the calendar year of distribution. For purposes of section 409A of the Code each payment made under this Award Agreement shall be treated as a separate payment. This Award Agreement may be amended without the consent of the Participant in any respect deemed by the Committee to be necessary in order to preserve compliance with section 409A of the Code.
16.  Governing Law . This grant shall be deemed to be made under and shall be construed in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to the conflicts of laws provisions thereof.
17.  Notice . Any notice to be given to the Company shall be in writing and shall be addressed to the Treasurer of the Company at its principal executive office, and any notice to be given to the Participant shall be addressed to the Participant at the address then appearing in the records of the Company, or at such other address as either party hereafter may designate in writing to the other. Except as otherwise set forth herein, any such notice shall be deemed to have been duly given, made and received only when personally delivered, or on the day delivery is guaranteed when transmitted, addressed as aforesaid, to a third party company or governmental entity providing delivery services in the ordinary course of business, or two days following the day when deposited in the United States mails, by registered or certified mail, postage prepaid, return receipt requested, addressed as aforesaid.
[Signature Page Follows]

 

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[performance-based vesting]
IN WITNESS WHEREOF, the Company has granted this Target Unit on the day and year first above written.
             
    LIBERTY PROPERTY TRUST    
 
           
 
  By:        
 
     
 
Print Name and Title: 		   
I hereby accept the Target Units described in this Award Agreement. I have read the terms of the Plan and this Award Agreement, and agree to be bound by the terms of the Plan and this Award Agreement and the interpretations of the Committee with respect thereto.
             
    ACKNOWLEDGED:    
 
           
 
  By:        
 
     
 
Participant 		   

 

7

 

Exhibit A
Performance Goals

 

8

EXHIBIT 12.1 — STATEMENT RE: COMPUTATION OF RATIO
OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
LIBERTY PROPERTY TRUST / LIBERTY PROPERTY LIMITED PARTNERSHIP
(Amounts in thousands except ratio amounts)
         
    Six months ended
June 30, 2009 		 
 
       
Earnings before fixed charges:
       
Income before allocation of minority interest and income from investments in unconsolidated subsidiaries
  $ 88,782  
Add: Interest expense
    72,920  
Depreciation expense on cap’d interest
    674  
Amortization of deferred financing costs
    2,500  
 
     
 
       
Earnings before fixed charges
  $ 164,876  
 
     
 
       
Fixed charges:
       
Interest expense
  $ 72,920  
Amortization of deferred financing charges
    2,500  
Capitalized interest
    5,415  
 
     
 
       
Fixed charges
    80,835  
 
     
 
       
Preferred share distributions
    —  
Preferred unit distributions
    10,506  
 
     
 
       
Combined fixed charges
  $ 91,341  
 
     
 
       
Ratio of earnings to fixed charges
    2.04  
 
     
 
       
Ratio of earnings to combined fixed charges
    1.81  
 
     

 

Exhibit 31.1
LIBERTY PROPERTY TRUST
CERTIFICATIONS REQUIRED BY
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, William P. Hankowsky, certify that:
1. I have reviewed this Form 10-Q of Liberty Property Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting,
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
             
Date: August 7, 2009
  By:   /s/ WILLIAM P. HANKOWSKY
 
William P. Hankowsky 		   
 
      Chairman, President and Chief Executive Officer    

 

 

Exhibit 31.2
LIBERTY PROPERTY TRUST
CERTIFICATIONS REQUIRED BY
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, George J. Alburger, Jr., certify that:
1. I have reviewed this Form 10-Q of Liberty Property Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting,
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
             
Date: August 7, 2009
  By:   /s/ GEORGE J. ALBURGER, JR.
 
George J. Alburger, Jr. 		   
 
      Executive Vice President and Chief Financial Officer    

 

 

Exhibit 31.3
LIBERTY PROPERTY LIMITED PARTNERSHIP
CERTIFICATIONS REQUIRED BY
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, William P. Hankowsky, certify that:
1. I have reviewed this Form 10-Q of Liberty Property Limited Partnership;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting,
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
             
Date: August 7, 2009
  By:   /s/ WILLIAM P. HANKOWSKY
 
William P. Hankowsky 		   
 
      Chairman, President and Chief Executive Officer of
Liberty Property Trust, the Registrant’s sole general partner 		   

 

 

Exhibit 31.4
LIBERTY PROPERTY LIMITED PARTNERSHIP
CERTIFICATIONS REQUIRED BY
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, George J. Alburger, Jr., certify that:
1. I have reviewed this Form 10-Q of Liberty Property Limited Partnership;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting,
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
             
Date: August 7, 2009
  By:   /s/ GEORGE J. ALBURGER, JR.
 
George J. Alburger, Jr. 		   
 
      Executive Vice President and Chief Financial Office
of Liberty Property Trust, the Registrant’s sole general partner 		   

 

 

Exhibit 32.1
LIBERTY PROPERTY TRUST
CERTIFICATIONS REQUIRED BY
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
In connection with the Quarterly Report of Liberty Property Trust (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, WILLIAM P. HANKOWSKY, President and Chief Executive Officer of the Company, certify in connection with Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, that based on my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
     
/s/ WILLIAM P. HANKOWSKY
 
William P. Hankowsky
   
Chairman, President and Chief Executive Officer
   
Date: August 7, 2009

 

 

Exhibit 32.2
LIBERTY PROPERTY TRUST
CERTIFICATIONS REQUIRED BY
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
In connection with the Quarterly Report of Liberty Property Trust (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, GEORGE J. ALBURGER, JR., Executive Vice President and Chief Financial Officer of the Company, certify in connection with Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, that based on my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
     
/s/ GEORGE J. ALBURGER, JR.
 
George J. Alburger, Jr.
   
Executive Vice President and Chief Financial Officer
   
Date: August 7, 2009

 

 

Exhibit 32.3
LIBERTY PROPERTY LIMITED PARTNERSHIP
CERTIFICATIONS REQUIRED BY
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
In connection with the Quarterly Report of Liberty Property Limited Partnership (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, WILLIAM P. HANKOWSKY, President and Chief Executive Officer of Liberty Property Trust (the sole general partner of the Company), certify in connection with Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, that based on my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
     
/s/ WILLIAM P. HANKOWSKY
 
William P. Hankowsky
   
Chairman, President and Chief Executive Officer
of Liberty Property Trust, the Company’s sole general partner
   
Date: August 7, 2009

 

 

Exhibit 32.4
LIBERTY PROPERTY LIMITED PARTNERSHIP
CERTIFICATIONS REQUIRED BY
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
In connection with the Quarterly Report of Liberty Property Limited Partnership (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, GEORGE J. ALBURGER, JR., Executive Vice President and Chief Financial Officer of Liberty Property Trust (the sole general partner of the Company), certify in connection with Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, that based on my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
     
/s/ GEORGE J. ALBURGER, JR.
 
George J. Alburger, Jr.
   
Executive Vice President and Chief Financial Officer
of Liberty Property Trust, the Company’s sole general partner
   
Date: August 7, 2009