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Liberty Property Trust 10-Q 2007
e10vq
Table of Contents

 
 
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 March 31, 2007
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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer (See definition of “Accelerated filer and large accelerated filer” as defined in Rule 12b-2 of the Exchange Act). (check one):
Large Accelerated Filer þ     Accelerated Filer o     Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
On May 2, 2007, 91,959,391 Common Shares of Beneficial Interest, par value $.001 per share, of Liberty Property Trust were outstanding.
 
 

 


 

Liberty Property Trust/Liberty Property Limited Partnership
Form 10-Q for the period ended March 31, 2007
         
Index
  Page
       
 
       
       
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    11  
 
       
    12  
 
       
    13  
 
       
    14  
 
       
    19  
 
       
    27  
 
       
    27  
 
       
    28  
 
       
    30  
 
       
Signatures for Liberty Property Limited Partnership
    31  
 
       
    32  
 Statement Re: Computation of Ratio of Earnings to Fixed Charges
 Certification of the Chief Executive Officer
 Certification of the Chief Financial Officer
 Certification of the Chief Executive Officer, in its capacity as the general partner
 Certification of the Chief Financial Officer, in its capacity as the general partner
 Certification of the Chief Executive Officer required under Rule 13a-14(b)
 Certification of the Chief Financial Officer required under Rule 13a-14(b)
 Certification of the Chief Executive Officer, in its capacity as the general partner, required by Rule 13a-14(b)
 Certification of the Chief Financial Officer, in its capacity as the general partner, required by Rule 13a-14(b)

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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)
                 
    March 31, 2007     December 31, 2006  
    (Unaudited)          
ASSETS
               
Real estate:
               
Land and land improvements
  $ 706,318     $ 677,081  
Building and improvements
    3,872,496       3,803,148  
Less accumulated depreciation
    (824,213 )     (804,025 )
 
           
 
               
Operating real estate
    3,754,601       3,676,204  
 
               
Development in progress
    650,879       538,303  
Land held for development
    241,169       195,332  
 
           
 
               
Net real estate
    4,646,649       4,409,839  
 
               
Cash and cash equivalents
    37,859       53,737  
Restricted cash
    30,233       55,671  
Accounts receivable
    26,412       23,809  
Deferred rent receivable
    73,027       71,894  
Deferred financing and leasing costs, net of accumulated amortization (2007, $105,438; 2006, $100,406)
    134,817       129,375  
Investments in unconsolidated joint ventures
    48,146       47,196  
Assets held for sale
    10,291       51,084  
Prepaid expenses and other assets
    64,792       68,306  
 
           
 
               
Total assets
  $ 5,072,226     $ 4,910,911  
 
           
 
               
LIABILITIES
               
Mortgage loans
  $ 183,867     $ 185,978  
Unsecured notes
    1,955,000       1,955,000  
Credit facility
    397,960       246,960  
Accounts payable
    44,470       40,633  
Accrued interest
    28,945       36,297  
Dividend and distributions payable
    59,414       58,961  
Other liabilities
    223,995       217,751  
 
           
 
               
Total liabilities
    2,893,651       2,741,580  
 
               
Minority interest
    297,321       297,727  
 
               
SHAREHOLDERS’ EQUITY
               
Common shares of beneficial interest, $.001 par value, 187,987,000 shares authorized, 91,698,386 (includes 59,100 in treasury) and 90,972,979 (includes 59,100 in treasury) shares issued and outstanding as of March 31, 2007 and December 31, 2006, respectively
    92       91  
Additional paid-in capital
    1,932,737       1,906,403  
Accumulated other comprehensive income
    20,757       20,323  
Distributions in excess of net income
    (71,005 )     (53,886 )
Common shares in treasury, at cost, 59,100 shares as of March 31, 2007 and December 31, 2006
    (1,327 )     (1,327 )
 
           
 
               
Total shareholders’ equity
    1,881,254       1,871,604  
 
           
 
               
Total liabilities and shareholders’ equity
  $ 5,072,226     $ 4,910,911  
 
           
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  
    March 31, 2007     March 31, 2006  
OPERATING REVENUE
               
Rental
  $ 121,374     $ 110,859  
Operating expense reimbursement
    54,513       47,588  
 
           
Total operating revenue
    175,887       158,447  
 
           
 
               
OPERATING EXPENSE
               
Rental property
    39,375       33,794  
Real estate taxes
    17,359       16,547  
General and administrative
    13,339       9,978  
Depreciation and amortization
    38,277       34,055  
 
           
Total operating expenses
    108,350       94,374  
 
           
 
               
Operating income
    67,537       64,073  
 
               
OTHER INCOME (EXPENSE)
               
Interest and other income
    2,949       1,823  
Interest expense
    (28,156 )     (29,413 )
 
           
Total other income (expense)
    (25,207 )     (27,590 )
 
           
 
               
Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures
    42,330       36,483  
 
               
Gain on property dispositions
    152       45  
Income taxes
    (301 )     (375 )
Minority interest
    (5,596 )     (4,656 )
Equity in earnings of unconsolidated joint ventures
    729       175  
 
           
 
               
Income from continuing operations
    37,314       31,672  
 
               
Discontinued operations, net of minority interest (including net gain on property dispositions of $2,801 and $59,530 for the three months ended March 31, 2007 and 2006, respectively)
    2,384       58,755  
 
           
 
               
Net income
  $ 39,698     $ 90,427  
 
           
 
               
Earnings per common share
               
Basic:
               
Income from continuing operations
  $ 0.41     $ 0.36  
Income from discontinued operations
    0.03       0.66  
 
           
 
               
Income per common share – basic
  $ 0.44     $ 1.02  
 
           
 
               
Diluted:
               
Income from continuing operations
  $ 0.40     $ 0.36  
Income from discontinued operations
    0.03       0.65  
 
           
 
               
Income per common share – diluted
  $ 0.43     $ 1.01  
 
           
 
               
Distributions per common share
  $ 0.62     $ 0.615  
 
           
 
               
Weighted average number of common shares outstanding
               
Basic
    91,036       88,326  
Diluted
    92,018       89,876  
See accompanying notes.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
                 
    Three Months Ended  
    March 31, 2007     March 31, 2006  
OPERATING ACTIVITIES
               
Net income
  $ 39,698     $ 90,427  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    38,167       37,384  
Amortization of deferred financing costs
    993       1,083  
Equity in earnings of unconsolidated joint ventures
    (729 )     (175 )
Distributions from unconsolidated joint ventures
    405       366  
Minority interest in net income
    5,705       6,983  
Gain on property dispositions
    (2,953 )     (59,575 )
Noncash compensation
    3,881       2,311  
Changes in operating assets and liabilities:
               
Restricted cash
    25,703       10,125  
Accounts receivable
    (2,542 )     (13,295 )
Deferred rent receivable
    (2,304 )     2,674  
Prepaid expenses and other assets
    2,550       (15,627 )
Accounts payable
    3,802       2,787  
Accrued interest
    (7,352 )     (8,126 )
Other liabilities
    5,877       (14,281 )
 
           
Net cash provided by operating activities
    110,901       43,061  
 
           
 
               
INVESTING ACTIVITIES
               
Investment in properties
    (125,343 )     (47,753 )
Investments in unconsolidated joint ventures
    (185 )     (673 )
Net proceeds from disposition of properties/land
    82,776       148,531  
Investment in development in progress
    (114,812 )     (68,772 )
Investment in land held for development
    (66,963 )     (11,198 )
Increase in deferred leasing costs
    (11,301 )     (5,244 )
 
           
Net cash (used in) provided by investing activities
    (235,828 )     14,891  
 
           
 
               
FINANCING ACTIVITIES
               
Net proceeds from issuance of common shares
    22,953       14,855  
Net proceeds from the issuance of preferred units
    (4 )      
Repayments of mortgage loans
    (2,111 )     (21,034 )
Proceeds from credit facility
    330,950       86,050  
Repayments on credit facility
    (179,950 )     (96,500 )
Increase in deferred financing costs
    (36 )     (213 )
Distributions paid on common shares
    (56,364 )     (54,326 )
Distributions paid on units
    (6,606 )     (5,797 )
 
           
Net cash provided by (used in) provided by financing activities
    108,832       (76,965 )
 
           
 
               
Decrease in cash and cash equivalents
    (16,095 )     (19,013 )
Increase in cash and cash equivalents related to foreign currency translation
    217       517  
Cash and cash equivalents at beginning of period
    53,737       61,629  
 
           
Cash and cash equivalents at end of period
  $ 37,859     $ 43,133  
 
           
 
               
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
               
Write-off of fully depreciated property and deferred costs
  $ 24,443     $ 17,432  
See accompanying notes.

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Liberty Property Trust
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2007
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, together with the Trust and their consolidated subsidiaries, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 95.6% of the common equity of the Operating Partnership at March 31, 2007. The Company provides leasing, property management, development, acquisition and other tenant-related services for a portfolio of industrial and office properties that are located within the 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, 2006. 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 current period presentation.
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 March 31, 2007     For the Three Months Ended March 31, 2006  
            Weighted                     Weighted        
            Average                     Average        
    Income     Shares     Per     Income     Shares     Per  
    (Numerator)     (Denominator)     Share     (Numerator)     (Denominator)     Share  
Basic income from continuing operations
                                               
Income from continuing operations
  $ 37,314       91,036     $ 0.41     $ 31,672       88,326     $ 0.36  
 
                                           
Dilutive shares for long-term compensation plans
          982                     1,550          
 
                                       
 
                                               
Diluted income from continuing operations
                                               
Income from continuing operations and assumed conversions
    37,314       92,018     $ 0.40       31,672       89,876     $ 0.36  
 
                                   
 
                                               
Basic income from discontinued operations
                                               
Discontinued operations net of minority interest
    2,384       91,036     $ 0.03       58,755       88,326     $ 0.66  
 
                                           
Dilutive shares for long-term compensation plans
          982                     1,550          
 
                                       
 
                                               
Diluted income from discontinued operations
                                               
Discontinued operations net of minority interest
    2,384       92,018     $ 0.03       58,755       89,876     $ 0.65  
 
                                   
Basic income per common share
                                               
Net income
    39,698       91,036     $ 0.44       90,427       88,326     $ 1.02  
 
                                           
Dilutive shares for long-term compensation plans
          982                     1,550          
 
                                       
 
                                               
Diluted income per common share
                                               
Net income and assumed conversions
  $ 39,698       92,018     $ 0.43     $ 90,427       89,876     $ 1.01  
 
                                   

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Share Based Compensation
At March 31, 2007, the Company had a share-based employee compensation plan (the “Plan”). The Plan provides that grants may be made in various forms including options and restricted shares. The Company accounts for share-based compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”).
The Company has authorized the grant of options under the Plan to executive officers, other key employees, non-employee trustees and consultants. All options granted have 10-year terms and most options vest over a 3-year period, with options to purchase up to 20% of the shares exercisable after the first anniversary, up to 50% after the second anniversary and 100% after the third anniversary of the date of grant.
Restricted share grants made under the Plan are valued at the grant date fair value, which is the market price of the underlying common shares, and vest ratably over a 5-year period beginning with the first anniversary of the grant.
During the three months ended March 31, 2007 and 2006, the Company recognized $1.7 million and $1.3 million of stock-based compensation expense, respectively.
Foreign Currency Translation
The functional currency of the Company’s United Kingdom operation 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 as a separate component of shareholders’ equity. Accumulated other comprehensive income consists solely of translation adjustments described. Other comprehensive income was $0.4 million and $0.5 million for the three months ended March 31, 2007 and 2006, respectively. Upon sale or upon complete or substantially complete liquidation of a foreign investment, the gain or loss on the sale will include the cumulative translation adjustments that have been previously recorded in other comprehensive income.
Note 2: Segment Information
The Company operates its portfolio of properties within the United States and the United Kingdom as fully detailed below. 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
Delaware Valley
  Southeastern Pennsylvania; New Jersey
Midwest
  Lehigh Valley, Pennsylvania; Michigan; Minnesota; Milwaukee; Chicago
Mid-Atlantic
  Maryland; Piedmont Triad, NC; Greenville, SC; Richmond; Virginia Beach
Florida
  Jacksonville; Orlando; Boca Raton; Tampa; Texas
Arizona
  Phoenix
United Kingdom
  County of Kent
The Company began to report the results of the Arizona segment during the three months ended March 31, 2007. As required by SFAS No. 131 (“SFAS No. 131”) “Disclosures about Segments of an Enterprise and Related Information”, consolidated financial statements issued by the Company in the future will reflect modifications to the Company’s reportable segments resulting from the changes described above including reclassification of all comparative prior period segment information.
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. The operating information by segment is as follows (in thousands):

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For the Three Months Ended March 31, 2007        
    Delaware Valley     Midwest                                      
    Southeastern             Lehigh                                     United        
    Pennsylvania     Other     Valley     Other     Mid-Atlantic     Florida     Arizona     Kingdom     Total  
Operating revenue
  $ 43,777     $ 13,913     $ 21,077     $ 27,812     $ 32,413     $ 34,535     $ 1,015     $ 1,345     $ 175,887  
Rental property expenses and real estate taxes
    15,003       4,342       4,884       10,515       10,215       10,578       177       1,020       56,734  
 
                                                     
Property level operating income
  $ 28,774     $ 9,571     $ 16,193     $ 17,297     $ 22,198     $ 23,957     $ 838     $ 325       119,153  
 
                                                       
 
                                                                       
Interest and other income
                                                                    2,949  
Interest expense
                                                                    (28,156 )
General and administrative
                                                                    (13,339 )
Depreciation and amortization
                                                                    (38,277 )
 
                                                                     
Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures
                                                            42,330  
Gain on property dispositions
                                                                    152  
Income taxes
                                                                    (301 )
Minority interest
                                                                    (5,596 )
Equity in earnings of unconsolidated joint ventures                                                           729  
Discontinued operations, net of minority interest                                                             2,384  
 
                                                                     
 
                                                                       
Net income
                                                                  $ 39,698  
 
                                                                     
                                                                         
For the Three Months Ended March 31, 2006        
    Delaware Valley     Midwest                                      
    Southeastern             Lehigh                                     United        
    Pennsylvania     Other     Valley     Other     Mid-Atlantic     Florida     Arizona     Kingdom     Total  
Operating revenue
  $ 41,645     $ 12,895     $ 21,801     $ 28,210     $ 27,961     $ 25,070     $     $ 865     $ 158,447  
Rental property expenses and real estate taxes
    13,500       3,857       5,227       10,269       8,694       8,043             751       50,341  
 
                                                     
Property level operating income
  $ 28,145     $ 9,038     $ 16,574     $ 17,941     $ 19,267     $ 17,027     $     $ 114       108,106  
 
                                                     
 
                                                                       
Interest and other income
                                                                    1,823  
Interest expense
                                                                    (29,413 )
General and administrative
                                                                    (9,978 )
Depreciation and amortization
                                                                    (34,055 )
 
                                                                     
Income before property dispositions, income taxes, minority interest and
equity in earnings of unconsolidated joint ventures
                                            36,483  
Gain on property dispositions
                                                                    45  
Income taxes
                                                                    (375 )
Minority interest
                                                                    (4,656 )
Equity in earnings of unconsolidated joint ventures                                                     175  
Discontinued operations, net of minority interest
                                                            58,755  
 
                                                                     
 
                                                                       
Net income
                                                                  $ 90,427  
 
                                                                     

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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 the 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 were $84.2 million and $156.5 million for the three months ended March 31, 2007 and 2006, respectively.
Below is a summary of the results of operations of the properties disposed of and held for sale through the respective disposition dates (in thousands):
                 
    Three Months Ended  
    March 31, 2007     March 31, 2006  
Revenues
  $ 1,288     $ 12,183  
Operating expenses
    (567 )     (4,505 )
Interest expense
    (771 )     (3,002 )
Depreciation and amortization
    (258 )     (3,124 )
 
           
(Loss) income before property dispositions and minority interest
  $ (308 )   $ 1,552  
 
           
The held for sale properties consist of two properties totaling 302,000 square feet in the Company’s Mid-Atlantic segment. The properties held for sale as of March 31, 2007 were sold in May 2007.
Interest expense is allocated to discontinued operations as permitted under Emerging Issues Task Force (“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) or held for sale to the sum of total net assets plus consolidated debt.
Note 4: Joint Ventures
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 is developing in Philadelphia, Pennsylvania. The transaction valued the property at $512 million. In connection with the transaction, the joint venture obtained a $324 million forward loan commitment at a rate of 6.15% assuming the loan closes in March 2008. In addition to retaining a 20% interest, the Company will receive leasing and property management fees and may receive a promoted interest if certain return thresholds are met.
Under the terms of the joint venture arrangement, the Company is obligated to complete development of the building, the estimated cost of which is approximately $495 million, and is also obligated to complete the initial lease up of the property. Based upon the updated leasing schedule, Liberty may have to fund $3.5 million in rent support. The criteria for sale recognition in accordance with SFAS No. 66 “Accounting for the Sale of Real Estate” have not been met and this transaction is accounted for as a financing arrangement.
Liberty Illinois, LP
On April 25, 2006, the Company entered into a joint venture selling a 75% equity interest in six distribution buildings totaling 2.1 million square feet, and 104 acres of developable land. The joint venture valued the buildings and land at $125.0 million. The Company retained a 25% ownership interest in the joint venture, and will receive development, leasing and property management fees, and may receive a promoted interest if certain return thresholds are met.
During the year ended December 31, 2006, the joint venture began construction on two buildings. Under the terms of the joint venture arrangement, the Company is obligated to complete development of the buildings, the estimated cost of which is approximately $39 million.

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Note 5: Recently Issued Accounting Standards
SFAS No. 157
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for consistently measuring fair value under GAAP and expands disclosures about fair value measurements. SFAS No. 157 is effective for the Company beginning January 1, 2008, and the provisions of SFAS No. 157 will be applied prospectively as of that date. The Company does not anticipate that the adoption of this statement will have a material effect on its financial position or results of operations.
SFAS No. 159
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurements attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. SFAS No. 159 is not expected to have a material impact on our results of operations or financial position.
FIN 48
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is an interpretation of SFAS No. 109, “Accounting for Income Taxes,” and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, and accounting in interim periods and requires expanded disclosure with respect to the uncertainty in income taxes.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of implementation of FIN 48, no uncertain tax positions were identified which would result in the recording of a liability for unrecognized tax benefits, and correspondingly no benefit recognition was identified that would affect the effective tax rate. Additionally, there are no possibly significant unrecognized tax benefits which are reasonably expected to occur within the next 12 months. The Company’s policy is to recognize interest accrued related to unrecognized benefits in interest expense and penalties in other expense. There are no interest and penalties deducted in the current period and no interest and penalties accrued at March 31, 2007 and December 31, 2006 respectively.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various states and the United Kingdom. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or United Kingdom examinations by tax authorities for years before 2002.
Note 6: Commitments and Contingencies
The Company has entered into a contract to purchase 566,000 square feet and 19 acres of land for an investment of $131.6 million. The properties are located in the Arizona region. As part of this transaction the Company will assume a mortgage of $51 million. As of March 31, 2007, the Company has paid a deposit of approximately $1.5 million. This deposit is included in prepaid expenses and other assets on the accompanying condensed consolidated balance sheet.

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CONDENSED CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(In thousands)
                 
    March 31, 2007     December 31, 2006  
    (Unaudited)          
ASSETS
               
Real estate:
               
Land and land improvements
  $ 706,318     $ 677,081  
Building and improvements
    3,872,496       3,803,148  
Less accumulated depreciation
    (824,213 )     (804,025 )
 
           
 
               
Operating real estate
    3,754,601       3,676,204  
 
               
Development in progress
    650,879       538,303  
Land held for development
    241,169       195,332  
 
           
 
               
Net real estate
    4,646,649       4,409,839  
 
               
Cash and cash equivalents
    37,859       53,737  
Restricted cash
    30,233       55,671  
Accounts receivable
    26,412       23,809  
Deferred rent receivable
    73,027       71,894  
Deferred financing and leasing costs, net of accumulated amortization (2007, $105,438; 2006, $100,406)
    134,817       129,375  
Investments in unconsolidated joint ventures
    48,146       47,196  
Assets held for sale
    10,291       51,084  
Prepaid expenses and other assets
    64,792       68,306  
 
           
 
               
Total assets
  $ 5,072,226     $ 4,910,911  
 
           
 
               
LIABILITIES
               
Mortgage loans
  $ 183,867     $ 185,978  
Unsecured notes
    1,955,000       1,955,000  
Credit facility
    397,960       246,960  
Accounts payable
    44,470       40,633  
Accrued interest
    28,945       36,297  
Dividend and distributions payable
    59,414       58,961  
Other liabilities
    223,995       217,751  
 
           
 
               
Total liabilities
    2,893,651       2,741,580  
 
               
Minority interest
    422       419  
 
               
OWNERS’ EQUITY
               
General partner’s equity – common units
    1,881,254       1,871,604  
Limited partners’ equity – preferred units
    210,955       210,960  
– common units
    85,944       86,348  
 
           
Total owners’ equity
    2,178,153       2,168,912  
 
           
 
               
Total liabilities and owners’ equity
  $ 5,072,226     $ 4,910,911  
 
           
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  
    March 31, 2007     March 31, 2006  
OPERATING REVENUE
               
Rental
  $ 121,374     $ 110,859  
Operating expense reimbursement
    54,513       47,588  
 
           
Total operating revenue
    175,887       158,447  
 
           
 
               
OPERATING EXPENSE
               
Rental property
    39,375       33,794  
Real estate taxes
    17,359       16,547  
General and administrative
    13,339       9,978  
Depreciation and amortization
    38,277       34,055  
 
           
Total operating expenses
    108,350       94,374  
 
           
 
               
Operating income
    67,537       64,073  
 
               
OTHER INCOME (EXPENSE)
               
Interest and other income
    2,949       1,823  
Interest expense
    (28,156 )     (29,413 )
 
           
Total other income (expense)
    (25,207 )     (27,590 )
 
           
 
               
Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures
    42,330       36,483  
 
               
Gain on property dispositions
    152       45  
Income taxes
    (301 )     (375 )
Minority interest
    (36 )      
Equity in earnings of unconsolidated joint ventures
    729       175  
 
           
 
               
Income from continuing operations
    42,874       36,328  
 
               
Discontinued operations (including net gain on property dispositions of $2,801 and $59,530 for the three months ended March 31, 2007 and 2006, respectively)
    2,493       61,082  
 
           
 
               
Net income
    45,367       97,410  
 
               
Preferred unit distributions
    (3,854 )     (3,401 )
 
           
 
               
Income available to common unitholders
  $ 41,513     $ 94,009  
 
           
 
               
Earnings per common unit
               
Basic:
               
Income from continuing operations
  $ 0.41     $ 0.36  
Income from discontinued operations
    0.03       0.66  
 
           
 
               
Income per common unit – basic
  $ 0.44     $ 1.02  
 
           
 
               
Diluted:
               
Income from continuing operations
  $ 0.40     $ 0.36  
Income from discontinued operations
    0.03       0.65  
 
           
 
               
Income per common unit – diluted
  $ 0.43     $ 1.01  
 
           
 
               
Distributions per common unit
  $ 0.62     $ 0.615  
 
           
 
               
Weighted average number of common units outstanding
               
Basic
    95,226       91,844  
Diluted
    96,208       93,394  
See accompanying notes.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
                 
    Three Months Ended  
    March 31, 2007     March 31, 2006  
OPERATING ACTIVITIES
               
Net income
  $ 45,367     $ 97,410  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    38,167       37,384  
Amortization of deferred financing costs
    993       1,083  
Equity in earnings of unconsolidated joint ventures
    (729 )     (175 )
Distributions from unconsolidated joint ventures
    405       366  
Minority interest in net income
    36        
Gain on property dispositions
    (2,953 )     (59,575 )
Noncash compensation
    3,881       2,311  
Changes in operating assets and liabilities:
               
Restricted cash
    25,703       10,125  
Accounts receivable
    (2,542 )     (13,295 )
Deferred rent receivable
    (2,304 )     2,674  
Prepaid expenses and other assets
    2,550       (15,627 )
Accounts payable
    3,802       2,787  
Accrued interest
    (7,352 )     (8,126 )
Other liabilities
    5,877       (14,281 )
 
           
Net cash provided by operating activities
    110,901       43,061  
 
           
 
               
INVESTING ACTIVITIES
               
Investment in properties
    (125,343 )     (47,753 )
Investment in unconsolidated joint ventures
    (185 )     (673 )
Net proceeds from disposition of properties/land
    82,776       148,531  
Investment in development in progress
    (114,812 )     (68,772 )
Investment in land held for development
    (66,963 )     (11,198 )
Increase in deferred leasing costs
    (11,301 )     (5,244 )
 
           
Net cash (used in) provided by investing activities
    (235,828 )     14,891  
 
           
 
               
FINANCING ACTIVITIES
               
Repayments of mortgage loans
    (2,111 )     (21,034 )
Proceeds from credit facility
    330,950       86,050  
Repayments on credit facility
    (179,950 )     (96,500 )
Increase in deferred financing costs
    (36 )     (213 )
Capital contributions
    22,949       14,855  
Distributions to partners
    (62,970 )     (60,123 )
 
           
Net cash provided by (used in) financing activities
    108,832       (76,965 )
 
           
 
               
Decrease in cash and cash equivalents
    (16,095 )     (19,013 )
Increase in cash and cash equivalents related to foreign currency translation
    217       517  
Cash and cash equivalents at beginning of period
    53,737       61,629  
 
           
Cash and cash equivalents at end of period
  $ 37,859     $ 43,133  
 
           
 
               
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
               
Write-off of fully depreciated property and deferred costs
  $ 24,443     $ 17,432  
See accompanying notes.

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Liberty Property Limited Partnership
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2007
Note 1: Organization and Basis of Presentation
Organization
Liberty Property Trust, (the “Trust”), is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership, (the “Operating Partnership” and, together with the Trust and their consolidated subsidiaries, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 95.6% of the common equity of the Operating Partnership at March 31, 2007. The Company provides leasing, property management, development, acquisition and other tenant-related services for a portfolio of industrial and office properties that are located within the 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, 2006. 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 current period presentation.
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 March 31, 2007     For the Three Months Ended March 31, 2006  
            Weighted                     Weighted        
            Average                     Average        
    Income     Units     Per     Income     Units     Per  
    (Numerator)     (Denominator)     Unit     (Numerator)     (Denominator)     Unit  
Income from continuing operations
  $ 42,874                     $ 36,328                  
Less: Preferred unit distributions
    (3,854 )                     (3,401 )                
 
                                           
 
                                               
Basic income from continuing operations
                                               
 
                                               
Income from continuing operations available to common unitholders
    39,020       95,226     $ 0.41       32,927       91,844     $ 0.36  
 
                                           
Dilutive units for long-term compensation plans
          982                     1,550          
 
                                       
 
                                               
Diluted income from continuing operations
                                               
Income from continuing operations available to common unitholders and assumed conversions
    39,020       96,208     $ 0.40       32,927       93,394     $ 0.36  
 
                                   
 
                                               
Basic income from discontinued operations
                                               
Discontinued operations
    2,493       95,226     $ 0.03       61,082       91,844     $ 0.66  
 
                                           
Dilutive units for long-term compensation plans
          982                     1,550          
 
                                       
 
                                               
Diluted income from discontinued operations
                                               
Discontinued operations
    2,493       96,208     $ 0.03       61,082       93,394     $ 0.65  
 
                                   
 
                                               
Basic income per common unit
                                               
Income available to common unitholders
    41,513       95,226     $ 0.44       94,009       91,844     $ 1.02  
 
                                           
Dilutive units for long-term compensation plans
          982                     1,550          
 
                                       
 
                                               
Diluted income per common unit
                                               
Income available to common unitholders and assumed conversions
  $ 41,513       96,208     $ 0.43     $ 94,009       93,394     $ 1.01  
 
                                   

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Foreign Currency Translation
The functional currency of the Company’s United Kingdom operation 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 was $0.4 million and $0.5 million for the three months ended March 31, 2007 and 2006, respectively. Upon sale or upon complete or substantially complete liquidation of a 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.
Note 2: Segment Information
The Company operates its portfolio of properties primarily within the United States and the United Kingdom as fully detailed below. 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
Delaware Valley
  Southeastern Pennsylvania; New Jersey
Midwest
  Lehigh Valley, Pennsylvania; Michigan; Minnesota; Milwaukee; Chicago
Mid-Atlantic
  Maryland; Piedmont Triad, NC; Greenville, SC; Richmond; Virginia Beach
Florida
  Jacksonville; Orlando; Boca Raton; Tampa; Texas
Arizona
  Phoenix
United Kingdom
  County of Kent
The Company began to report the results of the Arizona segment during the three months ended March 31, 2007. As required by SFAS No. 131 (“SFAS No. 131”) “Disclosures about Segments of an Enterprise and Related Information”, consolidated financial statements issued by the Company in the future will reflect modifications to the Company’s reportable segments resulting from the changes described above including reclassification of all comparative prior period segment information.
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. The operating information for the Operating Partnership by segment is as follows (in thousands):
                                                                         
For the Three Months Ended March 31, 2007        
    Delaware Valley     Midwest                                      
    Southeastern             Lehigh                                     United        
    Pennsylvania     Other     Valley     Other     Mid-Atlantic     Florida     Arizona     Kingdom     Total  
Operating revenue
  $ 43,777     $ 13,913     $ 21,077     $ 27,812     $ 32,413     $ 34,535     $ 1,015     $ 1,345     $ 175,887  
Rental property expenses and real estate taxes
    15,003       4,342       4,884       10,515       10,215       10,578       177       1,020       56,734  
 
                                                     
Property level operating income
  $ 28,774     $ 9,571     $ 16,193     $ 17,297     $ 22,198     $ 23,957     $ 838     $ 325       119,153  
 
                                                       
 
Interest and other income
                                                                    2,949  
Interest expense
                                                                    (28,156 )
General and administrative
                                                                    (13,339 )
Depreciation and amortization
                                                                    (38,277 )
 
                                                                     
Income before property dispositions, income taxes, minority interest and
equity in earnings of unconsolidated joint ventures
                                            42,330  
Gain on property dispositions
                                                                    152  
Income taxes
                                                                    (301 )
Minority interest
                                                                    (36 )
Equity in earnings of unconsolidated joint ventures                                                     729  
Discontinued operations
                                                                    2,493  
 
                                                                     
 
                                                                       
Net income
                                                                  $ 45,367  
 
                                                                     

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For the Three Months Ended March 31, 2006        
    Delaware Valley     Midwest                                      
    Southeastern             Lehigh                                     United        
    Pennsylvania     Other     Valley     Other     Mid-Atlantic     Florida     Arizona     Kingdom     Total  
Operating revenue
  $ 41,645     $ 12,895     $ 21,801     $ 28,210     $ 27,961     $ 25,070     $     $ 865     $ 158,447  
Rental property expenses and real estate taxes
    13,500       3,857       5,227       10,269       8,694       8,043             751       50,341  
 
                                                     
Property level operating income
  $ 28,145     $ 9,038     $ 16,574     $ 17,941     $ 19,267     $ 17,027     $     $ 114       108,106  
 
                                                       
 
Interest and other income
                                                                    1,823  
Interest expense
                                                                    (29,413 )
General and administrative
                                                                    (9,978 )
Depreciation and amortization
                                                                    (34,055 )
 
                                                                     
Income before property dispositions, income taxes, minority interest and
equity in earnings of unconsolidated joint ventures
                                            36,483  
Gain on property dispositions
                                                                    45  
Income taxes
                                                                    (375 )
Minority interest
                                                                     
Equity in earnings of unconsolidated joint ventures                                                     175  
Discontinued operations
                                                                    61,082  
 
                                                                     
 
                                                                       
Net income
                                                                  $ 97,410  
 
                                                                     
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 the 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 were $84.2 million and $156.5 million for the three months ended March 31, 2007 and 2006, respectively.
Below is a summary of the results of operations of the properties disposed of and held for sale through the respective disposition dates (in thousands):
                 
    Three Months Ended  
    March 31, 2007     March 31, 2006  
Revenues
  $ 1,288     $ 12,183  
Operating expenses
    (567 )     (4,505 )
Interest expense
    (771 )     (3,002 )
Depreciation and amortization
    (258 )     (3,124 )
 
           
(Loss) income before property dispositions and minority interest
  $ (308 )   $ 1,552  
 
           
The held for sale properties consist of two properties totaling 302,000 square feet in the Company’s Mid-Atlantic segment. The properties held for sale as of March 31, 2007 were sold in May 2007.
Interest expense is allocated to discontinued operations as permitted under Emerging Issues Task Force (“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) or held for sale to the sum of total net assets plus consolidated debt.

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Note 4: Joint Ventures
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 is developing in Philadelphia, Pennsylvania. The transaction valued the property at $512 million. In connection with the transaction, the joint venture obtained a $324 million forward loan commitment at a rate of 6.15% assuming the loan closes in March 2008. In addition to retaining a 20% interest, the Company will receive leasing and property management fees and may receive a promoted interest if certain return thresholds are met.
Under the terms of the joint venture arrangement, the Company is obligated to complete development of the building, the estimated cost of which is approximately $495 million, and is also obligated to complete the initial lease up of the property. Based upon the updated leasing schedule, Liberty may have to fund $3.5 million in rent support. The criteria for sale recognition in accordance with SFAS No. 66 “Accounting for the Sale of Real Estate” have not been met and this transaction is accounted for as a financing arrangement.
Liberty Illinois, LP
On April 25, 2006, the Company entered into a joint venture selling a 75% equity interest in six distribution buildings totaling 2.1 million square feet, and 104 acres of developable land. The joint venture valued the buildings and land at $125.0 million. The Company retained a 25% ownership interest in the joint venture, and will receive development, leasing and property management fees, and may receive a promoted interest if certain return thresholds are met.
During the year ended December 31, 2006, the joint venture began construction on two buildings. Under the terms of the joint venture arrangement, the Company is obligated to complete development of the buildings, the estimated cost of which is approximately $39 million.
Note 5: Recently Issued Accounting Standards
SFAS No. 157
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for consistently measuring fair value under GAAP and expands disclosures about fair value measurements. SFAS No. 157 is effective for the Company beginning January 1, 2008, and the provisions of SFAS No. 157 will be applied prospectively as of that date. The Company does not anticipate that the adoption of this statement will have a material effect on its financial position or results of operations.
SFAS No. 159
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurements attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. SFAS No. 159 is not expected to have a material impact on our results of operations or financial position.
FIN 48
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is an interpretation of SFAS No. 109, “Accounting for Income Taxes,” and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, and accounting in interim periods and requires expanded disclosure with respect to the uncertainty in income taxes.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of implementation of FIN 48, no uncertain tax positions were identified which would result in the recording of a liability for unrecognized tax benefits, and correspondingly no benefit recognition was identified that would affect the effective tax rate. Additionally, there are no possibly significant unrecognized tax benefits which are reasonably expected to occur within the next 12 months. The Company’s policy is to recognize interest accrued related to unrecognized benefits in interest expense and penalties in other expense. There are no interest and penalties deducted in the current period and no interest and penalties accrued at March 31, 2007 and December 31, 2006 respectively.

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The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various states and the United Kingdom. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or United Kingdom examinations by tax authorities for years before 2002.
Note 6: Commitments and Contingencies
The Company has entered into a contract to purchase 566,000 square feet and 19 acres of land for an investment of $131.6 million. The properties are located in the Arizona region. As part of this transaction the Company will assume a mortgage of $51 million. As of March 31, 2007, the Company has paid a deposit of approximately $1.5 million. This deposit is included in prepaid expenses and other assets on the accompanying condensed consolidated balance sheet.

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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 (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership (the “Operating Partnership” and, collectively with the Trust and their consolidated subsidiaries, the “Company”).
As of March 31, 2007, the Company had an ownership interest in and operated 414 industrial and 300 office properties (the “Properties in Operation”) totaling 66.5 million square feet. In addition, as of March 31, 2007, the Company had an ownership interest in 37 properties under development (the “Properties under Development” and, together with the Properties in Operation, the “Properties”) and had an ownership interest in 1,762 acres of land, substantially all of which is zoned for commercial use. Included within the Properties and land above are 39 industrial and 10 office properties comprising 6.4 million square feet, four development properties comprising 943,000 square feet and 283 acres of developable land owned by unconsolidated joint ventures in which the Company has an interest.
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. The Company pursues development opportunities that it believes will create value and yield acceptable returns. The Company also acquires properties that it believes will create long-term value, and disposes of properties that no longer fit within the Company’s strategic objectives or in situations where it can optimize cash proceeds. The Company’s operating results depend primarily upon income from rental operations and are substantially influenced by rental demand for the Properties in Operation.
Rental demand for the Properties in Operation generally improved during the three months ended March 31, 2007. Although in some markets the Company continues to experience market conditions characterized by an oversupply of leaseable space and soft demand, the Company believes that the majority of its markets are recovering from several years of a generally slow real estate economy. Rental rates in many of the Company’s markets have stabilized or improved. The Company successfully leased 3.3 million square feet during the three months ended March 31, 2007 and attained occupancy of 92.1% as of that date. The Company believes that straight line rents on renewal and replacement leases for 2007 will on average be 1% to 3% greater than rents on expiring leases, notwithstanding selected decreases. Furthermore, the Company believes that average occupancy for its Properties in Operation will improve by 1% to 2% for 2007 compared to 2006.
Conditions to date in 2007 for the acquisition of properties continued to be very competitive. For 2007, the Company believes that property acquisitions will be in the $450 to $550 million range and that, similar to 2006, certain of the acquired properties will be either vacant or underleased. A substantial portion of the overall planned acquisition activity will be used to facilitate the Company’s entry into the Phoenix market. The Company executes acquisitions of properties when it believes that they are attractively priced and will positively contribute to earnings upon lease up and stabilization. During the three months ended March 31, 2007, the Company acquired nine properties representing 1.7 million square feet for a Total Investment, as defined below, of $131.6 million. These acquisitions generally served to increase the Company’s presence or balance the product mix in markets the Company believes to have significant potential. All of the properties acquired this quarter were vacant upon acquisition. Prior to the end of the quarter, the Company fully leased a 345,000 square foot acquisition property. Of the 1.3 million square foot balance of properties acquired, 900,000 square feet are located in Houston and 400,000 square feet are located in Phoenix. “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.
The real estate investment market continues to be very strong. Given this situation, the Company anticipates that disposition activity will be in the $350 million to $450 million range for 2007. Disposition activity allows the Company to (1) reduce its holdings in certain markets and product types within a market; (2) lower the average age of the portfolio; and (3) take advantage of favorable market conditions to optimize the cash proceeds from the sale of certain assets. A substantial portion of the planned disposition activity will be related to the Company’s planned exit from the Michigan market. During the three months ended March 31, 2007, the Company realized proceeds of $84.2 million from the sale of 19 operating properties representing 883,000 square feet. All of the properties sold this quarter were in the Michigan market.

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In 2007, the Company will continue to pursue development opportunities and the Company believes that it will bring into service from its development pipeline approximately $325 to $350 million of Total Investment in operating real estate. During the three months ended March 31, 2007, the Company brought into service three development properties representing 213,000 square feet and a Total Investment of $25.1 million, and initiated $82.3 million in real estate development. As of March 31, 2007, the projected Total Investment of the wholly owned Properties under Development (excluding the Comcast Center) was $517.7 million. The projected Total Investment for the 1.25 million square foot Comcast Center is $495 million. Although in April 2006 the Company entered into a joint venture, whereby the Company sold an 80% interest in the equity of the Comcast Center, the terms of the joint venture obligate the Company to complete the development of the building and consequently this development is treated as a wholly owned Property under Development.
The Company periodically enters into joint venture relationships in connection with the execution of its real estate operating strategy. During 2006, the Company entered into two joint ventures. – See Note 4 to the Company’s financial statements. The Company believes that joint ventures in which it holds an ownership interest will acquire properties in the $75 to $100 million range in 2007. In addition, during the three months ended March 31, 2007, unconsolidated joint ventures brought into service one development property representing 203,000 square feet and a Total Investment of $11.0 million. As of March 31, 2007, the projected Total Investment of Properties Under Development held by unconsolidated joint ventures was $70.1 million.
The composition of the Company’s Properties in Operation as of March 31, 2007 and 2006 is as follows (in thousands, except dollars and percentages):
                                                 
    Net Rent              
    Per Square Foot     Total Square Feet     Percent Occupied  
    March 31,     March 31,     March 31,  
    2007     2006     2007     2006     2007     2006  
Industrial-Distribution
  $ 4.27     $ 4.17       32,949       30,967       92.0 %     92.9 %
Industrial-Flex
  $ 9.14     $ 8.77       12,520       12,545       92.9 %     92.9 %
Office
  $ 13.94     $ 14.20       21,053       20,351       91.8 %     88.9 %
 
                                   
 
  $ 8.25     $ 8.19       66,522       63,863       92.1 %     91.6 %
 
                                   
Geographic segment data for the three months ended March 31, 2007 and 2006 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 secure additional properties and sites that meet its criteria for acquisition or development; the availability and cost of capital; the effect of prevailing market interest rates; 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.
Critical Accounting Policies and Estimates
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 for a discussion of critical accounting policies which include capitalized costs, revenue recognition, allowance for doubtful accounts, impairment of real estate and intangibles. During the three months ended March 31, 2007, 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 months ended March 31, 2007 with the results of operations of the Company for the three months ended March 31, 2006. As a result of the varying levels of development, acquisition and disposition activities by the Company in 2007 and 2006, 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.

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This information should be read in conjunction with the accompanying condensed consolidated financial statements and notes included elsewhere in this report.
Comparison of Three Months Ended March 31, 2007 to Three Months Ended March 31, 2006
Overview
The Company’s average gross investment in operating real estate owned for the three months ended March 31, 2007 increased to $4,467.1 million from $3,907.0 million for the three months ended March 31, 2006. This increase in operating real estate resulted in increases in rental revenue, operating expense reimbursement, rental property operating expenses, real estate taxes, and depreciation and amortization expense.
Total operating revenue increased to $175.9 million for the three months ended March 31, 2007 from $158.4 million for the three months ended March 31, 2006. This $17.5 million increase 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 – see below. These increases were partially offset by a decrease in “Termination Fees” which totaled $0.7 million for the three months ended March 31, 2007 as compared to $1.1 million for the same period in 2006. 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.
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  
    Mar. 31, 2007     Mar. 31, 2006     % inc (dec)  
Delaware Valley
                       
– SE Pennsylvania
  $ 28,774     $ 28,145       2.2 %
– Other
    9,571       9,038       5.9 %
Midwest
                       
– Lehigh Valley
    16,193       16,574       (2.3 %)
– Other
    17,297       17,941       (3.6 %)
Mid-Atlantic
    22,198       19,267       15.2 %(1)
Florida
    23,957       17,027       40.7 %(2)
Arizona
    838             100.0 %(3)
United Kingdom
    325       114       185.1 %(3)
 
                 
Totals
  $ 119,153     $ 108,106       10.2 %
 
                 
 
(1)   The increase for the quarter ended March 31, 2007 versus the quarter ended March 31, 2006 is primarily due to an increase in average gross investment in operating real estate and increased occupancy during 2007.
 
(2)   The increase for the quarter ended March 31, 2007 versus the quarter ended March 31, 2006 is primarily due to an increase in average gross investment in operating real estate and increased occupancy during 2007, excluding the vacant first quarter acquisitions.
 
(3)   The increase for the quarter ended March 31, 2007 versus the quarter ended March 31, 2006 is due to an increase in average gross investment in operating real estate.
Same Store
Property level operating income, exclusive of Termination Fees, for the Same Store properties increased to $108.5 million for the three months ended March 31, 2007 from $104.3 million for the three months ended March 31, 2006, on a straight line basis (which recognizes rental revenue evenly over the life of the lease) and increased to $107.6 million for the three months ended March 31, 2007 from $102.6 million for the three months ended March 31, 2006 on a cash basis. These increases of 4.0% and 4.9%, respectively, are primarily due to an increase in occupancy and an increase in average rent per square foot for the Same Store properties.
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 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 611 properties totaling approximately 54.1 million square feet owned since January 1, 2006.

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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 months ended March 31, 2007 and 2006. Same Store property level operating income is a non-GAAP measure and does not represent income before property dispositions, income taxes, minority interest and equity in earnings (loss) of unconsolidated joint ventures because it does 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 trying to understand the Company’s operating performance. Also, set forth below is a reconciliation of Same Store property level operating income to net income (in thousands).
                 
    Three Months Ended  
    March 31, 2007     March 31, 2006  
Same Store:
               
Rental revenue
  $ 110,088     $ 106,671  
 
           
Operating expenses:
               
Rental property expense
    35,522       32,776  
Real estate taxes
    15,929       15,587  
Operating expense recovery
    (49,870 )     (45,997 )
 
           
Unrecovered operating expenses
    1,581       2,366  
 
           
 
               
Property level operating income
    108,507       104,305  
Less straight line rent
    882       1,686  
 
           
 
               
Cash basis property level operating income
  $ 107,625     $ 102,619  
 
           
 
               
Reconciliation of non-GAAP financial measure:
               
Property level operating income – Same Store
  $ 108,507     $ 104,305  
Property level operating income – properties purchased or developed subsequent to January 1, 2006
    9,926       2,713  
Termination fees
    720       1,088  
General and administrative expense
    (13,339 )     (9,978 )
Depreciation and amortization expense
    (38,277 )     (34,055 )
Other income (expense)
    (25,207 )     (27,590 )
Gain on property dispositions
    152       45  
Income taxes
    (301 )     (375 )
Minority interest
    (5,596 )     (4,656 )
Equity in earnings of unconsolidated joint ventures
    729       175  
Discontinued operations, net of minority interest
    2,384       58,755  
 
           
 
               
Net income
  $ 39,698     $ 90,427  
 
           
General and Administrative
General and administrative expenses increased to $13.3 million for the three months ended March 31, 2007 from $10.0 million for the three months ended March 31, 2006. The increase was primarily due to increases in compensation expense for real estate personnel necessitated by the competitive real estate market and increases in personnel consistent with the increase in the size and complexity of the Company.
Depreciation and Amortization
Depreciation and amortization increased to $38.3 million for the three months ended March 31, 2007 from $34.1 million for the three months ended March 31, 2006. The increase was primarily due to the increase in gross investment in operating real estate during the respective periods and particularly the increased investment in tenant improvement costs, which are amortized over a shorter period than buildings.
Interest Expense
Interest expense decreased to $28.2 million for the three months ended March 31, 2007 from $29.4 million for the three months ended March 31, 2006. Interest expense allocated to discontinued operations for the three months ended March 31, 2007 and 2006 was $0.8 million and $3.0 million, respectively. This decrease was due to the level of dispositions in 2007 versus 2006. The average debt outstanding for the respective periods was $2,462.4 million for the three months ended March 31, 2007 as compared to $2,233.5 million for the three months ended March 31, 2006. Interest costs for the three months ended March 31, 2007 and 2006 in the amount of $11.4 million and $5.8 million, respectively, were capitalized. The increase in capitalized interest costs was primarily due to the increased investment in Properties under Development. The effect of the increase in the average debt outstanding was partially offset by the increase in

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capitalized interest costs and decreases in the weighted average interest rates for the periods to 6.51% for the three months ended March 31, 2007 from 6.63% in 2006.
Other
Costs directly related to the development of Properties Under Development and land being readied for development are capitalized. Capitalized development costs include interest, development-related salaries, property taxes, insurance and other directly identifiable costs incurred during the period of development. Capitalized development-related salaries and benefits historically represent approximately 1-2% of the cost of developed properties.
Gain on property dispositions increased to $152,000 for the three months ended March 31, 2007 compared to $45,000 for the three months ended March 31, 2006.
Income from discontinued operations decreased to $2.4 million from $58.8 million for the three month period ended March 31, 2007 compared to the three month period ended March 31, 2006. The decrease is due to the decrease in gains realized on sales which were $2.8 million for the three months ended March 31, 2007 compared to $59.5 million for the three months ended March 31, 2006.
As a result of the foregoing, the Company’s net income decreased to $39.7 million for the three months ended March 31, 2007 from $90.4 million for the three months ended March 31, 2006.
Liquidity and Capital Resources
As of March 31, 2007, the Company had cash and cash equivalents of $68.1 million, including $30.2 million in restricted cash.
Net cash flow provided by operating activities increased to $110.9 million for the three months ended March 31, 2007 from $43.1 million for the three months ended March 31, 2006. This $67.8 million increase was due to fluctuations in operating assets and liabilities during the respective periods. Net cash flow provided by operations 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 Properties in Operation.
Net cash used in investing activities equaled $235.8 million for the three months ended March 31, 2007 and net cash provided by investing activities equaled $14.9 million for the three months ended March 31, 2006. This $250.7 million change primarily resulted from an increase in property acquisitions, a decrease in net proceeds from the disposition of properties/land and an increase in investment in development in progress and land held for development.
Net cash provided by financing activities was $108.8 million for the three months ended March 31, 2007 compared to $77.0 million used in financing activities for the three months ended March 31, 2006. This $185.8 million change was primarily due to an increase in borrowings in 2007 compared to 2006. Net cash provided by or used in financing activities includes proceeds from the issuance of equity and debt, net of debt repayments 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 March 31, 2007, a significant portion of these activities were funded through a $600 million Credit Facility (the “$600 million Credit Facility”). The interest rate on borrowings under the $600 million 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 $600 million Credit Facility is 65 basis points over LIBOR. The $600 million Credit Facility contains an accordion feature whereby the Company may borrow an additional $200 million. The $600 million Credit Facility expires in January 2010, and has a one-year extension option.
Additionally, the Company has entered into an agreement to fund its planned improvements for the Rouse Kent Phase 2 land development project. At March 31, 2007, a £5 million short term loan facility and a £7 million revolving credit facility are undrawn and available. The short term loan matures on November 22, 2007 and the revolving credit 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

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coverage ratio. As of March 31, 2007 the Company’s debt to gross assets ratio was 43.0%, and for the three months ended March 31, 2007, the fixed charge coverage ratio was 2.5x. Debt to gross assets equals total long-term debt, borrowings under the $600 million Credit Facility, and borrowings under the Liberty/Commerz 1701 JFK Boulevard, LP financing arrangement divided by total assets plus accumulated depreciation. The fixed charge coverage ratio equals income from continuing operations before property dispositions and minority interest, 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 March 31, 2007, $183.9 million in mortgage loans and $1,955.0 million in unsecured notes were outstanding with a weighted average interest rate of 6.6%. The interest rates on $2,138.9 million of mortgage loans and unsecured notes are fixed and range from 5.125% to 9.75%. The weighted average remaining term for the mortgage loans and unsecured notes is 5.7 years.
The scheduled principal amortization and maturities of the Company’s mortgage loans, unsecured notes outstanding, the $600 million Credit Facility, the Liberty/Commerz 1701 JFK Boulevard, LP financing arrangement and the related weighted average interest rates as of March 31, 2007 are as follows (in thousands, except percentages):
                                                 
    MORTGAGES                             WEIGHTED  
    PRINCIPAL     PRINCIPAL     UNSECURED     CREDIT             AVERAGE  
    AMORTIZATION     MATURITIES     NOTES     FACILITY     TOTAL     INTEREST RATE  
2007 (9 months)
  $ 6,709     $ 1,553     $ 100,000     $     $ 108,262       7.23 %
2008
    7,975       39,753             152,960 (1)     200,688       5.92 %
2009
    5,699       46,148       270,000             321,847       7.77 %
2010
    4,877       4,738       200,000       245,000       454,615       6.86 %
2011
    4,153       10,730       250,000             264,883       7.26 %
2012
    3,274       32,911       235,000             271,185       6.47 %
2013
    2,751             —-             2,751       6.00 %
2014
    2,894       2,681       200,000             205,575       5.65 %
2015
    3,033             300,000             303,033       5.13 %
2016
    2,220             300,000             302,220       5.50 %
2017 & thereafter
    1,768             100,000             101,768       7.47 %
 
                                   
 
  $ 45,353     $ 138,514     $ 1,955,000     $ 397,960     $ 2,536,827       6.47 %
 
                                   
 
(1)   Represents a deposit by the joint venture partner in the Comcast Center (see Note 4 to the Company’s financial statements) which bears interest at the greater of 5% or the current rate on the $600 million Credit Facility until development of the Comcast Center building is completed.
The Company anticipates that it will refinance or retire these maturities through its available sources of capital.
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.
The expiring square feet and annual net rent by year for the Properties in Operation as of March 31, 2007 are as follows (in thousands):
                                                                 
    Industrial-     Industrial-              
    Distribution     Flex     Office     Total  
    Square     Annual     Square     Annual     Square     Annual     Square     Annual  
    Feet     Net Rent     Feet     Net Rent     Feet     Net Rent     Feet     Net Rent  
2007 (9 months)
    3,084     $ 12,553       1,219     $ 11,617       1,543     $ 20,508       5,846     $ 44,678  
2008
    4,418       18,018       2,383       22,313       2,511       37,261       9,312       77,592  
2009
    4,787       21,644       1,833       16,876       2,933       44,780       9,553       83,300  
2010
    2,843       13,954       1,738       16,964       2,687       40,003       7,268       70,921  
2011
    3,717       16,930       1,250       12,930       2,458       39,553       7,425       69,413  
2012
    3,345       16,792       1,146       11,152       2,072       34,797       6,563       62,741  
Thereafter
    8,134       44,472       2,065       24,533       5,128       86,044       15,327       155,049  
 
                                               
TOTAL
    30,328     $ 144,363       11,634     $ 116,385       19,332     $ 302,946       61,294     $ 563,694  
 
                                               
The Company believes that its existing sources of capital will provide sufficient funds to finance its continued development and acquisition activities. The scheduled deliveries of the 8.0 million square feet of Properties under Development as of March 31, 2007 are as follows (dollars in thousands):

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    Square Feet              
Scheduled   Industrial-     Industrial-                     Percent     Total  
In-Service Date   Distribution     Flex     Office     Total     Leased     Investment  
2nd Quarter 2007
    1,656,172       117,200       159,638       1,933,010       62.0 %   $ 135,370  
3rd Quarter 2007
    551,759       139,487       230,000       921,246       86.8 %     90,962  
4th Quarter 2007
    968,000             450,000       1,418,000       60.8 %     126,420  
1st Quarter 2008
    120,000             73,583       193,583       26.0 %     16,548  
2nd Quarter 2008
    447,700       208,177       201,344       857,221       14.9 %     95,257  
3rd Quarter 2008
    189,400       115,600       1,356,923       1,661,923       68.8 %     535,976  
4th Quarter 2008
    837,540                   837,540             39,383  
1st Quarter 2009
                185,964       185,964             42,946  
 
                                   
TOTAL
    4,770,571       580,464       2,657,452       8,008,487       52.2 %   $ 1,082,862  
 
                                   
The Company’s existing sources of capital include the public debt and equity markets, proceeds from dispositions of properties, equity contributions by joint venture partners and net cash provided from operating activities. Additionally, the Company expects to incur variable rate debt, including borrowings under the $600 million Credit Facility, from time to time.
The Company has an effective S-3 shelf registration statement on file with the SEC (the “Shelf Registration Statement”). As of May 2, 2007, pursuant to the Shelf Registration Statement, the Trust had the capacity to issue up to $586.1 million in equity securities and the Operating Partnership had the capacity to issue up to $508.4 million in 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.
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 months ended March 31, 2007 and 2006 are as follows (in thousands, except per share amounts):

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    Three Months Ended  
    March 31,  
    2007     2006  
Reconciliation of net income to FFO – basic
               
 
               
Net Income
  $ 39,698     $ 90,427  
 
           
Basic — Income available to common shareholders
    39,698       90,427  
Basic – income available to common shareholders per weighted average share
  $ 0.44     $ 1.02  
 
               
Adjustments:
               
Depreciation and amortization of unconsolidated joint ventures
    841       553  
Depreciation and amortization
    37,927       36,591  
Gain on property dispositions
    (3,387 )     (59,646 )
Minority interest share in addback for depreciation and amortization and gain on property dispositions
    (1,546 )     857  
 
               
 
           
Funds from operations available to common shareholders — basic
  $ 73,533     $ 68,782  
 
           
 
               
Basic Funds from operations available to common shareholders per weighted average share
  $ 0.81     $ 0.78  
 
               
Reconciliation of net income to FFO – diluted:
               
 
               
Net Income
  $ 39,698     $ 90,427  
 
           
Diluted – income available to common shareholders
    39,698       90,427  
Diluted – income available to common shareholders per weighted average share
  $ 0.43     $ 1.01  
 
               
Adjustments:
               
Depreciation and amortization of unconsolidated joint ventures
    841       553  
Depreciation and amortization
    37,927       36,591  
Gain on property dispositions
    (3,387 )     (59,646 )
Minority interest less preferred share distributions
    1,815       3,582  
 
               
 
           
Funds from operations available to common shareholders – diluted
  $ 76,894     $ 71,507  
 
           
 
               
Diluted Funds from operations available to common shareholders per weighted average share
  $ 0.80     $ 0.77  
 
               
Reconciliation of weighted average shares:
               
Weighted average common shares – all basic calculations
    91,036       88,326  
Dilutive shares for long term compensation plans
    982       1,550  
 
               
 
           
Diluted shares for net income calculations
    92,018       89,876  
Weighted average common units
    4,190       3,518  
 
               
 
           
Diluted shares for Funds from operations calculations
    96,208       93,394  
 
           
Inflation
Inflation has remained relatively low during the last three years, and as a result, it has not had a significant impact on the Company during this period. The $600 million Credit Facility and the financing related to the Comcast Center (see footnote (1) to the debt maturity schedule in the Liquidity and Capital Resources Section) bear interest at variable rates; therefore, the amount of interest payable under the $600 million Credit Facility and the financing related to the Comcast Center is influenced by changes in short-term interest rates, which tend to be sensitive to inflation. To the extent an increase in inflation would result in increased operating costs, such as in insurance, real estate taxes and utilities, substantially all of the tenants’ leases require the tenants to absorb these costs as part of their rental obligations. In addition, inflation also may have the effect of increasing market rental rates.

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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, 2006.
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 March 31, 2007 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
 
   
 
  None.
 
   
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, 2006.
 
   
Item 2.
  Unregistered Sales of Equity Securities and Use of Proceeds
 
   
 
  None.
 
   
Item 3.
  Defaults upon Senior Securities
 
  None.
 
   
 
   
Item 4.
  Submission of Matters to a Vote of Security Holders
 
   
 
  None.
 
   
Item 5.
  Other Information
 
   
 
  None.

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Item 6.
  Exhibits
  12.1*   Statement Re: Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges.
 
  31.1*   Certifications of the Chief Executive Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
  31.2*   Certifications of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
  31.3*   Certifications 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*   Certifications 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*   Certifications 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*   Certifications 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*   Certifications 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*   Certifications 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
      May 7, 2007
 
Date
   
President and Chief Executive Officer
           
 
           
/s/ GEORGE J. ALBURGER, JR.
 
George J. Alburger, Jr.
      May 7, 2007
 
Date
   
Executive Vice President and Chief Financial Officer
           

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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
      May 7, 2007
 
Date
   
President and Chief Executive Officer
           
 
           
/s/ GEORGE J. ALBURGER, JR.
 
George J. Alburger, Jr.
      May 7, 2007
 
Date
   
Executive Vice President and Chief Financial Officer
           

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EXHIBIT INDEX
     
EXHIBIT    
NO.   DESCRIPTION
12.1   Statement Re: Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges.
 
31.1   Certifications of the Chief Executive Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
31.2   Certifications of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
31.3   Certifications 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   Certifications 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   Certifications 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   Certifications 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   Certifications 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   Certifications 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.)

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