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Liberty Property Trust 10-Q 2013
LRY 9.30.2013 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________
FORM 10-Q
__________________________________________________________
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the quarterly period ended September 30, 2013
  
OR

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
Commission file numbers: 1-13130 (Liberty Property Trust)
1-13132 (Liberty Property Limited Partnership) 
__________________________________________________________
LIBERTY PROPERTY TRUST
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Exact name of registrants as specified in their governing documents)
__________________________________________________________
 
MARYLAND (Liberty Property Trust)
23-7768996
PENNSYLVANIA (Liberty Property Limited Partnership)
23-2766549
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
 
500 Chesterfield Parkway
Malvern, Pennsylvania
19355
(Address of Principal Executive Offices)
(Zip Code)
 
Registrants’ Telephone Number, Including Area Code (610) 648-1700
__________________________________________________________
 
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past ninety (90) days.    Yes  x    No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):
  
Large Accelerated Filer
x
Accelerated Filer
o
Non-Accelerated Filer
o (Do not check if a smaller reporting company)
Smaller Reporting Company
o
    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
On November 4, 2013, 146,590,000 Common Shares of Beneficial Interest, par value $0.001 per share, of Liberty Property Trust were outstanding.



EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2013 of Liberty Property Trust and Liberty Property Limited Partnership. Unless stated otherwise or the context otherwise requires, references to the “Trust” mean Liberty Property Trust and its consolidated subsidiaries; and references to the “Operating Partnership” mean Liberty Property Limited Partnership and its consolidated subsidiaries. The terms the “Company,” “we,” “our” and “us” mean the Trust and the Operating Partnership, collectively.

The Trust is a self-administered and self-managed Maryland real estate investment trust (“REIT”). Substantially all of the Trust's assets are owned directly or indirectly, and substantially all of the Trust's operations are conducted directly or indirectly, by its subsidiary, the Operating Partnership, a Pennsylvania limited partnership.

The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 97.5% of the common equity of the Operating Partnership at September 30, 2013. The common units of limited partnership interest in the Operating Partnership (the “Common Units”), other than those owned by the Trust, are exchangeable on a one-for-one basis (subject to anti-dilution protections) for the Trust's Common Shares of Beneficial Interest, $0.001 par value per share (the “Common Shares”). The Company had issued several series of Cumulative Redeemable Preferred Units of the Operating Partnership (the “Preferred Units"). The outstanding Preferred Units of each series were exchangeable on a one-for-one basis after stated dates into a corresponding series of Cumulative Redeemable Preferred Shares of the Trust except for the Series I-2 Preferred Units, which are not convertible or exchangeable into any other securities. The Preferred Units, except for the Series I-2 Preferred Units, were redeemed during the nine months ended September 30, 2013. The ownership of the holders of Common and Preferred Units is reflected in the Trust's financial statements as “noncontrolling interest-operating partnership” both in mezzanine equity and as a component of total equity. The ownership of the holders of Common and Preferred Units not owned by the Trust is reflected in the Operating Partnership's financial statements as “limited partners' equity” both in mezzanine equity and as a component of total owners' equity.

The financial results of the Operating Partnership are consolidated into the financial statements of the Trust. The Trust has no significant assets other than its investment in the Operating Partnership. The Trust and the Operating Partnership are managed and operated as one entity. The Trust and the Operating Partnership have the same managers.

The Trust's sole business purpose is to act as the general partner of the Operating Partnership. Net proceeds from equity issuances by the Trust are contributed to the Operating Partnership in exchange for partnership units. The Trust itself does not issue any indebtedness, but guarantees certain of the unsecured debt of the Operating Partnership.

We believe combining the quarterly reports on Form 10-Q of the Trust and the Operating Partnership into this single report results in the following benefits:
enhances investors' understanding of the Trust and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the Company's disclosure applies to both the Trust and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

To help investors understand the significant differences between the Trust and the Operating Partnership, this report presents the following separate sections for each of the Trust and the Operating Partnership:
consolidated financial statements;
the following notes to the consolidated financial statements;
Income per Common Share of the Trust and Income per Common Unit of the Operating Partnership;
Other Comprehensive Income of the Trust and Other Comprehensive Income of the Operating Partnership; and
Noncontrolling Interests of the Trust and Limited Partners' Equity and Noncontrolling Interest of the Operating Partnership

This report also includes separate Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Trust and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Trust and Operating Partnership are compliant with Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended.





2


Liberty Property Trust/Liberty Property Limited Partnership
Form 10-Q for the period ended September 30, 2013
 
Index
 
Page
 
 
 
PART I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.

3


Index
 
Page
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
XBRL Instance Document
 
 
 
 
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
XBRL Extension Labels Linkbase
 
 
 
 
 
XBRL Taxonomy Extension Presentation Linkbase Document
 

4


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except share and unit amounts)
 
 
September 30, 2013
 
December 31, 2012
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,012,247

 
$
899,801

Building and improvements
4,564,885

 
4,341,125

Less accumulated depreciation
(1,224,775
)
 
(1,164,756
)
Operating real estate
4,352,357

 
4,076,170

Development in progress
136,165

 
248,602

Land held for development
233,091

 
258,324

Net real estate
4,721,613

 
4,583,096

Cash and cash equivalents
1,124,570

 
38,356

Restricted cash
35,705

 
33,147

Accounts receivable
8,784

 
8,988

Deferred rent receivable
112,943

 
108,576

Deferred financing and leasing costs, net of accumulated amortization (2013, $145,519; 2012, $132,261)
149,833

 
137,359

Investments in and advances to unconsolidated joint ventures
177,344

 
169,021

Assets held for sale

 
7,880

Prepaid expenses and other assets
120,208

 
87,756

Total assets
$
6,451,000

 
$
5,174,179

LIABILITIES
 
 
 
Mortgage loans
$
309,279

 
$
302,855

Unsecured notes
2,707,985

 
2,258,751

Credit facility

 
92,000

Accounts payable
46,562

 
31,058

Accrued interest
39,086

 
20,164

Dividend and distributions payable
71,113

 
58,038

Other liabilities
197,265

 
185,956

Total liabilities
3,371,290

 
2,948,822

Noncontrolling interest - operating partnership - 301,483 preferred units outstanding as of September 30, 2013 and December 31, 2012
7,537

 
7,537

EQUITY
 
 
 
Shareholders’ equity
 
 
 
Common shares of beneficial interest, $.001 par value, 183,987,000 shares authorized; 147,274,747 (includes 1,249,909 in treasury) and 119,720,776 (includes 1,249,909 in treasury) shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively
147

 
119

Additional paid-in capital
3,650,766

 
2,687,701

Accumulated other comprehensive income
3,038

 
2,900

Distributions in excess of net income
(591,764
)
 
(547,757
)
Common shares in treasury, at cost, 1,249,909 shares as of September 30, 2013 and December 31, 2012
(51,951
)
 
(51,951
)
Total shareholders’ equity
3,010,236

 
2,091,012

Noncontrolling interest – operating partnership
 
 
 
3,686,609 and 3,713,851 common units outstanding as of September 30, 2013 and December 31, 2012, respectively
58,513

 
60,223

1,290,000 preferred units outstanding as of December 31, 2012

 
63,264

Noncontrolling interest – consolidated joint ventures
3,424

 
3,321

Total equity
3,072,173

 
2,217,820

Total liabilities, noncontrolling interest - operating partnership and equity
$
6,451,000

 
$
5,174,179


See accompanying notes.

5


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 
Three Months Ended
 
September 30, 2013
 
September 30, 2012
OPERATING REVENUE
 
 
 
Rental
$
128,044

 
$
116,666

Operating expense reimbursement
55,342

 
51,017

Total operating revenue
183,386

 
167,683

OPERATING EXPENSE
 
 
 
Rental property
35,213

 
33,934

Real estate taxes
22,107

 
19,517

General and administrative
17,231

 
14,610

Depreciation and amortization
46,036

 
40,149

Total operating expenses
120,587

 
108,210

Operating income
62,799

 
59,473

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
2,620

 
2,340

Interest expense
(37,412
)
 
(30,772
)
Total other income (expense)
(34,792
)
 
(28,432
)
Income before gain on property dispositions, income taxes and equity in earnings (loss) of unconsolidated joint ventures
28,007

 
31,041

Gain on property dispositions
1,958

 
2,001

Income taxes
(629
)
 
(321
)
Equity in earnings (loss) of unconsolidated joint ventures
650

 
(3,082
)
Income from continuing operations
29,986

 
29,639

Discontinued operations (including net gain on property dispositions of $29 for the quarter ended September 30, 2013 and net loss of $1,540 for the quarter ended September 30, 2012)
(38
)
 
259

Net income
29,948

 
29,898

Noncontrolling interest – operating partnership
(843
)
 
(2,092
)
Noncontrolling interest – consolidated joint ventures
(406
)
 

Net income available to common shareholders
$
28,699

 
$
27,806

Net income
$
29,948

 
$
29,898

Other comprehensive income
4,927

 
2,245

Total comprehensive income
34,875

 
32,143

Less: comprehensive income attributable to noncontrolling interest
(1,370
)
 
(2,161
)
Comprehensive income attributable to common shareholders
$
33,505

 
$
29,982

Earnings per common share
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.21

 
$
0.24

Income from discontinued operations

 

Income per common share – basic
$
0.21

 
$
0.24

Diluted:
 
 
 
Income from continuing operations
$
0.21

 
$
0.24

Income from discontinued operations

 

Income per common share – diluted
$
0.21

 
$
0.24

Distributions per common share
$
0.475

 
$
0.475

Weighted average number of common shares outstanding
 
 
 
Basic
135,628

 
117,141

Diluted
136,328

 
118,043

Amounts attributable to common shareholders
 
 
 
Income from continuing operations
$
28,736

 
$
27,555

Discontinued operations
(37
)
 
251

Net income available to common shareholders
$
28,699

 
$
27,806

See accompanying notes.

6


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 
Nine Months Ended
 
September 30, 2013
 
September 30, 2012
OPERATING REVENUE
 
 
 
Rental
$
375,702

 
$
348,955

Operating expense reimbursement
160,476

 
148,187

Total operating revenue
536,178

 
497,142

OPERATING EXPENSE
 
 
 
Rental property
99,746

 
93,840

Real estate taxes
65,007

 
59,167

General and administrative
53,552

 
46,391

Depreciation and amortization
135,560

 
120,337

Total operating expenses
353,865

 
319,735

Operating income
182,313

 
177,407

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
7,612

 
7,055

Interest expense
(101,141
)
 
(88,941
)
Total other income (expense)
(93,529
)
 
(81,886
)
Income before gain on property dispositions, income taxes and equity in earnings (loss) of unconsolidated joint ventures
88,784

 
95,521

Gain on property dispositions
6,829

 
2,859

Income taxes
(1,780
)
 
(645
)
Equity in earnings (loss) of unconsolidated joint ventures
3,973

 
(1,397
)
Income from continuing operations
97,806

 
96,338

Discontinued operations (including net gain on property dispositions of $49,367 and $2,505 for the nine months ended September 30, 2013 and 2012, respectively)
50,041

 
10,842

Net income
147,847

 
107,180

Noncontrolling interest – operating partnership
(7,394
)
 
(8,174
)
Noncontrolling interest – consolidated joint ventures
(406
)
 

Net income available to common shareholders
$
140,047

 
$
99,006

Net income
$
147,847

 
$
107,180

Other comprehensive income
115

 
3,047

Total comprehensive income
147,962

 
110,227

Less: comprehensive income attributable to noncontrolling interest
(7,777
)
 
(8,269
)
Comprehensive income attributable to common shareholders
$
140,185

 
$
101,958

Earnings per common share
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.73

 
$
0.76

Income from discontinued operations
0.39

 
0.09

Income per common share – basic
$
1.12

 
$
0.85

Diluted:
 
 
 
Income from continuing operations
$
0.72

 
$
0.75

Income from discontinued operations
0.39

 
0.09

Income per common share – diluted
$
1.11

 
$
0.84

Distributions per common share
$
1.425

 
$
1.425

Weighted average number of common shares outstanding
 
 
 
Basic
124,889

 
116,625

Diluted
125,655

 
117,462

Amounts attributable to common shareholders
 
 
 
Income from continuing operations
$
91,442

 
$
88,500

Discontinued operations
48,605

 
10,506

Net income available to common shareholders
$
140,047

 
$
99,006

See accompanying notes.

7


CONSOLIDATED STATEMENT OF EQUITY OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
 
 
COMMON
SHARES OF
BENEFICIAL
INTEREST
 
ADDITIONAL
PAID-IN
CAPITAL
 
ACCUMULATED
OTHER
COMPREHENSIVE INCOME
 
DISTRIBUTIONS
IN EXCESS OF
NET INCOME
 
COMMON
SHARES
HELD
IN
TREASURY
 
TOTAL
LIBERTY
PROPERTY
TRUST
SHAREHOLDERS’
EQUITY
 
NONCONTROLL-
ING INTEREST -
OPERATING
PARTNERSHIP-
COMMON UNITS
 
NONCONTROLL-
ING INTEREST -
OPERATING
PARTNERSHIP –
PREFERRED UNITS
 
NONCONTROLL-
ING INTEREST -
CONSOLIDATED
JOINT
VENTURES
 
TOTAL
EQUITY
Balance at January 1, 2013
 
$
119

 
$
2,687,701

 
$
2,900

 
$
(547,757
)
 
$
(51,951
)
 
$
2,091,012

 
$
60,223

 
$
63,264

 
$
3,321

 
$
2,217,820

Net proceeds from the issuance of common shares
 
28

 
954,453

 

 

 

 
954,481

 

 

 

 
954,481

Net income
 

 

 

 
140,047

 

 
140,047

 
4,157

 
3,237

 
406

 
147,847

Distributions
 

 

 

 
(184,054
)
 

 
(184,054
)
 
(5,406
)
 
(2,001
)
 
(303
)
 
(191,764
)
Share-based compensation
 

 
8,174

 

 

 

 
8,174

 

 

 

 
8,174

Foreign currency translation adjustment
 

 

 
138

 

 

 
138

 
(23
)
 

 

 
115

Redemption of noncontrolling interests – common units
 

 
438

 

 

 

 
438

 
(438
)
 

 

 

Redemption of noncontrolling interest - preferred units
 

 

 

 

 

 

 

 
(63,264
)
 

 
(63,264
)
Excess of preferred unit redemption over carrying amount
 

 

 

 

 

 

 

 
(1,236
)
 

 
(1,236
)
Balance at September 30, 2013
 
$
147

 
$
3,650,766

 
$
3,038

 
$
(591,764
)
 
$
(51,951
)
 
$
3,010,236

 
$
58,513

 
$

 
$
3,424

 
$
3,072,173


See accompanying notes.

8


CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
 
Nine Months Ended
 
September 30, 2013
 
September 30, 2012
OPERATING ACTIVITIES
 
 
 
Net income
$
147,847

 
$
107,180

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
137,302

 
124,420

Amortization of deferred financing costs
3,533

 
3,581

Equity in (earnings) loss of unconsolidated joint ventures
(3,973
)
 
1,397

Distributions from unconsolidated joint ventures
613

 
536

Gain on property dispositions
(56,196
)
 
(5,364
)
Share-based compensation
8,174

 
8,307

  Changes in operating assets and liabilities:
 
 
 
Restricted cash
(2,703
)
 
25,864

Accounts receivable
231

 
1,223

Deferred rent receivable
(6,171
)
 
(5,550
)
Prepaid expenses and other assets
(50,389
)
 
(19,626
)
Accounts payable
15,494

 
35,389

Accrued interest
18,922

 
12,030

Other liabilities
2,352

 
(30,356
)
Net cash provided by operating activities
215,036

 
259,031

INVESTING ACTIVITIES
 
 
 
Investment in operating properties - acquisitions
(161,404
)
 
(35,644
)
Investment in operating properties - other
(40,433
)
 
(45,221
)
Investments in and advances to unconsolidated joint ventures
(11,736
)
 
(3,529
)
Distributions from unconsolidated joint ventures
6,825

 
6,967

Net proceeds from disposition of properties/land
134,024

 
217,430

Net proceeds from (advances on) public reimbursement receivable/escrow
12,943

 
(682
)
Investment in development in progress
(81,736
)
 
(152,523
)
Investment in land held for development
(34,642
)
 
(32,871
)
Investment in deferred leasing costs
(22,996
)
 
(17,470
)
Net cash used in investing activities
(199,155
)
 
(63,543
)
FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares
954,481

 
42,808

Redemption of preferred units
(64,500
)
 
(221,000
)
Proceeds from unsecured notes
448,646

 
399,220

Redemption of unsecured notes

 
(230,100
)
Proceeds from mortgage loans
10,401

 
27,481

Repayments of mortgage loans
(3,977
)
 
(28,103
)
Proceeds from credit facility
344,050

 
653,350

Repayments on credit facility
(436,050
)
 
(642,750
)
Payment of deferred financing costs
(3,883
)
 
(3,498
)
Distribution paid on common shares
(170,970
)
 
(166,564
)
Distribution paid on units/to consolidated joint venture partners
(7,619
)
 
(13,139
)
Net cash provided by (used in) financing activities
1,070,579

 
(182,295
)
Net increase in cash and cash equivalents
1,086,460

 
13,193

(Decrease) increase in cash and cash equivalents related to foreign currency translation
(246
)
 
2,672

Cash and cash equivalents at beginning of period
38,356

 
18,204

Cash and cash equivalents at end of period
$
1,124,570

 
$
34,069


See accompanying notes.

9


CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except unit amounts)
 
 
September 30, 2013
 
December 31, 2012
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,012,247

 
$
899,801

Building and improvements
4,564,885

 
4,341,125

Less accumulated depreciation
(1,224,775
)
 
(1,164,756
)
Operating real estate
4,352,357

 
4,076,170

Development in progress
136,165

 
248,602

Land held for development
233,091

 
258,324

Net real estate
4,721,613

 
4,583,096

Cash and cash equivalents
1,124,570

 
38,356

Restricted cash
35,705

 
33,147

Accounts receivable
8,784

 
8,988

Deferred rent receivable
112,943

 
108,576

Deferred financing and leasing costs, net of accumulated amortization (2013, $145,519; 2012, $132,261)
149,833

 
137,359

Investments in and advances to unconsolidated joint ventures
177,344

 
169,021

Assets held for sale

 
7,880

Prepaid expenses and other assets
120,208

 
87,756

Total assets
$
6,451,000

 
$
5,174,179

LIABILITIES
 
 
 
Mortgage loans
$
309,279

 
$
302,855

Unsecured notes
2,707,985

 
2,258,751

Credit facility

 
92,000

Accounts payable
46,562

 
31,058

Accrued interest
39,086

 
20,164

Distributions payable
71,113

 
58,038

Other liabilities
197,265

 
185,956

Total liabilities
3,371,290

 
2,948,822

Limited partners' equity - 301,483 preferred units outstanding as of September 30, 2013 and December 31, 2012
7,537

 
7,537

OWNERS’ EQUITY
 
 
 
General partner’s equity - 146,024,838 (net of 1,249,909 treasury units) and 118,470,867 (net of 1,249,909 treasury units) common units outstanding as of September 30, 2013 and December 31, 2012, respectively
3,010,236

 
2,091,012

Limited partners’ equity – 3,686,609 and 3,713,851 common units outstanding as of September 30, 2013 and December 31, 2012, respectively
58,513

 
60,223

Limited partners’ equity – 1,290,000 preferred units outstanding as of December 31, 2012

 
63,264

Noncontrolling interest – consolidated joint ventures
3,424

 
3,321

Total owners’ equity
3,072,173

 
2,217,820

Total liabilities, limited partners' equity and owners’ equity
$
6,451,000

 
$
5,174,179


See accompanying notes.

10


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
 
Three Months Ended
 
September 30, 2013
 
September 30, 2012
OPERATING REVENUE
 
 
 
Rental
$
128,044

 
$
116,666

Operating expense reimbursement
55,342

 
51,017

Total operating revenue
183,386

 
167,683

OPERATING EXPENSE
 
 
 
Rental property
35,213

 
33,934

Real estate taxes
22,107

 
19,517

General and administrative
17,231

 
14,610

Depreciation and amortization
46,036

 
40,149

Total operating expenses
120,587

 
108,210

Operating income
62,799

 
59,473

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
2,620

 
2,340

Interest expense
(37,412
)
 
(30,772
)
Total other income (expense)
(34,792
)
 
(28,432
)
Income before gain on property dispositions, income taxes and equity in earnings (loss) of unconsolidated joint ventures
28,007

 
31,041

Gain on property dispositions
1,958

 
2,001

Income taxes
(629
)
 
(321
)
Equity in earnings (loss) of unconsolidated joint ventures
650

 
(3,082
)
Income from continuing operations
29,986

 
29,639

Discontinued operations (including net gain on property dispositions of $29 for the quarter ended September 30, 2013 and net loss of $1,540 for the quarter ended September 30, 2012)
(38
)
 
259

Net income
29,948

 
29,898

Noncontrolling interest – consolidated joint ventures
(406
)
 

Preferred unit distributions
(118
)
 
(1,211
)
Income available to common unitholders
$
29,424

 
$
28,687

Net income
$
29,948

 
$
29,898

Other comprehensive income
4,927

 
2,245

Total comprehensive income
$
34,875

 
$
32,143

Earnings per common unit
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.21

 
$
0.24

Income from discontinued operations

 

Income per common unit - basic
$
0.21

 
$
0.24

Diluted:
 
 
 
Income from continuing operations
$
0.21

 
$
0.24

Income from discontinued operations

 

Income per common unit - diluted
$
0.21

 
$
0.24

Distributions per common unit
$
0.475

 
$
0.475

Weighted average number of common units outstanding
 
 
 
        Basic
139,320

 
120,880

        Diluted
140,020

 
121,782

Net income allocated to general partners
$
28,699

 
$
27,806

Net income allocated to limited partners
$
843

 
$
2,092


See accompanying notes.

11


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
 
Nine Months Ended
 
September 30, 2013
 
September 30, 2012
OPERATING REVENUE
 
 
 
Rental
$
375,702

 
$
348,955

Operating expense reimbursement
160,476

 
148,187

Total operating revenue
536,178

 
497,142

OPERATING EXPENSE
 
 
 
Rental property
99,746

 
93,840

Real estate taxes
65,007

 
59,167

General and administrative
53,552

 
46,391

Depreciation and amortization
135,560

 
120,337

Total operating expenses
353,865

 
319,735

Operating income
182,313

 
177,407

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
7,612

 
7,055

Interest expense
(101,141
)
 
(88,941
)
Total other income (expense)
(93,529
)
 
(81,886
)
Income before gain on property dispositions, income taxes and equity in earnings (loss) of unconsolidated joint ventures
88,784

 
95,521

Gain on property dispositions
6,829

 
2,859

Income taxes
(1,780
)
 
(645
)
Equity in earnings (loss) of unconsolidated joint ventures
3,973

 
(1,397
)
Income from continuing operations
97,806

 
96,338

Discontinued operations (including net gain on property dispositions of $49,367 and $2,505 for the nine months ended September 30, 2013 and 2012, respectively)
50,041

 
10,842

Net income
147,847

 
107,180

Noncontrolling interest – consolidated joint ventures
(406
)
 

Preferred unit distributions
(2,001
)
 
(8,690
)
Excess of preferred unit redemption over carrying amount
(1,236
)
 
3,689

Income available to common unitholders
$
144,204

 
$
102,179

Net income
$
147,847

 
$
107,180

Other comprehensive income
115

 
3,047

Total comprehensive income
$
147,962

 
$
110,227

Earnings per common unit
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.73

 
$
0.76

Income from discontinued operations
0.39

 
0.09

Income per common unit - basic
$
1.12

 
$
0.85

Diluted:
 
 
 
Income from continuing operations
$
0.72

 
$
0.75

Income from discontinued operations
0.39

 
0.09

Income per common unit - diluted
$
1.11

 
$
0.84

Distributions per common unit
$
1.425

 
$
1.425

Weighted average number of common units outstanding
 
 
 
        Basic
128,595

 
120,396

        Diluted
129,361

 
121,233

Net income allocated to general partners
$
140,047

 
$
99,006

Net income allocated to limited partners
$
7,394

 
$
8,174


See accompanying notes.



12


CONSOLIDATED STATEMENT OF OWNERS’ EQUITY OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
GENERAL
PARTNER’S
EQUITY
 
LIMITED
PARTNERS’
EQUITY  –
COMMON
UNITS
 
LIMITED
PARTNERS’
EQUITY  –
PREFERRED
UNITS
 
NONCONTROLLING
INTEREST –
CONSOLIDATED
JOINT VENTURES
 
TOTAL
OWNERS’
EQUITY
Balance at January 1, 2013
$
2,091,012

 
$
60,223

 
$
63,264

 
$
3,321

 
$
2,217,820

Contributions from partners
962,655

 

 

 

 
962,655

Distributions to partners
(184,054
)
 
(5,406
)
 
(2,001
)
 
(303
)
 
(191,764
)
Foreign currency translation adjustment
138

 
(23
)
 

 

 
115

Net income
140,047

 
4,157

 
3,237

 
406

 
147,847

Redemption of limited partners common units for common shares
438

 
(438
)
 

 

 

Redemption of limited partners' preferred units

 

 
(63,264
)
 

 
(63,264
)
Excess of preferred unit redemption over carrying amount

 

 
(1,236
)
 

 
(1,236
)
Balance at September 30, 2013
$
3,010,236

 
$
58,513

 
$

 
$
3,424

 
$
3,072,173


See accompanying notes.

13


CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
Nine Months Ended
 
September 30, 2013
 
September 30, 2012
OPERATING ACTIVITIES
 
 
 
Net income
$
147,847

 
$
107,180

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
137,302

 
124,420

Amortization of deferred financing costs
3,533

 
3,581

Equity in (earnings) loss of unconsolidated joint ventures
(3,973
)
 
1,397

Distributions from unconsolidated joint ventures
613

 
536

Gain on property dispositions
(56,196
)
 
(5,364
)
Share-based compensation
8,174

 
8,307

  Changes in operating assets and liabilities:
 
 
 
Restricted cash
(2,703
)
 
25,864

Accounts receivable
231

 
1,223

Deferred rent receivable
(6,171
)
 
(5,550
)
Prepaid expenses and other assets
(50,389
)
 
(19,626
)
Accounts payable
15,494

 
35,389

Accrued interest
18,922

 
12,030

Other liabilities
2,352

 
(30,356
)
Net cash provided by operating activities
215,036

 
259,031

INVESTING ACTIVITIES
 
 
 
Investment in operating properties - acquisitions
(161,404
)
 
(35,644
)
Investment in operating properties - other
(40,433
)
 
(45,221
)
Investments in and advances to unconsolidated joint ventures
(11,736
)
 
(3,529
)
Distributions from unconsolidated joint ventures
6,825

 
6,967

Net proceeds from disposition of properties/land
134,024

 
217,430

Net proceeds from (advances on) public reimbursement receivable/escrow
12,943

 
(682
)
Investment in development in progress
(81,736
)
 
(152,523
)
Investment in land held for development
(34,642
)
 
(32,871
)
Investment in deferred leasing costs
(22,996
)
 
(17,470
)
Net cash used in investing activities
(199,155
)
 
(63,543
)
FINANCING ACTIVITIES
 
 
 
Redemption of preferred units
(64,500
)
 
(221,000
)
Proceeds from unsecured notes
448,646

 
399,220

Redemption of unsecured notes

 
(230,100
)
Proceeds from mortgage loans
10,401

 
27,481

Repayments of mortgage loans
(3,977
)
 
(28,103
)
Proceeds from credit facility
344,050

 
653,350

Repayments on credit facility
(436,050
)
 
(642,750
)
Payment of deferred financing costs
(3,883
)
 
(3,498
)
Capital contributions
954,481

 
42,808

Distributions to partners
(178,589
)
 
(179,703
)
Net cash provided by (used in) financing activities
1,070,579

 
(182,295
)
Net increase in cash and cash equivalents
1,086,460

 
13,193

(Decrease) increase in cash and cash equivalents related to foreign currency translation
(246
)
 
2,672

Cash and cash equivalents at beginning of period
38,356

 
18,204

Cash and cash equivalents at end of period
$
1,124,570

 
$
34,069


See accompanying notes.

14


Liberty Property Trust and Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013
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 97.5% of the common equity of the Operating Partnership at September 30, 2013. The Company provides leasing, property management, development, acquisition, and other tenant-related services for a portfolio of industrial and office properties which are located principally within the Mid-Atlantic, Southeastern, Midwestern and Southwestern United States and the United Kingdom. Unless otherwise indicated, the notes to the Consolidated Financial Statements apply to both the Trust and the Operating Partnership. The terms the "Company,” “we,” “our” and “us” mean the Trust and Operating Partnership collectively.
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2012. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. Certain amounts from prior periods have been reclassified to conform to the current period presentation including reclassifying the accompanying consolidated balance sheets and statements of comprehensive income for assets held for sale and discontinued operations.


15


Note 2: Income per Common Share of the Trust

The following table sets forth the computation of basic and diluted income (loss) per common share of the Trust (in thousands except per share amounts):
 
 
For the Three Months Ended
 
For the Three Months Ended
 
September 30, 2013
 
September 30, 2012
 
Income
(Loss) (Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Basic income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
$
28,736

 
135,628

 
$
0.21

 
$
27,555

 
117,141

 
$
0.24

Dilutive shares for long-term compensation plans

 
700

 
 
 

 
902

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
$
28,736

 
136,328

 
$
0.21

 
$
27,555

 
118,043

 
$
0.24

Basic income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
$
(37
)
 
135,628

 
$

 
$
251

 
117,141

 
$

Dilutive shares for long-term compensation plans

 
700

 
 
 

 
902

 
 
Diluted income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
$
(37
)
 
136,328

 
$

 
$
251

 
118,043

 
$

Basic income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
28,699

 
135,628

 
$
0.21

 
$
27,806

 
117,141

 
$
0.24

Dilutive shares for long-term compensation plans

 
700

 
 
 

 
902

 
 
Diluted income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
28,699

 
136,328

 
$
0.21

 
$
27,806

 
118,043

 
$
0.24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

16


 
For the Nine Months Ended
 
For the Nine Months Ended
 
September 30, 2013
 
September 30, 2012
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Basic income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
$
91,442

 
124,889

 
$
0.73

 
$
88,500

 
116,625

 
$
0.76

Dilutive shares for long-term compensation plans

 
766

 
 
 

 
837

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
91,442

 
125,655

 
$
0.72

 
88,500

 
117,462

 
$
0.75

Basic income from discontinued operations