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Liberty Property Trust 10-Q 2015
LRY 6.30.2015 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 June 30, 2015
  
OR

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
Commission file numbers: 1-13130 (Liberty Property Trust)
1-13132 (Liberty Property Limited Partnership) 
__________________________________________________________
LIBERTY PROPERTY TRUST
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Exact name of registrants as specified in their governing documents)
__________________________________________________________
 
MARYLAND (Liberty Property Trust)
23-7768996
PENNSYLVANIA (Liberty Property Limited Partnership)
23-2766549
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
 
500 Chesterfield Parkway
Malvern, Pennsylvania
19355
(Address of Principal Executive Offices)
(Zip Code)
 
Registrants’ Telephone Number, Including Area Code (610) 648-1700
__________________________________________________________
 
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past ninety (90) days.    Yes  x    No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):
  
Large Accelerated Filer
x
Accelerated Filer
o
Non-Accelerated Filer
o (Do not check if a smaller reporting company)
Smaller Reporting Company
o
    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
On July 30, 2015, 149,861,775 Common Shares of Beneficial Interest, par value $0.001 per share, of Liberty Property Trust were outstanding.



EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2015 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 97.7% of the common equity of the Operating Partnership at June 30, 2015. 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 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;
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 June 30, 2015
 
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)
 
 
June 30, 2015
 
December 31, 2014
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,207,305

 
$
1,189,760

Building and improvements
5,305,894

 
5,343,908

Less accumulated depreciation
(1,205,440
)
 
(1,182,569
)
Operating real estate
5,307,759

 
5,351,099

Development in progress
225,154

 
277,411

Land held for development
280,334

 
269,059

Net real estate
5,813,247

 
5,897,569

Cash and cash equivalents
73,053

 
69,346

Restricted cash
17,929

 
20,325

Accounts receivable
14,837

 
15,481

Deferred rent receivable
115,944

 
107,909

Deferred financing and leasing costs, net of accumulated amortization (2015, $176,671; 2014, $169,468)
200,782

 
206,286

Investments in and advances to unconsolidated joint ventures
215,715

 
208,832

Assets held for sale

 
8,389

Prepaid expenses and other assets
105,223

 
91,399

Total assets
$
6,556,730

 
$
6,625,536

LIABILITIES
 
 
 
Mortgage loans
$
481,621

 
$
487,301

Unsecured notes
2,608,089

 
2,509,094

Credit facility
70,000

 
167,000

Accounts payable
46,393

 
52,043

Accrued interest
27,176

 
24,513

Dividend and distributions payable
72,687

 
72,253

Other liabilities
197,960

 
219,418

Total liabilities
3,503,926

 
3,531,622

Noncontrolling interest - operating partnership - 301,483 preferred units outstanding as of June 30, 2015 and December 31, 2014
7,537

 
7,537

EQUITY
 
 
 
Liberty Property Trust shareholders’ equity
 
 
 
Common shares of beneficial interest, $.001 par value, 283,987,000 shares authorized; 150,737,328 (includes 1,249,909 in treasury) and 149,807,179 (includes 1,249,909 in treasury) shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively
151

 
150

Additional paid-in capital
3,775,548

 
3,740,594

Accumulated other comprehensive loss
(4,863
)
 
(6,252
)
Distributions in excess of net income
(730,242
)
 
(654,869
)
Common shares in treasury, at cost, 1,249,909 shares as of June 30, 2015 and December 31, 2014
(51,951
)
 
(51,951
)
Total Liberty Property Trust shareholders’ equity
2,988,643

 
3,027,672

Noncontrolling interest – operating partnership
 
 
 
3,539,075 and 3,553,566 common units outstanding as of June 30, 2015 and December 31, 2014, respectively
52,705

 
54,786

Noncontrolling interest – consolidated joint ventures
3,919

 
3,919

Total equity
3,045,267

 
3,086,377

Total liabilities, noncontrolling interest - operating partnership and equity
$
6,556,730

 
$
6,625,536


See accompanying notes.

5


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 
Three Months Ended
 
June 30, 2015
 
June 30, 2014
OPERATING REVENUE
 
 
 
Rental
$
147,367

 
$
139,377

Operating expense reimbursement
56,151

 
53,583

Total operating revenue
203,518

 
192,960

OPERATING EXPENSE
 
 
 
Rental property
31,949

 
31,982

Real estate taxes
26,462

 
25,716

General and administrative
17,053

 
14,973

Depreciation and amortization
56,833

 
57,872

Impairment - real estate assets
1,036

 

Total operating expense
133,333

 
130,543

Operating income
70,185

 
62,417

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
6,581

 
3,115

Interest expense
(35,066
)
 
(38,470
)
Total other income (expense)
(28,485
)
 
(35,355
)
Income before gain on property dispositions, income taxes and equity in (loss) earnings of unconsolidated joint ventures
41,700

 
27,062

Gain on property dispositions
1,249

 
1,897

Income taxes
(1,169
)
 
(693
)
Equity in (loss) earnings of unconsolidated joint ventures
(5,254
)
 
1,546

Income from continuing operations
36,526

 
29,812

Discontinued operations (including net gain on property dispositions of $139 for the three months ended June 30, 2014)

 
295

Net income
36,526

 
30,107

Noncontrolling interest – operating partnership
(958
)
 
(821
)
Noncontrolling interest – consolidated joint ventures
(55
)
 
(37
)
Net income available to common shareholders
$
35,513

 
$
29,249

 
 
 
 
Net income
$
36,526

 
$
30,107

Other comprehensive income - foreign currency translation
12,151

 
6,464

Other comprehensive income (loss) - derivative instruments
628

 
(1,145
)
Other comprehensive income
12,779

 
5,319

Total comprehensive income
49,305

 
35,426

Less: comprehensive income attributable to noncontrolling interest
(1,309
)
 
(983
)
Comprehensive income attributable to common shareholders
$
47,996

 
$
34,443

Earnings per common share
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.24

 
$
0.20

Income from discontinued operations

 

Income per common share – basic
$
0.24

 
$
0.20

Diluted:
 
 
 
Income from continuing operations
$
0.24

 
$
0.20

Income from discontinued operations

 

Income per common share – diluted
$
0.24

 
$
0.20

Distributions per common share
$
0.475

 
$
0.475

Weighted average number of common shares outstanding
 
 
 
Basic
148,778

 
147,012

Diluted
149,454

 
147,774

Amounts attributable to common shareholders
 
 
 
Income from continuing operations
$
35,513

 
$
28,961

Discontinued operations

 
288

Net income available to common shareholders
$
35,513

 
$
29,249

See accompanying notes.

6


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
OPERATING REVENUE
 
 
 
Rental
$
295,952

 
$
278,326

Operating expense reimbursement
114,467

 
112,264

Total operating revenue
410,419

 
390,590

OPERATING EXPENSE
 
 
 
Rental property
67,520

 
70,623

Real estate taxes
52,626

 
50,217

General and administrative
35,855

 
33,329

Depreciation and amortization
115,629

 
114,606

Impairment - real estate assets
16,775

 

Total operating expense
288,405

 
268,775

Operating income
122,014

 
121,815

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
12,952

 
5,553

Interest expense
(69,736
)
 
(77,677
)
Total other income (expense)
(56,784
)
 
(72,124
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
65,230

 
49,691

Gain on property dispositions
3,520

 
1,898

Income taxes
(2,014
)
 
(1,224
)
Equity in earnings of unconsolidated joint ventures
1,652

 
5,705

Income from continuing operations
68,388

 
56,070

Discontinued operations (including net gain on property dispositions of $46,254 for the six months ended June 30, 2014)

 
48,143

Net income
68,388

 
104,213

Noncontrolling interest – operating partnership
(1,811
)
 
(2,674
)
Noncontrolling interest – consolidated joint ventures
(113
)
 
(390
)
Net income available to common shareholders
$
66,464

 
$
101,149

 
 
 
 
Net income
$
68,388

 
$
104,213

Other comprehensive income - foreign currency translation
1,741

 
7,811

Other comprehensive loss - derivative instruments
(319
)
 
(1,656
)
Other comprehensive income
1,422

 
6,155

Total comprehensive income
69,810

 
110,368

Less: comprehensive income attributable to noncontrolling interest
(1,957
)
 
(3,209
)
Comprehensive income attributable to common shareholders
$
67,853

 
$
107,159

Earnings per common share
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.45

 
$
0.37

Income from discontinued operations

 
0.32

Income per common share – basic
$
0.45

 
$
0.69

Diluted:
 
 
 
Income from continuing operations
$
0.45

 
$
0.37

Income from discontinued operations

 
0.32

Income per common share – diluted
$
0.45

 
$
0.69

Distributions per common share
$
0.95

 
$
0.95

Weighted average number of common shares outstanding
 
 
 
Basic
148,574

 
146,749

Diluted
149,247

 
147,444

Amounts attributable to common shareholders
 
 
 
Income from continuing operations
$
66,464

 
$
54,137

Discontinued operations

 
47,012

Net income available to common shareholders
$
66,464

 
$
101,149

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 LOSS
 
DISTRIBUTIONS
IN EXCESS OF
NET INCOME
 
COMMON
SHARES
HELD
IN
TREASURY
 
TOTAL
LIBERTY
PROPERTY
TRUST
SHAREHOLDERS’
EQUITY
 
NONCONTROLL-
ING INTEREST -
OPERATING
PARTNERSHIP-
COMMON
 
NONCONTROLL-
ING INTEREST -
CONSOLIDATED
JOINT
VENTURES
 
TOTAL
EQUITY
 
NONCONTROLLING INTEREST - OPERATING PARTNERSHIP (MEZZANINE)
Balance at January 1, 2015
 
$
150

 
$
3,740,594

 
$
(6,252
)
 
$
(654,869
)
 
$
(51,951
)
 
$
3,027,672

 
$
54,786

 
$
3,919

 
$
3,086,377

 
$
7,537

Net proceeds from the issuance of common shares
 
1

 
25,226

 

 

 

 
25,227

 

 

 
25,227

 

Net income
 

 

 

 
66,464

 

 
66,464

 
1,575

 
113

 
68,152

 
236

Distributions
 

 

 

 
(141,837
)
 

 
(141,837
)
 
(3,465
)
 
(113
)
 
(145,415
)
 
(236
)
Share-based compensation
 

 
9,504

 

 

 

 
9,504

 

 

 
9,504

 

Other comprehensive income - foreign currency translation
 

 

 
1,701

 

 

 
1,701

 
40

 

 
1,741

 

Other comprehensive loss - derivative instruments
 

 

 
(312
)
 

 

 
(312
)
 
(7
)
 

 
(319
)
 

Redemption of noncontrolling interests – common units
 

 
224

 

 

 

 
224

 
(224
)
 

 

 

Balance at June 30, 2015
 
$
151

 
$
3,775,548

 
$
(4,863
)
 
$
(730,242
)
 
$
(51,951
)
 
$
2,988,643

 
$
52,705

 
$
3,919

 
$
3,045,267

 
$
7,537


See accompanying notes.

8


CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
OPERATING ACTIVITIES
 
 
 
Net income
$
68,388

 
$
104,213

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
117,160

 
116,547

Amortization of deferred financing costs
2,168

 
2,629

Impairment - real estate assets
16,775

 

Equity in earnings of unconsolidated joint ventures
(1,652
)
 
(5,705
)
Distributions from unconsolidated joint ventures
4,441

 

Gain on property dispositions
(3,520
)
 
(48,152
)
Share-based compensation
9,504

 
8,500

Other
(6,750
)
 
(2,210
)
  Changes in operating assets and liabilities:
 
 
 
Restricted cash
2,541

 
33,239

Accounts receivable
665

 
(1,307
)
Deferred rent receivable
(11,319
)
 
(7,548
)
Prepaid expenses and other assets
(16,540
)
 
(29,907
)
Accounts payable
(5,647
)
 
9,100

Accrued interest
2,663

 
2,753

Other liabilities
(5,780
)
 
(34,802
)
Net cash provided by operating activities
173,097

 
147,350

INVESTING ACTIVITIES
 
 
 
Investment in operating properties - acquisitions
(36,714
)
 
(90,837
)
Investment in operating properties - other
(33,585
)
 
(39,073
)
Investments in and advances to unconsolidated joint ventures
(17,182
)
 
(12,008
)
Distributions from unconsolidated joint ventures
7,979

 
5,429

Net proceeds from disposition of properties/land
156,891

 
351,299

Investment in development in progress
(78,120
)
 
(150,199
)
Investment in land held for development
(23,150
)
 
(12,793
)
Investment in deferred leasing costs
(23,395
)
 
(18,252
)
Other
5,154

 
5,627

Net cash (used in) provided by investing activities
(42,122
)
 
39,193

FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares
25,227

 
31,588

Proceeds from unsecured notes
398,576

 

Repayments of unsecured notes
(300,000
)
 

Repayments of mortgage loans
(4,567
)
 
(7,013
)
Proceeds from credit facility
613,200

 

Repayments on credit facility
(710,200
)
 

Payment of deferred financing costs
(3,551
)
 
(3,635
)
Distribution paid on common shares
(141,395
)
 
(139,598
)
Distribution paid on units
(3,821
)
 
(3,814
)
Net cash used in financing activities
(126,531
)
 
(122,472
)
Net increase in cash and cash equivalents
4,444

 
64,071

(Decrease) increase in cash and cash equivalents related to foreign currency translation
(737
)
 
1,193

Cash and cash equivalents at beginning of period
69,346

 
163,414

Cash and cash equivalents at end of period
$
73,053

 
$
228,678


See accompanying notes.

9


CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except unit amounts)
 
 
June 30, 2015
 
December 31, 2014
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,207,305

 
$
1,189,760

Building and improvements
5,305,894

 
5,343,908

Less accumulated depreciation
(1,205,440
)
 
(1,182,569
)
Operating real estate
5,307,759

 
5,351,099

Development in progress
225,154

 
277,411

Land held for development
280,334

 
269,059

Net real estate
5,813,247

 
5,897,569

Cash and cash equivalents
73,053

 
69,346

Restricted cash
17,929

 
20,325

Accounts receivable
14,837

 
15,481

Deferred rent receivable
115,944

 
107,909

Deferred financing and leasing costs, net of accumulated amortization (2015, $176,671; 2014, $169,468)
200,782

 
206,286

Investments in and advances to unconsolidated joint ventures
215,715

 
208,832

Assets held for sale

 
8,389

Prepaid expenses and other assets
105,223

 
91,399

Total assets
$
6,556,730

 
$
6,625,536

LIABILITIES
 
 
 
Mortgage loans
$
481,621

 
$
487,301

Unsecured notes
2,608,089

 
2,509,094

Credit facility
70,000

 
167,000

Accounts payable
46,393

 
52,043

Accrued interest
27,176

 
24,513

Distributions payable
72,687

 
72,253

Other liabilities
197,960

 
219,418

Total liabilities
3,503,926

 
3,531,622

Limited partners' equity - 301,483 preferred units outstanding as of June 30, 2015, and December 31, 2014
7,537

 
7,537

OWNERS’ EQUITY
 
 
 
General partner’s equity - 149,487,419 (net of 1,249,909 treasury units) and 148,557,270 (net of 1,249,909 treasury units) common units outstanding as of June 30, 2015 and December 31, 2014, respectively
2,988,643

 
3,027,672

Limited partners’ equity – 3,539,075 and 3,553,566 common units outstanding as of June 30, 2015 and December 31, 2014, respectively
52,705

 
54,786

Noncontrolling interest – consolidated joint ventures
3,919

 
3,919

Total owners’ equity
3,045,267

 
3,086,377

Total liabilities, limited partners' equity and owners’ equity
$
6,556,730

 
$
6,625,536


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
 
June 30, 2015
 
June 30, 2014
OPERATING REVENUE
 
 
 
Rental
$
147,367

 
$
139,377

Operating expense reimbursement
56,151

 
53,583

Total operating revenue
203,518

 
192,960

OPERATING EXPENSE
 
 
 
Rental property
31,949

 
31,982

Real estate taxes
26,462

 
25,716

General and administrative
17,053

 
14,973

Depreciation and amortization
56,833

 
57,872

Impairment - real estate assets
1,036

 

Total operating expense
133,333

 
130,543

Operating income
70,185

 
62,417

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
6,581

 
3,115

Interest expense
(35,066
)
 
(38,470
)
Total other income (expense)
(28,485
)
 
(35,355
)
Income before gain on property dispositions, income taxes and equity in (loss) earnings of unconsolidated joint ventures
41,700

 
27,062

Gain on property dispositions
1,249

 
1,897

Income taxes
(1,169
)
 
(693
)
Equity in (loss) earnings of unconsolidated joint ventures
(5,254
)
 
1,546

Income from continuing operations
36,526

 
29,812

Discontinued operations (including net gain on property dispositions of $139 for the three months ended June 30, 2014)

 
295

Net income
36,526

 
30,107

Noncontrolling interest – consolidated joint ventures
(55
)
 
(37
)
Preferred unit distributions
(118
)
 
(118
)
Income available to common unitholders
$
36,353

 
$
29,952

Net income
$
36,526

 
$
30,107

Other comprehensive income - foreign currency translation
12,151

 
6,464

Other comprehensive income (loss) - derivative instruments
628

 
(1,145
)
Other comprehensive income
12,779

 
5,319

Total comprehensive income
$
49,305

 
$
35,426

Earnings per common unit
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.24

 
$
0.20

Income from discontinued operations

 

Income per common unit - basic
$
0.24

 
$
0.20

Diluted:
 
 
 
Income from continuing operations
$
0.24

 
$
0.20

Income from discontinued operations

 

Income per common unit - diluted
$
0.24

 
$
0.20

Distributions per common unit
$
0.475

 
$
0.475

Weighted average number of common units outstanding
 
 
 
        Basic
152,317

 
150,563

        Diluted
152,993

 
151,325

Net income allocated to general partners
$
35,513

 
$
29,249

Net income allocated to limited partners
$
958

 
$
821


See accompanying notes.

11


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
OPERATING REVENUE
 
 
 
Rental
$
295,952

 
$
278,326

Operating expense reimbursement
114,467

 
112,264

Total operating revenue
410,419

 
390,590

OPERATING EXPENSE
 
 
 
Rental property
67,520

 
70,623

Real estate taxes
52,626

 
50,217

General and administrative
35,855

 
33,329

Depreciation and amortization
115,629

 
114,606

Impairment - real estate assets
16,775

 

Total operating expense
288,405

 
268,775

Operating income
122,014

 
121,815

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
12,952

 
5,553

Interest expense
(69,736
)
 
(77,677
)
Total other income (expense)
(56,784
)
 
(72,124
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
65,230

 
49,691

Gain on property dispositions
3,520

 
1,898

Income taxes
(2,014
)
 
(1,224
)
Equity in earnings of unconsolidated joint ventures
1,652

 
5,705

Income from continuing operations
68,388

 
56,070

Discontinued operations (including net gain on property dispositions of $46,254 for the six months ended June 30, 2014)

 
48,143

Net income
68,388

 
104,213

Noncontrolling interest – consolidated joint ventures
(113
)
 
(390
)
Preferred unit distributions
(236
)
 
(236
)
Income available to common unitholders
$
68,039

 
$
103,587

Net income
$
68,388

 
$
104,213

Other comprehensive income - foreign currency translation
1,741

 
7,811

Other comprehensive loss - derivative instruments
(319
)
 
(1,656
)
Other comprehensive income
1,422

 
6,155

Total comprehensive income
$
69,810

 
$
110,368

Earnings per common unit
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.45

 
$
0.37

Income from discontinued operations

 
0.32

Income per common unit - basic
$
0.45

 
$
0.69

Diluted:
 
 
 
Income from continuing operations
$
0.45

 
$
0.37

Income from discontinued operations

 
0.32

Income per common unit - diluted
$
0.45

 
$
0.69

Distributions per common unit
$
0.95

 
$
0.95

Weighted average number of common units outstanding
 
 
 
        Basic
152,114

 
150,304

        Diluted
152,787

 
150,999

Net income allocated to general partners
$
66,464

 
$
101,149

Net income allocated to limited partners
$
1,811

 
$
2,674


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
 
NONCONTROLLING
INTEREST –
CONSOLIDATED
JOINT VENTURES
 
TOTAL
OWNERS’
EQUITY
 
LIMITED PARTNERS' EQUITY - PREFERRED
Balance at January 1, 2015
$
3,027,672

 
$
54,786

 
$
3,919

 
$
3,086,377

 
$
7,537

Contributions from partners
34,731

 

 

 
34,731

 

Distributions to partners
(141,837
)
 
(3,465
)
 
(113
)
 
(145,415
)
 
(236
)
Other comprehensive income - foreign currency translation
1,701

 
40

 

 
1,741

 

Other comprehensive loss - derivative instruments
(312
)
 
(7
)
 

 
(319
)
 

Net income
66,464

 
1,575

 
113

 
68,152

 
236

Redemption of limited partners common units for common shares
224

 
(224
)
 

 

 

Balance at June 30, 2015
$
2,988,643

 
$
52,705

 
$
3,919

 
$
3,045,267

 
$
7,537


See accompanying notes.

13


CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
OPERATING ACTIVITIES
 
 
 
Net income
$
68,388

 
$
104,213

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
117,160

 
116,547

Amortization of deferred financing costs
2,168

 
2,629

Impairment - real estate assets
16,775

 

Equity in earnings of unconsolidated joint ventures
(1,652
)
 
(5,705
)
Distributions from unconsolidated joint ventures
4,441

 

Gain on property dispositions
(3,520
)
 
(48,152
)
Noncash compensation
9,504

 
8,500

Other
(6,750
)
 
(2,210
)
  Changes in operating assets and liabilities:
 
 
 
Restricted cash
2,541

 
33,239

Accounts receivable
665

 
(1,307
)
Deferred rent receivable
(11,319
)
 
(7,548
)
Prepaid expenses and other assets
(16,540
)
 
(29,907
)
Accounts payable
(5,647
)
 
9,100

Accrued interest
2,663

 
2,753

Other liabilities
(5,780
)
 
(34,802
)
Net cash provided by operating activities
173,097

 
147,350

INVESTING ACTIVITIES
 
 
 
Investment in operating properties - acquisitions
(36,714
)
 
(90,837
)
Investment in operating properties - other
(33,585
)
 
(39,073
)
Investments in and advances to unconsolidated joint ventures
(17,182
)
 
(12,008
)
Distributions from unconsolidated joint ventures
7,979

 
5,429

Net proceeds from disposition of properties/land
156,891

 
351,299

Investment in development in progress
(78,120
)
 
(150,199
)
Investment in land held for development
(23,150
)
 
(12,793
)
Investment in deferred leasing costs
(23,395
)
 
(18,252
)
Other
5,154

 
5,627

Net cash (used in) provided by investing activities
(42,122
)
 
39,193

FINANCING ACTIVITIES
 
 
 
Proceeds from unsecured notes
398,576

 

Repayment of unsecured notes
(300,000
)
 

Repayments of mortgage loans
(4,567
)
 
(7,013
)
Proceeds from credit facility
613,200

 

Repayments on credit facility
(710,200
)
 

Payment of deferred financing costs
(3,551
)
 
(3,635
)
Capital contributions
25,227

 
31,588

Distributions to partners
(145,216
)
 
(143,412
)
Net cash used in financing activities
(126,531
)
 
(122,472
)
Net increase in cash and cash equivalents
4,444

 
64,071

(Decrease) increase in cash and cash equivalents related to foreign currency translation
(737
)
 
1,193

Cash and cash equivalents at beginning of period
69,346

 
163,414

Cash and cash equivalents at end of period
$
73,053

 
$
228,678


See accompanying notes.

14


Liberty Property Trust and Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2015
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 97.7% of the common equity of the Operating Partnership at June 30, 2015. The Company owns and operates industrial properties nationally and owns and operates office properties in a focused group of office markets. Additionally, the Company owns certain assets in 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, 2014. 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.
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance. The standard clarifies the required factors that an entity must consider when recognizing revenue. The standard also requires additional disclosures concerning contracts with customers, judgments concerning revenue recognition, and assets recognized for the costs to obtain or fulfill a contract. ASU 2014-09 is effective for the Company beginning January 1, 2018. The Company is evaluating the impact ASU 2014-09 will have on its financial position and results of operations.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The standard requires the costs for issuing debt to appear on a balance sheet as a direct deduction from the debt's value. ASU 2015-03 is effective for the Company beginning January 1, 2016. The standard would be applied retrospectively. The Company does not anticipate that the adoption of ASU 2015-03 will have a material impact on its financial position or results of operations.


15


Note 2: Income per Common Share of the Trust

The following table sets forth the computation of basic and diluted income per common share of the Trust (in thousands except per share amounts):
 
 
For the Three Months Ended
 
For the Three Months Ended
 
June 30, 2015
 
June 30, 2014
 
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
$
35,513

 
148,778

 
$
0.24

 
$
28,961

 
147,012

 
$
0.20

Dilutive shares for long-term compensation plans

 
676

 
 
 

 
762

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
$
35,513

 
149,454

 
$
0.24

 
$
28,961

 
147,774

 
$
0.20

Basic income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
$

 
148,778

 
$

 
$
288

 
147,012

 
$

Dilutive shares for long-term compensation plans

 
676

 
 
 

 
762

 
 
Diluted income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
$

 
149,454

 
$

 
$
288

 
147,774

 
$

Basic income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
35,513

 
148,778

 
$
0.24

 
$
29,249

 
147,012

 
$
0.20

Dilutive shares for long-term compensation plans

 
676

 
 
 

 
762

 
 
Diluted income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
35,513

 
149,454

 
$
0.24

 
$
29,249

 
147,774

 
$
0.20

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

16


 
For the Six Months Ended
 
For the Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
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
$
66,464

 
148,574

 
$
0.45

 
$
54,137

 
146,749

 
$
0.37

Dilutive shares for long-term compensation plans

 
673

 
 
 

 
695

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
66,464

 
149,247

 
$
0.45

 
54,137

 
147,444

 
$
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