UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file numbers:		1-13130 (Liberty Property Trust)
		1-13132 (Liberty Property Limited Partnership)

LIBERTY PROPERTY TRUST

LIBERTY PROPERTY LIMITED PARTNERSHIP

(Exact Names 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		(I.R.S. Employer
of Incorporation or Organization)		Identification Number)

500 Chesterfield Parkway
Malvern, Pennsylvania		19355
(Address of Principal Executive Offices)		(Zip Code)

Registrants’ Telephone Number, including Area Code (610)648-1700

Securities registered pursuant to Section 12(b) of the Act:

TITLE OF EACH CLASS		NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Shares of Beneficial Interest,		New York Stock Exchange
$0.001 par value
(Liberty Property Trust)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES þ NO o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

YES o NO þ

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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of the Registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.)

YES o NO o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o (Do not check if a smaller reporting company)		Smaller Reporting Company o

Indicate by check mark if the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

The aggregate market value of the Common Shares of Beneficial Interest, $0.001 par value (the “Common Shares”), of Liberty Property Trust held by non-affiliates of Liberty Property Trust was $2.5 billion, based upon the closing price of $23.04 on the New York Stock Exchange composite tape on June 30, 2009. Non-affiliate ownership is calculated by excluding all Common Shares that may be deemed to be beneficially owned by executive officers and trustees, without conceding that any such person is an “affiliate” for purposes of the federal securities laws.

Number of Common Shares outstanding as of February 23, 2010: 112,770,821

Documents Incorporated by Reference

Portions of the proxy statement for the annual meeting of shareholders of Liberty Property Trust to be held in 2010 are incorporated by reference into Part III of this Form 10-K.

 

 

INDEX

		Page
Part I
Item 1. Business			4
Item 1A. Risk Factors			8
Item 1B. Unresolved Staff Comments			17
Item 2. Properties			17
Item 3. Legal Proceedings			20
Item 4. Submission of Matters to a Vote of Security Holders			21
Part II
Item 5. Market for Registrants’ Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities			22
Item 6. Selected Financial Data			24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			40
Item 8. Financial Statements and Supplementary Data			40
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			126
Item 9A. Controls and Procedures			126
Item 9B. Other Information			126
Part III
Item 10. Trustees, Executive Officers and Corporate Governance			127
Item 11. Executive Compensation			127
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters			127
Item 13. Certain Relationships and Related Transactions, and Trustee Independence			127
Item 14. Principal Accountant Fees and Services			127
Part IV
Item 15. Exhibits and Financial Statement Schedules			128
Signatures for Liberty Property Trust			136
Signatures for Liberty Property Limited Partnership			137
Exhibit Index			138
Exhibit 3.1.24
Exhibit 12
Exhibit 21
Exhibit 23.1
Exhibit 23.2
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 31.4
Exhibit 32.1
Exhibit 32.2
Exhibit 32.3
Exhibit 32.4

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Annual Report on Form 10-K and other materials filed or to be filed by the Company (as defined herein) with the Securities and Exchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or to be made by the Company) contain statements that are or will be forward-looking, such as statements relating to rental operations, business and property development activities, joint venture relationships, acquisitions and dispositions (including related pro forma financial information), future capital expenditures, financing sources and availability, litigation and the effects of regulation (including environmental regulation) and competition. These forward-looking statements generally are accompanied by words such as “believes,” “anticipates,” “expects,” “estimates,” “should,” “seeks,” “intends,” “planned,” “outlook” and “goal” or similar expressions. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be achieved. As forward-looking statements, these statements involve important risks, uncertainties and other factors that could cause actual results to differ materially from the expected results and, accordingly, such results may differ from those expressed in any forward-looking statements made by, or on behalf of the Company. The Company assumes no obligation to update or supplement forward looking statements that become untrue because of subsequent events. These risks, uncertainties and other factors include, without limitation, uncertainties affecting real estate businesses generally (such as entry into new leases, renewals of leases and dependence on tenants’ business operations), risks relating to our ability to maintain and increase property occupancy and rental rates, risks relating to the current credit crisis and economic decline, risks relating to construction and development activities, risks relating to acquisition and disposition activities, risks relating to the integration of the operations of entities that we have acquired or may acquire, risks relating to joint venture relationships and any possible need to perform under certain guarantees that we have issued or may issue in connection with such relationships, possible environmental liabilities, risks relating to leverage and debt service (including availability of financing terms acceptable to the Company and sensitivity of the Company’s operations and financing arrangements to fluctuations in interest rates), dependence on the primary markets in which the Company’s properties are located, the existence of complex regulations relating to status as a real estate investment trust (“REIT”) and the adverse consequences of the failure to qualify as a REIT, risks relating to litigation, including without limitation litigation involving entities that we have acquired or may acquire, and the potential adverse impact of market interest rates on the market price for the Company’s securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements.”

PART I

ITEM 1. BUSINESS

The Company

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 Company completed its initial public offering in 1994 to continue and expand the commercial real estate business of Rouse & Associates, a Pennsylvania general partnership, and certain affiliated entities (collectively, the “Predecessor”), which was founded in 1972. As of December 31, 2009, the Company owned and operated 349 industrial and 290 office properties (the “Wholly Owned Properties in Operation”) totaling 64.4 million square feet. In addition, as of December 31, 2009, the Company owned three properties under development, which when completed are expected to comprise 381,000 square feet (the “Wholly Owned Properties under Development”), and 1,355 acres of developable land, substantially all of which is zoned for commercial use. Additionally, as of December 31, 2009, the Company had an ownership interest, through unconsolidated joint ventures, in 47 industrial and 49 office properties totaling 13.8 million square feet (the “JV Properties in Operation” and, together with the Wholly Owned Properties in Operation, the “Properties in Operation”), two properties under development, which when completed are expected to comprise 600,000 square feet (the “JV Properties under Development” and, together with the Wholly Owned Properties under Development, the “Properties under Development,” which in turn are referred to, together with the Properties in Operation, as the “Properties”) and 630 acres of developable land, substantially all of which is zoned for commercial use.

The Company provides leasing, property management, development and other tenant-related services for the Properties. The industrial Properties consist of a variety of warehouse, distribution, service, assembly, light manufacturing and research and development facilities. They include both single-tenant and multi-tenant facilities, with most designed flexibly to accommodate various types of tenants, space requirements and industrial uses. The Company’s office Properties are multi-story and single-story office buildings located principally in suburban mixed-use developments or office parks. Substantially all of the Properties are located in prime business locations within established business communities. In addition, the Company, individually or through joint ventures, owns urban office properties in Philadelphia and Washington, D.C. The Company’s strategy with respect to product and market selection is expected generally to favor metro-office, multi-tenant industrial and flex properties and markets with strong demographic and economic fundamentals.

The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 96.6% of the common equity of the Operating Partnership at December 31, 2009. 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”). As of December 31, 2009, the Common Units held by the limited partners were exchangeable for 4.0 million Common Shares. The Company has issued several series of Cumulative Redeemable Preferred Units of the Operating Partnership (the “Preferred Units”). The outstanding Preferred Units of each series are exchangeable on a one-for-one basis after stated dates into a corresponding series of Cumulative Redeemable Preferred Shares of the Trust. The ownership of the holders of Common and Preferred Units is reflected on the Trust’s financial statements as a component of total equity as “non-controlling interest — operating partnership.”

In addition to this Annual Report on Form 10-K, the Company files with or furnishes to the SEC periodic and current reports, proxy statements and other information. The Company makes these documents available on its website, www.libertyproperty.com, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Any document the Company files with or furnishes to the SEC is available to read and copy at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. Further information about the public reference facilities is available by calling the SEC at (800) SEC-0330. These documents also may be accessed on the SEC’s web site, http://www.sec.gov.

Also posted on the Company’s website is the Company’s Code of Conduct, which applies to all of its employees and also serves as a code of ethics for its chief executive officer, chief financial officer and persons performing similar functions. The Company will send the Code of Conduct, free of charge, to anyone who requests a copy in writing from its Investor Relations Department at the address set forth on the cover of this filing. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendments to or waivers of the Code of Conduct by posting the required information in the Corporate Governance section of its website.

Management and Employees

The Company’s 469 employees (as of February 24, 2010) operate under the direction of 19 senior executives, who have been affiliated with the Company and the Predecessor for 18 years, on average. The Company and the Predecessor have developed and managed commercial real estate for the past 37 years. The Company maintains an in-house leasing and property management staff which enables the Company to better understand the characteristics of the local markets in which it operates, to respond quickly and directly to tenant needs and to better identify local real estate opportunities.

Segments and Markets

At December 31, 2009, the Company’s reportable segments were based on the Company’s method of internal reporting and are as follows:

Reportable Segments		Markets
Northeast		Southeastern PA; Lehigh/Central PA; New Jersey
Midwest		Minnesota; Milwaukee; Chicago
Mid-Atlantic		Maryland; Carolinas; Richmond; Virginia Beach
South		Jacksonville; Orlando; Boca Raton; Tampa; Texas; Arizona
Philadelphia/D.C.		Philadelphia; Northern Virginia/Washington, D.C.
United Kingdom		County of Kent; West Midlands

Business Objective and Strategies for Growth

The Company’s business objective is to maximize long-term profitability for its shareholders by being a recognized leader in commercial real estate through the ownership, management, development and acquisition of superior office and industrial properties. The Company intends to achieve this objective through offering office and industrial properties in multiple markets and operating as a leading landlord in the industry. The Company believes that this objective will provide the benefits of enhanced investment opportunities, economies of scale, risk diversification both in terms of geographic market and real estate product type, access to capital and the ability to attract and retain personnel. The Company also strives to be a leading provider of customer service, providing an exceptional and positive tenant experience. The Company seeks to be an industry leader in sustainable development and to operate an energy-efficient portfolio. In pursuing its business objective, the Company seeks to achieve a combination of internal and external growth, maintain a conservative balance sheet and pursue a strategy of financial flexibility.

Products

The Company strives to be a recognized quality provider of five products (industrial properties, including big box warehouse, multi-tenant industrial, and flex/R&D; and office properties, including single-story office and multi-story office). The Company’s strategy with respect to product and market selection is expected generally to favor metro-office, multi-tenant industrial and flex properties with strong demographic and economic fundamentals. However, consistent with the Company’s strategy and market opportunities, the Company may pursue office and industrial products other than those noted above.

Markets

The Company operates primarily in the Mid-Atlantic, Southeastern, Midwestern and Southwestern United States. Additionally, the Company owns certain assets in the United Kingdom. The Company’s goal is to operate in each of its markets with an appropriate product mix of office and industrial properties. In some markets it may offer only one of its product types. Generally, the Company seeks to have a presence in each market sufficient for the Company to be viewed as a significant participant in that market. The Company’s efforts emphasize business park development and asset aggregation. The Company gathers information from internal sources and independent third parties and analyzes this information to support its evaluation of markets and market conditions.

Organizational Plan

The Company seeks to maintain a management organization that facilitates efficient execution of the Company’s strategy. As part of this effort, the Company pursues a human resources plan designed to create and maintain a highly regarded real estate company through recruiting, training and retaining capable people. The structure is designed to support a local office entrepreneurial platform operating within a value-added corporate structure. The Company upgrades its information technology periodically to keep pace with advances in available technology.

Internal Growth Strategies

The Company seeks to maximize the profitability of its Properties by endeavoring to maintain high occupancy levels while obtaining competitive rental rates, controlling costs and focusing on customer service efforts.

Maintain High Occupancies

The Company believes that the quality and diversity of its tenant base and its strategy of operating in multiple markets is integral to achieving its goal of attaining high occupancy levels for its portfolio. The Company targets financially stable tenants in an effort to minimize uncertainty relating to the ability of the tenants to meet their lease obligations.

Cost Controls

The Company seeks to identify best practices to apply throughout the Company in order to enhance cost savings and other efficiencies. The Company also employs an annual capital improvement and preventative maintenance program designed to reduce the operating costs of the Properties in Operation and maintain the long-term value of the Properties in Operation.

Customer Service

The Company seeks to achieve high tenant retention through a comprehensive customer service program, which is designed to provide an exceptional and positive tenant experience. The customer service program establishes best practices and provides an appropriate customer feedback process. The Company believes that the program has been helpful in increasing tenant satisfaction.

Energy Efficiency Initiatives

The Company is committed to improving the energy efficiency of the existing buildings in its portfolio and has made a substantial effort to design environmentally friendly features in the buildings it develops.

The Company has been an active participant in the U.S. Green Building Council’s Leadership in Energy and Environmental Design (“LEED”) program. The LEED program, which was created to recognize environmental leadership in the building industry, establishes a voluntary, consensus-based national standard for developing high-performance, sustainable buildings. The Company has over seven million square feet of LEED projects completed in 41 buildings, including the 1.25 million square foot Comcast Center, located in Philadelphia, Pennsylvania. The Company believes that green building techniques can result in positive environmental results and significant economic returns to tenants in terms of savings in operating costs and improved employee performance.

The Company has also taken significant steps to measure the energy efficiency of the existing buildings in the portfolio and to move forward with efforts to improve the energy efficiency of these buildings. These efforts have included, in various cases: (1) conducting energy audits; (2) performing lighting retrofits and installing lighting controls; (3) installing building automation systems; (4) installing improvements designed to increase energy efficiency; and (5) establishing and implementing a green property management guide and green training program.

The Company’s efforts in this area are ongoing. The Company intends to continue to explore methods of enhancing the performance of the buildings in its existing portfolio.

External Growth Strategies

The Company seeks to enhance its long-term profitability through the development, acquisition and disposition of properties either directly or through joint ventures. The Company also considers acquisitions of real estate operating companies.

Current market conditions are not favorable for the development, acquisition and disposition of properties and consequently the Company expects growth in profitability from these sources to be limited at least in the near term.

Wholly Owned Properties

Development

The Company pursues attractive development opportunities, focusing primarily on high-quality suburban industrial and office properties within its existing markets. When the Company’s marketing efforts identify opportunities, the Company will consider pursuing opportunities outside of the Company’s established markets. The Company and its Predecessor have developed over 62 million square feet of commercial real estate during the past 37 years. The Company’s development activities generally fall into two categories: build-to-suit projects and projects built for inventory (projects that are less than 75% leased prior to commencement of construction). The Company develops build-to-suit projects for existing and new tenants. The Company also builds properties for inventory where the Company has identified sufficient demand at market rental rates to justify such construction. Since current market conditions are not generally favorable for speculative development, the Company anticipates that any development starts for 2010 will be substantially pre-leased.

During the year ended December 31, 2009, the Company completed two build-to-suit projects and 13 inventory projects totaling 2.9 million square feet and representing an aggregate Total Investment, as defined below, of $299.9 million. As of December 31, 2009, these completed development properties were 73.2% leased. The “Total Investment” for a Property is defined as the Property’s purchase price plus closing costs and management’s estimate, as determined at the time of acquisition, of the cost of necessary building improvements in the case of acquisitions, or land costs and land and building improvement costs in the case of development projects, and, where appropriate, other development costs and carrying costs.

As of December 31, 2009, the Company had three Wholly Owned Properties under Development, which are expected to comprise, upon completion, 381,000 square feet and are expected to represent a Total Investment of $83.4 million. These Wholly Owned Properties under Development were 72.7% pre-leased as of December 31, 2009. The scheduled deliveries of the 381,000 square feet of Wholly Owned Properties under Development are as follows (in thousands, except percentages):

		Square Feet																Percent Leased				Total
Scheduled In-Service Date		Ind-Dist.				Ind-Flex				Office				Total				December 31, 2009				Investment
2nd Quarter 2010			—				—				95				95				100.0	%		$	24,842
3rd Quarter 2010			—				—				75				75				100.0	%			12,341
4th Quarter 2010			—				—				211				211				50.8	%			46,199
Total			—				—				381				381				72.7	%		$	83,382

The Company believes that, because it is a fully integrated real estate firm, its base of commercially zoned land in existing industrial and office business parks provides a competitive advantage for future development activities. As of December 31, 2009, the Company owned 1,355 acres of land held for development, substantially all of which is zoned for commercial use. Substantially all of the land is located adjacent to or within existing industrial or business parks with site improvements, such as public sewers, water and utilities, available for service. The Company estimates that its land holdings would support, as and when developed, 13.6 million square feet of property. The Company’s investment in land held for development as of December 31, 2009 was $218.6 million.

Through a development agreement with Kent County Council, the Company develops commercial buildings at Kings Hill, a 650-acre mixed use development site in the County of Kent, England. The Company also is the project manager for the installation of infrastructure on the site and receives a portion of the proceeds from the sale of land parcels to home builders. The site has planning consent for 2.0 million square feet of commercial space and 2,750 homes, of which approximately 825,000 square feet of commercial space and 2,300 homes have now been completed.

Through a development agreement with Philadelphia Industrial Development Corporation, the Company has development rights for 55 acres of land located at the Navy Yard in Philadelphia. The Company estimates that this 55 acres would support, as and when developed, 1.0 million square feet of property.

Acquisitions/Dispositions

The Company seeks to acquire properties consistent with its business objectives and strategies. The Company executes its acquisition strategy by purchasing properties that management believes will create shareholder value over the long-term.

During the year ended December 31, 2009, the Company did not acquire any properties.

The Company disposes of properties and land held for development that no longer fit within the Company’s strategic plan, or with respect to which the Company believes it can optimize cash proceeds. During the year ended December
31, 2009, the Company sold 29 operating properties, which contained 2.3 million square feet and 15 acres of land, for aggregate proceeds of $178.4 million.

Joint Venture Properties

The Company, from time to time, considers joint venture opportunities with institutional investors or other real estate companies. Joint venture partnerships provide the Company with additional sources of capital to share investment risk and fund capital requirements. In some instances, joint venture partnerships provide the Company with additional local market or product type expertise.

As of December 31, 2009, the Company had investments in and advances to unconsolidated joint ventures totaling $175.6 million (see Note 4 to the Company’s Consolidated Financial Statements).

Development

During the year ended December 31, 2009, unconsolidated joint ventures in which the Company held an interest completed one build-to-suit project and one inventory project totaling 725,000 square feet and representing a Total Investment of $36.0 million. As of December 31, 2009, these completed development properties were 71.9% leased.

As of December 31, 2009, unconsolidated joint ventures in which the Company held an interest had two JV Properties under Development which are expected to comprise, upon completion, 600,000 square feet and are expected to represent a Total Investment of $160.1 million. These JV Properties under Development were 11.0% pre-leased as of December 31, 2009.

As of December 31, 2009, unconsolidated joint ventures in which the Company held an interest owned 630 acres of land held for development, substantially all of which is zoned for commercial use. Substantially all of the land is located adjacent to or within existing industrial or business parks with site improvements, such as public sewers, water and utilities, available for service. The Company estimates that its joint venture land holdings would support, as and when developed, 6.3 million square feet of property.

Acquisitions/Dispositions

During the year ended December 31, 2009, none of the unconsolidated joint ventures in which the Company held an interest acquired or disposed of any properties.

ITEM 1A. RISK FACTORS

The Company’s results of operations and the ability to make distributions to our shareholders and service our indebtedness may be affected by the risk factors set forth below. (The Company refers to itself as “we”, “us” or “our” in the following risk factors.) This section contains some forward looking statements. You should refer to the explanation of the qualifications and limitations on forward-looking statements on page 28.

Risks Related to Our Business

Ongoing constraints in credit markets and the current economic downturn could adversely affect our business and financial condition.

The Company’s business is subject to the risks in this section. Current economic conditions have increased the probability the Company will experience these risks. Pressure on the global credit markets and declines and continuing weakness in the general economy have negatively impacted the Company’s normal business practices.

We have historically relied on access to the credit markets in the conduct of our business. In particular, we currently utilize a $600 million credit facility, and additionally, we have, as of December 31, 2009, $1.8 billion of senior unsecured debt and $474.0 million of secured debt. Our credit facility expires in January 2011. Although we are not aware of any instances in which banks participating in the credit facility have been unable or unwilling to participate in draws under the facility, it is possible that the financial issues confronting the banking industry could lead to such an occurrence. If such a circumstance occurred it is possible that the Company could not access the full amount which is supposed to be available under the credit facility. Additionally, if the financial issues confronting the banking industry persist it is possible that the amount and terms available for a renewal of the credit facility could be adversely impacted. Our secured and unsecured debt matures at various times between 2010 and 2018. Only a small portion of the principal of our debt is repaid prior to maturity. Therefore, we generally need to refinance our outstanding debt as it matures. In 2010, we have $169.7 million of senior unsecured debt and $11.2 million of secured debt maturing. We anticipate that the cost of borrowing under a renewal of the credit facility will be higher than the cost under the current credit facility.

In addition to our reliance on access to credit markets in the conduct of our business, we have relied on the proceeds from the sale of our real estate assets to fund our growth opportunities. The absence of available financing to facilitate purchase and sale transactions has reduced our ability to rely on the proceeds to fund our growth opportunities.

Additionally, to the extent that credit continues to be less available than in the past and/or more costly than in the past, this state of affairs will likely have an adverse impact on the value of commercial real estate. Uncertainty in the markets about the pricing of real estate has also reduced our ability to rely on the sale of our real estate assets to fund our growth opportunities.

The dramatic and pervasive nature of the economic downturn has resulted in substantial job losses and financial stress to the businesses which form our tenant base. Although the Company endeavors to lease to credit-worthy tenants and has historically experienced relatively few defaults due to tenant bankruptcy, in this economic environment the Company may sustain substantially increased tenant defaults due to bankruptcy or otherwise. Such losses may be greater than expected and may result in a material diminution in the income generated by the Company’s portfolio. As described more fully in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” during the year ended December 31, 2009, the Company recognized non-cash impairment charges due to a decline in fair market value of certain of the Company’s assets. There can be no assurance that the Company will not be required at a later point in time to recognize additional impairments to the Company’s assets.

Recent developments in the general economy have affected some of our existing tenants, and could have an adverse impact on our ability to collect rent or renew leases with these tenants, resulting in a negative effect on our cash flow from operations.

Recent developments in the general economy and the global credit markets have had a significant adverse effect on many companies in numerous industries. We have tenants in these and other industries which may be experiencing these adverse effects. Should any of our tenants that may experience a downturn in its business that weakens its financial condition, delay lease commencement, fail to make rental payments when due, become insolvent or declare bankruptcy, the result could be a termination of the tenant’s lease and material losses to us. Our cash flow from operations and our ability to make expected distributions to our shareholders and service our indebtedness could, in such a case, be adversely affected.

Unfavorable events affecting our existing tenants, or negative market conditions that may affect our existing tenants, could have an adverse impact on our ability to attract new tenants, relet space, collect rent or renew leases, and thus could have a negative effect on our cash flow from operations.

Our cash flow from operations depends on our ability to lease space to tenants on economically favorable terms. Therefore, we could be adversely affected by various facts and events over which we have limited control, such as:

•

lack of demand for space in the areas where our Properties are located

•

inability to retain existing tenants and attract new tenants

•

oversupply of or reduced demand for space and changes in market rental rates

•

defaults by our tenants or their failure to pay rent on a timely basis

•

the need to periodically renovate and repair our space

•

physical damage to our Properties

•

economic or physical decline of the areas where our Properties are located

•

potential risk of functional obsolescence of our Properties over time

If a tenant is unable to pay rent due to us, we may be forced to evict such tenants, or engage in other remedies, which may be expensive and time consuming and may adversely affect our net income, shareholders’ equity and cash distributions to shareholders.

At any time, any of our tenants may experience a downturn in its business that may weaken its financial condition. As a result, a tenant may delay lease commencement, fail to make rental payments when due, decline to extend a lease upon its expiration, become insolvent or declare bankruptcy. Any tenant bankruptcy or insolvency, leasing delay or failure to make rental payments when due could result in the termination of the tenant’s lease and material losses to our Company.

If our tenants do not renew their leases as they expire, we may not be able to rent the space. Furthermore, leases that are renewed, and some new leases for space that is relet, may have terms that are less economically favorable to us than current lease terms, or may require us to incur significant costs, such as for renovations, tenant improvements or lease transaction costs.

Any of these events could adversely affect our cash flow from operations and our ability to make expected distributions to our shareholders and service our indebtedness.

A significant portion of our costs, such as real estate taxes, insurance costs, and debt service payments, generally are not reduced when circumstances cause a decrease in cash flow from our Properties.

We may not be able to compete successfully with other entities that operate in our industry.

We experience a great deal of competition in attracting tenants for our Properties and in locating land to develop and properties to acquire.

In our effort to lease our Properties, we compete for tenants with a broad spectrum of other landlords in each of our markets. These competitors include, among others, publicly-held REITs, privately-held entities, individual property owners and tenants who wish to sublease their space. Some of these competitors may be able to offer prospective tenants more attractive financial or other terms than we are able to offer.

We may experience increased operating costs, which could adversely affect our operations.

Our Properties are subject to increases in operating expenses such as insurance, cleaning, electricity, heating, ventilation and air conditioning, general and administrative costs and other costs associated with security, landscaping, repairs and maintenance. While our current tenants generally are obligated to pay a significant portion of these costs, there is no assurance that these tenants will make such payments or agree to pay these costs upon renewal or that new tenants will agree to pay these costs. If operating expenses increase in our markets, we may not be able to increase rents or reimbursements in all of these markets so as to meet increased expenses without simultaneously decreasing occupancy rates. If this occurs, our ability to make distributions to shareholders and service our indebtedness could be adversely affected.

Our ability to achieve growth in operating income depends in part on our ability to develop properties, which may suffer under certain circumstances.

We intend to continue to develop properties when warranted by market conditions. However, current market conditions are not favorable for development and consequently we expect growth in operating income from development to be limited at least in the near term.

Additionally, our general construction and development activities include the risks that:

•

construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability

•

construction costs may exceed our original estimates due to increases in interest rates and increased materials, labor or other costs, possibly making the property unprofitable because we may not be able to increase rents to compensate for the increase in construction costs

•

some developments may fail to achieve expectations, possibly making them unprofitable

•

we may be unable to obtain, or may face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project

•

we may abandon development opportunities after we begin to explore them and as a result, we may fail to recover costs already incurred. If we alter or discontinue our development efforts, past and future costs of the investment may need to be expensed rather than capitalized and we may determine the investment is impaired, resulting in a loss

•

we may expend funds on and devote management’s time to projects that we do not complete

•

occupancy rates and rents at newly completed properties may fluctuate depending on a number of factors, including market and economic conditions, and may result in lower than projected rental rates with the result that our investment is not profitable

We face risks associated with property acquisitions.

We acquire individual properties and portfolios of properties, in some cases through the acquisition of operating entities, and intend to continue to do so when circumstances warrant. Under current market conditions we expect growth in operating income from acquisitions to be limited at least in the near term.

Additionally, our acquisition activities and their success are subject to the following risks:

•

when we are able to locate a desirable property, competition from other real estate investors may significantly increase the purchase price

•

acquired properties may fail to perform as expected

•

the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates

•

acquired properties may be located in new markets where we face risks associated with an incomplete knowledge or understanding of the local market, a limited number of established business relationships in the area and a relative unfamiliarity with local governmental and permitting procedures

•

we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties and operating entities, into our existing operations, and as a result, our results of operations and financial condition could be adversely affected

We may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow.

Many of our Properties are concentrated in our primary markets, and we therefore may suffer economic harm as a result of adverse conditions in those markets.

Our Properties are located principally in specific geographic areas. Due to the concentration of our Properties in these areas, performance is dependent on economic conditions in these areas. These areas have experienced periods of economic decline.

We may not be able to access financial markets to obtain capital on a timely basis, or on acceptable terms.

In addition to the capital market constraints previously noted, our ability to access the public debt and equity markets depends on a variety of factors, including:

•

general economic conditions affecting these markets

•

our own financial structure and performance

•

the market’s opinion of REITs in general

•

the market’s opinion of REITs that own properties similar to ours

We may suffer adverse effects as a result of the terms of and covenants relating to our indebtedness.

Required payments on our indebtedness generally are not reduced if the economic performance of our portfolio of Properties declines. If the economic performance of our Properties declines, net income, cash flow from operations and cash available for distribution to shareholders will be reduced. If payments on debt cannot be made, we could sustain a loss, or in the case of mortgages, suffer foreclosures by mortgagees or suffer judgments. Further, some obligations, including our $600 million credit facility and $1.8 billion in unsecured notes issued in past public offerings, contain cross-default and/or cross-acceleration provisions, as does $128.9 million in outstanding mortgage indebtedness at December 31, 2009, which means that a default on one obligation may constitute a default on other obligations.

Our credit facility and unsecured debt securities contain customary restrictions, requirements and other limitations on our ability to incur indebtedness, including total debt to asset ratios, secured debt to total asset ratios, debt service coverage ratios and minimum ratios of unencumbered assets to unsecured debt which we must maintain. Our continued ability to borrow under our $600 million credit facility is subject to compliance with our financial and other covenants. In addition, our failure to comply with such covenants could cause a default under this credit facility, and we may then be required to repay such debt with capital from other sources. Under those circumstances, other sources of capital may not be available to us, or be available only on unattractive terms.

Our degree of leverage could limit our ability to obtain additional financing.

Our degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes. Our senior unsecured debt is currently rated investment grade by the three major rating agencies. However, there can be no assurance we will be able to maintain this rating, and in the event our senior debt is downgraded from its current rating, we would likely incur higher borrowing costs. Our degree of leverage could also make us more vulnerable to a downturn in business or the economy generally.

Further issuances of equity securities may be dilutive to our existing shareholders.

The interests of our existing shareholders could be diluted if we issue additional equity securities to finance future developments, acquisitions, or repay indebtedness. Our Board of Trustees can authorize the issuance of additional securities without shareholder approval. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including issuances of common and preferred equity.

An increase in interest rates would increase our interest costs on variable rate debt and could adversely impact our ability to refinance existing debt.

We currently have, and may incur more, indebtedness that bears interest at variable rates. Accordingly, if interest rates increase, so will our interest costs, which would adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our shareholders. Further, rising interest rates could limit our ability to refinance existing debt when it matures.

Property ownership through joint ventures will limit our ability to act exclusively in our interests and may require us to depend on the financial performance of our co-venturers.

From time to time we invest in joint ventures in which we do not hold a controlling interest. These investments involve risks that do not exist with properties in which we own a controlling interest, including the possibility that our partners may, at any time, have business, economic or other objectives that are inconsistent with our objectives. In instances where we lack a controlling interest, our partners may be in a position to require action that is contrary to our objectives. While we seek to negotiate the terms of these joint ventures in a way that secures our ability to act in our best interests, there can be no assurance that those terms will be sufficient to fully protect us against actions contrary to our interests. If the objectives of our co-ventures are inconsistent with ours, we may not in every case be able to act exclusively in our interests.

Additionally, our joint venture partners may experience financial difficulties that impair their ability to meet their obligations to the joint venture, such as with respect to providing additional capital, if required. If such a circumstance presented itself we may be required to perform on their behalf, if possible, or suffer a loss of all or a portion of our investment in the joint venture.

Risks Related to the Real Estate Industry

Real estate investments are illiquid, and we may not be able to sell our Properties if and when we determine it is appropriate to do so.

Real estate generally cannot be sold quickly. We may not be able to dispose of our Properties promptly in response to economic or other conditions. In addition, provisions of the Internal Revenue Code of 1986, as amended (the
“Code”), limit a REIT’s ability to sell properties in some situations when it may be economically advantageous to do so, thereby adversely affecting returns to shareholders and adversely impacting our ability to meet our obligations to the holders of other securities.

We may experience economic harm if any damage to our Properties is not covered by insurance.

We believe all of our Properties are adequately insured with carriers that are adequately capitalized. However, we cannot guarantee that the limits of our current policies will be sufficient in the event of a catastrophe to our Properties or that carriers will be able to honor their obligations. Our existing property and liability policies expire during 2010. We cannot guarantee that we will be able to renew or duplicate our current coverages in adequate amounts or at reasonable prices.

We may suffer losses that are not covered under our comprehensive liability, fire, extended coverage and rental loss insurance policies. For example, we may not be insured for losses resulting from acts of war, certain acts of terrorism, or from environmental liabilities. If an uninsured loss or a loss in excess of insured limits should occur, we would nevertheless remain liable for the loss which could adversely affect cash flow from operations.

Potential liability for environmental contamination could result in substantial costs.

Under federal, state and local environmental laws, ordinances and regulations, we may be required to investigate and clean up the effects of releases of hazardous or toxic substances or petroleum products at our Properties simply because of our current or past ownership or operation of the real estate. If unidentified environmental problems arise, we may have to make substantial payments which could adversely affect our cash flow and our ability to make distributions to our shareholders because:

•

as owner or operator, we may have to pay for property damage and for investigation and clean-up costs incurred in connection with the contamination

•

the law typically imposes clean-up responsibility and liability regardless of whether the owner or operator knew of or caused the contamination

•

even if more than one person may be responsible for the contamination, each person who shares legal liability under the environmental laws may be held responsible for all of the clean-up costs

•

governmental entities and third parties may sue the owner or operator of a contaminated site for damages and costs

These costs could be substantial. The presence of hazardous or toxic substances or petroleum products or the failure to properly remediate contamination may materially and adversely affect our ability to borrow against, sell or rent an affected property. In addition, applicable environmental laws create liens on contaminated sites in favor of the government for damages and costs it incurs in connection with a contamination. Changes in laws increasing the potential liability for environmental conditions existing at our Properties may result in significant unanticipated expenditures.

It is our policy to retain independent environmental consultants to conduct Phase I environmental site assessments and asbestos surveys with respect to our acquisition of properties. These assessments generally include a visual inspection of the properties and the surrounding areas, an examination of current and historical uses of the properties and the surrounding areas and a review of relevant state, federal and historical documents, but do not involve invasive techniques such as soil and ground water sampling. Where appropriate, on a property-by-property basis, our practice is to have these consultants conduct additional testing, including sampling for asbestos, for lead in drinking water, for soil contamination where underground storage tanks are or were located or where other past site usages create a potential environmental problem, and for contamination in groundwater. Even though these environmental assessments are conducted, there is still the risk that:

•

the environmental assessments and updates will not identify all potential environmental liabilities

•

a prior owner created a material environmental condition that is not known to us or the independent consultants preparing the assessments

•

new environmental liabilities have developed since the environmental assessments were conducted

•

future uses or conditions such as changes in applicable environmental laws and regulations could result in environmental liability for us

While we test indoor air quality on a regular basis and have an ongoing maintenance program in place to address this aspect of property operations, inquiries about indoor air quality may necessitate special investigation and, depending on the results, remediation. Indoor air quality issues can stem from inadequate ventilation, chemical contaminants
from indoor or outdoor sources, pollen, viruses and bacteria. Indoor exposure to chemical or biological contaminants above certain levels can be alleged to be connected to allergic reactions or other health effects and symptoms in susceptible individuals. If these conditions were to occur at one of our Properties, we may need to undertake a targeted remediation program, including without limitation, steps to increase indoor ventilation rates and eliminate sources of contaminants. Such remediation programs could be costly, necessitate the temporary relocation of some or all of the Property’s tenants or require rehabilitation of the affected Property.

Our Properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold at any of our Properties could require us to undertake a costly remediation program to contain or remove the mold from the affected Property. In addition, the presence of significant mold could expose us to liability from our tenants, employees of our tenants and others if property damage or health concerns arise.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make expenditures that adversely impact our operating results.

All of our Properties are required to comply with the Americans with Disabilities Act (“ADA”). The ADA generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers, and non-compliance could result in imposition of fines by the United States government or an award of damages to private litigants, or both. Expenditures related to complying with the provisions of the ADA could adversely affect our results of operations and financial condition and our ability to make distributions to shareholders. In addition, we are required to operate our Properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to our Properties. We may be required to make substantial capital expenditures to comply with those requirements and these expenditures could have a material adverse effect on our operating results and financial condition, as well as our ability to make distributions to shareholders.

Terrorist attacks and other acts of violence or war may adversely impact our operating results and may affect markets on which our securities are traded.

Terrorist attacks against our Properties, or against the United States or United States interests generally, may negatively affect our operations and investments in our securities. Attacks or armed conflicts could have a direct adverse impact on our Properties or operations through damage, destruction, loss or increased security costs. Any terrorism insurance that we obtain may be insufficient to cover the loss for damages to our Properties as a result of terrorist attacks.

Furthermore, any terrorist attacks or armed conflicts could result in increased volatility in or damage to the United States and worldwide financial markets and economy. Adverse economic conditions could affect the ability of our tenants to pay rent, which could have an adverse impact on our operating results.

Risks Related to Our Organization and Structure

We have elected REIT status under the federal tax laws and could suffer adverse consequences if we fail to qualify as a REIT.

We have elected REIT status under federal tax laws and have taken the steps known to us to perfect that status, but we cannot be certain that we qualify or that we will remain qualified. Qualification as a REIT involves the application of highly technical and complex provisions of the Code, as to which there are only limited judicial or administrative interpretations. The complexity of these provisions and of the related income tax regulations is greater in the case of a REIT that holds its assets in partnership form, as we do. Moreover, no assurance can be given that new tax laws will not significantly affect our qualification as a REIT or the federal income tax consequences of such qualification. New laws could be applied retroactively, which means that past operations could be found to be in violation, which would have a negative effect on the business.

If we fail to qualify as a REIT in any taxable year, the distributions to shareholders would not be deductible when computing taxable income. If this happened, we would be subject to federal income tax on our taxable income at regular corporate rates. Also, we could be prevented from qualifying as a REIT for the four years following the year in which we were disqualified. Further, if we requalified as a REIT after failing to qualify, we might have to pay the full corporate-level tax on any unrealized gain in our assets during the period we were not qualified as a REIT. We would then have to distribute to our shareholders the earnings we accumulated while we were not qualified as a REIT. These additional taxes would reduce our funds available for distribution to our shareholders. In addition, while we were disqualified as a REIT, we would not be required by the Code to make distributions to our shareholders. A failure by the Company to qualify as a REIT and the resulting requirement to pay taxes and interest (and perhaps penalties) would cause us to default under various agreements to which we are a party, including under our credit facility, and would have a material adverse effect on our business, prospects, results of operations, earnings, financial condition and our ability to make distributions to shareholders.

Future economic, market, legal, tax or other considerations may lead our Board of Trustees to authorize the revocation of our election to qualify as a REIT. A revocation of our REIT status would require the consent of the holders of a majority of the voting interests of all of our outstanding Common Shares.

Risks associated with potential borrowings necessary to make distributions to qualify as a REIT; distributions can be made in Common Shares.

We intend to make distributions to shareholders to comply with the distribution provisions of the Code necessary to maintain qualification as a REIT and to avoid income taxes and the non-deductible excise tax. Under certain circumstances, we may be required to borrow funds to meet the distribution requirements necessary to achieve the tax benefits associated with qualifying as a REIT. In such circumstances, we might need to borrow funds to avoid adverse tax consequences, even if our management believes that the prevailing market conditions are not generally favorable for such borrowings or that such borrowings would not be advisable in the absence of such tax considerations.

For distributions with respect to a taxable year ending on or before December 31, 2011, Company stock may be used to meet these distribution requirements, subject to the requirements of Internal Revenue Service Revenue Procedure 2010-12, 2010-3 IRB. Under this Revenue Procedure, we are permitted to make taxable distributions of our stock (in lieu of cash) if (x) any such distribution is declared with respect to a taxable year ending on or before December 31, 2011, and (y) each of our stockholders is permitted to elect to receive its entire entitlement under such declaration in either cash or shares of equivalent value subject to a limitation in the amount of cash to be distributed in the aggregate; provided that (i) the amount of cash that we set aside for distribution is not less than 10% of aggregate distribution so declared, and (ii) if too many of our stockholders elect to receive cash, a pro rata amount of cash will be distributed to each such stockholder electing to receive cash, but in no event will any such stockholder receive less than its entire entitlement under such declaration. Thus, if we were to elect to make distributions using our common shares, our shareholders may receive less cash than they might have preferred.

Certain officers of the Trust may not have the same interests as shareholders as to certain tax laws.

Certain officers of the Trust own Common Units. These units may be exchanged for our Common Shares. The officers who own those units and have not yet exchanged them for our Common Shares may suffer different and more adverse tax consequences than holders of our Common Shares suffer in certain situations:

•

when certain of our Properties are sold

•

when debt on those Properties is refinanced

•

if we are involved in a tender offer or merger

Because these officers own units and face different consequences than shareholders do, the Trust and those officers may have different objectives as to these transactions than shareholders do.

Certain aspects of our organization could have the effect of restricting or preventing a change of control of our Company, which could have an adverse effect on the price of our shares.

Our charter contains an ownership limit on shares. To qualify as a REIT, five or fewer individuals cannot own, directly or indirectly, more than 50% in value of the outstanding shares of beneficial interest. To this end, our Declaration of Trust, among other things, generally prohibits any holder of the Trust’s shares from owning more than 5% of the Trust’s outstanding shares of beneficial interest, unless that holder gets the consent from our Board of
Trustees. This limitation could prevent the acquisition of control of the Company by a third party without the consent from our Board of Trustees.

We have a staggered board and certain restrictive nominating procedures. Our Board of Trustees has three classes of trustees. The term of office of one class expires each year. Trustees for each class are elected for three-year terms as that class’ term expires. The terms of the Class I, Class II, and Class III trustees expire in 2010, 2011, and 2012, respectively. Any nominee for trustee must be selected under the nominating provisions contained in our Declaration of Trust and By-Laws. The staggered terms for trustees and the nominating procedures may affect shareholders’ ability to take control of the Company, even if a change in control were in the shareholders’ interest.

We can issue preferred shares. Our Declaration of Trust authorizes our Board of Trustees to establish the preferences and rights of any shares issued. The issuance of preferred shares could have the effect of delaying, making more difficult or preventing a change of control of the Company, even if a change in control were in the shareholder’s interest.

There are limitations on acquisition of and changes in control pursuant to, and fiduciary protections of The Board under Maryland law. The Maryland General Corporation Law (“MGCL”) contains provisions which are applicable to the Trust as if the Trust were a corporation. Among these provisions is a section, referred to as the “control share acquisition statute,” which eliminates the voting rights of shares acquired in quantities so as to constitute “control shares,” as defined under the MGCL. The MGCL also contains provisions applicable to us that are referred to as the “business combination statute,” which would generally limit business combinations between the Company and any 10% owners of the Trust’s shares or any affiliate thereof. Further, Maryland law provides broad discretion to the Board with respect to its fiduciary duties in considering a change in control of our Company, including that the Board is subject to no greater level of scrutiny in considering a change in control transaction than with respect to any other act by the Board. Finally, the “unsolicited takeovers” provisions of the MGCL permit the Board, without shareholder approval and regardless of what is currently provided in our Declaration of Trust or By-Laws, to implement takeover defenses that our Company does not yet have, including permitting only the Board to fix the size of the Board and permitting only the Board to fill a vacancy on the Board. All of these provisions may have the effect of inhibiting a third party from making an acquisition proposal for our Company or of delaying, deferring or preventing a change in control of the Company under circumstances that otherwise could provide the holders of Common Shares with the opportunity to realize a premium over the then current market price.

Various factors out of our control could hurt the market value of our publicly traded securities.

The value of our publicly traded securities depends on various market conditions, which may change from time to time. In addition to general economic and market conditions and our particular financial condition and performance, the value of our publicly traded securities could be affected by, among other things, the extent of institutional investor interest in us and the market’s opinion of REITs in general and, in particular, REITs that own and operate properties similar to ours.

The market value of the equity securities of a REIT may be based primarily upon the market’s perception of the REIT’s growth potential and its current and future cash distributions, and may be secondarily based upon factors such as the real estate market value of the underlying assets. The failure to meet the market’s expectations with regard to future earnings and cash distributions likely would adversely affect the market price of publicly traded securities. Our payment of future dividends will be at the discretion of our Board of Trustees and will depend on numerous factors including our cash flow, financial condition and capital requirements, annual distribution requirements under the REIT provisions of the Code, the general economic environment and such other factors as our Board of Trustees deems relevant, and we cannot assure you that our annual dividend rate will be maintained at its current level.

Rising market interest rates could make an investment in publicly traded securities less attractive. If market interest rates increase, purchasers of publicly traded securities may demand a higher annual yield on the price they pay for their securities. This could adversely affect the market price of publicly traded securities.

We no longer have a shareholder rights plan but are not precluded from adopting one.

Our shareholder rights plan expired in accordance with its terms on December 31, 2007. While we did not extend or renew the plan, we are not prohibited from adopting, without shareholder approval, a shareholder rights plan that may discourage any potential acquirer from acquiring more than a specific percentage of our outstanding Common Shares
since, upon this type of acquisition without approval of our Board of Trustees, all other common shareholders would have the right to purchase a specified amount of Common Shares at a substantial discount from market price.

Transactions by the Trust or the Operating Partnership could adversely affect debt holders.

Except with respect to several covenants limiting the incurrence of indebtedness and a covenant requiring the Operating Partnership to maintain a certain unencumbered total asset value, our indentures do not contain any additional provisions that would protect holders of the Operating Partnership’s debt securities in the event of (i) a highly leveraged transaction involving the Operating Partnership, (ii) a change of control or (iii) certain reorganizations, restructurings, mergers or similar transactions involving the Operating Partnership or the Trust.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Wholly Owned Properties in Operation, as of December 31, 2009, consisted of 349 industrial and 290 office properties. Single tenants occupy 193 Wholly Owned Properties in Operation. These tenants generally require a reduced level of service in connection with the operation or maintenance of these properties. The remaining 446 of the Wholly Owned Properties in Operation are multi-tenant properties for which the Company renders a range of building, operating and maintenance services.

As of December 31, 2009, the industrial Wholly Owned Properties in Operation were 89.1% leased. The average building size for the industrial Wholly Owned Properties in Operation was approximately 123,000 square feet. As of December 31, 2009, the office Wholly Owned Properties in Operation were 90.3% leased. The average building size for the office Wholly Owned Properties in Operation was approximately 74,000 square feet.

The JV Properties in Operation, as of December 31, 2009, consisted of 47 industrial and 49 office properties. Single tenants occupy 37 JV Properties in Operation. These tenants generally require a reduced level of service in connection with the operation or maintenance of these properties. The remaining 59 of the Company’s JV Properties in Operation are multi-tenant properties for which the Company renders a range of building, operating and maintenance services.

As of December 31, 2009, the industrial JV Properties in Operation were 86.6% leased. The average building size for the industrial JV Properties in Operation was approximately 196,000 square feet. As of December 31, 2009, the office JV Properties in Operation were 90.0% leased. The average building size for the office JV Properties in Operation was approximately 93,000 square feet.

A complete listing of the Wholly Owned Properties in Operation appears as Schedule III to the financial statements of the Company included in this Annual Report on Form 10-K. The table below sets forth certain information on the Company’s Properties in Operation as of December 31, 2009 (in thousands, except percentages).

		Type						Net Rent (1)				Square Feet				% Leased
Northeast		Industrial				-Distribution		$	61,380				15,812				87.0	%
						-Flex			32,468				3,761				92.6	%
		Office							119,873				8,641				91.9	%
		Total							213,721				28,214				89.3	%
Midwest		Industrial				-Distribution			4,516				1,073				100.0	%
						-Flex			17,702				2,344				83.3	%
		Office							28,841				2,584				91.3	%
		Total							51,059				6,001				89.7	%
Mid-Atlantic		Industrial				-Distribution			32,387				8,582				91.9	%
						-Flex			9,327				1,315				85.7	%
		Office							55,054				4,459				88.4	%
		Total							96,768				14,356				90.2	%
South		Industrial				-Distribution			24,812				5,758				87.5	%
						-Flex			30,341				3,779				90.4	%
		Office							62,471				4,962				87.1	%
		Total							117,624				14,499				88.1	%
Philadelphia/D.C.		Industrial				-Distribution			—				346				100.0	%
						-Flex			1,780				101				100.0	%
		Office							11,259				733				99.5	%
		Total							13,039				1,180				99.7	%
United Kingdom		Industrial				-Distribution			—				—				—
						-Flex			1,272				44				100.0	%
		Office							2,788				90				96.8	%
		Total							4,060				134				97.8	%
TOTAL		Industrial				-Distribution			123,095				31,571				89.0	%
						-Flex			92,890				11,344				89.2	%
		Office							280,286				21,469				90.3	%
		Total						$	496,271				64,384				89.5	%
Joint Ventures (2)		Industrial				-Distribution		$	33,263				9,041				86.4	%
						-Flex			4,080				171				96.2	%
		Office							101,808				4,574				90.0	%
								$	139,151				13,786				87.7	%

The expiring square feet and annual rent by year for the Properties in Operation as of December 31, 2009 are as follows (in thousands):

Total Properties in Operation

Wholly Owned Properties in Operation:

		Industrial-
		Distribution								Industrial-Flex								Office								Total
		Square				Annual				Square				Annual				Square				Annual				Square				Annual
Year		Feet				Rent				Feet				Rent				Feet				Rent				Feet				Rent
2010			3,283			$	14,056				1,585			$	14,236				2,297			$	29,846				7,165			$	58,138
2011			3,063				13,736				1,308				12,201				2,027				29,022				6,398				54,959
2012			4,839				22,457				1,599				15,175				2,278				38,289				8,716				75,921
2013			2,395				11,954				1,510				15,019				2,524				41,630				6,429				68,603
2014			2,666				13,728				999				10,509				2,804				43,520				6,469				67,757
2015			3,075				15,029				955				9,973				2,196				32,202				6,226				57,204
Thereafter			8,779				55,365				2,167				26,332				5,258				101,128				16,204				182,825
Total			28,100			$	146,325				10,123			$	103,445				19,384			$	315,637				57,607			$	565,407

Joint Venture Properties in Operation:

		Industrial-
		Distribution								Industrial-Flex								Office								Total
		Square				Annual				Square				Annual				Square				Annual				Square				Annual
Year		Feet				Rent				Feet				Rent				Feet				Rent				Feet				Rent
2010			474			$	2,559				24			$	746				381			$	8,468				879			$	11,773
2011			1,060				4,011				11				304				452				11,546				1,523				15,861
2012			401				1,904				63				1,727				174				4,374				638				8,005
2013			896				3,466				—				—				153				3,761				1,049				7,227
2014			1,124				5,194				25				729				398				10,642				1,547				16,565
2015			956				4,459				—				—				194				4,657				1,150				9,116
Thereafter			2,899				15,493				41				1,161				2,363				77,261				5,303				93,915
Total			7,810			$	37,086				164			$	4,667				4,115			$	120,709				12,089			$	162,462

Properties in Operation:

		Industrial-
		Distribution								Industrial-Flex								Office								Total
		Square				Annual				Square				Annual				Square				Annual				Square				Annual
Year		Feet				Rent				Feet				Rent				Feet				Rent				Feet				Rent
2010			3,757			$	16,615				1,609			$	14,982				2,678			$	38,314				8,044			$	69,911
2011			4,123				17,747				1,319				12,505				2,479				40,568				7,921				70,820
2012			5,240				24,361				1,662				16,902				2,452				42,663				9,354				83,926
2013			3,291				15,420				1,510				15,019				2,677				45,391				7,478				75,830
2014			3,790				18,922				1,024				11,238				3,202				54,162				8,016				84,322
2015			4,031				19,488				955				9,973				2,390				36,859				7,376				66,320
Thereafter			11,678				70,858				2,208				27,493				7,621				178,389				21,507				276,740
Total			35,910			$	183,411				10,287			$	108,112				23,499			$	436,346				69,696			$	727,869

The table below highlights, for the Properties in Operation, the Company’s top ten office tenants and top ten industrial tenants as of December 31, 2009. The table reflects, for the tenants in the JV Properties in Operation, the Company’s ownership percentage of the respective joint venture.

		Percentage						Percentage
Top 10 Office Tenants		of Net Rent				Top 10 Industrial Tenants		of Net Rent
The Vanguard Group, Inc.			4.1	%		Kellogg USA, Inc.			1.3	%
GlaxoSmithKline			2.2	%		Home Depot U.S.A., Inc.			1.1	%
United States of America			1.4	%		Wakefern Food Corp.			1.0	%
General Motors Acceptance Corporation			1.4	%		United Parcel Services, Inc.			0.7	%
Comcast Corporation			1.3	%		Ozburn Hessey Logistics, L.L.C.			0.6	%
Sanofi-Aventis U.S., Inc.			1.1	%		Amazon.com			0.6	%
PNC Bank, National Association			1.0	%		The Dial Corporation			0.6	%
WellCare Health Plans, Inc.			1.0	%		Uline, Inc.			0.5	%
United Healthcare Services, Inc.			1.0	%		Broder Bros., Inc.			0.5	%
Hartford Fire Insurance Company			1.0	%		Foxconn Corporation			0.5	%
			15.5	%					7.4	%

ITEM 3. LEGAL PROCEEDINGS

As a result of the Company’s acquisition of Republic Property Trust, a Maryland real estate investment trust, and Republic Property Limited Partnership, a Delaware limited partnership (together, “Republic”), in October, 2007 the Company was substituted for Republic as a party to certain ongoing litigation. The litigation is summarized below. The litigation arises out of disputes between Republic and certain parties, two of whom were members of Republic’s Board of Trustees and “founders” of Republic (the “Grigg Parties”). The disputes include claims arising from the termination of an officer of Republic, the termination of a development arrangement in West Palm Beach, Florida and an attempt by Republic to acquire a certain office property from an entity controlled by the aforementioned related parties pursuant to an option agreement entered into at the time of Republic’s formation.

On November 17, 2006, Republic disclosed in a Form 8-K that Steven A. Grigg, its President and Chief Development Officer, had notified Republic that he was terminating his employment, purportedly for “good reason,” as such term is defined in his employment agreement, dated December 20, 2005. Mr. Grigg also asserted that, as a result of such termination, he was entitled to the severance payments provided for under the terms of the employment agreement. The cash portion of such severance payments could be valued at up to approximately $1.8 million. The Company disagrees with Mr. Grigg that there is a basis for termination by Mr. Grigg for good reason; therefore, we believe that Mr. Grigg terminated his employment without good reason as of November 13, 2006, the date of his termination letter. Accordingly, we believe that no severance payments are due and we have not remitted any such payments to Mr. Grigg under the terms of his employment agreement.

On December 22, 2006, Mr. Grigg filed a lawsuit against Republic in the Superior Court of the District of Columbia. Mr. Grigg alleges, among other things, that (i) Republic breached his employment agreement, (ii) Republic breached its duties of good faith and fair dealing and (iii) the Noncompetition Agreement dated December 20, 2005 between Mr. Grigg and Republic is unenforceable and void. Mr. Grigg seeks, among other remedies, (i) the severance payment allegedly due under the employment agreement, (ii) other damages in an amount to be finally determined at trial and (iii) the voiding of the Noncompetition Agreement. The Company believes that Mr. Grigg’s lawsuit is without merit, generally denies the allegations in the complaint and denies that Mr. Grigg is entitled to any of the relief sought in his complaint. Republic originally asserted various counterclaims against Mr. Grigg, including claims for common law fraud, state securities fraud, breach of his employment agreement, breach of fiduciary duties and unjust enrichment. Republic subsequently voluntarily dismissed without prejudice its common law fraud, state securities fraud and unjust enrichment claims in order to pursue those claims in the litigation described below pending in the United States District Court for the District of Columbia. The Company’s counterclaims against Mr. Grigg for breach of his employment agreement and breach of his fiduciary duties remain pending in the District of Columbia Superior Court litigation. On March 30, 2007, the Court denied, in its entirety, Mr. Grigg’s motion to dismiss these counterclaims. The Company seeks damages and other appropriate relief on these counterclaims. The litigation in this matter is continuing.

On March 28, 2007, Republic filed a lawsuit against Messrs. Kramer and Grigg and Republic Properties Corporation in the United States District Court of the District of Columbia. This lawsuit asserts, among other things, claims against (i) all three defendants for (a) federal and state securities fraud and (b) common law fraud; (ii) Messrs. Kramer and Grigg for (a) federal and state control person liability and (b) unjust enrichment; and (iii) Republic Properties Corporation for (a) breach of contract and (b) indemnification. The Company seeks, among other remedies, (i) damages in an amount not less than $1.2 million, the

approximate value (at the time of issuance) of the partnership units issued by Republic Property Limited Partnership to Republic Properties Corporation in connection with a development agreement, the West Palm Beach City Center Development Contribution Agreement, (ii) additional damages incurred by Republic as a result of the termination of a professional services agreement, the West Palm Beach Professional Services Agreement, (iii) recovery of the costs, including attorneys fees, associated with a previously-disclosed independent investigation, (iv) reimbursement for Republic’s expenses in this litigation, including attorneys’ fees, and (v) other damages, including punitive damages, in an amount to be finally determined at trial. On March 31, 2008, the Court granted a motion filed by the Grigg Parties to dismiss the Republic claims. We filed a motion for reconsideration of the grant of the motion to dismiss. On August 13, 2008, the Court denied the motion for reconsideration. The Company appealed the Court’s decision to the appropriate appellate court (the “Appellate Court”). On August 21, 2009, the Appellate Court issued its opinion reversing the Court and returning the case to the Court for further proceedings. The Grigg Parties have filed with the Appellate Court a motion for Rehearing En Banc. The Appellate Court has that motion under consideration.

On May 21, 2007, Republic proffered a lease (the “Lease”), to 25 Massachusetts Avenue Property LLC (“25 Mass”), for certain space in Republic Square I, an office building in Washington, D.C. (the “Option Property”). Two of Republic’s founders and trustees, Richard L. Kramer and Mr. Grigg, currently control 25 Mass. On May 22, 2007, 25 Mass rejected the proffer of the Lease. On May 29, 2007, Republic (i) re-tendered the Lease to 25 Mass for certain space at the Option Property and (ii) exercised its exclusive option to purchase the fee interest in the Option Property pursuant to the Option Agreement among 25 Mass, 660 North Capitol Street Property LLC and Republic dated as of November 28, 2005 (the “Option Agreement”). On May 30, 2007, 25 Mass rejected the Lease and claimed that “there has been no effective exercise of the option” under the Option Agreement.

In response to 25 Mass’s rejection, on June 15, 2007, Republic filed a lawsuit against 25 Mass in the Court of Chancery in the State of Delaware. 25 Mass counterclaimed against Republic for damages. On April 7, 2008, the Court of Chancery issued an opinion concluding that neither party was entitled to relief and ordering that the Lis Pendens on the property be lifted. On April 15, 2008, 25 Mass filed a notice of appeal from dismissal of its counterclaims. On November 25, 2008, the Delaware Supreme Court remanded the matter to the Court of Chancery in order for the Court of Chancery to consider 25 Mass’ claimed breach of the Option Agreement. On January 22, 2009, the Court of Chancery issued a Memorandum Opinion adhering to its original determination that 25 Mass’ counterclaim should be dismissed. On April 20, 2009, the Court issued its opinion dismissing 25 Mass’ claims. On April 24, 2009, 25 Mass filed a motion for Rehearing En Banc. On April 29, 2009, the Court denied 25 Mass’ motion for Rehearing En Banc.

On December 12, 2008, 25 Mass filed a complaint in the Superior Court for the District of Columbia, alleging that 25 Mass had entered a purchase and sale agreement with a third party for the sale of Republic Square I, and that Republic’s lawsuit and its Lis Pendens prevented a closing by which Republic Square I could be sold under the terms of that purchase and sale agreement. The December 12, 2008 lawsuit alleges that by so doing, Republic committed tortious interference with contract, tortious interference with prospective contractual relations, malicious prosecution, abuse of process and a violation of the Washington D.C. Lis Pendens statute. The filed complaint seeks “no less than $85 million” in compensatory damages, and “no less than $85 million” in punitive damages, and attorneys’ fees for an improperly filed Lis Pendens under Washington D.C. Code § 42-1207(d). In April 2009, following the decision of the Supreme Court of the State of Delaware, 25 Mass voluntarily dismissed with prejudice all of its claims in this matter with the exception of its claim based on a claim of malicious prosecution. On December 23, 2009, the Court dismissed the remaining claim of malicious prosecution. 25 Mass has informed the Company that it intends to appeal the Court’s decision.

While management currently believes that resolving these matters will not have a material adverse impact on our financial position, our results of operations or our cash flows, the litigation noted above is subject to inherent uncertainties and management’s view of these matters may change in the future. Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on our financial position and the results of operations for the period in which the effect becomes capable of being reasonably estimated.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2009.

PART II

ITEM 5. MARKET FOR THE REGISTRANTS’ COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND RELATED ISSUER PURCHASES OF EQUITY SECURITIES

The Common Shares are traded on the New York Stock Exchange under the symbol “LRY.” There is no established public trading market for the Common Units. The following table sets forth, for the calendar quarters indicated, the high and low closing prices of the Common Shares on the New York Stock Exchange, and the dividends declared per Common Share for such calendar quarter.

										Dividends
										Declared Per
		High				Low				Common Share
2009
Fourth Quarter		$	33.05			$	28.36			$	0.475
Third Quarter			35.11				21.23				0.475
Second Quarter			25.61				18.93				0.475
First Quarter			23.32				16.90				0.475
2008
Fourth Quarter		$	37.27			$	12.93			$	0.475
Third Quarter			40.89				31.43				0.625
Second Quarter			37.11				32.60				0.625
First Quarter			33.24				25.85				0.625

As of February 23, 2010, the Common Shares were held by 1,126 holders of record. Since its initial public offering in 1994, the Company has paid regular and uninterrupted quarterly dividends.

Although the Company currently anticipates that dividends at $0.475 per Common Share per quarter or a comparable rate will continue to be paid in the future, the payment of future dividends by the Company will be at the discretion of the Board of Trustees and will depend on numerous factors including the Company’s cash flow, its financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Code, the general economic environment and such other factors as the Board of Trustees deems relevant.

In December 2009, an individual acquired 6,000 Common Shares in exchange for the same number of Common Units. This person acquired these Common Units in connection with their contribution to the Operating Partnership of certain assets. The exchange of Common Shares for the Common Units is exempt from the registration requirement of the Securities Act of 1933, as amended, pursuant to Section 4 (2) thereunder.

The following line graph compares the cumulative total shareholder return on common shares for the period beginning December 31, 2004 and ended December 31, 2009 with the cumulative total return on the Standard and Poor’s 500 Stock Index (“S&P 500”) and the NAREIT Equity REIT Total Return Index (“NAREIT Index”) over the same period. Total return values for the S&P 500, the NAREIT Index and the Company’s common shares were calculated based on cumulative total return assuming the investment of $100 in the NAREIT Index, the S&P 500 and the Company’s common shares on December 31, 2004, and assuming reinvestment of dividends in all cases.

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth Selected Financial Data for the Trust and the Operating Partnership as of and for the years ended December 31, 2009, 2008, 2007, 2006 and 2005. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto appearing elsewhere in this report. Certain amounts from prior years have been reclassified to conform to current-year presentation.

Liberty Property Trust

Operating Data		Year Ended December 31,
(In thousands, except per share data)		2009				2008				2007				2006				2005
Total operating revenue		$	744,257			$	731,352			$	669,144			$	590,001			$	559,834
Income from continuing operations		$	54,182			$	149,560			$	141,166			$	153,455			$	209,298
Net income		$	78,992			$	180,106			$	190,310			$	292,043			$	272,316
Basic:
Income from continuing operations		$	0.30			$	1.31			$	1.27			$	1.50			$	2.18
Income from discontinued operations		$	0.22			$	0.31			$	0.54			$	1.48			$	0.69
Income per common share		$	0.52			$	1.62			$	1.81			$	2.98			$	2.87
Diluted:
Income from continuing operations		$	0.30			$	1.31			$	1.26			$	1.48			$	2.13
Income from discontinued operations		$	0.22			$	0.31			$	0.54			$	1.47			$	0.69
Income per common share		$	0.52			$	1.62			$	1.80			$	2.95			$	2.82
Distributions paid per common share		$	1.900			$	2.500			$	2.485			$	2.465			$	2.445
Weighted average number of shares outstanding — basic (1)			107,550				93,615				91,197				89,361				87,215
Weighted average number of shares outstanding — diluted (2)			108,002				93,804				91,803				90,492				88,376

Balance Sheet Data		December 31,
(In thousands)		2009				2008				2007				2006				2005
Net real estate		$	4,452,214			$	4,485,095			$	4,845,066			$	4,258,265			$	3,880,021
Total assets			5,227,421				5,217,035				5,643,937				4,910,911				4,500,322
Total indebtedness			2,456,875				2,590,167				3,021,129				2,387,938				2,249,178
Liberty Property Trust Shareholders’ equity			2,122,295				1,958,779				1,837,025				1,870,855				1,722,237

Other Data		Year Ended December 31,
(Dollars in thousands)		2009				2008				2007				2006				2005
Cash provided by operating activities		$	298,571			$	265,949			$	346,752			$	324,573			$	360,749
Cash (used in) provided by investing activities			(5,702	)			52,553				(758,924	)			(334,942	)			(286,633	)
Cash (used in) provided by financing activities			(74,033	)			(331,314	)			396,322				(327	)			(39,470	)
Funds from operations available to common shareholders (3)			222,106				313,910				305,216				294,801				293,973
Total leaseable square footage of Wholly Owned Properties in Operation at end of period (in thousands)			64,384				63,799				62,079				59,160				60,613
Total leasable square footage of JV Properties in Operation at end of period (in thousands)			13,786				13,069				11,462				6,172				3,758
Wholly Owned Properties in Operation at end of period			639				654				649				672				675
JV Properties in Operation at end of period			96				95				91				48				43
Wholly Owned Properties in Operation percentage leased at end of period			89	%			91	%			93	%			94	%			92	%
JV Properties in Operation percentage leased at end of period			88	%			92	%			94	%			95	%			99	%

Liberty Property Limited Partnership

Operating Data		Year Ended December 31,
(In thousands, except per share data)		2009				2008				2007				2006				2005
Total operating revenue		$	744,257			$	731,352			$	669,144			$	590,001			$	559,834
Income from continuing operations		$	54,182			$	149,560			$	141,166			$	153,455			$	209,298
Income available to common unitholders		$	78,992			$	180,106			$	190,310			$	292,043			$	272,316
Basic:
Income from continuing operations		$	0.30			$	1.31			$	1.27			$	1.50			$	2.18
Income from discontinued operations		$	0.22			$	0.31			$	0.54			$	1.48			$	0.69
Income per common unit		$	0.52			$	1.62			$	1.81			$	2.98			$	2.87
Diluted:
Income from continuing operations		$	0.30			$	1.31			$	1.26			$	1.48			$	2.13
Income from discontinued operations		$	0.22			$	0.31			$	0.54			$	1.47			$	0.69
Income per common unit		$	0.52			$	1.62			$	1.80			$	2.95			$	2.82
Distributions paid per common unit		$	1.900			$	2.500			$	2.485			$	2.465			$	2.445
Weighted average number of units outstanding — basic (1)			111,568				97,805				95,387				93,256				90,769
Weighted average number of units outstanding — diluted (2)			112,020				97,994				95,993				94,387				91,931

Balance Sheet Data		December 31,
(In thousands)		2009				2008				2007				2006				2005
Net real estate		$	4,452,214			$	4,485,095			$	4,845,066			$	4,258,265			$	3,880,021
Total assets			5,227,421				5,217,035				5,643,937				4,910,911				4,500,322
Total indebtedness			2,456,875				2,590,167				3,021,129				2,387,938				2,249,178
Owners’ equity			2,483,169				1,945,516				1,800,969				1,752,478				1,626,919

Other Data		Year Ended December 31,
(Dollars in thousands)		2009				2008				2007				2006				2005
Cash provided by operating activities		$	298,571			$	265,949			$	346,752			$	324,573			$	360,749
Cash (used in) provided by investing activities			(5,702	)			52,553				(758,924	)			(334,942	)			(286,633	)
Cash (used in) provided by financing activities			(74,033	)			(331,314	)			396,322				(327	)			(39,470	)
Funds from operations available to common shareholders (3)			222,106				313,910				305,216				294,801				293,973
Total leaseable square footage of Wholly Owned Properties in Operation at end of period (in thousands)			64,384				63,799				62,079				59,160				60,613
Total leasable square footage of JV Properties in Operation at end of period (in thousands)			13,786				13,069				11,462				6,172				3,758
Wholly Owned Properties in Operation at end of period			639				654				649				672				675
JV Properties in Operation at end of period			96				95				91				48				43
Wholly Owned Properties in Operation percentage leased at end of period			89	%			91	%			93	%			94	%			92	%
JV Properties in Operation percentage leased at end of period			88	%			92	%			94	%			95	%			99	%

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Liberty Property Trust (the “Trust”) is a self-administered and self-managed Maryland real estate investment trust (“REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership (the “Operating Partnership” and, collectively with the Trust and their consolidated subsidiaries, the “Company”).

The Company operates primarily in the Mid-Atlantic, Southeastern, Midwestern and Southwestern United States. Additionally, the Company owns certain assets in the United Kingdom.

As of December 31, 2009, the Company owned and operated 349 industrial and 290 office properties (the “Wholly Owned Properties in Operation”) totaling 64.4 million square feet. In addition, as of December 31, 2009, the Company owned three properties under development, which when completed are expected to comprise 381,000 square feet (the “Wholly Owned Properties under Development”) and 1,355 acres of developable land, substantially all of which is zoned for commercial use. Additionally, as of December 31, 2009, the Company had an ownership interest, through unconsolidated joint ventures, in 47 industrial and 49 office properties totaling 13.8 million square feet (the “JV Properties in Operation” and, together with the Wholly Owned Properties in Operation, the “Properties in Operation”), two properties under development, which when completed are expected to comprise 600,000 square feet (the “JV Properties under Development” and, together with the Wholly Owned Properties under Development, the “Properties under Development”). The Company also has an ownership interest through unconsolidated joint ventures in 630 acres of developable land, substantially all of which is zoned for commercial use.

The Company focuses on creating value for shareholders and increasing profitability and cash flow. With respect to its Properties in Operation, the Company endeavors to maintain high occupancy levels while increasing rental rates and controlling costs. The Company 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.

Recent uncertainty in the global credit markets and declines and weakness in the general economy have negatively impacted the Company’s business practices. The credit markets have become considerably less favorable than in the period prior to the economic downturn. Additionally, uncertainty about the pricing of commercial real estate and the absence of available financing to facilitate transactions has dramatically reduced the Company’s ability to rely on the proceeds from the sale of real estate to provide proceeds to fund investment opportunities. Similarly, current market conditions are not favorable for acquisitions and development and consequently the potential for growth in operating income from acquisitions and development is anticipated to be limited in 2010.

Consistent with the dramatic recession in the United States and world economy, rental demand for the Properties in Operation declined for the year ended December 31, 2009 as compared to the year ended December 31, 2008. Despite this trend, the Company successfully leased 15.5 million square feet during the year ended December 31, 2009 and attained occupancy of 89.5% for the Wholly Owned Properties in Operation and 87.7% for the JV Properties in Operation for a combined occupancy of 89.2% for the Properties in Operation as of that date. The reduction in rental demand for properties is reflected in a decline during the year ended December 31, 2009 of straight line rents on renewal and replacement leases of 5.9%. At December 31, 2008, occupancy for the Wholly Owned Properties in Operation was 91.1% and for the JV Properties in Operation was 92.2% for a combined occupancy for the Properties in Operation of 91.3%. The Company believes that straight line rents on renewal and replacement leases for 2010 will on average be 10% to 15% lower than rents on expiring leases. Furthermore, the Company believes that average occupancy for its Properties in Operation will not increase or decrease by more than 1% for 2010 compared to 2009.

As described more fully below, during the year ended December 31, 2009, the Company recognized non-cash impairment charges due to a decline in fair market value below carrying value of certain of the Company’s assets.

WHOLLY OWNED CAPITAL ACTIVITY

Acquisitions

During the year ended December 31, 2009, conditions for the acquisition of properties were unsettled primarily because of adverse events in the credit markets and a general downturn in the economy. The Company did not acquire any operating properties during the year ended December 31, 2009. For 2010, the Company anticipates that wholly owned property acquisitions will range from no acquisitions to acquisitions of up to $100 million.

Dispositions

During the year ended December 31, 2009, market conditions for dispositions were unsettled, which the Company again attributes to adverse events in the credit markets and a general downturn in the economy. Disposition activity allows the Company to, among other things, (1) reduce its holdings in certain markets and product types within a market; (2) lower the average age of the portfolio; (3) optimize the cash proceeds from the sale of certain assets; and (4) obtain funds for investment activities. During the year ended December 31, 2009, the Company realized proceeds of $178.4 million from the sale of 29 operating properties representing 2.3 million square feet and 15 acres of land. For 2010, the Company believes it will realize proceeds of approximately $75 million to $125 million from the sale of operating properties.

Development

During the year ended December 31, 2009, the Company brought into service 15 Wholly Owned Properties under Development representing 2.9 million square feet and a Total Investment, as defined below, of $299.9 million, and initiated $12.3 million in real estate development. As of December 31, 2009, the projected Total Investment of the Wholly Owned Properties under Development was $83.4 million. For 2010, the Company believes that it will bring into service from its development pipeline approximately $75 million to $100 million of Total Investment in operating real estate. Although the Company continues to pursue development opportunities, current market conditions are not generally favorable for speculative development. Any development starts for 2010 likely will be substantially pre-leased.

The “Total Investment” for a Property is defined as the Property’s purchase price plus closing costs and management’s estimate, as determined at the time of acquisition, of the cost of necessary building improvements in the case of acquisitions, or land costs and land and building improvement costs in the case of development projects, and, where appropriate, other development costs and carrying costs.

JOINT VENTURE CAPITAL ACTIVITY

The Company periodically enters into joint venture relationships in connection with the execution of its real estate operating strategy.

Acquisitions

During the year ended December 31, 2009, none of the unconsolidated joint ventures in which the Company held an interest acquired any properties. For 2010, the Company believes that none of the unconsolidated joint ventures in which the Company holds an interest will acquire any properties.

Dispositions

During the year ended December 31, 2009, none of the unconsolidated joint ventures in which the Company held an interest disposed of any properties. For 2010, the Company does not anticipate that any unconsolidated joint ventures in which it holds an interest will dispose of any operating properties.

Development

During the year ended December 31, 2009, joint ventures in which the Company held an interest brought into service two JV Properties under Development representing 725,000 square feet and a Total Investment of $36.0 million. As of December 31, 2009, the projected Total Investment of JV Properties under Development was $160.1 million. For 2010, the Company expects unconsolidated joint ventures in which it holds an interest to bring into service between $125 million and $175 million of Total Investment in operating properties.

Forward-Looking Statements

When used throughout this report, the words “believes,” “anticipates,” “estimates” and “expects” and similar expressions are intended to identify forward-looking statements. Such statements indicate that assumptions have been used that are subject to a number of risks and uncertainties that could cause actual financial results or management plans and objectives to differ materially from those projected or expressed herein, including: the effect of national and regional economic conditions; rental demand; the Company’s ability to identify, and enter into agreements with suitable joint venture partners in situations where it believes such arrangements are advantageous; the Company’s ability to identify and secure additional properties and sites, both for itself and the joint ventures to which it is a party, that meet its criteria for acquisition or development; the current credit crisis and its impact on the availability and cost of capital; the effect of prevailing market interest rates; risks related to the integration of the operations of entities that we have acquired or may acquire; risks related to litigation; and other risks described from time to time in the Company’s filings with the SEC. Given these uncertainties, readers are cautioned not to place undue reliance on such statements.

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases these estimates, judgments and assumptions on historical experience and on other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The following critical accounting policies discussion reflects what the Company believes are the more significant estimates, assumptions and judgments used in the preparation of its Consolidated Financial Statements. This discussion of critical accounting policies is intended to supplement the description of the accounting policies in the footnotes to the Company’s Consolidated Financial Statements and to provide additional insight into the information used by management when evaluating significant estimates, assumptions and judgments. For further discussion of our significant accounting policies, see Note 2 to the Consolidated Financial Statements included in this report.

Capitalized Costs

Expenditures directly related to the acquisition or improvement of real estate, including interest and other costs capitalized on development projects and land being readied for development, are included in net real estate and are stated at cost. The Company considers a development property substantially complete upon the completion of tenant build-out, but no later than one year after the completion of major construction activity. The capitalized costs include pre-construction costs essential to the development of the property, construction costs, interest costs, real estate taxes, development related salaries and other costs incurred during the period of development. The determination to capitalize rather than expense costs requires the Company to evaluate the status of the development activity. Capitalized interest for the years ended December 31, 2009, 2008 and 2007 was $7.6 million, $20.0 million and $45.7 million, respectively. Effective January 1, 2009, acquisition related costs are expensed as incurred.

Revenue Recognition

Rental revenue is recognized on a straight line basis over the terms of the respective leases. Deferred rent receivable represents the amount by which straight line rental revenue exceeds rents currently billed in accordance with the lease agreements. Above-market and below-market lease values for acquired properties are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease. The capitalized above or below-market lease values are amortized as a component of rental revenue over the remaining term of the respective leases.

Allowance for Doubtful Accounts

The Company monitors the liquidity and creditworthiness of its tenants on an on-going basis. Based on these reviews, provisions are established, and an allowance for doubtful accounts for estimated losses resulting from the inability of its tenants to make required rental payments is maintained. As of December 31, 2009 and 2008, the Company’s allowance for doubtful accounts totaled $11.1 million and $8.5 million, respectively. The Company’s bad debt expense for the years ended December 31, 2009, 2008 and 2007 was $4.3 million, $4.8 million and $3.4 million, respectively.

Impairment of Real Estate

The Company evaluates its real estate investments upon the occurrence of significant adverse changes in operations to assess whether any impairment indicators are present that could affect the recovery of the recorded value. Indicators the Company uses to determine whether an impairment evaluation is necessary include the low occupancy level of the property, holding period for the property, strategic decisions regarding future development plans for a property under development and land held for development and other market factors. If impairment indicators are present the Company performs an undiscounted cash flow analysis and compares the net carrying amount of the property to the property’s estimated undiscounted future cash flow over the anticipated holding period. The Company assesses the expected undiscounted cash flows based upon estimated capitalization rates, historic operating results and market conditions that may affect the property. If any real estate investment is considered impaired, the carrying value of the property is written down to its estimated fair value. Fair value is estimated based on the discounting of future expected cash flows at a risk adjusted interest rate. During the years ended December 31, 2009, 2008 and 2007 the Company recognized impairment losses of $9.5 million, $3.1 million and $0.2 million, respectively. The determination of whether an impairment exists requires the Company to make estimates, judgments and assumptions about the future cash flows. The Company has evaluated each of its Properties and land held for development and has determined that there are no additional impairment charges that need to be recorded at December 31, 2009.

Intangibles

In accordance with Financial Accounting Standards Board (“FASB”) ASC 805, “Business Combinations,” the Company allocates the purchase price of real estate acquired to land, building and improvements and intangibles based on the relative fair value of each component. The value ascribed to in-place leases is based on the rental rates for the existing leases compared to the Company’s estimate of the fair market lease rates for leases of similar terms and present valuing the difference based on an interest rate which reflects the risks associated with the leases acquired. Origination values are also assigned to in-place leases, and, where appropriate, value is assigned to customer relationships. Origination cost estimates include the costs to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. Additionally, the Company estimates carrying costs during the expected lease-up periods including real estate taxes, other operating expenses and lost rentals at contractual rates. The Company depreciates the amounts allocated to building and improvements over 40 years. The amounts allocated to the intangible relating to in-place leases, which are included in deferred financing and leasing costs or in other liabilities in the accompanying balance sheets, are amortized over the remaining term of the related leases. In the event that a tenant terminates its lease, the unamortized portion of the intangible is written off.

The Company assesses goodwill for impairment annually in November and in interim periods if certain events occur indicating the carrying value is impaired. The Company performs its analysis for potential impairment of goodwill in accordance with FASB ASC 350, “Intangibles — Goodwill and Other,” which requires that a two-step impairment test be performed on goodwill. In the first step, the fair value of the reporting unit is compared to its carrying value. If the fair value exceeds its carrying value, goodwill is not impaired, and no further testing is required. If the carrying value of the reporting unit exceeds its fair value, then a second step must be performed in order to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. If the carrying value of goodwill exceeds its implied fair value then an impairment loss is recorded equal to the difference. During the year ended December 31, 2009, the Company determined that the $15.7 million related to its acquisition of Republic Property Trust in October 2007 was impaired. The Company recognized a $15.7 million impairment loss in 2009 in connection with the write off of this goodwill. No impairment losses were recognized during the years ended December 31, 2008 or 2007.

Investments in Unconsolidated Joint Ventures

The Company analyzes its investments in joint ventures under FASB ASC 810, “Consolidation,” to determine if the joint venture is considered a variable interest entity and would require consolidation. The Company does not have any interests in variable interest entities. The Company accounts for its investments in unconsolidated joint ventures using the equity method of accounting as the Company exercises significant influence over, but does not control, these entities. These investments are recorded initially at cost, as Investments in Unconsolidated Joint Ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions.

On a periodic basis, management assesses whether there are any indicators that the value of the Company’s investments in unconsolidated joint ventures may be impaired. An investment is impaired only if management’s estimate of the value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over the estimated fair value of the investment.

Management estimated the fair value of its ownership interest in the joint ventures considering the estimated fair value of the real estate assets owned by the joint ventures and the related indebtedness as well as the working capital assets and liabilities of the joint ventures and the terms of the related joint venture agreements. The Company’s estimates of fair value of the real estate assets are based on a discounted cash flow analysis incorporating a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, current market rental rates, changes in market rental rates, operating costs, capitalization rates, holding periods and discount rates. For these assumptions, the Company considered its experience and historical performance in the various markets and data provided by market research organizations. In assessing whether the impairment is other-than-temporary the Company considers several factors. The longevity and severity of the impairment are considered as well as the expected time for recovery of value to occur, if ever.

The Company developed the budgets for its unconsolidated joint ventures during the fourth quarter of 2009. For certain of the unconsolidated joint ventures, the budgets suggested a continuing situation of weak demand for space and intense competition for tenants leading to another year of stagnant rents. This continuing and sustained impairment in value as suggested by the 2010 budgets and the other assessment considerations described above caused the Company to conclude that the decline in value was other than temporary for four of the Company’s investments in unconsolidated joint ventures.

The Company’s investments in unconsolidated joint ventures as of December 31, 2009 before and after the impairment charge are as follows:

		December 31, 2009
		Before Impairment				Impairment				After Impairment
Liberty Venture I, LP		$	11,238				—			$	11,238
Kings Hill Unit Trust			3,198				—				3,198
Liberty Illinois, LP			26,531				6,964				19,567
Liberty AIPO LP			13,302				—				13,302
Silversword Properties, Ltd.			10,618				2,170				8,448
Cambridge Medipark Ltd.			6,618				—				6,618
Blythe Valley JV Sarl			8,991				5,608				3,383
Liberty Washington, LP			137,429				64,060				73,369
Liberty Commerz 1701 JFK Boulevard, LP			36,461				—				36,461
Total		$	254,386			$	78,802			$	175,584

Determining values in the current market is inherently difficult and is based on the Company’s assessment of a number of factors which are difficult to predict. The market may continue to decline and future impairment charges may be needed.

No impairment losses were recognized during the years ended December 31, 2008 or 2007.

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 year ended December 31, 2009 with the results of operations of the Company for the year ended December 31, 2008, and the results of operations of the Company for the year ended December 31, 2008 with the results of operations of the Company for the year ended December 31, 2007. As a result of the varying level of development, acquisition and disposition activities by the Company in 2009, 2008 and 2007, the overall operating results of the Company during such periods are not directly comparable. However, certain data, including the Same Store (as defined below) results, do lend themselves to direct comparison.

This information should be read in conjunction with the accompanying consolidated financial statements and notes included elsewhere in this report.

Comparison of Year Ended December 31, 2009 to Year Ended December 31, 2008

Overview

The Company’s average gross investment in operating real estate owned for the year ended December 31, 2009 increased to $5,032.6 million from $4,894.3 million for the year ended December 31, 2008. This increase in operating real estate owned 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 $744.3 million for the year ended December 31, 2009 from $731.4 million for the year ended December 31, 2008. This $12.9 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, discussed below. This increase was also due to an increase in “Termination Fees,” which totaled $4.5 million for the year ended December 31, 2009 as compared to $3.8 million for the year ended December 31, 2008. Termination Fees are fees that the Company agrees to accept in consideration for permitting certain tenants to terminate their leases prior to the contractual expiration date. Termination Fees are included in rental revenue and if a property is sold, related termination fees are included in discontinued operations. See “Other,” below.

Segments

The Company evaluates the performance of the Properties in Operation by reportable segment (see Note 13 to the Company’s financial statements for reconciliation to net income). The following table identifies changes in reportable segments (dollars in thousands):

Property Level Operating Income:

		Year Ended December 31,								Percentage
		2009				2008				Increase (Decrease)
Northeast
— Southeastern PA		$	124,298			$	119,243				4.2	%
— Lehigh/Central PA			73,372				70,793				3.6	%
— New Jersey			18,365				19,640				(6.5	%)(1)
Midwest			51,124				51,704				(1.1	%)
Mid-Atlantic			96,434				98,164				(1.8	%)
South			123,704				113,946				8.6	%(2)
Philadelphia/D.C.			16,848				21,635				(22.1	%)(3)
United Kingdom			3,468				3,295				5.3	%
Total property level operating income (4)		$	507,613			$	498,420				1.8	%

Same Store

Property level operating income, exclusive of Termination Fees, for the Same Store properties increased to $481.3 million for the year ended December 31, 2009 from $478.6 million for the year ended December 31, 2008, on a straight line basis (which recognizes rental revenue evenly over the life of the lease), and increased to $468.9 million for the year ended December 31, 2009 from $467.1 million for the year ended December 31, 2008 on a cash basis. These increases of 0.6% and 0.4%, respectively, are primarily due to an increase in occupancy for office 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 and Same Store cash basis property level operating income exclusive of Termination Fees is considered by management to be a more reliable indicator of the portfolio’s baseline performance. The Same Store properties consist of the 610 properties totaling approximately 58.4 million square feet owned on January 1, 2008 and excluding properties sold through December 31, 2009.

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 years ended December 31, 2009 and 2008. Same Store property level income and cash basis property level operating income are non-GAAP measures and do not represent income before property dispositions, income taxes and equity in earnings (loss) of unconsolidated joint ventures because they do not reflect the consolidated operations of the Company. Investors should review Same Store results, along with Funds from operations (see “Liquidity and Capital Resources” section), GAAP net income and cash flow from operating activities, investing activities and financing activities when considering the Company’s operating performance. Also set forth below is a reconciliation of Same Store property level operating income and cash basis property level operating income to net income (in thousands).

		Year Ended December 31,
		2009				2008
Same Store:
Rental revenue		$	491,386			$	488,334
Operating expenses:
Rental property expense			147,510				148,784
Real estate taxes			79,454				80,407
Operating expense recovery			(216,880	)			(219,487	)
Unrecovered operating expenses			10,084				9,704
Property level operating income			481,302				478,630
Less straight line rent			12,438				11,530
Cash basis property level operating income		$	468,864			$	467,100
Reconciliation of non-GAAP financial measure — Same Store:
Cash basis property level operating income		$	468,864			$	467,100
Straight line rent			12,438				11,530
Same Store property level operating income			481,302				478,630
Property level operating income — properties purchased or developed subsequent to January 1, 2008			21,852				16,017
Termination fees			4,459				3,773
Property level operating income			507,613				498,420
General and administrative expense			(51,250	)			(54,467	)
Depreciation and amortization expense			(170,764	)			(169,190	)
Other income (expense)			(136,519	)			(136,935	)
Gain on property dispositions			1,687				10,572
Income taxes			(494	)			(1,645	)
Equity in earnings of unconsolidated joint ventures			2,161				2,805
Impairment charges — investment in unconsolidated joint ventures and other			(82,552	)			—
— goodwill			(15,700	)			—
Discontinued operations			24,810				30,546
Net income		$	78,992			$	180,106

General and Administrative

General and administrative expenses decreased to $51.3 million for the year ended December 31, 2009 from $54.5 million for the year ended December 31, 2008. This decrease was primarily due to a decrease in number of employees and their corresponding compensation and decreases in cancelled projects and other discretionary expenses. The decreases were partially offset by increases in long term incentive compensation.

Depreciation and Amortization

Depreciation and amortization increased to $170.8 million for the year ended December 31, 2009 from $169.2 million for the year ended December 31, 2008. The increase was primarily due to the increase in average gross investment in operating real estate during the respective periods and particularly the increased investment in tenant improvement costs, which are depreciated over a shorter period than buildings.

Interest Expense

Interest expense decreased to $149.6 million for the year ended December 31, 2009 from $152.9 million for the year ended December 31, 2008. This decrease was related to a decrease in the average debt outstanding, which was $2,503.8 million for the year ended December 31, 2009, compared to $2,833.9 million for the year ended December 31, 2008. The effect of the decrease in the average debt outstanding was partially offset by an increase in the weighted average interest rate to 6.2% for the year ended December 31, 2009 from 6.1% for the year ended December 31, 2008. Partially offsetting the decrease in interest expense was the decrease in interest that was capitalized due to the decrease in development activity.

Interest expense allocated to discontinued operations for the years ended December 31, 2009 and 2008 was $2.2 million and $5.0 million, respectively. This decrease was due to the decrease in the level of dispositions in 2009 compared to 2008.

Other

Gain on property dispositions decreased to a gain of $1.7 million for the year ended December 31, 2009 from a gain of $10.6 million for the year ended December 31, 2008. The decrease was primarily due to the recognition in 2008 of gain on the sale of Comcast Center into a joint venture in which the Company retains an interest (see Note 4 to the Company’s Consolidated Financial Statements).

During the year ended December 31, 2009, the Company recognized an $82.6 million impairment charge for investment in unconsolidated joint ventures and other and it recognized a $15.7 million impairment charge for the write off of goodwill. There were no similar impairment charges in 2008. The impairment charges for 2009 primarily result from a $78.8 million impairment charge that the Company recognized in the fourth quarter of 2009 relating to the other-than-temporary decline in fair value below the carrying values of certain of the Company’s investments in unconsolidated joint ventures. During the fourth quarter of 2009, the Company also wrote off the $15.7 million of goodwill and other intangibles relating to its October 2007 acquisition of Republic Property Trust. There were no similar impairment charges in 2008.

During the year ended December 31, 2009, the Company purchased $11.4 million of its 7.75% Senior Notes due April 2009, $6.9 million of its 8.50% Senior Notes due August 2010, $3.5 million of its 7.25% Senior Notes due March 2011, $4.9 million of its 6.375% Senior Notes due August 2012 and $3.5 million of its 6.625% Senior Notes due October 2017. These notes were purchased at an aggregate $1.5 million discount. During the year ended December 31, 2008, the Company purchased $23.4 million of its 8.50% Senior Notes due August 2010. These notes were purchased at a $2.5 million discount. These discounts are included in net income as debt extinguishment gains.

Income from discontinued operations decreased to $24.8 million from $30.5 million for the year ended December 31, 2009 compared to the year ended December 31, 2008. The decrease is due to lower operating income and the decrease in gains recognized on sales (net of impairment charges) which were $17.9 million for the year ended December 31, 2009 compared to $23.5 million for the year ended December 31, 2008. These decreases were partially offset by termination fees in discontinued operations which equaled $4.8 million in 2009 and $94,000 in 2008.

As a result of the foregoing, the Company’s net income decreased to $79.0 million for the year ended December 31, 2009 from $180.1 million for the year ended December 31, 2008.

Comparison of Year Ended December 31, 2008 to Year Ended December 31, 2007

Overview

The Company’s average gross investment in operating real estate owned for the year ended December 31, 2008 increased to $4,894.3 million from $4,381.7 million for the year ended December 31, 2007. 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 $731.4 million for the year ended December 31, 2008 from $669.1 million for the year ended December 31, 2007. This $62.3 million increase was primarily due to the increase in investment in operating real estate and the increase in operating revenue from the “Prior Year Same Store” (as defined below) group of properties, discussed below. These increases were partially offset by a decrease in Termination Fees, which totaled $3.8 million for the year ended December 31, 2008 as compared to $3.9 million for the year ended December 31, 2007. Termination Fees are included in rental revenue.

Segments

The Company evaluates the performance of the Properties in Operation by reportable segment (see Note 13 to the Company’s Consolidated Financial Statements for a reconciliation to net income). The following table identifies changes in reportable segments (dollars in thousands):

Property Level Operating Income:

		Year Ended December 31,								Percentage
		2008				2007				Increase (Decrease)
Northeast
— Southeastern PA		$	119,243			$	114,090				4.5	%
— Lehigh/Central PA			70,793				66,896				5.8	%(1)
— New Jersey			19,640				18,745				4.8	%
Midwest			51,704				50,929				1.5	%
Mid-Atlantic			98,164				87,197				12.6	%(2)
South			113,946				99,129				14.9	%(1)
Philadelphia/D.C.			21,635				18,326				18.1	%(3)
United Kingdom			3,295				2,680				22.9	%(4)
Total property level operating income (5)		$	498,420			$	457,992				8.8	%