LIBERTY PROPERTY TRUST - FORM 10-Q - October 30, 2014

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________
FORM 10-Q
__________________________________________________________
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the quarterly period ended September 30, 2014
  
OR

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
Commission file numbers: 1-13130 (Liberty Property Trust)
1-13132 (Liberty Property Limited Partnership) 
__________________________________________________________
LIBERTY PROPERTY TRUST
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Exact name of registrants as specified in their governing documents)
__________________________________________________________
 
MARYLAND (Liberty Property Trust)
23-7768996
PENNSYLVANIA (Liberty Property Limited Partnership)
23-2766549
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
 
500 Chesterfield Parkway
Malvern, Pennsylvania
19355
(Address of Principal Executive Offices)
(Zip Code)
 
Registrants’ Telephone Number, Including Area Code (610) 648-1700
__________________________________________________________
 
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past ninety (90) days.    Yes  x    No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):
  
Large Accelerated Filer
x
Accelerated Filer
o
Non-Accelerated Filer
o (Do not check if a smaller reporting company)
Smaller Reporting Company
o
    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
On October 27, 2014, 148,545,996 Common Shares of Beneficial Interest, par value $0.001 per share, of Liberty Property Trust were outstanding.


EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2014 of Liberty Property Trust and Liberty Property Limited Partnership. Unless stated otherwise or the context otherwise requires, references to the “Trust” mean Liberty Property Trust and its consolidated subsidiaries, and references to the “Operating Partnership” mean Liberty Property Limited Partnership and its consolidated subsidiaries. The terms the “Company,” “we,” “our” and “us” mean the Trust and the Operating Partnership, collectively.

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

The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 97.7% of the common equity of the Operating Partnership at September 30, 2014. The common units of limited partnership interest in the Operating Partnership (the “Common Units”), other than those owned by the Trust, are exchangeable on a one-for-one basis (subject to anti-dilution protections) for the Trust's common shares of beneficial interest, $0.001 par value per share (the “Common Shares”). The Company had issued several series of cumulative redeemable preferred units of the Operating Partnership (the “Preferred Units”). The outstanding Preferred Units of each series were exchangeable on a one-for-one basis after stated dates into a corresponding series of cumulative redeemable preferred shares of the Trust except for the Series I-2 Preferred Units, which are not convertible or exchangeable into any other securities. The Preferred Units, except for the Series I-2 Preferred Units, were redeemed during 2013. The ownership of the holders of Common and Preferred Units is reflected in the Trust's financial statements as “noncontrolling interest-operating partnership” both in mezzanine equity and as a component of total equity. The ownership of the holders of Common and Preferred Units not owned by the Trust is reflected in the Operating Partnership's financial statements as “limited partners' equity” both in mezzanine equity and as a component of total owners' equity.

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

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

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

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

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





2

Liberty Property Trust/Liberty Property Limited Partnership
Form 10-Q for the period ended September 30, 2014
 
Index
 
Page
 
 
 
PART I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.

3

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

4

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except share and unit amounts)
 
 
September 30, 2014
 
December 31, 2013
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,195,924

 
$
1,138,922

Building and improvements
5,413,512

 
5,142,480

Less accumulated depreciation
(1,177,726
)
 
(1,057,644
)
Operating real estate
5,431,710

 
5,223,758

Development in progress
250,506

 
209,187

Land held for development
265,864

 
233,055

Net real estate
5,948,080

 
5,666,000

Cash and cash equivalents
39,086

 
163,414

Restricted cash
22,918

 
51,456

Accounts receivable
18,571

 
13,900

Deferred rent receivable
111,823

 
99,956

Deferred financing and leasing costs, net of accumulated amortization (2014, $167,045; 2013, $140,933)
217,261

 
226,377

Investments in and advances to unconsolidated joint ventures
202,570

 
179,655

Assets held for sale
2,895

 
278,962

Prepaid expenses and other assets
97,638

 
95,840

Total assets
$
6,660,842

 
$
6,775,560

LIABILITIES
 
 
 
Mortgage loans
$
534,547

 
$
545,306

Unsecured notes
2,508,886

 
2,708,213

Credit facility
140,950

 
—

Accounts payable
65,668

 
70,406

Accrued interest
41,277

 
25,777

Dividend and distributions payable
72,046

 
71,323

Other liabilities
221,943

 
250,819

Total liabilities
3,585,317

 
3,671,844

Noncontrolling interest - operating partnership - 301,483 preferred units outstanding as of September 30, 2014 and December 31, 2013
7,537

 
7,537

EQUITY
 
 
 
Shareholders’ equity
 
 
 
Common shares of beneficial interest, $.001 par value, 283,987,000 shares authorized; 149,354,294 (includes 1,249,909 in treasury) and 147,846,801 (includes 1,249,909 in treasury) shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
149

 
148

Additional paid-in capital
3,724,184

 
3,669,618

Accumulated other comprehensive income
3,707

 
9,742

Distributions in excess of net income
(666,646
)
 
(591,713
)
Common shares in treasury, at cost, 1,249,909 shares as of September 30, 2014 and December 31, 2013
(51,951
)
 
(51,951
)
Total shareholders’ equity
3,009,443

 
3,035,844

Noncontrolling interest – operating partnership
 
 
 
3,553,566 and 3,556,556 common units outstanding as of September 30, 2014 and December 31, 2013, respectively
54,626

 
56,713

Noncontrolling interest – consolidated joint ventures
3,919

 
3,622

Total equity
3,067,988

 
3,096,179

Total liabilities, noncontrolling interest - operating partnership and equity
$
6,660,842

 
$
6,775,560


See accompanying notes.

5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 
Three Months Ended
 
September 30, 2014
 
September 30, 2013
OPERATING REVENUE
 
 
 
Rental
$
143,294

 
$
110,260

Operating expense reimbursement
55,062

 
45,088

Total operating revenue
198,356

 
155,348

OPERATING EXPENSE
 
 
 
Rental property
33,105

 
27,634

Real estate taxes
25,595

 
18,925

General and administrative
14,748

 
17,217

Depreciation and amortization
58,578

 
39,159

Total operating expenses
132,026

 
102,935

Operating income
66,330

 
52,413

OTHER INCOME (EXPENSE)
 
 
 
Other income
6,230

 
4,512

Interest expense
(37,958
)
 
(33,542
)
Total other income (expense)
(31,728
)
 
(29,030
)
Income before loss on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
34,602

 
23,383

Loss on property dispositions
(20
)
 
—

Income taxes
(859
)
 
(629
)
Equity in earnings of unconsolidated joint ventures
1,592

 
650

Income from continuing operations
35,315

 
23,404

Discontinued operations (including net gain on property dispositions of $38 and $29 for the three months ended September 30, 2014 and 2013, respectively)
136

 
6,544

Net income
35,451

 
29,948

Noncontrolling interest – operating partnership
(944
)
 
(843
)
Noncontrolling interest – consolidated joint ventures
(84
)
 
(406
)
Net income available to common shareholders
$
34,423

 
$
28,699

 
 
 
 
Net income
$
35,451

 
$
29,948

Other comprehensive (loss) income - foreign currency translation
(13,000
)
 
4,927

Other comprehensive income - change in net unrealized gain on derivative instruments
666

 
—

Other comprehensive (loss) income
(12,334
)
 
4,927

Total comprehensive income
23,117

 
34,875

Less: comprehensive income attributable to noncontrolling interest
(739
)
 
(1,370
)
Comprehensive income attributable to common shareholders
$
22,378

 
$
33,505

Earnings per common share
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.23

 
$
0.16

Income from discontinued operations
—

 
0.05

Income per common share – basic
$
0.23

 
$
0.21

Diluted:
 
 
 
Income from continuing operations
$
0.23

 
$
0.16

Income from discontinued operations
—

 
0.05

Income per common share – diluted
$
0.23

 
$
0.21

Distributions per common share
$
0.475

 
$
0.475

Weighted average number of common shares outstanding
 
 
 
Basic
147,422

 
135,628

Diluted
148,088

 
136,328

Amounts attributable to common shareholders
 
 
 
Income from continuing operations
$
34,290

 
$
22,316

Discontinued operations
133

 
6,383

Net income available to common shareholders
$
34,423

 
$
28,699

See accompanying notes.

6

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 
Nine Months Ended
 
September 30, 2014
 
September 30, 2013
OPERATING REVENUE
 
 
 
Rental
$
421,620

 
$
321,932

Operating expense reimbursement
167,326

 
131,566

Total operating revenue
588,946

 
453,498

OPERATING EXPENSE
 
 
 
Rental property
103,728

 
79,547

Real estate taxes
75,812

 
55,788

General and administrative
48,077

 
53,466

Depreciation and amortization
173,184

 
113,906

Total operating expenses
400,801

 
302,707

Operating income
188,145

 
150,791

OTHER INCOME (EXPENSE)
 
 
 
Other income
11,785

 
14,269

Interest expense
(115,635
)
 
(89,414
)
Total other income (expense)
(103,850
)
 
(75,145
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
84,295

 
75,646

Gain on property dispositions
1,879

 
—

Income taxes
(2,083
)
 
(1,780
)
Equity in earnings of unconsolidated joint ventures
7,297

 
3,973

Income from continuing operations
91,388

 
77,839

Discontinued operations (including net gain on property dispositions of $46,291 and $49,367 for the nine months ended September 30, 2014 and 2013, respectively)
48,276

 
70,008

Net income
139,664

 
147,847

Noncontrolling interest – operating partnership
(3,618
)
 
(7,394
)
Noncontrolling interest – consolidated joint ventures
(474
)
 
(406
)
Net income available to common shareholders
$
135,572

 
$
140,047

 
 
 
 
Net income
$
139,664

 
$
147,847

Other comprehensive (loss) income - foreign currency translation
(5,189
)
 
115

Other comprehensive loss - change in net unrealized gain on derivative instruments
(990
)
 
—

Other comprehensive (loss) income
(6,179
)
 
115

Total comprehensive income
133,485

 
147,962

Less: comprehensive income attributable to noncontrolling interest
(3,948
)
 
(7,777
)
Comprehensive income attributable to common shareholders
$
129,537

 
$
140,185

Earnings per common share
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.60

 
$
0.58

Income from discontinued operations
0.32

 
0.54

Income per common share – basic
$
0.92

 
$
1.12

Diluted:
 
 
 
Income from continuing operations
$
0.60

 
$
0.57

Income from discontinued operations
0.32

 
0.54

Income per common share – diluted
$
0.92

 
$
1.11

Distributions per common share
$
1.425

 
$
1.425

Weighted average number of common shares outstanding
 
 
 
Basic
146,987

 
124,889

Diluted
147,661

 
125,655

Amounts attributable to common shareholders
 
 
 
Income from continuing operations
$
88,430

 
$
72,048

Discontinued operations
47,142

 
67,999

Net income available to common shareholders
$
135,572

 
$
140,047

See accompanying notes.


7

CONSOLIDATED STATEMENT OF EQUITY OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
 
 
COMMON
SHARES OF
BENEFICIAL
INTEREST
 
ADDITIONAL
PAID-IN
CAPITAL
 
ACCUMULATED
OTHER
COMPREHENSIVE INCOME
 
DISTRIBUTIONS
IN EXCESS OF
NET INCOME
 
COMMON
SHARES
HELD
IN
TREASURY
 
TOTAL
LIBERTY
PROPERTY
TRUST
SHAREHOLDERS’
EQUITY
 
NONCONTROLL-
ING INTEREST -
OPERATING
PARTNERSHIP-
COMMON
 
NONCONTROLL-
ING INTEREST -
OPERATING
PARTNERSHIP –
PREFERRED
 
NONCONTROLL-
ING INTEREST -
CONSOLIDATED
JOINT
VENTURES
 
TOTAL
EQUITY
Balance at January 1, 2014
 
$
148

 
$
3,669,618

 
$
9,742

 
$
(591,713
)
 
$
(51,951
)
 
$
3,035,844

 
$
56,713

 
$
—

 
$
3,622

 
$
3,096,179

Net proceeds from the issuance of common shares
 
1

 
44,096

 
—

 
—

 
—

 
44,097

 
—

 
—

 
—

 
44,097

Net income
 
—

 
—

 
—

 
135,572

 
—

 
135,572

 
3,264

 
354

 
474

 
139,664

Distributions
 
—

 
—

 
—

 
(210,505
)
 
—

 
(210,505
)
 
(5,159
)
 
(354
)
 
(177
)
 
(216,195
)
Share-based compensation
 
—

 
10,422

 
—

 
—

 
—

 
10,422

 
—

 
—

 
—

 
10,422

Other comprehensive loss - foreign currency translation
 
—

 
—

 
(5,068
)
 
—

 
—

 
(5,068
)
 
(121
)
 
—

 
—

 
(5,189
)
Other comprehensive loss - change in net unrealized gain on derivative instruments
 
—

 
—

 
(967
)
 
—

 
—

 
(967
)
 
(23
)
 
—

 
—

 
(990
)
Redemption of noncontrolling interests – common units
 
—

 
48

 
—

 
—

 
—

 
48

 
(48
)
 
—

 
—

 
—

Balance at September 30, 2014
 
$
149

 
$
3,724,184

 
$
3,707

 
$
(666,646
)
 
$
(51,951
)
 
$
3,009,443

 
$
54,626

 
$
—

 
$
3,919

 
$
3,067,988


See accompanying notes.

8

CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
 
Nine Months Ended
 
September 30, 2014
 
September 30, 2013
OPERATING ACTIVITIES
 
 
 
Net income
$
139,664

 
$
147,847

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
176,207

 
137,302

Amortization of deferred financing costs
3,727

 
2,952

Equity in earnings of unconsolidated joint ventures
(7,297
)
 
(3,973
)
Distributions from unconsolidated joint ventures
—

 
613

Gain on property dispositions
(48,170
)
 
(49,367
)
Share-based compensation
10,422

 
8,174

Other
(5,202
)
 
(6,248
)
  Changes in operating assets and liabilities:
 
 
 
Restricted cash
28,469

 
(2,703
)
Accounts receivable
(4,771
)
 
231

Deferred rent receivable
(11,928
)
 
(6,171
)
Prepaid expenses and other assets
(38,882
)
 
(50,389
)
Accounts payable
18,824

 
15,494

Accrued interest
15,500

 
18,922

Other liabilities
(26,232
)
 
2,352

Net cash provided by operating activities
250,331

 
215,036

INVESTING ACTIVITIES
 
 
 
Investment in operating properties - acquisitions
(97,677
)
 
(161,404
)
Investment in operating properties - other
(61,480
)
 
(40,433
)
Investments in and advances to unconsolidated joint ventures
(13,894
)
 
(11,736
)
Distributions from unconsolidated joint ventures
10,213

 
6,825

Net proceeds from disposition of properties/land
351,301

 
134,024

Net proceeds from public reimbursement receivable/escrow
5,501

 
12,943

Investment in development in progress
(222,484
)
 
(81,736
)
Investment in land held for development
(73,547
)
 
(34,642
)
Investment in deferred leasing costs
(28,409
)
 
(22,996
)
Net cash used in investing activities
(130,476
)
 
(199,155
)
FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares
44,097

 
954,481

Redemption of preferred units
—

 
(64,500
)
Proceeds from unsecured notes
—

 
448,646

Redemption of unsecured notes
(200,000
)
 
—

Proceeds from mortgage loans
—

 
10,401

Repayments of mortgage loans
(9,329
)
 
(3,977
)
Proceeds from credit facility
179,750

 
344,050

Repayments on credit facility
(38,800
)
 
(436,050
)
Payment of deferred financing costs
(3,622
)
 
(3,883
)
Distribution paid on common shares
(209,779
)
 
(170,970
)
Distribution paid on units/to consolidated joint venture partners
(5,692
)
 
(7,619
)
Net cash (used in) provided by financing activities
(243,375
)
 
1,070,579

Net (decrease) increase in cash and cash equivalents
(123,520
)
 
1,086,460

Decrease in cash and cash equivalents related to foreign currency translation
(808
)
 
(246
)
Cash and cash equivalents at beginning of period
163,414

 
38,356

Cash and cash equivalents at end of period
$
39,086

 
$
1,124,570


See accompanying notes.

9

CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except unit amounts)
 
 
September 30, 2014
 
December 31, 2013
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,195,924

 
$
1,138,922

Building and improvements
5,413,512

 
5,142,480

Less accumulated depreciation
(1,177,726
)
 
(1,057,644
)
Operating real estate
5,431,710

 
5,223,758

Development in progress
250,506

 
209,187

Land held for development
265,864

 
233,055

Net real estate
5,948,080

 
5,666,000

Cash and cash equivalents
39,086

 
163,414

Restricted cash
22,918

 
51,456

Accounts receivable
18,571

 
13,900

Deferred rent receivable
111,823

 
99,956

Deferred financing and leasing costs, net of accumulated amortization (2014, $167,045; 2013, $140,933)
217,261

 
226,377

Investments in and advances to unconsolidated joint ventures
202,570

 
179,655

Assets held for sale
2,895

 
278,962

Prepaid expenses and other assets
97,638

 
95,840

Total assets
$
6,660,842

 
$
6,775,560

LIABILITIES
 
 
 
Mortgage loans
$
534,547

 
$
545,306

Unsecured notes
2,508,886

 
2,708,213

Credit facility
140,950

 
—

Accounts payable
65,668

 
70,406

Accrued interest
41,277

 
25,777

Distributions payable
72,046

 
71,323

Other liabilities
221,943

 
250,819

Total liabilities
3,585,317

 
3,671,844

Limited partners' equity - 301,483 preferred units outstanding as of September 30, 2014 and December 31, 2013
7,537

 
7,537

OWNERS’ EQUITY
 
 
 
General partner’s equity - 148,104,385 (net of 1,249,909 treasury units) and 146,596,892 (net of 1,249,909 treasury units) common units outstanding as of September 30, 2014 and December 31, 2013, respectively
3,009,443

 
3,035,844

Limited partners’ equity – 3,553,566 and 3,556,556 common units outstanding as of September 30, 2014 and December 31, 2013, respectively
54,626

 
56,713

Noncontrolling interest – consolidated joint ventures
3,919

 
3,622

Total owners’ equity
3,067,988

 
3,096,179

Total liabilities, limited partners' equity and owners’ equity
$
6,660,842

 
$
6,775,560


See accompanying notes.

10

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
 
Three Months Ended
 
September 30, 2014
 
September 30, 2013
OPERATING REVENUE
 
 
 
Rental
$
143,294

 
$
110,260

Operating expense reimbursement
55,062

 
45,088

Total operating revenue
198,356

 
155,348

OPERATING EXPENSE
 
 
 
Rental property
33,105

 
27,634

Real estate taxes
25,595

 
18,925

General and administrative
14,748

 
17,217

Depreciation and amortization
58,578

 
39,159

Total operating expenses
132,026

 
102,935

Operating income
66,330

 
52,413

OTHER INCOME (EXPENSE)
 
 
 
Other income
6,230

 
4,512

Interest expense
(37,958
)
 
(33,542
)
Total other income (expense)
(31,728
)
 
(29,030
)
Income before loss on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
34,602

 
23,383

Loss on property dispositions
(20
)
 
—

Income taxes
(859
)
 
(629
)
Equity in earnings of unconsolidated joint ventures
1,592

 
650

Income from continuing operations
35,315

 
23,404

Discontinued operations (including net gain on property dispositions of $38 and $29 for the three months ended September 30, 2014 and 2013, respectively)
136

 
6,544

Net income
35,451

 
29,948

Noncontrolling interest – consolidated joint ventures
(84
)
 
(406
)
Preferred unit distributions
(118
)
 
(118
)
Income available to common unitholders
$
35,249

 
$
29,424

Net income
$
35,451

 
$
29,948

Other comprehensive (loss) income - foreign currency translation
(13,000
)
 
4,927

Other comprehensive income - change in net unrealized gain on derivative instruments
666

 
—

Other comprehensive (loss) income
(12,334
)
 
4,927

Total comprehensive income
$
23,117

 
$
34,875

Earnings per common unit
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.23

 
$
0.16

Income from discontinued operations
—

 
0.05

Income per common unit - basic
$
0.23

 
$
0.21

Diluted:
 
 
 
Income from continuing operations
$
0.23

 
$
0.16

Income from discontinued operations
—

 
0.05

Income per common unit - diluted
$
0.23

 
$
0.21

Distributions per common unit
$
0.475

 
$
0.475

Weighted average number of common units outstanding
 
 
 
        Basic
150,976

 
139,320

        Diluted
151,642

 
140,020

Net income allocated to general partners
$
34,423

 
$
28,699

Net income allocated to limited partners
$
944

 
$
843


See accompanying notes.

11

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
 
Nine Months Ended
 
September 30, 2014
 
September 30, 2013
OPERATING REVENUE
 
 
 
Rental
$
421,620

 
$
321,932

Operating expense reimbursement
167,326

 
131,566

Total operating revenue
588,946

 
453,498

OPERATING EXPENSE
 
 
 
Rental property
103,728

 
79,547

Real estate taxes
75,812

 
55,788

General and administrative
48,077

 
53,466

Depreciation and amortization
173,184

 
113,906

Total operating expenses
400,801

 
302,707

Operating income
188,145

 
150,791

OTHER INCOME (EXPENSE)
 
 
 
Other income
11,785

 
14,269

Interest expense
(115,635
)
 
(89,414
)
Total other income (expense)
(103,850
)
 
(75,145
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
84,295

 
75,646

Gain on property dispositions
1,879

 
—

Income taxes
(2,083
)
 
(1,780
)
Equity in earnings of unconsolidated joint ventures
7,297

 
3,973

Income from continuing operations
91,388

 
77,839

Discontinued operations (including net gain on property dispositions of $46,291 and $49,367 for the nine months ended September 30, 2014 and 2013, respectively)
48,276

 
70,008

Net income
139,664

 
147,847

Noncontrolling interest – consolidated joint ventures
(474
)
 
(406
)
Preferred unit distributions
(354
)
 
(2,001
)
Excess of preferred unit redemption over carrying amount
—

 
(1,236
)
Income available to common unitholders
$
138,836

 
$
144,204

Net income
$
139,664

 
$
147,847

Other comprehensive (loss) income - foreign currency translation
(5,189
)
 
115

Other comprehensive loss - change in net unrealized gain on derivative instruments
(990
)
 
—

Other comprehensive (loss) income
(6,179
)
 
115

Total comprehensive income
$
133,485

 
$
147,962

Earnings per common unit
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.60

 
$
0.58

Income from discontinued operations
0.32

 
0.54

Income per common unit - basic
$
0.92

 
$
1.12

Diluted:
 
 
 
Income from continuing operations
$
0.60

 
$
0.57

Income from discontinued operations
0.32

 
0.54

Income per common unit - diluted
$
0.92

 
$
1.11

Distributions per common unit
$
1.425

 
$
1.425

Weighted average number of common units outstanding
 
 
 
        Basic
150,541

 
128,595

        Diluted
151,215

 
129,361

Net income allocated to general partners
$
135,572

 
$
140,047

Net income allocated to limited partners
$
3,618

 
$
7,394


See accompanying notes.

12


CONSOLIDATED STATEMENT OF OWNERS’ EQUITY OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
GENERAL
PARTNER’S
EQUITY
 
LIMITED
PARTNERS’
EQUITY  –
COMMON
UNITS
 
LIMITED
PARTNERS’
EQUITY  –
PREFERRED
UNITS
 
NONCONTROLLING
INTEREST –
CONSOLIDATED
JOINT VENTURES
 
TOTAL
OWNERS’
EQUITY
Balance at January 1, 2014
$
3,035,844

 
$
56,713

 
$
—

 
$
3,622

 
$
3,096,179

Contributions from partners
54,519

 
—

 
—

 
—

 
54,519

Distributions to partners
(210,505
)
 
(5,159
)
 
(354
)
 
(177
)
 
(216,195
)
Foreign currency translation
(5,068
)
 
(121
)
 
—

 
—

 
(5,189
)
Change in net unrealized gain on derivative instruments
(967
)
 
(23
)
 
—

 
—

 
(990
)
Net income
135,572

 
3,264

 
354

 
474

 
139,664

Redemption of limited partners common units for common shares
48

 
(48
)
 
—

 
—

 
—

Balance at September 30, 2014
$
3,009,443

 
$
54,626

 
$
—

 
$
3,919

 
$
3,067,988


See accompanying notes.

13

CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
Nine Months Ended
 
September 30, 2014
 
September 30, 2013
OPERATING ACTIVITIES
 
 
 
Net income
$
139,664

 
$
147,847

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
176,207

 
137,302

Amortization of deferred financing costs
3,727

 
2,952

Equity in earnings of unconsolidated joint ventures
(7,297
)
 
(3,973
)
Distributions from unconsolidated joint ventures
—

 
613

Gain on property dispositions
(48,170
)
 
(49,367
)
Share-based compensation
10,422

 
8,174

Other
(5,202
)
 
(6,248
)
  Changes in operating assets and liabilities:
 
 
 
Restricted cash
28,469

 
(2,703
)
Accounts receivable
(4,771
)
 
231

Deferred rent receivable
(11,928
)
 
(6,171
)
Prepaid expenses and other assets
(38,882
)
 
(50,389
)
Accounts payable
18,824

 
15,494

Accrued interest
15,500

 
18,922

Other liabilities
(26,232
)
 
2,352

Net cash provided by operating activities
250,331

 
215,036

INVESTING ACTIVITIES
 
 
 
Investment in operating properties - acquisitions
(97,677
)
 
(161,404
)
Investment in operating properties - other
(61,480
)
 
(40,433
)
Investments in and advances to unconsolidated joint ventures
(13,894
)
 
(11,736
)
Distributions from unconsolidated joint ventures
10,213

 
6,825

Net proceeds from disposition of properties/land
351,301

 
134,024

Net proceeds from public reimbursement receivable/escrow
5,501

 
12,943

Investment in development in progress
(222,484
)
 
(81,736
)
Investment in land held for development
(73,547
)
 
(34,642
)
Investment in deferred leasing costs
(28,409
)
 
(22,996
)
Net cash used in investing activities
(130,476
)
 
(199,155
)
FINANCING ACTIVITIES
 
 
 
Redemption of preferred units
—

 
(64,500
)
Proceeds from unsecured notes
—

 
448,646

Redemption of unsecured notes
(200,000
)
 
—

Proceeds from mortgage loans
—

 
10,401

Repayments of mortgage loans
(9,329
)
 
(3,977
)
Proceeds from credit facility
179,750

 
344,050

Repayments on credit facility
(38,800
)
 
(436,050
)
Payment of deferred financing costs
(3,622
)
 
(3,883
)
Capital contributions
44,097

 
954,481

Distributions to partners
(215,471
)
 
(178,589
)
Net cash (used in) provided by financing activities
(243,375
)
 
1,070,579

Net (decrease) increase in cash and cash equivalents
(123,520
)
 
1,086,460

Decrease in cash and cash equivalents related to foreign currency translation
(808
)
 
(246
)
Cash and cash equivalents at beginning of period
163,414

 
38,356

Cash and cash equivalents at end of period
$
39,086

 
$
1,124,570


See accompanying notes.

14

Liberty Property Trust and Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2014
Note 1: Organization and Basis of Presentation
Organization
Liberty Property Trust (the “Trust”) is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership (the “Operating Partnership” and, together with the Trust and their consolidated subsidiaries, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 97.7% of the common equity of the Operating Partnership at September 30, 2014. The Company provides leasing, property management, development, acquisition, and other tenant-related services. The Company owns and operates industrial properties nationally and owns and operates office properties primarily in Metro Philadelphia, Washington D.C. and certain sunbelt cities. Additionally, the Company owns certain assets in the United Kingdom. Unless otherwise indicated, the notes to the Consolidated Financial Statements apply to both the Trust and the Operating Partnership. The terms the “Company,” “we,” “our” and “us” mean the Trust and Operating Partnership collectively.
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2013. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. Certain amounts from prior periods have been reclassified to conform to the current period presentation including reclassifying the accompanying statements of comprehensive income for discontinued operations.
Recently Issued Accounting Standards
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08"), which changes the requirements for reporting discontinued operations. Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group of components meets the criteria to be classified as held for sale or when the component or group of components is disposed of by sale or other than by sale. Generally, the sale of a real estate asset would not meet the discontinued operations criteria and would not be presented as such under ASU 2014-08. ASU 2014-08 also requires additional disclosures about both discontinued operations and the disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. The Company has adopted the provisions of ASU 2014-08 effective January 1, 2014, and has applied the provisions prospectively.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance. The standard clarifies the required factors that an entity must consider when recognizing revenue. The standard also requires additional disclosures concerning contracts with customers, judgments concerning revenue recognition, and assets recognized for the costs to obtain or fulfill a contract. ASU 2014-09 is effective for the Company beginning January 1, 2017. The Company is evaluating the impact ASU 2014-09 will have on its financial position and results of operations.

15

Note 2: Income per Common Share of the Trust

The following table sets forth the computation of basic and diluted income per common share of the Trust (in thousands except per share amounts):
 
 
For the Three Months Ended
 
For the Three Months Ended
 
September 30, 2014
 
September 30, 2013
 
Income
(Loss) (Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Basic income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
$
34,290

 
147,422

 
$
0.23

 
$
22,316

 
135,628

 
$
0.16

Dilutive shares for long-term compensation plans
—

 
666

 
 
 
—

 
700

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
$
34,290

 
148,088

 
$
0.23

 
$
22,316

 
136,328

 
$
0.16

Basic income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
$
133

 
147,422

 
$
—

 
$
6,383

 
135,628

 
$
0.05

Dilutive shares for long-term compensation plans
—

 
666

 
 
 
—

 
700

 
 
Diluted income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
$
133

 
148,088

 
$
—

 
$
6,383

 
136,328

 
$
0.05

Basic income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
34,423

 
147,422

 
$
0.23

 
$
28,699

 
135,628

 
$
0.21

Dilutive shares for long-term compensation plans
—

 
666

 
 
 
—

 
700

 
 
Diluted income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
34,423

 
148,088

 
$
0.23

 
$
28,699

 
136,328

 
$
0.21

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

16

 
For the Nine Months Ended
 
For the Nine Months Ended
 
September 30, 2014
 
September 30, 2013
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Basic income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
$
88,430

 
146,987

 
$
0.60

 
$
72,048

 
124,889

 
$
0.58

Dilutive shares for long-term compensation plans
—

 
674

 
 
 
—

 
766

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations net of noncontrolling interest
88,430

 
147,661

 
$
0.60

 
72,048

 
125,655

 
$
0.57

Basic income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
47,142

 
146,987

 
$
0.32

 
67,999

 
124,889

 
$
0.54

Dilutive shares for long-term compensation plans
—

 
674

 
 
 
—

 
766

 
 
Diluted income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations net of noncontrolling interest
47,142

 
147,661

 
$
0.32

 
67,999

 
125,655

 
$
0.54

Basic income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
135,572

 
146,987

 
$
0.92

 
140,047

 
124,889

 
$
1.12

Dilutive shares for long-term compensation plans
—

 
674

 
 
 
—

 
766

 
 
Diluted income per common share
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
135,572

 
147,661

 
$
0.92

 
$
140,047

 
125,655

 
$
1.11


Dilutive shares for long-term compensation plans represent the unvested common shares outstanding during the periods as well as the dilutive effect of outstanding options. The amount of anti-dilutive options excluded from the computation of diluted income per common share for the three and nine months ended September 30, 2014 were 1,183,000 and 850,000, respectively, as compared to 994,000 and 959,000, respectively, for the same periods in 2013.
During the three months ended September 30, 2014, no common shares were issued upon the exercise of options. During the nine months ended September 30, 2014, 43,000 common shares were issued upon the exercise of options. During the year ended December 31, 2013, 504,000 common shares were issued upon the exercise of options.



17

Note 3: Income per Common Unit of the Operating Partnership

The following table sets forth the computation of basic and diluted income per common unit of the Operating Partnership (in thousands, except per unit amounts):
 
 
For the Three Months Ended
 
For the Three Months Ended
 
September 30, 2014
 
September 30, 2013
 
Income
(Loss) (Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
Income from continuing operations - net of noncontrolling interest - consolidated joint ventures
$
35,231

 
 
 
 
 
$
22,998

 
 
 
 
Less: Preferred unit distributions
(118
)
 
 
 
 
 
(118
)
 
 
 
 
Basic income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations available to common unitholders
$
35,113

 
150,976

 
$
0.23

 
$
22,880

 
139,320

 
$
0.16

Dilutive units for long-term compensation plans
—

 
666

 
 
 
—

 
700

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations available to common unitholders
$
35,113

 
151,642

 
$
0.23

 
$
22,880

 
140,020

 
$
0.16

Basic income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations
$
136

 
150,976

 
$
—

 
$
6,544

 
139,320

 
$
0.05

Dilutive units for long-term compensation plans
—

 
666

 
 
 
—

 
700

 
 
Diluted income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations
$
136

 
151,642

 
$
—

 
$
6,544

 
140,020

 
$
0.05

Basic income per common unit
 
 
 
 
 
 
 
 
 
 
 
Income available to common unitholders
$
35,249

 
150,976

 
$
0.23

 
$
29,424

 
139,320

 
$
0.21

Dilutive units for long-term compensation plans
—

 
666

 
 
 
—

 
700

 
 
Diluted income per common unit
 
 
 
 
 
 
 
 
 
 
 
Income available to common unitholders
$
35,249

 
151,642

 
$
0.23

 
$
29,424

 
140,020

 
$
0.21

 
 
 
 
 
 
 
 
 
 
 
 

18

 
For the Nine Months Ended
 
For the Nine Months Ended
 
September 30, 2014
 
September 30, 2013
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
Income from continuing operations net of noncontrolling interest - consolidated joint ventures
$
90,914

 
 
 
 
 
$
77,433

 
 
 
 
Less: Preferred unit distributions
(354
)
 
 
 
 
 
(2,001
)
 
 
 
 
Excess of preferred unit redemption over carrying amount
—

 
 
 
 
 
(1,236
)
 
 
 
 
Basic income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations available to common unitholders
90,560

 
150,541

 
$
0.60

 
74,196

 
128,595

 
$
0.58

Dilutive units for long-term compensation plans
—

 
674

 
 
 
—

 
766

 
 
Diluted income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations available to common unitholders
90,560

 
151,215

 
$
0.60

 
74,196

 
129,361

 
$
0.57

Basic income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations
48,276

 
150,541

 
$
0.32

 
70,008

 
128,595

 
$
0.54

Dilutive units for long-term compensation plans
—

 
674

 
 
 
—

 
766

 
 
Diluted income from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations
48,276

 
151,215

 
$
0.32

 
70,008

 
129,361

 
$
0.54

Basic income per common unit
 
 
 
 
 
 
 
 
 
 
 
Income available to common unitholders
138,836

 
150,541

 
$
0.92

 
144,204

 
128,595

 
$
1.12

Dilutive units for long-term compensation plans
—

 
674

 
 
 
—

 
766

 
 
Diluted income per common unit
 
 
 
 
 
 
 
 
 
 
 
Income available to common unitholders
$
138,836

 
151,215

 
$
0.92

 
$
144,204

 
129,361

 
$
1.11


Dilutive units for long-term compensation plans represent the unvested common units outstanding during the periods as well as the dilutive effect of outstanding options. The amount of anti-dilutive options excluded from the computation of diluted income per common unit for the three and nine months ended September 30, 2014 were 1,183,000 and 850,000, respectively, as compared to 994,000 and 959,000, respectively, for the same periods in 2013.
During the three months ended September 30, 2014, no common units were issued upon exercise of options. During the nine months ended September 30, 2014, 43,000 common units were issued upon the exercise of options. During the year ended December 31, 2013, 504,000 common units were issued upon the exercise of options.

19

Note 4: Accumulated Other Comprehensive Income

The following table sets forth the components of Accumulated Other Comprehensive Income (in thousands):

 
 
Nine Months Ended September 30,
 
 
2014
 
2013
Foreign Currency Translation:
 
 
 
 
     Beginning balance
 
$
8,592

 
$
3,195

     Translation adjustment
 
(5,189
)
 
115

     Ending balance
 
3,403

 
3,310

 
 
 
 
 
Net unrealized gain on derivative instruments:
 
 
 
 
     Beginning balance
 
1,584

 
—

     Unrealized losses
 
(990
)
 
—

     Ending balance
 
594

 
—

Total accumulated other comprehensive income
 
3,997

 
3,310

Less: portion included in noncontrolling interest – operating partnership
 
(290
)
 
(272
)
Total accumulated other comprehensive income included in shareholders' equity
 
$
3,707

 
$
3,038

Note 5: Segment Information
The Company owns and operates industrial properties nationally and owns and operates office properties primarily in Metro Philadelphia, Washington D.C. and certain sunbelt cities. Additionally, the Company owns certain assets in the United Kingdom. The Company's reportable segments are as follows.

•
Carolinas;
•
Chicago/Milwaukee;
•
Houston;
•
Lehigh/Central PA;
•
Minnesota;
•
Orlando;
•
Philadelphia;
•
Richmond/Hampton Roads;
•
Southeastern PA;
•
South Florida;
•
Tampa;
•
United Kingdom.

Certain other segments are aggregated into an "Other" category which includes the reportable segments: Arizona; Atlanta; Cincinnati/Columbus/Indianapolis; Dallas; Jacksonville; Maryland; New Jersey; Northern Virginia; Southern California; Washington D.C. and other.
The Company evaluates the performance of its reportable segments based on net operating income. Net operating income includes operating revenue from external customers, real estate taxes, amortization of lease transaction costs and other operating expenses which relate directly to the management and operation of the assets within each reportable segment.
The Company's accounting policies for the segments are the same as those used in the Company's consolidated financial statements. There are no material inter-segment transactions.

20

The operating information by reportable segment is as follows (in thousands):
 
 
 
For the Three Months
 
For the Nine Months
 
 
 
Ended September 30
 
Ended September 30
 
 
 
2014
 
2013
 
2014
 
2013
Operating revenue
 
 
 
 
 
 
 
 
 
Carolinas
 
$
9,479

 
$
7,626

 
$
26,282

 
$
22,213

 
Chicago/Milwaukee
 
8,004

 
3,067

 
24,727

 
9,230

 
Houston
 
12,833

 
9,481

 
36,828

 
26,833

 
Lehigh/Central PA
 
30,034

 
24,981

 
87,853

 
74,339

 
Minnesota
 
13,925

 
15,591

 
41,217

 
46,319

 
Orlando
 
8,463

 
7,583

 
24,519

 
23,156

 
Philadelphia
 
8,303

 
7,633

 
26,402

 
23,027

 
Richmond/Hampton Roads
 
10,358

 
9,959

 
30,542

 
29,899

 
South Florida
 
12,012

 
8,798

 
36,028

 
26,032

 
Southeastern PA
 
36,087

 
41,251

 
110,833

 
122,694

 
Tampa
 
13,597

 
12,767

 
40,001

 
38,849

 
United Kingdom
 
4,111

 
1,400

 
12,430

 
3,620

 
Other
 
31,144

 
33,100

 
96,300

 
93,546

Segment-level operating revenue
 
198,350

 
183,237

 
593,962

 
539,757

 
 
 
 
 
 
 
 
 
 
 Reconciliation to total operating revenues
 
 
 
 
 
 
 
 
 
 Discontinued operations
 
(9
)
 
(28,007
)
 
(4,728
)
 
(86,604
)
 
 Other
 
15

 
118

 
(288
)
 
345

 Total operating revenue
 
$
198,356

 
$
155,348

 
$
588,946

 
$
453,498

 
 
 
 
 
 
 
 
 
 
 Net operating income
 
 
 
 
 
 
 
 
 
 
Carolinas
 
$
6,570

 
$
5,182

 
$
18,006

 
$
15,035

 
Chicago/Milwaukee
 
5,382

 
2,163

 
15,518

 
6,149

 
Houston
 
7,510

 
5,426

 
21,794

 
15,735

 
Lehigh/Central PA
 
21,634

 
17,204

 
60,647

 
50,422

 
Minnesota
 
6,575

 
7,289

 
19,964

 
22,563

 
Orlando
 
5,411

 
5,128

 
16,257

 
15,504

 
Philadelphia
 
6,736

 
5,919

 
20,247

 
16,869

 
Richmond/Hampton Roads
 
6,144

 
5,899

 
18,118

 
17,978

 
South Florida
 
6,647

 
4,735

 
21,066

 
14,168

 
Southeastern PA
 
20,516

 
23,754

 
60,175

 
68,622

 
Tampa
 
8,213

 
7,916

 
25,142

 
24,522

 
United Kingdom
 
2,468

 
123

 
8,716

 
(331
)
 
Other
 
20,715

 
18,555

 
61,614

 
51,346

Segment-level net operating income
 
124,521

 
109,293

 
367,264

 
318,582

 
 
 
 
 
 
 
 
 
 
 Reconciliation to income from continuing operations
 
 
 
 
 
 
 
 
 
 Interest expense (1)
 
(37,958
)
 
(37,412
)
 
(116,192
)
 
(101,632
)
 
 Depreciation/amortization expense (1) (2)
 
(44,538
)
 
(29,963
)
 
(133,636
)
 
(88,330
)
 
 (Loss) gain on property dispositions
 
(20
)
 
—

 
1,879

 
—

 
 Equity in earnings of unconsolidated joint ventures
 
1,592

 
650

 
7,297

 
3,973

 
 General and administrative expense (1) (2)
 
(8,556
)
 
(12,394
)
 
(29,189
)
 
(35,215
)
 
 Discontinued operations excluding gain on property dispositions
 
(98
)
 
(6,515
)
 
(1,985
)
 
(20,641
)
 
 Income taxes (2)
 
(821
)
 
(636
)
 
(1,966
)
 
(1,772
)
 
 Other
 
1,193

 
381

 
(2,084
)
 
2,874

 Income from continuing operations
 
$
35,315

 
$
23,404

 
$
91,388

 
$
77,839

(1)
Includes activity on discontinued operations.
(2)
Excludes costs which are included in determining segment-level net operating income.


21


The Company's total assets by reportable segment as of September 30, 2014 and December 31, 2013 are as follows (in thousands):

 
 
September 30,
2014
 
December 31,
2013
Total assets
 
 
 
 
 
Carolinas
$
319,083

 
$
257,230

 
Chicago/Milwaukee
417,134

 
413,585

 
Houston
434,835

 
380,248

 
Lehigh/Central PA
993,699

 
938,824

 
Minnesota
352,447

 
335,613

 
Orlando
255,961

 
253,888

 
Philadelphia
350,342

 
316,810

 
Richmond/Hampton Roads
248,186

 
250,008

 
South Florida
393,910

 
380,138

 
Southeastern PA
711,190

 
695,966

 
Tampa
335,229

 
337,300

 
United Kingdom
241,362

 
247,537

 
Other
1,528,019

 
1,735,393

Segment-level total assets
6,581,397

 
6,542,540

 
Corporate Other
79,445

 
233,020

Total assets
$
6,660,842

 
$
6,775,560


During the three months ended September 30, 2014, the Company acquired one property for a purchase price of $6.8 million. During the nine months ended September 30, 2014, the Company acquired nine properties for a total purchase price of $97.7 million.
The Company did not sell any operating properties during the three months ended September 30, 2014. During the nine months ended September 30, 2014, the Company realized proceeds of $366.9 million from the sale of 52 properties and 19 acres of land. Included in these properties were three operating properties sold for $32.2 million to a joint venture in which the Company retains a 25% interest.
Note 6: Accounting for the Disposal of Long-Lived Assets
Under ASU 2014-08, a disposal of a component of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results.
In November 2013, the Company entered into an Agreement of Sale and Purchase pursuant to which the Company agreed to sell 97 operating properties containing an aggregate of 6.6 million square feet for $697.3 million (the "Portfolio Sale"). In December 2013, the Company closed on the first of two planned settlements under this agreement. The proceeds from the first settlement were $367.7 million and included 49 properties totaling approximately 4.0 million square feet of space and 140 acres of land. In January 2014, the Company closed on the remaining settlement for proceeds of $329.6 million which consisted of 23 properties totaling 1.4 million square feet and 19 acres of land in the Maryland reportable segment, 24 properties and 1.2 million square feet in the New Jersey reportable segment and one property totaling 37,000 square feet in the Company's Southeastern PA reportable segment.
The Portfolio Sale is considered a discontinued operation under the provisions of ASU 2014-08 as it represents a strategic shift that will have a major effect on the Company's operations and financial results.
Prior to the adoption of ASU 2014-08, the results of operations for all operating properties sold or held for sale during the reported periods were shown under discontinued operations on the consolidated statements of comprehensive income. Under ASU 2014-08, operating properties that were sold or classified as held for sale before the adoption of ASU 2014-08 continue to be classified as discontinued operations. Accordingly, operating properties previously reported as discontinued operations will continue to be presented as discontinued operations on the consolidated statements of comprehensive income for all periods presented. The proceeds from the disposition of properties excluding the Portfolio Sale that were included in discontinued operations were $126.0 million for the nine months ended September 30, 2013.

22

A summary of the results of operations for the Portfolio Sale and other properties classified as discontinued operations through the respective disposition dates is as follows (in thousands):
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
September 30, 2013
Portfolio Sale
 
 
 
 
 
 
 
 
Revenues
$
9

 
$
27,585

 
$
4,728

 
$
81,385

 
Operating expenses
86

 
(10,606
)
 
(2,233
)
 
(29,155
)
 
Interest and other income
3

 
66

 
40

 
172

 
Interest expense
—

 
(3,830
)
 
(557
)
 
(11,550
)
 
Depreciation and amortization
—

 
(6,798
)
 
—

 
(21,403
)
 
Income before (loss) gain on property dispositions
98

 
6,417

 
1,978

 
19,449

 
(Loss) gain on property dispositions
(35
)
 
—

 
46,086

 
—

 
Income from discontinued operations - Portfolio Sale
63

 
6,417

 
48,064

 
19,449

 
Noncontrolling interest
(1
)
 
(158
)
 
(1,130
)
 
(558
)
 
Income from discontinued operations available to common shareholders - Portfolio Sale
62

 
6,259

 
46,934

 
18,891

 
Add back noncontrolling interest
1

 
158

 
1,130

 
558

 
Income from discontinued operations - Portfolio Sale
63

 
6,417

 
48,064

 
19,449

 
Income from discontinued operations - other properties
73

 
127

 
212

 
50,559

 
Income from discontinued operations
$
136

 
$
6,544

 
$
48,276

 
$
70,008

Net cash used in operating activities from the properties included in the Portfolio Sale for the three and nine months ended September 30, 2014 was $1.5 million and $4.3 million, respectively, compared to net cash provided by operating activities from such properties of $11.5 million and $39.5 million, respectively, for the three and nine months ended September 30, 2013. Net cash used in investing activities from the properties included in the Portfolio Sale for the three months ended September 30, 2014 was $42,000 and net cash provided by investing activities was $313.1 million for the nine months ended September 30, 2014. Net cash used by investing activities from such properties was $3.4 million and $11.1 million, respectively, for the three and nine months ended September 30, 2013.
Interest expense has been allocated to discontinued operations. The allocation of interest expense to discontinued operations was based on the ratio of net assets sold and held for sale (without continuing involvement) to the sum of total net assets plus consolidated debt.
During the three months ended September 30, 2014, the Company did not sell any operating properties. During the nine months ended September 30, 2014, the Company sold four operating properties in segments grouped into the Company's "Other" category for aggregate proceeds of $37.3 million. One property totaling 75,000 square feet in the Company’s "Other" category was considered held for sale as of September 30, 2014. Under ASU 2014-08, these sold and held for sale properties have not been classified as discontinued operations.
Note 7: Noncontrolling Interests of the Trust
Noncontrolling interests in the accompanying financial statements represent the interests of the common and preferred units in the Operating Partnership not held by the Trust. In addition, noncontrolling interests include third-party ownership interests in consolidated joint venture investments.

23

Common units
The common units outstanding of the Operating Partnership not held by the Trust as of September 30, 2014 have the same economic characteristics as common shares of the Trust. The 3,553,566 outstanding common units of the Operating Partnership at such date not held by the Trust share proportionately in the net income or loss and in any distributions of the Operating Partnership. The common units of the Operating Partnership not held by the Trust are redeemable at any time at the option of the holder. The Trust, as the sole general partner of the Operating Partnership, may at its option elect to settle the redemption in cash or through the exchange on a one-for-one basis with unregistered common shares of the Trust. The market value of the 3,553,566 outstanding common units based on the closing price of the common shares of the Trust at September 30, 2014 was $118.2 million.
Note 8: Limited Partners' Equity and Noncontrolling Interest of the Operating Partnership
Limited partners' equity in the accompanying financial statements represents the interests of the common and preferred units in the Operating Partnership not held by the Trust. The Operating Partnership's noncontrolling interest includes third-party ownership interests in consolidated joint venture investments.
Common units
The common units outstanding as of September 30, 2014 have the same economic characteristics as common shares of the Trust. The 3,553,566 outstanding common units at such date are the limited partners' equity - common units held by persons and entities other than the Trust, the general partner of the Operating Partnership, which holds a number of common units equal to the number of outstanding common shares of beneficial interest. The common units share proportionately in the net income or loss and in any distributions of the Operating Partnership and are exchangeable into the same number of common shares of the Trust. The market value of the 3,553,566 outstanding common units at September 30, 2014 based on the closing price of the common shares of the Trust at September 30, 2014 was $118.2 million.
Note 9: Noncontrolling Interest - Operating Partnership/Limited Partners' Equity - Preferred Units
As of September 30, 2014, the following cumulative preferred units of the Operating Partnership were outstanding:

ISSUE
 
AMOUNT
 
UNITS
 
LIQUIDATION
PREFERENCE
 
DIVIDEND
RATE
 
 
(in 000’s)
 
 
 
 
Series I-2
 
$
7,537

 
301

 
$25
 
6.25
%
The preferred units are putable at the holder's option at any time and are callable at the Operating Partnership's option after a stated period of time for cash.
Note 10: Indebtedness
Credit Facility
In March 2014, the Company replaced its existing $500 million credit facility which was due in November 2015 with a new credit facility. The new facility (the "Credit Facility") is for $800 million. It matures in March 2018 and the Company has options to extend the maturity date for up to one additional year. Based upon the Company’s current credit ratings, borrowings under the new facility bear interest at LIBOR plus 105 basis points. There is also a 20 basis point annual facility fee on the current borrowing capacity. The credit facility contains a competitive bid option, whereby participating lenders bid on the interest rate to be charged. This feature is available for up to 50% of the amount of the facility.
The Credit Facility contains financial covenants, certain of which are set forth below:
•
total debt to total assets may not exceed 0.60:1;
•
earnings before interest, taxes, depreciation and amortization to fixed charges may not be less than 1.50:1;
•
unsecured debt to unencumbered asset value must equal or be less than 60%; and
•
unencumbered net operating income to unsecured interest expense must equal or exceed 175%.
As of September 30, 2014, the Company was in compliance with the Credit Facility financial covenants.
Unsecured Notes
In August 2014, the Company repaid its 5.65% Senior Notes which were due in August 2014 in the amount of $200 million.

24

Note 11: Disclosure of Fair Value of Financial Instruments
The following disclosure of estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the following estimates are not necessarily indicative of the amounts the Company could have realized on disposition of the financial instruments at September 30, 2014 and December 31, 2013. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued interest, dividend and distributions payable and other liabilities are reasonable estimates of fair value because of the short-term nature of these instruments. The carrying value of the outstanding amounts under the Company's Credit Facility is a reasonable estimate of fair value because interest rates float at a rate based on LIBOR.
The Company used a discounted cash flow model to determine the estimated fair value of its debt as of September 30, 2014.  This is a Level 3 fair value calculation. The inputs used in preparing the discounted cash flow model include actual maturity dates and scheduled cash flows as well as estimates for market value discount rates.  The Company updates the discounted cash flow model on a quarterly basis to reflect any changes in the Company's debt holdings and changes to discount rate assumptions.  
The following summarizes the fair value of the Company's mortgage loans and unsecured notes as of December 31, 2013 and September 30, 2014 (in thousands):
 
 
Mortgage Loans
 
Unsecured Notes
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
As of December 31, 2013
 
$
545,306

 
$
573,944

 
$
2,708,213

 
$
2,764,831

As of September 30, 2014
 
$
534,547

 
$
550,722

 
$
2,508,886


$
2,634,931

Note 12: Investment in Unconsolidated Joint Ventures
Comcast Innovation & Technology Center
On June 30, 2014, the Company entered into two joint ventures for the purpose of developing and owning the Comcast Innovation & Technology Center (the "Project") located on the 1800 block of Arch Street in Philadelphia, Pennsylvania as part of a trophy-class mixed-use development. The 59-story building will include 1.3 million square feet of rentable office space (the "Office") and a 220-room Four Seasons Hotel (the "Hotel").  Completion of the first phase of the Project is anticipated to be in the third quarter of 2017. Project costs for the development of the Project, exclusive of tenant-funded interior improvements, are anticipated to be approximately $921 million.  The Company's investment in the project is expected to be approximately $184 million with 20% ownership interests in both joint ventures. As of September 30, 2014, the Company's investment in these joint ventures was $17.4 million and is reflected in investments in and advances to unconsolidated joint ventures in the Company's consolidated balance sheet. During the three months ended September 30, 2014, the Company began development on the building and as of September 30, 2014, the total development in progress for the Project was $85.5 million.
The two joint ventures have engaged the Company as the developer of the Project pursuant to a Development Agreement by which the Company agrees, in consideration for a development fee, to be responsible for all aspects of the development of the Project and to guarantee the timely lien-free completion of construction of the Project and the payment, subject to certain exceptions, of any cost overruns incurred in the development of the Project. During the three and nine months ended September 30, 2014, the Company recognized $0.7 million in developer fees related to the project. These fees are included in other income in the Company's consolidated statement of comprehensive income.
Comcast Corporation has signed a 20-year lease for 982,275 square feet, or approximately 73.4% of the office space in the Office.  The Company will manage and lease the Office and Four Seasons Hotels Limited will manage the Hotel.
Liberty Venture I, LP
During the nine months ended September 30, 2014, Liberty Venture I, LP, an unconsolidated joint venture in which the Company holds a 25% interest, acquired three properties comprising 603,000 square feet from the Company for $32.2 million.

25

Note 13: Business Combination
On October 8, 2013, the Company acquired all of the outstanding general and limited partnership interests of Cabot Industrial Fund III Operating Partnership, L.P., a Delaware limited partnership (the "Cabot Acquisition"). The acquisition resulted in the purchase of a 100% ownership interest in 177 industrial assets totaling approximately 23.0 million square feet. The purchase price for the Cabot Acquisition was $1.469 billion, which was paid through the assumption of approximately $229.8 million of mortgage debt and the remainder in cash. The Company funded the cash portion of the acquisition consideration through a combination of proceeds from an August 2013 equity offering, proceeds from a September 2013 offering of senior notes and draws under its Credit Facility.
The allocation of purchase price of the Cabot Acquisition is preliminary pending the receipt of the information necessary to complete the resolution of certain tangible and intangible assets and liabilities including the reconciliation of working capital accounts and the completion of tenant operating expense reconciliations.
Note 14: Derivative Instruments
We borrow funds at a combination of fixed and variable rates. Borrowings under our revolving credit facility and certain bank mortgage loans bear interest at variable rates. Our long-term debt typically bears interest at fixed rates. Our interest rate risk management objectives are to limit generally the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We generally do not hold or issue these derivative contracts for trading or speculative purposes. The interest rate on all of our variable rate debt is generally adjusted at one or three month intervals, subject to settlements under interest rate hedge contracts.
Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (for the Trust) and general partner's equity and limited partners' equity - common units (for the Operating Partnership) and is subsequently reclassified into interest expense in the period that the hedged forecasted transaction affects earnings.
The Company determines the fair value of its interest rate swaps by using the standard methodology of netting discounted future fixed cash payments with the discounted expected variable cash receipts. These variable cash receipts of interest rate swaps are based on expectations of future LIBOR interest rates (forward curves) estimated by observing market LIBOR interest rate curves. This is a Level 2 fair value calculation. Also, credit valuation adjustments are factored into the fair value calculations to account for potential nonperformance risk. These credit valuation adjustments were concluded to be not significant inputs for the fair value calculations for the periods presented.
In connection with the Cabot Acquisition, the Company assumed the seller’s interest in three interest rate swap contracts (“Swaps”) that eliminate the impact of changes in interest rates on the payments required under variable rate mortgages that were also assumed. The Swaps had aggregate notional amounts of $104.1 million and $105.2 million at September 30, 2014 and December 31, 2013, respectively, and expire at various dates between 2018 and 2020.
For the three months ended September 30, 2014, the effective portion of the change in the fair value of the swaps was an increase in the amount of $666,000 which was recorded as an increase in other comprehensive income. For the nine months ended September 30, 2014, the effective portion of the change in the fair value of the swaps was a decrease in the amount of $990,000, which was recorded as a reduction of other comprehensive income. These amounts reported in accumulated other comprehensive income will be reclassified to interest expense as interest payments are made on the variable rate mortgages. The amount of loss reclassified from accumulated other comprehensive income was $367,000 and $1.1 million for the three and nine months ended September 30, 2014, respectively. The ineffective portion of the change in the fair value of the Swaps for the three months ended September 30, 2014 in the amount of $13,000 was recorded as a decrease to interest expense in the accompanying consolidated statements of comprehensive income. The ineffective portion of the change in the fair value of the Swaps for the nine months ended September 30, 2014 in the amount of $42,000 was recorded as an increase to interest expense in the accompanying consolidated statements of comprehensive income.
The fair value of the Swaps in the amount of $8.0 million and $8.4 million as of September 30, 2014 and December 31, 2013, respectively, is included in other liabilities in the accompanying consolidated balance sheets. The Company estimates that $1.3 million will be reclassified from accumulated other comprehensive income as an increase to interest expense over the next 12 months.
The Company has agreements with its derivative counterparties that contain a provision whereby if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company

26

could also be declared in default on its derivative obligations. If the Company were to breach any of the contractual provisions of the derivative contracts, it would be required to settle its obligations under the agreements at their termination value including accrued interest for approximately $8.3 million.
Note 15: Commitments and Contingencies
Environmental Matters
Substantially all of the Company's properties and land were subject to Phase I Environmental Assessments and when appropriate Phase II Environmental Assessments (collectively, the “Environmental Assessments”) obtained in contemplation of their acquisition by the Company or obtained by predecessor owners prior to the sale of the property or land to the Company. The Environmental Assessments did not reveal, nor is the Company aware of, any non-compliance with environmental laws, environmental liability or other environmental claim that the Company believes would likely have a material adverse effect on the Company.
Operating Ground Lease Agreements
Future minimum rental payments under the terms of all non-cancelable operating ground leases under which the Company is the lessee, as of September 30, 2014, were as follows (in thousands):
 
Year
 
Amount
2014
 
$
102

2015
 
428

2016
 
447

2017
 
447

2018
 
447

2019 through 2034
 
6,173

Total
 
$
8,044


Operating ground lease expense for the three and nine months ended September 30, 2014 were $114,000 and $289,000, respectively, as compared to $42,000 and $125,000, respectively, for the same periods in 2013.
Legal Matters
From time to time, the Company is a party to a variety of legal proceedings, claims and assessments arising in the normal course of business. As of September 30, 2014 there were no legal proceedings, claims or assessments that the Company expects to have a material adverse effect on the Company’s business or financial statements.
Other
As of September 30, 2014, the Company had letter of credit obligations of $8.9 million. The Company believes that the likelihood is remote that there will be a draw upon these letter of credit obligations.
As of September 30, 2014, the Company had 22 buildings under development. These buildings are expected to contain, when completed, a total of 4.7 million square feet of leasable space and represent an anticipated aggregate investment of $428.7 million. At September 30, 2014, development in progress totaled $250.5 million. In addition, as of September 30, 2014, the Company had invested $6.6 million in deferred leasing costs related to these development buildings. See Note 12 for details of the Company's commitments related to the development of the Comcast Innovation and Technology Center. In addition, the Company had a signed commitment for a build-to-suit development not yet commenced for an anticipated investment of $20.4 million.
As of September 30, 2014, the Company was committed to $12.8 million in improvements on certain buildings and land parcels.
As of September 30, 2014, the Company was committed to $56.3 million in future land purchases.
As of September 30, 2014, the Company was obligated to pay for tenant improvements not yet completed for a maximum of $52.1 million.
The Company maintains cash and cash equivalents at financial institutions. The combined account balances at each institution typically exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes the risk is not significant.

27

Note 16: Supplemental Disclosure to Statements of Cash Flows
The following are supplemental disclosures to the statements of cash flows for the nine months ended September 30, 2014 and 2013 (amounts in thousands):
 
 
2014
 
2013
 Write-off of fully depreciated property and deferred costs
$
31,322

 
$
23,180

 Write-off of depreciated property and deferred costs due to sale
$
132,707

 
$
49,618

 Unrealized losses on cash flow hedge
$
(990
)
 
$
—

Write-off of origination costs relating to preferred unit redemptions
$
—

 
$
1,236

Increase in investments in and advances to unconsolidated joint ventures due to disposition activity
$
(11,948
)
 
$
—

Changes in accrued development capital expenditures
$
7,854

 
$
12,869


Amounts paid in cash for deferred leasing costs incurred in connection with signed leases with tenants are paid in conjunction with improving (acquiring) property, plant and equipment. Such costs are not contained within net real estate. However, they are integral to the completion of a tenant lease and ultimately are related to the improvement and thus the value of the Company’s property, plant and equipment. They are therefore included in investing activities in the Company’s consolidated statements of cash flows.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Liberty Property Trust (the “Trust”) is a self-administered and self-managed Maryland real estate investment trust (“REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership (the “Operating Partnership” and, collectively with the Trust and their consolidated subsidiaries, the “Company”).
The Company owns and operates industrial properties nationally and owns and operates office properties primarily in metro Philadelphia, Washington D.C. and certain sunbelt cities. Additionally, the Company owns certain assets in the United Kingdom.
As of September 30, 2014, the Company owned and operated 492 industrial and 187 office properties (the “Wholly Owned Properties in Operation”) totaling 91.4 million square feet. In addition, as of September 30, 2014, the Company owned 22 properties under development, which when completed are expected to comprise 4.7 million square feet (the “Wholly Owned Properties under Development”) and 1,424 acres of developable land, substantially all of which is zoned for commercial use. Additionally, as of September 30, 2014, the Company had an ownership interest, through unconsolidated joint ventures, in 48 industrial and 34 office properties totaling 14.1 million square feet (the “JV Properties in Operation” and, together with the Wholly Owned Properties in Operation, the “Properties in Operation”), three properties under development, which when completed are expected to comprise 2.0 million square feet and a 220-room hotel (the "JV Properties under Development" and, collectively with the Wholly Owned Properties under Development, the "Properties under Development" and, collectively with the Properties in Operation, the "Properties") and 431 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 maximizing 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 expects its strategy with respect to product and market selection to favor industrial and metro-office properties and markets with strong demographic and economic fundamentals.
Consistent with its strategy, on October 8, 2013, the Company completed the acquisition of 100% of the outstanding general partnership and limited partnership interests of the Cabot Industrial Value Fund III Operating Partnership, L.P. ("Cabot"). The purchase price for the acquisition (the "Cabot Acquisition") was $1.469 billion, which was paid through the assumption of approximately $229.8 million of mortgage debt and the remainder in cash. The Company funded the cash portion of the acquisition consideration through a combination of proceeds from an August 2013 offering of common shares, proceeds from a September 2013 offering of senior notes and draws under its credit facility. Pursuant to the purchase of Cabot, the Company acquired a 100% ownership interest in 177 industrial assets totaling approximately 23.0 million square feet at a purchase price of approximately $64 per square foot. These assets are located in 24 markets.

28

Also consistent with its strategy, on November 7, 2013, the Company entered into an Agreement of Sale and Purchase pursuant to which the Company agreed to sell a real estate portfolio which included the Company’s Jacksonville, Florida portfolio in its entirety, all of the office properties in Maryland, Southern New Jersey and the Fort Washington suburb of Philadelphia and flex properties in Minnesota for a purchase price of $697.3 million (the "Portfolio Sale"). The properties consisted of 97 buildings containing an aggregate of 6.6 million square feet. On December 24, 2013, the Company closed on the first of two planned settlements under this agreement.  The proceeds from the first settlement were $367.7 million and included 49 properties containing approximately 4.0 million square feet of space and 140 acres of land. The remaining 48 properties containing an aggregate of 2.6 million square feet and 19 acres of land were sold for $329.6 million in January 2014.
Due to long-term trends that the Company believes favor industrial properties and indicate potential erosion in value of suburban office properties, the Company has increased its investment in industrial and metro-office properties and decreased its investment in suburban office properties. The short-term implication of these activities is a decrease in net cash from operating activities, as rental income from the Company's industrial properties is less than that from the Company's suburban office properties. The Company anticipates that over time it will realize the benefits of these activities, including a higher rate of rental growth and a lower level of transaction costs for industrial properties as opposed to suburban office properties. For 2014, the Company anticipates that the net cash provided by operating activities, less customary capital expenditures and leasing transaction costs, will be less than dividend distributions primarily due to the delay in the deployment of proceeds from the Portfolio Sale. The Company intends to utilize its Credit Facility to fund anticipated shortfalls. The Company will continue to evaluate its dividend distribution policy in light of these circumstances.
The Company’s operating results depend primarily upon income from rental operations and are substantially influenced by rental demand for the Properties in Operation. During the three and nine months ended September 30, 2014, straight line rents on renewal and replacement leases were on average 1.9% lower and 0.8% higher, respectively, than rents on expiring leases. The Company's guidance for 2014 contemplated an increase of straight line rent on average of 0% to 4%. During the three and nine months ended September 30, 2014, the Company successfully leased 7.1 million square feet and 19.7 million square feet, respectively, and, as of that date, attained occupancy of 92.3% for the Wholly Owned Properties in Operation and 92.4% for the JV Properties in Operation for a combined occupancy of 92.3% for the Properties in Operation. At December 31, 2013, occupancy for the Wholly Owned Properties in Operation was 91.4% and for the JV Properties in Operation was 92.3% for a combined occupancy for the Properties in Operation of 91.6%. The Company's guidance for 2014 contemplated a decrease in average occupancy of 0% to 1%. Historical occupancy results reflect a decrease in average occupancy of 0.4% for the nine months ended September 30, 2014 as compared to the same period in 2013, measured using the averages of the occupancy rates at the end of the fourth quarter preceding, and first three quarters of, each such period.
WHOLLY OWNED CAPITAL ACTIVITY
Acquisitions
During the three months ended September 30, 2014, the Company acquired one property for a purchase price of $6.8 million. This property, which contains 152,000 square feet of leasable space, was 100% occupied as of September 30, 2014. During the nine months ended September 30, 2014, the Company acquired nine properties for a total purchase price of $97.7 million. These properties, which contain 1.6 million square feet of leasable space, were 100% occupied as of September 30, 2014.
During the three months ended September 30, 2014, the Company acquired 357 acres of land for a total purchase price of $58.0 million. During the nine months ended September 30, 2014, the Company acquired 373 acres of land for a total purchase price of $66.0 million.
Dispositions
During the three months ended September 30, 2014, the Company did not sell any operating properties. During the nine months ended September 30, 2014, the Company realized proceeds of $366.9 million from the sale of 52 properties representing 3.3 million square feet and 19 acres of land. Included in these properties were three operating properties sold for proceeds of $32.2 million to a joint venture in which the Company retained a 25% interest.
Development
During the three months ended September 30, 2014, the Company brought into service three Wholly Owned Properties under Development representing 2.8 million square feet and a Total Investment of $200.0 million. During the nine months ended September 30, 2014, the Company brought into service seven Wholly Owned Properties under Development representing 3.6 million square feet and a Total Investment of $242.9 million. During the three months ended September 30, 2014, the Company initiated eight Wholly Owned Properties under Development with a projected Total Investment of $157.9 million. During the nine months ended September 30, 2014, the Company initiated 13 Wholly Owned Properties under Development with a projected Total

29

Investment of $290.6 million. As of September 30, 2014, the Company had 22 Wholly Owned Properties under Development with a projected Total Investment of $428.7 million.
“Total Investment” for a Property Under Development is defined as the sum of the land costs and the costs of land improvements, building improvements, lease transaction costs, and where appropriate, other development costs and carrying costs.   “Total Investment” for an acquisition is defined as the property’s purchase price (including, in the case of a vacant building, the closing costs incurred in connection with the acquisition), plus management’s estimate, at the time of acquisition, of the cost of necessary building improvements and lease transaction costs. 
UNCONSOLIDATED JOINT VENTURE CAPITAL ACTIVITY
The Company periodically enters into unconsolidated joint venture relationships in connection with the execution of its real estate operating strategy.
Acquisitions/Dispositions
During the three months ended September 30, 2014, none of the unconsolidated joint ventures in which the Company held an interest acquired any properties. During the nine months ended September 30, 2014, a joint venture in which the Company held a 25% interest acquired three properties comprising 603,000 square feet from the Company for $32.2 million. During the nine months ended September 30, 2014, a joint venture in which the Company holds a 25% interest sold 52 acres of land for $10.1 million. During the three and nine months ended September 30, 2014, none of the unconsolidated joint ventures in which the Company held an interest sold any operating properties. Consistent with the Company's strategy, from time to time the Company may consider transferring assets to or purchasing assets from an unconsolidated joint venture in which the Company holds an interest.
During the three months ended September 30, 2014, none of the unconsolidated joint ventures in which the Company held an interest acquired any land. During the nine months ended September 30, 2014, the Company acquired 1.5 acres of land for a total purchase price of $42.5 million.
Development
During the three and nine months ended September 30, 2014, none of the unconsolidated joint ventures in which the Company held an interest brought any properties into service. During the three and nine months ended September 30, 2014, a joint venture in which the Company held a 25% interest began development on one property, which is expected to comprise, upon completion, 430,000 square feet and is expected to represent a Total Investment of $24.4 million.
Additionally, joint ventures in which the Company held a 20% interest began development on the Comcast Innovation & Technology Center, which is expected to comprise, upon completion, 1.3 million square feet and a 220-room hotel and is expected to represent a Total Investment of $921 million. See Note 12 to the Company’s financial statements.
As of September 30, 2014, joint ventures in which the Company held an interest had three properties under development which are expected to comprise, upon completion, 2.0 million square feet and are expected to represent a Total Investment of $961.4 million.

30

PROPERTIES IN OPERATION
The composition of the Company’s Properties in Operation as of September 30, 2014 and 2013 was as follows (square feet in thousands):

 
Net Rent
Per Square Foot(1)
 
Straight Line Rent and Operating Expense Reimbursement Per Square Foot(2)
 
Total Square Feet
 
Percent Occupied
 
September 30,
 
September 30,
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Wholly Owned Properties in Operation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial-Distribution
$
4.48

 
$
4.45

 
$
5.89

 
$
5.83

 
67,573

 
42,369

 
93.7
%
 
91.1
%
Industrial-Flex
$
8.72

 
$
9.05

 
$
12.37

 
$
13.10

 
9,038

 
8,953

 
91.1
%
 
89.5
%
Office
$
16.06

 
$
15.31

 
$
24.32

 
$
23.78

 
14,789

 
18,629

 
86.3
%
 
88.7
%
 
$
6.65

 
$
7.88

 
$
9.31

 
$
11.45

 
91,400

 
69,951

 
92.3
%
 
90.2
%
JV Properties in Operation: (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial-Distribution
$
4.06

 
$
3.66

 
$
5.69

 
$
5.57

 
9,872

 
9,270

 
94.7
%
 
94.8
%
Industrial-Flex
$
27.74

 
$
26.18

 
$
24.95

 
$
25.29

 
108

 
151

 
93.5
%
 
68.0
%
Office
$
25.72

 
$
24.54

 
$
36.38

 
$
35.80

 
4,114

 
4,285

 
87.1
%
 
88.3
%
 
$
10.20

 
$
10.08

 
$
14.28

 
$
14.76

 
14,094

 
13,706

 
92.4
%
 
92.5
%
Properties in Operation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial-Distribution
$
4.43

 
$
4.31

 
$
5.87

 
$
5.78

 
77,445

 
51,639

 
93.9
%
 
91.8
%
Industrial-Flex
$
8.95

 
$
9.27

 
$
12.52

 
$
13.25

 
9,146

 
9,104

 
91.1
%
 
89.1
%
Office
$
18.18

 
$
17.03

 
$
26.96

 
$
26.02

 
18,903

 
22,914

 
86.5
%
 
88.6
%
 
$
7.12

 
$
8.25

 
$
9.98

 
$
12.00

 
105,494

 
83,657

 
92.3
%
 
90.6
%

(1) Net rent represents the contractual rent per square foot at September 30, 2014 or 2013 for tenants in occupancy. Net rent does not include the tenant's obligation to pay property operating expenses and real estate taxes. If a tenant at September 30, 2014 or 2013 was within a free rent period its rent would equal zero for the purposes of this metric.
(2) Straight line rent and operating expense reimbursement represents the straight line rent including operating expense recoveries per square foot at September 30, 2014 or 2013 for tenants in occupancy.
(3) JV Properties in Operation represents the properties owned by unconsolidated joint ventures in which the Company had an interest during the respective periods. Unconsolidated joint ventures in which the Company holds an interest owned 82 and 84 properties as of September 30, 2014 and 2013, respectively.

The table below details the vacancy activity during the nine months ended September 30, 2014:
 
 Total Square Feet
 
Wholly Owned Properties in Operation
 
JV Properties in Operation
 
Properties in Operation
Vacancy Activity
 
 
 
 
 
Vacancy at January 1, 2014
7,655,546

 
1,044,395

 
8,699,941

Acquisition vacant space
522,772

 
235,007

 
757,779

Completed development vacant space
68,272

 
—

 
68,272

Disposition vacant space
(534,226
)
 
—

 
(534,226
)
Expirations
15,440,091

 
1,184,558

 
16,624,649

Property structural changes/other
303

 
(10,909
)
 
(10,606
)
Leasing activity
(16,091,830
)
 
(1,387,506
)
 
(17,479,336
)
Vacancy at September 30, 2014
7,060,928

 
1,065,545

 
8,126,473

 


 
 
 
 
Lease transaction costs per square foot (1)
$
3.10

 
$
6.29

 
$
3.37

(1) Transaction costs include tenant improvement and lease transaction costs.

31

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 global, 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 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
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of critical accounting policies which include capitalized costs, revenue recognition, allowance for doubtful accounts, impairment of real estate, intangibles, investments in unconsolidated joint ventures and derivative instruments and hedging activities. During the nine months ended September 30, 2014, there were no material changes to these policies.
Results of Operations
The following discussion is based on the consolidated financial statements of the Company. It compares the results of operations of the Company for the three and nine months ended September 30, 2014 with the results of operations of the Company for the three and nine months ended September 30, 2013. As a result of the varying levels of development, acquisition and disposition activities by the Company in 2014 and 2013, the overall operating results of the Company during such periods are not directly comparable. However, certain data, including the Same Store comparison, do lend themselves to direct comparison.
This information should be read in conjunction with the accompanying consolidated financial statements and notes included elsewhere in this report.
Comparison of Three and Nine Months Ended September 30, 2014 to Three and Nine Months Ended September 30, 2013
Overview
The Company’s average gross investment in operating real estate owned for the three months ended September 30, 2014 increased to $6,509.8 million from $4,693.2 million for the three months ended September 30, 2013. For the nine months ended September 30, 2014 the Company's average gross investment in operating real estate owned increased to $6,412.0 million from $4,546.5 million
for the nine months ended September 30, 2013. The change in average gross investment in operating real estate was primarily due to the Cabot Acquisition. This increase in operating real estate resulted in increases in rental revenue, operating expense reimbursement, rental property expenses, real estate taxes and depreciation and amortization expense. Rental property expense includes utilities, insurance, janitorial, landscaping, snow removal and other costs necessary to maintain a property.
Total operating revenue increased to $198.4 million for the three months ended September 30, 2014 from $155.3 million for the three months ended September 30, 2013. The $43.1 million increase was primarily due to the increase in average gross investment in operating real estate. Total operating revenue increased to $588.9 million for the nine months ended September 30, 2014 from $453.5 million for the nine months ended September 30, 2013. The $135.4 million increase was primarily due to the increase in average gross investment in operating real estate.

32

Segments
The Company evaluates the performance of the Wholly Owned Properties in Operation in terms of net operating income by reportable segment (see Note 5 to the Company’s financial statements for a reconciliation of this measure to income from continuing operations). The following table identifies changes to net operating income in reportable segments (dollars in thousands):
 
 
Three Months Ended
 
Percentage Increase (Decrease)
 
Nine Months Ended
 
Percentage Increase (Decrease)
 
 
September 30,
 
 
September 30,
 
 
 
2014
 
2013
 
 
2014
 
2013
 
 
Carolinas
$
6,570

 
$
5,182

 
26.8
%
(1)
$
18,006

 
$
15,035

 
19.8
%
(1)
Chicago/Milwaukee
5,382

 
2,163

 
148.8
%
(1)
15,518

 
6,149

 
152.4
%
(1)
Houston
7,510

 
5,426

 
38.4
%
(1)
21,794

 
15,735

 
38.5
%
(1)
Lehigh/Central PA
21,634

 
17,204

 
25.7
%
(1)
60,647

 
50,422

 
20.3
%
(1)
Minnesota
6,575

 
7,289

 
(9.8
%)
(2)
19,964

 
22,563

 
(11.5
%)
(2)
Orlando
5,411

 
5,128

 
5.5
%
 
16,257

 
15,504

 
4.9
%
 
Philadelphia
6,736

 
5,919

 
13.8
%
(1)
20,247

 
16,869

 
20.0
%
(1)
Richmond/Hampton Roads
6,144

 
5,899

 
4.2
%
 
18,118

 
17,978

 
0.8
%
 
South Florida
6,647

 
4,735

 
40.4
%
(1)
21,066

 
14,168

 
48.7
%
(1)
Southeastern PA
20,516

 
23,754

 
(13.6
%)
(2)
60,175

 
68,622

 
(12.3
%)
(2)
Tampa
8,213

 
7,916

 
3.8
%
 
25,142

 
24,522

 
2.5
%
 
United Kingdom
2,468

 
123

 
1,906.5
%
(1)
8,716

 
(331
)
 
N/A

(1)
Other
20,715

 
18,555

 
11.6
%
(1)
61,614

 
51,346

 
20.0
%
(1)
Total reportable segment net operating income
$
124,521

 
$
109,293

 
13.9
%
 
$
367,264

 
$
318,582

 
15.3
%
 

(1) The increase was primarily due to an increase in average gross investment in operating real estate.
(2) The decrease was primarily due to a decrease in average gross investment in operating real estate.
Same Store
Property level operating income, exclusive of termination fees, for the Same Store properties is identified in the table below.
The same store results were affected by changes in occupancy and rental rates as detailed below for the respective periods. The nine-month results were also affected by the non-recovered portion of the increase in snow removal costs and other weather-related expenses for the respective periods.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Average occupancy %
92.7
%
 
93.7
%
 
93.0
%
 
93.4
%
Average rental rate - cash basis (1)
$
7.36

 
$
7.27

 
$
7.35

 
$
7.28

Average rental rate - straight line rent and operating expense reimbursement (2)
$
10.51

 
$
10.37

 
$
10.48

 
$
10.39

(1) Represents the average contractual rent per square foot for the nine months ended September 30, 2014 or 2013 for tenants in occupancy in Same Store properties. Net rent does not include the tenant's obligation to pay property operating expenses and real estate taxes. If a tenant was within a free rent period its rent would equal zero for purposes of this metric.
(2) Straight line rent and operating expense reimbursement represents the average straight line rent including operating expense recoveries per square foot for the nine months ended September 30, 2014 or 2013 for tenants in occupancy.
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. In addition, Same Store property level operating income and Same Store cash basis property level operating income is considered by management to be a more reliable indicator of the portfolio’s baseline performance. The Same Store properties consist of the 479 properties totaling approximately 59.4 million square feet owned on January 1, 2013. Properties that were acquired, or on which development was completed, during the year ended December 31, 2013 and the nine months ended September 30, 2014 are excluded from the Same Store properties. Properties that were acquired, or on which development was completed, are included in Same Store when they have been purchased in the case

33

of acquisitions, and placed into service in the case of completed development, prior to the beginning of the earliest period presented in the comparison. The 58 properties sold during 2013 and the 52 properties sold during the nine months ended September 30, 2014 are also excluded.
Set forth below is a schedule comparing the property level operating income, on a straight line basis and on a cash basis, for the Same Store properties for the three and nine months ended September 30, 2014 and 2013. Same Store property level operating income and cash basis property level operating income are non-GAAP measures and do not represent income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures because they do not reflect the consolidated operations of the Company. Investors should review Same Store results, along with Funds from operations (see “Liquidity and Capital Resources” below), GAAP net income and cash flow from operating activities, investing activities and financing activities when considering the Company’s operating performance. Also set forth below is a reconciliation of Same Store property level operating income and cash basis property level operating income to net income (in thousands).

 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
September 30, 2013
Same Store:
 
 
 
 
 
 
 
Rental revenue
$
103,112

 
$
103,586

 
$
309,139

 
$
309,572

Operating expenses:
 
 
 
 
 
 
 
Rental property expense
28,144

 
27,163

 
87,767

 
79,520

Real estate taxes
17,997

 
17,225

 
53,466

 
52,230

Operating expense recovery
(44,436
)
 
(43,125
)
 
(135,034
)
 
(128,459
)
Unrecovered operating expenses
1,705

 
1,263

 
6,199

 
3,291

Property level operating income
101,407

 
102,323

 
302,940

 
306,281

Less straight line rent
916

 
1,387

 
3,821

 
2,966

Cash basis property level operating income
$
100,491

 
$
100,936

 
$
299,119

 
$
303,315

Reconciliation of non-GAAP financial measure – Same Store:
 
 
 
 
 
 
 
Cash basis property level operating income
$
100,491

 
$
100,936

 
$
299,119

 
$
303,315

Straight line rent
916

 
1,387

 
3,821

 
2,966

Property level operating income
101,407

 
102,323

 
302,940

 
306,281

Non-Same Store property level operating income - continuing operations
37,930

 
5,898

 
105,190

 
10,729

Termination fees - continuing operations
319

 
568

 
1,276

 
1,153

General and administrative expense
(14,748
)
 
(17,217
)
 
(48,077
)
 
(53,466
)
Depreciation and amortization expense
(58,578
)
 
(39,159
)
 
(173,184
)
 
(113,906
)
Other income (expense)
(31,728
)
 
(29,030
)
 
(103,850
)
 
(75,145
)
(Loss) gain on property dispositions
(20
)
 
—

 
1,879

 
—

Income taxes
(859
)
 
(629
)
 
(2,083
)
 
(1,780
)
Equity in earnings of unconsolidated joint ventures
1,592

 
650

 
7,297

 
3,973

Discontinued operations (1)
136

 
6,544

 
48,276

 
70,008

Net income
$
35,451

 
$
29,948

 
$
139,664

 
$
147,847

 
(1)Includes termination fees of $8,000 for the nine months ended September 30, 2014 and $459,000 and $1.2 million for the three and nine months ended September 30, 2013, respectively. There were no termination fees included in discontinued operations for the three months ended September 30, 2014. 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.

34

General and Administrative
General and administrative expenses decreased to $14.7 million for the three months ended September 30, 2014 compared to $17.2 million for the three months ended September 30, 2013 and decreased to $48.1 million for the nine months ended September 30, 2014 compared to $53.5 million for the nine months ended September 30, 2013. These decreases were primarily due to decreases in costs related to certain operating initiatives and acquisition-related expenditures. General and administrative expenses include salaries, wages and incentive compensation for general and administrative staff along with related costs, consulting, marketing, public company expenses, costs associated with the acquisition of properties and other general and administrative costs.
Depreciation and Amortization
Depreciation and amortization increased to $58.6 million for the three months ended September 30, 2014 from $39.2 million for the three months ended September 30, 2013 and increased to $173.2 million for the nine months ended September 30, 2014 from $113.9 million for the nine months ended September 30, 2013. These increases were primarily due to the increased investment in operating real estate.
Other Income
Other income increased to $6.2 million for the three months ended September 30, 2014 from $4.5 million for the three months ended September 30, 2013 and $11.8 million for the nine months ended September 30, 2014 compared to $14.3 million for the nine months ended September 30, 2013. The increase for the three month period was primarily due to development fee income and the decrease for the nine month period was primarily due to a decrease in gains associated with a land development in the United Kingdom.
Interest Expense
Interest expense increased to $38.0 million for the three months ended September 30, 2014 from $33.5 million for the three months ended September 30, 2013. The increase was primarily due to an increase in the average debt outstanding to $3,206.7 million for the three months ended September 30, 2014 from $2,864.2 million for the three months ended September 30, 2013. Interest expense increased to $115.6 million for the nine months ended September 30, 2014 from $89.4 million for the nine months ended September 30, 2013. The increase was primarily due to an increase in the average debt outstanding to $3,235.8 million for the nine months ended September 30, 2014 from $2,737.4 million for the nine months ended September 30, 2013. The increases in the average debt outstanding were primarily due to the issuance of $450 million in unsecured notes in September 2013 in anticipation of the Cabot Acquisition partially offset by the repayment of $200 million in unsecured notes in August 2014. The increase in interest expense was also due to a decrease in interest allocated to discontinued operations. There was no interest expense allocated to discontinued operations for the three months ended September 30, 2014 compared to $3.9 million for the three months ended September 30, 2013. There was $0.6 million in interest expense allocated to discontinued operations for the nine months ended September 30, 2014 compared to $12.2 million for the nine months ended September 30, 2013. The amount of interest allocated to discontinued operations is related to the level of dispositions in 2014 compared to 2013. The increases in interest expense were partially offset by the amount of interest capitalized during the respective periods. Capitalized interest was $3.0 million and $9.8 million for the three and nine months ended September 30, 2014, respectively, compared to $2.1 million and $7.8 million for the same periods in 2013. The weighted average interest rate was relatively unchanged during the respective periods.
Equity in Earnings of Unconsolidated Joint Ventures
Equity in earnings of unconsolidated joint ventures increased to $1.6 million for the three months ended September 30, 2014 compared to $0.7 million for the three months ended September 30, 2013 and increased to $7.3 million for the nine months ended September 30, 2014 compared to $4.0 million for the nine months ended September 30, 2013. The increase for the three-month periods was primarily due to a loss related to the sale of an operating property by a joint venture in which the Company holds an interest during the three months ended September 30, 2013, the Company's share of which was $0.8 million. The increase for the nine-month periods was primarily due to a gain related to the sale of a land leasehold interest by an unconsolidated joint venture in which the Company holds an interest, the Company's share of which was $2.7 million.

35

Other
Income from discontinued operations decreased to $0.1 million for the three months ended September 30, 2014 from $6.5 million for the three months ended September 30, 2013 and decreased to $48.3 million for the nine months ended September 30, 2014 from $70.0 million for the nine months ended September 30, 2013. These decreases were primarily due to the level of dispositions in 2014 compared to 2013.
As a result of the foregoing, the Company’s net income increased to $35.5 million for the three months ended September 30, 2014 from $29.9 million for the three months ended September 30, 2013 and decreased to $139.7 million for the nine months ended September 30, 2014 from $147.8 million for the nine months ended September 30, 2013.
Liquidity and Capital Resources
Overview
The Company seeks to maintain a conservative balance sheet and pursue a strategy of financial flexibility. The Company's liquidity requirements include operating and general and administrative expenses, shareholder distributions, funding its investment in development properties and satisfying interest requirements and debt maturities. The Company believes that proceeds from operating activities, asset sales, its available cash, borrowing capacity from its Credit Facility (as defined below) and its other sources of capital including the public debt and equity markets will provide it with sufficient funds to satisfy these obligations.
Activity
As of September 30, 2014, the Company had cash and cash equivalents of $62.0 million, including $22.9 million in restricted cash.
Net cash provided by operating activities increased to $250.3 million for the nine months ended September 30, 2014 from $215.0 million for the nine months ended September 30, 2013. This $35.3 million increase was primarily due to changes in restricted cash, prepaid expenses and other assets and other liabilities during 2014 related to expenditures on and the distribution of proceeds for a land development in the United Kingdom. There were no similar expenditures or distributions during 2013. Decreases were offset by an increase in operating activities during 2014, reflecting the impact of the Cabot Acquisition net of the Portfolio Sale. Net cash flow provided by operating activities is the primary source of liquidity to fund distributions to shareholders and for recurring capital expenditures and leasing transaction costs for the Company’s Wholly Owned Properties in Operation.
Net cash used in investing activities was $130.5 million for the nine months ended September 30, 2014 compared to $199.2 million for the nine months ended September 30, 2013. This $68.7 million decrease primarily resulted from an increase in net proceeds from the disposition of properties and land associated with the close of the second settlement of the Portfolio Sale. This amount was partially offset by an increase in the investment in development properties and land held for development.
Net cash used in financing activities increased to $243.4 million for the nine months ended September 30, 2014 compared to net cash provided by financing activities of $1.1 billion for the nine months ended September 30, 2013. This $1.3 billion change was primarily due to the pre-funding of the August 2013 common share offering and September 2013 senior note offering used for the Cabot Acquisition. Also, in August 2014, the Company repaid its 5.65% Senior Notes which were due in August 2014 in the amount of $200 million.
Net cash used in financing activities includes proceeds from the issuance of equity and debt, net of debt repayments, equity repurchases and distributions.
The Company funds its development activities, including its obligations associated with its joint venture development activity, and acquisitions with long-term capital sources and proceeds from the disposition of properties. When appropriate the Company also funds such activities with available capacity under its $800 million credit facility (the "Credit Facility"). The Credit Facility replaced a $500 million credit facility during the three months ended March 31, 2014. The interest rate on borrowings under the Credit Facility fluctuates based upon ratings from Moody’s Investors Service, Inc., Standard and Poor’s Ratings Group and Fitch, Inc. Based on the Company’s existing ratings, the interest rate for borrowings under the Credit Facility at September 30, 2014 was LIBOR plus 105 basis points.
The Company uses debt financing to lower its overall cost of capital in an attempt to increase the return to shareholders. The Company staggers its debt maturities and maintains debt levels it considers to be prudent. In determining its debt levels, the Company considers various financial measures including the debt to gross assets ratio and the fixed charge coverage ratio. As of September 30, 2014, the Company’s debt to gross assets ratio was 40.6% and for the nine months ended September 30, 2014, the fixed charge coverage ratio was 3.0x. Debt to gross assets equals total long-term debt and borrowings under the Credit Facility divided by total assets plus accumulated depreciation. The fixed charge coverage ratio equals income from continuing operations,

36

including operating activity from discontinued operations, plus interest expense and depreciation and amortization, divided by interest expense, including capitalized interest, plus distributions on preferred units.
As of September 30, 2014, $534.5 million in mortgage loans and $2,508.9 million in unsecured notes were outstanding with a weighted average interest rate of 5.01%. The interest rates on $3,027.4 million of mortgage loans and unsecured notes are fixed (including $104.1 million fixed via a swap arrangement - see Note 14 to the Company's financial statements) and range from 3.0% to 7.5%. The weighted average remaining term for the mortgage loans and unsecured notes is 5.5 years.
The scheduled principal amortization and maturities of the Company’s mortgage loans, unsecured notes and the Credit Facility and the related weighted average interest rates as of September 30, 2014 are as follows (in thousands, except percentages):
 
 
MORTGAGES
 
 
 
 
 
 
 
WEIGHTED
AVERAGE
INTEREST RATE
 
PRINCIPAL
AMORTIZATION
 
PRINCIPAL
MATURITIES
 
UNSECURED
NOTES
 
CREDIT
FACILITY
 
TOTAL
 
2014
$
3,025

 
$
—

 
$
—

 
$
—

 
$
3,025

 
5.23
%
2015
12,138

 
44,469

 
315,953

 
—

 
372,560

 
5.16
%
2016
11,720

 
182,318

 
299,524

 
—

 
493,562

 
6.08
%
2017
10,916

 
2,349

 
295,997

 
—

 
309,262

 
6.57
%
2018
8,730

 
27,051

 
99,974

 
140,950

 
276,705

 
3.94
%
2019
8,680

 
50,043

 
—

 
—

 
58,723

 
3.99
%
2020
4,280

 
67,361

 
349,503

 
—

 
421,144

 
4.83
%
2021
2,716

 
65,008

 
—

 
—

 
67,724

 
4.06
%
2022
2,172

 
—

 
399,400

 
—

 
401,572

 
4.13
%
2023 & thereafter
29,625

 
1,946

 
748,535

 
—

 
780,106

 
4.03
%
 
$
94,002

 
$
440,545

 
$
2,508,886

 
$
140,950

 
$
3,184,383

 
4.84
%
General
The Company has an effective S-3 shelf registration statement on file with the SEC pursuant to which the Trust and the Operating Partnership may issue an unlimited amount of equity securities and debt securities.
Calculation of Funds from Operations
The National Association of Real Estate Investment Trusts (“NAREIT”) has issued a standard definition for Funds from operations (as defined below). The SEC has agreed to the disclosure of this non-GAAP financial measure on a per share basis in its Release No. 34-47226, Conditions for Use of Non-GAAP Financial Measures. The Company believes that the calculation of Funds from operations is helpful to investors and management as it is a measure of the Company’s operating performance that excludes depreciation and amortization and gains and losses from operating property dispositions. As a result, year over year comparison of Funds from operations reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, providing perspective not immediately apparent from net income. In addition, management believes that Funds from operations provides useful information to the investment community about the Company’s financial performance when compared to other REITs since Funds from operations is generally recognized as the standard for reporting the operating performance of a REIT. Funds from operations available to common shareholders is defined by NAREIT as net income (computed in accordance with generally accepted accounting principles (“GAAP”)), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Funds from operations available to common shareholders does not represent net income or cash flows from operations as defined by GAAP and does not necessarily indicate that cash flows will be sufficient to fund cash needs. It should not be considered as an alternative to net income as an indicator of the Company’s operating performance or to cash flows as a measure of liquidity. Funds from operations available to common shareholders also does not represent cash flows generated from operating, investing or financing activities as defined by GAAP.


37

Funds from operations (“FFO”) available to common shareholders for the three and nine months ended September 30, 2014 and 2013 are as follows (in thousands, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
September 30, 2013
Reconciliation of net income to FFO - basic:
 
 
 
 
 
 
 
Net income available to common shareholders
$
34,423

 
$
28,699

 
$
135,572

 
$
140,047

Basic - income available to common shareholders
34,423

 
28,699

 
135,572

 
140,047

Basic - income available to common shareholders per weighted average share
$
0.23

 
$
0.21

 
$
0.92

 
$
1.12

Adjustments:
 
 
 
 
 
 
 
Depreciation and amortization of unconsolidated joint ventures
3,334

 
4,176

 
9,966

 
10,874

Depreciation and amortization
58,114

 
45,642

 
171,730

 
135,418

Gain on property dispositions
(18
)
 
(29
)
 
(47,629
)
 
(49,393
)
Noncontrolling interest share in addback for depreciation and amortization and gain on property dispositions
(1,439
)
 
(1,226
)
 
(3,146
)
 
(2,625
)
Funds from operations available to common shareholders – basic
$
94,414

 
$
77,262

 
$
266,493

 
$
234,321

Basic Funds from operations available to common shareholders per weighted average share
$
0.64

 
$
0.57

 
$
1.81

 
$
1.88

Reconciliation of net income to FFO - diluted:
 
 
 
 
 
 
 
Net income available to common shareholders
$
34,423

 
$
28,699

 
$
135,572

 
$
140,047

Diluted - income available to common shareholders
34,423

 
28,699

 
135,572

 
140,047

Diluted - income available to common shareholders per weighted average share
$
0.23

 
$
0.21

 
$
0.92

 
$
1.11

Adjustments:
 
 
 
 
 
 
 
Depreciation and amortization of unconsolidated joint ventures
3,334

 
4,176

 
9,966

 
10,874

Depreciation and amortization
58,114

 
45,642

 
171,730

 
135,418

Gain on property dispositions
(18
)
 
(29
)
 
(47,629
)
 
(49,393
)
Noncontrolling interest less preferred share distributions
826

 
725

 
3,264

 
4,157

Funds from operations available to common shareholders - diluted
$
96,679

 
$
79,213

 
$
272,903

 
$
241,103

Diluted Funds from operations available to common shareholders per weighted average share
$
0.64

 
$
0.57

 
$
1.80

 
$
1.86

Reconciliation of weighted average shares:
 
 
 
 
 
 
 
Weighted average common shares - all basic calculations
147,422

 
135,628

 
146,987

 
124,889

Dilutive shares for long term compensation plans
666

 
700

 
674

 
766

Diluted shares for net income calculations
148,088

 
136,328

 
147,661

 
125,655

Weighted average common units
3,554

 
3,692

 
3,554

 
3,706

Diluted shares for Funds from operations calculations
151,642

 
140,020

 
151,215

 
129,361



38

Inflation
Inflation has remained relatively low in recent years, and as a result, it has not had a significant impact on the Company during this period. To the extent an increase in inflation would result in increased operating costs, such as insurance, real estate taxes and utilities, substantially all of the tenants’ leases require the tenants to absorb these costs as part of their rental obligations. In addition, inflation also may have the effect of increasing market rental rates.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the Company’s exposure to market risk since its Annual Report on Form 10-K for the year ended December 31, 2013.
Item 4. Controls and Procedures
Controls and Procedures with respect to the Trust
(a) Evaluation of Disclosure Controls and Procedures
The Trust’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the Trust’s Chief Executive Officer and Chief Financial Officer have concluded that the Trust’s disclosure controls and procedures, as of the end of the period covered by this report, were effective to provide reasonable assurance that information required to be disclosed by the Trust in its reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms and (ii) accumulated and communicated to the Trust’s management, including its principal executive and principal financial officers, or persons performing similar function, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in the Trust’s internal control over financial reporting during the quarter ended September 30, 2014 that have materially affected or are reasonably likely to materially affect the Trust’s internal control over financial reporting.
Controls and Procedures with respect to the Operating Partnership
(a) Evaluation of Disclosure Controls and Procedures
The Trust’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, on behalf of the Trust in its capacity as the general partner of the Operating Partnership, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the Trust’s Chief Executive Officer and Chief Financial Officer have concluded that the Operating Partnership’s disclosure controls and procedures, as of the end of the period covered by this report, were effective to provide reasonable assurance that information required to be disclosed by the Operating Partnership in its reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms and (ii) accumulated and communicated to the Trust’s management, including its principal executive and principal financial officers, or persons performing similar function, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in the Operating Partnership’s internal control over financial reporting during the quarter ended September 30, 2014 that have materially affected or are reasonably likely to materially affect the Operating Partnership’s internal control over financial reporting.

39

PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
The Company is not a party to any material litigation as of September 30, 2014.
Item 1A.
Risk Factors
None.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.
Defaults upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
None.

40

Item 6.
Exhibits
 
 
 
12.1*
Statement Re: Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges.
 
 
31.1*
Certification of the Chief Executive Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
31.2*
Certification of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
31.3*
Certification of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
31.4*
Certification of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
32.1**
Certification of the Chief Executive Officer of Liberty Property Trust required under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 
 
32.2**
Certification of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 
 
32.3**
Certification of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 
 
32.4**
Certification of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 
 
101.INS*
XBRL Instance Document.
 
 
101.SCH*
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB*
XBRL Extension Labels Linkbase.
 
 
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.
________________________
*    Filed herewith
**    Furnished herewith


41

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIBERTY PROPERTY TRUST
 
/s/ WILLIAM P. HANKOWSKY
 
October 30, 2014
William P. Hankowsky
 
Date
Chairman of the Board of Trustees, President and Chief Executive Officer (Principal Executive Officer)
 
 
 
 
 
/s/ GEORGE J. ALBURGER, JR.
 
October 30, 2014
George J. Alburger, Jr.
 
Date
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
 
 

42

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIBERTY PROPERTY LIMITED PARTNERSHIP
 
BY:
Liberty Property Trust
 
 
 
General Partner
 
 
 
 
 
 
/s/ WILLIAM P. HANKOWSKY
 
October 30, 2014
William P. Hankowsky
 
Date
Chairman of the Board of Trustees, President and Chief Executive Officer (Principal Executive Officer)
 
 
 
 
 
 
/s/ GEORGE J. ALBURGER, JR.
 
October 30, 2014
George J. Alburger, Jr.
 
Date
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
 
 

43

EXHIBIT INDEX
 
EXHIBIT
NO.
 
 
 
12.1
Statement Re: Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges.
 
 
31.1
Certification of the Chief Executive Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
31.2
Certification of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
31.3
Certification of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
31.4
Certification of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
32.1
Certification of the Chief Executive Officer of Liberty Property Trust required under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 
 
32.2
Certification of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 
 
32.3
Certification of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 
 
32.4
Certification of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 
 
101.INS
XBRL Instance Document.
 
 
101.SCH
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB
XBRL Extension Labels Linkbase.
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
 
______________________


44

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