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EX-32.4 - EXHIBIT 32.4 - LIBERTY PROPERTY TRUSTlptex324-93016.htm
EX-32.3 - EXHIBIT 32.3 - LIBERTY PROPERTY TRUSTlptex323-93016.htm
EX-32.2 - EXHIBIT 32.2 - LIBERTY PROPERTY TRUSTlptex322-93016.htm
EX-32.1 - EXHIBIT 32.1 - LIBERTY PROPERTY TRUSTlptex321-93016.htm
EX-31.4 - EXHIBIT 31.4 - LIBERTY PROPERTY TRUSTlptex314-93016.htm
EX-31.3 - EXHIBIT 31.3 - LIBERTY PROPERTY TRUSTlptex313-93016.htm
EX-31.2 - EXHIBIT 31.2 - LIBERTY PROPERTY TRUSTlptex312-93016.htm
EX-31.1 - EXHIBIT 31.1 - LIBERTY PROPERTY TRUSTlptex311-93016.htm
EX-12.1 - EXHIBIT 12.1 - LIBERTY PROPERTY TRUSTlptex121-93016.htm
EX-4.1 - EXHIBIT 4.1 - LIBERTY PROPERTY TRUSTexh41.htm

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, 2016
  
OR

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
Commission file numbers: 1-13130 (Liberty Property Trust)
1-13132 (Liberty Property Limited Partnership) 
__________________________________________________________
LIBERTY PROPERTY TRUST
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Exact name of registrants as specified in their governing documents)
__________________________________________________________
 
MARYLAND (Liberty Property Trust)
23-7768996
PENNSYLVANIA (Liberty Property Limited Partnership)
23-2766549
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
 
500 Chesterfield Parkway
Malvern, Pennsylvania
19355
(Address of Principal Executive Offices)
(Zip Code)
 
Registrants’ Telephone Number, Including Area Code (610) 648-1700
__________________________________________________________
 
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past ninety (90) days.    Yes  x    No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):
  
Large Accelerated Filer
x
Accelerated Filer
o
Non-Accelerated Filer
o (Do not check if a smaller reporting company)
Smaller Reporting Company
o
    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
On November 1, 2016, 146,993,579 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, 2016 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, 2016. The common units of limited partnership interest in the Operating Partnership (the “Common Units”), other than those owned by the Trust, are exchangeable on a one-for-one basis (subject to anti-dilution protections) for the Trust's common shares of beneficial interest, $0.001 par value per share (the “Common Shares”).

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

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

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

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

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





2


Liberty Property Trust/Liberty Property Limited Partnership
Form 10-Q for the period ended September 30, 2016
 
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.
 
 
 
 
 
 
 
SIXTH SUPPLEMENTAL INDENTURE, DATED AS OF SEPTEMBER 20, 2016, BETWEEN THE OPERATING PARTNERSHIP, AS ISSUER, AND U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE
 
 
 
 
 
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, 2016
 
December 31, 2015
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,009,941

 
$
1,184,927

Building and improvements
4,409,422

 
5,131,648

Less accumulated depreciation
(917,201
)
 
(1,148,928
)
Operating real estate
4,502,162

 
5,167,647

Development in progress
427,686

 
360,948

Land held for development
325,444

 
336,967

Net real estate
5,255,292

 
5,865,562

Cash and cash equivalents
42,290

 
35,353

Restricted cash
5,661

 
9,018

Accounts receivable, net
13,983

 
14,343

Deferred rent receivable, net
106,864

 
118,787

Deferred financing and leasing costs, net of accumulated amortization (September 30, 2016, $153,022; December 31, 2015, $175,798)
153,593

 
192,109

Investments in and advances to unconsolidated joint ventures
236,800

 
218,454

Assets held for sale
786,272

 
4,954

Prepaid expenses and other assets
122,167

 
99,049

Total assets
$
6,722,922

 
$
6,557,629

LIABILITIES
 
 
 
Mortgage loans, net
$
281,384

 
$
307,908

Unsecured notes, net
2,675,644

 
2,580,108

Credit facility
420,000

 
259,000

Accounts payable
76,599

 
51,382

Accrued interest
38,954

 
26,154

Dividend and distributions payable
71,378

 
71,787

Other liabilities
204,031

 
243,806

Liabilities held for sale
25,416

 

Total liabilities
3,793,406

 
3,540,145

Noncontrolling interest - operating partnership - 301,483 preferred units outstanding as of September 30, 2016 and December 31, 2015
7,537

 
7,537

EQUITY
 
 
 
Liberty Property Trust shareholders’ equity
 
 
 
Common shares of beneficial interest, $.001 par value, 283,987,000 shares authorized; 146,981,465 and 147,577,984 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
147

 
148

Additional paid-in capital
3,654,652

 
3,669,627

Accumulated other comprehensive loss
(41,459
)
 
(17,893
)
Distributions in excess of net income
(746,530
)
 
(698,954
)
Total Liberty Property Trust shareholders’ equity
2,866,810

 
2,952,928

Noncontrolling interest – operating partnership
 
 
 
3,530,031 and 3,539,075 common units outstanding as of September 30, 2016 and December 31, 2015, respectively
51,250

 
53,100

Noncontrolling interest – consolidated joint ventures
3,919

 
3,919

Total equity
2,921,979

 
3,009,947

Total liabilities, noncontrolling interest - operating partnership and equity
$
6,722,922

 
$
6,557,629


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, 2016
 
September 30, 2015
OPERATING REVENUE
 
 
 
Rental
$
140,697

 
$
145,009

Operating expense reimbursement
50,160

 
53,963

Total operating revenue
190,857

 
198,972

OPERATING EXPENSE
 
 
 
Rental property
26,496

 
31,454

Real estate taxes
25,968

 
25,953

General and administrative
16,151

 
15,573

Depreciation and amortization
46,920

 
55,718

Total operating expense
115,535

 
128,698

Operating income
75,322

 
70,274

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
3,153

 
4,959

Loss on debt extinguishment
(3,494
)
 

Interest expense
(29,528
)
 
(33,559
)
Total other income (expense)
(29,869
)
 
(28,600
)
Income before gain on property dispositions, income taxes and equity in earnings (loss) of unconsolidated joint ventures
45,453

 
41,674

Gain on property dispositions
1,318

 
53,467

Income taxes
(80
)
 
(599
)
Equity in earnings (loss) of unconsolidated joint ventures
9,043

 
(847
)
Net income
55,734

 
93,695

Noncontrolling interest – operating partnership
(1,424
)
 
(2,306
)
Noncontrolling interest – consolidated joint ventures
(57
)
 
(58
)
Net income available to common shareholders
$
54,253

 
$
91,331

 
 
 
 
Net income
$
55,734

 
$
93,695

Other comprehensive loss - foreign currency translation
(4,407
)
 
(7,970
)
Other comprehensive gain (loss) - derivative instruments
663

 
(1,220
)
Other comprehensive loss
(3,744
)
 
(9,190
)
Total comprehensive income
51,990

 
84,505

Less: comprehensive income attributable to noncontrolling interest
(1,393
)
 
(2,148
)
Comprehensive income attributable to common shareholders
$
50,597

 
$
82,357

Earnings per common share
 
 
 
Income per common share – basic
$
0.37

 
$
0.61

Income per common share – diluted
$
0.37

 
$
0.61

Distributions per common share
$
0.475

 
$
0.475

Weighted average number of common shares outstanding
 
 
 
Basic
146,215

 
148,582

Diluted
147,107

 
149,176

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, 2016
 
September 30, 2015
OPERATING REVENUE
 
 
 
Rental
$
418,896

 
$
440,962

Operating expense reimbursement
148,757

 
168,430

Total operating revenue
567,653

 
609,392

OPERATING EXPENSE
 
 
 
Rental property
79,752

 
98,973

Real estate taxes
76,490

 
78,579

General and administrative
52,770

 
51,428

Depreciation and amortization
154,543

 
171,347

Impairment - real estate assets

 
16,775

Total operating expense
363,555

 
417,102

Operating income
204,098

 
192,290

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
12,743

 
17,911

Loss on debt extinguishment
(3,494
)
 

Interest expense
(91,071
)
 
(103,295
)
Total other income (expense)
(81,822
)
 
(85,384
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
122,276

 
106,906

Gain on property dispositions
25,671

 
56,987

Income taxes
(1,633
)
 
(2,613
)
Equity in earnings of unconsolidated joint ventures
19,540

 
805

Net income
165,854

 
162,085

Noncontrolling interest – operating partnership
(4,250
)
 
(4,117
)
Noncontrolling interest – consolidated joint ventures
(170
)
 
(171
)
Net income available to common shareholders
$
161,434

 
$
157,797

 
 
 
 
Net income
$
165,854

 
$
162,085

Other comprehensive loss - foreign currency translation
(23,003
)
 
(6,229
)
Other comprehensive loss - derivative instruments
(1,132
)
 
(1,539
)
Other comprehensive loss
(24,135
)
 
(7,768
)
Total comprehensive income
141,719

 
154,317

Less: comprehensive income attributable to noncontrolling interest
(3,851
)
 
(4,105
)
Comprehensive income attributable to common shareholders
$
137,868

 
$
150,212

Earnings per common share
 
 
 
Income per common share – basic
$
1.10

 
$
1.06

Income per common share – diluted
$
1.10

 
$
1.06

Distributions per common share
$
1.425

 
$
1.425

Weighted average number of common shares outstanding
 
 
 
Basic
146,121

 
148,594

Diluted
146,788

 
149,220

See accompanying notes.

7


CONSOLIDATED STATEMENT OF EQUITY OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
 
 
COMMON SHARES OF
BENEFICIAL INTEREST
 
ADDITIONAL PAID-IN CAPITAL
 
ACCUMULATED OTHER COMPREHENSIVE LOSS
 
DISTRIBUTIONS IN EXCESS OF NET INCOME
 
TOTAL LIBERTY PROPERTY TRUST SHAREHOLDERS’
EQUITY
 
NONCONTROLLING INTEREST - OPERATING PARTNERSHIP-COMMON
 
NONCONTROLLING INTEREST -
CONSOLIDATED
JOINT
VENTURES
 
TOTAL EQUITY
 
NONCONTROLLING INTEREST - OPERATING PARTNERSHIP (MEZZANINE)
Balance at January 1, 2016
 
$
148

 
$
3,669,627

 
$
(17,893
)
 
$
(698,954
)
 
$
2,952,928

 
$
53,100

 
$
3,919

 
$
3,009,947

 
$
7,537

Net proceeds from the issuance of common shares
 

 
11,967

 

 

 
11,967

 

 

 
11,967

 

Net income
 

 

 

 
161,434

 
161,434

 
3,896

 
170

 
165,500

 
354

Distributions
 

 

 

 
(209,010
)
 
(209,010
)
 
(5,045
)
 
(170
)
 
(214,225
)
 
(354
)
Share repurchase
 
(1
)
 
(40,895
)
 

 

 
(40,896
)
 

 

 
(40,896
)
 

Share-based compensation
 

 
13,821

 

 

 
13,821

 

 

 
13,821

 

Other comprehensive loss - foreign currency translation
 

 

 
(22,460
)
 

 
(22,460
)
 
(543
)
 

 
(23,003
)
 

Other comprehensive loss - derivative instruments
 

 

 
(1,106
)
 

 
(1,106
)
 
(26
)
 

 
(1,132
)
 

Redemption of noncontrolling interests – common units
 

 
132

 

 

 
132

 
(132
)
 

 

 

Balance at September 30, 2016
 
$
147

 
$
3,654,652

 
$
(41,459
)
 
$
(746,530
)
 
$
2,866,810

 
$
51,250

 
$
3,919

 
$
2,921,979

 
$
7,537


See accompanying notes.

8


CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
Nine Months Ended
 
September 30, 2016
 
September 30, 2015
OPERATING ACTIVITIES
 
 
 
Net income
$
165,854

 
$
162,085

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
156,562

 
173,726

Amortization of deferred financing costs
3,068

 
3,249

Impairment - real estate assets

 
16,775

Loss on debt extinguishment
3,494

 

Equity in earnings of unconsolidated joint ventures
(19,540
)
 
(805
)
Distributions from unconsolidated joint ventures

 
2,490

Gain on property dispositions
(25,671
)
 
(56,987
)
Share-based compensation
12,841

 
10,709

Other
(5,326
)
 
(8,143
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash
4,059

 
4,914

Accounts receivable
(4,980
)
 
1,023

Deferred rent receivable
(12,948
)
 
(17,122
)
Prepaid expenses and other assets
(22,172
)
 
(20,182
)
Accounts payable
21,343

 
8,312

Accrued interest
12,800

 
19,258

Other liabilities
(2,561
)
 
371

Net cash provided by operating activities
286,823

 
299,673

INVESTING ACTIVITIES
 
 
 
Investment in properties – acquisitions
(9,278
)
 
(100,756
)
Investment in properties – other
(44,017
)
 
(58,038
)
Investments in and advances to unconsolidated joint ventures
(50,460
)
 
(30,609
)
Distributions from unconsolidated joint ventures
49,372

 
23,093

Net proceeds from disposition of properties/land
142,808

 
243,943

Investment in development in progress
(259,193
)
 
(123,547
)
Investment in land held for development
(70,809
)
 
(101,934
)
Payment of deferred leasing costs
(22,306
)
 
(34,404
)
Other
4,874

 
(6,366
)
Net cash used in investing activities
(259,009
)
 
(188,618
)
FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares
11,967

 
38,195

Share repurchase
(40,896
)
 
(65,463
)
Proceeds from unsecured notes
396,648

 
398,576

Repayments of unsecured notes including prepayment premium
(303,673
)
 
(300,000
)
Repayments of mortgage loans
(25,260
)
 
(112,970
)
Proceeds from credit facility
466,300

 
919,700

Repayments on credit facility
(305,300
)
 
(786,700
)
Payment of deferred financing costs
(2,600
)
 
(3,478
)
Distribution paid on common shares
(209,428
)
 
(212,402
)
Distribution paid on units
(5,690
)
 
(5,704
)
Net cash used in financing activities
(17,932
)
 
(130,246
)
Net increase (decrease) in cash and cash equivalents
9,882

 
(19,191
)
Decrease in cash and cash equivalents related to foreign currency translation
(2,945
)
 
(1,503
)
Cash and cash equivalents at beginning of period
35,353

 
69,346

Cash and cash equivalents at end of period
$
42,290

 
$
48,652

See accompanying notes.

9


CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except unit amounts)
 
 
September 30, 2016
 
December 31, 2015
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,009,941

 
$
1,184,927

Building and improvements
4,409,422

 
5,131,648

Less accumulated depreciation
(917,201
)
 
(1,148,928
)
Operating real estate
4,502,162

 
5,167,647

Development in progress
427,686

 
360,948

Land held for development
325,444

 
336,967

Net real estate
5,255,292

 
5,865,562

Cash and cash equivalents
42,290

 
35,353

Restricted cash
5,661

 
9,018

Accounts receivable, net
13,983

 
14,343

Deferred rent receivable, net
106,864

 
118,787

Deferred financing and leasing costs, net of accumulated amortization (September 30, 2016, $153,022; December 31, 2015, $175,798)
153,593

 
192,109

Investments in and advances to unconsolidated joint ventures
236,800

 
218,454

Assets held for sale
786,272

 
4,954

Prepaid expenses and other assets
122,167

 
99,049

Total assets
$
6,722,922

 
$
6,557,629

LIABILITIES
 
 
 
Mortgage loans, net
$
281,384

 
$
307,908

Unsecured notes, net
2,675,644

 
2,580,108

Credit facility
420,000

 
259,000

Accounts payable
76,599

 
51,382

Accrued interest
38,954

 
26,154

Distributions payable
71,378

 
71,787

Other liabilities
204,031

 
243,806

Liabilities held for sale
25,416

 

Total liabilities
3,793,406

 
3,540,145

Limited partners' equity - 301,483 preferred units outstanding as of September 30, 2016, and December 31, 2015
7,537

 
7,537

OWNERS’ EQUITY
 
 
 
General partner’s equity - 146,981,465 and 147,577,984 common units outstanding as of September 30, 2016 and December 31, 2015, respectively
2,866,810

 
2,952,928

Limited partners’ equity – 3,530,031 and 3,539,075 common units outstanding as of September 30, 2016 and December 31, 2015, respectively
51,250

 
53,100

Noncontrolling interest – consolidated joint ventures
3,919

 
3,919

Total owners’ equity
2,921,979

 
3,009,947

Total liabilities, limited partners' equity and owners’ equity
$
6,722,922

 
$
6,557,629


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, 2016
 
September 30, 2015
OPERATING REVENUE
 
 
 
Rental
$
140,697

 
$
145,009

Operating expense reimbursement
50,160

 
53,963

Total operating revenue
190,857

 
198,972

OPERATING EXPENSE
 
 
 
Rental property
26,496

 
31,454

Real estate taxes
25,968

 
25,953

General and administrative
16,151

 
15,573

Depreciation and amortization
46,920

 
55,718

Total operating expense
115,535

 
128,698

Operating income
75,322

 
70,274

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
3,153

 
4,959

Loss on debt extinguishment
(3,494
)
 

Interest expense
(29,528
)
 
(33,559
)
Total other income (expense)
(29,869
)
 
(28,600
)
Income before gain on property dispositions, income taxes and equity in earnings (loss) of unconsolidated joint ventures
45,453

 
41,674

Gain on property dispositions
1,318

 
53,467

Income taxes
(80
)
 
(599
)
Equity in earnings (loss) of unconsolidated joint ventures
9,043

 
(847
)
Net income
55,734

 
93,695

Noncontrolling interest – consolidated joint ventures
(57
)
 
(58
)
Preferred unit distributions
(118
)
 
(118
)
Net income available to common unitholders
$
55,559

 
$
93,519

Net income
$
55,734

 
$
93,695

Other comprehensive loss - foreign currency translation
(4,407
)
 
(7,970
)
Other comprehensive gain (loss) - derivative instruments
663

 
(1,220
)
Other comprehensive loss
(3,744
)
 
(9,190
)
Total comprehensive income
$
51,990

 
$
84,505

Earnings per common unit
 
 
 
Income per common unit - basic
$
0.37

 
$
0.61

Income per common unit - diluted
$
0.37

 
$
0.61

Distributions per common unit
$
0.475

 
$
0.475

Weighted average number of common units outstanding
 
 
 
        Basic
149,751

 
152,121

        Diluted
150,643

 
152,715

Net income allocated to general partners
$
54,253

 
$
91,331

Net income allocated to limited partners
$
1,424

 
$
2,306


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, 2016
 
September 30, 2015
OPERATING REVENUE
 
 
 
Rental
$
418,896

 
$
440,962

Operating expense reimbursement
148,757

 
168,430

Total operating revenue
567,653

 
609,392

OPERATING EXPENSE
 
 
 
Rental property
79,752

 
98,973

Real estate taxes
76,490

 
78,579

General and administrative
52,770

 
51,428

Depreciation and amortization
154,543

 
171,347

Impairment - real estate assets

 
16,775

Total operating expense
363,555

 
417,102

Operating income
204,098

 
192,290

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
12,743

 
17,911

Loss on debt extinguishment
(3,494
)
 

Interest expense
(91,071
)
 
(103,295
)
Total other income (expense)
(81,822
)
 
(85,384
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
122,276

 
106,906

Gain on property dispositions
25,671

 
56,987

Income taxes
(1,633
)
 
(2,613
)
Equity in earnings of unconsolidated joint ventures
19,540

 
805

Net income
165,854

 
162,085

Noncontrolling interest – consolidated joint ventures
(170
)
 
(171
)
Preferred unit distributions
(354
)
 
(354
)
Income available to common unitholders
$
165,330

 
$
161,560

Net income
$
165,854

 
$
162,085

Other comprehensive loss - foreign currency translation
(23,003
)
 
(6,229
)
Other comprehensive loss - derivative instruments
(1,132
)
 
(1,539
)
Other comprehensive loss
(24,135
)
 
(7,768
)
Total comprehensive income
$
141,719

 
$
154,317

Earnings per common unit
 
 
 
Income per common unit - basic
$
1.10

 
$
1.06

Income per common unit - diluted
$
1.10

 
$
1.06

Distributions per common unit
$
1.425

 
$
1.425

Weighted average number of common units outstanding
 
 
 
        Basic
149,659

 
152,134

        Diluted
150,326

 
152,760

Net income allocated to general partners
$
161,434

 
$
157,797

Net income allocated to limited partners
$
4,250

 
$
4,117


See accompanying notes.

12


CONSOLIDATED STATEMENT OF OWNERS’ EQUITY OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
GENERAL
PARTNER’S
EQUITY
 
LIMITED PARTNERS’
EQUITY  –
COMMON UNITS
 
NONCONTROLLING
INTEREST –
CONSOLIDATED
JOINT VENTURES
 
TOTAL
OWNERS’
EQUITY
 
LIMITED PARTNERS' EQUITY - PREFERRED
Balance at January 1, 2016
$
2,952,928

 
$
53,100

 
$
3,919

 
$
3,009,947

 
$
7,537

Contributions from partners
25,788

 

 

 
25,788

 

Unit repurchase
(40,896
)
 

 

 
(40,896
)
 

Distributions to partners
(209,010
)
 
(5,045
)
 
(170
)
 
(214,225
)
 
(354
)
Other comprehensive loss - foreign currency translation
(22,460
)
 
(543
)
 

 
(23,003
)
 

Other comprehensive loss - derivative instruments
(1,106
)
 
(26
)
 

 
(1,132
)
 

Net income
161,434

 
3,896

 
170

 
165,500

 
354

Redemption of limited partners common units for common shares
132

 
(132
)
 

 

 

Balance at September 30, 2016
$
2,866,810

 
$
51,250

 
$
3,919

 
$
2,921,979

 
$
7,537


See accompanying notes.

13


CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
Nine Months Ended
 
September 30, 2016
 
September 30, 2015
OPERATING ACTIVITIES
 
 
 
Net income
$
165,854

 
$
162,085

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
156,562

 
173,726

Amortization of deferred financing costs
3,068

 
3,249

Impairment - real estate assets

 
16,775

Loss on debt extinguishment
3,494

 

Equity in earnings of unconsolidated joint ventures
(19,540
)
 
(805
)
Distributions from unconsolidated joint ventures

 
2,490

Gain on property dispositions
(25,671
)
 
(56,987
)
Noncash compensation
12,841

 
10,709

Other
(5,326
)
 
(8,143
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash
4,059

 
4,914

Accounts receivable
(4,980
)
 
1,023

Deferred rent receivable
(12,948
)
 
(17,122
)
Prepaid expenses and other assets
(22,172
)
 
(20,182
)
Accounts payable
21,343

 
8,312

Accrued interest
12,800

 
19,258

Other liabilities
(2,561
)
 
371

Net cash provided by operating activities
286,823

 
299,673

INVESTING ACTIVITIES
 
 
 
Investment in properties – acquisitions
(9,278
)
 
(100,756
)
Investment in properties – other
(44,017
)
 
(58,038
)
Investments in and advances to unconsolidated joint ventures
(50,460
)
 
(30,609
)
Distributions from unconsolidated joint ventures
49,372

 
23,093

Net proceeds from disposition of properties/land
142,808

 
243,943

Investment in development in progress
(259,193
)
 
(123,547
)
Investment in land held for development
(70,809
)
 
(101,934
)
Payment of deferred leasing costs
(22,306
)
 
(34,404
)
Other
4,874

 
(6,366
)
Net cash used in investing activities
(259,009
)
 
(188,618
)
FINANCING ACTIVITIES
 
 
 
Proceeds from unsecured notes
396,648

 
398,576

Repayments of unsecured notes including prepayment premium
(303,673
)
 
(300,000
)
Repayments of mortgage loans
(25,260
)
 
(112,970
)
Proceeds from credit facility
466,300

 
919,700

Repayments on credit facility
(305,300
)
 
(786,700
)
Payment of deferred financing costs
(2,600
)
 
(3,478
)
Capital contributions
11,967

 
38,195

Distributions to partners
(256,014
)
 
(283,569
)
Net cash used in financing activities
(17,932
)
 
(130,246
)
Net increase (decrease) in cash and cash equivalents
9,882

 
(19,191
)
Decrease in cash and cash equivalents related to foreign currency translation
(2,945
)
 
(1,503
)
Cash and cash equivalents at beginning of period
35,353

 
69,346

Cash and cash equivalents at end of period
$
42,290

 
$
48,652

See accompanying notes.

14


Liberty Property Trust and Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2016
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, 2016. The Company owns and operates industrial properties nationally and owns and operates office properties in a focused group of office markets. Additionally, the Company owns certain assets in the United Kingdom. Unless otherwise indicated, the notes to the Consolidated Financial Statements apply to both the Trust and the Operating Partnership. The terms the “Company,” “we,” “our” and “us” mean the Trust and Operating Partnership collectively.
As of January 1, 2016 under the revised accounting standard Topic 810 (see Recently Issued Accounting Standards below), the Operating Partnership is a variable interest entity ("VIE") of the Trust as the limited partners do not have substantive kick-out or participating rights. The Trust is the primary beneficiary of the Operating Partnership as it has the power to direct the activities of the Operating Partnership and the rights to absorb 97.7% of the net income of the Operating Partnership. The Trust has no significant assets or liabilities other than its investment in the Operating Partnership. As the Operating Partnership is already consolidated in the balance sheets of the Trust, the identification of this entity as a VIE has no impact on the consolidated financial statements of the Trust. In addition, the Company holds a 20% interest in Liberty/Comcast 1701 JFK Boulevard, LP which was determined to be a VIE. The Company determined that it is not the primary beneficiary as the Company and its third party partner share control of the joint venture. The Company's maximum exposure to loss is equal to its equity investment in the joint venture which was $19.3 million and $20.5 million as of September 30, 2016 and December 31, 2015, respectively.
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, 2015. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full fiscal year.
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance. The standard clarifies the required factors that an entity must consider when recognizing revenue. The standard also requires additional disclosures concerning contracts with customers, judgments concerning revenue recognition, and assets recognized for the costs to obtain or fulfill a contract. ASU 2014-09 is effective for the Company beginning January 1, 2018. The Company is evaluating the impact ASU 2014-09 will have on its financial position and results of operations and has not yet selected a transition method.
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis (Topic 810) ("ASU 2015-02"). The standard requires that all entities re-evaluate and revise consolidation documentation for limited partnerships and similar legal entities. It makes changes to both the variable interest model and voting model. The Company adopted ASU 2015-02 beginning January 1, 2016. The adoption of ASU 2015-02 did not have a material impact on the Company's financial position and results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for the Company beginning January 1, 2019. Early adoption of ASU 2016-02 is permitted. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is evaluating the impact ASU 2016-02 will have on its financial position and results of operations.

15


In March 2016, the FASB issued ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships ("ASU 2016-05"). ASU 2016-05 states that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under FASB Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-05 is effective for the Company beginning January 1, 2017. Early adoption of ASU 2016-05 is permitted. The standard allows application on a prospective or modified retrospective basis. The Company does not believe that ASU 2016-05 will have a material impact on its financial position and results of operations.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 is designed to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for the Company beginning January 1, 2017. Early adoption of ASU 2016-09 is permitted. Certain amendments in the standard are to be applied retrospectively and certain amendments are to be applied prospectively. The Company is evaluating the impact ASU 2016-09 will have on its financial position and results of operations.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 is designed to clarify how entities should classify cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for the Company beginning January 1, 2018. Early adoption of ASU 2016-15 is permitted. The standard requires retrospective application unless it is impracticable to do so. The Company is evaluating the impact ASU 2016-15 will have on its statement of cash flows.
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, 2016
 
September 30, 2015
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Net income available to common shareholders - basic
$
54,253

 
146,215

 
$
0.37

 
$
91,331

 
148,582

 
$
0.61

Dilutive shares for long-term compensation plans

 
892

 
 
 

 
594

 
 
Net income available to common shareholders - diluted
$
54,253

 
147,107

 
$
0.37

 
$
91,331

 
149,176

 
$
0.61

 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended
 
For the Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Net income available to common shareholders - basic
$
161,434

 
146,121

 
$
1.10

 
$
157,797

 
148,594

 
$
1.06

Dilutive shares for long-term compensation plans

 
667

 
 
 

 
626

 
 
Net income available to common shareholders - diluted
$
161,434

 
146,788

 
$
1.10

 
$
157,797

 
149,220

 
$
1.06


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, 2016 was 160,000 and 762,000, respectively, as compared to 2,260,000 and 1,528,000, respectively, for the same periods in 2015.
During the three and nine months ended September 30, 2016, 241,000 and 353,000 common shares, respectively, were issued upon the exercise of options. During the year ended December 31, 2015, 65,000 common shares were issued upon the exercise of options.

16


Share Repurchase
In August 2015, the Company’s Board of Trustees authorized a share repurchase plan under which the Company may purchase up to $250 million of the Company’s outstanding common shares. Purchases made pursuant to the program may be made in either the open market or in privately negotiated transactions from time to time as permitted by securities laws and other legal requirements.
During the nine months ended September 30, 2016, the Company purchased an aggregate of 1.4 million common shares for $40.9 million at an average price of $29.28 per share as part of the share repurchase plan. There were no such purchases during the three months ended September 30, 2016.

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, 2016
 
September 30, 2015
 
Income (Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
Income - net of noncontrolling interest - consolidated joint ventures
$
55,677

 
 
 
 
 
$
93,637

 
 
 
 
Less: Preferred unit distributions
(118
)
 
 
 
 
 
(118
)
 
 
 
 
Income available to common unitholders - basic
$
55,559

 
149,751

 
$
0.37

 
$
93,519

 
152,121

 
$
0.61

Dilutive units for long-term compensation plans

 
892

 
 
 

 
594

 
 
Income available to common unitholders - diluted
$
55,559

 
150,643

 
$
0.37

 
$
93,519

 
152,715

 
$
0.61

 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended
 
For the Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
Income - net of noncontrolling interest - consolidated joint ventures
$
165,684

 
 
 
 
 
$
161,914

 
 
 
 
Less: Preferred unit distributions
(354
)
 
 
 
 
 
(354
)
 
 
 
 
Income available to common unitholders - basic
165,330

 
149,659

 
$
1.10

 
161,560

 
152,134

 
$
1.06

Dilutive units for long-term compensation plans

 
667

 
 
 

 
626

 
 
Income available to common unitholders - diluted
$
165,330

 
150,326

 
$
1.10

 
$
161,560

 
152,760

 
$
1.06


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, 2016 was 160,000 and 762,000, respectively, as compared to 2,260,000 and 1,528,000, respectively, for the same periods in 2015.
During the three and nine months ended September 30, 2016, 241,000 and 353,000 common units, respectively, were issued upon exercise of options. During the year ended December 31, 2015, 65,000 common units were issued upon the exercise of options.
Share Repurchase
In August 2015, the Company’s Board of Trustees authorized a share repurchase plan under which the Company may purchase up to $250 million of the Company’s outstanding common units. Purchases made pursuant to the program may be made in either the open market or in privately negotiated transactions from time to time as permitted by securities laws and other legal requirements.

17


During the nine months ended September 30, 2016, the Company purchased an aggregate of 1.4 million common shares for $40.9 million at an average price of $29.28 per share as part of the share repurchase plan. In connection with these repurchases, an equal number of common units were repurchased by the Operating Partnership from the Trust. There were no such purchases during the three months ended September 30, 2016.
Note 4: Accumulated Other Comprehensive Loss

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

 
 
As of and for the nine months ended September 30,
 
 
2016
 
2015
Foreign Currency Translation:
 
 
 
 
     Beginning balance
 
$
(17,256
)
 
$
(5,823
)
     Translation adjustment
 
(23,003
)
 
(6,229
)
     Ending balance
 
(40,259
)
 
(12,052
)
 
 
 
 
 
Derivative Instruments:
 
 
 
 
     Beginning balance
 
(865
)
 
(377
)
     Unrealized loss
 
(1,955
)
 
(2,592
)
     Reclassification adjustment (1)
 
823

 
1,053

     Ending balance
 
(1,997
)
 
(1,916
)
Total accumulated other comprehensive loss
 
(42,256
)
 
(13,968
)
Less: portion included in noncontrolling interest – operating partnership
 
797

 
131

Total accumulated other comprehensive loss included in shareholders' equity/owners' equity
 
$
(41,459
)
 
$
(13,837
)

(1)
Amounts reclassified out of Accumulated Other Comprehensive Loss/General & Limited Partner's Equity into contractual interest expense.
Note 5: Real Estate

On October 3, 2016, the Company completed the sale of 108 properties totaling approximately 7.6 million square feet and 26.7 acres of land for $969 million. This sale did not represent a strategic shift for the Company. However, the sale does represent an individually significant disposition. The operating results for these properties and land are included in continued operations for all periods presented. Net income and net income available to common shareholders for these properties for the three and nine months ended 2016 and 2015, respectively, are as follows (in thousands):
 
Three Months
 
Nine Months
 
Ended September 30,
 
Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
20,524

 
$
14,595

 
$
48,182

 
$
45,126

Net income available to common shareholders
$
20,041

 
$
14,252

 
$
47,050

 
$
44,079



18


As of September 30, 2016 these assets and liabilities were considered held for sale. These assets and liabilities consist of the following:
 
 
 
Assets held for sale
 
 
Land and land improvements
$
202,641

 
Building and improvements
834,286

 
Less accumulated depreciation
(319,495
)
 
Operating real estate
717,432

 
 
 
 
Land held for development
15,524

 
Accounts receivable, net
1,358

 
Deferred rent receivable, net
22,140

 
Deferred financing and leasing costs, net
23,493

 
Prepaid expenses and other assets
3,595

Total assets held for sale
$
783,542

 
 
 
Liabilities held for sale
 
 
Accounts payable
$
8,650

 
Other liabilities
16,766

Total liabilities held for sale
$
25,416

As of September 30, 2016, the Company also classified a parcel of land held for development with a carrying value of $2.7 million as assets held for sale.
The Company's properties classified as held for sale by reportable segment as of September 30, 2016 are as follows:

 
Properties Held for Sale
 
Acres of Land
 
Square Feet (000s)
Minnesota
19

 

 
1,489

Florida
45

 
13.2

 
2,935

Southeastern PA
30

 

 
2,076

Other
14

 
18.1

 
1,079

Total
108

 
31.3

 
7,579


During the nine months ended September 30, 2016, the Company acquired one operating property for a purchase price of $8.0 million. This property, comprising 73,000 square feet of leaseable space, is located in the Company's Chicago/Milwaukee reportable segment.

The Company's sales by reportable segment for the three and nine months ended September 30, 2016 are as follows:

 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2016
 
 
Properties Sold
 
Square Feet (000s)
 
Gross Proceeds (000s)
 
Properties Sold
 
Square Feet (000s)
 
Gross Proceeds (000s)
 
Minnesota

 

 
$

 
1

 
92

 
$
9,200

 
Florida

 

 

 
6

 
574

 
111,828

(1
)
Other
1

 
80

 
4,391

 
3

 
461

 
26,491

 
Total
1

 
80

 
$
4,391

 
10

 
1,127

 
$
147,519

 

(1)
Includes gross proceeds from the sale of 3.5 acres of land.

19


Note 6: Segment Information
The Company owns and operates industrial properties nationally and owns and operates office properties in a focused group of office markets. Additionally, the Company owns certain assets in the United Kingdom. During the nine months ended September 30, 2016, the Company realigned its reportable segments as follows:
Carolinas/Richmond;
Chicago/Milwaukee;
Florida;
Houston;
Lehigh/Central PA;
Minnesota;
Philadelphia;
Southeastern PA; and
United Kingdom.
Certain other segments are aggregated into an "Other" category which includes the reportable segments: Arizona; Atlanta; Cincinnati/Columbus/Indianapolis; Dallas; DC Metro; New Jersey; Northern Virginia; Southern California; and other.
Comparative prior periods have been restated to reflect current segment disclosures.
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):
 
 
 
Three Months
 
Nine Months
 
 
 
Ended September 30,
 
Ended September 30,
 
 
 
2016
 
2015
 
2016
 
2015
Operating revenue
 
 
 
 
 
 
 
 
 
Carolinas/Richmond
 
$
17,292

 
$
15,723

 
$
49,226

 
$
56,271

 
Chicago/Milwaukee
 
11,384

 
8,872

 
31,896

 
27,596

 
Florida
 
28,115

 
32,072

 
85,230

 
94,430

 
Houston
 
14,870

 
12,981

 
43,840

 
38,455

 
Lehigh/Central PA
 
34,157

 
33,746

 
102,182

 
100,144

 
Minnesota
 
12,033

 
11,751

 
34,952

 
36,699

 
Philadelphia
 
10,513

 
10,552

 
31,253

 
30,422

 
Southeastern PA
 
24,563

 
36,718

 
74,789

 
114,430

 
United Kingdom
 
3,275

 
3,776

 
10,352

 
11,466

 
Other
 
34,831

 
32,801

 
104,274

 
99,636

Segment-level operating revenue
 
191,033

 
198,992

 
567,994

 
609,549

 
 
 
 
 
 
 
 
 
 
 Reconciliation to total operating revenues
 
 
 
 
 
 
 
 
 
 Other
 
(176
)
 
(20
)
 
(341
)
 
(157
)
 Total operating revenue
 
$
190,857

 
$
198,972

 
$
567,653

 
$
609,392

 
 
 
 
 
 
 
 
 
 
 Net operating income
 
 
 
 
 
 
 
 
 
 
Carolinas/Richmond
 
$
12,198

 
$
10,809

 
$
34,257

 
$
37,017

 
Chicago/Milwaukee
 
7,103

 
5,792

 
20,917

 
18,660

 
Florida
 
18,340

 
19,301

 
53,129

 
57,861

 
Houston
 
7,989

 
7,829

 
24,858

 
22,739

 
Lehigh/Central PA
 
24,982

 
24,289

 
73,939

 
70,907

 
Minnesota
 
5,416

 
4,461

 
14,844

 
15,595

 
Philadelphia
 
7,725

 
7,898

 
23,064

 
22,230

 
Southeastern PA
 
16,244

 
20,887

 
44,544

 
63,301

 
United Kingdom
 
2,031

 
2,619

 
6,871

 
7,917

 
Other
 
22,643

 
21,750

 
68,422

 
66,138

Segment-level net operating income
 
124,671

 
125,635

 
364,845