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EX-31.1 - EXHIBIT 31.1 - LIBERTY PROPERTY TRUSTlptex311-3312017.htm
EX-32.4 - EXHIBIT 32.4 - LIBERTY PROPERTY TRUSTlptex324-3312017.htm
EX-32.3 - EXHIBIT 32.3 - LIBERTY PROPERTY TRUSTlptex323-3312017.htm
EX-32.2 - EXHIBIT 32.2 - LIBERTY PROPERTY TRUSTlptex322-3312017.htm
EX-32.1 - EXHIBIT 32.1 - LIBERTY PROPERTY TRUSTlptex321-3312017.htm
EX-31.4 - EXHIBIT 31.4 - LIBERTY PROPERTY TRUSTlptex314-3312017.htm
EX-31.3 - EXHIBIT 31.3 - LIBERTY PROPERTY TRUSTlptex313-3312017.htm
EX-31.2 - EXHIBIT 31.2 - LIBERTY PROPERTY TRUSTlptex312-3312017.htm
EX-12.1 - EXHIBIT 12.1 - LIBERTY PROPERTY TRUSTlptex121-3312017.htm
EX-3.1 - EXHIBIT 3.1 - LIBERTY PROPERTY TRUSTlptex3133117.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 March 31, 2017
  
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, a smaller reporting company or an emerging growth company. (See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth 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
 
 
Emerging Growth Company
o
    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes  o    No  x

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 May 2, 2017, 147,212,480 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 March 31, 2017 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 March 31, 2017. 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 March 31, 2017
 
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.
 
 
 
 
 
 
 
FIRST AMENDED AND RESTATED BYLAWS OF LIBERTY PROPERTY TRUST, AS AMENDED THROUGH MARCH 27, 2017.
 
 
 
 
 
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)
 
 
March 31, 2017
 
December 31, 2016
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,101,475

 
$
1,094,470

Building and improvements
4,531,773

 
4,501,921

Less accumulated depreciation
(967,251
)
 
(940,115
)
Operating real estate
4,665,997

 
4,656,276

Development in progress
321,331

 
267,450

Land held for development
345,632

 
336,569

Net real estate
5,332,960

 
5,260,295

Cash and cash equivalents
36,535

 
43,642

Restricted cash
10,680

 
12,383

Accounts receivable, net
14,998

 
13,994

Deferred rent receivable, net
114,811

 
109,245

Deferred financing and leasing costs, net of accumulated amortization (March 31, 2017, $156,509; December 31, 2016, $152,309)
155,105

 
153,393

Investments in and advances to unconsolidated joint ventures
254,864

 
245,078

Assets held for sale
5,039

 
4,548

Prepaid expenses and other assets
158,909

 
150,235

Total assets
$
6,083,901

 
$
5,992,813

LIABILITIES
 
 
 
Mortgage loans, net
$
274,260

 
$
276,650

Unsecured notes, net
2,280,970

 
2,280,286

Credit facility
115,000

 

Accounts payable
56,357

 
65,914

Accrued interest
34,850

 
21,878

Dividend and distributions payable
60,293

 
71,501

Other liabilities
199,718

 
206,124

Total liabilities
3,021,448

 
2,922,353

Noncontrolling interest - operating partnership - 301,483 preferred units outstanding as of March 31, 2017 and December 31, 2016
7,537

 
7,537

EQUITY
 
 
 
Liberty Property Trust shareholders’ equity
 
 
 
Common shares of beneficial interest, $.001 par value, 283,987,000 shares authorized; 147,203,022 and 146,993,018 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
147

 
147

Additional paid-in capital
3,660,740

 
3,655,910

Accumulated other comprehensive loss
(52,622
)
 
(56,031
)
Distributions in excess of net income
(612,424
)
 
(596,635
)
Total Liberty Property Trust shareholders’ equity
2,995,841

 
3,003,391

Noncontrolling interest – operating partnership
 
 
 
3,528,281 and 3,530,031 common units outstanding as of March 31, 2017 and December 31, 2016, respectively
54,174

 
54,631

Noncontrolling interest – consolidated joint ventures
4,901

 
4,901

Total equity
3,054,916

 
3,062,923

Total liabilities, noncontrolling interest - operating partnership and equity
$
6,083,901

 
$
5,992,813


See accompanying notes.

5


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 
Three Months Ended
 
March 31, 2017
 
March 31, 2016
OPERATING REVENUE
 
 
 
Rental
$
123,381

 
$
139,054

Operating expense reimbursement
40,500

 
51,086

Development service fee income
11,485

 

Total operating revenue
175,366

 
190,140

OPERATING EXPENSE
 
 
 
Rental property
19,884

 
28,509

Real estate taxes
23,281

 
25,320

General and administrative
16,942

 
20,990

Depreciation and amortization
45,460

 
54,078

Development service fee expense
11,004

 

Total operating expense
116,571

 
128,897

Operating income
58,795

 
61,243

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
1,876

 
4,598

Interest expense
(22,343
)
 
(31,412
)
Total other income (expense)
(20,467
)
 
(26,814
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
38,328

 
34,429

Gain on property dispositions
807

 
20,521

Income taxes
(622
)
 
(801
)
Equity in earnings of unconsolidated joint ventures
5,731

 
4,914

Net income
44,244

 
59,063

Noncontrolling interest – operating partnership
(1,149
)
 
(1,509
)
Noncontrolling interest – consolidated joint ventures
(63
)
 

Net income available to common shareholders
$
43,032

 
$
57,554

 
 
 
 
Net income
$
44,244

 
$
59,063

Other comprehensive gain (loss) - foreign currency translation
3,177

 
(5,087
)
Other comprehensive gain (loss) - derivative instruments
313

 
(1,360
)
Other comprehensive income (loss)
3,490

 
(6,447
)
Total comprehensive income
47,734

 
52,616

Less: comprehensive income attributable to noncontrolling interest
(1,293
)
 
(1,357
)
Comprehensive income attributable to common shareholders
$
46,441

 
$
51,259

Earnings per common share
 
 
 
Income per common share – basic
$
0.29

 
$
0.39

Income per common share – diluted
$
0.29

 
$
0.39

Distributions per common share
$
0.40

 
$
0.475

Weighted average number of common shares outstanding
 
 
 
Basic
146,471

 
146,071

Diluted
147,221

 
146,531

See accompanying notes.

6


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, 2017
 
$
147

 
$
3,655,910

 
$
(56,031
)
 
$
(596,635
)
 
$
3,003,391

 
$
54,631

 
$
4,901

 
$
3,062,923

 
$
7,537

Net proceeds from the issuance of common shares
 

 
852

 

 

 
852

 

 

 
852

 

Net income
 

 

 

 
43,032

 
43,032

 
1,031

 
63

 
44,126

 
118

Distributions
 

 

 

 
(58,821
)
 
(58,821
)
 
(1,542
)
 
(63
)
 
(60,426
)
 
(118
)
Share-based compensation net of shares related to tax withholdings
 

 
3,951

 

 

 
3,951

 

 

 
3,951

 

Other comprehensive income - foreign currency translation
 

 

 
3,103

 

 
3,103

 
74

 

 
3,177

 

Other comprehensive income - derivative instruments
 

 

 
306

 

 
306

 
7

 

 
313

 

Redemption of noncontrolling interests – common units
 

 
27

 

 

 
27

 
(27
)
 

 

 

Balance at March 31, 2017
 
$
147

 
$
3,660,740

 
$
(52,622
)
 
$
(612,424
)
 
$
2,995,841

 
$
54,174

 
$
4,901

 
$
3,054,916

 
$
7,537


See accompanying notes.

7


CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
Three Months Ended
 
March 31, 2017
 
March 31, 2016
OPERATING ACTIVITIES
 
 
 
Net income
$
44,244

 
$
59,063

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
45,992

 
54,837

Amortization of deferred financing costs
937

 
1,002

Equity in earnings of unconsolidated joint ventures
(5,731
)
 
(4,914
)
Distributions from unconsolidated joint ventures

 
314

Gain on property dispositions
(807
)
 
(20,521
)
Share-based compensation
7,971

 
14,566

Other
(844
)
 
(1,652
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash
1,902

 
2,216

Accounts receivable
36

 
(4,030
)
Deferred rent receivable
(5,566
)
 
(5,225
)
Prepaid expenses and other assets
6,856

 
(2,926
)
Accounts payable
(7,136
)
 
3,762

Accrued interest
12,972

 
16,976

Other liabilities
(14,444
)
 
(12,627
)
Net cash provided by operating activities
86,382

 
100,841

INVESTING ACTIVITIES
 
 
 
Investment in properties – acquisitions

 
(8,000
)
Investment in properties – other
(12,422
)
 
(13,314
)
Investments in and advances to unconsolidated joint ventures
(13,278
)
 
(14,635
)
Distributions from unconsolidated joint ventures
9,427

 
26,684

Net proceeds from disposition of properties/land
1,874

 
127,727

Investment in development in progress
(64,661
)
 
(76,522
)
Investment in land held for development
(53,660
)
 
(15,392
)
Payment of deferred leasing costs
(7,544
)
 
(8,200
)
Other
9,016

 
8,095

Net cash (used in) provided by investing activities
(131,248
)
 
26,443

FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares
852

 
504

Share repurchase including shares related to tax withholdings
(4,624
)
 
(44,926
)
Repayments of mortgage loans
(1,930
)
 
(3,101
)
Proceeds from credit facility
159,000

 
187,000

Repayments on credit facility
(44,000
)
 
(186,000
)
Distribution paid on common shares
(69,823
)
 
(70,104
)
Distribution to partners/noncontrolling interest holders
(1,987
)
 
(1,794
)
Net cash provided by (used in) financing activities
37,488

 
(118,421
)
Net (decrease) increase in cash and cash equivalents
(7,378
)
 
8,863

Increase (decrease) in cash and cash equivalents related to foreign currency translation
271

 
(553
)
Cash and cash equivalents at beginning of period
43,642

 
35,353

Cash and cash equivalents at end of period
$
36,535

 
$
43,663

See accompanying notes.

8


CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except unit amounts)
 
 
March 31, 2017
 
December 31, 2016
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,101,475

 
$
1,094,470

Building and improvements
4,531,773

 
4,501,921

Less accumulated depreciation
(967,251
)
 
(940,115
)
Operating real estate
4,665,997

 
4,656,276

Development in progress
321,331

 
267,450

Land held for development
345,632

 
336,569

Net real estate
5,332,960

 
5,260,295

Cash and cash equivalents
36,535

 
43,642

Restricted cash
10,680

 
12,383

Accounts receivable, net
14,998

 
13,994

Deferred rent receivable, net
114,811

 
109,245

Deferred financing and leasing costs, net of accumulated amortization (March 31, 2017, $156,509; December 31, 2016, $152,309)
155,105

 
153,393

Investments in and advances to unconsolidated joint ventures
254,864

 
245,078

Assets held for sale
5,039

 
4,548

Prepaid expenses and other assets
158,909

 
150,235

Total assets
$
6,083,901

 
$
5,992,813

LIABILITIES
 
 
 
Mortgage loans, net
$
274,260

 
$
276,650

Unsecured notes, net
2,280,970

 
2,280,286

Credit facility
115,000

 

Accounts payable
56,357

 
65,914

Accrued interest
34,850

 
21,878

Distributions payable
60,293

 
71,501

Other liabilities
199,718

 
206,124

Total liabilities
3,021,448

 
2,922,353

Limited partners’ equity - 301,483 preferred units outstanding as of March 31, 2017, and December 31, 2016
7,537

 
7,537

OWNERS’ EQUITY
 
 
 
General partner’s equity - 147,203,022 and 146,993,018 common units outstanding as of March 31, 2017 and December 31, 2016, respectively
2,995,841

 
3,003,391

Limited partners’ equity – 3,528,281 and 3,530,031 common units outstanding as of March 31, 2017 and December 31, 2016, respectively
54,174

 
54,631

Noncontrolling interest – consolidated joint ventures
4,901

 
4,901

Total owners’ equity
3,054,916

 
3,062,923

Total liabilities, limited partners’ equity and owners’ equity
$
6,083,901

 
$
5,992,813


See accompanying notes.

9


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
 
Three Months Ended
 
March 31, 2017
 
March 31, 2016
OPERATING REVENUE
 
 
 
Rental
$
123,381

 
$
139,054

Operating expense reimbursement
40,500

 
51,086

Development service fee income
11,485

 

Total operating revenue
175,366

 
190,140

OPERATING EXPENSE
 
 
 
Rental property
19,884

 
28,509

Real estate taxes
23,281

 
25,320

General and administrative
16,942

 
20,990

Depreciation and amortization
45,460

 
54,078

Development service fee expense
11,004

 

Total operating expense
116,571

 
128,897

Operating income
58,795

 
61,243

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
1,876

 
4,598

Interest expense
(22,343
)
 
(31,412
)
Total other income (expense)
(20,467
)
 
(26,814
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
38,328

 
34,429

Gain on property dispositions
807

 
20,521

Income taxes
(622
)
 
(801
)
Equity in earnings of unconsolidated joint ventures
5,731

 
4,914

Net income
44,244

 
59,063

Noncontrolling interest – consolidated joint ventures
(63
)
 

Preferred unit distributions
(118
)
 
(118
)
Net income available to common unitholders
$
44,063

 
$
58,945

Net income
$
44,244

 
$
59,063

Other comprehensive gain (loss) - foreign currency translation
3,177

 
(5,087
)
Other comprehensive gain (loss) - derivative instruments
313

 
(1,360
)
Other comprehensive income (loss)
3,490

 
(6,447
)
Total comprehensive income
$
47,734

 
$
52,616

Earnings per common unit
 
 
 
Income per common unit - basic
$
0.29

 
$
0.39

Income per common unit - diluted
$
0.29

 
$
0.39

Distributions per common unit
$
0.40

 
$
0.475

Weighted average number of common units outstanding
 
 
 
        Basic
150,000

 
149,610

        Diluted
150,750

 
150,070

Net income allocated to general partners
$
43,032

 
$
57,554

Net income allocated to limited partners
$
1,149

 
$
1,509


See accompanying notes.

10


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, 2017
$
3,003,391

 
$
54,631

 
$
4,901

 
$
3,062,923

 
$
7,537

Contributions from partners
4,803

 

 

 
4,803

 

Distributions to partners
(58,821
)
 
(1,542
)
 
(63
)
 
(60,426
)
 
(118
)
Other comprehensive income - foreign currency translation
3,103

 
74

 

 
3,177

 

Other comprehensive income - derivative instruments
306

 
7

 

 
313

 

Net income
43,032

 
1,031

 
63

 
44,126

 
118

Redemption of limited partners common units for common shares
27

 
(27
)
 

 

 

Balance at March 31, 2017
$
2,995,841

 
$
54,174

 
$
4,901

 
$
3,054,916

 
$
7,537


See accompanying notes.

11


CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
Three Months Ended
 
March 31, 2017
 
March 31, 2016
OPERATING ACTIVITIES
 
 
 
Net income
$
44,244

 
$
59,063

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
45,992

 
54,837

Amortization of deferred financing costs
937

 
1,002

Equity in earnings of unconsolidated joint ventures
(5,731
)
 
(4,914
)
Distributions from unconsolidated joint ventures

 
314

Gain on property dispositions
(807
)
 
(20,521
)
Noncash compensation
7,971

 
14,566

Other
(844
)
 
(1,652
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash
1,902

 
2,216

Accounts receivable
36

 
(4,030
)
Deferred rent receivable
(5,566
)
 
(5,225
)
Prepaid expenses and other assets
6,856

 
(2,926
)
Accounts payable
(7,136
)
 
3,762

Accrued interest
12,972

 
16,976

Other liabilities
(14,444
)
 
(12,627
)
Net cash provided by operating activities
86,382

 
100,841

INVESTING ACTIVITIES
 
 
 
Investment in properties – acquisitions

 
(8,000
)
Investment in properties – other
(12,422
)
 
(13,314
)
Investments in and advances to unconsolidated joint ventures
(13,278
)
 
(14,635
)
Distributions from unconsolidated joint ventures
9,427

 
26,684

Net proceeds from disposition of properties/land
1,874

 
127,727

Investment in development in progress
(64,661
)
 
(76,522
)
Investment in land held for development
(53,660
)
 
(15,392
)
Payment of deferred leasing costs
(7,544
)
 
(8,200
)
Other
9,016

 
8,095

Net cash (used in) provided by investing activities
(131,248
)
 
26,443

FINANCING ACTIVITIES
 
 
 
Repayments of mortgage loans
(1,930
)
 
(3,101
)
Proceeds from credit facility
159,000

 
187,000

Repayments on credit facility
(44,000
)
 
(186,000
)
Capital contributions
852

 
504

Distributions to partners/noncontrolling interests
(76,434
)
 
(116,824
)
Net cash provided by (used in) financing activities
37,488

 
(118,421
)
Net (decrease) increase in cash and cash equivalents
(7,378
)
 
8,863

Increase (decrease) in cash and cash equivalents related to foreign currency translation
271

 
(553
)
Cash and cash equivalents at beginning of period
43,642

 
35,353

Cash and cash equivalents at end of period
$
36,535

 
$
43,663

See accompanying notes.

12


Liberty Property Trust and Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2017
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 March 31, 2017. 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.
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 $18.2 million and $18.7 million as of March 31, 2017 and December 31, 2016, 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, 2016. 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.
In the fourth quarter of 2016, the Company entered into an agreement relating to the development, for a fee, of an office building at its Camden Waterfront project in Camden, NJ. Project revenues and related costs and expenses are presented on a gross basis as "Development service fee income" and "Development service fee expense" in the Consolidated Statements of Comprehensive Income. Additionally, at the same time, the Company began classifying development fees and expenses relating to its development fee arrangements for certain unconsolidated joint venture projects in a manner consistent with the Camden project described above. Previously, development service fee income relating to its unconsolidated joint ventures had been classified as other income and development service fee expense had been classified as general and administrative expense in amounts as follows:
 
 
Three months ended
 
 
March 31, 2016
Other income
 
$
1,372

General and administrative
 
$
1,098

In the first quarter of 2017, the Company adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which requires the Company to reclassify shares withheld for tax withholding purposes on share-based compensation awards from operating activities to financing activities. As a result of the adoption, a $4.0 million cash outflow has been reclassified in the March 31, 2016 consolidated statement of cash flows from operating activities to financing activities.


13


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 (except revenue in the scope of other accounting standards, including standards related to leasing). The standard clarifies the required factors that an entity must consider when recognizing revenue and requires additional disclosures concerning contracts with customers, judgments concerning revenue recognition, and assets recognized for the costs to obtain or fulfill a contract. The standard also provides guidance regarding the measurement of gains and losses relative to the sale of certain nonfinancial assets, including real estate. ASU 2014-09 is effective for the Company beginning January 1, 2018. The Company has performed an initial assessment of ASU 2014-09 and plans to adopt the standard using the modified retrospective approach. Upon adoption of ASU 2016-02 (see below), the majority of our revenue will be subject to the allocation provisions outlined within the revenue standard. The Company is currently evaluating the specific implementation requirements for allocating the consideration within our contracts in accordance with ASU 2014-09 as well as other transactions subject to ASU 2014-09. The Company does not expect the new standard to have a material impact on the measurement and recognition of gains and losses on the sale of properties.
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. For leases in which the Company is the lessor, the standard requires that the lease and non-lease components of the lease agreement should be separated. Revenue related to the lease component of the contract will be recognized on a straight-line basis, while revenue related to the non-lease component will be recognized under the provisions of ASU 2014-09 (see above). For lease agreements longer than one year in which the Company is the lessee, the Company will measure the present value of the future lease payments and recognize a right-of-use asset and corresponding lease liability on its balance sheet. In addition, the new standard states that only direct leasing costs may be capitalized. The Company is evaluating the impact ASU 2016-02 will have on its financial position and results of operations.
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. The Company adopted the standard on a prospective basis. The adoption of ASU 2016-05 did not have a material impact on the Company's financial position or results of operations.
In March 2016, the FASB issued 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. Certain amendments in the standard are applied retrospectively and certain amendments are applied prospectively. The adoption of ASU 2016-09 did not have a material impact on the Company's financial position or 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.
In February 2017, the FASB issued ASU 2017-05 Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). ASU 2017-05 is designed to provide guidance on how to recognize gain and losses on sales, including partial sale, of nonfinancial assets to noncustomers. ASU 2017-05 is effective for the Company beginning January 1, 2018. Early adoption is permitted but the standard is required to be adopted concurrently with ASU 2014-09. The Company is evaluating the impact ASU 2017-05 will have on the Company's financial position and results of operations.
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):

14


 
For the Three Months Ended
 
For the Three Months Ended
 
March 31, 2017
 
March 31, 2016
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Net income available to common shareholders - basic
$
43,032

 
146,471

 
$
0.29

 
$
57,554

 
146,071

 
$
0.39

Dilutive shares for long-term compensation plans

 
750

 
 
 

 
460

 
 
Net income available to common shareholders - diluted
$
43,032

 
147,221

 
$
0.29

 
$
57,554

 
146,531

 
$
0.39

 
 
 
 
 
 
 
 
 
 
 
 

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 months ended March 31, 2017 was 188,000 as compared to 2.4 million for the same period in 2016.
During the three months ended March 31, 2017, 11,000 common shares were issued upon the exercise of options. During the year ended December 31, 2016, 369,000 common shares 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 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. There were no purchases under the plan during the three months ended March 31, 2017.

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
 
March 31, 2017
 
March 31, 2016
 
Income (Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
Income - net of noncontrolling interest - consolidated joint ventures
$
44,181

 
 
 
 
 
$
59,063

 
 
 
 
Less: Preferred unit distributions
(118
)
 
 
 
 
 
(118
)
 
 
 
 
Income available to common unitholders - basic
$
44,063

 
150,000

 
$
0.29

 
$
58,945

 
149,610

 
$
0.39

Dilutive units for long-term compensation plans

 
750

 
 
 

 
460

 
 
Income available to common unitholders - diluted
$
44,063

 
150,750

 
$
0.29

 
$
58,945

 
150,070

 
$
0.39

 
 
 
 
 
 
 
 
 
 
 
 

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 months ended March 31, 2017 was 188,000 as compared to 2.4 million for the same period in 2016.
During the three months ended March 31, 2017, 11,000 common units were issued upon exercise of options. During the year ended December 31, 2016, 369,000 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

15


the open market or in privately negotiated transactions from time to time as permitted by securities laws and other legal requirements. There were no purchases under the plan during the three months ended March 31, 2017.
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 three months ended March 31,
 
 
2017
 
2016
Foreign Currency Translation:
 
 
 
 
     Beginning balance
 
$
(56,767
)
 
$
(17,256
)
     Translation adjustment
 
3,177

 
(5,087
)
     Ending balance
 
(53,590
)
 
(22,343
)
 
 
 
 
 
Derivative Instruments:
 
 
 
 
     Beginning balance
 
(455
)
 
(865
)
     Unrealized gain (loss)
 
127

 
(1,643
)
     Reclassification adjustment (1)
 
186

 
283

     Ending balance
 
(142
)
 
(2,225
)
Total accumulated other comprehensive loss
 
(53,732
)
 
(24,568
)
Less: portion included in noncontrolling interest – operating partnership
 
1,110

 
380

Total accumulated other comprehensive loss included in shareholders' equity/owners' equity
 
$
(52,622
)
 
$
(24,188
)

(1)
Amounts reclassified out of Accumulated Other Comprehensive Loss/General & Limited Partner's Equity into contractual interest expense.
Note 5: Real Estate
During the three months ended March 31, 2017, the Company sold one property in its Southeastern PA reportable segment consisting of 33,000 square feet for gross proceeds of $2.1 million.
As of March 31, 2017, the Company classified 16.4 acres of land held for development with a total carrying value of $5.0 million as assets held for sale. This land is located in the Florida reportable segment.
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 three months ended March 31, 2017, the Company realigned its reportable segments as follows:
Carolinas/Richmond;
Chicago/Minneapolis;
Florida;
Houston;
Lehigh/Central PA;
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; and Southern California.
Comparative prior periods have been restated to reflect current segment disclosures.


16


The Company evaluates the performance of its reportable segments based on segment net operating income (“SNOI”). SNOI is defined as net operating income (rental revenue and operating expense reimbursements less property and real estate tax expenses) less 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.
The operating information by reportable segment is as follows (in thousands):
 
 
 
Three Months
 
 
 
Ended March 31,
 
 
 
2017
 
2016
Operating revenue
 
 
 
 
 
Carolinas/Richmond
 
$
18,056

 
$
15,760

 
Chicago/Minneapolis
 
15,875

 
21,539

 
Florida
 
14,248

 
29,318

 
Houston
 
14,774

 
14,766

 
Lehigh/Central PA
 
41,535

 
34,243

 
Philadelphia
 
11,436

 
10,355

 
Southeastern PA
 
14,615

 
25,883

 
United Kingdom
 
3,168

 
3,552

 
Other
 
30,372

 
34,998

Segment-level operating revenue
 
164,079

 
190,414

 
 
 
 
 
 
 Reconciliation to total operating revenues
 
 
 
 
 
 Development service fee income
 
11,485

 

 
 Other
 
(198
)
 
(274
)
 Total operating revenue
 
$
175,366

 
$
190,140

 
 
 
 
 
 
SNOI
 
 
 
 
 
 
Carolinas/Richmond
 
$
12,982

 
$
10,840

 
Chicago/Minneapolis
 
9,349

 
11,371

 
Florida
 
9,511

 
18,047

 
Houston
 
6,801

 
8,833

 
Lehigh/Central PA
 
29,578

 
24,202

 
Philadelphia
 
8,759

 
7,097

 
Southeastern PA
 
8,113

 
13,751

 
United Kingdom
 
1,858

 
2,405

 
Other
 
20,256

 
22,825

SNOI
 
107,207

 
119,371

 
 
 
 
 
 
 Reconciliation to net income
 
 
 
 
 
Interest expense
 
(22,343
)
 
(31,412
)
 
Depreciation/amortization expense (1)
 
(33,193
)
 
(39,798
)
 
Gain on property dispositions
 
807

 
20,521

 
Equity in earnings of unconsolidated joint ventures
 
5,731

 
4,914

 
General and administrative expense (1)
 
(12,254
)
 
(14,539
)
 
Income taxes (1)
 
(280
)
 
(570
)
 
Other
 
(1,431
)
 
576

Net income
 
$
44,244

 
$
59,063


(1)
Excludes costs which are included in determining SNOI.



17


The Company's total assets by reportable segment as of March 31, 2017 and December 31, 2016 is as follows (in thousands):

 
March 31, 2017
 
December 31, 2016
Carolinas/Richmond
$
510,910

 
$
503,920

Chicago/Minnesota
613,095

 
616,298

Florida
515,539

 
514,431

Houston
528,071

 
530,438

Lehigh/Central PA
1,340,842

 
1,311,815

Philadelphia
585,797

 
557,510

Southeastern PA
265,353

 
262,155

United Kingdom
210,761

 
189,766

Other
1,428,459

 
1,403,431

Segment-level total assets
5,998,827

 
5,889,764

Corporate Other
85,074

 
103,049

Total assets
$
6,083,901

 
$
5,992,813


Note 7: Accounting for the Impairment or Disposal of Long-Lived Assets
Asset Impairment
The Company disposes of and anticipates the potential disposition of certain properties prior to the end of their remaining useful lives. There were no impairments recognized during the three months ended March 31, 2017 or 2016. The Company has evaluated each of its properties and land held for development and has determined that there were no valuation adjustments necessary at March 31, 2017. In addition, the Company applied reasonable estimates and judgments in determining the level of impairments recognized. Should external or internal circumstances change requiring the need to shorten the holding periods or adjust the estimated future cash flows of the Company’s assets, the Company could be required to record impairment charges in the future.
Note 8: 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.
Common units
The common units of the Operating Partnership not held by the Trust outstanding as of March 31, 2017 have the same economic characteristics as common shares of the Trust. The 3.5 million outstanding common units of the Operating Partnership 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 3.5 million outstanding common units based on the closing price of the common shares of the Trust at March 31, 2017 was $136.0 million.
Note 9: 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 have the same economic characteristics as common shares of the Trust. The 3.5 million outstanding common units as of March 31, 2017 not held by the Trust are the limited partners' equity - common units held by persons and entities other than the Trust. 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 3.5 million outstanding common units at March 31, 2017 based on the closing price of the common shares of the Trust at March 31, 2017 was $136.0 million.

18


Note 10: Noncontrolling Interest - Operating Partnership/Limited Partners' Equity - Preferred Units
As of March 31, 2017, the Company had outstanding the following cumulative preferred units of the Operating Partnership:

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 11: Fair Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures, gives guidance on the fair value measurement of a financial asset or liability. Inputs used to develop fair value are classified in one of three categories: Level 1 inputs (quoted prices (unadjusted) in active markets for identical assets or liabilities), Level 2 inputs (inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly) and Level 3 inputs (unobservable inputs for the asset or liability).
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 March 31, 2017 and December 31, 2016. 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 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. See Note 13 - Derivative Instruments.

The Company used a discounted cash flow model to determine the estimated fair value of its debt as of March 31, 2017 and December 31, 2016. 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, 2016 and March 31, 2017 (in thousands):
 
 
Mortgage Loans
 
Unsecured Notes
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
As of December 31, 2016
 
$
276,650

 
$
286,684

 
$
2,280,286

 
$
2,340,762

As of March 31, 2017
 
$
274,260

 
$
285,263

 
$
2,280,970


$
2,365,887


19


Note 12: Unconsolidated Joint Ventures
Cambridge Medipark Ltd
During the three months ended March 31, 2017 and 2016, Cambridge Medipark, Ltd (a joint venture in which the Company holds a 50% interest) recognized gains and losses, respectively, on the sale of land leasehold interests. The Company's share of these gains/losses was a $3.0 million gain for the three months ended March 31, 2017 compared to a loss of $106,000 for the same period in 2016.
Note 13: Derivative Instruments
The Company borrows funds at a combination of fixed and variable rates. Borrowings under the Company's revolving credit facility and certain bank mortgage loans bear interest at variable rates. Our long-term debt typically bears interest at fixed rates. The Company's interest rate risk management objectives are to limit generally the impact of interest rate changes on earnings and cash flows and to lower the Company's overall borrowing costs. To achieve these objectives, from time to time, the Company enters 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. The Company generally does not hold or issue these derivative contracts for trading or speculative purposes. The interest rate on all of the Company's 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 loss (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.
The Company holds an 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. The Swaps had aggregate notional amounts of $98.2 million and $98.9 million at March 31, 2017 and December 31, 2016, respectively, and expire at various dates between 2018 and 2020.
The Company accounts for the effective portion of changes in the fair value of a derivative in accumulated other comprehensive loss and subsequently reclassifies the effective portion to earnings over the term that the hedged transaction affects earnings. The Company accounts for the ineffective portion of changes in the fair value of a derivative directly in earnings.
The following table presents the location in the financial statements of the gains or losses recognized related to the Company’s cash flow hedges for the three months ended March 31, 2017 and 2016 (in thousands):
 
Three Months Ended
 
March 31, 2017
 
March 31, 2016
Amount of gain (loss) related to the effective portion recognized in other comprehensive loss
$
138

 
$
(1,643
)
Amount of loss related to the effective portion subsequently reclassified to interest expense
$
(186
)
 
$
(283
)
Amount of gain (loss) related to the ineffective portion recognized in interest expense
$
22

 
$
(56
)
 
 
 
 
The fair value of the Swaps in the amounts of $4.1 million and $4.9 million as of March 31, 2017 and December 31, 2016, respectively, is included in other liabilities in the accompanying consolidated balance sheets. The Company estimates that $0.3 million will be reclassified from accumulated other comprehensive loss 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 defaults where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. If the Company were to breach any of the contractual

20


provisions of the derivative contracts, it would be required to settle its obligations under the agreements at their termination value including accrued interest, which totaled approximately $4.1 million as of March 31, 2017.
Note 14: 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 March 31, 2017, were as follows (in thousands):
 
Year
 
Amount
2017 (remaining)
 
$
1,290

2018
 
1,604

2019
 
1,604

2020
 
1,604

2021
 
1,604

2022 and thereafter
 
34,613

Total
 
$
42,319


Operating ground lease expense for the three months ended March 31, 2017 was $311,000 as compared to $256,000 for the same period in 2016.
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 March 31, 2017 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 March 31, 2017, the Company had letter of credit obligations of $6.9 million.
As of March 31, 2017, the Company had 28 buildings under development. These buildings are expected to contain, when completed, a total of 6.2 million square feet of leasable space and represent an anticipated aggregate investment of $601.4 million. At March 31, 2017, development in progress totaled $321.3 million. In addition, as of March 31, 2017, the Company had invested $11.1 million in deferred leasing costs related to these development buildings.
As of March 31, 2017, the Company was committed to $12.5 million in improvements on certain buildings and land parcels.
As of March 31, 2017, the Company was committed to $17.4 million in future land acquisitions and $19.1 million in future building acquisitions. The Company expects to complete these purchases during the year ended December 31, 2017.
As of March 31, 2017, the Company was obligated to pay for tenant improvements not yet completed for a maximum of $19.3 million.

As of March 31, 2017, the Company was committed to fund up to $4.0 million for tenant improvements and leasing commissions under a loan to the buyer of certain of the Company's properties.

Unconsolidated joint ventures in which the Company holds an interest, and in another case an unrelated third party, have engaged the Company as the developer of its development properties pursuant to development agreements. The Company agrees, in consideration for a development fee, to be responsible for all aspects of the development of the properties and to guarantee the

21


timely lien-free completion of construction of the properties and the payment, subject to certain exceptions, of any cost overruns incurred in the development of the properties.
The Company is currently developing three buildings for its unconsolidated joint ventures which represent an anticipated aggregate investment by the joint ventures of $966.7 million.

As of March 31, 2017, the Company was also committed to approximately $169.4 million in costs related to its agreement to develop, on a fee basis, an office building and infrastructure improvements for American Water Works in Camden, New Jersey. As of March 31, 2017, $32.9 million of these costs had been incurred.
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.
Note 15: Supplemental Disclosure to Consolidated Statements of Cash Flows
The following are supplemental disclosures to the consolidated statements of cash flows for the three months ended March 31, 2017 and 2016 (amounts in thousands):
 
 
2017
 
2016
 Write-off of fully depreciated/amortized property and deferred costs
$
12,280

 
$
12,685

 Write-off of depreciated/amortized property and deferred costs due to sale/demolition
$
2,506

 
$
32,323

 Redemption of noncontrolling interests - common units
$
27

 
$

 Unrealized gain (loss) on cash flow hedge
$
313

 
$
(1,360
)
 Changes in accrued development capital expenditures
$
7,421

 
$
394

 Capitalized equity-based compensation
$
604

 
$
569


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 in a focused group of office markets. Additionally, the Company owns certain assets in the United Kingdom.
As of March 31, 2017, the Company owned and operated 444 industrial and 51 office properties (the “Wholly Owned Properties in Operation”) totaling 85.2 million square feet. In addition, as of March 31, 2017, the Company owned 28 properties under development, which when completed are expected to comprise 6.2 million square feet (the “Wholly Owned Properties under Development”). The Company owned 10 properties held for redevelopment (the "Wholly Owned Properties held for Redevelopment") totaling 1.0 million square feet. The Company also owned 1,659 acres of developable land, substantially all of which is zoned for commercial use. Additionally, as of March 31, 2017, the Company had an ownership interest, through unconsolidated joint ventures, in 46 industrial and 17 office properties totaling 13.1 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 1.8 million square feet and a 222-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 347 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

22


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 continue to favor industrial and metro-office properties and markets with strong demographic and economic fundamentals. The Company also believes that long-term trends indicate potential erosion in the value of certain suburban office properties in certain markets. Accordingly, the Company has increased its investment in industrial and metro-office properties and markets with strong demographic and economic fundamentals, and has decreased its investment in suburban office properties. The Company anticipates that this strategy will yield benefits over time, including a higher rate of rental growth and a lower level of lease transaction costs and other capital costs for industrial properties as opposed to suburban office properties. The Company believes that this strategy has resulted in an improvement in the average quality and geographic location of the Company’s properties. The Company believes that the benefits of the strategy will greatly outweigh the short-term reduction in net cash from operating activities that has resulted from the disposition of the suburban office assets. There can be no assurance, however, that the benefits of the Company's strategy will be realized.
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 months ended March 31, 2017 straight line rents on renewal and replacement leases were on average 17.5% higher than rents on expiring leases. During the three months ended March 31, 2017, the Company leased 6.7 million square feet and, as of that date, attained occupancy of 96.1% for the Wholly Owned Properties in Operation and 95.8% for the JV Properties in Operation for a combined occupancy of 96.1% for the Properties in Operation. At December 31, 2016, occupancy for the Wholly Owned Properties in Operation was 96.4% and for the JV Properties in Operation was 95.9% for a combined occupancy for the Properties in Operation of 96.4%.
Based on the Company's current outlook, the Company anticipates that property level operating income for the Same Store (defined below) group of properties will increase for the full year of 2017, compared to 2016, driven primarily by new and renewal leases being executed at higher market rental rates than those of expiring leases, particularly for the Company's industrial properties. The Company expects Same Store occupancy levels to remain relatively consistent with those in 2016.
The Company also anticipates that the effect of the United Kingdom’s exit from the European Union and the resulting change in the foreign exchange rate will not have a material effect on its net income or consolidated balance sheet during 2017.
The assumptions presented above are forward-looking and are based on the Company’s future view of market and general economic conditions, as well as other risks outlined below under the caption “Forward-Looking Statements.”  There can be no assurance that the Company’s actual results will not differ materially from assumptions set forth above.  The Company assumes no obligation to update these assumptions in the future.
Wholly Owned Capital Activity
Acquisitions
During the three months ended March 31, 2017, the Company did not acquire any operating properties.
During the three months ended March 31, 2017, the Company acquired three parcels of land containing 81.9 acres of land for an aggregate purchase price of $21.4 million.
Dispositions
During the three months ended March 31, 2017, the Company realized proceeds of $2.1 million from the sale of one property totaling 33,000 square feet.
Development
During the three months ended March 31, 2017, the Company brought into service one Wholly Owned Property under Development representing 215,000 square feet and a Total Investment of $16.3 million. During the three months ended March 31, 2017, the Company initiated four Wholly Owned Properties under Development with a projected Total Investment of $84.4 million.
As of March 31, 2017, the Company had 28 Wholly Owned Properties under Development with a projected Total Investment of $601.4 million. These Wholly Owned Properties under Development were 35.9% pre-leased as of March 31, 2017.
“Total Investment” for a Property Under Development is defined as the sum of the land costs and the costs of land improvements, building and building improvements, lease transaction costs, and where appropriate, other development costs and carrying costs.

23


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
None of the unconsolidated joint ventures in which the Company holds an interest acquired any operating properties or land parcels during the three months ended March 31, 2017. 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.
Development
During the three months ended March 31, 2017, an unconsolidated joint venture in which the Company holds an interest initiated one JV Property under Development with a projected Total Investment of $11.9 million.
As of March 31, 2017, unconsolidated joint ventures in which the Company holds an interest had three JV Properties under Development which are expected to comprise, upon completion, 1.8 million square feet and a 217-room Four Seasons Hotel and are expected to represent a Total Investment by the joint ventures of $966.7 million. These JV Properties under Development were 82.7% pre-leased as of March 31, 2017.
Included in these totals are unconsolidated joint ventures in which the Company holds a 20% interest that are developing the Comcast Technology Center, which is expected to comprise, upon completion, 1.3 million square feet and the aforementioned hotel and is expected to represent a Total Investment by the joint ventures of $934 million.
Properties in Operation
The composition of the Company’s Properties in Operation as of March 31, 2017 and March 31, 2016 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 Occupied
 
Percent Occupied
 
March 31,
 
March 31,
 
March 31,
 
March 31,
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Wholly Owned Properties in Operation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
$
4.93

 
$
4.95

 
$
6.69

 
$
6.62

 
78,154

 
74,923

 
96.7
%
 
95.4
%
Office
$
19.37

 
$
17.37

 
$
28.18

 
$
25.89

 
3,717

 
9,092

 
85.0
%
 
81.6
%
 
$
5.59

 
$
6.30

 
$
7.67

 
$
8.70

 
81,871

 
84,015

 
96.1
%
 
93.7
%
JV Properties in Operation: (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
$
4.40

 
$
4.08

 
$
6.09

 
$
5.88

 
10,424

 
9,843

 
95.9
%
 
95.5
%
Office
$
32.64

 
$
28.94

 
$
44.90

 
$
40.10

 
2,091

 
2,763

 
95.3
%
 
89.4
%
 
$
9.12

 
$
9.53

 
$
12.58

 
$
13.38

 
12,515

 
12,606

 
95.8
%
 
94.1
%
Properties in Operation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
$
4.87

 
$
4.85

 
$
6.62

 
$
6.53

 
88,578

 
84,766

 
96.6
%
 
95.4
%
Office
$
24.14

 
$
20.07

 
$
34.20

 
$
28.28

 
5,808

 
11,855

 
88.4
%
 
83.3
%
 
$
6.05

 
$
6.72

 
$
8.32

 
$
9.20

 
94,386

 
96,621

 
96.1
%
 
93.8
%

(1) Net rent represents the contractual rent per square foot at March 31, 2017 or March 31, 2016 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 was within a free rent period at March 31, 2017 or March 31, 2016 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 March 31, 2017 or March 31, 2016 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 63 and 75 properties as of March 31, 2017 and March 31, 2016, respectively.


24


The table below details the vacancy activity during the three months ended March 31, 2017:
 
 Total Square Feet
 
Wholly Owned Properties in Operation
 
JV Properties in Operation
 
Properties in Operation
Vacancy Activity
 
 
 
 
 
Vacancy at January 1, 2017
3,043,270

 
535,259

 
3,578,529

Completed development vacant space
39,410

 

 
39,410

Disposition vacant space
(31,679
)
 

 
(31,679
)
Expirations
5,250,735

 
424,437

 
5,675,172

Property structural changes/other
(5,045
)
 

 
(5,045
)
Leasing activity
(4,997,990
)
 
(414,749
)
 
(5,412,739
)
Vacancy at March 31, 2017
3,298,701

 
544,947

 
3,843,648

 


 
 
 
 
Lease transaction costs per square foot (1)
$
2.72

 
$
1.62

 
$
2.65

(1) Transaction costs include tenant improvement and lease transaction costs.
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, 2016 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 three months ended March 31, 2017, 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 months ended March 31, 2017 with the results of operations of the Company for the three months ended March 31, 2016. As a result of the varying levels of development, acquisition and disposition activities including $1.2 billion of real estate sales by the Company since January 1, 2016, 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 Months Ended March 31, 2017 to Three Months Ended March 31, 2016
Rental Revenue
Rental revenue was $123.4 million for the three months ended March 31, 2017 compared to $139.1 million for the same period in 2016. This decrease of $15.7 million was primarily due to the net result of decreased rental revenue related to $1.2 billion of property dispositions since January 1, 2016 offset by increased rental revenue related to acquisitions and completed development for the same period.

25


Operating Expense Reimbursement
Operating expense reimbursement was $40.5 million for the three months ended March 31, 2017 compared to $51.1 million for the same period in 2016. This decrease of $10.6 million was primarily due to lower reimbursements associated with an aggregate decrease of $10.6 million in rental property expense and real estate taxes (as detailed below).
Rental Property Expense
Rental property expense was $19.9 million for the three months ended March 31, 2017 compared to $28.5 million for the same period in 2016. This decrease of $8.6 million was primarily due to a reduction in expense associated with the sale of suburban office and high finish flex properties partially offset by increased expenses resulting from the acquisition and completed development of industrial properties. Rental property expense includes utilities, insurance, janitorial, landscaping, snow removal and other costs necessary to maintain a property.
Real Estate Taxes
Real estate taxes were $23.3 million for the three months ended March 31, 2017 compared to $25.3 million for the same period in 2016. This decrease of $2.0 million was primarily due to the net result of decreased real estate taxes related to property dispositions since January 1, 2016 offset by increased real estate taxes related to acquisitions and completed development for the same period.
Segments
The Company evaluates the performance of the Wholly Owned Properties in Operation and Wholly Owned Properties held for Redevelopment in terms of SNOI by reportable segment (see Note 6 to the Company’s financial statements for a reconciliation of this measure to net income). The following table identifies changes to SNOI in reportable segments (dollars in thousands):
 
 
Three Months Ended
 
Percentage Increase (Decrease)
 
 
March 31,
 
 
 
2017
 
2016
 
 
Carolinas/Richmond
$
12,982

 
$
10,840

 
19.8
%
(1)
Chicago/Minneapolis
9,349

 
11,371

 
(17.8
%)
(2)
Florida
9,511

 
18,047

 
(47.3
%)
(2)
Houston
6,801

 
8,833

 
(23.0
%)
(3)
Lehigh/Central PA
29,578

 
24,202

 
22.2
%
(4)
Philadelphia
8,759

 
7,097

 
23.4
%
(4)
Southeastern PA
8,113

 
13,751

 
(41.0
%)
(2)
United Kingdom
1,858

 
2,405

 
(22.7
%)
(5)
Other
20,256

 
22,825

 
(11.3
%)
 
Total SNOI
$
107,207

 
$
119,371

 
(10.2
%)
 

(1)
The increase was primarily due to an increase in occupancy and average gross investment in operating real estate.
(2)
The decrease was primarily due to a decrease in average gross investment in operating real estate.
(3)
The decrease was primarily due to a decrease in occupancy and increases in certain expenses.
(4)
The increase was primarily due to an increase in average gross investment in operating real estate.
(5)
The decrease was primarily due to a decrease in the foreign exchange rate.

26


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.
 
Three Months Ended
 
 
March 31,
 
 
2017