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EX-32.4 - EXHIBIT 32.4 - LIBERTY PROPERTY TRUSTlptex324-6302017.htm
EX-32.3 - EXHIBIT 32.3 - LIBERTY PROPERTY TRUSTlptex323-6302017.htm
EX-32.2 - EXHIBIT 32.2 - LIBERTY PROPERTY TRUSTlptex322-6302017.htm
EX-32.1 - EXHIBIT 32.1 - LIBERTY PROPERTY TRUSTlptex321-6302017.htm
EX-31.4 - EXHIBIT 31.4 - LIBERTY PROPERTY TRUSTlptex314-6302017.htm
EX-31.3 - EXHIBIT 31.3 - LIBERTY PROPERTY TRUSTlptex313-6302017.htm
EX-31.2 - EXHIBIT 31.2 - LIBERTY PROPERTY TRUSTlptex312-6302017.htm
EX-31.1 - EXHIBIT 31.1 - LIBERTY PROPERTY TRUSTlptex311-6302017.htm
EX-12.1 - EXHIBIT 12.1 - LIBERTY PROPERTY TRUSTlptex121-6302017.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 June 30, 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 July 31, 2017, 147,317,203 Common Shares of Beneficial Interest, par value $0.001 per share, of Liberty Property Trust were outstanding.



EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 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 June 30, 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 June 30, 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.
 
 
 
 
 
 
 
 
 
 
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(A)
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(B)
 
 
 
 
 
XBRL Instance Document
 
 
 
 
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
XBRL Extension Labels Linkbase
 
 
 
 
 
XBRL Taxonomy Extension Presentation Linkbase Document
 

4


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except share and unit amounts)
 
 
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,094,121

 
$
1,094,470

Building and improvements
4,562,908

 
4,501,921

Less accumulated depreciation
(995,032
)
 
(940,115
)
Operating real estate
4,661,997

 
4,656,276

Development in progress
410,027

 
267,450

Land held for development
351,933

 
336,569

Net real estate
5,423,957

 
5,260,295

Cash and cash equivalents
14,748

 
43,642

Restricted cash
18,115

 
12,383

Accounts receivable, net
14,509

 
13,994

Deferred rent receivable, net
120,124

 
109,245

Deferred financing and leasing costs, net of accumulated amortization (June 30, 2017, $161,544; December 31, 2016, $152,309)
159,112

 
153,393

Investments in and advances to unconsolidated joint ventures
268,346

 
245,078

Assets held for sale
2,731

 
4,548

Prepaid expenses and other assets
137,993

 
150,235

Total assets
$
6,159,635

 
$
5,992,813

LIABILITIES
 
 
 
Mortgage loans, net
$
271,851

 
$
276,650

Unsecured notes, net
2,281,650

 
2,280,286

Credit facility
177,000

 

Accounts payable
56,188

 
65,914

Accrued interest
21,718

 
21,878

Dividend and distributions payable
60,334

 
71,501

Other liabilities
222,697

 
206,124

Total liabilities
3,091,438

 
2,922,353

Noncontrolling interest - operating partnership - 301,483 preferred units outstanding as of June 30, 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; 147,304,661 and 146,993,018 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
147

 
147

Additional paid-in capital
3,666,703

 
3,655,910

Accumulated other comprehensive loss
(45,332
)
 
(56,031
)
Distributions in excess of net income
(619,929
)
 
(596,635
)
Total Liberty Property Trust shareholders’ equity
3,001,589

 
3,003,391

Noncontrolling interest – operating partnership
 
 
 
3,528,281 and 3,530,031 common units outstanding as of June 30, 2017 and December 31, 2016, respectively
54,170

 
54,631

Noncontrolling interest – consolidated joint ventures
4,901

 
4,901

Total equity
3,060,660

 
3,062,923

Total liabilities, noncontrolling interest - operating partnership and equity
$
6,159,635

 
$
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
 
June 30, 2017
 
June 30, 2016
OPERATING REVENUE
 
 
 
Rental
$
124,969

 
$
139,143

Operating expense reimbursement
39,902

 
47,511

Development service fee income
18,259

 

Total operating revenue
183,130

 
186,654

OPERATING EXPENSE
 
 
 
Rental property
17,716

 
24,745

Real estate taxes
23,244

 
25,202

General and administrative
15,282

 
15,629

Depreciation and amortization
45,789

 
53,545

Development service fee expense
17,828

 

Total operating expense
119,859

 
119,121

Operating income
63,271

 
67,533

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
1,928

 
4,992

Interest expense
(21,942
)
 
(30,131
)
Total other income (expense)
(20,014
)
 
(25,139
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
43,257

 
42,394

Gain on property dispositions
5,895

 
3,832

Income taxes
(324
)
 
(752
)
Equity in earnings of unconsolidated joint ventures
3,990

 
5,583

Net income
52,818

 
51,057

Noncontrolling interest – operating partnership
(1,350
)
 
(1,317
)
Noncontrolling interest – consolidated joint ventures
(57
)
 
(113
)
Net income available to common shareholders
$
51,411

 
$
49,627

 
 
 
 
Net income
$
52,818

 
$
51,057

Other comprehensive income (loss) - foreign currency translation
7,503

 
(13,509
)
Other comprehensive loss - derivative instruments
(38
)
 
(435
)
Other comprehensive income (loss)
7,465

 
(13,944
)
Total comprehensive income
60,283

 
37,113

Less: comprehensive income attributable to noncontrolling interest
(1,582
)
 
(1,101
)
Comprehensive income attributable to common shareholders
$
58,701

 
$
36,012

Earnings per common share
 
 
 
Income per common share – basic
$
0.35

 
$
0.34

Income per common share – diluted
$
0.35

 
$
0.34

Distributions per common share
$
0.40

 
$
0.475

Weighted average number of common shares outstanding
 
 
 
Basic
146,688

 
145,995

Diluted
147,508

 
146,735

See accompanying notes.

6


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
OPERATING REVENUE
 
 
 
Rental
$
248,350

 
$
278,198

Operating expense reimbursement
80,402

 
98,597

Development service fee income
29,744

 

Total operating revenue
358,496

 
376,795

OPERATING EXPENSE
 
 
 
Rental property
37,600

 
53,255

Real estate taxes
46,525

 
50,522

General and administrative
32,224

 
36,619

Depreciation and amortization
91,249

 
107,623

Development service fee expense
28,832

 

Total operating expense
236,430

 
248,019

Operating income
122,066

 
128,776

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
3,804

 
9,590

Interest expense
(44,285
)
 
(61,543
)
Total other income (expense)
(40,481
)
 
(51,953
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
81,585

 
76,823

Gain on property dispositions
6,702

 
24,353

Income taxes
(946
)
 
(1,553
)
Equity in earnings of unconsolidated joint ventures
9,721

 
10,497

Net income
97,062

 
110,120

Noncontrolling interest – operating partnership
(2,499
)
 
(2,826
)
Noncontrolling interest – consolidated joint ventures
(120
)
 
(113
)
Net income available to common shareholders
$
94,443

 
$
107,181

 
 
 
 
Net income
$
97,062

 
$
110,120

Other comprehensive income (loss) - foreign currency translation
10,680

 
(18,596
)
Other comprehensive income (loss) - derivative instruments
275

 
(1,795
)
Other comprehensive income (loss)
10,955

 
(20,391
)
Total comprehensive income
108,017

 
89,729

Less: comprehensive income attributable to noncontrolling interest
(2,875
)
 
(2,458
)
Comprehensive income attributable to common shareholders
$
105,142

 
$
87,271

Earnings per common share
 
 
 
Income per common share – basic
$
0.64

 
$
0.73

Income per common share – diluted
$
0.64

 
$
0.73

Distributions per common share
$
0.80

 
$
0.95

Weighted average number of common shares outstanding
 
 
 
Basic
146,602

 
146,002

Diluted
147,355

 
146,622

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
 
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
 

 
4,223

 

 

 
4,223

 

 

 
4,223

 

Net income
 

 

 

 
94,443

 
94,443

 
2,263

 
120

 
96,826

 
236

Distributions
 

 

 

 
(117,737
)
 
(117,737
)
 
(2,953
)
 
(120
)
 
(120,810
)
 
(236
)
Share-based compensation net of shares related to tax withholdings
 

 
6,543

 

 

 
6,543

 

 

 
6,543

 

Other comprehensive income - foreign currency translation
 

 

 
10,430

 

 
10,430

 
250

 

 
10,680

 

Other comprehensive income - derivative instruments
 

 

 
269

 

 
269

 
6

 

 
275

 

Redemption of noncontrolling interests – common units
 

 
27

 

 

 
27

 
(27
)
 

 

 

Balance at June 30, 2017
 
$
147

 
$
3,666,703

 
$
(45,332
)
 
$
(619,929
)
 
$
3,001,589

 
$
54,170

 
$
4,901

 
$
3,060,660

 
$
7,537


See accompanying notes.

8


CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
OPERATING ACTIVITIES
 
 
 
Net income
$
97,062

 
$
110,120

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
92,310

 
109,047

Amortization of deferred financing costs
1,874

 
2,004

Equity in earnings of unconsolidated joint ventures
(9,721
)
 
(10,497
)
Gain on property dispositions
(6,702
)
 
(24,353
)
Share-based compensation
10,500

 
15,663

Other
(1,712
)
 
(4,424
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash
(5,102
)
 
3,390

Accounts receivable
630

 
1,794

Deferred rent receivable
(10,851
)
 
(8,897
)
Prepaid expenses and other assets
10,459

 
312

Accounts payable
(4,154
)
 
3,877

Accrued interest
(160
)
 
342

Other liabilities
3,399

 
(17,342
)
Net cash provided by operating activities
177,832

 
181,036

INVESTING ACTIVITIES
 
 
 
Investment in properties – acquisitions
(19,838
)
 
(8,000
)
Investment in properties – other
(25,562
)
 
(30,338
)
Investments in and advances to unconsolidated joint ventures
(25,333
)
 
(31,372
)
Distributions from unconsolidated joint ventures
12,178

 
35,250

Net proceeds from disposition of properties/land
26,220

 
139,814

Investment in development in progress
(136,030
)
 
(175,744
)
Investment in land held for development
(87,255
)
 
(36,855
)
Payment of deferred leasing costs
(18,750
)
 
(15,057
)
Other
26,315

 
7,842

Net cash used in investing activities
(248,055
)
 
(114,460
)
FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares
4,223

 
4,341

Share repurchases, including shares related to tax withholdings
(4,668
)
 
(45,006
)
Repayments of mortgage loans
(3,876
)
 
(22,123
)
Proceeds from credit facility
284,000

 
338,300

Repayments on credit facility
(107,000
)
 
(202,300
)
Distribution paid on common shares
(128,703
)
 
(139,742
)
Distribution to partners/noncontrolling interest holders
(3,569
)
 
(3,847
)
Net cash provided by (used in) financing activities
40,407

 
(70,377
)
Net decrease in cash and cash equivalents
(29,816
)
 
(3,801
)
Increase (decrease) in cash and cash equivalents related to foreign currency translation
922

 
(2,212
)
Cash and cash equivalents at beginning of period
43,642

 
35,353

Cash and cash equivalents at end of period
$
14,748

 
$
29,340

See accompanying notes.

9


CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except unit amounts)
 
 
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,094,121

 
$
1,094,470

Building and improvements
4,562,908

 
4,501,921

Less accumulated depreciation
(995,032
)
 
(940,115
)
Operating real estate
4,661,997

 
4,656,276

Development in progress
410,027

 
267,450

Land held for development
351,933

 
336,569

Net real estate
5,423,957

 
5,260,295

Cash and cash equivalents
14,748

 
43,642

Restricted cash
18,115

 
12,383

Accounts receivable, net
14,509

 
13,994

Deferred rent receivable, net
120,124

 
109,245

Deferred financing and leasing costs, net of accumulated amortization (June 30, 2017, $161,544; December 31, 2016, $152,309)
159,112

 
153,393

Investments in and advances to unconsolidated joint ventures
268,346

 
245,078

Assets held for sale
2,731

 
4,548

Prepaid expenses and other assets
137,993

 
150,235

Total assets
$
6,159,635

 
$
5,992,813

LIABILITIES
 
 
 
Mortgage loans, net
$
271,851

 
$
276,650

Unsecured notes, net
2,281,650

 
2,280,286

Credit facility
177,000

 

Accounts payable
56,188

 
65,914

Accrued interest
21,718

 
21,878

Distributions payable
60,334

 
71,501

Other liabilities
222,697

 
206,124

Total liabilities
3,091,438

 
2,922,353

Limited partners’ equity - 301,483 preferred units outstanding as of June 30, 2017, and December 31, 2016
7,537

 
7,537

OWNERS’ EQUITY
 
 
 
General partner’s equity - 147,304,661 and 146,993,018 common units outstanding as of June 30, 2017 and December 31, 2016, respectively
3,001,589

 
3,003,391

Limited partners’ equity – 3,528,281 and 3,530,031 common units outstanding as of June 30, 2017 and December 31, 2016, respectively
54,170

 
54,631

Noncontrolling interest – consolidated joint ventures
4,901

 
4,901

Total owners’ equity
3,060,660

 
3,062,923

Total liabilities, limited partners’ equity and owners’ equity
$
6,159,635

 
$
5,992,813


See accompanying notes.

10


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
 
Three Months Ended
 
June 30, 2017
 
June 30, 2016
OPERATING REVENUE
 
 
 
Rental
$
124,969

 
$
139,143

Operating expense reimbursement
39,902

 
47,511

Development service fee income
18,259

 

Total operating revenue
183,130

 
186,654

OPERATING EXPENSE
 
 
 
Rental property
17,716

 
24,745

Real estate taxes
23,244

 
25,202

General and administrative
15,282

 
15,629

Depreciation and amortization
45,789

 
53,545

Development service fee expense
17,828

 

Total operating expense
119,859

 
119,121

Operating income
63,271

 
67,533

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
1,928

 
4,992

Interest expense
(21,942
)
 
(30,131
)
Total other income (expense)
(20,014
)
 
(25,139
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
43,257

 
42,394

Gain on property dispositions
5,895

 
3,832

Income taxes
(324
)
 
(752
)
Equity in earnings of unconsolidated joint ventures
3,990

 
5,583

Net income
52,818

 
51,057

Noncontrolling interest – consolidated joint ventures
(57
)
 
(113
)
Preferred unit distributions
(118
)
 
(118
)
Net income available to common unitholders
$
52,643

 
$
50,826

Net income
$
52,818

 
$
51,057

Other comprehensive income (loss) - foreign currency translation
7,503

 
(13,509
)
Other comprehensive loss - derivative instruments
(38
)
 
(435
)
Other comprehensive income (loss)
7,465

 
(13,944
)
Total comprehensive income
$
60,283

 
$
37,113

Earnings per common unit
 
 
 
Income per common unit - basic
$
0.35

 
$
0.34

Income per common unit - diluted
$
0.35

 
$
0.34

Distributions per common unit
$
0.40

 
$
0.475

Weighted average number of common units outstanding
 
 
 
        Basic
150,216

 
149,534

        Diluted
151,036

 
150,274

Net income allocated to general partners
$
51,411

 
$
49,627

Net income allocated to limited partners
$
1,350

 
$
1,317


See accompanying notes.

11


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
OPERATING REVENUE
 
 
 
Rental
$
248,350

 
$
278,198

Operating expense reimbursement
80,402

 
98,597

Development service fee income
29,744

 

Total operating revenue
358,496

 
376,795

OPERATING EXPENSE
 
 
 
Rental property
37,600

 
53,255

Real estate taxes
46,525

 
50,522

General and administrative
32,224

 
36,619

Depreciation and amortization
91,249

 
107,623

Development service fee expense
28,832

 

Total operating expense
236,430

 
248,019

Operating income
122,066

 
128,776

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
3,804

 
9,590

Interest expense
(44,285
)
 
(61,543
)
Total other income (expense)
(40,481
)
 
(51,953
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
81,585

 
76,823

Gain on property dispositions
6,702

 
24,353

Income taxes
(946
)
 
(1,553
)
Equity in earnings of unconsolidated joint ventures
9,721

 
10,497

Net income
97,062

 
110,120

Noncontrolling interest – consolidated joint ventures
(120
)
 
(113
)
Preferred unit distributions
(236
)
 
(236
)
Income available to common unitholders
$
96,706

 
$
109,771

Net income
$
97,062

 
$
110,120

Other comprehensive income (loss) - foreign currency translation
10,680

 
(18,596
)
Other comprehensive income (loss) - derivative instruments
275

 
(1,795
)
Other comprehensive income (loss)
10,955

 
(20,391
)
Total comprehensive income
$
108,017

 
$
89,729

Earnings per common unit
 
 
 
Income per common unit - basic
$
0.64

 
$
0.73

Income per common unit - diluted
$
0.64

 
$
0.73

Distributions per common unit
$
0.80

 
$
0.95

Weighted average number of common units outstanding
 
 
 
        Basic
150,130

 
149,541

        Diluted
150,883

 
150,161

Net income allocated to general partners
$
94,443

 
$
107,181

Net income allocated to limited partners
$
2,499

 
$
2,826


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, 2017
$
3,003,391

 
$
54,631

 
$
4,901

 
$
3,062,923

 
$
7,537

Contributions from partners
10,766

 

 

 
10,766

 

Distributions to partners
(117,737
)
 
(2,953
)
 
(120
)
 
(120,810
)
 
(236
)
Other comprehensive income - foreign currency translation
10,430

 
250

 

 
10,680

 

Other comprehensive income - derivative instruments
269

 
6

 

 
275

 

Net income
94,443

 
2,263

 
120

 
96,826

 
236

Redemption of limited partners common units for common shares
27

 
(27
)
 

 

 

Balance at June 30, 2017
$
3,001,589

 
$
54,170

 
$
4,901

 
$
3,060,660

 
$
7,537


See accompanying notes.

13


CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
OPERATING ACTIVITIES
 
 
 
Net income
$
97,062

 
$
110,120

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
92,310

 
109,047

Amortization of deferred financing costs
1,874

 
2,004

Equity in earnings of unconsolidated joint ventures
(9,721
)
 
(10,497
)
Gain on property dispositions
(6,702
)
 
(24,353
)
Noncash compensation
10,500

 
15,663

Other
(1,712
)
 
(4,424
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash
(5,102
)
 
3,390

Accounts receivable
630

 
1,794

Deferred rent receivable
(10,851
)
 
(8,897
)
Prepaid expenses and other assets
10,459

 
312

Accounts payable
(4,154
)
 
3,877

Accrued interest
(160
)
 
342

Other liabilities
3,399

 
(17,342
)
Net cash provided by operating activities
177,832

 
181,036

INVESTING ACTIVITIES
 
 
 
Investment in properties – acquisitions
(19,838
)
 
(8,000
)
Investment in properties – other
(25,562
)
 
(30,338
)
Investments in and advances to unconsolidated joint ventures
(25,333
)
 
(31,372
)
Distributions from unconsolidated joint ventures
12,178

 
35,250

Net proceeds from disposition of properties/land
26,220

 
139,814

Investment in development in progress
(136,030
)
 
(175,744
)
Investment in land held for development
(87,255
)
 
(36,855
)
Payment of deferred leasing costs
(18,750
)
 
(15,057
)
Other
26,315

 
7,842

Net cash used in investing activities
(248,055
)
 
(114,460
)
FINANCING ACTIVITIES
 
 
 
Repayments of mortgage loans
(3,876
)
 
(22,123
)
Proceeds from credit facility
284,000

 
338,300

Repayments on credit facility
(107,000
)
 
(202,300
)
Capital contributions
4,223

 
4,341

Distributions to partners/noncontrolling interests
(136,940
)
 
(188,595
)
Net cash provided by (used in) financing activities
40,407

 
(70,377
)
Net decrease in cash and cash equivalents
(29,816
)
 
(3,801
)
Increase (decrease) in cash and cash equivalents related to foreign currency translation
922

 
(2,212
)
Cash and cash equivalents at beginning of period
43,642

 
35,353

Cash and cash equivalents at end of period
$
14,748

 
$
29,340

See accompanying notes.

14


Liberty Property Trust and Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
June 30, 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 June 30, 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 $17.7 million and $18.7 million as of June 30, 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
 
Six months ended
 
 
June 30, 2016
 
June 30, 2016
Other income
 
$
1,198

 
$
2,570

General and administrative
 
$
1,054

 
$
2,152

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 $4.1 million cash outflow has been reclassified in the June 30, 2016 consolidated statement of cash flows from operating activities to financing activities.


15


Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board ("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). Subsequently, the FASB issued the following standards related to ASU 2014-09: ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”); ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”); and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”). The Company must adopt ASU 2016-08, ASU 2016-10 and ASU 2016-12 with ASU 2014-09 (collectively, the “New Revenue Standards”) effective January 1, 2018. The New Revenue Standards clarify the required factors that an entity must consider when recognizing revenue and require additional disclosures concerning contracts with customers, judgments concerning revenue recognition, and assets recognized for the costs to obtain or fulfill a contract. The New Revenue Standards also provide guidance regarding the measurement of gains and losses relative to the sale of certain nonfinancial assets, including real estate. The Company has created an implementation plan and is progressing in its assessment of the impact of the New Revenue Standards on various revenue streams and evaluating the qualitative and quantitative disclosure guidance. The Company does not expect the New Revenue Standards to have a material impact on the measurement and recognition of gains and losses on the sale of properties. The New Revenue Standards may impact revenue recognized under the percentage of completion method. The Company is currently assessing whether there will an impact on the amount and timing of recognizing its development service fee income which is currently accounted for under the percentage of completion method based on applicable costs incurred and estimated to be incurred. The Company expects the adoption of the New Revenue Standards to have an impact on its business processes, financial reporting disclosures, and internal controls over financial reporting (“ICFR”). The Company plans to adopt the New Revenue Standards using the modified retrospective method. Significant assessment and implementation matters to be addressed prior to adopting the New Revenue Standards include completing a review of customer contracts, determining the impact the new accounting standard will have on the Company’s financial statements and related disclosures, and updating, as needed, the Company’s business processes, systems, and controls required to comply with the New Revenue Standards. Upon completion of the Company’s implementation plan and evaluation of the remaining revenue contracts, the Company will adopt additional controls around ICFR and its business processes for any new and existing revenue arrangements. The Company is on target to complete its assessment of the new revenue standards and the impact on the Company’s financial statements and related disclosures as of January 1, 2018.
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 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.
In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting ("ASU 2017-09"). ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. ASU 2017-09 is effective for the Company beginning January 1, 2018. Early adoption is permitted. The new guidance will be applied prospectively to awards modified on or after the adoption date. The Company is evaluating the impact ASU 2017-09 will have on the Company's financial position and results of operations.

16


Note 2: Income per Common Share of the Trust
The following table sets forth the computation of basic and diluted income per common share of the Trust (in thousands except per share amounts):
 
For the Three Months Ended
 
For the Three Months Ended
 
June 30, 2017
 
June 30, 2016
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Net income available to common shareholders - basic
$
51,411

 
146,688

 
$
0.35

 
$
49,627

 
145,995

 
$
0.34

Dilutive shares for long-term compensation plans

 
820

 
 
 

 
740

 
 
Net income available to common shareholders - diluted
$
51,411

 
147,508

 
$
0.35

 
$
49,627

 
146,735

 
$
0.34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended
 
For the Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Net income available to common shareholders - basic
$
94,443

 
146,602

 
$
0.64

 
$
107,181

 
146,002

 
$
0.73

Dilutive shares for long-term compensation plans

 
753

 
 
 

 
620

 
 
Net income available to common shareholders - diluted
$
94,443

 
147,355

 
$
0.64

 
$
107,181

 
146,622

 
$
0.73


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. There were no anti-dilutive options excluded from the computation of diluted income per common share for the three and six months ended June 30, 2017 as compared to 885,000 and 1,668,000, respectively, for the same periods in 2016.
During the three and six months ended June 30, 2017, 77,000 and 88,000 common shares, respectively, 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 through August 7, 2017. 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 or six months ended June 30, 2017.


17


Note 3: Income per Common Unit of the Operating Partnership
The following table sets forth the computation of basic and diluted income per common unit of the Operating Partnership (in thousands, except per unit amounts):
 
For the Three Months Ended
 
For the Three Months Ended
 
June 30, 2017
 
June 30, 2016
 
Income (Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
Net income - net of noncontrolling interest - consolidated joint ventures
$
52,761

 
 
 
 
 
$
50,944

 
 
 
 
Less: Preferred unit distributions
(118
)
 
 
 
 
 
(118
)
 
 
 
 
Net income available to common unitholders - basic
$
52,643

 
150,216

 
$
0.35

 
$
50,826

 
149,534

 
$
0.34

Dilutive units for long-term compensation plans

 
820

 
 
 

 
740

 
 
Net income available to common unitholders - diluted
$
52,643

 
151,036

 
$
0.35

 
$
50,826

 
150,274

 
$
0.34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended
 
For the Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
Net income - net of noncontrolling interest - consolidated joint ventures
$
96,942

 
 
 
 
 
$
110,007

 
 
 
 
Less: Preferred unit distributions
(236
)
 
 
 
 
 
(236
)
 
 
 
 
Net income available to common unitholders - basic
96,706

 
150,130

 
$
0.64

 
109,771

 
149,541

 
$
0.73

Dilutive units for long-term compensation plans

 
753

 
 
 

 
620

 
 
Net income available to common unitholders - diluted
$
96,706

 
150,883

 
$
0.64

 
$
109,771

 
150,161

 
$
0.73


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. There were no anti-dilutive options excluded from the computation of diluted income per common unit for the three and six months ended June 30, 2017 as compared to 885,000 and 1,668,000, respectively, for the same periods in 2016.
During the three and six months ended June 30, 2017, 77,000 and 88,000 common units, respectively, 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 through August 7, 2017. 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 or six months ended June 30, 2017.

18


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 six months ended June 30,
 
 
2017
 
2016
Foreign Currency Translation:
 
 
 
 
     Beginning balance
 
$
(56,767
)
 
$
(22,023
)
     Translation adjustment
 
10,680

 
(18,596
)
     Ending balance
 
(46,087
)
 
(40,619
)
 
 
 
 
 
Derivative Instruments:
 
 
 
 
     Beginning balance
 
(455
)
 
(865
)
     Unrealized loss
 
(41
)
 
(2,354
)
     Reclassification adjustment (1)
 
316

 
559

     Ending balance
 
(180
)
 
(2,660
)
Total accumulated other comprehensive loss
 
(46,267
)
 
(43,279
)
Less: portion included in noncontrolling interest – operating partnership
 
935

 
863

Total accumulated other comprehensive loss included in shareholders' equity/owners' equity
 
$
(45,332
)
 
$
(42,416
)

(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 and six months ended June 30, 2017, the Company acquired one property for a purchase price of $19.1 million. This property was under development when acquired and contains 101,000 square feet of leaseable space. The property is located in the Company's Southern California reportable segment.
Information on the operating properties and land parcels the Company sold during the three and six months ended June 30, 2017 is as follows:
 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2017
 
Number of Buildings
 
Acres of Developable Land
 
Leaseable Square Feet
 
Gross Proceeds (in thousands)
 
Number of Buildings
 
Acres of Developable Land
 
Leaseable Square Feet
 
Gross Proceeds (in thousands)
Chicago/Minneapolis
1

 

 
31,116

 
$
3,100

 
1

 

 
31,116

 
$
3,100

Florida

 
11

 

 
2,636

 

 
11

 

 
2,636

Houston

 
7

 

 
1,995

 

 
7

 

 
1,995

Philadelphia

 
2

 

 
6,904

 

 
2

 

 
6,904

Southeastern PA
1

 
3

 
62,386

 
6,975

 
2

 
3

 
95,413

 
9,050

Other

 
6

 

 
3,739

 

 
6

 

 
3,739

 
2

 
29

 
93,502

 
$
25,349

 
3

 
29

 
126,529

 
$
27,424


As of June 30, 2017, the Company classified 4.9 acres of land held for development with a total carrying value of $2.7 million as assets held for sale. This land is located in the Company's Florida reportable segment. The land was sold subsequent to June 30, 2017.
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 six months ended June 30, 2017, the Company realigned its reportable segments as follows:

19


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.
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.

20


The operating information by reportable segment is as follows (in thousands):
 
 
 
Three Months
 
Six Months
 
 
 
Ended June 30,
 
Ended June 30,
 
 
 
2017
 
2016
 
2017
 
2016
Operating revenue
 
 
 
 
 
 
 
 
 
Carolinas/Richmond
 
$
18,225

 
$
16,174

 
$
36,282

 
$
31,934

 
Chicago/Minneapolis
 
15,767

 
21,891

 
31,642

 
43,430

 
Florida
 
14,482

 
27,798

 
28,730

 
57,115

 
Houston
 
14,779

 
14,204

 
29,553

 
28,971

 
Lehigh/Central PA
 
39,815

 
33,782

 
81,350

 
68,025

 
Philadelphia
 
10,928

 
10,386

 
22,363

 
20,741

 
Southeastern PA
 
15,127

 
24,343

 
29,742

 
50,226

 
United Kingdom
 
3,262

 
3,525

 
6,431

 
7,077

 
Other
 
32,166

 
34,444

 
62,538

 
69,441

Segment-level operating revenue
 
164,551

 
186,547

 
328,631

 
376,960

 
 
 
 
 
 
 
 
 
 
 Reconciliation to total operating revenues
 
 
 
 
 
 
 
 
 
 Development service fee income
 
18,259

 

 
29,744

 

 
 Other
 
320

 
107

 
121

 
(165
)
 Total operating revenue
 
$
183,130

 
$
186,654

 
$
358,496

 
$
376,795

 
 
 
 
 
 
 
 
 
 
SNOI
 
 
 
 
 
 
 
 
 
 
Carolinas/Richmond
 
$
13,094

 
$
11,219

 
$
26,077

 
$
22,059

 
Chicago/Minneapolis
 
10,011

 
11,872

 
19,360

 
23,243

 
Florida
 
10,003

 
16,741

 
19,510

 
34,788

 
Houston
 
7,761

 
8,036

 
14,562

 
16,869

 
Lehigh/Central PA
 
29,083

 
24,755

 
58,661

 
48,957

 
Philadelphia
 
8,475

 
7,981

 
17,234

 
15,339

 
Southeastern PA
 
8,507

 
14,549

 
16,619

 
28,300

 
United Kingdom
 
1,649

 
2,438

 
3,506

 
4,842

 
Other
 
21,935

 
22,953

 
42,191

 
45,779

SNOI
 
110,518

 
120,544

 
217,720

 
240,176

 
 
 
 
 
 
 
 
 
 
 Reconciliation to net income
 
 
 
 
 
 
 
 
 
Interest expense
 
(21,942
)
 
(30,131
)
 
(44,285
)
 
(61,543
)
 
Depreciation/amortization expense (1)
 
(33,115
)
 
(39,161
)
 
(66,308
)
 
(78,959
)
 
Gain on property dispositions
 
5,895

 
3,832

 
6,702

 
24,353

 
Equity in earnings of unconsolidated joint ventures
 
3,990

 
5,583

 
9,721

 
10,497

 
General and administrative expense (1)
 
(11,047
)
 
(10,135
)
 
(23,301
)
 
(24,927
)
 
Income taxes (1)
 
104

 
(653
)
 
(176
)
 
(1,222
)
 
Other
 
(1,585
)
 
1,178

 
(3,011
)
 
1,745

Net income
 
$
52,818

 
$
51,057

 
$
97,062

 
$
110,120


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



21


The Company's total assets by reportable segment as of June 30, 2017 and December 31, 2016 is as follows (in thousands):

 
June 30, 2017