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EX-12.1 - EXHIBIT 12.1 - LIBERTY PROPERTY TRUSTlptex121-3312018.htm
EX-32.4 - EXHIBIT 32.4 - LIBERTY PROPERTY TRUSTlptex324-3312018.htm
EX-32.3 - EXHIBIT 32.3 - LIBERTY PROPERTY TRUSTlptex323-3312018.htm
EX-32.2 - EXHIBIT 32.2 - LIBERTY PROPERTY TRUSTlptex322-3312018.htm
EX-32.1 - EXHIBIT 32.1 - LIBERTY PROPERTY TRUSTlptex321-3312018.htm
EX-31.4 - EXHIBIT 31.4 - LIBERTY PROPERTY TRUSTlptex314-3312018.htm
EX-31.3 - EXHIBIT 31.3 - LIBERTY PROPERTY TRUSTlptex313-3312018.htm
EX-31.2 - EXHIBIT 31.2 - LIBERTY PROPERTY TRUSTlptex312-3312018.htm
EX-31.1 - EXHIBIT 31.1 - LIBERTY PROPERTY TRUSTlptex311-3312018.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, 2018
  
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.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
On April 30, 2018, 147,787,823 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, 2018 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, 2018. 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, 2018
 
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)
 
 
March 31, 2018
 
December 31, 2017
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,180,071

 
$
1,138,337

Building and improvements
4,448,883

 
4,358,264

Less accumulated depreciation
(962,688
)
 
(933,173
)
Operating real estate
4,666,266

 
4,563,428

Development in progress
373,154

 
333,437

Land held for development
316,226

 
330,748

Net real estate
5,355,646

 
5,227,613

Cash and cash equivalents
30,380

 
11,882

Restricted cash
9,366

 
13,803

Accounts receivable, net
12,767

 
11,231

Deferred rent receivable, net
117,776

 
113,282

Deferred financing and leasing costs, net of accumulated amortization (March 31, 2018, $168,754; December 31, 2017, $164,755)
151,530

 
152,471

Investments in and advances to unconsolidated joint ventures
350,458

 
288,456

Assets held for sale
238,199

 
330,186

Prepaid expenses and other assets
148,509

 
290,833

Total assets
$
6,414,631

 
$
6,439,757

LIABILITIES
 
 
 
Mortgage loans, net
$
264,906

 
$
267,093

Unsecured notes, net
2,284,197

 
2,283,513

Credit facilities
257,175

 
358,939

Accounts payable
68,499

 
77,625

Accrued interest
34,855

 
21,796

Dividend and distributions payable
60,518

 
60,330

Other liabilities
186,807

 
205,055

Liabilities held for sale
1,849

 
9,503

Total liabilities
3,158,806

 
3,283,854

Noncontrolling interest - operating partnership - 301,483 preferred units outstanding as of March 31, 2018 and December 31, 2017
7,537

 
7,537

EQUITY
 
 
 
Liberty Property Trust shareholders’ equity
 
 
 
Common shares of beneficial interest, $.001 par value, 283,987,000 shares authorized; 147,773,141 and 147,450,691 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively
148

 
147

Additional paid-in capital
3,683,660

 
3,674,978

Accumulated other comprehensive loss
(29,674
)
 
(37,797
)
Distributions in excess of net income
(468,883
)
 
(549,970
)
Total Liberty Property Trust shareholders’ equity
3,185,251

 
3,087,358

Noncontrolling interest – operating partnership
 
 
 
3,520,205 common units outstanding as of March 31, 2018 and December 31, 2017
58,186

 
56,159

Noncontrolling interest – consolidated joint ventures
4,851

 
4,849

Total equity
3,248,288

 
3,148,366

Total liabilities, noncontrolling interest - operating partnership and equity
$
6,414,631

 
$
6,439,757


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, 2018
 
March 31, 2017
OPERATING REVENUE
 
 
 
Rental
$
125,203

 
$
116,868

Operating expense reimbursement
38,610

 
37,413

Development service fee income
26,352

 
11,485

Total operating revenue
190,165

 
165,766

OPERATING EXPENSE
 
 
 
Rental property
15,931

 
17,535

Real estate taxes
23,498

 
21,906

General and administrative
18,628

 
16,993

Expensed pursuit costs
324

 
32

Systems implementation expense
706

 

Depreciation and amortization
43,686

 
43,092

Development service fee expense
28,067

 
11,004

Total operating expense
130,840

 
110,562

Operating income
59,325

 
55,204

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
2,486

 
1,862

Interest expense
(22,750
)
 
(21,634
)
Total other income (expense)
(20,264
)
 
(19,772
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
39,061

 
35,432

Gain on property dispositions
4,121

 
807

Income taxes
(554
)
 
(622
)
Equity in earnings of unconsolidated joint ventures
6,764

 
5,731

Income from continuing operations
49,392

 
41,348

Discontinued operations (including net gain on property dispositions of $90.0 million for the three months ended March 31, 2018)
94,333

 
2,896

Net income
143,725

 
44,244

Noncontrolling interest – operating partnership
(3,457
)
 
(1,149
)
Noncontrolling interest – consolidated joint ventures
(87
)
 
(63
)
Net income available to common shareholders
$
140,181

 
$
43,032

 
 
 
 
Net income
$
143,725

 
$
44,244

Other comprehensive income - foreign currency translation
7,932

 
3,177

Other comprehensive income - derivative instruments
385

 
313

Other comprehensive income
8,317

 
3,490

Total comprehensive income
152,042

 
47,734

Less: comprehensive income attributable to noncontrolling interest
(3,738
)
 
(1,293
)
Comprehensive income attributable to common shareholders
$
148,304

 
$
46,441

Earnings per common share
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.33

 
$
0.27

Income from discontinued operations
0.62

 
0.02

Income per common share – basic
$
0.95

 
$
0.29

Diluted:
 
 
 
Income from continuing operations
$
0.33

 
$
0.27

Income from discontinued operations
0.62

 
0.02

Income per common share – diluted
$
0.95

 
$
0.29

Distributions per common share
$
0.40

 
$
0.40

Weighted average number of common shares outstanding
 
 
 
Basic
147,060

 
146,471

Diluted
147,873

 
147,221

Amounts attributable to common shareholders
 
 
 
Income from continuing operations
$
48,043

 
$
40,204

Discontinued operations
92,138

 
2,828

Net income available to common shareholders
$
140,181

 
$
43,032

See accompanying notes.

6


CONSOLIDATED STATEMENT OF EQUITY OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
 
 
NUMBER OF COMMON SHARES
 
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, 2018
 
147,450,691

 
$
147

 
$
3,674,978

 
$
(37,797
)
 
$
(549,970
)
 
$
3,087,358

 
$
56,159

 
$
4,849

 
$
3,148,366

 
$
7,537

Net proceeds from the issuance of common shares
 
322,450

 
1

 
3,266

 

 

 
3,267

 

 

 
3,267

 

Net income
 

 

 

 

 
140,181

 
140,181

 
3,339

 
87

 
143,607

 
118

Distributions
 

 

 

 

 
(59,094
)
 
(59,094
)
 
(1,506
)
 
(85
)
 
(60,685
)
 
(118
)
Share-based compensation net of shares related to tax withholdings
 

 

 
5,416

 

 

 
5,416

 

 

 
5,416

 

Other comprehensive income - foreign currency translation
 

 

 

 
7,747

 

 
7,747

 
185

 

 
7,932

 

Other comprehensive income - derivative instruments
 

 

 

 
376

 

 
376

 
9

 

 
385

 

Balance at March 31, 2018
 
147,773,141

 
$
148

 
$
3,683,660

 
$
(29,674
)
 
$
(468,883
)
 
$
3,185,251

 
$
58,186

 
$
4,851

 
$
3,248,288

 
$
7,537


See accompanying notes.

7


CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
OPERATING ACTIVITIES
 
 
 
Net income
$
143,725

 
$
44,244

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
45,144

 
45,992

Amortization of deferred financing costs
967

 
937

Expensed pursuit costs
324

 
32

Equity in earnings of unconsolidated joint ventures
(6,764
)
 
(5,731
)
Gain on property dispositions
(94,170
)
 
(807
)
Share-based compensation
9,633

 
7,971

Other
2,206

 
(844
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(706
)
 
36

Deferred rent receivable
(4,944
)
 
(5,566
)
Prepaid expenses and other assets
20,312

 
6,824

Accounts payable
(9,003
)
 
(7,136
)
Accrued interest
13,059

 
12,972

Other liabilities
(26,084
)
 
(14,444
)
Net cash provided by operating activities
93,699

 
84,480

INVESTING ACTIVITIES
 
 
 
Investment in properties – acquisitions
(95,027
)
 

Investment in properties – other
(3,603
)
 
(12,422
)
Investments in and advances to unconsolidated joint ventures
(66,420
)
 
(13,278
)
Distributions from unconsolidated joint ventures
11,521

 
9,427

Net proceeds from disposition of properties/land
184,233

 
1,874

Investment in development in progress
(51,932
)
 
(64,661
)
Investment in land held for development
(18,234
)
 
(53,660
)
Payment of deferred leasing costs
(2,183
)
 
(7,544
)
Release of escrows and other
126,745

 
9,016

Net cash provided by (used in) investing activities
85,100

 
(131,248
)
FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares
3,267

 
852

Share repurchases, including shares related to tax withholdings
(4,402
)
 
(4,624
)
Repayments of mortgage loans
(1,714
)
 
(1,930
)
Proceeds from credit facility
312,993

 
159,000

Repayments on credit facility
(414,757
)
 
(44,000
)
Distribution paid on common shares
(58,980
)
 
(69,823
)
Distribution to partners/noncontrolling interest holders
(1,651
)
 
(1,987
)
Net cash (used in) provided by financing activities
(165,244
)
 
37,488

Net increase (decrease) in cash, cash equivalents and restricted cash
13,555

 
(9,280
)
Increase in cash, cash equivalents and restricted cash related to foreign currency translation
506

 
470

Cash, cash equivalents and restricted cash at beginning of period
25,685

 
56,025

Cash, cash equivalents and restricted cash at end of period
$
39,746

 
$
47,215


See accompanying notes.

8


CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except unit amounts)
 
 
March 31, 2018
 
December 31, 2017
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,180,071

 
$
1,138,337

Building and improvements
4,448,883

 
4,358,264

Less accumulated depreciation
(962,688
)
 
(933,173
)
Operating real estate
4,666,266

 
4,563,428

Development in progress
373,154

 
333,437

Land held for development
316,226

 
330,748

Net real estate
5,355,646

 
5,227,613

Cash and cash equivalents
30,380

 
11,882

Restricted cash
9,366

 
13,803

Accounts receivable, net
12,767

 
11,231

Deferred rent receivable, net
117,776

 
113,282

Deferred financing and leasing costs, net of accumulated amortization (March 31, 2018, $168,754; December 31, 2017, $164,755)
151,530

 
152,471

Investments in and advances to unconsolidated joint ventures
350,458

 
288,456

Assets held for sale
238,199

 
330,186

Prepaid expenses and other assets
148,509

 
290,833

Total assets
$
6,414,631

 
$
6,439,757

LIABILITIES
 
 
 
Mortgage loans, net
$
264,906

 
$
267,093

Unsecured notes, net
2,284,197

 
2,283,513

Credit facilities
257,175

 
358,939

Accounts payable
68,499

 
77,625

Accrued interest
34,855

 
21,796

Distributions payable
60,518

 
60,330

Other liabilities
186,807

 
205,055

Liabilities held for sale
1,849

 
9,503

Total liabilities
3,158,806

 
3,283,854

Limited partners’ equity - 301,483 preferred units outstanding as of March 31, 2018, and December 31, 2017
7,537

 
7,537

OWNERS’ EQUITY
 
 
 
General partner’s equity - 147,773,141 and 147,450,691 common units outstanding as of March 31, 2018 and December 31, 2017, respectively
3,185,251

 
3,087,358

Limited partners’ equity – 3,520,205 common units outstanding as of March 31, 2018 and December 31, 2017
58,186

 
56,159

Noncontrolling interest – consolidated joint ventures
4,851

 
4,849

Total owners’ equity
3,248,288

 
3,148,366

Total liabilities, limited partners’ equity and owners’ equity
$
6,414,631

 
$
6,439,757


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, 2018
 
March 31, 2017
OPERATING REVENUE
 
 
 
Rental
$
125,203

 
$
116,868

Operating expense reimbursement
38,610

 
37,413

Development service fee income
26,352

 
11,485

Total operating revenue
190,165

 
165,766

OPERATING EXPENSE
 
 
 
Rental property
15,931

 
17,535

Real estate taxes
23,498

 
21,906

General and administrative
18,628

 
16,993

Expensed pursuit costs
324

 
32

Systems implementation expense
706

 

Depreciation and amortization
43,686

 
43,092

Development service fee expense
28,067

 
11,004

Total operating expense
130,840

 
110,562

Operating income
59,325

 
55,204

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
2,486

 
1,862

Interest expense
(22,750
)
 
(21,634
)
Total other income (expense)
(20,264
)
 
(19,772
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
39,061

 
35,432

Gain on property dispositions
4,121

 
807

Income taxes
(554
)
 
(622
)
Equity in earnings of unconsolidated joint ventures
6,764

 
5,731

Income from continuing operations
49,392

 
41,348

Discontinued operations (including net gain on property dispositions of $90.0 million for the three months ended March 31, 2018)
94,333

 
2,896

Net income
143,725

 
44,244

Noncontrolling interest – consolidated joint ventures
(87
)
 
(63
)
Preferred unit distributions
(118
)
 
(118
)
Net income available to common unitholders
$
143,520

 
$
44,063

Net income
$
143,725

 
$
44,244

Other comprehensive income - foreign currency translation
7,932

 
3,177

Other comprehensive income - derivative instruments
385

 
313

Other comprehensive income
8,317

 
3,490

Total comprehensive income
$
152,042

 
$
47,734

Earnings per common unit
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.33

 
$
0.27

Income from discontinued operations
0.62

 
0.02

Income per common unit - basic
$
0.95

 
$
0.29

Diluted:
 
 
 
Income from continuing operations
$
0.33

 
$
0.27

Income from discontinued operations
0.62

 
0.02

Income per common unit - diluted
$
0.95

 
$
0.29

Distributions per common unit
$
0.40

 
$
0.40

Weighted average number of common units outstanding
 
 
 
        Basic
150,580

 
150,000

        Diluted
151,393

 
150,750

Net income allocated to general partners
$
140,181

 
$
43,032

Net income allocated to limited partners
$
3,457

 
$
1,149


See accompanying notes.

10


CONSOLIDATED STATEMENT OF OWNERS’ EQUITY OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
GENERAL PARTNER'S COMMON UNITS
 
LIMITED PARTNERS' COMMON UNITS
 
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, 2018
147,450,691

 
3,520,205

 
$
3,087,358

 
$
56,159

 
$
4,849

 
$
3,148,366

 
$
7,537

Contributions from partners
322,450

 

 
8,683

 

 

 
8,683

 

Distributions to partners

 

 
(59,094
)
 
(1,506
)
 
(85
)
 
(60,685
)
 
(118
)
Other comprehensive income - foreign currency translation

 

 
7,747

 
185

 

 
7,932

 

Other comprehensive income - derivative instruments

 

 
376

 
9

 

 
385

 

Net income

 

 
140,181

 
3,339

 
87

 
143,607

 
118

Balance at March 31, 2018
147,773,141

 
3,520,205

 
$
3,185,251

 
$
58,186

 
$
4,851

 
$
3,248,288

 
$
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, 2018
 
March 31, 2017
OPERATING ACTIVITIES
 
 
 
Net income
$
143,725

 
$
44,244

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
45,144

 
45,992

Amortization of deferred financing costs
967

 
937

Expensed pursuit costs
324

 
32

Equity in earnings of unconsolidated joint ventures
(6,764
)
 
(5,731
)
Gain on property dispositions
(94,170
)
 
(807
)
Noncash compensation
9,633

 
7,971

Other
2,206

 
(844
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(706
)
 
36

Deferred rent receivable
(4,944
)
 
(5,566
)
Prepaid expenses and other assets
20,312

 
6,824

Accounts payable
(9,003
)
 
(7,136
)
Accrued interest
13,059

 
12,972

Other liabilities
(26,084
)
 
(14,444
)
Net cash provided by operating activities
93,699

 
84,480

INVESTING ACTIVITIES
 
 
 
Investment in properties – acquisitions
(95,027
)
 

Investment in properties – other
(3,603
)
 
(12,422
)
Investments in and advances to unconsolidated joint ventures
(66,420
)
 
(13,278
)
Distributions from unconsolidated joint ventures
11,521

 
9,427

Net proceeds from disposition of properties/land
184,233

 
1,874

Investment in development in progress
(51,932
)
 
(64,661
)
Investment in land held for development
(18,234
)
 
(53,660
)
Payment of deferred leasing costs
(2,183
)
 
(7,544
)
Release of escrows and other
126,745

 
9,016

Net cash provided by (used in) investing activities
85,100

 
(131,248
)
FINANCING ACTIVITIES
 
 
 
Repayments of mortgage loans
(1,714
)
 
(1,930
)
Proceeds from credit facility
312,993

 
159,000

Repayments on credit facility
(414,757
)
 
(44,000
)
Capital contributions
3,267

 
852

Distributions to partners/noncontrolling interests
(65,033
)
 
(76,434
)
Net cash (used in) provided by financing activities
(165,244
)
 
37,488

Net increase (decrease) in cash, cash equivalents and restricted cash
13,555

 
(9,280
)
Increase in cash, cash equivalents and restricted cash related to foreign currency translation
506

 
470

Cash, cash equivalents and restricted cash at beginning of period
25,685

 
56,025

Cash, cash equivalents and restricted cash at end of period
$
39,746

 
$
47,215


See accompanying notes.

12


Liberty Property Trust and Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2018
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, 2018. 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 $77.1 million and $17.3 million as of March 31, 2018 and December 31, 2017, respectively. See Note 12 for further discussion of Liberty/Comcast 1701 JFK Boulevard, LP.
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“U.S. 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 U.S. 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, 2017. 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.
Revenue Recognition
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 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; ASU 2017-05, Gains and losses from the derecognition of nonfinancial assets (Topic 610-20), and ASU 2017-13, Revenue from Contracts with Customers (Topic 606): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments (collectively, the “New Revenue Standards”).
The New Revenue Standards provide a unified model to determine how revenue is recognized. In accordance with the New Revenue Standards, the Company performs the following steps: (i) identify the contract with the customer, (ii) identify the performance obligations within the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations and (v) recognize revenue when (or as) a performance obligation is satisfied.
The Company evaluated each of its revenue streams: lease agreement revenue, development service fee revenue, deferred land sale revenue and gain or loss on sale of nonfinancial assets and adopted the New Revenue Standards effective January 1, 2018 using the modified retrospective approach. The Company concluded that there are no revenue streams from its lease agreements that are covered by the New Revenue Standards with the possible exception of non-lease components as further discussed below.

13


The New Revenue Standards did not have an impact on the amount and timing of recognizing the Company's development service fee income. The Company recognizes development service fee income on a variable basis as a percentage of costs incurred on third party development contracts. Property development services, which are a single performance obligation, continue to be satisfied and recognized over time. The Company measures its progress toward completing the performance obligation under each arrangement. The measurement of the transfer of value to the customer for these services utilizes the input method (actual costs incurred against anticipated project costs) since this method best depicts the actual transfer of value promised to the customer. The total amount of consideration to be received from these projects is assessed on a quarterly basis. Based on existing contracts, completion is anticipated by the end of 2018.
The Company recognizes revenues from improving land sites and selling the underlying land on behalf of its development partner to home builders in the United Kingdom. These agreements contain a pre-emption clause and a seller's call option. The Company recognizes revenue as the pre-emption period or seller's call option lapses utilizing the output method. There was no revenue recognized for such contracts during the three months ended March 31, 2018 or March 31, 2017.
The New Revenue Standards did not have an impact on the gain or loss of sale of nonfinancial assets. The New Revenue Standards require the Company to derecognize nonfinancial assets once it transfers control of a distinct nonfinancial asset or distinct in-substance nonfinancial asset. Additionally, when the Company transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling ownership interest, the Company is required to measure any noncontrolling interest it receives or retains at fair value. The guidance requires companies to recognize a full gain or loss on the transaction. See Notes 5 and 7 for further discussion of sales of nonfinancial assets during the three months ended March 31, 2018.
Estimated gross revenue related to the remaining performance obligations under existing contracts (before allocation of related costs and expenses) as of March 31, 2018 that will be recognized as revenue in future periods was approximately $85.9 million, which is expected to be recognized substantially in 2018 and the remainder through 2020.
The Company adopted the practical expedient to assess the recognition of revenue for open contracts during the transition period. There was no adjustment to the opening balance of retained earnings recorded at January 1, 2018.
Development Fee Contracts
From time to time, the Company enters into contracts to develop properties on a fee basis for joint ventures in which the Company holds an interest or for unrelated third parties. In these cases the Company typically agrees to be responsible for all aspects of the development of the project (and, in certain instances, related infrastructure) and to guarantee the timely lien-free completion of construction of the project and the payment, subject to certain exceptions, of cost overruns incurred in the development of the project. If the Company encounters construction delays or unexpected costs in the development of these projects or is otherwise unable to recover the costs it incurs, the resulting unrecovered costs and potential payments to customers could generate losses that would adversely affect the Company's cash flow and net income. On a quarterly basis, the Company applies reasonable estimates and judgments to assess whether or not it is necessary to accrue any estimated future losses with respect to such contracts. The Company recognized an aggregate net loss of $1.7 million on these contracts during the three months ended March 31, 2018 and an aggregate net profit of $481,000 during the three months ended March 31, 2017. Should external or internal circumstances change requiring the Company to adjust the estimated future cash flows from these development contracts or in a manner that indicates that such development contracts may result in a loss, the Company could be required to record additional losses in the future. See Note 12 where certain fee development matters relating specifically to the Comcast Technology Center are discussed in further detail.
Systems Implementation Expense
The Company is incurring costs associated with its efforts to implement new financial and operating systems in certain cloud computing arrangements. The Company evaluated the arrangements in accordance with ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” and concluded that such arrangements are service contracts under the standard. Accordingly, the Company expenses substantially all costs as incurred. Certain costs that relate to the software service agreements received over time are set up as prepaid and expensed over the applicable service period. These costs include license costs incurred during the implementation period as well as consulting, personnel and other direct costs related to the implementation. The Company incurred $706,000 of systems implementation expense for the three months ended March 31, 2018. There were no such costs for the three months ended March 31, 2017.
Expensed Pursuit Costs
The Company capitalizes pre-development and pre-acquisition costs incurred in pursuit of new development, land or operating property opportunities for which the Company currently believes future development or asset acquisition is probable. Future development and the consummation of acquisitions is dependent upon various factors, including, as appropriate, due diligence, zoning and regulatory approval, rental market conditions and construction costs. Initial pre-development and pre-acquisition costs

14


incurred on future development, land or operating property acquisitions that is not considered probable are expensed as incurred. In addition, if the status of a future development, land or operating property acquisitions by the Company is no longer probable, any capitalized pre-development or pre-acquisition costs are written off. The Company expensed costs related to pursuit costs of  $324,000 and $32,000 for the three months ended March 31, 2018 and March 31, 2017, respectively. In the third quarter of 2017, the Company began to separately classify expensed pursuit costs in the Consolidated Statements of Comprehensive Income. These costs, which were reclassified retrospectively for all periods, were formerly classified as general and administrative expense.
Recently Issued Accounting Standards
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. 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 the New Revenue Standards. 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 has assembled a project team that is working to analyze and evaluate the impact of the guidance on its consolidated financial statements. The team is monitoring activity with respect to possible amendments to ASU 2016-02, particularly the amendment that provides a practical expedient to lessors by removing the requirement to separate lease and non-lease components. The Company expects to adopt the new lease standard on January 1, 2019.
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 became effective for the Company beginning January 1, 2018. The standard requires retrospective application. The adoption of the ASU 2016-15 did not have a material impact on the Company's consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash (“ASU 2016-18”) , which requires that restricted cash and cash equivalents be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows. The new standard is effective for public entities for fiscal years beginning after December 15, 2017 and for interim periods therein. The Company adopted ASU 2016-18 as of December 31, 2017.
The impact of the implementation of ASU 2016-18 was as follows:
 
Three months ended
 
March 31, 2017
Net cash provided by operating activities (prior to adoption of ASU 2016-18)
$
86,382

Impact of including restricted cash with cash and cash equivalents
(1,902
)
Net cash provided by operating activities (after adoption of ASU 2016-18)
$
84,480


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. The Company adopted ASU 2017-05 effective January 1, 2018 on a modified retrospective method and the adoption did not have an effect on the Company’s consolidated financial statements.
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 became effective for the Company beginning January 1, 2018. The new guidance will be applied prospectively to awards modified on or after the adoption date. The adoption of the ASU 2017-09 did not have a material impact on the Company's consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 is designed to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for the Company beginning January 1, 2019. Early adoption is permitted using a modified retrospective transition method. This adoption method will require the Company to recognize the cumulative effect of initially applying ASU 2017-12 as an adjustment to accumulated other comprehensive income with a

15


corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the update. The Company is evaluating the impact ASU 2017-12 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):
 
For the Three Months Ended
 
For the Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Income from continuing operations net of noncontrolling interest - basic
$
48,043

 
147,060

 
$
0.33

 
$
40,204

 
146,471

 
$
0.27

Dilutive shares for long-term compensation plans

 
813

 
 
 

 
750

 
 
Income from continuing operations net of noncontrolling interest - diluted
$
48,043

 
147,873

 
$
0.33

 
$
40,204

 
147,221

 
$
0.27

Discontinued operations net of noncontrolling interest - basic
$
92,138

 
147,060

 
$
0.62

 
$
2,828

 
146,471

 
$
0.02

Dilutive shares for long-term compensation plans

 
813

 
 
 

 
750

 
 
Discontinued operations net of noncontrolling interest - diluted
$
92,138

 
147,873

 
$
0.62

 
$
2,828

 
147,221

 
$
0.02

Net income available to common shareholders - basic
$
140,181

 
147,060

 
$
0.95

 
$
43,032

 
146,471

 
$
0.29

Dilutive shares for long-term compensation plans

 
813

 
 
 

 
750

 
 
Net income available to common shareholders - diluted
$
140,181

 
147,873

 
$
0.95

 
$
43,032

 
147,221

 
$
0.29

 
 
 
 
 
 
 
 
 
 
 
 

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 months ended March 31, 2018 as compared to 188,000 for the same period in 2017.
During the three months ended March 31, 2018, 89,000 common shares were issued upon the exercise of options. During the year ended December 31, 2017, 193,000 common shares were issued upon the exercise of options.
Share Repurchase
The Company’s Board of Trustees has authorized a share repurchase plan under which the Company may purchase up to $250 million of the Company’s outstanding common shares through September 28, 2019. 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, 2018.

16


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, 2018
 
March 31, 2017
 
Income (Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
 
Income
(Numerator)
 
Weighted
Average Units
(Denominator)
 
Per Unit
Income from continuing operations - net of noncontrolling interest - consolidated joint ventures
$
49,305

 
 
 
 
 
$
41,285

 
 
 
 
Less: Preferred unit distributions
(118
)
 
 
 
 
 
(118
)
 
 
 
 
Income from continuing operations available to common unitholders - basic
$
49,187

 
150,580

 
$
0.33

 
$
41,167

 
150,000

 
$
0.27

Dilutive units for long-term compensation plans

 
813

 
 
 

 
750

 
 
Income from continuing operations available to common unitholders - diluted
$
49,187

 
151,393

 
$
0.33

 
$
41,167

 
150,750

 
$
0.27

Income from discontinued operations - basic
$
94,333

 
150,580

 
$
0.62

 
$
2,896

 
150,000

 
$
0.02

Dilutive units for long-term compensation plans

 
813

 
 
 

 
750

 
 
Income from discontinued operations - diluted
$
94,333

 
151,393

 
$
0.62

 
$
2,896

 
150,750

 
$
0.02

Income available to common unitholders - basic
$
143,520

 
150,580

 
$
0.95

 
$
44,063

 
150,000

 
$
0.29

Dilutive units for long-term compensation plans

 
813

 
 
 

 
750

 
 
Income available to common unitholders - diluted
$
143,520

 
151,393

 
$
0.95

 
$
44,063

 
150,750

 
$
0.29

 
 
 
 
 
 
 
 
 
 
 
 

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 months ended March 31, 2018 as compared to 188,000 for the same period in 2017.
During the three months ended March 31, 2018, 89,000 common units, respectively, were issued upon exercise of options. During the year ended December 31, 2017, 193,000 common units were issued upon the exercise of options.
Unit Repurchase
The Company’s Board of Trustees has authorized a share repurchase plan under which the Company may purchase up to $250 million of the Company’s outstanding common units through September 28, 2019. 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, 2018.

17


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,
 
 
2018
 
2017
Foreign Currency Translation:
 
 
 
 
     Beginning balance
 
$
(38,701
)
 
$
(56,767
)
     Translation adjustment
 
7,932

 
3,177

     Ending balance
 
(30,769
)
 
(53,590
)
 
 
 
 
 
Derivative Instruments:
 
 
 
 
     Beginning balance
 
150

 
(455
)
     Unrealized gain
 
369

 
127

     Reclassification adjustment (1)
 
16

 
186

     Ending balance
 
535

 
(142
)
Total accumulated other comprehensive loss
 
(30,234
)
 
(53,732
)
Less: portion included in noncontrolling interest – operating partnership
 
560

 
1,110

Total accumulated other comprehensive loss included in shareholders' equity/owners' equity
 
$
(29,674
)
 
$
(52,622
)

(1)
Amounts reclassified out of Accumulated Other Comprehensive Loss/General & Limited Partner's Equity into contractual interest expense.
Note 5: Real Estate
Information on the Operating Properties and land parcels the Company acquired during the three months ended March 31, 2018 is as follows:
 
Three Months Ended March 31, 2018
 
 
Number of Buildings
 
Acres of Developable Land
 
Leaseable Square Feet
 
Purchase Price (in thousands)
 
United Kingdom

 
7.1

 

 
$
4,240

 
Other:
 
 
 
 
 
 
 
 
     Southern California
1

 
0.8

 
400,169

 
92,700

 
 
1

 
7.9

 
400,169

 
$
96,940

 

Information on the Operating Properties and land parcels the Company sold or conveyed during the three months ended March 31, 2018 is as follows:
 
Three Months Ended March 31, 2018
 
 
Number of Buildings
 
Acres of Developable Land
 
Leaseable Square Feet
 
Gross Proceeds (in thousands)
 
Carolinas/Richmond
1

 
1.5

 
80,000

 
$
7,094

 
Chicago/Minneapolis

 
8.3

 

 
2,714

 
Southeastern PA
23

 

 
1,420,515

 
183,808

 
 
24

 
9.8

 
1,500,515

 
$
193,616

 

18


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. At March 31, 2018, the Company's reportable segments were based on the Company's method of internal reporting and were 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.
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 rental 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.

19


The operating information by reportable segment is as follows (in thousands):
 
 
 
Three Months
 
 
 
 
Ended March 31,
 
 
 
 
2018
 
2017
 
Operating revenue
 
 
 
 
 
 
Carolinas/Richmond
 
$
19,793

 
$
18,056

 
 
Chicago/Minneapolis
 
16,517

 
15,875

 
 
Florida
 
15,408

 
14,248

 
 
Houston
 
15,862

 
14,774

 
 
Lehigh/Central PA
 
38,085

 
41,535

 
 
Philadelphia
 
12,345

 
11,436

 
 
Southeastern PA
 
10,182

 
14,615

 
 
United Kingdom
 
4,273

 
3,168

 
 
Other
 
39,623

 
30,372

 
Segment-level operating revenue
 
172,088

 
164,079

 
 
 
 
 
 
 
 
 Reconciliation to total operating revenues
 
 
 
 
 
 
 Development service fee income
 
26,352

 
11,485

 
 
 Discontinued operations
 
(8,179
)
 
(9,600
)
 
 
 Other
 
(96
)
 
(198
)
 
 Total operating revenue
 
$
190,165

 
$
165,766

 
 
 
 
 
 
 
 
SNOI
 
 
 
 
 
 
 
Carolinas/Richmond
 
$
14,047

 
$
12,982

 
 
Chicago/Minneapolis
 
9,901

 
9,349

 
 
Florida
 
10,819

 
9,511

 
 
Houston
 
9,597

 
6,801

 
 
Lehigh/Central PA
 
27,767

 
29,578

 
 
Philadelphia
 
10,154

 
8,759

 
 
Southeastern PA
 
6,890

 
8,113

 
 
United Kingdom
 
2,429

 
1,858

 
 
Other
 
26,550

 
20,256

 
SNOI
 
118,154

 
107,207

 
 
 
 
 
 
 
 
 Reconciliation to income from continuing operations
 
 
 
 
 
 
Interest expense (1)
 
(23,459
)
 
(22,343
)
 
 
Depreciation/amortization expense (1) (2)
 
(33,408
)
 
(33,193
)
 
 
Gain on property dispositions
 
4,121

 
807

 
 
Equity in earnings of unconsolidated joint ventures
 
6,764

 
5,731

 
 
General and administrative expense (1) (2)
 
(15,009
)
 
(12,222
)
 
 
Expensed pursuit costs
 
(324
)
 
(32
)
 
 
Systems implementation expense
 
(706
)
 

 
 
Discontinued operations excluding gain on property dispositions
 
(4,284
)
 
(2,896
)
 
 
Income taxes (2)
 
(12
)
 
(280
)
 
 
Other
 
(2,445
)
 
(1,431
)
 
Income from continuing operations
 
$
49,392

 
$
41,348

 

(1)
Includes activity on discontinued operations.
(2)
Excludes costs that are included in determining SNOI.



20


The Company's total assets by reportable segment as of March 31, 2018 and December 31, 2017 is as follows (in thousands):

 
March 31, 2018
 
December 31, 2017
Carolinas/Richmond
$
521,272

 
$
543,922

Chicago/Minnesota
603,220

 
615,186

Florida
523,239

 
533,861

Houston
499,433

 
498,584

Lehigh/Central PA
1,203,574

 
1,210,746

Philadelphia
720,323

 
665,843

Southeastern PA
139,625

 
241,128

United Kingdom
239,605

 
251,824

Other
1,902,192

 
1,807,653

Segment-level total assets
6,352,483

 
6,368,747

Corporate Other
62,148

 
71,010

Total assets
$
6,414,631

 
$
6,439,757


Note 7: Impairment or Disposal of Long-Lived Assets
In 2017, the Company initiated a strategic shift whereby it plans to divest of its remaining suburban office properties. The Company determined that the strategic shift would have a major effect on its operations and financial results. As such, properties sold or those that meet the criteria to be classified as held for sale within the new corporate strategy were classified within discontinued operations. Consistent with the held for sale criteria these properties are expected to be sold within one year. As the result of the classification within discontinued operations, the in-service assets and liabilities of this portfolio are required to be presented as held for sale for all prior periods presented in our Consolidated Balance Sheets. Operating results pertaining to these properties were reclassified to discontinued operations for all prior periods presented in our Consolidated Statements of Comprehensive Income.
The following table illustrates the number of sold or held for sale properties included in, or excluded from, discontinued operations in this report:
 
 
Held for Sale as of March 31, 2018
 
Sold during the three months ended March 31, 2018
 
Sold during the year ended December 31, 2017
 
Total
Properties included in discontinued operations
 
5

 
23

 
2

 
30

Properties included in continuing operations
 
2

 
1

 
8

 
11

Properties sold or classified as held for sale
 
7

 
24

 
10

 
41


21


The five properties held for sale in discontinued operations as of March 31, 2018 were located in the Company's Arizona reportable segment. The 23 properties in discontinued operations that were sold during the three months ended March 31, 2018 were located in the Company's Southeastern PA reportable segment.
A summary of the results of operations for the properties classified as discontinued operations through the respective disposition dates is as follows (in thousands):
 
 
Three Months Ended
 
 
March 31, 2018
 
March 31, 2017
 
Revenues
 
$
8,179

 
$
9,600

 
Operating expenses
 
(1,972
)
 
(3,641
)
 
Depreciation and amortization
 
(1,219
)
 
(2,368
)
 
Interest and other income
 
5

 
14

 
Interest expense
 
(709
)
 
(709
)
 
Income from discontinued operations before gain on property dispositions
 
4,284

 
2,896

 
Gain on property dispositions
 
90,049

 

 
Income from discontinued operations
 
94,333

 
2,896

 
Noncontrolling interest - operating partnership
 
(2,195
)
 
(68
)
 
Income from discontinued operations available to common shareholders
 
$
92,138

 
$
2,828

 

Interest expense has been allocated to discontinued operations. The allocation of interest expense to discontinued operations was based on the ratio of net assets sold and held for sale to the sum of total net assets plus consolidated debt.
Capital expenditures on a cash basis for the three months ended March 31, 2018 and 2017 were $274,000 and $7.3 million, respectively, related to properties within discontinued operations.
Assets Held for Sale
As of March 31, 2018, seven properties were classified as held for sale, of which five properties met the criteria to be classified within discontinued operations and two Operating Properties were classified within continuing operations.
The following table illustrates aggregate balance sheet information for all held for sale properties (in thousands):
 
March 31, 2018
 
December 31, 2017
 
Included in Continuing Operations
 
Included in Discontinued Operations
 
Total
 
Included in Continuing Operations
 
Included in Discontinued Operations
 
Total
Land and land improvements
$
3,199

 
$
20,404

 
$
23,603

 
$
3,476

 
$
41,191

 
$
44,667

Buildings and improvements
80,738

 
141,416

 
222,154

 
80,738

 
248,514

 
329,252

Development in progress

 

 

 

 
45,035

 
45,035

Land held for development

 

 

 
863

 

 
863

Accumulated depreciation
(11,760
)
 
(15,318
)
 
(27,078
)
 
(11,785
)
 
(105,786
)
 
(117,571
)
Deferred financing and leasing costs, net
2,210

 
6,964

 
9,174

 
2,210

 
10,280

 
12,490

Other assets
5,265

 
5,081

 
10,346

 
5,137

 
10,313

 
15,450

Total assets held for sale
$
79,652

 
$
158,547

 
$
238,199

 
$
80,639

 
$
249,547

 
$
330,186

 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities held for sale
$
332

 
$
1,517

 
$
1,849

 
$
1,153

 
$
8,350

 
$
9,503


Impairment Charges - Real Estate Assets
The Company disposes of and anticipates the potential disposition of certain properties prior to the end of their remaining useful lives. There were no impairment charges recognized during the three months ended March 31, 2018 or March 31, 2017. The Company has applied reasonable estimates and judgments in evaluating each of its properties and land held for development and has determined that there were no valuation adjustments necessary at March 31, 2018. 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.

22


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, 2018 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, 2018 was $139.9 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, 2018 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, 2018 based on the closing price of the common shares of the Trust at March 31, 2018 was $139.9 million.
Note 10: Noncontrolling Interest - Operating Partnership/Limited Partners' Equity - Preferred Units
As of March 31, 2018, the Company had outstanding the following cumulative preferred units of the Operating Partnership:

ISSUE
 
AMOUNT
 
UNITS