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EX-31.2 - EXHIBIT 31.2 - LIBERTY PROPERTY TRUSTlptex312-9302018.htm
EX-32.4 - EXHIBIT 32.4 - LIBERTY PROPERTY TRUSTlptex324-9302018.htm
EX-32.3 - EXHIBIT 32.3 - LIBERTY PROPERTY TRUSTlptex323-9302018.htm
EX-32.2 - EXHIBIT 32.2 - LIBERTY PROPERTY TRUSTlptex322-9302018.htm
EX-32.1 - EXHIBIT 32.1 - LIBERTY PROPERTY TRUSTlptex321-9302018.htm
EX-31.4 - EXHIBIT 31.4 - LIBERTY PROPERTY TRUSTlptex314-9302018.htm
EX-31.3 - EXHIBIT 31.3 - LIBERTY PROPERTY TRUSTlptex313-9302018.htm
EX-31.1 - EXHIBIT 31.1 - LIBERTY PROPERTY TRUSTlptex311-9302018.htm
EX-12.1 - EXHIBIT 12.1 - LIBERTY PROPERTY TRUSTlptex121-9302018.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________
FORM 10-Q
__________________________________________________________
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the quarterly period ended September 30, 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)
 
 
650 East Swedesford Road
Wayne, Pennsylvania
19087
(Address of Principal Executive Offices)
(Zip Code)
 
Registrants’ Telephone Number, Including Area Code (610) 648-1700
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
__________________________________________________________
 
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 every Interactive Data File required to be submitted 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 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 
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 October 31, 2018, 147,821,113 Common Shares of Beneficial Interest, par value $0.001 per share, of Liberty Property Trust were outstanding.



EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 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 September 30, 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 September 30, 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)
 
 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,174,720

 
$
1,026,820

Building and improvements
4,459,247

 
4,135,150

Less accumulated depreciation
(957,292
)
 
(866,355
)
Operating real estate
4,676,675

 
4,295,615

Development in progress
440,503

 
333,437

Land held for development
357,120

 
330,748

Net real estate
5,474,298

 
4,959,800

Cash and cash equivalents
17,770

 
11,882

Restricted cash
13,371

 
13,803

Accounts receivable, net
13,406

 
10,389

Deferred rent receivable, net
121,820

 
107,150

Deferred financing and leasing costs, net of accumulated amortization (September 30, 2018, $165,054; December 31, 2017, $154,762)
153,970

 
147,837

Investments in and advances to unconsolidated joint ventures
357,970

 
288,456

Assets held for sale
294,191

 
610,611

Prepaid expenses and other assets
372,279

 
289,829

Total assets
$
6,819,075

 
$
6,439,757

LIABILITIES
 
 
 
Mortgage loans, net
$
233,682

 
$
267,093

Unsecured notes, net
2,285,565

 
2,283,513

Credit facilities
569,909

 
358,939

Accounts payable
72,553

 
76,313

Accrued interest
35,491

 
21,796

Dividend and distributions payable
60,415

 
60,330

Other liabilities
260,353

 
201,588

Liabilities held for sale
3,986

 
14,282

Total liabilities
3,521,954

 
3,283,854

Noncontrolling interest - operating partnership - 301,483 preferred units outstanding as of September 30, 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; 147,812,321 and 147,450,691 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
148

 
147

Additional paid-in capital
3,688,631

 
3,674,978

Accumulated other comprehensive loss
(46,322
)
 
(37,797
)
Distributions in excess of net income
(417,357
)
 
(549,970
)
Total Liberty Property Trust shareholders’ equity
3,225,100

 
3,087,358

Noncontrolling interest – operating partnership - 3,520,205 common units outstanding as of September 30, 2018 and December 31, 2017
59,057

 
56,159

Noncontrolling interest – consolidated joint ventures
5,427

 
4,849

Total equity
3,289,584

 
3,148,366

Total liabilities, noncontrolling interest - operating partnership and equity
$
6,819,075

 
$
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
 
September 30, 2018
 
September 30, 2017
OPERATING REVENUE
 
 
 
Rental
$
120,775

 
$
113,889

Operating expense reimbursement
37,453

 
33,522

Development service fee income
12,956

 
24,176

Total operating revenue
171,184

 
171,587

OPERATING EXPENSE
 
 
 
Rental property
14,457

 
14,833

Real estate taxes
23,193

 
20,427

General and administrative
13,121

 
11,873

Expensed pursuit costs
1,292

 
4,772

Systems implementation expense
1,177

 
142

Depreciation and amortization
43,375

 
41,754

Development service fee expense
12,924

 
23,665

Impairment charges - real estate assets

 
3,936

Total operating expense
109,539

 
121,402

Operating income
61,645

 
50,185

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
3,433

 
1,734

Interest expense
(23,274
)
 
(21,448
)
Total other income (expense)
(19,841
)
 
(19,714
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
41,804

 
30,471

Gain on property dispositions
2,002

 
23,840

Income taxes
(472
)
 
(582
)
Equity in earnings of unconsolidated joint ventures
6,766

 
4,305

Income from continuing operations
50,100

 
58,034

Discontinued operations (including a net gain of $94.9 million on property dispositions for the three months ended September 30, 2018)
103,971

 
3,125

Net income
154,071

 
61,159

Noncontrolling interest – operating partnership
(3,696
)
 
(1,545
)
Noncontrolling interest – consolidated joint ventures
(232
)
 
(75
)
Net income available to common shareholders
$
150,143

 
$
59,539

 
 
 
 
Net income
$
154,071

 
$
61,159

Other comprehensive (loss) income - foreign currency translation
(3,015
)
 
5,634

Other comprehensive income - derivative instruments
6

 
91

Other comprehensive (loss) income
(3,009
)
 
5,725

Total comprehensive income
151,062

 
66,884

Less: comprehensive income attributable to noncontrolling interest
(3,858
)
 
(1,754
)
Comprehensive income attributable to common shareholders
$
147,204

 
$
65,130

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

 
$
0.39

Income from discontinued operations
0.69

 
0.02

Income per common share – basic
$
1.02

 
$
0.41

Diluted:
 
 
 
Income from continuing operations
$
0.33

 
$
0.38

Income from discontinued operations
0.68

 
0.02

Income per common share – diluted
$
1.01

 
$
0.40

Distributions per common share
$
0.40

 
$
0.40

Weighted average number of common shares outstanding
 
 
 
Basic
147,324

 
146,811

Diluted
148,271

 
147,596

Amounts attributable to common shareholders
 
 
 
Income from continuing operations
$
48,595

 
$
56,487

Discontinued operations
101,548

 
3,052

Net income available to common shareholders
$
150,143

 
$
59,539

See accompanying notes.

6


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 
Nine Months Ended
 
September 30, 2018
 
September 30, 2017
OPERATING REVENUE
 
 
 
Rental
$
357,185

 
$
333,884

Operating expense reimbursement
110,729

 
100,161

Development service fee income
59,132

 
53,920

Total operating revenue
527,046

 
487,965

OPERATING EXPENSE
 
 
 
Rental property
44,023

 
42,938

Real estate taxes
67,452

 
61,326

General and administrative
43,406

 
44,069

Expensed pursuit costs
1,675

 
4,957

Systems implementation expense
3,352

 
157

Depreciation and amortization
127,280

 
123,924

Development service fee expense
120,799

 
52,497

Impairment charges - real estate assets
26,000

 
3,936

Total operating expense
433,987

 
333,804

Operating income
93,059

 
154,161

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
8,568

 
5,487

Interest expense
(66,582
)
 
(62,409
)
Total other income (expense)
(58,014
)
 
(56,922
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
35,045

 
97,239

Gain on property dispositions
54,705

 
30,542

Income taxes
(1,967
)
 
(1,528
)
Equity in earnings of unconsolidated joint ventures
20,958

 
14,026

Income from continuing operations
108,741

 
140,279

Discontinued operations (including a net gain of $184.7 million on property dispositions for the nine months ended September 30, 2018)
209,945

 
17,942

Net income
318,686

 
158,221

Noncontrolling interest – operating partnership
(7,738
)
 
(4,044
)
Noncontrolling interest – consolidated joint ventures
(1,010
)
 
(195
)
Net income available to common shareholders
$
309,938

 
$
153,982

Net income
$
318,686

 
$
158,221

Other comprehensive (loss) income- foreign currency translation
(9,221
)
 
16,314

Other comprehensive income - derivative instruments
493

 
366

Other comprehensive (loss) income
(8,728
)
 
16,680

Total comprehensive income
309,958

 
174,901

Less: comprehensive income attributable to noncontrolling interest
(8,545
)
 
(4,629
)
Comprehensive income attributable to common shareholders
$
301,413

 
$
170,272

Earnings per common share
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.71

 
$
0.93

Income from discontinued operations
1.39

 
0.12

Income per common share – basic
$
2.10

 
$
1.05

Diluted:
 
 
 
Income from continuing operations
$
0.71

 
$
0.92

Income from discontinued operations
1.38

 
0.12

Income per common share – diluted
$
2.09

 
$
1.04

Distributions per common share
$
1.20

 
$
1.20

Weighted average number of common shares outstanding
 
 
 
Basic
147,241

 
146,678

Diluted
148,160

 
147,430

Amounts attributable to common shareholders
 
 
 
Income from continuing operations
$
104,885

 
$
136,460

Discontinued operations
205,053

 
17,522

Net income available to common shareholders
$
309,938

 
$
153,982

See accompanying notes.

7


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
 
361,630

 
1

 
5,254

 

 

 
5,255

 

 

 
5,255

 

Net income
 

 

 

 

 
309,938

 
309,938

 
7,384

 
1,010

 
318,332

 
354

Distributions
 

 

 

 

 
(177,325
)
 
(177,325
)
 
(4,283
)
 
(432
)
 
(182,040
)
 
(354
)
Share-based compensation net of shares related to tax withholdings
 

 

 
8,399

 

 

 
8,399

 

 

 
8,399

 

Other comprehensive loss - foreign currency translation
 

 

 

 
(9,007
)
 

 
(9,007
)
 
(214
)
 

 
(9,221
)
 

Other comprehensive income - derivative instruments
 

 

 

 
482

 

 
482

 
11

 

 
493

 

Balance at September 30, 2018
 
147,812,321

 
$
148

 
$
3,688,631

 
$
(46,322
)
 
$
(417,357
)
 
$
3,225,100

 
$
59,057

 
$
5,427

 
$
3,289,584

 
$
7,537


See accompanying notes.

8


CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 
Nine Months Ended
 
September 30, 2018
 
September 30, 2017
OPERATING ACTIVITIES
 
 
 
Net income
$
318,686

 
$
158,221

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
132,276

 
139,389

Amortization of deferred financing costs
2,876

 
2,811

Expensed pursuit costs
1,675

 
4,957

Impairment charges - real estate assets
26,000

 
9,650

Equity in earnings of unconsolidated joint ventures
(20,958
)
 
(14,026
)
Gain on property dispositions
(239,394
)
 
(30,542
)
Share-based compensation
12,310

 
12,467

Other
(3,612
)
 
(2,547
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(1,543
)
 
1,976

Deferred rent receivable
(14,782
)
 
(15,360
)
Prepaid expenses and other assets
29,981

 
(28,115
)
Accounts payable
(6,435
)
 
13,249

Accrued interest
13,695

 
12,829

Other liabilities
(16,035
)
 
(42
)
            Other liabilities - development service fee
61,705

 

Net cash provided by operating activities
296,445

 
264,917

INVESTING ACTIVITIES
 
 
 
Investment in properties – acquisitions
(293,049
)
 
(62,327
)
Investment in properties – other
(34,331
)
 
(39,719
)
Investments in and advances to unconsolidated joint ventures
(79,036
)
 
(41,154
)
Distributions from unconsolidated joint ventures
30,055

 
17,089

Net proceeds from disposition of properties/land
574,542

 
56,474

Investment in development in progress
(165,197
)
 
(189,282
)
Investment in land held for development
(171,221
)
 
(93,813
)
Payment of deferred leasing costs
(18,452
)
 
(28,424
)
Escrow deposit
(167,892
)
 

Release of escrows and other
38,982

 
24,096

Net cash used in investing activities
(285,599
)
 
(357,060
)
FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares
5,255

 
7,356

Share repurchases, including shares related to tax withholdings
(4,638
)
 
(4,879
)
Repayments of mortgage loans
(31,954
)
 
(5,974
)
Proceeds from credit facility
1,187,357

 
486,000

Repayments on credit facility
(975,456
)
 
(191,000
)
Payment of deferred financing costs
(15
)
 
(22
)
Distribution paid on common shares
(177,210
)
 
(187,625
)
Distribution to partners/noncontrolling interest holders
(5,130
)
 
(5,450
)
Net cash (used in) provided by financing activities
(1,791
)
 
98,406

Net increase in cash, cash equivalents and restricted cash
9,055

 
6,263

(Decrease) increase in cash, cash equivalents and restricted cash related to foreign currency translation
(3,599
)
 
2,202

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

 
56,025

Cash, cash equivalents and restricted cash at end of period
$
31,141

 
$
64,490


See accompanying notes.

9


CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except unit amounts)
 
 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
Real estate:
 
 
 
Land and land improvements
$
1,174,720

 
$
1,026,820

Building and improvements
4,459,247

 
4,135,150

Less accumulated depreciation
(957,292
)
 
(866,355
)
Operating real estate
4,676,675

 
4,295,615

Development in progress
440,503

 
333,437

Land held for development
357,120

 
330,748

Net real estate
5,474,298

 
4,959,800

Cash and cash equivalents
17,770

 
11,882

Restricted cash
13,371

 
13,803

Accounts receivable, net
13,406

 
10,389

Deferred rent receivable, net
121,820

 
107,150

Deferred financing and leasing costs, net of accumulated amortization (September 30, 2018, $165,054; December 31, 2017, $154,762)
153,970

 
147,837

Investments in and advances to unconsolidated joint ventures
357,970

 
288,456

Assets held for sale
294,191

 
610,611

Prepaid expenses and other assets
372,279

 
289,829

Total assets
$
6,819,075

 
$
6,439,757

LIABILITIES
 
 
 
Mortgage loans, net
$
233,682

 
$
267,093

Unsecured notes, net
2,285,565

 
2,283,513

Credit facilities
569,909

 
358,939

Accounts payable
72,553

 
76,313

Accrued interest
35,491

 
21,796

Distributions payable
60,415

 
60,330

Other liabilities
260,353

 
201,588

Liabilities held for sale
3,986

 
14,282

Total liabilities
3,521,954

 
3,283,854

Limited partners’ equity - 301,483 preferred units outstanding as of September 30, 2018, and December 31, 2017
7,537

 
7,537

OWNERS’ EQUITY
 
 
 
General partner’s equity - 147,812,321 and 147,450,691 common units outstanding as of September 30, 2018 and December 31, 2017, respectively
3,225,100

 
3,087,358

Limited partners’ equity – 3,520,205 common units outstanding as of September 30, 2018 and December 31, 2017
59,057

 
56,159

Noncontrolling interest – consolidated joint ventures
5,427

 
4,849

Total owners’ equity
3,289,584

 
3,148,366

Total liabilities, limited partners’ equity and owners’ equity
$
6,819,075

 
$
6,439,757


See accompanying notes.

10


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
 
Three Months Ended
 
September 30, 2018
 
September 30, 2017
OPERATING REVENUE
 
 
 
Rental
$
120,775

 
$
113,889

Operating expense reimbursement
37,453

 
33,522

Development service fee income
12,956

 
24,176

Total operating revenue
171,184

 
171,587

OPERATING EXPENSE
 
 
 
Rental property
14,457

 
14,833

Real estate taxes
23,193

 
20,427

General and administrative
13,121

 
11,873

Expensed pursuit costs
1,292

 
4,772

Systems implementation expense
1,177

 
142

Depreciation and amortization
43,375

 
41,754

Development service fee expense
12,924

 
23,665

Impairment charges - real estate assets

 
3,936

Total operating expense
109,539

 
121,402

Operating income
61,645

 
50,185

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
3,433

 
1,734

Interest expense
(23,274
)
 
(21,448
)
Total other income (expense)
(19,841
)
 
(19,714
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
41,804

 
30,471

Gain on property dispositions
2,002

 
23,840

Income taxes
(472
)
 
(582
)
Equity in earnings of unconsolidated joint ventures
6,766

 
4,305

Income from continuing operations
50,100

 
58,034

Discontinued operations (including a net gain of $94.9 million on property dispositions for the three months ended September 30, 2018)
103,971

 
3,125

Net income
154,071

 
61,159

Noncontrolling interest – consolidated joint ventures
(232
)
 
(75
)
Preferred unit distributions
(118
)
 
(118
)
Net income available to common unitholders
$
153,721

 
$
60,966

Net income
$
154,071

 
$
61,159

Other comprehensive (loss) income - foreign currency translation
(3,015
)
 
5,634

Other comprehensive income - derivative instruments
6

 
91

Other comprehensive (loss) income
(3,009
)
 
5,725

Total comprehensive income
$
151,062

 
$
66,884

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

 
$
0.39

Income from discontinued operations
0.69

 
0.02

Income per common unit - basic
$
1.02

 
$
0.41

Diluted:
 
 
 
Income from continuing operations
$
0.33

 
$
0.38

Income from discontinued operations
0.68

 
0.02

Income per common unit - diluted
$
1.01

 
$
0.40

Distributions per common unit
$
0.40

 
$
0.40

Weighted average number of common units outstanding
 
 
 
        Basic
150,844

 
150,339

        Diluted
151,791

 
151,124

Net income allocated to general partners
$
150,143

 
$
59,539

Net income allocated to limited partners
$
3,696

 
$
1,545

See accompanying notes.

11


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 
Nine Months Ended
 
September 30, 2018
 
September 30, 2017
OPERATING REVENUE
 
 
 
Rental
$
357,185

 
$
333,884

Operating expense reimbursement
110,729

 
100,161

Development service fee income
59,132

 
53,920

Total operating revenue
527,046

 
487,965

OPERATING EXPENSE
 
 
 
Rental property
44,023

 
42,938

Real estate taxes
67,452

 
61,326

General and administrative
43,406

 
44,069

Expensed pursuit costs
1,675

 
4,957

Systems implementation expense
3,352

 
157

Depreciation and amortization
127,280

 
123,924

Development service fee expense
120,799

 
52,497

Impairment charges - real estate assets
26,000

 
3,936

Total operating expense
433,987

 
333,804

Operating income
93,059

 
154,161

OTHER INCOME (EXPENSE)
 
 
 
Interest and other income
8,568

 
5,487

Interest expense
(66,582
)
 
(62,409
)
Total other income (expense)
(58,014
)
 
(56,922
)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures
35,045

 
97,239

Gain on property dispositions
54,705

 
30,542

Income taxes
(1,967
)
 
(1,528
)
Equity in earnings of unconsolidated joint ventures
20,958

 
14,026

Income from continuing operations
108,741

 
140,279

Discontinued operations (including a net gain of $184.7 million on property dispositions for the nine months ended September 30, 2018)
209,945

 
17,942

Net income
318,686

 
158,221

Noncontrolling interest – consolidated joint ventures
(1,010
)
 
(195
)
Preferred unit distributions
(354
)
 
(354
)
Income available to common unitholders
$
317,322

 
$
157,672

Net income
$
318,686

 
$
158,221

Other comprehensive (loss) income - foreign currency translation
(9,221
)
 
16,314

Other comprehensive income - derivative instruments
493

 
366

Other comprehensive (loss) income
(8,728
)
 
16,680

Total comprehensive income
$
309,958

 
$
174,901

Earnings per common unit
 
 
 
Basic:
 
 
 
Income from continuing operations
$
0.71

 
$
0.93

Income from discontinued operations
1.39

 
0.12

Income per common unit - basic
$
2.10

 
$
1.05

Diluted:
 
 
 
Income from continuing operations
$
0.71

 
$
0.92

Income from discontinued operations
1.38

 
0.12

Income per common unit - diluted
$
2.09

 
$
1.04

Distributions per common unit
$
1.20

 
$
1.20

Weighted average number of common units outstanding
 
 
 
        Basic
150,761

 
150,206

        Diluted
151,680

 
150,958

Net income allocated to general partners
$
309,938

 
$
153,982

Net income allocated to limited partners
$
7,738

 
$
4,044

See accompanying notes.

12


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
361,630

 

 
13,654

 

 

 
13,654

 

Distributions to partners

 

 
(177,325
)
 
(4,283
)
 
(432
)
 
(182,040
)
 
(354
)
Other comprehensive loss - foreign currency translation

 

 
(9,007
)
 
(214
)
 

 
(9,221
)
 

Other comprehensive income - derivative instruments

 

 
482

 
11

 

 
493

 

Net income

 

 
309,938

 
7,384

 
1,010

 
318,332

 
354

Balance at September 30, 2018
147,812,321

 
3,520,205

 
$
3,225,100

 
$
59,057

 
$
5,427

 
$
3,289,584

 
$
7,537


See accompanying notes.

13


CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 
 
Nine Months Ended
 
September 30, 2018
 
September 30, 2017
OPERATING ACTIVITIES
 
 
 
Net income
$
318,686

 
$
158,221

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
132,276

 
139,389

Amortization of deferred financing costs
2,876

 
2,811

Expensed pursuit costs
1,675

 
4,957

Impairment charges - real estate assets
26,000

 
9,650

Equity in earnings of unconsolidated joint ventures
(20,958
)
 
(14,026
)
Gain on property dispositions
(239,394
)
 
(30,542
)
Noncash compensation
12,310

 
12,467

Other
(3,612
)
 
(2,547
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(1,543
)
 
1,976

Deferred rent receivable
(14,782
)
 
(15,360
)
Prepaid expenses and other assets
29,981

 
(28,115
)
Accounts payable
(6,435
)
 
13,249

Accrued interest
13,695

 
12,829

Other liabilities
(16,035
)
 
(42
)
        Other liabilities - development service fee
61,705

 

Net cash provided by operating activities
296,445

 
264,917

INVESTING ACTIVITIES
 
 
 
Investment in properties – acquisitions
(293,049
)
 
(62,327
)
Investment in properties – other
(34,331
)
 
(39,719
)
Investments in and advances to unconsolidated joint ventures
(79,036
)
 
(41,154
)
Distributions from unconsolidated joint ventures
30,055

 
17,089

Net proceeds from disposition of properties/land
574,542

 
56,474

Investment in development in progress
(165,197
)
 
(189,282
)
Investment in land held for development
(171,221
)
 
(93,813
)
Payment of deferred leasing costs
(18,452
)
 
(28,424
)
Escrow deposit
(167,892
)
 

Release of escrows and other
38,982

 
24,096

Net cash used in investing activities
(285,599
)
 
(357,060
)
FINANCING ACTIVITIES
 
 
 
Repayments of mortgage loans
(31,954
)
 
(5,974
)
Proceeds from credit facility
1,187,357

 
486,000

Repayments on credit facility
(975,456
)
 
(191,000
)
Payment of deferred financing costs
(15
)
 
(22
)
Capital contributions
5,255

 
7,356

Distributions to partners/noncontrolling interests
(186,978
)
 
(197,954
)
Net cash (used in) provided by financing activities
(1,791
)
 
98,406

Net increase in cash, cash equivalents and restricted cash
9,055

 
6,263

(Decrease) increase in cash, cash equivalents and restricted cash related to foreign currency translation
(3,599
)
 
2,202

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

 
56,025

Cash, cash equivalents and restricted cash at end of period
$
31,141

 
$
64,490


See accompanying notes.

14


Liberty Property Trust and Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
September 30, 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 September 30, 2018. The Company owns and operates industrial properties nationally and currently 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 $75.9 million and $17.3 million as of September 30, 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.

15


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. Estimated expected losses on such contracts are accrued in the period in which they are determinable. 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 mid-2019.
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 $884,000 and $1.5 million in revenue recognized for such contracts during the three and nine months ended September 30, 2018, respectively.
The New Revenue Standards did not have an impact on the gain or loss on 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 and nine months ended September 30, 2018.
Estimated gross revenue related to the remaining performance obligations under existing contracts (before allocation of related costs and expenses) as of September 30, 2018 that will be recognized as revenue in future periods was approximately $54.2 million, which is expected to be recognized in 2018 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 profit of $32,000 and a net loss $61.7 million on these contracts during the three and nine months ended September 30, 2018, respectively, and an aggregate net profit of $511,000 and $1.4 million during the three and nine months ended September 30, 2017, respectively. The total liability on the Company’s balance sheet as of September 30, 2018 related to the above-described development cost guarantees under these contracts is $67.3 million. 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 additional losses, the Company could be required to record such additional losses in future periods. 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 $1.2 million and $3.4 million of systems implementation expense for the three and nine months ended September 30, 2018, respectively. The Company incurred $142,000 and $157,000 of systems implementation expense for the three and nine months ended September 30, 2017, respectively. The FASB recently issued accounting guidance related to service contracts in a cloud computing arrangement. See ASU 2018-15 in Recently Issued Accounting Standards below.

16


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 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 $1.3 million and $1.7 million for the three and nine months ended September 30, 2018, respectively, and $4.8 million and $5.0 million for the same periods in 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”). Subsequently the FASB issued the following standards related to ASU 2016-02: ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements (collectively, the "New Lease Standard"). The New Lease Standard 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. The New Lease Standard is effective for the Company beginning January 1, 2019. 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. However, the New Lease Standard gives lessors a practical expedient to not separate non-lease components from the associated lease components if certain criteria are met. 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 and developed a project plan. The project team is working to analyze and evaluate the impact of the guidance on its consolidated financial statements. The Company expects to elect the package of practical expedients, the land easement practical expedient and the practical expedient to not 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 became 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 (in thousands):
 
Nine months ended
 
September 30, 2017
Net cash provided by operating activities (prior to adoption of ASU 2016-18)
$
261,587

Impact of including restricted cash with cash and cash equivalents
3,330

Net cash provided by operating activities (after adoption of ASU 2016-18)
$
264,917


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

17


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 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.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract ("ASU 2018-15"). ASU 2018-15 amends the definition of a hosting arrangement and requires a customer in a hosting arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. ASU 2018-15 is effective for the Company beginning January 1, 2020. Early adoption is permitted. The Company is evaluating the impact ASU 2018-15 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
 
September 30, 2018
 
September 30, 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
$
48,595

 
147,324

 
$
0.33

 
$
56,487

 
146,811

 
$
0.39

Dilutive shares for long-term compensation plans

 
947

 
 
 

 
785

 
 
Income from continuing operations net of noncontrolling interest - diluted
$
48,595

 
148,271

 
$
0.33

 
$
56,487

 
147,596

 
$
0.38

Discontinued operations net of noncontrolling interest - basic
$
101,548

 
147,324

 
$
0.69

 
$
3,052

 
146,811

 
$
0.02

Dilutive shares for long-term compensation plans

 
947

 
 
 

 
785

 
 
Discontinued operations net of noncontrolling interest - diluted
$
101,548

 
148,271

 
$
0.68

 
$
3,052

 
147,596

 
$
0.02

Net income available to common shareholders - basic
$
150,143

 
147,324

 
$
1.02

 
$
59,539

 
146,811

 
$
0.41

Dilutive shares for long-term compensation plans

 
947

 
 
 

 
785

 
 
Net income available to common shareholders - diluted
$
150,143

 
148,271

 
$
1.01

 
$
59,539

 
147,596

 
$
0.40

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

18


 
For the Nine Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 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
$
104,885

 
147,241

 
$
0.71

 
$
136,460

 
146,678

 
$
0.93

Dilutive shares for long-term compensation plans
 
 
919

 
 
 
 
 
752

 
 
Income from continuing operations net of noncontrolling interest - diluted
$
104,885

 
148,160

 
$
0.71

 
$
136,460

 
147,430

 
$
0.92

Discontinued operations net of noncontrolling interest - basic
$
205,053

 
147,241

 
$
1.39

 
$
17,522

 
146,678

 
$
0.12

Dilutive shares for long-term compensation plans
 
 
919

 
 
 
 
 
752

 
 
Discontinued operations net of noncontrolling interest - diluted
$
205,053

 
148,160

 
$
1.38

 
$
17,522

 
147,430

 
$
0.12

Net income available to common shareholders - basic
$
309,938

 
147,241

 
$
2.10

 
$
153,982

 
146,678

 
$
1.05

Dilutive shares for long-term compensation plans
 
 
919

 
 
 
 
 
752

 
 
Net income available to common shareholders - diluted
$
309,938

 
148,160

 
$
2.09

 
$
153,982

 
147,430

 
$
1.04


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 nine months ended September 30, 2018 and the same periods in 2017.
During the three and nine months ended September 30, 2018, 5,000 and 106,000 common shares, respectively, 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 and nine months ended September 30, 2018.
Note 3: Income per Common Unit of the Operating Partnership
The following table sets forth the computation of basic and diluted income per common unit of the Operating Partnership (in thousands, except per unit amounts):
 
For the Three Months Ended
 
For the Three Months Ended
 
September 30, 2018
 
September 30, 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
$
49,868

 
 
 
 
 
$
57,959

 
 
 
 
Less: Preferred unit distributions
(118
)
 
 
 
 
 
(118
)
 
 
 
 
Income from continuing operations available to common unitholders - basic
$
49,750

 
150,844

 
$
0.33

 
$
57,841

 
150,339

 
$
0.39

Dilutive units for long-term compensation plans

 
947

 
 
 

 
785

 
 

19


Income from continuing operations available to common unitholders - diluted
$
49,750

 
151,791

 
$
0.33

 
$
57,841

 
151,124

 
$
0.38

Income from discontinued operations - basic
$
103,971

 
150,844

 
$
0.69

 
$
3,125

 
150,339

 
$
0.02

Dilutive units for long-term compensation plans

 
947

 
 
 

 
785

 
 
Income from discontinued operations - diluted
$
103,971

 
151,791

 
$
0.68

 
$
3,125

 
151,124

 
$
0.02

Income available to common unitholders - basic
$
153,721

 
150,844

 
$
1.02

 
$
60,966

 
150,339

 
$
0.41

Dilutive units for long-term compensation plans

 
947

 
 
 

 
785

 
 
Income available to common unitholders - diluted
$
153,721

 
151,791

 
$
1.01

 
$
60,966

 
151,124

 
$
0.40

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
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
$
107,731

 
 
 
 
 
$
140,084

 
 
 
 
Less: Preferred unit distributions
(354
)
 
 
 
 
 
(354
)
 
 
 
 
Income from continuing operations available to common unitholders - basic
107,377

 
150,761

 
$
0.71

 
139,730

 
150,206

 
$
0.93

Dilutive units for long-term compensation plans

 
919

 
 
 

 
752

 
 
Income from continuing operations available to common unitholders - diluted
$
107,377

 
151,680

 
$
0.71

 
$
139,730

 
150,958

 
$
0.92

Income from discontinued operations - basic
$
209,945

 
150,761

 
$
1.39

 
$
17,942

 
150,206

 
$
0.12

Dilutive units for long-term compensation plans

 
919

 
 
 

 
752

 
 
Income from discontinued operations - diluted
$
209,945

 
151,680

 
$
1.38

 
$
17,942

 
150,958

 
$
0.12

Net income available to common unitholders - basic
$
317,322

 
150,761

 
$
2.10

 
$
157,672

 
150,206

 
$
1.05

Dilutive units for long-term compensation plans

 
919

 
 
 

 
752

 
 
Net income available to common unitholders - diluted
$
317,322

 
151,680

 
$
2.09