ITEM 1. BUSINESS - ----------------
THE COMPANY
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, the "Company"). The Company was formed to continue and expand the commercial real estate business of Rouse & Associates, a Pennsylvania general partnership, and certain affiliated entities (collectively, the "Predecessor"). Founded in 1972, the Predecessor developed and managed commercial real estate in the Southeastern, Mid-Atlantic and West Coast markets.
The Company provides leasing, property management, acquisition, development, construction management, design management and other related services for a portfolio which, as of December 31, 1997, consisted of 441 industrial and office properties (the "Properties in Operation") totaling approximately 32.5 million leaseable square feet. As of December 31, 1997, the Properties in Operation were approximately 94.6% leased to over 1500 tenants. As of December 31, 1997, the Company also had 43 properties under development (the "Properties Under Development" and, together with the Properties in Operation, the "Properties"). The Properties Under Development are expected to generate approximately 4.1 million leaseable square feet. The Properties are located principally within the Southeastern, Mid-Atlantic and Mid- Western United States. As of December 31, 1997, the Company also owned 957 acres of land, all zoned for commercial use, which the Company anticipates are capable of supporting, as and when developed, approximately nine million leaseable square feet. The Company is obligated to purchase, over a 10-year period ending in 2007, approximately 800 acres of land.
During the year ended December 31, 1997, through Total Investments (as defined below) aggregating $871.5 million, the Company increased its total leaseable square footage of industrial and office space approximately 57.4% by acquiring 170 properties totaling approximately 9.5 million leaseable square feet and by developing 20 properties totaling approximately 2.9 million leaseable square feet. The "Total Investment" for a property is defined as the property's purchase price plus closing costs and management's estimate, as determined at the time of acquisition, of the cost of necessary building improvements in the case of acquisitions, or land costs and land and building improvement costs in the case of development projects, and, where appropriate, other development costs and carrying costs required to reach rent commencement.
The Properties in Operation, as of December 31, 1997, consisted of 297 industrial and 144 office properties. Single tenants occupied 154 of the Properties in Operation. The Company provides a reduced level of services in connection with the operation or maintenance of these properties. The remaining 287 of the Properties in Operation were
occupied by multiple tenants for which the Company renders a range of building, operating and maintenance services. The Company's industrial properties consist of a variety of warehouse, distribution, service, assembly, light manufacturing and research and development facilities. Substantially all of the Company's industrial properties are located in suburban, mixed-use developments or business parks. They include both single-tenant and multi-tenant facilities, with most designed flexibly to accommodate various types of tenants, space requirements and industrial uses in an effort to increase re-leasing opportunities and control re-leasing costs.
The Company's office properties are mid-rise and single-story office buildings, located principally in suburban mixed-use developments or office parks. Substantially all are located in prime business locations within established business communities offering excellent access to interstate highway systems.
The Trust is the sole general partner and also a limited partner of the Operating Partnership, with a combined equity interest in the Operating Partnership of 91.86% at December 31, 1997. The units of limited partnership interest (the "Units") in the Operating Partnership are exchangeable on a one-for-one basis (subject to antidilution protections) for the Common Shares of Beneficial Interest $0.001 par value per share (the "Common Shares"), of the Trust typically after the first anniversary of the issuance of any such Units. The only limited partners of the Operating Partnership other than the Trust are persons or entities that contributed assets to the Operating Partnership. The Units held by the limited partners other than the Trust (that is, the minority interest reflected in the Trust's financial statements) were exchangeable for approximately 4.7 million Common Shares on December 31, 1997. Certain holders of Units issued in connection with the contribution of assets to the Operating Partnership have the right to require the Company to register the issuance or resale of the Common Shares underlying their Units upon exchange for the Units, in order to afford such holders liquidity with respect to their investment.
The Company's executive offices are located at 65 Valley Stream Parkway, Malvern, Pennsylvania 19355. The telephone number is (610) 648-1700. The Company maintains offices in each of its principal markets. As of December 31, 1997 the Company's principal markets were as follows: Southeastern Pennsylvania; New Jersey/Delaware; Lehigh Valley, Pennsylvania; Richmond, Virginia; the Baltimore/Washington Corridor; the Carolinas; Jacksonville, Florida; Tampa, Florida; South Florida; the Minneapolis metropolitan area; and the Detroit metropolitan area.
MANAGEMENT AND EMPLOYEES
The Company's 278 employees (as of February 25, 1998) are under the direction of 19 senior executives, who have developed and managed over 35 million square feet of commercial real estate during the past 25 years and who, on average, have been affiliated with the Company and/or the Predecessor for 13 years. The Company's in-house leasing, marketing and property management staff operates in 12 full-service local offices in the United States. This structure enables the Company to better understand the particular characteristics of the local markets in which it operates, to respond quickly and directly to tenant needs and to better identify local acquisition and development opportunities. The Company considers its relations with its employees to be good.
BUSINESS OBJECTIVES AND STRATEGIES FOR GROWTH
The Company's business objective is to maximize long-term profitability for its shareholders by (i) maintaining and increasing property occupancy and rental rates through the effective management of the
Properties and (ii) developing and acquiring high quality properties in existing and select new markets. In accomplishing these objectives the Company also intends to maintain a conservative and flexible capital structure.
INTERNAL GROWTH STRATEGIES
Management believes that the Properties offer significant opportunities for the Company to increase its rental revenues and cash flow over the long term. The Company seeks to increase cash flow by continuing its practice of negotiating for contractual rental increases that take effect during the terms of its leases. In addition, the Company seeks to increase rental revenues through the renewal or replacement of expiring leases at higher rental rates and by improving the occupancy rates of its portfolio.
NEW LEASES AND LEASE RENEWALS. In the early 1990's, rental rates in the markets in which the Properties are located were flat or decreased as a result of recessionary market conditions and an oversupply of commercial real estate in such markets. Since that time, rental rates in these markets have improved, and as the leases entered into in the early 1990s and subsequent years have expired, the Company generally has been experiencing increases in rental rates in replacement and renewal leases. Although no assurance can be given, the Company expects that in the near term, replacement and renewal leases will continue to reflect higher rental rates.
CONTRACTUAL INCREASES. The Company seeks to generate increased cash flow from the Properties in Operation through contractual increases in rental rates under its leases. The leases in effect with respect to the Properties in Operation as of December 31, 1997 provide for contractual rental increases that are expected to contribute an additional $1.9 million to the Company's cash flow for the year ending December 31, 1998. The Company intends to continue seeking to negotiate contractual rent increases that take effect during the terms of its leases.
IMPROVING OCCUPANCIES. The Company believes that the quality and diversity of its tenant base has contributed, and will continue to contribute, to the success of its strategy for increasing rental and occupancy rates. The Company targets financially stable tenants in an effort to minimize uncertainty relating to the ability of its tenants to meet their lease obligations. The Company's success in maintaining its occupancy rates and attracting and retaining tenants is demonstrated in part by its renewal rate which was approximately 72.2% for the year ended December 31, 1997.
COST CONTROLS. The Company seeks to monitor and control its operating and administrative costs by performing many functions in-house rather than by engaging outside third parties. For example, although construction and design services typically are provided by third parties (including, in certain instances, an entity affiliated with one or more of the Company's senior executives), the Company's in-house construction and design management staff closely supervises construction and design activities in an effort to control costs, minimize cost overruns, ensure timely delivery of tenant space and maximize productivity and efficiencies. The Company also employs an annual capital improvement and preventive maintenance program designed to reduce the operating costs of the Properties and maintain their long-term values.
ACQUISITIONS
STRATEGY
The Company seeks to acquire properties consistent with its business objectives and strategies. The Company executes its acquisition strategy by purchasing portfolios of properties and individual properties as single asset acquisitions. Portfolios are considered to be groups of properties or existing real estate companies within existing markets or select new markets. At times, the Company may acquire multiple properties which because of their aggregate size or other factors are not considered portfolio acquisitions. The Company has identified the following general categories of properties for acquisition:
Stabilized Acquisitions which consist of individual properties which are typically at high occupancy levels upon acquisition.
Entrepreneurial Acquisitions which consist of properties which are typically either vacant or at low occupancy levels and can be purchased substantially below replacement cost, thereby offering the opportunity for above-average returns when fully renovated and leased.
SINGLE-ASSET ACQUISITIONS -------------------------
During the year ended December 31, 1997, the Company completed 78 acquisitions of this type, aggregating approximately 4.5 million leaseable square feet for a Total Investment of $346.7 million. The following sets forth certain information with respect to such acquisitions:
Stabilized Acquisitions. During the year ended December 31, 1997 the Company completed acquisitions of 64 stabilized properties aggregating approximately 3.5 million leaseable square feet of industrial and office space for a Total Investment of $280.5 million.
Entrepreneurial Acquisitions. During the year ended December 31, 1997, the Company completed entrepreneurial acquisitions of 14 entrepreneurial properties aggregating approximately one million leaseable square feet of industrial and office space for a Total Investment of $66.2 million.
PORTFOLIO ACQUISITIONS ----------------------
Portfolio acquisitions may include stabilized, entrepreneurial and development properties and are considered to offer opportunities for enhanced operating performance as a result of the Company's management expertise and financial strength and/or the portfolio's fit within the Company's business plan.
During the year ended December 31, 1997, the Company completed five portfolio acquisitions, consisting in the aggregate of 88 stabilized properties and four entrepreneurial properties. In connection with these portfolio acquisitions, the Company opened offices to serve its new markets in the Detroit and Minneapolis metropolitan areas and South Carolina. The properties acquired in the portfolio acquisitions comprise, in the aggregate, approximately 5.0 million leaseable square feet for a Total Investment of $381.2 million. The following sets forth certain information with respect to such portfolio acquisitions:
Detroit Portfolios. In June 1997, the Company entered the suburban Detroit, Michigan market with the acquisition of a portfolio (the "First Detroit Portfolio"). The First Detroit Portfolio consisted of 13 industrial and office properties totaling approximately 1.1 million leaseable square feet which were purchased for a Total Investment of approximately $131.3 million. All of these properties were considered stabilized acquisitions.
In September 1997, the Company increased the number of properties it owned in the suburban Detroit market by acquiring a second portfolio (the "Second Detroit Portfolio"). The Second Detroit Portfolio consisted of 28 industrial properties totalling approximately 841,000 leaseable square feet which were purchased for a Total Investment of approximately $45.0 million. All of these properties were considered stabilized acquisitions.
South Carolina Portfolio. In May 1997, the Company acquired a portfolio consisting of properties located mainly in South Carolina (the "South Carolina Portfolio"). The South Carolina Portfolio consisted of 18 properties totalling approximately 1.4 million leaseable square feet, 11 of which were considered stabilized acquisitions, three of which were considered entrepreneurial acquisitions and four of which were considered development properties. The Total Investment for the stabilized and entrepreneurial properties was approximately $57.6 million. The development properties comprised approximately 324,000 of the 1.4 million leaseable square feet and the Total Investment in the development properties was approximately $18.5 million. In connection with the acquisition of the South Carolina Portfolio, the Company is also obligated to purchase, over a 10-year period ending in 2007, approximately 800 acres of land for commercial development. The purchase price of the land is $17.5 million, plus accrued interest at 7.5% per annum, payable over 10 years ending in 2007.
Minneapolis Portfolio. In March 1997, the Company acquired a portfolio in Minneapolis, Minnesota (the "Minneapolis Portfolio"). All of the properties in the portfolio were considered stabilized acquisitions and totalled approximately 1.0 million square feet. The Total Investment in the Minneapolis Portfolio was approximately $63.3 million. The Company also acquired 25 acres of land for commercial development, which the Company anticipates to be capable of supporting, as and when developed, approximately 180,000 leaseable square feet of office or industrial space. The purchase price of the land was $2.9 million, in addition to the purchase price of the industrial and office properties in the portfolio.
Horsham Portfolio. In November 1997, the Company acquired a portfolio of properties in the Pennsylvania Business Campus in Horsham, Pennsylvania (the "Horsham Portfolio"). The Horsham Portfolio consisted of 21 industrial and office properties, 20 of which were considered stabilized and one of which was considered entrepreneurial. The properties, totaling approximately one million leaseable square feet, were purchased for a Total Investment of $84.0 million.
DEVELOPMENT
STRATEGY. The Company pursues selective development opportunities focusing primarily on high-quality suburban industrial and office properties within its existing markets. The Company's development activities fall into two categories: build-to-suit projects and projects
built for inventory. The Company develops build-to-suit (approximately 70% pre-leased) projects for existing and new tenants. The buildings in these projects are substantially pre-leased to one or more tenants prior to construction. The Company also builds properties for inventory typically in high-occupancy markets in which the Company has identified sufficient demand at market rental rates to justify such construction.
COMPLETED PROPERTY DEVELOPMENTS. During the year ended December 31, 1997, the Company completed 11 build-to-suit and nine inventory projects, totalling approximately 2.9 million square feet of leaseable space and representing a Total Investment of approximately $143.5 million. As of December 31, 1997, the completed development properties were 97.6% leased.
PROPERTIES UNDER DEVELOPMENT. As of December 31, 1997, the Company was developing 43 properties which, upon completion, are expected to generate approximately 4.1 million leaseable square feet. Approximately 42.5% of such leaseable space was pre-leased as of December 31, 1997. The Properties Under Development as of December 31, 1997 are expected to represent a Total Investment of $304.9 million. Five of these properties are 100% pre-leased under net leases as build-to-suit projects. There can be no assurance that any of the Properties Under Development will be completed, or that the Company's budgets or estimates of construction costs or time periods necessary to complete construction of such Properties, will be realized. The Company is scheduled to complete development of 20 properties (totaling 2.5 million leaseable square feet) in the year ended December 31, 1998 representing a Total Investment of $162.7 million.
LAND. As of December 31, 1996, the Company owned 1,012 acres of land for development, all zoned for commercial use. During the year ended December 31, 1997, the Company purchased an additional 280 acres of land for development, utilized 283 acres in development projects and sold 52 acres. Substantially all of the remaining 957 acres owned as of December 31, 1997 is located adjacent to or within existing industrial or business parks with site improvements, such as public sewers, water and utilities, available for service. The Company anticipates that the land would support, as and when developed, approximately nine million leaseable square feet. The Company's Total Investment in land held for development as of December 31, 1997 was $61.9 million. In connection with the acquisition of the South Carolina Portfolio, the Company is obligated to purchase, over a 10-year period ending in 2007, approximately 800 acres of land for commercial development, which the Company believes is capable of supporting, as and when developed, approximately eight million leaseable square feet of industrial or office space. Substantially all of the acreage the Company is obligated to purchase is located in the Charleston, Columbia and Greenville, South Carolina markets. The Company believes that, because it is a fully integrated real estate firm, its base of commercially zoned land in existing industrial and business parks provides a competitive advantage for future development activities.
INTERNATIONAL OPERATION. The Company's international operations include four Properties in Operation in the County of Kent, England. In addition, the Company provides management services with respect to a joint venture between Rouse Kent Limited, which is owned by certain senior executives of the Company, and the County of Kent, England to develop a 650-acre, mixed-use park approximately 25 miles southeast of London. The Company has an option to purchase Rouse Kent Limited for nominal consideration. The Company committed to loans in 1996 to two
affiliates for development projects. As of December 31, 1997, only one of these loans, with a balance of $5.5 million, remained outstanding.
SUBSEQUENT ACTIVITIES
Since December 31, 1997, the Company has purchased 23 industrial and office properties containing approximately 1.6 million leaseable square feet for a Total Investment of $131.7 million. In addition, the Company has completed development of four industrial and office properties containing approximately 207,000 leaseable square feet for a Total Investment of $15.2 million.
The Company intends to pursue its acquisition and development strategies. The Company is currently in various stages of discussions and negotiations with respect to acquisition and development projects totaling over $400.0 million of Total Investment. The consummation of these or any other future acquisitions or developments, if any, and the pace at which acquisitions may be made and developments completed, cannot be assured.
COMPETITION
The Company faces competition as a buyer, developer and lessor of properties and will likely face competition as an eventual seller of properties to the extent that properties are sold. The Company may be competing with other owners and developers with greater resources and whose management may have more experience than the Company's officers and trustees. There are numerous other entities, including but not limited to other REITs, that compete with the Company in seeking to acquire the limited number of properties available for sale that meet the Company's acquisition strategy. Like the Company, many of the potentially competing purchasers can use their own securities in making acquisitions. Additionally, the number of competitive properties in any particular market in which the Company's Properties are located could have a material adverse effect on both the Company's ability to lease space at the Properties or any newly acquired or developed property and on the rents charged for the Properties in Operation. However, the Company believes that its capital base, its existing sources of credit and its access, as a publicly owned entity, to the public capital markets to raise funds during periods when conventional sources of financing may be unavailable or relatively more expensive will provide the Company with competitive advantages. Further, the Company believes that its responsiveness to tenant needs will enable it to attract and retain high quality tenants in the markets in which the Properties in Operation are located.
ENVIRONMENTAL REGULATIONS
Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment (collectively, "Environmental Laws"), a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of certain hazardous or toxic substances disposed, stored, released, generated, manufactured or discharged from, on, at, onto, under or in such property. Environmental Laws often impose such liability without regard to whether the owner or operator knew of, or was responsible for, the presence or release of such hazardous or toxic substances. In addition, the presence of any such substances or the failure to properly remediate such substances when present, released or discharged may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. The cost of any required remediation
and the liability of the owner or operator therefor as to any property is generally not limited under such Environmental Laws and could exceed the value of the property and/or the aggregate assets of the owner or operator. Persons who arrange for disposal of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such persons. In addition to any action required by federal, state or local authorities, the presence of hazardous or toxic substances on any of the Properties, or on any properties acquired hereafter, could result in private plaintiffs bringing claims for personal injury or other causes of action. In connection with the ownership and operation of the Properties, and with respect to any properties acquired hereafter, the Company may be potentially liable for remediation, release or injury. Further, various Environmental Laws impose on owners or operators the requirement of ongoing compliance with rules and regulations regarding business-related activities that may affect the environment. Failure to comply with such requirements could result in difficulty in the lease or sale of any affected Property or the imposition of monetary penalties and fines in addition to the costs required to attain compliance.
All of the Properties in Operation have been subject to Phase I Environmental Assessments ("Phase I Assessments"). The Phase I Assessments did not reveal, nor is the Company aware of, any non- compliance with Environmental Laws, environmental liability or other environmental claim that the Company believes would likely have a material adverse effect on the Company. Although certain environmental issues have been identified with respect to certain of the Properties, the Company does not believe that any of these issues is likely to materially adversely affect the results of the Company's operations. No assurance can be given that the Phase I Assessments revealed all potential environmental liabilities, that no prior owner or operator created any material adverse environmental condition not known to the Company, that no environmental liabilities have developed since such Phase I Assessments were prepared, that future laws, ordinances or regulations will not impose any material environmental requirement or liability, or that a material adverse environmental condition does not otherwise exist.
ITEM 2.
ITEM 2. PROPERTIES
The Properties in Operation, as of December 31, 1997, consisted of 297 industrial and 144 office properties.
Single tenants occupy 154 Properties in Operation. The Company provides a reduced level of service in connection with the operation or maintenance of these properties. The remaining 287 of the Company's Properties in Operation are occupied by multiple tenants for which the Company renders a range of building, operating and maintenance services.
The Company's industrial properties consist of a variety of warehouse, assembly, light manufacturing, distribution and research and development facilities. Substantially all of the Company's industrial properties are located in suburban, mixed-use developments or business parks and all are well-maintained facilities. They include both single- tenant and multi-tenant facilities, with most designed flexibly to accommodate various types of tenants, space requirements, and industrial uses to increase re-leasing opportunities and control re-leasing costs. They range in size from 11,600 leaseable square feet to 1,190,000 leaseable square feet, with an average building size of 79,766 leaseable square feet. As of December 31, 1997, the Company's industrial
properties were 94.7% leased. Major tenants, based upon annual base rent, include the DSC Logistics, Inc., Hewlett-Packard Company, Vistakon Division of Johnson & Johnson Vision Products, Inc. and SKF USA, Inc.
The Company's office properties are mid-rise and single story office buildings principally located in suburban, mixed-use developments or office parks. All of the Company's office properties are well- maintained facilities. Substantially all are located in prime business locations within established business communities offering excellent access to interstate highway systems. As of December 31, 1997, the office properties were approximately 94.5% leased. The office properties range in size from 2,800 leaseable square feet to 634,359 leaseable square feet, with an average building size of 60,853 leaseable square feet. Major tenants, based upon annual base rent, include AT&T Resource Management Corp., The Vanguard Group, Prudential Insurance Company of America and the Government of the United States of America.
The table on the following pages sets forth certain information on the Company's Properties in Operation as of December 31, 1997.
(1) Based on current net leaseable building area. Some buildings have been expanded since their original acquisition or development. (2) Based on rent commencement date.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Trust is not a party to any material legal proceedings. In the ordinary course of business, the Operating Partnership is party to routine litigation incidental to its business, including routine actions for negligence, personal injury or other claims, many of which are expected to be covered by liability insurance and in the aggregate are not expected to have a material effect on the business or financial condition of the Company.
On June 27, 1995, the Environmental Protection Agency ("EPA") notified Willard G. Rouse III, George F. Congdon and David C. Hammers, together with six other companies or individuals, that they may be potentially responsible, as former owners, for a portion of the response costs for remediation of ground water in part of the North Penn Service Area for certain properties located in Upper Gwynedd Township, Pennsylvania, (the "Church Road Properties"). The Company acquired the Church Road Properties from the Predecessor upon formation of the Company. The Company has not been similarly notified by the EPA; however, as the present owner of the Church Road Properties, the potential exists for the Company to be named a potentially responsible party if there has been a release from the Church Road Properties of hazardous substances, including trichloroethylene, that requires remediation. In such circumstances, the Company believes it would have claims against other financially responsible parties (including previous owners of the Church Road Properties, such as Zenith and the other parties identified by the EPA as potentially liable) and, consequently, the Company does not believe that its liability with respect to this matter, if any, is likely to be material. In addition, Mr. Rouse, Mr. Congdon, Mr. Hammers and Joseph P. Denny have agreed to indemnify the Company for a period of 10 years commencing in June 1994 with respect to material environmental liabilities associated with the Church Road Properties.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1997.
EXECUTIVE OFFICERS
The following persons are the executive officers of the Trust, which is the sole general partner of the Operating Partnership:
Each officer was elected as such in July 1994 with the exception of Mr. Alburger who was elected Chief Financial Officer and Treasurer in May 1995, and Mr. Bowes who was elected Secretary in December 1996. Each officer will serve until the first meeting of the Board of Trustees after the next annual meeting of shareholders or until the officer resigns or is removed from office by the Board of Trustees.
Willard G. Rouse III has served as Chairman of the Board of Trustees and Chief Executive Officer of the Company since March 1994. Mr. Rouse had been a General Partner of the Predecessor since its founding in 1972. Mr. Rouse has served as Chairman of each of the Pennsylvania Convention Center Authority, Foundation for Architecture, We the People 2000 and the Philadelphia Children's Network and as President of the Fellowship Commission. Mr. Rouse is currently Chair of The Regional Performing Arts Center.
Joseph P. Denny has served as President and Chief Operating Officer of the Company and a trustee of the Trust since March 1994. Mr. Denny joined the Predecessor in 1979 and served as a Regional Managing General Partner, and later as President. In these capacities, he was responsible for developing approximately one billion dollars of projects, primarily large urban projects. Mr. Denny is a member of the Industrial and Office Park Council of the Urban Land Institute and serves on the Advisory Board of the Wharton Business School's Real Estate Center and the NAREIT Legislative Advisory Council.
George J. Alburger, Jr. became Chief Financial Officer and Treasurer of the Company in May 1995. For more than five years prior to joining the Company, Mr. Alburger served as Executive Vice President of EBL&S Property Management, Inc., an owner and manager of approximately 200 shopping centers aggregating 30 million square feet of retail space. Mr. Alburger is a certified public accountant and was formerly a Senior Manager with Price Waterhouse LLP.
George F. Congdon has served as a trustee of the Trust since March 1994, and as an Executive Vice President of the Company since April 1995. Mr. Congdon previously served as Chief Financial Officer and Treasurer of the Company. Mr. Congdon had been a General Partner of the Predecessor since its founding in 1972. He is a member of the Board of Directors of the People's Light and Theater Company and Historic Yellow Springs, Inc.
Robert E. Fenza has served as an Executive Vice President of the Company since March 1994, with principal responsibility for operations, property management and asset management. Mr. Fenza joined the Predecessor in 1984 and advanced to Regional Manager in 1987 and to Northern Division Manager in 1991.
James J. Bowes has served as General Counsel and Secretary of the Company since December 1996. Prior to joining the Company, Mr. Bowes was a partner in the law firm of Blank Rome Comisky & McCauley.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDERS MATTERS
The Common Shares are traded on the New York Stock Exchange under the symbol "LRY". There is no established public trading market for the Units. The following table sets forth, for the calendar quarters
indicated, the high and low closing prices of the Common Shares on the New York Stock Exchange, and the dividends declared per Common Share for such calendar quarter.
DIVIDENDS DECLARED PER HIGH LOW COMMON SHARE ---- --- -------------
First Quarter $22 1/8 $20 1/4 $0.40 Second Quarter 21 19 1/2 0.40 Third Quarter 21 3/4 19 3/8 0.41 Fourth Quarter 25 7/8 21 1/8 0.41
First Quarter $26 1/8 $23 3/4 $0.41 Second Quarter 25 1/2 23 5/8 0.41 Third Quarter 27 1/8 24 3/4 0.42 Fourth Quarter 28 7/8 25 1/2 0.42
As of February 25, 1998, the Common Shares were held by 561 holders of record. Since its initial public offering, the Company has paid regular and uninterrupted dividends.
Although the Company currently anticipates that comparable cash dividends will continue to be paid in the future, the payment of future dividends by the Company will be at the discretion of the Board of Trustees and will depend on numerous factors including the Company's cash flow, its financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, and such other factors as the Board of Trustees deems relevant.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth Selected Financial Data for Liberty Property Trust and Liberty Property Limited Partnership as of and for the years ended December 31, 1997, 1996 and 1995 and for the period from June 23, 1994 to December 31, 1994, for Liberty Property Trust, Liberty Property Limited Partnership and the Predecessor combined as of and for the year ended December 31, 1994, and for the Predecessor for the period from January 1, 1994 to June 22, 1994, and for the year ended 1993. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto appearing elsewhere in this report. Certain amounts from prior periods have been restated to conform to current year presentation.
The income per common share amounts prior to 1997 have been restated as required to comply with Statement of Financial Accounting Standards No. 128, "Earnings per Share". For further discussion of income per common share and the impact of Statement No. 128, see the notes to the consolidated financial statements.
Basic weighted average number of shares outstanding excludes Common Shares issuable upon the conversion of Units, upon the exchange of the Exchangeable Subordinated Debentures Due 2001 of the Operating Partnership (the "Convertible Debentures") (subject to adjustment upon the occurrence of certain events) and upon the exercise of outstanding options.
Diluted weighted average number of shares outstanding includes the dilutive effect of outstanding options, and excludes Common Shares issuable upon conversion of Units, and upon the exchange of Convertible Debentures (subject to adjustment upon the occurrence of certain events), because to do so would have been antidilutive for the periods presented, with the exception of the period June 23, 1994 to December 31, 1994. The diluted weighted average shares for this period includes the dilutive effect of all of the aforementioned securities.
"Funds from Operations" is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as net income or loss after preferred dividends (computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from debt restructuring and sales of property, plus real estate-related depreciation and amortization and minority interest, and excluding significant non-recurring events that materially distort the comparative measurement of Company performance over time. Funds from Operations does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In 1997, the Company continued to pursue acquisition and development opportunities and to focus on increasing the cash flow from its Properties in Operation by increasing property occupancy and increasing rental rates. The Company also continued to strengthen its balance sheet and its capital structure.
The Company's operating results depend primarily upon income from the rental operations of the Properties in Operation. This income is substantially influenced by the demand for the Company's Properties in Operation. In addition, the Company's continued growth is dependent upon its ability to maintain property occupancy rates and increase rental rates on the Properties in Operation and to continue development and acquisition of additional properties. The occupancy rate of the Properties in Operation has increased during the last two years and was 94.6% at December 31, 1997. The Company will seek to maintain and increase its overall occupancy and also will seek to increase rental rates in replacement and renewal leases. Stable or increased occupancy, along with increasing rental rates would allow the Properties in Operation to continue to provide a comparable or increasing level of earnings from rental operations.
The Company also will seek to achieve growth in earnings from rental operations through (i) the acquisition of additional rental properties in its primary markets; (ii) the expansion into selected new markets; and (iii) the maintenance and expansion of its development pipeline.
The Company acquired 170 properties consisting of 9.5 million leaseable square feet during 1997 as compared to the acquisition of 33 properties consisting of 2.4 million leaseable square feet during 1996. The Company anticipates continuing to pursue the acquisition of rental properties but notes that the competition for acquisitions has been increasing and that the initial return may be decreasing. The Company will seek through its active pursuit of acquisitions in its multiple markets to continue to achieve attractive returns on acquisitions.
The Company also increased its level of development activity in 1997. In 1997, the Company completed 20 projects totalling approximately 2.9 million leaseable square feet for a Total Investment of $143.5 million. In addition, as of December 31, 1997, the Company had 43 properties expected to generate approximately 4.1 million leaseable square feet of suburban office and industrial space under development which represents an estimated Total Investment of $304.9 million. The Company expects to complete the Properties Under Development over the next eight quarters.
The Company continued to strengthen its balance sheet in 1997 by accessing both the public and private equity markets and the public debt market. The Company raised approximately $433.9 million through the issuance of Common Shares and $120.8 million through the issuance of preferred shares of beneficial interest. In addition, over the course of the year, the Company issued $350.0 million of investment grade rated unsecured notes with maturities ranging from six to 10 years. The Company expects to continue to strengthen its capital structure.
IMPACT OF YEAR 2000
The Year 2000 issue continues to receive a significant amount of publicity and attention. The issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. If problematic and not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. The Company's property management and accounting system uses four digit year fields. The Company has been reviewing and will continue to review its building operating systems on a building by building basis in conjunction with its annual maintenance program. The Company, based on the present status of its systems and the results of the reviews completed to date, believes any amount required to remediate any Year
2000 issues will not be material to the Company's business, operations or financial conditions.
FORWARD-LOOKING STATEMENTS
When used throughout this report, the words "believes," "anticipates," and "expects" and similar expressions are intended to identify forward- looking statements. Such statements indicate that assumptions have been used that are subject to a number of risks and uncertainties which could cause actual financial results or management plans and objectives to differ materially from those projected or expressed herein, including: the effect of national and regional economic conditions; the Company's ability to identify and secure additional properties and sites that meet its criteria for acquisition or development; the acceptance of the Company's financing plans by the capital markets; and the effect of prevailing market interest rates and the pricing of the Company's shares of beneficial interest; and other risks described from time to time in the Company's filings with the Securities and Exchange Commission. Given these uncertainties, readers are cautioned not to place undue reliance on such statements. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
The following discussion is based on the consolidated financial statements of the Company. It compares the results of operations of the Company for the year ended December 31, 1997 with the results of operations of the Company for the year ended December 31, 1996, and the results of operations of the Company for the year ended December 31, 1996 with the results of operations of the Company for the year ended December 31, 1995. As a result of the differing levels of acquisitions by the Company in 1997 and 1996, the overall operating results of the Company during such periods are not directly comparable. However, certain data, including the "Same Store" comparison, does lend itself to direct comparison. As used herein, the term "Company" includes the Trust, the Operating Partnership and their subsidiaries.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996.
Rental revenues increased from $154.3 million for the year ended December 31, 1996 to $232.5 million for the year ended December 31, 1997. This increase was primarily due to the increase in the number of properties owned during the respective periods. As of January 1, 1996, the Company owned 208 properties and, through December 31, 1996, acquired 33 additional properties and completed development on 19 properties for a Total Investment of $232.2 million. As of January 1, 1997, the Company owned 259 properties, and, through December 31, 1997, acquired 170 additional properties and completed the development on 20 properties for a Total Investment of $871.5 million, and disposed eight properties for $35.4 million.
Operating expense reimbursement increased from $35.9 million for the year ended December 31, 1996 to $55.5 million for the year ended December 31, 1997. This increase is a result of the reimbursement from tenants for increases in rental property expenses and real estate taxes. The operating expense recovery percentage (the ratio of operating expense reimbursement to rental property expenses and real estate taxes)
increased from 87.8% for the year ended December 31, 1996 to 90.9% for the year ended December 31, 1997.
Rental property and real estate tax expenses increased from $40.9 million for the year ended December 31, 1996 to $61.1 million for the year ended December 31, 1997. This increase is due to the increase in the number of properties owned.
Property level operating income for the "Same Store" properties (properties owned since January 1, 1996) increased from $94.1 million for the year ended December 31, 1996 to $98.8 million for the year ended December 31, 1997. This increase of 5.01% is due to increases in rental rates and increases in occupancy.
Set forth below is a schedule comparing the operating results for the Same Store properties for the years ended December 31, 1997 and 1996.
1997 1996 -------- -------- (IN THOUSANDS) -----------------------
Rental revenue $102,501 $ 98,275 Operating expense reimbursement 30,000 29,757 -------- -------- 132,501 128,032
Rental property expenses 24,221 24,480 Real estate taxes 9,437 9,426 -------- -------- Property level operating income $ 98,843 $ 94,126 ======== ========
General and administrative expenses increased from $8.0 million for the year ended December 31, 1996 to $10.7 million for the year ended December 31, 1997. This $2.7 million increase is due to the increase in personnel and other related overhead costs necessitated by the increase in the number of properties owned during the respective periods. This increase is somewhat mitigated by the benefit of certain economies of scale experienced by the Company in owning and operating the Properties.
Depreciation and amortization expenses increased from $28.2 million for the year ended December 31, 1996 to $40.8 million for the year ended December 31, 1997. This increase is due to the increase in the number of properties owned during the respective periods.
Interest expense increased from $38.5 million for the year ended December 31, 1996 to $53.9 million for the year ended December 31, 1997. This increase is due to an increase in the average debt outstanding for the respective periods which was $576.3 million in 1996 and $819.4 in 1997. This increase is partly offset by the lower interest rate on the outstanding debt. The reduction in interest rates was partially the result of the Company receiving investment grade ratings from both Standard & Poor's Rating Group ("S&P") and Moody's Investment Service, Inc. ("Moody") during the year which enabled the Company to access public debt markets more economically.
As a result of the foregoing, the Company's operating income increased from $77.2 million for the year ended December 31, 1996 to $120.0 million for the year ended December 31, 1997. In addition, income
before minority interest increased from $37.6 million for the year ended December 31, 1996 to $66.1 million for the year ended December 31, 1997.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995.
Rental revenues increased from $117.0 million for the year ended December 31, 1995 to $154.3 million for the year ended December 31, 1996. This increase was primarily due to the increase in the number of properties owned during the respective periods. As of January 1, 1995, the Company owned 151 properties and, through December 31, 1995, acquired 52 additional properties (net of two properties exchanged in connection with such acquisitions) and completed development of five properties for a Total Investment of $223.1 million. As of January 1, 1996, the Company owned 208 properties, and, through December 31, 1996, acquired 33 additional properties and completed the development on 19 properties for a Total Investment of $232.2 million.
Operating expense reimbursement increased from $24.6 million for the year ended December 31, 1995 to $35.9 million for the year ended December 31, 1996. This increase is a result of the reimbursement from tenants for increases in rental property expenses and real estate taxes. The operating expense recovery percentage (the ratio of operating expense reimbursement to rental property expenses and real estate taxes) increased from 83.9% for the year ended December 31, 1995 to 87.8% for the year ended December 31, 1996.
Rental property and real estate tax expenses increased from $29.3 million for the year ended December 31, 1995 to $40.9 million for the year ended December 31, 1996. This increase is due to the increase in the number of properties owned.
Property level operating income for the "Same Store" properties (properties owned since January 1, 1995) increased from $68.0 million for the year ended December 31, 1995 to $71.5 million for the year ended December 31, 1996. This increase of 5.1% is due to increases in rental rates and increases in occupancy.
Set forth below is a schedule comparing the operating results for the Same Store properties for the years ended December 31, 1996 and 1995.
1996 1995 -------- -------- (IN THOUSANDS) -----------------------
Rental revenue $ 75,823 $ 72,808 Operating expense reimbursement 24,553 21,463 -------- -------- 100,376 94,271
Rental property expenses 21,023 18,191 Real estate taxes 7,878 8,086 -------- -------- Property level operating income $ 71,475 $ 67,994 ======== ========
General and administrative expenses increased from $5.2 million for the year ended December 31, 1995 to $8.0 million for the year ended December 31, 1996. This $2.8 million increase is due to the increase in personnel and other related overhead costs necessitated by the increase
in the number of properties owned during the respective periods. Included in the general and administrative expenses for the year ended December 31, 1996 is a $704,000 non-cash charge resulting from the amortization of a stock award over its vesting period. There is no corresponding charge for the year ended December 31, 1995.
Depreciation and amortization expenses increased from $22.5 million in 1995 to $28.2 million in 1996. This increase is due to the increase in the number of properties owned during the respective periods.
Interest expense increased from $37.7 million for the year ended December 31, 1995 to $38.5 million for the year ended December 31, 1996. This increase is due to an increase in the average debt outstanding for the respective periods which was $397.4 million in 1995 and $576.3 million 1996. This increase is partly offset by the lower interest rate on the outstanding debt because of the 1% reduction in interest rate on the Line of Credit borrowings which became effective on May 1, 1995, and because of a decrease in the outstanding Convertible Debentures due to the conversion of $58.7 million principal amount of Convertible Debentures in 1996.
As a result of the foregoing, the Company's operating income increased from $60.0 million for the year ended December 31, 1995 to $77.2 million for the year ended December 31, 1996. In addition, income before minority interest increased from $22.3 million for the year ended December 31, 1995 to $37.6 million for the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had cash and cash equivalents of $55.1 million.
Net cash flow provided by operating activities increased from $64.4 million for the year ended December 31, 1996 to $126.9 million for the year ended December 31, 1997. This $62.5 million increase was primarily due to the additional cash flow generated by the greater number of properties in service during the latter period.
Net cash used in investing activities increased from $265.4 million for the year ended December 31, 1996 to $854.9 million for the year ended December 31, 1997. This $589.5 million increase was a result of the increase in investment in acquisitions and development from $232.2 for the year ended December 31, 1996 to $871.5 million for the year ended December 31, 1997.
Net cash provided by financing activities increased from $210.0 million for the year ended December 31, 1996 to $763.5 million for the year ended December 31, 1997. This increase was primarily attributable to the Follow-On Offering (as defined below), and the exercise of the related overallotment option, which were completed on March 24, 1997 and April 1, 1997, respectively, which resulted in the issuance of an aggregate of 8,250,000 Common Shares, the Preferred Offering (as defined below), which was completed on August 11, 1997, which resulted in the issuance of 5,000,000 preferred shares of beneficial interest, the Senior Notes Offering (as defined below), which was completed on August 19, 1997, which resulted in the issuance of $200 million principal amount of unsecured notes, the Common Shares Offering (as defined below), which was completed on November 19, 1997, which resulted in the issuance an aggregate of 9,200,000 Common Shares, the Direct Placement (as defined below), which was completed on December 11, 1997, which resulted in the issuance of 796,505 Common Shares and the issuance of $150 million
principal amount of unsecured notes in December. The net proceeds to the Company of these offerings were approximately $191.7 million, $120.8 million, $198.0 million, $222.2 million, $20.0 million and $149.0 million, respectively.
The Company believes that its undistributed cash flow from operations is adequate to fund its short-term liquidity requirements.
The Company funded its long-term liquidity requirements, such as property acquisition and development activities, primarily through secured line of credit facilities (the "Lines of Credit"). During the second quarter of 1997, the Company replaced these secured facilities with a $325.0 million unsecured line of credit (the "Credit Facility").
The interest rate on borrowings under the Credit Facility fluctuates based upon the Company's leverage levels or ratings from Moody's and S&P. On June 23, 1997, Moody's raised its prospective senior debt rating of the Company to Baa3 from Ba2 and on July 22, 1997, S&P assigned a BBB- prospective senior debt rating to the Company. At these ratings, the interest rate for borrowings under the Credit Facility is 110 basis points over the Eurodollar Rate.
Periodically, the Company pays down borrowings on the Credit Facility with funds from long term capital sources. In the year ended December 31, 1997, the Company used approximately $907.7 million of the proceeds from the Follow-On Offering, Common Shares Offering, the Preferred Offerings, the Senior Notes Offering, the Direct Placement and unsecured note issuances to paydown the Credit Facility.
As of December 31, 1997, $363.6 million in mortgage loans were outstanding with maturities ranging from 1998 to 2013. The interest rates on $344.4 million of mortgage loans are fixed and range from 6% to 9.13%. Interest rates on $19.2 million of mortgage loans float with LIBOR or prime, all of which are subject to certain caps. The weighted average interest rate for the mortgage loans is 7.7%, and the weighted average remaining term is 8.3 years.
GENERAL
The Company expects to incur variable rate debt, including borrowings under the Credit Facility, from time to time. The Company believes that its existing sources of capital, including public debt and equity markets, will provide sufficient funds to finance its continued acquisition and development activities. In this regard, the Company continues to evaluate its long-term capital sources which generally include the availability of debt financing and access to equity.
In July 1995, the Company filed a shelf registration with the Securities and Exchange Commission that enabled the Company to offer up to an aggregate of $350.0 million of securities, including common shares of beneficial interest, preferred shares of beneficial interest and debt (the "Initial Shelf Registration"). On November 27, 1995, the Company completed a follow-on public offering of 7,200,000 common shares resulting in proceeds of $140.4 million.
On October 15, 1996, the Company filed a Registration Statement with the Securities and Exchange Commission registering for issuance 1,000,000 Common shares to be issued through the Company's Dividend Reinvestment and Share Purchase Plan.
On February 21, 1997, the Company filed a shelf registration statement with the Securities and Exchange Commission that enables the Company to offer up to an aggregate of $850.0 million of securities, including common shares of beneficial interest, preferred shares of beneficial interest and debt (the "Second Shelf Registration"). On March 24, 1997, the Company completed a public offering (the "Follow-on Offering") which resulted in the issuance of an additional 7,500,000 Common Shares, and on April 1, 1997, the related overallotment option was exercised, resulting in the issuance of an additional 750,000 Common Shares. The issuance of these Common Shares resulted in aggregate net proceeds to the Company of $191.7 million.
On August 11, 1997, the Company completed a public offering (the "Preferred Offering") which resulted in the issuance of 5,000,000 8.8% Series A Cumulative Reedeemable Preferred Shares of Beneficial Interest. The issuance of these Preferred Shares resulted in aggregate net proceeds to the Company of $120.8 million.
On August 19, 1997, the Company completed a public offering (the "Senior Notes Offering") which resulted in the issuance of $200.0 million principal amount of unsecured notes. The issuance of these Senior Notes resulted in aggregate net proceeds to the Company of $198.0 million.
On October 24, 1997, the Company established a medium-term note program pursuant to which it may issue $200 million principal amount of the Operating Partnership's Medium-Term Notes Due Nine Months or More from Date of Issue.
On November 19, 1997, the Company consummated a public offering (the "Common Shares Offering") of 9,200,000 Common Shares. The aggregate net proceeds to the Company from such offering were approximately $222.2 million.
On December 9, 1997, the Company sold $100 million principal amount of 6.95% notes due 2006 and, on December 11, 1997, the Company sold $50 million principal amount of 6.97% notes due 2003. The aggregate net proceeds to the Company from such offerings were approximately $149.0 million.
On December 11, 1997, the Company consummated a public offering of 796,505 Common Shares for aggregate net proceeds to the Company of $20.0 million (the "Direct Placement").
On December 24, 1997 the Company filed a shelf registration statement with the Securities and Exchange Commission that enables the Company to offer up to an aggregate of $1.5 billion of securities, including common shares of beneficial interest, preferred shares of beneficial interest and debt (the "Third Shelf Registration"). The Third Shelf Registration Statement became effective on January 4, 1998. Collectively, the Initial Shelf Registration, the Second Shelf Registration and the Third Shelf Registration are referred to as the "Shelf Registration Statement".
In connection with the acquisition of properties during the year ended December 31, 1997, the Company issued 1,197,739 Units.
Subsequent to year end, on January 12, 1998, the Company augmented its medium-term note program to enable the Company to offer, in the aggregate, up to $450 million of the Operating Partnership's medium-term notes. Under the program, on January 22, 1998, the Company sold $75 million principal amount of 6.375% notes due 2013. Such notes are
subject to mandatory repayment of principal to the holders thereof in 2003 pursuant to a call/put option relating to such notes. Also under the program, on January 23, 1998, the Company sold $100 million principal amount of 7.50% notes due 2018. The aggregate net proceeds to the Company from such offerings were approximately $173.3 million.
On January 21, 1998, the Company consummated a public offering of 2,300,000 Common Shares. The aggregate net proceeds to the Company from such offering were approximately $60.4 million.
On February 23, 1998, the Company consummated a public offering of 1,702,128 Common Shares. The aggregate net proceeds to the Company from such offering were approximately $42.7 million.
After the completion of the equity and debt offerings described above, the Company has the capacity pursuant to the Shelf Registration Statement to issue up to $891.0 million in equity securities and the Operating Partnership has the capacity to use up to $475.2 million in debt securities (including the $275.0 million of medium-term notes available under the medium-term note program).
In December 1997, the Board of Directors of the Company adopted a shareholder rights plan (the "Shareholder Rights Plan"). Under the Shareholder Rights Plan, one Right (as defined in the Shareholder Rights Plan) was attached to each outstanding Common Share at the close of business on December 31, 1997. In addition, a Right will be attached to each share of Common Stock issued in the future. Each Right entitles the registered holder to purchase from the Company, under certain conditions, a unit (a "Rights Plan Unit") consisting of one one- thousandth of a share of a Series A Junior Participating Preferred Share, $0.0001 par value, (the "Junior Preferred Stock"), of the Company, for $100 per Rights Plan Unit, subject to adjustment. The Rights become exercisable only if a person or group of affiliated or associated persons (an "Acquiring Person") acquires, or obtains the right to acquire, beneficial ownership of Common Shares or other voting securities ("Voting Stock") that have 10% or more of the voting power of the outstanding shares of Voting Stock, or if an Acquiring Person commences with or makes an announcement of an intention to make a tender offer or exchange offer to acquire beneficial ownership of Voting Stock that have 10% or more of the voting power of the outstanding shares of Voting Stock. The Rights are redeemable by the Company at a price of $0.0001 per Right. If not exercised or redeemed, all Rights will expire on December 31, 2007.
CALCULATION OF FUNDS FROM OPERATIONS
Management generally considers Funds from Operations (as defined below) a useful financial performance measure of the operating performance of an equity REIT, because, together with net income and cash flows, Funds from Operations provides investors with an additional basis to evaluate the ability of a REIT to incur and service debt and to fund acquisitions and capital expenditures. Funds from Operations is defined by NAREIT as net income or loss after preferred dividends (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and sales of property, plus real-estate related depreciation and amortization and minority interest and excluding significant non- recurring events that materially distort the comparative measurement of the Company's performance over time. Funds from Operations does not represent net income or cash flows from operations as defined by GAAP and does not necessarily indicate that cash flows will be sufficient to fund cash needs. It should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. Funds from Operations also does not represent cash flows generated from operating, investing or financing activities as defined by GAAP. Funds from Operations for the years ended December 31, 1997, 1996 and 1995 are as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- (IN THOUSANDS)
Income available to common shareholders $ 56,197 $ 33,740 $ 19,466 Addback: Minority interest 5,606 3,891 2,843 Depreciation and amortization 40,315 27,863 22,297 Premium on debenture conversion 98 1,027 - Write off of deferred financing costs 2,919 - - Gain on sale (2,518) (577) - -------- -------- -------- Funds from Operations $102,617 $ 65,944 $ 44,606 ======== ======== ========
INFLATION
Inflation has remained relatively low during the last three years, and as a result, has not had a significant impact on the Company during this period. The Credit Facility bears interest at a variable rate; therefore, the amount of interest payable under the Credit Facility will be influenced by changes in short-term interest rates, which tend to be sensitive to inflation. To the extent an increase in inflation would result in increased operating costs, such as in insurance, real estate taxes or utilities, substantially all of the tenant's leases require the tenants to absorb these costs as part of their rental obligations. In addition, inflation also may have the effect of increasing market rental rates.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - --------------------------------------------------------------------
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - -----------------------------------------------------
The dual presentation of financial statements for the Company is required by the Securities and Exchange Commission. The Company is comprised of two Securities and Exchange Commission registrants: Liberty Property Trust and Liberty Property Limited Partnership. Accordingly, one set of financial statements are required for each registrant. The financial information contained within the two sets of financial statements is essentially the same, with the exception of reformatting to account for the ownership differences between the entities.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------------------------------------------------------------------------
None.
REPORTS OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS AND CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors - Liberty Property Trust - -------------------------------------------------------
Financial Statements - Liberty Property Trust: - ---------------------------------------------- Balance Sheets: Liberty Property Trust Consolidated as of December 31, 1997 and 1996
Statements of Operations: Liberty Property Trust Consolidated for the years ended December 31, 1997, 1996 and 1995
Statements of Shareholders' Equity: Liberty Property Trust Consolidated for the years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows: Liberty Property Trust Consolidated for the years ended December 31, 1997, 1996 and 1995
Notes to Financial Statements - Liberty Property Trust
Financial Statement Schedule - Liberty Property Trust: Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1997
Report of Independent Auditors - Liberty Property Limited Partnership - ---------------------------------------------------------------------
Financial Statements - Liberty Property Limited Partnership: - ------------------------------------------------------------ Balance Sheets: Liberty Property Limited Partnership Consolidated as of December 31, 1997 and 1996
Statements of Operations: Liberty Property Limited Partnership Consolidated for the years ended December 31, 1997, 1996 and 1995
Statements of Owners' Equity: Liberty Property Limited Partnership Consolidated for the years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows: Liberty Property Limited Partnership Consolidated for the years ended December 31, 1997, 1996 and 1995
Notes to Financial Statements - Liberty Property Limited Partnership
Financial Statement Schedule - Liberty Property Limited Partnership: Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1997
REPORT OF INDEPENDENT AUDITORS
To The Board of Trustees and Shareholders Liberty Property Trust
We have audited the accompanying consolidated balance sheets of Liberty Property Trust (the "Trust") as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Liberty Property Trust at December 31, 1997 and 1996, the consolidated results of Liberty Property Trust's operations and cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania ERNST & YOUNG LLP February 13, 1998, except for Note 13, as to which the date is February 23, 1998
See accompanying notes.
See accompanying notes.
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF LIBERTY PROPERTY TRUST
1. 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, the "Company"). At December 31, 1997, the Trust owned a 91.84% interest in the Operating Partnership as the sole general partner and a 0.02% interest as a limited partner. The Company provides leasing, property management, acquisition, development, construction management, and design management for a portfolio of industrial and office properties which are located principally within the Southeastern, Mid-Atlantic and Mid-Western United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation
The Consolidated Financial Statements of the Company include the accounts of the Trust, the Operating Partnership and the Operating Partnership's direct and indirect subsidiaries including Liberty Property Development Corporation. All significant intercompany transactions and accounts have been eliminated.
Certain amounts from prior periods have been restated to conform to current year presentation.
Real Estate and Depreciation
The Properties are recorded at the lower of cost or fair value and are depreciated using the straight-line method over their estimated useful lives. The estimated useful lives are as follows:
Building and improvements 40 years Equipment 10 years Tenant improvements Term of the related lease
Expenditures directly related to acquisition, development or improvement of real estate are capitalized as a cost of the property. Expenditures for maintenance and repairs are charged to operations as incurred.
Cash and Cash Equivalents
Highly liquid investments with a maturity of three months or less when purchased are classified as cash equivalents. The carrying amount of these assets approximates their fair market value.
Revenues
The Company earns rental income under operating leases with tenants.
Rental income is recognized on a straight-line basis over the applicable lease term.
Deferred Financing and Leasing Costs
Costs incurred in connection with financing or leasing are capitalized and amortized over the term of the related loan or lease. Amortization of deferred financing costs is reported as interest expense.
Income per Common Share
In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share", which replaced the calculation of primary and fully diluted income per common share with basic and diluted income per common share. Unlike primary income per common share, basic income per common share excludes any dilutive effects of options. Diluted income per common share includes the weighted average common shares and dilutive effect of the outstanding options for the years ended December 31, 1997, 1996 and 1995, and excludes the effects of the conversion of the Units and Convertible Debentures into common shares, as to do so would have been antidilutive for the periods presented. The securities excluded from the diluted calculation could potentially dilute basic income per common share in the future. All income per common share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirement.
The following table sets forth the computation of basic and diluted income per common share:
Basic income per common share would be $1.39 calculated as if the debenture conversions which occurred in 1997 had occurred on January 1, 1997.
Income Taxes
The Trust qualifies and intends to continue to qualify as REIT under the Internal Revenue Code. As a REIT, the Trust generally will not be subject to federal income tax to the extent that it distributes at least 95% of its REIT taxable income to its shareholders. The Trust may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income.
The Company paid common dividends of $70.6 million, $52.6 million, and $38.7 million, during the years ended December 31, 1997, 1996 and 1995. On a per share basis, the Company paid common dividends of $1.65, $1.61, and $1.60 during the years ended December 31, 1997, 1996 and 1995. The portions of the 1997 common dividend relating to return of capital, earnings and profits, and capital gain are 30.4%, 68.4%, and 1.2%, respectively. The capital gain distribution for the 1997 common dividend designated as unrecaptured section 1250 gain (25% tax rate) and long-term capital gain (20% tax rate) are 63.4% and 36.6%, respectively.
The Company paid preferred dividends of $2.4 million during the year ended December 31, 1997. On a per share basis, the Company paid preferred dividends of $0.48 during the year ended December 31, 1997. The portions of the 1997 preferred dividend relating to return of capital, earnings and profits, and capital gain are 0.0%, 95.3%, and 4.7%, respectively. The portion of the capital gain distribution for the 1997 preferred dividend designated as unrecaptured section 1250 gain (25% tax rate) and long-term capital gain (20% tax rate) are 63.4% and 36.6%, respectively.
The Federal tax cost basis of the real estate at December 31, 1997 was approximately $2.0 billion.
3. REAL ESTATE
At December 31, 1997 and 1996, the Company owned and operated industrial and office properties located principally in suburban mixed use developments or business parks. The carrying value of these properties by type is as follows (in thousands):
Depreciation expense was $36.0 million in 1997, $25.0 million in 1996, and $19.7 million in 1995.
As of December 31, 1997, the Company has commenced development on 43 properties, which upon completion are expected to comprise approximately 4.1 million square feet of leaseable space. As of December 31, 1997, approximately $156.1 million has been expended for the development of these projects and an additional $148.8 million is required for completion.
4. RELATED PARTY TRANSACTIONS
An affiliated company provides construction services to the Company. Amounts paid to this affiliate were $8.2 million in 1997, $29.7 million in 1996 and $6.2 million in 1995.
During 1995, three properties were purchased from partnerships in which officers of the Company had an interest. The officers received no financial consideration for the purchase.
Pursuant to agreements, the Company has been retained by an affiliate (Rouse Kent Limited) to provide development, management and other services. For the years ended December 31, 1997, 1996 and 1995 the fees for these services were $600,000 per year. Additionally, the Company committed to loans in 1996 to two affiliates (Rouse Kent Development Limited and 1 Tower View Limited) for development projects. As of December 31, 1997, only one (1 Tower View Limited) of these loans, with a balance of $5.5 million, remained outstanding. As of December 31, 1996, the balance of these loans was $7.4 million.
5. MORTGAGE LOANS, UNSECURED NOTES, LINES OF CREDIT AND CONVERTIBLE DEBENTURES
Long term indebtedness consists generally of mortgage loans, unsecured notes, lines of credits, and convertible debentures. The average annualized interest rates for the years ended December 31, 1997, 1996 and 1995, were approximately 7.5%, 7.6% and 7.8%, respectively. Interest expense for the years ended December 31, 1997, 1996 and 1995, aggregated $53.9 million, $38.5 million and $37.7 million, respectively. Interest costs during these periods of $11.8 million, $7.7 million and $3.5 million, were capitalized. Cash paid for interest for the years ended December 31, 1997, 1996 and 1995, was $54.9 million, $43.7 million and $36.7 million, respectively.
Mortgage loans with maturities ranging from 1998 to 2013 are collateralized by and in some instances cross-collateralized by properties with a book value of $493.2 million. The interest rates on $344.4 million of mortgage loans are fixed and range from 6% to 9.13%. Interest rates on $19.2 million of mortgage loans float with Eurodollar or prime and are subject to certain caps. The weighted average interest rate on the mortgage loans is 7.7% and the weighted average remaining term is 8.3 years.
The aggregate maturities of the mortgage loans outstanding are as follows (in thousands):
1998 $ 13,443 1999 21,718 2000 32,451 2001 22,700 2002 6,044 Thereafter 267,235 -------- TOTAL $363,591 ========
The unsecured notes are comprised of $350 million principal amount of fixed rate unsecured notes with four maturities, which are as follows: $50 million principal amount bears interest at 6.97% and is due 2003, $100 million principal amount bears interest at 7.1% and is due 2004, $100 million principal amount bears interest at 6.95% and is due 2006, and $100 million principal amount bears interest at 7.25% and is due 2007.
The line of credit is a $325 million unsecured credit facility (the "Credit Facility") which replaced two existing secured lines of credit aggregating $350 million in May 1997. Coincident with the replacement of the lines of credit, $2.9 million of related deferred financing costs were charged to interest expense. The interest rate on borrowings under the Credit Facility fluctuates, based on the Company's leverage levels and senior debt ratings from Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("Standard & Poor's"). The current ratings for the Company's senior unsecured debt are Baa3 and BBB- from Moody's and Standard & Poor's, respectively. At these ratings, the current interest rate on the Credit Facility is 110 basis points over the Eurodollar Rate (7.09% at December 31, 1997). The rate for both Lines of Credit at December 31, 1996 was 7.13%. Customary fees apply to the Credit Facility including an annual administrative fee and an unused line fee.
The convertible debentures are due on June 23, 2001 and are exchangeable for common shares of beneficial interest of the Trust (the "Common Shares") at a rate of one Common Share for each $20 outstanding principal amount of convertible debentures, subject to certain adjustments. The initial interest rate on the convertible debentures was 8% and increases with increases in the dividend payment on the Company's Common Shares. At the current $.42 per share per quarter dividend payment rate, the effective interest rate on the convertible debentures is 8.4%. At December 31, 1996, the effective interest rate on the convertible debentures was 8.2%. During the year ended December 31, 1997, the Company paid sums aggregating $98,000 to facilitate the conversion of $17.3 million of convertible debentures into 862,650 Common Shares. During the year ended December 31, 1997, $2.4 million of deferred financing costs relating to converted convertible debentures were charged to additional paid-in capital. During the year ended December 31, 1996, the Company paid sums aggregating $1.0 million to facilitate the conversion of $58.7 million of convertible debentures into 2,934,300 Common Shares. During the year ended December 31, 1996, $2.9 million of related deferred financing costs were charged to additional paid-in capital. At December 31, 1997 and 1996 the convertible debentures were convertible into 5,577,150 Common Shares and 8,560,700 Common Shares, respectively.
The fair value of the convertible debentures at December 31, 1997 was $159.3 million based on the closing bid price of the Company's Common Shares on the New York Stock Exchange. The fair values of the mortgages, the unsecured notes and Credit Facility were estimated using discounted cash flow analysis, based on the Company's estimated incremental borrowing rate at December 31, 1997, for similar types of borrowing arrangements. The carrying values of the mortgages, the unsecured notes and the Credit Facility approximate their fair values.
6. LEASING ACTIVITY
Future minimum rental payments due from tenants under non-cancellable operating leases as of December 31, 1997 are as follows (in thousands):
1998 $ 211,211 1999 186,375 2000 147,201 2001 109,323 2002 85,078 Thereafter 309,527 ---------- TOTAL $1,048,715 ==========
In addition to minimum rental payments, tenants pay for their pro rata share of specified operating expenses. These amounts are included as operating expense reimbursement in the accompanying statements of operations.
7. MINORITY INTEREST
In conjunction with the formation of the Company and certain subsequent acquisitions, persons contributing interest in properties to the Operating Partnership have received limited partnership interests in the Operating Partnership. In connection with the acquisition of properties for the year ended 1997, the Company issued 1,197,739 units. There were no units issued in connection with the acquisition of properties in 1996. The aggregate outstanding limited partnership interests have the same economic characteristics as would 4,668,700 Common Shares outstanding as of December 31, 1997, inasmuch as they share proportionately in the net income or loss and in any distributions of the Operating Partnership and such interests are exchangeable into the same number of Common Shares of the Trust.
Minority interest in the accompanying consolidated financial statements relates to such limited partnership interests.
8. SHARE OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
The Company's Share Incentive Plan ("Share Incentive Plan") has authorized the grant of options to executive officers, other key employees, non-employee trustees and consultants of up to 2,100,000 shares of the Company's Common Shares. An amendment to increase the number of Common Shares available for awards under the Share Incentive Plan from 2,100,000 to 4,033,535 was approved at the 1997 Annual Shareholders' Meeting. All options granted have 10-year terms and vest over a 3-year period, with options to purchase up to 20% of the shares exercisable after the first anniversary, up to 50% after the second anniversary and 100% after the third anniversary of the date of grant.
Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997, 1996 and 1995, respectively: risk-free interest rate of 5.5%, 6.2% and 6.2%; dividend yield of 6.0%, 7.0% and 7.0%; volatility factor of the expected market price of the Common Shares of .155, .164 and .164; and a weighted-average expected life of the option of 3 years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee share options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee share options.
For purposes of pro forma disclosures, the estimated fair value of the options determined according to the Black-Scholes Option pricing model is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands, except for per share amounts): 1997 1996 1995 --------- --------- -------- Pro forma income available to common shareholders $ 55,538 $ 33,359 $ 19,392
Pro forma income per common share:
Basic $ 1.37 $ 1.13 $ 0.89 Diluted $ 1.36 $ 1.12 $ 0.89
Pro forma disclosures are not likely to be representative of the effects on reported net income for future years because of the staggered vesting periods of the options.
A summary of the Company's share option activity, and related information for the years ended December 31, 1997, 1996 and 1995 follows:
Exercise prices for options outstanding as of December 31, 1997 ranged from $19.75 to $26.95. The weighted-average remaining contractual life of those options is 7.7 years.
An additional 1,858,502, 511,887, and 632,400 Common Shares were reserved for issuance for future grants from the Share Incentive Plan at December 31, 1997, 1996 and 1995, respectively.
9. SHAREHOLDER'S RIGHTS PLAN
In December 1997, the Board of Directors of the Company adopted a shareholder rights plan (the "Shareholder Rights Plan"). Under the Shareholder Rights Plan, one Right (as defined in the Shareholder Rights Plan) was attached to each outstanding Common Share at the close of business on December 31, 1997. In addition, a Right will be attached to each share of Common Stock issued in the future. Each Right entitles the registered holder to purchase from the Company, under certain conditions, a unit (a "Rights Plan Unit") consisting of one one- thousandth of a share of a Series A Junior Participating Preferred Share, $0.0001 par value, (the "Junior Preferred Stock"), of the Company, for $100 per Rights Plan Unit, subject to adjustment. The Rights become exercisable only if a person or group of affiliated or associated persons (an "Acquiring Person") acquires, or obtains the right to acquire, beneficial ownership of Common Shares or other voting securities ("Voting Stock") that have 10% or more of the voting power of the outstanding shares of Voting Stock, or if an Acquiring Person commences with or makes an announcement of an intention to make a tender offer or exchange offer to acquire beneficial ownership of Voting Stock that have 10% or more of the voting power of the outstanding shares of Voting Stock. The Rights are redeemable by the Company at a price of $0.0001 per Right. If not exercised or redeemed, all Rights will expire on December 31, 2007.
10. COMMITMENTS AND CONTINGENCIES
All of the Properties were subject to Phase I Environmental Assessments ("Phase I Assessments") obtained in contemplation of their acquisition by the Company. The Phase I Assessments consisted of, among other activities, a visual inspection of each Property and its neighborhood and a check of pertinent public records. The Phase I
Assessments did not reveal, nor is the Company aware of, any non- compliance with environmental laws, environmental liability or other environmental claim that the Company believes would likely have a material adverse effect on the Company.
In connection with one of the 1997 acquisitions, the Company is obligated to purchase, over a 10-year period ending in 2007, approximately 800 acres of land for commercial development. The purchase price of the land is $17.5 million, plus accrued interest at 7.5% per annum, payable over 10 years ending in 2007.
The Trust is not a party to any material legal proceedings. In the ordinary course of business, the Operating Partnership is party to routine litigation incidental to its business and in addition it is covered by insurance.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results of operations for the two years ended December 31, 1997 and 1996 (in thousands, except per share amounts):
The 1996 and first three quarters of 1997 income per common share amounts have been restated to comply with Statement of Financial Accounting Standards No. 128, "Earnings per Share".
12. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information has been prepared assuming the 1997 Common and Preferred Shares Offerings and the acquisitions of 33 properties acquired in 1996, and 170 properties acquired in 1997 had occurred at January 1, 1996. The 1996 acquisitions
were acquired for a total investment of $132.9 million and the 1997 acquisitions were acquired for a total investment of $727.9 million.
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 -------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ------------------------ Total revenues $ 287,203 $ 255,424 Income available to common shareholders 72,328 56,545 Income per share - basic (1) $ 1.41 $ 1.18 Income per share - diluted (1) 1.40 1.18
(1) Income in the per share calculations has been computed after a deduction for minority interest.
This pro forma information is not necessarily indicative of what the actual results of operations of the Company would have been, assuming the Company had completed the Common Share Offering and the Preferred Shares Offering as of January 1, 1996, nor do they purport to represent the results of operations of the Company for future periods.
13. SUBSEQUENT EVENTS
On January 22, 1998, the Company sold $75.0 million principal amount of 6.375% notes due 2013. Such notes are subject to mandatory repayment of principal to the holders thereof in 2003 pursuant to a call/put option relating to such notes. On January 23, 1998, the Company sold $100.0 million principal amount of 7.50% notes due 2018. The aggregate net proceeds to the Company from such offerings were approximately $173.3 million.
On January 21, 1998, the Company consummated a public offering of 2,300,000 Common Shares. The aggregate net proceeds to the Company from such offering were approximately $60.4 million.
On February 23, 1998, the Company consummated a public offering of 1,702,128 Common Shares. The aggregate net proceeds to the Company from such offering were approximately $42.7 million.
LIBERTY PROPERTY TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997
LIBERTY PROPERTY TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997
LIBERTY PROPERTY TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997
SCHEDULE III
LIBERTY PROPERTY TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION (In thousands)
A summary of activity for real estate and accumulated depreciation is as follows:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 --------- ---------- ---------
REAL ESTATE: Balance at beginning of year $1,178,713 $ 920,230 $ 586,789 Additions 960,548 268,066 333,441 Disposition of property (42,924) (9,583) -- ---------- ---------- --------- Balance at end of year $2,096,337 $1,178,713 $ 920,230 ========== ========== =========
ACCUMULATED DEPRECIATION: Balance at beginning of year $ 119,151 $ 94,183 $ 74,508 Depreciation expense 35,981 24,968 19,675 Disposition of property (5,821) - - ---------- ---------- ---------
Balance at end of year $ 149,311 $ 119,151 $ 94,183 ========== ========== =========
REPORT OF INDEPENDENT AUDITORS
To The Partners Liberty Property Limited Partnership
We have audited the accompanying consolidated balance sheets of Liberty Property Limited Partnership ("the Operating Partnership") as of December 31, 1997, and 1996 , and the related consolidated statements of operations, owners' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Operating Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Liberty Property Limited Partnership at December 31, 1997 and 1996, the consolidated results of Liberty Property Limited Partnership's operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania ERNST & YOUNG LLP February 13, 1998, except for Note 10, as to which the date is February 23, 1998
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP (IN THOUSANDS)
DECEMBER 31, ------------------------- 1997 1996 ---------- ----------- ASSETS Real estate: Land and land improvements $ 238,519 $ 140,196 Buildings and improvements 1,639,821 908,835 Less accumulated depreciation (149,311) (119,151) ---------- ---------- Operating real estate 1,729,029 929,880
Development in progress 156,093 85,628 Land held for development 61,904 44,054 ---------- ---------- Net real estate 1,947,026 1,059,562
Cash and cash equivalents 55,079 19,612 Accounts receivable 6,517 7,007 Deferred financing and leasing costs, net of accumulated amortization (1997, $40,560; 1996, $30,985) 32,536 27,013 Prepaid expenses and other assets 53,179 39,418 ---------- ---------- Total assets $2,094,337 $1,152,612 ========== ========== LIABILITIES Mortgage loans $ 363,591 $ 240,803 Unsecured notes 350,000 - Lines of credit 135,000 266,692 Convertible debentures 111,543 171,214 Accounts payable 14,544 6,294 Accrued interest 10,960 7,411 Dividend payable 25,927 14,248 Other liabilities 42,499 28,923 ---------- ---------- Total liabilities 1,054,064 735,585
OWNERS' EQUITY General partner's equity 955,595 375,532 Limited partners' equity 84,678 41,495 ---------- ---------- Total owners' equity 1,040,273 417,027 ---------- ---------- Total liabilities and owners' equity $2,094,337 $1,152,612 ========== ========== See accompanying notes.
See accompanying notes.
See accompanying notes.
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
1. 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, the "Company"). At December 31, 1997, the Trust owned a 91.84% interest in the Operating Partnership as the sole general partner and a 0.02% interest as a limited partner. The Company provides leasing, property management, acquisition, development, construction management, and design management for a portfolio of industrial and office properties which are located principally within the Southeastern, Mid-Atlantic and Mid-Western United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation
The Consolidated Financial Statements of the Company include the accounts of the Operating Partnership and the Operating Partnership's direct and indirect subsidiaries including Liberty Property Development Corporation. All significant intercompany transactions and accounts have been eliminated.
Certain amounts from prior periods have been restated to conform to current year presentation.
Real Estate and Depreciation
The Properties are recorded at the lower of cost or fair value and are depreciated using the straight-line method over their estimated useful lives. The estimated lives are as follows:
Building and improvements 40 years Equipment 10 years Tenant improvements Term of the related lease
Expenditures directly related to acquisition, development or improvement of real estate are capitalized as a cost of the property. Expenditures for maintenance and repairs are charged to operations as incurred.
Cash and Cash Equivalents
Highly liquid investments with a maturity of three months or less when purchased are classified as cash equivalents. The carrying amount of these assets approximates their fair market value.
Revenues
The Company earns rental income under operating leases with tenants. Rental income is recognized on a straight-line basis over the applicable lease term.
Deferred Financing and Leasing Costs
Costs incurred in connection with financing or leasing are capitalized and amortized over the term of the related loan or lease. Amortization of deferred financing costs is reported as interest expense.
Income Taxes
In conformity with the Internal Revenue Code and applicable state and local tax statutes, taxable income or loss of the Operating Partnership is required to be reported in the tax returns of the partners in accordance with the terms of the Partnership Agreement and, accordingly, no provision has been made in the accompanying financial statements for any federal, state, or local income taxes.
3. REAL ESTATE
At December 31, 1997 and 1996, the Company owned and operated industrial and office properties located principally in suburban mixed use developments or business parks. The carrying value of these properties by type is as follows (in thousands):
Depreciation expense was $36.0 million in 1997,$25.0 million in 1996 and $19.7 million in 1995.
As of December 31, 1997 the Company has commenced development on 43 properties, which upon completion are expected to comprise approximately 4.1 million square feet of leaseable space. As of December 31, 1997 approximately $156.1 million has been expended for the development of these projects and an additional $148.8 million is required for completion.
4. RELATED PARTY TRANSACTIONS
An affiliated company provides construction services to the Company.
Amounts paid to this affiliate were $8.2 million in 1997, $29.7 million in 1996 and $6.2 million in 1995.
During 1995, three properties were purchased from partnerships in which officers of the Company had an interest. The officers received no financial consideration for the purchase.
Pursuant to agreements, the Company has been retained by an affiliate (Rouse Kent Limited) to provide development, management and other services. For the years ended December 31, 1997, 1996 and 1995, the fees for these services were $600,000 per year. Additionally, the Company committed to loans in 1996 to two affiliates (Rouse Kent Development Limited and 1 Tower View Limited) for development projects. At December 31, 1997, only one (1 Tower View Limited) of these loans, with a balance of $5.5 million, remained outstanding. As of December 31, 1996, the balance of these loans was $7.4 million.
5. MORTGAGE LOANS, UNSECURED NOTES, LINES OF CREDIT, AND CONVERTIBLE DEBENTURES
Long term indebtedness consists generally of mortgage loans, unsecured notes, lines of credit and convertible debentures. The average annualized interest rates for the years ended December 31, 1997, 1996 and 1995, were approximately 7.5%, 7.6% and 7.8%, respectively. Interest expense for the years ended December 31, 1997, 1996 and 1995, aggregated $53.9 million, $38.5 million and $37.7 million, respectively. Interest costs during these periods of $11.8 million, $7.7 million and $3.5 million were capitalized. Cash paid for interest for the years ended December 31, 1997, 1996 and 1995, was $54.9 million, $43.7 million $36.7 million, respectively.
Mortgage loans with maturities ranging from 1998 to 2013 are collateralized by and in some instances cross-collateralized by properties with a book value of $493.2 million. The interest rates on $344.4 million of mortgage loans are fixed and range from 6% to 9.13%. Interest rates on $19.2 million of mortgage loans float with Eurodollar or prime and are subject to certain caps. The weighted average interest rate on the mortgage loans is 7.7% and the weighted average remaining term is 8.3 years.
The aggregate maturities of the mortgage loans outstanding are as follows (in thousands):
1998 $ 13,443 1999 21,718 2000 32,451 2001 22,700 2002 6,044 Thereafter 267,235 -------- TOTAL $363,591 ========
The unsecured notes are comprised of $350 million principal amount of fixed rate unsecured notes with four maturities which are as follows: $50 million principal amount bears interest at 6.97% and is due 2003, $100 million principal amount bears interest at 7.1% and is due 2004, $100 million principal amount bears interest at 6.95% and is due 2006, and $100 million principal amount bears interest at 7.25% and is due 2007.
The line of credit is a $325 million unsecured credit facility (the "Credit Facility") which replaced two existing secured lines of credit aggregating $350 million in May 1997. Coincident with the replacement of the lines of credit, $2.9 million of related deferred financing costs were charged to interest expense. The interest rate on borrowings under the Credit Facility fluctuates, based on the Company's leverage levels and senior debt ratings from Moody's Investors Services, Inc. ("Moody's") and Standard & Poor's Ratings Group ("Standard & Poor's). The current ratings for the Company's senior unsecured debt are Baa3 and BBB- from Moody's and Standard & Poor's respectively. At these ratings, the current interest rate on the Credit Facility is 110 basis points over the Eurodollar Rate (7.09% at December 31, 1997). The rate for both lines of credit at December 31, 1996 was 7.13%. Customary fees apply to the Credit Facility including an annual administrative fee and an unused line fee.
The convertible debentures are due on June 23, 2001 and are exchangeable for the common shares of beneficial interest, of the Trust (the "Common Shares") at a rate of one Common Share for each $20 outstanding principal amount of convertible debentures, subject to certain adjustments. The initial interest rate on the convertible debentures was 8% and increases with increases in the dividend payment on the Company's Common Shares. At the current $.42 per share per quarter dividend payment rate, the effective interest rate on the convertible debentures is 8.4%. At December 31, 1996 the effective interest rate on the convertible debentures was 8.2%. During the year ended December 31, 1997, the Company paid sums aggregating $98,000 to facilitate the conversion of $17.3 million of debentures into 862,650 Common Shares. During the year ended December 31, 1997, $2.4 million of deferred financing costs relating to converted debentures were charged to additional paid-in capital. During the year ended December 31, 1996, the Company paid sums aggregating $1.0 million to facilitate the conversion of $58.7 million of convertible debentures into 2,934,300 Common Shares. During the year ended December 31, 1996, $2.9 million of related deferred financing costs were charged to additional paid-in capital. At December 31, 1997 and 1996 the convertible debentures were convertible into 5,577,150 Common Shares and 8,560,700 Common Shares, respectively.
The fair value of the convertible debentures at December 31, 1997 was $159.3 million based on the closing bid price of the Common Shares on the New York Stock Exchange. The fair values of the mortgages, unsecured notes and Credit Facility were estimated using discounted cash flow analysis, based on the Company's estimated incremental borrowing rate at December 31, 1997, for similar types of borrowing arrangements. The carrying values of the mortgages, unsecured notes and the Credit Facility approximate their fair values.
6. LEASING ACTIVITY
Future minimum rental payments due from tenants under non-cancellable operating leases as of December 31, 1997 are as follows (in thousands):
1998 $ 211,211 1999 186,375 2000 147,201 2001 109,323 2002 85,078 Thereafter 309,527 ---------- TOTAL $1,048,715 ==========
In addition to minimum rental payments, tenants pay for their pro rata share of specified operating expenses. These amounts are included as operating expense reimbursement in the accompanying statements of operations.
7. COMMITMENTS AND CONTINGENCIES
All of the Properties were subject to Phase I Environmental Assessments ("Phase I Assessments") obtained in contemplation their acquisition by the Company. The Phase I Assessments consisted of, among other activities, a visual inspection of each Property and its neighborhood and a check of pertinent public records. The Phase I Assessments did not reveal, nor is the Company aware of, any non- compliance with environmental laws, environmental liability or other environmental claim that the Company believes would likely have a material adverse effect on the Company.
In connection with one of the 1997 acquisitions, the Company is obligated to purchase, over a 10-year period ending in 2007, approximately 800 acres of land for commercial development. The purchase price of the land is $17.5 million, plus accrued interest at 7.5% per annum, payable over 10 years ending in 2007.
The Operating Partnership is not a party to any material legal proceedings. In the ordinary course of business, the Operating Partnership is party to routine litigation incidental to its business and in addition it is covered by insurance.
8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results of operations for the two years ended December 31, 1997 and 1996 (in thousands):
9. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information has been prepared assuming the 1997 Common and Preferred Shares Offerings and the acquisitions of 33 properties acquired in 1996 and 170 properties
acquired in 1997 had occurred at January 1, 1996. The 1996 acquisitions were acquired for a total investment of $132.9 and the 1997 acquisitions were acquired for a total investment of $727.9 million.
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 --------- ---------- (IN THOUSANDS) -----------------------
Total revenues $ 287,203 $ 255,424 Net income 90,543 74,066
This pro forma information is not necessarily indicative of what actual results of operations of the Company would have been, assuming the Company had completed the Common Shares Offering and the Preferred Shares Offerings as of January 1, 1996, nor do they purport to represent the results of operations of the Company for future periods.
10. SUBSEQUENT EVENTS
On Jannuary 22, 1998, the Company sold $75.0 million principal amount of 6.375% notes due 2013. Such notes are subject to mandatory repayment of principal to the holders thereof in 2003 pursuant to a call/put option relating to such notes. On January 23, 1998, the Company sold $100.0 million principal amount of 7.50% notes due 2018. The aggregate net proceeds to the Company from such offerings were approximately $173.3 million.
On January 21, 1998, the Company consummated a public offering of 2,300,000 Common Shares. The aggregate net proceeds to the Company from such offering were approximately $60.4 million.
On February 23, 1998, the Company consummated a public offering of 1,702,128 Common Shares. The aggregate net proceeds to the Company from such offering were approximately $42.7 million.
LIBERTY PROPERTY LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997
LIBERTY PROPERTY LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997
LIBERTY PROPERTY LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997
SCHEDULE III
LIBERTY PROPERTY LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION (In thousands)
A summary of activity for real estate and accumulated depreciation is as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------
1997 1996 1995 ---------- ---------- ---------
REAL ESTATE: Balance at beginning of year $1,178,713 $ 920,230 $ 586,789 Additions 960,548 268,066 333,441 Disposition of property (42,924) (9,583) -- ---------- ---------- ---------
Balance at end of year $2,096,337 $1,178,713 $ 920,230 ========== ========== =========
ACCUMULATED DEPRECIATION: Balance at beginning of year $ 119,151 $ 94,183 $ 74,508 Depreciation expense 35,981 24,968 19,675 Disposition of property (5,821) - - ---------- ---------- ---------
Balance at end of year $ 149,311 $ 119,151 $ 94,183 ========== ========== =========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - --------------------
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS - ------------------------------------------------------------- ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION - --------------------------------- ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND - -------------------------------------------------------------- MANAGEMENT - ---------- ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ---------------------------------------------------------
Except as set forth under the caption "Executive Officers" in Part I, the information required by Part III, Items 10, 11, 12 and 13 of Form 10-K, is hereby incorporated by reference to the Trust's definitive proxy statement for its Annual Meeting of Shareholders (other than the information called for by Item 402(i), (k) and (l) of Regulation S-K, which is not incorporated herein by reference) presently scheduled for May 20, 1998, which proxy statement will be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended not later than April 30, 1998, in accordance with General Instruction G(3) to Form 10- K.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------
The following consolidated Financial Statements of Liberty Property Trust and Liberty Property Limited Partnership are included in Item 8.
(A) 1. REPORTS OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS AND CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors - Liberty Property Trust - -------------------------------------------------------
Financial Statements - Liberty Property Trust - --------------------------------------------- Balance Sheets: Liberty Property Trust Consolidated as of December 31, 1997 and 1996
Statements of Operations: Liberty Property Trust Consolidated for the years ended December 31, 1997, 1996 and 1995
Statements of Shareholders' Equity: Liberty Property Trust Consolidated for the years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows: Liberty Property Trust Consolidated for the years ended December 31, 1997, 1996 and 1995
Notes to Financial Statements - Liberty Property Trust
Report of Independent Auditors - Liberty Property Limited Partnership - ---------------------------------------------------------------------
Financial Statements - Liberty Property Limited Partnership - ----------------------------------------------------------- Balance Sheets: Liberty Property Limited Partnership Consolidated as of December 31, 1997 and 1996
Statements of Operations: Liberty Property Limited Partnership Consolidated for the years ended December 31, 1997, 1996 and 1995
Statements of Owners' Equity: Liberty Property Limited Partnership Consolidated for the years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows: Liberty Property Limited Partnership Consolidated for the years ended December 31, 1997, 1996 and 1995
Notes to Financial Statements - Liberty Property Limited Partnership
2. FINANCIAL STATEMENT SCHEDULES:
Schedule III -- Real Estate and Accumulated Depreciation as of December 31, 1997 for Liberty Property Trust All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.
Schedule III -- Real Estate and Accumulated Depreciation as of December 31, 1997 for Liberty Property Limited Partnership All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.
3. EXHIBITS
The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed.
EXHIBIT NO. DESCRIPTION - ------------- --------------------------------------------------
3.1.1 Amended and Restated Declaration of Trust of the Trust (Incorporated by reference to Exhibit 3.1.1 filed with the Registrants' Current Report on Form 8-K filed with the Commission on June 25, 1997 (the "June 25, 1997 Form 8-K")).
EXHIBIT NO. DESCRIPTION - ------------- --------------------------------------------------
3.1.2 Articles Supplementary to the Amended and Restated Declaration of Trust of the Trust Establishing and Fixing the Rights and Preferences of a Series of Preferred Shares of Beneficial Interest (Incorporated by reference to Exhibit 1 filed with the Trust's Registration Statement on Form 8- A filed with the Commission on August 8, 1997) (the "August 1997 Form 8-A").
3.1.3 Articles Supplementary to the Amended and Restated Declaration of Trust of the Trust Relating to Designation, Preferences, and Rights of Series A Junior Participating Preferred Shares of the Trust.
3.1.4 Second Restated and Amended Agreement of Limited Partnership of the Operating Partnership, dated as of October 22, 1997 (Incorporated by reference to Exhibit 3.1.1 filed with the Registrants' Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997 (the "Third Quarter 1997 Form 10-Q")).
3.1.5 Amended and Restated Exhibit A to the Second Restated and Amended Agreement of Limited Partnership of the Operating Partnership.
3.2 Amended and Restated By-laws of the Trust (Incorporated by reference to Exhibit 3.2 filed with the Trust's Registration Statement on Form S- 11, filed with the Commission on March 30, 1994 (the "Form S-11").
4.1 Rights Agreement, dated as of December 17, 1997, by and between the Trust and the Rights Agent (Incorporated by reference to Exhibit 1 filed with the Trust's Registration Statement on Form 8-A filed with the Commission on December 23, 1997).
4.2 Indenture between the Operating Partnership and Bank of Boston, as Trustee, including Guaranty Provisions and Form of Debenture (Incorporated by reference to Exhibit 4.1 filed with the Form S- 11).
4.3 Indenture (the "First Indenture"), dated as of August 14, 1997, between the Operating Partnership, as Obligor, and The First National Bank of Chicago ("First Chicago"), as Trustee (Incorporated by reference to Exhibit 10.1 filed with the Third Quarter 1997 Form 10-Q).
4.4 First Supplemental Indenture, dated as of August 14, 1997, between the Operating Partnership, as Issuer, and First Chicago, as Trustee, supplementing the First Indenture and relating to $100,000,000 principal amount of the 7.10% Senior Notes due 2004 and $100,000,000 principal amount
EXHIBIT NO. DESCRIPTION - ------------- -------------------------------------------------- 4.4 - Continued of the 7.25% Senior Notes due 2007 of the Operating Partnership (Incorporated by reference to Exhibit 10.2 filed with the Third Quarter 1997 Form 10-Q).
4.5 Senior Indenture (the "Second Indenture"), dated as of October 24, 1997, between the Operating Partnership, as Obligor, and First Chicago, as Trustee (Incorporated by reference to Exhibit 10.3 filed with the Third Quarter 1997 Form 10-Q).
4.6 First Supplemental Indenture, dated as of October 24, 1997, between the Operating Partnership, as Issuer, and First Chicago, as Trustee, supplementing the Second Indenture and relating to the Fixed Rate and Floating Rate Medium-Term Notes due Nine Months or More from Date of Issue of the Operating Partnership (Incorporated by reference to Exhibit 10.4 filed with the Third Quarter 1997 Form 10-Q).
4.7 Note, Relating to the Issuance by the Operating Partnership, on December 9, 1997, of $100 Million Principal Amount of its 6.95% Medium-Term Notes due 2006.
4.8 Note, Relating to the Issuance by the Operating Partnership, on December 11, 1997, of $50 Million Principal Amount of its 6.97% Medium-Term Notes due 2003.
10.1 Liberty Property Trust Amended and Restated Share Incentive Plan (Incorporated by reference to Exhibit 10.1 filed with the June 25, 1997 Form 8- K).
10.5 Contribution Agreement (Incorporated by reference to Exhibit 10.5 filed with the Form S-11).
10.6 Amended and Restated Limited Partnership Agreements of Pre-existing Pennsylvania Partnerships (Incorporated by reference to Exhibit 10.6 filed with the Form S-11).
10.7 Agreement of Sale for the Acquisition Properties (Incorporated by reference to Exhibit 10.7 filed with the Form S-11).
10.8 Option Agreement and Right of First Offer (Incorporated by reference to Exhibit 10.8 filed with the Form S-11).
10.9 Form of Indemnity Agreement (Incorporated by reference to Exhibit 10.9 filed with the Form S- 11).
EXHIBIT NO. DESCRIPTION - ------------- --------------------------------------------------
10.10 Contribution Agreement among the Trust, the Operating Partnership and the Contributing Owners described therein, related to the Lingerfelt Properties (Incorporated by reference to Exhibit 10.1 filed with the Registrants' Current Report on Form 8-K filed with the Commission on March 3, 1995.
10.11 Amended and Restated Loan Agreement, dated as of June 16, 1997, by and among the Operating Partnership, the Trust, the Banks named therein and Bank Boston, N.A., as agent for itself and the other lending institutions (Incorporated by reference to Exhibit 10 filed with the August 1997 Form 8-A).
21 Subsidiaries.
23.1 Consent of Ernst & Young LLP relating to financial statements of the Trust.
23.2 Consent of Ernst & Young LLP relating to financial statements of the Operating Partnership.
27 Financial Data Schedule (EDGAR version only).
(B) REPORTS ON FORM 8-K
REPORTS ON FORM 8-K -------------------
Report on Form 8-K dated November 4, 1997 filed under Items 5 and 7 of Form 8-K relating to the acquisition of two properties during the period from August 14, 1997 to September 11, 1997. The report included a Combined Statement of Operating Revenue and Certain Operating Expenses for a majority of the properties, Pro Forma Condensed Consolidated Balance Sheets for Liberty Property Trust and Liberty Property Limited Partnership, and Pro Forma Consolidated Statements of Operations for Liberty Property Trust and Liberty Property Limited Partnership.
Report on Form 8-K dated November 13, 1997 under Items 5 and 7 on Form 8-K relating to the acquisition of seven properties on May 13, 1997. The report included a Combined Statement of Operating Revenue and Certain Operating Expenses for a majority of the properties, Pro Forma Condensed Consolidated Balance Sheets for Liberty Property Trust and Liberty Property Limited Partnership, and Pro Forma Consolidated Statements of Operations for Liberty Property Trust and Liberty Property Limited Partnership.
Report on Form 8-K dated November 17, 1997 filed under Items 5 and 7 of Form 8-K relating to a public offering of eight million Common Shares on November 13, 1997.
Report on Form 8-K dated November 19, 1997 filed under Items 5 and 7 of Form 8-K relating to the acquisition of 22 properties on November 13, 1997. The report included a Combined Statement of Operating Revenue and Certain Operating Expenses for a majority of the properties, Pro Forma Condensed Consolidated Balance Sheets for Liberty Property Trust and
Liberty Property Limited Partnership, and Pro Forma Consolidated Statements of Operations for Liberty Property Trust and Liberty Property Limited Partnership.
Report on Form 8-K dated December 11, 1997 filed under Items 5 and 7 of Form 8-K relating to the acquisition of two properties on November 26, 1996. The report included a Combined Statement of Operating Revenue and Certain Operating Expenses for a majority of the properties, Pro Forma Condensed Consolidated Balance Sheets for Liberty Property Trust and Liberty Property Limited Partnership, and Pro Forma Consolidated Statements of Operations for Liberty Property Trust and Liberty Property Limited Partnership.
Report on Form 8-K dated December 15, 1997 filed under Items 5 and 7 of Form 8-K relating to a public offering of 796,505 Common Shares on December 11, 1997.
Report on Form 8-K dated December 18, 1997 (as amended by a Form 8- K/A filed on December 23, 1997) filed under Items 5 and 7 on Form 8-K relating to the Trust's Shareholder's Rights Plan, dated December 17, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LIBERTY PROPERTY TRUST
Date: February 27, 1998 By: /s/ WILLARD G. ROUSE III -------------------------------------- WILLARD G. ROUSE III CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Chairman of the Board of Trustees and Chief Executive Officer (Principal Executive /s/ Willard G. Rouse III Officer) February 27, 1998 - --------------------------- Willard G. Rouse III
Chief Financial Officer and Treasurer (Principal Financial and Accounting /s/ George J. Alburger, Jr. Officer) February 27, 1998 - --------------------------- George J. Alburger, Jr.
/s/ Joseph P. Denny Trustee February 27, 1998 - --------------------------- Joseph P. Denny
/s/ George F. Congdon Trustee February 27, 1998 - --------------------------- George F. Congdon
/s/ M. Leanne Lachman Trustee February 27, 1998 - --------------------------- M. Leanne Lachman
/s/ Frederick F. Buchholz Trustee February 27, 1998 - --------------------------- Frederick F. Buchholz
/s/ J. Anthony Hayden Trustee February 27, 1998 - --------------------------- J. Anthony Hayden
/s/ David L. Lingerfelt Trustee February 27, 1998 - --------------------------- David L. Lingerfelt
/s/ John A. Miller Trustee February 27, 1998 - --------------------------- John A. Miller, CLU
/s/ Stephen B. Siegel Trustee February 27, 1998 - --------------------------- Stephen B. Siegel
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LIBERTY PROPERTY LIMITED PARTNERSHIP BY: Liberty Property Trust General Partner
Date: February 27, 1998 By: /s/ WILLARD G. ROUSE III -------------------------------------- WILLARD G. ROUSE III CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Trustee of the /s/ Joseph P. Denny General Partner February 27, 1998 - --------------------------- Joseph P. Denny
Trustee of the /s/ George F. Congdon General Partner February 27, 1998 - --------------------------- George F. Congdon
Trustee of the /s/ M. Leanne Lachman General Partner February 27, 1998 - --------------------------- M. Leanne Lachman
Trustee of the /s/ Frederick F. Buchholz General Partner February 27, 1998 - --------------------------- Frederick F. Buchholz
Trustee of the /s/ J. Anthony Hayden General Partner February 27, 1998 - --------------------------- J. Anthony Hayden
Trustee of the /s/ David L. Lingerfelt General Partner February 27, 1998 - --------------------------- David L. Lingerfelt
Trustee of the /s/ John A. Miller General Partner February 27, 1998 - --------------------------- John A. Miller, CLU
Trustee of the /s/ Stephen B. Siegel General Partner February 27, 1998 - --------------------------- Stephen B. Siegel
EXHIBIT INDEX -------------
EXHIBIT NO. DESCRIPTION - ------------- --------------------------------------------------
3.1.3 Articles Supplementary to the Amended and Restated Declaration of Trust of the Trust Relating to Designation, Preferences, and Rights of Series A Junior Participating Preferred Shares of the Trust.
3.1.5 Amended and Restated Exhibit A to the Second Restated and Amended Agreement of Limited Partnership of the Operating Partnership.
4.7 Note, Relating to the Issuance by the Operating Partnership, on December 9, 1997, of $100 Million Principal Amount of its 6.95% Medium-Term Notes due 2006.
4.8 Note, Relating to the Issuance by the Operating Partnership, on December 11, 1997, of $50 Million Principal Amount of its 6.97% Medium-Term Notes due 2003.
21 Subsidiaries.
23.1 Consent of Ernst & Young LLP relating to financial statements of the Trust.
23.2 Consent of Ernst & Young LLP relating to financial statements of the Operating Partnership.
27 Financial Data Schedule (EDGAR version only).