##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2003

OR

o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934


For the transition period from _______________ to __________________

Commission file numbers:
    
    1-13130 (Liberty Property Trust)1-13132 (Liberty Property Limited Partnership)




---

LIBERTY PROPERTY TRUST
LIBERTY PROPERTY LIMITED PARTNERSHIP



---

(Exact name of registrants as specified in their governing documents)

MARYLAND(Liberty Property Trust)PENNSYLVANIA(Liberty Property Limited Partnership)
    
    23-7768996
23-2766549(State or other jurisdiction
of incorporation or organization)
    
    (I.R.S. Employer
Identification Number)65 Valley Stream Parkway, Suite 100,
Malvern, Pennsylvania
    
    19355(Address of Principal Executive Offices)
    
    (Zip Code)Registrants Telephone Number, Including Area Code
    
    (610) 648-1700


Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrants were required to file such reports) and (2) have been subject
to such filing requirements for the past ninety (90) days. Yes
þ NO o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes
þ NO o

On November 6, 2003, 80,121,300 Common Shares of Beneficial Interest, par value
$.001 per share, of Liberty Property Trust were outstanding.





---



##### 



Liberty Property Trust/Liberty Property Limited Partnership
Form 10-Q for the period ended September 30, 2003

Index
    
    
    
    
    PagePart I.
    
    Financial InformationItem 1.
    
    Financial Statements (unaudited)Consolidated balance sheets of Liberty Property Trust at September 30, 2003 and December 31, 2002
    
    
    3Consolidated statements of operations of Liberty Property Trust for the three months
ended September 30, 2003 and September 30, 2002
    
    
    4Consolidated statements of operations of Liberty Property Trust for the nine months
ended September 30, 2003 and September 30, 2002
    
    
    5Consolidated statements of cash flows of Liberty Property Trust for the nine months
ended September 30, 2003 and September 30, 2002
    
    
    6Notes to Consolidated Financial Statements for Liberty Property Trust
    
    
    7Consolidated balance sheets of Liberty Property Limited Partnership at September 30,
2003 and December 31, 2002
    
    
    12Consolidated statements of operations of Liberty Property Limited Partnership for
the three months ended September 30, 2003 and September 30, 2002
    
    
    13Consolidated statements of operations of Liberty Property Limited Partnership for
the nine months ended September 30, 2003 and September 30, 2002
    
    
    14Consolidated statements of cash flows of Liberty Property Limited Partnership for
the nine months ended September 30, 2003 and September 30, 2002
    
    
    15Notes to Consolidated Financial Statements for Liberty Property Limited Partnership
    
    
    16Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risks
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    27Part II.
    
    Other Information
    
    
    29Signatures for Liberty Property Trust
    
    
    31Signatures for Liberty Property Limited Partnership
    
    
    32Exhibit Index
    
    
    33


2



---



##### 



CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(In thousands, except share amounts)

September 30, 2003
    
    
    December 31, 2002(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    551,989
    
    
    $
    504,808Buildings and improvements
    
    
    3,295,038
    
    
    
    3,048,676Less accumulated depreciation
    
    
    (559,918
    )
    
    
    (485,206
    )Operating real estate
    
    
    3,287,109
    
    
    
    3,068,278Development in progress
    
    
    33,241
    
    
    
    163,379Land held for development
    
    
    165,837
    
    
    
    163,142Net real estate
    
    
    3,486,187
    
    
    
    3,394,799Cash and cash equivalents
    
    
    43,750
    
    
    
    11,071Accounts receivable
    
    
    6,032
    
    
    
    14,349Deferred rent receivable
    
    
    55,629
    
    
    
    48,775Deferred financing and leasing costs, net of accumulated amortization
(2003, $85,002; 2002, $75,833)
    
    
    82,459
    
    
    
    71,544Investment in unconsolidated joint ventures
    
    
    17,861
    
    
    
    14,963Prepaid expenses and other assets
    
    
    63,908
    
    
    
    71,560Total assets
    
    $
    3,755,826
    
    
    $
    3,627,061LIABILITIESMortgage loans
    
    $
    360,741
    
    
    $
    315,263Unsecured notes
    
    
    1,405,000
    
    
    
    1,418,924Credit facility
    
    
    152,000
    
    
    
    132,000Accounts payable
    
    
    40,800
    
    
    
    24,116Accrued interest
    
    
    19,889
    
    
    
    32,571Dividend payable
    
    
    50,326
    
    
    
    48,040Other liabilities
    
    
    94,419
    
    
    
    91,315Total liabilities
    
    
    2,123,175
    
    
    
    2,062,229Minority interest
    
    
    204,694
    
    
    
    208,439SHAREHOLDERS EQUITYCommon shares of beneficial interest, $.001 par value, 191,200,000
shares authorized, 79,671,693 (includes 59,100 in treasury) and
76,484,612 (includes 59,100 in treasury) shares issued and
outstanding as of September 30, 2003 and December 31, 2002,
respectively
    
    
    80
    
    
    
    76Additional paid-in capital
    
    
    1,499,155
    
    
    
    1,410,900Accumulated other comprehensive income
    
    
    6,239
    
    
    
    4,804Unearned compensation
    
    
    (3,752
    )
    
    
    (1,750
    )Distributions in excess of net income
    
    
    (72,438
    )
    
    
    (56,310
    )Common shares in treasury, at cost, 59,100 shares as of September 30,
2003 and December 31, 2002
    
    
    (1,327
    )
    
    
    (1,327
    )Total shareholders equity
    
    
    1,427,957
    
    
    
    1,356,393Total liabilities and shareholders equity
    
    $
    3,755,826
    
    
    $
    3,627,061


See accompanying notes.

3



---



##### 



CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)

Three Months EndedSeptember 30, 2003
    
    
    September 30, 2002(Restated)REVENUERental
    
    $
    114,778
    
    
    $
    113,191Operating expense reimbursement
    
    
    43,092
    
    
    
    40,811Equity in earnings of unconsolidated joint ventures
    
    
    440
    
    
    
    Interest and other
    
    
    1,486
    
    
    
    2,088Total revenue
    
    
    159,796
    
    
    
    156,090EXPENSESRental property
    
    
    30,489
    
    
    
    27,178Real estate taxes
    
    
    16,348
    
    
    
    15,779Interest
    
    
    31,153
    
    
    
    29,147General and administrative
    
    
    6,542
    
    
    
    5,088Depreciation and amortization
    
    
    30,735
    
    
    
    27,938Total expenses
    
    
    115,267
    
    
    
    105,130Income before property dispositions, income taxes and minority interest
    
    
    44,529
    
    
    
    50,960Loss on property dispositions
    
    
    (312
    )
    
    
    (5,414
    )Income taxes
    
    
    (526
    )
    
    
    (184
    )Minority interest
    
    
    (4,965
    )
    
    
    (5,000
    )Income from continuing operations
    
    
    38,726
    
    
    
    40,362Discontinued operations net of minority interest (including net gain on
property dispositions of $418 for the quarter ended September 30,
2003 and $528 for the quarter ended September 30, 2002)
    
    
    383
    
    
    
    1,278Net income
    
    
    39,109
    
    
    
    41,640Preferred share distributions
    
    
    
    
    
    
    (1,742
    )Excess of preferred share redemption over carrying amount
    
    
    
    
    
    
    (4,186
    )Income available to common shareholders
    
    $
    39,109
    
    
    $
    35,712Earnings per shareBasic:Income from continuing operations
    
    $
    0.49
    
    
    $
    0.45Income from discontinued operations
    
    
    0.01
    
    
    
    0.02Income per common share  basic
    
    $
    0.50
    
    
    $
    0.47Diluted:Income from continuing operations
    
    $
    0.48
    
    
    $
    0.45Income from discontinued operations
    
    
    0.01
    
    
    
    0.02Income per common share  diluted
    
    $
    0.49
    
    
    $
    0.47Distributions per common share
    
    $
    0.605
    
    
    $
    0.60Weighted average number of common shares outstandingBasic
    
    
    78,949
    
    
    
    75,451Diluted
    
    
    80,317
    
    
    
    76,651


See accompanying notes.

4



---



##### 



CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)

Nine Months EndedSeptember 30, 2003
    
    
    September 30, 2002(Restated)REVENUERental
    
    $
    336,846
    
    
    $
    324,929Operating expense reimbursement
    
    
    127,594
    
    
    
    119,875Equity in earnings of unconsolidated joint ventures
    
    
    1,355
    
    
    
    Interest and other
    
    
    5,637
    
    
    
    5,692Total revenue
    
    
    471,432
    
    
    
    450,496EXPENSESRental property
    
    
    90,921
    
    
    
    82,077Real estate taxes
    
    
    46,560
    
    
    
    44,571Interest
    
    
    92,587
    
    
    
    85,222General and administrative
    
    
    20,749
    
    
    
    16,414Depreciation and amortization
    
    
    90,662
    
    
    
    81,512Total expenses
    
    
    341,479
    
    
    
    309,796Income before property dispositions, income taxes and minority interest
    
    
    129,953
    
    
    
    140,700Gain (loss) on property dispositions
    
    
    292
    
    
    
    (4,172
    )Income taxes
    
    
    (1,587
    )
    
    
    (462
    )Minority interest
    
    
    (15,235
    )
    
    
    (15,530
    )Income from continuing operations
    
    
    113,423
    
    
    
    120,536Discontinued operations net of minority interest (including net gain
on property dispositions of $11,668 for the nine months ended
September 30, 2003 and $6,197 for the nine months ended
September 30, 2002)
    
    
    12,302
    
    
    
    7,808Net income
    
    
    125,725
    
    
    
    128,344Preferred share distributions
    
    
    
    
    
    
    (7,242
    )Excess of preferred share redemption over carrying amount
    
    
    
    
    
    
    (4,186
    )Income available to common shareholders
    
    $
    125,725
    
    
    $
    116,916Earnings per shareBasic:Income from continuing operations
    
    $
    1.45
    
    
    $
    1.46Income from discontinued operations
    
    
    0.16
    
    
    
    0.11Income per common share  basic
    
    $
    1.61
    
    
    $
    1.57Diluted:Income from continuing operations
    
    $
    1.43
    
    
    $
    1.44Income from discontinued operations
    
    
    0.16
    
    
    
    0.10Income per common share  diluted
    
    $
    1.59
    
    
    $
    1.54Distributions per common share
    
    $
    1.805
    
    
    $
    1.78Weighted average number of common shares outstandingBasic
    
    
    77,939
    
    
    
    74,663Diluted
    
    
    79,164
    
    
    
    75,972


See accompanying notes.

5



---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)

Nine Months EndedSeptember 30, 2003
    
    
    September 30, 2002OPERATING ACTIVITIESNet income
    
    $
    125,725
    
    
    $
    128,344Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    91,069
    
    
    
    82,393Amortization of deferred financing costs
    
    
    3,027
    
    
    
    2,881Equity in earnings of unconsolidated joint ventures
    
    
    (1,355
    )
    
    
    Minority interest in net income
    
    
    15,819
    
    
    
    15,928Gain on property dispositions
    
    
    (11,960
    )
    
    
    (2,025
    )Noncash compensation
    
    
    2,496
    
    
    
    1,654Changes in operating assets and liabilities:Accounts receivable
    
    
    8,533
    
    
    
    3,170Deferred rent receivable
    
    
    (6,854
    )
    
    
    (8,096
    )Prepaid expenses and other assets
    
    
    (11,260
    )
    
    
    (25,416
    )Accounts payable
    
    
    (3,035
    )
    
    
    16,789Accrued interest
    
    
    (12,682
    )
    
    
    (11,194
    )Other liabilities
    
    
    3,104
    
    
    
    12,383Net cash provided by operating activities
    
    
    202,627
    
    
    
    216,811INVESTING ACTIVITIESInvestment in properties
    
    
    (68,324
    )
    
    
    (79,797
    )Cash paid for business, net of cash acquired
    
    
    16,627
    
    
    
    Investment in unconsolidated joint ventures
    
    
    (3,099
    )
    
    
    Distributions from unconsolidated joint ventures
    
    
    2,707
    
    
    
    Proceeds from disposition of properties/land
    
    
    42,333
    
    
    
    61,843Investment in development in progress
    
    
    (43,422
    )
    
    
    (133,706
    )Investment in land held for development
    
    
    (11,829
    )
    
    
    (24,405
    )Increase in deferred leasing costs
    
    
    (16,987
    )
    
    
    (16,129
    )Net cash used in investing activities
    
    
    (81,994
    )
    
    
    (192,194
    )FINANCING ACTIVITIESNet proceeds from issuance of common shares
    
    
    83,701
    
    
    
    51,985Proceeds from issuance of preferred units
    
    
    
    
    
    
    22,954Proceeds from issuance of unsecured notes
    
    
    3,683
    
    
    
    150,000Repayments of unsecured notes
    
    
    (23,739
    )
    
    
    (100,000
    )Redemption of preferred shares
    
    
    
    
    
    
    (125,063
    )Proceeds from mortgage loans
    
    
    924
    
    
    
    3,446Repayments of mortgage loans
    
    
    (8,623
    )
    
    
    (5,834
    )Proceeds from credit facility
    
    
    327,850
    
    
    
    391,000Repayments on credit facility
    
    
    (307,850
    )
    
    
    (256,000
    )Increase in deferred financing costs
    
    
    (2,563
    )
    
    
    (1,823
    )Distributions paid on common shares
    
    
    (139,204
    )
    
    
    (131,469
    )Distributions paid on preferred shares
    
    
    
    
    
    
    (9,075
    )Distributions paid on units
    
    
    (20,579
    )
    
    
    (15,398
    )Net cash used in financing activities
    
    
    (86,400
    )
    
    
    (25,277
    )Increase (decrease) in cash and cash equivalents
    
    
    34,233
    
    
    
    (660
    )Effect of exchange rate changes on cash
    
    
    (1,554
    )
    
    
    (3,124
    )Cash and cash equivalents at beginning of period
    
    
    11,071
    
    
    
    19,390Cash and cash equivalents at end of period
    
    $
    43,750
    
    
    $
    15,606SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    11,801
    
    
    $
    3,565Acquisition of properties
    
    
    (15,284
    )
    
    
    Assumption of mortgage loans
    
    
    15,284
    
    
    
    Issuance of operating partnership units for property acquisition
    
    
    1,151
    
    
    
    


See accompanying notes.

6



---



##### 



Liberty Property Trust
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2003

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements of Liberty
Property Trust (the Trust) and its subsidiaries, including Liberty Property
Limited Partnership (the Operating Partnership) (the Trust, Operating
Partnership and their respective subsidiaries referred to collectively as the
Company), have been prepared in accordance with accounting principles
generally accepted in the United States (US GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by US GAAP for complete financial statements and should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Annual Report on Form 10-K of the Trust and the Operating
Partnership for the year ended December 31, 2002. In the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial statements for these interim periods
have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full fiscal year. Certain
amounts from prior periods have been reclassified to conform to current period
presentation. Results for the three and nine months ended September 30, 2002
have been restated to reflect recent guidance and clarifications by the
Securities and Exchange Commission (SEC). The SECs July 31, 2003
clarification of certain issues surrounding the Financial Standards Boards
(FASB) EITF Topic D-42, The Effect on Calculation of Earnings per Share for
the Redemption or Induced Conversion of Preferred Stock, requires the excess
of preferred share redemption over carrying amount to be classified as a
reduction in income available to common shareholders.

Income per Share
The following table sets forth the computation of basic and diluted income per
common share for the three and nine months ended September 30, 2003 and 2002
(in thousands except per share amounts):

For the Three Months Ended September 30, 2003
    
    
    For the Three Months Ended September 30, 2002Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountNet income
    
    $
    39,109
    
    
    
    
    
    
    
    
    
    
    $
    41,640Less: Preferred share distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,742
    )Excess of preferred share redemption
over carrying amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,186
    )Basic income per common shareIncome available to common
shareholders
    
    
    39,109
    
    
    
    78,949
    
    
    $
    0.50
    
    
    
    35,712
    
    
    
    75,451
    
    
    $
    0.47Dilutive shares for long-term
compensation plans
    
    
    
    
    
    
    1,368
    
    
    
    
    
    
    
    
    
    
    
    1,200Diluted income per common shareIncome available to common
shareholders
and assumed conversions
    
    $
    39,109
    
    
    
    80,317
    
    
    $
    0.49
    
    
    $
    35,712
    
    
    
    76,651
    
    
    $
    0.47


7



---



##### 



For the Nine Months Ended September 30, 2003
    
    
    For the Nine Months Ended September 30, 2002Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountNet income
    
    $
    125,725
    
    
    
    
    
    
    
    
    
    
    $
    128,344Less: Preferred share distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,242
    )Excess of preferred share redemption
over carrying amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,186
    )Basic income per common shareIncome available to common
shareholders
    
    
    125,725
    
    
    
    77,939
    
    
    $
    1.61
    
    
    
    116,916
    
    
    
    74,663
    
    
    $
    1.57Dilutive shares for long-term
compensation plans
    
    
    
    
    
    
    1,225
    
    
    
    
    
    
    
    
    
    
    
    1,309Diluted
income per common shareIncome available to common
shareholders
and assumed conversions
    
    $
    125,725
    
    
    
    79,164
    
    
    $
    1.59
    
    
    $
    116,916
    
    
    
    75,972
    
    
    $
    1.54


Stock Based Compensation
At September 30, 2003, the Company had a share-based employee compensation
plan. Prior to 2003, the Company accounted for the plan under the recognition
and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued
to Employees, and related Interpretations. No share-based employee
compensation cost is reflected in 2002 net income, as all options granted under
this plan had an exercise price equal to the market value of the underlying
common share on the date of grant. Effective January 1, 2003, the Company
adopted the fair value recognition provisions of the FASBs Statement of
Financial Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, prospectively to all employee option awards granted, modified,
or settled after January 1, 2003. Option awards under the Companys plan vest
over three years. Therefore, the cost related to share-based employee
compensation included in the determination of net income for 2002 and 2003 is
less than that which would have been recognized if the fair value based method
had been applied to all option awards since the original effective date of SFAS
No. 123. The following table illustrates the effect on net income and earnings
per share if the fair value based method had been applied to all outstanding
and unvested option awards in each period.

Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2003
    
    
    2002
    
    
    2003
    
    
    2002Income available to common shareholders
    
    $
    39,109
    
    
    $
    35,712
    
    
    $
    125,725
    
    
    $
    116,916Add: Share-based employee compensation expense included in
reported net income
    
    
    23
    
    
    
    
    
    
    
    372
    
    
    
    Deduct: Total share-based employee compensation expense determined
under fair value based method for all awards
    
    
    (344
    )
    
    
    (558
    )
    
    
    (1,184
    )
    
    
    (1,577
    )Pro forma net income
    
    $
    38,788
    
    
    $
    35,154
    
    
    $
    124,913
    
    
    $
    115,339Earnings per share:Basic-as reported
    
    $
    0.50
    
    
    $
    0.47
    
    
    $
    1.61
    
    
    $
    1.57Basic-pro forma
    
    $
    0.49
    
    
    $
    0.47
    
    
    $
    1.60
    
    
    $
    1.54Diluted-as reported
    
    $
    0.49
    
    
    $
    0.47
    
    
    $
    1.59
    
    
    $
    1.54Diluted-pro forma
    
    $
    0.48
    
    
    $
    0.46
    
    
    $
    1.58
    
    
    $
    1.52


Foreign Operations
The functional currency for the Companys United Kingdom operation is pounds
sterling. The United Kingdom operations translate their financial statements
into US dollars prior to the consolidation of these financial statements with
those of the Company. Gains and losses resulting from this translation are
included in accumulated other comprehensive income as a separate component of
shareholders equity. Comprehensive income was $0.6 million and $2.0 million
for the three months ended September 30, 2003 and 2002, respectively.
Comprehensive income was $1.0 million and $7.0 million for the nine months
ended September 30, 2003 and 2002, respectively.

8



---



##### 



Note 2: Organization

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 the Operating Partnership. The Trust is
the sole general partner and also a limited partner of the Operating
Partnership, owning 95.6% of the common equity of the Operating Partnership at
September 30, 2003. The Company provides leasing, property management,
development, acquisition, and other tenant-related services for a portfolio of
industrial and office properties which are located principally within the
Southeastern, Mid-Atlantic and Midwestern United States.

Note 3: Segment Information

The Company reviews the performance of the portfolio on a geographical basis.
The following regions are considered the Companys reportable segments:
Southeastern Pennsylvania; New Jersey; Lehigh Valley, Pennsylvania; Virginia;
the Carolinas; Jacksonville, Florida; Minneapolis, Minnesota; Detroit,
Michigan; and all others combined (including Maryland; Tampa, Florida; South
Florida; and the United Kingdom). The Companys reportable segments are
distinct business units which are each managed separately in order to
concentrate market knowledge within a geographical area. Within these
reportable segments, the Company derives its revenues from its two product
types: industrial properties and office properties.

The Company evaluates the performance of the reportable segments based on
property level operating income, which is calculated as rental revenue and
operating expense reimbursement less rental property expenses and real estate
taxes. The accounting policies of the reportable segments are the same as those
for the Company on a consolidated basis. The operating information by segment
is as follows (in thousands):

For the Three Months Ended September 30, 2003SE Pennsyl.
    
    
    New Jersey
    
    
    Lehigh Valley
    
    
    Virginia
    
    
    The Carolinas
    
    
    Jacksonville
    
    
    Minnesota
    
    
    Michigan
    
    
    All Others
    
    
    TotalReal estate related
revenues
    
    
    $ 45,339
    
    
    
    $ 8,850
    
    
    
    $ 18,042
    
    
    
    $ 12,831
    
    
    
    $ 10,973
    
    
    
    $ 12,576
    
    
    
    $ 12,278
    
    
    
    $ 17,652
    
    
    
    $ 19,329
    
    
    
    $ 157,870Rental property
expenses and real
estate taxes
    
    
    13,071
    
    
    
    3,087
    
    
    
    4,620
    
    
    
    3,456
    
    
    
    2,539
    
    
    
    3,460
    
    
    
    4,857
    
    
    
    5,972
    
    
    
    5,775
    
    
    
    46,837Property level
operating income
    
    
    $ 32,268
    
    
    
    $ 5,763
    
    
    
    $ 13,422
    
    
    
    $ 9,375
    
    
    
    $ 8,434
    
    
    
    $ 9,116
    
    
    
    $ 7,421
    
    
    
    $ 11,680
    
    
    
    $ 13,554
    
    
    
    111,033Other income/expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,504Income before property dispositions, income taxes and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,529Loss on disposition of properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (312
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (526
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,965
    )Discontinued operations net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    383Income available to common shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ 39,109


For the Three Months Ended September 30, 2002SE Pennsyl.
    
    
    New Jersey
    
    
    Lehigh Valley
    
    
    Virginia
    
    
    The Carolinas
    
    
    Jacksonville
    
    
    Minnesota
    
    
    Michigan
    
    
    All Others
    
    
    TotalReal estate related
revenues
    
    
    $ 45,197
    
    
    
    $ 12,060
    
    
    
    $ 18,993
    
    
    
    $ 12,704
    
    
    
    $ 8,442
    
    
    
    $ 11,259
    
    
    
    $ 12,497
    
    
    
    $ 17,588
    
    
    
    $ 15,262
    
    
    
    $ 154,002Rental property
expenses and real
estate taxes
    
    
    12,343
    
    
    
    3,672
    
    
    
    3,390
    
    
    
    3,061
    
    
    
    2,441
    
    
    
    2,986
    
    
    
    4,694
    
    
    
    5,923
    
    
    
    4,447
    
    
    
    42,957Property level
operating income
    
    
    $ 32,854
    
    
    
    $ 8,388
    
    
    
    $ 15,603
    
    
    
    $ 9,643
    
    
    
    $ 6,001
    
    
    
    $ 8,273
    
    
    
    $ 7,803
    
    
    
    $ 11,665
    
    
    
    $ 10,815
    
    
    
    111,045Other income/expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,085Income before property dispositions, income taxes and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,960Loss on disposition of properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,414
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (184
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,000
    )Discontinued operations net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,278Preferred share distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,742
    )Excess of preferred share redemption over carrying amount (See Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,186
    )Income available to common shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ 35,712


9



---



##### 



For the Nine Months Ended September 30, 2003SE Pennsyl.
    
    
    New Jersey
    
    
    Lehigh Valley
    
    
    Virginia
    
    
    The Carolinas
    
    
    Jacksonville
    
    
    Minnesota
    
    
    Michigan
    
    
    All Others
    
    
    TotalReal estate related
revenues
    
    
    $ 142,448
    
    
    
    $ 25,991
    
    
    
    $ 50,150
    
    
    
    $ 38,399
    
    
    
    $ 28,725
    
    
    
    $ 36,930
    
    
    
    $ 37,834
    
    
    
    $ 49,767
    
    
    
    $ 54,196
    
    
    
    $ 464,440Rental property
expenses and real
estate taxes
    
    
    40,820
    
    
    
    8,964
    
    
    
    13,145
    
    
    
    10,378
    
    
    
    7,646
    
    
    
    9,862
    
    
    
    14,388
    
    
    
    16,553
    
    
    
    15,725
    
    
    
    137,481Property level
operating income
    
    
    $ 101,628
    
    
    
    $ 17,027
    
    
    
    $ 37,005
    
    
    
    $ 28,021
    
    
    
    $ 21,079
    
    
    
    $ 27,068
    
    
    
    $ 23,446
    
    
    
    $ 33,214
    
    
    
    $ 38,471
    
    
    
    326,959Other income/expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197,006Income before property dispositions, income taxes and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129,953Gain on disposition of properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,587
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,235
    )Discontinued operations net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,302Income available to common shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ 125,725


For the Nine Months Ended September 30, 2002SE Pennsyl.
    
    
    New Jersey
    
    
    Lehigh Valley
    
    
    Virginia
    
    
    The Carolinas
    
    
    Jacksonville
    
    
    Minnesota
    
    
    Michigan
    
    
    All Others
    
    
    TotalReal estate related
revenues
    
    
    $ 133,782
    
    
    
    $ 34,830
    
    
    
    $ 48,515
    
    
    
    $ 37,419
    
    
    
    $ 25,276
    
    
    
    $ 33,811
    
    
    
    $ 37,561
    
    
    
    $ 48,946
    
    
    
    $ 44,664
    
    
    
    $ 444,804Rental property
expenses and real
estate taxes
    
    
    37,235
    
    
    
    10,844
    
    
    
    9,825
    
    
    
    9,225
    
    
    
    7,366
    
    
    
    8,520
    
    
    
    14,115
    
    
    
    16,310
    
    
    
    13,208
    
    
    
    126,648Property level
operating income
    
    
    $ 96,547
    
    
    
    $ 23,986
    
    
    
    $ 38,690
    
    
    
    $ 28,194
    
    
    
    $ 17,910
    
    
    
    $ 25,291
    
    
    
    $ 23,446
    
    
    
    $ 32,636
    
    
    
    $ 31,456
    
    
    
    318,156Other income/expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177,456Income before property dispositions, income taxes and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140,700Loss on disposition of properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,172
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (462
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,530
    )Discontinued operations net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,808Preferred share distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,242
    )Excess of preferred share redemption over carrying amount (See Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,186
    )Income available to common shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ 116,916


Note 4: SFAS No. 144, Accounting For The Impairment Or Disposal Of Long-Lived
Assets"

In accordance with SFAS No. 144, which the Company adopted on January 1, 2002,
net income and gain/(loss) on the disposition of real estate for properties
sold subsequent to December 31, 2001 are reflected in the consolidated
statements of operations as discontinued operations. The proceeds from the
disposition of properties for the three and nine months ended September 30,
2003 were $1.3 million and $39.8 million as compared to $3.5 million and $27.3
million for the same period in 2002. Below is a summary of the results of
operations of the properties disposed of through the respective disposition
dates (in thousands):

Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2003
    
    
    2002
    
    
    2003
    
    
    2002Revenues
    
    $
    29
    
    
    $
    1,569
    
    
    $
    2,420
    
    
    $
    4,361Operating expenses
    
    
    (39
    )
    
    
    (229
    )
    
    
    (426
    )
    
    
    (769
    )Interest expense
    
    
    (4
    )
    
    
    (261
    )
    
    
    (369
    )
    
    
    (702
    )Depreciation and amortization
    
    
    (3
    )
    
    
    (266
    )
    
    
    (407
    )
    
    
    (881
    )Income from operations
    
    $
    (17
    )
    
    $
    813
    
    
    $
    1,218
    
    
    $
    2,009


Gain or loss on disposition on sales of land and development properties
continue to be reflected as a component of income from continuing operations.

Note 5: Credit Facility

During the nine months ended September 30, 2003, the Company replaced its
unsecured revolving credit facility with a new facility which matures in
January 2006. Capacity under the facility was reduced from $450 million to

10



---



##### 



$350 million. Based on the Companys present ratings, borrowings under the
facility bear interest at LIBOR plus 70 basis points, reduced from LIBOR plus
105 basis points for the facility prior to its renewal.

Note 6: Impact of Recently Issued Accounting Standards

In January 2003, the FASB issued Financial Interpretation No. 46 (FIN No.
46), Consolidation of Variable Interest Entities. The consolidation
requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003. The FASB deferred the effective date for
existing variable interest entities to periods ending after December 15, 2003.
FIN No. 46 requires that a variable interest entity be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or is entitled to receive a majority of
the entitys residual returns or both. The Company continues to evaluate the
impact of FIN No. 46 but does not expect the implementation to materially
affect its financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. Certain
provisions of this statement are effective for financial instruments entered
into or modified after May 31, 2003 and otherwise effective at the beginning of
the first interim period beginning June 15, 2003. Other provisions of this
statement have been deferred indefinitely. The Company was not impacted by the
currently effective provisions of SFAS No. 150. The Company is monitoring the
deferred provisions of SFAS No. 150 and at this time does not expect its
financial position or results of operations to be materially affected.

Note 7: Purchase of Rouse Kent Limited (RKL)

In July 2003, the Company exercised its option to purchase RKL for nominal
consideration. As a result of the purchase, the Companys assets and
liabilities increased by approximately $60 million.

RKL owns six buildings which contain 210,000 square feet of leaseable space and
has planning permission for the development of additional commercial space.
RKL is party to a contract with the County of Kent which contract entitles RKL
to participate in proceeds realized from the sale of residential land parcels
to homebuilders.

11



---



##### 



CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(In thousands)

September 30, 2003
    
    
    December 31, 2002(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    551,989
    
    
    $
    504,808Buildings and improvements
    
    
    3,295,038
    
    
    
    3,048,676Less accumulated depreciation
    
    
    (559,918
    )
    
    
    (485,206
    )Operating real estate
    
    
    3,287,109
    
    
    
    3,068,278Development in progress
    
    
    33,241
    
    
    
    163,379Land held for development
    
    
    165,837
    
    
    
    163,142Net real estate
    
    
    3,486,187
    
    
    
    3,394,799Cash and cash equivalents
    
    
    43,750
    
    
    
    11,071Accounts receivable
    
    
    6,032
    
    
    
    14,349Deferred rent receivable
    
    
    55,629
    
    
    
    48,775Deferred financing and leasing costs, net of accumulated
amortization (2003, $85,002; 2002, $75,833)
    
    
    82,459
    
    
    
    71,544Investment in unconsolidated joint ventures
    
    
    17,861
    
    
    
    14,963Prepaid expenses and other assets
    
    
    63,908
    
    
    
    71,560Total assets
    
    $
    3,755,826
    
    
    $
    3,627,061LIABILITIESMortgage loans
    
    $
    360,741
    
    
    $
    315,263Unsecured notes
    
    
    1,405,000
    
    
    
    1,418,924Credit facility
    
    
    152,000
    
    
    
    132,000Accounts payable
    
    
    40,800
    
    
    
    24,116Accrued interest
    
    
    19,889
    
    
    
    32,571Distribution payable
    
    
    50,326
    
    
    
    48,040Other liabilities
    
    
    94,419
    
    
    
    91,315Total liabilities
    
    
    2,123,175
    
    
    
    2,062,229Minority interest
    
    
    2,858
    
    
    
    7,054OWNERS EQUITYGeneral
partners equity - common units
    
    
    1,421,718
    
    
    
    1,351,589Limited partners equity - preferred units
    
    
    135,471
    
    
    
    135,471- common units
    
    
    66,365
    
    
    
    65,914Accumulated other comprehensive income
    
    
    6,239
    
    
    
    4,804Total owners equity
    
    
    1,629,793
    
    
    
    1,557,778Total liabilities and owners equity
    
    $
    3,755,826
    
    
    $
    3,627,061


See accompanying notes.

12



---



##### 



CONSOLIDATED STATEMENTS OF OPERATIONS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)

Three Months EndedSeptember 30, 2003
    
    
    September 30, 2002(Restated)REVENUERental
    
    $
    114,778
    
    
    $
    113,191Operating expense reimbursement
    
    
    43,092
    
    
    
    40,811Equity in earnings of unconsolidated joint ventures
    
    
    440
    
    
    
    Interest and other
    
    
    1,486
    
    
    
    2,088Total revenue
    
    
    159,796
    
    
    
    156,090EXPENSESRental property
    
    
    30,489
    
    
    
    27,178Real estate taxes
    
    
    16,348
    
    
    
    15,779Interest expense
    
    
    31,153
    
    
    
    29,147General and administrative
    
    
    6,542
    
    
    
    5,088Depreciation and amortization
    
    
    30,735
    
    
    
    27,938Total expenses
    
    
    115,267
    
    
    
    105,130Income before property dispositions, income taxes and minority interest
    
    
    44,529
    
    
    
    50,960Loss on property dispositions
    
    
    (312
    )
    
    
    (5,414
    )Income taxes
    
    
    (526
    )
    
    
    (184
    )Minority interest
    
    
    (36
    )
    
    
    Income from continuing operations
    
    
    43,655
    
    
    
    45,362Discontinued operations (including net gain on property dispositions
of $418 for the quarter ended September 30, 2003 and $528 for
the quarter ended September 30, 2002)
    
    
    401
    
    
    
    1,341Net income
    
    
    44,056
    
    
    
    46,703Preferred unit distributions
    
    
    (3,104
    )
    
    
    (4,846
    )Excess of preferred unit redemption over carrying amount
    
    
    
    
    
    
    (4,186
    )Income available to common unitholders
    
    $
    40,952
    
    
    $
    37,671Earnings per unitBasic:Income from continuing operations
    
    $
    0.49
    
    
    $
    0.45Income from discontinued operations
    
    
    0.01
    
    
    
    0.02Income per common unit  basic
    
    $
    0.50
    
    
    $
    0.47Diluted:Income from continuing operations
    
    $
    0.48
    
    
    $
    0.45Income from discontinued operations
    
    
    0.01
    
    
    
    0.02Income per common unit  diluted
    
    $
    0.49
    
    
    $
    0.47Distributions per common unit
    
    $
    0.605
    
    
    $
    0.60Weighted average number of common units outstandingBasic
    
    
    82,647
    
    
    
    79,316Diluted
    
    
    84,015
    
    
    
    80,441


See accompanying notes.

13



---



##### 



CONSOLIDATED STATEMENTS OF OPERATIONS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)

Nine Months EndedSeptember 30, 2003
    
    
    September 30, 2002(Restated)REVENUERental
    
    $
    336,846
    
    
    $
    324,929Operating expense reimbursement
    
    
    127,594
    
    
    
    119,875Equity in earnings of unconsolidated joint ventures
    
    
    1,355
    
    
    
    Interest and other
    
    
    5,637
    
    
    
    5,692Total revenue
    
    
    471,432
    
    
    
    450,496EXPENSESRental property
    
    
    90,921
    
    
    
    82,077Real estate taxes
    
    
    46,560
    
    
    
    44,571Interest expense
    
    
    92,587
    
    
    
    85,222General and administrative
    
    
    20,749
    
    
    
    16,414Depreciation and amortization
    
    
    90,662
    
    
    
    81,512Total expenses
    
    
    341,479
    
    
    
    309,796Income before property dispositions, income taxes and minority interest
    
    
    129,953
    
    
    
    140,700Gain (loss) on property dispositions
    
    
    292
    
    
    
    (4,172
    )Income taxes
    
    
    (1,587
    )
    
    
    (462
    )Minority interest
    
    
    (554
    )
    
    
    (1,235
    )Income from continuing operations
    
    
    128,104
    
    
    
    134,831Discontinued operations (including net gain on property dispositions
of $11,668 for the nine months ended September 30, 2003 and $6,197
for the nine months ended September 30, 2002)
    
    
    12,886
    
    
    
    8,206Net income
    
    
    140,990
    
    
    
    143,037Preferred unit distributions
    
    
    (9,312
    )
    
    
    (15,757
    )Excess of preferred unit redemption over carrying amount
    
    
    
    
    
    
    (4,186
    )Income available to common unitholders
    
    $
    131,678
    
    
    $
    123,094Earnings per unitBasic:Income from continuing operations
    
    $
    1.45
    
    
    $
    1.46Income from discontinued operations
    
    
    0.16
    
    
    
    0.11Income per common unit  basic
    
    $
    1.61
    
    
    $
    1.57Diluted:Income from continuing operations
    
    $
    1.43
    
    
    $
    1.44Income from discontinued operations
    
    
    0.16
    
    
    
    0.10Income per common unit  diluted
    
    $
    1.59
    
    
    $
    1.54Distributions per common unit
    
    $
    1.805
    
    
    $
    1.78Weighted average number of common units outstandingBasic
    
    
    81,630
    
    
    
    78,519Diluted
    
    
    82,855
    
    
    
    79,828


See accompanying notes.

14



---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)

Nine Months EndedSeptember 30, 2003
    
    
    September 30, 2002OPERATING ACTIVITIESNet income
    
    $
    140,990
    
    
    $
    143,037Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    91,069
    
    
    
    82,393Amortization of deferred financing costs
    
    
    3,027
    
    
    
    2,881Equity in earnings of unconsolidated joint ventures
    
    
    (1,355
    )
    
    
    Minority interest in net income
    
    
    554
    
    
    
    1,235Gain on property dispositions
    
    
    (11,960
    )
    
    
    (2,025
    )Noncash compensation
    
    
    2,496
    
    
    
    1,654Changes in operating assets and liabilities:Accounts receivable
    
    
    8,533
    
    
    
    3,170Deferred rent receivable
    
    
    (6,854
    )
    
    
    (8,096
    )Prepaid expenses and other assets
    
    
    (11,260
    )
    
    
    (25,416
    )Accounts payable
    
    
    (3,035
    )
    
    
    16,789Accrued interest
    
    
    (12,682
    )
    
    
    (11,194
    )Other liabilities
    
    
    3,104
    
    
    
    12,383Net cash provided by operating activities
    
    
    202,627
    
    
    
    216,811INVESTING ACTIVITIESInvestment in properties
    
    
    (68,324
    )
    
    
    (79,797
    )Cash paid for business, net of cash acquired
    
    
    16,627
    
    
    
    Investment in unconsolidated joint ventures
    
    
    (3,099
    )
    
    
    Distributions from unconsolidated joint ventures
    
    
    2,707
    
    
    
    Proceeds from disposition of properties/land
    
    
    42,333
    
    
    
    61,843Investment in development in progress
    
    
    (43,422
    )
    
    
    (133,706
    )Increase in land held for development
    
    
    (11,829
    )
    
    
    (24,405
    )Increase in deferred leasing costs
    
    
    (16,987
    )
    
    
    (16,129
    )Net cash used in investing activities
    
    
    (81,994
    )
    
    
    (192,194
    )FINANCING ACTIVITIESRedemption of preferred units
    
    
    
    
    
    
    (125,063
    )Proceeds from issuance of unsecured notes
    
    
    3,683
    
    
    
    150,000Repayments of unsecured notes
    
    
    (23,739
    )
    
    
    (100,000
    )Proceeds from mortgage loans
    
    
    924
    
    
    
    3,446Repayments of mortgage loans
    
    
    (8,623
    )
    
    
    (5,834
    )Proceeds from credit facility
    
    
    327,850
    
    
    
    391,000Repayments on credit facility
    
    
    (307,850
    )
    
    
    (256,000
    )Increase in deferred financing costs
    
    
    (2,563
    )
    
    
    (1,823
    )Capital contributions
    
    
    83,701
    
    
    
    74,939Distributions to partners
    
    
    (159,783
    )
    
    
    (155,942
    )Net cash used in financing activities
    
    
    (86,400
    )
    
    
    (25,277
    )Increase (decrease) in cash and cash equivalents
    
    
    34,233
    
    
    
    (660
    )Effect of exchange rate changes on cash
    
    
    (1,554
    )
    
    
    (3,124
    )Cash and cash equivalents at beginning of period
    
    
    11,071
    
    
    
    19,390Cash and cash equivalents at end of period
    
    $
    43,750
    
    
    $
    15,606SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    11,801
    
    
    $
    3,565Acquisition of properties
    
    
    (15,284
    )
    
    
    Assumption of mortgage loans
    
    
    15,284
    
    
    
    Issuance of operating partnership units for property acquisition
    
    
    1,151
    
    
    
    


See accompanying notes.

15



---



##### 



Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2003

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements of Liberty
Property Limited Partnership (the Operating Partnership) and its direct and
indirect subsidiaries, have been prepared in accordance with accounting
principles generally accepted in the United States (US GAAP) for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by US GAAP for complete financial statements and should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Annual Report on Form 10-K of the Trust and the
Operating Partnership for the year ended December 31, 2002. In the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial statements for these interim
periods have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full fiscal year. Certain
amounts from prior periods have been reclassified to conform to current period
presentation. Results for the three and nine months ended September 30, 2002
have been restated to reflect recent guidance and clarifications by the
Securities and Exchange Commission (SEC). The SECs July 31, 2003
clarification of certain issues surrounding the Financial Accounting Standards
Boards (FASB) EITF Topic D-42, The Effect on Calculation of Earnings per
Share for the Redemption or Induced Conversion of Preferred Stock, requires
the excess of preferred unit redemption over carrying amount to be classified
as a reduction in income available to common unitholders.

Income per Unit
The following table sets forth the computation of basic and diluted income per
common unit for the three and nine months ended September 30, 2003 and 2002 (in
thousands except per unit amounts):

For the Three Months Ended September 30, 2003
    
    
    For the Three Months Ended September 30, 2002Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Units
    
    
    Per Unit
    
    
    Income
    
    
    Units
    
    
    Per Unit(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountNet income
    
    $
    44,056
    
    
    
    
    
    
    
    
    
    
    $
    46,703Less: Preferred unit distributions
    
    
    (3,104
    )
    
    
    
    
    
    
    
    
    
    
    (4,846
    )Excess of preferred unit redemption
over carrying amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,186
    )Basic income per common unitIncome available to common
unitholders
    
    
    40,952
    
    
    
    82,647
    
    
    $
    0.50
    
    
    
    37,671
    
    
    
    79,316
    
    
    $
    0.47Dilutive units for long-term
compensation plans
    
    
    
    
    
    
    1,368
    
    
    
    
    
    
    
    
    
    
    
    1,125Diluted income per common unitIncome available to common
unitholders
and assumed conversions
    
    $
    40,952
    
    
    
    84,015
    
    
    $
    0.49
    
    
    $
    37,671
    
    
    
    80,441
    
    
    $
    0.47


16



---



##### 



For the Nine Months Ended September 30, 2003
    
    
    For the Nine Months Ended September 30, 2002Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Units
    
    
    Per Unit
    
    
    Income
    
    
    Units
    
    
    Per Unit(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountNet income
    
    $
    140,990
    
    
    
    
    
    
    
    
    
    
    $
    143,037Less: Preferred unit distributions
    
    
    (9,312
    )
    
    
    
    
    
    
    
    
    
    
    (15,757
    )Excess of preferred unit redemption
over carrying amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,186
    )Basic income per common unitIncome available to common
unitholders
    
    
    131,678
    
    
    
    81,630
    
    
    $
    1.61
    
    
    
    123,094
    
    
    
    78,519
    
    
    $
    1.57Dilutive units for long-term
compensation plans
    
    
    
    
    
    
    1,225
    
    
    
    
    
    
    
    
    
    
    
    1,309Diluted income per common unitIncome available to common
unitholders
and assumed conversions
    
    $
    131,678
    
    
    
    82,855
    
    
    $
    1.59
    
    
    $
    123,094
    
    
    
    79,828
    
    
    $
    1.54


Foreign Operations
The functional currency for the Companys United Kingdom operation is pounds
sterling. The United Kingdom operations translate their financial statements
into US dollars prior to the consolidation of these financial statements with
those of the Company. Gains and losses resulting from this translation are
included in accumulated other comprehensive income as a separate component of
shareholders equity. Comprehensive income was $0.6 million and $2.0 million
for the three months ended September 30, 2003 and 2002, respectively.
Comprehensive income was $1.0 million and $7.0 million for the nine months
ended September 30, 2003 and 2002, respectively.

Note 2: Organization

Liberty Property Trust (the Trust), the general partner of Liberty Property
Limited Partnership, 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 the Operating Partnership (the Trust,
Operating Partnership and their respective subsidiaries, referred to
collectively as, the Company). The Trust is the sole general partner and also
a limited partner of the Operating Partnership, owning 95.6% of the common
equity of the Operating Partnership at September 30, 2003. The Company provides
leasing, property management, development, acquisition, and other
tenant-related services for a portfolio of industrial and office properties
which are located principally within the Southeastern, Mid-Atlantic and
Midwestern United States.

Note 3: Segment Information

The Company reviews the performance of the portfolio on a geographical basis.
The following regions are considered the Companys reportable segments:
Southeastern Pennsylvania; New Jersey; Lehigh Valley, Pennsylvania; Virginia;
the Carolinas; Jacksonville, Florida; Minneapolis, Minnesota; Detroit,
Michigan; and all others combined (including Maryland; Tampa, Florida; South
Florida; and the United Kingdom). The Companys reportable segments are
distinct business units which are each managed separately in order to
concentrate market knowledge within a geographical area. Within these
reportable segments, the Company derives its revenues from its two product
types: industrial properties and office properties.

The Company evaluates the performance of the reportable segments based on
property level operating income, which is calculated as rental revenue and
operating expense reimbursement less rental property expenses and real estate
taxes. The accounting policies of the reportable segments are the same as those
for the Company on a consolidated basis. The operating information for the
Operating Partnership by segment is as follows (in thousands):

17



---



##### 



For the Three Months Ended September 30, 2003SE Pennsyl.
    
    
    New Jersey
    
    
    Lehigh Valley
    
    
    Virginia
    
    
    The Carolinas
    
    
    Jacksonville
    
    
    Minnesota
    
    
    Michigan
    
    
    All Others
    
    
    TotalReal estate related
revenues
    
    
    $ 45,339
    
    
    
    $ 8,850
    
    
    
    $ 18,042
    
    
    
    $ 12,831
    
    
    
    $ 10,973
    
    
    
    $ 12,576
    
    
    
    $ 12,278
    
    
    
    $ 17,652
    
    
    
    $ 19,329
    
    
    
    $ 157,870Rental property
expenses and real
estate taxes
    
    
    13,071
    
    
    
    3,087
    
    
    
    4,620
    
    
    
    3,456
    
    
    
    2,539
    
    
    
    3,460
    
    
    
    4,857
    
    
    
    5,972
    
    
    
    5,775
    
    
    
    46,837Property level
operating income
    
    
    $ 32,268
    
    
    
    $ 5,763
    
    
    
    $ 13,422
    
    
    
    $ 9,375
    
    
    
    $ 8,434
    
    
    
    $ 9,116
    
    
    
    $ 7,421
    
    
    
    $ 11,680
    
    
    
    $ 13,554
    
    
    
    111,033Other income/expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,504Income before property disposition and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,529Loss on disposition of properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (312
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (526
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    401Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,104
    )Income available to common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ 40,952


For the Three Months Ended September 30, 2002SE Pennsyl.
    
    
    New Jersey
    
    
    Lehigh Valley
    
    
    Virginia
    
    
    The Carolinas
    
    
    Jacksonville
    
    
    Minnesota
    
    
    Michigan
    
    
    All Others
    
    
    TotalReal estate related revenues
    
    
    $ 45,197
    
    
    
    $ 12,060
    
    
    
    $ 18,993
    
    
    
    $ 12,704
    
    
    
    $ 8,442
    
    
    
    $ 11,259
    
    
    
    $ 12,497
    
    
    
    $ 17,588
    
    
    
    $ 15,262
    
    
    
    $ 154,002Rental property expenses and real estate
taxes
    
    
    12,343
    
    
    
    3,672
    
    
    
    3,390
    
    
    
    3,061
    
    
    
    2,441
    
    
    
    2,986
    
    
    
    4,694
    
    
    
    5,923
    
    
    
    4,447
    
    
    
    42,957Property level operating income
    
    
    $ 32,854
    
    
    
    $ 8,388
    
    
    
    $ 15,603
    
    
    
    $ 9,643
    
    
    
    $ 6,001
    
    
    
    $ 8,273
    
    
    
    $ 7,803
    
    
    
    $ 11,665
    
    
    
    $ 10,815
    
    
    
    111,045Other income/expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,085Income before property dispositions and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,960Loss on disposition of properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,414
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (184
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,341Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,846
    )Excess of preferred unit redemption over carrying amount (See Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,186
    )Income available to common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ 37,671


For the Nine Months Ended September 30, 2003SE Pennsyl.
    
    
    New Jersey
    
    
    Lehigh Valley
    
    
    Virginia
    
    
    The Carolinas
    
    
    Jacksonville
    
    
    Minnesota
    
    
    Michigan
    
    
    All Others
    
    
    TotalReal estate related revenues
    
    
    $ 142,448
    
    
    
    $ 25,991
    
    
    
    $ 50,150
    
    
    
    $ 38,399
    
    
    
    $ 28,725
    
    
    
    $ 36,930
    
    
    
    $ 37,834
    
    
    
    $ 49,767
    
    
    
    $ 54,196
    
    
    
    $ 464,440Rental property expenses and real estate
taxes
    
    
    40,820
    
    
    
    8,964
    
    
    
    13,145
    
    
    
    10,378
    
    
    
    7,646
    
    
    
    9,862
    
    
    
    14,388
    
    
    
    16,553
    
    
    
    15,725
    
    
    
    137,481Property level operating income
    
    
    $ 101,628
    
    
    
    $ 17,027
    
    
    
    $ 37,005
    
    
    
    $ 28,021
    
    
    
    $ 21,079
    
    
    
    $ 27,068
    
    
    
    $ 23,446
    
    
    
    $ 33,214
    
    
    
    $ 38,471
    
    
    
    326,959Other income/expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197,006Income before property disposition and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129,953Gain on disposition of properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,587
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (554
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,886Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,312
    )Income available to common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ 131,678


For the Nine Months Ended September 30, 2002SE Pennsyl.
    
    
    New Jersey
    
    
    Lehigh Valley
    
    
    Virginia
    
    
    The Carolinas
    
    
    Jacksonville
    
    
    Minnesota
    
    
    Michigan
    
    
    All Others
    
    
    TotalReal estate related
revenues
    
    
    $ 133,782
    
    
    
    $ 34,830
    
    
    
    $ 48,515
    
    
    
    $ 37,419
    
    
    
    $ 25,276
    
    
    
    $ 33,811
    
    
    
    $ 37,561
    
    
    
    $ 48,946
    
    
    
    $ 44,664
    
    
    
    $ 444,804Rental property
expenses and real
estate taxes
    
    
    37,235
    
    
    
    10,844
    
    
    
    9,825
    
    
    
    9,225
    
    
    
    7,366
    
    
    
    8,520
    
    
    
    14,115
    
    
    
    16,310
    
    
    
    13,208
    
    
    
    126,648Property level
operating income
    
    
    $ 96,547
    
    
    
    $ 23,986
    
    
    
    $ 38,690
    
    
    
    $ 28,194
    
    
    
    $ 17,910
    
    
    
    $ 25,291
    
    
    
    $ 23,446
    
    
    
    $ 32,636
    
    
    
    $ 31,456
    
    
    
    318,156Other income/expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177,456Income before property dispositions and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140,700Loss on disposition of properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,172
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (462
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,235
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,206Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,757
    )Excess of preferred unit redemption over carrying amount (See Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,186
    )Income available to common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ 123,094


18



---



##### 



Note 4: SFAS No. 144, Accounting For The Impairment Or Disposal Of Long-Lived
Assets"

In accordance with SFAS No. 144, which the Company adopted on January 1, 2002,
net income and gain/(loss) on the disposition of real estate for properties
sold subsequent to December 31, 2001 are reflected in the consolidated
statements of operations as discontinued operations. The proceeds from the
disposition of properties for the three and nine months ended September 30,
2003 were $1.3 million and $39.8 million as compared to $3.5 million and $27.3
million for the same period in 2002. Below is a summary of the results of
operations of the properties disposed of through the respective disposition
dates (in thousands):

Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2003
    
    
    2002
    
    
    2003
    
    
    2002Revenues
    
    $
    29
    
    
    $
    1,569
    
    
    $
    2,420
    
    
    $
    4,361Operating expenses
    
    
    (39
    )
    
    
    (229
    )
    
    
    (426
    )
    
    
    (769
    )Interest expense
    
    
    (4
    )
    
    
    (261
    )
    
    
    (369
    )
    
    
    (702
    )Depreciation and amortization
    
    
    (3
    )
    
    
    (266
    )
    
    
    (407
    )
    
    
    (881
    )Income from operations
    
    $
    (17
    )
    
    $
    813
    
    
    $
    1,218
    
    
    $
    2,009


Gain or loss on disposition on sales of land and development properties
continue to be reflected as a component of income from continuing operations.

Note 5: Credit Facility

During the nine months ended September 30, 2003, the Company replaced its
unsecured revolving credit facility with a new facility which matures in
January 2006. Capacity under the facility was reduced from $450 million to
$350 million. Based on the Companys present ratings, borrowings under the
facility bear interest at LIBOR plus 70 basis points, reduced from LIBOR plus
105 basis points for the facility prior to its renewal.

Note 6: Impact of Recently Issued Accounting Standards

In January 2003, the FASB issued Financial Interpretation No. 46 (FIN No.
46), Consolidation of Variable Interest Entities. The consolidation
requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003. The FASB deferred the effective date for
existing variable interest entities to periods ending after December 15, 2003.
FIN No. 46 requires that a variable interest entity be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or is entitled to receive a majority of
the entitys residual returns or both. The Company continues to evaluate the
impact of FIN No. 46, but does not expect the implementation to materially
affect its financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. Certain
provisions of this statement are effective for financial instruments entered
into or modified after May 31, 2003 and otherwise effective at the beginning of
the first interim period beginning June 15, 2003. Other provisions of this
statement have been deferred indefinitely. The Company was not impacted by the
currently effective provisions of SFAS No. 150. The Company is monitoring the
deferred provisions of SFAS No. 150 and at this time does not expect its
financial position or results of operations to be materially affected.

Note 7: Purchase of Rouse Kent Limited (RKL)

In July 2003, the Company exercised its option to purchase RKL for nominal
consideration. As a result of the purchase, the Companys assets and
liabilities increased by approximately $60 million.

RKL owns six buildings which contain 210,000 square feet of leaseable space and
has planning permission for the development of additional commercial space.
RKL is party to a contract with the County of Kent which contract entitles RKL
to participate in proceeds realized from the sale of residential land parcels
to homebuilders.

19



---



##### 



Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

The Company owns and operates office and industrial real estate. As of
September 30, 2003, the Companys portfolio consisted of 663 industrial and
office properties (the Properties in Operation) totaling approximately 53
million square feet. In addition, the Company had nine properties under
development (the Properties under Development and, together with the
Properties in Operation, the Properties) and owned 1,095 acres of land,
substantially all of which is zoned for commercial use.

The Company focuses on creating value for shareholders and increasing
profitability and cash flow. With respect to its Properties in Operation, the
Company endeavors to maintain high occupancy levels while increasing rental
rates. The Company pursues development opportunities that it believes will
create value and yield high returns. The Company also acquires properties that
it believes will create long-term value, and disposes of Properties that no
longer fit within the Companys strategic objectives or in situations where it
can optimize cash proceeds. The Companys operating results depend primarily
upon income from rental operations and are substantially influenced by rental
demand for the Properties in Operation.

In 2002 and for the nine months ended September 30, 2003, the continued general
slowdown in the economy negatively affected occupancy rates. Additionally, the
imbalance between supply of and demand for rental properties resulted in a
decline in rental rates for newly executed leases. The negative
occupancy and rental rate trend has been continuing for several quarters and as
a result, property level operating income from the Same Store (properties
owned since January 1, 2002) group of properties, exclusive of Termination
Fees, has decreased. Termination Fees are fees that the
Company has agreed to accept in consideration for permitting certain
tenants to
terminate their leases prior to the contractual expiration date. Additionally,
tenant improvement and other lease transaction costs on renewal and replacement
leases have increased.

The continued economic slowdown has also limited the Companys ability to
achieve growth in operating income from its development activity. The decline
in demand for real estate has reduced the amount of development the Company is
undertaking.

As noted above, the Company also seeks to acquire and dispose of Properties in
appropriate circumstances. The Company anticipates that it will continue to
pursue select acquisition and disposition opportunities.

The composition of the Companys Properties in Operation as of September 30,
2003 and 2002 is as follows (in thousands, except dollars and percentages):

Net RentPer Square Foot
    
    
    Total Square Feet
    
    
    Percent OccupiedType
    
    9/30/03
    
    
    9/30/02
    
    
    9/30/03
    
    
    9/30/02
    
    
    9/30/03
    
    
    12/31/02
    
    
    9/30/02
    
    
    12/31/01Industrial-Distribution
    
    $
    4.48
    
    
    $
    4.53
    
    
    
    21,356
    
    
    
    22,513
    
    
    
    92.5
    %
    
    
    90.7
    %
    
    
    91.3
    %
    
    
    96.7
    %Industrial-Flex
    
    $
    8.78
    
    
    $
    8.85
    
    
    
    13,341
    
    
    
    13,362
    
    
    
    91.3
    %
    
    
    91.8
    %
    
    
    90.4
    %
    
    
    93.3
    %Office
    
    $
    14.53
    
    
    $
    14.20
    
    
    
    18,082
    
    
    
    16,739
    
    
    
    89.7
    %
    
    
    89.9
    %
    
    
    89.9
    %
    
    
    91.3
    %TOTAL
    
    $
    8.95
    
    
    $
    8.68
    
    
    
    52,779
    
    
    
    52,614
    
    
    
    91.2
    %
    
    
    90.7
    %
    
    
    90.6
    %
    
    
    94.1
    %


Geographic segment data for the three and nine months ended September 30, 2003
and 2002 is included in Note 3 to the Liberty Property Trust and Liberty
Property Limited Partnership financial statements.

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; rental demand; the Companys ability to identify
and secure additional properties and sites that meet its criteria for
acquisition or development; the availability and cost of capital; and the
effect of prevailing market interest rates; and other risks described from time
to time in the Companys filings with the Securities and

20



---



##### 



Exchange Commission (SEC). Given these uncertainties, readers are cautioned
not to place undue reliance on such statements.

CRITICAL ACCOUNTING POLICIES

Refer to the Companys 2002 Annual Report on Form 10-K for a discussion of
critical accounting policies which include capitalized costs, allowances for
doubtful accounts and impairment of real estate. During the three and nine
months ended September 30, 2003 and 2002, there were no material changes to
these policies.

RESULTS OF OPERATIONS

The following discussion is based on the consolidated financial statements of
the Company. It compares the results of operations of the Company for the three
and nine months ended September 30, 2003 with the results of operations of the
Company for the three and nine months ended September 30, 2002. As a result of
the varying level of development, acquisition and disposition activities by the
Company in 2003 and 2002, the overall operating results of the Company during
such periods are not directly comparable. However, certain data, including the
Same Store comparison, do lend themselves to direct comparison (see
reconciliation to comparable GAAP financial measure below).

This information should be read in conjunction with the accompanying
consolidated financial statements and notes included elsewhere in this report.

Comparison of the Three and Nine Months Ended September 30, 2003 to the Three
and Nine Months Ended September 30, 2002.

Total revenue (principally rental revenue and operating expense reimbursement)
increased to $159.8 million for the three months ended September 30, 2003 from
$156.1 million for the three months ended September 30, 2002 and increased to
$471.4 million for the nine months ended September 30, 2003 from $450.5 million
for the nine months ended September 30, 2002. These increases are primarily
due to the change in Termination Fees and the net increased investment in
properties developed or acquired, net of dispositions, during the years 2002
and 2003. The average gross investment in operating real estate owned for the
three months ended September 30, 2003 was $3,776.7 million as compared to
$3,507.9 million for the three months ended September 30, 2002 and for the nine
months ended September 30, 2003 was $3,690.6 million as compared to $3,437.4
million for the nine months ended September 30, 2002.

The operating expense recovery percentage (the ratio of operating expense
reimbursement to rental property expenses and real estate taxes) decreased to
92.0% for the three months ended September 30, 2003 from 95.0% for the three
months ended September 30, 2002, and to 92.8% for the nine months ended
September 30, 2003 from 94.7% for the nine months ended September 30, 2002.
This reduction is consistent with a reduction in average occupancy.

Rental property and real estate tax expenses increased to $46.8 million for the
three months ended September 30, 2003 from $43.0 million for the three months
ended September 30, 2002 and increased to $137.5 million for the nine months
ended September 30, 2003 from $126.6 million for the nine months ended
September 30, 2002. These increases are due to the increase in the investment
in Properties owned during the respective periods and because of the increased
snow removal and utility costs relating to 2003s severe winter.

Property level operating income, exclusive of Termination Fees, for the Same
Store properties decreased by $1.8 million for the three months ended September
30, 2003 as compared to the three months ended September 30, 2002, on a
straight line basis (which recognizes rental revenue evenly over the life of
the lease), and decreased by $1.6 million for the three months ended September
30, 2003 as compared to the three months ended September 30, 2002, on a cash
basis. These decreases of 1.9% and 1.7%, respectively, are primarily due to
decreases in rental rates.

Property level operating income, exclusive of Termination Fees, for the Same
Store properties decreased by $7.9 million for the nine months ended September
30, 2003 as compared to the nine months ended September 30, 2002, on a straight
line basis, and decreased by $7.3 million for the nine months ended September
30, 2003 as compared to the nine months ended September 30, 2002, on a cash
basis. These decreases of 2.7% and 2.6%, respectively, are

21



---



##### 



due to decreases in average occupancy and decreases in rental rates. At
September 30, 2003, the occupancy of the Same Store portfolio was 92.3% as
compared to 91.3% at September 30, 2002.

Set forth below is a schedule comparing the property level operating income, on
a straight line basis and on a cash basis, for the Same Store properties for
the three and nine months ended September 30, 2003 and 2002 (in thousands):

Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2003
    
    
    2002
    
    
    2003
    
    
    2002Same Store:Rental revenue
    
    $
    97,100
    
    
    $
    97,727
    
    
    $
    291,416
    
    
    $
    295,966Operating expenses:Rental property expense
    
    
    27,456
    
    
    
    25,504
    
    
    
    84,466
    
    
    
    77,843Real estate taxes
    
    
    14,378
    
    
    
    14,032
    
    
    
    41,329
    
    
    
    40,014Operating expense recovery
    
    
    (39,043
    )
    
    
    (37,927
    )
    
    
    (117,454
    )
    
    
    (112,843
    )Unrecovered operating expenses
    
    
    2,791
    
    
    
    1,609
    
    
    
    8,341
    
    
    
    5,014Property level operating income
    
    
    94,309
    
    
    
    96,118
    
    
    
    283,075
    
    
    
    290,952Less straight line rent
    
    
    1,685
    
    
    
    1,865
    
    
    
    5,669
    
    
    
    6,255Cash basis property level operating income
    
    $
    92,624
    
    
    $
    94,253
    
    
    $
    277,406
    
    
    $
    284,697Reconciliation of non GAAP financial measure:Property level operating income
    
    $
    94,309
    
    
    $
    96,118
    
    
    $
    283,075
    
    
    $
    290,952Termination fees
    
    
    3,805
    
    
    
    7,167
    
    
    
    12,287
    
    
    
    8,138Other income/expenses, net
    
    
    (53,585
    )
    
    
    (52,325
    )
    
    
    (165,409
    )
    
    
    (158,390
    )Income before property dispositions, income taxes and
minority interest
    
    $
    44,529
    
    
    $
    50,960
    
    
    $
    129,953
    
    
    $
    140,700


Management generally considers Same Store property level operating income on a
straight line and cash basis a useful financial performance measure because the
results of the Same Store group (properties owned since January 1, 2002) are
directly comparable period to period. Same Store property level income is a
non GAAP measure and does not represent Income before property dispositions,
income taxes and minority interest because it does not reflect the consolidated
operations of the Company.

General and administrative expenses increased to $6.5 million for the three
months ended September 30, 2003 from $5.1 million for the three months ended
September 30, 2002 and increased to $20.7 million for the nine months ended
September 30, 2003 from $16.4 million for the nine months ended September 30,
2002. The increase for the three months ended September 30, 2003 as compared to
the same period in 2002 is primarily due to costs related to the Companys
enterprise resource planning (ERP) initiative to update company wide
accounting and business process software and due to increased general and
administrative expenses due to the consolidation of RKL. The increase for the
nine months ended September 30, 2003 as compared to the same period in 2002 is
primarily due to the Companys ERP initiative and due to the accelerated
vesting of restricted stock and options related to the death of former Chairman
Willard G. Rouse III totaling approximately $1.9 million.

Depreciation and amortization expenses increased to $30.7 million for the three
months ended September 30, 2003 from $27.9 million for the three months ended
September 30, 2002 and increased to $90.7 million for the nine months ended
September 30, 2003 from $81.5 million for the nine months ended September 30,
2002. These increases are due to the increase in the investment in Properties
owned during the respective periods.

Interest expense increased to $31.2 million for the three months ended
September 30, 2003 from $29.1 million for the three months ended September 30,
2002 and increased to $92.6 million for the nine months ended September 30,
2003 from $85.2 million for the nine months ended September 30, 2002. These
increases are due to the increases in the average debt outstanding for the
respective periods, which was $1,877.2 million for the three months ended

22



---



##### 



September 30, 2003 as compared to $1,846.2 million for the three months ended
September 30, 2002 and $1,880.4 million for the nine months ended September 30,
2003 as compared to $1,809.1 million for the same period in 2002. These
increases were partially offset by decreases in the weighted average interest
rates for the periods, which were 6.9% for the three months ended September
30, 2003 compared to 7.0% for the three months ended September 30, 2002, and
7.0% for the nine months ended September 30, 2003 compared to 7.1% for the same
period in 2002. Interest expense also increased because, as noted below, less
interest was capitalized during the three and nine months ended September 30,
2003 compared to the same periods in 2002 due to the decrease in development in
progress.

Costs directly related to the development of rental properties and land being
readied for development are capitalized. Capitalized development costs include
interest, development related salaries, property taxes, insurance and other
directly identifiable costs during the period of development. Capitalized
interest for the three months ended September 30, 2003 decreased to $2.5
million from $3.8 million for the three months ended September 30, 2002 and
decreased to $8.1 million for the nine months ended September 30, 2003 from
$13.2 million for the nine months ended September 30, 2002. Included in
capitalized interest costs are the interest costs relating to the Companys
$62.6 million investment (as of September 30, 2003) in its proposed downtown
Philadelphia office tower. Capitalized development related salaries and
benefits historically represent approximately 1% of the cost of developed
properties brought into service. These amounts are not included in general and
administrative expenses as discussed above.

Implementation of SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets requires that the operating results for real estate sold
after December 31, 2001 should be reflected as discontinued operations. Sales
occurring before December 31, 2001, as well as sales of land and development
properties, continue to be reflected as a component of income from continuing
operations.

During the three months ended September 30, 2003, the Company realized a net
loss on property dispositions of $312,000 due to the sale of one parcel of
land. For the nine months ended September 30, 2003, the Company realized a net
gain on property dispositions of $292,000 due to the sale of three parcels of
land and additional proceeds from a 2002 property disposition. For the three
months ended September 30, 2002, the Company realized a loss on property
dispositions of $5.4 million due to the sale of three parcels of land and a
$6.0 million write-down of assets held for sale to their net realizable value
less costs to sell. For the nine months ended September 30, 2002, the Company
realized a loss on property dispositions of $4.2 million due to the sale of
eight parcels of land, the sale of a property and the write-down of assets held
for sale, as discussed above.

In accordance with SFAS No. 144, net income and gain/(loss) on dispositions of
real estate for properties sold subsequent to December 31, 2001 are reflected
in the consolidated statements of operations as discontinued operations for all
periods presented. The decrease in income from discontinued operations of
$895,000 for the three months ended September 30, 2003, as compared to the same
period in 2002, is primarily due to the greater number of properties included
in the three months ended September 30, 2002 as compared to 2003. The increase
in income from discontinued operations of $4.5 million for the nine months
ended September 30, 2003 as compared to the same period in 2002 is primarily
due to the larger gain on the disposition of properties sold in 2003 as
compared to 2002.

The Company is taxed as a REIT for federal income tax purposes and is not
generally required to pay federal income taxes if minimum distribution and
income, asset and shareholder tests are met. However, several of the Companys
subsidiaries are taxable REIT subsidiaries and are subject to federal income
taxes. The Company is also taxed in certain states and in the United Kingdom.
Accordingly, the Company has recognized federal, state and United Kingdom
income taxes in accordance with US GAAP, as applicable. Income taxes increased
to $0.5 million for the three months ended September 30, 2003 from $0.2 million
for the three months ended September 30, 2002 and increased to $1.6 million for
the nine months ended September 30, 2003 from $0.5 million for the nine months
ended September 30, 2002. The increase in income taxes is primarily due to the
increase in taxable income in those states and the United Kingdom in which the
Company is subject to tax.

As a result of the foregoing, the Companys net income decreased to $39.1
million for the three months ended September 30, 2003 from $41.6 million for
the three months ended September 30, 2002 and net income decreased to $125.7
million for the nine months ended September 30, 2003 from $128.3 million for
the nine months ended September 30, 2002.

23



---



##### 



LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2003, the Company had cash and cash equivalents of $43.8
million, including $18.0 million in restricted cash.

Net cash flow provided by operating activities decreased to $202.6 million for
the nine months ended September 30, 2003 from $216.8 million for the nine
months ended September 30, 2002. This $14.2 million decrease is primarily due
to fluctuations in operating assets and liabilities during the respective
periods. Net cash flow provided by operations is the primary source of
liquidity to fund distributions to shareholders and for the recurring capital
expenditures and leasing transaction costs for the Companys Properties in
Operation.

Net cash used in investing activities decreased to $82.0 million for the nine
months ended September 30, 2003 from $192.2 million for the nine months ended
September 30, 2002. This decrease primarily resulted from a decrease in
investment in development in progress and land held for development in 2003,
which is consistent with the diminished opportunity to develop property due to
the general slowdown in the economy. These decreases are partially offset by
the reduced level of disposition activity during 2003.

Net cash used in financing activities increased to $86.4 million for the nine
months ended September 30, 2003 as compared to $25.3 million for the nine
months ended September 30, 2002. This $61.1 million increase was primarily due
to a reduced level of net borrowings under mortgages, unsecured note
obligations and the Companys credit facility offset by the redemption of
preferred shares during the nine months ended September 30, 2002. Net cash
provided by or used in financing activities includes proceeds from the issuance
of equity and debt net of debt repayments and shareholder distributions. Cash
provided by financing activities is a source of capital utilized by the Company
to fund investment activities and the decrease in such funding activities for
2003 is consistent with the decrease in the level of the Companys investment
activities as described above.

The Company funds its development and acquisitions with long-term capital
sources including proceeds from the disposition of Properties. For the year
ended December 31, 2002, these activities were funded through a $450 million
unsecured credit facility, which was replaced in January 2003, with a $350
million unsecured credit facility (the $350 million Credit Facility). The
interest rate on borrowings under the $350 million Credit Facility fluctuates
based upon ratings from Moodys Investors Service, Inc. (Moodys), Standard
and Poors Ratings Group (S&P) and Fitch, Inc. (Fitch). The current ratings
for the Companys senior unsecured debt are Baa2, BBB and BBB from Moodys, S&P
and Fitch, respectively. At these ratings, the interest rate for borrowings
under the $350 million Credit Facility is 70 basis points over LIBOR. The $350
million Credit Facility expires in January 2006.

The Company uses debt financing to lower its overall cost of capital in an
attempt to increase the return to shareholders. The Company staggers its debt
maturities and maintains debt levels it considers to be prudent. In determining
its debt levels, the Company considers various financial measures including the
debt to gross assets ratio and the earnings to fixed charge coverage ratio. As
of September 30, 2003 the Companys debt to gross assets ratio was 44.4%, and
the earnings to fixed charge coverage ratio was 2.9x. Debt to gross assets
equals total long-term debt and borrowings under the $350 million Credit
Facility divided by total assets plus accumulated depreciation. Earnings to
fixed charges equals income before property dispositions and minority interest,
including operating activity from discontinued operations, plus interest
expense and depreciation and amortization divided by interest expense,
including capitalized interest, plus distributions on preferred units.

As of September 30, 2003, $360.7 million in mortgage loans and $1,405.0 million
in unsecured notes were outstanding with a weighted average interest rate of
7.3%. The interest rates on $1,703.5 million of mortgage loans and unsecured
notes are fixed and range up to 8.8%. Interest rates on $62.2 million of
mortgage loans float with the base rate of the respective lending bank or a
municipal bond index. The weighted average remaining term for the mortgage
loans and unsecured notes is 5.9 years.

24



---



##### 



The scheduled maturities and principal amortization of the Companys mortgage
loans, unsecured notes and borrowings under the $350 million Credit Facility
and the related weighted average interest rates as of September 30, 2003 are as
follows (in thousands, except percentages):

MortgagesWeightedPrincipal
    
    
    Principal
    
    
    Unsecured
    
    
    Credit
    
    
    
    
    
    
    AverageAmortization
    
    
    Maturities
    
    
    Notes
    
    
    Facility
    
    
    Total
    
    
    Interest Rate2003 (3 months)
    
    $
    2,073
    
    
    $
    970
    
    
    $
    50,000
    
    
    $
    
    
    
    $
    53,043
    
    
    
    6.9
    %2004
    
    
    8,943
    
    
    
    58,436
    
    
    
    100,000
    
    
    
    
    
    
    
    167,379
    
    
    
    6.4
    %2005
    
    
    7,854
    
    
    
    115,039
    
    
    
    
    
    
    
    
    
    
    
    122,893
    
    
    
    7.6
    %2006
    
    
    5,705
    
    
    
    42,314
    
    
    
    100,000
    
    
    
    152,000
    
    
    
    300,019
    
    
    
    4.4
    %2007
    
    
    4,921
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    104,921
    
    
    
    7.3
    %2008
    
    
    4,553
    
    
    
    34,724
    
    
    
    
    
    
    
    
    
    
    
    39,277
    
    
    
    7.2
    %2009
    
    
    2,212
    
    
    
    42,119
    
    
    
    270,000
    
    
    
    
    
    
    
    314,331
    
    
    
    7.8
    %2010
    
    
    1,559
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    201,559
    
    
    
    8.5
    %2011
    
    
    1,324
    
    
    
    3,533
    
    
    
    250,000
    
    
    
    
    
    
    
    254,857
    
    
    
    7.3
    %2012
    
    
    352
    
    
    
    24,110
    
    
    
    235,000
    
    
    
    
    
    
    
    259,462
    
    
    
    6.5
    %2018
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    100,000
    
    
    
    7.5
    %$
    39,496
    
    
    $
    321,245
    
    
    $
    1,405,000
    
    
    $
    152,000
    
    
    $
    1,917,741
    
    
    
    6.9
    %


The Company anticipates that it will refinance or retire these maturities
through its available sources of capital.

General

The Company has continued to focus on the performance of the Same Store
portfolio. In addition, the Company has continued to pursue development and
acquisition opportunities and the strategic disposition of certain properties.
The Company attempts to outperform in its markets by maintaining higher than
market occupancy levels and obtaining higher than market rental rates.

The expiring square feet and annual net rent by year for the Properties in
Operation as of September 30, 2003 are as follows (in thousands):

Industrial-
    
    
    Industrial-Distribution
    
    
    Flex
    
    
    Office
    
    
    TotalSquare
    
    
    Annual
    
    
    Square
    
    
    Annual
    
    
    Square
    
    
    Annual
    
    
    Square
    
    
    AnnualFeet
    
    
    Net Rent
    
    
    Feet
    
    
    Net Rent
    
    
    Feet
    
    
    Net Rent
    
    
    Feet
    
    
    Net Rent2003 (3 months)
    
    
    424
    
    
    $
    1,893
    
    
    
    763
    
    
    $
    5,412
    
    
    
    708
    
    
    $
    8,593
    
    
    
    1,895
    
    
    $
    15,8982004
    
    
    1,791
    
    
    
    8,513
    
    
    
    2,167
    
    
    
    18,477
    
    
    
    1,987
    
    
    
    28,256
    
    
    
    5,945
    
    
    
    55,2462005
    
    
    2,378
    
    
    
    12,053
    
    
    
    1,722
    
    
    
    15,264
    
    
    
    2,949
    
    
    
    42,579
    
    
    
    7,049
    
    
    
    69,8962006
    
    
    2,471
    
    
    
    11,104
    
    
    
    1,940
    
    
    
    21,008
    
    
    
    1,275
    
    
    
    18,786
    
    
    
    5,686
    
    
    
    50,8982007
    
    
    2,723
    
    
    
    11,975
    
    
    
    1,284
    
    
    
    12,681
    
    
    
    1,642
    
    
    
    24,740
    
    
    
    5,649
    
    
    
    49,3962008
    
    
    2,925
    
    
    
    12,804
    
    
    
    2,122
    
    
    
    20,965
    
    
    
    2,101
    
    
    
    31,709
    
    
    
    7,148
    
    
    
    65,478Thereafter
    
    
    7,036
    
    
    
    39,053
    
    
    
    2,179
    
    
    
    23,072
    
    
    
    5,559
    
    
    
    105,882
    
    
    
    14,774
    
    
    
    168,007TOTAL
    
    
    19,748
    
    
    $
    97,395
    
    
    
    12,177
    
    
    $
    116,879
    
    
    
    16,221
    
    
    $
    260,545
    
    
    
    48,146
    
    
    $
    474,819


The Company believes that its existing sources of capital will provide
sufficient funds to finance its continued development and acquisition
activities. The scheduled deliveries of the 798,000 square feet of Properties
under Development as of September 30, 2003 are as follows (in thousands, except
percentages):

Square FeetPercentScheduled
    
    Industrial-
    
    
    Industrial-
    
    
    
    
    
    
    
    
    
    
    Leased at
    
    
    TotalIn-Service Date
    
    Distribution
    
    
    Flex
    
    
    Office
    
    
    Total
    
    
    September 30, 2003
    
    
    Investment1st Quarter 2004
    
    
    262
    
    
    
    
    
    
    
    88
    
    
    
    350
    
    
    
    98.4
    %
    
    $
    17,0142nd Quarter 2004
    
    
    
    
    
    
    75
    
    
    
    35
    
    
    
    110
    
    
    
    100.0
    %
    
    
    12,3773rd Quarter 2004
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    31
    
    
    
    78.8
    %
    
    
    4,9042nd Quarter 2005
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    207
    
    
    
    30.7
    %
    
    
    27,5173rd Quarter 2005
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    100
    
    
    
    78.0
    %
    
    
    17,465TOTAL
    
    
    262
    
    
    
    75
    
    
    
    461
    
    
    
    798
    
    
    
    77.7
    %
    
    $
    79,277


25



---



##### 



In July 2003, the Company exercised its option to purchase RKL for nominal
consideration. As a result of the purchase, the Companys assets and
liabilities increased by approximately $60 million. RKL owns six buildings
which contain 210,000 square feet of leaseable space and has planning
permission for the development of additional commercial space. RKL is party to
a contract with the County of Kent which contract entitles RKL to participate
in proceeds realized from the sale of residential land parcels to homebuilders.

The Companys existing sources of capital include the public debt and equity
markets, proceeds from Property dispositions and net cash provided by operating
activities. Additionally, the Company expects to incur variable rate debt,
including borrowings under the $350 million Credit Facility from time to time.

The Board of Trustees has authorized a share repurchase program under which the
Company may purchase up to $100 million of the Companys Common Shares,
preferred shares or convertible debentures. Through September 30, 2003, the
Company purchased 59,100 Common Shares and purchased convertible debentures
exchangeable into 877,950 Common Shares. The total cost for the purchase of the
Common Shares and convertible debentures was approximately $21.9 million. The
convertible debentures matured in 2001.

The Company has an effective S-3 shelf registration statement on file with the
SEC (the Shelf Registration Statement). As of November 6, 2003, pursuant to
the Shelf Registration Statement, the Trust had the capacity to issue up to
$688.4 million in equity securities and the Operating Partnership had the
capacity to issue up to $324.3 million in debt securities.

Investment in Unconsolidated Joint Ventures

In 2002 the Company partnered with the Public Employees Retirement Association
of Colorado on a $123 million joint venture consisting of the Companys
southern New Jersey industrial portfolio. The Company sold or contributed 28
industrial distribution Properties totaling approximately 3.1 million leaseable
square feet and approximately 43 acres of developable land. The Company
retained a 25% ownership interest in the venture, and realized proceeds of
approximately $109 million from the transaction. The Company will receive
development, leasing and property management fees, and may receive a promoted
interest if certain return thresholds are met. The venture is financed with
approximately 60% leverage.

During the nine months ended September 30, 2003 the Company contributed to the
venture one additional industrial distribution property totaling approximately
374,000 leaseable square feet for a Total Investment of $15.6 million. 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 improvements in the case of acquisitions,
or land costs and land and building improvement costs in the case of
development projects, and when appropriate, other development costs and
carrying costs.

Calculation of Funds from Operations

Management generally considers Funds from operations available to common
shareholders a useful financial performance measure of the operating
performance of an equity REIT. Funds from operations available to common
shareholders is defined by NAREIT as net income (computed in accordance with
generally accepted accounting principles (GAAP)), excluding gains (or losses)
from sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. Funds from
operations available to common shareholders 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 available to common shareholders also does not represent cash flows
generated from operating, investing or financing activities as defined by GAAP.
Funds from operations available to common shareholders for the three and nine
months ended September 30, 2003 and 2002 are as follows:

26



---



##### 



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002(Restated)
    
    
    
    
    
    (Restated)Net income
    
    $
    39,109
    
    
    $
    41,640
    
    
    $
    125,725
    
    
    $
    128,344Preferred share distributions
    
    
    
    
    
    
    (1,742
    )
    
    
    
    
    
    
    (7,242
    )Excess of preferred share redemption over carrying amount
    
    
    
    
    
    
    (4,186
    )
    
    
    
    
    
    
    (4,186
    )Income available to common shareholders
    
    
    39,109
    
    
    
    35,712
    
    
    
    125,725
    
    
    
    116,916Adjustments:Minority interest excluding preferred unit distributions
    
    
    1,843
    
    
    
    1,959
    
    
    
    5,953
    
    
    
    6,178Depreciation and amortization of unconsolidated joint ventures
    
    
    168
    
    
    
    
    
    
    
    495
    
    
    
    Depreciation and amortization
    
    
    30,162
    
    
    
    27,787
    
    
    
    89,408
    
    
    
    81,151Impairment loss
    
    
    
    
    
    
    (6,017
    )
    
    
    
    
    
    
    (6,017
    )Loss (gain) on property dispositions
    
    
    (106
    )
    
    
    4,886
    
    
    
    (11,377
    )
    
    
    479Funds from operations available to common shareholders
    
    $
    71,176
    
    
    $
    64,327
    
    
    $
    210,204
    
    
    $
    198,707Funds from operations per common share  diluted
    
    $
    0.85
    
    
    $
    0.80
    
    
    $
    2.54
    
    
    $
    2.49Weighted average shares
    
    
    84,015
    
    
    
    80,441
    
    
    
    82,855
    
    
    
    79,828


Income available to common shareholders for the three and nine months ended
September 30, 2002 has been restated to reflect recent guidance and
clarifications by the SEC. The SECs July 31, 2003 clarification of certain
issues surrounding FASB-EITF Topic D-42, The Effect on the
Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred
Stock, requires the excess of preferred share redemption over carrying amount
to be classified as a reduction in income available to common shareholders.
The Company redeemed its Series A Preferred Shares during the three months
ended September 30, 2002, and recorded the redemption in accordance with US
GAAP at the time.

In addition, on October 1, 2003, the National Association of Real Estate
Investment Trusts published guidance requiring impairment write-downs to be
included in Funds from operations available to common shareholders.

Inflation

Inflation has remained relatively low during the last three years, and as a
result, it has not had a significant impact on the Company during this period.
The $350 million Credit Facility bears interest at a variable rate; therefore,
the amount of interest payable under the $350 million 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 and utilities,
substantially all of the tenants 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 3: Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the Companys exposure to market risk
since its Annual Report on Form 10-K for the year ended December 31, 2002.

Item 4: Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Companys management, with the participation of the Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of the Companys
disclosure controls and procedures as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and
procedures as of the end of the period covered by this report are functioning
effectively to provide reasonable assurance that the information required to be
disclosed by the Company in reports filed under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the Securities Exchange Commissions rules and forms. A controls
system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within a company have been detected.

27



---



##### 



(b) Changes in Internal Control Over Financial Reporting

No change in the Companys internal control over financial reporting occurred
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the internal control over financial
reporting.

28



---



##### 



Part II: Other Information

Item 1. Legal Proceedings

None.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

a. Exhibits

31.1*
    
    Certifications of the Chief Executive Officer of
Liberty Property Trust required by Rule 13a-14(a) under the
Securities Exchange Act of 1934.31.2*
    
    Certifications of the Chief Financial Officer of
Liberty Property Trust required by Rule 13a-14(a) under the
Securities Exchange Act of 1934.31.3*
    
    Certifications of the Chief Executive Officer of
Liberty Property Trust, in its capacity as the general partner
of Liberty Property Limited Partnership, required by Rule
13a-14(a) under the Securities Exchange Act of 1934.31.4*
    
    Certifications of the Chief Financial Officer of
Liberty Property Trust, in its capacity as the general partner
of Liberty Property Limited Partnership, required by Rule
13a-14(a) under the Securities Exchange Act of 1934.32.1*
    
    Certifications of the Chief Executive Officer of
Liberty Property Trust required under Rule 13a-14(b) of the
Securities Exchange Act of 1934, as amended. (This exhibit
shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise
subject to the liability of that section. Further, this
exhibit shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended.)32.2*
    
    Certifications of the Chief Financial Officer of
Liberty Property Trust required by Rule 13a-14(b) under the
Securities Exchange Act of 1934, as amended. (This exhibit
shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise
subject to the liability of that section. Further, this
exhibit shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended.)


29



---



##### 



Item 6. Exhibits and Reports on Form 8-K  Continued

a. Exhibits  Continued

32.3*
    
    Certifications of the Chief Executive Officer of
Liberty Property Trust, in its capacity as the general partner
of Liberty Property Limited Partnership, required by Rule
13a-14(b) under the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934,
as amended, or otherwise subject to the liability of that
section. Further, this exhibit shall not be deemed to be
incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)32.4*
    
    Certifications of the Chief Financial Officer of
Liberty Property Trust, in its capacity as the general partner
of Liberty Property Limited Partnership, required by Rule
13a-14(b) under the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934,
as amended, or otherwise subject to the liability of that
section. Further, this exhibit shall not be deemed to be
incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)


b. Reports of Form 8-K

During the quarter ended September 30, 2003 the Registrant
filed the following Current Report on Form 8-K:

Current Report on Form 8-K dated July 22, 2003 reporting
items 7 and 9 and containing as an Exhibit the Press Release
dated July 21, 2003 issued by Liberty Property Trust and
Liberty Property Limited Partnership.




---

| |  | * Filed herewith
| |  | ----------------

30



---



##### 



SIGNATURES

Pursuant to the requirements of the Securities 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

/s/ WILLIAM P. HANKOWSKY
    
    November 12, 2003William P. Hankowsky
President and Chief Executive Officer
    
    Date/s/ GEORGE J. ALBURGER, JR.
    
    November 12, 2003George J. Alburger, Jr.
Executive Vice President and Chief Financial Officer
    
    Date


31



---



##### 



SIGNATURES

Pursuant to the requirements of the Securities 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

/s/ WILLIAM P. HANKOWSKY
    
    November 12, 2003William P. Hankowsky
President and Chief Executive Officer
    
    Date/s/ GEORGE J. ALBURGER, JR.
    
    November 12, 2003George J. Alburger, Jr.
Executive Vice President and Chief Financial Officer
    
    Date


32



---



##### 



EXHIBIT INDEX

EXHIBIT NO.
    DESCRIPTION31.1
    
    Certifications of the Chief Executive Officer of Liberty Property Trust
required by Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certifications of the Chief Financial Officer of Liberty Property Trust
required by Rule 13a-14(a) under the Securities Exchange Act of 1934.31.3
    
    Certifications of the Chief Executive Officer of Liberty Property Trust,
in its capacity as the general partner of Liberty Property Limited
Partnership, required by Rule 13a-14(a) under the Securities Exchange Act
of 1934.31.4
    
    Certifications of the Chief Financial Officer of Liberty Property Trust,
in its capacity as the general partner of Liberty Property Limited
Partnership, required by Rule 13a-14(a) under the Securities Exchange Act
of 1934.32.1
    
    Certifications of the Chief Executive Officer of Liberty Property Trust
required under Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liability of that section. Further, this exhibit
shall not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)32.2
    
    Certifications of the Chief Financial Officer of Liberty Property Trust
required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liability of that section. Further, this exhibit
shall not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)32.3
    
    Certifications of the Chief Executive Officer of Liberty Property Trust,
in its capacity as the general partner of Liberty Property Limited
Partnership, required by Rule 13a-14(b) under the Securities Exchange Act
of 1934, as amended. (This exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to the liability of that section. Further, this
exhibit shall not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.)32.4
    
    Certifications of the Chief Financial Officer of Liberty Property Trust,
in its capacity as the general partner of Liberty Property Limited
Partnership, required by Rule 13a-14(b) under the Securities Exchange Act
of 1934, as amended. (This exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to the liability of that section. Further, this
exhibit shall not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.)


33