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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2005 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)
    
    23-7768996PENNSYLVANIA(Liberty Property Limited Partnership)
    
    23-2766549(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)500 Chesterfield Parkway,Malvern, Pennsylvania
    
    19355(Address of Principal Executive Offices)
    
    (Zip Code)Registrants Telephone Number, Including Area Code
    
    (610) 648-1700
 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months
(or for such shorter period that the registrants were required to file such reports) and (2) have
been subject to such filing requirements for the past ninety (90) days. Yes 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 May 3, 2005, 87,044,077 Common Shares of Beneficial Interest, par value $ .001 per share, of
Liberty Property Trust were outstanding.




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Liberty Property Trust/Liberty Property Limited Partnership
Form 10-Q for the period ended March 31, 2005 Index
    
    
    
    PagePart I.
    
    Financial InformationItem 1.
    
    Financial Statements (unaudited)Condensed consolidated balance sheets of Liberty Property Trust at March 31, 2005 and December 31, 2004
    
    
    3Condensed consolidated statements of operations of Liberty Property Trust for the three months ended March 31, 2005 and March 31, 2004
    
    
    4Condensed consolidated statements of cash flows of Liberty Property Trust for the three months ended March 31, 2005 and March 31, 2004
    
    
    5Notes to Condensed consolidated financial statements of Liberty Property Trust
    
    
    6Condensed consolidated balance sheets of Liberty Property Limited Partnership at March 31, 2005 and December 31, 2004
    
    
    10Condensed consolidated statements of operations of Liberty Property Limited Partnership for the three months ended March 31, 2005 and March 31, 2004
    
    
    11Condensed consolidated statements of cash flows of Liberty Property Limited Partnership for the three months ended March 31, 2005 and March 31, 2004
    
    
    12Notes to Condensed consolidated financial statements of Liberty Property Limited Partnership
    
    
    13Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risks
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    23Part II.
    
    Other Information
    
    
    24Signatures for Liberty Property Trust
    
    
    26Signatures for Liberty Property Limited Partnership
    
    
    27Exhibit Index
    
    
    28AMENDED AND RESTATED SHARE INCENTIVE PLANCERTIFICATIONS OF CEO REQUIRED BY RULE 13A-14(A)CERTIFICATIONS OF CFO REQUIRED BY RULE 13A-14(A)CERTIFICATIONS OF CEO REQUIRED BY RULE 13A-14(A)CERTIFICATIONS OF CFO REQUIRED BY RULE 13A-14(A)CERTIFICATIONS OF CEO REQUIRED BY RULE 13A-14(B)CERTIFICATIONS OF CFO REQUIRED BY RULE 13A-14(B)CERTIFICATIONS OF CEO REQUIRED BY RULE 13A-14(B)CERTIFICATIONS OF CFO REQUIRED BY RULE 13A-14(B)
 2




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CONDENSED CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(In thousands, except share amounts) March 31, 2005
    
    
    December 31, 2004(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    631,989
    
    
    $
    625,035Building and improvements
    
    
    3,660,806
    
    
    
    3,629,508Less accumulated depreciation
    
    
    (713,406
    )
    
    
    (695,410
    )Operating real estate
    
    
    3,579,389
    
    
    
    3,559,133Development in progress
    
    
    184,209
    
    
    
    81,099Land held for development
    
    
    169,397
    
    
    
    171,122Net real estate
    
    
    3,932,995
    
    
    
    3,811,354Cash and cash equivalents
    
    
    36,783
    
    
    
    33,667Restricted cash
    
    
    17,932
    
    
    
    34,626Accounts receivable
    
    
    16,042
    
    
    
    21,502Deferred rent receivable
    
    
    68,594
    
    
    
    66,528Deferred financing and leasing costs, net of accumulated amortization
(2005, $97,675; 2004, $91,117)
    
    
    118,197
    
    
    
    107,148Investments in unconsolidated joint ventures
    
    
    33,284
    
    
    
    24,372Prepaid expenses and other assets
    
    
    52,652
    
    
    
    63,630Total assets
    
    $
    4,276,479
    
    
    $
    4,162,827LIABILITIESMortgage loans
    
    $
    372,660
    
    
    $
    366,171Unsecured notes
    
    
    1,755,000
    
    
    
    1,455,000Credit facility
    
    
    125,000
    
    
    
    312,000Accounts payable
    
    
    21,822
    
    
    
    24,288Accrued interest
    
    
    22,661
    
    
    
    34,994Dividend payable
    
    
    54,933
    
    
    
    54,485Other liabilities
    
    
    106,138
    
    
    
    111,764Total liabilities
    
    
    2,458,214
    
    
    
    2,358,702Minority interest
    
    
    205,165
    
    
    
    207,866SHAREHOLDERS EQUITYCommon shares of beneficial interest, $.001 par value, 191,200,000
shares authorized, 86,604,902 (includes 59,100 in treasury) and
85,734,136 (includes 59,100 in treasury) shares issued and
outstanding as of March 31, 2005 and December 31, 2004, respectively
    
    
    86
    
    
    
    86Additional paid-in capital
    
    
    1,742,972
    
    
    
    1,708,573Accumulated other comprehensive income
    
    
    22,869
    
    
    
    25,105Unearned compensation
    
    
    (10,796
    )
    
    
    (6,846
    )Distributions in excess of net income
    
    
    (140,704
    )
    
    
    (129,332
    )Common shares in treasury, at cost, 59,100 shares as of March 31,
2005 and December 31, 2004
    
    
    (1,327
    )
    
    
    (1,327
    )Total shareholders equity
    
    
    1,613,100
    
    
    
    1,596,259Total liabilities and shareholders equity
    
    $
    4,276,479
    
    
    $
    4,162,827
 See accompanying notes. 3




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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts) Three Months EndedMarch 31, 2005
    
    
    March 31, 2004OPERATING REVENUERental
    
    $
    121,819
    
    
    $
    114,610Operating expense reimbursement
    
    
    49,581
    
    
    
    45,552Total operating revenue
    
    
    171,400
    
    
    
    160,162OPERATING EXPENSERental property
    
    
    38,259
    
    
    
    34,292Real estate taxes
    
    
    15,960
    
    
    
    15,557General and administrative
    
    
    8,313
    
    
    
    8,482Depreciation and amortization
    
    
    35,100
    
    
    
    32,298Total operating expenses
    
    
    97,632
    
    
    
    90,629Operating income
    
    
    73,768
    
    
    
    69,533OTHER INCOME (EXPENSE)Interest and other income
    
    
    1,451
    
    
    
    2,717Interest expense
    
    
    (33,188
    )
    
    
    (30,252
    )Total other income (expense)
    
    
    (31,737
    )
    
    
    (27,535
    )Income before property dispositions, income taxes, minority interest
and equity in earnings (loss) of unconsolidated joint ventures
    
    
    42,031
    
    
    
    41,998Loss on property dispositions, including impairment
    
    
    (280
    )
    
    
    (330
    )Income taxes
    
    
    (534
    )
    
    
    (389
    )Minority interest
    
    
    (4,249
    )
    
    
    (4,563
    )Equity in earnings (loss) of unconsolidated joint ventures
    
    
    2,020
    
    
    
    (405
    )Income from continuing operations
    
    
    38,988
    
    
    
    36,311Discontinued operations, net of minority interest (including net gain on
property dispositions of $7,051 and $2,097 for the three months ended
March 31, 2005 and 2004)
    
    
    6,613
    
    
    
    2,360Net income
    
    $
    45,601
    
    
    $
    38,671Earnings per common shareBasic:Income from continuing operations
    
    $
    0.45
    
    
    $
    0.43Income from discontinued operations
    
    
    0.08
    
    
    
    0.03Income per common share  basic
    
    $
    0.53
    
    
    $
    0.46Diluted:Income from continuing operations
    
    $
    0.45
    
    
    $
    0.42Income from discontinued operations
    
    
    0.07
    
    
    
    0.03Income per common share  diluted
    
    $
    0.52
    
    
    $
    0.45Distributions per common share
    
    $
    0.61
    
    
    $
    0.605Weighted average number of common shares outstandingBasic
    
    
    85,867
    
    
    
    83,480Diluted
    
    
    87,274
    
    
    
    85,102
 See accompanying notes. 4




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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands) Three Months EndedMarch 31, 2005
    
    
    March 31, 2004OPERATING ACTIVITIESNet income
    
    $
    45,601
    
    
    $
    38,671Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    35,386
    
    
    
    32,841Amortization of deferred financing costs
    
    
    1,152
    
    
    
    1,041Equity in earnings (loss) of unconsolidated joint ventures
    
    
    (2,020
    )
    
    
    405Minority interest in net income
    
    
    4,518
    
    
    
    4,667Gain on property dispositions
    
    
    (6,771
    )
    
    
    (1,767
    )Noncash compensation
    
    
    1,486
    
    
    
    938Changes in operating assets and liabilities:Restricted cash
    
    
    16,484
    
    
    
    (7,404
    )Accounts receivable
    
    
    5,434
    
    
    
    (4,051
    )Deferred rent receivable
    
    
    (2,066
    )
    
    
    (2,632
    )Prepaid expenses and other assets
    
    
    (14,551
    )
    
    
    (4,002
    )Accounts payable
    
    
    (2,427
    )
    
    
    20,802Accrued interest
    
    
    (12,333
    )
    
    
    (11,845
    )Other liabilities
    
    
    (5,288
    )
    
    
    (5,334
    )Net cash provided by operating activities
    
    
    64,605
    
    
    
    62,330INVESTING ACTIVITIESInvestment in properties
    
    
    (65,706
    )
    
    
    (18,833
    )Investment in unconsolidated joint ventures
    
    
    (12,780
    )
    
    
    (1,596
    )Distributions from unconsolidated joint ventures
    
    
    4,325
    
    
    
    248Proceeds from disposition of properties/land
    
    
    28,429
    
    
    
    6,063Investment in development in progress
    
    
    (25,329
    )
    
    
    (19,681
    )Investment in land held for development
    
    
    (45,695
    )
    
    
    (5,543
    )Increase in deferred leasing costs
    
    
    (14,376
    )
    
    
    (4,740
    )Net cash used in investing activities
    
    
    (131,132
    )
    
    
    (44,082
    )FINANCING ACTIVITIESNet proceeds from issuance of common shares
    
    
    22,291
    
    
    
    35,371Proceeds from issuance of unsecured notes
    
    
    296,424
    
    
    
    Proceeds from mortgage loans
    
    
    
    
    
    
    5,953Repayments of mortgage loans
    
    
    (4,239
    )
    
    
    (8,061
    )Proceeds from credit facility
    
    
    136,500
    
    
    
    65,500Repayments on credit facility
    
    
    (323,500
    )
    
    
    (49,500
    )Increase in deferred financing costs
    
    
    (6
    )
    
    
    (571
    )Distributions paid on common shares
    
    
    (52,248
    )
    
    
    (50,146
    )Contributions from minority interests
    
    
    108
    
    
    
    132Distributions paid on units
    
    
    (4,927
    )
    
    
    (5,290
    )Net cash provided by (used in) financing activities
    
    
    70,403
    
    
    
    (6,612
    )Increase in cash and cash equivalents
    
    
    3,876
    
    
    
    11,636(Decrease)
increase related to foreign currency translation
    
    
    (760
    )
    
    
    1,060Cash and cash equivalents at beginning of period
    
    
    33,667
    
    
    
    21,809Cash and cash equivalents at end of period
    
    $
    36,783
    
    
    $
    34,505SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    11,435
    
    
    $
    698Acquisition of properties
    
    
    (11,827
    )
    
    
    (11,305
    )Assumption of mortgage loans
    
    
    11,827
    
    
    
    11,305
 See accompanying notes. 5




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Liberty Property Trust
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005 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, the Operating Partnership and their respective subsidiaries are 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, 2004. 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. Income per Common Share The following table sets forth the computation of basic and diluted income per common share for the
three months ended March 31, 2005 and 2004 (in thousands except per share amounts): For the Three Months Ended March 31, 2005
    
    
    For the Three Months Ended March 31, 2004Weighted
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    Shares
    
    Per
    
    Income
    
    Shares
    
    Per(Numerator)
    

(Denominator)
    
    Share
    
    (Numerator)
    

(Denominator)
    
    ShareBasic income from continuing operationsIncome from continuing operations
    
    $
    38,988
    
    
    
    85,867
    
    
    $
    0.45
    
    
    $
    36,311
    
    
    
    83,480
    
    
    $
    0.43Dillutive shares for long-term
compensation plans
    
    
    
    
    
    
    1,407
    
    
    
    
    
    
    
    
    
    
    
    1,622Diluted income from continuing operationsIncome from continuing operations and
assumed conversions
    
    
    38,988
    
    
    
    87,274
    
    
    $
    0.45
    
    
    
    36,311
    
    
    
    85,102
    
    
    $
    0.42Basic income from discontinued operationsDiscontinued operations net of minority interest
    
    
    6,613
    
    
    
    85,867
    
    
    $
    0.08
    
    
    
    2,360
    
    
    
    83,480
    
    
    $
    0.03Dillutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,407
    
    
    
    
    
    
    
    
    
    
    
    1,622Diluted income from discontinued operationsDiscontinued operations net of minority interest
    
    
    6,613
    
    
    
    87,274
    
    
    $
    0.07
    
    
    
    2,360
    
    
    
    85,102
    
    
    $
    0.03Basic income per common shareNet income
    
    
    45,601
    
    
    
    85,867
    
    
    $
    0.53
    
    
    
    38,671
    
    
    
    83,480
    
    
    $
    0.46Dillutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,407
    
    
    
    
    
    
    
    
    
    
    
    1,622Diluted income per common shareNet income and assumed conversions
    
    $
    45,601
    
    
    
    87,274
    
    
    $
    0.52
    
    
    $
    38,671
    
    
    
    85,102
    
    
    $
    0.45
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Stock Based Compensation At March 31, 2004, 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. Effective January 1,
2003, the Company adopted the fair value recognition provisions of the Financial Accounting
Standards Boards (FASB) Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, prospectively for 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 the three months ended March 31, 2005 and 2004 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 (in thousands, except per share amount). Three Months Ended March 31,2005
    
    
    2004Net income
    
    $
    45,601
    
    
    $
    38,671Add: Share-based employee compensation expense included in
reported net income
    
    
    102
    
    
    
    37Deduct: Total share-based employee compensation expense
determined under fair value based method for all awards
    
    
    (225
    )
    
    
    (310
    )Pro forma net income
    
    $
    45,478
    
    
    $
    38,398Income per common share:Basic  as reported
    
    $
    0.53
    
    
    $
    0.46Basic  pro forma
    
    $
    0.53
    
    
    $
    0.46Diluted  as reported
    
    $
    0.52
    
    
    $
    0.45Diluted  pro forma
    
    $
    0.52
    
    
    $
    0.45
 Foreign Operations The functional currency for the Companys United Kingdom operation is pounds sterling. The
financial statements for the United Kingdom operation are translated 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. Other comprehensive loss was $2.2 million for the three months
ended March 31, 2005 and other comprehensive income was $4.5 million for the three months ended
March 31, 2004. 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
96.1% and 95.8% of the common equity of the Operating Partnership at March 31, 2005 and 2004,
respectively. 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 Mid-Atlantic, Southeastern and Midwestern United States. Note 3: Segment Information The Company operates its portfolio of properties primarily throughout the Mid-Atlantic,
Southeastern and Midwestern United States. Additionally, the Company owns certain assets in the
United Kingdom. The Company reviews the performance of the portfolio on a geographical basis. As
such, the following regions are considered the Companys reportable segments: 7




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Reportable Segments
    
    MarketsDelaware Valley
    
    Southeastern Pennsylvania; New JerseyMidwest
    
    Lehigh Valley, Pennsylvania; Michigan; Minnesota; Milwaukee; ChicagoMid-Atlantic
    
    Maryland; Piedmont Triad, N.C.; Greenville, S.C.; Richmond;
Virginia BeachFlorida
    
    Jacksonville; Orlando; Boca Raton; Tampa; TexasUnited Kingdom
    
    County of Kent
 The Companys reportable segments are distinct business units which are each managed separately in
order to concentrate market knowledge within a geographic 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 March 31, 2005Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    47,735
    
    
    $
    9,848
    
    
    $
    21,422
    
    
    $
    29,787
    
    
    $
    32,466
    
    
    $
    24,415
    
    
    $
    5,727
    
    
    $
    171,400Rental property expenses
and real estate taxes
    
    
    15,653
    
    
    
    3,778
    
    
    
    5,850
    
    
    
    10,997
    
    
    
    9,481
    
    
    
    7,331
    
    
    
    1,129
    
    
    
    54,219Property level operating
income
    
    $
    32,082
    
    
    $
    6,070
    
    
    $
    15,572
    
    
    $
    18,790
    
    
    $
    22,985
    
    
    $
    17,084
    
    
    $
    4,598
    
    
    $
    117,181Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,451Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,188
    )General and administrative
    
    
    (8,313
    )Depreciation and amortization
    
    
    (35,100
    )Income before property dispositions, income taxes, minority interest
and equity in earnings (loss) of unconsolidated joint ventures
    
    
    42,031Gain on property dispositions
    
    
    (280
    )Income taxes
    
    
    (534
    )Minority interest
    
    
    (4,249
    )Equity in earnings (loss) of unconsolidated joint ventures
    
    
    2,020Discontinued operations, net of minority interest
    
    
    6,613Net income
    
    $
    45,601
 For the Three Months Ended March 31, 2004Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    45,810
    
    
    $
    8,794
    
    
    $
    18,663
    
    
    $
    29,889
    
    
    $
    29,617
    
    
    $
    22,900
    
    
    $
    4,489
    
    
    $
    160,162Rental property expenses
and real estate taxes
    
    
    14,175
    
    
    
    3,224
    
    
    
    5,717
    
    
    
    10,545
    
    
    
    8,337
    
    
    
    6,634
    
    
    
    1,217
    
    
    
    49,849Property level operating
income
    
    $
    31,635
    
    
    $
    5,570
    
    
    $
    12,946
    
    
    $
    19,344
    
    
    $
    21,280
    
    
    $
    16,266
    
    
    $
    3,272
    
    
    $
    110,313Interest and other income
    
    
    2,717Interest expense
    
    
    (30,252
    )General and administrative
    
    
    (8,482
    )Depreciation and amortization
    
    
    (32,298
    )Income before property dispositions, income taxes, minority interest
and equity in earnings (loss) of unconsolidated joint ventures
    
    
    41,998Loss on property dispositions
    
    
    (330
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (389
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,563
    )Equity in earnings (loss) of unconsolidated joint ventures
    
    
    (405
    )Discontinued operations, net of minority interest
    
    
    2,360Net income
    
    $
    38,671
 8




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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 months ended March 31, 2005 were $29.3 million as
compared to $5.5 million for the same period in 2004. Below is a summary of the results of
operations of the properties disposed of through the respective disposition dates (in thousands): Three Months EndedMarch 31, 2005
    
    
    March 31, 2004Revenues
    
    $
    968
    
    
    $
    2,125Operating expenses
    
    
    (643
    )
    
    
    (786
    )Interest expense
    
    
    (259
    )
    
    
    (483
    )Depreciation and amortization
    
    
    (235
    )
    
    
    (489
    )(Loss) income before minority interest
    
    $
    (169
    )
    
    $
    367
 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: Impact of Recently Issued Accounting Standards In March 2005, the Financial Accounting Standards Board issued FASB Staff Position (FSP) FIN
46(R)-5, Implicit Variable Interests under FASB No. 46 (revised December 2003), Consolidation of
Variable Interest Entities (VIEs). The consolidation requirements of FIN 46(R)-5 are clarified
under FSP FIN 46(R)-5 and expanded to include implicit variable interest as potential VIEs. The
consolidation requirements of FSP FIN 46(R)-5 apply to the first reporting period beginning after
March 3, 2005. The Company was not materially impacted by the provisions of FSP FIN 46(R)-5. Note 6: Unsecured Notes In February 2005, the Company issued $300 million of 5.125% senior unsecured notes maturing on
March 2, 2015. The proceeds from this issuance were used to pay down outstanding borrowings under
the Companys unsecured credit facility and for general corporate purposes. 9




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##### Table of Contents



CONDENSED CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(In thousands) March 31, 2005
    
    
    December 31, 2004(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    631,989
    
    
    $
    625,035Building and improvements
    
    
    3,660,806
    
    
    
    3,629,508Less accumulated depreciation
    
    
    (713,406
    )
    
    
    (695,410
    )Operating real estate
    
    
    3,579,389
    
    
    
    3,559,133Development in progress
    
    
    184,209
    
    
    
    81,099Land held for development
    
    
    169,397
    
    
    
    171,122Net real estate
    
    
    3,932,995
    
    
    
    3,811,354Cash and cash equivalents
    
    
    36,783
    
    
    
    33,667Restricted cash
    
    
    17,932
    
    
    
    34,626Accounts receivable
    
    
    16,042
    
    
    
    21,502Deferred rent receivable
    
    
    68,594
    
    
    
    66,528Deferred financing and leasing costs, net of accumulated amortization
(2005, $97,675; 2004, $91,117)
    
    
    118,197
    
    
    
    107,148Investments in unconsolidated joint ventures
    
    
    33,284
    
    
    
    24,372Prepaid expenses and other assets
    
    
    52,652
    
    
    
    63,630Total assets
    
    $
    4,276,479
    
    
    $
    4,162,827LIABILITIESMortgage loans
    
    $
    372,660
    
    
    $
    366,171Unsecured notes
    
    
    1,755,000
    
    
    
    1,455,000Credit facility
    
    
    125,000
    
    
    
    312,000Accounts payable
    
    
    21,822
    
    
    
    24,288Accrued interest
    
    
    22,661
    
    
    
    34,994Distribution payable
    
    
    54,933
    
    
    
    54,485Other liabilities
    
    
    106,138
    
    
    
    111,764Total liabilities
    
    
    2,458,214
    
    
    
    2,358,702Minority interest
    
    
    4,076
    
    
    
    3,980OWNERS EQUITYGeneral partners equity  common units
    
    
    1,613,100
    
    
    
    1,596,259Limited partners equity  preferred units
    
    
    135,471
    
    
    
    135,471 common units
    
    
    65,618
    
    
    
    68,415Total owners equity
    
    
    1,814,189
    
    
    
    1,800,145Total liabilities and owners equity
    
    $
    4,276,479
    
    
    $
    4,162,827
 See accompanying notes. 10




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##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts) Three Months EndedMarch 31, 2005
    
    
    March 31, 2004OPERATING REVENUERental
    
    $
    121,819
    
    
    $
    114,610Operating expense reimbursement
    
    
    49,581
    
    
    
    45,552Total operating revenue
    
    
    171,400
    
    
    
    160,162OPERATING EXPENSERental property
    
    
    38,259
    
    
    
    34,292Real estate taxes
    
    
    15,960
    
    
    
    15,557General and administrative
    
    
    8,313
    
    
    
    8,482Depreciation and amortization
    
    
    35,100
    
    
    
    32,298Total operating expenses
    
    
    97,632
    
    
    
    90,629Operating income
    
    
    73,768
    
    
    
    69,533OTHER INCOME (EXPENSE)Interest and other income
    
    
    1,451
    
    
    
    2,717Interest expense
    
    
    (33,188
    )
    
    
    (30,252
    )Total other income (expense)
    
    
    (31,737
    )
    
    
    (27,535
    )Income before property dispositions, income taxes, minority interest
and equity in earnings (loss) of unconsolidated joint ventures
    
    
    42,031
    
    
    
    41,998Loss on property dispositions
    
    
    (280
    )
    
    
    (330
    )Income taxes
    
    
    (534
    )
    
    
    (389
    )Minority interest
    
    
    13
    
    
    
    131Equity in earnings (loss) of unconsolidated joint ventures
    
    
    2,020
    
    
    
    (405
    )Income from continuing operations
    
    
    43,250
    
    
    
    41,005Discontinued operations (including net gain on property dispositions of
$7,051 and $2,097 for the three months ended March 31, 2005 and 2004)
    
    
    6,882
    
    
    
    2,464Net income
    
    
    50,132
    
    
    
    43,469Preferred unit distributions
    
    
    2,676
    
    
    
    3,104Income available to common unitholders
    
    $
    47,456
    
    
    $
    40,365Earnings per common unitBasic:Income from continuing operations
    
    $
    0.45
    
    
    $
    0.43Income from discontinued operations
    
    
    0.08
    
    
    
    0.03Income per common unit  basic
    
    $
    0.53
    
    
    $
    0.46Diluted:Income from continuing operations
    
    $
    0.45
    
    
    $
    0.42Income from discontinued operations
    
    
    0.07
    
    
    
    0.03Income per common unit  diluted
    
    $
    0.52
    
    
    $
    0.45Distributions per common unit
    
    $
    0.61
    
    
    $
    0.605Weighted average number of common units outstandingBasic
    
    
    89,533
    
    
    
    87,178Diluted
    
    
    90,940
    
    
    
    88,800
 See accompanying notes. 11




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##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands) Three Months EndedMarch 31, 2005
    
    
    March 31, 2004OPERATING ACTIVITIESNet income
    
    $
    50,132
    
    
    $
    43,469Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    35,386
    
    
    
    32,841Amortization of deferred financing costs
    
    
    1,152
    
    
    
    1,041Equity in earnings (loss) of unconsolidated joint ventures
    
    
    (2,020
    )
    
    
    405Minority interest in net income
    
    
    (13
    )
    
    
    (131
    )Gain on property dispositions
    
    
    (6,771
    )
    
    
    (1,767
    )Noncash compensation
    
    
    1,486
    
    
    
    938Changes in operating assets and liabilities:Restricted cash
    
    
    16,484
    
    
    
    (7,404
    )Accounts receivable
    
    
    5,434
    
    
    
    (4,051
    )Deferred rent receivable
    
    
    (2,066
    )
    
    
    (2,632
    )Prepaid expenses and other assets
    
    
    (14,551
    )
    
    
    (4,002
    )Accounts payable
    
    
    (2,427
    )
    
    
    20,802Accrued interest
    
    
    (12,333
    )
    
    
    (11,845
    )Other liabilities
    
    
    (5,288
    )
    
    
    (5,334
    )Net cash provided by operating activities
    
    
    64,605
    
    
    
    62,330INVESTING ACTIVITIESInvestment in properties
    
    
    (65,706
    )
    
    
    (18,833
    )Investment in unconsolidated joint ventures
    
    
    (12,780
    )
    
    
    (1,596
    )Distributions from unconsolidated joint ventures
    
    
    4,325
    
    
    
    248Proceeds from disposition of properties/land
    
    
    28,429
    
    
    
    6,063Investment in development in progress
    
    
    (25,329
    )
    
    
    (19,681
    )Investment in land held for development
    
    
    (45,695
    )
    
    
    (5,543
    )Increase in deferred leasing costs
    
    
    (14,376
    )
    
    
    (4,740
    )Net cash used in investing activities
    
    
    (131,132
    )
    
    
    (44,082
    )FINANCING ACTIVITIESProceeds from issuance of unsecured notes
    
    
    296,424
    
    
    
    Proceeds from mortgage loans
    
    
    
    
    
    
    5,953Repayments of mortgage loans
    
    
    (4,239
    )
    
    
    (8,061
    )Proceeds from credit facility
    
    
    136,500
    
    
    
    65,500Repayments on credit facility
    
    
    (323,500
    )
    
    
    (49,500
    )Increase in deferred financing costs
    
    
    (6
    )
    
    
    (571
    )Capital contributions
    
    
    22,291
    
    
    
    35,371Distributions to partners
    
    
    (57,067
    )
    
    
    (55,304
    )Net cash provided by (used in) financing activities
    
    
    70,403
    
    
    
    (6,612
    )Increase in cash and cash equivalents
    
    
    3,876
    
    
    
    11,636(Decrease) increase related to foreign currency translation
    
    
    (760
    )
    
    
    1,060Cash and cash equivalents at beginning of period
    
    
    33,667
    
    
    
    21,809Cash and cash equivalents at end of period
    
    $
    36,783
    
    
    $
    34,505SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    11,435
    
    
    $
    698Acquisition of properties
    
    
    (11,827
    )
    
    
    (11,305
    )Assumption of mortgage loans
    
    
    11,827
    
    
    
    11,305
 See accompanying notes. 12




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##### Table of Contents



Liberty Property Limited Partnership

Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005 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 Liberty
Property Trust (the Trust) and the Operating Partnership for the year ended December 31, 2004. 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. Income per Common Unit The following table sets forth the computation of basic and diluted income per common unit for the
three months ended March 31, 2005 and 2004 (in thousands, except per unit amounts): For the Three Months Ended March 31, 2005
    
    
    For the Three Months Ended March 31, 2004Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Units
    
    
    Per
    
    
    Income
    
    
    Units
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Unit
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    UnitIncome from continuing operations
    
    $
    43,250
    
    
    
    
    
    
    
    
    
    
    $
    41,005Less: Preferred unit distributions
    
    
    (2,676
    )
    
    
    
    
    
    
    
    
    
    
    (3,104
    )Basic income from continuing operationsIncome from continuing operations
available to common unitholders
    
    
    40,574
    
    
    
    89,533
    
    
    $
    0.45
    
    
    
    37,901
    
    
    
    87,178
    
    
    $
    0.43Dillutive units for long-term
compensation plans
    
    
    
    
    
    
    1,407
    
    
    
    
    
    
    
    
    
    
    
    1,622Diluted income from continuing operationsIncome from continuing operations available
to common unitholders and assumed
conversions
    
    
    40,574
    
    
    
    90,940
    

    
    $
    0.45
    
    
    
    37,901
    
    
    
    88,800
    
    
    $
    0.42Basic income from discontinued operationsDiscontinued operations
    
    
    6,882
    
    
    
    89,533
    
    
    $
    0.08
    
    
    
    2,464
    
    
    
    87,178
    
    
    $
    0.03Dillutive units for long-term compensation
plans
    
    
    
    
    
    
    1,407
    
    
    
    
    
    
    
    
    
    
    
    1,622Diluted income from discontinued operationsDiscontinued operations
    
    
    6,882
    
    
    
    90,940
    
    
    $
    0.07
    
    
    
    2,464
    
    
    
    88,800
    
    
    $
    0.03Basic income per common unitIncome available to common unitholders
    
    
    47,456
    
    
    
    89,533
    
    
    $
    0.53
    
    
    
    40,365
    
    
    
    87,178
    
    
    $
    0.46Dillutive units for long-term compensation
plans
    
    
    
    
    
    
    1,407
    
    
    
    
    
    
    
    
    
    
    
    1,622Diluted income per common unitIncome available to common unitholders
and assumed conversions
    
    $
    47,456
    
    
    
    90,940
    
    
    $
    0.52
    
    
    $
    40,365
    
    
    
    88,800
    
    
    $
    0.45
 Foreign Operations The functional currency for the Companys United Kingdom operation is pounds sterling. The
financial statements for the United Kingdom operation are translated 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 component of
owners equity. Other comprehensive loss was $2.2 million for the three months ended March 31,
2005 and other comprehensive income was $4.5 million for the three months ended March 31, 2004. 13




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##### Table of Contents



Note 2: Organization 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, the Operating
Partnership and their respective subsidiaries, are referred to collectively as, the Company). The
Trust is the sole general partner and also a limited partner of the Operating Partnership, owning
96.1% and 95.8% of the common equity of the Operating Partnership at March 31, 2005 and 2004,
respectively. 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 Mid-Atlantic, Southeastern and Midwestern United States. Note 3: Segment Information The Company operates its portfolio of properties primarily throughout the Mid-Atlantic,
Southeastern and Midwestern United States. Additionally, the Company owns certain assets in the
United Kingdom. The Company reviews the performance of the portfolio on a geographical basis, as
such, the following regions are considered the Companys reportable segments: Reportable Segments
    
    MarketsDelaware Valley
    
    Southeastern Pennsylvania; New JerseyMidwest
    
    Lehigh Valley, Pennsylvania; Michigan; Minnesota; Milwaukee; ChicagoMid-Atlantic
    
    Maryland; Piedmont Triad, N.C.; Greenville, S.C.; Richmond;
Virginia BeachFlorida
    
    Jacksonville; Orlando; Boca Raton; Tampa; TexasUnited Kingdom
    
    County of Kent
 The Companys reportable segments are distinct business units which are each managed separately in
order to concentrate market knowledge within a geographic 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): For the Three Months Ended March 31, 2005Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    47,735
    
    
    $
    9,848
    
    
    $
    21,422
    
    
    $
    29,787
    
    
    $
    32,466
    
    
    $
    24,415
    
    
    $
    5,727
    
    
    $
    171,400Rental property expenses
and real estate taxes
    
    
    15,653
    
    
    
    3,778
    
    
    
    5,850
    
    
    
    10,997
    
    
    
    9,481
    
    
    
    7,331
    
    
    
    1,129
    
    
    
    54,219Property level operating
income
    
    $
    32,082
    
    
    $
    6,070
    
    
    $
    15,572
    
    
    $
    18,790
    
    
    $
    22,985
    
    
    $
    17,084
    
    
    $
    4,598
    
    
    $
    117,181Interest and other income
    
    
    1,451Interest expense
    
    
    (33,188
    )General and administrative
    
    
    (8,313
    )Depreciation and amortization
    
    
    (35,100
    )Income before property dispositions, income taxes, minority interest
and equity in earnings (loss) of unconsolidated joint ventures
    
    
    42,031Loss on property dispositions
    
    
    (280
    )Income taxes
    
    
    (534
    )Minority interest
    
    
    13Equity in earnings (loss) of unconsolidated joint ventures
    
    
    2,020Discontinued operations
    
    
    6,882Preferred unit distributions
    
    
    (2,676
    )Income available to common unitholders
    
    $
    47,456
 14




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For the Three Months Ended March 31, 2004Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    45,810
    
    
    $
    8,794
    
    
    $
    18,663
    
    
    $
    29,889
    
    
    $
    29,617
    
    
    $
    22,900
    
    
    $
    4,489
    
    
    $
    160,162Rental property expenses
and real estate taxes
    
    
    14,175
    
    
    
    3,224
    
    
    
    5,717
    
    
    
    10,545
    
    
    
    8,337
    
    
    
    6,634
    
    
    
    1,217
    
    
    
    49,849Property level operating
income
    
    $
    31,635
    
    
    $
    5,570
    
    
    $
    12,946
    
    
    $
    19,344
    
    
    $
    21,280
    
    
    $
    16,266
    
    
    $
    3,272
    
    
    $
    110,313Interest and other income
    
    
    2,717Interest expense
    
    
    (30,252
    )General and administrative
    
    
    (8,482
    )Depreciation and amortization
    
    
    (32,298
    )Income before property dispositions, income taxes, minority interest
and equity in earnings (loss) of unconsolidated joint ventures
    
    
    41,998Loss on property dispositions
    
    
    (330
    )Income taxes
    
    
    (389
    )Minority interest
    
    
    131Equity in earnings (loss) of unconsolidated joint ventures
    
    
    (405
    )Discontinued operations
    
    
    2,464Preferred unit distributions
    
    
    (3,104
    )Income available to common unitholders
    
    $
    40,365
 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 months ended March 31, 2005 were $29.3 million as
compared to $5.5 million for the same period in 2004. Below is a summary of the results of
operations of the properties disposed of through the respective disposition dates (in thousands): Three Months EndedMarch 31, 2005
    
    
    March 31, 2004Revenues
    
    $
    968
    
    
    $
    2,125Operating expenses
    
    
    (643
    )
    
    
    (786
    )Interest expense
    
    
    (259
    )
    
    
    (483
    )Depreciation and amortization
    
    
    (235
    )
    
    
    (489
    )(Loss) income
    
    $
    (169
    )
    
    $
    367
 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: Impact of Recently Issued Accounting Standards In March 2005, the Financial Accounting Standards Board issued FASB Staff Position (FSP) FIN
46(R)-5, Implicit Variable Interests under FASB No. 46 (revised December 2003), Consolidation of
Variable Interest Entities (VIEs). The consolidation requirements of FIN 46(R)-5 are clarified
under FSP FIN 46(R)-5 and expanded to include implicit variable interest as potential VIEs. The
consolidation requirements of FSP FIN 46(R)-5 apply to the first reporting period beginning after
March 3, 2005. The Company was not materially impacted by the provisions of FSP FIN 46(R)-5. Note 6: Unsecured Notes In February 2005, the Company issued $300 million of 5.125% senior unsecured notes maturing on
March 2, 2015. The proceeds from this issuance were used to pay down outstanding borrowings under
the Companys unsecured credit facility and for general corporate purposes. 15




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##### Table of Contents



Item 2: Managements Discussion and Analysis of Financial Condition and Results of
Operations Overview The Company has an ownership interest in and operates 441 industrial and 283 office properties
located primarily in the Mid-Atlantic, Southeastern and Midwestern United States (the Properties
in Operation) totaling 61.9 million square feet. In addition, as of March 31, 2005, the Company
had 20 properties under development (the Properties under Development and, together with the
Properties in Operation, the Properties) and owned 1,652 acres of land, substantially all of
which is zoned for commercial use. Included within the 441 industrial properties above are 27
properties comprising 3.2 million square feet and included within the land above are 268 acres of developable land all owned by
unconsolidated joint ventures. 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 acceptable returns. The Company also acquires properties
which it believes will create long-term value, and disposes of Properties which 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 2005 the Company continued to experience the effects of the generally slow real estate economy
that has persisted since 2002. This economy has presented a particularly difficult real estate
market for landlords. These circumstances impacted many aspects of the Companys business. Revenue from the Properties
in Operation which represents over 90% of the Companys revenue, was
subjected to market conditions characterized by an oversupply of leaseable space and soft demand.
These conditions resulted in downward pressure on rental rates and upward pressure on lease
transaction costs. In the face of these conditions, the Company successfully leased 2.3 million
square feet during the three months ended March 31, 2005 and attained occupancy of 91.3% as of that
date, which it believes represents performance which is substantially better than market. The
Company believes that these trends for the Properties in Operation (i.e., oversupply of leaseable
space, downward pressure on rents, upward pressure on transaction costs), which have persisted in
2003 and 2004, will continue in the aggregate for the remainder of 2005, notwithstanding
improvements in some markets. Although rental rates in certain markets are starting to stabilize
and there will be selected increases in rents on renewal or replacement leases, generally rents on
renewal or replacement leases for 2005 will be less than rents on expiring leases. During the three months ended March 31, 2005, conditions for the acquisition of properties were
very competitive. The Company, however, acquired five buildings representing 1.0 million square
feet and a Total Investment of $64.6 million. These acquisitions generally served to increase the
presence or balance the product mix in markets the Company believes to have significant potential.
For 2005, the Company believes that property acquisitions will be in the $200 to $300 million range
and certain of the acquired properties will be either vacant or under leased. The Company believes
that these properties are more attractively priced and will positively contribute to earnings upon
lease up and stabilization. Dispositions of Properties which no longer fit within the Companys strategic objectives or in
situations where the Company can optimize cash proceeds continued in the first quarter of 2005.
During the first quarter, the Company sold two operating properties representing 294,000 square
feet for proceeds of $29.3 million. In addition, an unconsolidated joint venture in which the
Company has a 25% interest sold three properties representing 397,000 square feet for proceeds to
the joint venture of $21.1 million. The Company anticipates that dispositions will be in the $75
to $150 million range in 2005. In 2005, the Company continued to pursue development opportunities. During the first quarter of
2005, the Company brought into service one development property representing 31,000 square feet and
a Total Investment of $3.6 million and initiated $508.4 million in real estate development,
including the Comcast Center as described below. The Company believes that in 2005 build-to-suit
activity will continue and that conditions in certain markets may continue to support the
initiation of inventory projects (i.e., projects that are less than 75% leased prior to the
commencement of construction). In January 2005, the Company commenced construction of a 1.2
million square foot, $437 million office tower in Philadelphias central business district it
refers to as Comcast Center. Comcast Corporation has signed a lease for 534,000 square feet of
space in this office tower. 16




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##### Table of Contents



The composition of the Companys Properties in Operation as of March 31, 2005 and 2004 is as
follows (in thousands, except dollars and percentages): Net RentPer Square Foot
    
    
    Total Square Feet
    
    
    Percent OccupiedMarch 31,
    
    
    March 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Industrial-Distribution
    
    $
    4.27
    
    
    $
    4.41
    
    
    
    29,200
    
    
    
    25,068
    
    
    
    93.3
    %
    
    
    93.0
    %Industrial-Flex
    
    $
    8.86
    
    
    $
    8.75
    
    
    
    13,249
    
    
    
    13,411
    
    
    
    89.7
    %
    
    
    91.6
    %Office
    
    $
    14.37
    
    
    $
    14.34
    
    
    
    19,499
    
    
    
    18,903
    
    
    
    89.5
    %
    
    
    89.4
    %$
    8.35
    
    
    $
    8.62
    
    
    
    61,948
    
    
    
    57,382
    
    
    
    91.3
    %
    
    
    91.5
    %
 Geographic segment data for the three months ended March 31, 2005 and 2004 are 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, hopes 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; the effect
of prevailing market interest rates; and other risks described from time to time in the Companys
filings with the Securities and Exchange Commission (SEC). Given these uncertainties, readers are
cautioned not to place undue reliance on such statements. Critical Accounting Policies and Estimates Refer to the Companys Annual Report on Form 10-K for the year ended December 31, 2004 for a
discussion of critical accounting policies which include capitalized costs, allowances for doubtful
accounts, impairment of real estate and intangibles. During the three months ended March 31, 2005
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 months ended March 31, 2005 with
the results of operations of the Company for the three months ended March 31, 2004. As a result of
the varying levels of development, acquisition and disposition activities by the Company in 2005
and 2004, 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. This information should be read in conjunction with the accompanying condensed consolidated
financial statements and notes included elsewhere in this report. Comparison of Three Months Ended March 31, 2005 to Three Months Ended March 31, 2004.
The Companys average gross investment in operating real estate owned for the three months ended
March 31, 2005 increased to $4,273.7 million from $3,947.4 million at March 31, 2004. This
increase resulted from the increased investment in real estate acquired or developed, partially
offset by Property dispositions. This increased investment in operating real estate resulted in
increases in rental revenue, rental property operating expenses and real estate taxes, and
depreciation and amortization expense. Total operating revenue increased to $171.4 million for the three months ended March 31, 2005 from
$160.2 million for the three months ended March 31, 2004. This $11.2 million increase was
primarily due to the net increase in investment in real estate. Termination fees which totaled
$2.0 million for the three months ended March 31, 2005 as compared to $1.8 million for the same
period in 2004 accounted for $0.2 million of the increase. Termination Fees are fees that the
Company agrees to accept in consideration for permitting certain tenants to terminate their leases
prior to the contractual expiration date. Termination Fees are included in rental revenue. 17




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##### Table of Contents



The Company evaluates the performance of the Properties in Operation by reportable segment (see
Note 3 to the Companys financial statements). The property level operating income for the Lehigh
Valley and United Kingdom segments increased by 20.3% and 40.5%, respectively, for the three months
ended March 31, 2005 as compared to 2004. There was no significant change in property level
operating income for the Companys other segments. The increase in the Lehigh Valley segment is
primarily due to the delivery of $26.5 million in completed developments and property acquisitions
of $91.6 million in 2004. The increase in the United Kingdom segment is primarily due to an
increase in occupancy. Property level operating income, exclusive of Termination Fees, for the Same Store properties
decreased to $107.5 million for the three months ended March 31, 2005 from $108.5
million for the three months ended March 31, 2004, on a straight line basis (which recognizes
rental revenue evenly over the life of the lease) and decreased to $105.2 million for the three
months ended March 31, 2005 from $105.7 million for the three months ended March 31, 2004 on a cash
basis. These decreases of 0.9% and 0.4%, respectively, were primarily due to decreases in rental
rates. At March 31, 2005, the occupancy of the Same Store portfolio increased to 92.6% as compared
to 92.5% at March 31, 2004. Management generally considers the performance of the Same Store properties to be a useful
financial performance measure because the results are directly comparable from period to period.
Management further believes that the performance comparison should exclude Termination Fees since
they are more event specific and are not representative of ordinary performance results. In
addition, Same Store property level operating income exclusive of Termination Fees is considered,
by management, to be a more reliable indicator of the portfolios baseline performance. The Same
Store properties consist of the 660 properties totaling approximately 52.6 million square feet
owned since January 1, 2004. 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 months ended March 31, 2005
and 2004. Same Store property level operating 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. Investors should review Same Store results, along with
Funds from operations (see Liquidity and Resource section), GAAP net income and cash flow from
operating activities, investing activities and financing activities when trying to understand the
Companys operating performance. Also, set forth below is a reconciliation of Same Store property
level operating income to net income. Three Months Ended March 31,2005
    
    
    2004(in thousands)Same Store:Rental revenue
    
    $
    111,727
    
    
    $
    111,925Operating expenses:Rental property expense
    
    
    36,907
    
    
    
    34,007Real estate taxes
    
    
    14,767
    
    
    
    15,209Operating expense recovery
    
    
    (47,448
    )
    
    
    (45,769
    )Unrecovered operating expenses
    
    
    4,226
    
    
    
    3,447Property level operating income
    
    
    107,501
    
    
    
    108,478Less straight line rent
    
    
    2,258
    
    
    
    2,796Cash basis property level operating income
    
    $
    105,243
    
    
    $
    105,682Reconciliation of non-GAAP financial measure:Property level operating income  same store
    
    $
    107,501
    
    
    $
    108,478Property level operating income  properties purchased or developed
subsequent to January 1, 2004
    
    
    7,681
    
    
    
    15Termination fees
    
    
    1,999
    
    
    
    1,820General and administrative expense
    
    
    (8,313
    )
    
    
    (8,482
    )Depreciation and amortization expense
    
    
    (35,100
    )
    
    
    (32,298
    )Other income (expense)
    
    
    (31,737
    )
    
    
    (27,535
    )Loss on property dispositions
    
    
    (280
    )
    
    
    (330
    )Income taxes
    
    
    (534
    )
    
    
    (389
    )Minority interest
    
    
    (4,249
    )
    
    
    (4,563
    )Equity in earnings (loss) of unconsolidated joint ventures
    
    
    2,020
    
    
    
    (405
    )Discontinued operations, net of minority interest
    
    
    6,613
    
    
    
    2,360Net income
    
    $
    45,601
    
    
    $
    38,671
 18




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##### Table of Contents



General and administrative expenses decreased to $8.3 million for the three months ended March
31, 2005 from $8.5 million for the three months ended March 31, 2004. Increases in salaries and
increases in personnel consistent with the increase in the number of properties and the size of the
Company were offset by decreases in costs relating to the Companys investment in its enterprise
resource planning software. Depreciation and amortization increased to $35.1 million for the three months ended March 31, 2005
from $32.3 million for the three months ended March 31, 2004. The increase was primarily due to
the increase in gross investment in operating real estate during the respective periods and
particularly the increased investment in leasing costs, which are amortized over a relatively
shorter period than buildings and improvements. Interest expense increased to $33.2 million for the three months ended March 31, 2005 from $30.3
million for the three months ended March 31, 2004. This increase was due to an increase in the
average debt outstanding for the respective periods, which was $2,192.9 million in 2005 and
$1,899.5 million in 2004. The effect of the increases in the average debt outstanding was offset
by decreases in the weighted average interest rates for the periods, to 6.63% in 2005 from 6.80% in
2004. 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 March 31, 2005 was $3.6 million as
compared to $3.5 million for the three months ended March 31, 2004. Capitalized development
related salaries and benefits historically represent approximately 1% of the cost of developed
properties brought into service. As a result of the foregoing, the Companys net income increased to $45.6 million for the three
months ended March 31, 2005 from $38.7 million for the three months ended March 31, 2004. Liquidity and Capital Resources As of March 31, 2005, the Company had cash and cash equivalents of $54.7 million, including $17.9
million in restricted cash. Net cash flow provided by operating activities increased to $64.6 million for the three months
ended March 31, 2005 from $62.3 million for the three months ended March 31, 2004. This $2.3
million increase was due to increased cash flow from operating properties due to the greater number
of properties owned in 2005 compared to 2004 and also 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 increased to $131.1 million for the three months ended March
31, 2005 from $44.1 million for the three months ended March 31, 2004. This $87.0 million increase
primarily resulted from an increased investment in properties and an increased investment in land
held for development compared to 2004 partially offset by an increase in proceeds from the
disposition of properties and land. Net cash provided by financing activities was $70.4 million for the three months ended March 31,
2005 compared to $6.6 million used for the three months ended March 31, 2004. This $77.0 million
change was primarily due to the issuance of $300 million of unsecured notes in 2005 offset by net
activity on the unsecured credit facility. 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. The Company funds its development and acquisitions with long-term capital sources including
proceeds from the disposition of Properties. For the three months ended March 31, 2005, these
activities were funded through a $450 million Credit Facility (the $450 million Credit Facility).
The interest rate on borrowings under the credit facility fluctuate 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 $450 million 19




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##### Table of Contents



Credit Facility is 70 basis points over LIBOR. The $450 million Credit Facility expires in January
2006, and has a one year extension option. 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 March 31, 2005 the Companys debt to gross assets ratio was 45.1%, and for the three months
ended March 31, 2005, the earnings to fixed charge coverage ratio was 2.8x. Debt to gross assets
equals total long-term debt and borrowings under the $450 million Credit Facility divided by total
assets plus accumulated depreciation. Earnings to fixed charges equals income from continuing
operations 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 shares and units. As of March 31, 2005, $372.7 million in mortgage loans and $1,755.0 million in unsecured notes were
outstanding with a weighted average interest rate of 6.9%. The interest rates on $2,055.4 million
of mortgage loans and unsecured notes are fixed and range from 5.125% to 9.75%. Interest rates on $72.3
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 6.1
years. The scheduled maturities and principal amortization of the Companys mortgage loans, unsecured
notes and borrowings under the $450 million Credit Facility and the related weighted average
interest rates as of March 31, 2005 are as follows (in thousands, except percentages): MORTGAGES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WEIGHTEDPRINCIPAL
    
    
    PRINCIPAL
    
    
    UNSECURED
    
    
    CREDIT
    
    
    
    
    
    
    AVERAGEAMORTIZATION
    
    
    MATURITIES
    
    
    NOTES
    
    
    FACILITY
    
    
    TOTAL
    
    
    INTEREST RATE2005 (9 months)
    
    $
    6,627
    
    
    $
    145,615
    
    
    $
    
    
    
    $
    
    
    
    $
    152,242
    
    
    
    7.22
    %2006
    
    
    6,767
    
    
    
    70,775
    
    
    
    100,000
    
    
    
    125,000
    
    
    
    302,542
    
    
    
    5.48
    %2007
    
    
    5,855
    
    
    
    1,553
    
    
    
    100,000
    
    
    
    
    
    
    
    107,408
    
    
    
    7.26
    %2008
    
    
    5,512
    
    
    
    34,824
    
    
    
    
    
    
    
    
    
    
    
    40,336
    
    
    
    7.12
    %2009
    
    
    3,110
    
    
    
    46,164
    
    
    
    270,000
    
    
    
    
    
    
    
    319,274
    
    
    
    7.78
    %2010
    
    
    2,121
    
    
    
    4,747
    
    
    
    200,000
    
    
    
    
    
    
    
    206,868
    
    
    
    8.41
    %2011
    
    
    1,713
    
    
    
    3,533
    
    
    
    250,000
    
    
    
    
    
    
    
    255,246
    
    
    
    7.26
    %2012
    
    
    684
    
    
    
    33,060
    
    
    
    235,000
    
    
    
    
    
    
    
    268,744
    
    
    
    6.47
    %2014
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    200,000
    
    
    
    5.65
    %2015
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    
    
    
    
    300,000
    
    
    
    5.13
    %2018
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    100,000
    
    
    
    7.50
    %$
    32,389
    
    
    $
    340,271
    
    
    $
    1,755,000
    
    
    $
    125,000
    
    
    $
    2,252,660
    
    
    
    6.68
    %
 The Company anticipates that it will refinance or retire these maturities through its
available source 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. 20




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##### Table of Contents



The expiring square feet and annual net rent by year for the Properties in Operation as of March
31, 2005 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 Rent2005 (9 months)
    
    
    2,037
    
    
    $
    9,760
    
    
    
    1,493
    
    
    $
    11,879
    
    
    
    2,532
    
    
    $
    36,767
    
    
    
    6,062
    
    
    $
    58,4062006
    
    
    3,479
    
    
    
    13,625
    
    
    
    2,176
    
    
    
    20,034
    
    
    
    1,546
    
    
    
    21,807
    
    
    
    7,201
    
    
    
    55,4662007
    
    
    3,582
    
    
    
    16,580
    
    
    
    1,842
    
    
    
    16,982
    
    
    
    1,916
    
    
    
    27,560
    
    
    
    7,340
    
    
    
    61,1222008
    
    
    4,382
    
    
    
    18,260
    
    
    
    2,160
    
    
    
    20,449
    
    
    
    2,429
    
    
    
    36,312
    
    
    
    8,971
    
    
    
    75,0212009
    
    
    2,829
    
    
    
    13,842
    
    
    
    1,523
    
    
    
    14,708
    
    
    
    2,696
    
    
    
    42,566
    
    
    
    7,048
    
    
    
    71,1162010
    
    
    1,175
    
    
    
    6,154
    
    
    
    913
    
    
    
    9,250
    
    
    
    1,247
    
    
    
    20,812
    
    
    
    3,335
    
    
    
    36,216Thereafter
    
    
    9,754
    
    
    
    51,794
    
    
    
    1,784
    
    
    
    21,495
    
    
    
    5,081
    
    
    
    94,990
    
    
    
    16,619
    
    
    
    168,279TOTAL
    
    
    27,238
    
    
    $
    130,015
    
    
    
    11,891
    
    
    $
    114,797
    
    
    
    17,447
    
    
    $
    280,814
    
    
    
    56,576
    
    
    $
    525,626
 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 4.1
million square feet of Properties under Development as of March 31, 2005 are as follows (dollars in
thousands): Square FeetScheduled
    
    Industrial-
    
    
    Industrial-
    
    
    
    
    
    
    
    
    
    
    Percent
    
    
    TotalIn-Service Date
    
    Distribution
    
    
    Flex
    
    
    Office
    
    
    Total
    
    
    Leased
    
    
    Investment2nd Quarter 2005
    
    
    
    
    
    
    59,080
    
    
    
    74,099
    
    
    
    133,179
    
    
    
    88.8
    %
    
    $
    14,5193rd Quarter 2005
    
    
    117,603
    
    
    
    
    
    
    
    35,157
    
    
    
    152,760
    
    
    
    91.9
    %
    
    
    16,5154th Quarter 2005
    
    
    1,133,600
    
    
    
    
    
    
    
    100,000
    
    
    
    1,233,600
    
    
    
    91.7
    %
    
    
    81,0621st Quarter 2006
    
    
    
    
    
    
    59,080
    
    
    
    102,000
    
    
    
    161,080
    
    
    
    44.0
    %
    
    
    21,1782nd Quarter 2006
    
    
    25,000
    
    
    
    83,200
    
    
    
    872,158
    
    
    
    980,358
    
    
    
    2.3
    %
    
    
    46,9073rd Quarter 2006
    
    
    
    
    
    
    34,500
    
    
    
    88,855
    
    
    
    123,355
    
    
    
    11.2
    %
    
    
    20,7544th Quarter 2006
    
    
    
    
    
    
    
    
    
    
    64,515
    
    
    
    64,515
    
    
    
    
    
    
    
    11,464Thereafter
    
    
    
    
    
    
    
    
    
    
    1,239,818
    
    
    
    1,239,818
    
    
    
    43.1
    %
    
    
    437,347TOTAL
    
    
    1,276,203
    
    
    
    235,860
    
    
    
    2,576,602
    
    
    
    4,088,665
    
    
    
    49.7
    %
    
    $
    649,746
 The Companys existing sources of capital include the public debt and equity markets, proceeds
from Property dispositions, equity contributions by joint venture partners and net cash provided
from operating activities. Additionally, the Company expects to incur variable rate debt, including
borrowings under the $450 million Credit Facility, from time to time. In February 2005, the Company consummated the sale of $300 million principal amount of 5.125%
senior unsecured notes due 2015. The aggregate net proceeds from such issuance was approximately
$296.4 million. The Company used the aggregate net proceeds to pay down outstanding borrowings
under the $450 million Credit Facility and for general corporate purposes. The Company has an effective S-3 shelf registration statement on file with the SEC (the Shelf
Registration Statement). As of May 3, 2005, pursuant to the Shelf Registration Statement, the
Trust had the capacity to issue up to $586.1 million in equity securities and the Operating
Partnership had the capacity to issue up to $306.2 million in debt securities. Investment in Unconsolidated Joint Ventures As of March 31, 2005, the Company had investments in unconsolidated joint ventures, totaling $33.3
million. Calculation of Funds from Operations The National Association of Real Estate Investment Trusts (NAREIT) has issued a standard
definition for Funds from operations (as defined below). The SEC has agreed to the disclosure of
this non-GAAP financial measure on a per share basis in its Release No. 34-47226, Conditions for
Use of Non-GAAP Financial Measures. The Company believes that the calculation of Funds from
operations is helpful to investors and management as it is a measure of the Companys operating
performance that excludes depreciation and amortization and gains and losses from property
dispositions. As a result, year over year comparison of Funds from operations reflects the impact
on operations from trends in occupancy rates, rental rates, operating costs, development
activities, general and administrative expenses, and interest costs, providing perspective not
immediately apparent from net income. In addition, management believes that Funds from operations
provides useful information to the investment community about the Companys financial performance
when compared to other REITs since Funds from operations is generally recognized as the standard
for reporting the operating 21




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##### Table of Contents



performance of a 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 (FFO)
available to common shareholders for the three months ended March 31, 2005, and 2004 are as follows
(in thousands, except per share amounts): Three Months EndedMarch 31,2005
    
    
    2004Basic  Income available to common shareholders
    
    $
    45,601
    
    
    $
    38,671Basic  income available to common shareholders per weighted
average share
    
    $
    .53
    
    
    $
    .46Adjustments:Depreciation and amortization of unconsolidated joint ventures
    
    

    366
    
    
    
    886Depreciation and amortization
    
    
    34,698
    
    
    
    32,012Gain on property dispositions
    
    
    (8,867
    )
    
    
    (1,767
    )Minority
interest share in addback for depreciation and amortization and
gain on property dispositions
    
    
    (1,024
    )
    
    
    (1,311
    )Funds from operations available to common shareholders  basic
    
    $
    70,774
    
    
    $
    68,491Basic Funds from operations available to common shareholders per
weighted average share
    
    $
    .82
    
    
    $
    .82Reconciliation of net income to FFO  diluted:Diluted  income available to common shareholders
    
    $
    45,601
    
    
    $
    38,671Diluted  income available to common shareholders per weighted
average share
    
    $
    .52
    
    
    $
    .45Adjustments:Depreciation and amortization of unconsolidated joint ventures
    
    
    366
    
    
    
    886Depreciation and amortization
    
    
    34,698
    
    
    
    32,012Gain on property dispositions
    
    
    (8,867
    )
    
    
    (1,767
    )Minority interest less preferred share distributions
    
    
    1,855
    
    
    
    1,694Funds from operations available to common shareholders  diluted
    
    $
    73,653
    
    
    $
    71,496Diluted Funds from operations available to common shareholders per
weighted average share
    
    $
    .81
    
    
    $
    .81Reconciliation of weighted average shares:Weighted average common shares  all basic calculations
    
    
    85,867
    
    
    
    83,480Dilutive shares for long term compensation plans
    
    
    1,407
    
    
    
    1,622Diluted shares for net income calculations
    
    
    87,274
    
    
    
    85,102Weighted average common units
    
    
    3,666
    
    
    
    3,698Diluted shares for Funds from operations calculations
    
    
    90,940
    
    
    
    88,800
 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 $450 million Credit Facility bears
interest at a variable rate; therefore, the amount of interest payable under the $450 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. 22




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##### Table of Contents



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, 2004. 
 Item 4: Controls and Procedures Evaluation of Disclosure Controls and Procedures The Companys management, with the participation of its Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule
13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on
this evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded
that its disclosure controls and procedures, as of the end of the period covered by this report,
are functioning effectively to provide reasonable assurance that information required to be
disclosed by the Company in its reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in SECs rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports that are filed or
submitted under the Exchange Act is accumulated and communicated to the Companys management,
including its principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure. A controls system, no matter how well designed and operated, cannot provide absolute assurance that
the objectives of the control 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. Changes in Internal Controls There were no changes in the Companys internal control over financial reporting during the quarter
ended March 31, 2005 that have materially affected or are reasonable likely to materially affect
the Companys internal control over financial reporting. 23




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##### Table of Contents



Part II: Other Information Item 1.
    
    Legal ProceedingsNone.Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity SecuritiesIn February, 2005, certain individuals acquired a total of 150,000 common shares
of beneficial interest of Liberty Property Trust in exchange for the same number of
units of limited partnership interest in Liberty Property Limited Partnership. Such
persons acquired these units of limited partnership interest in connection with their
contribution to the Operating Partnership of certain assets in 1998. The exchange of
the common shares of beneficial interest for the units of limited partnership interest
is exempt from the registration requirement of the Securities Act of 1933, as amended,
pursuant to Section 4 (2) thereunder.Item 3.
    
    Defaults upon Senior SecuritiesNone.Item 4.
    
    Submission of Matters to a Vote of Security HoldersNone.Item 5.
    
    Other InformationNone.Item 6.
    
    Exhibits4.1
    
    Eighth Supplemental Indenture, dated as of March 1, 2005, between Liberty
Property Limited Partnership, as Issuer, and Bank One Trust Company, as Trustee
(Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K/A of the
Registrants, filed with the Securities and Exchange Commission on March 1, 2005).10.1.1*
    
    Liberty Property Trust Amended and Restated Share Incentive Plan dated as of March
15, 2005.10.1.2
    
    Description of Compensation of Non-Employee Trustees (Incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K of the Registrants, filed with the
Securities and Exchange Commission on February 23, 2005).10.2
    
    Form of Restricted Share Grant under the Liberty Property Trust Amended and
Restated Share Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K of the Registrants, filed with the Securities and Exchange
Commission on February 24, 2005).10.3
    
    Form of Option Grant under the Liberty Property Trust Amended and Restated
Share Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Current Report
on Form 8-K of the Registrants, filed with the Securities and Exchange Commission on
February 24, 2005).10.4
    
    Certain Elements of the Liberty Property Trust Executive Compensation Program
(Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of the
Registrants, filed with the Securities and Exchange Commission on February 24, 2005).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.
 24




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##### Table of Contents



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.)
   *
    
    Filed herewith.
    
    Represents a compensatory plan or arrangement. 25




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##### Table of Contents



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
    
    May 6, 2005William P. Hankowsky
    
    DatePresident and Chief Executive Officer/s/ GEORGE J. ALBURGER, JR.
    
    May 6, 2005George J. Alburger, Jr.
    
    DateExecutive Vice President and
Chief Financial Officer
 26




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##### Table of Contents



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 TrustGeneral Partner/s/ WILLIAM P. HANKOWSKY
    
    May 6, 2005William P. Hankowsky
    
    DatePresident and Chief Executive Officer/s/ GEORGE J. ALBURGER, JR.
    
    May 6, 2005George J. Alburger, Jr.
    
    DateExecutive Vice President and Chief
Financial Officer
 27




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##### Table of Contents



EXHIBIT INDEX EXHIBIT NO.
    
    DESCRIPTION10.1.1
    
    Liberty Property Trust Amended and Restated Share Incentive Plan dated as of March 15, 2005.31.1
    
    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.)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.)
    28