##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.
20549


FORM 10-Q

(Mark One)



|[ X ] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|----- |  | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2004

OR



|[     ] |  | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|------- |  | ----------------------------------------------------------------------------------------

For the transition period
from ______________________ to ______________________

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




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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)65 Valley Stream Parkway, Suite 100,Malvern, Pennsylvania
    
    
    19355(Address of Principal Executive Offices)
    
    (Zip Code)Registrants Telephone Number, Including Area Code
    
    (610) 648-1700


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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes üNO

On May 3, 2004, 84,680,073 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, 2004

Index
    
    
    
    PagePart I.
    
    Financial InformationItem 1.
    
    Financial Statements (unaudited)Consolidated balance sheets of Liberty Property Trust at March 31, 2004 and December
31, 2003
    
    
    3Consolidated statements of operations of Liberty Property Trust for the three months
ended March 31, 2004 and March 31, 2003
    
    
    4Consolidated statements of cash flows of Liberty Property Trust for the three months
ended March 31, 2004 and March 31, 2003
    
    
    5Notes to Consolidated Financial Statements for Liberty Property Trust
    
    
    6Consolidated balance sheets of Liberty Property Limited Partnership at March 31,
2004 and December 31, 2003
    
    
    10Consolidated statements of operations of Liberty Property Limited Partnership
at March 31, 2004 and December 31, 2003
    
    
    11Consolidated statements of cash flows of Liberty Property Limited Partnership for
the three months ended March 31, 2004 and March 31, 2003
    
    
    12Notes to Consolidated Financial Statements for Liberty Property Limited Partnership
    
    
    13Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risks
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    24Part II.
    
    Other Information
    
    
    25Signatures for Liberty Property Trust
    
    
    27Signatures for Liberty Property Limited Partnership
    
    
    28Exhibit Index
    
    
    
    
    29


2



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##### 






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

March 31, 2004
    
    December 31, 2003(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    571,819
    
    
    $
    564,332Building and improvements
    
    
    3,398,613
    
    
    
    3,363,608Less accumulated depreciation
    
    
    (613,856
    )
    
    
    (586,736
    )Operating real estate
    
    
    3,356,576
    
    
    
    3,341,204Development in progress
    
    
    68,051
    
    
    
    56,869Land held for development
    
    
    163,166
    
    
    
    162,483Net real estate
    
    
    3,587,793
    
    
    
    3,560,556Cash and cash equivalents
    
    
    34,505
    
    
    
    21,809Restricted cash
    
    
    22,696
    
    
    
    15,292Accounts receivable
    
    
    14,947
    
    
    
    10,896Deferred rent receivable
    
    
    60,647
    
    
    
    58,015Deferred
financing and leasing costs, net of accumulated amortization
(2004, $94,515; 2003, $89,650)
    
    
    98,580
    
    
    
    98,506Investments in unconsolidated joint ventures
    
    
    20,575
    
    
    
    19,631Prepaid expenses and other assets
    
    
    53,872
    
    
    
    49,303Total assets
    
    $
    3,893,615
    
    
    $
    3,834,008LIABILITIESMortgage loans
    
    $
    375,037
    
    
    $
    363,866Unsecured notes
    
    
    1,355,000
    
    
    
    1,355,000Credit facility
    
    
    183,000
    
    
    
    167,000Accounts payable
    
    
    35,487
    
    
    
    14,685Accrued interest
    
    
    19,777
    
    
    
    31,622Dividend payable
    
    
    53,191
    
    
    
    52,384Other liabilities
    
    
    91,553
    
    
    
    96,887Total liabilities
    
    
    2,113,045
    
    
    
    2,081,444Minority interest
    
    
    208,040
    
    
    
    207,667SHAREHOLDERS EQUITYCommon
shares of beneficial interest, $.001 par value, 191,200,000
shares authorized, 84,282,457 (includes 59,100 in treasury) and
83,071,491 (includes 59,100 in treasury) shares issued and
outstanding as of March 31, 2004 and December 31, 2003, respectively
    
    
    84
    
    
    
    83Additional paid-in capital
    
    
    1,659,380
    
    
    
    1,623,446Accumulated other comprehensive income
    
    
    19,182
    
    
    
    14,710Unearned compensation
    
    
    (8,174
    )
    
    
    (3,497
    )Distributions in excess of net income
    
    
    (96,615
    )
    
    
    (88,518
    )Common
shares in treasury, at cost, 59,100 shares as of March 31,
2004 and December 31, 2003
    
    
    (1,327
    )
    
    
    (1,327
    )Total shareholders equity
    
    
    1,572,530
    
    
    
    1,544,897Total liabilities and shareholders equity
    
    $
    3,893,615
    
    
    $
    3,834,008


See accompanying notes.

3



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##### 






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

Three Months EndedMarch 31, 2004
    
    March 31, 2003OPERATING REVENUERental
    
    $
    116,078
    
    
    $
    112,413Operating expense reimbursement
    
    
    46,236
    
    
    
    43,750Total operating revenue
    
    
    162,314
    
    
    
    156,163OPERATING EXPENSERental property
    
    
    34,761
    
    
    
    32,243Real estate taxes
    
    
    15,846
    
    
    
    14,696General and administrative
    
    
    8,482
    
    
    
    5,850Depreciation and amortization
    
    
    32,764
    
    
    
    28,681Total operating expenses
    
    
    91,853
    
    
    
    81,470Operating income
    
    
    70,461
    
    
    
    74,693OTHER INCOME (EXPENSE)Interest and other income
    
    
    2,597
    
    
    
    1,909Interest expense
    
    
    (30,699
    )
    
    
    (30,487
    )Total other income (expense)
    
    
    (28,102
    )
    
    
    (28,578
    )Income
before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    42,359
    
    
    
    46,115(Loss) gain on property dispositions
    
    
    (330
    )
    
    
    598Income taxes
    
    
    (389
    )
    
    
    (578
    )Minority interest
    
    
    (4,578
    )
    
    
    (5,587
    )Equity in earnings of unconsolidated joint ventures
    
    
    (405
    )
    
    
    442Income from continuing operations
    
    
    36,657
    
    
    
    40,990Discontinued
operations, net of minority interest (including net gain on
property dispositions of $2,097 and $163 for the three months ended
March 31, 2004 and 2003)
    
    
    2,014
    
    
    
    597Net income
    
    $
    38,671
    
    
    $
    41,587Earnings per common shareBasic:Income from continuing operations
    
    $
    0.44
    
    
    $
    0.53Income from discontinued operations
    
    
    0.02
    
    
    
    0.01Income per common share  basic
    
    $
    0.46
    
    
    $
    0.54Diluted:Income from continuing operations
    
    $
    0.43
    
    
    $
    0.52Income from discontinued operations
    
    
    0.02
    
    
    
    0.01Income per common share  diluted
    
    $
    0.45
    
    
    $
    0.53Weighted average number of common shares outstandingBasic
    
    
    83,480
    
    
    
    76,814Diluted
    
    
    85,102
    
    
    
    77,851


See accompanying notes.

4



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

Three Months EndedMarch 31, 2004
    
    March 31, 2003OPERATING ACTIVITIESNet income
    
    $
    38,671
    
    
    $
    41,587Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    32,841
    
    
    
    29,029Amortization of deferred financing costs
    
    
    1,041
    
    
    
    913Equity in earnings of unconsolidated joint ventures
    
    
    405
    
    
    
    (442
    )Minority interest in net income
    
    
    4,667
    
    
    
    5,615Gain on property dispositions
    
    
    (1,767
    )
    
    
    (761
    )Noncash compensation
    
    
    938
    
    
    
    419Changes in operating assets and liabilities:Restricted cash
    
    
    (7,404
    )
    
    
    (538
    )Accounts receivable
    
    
    (4,051
    )
    
    
    (130
    )Deferred rent receivable
    
    
    (2,632
    )
    
    
    (1,973
    )Prepaid expenses and other assets
    
    
    (4,002
    )
    
    
    (2,389
    )Accounts payable
    
    
    20,802
    
    
    
    3,404Accrued interest
    
    
    (11,845
    )
    
    
    (12,613
    )Other liabilities
    
    
    (5,334
    )
    
    
    (718
    )Net cash provided by operating activities
    
    
    62,330
    
    
    
    61,403INVESTING ACTIVITIESInvestment in properties
    
    
    (18,833
    )
    
    
    (23,345
    )Investment in unconsolidated joint ventures
    
    
    (1,596
    )
    
    
    (1,145
    )Distributions from unconsolidated joint ventures
    
    
    248
    
    
    
    387Proceeds from disposition of properties/land
    
    
    6,063
    
    
    
    5,040Investment in development in progress
    
    
    (19,681
    )
    
    
    (11,409
    )Investment in land held for development
    
    
    (5,543
    )
    
    
    (925
    )Increase in deferred leasing costs
    
    
    (4,740
    )
    
    
    (5,122
    )Net cash used in investing activities
    
    
    (44,082
    )
    
    
    (36,519
    )FINANCING ACTIVITIESNet proceeds from issuance of common shares
    
    
    35,371
    
    
    
    19,841Proceeds from issuance of unsecured notes
    
    
    
    
    
    
    3,683Proceeds from mortgage loans
    
    
    5,953
    
    
    
    100Repayments of mortgage loans
    
    
    (8,061
    )
    
    
    (1,565
    )Proceeds from credit facility
    
    
    65,500
    
    
    
    202,000Repayments on credit facility
    
    
    (49,500
    )
    
    
    (176,000
    )Increase in deferred financing costs
    
    
    (571
    )
    
    
    (2,492
    )Distributions paid on common shares
    
    
    (50,146
    )
    
    
    (45,806
    )Distributions paid on units
    
    
    (5,158
    )
    
    
    (6,189
    )Net cash used in financing activities
    
    
    (6,612
    )
    
    
    (6,428
    )Increase in cash and cash equivalents
    
    
    11,636
    
    
    
    18,456Increase (decrease) related to foreign currency translation
    
    
    1,060
    
    
    
    (225
    )Cash and cash equivalents at beginning of period
    
    
    21,809
    
    
    
    7,933Cash and cash equivalents at end of period
    
    $
    34,505
    
    
    $
    26,164SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    698
    
    
    $
    3,962Acquisition of properties
    
    
    (11,305
    )
    
    
    (870
    )Assumption of mortgage loans
    
    
    11,305
    
    
    
    870


See accompanying notes.

5



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##### 



Liberty Property Trust
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2004

Note 1: Basis of
Presentation

The accompanying unaudited consolidated financial statements of Liberty
Property Trust (the Trust) and its subsidiaries, including Liberty Property
Limited Partnership (the Operating Partnership) (the Trust, Operating
Partnership and their respective subsidiaries referred to collectively as the
Company), have been prepared in accordance with accounting principles
generally accepted in the United States (US GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by US GAAP for complete financial statements and should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Annual Report on Form 10-K of the Trust and the Operating
Partnership for the year ended December 31, 2003. 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, 2004 and 2003 (in thousands
except per share amounts):

For the Three Months Ended March 31, 2004
    
    For the Three Months Ended March 31, 2003Weighted
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    Shares
    
    Per
    
    Income
    
    Shares
    
    Per(Numerator)
    
    (Denominator)
    
    Share
    
    (Numerator)
    
    (Denominator)
    
    ShareBasic income from continuing operationsIncome from continuing operations
    
    $
    36,657
    
    
    
    83,480
    
    
    $
    0.44
    
    
    $
    40,990
    
    
    
    76,814
    
    
    $
    0.53Dillutive shares for long-term
compensation plans
    
    
    
    
    
    
    1,622
    
    
    
    
    
    
    
    
    
    
    
    1,037Diluted income from continuing operationsIncome from continuing operations and
assumed conversions
    
    
    36,657
    
    
    
    85,102
    
    
    $
    0.43
    
    
    
    40,990
    
    
    
    77,851
    
    
    $
    0.52Basic income from discontinued operationsDiscontinued operations net of minority interest
    
    
    2,014
    
    
    
    83,480
    
    
    $
    0.02
    
    
    
    597
    
    
    
    76,814
    
    
    $
    0.01Dillutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,622
    
    
    
    
    
    
    
    
    
    
    
    1,037Diluted
income from discontinued
operationsDiscontinued operations net of minority interest
    
    
    2,014
    
    
    
    85,102
    
    
    $
    0.02
    
    
    
    597
    
    
    
    77,851
    
    
    $
    0.01Basic income per common shareNet income
    
    
    38,671
    
    
    
    83,480
    
    
    $
    0.46
    
    
    
    41,587
    
    
    
    76,814
    
    
    $
    0.54Dillutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,622
    
    
    
    
    
    
    
    
    
    
    
    1,037Diluted
income per common shareNet income and assumed conversions
    
    $
    38,671
    
    
    
    85,102
    
    
    $
    0.45
    
    
    $
    41,587
    
    
    
    77,851
    
    
    $
    0.53


6



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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 2004 and 2003 is less than that
which would have been recognized if the fair value based method had been
applied to all option awards since the original effective date of SFAS No. 123.
The following table illustrates the effect on net income and earnings per
share if the fair value based method had been applied to all outstanding and
unvested option awards in each period (in thousands, except per share amount).

Three Months Ended March 31,2004
    
    2003Net income
    
    $
    38,671
    
    
    $
    41,587Add:
Share-based employee compensation expense included inreported net income
    
    
    37
    
    
    
    9Deduct: Total share-based employee compensation expensedetermined under fair value based method for all awards
    
    
    (310
    )
    
    
    (500
    )Pro forma net income
    
    $
    38,398
    
    
    $
    41,096Income per common share:Basic  as reported
    
    $
    0.46
    
    
    $
    0.54Basic  pro forma
    
    $
    0.46
    
    
    $
    0.54Diluted  as reported
    
    $
    0.45
    
    
    $
    0.53Diluted  pro forma
    
    $
    0.45
    
    
    $
    0.53


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 income was
$4.5 million for the three months ended March 31, 2004 and other comprehensive
loss was $3.6 million for the three months ended March 31, 2003.

Note 2:
Organization

The Trust is a self-administered and self-managed Maryland real estate
investment trust (a REIT). Substantially all of the Trusts assets are owned
directly or indirectly, and substantially all of the Trusts operations are
conducted directly or indirectly, by the Operating Partnership. The Trust is
the sole general partner and also a limited partner of the Operating
Partnership, owning 95.8% of the common equity of the Operating Partnership at
March 31, 2004. 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, Michigan, Minnesota, Milwaukee/ChicagoMid-Atlantic
    
    Maryland, Piedmont Triad, Greenville, S.C., Richmond/Roanoke, 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, 2004Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    46,314
    
    
    $
    8,859
    
    
    $
    18,663
    
    
    $
    30,232
    
    
    $
    29,617
    
    
    $
    24,140
    
    
    $
    4,489
    
    
    $
    162,314Rental property expenses
and real estate taxes
    
    
    14,267
    
    
    
    3,238
    
    
    
    5,717
    
    
    
    10,689
    
    
    
    8,337
    
    
    
    7,142
    
    
    
    1,217
    
    
    
    50,607Property level operating
income
    
    $
    32,047
    
    
    $
    5,621
    
    
    $
    12,946
    
    
    $
    19,543
    
    
    $
    21,280
    
    
    $
    16,998
    
    
    $
    3,272
    
    
    $
    111,707Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,597Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,699
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,482
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,764
    )Income before property
dispositions, income taxes,
minority interest
and equity in earnings
of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,359Loss on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (330
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (389
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,578
    )Equity in earnings of
unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (405
    )Discontinued operations,
net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,014Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    38,671


For the Three Months Ended March 31, 2003Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    53,011
    
    
    $
    8,722
    
    
    $
    15,094
    
    
    $
    28,557
    
    
    $
    26,383
    
    
    $
    22,223
    
    
    $
    2,173
    
    
    $
    156,163Rental property expenses
and real estate taxes
    
    
    15,295
    
    
    
    3,325
    
    
    
    4,344
    
    
    
    9,683
    
    
    
    7,345
    
    
    
    6,613
    
    
    
    334
    
    
    
    46,939Property level operating
income
    
    $
    37,716
    
    
    $
    5,397
    
    
    $
    10,750
    
    
    $
    18,874
    
    
    $
    19,038
    
    
    $
    15,610
    
    
    $
    1,839
    
    
    $
    109,224Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,909Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,487
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,850
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,681
    )Income before property
dispositions, income taxes,
minority interest
and equity in earnings
of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,115Gain on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    598Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (578
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,587
    )Equity in earnings of
unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    442Discontinued operations,
net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    597Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    41,587


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, 2004 were $5.5
million as compared to $3.7 million for the same period in 2003. 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, 2004
    
    March 31, 2003Revenues
    
    $
    93
    
    
    $
    1,289Operating expenses
    
    
    (28
    )
    
    
    (344
    )Interest expense
    
    
    (36
    )
    
    
    (135
    )Depreciation and amortization
    
    
    (23
    )
    
    
    (348
    )Income before property dispositions and minority interest
    
    $
    6
    
    
    $
    462


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 January 2003, the FASB issued Financial Interpretation No. 46 (FIN No.
46), Consolidation of Variable Interest Entities. The consolidation
requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003. The FASB deferred the effective date for
existing variable interest entities to periods ending after March 15, 2004. FIN
No. 46 requires that a variable interest entity be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable
interest entitys activities or is entitled to receive a majority of the
entitys residual returns or both. The Company was not materially impacted by
the provisions of FIN No. 46.

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

In July 2003, the Company exercised its option to purchase RKL for nominal
consideration. RKL owns six buildings which contain 210,000 square feet of
leaseable space and has planning permission for the development of additional
commercial space. RKL is party to a contract with the County of Kent which
contract entitles RKL to participate in proceeds realized from the sale of
residential land parcels to homebuilders. During the three months ended March
31, 2004 the Company recognized $1.2 million in development fees in conjunction
with the County of Kents sale of residential land.

9



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##### 






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

March 31, 2004
    
    December 31, 2003(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    571,819
    
    
    $
    564,332Building and improvements
    
    
    3,398,613
    
    
    
    3,363,608Less accumulated depreciation
    
    
    (613,856
    )
    
    
    (586,736
    )Operating real estate
    
    
    3,356,576
    
    
    
    3,341,204Development in progress
    
    
    68,051
    
    
    
    56,869Land held for development
    
    
    163,166
    
    
    
    162,483Net real estate
    
    
    3,587,793
    
    
    
    3,560,556Cash and cash equivalents
    
    
    34,505
    
    
    
    21,809Restricted cash
    
    
    22,696
    
    
    
    15,292Accounts receivable
    
    
    14,947
    
    
    
    10,896Deferred rent receivable
    
    
    60,647
    
    
    
    58,015Deferred
financing and leasing costs, net of accumulated amortization
(2004, $94,515; 2003, $89,650)
    
    
    98,580
    
    
    
    98,506Investments in unconsolidated joint ventures
    
    
    20,575
    
    
    
    19,631Prepaid expenses and other assets
    
    
    53,872
    
    
    
    49,303Total assets
    
    $
    3,893,615
    
    
    $
    3,834,008LIABILITIESMortgage loans
    
    $
    375,037
    
    
    $
    363,866Unsecured notes
    
    
    1,355,000
    
    
    
    1,355,000Credit facility
    
    
    183,000
    
    
    
    167,000Accounts payable
    
    
    35,487
    
    
    
    14,685Accrued interest
    
    
    19,777
    
    
    
    31,622Distribution payable
    
    
    53,191
    
    
    
    52,384Other liabilities
    
    
    91,553
    
    
    
    96,887Total liabilities
    
    
    2,113,045
    
    
    
    2,081,444Minority interest
    
    
    3,456
    
    
    
    3,455OWNERS EQUITYGeneral partners equity  common units
    
    
    1,572,530
    
    
    
    1,544,897Limited partners equity  preferred units
    
    
    135,471
    
    
    
    135,471 common units
    
    
    69,113
    
    
    
    68,741Total owners equity
    
    
    1,777,114
    
    
    
    1,749,109Total liabilities and owners equity
    
    $
    3,893,615
    
    
    $
    3,834,008


See accompanying notes.

10



---



##### 






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

Three Months EndedMarch 31, 2004
    
    March 31, 2003OPERATING REVENUERental
    
    $
    116,078
    
    
    $
    112,413Operating expense reimbursement
    
    
    46,236
    
    
    
    43,750Total operating revenue
    
    
    162,314
    
    
    
    156,163OPERATING EXPENSERental property
    
    
    34,761
    
    
    
    32,243Real estate taxes
    
    
    15,846
    
    
    
    14,696General and administrative
    
    
    8,482
    
    
    
    5,850Depreciation and amortization
    
    
    32,764
    
    
    
    28,681Total operating expenses
    
    
    91,853
    
    
    
    81,470Operating income
    
    
    70,461
    
    
    
    74,693OTHER INCOME (EXPENSE)Interest and other income
    
    
    2,597
    
    
    
    1,909Interest expense
    
    
    (30,699
    )
    
    
    (30,487
    )Total other income (expense)
    
    
    (28,102
    )
    
    
    (28,578
    )Income
before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    42,359
    
    
    
    46,115(Loss) gain on property dispositions
    
    
    (330
    )
    
    
    598Income taxes
    
    
    (389
    )
    
    
    (578
    )Minority interest
    
    
    131
    
    
    
    (518
    )Equity in earnings of unconsolidated joint ventures
    
    
    (405
    )
    
    
    442Income from continuing operations
    
    
    41,366
    
    
    
    46,059Discontinued
operations (including net gain on property dispositions of
$2,097 and $163 for the three months ended March 31, 2004 and 2003)
    
    
    2,103
    
    
    
    625Net income
    
    
    43,469
    
    
    
    46,684Preferred unit distributions
    
    
    3,104
    
    
    
    3,104Income available to common unitholders
    
    $
    40,365
    
    
    $
    43,580Earnings per common unitBasic:Income from continuing operations
    
    $
    0.44
    
    
    $
    0.53Income from discontinued operations
    
    
    0.02
    
    
    
    0.01Income per common unit  basic
    
    $
    0.46
    
    
    $
    0.54Diluted:Income from continuing operations
    
    $
    0.43
    
    
    $
    0.52Income from discontinued operations
    
    
    0.02
    
    
    
    0.01Income per common unit  diluted
    
    $
    0.45
    
    
    $
    0.53Weighted average number of common units outstandingBasic
    
    
    87,178
    
    
    
    80,525Diluted
    
    
    88,800
    
    
    
    81,562


See accompanying notes.

11



---



##### 






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

Three Months EndedMarch 31, 2004
    
    March 31, 2003OPERATING ACTIVITIESNet income
    
    $
    43,469
    
    
    $
    46,684Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    32,841
    
    
    
    29,029Amortization of deferred financing costs
    
    
    1,041
    
    
    
    913Equity in earnings of unconsolidated joint ventures
    
    
    405
    
    
    
    (442
    )Minority interest in net income
    
    
    (131
    )
    
    
    518Gain on property dispositions
    
    
    (1,767
    )
    
    
    (761
    )Noncash compensation
    
    
    938
    
    
    
    419Changes in operating assets and liabilities:Restricted cash
    
    
    (7,404
    )
    
    
    (538
    )Accounts receivable
    
    
    (4,051
    )
    
    
    (130
    )Deferred rent receivable
    
    
    (2,632
    )
    
    
    (1,973
    )Prepaid expenses and other assets
    
    
    (4,002
    )
    
    
    (2,389
    )Accounts payable
    
    
    20,802
    
    
    
    3,404Accrued interest
    
    
    (11,845
    )
    
    
    (12,613
    )Other liabilities
    
    
    (5,334
    )
    
    
    (718
    )Net cash provided by operating activities
    
    
    62,330
    
    
    
    61,403INVESTING ACTIVITIESInvestment in properties
    
    
    (18,833
    )
    
    
    (23,345
    )Investment in unconsolidated joint ventures
    
    
    (1,596
    )
    
    
    (1,145
    )Distributions from unconsolidated joint ventures
    
    
    248
    
    
    
    387Proceeds from disposition of properties/land
    
    
    6,063
    
    
    
    5,040Investment in development in progress
    
    
    (19,681
    )
    
    
    (11,409
    )Investment in land held for development
    
    
    (5,543
    )
    
    
    (925
    )Increase in deferred leasing costs
    
    
    (4,740
    )
    
    
    (5,122
    )Net cash used in investing activities
    
    
    (44,082
    )
    
    
    (36,519
    )FINANCING ACTIVITIESProceeds from issuance of unsecured notes
    
    
    
    
    
    
    3,683Proceeds from mortgage loans
    
    
    5,953
    
    
    
    100Repayments of mortgage loans
    
    
    (8,061
    )
    
    
    (1,565
    )Proceeds from credit facility
    
    
    65,500
    
    
    
    202,000Repayments on credit facility
    
    
    (49,500
    )
    
    
    (176,000
    )Increase in deferred financing costs
    
    
    (571
    )
    
    
    (2,492
    )Capital contributions
    
    
    35,371
    
    
    
    19,841Distributions to partners
    
    
    (55,304
    )
    
    
    (51,995
    )Net cash used in financing activities
    
    
    (6,612
    )
    
    
    (6,428
    )Increase in cash and cash equivalents
    
    
    11,636
    
    
    
    18,456Increase (decrease) related to foreign currency translation
    
    
    1,060
    
    
    
    (225
    )Cash and cash equivalents at beginning of period
    
    
    21,809
    
    
    
    7,933Cash and cash equivalents at end of period
    
    $
    34,505
    
    
    $
    26,164SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    698
    
    
    $
    3,962Acquisition of properties
    
    
    (11,305
    )
    
    
    (870
    )Assumption of mortgage loans
    
    
    11,305
    
    
    
    870


See accompanying notes.

12



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##### 






Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2004

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,
2003. 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, 2004 and 2003 (in thousands,
except per unit amounts):

For the Three Months Ended March 31, 2004
    
    For the Three Months Ended March 31, 2003Weighted
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    Units
    
    Per
    
    Income
    
    Units
    
    Per(Numerator)
    
    (Denominator)
    
    Unit
    
    (Numerator)
    
    (Denominator)
    
    UnitIncome from continuing operations
    
    $
    41,366
    
    
    
    
    
    
    
    
    
    
    $
    46,059Less: Preferred unit distributions
    
    
    (3,104
    )
    
    
    
    
    
    
    
    
    
    
    (3,104
    )Basic income from continuing operationsIncome from continuing operations
available to common unitholders
    
    
    38,262
    
    
    
    87,178
    
    
    $
    0.44
    
    
    
    42,955
    
    
    
    80,525
    
    
    $
    0.53Dillutive units for long-term
compensation plans
    
    
    
    
    
    
    1,622
    
    
    
    
    
    
    
    
    
    
    
    1,037Diluted income from continuing operationsIncome from continuing operations available
to common unitholders and assumed
conversions
    
    
    38,262
    
    
    
    88,800
    
    
    $
    0.43
    
    
    
    42,955
    
    
    
    81,562
    
    
    $
    0.52Basic income from discontinued operationsDiscontinued operations
    
    
    2,103
    
    
    
    87,178
    
    
    $
    0.02
    
    
    
    625
    
    
    
    80,525
    
    
    $
    0.01Dillutive units for long-term compensation
plans
    
    
    
    
    
    
    1,622
    
    
    
    
    
    
    
    
    
    
    
    1,037Diluted income from discontinued operationsDiscontinued operations
    
    
    2,103
    
    
    
    88,800
    
    
    $
    0.02
    
    
    
    625
    
    
    
    81,562
    
    
    $
    0.01Basic income per common unitIncome available to common unitholders
    
    
    40,365
    
    
    
    87,178
    
    
    $
    0.46
    
    
    
    43,580
    
    
    
    80,525
    
    
    $
    0.54Dillutive units for long-term compensation
plans
    
    
    
    
    
    
    1,622
    
    
    
    
    
    
    
    
    
    
    
    1,037Diluted income per common unitIncome available to common unitholders
and assumed conversions
    
    $
    40,365
    
    
    
    88,800
    
    
    $
    0.45
    
    
    $
    43,580
    
    
    
    81,562
    
    
    $
    0.53


Stock Based
Compensation
The Trust has a share-based employee compensation plan and as such the
Operating Partnership absorbs a proportionate share of the related compensation
expense. Prior to 2003, the Trust 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
Trust adopted the fair value recognition provisions of the Financial Accounting
Standards Boards (FASB) Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting

13



---



##### 



for Stock-Based Compensation, prospectively to all
employee option awards granted, modified, or settled after January 1, 2003.
Option awards under the Trusts plan vest over three years. Therefore, the
cost related to share-based employee compensation included in the determination
of net income for 2004 and in 2003 is less than that which would have been
recognized if the fair value based method had been applied to all option awards
since the original effective date of SFAS No. 123.

The following table illustrates the effect on net income and earnings per unit
if the fair value based method had been applied to all outstanding and unvested
option awards in each period (in thousands, except per unit amounts).

Three Months Ended March 31,2004
    
    2003Income available to common unitholders
    
    $
    40,365
    
    
    $
    43,580Add: Share-based employee compensation expense included inreported income available to common unitholders
    
    
    37
    
    
    
    9Deduct:
Total share-based employee compensation expensedetermined under fair value based method for all awards
    
    
    (310
    )
    
    
    (500
    )Pro forma income available to common unitholders
    
    $
    40,092
    
    
    $
    43,089Income per common unit:Basic  as reported
    
    $
    0.46
    
    
    $
    0.54Basic  pro forma
    
    $
    0.46
    
    
    $
    0.54Diluted  as reported
    
    $
    0.45
    
    
    $
    0.53Diluted  pro forma
    
    $
    0.45
    
    
    $
    0.53


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 income was $4.5 million for
the three months ended March 31, 2004 and other comprehensive loss was $3.6
million for the three months ended March 31, 2003.

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, Operating
Partnership and their respective subsidiaries, referred to collectively as, the
Company). The Trust is the sole general partner and also a limited partner of
the Operating Partnership, owning 95.8% of the common equity of the Operating
Partnership at March 31, 2004. 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, Michigan, Minnesota, Milwaukee/ChicagoMid-Atlantic
    
    Maryland, Piedmont Triad, Greenville, S.C., Richmond/Roanoke, Virginia BeachFlorida
    
    Jacksonville, Orlando, Boca Raton, Tampa, TexasUnited Kingdom
    
    County of Kent


14



---



##### 



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, 2004Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    46,314
    
    
    $
    8,859
    
    
    $
    18,663
    
    
    $
    30,232
    
    
    $
    29,617
    
    
    $
    24,140
    
    
    $
    4,489
    
    
    $
    162,314Rental property expenses
and real estate taxes
    
    
    14,267
    
    
    
    3,238
    
    
    
    5,717
    
    
    
    10,689
    
    
    
    8,337
    
    
    
    7,142
    
    
    
    1,217
    
    
    
    50,607Property level operating
income
    
    $
    32,047
    
    
    $
    5,621
    
    
    $
    12,946
    
    
    $
    19,543
    
    
    $
    21,280
    
    
    $
    16,998
    
    
    $
    3,272
    
    
    $
    111,707Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,597Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,699
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,482
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,764
    )Income before property
dispositions,
income taxes, minority
interest and equity
in earnings of
unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,359Loss on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (330
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (389
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131Equity in earnings of
unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (405
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,103Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,104
    )Income available to
common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    40,365


For the Three Months Ended March 31, 2003Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    53,011
    
    
    $
    8,722
    
    
    $
    15,094
    
    
    $
    28,557
    
    
    $
    26,383
    
    
    $
    22,223
    
    
    $
    2,173
    
    
    $
    156,163Rental property expenses
and real estate taxes
    
    
    15,295
    
    
    
    3,325
    
    
    
    4,344
    
    
    
    9,683
    
    
    
    7,345
    
    
    
    6,613
    
    
    
    334
    
    
    
    46,939Property level operating
income
    
    $
    37,716
    
    
    $
    5,397
    
    
    $
    10,750
    
    
    $
    18,874
    
    
    $
    19,038
    
    
    $
    15,610
    
    
    $
    1,839
    
    
    $
    109,224Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,909Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,487
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,850
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,681
    )Income before property
dispositions, income taxes,
minority interest
and equity in earnings
of unconsolidated joint
ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,115Gain on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    598Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (578
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (518
    )Equity in earnings of
unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    442Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    625Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,104
    )Income available to
common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    43,580


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

15



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##### 



March 31, 2004 were $5.5 million as compared to $3.7 million for the same period in 2003. 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, 2004
    
    March 31, 2003Revenues
    
    $
    93
    
    
    $
    1,289Operating expenses
    
    
    (28
    )
    
    
    (344
    )Interest expense
    
    
    (36
    )
    
    
    (135
    )Depreciation and amortization
    
    
    (23
    )
    
    
    (348
    )Income before property dispositions
    
    $
    6
    
    
    $
    462


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 January 2003, the FASB issued Financial Interpretation No. 46 (FIN No.
46), Consolidation of Variable Interest Entities. The consolidation
requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003. The FASB deferred the effective date for
existing variable interest entities to periods ending after March 15, 2004. FIN
No. 46 requires that a variable interest entity be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable
interest entitys activities or is entitled to receive a majority of the
entitys residual returns or both. The Company was not materially impacted by
the provisions of FIN No. 46.

Note 6: Purchase of
Rouse Kent Limited (RKL)

In July 2003, the Company exercised its option to purchase RKL for nominal
consideration. RKL owns six buildings which contain 210,000 square feet of
leaseable space and has planning permission for the development of additional
commercial space. RKL is party to a contract with the County of Kent which
contract entitles RKL to participate in proceeds realized from the sale of
residential land parcels to homebuilders. During the three months ended March
31, 2004 the Company recognized $1.2 million in development fees in conjunction
with the County of Kents sale of residential land.

16



---



##### 



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

OVERVIEW

The Company has an ownership interest in and operates 432 industrial and 271
office properties located primarily in the Mid-Atlantic, Southeastern and
Midwestern United States (the Properties in Operation) totaling approximately
57 million square feet. In addition, the Company has 14 properties under
development (the Properties under Development and together with the
Properties in Operation the Properties) and the Company owned 1,084 acres of
land, substantially all of which is zoned for commercial use.

The Company focuses on creating value for shareholders and increasing
profitability and cash flow. With respect to its Properties in Operation, the
Company endeavors to maintain high occupancy levels while increasing rental
rates. The Company pursues development opportunities that it believes will
create value and yield high returns. The Company also acquires properties
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.

During the first quarter of 2004, the Company continued to experience the
effects of what has been a generally slow economy for the last several years.
This economy has been particularly difficult for real estate landlords. These
circumstances impacted many aspects of the Companys business.

Our Properties in Operation, which represent over 95% of our revenue, were
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 related to tenant
inducements (e.g. tenant improvement costs). In the face of these conditions,
the Company successfully leased 2.5 million square feet and attained overall
occupancy of 91.5%, which it believes represents performance which is
substantially better than market. Property level operating income for the
Same Store properties (properties owned since January 1, 2003) declined when
compared to the first quarter of 2003 by 0.3% on a straight line basis and
increased by 0.2% on a cash basis. The trend as to occupancy, rental rate and
transaction costs remained generally consistent from quarter to quarter in 2003
and through the first quarter of 2004. See further discussion of Same Store
results below. The Company believes that, although 2004 will be a year of
transition, these trends for the Properties in Operation  downward pressure on
rents, upward pressure on transaction costs  will continue in the aggregate,
notwithstanding improvements in some markets. Nevertheless, the Company is
hopeful that it will see some improvement in overall occupancy in the latter
part of the year.

The conditions in 2004 for the acquisition of properties so far continue to be
very competitive. During the first quarter of the year, the Company acquired
three buildings representing 238,000 square feet for a total investment of
$24.9 million. The Company believes that the level of acquisitions in 2004
will be in the $100 to $200 million range and will represent a positive
contribution to earnings.

Dispositions of Properties that no longer fit within the Companys strategic
objectives or in situations where it can optimize cash proceeds continued in
2004. During the first quarter of 2004, the Company realized $6.3 million from
the sale of Properties in Operation and land. The Company anticipates that
dispositions will be in the $50 to $100 million range for 2004.

In 2004, the Company continued to pursue development opportunities, primarily
on a build-to-suit basis. The Company delivered $10.2 million of development
properties and initiated development of $5.4 million. This pipeline of
development properties is at a relatively low level as compared to the
Companys historical pace of development. The Company believes that in 2004
build-to-suit activity will continue and that conditions in certain markets may
support the initiation of inventory projects (i.e. projects that are less than
75% leased prior to the commencement of construction). The Company is also
hopeful that it will be in a position in 2004 to initiate development of its
proposed high-rise in Philadelphias central business district, One
Pennsylvania Plaza. The Company is in detailed discussions with various
prospective tenants, some of which are significant enough to justify the
commencement of the development of the proposed 1.3 million square foot office
tower. However, at this time, the Company has not entered into a lease with
any tenant. The land and projected costs associated with this project
aggregate approximately $425 million.

17



---



##### 



The composition of the Companys Properties in Operation as of March 31, 2004
and 2003 is as follows (in thousands, except dollars and percentages):

Net RentPer Square Foot
    
    Total Square Feet
    
    Percent OccupiedMarch 31,
    
    March 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Industrial-Distribution
    
    $
    4.41
    
    
    $
    4.54
    
    
    
    25,068
    
    
    
    23,723
    
    
    
    93.0
    %
    
    
    88.7
    %Industrial-Flex
    
    $
    8.75
    
    
    $
    8.82
    
    
    
    13,411
    
    
    
    13,469
    
    
    
    91.6
    %
    
    
    90.4
    %Office
    
    $
    14.34
    
    
    $
    14.23
    
    
    
    18,903
    
    
    
    17,674
    
    
    
    89.4
    %
    
    
    89.0
    %$
    8.62
    
    
    $
    8.72
    
    
    
    57,382
    
    
    
    54,866
    
    
    
    91.5
    %
    
    
    89.2
    %


Geographic segment data for the three months ended March 31, 2004 and March 31,
2003 is included in Note 3 to the Liberty Property Trust and Liberty Property
Limited Partnership financial statements.

FORWARD-LOOKING STATEMENTS

When used throughout this report, the words believes, anticipates, 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

Refer to the Companys 2003 Annual Report on Form 10-K for a discussion of
critical accounting policies which include capitalized costs, allowances for
doubtful accounts and impairment of real estate. During the three months ended
March 31, 2004 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, 2004 with the results of operations of the Company for
the three months ended March 31, 2003. As a result of the varying level of
development, acquisition and disposition activities by the Company in 2004 and
2003, the overall operating results of the Company during such periods are not
directly comparable. However, certain data, including the Same Store
comparison, do lend themselves to direct comparison (see reconciliation to
comparable GAAP financial measure below).

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

Comparison of the Three
Months Ended March 31, 2004 to the Three Months Ended
March 31, 2003.
The Companys average gross investment in operating real estate owned for the
three months ended March 31, 2004 increased to $3,949.2 million from $3,604.5
million at March 31, 2003. 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. Interest expense also
increased due to the increased borrowings used to fund this increased
investment in real estate.

Total operating revenue increased to $162.3 million for the three months ended
March 31, 2004 from $156.2 million for the three months ended March 31, 2003.
This $6.1 million increase was primarily due to the net increase in investment
in real estate. This is somewhat offset by a decrease in Termination Fees
accepted during the first quarter of 2004 totaling $1.8 million as compared to
$6.1 million for the same period in 2003. Termination Fees are fees that the
Company has agreed to accept in consideration for permitting certain tenants to
terminate their leases prior to the contractual expiration date. Termination
Fees are included in rental revenue.

18



---



##### 



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 United Kingdom and Lehigh Valley
segments increased by 77.9% and 20.4%, respectively, for the three months ended
March 31, 2004 as compared to 2003. The increase in the United Kingdom is due
to the purchase of Rouse Kent Limited on July 1, 2003. The increase in the
Lehigh Valley is due to the delivery of $72.6 million in completed development
during 2003. These increases are partially offset by a decrease in the
operating results of the Delaware Valley segment due to a decrease in rental
rates.

Property level operating income, exclusive of Termination Fees, for the Same
Store properties decreased to $101.1 million for the three months ended March
31, 2004 from $101.4 million for the three months ended March 31, 2003, on a
straight line basis (which recognizes rental revenue evenly over the life of
the lease), and increased to $99.0 million for the three months ended March 31,
2004 from $98.8 million for the three months ended March 31, 2003 on a cash
basis. This essentially flat performance resulted from decreases in rental
rates offset by increases in average occupancy of the Same Store portfolio.

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 639
properties totaling approximately 50.4 million square feet owned since January
1, 2003.

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, 2004 and 2003. Same Store property level
income is a non-GAAP measure and does not represent income before property
dispositions, income taxes and minority interest because it does not reflect
the consolidated operations of the Company. 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 equity REITs operating
performance. Also, set forth below is a reconciliation of Same Store property
level operating income to net income (in thousands).

Three Months EndedMarch 31, 2004
    
    March 31, 2003Same Store:Rental revenue
    
    $
    104,330
    
    
    $
    104,043Operating expenses:Rental property expense
    
    
    31,831
    
    
    
    31,694Real estate taxes
    
    
    14,850
    
    
    
    14,122Operating expense recovery
    
    
    (43,419
    )
    
    
    (43,129
    )Unrecovered operating expenses
    
    
    3,262
    
    
    
    2,687Property level operating income
    
    
    101,068
    
    
    
    101,356Less straight line rent
    
    
    2,029
    
    
    
    2,559Cash basis property level operating income
    
    $
    99,039
    
    
    $
    98,797Reconciliation of non-GAAP financial measure:Property level operating income  same store
    
    $
    101,068
    
    
    $
    101,356Property level operating income  properties purchased or developed
subsequent to January 1, 2003
    
    
    8,819
    
    
    
    1,730Termination fees
    
    
    1,820
    
    
    
    6,138General and administrative expense
    
    
    (8,482
    )
    
    
    (5,850
    )Deprecation and amortization expense
    
    
    (32,764
    )
    
    
    (28,681
    )Other income (expense)
    
    
    (28,102
    )
    
    
    (28,578
    )(Loss) gain on property dispositions
    
    
    (330
    )
    
    
    598Income taxes
    
    
    (389
    )
    
    
    (578
    )Minority interest
    
    
    (4,578
    )
    
    
    (5,587
    )Equity in earnings of unconsolidated joint ventures
    
    
    (405
    )
    
    
    442Discontinued operations, net of minority interest
    
    
    2,014
    
    
    
    597Net income
    
    $
    38,671
    
    
    $
    41,587


19



---



##### 



General and administrative expenses increased to $8.5 million for the three
months ended March 31, 2004 from $5.9 million for the three months ended March
31, 2003. These increases are primarily due to costs relating to the Companys
investment in an enterprise resource planning initiative to update company wide
accounting and business process software, additional cancelled project costs
incurred and costs related to marketing and tenant retention.

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, 2004 was $3.1 million as compared
to $3.2 million for the three months ended March 31, 2003. Included in
capitalized interest costs are the interest costs relating to the Companys
$67.1 million investment (as of March 31, 2004) in its proposed office tower in
Philadelphias central business district. 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 decreased to $38.7
million for the three months ended March 31, 2004 from $41.6 million for the
three months ended March 31, 2003.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2004, the Company had cash and cash equivalents of $57.2
million, including $22.7 million in restricted cash.

Net cash flow provided by operating activities increased to $62.2 million for
the three months ended March 31, 2004 from $61.4 million for the three months
ended March 31, 2003. This $800,000 increase is primarily due to fluctuations
in operating assets and liabilities during the respective periods. Net cash
flow provided by operations is the primary source of liquidity to fund
distributions to shareholders and for the recurring capital expenditures and
leasing transaction costs for the Companys Properties in Operation.

Net cash used in investing activities increased to $44.1 million for the three
months ended March 31, 2004 from $36.5 million for the three months ended March
31, 2003. This increase primarily resulted from the increased investment in
development in progress and land held for development.

Net cash used in financing activities increased to $6.6 million for the three
months ended March 31, 2004 as compared to $6.4 million for the three months
ended March 31, 2003. This $200,000 increase was primarily due to an increased
level of net borrowings under mortgages, offset by the increase in proceeds
from the issuance of common shares. 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, 2004, these activities were funded through a $350
million unsecured credit facility (the $350 million Credit Facility). The
interest rate on borrowings under the $350 million Credit Facility fluctuates
based upon ratings from Moodys Investors Service, Inc. (Moodys), Standard
and Poors Ratings Group (S&P) and Fitch, Inc. (Fitch). The current ratings
for the Companys senior unsecured debt are Baa2, BBB and BBB from Moodys, S&P
and Fitch, respectively. At these ratings, the interest rate for borrowings
under the $350 million Credit Facility is 70 basis points over LIBOR. The $350
million Credit Facility expires in January 2006.

The Company uses debt financing to lower its overall cost of capital in an
attempt to increase the return to shareholders. The Company staggers its debt
maturities and maintains debt levels it considers to be prudent. In determining
its debt levels, the Company considers various financial measures including the
debt to gross assets ratio and the earnings to fixed charge coverage ratio. As
of March 31, 2004 the Companys debt to gross assets ratio was 42.4%, and the
earnings to fixed charge coverage ratio was 2.9x. Debt to gross assets equals
total long-term debt and borrowings under the $350 million Credit Facility
divided by total assets plus accumulated depreciation. Earnings to fixed
charges equals income before property dispositions and minority interest,
including operating activity from discontinued operations, plus interest
expense and depreciation and amortization (including depreciation and
amortization on unconsolidated joint ventures) divided by interest expense,
including capitalized interest, plus distributions on preferred units.

20



---



##### 



As of March 31, 2004, $375.0 million in mortgage loans and $1,355.0 million in
unsecured notes were outstanding with a weighted average interest rate of 7.3%.
The interest rates on $1,655.8 million of mortgage loans and unsecured notes
are fixed and range up to 8.8%. Interest rates on $74.2 million of mortgage
loans float with the base rate of the respective lending bank or a municipal
bond index. The weighted average remaining term for the mortgage loans and
unsecured notes is 5.6 years.

The scheduled maturities and principal amortization of the Companys mortgage
loans, unsecured notes and borrowings under the $350 million Credit Facility
and the related weighted average interest rates as of March 31, 2004 are as
follows (in thousands, except percentages):

Mortgages
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedPrincipal
    
    Principal
    
    Unsecured
    
    Credit
    
    
    
    
    
    AverageAmortization
    
    Maturities
    
    Notes
    
    Facility
    
    Total
    
    Interest Rate2004 (9 months)
    
    $
    6,923
    
    
    $
    44,640
    
    
    $
    100,000
    
    
    $
    
    
    
    $
    151,563
    
    
    
    6.50
    %2005
    
    
    8,215
    
    
    
    115,039
    
    
    
    
    
    
    
    
    
    
    
    123,254
    
    
    
    7.58
    %2006
    
    
    6,078
    
    
    
    62,403
    
    
    
    100,000
    
    
    
    183,000
    
    
    
    351,481
    
    
    
    4.22
    %2007
    
    
    5,200
    
    
    
    1,553
    
    
    
    100,000
    
    
    
    
    
    
    
    106,753
    
    
    
    7.27
    %2008
    
    
    4,823
    
    
    
    34,824
    
    
    
    
    
    
    
    
    
    
    
    39,647
    
    
    
    7.15
    %2009
    
    
    2,500
    
    
    
    42,119
    
    
    
    270,000
    
    
    
    
    
    
    
    314,619
    
    
    
    7.82
    %2010
    
    
    1,866
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    201,866
    
    
    
    8.49
    %2011
    
    
    1,650
    
    
    
    3,533
    
    
    
    250,000
    
    
    
    
    
    
    
    255,183
    
    
    
    7.26
    %2012
    
    
    611
    
    
    
    33,060
    
    
    
    235,000
    
    
    
    
    
    
    
    268,671
    
    
    
    6.47
    %2018
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    100,000
    
    
    
    7.50
    %$
    37,866
    
    
    $
    337,171
    
    
    $
    1,355,000
    
    
    $
    183,000
    
    
    $
    1,913,037
    
    
    
    6.78
    %


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

General

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

The expiring square feet and annual net rent by year for the Properties in
Operation as of March 31, 2004 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 Rent2004 (9 months)
    
    
    1,829
    
    
    $
    7,979
    
    
    
    1,455
    
    
    $
    11,615
    
    
    
    1,472
    
    
    $
    19,825
    
    
    
    4,756
    
    
    $
    39,4192005
    
    
    3,005
    
    
    
    14,869
    
    
    
    2,127
    
    
    
    17,865
    
    
    
    3,019
    
    
    
    42,639
    
    
    
    8,151
    
    
    
    75,3732006
    
    
    2,838
    
    
    
    12,632
    
    
    
    2,150
    
    
    
    21,613
    
    
    
    1,611
    
    
    
    22,818
    
    
    
    6,599
    
    
    
    57,0632007
    
    
    2,788
    
    
    
    13,587
    
    
    
    1,502
    
    
    
    15,047
    
    
    
    1,789
    
    
    
    26,466
    
    
    
    6,079
    
    
    
    55,1002008
    
    
    3,714
    
    
    
    16,039
    
    
    
    2,201
    
    
    
    21,552
    
    
    
    2,310
    
    
    
    35,351
    
    
    
    8,225
    
    
    
    72,9422009
    
    
    1,710
    
    
    
    8,924
    
    
    
    1,050
    
    
    
    10,185
    
    
    
    1,888
    
    
    
    31,333
    
    
    
    4,648
    
    
    
    50,442Thereafter
    
    
    7,439
    
    
    
    40,974
    
    
    
    1,800
    
    
    
    19,558
    
    
    
    4,802
    
    
    
    91,108
    
    
    
    14,041
    
    
    
    151,640TOTAL
    
    
    23,323
    
    
    $
    115,004
    
    
    
    12,285
    
    
    $
    117,435
    
    
    
    16,891
    
    
    $
    269,540
    
    
    
    52,499
    
    
    $
    501,979


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 1.5 million square feet of
Properties under Development as of March 31, 2004 are as follows (dollars in
thousands):

21



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##### 



PercentSquare Feet
    
    
    
    
    
    Leased atScheduled
    
    Industrial-
    
    Industrial-
    
    
    
    
    
    
    
    
    
    March 31,
    
    TotalIn-Service Date
    
    Distribution
    
    Flex
    
    Office
    
    Total
    
    2004
    
    Investment2nd Quarter 2004
    
    
    
    
    
    
    75,400
    
    
    
    35,000
    
    
    
    110,400
    
    
    
    100.0
    %
    
    $
    12,4543rd Quarter 2004
    
    
    363,000
    
    
    
    
    
    
    
    117,145
    
    
    
    480,145
    
    
    
    99.0
    %
    
    
    29,3654th Quarter 2004
    
    
    100,933
    
    
    
    
    
    
    
    80,000
    
    
    
    180,933
    
    
    
    100.0
    %
    
    
    17,4121st Quarter 2005
    
    
    
    
    
    
    
    
    
    
    30,844
    
    
    
    30,844
    
    
    
    69.8
    %
    
    
    3,5062nd Quarter 2005
    
    
    346,500
    
    
    
    
    
    
    
    176,168
    
    
    
    522,668
    
    
    
    8.4
    %
    
    
    36,7543rd Quarter 2005
    
    
    
    
    
    
    
    
    
    
    135,749
    
    
    
    135,749
    
    
    
    60.0
    %
    
    
    28,050TOTAL
    
    
    810,433
    
    
    
    75,400
    
    
    
    574,906
    
    
    
    1,460,739
    
    
    
    62.6
    %
    
    $
    127,541


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

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

The Company has an effective S-3 shelf registration statement on file with the
SEC (the Shelf Registration Statement). As of April 29, 2004, 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 $324.3 million in debt securities.

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 REITs since
Funds from operations is generally recognized as the standard for reporting the
operating 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, 2004 and 2003 are as follows (in thousands, except per
share amounts):

22



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##### 



Three Months EndedMarch 31, 2004
    
    March 31, 2003Reconciliation of net income to FFO  basic:Basic: Net income
    
    $
    38,671
    
    
    $
    41,587Basic  net income per weighted average share
    
    $
    .46
    
    
    $
    .54Adjustments:Depreciation and amortization of unconsolidated joint ventures
    
    
    886
    
    
    
    166Depreciation and amortization
    
    
    32,012
    
    
    
    28,463Gain on property dispositions
    
    
    (1,767
    )
    
    
    (178
    )Minority
interest share in addback for depreciation and amortization,
and gain on property dispositions
    
    
    (1,311
    )
    
    
    (1,286
    )Funds from operations available to common shareholders  basic
    
    $
    68,491
    
    
    $
    68,752Basic
Funds from operations available to common shareholders
per weighted average share
    
    $
    .82
    
    
    $
    .90Reconciliation of net income to FFO  diluted:Diluted : Net income
    
    $
    38,671
    
    
    $
    41,587Diluted  net income per weighted average share
    
    $
    .45
    
    
    $
    .53Adjustments:Depreciation and amortization of unconsolidated joint ventures
    
    
    886
    
    
    
    166Depreciation and amortization
    
    
    32,012
    
    
    
    28,463Gain on property dispositions
    
    
    (1,767
    )
    
    
    (178
    )Minority interest less preferred share distributions
    
    
    1,694
    
    
    
    1,993Funds from operations available to common shareholders  diluted
    
    $
    71,496
    
    
    $
    72,031Diluted
Funds from operations available to common shareholders
per weighted average share
    
    $
    .81
    
    
    $
    .88Reconciliation of weighted average shares:Weighted average common shares  all basic calculations
    
    
    83,480
    
    
    
    76,814Dillutive shares for long term compensation plans
    
    
    1,622
    
    
    
    1,037Diluted shares for net income calculations
    
    
    85,102
    
    
    
    77,851Weighted average common units
    
    
    3,698
    
    
    
    3,711Diluted shares for Funds from operations calculations
    
    
    88,800
    
    
    
    81,562


Inflation

Inflation has remained relatively low during the last three years, and as a
result, it has not had a significant impact on the Company during this period.
The $350 million Credit Facility bears interest at a variable rate; therefore,
the amount of interest payable under the $350 million Credit Facility will be
influenced by changes in short-term interest rates, which tend to be sensitive
to inflation. To the extent an increase in inflation would result in increased
operating costs, such as in insurance, real estate taxes and utilities,
substantially all of the tenants leases require the tenants to absorb these
costs as part of their rental obligations. In addition, inflation also may have
the effect of increasing market rental rates.

23



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##### 



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, 2003.

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.

It should be noted that the design of any system of controls is based in part
on certain assumptions about the likelihood of future events. A control
system, no matter how well designed and implemented, can provide only
reasonable, not absolute assurance, that the objectives of the control system
will be met.

Changes in Internal
Controls
There were no changes in the Companys internal control over financial
reporting during the quarter ended March 31, 2004 that have materially
affected or are reasonable likely to materially affect the Companys internal
control over financial reporting.

24



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##### 



Part II: Other Information

Item 1.
    
    Legal ProceedingsNone.Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity SecuritiesNone.Item 3.
    
    Defaults upon Senior SecuritiesNone.Item 4.
    
    Submission of Matters to a Vote of Security HoldersNone.Item 5.
    
    Other InformationNone.Item 6.
    
    Exhibits and Reports on Form 8-Ka.     Exhibits


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


25



---



##### 



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

a.          Exhibits  Continued

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


b.
    
    Reports of Form 8-KOn February 10, 2004, the Registrants furnished to the SEC Current
Report on Form 8-K reporting Item 12 and containing as an Exhibit
the Press Release dated February 9, 2004 issued by Liberty Property
Trust and Liberty Property Limited Partnership.


* Filed herewith

26



---



##### 






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 7, 2004William
P. Hankowsky
President and Chief Executive Officer
    
    Date/s/ GEORGE J. ALBURGER, JR.
    
    May 7, 2004George
J. Alburger, Jr.
Executive Vice President and Chief Financial Officer
    
    Date


27



---



##### 






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

LIBERTY PROPERTY LIMITED PARTNERSHIP

BY: Liberty Property Trust
General Partner

/s/ WILLIAM P. HANKOWSKY
    
    May 7, 2004William P. Hankowsky
President and Chief Executive Officer
    
    Date/s/ GEORGE J. ALBURGER, JR.
    
    May 7, 2004George J. Alburger, Jr.
Executive Vice President and
Chief Financial Officer
    
    Date


28



---



##### 






EXHIBIT INDEX

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


29