##### Table of Contents



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 THESECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 OR  [   ]
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 For the transition period fromto Commission file numbers:
    
    1-13130 (Liberty Property Trust)1-13132 (Liberty Property Limited Partnership)
   LIBERTY PROPERTY TRUST
LIBERTY PROPERTY LIMITED PARTNERSHIP
 
 (Exact name of registrants as specified in their governing documents) MARYLAND(Liberty Property Trust)
    
    23-7768996PENNSYLVANIA(Liberty Property Limited Partnership)
    
    23-2766549(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)
 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 ü     NO On August 2, 2004, 85,150,855 Common Shares of Beneficial Interest, par value
$.001 per share, of Liberty Property Trust were outstanding. 1




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Liberty Property Trust/Liberty Property Limited Partnership
Form 10-Q for the period ended June 30, 2004 Index
    
    
    
    PagePart I.
    
    Financial InformationItem 1.
    
    Financial Statements (unaudited)Consolidated balance sheets of Liberty Property Trust at June 30, 2004 and December 31, 2003
    
    
    3Consolidated statements of operations of Liberty Property Trust for the three months
ended June 30, 2004 and June 30, 2003
    
    
    4Consolidated statements of operations of Liberty Property Trust for the six months
ended June 30, 2004 and June 30, 2003
    
    
    5Consolidated statements of cash flows of Liberty Property Trust for the six months
ended June 30, 2004 and June 30, 2003
    
    
    6Notes to Consolidated Financial Statements for Liberty Property Trust
    
    
    7Consolidated balance sheets of Liberty Property Limited Partnership at June 30, 2004
and December 31, 2003
    
    
    13Consolidated
statements of operations of Liberty Property Limited Partnership for the
three months ended June 30, 2004 and June 30, 2003
    
    
    14Consolidated statements of operations of Liberty Property Limited Partnership for
the six months ended June 30, 2004 and June 30, 2003
    
    
    15Consolidated statements of cash flows of Liberty Property Limited Partnership for
the six months ended June 30, 2004 and June 30, 2003
    
    
    16Notes to Consolidated Financial Statements for Liberty Property Limited Partnership
    
    
    17Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4.
    
    Controls and Procedures
    
    
    30Part II.
    
    Other Information
    
    
    31Signatures for Liberty Property Trust
    
    
    33Signatures for Liberty Property Limited Partnership
    
    
    34Exhibit Index
    
    
    35
  2




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##### Table of Contents



Part I. Financial Information 
 Item 1. Financial Statements (unaudited) 
 CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(In thousands, except share amounts) June 30, 2004
    
    December 31, 2003(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    579,501
    
    
    $
    564,332Building and improvements
    
    
    3,437,986
    
    
    
    3,363,608Less accumulated depreciation
    
    
    (642,051
    )
    
    
    (586,736
    )Operating real estate
    
    
    3,375,436
    
    
    
    3,341,204Development in progress
    
    
    87,079
    
    
    
    56,869Land held for development
    
    
    166,888
    
    
    
    162,483Net real estate
    
    
    3,629,403
    
    
    
    3,560,556Cash and cash equivalents
    
    
    39,284
    
    
    
    21,809Restricted cash
    
    
    23,164
    
    
    
    15,292Accounts receivable
    
    
    12,029
    
    
    
    10,896Deferred rent receivable
    
    
    63,270
    
    
    
    58,015Deferred financing and leasing costs, net of accumulated amortization
(2004, $100,676; 2003, $89,650)
    
    
    98,187
    
    
    
    98,506Investments in unconsolidated joint ventures
    
    
    20,092
    
    
    
    19,631Prepaid expenses and other assets
    
    
    51,221
    
    
    
    49,303Total assets
    
    $
    3,936,650
    
    
    $
    3,834,008LIABILITIESMortgage loans
    
    $
    373,995
    
    
    $
    363,866Unsecured notes
    
    
    1,355,000
    
    
    
    1,355,000Credit facility
    
    
    219,000
    
    
    
    167,000Accounts payable
    
    
    29,576
    
    
    
    14,685Accrued interest
    
    
    31,660
    
    
    
    31,622Dividend payable
    
    
    53,481
    
    
    
    52,384Other liabilities
    
    
    92,637
    
    
    
    96,887Total liabilities
    
    
    2,155,349
    
    
    
    2,081,444Minority interest
    
    
    207,023
    
    
    
    207,667SHAREHOLDERS EQUITYCommon shares of beneficial interest, $.001 par value, 191,200,000
shares authorized, 84,812,508 (includes 59,100 in treasury) and
83,071,491 (includes 59,100 in treasury) shares issued and
outstanding as of June 30, 2004 and December 31, 2003, respectively
    
    
    85
    
    
    
    83Additional paid-in capital
    
    
    1,675,954
    
    
    
    1,623,446Accumulated other comprehensive income
    
    
    17,896
    
    
    
    14,710Unearned compensation
    
    
    (7,821
    )
    
    
    (3,497
    )Distributions in excess of net income
    
    
    (110,509
    )
    
    
    (88,518
    )Common shares in treasury, at cost, 59,100 shares as of June 30,
2004 and December 31, 2003
    
    
    (1,327
    )
    
    
    (1,327
    )Total shareholders equity
    
    
    1,574,278
    
    
    
    1,544,897Total liabilities and shareholders equity
    
    $
    3,936,650
    
    
    $
    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 EndedJune 30, 2004
    
    June 30, 2003OPERATING REVENUERental
    
    $
    119,471
    
    
    $
    109,167Operating expense reimbursement
    
    
    43,992
    
    
    
    40,565Total operating revenue
    
    
    163,463
    
    
    
    149,732OPERATING EXPENSERental property
    
    
    33,196
    
    
    
    28,088Real estate taxes
    
    
    15,599
    
    
    
    15,447General and administrative
    
    
    8,063
    
    
    
    8,362Depreciation and amortization
    
    
    34,138
    
    
    
    31,115Total operating expenses
    
    
    90,996
    
    
    
    83,012Operating income
    
    
    72,467
    
    
    
    66,720OTHER INCOME (EXPENSE)Interest and other income
    
    
    536
    
    
    
    2,280Interest expense
    
    
    (30,438
    )
    
    
    (31,021
    )Total other income (expense)
    
    
    (29,902
    )
    
    
    (28,741
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    42,565
    
    
    
    37,979Loss on property dispositions
    
    
    (78
    )
    
    
    -Income taxes
    
    
    (458
    )
    
    
    (478
    )Minority interest
    
    
    (4,548
    )
    
    
    (4,670
    )Equity in earnings of unconsolidated joint ventures
    
    
    (125
    )
    
    
    473Income from continuing operations
    
    
    37,356
    
    
    
    33,304Discontinued operations, net of minority interest (including net gain on
property dispositions of $0 and $11,093 for the three months ended
June 30, 2004 and 2003)
    
    
    -
    
    
    
    11,725Net income
    
    $
    37,356
    
    
    $
    45,029Earnings per common shareBasic:Income from continuing operations
    
    $
    0.44
    
    
    $
    0.43Income from discontinued operations
    
    
    -
    
    
    
    0.15Income per
common share  basic
    
    $
    0.44
    
    
    $
    0.58Diluted:Income from continuing operations
    
    $
    0.44
    
    
    $
    0.42Income from discontinued operations
    
    
    -
    
    
    
    0.15Income per
common share  diluted
    
    $
    0.44
    
    
    $
    0.57Distributions per common share
    
    $
    0.605
    
    
    $
    0.60Weighted average number of common shares outstandingBasic
    
    
    84,411
    
    
    
    78,030Diluted
    
    
    85,805
    
    
    
    79,282
 See accompanying notes. 4




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CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts) Six Months EndedJune 30, 2004
    
    June 30, 2003OPERATING REVENUERental
    
    $
    235,549
    
    
    $
    221,580Operating expense reimbursement
    
    
    90,228
    
    
    
    84,315Total operating revenue
    
    
    325,777
    
    
    
    305,895OPERATING EXPENSERental property
    
    
    67,957
    
    
    
    60,331Real estate taxes
    
    
    31,445
    
    
    
    30,143General and administrative
    
    
    16,545
    
    
    
    14,207Depreciation and amortization
    
    
    66,902
    
    
    
    59,796Total operating expenses
    
    
    182,849
    
    
    
    164,477Operating income
    
    
    142,928
    
    
    
    141,418OTHER INCOME (EXPENSE)Interest and other income
    
    
    3,133
    
    
    
    4,189Interest expense
    
    
    (61,137
    )
    
    
    (61,508
    )Total other income (expense)
    
    
    (58,004
    )
    
    
    (57,319
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    84,924
    
    
    
    84,099(Loss) gain on property dispositions
    
    
    (408
    )
    
    
    598Income taxes
    
    
    (847
    )
    
    
    (1,061
    )Minority interest
    
    
    (9,127
    )
    
    
    (10,254
    )Equity in earnings of unconsolidated joint ventures
    
    
    (530
    )
    
    
    915Income from continuing operations
    
    
    74,012
    
    
    
    74,297Discontinued operations, net of minority interest (including net gain on
property dispositions of $2,097 and $11,256 for the six months ended
June 30, 2004 and 2003)
    
    
    2,015
    
    
    
    12,319Net income
    
    $
    76,027
    
    
    $
    86,616Earnings per common shareBasic:Income from continuing operations
    
    $
    0.88
    
    
    $
    0.96Income from discontinued operations
    
    
    0.03
    
    
    
    0.16Income per
common share  basic
    
    $
    0.91
    
    
    $
    1.12Diluted:Income from continuing operations
    
    $
    0.87
    
    
    $
    0.95Income from discontinued operations
    
    
    0.02
    
    
    
    0.15Income per
common share  diluted
    
    $
    0.89
    
    
    $
    1.10Distributions per common share
    
    $
    1.21
    
    
    $
    1.20Weighted average number of common shares outstandingBasic
    
    
    83,947
    
    
    
    77,425Diluted
    
    
    85,454
    
    
    
    78,576
 See accompanying notes. 5




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CONSOLIDATED STATEMENTS OF CASH FLOWS
OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands) Six Months EndedJune 30, 2004
    
    June 30, 2003OPERATING ACTIVITIESNet income
    
    $
    76,027
    
    
    $
    86,616Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    67,020
    
    
    
    60,331Amortization of deferred financing costs
    
    
    1,935
    
    
    
    1,885Equity in earnings of unconsolidated joint ventures
    
    
    530
    
    
    
    (915
    )Minority interest in net income
    
    
    9,215
    
    
    
    10,836Gain on property dispositions
    
    
    (1,689
    )
    
    
    (11,854
    )Noncash compensation
    
    
    1,417
    
    
    
    2,195Changes in operating assets and liabilities:Restricted cash
    
    
    (7,872
    )
    
    
    (1,118
    )Accounts receivable
    
    
    (1,133
    )
    
    
    3,022Deferred rent receivable
    
    
    (5,255
    )
    
    
    (4,554
    )Prepaid expenses and other assets
    
    
    (801
    )
    
    
    5,126Accounts payable
    
    
    14,891
    
    
    
    (1,340
    )Accrued interest
    
    
    38
    
    
    
    (23
    )Other liabilities
    
    
    (4,250
    )
    
    
    (9,642
    )Net cash provided by operating activities
    
    
    150,073
    
    
    
    140,565INVESTING ACTIVITIESInvestment in properties
    
    
    (51,965
    )
    
    
    (34,293
    )Investment in unconsolidated joint ventures
    
    
    (1,520
    )
    
    
    (1,932
    )Distributions from unconsolidated joint ventures
    
    
    529
    
    
    
    2,168Proceeds from disposition of properties/land
    
    
    8,739
    
    
    
    41,100Investment in development in progress
    
    
    (48,847
    )
    
    
    (24,603
    )Investment in land held for development
    
    
    (18,607
    )
    
    
    (6,693
    )Increase in deferred leasing costs
    
    
    (10,461
    )
    
    
    (10,609
    )Net cash used in investing activities
    
    
    (122,132
    )
    
    
    (34,862
    )FINANCING ACTIVITIESNet proceeds from issuance of common shares
    
    
    51,611
    
    
    
    55,247Proceeds from issuance of unsecured notes
    
    
    -
    
    
    
    3,683Repayments of unsecured notes
    
    
    -
    
    
    
    (23,739
    )Proceeds from mortgage loans
    
    
    7,723
    
    
    
    1,212Repayments of mortgage loans
    
    
    (10,043
    )
    
    
    (7,209
    )Proceeds from credit facility
    
    
    151,756
    
    
    
    237,050Repayments on credit facility
    
    
    (99,756
    )
    
    
    (248,050
    )Increase in deferred financing costs
    
    
    (506
    )
    
    
    (2,540
    )Distributions paid on common shares
    
    
    (101,088
    )
    
    
    (92,095
    )Distributions paid on units
    
    
    (10,533
    )
    
    
    (15,734
    )Net cash used in financing activities
    
    
    (10,836
    )
    
    
    (92,175
    )Increase in cash and cash equivalents
    
    
    17,105
    
    
    
    13,528Increase related to foreign currency translation
    
    
    370
    
    
    
    551Cash and cash equivalents at beginning of period
    
    
    21,809
    
    
    
    7,933Cash and cash equivalents at end of period
    
    $
    39,284
    
    
    $
    22,012SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    1,075
    
    
    $
    8,851Acquisition of properties
    
    
    (11,305
    )
    
    
    (870
    )Assumption of mortgage loans
    
    
    11,305
    
    
    
    870Issuance of operating partnership units for property acquisition
    
    
    -
    
    
    
    1,151
 See accompanying notes. 6




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Notes to Consolidated Financial Statements (Unaudited) Liberty Property Trust
Notes to Consolidated Financial Statements (Unaudited)
June 30, 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 and six months ended June 30, 2004 and 2003 (in
thousands except per share amounts): For the Three Months Ended June 30, 2004
    
    For the Three Months Ended June 30, 2003Weighted
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    Shares
    
    Per
    
    Income
    
    Shares
    
    Per(Numerator)
    
    (Denominator)
    
    Share
    
    (Numerator)
    
    (Denominator)
    
    ShareBasic income from continuing operationsIncome from continuing operations
    
    $
    37,356
    
    
    
    84,411
    
    
    $
    0.44
    
    
    $
    33,304
    
    
    
    78,030
    
    
    $
    0.43Dilutive shares for long-term
compensation plans
    
    
    -
    
    
    
    1,394
    
    
    
    
    
    
    
    -
    
    
    
    1,252Diluted income from continuing operationsIncome from continuing operations and
assumed conversions
    
    
    37,356
    
    
    
    85,805
    
    
    $
    0.44
    
    
    
    33,304
    
    
    
    79,282
    
    
    $
    0.42Basic income from discontinued operationsDiscontinued operations net of minority interest
    
    
    -
    
    
    
    84,411
    
    
    $
    -
    
    
    
    11,725
    
    
    
    78,030
    
    
    $
    0.15Dilutive shares for long-term compensation
plans
    
    
    -
    
    
    
    1,394
    
    
    
    
    
    
    
    -
    
    
    
    1,252Diluted income from discontinued operationsDiscontinued operations net of minority interest
    
    
    -
    
    
    
    85,805
    
    
    $
    -
    
    
    
    11,725
    
    
    
    79,282
    
    
    $
    0.15Basic income per common shareNet income
    
    
    37,356
    
    
    
    84,411
    
    
    $
    0.44
    
    
    
    45,029
    
    
    
    78,030
    
    
    $
    0.58Dilutive shares for long-term compensation
plans
    
    
    -
    
    
    
    1,394
    
    
    
    
    
    
    
    -
    
    
    
    1,252Diluted income per common shareNet income and assumed conversions
    
    $
    37,356
    
    
    
    85,805
    
    
    $
    0.44
    
    
    $
    45,029
    
    
    
    79,282
    
    
    $
    0.57
 7




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For the Six Months Ended June 30, 2004
    
    For the Six Months Ended June 30, 2003Weighted
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    Shares
    
    Per
    
    Income
    
    Shares
    
    Per(Numerator)
    
    (Denominator)
    
    Share
    
    (Numerator)
    
    (Denominator)
    
    ShareBasic income from continuing operationsIncome from continuing operations
    
    $
    74,012
    
    
    
    83,947
    
    
    $
    0.88
    
    
    $
    74,297
    
    
    
    77,425
    
    
    $
    0.96Dilutive shares for long-term
compensation plans
    
    
    -
    
    
    
    1,507
    
    
    
    
    
    
    
    -
    
    
    
    1,151Diluted income from continuing operationsIncome from continuing operations and
assumed conversions
    
    
    74,012
    
    
    
    85,454
    
    
    $
    0.87
    
    
    
    74,297
    
    
    
    78,576
    
    
    $
    0.95Basic income from discontinued operationsDiscontinued operations net of minority interest
    
    
    2,015
    
    
    
    83,947
    
    
    $
    0.03
    
    
    
    12,319
    
    
    
    77,425
    
    
    $
    0.16Dilutive shares for long-term compensation
plans
    
    
    -
    
    
    
    1,507
    
    
    
    
    
    
    
    -
    
    
    
    1,151Diluted income from discontinued operationsDiscontinued operations net of minority interest
    
    
    2,015
    
    
    
    85,454
    
    
    $
    0.02
    
    
    
    12,319
    
    
    
    78,576
    
    
    $
    0.15Basic income per common shareNet income
    
    
    76,027
    
    
    
    83,947
    
    
    $
    0.91
    
    
    
    86,616
    
    
    
    77,425
    
    
    $
    1.12Dilutive shares for long-term compensation
plans
    
    
    -
    
    
    
    1,507
    
    
    
    
    
    
    
    -
    
    
    
    1,151Diluted income per common shareNet income and assumed conversions
    
    $
    76,027
    
    
    
    85,454
    
    
    $
    0.89
    
    
    $
    86,616
    
    
    
    78,576
    
    
    $
    1.10
 Stock Based Compensation
At June 30, 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
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003Net income
    
    $
    37,356
    
    
    $
    45,029
    
    
    $
    76,027
    
    
    $
    86,616Add: Share-based employee compensation
expense included in reported net income
    
    
    83
    
    
    
    340
    
    
    
    120
    
    
    
    349Deduct: Total share-based employee compensation
expense determined under fair value based
method for all awards
    
    
    (278
    )
    
    
    (340
    )
    
    
    (588
    )
    
    
    (840
    )Pro forma net income
    
    $
    37,161
    
    
    $
    45,029
    
    
    $
    75,559
    
    
    $
    86,125Income per common share:Basic  as reported
    
    $
    0.44
    
    
    $
    0.58
    
    
    $
    0.91
    
    
    $
    1.12Basic  pro forma
    
    $
    0.44
    
    
    $
    0.58
    
    
    $
    0.90
    
    
    $
    1.11Diluted  as reported
    
    $
    0.44
    
    
    $
    0.57
    
    
    $
    0.89
    
    
    $
    1.10Diluted  pro forma
    
    $
    0.43
    
    
    $
    0.57
    
    
    $
    0.88
    
    
    $
    1.10
 8




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##### Table of Contents



Foreign Operations
The functional currency for the Companys United Kingdom operation is pounds
sterling. The financial statements for the United Kingdom operation are
translated into US dollars prior to the consolidation of these financial
statements with those of the Company. Gains and losses resulting from this
translation are included in accumulated other comprehensive income as a
separate component of shareholders equity. Other comprehensive loss was $1.3
million for the three months ended June 30, 2004 and other comprehensive income
was $4.0 million for the three months ended June 30, 2003. Other comprehensive
income was $3.2 million for the six months ended June 30, 2004 and $2.4 million
for the same period in 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 95.9% of the common equity of the Operating Partnership at
June 30, 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
 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): 9




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##### Table of Contents



For the Three Months Ended June 30, 2004Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    49,362
    
    
    $
    8,619
    
    
    $
    18,080
    
    
    $
    28,974
    
    
    $
    29,476
    
    
    $
    23,923
    
    
    $
    5,029
    
    
    $
    163,463Rental property expenses
and real estate taxes
    
    
    13,375
    
    
    
    2,959
    
    
    
    5,256
    
    
    
    10,528
    
    
    
    8,165
    
    
    
    7,489
    
    
    
    1,023
    
    
    
    48,795Property level operating
income
    
    $
    35,987
    
    
    $
    5,660
    
    
    $
    12,824
    
    
    $
    18,446
    
    
    $
    21,311
    
    
    $
    16,434
    
    
    $
    4,006
    
    
    $
    114,668Interest and other income
    
    
    536Interest expense
    
    
    (30,438
    )General and administrative
    
    
    (8,063
    )Depreciation and amortization
    
    
    (34,138
    )Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures
    
    
    42,565Loss on property dispositions
    
    
    (78
    )Income taxes
    
    
    (458
    )Minority interest
    
    
    (4,548
    )Equity in earnings of unconsolidated joint ventures
    
    
    (125
    )Discontinued operations, net of minority interest
    
    
    -Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,356
 For the Three Months Ended June 30, 2003Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    43,611
    
    
    $
    8,418
    
    
    $
    17,014
    
    
    $
    29,114
    
    
    $
    26,743
    
    
    $
    22,587
    
    
    $
    2,245
    
    
    $
    149,732Rental property expenses
and real estate taxes
    
    
    12,343
    
    
    
    2,551
    
    
    
    4,181
    
    
    
    10,408
    
    
    
    7,375
    
    
    
    6,479
    
    
    
    198
    
    
    
    43,535Property level operating
income
    
    $
    31,268
    
    
    $
    5,867
    
    
    $
    12,833
    
    
    $
    18,706
    
    
    $
    19,368
    
    
    $
    16,108
    
    
    $
    2,047
    
    
    $
    106,197Interest and other income
    
    
    2,280Interest expense
    
    
    (31,021
    )General and administrative
    
    
    (8,362
    )Depreciation and amortization
    
    
    (31,115
    )Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures
    
    
    37,979Gain on property dispositions
    
    
    -Income taxes
    
    
    (478
    )Minority interest
    
    
    (4,670
    )Equity in earnings of unconsolidated joint ventures
    
    
    473Discontinued operations, net of minority interest
    
    
    11,725Net income
    
    $
    45,029
 10




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##### Table of Contents



For the Six Months Ended June 30, 2004Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    95,676
    
    
    $
    17,478
    
    
    $
    36,743
    
    
    $
    59,206
    
    
    $
    59,093
    
    
    $
    48,063
    
    
    $
    9,518
    
    
    $
    325,777Rental property expenses
and real estate taxes
    
    
    27,642
    
    
    
    6,197
    
    
    
    10,973
    
    
    
    21,217
    
    
    
    16,502
    
    
    
    14,632
    
    
    
    2,239
    
    
    
    99,402Property level operating
income
    
    $
    68,034
    
    
    $
    11,281
    
    
    $
    25,770
    
    
    $
    37,989
    
    
    $
    42,591
    
    
    $
    33,431
    
    
    $
    7,279
    
    
    $
    226,375Interest and other income
    
    
    3,133Interest expense
    
    
    (61,137
    )General and administrative
    
    
    (16,545
    )Depreciation and amortization
    
    
    (66,902
    )Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures
    
    
    84,924Loss on property dispositions
    
    
    (408
    )Income taxes
    
    
    (847
    )Minority interest
    
    
    (9,127
    )Equity in earnings of unconsolidated joint ventures
    
    
    (530
    )Discontinued operations, net of minority interest
    
    
    2,015Net income
    
    $
    76,027
 For the Six Months Ended June 30, 2003Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    96,622
    
    
    $
    17,140
    
    
    $
    32,108
    
    
    $
    57,671
    
    
    $
    53,126
    
    
    $
    44,810
    
    
    $
    4,418
    
    
    $
    305,895Rental property expenses
and real estate taxes
    
    
    27,638
    
    
    
    5,876
    
    
    
    8,525
    
    
    
    20,091
    
    
    
    14,720
    
    
    
    13,092
    
    
    
    532
    
    
    
    90,474Property level operating
income
    
    $
    68,984
    
    
    $
    11,264
    
    
    $
    23,583
    
    
    $
    33,579
    
    
    $
    38,406
    
    
    $
    31,717
    
    
    $
    3,886
    
    
    $
    215,421Interest and other income
    
    
    4,189Interest expense
    
    
    (61,508
    )General and administrative
    
    
    (14,207
    )Depreciation and amortization
    
    
    (59,796
    )Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures
    
    
    84,099Gain on property dispositions
    
    
    598Income taxes
    
    
    (1,061
    )Minority interest
    
    
    (10,254
    )Equity in earnings of unconsolidated joint ventures
    
    
    915Discontinued operations, net of minority interest
    
    
    12,319Net income
    
    $
    86,616
 Note 4: SFAS No. 144, Accounting For The Impairment Or Disposal Of Long-Lived Assets In accordance with SFAS No. 144, which the Company adopted on January 1, 2002,
net income and gain/(loss) on the disposition of real estate for properties
sold subsequent to December 31, 2001 are reflected in the consolidated
statements of operations as discontinued operations. The proceeds from the
disposition of properties for the three and six months ended
June 30, 2004 (there were no sales in the second quarter) were
$0 and $5.5 million as compared to $34.8 million and $38.5 million for the same
periods in 2003. Below is a summary of the results of operations of the
properties disposed of through the respective disposition dates (in thousands): 11




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003Revenues
    
    $
    -
    
    
    $
    1,739
    
    
    $
    93
    
    
    $
    3,028Operating expenses
    
    
    -
    
    
    
    (213
    )
    
    
    (28
    )
    
    
    (557
    )Interest expense
    
    
    -
    
    
    
    (156
    )
    
    
    (36
    )
    
    
    (291
    )Depreciation and amortization
    
    
    -
    
    
    
    (187
    )
    
    
    (23
    )
    
    
    (536
    )Income before property dispositions and minority interest
    
    $
    -
    
    
    $
    1,183
    
    
    $
    6
    
    
    $
    1,644
 Gain or loss on disposition on sales of land and development properties
continues to be reflected as a component of income from continuing operations. 12




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##### Table of Contents








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

June 30, 2004
    
    December 31, 2003(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    579,501
    
    
    $
    564,332Building and improvements
    
    
    3,437,986
    
    
    
    3,363,608Less accumulated depreciation
    
    
    (642,051
    )
    
    
    (586,736
    )Operating real estate
    
    
    3,375,436
    
    
    
    3,341,204Development in progress
    
    
    87,079
    
    
    
    56,869Land held for development
    
    
    166,888
    
    
    
    162,483Net real estate
    
    
    3,629,403
    
    
    
    3,560,556Cash and cash equivalents
    
    
    39,284
    
    
    
    21,809Restricted cash
    
    
    23,164
    
    
    
    15,292Accounts receivable
    
    
    12,029
    
    
    
    10,896Deferred rent receivable
    
    
    63,270
    
    
    
    58,015Deferred financing and leasing costs, net of accumulated amortization (2004, $100,676; 2003, $89,650)
    
    
    98,187
    
    
    
    98,506Investments in unconsolidated joint ventures
    
    
    20,092
    
    
    
    19,631Prepaid expenses and other assets
    
    
    51,221
    
    
    
    49,303Total assets
    
    $
    3,936,650
    
    
    $
    3,834,008LIABILITIESMortgage loans
    
    $
    373,995
    
    
    $
    363,866Unsecured notes
    
    
    1,355,000
    
    
    
    1,355,000Credit facility
    
    
    219,000
    
    
    
    167,000Accounts payable
    
    
    29,576
    
    
    
    14,685Accrued interest
    
    
    31,660
    
    
    
    31,622Distribution payable
    
    
    53,481
    
    
    
    52,384Other liabilities
    
    
    92,637
    
    
    
    96,887Total liabilities
    
    
    2,155,349
    
    
    
    2,081,444Minority interest
    
    
    3,418
    
    
    
    3,455OWNERS EQUITYGeneral partners equity  common units
    
    
    1,574,278
    
    
    
    1,544,897Limited partners equity  preferred units
    
    
    135,471
    
    
    
    135,471 common units
    
    
    68,134
    
    
    
    68,741Total owners equity
    
    
    1,777,883
    
    
    
    1,749,109Total liabilities and owners equity
    
    $
    3,936,650
    
    
    $
    3,834,008


See accompanying notes.

13



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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts) Three Months EndedJune 30, 2004
    
    June 30, 2003OPERATING REVENUERental
    
    $
    119,471
    
    
    $
    109,167Operating expense reimbursement
    
    
    43,992
    
    
    
    40,565Total operating revenue
    
    
    163,463
    
    
    
    149,732OPERATING EXPENSERental property
    
    
    33,196
    
    
    
    28,088Real estate taxes
    
    
    15,599
    
    
    
    15,447General and administrative
    
    
    8,063
    
    
    
    8,362Depreciation and amortization
    
    
    34,138
    
    
    
    31,115Total operating expenses
    
    
    90,996
    
    
    
    83,012Operating income
    
    
    72,467
    
    
    
    66,720OTHER INCOME (EXPENSE)Interest and other income
    
    
    536
    
    
    
    2,280Interest expense
    
    
    (30,438
    )
    
    
    (31,021
    )Total other income (expense)
    
    
    (29,902
    )
    
    
    (28,471
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    42,565
    
    
    
    37,979Loss on property dispositions
    
    
    (78
    )
    
    
    -Income taxes
    
    
    (458
    )
    
    
    (478
    )Minority interest
    
    
    166
    
    
    
    -Equity in earnings of unconsolidated joint ventures
    
    
    (125
    )
    
    
    473Income from continuing operations
    
    
    42,070
    
    
    
    37,974Discontinued operations (including net gain on property dispositions of
$0 and $11,093 for the three months ended June 30, 2004 and 2003)
    
    
    -
    
    
    
    12,276Net income
    
    
    42,070
    
    
    
    50,250Preferred unit distributions
    
    
    (3,104
    )
    
    
    (3,104
    )Income available to common unitholders
    
    $
    38,966
    
    
    $
    47,146Earnings per common unitBasic:Income from continuing operations
    
    $
    0.44
    
    
    $
    0.43Income from discontinued operations
    
    
    -
    
    
    
    0.15Income per common unit  basic
    
    $
    0.44
    
    
    $
    0.58Diluted:Income from continuing operations
    
    $
    0.44
    
    
    $
    0.42Income from discontinued operations
    
    
    -
    
    
    
    0.15Income per common unit  diluted
    
    $
    0.44
    
    
    $
    0.57Distributions per common unit
    
    $
    0.605
    
    
    $
    0.60Weighted average number of common units outstandingBasic
    
    
    88,082
    
    
    
    81,695Diluted
    
    
    89,476
    
    
    
    82,947
 See accompanying notes. 14




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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts) Six Months EndedJune 30, 2004
    
    June 30, 2003OPERATING REVENUERental
    
    $
    235,549
    
    
    $
    221,580Operating expense reimbursement
    
    
    90,228
    
    
    
    84,315Total operating revenue
    
    
    325,777
    
    
    
    305,895OPERATING EXPENSERental property
    
    
    67,957
    
    
    
    60,331Real estate taxes
    
    
    31,445
    
    
    
    30,143General and administrative
    
    
    16,545
    
    
    
    14,207Depreciation and amortization
    
    
    66,902
    
    
    
    59,796Total operating expenses
    
    
    182,849
    
    
    
    164,477Operating income
    
    
    142,928
    
    
    
    141,418OTHER INCOME (EXPENSE)Interest and other income
    
    
    3,133
    
    
    
    4,189Interest expense
    
    
    (61,137
    )
    
    
    (61,508
    )Total other income (expense)
    
    
    (58,004
    )
    
    
    (57,319
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    84,924
    
    
    
    84,099(Loss) gain on property dispositions
    
    
    (408
    )
    
    
    598Income taxes
    
    
    (847
    )
    
    
    (1,061
    )Minority interest
    
    
    297
    
    
    
    (518
    )Equity in earnings of unconsolidated joint ventures
    
    
    (530
    )
    
    
    915Income from continuing operations
    
    
    83,436
    
    
    
    84,033Discontinued operations (including net gain on property dispositions of
$2,097 and $11,256 for the six months ended June 30, 2004 and 2003)
    
    
    2,103
    
    
    
    12,901Net income
    
    
    85,539
    
    
    
    96,934Preferred unit distributions
    
    
    (6,208
    )
    
    
    (6,208
    )Income available to common unitholders
    
    $
    79,331
    
    
    $
    90,726Earnings per common unitBasic:Income from continuing operations
    
    $
    0.88
    
    
    $
    0.96Income from discontinued operations
    
    
    0.03
    
    
    
    0.16Income per common unit  basic
    
    $
    0.91
    
    
    $
    1.12Diluted:Income from continuing operations
    
    $
    0.87
    
    
    $
    0.95Income from discontinued operations
    
    
    0.02
    
    
    
    0.15Income per common unit  diluted
    
    $
    0.89
    
    
    $
    1.10Distributions per common unit
    
    $
    1.21
    
    
    $
    1.20Weighted average number of common units outstandingBasic
    
    
    87,632
    
    
    
    81,113Diluted
    
    
    89,139
    
    
    
    82,264
 See accompanying notes. 15




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands) Six Months EndedJune 30, 2004
    
    June 30, 2003OPERATING ACTIVITIESNet income
    
    $
    85,539
    
    
    $
    96,934Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    67,020
    
    
    
    60,331Amortization of deferred financing costs
    
    
    1,935
    
    
    
    1,885Equity in earnings of unconsolidated joint ventures
    
    
    530
    
    
    
    (915
    )Minority interest in net income
    
    
    (297
    )
    
    
    518Gain on property dispositions
    
    
    (1,689
    )
    
    
    (11,854
    )Noncash compensation
    
    
    1,417
    
    
    
    2,195Changes in operating assets and liabilities:Restricted cash
    
    
    (7,872
    )
    
    
    (1,118
    )Accounts receivable
    
    
    (1,133
    )
    
    
    3,022Deferred rent receivable
    
    
    (5,255
    )
    
    
    (4,554
    )Prepaid expenses and other assets
    
    
    (801
    )
    
    
    5,126Accounts payable
    
    
    14,891
    
    
    
    (1,340
    )Accrued interest
    
    
    38
    
    
    
    (23
    )Other liabilities
    
    
    (4,250
    )
    
    
    (9,642
    )Net cash provided by operating activities
    
    
    150,073
    
    
    
    140,565INVESTING ACTIVITIESInvestment in properties
    
    
    (51,965
    )
    
    
    (34,293
    )Investment in unconsolidated joint ventures
    
    
    (1,520
    )
    
    
    (1,932
    )Distributions from unconsolidated joint ventures
    
    
    529
    
    
    
    2,168Proceeds from disposition of properties/land
    
    
    8,739
    
    
    
    41,100Investment in development in progress
    
    
    (48,847
    )
    
    
    (24,603
    )Investment in land held for development
    
    
    (18,607
    )
    
    
    (6,693
    )Increase in deferred leasing costs
    
    
    (10,461
    )
    
    
    (10,609
    )Net cash used in investing activities
    
    
    (122,132
    )
    
    
    (34,862
    )FINANCING ACTIVITIESProceeds from issuance of unsecured notes
    
    
    -
    
    
    
    3,683Repayments of unsecured notes
    
    
    -
    
    
    
    (23,739
    )Proceeds from mortgage loans
    
    
    7,723
    
    
    
    1,212Repayments of mortgage loans
    
    
    (10,043
    )
    
    
    (7,209
    )Proceeds from credit facility
    
    
    151,756
    
    
    
    237,050Repayments on credit facility
    
    
    (99,756
    )
    
    
    (248,050
    )Increase in deferred financing costs
    
    
    (506
    )
    
    
    (2,540
    )Capital contributions
    
    
    51,611
    
    
    
    55,247Distributions to partners
    
    
    (111,621
    )
    
    
    (107,829
    )Net cash used in financing activities
    
    
    (10,836
    )
    
    
    (92,175
    )Increase in cash and cash equivalents
    
    
    17,105
    
    
    
    13,528Increase related to foreign currency translation
    
    
    370
    
    
    
    551Cash and cash equivalents at beginning of period
    
    
    21,809
    
    
    
    7,933Cash and cash equivalents at end of period
    
    $
    39,284
    
    
    $
    22,012SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    1,075
    
    
    $
    8,851Acquisition of properties
    
    
    (11,305
    )
    
    
    (870
    )Assumption of mortgage loans
    
    
    11,305
    
    
    
    870Issuance of operating partnership units for property acquisition
    
    
    -
    
    
    
    1,151
 See accompanying notes. 16




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##### Table of Contents



Liberty Property Limited Partnership
Notes to Consolidated Financial Statements (Unaudited)
June 30, 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  For the Three Months Ended June 30, 2004
    
    For the Three Months Ended June 30, 2003Weighted
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    Units
    
    Per
    
    Income
    
    Units
    
    Per(Numerator)
    
    (Denominator)
    
    Unit
    
    (Numerator)
    
    (Denominator)
    
    UnitIncome from continuing operations
    
    $
    42,070
    
    
    
    
    
    
    
    
    
    
    $
    37,974Less: Preferred unit distributions
    
    
    (3,104
    )
    
    
    
    
    
    
    
    
    
    
    (3,104
    )Basic income from continuing operationsIncome from
continuing operationsavailable to common unitholders
    
    
    38,966
    
    
    
    88,082
    
    
    $
    0.44
    
    
    
    34,870
    
    
    
    81,695
    
    
    $
    0.43Dillutive
units for long-termcompensation plans
    
    
    
    
    
    
    1,394
    
    
    
    
    
    
    
    
    
    
    
    1,252Diluted income from continuing operationsIncome from
continuing operations availableto common unitholders and
assumedconversions
    
    
    38,966
    
    
    
    89,476
    
    
    $
    0.44
    
    
    
    34,870
    
    
    
    82,947
    
    
    $
    0.42Basic income from discontinued operationsDiscontinued operations
    
    
    
    
    
    
    88,082
    
    
    $
    
    
    
    
    12,276
    
    
    
    81,695
    
    
    $
    0. 15Dillutive
units for long-term compensationplans
    
    
    
    
    
    
    1,394
    
    
    
    
    
    
    
    
    
    
    
    1,252Diluted income from discontinued operationsDiscontinued operations
    
    
    
    
    
    
    89,476
    
    
    $
    
    
    
    
    12,276
    
    
    
    82,947
    
    
    $
    0.15Basic income per common unitIncome available to common unitholders
    
    
    38,966
    
    
    
    88,082
    
    
    $
    0.44
    
    
    
    47,146
    
    
    
    81,695
    
    
    $
    0.58Dillutive
units for long-term compensationplans
    
    
    
    
    
    
    1,394
    
    
    
    
    
    
    
    
    
    
    
    1,252Diluted income per common unitIncome
available to common unitholdersand assumed conversions
    
    $
    38,966
    
    
    
    89,476
    
    
    $
    0.44
    
    
    $
    47,146
    
    
    
    82,947
    
    
    $
    0.57
 17




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##### Table of Contents



For the Six Months Ended June 30, 2004
    
    For the Six Months Ended June 30, 2003Weighted
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    Units
    
    Per
    
    Income
    
    Units
    
    Per(Numerator)
    
    (Denominator)
    
    Unit
    
    (Numerator)
    
    (Denominator)
    
    UnitIncome from continuing operations
    
    $
    83,436
    
    
    
    
    
    
    
    
    
    
    $
    84,033Less: Preferred unit distributions
    
    
    (6,208
    )
    
    
    
    
    
    
    
    
    
    
    (6,208
    )Basic income from continuing operationsIncome from
continuing operationsavailable to common unitholders
    
    
    77,228
    
    
    
    87,632
    
    
    $
    0.88
    
    
    
    77,825
    
    
    
    81,113
    
    
    $
    0.96Dillutive units for long-termcompensation plans
    
    
    
    
    
    
    1,507
    
    
    
    
    
    
    
    
    
    
    
    1,151Diluted income from continuing operationsIncome from
continuing operations availableto common unitholders and
assumedconversions
    
    
    77,228
    
    
    
    89,139
    
    
    $
    0.87
    
    
    
    77,825
    
    
    
    82,264
    
    
    $
    0.95Basic income from discontinued operationsDiscontinued operations
    
    
    2,103
    
    
    
    87,632
    
    
    $
    0.03
    
    
    
    12,901
    
    
    
    81,113
    
    
    $
    0.16Dillutive
units for long-term compensationplans
    
    
    
    
    
    
    1,507
    
    
    
    
    
    
    
    
    
    
    
    1,151Diluted income from discontinued operationsDiscontinued operations
    
    
    2,103
    
    
    
    89,139
    
    
    $
    0.02
    
    
    
    12,901
    
    
    
    82,264
    
    
    $
    0.15Basic income per common unitIncome available to common unitholders
    
    
    79,331
    
    
    
    87,632
    
    
    $
    0.91
    
    
    
    90,726
    
    
    
    81,113
    
    
    $
    1.12Dillutive
units for long-term compensationplans
    
    
    
    
    
    
    1,507
    
    
    
    
    
    
    
    
    
    
    
    1,151Diluted income per common unitIncome
available to common unitholdersand assumed conversions
    
    $
    79,331
    
    
    
    89,139
    
    
    $
    0.89
    
    
    $
    90,726
    
    
    
    82,264
    
    
    $
    1.10
 Foreign Operations  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 95.9% of the common equity of the Operating
Partnership at June 30, 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: 18




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##### Table of Contents



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 for the
Operating Partnership by segment is as follows (in thousands): For the Three Months Ended June 30, 2004 
 Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    49,362
    
    
    $
    8,619
    
    
    $
    18,080
    
    
    $
    28,974
    
    
    $
    29,476
    
    
    $
    23,923
    
    
    $
    5,029
    
    
    $
    163,463Rental
property expenses
and real estate taxes
    
    
    13,375
    
    
    
    2,959
    
    
    
    5,256
    
    
    
    10,528
    
    
    
    8,165
    
    
    
    7,489
    
    
    
    1,023
    
    
    
    48,795Property
level operating
income
    
    $
    35,987
    
    
    $
    5,660
    
    
    $
    12,824
    
    
    $
    18,446
    
    
    $
    21,311
    
    
    $
    16,434
    
    
    $
    4,006
    
    
    $
    114,668Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    536Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,438
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,063
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,138
    )Income before property dispositions, income taxes, minority
interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,565Loss on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (458
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,104
    )Income available to common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    38,966
 For the Three Months Ended June 30, 2003 
 Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    43,611
    
    
    $
    8,418
    
    
    $
    17,014
    
    
    $
    29,114
    
    
    $
    26,743
    
    
    $
    22,587
    
    
    $
    2,245
    
    
    $
    149,732Rental
property expenses
and real estate taxes
    
    
    12,343
    
    
    
    2,551
    
    
    
    4,181
    
    
    
    10,408
    
    
    
    7,375
    
    
    
    6,479
    
    
    
    198
    
    
    
    43,535Property
level operating
income
    
    $
    31,268
    
    
    $
    5,867
    
    
    $
    12,833
    
    
    $
    18,706
    
    
    $
    19,368
    
    
    $
    16,108
    
    
    $
    2,047
    
    
    $
    106,197Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,280Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,021
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,362
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,115
    )Income before property dispositions, income taxes, minority
interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,979Gain on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (478
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    473Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,276Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,104
    )Income available to common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    47,146
 19




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##### Table of Contents



For the Six Months Ended June 30, 2004 
 Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    95,676
    
    
    $
    17,478
    
    
    $
    36,743
    
    
    $
    59,206
    
    
    $
    59,093
    
    
    $
    48,063
    
    
    $
    9,518
    
    
    $
    325,777Rental
property expenses
and real estate taxes
    
    
    27,642
    
    
    
    6,197
    
    
    
    10,973
    
    
    
    21,217
    
    
    
    16,502
    
    
    
    14,632
    
    
    
    2,239
    
    
    
    99,402Property
level operating
income
    
    $
    68,034
    
    
    $
    11,281
    
    
    $
    25,770
    
    
    $
    37,989
    
    
    $
    42,591
    
    
    $
    33,431
    
    
    $
    7,279
    
    
    $
    226,375Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,133Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61,137
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,545
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66,902
    )Income
before property dispositions, income taxes, minority interestand equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,924Loss on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (408
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (847
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    297Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (530
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,103Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,208
    )Income available to common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    79,331
 For the Six Months Ended June 30, 2003 
 Delaware Valley
    
    MidwestSoutheastern
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    Other
    
    Valley
    
    Other
    
    Mid-Atlantic
    
    Florida
    
    Kingdom
    
    TotalOperating revenue
    
    $
    96,622
    
    
    $
    17,140
    
    
    $
    32,108
    
    
    $
    57,671
    
    
    $
    53,126
    
    
    $
    44,810
    
    
    $
    4,418
    
    
    $
    305,895Rental
property expenses
and real estate taxes
    
    
    27,638
    
    
    
    5,876
    
    
    
    8,525
    
    
    
    20,091
    
    
    
    14,720
    
    
    
    13,092
    
    
    
    532
    
    
    
    90,474Property
level operating
income
    
    $
    68,984
    
    
    $
    11,264
    
    
    $
    23,583
    
    
    $
    33,579
    
    
    $
    38,406
    
    
    $
    31,717
    
    
    $
    3,886
    
    
    $
    215,421Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,189Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61,508
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,207
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59,796
    )Income
before property dispositions, income taxes, minority interestand equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,099Gain on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    598Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,061
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (518
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    915Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,901Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,208
    )Income available to common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    90,726
 Note 4: SFAS No. 144, Accounting For The Impairment Or Disposal Of Long-Lived Assets In accordance with SFAS No. 144, which the Company adopted on January 1, 2002,
net income and gain/(loss) on the disposition of real estate for properties
sold subsequent to December 31, 2001 are reflected in the consolidated
statements of operations as discontinued operations. The proceeds from the
disposition of properties for the three and six months ended June 30, 2004
(there were no sales in the second quarter) were $0 and $5.5 million as
compared to $34.8 million and $38.5 million for the same periods in 2003. Below
is a summary of the results of operations of the properties disposed of through
the respective disposition dates (in thousands): 20




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003Revenues
    
    $
    
    
    
    $
    1,739
    
    
    $
    93
    
    
    $
    3,028Operating expenses
    
    
    
    
    
    
    (213
    )
    
    
    (28
    )
    
    
    (557
    )Interest expense
    
    
    
    
    
    
    (156
    )
    
    
    (36
    )
    
    
    (291
    )Depreciation and amortization
    
    
    
    
    
    
    (187
    )
    
    
    (23
    )
    
    
    (536
    )Income before property dispositions
    
    $
    
    
    
    $
    1,183
    
    
    $
    6
    
    
    $
    1,644
 Gain or loss on disposition on sales of land and development properties
continues to be reflected as a component of income from continuing operations. 21




---



##### Table of Contents



Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW The Company has an ownership interest in and operates 435 industrial and 273
office properties located primarily in the Mid-Atlantic, Southeastern and
Midwestern United States (the Properties in Operation) totaling approximately
58 million square feet. In addition, the Company has 19 properties under
development (the Properties under Development and together with the
Properties in Operation the Properties) and owns 1,123 acres of land,
substantially all of which is zoned for commercial use. The Company focuses on creating value for shareholders and increasing
profitability and cash flow. With respect to its Properties in Operation, the
Company endeavors to maintain high occupancy levels while increasing rental
rates. The Company pursues development opportunities that it believes will
create value and yield high returns. The Company also acquires properties that
it believes will create long-term value, and disposes of Properties that no
longer fit within the Companys strategic objectives or in situations where it
can optimize cash proceeds. The Companys operating results depend primarily
upon income from rental operations and are substantially influenced by rental
demand for the Properties in Operation. During the second 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 3.0 million square feet during the second
quarter of 2004 and attained overall occupancy of 91.2%, which it believes
represents performance that is better than market. Property level operating
income for the Same Store properties (properties owned since January 1, 2003)
decreased by 1.9% on both a cash basis and a straight line basis for the
quarter ended June 30, 2004 as compared to the quarter ended June 30, 2003.
For the six month period ended June 30, 2004, property level operating income
for the Same Store properties decreased by 0.8% on a cash basis and by 1.1% on
a straight line basis, as compared to the six month period ended June 30, 2003.
Trends relating to occupancy, rental rate and transaction costs remained
generally consistent from quarter to quarter in 2003 and through the first two
quarters 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. Conditions so far in 2004 for the acquisition of properties continue to be very
competitive. During the second quarter of the year, the Company acquired two
buildings representing 395,000 square feet for a total investment of $23.2
million. Year to date, the Company invested $48.0 million in 633,000 square
feet of properties. The Company believes that the level of property
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 have continued
in 2004. The Company realized $2.9 million from the sale of land during the
second quarter of 2004 and has realized in the aggregate $9.2 million from the
sale of Properties in Operation and land year to date. The Company anticipates
that dispositions will be in the $50 to $100 million range for 2004. In 2004, the Company has continued to pursue development opportunities,
primarily on a build-to-suit basis. During the second quarter of 2004, the
Company delivered $17.3 million ($27.3 million year to date) of development
properties and initiated development of $36.4 million. This pipeline of
development properties is at a relatively low level as compared to the
Companys historical pace of development which is appropriate given market
conditions. The Company believes that for the remainder of 2004, build-to-suit
activity will continue and that conditions in certain markets have supported
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 One
Pennsylvania Plaza, its proposed high-rise in Philadelphias central business
district. Although the Company is in detailed discussions with
Comcast Corporation (Comcast) and other prospective
tenants for the property, some of which are significant enough to justify the
commencement of the development of the proposed 1.3 million square foot office
tower, the Company has not entered into a lease with any tenant. Furthermore,
the legislation that the Company and Comcast were pursuing that would have
designated the site with certain tax advantages has not been approved by the
Pennsylvania legislature. The Company is evaluating this and other factors to
determine the projects structure and feasibility. The land and projected
costs associated with this project aggregate approximately $425 million. As of
June 30, 2004, the Company has invested $68.9 million in the project and
capitalized costs for the project for the second quarter were
approximately $1 million. 22




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##### Table of Contents



The composition of the Companys Properties in Operation as of June 30, 2004
and 2003 is as follows (in thousands, except dollars and percentages): Net RentPer Square Foot
    
    Total Square Feet
    
    Percent OccupiedJune 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Industrial-Distribution
    
    $
    4.33
    
    
    $
    4.50
    
    
    
    25,463
    
    
    
    20,437
    
    
    
    92.7
    %
    
    
    93.1
    %Industrial-Flex
    
    $
    8.81
    
    
    $
    8.78
    
    
    
    13,487
    
    
    
    13,355
    
    
    
    90.1
    %
    
    
    90.5
    %Office
    
    $
    14.32
    
    
    $
    14.21
    
    
    
    18,969
    
    
    
    17,836
    
    
    
    89.9
    %
    
    
    89.5
    %$
    8.59
    
    
    $
    8.89
    
    
    
    57,919
    
    
    
    51,628
    
    
    
    91.2
    %
    
    
    91.2
    %
 Geographic segment data for the three and six months ended June 30, 2004 and
June 30, 2003 are included in Note 3 to the Liberty Property Trust and Liberty
Property Limited Partnership financial statements. FORWARD-LOOKING STATEMENTS When used throughout this report, the words believes, anticipates, hopes
and expects and similar expressions are intended to identify forward-looking
statements. Such statements indicate that assumptions have been used that are
subject to a number of risks and uncertainties which could cause actual
financial results or management plans and objectives to differ materially from
those projected or expressed herein, including: the effect of national and
regional economic conditions; rental demand; the Companys ability to identify
and secure additional properties and sites that meet its criteria for
acquisition or development; the availability and cost of capital; the effect of
prevailing market interest rates; and other risks described from time to time
in the Companys filings with the Securities and Exchange Commission (SEC).
Given these uncertainties, readers are cautioned not to place undue reliance on
such statements. CRITICAL ACCOUNTING POLICIES 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 and six
months ended June 30, 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
and six months ended June 30, 2004 with the results of operations of the
Company for the three and six months ended June 30, 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 and Six Months Ended June 30, 2004 to the Three and Six
Months Ended June 30, 2003.
The Companys average gross investment in operating real estate owned for the
three months ended June 30, 2004 increased to $3,993.9 million from $3,680.9
million at June 30, 2003 and for the six months ended June 30, 2004 increased
to $3,972.7 million from $3,638.4 million at June 30, 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. 23




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##### Table of Contents



Total operating revenue increased to $163.5 million for the three months ended
June 30, 2004 from $149.7 million for the three months ended June 30, 2003 and
increased to $325.8 million for the six months ended June 30, 2004 from $305.9
million for the six months ended June 30, 2003. The $13.8 million increase
during the second quarter is primarily due to the net increase in investment in
real estate and the increase in Termination Fees accepted during the second
quarter 2004, totaling $4.4 million as compared to $2.3 million for the same
period in 2003. The $19.9 million increase during the six months ended June
30, 2004 compared to the six months ended June 30, 2003 was primarily due to
the net increase in investment in real estate, partially offset by a decrease
in Termination Fees accepted during the six months ended June 30, 2004
totaling $6.2 million as compared to $8.5 million for the six months ended June
30, 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. 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 Delaware Valley, Mid-Atlantic, and
United Kingdom segments increased by 12.2%, 10.0% and 95.7%, respectively, for
the three months ended June 30, 2004 as compared to 2003. There was no
significant change in property level operating income for the Companys other
segments. The increase in the Delaware Valley segment results is primarily due
to $4.1 million in termination fees accepted during the second quarter of 2004
and there were no termination fees during the second quarter of 2003. The
increase in the Mid-Atlantic segment resulted from property acquisitions that
were made during 2003 and 2004. The increase in the United Kingdom segment is
due to the purchase of Rouse Kent Limited in July 1, 2003. The property level
operating income for the Midwest, Mid-Atlantic and the United Kingdom segments
increased by 11.5%, 10.9% and 87.3%, respectively, for the six months ended
June 30, 2004 as compared to 2003. There was no significant change in property
level operating income for the Companys other segments. The increase in the
Midwest segment is due to the delivery of $72.6 million in completed
developments during 2003. The increase for the
Mid-Atlantic and United Kingdom segments for the six month periods are the same
as delineated for the quarterly periods above. Property level operating income, exclusive of Termination Fees, for the Same
Store properties decreased by $1.9 million for the three months ended June 30,
2004 as compared to the three months ended June 30, 2003 on a straight-line
basis (which recognizes rental revenue evenly over the life of the lease), and
decreased by $1.8 million for the three months ended June 30, 2004 as compared
to the three months ended June 30, 2003 on a cash basis. These decreases of
1.9% are primarily due to a higher than usual level of unrecoverable operating
expenses during the second quarter of 2004. Property level operating income, exclusive of Termination Fees, for the Same
Store properties decreased by $2.2 million for the six months ended June 30,
2004 as compared to the six months ended June 30, 2003 on a straight-line
basis, and decreased by $1.6 million for the six months ended June 30, 2004 as
compared to the six months ended June 30, 2003 on a cash basis. These
decreases of 1.1% and 0.8%, respectively, are due to the higher than usual
level of unrecoverable operating expenses during the second quarter of 2004. Management generally considers the performance of the Same Store properties to
be a useful financial performance measure because the results are directly
comparable from period to period. Management further believes that the
performance comparison should exclude Termination Fees since they are more
event-specific and are not representative of ordinary performance results. In
addition, Same Store property level operating income exclusive of Termination
Fees is considered by management to be a more reliable indicator of the
portfolios baseline performance. The Same Store properties consist of the 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 and six months ended June 30, 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 Capital
Resources 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). 24




---



##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003Same Store:Rental revenue
    
    $
    104,326
    
    
    $
    104,335
    
    
    $
    208,656
    
    
    $
    208,378Operating expenses:Rental property expense
    
    
    30,300
    
    
    
    27,407
    
    
    
    62,131
    
    
    
    59,101Real estate taxes
    
    
    14,555
    
    
    
    14,827
    
    
    
    29,405
    
    
    
    28,949Operating expense recovery
    
    
    (40,509
    )
    
    
    (39,780
    )
    
    
    (83,928
    )
    
    
    (82,909
    )Unrecovered operating expenses
    
    
    4,346
    
    
    
    2,454
    
    
    
    7,608
    
    
    
    5,141Property level operating income
    
    
    99,980
    
    
    
    101,881
    
    
    
    201,048
    
    
    
    203,237Less straight line rent
    
    
    2,468
    
    
    
    2,521
    
    
    
    4,497
    
    
    
    5,080Cash basis property level operating income
    
    $
    97,512
    
    
    $
    99,360
    
    
    $
    196,551
    
    
    $
    198,157Reconciliation of non-GAAP financial measure:Property level operating income  same store
    
    $
    99,980
    
    
    $
    101,881
    
    
    $
    201,048
    
    
    $
    203,237Property
level operating income  properties purchasedor developed subsequent to January 1, 2003
    
    
    10,265
    
    
    
    1,972
    
    
    
    19,084
    
    
    
    3,702Termination fees
    
    
    4,423
    
    
    
    2,344
    
    
    
    6,243
    
    
    
    8,482General and administrative expense
    
    
    (8,063
    )
    
    
    (8,362
    )
    
    
    (16,545
    )
    
    
    (14,207
    )Depreciation and amortization expense
    
    
    (34,138
    )
    
    
    (31,115
    )
    
    
    (66,902
    )
    
    
    (59,796
    )Other income (expense)
    
    
    (29,902
    )
    
    
    (28,741
    )
    
    
    (58,004
    )
    
    
    (57,319
    )(Loss) gain on property dispositions
    
    
    (78
    )
    
    
    
    
    
    
    (408
    )
    
    
    598Income taxes
    
    
    (458
    )
    
    
    (478
    )
    
    
    (847
    )
    
    
    (1,061
    )Minority interest
    
    
    (4,548
    )
    
    
    (4,670
    )
    
    
    (9,127
    )
    
    
    (10,254
    )Equity in earnings of unconsolidated joint ventures
    
    
    (125
    )
    
    
    473
    
    
    
    (530
    )
    
    
    915Discontinued operations, net of minority interest
    
    
    
    
    
    
    11,725
    
    
    
    2,015
    
    
    
    12,319Net income
    
    $
    37,356
    
    
    $
    45,029
    
    
    $
    76,027
    
    
    $
    86,616
 General and administrative expenses decreased to $8.1 million for the three
months ended June 30, 2004 from $8.4 million for the three months ended June
30, 2003 and increased to $16.5 million for the six months ended June 30, 2004
from $14.2 million for the six months ended June 30, 2003. The decrease for
the three months ended June 30, 2004 as compared to the same period in 2003 is
primarily due to the accelerated vesting of restricted stock and options
related to the death of former Chairman Willard G. Rouse III in 2003. The
increase for the six months ended June 30, 2004 as compared to the same period
in 2003 is primarily due to an increase in salaries and wages, costs related to
the Companys enterprise resource planning (ERP) initiative to update
company-wide accounting and business process software, and costs related to
marketing and canceled transactions. Interest expense decreased to $30.4 million for the three months ended June 30,
2004 from $31.0 million for the three months ended June 30, 2003 and decreased
to $61.1 million for the six months ended June 30, 2004 from $61.5 million for
the six months ended June 30, 2003. The decreases are due to decreases in the
weighted average interest rates for the periods, which were 6.75% for the three
months ended June 30, 2004 compared to 6.95% for the three months ended June
30, 2003, and 6.78% for the six months ended June 30, 2004 compared to 6.98%
for the six months ended June 30, 2003. These decreases are partially offset
by increases in the average debt outstanding for the respective periods, which
were $1,930.5 million for the three months ended June 30, 2004 as compared to
$1,868.9 million for the three months ended June 30, 2003 and $1,915.6 million
for the six months ended June 30, 2004 as compared to $1,868.0 million for the
six months ended June 30, 2003. 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 June 30, 2004 was $3.1 million as compared
to $2.4 million for the three months ended June 30, 2003, and was $6.2 million
for the six months ended June 30, 2004 as compared to $5.6 million for the same
period in 2003. Included in capitalized interest costs are the interest costs
relating to the Companys $68.9 million investment (as of June 30, 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. 25




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##### Table of Contents



As a result of the foregoing, the Companys net income decreased to $37.4
million for the three months ended June 30, 2004 from $45.0 million for the
three months ended June 30, 2003, and decreased to $76.0 million for the six
months ended June 30, 2004 from $86.6 million for the six months ended June 30,
2003. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2004, the Company had cash and cash equivalents of $62.4
million, including $23.2 million in restricted cash. Net cash flow provided by operating activities increased to $150.1 million for
the six months ended June 30, 2004 from $140.6 million for the six months ended
June 30, 2003. This $9.5 million 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 $122.1 million for the six
months ended June 30, 2004 from $34.9 million for the six months ended June 30,
2003. This $87.2 million increase primarily resulted from the increased
investment in properties and in development in progress and land held for
development and from the decreased proceeds from the disposition of land and
properties. Net cash used in financing activities decreased to $10.8 million for the six
months ended June 30, 2004 as compared to $92.2 million for the six months
ended June 30, 2003. This $81.4 million change was primarily due to an
increase in net borrowings under credit facilities to fund the increased
investment activity as described in the preceding paragraph. 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 six
months ended June 30, 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 June 30, 2004 the Companys debt to gross assets ratio was 42.5%, 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. As of June 30, 2004, $374.0 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 $1,653.6 million of mortgage loans and unsecured notes
are fixed and range up to 8.8%. Interest rates on $75.4 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 5.3 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 June 30, 2004 are as
follows (in thousands, except percentages): 26




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##### Table of Contents



Mortgages
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedPrincipal
    
    Principal
    
    Unsecured
    
    Credit
    
    
    
    
    
    AverageAmortization
    
    Maturities
    
    Notes
    
    Facility
    
    Total
    
    Interest Rate2004 (6 months)
    
    $
    4,538
    
    
    $
    21,858
    
    
    $
    100,000
    
    
    $
    
    
    
    $
    126,396
    
    
    
    6.70%2005
    
    
    8,250
    
    
    
    136,872
    
    
    
    
    
    
    
    
    
    
    
    145,122
    
    
    
    7.34%2006
    
    
    6,117
    
    
    
    64,274
    
    
    
    100,000
    
    
    
    219,000
    
    
    
    389,391
    
    
    
    4.11%2007
    
    
    5,248
    
    
    
    1,553
    
    
    
    100,000
    
    
    
    
    
    
    
    106,801
    
    
    
    7.27%2008
    
    
    4,874
    
    
    
    34,824
    
    
    
    
    
    
    
    
    
    
    
    39,698
    
    
    
    7.15%2009
    
    
    2,555
    
    
    
    42,119
    
    
    
    270,000
    
    
    
    
    
    
    
    314,674
    
    
    
    7.82%2010
    
    
    1,924
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    201,924
    
    
    
    8.49%2011
    
    
    1,713
    
    
    
    3,533
    
    
    
    250,000
    
    
    
    
    
    
    
    255,246
    
    
    
    7.26%2012
    
    
    683
    
    
    
    33,060
    
    
    
    235,000
    
    
    
    
    
    
    
    268,743
    
    
    
    6.47%2018
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    100,000
    
    
    
    7.50%$
    35,902
    
    
    $
    338,093
    
    
    $
    1,355,000
    
    
    $
    219,000
    
    
    $
    1,947,995
    
    
    
    6.72%
 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 June 30, 2004 are as follows (in thousands): Industrial-Distribution
    

Industrial-Flex
    

Office
    

TotalSquare
    
    Annual
    
    Square
    
    Annual
    
    Square
    
    Annual
    
    Square
    
    AnnualFeet
    
    Net Rent
    
    Feet
    
    Net Rent
    
    Feet
    
    Net Rent
    
    Feet
    
    Net Rent2004 (6 months)
    
    
    1,113
    
    
    $
    4,730
    
    
    
    862
    
    
    $
    7,370
    
    
    
    893
    
    
    $
    12,627
    
    
    
    2,868
    
    
    $
    24,7272005
    
    
    3,173
    
    
    
    15,294
    
    
    
    2,292
    
    
    
    19,047
    
    
    
    3,088
    
    
    
    43,325
    
    
    
    8,553
    
    
    
    77,6652006
    
    
    2,811
    
    
    
    12,256
    
    
    
    2,088
    
    
    
    21,339
    
    
    
    1,669
    
    
    
    23,166
    
    
    
    6,568
    
    
    
    56,7612007
    
    
    2,870
    
    
    
    14,120
    
    
    
    1,582
    
    
    
    15,614
    
    
    
    1,802
    
    
    
    28,273
    
    
    
    6,254
    
    
    
    58,0082008
    
    
    3,718
    
    
    
    16,025
    
    
    
    2,211
    
    
    
    21,601
    
    
    
    2,336
    
    
    
    35,531
    
    
    
    8,265
    
    
    
    73,1572009
    
    
    2,547
    
    
    
    12,760
    
    
    
    1,244
    
    
    
    11,432
    
    
    
    2,235
    
    
    
    35,335
    
    
    
    6,026
    
    
    
    59,528Thereafter
    
    
    7,371
    
    
    
    40,541
    
    
    
    1,868
    
    
    
    20,380
    
    
    
    5,039
    
    
    
    92,214
    
    
    
    14,278
    
    
    
    153,134TOTAL
    
    
    23,603
    
    
    $
    115,726
    
    
    
    12,147
    
    
    $
    116,783
    
    
    
    17,062
    
    
    $
    270,471
    
    
    
    52,812
    
    
    $
    502,980
 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 1.8 million square feet of
Properties under Development as of June 30, 2004 are as follows (dollars in
thousands): PercentSquare Feet
    
    Leased atScheduled
    
    Industrial-
    
    Industrial-
    
    
    
    
    
    
    
    
    
    June 30,
    
    TotalIn-Service Date
    
    Distribution
    
    Flex
    
    Office
    
    Total
    
    2004
    
    Investment3rd Quarter 2004
    
    
    363,000
    
    
    
    60,000
    
    
    
    103,705
    
    
    
    526,705
    
    
    
    100.0%
    
    
    $
    33,2584th Quarter 2004
    
    
    165,733
    
    
    
    
    
    
    
    130,000
    
    
    
    295,733
    
    
    
    100.0%
    
    
    
    27,2601st Quarter 2005
    
    
    
    
    
    
    
    
    
    
    30,844
    
    
    
    30,844
    
    
    
    69.8%
    
    
    
    3,4952nd Quarter 2005
    
    
    346,500
    
    
    
    
    
    
    
    74,099
    
    
    
    420,599
    
    
    
    10.5%
    
    
    
    21,8693rd Quarter 2005
    
    
    
    
    
    
    
    
    
    
    237,749
    
    
    
    237,749
    
    
    
    34.3%
    
    
    
    43,3124th Quarter 2005
    
    
    104,000
    
    
    
    118,160
    
    
    
    25,000
    
    
    
    247,160
    
    
    
    %
    
    
    
    18,042TOTAL
    
    
    979,233
    
    
    
    178,160
    
    
    
    601,397
    
    
    
    1,758,790
    
    
    
    55.1%
    
    
    $
    147,236
 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. 27




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##### Table of Contents



The Company has an effective S-3 shelf registration statement on file with the
SEC (the Shelf Registration Statement). As of August 2, 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 six
months ended June 30, 2004 and June 30, 2003 are as follows (in thousands,
except per share amounts): 28




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003Reconciliation of net income to FFO  basic:Basic:  Net income
    
    $
    37,356
    
    
    $
    45,029
    
    
    $
    76,027
    
    
    $
    86,616Basic  net income per weighted average share
    
    $
    .44
    
    
    $
    .58
    
    
    $
    .91
    
    
    $
    1.12Adjustments:Depreciation and amortization of unconsolidated joint ventures
    
    
    558
    
    
    
    161
    
    
    
    1,444
    
    
    
    327Depreciation and amortization
    
    
    33,474
    
    
    
    30,783
    
    
    
    65,486
    
    
    
    59,246Loss (gain) on property dispositions
    
    
    78
    
    
    
    (11,093
    )
    
    
    (1,689
    )
    
    
    (11,271
    )Minority interest share in addback for depreciation and
amortization, and gain on property dispositions
    
    
    (1,416
    )
    
    
    (891
    )
    
    
    (2,727
    )
    
    
    (2,177
    )Funds from operations available to common
shareholders  basic
    
    $
    70,050
    
    
    $
    63,989
    
    
    $
    138,541
    
    
    $
    132,741Basic Funds from operations available to common
shareholders per weighted average share
    
    $
    .83
    
    
    $
    .82
    
    
    $
    1.65
    
    
    $
    1.71Reconciliation of net income to FFO  diluted:Diluted :  Net income
    
    $
    37,356
    
    
    $
    45,029
    
    
    $
    76,027
    
    
    $
    86,616Diluted  net income per weighted average share
    
    $
    .44
    
    
    $
    .57
    
    
    $
    0.89
    
    
    $
    1.10Adjustments:Depreciation and amortization of unconsolidated joint ventures
    
    
    558
    
    
    
    161
    
    
    
    1,444
    
    
    
    327Depreciation and amortization
    
    
    33,474
    
    
    
    30,783
    
    
    
    65,486
    
    
    
    59,246Loss (gain) on property dispositions
    
    
    78
    
    
    
    (11,093
    )
    
    
    (1,689
    )
    
    
    (11,271
    )Minority interest less preferred share distributions
    
    
    1,610
    
    
    
    2,117
    
    
    
    3,304
    
    
    
    4,110Funds from operations available to common
shareholders  diluted
    
    $
    73,076
    
    
    $
    66,997
    
    
    $
    144,572
    
    
    $
    139,028Diluted Funds from operations available to common
shareholders per weighted average share
    
    $
    .82
    
    
    $
    .81
    
    
    $
    1.62
    
    
    $
    1.69Reconciliation of weighted average shares:Weighted average common shares  all basic calculations
    
    
    84,411
    
    
    
    78,030
    
    
    
    83,947
    
    
    
    77,425Dilutive shares for long-term compensation plans
    
    
    1,394
    
    
    
    1,252
    
    
    
    1,507
    
    
    
    1,151Diluted shares for net income calculations
    
    
    85,805
    
    
    
    79,282
    
    
    
    85,454
    
    
    
    78,576Weighted average common units
    
    
    3,671
    
    
    
    3,665
    
    
    
    3,684
    
    
    
    3,698Diluted shares for Funds from operations calculations
    
    
    89,476
    
    
    
    82,947
    
    
    
    89,138
    
    
    
    82,274
 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. 29




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##### Table of Contents



Item 3:   Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to the Companys exposure to market risk
since its Annual Report on Form 10-K for the year ended December 31, 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 June 30, 2004 that have materially affected
or are reasonable likely to materially affect the Companys internal control
over financial reporting. 30




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##### Table of Contents



Part II:   Other Information  Item 1.
    Legal Proceedings
 
None.  Item 2.
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
 
None.  Item 3.
    Defaults upon Senior Securities
 
None.  Item 4.
    Submission of Matters to a Vote of Security Holders
 
At the 2004 Annual Meeting of Shareholders of the Trust, held on May 5,
2004, the following matters were approved by the requisite vote of the
Shareholders, as follows: 1. Managements nominees, M. Leanne Lachman and J. Anthony Hayden, were
elected to fill the two available positions as Class I trustees. Voting
(expressed in number of shares) was as follows: Ms. Lachman: 70,093,787
for, 7,177,533 against or withheld and no abstentions or broker
non-votes; and Mr. Hayden: 76,330,932 for, 940,388 against or withheld
and no abstentions or broker non-votes. 2. The Shareholders approved a proposal to amend the Declaration of
Trust of the Trust to amend and restate in its entirety Article VII of
the Declaration of Trust, which relates to certain ownership limitations
restricting the number of the Trusts shares of beneficial interest that
may be held by a shareholder. Voting (expressed in number of shares)
was as follows: 68,401,245 for, 750,527 against and 8,119,548
abstentions or broker non-votes. 3. The Shareholders did not approve a proposal to amend Sections 6.2,
6.3 and 10.1(d) of the Declaration of Trust to make clear that, in
accordance with Maryland law, the Board of Trustees may increase or
decrease the number of authorized common shares or preferred shares, or
alter the designation of or classify or reclassify any unissued common shares
or preferred shares. Voting (expressed in number of shares) was
as follows: 52,037,969 for, 17,038,423 against and 8,194,930 abstentions
or broker non-votes. 4. The Shareholders approved a proposal to amend the Liberty Property
Trust Amended and Restated Share Incentive Plan, including an amendment
to increase the number of shares available for awards thereunder by
1,500,000 shares to 11,426,256 shares. Voting (expressed in number of shares)
was as follows: 56,328,004 for, 12,813,781 against and 8,129,535
abstentions or broker non-votes.  Item 5.
    Other Information
 
None.  Item 6.
    Exhibits and Reports on Form 8-K a.
    
    Exhibits3.1*
    
    Articles of Amendment to Amended and Restated
Declaration of Trust of the Trust, filed with the State
Department of Assessments and Taxation of Maryland on June 21, 2004.3.2*
    
    Restatement of Amended and Restated Declaration of
Trust of the Trust, filed with the State Department of
Assessments and Taxation of Maryland on June 21, 2004.10.1*+
    
    Liberty Property Trust Amended and Restated Share Incentive
Plan dated as of March 23, 2004.
 31




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##### Table of Contents



31.1*
    
    Certifications of the Chief Executive Officer of
Liberty Property Trust required by Rule 13a-14(a) under the
Securities Exchange Act of 1934.31.2*
    
    Certifications of the Chief Financial Officer of
Liberty Property Trust required by Rule 13a-14(a) under the
Securities Exchange Act of 1934.31.3*
    
    Certifications of the Chief Executive Officer of
Liberty Property Trust, in its capacity as the general partner
of Liberty Property Limited Partnership, required by Rule
13a-14(a) under the Securities Exchange Act of 1934.31.4*
    
    Certifications of the Chief Financial Officer of
Liberty Property Trust, in its capacity as the general partner
of Liberty Property Limited Partnership, required by Rule
13a-14(a) under the Securities Exchange Act of 1934.32.1*
    
    Certifications of the Chief Executive Officer of
Liberty Property Trust required under Rule 13a-14(b) of the
Securities Exchange Act of 1934, as amended. (This exhibit
shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise
subject to the liability of that section. Further, this
exhibit shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended.)32.2*
    
    Certifications of the Chief Financial Officer of
Liberty Property Trust required by Rule 13a-14(b) under the
Securities Exchange Act of 1934, as amended. (This exhibit
shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise
subject to the liability of that section. Further, this
exhibit shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended.)32.3*
    
    Certifications of the Chief Executive Officer of
Liberty Property Trust, in its capacity as the general partner
of Liberty Property Limited Partnership, required by Rule
13a-14(b) under the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934,
as amended, or otherwise subject to the liability of that
section. Further, this exhibit shall not be deemed to be
incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)32.4*
    
    Certifications of the Chief Financial Officer of
Liberty Property Trust, in its capacity as the general partner
of Liberty Property Limited Partnership, required by Rule
13a-14(b) under the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934,
as amended, or otherwise subject to the liability of that
section. Further, this exhibit shall not be deemed to be
incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)b.
    
    Reports of Form 8-KOn April 27, 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 April 26, 2004 issued by Liberty Property Trust and Liberty Property Limited Partnership.
   * Filed herewith
+ Compensatory plan or arrangement 32




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. LIBERTY PROPERTY TRUST /s/ WILLIAM P. HANKOWSKY
    
    
    
    August 5, 2004William P. Hankowsky
    
    
    
    DatePresident and Chief Executive Officer/s/ GEORGE J. ALBURGER, JR.
    
    
    
    August 5, 2004George J. Alburger, Jr.
    
    
    
    DateExecutive Vice President and Chief Financial Officer
 33




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. LIBERTY PROPERTY LIMITED PARTNERSHIP  BY:
    Liberty Property Trust
General Partner /s/ WILLIAM P. HANKOWSKY
    
    
    
    August 5, 2004William P. Hankowsky
    
    
    
    DatePresident and Chief Executive Officer/s/ GEORGE J. ALBURGER, JR.
    
    
    
    August 5, 2004George J. Alburger, Jr.
    
    
    
    DateExecutive Vice President and Chief Financial Officer
 34




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##### Table of Contents



EXHIBIT INDEX EXHIBIT NO.
    
    DESCRIPTION3.1
    
    Articles of Amendment to Amended and Restated Declaration of Trust of the
Trust, filed with the State Department of Assessments and Taxation of
Maryland on June 21, 2004.3.2
    
    Restatement of Amended and Restated Declaration of Trust of the Trust,
filed with the State Department of Assessments and Taxation of Maryland on
June 21, 2004.10.1+
    
    Liberty Property Trust Amended and Restated Share Incentive Plan dated
as of March 23, 2004.31.1
    
    Certifications of the Chief Executive Officer of Liberty Property Trust
required by Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certifications of the Chief Financial Officer of Liberty Property Trust
required by Rule 13a-14(a) under the Securities Exchange Act of 1934.31.3
    
    Certifications of the Chief Executive Officer of Liberty Property Trust,
in its capacity as the general partner of Liberty Property Limited
Partnership, required by Rule 13a-14(a) under the Securities Exchange Act
of 1934.31.4
    
    Certifications of the Chief Financial Officer of Liberty Property Trust,
in its capacity as the general partner of Liberty Property Limited
Partnership, required by Rule 13a-14(a) under the Securities Exchange Act
of 1934.32.1
    
    Certifications of the Chief Executive Officer of Liberty Property Trust
required under Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liability of that section. Further, this exhibit
shall not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)32.2
    
    Certifications of the Chief Financial Officer of Liberty Property Trust
required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liability of that section. Further, this exhibit
shall not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)32.3
    
    Certifications of the Chief Executive Officer of Liberty Property Trust,
in its capacity as the general partner of Liberty Property Limited
Partnership, required by Rule 13a-14(b) under the Securities Exchange Act
of 1934, as amended. (This exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to the liability of that section. Further, this
exhibit shall not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.)32.4
    
    Certifications of the Chief Financial Officer of Liberty Property Trust,
in its capacity as the general partner of Liberty Property Limited
Partnership, required by Rule 13a-14(b) under the Securities Exchange Act
of 1934, as amended. (This exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to the liability of that section. Further, this
exhibit shall not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.)
   + Compensatory plan or arrangement 35