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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

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


For the quarterly period ended September 30, 2004

OR

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


For the transition period from _______________ to _______________

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




LIBERTY PROPERTY TRUST
LIBERTY PROPERTY LIMITED PARTNERSHIP




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

MARYLAND(Liberty Property Trust)
    
    23-7768996PENNSYLVANIA(Liberty Property Limited Partnership)
    
    23-2766549(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)500 Chesterfield ParkwayMalvern, Pennsylvania
    
    19355(Address of Principal Executive Offices)
    
    (Zip Code)


Registrants Telephone Number, Including Area Code
    
    (610) 648-1700


65 Valley Stream Parkway, Suite 100, Malvern, Pennsylvania, 19355





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.



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



On October 28, 2004, 85,635,541 Common Shares of Beneficial Interest, par value
$.001 per share, of Liberty Property Trust were outstanding.





---








Liberty Property Trust/Liberty Property Limited Partnership
Form 10-Q for the quarter ended September 30, 2004

Index
    
    
    
    PagePart I.
    
    Financial InformationItem 1.
    
    Financial Statements (unaudited)Consolidated balance sheets of Liberty Property Trust at September 30, 2004 and
December 31, 2003
    
    
    3Consolidated statements of operations of Liberty Property Trust for the three
months ended September 30, 2004 and September 30, 2003
    
    
    4Consolidated statements of operations of Liberty Property Trust for the nine
months ended
September 30, 2004 and September 30, 2003
    
    
    5Consolidated statements of cash flows of Liberty Property Trust for the nine
months ended
September 30, 2004 and September 30, 2003
    
    
    6Notes to Consolidated Financial Statements of Liberty Property Trust
    
    
    7Consolidated balance sheets of Liberty Property Limited Partnership at September
30, 2004
and December 31, 2003
    
    
    13Consolidated statements of operations of Liberty Property Limited Partnership for
the three
months ended September 30, 2004 and September 30, 2003
    
    
    14Consolidated statements of operations of Liberty Property Limited Partnership for
the nine
months ended September 30, 2004 and September 30, 2003
    
    
    15Consolidated statements of cash flows of Liberty Property Limited Partnership for
the nine
months ended September 30, 2004 and September 30, 2003
    
    
    16Notes to Consolidated Financial Statements of 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
    
    
    35Seventh Supplemental Indenture, dated August 10, 2004Certifications of the Chief Executive OfficerCertifications of the Chief Financial OfficerCertifications of the Chief Executive OfficerCertifications of the Chief Financial OfficerCertifications of the Chief Executive Officer, Rule 13a-14(b)Certifications of the Chief Financial Officer, Rule 13a-14(b)Certifications of the Chief Executive Officer, Rule 13a-14(b)Certifications of the Chief Financial Officer, Rule 13a-14(b)




2



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

September 30, 2004
    
    
    December 31, 2003(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    605,394
    
    
    $
    564,332Building and improvements
    
    
    3,548,695
    
    
    
    3,359,996Less accumulated depreciation
    
    
    (668,823
    )
    
    
    (586,736
    )Operating real estate
    
    
    3,485,266
    
    
    
    3,337,592Development in progress
    
    
    82,263
    
    
    
    56,869Land held for development
    
    
    170,390
    
    
    
    162,483Net real estate
    
    
    3,737,919
    
    
    
    3,556,944Cash and cash equivalents
    
    
    21,775
    
    
    
    21,809Restricted cash
    
    
    21,803
    
    
    
    15,292Accounts receivable
    
    
    19,688
    
    
    
    14,508Deferred rent receivable
    
    
    66,278
    
    
    
    58,015Deferred financing and leasing costs, net of accumulated amortization
(2004, $100,461; 2003, $89,650)
    
    
    106,600
    
    
    
    98,506Investments in unconsolidated joint ventures
    
    
    23,348
    
    
    
    19,631Prepaid expenses and other assets
    
    
    66,474
    
    
    
    49,303Total assets
    
    $
    4,063,885
    
    
    $
    3,834,008LIABILITIESMortgage loans
    
    $
    371,433
    
    
    $
    363,866Unsecured notes
    
    
    1,455,000
    
    
    
    1,355,000Credit facility
    
    
    245,100
    
    
    
    167,000Accounts payable
    
    
    39,165
    
    
    
    14,685Accrued interest
    
    
    20,573
    
    
    
    31,622Dividend payable
    
    
    54,230
    
    
    
    52,384Other liabilities
    
    
    92,755
    
    
    
    96,887Total liabilities
    
    
    2,278,256
    
    
    
    2,081,444Minority interest
    
    
    206,693
    
    
    
    207,667SHAREHOLDERS EQUITYCommon shares of beneficial interest, $.001 par value, 191,200,000
shares authorized, 85,314,755 (includes 59,100 in treasury) and
83,071,491 (includes 59,100 in treasury) shares issued and
outstanding as of September 30, 2004 and December 31, 2003, respectively
    
    
    86
    
    
    
    83Additional paid-in capital
    
    
    1,693,743
    
    
    
    1,623,446Accumulated other comprehensive income
    
    
    16,759
    
    
    
    14,710Unearned compensation
    
    
    (7,302
    )
    
    
    (3,497
    )Distributions in excess of net income
    
    
    (123,023
    )
    
    
    (88,518
    )Common shares in treasury, at cost, 59,100 shares as of September 30,
2004 and December 31, 2003
    
    
    (1,327
    )
    
    
    (1,327
    )Total shareholders equity
    
    
    1,578,936
    
    
    
    1,544,897Total liabilities and shareholders equity
    
    $
    4,063,885
    
    
    $
    3,834,008


See accompanying notes.

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

Three Months EndedSeptember 30, 2004
    
    
    September 30, 2003OPERATING REVENUERental
    
    $
    117,519
    
    
    $
    114,402Operating expense reimbursement
    
    
    47,748
    
    
    
    42,983Total operating revenue
    
    
    165,267
    
    
    
    157,385OPERATING EXPENSERental property
    
    
    33,951
    
    
    
    30,429Real estate taxes
    
    
    17,464
    
    
    
    16,287General and administrative
    
    
    8,549
    
    
    
    6,541Depreciation and amortization
    
    
    34,068
    
    
    
    30,639Total operating expenses
    
    
    94,032
    
    
    
    83,896Operating income
    
    
    71,235
    
    
    
    73,489OTHER INCOME (EXPENSE)Interest and other income
    
    
    1,096
    
    
    
    1,509Interest expense
    
    
    (30,861
    )
    
    
    (31,086
    )Total other income (expense)
    
    
    (29,765
    )
    
    
    (29,577
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    41,470
    
    
    
    43,912Gain (loss) on property dispositions
    
    
    128
    
    
    
    (312
    )Income taxes
    
    
    (532
    )
    
    
    (526
    )Minority interest
    
    
    (4,360
    )
    
    
    (4,957
    )Equity in earnings of unconsolidated joint ventures
    
    
    (143
    )
    
    
    440Income from continuing operations
    
    
    36,563
    
    
    
    38,557Discontinued operations, net of minority interest (including net gain on
property dispositions of $2,166 and $418 for the three months ended
September 30, 2004 and 2003)
    
    
    2,916
    
    
    
    552Net income
    
    $
    39,479
    
    
    $
    39,109Earnings per common shareBasic:Income from continuing operations
    
    $
    0.43
    
    
    $
    0.49Income from discontinued operations
    
    
    0.04
    
    
    
    0.01Income per
common share  basic
    
    $
    0.47
    
    
    $
    0.50Diluted:Income from continuing operations
    
    $
    0.42
    
    
    $
    0.48Income from discontinued operations
    
    
    0.04
    
    
    
    0.01Income per
common share  diluted
    
    $
    0.46
    
    
    $
    0.49Distributions per common share
    
    $
    0.61
    
    
    $
    0.605Weighted average number of common shares outstandingBasic
    
    
    84,877
    
    
    
    78,949Diluted
    
    
    86,327
    
    
    
    80,317


See accompanying notes.

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

Nine Months EndedSeptember 30, 2004
    
    
    September 30, 2003OPERATING REVENUERental
    
    $
    352,755
    
    
    $
    335,694Operating expense reimbursement
    
    
    137,901
    
    
    
    127,234Total operating revenue
    
    
    490,656
    
    
    
    462,928OPERATING EXPENSERental property
    
    
    101,867
    
    
    
    90,712Real estate taxes
    
    
    48,851
    
    
    
    46,374General and administrative
    
    
    25,094
    
    
    
    20,748Depreciation and amortization
    
    
    100,891
    
    
    
    90,372Total operating expenses
    
    
    276,703
    
    
    
    248,206Operating income
    
    
    213,953
    
    
    
    214,722OTHER INCOME (EXPENSE)Interest and other income
    
    
    4,237
    
    
    
    5,707Interest expense
    
    
    (91,954
    )
    
    
    (92,576
    )Total other income (expense)
    
    
    (87,717
    )
    
    
    (86,869
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    126,236
    
    
    
    127,853(Loss) gain on property dispositions
    
    
    (280
    )
    
    
    292Income taxes
    
    
    (1,379
    )
    
    
    (1,587
    )Minority interest
    
    
    (13,480
    )
    
    
    (15,202
    )Equity in earnings of unconsolidated joint ventures
    
    
    (673
    )
    
    
    1,355Income from continuing operations
    
    
    110,424
    
    
    
    112,711Discontinued operations, net of minority interest (including net gain on
property dispositions of $4,263 and $11,668 for the nine months ended
September 30, 2004 and 2003)
    
    
    5,082
    
    
    
    13,014Net income
    
    $
    115,506
    
    
    $
    125,725Earnings per common shareBasic:Income from continuing operations
    
    $
    1.31
    
    
    $
    1.45Income from discontinued operations
    
    
    0.06
    
    
    
    0.16Income per
common share  basic
    
    $
    1.37
    
    
    $
    1.61Diluted:Income from continuing operations
    
    $
    1.29
    
    
    $
    1.43Income from discontinued operations
    
    
    0.06
    
    
    
    0.16Income per
common share  diluted
    
    $
    1.35
    
    
    $
    1.59Distributions per common share
    
    $
    1.82
    
    
    $
    1.81Weighted average number of common shares outstandingBasic
    
    
    84,260
    
    
    
    77,939Diluted
    
    
    85,747
    
    
    
    79,164


See accompanying notes.

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

Nine Months EndedSeptember 30, 2004
    
    
    September 30, 2003OPERATING ACTIVITIESNet income
    
    $
    115,506
    
    
    $
    125,725Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    101,165
    
    
    
    91,069Amortization of deferred financing costs
    
    
    2,928
    
    
    
    3,027Equity in earnings of unconsolidated joint ventures
    
    
    673
    
    
    
    (1,355
    )Minority interest in net income
    
    
    13,700
    
    
    
    15,819Gain on property dispositions
    
    
    (3,983
    )
    
    
    (11,960
    )Noncash compensation
    
    
    1,932
    
    
    
    2,496Changes in operating assets and liabilities:Restricted cash
    
    
    (6,511
    )
    
    
    (1,890
    )Accounts receivable
    
    
    (5,180
    )
    
    
    8,533Deferred rent receivable
    
    
    (8,263
    )
    
    
    (6,854
    )Prepaid expenses and other assets
    
    
    (15,478
    )
    
    
    (11,260
    )Accounts payable
    
    
    24,480
    
    
    
    (3,035
    )Accrued interest
    
    
    (11,049
    )
    
    
    (12,682
    )Other liabilities
    
    
    (4,132
    )
    
    
    3,104Net cash provided by operating activities
    
    
    205,788
    
    
    
    200,737INVESTING ACTIVITIESInvestment in properties
    
    
    (166,694
    )
    
    
    (68,324
    )Cash paid for business, net of cash acquired
    
    
    
    
    
    
    16,627Investment in unconsolidated joint ventures
    
    
    (5,072
    )
    
    
    (3,099
    )Distributions from unconsolidated joint ventures
    
    
    682
    
    
    
    2,707Proceeds from disposition of properties/land
    
    
    13,780
    
    
    
    42,333Investment in development in progress
    
    
    (76,298
    )
    
    
    (43,422
    )Investment in land held for development
    
    
    (22,358
    )
    
    
    (11,829
    )Increase in deferred leasing costs
    
    
    (22,570
    )
    
    
    (16,987
    )Net cash used in investing activities
    
    
    (278,530
    )
    
    
    (81,994
    )FINANCING ACTIVITIESNet proceeds from issuance of common shares
    
    
    69,485
    
    
    
    83,701Proceeds from issuance of unsecured notes
    
    
    197,517
    
    
    
    3,683Repayments of unsecured notes
    
    
    (100,000
    )
    
    
    (23,739
    )Proceeds from mortgage loans
    
    
    9,525
    
    
    
    924Repayments of mortgage loans
    
    
    (14,051
    )
    
    
    (8,623
    )Proceeds from credit facility
    
    
    298,056
    
    
    
    327,850Repayments on credit facility
    
    
    (219,956
    )
    
    
    (307,850
    )Increase in deferred financing costs
    
    
    (275
    )
    
    
    (2,563
    )Distributions paid on common shares
    
    
    (152,350
    )
    
    
    (139,204
    )Distributions paid on units
    
    
    (15,410
    )
    
    
    (20,579
    )Net cash provided by (used in) financing activities
    
    
    72,541
    
    
    
    (86,400
    )(Decrease) increase in cash and cash equivalents
    
    
    (201
    )
    
    
    32,343Increase (decrease) related to foreign currency translation
    
    
    167
    
    
    
    (1,554
    )Cash and cash equivalents at beginning of period
    
    
    21,809
    
    
    
    7,933Cash and cash equivalents at end of period
    
    $
    21,775
    
    
    $
    38,722SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    9,188
    
    
    $
    11,801Acquisition of properties
    
    
    (11,305
    )
    
    
    (15,284
    )Assumption of mortgage loans
    
    
    11,305
    
    
    
    15,284Issuance of operating partnership units for property acquisition
    
    
    
    
    
    
    1,151


See accompanying notes.

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##### Table of Contents



Liberty Property Trust




Notes to Consolidated Financial Statements (Unaudited)
September 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 nine months ended September 30, 2004 and 2003
(in thousands except per share amounts):

For the Three Months Ended September 30, 2004
    
    
    For the Three Months Ended September 30, 2003Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Shares
    
    
    Per
    
    
    Income
    
    
    Shares
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    ShareBasic income from continuing operationsIncome from continuing operations
    
    $
    36,563
    
    
    
    84,877
    
    
    $
    0.43
    
    
    $
    38,557
    
    
    
    78,949
    
    
    $
    0.49Dilutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,450
    
    
    
    
    
    
    
    
    
    
    
    1,368Diluted income from continuing operationsIncome from continuing operations and
assumed conversions
    
    
    36,563
    
    
    
    86,327
    
    
    $
    0.42
    
    
    
    38,557
    
    
    
    80,317
    
    
    $
    0.48Basic income from discontinued operationsDiscontinued operations net of minority interest
    
    
    2,916
    
    
    
    84,877
    
    
    $
    0.04
    
    
    
    552
    
    
    
    78,949
    
    
    $
    0.01Dilutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,450
    
    
    
    
    
    
    
    
    
    
    
    1,368Diluted income from discontinued operationsDiscontinued operations net of minority interest
    
    
    2,916
    
    
    
    86,327
    
    
    $
    0.04
    
    
    
    552
    
    
    
    80,317
    
    
    $
    0.01Basic income per common shareNet income
    
    
    39,479
    
    
    
    84,877
    
    
    $
    0.47
    
    
    
    39,109
    
    
    
    78,949
    
    
    $
    0.50Dilutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,450
    
    
    
    
    
    
    
    
    
    
    
    1,368Diluted income per common shareNet income and assumed conversions
    
    $
    39,479
    
    
    
    86,327
    
    
    $
    0.46
    
    
    $
    39,109
    
    
    
    80,317
    
    
    $
    0.49


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For the Nine Months Ended September 30, 2004
    
    
    For the Nine Months Ended September 30, 2003Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Shares
    
    
    Per
    
    
    Income
    
    
    Shares
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    ShareBasic income from continuing operationsIncome from continuing operations
    
    $
    110,424
    
    
    
    84,260
    
    
    $
    1.31
    
    
    $
    112,711
    
    
    
    77,939
    
    
    $
    1.45Dilutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,487
    
    
    
    
    
    
    
    
    
    
    
    1,225Diluted income from continuing operationsIncome from continuing operations and
assumed conversions
    
    
    110,424
    
    
    
    85,747
    
    
    $
    1.29
    
    
    
    112,711
    
    
    
    79,164
    
    
    $
    1.43Basic income from discontinued operationsDiscontinued operations net of minority interest
    
    
    5,082
    
    
    
    84,260
    
    
    $
    0.06
    
    
    
    13,014
    
    
    
    77,939
    
    
    $
    0.16Dilutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,487
    
    
    
    
    
    
    
    
    
    
    
    1,225Diluted income from discontinued operationsDiscontinued operations net of minority interest
    
    
    5,082
    
    
    
    85,747
    
    
    $
    0.06
    
    
    
    13,014
    
    
    
    79,164
    
    
    $
    0.16Basic income per common shareNet income
    
    
    115,506
    
    
    
    84,260
    
    
    $
    1.37
    
    
    
    125,725
    
    
    
    77,939
    
    
    $
    1.61Dilutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,487
    
    
    
    
    
    
    
    
    
    
    
    1,225Diluted income per common shareNet income and assumed conversions
    
    $
    115,506
    
    
    
    85,747
    
    
    $
    1.35
    
    
    $
    125,725
    
    
    
    79,164
    
    
    $
    1.59


Stock-Based Compensation

At September 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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Net income
    
    $
    39,479
    
    
    $
    39,109
    
    
    $
    115,506
    
    
    $
    125,725Add:      Share-based employee compensation
expense included in reported net income
    
    
    78
    
    
    
    23
    
    
    
    198
    
    
    
    372Deduct: Total share-based employee compensation
expense determined under fair value based
method for all awards
    
    
    (269
    )
    
    
    (344
    )
    
    
    (857
    )
    
    
    (1,184
    )Pro forma net income
    
    $
    39,288
    
    
    $
    38,788
    
    
    $
    114,847
    
    
    $
    124,913Income per common share:Basic  as reported
    
    $
    0.47
    
    
    $
    0.50
    
    
    $
    1.37
    
    
    $
    1.61Basic  pro forma
    
    $
    0.46
    
    
    $
    0.49
    
    
    $
    1.36
    
    
    $
    1.60Diluted  as reported
    
    $
    0.46
    
    
    $
    0.49
    
    
    $
    1.35
    
    
    $
    1.59Diluted  pro forma
    
    $
    0.46
    
    
    $
    0.48
    
    
    $
    1.34
    
    
    $
    1.58


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 do not impact the results of operations and are included in
accumulated other comprehensive income as a separate component of shareholders
equity. Other comprehensive loss was $1.1 million for the three months ended
September 30, 2004 and other comprehensive income was $0.6 million for the
three months ended September 30, 2003. Other comprehensive income was $2.0
million for the nine months ended September 30, 2004 and $1.0 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
September 30, 2004. The Company provides leasing, property management,
development, acquisition and other tenant-related services for a portfolio of
industrial and office properties that 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
Midwest
Mid-Atlantic
Florida
United Kingdom
    
    Southeastern Pennsylvania, New
Jersey
Lehigh Valley, Pa., Michigan, Minnesota, Milwaukee/Chicago
Maryland, Piedmont Triad, N.C., Greenville, S.C., Richmond, Virginia Beach
Jacksonville, Orlando, Boca Raton, Tampa, Texas
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 September 30, 2004

Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    46,773
    
    
    $
    9,146
    
    
    $
    18,839
    
    
    $
    29,865
    
    
    $
    31,360
    
    
    $
    24,233
    
    
    $
    5,051
    
    
    $
    165,267Rental property expenses
and real estate taxes
    
    
    14,223
    
    
    
    3,154
    
    
    
    4,955
    
    
    
    10,946
    
    
    
    9,364
    
    
    
    7,586
    
    
    
    1,187
    
    
    
    51,415Property level operating
income
    
    $
    32,550
    
    
    $
    5,992
    
    
    $
    13,884
    
    
    $
    18,919
    
    
    $
    21,996
    
    
    $
    16,647
    
    
    $
    3,864
    
    
    
    113,852Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,096Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,861
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,549
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,068
    )Income before property
dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,470Gain on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (532
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,360
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (143
    )Discontinued operations, net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,916Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    39,479


For the Three Months Ended September 30, 2003

Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    45,124
    
    
    $
    8,784
    
    
    $
    18,042
    
    
    $
    29,929
    
    
    $
    28,825
    
    
    $
    22,997
    
    
    $
    3,684
    
    
    $
    157,385Rental property expenses
and real estate taxes
    
    
    13,022
    
    
    
    3,072
    
    
    
    4,620
    
    
    
    10,820
    
    
    
    7,539
    
    
    
    6,987
    
    
    
    656
    
    
    
    46,716Property level operating
income
    
    $
    32,102
    
    
    $
    5,712
    
    
    $
    13,422
    
    
    $
    19,109
    
    
    $
    21,286
    
    
    $
    16,010
    
    
    $
    3,028
    
    
    
    110,669Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,509Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,086
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,541
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,639
    )Income before property
dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,912Loss on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (312
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (526
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,957
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    440Discontinued operations, net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    552Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    39,109


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##### Table of Contents



For the Nine Months Ended September 30, 2004

Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    142,449
    
    
    $
    26,493
    
    
    $
    55,582
    
    
    $
    89,071
    
    
    $
    90,453
    
    
    $
    72,038
    
    
    $
    14,570
    
    
    $
    490,656Rental property expenses
and real estate taxes
    
    
    41,865
    
    
    
    9,321
    
    
    
    15,928
    
    
    
    32,164
    
    
    
    25,866
    
    
    
    22,148
    
    
    
    3,426
    
    
    
    150,718Property level operating
income
    
    $
    100,584
    
    
    $
    17,172
    
    
    $
    39,654
    
    
    $
    56,907
    
    
    $
    64,587
    
    
    $
    49,890
    
    
    $
    11,144
    
    
    
    339,938Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,237Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91,954
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,094
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,891
    )Income before property
dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126,236Loss on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (280
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,379
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,480
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (673
    )Discontinued operations, net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,082Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    115,506


For the Nine Months Ended September 30, 2003

Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    141,746
    
    
    $
    25,790
    
    
    $
    50,150
    
    
    $
    87,598
    
    
    $
    81,951
    
    
    $
    67,590
    
    
    $
    8,103
    
    
    $
    462,928Rental property expenses
and real estate taxes
    
    
    40,658
    
    
    
    8,913
    
    
    
    13,145
    
    
    
    30,915
    
    
    
    22,259
    
    
    
    20,009
    
    
    
    1,187
    
    
    
    137,086Property level operating
income
    
    $
    101,088
    
    
    $
    16,877
    
    
    $
    37,005
    
    
    $
    56,683
    
    
    $
    59,692
    
    
    $
    47,581
    
    
    $
    6,916
    
    
    
    325,842Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,707Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92,576
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,748
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90,372
    )Income before property
dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127,853Gain on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,587
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,202
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,355Discontinued operations, net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,014Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    125,725


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

Net income and gain/(loss) on the disposition of real estate for properties
sold subsequent to December 31, 2001 are reflected in the consolidated
statements of operations as discontinued operations. The proceeds from the
disposition of properties for the three and nine months ended September 30,
2004 were $5.6 and $11.1 million as compared to $1.3 million and $39.8 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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Revenues
    
    $
    961
    
    
    $
    491
    
    
    $
    1,434
    
    
    $
    3,862Operating expenses
    
    
    (32
    )
    
    
    (161
    )
    
    
    (159
    )
    
    
    (822
    )Interest expense
    
    
    (24
    )
    
    
    (71
    )
    
    
    (104
    )
    
    
    (380
    )Depreciation and amortization
    
    
    (30
    )
    
    
    (99
    )
    
    
    (132
    )
    
    
    (697
    )Income before property dispositions and minority interest
    
    $
    875
    
    
    $
    160
    
    
    $
    1,039
    
    
    $
    1,963


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

Note 5: Unsecured
Notes

In August 2004, the Company issued $200 million of 5.65% senior unsecured notes
maturing on August 15, 2014. The proceeds from this issuance were used to
repay $100 million of 7.1% senior unsecured notes which matured on August 15,
2004, to pay down outstanding borrowings under the Companys unsecured credit
facility, for the acquisition of properties and for general corporate purposes.

12



---



##### Table of Contents






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

September 30, 2004
    
    
    December 31, 2003(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    605,394
    
    
    $
    564,332Building and improvements
    
    
    3,548,695
    
    
    
    3,359,996Less accumulated depreciation
    
    
    (668,823
    )
    
    
    (586,736
    )Operating real estate
    
    
    3,485,266
    
    
    
    3,337,592Development in progress
    
    
    82,263
    
    
    
    56,869Land held for development
    
    
    170,390
    
    
    
    162,483Net real estate
    
    
    3,737,919
    
    
    
    3,556,944Cash and cash equivalents
    
    
    21,775
    
    
    
    21,809Restricted cash
    
    
    21,803
    
    
    
    15,292Accounts receivable
    
    
    19,688
    
    
    
    14,508Deferred rent receivable
    
    
    66,278
    
    
    
    58,015Deferred
financing and leasing costs, net of accumulated amortization
(2004, $100,461; 2003, $89,650)
    
    
    106,600
    
    
    
    98,506Investments in unconsolidated joint ventures
    
    
    23,348
    
    
    
    19,631Prepaid expenses and other assets
    
    
    66,474
    
    
    
    49,303Total assets
    
    $
    4,063,885
    
    
    $
    3,834,008LIABILITIESMortgage loans
    
    $
    371,433
    
    
    $
    363,866Unsecured notes
    
    
    1,455,000
    
    
    
    1,355,000Credit facility
    
    
    245,100
    
    
    
    167,000Accounts payable
    
    
    39,165
    
    
    
    14,685Accrued interest
    
    
    20,573
    
    
    
    31,622Distribution payable
    
    
    54,230
    
    
    
    52,384Other liabilities
    
    
    92,755
    
    
    
    96,887Total liabilities
    
    
    2,278,256
    
    
    
    2,081,444Minority interest
    
    
    3,374
    
    
    
    3,455OWNERS EQUITYGeneral
partners equity  common units
    
    
    1,578,936
    
    
    
    1,544,897Limited
partners equity  preferred units
    
    
    135,471
    
    
    
    135,471 common units
    
    
    67,848
    
    
    
    68,741Total owners equity
    
    
    1,782,255
    
    
    
    1,749,109Total liabilities and owners equity
    
    $
    4,063,885
    
    
    $
    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 EndedSeptember 30, 2004
    
    
    September 30, 2003OPERATING REVENUERental
    
    $
    117,519
    
    
    $
    114,402Operating expense reimbursement
    
    
    47,748
    
    
    
    42,983Total operating revenue
    
    
    165,267
    
    
    
    157,385OPERATING EXPENSERental property
    
    
    33,951
    
    
    
    30,429Real estate taxes
    
    
    17,464
    
    
    
    16,287General and administrative
    
    
    8,549
    
    
    
    6,541Depreciation and amortization
    
    
    34,068
    
    
    
    30,639Total operating expenses
    
    
    94,032
    
    
    
    83,896Operating income
    
    
    71,235
    
    
    
    73,489OTHER INCOME (EXPENSE)Interest and other income
    
    
    1,096
    
    
    
    1,509Interest expense
    
    
    (30,861
    )
    
    
    (31,086
    )Total other income (expense)
    
    
    (29,765
    )
    
    
    (29,577
    )Income
before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    41,470
    
    
    
    43,912Gain (loss) on property dispositions
    
    
    128
    
    
    
    (312
    )Income taxes
    
    
    (532
    )
    
    
    (526
    )Minority interest
    
    
    164
    
    
    
    (36
    )Equity in earnings of unconsolidated joint ventures
    
    
    (143
    )
    
    
    440Income from continuing operations
    
    
    41,087
    
    
    
    43,478Discontinued
operations (including net gain on property dispositions of
$2,166 and $418 for the three months ended September 30, 2004 and 2003)
    
    
    3,041
    
    
    
    578Net income
    
    
    44,128
    
    
    
    44,056Preferred unit distributions
    
    
    (2,960
    )
    
    
    (3,104
    )Income available to common unitholders
    
    $
    41,168
    
    
    $
    40,952Earnings per common unitBasic:Income from continuing operations
    
    $
    0.43
    
    
    $
    0.49Income from discontinued operations
    
    
    0.04
    
    
    
    0.01Income per
common unit  basic
    
    $
    0.47
    
    
    $
    0.50Diluted:Income from continuing operations
    
    $
    0.42
    
    
    $
    0.48Income from discontinued operations
    
    
    0.04
    
    
    
    0.01Income per
common unit  diluted
    
    $
    0.46
    
    
    $
    0.49Distributions per common unit
    
    $
    0.61
    
    
    $
    0.605Weighted average number of common units outstandingBasic
    
    
    88,545
    
    
    
    82,647Diluted
    
    
    89,995
    
    
    
    84,015




|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)

Nine Months EndedSeptember 30, 2004
    
    
    September 30, 2003OPERATING REVENUERental
    
    $
    352,755
    
    
    $
    335,694Operating expense reimbursement
    
    
    137,901
    
    
    
    127,234Total operating revenue
    
    
    490,656
    
    
    
    462,928OPERATING EXPENSERental property
    
    
    101,867
    
    
    
    90,712Real estate taxes
    
    
    48,851
    
    
    
    46,374General and administrative
    
    
    25,094
    
    
    
    20,748Depreciation and amortization
    
    
    100,891
    
    
    
    90,372Total operating expenses
    
    
    276,703
    
    
    
    248,206Operating income
    
    
    213,953
    
    
    
    214,722OTHER INCOME (EXPENSE)Interest and other income
    
    
    4,237
    
    
    
    5,707Interest expense
    
    
    (91,954
    )
    
    
    (92,576
    )Total other income (expense)
    
    
    (87,717
    )
    
    
    (86,869
    )Income
before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    126,236
    
    
    
    127,853(Loss) gain on property dispositions
    
    
    (280
    )
    
    
    292Income taxes
    
    
    (1,379
    )
    
    
    (1,587
    )Minority interest
    
    
    461
    
    
    
    (554
    )Equity in earnings of unconsolidated joint ventures
    
    
    (673
    )
    
    
    1,355Income from continuing operations
    
    
    124,365
    
    
    
    127,359Discontinued
operations (including net gain on property dispositions of
$4,263 and $11,668 for the nine months ended September 30, 2004 and 2003)
    
    
    5,302
    
    
    
    13,631Net income
    
    
    129,667
    
    
    
    140,990Preferred unit distributions
    
    
    (9,168
    )
    
    
    (9,312
    )Income available to common unitholders
    
    $
    120,499
    
    
    $
    131,678Earnings per common unitBasic:Income from continuing operations
    
    $
    1.31
    
    
    $
    1.45Income from discontinued operations
    
    
    0.06
    
    
    
    0.16Income per
common unit  basic
    
    $
    1.37
    
    
    $
    1.61Diluted:Income from continuing operations
    
    $
    1.29
    
    
    $
    1.43Income from discontinued operations
    
    
    0.06
    
    
    
    0.16Income per
common unit  diluted
    
    $
    1.35
    
    
    $
    1.59Distributions per common unit
    
    $
    1.82
    
    
    $
    1.81Weighted average number of common units outstandingBasic
    
    
    87,939
    
    
    
    81,630Diluted
    
    
    89,426
    
    
    
    82,855




|See accompanying notes.
|-----------------------

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

Nine Months EndedSeptember 30, 2004
    
    
    September 30, 2003OPERATING ACTIVITIESNet income
    
    $
    129,667
    
    
    $
    140,990Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    101,165
    
    
    
    91,069Amortization of deferred financing costs
    
    
    2,928
    
    
    
    3,027Equity in earnings of unconsolidated joint ventures
    
    
    673
    
    
    
    (1,355
    )Minority interest in net income
    
    
    (461
    )
    
    
    554Gain on property dispositions
    
    
    (3,983
    )
    
    
    (11,960
    )Noncash compensation
    
    
    1,932
    
    
    
    2,496Changes in operating assets and liabilities:Restricted cash
    
    
    (6,511
    )
    
    
    (1,890
    )Accounts receivable
    
    
    (5,180
    )
    
    
    8,533Deferred rent receivable
    
    
    (8,263
    )
    
    
    (6,854
    )Prepaid expenses and other assets
    
    
    (15,478
    )
    
    
    (11,260
    )Accounts payable
    
    
    24,480
    
    
    
    (3,035
    )Accrued interest
    
    
    (11,049
    )
    
    
    (12,682
    )Other liabilities
    
    
    (4,132
    )
    
    
    3,104Net cash provided by operating activities
    
    
    205,788
    
    
    
    200,737INVESTING ACTIVITIESInvestment in properties
    
    
    (166,694
    )
    
    
    (68,324
    )Cash paid for business, net of cash acquired
    
    
    
    
    
    
    16,627Investment in unconsolidated joint ventures
    
    
    (5,072
    )
    
    
    (3,099
    )Distributions from unconsolidated joint ventures
    
    
    682
    
    
    
    2,707Proceeds from disposition of properties/land
    
    
    13,780
    
    
    
    42,333Investment in development in progress
    
    
    (76,298
    )
    
    
    (43,422
    )Investment in land held for development
    
    
    (22,358
    )
    
    
    (11,829
    )Increase in deferred leasing costs
    
    
    (22,570
    )
    
    
    (16,987
    )Net cash used in investing activities
    
    
    (278,530
    )
    
    
    (81,994
    )FINANCING ACTIVITIESProceeds from issuance of unsecured notes
    
    
    197,517
    
    
    
    3,683Repayments of unsecured notes
    
    
    (100,000
    )
    
    
    (23,739
    )Proceeds from mortgage loans
    
    
    9,525
    
    
    
    924Repayments of mortgage loans
    
    
    (14,051
    )
    
    
    (8,623
    )Proceeds from credit facility
    
    
    298,056
    
    
    
    327,850Repayments on credit facility
    
    
    (219,956
    )
    
    
    (307,850
    )Increase in deferred financing costs
    
    
    (275
    )
    
    
    (2,563
    )Capital contributions
    
    
    69,485
    
    
    
    83,701Distributions to partners
    
    
    (167,760
    )
    
    
    (159,783
    )Net cash provided by (used in) financing activities
    
    
    72,541
    
    
    
    (86,400
    )(Decrease) increase in cash and cash equivalents
    
    
    (201
    )
    
    
    32,343Increase (decrease) related to foreign currency translation
    
    
    167
    
    
    
    (1,554
    )Cash and cash equivalents at beginning of period
    
    
    21,809
    
    
    
    7,933Cash and cash equivalents at end of period
    
    $
    21,775
    
    
    $
    38,722SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    9,188
    
    
    $
    11,801Acquisition of properties
    
    
    (11,305
    )
    
    
    (15,284
    )Assumption of mortgage loans
    
    
    11,305
    
    
    
    15,284Issuance of operating partnership units for property acquisition
    
    
    
    
    
    
    1,151




|See accompanying notes.
|-----------------------

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Liberty Property Limited Partnership




Notes to Consolidated Financial Statements (Unaudited)
September 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

The following table sets forth the computation of basic and diluted income per
common unit for the three and nine months ended September 30, 2004 and
September 30, 2003 (in thousands, except per unit amounts):

For the Three Months Ended September 30, 2004
    
    
    For the Three Months Ended September 30, 2003Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Units
    
    
    Per
    
    
    Income
    
    
    Units
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Unit
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    UnitIncome from continuing operations
    
    $
    41,087
    
    
    
    
    
    
    
    
    
    
    $
    43,478Less: Preferred unit distributions
    
    
    (2,960
    )
    
    
    
    
    
    
    
    
    
    
    (3,104
    )Basic income from continuing operationsIncome from
continuing operations
available to common unitholders
    
    
    38,127
    
    
    
    88,545
    
    
    $
    0.43
    
    
    
    40,374
    
    
    
    82,647
    
    
    $
    0.49Dilutive units for long-term compensation
plans
    
    
    
    
    
    
    1,450
    
    
    
    
    
    
    
    
    
    
    
    1,368Diluted income from continuing operationsIncome from continuing operations available
to common unitholders and assumed
conversions
    
    
    38,127
    
    
    
    89,995
    
    
    $
    0.42
    
    
    
    40,374
    
    
    
    84,015
    
    
    $
    0.48Basic income from discontinued operationsDiscontinued operations
    
    
    3,041
    
    
    
    88,545
    
    
    $
    0.04
    
    
    
    578
    
    
    
    82,647
    
    
    $
    0. 01Dilutive units for long-term compensation
plans
    
    
    
    
    
    
    1,450
    
    
    
    
    
    
    
    
    
    
    
    1,368Diluted income from discontinued operationsDiscontinued operations
    
    
    3,041
    
    
    
    89,995
    
    
    $
    0.04
    
    
    
    578
    
    
    
    84,015
    
    
    $
    0.01Basic income per common unitIncome available to common unitholders
    
    
    41,168
    
    
    
    88,545
    
    
    $
    0.47
    
    
    
    40,952
    
    
    
    82,647
    
    
    $
    0.50Dilutive units for long-term compensation
plans
    
    
    
    
    
    
    1,450
    
    
    
    
    
    
    
    
    
    
    
    1,368Diluted income per common unitIncome available to common unitholders
and assumed conversions
    
    $
    41,168
    
    
    
    89,995
    
    
    $
    0.46
    
    
    $
    40,952
    
    
    
    84,015
    
    
    $
    0.49


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For the Nine Months Ended September 30, 2004
    
    
    For the Nine Months Ended September 30, 2003Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Units
    
    
    Per
    
    
    Income
    
    
    Units
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Unit
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    UnitIncome from continuing operations
    
    $
    124,365
    
    
    
    
    
    
    
    
    
    
    $
    127,359Less: Preferred unit distributions
    
    
    (9,168
    )
    
    
    
    
    
    
    
    
    
    
    (9,312
    )Basic income from continuing operationsIncome from continuing operations
available to common unitholders
    
    
    115,197
    
    
    
    87,939
    
    
    $
    1.31
    
    
    
    118,047
    
    
    
    81,630
    
    
    $
    1.45Dilutive units for long-term compensation
plans
    
    
    
    
    
    
    1,487
    
    
    
    
    
    
    
    
    
    
    
    1,225Diluted income from continuing operationsIncome from continuing operations available
to common unitholders and assumed
conversions
    
    
    115,197
    
    
    
    89,426
    
    
    $
    1.29
    
    
    
    118,047
    
    
    
    82,855
    
    
    $
    1.43Basic income from discontinued operationsDiscontinued operations
    
    
    5,302
    
    
    
    87,939
    
    
    $
    0.06
    
    
    
    13,631
    
    
    
    81,630
    
    
    $
    0.16Dilutive units for long-term compensation
plans
    
    
    
    
    
    
    1,487
    
    
    
    
    
    
    
    
    
    
    
    1,225Diluted income from discontinued operationsDiscontinued operations
    
    
    5,302
    
    
    
    89,426
    
    
    $
    0.06
    
    
    
    13,631
    
    
    
    82,855
    
    
    $
    0.16Basic income per common unitIncome available to common unitholders
    
    
    120,499
    
    
    
    87,939
    
    
    $
    1.37
    
    
    
    131,678
    
    
    
    81,630
    
    
    $
    1.61Dilutive units for long-term compensation
plans
    
    
    
    
    
    
    1,487
    
    
    
    
    
    
    
    
    
    
    
    1,225Diluted income per common unitIncome available to common unitholders
and assumed conversions
    
    $
    120,499
    
    
    
    89,426
    
    
    $
    1.35
    
    
    $
    131,678
    
    
    
    82,855
    
    
    $
    1.59


Foreign Operations

The functional currency for the Companys United Kingdom operation is pounds
sterling. The financial statements for the United Kingdom operation are
translated into US dollars prior to the consolidation of these financial
statements with those of the Company. Gains and losses resulting from this
translation are included in accumulated other comprehensive income as a
component of owners equity. Gains and losses resulting from this translation
do not impact the results of operations of the Operating Partnership and are
included in general partners equity. Other comprehensive loss was $1.1
million for the three months ended September 30, 2004 and other comprehensive
income was $0.6 million for the three months ended September 30, 2003. Other
comprehensive income was $2.0 million for the nine months ended September 30,
2004 and $1.0 million for the same period in 2003.

Note 2: Organization

The Trust, the general partner of Liberty Property Limited Partnership, is a
self-administered and self-managed Maryland real estate investment trust (a
REIT). Substantially all of the Trusts assets are owned directly or
indirectly, and substantially all of the Trusts operations are conducted
directly or indirectly, by the Operating Partnership. The Operating
Partnership has agreed to absorb the expenses of the Trust (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 September 30, 2004. The Company provides
leasing, property management, development, acquisition and other tenant-related
services for a portfolio of industrial and office properties that 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

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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, Pa., Michigan, Minnesota, Milwaukee/ChicagoMid-Atlantic
    
    Maryland, Piedmont Triad, N.C., Greenville, S.C., Richmond, Virginia BeachFlorida
    
    Jacksonville, Orlando, Boca Raton, Tampa, TexasUnited Kingdom
    
    County of Kent


The Companys reportable segments are distinct business units which are each
managed separately in order to concentrate market knowledge within a geographic
area. Within these reportable segments, the Company derives its revenues from
its two product types: industrial properties and office properties.

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

For the Three Months Ended September 30, 2004

Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    46,773
    
    
    $
    9,146
    
    
    $
    18,839
    
    
    $
    29,865
    
    
    $
    31,360
    
    
    $
    24,233
    
    
    $
    5,051
    
    
    $
    165,267Rental
property expenses
and real estate taxes
    
    
    14,223
    
    
    
    3,154
    
    
    
    4,955
    
    
    
    10,946
    
    
    
    9,364
    
    
    
    7,586
    
    
    
    1,187
    
    
    
    51,415Property level operating
income
    
    $
    32,550
    
    
    $
    5,992
    
    
    $
    13,884
    
    
    $
    18,919
    
    
    $
    21,996
    
    
    $
    16,647
    
    
    $
    3,864
    
    
    
    113,852Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,096Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,861
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,549
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,068
    )Income before property
dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,470Gain on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (532
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (143
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,041Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,960
    )Income available to common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    41,168


For the Three Months Ended September 30, 2003

Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    45,124
    
    
    $
    8,784
    
    
    $
    18,042
    
    
    $
    29,929
    
    
    $
    28,825
    
    
    $
    22,997
    
    
    $
    3,684
    
    
    $
    157,385Rental
property expenses
and real estate taxes
    
    
    13,022
    
    
    
    3,072
    
    
    
    4,620
    
    
    
    10,820
    
    
    
    7,539
    
    
    
    6,987
    
    
    
    656
    
    
    
    46,716Property level operating
income
    
    $
    32,102
    
    
    $
    5,712
    
    
    $
    13,422
    
    
    $
    19,109
    
    
    $
    21,286
    
    
    $
    16,010
    
    
    $
    3,028
    
    
    
    110,669Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,509Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,086
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,541
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,639
    )Income before property
dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,912Loss on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (312
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (526
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    440Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    578Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,104
    )Income available to common
unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    40,952


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For the Nine Months Ended September 30, 2004

Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    142,449
    
    
    $
    26,493
    
    
    $
    55,582
    
    
    $
    89,071
    
    
    $
    90,453
    
    
    $
    72,038
    
    
    $
    14,570
    
    
    $
    490,656Rental
property expenses
and real estate taxes
    
    
    41,865
    
    
    
    9,321
    
    
    
    15,928
    
    
    
    32,164
    
    
    
    25,866
    
    
    
    22,148
    
    
    
    3,426
    
    
    
    150,718Property level operating
income
    
    $
    100,584
    
    
    $
    17,172
    
    
    $
    39,654
    
    
    $
    56,907
    
    
    $
    64,587
    
    
    $
    49,890
    
    
    $
    11,144
    
    
    
    339,938Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,237Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91,954
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,094
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,891
    )Income before property
dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126,236Loss on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (280
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,379
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    461Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (673
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,302Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,168
    )Income available to common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    120,499


For the Nine Months Ended September 30, 2003

Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    141,746
    
    
    $
    25,790
    
    
    $
    50,150
    
    
    $
    87,598
    
    
    $
    81,951
    
    
    $
    67,590
    
    
    $
    8,103
    
    
    $
    462,928Rental
property expenses
and real estate taxes
    
    
    40,658
    
    
    
    8,913
    
    
    
    13,145
    
    
    
    30,915
    
    
    
    22,259
    
    
    
    20,009
    
    
    
    1,187
    
    
    
    137,086Property level operating
income
    
    $
    101,088
    
    
    $
    16,877
    
    
    $
    37,005
    
    
    $
    56,683
    
    
    $
    59,692
    
    
    $
    47,581
    
    
    $
    6,916
    
    
    
    325,842Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,707Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92,576
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,748
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90,372
    )Income
before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127,853Gain on property dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,587
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (554
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,355Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,631Preferred unit distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,312
    )Income available to common unitholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    131,678


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

Net income and gain/(loss) on the disposition of real estate for properties
sold subsequent to December 31, 2001 are reflected in the consolidated
statements of operations as discontinued operations. The proceeds from the
disposition of properties for the three and nine months ended September 30,
2004 were $5.6 and $11.1 million as compared to $1.3 million and $39.8 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):

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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Revenues
    
    $
    961
    
    
    $
    491
    
    
    $
    1,434
    
    
    $
    3,862Operating expenses
    
    
    (32
    )
    
    
    (161
    )
    
    
    (159
    )
    
    
    (822
    )Interest expense
    
    
    (24
    )
    
    
    (71
    )
    
    
    (104
    )
    
    
    (380
    )Depreciation and amortization
    
    
    (30
    )
    
    
    (99
    )
    
    
    (132
    )
    
    
    (697
    )Income before property dispositions
    
    $
    875
    
    
    $
    160
    
    
    $
    1,039
    
    
    $
    1,963


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

Note 5: Unsecured
Notes

In August 2004, the Company issued $200 million of 5.65% senior unsecured notes
maturing on August 15, 2014. The proceeds from this issuance were used to
repay $100 million of 7.1% senior unsecured notes which matured on August 15,
2004, to pay down outstanding borrowings under the Companys unsecured credit
facility, for the acquisition of properties and for general corporate purposes.

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

OVERVIEW

The Company has an ownership interest in and operates 441 industrial and 277
office properties located primarily in the Mid-Atlantic, Southeastern and
Midwestern United States (the Properties in Operation) totaling approximately
60 million square feet. In addition, the Company has 18 properties under
development (the Properties under Development and together with the
Properties in Operation the Properties) and owns 1,109 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 attractive 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 third 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 nevertheless leased over 4 million square feet during the third
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 0.7% on a cash basis and by 0.3% on a straight line basis for the
quarter ended September 30, 2004 as compared to the quarter ended September 30,
2003. For the nine month period ended September 30, 2004, property level
operating income for the Same Store properties decreased by 0.8% on both a cash
basis and a straight line basis, as compared to the nine month period ended
September 30, 2003. Trends relating to occupancy, rental rate and transaction
costs remained generally consistent from quarter to quarter in 2003 and through
the first three quarters of 2004. See further discussion of Same Store results
below. The Company believes that these trends for the Properties in Operation
(i.e., 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 during 2005.

Conditions in 2004 for the acquisition of properties continue to be very
competitive. During the third quarter of the year, the Company acquired eight
buildings representing 1.9 million square feet for a total investment of $103.6
million. From January 1, 2004 through September 30, 2004, the Company invested
$151.6 million in 2.6 million square feet of properties. The Company believes
that the level of property acquisitions in 2004 will be in the $100 to $200
million range. For 2005, the Company believes that property acquisitions will
be in the $200 to $300 million range and, similar to 2004, many of the acquired
properties will be either vacant or underleased. The Company believes that
these properties are more attractively priced and will positively contribute to
earnings upon lease up and stabilization.

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 $6.3 million from the sale of Properties in
Operation during the third quarter of 2004 and has realized in the aggregate
$15.5 million from the sale of Properties in Operation and land in 2004 through
September 30, 2004. The Company anticipates that dispositions will be in the
$50 to $100 million range for 2004 and will be in the $75 to $150 million range
in 2005.

In 2004, the Company has continued to pursue development opportunities. During
the third quarter of 2004, the Company delivered $35.5 million ($62.9 million
year to date) of development properties and initiated development of $33.1
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 for the remainder of
2004 and in 2005, that conditions in certain markets support the initiation of
inventory projects (i.e., projects that are

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less than 75% leased prior to the commencement of construction) and that the
Company will also develop properties on a build to suit basis. The Company
believes that in 2005 it will bring into service from its development pipeline
properties representing approximately $75 to $100 million of investment in
operating real estate. The Company is also hopeful that it will be in a
position in late 2004 or early 2005 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 and is hopeful that
these discussions will lead to sufficient leasing to justify the commencement
of the development of the proposed 1.2 million square foot office tower, the
Company has not to date 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
September 30, 2004, the Company had invested $70.7 million in the project and
capitalized costs for the project for the third quarter were approximately $1
million. If the Company is unsuccessful in its leasing efforts, it may
postpone, downsize or abandon the project with the result that future costs of
the investment may be expensed as incurred rather than capitalized, and the
Company may determine its investment is impaired, resulting in a loss.

The composition of the Companys Properties in Operation as of September 30,
2004 and 2003 is as follows (in thousands, except dollars and percentages):

Net RentPer Square Foot
    
    
    Total Square Feet
    
    
    Percent OccupiedSeptember 30,
    
    
    September 30,
    
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Industrial-Distribution
    
    $
    4.39
    
    
    $
    4.47
    
    
    
    27,834
    
    
    
    24,834
    
    
    
    91.5%
    
    
    
    92.2%Industrial-Flex
    
    $
    8.75
    
    
    $
    8.78
    
    
    
    13,316
    
    
    
    13,341
    
    
    
    91.1%
    
    
    
    91.3%Office
    
    $
    14.10
    
    
    $
    14.53
    
    
    
    19,223
    
    
    
    18,082
    
    
    
    90.9%
    
    
    
    89.7%$
    8.43
    
    
    $
    8.68
    
    
    
    60,321
    
    
    
    56,257
    
    
    
    91.2%
    
    
    
    91.2%


Geographic segment data for the three and nine months ended September 30, 2004
and September 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 nine
months ended September 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 nine months ended September 30, 2004 with the results of operations of the
Company for the three and nine months ended September 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.

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Comparison of the Three and Nine Months Ended September 30, 2004 to the Three
and Nine Months Ended September 30, 2003.

The Companys average gross investment in operating real estate owned for the
three months ended September 30, 2004 increased to $4,085.8 million from
$3,776.7 million at September 30, 2003 and for the nine months ended September
30, 2004 increased to $4,016.6 million from $3,690.6 million at September 30,
2003. This increase resulted from the increased investment in real estate
acquired or developed, partially offset by Property dispositions, bringing our
portfolio from 56.3 million square feet of leaseable space as of September 30,
2003 to 60.3 million square feet of space as of September 30, 2004. This
increased investment in operating real estate resulted in increases in rental
revenue, rental property operating expenses, real estate taxes, and
depreciation and amortization expense.

Total operating revenue increased to $165.3 million for the three months ended
September 30, 2004 from $157.4 million for the three months ended September 30,
2003. This $7.9 million increase is primarily due to the net increase in
investment in real estate, partially offset by a decrease in Termination Fees
accepted during the three months ended September 30, 2004 totaling $2.7 million
as compared to $3.8 million for the three months ended September 30, 2003.
Termination Fees are fees that the Company agrees to accept in consideration
for permitting tenants to terminate their leases prior to the contractual
expiration date. Termination Fees are included in rental revenue. Total
operating revenue increased to $490.7 million for the nine months ended
September 30, 2004 from $462.9 million for the nine months ended September 30,
2003. This $27.8 million increase was primarily due to the net increase in
investment in real estate, partially offset by a decrease in Termination Fees
accepted during the nine months ended September 30, 2004 totaling $9.0 million
as compared to $12.3 million for the nine months ended September 30, 2003.

The Company evaluates the performance of the Properties in Operation by
reportable segment (see Note 3 to the Companys financial statements). The
property level operating income for the United Kingdom segment increased by
27.6% for the three months ended September 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 United Kingdom segment results was
primarily due to an increase in occupancy and rental rates in the latter
period. The property level operating income for the Lehigh Valley,
Mid-Atlantic and United Kingdom segments increased by 7.2%, 8.2% and 61.1%,
respectively, for the nine months ended September 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 Lehigh Valley segment is due to
the delivery of $72.6 million in completed developments during 2003. These
properties contributed to property level operating income for a partial period
in 2003 as compared to a full nine months in 2004. 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 on July 1, 2003.

Property level operating income, exclusive of Termination Fees, for the Same
Store properties decreased by $339,000 for the three months ended September 30,
2004 as compared to the three months ended September 30, 2003 on a straight
line basis (which recognizes rental revenue evenly over the life of the lease),
and decreased by $650,000 for the three months ended September 30, 2004 as
compared to the three months ended September 30, 2003 on a cash basis. These
decreases of 0.3% and 0.7%, respectively, are primarily due to a decrease in
rental rates partially offset by increases in occupancy.

Property level operating income, exclusive of Termination Fees, for the Same
Store properties decreased by $2.6 million for the nine months ended September
30, 2004 as compared to the nine months ended September 30, 2003 on a straight
line basis, and decreased by $2.3 million for the nine months ended September
30, 2004 as compared to the nine months ended September 30, 2003 on a cash
basis. These decreases of 0.8% are due to the higher than usual level of
unrecoverable operating expenses incurred in 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 636
properties totaling approximately 50.3 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 nine months ended September 30, 2004 and 2003. Same Store
property level income is a non-GAAP measure and does not represent income
before property dispositions, income taxes,

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minority interest and equity in earnings of unconsolidated joint ventures
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).

Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Same Store:Rental revenue
    
    $
    103,959
    
    
    $
    104,335
    
    
    $
    312,300
    
    
    $
    312,424Operating expenses:Rental property
    
    
    30,586
    
    
    
    28,945
    
    
    
    92,666
    
    
    
    87,990Real estate taxes
    
    
    15,791
    
    
    
    15,574
    
    
    
    45,138
    
    
    
    44,467Operating expense reimbursement
    
    
    (43,617
    )
    
    
    (41,722
    )
    
    
    (127,469
    )
    
    
    (124,567
    )Unrecovered operating expenses
    
    
    2,760
    
    
    
    2,797
    
    
    
    10,335
    
    
    
    7,890Property level operating income
    
    
    101,199
    
    
    
    101,538
    
    
    
    301,965
    
    
    
    304,534Less straight line rent
    
    
    2,451
    
    
    
    2,140
    
    
    
    6,937
    
    
    
    7,209Cash basis property level operating income
    
    $
    98,748
    
    
    $
    99,398
    
    
    $
    295,028
    
    
    $
    297,325Reconciliation of non-GAAP financial measure:Property level operating income  same store
    
    $
    101,199
    
    
    $
    101,538
    
    
    $
    301,965
    
    
    $
    304,534Property level operating income  properties purchased
or developed subsequent to January 1, 2003
    
    
    9,938
    
    
    
    5,326
    
    
    
    29,015
    
    
    
    9,021Termination fees
    
    
    2,715
    
    
    
    3,805
    
    
    
    8,958
    
    
    
    12,287General and administrative expense
    
    
    (8,549
    )
    
    
    (6,541
    )
    
    
    (25,094
    )
    
    
    (20,748
    )Depreciation and amortization expense
    
    
    (34,068
    )
    
    
    (30,639
    )
    
    
    (100,891
    )
    
    
    (90,372
    )Other income (expense)
    
    
    (29,765
    )
    
    
    (29,577
    )
    
    
    (87,717
    )
    
    
    (86,869
    )Gain (loss) on property dispositions
    
    
    128
    
    
    
    (312
    )
    
    
    (280
    )
    
    
    292Income taxes
    
    
    (532
    )
    
    
    (526
    )
    
    
    (1,379
    )
    
    
    (1,587
    )Minority interest
    
    
    (4,360
    )
    
    
    (4,957
    )
    
    
    (13,480
    )
    
    
    (15,202
    )Equity in earnings of unconsolidated joint ventures
    
    
    (143
    )
    
    
    440
    
    
    
    (673
    )
    
    
    1,355Discontinued operations, net of minority interest
    
    
    2,916
    
    
    
    552
    
    
    
    5,082
    
    
    
    13,014Net income
    
    $
    39,479
    
    
    $
    39,109
    
    
    $
    115,506
    
    
    $
    125,725


General and administrative expenses increased to $8.5 million for the three
months ended September 30, 2004 from $6.5 million for the three months ended
September 30, 2003 and increased to $25.1 million for the nine months ended
September 30, 2004 from $20.7 million for the nine months ended September 30,
2003. The increase for both the three and nine months ended September 30, 2004
as compared to the same period in 2003 is primarily due to an increase in (1)
salaries and wages, (2) costs related to the Companys enterprise resource
planning (ERP) initiative, (3) costs related to the requirements of the
Sarbanes-Oxley Act, (4) costs related to canceled transactions and (5) the
expensing of stock options.

Depreciation and amortization increased to $34.1 million for the three months
ended September 30, 2004 from $30.6 million for the three months ended
September 30, 2003 and increased to $100.9 million for the nine months ended
September 30, 2004 from $90.4 million for the nine months ended September 30,
2003. The increase for both the three and nine months ended September 30, 2004
as compared to the same period in 2003 is primarily due to the increase in
gross investment in operating real estate during the respective periods and
particularly the increased investment in leasing costs, which are amortized
over a relatively shorter period that the depreciable lives for building and
improvements.

Interest expense decreased to $30.9 million for the three months ended
September 30, 2004 from $31.1 million for the three months ended September 30,
2003 and decreased to $92.0 million for the nine months ended September 30,
2004

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from $92.6 million for the nine months ended September 30, 2003. The decreases
are due to decreases in the weighted average interest rates for the periods,
which were 6.67% for the three months ended September 30, 2004 compared to
6.92% for the three months ended September 30, 2003, and 6.74% for the nine
months ended September 30, 2004 compared to 6.95% for the nine months ended
September 30, 2003. These decreases are primarily due to the issuance in
August 2004 of 5.65% senior unsecured notes and the maturity in August 2004 of
7.1% senior unsecured notes. The effect of the decrease in interest rates was
partially offset by increases in the average debt outstanding for the
respective periods, which were $2,009.8 million for the three months ended
September 30, 2004 as compared to $1,877.2 million for the three months ended
September 30, 2003 and $1,954.6 million for the nine months ended September 30,
2004 as compared to $1,880.4 million for the nine months ended September 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 September 30, 2004 was $3.5 million as
compared to $2.5 million for the three months ended September 30, 2003, and was
$9.7 million for the nine months ended September 30, 2004 as compared to $8.1
million for the same period in 2003. Included in capitalized interest costs
are the interest costs relating to the Companys $70.7 million investment (as
of September 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.

As a result of the foregoing, the Companys net income increased to $39.5
million for the three months ended September 30, 2004 from $39.1 million for
the three months ended September 30, 2003, and decreased to $115.5 million for
the nine months ended September 30, 2004 from $125.7 million for the nine
months ended September 30, 2003.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2004, the Company had cash and cash equivalents of $43.6
million, including $21.8 million in restricted cash.

Net cash flow provided by operating activities increased to $205.8 million for
the nine months ended September 30, 2004 from $200.7 million for the nine
months ended September 30, 2003. This $5.1 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 $278.5 million for the nine
months ended September 30, 2004 from $82.0 million for the nine months ended
September 30, 2003. This $196.5 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 provided by financing activities totaled $72.5 million for the nine
months ended September 30, 2004 as compared to net cash used in financing
activities of $86.4 million for the nine months ended September 30, 2003. This
$158.9 million change was primarily due to the issuance of $200 million of
5.65% senior unsecured notes due 2014 and an increase in net borrowings under
the Companys $350 million unsecured Credit Facility (the $350 million Credit
Facility), partially offset by the repayment of $100 million of 7.1% senior
unsecured notes, which matured on August 15, 2004. 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 nine
months ended September 30, 2004, these activities were funded through 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.

26



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##### Table of Contents



The Company uses debt financing to lower its overall cost of capital in an
attempt to increase the return to shareholders. The Company staggers its debt
maturities and maintains debt levels it considers to be prudent. In determining
its debt levels, the Company considers various financial measures including the
debt to gross assets ratio and the earnings to fixed charge coverage ratio. As
of September 30, 2004 the Companys debt to gross assets ratio was 43.8%, and
for the three months ended September 30, 2004, 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 September 30, 2004, $371.4 million in mortgage loans and $1,455.0 million
in unsecured notes were outstanding with a weighted average interest rate of
7.2%. The interest rates on $1,749.6 million of mortgage loans and unsecured
notes are fixed and range up to 8.8%. Interest rates on $76.8 million of
mortgage loans float with the base rate of the respective lending bank or a
municipal bond index. The weighted average remaining term for the mortgage
loans and unsecured notes is 5.9 years.

The scheduled maturities and principal amortization of the Companys mortgage
loans, unsecured notes and borrowings under the $350 million Credit Facility
and the related weighted average interest rates as of September 30, 2004 are as
follows (in thousands, except percentages):

Mortgages
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedPrincipal
    
    
    Principal
    
    
    Unsecured
    
    
    Credit
    
    
    
    
    
    
    AverageAmortization
    
    
    Maturities
    
    
    Notes
    
    
    Facility
    
    
    Total
    
    
    Interest Rate2004 (3 months)
    
    $
    2,220
    
    
    $
    19,907
    
    
    $
    
    
    
    $
    
    
    
    $
    22,127
    
    
    
    4.93%2005
    
    
    8,247
    
    
    
    136,785
    
    
    
    
    
    
    
    
    
    
    
    145,032
    
    
    
    7.39%2006
    
    
    6,115
    
    
    
    66,072
    
    
    
    100,000
    
    
    
    245,100
    
    
    
    417,287
    
    
    
    4.43%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
    
    
    684
    
    
    
    33,060
    
    
    
    235,000
    
    
    
    
    
    
    
    268,744
    
    
    
    6.47%2014
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    200,000
    
    
    
    5.65%2018
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    100,000
    
    
    
    7.50%$
    33,580
    
    
    $
    337,853
    
    
    $
    1,455,000
    
    
    $
    245,100
    
    
    $
    2,071,533
    
    
    
    6.63%


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

General

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

The expiring square feet and annual net rent by year for the Properties in
Operation as of September 30, 2004 are as follows (in thousands):

Industrial-
    
    
    Industrial-Distribution
    
    
    Flex
    
    
    Office
    
    
    TotalSquare
    
    
    Annual
    
    
    Square
    
    
    Annual
    
    
    Square
    
    
    Annual
    
    
    Square
    
    
    AnnualFeet
    
    
    Net Rent
    
    
    Feet
    
    
    Net Rent
    
    
    Feet
    
    
    Net Rent
    
    
    Feet
    
    
    Net Rent2004 (3 months)
    
    
    424
    
    
    $
    1,676
    
    
    
    519
    
    
    $
    3,800
    
    
    
    513
    
    
    $
    6,585
    
    
    
    1,456
    
    
    $
    12,0612005
    
    
    2,939
    
    
    
    14,342
    
    
    
    2,233
    
    
    
    18,574
    
    
    
    3,016
    
    
    
    41,723
    
    
    
    8,188
    
    
    
    74,6392006
    
    
    2,933
    
    
    
    12,286
    
    
    
    2,021
    
    
    
    19,380
    
    
    
    1,663
    
    
    
    23,203
    
    
    
    6,617
    
    
    
    54,8692007
    
    
    3,447
    
    
    
    16,369
    
    
    
    1,697
    
    
    
    16,811
    
    
    
    1,939
    
    
    
    28,428
    
    
    
    7,083
    
    
    
    61,6082008
    
    
    3,906
    
    
    
    16,783
    
    
    
    2,234
    
    
    
    22,008
    
    
    
    2,285
    
    
    
    34,715
    
    
    
    8,425
    
    
    
    73,5062009
    
    
    2,754
    
    
    
    13,488
    
    
    
    1,315
    
    
    
    12,334
    
    
    
    2,524
    
    
    
    40,268
    
    
    
    6,593
    
    
    
    66,090Thereafter
    
    
    9,021
    
    
    
    48,987
    
    
    
    2,112
    
    
    
    23,201
    
    
    
    5,526
    
    
    
    100,409
    
    
    
    16,659
    
    
    
    172,597TOTAL
    
    
    25,424
    
    
    $
    123,931
    
    
    
    12,131
    
    
    $
    116,108
    
    
    
    17,466
    
    
    $
    275,331
    
    
    
    55,021
    
    
    $
    515,370


27



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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 1.6 million square feet of
Properties under Development as of September 30, 2004 are as follows (dollars
in thousands):

Square FeetScheduled
    
    Industrial-
    
    
    Industrial-
    
    
    
    
    
    
    
    
    
    
    Percent
    
    
    TotalIn-Service Date
    
    Distribution
    
    
    Flex
    
    
    Office
    
    
    Total
    
    
    Leased
    
    
    Investment4th Quarter 2004
    
    
    346,500
    
    
    
    60,000
    
    
    
    131,856
    
    
    
    538,356
    
    
    
    100.0%
    
    
    $
    38,7291st Quarter 2005
    
    
    
    
    
    
    
    
    
    
    30,844
    
    
    
    30,844
    
    
    
    69.8%
    
    
    
    3,4952nd Quarter 2005
    
    
    
    
    
    
    
    
    
    
    74,099
    
    
    
    74,099
    
    
    
    59.3%
    
    
    
    9,2263rd Quarter 2005
    
    
    
    
    
    
    
    
    
    
    35,157
    
    
    
    35,157
    
    
    
    54.2%
    
    
    
    10,6744th Quarter 2005
    
    
    104,000
    
    
    
    118,160
    
    
    
    202,000
    
    
    
    424,160
    
    
    
    24.7%
    
    
    
    47,5971st Quarter 2006
    
    
    264,400
    
    
    
    83,200
    
    
    
    25,000
    
    
    
    372,600
    
    
    
    
    
    
    
    21,9213rd Quarter 2006
    
    
    
    
    
    
    
    
    
    
    77,100
    
    
    
    77,100
    
    
    
    
    
    
    
    14,929TOTAL
    
    
    714,900
    
    
    
    261,360
    
    
    
    576,056
    
    
    
    1,552,316
    
    
    
    46.9%
    
    
    $
    146,571


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

The Company has an effective S-3 shelf registration statement on file with the
SEC (the Shelf Registration Statement). As of October 28, 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 $125.1 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 nine
months ended September 30, 2004 and September 30, 2003 are as follows (in
thousands, except per share amounts):

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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Reconciliation of net income to FFO  basic:Basic: Net income
    
    $
    39,479
    
    
    $
    39,109
    
    
    $
    115,506
    
    
    $
    125,725Basic  net income per weighted average share
    
    $
    .47
    
    
    $
    .50
    
    
    $
    1.37
    
    
    $
    1.61Adjustments:Depreciation and amortization of unconsolidated joint ventures
    
    
    567
    
    
    
    168
    
    
    
    2,011
    
    
    
    495Depreciation and amortization
    
    
    33,411
    
    
    
    30,162
    
    
    
    98,897
    
    
    
    89,408Gain on property dispositions
    
    
    (2,294
    )
    
    
    (106
    )
    
    
    (3,983
    )
    
    
    (11,377
    )Minority interest share in addback for depreciation and
amortization, and gain on property dispositions
    
    
    (1,305
    )
    
    
    (1,342
    )
    
    
    (4,032
    )
    
    
    (3,519
    )Funds from operations available to common
shareholders  basic
    
    $
    69,858
    
    
    $
    67,991
    
    
    $
    208,399
    
    
    $
    200,732Basic Funds from operations available to common
shareholders per weighted average share
    
    $
    .82
    
    
    $
    .86
    
    
    $
    2.47
    
    
    $
    2.58Reconciliation of net income to FFO  diluted:Diluted : Net income
    
    $
    39,479
    
    
    $
    39,109
    
    
    $
    115,506
    
    
    $
    125,725Diluted  net income per weighted average share
    
    $
    .46
    
    
    $
    .49
    
    
    $
    1.35
    
    
    $
    1.59Adjustments:Depreciation and amortization of unconsolidated joint ventures
    
    
    567
    
    
    
    168
    
    
    
    2,011
    
    
    
    495Depreciation and amortization
    
    
    33,411
    
    
    
    30,162
    
    
    
    98,897
    
    
    
    89,408Gain on property dispositions
    
    
    (2,294
    )
    
    
    (106
    )
    
    
    (3,983
    )
    
    
    (11,377
    )Minority interest less preferred share distributions
    
    
    1,689
    
    
    
    1,843
    
    
    
    4,993
    
    
    
    5,953Funds from operations available to common
shareholders  diluted
    
    $
    72,852
    
    
    $
    71,176
    
    
    $
    217,424
    
    
    $
    210,204Diluted Funds from operations available to common
shareholders per weighted average share
    
    $
    .81
    
    
    $
    .85
    
    
    $
    2.43
    
    
    $
    2.54Reconciliation of weighted average shares:Weighted average common shares  all basic calculations
    
    
    84,877
    
    
    
    78,949
    
    
    
    84,260
    
    
    
    77,939Dilutive shares for long-term compensation plans
    
    
    1,450
    
    
    
    1,368
    
    
    
    1,487
    
    
    
    1,225Diluted shares for net income calculations
    
    
    86,327
    
    
    
    80,317
    
    
    
    85,747
    
    
    
    79,164Weighted average common units
    
    
    3,668
    
    
    
    3,698
    
    
    
    3,679
    
    
    
    3,691Diluted shares for Funds from operations calculations
    
    
    89,995
    
    
    
    84,015
    
    
    
    89,426
    
    
    
    82,855


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.

A controls system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the controls system are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected.

Changes in Internal Controls

There were no changes in the Companys internal control over financial
reporting during the quarter ended September 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 ProceedingsNone.Item 2.
    
    Unregistered Sales of Securities and Use of Proceeds and Issuer Purchases of Equity SecuritiesNone.Item 3.
    
    Defaults upon Senior SecuritiesNone.Item 4.
    
    Submission of Matters to a Vote of Security HoldersNone.Item 5.
    
    Other InformationNone.Item 6.
    
    Exhibits


3.1.1
    
    
    Articles Supplementary, as filed with the State
Department of Assessments and Taxation of Maryland on September
1, 2004 (Incorporated by reference to Exhibit 3(i) to the
Current Report on Form 8-K of the Registrants, filed with the
Securities and Exchange Commission on September 2, 2004).3.1.2
    
    
    Fourth Amendment to the Second Amended and
Restated Agreement of Limited Partnership of Liberty Property
Limited Partnership (Incorporated by reference to Exhibit 10 to
the Current Report on Form 8-K of the Registrants, filed with
the Securities and Exchange Commission on September 2, 2004).4.1.1
    
    
    First Amended and Restated Rights Agreement, dated
as of September 14, 2004, between Liberty Property Trust and
Equiserve Trust Company, N.A., as Rights Agent (Incorporated by
reference to Exhibit 4 to the Current Report on Form 8-K of the
Registrants, filed with the Securities and Exchange Commission
on September 14, 2004).4.1.2*
    
    
    Seventh Supplemental Indenture, dated as of August 10, 2004,
between Liberty Property Limited Partnership, as Issuer, and
Bank One Trust Company, as Trustee.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.


31



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##### Table of Contents



32.1*
    
    
    Certifications of the Chief Executive Officer of
Liberty Property Trust required under Rule 13a-14(b) of the
Securities Exchange Act of 1934, as amended. (This exhibit
shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise
subject to the liability of that section. Further, this
exhibit shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended.)32.2*
    
    
    Certifications of the Chief Financial Officer of
Liberty Property Trust required by Rule 13a-14(b) under the
Securities Exchange Act of 1934, as amended. (This exhibit
shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise
subject to the liability of that section. Further, this
exhibit shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended.)32.3*
    
    
    Certifications of the Chief Executive Officer of
Liberty Property Trust, in its capacity as the general partner
of Liberty Property Limited Partnership, required by Rule
13a-14(b) under the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934,
as amended, or otherwise subject to the liability of that
section. Further, this exhibit shall not be deemed to be
incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)32.4*
    
    
    Certifications of the Chief Financial Officer of
Liberty Property Trust, in its capacity as the general partner
of Liberty Property Limited Partnership, required by Rule
13a-14(b) under the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934,
as amended, or otherwise subject to the liability of that
section. Further, this exhibit shall not be deemed to be
incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)




---

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

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SIGNATURES

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

LIBERTY PROPERTY TRUST

/s/ WILLIAM P. HANKOWSKY
    
    November 8, 2004William P. Hankowsky
    
    DatePresident and Chief Executive Officer/s/ GEORGE J. ALBURGER, JR.
    
    November 8, 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
    
    November 8, 2004William P. Hankowsky
    
    DatePresident and Chief Executive Officer/s/ GEORGE J. ALBURGER, JR.
    
    November 8, 2004George J. Alburger, Jr.
    
    DateExecutive Vice President and Chief Financial Officer


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##### Table of Contents






EXHIBIT INDEX

EXHIBIT NO.
    
    DESCRIPTION4.1.2
    
    Seventh Supplemental Indenture, dated as of August 10, 2004, between
Liberty Property Limited Partnership, as Issuer, and Bank One Trust
Company, as Trustee.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.)


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