##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file numbers:
    
    1-13130 (Liberty Property Trust)1-13132 (Liberty Property Limited Partnership)
 
 LIBERTY PROPERTY TRUST
 LIBERTY PROPERTY LIMITED PARTNERSHIP
 
 (Exact name of registrants as specified in their governing documents)
 MARYLAND(Liberty Property Trust)
    
    23-7768996PENNSYLVANIA(Liberty Property Limited Partnership)
    
    23-2766549(State or other jurisdiction
of incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 500 Chesterfield Parkway
Malvern, Pennsylvania
    
    19355(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants Telephone Number, Including Area Code
    
    (610) 648-1700
 þ o
  þ o o
 o þ




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##### 



Liberty Property Trust/Liberty Property Limited Partnership
Form 10-Q for the period ended September 30, 2006
  
 Index
    
    
    
    
    PagePart I.
    
    Financial InformationItem 1.
    
    Financial Statements (unaudited)Condensed consolidated balance sheets of Liberty Property Trust at September 30,
2006 and December 31, 2005
    
    
    3Condensed consolidated statements of operations of Liberty Property Trust for the
three months ended September 30, 2006 and September 30, 2005
    
    
    4Condensed consolidated statements of operations of Liberty Property Trust for the
nine months ended September 30, 2006 and September 30, 2005
    
    
    5Condensed consolidated statements of cash flows of Liberty Property Trust for the
nine months ended September 30, 2006 and September 30, 2005
    
    
    6Notes to condensed consolidated financial statements of Liberty Property Trust
    
    
    7Condensed consolidated balance sheets of Liberty Property Limited Partnership at
September 30, 2006 and December 31, 2005
    
    
    16Condensed consolidated statements of operations of Liberty Property Limited
Partnership for the three months ended September 30, 2006 and September 30, 2005
    
    
    17Condensed consolidated statements of operations of Liberty Property Limited
Partnership for the nine months ended September 30, 2006 and September 30, 2005
    
    
    18Condensed consolidated statements of cash flows of Liberty Property Limited
Partnership for the nine months ended September 30, 2006 and September 30, 2005
    
    
    19Notes to condensed consolidated financial statements of Liberty Property Limited
Partnership
    
    
    20Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 4.
    
    Controls and Procedures
    
    
    36Part II.
    
    Other Information
    
    
    37Signatures for Liberty Property Trust
    
    
    39Signatures for Liberty Property Limited Partnership
    
    
    40Exhibit Index
    
    
    41STATEMENT RE: COMPUTATION OF RATIO OF EARNINGSCERTIFICATION OF WILLIAM P. HANKOWSKYCERTIFICATION OF GEORGE J. ALBURGER, JR.CERTIFICATION OF WILLIAM P. HANKOWSKYCERTIFICATION OF GEORGE J. ALBURGER, JR.CERTIFICATION OF WILLIAM P. HANKOWSKYCERTIFICATION OF GEORGE J. ALBURGER, JR.CERTIFICATION OF WILLIAM P. HANKOWSKYCERTIFICATION OF GEORGE J. ALBURGER, JR.
  2




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##### Table of Contents



CONDENSED CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
 (In thousands, except share amounts)
 September 30, 2006
    
    
    December 31, 2005(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    661,109
    
    
    $
    625,693Building and improvements
    
    
    3,770,921
    
    
    
    3,711,575Less accumulated depreciation
    
    
    (794,612
    )
    
    
    (741,912
    )Operating real estate
    
    
    3,637,418
    
    
    
    3,595,356Development in progress
    
    
    472,836
    
    
    
    324,924Land held for development
    
    
    169,734
    
    
    
    158,653Net real estate
    
    
    4,279,988
    
    
    
    4,078,933Cash and cash equivalents
    
    
    26,573
    
    
    
    61,629Restricted cash
    
    
    13,891
    
    
    
    29,085Accounts receivable
    
    
    24,067
    
    
    
    14,761Deferred rent receivable
    
    
    71,656
    
    
    
    72,818Deferred financing and leasing costs, net of accumulated amortization
(2006, $96,797; 2005, $108,103)
    
    
    124,509
    
    
    
    123,696Investments in unconsolidated joint ventures
    
    
    48,602
    
    
    
    33,522Assets held for sale
    
    
    6,375
    
    
    
    29,105Prepaid expenses and other assets
    
    
    83,164
    
    
    
    56,773Total assets
    
    $
    4,678,825
    
    
    $
    4,500,322LIABILITIESMortgage loans
    
    $
    201,731
    
    
    $
    238,728Unsecured notes
    
    
    1,755,000
    
    
    
    1,755,000Credit facility
    
    
    328,480
    
    
    
    255,450Accounts payable
    
    
    41,486
    
    
    
    32,919Accrued interest
    
    
    26,804
    
    
    
    34,892Dividend payable
    
    
    58,472
    
    
    
    56,490Other liabilities
    
    
    159,485
    
    
    
    164,528Total liabilities
    
    
    2,571,458
    
    
    
    2,538,007Minority interest
    
    
    270,719
    
    
    
    253,133SHAREHOLDERS EQUITYCommon shares of beneficial interest, $.001 par value, 191,200,000
shares authorized, 90,170,972 (includes 59,100 in treasury) and
88,415,764 (includes 59,100 in treasury) shares issued and
outstanding as of September 30, 2006 and December 31, 2005, respectively
    
    
    90
    
    
    
    88Additional paid-in capital
    
    
    1,879,429
    
    
    
    1,799,068Accumulated other comprehensive income
    
    
    16,793
    
    
    
    9,906Distributions in excess of net income
    
    
    (58,337
    )
    
    
    (98,553
    )Common shares in treasury, at cost, 59,100 shares as of September 30, 2006
and December 31, 2005
    
    
    (1,327
    )
    
    
    (1,327
    )Total shareholders equity
    
    
    1,836,648
    
    
    
    1,709,182Total liabilities and shareholders equity
    
    $
    4,678,825
    
    
    $
    4,500,322
  3




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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 Three Months EndedSeptember 30, 2006
    
    
    September 30, 2005OPERATING REVENUERental
    
    $
    118,745
    
    
    $
    114,400Operating expense reimbursement
    
    
    52,678
    
    
    
    47,808Total operating revenue
    
    
    171,423
    
    
    
    162,208OPERATING EXPENSERental property
    
    
    35,526
    
    
    
    34,880Real estate taxes
    
    
    18,202
    
    
    
    16,805General and administrative
    
    
    11,996
    
    
    
    9,302Depreciation and amortization
    
    
    37,763
    
    
    
    35,105Total operating expenses
    
    
    103,487
    
    
    
    96,092Operating income
    
    
    67,936
    
    
    
    66,116OTHER INCOME (EXPENSE)Interest and other income
    
    
    3,257
    
    
    
    2,606Interest expense
    
    
    (30,840
    )
    
    
    (31,549
    )Total other income (expense)
    
    
    (27,583
    )
    
    
    (28,943
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    40,353
    
    
    
    37,173(Loss) gain on property dispositions, including impairment
    
    
    (104
    )
    
    
    1,318Income taxes
    
    
    625
    
    
    
    (796
    )Minority interest
    
    
    (5,087
    )
    
    
    (4,699
    )Equity in earnings of unconsolidated joint ventures
    
    
    334
    
    
    
    231Income from continuing operations
    
    
    36,121
    
    
    
    33,227Discontinued operations, net of minority interest (including net gain on
property dispositions of $11,386 and $18,232 for the three months ended
September 30, 2006 and 2005, respectively)
    
    
    10,764
    
    
    
    18,648Net income
    
    $
    46,885
    
    
    $
    51,875Earnings per common shareBasic:Income from continuing operations
    
    $
    0.40
    
    
    $
    0.38Income from discontinued operations
    
    
    0.12
    
    
    
    0.21Income per common share  basic
    
    $
    0.52
    
    
    $
    0.59Diluted:Income from continuing operations
    
    $
    0.40
    
    
    $
    0.37Income from discontinued operations
    
    
    0.12
    
    
    
    0.21Income per common share  diluted
    
    $
    0.52
    
    
    $
    0.58Distributions per common share
    
    $
    0.62
    
    
    $
    0.615Weighted average number of common shares outstandingBasic
    
    
    89,675
    
    
    
    87,443Diluted
    
    
    90,808
    
    
    
    88,922
  4




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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands, except per share amounts)
 Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005OPERATING REVENUERental
    
    $
    352,791
    
    
    $
    347,168Operating expense reimbursement
    
    
    151,210
    
    
    
    138,546Total operating revenue
    
    
    504,001
    
    
    
    485,714OPERATING EXPENSERental property
    
    
    105,914
    
    
    
    101,350Real estate taxes
    
    
    53,333
    
    
    
    48,078General and administrative
    
    
    33,511
    
    
    
    27,301Depreciation and amortization
    
    
    110,422
    
    
    
    102,380Total operating expenses
    
    
    303,180
    
    
    
    279,109Operating income
    
    
    200,821
    
    
    
    206,605OTHER INCOME (EXPENSE)Interest and other income
    
    
    7,733
    
    
    
    7,398Interest expense
    
    
    (90,894
    )
    
    
    (91,909
    )Total other income (expense)
    
    
    (83,161
    )
    
    
    (84,511
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    117,660
    
    
    
    122,094Gain (loss) on property dispositions, including impairment
    
    
    17,257
    
    
    
    (3,611
    )Income taxes
    
    
    15
    
    
    
    (2,241
    )Minority interest
    
    
    (15,413
    )
    
    
    (13,805
    )Equity in earnings of unconsolidated joint ventures
    
    
    1,250
    
    
    
    2,433Income from continuing operations
    
    
    120,769
    
    
    
    104,870Discontinued operations, net of minority interest (including net gain on
property dispositions of $87,588 and $32,652 for the nine months ended
September 30, 2006 and 2005, respectively)
    
    
    84,993
    
    
    
    37,163Net income
    
    $
    205,762
    
    
    $
    142,033Earnings per common shareBasic:Income from continuing operations
    
    $
    1.36
    
    
    $
    1.21Income from discontinued operations
    
    
    0.95
    
    
    
    0.43Income per common share  basic
    
    $
    2.31
    
    
    $
    1.64Diluted:Income from continuing operations
    
    $
    1.34
    
    
    $
    1.19Income from discontinued operations
    
    
    0.94
    
    
    
    0.42Income per common share  diluted
    
    $
    2.28
    
    
    $
    1.61Distributions per common share
    
    $
    1.85
    
    
    $
    1.84Weighted average number of common shares outstandingBasic
    
    
    88,923
    
    
    
    86,670Diluted
    
    
    90,184
    
    
    
    88,128
  5




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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
OF LIBERTY PROPERTY TRUST
(Unaudited and in thousands)
 Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005OPERATING ACTIVITIESNet income
    
    $
    205,762
    
    
    $
    142,033Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    113,927
    
    
    
    110,841Amortization of deferred financing costs
    
    
    3,188
    
    
    
    3,527Equity in earnings of unconsolidated joint ventures
    
    
    (1,250
    )
    
    
    (2,433
    )Distributions from unconsolidated joint ventures
    
    
    3,026
    
    
    
    4,544Minority interest in net income
    
    
    19,184
    
    
    
    15,304Gain on property dispositions, including impairment
    
    
    (104,845
    )
    
    
    (29,041
    )Noncash compensation
    
    
    4,895
    
    
    
    3,094Changes in operating assets and liabilities:Restricted cash
    
    
    18,289
    
    
    
    11,411Accounts receivable
    
    
    (8,071
    )
    
    
    2,422Deferred rent receivable
    
    
    1,162
    
    
    
    (5,147
    )Prepaid expenses and other assets
    
    
    (28,428
    )
    
    
    (20,132
    )Accounts payable
    
    
    8,234
    
    
    
    11,410Accrued interest
    
    
    (8,088
    )
    
    
    (8,255
    )Other liabilities
    
    
    (7,701
    )
    
    
    37,679Net cash provided by operating activities
    
    
    219,284
    
    
    
    277,257INVESTING ACTIVITIESInvestment in properties
    
    
    (220,163
    )
    
    
    (219,032
    )Investment in unconsolidated joint ventures
    
    
    (5,484
    )
    
    
    (13,335
    )Proceeds from disposition of properties/land
    
    
    383,331
    
    
    
    147,000Investment in development in progress
    
    
    (255,415
    )
    
    
    (167,404
    )Investment in land held for development
    
    
    (52,064
    )
    
    
    (69,920
    )Increase in deferred leasing costs
    
    
    (20,796
    )
    
    
    (27,162
    )Net cash used in investing activities
    
    
    (170,591
    )
    
    
    (349,853
    )FINANCING ACTIVITIESNet proceeds from issuance of common shares
    
    
    61,185
    
    
    
    68,165Net proceeds from the issuance of preferred units
    
    
    
    
    
    
    48,686Net proceeds from issuance of unsecured notes
    
    
    
    
    
    
    296,424Repayments of mortgage loans
    
    
    (37,586
    )
    
    
    (126,768
    )Proceeds from credit facility
    
    
    419,095
    
    
    
    461,650Repayments on credit facility
    
    
    (346,065
    )
    
    
    (484,650
    )Increase in deferred financing costs
    
    
    (1,971
    )
    
    
    (139
    )Distributions to minority interests
    
    
    
    
    
    
    (3,932
    )Distributions paid on common shares
    
    
    (164,005
    )
    
    
    (158,308
    )Distributions paid on units
    
    
    (16,876
    )
    
    
    (15,284
    )Net cash (used in) provided by financing activities
    
    
    (86,223
    )
    
    
    85,844(Decrease) increase in cash and cash equivalents
    
    
    (37,530
    )
    
    
    13,248Increase (decrease) in cash and cash equivalents related to foreign currency translation
    
    
    2,474
    
    
    
    (3,706
    )Cash and cash equivalents at beginning of period
    
    
    61,629
    
    
    
    33,667Cash and cash equivalents at end of period
    
    $
    26,573
    
    
    $
    43,209SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    75,447
    
    
    $
    26,429Acquisition of properties
    
    
    
    
    
    
    (23,973
    )Assumption of mortgage loans
    
    
    
    
    
    
    23,973Issuance of operating partnership units
    
    
    30,000
    
    
    
    
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Liberty Property Trust
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006
 Note 1: Organization and Basis of Presentation
 Organization
 Basis of Presentation
 Income per Common Share
 For the Three Months Ended Sept. 30, 2006
    
    
    For the Three Months Ended Sept. 30, 2005Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Shares
    
    
    Per
    
    
    Income
    
    
    Shares
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    ShareBasic income from continuing operationsIncome from continuing operations
    
    $
    36,121
    
    
    
    89,675
    
    
    $
    0.40
    
    
    $
    33,227
    
    
    
    87,443
    
    
    $
    0.38Dilutive shares for long-term
compensation plans
    
    
    
    
    
    
    1,133
    
    
    
    
    
    
    
    
    
    
    
    1,479Diluted income from continuing operationsIncome from continuing operations and
assumed conversions
    
    
    36,121
    
    
    
    90,808
    
    
    $
    0.40
    
    
    
    33,227
    
    
    
    88,922
    
    
    $
    0.37Basic income from discontinued operationsDiscontinued operations net of minority interest
    
    
    10,764
    
    
    
    89,675
    
    
    $
    0.12
    
    
    
    18,648
    
    
    
    87,443
    
    
    $
    0.21Dilutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,133
    
    
    
    
    
    
    
    
    
    
    
    1,479Diluted income from discontinued operationsDiscontinued operations net of minority interest
    
    
    10,764
    
    
    
    90,808
    
    
    $
    0.12
    
    
    
    18,648
    
    
    
    88,922
    
    
    $
    0.21Basic income per common shareNet income
    
    
    46,885
    
    
    
    89,675
    
    
    $
    0.52
    
    
    
    51,875
    
    
    
    87,443
    
    
    $
    0.59Dilutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,133
    
    
    
    
    
    
    
    
    
    
    
    1,479Diluted income per common shareNet income and assumed conversions
    
    $
    46,885
    
    
    
    90,808
    
    
    $
    0.52
    
    
    $
    51,875
    
    
    
    88,922
    
    
    $
    0.58
 7




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##### Table of Contents



For the Nine Months Ended Sept. 30, 2006
    
    
    For the Nine Months Ended Sept. 30, 2005Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Shares
    
    
    Per
    
    
    Income
    
    
    Shares
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    ShareBasic income from continuing operationsIncome from continuing operations
    
    $
    120,769
    
    
    
    88,923
    
    
    $
    1.36
    
    
    $
    104,870
    
    
    
    86,670
    
    
    $
    1.21Dilutive shares for long-term
compensation plans
    
    
    
    
    
    
    1,261
    
    
    
    
    
    
    
    
    
    
    
    1,458Diluted income from continuing operationsIncome from continuing operations and
assumed conversions
    
    
    120,769
    
    
    
    90,184
    
    
    $
    1.34
    
    
    
    104,870
    
    
    
    88,128
    
    
    $
    1.19Basic income from discontinued operationsDiscontinued operations net of minority interest
    
    
    84,993
    
    
    
    88,923
    
    
    $
    0.95
    
    
    
    37,163
    
    
    
    86,670
    
    
    $
    0.43Dilutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,261
    
    
    
    
    
    
    
    
    
    
    
    1,458Diluted income from discontinued operationsDiscontinued operations net of minority interest
    
    
    84,993
    
    
    
    90,184
    
    
    $
    0.94
    
    
    
    37,163
    
    
    
    88,128
    
    
    $
    0.42Basic income per common shareNet income
    
    
    205,762
    
    
    
    88,923
    
    
    $
    2.31
    
    
    
    142,033
    
    
    
    86,670
    
    
    $
    1.64Dilutive shares for long-term compensation
plans
    
    
    
    
    
    
    1,261
    
    
    
    
    
    
    
    
    
    
    
    1,458Diluted income per common shareNet income and assumed conversions
    
    $
    205,762
    
    
    
    90,184
    
    
    $
    2.28
    
    
    $
    142,033
    
    
    
    88,128
    
    
    $
    1.61
 Share Based Compensation  Share-Based Payment Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation,
   Options:
  8




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSept. 30, 2005
    
    
    Sept. 30, 2005Income available to common shareholders
    
    $
    51,875
    
    
    $
    142,033Add: Share-based compensation expense
included in reported net income available to
common shareholders
    
    
    193
    
    
    
    451Deduct: Total share-based employee compensation
expense determined under fair value based
method for all awards
    
    
    (193
    )
    
    
    (581
    )Pro forma income available to common shareholders
    
    $
    51,875
    
    
    $
    141,903Income per common share:Basic  as reported
    
    $
    0.59
    
    
    $
    1.64Basic  pro forma
    
    $
    0.59
    
    
    $
    1.64Diluted  as reported
    
    $
    0.58
    
    
    $
    1.61Diluted  pro forma
    
    $
    0.58
    
    
    $
    1.61
  Nine Months
    
    Nine Months EndedEnded Sept. 30, 2006
    
    Sept. 30, 2005Risk-free interest rate
    
    
    4.8
    %
    
    
    4.4
    %Dividend yield
    
    
    5.8
    %
    
    
    5.9
    %Volatility factor
    
    
    0.188
    
    
    
    0.183Weighted-average expected life
    
    7 years
    
    8 years
  WeightedAverageOptions
    
    
    Exercise(000s)
    
    
    PriceOutstanding at January 1, 2006
    
    
    3,521
    
    
    $
    29.31Granted
    
    
    175
    
    
    
    46.94Exercised
    
    
    (650
    )
    
    
    27.38Forfeited
    
    
    (13
    )
    
    
    41.73Outstanding at September 30, 2006
    
    
    3,033
    
    
    $
    30.69Exercisable at September 30, 2006
    
    
    2,542
    
    
    $
    28.15
  9




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##### Table of Contents



Long Term Incentive Shares (LTI):
   Weighted AvgShares
    
    
    Grant Date(000s)
    
    
    Fair valueNonvested at January 1, 2006
    
    
    253
    
    
    $
    39.10Granted
    
    
    77
    
    
    
    48.07Vested
    
    
    (50
    )
    
    
    37.12Forfeited
    
    
    (7
    )
    
    
    39.66Nonvested at September 30, 2006
    
    
    273
    
    
    $
    41.99
  Bonus Shares:
 Profit Sharing Plan:
 Employee Share Purchase Plan:
 10




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##### Table of Contents



Foreign Currency Translation
 Note 2: Segment Information
  Reportable Segments
    
    MarketsDelaware Valley
    
    Southeastern Pennsylvania; New JerseyMidwest
    
    Lehigh Valley, Pennsylvania; Michigan; Minnesota; Milwaukee; ChicagoMid-Atlantic
    
    Maryland; Piedmont Triad, NC; Greenville, SC; Richmond; Virginia BeachFlorida
    
    Jacksonville; Orlando; Boca Raton; Tampa; TexasUnited Kingdom
    
    County of Kent
   For the Three Months Ended September 30, 2006Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    47,312
    
    
    $
    9,870
    
    
    $
    23,432
    
    
    $
    30,682
    
    
    $
    31,352
    
    
    $
    27,882
    
    
    $
    893
    
    
    $
    171,423Rental property expenses
and real estate taxes
    
    
    15,178
    
    
    
    3,430
    
    
    
    3,592
    
    
    
    11,653
    
    
    
    9,902
    
    
    
    9,252
    
    
    
    721
    
    
    
    53,728Property level operating
income
    
    $
    32,134
    
    
    $
    6,440
    
    
    $
    19,840
    
    
    $
    19,029
    
    
    $
    21,450
    
    
    $
    18,630
    
    
    $
    172
    
    
    
    117,695Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,257Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,840
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,996
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,763
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,353Loss on property dispositions, including impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    625Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,087
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    334Discontinued operations, net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,764Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    46,885
 11




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##### Table of Contents



For the Three Months Ended September 30, 2005Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    45,091
    
    
    $
    9,539
    
    
    $
    21,791
    
    
    $
    29,480
    
    
    $
    27,061
    
    
    $
    24,700
    
    
    $
    4,546
    
    
    $
    162,208Rental property expenses
and real estate taxes
    
    
    14,098
    
    
    
    3,352
    
    
    
    5,554
    
    
    
    11,080
    
    
    
    8,546
    
    
    
    8,419
    
    
    
    636
    
    
    
    51,685Property level operating
income
    
    $
    30,993
    
    
    $
    6,187
    
    
    $
    16,237
    
    
    $
    18,400
    
    
    $
    18,515
    
    
    $
    16,281
    
    
    $
    3,910
    
    
    
    110,523Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,606Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,549
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,302
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,105
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,173Gain on property dispositions, including impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,318Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (796
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,699
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    231Discontinued operations, net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,648Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    51,875
 For the Nine Months Ended September 30, 2006Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    139,962
    
    
    $
    29,013
    
    
    $
    70,810
    
    
    $
    93,320
    
    
    $
    89,098
    
    
    $
    79,076
    
    
    $
    2,722
    
    
    $
    504,001Rental property expenses
and real estate taxes
    
    
    43,610
    
    
    
    9,362
    
    
    
    15,586
    
    
    
    34,674
    
    
    
    27,796
    
    
    
    26,095
    
    
    
    2,124
    
    
    
    159,247Property level operating
income
    
    $
    96,352
    
    
    $
    19,651
    
    
    $
    55,224
    
    
    $
    58,646
    
    
    $
    61,302
    
    
    $
    52,981
    
    
    $
    598
    
    
    
    344,754Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,733Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90,894
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,511
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110,422
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,660Gain on property dispositions, including impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,257Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,413
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,250Discontinued operations, net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,993Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    205,762
 12




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##### Table of Contents



For the Nine Months Ended September 30, 2005Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    142,450
    
    
    $
    27,704
    
    
    $
    63,438
    
    
    $
    86,827
    
    
    $
    77,654
    
    
    $
    71,369
    
    
    $
    16,272
    
    
    $
    485,714Rental property expenses
and real estate taxes
    
    
    42,134
    
    
    
    9,613
    
    
    
    16,278
    
    
    
    32,046
    
    
    
    23,814
    
    
    
    22,855
    
    
    
    2,688
    
    
    
    149,428Property level operating
income
    
    $
    100,316
    
    
    $
    18,091
    
    
    $
    47,160
    
    
    $
    54,781
    
    
    $
    53,840
    
    
    $
    48,514
    
    
    $
    13,584
    
    
    
    336,286Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,398Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91,909
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,301
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,380
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,094Loss on property dispositions, including impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,611
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,241
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,805
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,433Discontinued operations, net of minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,163Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    142,033
 Note 3: SFAS No. 144, Accounting For The Impairment Or Disposal Of Long-Lived Assets
  Three Months Ended
    
    
    Nine Months EndedSept. 30, 2006
    
    
    Sept. 30, 2005
    
    
    Sept. 30, 2006
    
    
    Sept. 30, 2005Revenues
    
    $
    1,039
    
    
    $
    8,969
    
    
    $
    10,925
    
    
    $
    33,376Operating expenses
    
    
    (838
    )
    
    
    (2,980
    )
    
    
    (4,176
    )
    
    
    (9,474
    )Interest expense
    
    
    (110
    )
    
    
    (2,299
    )
    
    
    (2,458
    )
    
    
    (9,590
    )Depreciation and amortization
    
    
    (210
    )
    
    
    (2,527
    )
    
    
    (3,115
    )
    
    
    (8,302
    )Income before property dispositions and minority interest
    
    $
    (119
    )
    
    $
    1,163
    
    
    $
    1,176
    
    
    $
    6,010
   Allocation of Interest to Discontinued Operations
 13




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##### Table of Contents



Note
4: Joint Ventures
 Comcast Center
  Accounting for the Sale of Real
Estate
 Chicago Joint Venture
 Note
5: Recently Issued Accounting Standards
 SFAS No. 153  Accounting for Non-monetary Transactions
 EITF Issue 04-5  Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When
the Limited Partners Have Certain Rights
 SFAS No. 157  Fair Value Measurements ,
 14




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##### Table of Contents



FIN 48  Accounting for Uncertainty in Income
Taxes Accounting for Income
Taxes
 15




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##### Table of Contents



CONDENSED CONSOLIDATED BALANCE SHEETS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(In thousands)
 September 30, 2006
    
    
    December 31, 2005(Unaudited)ASSETSReal estate:Land and land improvements
    
    $
    661,109
    
    
    $
    625,693Building and improvements
    
    
    3,770,921
    
    
    
    3,711,575Less accumulated depreciation
    
    
    (794,612
    )
    
    
    (741,912
    )Operating real estate
    
    
    3,637,418
    
    
    
    3,595,356Development in progress
    
    
    472,836
    
    
    
    324,924Land held for development
    
    
    169,734
    
    
    
    158,653Net real estate
    
    
    4,279,988
    
    
    
    4,078,933Cash and cash equivalents
    
    
    26,573
    
    
    
    61,629Restricted cash
    
    
    13,891
    
    
    
    29,085Accounts receivable
    
    
    24,067
    
    
    
    14,761Deferred rent receivable
    
    
    71,656
    
    
    
    72,818Deferred financing and leasing costs, net of accumulated amortization
(2006, $96,797; 2005, $108,103)
    
    
    124,509
    
    
    
    123,696Investments in unconsolidated joint ventures
    
    
    48,602
    
    
    
    33,522Assets held for sale
    
    
    6,375
    
    
    
    29,105Prepaid expenses and other assets
    
    
    83,164
    
    
    
    56,773Total assets
    
    $
    4,678,825
    
    
    $
    4,500,322LIABILITIESMortgage loans
    
    $
    201,731
    
    
    $
    238,728Unsecured notes
    
    
    1,755,000
    
    
    
    1,755,000Credit facility
    
    
    328,480
    
    
    
    255,450Accounts payable
    
    
    41,486
    
    
    
    32,919Accrued interest
    
    
    26,804
    
    
    
    34,892Distribution payable
    
    
    58,472
    
    
    
    56,490Other liabilities
    
    
    159,485
    
    
    
    164,528Total liabilities
    
    
    2,571,458
    
    
    
    2,538,007Minority interest
    
    
    249
    
    
    
    407OWNERS EQUITYGeneral partners equity  common units
    
    
    1,836,648
    
    
    
    1,709,182Limited partners equity  preferred units
    
    
    184,657
    
    
    
    184,657 common units
    
    
    85,813
    
    
    
    68,069Total owners equity
    
    
    2,107,118
    
    
    
    1,961,908Total liabilities and owners equity
    
    $
    4,678,825
    
    
    $
    4,500,322
  16




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##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 Three Months EndedSeptember 30, 2006
    
    
    September 30, 2005OPERATING REVENUERental
    
    $
    118,745
    
    
    $
    114,400Operating expense reimbursement
    
    
    52,678
    
    
    
    47,808Total operating revenue
    
    
    171,423
    
    
    
    162,208OPERATING EXPENSERental property
    
    
    35,526
    
    
    
    34,880Real estate taxes
    
    
    18,202
    
    
    
    16,805General and administrative
    
    
    11,996
    
    
    
    9,302Depreciation and amortization
    
    
    37,763
    
    
    
    35,105Total operating expenses
    
    
    103,487
    
    
    
    96,092Operating income
    
    
    67,936
    
    
    
    66,116OTHER INCOME (EXPENSE)Interest and other income
    
    
    3,257
    
    
    
    2,606Interest expense
    
    
    (30,840
    )
    
    
    (31,549
    )Total other income (expense)
    
    
    (27,583
    )
    
    
    (28,943
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    40,353
    
    
    
    37,173(Loss) gain on property dispositions, including impairment
    
    
    (104
    )
    
    
    1,318Income taxes
    
    
    625
    
    
    
    (796
    )Minority interest
    
    
    
    
    
    
    (15
    )Equity in earnings of unconsolidated joint ventures
    
    
    334
    
    
    
    231Income from continuing operations
    
    
    41,208
    
    
    
    37,911Discontinued operations (including net gain on property dispositions of
$11,386 and $18,232 for the three months ended September 30,
2006 and 2005, respectively)
    
    
    11,267
    
    
    
    19,395Net income
    
    
    52,475
    
    
    
    57,306Preferred unit distributions
    
    
    (3,401
    )
    
    
    (3,353
    )Income available to common unitholders
    
    $
    49,074
    
    
    $
    53,953Earnings per common unitBasic:Income from continuing operations
    
    $
    0.40
    
    
    $
    0.38Income from discontinued operations
    
    
    0.12
    
    
    
    0.21Income per common unit  basic
    
    $
    0.52
    
    
    $
    0.59Diluted:Income from continuing operations
    
    $
    0.40
    
    
    $
    0.37Income from discontinued operations
    
    
    0.12
    
    
    
    0.21Income per common unit  diluted
    
    $
    0.52
    
    
    $
    0.58Distributions per common unit
    
    $
    0.62
    
    
    $
    0.615Weighted average number of common units outstandingBasic
    
    
    93,877
    
    
    
    90,961Diluted
    
    
    95,010
    
    
    
    92,440
  17




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##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands, except per unit amounts)
 Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005OPERATING REVENUERental
    
    $
    352,791
    
    
    $
    347,168Operating expense reimbursement
    
    
    151,210
    
    
    
    138,546Total operating revenue
    
    
    504,001
    
    
    
    485,714OPERATING EXPENSERental property
    
    
    105,914
    
    
    
    101,350Real estate taxes
    
    
    53,333
    
    
    
    48,078General and administrative
    
    
    33,511
    
    
    
    27,301Depreciation and amortization
    
    
    110,422
    
    
    
    102,380Total operating expenses
    
    
    303,180
    
    
    
    279,109Operating income
    
    
    200,821
    
    
    
    206,605OTHER INCOME (EXPENSE)Interest and other income
    
    
    7,733
    
    
    
    7,398Interest expense
    
    
    (90,894
    )
    
    
    (91,909
    )Total other income (expense)
    
    
    (83,161
    )
    
    
    (84,511
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    117,660
    
    
    
    122,094Gain (loss) on property dispositions, including impairment
    
    
    17,257
    
    
    
    (3,611
    )Income taxes
    
    
    15
    
    
    
    (2,241
    )Minority interest
    
    
    
    
    
    
    (370
    )Equity in earnings of unconsolidated joint ventures
    
    
    1,250
    
    
    
    2,433Income from continuing operations
    
    
    136,182
    
    
    
    118,305Discontinued operations (including net gain on property dispositions of
$87,588 and $32,652 for the nine months ended September 30, 2006
and 2005, respectively)
    
    
    88,764
    
    
    
    38,662Net income
    
    
    224,946
    
    
    
    156,967Preferred unit distributions
    
    
    (10,203
    )
    
    
    (8,692
    )Excess of preferred unit redemption over carrying amount
    
    
    
    
    
    
    (500
    )Income available to common unitholders
    
    $
    214,743
    
    
    $
    147,775Earnings per common unitBasic:Income from continuing operations
    
    $
    1.36
    
    
    $
    1.21Income from discontinued operations
    
    
    0.95
    
    
    
    0.43Income per common unit  basic
    
    $
    2.31
    
    
    $
    1.64Diluted:Income from continuing operations
    
    $
    1.34
    
    
    $
    1.19Income from discontinued operations
    
    
    0.94
    
    
    
    0.42Income per common unit  diluted
    
    $
    2.28
    
    
    $
    1.61Distributions per common unit
    
    $
    1.85
    
    
    $
    1.84Weighted average number of common units outstandingBasic
    
    
    92,717
    
    
    
    90,237Diluted
    
    
    93,978
    
    
    
    91,695
  18




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##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS OF
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Unaudited and in thousands)
 Nine
Months EndedSeptember 30, 2006
    
    
    September 30, 2005OPERATING ACTIVITIESNet income
    
    $
    224,946
    
    
    $
    156,967Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    113,927
    
    
    
    110,841Amortization of deferred financing costs
    
    
    3,188
    
    
    
    3,527Equity in earnings of unconsolidated joint ventures
    
    
    (1,250
    )
    
    
    (2,433
    )Distributions from unconsolidated joint ventures
    
    
    3,026
    
    
    
    4,544Minority interest in net income
    
    
    
    
    
    
    370Gain on property dispositions, including impairment
    
    
    (104,845
    )
    
    
    (29,041
    )Noncash compensation
    
    
    4,895
    
    
    
    3,094Changes in operating assets and liabilities:Restricted cash
    
    
    18,289
    
    
    
    11,411Accounts receivable
    
    
    (8,071
    )
    
    
    2,422Deferred rent receivable
    
    
    1,162
    
    
    
    (5,147
    )Prepaid expenses and other assets
    
    
    (28,428
    )
    
    
    (20,132
    )Accounts payable
    
    
    8,234
    
    
    
    11,410Accrued interest
    
    
    (8,088
    )
    
    
    (8,255
    )Other liabilities
    
    
    (7,701
    )
    
    
    37,679Net cash provided by operating activities
    
    
    219,284
    
    
    
    277,257INVESTING ACTIVITIESInvestment in properties
    
    
    (220,163
    )
    
    
    (219,032
    )Investment in unconsolidated joint ventures
    
    
    (5,484
    )
    
    
    (13,335
    )Proceeds from disposition of properties/land
    
    
    383,331
    
    
    
    147,000Investment in development in progress
    
    
    (255,415
    )
    
    
    (167,404
    )Investment in land held for development
    
    
    (52,064
    )
    
    
    (69,920
    )Increase in deferred leasing costs
    
    
    (20,796
    )
    
    
    (27,162
    )Net cash used in investing activities
    
    
    (170,591
    )
    
    
    (349,853
    )FINANCING ACTIVITIESNet proceeds from the issuance of preferred units
    
    
    
    
    
    
    48,686Net proceeds from issuance of unsecured notes
    
    
    
    
    
    
    296,424Repayments of mortgage loans
    
    
    (37,586
    )
    
    
    (126,768
    )Proceeds from credit facility
    
    
    419,095
    
    
    
    461,650Repayments on credit facility
    
    
    (346,065
    )
    
    
    (484,650
    )Increase in deferred financing costs
    
    
    (1,971
    )
    
    
    (139
    )Capital contributions
    
    
    61,185
    
    
    
    68,165Distributions to partners
    
    
    (180,881
    )
    
    
    (177,524
    )Net cash (used in) provided by financing activities
    
    
    (86,223
    )
    
    
    85,844(Decrease) increase in cash and cash equivalents
    
    
    (37,530
    )
    
    
    13,248Increase (decrease) in cash and cash equivalents related to foreign currency translation
    
    
    2,474
    
    
    
    (3,706
    )Cash and cash equivalents at beginning of period
    
    
    61,629
    
    
    
    33,667Cash and cash equivalents at end of period
    
    $
    26,573
    
    
    $
    43,209SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSWrite-off of fully depreciated property and deferred costs
    
    $
    75,447
    
    
    $
    26,429Acquisition of properties
    
    
    
    
    
    
    (23,973
    )Assumption of mortgage loans
    
    
    
    
    
    
    23,973Issuance of operating partnership units
    
    
    30,000
    
    
    
    
  19




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##### Table of Contents



Liberty Property Limited Partnership
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006
 Note 1: Organization and Basis of Presentation
 Organization
 Basis of Presentation
 Income per Common Unit
 For the Three Months Ended Sept. 30, 2006
    
    
    For the Three Months Ended Sept. 30, 2005Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Units
    
    
    Per
    
    
    Income
    
    
    Units
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Unit
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    UnitIncome from continuing operations
    
    $
    41,208
    
    
    
    
    
    
    
    
    
    
    $
    37,911Less: Preferred unit distributions
    
    
    (3,401
    )
    
    
    
    
    
    
    
    
    
    
    (3,353
    )Basic income from continuing operationsIncome from continuing operations
available to common unitholders
    
    
    37,807
    
    
    
    93,877
    
    
    $
    0.40
    
    
    
    34,558
    
    
    
    90,961
    
    
    $
    0.38Dilutive units for long-term
compensation plans
    
    
    
    
    
    
    1,133
    
    
    
    
    
    
    
    
    
    
    
    1,479Diluted income from continuing operationsIncome from continuing operations available
to common unitholders and assumed
conversions
    
    
    37,807
    
    
    
    95,010
    
    
    $
    0.40
    
    
    
    34,558
    
    
    
    92,440
    
    
    $
    0.37Basic income from discontinued operationsDiscontinued operations
    
    
    11,267
    
    
    
    93,877
    
    
    $
    0.12
    
    
    
    19,395
    
    
    
    90,961
    
    
    $
    0.21Dilutive units for long-term compensation
plans
    
    
    
    
    
    
    1,133
    
    
    
    
    
    
    
    
    
    
    
    1,479Diluted income from discontinued operationsDiscontinued operations
    
    
    11,267
    
    
    
    95,010
    
    
    $
    0.12
    
    
    
    19,395
    
    
    
    92,440
    
    
    $
    0.21Basic income per common unitIncome available to common unitholders
    
    
    49,074
    
    
    
    93,877
    
    
    $
    0.52
    
    
    
    53,953
    
    
    
    90,961
    
    
    $
    0.59Dilutive units for long-term compensation
plans
    
    
    
    
    
    
    1,133
    
    
    
    
    
    
    
    
    
    
    
    1,479Diluted income per common unitIncome available to common unitholders
and assumed conversions
    
    $
    49,074
    
    
    
    95,010
    
    
    $
    0.52
    
    
    $
    53,953
    
    
    
    92,440
    
    
    $
    0.58
 20




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##### Table of Contents



For the Nine Months Ended September 30, 2006
    
    
    For the Nine Months Ended September 30, 2005Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageIncome
    
    
    Units
    
    
    Per
    
    
    Income
    
    
    Units
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Unit
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    UnitIncome from continuing operations
    
    $
    136,182
    
    
    
    
    
    
    
    
    
    
    $
    118,305Less: Preferred unit distributions
    
    
    (10,203
    )
    
    
    
    
    
    
    
    
    
    
    (8,692
    )Excess of preferred unit redemption
over carrying amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (500
    )Basic income from continuing operationsIncome from continuing operations
available to common unitholders
    
    
    125,979
    
    
    
    92,717
    
    
    $
    1.36
    
    
    
    109,113
    
    
    
    90,237
    
    
    $
    1.21Dilutive units for long-term
compensation plans
    
    
    
    
    
    
    1,261
    
    
    
    
    
    
    
    
    
    
    
    1,458Diluted income from continuing operationsIncome from continuing operations available
to common unitholders and assumed
conversions
    
    
    125,979
    
    
    
    93,978
    
    
    $
    1.34
    
    
    
    109,113
    
    
    
    91,695
    
    
    $
    1.19Basic income from discontinued operationsDiscontinued operations
    
    
    88,764
    
    
    
    92,717
    
    
    $
    0.95
    
    
    
    38,662
    
    
    
    90,237
    
    
    $
    0.43Dilutive units for long-term compensation
plans
    
    
    
    
    
    
    1,261
    
    
    
    
    
    
    
    
    
    
    
    1,458Diluted income from discontinued operationsDiscontinued operations
    
    
    88,764
    
    
    
    93,978
    
    
    $
    0.94
    
    
    
    38,662
    
    
    
    91,695
    
    
    $
    0.42Basic income per common unitIncome available to common unitholders
    
    
    214,743
    
    
    
    92,717
    
    
    $
    2.31
    
    
    
    147,775
    
    
    
    90,237
    
    
    $
    1.64Dilutive units for long-term compensation
plans
    
    
    
    
    
    
    1,261
    
    
    
    
    
    
    
    
    
    
    
    1,458Diluted income per common unitIncome available to common unitholders
and assumed conversions
    
    $
    214,743
    
    
    
    93,978
    
    
    $
    2.28
    
    
    $
    147,775
    
    
    
    91,695
    
    
    $
    1.61
 Foreign Currency Translation
 Note 2: Segment Information
  Reportable Segments
    
    MarketsDelaware Valley
    
    Southeastern Pennsylvania; New JerseyMidwest
    
    Lehigh Valley, Pennsylvania; Michigan; Minnesota; Milwaukee; ChicagoMid-Atlantic
    
    Maryland; Piedmont Triad, NC; Greenville, SC; Richmond; Virginia BeachFlorida 
United Kingdom
    
    Jacksonville; Orlando; Boca Raton; Tampa; Texas 

County of Kent
 21




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##### Table of Contents



For the Three Months Ended September 30, 2006Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    47,312
    
    
    $
    9,870
    
    
    $
    23,432
    
    
    $
    30,682
    
    
    $
    31,352
    
    
    $
    27,882
    
    
    $
    893
    
    
    $
    171,423Rental property expenses
and real estate taxes
    
    
    15,178
    
    
    
    3,430
    
    
    
    3,592
    
    
    
    11,653
    
    
    
    9,902
    
    
    
    9,252
    
    
    
    721
    
    
    
    53,728Property level operating
income
    
    $
    32,134
    
    
    $
    6,440
    
    
    $
    19,840
    
    
    $
    19,029
    
    
    $
    21,450
    
    
    $
    18,630
    
    
    $
    172
    
    
    
    117,695Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,257Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,840
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,996
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,763
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,353Loss on property dispositions, including impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    625Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    334Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,267Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    52,475
 For the Three Months Ended September 30, 2005Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    45,091
    
    
    $
    9,539
    
    
    $
    21,791
    
    
    $
    29,480
    
    
    $
    27,061
    
    
    $
    24,700
    
    
    $
    4,546
    
    
    $
    162,208Rental property expenses
and real estate taxes
    
    
    14,098
    
    
    
    3,352
    
    
    
    5,554
    
    
    
    11,080
    
    
    
    8,546
    
    
    
    8,419
    
    
    
    636
    
    
    
    51,685Property level operating
income
    
    $
    30,993
    
    
    $
    6,187
    
    
    $
    16,237
    
    
    $
    18,400
    
    
    $
    18,515
    
    
    $
    16,281
    
    
    $
    3,910
    
    
    
    110,523Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,606Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,549
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,302
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,105
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,173Gain on property dispositions, including impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,318Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (796
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    231Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,395Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    57,306
 22




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##### Table of Contents



For the Nine Months Ended September 30, 2006Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    139,962
    
    
    $
    29,013
    
    
    $
    70,810
    
    
    $
    93,320
    
    
    $
    89,098
    
    
    $
    79,076
    
    
    $
    2,722
    
    
    $
    504,001Rental property expenses
and real estate taxes
    
    
    43,610
    
    
    
    9,362
    
    
    
    15,586
    
    
    
    34,674
    
    
    
    27,796
    
    
    
    26,095
    
    
    
    2,124
    
    
    
    159,247Property level operating
income
    
    $
    96,352
    
    
    $
    19,651
    
    
    $
    55,224
    
    
    $
    58,646
    
    
    $
    61,302
    
    
    $
    52,981
    
    
    $
    598
    
    
    
    334,754Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,733Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90,894
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,511
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110,422
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,660Gain on property dispositions, including impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,257Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,250Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,764Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    224,946
 For the Nine Months Ended September 30, 2005Delaware Valley
    
    
    MidwestSoutheastern
    
    
    
    
    
    
    Lehigh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitedPennsylvania
    
    
    Other
    
    
    Valley
    
    
    Other
    
    
    Mid-Atlantic
    
    
    Florida
    
    
    Kingdom
    
    
    TotalOperating revenue
    
    $
    142,450
    
    
    $
    27,704
    
    
    $
    63,438
    
    
    $
    86,827
    
    
    $
    77,654
    
    
    $
    71,369
    
    
    $
    16,272
    
    
    $
    485,714Rental property expenses
and real estate taxes
    
    
    42,134
    
    
    
    9,613
    
    
    
    16,278
    
    
    
    32,046
    
    
    
    23,814
    
    
    
    22,855
    
    
    
    2,688
    
    
    
    149,428Property level operating
income
    
    $
    100,316
    
    
    $
    18,091
    
    
    $
    47,160
    
    
    $
    54,781
    
    
    $
    53,840
    
    
    $
    48,514
    
    
    $
    13,584
    
    
    
    336,286Interest and other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,398Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91,909
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,301
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,380
    )Income before property dispositions, income taxes, minority interest
and equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,094Loss on property dispositions, including impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,611
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,241
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (370
    )Equity in earnings of unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,433Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,662Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    156,967
 Note 3: SFAS No. 144, Accounting For The Impairment Or Disposal Of Long-Lived Assets
  Three Months Ended
    
    
    Nine Months EndedSept. 30, 2006
    
    
    Sept. 30, 2005
    
    
    Sept. 30, 2006
    
    
    Sept. 30, 2005Revenues
    
    $
    1,039
    
    
    $
    8,969
    
    
    $
    10,925
    
    
    $
    33,376Operating expenses
    
    
    (838
    )
    
    
    (2,980
    )
    
    
    (4,176
    )
    
    
    (9,474
    )Interest expense
    
    
    (110
    )
    
    
    (2,299
    )
    
    
    (2,458
    )
    
    
    (9,590
    )Depreciation and amortization
    
    
    (210
    )
    
    
    (2,527
    )
    
    
    (3,115
    )
    
    
    (8,302
    )Income before property dispositions
    
    $
    (119
    )
    
    $
    1,163
    
    
    $
    1,176
    
    
    $
    6,010
 23




---



##### Table of Contents



Allocation of Interest to Discontinued Operations
 Note 4: Joint Ventures
 Comcast Center
  Accounting for the Sale of Real
Estate
 Chicago Joint Venture
 Note 5: Recently Issued Accounting Standards
 SFAS No. 153  Accounting for Non-monetary Transactions
 EITF Issue 04-5  Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When
the Limited Partners Have Certain Rights
 24




---



##### Table of Contents



SFAS No. 157  Fair Value Measurements,
 FIN 48  Accounting for Uncertainty in Income
Taxes Accounting for Income
Taxes,
 25




---



##### Table of Contents



Item 2: Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Overview
       26




---



##### Table of Contents



Net RentPer Square Foot
    
    
    Total Square Feet
    
    
    Percent OccupiedSeptember 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Industrial-Distribution
    
    $
    4.29
    
    
    $
    4.11
    
    
    
    31,680
    
    
    
    29,386
    
    
    
    94.6
    %
    
    
    94.9
    %Industrial-Flex
    
    $
    9.02
    
    
    $
    8.62
    
    
    
    12,695
    
    
    
    13,152
    
    
    
    93.8
    %
    
    
    91.9
    %Office
    
    $
    14.29
    
    
    $
    14.28
    
    
    
    20,440
    
    
    
    20,050
    
    
    
    90.5
    %
    
    
    87.6
    %$
    8.29
    
    
    $
    8.16
    
    
    
    64,815
    
    
    
    62,588
    
    
    
    93.1
    %
    
    
    91.9
    %
  Forward-Looking Statements
  Critical Accounting Policies and Estimates
  27




---



##### Table of Contents



Results of Operations
   Comparison of Three and Nine Months Ended September 30, 2006 to Three and Nine Months Ended
September 30, 2005.
  28




---



##### Table of Contents



Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSept. 30, 2006
    
    
    Sept. 30, 2005
    
    
    % inc (dec)
    
    
    
    
    
    
    Sept. 30, 2006
    
    
    Sept. 30, 2005
    
    
    % inc (dec)Delaware Valley SE Pennsylvania
    
    $
    32,134
    
    
    $
    30,993
    
    
    
    3.7
    %
    
    
    
    
    
    $
    96,352
    
    
    $
    100,316
    
    
    
    (4.0
    %) Other
    
    
    6,440
    
    
    
    6,187
    
    
    
    4.1
    %
    
    
    
    
    
    
    19,651
    
    
    
    18,091
    
    
    
    8.6
    %Midwest Lehigh Valley
    
    
    19,840
    
    
    
    16,237
    
    
    
    22.2
    %
    
    
    (1
    )
    
    
    55,224
    
    
    
    47,160
    
    
    
    17.1
    %
    
    
    (1
    ) Other
    
    
    19,029
    
    
    
    18,400
    
    
    
    3.4
    %
    
    
    
    
    
    
    58,646
    
    
    
    54,781
    
    
    
    7.1
    %Mid-Atlantic
    
    
    21,450
    
    
    
    18,515
    
    
    
    15.9
    %
    
    
    (2
    )
    
    
    61,302
    
    
    
    53,840
    
    
    
    13.9
    %
    
    
    (2
    )Florida
    
    
    18,630
    
    
    
    16,281
    
    
    
    14.4
    %
    
    
    (3
    )
    
    
    52,981
    
    
    
    48,514
    
    
    
    9.2
    %United Kingdom
    
    
    172
    
    
    
    3,910
    
    
    
    (95.6
    %)
    
    
    (4
    )
    
    
    598
    
    
    
    13,584
    
    
    
    (95.6
    %)
    
    
    (4
    )Totals
    
    $
    117,695
    
    
    $
    110,523
    
    
    
    6.5
    %
    
    
    
    
    
    $
    344,754
    
    
    $
    336,286
    
    
    
    2.5
    %
 (1)
    
    The increases for both the three and nine month periods ended September 30, 2006 versus the three and nine months ended September 30, 2005
are primarily due to an increase in average gross investment in operating real estate during the respective periods. In addition, results for
the three and nine month periods ending September 30, 2006 reflected a $2.0 million bankruptcy settlement.(2)
    
    The increases for both the three and nine month periods ended September 30, 2006 versus the three and nine months ended September 30, 2005
are primarily due to an increase in occupancy.(3)
    
    The increase for the three month period ended September 30, 2006 versus the three months ended September 30, 2005 is primarily due to
increased occupancy and an increase in average gross investment in operating real estate.(4)
    
    The decreases for both the three and nine month periods ended September 30, 2006 versus the three and nine months ended September 30, 2005
are primarily due to the sale of 15 operating properties to a joint venture in December 2005.
     29




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSept. 30, 2006
    
    
    Sept. 30, 2005
    
    
    Sept. 30, 2006
    
    
    Sept. 30, 2005Same Store:Rental revenue
    
    $
    104,871
    
    
    $
    102,558
    
    
    $
    311,905
    
    
    $
    308,761Operating expenses:Rental property expense
    
    
    31,711
    
    
    
    32,239
    
    
    
    94,609
    
    
    
    94,481Real estate taxes
    
    
    16,456
    
    
    
    15,641
    
    
    
    48,053
    
    
    
    45,549Operating expense recovery
    
    
    (47,470
    )
    
    
    (44,971
    )
    
    
    (137,040
    )
    
    
    (132,127
    )Unrecovered operating expenses
    
    
    697
    
    
    
    2,909
    
    
    
    5,622
    
    
    
    7,903Property level operating income
    
    
    104,174
    
    
    
    99,649
    
    
    
    306,283
    
    
    
    300,858Less straight line rent
    
    
    1,101
    
    
    
    1,774
    
    
    
    3,808
    
    
    
    5,339Cash basis property level operating income
    
    $
    103,073
    
    
    $
    97,875
    
    
    $
    302,475
    
    
    $
    295,519Reconciliation of non-GAAP financial measure:Property level operating income  Same Store
    
    $
    104,174
    
    
    $
    99,649
    
    
    $
    306,283
    
    
    $
    300,858Property level operating income  properties purchased
or developed subsequent to January 1, 2005
    
    
    13,012
    
    
    
    9,068
    
    
    
    33,107
    
    
    
    19,877Termination fees
    
    
    509
    
    
    
    1,806
    
    
    
    5,364
    
    
    
    15,551General and administrative expense
    
    
    (11,996
    )
    
    
    (9,302
    )
    
    
    (33,511
    )
    
    
    (27,301
    )Depreciation and amortization expense
    
    
    (37,763
    )
    
    
    (35,105
    )
    
    
    (110,422
    )
    
    
    (102,380
    )Other income (expense)
    
    
    (27,583
    )
    
    
    (28,943
    )
    
    
    (83,161
    )
    
    
    (84,511
    )(Loss) gain on property dispositions, including impairment
    
    
    (104
    )
    
    
    1,318
    
    
    
    17,257
    
    
    
    (3,611
    )Income taxes
    
    
    625
    
    
    
    (796
    )
    
    
    15
    
    
    
    (2,241
    )Minority interest
    
    
    (5,087
    )
    
    
    (4,699
    )
    
    
    (15,413
    )
    
    
    (13,805
    )Equity in earnings of unconsolidated joint ventures
    
    
    334
    
    
    
    231
    
    
    
    1,250
    
    
    
    2,433Discontinued operations, net of minority interest
    
    
    10,764
    
    
    
    18,648
    
    
    
    84,993
    
    
    
    37,163Net income
    
    $
    46,885
    
    
    $
    51,875
    
    
    $
    205,762
    
    
    $
    142,033
 30




---



##### Table of Contents



General and Administrative
 Depreciation and Amortization
 Interest Expense
 Other
    31




---



##### Table of Contents



Liquidity and Capital Resources
        32




---



##### Table of Contents



MORTGAGES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WEIGHTEDPRINCIPAL
    
    
    PRINCIPAL
    
    
    UNSECURED
    
    
    CREDIT
    
    
    
    
    
    
    AVERAGEAMORTIZATION
    
    
    MATURITIES
    
    
    NOTES
    
    
    FACILITY
    
    
    TOTAL
    
    
    INTEREST RATE2006 (3 months)
    
    $
    2,436
    
    
    $
    16,608
    
    
    $
    100,000
    
    
    $
    
    
    
    $
    119,044
    
    
    
    7.16
    %2007
    
    
    8,551
    
    
    
    1,553
    
    
    
    100,000
    
    
    
    
    
    
    
    110,104
    
    
    
    7.22
    %2008
    
    
    7,932
    
    
    
    39,753
    
    
    
    
    
    
    
    76,480
    (1)
    
    
    124,165
    
    
    
    6.14
    %2009
    
    
    5,652
    
    
    
    46,148
    
    
    
    270,000
    
    
    
    
    
    
    
    321,800
    
    
    
    7.77
    %2010
    
    
    4,827
    
    
    
    4,738
    
    
    
    200,000
    
    
    
    252,000
    
    
    
    461,565
    
    
    
    6.89
    %2011
    
    
    4,101
    
    
    
    10,730
    
    
    
    250,000
    
    
    
    
    
    
    
    264,831
    
    
    
    7.26
    %2012
    
    
    3,219
    
    
    
    32,911
    
    
    
    235,000
    
    
    
    
    
    
    
    271,130
    
    
    
    6.47
    %2013
    
    
    2,691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,691
    
    
    
    6.00
    %2014
    
    
    2,857
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    202,857
    
    
    
    5.65
    %2015
    
    
    3,033
    
    
    
    
    
    
    
    300,000
    
    
    
    
    
    
    
    303,033
    
    
    
    5.13
    %2016 & thereafter
    
    
    3,991
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    103,991
    
    
    
    7.44
    %$
    49,290
    
    
    $
    152,441
    
    
    $
    1,755,000
    
    
    $
    328,480
    
    
    $
    2,285,211
    
    
    
    6.68
    %
 (1)
    
    Represents a deposit by the joint venture partner in the Comcast Center (see Note 4 to
the Companys financial statements) which bears interest at the greater of 5% or the
current rate on the $600 million Credit Facility until development of the Comcast Center
building is completed.
  General
   Industrial-
    
    
    Industrial-Distribution
    
    
    Flex
    
    
    Office
    
    
    TotalSquare
    
    
    Annual
    
    
    Square
    
    
    Annual
    
    
    Square
    
    
    Annual
    
    
    Square
    
    
    AnnualFeet
    
    
    Net Rent
    
    
    Feet
    
    
    Net Rent
    
    
    Feet
    
    
    Net Rent
    
    
    Feet
    
    
    Net Rent2006 (3 months)
    
    
    689
    
    
    $
    3,249
    
    
    
    342
    
    
    $
    3,000
    
    
    
    393
    
    
    $
    4,529
    
    
    
    1,424
    
    
    $
    10,7782007
    
    
    4,160
    
    
    
    17,260
    
    
    
    1,844
    
    
    
    17,786
    
    
    
    1,995
    
    
    
    27,862
    
    
    
    7,999
    
    
    
    62,9082008
    
    
    4,655
    
    
    
    18,809
    
    
    
    2,255
    
    
    
    21,664
    
    
    
    2,560
    
    
    
    38,839
    
    
    
    9,470
    
    
    
    79,3122009
    
    
    4,935
    
    
    
    22,248
    
    
    
    2,175
    
    
    
    20,098
    
    
    
    2,952
    
    
    
    45,203
    
    
    
    10,062
    
    
    
    87,5492010
    
    
    2,187
    
    
    
    10,802
    
    
    
    1,560
    
    
    
    15,330
    
    
    
    2,644
    
    
    
    39,269
    
    
    
    6,391
    
    
    
    65,4012011
    
    
    3,536
    
    
    
    16,072
    
    
    
    1,150
    
    
    
    11,967
    
    
    
    2,312
    
    
    
    37,627
    
    
    
    6,998
    
    
    
    65,666Thereafter
    
    
    9,805
    
    
    
    52,730
    
    
    
    2,586
    
    
    
    28,244
    
    
    
    5,635
    
    
    
    102,960
    
    
    
    18,026
    
    
    
    183,934TOTAL
    
    
    29,967
    
    
    $
    141,170
    
    
    
    11,912
    
    
    $
    118,087
    
    
    
    18,491
    
    
    $
    296,289
    
    
    
    60,370
    
    
    $
    555,548
  Square FeetScheduled
    
    Industrial-
    
    
    Industrial-
    
    
    
    
    
    
    
    
    
    
    Percent
    
    
    TotalIn-Service Date
    
    Distribution
    
    
    Flex
    
    
    Office
    
    
    Total
    
    
    Leased
    
    
    Investment4th Quarter 2006
    
    
    424,320
    
    
    
    48,000
    
    
    
    152,971
    
    
    
    625,291
    
    
    
    92.8
    %
    
    $
    51,8651st Quarter 2007
    
    
    203,092
    
    
    
    79,600
    
    
    
    77,708
    
    
    
    360,400
    
    
    
    67.0
    %
    
    
    29,0712nd Quarter 2007
    
    
    150,000
    
    
    
    
    
    
    
    159,638
    
    
    
    309,638
    
    
    
    45.7
    %
    
    
    45,7813rd Quarter 2007
    
    
    1,277,759
    
    
    
    138,184
    
    
    
    230,000
    
    
    
    1,645,943
    
    
    
    43.4
    %
    
    
    124,7874th Quarter 2007
    
    
    968,000
    
    
    
    83,200
    
    
    
    450,000
    
    
    
    1,501,200
    
    
    
    30.0
    %
    
    
    134,8591st Quarter 2008
    
    
    592,672
    
    
    
    
    
    
    
    110,154
    
    
    
    702,826
    
    
    
    
    
    
    
    60,3972nd Quarter 2008
    
    
    120,000
    
    
    
    167,600
    
    
    
    75,816
    
    
    
    363,416
    
    
    
    13.8
    %
    
    
    36,3143rd Quarter 2008
    
    
    
    
    
    
    
    
    
    
    1,504,037
    
    
    
    1,504,037
    
    
    
    65.3
    %
    
    
    516,088TOTAL
    
    
    3,735,843
    
    
    
    516,584
    
    
    
    2,760,324
    
    
    
    7,012,751
    
    
    
    45.1
    %
    
    $
    999,162
 33




---



##### Table of Contents



Investment in Unconsolidated Joint Ventures
  Accounting for the Sale of Real
Estate
 Calculation of Funds from Operations
 34




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Reconciliation of net income to FFO  basicNet Income
    
    $
    46,885
    
    
    $
    51,875
    
    
    $
    205,762
    
    
    $
    142,033Basic  Income available to common shareholders
    
    
    46,885
    
    
    
    51,875
    
    
    
    205,762
    
    
    
    142,033Basic  income available to common shareholders per weighted
average share
    
    $
    0.52
    
    
    $
    0.59
    
    
    $
    2.31
    
    
    $
    1.64Adjustments:Depreciation and amortization of unconsolidated joint ventures
    
    
    792
    
    
    
    291
    
    
    
    2,108
    
    
    
    943Depreciation and amortization
    
    
    37,404
    
    
    
    36,997
    
    
    
    111,804
    
    
    
    108,780Gain on property dispositions
    
    
    (12,192
    )
    
    
    (19,550
    )
    
    
    (106,487
    )
    
    
    (35,157
    )Minority interest share in addback for depreciation and amortization
and gain on property dispositions
    
    
    (1,160
    )
    
    
    (683
    )
    
    
    (479
    )
    
    
    (2,894
    )Funds from operations available to common shareholders   basic
    
    $
    71,729
    
    
    $
    68,930
    
    
    $
    212,708
    
    
    $
    213,705Basic Funds from operations available to common shareholders per
weighted average share
    
    $
    0.80
    
    
    $
    0.79
    
    
    $
    2.39
    
    
    $
    2.47Reconciliation of net income to FFO  diluted:Net Income
    
    $
    46,885
    
    
    $
    51,875
    
    
    $
    205,762
    
    
    $
    142,033Diluted  income available to common shareholders
    
    
    46,885
    
    
    
    51,875
    
    
    
    205,762
    
    
    
    142,033Diluted  income available to common shareholders per weighted
average share
    
    $
    0.52
    
    
    $
    0.58
    
    
    $
    2.28
    
    
    $
    1.61Adjustments:Depreciation and amortization of unconsolidated joint ventures
    
    
    792
    
    
    
    291
    
    
    
    2,108
    
    
    
    943Depreciation and amortization
    
    
    37,404
    
    
    
    36,997
    
    
    
    111,804
    
    
    
    108,780Gain on property dispositions
    
    
    (12,192
    )
    
    
    (19,550
    )
    
    
    (106,487
    )
    
    
    (35,157
    )Minority interest less preferred share distributions
    
    
    2,189
    
    
    
    2,093
    
    
    
    8,981
    
    
    
    5,745Funds from operations available to common shareholders  diluted
    
    $
    75,078
    
    
    $
    71,706
    
    
    $
    222,168
    
    
    $
    222,344Diluted Funds from operations available to common shareholders per
weighted average share
    
    $
    0.79
    
    
    $
    0.78
    
    
    $
    2.36
    
    
    $
    2.42Reconciliation of weighted average shares:Weighted average common shares  all basic calculations
    
    
    89,675
    
    
    
    87,443
    
    
    
    88,923
    
    
    
    86,670Dilutive shares for long term compensation plans
    
    
    1,133
    
    
    
    1,479
    
    
    
    1,261
    
    
    
    1,458Diluted shares for net income calculations
    
    
    90,808
    
    
    
    88,922
    
    
    
    90,184
    
    
    
    88,128Weighted average common units
    
    
    4,202
    
    
    
    3,518
    
    
    
    3,794
    
    
    
    3,567Diluted shares for Funds from operations calculations
    
    
    95,010
    
    
    
    92,440
    
    
    
    93,978
    
    
    
    91,695
 Inflation
 35




---



##### Table of Contents



Item 3: Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Controls
 36




---



##### Table of Contents



Part II: Other Information
             37




---



##### Table of Contents



12.1*
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed Charges.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.)
 
 *
    
    Filed herewith. 38




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##### Table of Contents



SIGNATURES
  LIBERTY PROPERTY TRUST
 /s/ WILLIAM P. HANKOWSKY
    
    
    
    October 30, 2006William P. Hankowsky
    
    
    
    DatePresident and Chief Executive Officer/s/ GEORGE J. ALBURGER, JR.
    
    
    
    October 30, 2006George J. Alburger, Jr.
    
    
    
    DateExecutive Vice President and Chief Financial Officer
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##### Table of Contents



SIGNATURES
  LIBERTY PROPERTY LIMITED PARTNERSHIP
 BY:
    
    Liberty Property TrustGeneral Partner
 /s/ WILLIAM P. HANKOWSKY
    
    
    
    October 30, 2006William P. Hankowsky 

President and Chief Executive Officer
    
    
    
    Date/s/ GEORGE J. ALBURGER, JR.
    
    
    
    October 30, 2006George J. Alburger, Jr.
    
    
    
    DateExecutive Vice President and Chief Financial Officer
 40




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##### Table of Contents



EXHIBIT INDEX
 EXHIBIT NO.
    
    DESCRIPTION12.1
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges.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.)
 
 41