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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2006


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)		23-7768996
PENNSYLVANIA (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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (See definition of “Accelerated filer and large accelerated filer” as defined in Rule 12b-2 of the Exchange Act). (check one):

Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o NO þ

On October 25, 2006, 90,422,332 Common Shares of Beneficial Interest, par value $.001 per share, of Liberty Property Trust were outstanding.

CONDENSED CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST

(In thousands, except share amounts)


	September 30, 2006			December 31, 2005
	(Unaudited)
ASSETS
Real estate:
Land and land improvements	$	661,109		$	625,693
Building and improvements		3,770,921			3,711,575
Less accumulated depreciation		(794,612	)		(741,912	)


Operating real estate		3,637,418			3,595,356

Development in progress		472,836			324,924
Land held for development		169,734			158,653


Net real estate		4,279,988			4,078,933

Cash and cash equivalents		26,573			61,629
Restricted cash		13,891			29,085
Accounts receivable		24,067			14,761
Deferred rent receivable		71,656			72,818
Deferred financing and leasing costs, net of accumulated amortization (2006, $96,797; 2005, $108,103)		124,509			123,696
Investments in unconsolidated joint ventures		48,602			33,522
Assets held for sale		6,375			29,105
Prepaid expenses and other assets		83,164			56,773


Total assets	$	4,678,825		$	4,500,322


LIABILITIES
Mortgage loans	$	201,731		$	238,728
Unsecured notes		1,755,000			1,755,000
Credit facility		328,480			255,450
Accounts payable		41,486			32,919
Accrued interest		26,804			34,892
Dividend payable		58,472			56,490
Other liabilities		159,485			164,528


Total liabilities		2,571,458			2,538,007

Minority interest		270,719			253,133

SHAREHOLDERS’ EQUITY
Common 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			88
Additional paid-in capital		1,879,429			1,799,068
Accumulated other comprehensive income		16,793			9,906
Distributions 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			1,709,182


Total liabilities and shareholders’ equity	$	4,678,825		$	4,500,322

See accompanying notes.

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


	Three Months Ended
	September 30, 2006			September 30, 2005
OPERATING REVENUE
Rental	$	118,745		$	114,400
Operating expense reimbursement		52,678			47,808

Total operating revenue		171,423			162,208


OPERATING EXPENSE
Rental property		35,526			34,880
Real estate taxes		18,202			16,805
General and administrative		11,996			9,302
Depreciation and amortization		37,763			35,105

Total operating expenses		103,487			96,092


Operating income		67,936			66,116

OTHER INCOME (EXPENSE)
Interest and other income		3,257			2,606
Interest 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	)		1,318
Income taxes		625			(796	)
Minority interest		(5,087	)		(4,699	)
Equity in earnings of unconsolidated joint ventures		334			231


Income from continuing operations		36,121			33,227

Discontinued 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			18,648


Net income	$	46,885		$	51,875


Earnings per common share
Basic:
Income from continuing operations	$	0.40		$	0.38
Income from discontinued operations		0.12			0.21


Income per common share – basic	$	0.52		$	0.59


Diluted:
Income from continuing operations	$	0.40		$	0.37
Income from discontinued operations		0.12			0.21


Income per common share – diluted	$	0.52		$	0.58


Distributions per common share	$	0.62		$	0.615


Weighted average number of common shares outstanding
Basic		89,675			87,443
Diluted		90,808			88,922

See accompanying notes.

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


	Nine Months Ended
	September 30, 2006			September 30, 2005
OPERATING REVENUE
Rental	$	352,791		$	347,168
Operating expense reimbursement		151,210			138,546

Total operating revenue		504,001			485,714


OPERATING EXPENSE
Rental property		105,914			101,350
Real estate taxes		53,333			48,078
General and administrative		33,511			27,301
Depreciation and amortization		110,422			102,380

Total operating expenses		303,180			279,109


Operating income		200,821			206,605

OTHER INCOME (EXPENSE)
Interest and other income		7,733			7,398
Interest 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			122,094

Gain (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			2,433


Income from continuing operations		120,769			104,870

Discontinued 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			37,163


Net income	$	205,762		$	142,033


Earnings per common share
Basic:
Income from continuing operations	$	1.36		$	1.21
Income from discontinued operations		0.95			0.43


Income per common share – basic	$	2.31		$	1.64


Diluted:
Income from continuing operations	$	1.34		$	1.19
Income from discontinued operations		0.94			0.42


Income per common share – diluted	$	2.28		$	1.61


Distributions per common share	$	1.85		$	1.84


Weighted average number of common shares outstanding
Basic		88,923			86,670
Diluted		90,184			88,128

See accompanying notes.

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


	Nine Months Ended
	September 30, 2006			September 30, 2005
OPERATING ACTIVITIES
Net income	$	205,762		$	142,033
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		113,927			110,841
Amortization of deferred financing costs		3,188			3,527
Equity in earnings of unconsolidated joint ventures		(1,250	)		(2,433	)
Distributions from unconsolidated joint ventures		3,026			4,544
Minority interest in net income		19,184			15,304
Gain on property dispositions, including impairment		(104,845	)		(29,041	)
Noncash compensation		4,895			3,094
Changes in operating assets and liabilities:
Restricted cash		18,289			11,411
Accounts receivable		(8,071	)		2,422
Deferred rent receivable		1,162			(5,147	)
Prepaid expenses and other assets		(28,428	)		(20,132	)
Accounts payable		8,234			11,410
Accrued interest		(8,088	)		(8,255	)
Other liabilities		(7,701	)		37,679

Net cash provided by operating activities		219,284			277,257


INVESTING ACTIVITIES
Investment in properties		(220,163	)		(219,032	)
Investment in unconsolidated joint ventures		(5,484	)		(13,335	)
Proceeds from disposition of properties/land		383,331			147,000
Investment 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 ACTIVITIES
Net proceeds from issuance of common shares		61,185			68,165
Net proceeds from the issuance of preferred units		—			48,686
Net proceeds from issuance of unsecured notes		—			296,424
Repayments of mortgage loans		(37,586	)		(126,768	)
Proceeds from credit facility		419,095			461,650
Repayments 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	)		13,248
Increase (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			33,667

Cash and cash equivalents at end of period	$	26,573		$	43,209


SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and deferred costs	$	75,447		$	26,429
Acquisition of properties		—			(23,973	)
Assumption of mortgage loans		—			23,973
Issuance of operating partnership units		30,000			—

See accompanying notes.

Liberty Property Trust

Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2006

Note 1: Organization and Basis of Presentation

Organization
Liberty Property Trust (the “Trust”) is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by Liberty Property Limited Partnership (the “Operating Partnership” and together with the Trust and their consolidated subsidiaries, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 95.5% and 96.2% of the common equity of the Operating Partnership at September 30, 2006 and 2005, respectively. The Company provides leasing, property management, development, acquisition and other tenant-related services for a portfolio of industrial and office properties that are located principally within the Mid-Atlantic, Southeastern and Midwestern United States and the United Kingdom.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Trust and its subsidiaries, including the Operating Partnership, have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Trust and the Operating Partnership for the year ended December 31, 2005. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. Certain amounts from prior periods have been reclassified to conform to current period presentation.

Income per Common Share
The following table sets forth the computation of basic and diluted income per common share for the three and nine months ended September 30, 2006 and 2005 (in thousands except per share amounts):


	For the Three Months Ended Sept. 30, 2006						For the Three Months Ended Sept. 30, 2005
			Weighted						Weighted
			Average						Average
	Income		Shares		Per		Income		Shares		Per
	(Numerator)		(Denominator)		Share		(Numerator)		(Denominator)		Share
Basic income from continuing operations
Income from continuing operations	$	36,121		89,675	$	0.40	$	33,227		87,443	$	0.38

Dilutive shares for long-term compensation plans		—		1,133				—		1,479


Diluted income from continuing operations
Income from continuing operations and assumed conversions		36,121		90,808	$	0.40		33,227		88,922	$	0.37


Basic income from discontinued operations
Discontinued operations net of minority interest		10,764		89,675	$	0.12		18,648		87,443	$	0.21

Dilutive shares for long-term compensation plans		—		1,133				—		1,479


Diluted income from discontinued operations
Discontinued operations net of minority interest		10,764		90,808	$	0.12		18,648		88,922	$	0.21


Basic income per common share
Net income		46,885		89,675	$	0.52		51,875		87,443	$	0.59

Dilutive shares for long-term compensation plans		—		1,133				—		1,479


Diluted income per common share
Net income and assumed conversions	$	46,885		90,808	$	0.52	$	51,875		88,922	$	0.58


	For the Nine Months Ended Sept. 30, 2006						For the Nine Months Ended Sept. 30, 2005
			Weighted						Weighted
			Average						Average
	Income		Shares		Per		Income		Shares		Per
	(Numerator)		(Denominator)		Share		(Numerator)		(Denominator)		Share
Basic income from continuing operations
Income from continuing operations	$	120,769		88,923	$	1.36	$	104,870		86,670	$	1.21

Dilutive shares for long-term compensation plans		—		1,261				—		1,458


Diluted income from continuing operations
Income from continuing operations and assumed conversions		120,769		90,184	$	1.34		104,870		88,128	$	1.19


Basic income from discontinued operations
Discontinued operations net of minority interest		84,993		88,923	$	0.95		37,163		86,670	$	0.43

Dilutive shares for long-term compensation plans		—		1,261				—		1,458


Diluted income from discontinued operations
Discontinued operations net of minority interest		84,993		90,184	$	0.94		37,163		88,128	$	0.42


Basic income per common share
Net income		205,762		88,923	$	2.31		142,033		86,670	$	1.64

Dilutive shares for long-term compensation plans		—		1,261				—		1,458


Diluted income per common share
Net income and assumed conversions	$	205,762		90,184	$	2.28	$	142,033		88,128	$	1.61

Share Based Compensation
Effective January 1, 2006 the Company adopted for its share-based employee compensation plan (the “Plan”) the provisions of the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”), using the modified prospective application method. In accordance with SFAS No. 123(R), share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period. Prior to 2003, the Company accounted for the Plan under the recognition and measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. In January 2003, the Company had adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” prospectively for all employee option awards granted, modified, or settled after January 1, 2003.

Under the modified prospective application method, results for prior periods have not been restated to reflect the effects of implementing SFAS No. 123(R).

Certain restricted share awards and option awards are subject to accelerated vesting upon retirement. The Company historically accounted for these awards over the explicit service period. Upon adoption of SFAS No. 123(R), the Company expensed new awards to individuals qualifying for share acceleration. Compensation costs relating to awards granted prior to the adoption of SFAS No. 123(R) continue to be expensed over the explicit service period. Had the Company accounted for those awards over the substantive service period, compensation costs for the three months ended September 30, 2005 would have decreased by $0.1 million and for the nine months ended September 30, 2005 would have increased by $0.3 million.

Options:
The Company has authorized the grant of options under the Plan to executive officers, other key employees, non-employee trustees and consultants of up to 12.8 million shares of the Company’s common shares. All options granted have 10-year terms and most options vest over a 3-year period, with options to purchase up to 20% of the shares exercisable after the first anniversary, up to 50% after the second anniversary and 100% after the third anniversary of the date of grant.

Share based compensation cost related to options for the three months ended September 30, 2006 and 2005 was $212,000

and $193,000, respectively. Share based compensation cost related to options for the nine months ended September 30, 2006 and 2005 was $582,000 and $451,000, respectively.

Because option awards under the Plan vest over three years, the cost related to share-based employee compensation included in the determination of net income for 2005 is less than that which would have been recognized if the fair value based method had been applied to all option awards since the original effective date of SFAS No. 123. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested option awards in each period (in thousands, except per share amounts).


	Three Months Ended			Nine Months Ended
	Sept. 30, 2005			Sept. 30, 2005
Income available to common shareholders	$	51,875		$	142,033
Add: Share-based compensation expense included in reported net income available to common shareholders		193			451
Deduct: 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		$	141,903


Income per common share:
Basic – as reported	$	0.59		$	1.64
Basic – pro forma	$	0.59		$	1.64

Diluted – as reported	$	0.58		$	1.61
Diluted – pro forma	$	0.58		$	1.61

The fair value of share option awards is estimated on the date of the grant using the Black-Scholes option valuation model. The following weighted-average assumptions were utilized in calculating the fair value of options granted during the periods indicated:


	Nine Months			Nine Months Ended
	Ended Sept. 30, 2006			Sept. 30, 2005
Risk-free interest rate		4.8	%		4.4	%
Dividend yield		5.8	%		5.9	%
Volatility factor		0.188			0.183
Weighted-average expected life	7 years			8 years

The following table summarizes the Company’s share option activity for the nine months ended September 30, 2006:


				Weighted
				Average
	Options			Exercise
	(000s)			Price
Outstanding at January 1, 2006		3,521		$	29.31
Granted		175			46.94
Exercised		(650	)		27.38
Forfeited		(13	)		41.73

Outstanding at September 30, 2006		3,033		$	30.69

Exercisable at September 30, 2006		2,542		$	28.15

The weighted average fair value of options granted during the nine months ended September 30, 2006 and 2005 was $5.06 and $3.82, respectively. Exercise prices for options outstanding as of September 30, 2006 ranged from $21.88 to

$48.54. The weighted average remaining contractual life of the options outstanding and exercisable at September 30, 2006 was 5.2 years and 4.5 years, respectively.

During the nine months ended September 30, 2006 and 2005, the total intrinsic value of share options exercised (the difference between the market price at exercise and the price paid by the individual to exercise the option) was $11.6 million and $8.1 million, respectively. As of September 30, 2006, the aggregate intrinsic value of options outstanding was $51.9 million and the aggregate intrinsic value of options exercisable was $50.0 million. The total cash received from the exercise of options for the nine months ended September 30, 2006 and 2005 was $17.8 million and $13.4 million, respectively.

Long Term Incentive Shares (“LTI”):
Restricted LTI share grants made under the Plan are valued at the grant date fair value, which is the market price of the underlying common shares, and vest ratably over a 5-year period beginning with the first anniversary of the grant.

Share-based compensation cost related to restricted LTI share grants for the three and nine months ended September 30, 2006 were $780,000 and $2,509,000, respectively, compared to $636,000 and $1,785,000 for the same periods in 2005.

The following table shows a summary of the Company’s restricted LTI share activity for the nine months ended September 30, 2006:


				Weighted Avg
	Shares			Grant Date
	(000s)			Fair value
Nonvested at January 1, 2006		253		$	39.10
Granted		77			48.07
Vested		(50	)		37.12
Forfeited		(7	)		39.66

Nonvested at September 30, 2006		273		$	41.99

As of September 30, 2006, there was $11.5 million of total unrecognized compensation cost related to nonvested LTI share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 2.5 years. The total fair value of restricted shares vested during the nine months ended September 30, 2006 and 2005 was $1.9 million and $1.6 million, respectively.

Bonus Shares:
The Plan provides that employees of the Company may elect to receive bonuses or commissions in the form of common shares in lieu of cash (“Bonus Shares”). By making such election, the employee receives shares equal to 120% of the cash value of the bonus or commission, less applicable withholding tax. Bonus Shares issued for the nine months ended September 30, 2006 and 2005 were 34,928 and 46,780, respectively. Share-based compensation cost related to Bonus Shares for the three and nine months ended September 30, 2006 was $0.1 million and $1.7 million, respectively, compared to $0.2 million and $1.9 million for the same periods in 2005.

Profit Sharing Plan:
The Plan provides that employees of the Company, below the officer level, may receive up to 5% of base pay in the form of common shares depending on Company performance. Shares issued in conjunction with the profit sharing plan for the nine months ended September 30, 2006 and 2005 were 3,072 and 3,126 shares, respectively.

Employee Share Purchase Plan:
The Company registered 750,000 common shares under the Securities Act of 1933, as amended, in connection with an employee share purchase plan (“ESPP”). The ESPP enables eligible employees to purchase shares of the Company, in amounts up to 10% of the employee’s salary, at a 15% discount to fair market value. There were 6,542 and 4,926 shares issued, in accordance with the ESPP, during the nine months ended September 30, 2006 and 2005, respectively.

Foreign Currency Translation
The functional currency of the Company’s United Kingdom operation is pounds sterling. The Company translates its financial statements into US dollars. Gains and losses resulting from this translation do not impact the results of operations and are included in accumulated other comprehensive income as a separate component of shareholders’ equity. Other comprehensive income was $1.3 million for the three months ended September 30, 2006 and other comprehensive loss was $2.6 million for the three months ended September 30, 2005. Other comprehensive income was $6.9 million for the nine months ended September 30, 2006 and other comprehensive loss was $13.0 million for the nine months ended September 30, 2005. Upon sale or upon complete or substantially complete liquidation of a foreign investment, the gain or loss on the sale will include a portion of the cumulative translation adjustments that have been previously recorded in other comprehensive income.

Note 2: Segment Information

The Company operates its portfolio of properties primarily throughout the Mid-Atlantic, Southeastern and Midwestern United States. Additionally, the Company owns certain assets in the United Kingdom. The Company reviews the performance of the portfolio on a geographical basis. As such, the following regions are considered the Company’s reportable segments:


Reportable Segments		Markets
Delaware Valley		Southeastern Pennsylvania; New Jersey
Midwest		Lehigh Valley, Pennsylvania; Michigan; Minnesota; Milwaukee; Chicago
Mid-Atlantic		Maryland; Piedmont Triad, NC; Greenville, SC; Richmond; Virginia Beach
Florida		Jacksonville; Orlando; Boca Raton; Tampa; Texas
United Kingdom		County of Kent

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

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


For the Three Months Ended September 30, 2006
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	47,312	$	9,870	$	23,432	$	30,682	$	31,352	$	27,882	$	893	$	171,423
Rental property expenses and real estate taxes		15,178		3,430		3,592		11,653		9,902		9,252		721		53,728

Property level operating income	$	32,134	$	6,440	$	19,840	$	19,029	$	21,450	$	18,630	$	172		117,695


Interest and other income																3,257
Interest 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																40,353
Loss on property dispositions, including impairment																(104	)
Income taxes																625
Minority interest																(5,087	)
Equity in earnings of unconsolidated joint ventures																334
Discontinued operations, net of minority interest																10,764


Net income															$	46,885


For the Three Months Ended September 30, 2005
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	45,091	$	9,539	$	21,791	$	29,480	$	27,061	$	24,700	$	4,546	$	162,208
Rental property expenses and real estate taxes		14,098		3,352		5,554		11,080		8,546		8,419		636		51,685

Property level operating income	$	30,993	$	6,187	$	16,237	$	18,400	$	18,515	$	16,281	$	3,910		110,523


Interest and other income																2,606
Interest 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																37,173
Gain on property dispositions, including impairment																1,318
Income taxes																(796	)
Minority interest																(4,699	)
Equity in earnings of unconsolidated joint ventures																231
Discontinued operations, net of minority interest																18,648


Net income															$	51,875


For the Nine Months Ended September 30, 2006
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	139,962	$	29,013	$	70,810	$	93,320	$	89,098	$	79,076	$	2,722	$	504,001
Rental property expenses and real estate taxes		43,610		9,362		15,586		34,674		27,796		26,095		2,124		159,247

Property level operating income	$	96,352	$	19,651	$	55,224	$	58,646	$	61,302	$	52,981	$	598		344,754


Interest and other income																7,733
Interest 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																117,660
Gain on property dispositions, including impairment																17,257
Income taxes																15
Minority interest																(15,413	)
Equity in earnings of unconsolidated joint ventures																1,250
Discontinued operations, net of minority interest																84,993


Net income															$	205,762


For the Nine Months Ended September 30, 2005
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	142,450	$	27,704	$	63,438	$	86,827	$	77,654	$	71,369	$	16,272	$	485,714
Rental property expenses and real estate taxes		42,134		9,613		16,278		32,046		23,814		22,855		2,688		149,428

Property level operating income	$	100,316	$	18,091	$	47,160	$	54,781	$	53,840	$	48,514	$	13,584		336,286

Interest and other income																7,398
Interest 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																122,094
Loss on property dispositions, including impairment																(3,611	)
Income taxes																(2,241	)
Minority interest																(13,805	)
Equity in earnings of unconsolidated joint ventures																2,433
Discontinued operations, net of minority interest																37,163


Net income															$	142,033

Note 3: SFAS No. 144, “Accounting For The Impairment Or Disposal Of Long-Lived Assets”

In accordance with SFAS No. 144, the operating results and gain/(loss) on the disposition of real estate for properties sold and held for sale are reflected in the consolidated statements of operations as discontinued operations. Prior year financial statements have been adjusted for discontinued operations. The proceeds from dispositions of operating properties with no continuing involvement for the three and nine months ended September 30, 2006 were $31.1 million and $289.3 million, respectively, as compared to $57.8 million and $150.7 million, respectively, for the same periods in 2005. Below is a summary of the results of the properties disposed of through the respective disposition dates (in thousands):


	Three Months Ended						Nine Months Ended
	Sept. 30, 2006			Sept. 30, 2005			Sept. 30, 2006			Sept. 30, 2005
Revenues	$	1,039		$	8,969		$	10,925		$	33,376
Operating 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

As of September 30, 2006, the Company determined that the held for sale criteria in SFAS No. 144 has been met for two properties totaling 325,000 square feet.

During the nine months ended September 30, 2006, the Company sold properties to a joint venture in which the Company retained a 25% ownership interest for proceeds of $125 million. Sales of land and development properties and properties in operation where the Company has continuing involvement are reflected as a component of income from continuing operations. See Chicago Joint Venture below.

Interest expense is allocated to discontinued operations as permitted under Emerging Issues Task Force (“EITF”) Issue No. 87-24, “Allocation of Interest to Discontinued Operations,” and such interest expense has been included in computing income from discontinued operations. The allocation of interest expense to discontinued operations was based on the ratio of net assets sold (without continuing involvement) or held for sale to the sum of total net assets plus consolidated debt.

Note 4: Joint Ventures

Comcast Center
On April 13, 2006, the Company entered into a joint venture pursuant to which it sold an 80% interest in the equity of Comcast Center, a 1.25 million square foot office tower the Company is developing in Philadelphia, Pennsylvania.

The transaction valued the property at $505 million, and in addition allocated approximately $10 million for closing costs and for future refurbishment costs. In connection with the transaction, the joint venture obtained a $324 million forward loan commitment at a rate of 6.15% assuming the loan closes in March 2008. In addition to retaining a 20% interest, the Company will receive leasing and property management fees and may receive a promoted interest if certain return thresholds are met.

Under the terms of the joint venture arrangement, the Company is obligated to complete development of the building, the estimated cost of which is approximately $472 million (including $7 million in refurbishment costs), and is also obligated to complete the initial lease up of the property. The criteria for sale recognition in accordance with SFAS No. 66 “Accounting for the Sale of Real Estate” have not been met and this transaction is accounted for as a financing arrangement.

Chicago Joint Venture
On April 25, 2006, the Company entered into a joint venture selling a 75% equity interest in six distribution buildings totaling 2.1 million square feet, and approximately 100 acres of developable land. The joint venture valued the buildings and land at $125 million. The Company retained a 25% ownership interest in the joint venture, and will receive development, leasing and property management fees, and may receive a promoted interest if certain return thresholds are met.

Note 5: Recently Issued Accounting Standards

SFAS No. 153
In December 2004, the FASB issued SFAS No. 153, “Accounting for Non-monetary Transactions” (“SFAS No. 153”). SFAS No. 153 requires non-monetary exchanges to be accounted for at fair value, recognizing any gain or loss, if the transactions meet a commercial-substance criterion and fair value is determinable. The provisions of SFAS No. 153 are effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company adopted the provisions of SFAS No. 153 on January 1, 2006 and the adoption did not have a material impact on the Company’s results of operations or its financial position.

EITF Issue 04-5
In June 2005, the FASB ratified its consensus in 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” (“Issue 04-5”). The effective date for Issue 04-5 was June 29, 2005 for all new or modified partnerships and January 1, 2006 for all other partnerships. The adoption of Issue 04-5 did not have a material impact on the Company’s results of operations or its financial position.

SFAS No. 157
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for consistently measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS No. 157 is effective for the Company beginning January 1, 2008, and the provisions of SFAS No. 157 will be applied prospectively as of that date. The Company does not anticipate that the adoption of this statement will have a material effect on its financial position or results of operations.

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


	September 30, 2006			December 31, 2005
	(Unaudited)
ASSETS
Real estate:
Land and land improvements	$	661,109		$	625,693
Building and improvements		3,770,921			3,711,575
Less accumulated depreciation		(794,612	)		(741,912	)


Operating real estate		3,637,418			3,595,356

Development in progress		472,836			324,924
Land held for development		169,734			158,653


Net real estate		4,279,988			4,078,933

Cash and cash equivalents		26,573			61,629
Restricted cash		13,891			29,085
Accounts receivable		24,067			14,761
Deferred rent receivable		71,656			72,818
Deferred financing and leasing costs, net of accumulated amortization (2006, $96,797; 2005, $108,103)		124,509			123,696
Investments in unconsolidated joint ventures		48,602			33,522
Assets held for sale		6,375			29,105
Prepaid expenses and other assets		83,164			56,773


Total assets	$	4,678,825		$	4,500,322


LIABILITIES
Mortgage loans	$	201,731		$	238,728
Unsecured notes		1,755,000			1,755,000
Credit facility		328,480			255,450
Accounts payable		41,486			32,919
Accrued interest		26,804			34,892
Distribution payable		58,472			56,490
Other liabilities		159,485			164,528


Total liabilities		2,571,458			2,538,007

Minority interest		249			407

OWNERS’ EQUITY
General partner’s equity – common units		1,836,648			1,709,182
Limited partners’ equity – preferred units		184,657			184,657
– common units		85,813			68,069

Total owners’ equity		2,107,118			1,961,908


Total liabilities and owners’ equity	$	4,678,825		$	4,500,322

See accompanying notes.

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


	Three Months Ended
	September 30, 2006			September 30, 2005
OPERATING REVENUE
Rental	$	118,745		$	114,400
Operating expense reimbursement		52,678			47,808

Total operating revenue		171,423			162,208


OPERATING EXPENSE
Rental property		35,526			34,880
Real estate taxes		18,202			16,805
General and administrative		11,996			9,302
Depreciation and amortization		37,763			35,105

Total operating expenses		103,487			96,092


Operating income		67,936			66,116

OTHER INCOME (EXPENSE)
Interest and other income		3,257			2,606
Interest 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	)		1,318
Income taxes		625			(796	)
Minority interest		—			(15	)
Equity in earnings of unconsolidated joint ventures		334			231


Income from continuing operations		41,208			37,911

Discontinued 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			19,395


Net income		52,475			57,306

Preferred unit distributions		(3,401	)		(3,353	)


Income available to common unitholders	$	49,074		$	53,953


Earnings per common unit
Basic:
Income from continuing operations	$	0.40		$	0.38
Income from discontinued operations		0.12			0.21


Income per common unit – basic	$	0.52		$	0.59


Diluted:
Income from continuing operations	$	0.40		$	0.37
Income from discontinued operations		0.12			0.21


Income per common unit – diluted	$	0.52		$	0.58


Distributions per common unit	$	0.62		$	0.615


Weighted average number of common units outstanding
Basic		93,877			90,961
Diluted		95,010			92,440

See accompanying notes.

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


	Nine Months Ended
	September 30, 2006			September 30, 2005
OPERATING REVENUE
Rental	$	352,791		$	347,168
Operating expense reimbursement		151,210			138,546

Total operating revenue		504,001			485,714


OPERATING EXPENSE
Rental property		105,914			101,350
Real estate taxes		53,333			48,078
General and administrative		33,511			27,301
Depreciation and amortization		110,422			102,380

Total operating expenses		303,180			279,109


Operating income		200,821			206,605

OTHER INCOME (EXPENSE)
Interest and other income		7,733			7,398
Interest 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			122,094

Gain (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			2,433


Income from continuing operations		136,182			118,305

Discontinued 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			38,662


Net income		224,946			156,967

Preferred unit distributions		(10,203	)		(8,692	)
Excess of preferred unit redemption over carrying amount		—			(500	)


Income available to common unitholders	$	214,743		$	147,775


Earnings per common unit
Basic:
Income from continuing operations	$	1.36		$	1.21
Income from discontinued operations		0.95			0.43


Income per common unit – basic	$	2.31		$	1.64


Diluted:
Income from continuing operations	$	1.34		$	1.19
Income from discontinued operations		0.94			0.42


Income per common unit – diluted	$	2.28		$	1.61


Distributions per common unit	$	1.85		$	1.84

Weighted average number of common units outstanding
Basic		92,717			90,237
Diluted		93,978			91,695

See accompanying notes.

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


	Nine Months Ended
	September 30, 2006			September 30, 2005
OPERATING ACTIVITIES
Net income	$	224,946		$	156,967
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		113,927			110,841
Amortization of deferred financing costs		3,188			3,527
Equity in earnings of unconsolidated joint ventures		(1,250	)		(2,433	)
Distributions from unconsolidated joint ventures		3,026			4,544
Minority interest in net income		—			370
Gain on property dispositions, including impairment		(104,845	)		(29,041	)
Noncash compensation		4,895			3,094
Changes in operating assets and liabilities:
Restricted cash		18,289			11,411
Accounts receivable		(8,071	)		2,422
Deferred rent receivable		1,162			(5,147	)
Prepaid expenses and other assets		(28,428	)		(20,132	)
Accounts payable		8,234			11,410
Accrued interest		(8,088	)		(8,255	)
Other liabilities		(7,701	)		37,679

Net cash provided by operating activities		219,284			277,257


INVESTING ACTIVITIES
Investment in properties		(220,163	)		(219,032	)
Investment in unconsolidated joint ventures		(5,484	)		(13,335	)
Proceeds from disposition of properties/land		383,331			147,000
Investment 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 ACTIVITIES
Net proceeds from the issuance of preferred units		—			48,686
Net proceeds from issuance of unsecured notes		—			296,424
Repayments of mortgage loans		(37,586	)		(126,768	)
Proceeds from credit facility		419,095			461,650
Repayments on credit facility		(346,065	)		(484,650	)
Increase in deferred financing costs		(1,971	)		(139	)
Capital contributions		61,185			68,165
Distributions 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	)		13,248
Increase (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			33,667

Cash and cash equivalents at end of period	$	26,573		$	43,209


SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and deferred costs	$	75,447		$	26,429
Acquisition of properties		—			(23,973	)
Assumption of mortgage loans		—			23,973
Issuance of operating partnership units		30,000			—

See accompanying notes.

Liberty Property Limited Partnership

Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006

Note 1: Organization and Basis of Presentation

Organization
Liberty Property Trust, (the “Trust”), is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by Liberty Property Limited Partnership, a Pennsylvania limited partnership, (the “Operating Partnership” and together with the Trust and their consolidated subsidiaries, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 95.5% and 96.2% of the common equity of the Operating Partnership at September 30, 2006 and 2005, respectively. The Company provides leasing, property management, development, acquisition and other tenant-related services for a portfolio of industrial and office properties that are located principally within the Mid-Atlantic, Southeastern and Midwestern United States and the United Kingdom.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Operating Partnership and its subsidiaries, have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Trust and the Operating Partnership for the year ended December 31, 2005. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. Certain amounts from prior periods have been reclassified to conform to current period presentation.

Income per Common Unit
The following table sets forth the computation of basic and diluted income per common unit for the three and nine months ended September 30, 2006 and September 30, 2005 (in thousands, except per unit amounts):


	For the Three Months Ended Sept. 30, 2006							For the Three Months Ended Sept. 30, 2005
				Weighted							Weighted
				Average							Average
	Income			Units		Per		Income			Units		Per
	(Numerator)			(Denominator)		Unit		(Numerator)			(Denominator)		Unit
Income from continuing operations	$	41,208						$	37,911
Less: Preferred unit distributions		(3,401	)						(3,353	)


Basic income from continuing operations

Income from continuing operations available to common unitholders		37,807			93,877	$	0.40		34,558			90,961	$	0.38

Dilutive units for long-term compensation plans		—			1,133				—			1,479


Diluted income from continuing operations
Income from continuing operations available to common unitholders and assumed conversions		37,807			95,010	$	0.40		34,558			92,440	$	0.37


Basic income from discontinued operations
Discontinued operations		11,267			93,877	$	0.12		19,395			90,961	$	0.21

Dilutive units for long-term compensation plans		—			1,133				—			1,479


Diluted income from discontinued operations
Discontinued operations		11,267			95,010	$	0.12		19,395			92,440	$	0.21


Basic income per common unit
Income available to common unitholders		49,074			93,877	$	0.52		53,953			90,961	$	0.59

Dilutive units for long-term compensation plans		—			1,133				—			1,479


Diluted income per common unit
Income available to common unitholders and assumed conversions	$	49,074			95,010	$	0.52	$	53,953			92,440	$	0.58


	For the Nine Months Ended September 30, 2006							For the Nine Months Ended September 30, 2005
				Weighted							Weighted
				Average							Average
	Income			Units		Per		Income			Units		Per
	(Numerator)			(Denominator)		Unit		(Numerator)			(Denominator)		Unit
Income from continuing operations	$	136,182						$	118,305
Less: Preferred unit distributions		(10,203	)						(8,692	)
Excess of preferred unit redemption over carrying amount		—							(500	)


Basic income from continuing operations
Income from continuing operations available to common unitholders		125,979			92,717	$	1.36		109,113			90,237	$	1.21

Dilutive units for long-term compensation plans		—			1,261				—			1,458


Diluted income from continuing operations
Income from continuing operations available to common unitholders and assumed conversions		125,979			93,978	$	1.34		109,113			91,695	$	1.19


Basic income from discontinued operations
Discontinued operations		88,764			92,717	$	0.95		38,662			90,237	$	0.43

Dilutive units for long-term compensation plans		—			1,261				—			1,458


Diluted income from discontinued operations
Discontinued operations		88,764			93,978	$	0.94		38,662			91,695	$	0.42


Basic income per common unit
Income available to common unitholders		214,743			92,717	$	2.31		147,775			90,237	$	1.64

Dilutive units for long-term compensation plans		—			1,261				—			1,458


Diluted income per common unit
Income available to common unitholders and assumed conversions	$	214,743			93,978	$	2.28	$	147,775			91,695	$	1.61

Foreign Currency Translation
The functional currency of the Company’s United Kingdom operation is pounds sterling. The Company translates its financial statements into US dollars. Gains and losses resulting from this translation do not impact the results of operations and are included in general partner’s equity – common units. Other comprehensive income was $1.3 million for the three months ended September 30, 2006 and other comprehensive loss was $2.6 million for the three months ended September 30, 2005. Other comprehensive income was $6.9 million for the nine months ended September 30, 2006 and other comprehensive loss was $13.0 million for the nine months ended September 30, 2005. Upon sale or upon complete or substantially complete liquidation of a foreign investment, the gain or loss on the sale will include a portion of the cumulative translation adjustments that have been previously recorded in other comprehensive income.

Note 2: Segment Information


Reportable Segments		Markets
Delaware Valley		Southeastern Pennsylvania; New Jersey
Midwest		Lehigh Valley, Pennsylvania; Michigan; Minnesota; Milwaukee; Chicago
Mid-Atlantic		Maryland; Piedmont Triad, NC; Greenville, SC; Richmond; Virginia Beach
Florida United Kingdom		Jacksonville; Orlando; Boca Raton; Tampa; Texas County of Kent


For the Three Months Ended September 30, 2006
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	47,312	$	9,870	$	23,432	$	30,682	$	31,352	$	27,882	$	893	$	171,423
Rental property expenses and real estate taxes		15,178		3,430		3,592		11,653		9,902		9,252		721		53,728

Property level operating income	$	32,134	$	6,440	$	19,840	$	19,029	$	21,450	$	18,630	$	172		117,695


Interest and other income																3,257
Interest 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																40,353
Loss on property dispositions, including impairment																(104	)
Income taxes																625
Minority interest																—
Equity in earnings of unconsolidated joint ventures																334
Discontinued operations																11,267


Net income															$	52,475


For the Three Months Ended September 30, 2005
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	45,091	$	9,539	$	21,791	$	29,480	$	27,061	$	24,700	$	4,546	$	162,208
Rental property expenses and real estate taxes		14,098		3,352		5,554		11,080		8,546		8,419		636		51,685

Property level operating income	$	30,993	$	6,187	$	16,237	$	18,400	$	18,515	$	16,281	$	3,910		110,523


Interest and other income																2,606
Interest 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																37,173
Gain on property dispositions, including impairment																1,318
Income taxes																(796	)
Minority interest																(15	)
Equity in earnings of unconsolidated joint ventures																231
Discontinued operations																19,395


Net income															$	57,306


For the Nine Months Ended September 30, 2006
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	139,962	$	29,013	$	70,810	$	93,320	$	89,098	$	79,076	$	2,722	$	504,001
Rental property expenses and real estate taxes		43,610		9,362		15,586		34,674		27,796		26,095		2,124		159,247

Property level operating income	$	96,352	$	19,651	$	55,224	$	58,646	$	61,302	$	52,981	$	598		334,754


Interest and other income																7,733
Interest 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																117,660
Gain on property dispositions, including impairment																17,257
Income taxes																15
Minority interest																—
Equity in earnings of unconsolidated joint ventures																1,250
Discontinued operations																88,764


Net income															$	224,946


For the Nine Months Ended September 30, 2005
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	142,450	$	27,704	$	63,438	$	86,827	$	77,654	$	71,369	$	16,272	$	485,714
Rental property expenses and real estate taxes		42,134		9,613		16,278		32,046		23,814		22,855		2,688		149,428

Property level operating income	$	100,316	$	18,091	$	47,160	$	54,781	$	53,840	$	48,514	$	13,584		336,286


Interest and other income																7,398
Interest 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																122,094
Loss on property dispositions, including impairment																(3,611	)
Income taxes																(2,241	)
Minority interest																(370	)
Equity in earnings of unconsolidated joint ventures																2,433
Discontinued operations																38,662


Net income															$	156,967

Note 3: SFAS No. 144, “Accounting For The Impairment Or Disposal Of Long-Lived Assets”


	Three Months Ended						Nine Months Ended
	Sept. 30, 2006			Sept. 30, 2005			Sept. 30, 2006			Sept. 30, 2005
Revenues	$	1,039		$	8,969		$	10,925		$	33,376
Operating 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

As of September 30, 2006, the Company determined that the held for sale criteria in SFAS No. 144 had been met for two properties totaling 325,000 square feet.

Note 4: Joint Ventures

Note 5: Recently Issued Accounting Standards

SFAS No. 157
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”), which defines fair value, establishes a framework for consistently measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS No. 157 is effective for the Company beginning January 1, 2008, and the provisions of SFAS No. 157 will be applied prospectively as of that date. The Company does not anticipate that the adoption of this statement will have a material effect on its financial position or results of operations.

FIN 48
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, and accounting in interim periods and requires expanded disclosure with respect to the uncertainty in income taxes. FIN 48 is effective for the Company beginning January 1, 2007. The cumulative effect, if any, of applying FIN 48 is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption. The Company does not anticipate that the adoption of this statement will have a material effect on its financial position or results of operations.

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

Overview

Liberty Property Trust (the “Trust”) is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership (the “Operating Partnership” and, collectively with the Trust and their consolidated subsidiaries, the “Company”).

As of September 30, 2006, the Company had an ownership interest in and operated 421 industrial and 292 office properties located primarily in the Mid-Atlantic, Southeastern and Midwestern United States and the United Kingdom (the “Properties in Operation”) totaling 64.8 million square feet. In addition, as of September 30, 2006, the Company had an ownership interest in 34 properties under development (the “Properties under Development” and, together with the Properties in Operation, the “Properties”) and had an ownership interest in 1,479 acres of land, substantially all of which is zoned for commercial use. Included within the Properties and land above are 38 industrial and 10 office properties comprising 6.2 million square feet, three development properties comprising 850,000 square feet and 302 acres of developable land owned by unconsolidated joint ventures.

The Company focuses on creating value for shareholders and increasing profitability and cash flow. With respect to its Properties in Operation, the Company endeavors to maintain high occupancy levels while increasing rental rates. The Company pursues development opportunities that it believes will create value and yield acceptable returns. The Company also acquires properties that it believes will create long-term value, and disposes of Properties that no longer fit within the Company’s strategic objectives or in situations where it can optimize cash proceeds. The Company’s operating results depend primarily upon income from rental operations and are substantially influenced by rental demand for the Properties in Operation.

The Company continues to experience the effects of the generally slow real estate economy. This circumstance has impacted many aspects of the Company’s business. Revenue from the Properties in Operation, which represents over 95% of the Company’s revenue, was subjected in many of its markets to market conditions characterized by an oversupply of leaseable space and soft demand. The Company believes that these market conditions for the Properties in Operation, which have persisted for some time, are generally improving. Rental rates in many of the Company’s markets have stabilized or improved. The Company successfully leased 3.2 million square feet during the three months ended September 30, 2006 and attained occupancy of 93.1% as of that date. The Company believes that straight line rents on renewal and replacement leases for 2007 generally will be 1% to 3% greater than rents on expiring leases, notwithstanding selected decreases. Furthermore, the Company believes that average occupancy for its Properties in Operation will improve by 1% to 2% for 2007 compared to 2006.

Conditions in 2006 for the acquisition of properties continue to be very competitive. During the third quarter of 2006, the Company acquired nine buildings representing 952,000 square feet for a Total Investment, as defined below, of $127.6 million. From January 1, 2006 through September 30, 2006, the Company acquired 16 buildings representing 1.9 million square feet of operating properties for a Total Investment of $189.1 million. These acquisitions generally served to increase the Company’s presence or balance the product mix in markets the Company believes to have significant potential. For 2006, the Company believes that the level of property acquisitions will be in the $350 million to $400 million range. For 2007, the Company believes that property acquisitions will be in the $450 million to $550 million range and that, similar to 2006, certain of the acquired properties will be either vacant or underleased. The Company considers acquiring vacant or underleased properties where it believes that such properties are attractively priced and will positively contribute to earnings upon lease up and stabilization. In addition, the Company believes that joint ventures in which the Company holds an ownership interest will acquire properties in the $75 million to $100 million range in 2007. “Total Investment” for a Property is defined as the Property’s purchase price plus closing costs and management’s estimate, as determined at the time of acquisition, of the cost of necessary building improvements in the case of acquisitions, or land costs and land and building improvement costs in the case of development projects, and, where appropriate, other development costs and carrying costs.

Dispositions of Properties in 2006 have been significant. This disposition activity has allowed the Company to (1) shift emphasis or exit product types in certain markets; (2) lower the average age of the portfolio; and (3) take advantage of favorable market conditions to optimize the cash proceeds from the sale of certain well situated assets. In 2006, it is

anticipated that the Company’s efforts to upgrade the quality of the portfolio, in terms of age and/or strategic location, through a mix of acquisitions and dispositions will be dilutive to the Company’s earnings. During the third quarter of 2006, the Company realized proceeds of $32.8 million from the sale of nine operating properties representing 447,000 square feet of leasable space and three acres of land. From January 1, 2006 through September 30, 2006, the Company realized aggregate proceeds of $291.6 million from the sale of 36 operating properties representing 3.3 million square feet and five acres of land. Additionally, during the nine months ended September 30, 2006, the Company sold six operating properties and 104 acres of land to a joint venture in which the Company retained a 25% interest for $125.0 million. The real estate investment market continues to be very strong. Given this situation, the Company anticipates that disposition activity for 2006 will be in the $550 million to $600 million range and will be in the $350 million to $450 million range for 2007.

In 2006, the Company continued to pursue development opportunities. During the third quarter of 2006, the Company brought into service six development properties representing 312,000 square feet and a Total Investment of $35.1 million and initiated $116.4 million in real estate development. As of September 30, 2006, the projected Total Investment of the wholly owned Properties under Development is expected to be $936.1 million, including the $472 million Comcast Center project. The Company believes that in 2006, it will bring into service from its development pipeline properties representing approximately $210 million of Total Investment in operating real estate. In 2007, the Company will continue to pursue development opportunities and the Company believes that in 2007 it will bring into service from its development pipeline approximately $325 million to $350 million of Total Investment in operating real estate.

The Company periodically enters into joint venture relationships in connection with the execution of its real estate operating strategy. During the nine months ended September 30, 2006, the Company entered into two joint ventures. – See Note 4 to the Company’s financial statements. During the nine months ended September 30, 2006, unconsolidated joint ventures purchased one property for a Total Investment of $13.8 million and sold two properties representing 143,000 square feet and six acres of land for proceeds to the joint venture of $9.9 million. In addition, during the nine months ended September 30, 2006, unconsolidated joint ventures initiated $63.0 million in real estate development.

The composition of the Company’s Properties in Operation as of September 30, 2006 and 2005 is as follows (in thousands, except dollars and percentages):


	Net Rent
	Per Square Foot				Total Square Feet				Percent Occupied
	September 30,				September 30,				September 30,
	2006		2005		2006		2005		2006			2005
Industrial-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	%

Geographic segment data for the three and nine months ended September 30, 2006 and 2005 are included in Note 2 to the Liberty Property Trust and Liberty Property Limited Partnership financial statements.

Forward-Looking Statements

When used throughout this report, the words “believes,” “anticipates,” “hopes” and “expects” and similar expressions are intended to identify forward-looking statements. Such statements indicate that assumptions have been used that are subject to a number of risks and uncertainties that could cause actual financial results or management plans and objectives to differ materially from those projected or expressed herein, including: the effect of national and regional economic conditions; rental demand; the Company’s ability to identify and secure additional properties and sites that meet its criteria for acquisition or development; the availability and cost of capital; the effect of prevailing market interest rates; and other risks described from time to time in the Company’s filings with the SEC. Given these uncertainties, readers are cautioned not to place undue reliance on such statements.

Critical Accounting Policies and Estimates

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 for a discussion of critical accounting policies which include capitalized costs, revenue recognition, allowance for doubtful accounts, impairment of real estate and intangibles. During the three months ended September 30, 2006, there were no material changes to these policies.

Results of Operations

The following discussion is based on the consolidated financial statements of the Company. It compares the results of operations of the Company for the three and nine months ended September 30, 2006 with the results of operations of the Company for the three and nine months ended September 30, 2005. As a result of the varying levels of development, acquisition and disposition activities by the Company in 2006 and 2005, the overall operating results of the Company during such periods are not directly comparable. However, certain data, including the Same Store comparison, do lend themselves to direct comparison.

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

Comparison of Three and Nine Months Ended September 30, 2006 to Three and Nine Months Ended September 30, 2005.
Operating real estate owned for the three months ended September 30, 2006 increased to $4,337.8 million from $3,863.6 million for the three months ended September 30, 2005 and for the nine months ended September 30, 2006 increased to $4,219.1 million from $3,772.6 million for the nine months ended September 30, 2005. This increase resulted from the increased investment in real estate acquired or developed. This increase in operating real estate resulted in increases in rental revenue, operating expense reimbursement, rental property operating expenses, real estate taxes, and depreciation and amortization expense.

Total operating revenue increased to $171.4 million for the three months ended September 30, 2006 from $162.2 million for the three months ended September 30, 2005 and increased to $504.0 million for the nine months ended September 30, 2006 from $485.7 million for the nine months ended September 30, 2005. The $9.2 million increase during the three months ended September 30, 2006 compared to the same period in 2005 was primarily due to the increase in investment in operating real estate and increased revenue from the Same Store group of properties. The Same Store increase in revenue resulted from the average increase in occupancy. Increases in operating revenue were partially offset by a decrease in “Termination Fees” which totaled $0.5 million for the three months ended September 30, 2006 as compared to $1.8 million for the same period in 2005. The $18.3 million increase during the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005 was primarily due to the increase in investment in real estate and increased revenue from the Same Store group of properties. The Same Store increase for the nine month periods also resulted from average occupancy increases. Increases in operating revenue were partially offset by a decrease in “Termination Fees” which totaled $5.4 million for the nine months ended September 30, 2006 as compared to $15.6 million for the nine months ended September 30, 2005. “Termination Fees” are fees that the Company agrees to accept in consideration for permitting certain tenants to terminate their leases prior to the contractual expiration date. Termination Fees are included in rental revenue.

The Company evaluates the performance of the Properties in Operation by reportable segment (see Note 2 to the Company’s financial statements for a reconciliation to net income). The following table identifies changes in reportable segments (dollars in thousands):

Property level operating income:


	Three Months Ended									Nine Months Ended
	Sept. 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.

Property level operating income, exclusive of Termination Fees, for the Same Store properties increased to $104.2 million for the three months ended September 30, 2006 from $99.6 million for the three months ended September 30, 2005, on a straight line basis (which recognizes rental revenue evenly over the life of the lease) and increased to $103.1 million for the three months ended September 30, 2006 from $97.9 million for the three months ended September 30, 2005 on a cash basis. These increases are primarily due to an increase in occupancy for the Same Store properties and the recovery of a $2.0 million tenant bankruptcy settlement in 2006.

Property level operating income, exclusive of Termination Fees, for the Same Store properties increased to $306.3 million for the nine months ended September 30, 2006 from $300.9 million for the nine months ended September 30, 2005 on a straight line basis and increased to $302.5 million for the nine months ended September 30, 2006 from $295.5 million for the nine months ended September 30, 2005 on a cash basis. These increases are primarily due to an increase in occupancy for the Same Store properties and the recovery of a $2.0 million tenant bankruptcy settlement in 2006.

Management generally considers the performance of the Same Store properties to be a useful financial performance measure because the results are directly comparable from period to period. Management further believes that the performance comparison should exclude Termination Fees since they are more event specific and are not representative of ordinary performance results. In addition, Same Store property level operating income exclusive of Termination Fees is considered by management to be a more reliable indicator of the portfolio’s baseline performance. The Same Store properties consist of the 601 properties totaling approximately 51.0 million square feet owned since January 1, 2005.

Set forth below is a schedule comparing the property level operating income, on a straight line basis and on a cash basis, for the Same Store properties for the three and nine months ended September 30, 2006 and 2005. Same Store property level operating income is a non-GAAP measure and does not represent income before property dispositions, income taxes and minority interest because it does not reflect the consolidated operations of the Company. Investors should review Same Store results, along with Funds from operations (see Liquidity and Capital Resources section), GAAP net income and cash flow from operating activities, investing activities and financing activities when trying to understand the Company’s operating performance. Also, set forth below is a reconciliation of Same Store property level operating income to net income (in thousands).


	Three Months Ended						Nine Months Ended
	Sept. 30, 2006			Sept. 30, 2005			Sept. 30, 2006			Sept. 30, 2005
Same Store:
Rental revenue	$	104,871		$	102,558		$	311,905		$	308,761

Operating expenses:
Rental property expense		31,711			32,239			94,609			94,481
Real estate taxes		16,456			15,641			48,053			45,549
Operating expense recovery		(47,470	)		(44,971	)		(137,040	)		(132,127	)

Unrecovered operating expenses		697			2,909			5,622			7,903


Property level operating income		104,174			99,649			306,283			300,858
Less straight line rent		1,101			1,774			3,808			5,339


Cash basis property level operating income	$	103,073		$	97,875		$	302,475		$	295,519


Reconciliation of non-GAAP financial measure:
Property level operating income – Same Store	$	104,174		$	99,649		$	306,283		$	300,858
Property level operating income – properties purchased or developed subsequent to January 1, 2005		13,012			9,068			33,107			19,877
Termination fees		509			1,806			5,364			15,551
General 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			2,433
Discontinued operations, net of minority interest		10,764			18,648			84,993			37,163


Net income	$	46,885		$	51,875		$	205,762		$	142,033

General and Administrative
General and administrative expenses increased to $12.0 million for the three months ended September 30, 2006 from $9.3 million for the three months ended September 30, 2005 and increased to $33.5 million for the nine months ended September 30, 2006 from $27.3 million for the nine months ended September 30, 2005. The increases were primarily due to increases in compensation expense for real estate personnel necessitated by the competitive real estate market and increases in personnel consistent with the increase in the size and complexity of the Company.

Depreciation and Amortization
Depreciation and amortization increased to $37.8 million for the three months ended September 30, 2006 from $35.1 million for the three months ended September 30, 2005 and increased to $110.4 million for the nine months ended September 30, 2006 from $102.4 million for the nine months ended September 30, 2005. The increases were primarily due to the increase in gross investment in operating real estate during the respective periods and particularly the increased investment in leasing costs, which are amortized over a shorter period than are buildings and improvements.

Interest Expense
Interest expense decreased to $30.8 million for the three months ended September 30, 2006 from $31.5 million for the three months ended September 30, 2005 and decreased to $90.9 million for the nine months ended September 30, 2006 from $91.9 million for the nine months ended September 30, 2005. These decreases were due to a decrease in the average debt outstanding for the respective periods, which was $2,232.4 million for the three months ended September 30, 2006 as compared to $2,285.3 million for the three months ended September 30, 2005 and $2,232.9 million for the nine months ended September 30, 2006 as compared to $2,239.1 million for the nine months ended September 30, 2005. Additionally, interest expense allocated to discontinued operations for the three and nine months ended September 30, 2006 was less than the interest expense allocated to discontinued operations for the three and nine months ended September 30, 2005 by $2.2 million and $7.1 million, respectively, due to the level of dispositions throughout 2005 and the first three quarters of 2006. Interest costs for the three months ended September 30, 2006 and 2005 in the amount of $7.6 million and $4.7 million, respectively, and interest costs for the nine months ended September 30, 2006 and 2005 in the amounts of $21.0 million and $12.6 million, respectively, were capitalized. The effect of the decreases in the average debt outstanding was partially offset by increases in the weighted average interest rates for the periods to 6.70% for the three months ended September 30, 2006 from 6.53% in 2005 and to 6.66% for the nine months ended September 30, 2006 from 6.58% for the nine months ended September 30, 2005.

Other
Costs directly related to the development of rental properties and land being readied for development are capitalized. Capitalized development costs include interest, development-related salaries, property taxes, insurance and other directly identifiable costs incurred during the period of development. Capitalized development-related salaries and benefits, excluding costs related to Comcast Center, historically represent approximately 1-2% of the cost of developed properties brought into service. Capitalized development-related salaries and benefits for Comcast Center are less than 1% of the cost of the project.

Gain on property dispositions including impairment was $17.3 million for the nine months ended September 30, 2006 compared to a loss of $3.6 million for the nine months ended September 30, 2005. The change is primarily due to the gains realized on the sale of a 75% interest in six distribution buildings and 104 acres of land in Chicago to a joint venture during the second quarter of 2006. Additionally during the three month periods ended September 30, 2006 and 2005, gains and losses on property dispositions were insignificant.

Income from discontinued operations decreased to $10.8 million from $18.6 million for the three month period ended September 30, 2006 compared to the three month period ended September 30, 2005 and increased to $85.0 million from $37.2 million for the nine month period ended September 30, 2006 compared to the nine month period ended September 30, 2005. The change in discontinued operations for the three and nine month periods relates to the amount of gain on sale recognized from property sales during the respective periods.

As a result of the foregoing, the Company’s net income decreased to $46.9 million for the three months ended September 30, 2006 from $51.9 million for the three months ended September 30, 2005 and increased to $205.8 million for the nine months ended September 30, 2006 from $142.0 million for the nine months ended September 30, 2005.

Liquidity and Capital Resources

As of September 30, 2006, the Company had cash and cash equivalents of $40.5 million, including $13.9 million in restricted cash.

Net cash flow provided by operating activities decreased to $219.3 million for the nine months ended September 30, 2006 from $277.3 million for the nine months ended September 30, 2005. This $58.0 million decrease was due to fluctuations in operating assets and liabilities, particularly accrued liabilities related to the increasing development pipeline, during the respective periods. Net cash flow provided by operations is the primary source of liquidity to fund distributions to shareholders and for the recurring capital expenditures and leasing transaction costs for the Company’s Properties in Operation.

Net cash used by investing activities decreased to $170.6 million for the nine months ended September 30, 2006 from $349.9 million for the nine months ended September 30, 2005. This $179.3 million change primarily resulted from an increase in proceeds from the disposition of properties/land and an increase in investment in development in progress.

Net cash used in financing activities was $86.2 million for the nine months ended September 30, 2006 compared to $85.8 million provided by financing activities for the nine months ended September 30, 2005. This $172.0 million change was primarily due to a decrease in borrowings in 2006 compared to 2005 due to the increase in proceeds from dispositions. Net cash provided by or used in financing activities includes proceeds from the issuance of equity and debt, net of debt repayments and shareholder distributions. Cash provided by financing activities is a source of capital utilized by the Company to fund investment activities.

The Company funds its development and acquisitions with long-term capital sources including proceeds from the disposition of Properties. For the nine months ended September 30, 2006, a significant portion of these activities were funded through a $600 million Credit Facility (the “$600 million Credit Facility”). The interest rate on borrowings under the credit facility fluctuate based upon ratings from Moody’s Investors Service, Inc. (“Moody’s”), Standard and Poor’s Ratings Group (“S&P”) and Fitch, Inc. (“Fitch”). The current ratings for the Company’s senior unsecured debt are Baa2, BBB and BBB from Moody’s, S&P and Fitch, respectively. At these ratings, the interest rate for borrowings under the $600 million Credit Facility is 65 basis points over LIBOR. The $600 million Credit Facility contains an accordion feature whereby the Company may borrow an additional $200 million. The $600 million Credit Facility expires in January 2010, and has a one year extension option.

The Company uses debt financing to lower its overall cost of capital in an attempt to increase the return to shareholders. The Company staggers its debt maturities and maintains debt levels it considers to be prudent. In determining its debt levels, the Company considers various financial measures including the debt to gross assets ratio and the earnings to fixed charge coverage ratio. As of September 30, 2006 the Company’s debt to gross assets ratio was 41.8%, and for the nine months ended September 30, 2006, the fixed charge coverage ratio was 2.6x. Debt to gross assets equals total long-term debt and borrowings under the $600 million Credit Facility divided by total assets plus accumulated depreciation. The fixed charge coverage ratio equals income from continuing operations before property dispositions and minority interest, including operating activity from discontinued operations, plus interest expense and depreciation and amortization, divided by interest expense, including capitalized interest, plus distributions on preferred units.

As of September 30, 2006, $201.7 million in mortgage loans and $1,755.0 million in unsecured notes were outstanding with a weighted average interest rate of 6.8%. The interest rates on $1,956.7 million of mortgage loans and unsecured notes are fixed and range from 5.125% to 9.75%. The weighted average remaining term for the mortgage loans and unsecured notes is 5.3 years.

The scheduled maturities and principal amortization of the Company’s mortgage loans, unsecured notes, borrowings under the $600 million Credit Facility and the financing related to the Comcast Center, (see footnote 1 below), and the related weighted average interest rates as of September 30, 2006 are as follows (dollars in thousands):


	MORTGAGES											WEIGHTED
	PRINCIPAL		PRINCIPAL		UNSECURED		CREDIT					AVERAGE
	AMORTIZATION		MATURITIES		NOTES		FACILITY			TOTAL		INTEREST RATE
2006 (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.

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

General

The Company has continued to focus on the performance of the Same Store portfolio. In addition, the Company has continued to pursue development and acquisition opportunities and the strategic disposition of certain properties. The Company endeavors to maintain high occupancy levels while increasing rental rates.

The expiring square feet and annual net rent by year for the Properties in Operation as of September 30, 2006 are as follows (in thousands):


	Industrial-				Industrial-
	Distribution				Flex				Office				Total
	Square		Annual		Square		Annual		Square		Annual		Square		Annual
	Feet		Net Rent		Feet		Net Rent		Feet		Net Rent		Feet		Net Rent
2006 (3 months)		689	$	3,249		342	$	3,000		393	$	4,529		1,424	$	10,778
2007		4,160		17,260		1,844		17,786		1,995		27,862		7,999		62,908
2008		4,655		18,809		2,255		21,664		2,560		38,839		9,470		79,312
2009		4,935		22,248		2,175		20,098		2,952		45,203		10,062		87,549
2010		2,187		10,802		1,560		15,330		2,644		39,269		6,391		65,401
2011		3,536		16,072		1,150		11,967		2,312		37,627		6,998		65,666
Thereafter		9,805		52,730		2,586		28,244		5,635		102,960		18,026		183,934

TOTAL		29,967	$	141,170		11,912	$	118,087		18,491	$	296,289		60,370	$	555,548

The Company believes that its existing sources of capital will provide sufficient funds to finance its continued development and acquisition activities. The scheduled deliveries of the 7.0 million square feet of Properties under Development as of September 30, 2006 are as follows (dollars in thousands):


	Square Feet
Scheduled	Industrial-		Industrial-						Percent			Total
In-Service Date	Distribution		Flex		Office		Total		Leased			Investment
4th Quarter 2006		424,320		48,000		152,971		625,291		92.8	%	$	51,865
1st Quarter 2007		203,092		79,600		77,708		360,400		67.0	%		29,071
2nd Quarter 2007		150,000		—		159,638		309,638		45.7	%		45,781
3rd Quarter 2007		1,277,759		138,184		230,000		1,645,943		43.4	%		124,787
4th Quarter 2007		968,000		83,200		450,000		1,501,200		30.0	%		134,859
1st Quarter 2008		592,672		—		110,154		702,826		—			60,397
2nd Quarter 2008		120,000		167,600		75,816		363,416		13.8	%		36,314
3rd Quarter 2008		—		—		1,504,037		1,504,037		65.3	%		516,088

TOTAL		3,735,843		516,584		2,760,324		7,012,751		45.1	%	$	999,162

The Company’s existing sources of capital include the public debt and equity markets, proceeds from dispositions of properties, equity contributions by joint venture partners and net cash provided from operating activities. Additionally, the Company expects to incur variable rate debt, including borrowings under the $600 million Credit Facility, from time to time.

The Company has an effective S-3 shelf registration statement on file with the SEC (the “Shelf Registration Statement”). As of October 25, 2006, pursuant to the Shelf Registration Statement, the Trust had the capacity to issue up to $586.1 million in equity securities and the Operating Partnership had the capacity to issue up to $806.2 million in debt securities.

Investment in Unconsolidated Joint Ventures
During the nine months ended September 30, 2006, the Company sold six operating properties located in Chicago which contained 2.1 million square feet and 104 acres of land to a joint venture, for $125.0 million. The Company retained a 25% ownership position in the joint venture.

During the nine months ended September 30, 2006, the Company entered into a joint venture with a subsidiary of Commerzbank AG, selling an 80% interest in Comcast Center upon its completion and stabilization. The transaction values the property at $505 million, and in addition allocates approximately $10 million for closing costs and for future refurbishment costs. In connection with the transaction, the joint venture has obtained a $324 million forward loan commitment.

Calculation of Funds from Operations
The National Association of Real Estate Investment Trusts (“NAREIT”) has issued a standard definition for Funds from operations (as defined below). The SEC has agreed to the disclosure of this non-GAAP financial measure on a per share basis in its Release No. 34-47226, Conditions for Use of Non-GAAP Financial Measures. The Company believes that the calculation of Funds from operations is helpful to investors and management as it is a measure of the Company’s operating performance that excludes depreciation and amortization and gains and losses from property dispositions. As a result, year over year comparison of Funds from operations reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, providing perspective not immediately apparent from net income. In addition, management believes that Funds from operations provides useful information to the investment community about the Company’s financial performance when compared to other REITs since Funds from operations is generally recognized as the standard for reporting the operating performance of a REIT. Funds from operations available to common shareholders is defined by NAREIT as net income (computed in accordance with generally accepted accounting principles (“GAAP”)), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Funds from operations available to common shareholders does not represent net income or cash flows from operations as defined by GAAP and does not necessarily indicate that cash flows will be sufficient to fund cash needs. It should not be considered as an alternative to net income as an indicator of the Company’s operating performance or to cash flows as a measure of liquidity.

Funds from operations available to common shareholders also does not represent cash flows generated from operating, investing or financing activities as defined by GAAP. Funds from operations (“FFO”) available to common shareholders for the three and nine months ended September 30, 2006 and 2005 are as follows (in thousands, except per share amounts):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Reconciliation of net income to FFO – basic

Net Income	$	46,885		$	51,875		$	205,762		$	142,033

Basic – Income available to common shareholders		46,885			51,875			205,762			142,033
*Basic – income available to common shareholders per weighted average share*	$	0.52		$	0.59		$	2.31		$	1.64

Adjustments:
Depreciation and amortization of unconsolidated joint ventures		792			291			2,108			943
Depreciation and amortization		37,404			36,997			111,804			108,780
Gain 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		$	213,705

*Basic Funds from operations available to common shareholders per weighted average share*	$	0.80		$	0.79		$	2.39		$	2.47

Reconciliation of net income to FFO – diluted:

Net Income	$	46,885		$	51,875		$	205,762		$	142,033

Diluted – income available to common shareholders		46,885			51,875			205,762			142,033
*Diluted – income available to common shareholders per weighted average share*	$	0.52		$	0.58		$	2.28		$	1.61

Adjustments:
Depreciation and amortization of unconsolidated joint ventures		792			291			2,108			943
Depreciation and amortization		37,404			36,997			111,804			108,780
Gain on property dispositions		(12,192	)		(19,550	)		(106,487	)		(35,157	)
Minority interest less preferred share distributions		2,189			2,093			8,981			5,745

Funds from operations available to common shareholders – diluted	$	75,078		$	71,706		$	222,168		$	222,344


*Diluted Funds from operations available to common shareholders per weighted average share*	$	0.79		$	0.78		$	2.36		$	2.42

Reconciliation of weighted average shares:
Weighted average common shares – all basic calculations		89,675			87,443			88,923			86,670
Dilutive shares for long term compensation plans		1,133			1,479			1,261			1,458


Diluted shares for net income calculations		90,808			88,922			90,184			88,128
Weighted average common units		4,202			3,518			3,794			3,567


Diluted shares for Funds from operations calculations		95,010			92,440			93,978			91,695

Inflation
Inflation has remained relatively low during the last three years, and as a result, it has not had a significant impact on the Company during this period. The $600 million Credit Facility and the financing related to the Comcast Center, (see footnote (1) to the debt maturity schedule in the Liquidity and Capital Resources Section), bear interest at variable rates; therefore, the amount of interest payable under the $600 million Credit Facility and the financing related to the Comcast Center is influenced by changes in short-term interest rates, which tend to be sensitive to inflation. To the extent an increase in inflation would result in increased operating costs, such as in insurance, real estate taxes and utilities, substantially all of the tenants’ leases require the tenants to absorb these costs as part of their rental obligations. In addition, inflation also may have the effect of increasing market rental rates.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the Company’s exposure to market risk since its Annual Report on Form 10-K for the year ended December 31, 2005.

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that its disclosure controls and procedures, as of the end of the period covered by this report, are functioning effectively to provide reasonable assurance that information required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 6. Exhibits


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.

EXHIBIT INDEX


EXHIBIT NO.		DESCRIPTION
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.)


Index		Page
Part I.	Financial Information

Item 1.	Financial Statements (unaudited)

	Condensed consolidated balance sheets of Liberty Property Trust at September 30, 2006 and December 31, 2005		3

	Condensed consolidated statements of operations of Liberty Property Trust for the three months ended September 30, 2006 and September 30, 2005		4

	Condensed consolidated statements of operations of Liberty Property Trust for the nine months ended September 30, 2006 and September 30, 2005		5

	Condensed consolidated statements of cash flows of Liberty Property Trust for the nine months ended September 30, 2006 and September 30, 2005		6

	Notes to condensed consolidated financial statements of Liberty Property Trust		7

	Condensed consolidated balance sheets of Liberty Property Limited Partnership at September 30, 2006 and December 31, 2005		16

	Condensed consolidated statements of operations of Liberty Property Limited Partnership for the three months ended September 30, 2006 and September 30, 2005		17

	Condensed consolidated statements of operations of Liberty Property Limited Partnership for the nine months ended September 30, 2006 and September 30, 2005		18

	Condensed consolidated statements of cash flows of Liberty Property Limited Partnership for the nine months ended September 30, 2006 and September 30, 2005		19

	Notes to condensed consolidated financial statements of Liberty Property Limited Partnership		20

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		36

Item 4.	Controls and Procedures		36

Part II.	Other Information		37

Signatures for Liberty Property Trust			39

Signatures for Liberty Property Limited Partnership			40

Exhibit Index			41
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS
CERTIFICATION OF WILLIAM P. HANKOWSKY
CERTIFICATION OF GEORGE J. ALBURGER, JR.
CERTIFICATION OF WILLIAM P. HANKOWSKY
CERTIFICATION OF GEORGE J. ALBURGER, JR.
CERTIFICATION OF WILLIAM P. HANKOWSKY
CERTIFICATION OF GEORGE J. ALBURGER, JR.
CERTIFICATION OF WILLIAM P. HANKOWSKY
CERTIFICATION OF GEORGE J. ALBURGER, JR.


/s/ WILLIAM P. HANKOWSKY				October 30, 2006

William P. Hankowsky				Date
President and Chief Executive Officer

/s/ GEORGE J. ALBURGER, JR.				October 30, 2006

George J. Alburger, Jr.				Date
Executive Vice President and Chief Financial Officer


/s/ WILLIAM P. HANKOWSKY				October 30, 2006

William P. Hankowsky President and Chief Executive Officer				Date

/s/ GEORGE J. ALBURGER, JR.				October 30, 2006

George J. Alburger, Jr.				Date
Executive Vice President and Chief Financial Officer


	Nine months ended September 30, 2006
Earnings before fixed charges:
Income before allocation of minority interest and income from investments in unconsolidated subsidiaries	$	137,958
Add: Interest expense		90,040
Depreciation expense on cap’d interest		3,117
Amortization of deferred financing costs		3,312


Earnings before fixed charges	$	234,427


Fixed charges:
Interest expense	$	90,040
Amortization of deferred financing charges		3,312
Capitalized interest		17,748


Fixed charges		111,100


Preferred share distributions		—
Preferred unit distributions		10,203


Combined fixed charges	$	121,303


Ratio of earnings to fixed charges		2.11


Ratio of earnings to combined fixed charges		1.93

Date: October 30, 2006

/s/ WILLIAM P. HANKOWSKY

William P. Hankowsky

Chairman, President and Chief Executive Officer