-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mc/ATu35eQgnl/JCcQxYNhUF3c6S1sZqyO360emG/WxuV7uZJPXolNowrsDToRON B+I9TDaNt4vmlw2nePhBtA== 0000921112-96-000009.txt : 19961115 0000921112-96-000009.hdr.sgml : 19961115 ACCESSION NUMBER: 0000921112-96-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY PROPERTY TRUST CENTRAL INDEX KEY: 0000921112 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 232766549 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13130 FILM NUMBER: 96660511 BUSINESS ADDRESS: STREET 1: 65 VALLEY STREAM PARKWAY STREET 2: STE 100 CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106481700 MAIL ADDRESS: STREET 1: 65 VALLEY STREAM PKWY STREET 2: SUITE 100 CITY: MALVERN STATE: PA ZIP: 19355 FORMER COMPANY: FORMER CONFORMED NAME: ROUSE & ASSOCIATES PROPERTY TRUST DATE OF NAME CHANGE: 19940421 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY PROPERTY LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000921113 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 237768996 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-77082 FILM NUMBER: 96660512 BUSINESS ADDRESS: STREET 1: 65 VALLEY STREAM PARKWAY STREET 2: STE 100 CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106481700 MAIL ADDRESS: STREET 1: 65 VALLEY STREAM PKWY STREET 2: SUITE 100 CITY: MALVERN STATE: PA ZIP: 19355 FORMER COMPANY: FORMER CONFORMED NAME: ROUSE & ASSOCIATES LTD PART DATE OF NAME CHANGE: 19940331 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from ____________________ to _____________________ Commission file number: 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) 65 Valley Stream Parkway, Suite 100, Malvern, Pennsylvania 19355 (Address of Principal Executive Offices) (Zip Code) Registrants' Telephone Number, Including Area Code (610) 648-1700 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past ninety (90) days. YES X NO On November 12, 1996, 30,779,072 Common Shares of Beneficial Interest, par value $.001 per share, of Liberty Property Trust were outstanding. LIBERTY PROPERTY TRUST/LIBERTY PROPERTY LIMITED PARTNERSHIP FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996 INDEX PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements
PAGE ---- Consolidated balance sheet of Liberty Property Trust at September 30, 1996 and December 31, 1995. 4 Consolidated statement of operations of Liberty Property Trust for the three months ended September 30, 1996 and September 30, 1995. 5 Consolidated statement of operations of Liberty Property Trust for the nine months ended September 30, 1996 and September 30, 1995. 6 Consolidated statement of cash flows of Liberty Property Trust for the nine months ended September 30, 1996 and September 30, 1995. 7 Notes to consolidated financial statements for Liberty Property Trust. 8 Consolidated balance sheet of Liberty Property Limited Partnership at September 30, 1996 and December 31, 1995. 9 Consolidated statement of operations of Liberty Property Limited Partnership for the three months ended September 30, 1996 and September 30, 1995. 10 Consolidated statement of operations of Liberty Property Limited Partnership for the nine months ended September 30, 1996 and September 30, 1995. 11 Consolidated statement of cash flows of Liberty Property Limited Partnership for the nine months ended September 30, 1996 and September 30, 1995. 12 Notes to consolidated financial statements for Liberty Property Limited Partnership. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 14-18 PART II. OTHER INFORMATION 19 - --------------------------- SIGNATURES 20 - ---------- 2 _________________________________ The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Quarterly Report on Form 10-Q contain statements that are or will be forward- looking, such as statements relating to acquisitions and other business development activities, future capital expenditures, financing sources and availability, and the effects of regulation (including environmental regulation) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks and uncertainties include, but are not limited to, uncertainties affecting real estate businesses generally (such as renewals of leases and dependence on tenants' business operations), risks relating to acquisition, construction and development activities, possible environmental liabilities, risks relating to leverage and debt service (including availability of financing terms acceptable to the Company and sensitivity of the Company's operations to fluctuations in interest rates), the potential for the use of borrowings to make distributions necessary to qualify as a REIT, dependence on the primary markets in which the Company's properties are located, the existence of complex regulations relating to status as a REIT and the adverse consequences of the failure to qualify as a REIT and the potential adverse impact of market interest rates on the market price for the Company's securities. 3 CONSOLIDATED BALANCE SHEET OF LIBERTY PROPERTY TRUST (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ (UNAUDITED) Assets Real estate: Land and land improvements $ 123,099 $108,723 Buildings and improvements 808,008 715,908 Less accumulated depreciation (112,175) (94,183) ---------- -------- Operating real estate 818,932 730,448 Development in progress 90,480 67,021 Land held for development 37,377 28,578 ---------- -------- Net real estate 946,789 826,047 Cash and cash equivalents 7,973 10,629 Accounts receivable 6,117 5,608 Deferred financing and leasing costs, net of accumulated amortization (1996, $29,220; 1995, $24,007) 23,745 26,363 Prepaid expenses and other assets 38,515 29,455 ---------- -------- Total assets $1,023,139 $898,102 ========== ======== LIABILITIES Mortgage loans $ 203,221 $172,115 Subordinated debentures 183,625 229,900 Line of credit 176,618 71,894 Accounts payable 5,572 4,577 Accrued interest 4,007 9,439 Dividend payable 13,993 12,668 Other liabilities 27,429 20,835 ---------- -------- Total liabilities 614,465 521,428 Minority interest 41,399 41,153 SHAREHOLDER'S EQUITY Common shares of beneficial interest, $.001 par value, 200,000,000 shares authorized, 30,779,072 and 28,348,048 shares issued and outstanding as of September 30, 1996 and December 31, 1995, respectively 31 28 Additional paid-in capital 359,472 314,407 Unearned compensation (1,636) - Retained earnings 9,408 21,086 ---------- -------- Total shareholders' equity 367,275 335,521 ---------- -------- Total liabilities and shareholders' equity $1,023,139 $898,102 ========== ========
See accompanying notes. 4 CONSOLIDATED STATEMENT OF OPERATIONS OF LIBERTY PROPERTY TRUST (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE THREE MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ------------- ------------- REVENUE Rental $ 28,921 $ 23,206 Operating expense reimbursement 9,336 6,016 Management fees 324 226 Interest and other 958 543 ------------- ------------- Total revenue 39,539 29,991 ------------- ------------- OPERATING EXPENSES Rental property expenses 7,523 4,776 Real estate taxes 3,004 2,348 General and administrative 2,094 1,375 Depreciation and amortization 7,261 5,855 ------------- ------------- Total operating expenses 19,882 14,354 ------------- ------------- Operating income 19,657 15,637 Premium on debenture conversion 637 - Interest expense 9,707 10,046 ------------- ------------- Income before minority interest 9,313 5,591 Minority interest 943 783 ------------- ------------- Net income $ 8,370 $ 4,808 ============= ============= Net income per common share - primary $ 0.28 $ 0.23 ============= ============= Dividends declared per common share $ 0.41 $ 0.40 ============= ============= Weighted average number of common shares outstanding 29,994 21,166 ============= =============
See accompanying notes. 5 CONSOLIDATED STATEMENT OF OPERATIONS OF LIBERTY PROPERTY TRUST (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE NINE MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ------------- ------------- REVENUE Rental $ 82,019 $ 64,960 Operating expense reimbursement 26,463 17,178 Management fees 1,190 605 Interest and other 3,080 1,717 ------------- ------------- Total revenue 112,752 84,460 ------------- ------------- OPERATING EXPENSES Rental property expenses 22,158 14,400 Real estate taxes 8,176 6,846 General and administrative 5,681 3,648 Depreciation and amortization 20,435 16,329 ------------- ------------- Total operating expenses 56,450 41,223 ------------- ------------- Operating income 56,302 43,237 Premium on debenture conversion 1,027 - Interest expense 28,274 27,453 ------------- ------------- Income before minority interest 27,001 15,784 Minority interest 2,833 2,132 ------------- ------------- Net income $ 24,168 $ 13,652 ============= ============= Net income per common share - primary $ 0.83 $ 0.65 ============= ============= Dividends declared per common share $ 1.21 $ 1.20 ============= ============= Weighted average number of common shares outstanding 29,176 21,151 ============= =============
See accompanying notes. 6 CONSOLIDATED STATEMENT OF CASH FLOWS OF LIBERTY PROPERTY TRUST (UNAUDITED AND IN THOUSANDS)
NINE NINE MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ------------- ------------- OPERATING ACTIVITIES Net income $ 24,168 $ 13,652 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 20,435 16,329 Minority interest in net income 2,833 2,132 Gain on sale (577) - Noncash compensation 477 - Changes in operating assets and liabilities: Accounts receivable (509) (15) Prepaid expense and other assets (11,469) (4,710) Accounts payable 995 400 Accrued interest on existing debt (5,432) (1,395) Other liabilities 6,947 2,246 ------------- ------------- Net cash provided by operating activities 37,868 28,639 ------------- ------------- INVESTING ACTIVITIES Investment in properties (138,190) (194,416) Increase in deferred leasing costs (4,100) (2,042) ------------- ------------- Net cash used by investing activities (142,290) (196,458) ------------- ------------- FINANCING ACTIVITIES Proceeds from mortgage loans 39,650 57,700 Repayments of mortgage loans (8,544) (7,511) Proceeds from line of credit 143,374 166,110 Repayments on line of credit (38,650) (35,000) Deposits on pending acquisitions 2,252 16,172 Decrease (increase) in deferred financing costs 2,259 (4,993) Dividends (38,575) (28,918) ------------- ------------- Net cash provided by financing activities 101,766 163,560 Decrease in cash and cash equivalents (2,656) (4,259) Cash and cash equivalents at beginning of period 10,629 25,169 ------------- ------------- Cash and cash equivalents at end of period $ 7,973 $ 20,910 ============= ============= SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS Write-off of fully depreciated property and deferred costs $ 638 $ 2,162 Acquisition of properties - (55,300) Assumption of mortgage loans - 41,117 Issuance of operating partnership units - 14,183 Noncash compensation 353 - Conversion of debentures 46,275 100 ============= =============
See accompanying notes. 7 LIBERTY PROPERTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1996 NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited consolidated financial statements of Liberty Property Trust (the "Trust") and its subsidiaries, including Liberty Property Limited Partnership (the "Operating Partnership") (the Trust, Operating Partnership and their respective subsidiaries referred to collectively as the "Company"), have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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, 1995. 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 restated to conform to current period presentation. NOTE 2 - ORGANIZATION - --------------------- The Trust, a self-administered and self-managed real estate investment trust (a "REIT"), was formed in the State of Maryland on March 28, 1994 and commenced operations on June 23, 1994 upon completion of its initial public offering (the "Share Offering"). The Trust conducts all of its operations through the Operating Partnership. At September 30, 1996, the Trust owned an 89.84% interest in the Operating Partnership as its sole general partner and a .03% interest as a limited partner. Concurrent with the Share Offering, the Operating Partnership completed a public offering of $230 million of Exchangeable Subordinated Debentures (the "Debentures") due 2001. The Debentures are guaranteed by the Trust. After June 23, 1995, the Debentures are exchangeable, at the option of the holder thereof, at any time prior to maturity, into Common Shares at a rate of one share for each $20 outstanding principal amount of Debentures, subject to certain adjustments. The Company completed a secondary offering (the "Secondary Offering") on November 27, 1995 of 7,200,000 Common Shares. 8 CONSOLIDATED BALANCE SHEET OF LIBERTY PROPERTY LIMITED PARTNERSHIP (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ (UNAUDITED) ASSETS Real estate: Land and land improvements $ 123,099 $ 108,723 Buildings and improvements 808,008 715,908 Less accumulated depreciation (112,175) (94,183) ------------- ------------ Operating real estate 818,932 730,448 Development in progress 90,480 67,021 Land held for development 37,377 28,578 ------------- ------------ Net real estate 946,789 826,047 Cash and cash equivalents 7,973 10,629 Accounts receivable 6,117 5,608 Deferred financing and leasing costs, net of accumulated amortization (1996, $29,220; 1995, $24,007) 23,745 26,363 Prepaid expenses and other assets 38,515 29,455 ------------- ------------ Total assets $ 1,023,139 $ 898,102 ============= ============ LIABILITIES Mortgage loans $ 203,221 $ 172,115 Subordinated debentures 183,625 229,900 Line of credit 176,618 71,894 Accounts payable 5,572 4,577 Accrued interest 4,007 9,439 Distributions payable 13,993 12,668 Other liabilities 27,429 20,835 ------------- ------------ Total liabilities 614,465 521,428 OWNERS' EQUITY General partner's equity 367,275 335,521 Limited partners' equity 41,399 41,153 ------------- ------------ Total owners' equity 408,674 376,674 ------------- ------------ Total liabilities and owners' equity $ 1,023,139 $ 898,102 ============= ============
See accompanying notes. 9 CONSOLIDATED STATEMENT OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP (UNAUDITED AND IN THOUSANDS)
THREE THREE MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ------------- ------------- REVENUE Rental $ 28,921 $ 23,206 Operating expense reimbursement 9,336 6,016 Management fees 324 226 Interest and other 958 543 ------------- ------------- Total revenue 39,539 29,991 ------------- ------------- OPERATING EXPENSES Rental property expenses 7,523 4,776 Real estate taxes 3,004 2,348 General and administrative 2,094 1,375 Depreciation and amortization 7,261 5,855 ------------- ------------- Total operating expenses 19,882 14,354 ------------- ------------- Operating income 19,657 15,637 Premium on debenture conversion 637 - Interest expense 9,707 10,046 ------------- ------------- Net income $ 9,313 $ 5,591 ============= ============= Net income allocated to general partner $ 8,370 $ 4,808 Net income allocated to limited partners 943 783 ============= =============
See accompanying notes 10 CONSOLIDATED STATEMENT OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP (UNAUDITED AND IN THOUSANDS)
NINE NINE MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ------------- ------------- REVENUE Rental $ 82,019 $ 64,960 Operating expense reimbursement 26,463 17,178 Management fees 1,190 605 Interest and other 3,080 1,717 ------------- ------------- Total revenue 112,752 84,460 ------------- ------------- OPERATING EXPENSES Rental property expenses 22,158 14,400 Real estate taxes 8,176 6,846 General and administrative 5,681 3,648 Depreciation and amortization 20,435 16,329 ------------- ------------- Total operating expenses 56,450 41,223 ------------- ------------- Operating income 56,302 43,237 Premium on debenture conversion 1,027 - Interest expense 28,274 27,453 ------------- ------------- Net income $ 27,001 $ 15,784 ============= ============= Net income allocated to general partner $ 24,168 $ 13,652 Net income allocated to limited partners 2,833 2,132 ============= =============
See accompanying notes. 11 CONSOLIDATED STATEMENT OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP (UNAUDITED AND IN THOUSANDS)
NINE NINE MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ------------- ------------- OPERATING ACTIVITIES Net income $ 27,001 $ 15,784 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 20,435 16,329 Gain on sale (577) - Noncash compensation 477 - Changes in operating assets and liabilities: Accounts receivable (509) (15) Prepaid expense and other assets (11,469) (4,710) Accounts payable 995 400 Accrued interest on existing debt (5,432) (1,395) Other liabilities 6,947 2,246 ------------- ------------- Net cash provided by operating activities 37,868 28,639 ------------- ------------- INVESTING ACTIVITIES Investment in properties (138,190) (194,416) Increase in deferred leasing costs (4,100) (2,042) ------------- ------------- Net cash used by investing activities (142,290) (196,458) ------------- ------------- FINANCING ACTIVITIES Proceeds from mortgage loans 39,650 57,700 Repayments of mortgage loans (8,544) (7,511) Proceeds of line of credit 143,374 166,110 Repayments on line of credit (38,650) (35,000) Deposits on pending acquisitions 2,252 16,172 Decrease (increase) in deferred financing costs 2,259 (4,993) Distributions to partners (38,575) (28,918) ------------- ------------- Net cash provided by financing activities 101,766 163,560 Decrease in cash and cash equivalents (2,656) (4,259) Cash and cash equivalents at beginning of period 10,629 25,169 ------------- ------------- Cash and cash equivalents at end of period $ 7,973 $ 20,910 ============= ============= SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS Write-off of fully depreciated property and deferred costs $ 638 $ 2,162 Acquisition of properties - (55,300) Assumption of mortgage loans - 41,117 Issuance of operating partnership units - 14,183 Noncash compensation 353 - Conversion of subordinated debentures 46,275 100 ============= =============
See accompanying notes. 12 LIBERTY PROPERTY LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1996 NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited consolidated financial statements of Liberty Property Limited Partnership (the "Operating Partnership") and its direct and indirect subsidiaries, including Liberty Property Development Corporation, have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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, 1995. 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 restated to conform to current period presentation. NOTE 2 - ORGANIZATION - --------------------- Liberty Property Trust (the "Trust", and together with the Operating Partnership referred to as the "Company"), a self-administered and self- managed real estate investment trust (a "REIT"), was formed in the State of Maryland on March 28, 1994 and commenced operations on June 23, 1994 upon completion of its initial public offering (the "Share Offering"). The Trust conducts all of its operations through the Operating Partnership. At September 30, 1996, the Trust owned an 89.84% interest in the Operating Partnership as its sole general partner and a .03% interest as a limited partner. Concurrent with the Share Offering, the Operating Partnership completed a public offering of $230 million of Exchangeable Subordinated Debentures (the "Debentures") due 2001. The Debentures are guaranteed by the Trust. After June 23, 1995, the Debentures are exchangeable, at the option of the holder thereof, at any time prior to maturity, into Common Shares at a rate of one share for each $20 outstanding principal amount of Debentures, subject to certain adjustments. The Company completed a secondary offering (the "Secondary Offering") on November 27, 1995 of 7,200,000 Common Shares. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS - --------------------- The following discussion compares the activities of the Company for the three month and nine month periods ended September 30, 1996 with the activities of the Company for the three month and nine month periods ended September 30, 1995 (unaudited). As used herein, the term "Company" includes the Trust, the Operating Partnership and their subsidiaries. This information should be read in conjunction with the accompanying consolidated financial statements and notes included elsewhere in this report. RESULTS OF OPERATIONS - --------------------- FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 COMPARED - ---------------------------------------------------------------------------- TO THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995. - ------------------------------------------------------------------- Rental revenues increased from $23.2 million to $28.9 million, or by 25% for the three month periods ended September 30, 1995 to 1996 and increased from $65.0 million to $82.0 million, or by 26% for the nine month periods ended September 30, 1995 to 1996. These increases are primarily due to the increase in the number of properties in operation during the respective periods. As of September 30, 1995, the Company had 200 properties in operation and as of September 30, 1996, the Company had 242 properties in operation. From January 1, 1995 through September 30, 1995, the Company acquired or completed the development on 51 properties, for approximately $191.6 million. From January 1, 1996 through September 30, 1996, the Company acquired or completed the development on 34 properties for approximately $116.8 million. Operating expense reimbursement increased from $6.0 million to $9.3 million for the three month periods ended September 30, 1995 to 1996, and from $17.2 million to $26.5 million for the nine month periods ended September 30, 1995 to 1996. These increases are a result of the reimbursement from tenants for increases in rental property expenses and real estate taxes. The operating expense recovery percentage (the ratio of operating expense reimbursement to rental property expenses and real estate taxes) increased from 84.5% for the three months ended September 30, 1995 to 88.7% for the comparable period in 1996, and from 80.9% for the nine months ended September 30, 1996 to 87.2% for the comparable period in 1996. Rental property expense increased from $4.8 million to $7.5 million for the three month periods ended September 30, 1995 to 1996 and from $14.4 million to $22.2 million for the nine month periods ended September 30, 1995 to 1996. These increases are due to the increase in properties owned during the respective periods and, additionally for the nine month periods, because of significant snow removal and other seasonal operating costs incurred as a result of the severe 1996 winter. Real estate taxes increased from $2.3 million to $3.0 million for the three month periods ended September 30, 1995 to 1996 and from $6.8 million to $8.2 million for the nine month periods ended September 30, 1995 to 1996, due to the increase in the number of properties owned. 14 Net operating income for the "Same Store" properties (properties owned since January 1, 1995) increased from $50.6 million to $53.1 million, or by 5% for the nine month periods ended September 30, 1995 to 1996 (see table on page 16). These increases are due principally to increases in the occupancy of the properties and to a lesser extent, the rental rates for the properties. General and administrative expenses increased by $719,000 from the three months ended September 30, 1995 to the comparable period in 1996, and by $2.0 million from the nine months ended September 30, 1995 to the comparable period in 1996, due to the increase in personnel and other related overhead costs necessitated by the increase in the number of properties owned during the respective periods. Included in general and administrative expenses for the three months ended September 30, 1996 is a $228,000 noncash charge ($477,000 for the nine months ended September 30, 1996) resulting from the amortization of a stock award over its vesting period. There is no corresponding charge for the three and nine month periods ended September 30, 1995. Interest expense decreased from $10.0 million for the three months ended September 30, 1995 to $9.7 million for the three months ended September 30, 1996 and increased from $27.5 million for the nine months ended September 30, 1995 to $28.3 million for the nine months ended September 30, 1996. The decrease in interest expense between the three month periods is due to an increase in the average outstanding Development in Progress balance, on which interest is capitalized, which was partially offset by the increase in the average debt outstanding from the third quarter of 1995 to the third quarter of 1996, which equalled $517.7 million and $549.3 million, respectively. The increase in interest expense from the nine months ended September 30, 1995 to the nine months ended September 30, 1996 is due to an increase in the average debt outstanding for the periods, which equalled $432.0 million and $518.7 million, respectively. This increase is partly offset by the lower interest rate on the outstanding debt, primarily as a result of the 1% reduction in the interest rate on the Line of Credit borrowings which became effective May 1, 1995, and is also partly offset by the increase in the average outstanding Development in Progress balance. Depreciation and amortization expense increased by $1.4 million for the three month periods from $5.9 million for the three months ended September 30, 1995 to $7.3 million for the three months ended September 30, 1996, and by $4.1 million for the nine month periods, from $16.3 million for the nine months ended September 30, 1995 to $20.4 million for the nine months ended September 30, 1996. These increases are due to an increase in the number of properties owned during the respective periods. As a result of the foregoing, the Company's operating income increased from $15.6 million for the three months ended September 30, 1995 to $19.7 million for the three months ended September 30, 1996 and from $43.2 million for the nine months ended September 30, 1995 to $56.3 million for the nine months ended September 30, 1996. In addition, income before minority interest for the three month periods increased by 66%, from $5.6 million for the three months ended September 30, 1995 to $9.3 million for the three months ended September 30, 1996, and increased by 71% for the nine month periods, from $15.8 million for the nine months ended September 30, 1995 to $27.0 million for the nine months ended September 30, 1996. 15 Set forth below is a schedule comparing the operating results for the Same Store properties for the nine month periods ended September 30, 1996 and 1995.
NINE MONTHS ENDED (IN THOUSANDS) ----------------------------- SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ------------- ------------- Rental revenue $ 56,501 $ 54,363 Operating expense reimbursement 18,726 15,576 ------------- ------------- Rental property expenses 16,245 13,291 Real estate taxes 5,860 6,079 ------------- ------------- Property level operating income $ 53,122 $ 50,569 ============= =============
LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- As of September 30, 1996, the Company had cash and cash equivalents of $8.0 million. Working capital at September 30, 1996 was $4.5 million. Net cash provided by operating activities increased from $28.6 million for the nine months ended September 30, 1995, to $37.9 million for the nine months ended September 30, 1996. This $9.3 million increase was primarily due to the cash provided by the additional operating properties in service during the latter period. Net cash used in investing activities decreased from $196.5 million for the nine months ended September 30, 1995, to $142.3 million for the nine months ended September 30, 1996. This decrease was a result of the $125 million investment made in March 1995 in connection with the acquisition of the Lingerfelt portfolio (there was no similar portfolio acquisition made in 1996), offset by increased development activity in 1996. Net cash provided by financing activities decreased from $163.6 million for the nine months ended September 30, 1995, to $101.8 million for the nine months ended September 30, 1996. This decrease was attributable to the aforementioned portfolio acquisition that was completed in March 1995. The Company believes that its estimated cash flow from operations are adequate to fund its short-term liquidity requirements. The Company has funded its long-term liquidity requirements such as property acquisition and development activities primarily through its $250 million Line of Credit, which matures on June 15, 1998, subject to the Company's option to extend the maturity of the loan as described below. As of September 30, 1996, $176.6 million was outstanding under the Line of Credit. The Line of Credit is recourse to the Company only with respect to 50% of the outstanding principal amount thereof. Funds borrowed under the Line of Credit bear interest at an annual rate of 175 basis points over LIBOR. Subject to certain conditions and the payment of a fee equal to 0.5% of the then outstanding loan balance, the Company may exercise a one-time option to convert the loan balance into a two-year term loan upon the maturity of the Line of Credit. Following such conversion, the interest rate on the term loan would be LIBOR plus 4%. 16 Additional sources of funds are available to the Company through mortgage loan financing. As of September 30, 1996, $203.2 million in mortgage loans were outstanding with maturities ranging from 1996 to 2013. The interest rates on $192.8 million of mortgage loans are fixed and range from 6% to 10%. Interest rates on $10.4 million of mortgage loans float with LIBOR or prime and are subject to certain caps. The Company expects to incur variable rate debt, including borrowings under the Line of Credit, from time to time. The Company believes that its existing sources of capital will provide sufficient funds to complete construction of the properties under development. The Company believes that the amount necessary to complete such construction is approximately $74.0 million at September 30, 1996. In July 1995, the Company filed a shelf registration with the Securities and Exchange Commission that enabled the Company to offer up to an aggregate of $350,000,000 of securities, including common stock, preferred stock and debt. On November 27, 1995, the Company completed a follow-on public offering of 7,200,000 common shares resulting in proceeds of $140.4 million. The proceeds were primarily used to reduce the amount outstanding under the Line of Credit. The remaining $209.6 million shelf registration is available for future offerings. On February 8, 1996, Moody's Investors Service assigned a prospective rating of Ba2 for senior unsecured debt issued by Liberty Property Limited Partnership under the shelf registration. In June, 1996, the Company closed a $39.7 million mortgage loan with a 12-year term bearing interest at 7.125% annually. The proceeds from this loan were used to paydown a portion of the outstanding principal amount under the Line of Credit. On October 15, 1996, the Company filed a Registration Statement to initiate a Dividend and Interest Reinvestment Plan. The Plan offers a 3% discount for the then market prices of the Shares on reinvested dividends. Optional cash payments of no less than $250 and no greater than $7,500 per month may be made with no discount to current market prices. The Plan contains an open enrollment feature whereby a person can invest a minimum of $1,000 and a maximum of $7,500 at current market prices. The Company will pay for brokerage commissions and other administrative charges incurred under the Plan. At the Company's discretion, shares under the plan can be newly issued, thereby enhancing the Company's liquidity position, or acquired in the open market. Management considers funds from operations an appropriate measure of the performance of an equity REIT. In March 1995 NAREIT issued a clarification of the definition of funds from operations. The clarification provides that amortization of deferred financing costs and depreciation of non-real estate assets are no longer to be added back to net income in arriving at funds from operations. Funds from operations under the new definition for the three month and nine month periods ended September 30, 1996 and 1995 are as follows: 17
THREE MONTHS ENDED NINE MONTHS ENDED (IN THOUSANDS) (IN THOUSANDS) -------------------- -------------------- SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, 1996 1995 1996 1995 --------- --------- --------- --------- Net Income $ 8,370 $ 4,808 $ 24,168 $ 13,652 Add Back: Minority Interest 943 783 2,833 2,132 Depreciation and amortization 7,170 5,794 20,197 16,175 Premium on debenture conversion 637 - 1,027 - Gain on sale (200) - (577) - -------- -------- -------- -------- Funds from operations $ 16,920 $ 11,385 $ 47,648 $ 31,959 ======== ======== ======== ========
INFLATION - --------- Because inflation has remained relatively low during the last three years, it has not had a significant impact on the Company during this period. Since the Line of Credit bears interest at a variable rate, the amount of interest payable under the Line of Credit will be influenced by changes in short-term interest rates, which tend to be sensitive to inflation. To the extent an increase in inflation would result in increased operating costs, such as in insurance, real estate taxes and utilities, substantially all of the tenant 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. 18 PART II OTHER INFORMATION - ----------------------------------- Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a. Exhibits 27 Financial Data Schedule (EDGAR VERSION ONLY) b. Reports on Form 8-K None 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LIBERTY PROPERTY TRUST /s/ Joseph P. Denny November 12, 1996 - ---------------------------------- ------------------------------- Joseph P. Denny Date President /s/ George J. Alburger, Jr. November 12, 1996 - ---------------------------------- ------------------------------- George J. Alburger, Jr. Date Chief Financial Officer LIBERTY PROPERTY LIMITED PARTNERSHIP BY: LIBERTY PROPERTY TRUST, GENERAL PARTNER /s/ Joseph P. Denny November 12, 1996 - ---------------------------------- -------------------------------- Joseph P. Denny Date President /s/ George J. Alburger, Jr. November 12, 1996 - ---------------------------------- -------------------------------- George J. Alburger, Jr. Date Chief Financial Officer 20 EX-27 2
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at September 30, 1996 (unaudited) and the Consolidated Statement of Operations for the Nine Months Ended September 30, 1996 (unaudited) and is qualified in its entirety by reference to such financial statements. 0000921112 LIBERTY PROPERTY TRUST 1,000 9-MOS DEC-31-1996 JAN-31-1996 SEP-30-1996 7,973 0 6,117 1,840 0 14,090 1,063,391 114,646 1,023,139 9,579 563,464 0 0 31 367,244 1,023,139 0 112,752 0 30,334 27,143 0 28,274 27,001 0 27,001 0 0 0 27,001 .83 .95
-----END PRIVACY-ENHANCED MESSAGE-----