LIBERTY PROPERTY LIMITED PARTNERSHIP - 10-Q Quarterly Report

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 June 30, 2003


[ ]		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		(I.R.S.Employer
of incorporation or organization)		Identification Number)


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

(Address of Principal Executive Offices)		(Zip Code)

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

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

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

Yes ü NO

On August 6, 2003, 79,254,820 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 June 30, 2003


Index		Page

Part I.	Financial Information
Item 1.	Financial Statements (unaudited)
	Consolidated balance sheets of Liberty Property Trust at June 30, 2003 and December 31, 2002		3
	Consolidated statements of operations of Liberty Property Trust for the three months ended June 30, 2003 and June 30, 2002		4
	Consolidated statements of operations of Liberty Property Trust for the six months ended June 30, 2003 and June 30, 2002		5
	Consolidated statements of cash flows of Liberty Property Trust for the six months ended June 30, 2003 and June 30, 2002		6
	Notes to Consolidated Financial Statements for Liberty Property Trust		7
	Consolidated balance sheets of Liberty Property Limited Partnership at June 30, 2003 and December 31, 2002		11
	Consolidated statements of operations of Liberty Property Limited Partnership for the three months ended June 30, 2003 and June 30, 2002		12
	Consolidated statements of operations of Liberty Property Limited Partnership for the six months ended June 30, 2003 and June 30, 2002		13
	Consolidated statements of cash flows of Liberty Property Limited Partnership for the six months ended June 30, 2003 and June 30, 2002		14
	Notes to Consolidated Financial Statements for Liberty Property Limited Partnership		15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures about Market Risks		26
Item 4.	Controls and Procedures		26
Part II.	Other Information		27
Signatures for Liberty Property Trust			29
Signatures for Liberty Property Limited Partnership			30
Exhibit Index			31

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


		June 30, 2003			December 31, 2002

		(Unaudited)
ASSETS
Real estate:
	Land and land improvements	$	525,050		$	504,808
	Buildings and improvements		3,181,224			3,048,676
	Less accumulated depreciation		(533,806	)		(485,206	)

Operating real estate			3,172,468			3,068,278
Development in progress			46,136			163,379
Land held for development			164,303			163,142

Net real estate			3,382,907			3,394,799
Cash and cash equivalents			26,268			11,071
Accounts receivable			11,327			14,349
Deferred financing and leasing costs, net of accumulated amortization (2003, $80,419; 2002, $75,833)			80,813			71,544
Investment in unconsolidated joint ventures			16,793			14,963
Prepaid expenses and other assets			119,022			120,335

Total assets		$	3,637,130		$	3,627,061

LIABILITIES
Mortgage loans		$	310,670		$	315,263
Unsecured notes			1,405,000			1,418,924
Credit facility			121,000			132,000
Accounts payable			22,776			24,116
Accrued interest			32,548			32,571
Dividend payable			49,308			48,040
Other liabilities			88,852			96,119

Total liabilities			2,030,154			2,067,033

Minority interest			204,247			208,439

SHAREHOLDERS’ EQUITY
Common shares of beneficial interest, $.001 par value, 191,200,000 shares authorized, 78,702,032 (includes 59,100 in treasury) and 76,484,612 (includes 59,100 in treasury) shares issued and outstanding as of June 30, 2003 and December 31, 2002, respectively			79			76
Additional paid-in capital			1,471,073			1,410,900
Unearned compensation			(4,007	)		(1,750	)
Distributions in excess of net income			(63,089	)		(56,310	)
Common shares in treasury, at cost, 59,100 shares as of June 30, 2003 and December 31, 2002			(1,327	)		(1,327	)

Total shareholders’ equity			1,402,729			1,351,589

Total liabilities and shareholders’ equity		$	3,637,130		$	3,627,061

See accompanying notes.

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


		Three Months Ended

		June 30, 2003			June 30, 2002

REVENUE
Rental		$	109,411		$	106,402
Operating expense reimbursement			40,647			39,095
Equity in earnings of unconsolidated joint ventures			473			—
Interest and other			2,260			2,025

Total revenue			152,791			147,522

EXPENSES
Rental property			28,135			27,460
Real estate taxes			15,488			14,546
Interest			31,089			28,287
General and administrative			8,840			5,634
Depreciation and amortization			31,188			27,428

Total expenses			114,740			103,355

Income before property dispositions and minority interest			38,051			44,167
Gain on property dispositions			—			1,760
Minority interest			(4,673	)		(5,902	)

Income from continuing operations			33,378			40,025
Discontinued operations net of minority interest (including net gain on property dispositions of $11,093 for the quarter ended June 30, 2003 and $4,280 for the quarter ended June 30, 2002)			11,651			4,479

Net income			45,029			44,504
Preferred share distributions			—			2,750

Income available to common shareholders		$	45,029		$	41,754

Earnings per share
	Basic:
	Income from continuing operations	$	0.43		$	0.50
	Income from discontinued operations		0.15			0.06

	Income per common share – basic	$	0.58		$	0.56

	Diluted:
	Income from continuing operations	$	0.42		$	0.49
	Income from discontinued operations		0.15			0.06

	Income per common share – diluted	$	0.57		$	0.55

Distributions per common share		$	0.60		$	0.59

Weighted average number of common shares outstanding
	Basic		78,030			74,622
	Diluted		79,282			76,187

See accompanying notes.

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


		Six Months Ended

		June 30, 2003			June 30, 2002

REVENUE
Rental		$	222,068		$	211,826
Operating expense reimbursement			84,502			79,097
Equity in earnings of unconsolidated joint ventures			915			—
Interest and other			4,152			3,598

Total revenue			311,637			294,521

EXPENSES
Rental property			60,444			54,913
Real estate taxes			30,224			28,805
Interest			61,506			56,086
General and administrative			15,268			11,604
Depreciation and amortization			59,942			53,602

Total expenses			227,384			205,010

Income before property dispositions and minority interest			84,253			89,511
Gain on property dispositions			598			1,242
Minority interest			(10,268	)		(10,528	)

Income from continuing operations			74,583			80,225
Discontinued operations net of minority interest (including net gain on property dispositions of $11,256 for the six months ended June 30, 2003 and $5,669 for the six months ended June 30, 2002)			12,033			6,479

Net income			86,616			86,704
Preferred share distributions			—			(5,500	)

Income available to common shareholders		$	86,616		$	81,204

Earnings per share
	Basic:
	Income from continuing operations	$	0.96		$	1.00
	Income from discontinued operations		0.16			0.09

	Income per common share – basic	$	1.12		$	1.09

	Diluted:
	Income from continuing operations	$	0.95		$	0.98
	Income from discontinued operations		0.15			0.09

	Income per common share – diluted	$	1.10		$	1.07

Distributions per common share		$	1.20		$	1.18

Weighted average number of common shares outstanding
	Basic		77,425			74,263
	Diluted		78,576			75,664

See accompanying notes.

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


		Six Months Ended

		June 30, 2003			June 30, 2002

OPERATING ACTIVITIES
Net income		$	86,616		$	86,704
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		60,331			54,189
	Amortization of deferred financing costs		1,885			1,810
	Equity in earnings of unconsolidated joint ventures		(915	)		—
	Minority interest in net income		10,836			10,865
	Gain on property dispositions		(11,854	)		(6,911	)
	Noncash compensation		2,195			1,464
Changes in operating assets and liabilities:
	Accounts receivable		3,022			6,684
	Prepaid expenses and other assets		572			(15,248	)
	Accounts payable		(1,340	)		1,428
	Accrued interest		(23	)		(2,135	)
	Other liabilities		(7,267	)		6,831

Net cash provided by operating activities			144,058			145,681

INVESTING ACTIVITIES
Investment in properties			(36,651	)		(27,805	)
Investment in unconsolidated joint ventures			(1,932	)		—
Distributions from unconsolidated joint ventures			2,168			—
Proceeds from disposition of properties/land			41,100			56,470
Investment in development in progress			(24,603	)		(88,904	)
Investment in land held for development			(6,693	)		(18,161	)
Increase in deferred leasing costs			(10,609	)		(7,791	)

Net cash used in investing activities			(37,220	)		(86,191	)

FINANCING ACTIVITIES
Net proceeds from issuance of common shares			55,247			31,884
Proceeds from issuance of preferred units			—			22,979
Proceeds from issuance of unsecured notes			3,683			—
Repayments of unsecured notes			(23,739	)		(100,000	)
Proceeds from mortgage loans			1,212			5,733
Repayments of mortgage loans			(6,675	)		(3,830	)
Proceeds from credit facility			237,050			185,100
Repayments on credit facility			(248,050	)		(87,100	)
(Increase) decrease in deferred financing costs			(2,540	)		2
Distributions paid on common shares			(92,095	)		(87,248	)
Distributions paid on preferred shares			—			(5,500	)
Distributions paid on units			(15,734	)		(10,158	)

Net cash used in financing activities			(91,641	)		(48,138	)

Increase in cash and cash equivalents			15,197			11,352
Cash and cash equivalents at beginning of year			11,071			19,390

Cash and cash equivalents at end of year		$	26,268		$	30,742

SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and deferred costs		$	8,851		$	2,701
Acquisition of properties			(870	)		—
Assumption of mortgage loans			870			—
Issuance of operating partnership units for property acquisition			1,151			—

See accompanying notes.

Liberty Property Trust

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2003

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements of Liberty Property Trust (the “Trust”) and its subsidiaries, including Liberty Property Limited Partnership (the “Operating Partnership”) (the Trust, Operating Partnership and their respective subsidiaries referred to collectively as the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Trust and the Operating Partnership for the year ended December 31, 2002. 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 Share

The following table sets forth the computation of basic and diluted income per common share for the three and six months ended June 30, 2003 and 2002 (in thousands except per share amounts):


	For the Three Months Ended June 30, 2003						For the Three Months Ended June 30, 2002

			Weighted							Weighted
			Average							Average
	Income		Shares		Per Share		Income			Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)			(Denominator)		Amount

Net income	$	45,029					$	44,504
Less: Preferred share distributions		—						(2,750	)

Basic income per common share
Income available to common shareholders		45,029		78,030	$	0.58		41,754			74,622	$	0.56

Dilutive shares for long-term compensation plans		—		1,252				—			1,565

Diluted income per common share
Income available to common shareholders and assumed conversions	$	45,029		79,282	$	0.57	$	41,754			76,187	$	0.55


	For the Six Months Ended June 30, 2003						For the Six Months Ended June 30, 2002

			Weighted							Weighted
			Average							Average
	Income		Shares		Per Share		Income			Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)			(Denominator)		Amount

Net income	$	86,616					$	86,704
Less: Preferred share distributions		—						(5,500	)

Basic income per common share
Income available to common shareholders		86,616		77,425	$	1.12		81,204			74,263	$	1.09

Dilutive shares for long-term compensation plans		—		1,151				—			1,401

Diluted income per common share
Income available to common shareholders and assumed conversions	$	86,616		78,576	$	1.10	$	81,204			75,664	$	1.07

Stock Based Compensation

At June 30, 2003, the Company had a share-based employee compensation plan. Prior to 2003, the Company accounted for the plan under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No share-based employee compensation cost is reflected in 2002 net income, as all options granted under this plan had an exercise price equal to the market value of the underlying common share on the date of grant. Effective January 1, 2003, the Company adopted the fair value recognition provisions of the Financial Accounting Standards Board’s (“the FASB”) Statement of Financial Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, prospectively to all employee awards granted, modified, or settled after January 1, 2003. Option awards under the Company’s plan vest over three years. Therefore, the cost related to share-based employee compensation included in the determination of net income for 2002 and 2003 is less than that which would have been recognized if the fair value based method had been applied to all 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 awards in each period.


		Three Months Ended						Six Months Ended

		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

Income available to common shareholders		$	45,029		$	41,754		$	86,616		$	81,204
Add: Share-based employee compensation expense included in reported net income			340			—			349			—
Deduct: Total share-based employee compensation expense determined under fair value based method for all awards			(340	)		(556	)		(840	)		(1,018	)

Pro forma net income		$	45,029		$	41,198		$	86,125		$	80,186

Earnings per share:
	Basic - - as reported	$	0.58		$	0.56		$	1.12		$	1.09
	Basic - - pro forma	$	0.58		$	0.55		$	1.11		$	1.08
	Diluted - - as reported	$	0.57		$	0.55		$	1.10		$	1.07
	Diluted - - pro forma	$	0.57		$	0.54		$	1.10		$	1.06

Note 2: Organization

The Trust is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by the Operating Partnership. The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 95.5% of the common equity of the Operating Partnership at June 30, 2003. The Company provides leasing, property management, development, acquisition, and other tenant-related services for a portfolio of industrial and office properties which are located principally within the Southeastern, Mid-Atlantic and Midwestern United States.

Note 3: Segment Information

The Company reviews the performance of the portfolio on a geographical basis. The following regions are considered the Company’s reportable segments: Southeastern Pennsylvania; New Jersey; Lehigh Valley, Pennsylvania; Virginia; the Carolinas; Jacksonville, Florida; Minneapolis, Minnesota; Detroit, Michigan; and all others combined (including Maryland; Tampa, Florida; South Florida; and the United Kingdom). The Company’s reportable segments are distinct business units which are each managed separately in order to concentrate market knowledge within a geographical 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 June 30, 2003


	SE Pennsyl.		New Jersey		Lehigh Valley		Virginia		The Carolinas		Jacksonville		Minnesota		Michigan		All Others		Total

Real estate related revenues	$	43,842	$	8,419	$	17,014	$	12,927	$	8,976	$	12,263	$	13,019	$	16,094	$	17,504	$	150,058
Rental property expenses and real estate taxes		12,385		2,552		4,181		3,482		2,623		3,143		4,856		5,564		4,837		43,623

Property level operating income	$	31,457	$	5,867	$	12,833	$	9,445	$	6,353	$	9,120	$	8,163	$	10,530	$	12,667		106,435

Other income/expenses, net																				68,384

Income before property dispositions and minority interest																				38,051
Gain on disposition of properties																				—
Minority interest																				(4,673	)
Discontinued operations net of minority interest																				11,651

Income available to common shareholders																			$	45,029

For the Three Months Ended June 30, 2002


	SE Pennsyl.		New Jersey		Lehigh Valley		Virginia		The Carolinas		Jacksonville		Minnesota		Michigan		All Others		Total

Real estate related revenues	$	44,142	$	11,231	$	14,885	$	12,285	$	8,416	$	11,335	$	12,710	$	15,777	$	14,716	$	145,497
Rental property expenses and real estate taxes		12,115		3,482		3,297		3,012		2,452		2,955		4,891		5,291		4,511		42,006

Property level operating income	$	32,027	$	7,749	$	11,588	$	9,273	$	5,964	$	8,380	$	7,819	$	10,486	$	10,205		103,491

Other income/expenses, net																				59,324

Income before property dispositions and minority interest																				44,167
Gain on dispositions of properties																				1,760
Minority interest																				(5,902	)
Discontinued operations net of minority interest																				4,479
Preferred share distributions																				(2,750	)

Income available to common shareholders																			$	41,754

For the Six Months Ended June 30, 2003


	SE Pennsyl.		New Jersey		Lehigh Valley		Virginia		The Carolinas		Jacksonville		Minnesota		Michigan		All Others		Total

Real estate related revenues	$	97,111	$	17,141	$	32,108	$	25,568	$	17,752	$	24,354	$	25,555	$	32,115	$	34,866	$	306,570
Rental property expenses and real estate taxes		27,704		5,876		8,571		6,922		5,107		6,427		9,531		10,581		9,949		90,668

Property level operating income	$	69,407	$	11,265	$	23,537	$	18,646	$	12,645	$	17,927	$	16,024	$	21,534	$	24,917		215,902

Other income/expenses, net																				131,649

Income before property dispositions and minority interest																				84,253
Gain on disposition of properties																				598
Minority interest																				(10,268	)
Discontinued operations net of minority interest																				12,033

Income available to common shareholders																			$	86,616

For the Six Months Ended June 30, 2002


	SE Pennsyl.		New Jersey		Lehigh Valley		Virginia		The Carolinas		Jacksonville		Minnesota		Michigan		All Others		Total

Real estate related revenues	$	88,585	$	22,770	$	29,521	$	24,715	$	16,834	$	22,674	$	25,064	$	31,358	$	29,402	$	290,923
Rental property expenses and real estate taxes		24,791		7,172		6,535		6,164		4,925		5,562		9,421		10,387		8,761		83,718

Property level operating income	$	63,794	$	15,598	$	22,986	$	18,551	$	11,909	$	17,112	$	15,643	$	20,971	$	20,641		207,205

Other income/expenses, net																				117,694

Income before property dispositions and minority interest																				89,511
Gain on dispositions of properties																				1,242
Minority interest																				(10,528	)
Discontinued operations net of minority interest																				6,479
Preferred share distributions																				(5,500	)

Income available to common shareholders																			$	81,204

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

In accordance with SFAS No. 144, which the Company adopted on January 1, 2002, net income and gain/(loss) on the disposition of real estate for properties sold subsequent to December 31, 2001 are reflected in the consolidated

statements of operations as discontinued operations. The proceeds from the disposition of properties for the three and six months ended June 30, 2003 were $34.8 million and $38.5 million as compared to $11.0 million and $23.8 million for the same period in 2002. Below is a summary of the results of operations of the properties disposed of through the respective disposition dates (in thousands):


	Three Months Ended						Six Months Ended

	June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

Revenues	$	1,433		$	1,097		$	2,390		$	2,677
Operating expenses		(125	)		(242	)		(363	)		(513	)
Interest expense		(88	)		(172	)		(293	)		(430	)
Depreciation and amortization		(114	)		(255	)		(389	)		(587	)

Income from operations	$	1,106		$	428		$	1,345		$	1,147

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

Note 5: Credit Facility

During the six months ended June 30, 2003, the Company replaced its unsecured revolving credit facility with a new facility which matures in January 2006. Capacity under the facility was reduced from $450 million to $350 million. Based on the Company’s present ratings, borrowings under the facility bear interest at LIBOR plus 70 basis points, reduced from LIBOR plus 105 basis points for the facility prior to its renewal.

Note 6: Impact of Recently Issued Accounting Standards

In January 2003, the FASB issued Financial Interpretation No. 46 (“FIN No. 46”), “Consolidation of Variable Interest Entities.” The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003 and applies to existing variable interest entities in the first fiscal year or interim period beginning after June 15, 2003. FIN No. 46 requires that a variable interest entity be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. Beginning July 1, 2003, Rouse Kent Limited (“RKL”) will be consolidated into the Company’s financial statements as a result of the adoption of the provisions of FIN No. 46. RKL is a full service real estate development company which, together with its affiliates, owns six properties comprising 210,000 leasable square feet. The Company does not expect its financial position or results of operations to be materially affected by this consolidation.

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


			June 30, 2003			December 31, 2002

			(Unaudited)
ASSETS
Real estate:
	Land and land improvements		$	525,050		$	504,808
	Buildings and improvements			3,181,224			3,048,676
	Less accumulated depreciation			(533,806	)		(485,206	)

Operating real estate				3,172,468			3,068,278
Development in progress				46,136			163,379
Land held for development				164,303			163,142

Net real estate				3,382,907			3,394,799
Cash and cash equivalents				26,268			11,071
Accounts receivable				11,327			14,349
Deferred financing and leasing costs, net of accumulated amortization (2003, $80,419; 2002, $75,833)				80,813			71,544
Investment in unconsolidated joint ventures				16,793			14,963
Prepaid expenses and other assets				119,022			120,335

Total assets			$	3,637,130		$	3,627,061

LIABILITIES
Mortgage loans			$	310,670		$	315,263
Unsecured notes				1,405,000			1,418,924
Credit facility				121,000			132,000
Accounts payable				22,776			24,116
Accrued interest				32,548			32,571
Distribution payable				49,308			48,040
Other liabilities				88,852			96,119

Total liabilities				2,030,154			2,067,033
Minority interest				2,833			7,054
OWNERS’ EQUITY
General partner’s equity – common units				1,402,729			1,351,589
Limited partners’ equity – preferred units				135,471			135,471
		– common units		65,943			65,914

Total owners’ equity				1,604,143			1,552,974

Total liabilities and owners’ equity			$	3,637,130		$	3,627,061

See accompanying notes.

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


		Three Months Ended

		June 30, 2003			June 30, 2002

REVENUE
Rental		$	109,411		$	106,402
Operating expense reimbursement			40,647			39,095
Equity in earnings of unconsolidated joint ventures			473			—
Interest and other			2,260			2,025

Total revenue			152,791			147,522

EXPENSES
Rental property			28,135			27,460
Real estate taxes			15,488			14,546
Interest expense			31,089			28,287
General and administrative			8,840			5,634
Depreciation and amortization			31,188			27,428

Total expenses			114,740			103,355

Income before property dispositions and minority interest			38,051			44,167
Gain on property dispositions			—			1,760
Minority interest			—			(1,235	)

Income from continuing operations			38,051			44,692
Discontinued operations (including net gain on property dispositions of $11,093 for the quarter ended June 30, 2003 and $4,280 for the quarter ended June 30, 2002)			12,199			4,708

Net income			50,250			49,400
Preferred unit distributions			(3,104	)		(5,508	)

Income available to common unitholders		$	47,146		$	43,892

Earnings per unit
	Basic:
	Income from continuing operations	$	0.43		$	0.50
	Income from discontinued operations		0.15			0.06

	Income per common unit – basic	$	0.58		$	0.56

	Diluted:
	Income from continuing operations	$	0.42		$	0.49
	Income from discontinued operations		0.15			0.06

	Income per common unit – diluted	$	0.57		$	0.55

Distributions per common unit		$	0.60		$	0.59

Weighted average number of common units outstanding
	Basic		81,695			78,483
	Diluted		82,947			80,048

See accompanying notes.

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


		Six Months Ended

		June 30, 2003			June 30, 2002

REVENUE
Rental		$	222,068		$	211,826
Operating expense reimbursement			84,502			79,097
Equity in earnings of unconsolidated joint ventures			915			—
Interest and other			4,152			3,598

Total revenue			311,637			294,521

EXPENSES
Rental property			60,444			54,913
Real estate taxes			30,224			28,805
Interest expense			61,506			56,086
General and administrative			15,268			11,604
Depreciation and amortization			59,942			53,602

Total expenses			227,384			205,010

Income before property dispositions and minority interest			84,253			89,511
Gain on property dispositions			598			1,242
Minority interest			(518	)		(1,235	)

Income from continuing operations			84,333			89,518
Discontinued operations (including net gain on property dispositions of $11,256 for the quarter ended June 30, 2003 and $5,669 for the quarter ended June 30, 2002)			12,601			6,816

Net income			96,934			96,334
Preferred unit distributions			(6,208	)		(10,911	)

Income available to common unitholders		$	90,726		$	85,423

Earnings per unit
	Basic:
	Income from continuing operations	$	0.96		$	1.00
	Income from discontinued operations		0.16			0.09

	Income per common unit – basic	$	1.12		$	1.09

	Diluted:
	Income from continuing operations	$	0.95		$	0.98
	Income from discontinued operations		0.15			0.09

	Income per common unit – diluted	$	1.10		$	1.07

Distributions per common unit		$	1.20		$	1.18

Weighted average number of common units outstanding
	Basic		81,113			78,153
	Diluted		82,264			79,553

See accompanying notes.

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


		Six Months Ended

		June 30, 2003			June 30, 2002

OPERATING ACTIVITIES
Net income		$	96,934		$	96,334
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		60,331			54,189
	Amortization of deferred financing costs		1,885			1,810
	Equity in earnings of unconsolidated joint ventures		(915	)		—
	Minority interest in net income		518			1,235
	Gain on property dispositions		(11,854	)		(6,911	)
	Noncash compensation		2,195			1,464
Changes in operating assets and liabilities:
	Accounts receivable		3,022			6,684
	Prepaid expenses and other assets		572			(15,248	)
	Accounts payable		(1,340	)		1,428
	Accrued interest		(23	)		(2,135	)
	Other liabilities		(7,267	)		6,831

Net cash provided by operating activities			144,058			145,681

INVESTING ACTIVITIES
Investment in properties			(36,651	)		(27,805	)
Investment in unconsolidated joint ventures			(1,932	)		—
Distributions from unconsolidated joint ventures			2,168			—
Proceeds from disposition of properties/land			41,100			56,470
Investment in development in progress			(24,603	)		(88,904	)
Increase in land held for development			(6,693	)		(18,161	)
Increase in deferred leasing costs			(10,609	)		(7,791	)

Net cash used in investing activities			(37,220	)		(86,191	)

FINANCING ACTIVITIES
Proceeds from issuance of unsecured notes			3,683			—
Repayments of unsecured notes			(23,739	)		(100,000	)
Proceeds from mortgage loans			1,212			5,733
Repayments of mortgage loans			(6,675	)		(3,830	)
Proceeds from credit facility			237,050			185,100
Repayments on credit facility			(248,050	)		(87,100	)
(Increase) decrease in deferred financing costs			(2,540	)		2
Capital contributions			55,247			54,863
Distributions to partners			(107,829	)		(102,906	)

Net cash used in financing activities			(91,641	)		(48,138	)

Increase in cash and cash equivalents			15,197			11,352
Cash and cash equivalents at beginning of year			11,071			19,390

Cash and cash equivalents at end of year		$	26,268		$	30,742

SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and deferred costs		$	8,851		$	2,701
Acquisition of properties			(870	)		—
Assumption of mortgage loans			870			—
Issuance of operating partnership units for property acquisition			1,151			—

See accompanying notes.

Liberty Property Limited Partnership

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2003

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements of Liberty Property Limited Partnership (the “Operating Partnership”) and its direct and indirect subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Trust and the Operating Partnership for the year ended December 31, 2002. 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 Unit
The following table sets forth the computation of basic and diluted income per common unit for the three and six months ended June 30, 2003 and 2002 (in thousands except per unit amounts):


	For the Three Months Ended June 30, 2003							For the Three Months Ended June 30, 2002

				Weighted							Weighted
				Average							Average
	Income			Units		Per Unit		Income			Units		Per Unit
	(Numerator)			(Denominator)		Amount		(Numerator)			(Denominator)		Amount

Net income	$	50,250						$	49,400
Less: Preferred unit distributions		(3,104	)						(5,508	)

Basic income per common unit
Income available to common unitholders		47,146			81,695	$	0.58		43,892			78,483	$	0.56

Dilutive units for long-term compensation plans		—			1,252				—			1,565

Diluted income per common unit
Income available to common unitholders and assumed conversions	$	47,146			82,947	$	0.57	$	43,892			80,048	$	0.55


	For the Six Months Ended June 30, 2003							For the Six Months Ended June 30, 2002

				Weighted							Weighted
				Average							Average
	Income			Units		Per Unit		Income			Units		Per Unit
	(Numerator)			(Denominator)		Amount		(Numerator)			(Denominator)		Amount

Net income	$	96,934						$	96,334
Less: Preferred unit distributions		(6,208	)						(10,911	)

Basic income per common unit
Income available to common unitholders		90,726			81,113	$	1.12		85,423			78,153	$	1.09

Dilutive units for long-term compensation plans		—			1,151				—			1,400

Diluted income per common unit
Income available to common unitholders and assumed conversions	$	90,726			82,264	$	1.10	$	85,423			79,553	$	1.07

Note 2: Organization

Liberty Property Trust (the “Trust”), the general partner of Liberty Property Limited Partnership, is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by the Operating Partnership (the Trust, Operating Partnership and their respective subsidiaries, referred to collectively as, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 95.5% of the common equity of the Operating Partnership at June 30, 2003. The Company provides leasing, property management, development, acquisition, and other tenant-related services for a portfolio of industrial and office properties which are located principally within the Southeastern, Mid-Atlantic and Midwestern United States.

Note 3: Segment Information

For the Three Months Ended June 30, 2003


	SE Pennsyl.		New Jersey		Lehigh Valley		Virginia		The Carolinas		Jacksonville		Minnesota		Michigan		All Others		Total

Real estate related revenues	$	43,842	$	8,419	$	17,014	$	12,927	$	8,976	$	12,263	$	13,019	$	16,094	$	17,504	$	150,058
Rental property expenses
and real estate taxes		12,385		2,552		4,181		3,482		2,623		3,143		4,856		5,564		4,837		43,623

Property level operating
income	$	31,457	$	5,867	$	12,833	$	9,445	$	6,353	$	9,120	$	8,163	$	10,530	$	12,667		106,435

Other income/expenses, net																				68,384


Income before property disposition and minority interest		38,051
Gain on disposition of properties		—
Minority interest		—
Discontinued operations		12,199
Preferred unit distributions		(3,104	)

Income available to common unitholders	$	47,146

For the Three Months Ended June 30, 2002


	SE Pennsyl.		New Jersey		Lehigh Valley		Virginia		The Carolinas		Jacksonville		Minnesota		Michigan		All Others		Total

Real estate related revenues	$	44,142	$	11,231	$	14,885	$	12,285	$	8,416	$	11,335	$	12,710	$	15,777	$	14,716	$	145,497
Rental property expenses
and real estate taxes		12,115		3,482		3,297		3,012		2,452		2,955		4,891		5,291		4,511		42,006

Property level operating
income	$	32,027	$	7,749	$	11,588	$	9,273	$	5,964	$	8,380	$	7,819	$	10,486	$	10,205		103,491

Other income/expenses, net																				59,324


Income before property dispositions and minority interest		44,167
Gain on disposition of properties		1,760
Minority interest		(1,235	)
Discontinued operations		4,708
Preferred unit distributions		(5,508	)

Income available to common unitholders	$	43,892

For the Six Months Ended June 30, 2003


	SE Pennsyl.		New Jersey		Lehigh Valley		Virginia		The Carolinas		Jacksonville		Minnesota		Michigan		All Others		Total

Real estate related revenues	$	97,111	$	17,141	$	32,108	$	25,568	$	17,752	$	24,354	$	25,555	$	32,115	$	34,866	$	306,570
Rental property expenses
and real estate taxes		27,704		5,876		8,571		6,922		5,107		6,427		9,531		10,581		9,949		90,668

Property level operating
income	$	69,407	$	11,265	$	23,537	$	18,646	$	12,645	$	17,927	$	16,024	$	21,534	$	24,917		215,902

Other income/expenses, net																				131,649


Income before property disposition and minority interest		84,253
Gain on disposition of properties		598
Minority interest		(518	)
Discontinued operations		12,601
Preferred unit distributions		(6,208	)

Income available to common unitholders	$	90,726

For the Six Months Ended June 30, 2002


	SE Pennsyl.		New Jersey		Lehigh Valley		Virginia		The Carolinas		Jacksonville		Minnesota		Michigan		All Others		Total

Real estate related revenues	$	88,585	$	22,770	$	29,521	$	24,715	$	16,834	$	22,674	$	25,064	$	31,358	$	29,402	$	290,923
Rental property expenses
and real estate taxes		24,791		7,172		6,535		6,164		4,925		5,562		9,421		10,387		8,761		83,718

Property level operating
income	$	63,794	$	15,598	$	22,986	$	18,551	$	11,909	$	17,112	$	15,643	$	20,971	$	20,641		207,205

Other income/expenses, net																				117,694


Income before property dispositions and minority interest		89,511
Gain on disposition of properties		1,242
Minority interest		(1,235	)
Discontinued operations		6,816
Preferred unit distributions		(10,911	)

Income available to common unitholders	$	85,423

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

In accordance with SFAS No. 144 which the Company adopted on January 1, 2002, net income and gain/(loss) on the disposition of real estate for properties sold subsequent to December 31, 2001 are reflected in the consolidated statements of operations as discontinued operations. The proceeds from the disposition of properties for the three and six months ended June 30, 2003 were $34.8 million and $38.5 million as compared to $11.0 million and $23.8 million for the same period in 2002. Below is a summary of the results of operations of the properties disposed of through the respective disposition dates (in thousands):


	Three Months Ended						Six Months Ended

	June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

Revenues	$	1,433		$	1,097		$	2,390		$	2,677
Operating expenses		(125	)		(242	)		(363	)		(513	)
Interest expense		(88	)		(172	)		(293	)		(430	)
Depreciation and amortization		(114	)		(255	)		(389	)		(587	)

Income from operations	$	1,106		$	428		$	1,345		$	1,147

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

Note 5: Credit Facility

Note 6: Impact of Recently Issued Accounting Standards

In January 2003, the Financial Accounting Standards Board issued Financial Interpretation No. 46 (“FIN No. 46”), “Consolidation of Variable Interest Entities.” The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003 and applies to existing variable interest entities in the first fiscal year or interim period beginning after June 15, 2003. FIN No. 46 requires that a variable interest entity be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. Beginning July 1, 2003, Rouse Kent Limited (“RKL”) will be consolidated into the Company’s financial statements as a result of the adoption of the provisions of FIN No. 46. RKL is a full service real estate development company which, together with its affiliates, owns six properties comprising 210,000 leaseable square feet. The Company does not expect its financial position or results of operations to be materially affected by this consolidation.

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

OVERVIEW

The Company owns and operates office and industrial real estate. As of June 30, 2003, the Company’s portfolio consisted of 653 industrial and office properties (the “Properties in Operation”) totaling approximately 51.6 million square feet. In addition, the Company had seven properties under development (the “Properties under Development” and, together with the Properties in Operation, the “Properties”) and owned 879 acres of land, substantially all of which is zoned for commercial use.

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

In 2002 and for the six months ended June 30, 2003, the continued general slowdown in the economy negatively affected occupancy rates. Additionally, the imbalance between supply of and demand for rental properties resulted in a decline in market rental rates. Although the Company has realized increases on some renewal and replacement leases, the negative occupancy and rental rate trend has been continuing for several quarters and as a result, property level operating income from the “Same Store” group of properties, exclusive of termination fees, has decreased. Additionally, tenant improvement and lease transaction costs on renewal and replacement leases have increased.

The continued economic slowdown has also limited the Company’s ability to achieve growth in operating income from its development activity. The decline in demand for real estate has reduced the amount of development the Company is undertaking. The size of the development pipeline has continued to decrease as the Company has curtailed its speculative development activity and build-to-suit activity has declined.

As noted above, the Company also seeks to acquire and dispose of Properties in appropriate circumstances. The Company anticipates that it will continue to pursue select acquisition and disposition opportunities during 2003.

The composition of the Company’s Properties in Operation as of June 30, 2003 and 2002 is as follows (in thousands, except dollars and percentages):


	Net Rent								Percent of
	Per Square Foot				Total Square Feet				Total Square Feet						Percent Occupied
	June 30,				June 30,				June 30,						June 30,

Type	2003		2002		2003		2002		2003			2002			2003			2002

Industrial-Distribution	$	4.50	$	4.54		20,437		21,325		39.6	%		42.2	%		93.1	%		96.5	%
Industrial-Flex	$	8.78	$	8.81		13,335		13,030		25.8	%		25.8	%		90.5	%		89.6	%
Office	$	14.21	$	14.10		17,836		16,201		34.6	%		32.0	%		89.5	%		89.4	%

TOTAL	$	8.89	$	8.57		51,608		50,556		100.0	%		100.0	%		91.2	%		92.5	%

Geographic segment data for the three and six months ended June 30, 2003 and 2002 is included in Note 3 to the Liberty Property Trust and Liberty Property Limited Partnership financial statements.

FORWARD-LOOKING STATEMENTS

When used throughout this report, the words “believes,” “anticipates,” and “expects” and similar expressions are intended to identify forward-looking statements. Such statements indicate that assumptions have been used that are subject to a number of risks and uncertainties which could cause actual financial results or management plans and objectives to differ materially from those projected or expressed herein, including: the effect of national and regional economic conditions; rental demand; the Company’s ability to identify and secure additional properties and sites that meet its criteria for acquisition or development; the availability and cost of capital; and the effect of prevailing market interest rates; and other risks described from time to time in the Company’s filings with the Securities and

Exchange Commission. Given these uncertainties, readers are cautioned not to place undue reliance on such statements.

CRITICAL ACCOUNTING POLICIES

Refer to the Company’s 2002 Annual Report on Form 10-K for a discussion of critical accounting policies which include capitalized costs, allowances for doubtful accounts and impairment of real estate. During the three and six months ended June 30, 2003 and 2002, there were no material changes to these policies.

RESULTS OF OPERATIONS

The following discussion is based on the consolidated financial statements of the Company. It compares the results of operations of the Company for the three and six months ended June 30, 2003 with the results of operations of the Company for the three and six months ended June 30, 2002. As a result of the varying level of development, acquisition and disposition activities by the Company in 2003 and 2002, 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 consolidated financial statements and notes included elsewhere in this report.

Comparison of the Three and Six Months Ended June 30, 2003 to the Three and Six Months Ended June 30, 2002.

Total revenue (principally rental revenue and operating expense reimbursement) increased to $152.8 million for the three months ended June 30, 2003 from $147.5 million for the three months ended June 30, 2002 and increased to $311.6 million for the six months ended June 30, 2003 from $294.5 million for the six months ended June 30, 2002. These increases are primarily due to an increase in lease termination fees and the net increased investment in properties developed or acquired, net of dispositions, during the years 2002 and 2003. The average gross investment in operating real estate owned for the three months ended June 30, 2003 was $3,680.9 million as compared to $3,420.4 million for the three months ended June 30, 2002 and for the six months ended June 30, 2003 was $3,638.4 million as compared to $3,394.4 million for the six months ended June 30, 2002.

The operating expense recovery percentage (the ratio of operating expense reimbursement to rental property expenses and real estate taxes) increased to 93.2% for the three months ended June 30, 2003 from 93.1% for the three months ended June 30, 2002, and decreased to 93.2% for the six months ended June 30, 2003 from 94.5% for the six months ended June 30, 2002. While there was a modest increase in the recovery percentage for the three month period, the overall trend as seen from the six month percentage is a reduced recovery percentage. This reduction is consistent with a reduction in occupancy.

Rental property and real estate tax expenses increased to $43.6 million for the three months ended June 30, 2003 from $42.0 million for the three months ended June 30, 2002 and increased to $90.7 million for the six months ended June 30, 2003 from $83.7 million for the six months ended June 30, 2002. These increases are due to the increase in the investment in Properties owned during the respective periods and because of the increased snow removal and utility costs relating to 2003’s severe winter.

Property level operating income, exclusive of lease termination fees, for the “Same Store” properties (properties owned since January 1, 2002) decreased by $1.4 million for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002, on a straight line basis (which recognizes rental revenue evenly over the life of the lease), and decreased by $1.3 million for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002, on a cash basis. These decreases of 1.4%, are primarily due to decreases in occupancy.

Property level operating income, exclusive of lease termination fees, for the Same Store properties decreased by $6.2 million for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002, on a straight line basis, and decreased by $5.8 million for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002, on a cash basis. These decreases of 3.2% and 3.0%, respectively, are primarily due to

decreases in occupancy. At June 30, 2003, the occupancy of the Same Store portfolio was 92.2% as compared to 93.1% at June 30, 2002.

Set forth below is a schedule comparing the property level operating income, on a straight line basis and on a cash basis, for the Same Store properties for the three and six months ended June 30, 2003 and 2002 (in thousands):


		Straight Line Basis						Cash Basis (1)

		Three Months Ended						Three Months Ended

		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

Rental revenue		$	97,136		$	98,401		$	95,169		$	96,362
Operating expenses:
	Rental property expense		26,070			26,019			26,070			26,019
	Real estate taxes		13,748			13,044			13,748			13,044
	Operating expense recovery		(37,491	)		(36,865	)		(37,491	)		(36,865	)

Unrecovered operating expenses			2,327			2,198			2,327			2,198

Property level operating income		$	94,809		$	96,203		$	92,842		$	94,164


		Straight Line Basis						Cash Basis (1)

		Six Months Ended						Six Months Ended

		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

Rental revenue		$	194,316		$	198,329		$	190,332		$	193,939
Operating expenses:
	Rental property expense		57,022			52,353			57,022			52,353
	Real estate taxes		26,963			25,994			26,963			25,994
	Operating expense recovery		(78,411	)		(74,949	)		(78,411	)		(74,949	)

Unrecovered operating expenses			5,574			3,398			5,574			3,398

Property level operating income		$	188,742		$	194,931		$	184,758		$	190,541

(1) Property level operating income on a cash basis is a non-GAAP measurement. Management generally considers property level operating income on a cash basis a useful financial performance measure of the operating performance of the Same Store portfolio.

General and administrative expenses increased to $8.8 million for the three months ended June 30, 2003 from $5.6 million for the three months ended June 30, 2002 and increased to $15.3 million for the six months ended June 30, 2003 from $11.6 million for the six months ended June 30, 2002. These increases are primarily due to the accelerated vesting of restricted stock and options related to the death of former Chairman Willard G. Rouse III totaling approximately $1.9 million and due to costs related to the Company’s enterprise resource planning initiative totaling approximately $406,000.

Depreciation and amortization expenses increased to $31.2 million for the three months ended June 30, 2003 from $27.4 million for the three months ended June 30, 2002 and increased to $59.9 million for the six months ended June 30, 2003 from $53.6 million for the six months ended June 30, 2002. These increases are due to the increase in the investment in Properties owned during the respective periods.

Interest expense increased to $31.1 million for the three months ended June 30, 2003 from $28.3 million for the three months ended June 30, 2002 and increased to $61.5 million for the six months ended June 30, 2003 from $56.1 million for the six months ended June 30, 2002. These increases are due to the increases in the average debt outstanding for the respective periods, which were $1,868.9 million for the three months ended June 30, 2003 as compared to $1,772.0 million for the three months ended June 30, 2002 and $1,868.0 million for the six months ended June 30, 2003 as compared to $1,765.7 million for the same period in 2002. These increases were partially offset by decreases in the weighted average interest rates for the periods, which were 6.95% for the three months ended June 30, 2003 compared to 7.12% for the three months ended June 30, 2002 and 6.98% for the six months

ended June 30, 2003 compared to 7.17% for the same period in 2002. Interest expense also increased because, as noted below, less interest was capitalized during the three and six months ended June 30, 2003 compared to the same period in 2002 due to the decrease in development in progress.

Costs directly related to the development of rental properties and land being readied for development are capitalized. Capitalized development costs include interest, salaries, property taxes, insurance and other directly identifiable costs during the period of development. Capitalized interest for the three months ended June 30, 2003 decreased to $2.4 million from $4.4 million for the three months ended June 30, 2002 and decreased to $5.6 million for the six months ended June 30, 2003 from $9.4 million for the six months ended June 30, 2002. Included in capitalized interest costs are the interest costs relating to the Company’s $60.7 million investment (as of June 30, 2003) in its proposed downtown Philadelphia office tower. Capitalized salaries and benefits historically represent approximately 1% of the cost of developed properties brought into service. These amounts are not included in general and administrative expenses as discussed above.

Implementation of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” requires that the operating results for real estate sold after December 31, 2001 should be reflected as discontinued operations. Sales occurring before December 31, 2001, as well as sales of land and development properties, continue to be reflected as a component of income from continuing operations.

There were no properties sold during the three months ended June 30, 2003. For the six months ended June 30, 2003, the Company realized a net gain on property dispositions of $598,000, due to the sale of two parcels of land and additional proceeds from a 2002 property disposition. For the three months ended June 30, 2002, the Company realized a gain on property dispositions of $1.8 million due to the sale of two parcels of land and the sale of a property. For the six months ended June 30, 2002, the Company realized a gain on property dispositions of $1.2 million due to the sale of five parcels of land and the sale of a property. The property sold was developed for sale through the Company’s merchant building program.

In accordance with SFAS No. 144, net income and gain/(loss) on dispositions of real estate for properties sold subsequent to December 31, 2001 are reflected in the consolidated statements of operations as discontinued operations for all periods presented. The increase in income from discontinued operations of $7.2 million and $5.6 million, for the three and six months ended June 30, 2003, as compared to the same period in 2002, is primarily due to the larger gain on the disposition of the properties sold in the three and six months ended June 30, 2003 as compared to the three and six months ended June 30, 2002.

As a result of the foregoing, the Company’s net income increased to $45.0 million for the three months ended June 30, 2003 from $41.8 million for the three months ended June 30, 2002 and net income increased to $86.6 million for the six months ended June 30, 2003 from $81.2 million for the six months ended June 30, 2002.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2003, the Company had cash and cash equivalents of $26.3 million, including $4.3 million in cash held in escrow for the payment of real estate taxes.

Net cash flow provided by operating activities decreased to $144.1 million for the six months ended June 30, 2003 from $145.7 million for the six months ended June 30, 2002. This $1.6 million decrease is primarily due to fluctuations in operating assets and liabilities during the respective periods. Net cash flow provided by operations is the primary source of liquidity to fund distributions to shareholders and for the recurring capital expenditures and leasing transaction costs for the Company’s Properties in Operation.

Net cash used in investing activities decreased to $37.2 million for the six months ended June 30, 2003 from $86.2 million for the six months ended June 30, 2002. This decrease primarily resulted from a decrease in investment in development in progress and land held for development in 2003, which is consistent with the diminished opportunity to develop property due to the general slowdown in the economy. These decreases are partially offset by the reduced level of disposition activity during 2003.

Net cash used in financing activities increased to $91.6 million for the six months ended June 30, 2003 as compared to $48.1 million for the six months ended June 30, 2002. This $43.5 million increase was primarily due to a reduced

level of net borrowings under mortgage, unsecured notes obligations and the Company’s credit facility. 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 and the decrease in such funding activities for 2003 is consistent with the decrease in the level of the Company’s investment activities as described above.

The Company funds its development and acquisitions with long-term capital sources including proceeds from the disposition of Properties. For the year ended December 31, 2002, these activities were funded through a $450 million unsecured credit facility (the “$450 million Credit Facility”), which was replaced in January 2003, with the $350 million Credit Facility. The interest rate on borrowings under the $350 million Credit Facility fluctuates based upon ratings from Moody’s Investors Service, Inc. (“Moody’s”), Standard and Poor’s Ratings Group (“S&P”) and Fitch, Inc. (“Fitch”). The current ratings for the Company’s senior unsecured debt are Baa2, BBB and BBB from Moody’s, S&P and Fitch, respectively. At these ratings, the interest rate for borrowings under the $350 million Credit Facility is 70 basis points over LIBOR. The $350 million Credit Facility expires in January 2006.

The Company uses debt financing to lower its overall cost of capital in an attempt to increase the return to shareholders. The Company staggers its debt maturities and maintains debt levels it considers to be prudent. In determining its debt levels, the Company considers various financial measures including the debt to gross assets ratio and the earnings to fixed charge coverage ratio. As of June 30, 2003 the Company’s debt to gross assets ratio was 44.0%, and the earnings to fixed charge coverage ratio was 2.8x. Debt to gross assets equals total long-term debt and borrowings under the $350 million Credit Facility divided by total assets plus accumulated depreciation. Earnings to fixed charges equals income before property dispositions and minority interest, including operating activity from discontinued operations, plus interest expense and depreciation and amortization divided by interest expense, including capitalized interest, plus distributions on preferred shares and units.

As of June 30, 2003, $310.7 million in mortgage loans and $1,405.0 million in unsecured notes were outstanding with a weighted average interest rate of 7.4%. The interest rates on $1,691.0 million of mortgage loans and unsecured notes are fixed and range up to 8.8%. Interest rates on $24.7 million of mortgage loans float with the base rate of the respective lending bank or a municipal bond index. The weighted average remaining term for the mortgage loans and unsecured notes is 6.2 years.

The scheduled maturities and principal amortization of the Company’s mortgage loans, unsecured notes and borrowings under the $350 million Credit Facility and the related weighted average interest rates as of June 30, 2003 are as follows (in thousands, except percentages):


	Mortgages
											Weighted
	Principal		Principal		Unsecured		Credit				Average
	Amortization		Maturities		Notes		Facility		Total		Interest Rate

2003 (6 months)	$	3,861	$	970	$	50,000	$	—	$	54,831		6.9	%
2004		8,176		34,370		100,000		—		142,546		7.0	%
2005		7,099		115,039		—		—		122,138		7.6	%
2006		5,010		30,098		100,000		121,000		256,108		4.6	%
2007		4,552		—		100,000		—		104,552		7.3	%
2008		4,248		29,268		—		—		33,516		7.2	%
2009		2,015		42,119		270,000		—		314,134		7.8	%
2010		1,348		—		200,000		—		201,348		8.5	%
2011		1,098		3,533		250,000		—		254,631		7.3	%
2012		192		17,674		235,000		—		252,866		6.5	%
2018		—		—		100,000		—		100,000		7.5	%

	$	37,599	$	273,071	$	1,405,000	$	121,000	$	1,836,670		7.0	%

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

General

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

The expiring square feet and annual net rent by year for the Properties in Operation as of June 30, 2003 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

2003 (6 months)		1,068	$	4,630		1,209	$	9,949		1,121	$	14,815		3,398	$	29,394
2004		1,991		9,375		2,096		18,012		1,922		28,301		6,009		55,688
2005		2,264		11,649		1,747		15,557		2,924		42,590		6,935		69,796
2006		2,350		10,712		1,895		20,136		1,164		17,247		5,409		48,095
2007		2,441		10,875		1,296		12,573		1,665		25,103		5,402		48,551
2008		2,418		10,598		1,907		18,639		1,943		29,813		6,268		59,050
Thereafter		6,499		37,180		1,916		20,331		5,233		97,347		13,648		154,858

TOTAL		19,031	$	95,019		12,066	$	115,197		15,972	$	255,216		47,069	$	465,432

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 732,000 square feet of Properties under Development as of June 30, 2003 are as follows (in thousands, except percentages):


	Square Feet

									Percent
Scheduled	Industrial-		Industrial-						Leased at			Total
In-Service Date	Distribution		Flex		Office		Total		June 30, 2003			Investment

3rd Quarter 2003		134		—		68		202		66.5	%	$	41,775
1st Quarter 2004		262		75		—		337		100.0	%		14,962
3rd Quarter 2004		—		—		31		31		63.6	%		4,869
1st Quarter 2005		—		—		88		88		68.6	%		9,773
2nd Quarter 2005		—		—		74		74		56.6	%		9,461

TOTAL		396		75		261		732		81.1	%	$	80,840

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

The Board of Trustees has authorized a share repurchase program under which the Company may purchase up to $100 million of the Company’s Common Shares, preferred shares or convertible debentures. Through June 30, 2003, the Company purchased 59,100 Common Shares and purchased convertible debentures exchangeable into 877,950 Common Shares. The total cost for the purchase of the Common Shares and convertible debentures was approximately $21.9 million. The convertible debentures matured in 2001.

The Company has an effective S-3 shelf registration statement on file with the Securities and Exchange Commission (the “Shelf Registration Statement”). As of August 6, 2003, pursuant to the Shelf Registration Statement, the Trust had the capacity to issue up to $688.4 million in equity securities and the Operating Partnership had the capacity to issue up to $324.3 million in debt securities.

Related Party Transactions

Pursuant to agreements, the Company provides management services with respect to RKL (see Note 6 to the Liberty Property Trust and Liberty Property Limited Partnership Financial Statements), which is currently owned by certain

affiliates of the Company. For the six months ended June 30, 2003, the fees for these services were $150,000 per quarter. The Company pays a fee to RKL for management services which it provides for the Company’s properties owned in the United Kingdom. For the three and six months ended June 30, 2003, the fees for these services were $104,000 and $223,000. The Company had accounts receivable and loans receivable from RKL and affiliates with balances of $1.2 million and $25.9 million, respectively, as of June 30, 2003. The Company recognized interest income on notes receivable from RKL of $1.1 million and $1.9 million for the three and six months ended June 30, 2003.

Beginning July 1, 2003, RKL will be consolidated into the Company’s financial statements as a result of the adoption of the provisions of FIN No. 46. The Company does not expect its financial position or results of operations to be materially affected by this consolidation.

Investment in Unconsolidated Joint Ventures

In 2002 the Company partnered with the Public Employees’ Retirement Association of Colorado on a $123 million joint venture consisting of the Company’s southern New Jersey industrial portfolio. The Company sold or contributed 28 industrial distribution Properties totaling approximately 3.1 million leaseable square feet and approximately 43 acres of developable land. The Company retained a 25% ownership interest in the venture, and realized proceeds of approximately $109 million from the transaction. The Company will receive development, leasing and property management fees, and may receive a promoted interest if certain return thresholds are met. The venture is financed with approximately 60% leverage.

During the three months ended June 30, 2003 the Company contributed to the venture one additional industrial distribution property totaling approximately 374,000 leaseable square feet for a Total Investment, as defined below, of $15.6 million. “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 improvements in the case of acquisitions, or land costs and land and building improvement costs in the case of development projects, and when appropriate, other development costs and carrying costs.

Calculation of Funds from Operations

Management generally considers Funds from operations (as defined below) a useful financial performance measure of the operating performance of an equity REIT. Funds from operations 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 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 also does not represent cash flows generated from operating, investing or financing activities as defined by GAAP. Funds from operations for the three and six months ended June 30, 2003 and 2002 are as follows:


		Three Months Ended						Six Months Ended

		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

Income available to common shareholders		$	45,029		$	41,754		$	86,616		$	81,204
Adjustments:
	Minority interest less preferred unit distributions		2,117			2,138			4,110			4,219
	Depreciation and amortization		30,783			27,286			59,246			53,364
	Depreciation and amortization of unconsolidated joint ventures		161			—			327			—
	Gain on disposition of properties		(11,093	)		(3,536	)		(11,271	)		(4,407	)

Funds from operations		$	66,997		$	67,642		$	139,028		$	134,380

Inflation

Inflation has remained relatively low during the last three years, and as a result, it has not had a significant impact on the Company during this period. The $350 million Credit Facility bears interest at a variable rate; therefore, the amount of interest payable under the $350 million Credit Facility will be influenced by changes in short-term interest rates, which tend to be sensitive to inflation. To the extent an increase in inflation would result in increased operating costs, such as in insurance, real estate taxes and utilities, substantially all of the tenants’ leases require the tenants to absorb these costs as part of their rental obligations. In addition, inflation also may have the effect of increasing market rental rates.

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, 2002.

Item 4: Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s rules and forms. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Changes in Internal Control Over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

Part II: Other Information


Item 1.		Legal Proceedings

		None.

Item 2.		Changes in Securities and Use of Proceeds

		On June 30, 2003, the Operating Partnership issued 33,682 Units of Limited Partnership Interest (the “Units”). The aggregate sale price of the Units was $1,150,896. The Units were sold to an accredited investor in a private placement in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as a portion of the purchase price for the acquisition of a property. The Units are convertible on a one-for-one basis into the Common Shares of Beneficial Interest of the Trust (the “Common Shares”). The holders of the Units have certain rights to cause the Trust to register the Common Shares issuable upon conversion of such units pursuant to the terms of a registration rights agreement entered into in connection with this private placement.

Item 3.		Defaults upon Senior Securities

		None.

Item 4.		Submission of Matters to a Vote of Security Holders

		At the 2003 Annual Meeting of Shareholders of the Trust, held on May 29, 2003, the following matter was approved by the requisite vote of the shareholders, as follows:


	Management’s nominees, William P. Hankowsky, David L. Lingerfelt and John A. Miller, were elected to fill the three available positions as Class III trustees. Voting (expressed in number of shares) was as follows: Mr. Hankowsky: 65,828,075 for and 634,789 abstaining; Mr. Lingerfelt: 65,831,352 for and 631,512 abstaining; and Mr. Miller: 65,462,587 for and 1,000,277 abstaining.


Item 5.		Other Information

		None.

Item 6.		Exhibits and Reports on Form 8-K


a.		Exhibits


		31.1*		Certifications of the Chief Executive Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.

		31.2*		Certifications of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934.

		31.3*		Certifications of the Chief Executive Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.

		31.4*		Certifications of the Chief Financial Officer of Liberty Property Trust, in its capacity as the general partner of Liberty Property Limited Partnership, required by Rule 13a-14(a) under the Securities Exchange Act of 1934.

		32.1*		Certifications of the Chief Executive Officer of Liberty Property Trust required under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as


				amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

		32.2*		Certifications of the Chief Financial Officer of Liberty Property Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

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

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


b.		Reports of Form 8-K

		During the quarter ended June 30, 2003 the Registrant filed the following Current Report on Form 8-K:



		Current Report on Form 8-K dated April 22, 2003 reporting items 7 and 9 and containing as an Exhibit the Press Release dated April 21, 2003 issued by Liberty Property Trust and Liberty Property Limited Partnership.

Filed herewith

SIGNATURES

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

LIBERTY PROPERTY TRUST


/s/ WILLIAM P. HANKOWSKY		August 11, 2003

William P. Hankowsky		Date
President and Chief Executive Officer

/s/ GEORGE J. ALBURGER, JR.		August 11, 2003

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

SIGNATURES

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

LIBERTY PROPERTY LIMITED PARTNERSHIP

BY: Liberty Property Trust
General Partner


/s/ WILLIAM P. HANKOWSKY William P. Hankowsky President and Chief Executive Officer		August 11, 2003 Date

/s/ GEORGE J. ALBURGER, JR. George J. Alburger, Jr. Executive Vice President and Chief Financial Officer		August 11, 2003 Date

EXHIBIT INDEX


EXHIBIT NO.		DESCRIPTION

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.)