LIBERTY PROPERTY TRUST - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - LIBERTY PROPERTY TRUST	lptex312-33116.htm
EX-31.1 - EXHIBIT 31.1 - LIBERTY PROPERTY TRUST	lptex311-33116.htm
EX-32.3 - EXHIBIT 32.3 - LIBERTY PROPERTY TRUST	lptex323-33116.htm
EX-31.4 - EXHIBIT 31.4 - LIBERTY PROPERTY TRUST	lptex314-33116.htm
EX-32.4 - EXHIBIT 32.4 - LIBERTY PROPERTY TRUST	lptex324-33116.htm
EX-12.1 - EXHIBIT 12.1 - LIBERTY PROPERTY TRUST	lptex121-33116.htm
EX-32.1 - EXHIBIT 32.1 - LIBERTY PROPERTY TRUST	lptex321-33116.htm
EX-32.2 - EXHIBIT 32.2 - LIBERTY PROPERTY TRUST	lptex322-33116.htm
EX-31.3 - EXHIBIT 31.3 - LIBERTY PROPERTY TRUST	lptex313-33116.htm

Table of Contents

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 March 31, 2016



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

For the transition period from to

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

1-13132 (Liberty Property Limited Partnership)

__________________________________________________________

LIBERTY PROPERTY TRUST

LIBERTY PROPERTY LIMITED PARTNERSHIP

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

__________________________________________________________



MARYLAND (Liberty Property Trust)	23-7768996
PENNSYLVANIA (Liberty Property Limited Partnership)	23-2766549
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

500 Chesterfield Parkway Malvern, Pennsylvania	19355
(Address of Principal Executive Offices)	(Zip Code)

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

__________________________________________________________

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):



Large Accelerated Filer	x	Accelerated Filer	o
Non-Accelerated Filer	o (Do not check if a smaller reporting company)	Smaller Reporting Company	o

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

On May 3, 2016, 146,625,092 Common Shares of Beneficial Interest, par value $0.001 per share, of Liberty Property Trust were outstanding.

Table of Contents

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2016 of Liberty Property Trust and Liberty Property Limited Partnership. Unless stated otherwise or the context otherwise requires, references to the “Trust” mean Liberty Property Trust and its consolidated subsidiaries, and references to the “Operating Partnership” mean Liberty Property Limited Partnership and its consolidated subsidiaries. The terms the “Company,” “we,” “our” and “us” mean the Trust and the Operating Partnership, collectively.

The Trust is a self-administered and self-managed Maryland real estate investment trust (“REIT”). Substantially all of the Trust's assets are owned directly or indirectly, and substantially all of the Trust's operations are conducted directly or indirectly, by its subsidiary, the Operating Partnership, a Pennsylvania limited partnership.

The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 97.6% of the common equity of the Operating Partnership at March 31, 2016. The common units of limited partnership interest in the Operating Partnership (the “Common Units”), other than those owned by the Trust, are exchangeable on a one-for-one basis (subject to anti-dilution protections) for the Trust's common shares of beneficial interest, $0.001 par value per share (the “Common Shares”).

The financial results of the Operating Partnership are consolidated into the financial statements of the Trust. The Trust has no significant assets other than its investment in the Operating Partnership. The Trust and the Operating Partnership are managed and operated as one entity. The Trust and the Operating Partnership have the same managers.

The Trust's sole business purpose is to act as the general partner of the Operating Partnership. Net proceeds from equity issuances by the Trust are contributed to the Operating Partnership in exchange for partnership units. The Trust itself does not issue any indebtedness, but guarantees certain of the unsecured debt of the Operating Partnership.

We believe combining the quarterly reports on Form 10-Q of the Trust and the Operating Partnership into this single report results in the following benefits:


•	enhances investors' understanding of the Trust and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;


•	eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the Company's disclosure applies to both the Trust and the Operating Partnership; and


•	creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

To help investors understand the significant differences between the Trust and the Operating Partnership, this report presents the following separate sections for each of the Trust and the Operating Partnership:


•	consolidated financial statements;


•	the following notes to the consolidated financial statements;


◦	Income per Common Share of the Trust and Income per Common Unit of the Operating Partnership;


◦	Noncontrolling Interests of the Trust and Limited Partners' Equity and Noncontrolling Interest of the Operating Partnership

This report also includes separate Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Trust and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Trust and Operating Partnership are compliant with Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended.

Table of Contents

Liberty Property Trust/Liberty Property Limited Partnership

Form 10-Q for the period ended March 31, 2016



Index		Page

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated balance sheets of Liberty Property Trust at March 31, 2016 and December 31, 2015	5

	Consolidated statements of comprehensive income of Liberty Property Trust for the three months ended March 31, 2016 and March 31, 2015	6

	Consolidated statement of equity of Liberty Property Trust for the three months ended March 31, 2016	7

	Consolidated statements of cash flows of Liberty Property Trust for the three months ended March 31, 2016 and March 31, 2015	8

	Consolidated balance sheets of Liberty Property Limited Partnership at March 31, 2016 and December 31, 2015	9

	Consolidated statements of comprehensive income of Liberty Property Limited Partnership for the three months ended March 31, 2016 and March 31, 2015	10

	Consolidated statement of owners' equity of Liberty Property Limited Partnership for the three months ended March 31, 2016	11

	Consolidated statements of cash flows of Liberty Property Limited Partnership for the three months ended March 31, 2016 and March 31, 2015	12

	Notes to consolidated financial statements of the Company	13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33

Item 4.	Controls and Procedures	33

PART II.	OTHER INFORMATION	34

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	34

Table of Contents



Index		Page

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	35

Signatures for Liberty Property Trust		36

Signatures for Liberty Property Limited Partnership		37

Exhibit Index		38

	STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES

	CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(A)

	CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(A)

	CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(A)

	CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(A)

	CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(B)

	CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST REQUIRED BY RULE 13A-14(B)

	CERTIFICATION OF CEO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(B)

	CERTIFICATION OF CFO OF LIBERTY PROPERTY TRUST, IN ITS CAPACITY AS THE GENERAL PARTNER OF LIBERTY PROPERTY LIMITED PARTNERSHIP, REQUIRED BY RULE 13A-14(B)

	XBRL Instance Document

	XBRL Taxonomy Extension Schema Document

	XBRL Taxonomy Extension Calculation Linkbase Document

	XBRL Taxonomy Extension Definition Linkbase Document

	XBRL Extension Labels Linkbase

	XBRL Taxonomy Extension Presentation Linkbase Document

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST

(Unaudited and in thousands, except share and unit amounts)



	March 31, 2016			December 31, 2015
ASSETS
Real estate:
Land and land improvements	$	1,186,960		$	1,183,411
Building and improvements	5,127,287			5,124,521
Less accumulated depreciation	(1,159,991		)	(1,148,228		)
Operating real estate	5,154,256			5,159,704
Development in progress	335,927			360,948
Land held for development	341,356			336,967
Net real estate	5,831,539			5,857,619
Cash and cash equivalents	43,663			35,353
Restricted cash	6,606			9,018
Accounts receivable, net	18,319			14,343
Deferred rent receivable, net	121,278			118,787
Deferred financing and leasing costs, net of accumulated amortization (March 31, 2016, $170,558; December 31, 2015, $175,243)	183,813			192,038
Investments in and advances to unconsolidated joint ventures	210,341			218,454
Assets held for sale	7,918			12,968
Prepaid expenses and other assets	94,821			99,049
Total assets	$	6,518,298		$	6,557,629
LIABILITIES
Mortgage loans, net	$	304,360		$	307,908
Unsecured notes, net	2,580,910			2,580,108
Credit facility	260,000			259,000
Accounts payable	60,328			51,382
Accrued interest	43,130			26,154
Dividend and distributions payable	71,317			71,787
Other liabilities	228,868			243,806
Total liabilities	3,548,913			3,540,145
Noncontrolling interest - operating partnership - 301,483 preferred units outstanding as of March 31, 2016 and December 31, 2015	7,537			7,537
EQUITY
Liberty Property Trust shareholders’ equity
Common shares of beneficial interest, $.001 par value, 283,987,000 shares authorized; 146,603,946 and 147,577,984 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively	147			148
Additional paid-in capital	3,640,341			3,669,627
Accumulated other comprehensive loss	(24,188		)	(17,893		)
Distributions in excess of net income	(711,034		)	(698,954		)
Total Liberty Property Trust shareholders’ equity	2,905,266			2,952,928
Noncontrolling interest – operating partnership
3,539,075 common units outstanding as of March 31, 2016 and December 31, 2015	52,663			53,100
Noncontrolling interest – consolidated joint ventures	3,919			3,919
Total equity	2,961,848			3,009,947
Total liabilities, noncontrolling interest - operating partnership and equity	$	6,518,298		$	6,557,629

See accompanying notes.

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF LIBERTY PROPERTY TRUST

(Unaudited and in thousands, except per share amounts)



	Three Months Ended
	March 31, 2016			March 31, 2015
OPERATING REVENUE
Rental	$	139,054		$	148,585
Operating expense reimbursement	51,086			58,316
Total operating revenue	190,140			206,901
OPERATING EXPENSE
Rental property	28,509			35,571
Real estate taxes	25,320			26,164
General and administrative	20,990			18,802
Depreciation and amortization	54,078			58,796
Impairment - real estate assets	—			15,739
Total operating expense	128,897			155,072
Operating income	61,243			51,829
OTHER INCOME (EXPENSE)
Interest and other income	4,598			6,371
Interest expense	(31,412		)	(34,670		)
Total other income (expense)	(26,814		)	(28,299		)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures	34,429			23,530
Gain on property dispositions	20,521			2,271
Income taxes	(801		)	(845		)
Equity in earnings of unconsolidated joint ventures	4,914			6,906
Net income	59,063			31,862
Noncontrolling interest – operating partnership	(1,509		)	(853		)
Noncontrolling interest – consolidated joint ventures	—			(58		)
Net income available to common shareholders	$	57,554		$	30,951

Net income	$	59,063		$	31,862
Other comprehensive loss - foreign currency translation	(5,087		)	(10,410		)
Other comprehensive loss - derivative instruments	(1,360		)	(947		)
Other comprehensive loss	(6,447		)	(11,357		)
Total comprehensive income	52,616			20,505
Less: comprehensive income attributable to noncontrolling interest	(1,357		)	(648		)
Comprehensive income attributable to common shareholders	$	51,259		$	19,857
Earnings per common share
Income per common share – basic	$	0.39		$	0.21
Income per common share – diluted	$	0.39		$	0.21
Distributions per common share	$	0.475		$	0.475
Weighted average number of common shares outstanding
Basic	146,071			148,315
Diluted	146,531			149,031

See accompanying notes.

Table of Contents

CONSOLIDATED STATEMENT OF EQUITY OF LIBERTY PROPERTY TRUST

(Unaudited and in thousands)



	COMMON SHARES OF BENEFICIAL INTEREST			ADDITIONAL PAID-IN CAPITAL			ACCUMULATED OTHER COMPREHENSIVE LOSS			DISTRIBUTIONS IN EXCESS OF NET INCOME			TOTAL LIBERTY PROPERTY TRUST SHAREHOLDERS’ EQUITY			NONCONTROLLING INTEREST - OPERATING PARTNERSHIP-COMMON			NONCONTROLLING INTEREST - CONSOLIDATED JOINT VENTURES		TOTAL EQUITY			NONCONTROLLING INTEREST - OPERATING PARTNERSHIP (MEZZANINE)
Balance at January 1, 2016	$	148		$	3,669,627		$	(17,893	)	$	(698,954	)	$	2,952,928		$	53,100		$	3,919	$	3,009,947		$	7,537
Net proceeds from the issuance of common shares	—			504			—			—			504			—			—		504			—
Net income	—			—			—			57,554			57,554			1,391			—		58,945			118
Distributions	—			—			—			(69,634		)	(69,634		)	(1,676		)	—		(71,310		)	(118		)
Share repurchase	(1		)	(40,895		)	—			—			(40,896		)	—			—		(40,896		)	—
Share-based compensation	—			11,105			—			—			11,105			—			—		11,105			—
Other comprehensive loss - foreign currency translation	—			—			(4,967		)	—			(4,967		)	(120		)	—		(5,087		)	—
Other comprehensive loss - derivative instruments	—			—			(1,328		)	—			(1,328		)	(32		)	—		(1,360		)	—
Balance at March 31, 2016	$	147		$	3,640,341		$	(24,188	)	$	(711,034	)	$	2,905,266		$	52,663		$	3,919	$	2,961,848		$	7,537

See accompanying notes.

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST

(Unaudited and in thousands)



	Three Months Ended
	March 31, 2016			March 31, 2015
OPERATING ACTIVITIES
Net income	$	59,063		$	31,862
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	54,837			59,431
Amortization of deferred financing costs	1,002			1,073
Impairment - real estate assets	—			15,739
Equity in earnings of unconsolidated joint ventures	(4,914		)	(6,906		)
Distributions from unconsolidated joint ventures	314			—
Gain on property dispositions	(20,521		)	(2,271		)
Share-based compensation	10,536			7,437
Other	(1,652		)	(2,990		)
Changes in operating assets and liabilities:
Restricted cash	2,216			489
Accounts receivable	(4,030		)	(3,670		)
Deferred rent receivable	(5,225		)	(5,504		)
Prepaid expenses and other assets	(2,926		)	(13,058		)
Accounts payable	3,762			(116		)
Accrued interest	16,976			12,178
Other liabilities	(12,627		)	(3,718		)
Net cash provided by operating activities	96,811			89,976
INVESTING ACTIVITIES
Investment in properties – acquisitions	(8,000		)	—
Investment in properties – other	(13,314		)	(12,805		)
Investments in and advances to unconsolidated joint ventures	(14,635		)	(5,822		)
Distributions from unconsolidated joint ventures	26,684			6,098
Net proceeds from disposition of properties/land	127,727			40,998
Investment in development in progress	(76,522		)	(48,001		)
Investment in land held for development	(15,392		)	(4,045		)
Payment of deferred leasing costs	(8,200		)	(9,684		)
Other	8,095			(1,601		)
Net cash provided by (used in) investing activities	26,443			(34,862		)
FINANCING ACTIVITIES
Net proceeds from issuance of common shares	504			12,579
Share repurchase	(40,896		)	—
Proceeds from unsecured notes	—			398,576
Repayments of unsecured notes	—			(300,000		)
Repayments of mortgage loans	(3,101		)	(2,160		)
Proceeds from credit facility	187,000			390,000
Repayments on credit facility	(186,000		)	(507,000		)
Payment of deferred financing costs	—			(3,551		)
Distribution paid on common shares	(70,104		)	(70,562		)
Distribution paid on units	(1,794		)	(1,863		)
Net cash used in financing activities	(114,391		)	(83,981		)
Net increase (decrease) in cash and cash equivalents	8,863			(28,867		)
Decrease in cash and cash equivalents related to foreign currency translation	(553		)	(1,724		)
Cash and cash equivalents at beginning of period	35,353			69,346
Cash and cash equivalents at end of period	$	43,663		$	38,755

See accompanying notes.

Table of Contents

CONSOLIDATED BALANCE SHEETS OF

LIBERTY PROPERTY LIMITED PARTNERSHIP

(Unaudited and in thousands, except unit amounts)



	March 31, 2016			December 31, 2015
ASSETS
Real estate:
Land and land improvements	$	1,186,960		$	1,183,411
Building and improvements	5,127,287			5,124,521
Less accumulated depreciation	(1,159,991		)	(1,148,228		)
Operating real estate	5,154,256			5,159,704
Development in progress	335,927			360,948
Land held for development	341,356			336,967
Net real estate	5,831,539			5,857,619
Cash and cash equivalents	43,663			35,353
Restricted cash	6,606			9,018
Accounts receivable, net	18,319			14,343
Deferred rent receivable, net	121,278			118,787
Deferred financing and leasing costs, net of accumulated amortization (March 31, 2016, $170,558; December 31, 2015, $175,243)	183,813			192,038
Investments in and advances to unconsolidated joint ventures	210,341			218,454
Assets held for sale	7,918			12,968
Prepaid expenses and other assets	94,821			99,049
Total assets	$	6,518,298		$	6,557,629
LIABILITIES
Mortgage loans, net	$	304,360		$	307,908
Unsecured notes, net	2,580,910			2,580,108
Credit facility	260,000			259,000
Accounts payable	60,328			51,382
Accrued interest	43,130			26,154
Distributions payable	71,317			71,787
Other liabilities	228,868			243,806
Total liabilities	3,548,913			3,540,145
Limited partners' equity - 301,483 preferred units outstanding as of March 31, 2016, and December 31, 2015	7,537			7,537
OWNERS’ EQUITY
General partner’s equity - 146,603,946 and 147,577,984 common units outstanding as of March 31, 2016 and December 31, 2015, respectively	2,905,266			2,952,928
Limited partners’ equity – 3,539,075 common units outstanding as of March 31, 2016 and December 31, 2015	52,663			53,100
Noncontrolling interest – consolidated joint ventures	3,919			3,919
Total owners’ equity	2,961,848			3,009,947
Total liabilities, limited partners' equity and owners’ equity	$	6,518,298		$	6,557,629

See accompanying notes.

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF

LIBERTY PROPERTY LIMITED PARTNERSHIP

(Unaudited and in thousands, except per unit amounts)



	Three Months Ended
	March 31, 2016			March 31, 2015
OPERATING REVENUE
Rental	$	139,054		$	148,585
Operating expense reimbursement	51,086			58,316
Total operating revenue	190,140			206,901
OPERATING EXPENSE
Rental property	28,509			35,571
Real estate taxes	25,320			26,164
General and administrative	20,990			18,802
Depreciation and amortization	54,078			58,796
Impairment - real estate assets	—			15,739
Total operating expense	128,897			155,072
Operating income	61,243			51,829
OTHER INCOME (EXPENSE)
Interest and other income	4,598			6,371
Interest expense	(31,412		)	(34,670		)
Total other income (expense)	(26,814		)	(28,299		)
Income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures	34,429			23,530
Gain on property dispositions	20,521			2,271
Income taxes	(801		)	(845		)
Equity in earnings of unconsolidated joint ventures	4,914			6,906
Net income	59,063			31,862
Noncontrolling interest – consolidated joint ventures	—			(58		)
Preferred unit distributions	(118		)	(118		)
Net income available to common unitholders	$	58,945		$	31,686
Net income	$	59,063		$	31,862
Other comprehensive loss - foreign currency translation	(5,087		)	(10,410		)
Other comprehensive loss - derivative instruments	(1,360		)	(947		)
Other comprehensive loss	(6,447		)	(11,357		)
Total comprehensive income	$	52,616		$	20,505
Earnings per common unit
Income per common unit - basic	$	0.39		$	0.21
Income per common unit - diluted	$	0.39		$	0.21
Distributions per common unit	$	0.475		$	0.475
Weighted average number of common units outstanding
Basic	149,610			151,856
Diluted	150,070			152,572
Net income allocated to general partners	$	57,554		$	30,951
Net income allocated to limited partners	$	1,509		$	853

See accompanying notes.

Table of Contents

CONSOLIDATED STATEMENT OF OWNERS’ EQUITY OF LIBERTY PROPERTY LIMITED PARTNERSHIP

(Unaudited and in thousands)



	GENERAL PARTNER’S EQUITY			LIMITED PARTNERS’ EQUITY – COMMON UNITS			NONCONTROLLING INTEREST – CONSOLIDATED JOINT VENTURES		TOTAL OWNERS’ EQUITY			LIMITED PARTNERS' EQUITY - PREFERRED
Balance at January 1, 2016	$	2,952,928		$	53,100		$	3,919	$	3,009,947		$	7,537
Contributions from partners	11,609			—			—		11,609			—
Unit repurchase	(40,896		)	—			—		(40,896		)	—
Distributions to partners	(69,634		)	(1,676		)	—		(71,310		)	(118		)
Other comprehensive loss - foreign currency translation	(4,967		)	(120		)	—		(5,087		)	—
Other comprehensive loss - derivative instruments	(1,328		)	(32		)	—		(1,360		)	—
Net income	57,554			1,391			—		58,945			118
Balance at March 31, 2016	$	2,905,266		$	52,663		$	3,919	$	2,961,848		$	7,537

See accompanying notes.

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS OF

LIBERTY PROPERTY LIMITED PARTNERSHIP

(Unaudited and in thousands)



	Three Months Ended
	March 31, 2016			March 31, 2015
OPERATING ACTIVITIES
Net income	$	59,063		$	31,862
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	54,837			59,431
Amortization of deferred financing costs	1,002			1,073
Impairment - real estate assets	—			15,739
Equity in earnings of unconsolidated joint ventures	(4,914		)	(6,906		)
Distributions from unconsolidated joint ventures	314			—
Gain on property dispositions	(20,521		)	(2,271		)
Noncash compensation	10,536			7,437
Other	(1,652		)	(2,990		)
Changes in operating assets and liabilities:
Restricted cash	2,216			489
Accounts receivable	(4,030		)	(3,670		)
Deferred rent receivable	(5,225		)	(5,504		)
Prepaid expenses and other assets	(2,926		)	(13,058		)
Accounts payable	3,762			(116		)
Accrued interest	16,976			12,178
Other liabilities	(12,627		)	(3,718		)
Net cash provided by operating activities	96,811			89,976
INVESTING ACTIVITIES
Investment in properties – acquisitions	(8,000		)	—
Investment in properties – other	(13,314		)	(12,805		)
Investments in and advances to unconsolidated joint ventures	(14,635		)	(5,822		)
Distributions from unconsolidated joint ventures	26,684			6,098
Net proceeds from disposition of properties/land	127,727			40,998
Investment in development in progress	(76,522		)	(48,001		)
Investment in land held for development	(15,392		)	(4,045		)
Payment of deferred leasing costs	(8,200		)	(9,684		)
Other	8,095			(1,601		)
Net cash provided by (used in) investing activities	26,443			(34,862		)
FINANCING ACTIVITIES
Proceeds from unsecured notes	—			398,576
Repayments of unsecured notes	—			(300,000		)
Repayments of mortgage loans	(3,101		)	(2,160		)
Proceeds from credit facility	187,000			390,000
Repayments on credit facility	(186,000		)	(507,000		)
Payment of deferred financing costs	—			(3,551		)
Capital contributions	504			12,579
Distributions to partners	(112,794		)	(72,425		)
Net cash used in financing activities	(114,391		)	(83,981		)
Net increase (decrease) in cash and cash equivalents	8,863			(28,867		)
Decrease in cash and cash equivalents related to foreign currency translation	(553		)	(1,724		)
Cash and cash equivalents at beginning of period	35,353			69,346
Cash and cash equivalents at end of period	$	43,663		$	38,755

See accompanying notes.

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Liberty Property Trust and Liberty Property Limited Partnership

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

Note 1: Organization and Basis of Presentation

Organization

Liberty Property Trust (the “Trust”) is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership (the “Operating Partnership” and, together with the Trust and their consolidated subsidiaries, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 97.6% of the common equity of the Operating Partnership at March 31, 2016. The Company owns and operates industrial properties nationally and owns and operates office properties in a focused group of office markets. Additionally, the Company owns certain assets in the United Kingdom. Unless otherwise indicated, the notes to the Consolidated Financial Statements apply to both the Trust and the Operating Partnership. The terms the “Company,” “we,” “our” and “us” mean the Trust and Operating Partnership collectively.

As of January 1, 2016 under the revised accounting standard Topic 810 (see Recently Issued Accounting Standards below), the Operating Partnership is a variable interest entity ("VIE") of the Trust as the limited partners do not have substantive kick-out or participating rights. The Trust is the primary beneficiary of the Operating Partnership as it has the power to direct the activities of the Operating Partnership and the rights to absorb 97.6% of the net income of the Operating Partnership. The Trust has no significant assets or liabilities other than its investment in the Operating Partnership. As the Operating Partnership is already consolidated in the balance sheets of the Trust, the identification of this entity as a VIE has no impact on the consolidated financial statements of the Trust. In addition, the Company holds a 20% interest in Liberty/Comcast 1701 JFK Boulevard, LP which was determined to be a VIE. The Company determined that it is not the primary beneficiary as the Company and its third party partner share control of the joint venture. The Company's maximum exposure to loss is equal to its equity investment in the joint venture which was $20.1 million and $20.5 million as of March 31, 2016 and December 31, 2015, respectively.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2015. 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.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance. The standard clarifies the required factors that an entity must consider when recognizing revenue. The standard also requires additional disclosures concerning contracts with customers, judgments concerning revenue recognition, and assets recognized for the costs to obtain or fulfill a contract. ASU 2014-09 is effective for the Company beginning January 1, 2018. The Company is evaluating the impact ASU 2014-09 will have on its financial position and results of operations.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis (Topic 810) ("ASU 2015-02"). The standard requires that all entities re-evaluate and revise consolidation documentation for limited partnerships and similar legal entities. It makes changes to both the variable interest model and voting model. The Company adopted ASU 2015-02 beginning January 1, 2016. The adoption of ASU 2015-02 did not have a material impact on the Company's financial position and results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for the Company beginning January 1, 2019. Early adoption of ASU 2016-02 is permitted. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is evaluating the impact ASU 2016-02 will have on its financial position and results of operations.

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In March 2016, the FASB issued ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships ("ASU 2016-05"). ASU 2016-05 states that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under FASB Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-05 is effective for the Company beginning January 1, 2017. Early adoption of ASU 2016-05 is permitted. The standard allows application on a prospective or modified retrospective basis. The Company does not believe that ASU 2016-05 will have a material impact on its financial position and results of operations.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 is designed to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for the Company beginning January 1, 2017. Early adoption of ASU 2016-09 is permitted. Certain amendments in the standard are to be applied retrospectively and certain amendments are to be applied prospectively. The Company is evaluating the impact ASU 2016-09 will have on its financial position and results of operations.

Note 2: Income per Common Share of the Trust

The following table sets forth the computation of basic and diluted income per common share of the Trust (in thousands except per share amounts):



	For the Three Months Ended					For the Three Months Ended
	March 31, 2016					March 31, 2015
	Income (Numerator)		Weighted Average Shares (Denominator)	Per Share		Income (Numerator)		Weighted Average Shares (Denominator)	Per Share
Net income available to common shareholders - basic	$	57,554	146,071	$	0.39	$	30,951	148,315	$	0.21
Dilutive shares for long-term compensation plans	—		460			—		716
Net income available to common shareholders - diluted	$	57,554	146,531	$	0.39	$	30,951	149,031	$	0.21

Dilutive shares for long-term compensation plans represent the unvested common shares outstanding during the periods as well as the dilutive effect of outstanding options. The amount of anti-dilutive options excluded from the computation of diluted income per common share for the three months ended March 31, 2016 was 2.4 million as compared to 596,000 for the same period in 2015.

During the three months ended March 31, 2016, 15,000 common shares were issued upon the exercise of options. During the year ended December 31, 2015, 65,000 common shares were issued upon the exercise of options.

Share Repurchase

In August 2015, the Company’s Board of Trustees authorized a share repurchase plan under which the Company may purchase up to $250 million of the Company’s outstanding common shares. Purchases made pursuant to the program will be made in either the open market or in privately negotiated transactions from time to time as permitted by securities laws and other legal requirements.

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Note 3: Income per Common Unit of the Operating Partnership

The following table sets forth the computation of basic and diluted income per common unit of the Operating Partnership (in thousands, except per unit amounts):



	For the Three Months Ended						For the Three Months Ended
	March 31, 2016						March 31, 2015
	Income (Numerator)			Weighted Average Units (Denominator)	Per Unit		Income (Numerator)			Weighted Average Units (Denominator)	Per Unit
Income - net of noncontrolling interest - consolidated joint ventures	$	59,063					$	31,804
Less: Preferred unit distributions	(118		)				(118		)
Income available to common unitholders - basic	$	58,945		149,610	$	0.39	$	31,686		151,856	$	0.21
Dilutive units for long-term compensation plans	—			460			—			716
Income available to common unitholders - diluted	$	58,945		150,070	$	0.39	$	31,686		152,572	$	0.21

Dilutive units for long-term compensation plans represent the unvested common units outstanding during the periods as well as the dilutive effect of outstanding options. The amount of anti-dilutive options excluded from the computation of diluted income per common unit for the three months ended March 31, 2016 was 2.4 million as compared to 596,000 for the same period in 2015.

During the three months ended March 31, 2016, 15,000 common units were issued upon exercise of options. During the year ended December 31, 2015, 65,000 common units were issued upon the exercise of options.

Share Repurchase

In August 2015, the Company’s Board of Trustees authorized a share repurchase plan under which the Company may purchase up to $250 million of the Company’s outstanding common units. Purchases made pursuant to the program will be made in either the open market or in privately negotiated transactions from time to time as permitted by securities laws and other legal requirements.

During the three months ended March 31, 2016, the Company purchased an aggregate of 1.4 million common shares for $40.9 million at an average price of $29.28 per share as part of the share repurchase plan. In connection with these repurchases, an equal number of common units were repurchased by the Operating Partnership from the Trust.

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Note 4: Accumulated Other Comprehensive Loss

The following table sets forth the components of Accumulated Other Comprehensive Loss (in thousands):



	Three Months Ended March 31,
	2016			2015
Foreign Currency Translation:
Beginning balance	$	(17,256	)	$	(5,823	)
Translation adjustment	(5,087		)	(10,410		)
Ending balance	(22,343		)	(16,233		)

Derivative Instruments:
Beginning balance	(865		)	(377		)
Unrealized loss	(1,643		)	(1,299		)
Reclassification adjustment ⁽¹⁾	283			352
Ending balance	(2,225		)	(1,324		)
Total accumulated other comprehensive loss	(24,568		)	(17,557		)
Less: portion included in noncontrolling interest – operating partnership	380			211
Total accumulated other comprehensive loss included in shareholders' equity/owners' equity	$	(24,188	)	$	(17,346	)


(1)	Amounts reclassified out of Accumulated Other Comprehensive Loss/General & Limited Partner's Equity into contractual interest expense.

Note 5: Segment Information

The Company owns and operates industrial properties nationally and owns and operates office properties in a focused group of office markets. Additionally, the Company owns certain assets in the United Kingdom. During the three months ended March 31, 2016, the Company realigned its reportable segments as follows:


•	Carolinas/Richmond;


•	Chicago/Milwaukee;


•	Florida;


•	Houston;


•	Lehigh/Central PA;


•	Minnesota;


•	Philadelphia;


•	Southeastern PA; and


•	United Kingdom.

Certain other segments are aggregated into an "Other" category which includes the reportable segments: Arizona; Atlanta; Cincinnati/Columbus/Indianapolis; Dallas; DC Metro; New Jersey; Northern Virginia; Southern California; and other.

Comparative prior periods have been restated to reflect current segment disclosures.

The Company evaluates the performance of its reportable segments based on net operating income. Net operating income includes operating revenue from external customers, real estate taxes, amortization of lease transaction costs and other operating expenses which relate directly to the management and operation of the assets within each reportable segment.

The Company's accounting policies for the segments are the same as those used in the Company's consolidated financial statements. There are no material inter-segment transactions.

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The operating information by reportable segment is as follows (in thousands):



		For the Three Months
		Ended March 31,
		2016			2015
Operating revenue
	Carolinas/Richmond	$	15,760		$	20,334
	Chicago/Milwaukee	10,193			9,793
	Florida	29,318			30,932
	Houston	14,766			12,324
	Lehigh/Central PA	34,243			33,554
	Minnesota	11,346			12,672
	Philadelphia	10,355			9,982
	Southeastern PA	25,883			39,238
	United Kingdom	3,552			3,725
	Other	34,998			34,398
Segment-level operating revenue		190,414			206,952

Reconciliation to total operating revenues
	Other	(274		)	(51		)
Total operating revenue		$	190,140		$	206,901

Net operating income
	Carolinas/Richmond	$	10,840		$	12,846
	Chicago/Milwaukee	6,793			6,743
	Florida	18,047			19,102
	Houston	8,833			7,221
	Lehigh/Central PA	24,202			22,971
	Minnesota	4,578			5,985
	Philadelphia	7,097			7,022
	Southeastern PA	13,751			20,988
	United Kingdom	2,405			2,516
	Other	22,825			22,176
Segment-level net operating income		119,371			127,570

Reconciliation to net income
	Interest expense	(31,412		)	(34,670		)
	Depreciation/amortization expense ⁽¹⁾	(39,798		)	(43,514		)
	Impairment - real estate assets	—			(15,739		)
	Gain on property dispositions	20,521			2,271
	Equity in earnings of unconsolidated joint ventures	4,914			6,906
	General and administrative expense ⁽¹⁾	(14,539		)	(12,574		)
	Income taxes ⁽¹⁾	(570		)	(707		)
	Other	576			2,319
Net income		$	59,063		$	31,862


(1)	Excludes costs which are included in determining segment-level net operating income.

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During the three months ended March 31, 2016, the Company acquired one operating property for a purchase price of $8.0 million. This property, comprising 73,000 square feet of leaseable space, is located in the Company's Chicago/Milwaukee reportable segment.

The Company's sales by reportable segment for the three months ended March 31, 2016 are as follows:



	Three months ended March 31, 2016
	Properties Sold	Square Feet (000s)	Gross Proceeds (000s)
Minnesota	1	92	$	9,200
Florida	6	574	111,828		(1)
Other	1	183	10,100
Total	8	849	$	131,128


(1)	Includes gross proceeds from the sale of 3.5 acres of land.

One property totaling 198,000 square feet in the Company's Dallas reportable segment was considered held for sale as of March 31, 2016.

The Company's total assets by reportable segment as of March 31, 2016 and December 31, 2015 is as follows (in thousands):



	March 31, 2016		December 31, 2015
Carolinas/Richmond	$	477,932	$	467,098
Chicago/Milwaukee	438,204		429,390
Florida	781,322		874,352
Houston	520,639		522,285
Lehigh/Central PA	1,188,450		1,157,468
Minnesota	345,590		346,840
Philadelphia	475,495		444,889
Southeastern PA	448,560		448,523
United Kingdom	208,221		215,850
Other	1,570,906		1,586,481
Segment-level total assets	6,455,319		6,493,176
Corporate Other	62,979		64,453
Total assets	$	6,518,298	$	6,557,629

Note 6: Accounting for the Impairment or Disposal of Long-Lived Assets

Asset Impairment

The Company disposes of and anticipates the potential disposition of certain properties prior to the end of their remaining useful lives. There were no impairments recognized during the three months ended March 31, 2016. During the three months ended March 31, 2015, the Company recognized $15.7 million in impairments, $13.4 million of which related to the Company's Carolinas/Richmond reportable segment and $2.3 million of which related to the Company's Southeastern Pennsylvania reportable segment. The Company determined these impairments based on third party offer prices and quoted offer prices for comparable transactions which are Level 2 and Level 3 inputs, respectively, according to the fair value hierarchy established in ASC 820. These measurements have occurred throughout the respective periods as circumstances arise, and the resulting estimates of fair value are not necessarily reflective of measurements at the period’s end. The Company has evaluated each of its properties and land held for development and has determined that there were no additional valuation adjustments necessary at March 31, 2016.

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Note 7: Noncontrolling Interests of the Trust

Noncontrolling interests in the accompanying financial statements represent the interests of the common and preferred units in the Operating Partnership not held by the Trust. In addition, noncontrolling interests include third-party ownership interests in consolidated joint venture investments.

Common units

The common units of the Operating Partnership not held by the Trust outstanding as of March 31, 2016 have the same economic characteristics as common shares of the Trust. The 3.5 million outstanding common units of the Operating Partnership not held by the Trust share proportionately in the net income or loss and in any distributions of the Operating Partnership. The common units of the Operating Partnership not held by the Trust are redeemable at any time at the option of the holder. The Trust, as the sole general partner of the Operating Partnership, may at its option elect to settle the redemption in cash or through the exchange on a one-for-one basis with unregistered common shares of the Trust. The market value of the 3.5 million outstanding common units based on the closing price of the common shares of the Trust at March 31, 2016 was $118.4 million.

Note 8: Limited Partners' Equity and Noncontrolling Interest of the Operating Partnership

Limited partners' equity in the accompanying financial statements represents the interests of the common and preferred units in the Operating Partnership not held by the Trust. The Operating Partnership's noncontrolling interest includes third-party ownership interests in consolidated joint venture investments.

Common units

The common units outstanding have the same economic characteristics as common shares of the Trust. The 3.5 million outstanding common units as of March 31, 2016 not held by the Trust are the limited partners' equity - common units held by persons and entities other than the Trust. The common units of the Operating Partnership not held by the Trust are redeemable at any time at the option of the holder. The Trust, as the sole general partner of the Operating Partnership, may at its option elect to settle the redemption in cash or through the exchange on a one-for-one basis with unregistered common shares of the Trust. The market value of the 3.5 million outstanding common units at March 31, 2016 based on the closing price of the common shares of the Trust at March 31, 2016 was $118.4 million.

Note 9: Noncontrolling Interest - Operating Partnership/Limited Partners' Equity - Preferred Units

As of March 31, 2016, the Company had outstanding the following cumulative preferred units of the Operating Partnership:



ISSUE	AMOUNT		UNITS	LIQUIDATION PREFERENCE	DIVIDEND RATE
	(in 000’s)
Series I-2	$	7,537	301	$25	6.25	%

The preferred units are putable at the holder's option at any time and are callable at the Operating Partnership's option after a stated period of time for cash.

Note 10: Fair Value of Financial Instruments

The following disclosure of estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the following estimates are not necessarily indicative of the amounts the Company could have realized on disposition of the financial instruments at March 31, 2016 and December 31, 2015. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued interest, dividend and distributions payable and other liabilities are reasonable estimates of fair value because of the short-term nature of these instruments. The carrying value of the outstanding amounts under the Company's credit facility is a reasonable estimate of fair value because interest rates float at a rate based on LIBOR.

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This is a Level 2 fair value calculation. Also, credit valuation adjustments are factored into the fair value calculations to account for potential nonperformance risk. These credit valuation adjustments were concluded to be not significant inputs for the fair value calculations for the periods presented. See Note 12 - Derivative Instruments.

The Company used a discounted cash flow model to determine the estimated fair value of its debt as of March 31, 2016 and December 31, 2015. This is a Level 3 fair value calculation. The inputs used in preparing the discounted cash flow model include actual maturity dates and scheduled cash flows as well as estimates for market value discount rates. The Company updates the discounted cash flow model on a quarterly basis to reflect any changes in the Company's debt holdings and changes to discount rate assumptions.

The following summarizes the fair value of the Company's mortgage loans and unsecured notes as of December 31, 2015 and March 31, 2016 (in thousands):



	Mortgage Loans				Unsecured Notes
	Carrying Value		Fair Value		Carrying Value		Fair Value
As of December 31, 2015	$	307,908	$	306,334	$	2,580,108	$	2,616,395
As of March 31, 2016	$	304,360	$	302,783	$	2,580,910	$	2,719,746

Note 11: Unconsolidated Joint Ventures

Liberty Washington, LP

During the three months ended March 31, 2016, Liberty Washington LP (a joint venture in which the Company holds a 25% interest) sold three properties located in the Company's Northern Virginia reportable segment containing 601,000 square feet for $80.5 million.

In addition, during the three months ended March 31, 2016, four properties in the Company's Northern Virginia reportable segment containing 449,000 square feet were transferred to the mortgage lender in full satisfaction of a $66.1 million nonrecourse mortgage loan that was secured by the properties. The Company's share of gain from property dispositions and extinguishment of debt is included in equity in earnings of unconsolidated joint ventures in the accompanying consolidated statements of comprehensive income.

The Company's share of gain from extinguishment of debt was $912,000 and its share of gain on property dispositions was $1.8 million.

As of March 31, 2016 the joint venture was in default of a $46.4 million non-recourse mortgage loan related to certain properties within the joint venture located in the Company's Northern Virginia reportable segment.

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Note 12: Derivative Instruments

The Company borrows funds at a combination of fixed and variable rates. Borrowings under the Company's revolving credit facility and certain bank mortgage loans bear interest at variable rates. Our long-term debt typically bears interest at fixed rates. Our interest rate risk management objectives are to limit generally the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We generally do not hold or issue these derivative contracts for trading or speculative purposes. The interest rate on all of our variable rate debt is generally adjusted at one or three month intervals, subject to settlements under interest rate hedge contracts.

Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive loss (for the Trust) and general partner's equity and limited partners' equity - common units (for the Operating Partnership) and is subsequently reclassified into interest expense in the period that the hedged forecasted transaction affects earnings.

The Company determines the fair value of its interest rate swaps by using the standard methodology of netting discounted future fixed cash payments with the discounted expected variable cash receipts. These variable cash receipts of interest rate swaps are based on expectations of future LIBOR interest rates (forward curves) estimated by observing market LIBOR interest rate curves. This is a Level 2 fair value calculation. Also, credit valuation adjustments are factored into the fair value calculations to account for potential nonperformance risk. These credit valuation adjustments were concluded to be not significant inputs for the fair value calculations for the periods presented.

The Company holds an interest in three interest rate swap contracts (“Swaps”) that eliminate the impact of changes in interest rates on the payments required under variable rate mortgages. The Swaps had aggregate notional amounts of $100.8 million and $101.4 million at March 31, 2016 and December 31, 2015, respectively, and expire at various dates between 2018 and 2020.

The Company accounts for the effective portion of changes in the fair value of a derivative in accumulated other comprehensive loss and subsequently reclassifies the effective portion to earnings over the term that the hedged transaction affects earnings. The Company accounts for the ineffective portion of changes in the fair value of a derivative directly in earnings.

The following table presents the location in the financial statements of the gains or losses recognized related to the Company’s cash flow hedges for the three months ended March 31, 2016 and 2015:



	Three Months Ended
	March 31, 2016			March 31, 2015
	(in thousands)
Amount of loss related to the effective portion recognized in other comprehensive loss	$	(1,643	)	$	(1,299	)
Amount of loss related to the effective portion subsequently reclassified to interest expense	$	(283	)	$	(352	)
Amount of loss related to the ineffective portion recognized in interest expense	$	(56	)	$	(59	)

The fair value of the Swaps in the amounts of $8.1 million and $7.1 million as of March 31, 2016 and December 31, 2015, respectively, is included in other liabilities in the accompanying consolidated balance sheets. The Company estimates that $1.0 million will be reclassified from accumulated other comprehensive loss as an increase to interest expense over the next 12 months.

The Company has agreements with its derivative counterparties that contain a provision whereby if the Company defaults on any of its indebtedness, including defaults where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. If the Company were to breach any of the contractual provisions of the derivative contracts, it would be required to settle its obligations under the agreements at their termination value including accrued interest, which totaled approximately $8.3 million as of March 31, 2016.

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Note 13: Commitments and Contingencies

Environmental Matters

Substantially all of the Company's properties and land were subject to Phase I Environmental Assessments and when appropriate Phase II Environmental Assessments (collectively, the “Environmental Assessments”) obtained in contemplation of their acquisition by the Company or obtained by predecessor owners prior to the sale of the property or land to the Company. The Environmental Assessments did not reveal, nor is the Company aware of, any non-compliance with environmental laws, environmental liability or other environmental claim that the Company believes would likely have a material adverse effect on the Company.

Operating Ground Lease Agreements

Future minimum rental payments under the terms of all non-cancelable operating ground leases under which the Company is the lessee, as of March 31, 2016, were as follows (in thousands):



Year	Amount
2016	$	778
2017	1,038
2018	1,038
2019	1,038
2020	1,038
2021 and thereafter	6,754
Total	$	11,684

Operating ground lease expense for the three months ended March 31, 2016 was $256,000 as compared to $64,000 for the same period in 2015.

Legal Matters

From time to time, the Company is a party to a variety of legal proceedings, claims and assessments arising in the normal course of business. As of March 31, 2016 there were no legal proceedings, claims or assessments that the Company expects to have a material adverse effect on the Company’s business or financial statements.

Other

As of March 31, 2016, the Company had letter of credit obligations of $4.9 million. The Company believes that the likelihood is remote that there will be a draw upon these letter of credit obligations.

As of March 31, 2016, the Company had 24 buildings under development. These buildings are expected to contain, when completed, a total of 6.3 million square feet of leasable space and represent an anticipated aggregate investment of $603.8 million. At March 31, 2016, development in progress totaled $335.9 million. In addition, as of March 31, 2016, the Company had invested $12.3 million in deferred leasing costs related to these development buildings.

As of March 31, 2016, the Company was committed to $80.5 million in improvements on certain buildings and land parcels.

As of March 31, 2016, the Company was committed to $28.7 million in future land purchases.

As of March 31, 2016, the Company was obligated to pay for tenant improvements not yet completed for a maximum of $35.9 million.

As of March 31, 2016, the Company was committed to fund up to $4 million for tenant improvements and leasing commissions under a loan to the buyer of properties in the Company's Southeastern PA reportable segment.

Unconsolidated joint ventures in which the Company holds an interest have engaged the Company as the developer of its development properties pursuant to development agreements. The Company agrees, in consideration for a development fee, to be responsible for all aspects of the development of the properties and to guarantee the timely lien-free completion of construction of the properties and the payment, subject to certain exceptions, of any cost overruns incurred in the development of the properties. The Company is currently developing five buildings for its unconsolidated joint ventures which represent an anticipated aggregate investment by the joint ventures of $1.0 billion.

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The Company maintains cash and cash equivalents at financial institutions. The combined account balances at each institution typically exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes the risk is not significant.

Note 14: Supplemental Disclosure to Consolidated Statements of Cash Flows

The following are supplemental disclosures to the consolidated statements of cash flows for the three months ended March 31, 2016 and 2015 (amounts in thousands):



	2016			2015
Write-off of fully depreciated/amortized property and deferred costs	$	12,685		$	14,436
Write-off of depreciated/amortized property and deferred costs due to sale	$	32,323		$	10,295
Unrealized loss on cash flow hedge	$	(1,360	)	$	(947	)
Changes in accrued development capital expenditures	$	394		$	(8,343	)

Amounts paid in cash for deferred leasing costs incurred in connection with signed leases with tenants are paid in conjunction with improving (acquiring) property, plant and equipment. Such costs are not contained within net real estate. However, they are integral to the completion of a tenant lease and ultimately are related to the improvement and thus the value of the Company’s property, plant and equipment. They are therefore included in investing activities in the Company’s consolidated statements of cash flows.

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

Overview

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

As of March 31, 2016, the Company owned and operated 485 industrial and 123 office properties (the “Wholly Owned Properties in Operation”) totaling 89.7 million square feet. In addition, as of March 31, 2016, the Company owned 24 properties under development, which when completed are expected to comprise 6.3 million square feet (the “Wholly Owned Properties under Development”) and 1,733 acres of developable land, substantially all of which is zoned for commercial use. Additionally, as of March 31, 2016, the Company had an ownership interest, through unconsolidated joint ventures, in 49 industrial and 26 office properties totaling 13.4 million square feet (the “JV Properties in Operation” and, together with the Wholly Owned Properties in Operation, the “Properties in Operation”), five properties under development, which when completed are expected to comprise 2.5 million square feet and a 222-room hotel (the "JV Properties under Development" and, collectively with the Wholly Owned Properties under Development, the "Properties under Development" and, collectively with the Properties in Operation, the "Properties") and 392 acres of developable 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 maximizing rental rates and controlling costs. The Company pursues development opportunities that it believes will create value and yield acceptable returns. The Company also acquires properties that it believes will create long-term value, and disposes of properties that no longer fit within the Company’s strategic objectives or in situations where it can optimize cash proceeds. The Company expects its strategy with respect to product and market selection to continue to favor industrial and metro-office properties and markets with strong demographic and economic fundamentals. The Company also believes that long-term trends indicate potential erosion in the value of certain suburban office properties in certain markets. Accordingly, the Company has increased its investment in industrial and metro-office properties and markets with strong demographic and economic fundamentals, and has decreased its investment in suburban office properties. Furthermore, the Company expects to accelerate this strategy during 2016. The Company anticipates that this strategy will yield significant benefits over time, including a higher rate of rental growth and a lower level of lease transaction costs and other capital costs for industrial properties as opposed to suburban office properties. The Company also anticipates that this strategy will result in a gradual improvement in the average quality and geographic location of the Company’s properties. The Company believes

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that these benefits of the strategy will greatly outweigh the short-term reduction in net cash from operating activities that results from the disposition of the suburban office assets.

The Company’s operating results depend primarily upon income from rental operations and are substantially influenced by rental demand for the Properties in Operation. During the three months ended March 31, 2016 straight line rents on renewal and replacement leases were on average 10.2% higher than rents on expiring leases. The Company's guidance for 2016 contemplated an increase of straight line rent on average of 1% to 4%. During the three months ended March 31, 2016, the Company successfully leased 5.4 million square feet and, as of that date, attained occupancy of 93.7% for the Wholly Owned Properties in Operation and 94.1% for the JV Properties in Operation for a combined occupancy of 93.8% for the Properties in Operation. At December 31, 2015, occupancy for the Wholly Owned Properties in Operation was 93.9% and for the JV Properties in Operation was 92.8% for a combined occupancy for the Properties in Operation of 93.7%. The Company's guidance for 2016 contemplated an increase in average occupancy of 1% to 2%.

Wholly Owned Capital Activity

Acquisitions

During the three months ended March 31, 2016, the Company acquired one operating property for a purchase price of $8.0 million. This property, which contain 73,000 square feet of leaseable space, was 52.8% occupied as of March 31, 2016. The Company also acquired one parcel of land containing 8.3 acres for a purchase price of $3.3 million.

Dispositions

During the three months ended March 31, 2016, the Company realized proceeds of $131.1 million from the sale of eight properties totaling 849,000 square feet and 3.5 acres of land.

Development

During the three months ended March 31, 2016, the Company brought into service five Wholly Owned Properties under Development representing 716,000 square feet and a Total Investment of $94.5 million. During the three months ended March 31, 2016, the Company initiated two Wholly Owned Properties under Development with a projected Total Investment of $24.3 million. As of March 31, 2016, the Company had 24 Wholly Owned Properties under Development with a projected Total Investment of $603.8 million. These Wholly Owned Properties under Development were 48.7% pre-leased as of March 31, 2016.

“Total Investment” for a Property Under Development is defined as the sum of the land costs and the costs of land improvements, building and building improvements, lease transaction costs, and where appropriate, other development costs and carrying costs.

Unconsolidated Joint Venture Capital Activity

The Company periodically enters into unconsolidated joint venture relationships in connection with the execution of its real estate operating strategy.

Acquisitions/Dispositions

During the three months ended March 31, 2016, an unconsolidated joint venture in which the Company holds a 25% interest realized gross proceeds of $80.5 million for the sale of three properties totaling 601,000 square feet. In addition, four properties containing 449,000 square feet were transferred to the mortgage lender for release of a $66.1 million nonrecourse mortgage loan. None of the unconsolidated joint ventures in which the Company holds an interest acquired any operating properties or land parcels. Consistent with the Company's strategy, from time to time the Company may consider transferring assets to or purchasing assets from an unconsolidated joint venture in which the Company holds an interest.

Development

During the three months ended March 31, 2016 a joint venture in which the Company holds a 25% interest brought into service one property totaling 430,000 square feet and a Total Investment of $24.3 million. As of March 31, 2016, joint ventures in which the Company holds an interest had five JV Properties under Development which are expected to comprise, upon completion, 2.5 million square feet and a 222-room Four Seasons Hotel and are expected to represent a Total Investment by the joint ventures of $1.0 billion. These JV Properties under Development were 82.5% pre-leased as of March 31, 2016.

Included in these totals are joint ventures in which the Company holds a 20% interest that are developing the Comcast Innovation & Technology Center, which is expected to comprise, upon completion, 1.3 million square feet and the aforementioned hotel and is expected to represent a Total Investment by the joint ventures of $934 million.

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Properties in Operation

The composition of the Company’s Properties in Operation as of March 31, 2016 and 2015 was as follows (square feet in thousands):



	Net Rent Per Square Foot⁽¹⁾				Straight Line Rent and Operating Expense Reimbursement Per Square Foot⁽²⁾				Total Square Feet		Percent Occupied
	March 31,				March 31,				March 31,		March 31,
	2016		2015		2016		2015		2016	2015	2016		2015
Wholly Owned Properties in Operation:
Industrial-Distribution	$	4.60	$	4.45	$	6.09	$	5.94	71,362	68,434	95.7	%	94.6	%
Industrial-Flex	$	8.98	$	8.68	$	12.73	$	12.57	8,066	8,738	93.1	%	92.5	%
Office	$	17.91	$	15.74	$	26.73	$	24.55	10,230	13,929	80.3	%	87.0	%
	$	6.30	$	6.46	$	8.70	$	9.23	89,658	91,101	93.7	%	93.2	%
JV Properties in Operation: ⁽³⁾
Industrial-Distribution	$	4.08	$	4.08	$	5.88	$	5.79	10,307	10,075	95.5	%	95.6	%
Industrial-Flex	$	26.12	$	25.93	$	27.15	$	24.76	108	108	95.7	%	93.5	%
Office	$	29.05	$	26.24	$	40.60	$	37.65	2,983	4,114	89.2	%	86.5	%
	$	9.53	$	10.18	$	13.38	$	14.47	13,398	14,297	94.1	%	93.0	%
Properties in Operation:
Industrial-Distribution	$	4.54	$	4.40	$	6.06	$	5.92	81,669	78,509	95.7	%	94.7	%
Industrial-Flex	$	9.21	$	8.89	$	12.92	$	12.72	8,174	8,846	93.1	%	92.5	%
Office	$	20.63	$	18.12	$	30.12	$	27.53	13,213	18,043	82.3	%	86.9	%
	$	6.72	$	6.96	$	9.31	$	9.94	103,056	105,398	93.8	%	93.2	%

(1) Net rent represents the contractual rent per square foot at March 31, 2016 or 2015 for tenants in occupancy. Net rent does not include the tenant's obligation to pay property operating expenses and real estate taxes. If a tenant was within a free rent period at March 31, 2016 or 2015 its rent would equal zero for the purposes of this metric.

(2) Straight line rent and operating expense reimbursement represents the straight line rent including operating expense recoveries per square foot at March 31, 2016 or 2015 for tenants in occupancy.

(3) JV Properties in Operation represents the properties owned by unconsolidated joint ventures in which the Company had an interest during the respective periods. Unconsolidated joint ventures in which the Company holds an interest owned 75 and 83 properties as of March 31, 2016 and 2015, respectively.

The table below details the vacancy activity during the three months ended March 31, 2016:



	Total Square Feet
	Wholly Owned Properties in Operation			JV Properties in Operation			Properties in Operation
Vacancy Activity
Vacancy at January 1, 2016	5,472,746			1,013,039			6,485,785
Acquisition vacant space	34,537			—			34,537
Completed development vacant space	287,123			228,447			515,570
Disposition vacant space	(116,337		)	(429,206		)	(545,543		)
Expirations	4,254,401			454,205			4,708,606
Property structural changes/other	—			(254		)	(254		)
Leasing activity	(4,289,361		)	(475,163		)	(4,764,524		)
Vacancy at March 31, 2016	5,643,109			791,068			6,434,177

Lease transaction costs per square foot ⁽¹⁾	$	2.73		$	2.64		$	2.72

(1) Transaction costs include tenant improvement and lease transaction costs.

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Forward-Looking Statements

When used throughout this report, the words “believes,” “anticipates,” “estimates” and “expects” and similar expressions are intended to identify forward-looking statements. Such statements indicate that assumptions have been used that are subject to a number of risks and uncertainties that could cause actual financial results or management plans and objectives to differ materially from those projected or expressed herein, including: the effect of global, national and regional economic conditions; rental demand; the Company’s ability to identify, and enter into agreements with suitable joint venture partners in situations where it believes such arrangements are advantageous; the Company’s ability to identify and secure additional properties and sites, both for itself and the joint ventures to which it is a party, that meet its criteria for acquisition or development; the effect of prevailing market interest rates; risks related to the integration of the operations of entities that we have acquired or may acquire; risks related to litigation; and other risks described from time to time in the Company’s filings with the SEC. Given these uncertainties, readers are cautioned not to place undue reliance on such statements.

Critical Accounting Policies and Estimates

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of critical accounting policies which include capitalized costs, revenue recognition, allowance for doubtful accounts, impairment of real estate, intangibles, investments in unconsolidated joint ventures and derivative instruments and hedging activities. During the three months ended March 31, 2016, 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 months ended March 31, 2016 with the results of operations of the Company for the three months ended March 31, 2015. As a result of the varying levels of development, acquisition and disposition activities by the Company in 2016 and 2015, 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 Three Months Ended March 31, 2016 to Three Months Ended March 31, 2015

Rental Revenue

Rental revenue was $139.1 million for the three months ended March 31, 2016 compared to $148.6 million for the same period in 2015. This decrease of $9.5 million was primarily due to the net result of decreased rental revenue related to property dispositions since January 1, 2015 and increased rental revenue related to acquisitions and completed development for the same period. The net decrease was also due to a decrease in termination fees of $2.7 million. These decreases were partially offset by an increase in Same Store (defined below) property rental revenue of $1.7 million.

Termination fees are fees that the Company agrees to accept in consideration for permitting certain tenants to terminate their leases prior to the contractual expiration date. Termination fees are included in rental revenue and if a property is classified as discontinued operations, related termination fees are included in discontinued operations.

Operating Expense Reimbursement

Operating expense reimbursement was $51.1 million for the three months ended March 31, 2016 compared to $58.3 million for the same period in 2015. This decrease of $7.2 million was primarily due to an aggregate decrease of $7.9 million in rental property expense and real estate taxes.

Rental Property Expense

Rental property expense was $28.5 million for the three months ended March 31, 2016 compared to $35.6 million for the same period in 2015. This decrease of $7.1 million was primarily due to a reduction in expense associated with the sale of suburban office and high finish flex properties partially offset by increased expenses resulting from the acquisition and completed development of industrial properties. Rental property expense includes utilities, insurance, janitorial, landscaping, snow removal and other costs necessary to maintain a property.

Real Estate Taxes

Real estate taxes were $25.3 million for the three months ended March 31, 2016 compared to $26.2 million for the same period in 2015. This decrease of $0.9 million was primarily due to a reduction in expenses associated with the sale of suburban office and high finish flex properties partially offset by increased expenses resulting from the acquisition and completed development of industrial properties.

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Segments

The Company evaluates the performance of the Wholly Owned Properties in Operation in terms of net operating income by reportable segment (see Note 5 to the Company’s financial statements for a reconciliation of this measure to net income). The following table identifies changes to net operating income in reportable segments (dollars in thousands):



	Three Months Ended				Percentage Increase (Decrease)
	March 31,
	2016		2015
Carolinas/Richmond	$	10,840	$	12,846	(15.6	%)	(1)
Chicago/Milwaukee	6,793		6,743		0.7	%
Florida	18,047		19,102		(5.5	%)
Houston	8,833		7,221		22.3	%	(2)
Lehigh/Central PA	24,202		22,971		5.4	%
Minnesota	4,578		5,985		(23.5	%)	(3)
Philadelphia	7,097		7,022		1.1	%
Southeastern PA	13,751		20,988		(34.5	%)	(1)
United Kingdom	2,405		2,516		(4.4	%)
Other	22,825		22,176		2.9	%
Total reportable segment net operating income	$	119,371	$	127,570	(6.4	%)


(1)	The decrease was primarily due to a decrease in average gross investment in operating real estate.


(2)	The increase was primarily due to an increase in average gross investment in operating real estate.


(3)	The decrease was primarily due to a decrease in occupancy and a decrease in average gross investment in operating real estate.

Same Store

Property level operating income, exclusive of termination fees, for the Same Store properties is identified in the table below.

The Same Store results were affected by changes in occupancy and rental rates as detailed below.



	Three Months Ended
	March 31,
	2016			2015
Average occupancy %	95.0		%	93.7		%
Average rental rate - cash basis ⁽¹⁾	$	6.27		$	6.23
Average rental rate - straight line rent and operating expense reimbursement ⁽²⁾	$	8.64		$	8.64


(1)	Represents the average contractual rent per square foot for the three months ended March 31, 2016 or 2015 for tenants in occupancy in Same Store properties. Cash basis rent does not include the tenant's obligation to pay property operating expenses and real estate taxes. If a tenant was within a free rent period its rent would equal zero for purposes of this metric.


(2)	Represents the average straight line rent including operating expense recoveries per square foot for the three months ended March 31, 2016 or 2015 for tenants in occupancy in the Same Store properties.

Management generally considers the performance of the Same Store properties to be a useful financial performance measure because the results are directly comparable from period to period. In addition, Same Store property level operating income and Same Store cash basis property level operating income are considered by management to be more reliable indicators of the portfolio’s baseline performance. The Same Store properties consist of the 582 properties totaling approximately 84.6 million square feet owned on January 1, 2015. Properties that were acquired, or on which development was completed, during the year ended December 31, 2015 and the three months ended March 31, 2016 are excluded from the Same Store properties. Properties that were acquired, or on which development was completed, are included in Same Store when they have been purchased in the case of acquisitions, and placed into service in the case of completed development, prior to the beginning of the earliest period presented in the comparison. The eight properties sold during the three months ended March 31, 2016 and the 81 properties sold during 2015 are also excluded.

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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 months ended March 31, 2016 and 2015. Same Store property level operating income and cash basis property level operating income are non-GAAP measures and do not represent income before gain on property dispositions, income taxes and equity in earnings of unconsolidated joint ventures because they do not reflect the consolidated operations of the Company. Investors should review Same Store results, along with NAREIT Funds from operations (see “Liquidity and Capital Resources” below), GAAP net income and cash flow from operating activities, investing activities and financing activities when considering the Company’s operating performance. Also set forth below is a reconciliation of Same Store property level operating income and cash basis property level operating income to net income (in thousands).



	Three Months Ended
	March 31, 2016			March 31, 2015
Same Store:
Rental revenue	$	129,613		$	127,880
Operating expenses:
Rental property expense	27,200			28,697
Real estate taxes	22,883			22,565
Operating expense recovery	(48,157		)	(48,397		)
Unrecovered operating expenses	1,926			2,865
Property level operating income	127,687			125,015
Less straight line rent	2,885			4,296
Cash basis property level operating income	$	124,802		$	120,719
Reconciliation of non-GAAP financial measure – Same Store:
Cash basis property level operating income	$	124,802		$	120,719
Straight line rent	2,885			4,296
Property level operating income	127,687			125,015
Non-same store property level operating income	7,568			16,433
Termination fees	1,056			3,718
General and administrative expense	(20,990		)	(18,802		)
Depreciation and amortization expense	(54,078		)	(58,796		)
Impairment - real estate assets	—			(15,739		)
Other income (expense)	(26,814		)	(28,299		)
Gain on property dispositions	20,521			2,271
Income taxes	(801		)	(845		)
Equity in earnings of unconsolidated joint ventures	4,914			6,906
Net income	$	59,063		$	31,862

General and Administrative

General and administrative expenses increased to $21.0 million for the three months ended March 31, 2016 compared to $18.8 million for the three months ended March 31, 2015. This increase was primarily due to increases in performance-based compensation and severance costs. General and administrative expenses include salaries, wages and incentive compensation for general and administrative staff along with related costs, consulting, marketing, public company expenses, costs associated with the acquisition of properties and other general and administrative costs.

Depreciation and Amortization

Depreciation and amortization decreased to $54.1 million for the three months ended March 31, 2016 from $58.8 million for the three months ended March 31, 2015. This decrease was primarily due to the net result of decreased depreciation and amortization related to property dispositions since January 1, 2015 and increased depreciation and amortization related to acquisitions and completed development for the same period. The decrease was also due to a reduction in amortization of in-place lease intangibles.

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Impairment - Real Estate Assets

There was no impairment - real estate assets for the three months ended March 31, 2016. During the three months ended March 31, 2015 the Company recognized $15.7 million in impairment - real estate assets including $13.4 million in impairment expense related to the Company's Carolinas/Richmond reportable segment and $2.3 million in impairment expense related to the Company's Southeastern Pennsylvania reportable segment. The properties related to the Carolinas/Richmond reportable segment were subsequently sold.

Interest and Other Income

Interest and other income decreased to $4.6 million for the three months ended March 31, 2016 from $6.4 million for the three months ended March 31, 2015. This decrease was primarily related to a decrease in gains associated with a land development in the United Kingdom.

Interest Expense

Interest expense decreased to $31.4 million for the three months ended March 31, 2016 from $34.7 million for the three months ended March 31, 2015. The decrease was primarily due to a decrease in the weighted average interest rate to 4.4% for the three months ended March 31, 2016 compared to 4.8% for the three months ended March 31, 2015 as well as an increase in capitalized interest, which was $5.1 million for the three months ended March 31, 2016 compared to $3.7 million for the same period in 2015. These effects were partially offset by an increase in the average debt outstanding to $3,167.2 million for the three months ended March 31, 2016 compared to $3,159.7 million for the three months ended March 31, 2015

Equity in Earnings of Unconsolidated Joint Ventures

Equity in earnings of unconsolidated joint ventures decreased to $4.9 million for the three months ended March 31, 2016 compared to $6.9 million for the three months ended March 31, 2015. The decrease for the three month period was primarily due to a decrease in the aggregate of gain from the sale of land leasehold interests, gain on sale of operating properties, and debt forgiveness gain by unconsolidated joint ventures in which the Company holds an interest. The Company's share of such gains was $2.8 million for the three months ended March 31, 2016 compared to $4.8 million for the three months ended March 31, 2015.

Other

Gain on property dispositions increased to $20.5 million for the three months ended March 31, 2016 compared to $2.3 million for the three months ended March 31, 2015.

As a result of the foregoing, the Company’s net income increased to $59.1 million for the three months ended March 31, 2016 from $31.9 million for the three months ended March 31, 2015.

Liquidity and Capital Resources

Overview

The Company seeks to maintain a conservative balance sheet and pursue a strategy of financial flexibility. The Company's liquidity requirements include operating and general and administrative expenses, shareholder distributions, funding its investment in development properties and joint ventures and satisfying interest requirements and debt maturities. The Company believes that proceeds from operating activities, asset sales, its available cash, borrowing capacity from its Credit Facility (as defined below) and its other sources of capital including the public debt and equity markets will provide it with sufficient funds to satisfy these obligations.

Activity

As of March 31, 2016, the Company had cash and cash equivalents of $50.3 million, including $6.6 million in restricted cash.

Net cash provided by operating activities increased to $96.8 million for the three months ended March 31, 2016 from $90.0 million for the three months ended March 31, 2015. This $6.8 million increase was primarily due fluctuations in operating assets and liabilities during the respective periods. Net cash flow provided by operating activities is the primary source of liquidity to fund distributions to shareholders and for recurring capital expenditures and leasing transaction costs for the Company’s Wholly Owned Properties in Operation.

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Net cash provided by investing activities was $26.4 million for the three months ended March 31, 2016 compared to net cash used in investing activities of $34.9 million for the three months ended March 31, 2015. This $61.3 million change primarily resulted from distributions from unconsolidated joint ventures associated with the sale of properties and proceeds from the sale of wholly owned properties and land. This amount was partially offset by an increase in investment in land and property acquisitions.

Net cash used in financing activities was $114.4 million for the three months ended March 31, 2016 compared to $84.0 million for the three months ended March 31, 2015. This $30.4 million increase was primarily due to common share repurchases during 2016. Financing activities include proceeds from the issuance of equity, debt repayments, equity repurchases and distributions.

During the three months ended March 31, 2016, the Company purchased an aggregate of 1.4 million common shares of the Company for $40.9 million as part of a share repurchase plan.

The Company funds its development activities, including its obligations associated with its joint venture development activity, and acquisitions with long-term capital sources and proceeds from the disposition of properties. When appropriate the Company also funds such activities with available capacity under its $800 million credit facility (the "Credit Facility"). The interest rate on borrowings under the Credit Facility fluctuates based upon ratings from Moody’s Investors Service, Inc., Standard and Poor’s Ratings Group and Fitch, Inc. Based on the Company’s existing ratings, the interest rate for borrowings under the Credit Facility at March 31, 2016 was LIBOR plus 105 basis points. There is also a 20 basis point annual facility fee on the current borrowing capacity. The credit facility contains a competitive bid option, whereby participating lenders bid on the interest rate to be charged. This feature is available for up to 50% of the amount of the facility.

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 fixed charge coverage ratio. As of March 31, 2016, the Company’s debt to gross assets ratio was 41% and for the three months ended March 31, 2016, the fixed charge coverage ratio was 3.4x. Debt to gross assets equals total long-term debt and borrowings under the Credit Facility divided by total assets plus accumulated depreciation. The fixed charge coverage ratio equals income before property dispositions plus interest expense and depreciation and amortization (including the Company's pro rata share of depreciation and amortization related to unconsolidated joint ventures) divided by interest expense, including capitalized interest, plus distributions on preferred units.

As of March 31, 2016, $296.3 million in mortgage loans and $2,596.5 million in unsecured notes were outstanding with a weighted average interest rate of 4.69%. The interest rates on $2,892.9 million of mortgage loans and unsecured notes are fixed (including $100.8 million fixed via a swap arrangement - see Note 12 to the Company's financial statements) and range from 3.0% to 7.5%. The weighted average remaining term for the mortgage loans and unsecured notes is 5.5 years.

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The scheduled principal amortization and maturities of the Company’s mortgage loans, unsecured notes and the Credit Facility and the related weighted average interest rates as of March 31, 2016 are as follows (in thousands, except percentages):



													Weighted
	Mortgages												Average
	Principal		Principal		Unsecured			Credit					Interest
	Amortization		Maturities		Notes			Facility		Total			Rate
2016	$	6,417	$	16,880	$	300,000		$	—	$	323,297		5.53	%
2017	8,688		2,349		296,543			—		307,580			6.57	%
2018	6,470		27,102		100,000			260,000		393,572			3.29	%
2019	6,666		50,043		—			—		56,709			4.00	%
2020	3,351		67,370		350,000			—		420,721			4.82	%
2021	2,326		65,091		—			—		67,417			4.06	%
2022	2,172		—		400,000			—		402,172			4.13	%
2023	2,281		—		300,000			—		302,281			3.39	%
2024	2,385		—		450,000			—		452,385			4.40	%
2025 and thereafter	24,806		1,946		400,000			—		426,752			3.81	%
Subtotal	$	65,562	$	230,781	$	2,596,543		$	260,000	$	3,152,886
Reconciling items ⁽¹⁾	8,017		—		(15,633		)	—		(7,616		)
Total for consolidated balance sheet	$	73,579	$	230,781	$	2,580,910		$	260,000	$	3,145,270		4.42	%


(1)	Includes deferred financing costs, premium/discount and market adjustments.

General

The Company has an effective S-3 shelf registration statement on file with the SEC pursuant to which the Trust and the Operating Partnership may issue an unlimited amount of equity securities and debt securities.

Calculation of Funds from Operations

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

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NAREIT Funds from operations (“FFO”) available to common shareholders for the three months ended March 31, 2016 and 2015 are as follows (in thousands, except per share amounts):



	Three Months Ended
	March 31, 2016			March 31, 2015
Reconciliation of net income available to common shareholders to NAREIT FFO available to common shareholders - basic:
Net income available to common shareholders	$	57,554		$	30,951
Basic - income available to common shareholders	57,554			30,951
Basic - income available to common shareholders per weighted average share	$	0.39		$	0.21
Adjustments:
Depreciation and amortization of unconsolidated joint ventures	2,676			2,952
Depreciation and amortization	53,752			58,365
Gain on property dispositions of unconsolidated joint ventures	(1,840		)	—
Gain on property dispositions / impairment - real estate assets	(20,521		)	13,468
Noncontrolling interest share in addback for depreciation and amortization and gain on property dispositions / impairment - real estate assets	(804		)	(1,735		)
NAREIT Funds from operations available to common shareholders – basic	$	90,817		$	104,001
Basic NAREIT Funds from operations available to common shareholders per weighted average share	$	0.62		$	0.70
Reconciliation of net income available to common shareholders to NAREIT FFO - diluted:
Net income available to common shareholders	$	57,554		$	30,951
Diluted - income available to common shareholders	57,554			30,951
Diluted - income available to common shareholders per weighted average share	$	0.39		$	0.21
Adjustments:
Depreciation and amortization of unconsolidated joint ventures	2,676			2,952
Depreciation and amortization	53,752			58,365
Gain on property dispositions of unconsolidated joint ventures	(1,840		)	—
Gain on property dispositions / impairment - real estate assets	(20,521		)	13,468
Noncontrolling interest less preferred share distributions	1,391			735
NAREIT Funds from operations available to common shareholders - diluted	$	93,012		$	106,471
Diluted NAREIT Funds from operations available to common shareholders per weighted average share	$	0.62		$	0.70
Reconciliation of weighted average shares:
Weighted average common shares - all basic calculations	146,071			148,315
Dilutive shares for long term compensation plans	460			716
Diluted shares for net income calculations	146,531			149,031
Weighted average common units	3,539			3,541
Diluted shares for NAREIT Funds from operations calculations	150,070			152,572

Inflation

Inflation has remained relatively low in recent years, and as a result, it has not had a significant impact on the Company during this period. To the extent an increase in inflation would result in increased operating costs, such as 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.

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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, 2015.

Item 4. Controls and Procedures

Controls and Procedures with respect to the Trust

(a) Evaluation of Disclosure Controls and Procedures

The Trust’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the Trust’s Chief Executive Officer and Chief Financial Officer have concluded that the Trust’s disclosure controls and procedures, as of the end of the period covered by this report, were effective to provide reasonable assurance that information required to be disclosed by the Trust in its reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms and (ii) accumulated and communicated to the Trust’s management, including its principal executive and principal financial officers, or persons performing similar function, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

There were no changes in the Trust’s internal control over financial reporting during the quarter ended March 31, 2016 that have materially affected or are reasonably likely to materially affect the Trust’s internal control over financial reporting.

Controls and Procedures with respect to the Operating Partnership

(a) Evaluation of Disclosure Controls and Procedures

The Trust’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, on behalf of the Trust in its capacity as the general partner of the Operating Partnership, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the Trust’s Chief Executive Officer and Chief Financial Officer have concluded that the Operating Partnership’s disclosure controls and procedures, as of the end of the period covered by this report, were effective to provide reasonable assurance that information required to be disclosed by the Operating Partnership in its reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms and (ii) accumulated and communicated to the Trust’s management, including its principal executive and principal financial officers, or persons performing similar function, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

There were no changes in the Operating Partnership’s internal control over financial reporting during the quarter ended March 31, 2016 that have materially affected or are reasonably likely to materially affect the Operating Partnership’s internal control over financial reporting.

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PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

The Company is not a party to any material litigation as of March 31, 2016.


Item 1A.	Risk Factors

None.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information relating to the Company’s repurchase of common shares for the three months ended March 31, 2016.



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate dollar value of shares that may yet be purchased under the program
January 1-31	796,844	$	29.76	796,844	$	154,547,455
February 1-29	600,000	$	28.63	600,000	$	137,379,970
March 1-31	—	$	—	—	$	137,379,970
Total	1,396,844	$	29.28	1,396,844	$	137,379,970

Note: On August 7, 2015, the Company announced that its Board of Trustees had established a program to repurchase up to $250 million of its outstanding common shares. The program will expire August 6, 2017.


Item 3.	Defaults upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

Not applicable.


Item 5.	Other Information

None.

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Item 6.	Exhibits




12.1*	Statement Re: Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges.

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

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

31.3*	Certification 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*	Certification 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**	Certification 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**	Certification 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**	Certification 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**	Certification 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.)

101.INS*	XBRL Instance Document.

101.SCH*	XBRL Taxonomy Extension Schema Document.

101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*	XBRL Extension Labels Linkbase.

101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

________________________

* Filed herewith

** Furnished herewith

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SIGNATURES

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

LIBERTY PROPERTY TRUST



/s/ WILLIAM P. HANKOWSKY		May 5, 2016
William P. Hankowsky		Date
Chairman of the Board of Trustees, President and Chief Executive Officer (Principal Executive Officer)

/s/ GEORGE J. ALBURGER, JR.		May 5, 2016
George J. Alburger, Jr.		Date
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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SIGNATURES

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

LIBERTY PROPERTY LIMITED PARTNERSHIP



BY:	Liberty Property Trust
	General Partner

/s/ WILLIAM P. HANKOWSKY		May 5, 2016
William P. Hankowsky		Date
Chairman of the Board of Trustees, President and Chief Executive Officer (Principal Executive Officer)

/s/ GEORGE J. ALBURGER, JR.		May 5, 2016
George J. Alburger, Jr.		Date
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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EXHIBIT INDEX



EXHIBIT NO.

12.1	Statement Re: Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges.

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

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

31.3	Certification 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	Certification 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	Certification 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	Certification 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	Certification 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	Certification 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.)

101.INS	XBRL Instance Document.

101.SCH	XBRL Taxonomy Extension Schema Document.

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB	XBRL Extension Labels Linkbase.

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

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