e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2006


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

For the transition period from ____________ to ____________


Commission file numbers:		1-13130 (Liberty Property Trust)
		1-13132 (Liberty Property Limited Partnership)

LIBERTY PROPERTY TRUST

LIBERTY PROPERTY LIMITED PARTNERSHIP

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


MARYLAND (Liberty Property Trust)		23-7768996
PENNSYLVANIA (Liberty Property Limited Partnership)		23-2766549

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)


500 Chesterfield Parkway Malvern, Pennsylvania		19355

(Address of Principal Executive Offices)		(Zip Code)


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

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

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

Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filero

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

On August 4, 2006, 90,019,387 Common Shares of Beneficial Interest, par value $.001 per share, of Liberty Property Trust were outstanding.

CONDENSED CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST

(In thousands, except share amounts)


	June 30, 2006			December 31, 2005
	(Unaudited)
ASSETS
Real estate:
Land and land improvements	$	636,896			$	627,914
Building and improvements		3,640,731				3,716,958
Less accumulated depreciation		(767,632	)			(743,346	)


Operating real estate		3,509,995				3,601,526

Development in progress		405,921				324,924
Land held for development		166,429				158,653


Net real estate		4,082,345				4,085,103

Cash and cash equivalents		37,762				61,629
Restricted cash		17,728				29,085
Accounts receivable		29,034				14,761
Deferred rent receivable		69,787				72,818
Deferred financing and leasing costs, net of accumulated amortization (2006, $116,701; 2005, $106,752)		119,184				120,904
Investments in unconsolidated joint ventures		44,663				33,522
Assets held for sale		10,080				22,934
Prepaid expenses and other assets		146,977				56,773


Total assets	$	4,557,560			$	4,497,529


LIABILITIES
Mortgage loans	$	210,057			$	238,728
Unsecured notes		1,755,000				1,755,000
Credit facility		214,480				255,450
Accounts payable		37,695				32,919
Accrued interest		35,312				34,892
Dividend payable		57,313				56,490
Other liabilities		154,566				161,735


Total liabilities		2,464,423				2,535,214

Minority interest		270,601				253,133

SHAREHOLDERS’ EQUITY
Common shares of beneficial interest, $.001 par value, 191,200,000 shares authorized, 89,610,011 (includes 59,100 in treasury) and 88,415,764 (includes 59,100 in treasury) shares issued and outstanding as of June 30, 2006 and December 31, 2005, respectively		89				88
Additional paid-in capital		1,857,672				1,799,068
Accumulated other comprehensive income		15,458				9,906
Distributions in excess of net income		(49,356	)			(98,553	)
Common shares in treasury, at cost, 59,100 shares as of June 30, 2006 and December 31, 2005		(1,327	)			(1,327	)


Total shareholders’ equity		1,822,536				1,709,182


Total liabilities and shareholders’ equity	$	4,557,560			$	4,497,529

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST

(Unaudited and in thousands, except per share amounts)


	Three Months Ended
	June 30, 2006			June 30, 2005
OPERATING REVENUE
Rental	$	119,519		$	122,623
Operating expense reimbursement		49,446			45,168

Total operating revenue		168,965			167,791


OPERATING EXPENSE
Rental property		34,694			32,037
Real estate taxes		18,152			16,254
General and administrative		11,501			9,559
Depreciation and amortization		37,323			35,226

Total operating expenses		101,670			93,076


Operating income		67,295			74,715

OTHER INCOME (EXPENSE)
Interest and other income		2,222			2,616
Interest expense		(29,628	)		(31,095	)

Total other income (expense)		(27,406	)		(28,479	)


Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures		39,889			46,236

Gain on property dispositions, including impairment		17,438			(4,524	)
Income taxes		(235	)		(911	)
Minority interest		(5,839	)		(4,995	)
Equity in earnings of unconsolidated joint ventures		741			182


Income from continuing operations		51,994			35,988

Discontinued operations, net of minority interest (including net gain on property dispositions of $16,550 and $7,244 for the three months ended June 30, 2006 and 2005)		16,456			8,569


Net income	$	68,450		$	44,557


Earnings per common share
Basic:
Income from continuing operations	$	0.58		$	0.41
Income from discontinued operations		0.19			0.10


Income per common share – basic	$	0.77		$	0.51


Diluted:
Income from continuing operations	$	0.58		$	0.41
Income from discontinued operations		0.18			0.10


Income per common share – diluted	$	0.76		$	0.51


Distributions per common share	$	0.615		$	0.61


Weighted average number of common shares outstanding
Basic		88,934			86,685
Diluted		90,324			88,134

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST

(Unaudited and in thousands, except per share amounts)


	Six Months Ended
	June 30, 2006			June 30, 2005
OPERATING REVENUE
Rental	$	235,096		$	233,871
Operating expense reimbursement		99,113			91,200

Total operating revenue		334,209			325,071


OPERATING EXPENSE
Rental property		70,786			67,147
Real estate taxes		35,338			31,384
General and administrative		21,517			18,001
Depreciation and amortization		73,041			67,553

Total operating expenses		200,682			184,085


Operating income		133,527			140,986

OTHER INCOME (EXPENSE)
Interest and other income		4,418			4,745
Interest expense		(60,449	)		(60,572	)

Total other income (expense)		(56,031	)		(55,827	)


Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures		77,496			85,159

Gain on property dispositions, including impairment		17,483			(4,929	)
Income taxes		(610	)		(1,445	)
Minority interest		(10,396	)		(9,118	)
Equity in earnings of unconsolidated joint ventures		916			2,202


Income from continuing operations		84,889			71,869

Discontinued operations, net of minority interest (including net gain on property dispositions of $76,080 and $14,420 for the six months ended June 30, 2006 and 2005)		73,988			18,289


Net income	$	158,877		$	90,158


Earnings per common share
Basic:
Income from continuing operations	$	0.95		$	0.83
Income from discontinued operations		0.84			0.21


Income per common share – basic	$	1.79		$	1.04


Diluted:
Income from continuing operations	$	0.94		$	0.82
Income from discontinued operations		0.82			0.21


Income per common share – diluted	$	1.76		$	1.03


Distributions per common share	$	1.23		$	1.22


Weighted average number of common shares outstanding
Basic		88,587			86,278
Diluted		90,101			87,716

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

OF LIBERTY PROPERTY TRUST

(Unaudited and in thousands)


	Six Months Ended
	June 30, 2006			June 30, 2005
OPERATING ACTIVITIES
Net income	$	158,877		$	90,158
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		75,928			73,155
Amortization of deferred financing costs		2,134			2,344
Equity in earnings of unconsolidated joint ventures		(916	)		(2,202	)
Distributions from unconsolidated joint ventures		2,937			4,391
Minority interest in net income		13,594			9,858
Gain on property dispositions, including impairment		(93,563	)		(9,491	)
Noncash compensation		3,775			2,214
Changes in operating assets and liabilities:
Restricted cash		13,967			8,519
Accounts receivable		(13,308	)		5,017
Deferred rent receivable		3,031			(3,555	)
Prepaid expenses and other assets		(91,558	)		4,268
Accounts payable		4,401			3,084
Accrued interest		420			582
Other liabilities		(9,581	)		5,817

Net cash provided by operating activities		70,138			194,159


INVESTING ACTIVITIES
Investment in properties		(79,454	)		(190,006	)
Investment in unconsolidated joint ventures		(1,939	)		(13,034	)
Proceeds from disposition of properties/land		352,658			89,749
Investment in development in progress		(176,263	)		(72,975	)
Investment in land held for development		(27,817	)		(58,774	)
Increase in deferred leasing costs		(11,311	)		(24,232	)

Net cash provided by (used in) investing activities		55,874			(269,272	)


FINANCING ACTIVITIES
Net proceeds from issuance of common shares		40,151			49,281
Net proceeds from the issuance of preferred units		—			42,889
Net proceeds from issuance of unsecured notes		—			296,424
Repayments of mortgage loans		(29,185	)		(96,656	)
Proceeds from credit facility		234,445			339,550
Repayments on credit facility		(275,415	)		(419,550	)
(Decrease) increase in deferred financing costs		(1,813	)		1,823
Distributions to minority interests		—			(3,710	)
Distributions paid on common shares		(108,935	)		(105,035	)
Distributions paid on units		(11,369	)		(9,866	)

Net cash (used in) provided by financing activities		(152,121	)		95,150


(Decrease) increase in cash and cash equivalents		(26,109	)		20,037
Increase (decrease) in cash and cash equivalents related to foreign currency translation		2,242			(2,713	)
Cash and cash equivalents at beginning of period		61,629			33,667

Cash and cash equivalents at end of period	$	37,762		$	50,991


SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and deferred costs	$	42,691		$	19,959
Acquisition of properties		—			(17,183	)
Assumption of mortgage loans		—			17,183
Issuance of operating partnership units		30,000			—

See accompanying notes.

Liberty Property Trust

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 30, 2006

Note 1: Organization and Basis of Presentation

Organization
Liberty Property Trust (the “Trust”) is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by Liberty Property Limited Partnership (the “Operating Partnership” and together with the Trust and their consolidated subsidiaries, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 95.5% and 96.1% of the common equity of the Operating Partnership at June 30, 2006 and 2005, respectively. The Company provides leasing, property management, development, acquisition and other tenant-related services for a portfolio of industrial and office properties that are located principally within the Mid-Atlantic, Southeastern and Midwestern United States and the United Kingdom.

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

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


	For the Three Months Ended June 30, 2006						For the Three Months Ended June 30, 2005
			Weighted						Weighted
			Average						Average
	Income		Shares		Per		Income		Shares		Per
	(Numerator)		(Denominator)		Share		(Numerator)		(Denominator)		Share
Basic income from continuing operations
Income from continuing operations	$	51,994		88,934	$	0.58	$	35,988		86,685	$	0.41

Dilutive shares for long-term compensation plans		—		1,390				—		1,449


Diluted income from continuing operations
Income from continuing operations and assumed conversions		51,994		90,324	$	0.58		35,988		88,134	$	0.41


Basic income from discontinued operations
Discontinued operations net of minority interest		16,456		88,934	$	0.19		8,569		86,685	$	0.10

Dilutive shares for long-term compensation plans		—		1,390				—		1,449


Diluted income from discontinued operations
Discontinued operations net of minority interest		16,456		90,324	$	0.18		8,569		88,134	$	0.10


Basic income per common share
Net income		68,450		88,934	$	0.77		44,557		86,685	$	0.51

Dilutive shares for long-term compensation plans		—		1,390				—		1,449


Diluted income per common share
Net income and assumed conversions	$	68,450		90,324	$	0.76	$	44,557		88,134	$	0.51


	For the Six Months Ended June 30, 2006						For the Six Months Ended June 30, 2005
			Weighted						Weighted
			Average						Average
	Income		Shares		Per		Income		Shares		Per
	(Numerator)		(Denominator)		Share		(Numerator)		(Denominator)		Share
Basic income from continuing operations
Income from continuing operations	$	84,889		88,587	$	0.95	$	71,869		86,278	$	0.83

Dilutive shares for long-term compensation plans		—		1,514				—		1,438


Diluted income from continuing operations
Income from continuing operations and assumed conversions		84,889		90,101	$	0.94		71,869		87,716	$	0.82


Basic income from discontinued operations
Discontinued operations net of minority interest		73,988		88,587	$	0.84		18,289		86,278	$	0.21

Dilutive shares for long-term compensation plans		—		1,514				—		1,438


Diluted income from discontinued operations
Discontinued operations net of minority interest		73,988		90,101	$	0.82		18,289		87,716	$	0.21


Basic income per common share
Net income		158,877		88,587	$	1.79		90,158		86,278	$	1.04

Dilutive shares for long-term compensation plans		—		1,514				—		1,438


Diluted income per common share
Net income and assumed conversions	$	158,877		90,101	$	1.76	$	90,158		87,716	$	1.03

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

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

Certain restricted share awards and option awards are subject to accelerated vesting upon retirement. The Company historically accounted for these awards over the explicit service period. Upon adoption of SFAS No. 123(R), the Company expensed new awards to individuals qualifying for share acceleration. Compensation costs relating to awards granted prior to the adoption of SFAS No. 123(R) continue to be expensed over the explicit service period. Had the Company accounted for those awards over the substantive service period, compensation costs for the three months ended June 30, 2005 would have decreased by $0.1 million and for the six months ended June 30, 2005 would have increased by $0.4 million.

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

Share based compensation cost related to options for the three months ended June 30, 2006 and 2005 was $199,000 and $157,000, respectively. Share based compensation cost related to options for the six months ended June 30, 2006 and 2005 was $370,000 and $258,000, respectively.

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


	Three Months Ended			Six Months Ended
	June 30, 2005			June 30, 2005
Income available to common shareholders	$	44,557		$	90,158
Add: Share-based compensation expense included in reported net income available to common shareholders		156			258
Deduct: Total share-based employee compensation expense determined under fair value based method for all awards		(163	)		(388	)

Pro forma income available to common shareholders	$	44,550		$	90,028


Income per common share:
Basic – as reported	$	0.51		$	1.04
Basic – pro forma	$	0.51		$	1.04

Diluted – as reported	$	0.51		$	1.03
Diluted – pro forma	$	0.51		$	1.03

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


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

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


				Weighted
				Average
	Options			Exercise
	(000s)			Price
Outstanding at January 1, 2006		3,521		$	29.31
Granted		175			46.94
Exercised		(439	)		27.65


Outstanding at June 30, 2006		3,257		$	30.48


Exercisable at June 30, 2006		2,758		$	28.07

The weighted average fair value of options granted during the six months ended June 30, 2006 and 2005 was $5.06 and $3.82, respectively. Exercise prices for options outstanding as of June 30, 2006 ranged from $21.88 to $48.54. The weighted average remaining contractual life of the options outstanding and exercisable at June 30, 2006 was 5.3 years and 4.7 years, respectively.

During the six months ended June 30, 2006 and 2005, the total intrinsic value of stock options exercised (the difference between the market price at exercise and the price paid by the individual to exercise the option) was $7.3 million and $7.5 million, respectively. As of June 30, 2006, the aggregate intrinsic value of options outstanding was $44.7 million and the aggregate intrinsic value of options exercisable was $44.5 million. The total cash received from the exercise of options for the six months ended June 30, 2006 and 2005 was $12.1 million and $12.2 million, respectively.

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

Share-based compensation cost related to restricted LTI share grants for the three and six months ended June 30, 2006 were $779,000 and $1,728,000, respectively, compared to $633,000 and $1,149,000 for the same periods in 2005.

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


				Weighted Avg
	Shares			Grant Date
	(000s)			Fair value
Nonvested at January 1, 2006		253		$	39.10
Granted		76			48.13
Vested		(50	)		37.12


Nonvested at June 30, 2006		279		$	41.92

As of June 30, 2006, there was $11.7 million of total unrecognized compensation cost related to nonvested LTI share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 2.7 years. The total fair value of restricted shares vested during the six months ended June 30, 2006 and 2005 was $1.9 million and $1.6 million, respectively.

Bonus Shares:
The Plan provides that employees of the Company may elect to receive bonuses or commissions in the form of common shares in lieu of cash (“Bonus Shares”). By making such election, the employee receives shares equal to 120% of the cash value of the bonus or commission, less applicable withholding tax. Bonus Shares issued for the six months ended June 30, 2006 and 2005 were 32,222 and 42,797, respectively. Share-based compensation cost related to Bonus Shares for the three and six months ended June 30, 2006 was $0.2 million and $1.5 million, respectively, compared to $0.1 million and $1.7 million for the same periods in 2005.

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

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

million for the six months ended June 30, 2006 and other comprehensive loss was $10.4 million for the six months ended June 30, 2005. Upon sale or upon complete or substantially complete liquidation of a foreign investment, the gain or loss on the sale will include a portion of the cumulative translation adjustments that have been previously recorded in other comprehensive income.

Note 2: Segment Information

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


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

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

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


For the Three Months Ended June 30, 2006
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	47,531	$	9,720	$	24,205	$	30,757	$	29,664	$	26,124	$	964	$	168,965
Rental property expenses and real estate taxes		14,021		2,876		6,494		11,143		8,860		8,800		652		52,846

Property level operating income	$	33,510	$	6,844	$	17,711	$	19,614	$	20,804	$	17,324	$	312		116,119


Interest and other income																2,222
Interest expense																(29,628	)
General and administrative																(11,501	)
Depreciation and amortization																(37,323	)

Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																39,889
Gain on property dispositions, including impairment																17,438
Income taxes																(235	)
Minority interest																(5,839	)
Equity in earnings of unconsolidated joint ventures																741
Discontinued operations, net of minority interest																16,456


Net income															$	68,450


For the Three Months Ended June 30, 2005
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	52,016	$	9,148	$	22,031	$	28,918	$	25,367	$	23,768	$	6,543	$	167,791
Rental property expenses and real estate taxes		13,142		2,908		5,853		10,433		7,418		7,456		1,081		48,291

Property level operating income	$	38,874	$	6,240	$	16,178	$	18,485	$	17,949	$	16,312	$	5,462		119,500


Interest and other income																2,616
Interest expense																(31,095	)
General and administrative																(9,559	)
Depreciation and amortization																(35,226	)

Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																46,236
Gain on property dispositions, including impairment																(4,524	)
Income taxes																(911	)
Minority interest																(4,995	)
Equity in earnings of unconsolidated joint ventures																182
Discontinued operations, net of minority interest																8,569


Net income															$	44,557


For the Six Months Ended June 30, 2006
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	92,652	$	19,143	$	49,007	$	62,638	$	57,746	$	51,194	$	1,829	$	334,209
Rental property expenses and real estate taxes		28,434		5,932		12,598		23,020		17,894		16,843		1,403		106,124

Property level operating income	$	64,218	$	13,211	$	36,409	$	39,618	$	39,852	$	34,351	$	426		228,085


Interest and other income																4,418
Interest expense																(60,449	)
General and administrative																(21,517	)
Depreciation and amortization																(73,041	)

Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																77,496
Gain on property dispositions, including impairment																17,483
Income taxes																(610	)
Minority interest																(10,396	)
Equity in earnings of unconsolidated joint ventures																916
Discontinued operations, net of minority interest																73,988


Net income															$	158,877


For the Six Months Ended June 30, 2005
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	97,359	$	18,165	$	43,212	$	57,347	$	50,593	$	46,669	$	11,726	$	325,071
Rental property expenses and real estate taxes		28,035		6,261		11,513		20,966		15,268		14,436		2,052		98,531

Property level operating income	$	69,324	$	11,904	$	31,699	$	36,381	$	35,325	$	32,233	$	9,674		226,540


Interest and other income																4,745
Interest expense																(60,572	)
General and administrative																(18,001	)
Depreciation and amortization																(67,553	)

Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																85,159
Gain on property dispositions, including impairment																(4,929	)
Income taxes																(1,445	)
Minority interest																(9,118	)
Equity in earnings of unconsolidated joint ventures																2,202
Discontinued operations, net of minority interest																18,289


Net income															$	90,158

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

In accordance with SFAS No. 144, the operating results and gain/(loss) on the disposition of real estate for properties sold and held for sale are reflected in the consolidated statements of operations as discontinued operations. The proceeds from dispositions of operating properties for the three and six months ended June 30, 2006 were $101.7 million and $258.2 million, respectively, as compared to $63.7 million and $93.0 million, respectively, for the same periods in 2005. Below is a summary of the results of the properties disposed of through the respective disposition dates (in thousands):


	Three Months Ended						Six Months Ended
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005
Revenues	$	3,300		$	9,727		$	8,313		$	22,889
Operating expenses		(1,201	)		(2,459	)		(2,731	)		(5,704	)
Interest expense		(359	)		(3,109	)		(1,953	)		(7,079	)
Depreciation and amortization		(1,062	)		(2,489	)		(2,523	)		(5,497	)

Income before property dispositions and minority interest	$	678		$	1,670		$	1,106		$	4,609

As of June 30, 2006, the Company determined that the held for sale criteria in SFAS No. 144 has been met for seven properties totaling 308,000 square feet.

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

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

Note 4: Joint Ventures

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

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

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

Chicago Joint Venture
On April 25, 2006, the Company entered into a joint venture selling a 75% equity interest in six distribution buildings totaling 2.15 million square feet, and approximately 100 acres of developable land. The joint venture valued the buildings and land at $125 million. The Company retained a 25% ownership interest in the joint venture, and will receive development, leasing and property management fees, and may receive a promoted interest if certain return thresholds are met.

Note 5: Recently Issued Accounting Standards

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

EITF Issue 04-5
In June 2005, the FASB ratified its consensus in EITF Issue 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“Issue 04-5”). The effective date for Issue 04-5 was June 29, 2005 for all new or modified partnerships and January 1, 2006 for all other partnerships. The adoption of Issue 04-5 did not have a material impact on the Company’s results of operations or its financial position.

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


	June 30, 2006			December 31, 2005
	(Unaudited)
ASSETS
Real estate:
Land and land improvements	$	636,896			$	627,914
Building and improvements		3,640,731				3,716,958
Less accumulated depreciation		(767,632	)			(743,346	)


Operating real estate		3,509,995				3,601,526

Development in progress		405,921				324,924
Land held for development		166,429				158,653


Net real estate		4,082,345				4,085,103

Cash and cash equivalents		37,762				61,629
Restricted cash		17,728				29,085
Accounts receivable		29,034				14,761
Deferred rent receivable		69,787				72,818
Deferred financing and leasing costs, net of accumulated amortization (2006, $116,701; 2005, $106,752)		119,184				120,904
Investments in unconsolidated joint ventures		44,663				33,522
Assets held for sale		10,080				22,934
Prepaid expenses and other assets		146,977				56,773


Total assets	$	4,557,560			$	4,497,529


LIABILITIES
Mortgage loans	$	210,057			$	238,728
Unsecured notes		1,755,000				1,755,000
Credit facility		214,480				255,450
Accounts payable		37,695				32,919
Accrued interest		35,312				34,892
Distribution payable		57,313				56,490
Other liabilities		154,566				161,735


Total liabilities		2,464,423				2,535,214

Minority interest		393				407

OWNERS’ EQUITY
General partner’s equity – common units		1,822,536				1,709,182
Limited partners’ equity – preferred units		184,657				184,657
– common units		85,551				68,069

Total owners’ equity		2,092,744				1,961,908


Total liabilities and owners’ equity	$	4,557,560			$	4,497,529

See accompanying notes.

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


	Three Months Ended
	June 30, 2006			June 30, 2005
OPERATING REVENUE
Rental	$	119,519		$	122,623
Operating expense reimbursement		49,446			45,168

Total operating revenue		168,965			167,791


OPERATING EXPENSE
Rental property		34,694			32,037
Real estate taxes		18,152			16,254
General and administrative		11,501			9,559
Depreciation and amortization		37,323			35,226

Total operating expenses		101,670			93,076


Operating income		67,295			74,715

OTHER INCOME (EXPENSE)
Interest and other income		2,222			2,616
Interest expense		(29,628	)		(31,095	)

Total other income (expense)		(27,406	)		(28,479	)


Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures		39,889			46,236

Gain on property dispositions, including impairment		17,438			(4,524	)
Income taxes		(235	)		(911	)
Minority interest		—			(368	)
Equity in earnings of unconsolidated joint ventures		741			182


Income from continuing operations		57,833			40,615

Discontinued operations (including net gain on property dispositions of $16,550 and $7,244 for the three months ended June 30, 2006 and 2005)		17,228			8,914


Net income		75,061			49,529

Preferred unit distributions		(3,401	)		(2,663	)
Excess of preferred unit redemption over carrying amount		—			(500	)


Income available to common unitholders	$	71,660		$	46,366


Earnings per common unit
Basic:
Income from continuing operations	$	0.58		$	0.41
Income from discontinued operations		0.19			0.10


Income per common unit – basic	$	0.77		$	0.51


Diluted:
Income from continuing operations	$	0.58		$	0.41
Income from discontinued operations		0.18			0.10


Income per common unit – diluted	$	0.76		$	0.51


Distributions per common unit	$	0.615		$	0.61


Weighted average number of common units outstanding
Basic		92,587			90,203
Diluted		93,977			91,651

See accompanying notes.

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


	Six Months Ended
	June 30, 2006			June 30, 2005
OPERATING REVENUE
Rental	$	235,096		$	233,871
Operating expense reimbursement		99,113			91,200

Total operating revenue		334,209			325,071


OPERATING EXPENSE
Rental property		70,786			67,147
Real estate taxes		35,338			31,384
General and administrative		21,517			18,001
Depreciation and amortization		73,041			67,553

Total operating expenses		200,682			184,085


Operating income		133,527			140,986

OTHER INCOME (EXPENSE)
Interest and other income		4,418			4,745
Interest expense		(60,449	)		(60,572	)

Total other income (expense)		(56,031	)		(55,827	)


Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures		77,496			85,159

Gain on property dispositions, including impairment		17,483			(4,929	)
Income taxes		(610	)		(1,445	)
Minority interest		—			(355	)
Equity in earnings of unconsolidated joint ventures		916			2,202


Income from continuing operations		95,285			80,632

Discontinued operations (including net gain on property dispositions of $76,080 and $14,420 for the six months ended June 30, 2006 and 2005)		77,186			19,029


Net income		172,471			99,661

Preferred unit distributions		(6,802	)		(5,339	)
Excess of preferred unit redemption over carrying amount		—			(500	)


Income available to common unitholders	$	165,669		$	93,822


Earnings per common unit
Basic:
Income from continuing operations	$	0.95		$	0.83
Income from discontinued operations		0.84			0.21


Income per common unit – basic	$	1.79		$	1.04


Diluted:
Income from continuing operations	$	0.94		$	0.82
Income from discontinued operations		0.82			0.21


Income per common unit – diluted	$	1.76		$	1.03


Distributions per common unit	$	1.23		$	1.22


Weighted average number of common units outstanding
Basic		92,173			89,869
Diluted		93,687			91,308

See accompanying notes.

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


	Six Months Ended
	June 30, 2006			June 30, 2005
OPERATING ACTIVITIES
Net income	$	172,471		$	99,661
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		75,928			73,155
Amortization of deferred financing costs		2,134			2,344
Equity in earnings of unconsolidated joint ventures		(916	)		(2,202	)
Distributions from unconsolidated joint ventures		2,937			4,391
Minority interest in net income		—			355
Gain on property dispositions, including impairment		(93,563	)		(9,491	)
Noncash compensation		3,775			2,214
Changes in operating assets and liabilities:
Restricted cash		13,967			8,519
Accounts receivable		(13,308	)		5,017
Deferred rent receivable		3,031			(3,555	)
Prepaid expenses and other assets		(91,558	)		4,268
Accounts payable		4,401			3,084
Accrued interest		420			582
Other liabilities		(9,581	)		5,817

Net cash provided by operating activities		70,138			194,159


INVESTING ACTIVITIES
Investment in properties		(79,454	)		(190,006	)
Investment in unconsolidated joint ventures		(1,939	)		(13,034	)
Proceeds from disposition of properties/land		352,658			89,749
Investment in development in progress		(176,263	)		(72,975	)
Investment in land held for development		(27,817	)		(58,774	)
Increase in deferred leasing costs		(11,311	)		(24,232	)

Net cash provided by (used in) investing activities		55,874			(269,272	)


FINANCING ACTIVITIES
Net proceeds from the issuance of preferred units		—			42,889
Net proceeds from issuance of unsecured notes		—			296,424
Repayments of mortgage loans		(29,185	)		(96,656	)
Proceeds from credit facility		234,445			339,550
Repayments on credit facility		(275,415	)		(419,550	)
(Decrease) increase in deferred financing costs		(1,813	)		1,823
Capital contributions		40,151			49,281
Distributions to partners		(120,304	)		(118,611	)

Net cash (used in) provided by financing activities		(152,121	)		95,150


(Decrease) increase in cash and cash equivalents		(26,109	)		20,037
Increase (decrease) in cash and cash equivalents related to foreign currency translation		2,242			(2,713	)
Cash and cash equivalents at beginning of period		61,629			33,667

Cash and cash equivalents at end of period	$	37,762		$	50,991


SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and deferred costs	$	42,691		$	19,959
Acquisition of properties		—			(17,183	)
Assumption of mortgage loans		—			17,183
Issuance of operating partnership units		30,000			—

See accompanying notes.

Liberty Property Limited Partnership

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 30, 2006

Note 1: Organization and Basis of Presentation

Organization
Liberty Property Trust, (the “Trust”), is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by Liberty Property Limited Partnership, a Pennsylvania limited partnership, (the “Operating Partnership” and together with the Trust and their consolidated subsidiaries, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 95.5% and 96.1% of the common equity of the Operating Partnership at June 30, 2006 and 2005, respectively. The Company provides leasing, property management, development, acquisition and other tenant-related services for a portfolio of industrial and office properties that are located principally within the Mid-Atlantic, Southeastern and Midwestern United States and the United Kingdom.

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

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


	For the Three Months Ended June 30, 2006							For the Three Months Ended June 30, 2005
				Weighted							Weighted
				Average							Average
	Income			Units		Per		Income			Units		Per
	(Numerator)			(Denominator)		Unit		(Numerator)			(Denominator)		Unit
Income from continuing operations	$	57,833						$	40,615
Less: Preferred unit distributions		(3,401	)						(2,663	)
Excess of preferred unit redemption over carrying amount		—							(500	)


Basic income from continuing operations

Income from continuing operations available to common unitholders		54,432			92,587	$	0.58		37,452			90,203	$	0.41

Dilutive units for long-term compensation plans		—			1,390				—			1,448


Diluted income from continuing operations
Income from continuing operations available to common unitholders and assumed conversions		54,432			93,977	$	0.58		37,452			91,651	$	0.41


Basic income from discontinued operations
Discontinued operations		17,228			92,587	$	0.19		8,914			90,203	$	0.10

Dilutive units for long-term compensation plans		—			1,390				—			1,448


Diluted income from discontinued operations
Discontinued operations		17,228			93,977	$	0.18		8,914			91,651	$	0.10


Basic income per common unit
Income available to common unitholders		71,660			92,587	$	0.77		46,366			90,203	$	0.51

Dilutive units for long-term compensation plans		—			1,390				—			1,448


Diluted income per common unit
Income available to common unitholders and assumed conversions	$	71,660			93,977	$	0.76	$	46,366			91,651	$	0.51


	For the Six Months Ended June 30, 2006							For the Six Months Ended June 30, 2005
				Weighted							Weighted
				Average							Average
	Income			Units		Per		Income			Units		Per
	(Numerator)			(Denominator)		Unit		(Numerator)			(Denominator)		Unit
Income from continuing operations	$	95,285						$	80,632
Less: Preferred unit distributions		(6,802	)						(5,339	)
Excess of preferred unit redemption over carrying amount		—							(500	)


Basic income from continuing operations
Income from continuing operations available to common unitholders		88,483			92,173	$	0.95		74,793			89,869	$	0.83

Dilutive units for long-term compensation plans		—			1,514				—			1,439


Diluted income from continuing operations
Income from continuing operations available to common unitholders and assumed conversions		88,483			93,687	$	0.94		74,793			91,308	$	0.82


Basic income from discontinued operations
Discontinued operations		77,186			92,173	$	0.84		19,029			89,869	$	0.21

Dilutive units for long-term compensation plans		—			1,514				—			1,439


Diluted income from discontinued operations
Discontinued operations		77,186			93,687	$	0.82		19,029			91,308	$	0.21


Basic income per common unit
Income available to common unitholders		165,669			92,173	$	1.79		93,822			89,869	$	1.04

Dilutive units for long-term compensation plans		—			1,514				—			1,439


Diluted income per common unit
Income available to common unitholders and assumed conversions	$	165,669			93,687	$	1.76	$	93,822			91,308	$	1.03

Foreign Currency Translation
The functional currency of the Company’s United Kingdom operation is pounds sterling. The Company translates its financial statements into US dollars. Gains and losses resulting from this translation do not impact the results of operations and are included in general partner’s equity - common units. Other comprehensive income was $5.1 million for the three months ended June 30, 2006 and other comprehensive loss was $8.2 million for the three months ended June 30, 2005. Other comprehensive income was $5.6 million for the six months ended June 30, 2006 and other comprehensive loss was $10.4 million for the six months ended June 30, 2005. Upon sale or upon complete or substantially complete liquidation of a foreign investment, the gain or loss on the sale will include a portion of the cumulative translation adjustments that have been previously recorded in other comprehensive income.

Note 2: Segment Information


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


For the Three Months Ended June 30, 2006
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	47,531	$	9,720	$	24,205	$	30,757	$	29,664	$	26,124	$	964	$	168,965
Rental property expenses and real estate taxes		14,021		2,876		6,494		11,143		8,860		8,800		652		52,846

Property level operating income	$	33,510	$	6,844	$	17,711	$	19,614	$	20,804	$	17,324	$	312		116,119


Interest and other income																2,222
Interest expense																(29,628	)
General and administrative																(11,501	)
Depreciation and amortization																(37,323	)

Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																39,889
Gain on property dispositions, including impairment																17,438
Income taxes																(235	)
Minority interest																—
Equity in earnings of unconsolidated joint ventures																741
Discontinued operations																17,228


Net income															$	75,061


For the Three Months Ended June 30, 2005
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	52,016	$	9,148	$	22,031	$	28,918	$	25,367	$	23,768	$	6,543	$	167,791
Rental property expenses and real estate taxes		13,142		2,908		5,853		10,433		7,418		7,456		1,081		48,291

Property level operating income	$	38,874	$	6,240	$	16,178	$	18,485	$	17,949	$	16,312	$	5,462		119,500


Interest and other income																2,616
Interest expense																(31,095	)
General and administrative																(9,559	)
Depreciation and amortization																(35,226	)

Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																46,236
Gain on property dispositions, including impairment																(4,524	)
Income taxes																(911	)
Minority interest																(368	)
Equity in earnings of unconsolidated joint ventures																182
Discontinued operations																8,914


Net income															$	49,529


For the Six Months Ended June 30, 2006
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	92,652	$	19,143	$	49,007	$	62,638	$	57,746	$	51,194	$	1,829	$	334,209
Rental property expenses and real estate taxes		28,434		5,932		12,598		23,020		17,894		16,843		1,403		106,124

Property level operating income	$	64,218	$	13,211	$	36,409	$	39,618	$	39,852	$	34,351	$	426		228,085


Interest and other income																4,418
Interest expense																(60,449	)
General and administrative																(21,517	)
Depreciation and amortization																(73,041	)

Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																77,496
Gain on property dispositions, including impairment																17,483
Income taxes																(610	)
Minority interest																—
Equity in earnings of unconsolidated joint ventures																916
Discontinued operations																77,186


Net income															$	172,471


For the Six Months Ended June 30, 2005
	Delaware Valley				Midwest
	Southeastern				Lehigh								United
	Pennsylvania		Other		Valley		Other		Mid-Atlantic		Florida		Kingdom		Total
Operating revenue	$	97,359	$	18,165	$	43,212	$	57,347	$	50,593	$	46,669	$	11,726	$	325,071
Rental property expenses and real estate taxes		28,035		6,261		11,513		20,966		15,268		14,436		2,052		98,531

Property level operating income	$	69,324	$	11,904	$	31,699	$	36,381	$	35,325	$	32,233	$	9,674		226,540


Interest and other income																4,745
Interest expense																(60,572	)
General and administrative																(18,001	)
Depreciation and amortization																(67,553	)

Income before property dispositions, income taxes, minority interest and equity in earnings of unconsolidated joint ventures																85,159
Gain on property dispositions, including impairment																(4,929	)
Income taxes																(1,445	)
Minority interest																(355	)
Equity in earnings of unconsolidated joint ventures																2,202
Discontinued operations																19,029


Net income															$	99,661

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


	Three Months Ended						Six Months Ended
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005
Revenues	$	3,300		$	9,727		$	8,313		$	22,889
Operating expenses		(1,201	)		(2,459	)		(2,731	)		(5,704	)
Interest expense		(359	)		(3,109	)		(1,953	)		(7,079	)
Depreciation and amortization		(1,062	)		(2,489	)		(2,523	)		(5,497	)

Income before property dispositions	$	678		$	1,670		$	1,106		$	4,609

As of June 30, 2006, the Company determined that the held for sale criteria in SFAS No. 144 had been met for seven properties totaling 308,000 square feet.

Note 4: Joint Ventures

Note 5: Recently Issued Accounting Standards

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

Overview

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

The Company has an ownership interest in and operates 416 industrial and 290 office properties located primarily in the Mid-Atlantic, Southeastern and Midwestern United States and the United Kingdom (the “Properties in Operation”) totaling 63.6 million square feet. In addition, as of June 30, 2006, the Company has 30 properties under development (the “Properties under Development” and, together with the Properties in Operation, the “Properties”) and owns 1,369 acres of land, substantially all of which is zoned for commercial use. Included within the Properties and land above are 37 industrial and 10 office properties comprising 5.8 million square feet, three development properties comprising 850,000 square feet and 302 acres of developable land owned by unconsolidated joint ventures.

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

The Company continues to experience the effects of the generally slow real estate economy that has persisted since 2002. This economy has presented a particularly difficult real estate market for landlords. These circumstances have impacted many aspects of the Company’s business.

Revenue from the Properties in Operation, which represents over 95% of the Company’s revenue, was subjected in many of its markets to market conditions characterized by an oversupply of leaseable space and soft demand. In the face of these conditions, the Company successfully leased 4.9 million square feet during the three months ended June 30, 2006 and attained occupancy of 92.8% as of that date. The Company believes that these market conditions for the Properties in Operation, which have persisted since 2002, will generally continue for the remainder of 2006, notwithstanding improvements in some markets. Although rental rates in certain markets are starting to stabilize and the Company expects that there will be selected increases in rents on renewal or replacement leases, the Company believes that rents on renewal or replacement leases for 2006 generally will be less than rents on expiring leases.

Conditions in 2006 for the acquisition of properties continue to be very competitive. During the second quarter of 2006, however, the Company acquired one building representing 297,000 square feet and a Total Investment, as defined below, of $27.6 million. From January 1, 2006 through June 30, 2006, the Company acquired seven buildings representing 907,000 square feet of operating properties for an aggregate Total Investment of $61.5 million. These acquisitions generally served to increase the Company’s presence or balance the product mix in markets the Company believes to have significant potential. For 2006, the Company believes that the level of property acquisitions will be in the $250 million to $325 million range, and, similar to 2005, that many of the acquired properties will be either vacant or underleased. The Company believes that there is less competition for such properties, and that consequently they are more attractively priced and are positioned to positively contribute to earnings upon lease up and stabilization. “Total Investment” for a Property is defined as the Property’s purchase price plus closing costs and management’s estimate, as determined at the time of acquisition, of the cost of necessary building improvements in the case of acquisitions, or land costs and land and building improvement costs in the case of development projects, and, where appropriate, other development costs and carrying costs.

Dispositions of Properties in 2006 have been significant. This disposition activity has allowed the Company to (1) shift emphasis or exit product types in certain markets; (2) lower the average age of the portfolio; and (3) take advantage of favorable market conditions to optimize the cash proceeds from the sale of certain well situated assets. During the second quarter of 2006, the Company realized proceeds of $101.7 million from the sale of 14 operating properties

representing 942,000 square feet. From January 1, 2006 through June 30, 2006, the Company realized aggregate proceeds of $258.2 million from the sale of 27 operating properties representing 2.9 million square feet and two acres of land. Additionally, during the three months ended June 30, 2006, the Company sold six operating properties and 100 acres of land to a joint venture in which the Company retained a 25% interest for $125.0 million. The real estate investment market continues to be very strong. Given this situation, the Company anticipates that disposition activity for 2006 will be in the $600 million to $725 million range.

In 2006, the Company continued to pursue development opportunities. During the second quarter of 2006, the Company brought into service seven development properties representing 566,000 square feet and a Total Investment of $77.3 million and initiated $145.2 million in real estate development. As of June 30, 2006, the total projected cost of the wholly owned Properties under Development is expected to be $861.6 million. The Company believes that in 2006, it will bring into service from its development pipeline properties representing approximately $180 million of investment in operating real estate.

The Company periodically enters into joint venture relationships in connection with the execution of its real estate operating strategy. During the quarter ended June 30, 2006, the Company entered into two joint ventures. – See Note 4 to the Company’s financial statements. During the six months ended June 30, 2006, unconsolidated joint ventures sold two properties representing 143,000 square feet and six acres of land for proceeds to the joint venture of $9.9 million. In addition, during the six months ended June 30, 2006, unconsolidated joint ventures initiated $63.3 million in real estate development.

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


	Net Rent
	Per Square Foot				Total Square Feet				Percent Occupied
	June 30,				June 30,				June 30,
	2006		2005		2006		2005		2006			2005
Industrial-Distribution	$	4.23	$	4.27		30,852		29,802		93.9	%		91.1	%
Industrial-Flex	$	9.02	$	8.71		12,503		13,330		93.6	%		90.8	%
Office	$	14.16	$	14.11		20,234		20,001		90.6	%		87.6	%

	$	8.26	$	8.25		63,589		63,133		92.8	%		89.9	%

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

Forward-Looking Statements

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

Critical Accounting Policies and Estimates

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

Results of Operations

The following discussion is based on the consolidated financial statements of the Company. It compares the results of operations of the Company for the three and six months ended June 30, 2006 with the results of operations of the Company for the three and six months ended June 30, 2005. As a result of the varying levels of development, acquisition

and disposition activities by the Company in 2006 and 2005, the overall operating results of the Company during such periods are not directly comparable. However, certain data, including the Same Store comparison, do lend themselves to direct comparison.

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

Comparison of Three and Six Months Ended June 30, 2006 to Three and Six Months Ended June 30, 2005.
The Company’s average gross investment in operating real estate owned for the three months ended June 30, 2006 increased to $4,218.7 million from $3,790.1 million for the three months ended June 30, 2005 and for the six months ended June 30, 2006 increased to $4,176.5 million from $3,752.8 million for the six months ended June 30, 2005. This increase resulted from the increased investment in real estate acquired or developed. This increased investment in operating real estate resulted in increases in rental revenue, operating expense reimbursement, rental property operating expenses, real estate taxes, and depreciation and amortization expense.

Total operating revenue increased to $169.0 million for the three months ended June 30, 2006 from $167.8 million for the three months ended June 30, 2005 and increased to $334.2 million for the six months ended June 30, 2006 from $325.1 million for the six months ended June 30, 2005. The $1.2 million increase during the three months ended June 30, 2006 compared to the same period in 2005 was primarily due to the net increase in investment in operating real estate. This increase was partially offset by a decrease in “Termination Fees” which totaled $3.8 million for the three months ended June 30, 2006 as compared to $11.7 million for the same period in 2005. The $9.1 million increase during the six months ended June 30, 2006 compared to the six months ended June 30, 2005 was primarily due to the net increase in investment in real estate. This increase was partially offset by a decrease in “Termination Fees” which totaled $4.9 million for the six months ended June 30, 2006 as compared to $13.7 million for the six months ended June 30, 2005. “Termination Fees” are fees that the Company agrees to accept in consideration for permitting certain tenants to terminate their leases prior to the contractual expiration date. Termination Fees are included in rental revenue.

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

Property level operating income:


	Three Months Ended								Six Months Ended
	June 30, 2006		June 30, 2005		% inc (dec)				June 30, 2006		June 30, 2005		% inc (dec)
Delaware Valley
– SE Pennsylvania	$	33,510	$	38,874		(13.8	%)	(1)	$	64,218	$	69,324		(7.4	%)	(1)
– Other		6,844		6,240		9.7	%	(2)		13,211		11,904		11.0	%	(2)
Midwest
– Lehigh Valley		17,711		16,178		9.5	%	(3)		36,409		31,699		14.9	%	(3)
– Other		19,614		18,485		6.1	%			39,618		36,381		8.9	%
Mid-Atlantic		20,804		17,949		15.9	%	(4)		39,852		35,325		12.8	%	(4)
Florida		17,324		16,312		6.2	%			34,351		32,233		6.6	%
United Kingdom		312		5,462		(94.3	%)	(5)		426		9,674		(95.6	%)	(5)

Totals	$	116,119	$	119,500		(2.8	%)		$	228,085	$	226,540		0.7	%


(1)		The decreases for both the three and six month periods ended June 30, 2006 versus the three and six months ended June 30, 2005 are primarily due to a decrease in Termination Fees accepted from $8.9 million in the three months ended June 30, 2005 to $2.8 million for the same period in 2006.

(2)		The increases for both the three and six month periods ended June 30, 2006 versus the three and six months ended June 30, 2005 are partially due to greater Termination Fees accepted during the respective periods and also due to an increase in average gross investment in operating real estate during the respective periods.

(3)		The increases for both the three and six month periods ended June 30, 2006 versus the three and six months ended June 30, 2005 are primarily due to increased occupancy and also due to an increase in average gross investment in operating real estate during the respective periods.

(4)		The increases for both the three and six month periods ended June 30, 2006 versus the three and six months ended June 30, 2005 are primarily due to an increase in average gross investment in operating real estate during the respective periods.

(5)		The decreases for both the three and six month periods ended June 30, 2006 versus the three and six months ended June 30, 2005 are primarily due to sales of 15 operating properties to a joint venture in December 2005.

Property level operating income, exclusive of Termination Fees, for the Same Store properties increased to $101.9 million for the three months ended June 30, 2006 from $101.6 million for the three months ended June 30, 2005,

on a straight line basis (which recognizes rental revenue evenly over the life of the lease) and increased to $100.7 million for the three months ended June 30, 2006 from $99.7 million for the three months ended June 30, 2005 on a cash basis. These increases are primarily due to an increase in occupancy for both industrial and office properties.

Property level operating income, exclusive of Termination Fees, for the Same Store properties increased to $203.5 million for the six months ended June 30, 2006 from $202.3 million for the six months ended June 30, 2005 on a straight line basis and increased to $200.7 million for the six months ended June 30, 2006 from $198.7 million for the six months ended June 30, 2005 on a cash basis. These increases are primarily due to an increase in occupancy for both industrial and office 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. Management further believes that the performance comparison should exclude Termination Fees since they are more event specific and are not representative of ordinary performance results. In addition, Same Store property level operating income exclusive of Termination Fees is considered by management to be a more reliable indicator of the portfolio’s baseline performance. The Same Store properties consist of the 610 Properties totaling approximately 51.4 million square feet owned since January 1, 2005.

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


	Three Months Ended						Six Months Ended
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005
Same Store:
Rental revenue	$	104,497		$	103,511		$	208,473		$	207,648

Operating expenses:
Rental property expense		31,229			29,669			63,392			62,960
Real estate taxes		16,528			15,551			31,897			30,208
Operating expense recovery		(45,194	)		(43,299	)		(90,291	)		(87,778	)

Unrecovered operating expenses		2,563			1,921			4,998			5,390


Property level operating income		101,934			101,590			203,475			202,258
Less straight line rent		1,219			1,899			2,747			3,590


Cash basis property level operating income	$	100,715		$	99,691		$	200,728		$	198,668


Reconciliation of non-GAAP financial measure:
Property level operating income – Same Store	$	101,934		$	101,590		$	203,475		$	202,258
Property level operating income – properties purchased or developed subsequent to January 1, 2005		10,418			6,164			19,755			10,537
Termination fees		3,767			11,746			4,855			13,745
General and administrative expense		(11,501	)		(9,559	)		(21,517	)		(18,001	)
Depreciation and amortization expense		(37,323	)		(35,226	)		(73,041	)		(67,553	)
Other income (expense)		(27,406	)		(28,479	)		(56,031	)		(55,827	)
Gain on property dispositions, including impairment		17,438			(4,524	)		17,483			(4,929	)
Income taxes		(235	)		(911	)		(610	)		(1,445	)
Minority interest		(5,839	)		(4,995	)		(10,396	)		(9,118	)
Equity in earnings of unconsolidated joint ventures		741			182			916			2,202
Discontinued operations, net of minority interest		16,456			8,569			73,988			18,289


Net income	$	68,450		$	44,557		$	158,877		$	90,158

General and Administrative
General and administrative expenses increased to $11.5 million for the three months ended June 30, 2006 from $9.6 million for the three months ended June 30, 2005 and increased to $21.5 million for the six months ended June 30, 2006 from $18.0 million for the six months ended June 30, 2005. The increases were primarily due to increases in compensation expense for real estate personnel necessitated by the competitive real estate market and increases in personnel consistent with the increase in the size and complexity of the Company.

Depreciation and Amortization
Depreciation and amortization increased to $37.3 million for the three months ended June 30, 2006 from $35.2 million for the three months ended June 30, 2005 and increased to $73.0 million for the six months ended June 30, 2006 from $67.6 million for the six months ended June 30, 2005. The increases were primarily due to the increase in gross investment in operating real estate during the respective periods and particularly the increased investment in leasing costs, which are amortized over a shorter period than are buildings and improvements.

Interest Expense
Interest expense decreased to $29.6 million for the three months ended June 30, 2006 from $31.1 million for the three months ended June 30, 2005 and decreased to $60.4 million for the six months ended June 30, 2006 from $60.6 million for the six months ended June 30, 2005. These decreases were due to a decrease in the average debt outstanding for the respective periods, which was $2,198.7 million for the three months ended June 30, 2006 as compared to $2,260.7 million for the three months ended June 30, 2005 and $2,215.5 million for the six months ended June 30, 2006 as compared to $2,218.2 million for the six months ended June 30, 2005. Additionally, interest expense allocated to discontinued operations for the three and six months ended June 30, 2006 was less than the interest expense allocated to discontinued operations for the three and six months ended June 30, 2005 by $2.8 million and $5.1 million, respectively, due to the level of dispositions throughout 2005 and the first two quarters of 2006. Interest costs for the three months ended June 30, 2006 and 2005 in the amount of $7.6 million and $4.3 million, respectively, and interest costs for the six months ended June 30, 2006 and 2005 in the amounts of $13.4 million and $7.9 million, respectively, were capitalized. The effect of the decreases in the average debt outstanding was partially offset by increases in the weighted average interest rates for the periods to 6.68% for the three months ended June 30, 2006 from 6.61% in 2005 and to 6.66% for the six months ended June 30, 2006 from 6.60% for the six months ended June 30, 2005.

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

Gain on property dispositions, including impairment increased to a gain of $17.4 million for the three months ended June 30, 2006 from an impairment of $4.5 million for the three months ended June 30, 2005 and increased to a gain of $17.5 million for the six months ended June 30, 2006 from an impairment of $4.9 million for the six months ended June 30, 2005. The increases for the three and six months periods are due to the gains realized on the sale of a 75% interest in six distribution buildings and approximately 100 acres of land in Chicago to a joint venture.

Income from discontinued operations increased to $16.5 million from $8.6 million for the three month period ended June 30, 2006 compared to the three month period ended June 30, 2005 and increased to $74.0 million from $18.3 million for the six month period ended June 30, 2006 compared to the six month period ended June 30, 2005. The increase for both comparable periods is due to an increase in the level of property dispositions during the respective periods.

As a result of the foregoing, the Company’s net income increased to $68.5 million for the three months ended June 30, 2006 from $44.6 million for the three months ended June 30, 2005 and increased to $158.9 million for the six months ended June 30, 2006 from $90.2 million for the six months ended June 30, 2005.

Liquidity and Capital Resources

As of June 30, 2006, the Company had cash and cash equivalents of $55.5 million, including $17.7 million in restricted cash.

Net cash flow provided by operating activities decreased to $70.1 million for the six months ended June 30, 2006 from $194.2 million for the six months ended June 30, 2005. This $124.1 million decrease was primarily due to the change in prepaid expenses and other assets related to the $97.7 million in cash proceeds from property dispositions held in escrow at June 30, 2006. Decreases are also due to fluctuations in operating assets and liabilities during the respective periods. Net cash flow provided by operations is the primary source of liquidity to fund distributions to shareholders and for the recurring capital expenditures and leasing transaction costs for the Company’s Properties in Operation.

Net cash provided by investing activities changed to $55.9 million for the six months ended June 30, 2006 from net cash used of $269.3 million for the six months ended June 30, 2005. This $325.2 million change primarily resulted from an increased proceeds from the disposition of properties/land, increased investment in development in progress and a reduction in acquisition activity in 2006 as compared to 2005.

Net cash used in financing activities was $152.1 million for the six months ended June 30, 2006 compared to $95.2 million provided for the six months ended June 30, 2005. This $247.3 million change was primarily due to a decrease in borrowings in 2006 compared to 2005 due to the increase in proceeds from dispositions. Net cash provided by or used in financing activities includes proceeds from the issuance of equity and debt, net of debt repayments and shareholder distributions. Cash provided by financing activities is a source of capital utilized by the Company to fund investment activities.

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

The Company uses debt financing to lower its overall cost of capital in an attempt to increase the return to shareholders. The Company staggers its debt maturities and maintains debt levels it considers to be prudent. In determining its debt levels, the Company considers various financial measures including the debt to gross assets ratio and the earnings to fixed charge coverage ratio. As of June 30, 2006 the Company’s debt to gross assets ratio was 40.9%, and for the six months ended June 30, 2006, the earnings to fixed charge coverage ratio was 2.6x. Debt to gross assets equals total long-term debt and borrowings under the $600 million Credit Facility divided by total assets plus accumulated depreciation. Earnings to fixed charges equals income from continuing operations before property dispositions and minority interest, including operating activity from discontinued operations, plus interest expense and depreciation and amortization, divided by interest expense, including capitalized interest, plus distributions on preferred units.

As of June 30, 2006, $210.1 million in mortgage loans and $1,755.0 million in unsecured notes were outstanding with a weighted average interest rate of 6.8%. The interest rates on $1,959.0 million of mortgage loans and unsecured notes are fixed and range from 5.125% to 9.75%. Interest rates on $6.1 million of mortgage loans float with the base rate of the respective lending bank or a municipal bond index. The weighted average remaining term for the mortgage loans and unsecured notes is 5.3 years.

The scheduled maturities and principal amortization of the Company’s mortgage loans, unsecured notes and borrowings under the $600 million Credit Facility and the related weighted average interest rates as of June 30, 2006 are as follows (dollars in thousands):


	MORTGAGES														WEIGHTED
	PRINCIPAL			PRINCIPAL			UNSECURED			CREDIT					AVERAGE
	AMORTIZATION			MATURITIES			NOTES			FACILITY			TOTAL		INTEREST RATE
2006 (6 months)		$	4,663		$	22,707		$	100,000	$	—		$	127,370		7.11	%
2007			8,551			1,553			100,000		—			110,104		7.22	%
2008			7,932			39,753			—		76,480	(1)		124,165		5.98	%
2009			5,652			46,148			270,000		—			321,800		7.77	%
2010			4,827			4,738			200,000		138,000			347,565		7.26	%
2011			4,101			10,730			250,000		—			264,831		7.26	%
2012			3,219			32,911			235,000		—			271,130		6.47	%
2013			2,691			—			—		—			2,691		6.00	%
2014			2,857			—			200,000		—			202,857		5.65	%
2015			3,033			—			300,000		—			303,033		5.13	%
2016 & thereafter			3,991			—			100,000		—			103,991		7.44	%

		$	51,517		$	158,540		$	1,755,000	$	214,480		$	2,179,537		6.72	%


(1)		Represents a deposit by the joint venture partner in the Comcast Center (see Note 4 to the Company’s financial statements) which bears interest at the greater of 5% or the current rate on the $600 million Credit Facility until development of the Comcast Center building is completed.

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

General

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

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


	Industrial-				Industrial-
	Distribution				Flex				Office				Total
	Square		Annual		Square		Annual		Square		Annual		Square		Annual
	Feet		Net Rent		Feet		Net Rent		Feet		Net Rent		Feet		Net Rent
2006 (6 months)		1,399	$	5,219		626	$	5,574		644	$	8,131		2,669	$	18,924
2007		4,050		16,999		2,067		19,515		2,049		28,840		8,166		65,354
2008		4,610		18,882		2,242		21,234		2,642		39,510		9,494		79,626
2009		4,334		19,696		1,949		18,244		2,890		44,424		9,173		82,364
2010		2,076		10,128		1,533		14,932		2,602		38,696		6,211		63,756
2011		2,974		13,617		915		9,880		2,193		35,387		6,082		58,884
Thereafter		9,539		51,389		2,365		25,645		5,302		96,283		17,206		173,317

TOTAL		28,982	$	135,930		11,697	$	115,024		18,322	$	291,271		59,001	$	542,225

The Company believes that its existing sources of capital will provide sufficient funds to finance its continued development and acquisition activities. The scheduled deliveries of the 6.2 million square feet of Properties under Development as of June 30, 2006 are as follows (dollars in thousands):


	Square Feet
Scheduled	Industrial-		Industrial-						Percent			Total
In-Service Date	Distribution		Flex		Office		Total		Leased			Investment
3rd Quarter 2006		130,000		46,500		135,952		312,452		93.1	%	$	34,773
4th Quarter 2006		—		48,000		76,255		124,255		52.5	%		21,017
1st Quarter 2007		203,092		79,600		154,424		437,116		65.3	%		40,730
2nd Quarter 2007		150,000		—		129,638		279,638		39.9	%		40,738
3rd Quarter 2007		1,950,320		96,000		230,000		2,276,320		15.1	%		139,827
4th Quarter 2007		168,000		83,200		450,000		701,200		64.2	%		104,454
1st Quarter 2008		592,672		—		110,154		702,826		—			60,894
2nd Quarter 2008		—		—		75,816		75,816		—			10,456
3rd Quarter 2008		—		—		1,253,223		1,253,223		78.4	%		472,000

TOTAL		3,194,084		353,300		2,615,462		6,162,846		41.1	%	$	924,889

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

The Company has an effective S-3 shelf registration statement on file with the SEC (the “Shelf Registration Statement”). As of August 4, 2006, pursuant to the Shelf Registration Statement, the Trust had the capacity to issue up to $586.1 million in equity securities and the Operating Partnership had the capacity to issue up to $806.2 million in debt securities.

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

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

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

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Reconciliation of net income to FFO – basic

Net Income	$	68,450		$	44,557		$	158,877		$	90,158

Basic – Income available to common shareholders		68,450			44,557			158,877			90,158
*Basic – income available to common shareholders per weighted average share*	$	0.77		$	0.51		$	1.79		$	1.04

Adjustments:
Depreciation and amortization of unconsolidated joint ventures		763			286			1,316			652
Depreciation and amortization		37,809			37,085			74,400			71,783
Gain on property dispositions		(34,649	)		(6,740	)		(94,295	)		(15,607	)
Minority interest share in addback for depreciation and amortization and gain on property dispositions		(176	)		(1,185	)		681			(2,211	)

Funds from operations available to common shareholders – basic	$	72,197		$	74,003		$	140,979		$	144,775

*Basic Funds from operations available to common shareholders per weighted average share*	$	0.81		$	0.85		$	1.59		$	1.68

Reconciliation of net income to FFO – diluted:

Net Income	$	68,450		$	44,557		$	158,877		$	90,158

Diluted – income available to common shareholders		68,450			44,557			158,877			90,158
*Diluted – income available to common shareholders per weighted average share*	$	0.76		$	0.51		$	1.76		$	1.03

Adjustments:
Depreciation and amortization of unconsolidated joint ventures		763			286			1,316			652
Depreciation and amortization		37,809			37,085			74,400			71,783
Gain on property dispositions		(34,649	)		(6,740	)		(94,295	)		(15,607	)
Minority interest less preferred share distributions		3,210			1,797			6,792			3,652


Funds from operations available to common shareholders – diluted	$	75,583		$	76,985		$	147,090		$	150,638


*Diluted Funds from operations available to common shareholders per weighted average share*	$	0.80		$	0.84		$	1.57		$	1.65

Reconciliation of weighted average shares:
Weighted average common shares – all basic calculations		88,934			86,685			88,587			86,278
Dilutive shares for long term compensation plans		1,390			1,449			1,514			1,438


Diluted shares for net income calculations		90,324			88,134			90,101			87,716
Weighted average common units		3,653			3,517			3,586			3,592


Diluted shares for Funds from operations calculations		93,977			91,651			93,687			91,308

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

Item 3: Quantitative and Qualitative Disclosures about Market Risk

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

Item 4: Controls and Procedures

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

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

Part II: Other Information

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

None.

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

On June 14, 2006, the Liberty Property Limited Partnership issued 684,432 Units of Limited Partnership Interest (the “Units”). The Units were valued at an aggregate of $30,000,000. The Units were sold to three accredited investors in a private placement in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as a portion of the purchase price for the acquisition of a property. The Units are convertible on a one-for-one basis into the Common Shares of Beneficial Interest of Liberty Property Trust (the “Common Shares”). The holders of the Units have certain rights to cause Liberty Property Trust to register the Common Shares issuable upon conversion of such units pursuant to the terms of a registration rights agreement entered into in connection with this private placement.

Item 3. Defaults upon Senior Securities

None.

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

At the 2006 Annual Meeting of Shareholders of the Trust, held on May 18, 2006, the following matters were approved by the requisite vote of the Shareholders, as follows:

1. Management’s nominees, William P. Hankowsky, David L. Lingerfelt, John A. Miller and Jose A. Mejia, were elected to fill the four available positions as Class III trustees. Voting (expressed in number of shares) was as follows: Mr. Hankowsky: 80,394,852 for, 1,152,446 against or withheld and no abstentions or broker non-votes; Mr. Lingerfelt: 80,349,780 for, 1,197,518 against or withheld and no abstentions or broker non-votes; Mr. Mejia: 80,194,969 for,1,352,328 against or withheld and no abstentions or broker non-votes; and Mr. Miller: 80,376,483 for, 1,170,814 against or withheld and no abstentions or broker non-votes.

2. The shareholders approved a proposal to ratify the selection of Ernst & Young LLP as the Trust’s independent registered public accounting firm for 2006. Voting (expressed in number of shares) was as follows: 81,293,867 for, 211,651 against and 41,780 abstentions or broker non-votes.

3. The shareholders approved a proposal to amend the Liberty Property Trust Amended and Restated Share Incentive Plan, including an amendment to increase the number of shares available for awards thereunder by 1,400,000 shares to 12,826,256 shares. Voting (expressed in number of shares) was as follows: 70,782,695 for, 2,759,528 against and 132,900 abstentions or broker non-votes.

Item 5. Other Information

None.

Item 6. Exhibits


3.1		Liberty Property Trust First Amended and Restated Bylaws, as amended on April 5, 2006 (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on April 10, 2006).

10.1		Amendment, dated April 27, 2006, to the Amended and Restated Rights Agreement, dated as of September 14, 2004, of the Registrant. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 1, 2006.)

10.2		Liberty Property Trust Amended and Restated Share Incentive Plan, as amended effective May 18, 2006. (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders held on May 18, 2006, filed with the Securities and Exchange Commission on April 18, 2006.)

10.3*+		Amended and Restated Limited Partnership Agreement of Liberty/Commerz 1701 JFK Boulevard Limited Partnership, dated as of April 11, 2006, by and among Liberty Property Philadelphia Corporation IV East, as general partner, and the Operating Partnership and 1701 JFK Boulevard Philadelphia, L.P. as limited partners.

10.4*+		NOI Support Agreement, dated as of April 11, 2006, by Liberty Property Limited Partnership in favor of Liberty/Commerz 1701 JFK Boulevard, L.P. and 1701 JFK Boulevard Philadelphia, L.P.

10.5*+		Completion and Payment Agreement and Guaranty, dated as of April 11, 2006, by the Operating Partnership for the benefit of 1701 JFK Boulevard Philadelphia, L.P. and Liberty/Commerz 1701 JFK Boulevard, L.P.

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

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

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

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

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


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

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

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


*		Filed herewith.

+		Confidential treatment has been requested with respect to portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

EXHIBIT INDEX


EXHIBIT NO.		DESCRIPTION
3.1		Liberty Property Trust First Amended and Restated Bylaws, as amended on April 5, 2006 (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on April 10, 2006).

10.1		Amendment, dated April 27, 2006, to the Amended and Restated Rights Agreement, dated as of September 14, 2004, of the Registrant. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 1, 2006.)

10.2		Liberty Property Trust Amended and Restated Share Incentive Plan, as amended effective May 18, 2006. (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders held on May 18, 2006, filed with the Securities and Exchange Commission on April 18, 2006.)

10.3*+		Amended and Restated Limited Partnership Agreement of Liberty/Commerz 1701 JFK Boulevard Limited Partnership, dated as of April 11, 2006, by and among Liberty Property Philadelphia Corporation IV East, as general partner, and the Operating Partnership and 1701 JFK Boulevard Philadelphia, L.P. as limited partners

10.4*+		NOI Support Agreement, dated as of April 11, 2006, by Liberty Property Limited Partnership in favor of Liberty/Commerz 1701 JFK Boulevard, L.P. and 1701 JFK Boulevard Philadelphia, L.P.

10.5*+		Completion and Payment Agreement and Guaranty, dated as of April 11, 2006, by the Operating Partnership for the benefit of 1701 JFK Boulevard Philadelphia, L.P. and Liberty/Commerz 1701 JFK Boulevard, L.P.

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

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

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

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

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

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

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


/s/ WILLIAM P. HANKOWSKY				August 7, 2006

William P. Hankowsky				Date
President and Chief Executive Officer

/s/ GEORGE J. ALBURGER, JR.				August 7, 2006

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


/s/ WILLIAM P. HANKOWSKY				August 7, 2006

William P. Hankowsky				Date
President and Chief Executive Officer

/s/ GEORGE J. ALBURGER, JR.				August 7, 2006

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

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


Index		Page
Part I.	Financial Information

Item 1.	Financial Statements (unaudited)

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

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

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

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

	Notes to condensed consolidated financial statements of Liberty Property Trust		7

	Condensed consolidated balance sheets of Liberty Property Limited Partnership at June 30, 2006 and December 31, 2005		15

	Condensed consolidated statements of operations of Liberty Property Limited Partnership for the three months ended June 30, 2006 and June 30, 2005		16

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

	Condensed consolidated statements of cash flows of Liberty Property Limited Partnership for the six months ended June 30, 2006 and June 30, 2005		18

	Notes to condensed consolidated financial statements of Liberty Property Limited Partnership		19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		33

Item 4.	Controls and Procedures		33

Part II.	Other Information		34

Signatures for Liberty Property Trust			37

Signatures for Liberty Property Limited Partnership			38

Exhibit Index			39
Amended and Restated Limited Partnership Agreement of Liberty/Commerz 1701 JFK Boulevard Limited Partnership
NOI Support Agreement
Completion and Payment Agreement and Guaranty
Certifications of the Chief Executive Officer
Certifications of the Chief Financial Officer
Certifications of the Chief Executive Officer, required by Rule 13a-14(a)
Certifications of the Chief Financial Officer, required by Rule 13a-14(a)
Certifications of the Chief Executive Officer, required by Rule 13a-14(b)
Certifications of the Chief Financial Officer, required by Rule 13a-14(b)
Certifications of the Chief Executive Officer, required by Rule 13a-14(b)
Certifications of the Chief Financial Officer, required by Rule 13a-14(b)


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

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