Organization and Basis of Presentation

Organization

Liberty Property Trust (the “Trust”) is a self-administered and self-managed Maryland real estate investment trust (a “REIT”). Substantially all of the Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership (the “Operating Partnership” and, together with the Trust and their consolidated subsidiaries, the “Company”). The Trust is the sole general partner and also a limited partner of the Operating Partnership, owning 97.7% of the common equity of the Operating Partnership at June 30, 2017. The Company owns and operates industrial properties nationally and owns and operates office properties in a focused group of office markets. Additionally, the Company owns certain assets in the United Kingdom. Unless otherwise indicated, the notes to the Consolidated Financial Statements apply to both the Trust and the Operating Partnership. The terms the “Company,” “we,” “our” and “us” mean the Trust and Operating Partnership collectively.

The Operating Partnership is a variable interest entity ("VIE") of the Trust as the limited partners do not have substantive kick-out or participating rights. The Trust is the primary beneficiary of the Operating Partnership as it has the power to direct the activities of the Operating Partnership and the rights to absorb 97.7% of the net income of the Operating Partnership. The Trust has no significant assets or liabilities other than its investment in the Operating Partnership. As the Operating Partnership is already consolidated in the balance sheets of the Trust, the identification of this entity as a VIE has no impact on the consolidated financial statements of the Trust. In addition, the Company holds a 20% interest in Liberty/Comcast 1701 JFK Boulevard, LP which was determined to be a VIE. The Company determined that it is not the primary beneficiary as the Company and its third party partner share control of the joint venture. The Company's maximum exposure to loss is equal to its equity investment in the joint venture which was $17.7 million and $18.7 million as of June 30, 2017 and December 31, 2016, respectively.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2016. 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.

In the fourth quarter of 2016, the Company entered into an agreement relating to the development, for a fee, of an office building at its Camden Waterfront project in Camden, NJ. Project revenues and related costs and expenses are presented on a gross basis as "Development service fee income" and "Development service fee expense" in the Consolidated Statements of Comprehensive Income. Additionally, at the same time, the Company began classifying development fees and expenses relating to its development fee arrangements for certain unconsolidated joint venture projects in a manner consistent with the Camden project described above. Previously, development service fee income relating to its unconsolidated joint ventures had been classified as other income and development service fee expense had been classified as general and administrative expense in amounts as follows:



	Three months ended		Six months ended
	June 30, 2016		June 30, 2016
Other income	$	1,198	$	2,570
General and administrative	$	1,054	$	2,152

In the first quarter of 2017, the Company adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which requires the Company to reclassify shares withheld for tax withholding purposes on share-based compensation awards from operating activities to financing activities. As a result of the adoption, a $4.1 million cash outflow has been reclassified in the June 30, 2016 consolidated statement of cash flows from operating activities to financing activities.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance (except revenue in the scope of other accounting standards, including standards related to leasing). Subsequently, the FASB issued the following standards related to ASU 2014-09: ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”); ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”); and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”). The Company must adopt ASU 2016-08, ASU 2016-10 and ASU 2016-12 with ASU 2014-09 (collectively, the “New Revenue Standards”) effective January 1, 2018. The New Revenue Standards clarify the required factors that an entity must consider when recognizing revenue and require additional disclosures concerning contracts with customers, judgments concerning revenue recognition, and assets recognized for the costs to obtain or fulfill a contract. The New Revenue Standards also provide guidance regarding the measurement of gains and losses relative to the sale of certain nonfinancial assets, including real estate. The Company has created an implementation plan and is progressing in its assessment of the impact of the New Revenue Standards on various revenue streams and evaluating the qualitative and quantitative disclosure guidance. The Company does not expect the New Revenue Standards to have a material impact on the measurement and recognition of gains and losses on the sale of properties. The New Revenue Standards may impact revenue recognized under the percentage of completion method. The Company is currently assessing whether there will an impact on the amount and timing of recognizing its development service fee income which is currently accounted for under the percentage of completion method based on applicable costs incurred and estimated to be incurred. The Company expects the adoption of the New Revenue Standards to have an impact on its business processes, financial reporting disclosures, and internal controls over financial reporting (“ICFR”). The Company plans to adopt the New Revenue Standards using the modified retrospective method. Significant assessment and implementation matters to be addressed prior to adopting the New Revenue Standards include completing a review of customer contracts, determining the impact the new accounting standard will have on the Company’s financial statements and related disclosures, and updating, as needed, the Company’s business processes, systems, and controls required to comply with the New Revenue Standards. Upon completion of the Company’s implementation plan and evaluation of the remaining revenue contracts, the Company will adopt additional controls around ICFR and its business processes for any new and existing revenue arrangements. The Company is on target to complete its assessment of the new revenue standards and the impact on the Company’s financial statements and related disclosures as of January 1, 2018.

In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for the Company beginning January 1, 2019. Early adoption of ASU 2016-02 is permitted. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. For leases in which the Company is the lessor, the standard requires that the lease and non-lease components of the lease agreement should be separated. Revenue related to the lease component of the contract will be recognized on a straight-line basis, while revenue related to the non-lease component will be recognized under the provisions of ASU 2014-09 (see above). For lease agreements longer than one year in which the Company is the lessee, the Company will measure the present value of the future lease payments and recognize a right-of-use asset and corresponding lease liability on its balance sheet. In addition, the new standard states that only direct leasing costs may be capitalized. The Company is evaluating the impact ASU 2016-02 will have on its financial position and results of operations.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 is designed to clarify how entities should classify cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for the Company beginning January 1, 2018. Early adoption of ASU 2016-15 is permitted. The standard requires retrospective application unless it is impracticable to do so. The Company is evaluating the impact ASU 2016-15 will have on its statement of cash flows.

In February 2017, the FASB issued ASU 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). ASU 2017-05 is designed to provide guidance on how to recognize gain and losses on sales, including partial sale, of nonfinancial assets to noncustomers. ASU 2017-05 is effective for the Company beginning January 1, 2018. Early adoption is permitted but the standard is required to be adopted concurrently with ASU 2014-09. The Company is evaluating the impact ASU 2017-05 will have on the Company's financial position and results of operations.

In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting ("ASU 2017-09"). ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. ASU 2017-09 is effective for the Company beginning January 1, 2018. Early adoption is permitted. The new guidance will be applied prospectively to awards modified on or after the adoption date. The Company is evaluating the impact ASU 2017-09 will have on the Company's financial position and results of operations.