OVERVIEW
Liberty Property Trust (the "Trust") is a self-administered and self-managed Maryland real estate investment trust ("REIT"). Substantially all of the Trust's assets are owned directly or indirectly, and substantially all of the Trust's operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership (the "Operating Partnership" and, collectively with the Trust and their consolidated subsidiaries, the "Company").
The Company operates primarily in the Mid-Atlantic, Southeastern, Midwestern and Southwestern United States. Additionally, the Company owns certain assets in the United Kingdom.
As of September 30, 2009, the Company owned and operated 350 industrial and 293 office properties (the "Wholly Owned Properties in Operation") totaling 63.8 million square feet. In addition, as of September 30, 2009, the Company owned seven properties under development, which are expected to comprise 1.5 million square feet when completed (the "Wholly Owned Properties under Development"), and 1,365 acres of developable land, substantially all of which is zoned for commercial use. Additionally, as of September 30, 2009, the Company had an ownership interest, through unconsolidated joint ventures, in 47 industrial and 49 office properties totaling 13.6 million square feet (the "JV Properties in Operation" and, collectively with the Wholly Owned Properties in Operation, the "Properties in Operation"), and three properties under development, which are expected to comprise 0.9 million square feet when completed (the "JV Properties under Development" and, collectively with the Wholly Owned Properties under Development, the "Properties under Development"). The Company also has an ownership interest through unconsolidated joint ventures in 630 acres of developable land, substantially all of which is zoned for commercial use.
The Company focuses on creating value for shareholders and increasing profitability and cash flow. With respect to its Properties in Operation, the Company endeavors to maintain high occupancy levels while increasing rental rates and controlling costs, though the current economic environment and weak real estate fundamentals have pressured occupancy and created a declining rental rate environment. The Company's operating results depend primarily upon income from rental operations and are substantially influenced by rental demand for the Properties in Operation. As a general matter, the Company pursues development opportunities that it believes will create value and yield acceptable returns. The Company also has historically acquired properties that it believes will create long-term value, and disposed of properties that no longer fit within the Company's strategic objectives or in situations where it can optimize cash proceeds. Current market conditions are not favorable for acquisitions, dispositions or development. The Company's potential for growth in operating income from acquisitions and development has been and is anticipated to continue to be limited in 2009 and 2010.
Current conditions in the global credit markets and declines and weakness in the general economy have negatively impacted the Company's business. Although the credit markets have shown improvement recently, conditions in the credit markets, and in particular the unsecured credit markets that the Company had frequently accessed for financing, remain less favorable than they had been prior to the credit crisis. During the year the Company addressed some of its financing needs through secured debt and equity sales. Additionally, uncertainty about the pricing of commercial real estate and the absence of available financing to facilitate transactions has dramatically reduced the Company's ability to rely on the proceeds from the sale of real estate to provide proceeds to fund investment opportunities.
Consistent with the dramatic slowdown in the United States and world economies, rental demand for the Properties in Operation declined for the three months ended September 30, 2009 as compared to the three months ended September 30, 2008. Despite this trend, the Company successfully leased 3.3 million square feet during the three months ended September 30, 2009 and attained occupancy of 89.4% for the Wholly Owned Properties in Operation and 88.8% for the JV Properties in Operation for a combined occupancy of 89.3% for the Properties in Operation, all as of that date. At December 31, 2008, occupancy for the Wholly Owned Properties in Operation was 91.1% and for the JV Properties in Operation was 92.2% for a combined occupancy for the Properties in Operation of 91.3%.
GUIDANCE
The Company's guidance for the balance of 2009 and 2010 is based on assumptions about the economy and the weak real estate market fundamentals. The Company believes that average occupancy for its Properties in Operation will not increase or decrease by more than 1% for 2010 compared to 2009. Furthermore, the Company believes that straight line rents on renewal and replacement leases for the balance of 2009 and for 2010 will on average be 10% to 15% lower than rents on expiring leases.

The Company's guidance for its 2009 and 2010 capital activity is as follows:

Category                                             2009 Guidance       2009 Revised Guidance       2010 Guidance
Wholly Owned Acquisitions                                 $-                      $-               $25 - $75 million
Wholly Owned Dispositions                         $125 - $200 million        $175 million         $75 - $150 million
Wholly Owned Development Deliveries               $250 - $350 million        $300 million         $75 - $100 million
Joint Venture Acquisitions                        $50 - $100 million              $-                      $-
Joint Venture Dispositions                                $-                      $-                      $-
Joint Venture Development Deliveries               $0 - $50 million           $35 million         $125 - $175 million

WHOLLY OWNED CAPITAL ACTIVITY
Acquisitions
During the nine months ended September 30, 2009, conditions for the acquisition of properties were unsettled primarily because of adverse events in the credit markets. The Company did not acquire any operating properties during the nine months ended September 30, 2009.
Dispositions
During the nine months ended September 30, 2009, market conditions for dispositions were unsettled, which the Company again attributes to adverse conditions in the credit markets. Disposition activity allows the Company to, among other things, (1) reduce its holdings in certain markets and product types within a market; (2) lower the average age of the portfolio; (3) optimize the cash proceeds from the sale of certain assets; and (4) obtain funds for investment activities. During the three months ended September 30, 2009, the Company realized proceeds of $63.1 million from the sale of six operating properties representing 982,000 square feet and 3.0 acres of land. During the nine months ended September 30, 2009, the Company realized proceeds of $143.4 million from the sale of 22 operating properties representing 1.7 million square feet and 3.3 acres of land.
Development
During the three months ended September 30, 2009, the Company brought into service seven Wholly Owned Properties under Development representing 0.5 million square feet and a Total Investment, as defined below, of $89.2 million, and did not initiate any development. During the nine months ended September 30, 2009, the Company brought into service 11 Wholly Owned Properties under Development representing 1.7 million square feet and a Total Investment of $178.5 million, and initiated $12.3 million in real estate development. As of September 30, 2009, the projected Total Investment of the Wholly Owned Properties under Development was $205.5 million.
Although the Company continues to pursue development opportunities, current market conditions are not generally favorable for development, and the Company currently anticipates a modest amount of development starts in the balance of 2009 and 2010. Furthermore, any development starts will be substantially pre-leased. The "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.
JOINT VENTURE CAPITAL ACTIVITY
The Company periodically enters into joint venture relationships in connection with the execution of its real estate operating strategy. Acquisitions
During the three and nine months ended September 30, 2009, none of the unconsolidated joint ventures in which the Company held an interest acquired any properties.
Dispositions
During the three and nine months ended September 30, 2009, none of the unconsolidated joint ventures in which the Company held an interest disposed of any properties.
Development
During the three and nine months ended September 30, 2009, an unconsolidated joint venture in which the Company held an interest brought into service one property representing 500,000 square feet and a Total Investment of $24.0 million. As of September 30, 2009, the projected Total Investment of JV Properties under Development was $166.9 million.

PROPERTIES IN OPERATION
The composition of the Company's Properties in Operation as of September 30,
2009 and 2008 was as follows (in thousands, except dollars and percentages):

                                 Net Rent
                              Per Square Foot            Total Square Feet            Percent Occupied
                               September 30,               September 30,                September 30,
                             2009         2008          2009           2008          2009           2008
Wholly Owned Properties
in Operation:
Industrial-Distribution    $   4.37      $  4.51         30,961        29,809           88.8 %        90.9 %
Industrial-Flex            $   9.08      $  9.21         11,403        11,520           89.2 %        89.4 %
Office                     $  14.40      $ 14.17         21,427        21,548           90.5 %        93.2 %


                           $   8.62      $  8.73         63,791        62,877           89.4 %        91.4 %




                                 Net Rent
                              Per Square Foot            Total Square Feet            Percent Occupied
                               September 30,               September 30,                September 30,
                             2009         2008          2009           2008          2009           2008
Joint Venture
Properties in
Operation:
Industrial-Distribution    $   4.28      $  4.03          8,816         8,316           87.7 %        97.0 %
Industrial-Flex            $  24.41      $ 30.47            171           171           93.6 %        89.5 %
Office                     $  24.72      $ 24.68          4,575         4,581           90.8 %        90.8 %


                           $  11.60      $ 11.30         13,562        13,068           88.8 %        94.7 %




                                  Net Rent
                              Per Square Foot          Total Square Feet          Percent Occupied
                               September 30,             September 30,              September 30,
                              2009        2008         2009          2008         2009          2008
 Properties in Operation:
 Industrial-Distribution    $   4.35     $  4.40        39,777       38,125          88.5 %      92.2 %
 Industrial-Flex            $   9.32     $  9.52        11,574       11,691          89.2 %      89.4 %
 Office                     $  16.22     $ 15.98        26,002       26,129          90.6 %      92.8 %


                            $   9.14     $  9.18        77,353       75,945          89.3 %      92.0 %

Geographic segment data for the three and nine months ended September 30, 2009 and 2008 are included in Note 2 to the Company's financial statements. Forward-Looking Statements
When used throughout this report, the words "believes," "anticipates" and "expects" and similar expressions are intended to identify forward-looking statements. Such statements indicate that assumptions have been used that are subject to a number of risks and uncertainties 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 enter into agreements with suitable joint venture partners in situations where it believes such arrangements are advantageous; the Company's ability to identify and secure additional properties and sites, both for itself and the joint ventures to which it is a party, that meet its criteria for acquisition or development; the current credit crisis and its impact on the availability and cost of capital; the effect of prevailing market interest rates; risks related to the integration of the operations of entities that we have acquired or may acquire; risks related to litigation; and other risks described from time to time in the Company's filings with the SEC. Given these uncertainties, readers are cautioned not to place undue reliance on such statements.

Critical Accounting Policies and Estimates Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2008, as amended and updated, for a discussion of critical accounting policies which include capitalized costs, revenue recognition, allowance for doubtful accounts, impairment of real estate, intangibles and investments in unconsolidated joint ventures. During the three months ended September 30, 2009, 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 nine months ended September 30, 2009 with the results of operations of the Company for the three and nine months ended September 30, 2008. As a result of the varying levels of development, acquisition and disposition activities by the Company in 2009 and 2008, 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 Nine Months Ended September 30, 2009 to Three and Nine Months Ended September 30, 2008
Overview
The Company's average gross investment in operating real estate owned for the three months ended September 30, 2009 increased to $5,102.7 million from $4,811.4 million for the three months ended September 30, 2008. This increase in operating real estate resulted in increases in rental revenue, operating expense reimbursement, real estate taxes and depreciation and amortization expense. Rental property expenses decreased primarily due to a tenant bankruptcy settlement. For the nine months ended September 30, 2009, the Company's average gross investment in real estate owned increased to $5,034.3 million from $4,931.0 million for the nine months ended September 30, 2008. This increase in operating real estate resulted in increases in rental revenue, operating expense reimbursement, real estate taxes, and depreciation and amortization expense. Rental property expenses decreased primarily due to a tenant bankruptcy settlement.
Total operating revenue increased to $187.5 million for the three months ended September 30, 2009 from $182.4 million for the three months ended September 30, 2008 and increased to $557.1 million for the nine months ended September 30, 2009 from $547.0 million for the nine months ended September 30, 2008. The $5.1 million increase during the three months ended September 30, 2009 compared to the same period in 2008 was primarily due to the increase in investment in operating real estate and the increase in operating revenue from the Same Store group of properties, discussed below, and an increase in "Termination Fees," which totaled $1.6 million for the three months ended September 30, 2009 as compared to $1.2 million for the same period in 2008. The $10.1 million increase during the nine months ended September 30, 2009 compared to the same period in 2008 was primarily due to the increase in investment in operating real estate and the increase in operating revenue from the Same Store group of properties, discussed below. These increases were offset by a decrease in "Termination Fees" which totaled $2.7 million for the nine months ended September 30, 2009 as compared to $3.1 million for the same period in 2008. 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, as described above, are included in rental revenue.

Segments
The Company evaluates the performance of the Wholly Owned 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         Percentage           Nine months Ended         Percentage
                               September 30,            Increase              September 30,            Increase
                            2009          2008         (Decrease)          2009          2008         (Decrease)
Northeast
- Southeastern PA         $  30,830     $  29,139             5.8% (1)   $  93,279     $  87,770             6.3% (1)
- Lehigh/Central PA          19,765        17,951            10.1% (2)      55,550        53,081              4.7 %
- New Jersey                  4,511         4,772           (5.5%) (3)      14,028        14,400             (2.6 %)
Midwest                      12,493        13,190           (5.3%) (3)      38,624        38,679             (0.1 %)
Mid-Atlantic                 24,676        24,431              1.0 %        71,874        73,453             (2.1 %)
South                        31,009        30,003              3.4 %        92,950        83,992            10.7% (1)
Philadelphia                  4,055         3,633            11.6% (4)      11,465        18,296          (37.3%) (5)
United Kingdom                  869           707             22.9 %         2,615         2,541              2.9 %

Total property level
operating income          $ 128,208     $ 123,826              3.5 %     $ 380,385     $ 372,212              2.2 %

(1) The change was primarily due to an increase in average gross investment in operating real estate, an increase in occupancy and an increase in rental rates.

(2) The change was primarily due to an increase in average gross investment in operating real estate and an increase in occupancy. This increase was partially offset by a decrease in rental rates in 2009.

(3) The change was primarily due to a decrease in occupancy and a decrease in rental rates. This decrease was partially offset by an increase in average gross investment in operating real estate in 2009.

(4) The change was primarily due to an increase in average gross investment in operating real estate and an increase in rental rates. This increase was partially offset by a decrease in occupancy in 2009.

(5) The change was primarily due to the effect of Comcast Center operation during the relevant periods. Comcast Center was a wholly owned 1,250,000 square foot development property until March 30, 2008 when it was sold into an unconsolidated joint venture.

Same Store
Property level operating income, exclusive of Termination Fees, for the Same Store properties increased to $122.2 million for the three months ended September 30, 2009 from $119.8 million for the three months ended September 30, 2008, on a straight line basis (which recognizes rental revenue evenly over the life of the lease), and increased to $118.3 million for the three months ended September 30, 2009 from $117.8 million for the three months ended September 30, 2008 on a cash basis. These increases of 2.0% and 0.4%, respectively, are primarily due to a tenant bankruptcy settlement.
Property level operating income, exclusive of Termination Fees, for the Same Store properties increased to $364.9 million for the nine months ended September 30, 2009 from $358.7 million for the nine months ended September 30, 2008, on a straight line basis (which recognizes rental revenue evenly over the life of the lease), and increased to $354.0 million for the nine months ended September 30, 2009 from $350.9 million for the nine months ended September 30, 2008 on a cash basis. These increases of 1.7% and 0.9%, respectively, are primarily due to increased occupancy in the Same Store office portfolio and a tenant bankruptcy settlement.
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 and Same Store cash basis 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 617 properties totaling approximately 59.0 million square feet owned on January 1, 2008, excluding properties sold through September 30, 2009.

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 nine months ended September 30, 2009 and 2008. Same Store property level operating income and cash basis property level operating income are non-GAAP measures and do not represent income before property dispositions, income taxes and equity in earnings of unconsolidated joint ventures because they do not reflect the consolidated operations of the Company. Investors should review Same Store results, along with Funds from operations (see "Liquidity and Capital Resources" section), GAAP net income and cash flow from operating activities, investing activities and financing activities when considering the Company's operating performance. Also, set forth below is a reconciliation of Same Store property level operating income and cash basis property level operating income to net income (in thousands).

                                                Three Months Ended                        Nine months Ended
                                        September 30,        September 30,        September 30,        September 30,
                                            2009                 2008                 2009                 2008
Same Store:
Rental revenue                         $       123,605      $       122,519      $       371,430      $       366,215
Operating expenses:
Rental property expense                         35,567               37,755              109,273              110,909
Real estate taxes                               20,898               20,384               62,089               61,317
Operating expense recovery                     (55,038 )            (55,397 )           (164,834 )           (164,722 )

Unrecovered operating expenses                   1,427                2,742                6,528                7,504


Property level operating income                122,178              119,777              364,902              358,711
Less straight line rent                          3,840                1,948               10,859                7,827


Cash basis property level operating
income                                 $       118,338      $       117,829      $       354,043      $       350,884


Reconciliation of non-GAAP financial
measure - Same Store:
Cash basis property level operating
income                                 $       118,338      $       117,829      $       354,043      $       350,884
Straight line rent                               3,840                1,948               10,859                7,827

Property level operating income                122,178              119,777              364,902              358,711
Property level operating income -
properties purchased or developed
subsequent to January 1, 2008                    4,902                3,479               14,403               12,340
Less: Property level operating
income - properties held for sale
at September 30, 2009                             (470 )               (652 )             (1,643 )             (1,973 )
Termination fees                                 1,598                1,222                2,723                3,134
General and administrative expense             (11,248 )            (13,180 )            (38,470 )            (40,340 )
Depreciation and amortization
expense                                        (43,268 )            (43,196 )           (128,140 )           (127,637 )
Other income (expense)                         (33,645 )            (34,274 )           (101,672 )           (105,160 )
Gain (loss) on property
dispositions                                       100                  463               (2,244 )              1,939
Income taxes                                       (86 )               (308 )               (430 )             (1,372 )
Equity in earnings of
unconsolidated joint ventures                      515                  470                2,124                1,857
Discontinued operations                         10,168               12,152               16,245               19,228


Net income                             $        50,744      $        45,953      $       127,798      $       120,727

General and Administrative
General and administrative expenses decreased to $11.2 million for the three months ended September 30, 2009 compared to $13.2 million for the three months ended September 30, 2008. The decrease was primarily due to decreases in compensation expenses. General and administrative expenses decreased to $38.5 million for the nine months ended September 30, 2009 compared to $40.3 million for the nine months ended September 30, 2008 as decreases in compensation expenses were partially offset by an increase due to accelerated vesting of long term incentive compensation due to the years of service and age of certain employees.
Depreciation and Amortization
Depreciation and amortization increased to $43.3 million for the three months ended September 30, 2009 from $43.2 million for the three months ended . . .