Summary of LIBERTY PROPERTY TRUST

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Liberty Property Trust (the "Trust") is a self-administered and self-managed Maryland real estate investment trust ("REIT"). Substantially all of the Trust's assets are owned directly or indirectly, and substantially all of the Trust's operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership (the "Operating Partnership" and, collectively with the Trust and their consolidated subsidiaries, the "Company").
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 March 31, 2012, the Company owned and operated 331 industrial and 264 office properties (the "Wholly Owned Properties in Operation") totaling 65.1 million square feet. In addition, as of March 31, 2012, the Company owned 11 properties under development, which when completed are expected to comprise 3.2 million square feet (the "Wholly Owned Properties under Development") and 1,447 acres of developable land, substantially all of which is zoned for commercial use. Additionally, as of March 31, 2012, the Company had an ownership interest, through unconsolidated joint ventures, in 47 industrial and 49 office properties totaling 14.2 million square feet (the "JV Properties in Operation" and, together with the Wholly Owned Properties in Operation, the "Properties in Operation"). The Company also has an ownership interest through unconsolidated joint ventures in 615 acres of developable land, substantially all of which is zoned for commercial use. The Company refers to the Wholly Owned Properties under Development and the Properties in Operation collectively as the "Properties." On April 3, 2012, the Company completed the sale of 49 properties totaling 2.5 million square feet of leasable space in Wisconsin, Maryland, Virginia, North Carolina and New Jersey for approximately $195 million. The properties consist primarily of single-story and mid-rise office buildings and high-finish flex properties.
The Company focuses on creating value for shareholders and increasing profitability and cash flow. With respect to its Properties in Operation, the Company endeavors to maintain high occupancy levels while maximizing rental rates and controlling costs. The Company pursues development opportunities that it believes will create value and yield acceptable returns. The Company also acquires properties that it believes will create long-term value, and disposes of properties that no longer fit within the Company's strategic objectives or in situations where it can optimize cash proceeds. The Company's strategy with respect to product and market selection is expected generally to favor industrial and metro-office properties and markets with strong demographic and economic fundamentals.
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 economic disruption that commenced in 2008 continues to adversely impact the Company's business. Although we have seen some improvement in the general economy, the economy as it impacts our business has not returned to pre-recession levels. Rental demand for the Properties in Operation remained relatively flat for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. During the three months ended March 31, 2012, the Company successfully leased 4.3 million square feet and, as of that date, attained occupancy of 91.2% for the Wholly Owned Properties in Operation and 87.1% for the JV Properties in Operation for a combined occupancy of 90.5% for the Properties in Operation. During the three months ended March 31, 2012, straight line rents on renewal and replacement leases were on average 4.0% lower than rents on expiring leases. At December 31, 2011, occupancy for the Wholly Owned Properties in Operation was 91.9% and for the JV Properties in Operation was 88.7% for a combined occupancy for the Properties in Operation of 91.3%. Consistent with its strategy, the Company has been an active seller of suburban office properties and it has acquired or commenced development of industrial and metro-office properties. The foregoing activity is anticipated to result in a decline in net cash provided by operating activities until the acquisition properties are stabilized and the development properties are completed and leased. Although the Company anticipates that its investment focus for the remainder of 2012 will be more on acquisitions than dispositions, the Company anticipates that, in the aggregate, for 2012 the net cash provided by operating activities, less customary capital expenditures and leasing transaction costs, will be less than dividend distributions. The Company will continue to evaluate these circumstances in light of its dividend distribution policy.
WHOLLY OWNED CAPITAL ACTIVITY
Acquisitions
During the three months ended March 31, 2012, the Company did not acquire any properties. For 2012, the Company anticipates that wholly owned property acquisitions will range from $100 million to $300 million and believes that certain of its acquired properties will be either vacant or underleased.

Dispositions

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Disposition activity allows the Company to, among other things, (1) reduce its holdings in certain markets and product types within a market consistent with the Company's strategy; (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 March 31, 2012, the Company realized proceeds of $6.5 million from the sale of two operating properties representing 105,000 square feet. For 2012, the Company anticipates that wholly owned property dispositions will range from $250 million to $350 million. Development
During the three months ended March 31, 2012, the Company did not bring any development projects into service but initiated one Wholly Owned Property under Development with a projected Total Investment of $7.8 million. As of March 31, 2012, the Company had 11 Wholly Owned Properties under Development with a projected Total Investment of $294.3 million. For 2012, the Company anticipates that wholly owned development deliveries will total between $30 million and $70 million and that during 2012 it will commence development on properties with an expected aggregate Total Investment in a range from $200 million to $300 million.
"Total Investment" for a property is defined as the property's purchase price plus closing costs (in the case of acquisitions if vacant) 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.
UNCONSOLIDATED JOINT VENTURE CAPITAL ACTIVITY The Company periodically enters into unconsolidated joint venture relationships in connection with the execution of its real estate operating strategy. Acquisitions
During the three months March 31, 2012, none of the unconsolidated joint ventures in which the Company held an interest acquired any properties. The Company does not anticipate that any unconsolidated joint ventures in which the Company holds an interest will acquire any properties in 2012. Dispositions
During the three months ended March 31, 2012, none of the unconsolidated joint ventures in which the Company held an interest sold any properties. The Company does not anticipate that any unconsolidated joint ventures in which the Company holds an interest will dispose of any properties in 2012. Development
During the three months ended March 31, 2012, none of the unconsolidated joint ventures in which the Company held an interest brought any properties into service or began any development activities. As of March 31, 2012, the Company has no unconsolidated joint venture properties under development. The Company does not anticipate that any unconsolidated joint ventures in which the Company holds an interest will bring any development properties into service or begin any development activities in 2012.

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PROPERTIES IN OPERATION
The composition of the Company's Properties in Operation as of March 31, 2012
and 2011 was as follows (square feet in thousands):

                                                            Straight Line Rent and
                                                              Operating Expense
                                     Net Rent              Reimbursement Per Square
                                Per Square Foot(1)                 Foot(2)                Total Square Feet         Percent Occupied
                                    March 31,                     March 31,                   March 31,                 March 31,
                                 2012           2011           2012          2011          2012          2011       2012         2011
Wholly Owned Properties in
Operation:
Industrial-Distribution    $     4.43         $  4.51     $       5.80     $  5.81       34,883        32,308       94.2 %       91.2 %
Industrial-Flex            $     9.05         $  9.00     $      13.20     $ 12.88        9,975        11,125       87.7 %       87.1 %
Office                     $    14.51         $ 14.28     $      22.29     $ 21.94       20,241        21,779       87.8 %       89.2 %
                           $     8.13         $  8.49     $      11.83     $ 12.33       65,099        65,212       91.2 %       89.8 %
JV Properties in
Operation:
Industrial-Distribution    $     3.86         $  3.84     $       5.52     $  5.60        9,270         9,500       85.4 %       80.7 %
Industrial-Flex            $    26.94         $ 27.79     $      25.57     $ 26.29          171           171       84.8 %       81.9 %
Office                     $    24.18         $ 23.37     $      35.09     $ 34.35        4,724         4,746       90.6 %       89.1 %
                           $    11.18         $ 10.98     $      16.02     $ 15.94       14,165        14,417       87.1 %       83.5 %
Properties in Operation:
Industrial-Distribution    $     4.32         $  4.37     $       5.75     $  5.77       44,153        41,808       92.3 %       88.8 %
Industrial-Flex            $     9.34         $  9.27     $      13.40     $ 13.07       10,146        11,296       87.6 %       87.1 %
Office                     $    16.39         $ 15.90     $      24.78     $ 24.16       24,965        26,525       88.3 %       89.2 %
                           $     8.65         $  8.92     $      12.55     $ 12.95       79,264        79,629       90.5 %       88.7 %

(1) Net rent represents the contractual rent per square foot at March 31, 2012 or 2011 for tenants in occupancy. Net rent does not include the tenant's obligation to pay property operating expenses and real estate taxes. If a tenant at March 31, 2012 or 2011 was within a free rent period its rent would equal zero for the purposes of this metric.
(2) Straight line rent and operating expense reimbursement represents the straight line rent including operating expense recoveries per square foot at March 31, 2012 or 2011 for tenants in occupancy.

Geographic segment data for the three months ended March 31, 2012 and 2011 are included in Note 6 to the Company's financial statements. Forward-Looking Statements
When used throughout this report, the words "believes," "anticipates," "estimates" and "expects" and similar expressions are intended to identify forward-looking statements. Such statements indicate that assumptions have been used that are subject to a number of risks and uncertainties that could cause actual financial results or management plans and objectives to differ materially from those projected or expressed herein, including: the effect of global, national and regional economic conditions; rental demand; the Company's ability to identify, and enter into agreements with suitable joint venture partners in situations where it believes such arrangements are advantageous; the Company's ability to identify and secure additional properties and sites, both for itself and the joint ventures to which it is a party, that meet its criteria for acquisition or development; the effect of prevailing market interest rates; risks related to the integration of the operations of entities that we have acquired or may acquire; risks related to litigation; and other risks described from time to time in the Company's filings with the SEC. Given these uncertainties, readers are cautioned not to place undue reliance on such statements.
Critical Accounting Policies and Estimates Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2011 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 March 31, 2012, there were no material changes to these policies.

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Results of Operations
The following discussion is based on the consolidated financial statements of the Company. It compares the results of operations of the Company for the three months ended March 31, 2012 with the results of operations of the Company for the three months ended March 31, 2011. As a result of the varying levels of development, acquisition and disposition activities by the Company in 2012 and 2011, the overall operating results of the Company during such periods are not directly comparable. However, certain data, including the Same Store comparison, do lend themselves to direct comparison.

This information should be read in conjunction with the accompanying consolidated financial statements and notes included elsewhere in this report. Comparison of Three Months Ended March 31, 2012 to Three Months Ended March 31, 2011
Overview
The Company's average gross investment in operating real estate owned for the three months ended March 31, 2012 increased to $4,967.6 million from $4,672.0 million for the three months ended March 31, 2011. This increase in operating real estate resulted in increases in rental revenue, real estate taxes and depreciation and amortization expense. Despite the increase in operating real estate, operating expense reimbursement and rental property expense decreased due to lower weather-related expenses and recovery during the three months ended March 31, 2012 compared to the same period in 2011. Rental property expense includes utilities, insurance, janitorial, landscaping, snow removal and other costs necessary to maintain a property.
Total operating revenue increased to $169.9 million for the three months ended March 31, 2012 from $166.1 million for the three months ended March 31, 2011. The $3.8 million increase was primarily due to an increase in rental income, which was primarily due to the increase in operating real estate and an increase in termination fees, which totaled $1.6 million for the three months ended March 31, 2012 compared to $238,000 for the same period in 2011. Termination fees are fees that the Company agrees to accept in consideration for permitting certain tenants to terminate their leases prior to the contractual expiration date. Termination fees are included in rental revenue and if a property is sold, related termination fees are included in discontinued operations. See "Other" below.
Segments
The Company evaluates the performance of the Wholly Owned Properties in Operation in terms of net operating income by reportable segment (see Note 6 to the Company's financial statements for a reconciliation of this measure to income from continuing operations). The following table identifies changes to net operating income in reportable segments (dollars in thousands):

                              THREE MONTHS ENDED       PERCENTAGE
                                   March 31,            INCREASE
                              2012          2011       (DECREASE)
Northeast
- Southeastern PA          $  25,170     $  25,524         (1.4 %)
- Lehigh/Central PA           16,195        17,449         (7.2 %)
- Other                        9,105         9,194         (1.0 %)
Central                       17,747        17,472          1.6 %
South                         32,654        34,002         (4.0 %)
Metro                          5,629         5,957         (5.5 %)
United Kingdom                  (229 )         (49 )      367.3 %
Total net operating income $ 106,271     $ 109,549         (3.0 %)

Same Store
Property level operating income, exclusive of termination fees, for the Same Store properties was relatively flat at $118.5 million for the three months ended March 31, 2012 compared to $118.9 million for the three months ended March 31, 2011 on a straight line basis (which recognizes rental revenue evenly over the life of the lease), and $117.8 million for the three months ended March 31, 2012 compared to $117.2 million for the three months ended March 31, 2011 on a cash basis. The same store results were affected by one-time reductions in certain operating expense items during the three months ended March 31, 2011 that did not recur during the same period in 2012, decreases in cash and straight line rental rates and an increase in occupancy. The following details the Same Store occupancy and rental rates for the respective periods:

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MARCH 31,

                                        2012        2011
Average occupancy %                      92.1 %      91.2 %
Rental rate - cash basis (1)          $  8.35     $  8.48
Rental rate - straight line basis (2) $ 12.16     $ 12.25

(1) Represents the contractual rent per square foot at March 31, 2012 for tenants in occupancy in Same Store properties. Net rent does not include the tenant's obligation to pay property operating expenses and real estate taxes. If a tenant at March 31, 2012 was within a free rent period its rent would equal zero for purposes of this metric.
(2) Straight line rent and operating expense reimbursement represents the straight line rent including operating expense recoveries per square foot at March 31, 2012 or 2011 for tenants in occupancy. 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 574 properties totaling approximately 60.9 million square feet owned on January 1, 2011. Acquisitions and completed development during the year ended December 31, 2011 and the three months ended March 31, 2012 are excluded from the Same Store properties. Acquisitions and completed development are included in Same Store when they have been purchased in the case of acquisitions, and are stabilized in the case of completed development, prior to the beginning of the earliest year presented in the comparison. The 62 properties sold during 2011 and the two properties sold during the three months ended March 31, 2012 are also excluded.

Set forth below is a schedule comparing the property level operating income, on a straight line basis and on a cash basis, for the Same Store properties for the three months ended March 31, 2012 and 2011. 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" below), GAAP net income and cash flow from operating activities, investing activities and financing activities when considering the Company's operating performance. Also set forth below is a reconciliation of Same Store property level operating income and cash basis property level operating income to net income (in thousands).

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                                                          Three Months Ended
                                                 March 31, 2012         March 31, 2011
Same Store:
Rental revenue                                $          119,189     $          119,754
Operating expenses:
Rental property expense                                   32,850                 35,566
Real estate taxes                                         20,233                 20,195
Operating expense recovery                               (52,376 )              (54,909 )
Unrecovered operating expenses                               707                    852
Property level operating income                          118,482                118,902
Less straight line rent                                      655                  1,716
Cash basis property level operating income    $          117,827     $          117,186
Reconciliation of non-GAAP financial measure
- Same Store:
Cash basis property level operating income    $          117,827     $          117,186
Straight line rent                                           655                  1,716
Property level operating income                          118,482                118,902
Property level operating income - properties
purchased or developed subsequent to
January 1, 2011                                            3,341                    276
Less: Property level operating income -
properties held for sale at March 31, 2012                (4,755 )               (4,521 )
Termination fees                                           1,647                    238
General and administrative expense                       (17,204 )              (15,949 )
Depreciation and amortization expense                    (41,367 )              (39,077 )
Other income (expense)                                   (25,714 )              (30,300 )
Gain on property dispositions                                523                  1,161
Income taxes                                                (178 )                 (550 )
Equity in earnings of unconsolidated joint
ventures                                                     916                    534
Discontinued operations (1)                                3,911                  4,229
Net income                                    $           39,602     $           34,943

(1) Includes Termination Fees of $534,000 for the three months ended March 31, 2012 and $25,000 for the three months ended March 31, 2011.

General and Administrative
General and administrative expenses increased to $17.2 million for the three months ended March 31, 2012 compared to $15.9 million for the three months ended March 31, 2011. This increase was primarily due to increases in incentive compensation. General and administrative expenses include salaries, wages and incentive compensation for general and administrative staff along with related costs, consulting, marketing, public company expenses, costs associated with the acquisition of properties and other general and administrative costs. Depreciation and Amortization
Depreciation and amortization increased to $41.4 million for the three months ended March 31, 2012 from $39.1 million for the three months ended March 31, 2011. This increase was primarily due to the increased investment in operating real estate.

Interest Expense
Interest expense decreased to $28.5 million for the three months ended March 31, 2012 from $32.9 million for the three months ended March 31, 2011. The decrease was primarily due to the decrease in the average debt outstanding to $2,295.8 million for the three months ended March 31, 2012 from $2,323.8 million for the three months ended March 31, 2011 as well as a decrease in

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the weighted average interest rate to 5.4% for the three months ended March 31, 2012 from 5.8% for the three months ended March 31, 2011. The decrease was also partially due to an increase in interest capitalized during the three months ended March 31, 2012 due to an increase in development activity.
Interest expense allocated to discontinued operations for the three months ended March 31, 2012 and 2011 was $2.4 million and $3.3 million, respectively. This decrease was due to the level of dispositions in 2012 and 2011. Other
Gain on property dispositions decreased to $523,000 for the three months ended March 31, 2012 from $1.2 million for the three months ended March 31, 2011. Income from discontinued operations decreased to $3.9 million for the three months ended March 31, 2012 from $4.2 million for the three months ended March 31, 2011. This decrease was due to lower operating income related to properties in discontinued operations for the three months ended March 31, 2012 and was partially offset by an increase in gains recognized on sales (net of impairment charges) which were $1.1 million for the three months ended March 31, 2012 compared to $470,000 for the same period in 2011.
As a result of the foregoing, the Company's net income increased to $39.6 million for the three months ended March 31, 2012 from $34.9 million for the three months ended March 31, 2011.
Liquidity and Capital Resources
Overview
The Company seeks to maintain a conservative balance sheet and pursue a strategy of financial flexibility. The Company expects to expend $250 million to $350 million to fund its investment in development properties in 2012. The Company's remaining 2012 debt maturities total approximately $245.9 million. The Company anticipates that it will invest $100 million to $300 million in acquisitions in 2012. The Company expects to realize approximately $250 million to $350 million in proceeds from asset sales in 2012. The Company believes that proceeds from asset sales, its available cash, borrowing capacity from its Credit Facility (as defined below) and its other sources of capital including the public debt and equity markets will provide it with sufficient funds to satisfy these obligations.
Activity
As of March 31, 2012, the Company had cash and cash equivalents of $66.8 million, including $39.2 million in restricted cash.
Net cash flow provided by operating activities increased to $92.7 million for the three months ended March 31, 2012 from $76.0 million for the three months ended March 31, 2011. This $16.7 million increase was primarily due to the decrease in restricted cash. Restricted cash decreased in 2012 due to the distribution of proceeds from the sale of land parcels in the United Kingdom. Net cash flow provided by operating activities is the primary source of liquidity to fund distributions to shareholders and for recurring capital . . .