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PHILADELPHIA-Even though Malvern, PA-based Liberty Property Trust announced a slight increase in funds from operation, from 86 cents a share in the second quarter of this year, to 93 cents a share in third quarter, William P. Hankowsky, president and CFO, voiced a gloomy outlook for real estate markets into 2004.

The markets “softened further during the third quarter, and we see no sign of improvement,” he said. “Our customers have continued to consolidate and downsize, creating a significant leasing challenge for our company.”

Asserting that his firm has “risen to the challenge” with 211 new and renewal leases totaling 2.4 million sf in third quarter, Hankowsky nevertheless added, “we expect to be in an intense battle for every piece of business through next year.”

Liberty brought 12 development properties totaling 1.1 million sf into service in third quarter at a $107.2-million-investment. They are 76.5% leased and generating an 8.8%-return on investment. Upon stabilization, Hankowsky anticipates a 12%-return, he said.

The company acquired six properties during the quarter for $45.9 million, and they are 73.6% leased, generating a return of 8.8%, versus an anticipated 11.1%-yield at stabilization.

The company’s in-service portfolio of 52.6 million sf is 90.6%-occupied, down from 94.8% at third quarter last year. Rent growth on renewal and replacement space was flat in third quarter, Hankowsky said.

Liberty sold two properties and 16 acres of land during third quarter for $5.6 million.

Meanwhile, the board raised the company’s quarterly dividend from 59 cents a share in second quarter to 60 cents a share in third quarter.

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