10-Q 1 bdn0930201210-q.htm FORM 10-Q BDN 09.30.2012 10-Q
 
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 September 30, 2012
or
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 number
001-9106 (Brandywine Realty Trust)
000-24407 (Brandywine Operating Partnership, L.P.)
_________________________
Brandywine Realty Trust
Brandywine Operating Partnership, L.P.
(Exact name of registrant as specified in its charter)
_________________________

MARYLAND (Brandywine Realty Trust)
 
23-2413352
DELAWARE (Brandywine Operating Partnership L.P.)
 
23-2862640
(State or other jurisdiction of
 
(I.R.S. Employer
Incorporation or organization)
 
Identification No.)
 
 
 
555 East Lancaster Avenue
 
 
Radnor, Pennsylvania
 
19087
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (610) 325-5600
_________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Brandywine Realty Trust
 
Yes þ No o
Brandywine Operating Partnership, L.P.
 
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during

1


the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Brandywine Realty Trust
 
Yes þ No o
Brandywine Operating Partnership, L.P.
 
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Brandywine Realty Trust:
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
Brandywine Operating Partnership, L.P.:
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer þ
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Brandywine Realty Trust
 
Yes o No þ
Brandywine Operating Partnership, L.P.
 
Yes o No þ
A total of 143,443,501 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of October 26, 2012.
 

2


EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2012 of Brandywine Realty Trust (the “Parent Company”) and Brandywine Operating Partnership L.P. (the “Operating Partnership”). The Parent Company is a Maryland real estate investment trust, or REIT, that owns its assets and conducts its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company”. In addition, terms such as “we”, “us”, or “our” used in this report may refer to the Company, the Parent Company, or the Operating Partnership.
The Parent Company is the sole general partner of the Operating Partnership and, as of September 30, 2012, owned a 98.2% interest in the Operating Partnership. The remaining 1.8% interest consists of common units of limited partnership interest issued by the Operating Partnership to third parties in exchange for contributions of properties to the Operating Partnership. As the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management.
The Company believes that combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into a single report will result in the following benefits:
facilitate a better understanding by the investors of the Parent Company and the Operating Partnership by enabling them to view the business as a whole in the same manner as management views and operates the business;
remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the disclosure applies to both the Parent Company and the Operating Partnership; and
create time and cost efficiencies through the preparation of one combined report instead of two separate reports.
Management operates the Parent Company and the Operating Partnership as one enterprise. The management of the Parent Company consists of the same members as the management of the Operating Partnership. These members are officers of both the Parent Company and of the Operating Partnership.
There are few differences between the Parent Company and the Operating Partnership, which are reflected in the footnote disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as an interrelated consolidated company. The Parent Company is a REIT, whose only material asset is its ownership of the partnership interests of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing the debt obligations of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and directly or indirectly holds the ownership interests in the Company’s real estate ventures. The Operating Partnership conducts the operations of the Company’s business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of partnership units of the Operating Partnership or equity interests in subsidiaries of the Operating Partnership.
The equity and non-controlling interests in the Parent Company and the Operating Partnership’s equity are the main areas of difference between the consolidated financial statements of the Parent Company and the Operating Partnership. The common units of limited partnership interest in the Operating Partnership are accounted for as partners’ equity in the Operating Partnership’s financial statements while the common units of limited partnership interests held by parties other than the Parent Company are presented as non-controlling interests in the Parent Company’s financial statements. The differences between the Parent Company and the Operating Partnership’s equity relate to the differences in the equity issued at the Parent Company and Operating Partnership levels.
To help investors understand the significant differences between the Parent Company and the Operating Partnership, this report presents the following as separate notes or sections for each of the Parent Company and the Operating Partnership:
Consolidated Financial Statements;
Parent Company’s and Operating Partnership’s Equity; and
Liquidity and Capital Resources in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This report also includes separate Item 4. (Controls and Procedures) disclosures and separate Exhibit 31 and 32 certifications for

3


each of the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Parent Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.
In order to highlight the differences between the Parent Company and the Operating Partnership, the separate sections in this report for the Parent Company and the Operating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures of the Parent Company and the Operating Partnership, this report refers to such disclosures as those of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and real estate ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership.
As general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the Company.


4


TABLE OF CONTENTS
 
Page
 
 
 
 
 
Item 1. Brandywine Realty Trust
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brandywine Operating Partnership, L.P.
 
 
 
Financial Statements of Brandywine Operating Partnership, L.P. (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Exhibit 10.1
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 31.3
 Exhibit 31.4
 Exhibit 32.1
 Exhibit 32.2
 Exhibit 32.3
 Exhibit 32.4
 EX-101 INSTANCE DOCUMENT

5


 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT
Filing Format
This combined Form 10-Q is being filed separately by Brandywine Realty Trust and Brandywine Operating Partnership, L.P.

6


PART I — FINANCIAL INFORMATION

Item 1.
— Financial Statements

BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
 
September 30,
2012
 
December 31,
2011
 
(unaudited)
ASSETS
 
 
 
Real estate investments:
 
 
 
Rental properties
$
4,660,289

 
$
4,793,080

Accumulated depreciation
(925,342
)
 
(865,710
)
Operating real estate investments, net
3,734,947

 
3,927,370

Construction-in-progress
43,449

 
25,083

Land inventory
95,500

 
109,008

Total real estate investments, net
3,873,896

 
4,061,461

Cash and cash equivalents
241,616

 
410

Accounts receivable, net
13,394

 
14,718

Accrued rent receivable, net
117,306

 
108,101

Investment in real estate ventures, at equity
179,037

 
115,807

Deferred costs, net
119,182

 
115,362

Intangible assets, net
52,575

 
70,515

Notes receivable
7,226

 
18,186

Other assets
62,494

 
53,158

Total assets
$
4,666,726

 
$
4,557,718

LIABILITIES AND BENEFICIARIES’ EQUITY
 
 
 
Mortgage notes payable
$
502,123

 
$
511,061

Unsecured credit facility

 
275,500

Unsecured term loans
600,000

 
37,500

Unsecured senior notes, net of discounts
1,404,466

 
1,569,934

Accounts payable and accrued expenses
80,554

 
69,929

Distributions payable
24,820

 
23,895

Deferred income, gains and rent
80,748

 
99,569

Acquired lease intangibles, net
29,824

 
35,106

Other liabilities
59,982

 
45,528

Total liabilities
2,782,517

 
2,668,022

Commitments and contingencies (Note 17)

 

Brandywine Realty Trust’s equity:
 
 
 
Preferred Shares (shares authorized-20,000,000):
 
 
 
7.50% Series C Preferred Shares, $0.01 par value; issued and outstanding- 0 in 2012 and 2,000,000 in 2011

 
20

7.375% Series D Preferred Shares, $0.01 par value; issued and outstanding- 2,300,000 in 2012 and 2011, respectively
23

 
23

6.90% Series E Preferred Shares, $0.01 par value; issued and outstanding- 4,000,000 in 2012 and 0 in 2011
40

 

Common Shares of Brandywine Realty Trust’s beneficial interest, $0.01 par value; shares authorized 200,000,000; 143,438,501 and 142,690,755 issued and outstanding in 2012 and 2011, respectively
1,432

 
1,424

Additional paid-in capital
2,828,722

 
2,776,197

Deferred compensation payable in common shares
5,352

 
5,631

Common shares in grantor trust, 290,745 in 2012 and 292,646 in 2011
(5,352
)
 
(5,631
)
Cumulative earnings
510,093

 
477,338

Accumulated other comprehensive loss
(20,456
)
 
(6,079
)
Cumulative distributions
(1,467,058
)
 
(1,392,332
)
Total Brandywine Realty Trust’s equity
1,852,796

 
1,856,591

Non-controlling interests
31,413

 
33,105

Total equity
1,884,209

 
1,889,696

Total liabilities and equity
$
4,666,726

 
$
4,557,718


The accompanying notes are an integral part of these consolidated financial statements.

7


BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share information)
 
 For the three-month periods ended
 
 For the nine-month periods ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Revenue:
 
 
 
 
 
 
 
Rents
$
113,989

 
$
116,251

 
$
343,260

 
$
346,579

Tenant reimbursements
20,695

 
19,010

 
58,308

 
59,187

Termination fees
931

 
157

 
2,522

 
2,673

Third party management fees, labor reimbursement and leasing
3,007

 
3,028

 
9,021

 
8,514

Other
1,761

 
955

 
4,259

 
3,314

Total revenue
140,383

 
139,401

 
417,370

 
420,267

Operating Expenses:
 
 
 
 
 
 
 
Property operating expenses
40,705

 
40,788

 
118,068

 
124,023

Real estate taxes
14,064

 
13,204

 
42,292

 
40,699

Third party management expenses
1,298

 
1,379

 
3,812

 
4,395

Depreciation and amortization
48,738

 
51,943

 
147,618

 
157,157

General and administrative expenses
6,080

 
6,177

 
18,209

 
18,311

Total operating expenses
110,885

 
113,491

 
329,999

 
344,585

Operating income
29,498

 
25,910

 
87,371

 
75,682

Other Income (Expense):
 
 
 
 
 
 
 
Interest income
311

 
523

 
2,635

 
1,385

Historic tax credit transaction income
11,840

 
12,026

 
11,840

 
12,026

Interest expense
(32,620
)
 
(32,346
)
 
(99,745
)
 
(99,477
)
Interest expense — amortization of deferred financing costs
(1,218
)
 
(1,846
)
 
(3,790
)
 
(3,844
)
Interest expense — financing obligation
(230
)
 

 
(608
)
 

Equity in income of real estate ventures
500

 
418

 
1,382

 
2,739

Net gain on sale of interests in real estate

 

 

 
2,791

Loss on real estate venture formation
(950
)
 

 
(950
)
 

Gain (loss) on early extinguishment of debt
(51
)
 
176

 
(1,549
)
 
(580
)
Income (loss) from continuing operations
7,080

 
4,861

 
(3,414
)
 
(9,278
)
Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations
69

 
1,750

 
1,867

 
5,329

Net gain on disposition of discontinued operations
9,940

 

 
34,774

 
3,836

Total discontinued operations
10,009

 
1,750

 
36,641

 
9,165

Net income (loss)
17,089

 
6,611

 
33,227

 
(113
)
Net (income) loss from discontinued operations attributable to non-controlling interests — LP units
(182
)
 
(86
)
 
(669
)
 
(234
)
Net (income) loss attributable to non-controlling interests — LP units
(78
)
 
(276
)
 
244

 
88

Net (income) loss attributable to non-controlling interests
(260
)
 
(362
)
 
(425
)
 
(146
)
Net income (loss) attributable to Brandywine Realty Trust
16,829

 
6,249

 
32,802

 
(259
)
Distribution to Preferred Shares
(2,785
)
 
(1,998
)
 
(7,832
)
 
(5,994
)
Preferred share redemption charge

 

 
(2,090
)
 

Amount allocated to unvested restricted shareholders
(95
)
 
(121
)
 
(286
)
 
(384
)
Net income (loss) attributable to Common Shareholders of Brandywine Realty Trust
$
13,949

 
$
4,130

 
$
22,594

 
$
(6,637
)
Basic income (loss) per Common Share:
 
 
 
 
 
 
 
Continuing operations
$
0.03

 
$
0.02

 
$
(0.09
)
 
$
(0.12
)
Discontinued operations
0.07

 
0.01

 
0.25

 
0.07

 
$
0.10

 
$
0.03

 
$
0.16

 
$
(0.05
)
Diluted income (loss) per Common Share:
 
 
 
 
 
 
 
Continuing operations
$
0.03

 
$
0.02

 
$
(0.09
)
 
$
(0.12
)
Discontinued operations
0.07

 
0.01

 
0.25

 
0.07

 
$
0.10

 
$
0.03

 
$
0.16

 
$
(0.05
)
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
143,424,485

 
135,562,487

 
143,182,911

 
135,164,424

Diluted weighted average shares outstanding
144,128,010

 
136,841,451

 
143,182,911

 
135,164,424

Net income (loss) attributable to Brandywine Realty Trust
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
7,002

 
$
4,585

 
$
(3,170
)
 
$
(9,190
)
Income from discontinued operations
9,827

 
1,664

 
35,972

 
8,931

Net income (loss)
$
16,829

 
$
6,249

 
$
32,802

 
$
(259
)
The accompanying notes are an integral part of these consolidated financial statements.

8


BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)

 
For the three-month periods ended
 
For the nine-month periods ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
17,089

 
$
6,611

 
$
33,227

 
$
(113
)
Comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized loss on derivative financial instruments
(4,222
)
 

 
(14,780
)
 
(613
)
Reclassification of realized (gains)/losses on derivative financial instruments to operations, net
76

 
53

 
200

 
126

Unrealized gain on available-for-sale securities
65

 

 

 

Total comprehensive income (loss)
(4,081
)
 
53

 
(14,580
)
 
(487
)
Comprehensive income (loss)
13,008

 
6,664

 
18,647

 
(600
)
Comprehensive (income) loss attributable to non-controlling interest
(186
)
 
(365
)
 
(158
)
 
(139
)
Comprehensive income (loss) attributable to Brandywine Realty Trust
$
12,822

 
$
6,299

 
$
18,489

 
$
(739
)
The accompanying notes are an integral part of these consolidated financial statements.


9


BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF BENEFICIARIES’ EQUITY
For the Nine-Month Periods Ended September 30, 2012 and 2011
(unaudited, in thousands, except number of shares)
September 30, 2012
 
Number of
Preferred Shares
 
Par Value of
Preferred
Shares
 
Number of Common
Shares
 
Number of
Treasury
Shares
 
Number of Rabbi
Trust/Deferred
Compensation
Shares
 
Common Shares of
Brandywine Realty
Trust’s beneficial
interest
 
Additional Paid-in
Capital
 
Common Shares
in Treasury
 
Deferred
Compensation
Payable in
Common Shares
 
Common Shares in
Grantor Trust
 
Cumulative
Earnings
 
Accumulated Other
Comprehensive
Income (Loss)
 
Cumulative
Distributions
 
Non-Controlling
Interests
 
Total
BALANCE, December 31, 2011
4,300,000

 
$
43

 
142,690,755

 

 
292,646

 
$
1,424

 
$
2,776,197

 
$

 
$
5,631

 
$
(5,631
)
 
$
477,338

 
$
(6,079
)
 
$
(1,392,332
)
 
$
33,105

 
$
1,889,696

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32,804

 
 
 
 
 
423

 
33,227

Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(14,377
)
 
 
 
(203
)
 
(14,580
)
Issuance of Preferred Shares
4,000,000

 
40

 
 
 
 
 
 
 
 
 
96,810

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
96,850

Preferred Share Issuance Costs

 

 
 
 
 
 
 
 
 
 
(610
)
 
 
 
 
 
 
 
 
 
 
 
 
 


 
(610
)
Redemption of Preferred Shares
(2,000,000
)
 
(20
)
 
 
 
 
 
 
 
 
 
(47,890
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(47,910
)
Conversion of LP Units to Common Shares
 
 
 
 
20,464

 
 
 
 
 
1

 
149

 
 
 
 
 
 
 
(49
)
 
 
 
 
 
(332
)
 
(231
)
Bonus Share Issuance
 
 
 
 
35,703

 


 


 
 
 
387

 


 


 


 


 
 
 
 
 
 
 
387

Vesting of Restricted Shares
 
 
 
 
280,851

 


 
9,036

 
3

 
(1,294
)
 


 
 
 
 
 


 
 
 
 
 
 
 
(1,291
)
Restricted Share Amortization
 
 
 
 
 
 
 
 
 
 
 
 
2,138

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,138

Vesting of Restricted Performance Units
 
 
 
 
249,797

 
 
 
 
 
2

 
(1,331
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,329
)
Restricted Performance Units Amortization
 
 
 
 
 
 
 
 
 
 

 
1,926

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,926

Exercise of Share Options
 
 
 
 
165,159

 
 
 
 
 
2

 
746

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
748

Share Option Amortization
 
 
 
 
 
 
 
 
 
 

 
1,121

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,121

Share Issuance from/to Deferred Compensation Plan
 
 
 
 
(5,564
)
 
 
 
(10,937
)
 
 
 


 
 
 
(279
)
 
279

 
 
 
 
 
 
 
 
 

Trustee Fees Paid in Shares
 
 
 
 
1,336

 
 
 
 
 

 
15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15

Adjustment to Non-controlling Interest
 
 
 
 
 
 
 
 
 
 
 
 
358

 
 
 
 
 
 
 
 
 
 
 
 
 
(347
)
 
11

Preferred Share distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(7,832
)
 
 
 
(7,832
)
Preferred Share redemption charges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2,090
)
 
 
 
(2,090
)
Distributions declared ($0.45 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(64,804
)
 
(1,233
)
 
(66,037
)
BALANCE, September 30, 2012
6,300,000

 
$
63

 
143,438,501

 

 
290,745

 
$
1,432

 
$
2,828,722

 
$

 
$
5,352

 
$
(5,352
)
 
$
510,093

 
$
(20,456
)
 
$
(1,467,058
)
 
$
31,413

 
$
1,884,209



10


September 30, 2011
 
Number of
Preferred Shares
 
Par Value of
Preferred
Shares
 
Number of Common
Shares
 
Number of
Treasury
Shares
 
Number of Rabbi
Trust/Deferred
Compensation
Shares
 
Common Shares of
Brandywine Realty
Trust’s beneficial
interest
 
Additional Paid-in
Capital
 
Common Shares
in Treasury
 
Deferred
Compensation
Payable in
Common Shares
 
Common Shares in
Grantor Trust
 
Cumulative
Earnings
 
Accumulated Other
Comprehensive
Income (Loss)
 
Cumulative
Distributions
 
Non-Controlling
Interests
 
Total
BALANCE, December 31, 2010
4,300,000

 
$
43

 
134,601,796

 
116,679

 
291,281

 
$
1,343

 
$
2,671,217

 
$
(3,074
)
 
$
5,774

 
$
(5,774
)
 
$
483,439

 
$
(1,945
)
 
$
(1,301,521
)
 
$
128,272

 
$
1,977,774

Net loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(259
)
 
 
 
 
 
146

 
(113
)
Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(479
)
 
 
 
(8
)
 
(487
)
Issuance of Common Shares of Beneficial Interest
 
 
 
 
679,285

 
 
 
 
 
7

 
8,265

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,272

Equity Issuance Costs
 
 
 
 
 
 
 
 
 
 
 
 
(308
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(30
)
 
(338
)
Conversion of LP Units to Common Shares
 
 
 
 
92,992

 

 

 
1

 
1,098

 

 

 

 

 

 

 
(1,099
)
 

Bonus Share Issuance
 
 
 
 


 
(463
)
 
463

 
 

 
 

 
12

 
6

 
(6
)
 
(6
)
 
 
 
 
 
 

 
6

Vesting of Restricted Shares
 
 
 
 
85,248

 
(116,216
)
 
9,043

 
1

 
(1,818
)
 
3,062

 
 

 
 

 
(1,597
)
 
 
 
 
 
 
 
(352
)
Restricted Share Amortization
 
 
 
 
 

 
 

 
 

 
 

 
2,228

 
 

 
 
 
 
 
 

 
 
 
 
 
 
 
2,228

Restricted Performance Units Amortization
 
 
 
 
 
 
 
 
 
 
 
 
1,229

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,229

Exercise of Share Options
 
 
 
 
120,179

 
 
 
 
 
1

 
658

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
659

Share Option Amortization
 
 
 
 

 
 
 

 
 
 
1,105

 
 
 

 

 
 
 
 
 
 
 
 
 
1,105

Outperformance Plan Amortization
 
 
 
 


 
 
 
 
 
 

 
128

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
128

Share Issuance from/to Deferred Compensation Plan
 
 
 
 
(845
)
 
 
 
(8,141
)
 
 
 
(16
)
 
 
 
(149
)
 
149

 
 
 
 
 
 
 
 
 
(16
)
Share Choice Plan Issuance
 
 
 
 
(1,684
)
 
 
 
 
 
 
 
(55
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(55
)
Trustees Fees Paid in Shares
 
 
 
 
2,672

 
 
 
 
 
 
 
32

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32

Adjustment to Non-controlling Interest
 
 
 
 
 

 
 
 
 

 
 
 
3,037

 
 
 
 

 
 

 
 
 
 
 
 
 
(3,037
)
 

Preferred Share distributions
 
 
 
 
 

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
(5,994
)
 
 
 
(5,994
)
Distributions declared ($0.45 per share)
 
 
 
 
 

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
(61,294
)
 
(1,890
)
 
(63,184
)
BALANCE, September 30, 2011
4,300,000

 
$
43

 
135,579,643

 

 
292,646

 
$
1,353

 
$
2,686,800

 
$

 
$
5,631

 
$
(5,631
)
 
$
481,577

 
$
(2,424
)
 
$
(1,368,809
)
 
$
122,354

 
$
1,920,894

The accompanying notes are an integral part of these consolidated financial statements.

11


BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine-month periods ended
 
September 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income (loss)
$
33,227

 
$
(113
)
Adjustments to reconcile net loss to net cash from operating activities:
 
 
 
Depreciation and amortization
150,362

 
164,014

Amortization of deferred financing costs
3,790

 
3,844

Amortization of debt discount/(premium), net
1,095

 
1,028

Amortization of stock compensation costs
3,740

 
4,201

Shares used for employee taxes upon vesting of share awards
(2,232
)
 
(1,012
)
Straight-line rent income
(17,792
)
 
(14,925
)
Amortization of acquired above (below) market leases to rental revenue, net
(4,468
)
 
(4,011
)
Straight-line ground rent expense
1,423

 
1,450

Provision for doubtful accounts
1,363

 
1,190

Real estate venture income in excess of distributions
(1,024
)
 
(1,020
)
Net gain on sale of interests in real estate
(34,773
)
 
(6,627
)
Loss on real estate formation
950

 

Loss on early extinguishment of debt
1,549

 
580

Historic tax credit transaction income
(11,840
)
 
(12,026
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
1,580

 
2,130

Other assets
(7,200
)
 
(5,000
)
Accounts payable and accrued expenses
9,565

 
21,382

Deferred income, gains and rent
(4,681
)
 
(4,376
)
Deferred financing obligation
(1,314
)
 

Other liabilities
(1,175
)
 
5,284

Net cash from operating activities
122,145

 
155,993

Cash flows from investing activities:
 
 
 
Acquisition of properties
(9,226
)
 
(40,674
)
Investments in available-for-sale securities
(98,250
)
 

Proceeds from the sale of available-for-sale securities
98,250

 

Sales of properties, net
170,918

 
5,639

Proceeds from repayment of mortgage notes receivable
23,930

 

Capital expenditures
(73,649
)
 
(97,557
)
Advances for purchase of tenant assets, net of repayments
(13
)
 
(1,552
)
Loan provided to an unconsolidated Real Estate Venture partner

 
(1,045
)
Investment in unconsolidated Real Estate Ventures
(49,763
)
 
(2,259
)
Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income
2,779

 
3,432

Leasing costs
(22,111
)
 
(28,460
)
Net cash from (used in) investing activities
42,865

 
(162,476
)
Cash flows from financing activities:
 
 
 
Proceeds from New Unsecured Term Loans
600,000

 

Proceeds from Credit Facility
21,500

 
407,502

Repayments of Credit Facility borrowings
(297,000
)
 
(424,502
)
Repayments of mortgage notes payable
(9,209
)
 
(218,959
)
Proceeds from unsecured notes

 
321,498

Deferred financing obligation non-cash interest expense
701

 

Net proceeds from issuance of common shares

 
7,966

Net proceeds from issuance of preferred shares
96,240

 

Redemption of preferred shares
(50,188
)
 

Repayments of unsecured notes
(167,841
)
 
(25,366
)
Repayments of unsecured term loan
(37,500
)
 

Net settlement of hedge transactions
(74
)
 
(613
)
Debt financing costs
(8,462
)
 
(4,199
)
Exercise of stock options
748

 
659

Distributions paid to shareholders
(71,523
)
 
(67,119
)
Distributions to noncontrolling interest
(1,196
)
 
(1,243
)
Net cash from (used in) financing activities
76,196

 
(4,376
)
Increase (decrease) in cash and cash equivalents
241,206

 
(10,859
)
Cash and cash equivalents at beginning of period
410

 
16,565

Cash and cash equivalents at end of period
$
241,616

 
$
5,706

Supplemental disclosure:
 
 
 
Cash paid for interest, net of capitalized interest during the nine months ended September 30, 2012 and 2011 of $1,978 and $1,450, respectively
$
83,618

 
$
78,091

Supplemental disclosure of non-cash activity:
 
 
 
Change in capital expenditures financed through accounts payable at period end
(1,270
)
 
(2,114
)
Change in capital expenditures financed through retention payable at period end
284

 
(5,863
)
Change in unfunded tenant allowance
(1,411
)
 
(442
)
Distributions payable
24,820

 
23,505

The accompanying notes are an integral part of these consolidated financial statements

12



BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit and per unit information)
 
September 30,
2012
 
December 31,
2011
 
(unaudited)
ASSETS
 
 
 
Real estate investments:
 
 
 
Operating properties
$
4,660,289

 
$
4,793,080

Accumulated depreciation
(925,342
)
 
(865,710
)
Operating real estate investments, net
3,734,947

 
3,927,370

Construction-in-progress
43,449

 
25,083

Land inventory
95,500

 
109,008

Total real estate investments, net
3,873,896

 
4,061,461

Cash and cash equivalents
241,616

 
410

Accounts receivable, net
13,394

 
14,718

Accrued rent receivable, net
117,306

 
108,101

Investment in real estate ventures, at equity
179,037

 
115,807

Deferred costs, net
119,182

 
115,362

Intangible assets, net
52,575

 
70,515

Notes receivable
7,226

 
18,186

Other assets
62,494

 
53,158

Total assets
$
4,666,726

 
$
4,557,718

LIABILITIES AND EQUITY
 
 
 
Mortgage notes payable
$
502,123

 
$
511,061

Unsecured credit facility

 
275,500

Unsecured term loans
600,000

 
37,500

Unsecured senior notes, net of discounts
1,404,466

 
1,569,934

Accounts payable and accrued expenses
80,554

 
69,929

Distributions payable
24,820

 
23,895

Deferred income, gains and rent
80,748

 
99,569

Acquired lease intangibles, net
29,824

 
35,106

Other liabilities
59,982

 
45,528

Total liabilities
2,782,517

 
2,668,022

Commitments and contingencies (Note 17)

 

Redeemable limited partnership units at redemption value; 2,657,721 and 2,698,648 issued and outstanding in 2012 and 2011, respectively
40,509

 
38,370

Brandywine Operating Partnership, L.P.’s equity:
 
 
 
7.50% Series D Preferred Mirror Units; issued and outstanding- 0 in 2012 and 2,000,000 in 2011

 
47,912

7.375% Series E Preferred Mirror Units; issued and outstanding- 2,300,000 in 2012 and 2011, respectively
55,538

 
55,538

6.90% Series E-Linked Preferred Mirror Units; issued and outstanding- 4,000,000 in 2012 and 0 in 2011
96,850

 

General Partnership Capital, 143,438,501 and 142,690,755 units issued and outstanding in 2012 and 2011, respectively
1,711,926

 
1,754,302

Accumulated other comprehensive loss
(20,614
)
 
(6,426
)
Total Brandywine Operating Partnership, L.P.’s equity
1,843,700

 
1,851,326

Total liabilities and partners’ equity
$
4,666,726

 
$
4,557,718

The accompanying notes are an integral part of these consolidated financial statements.

13


BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except unit and per unit information)
 
 For the three-month periods ended
 
 For the nine-month periods ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Revenue:
 
 
 
 
 
 
 
Rents
$
113,989

 
$
116,251

 
$
343,260

 
$
346,579

Tenant reimbursements
20,695

 
19,010

 
58,308

 
59,187

Termination fees
931

 
157

 
2,522

 
2,673

Third party management fees, labor reimbursement and leasing
3,007

 
3,028

 
9,021

 
8,514

Other
1,761

 
955

 
4,259

 
3,314

Total revenue
140,383

 
139,401

 
417,370

 
420,267

Operating Expenses:
 
 
 
 
 
 
 
Property operating expenses
40,705

 
40,788

 
118,068

 
124,023

Real estate taxes
14,064

 
13,204

 
42,292

 
40,699

Third party management expenses
1,298

 
1,379

 
3,812

 
4,395

Depreciation and amortization
48,738

 
51,943

 
147,618

 
157,157

General & administrative expenses
6,080

 
6,177

 
18,209

 
18,311

Total operating expenses
110,885

 
113,491

 
329,999

 
344,585

Operating income
29,498

 
25,910

 
87,371

 
75,682

Other Income (Expense):
 
 
 
 
 
 
 
Interest income
311

 
523

 
2,635

 
1,385

Historic tax credit transaction income
11,840

 
12,026

 
11,840

 
12,026

Interest expense
(32,620
)
 
(32,346
)
 
(99,745
)
 
(99,477
)
Interest expense — amortization of deferred financing costs
(1,218
)
 
(1,846
)
 
(3,790
)
 
(3,844
)
Interest expense — financing obligation
(230
)
 

 
(608
)
 

Equity in income of real estate ventures
500

 
418

 
1,382

 
2,739

Net gain on sale of interests in real estate

 

 

 
2,791

Loss on real estate venture formation
(950
)
 

 
(950
)
 

Gain (loss) on early extinguishment of debt
(51
)
 
176

 
(1,549
)
 
(580
)
Income (loss) from continuing operations
7,080

 
4,861

 
(3,414
)
 
(9,278
)
Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations
69

 
1,750

 
1,867

 
5,329

Net gain on disposition of discontinued operations
9,940

 

 
34,774

 
3,836

Total discontinued operations
10,009

 
1,750

 
36,641

 
9,165

Net income (loss)
17,089

 
6,611

 
33,227

 
(113
)
Distribution to Preferred Units
(2,785
)
 
(1,998
)
 
(7,832
)
 
(5,994
)
Preferred unit redemption charge

 

 
(2,090
)
 

Amount allocated to unvested restricted unitholders
(95
)
 
(121
)
 
(286
)
 
(384
)
Net income (loss) attributable to Common Partnership Unitholders of Brandywine Operating Partnership, L.P.
$
14,209

 
$
4,492

 
$
23,019

 
$
(6,491
)
Basic income (loss) per Common Partnership Unit:
 
 
 
 
 
 
 
Continuing operations
$
0.03

 
$
0.02

 
$
(0.09
)
 
$
(0.11
)
Discontinued operations
0.07

 
0.01

 
0.25

 
0.06

 
$
0.10

 
$
0.03

 
$
0.16

 
$
(0.05
)
Diluted income (loss) per Common Partnership Unit:
 
 
 
 
 
 
 
Continuing operations
$
0.03

 
$
0.02

 
$
(0.09
)
 
$
(0.11
)
Discontinued operations
0.07

 
0.01

 
0.25

 
0.06

 
$
0.10

 
$
0.03

 
$
0.16

 
$
(0.05
)
Basic weighted average common partnership units outstanding
146,082,206

 
145,372,247

 
145,842,872

 
145,027,663

Diluted weighted average common partnership units outstanding
146,785,731

 
146,651,211

 
145,842,872

 
145,027,663

Net income (loss) attributable to Brandywine Operating Partnership, L.P.
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
7,080

 
$
4,861

 
$
(3,414
)
 
$
(9,278
)
Income from discontinued operations
10,009

 
1,750

 
36,641

 
9,165

Net income (loss)
$
17,089

 
$
6,611

 
$
33,227

 
$
(113
)
The accompanying notes are an integral part of these consolidated financial statements.


14


BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)

 
For the three-month periods ended
 
For the nine-month periods ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
17,089

 
$
6,611

 
$
33,227

 
$
(113
)
Comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized loss on derivative financial instruments
(4,222
)
 

 
(14,780
)
 
(613
)
Reclassification of realized (gains)/losses on derivative financial instruments to operations, net
76

 
53

 
200

 
126

Unrealized gain on available-for-sale securities
65

 

 

 

Total comprehensive income (loss)
(4,081
)
 
53

 
(14,580
)
 
(487
)
Comprehensive income (loss) attributable to Brandywine Operating Partnership, L.P.
$
13,008

 
$
6,664

 
$
18,647

 
$
(600
)

The accompanying notes are an integral part of these consolidated financial statements.


15


BRANDYWINE OPERATING PARTNERSHIP L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine-month periods ended
 
September 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income (loss)
$
33,227

 
$
(113
)
Adjustments to reconcile net loss to net cash from operating activities:
 
 
 
Depreciation and amortization
150,362

 
164,014

Amortization of deferred financing costs
3,790

 
3,844

Amortization of debt discount/(premium), net
1,095

 
1,028

Amortization of stock compensation costs
3,740

 
4,201

Shares used for employee taxes upon vesting of share awards
(2,232
)
 
(1,012
)
Straight-line rent income
(17,792
)
 
(14,925
)
Amortization of acquired above (below) market leases, net
(4,468
)
 
(4,011
)
Straight-line ground rent expense
1,423

 
1,450

Provision for doubtful accounts
1,363

 
1,190

Real estate venture income in excess of distributions
(1,024
)
 
(1,020
)
Net gain on sale of interests in real estate
(34,773
)
 
(6,627
)
Loss on real estate venture formation