INVESTMENT IN UNCONSOLIDATED VENTURES

As of December 31, 2012, the Company had an aggregate investment of approximately $193.6 million in 19 unconsolidated Real Estate Ventures. The Company formed or acquired interests in these ventures with unaffiliated third parties to develop or manage office properties or to acquire land in anticipation of possible development of office or residential properties. As of December 31, 2012, 15 of the Real Estate Ventures owned 54 office buildings that contain an aggregate of approximately 7.0 million net rentable square feet; three Real Estate Ventures owned 24 acres of undeveloped parcels of land; and one Real Estate Venture developed a hotel property that contains 137 rooms in Conshohocken, PA.

The Company accounts for its unconsolidated interests in its Real Estate Ventures using the equity method. The Company’s unconsolidated interests range from 20% to 65%, subject to specified priority allocations of distributable cash in certain of the Real Estate Ventures.

The amounts reflected in the following tables (except for the Company’s share of equity and income) are based on the historical financial information of the individual Real Estate Ventures. One of the Real Estate Ventures, acquired in connection with the Prentiss Properties Trust merger in 2006, had a negative equity balance on a historical cost basis as a result of historical depreciation and distribution of excess financing proceeds. The Company reflected its acquisition of this Real Estate Venture interest at its relative fair value as of the date of the merger. The difference between allocated cost and the underlying equity in the net assets of the investee is accounted for as if the entity were consolidated (i.e., allocated to the Company’s relative share of assets and liabilities with an adjustment to recognize equity in earnings for the appropriate depreciation/amortization). The Company does not record operating losses of the Real Estate Ventures in excess of its investment balance unless the Company is liable for the obligations of the Real Estate Venture or is otherwise committed to provide financial support to the Real Estate Venture.

The Company’s investment in Real Estate Ventures as of December 31, 2012 and the Company’s share of the Real Estate Ventures’ income (loss) for the year ended December 31, 2012 was as follows (in thousands):



	Ownership Percentage (a)		Carrying Amount			Company’s Share of 2012 Real Estate Venture Income (Loss)			Real Estate Venture Debt at 100%		Current Interest Rate		Debt Maturity
Broadmoor Austin Associates	50	%	$	65,919		$	(231	)	$	60,656	7.04	%	Apr-23
Brandywine-AI Venture LLC (b)	50	%	49,169			(648		)	134,500		3.87	%	(b)
BDN Beacon Venture LLC	20	%	17,294			1,546			—		N/A		N/A
TB-BDN Plymouth Apartments (c)	50	%	15,222			—			—		N/A		N/A
Six Tower Bridge (d)	63	%	13,330			(135		)	—		N/A		N/A
One Commerce Square (e)	25	%	13,056			657			126,869		5.67	%	Dec-15
Two Commerce Square (e)	25	%	9,171			455			106,612		6.30	%	May-13
Brandywine 1919 Ventures	50	%	5,632			—			—		N/A		N/A
1000 Chesterbrook Blvd.	50	%	1,981			455			25,444		4.75	%	Dec-21
Four Tower Bridge	65	%	1,297			400			10,707		5.20	%	Feb-21
Residence Inn Tower Bridge	50	%	716			434			13,990		5.63	%	Feb-16
PJP VII	25	%	593			221			6,678		L+1.55%		Nov-13
PJP II	30	%	417			117			4,022		6.12	%	Nov-23
G&I Interchange Office LLC (DRA — N. PA) (f)	20	%	260			(626		)	179,671		5.78	%	Jan-15
Seven Tower Bridge	20	%	242			—			11,107		(g)		(g)
PJP V	25	%	192			(81		)	5,619		6.47	%	Aug-19
Two Tower Bridge	35	%	113			(21		)	13,213		(h)		(h)
PJP VI	25	%	42			12			8,626		6.08	%	Apr-23
Coppell Associates	50	%	(1,091		)	(84		)	17,066		(i)		(i)
Eight Tower Bridge			—			12			—
Invesco, L.P.			—			258			—
			$	193,555		$	2,741		$	724,780


(a)	Ownership percentage represents the Company's entitlement to residual distributions after payments of priority returns, where applicable.


(b)	See Note 3 for related discussion about the Brandywine-AI Venture, LLC formation.


(c)	On September 5, 2012, the Company contributed a 20-acre parcel of land into a newly formed real estate venture and retained a 50% ownership interest. The land parcel contributed to the Venture was deconsolidated by the Company from land inventory.

(d)

On November 1, 2012, Six Tower Bridge Associates paid off its $12.2 million loan using funds contributed by the Company in the form of a $8.4 million partner loan which pays current interest expense at 9.0%, and a $4.9 million priority loan which accrues interest at 9.0%, compounding annually (the additional funds contributed from the partner and priority loans were used for operations of the venture).

(e)

In accordance with the accounting guidance for joint ventures, the Company is currently recognizing its preferred return from the real estate ventures as income on its invested capital. After the other partner has recognized the losses equal to its invested capital, the Company will begin to recognize its share from the results of operations of the real estate ventures in proportion to its 25% ownership interests.


(f)	Proceeds received by the Company from the sale of an 80% ownership stake in the properties exceeded the historical cost of those properties. No investment in the real estate venture was reflected on the balance sheet at formation, and the current balance reflects interim capital contributions.


(g)	Comprised of two fixed rate mortgages totaling $8.0 million that mature in February 2015 and accrue interest at a current rate of 5% (increasing by 1% annually through maturity), a $1.1 million 3% fixed rate loan with interest only through its September 2025 maturity, and a $2.0 million 4% fixed rate loan with interest only through its February 2014 maturity.


(h)	Consists of a $9.9 million fixed rate mortgage with a 5.72% interest rate and May 2013 maturity date and $3.3 million municipal and state borrowings with nominal interest rates (0 — 1%) and maturity dates from 1 to 5 years.


(i)	Comprised of a senior fixed rate note of $16.2 million at 5.75% that matures in March 2016 and a junior fixed rate note of $0.9 million at 6.89% that matures in December 2013; 5.81% is the blended rate.

The following is a summary of the financial position of the Real Estate Ventures as of December 31, 2012 and December 31, 2011 (in thousands):



	December 31, 2012		December 31, 2011
Net property	$	923,536	$	846,643
Other assets	174,677		110,520
Other liabilities	53,645		48,798
Debt	724,780		745,830
Equity	319,788		162,535
Company’s share of equity (Company’s basis)	193,555		115,807

The following is a summary of results of operations of the Real Estate Ventures in which the Company had interests as of December 31, 2012, 2011 and 2010 (in thousands):



	Years ended December 31,
	2012		2011		2010
Revenue	$	164,013	$	145,867	$	118,923
Operating expenses	70,775		63,715		44,942
Interest expense, net	41,633		42,032		37,505
Depreciation and amortization	50,241		39,172		32,703
Net income	1,364		948		3,773
Company’s share of income (Company’s basis)	2,741		3,775		5,305

As of December 31, 2012, the aggregate principal payments of recourse and non-recourse debt payable to third-parties are as follows (in thousands):




2012	$	134,400
2013	13,651
2014	313,881
2015	37,033
2016	32,338
Thereafter	193,477
	$	724,780

As of December 31, 2012, the Company had guaranteed repayment of approximately $0.6 million of loans on behalf of a Real Estate Venture. The Company, from time to time, also provides customary environmental indemnities in connection with construction and permanent financing both for its own account and on behalf of its Real Estate Ventures.

On September 19, 2012, the Company settled and was released from a previous agreement with a third party service provider ("the provider") who provided services related to Brandywine AI Ventures ("the venture"). The agreement between the two parties required that the Company pay the provider certain commissions and fees related to real estate acquisitions to be executed by the venture in the future. The Company paid a one-time termination fee of $1.0 million to the provider in order to terminate and discharge any future obligations of commissions and fees associated with acquisitions by the venture. This fee is shown within the Company's consolidated statements of operations as "Loss on real estate venture formation" as the fee is associated with a contract entered into at the time of the formation of the venture. There were no comparable charges for the prior period.