10-Q 1 bdn930201310-q.htm 10-Q BDN 9.30.2013 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, 2013
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


1




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 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 156,710,290 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of October 29, 2013.



2




EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2013 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, as used in this report, terms such as “we”, “us”, and “our” 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, 2013, owned a 98.8% interest in the Operating Partnership. The remaining 1.2% 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.
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 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 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 incurrence of indebtedness (directly and through subsidiaries) and 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.


3




This report also includes separate Item 4. (Controls and Procedures) disclosures and separate Exhibit 31 and 32 certifications for 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
 
 
 
 
 
 
 
 
Brandywine Realty Trust
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brandywine Operating Partnership, L.P.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 31.3
 Exhibit 31.4
 Exhibit 32.1
 Exhibit 32.2
 Exhibit 32.3
 Exhibit 32.4


5




 EX-101 INSTANCE DOCUMENT
 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
(unaudited, in thousands, except share and per share information)
 
September 30,
2013
 
December 31,
2012
 
(unaudited)
ASSETS
 
 
 
Real estate investments:
 
 
 
Operating properties
$
4,631,910

 
$
4,726,169

Accumulated depreciation
(998,409
)
 
(954,665
)
Operating real estate investments, net
3,633,501

 
3,771,504

Construction-in-progress
52,702

 
48,950

Land inventory
94,097

 
102,439

Total real estate investments, net
3,780,300

 
3,922,893

Cash and cash equivalents
185,517

 
1,549

Accounts receivable, net
13,718

 
13,232

Accrued rent receivable, net
128,232

 
122,066

Assets held for sale, net
2,371

 

Investment in real estate ventures, at equity
194,572

 
193,555

Deferred costs, net
126,260

 
122,243

Intangible assets, net
54,457

 
70,620

Notes receivable
7,026

 
7,226

Other assets
65,689

 
53,325

Total assets
$
4,558,142

 
$
4,506,709

LIABILITIES AND BENEFICIARIES’ EQUITY
 
 
 
Mortgage notes payable
$
434,895

 
$
442,974

Unsecured credit facility

 
69,000

Unsecured term loans
450,000

 
450,000

Unsecured senior notes, net of discounts
1,492,296

 
1,503,356

Accounts payable and accrued expenses
89,087

 
71,579

Distributions payable
25,579

 
23,652

Deferred income, gains and rent
69,637

 
82,947

Acquired lease intangibles, net
28,500

 
33,859

Other liabilities
46,990

 
55,826

Total liabilities
2,636,984

 
2,733,193

Commitments and contingencies (Note 17)

 

Brandywine Realty Trust’s equity:
 
 
 
Preferred Shares (shares authorized-20,000,000):
 
 
 
6.90% Series E Preferred Shares, $0.01 par value; issued and outstanding- 4,000,000 in 2013 and 2012
40

 
40

Common Shares of Brandywine Realty Trust’s beneficial interest, $0.01 par value; shares authorized 200,000,000; 156,703,790 and 143,538,733 issued and outstanding in 2013 and 2012, respectively
1,565

 
1,434

Additional paid-in capital
2,970,576

 
2,780,194

Deferred compensation payable in common shares
5,431

 
5,352

Common shares in grantor trust, 313,023 in 2013 and 290,745 in 2012
(5,431
)
 
(5,352
)
Cumulative earnings
501,735

 
479,734

Accumulated other comprehensive loss
(5,825
)
 
(15,918
)
Cumulative distributions
(1,567,202
)
 
(1,493,206
)
Total Brandywine Realty Trust’s equity
1,900,889

 
1,752,278

Non-controlling interests
20,269

 
21,238

Total equity
1,921,158

 
1,773,516

Total liabilities and equity
$
4,558,142

 
$
4,506,709


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)
 
Three-month periods ended
 
Nine-month periods ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Revenue:
 
 
 
 
 
 
 
Rents
$
116,479

 
$
108,658

 
$
347,680

 
$
327,362

Tenant reimbursements
20,699

 
20,294

 
60,615

 
57,179

Termination fees
2,040

 
931

 
2,946

 
2,522

Third party management fees, labor reimbursement and leasing
3,263

 
3,007

 
9,652

 
9,021

Other
975

 
1,630

 
3,305

 
4,029

Total revenue
143,456

 
134,520

 
424,198

 
400,113

Operating Expenses:
 
 
 
 
 
 
 
Property operating expenses
40,661

 
38,783

 
119,522

 
112,961

Real estate taxes
14,190

 
13,486

 
42,706

 
40,430

Third party management expenses
1,317

 
1,298

 
4,105

 
3,812

Depreciation and amortization
50,613

 
46,955

 
149,423

 
142,262

General and administrative expenses
6,436

 
6,080

 
20,322

 
18,209

Total operating expenses
113,217

 
106,602

 
336,078

 
317,674

Operating income
30,239

 
27,918

 
88,120

 
82,439

Other Income (Expense):
 
 
 
 
 
 
 
Interest income
268

 
311

 
448

 
2,631

Historic tax credit transaction income
11,853

 
11,840

 
11,853

 
11,840

Interest expense
(30,338
)
 
(32,620
)
 
(91,689
)
 
(99,745
)
Interest expense — amortization of deferred financing costs
(1,158
)
 
(1,218
)
 
(3,502
)
 
(3,790
)
Interest expense — financing obligation
(264
)
 
(230
)
 
(693
)
 
(608
)
Equity in income of real estate ventures
714

 
500

 
3,757

 
1,382

Gain from remeasurement of investment in a real estate venture

 

 
7,847

 

Net gain on real estate venture transactions

 

 
3,683

 

Net loss on sale of undepreciated real estate
(129
)
 

 
(129
)
 

Loss on real estate venture formation

 
(950
)
 

 
(950
)
Loss on early extinguishment of debt
(11
)
 
(51
)
 
(1,127
)
 
(1,549
)
Income (Loss) from continuing operations
11,174

 
5,500

 
18,568

 
(8,350
)
Discontinued operations:
 
 
 
 
 
 
 
Income (Loss) from discontinued operations
(70
)
 
1,649

 
590

 
6,803

Net gain (loss) on disposition of discontinued operations
(16
)
 
9,940

 
3,029

 
34,774

Total discontinued operations
(86
)
 
11,589

 
3,619

 
41,577

Net income
11,088

 
17,089

 
22,187

 
33,227

Net (income) loss from discontinued operations attributable to non-controlling interests — LP units
1

 
(211
)
 
(48
)
 
(760
)
Net (income) loss attributable to non-controlling interests — LP units
(106
)
 
(49
)
 
(147
)
 
335

Net income attributable to non-controlling interests
(105
)
 
(260
)
 
(195
)
 
(425
)
Net income attributable to Brandywine Realty Trust
10,983

 
16,829

 
21,992

 
32,802

Distribution to Preferred Shares
(1,725
)
 
(2,785
)
 
(5,175
)
 
(7,832
)
Preferred share redemption charge

 

 

 
(2,090
)
Amount allocated to unvested restricted shareholders
(85
)
 
(95
)
 
(278
)
 
(286
)
Net income attributable to Common Shareholders of Brandywine Realty Trust
$
9,173

 
$
13,949

 
$
16,539

 
$
22,594

Basic income (loss) per Common Share:
 
 
 
 
 
 
 
Continuing operations
$
0.06

 
$
0.02

 
$
0.09

 
$
(0.13
)
Discontinued operations

 
0.08

 
0.02

 
0.29

 
$
0.06

 
$
0.10

 
$
0.11

 
$
0.16

Diluted income (loss) per Common Share:
 
 
 
 
 
 
 
Continuing operations
$
0.06

 
$
0.02

 
$
0.09

 
$
(0.13
)
Discontinued operations

 
0.08

 
0.02

 
0.29

 
$
0.06

 
$
0.10

 
$
0.11

 
$
0.16

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
156,703,348

 
143,424,485

 
151,933,441

 
143,182,911

Diluted weighted average shares outstanding
157,992,082

 
144,128,010

 
153,142,825

 
143,182,911

Net income (loss) attributable to Brandywine Realty Trust
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
11,068

 
$
5,451

 
$
18,421

 
$
(8,015
)
Income (Loss) from discontinued operations
(85
)
 
11,378

 
3,571

 
40,817

Net income
$
10,983

 
$
16,829

 
$
21,992

 
$
32,802

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


8




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

 
Three-month periods ended
 
Nine-month periods ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
11,088

 
$
17,089

 
$
22,187

 
$
33,227

Comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative financial instruments
(1,302
)
 
(4,222
)
 
9,978

 
(14,780
)
Reclassification of realized losses on derivative financial instruments to operations, net (1)
64

 
76

 
232

 
200

Unrealized gain on available-for-sale securities

 
65

 

 

Total comprehensive income (loss)
(1,238
)
 
(4,081
)
 
10,210

 
(14,580
)
Comprehensive income
9,850

 
13,008

 
32,397

 
18,647

Comprehensive (income) attributable to non-controlling interest
(91
)
 
(186
)
 
(312
)
 
(158
)
Comprehensive income (loss) attributable to Brandywine Realty Trust
$
9,759

 
$
12,822

 
$
32,085

 
$
18,489

(1) Amounts reclassified from comprehensive income to interest expense within the Consolidated Statements of Operations.
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, 2013 and September 30, 2012
(unaudited, in thousands, except number of shares)
September 30, 2013
 
Number of
Preferred Shares
 
Par Value of
Preferred
Shares
 
Number of Common
Shares
 
Number of Rabbi
Trust/Deferred
Compensation
Shares
 
Common Shares of
Brandywine Realty
Trust’s beneficial
interest
 
Additional Paid-in
Capital
 
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, 2012
4,000,000

 
$
40

 
143,538,733

 
290,745

 
$
1,434

 
$
2,780,194

 
$
5,352

 
$
(5,352
)
 
$
479,734

 
$
(15,918
)
 
$
(1,493,206
)
 
$
21,238

 
$
1,773,516

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21,992

 
 
 
 
 
195

 
22,187

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10,093

 
 
 
117

 
10,210

Issuance of Common Shares of Beneficial Interest
 
 
 
 
12,650,000

 
 
 
127

 
181,907

 
 
 
 
 
 
 
 
 
 
 
 
 
182,034

Equity issuance costs
 
 
 
 
 
 
 
 
 
 
(382
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(382
)
Conversion of LP Units to Common Shares
 
 
 
 
81,998

 
 
 
1

 
1,240

 
 
 
 
 


 
 
 
 
 
(1,241
)
 

Bonus Share Issuance
 
 
 
 
27,918

 
 
 
 
 
361

 
 
 
 
 
 
 
 
 
 
 
 
 
361

Vesting of Restricted Shares
 
 
 
 
147,495

 
7,050

 
2

 
(904
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(902
)
Restricted Share Amortization
 
 
 
 
 
 
 
 
 
 
2,565

 
 
 
 
 
 
 
 
 
 
 
 
 
2,565

Vesting of Restricted Performance Units
 
 
 
 
53,134

 
27,067

 
 
 
(160
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(160
)
Restricted Performance Units Amortization
 
 
 
 
 
 
 
 
 
 
3,718

 
 
 
 
 
 
 
 
 
 
 
 
 
3,718

Restricted Share Forfeitures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9

 
 
 
 
 
 
 
9

Exercise of Stock Options
 
 
 
 
207,941

 
 
 
1

 
2,237

 
 
 
 
 
 
 
 
 
 
 
 
 
2,238

Stock Option Amortization
 
 
 
 
 
 
 
 
 
 
546

 
 
 
 
 
 
 
 
 
 
 
 
 
546

Share Issuance from/to Deferred Compensation Plan
 
 
 
 
(4,838
)
 
(11,839
)
 
 
 
 
 
79

 
(79
)
 
 
 
 
 
 
 
 
 

Trustee Fees Paid in Shares
 
 
 
 
1,409

 
 
 
 
 
20

 
 
 
 
 
 
 
 
 
 
 
 
 
20

Adjustment to Non-controlling Interest
 
 
 
 
 
 
 
 
 
 
(766
)
 
 
 
 
 
 
 
 
 
 
 
766

 

Preferred Share distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(5,175
)
 
 
 
(5,175
)
Distributions declared ($0.15 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(68,821
)
 
(806
)
 
(69,627
)
BALANCE, September 30, 2013
4,000,000

 
$
40

 
156,703,790

 
313,023

 
$
1,565

 
$
2,970,576

 
$
5,431

 
$
(5,431
)
 
$
501,735

 
$
(5,825
)
 
$
(1,567,202
)
 
$
20,269

 
$
1,921,158

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


10







September 30, 2012
 
Number of
Preferred Shares
 
Par Value of
Preferred
Shares
 
Number of Common
Shares
 
Number of Rabbi
Trust/Deferred
Compensation
Shares
 
Common Shares of
Brandywine Realty
Trust’s beneficial
interest
 
Additional Paid-in
Capital
 
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 Stock Options
 
 
 
 
165,159

 
 

 
2

 
746

 
 
 
 
 
 
 
 
 
 
 
 
 
748

Stock 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 ($0.15 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

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,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
22,187

 
$
33,227

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation and amortization
151,066

 
150,362

Amortization of deferred financing costs
3,502

 
3,790

Amortization of debt discount/(premium), net
1,112

 
1,095

Amortization of stock compensation costs
5,510

 
3,740

Shares used for employee taxes upon vesting of share awards
(1,062
)
 
(2,232
)
Straight-line rent income
(16,337
)
 
(17,792
)
Amortization of acquired above (below) market leases to rental revenue, net
(5,372
)
 
(4,468
)
Straight-line ground rent expense
1,286

 
1,423

Provision for doubtful accounts
1,777

 
1,363

Net gain on sale of interests in real estate
(3,044
)
 
(34,773
)
Loss on real estate venture formation

 
950

Net gain on real estate venture transactions
(3,683
)
 

Gain from remeasurement of investment in a real estate venture
(7,847
)
 

Loss on early extinguishment of debt
1,127

 
1,549

Historic tax credit transaction income
(11,853
)
 
(11,840
)
Real estate venture income in excess of distributions
(2,371
)
 
(1,024
)
Deferred financing obligation
(1,392
)
 
(1,314
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(287
)
 
1,580

Other assets
(5,758
)
 
(7,200
)
Accounts payable and accrued expenses
14,684

 
9,565

Deferred income, gains and rent
1,265

 
(4,681
)
Other liabilities
1,718

 
(1,175
)
Net cash from operating activities
146,228

 
122,145

Cash flows from investing activities:
 
 
 
Acquisition of properties
(20,758
)
 
(9,226
)
Investments in available-for-sale securities

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

 
98,250

Sales of properties, net
145,931

 
170,918

Distribution of sales proceeds from real estate ventures
16,963

 

Proceeds from repayment of mortgage notes receivable
200

 
23,930

Capital expenditures for tenant improvements
(64,481
)
 
(64,527
)
Capital expenditures for redevelopments
(5,288
)
 
(9,122
)
Capital expenditures for developments
(5,399
)
 

Reimbursement from real estate venture for pre-formation development costs
1,976

 

Advances for purchase of tenant assets, net of repayments
(420
)
 
(13
)
Investment in unconsolidated real estate ventures
(30,142
)
 
(49,763
)
Cash distributions from unconsolidated real estate ventures
3,661

 
2,779

Leasing costs
(25,704
)
 
(22,111
)
Net cash from investing activities
16,539

 
42,865

Cash flows from financing activities:
 
 
 
Proceeds from Unsecured Term Loans

 
600,000

Proceeds from Credit Facility borrowings
186,000

 
21,500

Repayments of Credit Facility borrowings
(255,000
)
 
(297,000
)
Repayments of mortgage notes payable
(8,351
)
 
(9,209
)
Deferred financing obligation non-cash interest expense
697

 
701

Net proceeds from issuance of common shares
181,527

 

Net proceeds from issuance of preferred shares

 
96,240

Redemption of preferred shares

 
(50,188
)


12




Repayments of unsecured notes
(13,027
)
 
(167,841
)
Repayments of unsecured term loan

 
(37,500
)
Net settlement of hedge transactions

 
(74
)
Debt financing costs
(6
)
 
(8,462
)
Exercise of stock options
2,240

 
748

Distributions paid to shareholders
(72,061
)
 
(71,523
)
Distributions to noncontrolling interest
(818
)
 
(1,196
)
Net cash from financing activities
21,201

 
76,196

Increase in cash and cash equivalents
183,968

 
241,206

Cash and cash equivalents at beginning of period
1,549

 
410

Cash and cash equivalents at end of period
$
185,517

 
$
241,616

Supplemental disclosure:
 
 
 
Cash paid for interest, net of capitalized interest during the nine months ended September 30, 2013 and 2012 of $2,012 and $1,978, respectively
$
76,528

 
$
83,618

Supplemental disclosure of non-cash activity:
 

 
 

Change in operating real estate related to a non-cash acquisition of an operating property
(21,649
)
 

Change in intangible assets, net related to non-cash acquisition of an operating property
(3,517
)
 

Change in acquired lease intangibles, net related to non-cash acquisition of an operating property
462

 

Change in investments in joint venture related to non-cash acquisition of property
13,040

 

Change in operating real estate related to non-cash adjustment to land
(4,386
)
 

Change in investments in real estate ventures related to a contribution of land
(6,058
)
 

Change in capital expenditures financed through accounts payable at period end
1,210

 
(1,270
)
Change in capital expenditures financed through retention payable at period end
(736
)
 
284

Change in unfunded tenant allowance
(811
)
 
(1,411
)
The accompanying notes are an integral part of these consolidated financial statements


13





BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except unit and per unit information)
 
September 30,
2013
 
December 31,
2012
 
(unaudited)
ASSETS
 
 
 
Real estate investments:
 
 
 
Operating properties
$
4,631,910

 
$
4,726,169

Accumulated depreciation
(998,409
)
 
(954,665
)
Operating real estate investments, net
3,633,501

 
3,771,504

Construction-in-progress
52,702

 
48,950

Land inventory
94,097

 
102,439

Total real estate investments, net
3,780,300

 
3,922,893

Cash and cash equivalents
185,517

 
1,549

Accounts receivable, net
13,718

 
13,232

Accrued rent receivable, net
128,232

 
122,066

Assets held for sale, net
2,371

 

Investment in real estate ventures, at equity
194,572

 
193,555

Deferred costs, net
126,260

 
122,243

Intangible assets, net
54,457

 
70,620

Notes receivable
7,026

 
7,226

Other assets
65,689

 
53,325

Total assets
$
4,558,142

 
$
4,506,709

LIABILITIES AND EQUITY
 
 
 
Mortgage notes payable
$
434,895

 
$
442,974

Unsecured credit facility

 
69,000

Unsecured term loans
450,000

 
450,000

Unsecured senior notes, net of discounts
1,492,296

 
1,503,356

Accounts payable and accrued expenses
89,087

 
71,579

Distributions payable
25,579

 
23,652

Deferred income, gains and rent
69,637

 
82,947

Acquired lease intangibles, net
28,500

 
33,859

Other liabilities
46,990

 
55,826

Total liabilities
2,636,984

 
2,733,193

Commitments and contingencies (Note 17)

 

Redeemable limited partnership units at redemption value; 1,763,739 and 1,845,737 issued and outstanding in 2013 and 2012, respectively
26,290

 
26,777

Brandywine Operating Partnership, L.P.’s equity:
 
 
 
6.90% Series E-Linked Preferred Mirror Units; issued and outstanding- 4,000,000 in 2013 and 2012
96,850

 
96,850

General Partnership Capital, 156,703,790 and 143,538,733 units issued and outstanding in 2013 and 2012, respectively
1,804,378

 
1,666,341

Accumulated other comprehensive loss
(6,360
)
 
(16,452
)
Total Brandywine Operating Partnership, L.P.’s equity
1,894,868

 
1,746,739

Total liabilities and partners’ equity
$
4,558,142

 
$
4,506,709

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




14




BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except unit and per unit information)
 
Three-month periods ended
 
Nine-month periods ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Revenue:
 
 
 
 
 
 
 
Rents
$
116,479

 
$
108,658

 
$
347,680

 
$
327,362

Tenant reimbursements
20,699

 
20,294

 
60,615

 
57,179

Termination fees
2,040

 
931

 
2,946

 
2,522

Third party management fees, labor reimbursement and leasing
3,263

 
3,007

 
9,652

 
9,021

Other
975

 
1,630

 
3,305

 
4,029

Total revenue
143,456

 
134,520

 
424,198

 
400,113

Operating Expenses:
 
 
 
 
 
 
 
Property operating expenses
40,661

 
38,783

 
119,522

 
112,961

Real estate taxes
14,190

 
13,486

 
42,706

 
40,430

Third party management expenses
1,317

 
1,298

 
4,105

 
3,812

Depreciation and amortization
50,613

 
46,955

 
149,423

 
142,262

General & administrative expenses
6,436

 
6,080

 
20,322

 
18,209

Total operating expenses
113,217

 
106,602

 
336,078

 
317,674

Operating income
30,239

 
27,918

 
88,120

 
82,439

Other Income (Expense):
 
 
 
 
 
 
 
Interest income
268

 
311

 
448

 
2,631

Historic tax credit transaction income
11,853

 
11,840

 
11,853

 
11,840

Interest expense
(30,338
)
 
(32,620
)
 
(91,689
)
 
(99,745
)
Interest expense — amortization of deferred financing costs
(1,158
)
 
(1,218
)
 
(3,502
)
 
(3,790
)
Interest expense — financing obligation
(264
)
 
(230
)
 
(693
)
 
(608
)
Equity in income of real estate ventures
714

 
500

 
3,757

 
1,382

Gain from remeasurement of investment in a real estate venture

 

 
7,847

 

Net gain on real estate venture transactions

 

 
3,683

 

Net loss on sale of undepreciated real estate
(129
)
 

 
(129
)
 

Loss on real estate venture formation

 
(950
)
 

 
(950
)
Loss on early extinguishment of debt
(11
)
 
(51
)
 
(1,127
)
 
(1,549
)
Gain (Loss) from continuing operations
11,174

 
5,500

 
18,568

 
(8,350
)
Discontinued operations:
 
 
 
 
 
 
 
Income (Loss) from discontinued operations
(70
)
 
1,649

 
590

 
6,803

Net gain (loss) on disposition of discontinued operations
(16
)
 
9,940

 
3,029

 
34,774

Total discontinued operations
(86
)
 
11,589

 
3,619

 
41,577

Net income
11,088

 
17,089

 
22,187

 
33,227

Distribution to Preferred Units
(1,725
)
 
(2,785
)
 
(5,175
)
 
(7,832
)
Preferred unit redemption charge

 

 

 
(2,090
)
Amount allocated to unvested restricted unitholders
(85
)
 
(95
)
 
(278
)
 
(286
)
Net income attributable to Common Partnership Unitholders of Brandywine Operating Partnership, L.P.
$
9,278

 
$
14,209

 
$
16,734

 
$
23,019

Basic income (loss) per Common Partnership Unit:
 
 
 
 
 
 
 
Continuing operations
$
0.06

 
$
0.02

 
$
0.09

 
$
(0.13
)
Discontinued operations

 
0.08

 
0.02

 
0.29

 
$
0.06

 
$
0.10

 
$
0.11

 
$
0.16

Diluted income (loss) per Common Partnership Unit:
 
 
 
 
 
 
 
Continuing operations
$
0.06

 
$
0.02

 
$
0.09

 
$
(0.13
)
Discontinued operations

 
0.08

 
0.02

 
0.29

 
$
0.06

 
$
0.10

 
$
0.11

 
$
0.16

Basic weighted average common partnership units outstanding
158,467,087

 
146,082,206

 
153,731,070

 
145,842,872

Diluted weighted average common partnership units outstanding
159,755,821

 
146,785,731

 
154,940,454

 
145,842,872

Net income (loss) attributable to Brandywine Operating Partnership, L.P.
 
 
 
 
 
 
 
Income (Loss) from continuing operations
$
11,174

 
$
5,500

 
$
18,568

 
$
(8,350
)
Income (Loss) from discontinued operations
(86
)
 
11,589

 
3,619

 
41,577

Net income
$
11,088

 
$
17,089

 
$
22,187

 
$
33,227

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


15




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

 
Three-month periods ended
 
Nine-month periods ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
11,088

 
$
17,089

 
$
22,187

 
$
33,227

Comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative financial instruments
(1,302
)
 
(4,222
)
 
9,978

 
(14,780
)
Reclassification of realized losses on derivative financial instruments to operations, net (1)
64

 
76

 
232

 
200

Unrealized gain on available-for-sale securities

 
65

 

 

Total comprehensive income (loss)
(1,238
)
 
(4,081
)
 
10,210

 
(14,580
)
Comprehensive income attributable to Brandywine Operating Partnership, L.P.
$
9,850

 
$
13,008

 
$
32,397

 
$
18,647

(1) Amounts reclassified from comprehensive income to interest expense within the Consolidated Statements of Operations.
The accompanying notes are an integral part of these consolidated financial statements.




16




BRANDYWINE OPERATING PARTNERSHIP L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine-month periods ended
 
September 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
22,187

 
$
33,227

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation and amortization
151,066

 
150,362

Amortization of deferred financing costs
3,502

 
3,790

Amortization of debt discount/(premium), net
1,112

 
1,095

Amortization of stock compensation costs
5,510

 
3,740

Shares used for employee taxes upon vesting of share awards
(1,062
)
 
(2,232
)
Straight-line rent income
(16,337
)
 
(17,792
)
Amortization of acquired above (below) market leases, net
(5,372
)
 
(4,468
)
Straight-line ground rent expense
1,286

 
1,423

Provision for doubtful accounts
1,777

 
1,363

Net gain on sale of interests in real estate
(3,044
)
 
(34,773
)
Loss on real estate venture formation

 
950

Net gain on real estate venture transaction
(3,683
)
 

Gain on remeasurement of investment in a real estate venture
(7,847
)
 

Loss on early extinguishment of debt
1,127

 
1,549

Historic tax credit transaction income
(11,853
)
 
(11,840
)
Real estate venture income in excess of distributions
(2,371
)
 
(1,024
)
Deferred financing obligation
(1,392
)
 
(1,314
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(287
)
 
1,580

Other assets
(5,758
)
 
(7,200
)
Accounts payable and accrued expenses
14,684

 
9,565

Deferred income, gains and rent
1,265

 
(4,681
)
Other liabilities
1,718

 
(1,175
)
Net cash from operating activities
146,228

 
122,145

Cash flows from investing activities:
 
 
 
Acquisition of properties
(20,758
)
 
(9,226
)
Investments in available-for-sale securities

 
(98,250
)
Proceeds from sale of available-for-sale securities

 
98,250

Sales of properties, net
145,931

 
170,918

Distribution of sales proceeds from real estate ventures
16,963

 

Proceeds from repayment of mortgage notes receivable
200

 
23,930

Capital expenditures for tenant improvements
(64,481
)
 
(64,527
)
Capital expenditures for redevelopments
(5,288
)
 
(9,122
)
Capital expenditures for developments
(5,399
)