REAL ESTATE INVESTMENTS

As of December 31, 2013 and 2012 the gross carrying value of the Company’s Properties was as follows (in thousands):



	2013		2012
Land	$	680,513	$	662,107
Building and improvements	3,504,060		3,576,065
Tenant improvements	484,716		487,997
	$	4,669,289	$	4,726,169

Acquisitions and Dispositions

2013

Acquisitions

One and Two Commerce Square

On December 19, 2013, the Company acquired 99% of the common interests in the One and Two Common Square partnerships ("Commerce Square"), the entities which own two 41-story Trophy-class office towers in Philadelphia, Pennsylvania, from Parkway Properties, Inc. The office towers contain 1,896,142 of net rentable square feet and were 86.7% occupied as of December 31, 2013. The Company acquired Commerce Square for an aggregate purchase price of $331.8 million and funded the acquisition via assumption of $237.1 million of existing mortgage debt and a $73.1 million cash payment from available corporate funds.

The Company previously accounted for our non-controlling interest in Commerce Square under the equity method of accounting. As a result of acquiring a 99% common interest in the partnerships we obtained control of Commerce Square and our existing investment balance was remeasured based on the fair value of the underlying properties acquired and the existing distribution provisions under the relevant partnership agreements. Accordingly, a loss on remeasurement of $1.0 million was recorded as a result of this transaction.

The Company has treated this transaction as a business combination and allocated the purchase price to the tangible and intangible assets and liabilities. As discussed in Note 2, the Company utilized a number of sources in making estimates of fair values for purposes of allocating the purchase price to tangible and intangibles assets acquired and intangible liabilities assumed. The purchase price is allocated as follows:



	December 19, 2013
Building, land and improvements	$	255,705
Intangible assets acquired	85,036
Below market lease liabilities assumed	(8,637		)
	$	332,104

Mortgage debt assumed - at fair value (1)	(238,082		)
Return of existing equity method investment	(30,424		)
Net working capital assumed	10,423
Non-controlling interest	(946		)
Total cash payment at settlement	$	73,075

(1) Principal outstanding on assumed mortgage debt at December 19, 2013 was $237.1 million.

Intangible assets acquired and intangible liabilities assumed consist of the following (in thousands):



	December 19, 2013			Weighted Average Amortization Period (in years)
Intangible assets:
In-place lease value	$	80,916		7.9
Above market tenant leases acquired	4,120			6.9
Total	$	85,036

Intangible liabilities:
Below market leases acquired	$	(8,637	)	6.5

The Commerce Square redemption agreement allows for a 60 day settlement period related to the net working capital assets related to the acquired partnership interests. As of December 31, 2013, the Company has a $2.1 million receivable balance from its former partner which is due under the terms of the redemption agreement.

In connection with the acquisition of One Commerce Square, we assumed a $125.1 million existing non-recourse first mortgage with a fixed interest rate of 5.67% and a maturity date of January 6, 2016. In accordance with generally accepted accounting principles, the mortgage was recorded at $130.2 million to reflect the fair value.

In connection with the acquisition of Two Commerce Square, we assumed a $112.0 million existing non-recourse first mortgage with a fixed interest rate of 3.96% and a maturity date of April 5, 2023. In accordance with generally accepted accounting principles, the mortgage was recorded at $107.9 million to reflect the fair value.

The Company recognized $0.9 million of acquisition related costs which are included as part of general and administrative expenses of the Company’s consolidated statement of operations.

Four Points Centre

On December 19, 2013, the Company acquired two 3-story, Class A office buildings totaling 192,396 of net rentable square feet known as Four Points Centre, together with 22.3 acres of nearby parcels of land in Austin, Texas known for an aggregate $47.3 million. This property was 99.2% occupied as of December 31, 2013. The Company funded the acquisition price with available corporate funds, while recognizing $0.1 million of acquisition related costs, which are included as part of general and administrative expenses in the Company's consolidated statements of operations. The acquisition has been treated as a business combination and the total purchase price was allocated as follows: $36.0 million to building, $5.8 million to land, $6.5 million to intangible assets and $1.0 million to below market lease liabilities assumed.

Six Tower Bridge

On June 19, 2013, the Company acquired the remaining ownership interest in the real estate venture known as "Six Tower Bridge" that it did not then already own. See Note 4 "Investments in Unconsolidated Real Estate Ventures" for further discussion.

The unaudited pro forma information below summarizes the Company’s combined results of operations for the years ended December 31, 2013 and 2012 as though the acquisition of One and Two Commerce Square, Four Points Centre and Six Tower Bridge were completed on January 1, 2012. The supplemental pro forma operating data is not necessarily indicative of what the actual results of operations would have been assuming the transaction had been completed as set forth above, nor do they purport to represent the Company’s results of operations for future periods (in thousands except for per share amounts).



	December 31,
	2013		2012

Pro forma revenue	$	610,979	$	592,753
Pro forma income (loss) from continuing operations	21,805		(60,011		)
Pro forma net income (loss) available to common shareholders	25,957		(16,970		)

Earnings per common share from continuing operations:
Basic -- as reported	$	0.20	$	(0.36	)
Basic -- as pro forma	$	0.14	$	(0.42	)

Diluted -- as reported	$	0.20	$	(0.36	)
Diluted -- as pro forma	$	0.14	$	(0.42	)

Earnings per common share:
Basic -- as reported	$	0.23	$	(0.06	)
Basic -- as pro forma	$	0.17	$	(0.12	)

Diluted -- as reported	$	0.23	$	(0.06	)
Diluted -- as pro forma	$	0.17	$	(0.12	)

Included in the consolidated statements of income for the year ended December 31, 2013 are total revenues of $3.4 million and a net loss attributable to common shareholders of $0.2 million from acquisitions made during 2013.

Cira Centre

On November 19, 2013, the Company acquired a 0.8 acre land parcel underlying Cira Centre in Philadelphia, Pennsylvania for $24.6 million. The purchase terminates a long term ground lease agreement entered into during the development of Cira Centre. The Company has accounted for the transaction as an asset acquisition. Prior to the acquisition date, the Company recorded ground rent expense on a straight-line basis, resulting in accrued rent liability of $12.1 million. The accounting guidance for leases requires that an asset purchased which was previously subject to an operating lease cannot result in a gain, accordingly, the basis of the acquired land was reduced by the accrued rent liability and no income was recognized at acquisition. The Company funded the cost of the acquisition with available corporate funds and capitalized $1.4 million of acquisition related costs as part of the basis in the operating land.

Three Logan Square

On April 25, 2013, the Company exercised its purchase option under the long term ground lease agreement it held through its acquisition of Three Logan Square on August 5, 2010 and acquired the 1.8 acre land parcel underlying Three Logan Square in Philadelphia, Pennsylvania for $20.8 million. The Company has accounted for the transaction as an asset acquisition. A portion of the original purchase price of Three Logan Square was allocated to a below market ground lease intangible asset. As the sum of the purchase price of the land plus the $4.3 million remaining unamortized balance for the intangible asset approximates the fair value of the land as unencumbered by the ground lease, the remaining intangible asset balance was reclassified to land upon exercise of the purchase option. The Company funded the cost of the acquisition with available corporate funds and capitalized $0.1 million of acquisition related costs as part of the basis in the operating land.

Dispositions

On December 19, 2013, we sold a 50,000 net rentable square feet office property located in King of Prussia, Pennsylvania known as 875 First Avenue, for a sales price of $3.8 million resulting in a $0.1 million gain on sale after closing and other transaction related costs.

On October 17, 2013, we sold a 39,330 net rentable square feet office property located in West Chester, Pennsylvania known as 1336 Enterprise Drive, for a sales price of $2.6 million resulting in a $0.2 million gain on sale after closing and other transaction related costs.

On October 16, 2013 the Austin portfolio was contributed to a newly formed real estate venture. For additional information, see Note 4 to our consolidated financial statements.

On August 5, 2013, the Company sold an eight-acre parcel of land located in Richmond, Virginia known as Dabney Land East, for a sales price of $0.5 million resulting in a $0.1 million loss on sale after closing and other transaction related costs. The land parcel was undeveloped as of the date of sale.

On June 28, 2013, the Company sold 16870 West Bernardo Drive, a 68,708 net rentable square feet office property located in San Diego, California, for a sales price of $18.0 million resulting in a $0.9 million loss on sale after closing and other transaction related costs.

On June 28, 2013, the Company sold 100 Arrandale Boulevard, a 34,931 net rentable square feet office property located in Exton, Pennsylvania, for a sales price of $3.5 million resulting in a $0.4 million loss on sale after closing and other transaction related costs.

On June 19, 2013, the Company sold 1700 Paoli Pike, a 28,000 net rentable square feet office property located in Malvern, Pennsylvania known as 100 Applebrook, for a sales price of $2.7 million resulting in a $0.4 million loss on sale after closing and other transaction related costs.

On June 14, 2013, the Company sold Pacific View Plaza, a 51,695 net rentable square feet office property located in Carlsbad, California, for a sales price of $10.3 million resulting in a $0.5 million loss on sale after closing and other transaction related costs.

On February 25, 2013, the Company sold a portfolio of eight office properties containing 800,546 square feet in Lawrenceville, New Jersey, known as "Princeton Pike Corporate Center," for an aggregate sales price of $121.0 million resulting in a $5.3 million gain on sale after closing and other transaction related costs.

The sales of these properties, with the exception of the Austin portfolio and Dabney Land East, are included in discontinued operations (see Note 10).

2012

Brandywine/Toll Brothers Venture Formation

On September 5, 2012, the Company formed a joint venture, TB-BDN Plymouth Apartments, L.P., (the "Venture"), with Toll Brothers, Inc. ("Toll Brothers"), a residential home builder. The Company and Toll Brothers each own a 50% interest in the Venture. The Venture owns a 20-acre parcel of land located in Plymouth Meeting, Pennsylvania, which the Company contributed to the Venture upon its formation. Concurrent with the Company's contribution of the aforementioned land parcel, Toll Brothers contributed $15.5 million of cash to the venture, equivalent to the fair value of the land parcel contributed by the Company. The Venture will use the cash contributed by Toll Brothers to fund predevelopment costs for construction of a 398 unit apartment complex.

Based on the facts and circumstances at the date of formation of the Venture, and in accordance with applicable accounting standards for the consolidation of variable interest entities, or VIEs, the Company determined that the Venture is not a VIE. Accordingly, the Company used the voting interest model under the accounting standards for consolidation to determine whether to consolidate the Venture. Under the joint venture agreement for the Venture, each of the Company and Toll Brothers has significant participating rights and the Company does not have exclusive control over the development or construction phases of the Venture's project. Because each partner has significant participating rights, the Company deconsolidated the land parcel that was contributed to the Venture, and the Company is accounting for the Venture under the equity method of accounting. As of December 31, 2012, the carrying amount of the Company's equity investment in the Venture equaled $15.2 million, with an associated $0.3 million permanent basis adjustment accounting for the difference between the fair value and carrying amount of the land parcel contributed by the Company. This basis adjustment will remain unamortized until the property is sold to a third party or until the Venture is dissolved, in accordance with the accounting standard for equity method investment.

Brandywine AI Venture - Station Square Acquisition

On July 10, 2012, the Company contributed $26.1 million to a joint venture, Brandywine AI Venture, that the Company formed in 2011 with an affiliate of Allstate Insurance. The Company's contribution funded its share of partner capital for the Venture's $120.6 million acquisition of three office properties containing 497,896 net rentable square feet in Silver Spring, Maryland.

Acquisitions

On December 31, 2012, the Company acquired a two-building office property totaling 136,075 of net rentable square feet in Austin, Texas known as 7000 West at Lantana for $32.1 million. The Company funded the acquisition price with available corporate funds, while recognizing $0.1 million of acquisition related costs, which are included as part of general and administrative expenses in the Company's consolidated statements of operations. The acquisition was treated as a business combination and the total purchase price was allocated as follows: $20.9 million to building, $4.7 million to land, $8.4 million to intangible assets and $1.9 million to below market lease liabilities assumed.

On December 11, 2012, the Company acquired an office property containing 456,922 net rentable square feet in Philadelphia, Pennsylvania known as 1900 Market Street for $34.8 million. The Company funded the acquisition price with available corporate funds, while recognizing $0.1 million of acquisition related costs, which are included as part of general and administrative expenses in the Company's consolidated statements of operations. The acquisition was treated as a business combination and the total purchase price was allocated as follows: $17.3 million to building, $7.8 million to land, $13.5 million to intangible assets and $3.8 million to below market lease liabilities assumed.

On November 20, 2012, the Company acquired a ten-acre parcel of land in Herndon, Virginia for $2.1 million. The Company funded the acquisition price with available corporate funds. The Company accounted for this transaction as an asset acquisition and capitalized a nominal amount of acquisition related and other costs as part of land inventory on its consolidated balance sheet.

On January 6, 2012, the Company acquired a vacant office property containing 154,392 net rentable square feet in Plymouth Meeting, Pennsylvania known as 660 West Germantown Pike for $9.1 million. The Company is currently redeveloping this property. The Company funded the acquisition price with available corporate funds. The Company recognized $0.1 million of acquisition related costs that have been capitalized on our consolidated balance sheet.

Dispositions

On July 18, 2012, the Company sold a portfolio of 11 flex/office properties, totaling 466,719 square feet, in Exton, Pennsylvania, collectively known as "Oaklands Corporate Center," for a sales price of $52.7 million resulting in a $9.9 million gain on sale after closing and other transaction related costs.

On June 22, 2012, the Company sold Pacific Ridge Corporate Center, a 121,381 net rentable square feet, two-building office property located in Carlsbad, California, for a sales price of $29.0 million resulting in a $2.8 million loss on sale after closing and other transaction related costs.

On March 22, 2012, the Company sold South Lake at Dulles Corner, a 268,240 net rentable square feet office property located in Herndon, Virginia, for a sales price of $91.1 million resulting in a $14.5 million gain on sale after closing and other transaction related costs.

On January 17, 2012, the Company sold 304 Harper Drive, a 32,978 net rentable square feet office property located in Moorestown, New Jersey, for a sales price of $3.0 million resulting in a $0.2 million gain on sale after closing and other transaction related costs.

Each of these sales is included in discontinued operations (see Note 10).