10-Q 1 bdn930201510-qq3x2015.htm 10-Q 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, 2015
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 175,196,703 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of October 23, 2015.



2




EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2015 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, 2015, owned a 99.1% interest in the Operating Partnership. The remaining 0.9% 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.
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.
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.
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.
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.


3




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; and
Parent Company’s and Operating Partnership’s Equity.
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.


4




TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
 
 
Brandywine Realty Trust
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brandywine Operating Partnership, L.P.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Filing Format
This combined Form 10-Q is being filed separately by Brandywine Realty Trust and Brandywine Operating Partnership, L.P.


5




PART I - FINANCIAL INFORMATION


Item 1.
— Financial Statements
BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
 
September 30,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Real estate investments:
 
 
 
Operating properties
$
4,629,223

 
$
4,603,692

Accumulated depreciation
(1,064,804
)
 
(1,067,829
)
Operating real estate investments, net
3,564,419

 
3,535,863

Construction-in-progress
242,246

 
201,360

Land inventory
135,917

 
90,603

Total real estate investments, net
3,942,582

 
3,827,826

Cash and cash equivalents
50,632

 
257,502

Accounts receivable, net
19,221

 
18,757

Accrued rent receivable, net
139,738

 
134,051

Assets held for sale, net
53,042

 
18,295

Investment in Real Estate Ventures, at equity
211,771

 
225,004

Deferred costs, net
124,472

 
125,224

Intangible assets, net
127,088

 
99,403

Mortgage note receivable

 
88,000

Other assets
73,075

 
65,111

Total assets
$
4,741,621

 
$
4,859,173

LIABILITIES AND BENEFICIARIES’ EQUITY
 
 
 
Mortgage notes payable
$
642,396

 
$
654,590

Unsecured term loans
200,000

 
200,000

Unsecured senior notes, net of discounts
1,597,541

 
1,596,718

Accounts payable and accrued expenses
115,636

 
96,046

Distributions payable
28,318

 
28,871

Deferred income, gains and rent
41,133

 
59,452

Acquired lease intangibles, net
28,541

 
26,010

Other liabilities
41,630

 
37,558

Liabilities related to assets held for sale
1,269

 
602

Total liabilities
2,696,464

 
2,699,847

Commitments and contingencies (Note 12)

 

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 2015 and 2014
40

 
40

Common Shares of Brandywine Realty Trust’s beneficial interest, $0.01 par value; shares authorized 400,000,000; 175,196,703 and 179,293,160 issued and outstanding in 2015 and 2014, respectively
1,752

 
1,793

Additional paid-in capital
3,258,075

 
3,314,693

Deferred compensation payable in common shares
11,918

 
6,219

Common shares in grantor trust, 745,686 in 2015 and 384,536 in 2014
(11,918
)
 
(6,219
)
Cumulative earnings
561,227

 
529,487

Accumulated other comprehensive loss
(8,490
)
 
(4,607
)
Cumulative distributions
(1,786,374
)
 
(1,700,579
)
Total Brandywine Realty Trust’s equity
2,026,230

 
2,140,827

Non-controlling interests
18,927

 
18,499

Total beneficiaries' equity
2,045,157

 
2,159,326

Total liabilities and beneficiaries' equity
$
4,741,621

 
$
4,859,173


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


6




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,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Rents
$
124,263

 
$
120,288

 
$
363,800

 
$
363,581

Tenant reimbursements
21,553

 
20,095

 
64,006

 
64,057

Termination fees
1,097

 
1,418

 
2,561

 
6,970

Third party management fees, labor reimbursement and leasing
4,274

 
3,932

 
12,805

 
12,269

Other
1,398

 
825

 
5,467

 
2,295

Total revenue
152,585

 
146,558

 
448,639

 
449,172

Operating expenses:
 
 
 
 
 
 
 
Property operating expenses
43,894

 
42,675

 
133,175

 
132,612

Real estate taxes
13,119

 
12,869

 
37,632

 
39,167

Third party management expenses
1,605

 
1,687

 
4,858

 
5,133

Depreciation and amortization
58,314

 
52,616

 
160,355

 
157,773

General and administrative expenses
6,127

 
5,900

 
21,554

 
20,086

Total operating expenses
123,059

 
115,747

 
357,574

 
354,771

Operating income
29,526

 
30,811

 
91,065

 
94,401

Other income (expense):
 
 
 
 
 
 
 
Interest income
126

 
528

 
1,189

 
1,298

Tax credit transaction income
11,853

 
11,853

 
11,853

 
11,853

Interest expense
(27,900
)
 
(31,481
)
 
(83,971
)
 
(94,837
)
Interest expense — amortization of deferred financing costs
(1,010
)
 
(1,566
)
 
(3,377
)
 
(3,952
)
Interest expense — financing obligation
(296
)
 
(273
)
 
(906
)
 
(861
)
Recognized hedge activity

 
(828
)
 

 
(828
)
Equity in loss of Real Estate Ventures
(1,093
)
 
(486
)
 
(1,835
)
 
(733
)
Net gain on disposition of real estate
6,083

 
4,698

 
16,673

 
4,698

Net gain on sale of undepreciated real estate
3,019

 

 
3,019

 
1,184

Net gain from remeasurement of investment in real estate ventures

 

 
758

 
458

Loss on real estate venture transactions

 

 

 
(417
)
Loss on early extinguishment of debt

 
(2,606
)
 

 
(2,606
)
Provision for impairment on assets held for sale/sold

 
(1,765
)
 
(2,508
)
 
(1,765
)
Income from continuing operations
20,308

 
8,885

 
31,960

 
7,893

Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations

 

 

 
18

Net gain (loss) on disposition of discontinued operations

 
(3
)
 

 
900

Total discontinued operations

 
(3
)
 

 
918

Net income
20,308

 
8,882

 
31,960

 
8,811

Net income from discontinued operations attributable to non-controlling interests

 

 

 
(10
)
Net income from continuing operations attributable to non-controlling interests
(161
)
 
(108
)
 
(221
)
 
(47
)
Net income attributable to non-controlling interests
(161
)
 
(108
)
 
(221
)
 
(57
)
Net income attributable to Brandywine Realty Trust
20,147

 
8,774

 
31,739

 
8,754

Distribution to preferred shareholders
(1,725
)
 
(1,725
)
 
(5,175
)
 
(5,175
)
Nonforfeitable dividends allocated to unvested restricted shareholders
(76
)
 
(82
)
 
(253
)
 
(268
)
Net income attributable to Common Shareholders of Brandywine Realty Trust
$
18,346

 
$
6,967

 
$
26,311

 
$
3,311

Basic income per Common Share:
 
 
 
 
 
 
 
Continuing operations
$
0.10

 
$
0.04

 
$
0.15

 
$
0.01

Discontinued operations

 

 

 
0.01

 
$
0.10

 
$
0.04

 
$
0.15

 
$
0.02

Diluted income per Common Share:
 
 
 
 
 
 
 
Continuing operations
$
0.10

 
$
0.04

 
$
0.15

 
$
0.01

Discontinued operations

 

 

 
0.01

 
$
0.10

 
$
0.04

 
$
0.15

 
$
0.02

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
178,188,037

 
171,606,722

 
179,198,714

 
161,866,955

Diluted weighted average shares outstanding
178,776,684

 
173,193,870

 
179,988,492

 
163,353,970

Net income attributable to Brandywine Realty Trust
 
 
 
 
 
 
 
Total continuing operations
$
20,147

 
$
8,777

 
$
31,739

 
$
7,846

Total discontinued operations

 
(3
)
 

 
908

Net income
$
20,147

 
$
8,774

 
$
31,739

 
$
8,754

 
 
 
 
 
 
 
 
Distributions declared per Common Share
$
0.15

 
$
0.15

 
$
0.45

 
$
0.45


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


7




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

 
Three-month periods ended
 
Nine-month periods ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
20,308

 
$
8,882

 
$
31,960

 
$
8,811

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative financial instruments
(2,922
)
 
4,232

 
(4,091
)
 
967

Loss on settlement of interest rate swaps

 
(828
)
 

 
(828
)
Reclassification of realized losses on derivative financial instruments to operations, net (1)
58

 
76

 
174

 
196

     Total other comprehensive gain (loss)
(2,864
)
 
3,480

 
(3,917
)
 
335

Comprehensive income
17,444

 
12,362

 
28,043

 
9,146

Comprehensive income attributable to non-controlling interest
(136
)
 
(141
)
 
(187
)
 
(55
)
Comprehensive income attributable to Brandywine Realty Trust
$
17,308

 
$
12,221

 
$
27,856

 
$
9,091

(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.




8




BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF BENEFICIARIES’ EQUITY
For the nine-month period ended September 30, 2015
(unaudited, in thousands, except number of shares)

 
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
Loss
 
Cumulative
Distributions
 
Non-Controlling
Interests
 
Total
BALANCE, December 31, 2014
4,000,000

 
$
40

 
179,293,160

 
384,536

 
$
1,793

 
$
3,314,693

 
$
6,219

 
$
(6,219
)
 
$
529,487

 
$
(4,607
)
 
$
(1,700,579
)
 
$
18,499

 
$
2,159,326

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31,739

 
 
 
 
 
221

 
31,960

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3,883
)
 
 
 
(34
)
 
(3,917
)
Repurchase and retirement of Common Shares of Beneficial Interest
 
 
 
 
(4,701,302
)
 
 
 
(47
)
 
(60,770
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(60,817
)
Issuance of partnership interest in joint venture
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,025

 
1,025

Bonus share issuance
 
 
 
 
8,447

 
 
 
 
 
125

 
 
 
 
 
 
 
 
 
 
 
 
 
125

Equity issuance costs
 
 
 
 
 
 
 
 
 
 
(100
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(100
)
Share-based compensation activity
 
 
 
 
509,675

 
280,011

 
6

 
4,036

 
 
 
 
 
1

 
 
 
 
 
 
 
4,043

Share issuance from/to Deferred Compensation Plan
 
 
 
 
86,723

 
81,139

 


 
(2
)
 
5,699

 
(5,699
)
 
 
 
 
 
 
 
 
 
(2
)
Adjustment to non-controlling interest
 
 
 
 
 
 
 
 
 
 
93

 
 
 
 
 
 
 
 
 
 
 
(93
)
 

Preferred Share distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(5,175
)
 
 
 
(5,175
)
Distributions declared ($0.45 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(80,620
)
 
(691
)
 
(81,311
)
BALANCE,
September 30, 2015
4,000,000

 
$
40

 
175,196,703

 
745,686

 
$
1,752

 
$
3,258,075

 
$
11,918

 
$
(11,918
)
 
$
561,227

 
$
(8,490
)
 
$
(1,786,374
)
 
$
18,927

 
$
2,045,157


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


9





BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENT OF BENEFICIARIES’ EQUITY
For the nine-month period ended September 30, 2014
(unaudited, in thousands, except number of shares)

 
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
Loss
 
Cumulative
Distributions
 
Non-Controlling
Interests
 
Total
BALANCE, December 31, 2013
4,000,000

 
$
40

 
156,731,993

 
312,280

 
$
1,566

 
$
2,971,596

 
$
5,407

 
$
(5,407
)
 
$
522,528

 
$
(2,995
)
 
$
(1,592,515
)
 
$
21,215

 
$
1,921,435

Net loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,754

 
 
 
 
 
57

 
8,811

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
337

 
 
 
(2
)
 
335

Issuance of Common Shares of Beneficial Interest
 
 
 
 
21,850,000

 
 
 
219

 
335,179

 
 
 
 
 
 
 
 
 
 
 
 
 
335,398

Conversion of LP Units to Common Shares
 
 
 
 
41,734

 
 
 
 
 
655

 
 
 
 
 
 
 
 
 
 
 
(655
)
 

Equity issuance costs
 
 
 
 
 
 
 
 
 
 
(452
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(452
)
Share-based compensation activity
 
 
 
 
279,913

 


 
5

 
4,597

 
 
 
 
 
12

 
 
 
 
 
 
 
4,614

Share issuance from/to Deferred Compensation Plan
 
 
 
 
78,729

 
72,256

 
 
 
(90
)
 
812

 
(812
)
 
 
 
 
 
 
 
 
 
(90
)
Adjustment to non-controlling interest
 
 
 
 
 
 
 
 
 
 
(1,172
)
 
 
 
 
 
 
 
 
 
 
 
1,172

 

Preferred Share distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(5,175
)
 
 
 
(5,175
)
Distributions declared ($0.45 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(74,198
)
 
(788
)
 
(74,986
)
BALANCE,
September 30, 2014
4,000,000

 
$
40

 
178,982,369

 
384,536

 
$
1,790

 
$
3,310,313

 
$
6,219

 
$
(6,219
)
 
$
531,294

 
$
(2,658
)
 
$
(1,671,888
)
 
$
20,999

 
$
2,189,890


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


10




BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine-month periods ended
 
September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
31,960

 
$
8,811

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation and amortization
160,355

 
157,773

Amortization of deferred financing costs
3,377

 
3,952

Amortization of debt discount/(premium), net
(507
)
 
(455
)
Amortization of stock compensation costs
4,312

 
3,622

Shares used for employee taxes upon vesting of share awards
(2,056
)
 
(1,263
)
Recognized hedge activity

 
828

Straight-line rent income
(17,579
)
 
(11,416
)
Amortization of acquired above (below) market leases, net
(5,473
)
 
(5,206
)
Straight-line ground rent expense
66

 
66

Provision for doubtful accounts
1,276

 
1,687

Loss on real estate venture transactions

 
417

Net gain on sale of interests in real estate
(19,692
)
 
(5,882
)
Net gain from remeasurement of investment in a real estate venture
(758
)
 
(458
)
Loss on early extinguishment of debt

 
2,606

Provision for impairment on assets held for sale/sold
2,508

 
1,765

Tax credit transaction income
(11,853
)
 
(11,853
)
Real Estate Venture loss in excess of distributions
2,579

 
659

Deferred financing obligation
(906
)
 
(864
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(1,008
)
 
(4,586
)
Other assets
(9,511
)
 
(10,317
)
Accounts payable and accrued expenses
13,819

 
9,304

Deferred income, gains and rent
(3,491
)
 
(4,430
)
Other liabilities
(2,458
)
 
(1,760
)
Net cash provided by operating activities
144,960

 
133,000

Cash flows from investing activities:
 
 
 
Acquisition of properties
(141,303
)
 
(12,405
)
Acquisition of property - 1031 exchange funds applied
(62,812
)
 

Proceeds from the sale of properties
152,243

 
81,625

Sale of property - 1031 exchange funds held in escrow
62,800

 

Proceeds from repayment of mortgage notes receivable
88,000

 
5,125

Capital expenditures for tenant improvements
(56,095
)
 
(85,698
)
Capital expenditures for redevelopments
(38,925
)
 
(10,195
)
Capital expenditures for developments
(122,380
)
 
(48,057
)
Advances for purchase of tenant assets, net of repayments
290

 
(212
)
Investment in unconsolidated Real Estate Ventures
(62,868
)
 
(16,330
)
Deposits for real estate
(451
)
 

Escrowed cash
1,004

 
1,076

Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income
7,401

 
7,341

Leasing costs paid
(18,295
)
 
(17,018
)
Net cash used in investing activities
(191,391
)
 
(94,748
)
Cash flows from financing activities:
 
 
 
Repayments of mortgage notes payable
(10,598
)
 
(9,994
)
Repayments of unsecured term loans

 
(250,828
)
Proceeds from unsecured notes

 
496,459

Net proceeds from issuance of common shares

 
335,016

Repayments of unsecured notes

 
(120,361
)
Debt financing costs paid
(3,229
)
 
(3,630
)
Proceeds from the exercise of stock options
127

 
709

Partner contribution to consolidated real estate venture
1,025

 

Repurchase and retirement of common shares
(60,817
)
 

Distributions paid to shareholders
(86,255
)
 
(76,081
)


11




Distributions to noncontrolling interest
(692
)
 
(806
)
Net cash used in financing activities
(160,439
)
 
370,484

Decrease in cash and cash equivalents
(206,870
)
 
408,736

Cash and cash equivalents at beginning of period
257,502

 
263,207

Cash and cash equivalents at end of period
$
50,632

 
$
671,943

 
 
 
 
Supplemental disclosure:
 
 
 
Cash paid for interest, net of capitalized interest during the nine months ended September 30, 2015 and 2014 of $8,764 and $4,466, respectively
$
80,720

 
$
92,196

Supplemental disclosure of non-cash activity:
 

 
 

Change in investments in joint venture related to non-cash disposition of property

 
(5,897
)
Change in real estate investments related to non-cash property acquisition
(67,261
)
 

Change in investments in joint venture related to non-cash acquisition of property
67,261

 

Change in receivable from settlement of acquisitions

 
619

Change in other liabilities from contingent consideration related to a business combination
1,585

 

Change in operating real estate from contingent consideration related to a business combination
(1,585
)
 

Change in other liabilities from a deferred payment related to an asset acquisition
2,000

 

Change in operating real estate from a deferred payment related to an asset acquisition
(2,000
)
 

Change in capital expenditures financed through accounts payable at period end
(2,472
)
 
4,415

Change in capital expenditures financed through retention payable at period end
6,873

 
3,479

Change in unfunded tenant allowance

 
(327
)
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,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Real estate investments:
 
 
 
Operating properties
$
4,629,223

 
$
4,603,692

Accumulated depreciation
(1,064,804
)
 
(1,067,829
)
Operating real estate investments, net
3,564,419

 
3,535,863

Construction-in-progress
242,246

 
201,360

Land inventory
135,917

 
90,603

Total real estate investments, net
3,942,582

 
3,827,826

Cash and cash equivalents
50,632

 
257,502

Accounts receivable, net
19,221

 
18,757

Accrued rent receivable, net
139,738

 
134,051

Assets held for sale, net
53,042

 
18,295

Investment in Real Estate Ventures, at equity
211,771

 
225,004

Deferred costs, net
124,472

 
125,224

Intangible assets, net
127,088

 
99,403

Mortgage note receivable

 
88,000

Other assets
73,075

 
65,111

Total assets
$
4,741,621

 
$
4,859,173

LIABILITIES AND PARTNERS' EQUITY
 
 
 
Mortgage notes payable
$
642,396

 
$
654,590

Unsecured term loans
200,000

 
200,000

Unsecured senior notes, net of discounts
1,597,541

 
1,596,718

Accounts payable and accrued expenses
115,636

 
96,046

Distributions payable
28,318

 
28,871

Deferred income, gains and rent
41,133

 
59,452

Acquired lease intangibles, net
28,541

 
26,010

Other liabilities
41,630

 
37,558

Liabilities related to assets held for sale
1,269

 
602

Total liabilities
2,696,464

 
2,699,847

Commitments and contingencies (Note 12)

 

Redeemable limited partnership units at redemption value; 1,535,102 issued and outstanding in 2015 and 2014
22,247

 
24,571

Brandywine Operating Partnership, L.P.’s equity:
 
 
 
6.90% Series E-Linked Preferred Mirror Units; issued and outstanding- 4,000,000 in 2015 and 2014
96,850

 
96,850

General Partnership Capital, 175,196,703 and 179,293,160 units issued and outstanding in 2015 and 2014, respectively
1,932,953

 
2,041,902

Accumulated other comprehensive loss
(8,924
)
 
(5,007
)
Total Brandywine Operating Partnership, L.P.’s equity
2,020,879

 
2,133,745

Non-controlling interest - consolidated real estate ventures
2,031

 
1,010

Total partners’ equity
2,022,910

 
2,134,755

 
 
 
 
Total liabilities and partners’ equity
$
4,741,621

 
$
4,859,173

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)
 
Three-month periods ended
 
Nine-month periods ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Rents
$
124,263

 
$
120,288

 
$
363,800

 
$
363,581

Tenant reimbursements
21,553

 
20,095

 
64,006

 
64,057

Termination fees
1,097

 
1,418

 
2,561

 
6,970

Third party management fees, labor reimbursement and leasing
4,274

 
3,932

 
12,805

 
12,269

Other
1,398

 
825

 
5,467

 
2,295

Total revenue
152,585

 
146,558

 
448,639

 
449,172

Operating expenses:
 
 
 
 
 
 
 
Property operating expenses
43,894

 
42,675

 
133,175

 
132,612

Real estate taxes
13,119

 
12,869

 
37,632

 
39,167

Third party management expenses
1,605

 
1,687

 
4,858

 
5,133

Depreciation and amortization
58,314

 
52,616

 
160,355

 
157,773

General & administrative expenses
6,127

 
5,900

 
21,554

 
20,086

Total operating expenses
123,059

 
115,747

 
357,574

 
354,771

Operating income
29,526

 
30,811

 
91,065

 
94,401

Other income (expense):
 
 
 
 
 
 
 
Interest income
126

 
528

 
1,189

 
1,298

Tax credit transaction income
11,853

 
11,853

 
11,853

 
11,853

Interest expense
(27,900
)
 
(31,481
)
 
(83,971
)
 
(94,837
)
Interest expense — amortization of deferred financing costs
(1,010
)
 
(1,566
)
 
(3,377
)
 
(3,952
)
Interest expense — financing obligation
(296
)
 
(273
)
 
(906
)
 
(861
)
Recognized hedge activity

 
(828
)
 

 
(828
)
Equity in loss of Real Estate Ventures
(1,093
)
 
(486
)
 
(1,835
)
 
(733
)
Net gain on disposition of real estate
6,083

 
4,698

 
16,673

 
4,698

Net gain on sale of undepreciated real estate
3,019

 

 
3,019

 
1,184

Net gain from remeasurement of investment in real estate ventures

 

 
758

 
458

Loss on real estate venture transactions

 

 

 
(417
)
Loss on early extinguishment of debt

 
(2,606
)
 

 
(2,606
)
Provision for impairment on assets held for sale/sold

 
(1,765
)
 
(2,508
)
 
(1,765
)
Income from continuing operations
20,308

 
8,885

 
31,960

 
7,893

Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations

 

 

 
18

Net gain (loss) on disposition of discontinued operations

 
(3
)
 

 
900

Total discontinued operations

 
(3
)
 

 
918

Net income
20,308

 
8,882

 
31,960

 
8,811

Net (income) loss attributable to non-controlling interests
(1
)
 
(24
)
 
4

 
(12
)
Net income attributable to Brandywine Operating Partnership
20,307

 
8,858

 
31,964

 
8,799

Distribution to preferred unitholders
(1,725
)
 
(1,725
)
 
(5,175
)
 
(5,175
)
Amount allocated to unvested restricted unitholders
(76
)
 
(82
)
 
(253
)
 
(268
)
Net income attributable to Common Partnership Unitholders of Brandywine Operating Partnership, L.P.
$
18,506

 
$
7,051

 
$
26,536

 
$
3,356

Basic income (loss) per Common Partnership Unit:
 
 
 
 
 
 
 
Continuing operations
$
0.10

 
$
0.04

 
$
0.15

 
$
0.01

Discontinued operations

 

 

 
0.01

 
$
0.10

 
$
0.04

 
$
0.15

 
$
0.02

Diluted income per Common Partnership Unit:
 
 
 
 
 
 
 
Continuing operations
$
0.10

 
$
0.04

 
$
0.15

 
$
0.01

Discontinued operations

 

 

 
0.01

 
$
0.10

 
$
0.04

 
$
0.15

 
$
0.02

Basic weighted average common partnership units outstanding
179,723,139

 
173,341,782

 
180,733,816

 
163,620,963

Diluted weighted average common partnership units outstanding
180,311,786

 
174,928,930

 
181,523,594

 
165,107,978

Net income (loss) attributable to Brandywine Operating Partnership, L.P.
 
 
 
 
 
 
 
Total continuing operations
$
20,307

 
$
8,861

 
$
31,964

 
$
7,881

Total discontinued operations

 
(3
)
 

 
918

Net income
$
20,307

 
$
8,858

 
$
31,964

 
$
8,799

 
 
 
 
 
 
 
 
Distributions declared per Common Partnership Unit
0.15

 
0.15

 
0.45

 
0.45

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)

 
Three-month periods ended
 
Nine-month periods ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
20,308

 
$
8,882

 
$
31,960

 
$
8,811

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative financial instruments
(2,922
)
 
4,232

 
(4,091
)
 
967

Loss on settlement of interest rate swaps

 
(828
)
 

 
(828
)
Reclassification of realized losses on derivative financial instruments to operations, net (1)
58

 
76

 
174

 
196

Total other comprehensive income (loss)
(2,864
)
 
3,480

 
(3,917
)
 
335

Comprehensive income attributable to Brandywine Operating Partnership, L.P.
$
17,444

 
$
12,362

 
$
28,043

 
$
9,146

(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.




15




BRANDYWINE OPERATING PARTNERSHIP L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine-month periods ended
 
September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
31,960

 
$
8,811

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation and amortization
160,355

 
157,773

Amortization of deferred financing costs
3,377

 
3,952

Amortization of debt discount/(premium), net
(507
)
 
(455
)
Amortization of stock compensation costs
4,312

 
3,622

Shares used for employee taxes upon vesting of share awards
(2,056
)
 
(1,263
)
Recognized hedge activity

 
828

Straight-line rent income
(17,579
)
 
(11,416
)
Amortization of acquired above (below) market leases, net
(5,473
)
 
(5,206
)
Straight-line ground rent expense
66

 
66

Provision for doubtful accounts
1,276

 
1,687

Loss on real estate venture transactions

 
417

Net gain on sale of interests in real estate
(19,692
)
 
(5,882
)
Net gain on remeasurement of investment in a real estate venture
(758
)
 
(458
)
Tax credit transaction income
(11,853
)
 
(11,853
)
Loss on early extinguishment of debt

 
2,606

Provision for impairment on assets held for sale
2,508

 
1,765

Real Estate Venture loss in excess of distributions
2,579

 
659

Deferred financing obligation
(906
)
 
(864
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(1,008
)
 
(4,586
)
Other assets
(9,511
)
 
(10,317
)
Accounts payable and accrued expenses
13,819

 
9,304

Deferred income, gains and rent
(3,491
)
 
(4,430
)
Other liabilities
(2,458
)
 
(1,760
)
Net cash provided by operating activities
144,960

 
133,000

Cash flows from investing activities:
 
 
 
Acquisition of properties
(141,303
)
 
(12,405
)
Acquisition of property - 1031 exchange funds applied
(62,812
)
 

Proceeds from the sale of properties
152,243

 
81,625

Sale of property - 1031 exchange funds held in escrow
62,800

 

Proceeds from repayment of mortgage notes receivable
88,000

 
5,125

Capital expenditures for tenant improvements
(56,095
)
 
(85,698
)
Capital expenditures for redevelopments
(38,925
)
 
(10,195
)
Capital expenditures for developments
(122,380
)
 
(48,057
)
Advances for purchase of tenant assets, net of repayments
290

 
(212
)
Investment in unconsolidated Real Estate Ventures
(62,868
)
 
(16,330
)
Deposits for real estate
(451
)
 

Escrowed cash
1,004

 
1,076

Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income
7,401

 
7,341

Leasing costs paid
(18,295
)
 
(17,018
)
Net cash used in investing activities
(191,391
)
 
(94,748
)
Cash flows from financing activities:
 
 
 
Repayments of mortgage notes payable
(10,598
)
 
(9,994
)
Repayments of unsecured term loans

 
(250,828
)
Proceeds from unsecured notes

 
496,459

Net proceeds from issuance of common units

 
335,016

Repayments of unsecured notes

 
(120,361
)
Debt financing costs paid
(3,229
)
 
(3,630
)
Proceeds from the exercise of stock options
127

 
709

Partner contribution to consolidated real estate venture
1,025

 

Repurchase and retirement of common partnership units
(60,817
)
 



16




Distributions paid to preferred and common partnership unitholders
(86,947
)
 
(76,887
)
Net cash used in financing activities
(160,439
)
 
370,484

Decrease in cash and cash equivalents
(206,870
)
 
408,736

Cash and cash equivalents at beginning of period
257,502

 
263,207

Cash and cash equivalents at end of period
$
50,632

 
$
671,943

 
 
 
 
Supplemental disclosure:
 
 
 
Cash paid for interest, net of capitalized interest during the nine months ended September 30, 2015 and 2014 of $8,764 and $4,466, respectively
$
80,720

 
$
92,196

Supplemental disclosure of non-cash activity:
 
 
 
Change in investments in joint venture related non-cash disposition of property

 
(5,897
)
Change in real estate investments related to non-cash property acquisition
(67,261
)
 

Change in investments in joint venture related to non-cash acquisition of property
67,261

 

Change in receivable from settlement of acquisitions

 
619

Change in other liabilities from contingent consideration related to a business combination
1,585

 

Change in operating real estate from contingent consideration related to a business combination
(1,585
)
 

Change in other liabilities from a deferred payment related to an asset acquisition
2,000

 

Change in operating real estate from a deferred payment related to an asset acquisition
(2,000
)
 

Change in capital expenditures financed through accounts payable at period end
(2,472
)
 
4,415

Change in capital expenditures financed through retention payable at period end
6,873

 
3,479

Change in unfunded tenant allowance

 
(327
)

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


17




BRANDYWINE REALTY TRUST AND BRANDYWINE OPERATING PARTNERSHIP, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
1. ORGANIZATION OF THE PARENT COMPANY AND THE OPERATING PARTNERSHIP
The Parent Company is a self-administered and self-managed real estate investment trust (“REIT”) that provides leasing, property management, development, redevelopment, acquisition and other tenant-related services for a portfolio of office, industrial, retail and mixed-use properties. The Parent Company owns its assets and conducts its operations through the Operating Partnership and subsidiaries of the Operating Partnership. The Parent Company is the sole general partner of the Operating Partnership and, as of September 30, 2015, owned a 99.1% interest in the Operating Partnership. The Parent Company’s common shares of beneficial interest are publicly traded on the New York Stock Exchange under the ticker symbol “BDN”.
As of September 30, 2015, the Company owned 192 properties, consisting of 155 office properties, 20 industrial facilities, four mixed-use properties, one retail property (180 core properties), six properties classified as held for sale, four development properties, one redevelopment property and one re-entitlement property (collectively, the “Properties”) containing an aggregate of approximately 24.8 million net rentable square feet. In addition, as of September 30, 2015, the Company owned economic interests in 17 unconsolidated real estate ventures that own properties containing an aggregate of approximately 4.0 million net rentable square feet, 4.4 acres of undeveloped parcels of land and 22.5 acres of land under development (collectively, the “Real Estate Ventures”). As of September 30, 2015, the Company also owned 413 acres of undeveloped land, and held options to purchase approximately 63 additional acres of undeveloped land. As of September 30, 2015, the total potential development that these land parcels could support, under current zoning, entitlements or combination thereof, amounted to an estimated 7.8 million square feet of development, inclusive of the options to purchase approximately 63 additional acres of undeveloped land. The Properties and the properties owned by the Real Estate Ventures are located in or near Philadelphia, Pennsylvania; Metropolitan Washington, D.C.; Southern New Jersey; Richmond, Virginia; Wilmington, Delaware; Austin, Texas; and Oakland, Concord and Carlsbad, California.
The Company conducts its third-party real estate management services business primarily through wholly-owned management company subsidiaries. As of September 30, 2015, the management company subsidiaries were managing properties containing an aggregate of approximately 30.9 million net rentable square feet, of which approximately 24.7 million net rentable square feet related to Properties owned by the Company and approximately 6.2 million net rentable square feet related to properties owned by third parties and the Real Estate Ventures.
Unless otherwise indicated, all references in this Form 10-Q to square feet represent net rentable area.
2. BASIS OF PRESENTATION
Basis of Presentation
The consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting solely of normal recurring matters) for a fair statement of the financial position of the Company as of September 30, 2015, the results of its operations for the three and nine-month periods ended September 30, 2015 and 2014 and its cash flows for the nine-month periods ended September 30, 2015 and 2014 have been included. The results of operations for such interim periods are not necessarily indicative of the results for a full year. These consolidated financial statements should be read in conjunction with the Parent Company’s and the Operating Partnership’s consolidated financial statements and footnotes included in their combined 2014 Annual Report on Form 10-K filed with the SEC on February 19, 2015.
The Company's Annual Report on Form 10-K for the year ended December 31, 2014 contains a discussion of our significant accounting policies under Note 2, "Summary of Significant Accounting Policies". There have been no significant changes in our significant accounting policies since December 31, 2014. Management discusses our significant accounting policies and management’s judgments and estimates with the Company's Audit Committee.
Recent Accounting Pronouncements
In September 2015, the Financial Accounting Standards Board ("FASB") issued guidance pertaining to entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the measurement period have an adjustment to provisional amounts recognized. The


18




guidance requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Any adjustments should be calculated as if the accounting had been completed at the acquisition date. The guidance is effective for public companies for fiscal years beginning after December 15, 2016, with early adoption permitted. Application of the guidance is prospective. The Company has not determined when it will adopt this guidance, nor what impact the adoption may have on its consolidated financial statements.
On July 9, 2015, the FASB elected to defer the effective date of the revenue recognition standard issued in May 2014 by one year. Reporting entities may choose to adopt the standard as of the original effective date or for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Calendar year-end public entities are therefore required to apply the new revenue guidance beginning in their 2018 interim and annual financial statements. The Company has not yet determined the impact, if any, that the adoption of this guidance will have on its consolidated financial statements. See Note 2, "Summary of Significant Accounting Policies," included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for the Company's initial disclosure of this standard.
In April 2015, the FASB issued guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this update. Debt issuance costs related to revolving lines of credit are not within the scope of this new guidance. Additionally, in August 2015 the FASB issued guidance expanding the April 2015 update. It states that, given the absence of authoritative guidance within the update, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset for revolving lines of credit and subsequently amortizing the deferred debt issuance costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the line of credit. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted for financial statements that have not been previously issued. Full retrospective application is required. Early adoption is permitted. The adoption of this guidance will not have a material impact on its consolidated financial position or results of operations as the update relates only to changes in financial statement presentation.
In February 2015, the FASB issued guidance modifying the analysis a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The guidance does not change the general order in which the consolidation models are applied. A reporting entity that holds an economic interest in, or is otherwise involved with, another legal entity must first determine if the variable interest entity model applies, and if so, whether it holds a controlling financial interest under that model. If the entity being evaluated for consolidation is not a variable interest entity, then the voting interest model should be applied to determine whether the entity should be consolidated by the reporting entity. Key changes to the guidance include, but are not limited to: (i.) limiting the extent to which related party interests are included to determine the decision maker’s effective financial interest in the entity, (ii.) requiring that the limited partners in the limited partnership (or the members of a limited liability company that is similar to a limited partnership) have either substantive kick-out rights or substantive participating rights over the general partner to demonstrate that the limited partnership is a voting interest entity, (iii.) changing the evaluation of whether the equity holders at risk lack decision making rights when decision making is outsourced and (iv.) changing how the economics test is performed. The guidance does not amend the existing disclosure requirements for variable interest entities or voting interest model entities. The guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity may elect to either apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or apply the amendments retrospectively. The Company has not yet determined the impact, if any, that the adoption of this guidance will have on its consolidated financial statements.


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3. REAL ESTATE INVESTMENTS
As of September 30, 2015 and December 31, 2014, the gross carrying value of the Company’s Properties was as follows (in thousands):
 
September 30,
2015
 
December 31,
2014
Land
$
658,280

 
$
669,635

Building and improvements
3,438,563

 
3,409,303

Tenant improvements
532,380

 
524,754

 
4,629,223

 
4,603,692

Assets held for sale - real estate investments (a)
74,706

 
27,436

Total