REAL ESTATE INVESTMENTS

12 Months Ended

Dec. 31, 2021

3. REAL ESTATE INVESTMENTS

As of December 31, 2021 and 2020, the gross carrying value of the operating properties was as follows (in thousands):


	December 31, 2021		December 31, 2020
Land	$	410,144	$	407,514
Building and improvements	2,653,492		2,665,232
Tenant improvements	408,966		401,363


Total	$	3,472,602	$	3,474,109

Construction-in-Progress

Internal direct construction costs totaling $7.9 million in 2021, $8.4 million in 2020, and $7.4 million in 2019 and interest totaling $7.0 million in 2021, $4.6 million in 2020, and $3.2 million in 2019 were capitalized related to the development, redevelopment and construction of tenant improvements of certain properties and land holdings.

During the years ended December 31, 2021, 2020 and 2019, the Company’s internal direct construction costs are comprised entirely of capitalized salaries. The following table shows the amount of compensation costs (including bonuses and benefits) capitalized for the years presented (in thousands):


	December 31,
	2021		2020		2019
Development	$	4,815	$	4,802	$	3,047
Redevelopment	1,170		543		775
Tenant Improvements	1,917		3,021		3,609
Total	$	7,902	$	8,366	$	7,431

2021 Acquisitions

During the year ended December 31, 2021, the Company did not acquire any properties from a third party.

2020 Acquisitions

The following table summarizes the property acquisitions during the year ended December 31, 2020 (dollars in thousands):

Property/Portfolio Name

Acquisition Date

Location

Property Type

Rentable Square Feet/Acres

Purchase Price (a)

145 King of Prussia Road

February 27, 2020

Radnor, PA

Land

7.75 acres

11,250

1505-11 Race Street

November 5, 2020

Philadelphia, PA

Office

119,763

9,700

250 King of Prussia Road (b)

November 30, 2020

Radnor, PA

Office

169,843

20,250

(a)Exclusive of transaction costs and price adjustments. See purchase price allocation table below for a breakout of the net purchase price for wholly owned properties.

(b)This property was placed into redevelopment and is therefore included within Construction-in-progress on the consolidated balance sheets.

The Company accounted for the acquisition of 1501-11 Race Street as an asset acquisition and therefore capitalized $0.3 million of acquisition related costs. The Company utilized a number of sources in making estimates of fair value (including comparative sales transactions and market leasing assumptions) for purposes of allocating the purchase price to tangible and intangible assets acquired The acquisition values have been allocated as follows (in thousands):


	1505-11 Race Street
Building, land and improvements	$	9,723
Intangible assets acquired	2,422
Below market lease liabilities assumed	(2,193)
Total unencumbered acquisition value	9,952
Amortization period of intangible assets	1.5 years
Amortization period of below market liabilities assumed	1.5 years

2019 Acquisitions

During the year ended December 31, 2019, the Company did not acquire any properties from a third party.

Dispositions

The following table summarizes the property dispositions during the years ended December 31, 2021, 2020 and 2019 (dollars in thousands):


Property/Portfolio Name	Disposition Date	Location	Property Type	Rentable Square Feet/Acres	Sales Price		Gain/(Loss) on Sale (a)
1100 Lenox Drive	September 8, 2021	Lawrenceville, NJ	Land	5.0 acres	$	2,575	$	68
2100-2200 Lenox Drive	July 6, 2021	Lawrenceville, NJ	Land	35.2 acres	$	8,900	$	842
Mid-Atlantic Office Portfolio (b) (d)	December 21, 2020	Various	Office	1,128,645	$	192,943	$	15,164
One and Two Commerce Square (c)	July 21, 2020	Philadelphia, PA	Office	1,896,142	$	115,000	$	271,905
Keith Valley	June 15, 2020	Horsham, PA	Land	14.0 Acres	$	4,000	$	201
52 East Swedesford Road	March 19, 2020	Malvern, PA	Office	131,077	$	18,000	$	2,336
1900 Gallows Rd	September 11, 2019	Vienna, VA	Office	210,632	$	36,400	$	(367)
9 Presidential Boulevard	March 15, 2019	Bala Cynwyd, PA	Land	2.7 Acres	$	5,325	$	751

(a)Gain/(Loss) on Sale is net of closing and other transaction related costs.

(b)The Company sold a 60% equity interest in a portfolio of twelve suburban office properties containing an aggregate of 1.1 million square feet ("Mid-Atlantic Office Portfolio"), nine of which are located in the Pennsylvania suburbs and three of which are located in Maryland, to an unrelated third party for a gross sales price of $192.9 million. The transaction resulted in deconsolidation of the properties and formation of PA/MD NNN Office JV, LLC ("Mid-Atlantic Office JV"). The Company recorded its investment at fair value and recognized a gain of $15.2 million in "Net gain on disposition of real estate" on the consolidated statements of operations. See Note 4, ''Investment in Unconsolidated Real Estate Ventures," for further information.

(c)The Company sold a 30% preferred equity interest in two office buildings located in Philadelphia, Pennsylvania, to an unrelated third party for $115.0 million (the "Commerce Square Venture Transaction"), which resulted in deconsolidation of the properties and formation of Brandywine Commerce I LP and Brandywine Commerce II LP (collectively, the "Commerce Square Venture"). The transaction valued the properties at $600.0 million. The Company recorded its investment at fair value and recognized a gain of $271.9 million in "Net gain on disposition of real estate" on the consolidated statements of operations. See Note 4, ''Investment in Unconsolidated Real Estate Ventures," for further information.

(d)The sales price includes $4.1 million of variable consideration held in escrow that will be released to the Company over a six to nine month holdback period if certain tenants remain in compliance with certain payment terms of their lease agreements. The Company estimated the amount of the variable consideration that it deemed probable of collection and included such amount in the transaction price. The amount estimated as probable of collection was received during 2021. The Company will continue to evaluate the probability of collection on the remaining holdback and recognize any changes to the amount deemed probable as incremental gain on sale.

In addition, on February 2, 2021, the Company contributed its investment in a 99-year prepaid leasehold interest in a one-acre land parcel held for development at 3025 JFK Boulevard in Philadelphia, Pennsylvania to a newly formed joint venture with an unaffiliated third party. The project is part of the Schuylkill Yards master development. The Company's investment in the project was valued at $34.8 million and the transaction resulted in deconsolidation of the property and conversion of Brandywine Opportunity Fund, L.P. (formerly a wholly-owned subsidiary of the Operating Partnership) to a real estate venture ("3025 JFK Venture"). The Company recorded its investment at fair value and recognized a gain of $2.0 million in "Net gain on sale of undepreciated real estate" on the consolidated statements of operations. See Note 4, "Investment in Unconsolidated Real Estate Ventures," for further information.

During the year ended December 31, 2019, the Company also recorded a $1.0 million gain related to contingent consideration received related to a land sale that closed in a prior period in the Other segment. The Company also received additional proceeds from a sale that closed in a prior year related to a property in the Metropolitan Washington, D.C. segment resulting in $0.7 million of additional gain on sale.

One Uptown Venture

On December 1, 2021, the Company entered into two joint venture agreements with affiliates of Canyon Partners Real Estate to commence development of One Uptown, a $328.4 million mixed-used project in Austin, Texas. One Uptown has been designed to deliver 348,000 square feet of Class-A workspace and 15,000 square feet of street-level retail (through the "office" joint venture) and 341 apartment residences and a public park (through the "multifamily" joint venture) and a six-story parking garage to be shared by the two joint ventures. The Company's partner in each of the two joint ventures has agreed, subject to customary funding conditions, including closing of the applicable construction loan, to fund approximately $57.5 million of the combined project costs in exchange for a 50% preferred equity interest in each of the two joint ventures, with the Company retaining a 50% common equity interest in each. The Company is in the process of securing a construction loan for each of the two joint ventures that would total approximately $213.4 million, representing 65% of the combined project costs. Under the terms of each of the joint venture agreements, the joint venture partner has no obligation to fund any portion of the applicable project costs until the closing of the applicable construction loan. This right prevents the Company from meeting the sale recognition criteria of ASC 606 until the applicable closings of the construction loans.

Held for Use Impairment

As of December 31, 2021, 2020, and 2019, the Company evaluated the recoverability of the carrying value of its properties that triggered assessment. Based on the analysis, no impairments were identified during the twelve months ended December 31, 2021, 2020, and 2019.

Held for Sale

As of December 31, 2021, the Company determined that the sale of two adjacent parcels of land within the Other segment totaling 10.0 acres was probable and classified these properties as held for sale. As such, $0.6 million was classified as “Assets held for sale, net” on the consolidated balance sheets. The Company closed on the sale of the two parcels of land on January 20, 2022 for an aggregate sales price of $1.6 million.