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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2019

or

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.)

 

 

 

2929 Walnut Street

Suite 1700

 

 

Philadelphia, Pennsylvania

 

19104

(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   No 

Brandywine Operating Partnership, L.P.

 

Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

 

Brandywine Realty Trust

 

Yes   No 

Brandywine Operating Partnership, L.P.

 

Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Brandywine Realty Trust:

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

 

 

Brandywine Operating Partnership, L.P.:

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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   No 

Brandywine Operating Partnership, L.P.

 

Yes   No 

A total of 176,137,761 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of April 26, 2019.

Securities registered pursuant to section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Shares of Beneficial Interest

 

BDN

 

NYSE

 

 

 


EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2019 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 March 31, 2019, owned a 99.4% interest in the Operating Partnership. The remaining 0.6% 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.

2


 

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

 

Notes to the 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 incurs debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership.

 

3


 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Brandywine Realty Trust

 

 

 

 

 

Financial Statements of Brandywine Realty Trust

 

5

 

 

 

Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

 

5

 

 

 

Consolidated Statements of Operations for the three-month periods ended March 31, 2019 and 2018

 

6

 

 

 

Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2019 and 2018

 

7

 

 

 

Consolidated Statements of Beneficiaries’ Equity for the three-month periods ended March 31, 2019 and 2018

 

8

 

 

 

Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2019 and 2018

 

10

 

 

 

Brandywine Operating Partnership, L.P.

 

 

 

 

 

Financial Statements of Brandywine Operating Partnership, L.P.

 

12

 

 

 

Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

 

12

 

 

 

Consolidated Statements of Operations for the three-month periods ended March 31, 2019 and 2018

 

13

 

 

 

Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2019 and 2018

 

14

 

 

 

Consolidated Statements of Partners’ Equity for the three-month periods ended March 31, 2019 and 2018

 

15

 

 

 

Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2019 and 2018

 

17

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

19

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

39

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

54

 

 

 

Item 4. Controls and Procedures

 

55

 

 

 

PART II — OTHER INFORMATION

 

56

 

 

 

Item 1. Legal Proceedings

 

56

 

 

 

Item 1A. Risk Factors

 

56

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

56

 

 

 

Item 3. Defaults Upon Senior Securities

 

56

 

 

 

Item 4. Mine Safety Disclosures

 

56

 

 

 

Item 5. Other Information

 

56

 

 

 

Item 6. Exhibits

 

57

 

 

 

Signatures

 

59

 

 

 

 

 

 

Filing Format

This combined Form 10-Q is being filed separately by Brandywine Realty Trust and Brandywine Operating Partnership, L.P.

 

4


 

PART I - FINANCIAL INFORMATION

Item 1. — Financial Statements

BRANDYWINE REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share information)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Real estate investments:

 

 

 

 

 

 

 

 

Operating properties

 

$

4,015,879

 

 

$

3,953,319

 

Right of use asset - operating leases

 

 

22,175

 

 

 

-

 

Accumulated depreciation

 

 

(891,125

)

 

 

(865,462

)

Operating real estate investments, net

 

 

3,146,929

 

 

 

3,087,857

 

Construction-in-progress

 

 

112,176

 

 

 

150,263

 

Land held for development

 

 

88,047

 

 

 

86,401

 

Prepaid leasehold interests in land held for development, net

 

 

39,897

 

 

 

39,999

 

Total real estate investments, net

 

 

3,387,049

 

 

 

3,364,520

 

Assets held for sale, net

 

 

7,345

 

 

 

11,599

 

Cash and cash equivalents

 

 

14,449

 

 

 

22,842

 

Accounts receivable, net of allowance of $284 and $1,653 as of March 31, 2019 and December 31, 2018, respectively

 

 

21,780

 

 

 

16,394

 

Accrued rent receivable, net of allowance of $11,018 and $11,266 as of March 31, 2019 and December 31, 2018, respectively

 

 

168,781

 

 

 

165,243

 

Investment in Real Estate Ventures, equity method

 

 

161,568

 

 

 

169,100

 

Deferred costs, net

 

 

95,293

 

 

 

91,075

 

Intangible assets, net

 

 

119,903

 

 

 

131,348

 

Other assets

 

 

139,761

 

 

 

126,400

 

Total assets

 

$

4,115,929

 

 

$

4,098,521

 

LIABILITIES AND BENEFICIARIES' EQUITY

 

 

 

 

 

 

 

 

Mortgage notes payable, net

 

$

319,132

 

 

$

320,869

 

Unsecured credit facility

 

 

160,500

 

 

 

92,500

 

Unsecured term loan, net

 

 

248,168

 

 

 

248,042

 

Unsecured senior notes, net

 

 

1,366,997

 

 

 

1,366,635

 

Accounts payable and accrued expenses

 

 

112,375

 

 

 

125,696

 

Distributions payable

 

 

34,107

 

 

 

33,632

 

Deferred income, gains and rent

 

 

24,749

 

 

 

28,293

 

Acquired lease intangibles, net

 

 

29,813

 

 

 

31,783

 

Lease liability - operating leases

 

 

22,402

 

 

 

-

 

Other liabilities

 

 

16,194

 

 

 

18,498

 

Total liabilities

 

$

2,334,437

 

 

$

2,265,948

 

Commitments and contingencies (See Note 14)

 

 

 

 

 

 

 

 

Brandywine Realty Trust's Equity:

 

 

 

 

 

 

 

 

Common Shares of Brandywine Realty Trust's beneficial interest, $0.01 par value; shares authorized 400,000,000; 176,001,580 and 176,873,324 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

1,761

 

 

 

1,770

 

Additional paid-in-capital

 

 

3,187,312

 

 

 

3,200,850

 

Deferred compensation payable in common shares

 

 

14,640

 

 

 

14,021

 

Common shares in grantor trust, 1,012,542 and 977,120 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

(14,640

)

 

 

(14,021

)

Cumulative earnings

 

 

795,186

 

 

 

796,513

 

Accumulated other comprehensive income

 

 

2,560

 

 

 

5,029

 

Cumulative distributions

 

 

(2,217,469

)

 

 

(2,183,909

)

Total Brandywine Realty Trust's equity

 

 

1,769,350

 

 

 

1,820,253

 

Noncontrolling interests

 

 

12,142

 

 

 

12,320

 

Total beneficiaries' equity

 

$

1,781,492

 

 

$

1,832,573

 

Total liabilities and beneficiaries' equity

 

$

4,115,929

 

 

$

4,098,521

 

 

 

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

 

 

5


 

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except share and per share information)

 

 

Three-month periods ended

 

 

March 31,

 

 

2019

 

 

2018

 

Revenue

 

 

 

 

 

 

 

Rents

$

138,098

 

 

$

126,759

 

Third party management fees, labor reimbursement and leasing

 

3,955

 

 

 

7,674

 

Other

 

1,843

 

 

 

1,925

 

Total revenue

 

143,896

 

 

 

136,358

 

Operating expenses

 

 

 

 

 

 

 

Property operating expenses

 

39,481

 

 

 

39,332

 

Real estate taxes

 

15,783

 

 

 

12,422

 

Third party management expenses

 

2,117

 

 

 

4,750

 

Depreciation and amortization

 

51,980

 

 

 

43,291

 

General and administrative expenses

 

9,844

 

 

 

8,723

 

Total operating expenses

 

119,205

 

 

 

108,518

 

Gain on sale of real estate

 

 

 

 

 

 

 

Net gain on sale of undepreciated real estate

 

1,001

 

 

 

22

 

Total gain on sale of real estate

 

1,001

 

 

 

22

 

Operating income

 

25,692

 

 

 

27,862

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

525

 

 

 

703

 

Interest expense

 

(20,357

)

 

 

(19,533

)

Interest expense - amortization of deferred financing costs

 

(666

)

 

 

(627

)

Equity in loss of Real Estate Ventures

 

(1,358

)

 

 

(825

)

Net gain on real estate venture transactions

 

259

 

 

 

37,263

 

Net income before income taxes

 

4,095

 

 

 

44,843

 

Income tax provision

 

(29

)

 

 

(138

)

Net income

 

4,066

 

 

 

44,705

 

Net income attributable to noncontrolling interests

 

(57

)

 

 

(376

)

Net income attributable to Brandywine Realty Trust

 

4,009

 

 

 

44,329

 

Nonforfeitable dividends allocated to unvested restricted shareholders

 

(119

)

 

 

(114

)

Net income attributable to Common Shareholders of Brandywine Realty Trust

$

3,890

 

 

$

44,215

 

 

 

 

 

 

 

 

 

Basic income per Common Share

$

0.02

 

 

$

0.25

 

 

 

 

 

 

 

 

 

Diluted income per Common Share

$

0.02

 

 

$

0.25

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

175,857,358

 

 

 

178,395,525

 

Diluted weighted average shares outstanding

 

176,464,218

 

 

 

179,788,311

 

 

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

 

 

6


 

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)

 

 

Three-month periods ended

 

 

March 31,

 

 

2019

 

 

2018

 

Net income

$

4,066

 

 

$

44,705

 

Comprehensive income (loss):

 

 

 

 

 

 

 

Unrealized gain (loss) on derivative financial instruments

 

(2,689

)

 

 

4,696

 

Amortization of interest rate contracts (1)

 

206

 

 

 

312

 

Comprehensive income (loss):

 

(2,483

)

 

 

5,008

 

Comprehensive income

 

1,583

 

 

 

49,713

 

Comprehensive income attributable to noncontrolling interest

 

(43

)

 

 

(418

)

Comprehensive income attributable to Brandywine Realty Trust

$

1,540

 

 

$

49,295

 

 

(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.

 

 

 

7


BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF BENEFICIARIES’ EQUITY

For the three-month period ended March 31, 2019

(unaudited, in thousands, except number of 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

 

 

Noncontrolling Interests

 

 

Total

 

BALANCE, December 31, 2018

 

176,873,324

 

 

 

977,120

 

 

$

1,770

 

 

$

3,200,850

 

 

$

14,021

 

 

$

(14,021

)

 

$

796,513

 

 

$

5,029

 

 

$

(2,183,909

)

 

$

12,320

 

 

$

1,832,573

 

Cumulative effect of accounting change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,336

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,336

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,009

 

 

 

 

 

 

 

 

 

 

 

57

 

 

 

4,066

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,469

)

 

 

 

 

 

 

(14

)

 

 

(2,483

)

Repurchase and retirement of Common Shares of Beneficial Interest

 

(1,337,169

)

 

 

 

 

 

 

(13

)

 

 

(17,268

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,281

)

Issuance of partnership interest in consolidated real estate ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

23

 

Share-based compensation activity

 

465,883

 

 

 

41,342

 

 

 

4

 

 

 

3,673

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,677

 

Share Issuance from/(to) Deferred Compensation Plan

 

(458

)

 

 

(5,920

)

 

 

 

 

 

 

 

 

 

 

619

 

 

 

(619

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Reallocation of Noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(57

)

 

 

-

 

Distributions declared (0.19 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33,560

)

 

 

(187

)

 

 

(33,747

)

BALANCE, March 31, 2019

 

176,001,580

 

 

 

1,012,542

 

 

$

1,761

 

 

$

3,187,312

 

 

$

14,640

 

 

$

(14,640

)

 

$

795,186

 

 

$

2,560

 

 

$

(2,217,469

)

 

$

12,142

 

 

$

1,781,492

 

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

 

8


 

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENT OF BENEFICIARIES’ EQUITY

For the three-month period ended March 31, 2018

(unaudited, in thousands, except number of 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

 

 

Cumulative Distributions

 

 

Noncontrolling Interests

 

 

Total

 

BALANCE, December 31, 2017

 

178,285,236

 

 

 

894,736

 

 

$

1,784

 

 

$

3,218,564

 

 

$

12,445

 

 

$

(12,445

)

 

$

660,174

 

 

$

2,399

 

 

$

(2,053,741

)

 

$

17,420

 

 

$

1,846,600

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,329

 

 

 

 

 

 

 

 

 

 

 

376

 

 

 

44,705

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,966

 

 

 

 

 

 

 

42

 

 

 

5,008

 

Issuance of Common Shares of Beneficial Interest

 

23,311

 

 

 

 

 

 

 

 

 

 

 

416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

416

 

Issuance of partnership interest in consolidated real estate ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

15

 

Distributions from consolidated real estate ventures