BDN 06.30.2012 10-Q
Table of Contents

 
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 June 30, 2012
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
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

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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 143,408,964 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of July 27, 2012.
 

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EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2012 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, terms such as “we”, “us”, or “our” used in this report 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 June 30, 2012, owned a 98.2% interest in the Operating Partnership. The remaining 1.8% interest consists of common units of limited partnership interest issued by the Operating Partnership to third parties in exchange for contributions of properties to the Operating Partnership. As the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management.
The Company believes that combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into a single report will result in the following benefits:
facilitate a better understanding by the investors of the Parent Company and the Operating Partnership by enabling them to view the business as a whole in the same manner as management views and operates the business;
remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the disclosure applies to both the Parent Company and the Operating Partnership; and
create time and cost efficiencies through the preparation of one combined report instead of two separate reports.
Management operates the Parent Company and the Operating Partnership as one enterprise. The management of the Parent Company consists of the same members as the management of the Operating Partnership. These members are officers of both the Parent Company and of the Operating Partnership.
There are few differences between the Parent Company and the Operating Partnership, which are reflected in the footnote disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as an interrelated consolidated company. The Parent Company is a REIT, whose only material asset is its ownership of the 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 public 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 direct or indirect incurrence of indebtedness or through the issuance of partnership units of the Operating Partnership or equity interests in subsidiaries of the Operating Partnership.
The equity and non-controlling interests in the Parent Company and the Operating Partnership’s equity are the main areas of difference between the consolidated financial statements of the Parent Company and the Operating Partnership. The common units of limited partnership interest in the Operating Partnership are accounted for as partners’ equity in the Operating Partnership’s financial statements while the common units of limited partnership interests held by parties other than the Parent Company are presented as non-controlling interests in the Parent Company’s financial statements. The differences between the Parent Company and the Operating Partnership’s equity relate to the differences in the equity issued at the Parent Company and Operating Partnership levels.
To help investors understand the significant differences between the Parent Company and the Operating Partnership, this report presents the following as separate notes or sections for each of the Parent Company and the Operating Partnership:
Consolidated Financial Statements;
Parent Company’s and Operating Partnership’s Equity; and
Liquidity and Capital Resources in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This report also includes separate Item 4. (Controls and Procedures) disclosures and separate Exhibit 31 and 32 certifications for

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each of the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Parent Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.
In order to highlight the differences between the Parent Company and the Operating Partnership, the separate sections in this report for the Parent Company and the Operating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures of the Parent Company and the Operating Partnership, this report refers to such disclosures as those of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and real estate ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership.
As general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the Company.


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TABLE OF CONTENTS
 
Page
 
 
 
 
 
Item 1. Brandywine Realty Trust
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brandywine Operating Partnership, L.P.
 
 
 
Financial Statements of Brandywine Operating Partnership, L.P. (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Exhibit 3.1
 Exhibit 3.2
 Exhibit 4.1
 Exhibit 4.2
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 31.3
 Exhibit 31.4
 Exhibit 32.1
 Exhibit 32.2
 Exhibit 32.3
 Exhibit 32.4
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT
Filing Format
This combined Form 10-Q is being filed separately by Brandywine Realty Trust and Brandywine Operating Partnership, L.P.

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PART I — FINANCIAL INFORMATION

Item 1.
— Financial Statements

BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
 
June 30,
2012
 
December 31,
2011
 
(unaudited)
ASSETS
 
 
 
Real estate investments:
 
 
 
Rental properties
$
4,639,047

 
$
4,793,080

Accumulated depreciation
(897,367
)
 
(865,710
)
Operating real estate investments, net
3,741,680

 
3,927,370

Construction-in-progress
57,420

 
25,083

Land inventory
109,564

 
109,008

Total real estate investments, net
3,908,664

 
4,061,461

Cash and cash equivalents
190,055

 
410

Available-for-sale securities
42,072

 

Accounts receivable, net
11,445

 
14,718

Accrued rent receivable, net
113,380

 
108,101

Assets held for sale, net
41,450

 

Investment in real estate ventures, at equity
133,292

 
115,807

Deferred costs, net
114,920

 
115,362

Intangible assets, net
57,927

 
70,515

Notes receivable
7,226

 
18,186

Other assets
48,739

 
53,158

Total assets
$
4,669,170

 
$
4,557,718

LIABILITIES AND BENEFICIARIES’ EQUITY
 
 
 
Mortgage notes payable
$
505,214

 
$
511,061

Unsecured credit facility

 
275,500

Unsecured term loans
600,000

 
37,500

Unsecured senior notes, net of discounts
1,404,627

 
1,569,934

Accounts payable and accrued expenses
57,653

 
69,929

Distributions payable
24,889

 
23,895

Deferred income, gains and rent
95,390

 
99,569

Acquired lease intangibles, net
31,526

 
35,106

Other liabilities
55,264

 
45,528

Liabilities related to assets held for sale
878

 

Total liabilities
2,775,441

 
2,668,022

Commitments and contingencies (Note 17)

 

Brandywine Realty Trust’s equity:
 
 
 
Preferred Shares (shares authorized-20,000,000):
 
 
 
7.50% Series C Preferred Shares, $0.01 par value; issued and outstanding- 0 in 2012 and 2,000,000 in 2011

 
20

7.375% Series D Preferred Shares, $0.01 par value; issued and outstanding- 2,300,000 in 2012 and 2011, respectively
23

 
23

6.90% Series E Preferred Shares, $0.01 par value; issued and outstanding- 4,000,000 in 2012 and 0 in 2011
40

 

Common Shares of Brandywine Realty Trust’s beneficial interest, $0.01 par value; shares authorized 200,000,000; 143,367,946 and 142,690,755 issued in 2012 and 2011, respectively and 143,367,946 and 142,690,755 outstanding in 2012 and 2011, respectively
1,431

 
1,424

Additional paid-in capital
2,826,475

 
2,776,197

Deferred compensation payable in common shares
5,436

 
5,631

Common shares in grantor trust, 293,122 in 2012 and 292,646 in 2011
(5,436
)
 
(5,631
)
Cumulative earnings
493,266

 
477,338

Accumulated other comprehensive loss
(16,449
)
 
(6,079
)
Cumulative distributions
(1,442,662
)
 
(1,392,332
)
Total Brandywine Realty Trust’s equity
1,862,124

 
1,856,591

Non-controlling interests
31,605

 
33,105

Total equity
1,893,729

 
1,889,696

Total liabilities and equity
$
4,669,170

 
$
4,557,718

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

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BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share information)
 
 For the three-month periods ended
 
 For the six-month periods ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Revenue:
 
 
 
 
 
 
 
Rents
$
115,032

 
$
114,995

 
$
229,271

 
$
230,328

Tenant reimbursements
18,605

 
18,237

 
37,613

 
40,177

Termination fees
101

 
1,948

 
1,591

 
2,516

Third party management fees, labor reimbursement and leasing
2,872

 
2,733

 
6,014

 
5,486

Other
966

 
1,336

 
2,498

 
2,359

Total revenue
137,576

 
139,249

 
276,987

 
280,866

Operating Expenses:
 
 
 
 
 
 
 
Property operating expenses
37,906

 
39,115

 
77,363

 
83,235

Real estate taxes
14,134

 
13,786

 
28,228

 
27,495

Third party management expenses
1,264

 
1,506

 
2,514

 
3,016

Depreciation and amortization
49,331

 
55,710

 
98,880

 
105,214

General and administrative expenses
6,079

 
5,890

 
12,129

 
12,134

Total operating expenses
108,714

 
116,007

 
219,114

 
231,094

Operating income
28,862

 
23,242

 
57,873

 
49,772

Other Income (Expense):
 
 
 
 
 
 
 
Interest income
1,841

 
421

 
2,324

 
862

Interest expense
(32,981
)
 
(34,738
)
 
(67,125
)
 
(67,131
)
Interest expense — amortization of deferred financing costs
(1,261
)
 
(1,070
)
 
(2,572
)
 
(1,998
)
Interest expense — financing obligation
(196
)
 

 
(378
)
 

Equity in income of real estate ventures
838

 
1,088

 
882

 
2,321

Net gain on sale of interests in real estate

 

 

 
2,791

Loss on early extinguishment of debt
(1,250
)
 
(756
)
 
(1,498
)
 
(756
)
Loss from continuing operations
(4,147
)
 
(11,813
)
 
(10,494
)
 
(14,139
)
Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations
783

 
1,743

 
1,798

 
3,579

Net gain on disposition of discontinued operations
10,166

 
3,836

 
24,834

 
3,836

Total discontinued operations
10,949

 
5,579

 
26,632

 
7,415

Net income (loss)
6,802

 
(6,234
)
 
16,138

 
(6,724
)
Net (income) loss from discontinued operations attributable to non-controlling interests — LP units
(200
)
 
(111
)
 
(487
)
 
(148
)
Net (income) loss attributable to non-controlling interests — LP units
169

 
276

 
322

 
364

Net (income) loss attributable to non-controlling interests
(31
)
 
165

 
(165
)
 
216

Net income (loss) attributable to Brandywine Realty Trust
6,771

 
(6,069
)
 
15,973

 
(6,508
)
Distribution to Preferred Shares
(3,049
)
 
(1,998
)
 
(5,047
)
 
(3,996
)
Preferred share redemption charge
(2,090
)
 

 
(2,090
)
 

Amount allocated to unvested restricted shareholders
(95
)
 
(121
)
 
(191
)
 
(263
)
Net income (loss) attributable to Common Shareholders of Brandywine Realty Trust
$
1,537

 
$
(8,188
)
 
$
8,645

 
$
(10,767
)
Basic income (loss) per Common Share:
 
 
 
 
 
 
 
Continuing operations
$
(0.07
)
 
$
(0.10
)
 
$
(0.12
)
 
$
(0.13
)
Discontinued operations
0.08

 
0.04

 
0.18

 
0.05

 
$
0.01

 
$
(0.06
)
 
$
0.06

 
$
(0.08
)
Diluted income (loss) per Common Share:
 
 
 
 
 
 
 
Continuing operations
$
(0.07
)
 
$
(0.10
)
 
$
(0.12
)
 
$
(0.13
)
Discontinued operations
0.08

 
0.04

 
0.18

 
0.05

 
$
0.01

 
$
(0.06
)
 
$
0.06

 
$
(0.08
)
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
143,300,637

 
135,342,538

 
143,060,796

 
134,962,093

Diluted weighted average shares outstanding
143,300,637

 
135,342,538

 
143,060,796

 
134,962,093

Net income (loss) attributable to Brandywine Realty Trust
 
 
 
 
 
 
 
Loss from continuing operations
$
(3,978
)
 
$
(11,537
)
 
$
(10,172
)
 
$
(13,775
)
Income from discontinued operations
10,749

 
5,468

 
26,145

 
7,267

Net income (loss)
$
6,771

 
$
(6,069
)
 
$
15,973

 
$
(6,508
)

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

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

 
For the three-month periods ended
 
For the six-month periods ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
6,802

 
$
(6,234
)
 
$
16,138

 
$
(6,724
)
Comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized loss on derivative financial instruments
(10,650
)
 

 
(10,623
)
 
(613
)
Reclassification of realized (gains)/losses on derivative financial instruments to operations, net
76

 
51

 
124

 
74

Unrealized loss on available-for-sale securities
(65
)
 

 
(65
)
 

Total comprehensive income (loss)
(10,639
)
 
51

 
(10,564
)
 
(539
)
Comprehensive income (loss)
(3,837
)
 
(6,183
)
 
5,574

 
(7,263
)
Comprehensive (income) loss attributable to non-controlling interest
163

 
164

 
29

 
226

Comprehensive income (loss) attributable to Brandywine Realty Trust
$
(3,674
)
 
$
(6,019
)
 
$
5,603

 
$
(7,037
)
The accompanying notes are an integral part of these consolidated financial statements.


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BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF BENEFICIARIES’ EQUITY
For the Six -Month Periods Ended June 30, 2012 and 2011
(unaudited, in thousands, except number of shares)
June 30, 2012
 
Number of
Preferred Shares
 
Par Value of
Preferred
Shares
 
Number of Common
Shares
 
Number of
Treasury
Shares
 
Number of Rabbi
Trust/Deferred
Compensation
Shares
 
Common Shares of
Brandywine Realty
Trust’s beneficial
interest
 
Additional Paid-in
Capital
 
Common Shares
in Treasury
 
Deferred
Compensation
Payable in
Common Shares
 
Common Shares in
Grantor Trust
 
Cumulative
Earnings
 
Accumulated Other
Comprehensive
Income (Loss)
 
Cumulative
Distributions
 
Non-Controlling
Interests
 
Total
BALANCE, December 31, 2011
4,300,000

 
$
43

 
142,690,755

 

 
292,646

 
$
1,424

 
$
2,776,197

 
$

 
$
5,631

 
$
(5,631
)
 
$
477,338

 
$
(6,079
)
 
$
(1,392,332
)
 
$
33,105

 
$
1,889,696

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15,973

 
 
 
 
 
165

 
16,138

Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(10,370
)
 
 
 
(194
)
 
(10,564
)
Issuance of Preferred Shares
4,000,000

 
40

 
 
 
 
 
 
 
 
 
96,810

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
96,850

Preferred Share Issuance Costs

 

 
 
 
 
 
 
 
 
 
(610
)
 
 
 
 
 
 
 
 
 
 
 
 
 


 
(610
)
Redemption of Preferred Shares
(2,000,000
)
 
(20
)
 
 
 
 
 
 
 
 
 
(47,890
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(47,910
)
Conversion of LP Units to Common Shares
 
 
 
 
20,464

 
 
 
 
 

 
149

 
 
 
 
 
 
 
(45
)
 
 
 
 
 
(332
)
 
(228
)
Bonus Share Issuance
 
 
 
 
35,703

 


 


 
 
 
387

 


 


 


 


 
 
 
 
 
 
 
387

Vesting of Restricted Shares
 
 
 
 
280,851

 


 
9,036

 
3

 
(1,295
)
 


 
 
 
 
 


 
 
 
 
 
 
 
(1,292
)
Restricted Share Amortization
 
 
 
 
 
 
 
 
 
 
 
 
1,426

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,426

Vesting of Restricted Performance Units
 
 
 
 
249,797

 
 
 
 
 
3

 
(1,332
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,329
)
Restricted Performance Units Amortization
 
 
 
 
 
 
 
 
 
 

 
1,205

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,205

Exercise of Share Options
 
 
 
 
94,429

 
 
 
 
 
1

 
274

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
275

Share Option Amortization
 
 
 
 
 
 
 
 
 
 

 
747

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
747

Share Issuance from/to Deferred Compensation Plan
 
 
 
 
(5,389
)
 
 
 
(8,560
)
 
 
 


 
 
 
(195
)
 
195

 
 
 
 
 
 
 
 
 

Trustee Fees Paid in Shares
 
 
 
 
1,336

 
 
 
 
 

 
15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15

Adjustment to Non-controlling Interest
 
 
 
 
 
 
 
 
 
 
 
 
392

 
 
 
 
 
 
 
 
 
 
 
 
 
(379
)
 
13

Preferred Share distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(5,047
)
 
 
 
(5,047
)
Preferred Share redemption charges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2,090
)
 
 
 
(2,090
)
Distributions declared ($0.30 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(43,193
)
 
(760
)
 
(43,953
)
BALANCE, June 30, 2012
6,300,000

 
$
63

 
143,367,946

 

 
293,122

 
$
1,431

 
$
2,826,475

 
$

 
$
5,436

 
$
(5,436
)
 
$
493,266

 
$
(16,449
)
 
$
(1,442,662
)
 
$
31,605

 
$
1,893,729


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Table of Contents

June 30, 2011
 
Number of
Preferred Shares
 
Par Value of
Preferred
Shares
 
Number of Common
Shares
 
Number of
Treasury
Shares
 
Number of Rabbi
Trust/Deferred
Compensation
Shares
 
Common Shares of
Brandywine Realty
Trust’s beneficial
interest
 
Additional Paid-in
Capital
 
Common Shares
in Treasury
 
Deferred
Compensation
Payable in
Common Shares
 
Common Shares in
Grantor Trust
 
Cumulative
Earnings
 
Accumulated Other
Comprehensive
Income (Loss)
 
Cumulative
Distributions
 
Non-Controlling
Interests
 
Total
BALANCE, December 31, 2010
4,300,000

 
$
43

 
134,601,796

 
116,679

 
291,281

 
$
1,343

 
$
2,671,217

 
$
(3,074
)
 
$
5,774

 
$
(5,774
)
 
$
483,439

 
$
(1,945
)
 
$
(1,301,521
)
 
$
128,272

 
$
1,977,774

Net loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(6,508
)
 
 
 
 
 
(216
)
 
(6,724
)
Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(529
)
 
 
 
(10
)
 
(539
)
Issuance of Common Shares of Beneficial Interest
 
 
 
 
679,285

 
 
 
 
 
7

 
8,265

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,272

Equity issuance costs
 
 
 
 
 
 
 
 
 
 
 
 
(234
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(26
)
 
(260
)
Conversion of LP Units to Common Shares
 
 
 
 
92,992

 

 

 
1

 
1,098

 

 

 

 

 

 

 
(1,099
)
 

Bonus Share Issuance
 
 
 
 


 
(463
)
 
463

 
 

 
 

 
12

 
5

 
(5
)
 
(6
)
 
 
 
 
 
 

 
6

Vesting of Restricted Shares
 
 
 
 
85,248

 
(116,216
)
 
9,043

 
1

 
(1,820
)
 
3,062

 
 

 
 

 
(1,598
)
 
 
 
 
 
 
 
(355
)
Restricted Share Amortization
 
 
 
 
 

 
 

 
 

 
 

 
1,519

 
 

 
 
 
 
 
 

 
 
 
 
 
 
 
1,519

Restricted Performance Units Amortization
 
 
 
 
 
 
 
 
 
 
 
 
780

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
780

Exercise of Share Options
 
 
 
 
76,887

 
 
 
 
 
1

 
428

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
429

Share Option Amortization
 
 
 
 

 
 
 

 
 
 
728

 
 
 

 

 
 
 
 
 
 
 
 
 
728

Outperformance Plan Amortization
 
 
 
 


 
 
 
 
 
 

 
109

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
109

Share Issuance from/to Deferred Compensation Plan
 
 
 
 
(487
)
 
 
 
(4,935
)
 
 
 
(16
)
 
 
 
(42
)
 
42

 
 
 
 
 
 
 
 
 
(16
)
Share Choice Plan Issuance
 
 
 
 
(1,684
)
 
 
 
 
 
 
 
(55
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(55
)
Trustees Fees Paid in Shares
 
 
 
 
2,672

 
 
 
 
 
 
 
32

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32

Adjustment to Non-controlling Interest
 
 
 
 
 

 
 
 
 

 
 
 
2,679

 
 
 
 

 
 

 
 
 
 
 
 
 
(2,679
)
 

Preferred Share distributions
 
 
 
 
 

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
(3,996
)
 
 
 
(3,996
)
Distributions declared ($0.30 per share)
 
 
 
 
 

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
(40,836
)
 
(824
)
 
(41,660
)
BALANCE, June 30, 2011
4,300,000

 
$
43

 
135,536,709

 

 
295,852

 
$
1,353

 
$
2,684,730

 
$

 
$
5,737

 
$
(5,737
)
 
$
475,327

 
$
(2,474
)
 
$
(1,346,353
)
 
$
123,418

 
$
1,936,044

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

10

Table of Contents

BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Six-month periods ended
 
June 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income (loss)
$
16,138

 
$
(6,724
)
Adjustments to reconcile net loss to net cash from operating activities:
 
 
 
Depreciation and amortization
101,624

 
109,776

Amortization of deferred financing costs
2,572

 
1,998

Amortization of debt discount/(premium), net
745

 
529

Amortization of stock compensation costs
2,433

 
3,063

Shares used for employee taxes upon vesting of share awards
(2,234
)
 
(1,012
)
Straight-line rent income
(12,861
)
 
(9,447
)
Amortization of acquired above (below) market leases to rental revenue, net
(2,922
)
 
(2,636
)
Straight-line ground rent expense
949

 
975

Provision for doubtful accounts
962

 
689

Real estate venture income in excess of distributions
(590
)
 
(1,618
)
Net gain on sale of interests in real estate
(24,834
)
 
(6,627
)
Loss on early extinguishment of debt
1,498

 
756

Changes in assets and liabilities:
 
 
 
Accounts receivable
3,561

 
2,063

Other assets
5,260

 
2,231

Accounts payable and accrued expenses
(11,546
)
 
(4,500
)
Deferred income, gains and rent
(2,871
)
 
(5,048
)
Deferred financing obligation
(825
)
 

Other liabilities
(1,438
)
 
3,874

Net cash from operating activities
75,621

 
88,342

Cash flows from investing activities:
 
 
 
Acquisition of properties
(9,226
)
 
(22,032
)
Investments in available-for-sale securities
(98,744
)
 

Proceeds from the sale of available-for-sale securities
56,322

 

Sales of properties, net
120,957

 
5,639

Proceeds from repayment of mortgage notes receivable
23,931

 

Capital expenditures
(51,701
)
 
(67,768
)
Advances for purchase of tenant assets, net of repayments
283

 
(386
)
Loan provided to an unconsolidated Real Estate Venture partner

 
(1,045
)
Investment in unconsolidated Real Estate Ventures
(18,617
)
 

Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income
1,723

 
3,063

Leasing costs
(14,940
)
 
(14,724
)
Net cash from (used in) investing activities
9,988

 
(97,253
)
Cash flows from financing activities:
 
 
 
Proceeds from New Unsecured Term Loans
600,000

 

Proceeds from Credit Facility
21,500

 
181,500

Repayments of Credit Facility
(297,000
)
 
(322,500
)
Repayments of mortgage notes payable
(6,028
)
 
(122,204
)
Proceeds from unsecured notes

 
321,498

Deferred financing obligation non-cash interest expense
468

 

Net proceeds from issuance of common shares

 
8,069

Net proceeds from issuance of preferred shares
96,240

 

Redemption of preferred shares
(50,188
)
 

Repayments of unsecured notes
(167,371
)
 
(23,931
)
Repayments of unsecured term loan
(37,500
)
 

Net settlement of hedge transactions
(74
)
 
(613
)
Debt financing costs
(8,431
)
 
(3,662
)
Exercise of stock options
276

 
429

Distributions paid to shareholders
(47,059
)
 
(44,669
)
Distributions to noncontrolling interest
(797
)
 
(838
)
Net cash from (used in) financing activities
104,036

 
(6,921
)
Increase (decrease) in cash and cash equivalents
189,645

 
(15,832
)
Cash and cash equivalents at beginning of period
410

 
16,565

Cash and cash equivalents at end of period
$
190,055

 
$
733

Supplemental disclosure:
 
 
 
Cash paid for interest, net of capitalized interest during the six months ended June 30, 2012 and 2011 of $1,207 and $859, respectively
$
69,480

 
$
67,098

Supplemental disclosure of non-cash activity:
 
 
 
Change in capital expenditures financed through accounts payable at period end
(1,735
)
 
903

Change in capital expenditures financed through retention payable at period end
56

 
(5,500
)
Change in unfunded tenant allowance
(1,144
)
 
514


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

11

Table of Contents


BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit and per unit information)
 
June 30,
2012
 
December 31,
2011
 
(unaudited)
ASSETS
 
 
 
Real estate investments:
 
 
 
Operating properties
$
4,639,047

 
$
4,793,080

Accumulated depreciation
(897,367
)
 
(865,710
)
Operating real estate investments, net
3,741,680

 
3,927,370

Construction-in-progress
57,420

 
25,083

Land inventory
109,564

 
109,008

Total real estate investments, net
3,908,664

 
4,061,461

Cash and cash equivalents
190,055

 
410

Available-for-sale securities
42,072

 

Accounts receivable, net
11,445

 
14,718

Accrued rent receivable, net
113,380

 
108,101

Assets held for sale, net
41,450

 

Investment in real estate ventures, at equity
133,292

 
115,807

Deferred costs, net
114,920

 
115,362

Intangible assets, net
57,927

 
70,515

Notes receivable
7,226

 
18,186

Other assets
48,739

 
53,158

Total assets
$
4,669,170

 
$
4,557,718

LIABILITIES AND EQUITY
 
 
 
Mortgage notes payable
$
505,214

 
$
511,061

Unsecured credit facility

 
275,500

Unsecured term loans
600,000

 
37,500

Unsecured senior notes, net of discounts
1,404,627

 
1,569,934

Accounts payable and accrued expenses
57,653

 
69,929

Distributions payable
24,889

 
23,895

Deferred income, gains and rent
95,390

 
99,569

Acquired lease intangibles, net
31,526

 
35,106

Other liabilities
55,264

 
45,528

Liabilities related to assets held for sale
878

 

Total liabilities
2,775,441

 
2,668,022

Commitments and contingencies (Note 17)

 

Redeemable limited partnership units at redemption value; 2,657,721 and 2,698,648 issued and outstanding in 2012 and 2011, respectively
40,106

 
38,370

Brandywine Operating Partnership, L.P.’s equity:
 
 
 
7.50% Series D Preferred Mirror Units; issued and outstanding- 0 in 2012 and 2,000,000 in 2011

 
47,912

7.375% Series E Preferred Mirror Units; issued and outstanding- 2,300,000 in 2012 and 2011, respectively
55,538

 
55,538

6.90% Series E-Linked Preferred Mirror Units; issued and outstanding- 4,000,000 in 2012 and 0 in 2011
96,850

 

General Partnership Capital, 143,367,946 and 142,690,755 units issued in 2012 and 2011, respectively and 143,367,946 and 142,690,755 units outstanding in 2012 and 2011, respectively
1,717,657

 
1,754,302

Accumulated other comprehensive loss
(16,422
)
 
(6,426
)
Total Brandywine Operating Partnership, L.P.’s equity
1,853,623

 
1,851,326

Total liabilities and partners’ equity
$
4,669,170

 
$
4,557,718

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

12

Table of Contents

BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except unit and per unit information)
 
 For the three-month periods ended
 
 For the six-month periods ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Revenue:
 
 
 
 
 
 
 
Rents
$
115,032

 
$
114,995

 
$
229,271

 
$
230,328

Tenant reimbursements
18,605

 
18,237

 
37,613

 
40,177

Termination fees
101

 
1,948

 
1,591

 
2,516

Third party management fees, labor reimbursement and leasing
2,872

 
2,733

 
6,014

 
5,486

Other
966

 
1,336

 
2,498

 
2,359

Total revenue
137,576

 
139,249

 
276,987

 
280,866

Operating Expenses:
 
 
 
 
 
 
 
Property operating expenses
37,906

 
39,115

 
77,363

 
83,235

Real estate taxes
14,134

 
13,786

 
28,228

 
27,495

Third party management expenses
1,264

 
1,506

 
2,514

 
3,016

Depreciation and amortization
49,331

 
55,710

 
98,880

 
105,214

General & administrative expenses
6,079

 
5,890

 
12,129

 
12,134

Total operating expenses
108,714

 
116,007

 
219,114

 
231,094

Operating income
28,862

 
23,242

 
57,873

 
49,772

Other Income (Expense):
 
 
 
 
 
 
 
Interest income
1,841

 
421

 
2,324

 
862

Interest expense
(32,981
)
 
(34,738
)
 
(67,125
)
 
(67,131
)
Interest expense — amortization of deferred financing costs
(1,261
)
 
(1,070
)
 
(2,572
)
 
(1,998
)
Interest expense — financing obligation
(196
)
 

 
(378
)
 

Equity in income of real estate ventures
838

 
1,088

 
882

 
2,321

Net gain on sale of interests in real estate

 

 

 
2,791

Loss on early extinguishment of debt
(1,250
)
 
(756
)
 
(1,498
)
 
(756
)
Loss from continuing operations
(4,147
)
 
(11,813
)
 
(10,494
)
 
(14,139
)
Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations
783

 
1,743

 
1,798

 
3,579

Net gain on disposition of discontinued operations
10,166

 
3,836

 
24,834

 
3,836

Total discontinued operations
10,949

 
5,579

 
26,632

 
7,415

Net income (loss)
6,802

 
(6,234
)
 
16,138

 
(6,724
)
Distribution to Preferred Units
(3,049
)
 
(1,998
)
 
(5,047
)
 
(3,996
)
Preferred unit redemption charge
(2,090
)
 

 
(2,090
)
 

Amount allocated to unvested restricted unitholders
(95
)
 
(121
)
 
(191
)
 
(263
)
Net income (loss) attributable to Common Partnership Unitholders of Brandywine Operating Partnership, L.P.
$
1,568

 
$
(8,353
)
 
$
8,810

 
$
(10,983
)
Basic income (loss) per Common Partnership Unit:
 
 
 
 
 
 
 
Continuing operations
$
(0.06
)
 
$
(0.10
)
 
$
(0.12
)
 
$
(0.13
)
Discontinued operations
0.07

 
0.04

 
0.18

 
0.05

 
$
0.01

 
$
(0.06
)
 
$
0.06

 
$
(0.08
)
Diluted income (loss) per Common Partnership Unit:
 
 
 
 
 
 
 
Continuing operations
$
(0.06
)
 
$
(0.10
)
 
$
(0.12
)
 
$
(0.13
)
Discontinued operations
0.07

 
0.04

 
0.18

 
0.05

 
$
0.01

 
$
(0.06
)
 
$
0.06

 
$
(0.08
)
Basic weighted average common partnership units outstanding
145,958,358

 
145,220,765

 
145,721,890

 
144,852,515

Diluted weighted average common partnership units outstanding
145,958,358

 
145,220,765

 
145,721,890

 
144,852,515

Net income (loss) attributable to Brandywine Operating Partnership, L.P.
 
 
 
 
 
 
 
Loss from continuing operations
$
(4,147
)
 
$
(11,813
)
 
$
(10,494
)
 
$
(14,139
)
Income from discontinued operations
10,949

 
5,579

 
26,632

 
7,415

Net income (loss)
$
6,802

 
$
(6,234
)
 
$
16,138

 
$
(6,724
)
The accompanying notes are an integral part of these consolidated financial statements.


13

Table of Contents

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

 
For the three-month periods ended
 
For the six-month periods ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
6,802

 
$
(6,234
)
 
$
16,138

 
$
(6,724
)
Comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized loss on derivative financial instruments
(10,650
)
 

 
(10,623
)
 
(613
)
Reclassification of realized (gains)/losses on derivative financial instruments to operations, net
76

 
51

 
124

 
74

Unrealized loss on available-for-sale securities
(65
)
 

 
(65
)
 

Total comprehensive income (loss)
(10,639
)
 
51

 
(10,564
)
 
(539
)
Comprehensive income (loss) attributable to Brandywine Operating Partnership, L.P.
$
(3,837
)
 
$
(6,183
)
 
$
5,574

 
$
(7,263
)

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


14

Table of Contents

BRANDYWINE OPERATING PARTNERSHIP L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Six-month periods ended
 
June 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income (loss)
$
16,138

 
$
(6,724
)
Adjustments to reconcile net loss to net cash from operating activities:
 
 
 
Depreciation and amortization
101,624

 
109,776

Amortization of deferred financing costs
2,572

 
1,998

Amortization of debt discount/(premium), net
745

 
529

Amortization of stock compensation costs
2,433

 
3,063

Shares used for employee taxes upon vesting of share awards
(2,234
)
 
(1,012
)
Straight-line rent income
(12,861
)
 
(9,447
)
Amortization of acquired above (below) market leases, net
(2,922
)
 
(2,636
)
Straight-line ground rent expense
949

 
975

Provision for doubtful accounts
962

 
689

Real estate venture income in excess of distributions
(590
)
 
(1,618
)
Net gain on sale of interests in real estate
(24,834
)
 
(6,627
)
Loss on early extinguishment of debt
1,498

 
756

Changes in assets and liabilities:
 
 
 
Accounts receivable
3,561

 
2,063

Other assets
5,260

 
2,231

Accounts payable and accrued expenses
(11,546
)
 
(4,500
)
Deferred income, gains and rent