Edgar Filing: BRANDYWINE REALTY TRUST

BDN 09.30.2012 10-Q

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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, 2012



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 143,443,501 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of October 26, 2012.

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EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 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 September 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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	Page

PART I — FINANCIAL INFORMATION

Item 1. Brandywine Realty Trust

Financial Statements of Brandywine Realty Trust (unaudited)

Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	7

Consolidated Statements of Operations for the three and nine- month periods ended September 30, 2012 and 2011	8

Consolidated Statements of Comprehensive Income for the three and nine- month periods ended September 30, 2012 and 2011	9

Consolidated Statements of Equity for the nine-month periods ended September 30, 2012 and 2011	10

Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2012 and 2011	12

Brandywine Operating Partnership, L.P.

Financial Statements of Brandywine Operating Partnership, L.P. (unaudited)

Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	13

Consolidated Statements of Operations for the three and nine- month periods ended September 30, 2012 and 2011	14

Consolidated Statements of Comprehensive Income for the three and nine- month periods ended September 30, 2012 and 2011	15

Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2012 and 2011	16

Notes to Unaudited Consolidated Financial Statements	17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	47

Item 3. Quantitative and Qualitative Disclosures about Market Risk	68

Item 4. Controls and Procedures	68

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	69

Item 1A. Risk Factors	69

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 3. Defaults Upon Senior Securities	69

Item 4. Mine Safety Disclosures	69

Item 5. Other Information	70

Item 6. Exhibits	70

Signatures	71

Exhibit 10.1
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

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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)



	September 30, 2012			December 31, 2011
	(unaudited)
ASSETS
Real estate investments:
Rental properties	$	4,660,289		$	4,793,080
Accumulated depreciation	(925,342		)	(865,710		)
Operating real estate investments, net	3,734,947			3,927,370
Construction-in-progress	43,449			25,083
Land inventory	95,500			109,008
Total real estate investments, net	3,873,896			4,061,461
Cash and cash equivalents	241,616			410
Accounts receivable, net	13,394			14,718
Accrued rent receivable, net	117,306			108,101
Investment in real estate ventures, at equity	179,037			115,807
Deferred costs, net	119,182			115,362
Intangible assets, net	52,575			70,515
Notes receivable	7,226			18,186
Other assets	62,494			53,158
Total assets	$	4,666,726		$	4,557,718
LIABILITIES AND BENEFICIARIES’ EQUITY
Mortgage notes payable	$	502,123		$	511,061
Unsecured credit facility	—			275,500
Unsecured term loans	600,000			37,500
Unsecured senior notes, net of discounts	1,404,466			1,569,934
Accounts payable and accrued expenses	80,554			69,929
Distributions payable	24,820			23,895
Deferred income, gains and rent	80,748			99,569
Acquired lease intangibles, net	29,824			35,106
Other liabilities	59,982			45,528
Total liabilities	2,782,517			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; 143,438,501 and 142,690,755 issued and outstanding in 2012 and 2011, respectively	1,432			1,424
Additional paid-in capital	2,828,722			2,776,197
Deferred compensation payable in common shares	5,352			5,631
Common shares in grantor trust, 290,745 in 2012 and 292,646 in 2011	(5,352		)	(5,631		)
Cumulative earnings	510,093			477,338
Accumulated other comprehensive loss	(20,456		)	(6,079		)
Cumulative distributions	(1,467,058		)	(1,392,332		)
Total Brandywine Realty Trust’s equity	1,852,796			1,856,591
Non-controlling interests	31,413			33,105
Total equity	1,884,209			1,889,696
Total liabilities and equity	$	4,666,726		$	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 nine-month periods ended
	September 30,						September 30,
	2012			2011			2012			2011
Revenue:
Rents	$	113,989		$	116,251		$	343,260		$	346,579
Tenant reimbursements	20,695			19,010			58,308			59,187
Termination fees	931			157			2,522			2,673
Third party management fees, labor reimbursement and leasing	3,007			3,028			9,021			8,514
Other	1,761			955			4,259			3,314
Total revenue	140,383			139,401			417,370			420,267
Operating Expenses:
Property operating expenses	40,705			40,788			118,068			124,023
Real estate taxes	14,064			13,204			42,292			40,699
Third party management expenses	1,298			1,379			3,812			4,395
Depreciation and amortization	48,738			51,943			147,618			157,157
General and administrative expenses	6,080			6,177			18,209			18,311
Total operating expenses	110,885			113,491			329,999			344,585
Operating income	29,498			25,910			87,371			75,682
Other Income (Expense):
Interest income	311			523			2,635			1,385
Historic tax credit transaction income	11,840			12,026			11,840			12,026
Interest expense	(32,620		)	(32,346		)	(99,745		)	(99,477		)
Interest expense — amortization of deferred financing costs	(1,218		)	(1,846		)	(3,790		)	(3,844		)
Interest expense — financing obligation	(230		)	—			(608		)	—
Equity in income of real estate ventures	500			418			1,382			2,739
Net gain on sale of interests in real estate	—			—			—			2,791
Loss on real estate venture formation	(950		)	—			(950		)	—
Gain (loss) on early extinguishment of debt	(51		)	176			(1,549		)	(580		)
Income (loss) from continuing operations	7,080			4,861			(3,414		)	(9,278		)
Discontinued operations:
Income from discontinued operations	69			1,750			1,867			5,329
Net gain on disposition of discontinued operations	9,940			—			34,774			3,836
Total discontinued operations	10,009			1,750			36,641			9,165
Net income (loss)	17,089			6,611			33,227			(113		)
Net (income) loss from discontinued operations attributable to non-controlling interests — LP units	(182		)	(86		)	(669		)	(234		)
Net (income) loss attributable to non-controlling interests — LP units	(78		)	(276		)	244			88
Net (income) loss attributable to non-controlling interests	(260		)	(362		)	(425		)	(146		)
Net income (loss) attributable to Brandywine Realty Trust	16,829			6,249			32,802			(259		)
Distribution to Preferred Shares	(2,785		)	(1,998		)	(7,832		)	(5,994		)
Preferred share redemption charge	—			—			(2,090		)	—
Amount allocated to unvested restricted shareholders	(95		)	(121		)	(286		)	(384		)
Net income (loss) attributable to Common Shareholders of Brandywine Realty Trust	$	13,949		$	4,130		$	22,594		$	(6,637	)
Basic income (loss) per Common Share:
Continuing operations	$	0.03		$	0.02		$	(0.09	)	$	(0.12	)
Discontinued operations	0.07			0.01			0.25			0.07
	$	0.10		$	0.03		$	0.16		$	(0.05	)
Diluted income (loss) per Common Share:
Continuing operations	$	0.03		$	0.02		$	(0.09	)	$	(0.12	)
Discontinued operations	0.07			0.01			0.25			0.07
	$	0.10		$	0.03		$	0.16		$	(0.05	)

Basic weighted average shares outstanding	143,424,485			135,562,487			143,182,911			135,164,424
Diluted weighted average shares outstanding	144,128,010			136,841,451			143,182,911			135,164,424
Net income (loss) attributable to Brandywine Realty Trust
Income (loss) from continuing operations	$	7,002		$	4,585		$	(3,170	)	$	(9,190	)
Income from discontinued operations	9,827			1,664			35,972			8,931
Net income (loss)	$	16,829		$	6,249		$	32,802		$	(259	)

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 nine-month periods ended
	September 30,						September 30,
	2012			2011			2012			2011
Net income (loss)	$	17,089		$	6,611		$	33,227		$	(113	)
Comprehensive income (loss):
Unrealized loss on derivative financial instruments	(4,222		)	—			(14,780		)	(613		)
Reclassification of realized (gains)/losses on derivative financial instruments to operations, net	76			53			200			126
Unrealized gain on available-for-sale securities	65			—			—			—
Total comprehensive income (loss)	(4,081		)	53			(14,580		)	(487		)
Comprehensive income (loss)	13,008			6,664			18,647			(600		)
Comprehensive (income) loss attributable to non-controlling interest	(186		)	(365		)	(158		)	(139		)
Comprehensive income (loss) attributable to Brandywine Realty Trust	$	12,822		$	6,299		$	18,489		$	(739	)

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 Nine-Month Periods Ended September 30, 2012 and 2011

(unaudited, in thousands, except number of shares)

September 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																								32,804									423			33,227
Comprehensive loss																											(14,377		)				(203		)	(14,580		)
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					1		149											(49		)							(332		)	(231		)
Bonus Share Issuance						35,703							387																							387
Vesting of Restricted Shares						280,851			9,036		3		(1,294		)																					(1,291		)
Restricted Share Amortization													2,138																							2,138
Vesting of Restricted Performance Units						249,797					2		(1,331		)																					(1,329		)
Restricted Performance Units Amortization													1,926																							1,926
Exercise of Share Options						165,159					2		746																							748
Share Option Amortization													1,121																							1,121
Share Issuance from/to Deferred Compensation Plan						(5,564	)		(10,937	)								(279		)	279															—
Trustee Fees Paid in Shares						1,336					—		15																							15
Adjustment to Non-controlling Interest													358																				(347		)	11
Preferred Share distributions																														(7,832		)				(7,832		)
Preferred Share redemption charges																														(2,090		)				(2,090		)
Distributions declared ($0.45 per share)																														(64,804		)	(1,233		)	(66,037		)
BALANCE, September 30, 2012	6,300,000		$	63		143,438,501		—	290,745		$	1,432	$	2,828,722		$	—	$	5,352		$	(5,352	)	$	510,093		$	(20,456	)	$	(1,467,058	)	$	31,413		$	1,884,209

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September 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																								(259		)							146			(113		)
Comprehensive loss																											(479		)				(8		)	(487		)
Issuance of Common Shares of Beneficial Interest				679,285						7		8,265																								8,272
Equity Issuance Costs												(308		)																			(30		)	(338		)
Conversion of LP Units to Common Shares				92,992						1		1,098																					(1,099		)	—
Bonus Share Issuance						(463	)	463							12			6			(6		)	(6		)										6
Vesting of Restricted Shares				85,248		(116,216	)	9,043		1		(1,818		)	3,062									(1,597		)										(352		)
Restricted Share Amortization												2,228																								2,228
Restricted Performance Units Amortization												1,229																								1,229
Exercise of Share Options				120,179						1		658																								659
Share Option Amortization												1,105																								1,105
Outperformance Plan Amortization												128																								128
Share Issuance from/to Deferred Compensation Plan				(845	)			(8,141	)			(16		)				(149		)	149															(16		)
Share Choice Plan Issuance				(1,684	)							(55		)																						(55		)
Trustees Fees Paid in Shares				2,672								32																								32
Adjustment to Non-controlling Interest												3,037																					(3,037		)	—
Preferred Share distributions																														(5,994		)				(5,994		)
Distributions declared ($0.45 per share)																														(61,294		)	(1,890		)	(63,184		)
BALANCE, September 30, 2011	4,300,000	$	43	135,579,643		—		292,646		$	1,353	$	2,686,800		$	—		$	5,631		$	(5,631	)	$	481,577		$	(2,424	)	$	(1,368,809	)	$	122,354		$	1,920,894

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

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BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Nine-month periods ended
	September 30,
	2012			2011
Cash flows from operating activities:
Net income (loss)	$	33,227		$	(113	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	150,362			164,014
Amortization of deferred financing costs	3,790			3,844
Amortization of debt discount/(premium), net	1,095			1,028
Amortization of stock compensation costs	3,740			4,201
Shares used for employee taxes upon vesting of share awards	(2,232		)	(1,012		)
Straight-line rent income	(17,792		)	(14,925		)
Amortization of acquired above (below) market leases to rental revenue, net	(4,468		)	(4,011		)
Straight-line ground rent expense	1,423			1,450
Provision for doubtful accounts	1,363			1,190
Real estate venture income in excess of distributions	(1,024		)	(1,020		)
Net gain on sale of interests in real estate	(34,773		)	(6,627		)
Loss on real estate formation	950			—
Loss on early extinguishment of debt	1,549			580
Historic tax credit transaction income	(11,840		)	(12,026		)
Changes in assets and liabilities:
Accounts receivable	1,580			2,130
Other assets	(7,200		)	(5,000		)
Accounts payable and accrued expenses	9,565			21,382
Deferred income, gains and rent	(4,681		)	(4,376		)
Deferred financing obligation	(1,314		)	—
Other liabilities	(1,175		)	5,284
Net cash from operating activities	122,145			155,993
Cash flows from investing activities:
Acquisition of properties	(9,226		)	(40,674		)
Investments in available-for-sale securities	(98,250		)	—
Proceeds from the sale of available-for-sale securities	98,250			—
Sales of properties, net	170,918			5,639
Proceeds from repayment of mortgage notes receivable	23,930			—
Capital expenditures	(73,649		)	(97,557		)
Advances for purchase of tenant assets, net of repayments	(13		)	(1,552		)
Loan provided to an unconsolidated Real Estate Venture partner	—			(1,045		)
Investment in unconsolidated Real Estate Ventures	(49,763		)	(2,259		)
Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income	2,779			3,432
Leasing costs	(22,111		)	(28,460		)
Net cash from (used in) investing activities	42,865			(162,476		)
Cash flows from financing activities:
Proceeds from New Unsecured Term Loans	600,000			—
Proceeds from Credit Facility	21,500			407,502
Repayments of Credit Facility borrowings	(297,000		)	(424,502		)
Repayments of mortgage notes payable	(9,209		)	(218,959		)
Proceeds from unsecured notes	—			321,498
Deferred financing obligation non-cash interest expense	701			—
Net proceeds from issuance of common shares	—			7,966
Net proceeds from issuance of preferred shares	96,240			—
Redemption of preferred shares	(50,188		)	—
Repayments of unsecured notes	(167,841		)	(25,366		)
Repayments of unsecured term loan	(37,500		)	—
Net settlement of hedge transactions	(74		)	(613		)
Debt financing costs	(8,462		)	(4,199		)
Exercise of stock options	748			659
Distributions paid to shareholders	(71,523		)	(67,119		)
Distributions to noncontrolling interest	(1,196		)	(1,243		)
Net cash from (used in) financing activities	76,196			(4,376		)
Increase (decrease) in cash and cash equivalents	241,206			(10,859		)
Cash and cash equivalents at beginning of period	410			16,565
Cash and cash equivalents at end of period	$	241,616		$	5,706
Supplemental disclosure:
Cash paid for interest, net of capitalized interest during the nine months ended September 30, 2012 and 2011 of $1,978 and $1,450, respectively	$	83,618		$	78,091
Supplemental disclosure of non-cash activity:
Change in capital expenditures financed through accounts payable at period end	(1,270		)	(2,114		)
Change in capital expenditures financed through retention payable at period end	284			(5,863		)
Change in unfunded tenant allowance	(1,411		)	(442		)
Distributions payable	24,820			23,505

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

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit and per unit information)



	September 30, 2012			December 31, 2011
	(unaudited)
ASSETS
Real estate investments:
Operating properties	$	4,660,289		$	4,793,080
Accumulated depreciation	(925,342		)	(865,710		)
Operating real estate investments, net	3,734,947			3,927,370
Construction-in-progress	43,449			25,083
Land inventory	95,500			109,008
Total real estate investments, net	3,873,896			4,061,461
Cash and cash equivalents	241,616			410
Accounts receivable, net	13,394			14,718
Accrued rent receivable, net	117,306			108,101
Investment in real estate ventures, at equity	179,037			115,807
Deferred costs, net	119,182			115,362
Intangible assets, net	52,575			70,515
Notes receivable	7,226			18,186
Other assets	62,494			53,158
Total assets	$	4,666,726		$	4,557,718
LIABILITIES AND EQUITY
Mortgage notes payable	$	502,123		$	511,061
Unsecured credit facility	—			275,500
Unsecured term loans	600,000			37,500
Unsecured senior notes, net of discounts	1,404,466			1,569,934
Accounts payable and accrued expenses	80,554			69,929
Distributions payable	24,820			23,895
Deferred income, gains and rent	80,748			99,569
Acquired lease intangibles, net	29,824			35,106
Other liabilities	59,982			45,528
Total liabilities	2,782,517			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	40,509			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, 143,438,501 and 142,690,755 units issued and outstanding in 2012 and 2011, respectively	1,711,926			1,754,302
Accumulated other comprehensive loss	(20,614		)	(6,426		)
Total Brandywine Operating Partnership, L.P.’s equity	1,843,700			1,851,326
Total liabilities and partners’ equity	$	4,666,726		$	4,557,718

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

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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 nine-month periods ended
	September 30,						September 30,
	2012			2011			2012			2011
Revenue:
Rents	$	113,989		$	116,251		$	343,260		$	346,579
Tenant reimbursements	20,695			19,010			58,308			59,187
Termination fees	931			157			2,522			2,673
Third party management fees, labor reimbursement and leasing	3,007			3,028			9,021			8,514
Other	1,761			955			4,259			3,314
Total revenue	140,383			139,401			417,370			420,267
Operating Expenses:
Property operating expenses	40,705			40,788			118,068			124,023
Real estate taxes	14,064			13,204			42,292			40,699
Third party management expenses	1,298			1,379			3,812			4,395
Depreciation and amortization	48,738			51,943			147,618			157,157
General & administrative expenses	6,080			6,177			18,209			18,311
Total operating expenses	110,885			113,491			329,999			344,585
Operating income	29,498			25,910			87,371			75,682
Other Income (Expense):
Interest income	311			523			2,635			1,385
Historic tax credit transaction income	11,840			12,026			11,840			12,026
Interest expense	(32,620		)	(32,346		)	(99,745		)	(99,477		)
Interest expense — amortization of deferred financing costs	(1,218		)	(1,846		)	(3,790		)	(3,844		)
Interest expense — financing obligation	(230		)	—			(608		)	—
Equity in income of real estate ventures	500			418			1,382			2,739
Net gain on sale of interests in real estate	—			—			—			2,791
Loss on real estate venture formation	(950		)	—			(950		)	—
Gain (loss) on early extinguishment of debt	(51		)	176			(1,549		)	(580		)
Income (loss) from continuing operations	7,080			4,861			(3,414		)	(9,278		)
Discontinued operations:
Income from discontinued operations	69			1,750			1,867			5,329
Net gain on disposition of discontinued operations	9,940			—			34,774			3,836
Total discontinued operations	10,009			1,750			36,641			9,165
Net income (loss)	17,089			6,611			33,227			(113		)
Distribution to Preferred Units	(2,785		)	(1,998		)	(7,832		)	(5,994		)
Preferred unit redemption charge	—			—			(2,090		)	—
Amount allocated to unvested restricted unitholders	(95		)	(121		)	(286		)	(384		)
Net income (loss) attributable to Common Partnership Unitholders of Brandywine Operating Partnership, L.P.	$	14,209		$	4,492		$	23,019		$	(6,491	)
Basic income (loss) per Common Partnership Unit:
Continuing operations	$	0.03		$	0.02		$	(0.09	)	$	(0.11	)
Discontinued operations	0.07			0.01			0.25			0.06
	$	0.10		$	0.03		$	0.16		$	(0.05	)
Diluted income (loss) per Common Partnership Unit:
Continuing operations	$	0.03		$	0.02		$	(0.09	)	$	(0.11	)
Discontinued operations	0.07			0.01			0.25			0.06
	$	0.10		$	0.03		$	0.16		$	(0.05	)
Basic weighted average common partnership units outstanding	146,082,206			145,372,247			145,842,872			145,027,663
Diluted weighted average common partnership units outstanding	146,785,731			146,651,211			145,842,872			145,027,663
Net income (loss) attributable to Brandywine Operating Partnership, L.P.
Income (loss) from continuing operations	$	7,080		$	4,861		$	(3,414	)	$	(9,278	)
Income from discontinued operations	10,009			1,750			36,641			9,165
Net income (loss)	$	17,089		$	6,611		$	33,227		$	(113	)

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

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)



	For the three-month periods ended					For the nine-month periods ended
	September 30,					September 30,
	2012			2011		2012			2011
Net income (loss)	$	17,089		$	6,611	$	33,227		$	(113	)
Comprehensive income (loss):
Unrealized loss on derivative financial instruments	(4,222		)	—		(14,780		)	(613		)
Reclassification of realized (gains)/losses on derivative financial instruments to operations, net	76			53		200			126
Unrealized gain on available-for-sale securities	65			—		—			—
Total comprehensive income (loss)	(4,081		)	53		(14,580		)	(487		)
Comprehensive income (loss) attributable to Brandywine Operating Partnership, L.P.	$	13,008		$	6,664	$	18,647		$	(600	)

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

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BRANDYWINE OPERATING PARTNERSHIP L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Nine-month periods ended
	September 30,
	2012			2011
Cash flows from operating activities:
Net income (loss)	$	33,227		$	(113	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	150,362			164,014
Amortization of deferred financing costs	3,790			3,844
Amortization of debt discount/(premium), net	1,095			1,028
Amortization of stock compensation costs	3,740			4,201
Shares used for employee taxes upon vesting of share awards	(2,232		)	(1,012		)
Straight-line rent income	(17,792		)	(14,925		)
Amortization of acquired above (below) market leases, net	(4,468		)	(4,011		)
Straight-line ground rent expense	1,423			1,450
Provision for doubtful accounts	1,363			1,190
Real estate venture income in excess of distributions	(1,024		)	(1,020		)