Edgar Filing: BRANDYWINE REALTY TRUST

BDN 6.30.2013 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________

FORM 10-Q

_________________________

(Mark One)



þ	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended June 30, 2013



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 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 156,703,790 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of July 30, 2013.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2013 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 June 30, 2013, owned a 98.8% interest in the Operating Partnership. The remaining 1.2% 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.

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.

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 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.

TABLE OF CONTENTS



	Page

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Brandywine Realty Trust

Financial Statements of Brandywine Realty Trust (unaudited)

Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	7

Consolidated Statements of Operations for the three and six-month periods ended June 30, 2013 and 2012	8

Consolidated Statements of Comprehensive Income for the three and six-month periods ended June 30, 2013 and 2012	9

Consolidated Statements of Beneficiaries’ Equity for the six-month periods ended June 30, 2013 and 2012	10

Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2013 and 2012	12

Brandywine Operating Partnership, L.P.

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

Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	14

Consolidated Statements of Operations for the three and six-month periods ended June 30, 2013 and 2012	15

Consolidated Statements of Comprehensive Income for the three and six-month periods ended June 30, 2013 and 2012	16

Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2013 and 2012	17

Notes to Unaudited Consolidated Financial Statements	19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	48

Item 3. Quantitative and Qualitative Disclosures about Market Risk	71

Item 4. Controls and Procedures	71

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	73

Item 1A. Risk Factors	73

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	73

Item 3. Defaults Upon Senior Securities	73

Item 4. Mine Safety Disclosures	73

Item 5. Other Information	73

Item 6. Exhibits	74

Signatures	75

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
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.

PART I - FINANCIAL INFORMATION


Item 1.	— Financial Statements

BRANDYWINE REALTY TRUST

CONSOLIDATED BALANCE SHEETS

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



	June 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Real estate investments:
Rental properties	$	4,620,460		$	4,726,169
Accumulated depreciation	(967,726		)	(954,665		)
Operating real estate investments, net	3,652,734			3,771,504
Construction-in-progress	51,260			48,950
Land inventory	94,444			102,439
Total real estate investments, net	3,798,438			3,922,893
Cash and cash equivalents	215,948			1,549
Accounts receivable, net	11,834			13,232
Accrued rent receivable, net	124,341			122,066
Investment in real estate ventures, at equity	176,875			193,555
Deferred costs, net	119,917			122,243
Intangible assets, net	59,919			70,620
Notes receivable	7,026			7,226
Other assets	52,091			53,325
Total assets	$	4,566,389		$	4,506,709
LIABILITIES AND BENEFICIARIES’ EQUITY
Mortgage notes payable	$	437,618		$	442,974
Unsecured credit facility	—			69,000
Unsecured term loans	450,000			450,000
Unsecured senior notes, net of discounts	1,492,127			1,503,356
Accounts payable and accrued expenses	70,434			71,579
Distributions payable	25,587			23,652
Deferred income, gains and rent	81,903			82,947
Acquired lease intangibles, net	30,455			33,859
Other liabilities	44,196			55,826
Total liabilities	2,632,320			2,733,193
Commitments and contingencies (Note 17)
Brandywine Realty Trust’s equity:
Preferred Shares (shares authorized-20,000,000):
6.90% Series E Preferred Shares, $0.01 par value; issued and outstanding- 4,000,000 in 2013 and 2012	40			40
Common Shares of Brandywine Realty Trust’s beneficial interest, $0.01 par value; shares authorized 200,000,000; 156,662,644 and 143,538,733 issued and outstanding in 2013 and 2012, respectively	1,565			1,434
Additional paid-in capital	2,967,790			2,780,194
Deferred compensation payable in common shares	5,516			5,352
Common shares in grantor trust, 315,753 in 2013 and 290,745 in 2012	(5,516		)	(5,352		)
Cumulative earnings	490,754			479,734
Accumulated other comprehensive loss	(4,601		)	(15,918		)
Cumulative distributions	(1,541,896		)	(1,493,206		)
Total Brandywine Realty Trust’s equity	1,913,652			1,752,278
Non-controlling interests	20,417			21,238
Total equity	1,934,069			1,773,516
Total liabilities and equity	$	4,566,389		$	4,506,709

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

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,
	2013			2012			2013			2012
Revenue:
Rents	$	116,334		$	109,713		$	231,201		$	218,704
Tenant reimbursements	19,565			18,229			39,916			36,885
Termination fees	410			101			906			1,591
Third party management fees, labor reimbursement and leasing	3,153			2,872			6,389			6,014
Other	1,457			888			2,330			2,399
Total revenue	140,919			131,803			280,742			265,593
Operating Expenses:
Property operating expenses	39,490			36,363			78,908			74,223
Real estate taxes	14,215			13,508			28,552			26,977
Third party management expenses	1,363			1,264			2,788			2,514
Depreciation and amortization	49,300			47,476			98,846			95,350
General and administrative expenses	7,335			6,079			13,886			12,129
Total operating expenses	111,703			104,690			222,980			211,193
Operating income	29,216			27,113			57,762			54,400
Other Income (Expense):
Interest income	122			1,838			180			2,320
Interest expense	(30,437		)	(32,981		)	(61,351		)	(67,125		)
Interest expense — amortization of deferred financing costs	(1,183		)	(1,261		)	(2,344		)	(2,572		)
Interest expense — financing obligation	(211		)	(196		)	(429		)	(378		)
Equity in income of real estate ventures	1,508			838			3,043			882
Gain from remeasurement of investment in a real estate venture	7,847			—			7,847			—
Net gain (loss) on real estate venture transactions	3,683			(11		)	3,683			(11		)
Loss on early extinguishment of debt	(1,113		)	(1,250		)	(1,116		)	(1,498		)
Income (loss) from continuing operations	9,432			(5,910		)	7,275			(13,982		)
Discontinued operations:
Income from discontinued operations	8			2,535			780			5,275
Net gain (loss) on disposition of discontinued operations	(2,260		)	10,177			3,044			24,845
Total discontinued operations	(2,252		)	12,712			3,824			30,120
Net income	7,180			6,802			11,099			16,138
Net (income) loss from discontinued operations attributable to non-controlling interests — LP units	26			(232		)	(51		)	(551		)
Net (income) loss attributable to non-controlling interests — LP units	(88		)	201			(39		)	386
Net (income) loss attributable to non-controlling interests	(62		)	(31		)	(90		)	(165		)
Net income attributable to Brandywine Realty Trust	7,118			6,771			11,009			15,973
Distribution to Preferred Shares	(1,725		)	(3,049		)	(3,450		)	(5,047		)
Preferred share redemption charge	—			(2,090		)	—			(2,090		)
Amount allocated to unvested restricted shareholders	(85		)	(95		)	(193		)	(191		)
Net income attributable to Common Shareholders of Brandywine Realty Trust	$	5,308		$	1,537		$	7,366		$	8,645
Basic income (loss) per Common Share:
Continuing operations	$	0.05		$	(0.08	)	$	0.02		$	(0.15	)
Discontinued operations	(0.02		)	0.09			0.03			0.21
	$	0.03		$	0.01		$	0.05		$	0.06
Diluted income (loss) per Common Share:
Continuing operations	$	0.05		$	(0.08	)	$	0.02		$	(0.15	)
Discontinued operations	(0.02		)	0.09			0.03			0.21
	$	0.03		$	0.01		$	0.05		$	0.06

Basic weighted average shares outstanding	155,347,384			143,300,637			149,508,957			143,060,796
Diluted weighted average shares outstanding	156,691,201			143,300,637			150,666,245			143,060,796
Net income (loss) attributable to Brandywine Realty Trust
Loss from continuing operations	$	9,344		$	(5,709	)	$	7,236		$	(13,596	)
Income (loss) from discontinued operations	(2,226		)	12,480			3,773			29,569
Net income	$	7,118		$	6,771		$	11,009		$	15,973

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

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,
	2013			2012			2013			2012
Net income	$	7,180		$	6,802		$	11,099		$	16,138
Comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments	9,491			(10,650		)	11,283			(10,623		)
Reclassification of realized losses on derivative financial instruments to operations, net (1)	66			76			168			124
Unrealized loss on available-for-sale securities	—			(65		)	—			(65		)
Total comprehensive income (loss)	9,557			(10,639		)	11,451			(10,564		)
Comprehensive income (loss)	16,737			(3,837		)	22,550			5,574
Comprehensive (income) loss attributable to non-controlling interest	(169		)	163			(221		)	29
Comprehensive income (loss) attributable to Brandywine Realty Trust	$	16,568		$	(3,674	)	$	22,329		$	5,603

(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.

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF BENEFICIARIES’ EQUITY

For the six-month periods ended June 30, 2013 and June 30, 2012

(unaudited, in thousands, except number of shares)

June 30, 2013



	Number of Preferred Shares	Par Value of Preferred Shares		Number of Common Shares	Number of Rabbi Trust/Deferred Compensation Shares	Common Shares of Brandywine Realty Trust’s beneficial interest		Additional Paid-in Capital			Deferred Compensation Payable in Common Shares		Common Shares in Grantor Trust			Cumulative Earnings		Accumulated Other Comprehensive Income (Loss)			Cumulative Distributions			Non-Controlling Interests			Total
BALANCE, December 31, 2012	4,000,000	$	40	143,538,733	290,745	$	1,434	$	2,780,194		$	5,352	$	(5,352	)	$	479,734	$	(15,918	)	$	(1,493,206	)	$	21,238		$	1,773,516
Net income																11,011								88			11,099
Comprehensive income																		11,317						134			11,451
Issuance of Common Shares of Beneficial Interest				12,650,000		127		181,907																			182,034
Equity issuance costs								(380		)																	(380		)
Conversion of LP Units to Common Shares				81,998		1		1,240								—								(1,241		)	—
Bonus Share Issuance				27,918				361																			361
Vesting of Restricted Shares				147,495	7,050	2		(904		)																	(902		)
Restricted Share Amortization								1,703																			1,703
Vesting of Restricted Performance Units				26,067				(160		)																	(160		)
Restricted Performance Units Amortization								2,411																			2,411
Restricted Share Forfeitures																9											9
Exercise of Stock Options				166,620		1		1,760																			1,761
Stock Option Amortization								377																			377
Share Issuance from/to Deferred Compensation Plan				22,404	17,958						164		(164		)												—
Trustee Fees Paid in Shares				1,409				20																			20
Adjustment to Non-controlling Interest								(739		)														739			—
Preferred Share distributions																					(3,450		)				(3,450		)
Distributions declared ($0.15 per share)																					(45,240		)	(541		)	(45,781		)
BALANCE, June 30, 2013	4,000,000	$	40	156,662,644	315,753	$	1,565	$	2,967,790		$	5,516	$	(5,516	)	$	490,754	$	(4,601	)	$	(1,541,896	)	$	20,417		$	1,934,069

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

June 30, 2012



	Number of Preferred Shares		Par Value of Preferred Shares			Number of Common Shares		Number of Rabbi Trust/Deferred Compensation Shares		Common Shares of Brandywine Realty Trust’s beneficial interest		Additional Paid-in Capital			Deferred Compensation Payable in Common Shares			Common Shares in Grantor Trust			Cumulative Earnings			Accumulated Other Comprehensive 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 Stock Options						94,429				1		274																					275
Stock 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 ($0.15 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

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

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Six-month periods ended
	June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	11,099		$	16,138
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	100,459			101,624
Amortization of deferred financing costs	2,344			2,572
Amortization of debt discount/(premium), net	748			745
Amortization of stock compensation costs	4,048			2,433
Shares used for employee taxes upon vesting of share awards	(1,061		)	(2,234		)
Straight-line rent income	(11,250		)	(12,861		)
Amortization of acquired above (below) market leases to rental revenue, net	(3,556		)	(2,922		)
Straight-line ground rent expense	894			949
Provision for doubtful accounts	997			962
Net gain on sale of interests in real estate	(3,044		)	(24,834		)
Net gain on real estate venture transactions	(3,683		)	—
Gain from remeasurement of investment in a real estate venture	(7,847		)	—
Loss on early extinguishment of debt	1,116			1,498
Real estate venture income in excess of distributions	(2,031		)	(590		)
Deferred financing obligation	(896		)	(825		)
Changes in assets and liabilities:
Accounts receivable	2,035			3,561
Other assets	6,589			5,260
Accounts payable and accrued expenses	(1,252		)	(11,546		)
Deferred income, gains and rent	608			(2,871		)
Other liabilities	474			(1,438		)
Net cash from operating activities	96,791			75,621
Cash flows from investing activities:
Acquisition of properties	(20,758		)	(9,226		)
Investments in available-for-sale securities	—			(98,744		)
Proceeds from the sale of available-for-sale securities	—			56,322
Sales of properties, net	145,931			120,957
Distribution of sales proceeds from real estate ventures	16,963			—
Proceeds from repayment of mortgage notes receivable	200			23,931
Capital expenditures for tenant improvements	(46,828		)	(48,591		)
Capital expenditures for redevelopments	(4,676		)	(3,110		)
Capital expenditures for developments	(72		)	—
Reimbursement from real estate venture for pre-formation development costs	1,976			—
Advances for purchase of tenant assets, net of repayments	(693		)	283
Investment in unconsolidated Real Estate Ventures	(12,568		)	(18,617		)
Cash distributions from unconsolidated real estate ventures	3,445			1,723
Leasing costs	(14,313		)	(14,940		)
Net cash from investing activities	68,607			9,988
Cash flows from financing activities:
Proceeds from Unsecured Term Loans	—			600,000
Proceeds from Credit Facility borrowings	186,000			21,500
Repayments of Credit Facility borrowings	(255,000		)	(297,000		)
Repayments of mortgage notes payable	(5,537		)	(6,028		)
Deferred financing obligation non-cash interest expense	466			468
Net proceeds from issuance of common shares	181,527			—
Net proceeds from issuance of preferred shares	—			96,240
Redemption of preferred shares	—			(50,188		)
Repayments of unsecured notes	(12,912		)	(167,371		)
Repayments of unsecured term loan	—			(37,500		)



Net settlement of hedge transactions	—			(74		)
Debt financing costs	(6		)	(8,431		)
Exercise of stock options	1,762			276
Distributions paid to shareholders	(46,745		)	(47,059		)
Distributions to noncontrolling interest	(554		)	(797		)
Net cash from financing activities	49,001			104,036
Increase in cash and cash equivalents	214,399			189,645
Cash and cash equivalents at beginning of period	1,549			410
Cash and cash equivalents at end of period	$	215,948		$	190,055
Supplemental disclosure:
Cash paid for interest, net of capitalized interest during the six months ended June 30, 2013 and 2012 of $1,305 and $1,207, respectively	$	67,844		$	69,480
Supplemental disclosure of non-cash activity:
Change in operating real estate related to a non-cash acquisition of an operating property	(21,649		)	—
Change in intangible assets, net related to non-cash acquisition of an operating property	(3,517		)	—
Change in acquired lease intangibles, net related to non-cash acquisition of an operating property	462			—
Change in investments in joint venture related to non-cash acquisition of property	13,040			—
Change in operating real estate related to non-cash adjustment to land	(4,386		)	—
Change in investments in real estate ventures related to a contribution of land	(6,058		)	—
Change in capital expenditures financed through accounts payable at period end	(1,227		)	(1,735		)
Change in capital expenditures financed through retention payable at period end	(348		)	56
Change in unfunded tenant allowance	(244		)	(1,144		)

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

BRANDYWINE OPERATING PARTNERSHIP, L.P.

CONSOLIDATED BALANCE SHEETS

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



	June 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Real estate investments:
Operating properties	$	4,620,460		$	4,726,169
Accumulated depreciation	(967,726		)	(954,665		)
Operating real estate investments, net	3,652,734			3,771,504
Construction-in-progress	51,260			48,950
Land inventory	94,444			102,439
Total real estate investments, net	3,798,438			3,922,893
Cash and cash equivalents	215,948			1,549
Accounts receivable, net	11,834			13,232
Accrued rent receivable, net	124,341			122,066
Investment in real estate ventures, at equity	176,875			193,555
Deferred costs, net	119,917			122,243
Intangible assets, net	59,919			70,620
Notes receivable	7,026			7,226
Other assets	52,091			53,325
Total assets	$	4,566,389		$	4,506,709
LIABILITIES AND EQUITY
Mortgage notes payable	$	437,618		$	442,974
Unsecured credit facility	—			69,000
Unsecured term loans	450,000			450,000
Unsecured senior notes, net of discounts	1,492,127			1,503,356
Accounts payable and accrued expenses	70,434			71,579
Distributions payable	25,587			23,652
Deferred income, gains and rent	81,903			82,947
Acquired lease intangibles, net	30,455			33,859
Other liabilities	44,196			55,826
Total liabilities	2,632,320			2,733,193
Commitments and contingencies (Note 17)
Redeemable limited partnership units at redemption value; 1,763,739 and 1,845,737 issued and outstanding in 2013 and 2012, respectively	26,241			26,777
Brandywine Operating Partnership, L.P.’s equity:
6.90% Series E-Linked Preferred Mirror Units; issued and outstanding- 4,000,000 in 2013 and 2012	96,850			96,850
General Partnership Capital, 156,662,644 and 143,538,733 units issued and outstanding in 2013 and 2012, respectively	1,815,979			1,666,341
Accumulated other comprehensive loss	(5,001		)	(16,452		)
Total Brandywine Operating Partnership, L.P.’s equity	1,907,828			1,746,739
Total liabilities and partners’ equity	$	4,566,389		$	4,506,709

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

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,
	2013			2012			2013			2012
Revenue:
Rents	$	116,334		$	109,713		$	231,201		$	218,704
Tenant reimbursements	19,565			18,229			39,916			36,885
Termination fees	410			101			906			1,591
Third party management fees, labor reimbursement and leasing	3,153			2,872			6,389			6,014
Other	1,457			888			2,330			2,399
Total revenue	140,919			131,803			280,742			265,593
Operating Expenses:
Property operating expenses	39,490			36,363			78,908			74,223
Real estate taxes	14,215			13,508			28,552			26,977
Third party management expenses	1,363			1,264			2,788			2,514
Depreciation and amortization	49,300			47,476			98,846			95,350
General & administrative expenses	7,335			6,079			13,886			12,129
Total operating expenses	111,703			104,690			222,980			211,193
Operating income	29,216			27,113			57,762			54,400
Other Income (Expense):
Interest income	122			1,838			180			2,320
Interest expense	(30,437		)	(32,981		)	(61,351		)	(67,125		)
Interest expense — amortization of deferred financing costs	(1,183		)	(1,261		)	(2,344		)	(2,572		)
Interest expense — financing obligation	(211		)	(196		)	(429		)	(378		)
Equity in income of real estate ventures	1,508			838			3,043			882
Gain from remeasurement of investment in a real estate venture	7,847			—			7,847			—
Net gain (loss) on real estate venture transactions	3,683			(11		)	3,683			(11		)
Loss on early extinguishment of debt	(1,113		)	(1,250		)	(1,116		)	(1,498		)
Gain (Loss) from continuing operations	9,432			(5,910		)	7,275			(13,982		)
Discontinued operations:
Income from discontinued operations	8			2,535			780			5,275
Net gain (loss) on disposition of discontinued operations	(2,260		)	10,177			3,044			24,845
Total discontinued operations	(2,252		)	12,712			3,824			30,120
Net income	7,180			6,802			11,099			16,138
Distribution to Preferred Units	(1,725		)	(3,049		)	(3,450		)	(5,047		)
Preferred unit redemption charge	—			(2,090		)	—			(2,090		)
Amount allocated to unvested restricted unitholders	(85		)	(95		)	(193		)	(191		)
Net income attributable to Common Partnership Unitholders of Brandywine Operating Partnership, L.P.	$	5,370		$	1,568		$	7,456		$	8,810
Basic income (loss) per Common Partnership Unit:
Continuing operations	$	0.05		$	(0.08	)	$	0.02		$	(0.15	)
Discontinued operations	(0.02		)	0.09			0.03			0.21
	$	0.03		$	0.01		$	0.05		$	0.06
Diluted income (loss) per Common Partnership Unit:
Continuing operations	$	0.05		$	(0.08	)	$	0.02		$	(0.15	)
Discontinued operations	(0.02		)	0.09			0.03			0.21
	$	0.03		$	0.01		$	0.05		$	0.06
Basic weighted average common partnership units outstanding	157,131,697			145,958,358			151,323,813			145,721,890
Diluted weighted average common partnership units outstanding	158,475,514			145,958,358			152,481,101			145,721,890
Net income (loss) attributable to Brandywine Operating Partnership, L.P.
Income (Loss) from continuing operations	$	9,432		$	(5,910	)	$	7,275		$	(13,982	)
Income (Loss) from discontinued operations	(2,252		)	12,712			3,824			30,120
Net income	$	7,180		$	6,802		$	11,099		$	16,138

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

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,
	2013		2012			2013		2012
Net income	$	7,180	$	6,802		$	11,099	$	16,138
Comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments	9,491		(10,650		)	11,283		(10,623		)
Reclassification of realized losses on derivative financial instruments to operations, net (1)	66		76			168		124
Unrealized loss on available-for-sale securities	—		(65		)	—		(65		)
Total comprehensive income (loss)	9,557		(10,639		)	11,451		(10,564		)
Comprehensive income (loss) attributable to Brandywine Operating Partnership, L.P.	$	16,737	$	(3,837	)	$	22,550	$	5,574

(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.

BRANDYWINE OPERATING PARTNERSHIP L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Six-month periods ended
	June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	11,099		$	16,138
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	100,459			101,624
Amortization of deferred financing costs	2,344			2,572
Amortization of debt discount/(premium), net	748			745
Amortization of stock compensation costs	4,048			2,433
Shares used for employee taxes upon vesting of share awards	(1,061		)	(2,234		)
Straight-line rent income	(11,250		)	(12,861		)
Amortization of acquired above (below) market leases, net	(3,556		)	(2,922		)
Straight-line ground rent expense	894			949
Provision for doubtful accounts	997			962
Net gain on sale of interests in real estate	(3,044		)	(24,834		)
Net gain on real estate venture transaction	(3,683		)	—
Gain on remeasurement of investment in a real estate venture	(7,847		)	—
Loss on early extinguishment of debt	1,116			1,498
Real estate venture income in excess of distributions	(2,031		)	(590		)
Deferred financing obligation	(896		)	(825		)
Changes in assets and liabilities:
Accounts receivable	2,035			3,561
Other assets	6,589			5,260
Accounts payable and accrued expenses	(1,252		)	(11,546		)
Deferred income, gains and rent	608			(2,871		)
Other liabilities	474			(1,438		)
Net cash from operating activities	96,791			75,621
Cash flows from investing activities:
Acquisition of properties	(20,758		)	(9,226		)
Investments in available-for-sale securities	—			(98,744		)
Proceeds from sale of available-for-sale securities	—			56,322
Sales of properties, net	145,931			120,957
Distribution of sales proceeds from real estate ventures	16,963			—
Proceeds from repayment of mortgage notes receivable	200			23,931
Capital expenditures for tenant improvements	(46,828		)	(48,591		)
Capital expenditures for redevelopments	(4,676		)	(3,110		)
Capital expenditures for developments	(72		)	—
Reimbursement from real estate venture for pre-formation development costs	1,976			—
Advances for purchase of tenant assets, net of repayments	(693		)	283
Investment in unconsolidated Real Estate Ventures	(12,568		)	(18,617		)
Cash distributions from unconsolidated Real Estate Ventures	3,445			1,723
Leasing costs	(14,313		)	(14,940		)
Net cash from investing activities	68,607			9,988
Cash flows from financing activities:
Proceeds from Unsecured Term Loans	—			600,000
Proceeds from Credit Facility borrowings	186,000			21,500
Repayments of Credit Facility borrowings	(255,000		)	(297,000		)
Repayments of mortgage notes payable	(5,537		)	(6,028		)
Deferred financing obligation non-cash interest expense	466			468
Net proceeds from issuance of common units	181,527			—
Net proceeds from issuance of preferred units	—			96,240
Redemption of preferred units	—			(50,188		)
Repayments of unsecured notes	(12,912		)	(167,371