Edgar Filing: BRANDYWINE REALTY TRUST

BDN 9.30.2013 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 September 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 156,710,290 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of October 29, 2013.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 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 September 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 September 30, 2013 and December 31, 2012	7

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

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

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

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

Brandywine Operating Partnership, L.P.

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

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

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

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

Consolidated Statements of Cash Flows for the nine-month periods ended September 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	49

Item 3. Quantitative and Qualitative Disclosures about Market Risk	73

Item 4. Controls and Procedures	74

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	75

Item 1A. Risk Factors	75

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	75

Item 3. Defaults Upon Senior Securities	75

Item 4. Mine Safety Disclosures	75

Item 5. Other Information	75

Item 6. Exhibits	76

Signatures	77

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)



	September 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Real estate investments:
Operating properties	$	4,631,910		$	4,726,169
Accumulated depreciation	(998,409		)	(954,665		)
Operating real estate investments, net	3,633,501			3,771,504
Construction-in-progress	52,702			48,950
Land inventory	94,097			102,439
Total real estate investments, net	3,780,300			3,922,893
Cash and cash equivalents	185,517			1,549
Accounts receivable, net	13,718			13,232
Accrued rent receivable, net	128,232			122,066
Assets held for sale, net	2,371			—
Investment in real estate ventures, at equity	194,572			193,555
Deferred costs, net	126,260			122,243
Intangible assets, net	54,457			70,620
Notes receivable	7,026			7,226
Other assets	65,689			53,325
Total assets	$	4,558,142		$	4,506,709
LIABILITIES AND BENEFICIARIES’ EQUITY
Mortgage notes payable	$	434,895		$	442,974
Unsecured credit facility	—			69,000
Unsecured term loans	450,000			450,000
Unsecured senior notes, net of discounts	1,492,296			1,503,356
Accounts payable and accrued expenses	89,087			71,579
Distributions payable	25,579			23,652
Deferred income, gains and rent	69,637			82,947
Acquired lease intangibles, net	28,500			33,859
Other liabilities	46,990			55,826
Total liabilities	2,636,984			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; 156,703,790 and 143,538,733 issued and outstanding in 2013 and 2012, respectively	1,565			1,434
Additional paid-in capital	2,970,576			2,780,194
Deferred compensation payable in common shares	5,431			5,352
Common shares in grantor trust, 313,023 in 2013 and 290,745 in 2012	(5,431		)	(5,352		)
Cumulative earnings	501,735			479,734
Accumulated other comprehensive loss	(5,825		)	(15,918		)
Cumulative distributions	(1,567,202		)	(1,493,206		)
Total Brandywine Realty Trust’s equity	1,900,889			1,752,278
Non-controlling interests	20,269			21,238
Total equity	1,921,158			1,773,516
Total liabilities and equity	$	4,558,142		$	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)



	Three-month periods ended						Nine-month periods ended
	September 30,						September 30,
	2013			2012			2013			2012
Revenue:
Rents	$	116,479		$	108,658		$	347,680		$	327,362
Tenant reimbursements	20,699			20,294			60,615			57,179
Termination fees	2,040			931			2,946			2,522
Third party management fees, labor reimbursement and leasing	3,263			3,007			9,652			9,021
Other	975			1,630			3,305			4,029
Total revenue	143,456			134,520			424,198			400,113
Operating Expenses:
Property operating expenses	40,661			38,783			119,522			112,961
Real estate taxes	14,190			13,486			42,706			40,430
Third party management expenses	1,317			1,298			4,105			3,812
Depreciation and amortization	50,613			46,955			149,423			142,262
General and administrative expenses	6,436			6,080			20,322			18,209
Total operating expenses	113,217			106,602			336,078			317,674
Operating income	30,239			27,918			88,120			82,439
Other Income (Expense):
Interest income	268			311			448			2,631
Historic tax credit transaction income	11,853			11,840			11,853			11,840
Interest expense	(30,338		)	(32,620		)	(91,689		)	(99,745		)
Interest expense — amortization of deferred financing costs	(1,158		)	(1,218		)	(3,502		)	(3,790		)
Interest expense — financing obligation	(264		)	(230		)	(693		)	(608		)
Equity in income of real estate ventures	714			500			3,757			1,382
Gain from remeasurement of investment in a real estate venture	—			—			7,847			—
Net gain on real estate venture transactions	—			—			3,683			—
Net loss on sale of undepreciated real estate	(129		)	—			(129		)	—
Loss on real estate venture formation	—			(950		)	—			(950		)
Loss on early extinguishment of debt	(11		)	(51		)	(1,127		)	(1,549		)
Income (Loss) from continuing operations	11,174			5,500			18,568			(8,350		)
Discontinued operations:
Income (Loss) from discontinued operations	(70		)	1,649			590			6,803
Net gain (loss) on disposition of discontinued operations	(16		)	9,940			3,029			34,774
Total discontinued operations	(86		)	11,589			3,619			41,577
Net income	11,088			17,089			22,187			33,227
Net (income) loss from discontinued operations attributable to non-controlling interests — LP units	1			(211		)	(48		)	(760		)
Net (income) loss attributable to non-controlling interests — LP units	(106		)	(49		)	(147		)	335
Net income attributable to non-controlling interests	(105		)	(260		)	(195		)	(425		)
Net income attributable to Brandywine Realty Trust	10,983			16,829			21,992			32,802
Distribution to Preferred Shares	(1,725		)	(2,785		)	(5,175		)	(7,832		)
Preferred share redemption charge	—			—			—			(2,090		)
Amount allocated to unvested restricted shareholders	(85		)	(95		)	(278		)	(286		)
Net income attributable to Common Shareholders of Brandywine Realty Trust	$	9,173		$	13,949		$	16,539		$	22,594
Basic income (loss) per Common Share:
Continuing operations	$	0.06		$	0.02		$	0.09		$	(0.13	)
Discontinued operations	—			0.08			0.02			0.29
	$	0.06		$	0.10		$	0.11		$	0.16
Diluted income (loss) per Common Share:
Continuing operations	$	0.06		$	0.02		$	0.09		$	(0.13	)
Discontinued operations	—			0.08			0.02			0.29
	$	0.06		$	0.10		$	0.11		$	0.16

Basic weighted average shares outstanding	156,703,348			143,424,485			151,933,441			143,182,911
Diluted weighted average shares outstanding	157,992,082			144,128,010			153,142,825			143,182,911
Net income (loss) attributable to Brandywine Realty Trust
Net income (loss) from continuing operations	$	11,068		$	5,451		$	18,421		$	(8,015	)
Income (Loss) from discontinued operations	(85		)	11,378			3,571			40,817
Net income	$	10,983		$	16,829		$	21,992		$	32,802

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

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)



	Three-month periods ended						Nine-month periods ended
	September 30,						September 30,
	2013			2012			2013			2012
Net income	$	11,088		$	17,089		$	22,187		$	33,227
Comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments	(1,302		)	(4,222		)	9,978			(14,780		)
Reclassification of realized losses on derivative financial instruments to operations, net (1)	64			76			232			200
Unrealized gain on available-for-sale securities	—			65			—			—
Total comprehensive income (loss)	(1,238		)	(4,081		)	10,210			(14,580		)
Comprehensive income	9,850			13,008			32,397			18,647
Comprehensive (income) attributable to non-controlling interest	(91		)	(186		)	(312		)	(158		)
Comprehensive income (loss) attributable to Brandywine Realty Trust	$	9,759		$	12,822		$	32,085		$	18,489

(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 nine-month periods ended September 30, 2013 and September 30, 2012

(unaudited, in thousands, except number of shares)

September 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																		21,992								195			22,187
Comprehensive income																				10,093						117			10,210
Issuance of Common Shares of Beneficial Interest				12,650,000				127		181,907																			182,034
Equity issuance costs										(382		)																	(382		)
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										2,565																			2,565
Vesting of Restricted Performance Units				53,134		27,067				(160		)																	(160		)
Restricted Performance Units Amortization										3,718																			3,718
Restricted Share Forfeitures																		9											9
Exercise of Stock Options				207,941				1		2,237																			2,238
Stock Option Amortization										546																			546
Share Issuance from/to Deferred Compensation Plan				(4,838	)	(11,839	)						79		(79		)												—
Trustee Fees Paid in Shares				1,409						20																			20
Adjustment to Non-controlling Interest										(766		)														766			—
Preferred Share distributions																							(5,175		)				(5,175		)
Distributions declared ($0.15 per share)																							(68,821		)	(806		)	(69,627		)
BALANCE, September 30, 2013	4,000,000	$	40	156,703,790		313,023		$	1,565	$	2,970,576		$	5,431	$	(5,431	)	$	501,735	$	(5,825	)	$	(1,567,202	)	$	20,269		$	1,921,158

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

September 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																					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 Stock Options						165,159				2		746																					748
Stock 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 ($0.15 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

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

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Nine-month periods ended
	September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	22,187		$	33,227
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	151,066			150,362
Amortization of deferred financing costs	3,502			3,790
Amortization of debt discount/(premium), net	1,112			1,095
Amortization of stock compensation costs	5,510			3,740
Shares used for employee taxes upon vesting of share awards	(1,062		)	(2,232		)
Straight-line rent income	(16,337		)	(17,792		)
Amortization of acquired above (below) market leases to rental revenue, net	(5,372		)	(4,468		)
Straight-line ground rent expense	1,286			1,423
Provision for doubtful accounts	1,777			1,363
Net gain on sale of interests in real estate	(3,044		)	(34,773		)
Loss on real estate venture formation	—			950
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	1,127			1,549
Historic tax credit transaction income	(11,853		)	(11,840		)
Real estate venture income in excess of distributions	(2,371		)	(1,024		)
Deferred financing obligation	(1,392		)	(1,314		)
Changes in assets and liabilities:
Accounts receivable	(287		)	1,580
Other assets	(5,758		)	(7,200		)
Accounts payable and accrued expenses	14,684			9,565
Deferred income, gains and rent	1,265			(4,681		)
Other liabilities	1,718			(1,175		)
Net cash from operating activities	146,228			122,145
Cash flows from investing activities:
Acquisition of properties	(20,758		)	(9,226		)
Investments in available-for-sale securities	—			(98,250		)
Proceeds from the sale of available-for-sale securities	—			98,250
Sales of properties, net	145,931			170,918
Distribution of sales proceeds from real estate ventures	16,963			—
Proceeds from repayment of mortgage notes receivable	200			23,930
Capital expenditures for tenant improvements	(64,481		)	(64,527		)
Capital expenditures for redevelopments	(5,288		)	(9,122		)
Capital expenditures for developments	(5,399		)	—
Reimbursement from real estate venture for pre-formation development costs	1,976			—
Advances for purchase of tenant assets, net of repayments	(420		)	(13		)
Investment in unconsolidated real estate ventures	(30,142		)	(49,763		)
Cash distributions from unconsolidated real estate ventures	3,661			2,779
Leasing costs	(25,704		)	(22,111		)
Net cash from investing activities	16,539			42,865
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	(8,351		)	(9,209		)
Deferred financing obligation non-cash interest expense	697			701
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	(13,027		)	(167,841		)
Repayments of unsecured term loan	—			(37,500		)
Net settlement of hedge transactions	—			(74		)
Debt financing costs	(6		)	(8,462		)
Exercise of stock options	2,240			748
Distributions paid to shareholders	(72,061		)	(71,523		)
Distributions to noncontrolling interest	(818		)	(1,196		)
Net cash from financing activities	21,201			76,196
Increase in cash and cash equivalents	183,968			241,206
Cash and cash equivalents at beginning of period	1,549			410
Cash and cash equivalents at end of period	$	185,517		$	241,616
Supplemental disclosure:
Cash paid for interest, net of capitalized interest during the nine months ended September 30, 2013 and 2012 of $2,012 and $1,978, respectively	$	76,528		$	83,618
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	1,210			(1,270		)
Change in capital expenditures financed through retention payable at period end	(736		)	284
Change in unfunded tenant allowance	(811		)	(1,411		)

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)



	September 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Real estate investments:
Operating properties	$	4,631,910		$	4,726,169
Accumulated depreciation	(998,409		)	(954,665		)
Operating real estate investments, net	3,633,501			3,771,504
Construction-in-progress	52,702			48,950
Land inventory	94,097			102,439
Total real estate investments, net	3,780,300			3,922,893
Cash and cash equivalents	185,517			1,549
Accounts receivable, net	13,718			13,232
Accrued rent receivable, net	128,232			122,066
Assets held for sale, net	2,371			—
Investment in real estate ventures, at equity	194,572			193,555
Deferred costs, net	126,260			122,243
Intangible assets, net	54,457			70,620
Notes receivable	7,026			7,226
Other assets	65,689			53,325
Total assets	$	4,558,142		$	4,506,709
LIABILITIES AND EQUITY
Mortgage notes payable	$	434,895		$	442,974
Unsecured credit facility	—			69,000
Unsecured term loans	450,000			450,000
Unsecured senior notes, net of discounts	1,492,296			1,503,356
Accounts payable and accrued expenses	89,087			71,579
Distributions payable	25,579			23,652
Deferred income, gains and rent	69,637			82,947
Acquired lease intangibles, net	28,500			33,859
Other liabilities	46,990			55,826
Total liabilities	2,636,984			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	26,290			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, 156,703,790 and 143,538,733 units issued and outstanding in 2013 and 2012, respectively	1,804,378			1,666,341
Accumulated other comprehensive loss	(6,360		)	(16,452		)
Total Brandywine Operating Partnership, L.P.’s equity	1,894,868			1,746,739
Total liabilities and partners’ equity	$	4,558,142		$	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)



	Three-month periods ended						Nine-month periods ended
	September 30,						September 30,
	2013			2012			2013			2012
Revenue:
Rents	$	116,479		$	108,658		$	347,680		$	327,362
Tenant reimbursements	20,699			20,294			60,615			57,179
Termination fees	2,040			931			2,946			2,522
Third party management fees, labor reimbursement and leasing	3,263			3,007			9,652			9,021
Other	975			1,630			3,305			4,029
Total revenue	143,456			134,520			424,198			400,113
Operating Expenses:
Property operating expenses	40,661			38,783			119,522			112,961
Real estate taxes	14,190			13,486			42,706			40,430
Third party management expenses	1,317			1,298			4,105			3,812
Depreciation and amortization	50,613			46,955			149,423			142,262
General & administrative expenses	6,436			6,080			20,322			18,209
Total operating expenses	113,217			106,602			336,078			317,674
Operating income	30,239			27,918			88,120			82,439
Other Income (Expense):
Interest income	268			311			448			2,631
Historic tax credit transaction income	11,853			11,840			11,853			11,840
Interest expense	(30,338		)	(32,620		)	(91,689		)	(99,745		)
Interest expense — amortization of deferred financing costs	(1,158		)	(1,218		)	(3,502		)	(3,790		)
Interest expense — financing obligation	(264		)	(230		)	(693		)	(608		)
Equity in income of real estate ventures	714			500			3,757			1,382
Gain from remeasurement of investment in a real estate venture	—			—			7,847			—
Net gain on real estate venture transactions	—			—			3,683			—
Net loss on sale of undepreciated real estate	(129		)	—			(129		)	—
Loss on real estate venture formation	—			(950		)	—			(950		)
Loss on early extinguishment of debt	(11		)	(51		)	(1,127		)	(1,549		)
Gain (Loss) from continuing operations	11,174			5,500			18,568			(8,350		)
Discontinued operations:
Income (Loss) from discontinued operations	(70		)	1,649			590			6,803
Net gain (loss) on disposition of discontinued operations	(16		)	9,940			3,029			34,774
Total discontinued operations	(86		)	11,589			3,619			41,577
Net income	11,088			17,089			22,187			33,227
Distribution to Preferred Units	(1,725		)	(2,785		)	(5,175		)	(7,832		)
Preferred unit redemption charge	—			—			—			(2,090		)
Amount allocated to unvested restricted unitholders	(85		)	(95		)	(278		)	(286		)
Net income attributable to Common Partnership Unitholders of Brandywine Operating Partnership, L.P.	$	9,278		$	14,209		$	16,734		$	23,019
Basic income (loss) per Common Partnership Unit:
Continuing operations	$	0.06		$	0.02		$	0.09		$	(0.13	)
Discontinued operations	—			0.08			0.02			0.29
	$	0.06		$	0.10		$	0.11		$	0.16
Diluted income (loss) per Common Partnership Unit:
Continuing operations	$	0.06		$	0.02		$	0.09		$	(0.13	)
Discontinued operations	—			0.08			0.02			0.29
	$	0.06		$	0.10		$	0.11		$	0.16
Basic weighted average common partnership units outstanding	158,467,087			146,082,206			153,731,070			145,842,872
Diluted weighted average common partnership units outstanding	159,755,821			146,785,731			154,940,454			145,842,872
Net income (loss) attributable to Brandywine Operating Partnership, L.P.
Income (Loss) from continuing operations	$	11,174		$	5,500		$	18,568		$	(8,350	)
Income (Loss) from discontinued operations	(86		)	11,589			3,619			41,577
Net income	$	11,088		$	17,089		$	22,187		$	33,227

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)



	Three-month periods ended						Nine-month periods ended
	September 30,						September 30,
	2013			2012			2013		2012
Net income	$	11,088		$	17,089		$	22,187	$	33,227
Comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments	(1,302		)	(4,222		)	9,978		(14,780		)
Reclassification of realized losses on derivative financial instruments to operations, net (1)	64			76			232		200
Unrealized gain on available-for-sale securities	—			65			—		—
Total comprehensive income (loss)	(1,238		)	(4,081		)	10,210		(14,580		)
Comprehensive income attributable to Brandywine Operating Partnership, L.P.	$	9,850		$	13,008		$	32,397	$	18,647

(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)



	Nine-month periods ended
	September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	22,187		$	33,227
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	151,066			150,362
Amortization of deferred financing costs	3,502			3,790
Amortization of debt discount/(premium), net	1,112			1,095
Amortization of stock compensation costs	5,510			3,740
Shares used for employee taxes upon vesting of share awards	(1,062		)	(2,232		)
Straight-line rent income	(16,337		)	(17,792		)
Amortization of acquired above (below) market leases, net	(5,372		)	(4,468		)
Straight-line ground rent expense	1,286			1,423
Provision for doubtful accounts	1,777			1,363
Net gain on sale of interests in real estate	(3,044		)	(34,773		)
Loss on real estate venture formation	—			950
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	1,127			1,549
Historic tax credit transaction income	(11,853		)	(11,840		)
Real estate venture income in excess of distributions	(2,371		)	(1,024		)
Deferred financing obligation	(1,392		)	(1,314		)
Changes in assets and liabilities:
Accounts receivable	(287		)	1,580
Other assets	(5,758		)	(7,200		)
Accounts payable and accrued expenses	14,684			9,565
Deferred income, gains and rent	1,265			(4,681		)
Other liabilities	1,718			(1,175		)
Net cash from operating activities	146,228			122,145
Cash flows from investing activities:
Acquisition of properties	(20,758		)	(9,226		)
Investments in available-for-sale securities	—			(98,250		)
Proceeds from sale of available-for-sale securities	—			98,250
Sales of properties, net	145,931			170,918
Distribution of sales proceeds from real estate ventures	16,963			—
Proceeds from repayment of mortgage notes receivable	200			23,930
Capital expenditures for tenant improvements	(64,481		)	(64,527		)
Capital expenditures for redevelopments	(5,288		)	(9,122