BDN 6.30.2014 10-Q (Q2-2014)


 
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, 2014
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from                      to                     
Commission file number
001-9106 (Brandywine Realty Trust)
000-24407 (Brandywine Operating Partnership, L.P.)
_________________________
Brandywine Realty Trust
Brandywine Operating Partnership, L.P.
(Exact name of registrant as specified in its charter)
_________________________

MARYLAND (Brandywine Realty Trust)
 
23-2413352
DELAWARE (Brandywine Operating Partnership L.P.)
 
23-2862640
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
555 East Lancaster Avenue
 
 
Radnor, Pennsylvania
 
19087
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (610) 325-5600
_________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Brandywine Realty Trust
 
Yes þ No o
Brandywine Operating Partnership, L.P.
 
Yes þ No o


1



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 157,090,635 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of July 23, 2014.



2



EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2014 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, 2014, owned a 98.9% interest in the Operating Partnership. The remaining 1.1% interest consists of common units of limited partnership interest issued by the Operating Partnership to third parties in exchange for contributions of properties to the Operating Partnership. As the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management.
Management operates the Parent Company and the Operating Partnership as one enterprise. The management of the Parent Company consists of the same members as the management of the Operating Partnership.
As general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company's operations on a consolidated basis and how management operates the Company.
The Company believes that combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into a single report will result in the following benefits:
•
facilitate a better understanding by the investors of the Parent Company and the Operating Partnership by enabling them to view the business as a whole in the same manner as management views and operates the business;
•
remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the disclosure applies to both the Parent Company and the Operating Partnership; and
•
create time and cost efficiencies through the preparation of one combined report instead of two separate reports.
There are few differences between the Parent Company and the Operating Partnership, which are reflected in the footnote disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as an interrelated consolidated company. The Parent Company is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing the debt obligations of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and directly or indirectly holds the ownership interests in the Company’s Real Estate Ventures. The Operating Partnership conducts the operations of the Company’s business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness (directly and through subsidiaries) and through the issuance of partnership units of the Operating Partnership or equity interests in subsidiaries of the Operating Partnership.
The equity and non-controlling interests in the Parent Company and the Operating Partnership’s equity are the main areas of difference between the consolidated financial statements of the Parent Company and the Operating Partnership. The common units of limited partnership interest in the Operating Partnership are accounted for as partners’ equity in the Operating Partnership’s financial statements while the common units of limited partnership interests held by parties other than the Parent Company are presented as non-controlling interests in the Parent Company’s financial statements. The differences between the Parent Company and the Operating Partnership’s equity relate to the differences in the equity issued at the Parent Company and Operating Partnership levels.


3



To help investors understand the significant differences between the Parent Company and the Operating Partnership, this report presents the following as separate notes or sections for each of the Parent Company and the Operating Partnership:
•
Consolidated Financial Statements; and
•
Parent Company’s and Operating Partnership’s Equity.
This report also includes separate Item 4. (Controls and Procedures) disclosures and separate Exhibit 31 and 32 certifications for each of the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Parent Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.
In order to highlight the differences between the Parent Company and the Operating Partnership, the separate sections in this report for the Parent Company and the Operating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures of the Parent Company and the Operating Partnership, this report refers to such disclosures as those of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and Real Estate Ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership.


4



TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
 
 
Brandywine Realty Trust
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brandywine Operating Partnership, L.P.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Filing Format
This combined Form 10-Q is being filed separately by Brandywine Realty Trust and Brandywine Operating Partnership, L.P.


5



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,
2014
 
December 31,
2013
 
(unaudited)
 
 
ASSETS
 
 
 
Real estate investments:
 
 
 
Operating properties
$
4,689,892

 
$
4,669,289

Accumulated depreciation
(1,045,016
)
 
(983,808
)
Operating real estate investments, net
3,644,876

 
3,685,481

Construction-in-progress
92,713

 
74,174

Land inventory
90,266

 
93,351

Total real estate investments, net
3,827,855

 
3,853,006

Cash and cash equivalents
234,836

 
263,207

Accounts receivable, net
21,622

 
17,389

Accrued rent receivable, net
131,280

 
126,295

Investment in real estate ventures, at equity
186,042

 
180,512

Deferred costs, net
123,592

 
122,954

Intangible assets, net
112,140

 
132,329

Other assets
66,806

 
69,403

Total assets
$
4,704,173

 
$
4,765,095

LIABILITIES AND BENEFICIARIES’ EQUITY
 
 
 
Mortgage notes payable
$
662,478

 
$
670,151

Unsecured term loans
450,000

 
450,000

Unsecured senior notes, net of discounts
1,475,772

 
1,475,230

Accounts payable and accrued expenses
83,114

 
83,693

Distributions payable
25,588

 
25,584

Deferred income, gains and rent
70,519

 
71,635

Acquired lease intangibles, net
29,116

 
34,444

Other liabilities
37,144

 
32,923

Total liabilities
2,833,731

 
2,843,660

Commitments and contingencies (Note 16)

 

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 2014 and 2013
40

 
40

Common Shares of Brandywine Realty Trust’s beneficial interest, $0.01 par value; shares authorized 400,000,000; 157,090,983 and 156,731,993 issued and outstanding in 2014 and 2013, respectively
1,571

 
1,566

Additional paid-in capital
2,975,070

 
2,971,596

Deferred compensation payable in common shares
6,303

 
5,407

Common shares in grantor trust, 387,088 in 2014 and 312,280 in 2013
(6,303
)
 
(5,407
)
Cumulative earnings
522,520

 
522,528

Accumulated other comprehensive loss
(6,105
)
 
(2,995
)
Cumulative distributions
(1,643,241
)
 
(1,592,515
)
Total Brandywine Realty Trust’s equity
1,849,855

 
1,900,220

Non-controlling interests
20,587

 
21,215

Total beneficiaries' equity
1,870,442

 
1,921,435

Total liabilities and beneficiaries' equity
$
4,704,173

 
$
4,765,095


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


6



BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share information)
 
Three-month periods ended
 
Six-month periods ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Revenue:
 
 
 
 
 
 
 
Rents
$
121,622

 
$
116,064

 
$
243,293

 
$
230,672

Tenant reimbursements
20,502

 
19,560

 
43,962

 
39,901

Termination fees
3,349

 
410

 
5,552

 
906

Third party management fees, labor reimbursement and leasing
4,187

 
3,153

 
8,337

 
6,389

Other
840

 
1,457

 
1,470

 
2,330

Total revenue
150,500

 
140,644

 
302,614

 
280,198

Operating expenses:
 
 
 
 
 
 
 
Property operating expenses
43,136

 
39,433

 
89,937

 
78,782

Real estate taxes
12,841

 
14,177

 
26,298

 
28,472

Third party management expenses
1,730

 
1,363

 
3,446

 
2,788

Depreciation and amortization
52,587

 
49,241

 
105,157

 
98,717

General and administrative expenses
6,005

 
7,336

 
14,186

 
13,887

Total operating expenses
116,299

 
111,550

 
239,024

 
222,646

Operating income
34,201

 
29,094

 
63,590

 
57,552

Other income (expense):
 
 
 
 
 
 
 
Interest income
385

 
122

 
770

 
180

Interest expense
(31,512
)
 
(30,437
)
 
(63,356
)
 
(61,351
)
Amortization of deferred financing costs
(1,197
)
 
(1,183
)
 
(2,386
)
 
(2,344
)
Interest expense — financing obligation
(316
)
 
(211
)
 
(588
)
 
(429
)
Equity in income (loss) of real estate ventures
(489
)
 
1,508

 
(247
)
 
3,043

Gain (loss) on sale of undepreciated real estate
(3
)
 
—

 
1,184

 
—

Gain from remeasurement of investment in real estate ventures
458

 
7,847

 
458

 
7,847

Gain (loss) on real estate venture transactions
(282
)
 
3,683

 
(417
)
 
3,683

Loss on early extinguishment of debt
—

 
(1,113
)
 
—

 
(1,116
)
Income (loss) from continuing operations
1,245

 
9,310

 
(992
)
 
7,065

Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations
26

 
129

 
18

 
989

Net gain (loss) on disposition of discontinued operations
903

 
(2,259
)
 
903

 
3,045

Total discontinued operations
929

 
(2,130
)
 
921

 
4,034

Net income (loss)
2,174

 
7,180

 
(71
)
 
11,099

Net (income) loss from discontinued operations attributable to non-controlling interests — LP units
(10
)
 
25

 
(10
)
 
(53
)
Net loss attributable to non-controlling interest — partners' share of consolidated real estate ventures
24

 
—

 
12

 
—

Net (income) loss attributable to non-controlling interests — LP units
5

 
(87
)
 
49

 
(37
)
Net (income) loss attributable to non-controlling interests
19

 
(62
)
 
51

 
(90
)
Net income (loss) attributable to Brandywine Realty Trust
2,193

 
7,118

 
(20
)
 
11,009

Distribution to Preferred Shares
(1,725
)
 
(1,725
)
 
(3,450
)
 
(3,450
)
Nonforfeitable dividends allocated to unvested restricted shareholders
(83
)
 
(85
)
 
(186
)
 
(193
)
Net income (loss) attributable to Common Shareholders of Brandywine Realty Trust
$
385

 
$
5,308

 
$
(3,656
)
 
$
7,366

Basic income (loss) per Common Share:
 
 
 
 
 
 
 
Continuing operations
$
—

 
$
0.05

 
$
(0.03
)
 
$
0.02

Discontinued operations
—

 
(0.02
)
 
0.01

 
0.03

 
$
—

 
$
0.03

 
$
(0.02
)
 
$
0.05

Diluted income (loss) per Common Share:
 
 
 
 
 
 
 
Continuing operations
$
—

 
$
0.05

 
$
(0.03
)
 
$
0.02

Discontinued operations
—

 
(0.02
)
 
0.01

 
0.03

 
$
—

 
$
0.03

 
$
(0.02
)
 
$
0.05

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
157,037,348

 
155,347,384

 
156,916,356

 
149,508,957

Diluted weighted average shares outstanding
157,037,348

 
156,691,201

 
156,916,356

 
150,666,245

Net income (loss) attributable to Brandywine Realty Trust
 
 
 
 
 
 
 
Total continuing operations
$
1,274

 
$
9,223

 
$
(931
)
 
$
7,028

Total discontinued operations
919

 
(2,105
)
 
911

 
3,981

Net income (loss)
$
2,193

 
$
7,118

 
$
(20
)
 
$
11,009

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


7



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

 
Three-month periods ended
 
Six-month periods ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
2,174

 
$
7,180

 
$
(71
)
 
$
11,099

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative financial instruments
(2,285
)
 
9,491

 
(3,265
)
 
11,283

Reclassification of realized losses on derivative financial instruments to operations, net (1)
60

 
66

 
120

 
168

     Other comprehensive income (loss)
(2,225
)
 
9,557

 
(3,145
)
 
11,451

Comprehensive income (loss)
(51
)
 
16,737

 
(3,216
)
 
22,550

Comprehensive (income) loss attributable to non-controlling interest
44

 
(169
)
 
86

 
(221
)
Comprehensive income (loss) attributable to Brandywine Realty Trust
$
(7
)
 
$
16,568

 
$
(3,130
)
 
$
22,329

(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.




8



BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF BENEFICIARIES’ EQUITY
For the six-month period ended June 30, 2014
(unaudited, in thousands, except number of shares)
June 30, 2014
 
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, 2013
4,000,000

 
$
40

 
156,731,993

 
312,280

 
$
1,566

 
$
2,971,596

 
$
5,407

 
$
(5,407
)
 
$
522,528

 
$
(2,995
)
 
$
(1,592,515
)
 
$
21,215

 
$
1,921,435

Net loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(20
)
 
 
 
 
 
(51
)
 
(71
)
Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3,110
)
 
 
 
(35
)
 
(3,145
)
Equity issuance costs
 
 
 
 
 
 
 
 
 
 
(60
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(60
)
Share-based compensation activity
 
 
 
 
279,913

 
 
 
5

 
3,612

 
 
 
 
 
12

 
 
 
 
 
 
 
3,629

Share issuance from/to Deferred Compensation Plan
 
 
 
 
79,077

 
74,808

 
 
 
(90
)
 
896

 
(896
)
 
 
 
 
 
 
 
 
 
(90
)
Adjustment to non-controlling interest
 
 
 
 
 
 
 
 
 
 
12

 
 
 
 
 
 
 
 
 
 
 
(12
)
 
—

Preferred Share distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3,450
)
 
 
 
(3,450
)
Distributions declared ($0.30 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(47,276
)
 
(530
)
 
(47,806
)
BALANCE,
June 30, 2014
4,000,000

 
$
40

 
157,090,983

 
387,088

 
$
1,571

 
$
2,975,070

 
$
6,303

 
$
(6,303
)
 
$
522,520

 
$
(6,105
)
 
$
(1,643,241
)
 
$
20,587

 
$
1,870,442


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


9




BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENT OF BENEFICIARIES’ EQUITY
For the six-month period ended June 30, 2013
(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

Share-based compensation activity
 
 
 
 
341,591

 
7,050

 
3

 
5,207

 
 
 
 
 
9

 
 
 
 
 
 
 
5,219

Share issuance from/to Deferred Compensation Plan
 
 
 
 
22,404

 
17,958

 
 
 
 
 
164

 
(164
)
 
 
 
 
 
 
 
 
 
—

Adjustment to non-controlling interest
 
 
 
 
 
 
 
 
 
 
(739
)
 
 
 
 
 
 
 
 
 
 
 
739

 
—

Preferred Share distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3,450
)
 
 
 
(3,450
)
Distributions declared ($0.30 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.


10



BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Six-month periods ended
 
June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(71
)
 
$
11,099

Adjustments to reconcile net income (loss) to net cash from operating activities:
 
 
 
Depreciation and amortization
105,157

 
100,459

Amortization of deferred financing costs
2,386

 
2,344

Amortization of debt discount/(premium), net
(324
)
 
748

Amortization of stock compensation costs
3,752

 
4,048

Shares used for employee taxes upon vesting of share awards
(1,266
)
 
(1,061
)
Straight-line rent income
(7,183
)
 
(11,250
)
Amortization of acquired above (below) market leases, net
(3,698
)
 
(3,556
)
Straight-line ground rent expense
44

 
894

Provision for doubtful accounts
1,272

 
997

(Gain) Loss on real estate venture transactions
417

 
(3,683
)
Net gain on sale of interests in real estate
(2,087
)
 
(3,044
)
Gain from remeasurement of investment in a real estate venture
(458
)
 
(7,847
)
Loss on early extinguishment of debt
—

 
1,116

Real estate venture income in excess of distributions
558

 
(2,031
)
Deferred financing obligation
(590
)
 
(896
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(6,328
)
 
2,035

Other assets
1,462

 
6,031

Accounts payable and accrued expenses
(2,815
)
 
(1,252
)
Deferred income, gains and rent
(116
)
 
608

Other liabilities
129

 
474

Net cash from operating activities
90,241

 
96,233

Cash flows from investing activities:
 
 
 
Acquisition of properties
(12,405
)
 
(20,758
)
Sales of properties, net
40,149

 
145,931

Distribution of sales proceeds from real estate ventures
—

 
16,963

Proceeds from repayment of mortgage notes receivable
2,800

 
200

Capital expenditures for tenant improvements
(58,035
)
 
(46,828
)
Capital expenditures for redevelopments
(4,773
)
 
(4,676
)
Capital expenditures for developments
(19,270
)
 
(72
)
Reimbursement from real estate venture for pre-formation development costs
—

 
1,976

Advances for purchase of tenant assets, net of repayments
16

 
(693
)
Investment in unconsolidated Real Estate Ventures
(3,095
)
 
(12,568
)
Escrowed cash
1,758

 
558

Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income
5,329

 
3,445

Leasing costs
(13,862
)
 
(14,313
)
Net cash from (used in) investing activities
(61,388
)
 
69,165

Cash flows from financing activities:
 
 
 
Proceeds from Credit Facility borrowings
—

 
186,000

Repayments of Credit Facility borrowings
—

 
(255,000
)
Repayments of mortgage notes payable
(6,647
)
 
(5,537
)
Deferred financing obligation interest expense
—

 
466

Net proceeds from issuance of common shares
—

 
181,527

Repayments of unsecured notes
—

 
(12,912
)
Debt financing costs
(35
)
 
(6
)
Exercise of stock options
709

 
1,762

Distributions paid to shareholders
(50,710
)
 
(46,745
)
Distributions to noncontrolling interest
(541
)
 
(554
)
Net cash from (used in) financing activities
(57,224
)
 
49,001

Increase (Decrease) in cash and cash equivalents
(28,371
)
 
214,399



11



Cash and cash equivalents at beginning of period
263,207

 
1,549

Cash and cash equivalents at end of period
$
234,836

 
$
215,948

 
 
 
 
Supplemental disclosure:
 
 
 
Cash paid for interest, net of capitalized interest during the six months ended June 30, 2014 and 2013 of $2,726 and $1,305, respectively
$
66,869

 
$
67,844

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 disposition of property
(5,897
)
 
—

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 receivable from settlement of acquisitions
619

 
—

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
(639
)
 
(1,227
)
Change in capital expenditures financed through retention payable at period end
1,188

 
(348
)
Change in unfunded tenant allowance
(193
)
 
(244
)
The accompanying notes are an integral part of these consolidated financial statements.


12




BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except unit and per unit information)
 
June 30,
2014
 
December 31,
2013
 
(unaudited)
 
 
ASSETS
 
 
 
Real estate investments:
 
 
 
Operating properties
$
4,689,892

 
$
4,669,289

Accumulated depreciation
(1,045,016
)
 
(983,808
)
Operating real estate investments, net
3,644,876

 
3,685,481

Construction-in-progress
92,713

 
74,174

Land inventory
90,266

 
93,351

Total real estate investments, net
3,827,855

 
3,853,006

Cash and cash equivalents
234,836

 
263,207

Accounts receivable, net
21,622

 
17,389

Accrued rent receivable, net
131,280

 
126,295

Investment in real estate ventures, at equity
186,042

 
180,512

Deferred costs, net
123,592

 
122,954

Intangible assets, net
112,140

 
132,329

Other assets
66,806

 
69,403

Total assets
$
4,704,173

 
$
4,765,095

LIABILITIES AND PARTNERS' EQUITY
 
 
 
Mortgage notes payable
$
662,478

 
$
670,151

Unsecured term loans
450,000

 
450,000

Unsecured senior notes, net of discounts
1,475,772

 
1,475,230

Accounts payable and accrued expenses
83,114

 
83,693

Distributions payable
25,588

 
25,584

Deferred income, gains and rent
70,519

 
71,635

Acquired lease intangibles, net
29,116

 
34,444

Other liabilities
37,144

 
32,923

Total liabilities
2,833,731

 
2,843,660

Commitments and contingencies (Note 16)

 

Redeemable limited partnership units at redemption value; 1,763,739 issued and outstanding in 2014 and 2013, respectively
27,211

 
26,486

Brandywine Operating Partnership, L.P.’s equity:
 
 
 
6.90% Series E-Linked Preferred Mirror Units; issued and outstanding- 4,000,000 in 2014 and 2013
96,850

 
96,850

General Partnership Capital, 157,090,983 and 156,731,993 units issued and outstanding in 2014 and 2013, respectively
1,751,968

 
1,800,530

Accumulated other comprehensive loss
(6,522
)
 
(3,377
)
Total Brandywine Operating Partnership, L.P.’s equity
1,842,296

 
1,894,003

Non-controlling interest - consolidated real estate ventures
935

 
946

Total partners’ equity
1,843,231

 
1,894,949

 
 
 
 
Total liabilities and partners’ equity
$
4,704,173

 
$
4,765,095

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




13



BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except unit and per unit information)
 
Three-month periods ended
 
Six-month periods ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Revenue:
 
 
 
 
 
 
 
Rents
$
121,622

 
$
116,064

 
$
243,293

 
$
230,672

Tenant reimbursements
20,502

 
19,560

 
43,962

 
39,901

Termination fees
3,349

 
410

 
5,552

 
906

Third party management fees, labor reimbursement and leasing
4,187

 
3,153

 
8,337

 
6,389

Other
840

 
1,457

 
1,470

 
2,330

Total revenue
150,500

 
140,644

 
302,614

 
280,198

Operating expenses:
 
 
 
 
 
 
 
Property operating expenses
43,136

 
39,433

 
89,937

 
78,782

Real estate taxes
12,841

 
14,177

 
26,298

 
28,472

Third party management expenses
1,730

 
1,363

 
3,446

 
2,788

Depreciation and amortization
52,587

 
49,241

 
105,157

 
98,717

General & administrative expenses
6,005

 
7,336

 
14,186

 
13,887

Total operating expenses
116,299

 
111,550

 
239,024

 
222,646

Operating income
34,201

 
29,094

 
63,590

 
57,552

Other income (expense):
 
 
 
 
 
 
 
Interest income
385

 
122

 
770

 
180

Interest expense
(31,512
)
 
(30,437
)
 
(63,356
)
 
(61,351
)
Amortization of deferred financing costs
(1,197
)
 
(1,183
)
 
(2,386
)
 
(2,344
)
Interest expense — financing obligation
(316
)
 
(211
)
 
(588
)
 
(429
)
Equity in income (loss) of real estate ventures
(489
)
 
1,508

 
(247
)
 
3,043

Gain (loss) on sale of undepreciated real estate
(3
)
 
—

 
1,184

 
—

Gain from remeasurement of investment in a real estate venture
458

 
7,847

 
458

 
7,847

Loss on real estate venture transactions
(282
)
 
3,683

 
(417
)
 
3,683

Loss on early extinguishment of debt
—

 
(1,113
)
 
—

 
(1,116
)
Loss from continuing operations
1,245

 
9,310

 
(992
)
 
7,065

Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations
26

 
129

 
18

 
989

Net gain on disposition of discontinued operations
903

 
(2,259
)
 
903

 
3,045

Total discontinued operations
929

 
(2,130
)
 
921

 
4,034

Net income (loss)
2,174

 
7,180

 
(71
)
 
11,099

Net loss attributable to non-controlling interests
24

 
—

 
12

 
—

Net income (loss) attributable to Brandywine Operating Partnership
2,198

 
7,180

 
(59
)
 
11,099

Distribution to Preferred Units
(1,725
)
 
(1,725
)
 
(3,450
)
 
(3,450
)
Amount allocated to unvested restricted unitholders
(83
)
 
(85
)
 
(186
)
 
(193
)
Net income (loss) attributable to Common Partnership Unitholders of Brandywine Operating Partnership, L.P.
$
390

 
$
5,370

 
$
(3,695
)
 
$
7,456

Basic income (loss) per Common Partnership Unit:
 
 
 
 
 
 
 
Continuing operations
$
—

 
$
0.05

 
$
(0.03
)
 
$
0.02

Discontinued operations
—

 
(0.02
)
 
0.01

 
0.03

 
$
—

 
$
0.03

 
$
(0.02
)
 
$
0.05

Diluted income (loss) per Common Partnership Unit:
 
 
 
 
 
 
 
Continuing operations
$
—

 
$
0.05

 
$
(0.03
)
 
$
0.02

Discontinued operations
—

 
(0.02
)
 
0.01

 
0.03

 
$
—

 
$
0.03

 
$
(0.02
)
 
$
0.05

Basic weighted average common partnership units outstanding
158,801,087

 
157,131,697

 
158,680,095

 
151,323,813

Diluted weighted average common partnership units outstanding
158,801,087

 
158,475,514

 
158,680,095

 
152,481,101

Net income (loss) attributable to Brandywine Operating Partnership, L.P.
 
 
 
 
 
 
 
Total continuing operations
$
1,269

 
$
9,310

 
$
(980
)
 
$
7,065

Total discontinued operations
929

 
(2,130
)
 
921

 
4,034

Net income (loss)
$
2,198

 
$
7,180

 
$
(59
)
 
$
11,099

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


14



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

 
Three-month periods ended
 
Six-month periods ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
2,174

 
$
7,180

 
$
(71
)
 
$
11,099

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative financial instruments
(2,285
)
 
9,491

 
(3,265
)
 
11,283

Reclassification of realized losses on derivative financial instruments to operations, net (1)
60

 
66

 
120

 
168

Other comprehensive income (loss)
(2,225
)
 
9,557

 
(3,145
)
 
11,451

Comprehensive income (loss) attributable to Brandywine Operating Partnership, L.P.
$
(51
)
 
$
16,737

 
$
(3,216
)
 
$
22,550

(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.




15



BRANDYWINE OPERATING PARTNERSHIP L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Six-month periods ended
 
June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(71
)
 
$
11,099

Adjustments to reconcile net income (loss) to net cash from operating activities:
 
 
 
Depreciation and amortization
105,157

 
100,459

Amortization of deferred financing costs
2,386

 
2,344

Amortization of debt discount/(premium), net
(324
)
 
748

Amortization of stock compensation costs
3,752

 
4,048

Shares used for employee taxes upon vesting of share awards
(1,266
)
 
(1,061
)
Straight-line rent income
(7,183
)
 
(11,250
)
Amortization of acquired above (below) market leases, net
(3,698
)
 
(3,556
)
Straight-line ground rent expense
44

 
894

Provision for doubtful accounts
1,272

 
997

Loss on early extinguishment of debt
—

 
1,116

Net gain on sale of interests in real estate
(2,087
)
 
(3,044
)
(Gain) Loss on real estate venture transactions
417

 
(3,683
)
Gain on remeasurement of investment in a real estate venture
(458
)
 
(7,847
)
Real estate venture income in excess of distributions
558

 
(2,031
)
Deferred financing obligation
(590
)
 
(896
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(6,328
)
 
2,035

Other assets
1,462

 
6,031

Accounts payable and accrued expenses
(2,815
)
 
(1,252
)
Deferred income, gains and rent
(116
)
 
608

Other liabilities
129

 
474

Net cash from operating activities
90,241

 
96,233

Cash flows from investing activities:
 
 
 
Acquisition of properties
(12,405
)
 
(20,758
)
Sales of properties, net
40,149

 
145,931

Distribution of sales proceeds from real estate venture
—

 
16,963

Proceeds from repayment of mortgage notes receivable
2,800

 
200

Capital expenditures for tenant improvements
(58,035
)
 
(46,828
)
Capital expenditures for redevelopments
(4,773
)
 
(4,676
)
Capital expenditures for developments
(19,270
)
 
(72
)
Reimbursement from real estate venture for pre-formation development costs
—

 
1,976

Advances for purchase of tenant assets, net of repayments
16

 
(693
)
Investment in unconsolidated Real Estate Ventures
(3,095
)
 
(12,568
)
Escrowed cash
1,758

 
558

Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income
5,329

 
3,445

Leasing costs
(13,862
)
 
(14,313
)
Net cash from (used in) investing activities
(61,388
)
 
69,165

Cash flows from financing activities:
 
 
 
Proceeds from Credit Facility borrowings
—

 
186,000

Repayments of Credit Facility borrowings
—

 
(255,000
)
Repayments of mortgage notes payable
(6,647
)
 
(5,537
)
Deferred financing obligation interest expense
—

 
466

Net proceeds from issuance of common units
—

 
181,527

Repayments of unsecured notes
—

 
(12,912
)
Debt financing costs
(35
)
 
(6
)
Exercise of stock options
709

 
1,762

Distributions paid to preferred and common partnership unitholders
(51,251
)
 
(47,299
)
Net cash from (used in) financing activities
(57,224
)
 
49,001

Increase (Decrease) in cash and cash equivalents
(28,371
)
 
214,399



16



Cash and cash equivalents at beginning of period
263,207

 
1,549

Cash and cash equivalents at end of period
$
234,836

 
$
215,948

 
 
 
 
Supplemental disclosure:
 
 
 
Cash paid for interest, net of capitalized interest during the six months ended June 30, 2014 and 2013 of $2,726 and $1,305, respectively
$
66,869

 
$
67,844

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 a non-cash acquisition of an operating property
—

 
(3,517
)
Change in acquired lease intangibles, net related to a non-cash acquisition of an operating property
—

 
462

Change in investments in joint venture related non-cash disposition of property
(5,897
)
 
—

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 receivable from settlement of acquisitions
619

 
—

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
(639
)
 
(1,227
)
Change in capital expenditures financed through retention payable at period end
1,188

 
(348
)
Change in unfunded tenant allowance
(193
)
 
(244
)

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


17



BRANDYWINE REALTY TRUST AND BRANDYWINE OPERATING PARTNERSHIP, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
1. ORGANIZATION OF THE PARENT COMPANY AND THE OPERATING PARTNERSHIP
The Parent Company is a self-administered and self-managed real estate investment trust (“REIT”) that provides leasing, property management, development, redevelopment, acquisition and other tenant-related services for a portfolio of office, industrial, retail and mixed-use properties. The Parent Company owns its assets and conducts its operations through the Operating Partnership and subsidiaries of the Operating Partnership. The Parent Company is the sole general partner of the Operating Partnership and, as of June 30, 2014, owned a 98.9% interest in the Operating Partnership. The Parent Company’s common shares of beneficial interest are publicly traded on the New York Stock Exchange under the ticker symbol “BDN”.
As of June 30, 2014, the Company owned 205 properties, consisting of 175 office properties, 20 industrial facilities, five mixed-use properties, one retail property (201 core properties), two development properties, one redevelopment property and one re-entitlement property (collectively, the “Properties”) containing an aggregate of approximately 25.4 million net rentable square feet. In addition, as of June 30, 2014, the Company owned economic interests in 17 unconsolidated real estate ventures that own properties containing an aggregate of approximately 5.9 million net rentable square feet (collectively, the “Real Estate Ventures”). As of June 30, 2014, the Company also owned 419 acres of undeveloped land, and held options to purchase approximately 50 additional acres of undeveloped land. As of June 30, 2014, these land parcels could support, under current zoning and entitlements, approximately 5.9 million square feet of development. The Properties and the properties owned by the Real Estate Ventures are located in or near Philadelphia, Pennsylvania; Metropolitan Washington, D.C.; Southern New Jersey; Richmond, Virginia; Wilmington, Delaware; Austin, Texas and Oakland, Concord and Carlsbad, California.
The Company conducts its third-party real estate management services business primarily through wholly-owned management company subsidiaries. As of June 30, 2014, the management company subsidiaries were managing properties containing an aggregate of approximately 33.5 million net rentable square feet, of which approximately 25.4 million net rentable square feet related to Properties owned by the Company and approximately 8.1 million net rentable square feet related to properties owned by third parties and Real Estate Ventures.
Unless otherwise indicated, all references in this Form 10-Q to square feet represent net rentable area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting solely of normal recurring matters) for a fair statement of the financial position of the Company as of June 30, 2014, the results of its operations for the three and six-month periods ended June 30, 2014 and 2013 and its cash flows for the six-month periods ended June 30, 2014 and 2013 have been included. The results of operations for such interim periods are not necessarily indicative of the results for a full year. These consolidated financial statements should be read in conjunction with the Parent Company’s and the Operating Partnership’s consolidated financial statements and footnotes included in their combined 2013 Annual Report on Form 10-K filed with the SEC on February 25, 2014.
Reclassifications
Certain amounts have been reclassified in prior years to conform to the current year presentation, including the reclassification of notes receivable to other assets within the balance sheets and the reclassification of changes in escrow balances from operating cash flows to investing cash flows in the statements of cash flows. All other reclassifications are related to the treatment of sold properties as discontinued operations on the statement of operations for all periods presented. See Recent Accounting Pronouncements below for revisions to the accounting guidance for discontinued operations.
Recent Accounting Pronouncements
In May 2014 the Financial Accounting Standards Board (FASB) issued guidance requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for those goods and services. The guidance requires the disclosure of sufficient quantitative and qualitative information for financial statement users to understand the nature, amount, timing and uncertainty of revenue and associated cash flows arising from contracts with customers. The guidance is effective for


18



annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early adoption precluded. The Company has not yet determined the impact, if any, that the adoption of this guidance will have on its consolidated financial position or results of operations.
In April 2014 the FASB issued revised guidance on discontinued operations and disclosures of disposals of components of an entity. The update revises the definition to include only disposals involving a strategic shift that has a major effect on the entity’s operations and financial results when the disposal asset or group meets the existing criterion for treatment as held for sale. Examples of a strategic shift include the withdrawal from a major geographic area, line of business, equity method investment or any other major parts of a business, as applicable. A component of the entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In addition, the revised standard no longer precludes presentation as a discontinued operation if there are operations and cash flows of the component that have not been eliminated from the reporting entity’s ongoing operations, or if there is significant continuing involvement with a component after its disposal.
The amendments require additional disclosures about discontinued operations including; the major classes of net income or loss where net income is otherwise presented, the operating and investing cash flows of discontinued operations where net income is otherwise presented, depreciation, amortization, capital expenditures and significant operating and investing non-cash items of the discontinued operation for the periods in which net income is otherwise presented and, if there is a non-controlling interest, the related allocation to the parent company.
Application is prospective, and required for periods beginning on or after December 15, 2014. This update should not be applied to assets classified as held for sale before the effective date even if the component of an entity is disposed of after the effective date. Early adoption is permitted for disposals or assets held for sale that have not been reported in the financial statements previously issued or available for issuance. The Company has elected to early adopt this standard as of January 1, 2014. All properties sold or determined held for sale prior to January 1, 2014 are classified as discontinued operations for all periods presented.
3. REAL ESTATE INVESTMENTS
As of June 30, 2014 and December 31, 2013, the gross carrying value of the Company’s Properties was as follows (in thousands):
 
June 30,
2014
 
December 31,
2013
Land
$
688,775

 
$
680,513

Building and improvements
3,479,850

 
3,504,060

Tenant improvements
521,267

 
484,716

 
$
4,689,892

 
$
4,669,289

Acquisitions
As of June 30, 2014, a $0.5 million gain on remeasurement of the Company's investment in partnerships with Parkway Properties, Inc. was recorded. On December 19, 2013, the Company increased its equity ownership interest from 25% to 99% in each of the two partnerships that own One and Two Commerce Square, two 41-story trophy-class office towers in Philadelphia, Pennsylvania. As of December 31, 2013, the Company had recorded a $1.6 million net receivable balance from its former partner which represented the former partner's portion of the net current assets (liabilities) pursuant to the terms of the Commerce Square Redemption Agreement. Pursuant to the Redemption Agreement, the Company and Parkway used an agreed upon settlement period to finalize the purchase accounting related to facts and circumstances that existed at the date of the acquisition but were not fully known at such time. During the quarter ended June 30, 2014, $2.1 million of consideration was received from the former partner in full settlement of the aforementioned provision and a measurement period adjustment was made to adjust the fair value of the Company's previously held equity investment, resulting in a gain on remeasurement of the Company's investment in the partnerships of $0.5 million. For additional information related to this transaction, see the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
On February 19, 2014, the Company acquired 54.1 acres of undeveloped land known as Encino Trace in Austin, Texas for $14.0 million. The land is fully entitled with a site plan and building permits in place allowing for the development of two four-story office buildings containing approximately 320,000 net rentable square feet. The purchase price included an in-place lease, which was placed into construction in progress. As such, the Company has treated this transaction as a business combination and allocated the purchase price to the tangible and intangible assets. The Company capitalized $8.4 million in construction in progress, recorded $4.6 million in land inventory and recorded a deposit for a portion of the future development fee held in escrow for $1.0 million. The net assets were purchased using available corporate funds.


19



As of June 30, 2014, both of the office buildings at Encino Trace are currently in development with $18.7 million, inclusive of the $14.0 million acquisition cost, funded through June 30, 2014. During the second quarter of 2014, the Company reclassified the $4.6 million remaining in land inventory to construction in progress in connection with commencing development of the second building. Additional project costs will be funded over the remaining construction period, which is scheduled to be completed during the second quarter of 2015.
Dispositions
On April 16, 2014, the Company sold a 5.3 acre parcel of land located in Dallas, Texas for a sales price of $1.6 million resulting in a nominal gain on sale after closing and other transaction related costs. The land parcel was undeveloped as of the date of sale.
On April 7, 2014, the Company received $0.9 million from an escrow account that was established in connection with the sale of eight office properties containing 800,546 square feet in Lawrenceville, New Jersey, known as "Princeton Pike Corporate Center." The sale of Princeton Pike Corporate Center was completed on February 25, 2013 for an aggregate sales price of $121.0 million and resulted in a $5.3 million gain on sale after closing and other transaction related costs. The escrow account was funded with $2.0 million at closing and was established for use by the buyer to fund certain tenant improvement projects with any unused portion to be returned to the Company. The unused amount received from the escrow account was recognized as a gain on sale during the period ended June 30, 2014. The aforementioned gain was recognized within discontinued operations which is consistent with the accounting classification of the assets that were disposed of on February 25, 2013.
On April 3, 2014, the Company contributed two 3-story, Class A office buildings, containing an aggregate of approximately 192,396 net rentable square feet known as Four Points Centre in Austin, Texas to an existing real estate venture (the "Austin Venture") that the Company formed in 2013 with G&I VII Austin Office LLC, an investment vehicle advised by DRA Advisors LLC ("DRA"). The Company contributed the properties to the Austin Venture at an agreed upon value of $41.5 million. In conjunction with the contribution: (i) the Austin Venture obtained a $29.0 million mortgage loan; (ii) the DRA member contributed $5.9 million in net cash to the capital of the Austin Venture; and (iii) the Austin Venture distributed $34.4 million to the Company and credited the Company with a $5.9 million capital contribution to the Austin Venture. The Company incurred a $0.2 million loss on the contribution, driven primarily by closing costs. The disposal of Four Points Centre does not represent a strategic shift that has a major effect on the Company's operations and financial results. Accordingly, the property remains classified within continuing operations.
On March 27, 2014, the Company sold a 16.8 acre undeveloped parcel of land located in Austin, Texas for a sales price of $3.5 million resulting in a $1.2 million gain on sale of undepreciated real estate after closing and other transaction related costs. The land parcel was undeveloped as of the date of sale.
4. INVESTMENT IN UNCONSOLIDATED VENTURES
As of June 30, 2014, the Company held ownership interests in 17 unconsolidated Real Estate Ventures, of which $186.0 million is included in assets and $1.2 million is included in other liabilities relating to the negative investment balance of one real estate venture. The Company formed or acquired interests in these ventures with unaffiliated third parties to develop or manage office properties or to acquire land in anticipation of possible development of office or residential properties. As of June 30, 2014, 11 of the Real Estate Ventures owned 56 office buildings that contain an aggregate of approximately 5.9 million net rentable square feet; two Real Estate Ventures owned 3.8 acres of undeveloped parcels of land; three Real Estate Venture owned 22.5-acres of land under active development and one Real Estate Venture owned a hotel property that contains 137 rooms in Conshohocken, PA.
The Company accounts for its unconsolidated interests in its Real Estate Ventures using the equity method. The Company’s unconsolidated interests range from 20% to 65%, subject to specified priority allocations of distributable cash in certain of the Real Estate Ventures.
The amounts reflected in the following tables (except for the Company’s share of equity and income) are based on the historical financial information of the individual Real Estate Ventures. The Company does not record operating losses of the Real Estate Ventures in excess of its investment balance unless the Company is liable for the obligations of the Real Estate Venture or is otherwise committed to provide financial support to the Real Estate Venture.


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The following is a summary of the financial position of the Real Estate Ventures as of June 30, 2014 and December 31, 2013 (in thousands):
 
June 30,
2014
 
December 31,
2013
Net property
$
1,081,064

 
$
965,475

Other assets
153,348

 
164,152

Other liabilities
68,031

 
49,442

Debt
792,919

 
699,860

Equity
373,462

 
380,325

 
 
 
 
Company’s share of equity (Company’s basis) (a)
186,042

(b)
180,512

 
 
 
 
(a) This amount includes the effect of the basis difference between the Company's historical cost basis and the basis recorded at the Real Estate Venture level, which is typically amortized over the life of the related assets and liabilities. Basis differentials occur from the impairment of investments, purchases of third party interests in existing Real Estate Ventures and upon the transfer of assets that were previously owned by the Company into a Real Estate Venture. In addition, certain acquisition, transaction and other costs may not be reflected in the net assets at the Real Estate Venture level.
(b) Does not include the negative investment balance of one real estate venture totaling $1.2 million as of June 30, 2014, which is included in other liabilities.
The Company held interests in 17 Real Estate Ventures containing an aggregate of approximately 5.9 million net rentable square feet as of the three and six-month periods ended June 30, 2014 and 17 Real Estate Ventures containing an aggregate of approximately 6.2 million net rentable square feet as of the three and six-month periods ended June 30, 2013. The following is a summary of results of operations of the Real Estate Ventures in which the Company had interests during these periods (in thousands):
 
Three-month periods ended June 30,
 
Six-month periods ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenue
$
35,074

 
$
36,927

 
$
69,459

 
$
77,816

Operating expenses
14,842

 
17,205

 
28,824

 
35,472

Interest expense, net
8,889

 
9,173

 
16,989

 
18,944

Depreciation and amortization
13,273

 
10,979

 
26,871

 
23,885

Net loss
(1,930
)
 
(430
)
 
(3,225
)
 
(485
)
Company’s share of income (loss) (Company’s basis)
(489
)
 
1,508

 
(247
)
 
3,043

Austin Venture - Four Points Centre
On April 3, 2014, the Company contributed two 3-story, Class A office buildings, containing an aggregate of approximately 192,396 net rentable square feet, known as Four Points Centre in Austin, Texas to the Austin Venture. See Note 3 for further information on the contribution.
Guarantees
As of June 30, 2014, the Company had provided guarantees on behalf of certain real estate ventures, consisting of (i) a $24.7 million payment guaranty on the construction loan for the project being undertaken by evo at Cira; (ii) a $3.2 million payment guarantee on the construction loan for the development project being undertaken by TB-BDN Plymouth Apartments; and (iii) a $0.5 million payment guarantee on a loan provided to PJP VII. In addition, during construction undertaken by Real Estate Ventures, the Company has provided and expects to continue to provide cost overrun and completion guarantees, with rights of contribution among partners in the real estate venture, as well as customary environmental indemnities and guarantees of customary exceptions to nonrecourse provisions in loan agreements. For additional information regarding these real estate ventures, see "Investments in Unconsolidated Ventures" in notes to the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013.


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5. DEFERRED COSTS
As of June 30, 2014 and December 31, 2013, the Company’s deferred costs were comprised of the following (in thousands):
 
June 30, 2014
 
Total Cost
 
Accumulated
Amortization
 
Deferred Costs,
net
Leasing Costs
$
161,800

 
$
(61,694
)
 
$
100,106

Financing Costs
40,315

 
(16,829
)
 
23,486

Total
$
202,115

 
$
(78,523
)
 
$
123,592