Edgar Filing: BRANDYWINE REALTY TRUST

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, 2015



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 175,196,703 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of October 23, 2015.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2015 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, 2015, owned a 99.1% interest in the Operating Partnership. The remaining 0.9% 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.

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.

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, 2015 and December 31, 2014	6

Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2015 and 2014	7

Consolidated Statements of Comprehensive Income for the three and nine-month periods ended September 30, 2015 and 2014	8

Consolidated Statements of Beneficiaries’ Equity for the nine-month periods ended September 30, 2015 and 2014	9

Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2015 and 2014	11

Brandywine Operating Partnership, L.P.

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

Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	13

Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2015 and 2014	14

Consolidated Statements of Comprehensive Income for the three and nine-month periods ended September 30, 2015 and 2014	15

Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2015 and 2014	16

Notes to Unaudited Consolidated Financial Statements	18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

Item 3. Quantitative and Qualitative Disclosures about Market Risk	64

Item 4. Controls and Procedures	66

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	67

Item 1A. Risk Factors	67

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 3. Defaults Upon Senior Securities	67

Item 4. Mine Safety Disclosures	67

Item 5. Other Information	68

Item 6. Exhibits	68

Signatures	69

Index to Exhibits	71

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

(in thousands, except share and per share information)



	September 30, 2015			December 31, 2014
	(unaudited)
ASSETS
Real estate investments:
Operating properties	$	4,629,223		$	4,603,692
Accumulated depreciation	(1,064,804		)	(1,067,829		)
Operating real estate investments, net	3,564,419			3,535,863
Construction-in-progress	242,246			201,360
Land inventory	135,917			90,603
Total real estate investments, net	3,942,582			3,827,826
Cash and cash equivalents	50,632			257,502
Accounts receivable, net	19,221			18,757
Accrued rent receivable, net	139,738			134,051
Assets held for sale, net	53,042			18,295
Investment in Real Estate Ventures, at equity	211,771			225,004
Deferred costs, net	124,472			125,224
Intangible assets, net	127,088			99,403
Mortgage note receivable	—			88,000
Other assets	73,075			65,111
Total assets	$	4,741,621		$	4,859,173
LIABILITIES AND BENEFICIARIES’ EQUITY
Mortgage notes payable	$	642,396		$	654,590
Unsecured term loans	200,000			200,000
Unsecured senior notes, net of discounts	1,597,541			1,596,718
Accounts payable and accrued expenses	115,636			96,046
Distributions payable	28,318			28,871
Deferred income, gains and rent	41,133			59,452
Acquired lease intangibles, net	28,541			26,010
Other liabilities	41,630			37,558
Liabilities related to assets held for sale	1,269			602
Total liabilities	2,696,464			2,699,847
Commitments and contingencies (Note 12)
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 2015 and 2014	40			40
Common Shares of Brandywine Realty Trust’s beneficial interest, $0.01 par value; shares authorized 400,000,000; 175,196,703 and 179,293,160 issued and outstanding in 2015 and 2014, respectively	1,752			1,793
Additional paid-in capital	3,258,075			3,314,693
Deferred compensation payable in common shares	11,918			6,219
Common shares in grantor trust, 745,686 in 2015 and 384,536 in 2014	(11,918		)	(6,219		)
Cumulative earnings	561,227			529,487
Accumulated other comprehensive loss	(8,490		)	(4,607		)
Cumulative distributions	(1,786,374		)	(1,700,579		)
Total Brandywine Realty Trust’s equity	2,026,230			2,140,827
Non-controlling interests	18,927			18,499
Total beneficiaries' equity	2,045,157			2,159,326
Total liabilities and beneficiaries' equity	$	4,741,621		$	4,859,173

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,
	2015			2014			2015			2014
Revenue:
Rents	$	124,263		$	120,288		$	363,800		$	363,581
Tenant reimbursements	21,553			20,095			64,006			64,057
Termination fees	1,097			1,418			2,561			6,970
Third party management fees, labor reimbursement and leasing	4,274			3,932			12,805			12,269
Other	1,398			825			5,467			2,295
Total revenue	152,585			146,558			448,639			449,172
Operating expenses:
Property operating expenses	43,894			42,675			133,175			132,612
Real estate taxes	13,119			12,869			37,632			39,167
Third party management expenses	1,605			1,687			4,858			5,133
Depreciation and amortization	58,314			52,616			160,355			157,773
General and administrative expenses	6,127			5,900			21,554			20,086
Total operating expenses	123,059			115,747			357,574			354,771
Operating income	29,526			30,811			91,065			94,401
Other income (expense):
Interest income	126			528			1,189			1,298
Tax credit transaction income	11,853			11,853			11,853			11,853
Interest expense	(27,900		)	(31,481		)	(83,971		)	(94,837		)
Interest expense — amortization of deferred financing costs	(1,010		)	(1,566		)	(3,377		)	(3,952		)
Interest expense — financing obligation	(296		)	(273		)	(906		)	(861		)
Recognized hedge activity	—			(828		)	—			(828		)
Equity in loss of Real Estate Ventures	(1,093		)	(486		)	(1,835		)	(733		)
Net gain on disposition of real estate	6,083			4,698			16,673			4,698
Net gain on sale of undepreciated real estate	3,019			—			3,019			1,184
Net gain from remeasurement of investment in real estate ventures	—			—			758			458
Loss on real estate venture transactions	—			—			—			(417		)
Loss on early extinguishment of debt	—			(2,606		)	—			(2,606		)
Provision for impairment on assets held for sale/sold	—			(1,765		)	(2,508		)	(1,765		)
Income from continuing operations	20,308			8,885			31,960			7,893
Discontinued operations:
Income from discontinued operations	—			—			—			18
Net gain (loss) on disposition of discontinued operations	—			(3		)	—			900
Total discontinued operations	—			(3		)	—			918
Net income	20,308			8,882			31,960			8,811
Net income from discontinued operations attributable to non-controlling interests	—			—			—			(10		)
Net income from continuing operations attributable to non-controlling interests	(161		)	(108		)	(221		)	(47		)
Net income attributable to non-controlling interests	(161		)	(108		)	(221		)	(57		)
Net income attributable to Brandywine Realty Trust	20,147			8,774			31,739			8,754
Distribution to preferred shareholders	(1,725		)	(1,725		)	(5,175		)	(5,175		)
Nonforfeitable dividends allocated to unvested restricted shareholders	(76		)	(82		)	(253		)	(268		)
Net income attributable to Common Shareholders of Brandywine Realty Trust	$	18,346		$	6,967		$	26,311		$	3,311
Basic income per Common Share:
Continuing operations	$	0.10		$	0.04		$	0.15		$	0.01
Discontinued operations	—			—			—			0.01
	$	0.10		$	0.04		$	0.15		$	0.02
Diluted income per Common Share:
Continuing operations	$	0.10		$	0.04		$	0.15		$	0.01
Discontinued operations	—			—			—			0.01
	$	0.10		$	0.04		$	0.15		$	0.02

Basic weighted average shares outstanding	178,188,037			171,606,722			179,198,714			161,866,955
Diluted weighted average shares outstanding	178,776,684			173,193,870			179,988,492			163,353,970
Net income attributable to Brandywine Realty Trust
Total continuing operations	$	20,147		$	8,777		$	31,739		$	7,846
Total discontinued operations	—			(3		)	—			908
Net income	$	20,147		$	8,774		$	31,739		$	8,754

Distributions declared per Common Share	$	0.15		$	0.15		$	0.45		$	0.45

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,
	2015			2014			2015			2014
Net income	$	20,308		$	8,882		$	31,960		$	8,811
Other comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments	(2,922		)	4,232			(4,091		)	967
Loss on settlement of interest rate swaps	—			(828		)	—			(828		)
Reclassification of realized losses on derivative financial instruments to operations, net (1)	58			76			174			196
Total other comprehensive gain (loss)	(2,864		)	3,480			(3,917		)	335
Comprehensive income	17,444			12,362			28,043			9,146
Comprehensive income attributable to non-controlling interest	(136		)	(141		)	(187		)	(55		)
Comprehensive income attributable to Brandywine Realty Trust	$	17,308		$	12,221		$	27,856		$	9,091

(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 period ended September 30, 2015

(unaudited, in thousands, except number of shares)



	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 Loss			Cumulative Distributions			Non-Controlling Interests			Total
BALANCE, December 31, 2014	4,000,000	$	40	179,293,160		384,536	$	1,793		$	3,314,693		$	6,219	$	(6,219	)	$	529,487	$	(4,607	)	$	(1,700,579	)	$	18,499		$	2,159,326
Net income																		31,739								221			31,960
Other comprehensive loss																				(3,883		)				(34		)	(3,917		)
Repurchase and retirement of Common Shares of Beneficial Interest				(4,701,302	)		(47		)	(60,770		)																	(60,817		)
Issuance of partnership interest in joint venture																										1,025			1,025
Bonus share issuance				8,447						125																			125
Equity issuance costs										(100		)																	(100		)
Share-based compensation activity				509,675		280,011	6			4,036								1											4,043
Share issuance from/to Deferred Compensation Plan				86,723		81,139				(2		)	5,699		(5,699		)												(2		)
Adjustment to non-controlling interest										93																(93		)	—
Preferred Share distributions																							(5,175		)				(5,175		)
Distributions declared ($0.45 per share)																							(80,620		)	(691		)	(81,311		)
BALANCE, September 30, 2015	4,000,000	$	40	175,196,703		745,686	$	1,752		$	3,258,075		$	11,918	$	(11,918	)	$	561,227	$	(8,490	)	$	(1,786,374	)	$	18,927		$	2,045,157

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

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENT OF BENEFICIARIES’ EQUITY

For the nine-month period ended September 30, 2014

(unaudited, in thousands, except number of shares)



	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 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																8,754								57			8,811
Other comprehensive loss																		337						(2		)	335
Issuance of Common Shares of Beneficial Interest				21,850,000		219		335,179																			335,398
Conversion of LP Units to Common Shares				41,734				655																(655		)	—
Equity issuance costs								(452		)																	(452		)
Share-based compensation activity				279,913		5		4,597								12											4,614
Share issuance from/to Deferred Compensation Plan				78,729	72,256			(90		)	812		(812		)												(90		)
Adjustment to non-controlling interest								(1,172		)														1,172			—
Preferred Share distributions																					(5,175		)				(5,175		)
Distributions declared ($0.45 per share)																					(74,198		)	(788		)	(74,986		)
BALANCE, September 30, 2014	4,000,000	$	40	178,982,369	384,536	$	1,790	$	3,310,313		$	6,219	$	(6,219	)	$	531,294	$	(2,658	)	$	(1,671,888	)	$	20,999		$	2,189,890

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,
	2015			2014
Cash flows from operating activities:
Net income	$	31,960		$	8,811
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	160,355			157,773
Amortization of deferred financing costs	3,377			3,952
Amortization of debt discount/(premium), net	(507		)	(455		)
Amortization of stock compensation costs	4,312			3,622
Shares used for employee taxes upon vesting of share awards	(2,056		)	(1,263		)
Recognized hedge activity	—			828
Straight-line rent income	(17,579		)	(11,416		)
Amortization of acquired above (below) market leases, net	(5,473		)	(5,206		)
Straight-line ground rent expense	66			66
Provision for doubtful accounts	1,276			1,687
Loss on real estate venture transactions	—			417
Net gain on sale of interests in real estate	(19,692		)	(5,882		)
Net gain from remeasurement of investment in a real estate venture	(758		)	(458		)
Loss on early extinguishment of debt	—			2,606
Provision for impairment on assets held for sale/sold	2,508			1,765
Tax credit transaction income	(11,853		)	(11,853		)
Real Estate Venture loss in excess of distributions	2,579			659
Deferred financing obligation	(906		)	(864		)
Changes in assets and liabilities:
Accounts receivable	(1,008		)	(4,586		)
Other assets	(9,511		)	(10,317		)
Accounts payable and accrued expenses	13,819			9,304
Deferred income, gains and rent	(3,491		)	(4,430		)
Other liabilities	(2,458		)	(1,760		)
Net cash provided by operating activities	144,960			133,000
Cash flows from investing activities:
Acquisition of properties	(141,303		)	(12,405		)
Acquisition of property - 1031 exchange funds applied	(62,812		)	—
Proceeds from the sale of properties	152,243			81,625
Sale of property - 1031 exchange funds held in escrow	62,800			—
Proceeds from repayment of mortgage notes receivable	88,000			5,125
Capital expenditures for tenant improvements	(56,095		)	(85,698		)
Capital expenditures for redevelopments	(38,925		)	(10,195		)
Capital expenditures for developments	(122,380		)	(48,057		)
Advances for purchase of tenant assets, net of repayments	290			(212		)
Investment in unconsolidated Real Estate Ventures	(62,868		)	(16,330		)
Deposits for real estate	(451		)	—
Escrowed cash	1,004			1,076
Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income	7,401			7,341
Leasing costs paid	(18,295		)	(17,018		)
Net cash used in investing activities	(191,391		)	(94,748		)
Cash flows from financing activities:
Repayments of mortgage notes payable	(10,598		)	(9,994		)
Repayments of unsecured term loans	—			(250,828		)
Proceeds from unsecured notes	—			496,459
Net proceeds from issuance of common shares	—			335,016
Repayments of unsecured notes	—			(120,361		)
Debt financing costs paid	(3,229		)	(3,630		)
Proceeds from the exercise of stock options	127			709
Partner contribution to consolidated real estate venture	1,025			—
Repurchase and retirement of common shares	(60,817		)	—
Distributions paid to shareholders	(86,255		)	(76,081		)



Distributions to noncontrolling interest	(692		)	(806		)
Net cash used in financing activities	(160,439		)	370,484
Decrease in cash and cash equivalents	(206,870		)	408,736
Cash and cash equivalents at beginning of period	257,502			263,207
Cash and cash equivalents at end of period	$	50,632		$	671,943

Supplemental disclosure:
Cash paid for interest, net of capitalized interest during the nine months ended September 30, 2015 and 2014 of $8,764 and $4,466, respectively	$	80,720		$	92,196
Supplemental disclosure of non-cash activity:
Change in investments in joint venture related to non-cash disposition of property	—			(5,897		)
Change in real estate investments related to non-cash property acquisition	(67,261		)	—
Change in investments in joint venture related to non-cash acquisition of property	67,261			—
Change in receivable from settlement of acquisitions	—			619
Change in other liabilities from contingent consideration related to a business combination	1,585			—
Change in operating real estate from contingent consideration related to a business combination	(1,585		)	—
Change in other liabilities from a deferred payment related to an asset acquisition	2,000			—
Change in operating real estate from a deferred payment related to an asset acquisition	(2,000		)	—
Change in capital expenditures financed through accounts payable at period end	(2,472		)	4,415
Change in capital expenditures financed through retention payable at period end	6,873			3,479
Change in unfunded tenant allowance	—			(327		)

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

BRANDYWINE OPERATING PARTNERSHIP, L.P.

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit and per unit information)



	September 30, 2015			December 31, 2014
	(unaudited)
ASSETS
Real estate investments:
Operating properties	$	4,629,223		$	4,603,692
Accumulated depreciation	(1,064,804		)	(1,067,829		)
Operating real estate investments, net	3,564,419			3,535,863
Construction-in-progress	242,246			201,360
Land inventory	135,917			90,603
Total real estate investments, net	3,942,582			3,827,826
Cash and cash equivalents	50,632			257,502
Accounts receivable, net	19,221			18,757
Accrued rent receivable, net	139,738			134,051
Assets held for sale, net	53,042			18,295
Investment in Real Estate Ventures, at equity	211,771			225,004
Deferred costs, net	124,472			125,224
Intangible assets, net	127,088			99,403
Mortgage note receivable	—			88,000
Other assets	73,075			65,111
Total assets	$	4,741,621		$	4,859,173
LIABILITIES AND PARTNERS' EQUITY
Mortgage notes payable	$	642,396		$	654,590
Unsecured term loans	200,000			200,000
Unsecured senior notes, net of discounts	1,597,541			1,596,718
Accounts payable and accrued expenses	115,636			96,046
Distributions payable	28,318			28,871
Deferred income, gains and rent	41,133			59,452
Acquired lease intangibles, net	28,541			26,010
Other liabilities	41,630			37,558
Liabilities related to assets held for sale	1,269			602
Total liabilities	2,696,464			2,699,847
Commitments and contingencies (Note 12)
Redeemable limited partnership units at redemption value; 1,535,102 issued and outstanding in 2015 and 2014	22,247			24,571
Brandywine Operating Partnership, L.P.’s equity:
6.90% Series E-Linked Preferred Mirror Units; issued and outstanding- 4,000,000 in 2015 and 2014	96,850			96,850
General Partnership Capital, 175,196,703 and 179,293,160 units issued and outstanding in 2015 and 2014, respectively	1,932,953			2,041,902
Accumulated other comprehensive loss	(8,924		)	(5,007		)
Total Brandywine Operating Partnership, L.P.’s equity	2,020,879			2,133,745
Non-controlling interest - consolidated real estate ventures	2,031			1,010
Total partners’ equity	2,022,910			2,134,755

Total liabilities and partners’ equity	$	4,741,621		$	4,859,173

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,
	2015			2014			2015			2014
Revenue:
Rents	$	124,263		$	120,288		$	363,800		$	363,581
Tenant reimbursements	21,553			20,095			64,006			64,057
Termination fees	1,097			1,418			2,561			6,970
Third party management fees, labor reimbursement and leasing	4,274			3,932			12,805			12,269
Other	1,398			825			5,467			2,295
Total revenue	152,585			146,558			448,639			449,172
Operating expenses:
Property operating expenses	43,894			42,675			133,175			132,612
Real estate taxes	13,119			12,869			37,632			39,167
Third party management expenses	1,605			1,687			4,858			5,133
Depreciation and amortization	58,314			52,616			160,355			157,773
General & administrative expenses	6,127			5,900			21,554			20,086
Total operating expenses	123,059			115,747			357,574			354,771
Operating income	29,526			30,811			91,065			94,401
Other income (expense):
Interest income	126			528			1,189			1,298
Tax credit transaction income	11,853			11,853			11,853			11,853
Interest expense	(27,900		)	(31,481		)	(83,971		)	(94,837		)
Interest expense — amortization of deferred financing costs	(1,010		)	(1,566		)	(3,377		)	(3,952		)
Interest expense — financing obligation	(296		)	(273		)	(906		)	(861		)
Recognized hedge activity	—			(828		)	—			(828		)
Equity in loss of Real Estate Ventures	(1,093		)	(486		)	(1,835		)	(733		)
Net gain on disposition of real estate	6,083			4,698			16,673			4,698
Net gain on sale of undepreciated real estate	3,019			—			3,019			1,184
Net gain from remeasurement of investment in real estate ventures	—			—			758			458
Loss on real estate venture transactions	—			—			—			(417		)
Loss on early extinguishment of debt	—			(2,606		)	—			(2,606		)
Provision for impairment on assets held for sale/sold	—			(1,765		)	(2,508		)	(1,765		)
Income from continuing operations	20,308			8,885			31,960			7,893
Discontinued operations:
Income from discontinued operations	—			—			—			18
Net gain (loss) on disposition of discontinued operations	—			(3		)	—			900
Total discontinued operations	—			(3		)	—			918
Net income	20,308			8,882			31,960			8,811
Net (income) loss attributable to non-controlling interests	(1		)	(24		)	4			(12		)
Net income attributable to Brandywine Operating Partnership	20,307			8,858			31,964			8,799
Distribution to preferred unitholders	(1,725		)	(1,725		)	(5,175		)	(5,175		)
Amount allocated to unvested restricted unitholders	(76		)	(82		)	(253		)	(268		)
Net income attributable to Common Partnership Unitholders of Brandywine Operating Partnership, L.P.	$	18,506		$	7,051		$	26,536		$	3,356
Basic income (loss) per Common Partnership Unit:
Continuing operations	$	0.10		$	0.04		$	0.15		$	0.01
Discontinued operations	—			—			—			0.01
	$	0.10		$	0.04		$	0.15		$	0.02
Diluted income per Common Partnership Unit:
Continuing operations	$	0.10		$	0.04		$	0.15		$	0.01
Discontinued operations	—			—			—			0.01
	$	0.10		$	0.04		$	0.15		$	0.02
Basic weighted average common partnership units outstanding	179,723,139			173,341,782			180,733,816			163,620,963
Diluted weighted average common partnership units outstanding	180,311,786			174,928,930			181,523,594			165,107,978
Net income (loss) attributable to Brandywine Operating Partnership, L.P.
Total continuing operations	$	20,307		$	8,861		$	31,964		$	7,881
Total discontinued operations	—			(3		)	—			918
Net income	$	20,307		$	8,858		$	31,964		$	8,799

Distributions declared per Common Partnership Unit	0.15			0.15			0.45			0.45

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,
	2015			2014			2015			2014
Net income	$	20,308		$	8,882		$	31,960		$	8,811
Other comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments	(2,922		)	4,232			(4,091		)	967
Loss on settlement of interest rate swaps	—			(828		)	—			(828		)
Reclassification of realized losses on derivative financial instruments to operations, net (1)	58			76			174			196
Total other comprehensive income (loss)	(2,864		)	3,480			(3,917		)	335
Comprehensive income attributable to Brandywine Operating Partnership, L.P.	$	17,444		$	12,362		$	28,043		$	9,146

(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,
	2015			2014
Cash flows from operating activities:
Net income	$	31,960		$	8,811
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	160,355			157,773
Amortization of deferred financing costs	3,377			3,952
Amortization of debt discount/(premium), net	(507		)	(455		)
Amortization of stock compensation costs	4,312			3,622
Shares used for employee taxes upon vesting of share awards	(2,056		)	(1,263		)
Recognized hedge activity	—			828
Straight-line rent income	(17,579		)	(11,416		)
Amortization of acquired above (below) market leases, net	(5,473		)	(5,206		)
Straight-line ground rent expense	66			66
Provision for doubtful accounts	1,276			1,687
Loss on real estate venture transactions	—			417
Net gain on sale of interests in real estate	(19,692		)	(5,882		)
Net gain on remeasurement of investment in a real estate venture	(758		)	(458		)
Tax credit transaction income	(11,853		)	(11,853		)
Loss on early extinguishment of debt	—			2,606
Provision for impairment on assets held for sale	2,508			1,765
Real Estate Venture loss in excess of distributions	2,579			659
Deferred financing obligation	(906		)	(864		)
Changes in assets and liabilities:
Accounts receivable	(1,008		)	(4,586		)
Other assets	(9,511		)	(10,317		)
Accounts payable and accrued expenses	13,819			9,304
Deferred income, gains and rent	(3,491		)	(4,430		)
Other liabilities	(2,458		)	(1,760		)
Net cash provided by operating activities	144,960			133,000
Cash flows from investing activities:
Acquisition of properties	(141,303		)	(12,405		)
Acquisition of property - 1031 exchange funds applied	(62,812		)	—
Proceeds from the sale of properties	152,243			81,625
Sale of property - 1031 exchange funds held in escrow	62,800			—
Proceeds from repayment of mortgage notes receivable	88,000			5,125
Capital expenditures for tenant improvements	(56,095		)	(85,698		)
Capital expenditures for redevelopments	(38,925		)	(10,195		)
Capital expenditures for developments	(122,380		)	(48,057		)
Advances for purchase of tenant assets, net of repayments	290			(212		)
Investment in unconsolidated Real Estate Ventures	(62,868		)	(16,330		)
Deposits for real estate	(451		)	—
Escrowed cash	1,004			1,076
Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income	7,401			7,341
Leasing costs paid	(18,295		)	(17,018		)
Net cash used in investing activities	(191,391		)	(94,748		)
Cash flows from financing activities:
Repayments of mortgage notes payable	(10,598		)	(9,994		)
Repayments of unsecured term loans	—			(250,828		)
Proceeds from unsecured notes	—			496,459
Net proceeds from issuance of common units	—			335,016
Repayments of unsecured notes	—			(120,361		)
Debt financing costs paid	(3,229		)	(3,630		)
Proceeds from the exercise of stock options	127			709
Partner contribution to consolidated real estate venture	1,025			—
Repurchase and retirement of common partnership units	(60,817		)	—



Distributions paid to preferred and common partnership unitholders	(86,947		)	(76,887		)
Net cash used in financing activities	(160,439		)	370,484
Decrease in cash and cash equivalents	(206,870		)	408,736
Cash and cash equivalents at beginning of period	257,502			263,207
Cash and cash equivalents at end of period	$	50,632		$	671,943

Supplemental disclosure:
Cash paid for interest, net of capitalized interest during the nine months ended September 30, 2015 and 2014 of $8,764 and $4,466, respectively	$	80,720		$	92,196
Supplemental disclosure of non-cash activity:
Change in investments in joint venture related non-cash disposition of property	—			(5,897		)
Change in real estate investments related to non-cash property acquisition	(67,261		)	—
Change in investments in joint venture related to non-cash acquisition of property	67,261			—
Change in receivable from settlement of acquisitions	—			619
Change in other liabilities from contingent consideration related to a business combination	1,585			—
Change in operating real estate from contingent consideration related to a business combination	(1,585		)	—
Change in other liabilities from a deferred payment related to an asset acquisition	2,000			—
Change in operating real estate from a deferred payment related to an asset acquisition	(2,000		)	—
Change in capital expenditures financed through accounts payable at period end	(2,472		)	4,415
Change in capital expenditures financed through retention payable at period end	6,873			3,479
Change in unfunded tenant allowance	—			(327		)

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

BRANDYWINE REALTY TRUST AND BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

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 September 30, 2015, owned a 99.1% 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 September 30, 2015, the Company owned 192 properties, consisting of 155 office properties, 20 industrial facilities, four mixed-use properties, one retail property (180 core properties), six properties classified as held for sale, four development properties, one redevelopment property and one re-entitlement property (collectively, the “Properties”) containing an aggregate of approximately 24.8 million net rentable square feet. In addition, as of September 30, 2015, the Company owned economic interests in 17 unconsolidated real estate ventures that own properties containing an aggregate of approximately 4.0 million net rentable square feet, 4.4 acres of undeveloped parcels of land and 22.5 acres of land under development (collectively, the “Real Estate Ventures”). As of September 30, 2015, the Company also owned 413 acres of undeveloped land, and held options to purchase approximately 63 additional acres of undeveloped land. As of September 30, 2015, the total potential development that these land parcels could support, under current zoning, entitlements or combination thereof, amounted to an estimated 7.8 million square feet of development, inclusive of the options to purchase approximately 63 additional acres of undeveloped land. 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 September 30, 2015, the management company subsidiaries were managing properties containing an aggregate of approximately 30.9 million net rentable square feet, of which approximately 24.7 million net rentable square feet related to Properties owned by the Company and approximately 6.2 million net rentable square feet related to properties owned by third parties and the Real Estate Ventures.

Unless otherwise indicated, all references in this Form 10-Q to square feet represent net rentable area.

2. BASIS OF PRESENTATION

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 September 30, 2015, the results of its operations for the three and nine-month periods ended September 30, 2015 and 2014 and its cash flows for the nine-month periods ended September 30, 2015 and 2014 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 2014 Annual Report on Form 10-K filed with the SEC on February 19, 2015.

The Company's Annual Report on Form 10-K for the year ended December 31, 2014 contains a discussion of our significant accounting policies under Note 2, "Summary of Significant Accounting Policies". There have been no significant changes in our significant accounting policies since December 31, 2014. Management discusses our significant accounting policies and management’s judgments and estimates with the Company's Audit Committee.

Recent Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board ("FASB") issued guidance pertaining to entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the measurement period have an adjustment to provisional amounts recognized. The

guidance requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Any adjustments should be calculated as if the accounting had been completed at the acquisition date. The guidance is effective for public companies for fiscal years beginning after December 15, 2016, with early adoption permitted. Application of the guidance is prospective. The Company has not determined when it will adopt this guidance, nor what impact the adoption may have on its consolidated financial statements.

On July 9, 2015, the FASB elected to defer the effective date of the revenue recognition standard issued in May 2014 by one year. Reporting entities may choose to adopt the standard as of the original effective date or for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Calendar year-end public entities are therefore required to apply the new revenue guidance beginning in their 2018 interim and annual financial statements. The Company has not yet determined the impact, if any, that the adoption of this guidance will have on its consolidated financial statements. See Note 2, "Summary of Significant Accounting Policies," included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for the Company's initial disclosure of this standard.

In April 2015, the FASB issued guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this update. Debt issuance costs related to revolving lines of credit are not within the scope of this new guidance. Additionally, in August 2015 the FASB issued guidance expanding the April 2015 update. It states that, given the absence of authoritative guidance within the update, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset for revolving lines of credit and subsequently amortizing the deferred debt issuance costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the line of credit. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted for financial statements that have not been previously issued. Full retrospective application is required. Early adoption is permitted. The adoption of this guidance will not have a material impact on its consolidated financial position or results of operations as the update relates only to changes in financial statement presentation.

In February 2015, the FASB issued guidance modifying the analysis a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The guidance does not change the general order in which the consolidation models are applied. A reporting entity that holds an economic interest in, or is otherwise involved with, another legal entity must first determine if the variable interest entity model applies, and if so, whether it holds a controlling financial interest under that model. If the entity being evaluated for consolidation is not a variable interest entity, then the voting interest model should be applied to determine whether the entity should be consolidated by the reporting entity. Key changes to the guidance include, but are not limited to: (i.) limiting the extent to which related party interests are included to determine the decision maker’s effective financial interest in the entity, (ii.) requiring that the limited partners in the limited partnership (or the members of a limited liability company that is similar to a limited partnership) have either substantive kick-out rights or substantive participating rights over the general partner to demonstrate that the limited partnership is a voting interest entity, (iii.) changing the evaluation of whether the equity holders at risk lack decision making rights when decision making is outsourced and (iv.) changing how the economics test is performed. The guidance does not amend the existing disclosure requirements for variable interest entities or voting interest model entities. The guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity may elect to either apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or apply the amendments retrospectively. The Company has not yet determined the impact, if any, that the adoption of this guidance will have on its consolidated financial statements.

3. REAL ESTATE INVESTMENTS

As of September 30, 2015 and December 31, 2014, the gross carrying value of the Company’s Properties was as follows (in thousands):



	September 30, 2015		December 31, 2014
Land	$	658,280	$	669,635
Building and improvements	3,438,563		3,409,303
Tenant improvements	532,380		524,754
	4,629,223		4,603,692