BRANDYWINE REALTY TRUST
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the fiscal year ended
December 31, 2009
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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)
DELAWARE (Brandywine Operating Partnership L.P.) |
23-2413352
23-2862640 |
|
|
(State or other jurisdiction of
Incorporation or organization) |
(I.R.S. Employer 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
Securities registered pursuant to Section 12(b) of the Act:
| Name of each exchange | ||
| Title of each class | on which registered | |
|
Common Shares of Beneficial Interest,
par value $0.01 per share (Brandywine Realty Trust) |
New York Stock Exchange | |
|
7.50% Series C Cumulative Redeemable Preferred
Shares of Beneficial Interest par value $0.01 per share (Brandywine Realty Trust) |
New York Stock Exchange | |
|
7.375% Series D Cumulative Redeemable Preferred
Shares of Beneficial Interest par value $0.01 per share (Brandywine Realty Trust) |
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
Units of General Partnership Interest (Brandywine Operating Partnership, L.P.)
Units of General Partnership Interest (Brandywine Operating Partnership, L.P.)
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
|
Brandywine Realty Trust
|
Yes þ No o | |
|
Brandywine Operating Partnership, L.P.
|
Yes o No þ |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
|
Brandywine Realty Trust
|
Yes o No þ | |
|
Brandywine Operating Partnership, L.P.
|
Yes o No þ |
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 o No o | |
|
Brandywine Operating Partnership, L.P.
|
Yes o No o |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
þ
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
(Check one):
Brandywine Realty Trust:
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
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
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 |
The aggregate market value of the Common Shares of Beneficial Interest held by non-affiliates of
Brandywine Realty Trust as of the last day of the registrant’s most recently completed second
fiscal quarter was $924.5 million. The aggregate market value has been computed by reference to the closing price
of the Common Shares of Beneficial Interest on the New York Stock Exchange on such date. An
aggregate of 128,647,297 Common Shares of Beneficial Interest were
outstanding as of February 23, 2010.
As of June 30, 2009, the aggregate market value of the 1,896,552 common units of limited
partnership (“Units”) held by non-affiliates of Brandywine Operating Partnership, L.P. was $14.1
million based upon the last reported sale price of $7.45 per share on the New York Stock Exchange
on June 30, 2009 of the Common Shares of Beneficial Interest of Brandywine Realty Trust, the sole
general partner of Brandywine Operating Partnership, L.P. (For this computation, the Registrant
has excluded the market value of all Units beneficially owned by Brandywine Realty Trust.)
Documents Incorporated By Reference
Portions of the proxy statement for the 2010 Annual Meeting of Shareholders of Brandywine Realty
Trust are incorporated by reference into Part III of this Form 10-K.
The exhibit index as required by Item 601(a) of Regulation S-K is included in Item 15 of Part IV of this report.
TABLE OF CONTENTS
FORM 10-K
|
|
Page | |||||||
|
|
||||||||
| 5 | ||||||||
|
|
||||||||
| 13 | ||||||||
|
|
||||||||
| 24 | ||||||||
|
|
||||||||
| 24 | ||||||||
|
|
||||||||
| 34 | ||||||||
|
|
||||||||
| 34 | ||||||||
|
|
||||||||
|
|
||||||||
| 35 | ||||||||
|
|
||||||||
| 39 | ||||||||
|
|
||||||||
| 41 | ||||||||
|
|
||||||||
| 67 | ||||||||
|
|
||||||||
| 67 | ||||||||
|
|
||||||||
| 67 | ||||||||
|
|
||||||||
| 67 | ||||||||
|
|
||||||||
| 68 | ||||||||
|
|
||||||||
|
|
||||||||
| 68 | ||||||||
|
|
||||||||
| 68 | ||||||||
|
|
||||||||
| 68 | ||||||||
|
|
||||||||
| 68 | ||||||||
|
|
||||||||
| 68 | ||||||||
|
|
||||||||
|
|
||||||||
| 68 | ||||||||
|
|
||||||||
| 74 | ||||||||
|
|
||||||||
| Exhibit 3.1.26 | ||||||||
| Exhibit 10.41 | ||||||||
| Exhibit 12.1 | ||||||||
| Exhibit 12.2 | ||||||||
| Exhibit 21 | ||||||||
| Exhibit 23.1 | ||||||||
| Exhibit 23.2 | ||||||||
| Exhibit 23.3 | ||||||||
| Exhibit 31.1 | ||||||||
| Exhibit 31.2 | ||||||||
| Exhibit 31.3 | ||||||||
| Exhibit 31.4 | ||||||||
| Exhibit 32.1 | ||||||||
| Exhibit 32.2 | ||||||||
| Exhibit 32.3 | ||||||||
| Exhibit 32.4 | ||||||||
| Exhibit 99.1 | ||||||||
-2-
Table of Contents
Filing Format
This combined Form 10-K is being filed separately by Brandywine Realty Trust and Brandywine
Operating Partnership, L.P.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking
statements. This Annual Report on Form 10-K and other materials filed by us with the SEC (as well
as information included in oral or other written statements made by us) contain statements that are
forward-looking, including statements relating to business and real estate development activities,
acquisitions, dispositions, future capital expenditures, financing sources, governmental regulation
(including environmental regulation) and competition. We intend such forward-looking statements to
be covered by the safe-harbor provisions of the 1995 Act. The words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are
intended to identify forward-looking statements. Although we believe that the expectations
reflected in such forward-looking statements are based on reasonable assumptions, we can give no
assurance that our expectations will be achieved. As forward-looking statements, these statements
involve important risks, uncertainties and other factors that could cause actual results to differ
materially from the expected results and, accordingly, such results may differ from those expressed
in any forward-looking statements made by us or on our behalf. Factors that could cause actual
results to differ materially from our expectations include, but are not limited to:
| • | the continuing impact of the recent credit crisis and global economic slowdown, which is having and may continue to have negative effect on the following, among other things: |
| • | the fundamentals of our business, including overall market occupancy, demand for office space and rental rates; | ||
| • | the financial condition of our tenants, many of which are financial, legal and other professional firms, our lenders, counterparties to our derivative financial instruments and institutions that hold our cash balances and short-term investments, which may expose us to increased risks of default by these parties; | ||
| • | availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue acquisition and development opportunities and refinance existing debt; and | ||
| • | a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis. |
| • | changes in local real estate conditions (including changes in rental rates and the number of properties that compete with our properties); | ||
| • | changes in the economic conditions affecting industries in which our principal tenants compete; | ||
| • | the unavailability of equity and debt financing, particularly in light of the current economic environment; | ||
| • | our failure to lease unoccupied space in accordance with our projections; | ||
| • | our failure to re-lease occupied space upon expiration of leases; | ||
| • | tenant defaults and the bankruptcy of major tenants; | ||
| • | changes in prevailing interest rates; | ||
| • | risks associated with interest rate hedging contracts and the effectiveness of such arrangements; | ||
| • | failure of acquisitions to perform as expected; |
-3-
Table of Contents
| • | unanticipated costs associated with the acquisition, integration and operation of, our acquisitions; | ||
| • | unanticipated costs to complete, lease-up and operate our developments and redevelopments; | ||
| • | impairment charges; | ||
| • | increased costs for, or lack of availability of, adequate insurance, including for terrorist acts; | ||
| • | risks associated with actual or threatened terrorist attacks; | ||
| • | demand for tenant services beyond those traditionally provided by landlords; | ||
| • | potential liability under environmental or other laws; | ||
| • | failure or bankruptcy of real estate venture partners; | ||
| • | inability of real estate venture partners to fund venture obligations; | ||
| • | failure of dispositions to close in a timely manner; | ||
| • | failure of buyers of properties from us to comply with terms of their financing or other agreements with us; | ||
| • | earthquakes and other natural disasters; | ||
| • | risks associated with the unforeseen impact of climate change including existing and pending laws and regulations governing climate changes to our business operations and tenants; | ||
| • | risks associated with federal, state and local tax audits; | ||
| • | complex regulations relating to our status as a REIT and the adverse consequences of our failure to qualify as a REIT; and | ||
| • | the impact of newly adopted accounting principles on our accounting policies and on period-to-period comparisons of financial results. |
Given these uncertainties, and the other risks identified in the “Risk Factors” section and
elsewhere in this Annual Report on Form 10-K, we caution readers not to place undue reliance on
forward-looking statements. We assume no obligation to update or supplement forward-looking
statements that become untrue because of subsequent events.
-4-
Table of Contents
Introduction
The terms “we,” “us,” “our” or the “Company” refer to Brandywine Realty Trust, a Maryland real
estate investment trust, individually or together with its consolidated subsidiaries, including
Brandywine Operating Partnership, L.P. (the “Operating Partnership”), a Delaware limited
partnership.
We are a self-administered and self-managed real estate investment trust, or REIT, that provides
leasing, property management, development, redevelopment, acquisition and other tenant-related
services for a portfolio of office, mixed-use and industrial properties. As of December 31, 2009,
we owned 212 office properties, 22 industrial facilities and three mixed-use properties
(collectively, the “Properties”) containing an aggregate of approximately 23.3 million net rentable
square feet. We also have two properties under development and three properties under
redevelopment containing an aggregate of 1.9 million net rentable square feet. As of December 31,
2009, we consolidated three office properties owned by real estate ventures containing 0.4 million
net rentable square feet. Therefore, as of December 31, 2009 we own and consolidated 245
properties with an aggregate of 25.6 million net rentable square feet. As of December 31, 2009, we
owned economic interests in 11 unconsolidated real estate ventures that contain approximately 4.2
million net rentable square feet (collectively, the “Real Estate Ventures”). In addition, as of
December 31, 2009, we owned approximately 479 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 and Central New Jersey, Richmond, Virginia, Wilmington,
Delaware, Austin, Texas and Oakland, Carlsbad and Rancho Bernardo, California. In addition to
managing properties that we own and consolidated, as of December 31, 2009, we were managing
approximately 8.9 million square feet of office and industrial properties for third parties and
Real Estate Ventures. Unless otherwise indicated, all references to square feet represent net
rentable area.
Organization
Brandywine Realty Trust was organized and commenced its operations in 1986 as a Maryland REIT.
Brandywine Realty Trust owns its assets and conducts its operations through the Operating
Partnership and subsidiaries of the Operating Partnership. Brandywine Realty Trust controls the
Operating Partnership as its sole general partner and as of December 31, 2009 owned a 97.9%
interest in the Operating Partnership. The holders of the remaining interests in the Operating
Partnership, consisting of Class A units of limited partnership interest, have the right to require
redemption of their units at any time. At our option, we may satisfy the redemption either for an
amount, per unit, of cash equal to the then market price of one Brandywine common share (based on
the prior ten-day trading average) or for one Brandywine common share. Our structure as an
“UPREIT” is designed, in part, to permit persons contributing properties to us to defer some or all
of the tax liability they might otherwise incur in a sale of properties.
Our executive offices are located at 555 East Lancaster Avenue, Suite 100, Radnor, Pennsylvania
19087 and our telephone number is (610) 325-5600. We have offices in Philadelphia, Pennsylvania;
Falls Church, Virginia; Mount Laurel, New Jersey; Richmond, Virginia; Austin, Texas; Oakland,
California; and Carlsbad, California. We have an internet website at www.brandywinerealty.com. We
are not incorporating by reference into this Annual Report on Form 10-K any material from our
website. The reference to our website is an inactive textual reference to the uniform resource
locator (URL) and is for your reference only.
-5-
Table of Contents
2009 Transactions
Real Estate Acquisitions/Dispositions
| – | On October 13, 2009, we sold a condominium unit consisting of 40,508 square feet and an undivided interest in an office building in Lawrenceville, New Jersey, for a sales price of $7.9 million. | ||
| – | On October 1, 2009, we sold two office properties, totaling 473,658 net rentable square feet in Trenton, New Jersey for a stated sales price of $85.0 million. We provided to the buyer a $22.5 million seven-year, approximately 6.00% cash pay/7.64% accrual second mortgage loan. | ||
| – | On April 29, 2009, we sold 7735 Old Georgetown Road, a 122,543 net rentable square feet office property located in Bethesda, Maryland, for a sales price of $26.5 million. | ||
| – | On March 16, 2009, we sold 305 Harper Drive, a 14,980 net rentable square feet office property located in Moorestown, New Jersey, for a sales price of $1.1 million. | ||
| – | On February 4, 2009, we sold two office properties, totaling 66,664 net rentable square feet in Exton, Pennsylvania, for an aggregate sales price of $9.0 million. |
Developments and Redevelopments
In 2009, we placed in service four office properties that we developed or redeveloped and that
contain an aggregate of 0.4 million net rentable square feet. We place a property in service at
the earlier of (i) the date the property reaches 95% occupancy and (ii) one year from the project
completion date. At December 31, 2009, we had five properties under development or redevelopment
that contain an aggregate of 1.9 million net rentable square feet at an estimated total development
and redevelopment cost (including estimated tenant improvements) of $396.0 million. We expect to
place these projects in service at dates between the first quarter of 2010 and the second quarter
of 2011.
Current Economic Climate
Deteriorating economic conditions have resulted in a reduction of the availability of financing and
higher borrowing costs. These factors, coupled with a slowing economy, have reduced the volume of
real estate transactions and created credit stresses on most businesses. We believe that vacancy
rates may increase through 2010 and possibly beyond as the current economic climate negatively
impacts tenants in our Properties.
We expect that the impact of the current state of the economy, including rising unemployment and
the unprecedented volatility and illiquidity in the financial and credit markets, will continue to
have a dampening effect on the fundamentals of our business, including increases in past due
accounts, tenant defaults, lower occupancy and reduced effective rents. These conditions would
negatively affect our future net income and cash flows and could have a material adverse effect on
our financial condition. We believe that the quality of our assets and our strong balance sheet
will enable us to raise secured and unsecured debt capital from banks, pension funds and life
insurance companies, although these sources are lending fewer dollars, under stricter terms and at
higher interest rates, and there can be no assurance that we will be able to borrow funds on terms
that are economically attractive or at all.
Unsecured Debt Activity
During the year ended December 31, 2009, we repurchased $444.7 million of our unsecured Notes in a
series of transactions which are summarized in the table below:
| Repurchase | Deferred Financing | |||||||||||||||
| Notes | Amount | Principal | Gain | Amortization | ||||||||||||
|
2009 4.500% Notes
|
$ | 92,736 | $ | 94,130 | $ | 1,377 | $ | 88 | ||||||||
|
2010 5.625% Notes
|
71,414 | 76,999 | 5,565 | 215 | ||||||||||||
|
2012 5.750% Notes
|
109,104 | 112,175 | 2,610 | 361 | ||||||||||||
|
2014 5.400% Notes
|
6,329 | 7,319 | 961 | 28 | ||||||||||||
|
3.875% Notes
|
136,880 | 154,070 | 12,664 | 1,289 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 416,463 | $ | 444,693 | $ | 23,177 | $ | 1,981 | ||||||||
|
|
||||||||||||||||
-6-
Table of Contents
We funded these repurchases from a combination of proceeds from asset sales, cash flow from
operations and borrowings under our unsecured revolving credit facility.
On September 25, 2009, we consummated a registered public offering of $250.0 million in aggregate
principal amount of our 7.50% senior unsecured notes due 2015. The notes were priced at 99.412% of
their face amount with a yield to maturity of 7.625%, representing a spread at the time of pricing
of 5.162% to the yield on the August 2014 Treasury note. The notes have been reflected net of
discount of $1.4 million in the consolidated balance sheet as of December 31, 2009. The net
proceeds which amounted to $247.0 million after deducting underwriting discounts and offering
expenses were used to repay our indebtedness under our $600.0 million unsecured revolving credit
facility (the “Credit Facility”) and for general corporate purposes.
We also continue to utilize our Credit Facility for general corporate purposes, including the
acquisitions, developments and redevelopments of properties and repayment of other debt, including
the Notes shown in the table above. The Credit Facility matures on June 29, 2011 (subject to a one
year extension right, at our option, upon our payment of an extension fee equal to 15 basis points
of the committed amount under the Credit Facility). The per annum variable interest rate on
outstanding balances is LIBOR plus 0.725% and the quarterly facility fee is set at 17.5 basis
points per annum. The interest rate and facility fee are subject to adjustment upon a change in
our unsecured debt ratings. In addition, the capitalization rate used in the calculation of several
of the financial covenants in the Credit Facility is 7.50% and our swing loan availability under
the Credit Facility is at $60 million. We are allowed four competitive bid loan requests in any 30
day period. Borrowings are available to the extent of borrowing capacity at the stated rates;
however, the competitive bid feature allows banks that are part of the lender consortium under the
Credit Facility to bid to make loans to us at a reduced LIBOR rate. We have the option to increase
the Credit Facility to $800.0 million subject to the absence of any defaults and our ability to
acquire additional commitments from our existing lenders and new lenders.
The Credit Facility contains financial and non-financial covenants, including covenants that relate
to our incurrence of additional debt; the granting of liens; consummation of mergers and
consolidations; the disposition of assets and interests in subsidiaries; the making of loans and
investments; and the payment of dividends. The restriction on dividends permits us to pay
dividends to the greater of (i) an amount required for us to retain our qualification as a REIT and
(ii) 95% of our funds from operations. The Credit Facility includes financial covenants that
require us to maintain an interest coverage ratio, a fixed charge coverage ratio, an unsecured debt
ratio and an unencumbered cash flow ratio above specified levels; to maintain net worth above an
amount determined on a specified formula; and to maintain a leverage ratio and a secured debt ratio
below certain maximum levels. Another financial covenant limits the ratio of unsecured debt to
unencumbered properties. We were in compliance with all financial and non-financial covenants as
of December 31, 2009. We continuously monitor our compliance with all covenants. Certain
covenants restrict our ability to obtain alternative sources of capital. While we believe that we will
remain in compliance with our covenants, a continued slow-down in the economy and continued
decrease in availability of debt financing could result in non-compliance with covenants and an
event of default under the loan.
On April 18, 2008, we exercised the accordion feature on our $150.0 million unsecured term loan
that we entered into on October 15, 2007 and funded an additional $33.0 million, bringing our total
outstanding balance to $183.0 million. All outstanding borrowings under the term loan bear
interest at a periodic rate of LIBOR plus 80 basis points. We used the net proceeds of the term
loan increase to reduce indebtedness under our unsecured revolving Credit Facility.
In April 2007, we entered into a $20.0 million Sweep Agreement (the “Sweep Agreement”) to be used
for cash management purposes. Borrowings under the Sweep Agreement bear interest at one-month LIBOR
plus 0.75%. The Sweep Agreement terminated in April 2009.
Secured Debt Activity
On April 1, 2009, we closed on an $89.8 million first mortgage financing on our Two Logan Square
property located in Philadelphia, PA. This loan bears interest at 7.57% per annum and has a
seven-year term with three years of interest only payments with principal payments based on a
thirty-year amortization schedule. We used $68.5 million in net proceeds to repay without penalty
the balance of the former Two Logan Square first mortgage loan and
$21.3 million for general
corporate purposes including the repayment of existing indebtedness.
-7-
Table of Contents
On June 29, 2009, we entered into a forward financing commitment to borrow up to $256.5 million
under two separate loans at a per annum interest rate of 5.93%. The loans, when funded, will be
secured by mortgages on the 30th Street Post Office (the “Post Office project”), the Cira South
Garage (the “garage project”) projects and by the leases of space at these facilities upon the
completion of these projects. Of the total borrowings, $209.7 million and $46.8 million will be
allocated to the Post Office project and to the garage project, respectively. In order for funding
to occur we need to meet conditions which primarily relate to the completion of the projects and
the commencement of the rental payments from the respective leases on these properties.
On July 7, 2009, we closed on a $60.0 million first mortgage financing on our One Logan Square
property located in Philadelphia, PA. The new loan bears interest at a floating rate of LIBOR plus
350 basis points (subject to a LIBOR floor) and has a seven-year term with three years of interest
only payments with principal payments based on a thirty-year amortization schedule at a 7.5% rate.
We used the loan proceeds for general corporate purposes including repayment of existing
indebtedness.
Additional Financing Activity
In June 2009, we sold 40,250,000 common shares for net proceeds of approximately $242.3 million.
We used the net proceeds to reduce indebtedness under our Credit Facility and for general corporate
purposes
In December 2009, we received the second contribution under the historic tax credit transaction
that we entered into in 2008 with US Bancorp amounting to $23.8 million.
Business Objective and Strategies for Growth
Our business objective is to deploy capital effectively to maximize our return on investment and
thereby maximize our total return to shareholders. To accomplish this objective we seek to:
| • | maximize cash flow through leasing strategies designed to capture rental growth as rental rates increase and as above and below-market leases are renewed; | ||
| • | attain a high tenant retention rate by providing a full array of property management and maintenance services and tenant service programs responsive to the varying needs of our diverse tenant base; | ||
| • | form joint venture opportunities with high-quality partners having attractive real estate holdings or significant financial resources; | ||
| • | utilize our reputation as a full-service real estate development and management organization to identify opportunities that will expand our business and create long-term value; and | ||
| • | increase the economic diversification of our tenant base while maximizing economies of scale. |
Based on the current economic environment we consider the following to be important objectives,
however, such objectives may be considered more long term in nature than they have been previously:
| • | to acquire and develop high-quality office and industrial properties at attractive yields in markets that we expect will experience economic growth and where we can achieve operating efficiencies; | ||
| • | to deploy our land inventory for development of high-quality office and industrial properties; and | ||
| • | to capitalize on our redevelopment expertise to selectively develop, redevelop and reposition properties in desirable locations. |
We expect to concentrate our real estate activities in markets where we believe that:
| • | current and projected market rents and absorption statistics justify construction activity; | ||
| • | we can maximize market penetration by accumulating a critical mass of properties and thereby enhance operating efficiencies; | ||
| • | barriers to entry (such as zoning restrictions, utility availability, infrastructure limitations, development moratoriums and limited developable land) will create supply constraints on office and industrial space; and | ||
| • | there is potential for economic growth, particularly job growth and industry diversification. |
-8-
Table of Contents
Operating Strategy
In this current economic environment, we expect to continue to operate in markets where we have a
concentration advantage due to economies of scale. We believe that where possible, it is best to
operate with a strong base of properties in order to benefit from the personnel allocation and the
market strength associated with managing several properties in the same market. However, we intend
to selectively dispose of properties and redeploy capital if we determine a property cannot meet
long term earnings growth expectations. We believe that recycling capital is an important aspect
of maintaining the overall quality of our portfolio.
Our broader strategy remains focused on continuing to enhance liquidity and strengthen our balance
sheet through capital retention, targeted sales activity and management of our existing and
prospective liabilities.
In the long term, we believe that we are well positioned in our current markets and have the
expertise to take advantage of both development and acquisition opportunities, as warranted by
market and economic conditions, in new markets that have healthy long-term fundamentals and strong
growth projections. This capability, combined with what we believe is a conservative financial
structure, should allow us to achieve disciplined growth. These abilities are integral to our strategy of having a geographically and
physically diverse portfolio of assets, which will meet the needs of our tenants.
We use experienced on site construction superintendents, operating under the supervision of project
managers and senior management, to control the construction process and mitigate the various risks
associated with real estate development.
In order to fund developments, redevelopments and acquisitions, as well as refurbish and improve
existing Properties, we must use excess cash from operations after satisfying our dividend and
other requirements. The availability of funds for new investments and maintenance of existing
Properties depends in large measure on capital markets and liquidity factors over which we can
exert little control. Past events, including failures and near failures of a number of large
financial service companies, have made the capital markets increasingly volatile. As a result, many
property owners are finding financing to be increasingly expensive and difficult to obtain. In
addition, downgrades of our public debt ratings by Standard & Poor’s, Moody’s Investor Service and
Fitch could increase our cost of capital.
Policies With Respect To Certain Activities
The following is a discussion of our investment, financing and other policies. These policies have
been determined by our Board of Trustees and our Board may revise these policies without a vote of
shareholders.
Investments in Real Estate or Interests in Real Estate
We may develop, purchase or lease income-producing properties for long-term investment, expand and
improve the properties presently owned or other properties purchased, or sell such
properties, in whole or in part, as circumstances warrant. Although there is no limitation on the
types of development activities that we may undertake, we expect that our development activities
will meet current market demand and will generally be on a build-to-suit basis for particular
tenants where a significant portion of the building is pre-leased before construction begins. We
continue to participate with other entities in property ownership through existing joint ventures
or other types of co-ownership. Our equity investments may be subject to existing or
future mortgage financing and other indebtedness that will have priority over our equity
investments.
-9-
Table of Contents
Securities of or Interests in Entities Primarily Engaged in Real Estate Activities and Other
Issuers
Subject to the percentage of ownership limitations and gross income tests necessary for REIT
qualification, we may invest in securities of other REITs, other entities engaged in real estate
activities or securities of other issuers. We may enter into joint ventures or partnerships for
the purpose of obtaining an equity interest in a particular property. We do not currently intend
to invest in the securities of other issuers except in connection with joint ventures or
acquisitions of indirect interests in properties.
Investments in Real Estate Mortgages
While our current portfolio consists of, and our business objectives emphasize, equity investments
in commercial real estate, we may, at the discretion of management or our Board of Trustees, invest
in other types of equity real estate investments, mortgages and other real estate interests. We do
not presently intend to invest to a significant extent in mortgages or deeds of trust, but may
invest in participating mortgages if we conclude that we may benefit from the cash flow or any
appreciation in the value of the property securing a mortgage. From time to time, we provide
seller financing to buyers of our properties. We do this when the buyer requires additional funds
for the purchase and provision of seller financing will be beneficial to us and the buyer compared
to a mortgage loan from a third party lender.
Dispositions
Our disposition of Properties is based upon management’s periodic review of our portfolio and the
determination by management or our Board of Trustees that a disposition would be in our best
interests. We intend to use selective dispositions to fund our capital and refinancing needs.
Financing Policies
A primary objective of our financing policy has been to manage our financial position to allow us
to raise capital from a variety of sources at competitive rates. Our mortgages, credit facilities
and unsecured debt securities contain restrictions on our ability to incur indebtedness. Our
charter documents do not limit the indebtedness that we may incur. Our financing strategy is to
maintain a strong and flexible financial position by limiting our debt to a prudent level and
minimizing our variable interest rate exposure. We intend to finance future growth and future
maturing debt with the most advantageous source of capital then available to us. These sources may
include selling common or preferred equity and debt securities sold through public offerings or
private placements, utilizing availability under our unsecured revolving credit facility or
incurring additional indebtedness through secured or unsecured borrowings. To qualify as a REIT,
we must distribute to our shareholders each year at least ninety percent of our net taxable income,
excluding any net capital gain. This distribution requirement limits our ability to fund future
capital needs, including for acquisitions and developments, from income from operations.
Therefore, we expect to continue to rely on third party sources of capital to fund future capital
needs.
Working Capital Reserves
We maintain working capital reserves and access to borrowings in amounts that our management
determines to be adequate to meet our normal contingencies.
-10-
Table of Contents
Policies with Respect to Other Activities
We expect to issue additional common and preferred equity in the future and may authorize our
Operating Partnership to issue additional common and preferred units of limited partnership
interest, including to persons who contribute their interests in properties to us in exchange for
such units. We have not engaged in trading, underwriting or agency distribution or sale of
securities of unaffiliated issuers and we do not intend to do so. We intend to make investments
consistent with our qualification as a REIT, unless because of circumstances or changes in the
Internal Revenue Code of 1986, as amended (or the Treasury Regulations), our Board of Trustees
determines that it is no longer in our best interests to qualify as a REIT. We may make loans to
third parties, including to joint ventures in which we participate and to buyers of our real
estate. We intend to make investments in such a way that we will not be treated as an investment
company under the Investment Company Act of 1940.
Management Activities
We provide third-party real estate management services primarily through wholly-owned subsidiaries
(collectively, the “Management Companies”). As of December 31, 2009, the Management Companies were
managing properties containing an aggregate of approximately 34.0 million net rentable square feet,
of which approximately 25.2 million net rentable square feet related to Properties owned by us and
approximately 8.9 million net rentable square feet related to properties owned by third parties and
unconsolidated Real Estate Ventures.
Geographic Segments
As of December 31, 2009, we were managing our portfolio within six segments: (1) Pennsylvania, (2)
Metropolitan Washington D.C, (3) New Jersey/Delaware, (4) Richmond, Virginia, (5) Austin, TX and
(6) California. The Pennsylvania segment includes properties in Chester, Delaware, Bucks and
Montgomery counties in the Philadelphia suburbs and the City of Philadelphia in Pennsylvania. The
Metropolitan Washington, D.C. segment includes properties in Northern Virginia and suburban
Maryland. The New Jersey/Delaware segment includes properties in Burlington, Camden and Mercer
counties and counties in the southern and central part of New Jersey and in New Castle county in the state of Delaware. The
Richmond, Virginia segment includes properties primarily in Albemarle, Chesterfield, Goochland and
Henrico counties and Durham, North Carolina. The Austin, Texas segment includes properties in
Coppell and Austin. The California segment includes properties in Oakland, Concord, Carlsbad and
Rancho Bernardo. Our corporate group is responsible for cash and investment management,
development of real estate properties during the construction period and general support functions.
Competition
The real estate business is highly competitive. Our Properties compete for tenants with similar
properties primarily on the basis of location, total occupancy costs (including base rent and
operating expenses), services provided, and the design and condition of the improvements. We also
face competition when attempting to acquire or develop real estate, including competition from
domestic and foreign financial institutions, other REITs, life insurance companies, pension funds,
partnerships and individual investors. Additionally, our ability to compete depends upon trends in
the economies of our markets, investment alternatives, financial condition and operating results of
current and prospective tenants, availability and cost of capital, construction and renovation
costs, land availability, our ability to obtain necessary construction approvals, taxes,
governmental regulations, legislation and population trends.
Insurance
We maintain commercial general liability and “all risk” property insurance on our properties. We
intend to obtain similar coverage for properties we acquire in the future. There are types of
losses, generally of a catastrophic nature, such as losses from war, terrorism, environmental
issues, floods, hurricanes and earthquakes that are subject to limitations in certain areas or
which may be uninsurable risks. We exercise our discretion in determining amounts, coverage limits
and deductibility provisions of insurance, with a view to maintaining appropriate insurance on our
investments at a reasonable cost and on suitable terms. If we suffer a substantial loss, our
insurance coverage may not be sufficient to pay the full current market value or current
replacement cost of our lost investment. Inflation, changes in building codes and ordinances,
environmental considerations and other factors also might make it impractical to use insurance
proceeds to fully replace or restore a property after it has been damaged or destroyed.
-11-
Table of Contents
Employees
As of December 31, 2009, we had 402 full-time employees, including 25 union employees.
Government Regulations Relating to the Environment
Many laws and governmental regulations relating to the environment apply to us and changes in these
laws and regulations, or their interpretation by agencies and the courts, occur frequently and may
adversely affect us.
Existing conditions at some of our Properties
. Independent environmental consultants have
conducted Phase I or similar environmental site assessments on our Properties. We generally obtain
these assessments prior to the acquisition of a Property and may later update them as required for
subsequent financing of the property or as requested by a tenant. Site assessments are generally
performed to ASTM standards then existing for Phase I site assessments, and typically include a
historical review, a public records review, a visual inspection of the surveyed site, and the
issuance of a written report. These assessments do not generally include any soil samplings or
subsurface investigations. Depending on the age of the property, the Phase I may have included an
assessment of asbestos-containing materials. For properties where asbestos-containing materials
were identified or suspected, an operations and maintenance plan was generally prepared and
implemented. See Note 2 to our consolidated financial statements for our evaluation in accordance
with the accounting standard governing asset retirement obligations.
Historical operations at or near some of our properties, including the operation of underground
storage tanks, may have caused soil or groundwater contamination. We are not aware of any such
condition, liability or concern by any other means that would give rise to material, uninsured
environmental liability. However, the assessments may have failed to reveal all environmental
conditions, liabilities or compliance concerns; there may be material environmental conditions,
liabilities or compliance concerns that a review failed to detect or which arose at a property
after the review was completed; future laws, ordinances or regulations may impose material
additional environmental liability; and current environmental conditions at our Properties may be
affected in the future by tenants, third parties or the condition of land or operations near our
Properties, such as the presence of underground storage tanks. We cannot be certain that costs of
future environmental compliance will not affect our ability to make distributions to our
shareholders.
Use of hazardous materials by some of our tenants.
Some of our tenants handle hazardous substances
and wastes on our properties as part of their routine operations. Environmental laws and
regulations may subject these tenants, and potentially us, to liability resulting from such
activities. We generally require our tenants, in their leases, to comply with these environmental
laws and regulations and to indemnify us for any related liabilities. These tenants are primarily
involved in the life sciences and the light industrial and warehouse businesses. We are not aware
of any material noncompliance, liability or claim relating to hazardous or toxic substances or
petroleum products in connection with any of our Properties, and we do not believe that on-going
activities by our tenants will have a material adverse effect on our operations.
Costs related to government regulation and private litigation over environmental matters
. Under
environmental laws and regulations, we may be liable for the costs of removal, remediation or
disposal of hazardous or toxic substances present or released on our Properties. These laws could
impose liability without regard to whether we are responsible for, or knew of, the presence or
release of the hazardous materials. Government investigations and remediation actions may entail
substantial costs and the presence or release of hazardous substances on a property could result in
governmental cleanup actions or personal injury or similar claims by private plaintiffs.
Potential environmental liabilities may exceed our environmental insurance coverage limits.
We
carry what we believe to be sufficient environmental insurance to cover potential liability for
soil and groundwater contamination, mold impact, and the presence of asbestos-containing materials
at the affected sites identified in our environmental site assessments. Our insurance policies are
subject to conditions, qualifications and limitations. Therefore, we cannot provide any assurance
that our insurance coverage will be sufficient to cover all liabilities for losses.
Potential environmental liabilities may adversely impact our ability to use or sell assets
. The
presence of contamination or the failure to remediate contamination may impair our ability to sell
or lease real estate or to borrow using the real estate as collateral.
-12-
Table of Contents
Other
We do not have any foreign operations and our business is not seasonal. Our operations are not
dependent on a single tenant or a few tenants and no single tenant accounted for more than 10% of
our total 2009 revenue.
Code of Conduct
We maintain a Code of Business Conduct and Ethics applicable to our Board and all of our officers
and employees, including our principal executive officer, principal financial officer, principal
accounting officer, controller and persons performing similar functions. A copy of our Code of
Business Conduct and Ethics is available on our website, www.brandywinerealty.com. In addition to
being accessible through our website, copies of our Code of Business Conduct and Ethics can be
obtained, free of charge, upon written request to Investor Relations, 555 East Lancaster Avenue,
Suite 100, Radnor, PA 19087. Any amendments to or waivers of our Code of Business Conduct and
Ethics that apply to our principal executive officer, principal financial officer, principal
accounting officer, controller and persons performing similar functions and that relate to any
matter enumerated in Item 406(b) of Regulation S-K promulgated by the SEC will be disclosed on our website.
Corporate Governance Principles and Board Committee Charters
Our Corporate Governance Principles and the charters of the Executive Committee, Audit Committee,
Compensation Committee and Corporate Governance Committee of the Board of Trustees of Brandywine
Realty Trust and additional information regarding our corporate governance are available on our
website, www.brandywinerealty.com. In addition to being accessible through our website, copies of
our Corporate Governance Principles and charters of our Board Committees can be obtained, free of
charge, upon written request to Investor Relations, 555 Lancaster Avenue, Suite 100, Radnor, PA
19087.
Availability of SEC Reports
We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K
and other information with the SEC. Members of the public may read and copy materials that we file
with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
Members of the public may also obtain information on the Public Reference Room by calling the SEC
at 1-800-732-0330. The SEC also maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers, including us, that file
electronically with the SEC. The address of that site is http://www.sec.gov. Our annual reports
on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and other information
filed by us with the SEC are available, without charge, on our Internet web site,
http://www.brandywinerealty.com as soon as reasonably practicable after they are filed
electronically with the SEC. Copies are also available, free of charge, upon written request to
Investor Relations, Brandywine Realty Trust, 555 East Lancaster Avenue, Suite 100, Radnor, PA
19087.
Our results from operations and ability to make distributions on our equity and to pay debt service
on our indebtedness may be affected by the risk factors set forth below. All investors should
consider the following risk factors before deciding to purchase our securities.
Adverse economic and geopolitical conditions could have a material adverse effect on our results of
operations, financial condition and our ability to pay distributions to you.
Our business is affected by the unprecedented volatility and illiquidity in the financial and
credit markets, the general global economic recession, and other market or economic challenges
experienced by the U.S. economy or the real estate industry as a whole. Our portfolio consists
primarily of office buildings (as compared to a more diversified real estate portfolio). If
economic conditions persist or deteriorate, then our results of operations, financial condition,
financial results and ability to service current debt and to pay distributions to our shareholders
may be adversely affected by the following, among other potential conditions:
| • | significant job losses in the financial and professional services industries may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; |
-13-
Table of Contents
| • | our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to complete development opportunities and refinance existing debt; | ||
| • | reduce our returns from both our existing operations and our development activities and increase our future interest expense; | ||
| • | reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; | ||
| • | the value and liquidity of our short-term investments and cash deposits could be reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investments or other factors; | ||
| • | reduced liquidity in debt markets and increased credit risk premiums for certain market participants may impair our ability to access capital; and | ||
| • | one or more lenders under our line of credit could refuse or be unable to fund their financing commitment to us and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
These conditions, which could have a material adverse effect on our results of operations,
financial condition and ability to pay distributions, may continue or worsen in the future.
Our performance is subject to risks associated with our properties and with the real estate
industry.
Our economic performance and the value of our real estate assets, and consequently the value of our
securities, are subject to the risk that if our properties do not generate revenues sufficient to
meet our operating expenses, including debt service and capital expenditures, our cash flow and
ability to pay distributions to our shareholders will be adversely affected. Events or conditions
beyond our control that may adversely affect our operations or the value of our properties include:
| • | downturns in the national, regional and local economic climate including increases in the unemployment rate and inflation; | ||
| • | competition from other office, mixed use, industrial and commercial buildings; | ||
| • | local real estate market conditions, such as oversupply or reduction in demand for office, industrial or commercial space; | ||
| • | changes in interest rates and availability of financing; | ||
| • | vacancies, changes in market rental rates and the need to periodically repair, renovate and re-lease space; | ||
| • | increased operating costs, including insurance expense, utilities, real estate taxes, janitorial costs, state and local taxes, labor shortages and heightened security costs; | ||
| • | civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; | ||
| • | significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; and | ||
| • | declines in the financial condition of our tenants and our ability to collect rents from our tenants. |
-14-
Table of Contents
The disruption in the debt capital markets could adversely affect us.
The capital and credit markets have experienced significant volatility and disruption, particularly
in the latter half of 2008 and in the first quarter of 2009. In some cases, the markets have
produced downward pressure on stock prices and credit availability for certain issuers without regard to those
issuers’ underlying financial strength. This resulted in a deterioration in the credit markets
affecting the availability of credit, the terms on which it can be sourced and the overall cost of
debt capital. This could negatively affect us by:
| • | increasing our costs to finance our ongoing operations and fund our development and redevelopment activities; | ||
| • | reducing the availability of potential bidders for, and the amounts offered for, any properties we may wish to sell; and | ||
| • | preventing us from accessing necessary debt capital on a timely basis leading us to consider potentially more dilutive capital transactions such as undesirable sales of properties or equity securities. |
We may suffer adverse consequences due to the financial difficulties, bankruptcy or insolvency of
our tenants.
The current economic conditions have caused some of our tenants to experience financial
difficulties. If more of our tenants were to experience financial difficulties, including
bankruptcy, insolvency or a general downturn in their business, there could be an adverse effect on
our financial performance and distributions to shareholders. We cannot assure you that any tenant
that files for bankruptcy protection will continue to pay us rent. A bankruptcy filing by or
relating to one of our tenants or a lease guarantor would bar efforts by us to collect
pre-bankruptcy debts from that tenant or lease guarantor, or its property, unless we receive an
order permitting us to do so from the bankruptcy court. In addition, we cannot evict a tenant
solely because of bankruptcy. The bankruptcy of a tenant or lease guarantor could delay our
efforts to collect past due balances under the relevant leases, and could ultimately preclude
collection of these sums. If a lease is assumed by the tenant in bankruptcy, all pre-bankruptcy
balances due under the lease must be paid to us in full. If, however, a lease is rejected by a
tenant in bankruptcy, we would have only a general, unsecured claim for damages. Any such
unsecured claim would only be paid to the extent that funds are available and only in the same
percentage as is paid to all other holders of general, unsecured claims. Restrictions under the
bankruptcy laws further limit the amount of any other claims that we can make if a lease is
rejected. As a result, it is likely that we would recover substantially less than the full value
of the remaining rent during the term.
The terms and covenants relating to our indebtedness could adversely impact our economic
performance.
Like other real estate companies which incur debt, we are subject to risks associated with debt
financing, such as the insufficiency of cash flow to meet required debt service payment obligations
and the inability to refinance existing indebtedness. If our debt cannot be paid, refinanced or
extended at maturity, we may not be able to make distributions to shareholders at expected levels
or at all. Furthermore, an increase in our interest expense could adversely affect our cash flow
and ability to make distributions to shareholders. If we do not meet our debt service obligations,
any properties securing such indebtedness could be foreclosed on, which would have a material
adverse effect on our cash flow and ability to make distributions and, depending on the number of
properties foreclosed on, could threaten our continued viability.
Our credit facilities, term loan and the indenture governing our unsecured public debt securities
contain (and any new or amended facility will contain) restrictions, requirements and other
limitations on our ability to incur indebtedness, including total debt to asset ratios, secured
debt to total asset ratios, debt service coverage ratios and minimum ratios of unencumbered assets
to unsecured debt which we must maintain. Our ability to borrow under our credit facilities is
subject to compliance with such financial and other covenants. In the event that we fail to
satisfy these covenants, we would be in default under the credit facilities, the term loan and the
indenture and may be required to repay such debt with capital from other sources. Under such
circumstances, other sources of capital may not be available to us, or may be available only on
unattractive terms. In addition, the mortgages on our properties contain customary covenants such
as those that limit our ability, without the prior consent of the lender, to further mortgage the
applicable property or to discontinue insurance coverage. If we breach covenants in our secured
debt agreements, the lenders can declare a default and take possession of the property securing the
defaulted loan.
-15-
Table of Contents
Increases in interest rates on variable rate indebtedness will increase our interest expense, which
could adversely affect our cash flow and ability to make distributions to shareholders. Rising
interest rates could also restrict our ability to refinance existing debt when it matures. In
addition, an increase in interest rates could decrease the amounts that third parties are willing
to pay for our assets, thereby limiting our ability to alter our portfolio promptly in relation to
economic or other conditions. We entered into and may, from time to time, enter into agreements
such as interest rate hedges, swaps, floors, caps and other interest rate hedging contracts with
respect to a portion of our variable rate debt. Although these agreements may lessen the impact of
rising interest rates on us, they also expose us to the risk that other parties to the agreements
will not perform or that we cannot enforce the agreements.
Our degree of leverage could limit our ability to obtain additional financing or affect the market
price of our equity shares or debt securities.
Our degree of leverage could affect our ability to obtain additional financing for working capital
expenditures, development, acquisitions or other general corporate purposes. Our senior unsecured
debt is currently rated BB+ by Fitch Ratings, Baa3 by Moody’s Investor Services and BBB- by
Standard & Poor’s. We cannot, however, assure you that we will be able to maintain this rating.
In the event that our unsecured debt is downgraded from the current rating, we would likely incur
higher borrowing costs and the market prices of our common shares and debt securities might
decline. Our degree of leverage could also make us more vulnerable to a downturn in business or
the economy generally.
We may experience increased operating costs, which might reduce our profitability.
Our properties are subject to increases in operating expenses such as for cleaning, electricity,
heating, ventilation and air conditioning, administrative costs and other costs associated with
security, landscaping and repairs and maintenance of our properties. In general, under our leases
with tenants, we pass through all or a portion of these costs to them. We cannot assure you,
however, that tenants will actually bear the full burden of these higher costs, or that such
increased costs will not lead them, or other prospective tenants, to seek office space elsewhere.
If operating expenses increase, the availability of other comparable office space in our core
geographic markets might limit our ability to increase rents; if operating expenses increase
without a corresponding increase in revenues, our profitability could diminish and limit our
ability to make distributions to shareholders.
Our investment in property development or redevelopment may be more costly or difficult to complete
than we anticipate.
We intend to continue to develop properties where market conditions warrant such investment. Once
made, these investments may not produce results in accordance with our expectations. Risks
associated with our development and construction activities include:
| • | the unavailability of favorable financing alternatives in the private and public debt markets; | ||
| • | having sufficient capital to pay development costs; | ||
| • | unprecedented market volatility in the share price of REITs; | ||
| • | dependence on the financial services sector as part of our tenant base; | ||
| • | construction costs exceeding original estimates due to rising interest rates, diminished availability of materials and labor, and increases in the costs of materials and labor; | ||
| • | construction and lease-up delays resulting in increased debt service, fixed expenses and construction or renovation costs; | ||
| • | expenditure of funds and devotion of management’s time to projects that we do not complete; | ||
| • | the unavailability or scarcity of utilities; |
-16-
Table of Contents
| • | occupancy rates and rents at newly completed properties may fluctuate depending on a number of factors, including market and economic conditions, resulting in lower than projected rental rates and a corresponding lower return on our investment; | ||
| • | complications (including building moratoriums and anti-growth legislation) in obtaining necessary zoning, occupancy and other governmental permits; and | ||
| • | increased use restrictions by local zoning or planning authorities limiting our ability to develop and impacting the size of developments. |
We face risks associated with property acquisitions.
We have in the past acquired, and may in the future acquire, properties and portfolios of
properties, including large portfolios that would increase our size and potentially alter our
capital structure. Although we believe that the acquisitions that we have completed in the past
and that we expect to undertake in the future have, and will, enhance our future financial
performance, the success of such transactions is subject to a number of factors, including the risk
that:
| • | we may not be able to obtain financing for acquisitions on favorable terms; | ||
| • | acquired properties may fail to perform as expected; | ||
| • | the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates; | ||
| • | acquired properties may be located in new markets where we may have limited knowledge and understanding of the local economy, an absence of business relationships in the area or unfamiliarity with local governmental and permitting procedures; and | ||
| • | we may not be able to efficiently integrate acquired properties, particularly portfolios of properties, into our organization and manage new properties in a way that allows us to realize cost savings and synergies. |
We acquired in the past and in the future may acquire properties or portfolios of properties
through tax deferred contribution transactions in exchange for partnership interests in our
Operating Partnership. This acquisition structure has the effect, among other factors, of reducing
the amount of tax depreciation we can deduct over the tax life of the acquired properties, and
typically requires that we agree to protect the contributors’ ability to defer recognition of
taxable gain through restrictions on our ability to dispose of the acquired properties and/or the
allocation of partnership debt to the contributors to maintain their tax bases. These restrictions
on dispositions could limit our ability to sell an asset during a specified time, or on terms, that
would be favorable absent such restrictions.
Acquired properties may subject us to known and unknown liabilities.
Properties that we acquire may be subject to known and unknown liabilities for which we would have
no recourse, or only limited recourse, to the former owners of such properties. As a result, if a
liability were asserted against us based upon ownership of an acquired property, we might be
required to pay significant sums to settle it, which could adversely affect our financial results and cash flow. Unknown
liabilities relating to acquired properties could include:
| • | liabilities for clean-up of pre-existing disclosed or undisclosed environmental contamination; | ||
| • | claims by tenants, vendors or other persons arising on account of actions or omissions of the former owners of the properties; and | ||
| • | liabilities incurred in the ordinary course of business. |
-17-
Table of Contents
We have agreed not to sell certain of our properties and to maintain indebtedness subject to
guarantees.
We agreed not to sell some of our properties for varying periods of time, in transactions that
would trigger taxable income to the former owners, and we may enter into similar arrangements as a
part of future property acquisitions. These agreements generally provide that we may dispose of
the subject properties only in transactions that qualify as tax-free exchanges under Section 1031
of the Internal Revenue Code or in other tax deferred transactions. Such transactions can be
difficult to complete and can result in the property acquired in exchange for the disposed of
property inheriting the tax attributes (including tax protection covenants) of the sold property.
Violation of these tax protection agreements would impose significant costs on us. As a result, we
are restricted with respect to decisions related to financing, encumbering, expanding or selling
these properties.
We have also entered into agreements that provide prior owners of properties with the right to
guarantee specific amounts of indebtedness and, in the event that the specific indebtedness that
they guarantee is repaid or reduced, we would be required to provide substitute indebtedness for
them to guarantee. These agreements may hinder actions that we may otherwise desire to take to
repay or refinance guaranteed indebtedness because we would be required to make payments to the
beneficiaries of such agreements if we violate these agreements.
We may be unable to renew leases or re-lease space as leases expire; certain leases may expire
early.
If tenants do not renew their leases upon expiration, we may be unable to re-lease the space. Even
if the tenants do renew their leases or if we can re-lease the space, the terms of renewal or
re-leasing (including the cost of required renovations) may be less favorable than current lease
terms. Certain leases grant the tenants an early termination right upon payment of a termination
penalty or if we fail to comply with certain material lease terms. Our inability to renew or
release spaces and the early expiration of certain leases could affect our ability to make
distributions to shareholders.
We face significant competition from other real estate developers.
We compete with real estate developers, operators and institutions for tenants and acquisition and
development opportunities. Some of these competitors may have significantly greater financial
resources than we have. Such competition may reduce the number of suitable investment
opportunities available to us, may interfere with our ability to attract and retain tenants and may
increase vacancies, which could result in increased supply and lower market rental rates, reducing
our bargaining leverage and adversely affect our ability to improve our operating leverage. In
addition, some of our competitors may be willing (e.g., because their properties may have vacancy
rates higher than those for our properties) to make space available at lower rental rates or with
higher tenant concession percentages than available space in our properties. We cannot assure you
that this competition will not adversely affect our cash flow and our ability to make distributions
to shareholders.
Property ownership through joint ventures may limit our ability to act exclusively in our interest.
We develop and acquire properties in joint ventures with other persons or entities when we believe
circumstances warrant the use of such structures. As of December 31, 2009, we had investments in
11 unconsolidated real estate ventures and three additional real estate ventures that are
consolidated in our financial statements. Our net investments in the 11 unconsolidated real estate
ventures aggregated approximately $75.5 million as of December 31, 2009. We could become engaged in a dispute with one
or more of our joint venture partners that might affect our ability to operate a jointly-owned
property. Moreover, our joint venture partners may, at any time, have business, economic or other
objectives that are inconsistent with our objectives, including objectives that relate to the
appropriate timing and terms of any sale or refinancing of a property. In some instances, our
joint venture partners may have competing interests in our markets that could create conflicts of
interest. If the objectives of our joint venture partners or the lenders to our joint ventures are
inconsistent with our own objectives, we may not be able to act exclusively in our interests.
Furthermore, if the current constrained credit conditions in the capital markets persist or
deteriorate further, the value of our investments could deteriorate and we could be required to
reduce the carrying value of our equity method investments if a loss in the carrying value of the
investment is other than a temporary decline pursuant to the accounting standard governing the
equity method of accounting for investments in common stock.
-18-
Table of Contents
Because real estate is illiquid, we may not be able to sell properties when appropriate.
Real estate investments generally, and in particular large office and industrial/flex properties
like those that we own, often cannot be sold quickly. The capitalization rates at which properties
may be sold are generally higher than historic rates, thereby reducing our potential proceeds from
sale. Consequently, we may not be able to alter our portfolio promptly in response to changes in
economic or other conditions. In addition, the Internal Revenue Code limits our ability to sell
properties that we have held for fewer than four years without potential adverse consequences to
our shareholders. Furthermore, properties that we have developed and have owned for a significant
period of time or that we acquired in exchange for partnership interests in our operating
partnership often have a low tax basis. If we were to dispose of any of these properties in a
taxable transaction, we may be required under provisions of the Internal Revenue Code applicable to
REITs to distribute a significant amount of the taxable gain to our shareholders and this could, in
turn, impact our cash flow. In some cases, tax protection agreements with third parties will
prevent us from selling certain properties in a taxable transaction without incurring substantial
costs. In addition, purchase options and rights of first refusal held by tenants or partners in
joint ventures may also limit our ability to sell certain properties. All of these factors reduce
our ability to respond to changes in the performance of our investments and could adversely affect
our cash flow and ability to make distributions to shareholders as well as the ability of someone
to purchase us, even if a purchase were in our shareholders’ best interests.
Some potential losses are not covered by insurance.
We currently carry comprehensive “all-risk” property, rental loss insurance and commercial general
liability coverage on all of our properties. We believe the policy specifications and insured
limits of these policies are adequate and appropriate. There are, however, types of losses, such
as lease and other contract claims, biological, radiological and nuclear hazards and acts of war
that generally are not insured. We cannot assure you that we will be able to renew insurance
coverage in an adequate amount or at reasonable prices. In addition, insurance companies may no
longer offer coverage against certain types of losses, such as losses due to earthquake, terrorist
acts and mold, or, if offered, these types of insurance may be prohibitively expensive. Should an
uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the
capital we have invested in a property, as well as the anticipated future revenue from the
property. In such an event, we might nevertheless remain obligated for any mortgage debt or other
financial obligations related to the property. We cannot assure you that material losses in excess
of insurance proceeds will not occur in the future. If any of our properties were to experience a
catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large
expenses to repair or rebuild the property. Such events could adversely affect our cash flow and
ability to make distributions to shareholders. If one or more of our insurance providers were to
fail to pay a claim as a result of insolvency, bankruptcy or otherwise, the nonpayment of such
claims could have an adverse effect on our financial condition and results of operations. In
addition, if one or more of our insurance providers were to become subject to insolvency,
bankruptcy or other proceedings and our insurance policies with the provider were terminated or
cancelled as a result of those proceedings, we cannot guarantee that we would be able to find
alternative coverage in adequate amounts or at reasonable prices. In such case, we could experience
a lapse in any or adequate insurance coverage with respect to one or more properties and be exposed to
potential losses relating to any claims that may arise during such period of lapsed or inadequate
coverage.
Terrorist attacks and other acts of violence or war may adversely impact our performance and may
affect the markets on which our securities are traded.
Terrorist attacks against our properties, or against the United States or our interests, may
negatively impact our operations and the value of our securities. Attacks or armed conflicts could
result in increased operating costs; for example, it might cost more in the future for building
security, property and casualty insurance, and property maintenance. As a result of terrorist
activities and other market conditions, the cost of insurance coverage for our properties could
also increase. We might not be able to pass through the increased costs associated with such
increased security measures and insurance to our tenants, which could reduce our profitability and
cash flow. Furthermore, any terrorist attacks or armed conflicts could result in increased
volatility in or damage to the United States and worldwide financial markets and economy. Such
adverse economic conditions could affect the ability of our tenants to pay rent and our cost of
capital, which could have a negative impact on our results.
Our ability to make distributions is subject to various risks.
Historically, we have paid quarterly distributions to our shareholders. Our ability to make
distributions in the future will depend upon:
| • | the operational and financial performance of our properties; | ||
| • | capital expenditures with respect to existing, developed and newly acquired properties; |
-19-
Table of Contents
| • | general and administrative costs associated with our operation as a publicly-held REIT; | ||
| • | the amount of, and the interest rates on, our debt; and | ||
| • | the absence of significant expenditures relating to environmental and other regulatory matters. |
Certain of these matters are beyond our control and any significant difference between our
expectations and actual results could have a material adverse effect on our cash flow and our
ability to make distributions to shareholders.
Changes in the law may adversely affect our cash flow.
Because increases in income and service taxes are generally not passed through to tenants under
leases, such increases may adversely affect our cash flow and ability to make expected
distributions to shareholders. Our properties are also subject to various regulatory requirements,
such as those relating to the environment, fire and safety. Our failure to comply with these
requirements could result in the imposition of fines and damage awards and could result in a
default under some of our tenant leases. Moreover, the costs to comply with any new or different
regulations could adversely affect our cash flow and our ability to make distributions. Although
we believe that our properties are in material compliance with all such requirements, we cannot
assure you that these requirements will not change or that newly imposed requirements will not
require significant expenditures in order to be compliant.
Potential liability for environmental contamination could result in substantial costs.
Under various federal, state and local laws, ordinances and regulations, we may be liable for the
costs to investigate and remove or remediate hazardous or toxic substances on or in our properties,
often regardless of whether we know of or are responsible for the presence of these substances.
These costs may be substantial. While we do maintain environmental insurance, we can not be
assured that our insurance coverage will be sufficient to protect us from all of the aforesaid
remediation costs. Also, if hazardous or toxic substances are present on a property, or if we fail
to properly remediate such substances, our ability to sell or rent the property or to borrow using that
property as collateral may be adversely affected.
Other laws and regulations govern indoor and outdoor air quality including those that can require
the abatement or removal of asbestos-containing materials in the event of damage, demolition,
renovation or remodeling and also govern emissions of and exposure to asbestos fibers in the air.
The maintenance and removal of lead paint and certain electrical equipment containing
polychlorinated biphenyls (PCBs) and underground storage tanks are also regulated by federal and
state laws. We are also subject to risks associated with human exposure to chemical or biological
contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be
alleged to be connected to allergic or other health effects and symptoms in susceptible
individuals. We could incur fines for environmental compliance and be held liable for the costs of
remedial action with respect to the foregoing regulated substances or tanks or related claims
arising out of environmental contamination or human exposure to contamination at or from our
properties.
Additionally, we develop, manage, lease and/or operate various properties for third parties.
Consequently, we may be considered to have been or to be an operator of these properties and,
therefore, potentially liable for removal or remediation costs or other potential costs that could
relate to hazardous or toxic substances.
An earthquake or other natural disasters could adversely affect our business.
Some of our properties are located in California which is a high risk geographical area for
earthquakes or other natural disasters. Depending upon its magnitude, an earthquake could severely
damage our properties which would adversely affect our business. We maintain earthquake insurance
for our California properties and the resulting business interruption. We cannot assure you that
our insurance will be sufficient if there is a major earthquake.
Americans with Disabilities Act compliance could be costly.
The Americans with Disabilities Act of 1990, as amended (“ADA”) requires that all public
accommodations and commercial facilities, including office buildings, meet certain federal
requirements related to access and use by disabled persons. Compliance with ADA requirements could
involve the removal of structural barriers from certain disabled persons’ entrances which could
adversely affect our financial condition and results of operations. Other federal, state and local
laws may require modifications to or restrict further renovations of our properties with respect to
such accesses. Although we believe that our properties are in material compliance with present
requirements, noncompliance with the ADA or similar or related laws or regulations could result in
the United States government imposing fines or private litigants being awarded damages against us.
In addition, changes to existing requirements or enactments of new requirements could require
significant expenditures. Such costs may adversely affect our cash flow and ability to make
distributions to shareholders.
-20-
Table of Contents
Our status as a REIT (or any of our REIT subsidiaries) is dependent on compliance with federal
income tax requirements.
If we (or any of our REIT subsidiaries) fail to qualify as a REIT, we or the affected REIT
subsidiaries would be subject to federal income tax at regular corporate rates. Also, unless the
IRS granted us or our affected REIT subsidiaries, as the case may be, relief under certain
statutory provisions, we or it would remain disqualified as a REIT for four years following the
year it first failed to qualify. If we or any of our REIT subsidiaries fails to qualify as a REIT,
we or they would be required to pay significant income taxes and would, therefore, have less money
available for investments or for distributions to shareholders. This would likely have a material
adverse effect on the value of the combined company’s securities. In addition, we or our affected
REIT subsidiaries would no longer be required to make any distributions to shareholders.
Failure of the Operating Partnership (or a subsidiary partnership) to be treated as a partnership
would have serious adverse consequences to our shareholders. If the IRS were to successfully
challenge the tax status of the Operating Partnership or any of its subsidiary partnerships for
federal income tax purposes, the Operating Partnership or the affected subsidiary partnership would
be taxable as a corporation. In such event we would cease to qualify as a REIT and the imposition of a corporate tax on the Operating
Partnership or a subsidiary partnership would reduce the amount of cash available for distribution
from the Operating Partnership to us and ultimately to our shareholders.
Even if we qualify as a REIT, we will be required to pay certain federal, state and local taxes on
our income and properties. In addition, our taxable REIT subsidiaries will be subject to federal,
state and local income tax at regular corporate rates on their net taxable income derived from
management, leasing and related service business. If we have net income from a prohibited
transaction, such income will be subject to a 100% tax.
We face possible federal, state and local tax audits.
Because we are organized and qualify as a REIT, we are generally not subject to federal income
taxes, but are subject to certain state and local taxes. Certain entities through which we own
real estate either have undergone, or are currently undergoing, tax audits. Although we believe
that we have substantial arguments in favor of our positions in the ongoing audits, in some
instances there is no controlling precedent or interpretive guidance on the specific point at
issue. There can be no assurance that these or future audits will not have a material adverse
effect on our results of operations. We are currently being audited by the Internal Revenue
Service for our 2004 tax year. The audit concerns the tax treatment of a transaction in September
2004 in which we acquired a portfolio of properties through the acquisition of a limited
partnership. At this time it does not appear that an adjustment would result in a material tax
liability for us. However, an adjustment could raise a question as to whether a contributor of
partnership interests in the 2004 transaction could assert a claim against us under the tax
protection agreement entered into as part of the transaction.
Competition for skilled personnel could increase labor costs.
We compete with various other companies in attracting and retaining qualified and skilled
personnel. We depend on our ability to attract and retain skilled management personnel who are
responsible for the day-to-day operations of our company. Competitive pressures may require that
we enhance our pay and benefits package to compete effectively for such personnel. We may not be
able to offset such added costs by increasing the rates we charge tenants. If there is an increase
in these costs or if we fail to attract and retain qualified and skilled personnel, our business
and operating results could be harmed.
We are dependent upon our key personnel.
We are dependent upon our key personnel whose continued service is not guaranteed. We are
dependent on our executive officers for strategic business direction and real estate experience.
Loss of their services could adversely affect our operations.
-21-
Table of Contents
Although we have an employment agreement with Gerard H. Sweeney, our President and Chief Executive
Officer, for a term extending to February 9, 2011, this agreement does not restrict his ability to
become employed by a competitor following the termination of his employment. We do not have key
man life insurance coverage on our executive officers.
Certain limitations will exist with respect to a third party’s ability to acquire us or effectuate
a change in control.
Limitations imposed to protect our REIT status
. In order to protect us against the loss of our
REIT status, our Declaration of Trust limits any shareholder from owning more than 9.8% in value of
our outstanding shares, subject to certain exceptions. The ownership limit may have the effect of
precluding acquisition of control of us. If anyone acquires shares in excess of the ownership
limit, we may:
| • | consider the transfer to be null and void; | ||
| • | not reflect the transaction on our books; | ||
| • | institute legal action to stop the transaction; | ||
| • | not pay dividends or other distributions with respect to those shares; | ||
| • | not recognize any voting rights for those shares; and | ||
| • | consider the shares held in trust for the benefit of a person to whom such shares may be transferred. |
Limitation due to our ability to issue preferred shares.
Our Declaration of Trust authorizes our
Board of Trustees to cause us to issue preferred shares, without limitation as to amount and
without shareholder consent. Our Board of Trustees is able to establish the preferences and rights
of any preferred shares issued and these shares could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our shareholders’ best
interests.
Limitation imposed by the Maryland Business Combination Law
. The Maryland General Corporation Law,
as applicable to Maryland REITs, establishes special restrictions against “business combinations”
between a Maryland REIT and “interested shareholders” or their affiliates unless an exemption is
applicable. An interested shareholder includes a person, who beneficially owns, and an affiliate
or associate of the trust who, at any time within the two-year period prior to the date in
question, was the beneficial owner of, ten percent or more of the voting power of our
then-outstanding voting shares. Among other things, Maryland law prohibits (for a period of five
years) a merger and certain other transactions between a Maryland REIT and an interested
shareholder unless the board of trustees had approved the transaction before the party became an
interested shareholder. The five-year period runs from the most recent date on which the
interested shareholder became an interested shareholder. Thereafter, any such business combination
must be recommended by the board of trustees and approved by two super-majority shareholder votes
unless, among other conditions, the common shareholders receive a minimum price for their shares
and the consideration is received in cash or in the same form as previously paid by the interested
shareholder for our shares or unless the board of trustees approved the transaction before the
party in question became an interested shareholder. The business combination statute could have
the effect of discouraging offers to acquire us and of increasing the difficulty of consummating
any such offers, even if the acquisition would be in our shareholders’ best interests.
Maryland Control Share Acquisition Act
. Maryland law provides that “control shares” of a REIT
acquired in a “control share acquisition” shall have no voting rights except to the extent approved
by a vote of two-thirds of the vote eligible to be cast on the matter under the Maryland Control
Share Acquisition Act. “Control Shares” means shares that, if aggregated with all other shares
previously acquired by the acquirer or in respect of which the acquirer is able to exercise or
direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle
the acquirer to exercise voting power in electing trustees within one of the following ranges of
voting power: one-tenth or more but less than one-third, one-third or more but less than a majority
or a majority or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained shareholder approval. A
“control share acquisition” means the acquisition of control shares, subject to certain exceptions.
If voting rights or control shares acquired in a control share acquisition are not approved at a
shareholder’s meeting, then subject to certain conditions and
limitations the issuer may redeem any or all of the control shares for fair value. If voting rights of such control shares are approved
at a shareholder’s meeting and the acquirer becomes entitled to vote a majority of the shares
entitled to vote, all other shareholders may exercise appraisal rights. Any control shares
acquired in a control share acquisition which are not exempt under our Bylaws are subject to the
Maryland Control Share Acquisition Act. Our Bylaws contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of our shares. We cannot assure
you that this provision will not be amended or eliminated at any time in the future.
-22-
Table of Contents
Advance Notice Provisions for Shareholder Nominations and Proposals
.
Our bylaws require advance
notice for shareholders to nominate persons for election as trustees at, or to bring other business
before, any meeting of our shareholders. This bylaw provision limits the ability of shareholders
to make nominations of persons for election as trustees or to introduce other proposals unless we
are notified in a timely manner prior to the meeting.
Many factors can have an adverse effect on the market value of our securities.
A number of factors might adversely affect the price of our securities, many of which are beyond
our control. These factors include:
| • | increases in market interest rates, relative to the dividend yield on our shares. If market interest rates go up, prospective purchasers of our securities may require a higher yield. Higher market interest rates would not, however, result in more funds for us to distribute and, to the contrary, would likely increase our borrowing costs and potentially decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our common shares to go down; | ||
| • | anticipated benefit of an investment in our securities as compared to investment in securities of companies in other industries (including benefits associated with tax treatment of dividends and distributions); | ||
| • | perception by market professionals of REITs generally and REITs comparable to us in particular; | ||
| • | level of institutional investor interest in our securities; | ||
| • | relatively low trading volumes in securities of REITs; | ||
| • | our results of operations and financial condition; and | ||
| • | investor confidence in the stock market generally. |
The market value of our common shares is based primarily upon the market’s perception of our growth
potential and our current and potential future earnings and cash distributions. Consequently, our
common shares may trade at prices that are higher or lower than our net asset value per common
share. If our future earnings or cash distributions are less than expected, it is likely that the
market price of our common shares will diminish.
Additional issuances of equity securities may be dilutive to shareholders.
The interests of our shareholders could be diluted if we issue additional equity securities to
finance future developments or acquisitions or to repay indebtedness. Our Board of Trustees may
authorize the issuance of additional equity securities without shareholder approval. Our ability
to execute our business strategy depends upon our access to an appropriate blend of debt financing,
including unsecured lines of credit and other forms of secured and unsecured debt, and equity
financing, including the issuance of common and preferred equity.
The issuance of preferred securities may adversely affect the rights of holders of our common
shares.
Because our Board of Trustees has the power to establish the preferences and rights of each class
or series of preferred shares, we may afford the holders in any series or class of preferred shares
preferences, distributions, powers and rights, voting or otherwise, senior to the rights of holders
of common shares. Our Board of Trustees also has the power to establish the preferences and rights
of each class or series of units in Brandywine Operating Partnership, and may afford the holders in
any series or class of preferred units preferences, distributions, powers and rights, voting or otherwise,
senior to the rights of holders of common units.
-23-
Table of Contents
The acquisition of new properties or the development of new properties which lack operating history
with us may give rise to difficulties in predicting revenue potential.
We may continue to acquire additional properties and may seek to develop our existing land holdings
strategically as warranted by market conditions. These acquisitions and developments could fail to
perform in accordance with expectations. If we fail to accurately estimate occupancy levels,
operating costs or costs of improvements to bring an acquired property or a development property up
to the standards established for our intended market position, the performance of the property may
be below expectations. Acquired properties may have characteristics or deficiencies affecting
their valuation or revenue potential that we have not yet discovered. We cannot assure you that
the performance of properties acquired or developed by us will increase or be maintained under our
management.
Our performance is dependent upon the economic conditions of the markets in which our properties
are located.
Our properties are located in Pennsylvania, New Jersey, Delaware, Maryland, Virginia, Texas, and
California. Like other real estate markets, these commercial real estate markets have been
impacted by the recent economic downturns, and future declines in 2010 in any of these economies or
real estate markets could adversely affect cash available for distribution. Our financial
performance and ability to make distributions to our shareholders will be particularly sensitive to
the economic conditions in these markets. The local economic climate, which may be adversely
impacted by business layoffs or downsizing, industry slowdowns, changing demographics and other
factors, and local real estate conditions, such as oversupply of or reduced demand for office,
industrial and other competing commercial properties, may affect revenues and the value of
properties, including properties to be acquired or developed. We cannot assure you that these
local economies will grow in the future.
None.
Property Acquisitions
We did not acquire any properties during the year ended December 31, 2009.
Development and Redevelopment Properties Placed in Service
We placed in service the following office properties during the year ended December 31, 2009:
-24-
Table of Contents
| Month Placed | # of | Rentable | ||||||||||||||
| in Service | Property/Portfolio Name | Location | Buildings | Square Feet | ||||||||||||
| Jul-09 | One Rockledge Associates | Bethesda, MD | 1 | 160,173 | ||||||||||||
| Jul-09 | Delaware Corporate Center II | Wilmington, DE | 1 | 95,514 | ||||||||||||
| Jul-09 | Atrium I | Mount Laurel, NJ | 1 | 99,668 | ||||||||||||
| Oct-09 | 100 Lenox Drive | Lawrenceville, NJ | 1 | 50,942 | ||||||||||||
|
|
||||||||||||||||
|
|
Total Properties Placed in Service | 4 | 406,297 | |||||||||||||
|
|
||||||||||||||||
We place a property under development in service on the date the property reaches 95% occupancy.
Property Sales
We sold the following office properties during the year ended December 31, 2009:
| Month of | # of | Rentable Square | Sales | |||||||||||||||||
| Sale | Property/Portfolio Name | Location | Bldgs. | Feet/ Acres | Price | |||||||||||||||
|
|
(in 000’s) | |||||||||||||||||||
|
Feb-09
|
748 and 855 Springdale Drive | Exton, PA | 2 | 66,664 | $ | 8,950 | ||||||||||||||
|
Mar-09
|
305 Harper Drive | Moorestown, NJ | 1 | 14,980 | 1,100 | |||||||||||||||
|
Apr-09
|
7735 Georgetown Road | Bethesda, MD | 1 | 122,543 | 26,500 | |||||||||||||||
|
Oct-09
|
Trenton Office Properties | Trenton, NJ | 2 | 473,658 | 85,000 | (b) | ||||||||||||||
|
Oct-09
|
100 Lenox Drive (a) | Lawrenceville, NJ | 1 | 40,508 | 7,900 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
Total Office Properties Sold | 7 | 718,353 | $ | 129,450 | |||||||||||||||
|
|
||||||||||||||||||||
| (a)- | Pertains to the sale of a condominium interest in an office building. | |
| (b)- | Recorded in accordance with the installment sales method of accounting. |
Properties
As of December 31, 2009, we owned 212 office properties, 22 industrial facilities and three
mixed-use properties that contain an aggregate of approximately 23.3 million net rentable square
feet. We also have two properties under development and three properties under redevelopment
containing an aggregate 1.9 million net rentable square feet. As of December 31, 2009, we
consolidated three office properties owned by real estate ventures containing 0.4 million net
rentable square feet. The properties are located in and surrounding Philadelphia, PA, Metropolitan
Washington, D.C., Southern and Central New Jersey, Richmond, VA, Wilmington, DE, Austin, TX, and
Oakland, Concord, Carlsbad and Rancho Bernardo, CA. As of December 31, 2009, the Properties were
approximately 88.2% occupied by 1,357 tenants and had an average age of approximately 18.5 years.
The office properties are primarily suburban office buildings containing an average of
approximately 0.1 million net rentable square feet. The industrial properties accommodate a
variety of tenant uses, including light manufacturing, assembly, distribution and warehousing. We
carry comprehensive liability, fire, extended coverage and rental loss insurance covering all of
the properties, with policy specifications and insured limits which we believe are adequate.
-25-
Table of Contents
We had the following projects in development or redevelopment as of December 31, 2009:
| % | ||||||||||||||||
| Leased | ||||||||||||||||
| Rentable | as of | Stabilization | ||||||||||||||
| Project Name | Location | Square Feet | 12/31/09 | Date (a) | ||||||||||||
|
Under Development:
|
||||||||||||||||
|
Post Office/IRS
|
Philadelphia, PA | 862,692 | 100.0 | % | Q3’ 10 | |||||||||||
|
Cira South Garage
|
Philadelphia, PA | 553,421 | 92.6 | % | Q3’ 10 | |||||||||||
|
|
||||||||||||||||
|
|
1,416,113 | |||||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Under Redevelopment:
|
||||||||||||||||
|
Radnor Corporate Center I
|
Radnor, PA | 190,219 | 89.7 | % | Q1’ 10 | |||||||||||
|
300 Delaware Avenue
|
Wilmington, DE | 298,071 | 71.9 | % | Q2’ 10 | |||||||||||
|
Juniper Street (b)
|
Philadelphia, PA | — | N/A | Q2’ 11 | ||||||||||||
|
|
||||||||||||||||
|
|
488,290 | |||||||||||||||
|
|
||||||||||||||||
|
|
1,904,403 | |||||||||||||||
|
|
||||||||||||||||
| (a) | Projected stabilization date represents the date the property reaches 95% occupancy. | |
| (b) | This pertains to the redevelopment of a 220 space parking garage. |
As of
December 31, 2009, the above five projects accounted for $239.9 million of the $272.0 million
of construction in progress shown on our consolidated balance sheet.
As of December 31, 2009, we expect our development and redevelopment costs, including estimated
tenant improvements, for these five projects to aggregate $396.0 million.
-26-
Table of Contents
The following table sets forth information with respect to our core properties at December 31,
2009:
| Average | ||||||||||||||||||||||||||||||||
| Total Base Rent | Annualized | |||||||||||||||||||||||||||||||
| Net | Percentage | for the Twelve | Rental Rate | |||||||||||||||||||||||||||||
| Year | Rentable | Leased as of | Months Ended | as of | ||||||||||||||||||||||||||||
| Built/ | Square | December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||
| Property Name | Location | State | Renovated | Feet | 2009 (a) | 2009 (b) (000’s) | 2009 (c) | |||||||||||||||||||||||||
|
PENNSYLVANIA SEGMENT
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2929 Arch Street
|
(d | ) | Philadelphia | PA | 2005 | 729,897 | 100.0 | % | $ | 24,315 | $ | 35.11 | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
100 North 18th Street
|
(e | ) | Philadelphia | PA | 1988 | 703,386 | 96.3 | % | 20,546 | 31.40 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
130 North 18th Street
|
Philadelphia | PA | 1983 | 594,755 | 100.0 | % | 12,492 | 28.50 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
150 Radnor Chester Road
|
Radnor | PA | 2004 | 340,262 | 100.0 | % | 9,572 | 29.41 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
201 King of Prussia Road
|
Radnor | PA | 2001 | 251,372 | 86.5 | % | 6,119 | 28.68 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
555 Lancaster Avenue
|
Radnor | PA | 1973 | 242,099 | 99.9 | % | 6,381 | 28.41 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
401 Plymouth Road
|
Plymouth Meeting | PA | 2001 | 201,883 | 100.0 | % | 6,122 | 32.83 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Philadelphia Marine Center
|
(d | ) | Philadelphia | PA | Various | 181,900 | 100.0 | % | 1,243 | 5.51 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
101 West Elm Street
|
W. Conshohocken | PA | 1999 | 175,009 | 85.4 | % | 4,026 | 26.53 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Four Radnor Corporate Center
|
Radnor | PA | 1995 | 165,138 | 89.3 | % | 3,058 | 25.30 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Five Radnor Corporate Center
|
Radnor | PA | 1998 | 164,577 | 90.5 | % | 4,372 | 32.37 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
751-761 Fifth Avenue
|
King Of Prussia | PA | 1967 | 158,000 | 100.0 | % | 574 | 3.64 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
630 Allendale Road
|
King of Prussia | PA | 2000 | 150,000 | 100.0 | % | 3,722 | 27.03 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
640 Freedom Business Center
|
(d | ) | King Of Prussia | PA | 1991 | 132,000 | 86.7 | % | 2,187 | 24.31 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
52 Swedesford Square
|
East Whiteland Twp. | PA | 1988 | 131,017 | 100.0 | % | 2,972 | 24.01 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
400 Berwyn Park
|
Berwyn | PA | 1999 | 124,182 | 100.0 | % | 3,276 | 28.98 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
4000 Chemical Road
|
Plymouth Meeting | PA | 2007 | 120,877 | 74.8 | % | 1,345 | 18.48 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Three Radnor Corporate Center
|
Radnor | PA | 1998 | 119,463 | 89.3 | % | 2,715 | 25.07 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
101 Lindenwood Drive
|
Malvern | PA | 1988 | 118,121 | 44.6 | % | 1,609 | 21.24 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
181 Washington Street
|
(h | ) | Conshohocken | PA | 1999 | 115,122 | 68.5 | % | 2,904 | 28.23 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
300 Berwyn Park
|
Berwyn | PA | 1989 | 108,619 | 44.3 | % | 1,204 | 21.23 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
442 Creamery Way
|
(f | ) | Exton | PA | 1991 | 104,500 | 100.0 | % | 598 | 6.79 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Two Radnor Corporate Center
|
Radnor | PA | 1998 | 100,973 | 56.4 | % | 1,572 | 21.85 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
301 Lindenwood Drive
|
Malvern | PA | 1984 | 97,813 | 93.7 | % | 1,856 | 17.40 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1 West Elm Street
|
W. Conshohocken | PA | 1999 | 97,737 | 79.7 | % | 2,080 | 27.06 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
555 Croton Road
|
King of Prussia | PA | 1999 | 96,909 | 90.3 | % | 2,264 | 29.40 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
500 North Gulph Road
|
King Of Prussia | PA | 1979 | 93,082 | 90.3 | % | 1,402 | 18.99 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
620 West Germantown Pike
|
Plymouth Meeting | PA | 1990 | 90,183 | 74.2 | % | 1,399 | 24.44 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
610 West Germantown Pike
|
Plymouth Meeting | PA | 1987 | 90,152 | 76.2 | % | 1,610 | 27.47 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
630 West Germantown Pike
|
Plymouth Meeting | PA | 1988 | 89,925 | 97.2 | % | 1,969 | 27.51 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
600 West Germantown Pike
|
Plymouth Meeting | PA | 1986 | 89,681 | 83.4 | % | 1,482 | 25.18 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
630 Freedom Business Center
|
(d | ) | King Of Prussia | PA | 1989 | 86,683 | 92.1 | % | 1,660 | 24.25 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1200 Swedesford Road
|
Berwyn | PA | 1994 | 86,622 | 76.5 | % | 1,366 | 29.20 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
620 Freedom Business Center
|
(d | ) | King Of Prussia | PA | 1986 | 86,570 | 100.0 | % | 1,748 | 24.02 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
200 Barr Harbour Drive
|
(h | ) | Conshohocken | PA | 1998 | 86,021 | 100.0 | % | 2,484 | 30.35 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
595 East Swedesford Road
|
Wayne | PA | 1998 | 81,890 | 100.0 | % | 1,750 | 23.01 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1050 Westlakes Drive
|
Berwyn | PA | 1984 | 80,000 | 100.0 | % | 1,984 | 25.00 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
One Progress Drive
|
Horsham | PA | 1986 | 79,204 | 100.0 | % | 845 | 13.45 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1060 First Avenue
|
(e | ) | King Of Prussia | PA | 1987 | 77,718 | 100.0 | % | 1,061 | 21.47 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
741 First Avenue
|
King Of Prussia | PA | 1966 | 77,184 | 100.0 | % | 580 | 9.10 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1040 First Avenue
|
(e | ) | King Of Prussia | PA | 1985 | 75,488 | 84.8 | % | 1,287 | 23.18 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
200 Berwyn Park
|
Berwyn | PA | 1987 | 75,025 | 100.0 | % | 1,296 | 19.20 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1020 First Avenue
|
(e | ) | King Of Prussia | PA | 1984 | 74,556 | 100.0 | % | 1,608 | 20.25 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1000 First Avenue
|
(e | ) | King Of Prussia | PA | 1980 | 74,139 | 86.7 | % | 1,367 | 22.93 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
436 Creamery Way
|
Exton | PA | 1991 | 72,300 | 96.2 | % | 726 | 14.53 | ||||||||||||||||||||||||
-27-
Table of Contents
| Average | ||||||||||||||||||||||||||||||||
| Total Base Rent | Annualized | |||||||||||||||||||||||||||||||
| Net | Percentage | for the Twelve | Rental Rate | |||||||||||||||||||||||||||||
| Year | Rentable | Leased as of | Months Ended | as of | ||||||||||||||||||||||||||||
| Built/ | Square | December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||
| Property Name | Location | State | Renovated | Feet | 2009 (a) | 2009 (b) (000’s) | 2009 (c) | |||||||||||||||||||||||||
|
130 Radnor Chester Road
|
Radnor | PA | 2004 | 71,349 | 100.0 | % | 2,150 | 31.35 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
170 Radnor Chester Road
|
Radnor | PA | 2004 | 69,787 | 92.6 | % | 1,597 | 25.21 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
14 Campus Boulevard
|
Newtown Square | PA | 1998 | 69,542 | 100.0 | % | 1,815 | 25.00 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
500 Enterprise Road
|
Horsham | PA | 1990 | 66,751 | 0.0 | % | — | — | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
575 East Swedesford Road
|
Wayne | PA | 1985 | 66,265 | 100.0 | % | 1,235 | 28.53 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
429 Creamery Way
|
Exton | PA | 1996 | 63,420 | 100.0 | % | 790 | 16.72 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
610 Freedom Business Center
|
(d | ) | King Of Prussia | PA | 1985 | 62,991 | 88.9 | % | 720 | 23.43 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
925 Harvest Drive
|
Blue Bell | PA | 1990 | 62,957 | 96.7 | % | 1,032 | 21.23 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
980 Harvest Drive
|
Blue Bell | PA | 1988 | 62,379 | 100.0 | % | 1,383 | 24.16 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
426 Lancaster Avenue
|
Devon | PA | 1990 | 61,102 | 100.0 | % | 1,213 | 19.90 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1180 Swedesford Road
|
Berwyn | PA | 1987 | 60,371 | 100.0 | % | 1,880 | 33.08 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1160 Swedesford Road
|
Berwyn | PA | 1986 | 60,099 | 100.0 | % | 1,493 | 26.04 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
100 Berwyn Park
|
Berwyn | PA | 1986 | 57,731 | 42.7 | % | 735 | 21.99 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
440 Creamery Way
|
Exton | PA | 1991 | 57,218 | 88.8 | % | 790 | 16.85 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
640 Allendale Road
|
(f | ) | King of Prussia | PA | 2000 | 56,034 | 100.0 | % | 350 | 8.60 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
565 East Swedesford Road
|
Wayne | PA | 1984 | 55,979 | 83.4 | % | 818 | 22.64 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
650 Park Avenue
|
King Of Prussia | PA | 1968 | 54,338 | 100.0 | % | 822 | 17.10 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
910 Harvest Drive
|
Blue Bell | PA | 1990 | 52,611 | 100.0 | % | 1,040 | 20.23 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
680 Allendale Road
|
King Of Prussia | PA | 1962 | 52,528 | 0.0 | % | — | — | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2240/50 Butler Pike
|
Plymouth Meeting | PA | 1984 | 52,229 | 100.0 | % | 1,102 | 22.59 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
920 Harvest Drive
|
Blue Bell | PA | 1990 | 51,875 | 100.0 | % | 1,009 | 21.19 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
486 Thomas Jones Way
|
Exton | PA | 1990 | 51,372 | 69.1 | % | 619 | 21.09 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
660 Allendale Road
|
(f | ) | King of Prussia | PA | 1962 | 50,635 | 0.0 | % | 93 | — | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
875 First Avenue
|
King Of Prussia | PA | 1966 | 50,000 | 100.0 | % | 1,037 | 22.00 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
630 Clark Avenue
|
King Of Prussia | PA | 1960 | 50,000 | 100.0 | % | 301 | 8.19 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
620 Allendale Road
|
King Of Prussia | PA | 1961 | 50,000 | 67.0 | % | 536 | 16.06 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
15 Campus Boulevard
|
Newtown Square | PA | 2002 | 49,621 | 100.0 | % | 1,018 | 25.62 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
479 Thomas Jones Way
|
Exton | PA | 1988 | 49,264 | 63.0 | % | 556 | 18.04 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
17 Campus Boulevard
|
Newtown Square | PA | 2001 | 48,565 | 100.0 | % | 1,202 | 30.39 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
11 Campus Boulevard
|
Newtown Square | PA | 1998 | 47,699 | 100.0 | % | 1,111 | 25.75 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
456 Creamery Way
|
Exton | PA | 1987 | 47,604 | 100.0 | % | 372 | 6.68 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
585 East Swedesford Road
|
Wayne | PA | 1998 | 43,683 | 100.0 | % | 771 | 27.01 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1100 Cassett Road
|
Berwyn | PA | 1997 | 43,480 | 100.0 | % | 1,106 | 32.09 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
467 Creamery Way
|
Exton | PA | 1988 | 42,000 | 100.0 | % | 568 | 19.31 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1336 Enterprise Drive
|
West Goshen | PA | 1989 | 39,330 | 100.0 | % | 796 | 24.10 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
600 Park Avenue
|
King Of Prussia | PA | 1964 | 39,000 | 100.0 | % | 545 | 16.17 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
412 Creamery Way
|
Exton | PA | 1999 | 38,098 | 86.0 | % | 591 | 17.71 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
18 Campus Boulevard
|
Newtown Square | PA | 1990 | 37,374 | 85.3 | % | 702 | 20.62 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
457 Creamery Way
|
Exton | PA | 1990 | 36,019 | 100.0 | % | 285 | — | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
100 Arrandale Boulevard
|
Exton | PA | 1997 | 34,931 | 100.0 | % | 456 | 17.43 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
300 Lindenwood Drive
|
Malvern | PA | 1991 | 33,000 | 100.0 | % | 794 | 23.41 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2260 Butler Pike
|
Plymouth Meeting | PA | 1984 | 31,892 | 100.0 | % | 658 | 22.02 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
120 West Germantown Pike
|
Plymouth Meeting | PA | 1984 | 30,574 | 100.0 | % | 528 | 19.75 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
468 Thomas Jones Way
|
Exton | PA | 1990 | 28,934 | 100.0 | % | 550 | 19.50 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1700 Paoli Pike
|
Malvern | PA | 2000 | 28,000 | 0.0 | % | 378 | — | ||||||||||||||||||||||||
|
140 West Germantown Pike
|
Plymouth Meeting | PA | 1984 | 25,357 | 76.0 | % | 383 | 25.12 | ||||||||||||||||||||||||
-28-
Table of Contents
| Average | ||||||||||||||||||||||||||||||||
| Total Base Rent | Annualized | |||||||||||||||||||||||||||||||
| Net | Percentage | for the Twelve | Rental Rate | |||||||||||||||||||||||||||||
| Year | Rentable | Leased as of | Months Ended | as of | ||||||||||||||||||||||||||||
| Built/ | Square | December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||
| Property Name | Location | State | Renovated | Feet | 2009 (a) | 2009 (b) (000’s) | 2009 (c) | |||||||||||||||||||||||||
|
481 John Young Way
|
Exton | PA | 1997 | 19,275 | 100.0 | % | 510 | 26.07 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
100 Lindenwood Drive
|
Malvern | PA | 1985 | 18,400 | 100.0 | % | 357 | 20.03 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
200 Lindenwood Drive
|
Malvern | PA | 1984 | 12,600 | 0.0 | % | 99 | — | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
111 Arrandale Road
|
Exton | PA | 1996 | 10,479 | 100.0 | % | 198 | 18.74 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED AVG — PENNSYLVANIA SEGMENT
|
9,446,776 | 90.6 | % | 195,842 | 21.06 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
METROPOLITAN WASHINGTON D.C. SEGMENT
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1676 International Drive
|
McLean | VA | 1999 | 299,387 | 93.8 | % | 8,877 | 30.87 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
13820 Sunrise Valley Drive
|
Herndon | VA | 2007 | 268,240 | 100.0 | % | 4,676 | 27.76 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2340 Dulles Corner Boulevard
|
Herndon | VA | 1987 | 264,405 | 100.0 | % | 8,077 | 31.18 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2291 Wood Oak Drive
|
Herndon | VA | 1999 | 227,574 | 100.0 | % | 5,332 | 30.16 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
7101 Wisconsin Avenue
|
Bethesda | MD | 1975 | 223,054 | 98.0 | % | 6,848 | 33.33 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1900 Gallows Road
|
Vienna | VA | 1989 | 210,632 | 64.8 | % | 3,957 | 26.04 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
3130 Fairview Park Drive
|
Falls Church | VA | 1999 | 180,645 | 78.6 | % | 5,055 | 32.81 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
3141 Fairview Park Drive
|
Falls Church | VA | 1988 | 180,611 | 90.4 | % | 4,209 | 28.33 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2355 Dulles Corner Boulevard
|
Herndon | VA | 1988 | 179,176 | 84.0 | % | 4,918 | 32.48 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2411 Dulles Corner Park
|
Herndon | VA | 1990 | 176,618 | 100.0 | % | 5,697 | 32.24 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1880 Campus Commons Drive
|
Reston | VA | 1985 | 172,448 | 100.0 | % | 3,112 | 22.18 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2121 Cooperative Way
|
Herndon | VA | 2000 | 161,275 | 83.5 | % | 4,024 | 31.86 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
6600 Rockledge Drive
|
(d | ) | Bethesda | MD | 1981 | 160,173 | 57.7 | % | 2,960 | 30.55 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
8260 Greensboro Drive
|
McLean | VA | 1980 | 158,961 | 76.7 | % | 3,230 | 26.27 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2251 Corporate Park Drive
|
Herndon | VA | 2000 | 158,016 | 100.0 | % | 5,190 | 34.40 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
12015 Lee Jackson Memorial Highway
|
Fairfax | VA | 1985 | 153,255 | 100.0 | % | 3,756 | 27.50 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
13880 Dulles Corner Lane
|
Herndon | VA | 1997 | 151,747 | 100.0 | % | 4,686 | 36.65 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
8521 Leesburg Pike
|
Vienna | VA | 1984 | 150,897 | 71.0 | % | 3,548 | 28.68 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2273 Research Boulevard
|
Rockville | MD | 1999 | 147,689 | 98.4 | % | 4,348 | 33.88 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2275 Research Boulevard
|
Rockville | MD | 1990 | 147,650 | 100.0 | % | 3,716 | 30.56 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2201 Cooperative Way
|
Herndon | VA | 1990 | 138,806 | 85.7 | % | 3,896 | 34.95 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2277 Research Boulevard
|
Rockville | MD | 1986 | 137,045 | 100.0 | % | 3,360 | 29.78 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
11781 Lee Jackson Memorial Highway
|
Fairfax | VA | 1982 | 130,935 | 97.8 | % | 3,193 | 26.29 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
11720 Beltsville Drive
|
Beltsville | MD | 1987 | 128,903 | 71.6 | % | 2,320 | 24.54 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
13825 Sunrise Valley Drive
|
Herndon | VA | 1989 | 104,150 | 12.4 | % | 651 | 25.61 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
198 Van Buren Street
|
Herndon | VA | 1996 | 98,934 | 93.5 | % | 2,957 | 33.80 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
196 Van Buren Street
|
Herndon | VA | 1991 | 97,781 | 57.9 | % | 2,019 | 32.27 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
11700 Beltsville Drive
|
Beltsville | MD | 1981 | 96,843 | 98.2 | % | 2,104 | 22.81 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
11710 Beltsville Drive
|
Beltsville | MD | 1987 | 81,281 | 100.0 | % | 1,864 | 26.01 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
4401 Fair Lakes Court
|
Fairfax | VA | 1988 | 55,972 | 100.0 | % | 1,377 | 27.97 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
11740 Beltsville Drive
|
Beltsville | MD | 1987 | 6,783 | 100.0 | % | 140 | 25.81 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED AVG — METROPOLITAN WASHINGTON D.C. SEGMENT
|
4,849,886 | 88.5 | % | 120,097 | 29.60 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
NEW JERSEY/DELAWARE SEGMENT
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
920 North King Street
|
Wilmington | DE | 1989 | 203,328 | 96.7 | % | 4,583 | 27.32 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
10000 Midlantic Drive
|
Mt. Laurel | NJ | 1990 | 183,147 | 97.5 | % | 2,577 | 26.42 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1009 Lenox Drive
|
Lawrenceville | NJ | 1989 | 180,734 | 92.4 | % | 4,273 | 28.37 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
525 Lincoln Drive West
|
Marlton | NJ | 1986 | 165,956 | 90.2 | % | 2,866 | 24.72 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Main Street — Plaza 1000
|
Voorhees | NJ | 1988 | 162,364 | 71.2 | % | 2,733 | 27.28 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
-29-
Table of Contents
| Average | ||||||||||||||||||||||||||||||||
| Total Base Rent | Annualized | |||||||||||||||||||||||||||||||
| Net | Percentage | for the Twelve | Rental Rate | |||||||||||||||||||||||||||||
| Year | Rentable | Leased as of | Months Ended | as of | ||||||||||||||||||||||||||||
| Built/ | Square | December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||
| Property Name | Location | State | Renovated | Feet | 2009 (a) | 2009 (b) (000’s) | 2009 (c) | |||||||||||||||||||||||||
|
400 Commerce Drive
|
Newark | DE | 1997 | 154,086 | 100.0 | % | 2,321 | 16.10 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
457 Haddonfield Road
|
Cherry Hill | NJ | 1990 | 121,737 | 89.7 | % | 2,536 | 22.82 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2000 Midlantic Drive
|
Mt. Laurel | NJ | 1989 | 121,658 | 61.3 | % | 1,036 | 25.32 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
700 East Gate Drive
|
Mt. Laurel | NJ | 1984 | 119,272 | 84.8 | % | 1,805 | 22.24 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2000 Lenox Drive
|
Lawrenceville | NJ | 2000 | 119,114 | 100.0 | % | 3,230 | 30.73 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
989 Lenox Drive
|
Lawrenceville | NJ | 1984 | 112,055 | 52.2 | % | 2,155 | 29.93 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
993 Lenox Drive
|
Lawrenceville | NJ | 1985 | 111,124 | 100.0 | % | 2,889 | 28.83 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1000 Howard Boulevard
|
Mt. Laurel | NJ | 1988 | 105,312 | 95.7 | % | 1,845 | 23.90 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
One Righter Parkway
|
(d | ) | Wilmington | DE | 1989 | 104,761 | 97.0 | % | 2,359 | 24.74 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1000 Atrium Way
|
Mt. Laurel | NJ | 1989 | 99,668 | 96.2 | % | 1,412 | 23.63 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
997 Lenox Drive
|
Lawrenceville | NJ | 1987 | 97,277 | 79.7 | % | 2,226 | 27.25 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Two Righter Parkway
|
(d | ) | Wilmington | DE | 1987 | 95,514 | 80.9 | % | 1,780 | 25.10 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1120 Executive Boulevard
|
Mt. Laurel | NJ | 1987 | 95,278 | 100.0 | % | 1,592 | 27.94 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
15000 Midlantic Drive
|
Mt. Laurel | NJ | 1991 | 84,056 | 77.8 | % | 879 | 22.43 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
220 Lake Drive East
|
Cherry Hill | NJ | 1988 | 78,509 | 69.8 | % | 1,200 | 22.37 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
10 Lake Center Drive
|
Marlton | NJ | 1989 | 76,359 | 90.6 | % | 1,186 | 21.19 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
200 Lake Drive East
|
Cherry Hill | NJ | 1989 | 76,352 | 83.2 | % | 1,506 | 25.47 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1200 Lenox Drive
|
Lawrenceville | NJ | 2007 | 75,000 | 61.0 | % | 1,055 | 24.59 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Three Greentree Centre
|
Marlton | NJ | 1984 | 69,300 | 98.6 | % | 1,331 | 24.86 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
200 Commerce Drive
|
Newark | DE | 1998 | 68,034 | 100.0 | % | 1,327 | 20.07 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
9000 Midlantic Drive
|
Mt. Laurel | NJ | 1989 | 67,299 | 100.0 | % | 836 | 26.85 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
6 East Clementon Road
|
Gibbsboro | NJ | 1980 | 66,236 | 96.5 | % | 979 | 29.92 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
100 Commerce Drive
|
Newark | DE | 1989 | 62,787 | 92.6 | % | 1,094 | 21.04 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
701 East Gate Drive
|
Mt. Laurel | NJ | 1986 | 61,794 | 75.8 | % | 708 | 22.95 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
210 Lake Drive East
|
Cherry Hill | NJ | 1986 | 60,604 | 89.2 | % | 924 | 23.41 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
308 Harper Drive
|
Moorestown | NJ | 1976 | 59,500 | 56.8 | % | 508 | 22.96 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
305 Fellowship Drive
|
Mt. Laurel | NJ | 1980 | 56,824 | 100.0 | % | 1,101 | 24.08 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Two Greentree Centre
|
Marlton | NJ | 1983 | 56,075 | 76.1 | % | 448 | 22.01 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
309 Fellowship Drive
|
Mt. Laurel | NJ | 1982 | 55,911 | 82.1 | % | 846 | 25.79 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
One Greentree Centre
|
Marlton | NJ | 1982 | 55,838 | 65.8 | % | 684 | 22.08 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
8000 Lincoln Drive
|
Marlton | NJ | 1997 | 54,923 | 100.0 | % | 1,040 | 13.63 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
307 Fellowship Drive
|
Mt. Laurel | NJ | 1981 | 54,485 | 60.3 | % | 704 | 26.61 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
303 Fellowship Drive
|
Mt. Laurel | NJ | 1979 | 53,768 | 70.7 | % | 637 | 22.72 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1000 Bishops Gate
|
Mt. Laurel | NJ | 2005 | 53,281 | 100.0 | % | 1,208 | 25.02 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1000 Lenox Drive
|
Lawrenceville | NJ | 1982 | 52,264 | 100.0 | % | 1,329 | 29.52 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
100 Lenox Drive
|
Lawrenceville | NJ | 1991 | 50,942 | 100.0 | % | 681 | 16.51 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2 Foster Avenue
|
(f | ) | Gibbsboro | NJ | 1974 | 50,761 | 94.6 | % | 195 | 4.58 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
4000 Midlantic Drive
|
Mt. Laurel | NJ | 1998 | 46,945 | 100.0 | % | 657 | 24.48 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Five Eves Drive
|
Marlton | NJ | 1986 | 45,564 | 100.0 | % | 730 | 22.35 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
161 Gaither Drive
|
Mount Laurel | NJ | 1987 | 44,739 | 96.4 | % | 603 | 21.82 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Main Street — Piazza
|
Voorhees | NJ | 1990 | 44,708 | 89.6 | % | 663 | 19.27 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
30 Lake Center Drive
|
Marlton | NJ | 1986 | 40,287 | 91.3 | % | 652 | 19.46 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
20 East Clementon Road
|
Gibbsboro | NJ | 1986 | 38,260 | 74.7 | % | 359 | 19.86 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Two Eves Drive
|
Marlton | NJ | 1987 | 37,532 | 62.0 | % | 416 | 18.94 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
304 Harper Drive
|
Moorestown | NJ | 1975 | 32,978 | 83.6 | % | 512 | 24.30 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Main Street — Promenade
|
Voorhees | NJ | 1988 | 31,445 | 80.0 | % | 355 | 14.94 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Four B Eves Drive
|
Marlton | NJ | 1987 | 27,011 | 100.0 | % | 408 | 17.40 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
815 East Gate Drive
|
Mt. Laurel | NJ | 1986 | 25,500 | 65.1 | % | 296 | 17.94 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
817 East Gate Drive
|
Mt. Laurel | NJ | 1986 | 25,351 | 100.0 | % | 268 | 13.88 | ||||||||||||||||||||||||
-30-
Table of Contents
| Average | ||||||||||||||||||||||||||||||||
| Total Base Rent | Annualized | |||||||||||||||||||||||||||||||
| Net | Percentage | for the Twelve | Rental Rate | |||||||||||||||||||||||||||||
| Year | Rentable | Leased as of | Months Ended | as of | ||||||||||||||||||||||||||||
| Built/ | Square | December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||
| Property Name | Location | State | Renovated | Feet | 2009 (a) | 2009 (b) (000’s) | 2009 (c) | |||||||||||||||||||||||||
|
Four A Eves Drive
|
Marlton | NJ | 1987 | 24,687 | 100.0 | % | 311 | 16.81 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1 Foster Avenue
|
(f | ) | Gibbsboro | NJ | 1972 | 24,255 | 100.0 | % | 95 | 4.58 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
4 Foster Avenue
|
(f | ) | Gibbsboro | NJ | 1974 | 23,372 | 100.0 | % | 159 | 7.78 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
7 Foster Avenue
|
Gibbsboro | NJ | 1983 | 22,158 | 61.8 | % | 300 | 21.37 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
10 Foster Avenue
|
Gibbsboro | NJ | 1983 | 18,651 | 90.4 | % | 194 | 18.47 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
5 U.S. Avenue
|
(f | ) | Gibbsboro | NJ | 1987 | 5,000 | 100.0 | % | 24 | 5.00 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
50 East Clementon Road
|
Gibbsboro | NJ | 1986 | 3,080 | 100.0 | % | 174 | 56.41 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
5 Foster Avenue
|
Gibbsboro | NJ | 1968 | 2,000 | 100.0 | % | — | — | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED AVG — NEW JERSEY/DELAWARE SEGMENT
|
4,416,810 | 87.3 | % | 73,800 | 22.07 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
RICHMOND, VA SEGMENT
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
300 Arboretum Place
|
Richmond | VA | 1988 | 212,698 | 94.5 | % | 3,378 | 18.05 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
6800 Paragon Place
|
Richmond | VA | 1986 | 144,722 | 85.5 | % | 2,571 | 20.64 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
6802 Paragon Place
|
Richmond | VA | 1989 | 143,567 | 89.4 | % | 2,262 | 18.23 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
7501 Boulders View Drive
|
Richmond | VA | 1990 | 137,283 | 62.7 | % | 1,980 | 17.65 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2511 Brittons Hill Road
|
(f | ) | Richmond | VA | 1987 | 132,548 | 100.0 | % | 678 | 6.65 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2100-2116 West Laburnam Avenue
|
Richmond | VA | 1976 | 127,929 | 89.3 | % | 1,568 | 14.51 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1957 Westmoreland Street
|
(g | ) | Richmond | VA | 1975 | 121,815 | 0.0 | % | 184 | — | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
7300 Beaufont Springs Drive
|
Richmond | VA | 2000 | 120,665 | 100.0 | % | 2,573 | 22.03 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1025 Boulders Parkway
|
Richmond | VA | 1994 | 93,143 | 98.8 | % | 1,826 | 20.43 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2201-2245 Tomlynn Street
|
(f | ) | Richmond | VA | 1989 | 85,860 | 91.9 | % | 473 | 8.33 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
7401 Beaufont Springs Drive
|
Richmond | VA | 1998 | 82,639 | 73.4 | % | 1,311 | 20.62 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
7325 Beaufont Springs Drive
|
Richmond | VA | 1999 | 75,218 | 100.0 | % | 1,554 | 22.29 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
100 Gateway Centre Parkway
|
Richmond | VA | 2001 | 74,991 | 67.2 | % | 520 | 16.81 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
6806 Paragon Place
|
Richmond | VA | 2007 | 74,480 | 100.0 | % | 1,754 | 24.61 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
9011 Arboretum Parkway
|
Richmond | VA | 1991 | 73,183 | 93.0 | % | 1,292 | 18.72 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
4805 Lake Brooke Drive
|
Glen Allen | VA | 1996 | 60,867 | 100.0 | % | 1,057 | 19.02 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
9100 Arboretum Parkway
|
Richmond | VA | 1988 | 57,974 | 93.7 | % | 864 | 16.24 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2812 Emerywood Parkway
|
Henrico | VA | 1980 | 56,984 | 87.4 | % | 857 | 15.46 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
4364 South Alston Avenue
|
Durham | NC | 1985 | 56,601 | 100.0 | % | 1,132 | 21.37 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2277 Dabney Road
|
(f | ) | Richmond | VA | 1986 | 50,400 | 100.0 | % | 267 | 7.40 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
9200 Arboretum Parkway
|
Richmond | VA | 1988 | 49,542 | 100.0 | % | 467 | 17.04 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
9210 Arboretum Parkway
|
Richmond | VA | 1988 | 48,012 | 89.5 | % | 563 | 14.85 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2212-2224 Tomlynn Street
|
(f | ) | Richmond | VA | 1985 | 45,353 | 100.0 | % | 230 | 7.55 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2221-2245 Dabney Road
|
(f | ) | Richmond | VA | 1994 | 45,250 | 86.2 | % | 234 | 7.80 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2251 Dabney Road
|
(f | ) | Richmond | VA | 1983 | 42,000 | 100.0 | % | 209 | 6.77 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2161-2179 Tomlynn Street
|
(f | ) | Richmond | VA | 1985 | 41,550 | 100.0 | % | 273 | 8.45 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2256 Dabney Road
|
(f | ) | Richmond | VA | 1982 | 33,413 | 100.0 | % | 232 | 8.84 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2246 Dabney Road
|
(f | ) | Richmond | VA | 1987 | 33,271 | 100.0 | % | 287 | 11.11 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2244 Dabney Road
|
(f | ) | Richmond | VA | 1993 | 33,050 | 100.0 | % | 297 | 11.52 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
9211 Arboretum Parkway
|
Richmond | VA | 1991 | 30,791 | 63.1 | % | 330 | 13.87 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2248 Dabney Road
|
(f | ) | Richmond | VA | 1989 | 30,184 | 100.0 | % | 194 | 9.03 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2130-2146 Tomlynn Street
|
(f | ) | Richmond | VA | 1988 | 29,700 | 57.6 | % | 179 | 11.75 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2120 Tomlyn Street
|
(f | ) | Richmond | VA | 1986 | 23,850 | 100.0 | % | 133 | 7.67 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2240 Dabney Road
|
(f | ) | Richmond | VA | 1984 | 15,389 | 100.0 | % | 138 | 11.85 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED AVG — RICHMOND, VA SEGMENT
|
2,484,922 | 86.3 | % | 31,867 | 14.03 | |||||||||||||||||||||||||||
-31-
Table of Contents
| Average | ||||||||||||||||||||||||||||||||
| Total Base Rent | Annualized | |||||||||||||||||||||||||||||||
| Net | Percentage | for the Twelve | Rental Rate | |||||||||||||||||||||||||||||
| Year | Rentable | Leased as of | Months Ended | as of | ||||||||||||||||||||||||||||
| Built/ | Square | December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||
| Property Name | Location | State | Renovated | Feet | 2009 (a) | 2009 (b) (000’s) | 2009 (c) | |||||||||||||||||||||||||
|
CALIFORNIA
|
||||||||||||||||||||||||||||||||
|
155 Grand Avenue
|
Oakland | CA | 1990 | 200,996 | 71.7 | % | 4,128 | 36.10 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1220 Concord Avenue
|
Concord | CA | 1984 | 175,153 | 100.0 | % | 2,944 | 22.46 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1200 Concord Avenue
|
Concord | CA | 1984 | 175,103 | 100.0 | % | 4,161 | 26.44 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
5780 & 5790 Fleet Street
|
Carlsbad | CA | 1999 | 121,381 | 68.3 | % | 2,834 | 33.25 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
5900 & 5950 La Place Court
|
Carlsbad | CA | 1988 | 80,506 | 80.5 | % | 1,727 | 25.38 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
16870 West Bernardo Drive
|
Rancho Bernardo | CA | 2002 | 68,708 | 69.6 | % | 1,331 | 31.25 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
5963 La Place Court
|
Carlsbad | CA | 1987 | 61,587 | 54.0 | % | 804 | 24.19 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2035 Corte Del Nogal
|
Carlsbad | CA | 1991 | 53,982 | 53.7 | % | 698 | 14.25 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
5973 Avendia Encinas
|
Carlsbad | CA | 1986 | 51,695 | 79.6 | % | 1,132 | 28.59 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED AVG — CALIFORNIA
|
989,111 | 80.2 | % | 19,759 | 26.88 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
AUSTIN, TX
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1250 Capital of Texas Highway South
|
Austin | TX | 1984 | 270,711 | 82.3 | % | 3,360 | 24.13 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1301 Mopac Expressway
|
Austin | TX | 2001 | 222,580 | 99.8 | % | 4,320 | 31.54 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
3711 South Mopac Expressway
|
Austin | TX | 2007 | 205,195 | 93.5 | % | 2,230 | 17.03 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1601 Mopac Expressway
|
Austin | TX | 2000 | 195,639 | 100.0 | % | 2,966 | 27.23 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1501 South Mopac Expressway
|
Austin | TX | 1999 | 195,324 | 94.5 | % | 2,609 | 26.89 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1221 Mopac Expressway
|
Austin | TX | 2001 | 173,302 | 93.0 | % | 3,127 | 32.64 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1177 East Belt Line Road
|
(h | ) | Coppell | TX | 1998 | 150,000 | 100.0 | % | 1,833 | 14.87 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
1801 Mopac Expressway
|
Austin | TX | 1999 | 58,576 | 100.0 | % | 975 | 28.23 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED AVG — AUSTIN, TX
|
1,471,327 | 94.3 | % | 21,420 | 25.32 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
SUBTOTAL FULLY OWNED PROPERTIES / WEIGHTED AVG.
|
23,658,832 | 88.9 | % | 462,785 | 21.79 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2970 Market Street
|
Philadelphia | PA | N/A | 862,692 | 100.0 | % | — | — | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2930 Chestnut Street
|
Philadelphia | PA | N/A | 553,421 | 92.6 | % | — | — | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
300 Delaware Avenue
|
Wilmington | DE | 1989 | 298,071 | 71.9 | % | 2,967 | 17.94 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
One Radnor Corporate Center
|
Radnor | PA | 1998 | 190,219 | 89.7 | % | 3,839 | 21.98 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Juniper Street
|
Philadelphia | PA | N/A | — | — | — | — | |||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
SUBTOTAL DEVELOPMENT/REDEVELOPMENT PROPERTIES / WEIGHTED AVG.
|
1,904,403 | 92.4 | % | 6,806 | 7.98 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
TOTAL CORE PORTFOLIO
|
25,563,235 | 89.2 | % | 469,591 | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| (a) | Calculated by dividing net rentable square feet included in leases signed on or before December 31, 2009 at the property by the aggregate net rentable square feet of the property. | |
| (b) | “Total Base Rent” for the twelve months ended December 31, 2009 represents base rents earned during such period, excluding tenant reimbursements, calculated in accordance with generally accepted accounting principles (GAAP) determined on a straight-line basis. | |
| (c) | “Average Annualized Rental Rate” is calculated as follows: (i) for office leases written on a triple net basis, the sum of the annualized contracted base rental rates payable for all space leased as of December 31, 2009 plus the prorata 2009 budgeted operating expense recoveries excluding tenant electricity; and (ii) for office leases written on a full service basis, the annualized contracted base rent payable for all space leased as of December 31, 2009. In both cases, the annualized rental rate is divided by the total square footage leased as of December 31, 2009 without giving effect to free rent or scheduled rent increases that would be taken into account under GAAP. | |
| (d) | These properties are subject to a ground lease with a third party. | |
| (e) | We hold our interest in Two Logan Square (100 North 18 th Street) primarily through our ownership of second and third mortgages that are secured by this property and that are junior to a first mortgage with a third party. Our ownership of these two mortgages currently provides us with all of the cash flows from Two Logan Square after the payment of operating expenses and debt service on the first mortgage. | |
| (f) | These properties are industrial facilities. | |
| (g) | Property sold on January 14, 2010. | |
| (h) | Property owned by consolidated real estate venture. |
-32-
Table of Contents
The following table shows information regarding rental rates and lease expirations for the
Properties at December 31, 2009 and assumes that none of the tenants exercises renewal options or
termination rights, if any, at or prior to scheduled expirations:
| Final | Percentage | |||||||||||||||||||||||||
| Rentable | Final | Annualized | of Total Final | |||||||||||||||||||||||
| Number of | Square | Annualized | Base Rent | Annualized | ||||||||||||||||||||||
| Year of | Leases | Footage | Base Rent | Per Square | Base Rent | |||||||||||||||||||||
| Lease | Expiring | Subject to | Under | Foot Under | Under | |||||||||||||||||||||
| Expiration | Within the | Expiring | Expiring | Expiring | Expiring | Cumulative | ||||||||||||||||||||
| December 31, | Year | Leases | Leases (a) | Leases | Leases | Total | ||||||||||||||||||||
| 2010 | 390 | 2,978,553 | 61,524,591 | 20.66 | 12.1 | % | 12.1 | % | ||||||||||||||||||
| 2011 | 299 | 3,201,307 | 70,464,819 | 22.01 | 13.8 | % | 25.9 | % | ||||||||||||||||||
| 2012 | 230 | 2,479,141 | 60,450,938 | 24.38 | 11.9 | % | 37.7 | % | ||||||||||||||||||
| 2013 | 172 | 2,261,892 | 46,619,815 | 20.61 | 9.1 | % | 46.9 | % | ||||||||||||||||||
| 2014 | 175 | 2,409,842 | 54,612,455 | 22.66 | 10.7 | % | 57.6 | % | ||||||||||||||||||
| 2015 | 108 | 1,950,515 | 49,022,957 | 25.13 | 9.6 | % | 67.2 | % | ||||||||||||||||||
| 2016 | 73 | 1,129,774 | 28,292,757 | 25.04 | 5.5 | % | 72.8 | % | ||||||||||||||||||
| 2017 | 57 | 1,394,958 | 38,941,266 | 27.92 | 7.6 | % | 80.4 | % | ||||||||||||||||||
| 2018 | 36 | 1,014,518 | 29,958,725 | 29.53 | 5.9 | % | 86.3 | % | ||||||||||||||||||
| 2019 | 34 | 927,351 | 32,733,953 | 35.30 | 6.4 | % | 92.7 | % | ||||||||||||||||||
| 2020 and thereafter | 32 | 1,413,069 | 37,181,075 | 26.31 | 7.4 | % | 100.0 | % | ||||||||||||||||||
| 1,606 | 21,160,920 | $ | 509,803,351 | $ | 24.09 | 100.0 | % | |||||||||||||||||||
| (a) | “Final Annualized Base Rent” for each lease scheduled to expire represents the cash rental rate of base rents, excluding tenant reimbursements, in the final month prior to expiration multiplied by 12. Tenant reimbursements generally include payment of a portion of real estate taxes, operating expenses and common area maintenance and utility charges. |
At December 31, 2009, our Properties were leased to 1,357 tenants that are engaged in a
variety of businesses. The following table sets forth information regarding leases at the
Properties with the 20 tenants with the largest amounts leased based upon Annualized Base Rent as
of December 31, 2009:
| Weighted | Percentage of | |||||||||||||||||||||||
| Average | Aggregate | Percentage | Annualized | Aggregate | ||||||||||||||||||||
| Number | Remaining | Leased | of Aggregate | Base | Annualized | |||||||||||||||||||
| of | Lease Term | Square | Leased | Rent (in | Base | |||||||||||||||||||
| Tenant Name (a) | Leases | in Months | Feet | Square Feet | 000) (b) | Rent | ||||||||||||||||||
|
Northrop Grumman Corporation
|
6 | 73 | 469,116 | 2.2 | % | $ | 13,787 | 3.0 | % | |||||||||||||||
|
Pepper Hamilton LLP
|
2 | 59 | 309,042 | 1.5 | % | 10,604 | 2.3 | % | ||||||||||||||||
|
Wells Fargo Bank, N.A.
|
15 | 20 | 475,326 | 2.2 | % | 10,336 | 2.2 | % | ||||||||||||||||
|
Lockheed Martin
|
9 | 32 | 577,251 | 2.7 | % | 9,594 | 2.1 | % | ||||||||||||||||
|
Time Warner Cable, Inc.
|
1 | 115 | 266,899 | 1.3 | % | 8,307 | 1.8 | % | ||||||||||||||||
|
Dechert LLP
|
1 | 118 | 218,565 | 1.0 | % | 7,213 | 1.6 | % | ||||||||||||||||
|
KPMG, LLP
|
2 | 55 | 245,828 | 1.2 | % | 7,047 | 1.5 | % | ||||||||||||||||
|
Verizon
|
4 | 15 | 302,087 | 1.4 | % | 5,995 | 1.3 | % | ||||||||||||||||
|
Lincoln National Management Co.
|
1 | 127 | 193,626 | 0.9 | % | 5,952 | 1.3 | % | ||||||||||||||||
|
Computer Associates International
|
1 | 112 | 227,574 | 1.1 | % | 5,604 | 1.2 | % | ||||||||||||||||
|
Blank Rome LLP
|
1 | 145 | 239,236 | 1.1 | % | 5,529 | 1.2 | % | ||||||||||||||||
|
Computer Sciences
|
6 | 44 | 276,410 | 1.3 | % | 4,811 | 1.0 | % | ||||||||||||||||
|
AT&T
|
5 | 87 | 144,451 | 0.7 | % | 4,067 | 0.9 | % | ||||||||||||||||
|
General Services Administration — U.S. Govt.
|
12 | 58 | 169,128 | 0.8 | % | 3,925 | 0.8 | % | ||||||||||||||||
|
Omnicare Clinical Research
|
1 | 7 | 150,000 | 0.7 | % | 3,899 | 0.8 | % | ||||||||||||||||
|
Marsh USA, Inc.
|
2 | 43 | 128,589 | 0.6 | % | 3,839 | 0.8 | % | ||||||||||||||||
|
Hewlett Packard
|
2 | 78 | 141,339 | 0.7 | % | 3,803 | 0.8 | % | ||||||||||||||||
|
Deltek Systems, Inc.
|
3 | 27 | 116,172 | 0.5 | % | 3,696 | 0.8 | % | ||||||||||||||||
|
Woodcock Washburn, LLC
|
1 | 144 | 109,323 | 0.5 | % | 3,608 | 0.8 | % | ||||||||||||||||
|
National Rural Utilities Cooperative
|
1 | 22 | 107,228 | 0.6 | % | 3,438 | 0.8 | % | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Consolidated Total/Weighted Average
|
76 | 60 | 4,867,190 | 23.0 | % | $ | 125,054 | 27.0 | % | |||||||||||||||
|
|
||||||||||||||||||||||||
| (a) | The identified tenant includes affiliates in certain circumstances. | |
| (b) | Annualized Base Rent represents the monthly Base Rent, excluding tenant reimbursements, for each lease in effect at December 31, 2009 multiplied by 12. Tenant reimbursements generally include payment of a portion of real estate taxes, operating expenses and common area maintenance and utility charges. |
-33-
Table of Contents
Real Estate Ventures
As of December 31, 2009, we had investments in three real estate ventures that are considered to be
variable interest entities under the accounting standard for consolidation and of which we are the
primary beneficiary. We consolidate these three real estate ventures into our financial
statements.
As of December 31, 2009, we also had an aggregate investment of approximately $75.5 million in our
11 actively operating unconsolidated Real Estate Ventures (net of returns of investment). We
entered into these ventures with unaffiliated third parties to develop office properties or to
acquire land in anticipation of possible development of office properties. Ten of the Real Estate
Ventures own 45 office buildings that contain an aggregate of approximately 4.2 million net
rentable square feet and one Real Estate Venture developed a hotel property that contains 137 rooms
in Conshohocken, PA.
We account for our investments in these Real Estate Ventures using the equity method. Our
ownership interests range from 3% to 50%, subject to specified priority allocations in certain of
the Real Estate Ventures. Our investments, initially recorded at cost, are subsequently adjusted
for our share of the Real Estate Ventures’ income or loss and contributions to capital and
distributions, unless we have no intent or obligation to fund losses in which case our investment
would not go below zero.
As of December 31, 2009, we had guaranteed repayment of approximately $2.1 million of loans for the
Real Estate Ventures. We also provide customary environmental indemnities and completion
guarantees in connection with construction and permanent financing both for our own account and on
behalf of the Real Estate Ventures.
| Item 3. | Legal Proceedings |
We are involved from time to time in legal proceedings, including tenant disputes, employee
disputes, disputes arising out of agreements to purchase or sell properties and disputes relating
to state and local taxes. We generally consider these disputes to be routine to the conduct of our
business and management believes that the final outcome of such proceedings will not have a
material adverse effect on our financial position, results of operations or liquidity.
| Item 4. | Submission of Matters to a Vote of Security Holders |
We did not submit any matters to a vote of our shareholders during the fourth quarter of the year
ended December 31, 2009.
-34-
Table of Contents
| Item 5. | Market for Registrant’s Common Equity and Related Shareholder Matters and Issuer Purchases of Equity Securities |
Our common shares are traded on the New York Stock Exchange (“NYSE”) under the symbol “BDN.” There
is no established trading market for the Class A units of the Operating Partnership. On February
23, 2010, there were 713 holders of record of our common shares and 43 holders of record of the
Class A units (in addition to Brandywine Realty Trust). On
February 23, 2010, the last reported
sales price of the common shares on the NYSE was $11.09. The following table sets forth the
quarterly high and low sales price per common share reported on the NYSE for the indicated periods
and the distributions paid by us with respect to each such period.
| Share Price | Share Price | Distributions | ||||||||||
| High | Low | Paid During Quarter | ||||||||||
|
|
||||||||||||
|
First Quarter 2008
|
$ | 19.39 | $ | 15.70 | $ | 0.44 | ||||||
|
Second Quarter 2008
|
$ | 19.86 | $ | 15.76 | $ | 0.44 | ||||||
|
Third Quarter 2008
|
$ | 18.30 | $ | 13.48 | $ | 0.44 | ||||||
|
Fourth Quarter 2008
|
$ | 15.22 | $ | 3.73 | $ | 0.44 | ||||||
|
First Quarter 2009
|
$ | 7.36 | $ | 2.52 | $ | 0.30 | ||||||
|
Second Quarter 2009
|
$ | 7.45 | $ | 2.91 | $ | 0.10 | ||||||
|
Third Quarter 2009
|
$ | 11.46 | $ | 6.61 | $ | 0.10 | ||||||
|
Fourth Quarter 2009
|
$ | 11.85 | $ | 9.48 | $ | 0.10 | ||||||
For each quarter in 2009 and 2008, the Operating Partnership paid a cash distribution per Class A
unit in an amount equal to the dividend paid on a common share for each such quarter.
In order to maintain the status of Brandywine Realty Trust as a REIT, we must make annual
distributions to shareholders of at least 90% of our taxable income (not including net capital
gains). Future distributions will be declared at the discretion of our Board of Trustees and will
depend on our actual cash flow, financial condition and capital requirements, the annual
distribution requirements under the REIT provisions of the Internal Revenue Code of 1986 and such
other factors as our Board deems relevant.
On December 8, 2009, our Board of Trustees declared a quarterly dividend distribution of $0.15 per
common share that was paid on January 20, 2010. Our Board of Trustees has adopted a dividend
policy designed to match our distributions to our projected, normalized taxable income for 2010.
We will continue to evaluate the potential of paying such dividends in stock versus cash. Our
Board of Trustees has made no determination on our future dividend composition.
On June 24, 2009, we filed with the NYSE our annual CEO Certification and Annual Written
Affirmation pursuant to Section 303A.12 of the NYSE Listed Company Manual, each certifying that we
were in compliance with all of the listing standards of the NYSE.
-35-
Table of Contents
The following table provides information as of December 31, 2009 with respect to compensation plans
under which our equity securities are authorized for issuance:
| (a) | (b) | (c) | ||||||||||
| Number of securities | ||||||||||||
| remaining available for | ||||||||||||
| Number of securities to be | Weighted-average | future issuance under | ||||||||||
| issued upon exercise of | exercise price of | equity compensation plans | ||||||||||
| outstanding options, | outstanding options, | (excluding securities | ||||||||||
| Plan category | warrants and rights | warrants and rights | reflected in column (a)) | |||||||||
|
Equity compensation
plans approved by
security holders
(1)
|
2,404,566 | $ | 15.48 | 1,828,124 | ||||||||
|
|
||||||||||||
|
Equity compensation
plans not approved
by security holders
|
— | — | — | |||||||||
|
|
||||||||||||
|
Total
|
2,404,566 | $ | 15.48 | 1,828,124 | ||||||||
| (1) | Relates to our Amended and Restated 1997 Long-Term Incentive Plan. In May 2007, our shareholders approved an amendment to our Amended and Restated 1997 Long-Term Incentive Plan (the “1997 Plan”). The amendment provided for the merger of the Prentiss Properties Trust 2005 Share Incentive Plan (the “Prentiss 2005 Plan”) with and into the 1997 Plan, thereby transferring into the 1997 Plan all of the shares that remained available for award under the Prentiss 2005 Plan. We had previously assumed the Prentiss 2005 Plan, together with other Prentiss incentive plans, as part of our January 2006 acquisition of Prentiss Properties Trust (“Prentiss”). The 1997 Plan reserves 500,000 common shares solely for awards under options and share appreciation rights that have an exercise or strike price at least equal to the market price of the common shares on the date of award and the remaining shares under the 1997 Plan are available for any type of award, including restricted share and performance share awards and options. Incentive stock options may not be granted with an exercise price below the market price of the common shares on the grant date. To date we have awarded incentive stock options and non-qualified stock options that generally have a ten year term and vest over a one to three year period. |
-36-
Table of Contents
The following table presents information related to our share repurchases during the year
ended December. 31, 2009:
| Purchased as Part of | Shares that May Yet Be | |||||||||||||||
| Total Number of | Average Price Paid | Publicly Announced | Purchased Under the | |||||||||||||
| Period | Shares Purchased | per Share | Plans or Programs | Plans or Programs (a) | ||||||||||||
| (in thousands) | ||||||||||||||||
|
January 2009
|
25,755 | (b) | $ | 6.96 | — | 539,200 | ||||||||||
|
February 2009
|
— | — | 539,200 | |||||||||||||
|
March 2009
|
5,008 | (b) | 2.52 | — | 539,200 | |||||||||||
|
April 2009
|
— | — | 539,200 | |||||||||||||
|
May 2009
|
— | — | 539,200 | |||||||||||||
|
June 2009
|
— | — | 539,200 | |||||||||||||
|
July 2009
|
— | — | 539,200 | |||||||||||||
|
August 2009
|
— | — | 539,200 | |||||||||||||
|
September 2009
|
— | — | 539,200 | |||||||||||||
|
October 2009
|
— | — | 539,200 | |||||||||||||
|
November 2009
|
— | — | 539,200 | |||||||||||||
|
December 2009
|
— | — | 539,200 | |||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total
|
30,763 | — | ||||||||||||||
|
|
||||||||||||||||
| (a) | On May 2, 2006, our Board of Trustees authorized an increase in the number of common shares that we may repurchase, whether in open-market or privately negotiated transactions. The Board authorized us to purchase up to an aggregate of 3,500,000 common shares (inclusive of remaining share repurchase availability under the Board’s prior authorization from September 2001). There is no expiration date on the share repurchase program and the Board can cancel this program at any time. | |
| (b) | Represents Common Shares cancelled by the Company upon vesting of restricted Common Shares previously awarded to Company employees in satisfaction of tax withholding obligations. Such shares do not impact the total number of shares that may yet be purchased under the share repurchase program. |
-37-
Table of Contents
SHARE PERFORMANCE GRAPH
The Securities and Exchange Commission requires us to present a chart comparing the cumulative
total shareholder return on the common shares with the cumulative total shareholder return of (i) a
broad equity index and (ii) a published industry or peer group index. The following chart compares
the cumulative total shareholder return for the common shares with the cumulative shareholder
return of companies on (i) the S&P 500 Index (ii) the Russell 2000 and (iii) the NAREIT ALL-REIT
Total Return Index as provided by NAREIT for the period beginning December 31, 2004 and ending
December 31, 2009.
| Period Ending | ||||||||||||||||||||||||
| Index | 12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | 12/31/09 | ||||||||||||||||||
|
Brandywine Realty Trust
|
100.00 | 101.06 | 125.40 | 71.76 | 34.33 | 55.96 | ||||||||||||||||||
|
S&P 500
|
100.00 | 104.91 | 121.48 | 128.16 | 80.74 | 102.11 | ||||||||||||||||||
|
Russell 2000
|
100.00 | 104.55 | 123.76 | 121.82 | 80.66 | 102.58 | ||||||||||||||||||
|
NAREIT All Equity
REIT Index
|
100.00 | 112.16 | 151.49 | 127.72 | 79.53 | 101.79 | ||||||||||||||||||
-38-
Table of Contents
| Item 6. | Selected Financial Data |
The following table sets forth selected financial and operating data and should be read in
conjunction with the financial statements and related notes and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form
10-K. The selected data have been revised to reflect disposition of all properties since January
1, 2005, which have been reclassified as discontinued operations for all periods presented in
accordance with the accounting standard governing discontinued operations. The selected financial
data have also been revised to reflect the impact of the retrospective adoption of the accounting
standard for convertible debt, non-controlling interest and the accounting standard for earnings
per share disclosures related to non-forfeitable dividend rights for unvested shares. Please refer
to Note 2 of the Consolidated Financial Statements of each registrant for additional information.
Brandywine Realty Trust
(in thousands, except per common share data and number of properties)
(in thousands, except per common share data and number of properties)
| Year Ended December 31, | 2009 | 2008 (a) | 2007 (a) | 2006 (a) | 2005 (a) | |||||||||||||||
|
|
||||||||||||||||||||
|
Operating Results
|
||||||||||||||||||||
|
Total revenue
|
$ | 582,219 | $ | 589,421 | $ | 604,811 | $ | 551,367 | $ | 340,190 | ||||||||||
|
Income (loss) from continuing operations
|
5,648 | 1,422 | 9,333 | (37,420 | ) | 23,849 | ||||||||||||||
|
Net income
|
8,089 | 38,525 | 55,335 | 10,949 | 43,550 | |||||||||||||||
|
Income allocated to Common Shares
|
(245 | ) | 28,462 | 44,124 | 332 | 33,626 | ||||||||||||||
|
Income (loss) from continuing operations
per Common Share
|
||||||||||||||||||||
|
Basic
|
$ | (0.02 | ) | $ | (0.08 | ) | $ | — | $ | (0.51 | ) | $ | 0.26 | |||||||
|
Diluted
|
$ | (0.02 | ) | $ | (0.08 | ) | $ | — | $ | (0.51 | ) | $ | 0.26 | |||||||
|
Earnings per Common Share
|
||||||||||||||||||||
|
Basic
|
$ | — | $ | 0.33 | $ | 0.50 | $ | — | $ | 0.60 | ||||||||||
|
Diluted
|
$ | — | $ | 0.33 | $ | 0.50 | $ | — | $ | 0.60 | ||||||||||
|
Cash distributions paid per Common Share
|
$ | 0.60 | $ | 1.76 | $ | 1.76 | $ | 1.76 | $ | 1.78 | (b) | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Real estate investments, net of
accumulated depreciation
|
$ | 4,164,992 | $ | 4,191,367 | $ | 4,657,333 | $ | 4,739,726 | $ | 2,541,486 | ||||||||||
|
Total assets
|
4,663,750 | 4,742,619 | 5,213,968 | 5,508,479 | 2,805,745 | |||||||||||||||
|
Total indebtedness
|
2,454,577 | 2,741,495 | 3,081,949 | 3,133,934 | 1,521,384 | |||||||||||||||
|
Total liabilities
|
2,742,010 | 3,020,121 | 3,363,759 | 3,462,272 | 1,662,844 | |||||||||||||||
|
Noncontrolling interest
|
38,308 | 52,961 | 84,076 | 123,630 | 37,749 | |||||||||||||||
|
Brandywine Realty Trust’s equity
|
1,883,432 | 1,669,537 | 1,766,133 | 1,922,577 | 1,105,152 | |||||||||||||||
|
|
||||||||||||||||||||
|
Other Data
|
||||||||||||||||||||
|
Cash flows from:
|
||||||||||||||||||||
|
Operating activities
|
$ | 220,405 | $ | 233,867 | $ | 224,805 | $ | 238,299 | $ | 125,147 | ||||||||||
|
Investing activities
|
(102,549 | ) | 164,046 | 39,162 | (912,813 | ) | (252,417 | ) | ||||||||||||
|
Financing activities
|
(120,213 | ) | (399,589 | ) | (283,746 | ) | 692,719 | 119,098 | ||||||||||||
|
|
||||||||||||||||||||
|
Property Data
|
||||||||||||||||||||
|
Number of properties owned at year end
|
245 | 248 | 257 | 313 | 251 | |||||||||||||||
|
Net rentable square feet owned at year end
|
25,563 | 26,257 | 28,888 | 31,764 | 19,600 | |||||||||||||||
| (a) | Net income has been increased/(reduced) by $(5.0) million, $(1.4) million, $1.1 million and $1.2 million for the years ended December 31, 2008, 2007, 2006 and 2005, respectively, related to the retrospective adoption of the standards for convertibe debt and non-controlling interest discussed in Note 2 of the Consolidated Financial Statements. Total assets as of December 31, 2008, 2007, 2006 have also been increased/(reduced) by $0.3 million, $(0.1) million, and $(0.5) million, respectively. as a result of the retrospective adoption of the accounting standard for convertible debt. Total liabilities as of December 31, 2008, 2007 and 2006 have also been increased/(reduced) by $(12.2) million, $(19.0) million and $(23.4) million, respectively as a result of the retrospective adoption of the accounting standard for convertible debt. Accordingly, total equity as of December 31, 2008, 2007, 2006 and 2005 have been increased/(reduced) by $65.7 million, $102.9 million, $146.9 million and $37.7 million, respectively as result of these retrospective adjustments for convertible debt and noncontrolling interests. The debt impacted by the adoption of the accounting standard for convertible debt was issued in October 2006. We reclassified tenant reimbursements that are payable to tenants of $4.7 million to accounts payable and accrued expenses from accounts receivable, net at December 31, 2008. | |
| (b) | Includes $0.02 special distribution declared in December 2006 for shareholders of record for the period January 1, 2006 through January 4, 2006 (pre-Prentiss merger period). |
-39-
Table of Contents
Brandywine Operating Partnership, L.P.
(in thousands, except per unit data and number of properties)
(in thousands, except per unit data and number of properties)
| Year Ended December 31, | 2009 | 2008 (a) | 2007 (a) | 2006 (a) | 2005 (a) | |||||||||||||||
|
|
||||||||||||||||||||
|
Operating Results
|
||||||||||||||||||||
|
Total revenue
|
$ | 582,219 | $ | 589,421 | $ | 604,811 | $ | 551,367 | $ | 340,190 | ||||||||||
|
Income (loss) from continuing operations
|
5,648 | 1,422 | 9,333 | (37,420 | ) | 23,849 | ||||||||||||||
|
Net income
|
8,089 | 38,525 | 55,335 | 10,949 | 43,550 | |||||||||||||||
|
Income from continuing operations per
|
||||||||||||||||||||
|
Common Partnership Unit
|
||||||||||||||||||||
|
Basic
|
$ | (0.02 | ) | $ | (0.08 | ) | $ | 0.01 | $ | (0.49 | ) | $ | 0.26 | |||||||
|
Diluted
|
$ | (0.02 | ) | $ | (0.08 | ) | $ | 0.01 | $ | (0.49 | ) | $ | 0.26 | |||||||
|
Earnings per Common Partnership Units
|
||||||||||||||||||||
|
Basic
|
$ | — | $ | 0.33 | $ | 0.49 | $ | 0.03 | $ | 0.60 | ||||||||||
|
Diluted
|
$ | — | $ | 0.33 | $ | 0.49 | $ | 0.03 | $ | 0.60 | ||||||||||
|
Cash distributions paid per Common
|
$ | 0.60 | $ | 1.76 | $ | 1.76 | $ | 1.76 | $ | 1.78 | (b) | |||||||||
|
Partnership Unit
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance Sheet Data
|
||||||||||||||||||||
|
Real estate investments, net of
accumulated depreciation
|
$ | 4,164,992 | $ | 4,191,367 | $ | 4,657,333 | $ | 4,739,726 | $ | 2,541,486 | ||||||||||
|
Total assets
|
4,663,750 | 4,742,619 | 5,213,968 | 5,508,479 | 2,805,745 | |||||||||||||||
|
Total indebtedness
|
2,454,577 | 2,741,495 | 3,081,949 | 3,133,935 | 1,521,384 | |||||||||||||||
|
Total liabilities
|
2,742,010 | 3,020,121 | 3,363,759 | 3,462,272 | 1,662,844 | |||||||||||||||
|
Redeemable limited partnership units
|
44,620 | 54,166 | 90,151 | 96,544 | 85,694 | |||||||||||||||
|
Non-controlling
interest
|
65 | — | 28 | 34,414 | — | |||||||||||||||
|
Brandywine Operating Partnership’s equity
|
1,877,055 | 1,668,332 | 1,760,030 | 1,915,249 | 1,057,207 | |||||||||||||||
|
|
||||||||||||||||||||
|
Other Data
|
||||||||||||||||||||
|
Cash flows from:
|
||||||||||||||||||||
|
Operating activities
|
$ | 220,405 | $ | 233,867 | $ | 224,805 | $ | 238,299 | $ | 125,147 | ||||||||||
|
Investing activities
|
(102,549 | ) | 164,046 | 39,162 | (912,813 | ) | (252,417 | ) | ||||||||||||
|
Financing activities
|
(120,213 | ) | (399,589 | ) | (283,746 | ) | 692,719 | 119,098 | ||||||||||||
|
|
||||||||||||||||||||
|
Property Data
|
||||||||||||||||||||
|
Number of properties owned at year end
|
245 | 248 | 257 | 313 | 251 | |||||||||||||||
|
Net rentable square feet owned at year end
|
25,563 | 26,257 | 28,888 | 31,764 | 19,600 | |||||||||||||||
| (a) | Net income has been increased/(reduced) by $(6.3) million, $(3.5) million, and $1.0 million for the years ended December 31, 2008, 2007, and 2006 respectively, related to the retrospective adoption of the accounting standards for convertibe debt and non-controlling interest discussed in Note 2 of the Consolidated Financial Statements. Total assets as of December 31, 2008, 2007, 2006 have also been increased/(reduced) by $0.3 million, $(0.1) million, and $(0.5) million, respectively. as a result of the retrospective adoption of the accounting standard for convertible debt. Total liabilities as of December 31, 2008, 2007 and 2006 have also been increased/(reduced) by $(12.2) million, $(19.0) million and $(23.4) million, respectively as a result of the retrospective adoption of the accounting standard for convertible debt. Redeemable limited partnership units as of December 31, 2008, 2007, 2006 and 2005 have also been increased/(reduced) by $32.5 million, $21.3 million, $(35.2) million and $31.4 million, respectively, as a result of the restrospective adoption of the accounting standard for the classification and measurement of redeemable securities which also became effective upon the adoption of the accounting standard for noncontrolling interest. Accordingly, total equity as of December 31, 2008, 2007, 2006 and 2005 have been increased/(reduced) by $(20.0) million, $(2.3) million, $92.1 million and $(31.4) million, respectively as a result of these retrospective adjustments. The debt impacted by the adoption of the accounting standard for convertible debt was obtained in October 2006. We reclassified tenant reimbursements that are payable to tenants of $4.7 million to accounts payable and accrued expenses from accounts receivable, net at December 31, 2008. | |
| (b) | Includes $0.02 special distribution declared in December 2006 for shareholders of record for the period January 1, 2006 through January 4, 2006 (pre-Prentiss merger period). |
-40-
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with the consolidated financial statements
appearing elsewhere herein and is based primarily on our consolidated financial statements for the
years ended December 31, 2009, 2008 and 2007.
OVERVIEW
As of December 31, 2009, we managed our portfolio within six geographic segments: (1) Pennsylvania,
(2) Metropolitan Washington D.C, (3) New Jersey/Delaware, (4) Richmond, Virginia, (5) Austin, Texas
and (6) California. The Pennsylvania segment includes properties in Chester, Delaware, Bucks, and
Montgomery counties in the Philadelphia suburbs and the City of Philadelphia in Pennsylvania. The
Metropolitan Washington, D.C. segment includes properties in Northern Virginia and suburban
Maryland. The New Jersey/Delaware segment includes properties in Burlington, Camden and Mercer
counties and counties in the southern and central part of New Jersey and in New Castle county in
the state of Delaware. The Richmond, Virginia segment includes properties primarily in Albemarle,
Chesterfield, Goochland and Henrico counties and Durham, North Carolina. The California segment
includes properties in Oakland, Concord, Carlsbad and Rancho Bernardo. The Austin, Texas segment
includes properties in Austin and Coppell.
We generate cash and revenue from leases of space at our properties and, to a lesser extent, from
the management of properties owned by third parties and from investments in the Real Estate
Ventures. Factors that we evaluate when leasing space include rental rates, costs of tenant
improvements, tenant creditworthiness, current and expected operating costs, the length of the
lease, vacancy levels and demand for office and industrial space. We also generate cash through
sales of assets, including assets that we do not view as core to our portfolio, either because of
location or expected growth potential, and assets that are commanding premium prices from third
party investors.
Factors that May Influence Future Results of Operations
Global Market and Economic Conditions
In the U.S., recent market and economic conditions have been unprecedented and challenging with
tighter credit conditions and slower growth. As a result of these market conditions, the cost and
availability of credit has been and may continue to be adversely affected by illiquid credit
markets and wider credit spreads. Concern about the stability of the markets generally and the
strength of counterparties specifically has led many lenders and institutional investors to reduce,
and in some cases, cease to provide funding to borrowers. Continued turbulence in the U.S. and
international markets and economies may adversely affect our liquidity and financial condition, and
the liquidity and financial condition of our tenants. If these market conditions continue, they
may limit our ability and the ability of our tenants, to timely refinance maturing liabilities and
access the capital markets to meet liquidity needs.
Real Estate Asset Valuation
General economic conditions and the resulting impact on market conditions or a downturn in tenants’
businesses may adversely affect the value of our assets. Periods of economic slowdown or recession
in the U.S., declining demand for leased office, mixed use, or industrial properties and/or a
decrease in market rental rates and/or market values of real estate assets in our submarkets could
have a negative impact on the value of our assets, including the value of our properties and
related tenant improvements. If we were required under GAAP to write down the carrying value of
any of our properties to the lower of cost or fair value due to impairment, or if as a result of an
early lease termination we were required to remove or dispose of material amounts of tenant
improvements that are not reusable to another tenant, our financial condition and results of
operations would be negatively affected.
Leasing Activity and Rental Rates
The amount of net rental income generated by our properties depends principally on our ability to
maintain the occupancy rates of currently leased space and to lease currently available space,
newly developed or redeveloped properties and space available from unscheduled lease terminations.
The amount of rental income we generate also depends on our ability to maintain or increase rental
rates in our submarkets. Negative trends in one or more of these factors could adversely affect
our rental income in future periods.
-41-
Table of Contents
Development and Redevelopment Programs
Historically, a significant portion of our growth has come from our development and redevelopment
efforts. We have a proactive planning process by which we continually evaluate the size, timing,
costs and scope of our development and redevelopment programs and, as necessary, scale activity to
reflect the economic conditions and the real estate fundamentals that exist in our strategic
submarkets. Given the economic conditions, we do not intend to commence new development or
redevelopment projects in the near future. We believe that our current capital plan allows for us
to continue the development and redevelopment projects that are currently underway.
We believe that a portion of our future potential growth will continue to come from our newly
developed or redeveloped properties once current economic conditions normalize. However, we
anticipate that the general economic conditions and the resulting impact on conditions in our core
markets will delay timing and reduce the scope of our development program in the near future, which
will further impact the average development and redevelopment asset balances qualifying for
interest and other carry cost capitalization. We cease capitalizing such costs once a project does
not qualify for interest and other carry cost capitalization under GAAP.
In addition, we may be unable to lease committed development or redevelopment properties at
expected rental rates or within projected timeframes or complete development or redevelopment
properties on schedule or within budgeted amounts, which could adversely affect our financial
condition, results of operations and cash flow.
Financial and Operating Performance
Our financial and operating performance is dependent upon the demand for office, industrial and
other commercial space in our markets, our leasing results, our acquisition, disposition and
development activity, our financing activity, our cash requirements and economic and market
conditions, including prevailing interest rates.
In seeking to increase revenue through our operating, financing and investment activities, we also
seek to minimize operating risks, including (i) tenant rollover risk, (ii) tenant credit risk and
(iii) development risk.
Tenant Rollover Risk
:
We are subject to the risk that tenant leases, upon expiration, are not renewed, that space may not
be relet, or that the terms of renewal or reletting (including the cost of renovations) may be less
favorable to us than the current lease terms. Leases accounting for approximately 12.1% of our
aggregate final annualized base rents as of December 31, 2009 (representing approximately 11.7% of
the net rentable square feet of the Properties) expire without penalty in 2010. We maintain an
active dialogue with our tenants in an effort to maximize lease renewals. Our retention rate for
leases that were scheduled to expire in 2009 was 66.9%. If we are unable to renew leases or relet
space under expiring leases, at anticipated rental rates, or if tenants terminate their leases
early, our cash flow would be adversely impacted.
Tenant Credit Risk
:
In the event of a tenant default, we may experience delays in enforcing our rights as a landlord
and may incur substantial costs in protecting our investment. Our management regularly evaluates
our accounts receivable reserve policy in light of our tenant base and general and local economic
conditions. Our accounts receivable allowance was $16.4 million
or 14.29% of total receivables
(including accrued rent receivable) as of December 31, 2009
compared to $15.5 million or 13.09% of
total receivables (including accrued rent receivable) as of December 31, 2008.
If economic conditions persist or deteriorate further, we may experience increases in past due
accounts, defaults, lower occupancy and reduced effective rents. This condition would negatively
affect our future net income and cash flows and could have a material adverse effect on our
financial condition.
Development Risk
:
At December 31, 2009, we were proceeding on two developments and three redevelopments sites
aggregating 1.9 million square feet with total projected costs of $396.0 million of which $142.6
million remained to be funded. These amounts include $355.5 million of total project costs for the
combined 30
th
Street Post Office (100% pre-leased to the Internal Revenue Service) and
Cira South Garage (92.6% pre-leased to the Internal Revenue Service) in Philadelphia, Pennsylvania
of which $128.5 million remained to be funded at December 31, 2009. We are also finishing the
lease-up of eight recently completed developments for which we expect
to spend an additional $8.8 million in 2010. We are
actively marketing space at these projects to prospective tenants but can provide no assurance as
to the timing or terms of any leases of space at these projects.
-42-
Table of Contents
As of December 31, 2009, we owned approximately 479 acres of undeveloped land. When the market
recovers, we will look to opportunistically dispose of those parcels that we do not anticipate
developing. For the parcels of land that we ultimately develop, we would be subject to risks
associated with development of this land including construction cost increases or overruns and
construction delays, insufficient occupancy rates, building moratoriums and inability to obtain
necessary zoning, land-use, building, occupancy and other required governmental approvals.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses for the reporting periods.
Certain accounting policies are considered to be critical accounting policies, as they require
management to make assumptions about matters that are highly uncertain at the time the estimate is
made and changes in the accounting estimate are reasonably likely to occur from period to period.
Management believes the following critical accounting policies reflect our more significant
judgments and estimates used in the preparation of our consolidated financial statements. For a
summary of all of our significant accounting policies, see Note 2 to our consolidated financial
statements included elsewhere in this report.
Revenue Recognition
We recognize rental revenue on the straight-line basis from the later of the date of the
commencement of the lease or the date of acquisition of the property subject to existing leases,
which averages minimum rents over the terms of the leases. Lease incentives, which are included as
reductions of rental revenue are recognized on a straight-line basis over the term of the lease.
Certain lease agreements contain provisions that require tenants to reimburse a pro rata share of
real estate taxes and common area maintenance costs. For certain leases in the portfolio, there
are significant assumptions and judgments made by management in determining the lease term such as
when termination options are provided to the tenant. The lease term impacts the period over which
minimum rents are determined and recorded and also considers the period over which lease related
costs are amortized. In addition, our rental revenue is impacted by our determination of whether
the improvements made by us or the tenant are landlord assets. The determination of whether an
asset is a landlord asset requires judgment and principally considers whether improvements would be
utilizable by another tenant upon move out by the existing tenant. To the extent they are
determined not to be landlord assets, and we fund them, they are considered as lease incentives.
To the extent the tenant funds the improvements that we consider to be landlord assets, we treat
them as deferred revenue which is amortized to revenue over the lease term.
Real Estate Investments
Real estate investments are carried at cost. We record acquisition of real estate investments
under the purchase method of accounting and allocate the purchase price to land, buildings and
intangible assets on a relative fair value basis. Depreciation is computed using the straight-line
method over the useful lives of buildings and capital improvements (5 to 55 years) and over the
shorter of the lease term or the life of the asset for tenant improvements. Direct construction
costs related to the development of Properties and land holdings are capitalized as incurred.
Capitalized costs include pre-construction costs essential to the development of the property,
development and constructions costs, interest, property taxes, insurance, salaries and other
project costs during the period of development. Estimates and judgments are required in
determining when capitalization of certain costs such as interest should commence and cease. We
expense routine repair and maintenance expenditures and capitalize those items that extend the
useful lives of the underlying assets.
Real Estate Ventures
When we obtain an economic interest in an entity, we evaluate the entity to determine if the entity
is deemed a variable interest entity (“VIE”), and if we are deemed to be the primary beneficiary,
in accordance with the accounting standard for the consolidation of variable interest entities.
This accounting standard requires significant use of judgments and estimates in determining its
application. If the entity is not deemed to be a VIE, and we serve as the general partner
within the entity, we evaluate to determine if our presumed control as the general partner is
overcome by the “kick out” rights and other substantive participating rights of the limited
partners in accordance with same accounting standard.
-43-
Table of Contents
We consolidate (i) entities that are VIEs and of which we are deemed to be the primary beneficiary
and (ii) entities that are non-VIEs which we control. Entities that we account for under the
equity method (i.e., at cost, increased or decreased by our share of earnings or losses, less
distributions) include (i) entities that are VIEs and of which we are not deemed the primary
beneficiary and (ii) entities that are non-VIEs which we do not control, but over which we have the
ability to exercise significant influence. We will reconsider our determination of whether an
entity is a VIE and who the primary beneficiary is if events occur that are likely to cause a
change in the original determinations.
On a periodic basis, management assesses whether there are any indicators that the value of our
investments in unconsolidated joint ventures may be impaired. An investment is impaired only if
management’s estimate of the value of the investment is less than the carrying value of the
investment, and such decline in value is deemed to be other than temporary. To the extent
impairment has occurred, the loss shall be measured as the excess of the carrying amount of the
investment over the fair value of the investment. Our estimates of value for each investment
(particularly in commercial real estate joint ventures) are based on a number of assumptions that
are subject to economic and market uncertainties including, among others, demand for space,
competition for tenants, changes in market rental rates, and operating costs. As these factors are
difficult to predict and are subject to future events that may alter management’s assumptions;
accordingly, the values estimated by management in its impairment analyses may not be realized.
Impairment of Long-Lived Assets
We review long-lived assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The review of recoverability is based on an estimate of
the future undiscounted cash flows (excluding interest charges) expected to result from the
long-lived asset’s use and eventual disposition. These cash flows consider factors such as
expected future operating income, trends and prospects, as well as the effects of leasing demand,
competition and other factors. If impairment exists due to the inability to recover the carrying
value of a long-lived asset, an impairment loss is recorded to the extent that the carrying value
exceeds the estimated fair-value of the property. We are required to make subjective assessments
as to whether there are impairments in the values of the investments in long-lived assets. These
assessments have a direct impact on our net income because recording an impairment loss results in
an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly
subjective and is based in part on assumptions regarding future occupancy, rental rates and capital
requirements that could differ materially from actual results in future periods. There were also
operating properties evaluated as they have been identified for potential sale. No impairment was
determined; however, if actual cashflows or the estimated holding periods change, an impairment
could be recorded in the future and it could be material. Although our strategy is generally to
hold our properties over the long-term, we will dispose of properties to meet our liquidity needs
or for other strategic needs. If our strategy changes or market conditions otherwise dictate an
earlier sale date, an impairment loss may be recognized to reduce the property to the lower of the
carrying amount or fair value less costs to sell, and such loss could be material. If we determine
that impairment has occurred, the affected assets must be reduced to their fair-value.
Where properties have been identified as having a potential for sale, additional judgments are
required related to the determination as to the appropriate period over which the undiscounted cash
flows should include the operating cash flows and the amount included as the estimated residual
value. Management determines the amounts to be included based on a probability weighted cash flow.
This requires significant judgment. In some cases, the results of whether an impairment is
indicated are sensitive to changes in assumptions input into the estimates, including the hold
period until expected sale. At December 31, 2009, we performed an impairment assessment of our
land holdings as management determined that a sale scenario was the most likely source of future
cash flows for certain of the land parcels aggregating to total cost
of $15.7 million which is included in
land inventory. This impairment assessment required management to estimate the expected proceeds
from sale at some point in the future, to determine whether an impairment was indicated. This
estimate requires significant judgment. If our expectations as to the
expected sales proceeds, or timing of the anticipated sale change based on market conditions or
otherwise, our evaluation of impairment could be different and such differences could be material.
During the first quarter of 2009, we determined that one of our properties, during our testing for
impairment under the held and used model, had a historical cost greater than the probability
weighted undiscounted cash flows. Accordingly, an impairment on the property of $3.7 million was
recorded to reduce its carrying value to an amount based on
management’s estimate of the current fair value. This property was sold in the second quarter. We
also recorded an impairment on properties designated as held for sale at June 30, 2008 of $6.85
million; these properties were sold during the last quarter of 2008. During our impairment review
for the remaining part of 2009, it was determined that no additional impairment charges were
necessary.
-44-
Table of Contents
Income Taxes
We have elected to be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code
of 1986, as amended (the “Code”). In addition, we have several subsidiary REITs. In order to
maintain our qualification as a REIT, we and each of our REIT subsidiaries are required to, among
other things, distribute at least 90% of our REIT taxable income to our stockholders and meet
certain tests regarding the nature of its income and assets. As REITs, we and our REIT
subsidiaries are not subject to federal income tax with respect to the portion of our income that
meets certain criteria and is distributed annually to the stockholders. Accordingly, no provision
for federal income taxes is included in the accompanying consolidated financial statements with
respect to the operations of these REITs. We and our REIT subsidiaries intend to continue to
operate in a manner that allows us to continue to meet the requirements for taxation as REITs.
Many of these requirements, however, are highly technical and complex. If we or one of our REIT
subsidiaries were to fail to meet these requirements, we would be subject to federal income tax.
We may elect to treat one or more of our subsidiaries as a taxable REIT subsidiary (“TRS”). In
general, a TRS may perform additional services for our tenants and generally may engage in any real
estate or non-real estate related business (except for the operation or management of health care
facilities or lodging facilities or the provision to any person, under a franchise, license or
otherwise, of rights to any brand name under which any lodging facility or health care facility is
operated). A TRS is subject to corporate federal income tax. We have elected to treat certain of
our corporate subsidiaries as TRSs; these entities provide third party property management services
and certain services to tenants that could not otherwise be provided.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts that represents an estimate of losses that may be
incurred from the inability of tenants to make required payments. The allowance is an estimate
based on two calculations that are combined to determine the total amount reserved. First, we
evaluate specific accounts where we have determined that a tenant may have an inability to meet its
financial obligations. In these situations, we use our judgment, based on the facts and
circumstances, and record a specific reserve for that tenant against amounts due to reduce the
receivable to the amount that we expect to collect. These reserves are re-evaluated and adjusted
as additional information becomes available. Second, a reserve is established for all tenants
based on a range of percentages applied to receivable aging categories. If the financial condition
of our tenants were to deteriorate, additional allowances may be required.
Deferred Costs
We incur direct costs related to the financing, development and leasing of our properties.
Management exercises judgment in determining whether such costs, particularly internal costs, meet
the criteria for capitalization or must be expensed. Capitalized financing fees are amortized over
the related loan term and capitalized leasing costs are amortized over the related lease term.
Management re-evaluates the remaining useful lives of leasing costs as the creditworthiness of our
tenants and economic and market conditions change.
Purchase Price Allocation
We allocate the purchase price of properties to net tangible and identified intangible assets
acquired based on fair values. Above-market and below-market in-place lease values for acquired
properties are recorded based on the present value (using an interest rate which reflects the risks
associated with the leases acquired) of the difference between (i) the contractual amounts to be
paid pursuant to the in-place leases and (ii) our estimate of the fair market lease rates for the
corresponding in-place leases, measured over a period equal to the remaining non-cancellable term
of the lease. Capitalized above-market lease values are amortized as a reduction of rental income
over the remaining non-cancellable terms of the respective leases. Capitalized below-market lease
values are amortized as an increase of rental income over the remaining non-cancellable terms of
the respective leases, including any fixed-rate renewal periods.
-45-
Table of Contents
Other intangible assets also include amounts representing the value of tenant relationships and
in-place leases based on our evaluation of the specific characteristics of each tenant’s lease and
our overall relationship with the respective tenant. We estimate the cost to execute leases with
terms similar to the remaining lease terms of the in-place leases, include leasing commissions,
legal and other related expenses. This intangible asset is amortized to expense over the remaining
term of the respective leases. We estimate fair value through methods similar to those used by
independent
appraisers or by using independent appraisals. Factors that we consider in our analysis include an
estimate of the carrying costs during the expected lease-up periods considering current market
conditions and costs to execute similar leases. We also consider information obtained about each
property as a result of our pre-acquisition due diligence, marketing and leasing activities in
estimating the fair value of the tangible and intangible assets acquired. In estimating carrying
costs, we include real estate taxes, insurance and other operating expenses and estimates of lost
rentals at market rates during the expected lease-up periods, which primarily range from three to
twelve months.
Characteristics that we consider in allocating value to our tenant relationships include the nature
and extent of our business relationship with the tenant, growth prospects for developing new
business with the tenant, the tenant’s credit quality and expectations of lease renewals. The value
of tenant relationship intangibles is amortized over the remaining initial lease term and expected
renewals, but in no event longer than the remaining depreciable life of the building. The value of
in-place leases is amortized over the remaining non-cancellable term of the respective leases and
any fixed-rate renewal periods.
In the event that a tenant terminates its lease, the unamortized portion of each intangible,
including market rate adjustments, in-place lease values and tenant relationship values, would be
charged to expense.
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 2009 to the Year Ended December 31, 2008
The table below shows selected operating information for the “Same Store Property Portfolio” and
the “Total Portfolio.” The Same Store Property Portfolio consists of 232 properties containing an
aggregate of approximately 22.6 million net rentable square feet that we owned for the entire
twelve-month periods ended December 31, 2009 and 2008. This table also includes a reconciliation
from the Same Store Property Portfolio to the Total Portfolio net income (i.e., all properties
owned by us during the twelve-month periods ended December 31, 2009 and 2008) by providing
information for the properties which were acquired, under development (including lease-up assets)
or placed into service and administrative/elimination information for the twelve-month periods
ended December 31, 2009 and 2008 (in thousands).
The Total Portfolio net income presented in the table is equal to the net income of Brandywine
Realty Trust. The only difference between the reported net income of Brandywine Realty Trust and
Brandywine Operating Partnership is the allocation of the non-controlling interest attributable to
continuing and discontinued operations for limited partnership units that is on the statement of
operations for Brandywine Realty Trust.
-46-
Table of Contents
Comparison of twelve-months ended December 31, 2009 to the twelve-months ended December 31,
2008
| Acquired/Completed | Development/Redevelopment | Other/ | ||||||||||||||||||||||||||||||||||||||||||||||
| Same Store Property Portfolio | Properties | Properties (a) | (Eliminations) (b) | Total Portfolio | ||||||||||||||||||||||||||||||||||||||||||||
| Increase/ | Increase/ | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2009 | 2008 | (Decrease) | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | (Decrease) | ||||||||||||||||||||||||||||||||||||
|
Revenue:
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Cash rents
|
$ | 445,370 | $ | 450,291 | $ | (4,921 | ) | $ | 6,739 | $ | 902 | $ | 13,187 | $ | 12,156 | $ | (2,413 | ) | $ | (2,940 | ) | $ | 462,883 | $ | 460,409 | $ | 2,474 | |||||||||||||||||||||
|
Straight-line rents
|
5,471 | 14,102 | $ | (8,631 | ) | 2,567 | 322 | 664 | 1,123 | — | — | 8,702 | 15,547 | (6,845 | ) | |||||||||||||||||||||||||||||||||
|
Above/below market rent amortization
|
6,514 | 5,914 | $ | 600 | — | — | 129 | 1,342 | — | — | 6,643 | 7,256 | (613 | ) | ||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Total rents
|
457,355 | 470,307 | (12,952 | ) | 9,306 | 1,224 | 13,980 | 14,621 | (2,413 | ) | (2,940 | ) | 478,228 | 483,212 | (4,984 | ) | ||||||||||||||||||||||||||||||||
|
Tenant reimbursements
|
75,390 | 73,831 | 1,559 | 1,351 | 376 | 2,754 | 3,198 | 301 | 685 | 79,796 | 78,090 | 1,706 | ||||||||||||||||||||||||||||||||||||
|
Termination fees
|
2,385 | 4,800 | (2,415 | ) | — | — | 1,216 | — | — | — | 3,601 | 4,800 | (1,199 | ) | ||||||||||||||||||||||||||||||||||
|
Third party management fees, labor reimbursement and
leasing
|
— | — | — | — | — | — | — | 17,151 | 20,401 | 17,151 | 20,401 | (3,250 | ) | |||||||||||||||||||||||||||||||||||
|
Other
|
2,019 | 1,831 | 188 | 1 | — | 314 | (6 | ) | 1,109 | 1,093 | 3,443 | 2,918 | 525 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Total revenue
|
537,149 | 550,769 | (13,620 | ) | 10,658 | 1,600 | 18,264 | 17,813 | 16,148 | 19,239 | 582,219 | 589,421 | (7,202 | ) | ||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Property operating expenses
|
163,138 | 159,236 | 3,902 | 3,626 | (737 | ) | 7,740 | 8,100 | (6,345 | ) | (5,829 | ) | 168,159 | 160,770 | 7,389 | |||||||||||||||||||||||||||||||||
|
Real estate taxes
|
53,621 | 54,601 | (980 | ) | 2,056 | 1,712 | 1,761 | 1,753 | 792 | 583 | 58,230 | 58,649 | (419 | ) | ||||||||||||||||||||||||||||||||||
|
Third party management expenses
|
— | — | — | — | — | — | — | 7,996 | 8,965 | 7,996 | 8,965 | (969 | ) | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Subtotal
|
320,390 | 336,932 | (16,542 | ) | 4,976 | 625 | 8,763 | 7,960 | 13,705 | 15,520 | 347,834 | 361,037 | (13,203 | ) | ||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
General & administrative expenses
|
— | — | — | — | — | — | — | 20,821 | 23,002 | 20,821 | 23,002 | (2,181 | ) | |||||||||||||||||||||||||||||||||||
|
Depreciation and amortization
|
189,020 | 190,584 | (1,564 | ) | 5,145 | 872 | 11,198 | 6,680 | 3,227 | 3,853 | 208,590 | 202,043 | 6,547 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Operating Income (loss)
|
$ | 131,370 | $ | 146,348 | $ | (14,978 | ) | $ | (169 | ) | $ | (247 | ) | $ | (2,435 | ) | $ | 1,280 | $ | (10,343 | ) | $ | (11,335 | ) | $ | 118,423 | $ | 135,992 | $ | (17,569 | ) | |||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Number of properties
|
232 | 232 | 4 | 4 | 9 | 9 | 245 | 245 | ||||||||||||||||||||||||||||||||||||||||
|
Square feet
|
22,583 | 22,583 | 669 | 669 | 2,311 | 2,311 | 25,563 | 25,563 | ||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Other Income (Expense):
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Interest income
|
2,500 | 1,839 | 661 | |||||||||||||||||||||||||||||||||||||||||||||
|
Interest expense
|
(135,740 | ) | (146,646 | ) | 10,906 | |||||||||||||||||||||||||||||||||||||||||||
|
Interest expense — Deferred financing costs
|
(5,864 | ) | (5,450 | ) | (414 | ) | ||||||||||||||||||||||||||||||||||||||||||
|
Recognized hedge activity
|
(916 | ) | — | (916 | ) | |||||||||||||||||||||||||||||||||||||||||||
|
Equity in income of real estate ventures
|
4,069 | 8,447 | (4,378 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
Net (loss) gain on disposition of undepreciated assets
|
— | (24 | ) | 24 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Provision for impairment on land inventory
|
— | (10,841 | ) | 10,841 | ||||||||||||||||||||||||||||||||||||||||||||
|
Gain on early extinguishment of debt
|
23,176 | 18,105 | 5,071 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Income (loss) from continuing operations
|
5,648 | 1,422 | 4,226 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Income from discontinued operations
|
2,441 | 37,103 | (34,662 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Net Income
|
$ | 8,089 | $ | 38,525 | $ | (30,436 | ) | |||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Earnings per common share
|
$ | — | $ | 0.33 | $ | (0.33 | ) | |||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
| EXPLANATORY NOTES | ||
| (a) - | Results include: two developments and three redevelopment properties. | |
| (b) - | Represents certain revenues and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation and third-party management fees. | |
-47-
Table of Contents
Total Revenue
Cash
rents from the Total Portfolio increased by $2.5 million from 2008 to 2009, primarily
reflecting:
| 1) | An additional $5.8 million from four development/redevelopment properties that we completed and placed in service subsequent to 2008. |
| 2) | An additional $1.0 million of rental income due to increased occupancy at nine development/redevelopment properties in 2009 in comparison to 2008. |
| 3) | The increase was offset by the decrease of $4.9 million of rental income at our Same Store properties from 2008 to 2009 due to a decrease in occupancy of 380 basis points. |
Straight-line rents at the Total Portfolio decreased by $6.8 million primarily due to free rent
converting to cash rent during 2009.
Tenant reimbursements increased by $1.7 million from 2008 to 2009 primarily due to the increase in
property operating expenses at our Same Store Portfolio. Tenant reimbursements increased by $1.6
million at our same store portfolio and the property operating expenses including real estate taxes
at those properties increased by $2.9 million.
The decrease in termination fees of $1.2 million from 2008 to 2009 is mainly due to the recognition
of a $3.1 million termination fee from one tenant during 2008 in comparison to a $1.2 million
termination fee received from one tenant at one of redevelopment properties and a $0.6 million
termination fee received from one tenant at one of our same store properties in 2009.
Third party management fees, labor reimbursement and leasing decreased by $3.3 million from 2008 to
2009 as a result of the termination of the management fee contract on March 31, 2008 that we
entered into when we sold the 10 office properties located in Reading and Harrisburg, PA. As the
contract was terminated early, approximately $0.8 million of unamortized deferred management fees
were taken into income during 2008. The decrease also resulted from the termination of other
third party management contracts totaling 4.3 million square feet subsequent to 2008.
Property Operating Expenses
Property
operating expenses, including real estate taxes, at the Total
Portfolio increased by $7.0
million due to increased repairs and maintenance expenses along with increased snow removal
expenses during 2009 compared to 2008. We also incurred an additional $4.7 million of expenses
from four properties that we completed and placed in service subsequent to 2008. These increases
were offset by a decrease in the bad debt expense of $1.4 million from 2008 to 2009.
General & Administrative Expenses
General
& administrative expenses decreased by $2.2 million from 2008 to 2009 mainly due to the
severance costs of $2.4 million in 2008 that we did not have in 2009.
Depreciation and Amortization Expense
Depreciation
and amortization increased by $6.5 million from 2008 to 2009,
primarily due to $4.3
million of depreciation and amortization expense recorded on the four properties completed and placed
in service subsequent to 2008. An additional $4.3 million of depreciation and amortization expense
was recorded on portions of the nine development properties that were placed in service subsequent
to 2008. The increase was offset by the decrease of $1.6 million at the Same Store Portfolio for
asset write-offs related to early move-outs and fully amortized assets when comparing 2009 to 2008.
-48-
Table of Contents
Interest Income/ Expense
Interest income increased by approximately $0.7 million mainly due to the accretion of the $40.0
million interest free note receivable from the sale of the five Northern California properties in
the fourth quarter of 2008. The note receivable was recorded at its present value on the date of
sale of $37.1 million. During 2009, we recognized $1.6 million of interest income related to this
note receivable and $0.2 million of interest income related to the $22.5 million note receivable
from the sale of the two Trenton properties during the fourth quarter of 2009. During 2008, we
recognized $0.4 million of interest income related to the note receivable from the sale of the five
Northern California properties and $0.5 million of interest income received from a certificate of
deposit investment.
The
decrease in interest expense of $10.9 million is mainly due to the following:
| • | decrease of $4.9 million resulting from the payoff at maturity of our $113.0 million private placement notes in December 2008. |
| • | decrease of $3.4 million resulting from a lower average Credit Facility balance at the end of 2009 and a lower weighted average interest rate on such borrowings in 2009 compared to December 31, 2008. |
| • | decrease of $6.9 million resulting from lower weighted average interest rates on our $183.0 million Bank Term Loan and our three Preferred Trust borrowings. Such borrowings have variable interest rates and a portion of such borrowings are swapped to fixed rate debt through our hedging program. This decrease is offset by an increase of $5.7 million paid under these hedges since the variable interest rates on such debt is lower than the swapped fixed rate on the hedges assigned to these borrowings. |
| • | decrease of $17.5 million resulting from our buybacks of unsecured notes in 2009. The details of the repurchases completed during the twelve months ended December 31, 2009 and 2008 are noted in the Gain on early extinguishment of debt section below. This decrease is offset by an increase of $5.1 million of interest on issuance of new notes. |
The above explained net decrease of $21.9 million is offset by a decrease in capitalized interest
of $7.9 million as a result of the decrease in the average balance, on open development and
redevelopment projects, $0.3 million of interest expense related
to our tax credit transactions, and an increase of $2.6 million from a higher outstanding mortgage notes
payable balance as of December 31, 2009 compared to December 31, 2008.
Amortization of deferred financing costs increased by $0.4 million due to the acceleration of such
expenses incurred in the debt repurchase activities of 2009.
Provision for impairment on land inventory
As part of our review of long-lived assets in accordance with the accounting standard for
long-lived assets, during the quarter ending December 31, 2008, management determined that certain
of the parcels in our land inventory considered at that time more likely to be sold had historical
carrying values in excess of the current estimate of their fair value. Our impairment was recorded based on
management’s estimate of the current fair value of the land inventory at that time.
Provision for Impairment on Real Estate
During the quarter ended March 31, 2009 impairment review, we determined that one of the properties
tested for impairment under the held and used model had a historical cost greater than the
probability weighted undiscounted cash flows. Accordingly, the recorded amount was reduced to an
amount based on management’s estimate of the current fair value. During the nine months period
ended September 30, 2008,
we recorded a provision of $6.85 million for impairment relating to the sale of the five Northern
California properties classifies as held for sale.
-49-
Table of Contents
Where properties have been identified as having a potential for sale, additional judgments are
required related to the determination as to the appropriate period over which the undiscounted cash
flows should include the operating cash flows and the amount included as the estimated residual
value. Management determines the amounts to be included based on a probability weighted cash flow.
This requires significant judgment. In some cases, the results of whether an impairment is
indicated are sensitive to changes in assumptions input into the estimates, including the hold
period until expected sale.
Recognized hedge activity
During 2009, we recorded a $1.1 million mark to market adjustment relating to two of our swaps that
were applied to our offering of $250.0 million 7.50% senior unsecured notes due 2015 completed in
September 2009. The swaps no longer qualified for hedge accounting upon completion of this
offering as the hedging relationship was terminated. Accordingly, the changes in the fair value of
the swaps were reflected in our statement of operations until they were cash settled in December
2009. We paid $5.1 million to terminate these swaps. During the
year, we also recorded a net $0.1
million of income related to the write-off of AOCI and the ineffective portion of certain of our hedges.
Equity in income of real estate ventures
The decrease in equity in income of real estate venture from 2008 to 2009 was mainly due to a
payout of $3.2 million that we received for our interest in a real estate venture that was sold
during the fourth quarter of 2008. The remainder of the decrease is primarily attributable to
lower net income at the real estate venture properties.
Gain on early extinguishment of debt
During 2009, we repurchased $154.1 million of our $345.0 million 3.875% Exchangeable Notes, $94.1
million of our $275.0 million 4.500% Guaranteed Notes due 2009, $77.0 million of our $300.0 million
5.625% Guaranteed Notes due 2010, $112.2 million of our $300.0 million 5.750% Guaranteed Notes due
2012 and $7.3 million of our $250.0 million 5.400% Guaranteed Notes due 2014 which resulted in a
net gain on early extinguishment of debt of $23.2 million. The gain on early extinguishment of
debt is inclusive of adjustments made to reflect our adoption of the new accounting standard for
convertible debt instruments.
During 2008, we repurchased $63.0 million of our $345.0 million 3.875% Guaranteed Exchangeable
Notes, $78.3 million of our $275.0 million 4.500% Guaranteed Notes due 2009 and $24.5 million of
our $300.0 million 5.625% Guaranteed Notes due 2010 which resulted in an $18.1 million gain that we
reported for the early extinguishment of debt. The gain on extinguishment of debt has been
retrospectively adjusted to reflect our adoption of the new accounting standard for convertible
debt instruments.
Discontinued Operations
During the twelve month period ended December 31, 2009, we sold two properties in Exton, PA, one
property in Moorestown, NJ, one property in Bethesda, MD, two properties in Trenton, NJ and a
condominium unit and an undivided interest in an office building in Lawrenceville, NJ. These
properties had total revenue of $13.5 million, operating expenses of $6.4 million, depreciation and
amortization expenses of $2.2 million and gain on sale of $1.2 million. We determined that the sale
of the two properties in Trenton, NJ should be accounted for using the Installment Sale Method. As
a result, we deferred the portion of the gain which exceeded the calculated gain following the
installment sale method. These amounts will decrease in proportion with the paydown of the
principal balance on our note receivable from the buyer of the properties. The buyer is not
obligated to make any principal payments over the next seven
years. If they do make principal payments in advance, a portion of these amounts that are deferred
will be recognized as a gain on sale in the period that we receive the cash for the principal
payments. We also recorded a $3.7 million loss provision during the first quarter of 2009 in
connection with the property in Bethesda, MD sold during the second quarter of 2009 which reduced
our income from discontinued operations.
-50-
Table of Contents
The December 31, 2008 amounts are reclassified to include the operations of the properties sold
during the twelve months period ended December 31, 2009, as well as all properties that were sold
through the year ended December 31, 2008. Therefore, the discontinued operations amount for the
twelve months period ended December 31, 2008 includes total revenue of $60.8 million, operating
expenses of $27.3 million, depreciation and amortization expense of $13.4 million, interest expense
of $4.6 million and gains on sale of $28.5 million. We also recorded a $6.85 million loss provision
in connection with the five Northern California properties classified as held for sale during the
second quarter of 2008 which reduced our income from discontinued operations.
Net Income
Net
income decreased by $30.4 million from the twelve-month period ended December 31, 2008 as a
result of the factors described above. Net income is significantly impacted by depreciation of
operating properties and amortization of acquired intangibles. These non-cash charges do not
directly affect our ability to pay dividends. Such charges can be expected to continue until lease
intangibles are fully amortized. These intangibles are amortizing over the related lease terms or
estimated duration of the tenant relationship.
Earnings per Common Share
Loss per share (basic and diluted) were $0.00 for the twelve-month period ended December 31, 2009
as compared to earnings per share of $0.33 for the twelve-month period ended December 31, 2008 as a
result of the factors described above and an increase in the average number of common shares
outstanding. The increase in the average number of common shares outstanding is primarily the
result of a $242.3 million public equity offering of 40,250,000 shares during the second quarter of
2009.
-51-
Table of Contents
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 2008 to the Year Ended December 31, 2007
The table below shows selected operating information for the “Same Store Property Portfolio” and
the “Total Portfolio.” The Same Store Property Portfolio consists of 224 properties containing an
aggregate of approximately 21.5 million net rentable square feet that we owned for the entire
twelve-month periods ended December 31, 2008 and 2007. This table also includes a reconciliation
from the Same Store Property Portfolio to the Total Portfolio net income (i.e., all properties
owned by us during the twelve-month periods ended December 31, 2008 and 2007) by providing
information for the properties which were acquired, under development (including lease-up assets)
or placed into service and administrative/elimination information for the twelve-month periods
ended December 31, 2008 and 2007 (in thousands).
We have a significant, continuing involvement in the G&I Interchange Office LLC joint venture
through our 20% ownership interest and the management and leasing services we provide for the
venture. Accordingly, under the accounting standard for reporting discontinued operations, we
have determined that the operations of the properties owned by the joint venture (the “G&I
properties”) should not be included in discontinued operations. This determination is reflected in
the income statement comparisons below as we recognized revenue and expenses during the
twelve-months ended December 31, 2007 for our 100% ownership interest through the date of sale on
December 21, 2007 and such information related to the G&I properties is included in the Other
(Eliminations) column.
The Total Portfolio net income presented in the table is equal to the net income of Brandywine
Realty Trust. The only difference between the reported net income of Brandywine Realty Trust and
Brandywine Operating Partnership is the allocation of the minority interest attributable to
continuing and discontinued operations for limited partnership units that is on the statement of
operations for Brandywine Realty Trust.
-52-
Table of Contents
Comparison of twelve-months ended December 31, 2008 to the twelve-months ended December 31, 2007
| Acquired/Completed | Development/Redevelopment | Other/ | ||||||||||||||||||||||||||||||||||||||||||||||
| Same Store Properties | Properties | Properties (a) | (Eliminations) (b) | Total Portfolio | ||||||||||||||||||||||||||||||||||||||||||||
| Increase/ | Increase/ | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2008 | 2007 | (Decrease) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | (Decrease) | ||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Revenue:
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Cash rents
|
$ | 423,112 | $ | 414,696 | $ | 8,416 | $ | 39,280 | $ | 25,416 | $ | 12,387 | $ | 8,738 | $ | (2,224 | ) | $ | 20,992 | $ | 472,555 | $ | 469,842 | $ | 2,713 | |||||||||||||||||||||||
|
Straight-line rents
|
10,432 | 17,855 | (7,423 | ) | 4,375 | 7,286 | 1,169 | 966 | — | 627 | $ | 15,976 | $ | 26,734 | (10,758 | ) | ||||||||||||||||||||||||||||||||
|
Above/below market rent amortization
|
6,065 | 8,761 | (2,696 | ) | (89 | ) | (289 | ) | 1,342 | 978 | — | — | $ | 7,318 | $ | 9,450 | (2,132 | ) | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Total rents
|
439,609 | 441,312 | (1,703 | ) | 43,566 | 32,413 | 14,898 | 10,682 | (2,224 | ) | 21,619 | 495,849 | 506,026 | (10,177 | ) | |||||||||||||||||||||||||||||||||
|
Tenant reimbursements
|
75,828 | 71,156 | 4,672 | 4,332 | 3,187 | 3,283 | 2,907 | 686 | 3,916 | 84,129 | 81,166 | 2,963 | ||||||||||||||||||||||||||||||||||||
|
Termination fees
|
4,700 | 9,950 | (5,250 | ) | 100 | — | — | 50 | — | 53 | 4,800 | 10,053 | (5,253 | ) | ||||||||||||||||||||||||||||||||||
|
Third party management fees, labor
reimbursement and leasing
|
— | — | — | — | — | — | — | 20,401 | 19,691 | 20,401 | 19,691 | 710 | ||||||||||||||||||||||||||||||||||||
|
Other
|
1,746 | 2,610 | (864 | ) | 99 | 39 | (6 | ) | 2 | 1,093 | 3,310 | 2,932 | 5,961 | (3,029 | ) | |||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Total revenue
|
521,883 | 525,028 | (3,145 | ) | 48,097 | 35,639 | 18,175 | 13,641 | 19,956 | 48,589 | 608,111 | 622,897 | (14,786 | ) | ||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Operating Expenses:
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Property operating expenses
|
152,177 | 149,484 | 2,693 | 12,229 | 10,653 | 8,228 | 6,337 | (5,601 | ) | 2,070 | 167,033 | 168,544 | (1,511 | ) | ||||||||||||||||||||||||||||||||||
|
Real estate taxes
|
52,167 | 50,149 | 2,018 | 6,389 | 4,190 | 1,773 | 1,702 | 768 | 3,822 | 61,097 | 59,863 | 1,234 | ||||||||||||||||||||||||||||||||||||
|
Third party management expenses
|
— | — | — | — | — | — | — | 8,965 | 10,361 | 8,965 | 10,361 | (1,396 | ) | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Subtotal
|
317,539 | 325,395 | (7,856 | ) | 29,479 | 20,796 | 8,174 | 5,602 | 15,824 | 32,336 | 371,016 | 384,129 | (13,113 | ) | ||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
General and administrative expenses
|
— | — | — | — | — | — | — | 23,002 | 27,938 | 23,002 | 27,938 | (4,936 | ) | |||||||||||||||||||||||||||||||||||
|
Depreciation and amortization
|
176,056 | 181,232 | (5,176 | ) | 19,286 | 16,813 | 6,708 | 8,689 | 3,855 | 16,493 | 205,905 | 223,227 | (17,322 | ) | ||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Operating Income (loss)
|
$ | 141,483 | $ | 144,163 | $ | (2,680 | ) | $ | 10,193 | $ | 3,983 | $ | 1,466 | $ | (3,087 | ) | $ | (11,033 | ) | $ | (12,095 | ) | $ | 142,109 | $ | 132,964 | $ | 9,145 | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Number of properties
|
224 | 16 | 8 | — | 248 | — | ||||||||||||||||||||||||||||||||||||||||||
|
Square feet (in thousands)
|
21,490 | 2,440 | 2,337 | — | 26,267 | — | ||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Other Income (Expense):
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Interest income
|
1,839 | 4,014 | (2,175 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
Interest expense
|
(146,646 | ) | (161,150 | ) | 14,504 | |||||||||||||||||||||||||||||||||||||||||||
|
Interest expense — Deferred financing costs
|
(5,450 | ) | (4,496 | ) | (954 | ) | ||||||||||||||||||||||||||||||||||||||||||
|
Recognized hedge activity
|
— | (3,698 | ) | 3,698 | ||||||||||||||||||||||||||||||||||||||||||||
|
Equity in income of real estate ventures
|
8,447 | 6,955 | 1,492 | |||||||||||||||||||||||||||||||||||||||||||||
|
Net gain on disposition of depreciated real estate
|
(24 | ) | 40,919 | (40,943 | ) | |||||||||||||||||||||||||||||||||||||||||||
|
Provision for impairment on land inventory
|
(10,841 | ) | — | (10,841 | ) | |||||||||||||||||||||||||||||||||||||||||||
|
Gain on early extinguishment of debt
|
18,105 | — | 18,105 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Income (loss) from continuing operations
|
7,539 | 15,508 | (7,969 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Income (loss) from discontinued operations
|
30,986 | 39,827 | (8,841 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Net Income (loss)
|
$ | 38,525 | $ | 55,335 | $ | (16,810 | ) | |||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Earnings per common share
|
$ | 0.33 | $ | 0.50 | $ | (0.17 | ) | |||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
EXPLANATORY NOTES
|
||||||||||||||||||||||||||||||||||||||||||||||||
| (a)- | Results include: two developments and six redevelopment properties. | |
| (b)- | Represents certain revenues and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation and third-party management fees. Also included are revenues and expenses from the 29 G&I properties. |
-53-
Table of Contents
Total Revenue
Cash rents from the Total Portfolio increased by $2.7 million from 2007 to 2008, primarily
reflecting:
| 1) | An additional $8.4 million at the Same Store Portfolio from increased rents received on lease renewals and free rent periods converting to cash rent. This free rent conversion is the primary reason for the decrease in Total Portfolio straight-line rental income. |
| 2) | An additional $13.9 million from six properties that we acquired and ten development/redevelopment properties that we completed and placed in service subsequent to 2007. |
| 3) | An additional $3.6 million of rental income due to increased occupancy at eight development/redevelopment properties in 2008 in comparison to 2007. |
| 4) | The increase was offset by the decrease of $25.1 million of rental income earned from our G&I properties during 2007. |
Tenant reimbursements increased by $3.0 million from 2007 to 2008 primarily due to the increase in
property operating expenses at our Same Store Portfolio. Tenant reimbursements increased by $4.7
million at our same store portfolio and the property operating expenses at those properties
increased by $4.7 million. These increases are offset by the activity of the G&I properties during
2007.
Third party management fees, labor reimbursement and leasing increased by $0.7 million from 2007 to
2008 as a result of a greater number of properties that we are managing for third parties. The 29
G&I properties make up a significant portion of the increase in the number of properties that we
manage for third parties.
Property Operating Expenses
Property operating expenses, including real estate taxes and third party management expenses, at
the Total Portfolio decreased by $1.7 million from 2007 to 2008, primarily due to $11.9 million of
such expenses for the G&I properties in 2007. The decrease was offset by $3.8 million of property
operating expenses and real estate taxes from six properties that we acquired and ten
development/redevelopment properties that we completed and placed in service subsequent to 2007.
Property operating expenses and real estate taxes at our Same Store Portfolio and our eight
development/redevelopment properties also increased by $4.7 million and $2.0 million, respectively,
from 2007 to 2008.
Depreciation and Amortization Expense
Depreciation and amortization decreased by $17.3 million from 2007 to 2008, primarily due to $11.3
million of depreciation and amortization expense recorded on the G&I properties during 2007. In
addition, depreciation and amortization decreased by $5.2 million at our Same Store Portfolio due
to assets within the Same Store Portfolio being fully amortized subsequent to 2007.
General & Administrative Expenses
General & administrative expenses decreased by $4.9 million from 2007 to 2008 of which
approximately $2.3 million was a result of the final determination of 2007 bonus awards to our
executive management, thereby resulting in a reduction to the estimated payout that was accrued
during 2007. We incurred $2.4 million of severance costs in 2008 and $1.9 million of severance
costs in 2007. These measures and other corporate level cost saving strategies resulted in the
remainder of the decrease from the prior year.
Interest Income/ Expense
The decrease in interest income by approximately $2.2 million is due to lower cash balances during
the period ended December 31, 2008.
-54-
Table of Contents
Interest expense decreased by $14.5 million primarily due to lower mortgage notes payable
outstanding during the year ending December 31, 2008 in comparison to December 31, 2007 as a result
of certain mortgage notes payable being paid off subsequent to 2007. The decrease is also the
result of a lower outstanding balance and lower weighted average interest rate on Credit Facility
borrowings during 2008 in comparison to 2007.
Loss on Settlement of Treasury Lock Agreements
In July 2007, in anticipation of an expected debt offering, we entered into four treasury lock
agreements. The treasury lock agreements were designated as cash flow hedges on interest rate risk
and qualified for hedge accounting. The agreements were settled on September 21, 2007, the
original termination date of each agreement, at a total cost of $3.7 million. During the fourth
quarter of 2007, we determined that the planned debt issuance was remote and recorded $3.7 million
as an expense for the residual balance of $3.7 million. No such settlement occurred during the
year ending December 31, 2008.
Provision for impairment on land inventory
As part
of our review of long-lived assets in accordance with the related
requirements provided
under the accounting standard for long lived assets, during the quarter ending
December 31, 2008, management determined that certain of the parcels in our land inventory had
historical carrying values in excess of the current estimate of their
fair value. Our impairment was recorded
based on management’s estimate of the current fair value of the land inventory.
Gain on early extinguishment of debt
During the year-ended December 31, 2008, we repurchased $63.0 million of our $345.0 million 3.875%
Guaranteed Exchangeable Notes, $78.3 million of our $275.0 million 4.500% Guaranteed Notes due 2009
and $24.5 million of our $300.0 million 5.625% Guaranteed
Notes due 2010 which resulted in a $18.1
million gain that we reported for the early extinguishment of debt on our consolidated statement of
operations. In addition, we accelerated amortization of the related deferred financing costs of
$1.1 million. We also reduced gain on early extinguishment of
debt by $2.6 million resulting from the retrospective adoption of the
accounting standard for convertible debt.
Discontinued Operations
During the twelve-month period ended December 31, 2008, we sold one property in Allentown, PA, one
property in Mount Laurel, NJ, one property in Newtown, PA, five properties in Oakland, CA and one
property in Richmond, VA. These properties had total revenue of $42.1 million, operating expenses
of $18.6 million, depreciation and amortization expenses of $9.6 million and minority interest
attributable to discontinued operations of $1.2 million. We also recorded a $6.85 million
provision for impairment in connection with the five properties in Oakland, CA which reduced our
income from discontinued operations.
The December 31, 2007 amount is reclassified to include the operations of the properties sold
during the twelve-month period ended December 31, 2008, as well as the 20 properties that were sold
during the year ended December 31, 2007. Therefore, the discontinued operations amount for the
twelve-month period ended December 31, 2007 includes 29 sold properties with total revenue of $75.7
million, operating expenses of $32.3 million, depreciation and amortization expense of $23.8
million and minority interest attributable to discontinued operations of $1.7 million.
-55-
Table of Contents
Net Income
Net
income decreased by $16.8 million from the twelve-month period ended December 31, 2007 as a
result of the factors described above. Net income is significantly impacted by depreciation of
operating properties and amortization of acquired intangibles. These non-cash charges do not
directly affect our ability to pay dividends. Such charges can be expected to continue until the
lease intangibles are fully amortized. These intangibles are amortizing over the related lease
terms or estimated duration of the tenant relationship.
Earnings per Common Share
Earnings
per share (basic and diluted) were $0.33 for the twelve-month period ended December 31,
2008 as compared to $0.50 for the twelve-month period ended December 31, 2007 as a result of the
factors described above and an increase in the average number of common shares outstanding. The
increase in the average number of common shares outstanding is the result of a partnership unit
conversion to common shares during 2008 and the issuance of common shares upon the vesting of
restricted common shares.
-56-
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
General
Our principal liquidity needs for the next twelve months are as follows:
| • | fund normal recurring expenses, |
| • | fund capital expenditures, including capital and tenant improvements and leasing costs, |
| • | fund repayment of certain debt instruments when they mature, |
| • | fund current development and redevelopment costs, and |
| • | fund distributions declared by our Board of Trustees. |
We believe that with the general downturn in the economy, it is reasonably likely that vacancy
rates may continue to increase, effective rental rates on new and renewed leases may continue to
decrease and tenant installation costs, including concessions, may continue to increase in most or
all of our markets in 2010 and possibly beyond. As a result of the potential negative effects on
our revenue from the overall reduced demand for office space, our cash flow could be insufficient
to cover increased tenant installation costs over the short-term. If this situation were to occur,
we expect that we would finance any shortfalls through borrowings under our Credit Facility and
other debt and equity financings.
We believe that our liquidity needs will be satisfied through cash flows generated by operations,
financing activities and selective Property sales. Rental revenue, expense recoveries from tenants,
and other income from operations are our principal sources of cash that we use to pay operating
expenses, debt service, recurring capital expenditures and the minimum distributions required to
maintain our REIT qualification. We seek to increase cash flows from our properties by maintaining
quality standards for our properties that promote high occupancy rates and permit increases in
rental rates while reducing tenant turnover and controlling operating expenses. Our revenue also
includes third-party fees generated by our property management, leasing, developments and
construction businesses. We believe our revenue, together with proceeds from property sales and
secured debt financings, will continue to provide funds for our short-term liquidity needs.
However, material changes in our operating or financing activities may adversely affect our net
cash flows. Such changes, in turn, would adversely affect our ability to fund distributions, debt
service payments and tenant improvements. In addition, a material adverse change in our cash
provided by operations would affect the financial performance covenants under our unsecured credit
facility and unsecured notes.
Financial markets have experienced unusual volatility and uncertainty. Liquidity has generally
tightened in all financial markets, including the debt and equity markets. Our liquidity
management remains a top priority. Our ability to fund development projects, as well as our
ability to repay or refinance debt maturities could be adversely affected by an inability to secure
financing at reasonable terms beyond those already completed in 2009. It is possible, in these
unusual and uncertain times that one or more lenders in our revolving credit facility could fail to
fund a borrowing request. Such an event could adversely affect our ability to access funds from
its revolving credit facility when needed.
We pursued new financing opportunities to ensure an appropriate balance sheet position through
2010. As a result of these efforts, we are comfortable with our ability to meet future debt
maturities and development funding needs. We believe that our current balance sheet and outlook
for 2010 are in an adequate position at the date of this filing, despite the ongoing disruption in
the credit markets. The following are our significant activities during 2009 affecting our
liquidity management:
| • | On April 1, 2009, we closed on an $89.8 million first mortgage financing on our Two Logan Square property. The new loan bears interest at 7.57% per annum and has a seven-year term with three years of interest only payments with principal payments based on a thirty-year amortization schedule. We used $68.5 million in net proceeds to repay without penalty the balance of the former Two Logan Square first mortgage loan and $21.3 million for general corporate purposes including the repayment of existing indebtedness. |
-57-
Table of Contents
| • | On June 2, 2009, we completed the public offering of 40,250,000 of our common shares, par value $0.01 per share. The common shares were issued and sold to the underwriters at a public offering price of $6.30 per common share in accordance with an underwriting agreement. The common shares sold include 5,250,000 shares issued and sold pursuant to the underwriters’ exercise in full of their over-allotment option under the underwriting agreement. We received net proceeds of approximately $242.3 million from the offering net of underwriting discounts, commissions and expenses. We used the net proceeds from the offering to repay our $600 million unsecured revolving credit facility and for general corporate purposes. |
| • | On June 29, 2009, we entered into a forward financing commitment to borrow up to $256.5 million under two separate loans at a per annum interest rate of 5.93%. The loans, when funded, will be secured by mortgages on the 30 th Street Post Office (the “Post Office project”), the Cira South Garage (the “garage project”) projects and by the leases of space at these facilities upon the completion of these projects. Of the total borrowings, $209.7 million and $46.8 million will be allocated to the Post Office project and to the garage project, respectively. In order for funding to occur we need to meet certain conditions which primarily relate to the completion of the projects and the commencement of the rental payments from the respective leases on these properties. |
| • | On July 7, 2009, we closed on a $60.0 million first mortgage financing on our One Logan Square property. The new loan bears interest at a floating rate of LIBOR plus 350 basis points (subject to a LIBOR floor) and has a seven-year term with three years of interest only payments with principal payments based on a thirty-year amortization schedule at a 7.5% rate. We used the loan proceeds for general corporate purposes including repayment of existing indebtedness. |
| • | On September 25, 2009, we consummated a registered public offering of $250.0 million in aggregate principal amount of our 7.50% senior unsecured notes due 2015. The notes were priced at 99.412% of their face amount with a yield to maturity of 7.625%, representing a spread at the time of pricing of 5.162% to the yield on the August 2014 Treasury note. The notes have been reflected net of discount of $1.4 million in the consolidated balance sheet as of December 31, 2009. The net proceeds which amounted to $247.0 million after deducting underwriting discounts and offering expenses will be used to repay our indebtedness under our existing unsecured revolving credit facility and for general corporate purposes. |
| • | In December 2009, we received the second contribution under the historic tax credit transaction that we entered into in 2008 with US Bancorp amounting to $23.8 million. |
| • | During 2009, we sold seven properties containing 0.7 million in net rentable square feet for net cash proceeds of $101.3 million. |
We will also consider other properties within our portfolio where it may be in our best interest to
obtain a secured mortgage.
We draw on multiple financing sources to fund our long-term capital needs. We use our credit
facility for general business purposes, including the acquisition, development and redevelopment of
properties and the repayment of other debt.
Our ability to incur additional debt is dependent upon a number of factors, including our credit
ratings, the value of our unencumbered assets, our degree of leverage and borrowing restrictions
imposed by our current lenders. If more than one rating agency were to downgrade our credit rating,
our access to capital in the unsecured debt market would be more limited and the interest rate
under our existing credit facility and term loan would increase.
Our ability to sell common and preferred shares is dependent on, among other things, general market
conditions for REITs, market perceptions about our company and the current trading price of our
shares. We regularly analyze which source of capital is most advantageous to us at any particular
point in time.
-58-
Table of Contents
We will also consider sales of selected Properties as another source of managing our liquidity.
Asset sales during 2009 and 2008 have been a source of cash. Since mid-2007, we have used proceeds
from asset sales to repay existing indebtedness, provide capital for our development activities and
strengthen our financial condition. There is no guarantee that we will be able to raise similar or
even lesser amounts of capital from future asset sales.
Cash Flows
The following summary discussion of our cash flows is based on the consolidated statement of cash
flows included in our consolidated financial statements and is not meant to be an all-inclusive
discussion of the changes in our cash flows for the periods presented.
As of
December 31, 2009 and 2008, we maintained cash and cash equivalents of $1.6 million and $3.9
million, respectively. This $2.3 million decrease was the result of the following changes in cash
flow from our various activities:
| Activity | 2009 | 2008 | 2007 | |||||||||
|
Operating
|
$ | 220,405 | $ | 233,867 | $ | 224,805 | ||||||
|
Investing
|
(102,549 | ) | 164,046 | 39,162 | ||||||||
|
Financing
|
(120,213 | ) | (399,589 | ) | (283,746 | ) | ||||||
|
|
||||||||||||
|
Net cash flows
|
$ | (2,357 | ) | $ | (1,676 | ) | $ | (19,779 | ) | |||
|
|
||||||||||||
Our principal source of cash flows is from the operation of our properties. We do not restate our
cash flow for discontinued operations.
The net decrease in cash flows from operating activities is primarily the result of the following:
| • | Decrease in average occupancy from 92.1% during the year ended December 31, 2008 to 88.7% during the year ended December 31, 2009; |
| • | Decrease in the number of operating properties due to dispositions. We sold a total of seven properties during the year ended December 31, 2009; |
| • | These decreases are offset by the receipt of the second contribution under the historic tax credit transaction that we entered into in 2008 with US Bancorp amounting to $23.8 million; and |
| • | Timing of cash receipts from our tenants and cash expenditures in the normal course of operations. |
The cash flows used in investing activities is primarily attributable to the following:
| • | Our capital expenditures for tenant and building improvements and leasing commissions increased by $57.3 million during the year ended December 31, 2009 when compared to the year ended December 31, 2008; |
| • | Net proceeds from sales of properties during the year ended December 31,2009 decreased by $268.8 million when compared to the year ended December 31, 2008; and |
| • | Receipt of funds placed in escrow during the last quarter of 2008 related to the Cira garage project amounting to $31.4 million which was also used to finance the project this year. |
The net decrease in cash used in financing activities is mainly due to the following:
| • | Net proceeds received from the public offering of common shares amounting to $242.3 million. |
| • | Decrease in our distributions paid to shareholders and non-controlling interests from $169.3 million during the year ended December 31, 2008 to $70.6 million during the year ended December 31, 2009. |
-59-
Table of Contents
| • | During the year ended December 31, 2009, we also obtained a total of $149.8 million first mortgage financings on our One Logan and Two Logan Square office properties located in Philadelphia, Pennsylvania. |
| • | Completion of a registered public offering of $250.0 million in aggregate principal amount of our 7.50% senior unsecured notes due 2015. We received $247.0 million in net proceeds from this offering after deducting underwriting discounts and offering expenses. |
| • | Increase in the net activity of our credit facility and unsecured notes of $370.2 million during the year ended December 31, 2009 when compared to the year ended December 31, 2008. |
| • | Repayments of mortgage notes payable also increased from $25.1 million during year ended December 31, 2008 to $84.1 million during the year ended December 31, 2009. |
| • | In addition, deferred financing costs paid also increased during the year ended December 31, 2009 by $24.4 million when compared to the year ended December 31, 2008 and primarily relate to the payment of a $17.7 million forward financing commitment fee, the remainder relates to costs incurred for other borrowings closed during the year. |
Capitalization
During the year ended December 31, 2009, we repurchased $444.7 million of our unsecured Notes in a
series of transactions which are summarized in the table below:
| Repurchase | Deferred Financing | |||||||||||||||
| Notes | Amount | Principal | Gain | Amortization | ||||||||||||
|
2009 4.500% Notes
|
$ | 92,736 | $ | 94,130 | $ | 1,377 | $ | 88 | ||||||||
|
2010 5.625% Notes
|
71,414 | 76,999 | 5,565 | 215 | ||||||||||||
|
2012 5.750% Notes
|
109,104 | 112,175 | 2,610 | 361 | ||||||||||||
|
2014 5.400% Notes
|
6,329 | 7,319 | 961 | 28 | ||||||||||||
|
3.875% Notes
|
136,880 | 154,070 | 12,664 | 1,289 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 416,463 | $ | 444,693 | $ | 23,177 | $ | 1,981 | ||||||||
|
|
||||||||||||||||
The Operating Partnership is the issuer of our unsecured notes and Brandywine Realty Trust has
fully and unconditionally guaranteed the payment of principal and interest on the notes.
On September 25, 2009, we consummated a registered public offering of $250.0 million in aggregate
principal amount of our 7.50% senior unsecured notes due 2015. The notes were priced at 99.412% of
their face amount with a yield to maturity of 7.625%, representing a spread at the time of pricing
of 5.162% to the yield on the August 2014 Treasury note. The notes have been reflected net of
discount of $1.4 million in the consolidated balance sheet as of December 31, 2009. The net
proceeds which amounted to $247.0 million after deducting underwriting discounts and offering
expenses will be used to repay our indebtedness under our existing unsecured revolving credit
facility and for general corporate purposes.
On
July 7, 2009, we closed on a $60.0 million first mortgage financing on our One Logan Square
property. The new loan bears interest at a floating rate of LIBOR plus 350 basis points (subject to
a LIBOR floor) and has a seven-year term with three years of interest only payments with principal
payments based on a thirty-year amortization schedule at a 7.5% rate. We used the loan proceeds for
general corporate purposes including repayment of existing indebtedness.
On April 1, 2009, we closed on an $89.8 million first mortgage financing on our Two Logan Square
property. The new loan bears interest at 7.57% per annum and has a seven-year term with three years
of interest only payments with principal payments based on a thirty-year amortization schedule. We
used $68.5 million in net proceeds to repay without penalty the balance of the former Two Logan
Square first mortgage loan and $21.3 million for general corporate purposes including the repayment
of existing indebtedness.
-60-
Table of Contents
On April 18, 2008, we exercised the accordion feature on our $150.0 million unsecured term loan
which we entered into in October 2007 and borrowed an additional
$33.0 million, bringing our total
outstanding
balance to $183.0 million. All outstanding borrowings under the term loan bear interest at a
periodic rate of LIBOR plus 80 basis points. The net proceeds of the term loan increase were used
to reduce indebtedness under our unsecured revolving credit facility. The term loan matures on
October 18, 2010 and may be extended at our option for two one-year periods but not beyond the
maturity date of our revolving credit facility.
On June 29, 2007, we amended our $600.0 million unsecured revolving credit facility (the “Credit
Facility”). The amendment extended the maturity date of the Credit Facility from December 22, 2009
to June 29, 2011 (subject to an extension of one year, at our option, upon our payment of an
extension fee equal to 15 basis points of the committed amount under the Credit Facility). The
amendment also reduced the per annum variable interest rate on outstanding balances from LIBOR plus
0.80% to LIBOR plus 0.725% per annum. In addition, the amendment reduced the quarterly facility
fee from 20 basis points to 17.5 basis points per annum. The interest rate and facility fee are
subject to adjustment upon a change in our unsecured debt ratings. The amendment also lowered to
7.50% from 8.50% the capitalization rate used in the calculation of several of the financial
covenants; increased our swing loan availability from $50.0 million to $60.0 million; and increased
the number of competitive bid loan requests available to us from two to four in any 30 day period.
Borrowings are always available to the extent of borrowing capacity at the stated rates; however,
the competitive bid feature allows banks that are part of the lender consortium under the Credit
Facility to bid to make loans to us at a reduced Eurodollar rate. We have the option to increase
the Credit Facility to $800.0 million subject to the absence of any defaults and our ability to
acquire additional commitments from our existing lenders or new lenders.
On April 30, 2007, we consummated the public offering of $300.0 million aggregate principal amount
of unsecured 5.70% Guaranteed Notes due 2017 and used the net proceeds from this offering to reduce
borrowings under the Credit Facility.
In April 2007, the entered into a $20.0 million Sweep Agreement (the “Sweep Agreement”) to be used
for cash management purposes. Borrowings under the Sweep Agreement bear interest at one-month LIBOR
plus 0.75%. The Sweep Agreement ended in April 2009 at which point the agreement was not renewed.
-61-
Table of Contents
As of December 31, 2009, we had approximately $2.5 billion of outstanding indebtedness. The table
below summarizes our mortgage notes payable, our unsecured notes and our revolving Credit Facility
(net of discounts) at December 31, 2009 and 2008:
| December 31, | December 31, | |||||||
| 2009 | 2008 | |||||||
| (dollars in thousands) | ||||||||
|
Balance:
|
||||||||
|
Fixed rate (includes variable swapped to fixed)
|
$ | 2,299,741 | $ | 2,505,659 | ||||
|
Variable rate — unhedged
|
154,836 | 235,836 | ||||||
|
|
||||||||
|
Total
|
$ | 2,454,577 | $ | 2,741,495 | ||||
|
|
||||||||
|
|
||||||||
|
Percent of Total Debt:
|
||||||||
|
Fixed rate (includes variable swapped to fixed)
|
93.7 | % | 91.4 | % | ||||
|
Variable rate — unhedged
|
6.3 | % | 8.6 | % | ||||
|
|
||||||||
|
Total
|
100 | % | 100 | % | ||||
|
|
||||||||
|
|
||||||||
|
Weighted-average interest rate at period end:
|
||||||||
|
Fixed rate (includes variable swapped to fixed)
|
5.9 | % | 5.6 | % | ||||
|
Variable rate — unhedged
|
1.8 | % | 2.1 | % | ||||
|
Total
|
5.6 | % | 5.1 | % | ||||
The variable rate debt shown above generally bears interest based on various spreads ranging
from 0.73% to 1.6% over a LIBOR term periodically selected by us.
We use Credit Facility borrowings for general business purposes, including the acquisition,
development and redevelopment of properties and the repayment of other debt. We have an option to
increase the maximum borrowings under the Credit Facility to $800.0 million subject to the absence
of any defaults and our ability to obtain additional commitments from our existing or new lenders.
Our interest rate incurred under our revolving Credit Facility and term loan is subject to
modification depending on our rating status with qualified agencies.
As of December 31, 2009, we had $92.0 million of borrowings, $13.9 million of letters of credit
outstanding under the Credit Facility, and a $51.0 million holdback in connection with our historic
tax credit transaction leaving $443.1 million of unused availability. For the years ended December
31, 2009 and 2008, our weighted average interest rates, including the effects of interest rate
hedges discussed in Note 7 to the consolidated financial statements included herein, and including
both the new Credit Facility and prior credit facility, were 2.08% and 4.35% per annum,
respectively.
The Credit Facility contains financial and non-financial covenants, including covenants that relate
to our incurrence of additional debt; the granting of liens; consummation of mergers and
consolidations; the disposition of assets and interests in subsidiaries; the making of loans and
investments; and the payment of dividends. The restriction on dividends permits us to pay
dividends to the greater of (i) an amount required for us to retain our qualification as a REIT and
(ii) 95% of our funds from operations. The Credit Facility also contains financial covenants that
require us to maintain an interest coverage ratio, a fixed charge coverage ratio, an unsecured debt
ratio and an unencumbered cash flow ratio above certain specified minimum levels; to maintain net
worth above an amount determined on a specified formula; and to maintain a leverage ratio and a
secured debt ratio below certain maximum levels. Another financial covenant limits the ratio of
unsecured debt to unencumbered properties. We continuously monitor the Company’s compliance with
and anticipated compliance with the covenants. Certain of the covenants restrict management’s
ability to obtain alternative sources of capital. We were in compliance with all covenants as of
December 31, 2009.
-62-
Table of Contents
The indenture under which we issued our unsecured Notes including those issued in September 2009
contain (or contained) financial covenants, including (1) a leverage ratio not to exceed 60%, (2) a
secured debt leverage ratio not to exceed 40%, (3) a debt service coverage ratio of greater than
1.5 to 1.0 and (4) an
unencumbered asset value of not less than 150% of unsecured debt. We were in compliance with all
covenants as of December 31, 2009.
We have mortgage loans that are collateralized by certain of our Properties. Payments on mortgage
loans are generally due in monthly installments of principal and interest, or interest only. We
intend to refinance or repay our mortgage loans as they mature through the use of proceeds from
selective Property sales and secured or unsecured borrowings. However, in the current and future
economic environment one or more of these sources may not be available on attractive terms or at
all.
Our charter documents do not limit the amount or form of indebtedness that we may incur, and our
policies on debt incurrence are solely within the discretion of our Board, subject to financial
covenants in the Credit Facility, indenture and other credit agreements.
As of December 31, 2009, we had guaranteed repayment of approximately $2.1 million of loans on
behalf of certain Real Estate Ventures. See Item 2. Properties — Real Estate Ventures. We also
provide customary environmental indemnities and completion guarantees in connection with
construction and permanent financing both for our own account and on behalf of certain of the Real
Estate Ventures.
Share Repurchases
We maintain a share repurchase program under which our Board has authorized us to repurchase our
common shares from time to time. Our Board initially authorized this program in 1998 and has
periodically replenished capacity under the program, including, most recently, on May 2, 2006 when
our Board restored capacity to 3.5 million common shares. We did not repurchase any shares during
2009 under this plan. As of December 31, 2009, we may repurchase an additional 0.5 million shares
under the plan. Our Board has not limited the duration of the program; however, it may be
terminated at any time.
Off-Balance Sheet Arrangements
We are not dependent on any off-balance sheet financing arrangements for liquidity. Our
off-balance sheet arrangements are discussed in Note 4 to the financial statements, “Investment in
Unconsolidated Real Estate Ventures”. Additional information about the debt of our unconsolidated
Real Estate Ventures is included in “Item 2 — Properties”.
Short- and Long-Term Liquidity
We believe that our cash flow from operations is adequate to fund our short-term liquidity
requirements, excluding principal payments under our debt obligations. Cash flow from operations is
generated primarily from rental revenues and operating expense reimbursements from tenants and
management services income from providing services to third parties. We intend to use these funds
to meet short-term liquidity needs, which are to fund operating expenses, recurring capital
expenditures, tenant allowances, leasing commissions, interest expense and the minimum
distributions required to maintain our REIT qualification under the Internal Revenue Code. We
expect to meet short-term scheduled debt maturities through borrowings under the Credit Facility
and proceeds from selective asset dispositions. As of December 31, 2009, we had $1,902.9 million of
unsecured debt and $551.7 million of mortgage debt of which $198.5 million and $51.3 million,
respectively, are scheduled to mature through December 2010. We expect to extend our term loan of
$183.0 million, we expect to have sufficient capacity under our Credit Facility and for the
remaining debt maturities, and we will also continue to look to the other listed sources to fund
these maturities.
We expect to meet our long-term liquidity requirements, such as for property acquisitions,
development, investments in real estate ventures, scheduled debt maturities, major renovations,
expansions and other significant capital improvements, through cash from operations, borrowings
under the Credit Facility, additional secured and unsecured indebtedness, the issuance of equity
securities, contributions from joint venture investors and proceeds from asset dispositions.
-63-
Table of Contents
Many commercial real estate lenders have substantially tightened underwriting standards or have
withdrawn from the lending marketplace. Also, spreads in the investment grade bond market have
substantially widened. These circumstances have materially impacted liquidity in the debt markets,
making financing terms less attractive, and in certain cases have resulted in the unavailability of
certain types of debt financing. As a result, we expect debt financings will be more difficult to
obtain and that borrowing costs on new and refinanced debt will be more expensive. Moreover, the
recent volatility in the financial markets, in general, will make it more difficult or costly, or
even impossible, for us to raise capital through the issuance of common stock, preferred stock or
other equity instruments or through public issuances of debt securities from our shelf registration
statements as we have been able to do in the past. Such conditions would also limit our ability to
raise capital through asset dispositions at attractive prices or at all.
Inflation
A majority of our leases provide for reimbursement of real estate taxes and operating expenses
either on a triple net basis or over a base amount. In addition, many of our office leases provide
for fixed base rent increases. We believe that inflationary increases in expenses will be
partially offset by expense reimbursement and contractual rent increases. There were also
reductions in our rental rates on some of our new leases and renewals due to the current operating
environment.
Commitments and Contingencies
The following table outlines the timing of payment requirements related to our contractual
commitments as of December 31, 2009.
| Payments by Period (in thousands) | ||||||||||||||||||||
| Less than | More than | |||||||||||||||||||
| Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
|
|
||||||||||||||||||||
|
Mortgage notes payable (a)
|
$ | 550,590 | $ | 51,258 | $ | 243,666 | $ | 94,884 | $ | 160,782 | ||||||||||
|
Revolving credit facility
|
92,000 | — | 92,000 | — | — | |||||||||||||||
|
Unsecured term loan
|
183,000 | 183,000 | — | — | — | |||||||||||||||
|
Unsecured debt (a)
|
1,635,621 | 198,545 | 187,825 | 492,681 | 756,570 | |||||||||||||||
|
Ground leases (b)
|
297,594 | 2,318 | 6,955 | 7,226 | 281,095 | |||||||||||||||
|
Interest expense
|
687,806 | 134,019 | 206,322 | 233,911 | 113,554 | |||||||||||||||
|
Development contracts (c)
|
77,418 | 77,418 | — | — | — | |||||||||||||||
|
Other liabilities
|
7,162 | — | — | — | 7,162 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 3,531,191 | $ | 646,558 | $ | 736,768 | $ | 828,702 | $ | 1,319,163 | ||||||||||
|
|
||||||||||||||||||||
| (a) | Amounts do not include unamortized discounts and/or premiums. | |
| (b) | Future minimum rental payments under the terms of all non-cancelable ground leases under which we are the lessee are expensed on a straight-line basis regardless of when payments are due. | |
| (c) | Represents contractual obligations for certain development projects and does not contemplate all costs expected to be incurred. |
As part
of the TRC acquisition, we acquired our interest in Two Logan Square, a 703,386 square foot
office building in Philadelphia, primarily through our ownership of a second and third mortgage
secured by this property. This property is consolidated as the borrower is a variable interest
entity and we, through our ownership of the second and third mortgages are the primary beneficiary.
We currently do not expect to take title to Two Logan Square until, at the earliest, September
2019. If we take fee title to Two Logan Square upon a foreclosure of our mortgage, we have agreed
to pay an unaffiliated third party that holds a residual interest in the fee owner of this property
an amount equal to $0.6 million (if we must pay a state and local transfer upon taking title) and
$2.9 million (if no transfer tax is payable upon the transfer).
-64-
Table of Contents
We are currently being audited by the Internal Revenue Service for our 2004 tax year. The audit
concerns the tax treatment of the transaction in September 2004 in which we acquired a portfolio of
properties through the acquisition of a limited partnership. At this time it does not appear that
an adjustment would
result in a material tax liability for us. However, an adjustment could raise a question as to
whether a contributor of partnership interests in the 2004 transaction could assert a claim against
us under the tax protection agreement entered into as part of the transaction.
As part of our 2006 acquisition of Prentiss Properties Trust, the TRC acquisition in 2004 and
several of our other transactions, we agreed not to sell certain of the properties we acquired in
transactions that would trigger taxable income to the former owners. In the case of the TRC
acquisition, we agreed not to sell acquired properties for periods up to 15 years from the date of
the TRC acquisition date as follows at December 31, 2009: One Rodney Square and 130/150/170 Radnor
Financial Center (January 2015); and One Logan Square, Two Logan Square and Radnor Corporate Center
(January 2020). In the Prentiss acquisition, we assumed the obligation of Prentiss not to sell
Concord Airport Plaza before March 2018. Our agreements generally provide that we may dispose of
the subject properties only in transactions that qualify as tax-free exchanges under Section 1031
of the Internal Revenue Code or in other tax deferred transactions. If we were to sell a
restricted property before expiration of the restricted period in a non-exempt transaction, we
would be required to make significant payments to the parties who sold us the applicable property
on account of tax liabilities triggered to them.
In connection with our development of the PO Box/IRS and Cira Garage projects, during 2008, we
entered into a historic tax credit and new markets tax credit arrangement, respectively. We are
required to be in compliance with various laws, regulations and contractual provisions that apply
to our historic and new market tax credit arrangements. Non-compliance with applicable
requirements could result in projected tax benefits not being realized and therefore, require a
refund to USB or reduction of investor capital contributions, which are reported as deferred income
in our consolidated balance sheet, until such time as our obligation to deliver tax benefits is
relieved. The remaining compliance periods for our tax credit arrangements run through 2015. We
do not anticipate that any material refunds or reductions of investor capital contributions will be
required in connection with these arrangements.
On June 29, 2009, we entered into a forward financing commitment to borrow up to $256.5 million
under two separate loans which are secured by mortgages on the 30th Street Post Office (the “Post
Office project”), the Cira South Garage (the “garage project”) projects and by the leases of space
at these facilities upon the completion of these projects (See Note 7). In order for funding to
occur we need to meet certain conditions which primarily relate to the completion of the projects
and the commencement of the rental payments from the respective leases on these properties. The
expected funding date is scheduled on August 26, 2010 which is also the anticipated completion date
of the projects. In the event the said conditions were not met, we have the right to extend the
funding date by paying an extension fee amounting to $1.8 million for each 30 day extension within
the allowed two year extension period. In addition, we can also voluntarily elect to terminate the
loans during the forward period including the extension period by paying a termination fee. We are
also subject to the termination fee if the conditions were not met on the final advance date. The
termination fee is calculated as the greater of the 0.5% of the total available principal to be
funded or the present value of the scheduled interest and principal payments (based on the
principal amount to be funded and the then 20 —year treasury rate plus 50 basis points) from the
funding date through the loans’ maturity date and the amount to be funded. In addition, deferred
financing costs related to these loans will be accelerated if we chose to terminate the forward
financing commitment.
We invest in our properties and regularly incur capital expenditures in the ordinary course to
maintain the properties. We believe that such expenditures enhance our competitiveness. We also
enter into construction, utility and service contracts in the ordinary course of business which may
extend beyond one year. These contracts typically provide for cancellation with insignificant or
no cancellation penalties.
-65-
Table of Contents
Interest Rate Risk and Sensitivity Analysis
The analysis below presents the sensitivity of the market value of our financial instruments to
selected changes in market rates. The range of changes chosen reflects our view of changes which
are reasonably
possible over a one-year period. Market values are the present value of projected future cash
flows based on the market rates chosen.
Our financial instruments consist of both fixed and variable rate debt. As of December 31, 2009,
our consolidated debt consisted of $551.7 million in fixed rate mortgages, $92.0 million borrowings
under our Credit Facility, $183.0 million borrowings in an unsecured, term loan and $1.6 billion in
unsecured notes (net of discounts) of which $1,575.0 million are fixed rate borrowings and $52.8
million are variable rate borrowings. All financial instruments were entered into for other than
trading purposes and the net market value of these financial instruments is referred to as the net
financial position. Changes in interest rates have different impacts on the fixed and variable
rate portions of our debt portfolio. A change in interest rates on the fixed portion of the debt
portfolio impacts the net financial instrument position, but has no impact on interest incurred or
cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the
interest incurred and cash flows, but does not impact the net financial instrument position.
As of December 31, 2009, based on prevailing interest rates and credit spreads, the fair value of
our unsecured notes was $1.5 billion. For sensitivity purposes, a 100 basis point change in the
discount rate equates to a change in the total fair value of our debt, including the Notes, of
approximately $15.5 million at December 31, 2009.
We use derivative instruments to manage interest rate risk exposures and not for speculative
purposes. As of December 31, 2009 we effectively hedged debt with a notional amount of $198.8
million through four interest rate swap agreements. These instruments have an aggregate fair value
of $7.3 million at December 31, 2009.
In December 2009, we settled in cash two of our interest swaps with a notional amount of $50.0
million, which we have applied in the registered offering of our unsecured notes on September 21,
2009. The related interest swaps no longer qualify for hedge accounting upon the completion of the
offering as the hedging relationship was terminated. Accordingly, changes in the fair value of
these interest rate swaps were charged to our consolidated statements of operations until their
cash settlement date. We also recognized $0.1 million gain from the ineffectiveness of the hedges
during the twelve months ended December 31, 2009.
The total carrying value of our variable rate debt was approximately $353.6 million and $414.6
million at December 31, 2009 and December 31, 2008, respectively. The total fair value of our debt,
excluding the Notes, was approximately $341.2 million and $398.7 million at December 31, 2009 and
December 31, 2008, respectively. For sensitivity purposes, a 100 basis point change in the discount
rate equates to a change in the total fair value of our debt, excluding the Notes, of approximately
$1.5 million at December 31, 2009, and a 100 basis point change in the discount rate equates to a
change in the total fair value of our debt of approximately $2.4 million at December 31, 2008.
If market rates of interest increase by 1%, the fair value of our outstanding fixed-rate mortgage
debt would decrease by approximately $16.1 million. If market rates of interest decrease by 1%, the
fair value of our outstanding fixed-rate mortgage debt would increase by approximately $16.9
million.
At December 31, 2009, our outstanding variable rate debt based on LIBOR totaled approximately
$353.6 million. At December 31, 2009, the interest rate on our variable rate debt was approximately
1.17%. If market interest rates on our variable rate debt change by 100 basis points, total
interest expense would change by approximately $0.4 million for the quarter ended December 31,
2009.
-66-
Table of Contents
These amounts were determined solely by considering the impact of hypothetical interest rates on
our financial instruments. Due to the uncertainty of specific actions we may undertake to minimize
possible effects of market interest rate increases, this analysis assumes no changes in our
financial structure.
See discussion in Management’s Discussion and Analysis included in Item 7 herein.
The financial statements and supplementary financial data of Brandywine Realty Trust and Brandywine
Operating Partnership, L.P. and the reports thereon of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, with respect thereto are listed under Item 15(a) and filed as
part of this Annual Report on Form 10-K. See Item 15.
None
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of each registrant’s management, including its
principal executive officer and principal financial officer, each registrant’s management conducted
an evaluation of the registrant’s disclosure controls and procedures, as such term is defined under
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act). Based on this evaluation, the principal executive officer and the principal financial
officer of each registrant concluded that each registrant’s disclosure controls and procedures were
effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting
The management of each registrant is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
Under the supervision and with the participation of each registrant’s management, including its
principal executive officer and principal financial officer, each registrant’s management conducted
an evaluation of the effectiveness of the registrant’s internal control over financial reporting
based on the framework in
Internal Control — Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework
in
Internal Control — Integrated Framework
, each registrant’s management concluded that the
registrant’s internal control over financial reporting was effective as of December 31, 2009.
Management of each registrant has excluded our investments in Four and Six Tower Bridge Associates
from its evaluation of the effectiveness of internal control over financial reporting as of
December 31, 2009 because we do not have the right or authority to assess the internal controls of
the individual entities and we also lack the ability, in practice, to make the assessment. Four
and Six Tower Bridge Associates are two real estate partnerships, created prior to December 15,
2003, which we consolidate under the accounting standard for the consolidation of variable interest
entities. The total assets and total revenue of Four and Six Tower Bridge Associates represent, in
the aggregate, less than 1% of our consolidated total assets and consolidated total revenue as of
and for the year ended December 31, 2009.
The effectiveness of each registrant’s internal control over financial reporting as of December 31,
2009 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their reports which are included herein.
-67-
Table of Contents
Changes in Internal Control over Financial Reporting.
There have not been any changes in either registrant’s internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth
fiscal quarter to which this report relates that have materially affected, or are reasonably likely
to materially affect, either registrant’s internal control over financial reporting.
On February 23, 2010 our Board provided RREEF America LLC, a registered investment advisor, a
waiver from the 9.8% share ownership limit in our Declaration of Trust. The waiver permits RREEF
to hold, on behalf of its advisory clients, up to 14,750,000 common shares. The waiver does not
permit any of RREEF’s advisory clients to own (directly or through RREEF) shares above the 9.8%
ownership limit, nor does the waiver permit RREEF to own shares for its own account above the 9.8%
ownership limit. We have attached as an exhibit to this Form 10-K a copy of the waiver and RREEF’s
certificate of representations, warranties and agreements .
Incorporated herein by reference to the Company’s definitive proxy statement to be filed with
respect to its 2010 Annual Meeting of Shareholders.
Incorporated herein by reference to the Company’s definitive proxy statement to be filed with
respect to its 2010 Annual Meeting of Shareholders.
Incorporated herein by reference to the Company’s definitive proxy statement to be filed with
respect to its 2010 Annual Meeting of Shareholders.
Incorporated herein by reference to the Company’s definitive proxy statement to be filed with
respect to its 2010 Annual Meeting of Shareholders.
Incorporated herein by reference to the Company’s definitive proxy statement to be filed with
respect to its 2010 Annual Meeting of Shareholders.
| (a) | 1. and 2. Financial Statements and Schedules |
The financial statements and schedules of Brandywine Realty Trust and Brandywine Operating
Partnership listed below are filed as part of this annual report on the pages indicated.
-68-
Table of Contents
Index to Financial Statements and Schedules
BRANDYWINE REALTY TRUST
| Page | ||||
| F-1 | ||||
|
|
||||
| F-2 | ||||
|
|
||||
| F-3 | ||||
|
|
||||
| F-4 | ||||
|
|
||||
| F-5 | ||||
|
|
||||
| F-6 | ||||
|
|
||||
| F-7 | ||||
|
|
||||
| F-42 | ||||
|
|
||||
| F-43 | ||||
BRANDYWINE OPERATING PARTNERSHIP, L.P.
| Page | ||||
| F-48 | ||||
|
|
||||
| F-49 | ||||
|
|
||||
| F-50 | ||||
|
|
||||
| F-51 | ||||
|
|
||||
| F-52 | ||||
|
|
||||
| F-53 | ||||
|
|
||||
| F-54 | ||||
|
|
||||
| F-89 | ||||
|
|
||||
| F-90 | ||||
|
|
||||
| F-95 | ||||
-69-
Table of Contents
3.
Exhibits
| Exhibits No. | Description | |||
| 3.1.1 |
Amended and Restated Declaration of Trust of Brandywine Realty Trust (amended and restated as of
May 12, 1997) (previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated June
9, 1997 and incorporated herein by reference)
|
|||
| 3.1.2 |
Articles of Amendment to Declaration of Trust of Brandywine Realty Trust (September 4, 1997)
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated September 10, 1997
and incorporated herein by reference)
|
|||
| 3.1.3 |
Articles of Amendment to Declaration of Trust of Brandywine Realty Trust (previously filed as an
exhibit to Brandywine Realty Trust’s Form 8-K dated June 3, 1998 and incorporated herein by
reference)
|
|||
| 3.1.4 |
Articles Supplementary to Declaration of Trust of Brandywine Realty Trust (September 28, 1998)
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated October 13, 1998 and
incorporated herein by reference)
|
|||
| 3.1.5 |
Articles of Amendment to Declaration of Trust of Brandywine Realty Trust (March 19, 1999)
(previously filed as an exhibit to Brandywine Realty Trust’s Form 10-K for the fiscal year ended
December 31, 1998 and incorporated herein by reference)
|
|||
| 3.1.6 |
Articles Supplementary to Declaration of Trust of Brandywine Realty Trust (April 19, 1999)
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated April 26, 1999 and
incorporated herein by reference)
|
|||
| 3.1.7 |
Articles Supplementary to Declaration of Trust of Brandywine Realty Trust (December 30, 2003)
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-A dated December 29, 2003
and incorporated herein by reference)
|
|||
| 3.1.8 |
Articles Supplementary to Declaration of Trust of Brandywine Realty Trust (February 5, 2004)
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-A dated February 5, 2004 and
incorporated herein by reference)
|
|||
| 3.1.9 |
Articles of Amendment to Declaration of Trust of Brandywine Realty Trust (October 3, 2005)
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated October 4, 2005 and
incorporated herein by reference)
|
|||
| 3.1.10 |
Amended and Restated Agreement of Limited Partnership of Brandywine Operating Partnership, L.P.
(the “Operating Partnership”) (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K dated December 17, 1997 and incorporated herein by reference)
|
|||
| 3.1.11 |
First Amendment to Amended and Restated Agreement of Limited Partnership of Brandywine Operating
Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated
December 17, 1997 and incorporated herein by reference)
|
|||
| 3.1.12 |
Second Amendment to the Amended and Restated Agreement of Limited Partnership Agreement of
Brandywine Operating Partnership, L.P.** (previously filed as an exhibit to Brandywine Realty
Trust’s Form 8-K dated April 13, 1998 and incorporated herein by reference)
|
|||
| 3.1.13 |
Third Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K dated May 14, 1998 and incorporated herein by reference)
|
|||
| 3.1.14 |
Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K dated October 13, 1998 and incorporated herein by reference)
|
|||
| 3.1.15 |
Fifth Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K dated October 13, 1998 and incorporated herein by reference)
|
|||
| 3.1.16 |
Sixth Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K dated October 13, 1998 and incorporated herein by reference)
|
|||
| 3.1.17 |
Seventh Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference)
|
|||
| 3.1.18 |
Eighth Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference)
|
|||
| 3.1.19 |
Ninth Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference)
|
|||
| 3.1.20 |
Tenth Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference)
|
|||
| 3.1.21 |
Eleventh Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference)
|
|||
| 3.1.22 |
Twelfth Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference)
|
|||
-70-
Table of Contents
| Exhibits No. | Description | |||
| 3.1.23 |
Thirteenth Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K dated September 21, 2004 and incorporated herein by reference)
|
|||
| 3.1.24 |
Fourteenth Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K dated January 10, 2006 and incorporated herein by reference)
|
|||
| 3.1.25 |
Fifteenth Amendment to the Amended and Restated Agreement of Limited Partnership of Brandywine
Operating Partnership, L.P. (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K dated August 18, 2006 and incorporated herein by reference)
|
|||
| 3.1.26 |
List of partners of Brandywine Operating Partnership, L.P.
|
|||
| 3.2 |
Amended and Restated Bylaws of Brandywine Realty Trust (previously filed as an exhibit to
Brandywine Realty Trust’s Form 8-K dated October 14, 2003 and incorporated herein by reference)
|
|||
| 4.1 |
Form of 7.50% Series C Cumulative Redeemable Preferred Share Certificate (previously filed as an
exhibit to Brandywine Realty Trust’s Form 8-A dated December 29, 2003 and incorporated herein by
reference)
|
|||
| 4.2 |
Form of 7.375% Series D Cumulative Redeemable Preferred Share Certificate (previously filed as
an exhibit to Brandywine Realty Trust’s Form 8-A dated February 5, 2004 and incorporated herein
by reference)
|
|||
| 4.3.1 |
Indenture dated October 22, 2004 by and among Brandywine Operating Partnership, L.P., Brandywine
Realty Trust, certain subsidiaries of Brandywine Operating Partnership, L.P. named therein and
The Bank of New York, as Trustee (previously filed as an exhibit to Brandywine Realty Trust’s
Form 8-K dated October 22, 2004 and incorporated herein by reference)
|
|||
| 4.3.2 |
First Supplemental Indenture dated as of May 25, 2005 by and among Brandywine Operating
Partnership, L.P., Brandywine Realty Trust, certain subsidiaries of Brandywine Operating
Partnership, L.P. named therein and The Bank of New York, as Trustee (previously filed as an
exhibit to Brandywine Realty Trust’s Form 8-K dated May 26, 2005 and incorporated herein by
reference)
|
|||
| 4.3.3 |
Second Supplemental Indenture dated as of October 4, 2006 by and among Brandywine Operating
Partnership, L.P., Brandywine Realty Trust and the Bank of New York, as Trustee (previously
filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated October 4, 2006 and incorporated
herein by reference)
|
|||
| 4.4 |
Form of $250,000,000 5.40% Guaranteed Note due 2014 (previously filed as an exhibit to
Brandywine Realty Trust’s Form 8-K dated October 22, 2004 and incorporated herein by reference)
|
|||
| 4.5 |
Form of $300,000,000 5.625% Guaranteed Note due 2010 (previously filed as an exhibit to
Brandywine Realty Trust’s Form 8-K dated December 20, 2005 and incorporated herein by reference)
|
|||
| 4.6 |
Form of $300,000,000 aggregate principal amount of 5.75% Guaranteed Note due 2012 (previously
filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated March 28, 2006 and incorporated
herein by reference).
|
|||
| 4.7 |
Form of $250,000,000 aggregate principal amount of 6.00% Guaranteed Note due 2016 (previously
filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated March 28, 2006 and incorporated
herein by reference).
|
|||
| 4.8 |
Form of 3.875% Exchangeable Guaranteed Notes due 2026 (previously filed as an exhibit to
Brandywine Realty Trust’s Form 8-K dated October 4, 2006 and incorporated herein by reference)
|
|||
| 4.9 |
Form of $300,000,000 aggregate principal amount of 5.70% Guaranteed Notes due 2017 (previously
filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated April 30, 2007 and incorporated
herein by reference)
|
|||
| 4.10 |
Form of $250,000,000 aggregate principal amount of 7.50% Guaranteed Notes due 2015 (previously
filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated September 25, 2009 and
incorporated herein by reference)
|
|||
| 10.1 |
Second Amended and Restated Revolving Credit Agreement dated as of June 29, 2007 (previously
filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated June 29, 2007 and incorporated
herein by reference)
|
|||
| 10.2 |
Term Loan Agreement dated as of October 15, 2007 (previously filed as an exhibit to Brandywine
Realty Trust’s Form 8-K dated October 16, 2007 and incorporated herein by reference)
|
|||
| 10.3 |
Contribution Agreement dated as of July 10, 1998 (with Donald E. Axinn) (previously filed as an
exhibit to Brandywine Realty Trust’s Form 8-K dated July 30, 1998 and incorporated herein by
reference)
|
|||
| 10.4 |
First Amendment to Contribution Agreement (with Donald E. Axinn) (previously filed as an exhibit
to Brandywine Realty Trust’s Form 8-K dated October 13, 1998 and incorporated herein by
reference)
|
|||
| 10.5 |
Modification Agreement dated as of June 20, 2005 between Brandywine Operating Partnership, L.P.
and Donald E. Axinn (previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated
June 21, 2005 and incorporated herein by reference)
|
|||
| 10.6 |
Contribution Agreement dated August 18, 2004 with TRC Realty, Inc.-GP, TRC-LB LLC and TRC
Associates Limited Partnership (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K dated August 19, 2004 and incorporated herein by reference)
|
|||
| 10.7 |
Registration Rights Agreement (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K dated September 21, 2004 and incorporated herein by reference)
|
|||
| 10.8 |
Tax Protection Agreement (previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K
dated September 21, 2004 and incorporated herein by reference)
|
|||
| 10.9 |
Registration Rights Agreement dated as of October 3, 2005 (previously filed as an exhibit to
Brandywine Realty Trust’s Form 8-K dated October 4, 2005 and incorporated herein by reference)
|
|||
| 10.10 |
Letter to Cohen & Steers Capital Management, Inc. relating to waiver of share ownership limit
(previously filed as an exhibit to Brandywine Realty Trust’s Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference)
|
|||
| 10.11 |
Registration Rights Agreement dated as of October 4, 2006 relating to 3.875% Exchangeable
Guaranteed Notes due 2026 (previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K
dated October 4, 2006 and incorporated herein by reference)
|
|||
-71-
Table of Contents
| Exhibits No. | Description | |||
| 10.12 |
Common Share Delivery Agreement (previously filed as an exhibit to Brandywine Realty Trust’s
Form 8-K dated October 4, 2006 and incorporated herein by reference)
|
|||
| 10.13 |
2006 Amended and Restated Agreement dated as of January 5, 2006 with Anthony A. Nichols, Sr.**
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated January 10, 2006 and
incorporated herein by reference)
|
|||
| 10.14 |
Consulting Letter Agreement with Anthony A. Nichols, Sr.** (previously filed as an exhibit to
Brandywine Realty Trust’s Form 10-K for the fiscal year ended December 31, 2008 and incorporated
herein by reference)
|
|||
| 10.15 |
Amended and Restated Employment Agreement dated as of February 9, 2007 of Gerard H. Sweeney**
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated February 14, 2007
and incorporated herein by reference)
|
|||
| 10.16 |
Amended and Restated 1997 Long-Term Incentive Plan** (previously filed as an exhibit to
Brandywine Realty Trust’s Form 10-Q for the quarter ended March 31, 2007 and incorporated herein
by reference)
|
|||
| 10.17 |
Amended and Restated Executive Deferred Compensation Plan effective March 25, 2004** (previously
filed as an exhibit to Brandywine Realty Trust’s Form 10-Q for the quarter ended March 31, 2004
and incorporated herein by reference)
|
|||
| 10.18 |
Amended and Restated Executive Deferred Compensation Plan effective January 1, 2009**
(previously filed as an exhibit to Brandywine Realty Trust’s Form 10-K for the fiscal year ended
December 31, 2008 and incorporated herein by reference)
|
|||
| 10.19 |
2007 Non-Qualified Employee Share Purchase Plan** (previously filed as an exhibit to Brandywine
Realty Trust’s Form 10-Q for the quarter ended March 31, 2007 and incorporated herein by
reference)
|
|||
| 10.20 |
2006 Restricted Share Award to Gerard H. Sweeney** (previously filed as an exhibit to Brandywine
Realty Trust’s Form 8-K dated February 15, 2006 and incorporated herein by reference)
|
|||
| 10.21 |
Form of 2006 Restricted Share Award to executive officers (other than the President and Chief
Executive Officer)** (previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated
February 15, 2006 and incorporated herein by reference)
|
|||
| 10.22 |
Form of 2007 Restricted Share Award to non-executive trustees** (previously filed as an exhibit
to Brandywine Realty Trust’s Form 10-Q for the quarter ended March 31, 2007 and incorporated
herein by reference)
|
|||
| 10.23 |
Performance Share Award to Howard M. Sipzner** (previously filed as an exhibit to Brandywine
Realty Trust’s Form 8-K dated December 12, 2006 and incorporated herein by reference)
|
|||
| 10.24 |
2007 Performance Share Award to Gerard H. Sweeney** (previously filed as an exhibit to
Brandywine Realty Trust’s Form 8-K dated February 14, 2007 and incorporated herein by reference)
|
|||
| 10.25 |
Form of 2007 Performance Share Award to executive officers (other than the President and Chief
Executive Officer)** (previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated
February 14, 2007 and incorporated herein by reference)
|
|||
| 10.26 |
Summary of Trustee Compensation** (previously filed as an exhibit to Brandywine Realty Trust’s
Form 8-K dated March 17, 2006 and incorporated herein by reference)
|
|||
| 10.27 |
Form of Restricted Share Award** (previously filed as an exhibit to Brandywine Realty Trust’s
Form 8-K dated January 10, 2006 and incorporated herein by reference)
|
|||
| 10.28 |
Form of Performance Share Award to the President and CEO and Executive Vice President and CFO**
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated April 11, 2008 and
incorporated herein by reference)
|
|||
| 10.29 |
Form of Performance Share Award to the executive officers (other than the President and CEO and
Executive Vice President and CFO)** (previously filed as an exhibit to Brandywine Realty Trust’s
Form 8-K dated April 11, 2008 and incorporated herein by reference)
|
|||
| 10.30 |
Form of Non-Qualified Share Option Agreement to the President and CEO and Executive Vice
President and CFO** (previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated
April 11, 2008 and incorporated herein by reference)
|
|||
| 10.31 |
Form of Non-Qualified Share Option Agreement to the executive officers (other than the President
and CEO and Executive Vice President and CFO)** (previously filed as an exhibit to Brandywine
Realty Trust’s Form 8-K dated April 11, 2008 and incorporated herein by reference)
|
|||
| 10.32 |
Form of Incentive Stock Option Agreement to the President and CEO and Executive Vice President
and CFO ** (previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated April 11,
2008 and incorporated herein by reference)
|
|||
| 10.33 |
Form of Incentive Stock Option Agreement to the executive officers (other than the President and
CEO and Executive Vice President and CFO)** (previously filed as an exhibit to Brandywine Realty
Trust’s Form 8-K dated April 11, 2008 and incorporated herein by reference)
|
|||
| 10.34 |
Form of Restricted Share Award for Executive Officers** (previously filed as an exhibit to
Brandywine Realty Trust’s Form 8-K dated April 1, 2009 and incorporated herein by reference)
|
|||
| 10.35 |
Form of Restricted Performance Share Unit and Dividend Equivalent Rights Award Agreement for
Executive Officers** (previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated
April 1, 2009 and incorporated herein by reference)
|
|||
| 10.36 |
2009-2011 Restricted Performance Share Unit Program** (previously filed as an exhibit to
Brandywine Realty Trust’s Form 8-K dated April 1, 2009 and incorporated herein by reference)
|
|||
| 10.37 |
Forms of Non-Qualified Share Option Agreement for Executive Officers** (previously filed as an
exhibit to Brandywine Realty Trust’s Form 8-K dated April 1, 2009 and incorporated herein by
reference)
|
|||
| 10.38 |
Forms of Incentive Stock Option Agreement for Executive Officers ** (previously filed as an
exhibit to Brandywine Realty Trust’s Form 8-K dated April 1, 2009 and incorporated herein by
reference)
|
|||
-72-
Table of Contents
| Exhibits No. | Description | |||
| 10.39 |
Form of Amended and Restated Change of Control Agreement with Executive Officers** (previously
filed as an exhibit to Brandywine Realty Trust’s Form 8-K filed on February 4, 2010 and
incorporated herein by reference)
|
|||
| 10.40 |
Employment Agreement dated February 3, 2010 with Howard M. Sipzner ** (previously filed as an
exhibit to Brandywine Realty Trust’s Form 8-K filed on February 4, 2010 and incorporated herein
by reference)
|
|||
| 10.41 |
Letter to RREEF America LLC relating to waiver of share ownership limit
|
|||
| 12.1 |
Statement re Computation of Ratios of Brandywine Realty Trust
|
|||
| 12.2 |
Statement re Computation of Ratios of Brandywine Operating Partnership, L.P.
|
|||
| 14.1 |
Code of Business Conduct and Ethics** (previously filed as an exhibit to Brandywine Realty
Trust’s Form 8-K dated December 22, 2004 and incorporated herein by reference)
|
|||
| 21 |
List of subsidiaries
|
|||
| 23.1 |
Consent of PricewaterhouseCoopers LLP relating to financial statements of Brandywine Realty Trust
|
|||
| 23.2 |
Consent of PricewaterhouseCoopers LLP relating to financial statements of Brandywine Operating
Partnership, L.P.
|
|||
| 23.3 |
Consent of PricewaterhouseCoopers LLP relating to financial statements of
G&I Interchange Office L.L.C.
|
|||
| 31.1 |
Certification of the Chief Executive Officer of Brandywine Realty Trust pursuant to 13a-14
under the Securities Exchange Act of 1934
|
|||
| 31.2 |
Certification of the Chief Financial Officer of Brandywine Realty Trust pursuant to 13a-14
under the Securities Exchange Act of 1934
|
|||
| 31.3 |
Certification of the Chief Executive Officer of Brandywine Realty Trust, in its capacity as
the general partner of Brandywine Operating Partnership, L.P., pursuant to 13a-14 under the
Securities Exchange Act of 1934
|
|||
| 31.4 |
Certification of the Chief Financial Officer of Brandywine Realty Trust, in its capacity as
the general partner of Brandywine Operating Partnership, L.P., pursuant to 13a-14 under the
Securities Exchange Act of 1934
|
|||
| 32.1 |
Certification of the Chief Executive Officer of Brandywine Realty Trust pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|||
| 32.2 |
Certification of the Chief Financial Officer of Brandywine Realty Trust pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|||
| 32.3 |
Certification of the Chief Executive Officer of Brandywine Realty Trust, in its capacity as
the general partner of Brandywine Operating Partnership, L.P., pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|||
| 32.4 |
Certification of the Chief Financial Officer of Brandywine Realty Trust, in its capacity as
the general partner of Brandywine Operating Partnership, L.P., pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|||
| 99.1 |
Material Tax Consequences
|
|||
| ** | Management contract or compensatory plan or arrangement | |
| (b) | Financial Statement Schedule: See Item 15 (a) (1) and (2) above | |
| (c)(1) | The Financial Statements of G&I Interchange Office, LLC on page F-99 |
-73-
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
BRANDYWINE REALTY TRUST
|
||||
| By: | /s/ Gerard H. Sweeney | |||
| Gerard H. Sweeney | ||||
| President and Chief Executive Officer | ||||
Date:
March 1, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
| Signature | Title | Date | ||
|
|
||||
|
/s/ Walter D’Alessio
|
Chairman of the Board and Trustee | March 1, 2010 | ||
|
|
||||
|
/s/ Gerard H. Sweeney
|
President, Chief Executive Officer and
Trustee
(Principal Executive Officer) |
March 1, 2010 | ||
|
|
||||
|
/s/ Howard M. Sipzner
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) | March 1, 2010 | ||
|
|
||||
|
/s/ Gabriel J. Mainardi
|
Vice President and Chief Accounting Officer (Principal Accounting Officer) | March 1, 2010 | ||
|
|
||||
|
/s/ D. Pike Aloian
|
Trustee | March 1, 2010 | ||
|
|
||||
|
/s/ Wyche Fowler
|
Trustee | March 1, 2010 | ||
|
|
||||
|
/s/ Michael J. Joyce
|
Trustee | March 1, 2010 | ||
|
|
||||
|
/s/ Anthony A. Nichols, Sr.
|
Trustee | March 1, 2010 | ||
|
|
||||
|
/s/ Charles P. Pizzi
|
Trustee | March 1, 2010 |
-74-
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
BRANDYWINE OPERATING PARTNERSHIP, L.P.
|
||||
| By: | Brandywine Realty Trust, its General Partner | |||
| By: | /s/ Gerard H. Sweeney | |||
| Gerard H. Sweeney | ||||
| President and Chief Executive Officer | ||||
Date: March 1, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
| Signature | Title | Date | ||
|
|
||||
|
/s/ Walter D’Alessio
|
Chairman of the Board and Trustee | March 1, 2010 | ||
|
/s/ Gerard H. Sweeney
|
President, Chief Executive Officer and Trustee (Principal Executive Officer) | March 1, 2010 | ||
|
|
||||
|
/s/ Howard M. Sipzner
|
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer) |
March 1, 2010 | ||
|
|
||||
|
/s/ Gabriel J. Mainardi
|
Vice President and Chief Accounting Officer (Principal Accounting Officer) | March 1, 2010 | ||
|
|
||||
|
/s/ D. Pike Aloian
|
Trustee | March 1, 2010 | ||
|
|
||||
|
/s/ Wyche Fowler
|
Trustee | March 1, 2010 | ||
|
|
||||
|
/s/ Michael J. Joyce
|
Trustee | March 1, 2010 | ||
|
|
||||
|
/s/ Anthony A. Nichols, Sr.
|
Trustee | March 1, 2010 | ||
|
|
||||
|
/s/ Charles P. Pizzi
|
Trustee | March 1, 2010 |
-75-
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Brandywine Realty Trust:
In our opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial position of Brandywine
Realty Trust and its subsidiaries (the “Company”) at December 31, 2009 and 2008, and the results of
their operations and their cash flows for each of the three years in the period ended December 31,
2009 in conformity with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedules listed in the index
appearing under Item 15(a)(2) present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control -
Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for these
financial statements and financial
statement schedules, for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements, on the financial statement
schedules and on the Company’s internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
As
discussed in Note 2 to the consolidated financial statements, as of
January 1, 2009, the Company changed the way it accounts for
convertible debt investments that may be settled in cash upon
conversion and the way it accounts for non-controlling interests.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control Over Financial Reporting, management has
excluded the Company’s investments in Four and Six Tower Bridge Associates from its assessment of
internal control over financial reporting as of December 31, 2009 because the Company does not have
the right and authority to assess the internal control over financial reporting of the individual
entities and it lacks the ability to influence or modify the internal control over financial
reporting of the individual
entities. Four and Six Tower Bridge Associates are two real estate partnerships, created prior to
December 13, 2003, which the Company started consolidating in accordance with the accounting
standard for the consolidation of variable interest entities on March 31, 2004. We have also
excluded Four and Six Tower Bridge Associates from our audit of internal control over financial
reporting. The total assets and total revenue of Four and Six Tower Bridge Associates represent,
in the aggregate less than 1% and 1%, respectively, of the Company’s consolidated financial
statement amounts as of and for the year ended December 31, 2009.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 1, 2010
Philadelphia, Pennsylvania
March 1, 2010
F-1
Table of Contents
BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
| December 31, | December 31, | |||||||
| 2009 | 2008 (as adjusted) | |||||||
|
ASSETS
|
||||||||
|
Real estate investments:
|
||||||||
|
Rental properties
|
$ | 4,512,618 | $ | 4,608,320 | ||||
|
Accumulated depreciation
|
(716,956 | ) | (639,688 | ) | ||||
|
|
||||||||
|
Operating real estate investments, net
|
3,795,662 | 3,968,632 | ||||||
|
Construction-in-progress
|
271,962 | 122,219 | ||||||
|
Land inventory
|
97,368 | 100,516 | ||||||
|
|
||||||||
|
Total real estate investments, net
|
4,164,992 | 4,191,367 | ||||||
|
|
||||||||
|
Cash and cash equivalents
|
1,567 | 3,924 | ||||||
|
Cash in escrow
|
— | 31,385 | ||||||
|
Accounts receivable, net
|
10,934 | 16,413 | ||||||
|
Accrued rent receivable, net
|
87,173 | 86,362 | ||||||
|
Investment in real estate ventures, at equity
|
75,458 | 71,028 | ||||||
|
Deferred costs, net
|
106,097 | 89,327 | ||||||
|
Intangible assets, net
|
105,163 | 145,757 | ||||||
|
Notes receivable
|
59,008 | 48,048 | ||||||
|
Other assets
|
53,358 | 59,008 | ||||||
|
|
||||||||
|
Total assets
|
$ | 4,663,750 | $ | 4,742,619 | ||||
|
|
||||||||
|
LIABILITIES AND BENEFICIARIES’ EQUITY
|
||||||||
|
Mortgage notes payable
|
$ | 551,720 | $ | 487,525 | ||||
|
Borrowing under credit facilities
|
92,000 | 153,000 | ||||||
|
Unsecured term loan
|
183,000 | 183,000 | ||||||
|
Unsecured senior notes, net of discounts
|
1,627,857 | 1,917,970 | ||||||
|
Accounts payable and accrued expenses
|
88,599 | 79,475 | ||||||
|
Distributions payable
|
21,799 | 29,288 | ||||||
|
Tenant security deposits and deferred rents
|
58,572 | 58,692 | ||||||
|
Acquired below market leases, net
|
37,087 | 47,626 | ||||||
|
Deferred income
|
47,379 | 24,271 | ||||||
|
Other liabilities
|
33,997 | 39,274 | ||||||
|
|
||||||||
|
Total liabilities
|
2,742,010 | 3,020,121 | ||||||
|
Commitments
and contingencies (Note 20)
|
||||||||
|
Brandywine Realty Trust’s equity:
|
||||||||
|
Preferred Shares (shares authorized-20,000,000):
|
||||||||
|
7.50% Series C Preferred Shares, $0.01 par value; issued and outstanding-
2,000,000 in 2009 and 2008
|
20 | 20 | ||||||
|
7.375% Series D Preferred Shares, $0.01 par value; issued and outstanding-
2,300,000 in 2009 and 2008
|
23 | 23 | ||||||
|
Common Shares of Brandywine Realty Trust’s beneficial interest, $0.01 par value;
shares authorized 200,000,000; 128,849,176 and 88,610,053 issued in 2009
and 2008, respectively and 128,582,334 and 88,158,937 outstanding in 2009 and 2008,
respectively
|
1,286 | 882 | ||||||
|
Additional paid-in capital
|
2,610,421 | 2,351,428 | ||||||
|
Deferred compensation payable in common stock
|
5,549 | 6,274 | ||||||
|
Common shares in treasury, at cost, 251,764 and 451,116 in 2009 and 2008, respectively
|
(7,205 | ) | (14,121 | ) | ||||
|
Common shares in grantor trust, 255,700 in 2009 and 215,742 in 2008
|
(5,549 | ) | (6,274 | ) | ||||
|
Cumulative earnings
|
501,384 | 498,716 | ||||||
|
Accumulated other comprehensive loss
|
(9,138 | ) | (17,005 | ) | ||||
|
Cumulative distributions
|
(1,213,359 | ) | (1,150,406 | ) | ||||
|
|
||||||||
|
Total Brandywine Realty Trust’s equity
|
1,883,432 | 1,669,537 | ||||||
|
Non-controlling interests
|
38,308 | 52,961 | ||||||
|
|
||||||||
|
Total equity
|
1,921,740 | 1,722,498 | ||||||
|
|
||||||||
|
Total liabilities and equity
|
$ | 4,663,750 | $ | 4,742,619 | ||||
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Table of Contents
BRANDYWINE REALTY TRUST
(in thousands, except share and per share information)
| Years ended December 31, | ||||||||||||
| 2009 | 2008 (as adjusted) | 2007 (as adjusted) | ||||||||||
|
Revenue:
|
||||||||||||
|
Rents
|
$ | 478,228 | $ | 483,212 | $ | 493,309 | ||||||
|
Tenant reimbursements
|
79,796 | 78,090 | 75,821 | |||||||||
|
Termination fees
|
3,601 | 4,800 | 10,053 | |||||||||
|
Third party management fees, labor reimbursement and leasing
|
17,151 | 20,401 | 19,691 | |||||||||
|
Other
|
3,443 | 2,918 | 5,937 | |||||||||
|
|
||||||||||||
|
Total revenue
|
582,219 | 589,421 | 604,811 | |||||||||
|
|
||||||||||||
|
Operating Expenses:
|
||||||||||||
|
Property operating expenses
|
168,159 | 160,770 | 162,590 | |||||||||
|
Real estate taxes
|
58,230 | 58,649 | 57,586 | |||||||||
|
Third party management expenses
|
7,996 | 8,965 | 10,361 | |||||||||
|
Depreciation and amortization
|
208,590 | 202,043 | 219,553 | |||||||||
|
General and administrative expenses
|
20,821 | 23,002 | 27,932 | |||||||||
|
Provision for impairment on land inventory
|
— | 10,841 | — | |||||||||
|
|
||||||||||||
|
Total operating expenses
|
463,796 | 464,270 | 478,022 | |||||||||
|
|
||||||||||||
|
Operating income
|
118,423 | 125,151 | 126,789 | |||||||||
|
Other Income (Expense):
|
||||||||||||
|
Interest income
|
2,500 | 1,839 | 4,014 | |||||||||
|
Interest expense
|
(135,740 | ) | (146,646 | ) | (161,150 | ) | ||||||
|
Interest expense — amortization of deferred financing costs
|
(5,864 | ) | (5,450 | ) | (4,496 | ) | ||||||
|
Loss on settlement of treasury lock agreements
|
— | — | (3,698 | ) | ||||||||
|
Recognized hedge activity
|
(916 | ) | — | — | ||||||||
|
Equity in income of real estate ventures
|
4,069 | 8,447 | 6,955 | |||||||||
|
Net gain on sale of interests in depreciated real estate
|
— | — | 40,919 | |||||||||
|
Net (loss) gain on sale of interests in undepreciated real estate
|
— | (24 | ) | |||||||||
|
Gain on early extinguishment of debt
|
23,176 | 18,105 | — | |||||||||
|
|
||||||||||||
|
Income from continuing operations
|
5,648 | 1,422 | 9,333 | |||||||||
|
|
||||||||||||
|
Discontinued operations:
|
||||||||||||
|
Income from discontinued operations
|
4,903 | 15,456 | 20,259 | |||||||||
|
Net gain on disposition of discontinued operations
|
1,238 | 28,497 | 25,743 | |||||||||
|
Provision for impairment
|
(3,700 | ) | (6,850 | ) | — | |||||||
|
|
||||||||||||
|
Total discontinued operations
|
2,441 | 37,103 | 46,002 | |||||||||
|
|
||||||||||||
|
Net income
|
8,089 | 38,525 | 55,335 | |||||||||
|
|
||||||||||||
|
Net income (loss) from discontinued operations attributable to non-
controlling interests
|
(38 | ) | (1,399 | ) | (1,964 | ) | ||||||
|
Net income (loss) from continuing operations attributable to non-
controlling interests
|
(25 | ) | 91 | (490 | ) | |||||||
|
|
||||||||||||
|
Net (income) attributable to non-controlling interests
|
(63 | ) | (1,308 | ) | (2,454 | ) | ||||||
|
|
||||||||||||
|
Net income attributable to Brandywine Realty Trust
|
8,026 | 37,217 | 52,881 | |||||||||
|
Distribution to Preferred Shares
|
(7,992 | ) | (7,992 | ) | (7,992 | ) | ||||||
|
Amount allocated to unvested restricted shareholders
|
(279 | ) | (763 | ) | (765 | ) | ||||||
|
|
||||||||||||
|
Income (loss) allocated to Common Shares
|
$ | (245 | ) | $ | 28,462 | $ | 44,124 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic earnings per Common Share:
|
||||||||||||
|
Continuing operations
|
$ | (0.02 | ) | $ | (0.08 | ) | $ | 0.00 | ||||
|
Discontinued operations
|
0.02 | 0.41 | 0.50 | |||||||||
|
|
||||||||||||
|
|
$ | — | $ | 0.33 | $ | 0.50 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Diluted earnings per Common Share:
|
||||||||||||
|
Continuing operations
|
$ | (0.02 | ) | $ | (0.08 | ) | $ | 0.00 | ||||
|
Discontinued operations
|
0.02 | 0.41 | 0.50 | |||||||||
|
|
||||||||||||
|
|
$ | — | $ | 0.33 | $ | 0.50 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic weighted average shares outstanding
|
111,898,045 | 87,574,423 | 87,272,148 | |||||||||
|
|
||||||||||||
|
Diluted weighted average shares outstanding
|
113,251,291 | 87,583,163 | 87,321,276 | |||||||||
|
|
||||||||||||
|
Net (loss) income attributable to Brandywine Realty Trust
|
||||||||||||
|
Income (loss) from continuing operations
|
$ | 5,623 | $ | 1,513 | $ | 8,843 | ||||||
|
Income (loss) from discontinued operations
|
2,403 | 35,704 | 44,038 | |||||||||
|
|
||||||||||||
|
Net income
|
$ | 8,026 | $ | 37,217 | $ | 52,881 | ||||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE (LOSS) INCOME
(in thousands)
| Years ended December 31, | ||||||||||||
| 2009 | 2008 (as adjusted) | 2007 (as adjusted) | ||||||||||
|
|
||||||||||||
|
Net income
|
$ | 8,089 | $ | 38,525 | $ | 55,335 | ||||||
|
Other comprehensive income:
|
||||||||||||
|
Unrealized gain (loss) on derivative financial instruments
|
7,395 | (15,288 | ) | (3,600 | ) | |||||||
|
Settlement of treasury locks
|
— | — | (3,860 | ) | ||||||||
|
Settlement of forward starting swaps
|
— | — | 1,148 | |||||||||
|
Ineffectiveness
of the hedges
|
(125 | ) | — | — | ||||||||
|
Reclassification of realized (gains)/losses on derivative financial
instruments to operations, net
|
(184 | ) | (80 | ) | 3,436 | |||||||
|
Unrealized gain (loss) on available-for-sale securities
|
— | 248 | (585 | ) | ||||||||
|
|
||||||||||||
|
Total other comprehensive income (loss)
|
7,086 | (15,120 | ) | (3,461 | ) | |||||||
|
|
||||||||||||
|
Comprehensive income
|
15,175 | 23,405 | 51,874 | |||||||||
|
|
||||||||||||
|
Comprehensive (income) loss attributable to non-controlling interest
|
227 | (1,309 | ) | (2,454 | ) | |||||||
|
|
||||||||||||
|
Comprehensive income attributable to Brandywine Realty Trust
|
$ | 15,402 | $ | 22,096 | $ | 49,420 | ||||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF BENEFICIARIES’ EQUITY
For the years ended December 31, 2009, 2008 and 2007
(in thousands, except number of shares)
| Number of | Common Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rabbi | of Brandywine | Deferred | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Par Value | Number of | Par Value of | Number of | Number of | Trust/Deferred | Realty Trust’s | Compensation | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred C | of Preferred | Preferred | Preferred D | Common | Treasury | Compensation | beneficial | Additional Paid-in | Common Shares | Payable in | Common Shares in | Cumulative | Comprehensive | Cumulative | Non-Controlling | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | C Shares | D Shares | Shares | Shares | Shares | Shares | interest | Capital | in Treasury | Common Stock | Grantor Trust | Earnings | Income (Loss) | Distributions | Interests | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2006 (as adjusted)
|
2,000,000 | $ | 20 | 2,300,000 | $ | 23 | 88,327,041 | — | — | $ | 883 | $ | 2,338,487 | $ | — | $ | — | $ | — | $ | 419,470 | $ | 1,576 | $ | (837,882 | ) | $ | 123,630 | $ | 2,046,207 | ||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net income
|
52,881 | 2,454 | 55,335 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Other comprehensive income
|
(3,461 | ) | (3,461 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Vesting of Restricted Stock
|
66,086 | 1 | 402 | 403 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted Stock Amortization
|
1,974 | 1,974 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion of LP units to Common Shares
|
21,951 | 716 | (716 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
LP units
Cash Redemption
|
(2,846 | ) | (2,846 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Non-controlling interest reclassification
|
(2,828 | ) | 2,828 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Repurchase of Common Shares into Treasury
|
1,780,600 | (16 | ) | (59,408 | ) | (59,424 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Deferred Compensation Obligation
|
(180,963 | ) | 180,963 | 2 | 6,130 | 5,959 | (5,959 | ) | (296 | ) | 5,836 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Share Issuance from Deferred Compensation Plan
|
(8,398 | ) | (277 | ) | 277 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Share Cancellation
|
(915 | ) | (915 | ) | (31 | ) | 31 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Trustee Fees Paid in Shares
|
1,664 | 55 | 55 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of Options
|
198,495 | 8,008 | (171 | ) | 7,837 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Outperformance Plan Amortization
|
1,339 | 1,339 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Acquisition of noncontrolling interest
in consolidated joint venture
|
(34,385 | ) | (34,385 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred Share distributions
|
(7,992 | ) | (7,992 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Distributions declared ($1.76 per share)
|
(153,780 | ) | (6,889 | ) | (160,669 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2007 (as adjusted)
|
2,000,000 | $ | 20 | 2,300,000 | $ | 23 | 88,614,322 | 1,599,637 | 171,650 | $ | 870 | $ | 2,348,153 | $ | (53,449 | ) | $ | 5,651 | $ | (5,651 | ) | $ | 472,055 | $ | (1,885 | ) | $ | (999,654 | ) | $ | 84,076 | $ | 1,850,209 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net income
|
37,216 | 1,309 | 38,525 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Other comprehensive income
|
(15,120 | ) | (15,120 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Vesting of Restricted Stock
|
(77,191 | ) | 9,895 | (912 | ) | 2,582 | 167 | (167 | ) | (1,344 | ) | 326 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted Stock Amortization
|
2,884 | 2,884 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion of LP units to Common Shares
|
(1,021,608 | ) | 10 | 35,052 | (8,323 | ) | (27,058 | ) | (319 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Share Cancellation/Forfeiture
|
(4,269 | ) | 150 | (1,524 | ) | 2 | (33 | ) | (47 | ) | 47 | (31 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Share Issuance from/to Deferred Compensation Plan
|
(44,286 | ) | 33,663 | 1,502 | 468 | (468 | ) | (792 | ) | 710 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Share Choice Plan Issuance
|
(49 | ) | (49 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Stock Option Amortization
|
336 | 336 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Outperformance Plan Amortization
|
989 | 989 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Trustee Fees Paid in Shares
|
(5,586 | ) | 2,058 | 60 | 192 | 35 | (35 | ) | (97 | ) | 155 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred Share distributions
|
(7,992 | ) | (7,992 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Distributions declared ($1.76 per share)
|
(142,760 | ) | (5,365 | ) | (148,125 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2008 (as adjusted)
|
2,000,000 | $ | 20 | 2,300,000 | $ | 23 | 88,610,053 | 451,116 | 215,742 | $ | 882 | $ | 2,351,428 | $ | (14,121 | ) | $ | 6,274 | $ | (6,274 | ) | $ | 498,716 | $ | (17,005 | ) | $ | (1,150,406 | ) | $ | 52,961 | $ | 1,722,498 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net income
|
8,026 | 63 | 8,089 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Other comprehensive income
|
7,376 | (290 | ) | 7,086 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance of Common Shares of Beneficial Interest
|
40,250,000 | 403 | 241,920 | 242,323 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Bonus Share Issuance
|
(36,826 | ) | 1,228 | (1,105 | ) | 123 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Vesting of Restricted Stock
|
(86,172 | ) | 8,971 | 2 | (852 | ) | 2,960 | 56 | (56 | ) | (2,322 | ) | (212 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted Stock Amortization
|
3,286 | 3,286 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted Performance Units Amortization
|
288 | 288 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion of LP units to Common Shares
|
(7,513 | ) | 432 | (178 | ) | (254 | ) | (0 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Share Issuance from/to Deferred Compensation Plan
|
(3,796 | ) | (54,854 | ) | 26,092 | (29 | ) | 1,830 | (816 | ) | 816 | (1,670 | ) | 131 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Share Choice Plan Issuance
|
(7,081 | ) | (1 | ) | (45 | ) | (46 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Stock Option Amortization
|
602 | 602 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Outperformance Plan Amortization
|
927 | 927 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Trustee Fees Paid in Shares
|
(13,987 | ) | 4,895 | 466 | 35 | (35 | ) | (314 | ) | 152 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Other — consolidated real estate ventures
|
34 | 34 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Other activity
|
187 | 491 | 678 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Adjustment for Non-Controlling Interests
|
12,709 | 231 | (12,940 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred Share distributions
|
(7,992 | ) | (7,992 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Distributions declared ($0.45 per share)
|
(54,961 | ) | (1,266 | ) | (56,227 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2009
|
2,000,000 | $ | 20 | 2,300,000 | $ | 23 | 128,849,176 | 251,764 | 255,700 | $ | 1,286 | $ | 2,610,421 | $ | (7,205 | ) | $ | 5,549 | $ | (5,549 | ) | $ | 501,384 | $ | (9,138 | ) | $ | (1,213,359 | ) | $ | 38,308 | $ | 1,921,740 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
BRANDYWINE REALTY TRUST
(in thousands)
| Years ended December 31, | ||||||||||||
| 2009 | 2008 (as adjusted) | 2007 (as adjusted) | ||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$ | 8,089 | $ | 38,525 | $ | 55,335 | ||||||
|
Adjustments to reconcile net income to net cash from
operating activities:
|
||||||||||||
|
Depreciation
|
160,039 | 158,234 | 179,724 | |||||||||
|
Amortization:
|
||||||||||||
|
Deferred financing costs
|
5,864 | 5,450 | 4,497 | |||||||||
|
Amortization of debt discount
|
3,495 | 6,843 | 4,381 | |||||||||
|
Deferred leasing costs
|
18,037 | 16,561 | 15,672 | |||||||||
|
Acquired above (below) market leases, net
|
(6,661 | ) | (8,104 | ) | (12,225 | ) | ||||||
|
Acquired lease intangibles
|
32,387 | 40,663 | 51,669 | |||||||||
|
Deferred compensation costs
|
5,200 | 4,522 | 4,672 | |||||||||
|
Recognized hedge activity
|
916 | — | — | |||||||||
|
Straight-line rent
|
(9,116 | ) | (16,543 | ) | (28,304 | ) | ||||||
|
Provision for doubtful accounts
|
5,371 | 6,769 | 3,147 | |||||||||
|
Provision for impairment in real estate
|
3,700 | 6,850 | — | |||||||||
|
Provision for impairment on land inventory
|
— | 10,841 | — | |||||||||
|
Real estate venture income in excess of distributions
|
(2,512 | ) | (808 | ) | (55 | ) | ||||||
|
Net gain on sale of interests in real estate
|
(1,237 | ) | (28,473 | ) | (66,662 | ) | ||||||
|
Gain on early extinguishment of debt
|
(23,176 | ) | (18,105 | ) | — | |||||||
|
Cumulative interest accretion of repayments of unsecured notes
|
(5,009 | ) | (435 | ) | ||||||||
|
Contributions from historic tax credit transaction, net of deferred costs
|
23,763 | 7,952 | — | |||||||||
|
Contributions from new market tax credit transaction, net of deferred costs
|
— | 8,965 | — | |||||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Accounts receivable
|
3,746 | (1,631 | ) | 6,449 | ||||||||
|
Other assets
|
2,373 | 3,683 | (1,366 | ) | ||||||||
|
Accounts payable and accrued expenses
|
(10,067 | ) | 2,491 | (11,091 | ) | |||||||
|
Tenant security deposits and deferred rents
|
2,397 | (827 | ) | 12,634 | ||||||||
|
Other liabilities
|
2,806 | (9,556 | ) | 6,328 | ||||||||
|
|
||||||||||||
|
Net cash from operating activities
|
220,405 | 233,867 | 224,805 | |||||||||
|
|
||||||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Acquisition of properties
|
— | — | (88,890 | ) | ||||||||
|
Acquisition of non-controlling interest in consolidated real estate venture
|
— | — | (63,732 | ) | ||||||||
|
Sales of properties, net
|
101,305 | 370,087 | 472,590 | |||||||||
|
Capital expenditures
|
(206,311 | ) | (146,583 | ) | (267,516 | ) | ||||||
|
Investment in unconsolidated Real Estate Ventures
|
(14,980 | ) | (934 | ) | (897 | ) | ||||||
|
Escrowed cash
|
31,385 | (31,385 | ) | — | ||||||||
|
Cash distributions from unconsolidated Real Estate Ventures
in excess of cumulative equity in income
|
13,062 | 2,311 | 3,711 | |||||||||
|
Leasing costs
|
(27,010 | ) | (29,450 | ) | (16,104 | ) | ||||||
|
|
||||||||||||
|
Net cash from (used in) investing activities
|
(102,549 | ) | 164,046 | 39,162 | ||||||||
|
|
||||||||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Proceeds from Credit Facility borrowings
|
983,000 | 514,000 | 959,602 | |||||||||
|
Repayments of Credit Facility borrowings
|
(1,044,000 | ) | (491,727 | ) | (888,875 | ) | ||||||
|
Proceeds from mortgage notes payable
|
149,800 | — | — | |||||||||
|
Repayments of mortgage notes payable
|
(84,102 | ) | (25,155 | ) | (272,028 | ) | ||||||
|
Proceeds from unsecured term loan
|
— | 33,000 | 150,000 | |||||||||
|
Proceeds from unsecured notes
|
247,030 | — | 300,000 | |||||||||
|
Repayments of unsecured notes
|
(514,004 | ) | (260,088 | ) | (299,926 | ) | ||||||
|
Net settlement of hedge transactions
|
(5,044 | ) | — | (2,712 | ) | |||||||
|
Debt financing costs
|
(24,620 | ) | (278 | ) | (4,474 | ) | ||||||
|
Net proceeds from issuance of shares
|
242,332 | — | — | |||||||||
|
Exercise of stock options
|
— | — | 6,011 | |||||||||
|
Repurchases of common shares
|
— | — | (59,426 | ) | ||||||||
|
Distributions paid to shareholders
|
(68,914 | ) | (162,882 | ) | (162,043 | ) | ||||||
|
Distributions to noncontrolling interest
|
(1,691 | ) | (6,459 | ) | (9,875 | ) | ||||||
|
|
||||||||||||
|
Net cash (used in) from financing activities
|
(120,213 | ) | (399,589 | ) | (283,746 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Increase (decrease) in cash and cash equivalents
|
(2,357 | ) | (1,676 | ) | (19,779 | ) | ||||||
|
Cash and cash equivalents at beginning of year
|
3,924 | 5,600 | 25,379 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 1,567 | $ | 3,924 | $ | 5,600 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Supplemental disclosure:
|
||||||||||||
|
Cash paid for interest, net of capitalized interest
|
$ | 139,636 | $ | 178,725 | $ | 182,790 | ||||||
|
Supplemental disclosure of non-cash activity:
|
||||||||||||
|
Note receivable issued in the Northern California transaction at its present value
|
— | 37,100 | — | |||||||||
|
Note
receivable issued related to the sale of the two Trenton properties,
net of the $12.9 million deferred gain
|
9,600 | — | — | |||||||||
|
Debt assumed by the purchaser in the Northern California transaction
|
— | 95,300 | — | |||||||||
|
Capital expenditures financed through accounts payable as of year end
|
7,086 | 9,029 | 7,744 | |||||||||
|
Capital
expenditures financed through retention payable
|
5,862 | (928 | ) | 1,117 | ||||||||
|
Unfunded
tenant allowance
|
5,986 | — | — | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
BRANDYWINE REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009, 2008 AND 2007
1.
ORGANIZATION AND NATURE OF OPERATIONS
Brandywine Realty Trust, a Maryland real estate investment trust, or REIT, is a self-administered
and self-managed real estate investment trust, or REIT, that provides leasing, property management,
development, redevelopment, acquisition and other tenant-related services for a portfolio of office
and industrial properties. Brandywine Realty Trust owns its assets and conducts its operations
through Brandywine Operating Partnership, L.P. a Delaware limited partnership (the “Operating
Partnership”) and subsidiaries of the Operating Partnership. Brandywine Realty Trust, the
Operating Partnership and their consolidated subsidiaries are collectively referred to below as the
“Company.”
As of December 31, 2009, the Company owned 212 office properties, 22 industrial facilities and
three mixed-use properties (collectively, the “Properties”) containing an aggregate of
approximately 23.3 million net rentable square feet. The Company also has two properties under
development and three properties under redevelopment containing an aggregate 1.9 million net
rentable square feet. As of December 31, 2009, the Company consolidates three office properties
owned by real estate ventures containing 0.4 million net rentable square feet. Therefore, the
Company owns and consolidates 245 properties with an aggregate of 25.6 million net rentable square
feet. As of December 31, 2009, the Company owned economic interests in 11 unconsolidated real
estate ventures that contain approximately 4.2 million net rentable square feet (collectively, the
“Real Estate Ventures”). In addition, as of December 31, 2009, the Company owned approximately 479
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 and Central
New Jersey, Richmond, Virginia, Wilmington, Delaware, Austin, Texas and Oakland, Carlsbad and
Rancho Bernardo, California. In addition to managing properties that the Company owns, as of
December 31, 2009, the Company was managing approximately 8.9 million net rentable square feet of
office and industrial properties for third parties and Real Estate Ventures.
All references to building square footage, acres, occupancy percentage and the number of buildings
are unaudited.
Brandywine Realty Trust is the sole general partner of the Operating Partnership and, as of
December 31, 2009, owned a 97.9% interest in the Operating Partnership. The Company conducts its
third-party real estate management services business primarily through five management companies
(collectively, the “Management Companies”): Brandywine Realty Services Corporation (“BRSCO”), BTRS,
Inc. (“BTRS”), Brandywine Properties I Limited, Inc. (“BPI”), BDN Brokerage, LLC (“BBL”) and
Brandywine Properties Management, L.P. (“BPM”). Each of BRSCO, BTRS and BPI is a taxable REIT
subsidiary. The Operating Partnership owns, directly and indirectly, currently 100% of each of
BRSCO, BTRS, BPI, BBL and BPM.
As of December 31, 2009, the Management Companies were managing properties containing an aggregate
of approximately 34.0 million net rentable square feet, of which approximately 25.2 million net
rentable square feet related to Properties owned by the Company and approximately 8.9 million net
rentable square feet related to properties owned by third parties and Real Estate Ventures.
F-7
Table of Contents
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications and Revisions
Certain amounts have been reclassified in prior years to conform to the current year presentation.
The reclassifications are primarily due to the treatment of sold properties as discontinued
operations on the statement of operations for all periods presented and the adoption of new
accounting pronouncements that required retrospective application.
The Company is also now reflecting tenant reimbursements that are
payable to tenants of $4.7 million in accounts payable and accrued
expenses rather than in accounts receivable, net at December 31, 2008
to conform to the current year presentation. For the year ended
December 31, 2009, the Company has $5.4 million of tenant
reimbursement owed to tenants in accounts payable and accrued
expenses.
See “Accounting Pronouncements
Adopted in 2009” for details pertaining to the changes to prior periods resulting from the adoption
of certain new accounting pronouncements.
Principles of Consolidation
When the Company obtains an economic interest in an entity, the Company evaluates the entity to
determine if the entity is deemed a variable interest entity (“VIE”), and if the Company is deemed
to be the primary beneficiary, in accordance with the accounting standard for the consolidation of
variable interest entities. When an entity is not deemed to be a VIE, the Company considers the
provisions of the same accounting standard to determine whether a general partner, or the general
partners as a group, controls a limited partnership or similar entity when the limited partner have
certain rights. The Company consolidates (i) entities that are VIEs and of which the Company is
deemed to be the primary beneficiary and (ii) entities that are non-VIEs which the Company controls
and the limited partners neither have the ability to dissolve the entity or remove the Company
without cause nor any substantive participating rights. Entities that the Company accounts for
under the equity method (i.e., at cost, increased or decreased by the Company’s share of earnings
or losses, plus contributions, less distributions) include (i) entities that are VIEs and of which
the Company is not deemed to be the primary beneficiary (ii) entities that are non-VIEs which the
Company does not control, but over which the Company has the ability to exercise significant
influence and (iii) entities that are non-VIE’s that the Company controls through its general
partner status, but the limited partners in the entity have the substantive ability to dissolve the
entity or remove the Company without cause or have substantive participating rights. The Company
will reconsider its determination of whether an entity is a VIE and who the primary beneficiary is,
and whether or not the limited partners in an entity have substantive rights, if certain events
occur that are likely to cause a change in the original determinations. The portion of these
entities not owned by the Company is presented as non-controlling interest as of and during the
periods consolidated. All intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. Management makes significant
estimates regarding revenue, valuation of real estate and related intangible assets and
liabilities, useful lives of fixed assets, impairment of long-lived assets, equity method
investments and securities, allowance for doubtful accounts and deferred costs.
Operating Properties
Operating properties are carried at historical cost less accumulated depreciation and impairment
losses. The cost of operating properties reflects their purchase price or development cost.
Pursuant to the Company’s adoption of the accounting standard
for business combinations as of January 1, 2009,
acquisition related costs are expensed as incurred. Prior to the
adoption of the accounting standard, acquisition costs are
capitalized when incurred. Costs incurred for the renovation and
betterment of an operating property are capitalized to the Company’s investment in that property.
Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments,
which improve or extend the life of the asset, are capitalized and depreciated over their estimated
useful lives. Fully-depreciated assets are removed from the accounts.
Purchase Price Allocation
The Company allocates the purchase price of properties to net tangible and identified intangible
assets acquired based on fair values. Above-market and below-market in-place lease values for
acquired properties are recorded based on the present value (using an interest rate which reflects
the risks associated with the leases acquired) of the difference between (i) the contractual
amounts to be paid pursuant to the in-place leases and (ii) the Company’s estimate of the fair
market lease rates for the corresponding in-place leases, measured over a period equal to the
remaining non-cancelable term of the lease (includes the below market fixed renewal period).
Capitalized above-market lease values are amortized as a reduction of rental income over the
remaining non-cancelable terms of the respective leases. Capitalized below-market lease values are
amortized as an increase to rental income over the remaining non-cancelable terms of the respective
leases, including any below market fixed-rate renewal periods.
F-8
Table of Contents
Other intangible assets also include amounts representing the value of tenant relationships and
in-place leases based on the Company’s evaluation of the specific characteristics of each tenant’s
lease and the Company’s overall relationship with the respective tenant. The Company estimates the
cost to execute leases with terms similar to the remaining lease terms of the in-place leases,
including leasing commissions, legal and other related expenses. This intangible asset is amortized
to expense over the remaining term of the respective leases. Company estimates of value are made
using methods similar to those used by independent appraisers or by using independent appraisals.
Factors considered by the Company in this analysis include an estimate of the carrying costs during
the expected lease-up periods considering current market conditions and costs to execute similar
leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other
operating expenses and estimates of lost rentals at market rates during the expected lease-up
periods, which primarily range from three to twelve months. The Company also considers information
obtained about each property as a result of its pre-acquisition due diligence, marketing and
leasing activities in estimating the fair value of the tangible and intangible assets acquired. The
Company also uses the information obtained as a result of its pre-acquisition due diligence as part
of its consideration of the accounting standard governing asset retirement obligations and when
necessary, will record a conditional asset retirement obligation as part of its purchase price.
Characteristics considered by the Company in allocating value to its tenant relationships include
the nature and extent of the Company’s business relationship with the tenant, growth prospects for
developing new business with the tenant, the tenant’s credit quality and expectations of lease
renewals, among other factors. The value of tenant relationship intangibles is amortized over the
remaining initial lease term and expected renewals, but in no event longer than the remaining
depreciable life of the building. The value of in-place leases is amortized over the remaining
non-cancelable term of the respective leases and any fixed-rate renewal periods.
In the event that a tenant terminates its lease, the unamortized portion of each intangible,
including in-place lease values and tenant relationship values, is charged to expense and market
rate adjustments (above or below) are recorded to revenue.
Depreciation and Amortization
The costs of buildings and improvements are depreciated using the straight-line method based on the
following useful lives: buildings and improvements (five to 55 years) and tenant improvements (the
shorter of the lease term or the life of the asset).
Construction in Progress
Project costs directly associated with the development and construction of a real estate project
are capitalized as construction in progress. In addition, interest, real estate taxes and other
expenses that are directly associated with the Company’s development activities are capitalized
until the property is placed in service. Internal direct construction costs totaling $3.9 million
in 2009, $5.2 million in 2008, $4.8 and million in 2007 and
interest totaling $8.9 million in 2009,
$16.7 million in 2008, and $17.9 million in 2007 were capitalized related to development of certain
Properties and land holdings.
Impairment or Disposal of Long-Lived Assets
The accounting standard for property, plant and equipment provides a single accounting model for
long-lived assets as held-for-sale, broadens the scope of businesses to be disposed of that qualify
for reporting as discontinued operations and changes the timing of recognizing losses on such
operations.
The Company reviews long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The review of recoverability is based on an
estimate of the future undiscounted cash flows (excluding interest charges) expected to result from
the long-lived asset’s use and eventual disposition. These cash flows consider factors such as
expected future operating income, trends and prospects, as well as the effects of leasing demand,
competition and other factors. If impairment exists due to the inability to recover the carrying
value of a long-lived asset, an impairment loss is recorded to the extent that the carrying value
exceeds the estimated fair-value of the property. The Company is required to make subjective
assessments as to whether there are impairments in the values of the investments in long-lived
assets. These assessments have a direct impact on its net income because recording an impairment
loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash
flows is highly subjective and is based in part on assumptions regarding future occupancy, rental
rates and capital requirements that could differ materially from actual results in future periods.
Although the Company’s strategy is generally to hold its properties over the long-term, the Company
will
dispose of properties to meet its liquidity needs or for other strategic needs. If the Company’s
strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss
may be recognized to reduce the property to the lower of the carrying amount or fair value less
costs to sell, and such loss could be material. If the Company determines that impairment has
occurred and the assets are classified as held and used, the affected assets must be reduced to
their fair value.
F-9
Table of Contents
Where properties have been identified as having a potential for sale, additional judgments are
required related to the determination as to the appropriate period over which the undiscounted cash
flows should include the operating cash flows and the amount included as the estimated residual
value. Management determines the amounts to be included based on a probability weighted cash flow.
This requires significant judgment. In some cases, the results of whether an impairment is
indicated are sensitive to changes in assumptions input into the estimates, including the hold
period until expected sale.
During the first quarter of 2009, the Company determined that one of its properties, during testing
for impairment under the held and used model, had a historical cost greater than the probability
weighted undiscounted cash flows. Accordingly, the recorded amount was reduced to an amount based
on management’s estimate of the current fair value. This property was sold in the second quarter.
The Company also recorded an impairment on properties designated as held for sale at June 30, 2008
of $6.85 million; these properties were sold during the last quarter of 2008. During the Company’s
impairment review for the remaining part of 2009, it was determined that no additional impairment
charges were necessary.
Cash and Cash Equivalents
Cash and cash equivalents are highly-liquid investments with original maturities of three months or
less. The Company maintains cash equivalents in financial institutions in excess of insured
limits, but believes this risk is mitigated by only investing in or through major financial
institutions.
Cash in Escrow
Cash in escrow of $31.4 million at December 31, 2008 represents cash that was used during 2009 for
the financing of the Cira South Garage. This cash was held in escrow pursuant to the new markets
tax credit transaction entered into by the Company on December 30, 2008.
Restricted Cash
Restricted cash consists of cash held as collateral to provide credit enhancement for the Company’s
mortgage debt, cash for property taxes, capital expenditures and tenant improvements. Restricted
cash is included in other assets as discussed below.
Accounts Receivable and Accrued Rent Receivable
Leases with tenants are accounted for as operating leases. Minimum annual rentals under tenant
leases are recognized on a straight-line basis over the term of the related lease. The cumulative
difference between lease revenue recognized under the straight-line method and contractual lease
payment terms is recorded as “accrued rent receivable, net” on the accompanying balance sheets.
Included in current tenant receivables are tenant reimbursements which are comprised of amounts
recoverable from tenants for common area maintenance expenses and certain other recoverable
expenses that are recognized as revenue in the period in which the related expenses are incurred.
As of December 31, 2009 and 2008, no tenant represented more than 10% of accounts receivable and
accrued rent receivable.
Tenant receivables and accrued rent receivables are carried net of the allowances for doubtful
accounts of $4.2 million and $12.2 million in 2009, respectively and $4.9 million and $10.6 million
in 2008, respectively. The allowance is an estimate based on two calculations that are combined to
determine the total amount reserved. First, the Company evaluates specific accounts where it has
determined that a tenant may have an inability to meet its financial obligations. In these
situations, the Company uses its judgment, based on the facts and circumstances, and records a
specific reserve for that tenant against amounts due to reduce the receivable to the amount that
the Company expects to collect. These reserves are reevaluated and adjusted as additional
information becomes available. Second, a reserve is established for all tenants based on a range
of percentages applied to receivable aging categories for tenant receivables. For accrued rent
receivables, the Company considers the results of the evaluation
of specific accounts and also considers other factors including assigning risk factors to different
industries based on its tenants SIC classification. Considering various factors including
assigning a risk factor to different industries, these percentages are based on historical
collection and write-off experience adjusted for current market conditions.
F-10
Table of Contents
Investments in Unconsolidated Real Estate Ventures
The Company accounts for its investments in unconsolidated Real Estate Ventures under the equity
method of accounting as it is not the primary beneficiary (for VIE’s) and the Company exercises
significant influence, but does not control these entities under the provisions of the entities’
governing agreements pursuant to the accounting standard for the consolidation of variable interest
entities. These investments are recorded initially at cost, as Investments in Real Estate
Ventures, and subsequently adjusted for equity in earnings and cash contributions and
distributions.
On a periodic basis, management assesses whether there are any indicators that the value of the
Company’s investments in unconsolidated Real Estate Ventures may be other than temporarily
impaired. An investment is impaired only if the value of the investment, as estimated by
management, is less than the carrying value of the investment. To the extent impairment has
occurred, the loss shall be measured as the excess of the carrying amount of the investment over
the value of the investment, as estimated by management. The determination as to whether an
impairment exists requires significant management judgment about the fair value of its ownership
interest.
To the extent that the Company acquires an interest in or contributes assets to a Real Estate
Venture project, the difference between the Company’s cost basis in the investment and the value of
the Real Estate Venture or asset contributed is amortized over the life of the related assets,
intangibles and liabilities and such adjustment is included in the Company’s share of equity in
income of unconsolidated Real Estate Ventures. For purposes of cash flow presentation,
distributions from unconsolidated Real Estate Ventures are presented as part of operating
activities when they are considered as return on investments. Distributions in excess of the
Company’s share in the cumulative unconsolidated Real Estate Ventures’ earnings are considered as
return of investments and are presented as part of investing activities in accordance with the
accounting standard for cash flow presentation.
Deferred Costs
Costs incurred in connection with property leasing are capitalized as deferred leasing costs.
Deferred leasing costs consist primarily of leasing commissions and internal leasing costs that are
amortized on the straight-line method over the life of the respective lease which generally ranges
from one to 15 years. Management re-evaluates the remaining useful lives of leasing costs as
economic and market conditions change.
Costs incurred in connection with debt financing are capitalized as deferred financing costs and
charged to interest expense over the terms of the related debt agreements. Deferred financing
costs consist primarily of loan fees which are amortized over the related loan term.
Other Assets
Other assets is comprised of the following as of December 31, 2009:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (amounts in thousands) | ||||||||
|
Prepaid ground rent
|
$ | 7,733 | $ | — | ||||
|
Prepaid real estate taxes
|
7,492 | 7,720 | ||||||
|
Rent inducements, net
|
6,680 | 8,432 | ||||||
|
Cash surrender value of life insurance
|
6,498 | 5,262 | ||||||
|
Restricted cash
|
5,632 | 13,292 | ||||||
|
Marketable securities
|
2,798 | 2,789 | ||||||
|
Prepaid insurance
|
2,747 | 4,058 | ||||||
|
Furnitures, fixtures and equipment
|
2,664 | 4,641 | ||||||
|
Deposits on future settlements
|
1,108 | 2,966 | ||||||
|
Others
|
10,006 | 9,848 | ||||||
|
|
||||||||
|
Total
|
$ | 53,358 | $ | 59,008 | ||||
|
|
||||||||
F-11
Table of Contents
Notes Receivable
As of December 31, 2009, notes receivable included a $2.8 million purchase money mortgage with a 20
year amortization period that bears interest at 8.5%, a $7.5 million purchase money mortgage with a
20 year amortization period that bears interest at 8.5%, a $39.1 million purchase money mortgage
with an imputed interest rate of 4.0% accreting up to $40.0 million due in 2010 and a $22.5 million
seven year purchase money mortgage (due 2016) that bears interest at approximately 6% cash
pay/7.64% accrual. The $22.5 million notes receivable is related to the sale of the two Trenton
properties during the year and is presented net of the $12.9 deferred gain in accordance with the
accounting standard for installment sales (the “Trenton Note”). The Company expects to receive
$27.8 million at maturity of the Trenton Note including the difference between the cash payments
and the stated accrual rate. See Note 3 for additional information regarding the sale and the
Trenton Note.
As of December 31, 2008, notes receivable included a $2.8 million purchase money mortgage with a 20
year amortization period that bears interest at 8.5%, a $7.7 million purchase money mortgage with a
20 year amortization period that bears interest at 8.5% and a $37.5 million purchase money mortgage
with an imputed interest rate of 4.0% accreting up to $40.0 million due in 2010.
The Company periodically assesses the collectibility of the notes receivable in accordance with the
accounting standard for loan receivables. No collectibility issues were noted as of December 31,
2009 and 2008.
Revenue Recognition
Rental revenue is recognized on the straight-line basis from the later of the date of the
commencement of the lease or the date of acquisition of the property subject to existing leases,
which averages minimum rents over the terms of the leases. The straight-line rent adjustment
increased revenue by approximately $6.4 million in 2009, $14.0 million in 2008, and $25.0 million
in 2007. Deferred rents on the balance sheet represent rental revenue received prior to their due
dates and amounts paid by the tenant for certain improvements considered to be landlord assets that
will remain as the Company’s property at the end of the tenant’s lease term. The amortization of
the amounts paid by the tenant for such improvements is calculated on a straight-line basis over
the term of the tenant’s lease and is a component of straight-line rental income and increased
revenue by $2.7 million in 2009, $2.5 million in 2008, and $3.3 million in 2007. Lease incentives,
which are included as reductions of rental revenue in the accompanying consolidated statements of
operations, are recognized on a straight-line basis over the term of the lease. Lease incentives
decreased revenue by $1.8 million in 2009, $0.8 million in 2008, and $0.1 million in 2007.
Leases also typically provide for tenant reimbursement of a portion of common area maintenance and
other operating expenses to the extent that a tenant’s pro rata share of expenses exceeds a base
year level set in the lease or to the extent that the tenant has a lease on a triple net basis. For
certain leases, significant assumptions and judgments are made by the Company in determining the
lease term such as when termination options are provided to the tenant. The lease term impacts the
period over which minimum rents are determined and recorded and also considers the period over
which lease related costs are amortized. Termination fees received from tenants, bankruptcy
settlement fees, third party management fees, labor reimbursement and leasing income are recorded
when earned.
No tenant represented greater than 10% of the Company’s rental revenue in 2009, 2008 or 2007.
Income Taxes
The Company has elected to be treated as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended (the “Code”). In addition, the Company has several subsidiary
REITs. In order to maintain their qualification as a REIT, the Company and its REIT subsidiaries
are required to, among other things, distribute at least 90% of its REIT taxable income to its
stockholders and meet certain tests regarding the nature of its income and assets. As REITs, the
Company and its REIT subsidiaries are not subject to federal income tax with respect to the portion
of its income that meets certain criteria and is distributed annually to the stockholders.
Accordingly, no provision for federal income taxes is included in the accompanying consolidated
financial statements with respect to the operations of these entities. The Company and its REIT
subsidiaries intend to continue to operate in a manner that allows them to continue to meet the
requirements for taxation as REITs. Many of these requirements, however, are highly technical and
complex. If the Company or one of its REIT subsidiaries were to fail to meet these requirements,
the Company would be subject to federal income tax. The Company is subject to certain state and
local taxes. Provision for such taxes has been included in general and administrative expenses in
the Company’s Consolidated Statements of Operations and Comprehensive Income.
The tax
basis in the Company’s assets was $4.6 billion as of December 31, 2009 and $4.4 billion as
of December 31, 2008.
The Company is subject to a 4% federal excise tax if sufficient taxable income is not distributed
within prescribed time limits. The excise tax equals 4% of the annual amount, if any, by which the
sum of (a) 85% of the Company’s ordinary income and (b) 95% of the Company’s net capital gain
exceeds cash distributions and certain taxes paid by the Company. No excise tax was incurred in
2009, 2008, or 2007.
F-12
Table of Contents
The Company may elect to treat one or more of its subsidiaries as a taxable REIT subsidiary
(“TRS”). In general, a TRS of the Company may perform additional services for tenants of the
Company and generally may engage in any real estate or non-real estate related business (except for
the operation or management of health care facilities or lodging facilities or the provision to any
person, under a franchise, license or otherwise, of rights to any brand name under which any
lodging facility or health care facility is operated). A TRS is subject to corporate federal
income tax. The Company has elected to treat certain of its corporate subsidiaries as TRSs, these
entities provide third party property management services and certain services to tenants that
could not otherwise be provided.
In 2007, the Company adopted the provisions of accounting standards for income taxes which changed
the framework for accounting for uncertainty in income taxes. As a result of the adoption, the
Company recognized no material adjustments regarding its current tax accounting treatment. The
Company would recognize interest and penalties, to the extent incurred related to uncertain tax
positions, as income tax expense, which would be included in general and administrative expense.
Earnings Per Share
Basic earnings per share is calculated by dividing income allocated to Common Shares by the
weighted-average number of shares outstanding during the period. Diluted earnings per share
includes the effect of common share equivalents outstanding during the period.
Treasury Shares
The Company accounts for its treasury share purchases using the cost method. Since repurchase,
shares have been reissued at an amount less than their cost basis. The losses on reissuances are
charged to the cumulative earnings of the Company using the FIFO basis.
Stock-Based Compensation Plans
The Company maintains a shareholder-approved equity-incentive plan known as the Amended and
Restated 1997 Long-Term Incentive Plan (the “1997 Plan”). The 1997 Plan is administered by the
Compensation Committee of the Company’s Board of Trustees. Under the 1997 Plan, the Compensation
Committee is authorized to award equity and equity-based awards, including incentive stock options,
non-qualified stock options, restricted shares and performance-based shares. As of December 31,
2009, 1.8 million common shares remained available for future awards under the 1997 Plan. Through
December 31, 2009, all options awarded under the 1997 Plan had a one to ten-year term.
The Company incurred stock-based compensation expense of $4.5 million during 2009, of which $0.8
million was capitalized as part of the Company’s review of employee salaries eligible for
capitalization. The Company recognized stock-based compensation expense of $4.6 million and $4.7
million in 2008 and 2007, respectively. The expensed amounts are included in general and
administrative expense on the Company’s consolidated income statement in the respective periods.
Comprehensive Income
Comprehensive income or loss is recorded in accordance with the provisions of the accounting
standard for comprehensive income. The accounting standard establishes standards for reporting
comprehensive income and its components in the financial statements. Comprehensive income includes
unrealized gains and losses on available-for-sale securities and the effective portions of changes
in the fair value of derivatives.
Accounting for Derivative Instruments and Hedging Activities
The Company accounts for its derivative instruments and hedging activities in accordance with the
accounting standard for derivative and hedging activities. The accounting standard requires the
Company to measure every derivative instrument (including certain derivative instruments embedded
in other contracts) at fair value and record them in the balance sheet as either an asset or
liability. See disclosures below related to the Company’s adoption of the accounting standard for
fair value measurements and disclosures.
F-13
Table of Contents
For derivatives designated as fair value hedges, the changes in fair value of both the derivative
instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow
hedges, the effective portions of changes in the fair value of the derivative are reported in other
comprehensive income. During the year ended December 31, 2009, the Company recorded a $(1.1)
million fair value adjustment in its consolidated statements of operations related to two of its
interest swaps in which the hedging relationship ceased due to the issuance of its unsecured notes
on September 25, 2009. The ineffective portions of the hedges are recognized in earnings in the
current year and during the year ended December 31, 2009, the Company recognized a gain of $0.1
million for the ineffective portion of its forward starting swaps prior to the termination of the
hedging relationship (See Note 9).
The Company actively manages its ratio of fixed-to-floating rate debt. To manage its fixed and
floating rate debt in a cost-effective manner, the Company, from time to time, enters into interest
rate swap agreements as cash flow hedges, under which it agrees to exchange various combinations of
fixed and/or variable interest rates based on agreed upon notional amounts.
Fair Value Measurements
The Company adopted a newly issued accounting standard for fair value measurements and disclosures.
The new accounting standard defines fair value, establishes a framework for measuring fair value in
GAAP and provides for expanded disclosure about fair value measurements. The accounting standard is
applied prospectively and is applied to all other accounting pronouncements that require or permit
fair value measurements. The accounting standard was applied to the Company’s financial instruments
effective January 1, 2008 and to all non-financial assets and non-financial liabilities effective
January 1, 2009.
The accounting standard for fair value measurements and disclosures defines fair value as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. It also establishes a fair value hierarchy
which requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard describes three levels of inputs that
may be used to measure fair value. Financial assets and liabilities recorded on the Consolidated
Balance Sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as
well as inputs that are observable for the asset or liability (other than quoted prices), such as
interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted
intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically
based on an entity’s own assumptions, as there is little, if any, related market activity or
information.
In instances where the determination of the fair value measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value hierarchy within which
the entire fair value measurement falls is based on the lowest level input that is significant to
the fair value measurement in its entirety. The Company’s assessment of the significance of a
particular input to the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.
The following table sets forth the Company’s financial assets and liabilities that were accounted
for at fair value on a recurring basis as of December 31, 2009:
| Fair Value Measurements at Reporting | ||||||||||||||||
| Date Using: | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Unobservable | ||||||||||||||
| December 31, | Identical Assets | Observable Inputs | Inputs | |||||||||||||
| Description | 2009 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
|
|
||||||||||||||||
|
Recurring
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Available-for-Sale Securities
|
$ | 431 | $ | 431 | $ | — | $ | — | ||||||||
|
|
||||||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Interest Rate Swaps
|
$ | 7,320 | $ | — | $ | 7,320 | $ | — | ||||||||
F-14
Table of Contents
The following table sets forth the Company’s financial assets and liabilities that were accounted
for at fair value on a recurring basis as of December 31, 2008:
| Fair Value Measurements at Reporting | ||||||||||||||||
| Date Using: | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Unobservable | ||||||||||||||
| December 31, | Identical Assets | Observable Inputs | Inputs | |||||||||||||
| Description | 2008 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
|
|
||||||||||||||||
|
Recurring
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Available-for-Sale Securities
|
$ | 423 | $ | 423 | $ | — | $ | — | ||||||||
|
|
||||||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Interest Rate Swaps
|
$ | 10,985 | $ | — | $ | 10,985 | $ | — | ||||||||
|
Forward Starting Interest Rate
Swaps
|
7,481 | — | 7,481 | — | ||||||||||||
|
|
$ | 18,466 | $ | — | $ | 18,466 | $ | — | ||||||||
The adoption of the accounting standard for fair value measurements and disclosures did not have a
material impact on the Company’s non-financial assets and liabilities. Non-financial assets and
liabilities recorded at fair value on a non-recurring basis to which the Company would apply the
accounting standard where a measurement was required under fair value would include:
| • | Non-financial assets and liabilities initially measured at fair value in an acquisition or business combination that are not remeasured at least annually at fair value, |
| • | Long-lived assets measured at fair value due to an impairment in accordance with the accounting standard for the impairment or disposal of long-lived assets, |
| • | Equity and cost method investments measured at fair value due to an impairment in accordance with the accounting standard for investments, |
| • | Notes receivable adjusted for any impairment in its value in accordance with the accounting standard for loan receivables and |
| • | Asset retirement obligations initially measured at fair value under the accounting standard for asset retirement obligations. |
There were no items that were accounted for at fair value on a non-recurring basis as of December
31, 2009.
Accounting Pronouncements Adopted in 2009
In June 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards
Codification (Codification). The Codification became the single source for all authoritative GAAP
recognized by the FASB to be applied for financial statements issued for periods ending after
September 15, 2009. The Codification is not expected to change GAAP and it did not have an effect
on the Company’s consolidated financial position or results of operations.
In May 2009, the FASB issued a new accounting standard for subsequent events reporting. The new
accounting standard established principles and requirements for evaluating and reporting subsequent
events and distinguishes which subsequent events should be recognized in the financial statements
versus which subsequent events should be disclosed in the financial statements. The accounting
standard also requires disclosure of the date through which
subsequent events are evaluated by management (see Note 21). The Company’s adoption of the new
standard did not have a material impact on its consolidated financial position or results of
operations.
F-15
Table of Contents
In April 2009, the FASB issued an amendment to the disclosure requirements about fair value
instruments. The amendment require disclosures about fair value of financial instruments for
interim reporting periods of publicly traded companies in addition to the annual financial
statements. It also requires those disclosures in summarized financial information at interim
reporting periods. The amendment is effective for interim periods ending after June 15, 2009. Prior
period presentation is not required for comparative purposes at initial adoption.
In April 2009, the FASB issued a new accounting standard for determining fair value when the volume
and level of activity for financial and non-financial assets or liabilities have significantly
decreased and for identifying transactions that are not orderly. The new accounting standard is
effective for fiscal years and interim periods ending after June 15, 2009 and shall be applied
prospectively. The Company’s adoption of the new standard did not have a material impact on its
consolidated financial position or results of operations.
In April 2009, the FASB issued amendments to the recognition and presentation requirements of
other-than-temporary impairments to make the guidance in U.S. GAAP for debt securities more
operational and to improve the presentation and disclosure of other-than temporary impairments on
debt and equity securities in the financial statements. The amendments are effective for fiscal
years and interim periods ending after June 15, 2009. The Company’s adoption of these amendments
did not have a material impact on its consolidated financial position or results of operations.
In January 2009, the Company adopted the FASB issued accounting standard for disclosures about
derivative instruments and hedging activities. This new standard enhances disclosure requirements
for derivative instruments in order to provide users of financial statements with an enhanced
understanding of (i) how and why an entity uses derivative instruments, (ii) how derivative
instruments and related hedged items are accounted for under the accounting standard for derivative
instruments and hedging activities and (iii) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows. The new accounting
standard is to be applied prospectively for the first annual reporting period beginning on or after
November 15, 2008. See Note 9 for further discussion.
In January 2009, the Company adopted a newly issued accounting standard for convertible debt
instruments. The new accounting standard requires the initial proceeds from convertible debt that
may be settled in cash to be bifurcated between a liability component and an equity component. The
objective of the guidance is to require the liability and equity components of convertible debt to
be separately accounted for in a manner such that the interest expense recorded on the convertible
debt would not equal the contractual rate of interest on the convertible debt, but instead would be
recorded at a rate that would reflect the issuer’s conventional debt borrowing rate. This is
accomplished through the creation of a discount on the debt that would be accreted using the
effective interest method as additional non-cash interest expense over the period the debt is
expected to remain outstanding (i.e. through the first optional redemption date). The provisions of
the new accounting standard were adopted on January 1, 2009 and applied retrospectively.
The new accounting standard for convertible debt instruments impacted the Company’s accounting for
its 3.875% Exchangeable Notes and has a material impact on the Company’s consolidated financial
statements and results of operations. The principal amount outstanding is $128.0 million at
December 31, 2009 and $282.3 million at December 31, 2008 (see Note 7). At certain times and upon
certain events, the notes are exchangeable for cash up to their principal amount and, with respect
to the remainder, if any, of the exchange value in excess of such principal amount, cash or common
shares. The initial exchange rate is 25.4065 shares per $1,000 principal amount of notes (which is
equivalent to an initial exchange price of $39.36 per share). The carrying amount of the equity
component is $24.4 million. The unamortized debt discount is $4.3 million at December 31, 2009 and
$12.2 million at December 31, 2008 and will be amortized through October 15, 2011. The effective
interest rate at December 31, 2009 and 2008 was 5.5%. The Company recognized contractual coupon
interest of $8.3 million in 2009, $12.1 million in 2008 and $13.3 million in 2007. In addition, the
Company recognized interest on amortization of debt discount of $4.0 million in 2009, $4.3 million
in 2008 and $4.4 million in 2007. The application of the accounting standard for convertible debt
resulted in an aggregate of approximately $3.9 million and $4.0 million (net of incremental
capitalized interest) of additional non-cash interest expense retrospectively applied for the years
ended December 31, 2008 and 2007, respectively. Debt discount write-offs resulting from debt
repurchases amounted to $3.8 million in 2009 and $2.6 million in 2008. There were no repurchases
made in 2007. The application of the new accounting standard required the Company to reduce the
amount of gain recognized on early extinguishment of debt for the year ended December 31, 2008 by
approximately $2.6 million.
F-16
Table of Contents
Effective January 1, 2009, the Company adopted a newly issued accounting standard related to
whether instruments granted in share-based payment transactions are participating securities. This
new standard requires that non-vested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents be treated as participating securities in the
computation of earnings per share pursuant to the two-class method. The accounting standard was
applied retrospectively to all periods presented. The accounting standard required the Company to
include the impact of its unvested restricted shares in earnings per share using this methodology.
For dilutive earnings per share, this methodology or the treasury stock method would be used
depending on which method is more dilutive. The face of the Company’s consolidated statement of
operations and earnings per share disclosure (See Note 12) has been updated to reflect the adoption
of this accounting standard and are presented as amounts allocated to unvested restricted
shareholders. The adoption of the new accounting standard did not have a material impact on the
Company’s consolidated financial position or results of operations.
Effective January 1, 2009, the Company adopted a newly issued accounting standard for
non-controlling interests. In accordance with this accounting standard, non-controlling interests
are presented as a component of consolidated shareholders’ equity unless these interests are
considered redeemable. Also, under this standard, net income will encompass the total income of all
consolidated subsidiaries and there is separate disclosure on the face of the income statement of
the attribution of that income between controlling and non-controlling interests. Lastly, increases
and decreases in non-controlling interests are treated as equity transactions. The face of the
Company’s consolidated balance sheet, statement of operations and statements of other comprehensive
income has been updated to reflect the adoption of this accounting standard. The adoption of this
accounting standard did not have material impact on the Company’s financial position or results of
operations. As a result of the Company’s adoption of this standard, amounts reported prior to
adoption as minority interests on its balance sheets are now presented as non-controlling interests
within equity. There has been no change in the measurement of this line item from amounts
previously reported other than those discussed above relating to the adoption of the new accounting
standard on convertible debt instruments. During the year-ended December 31, 2009, the Company
allocated $0.5 million to non-controlling interests, which relates to the accumulated other
comprehensive income balance as of December 31, 2008 attributable to the non-controlling interests.
The Company determined the out of period adjustment was not material to prior periods or to the
current period.
In accordance with the Company’s retrospective adoption of the accounting standards for convertible
and non-controlling interest, the Company’s consolidated balance sheets and selected line items
from the statements of operations for all periods presented have been revised as follows:
| As of December 31, 2008 | ||||||||||||||||
| Convertible Debt | Non-Controlling | |||||||||||||||
| Balance Sheet: | As Reported | Adjustment | Interest Adjustment | As Revised | ||||||||||||
|
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Construction-in-progress
|
$ | 121,402 | $ | 817 | $ | — | $ | 122,219 | ||||||||
|
Deferred costs, net
|
89,866 | (539 | ) | — | 89,327 | |||||||||||
|
Total assets
|
4,737,690 | 278 | — | 4,737,968 | ||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Unsecured bonds, net of discount
|
1,930,147 | (12,177 | ) | 1,917,970 | ||||||||||||
|
Total liabilities
|
3,027,647 | (12,177 | ) | 3,015,470 | ||||||||||||
|
Non-controlling interest
|
53,199 | — | (53,199 | ) | — | |||||||||||
|
Equity:
|
||||||||||||||||
|
Additional paid-in capital
|
2,327,617 | 23,811 | 2,351,428 | |||||||||||||
|
Cumulative earnings
|
509,834 | (11,118 | ) | 498,716 | ||||||||||||
|
Non-controlling interests
|
— | (238 | ) | 53,199 | 52,961 | |||||||||||
|
Total equity
|
$ | 1,710,043 | $ | 12,455 | $ | — | $ | 1,722,498 | ||||||||
The adoption of the accounting standards described above increased total equity as of December 31,
2007 and 2006 by $102.9 million and $146.9 million, respectively.
| For the Year Ended December 31, 2008 | ||||||||||||||||
| Convertible Debt | Non-Controlling | |||||||||||||||
| Income Statement: | As Reported | Adjustment | Interest Adjustment | As Revised | ||||||||||||
|
|
||||||||||||||||
|
Interest expense
|
$ | (142,770 | ) | $ | (3,876 | ) | $ | — | $ | (146,646 | ) | |||||
|
|
||||||||||||||||
|
Gain on extinguishment of debt
|
20,664 | (2,559 | ) | — | 18,105 | |||||||||||
|
|
||||||||||||||||
|
Net income
|
$ | 43,480 | $ | (6,435 | ) | $ | 1,480 | $ | 38,525 | |||||||
| For the Year Ended December 31, 2007 | ||||||||||||||||
| Convertible Debt | Non-Controlling | |||||||||||||||
| Income Statement: | As Reported | Adjustment | Interest Adjustment | As Revised | ||||||||||||
|
|
||||||||||||||||
|
Interest expense
|
$ | (157,178 | ) | $ | (3,972 | ) | $ | — | $ | (161,150 | ) | |||||
|
|
||||||||||||||||
|
Net income
|
$ | 56,706 | $ | (3,972 | ) | $ | 2,601 | $ | 55,335 | |||||||
The impact of the retrospective adoption of the accounting standards discussed above to the
subtotals in the statements of cash flow was not material.
New Pronouncements
In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for
transfers of financial assets. This amendment requires greater transparency and additional
disclosures for transfers of financial assets and the entity’s continuing involvement with them and
changes the requirements for derecognizing financial assets. In addition, this amendment eliminates
the concept of a qualifying special-purpose entity (QSPE). This amendment is effective for fiscal
years beginning after November 15, 2009. The Company is currently evaluating the impact of adopting
this amendment on its consolidated financial position or results of operations.
F-17
Table of Contents
In June 2009, the FASB also issued an amendment to the accounting and disclosure requirements for
the consolidation of variable interest entities (VIEs). The elimination of the concept of a QSPE,
as discussed above, removes the exception from applying the consolidation guidance within this
amendment. This amendment requires an enterprise to perform a qualitative analysis when determining
whether or not it must consolidate a VIE. The amendment also requires an enterprise to continuously
reassess whether it must consolidate a VIE. Additionally, the amendment requires enhanced
disclosures about an enterprise’s involvement with VIEs and any significant change in risk exposure
due to that involvement, as well as how its involvement with VIEs impacts the enterprise’s
financial statements. Finally, an enterprise will be required to disclose significant judgments and
assumptions used to determine whether or not to consolidate a VIE. This amendment is effective for
fiscal years beginning after November 15, 2009. The Company is currently evaluating the impact of
adopting this amendment on its consolidated financial position or results of operations.
3.
REAL ESTATE INVESTMENTS
As of December 31, 2009 and 2008, the gross carrying value of the Company’s Properties was as
follows:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (amounts in thousands) | ||||||||
|
Land
|
$ | 690,441 | $ | 707,591 | ||||
|
Building and improvements
|
3,393,498 | 3,481,289 | ||||||
|
Tenant improvements
|
428,679 | 419,440 | ||||||
|
|
||||||||
|
|
$ | 4,512,618 | $ | 4,608,320 | ||||
|
|
||||||||
Acquisitions and Dispositions
The Company did not complete any acquisitions during the years ended December 31, 2009 and 2008.
2009
On October 13, 2009, the Company sold a condominium unit consisting of 40,508 square feet and an
undivided interest in an office building in Lawrenceville, New Jersey, for a sales price of $7.9
million.
On October 1, 2009, the Company sold two office properties, totaling 473,658 net rentable square
feet in Trenton, New Jersey for a stated sales price of $85.0 million. We provided to the buyer a
$22.5 million seven-year, approximately 6.00% cash pay/7.64% accrual second mortgage loan. This
sale was recorded using the installment sales method of accounting for real estate sales which
requires for each cash payment received (including the buyer’s payments under its first mortgage)
profit to be apportioned in the same ratio as total cost and total profit bear to sales value.
Accordingly, the Company recognized a gain on sale of $2.7 million upon receipt of cash from the
buyer in 2009 and expects to recognize the remaining gain of $12.9 million substantially upon the
repayment of the second mortgage in 2016. The buyer has the option to extend the maturity date of
the second mortgage for an additional three years subject to certain conditions under the loan
agreement. Interest income on the second mortgage is recognized as it is received. In addition,
the Company was engaged to manage the properties sold during the term of the second mortgage and is
entitled for a management fee equal to 2.5% of all gross receipts from the operation of the
properties and will be reimbursed for all management related expenses.
On April 29, 2009, the Company sold 7735 Old Georgetown Road, a 122,543 net rentable square feet
office property located in Bethesda, Maryland, for a sales price of $26.5 million.
On March 16, 2009, the Company sold 305 Harper Drive, a 14,980 net rentable square feet office
property located in Moorestown, New Jersey, for a sales price of $1.1 million.
On February 4, 2009, the Company sold two office properties, totaling 66,664 net rentable square
feet in Exton, Pennsylvania, for an aggregate sales price of $9.0 million.
2008
On October 8, 2008, the Company sold five properties, totaling approximately 1.7 million net
rentable square feet in Oakland, California for an aggregate sales price of $412.5 million. The
buyer assumed three mortgage loans totaling $95.3 million and was granted by the Company a $40.0
million interest free note receivable secured by a first mortgage on two of the properties. The
present value of the note receivable on the sale date was $37.1 million and the balance will
accrete to $40.0 million as interest income is earned through the maturity date in August 2010 at
an imputed 4.0% interest rate. The Company incurred an impairment charge of $6.85 million upon the
classification of these properties as held for sale at June 30, 2008.
F-18
Table of Contents
On October 1, 2008, the Company sold Main Street Centre, a 0.4 million net rentable square feet
office property located in Richmond, Virginia, for a sales price of $48.8 million.
On April 25, 2008, the Company sold 100 Brandywine Boulevard, an office property located in
Newtown, Pennsylvania containing 102,000 net rentable square feet, for a sales price of $28.0
million.
On February 29, 2008, the Company sold 1400 Howard Boulevard, an office property located in Mount
Laurel, New Jersey containing 75,590 net rentable square feet, for a sales price of $22.0 million.
On February 14, 2008, the Company sold a parcel of land located in Henrico, Virginia containing
3.24 acres, for a sales price of $0.4 million.
On January 14, 2008, the Company sold 7130 Ambassador Drive, an office property located in
Allentown, Pennsylvania containing 114,049 net rentable square feet, for a sales price of $5.8
million.
All sales presented above are included within discontinued operations. The sales prices above also
do not include transaction costs for each of the respective sales.
4.
INVESTMENT IN UNCONSOLIDATED VENTURES
As of December 31, 2009, the Company had an aggregate investment of approximately $75.5 million in
its 11 actively operating unconsolidated Real Estate Ventures. The Company formed these ventures
with unaffiliated third parties, or acquired them, to develop office properties or to acquire land
in anticipation of possible development of office properties. Ten of the Real Estate Ventures own
45 office buildings that contain an aggregate of approximately 4.2 million net rentable square
feet, and one Real Estate Venture developed 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 3% to 50%, subject to specified priority
allocations 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. One of
the Real Estate Ventures, acquired in connection with the Prentiss Properties Trust merger in 2006,
had a negative equity balance on a historical cost basis as a result of historical depreciation and
distribution of excess financing proceeds. The Company reflected its acquisition of this Real
Estate Venture interest at its relative fair value as of the date of the purchase of Prentiss. The
difference between allocated cost and the underlying equity in the net assets of the investee is
accounted for as if the entity were consolidated (i.e., allocated to the Company’s relative share
of assets and liabilities with an adjustment to recognize equity in earnings for the appropriate
depreciation/amortization). 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.
F-19
Table of Contents
The Company’s investment in Real Estate Ventures as of December 31, 2009 and the Company’s share of
the Real Estate Ventures’ income (loss) for the year ended December 31, 2009 was as follows (in
thousands):
| Company’s Share | ||||||||||||||||||||||||
| of 2009 Real | Real Estate | Current | ||||||||||||||||||||||
| Ownership | Carrying | Estate Venture | Venture | Interest | Debt | |||||||||||||||||||
| Percentage (1) | Amount | Income (Loss) | Debt at 100% | Rate | Maturity | |||||||||||||||||||
|
Two Tower Bridge Associates
|
35 | % | $ | 1,468 | $ | (114 | ) | $ | 15,560 | 5.90 | % | May-13 | ||||||||||||
|
Seven Tower Bridge Associates (2)
|
10 | % | — | (551 | ) | — | N/A | N/A | ||||||||||||||||
|
Eight Tower Bridge Associates (5)
|
3.4 | % | — | 339 | 52,500 | L+5.00 | % | Jun-12 | ||||||||||||||||
|
1000 Chesterbrook Boulevard
|
50 | % | 1,770 | 204 | 25,446 | 6.88 | % | Nov-11 | ||||||||||||||||
|
PJP Building Two, LC
|
30 | % | 263 | 120 | 4,703 | 6.12 | % | Nov-23 | ||||||||||||||||
|
PJP Building Three, LC
|
25 | % | — | 32 | — | N/A | N/A | |||||||||||||||||
|
PJP Building Five, LC
|
25 | % | 156 | 96 | 6,099 | 6.47 | % | Aug-19 | ||||||||||||||||
|
PJP Building Six, LC
|
25 | % | 115 | 55 | 9,215 | 6.08 | % | Apr-23 | ||||||||||||||||
|
PJP Building Seven, LC
|
25 | % | 177 | 177 | 8,508 | L+1.55 | % | Nov-13 | ||||||||||||||||
|
Macquarie BDN Christina LLC
|
20 | % | 6,859 | 797 | 59,000 | 8.00 | % | Jun-11 | ||||||||||||||||
|
Broadmoor Austin Associates
|
50 | % | 64,086 | 1,327 | 90,721 | 5.79 | % | Apr-11 | ||||||||||||||||
|
Residence Inn Tower Bridge
|
50 | % | 564 | 162 | 14,480 | 5.63 | % | Feb-16 | ||||||||||||||||
|
G&I Interchange Office LLC (DRA) (3)
|
20 | % | — | 1,180 | 184,000 | 5.78 | % | Jan-15 | ||||||||||||||||
|
Invesco, L.P. (4)
|
— | 244 | — | N/A | N/A | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 75,458 | $ | 4,068 | $ | 470,232 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
| (1) | Ownership percentage represents the Company’s entitlement to residual distributions after payments of priority returns, where applicable. | |
| (2) | The loss related to Seven Tower Bridge above represents a write-off of our investment balance due to the Venture terminating development on a parcel of land owned by the partnership. | |
| (3) | The Company retained a 20% interest and received distributions from financing in excess of its basis. The Company has no commitment to fund and no expectation of operating losses, accordingly, the Company’s carrying value has not been reduced below zero. The income recognized for the year ended December 31, 2009 relates to the distributions in excess of the Company’s investment in the Venture. The amount is shown gross of the elimination of 20% portion of revenues we received for management fees of $0.4 million as of December 31, 2009. | |
| (4) | The Company’s interest consists solely of a residual profits interest. The Company no longer has an investment in this real estate venture. | |
| (5) | The Company has no commitment to fund and no expectations of operating losses, accordingly, the Company’s carrying value has not been reduced below zero. |
The following is a summary of the financial position of the unconsolidated Real Estate Ventures in
which the Company had investment interests as of December 31, 2009 and 2008 (in thousands):
| December 31, | ||||||||
| 2009 | 2008 (adjusted) | |||||||
|
|
||||||||
|
Net property
|
$ | 503,932 | $ | 553,833 | ||||
|
Other assets
|
96,643 | 94,165 | ||||||
|
Other Liabilities
|
37,774 | 37,863 | ||||||
|
Debt
|
470,232 | 515,832 | ||||||
|
Equity
|
92,569 | 94,164 | ||||||
|
Company’s share of equity (Company’s basis)
|
75,458 | 71,028 | ||||||
The following is a summary of results of operations of the unconsolidated Real Estate Ventures in
which the Company had interests as of December 31, 2009, 2008 and 2007 (in thousands):
| Year ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Revenue
|
$ | 105,236 | $ | 105,844 | $ | 75,541 | ||||||
|
Operating expenses
|
38,691 | 38,036 | 25,724 | |||||||||
|
Interest expense, net
|
30,858 | 30,585 | 21,442 | |||||||||
|
Depreciation and amortization
|
36,700 | 32,057 | (a) | 15,526 | ||||||||
|
Net income
|
(1,012 | ) | (416 | )(a) | 12,849 | |||||||
|
Company’s
share of income (Company’s basis)
|
4,069 | 8,447 | 2,926 | |||||||||
| (a)- | Pertains to the correction of an error in DRA’s unaudited financial statements. The adjustments relate to the understatement of depreciation expense amounting to $2.1 million. The adjustments have no impact on the Company’s consolidated financial statements. |
F-20
Table of Contents
Equity in income of real estate ventures in the Company’s consolidated statement of operations for
the twelve-months ended December 31, 2007 includes a $3.9 million distribution on account of a
residual profits interest that is not included in the table above.
As of December 31, 2009, the aggregate principal payments of recourse and non-recourse debt payable
to third-parties are as follows (in thousands):
|
2010
|
$ | 21,410 | ||
|
2011
|
165,303 | |||
|
2012
|
56,072 | |||
|
2013
|
22,220 | |||
|
2014
|
3,162 | |||
|
Thereafter
|
202,065 | |||
|
|
||||
|
|
$ | 470,232 | ||
|
|
||||
As of December 31, 2009, the Company had guaranteed repayment of approximately $2.1 million of
loans on behalf of certain Real Estate Ventures. The Company also provides customary environmental
indemnities in connection with construction and permanent financing both for its own account and on
behalf of its Real Estate Ventures.
5.
DEFERRED COSTS
As of December 31, 2009 and 2008, the Company’s deferred costs were comprised of the following (in
thousands):
| December 31, 2009 | ||||||||||||
| Accumulated | Deferred Costs, | |||||||||||
| Total Cost | Amortization | net | ||||||||||
|
|
||||||||||||
|
Leasing Costs
|
$ | 124,391 | $ | (50,643 | ) | $ | 73,748 | |||||
|
Financing Costs
|
42,965 | (10,616 | ) | 32,349 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 167,356 | $ | (61,259 | ) | $ | 106,097 | |||||
|
|
||||||||||||
| December 31, 2008 | ||||||||||||
| Accumulated | Deferred Costs, | |||||||||||
| Total Cost | Amortization | net | ||||||||||
|
|
||||||||||||
|
Leasing Costs
|
$ | 115,263 | $ | (39,528 | ) | $ | 75,735 | |||||
|
Financing Costs
|
25,169 | (11,577 | ) | 13,592 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 140,432 | $ | (51,105 | ) | $ | 89,327 | |||||
|
|
||||||||||||
During 2009, 2008 and 2007, the Company capitalized internal direct leasing costs of $5.3 million,
$7.9 million and $8.2 million, respectively, in accordance with the accounting standard for the
capitalization of leasing costs.
F-21
Table of Contents
6.
INTANGIBLE ASSETS AND LIABILITIES
As of December 31, 2009 and 2008, the Company’s intangible assets/liabilities were comprised of the
following (in thousands):
| December 31, 2009 | ||||||||||||
| Accumulated | Deferred Costs, | |||||||||||
| Total Cost | Amortization | net | ||||||||||
|
|
||||||||||||
|
In-place lease value
|
$ | 123,456 | $ | (71,402 | ) | $ | 52,054 | |||||
|
Tenant relationship value
|
97,566 | (49,374 | ) | 48,192 | ||||||||
|
Above market leases acquired
|
15,674 | (10,757 | ) | 4,917 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 236,696 | $ | (131,533 | ) | $ | 105,163 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Below market leases acquired
|
$ | 75,325 | $ | (38,238 | ) | $ | 37,087 | |||||
|
|
||||||||||||
| December 31, 2008 | ||||||||||||
| Accumulated | Deferred Costs, | |||||||||||
| Total Cost | Amortization | net | ||||||||||
|
|
||||||||||||
|
In-place lease value
|
$ | 145,518 | $ | (71,138 | ) | $ | 74,380 | |||||
|
Tenant relationship value
|
103,485 | (40,835 | ) | 62,650 | ||||||||
|
Above market leases acquired
|
23,351 | (14,624 | ) | 8,727 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 272,354 | $ | (126,597 | ) | $ | 145,757 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Below market leases acquired
|
$ | 82,950 | $ | (35,324 | ) | $ | 47,626 | |||||
|
|
||||||||||||
For the years ended December 31, 2009, 2008, and 2007, the Company wrote off through the
acceleration of amortization of approximately $2.4 million, $1.7 million and $4.1 million,
respectively, of intangible assets as a result of tenant move-outs prior to the end of the
associated lease terms. For the years ended December 31, 2009, 2008, and 2007, the Company
accelerated amortization of approximately $0.4 million, $0.1 million and $0.4 million,
respectively, of intangible liabilities as a result of tenant move-outs.
As of December 31, 2009, the Company’s annual amortization for its intangible assets/liabilities is
as follows (in thousands, assumes no early terminations):
| Assets | Liabilities | |||||||
|
2010
|
$ | 28,842 | $ | 8,307 | ||||
|
2011
|
22,452 | 7,013 | ||||||
|
2012
|
17,217 | 6,275 | ||||||
|
2013
|
12,438 | 5,836 | ||||||
|
2014
|
9,130 | 4,348 | ||||||
|
Thereafter
|
15,084 | 5,308 | ||||||
|
|
||||||||
|
Total
|
$ | 105,163 | $ | 37,087 | ||||
|
|
||||||||
F-22
Table of Contents
7.
DEBT OBLIGATIONS
The following table sets forth information regarding the Company’s mortgage indebtedness
outstanding at December 31, 2009 and 2008 (in thousands):
| Effective | ||||||||||||||||
| December 31, | December 31, | Interest | Maturity | |||||||||||||
| Property / Location | 2009 | 2008 | Rate | Date | ||||||||||||
|
MORTGAGE DEBT:
|
||||||||||||||||
|
200 Commerce Drive
|
$ | — | $ | 5,684 | 7.12 | %(a) | Sep-09 | |||||||||
|
Plymouth Meeting Exec.
|
42,042 | 42,785 | 7.00 | %(b) | Dec-10 | |||||||||||
|
Four Tower Bridge
|
10,158 | 10,404 | 6.62 | % | Feb-11 | |||||||||||
|
Arboretum I, II, III & V
|
21,046 | 21,657 | 7.59 | % | Jul-11 | |||||||||||
|
Midlantic Drive/Lenox Drive/DCC I
|
58,215 | 59,784 | 8.05 | % | Oct-11 | |||||||||||
|
Research Office Center
|
39,999 | 40,791 | 5.30 | %(b) | Oct-11 | |||||||||||
|
Concord Airport Plaza
|
35,594 | 36,617 | 5.55 | %(b) | Jan-12 | |||||||||||
|
Six Tower Bridge
|
13,557 | 14,185 | 7.79 | % | Aug-12 | |||||||||||
|
Newtown Square/Berwyn Park/Libertyview
|
59,557 | 60,910 | 7.25 | % | May-13 | |||||||||||
|
Coppell Associates
|
2,711 | 3,273 | 6.89 | % | Dec-13 | |||||||||||
|
Southpoint III
|
3,255 | 3,863 | 7.75 | % | Apr-14 | |||||||||||
|
Tysons Corner
|
98,056 | 99,529 | 5.36 | %(b) | Aug-15 | |||||||||||
|
Coppell Associates
|
16,600 | 16,600 | 5.75 | % | Feb-16 | |||||||||||
|
Two Logan Square
|
89,800 | 68,808 | 7.57 | %(c) | Apr-16 | |||||||||||
|
One Logan Square
|
60,000 | — | 4.50 | %(d) | Jul-16 | |||||||||||
|
Principal balance outstanding
|
550,590 | 484,890 | ||||||||||||||
|
|
||||||||||||||||
|
Plus: unamortized fixed-rate debt premiums, net
|
1,130 | 2,635 | ||||||||||||||
|
|
||||||||||||||||
|
Total mortgage indebtedness
|
$ | 551,720 | $ | 487,525 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
UNSECURED DEBT:
|
||||||||||||||||
|
$275.0M 4.500% Guaranteed Notes due 2009
|
— | 196,680 | 4.62 | % | Nov-09 | |||||||||||
|
Bank Term Loan
|
183,000 | 183,000 | LIBOR + 0.80 | % | Oct-10 | (e) | ||||||||||
|
$300.0M 5.625% Guaranteed Notes due 2010
|
198,545 | 275,545 | 5.61 | % | Dec-10 | |||||||||||
|
Credit Facility
|
92,000 | 153,000 | LIBOR + 0.725 | % | Jun-11 | (e) | ||||||||||
|
$345.0M 3.875% Guaranteed Exchangeable Notes due 2026
|
127,960 | 282,030 | 5.50 | % | Oct-11 | (f) | ||||||||||
|
$300.0M 5.750% Guaranteed Notes due 2012
|
187,825 | 300,000 | 5.77 | % | Apr-12 | |||||||||||
|
$250.0M 5.400% Guaranteed Notes due 2014
|
242,681 | 250,000 | 5.53 | % | Nov-14 | |||||||||||
|
$250.0M 7.500% Guaranteed Notes due 2015
|
250,000 | — | 7.75 | % | May-15 | |||||||||||
|
$250.0M 6.000% Guaranteed Notes due 2016
|
250,000 | 250,000 | 5.95 | % | Apr-16 | |||||||||||
|
$300.0M 5.700% Guaranteed Notes due 2017
|
300,000 | 300,000 | 5.75 | % | May-17 | |||||||||||
|
Indenture IA (Preferred Trust I)
|
27,062 | 27,062 | LIBOR + 1.25 | % | Mar-35 | |||||||||||
|
Indenture IB (Preferred Trust I)
|
25,774 | 25,774 | LIBOR + 1.25 | % | Apr-35 | |||||||||||
|
Indenture II (Preferred Trust II)
|
25,774 | 25,774 | LIBOR + 1.25 | % | Jul-35 | |||||||||||
|
|
||||||||||||||||
|
Principal balance outstanding
|
1,910,621 | 2,268,865 | ||||||||||||||
|
Less: unamortized exchangeable debt discount
|
(4,327 | ) | (12,177 | ) | ||||||||||||
|
unamortized fixed-rate debt discounts, net
|
(3,437 | ) | (2,718 | ) | ||||||||||||
|
|
||||||||||||||||
|
Total unsecured indebtedness
|
$ | 1,902,857 | $ | 2,253,970 | ||||||||||||
|
|
||||||||||||||||
|
Total Debt Obligations
|
$ | 2,454,577 | $ | 2,741,495 | ||||||||||||
|
|
||||||||||||||||
| (a) | On September 30, 2009, the Company pre-paid the remaining balance of the mortgage debt with no penalty. | |
| (b) | Loans were assumed upon acquisition of the related property. Interest rates presented above reflect the market rate at the time of acquisition. | |
| (c) | The Two Logan Square mortgage loan was re-financed in the amount of $89.8 million on April 1, 2009. The new loan bears interest at 7.57% per annum and has a seven year term with three years of interest only payments followed by a thirty year amortization schedule. | |
| (d) | The Company obtained a mortgage on a previously unencumbered property during the third quarter 2009. The loan features a floating rate of LIBOR plus 350 basis points (subject to a LIBOR floor) and a seven-year term with three years interest only followed by a thirty-year amortization schedule at a 7.5% constant. | |
| (e) | These loans may be extended to June 29, 2012 at the Company’s discretion. | |
| (f) | On October 20, 2011, the holders of the Exchangeable Notes have the right to request the redemption of all or a portion of the Exchangeable Notes they hold at a price equal to 100% of the principal amount plus accrued and unpaid interest. Accordingly, the Exchangeable Notes have been presented with an October 20, 2011 maturity date. |
On September 25, 2009, the Company closed a registered offering of $250.0 million in aggregate
principal amount of its 7.50% senior unsecured notes due 2015. The notes were priced at 99.412% of
their face amount with a yield to maturity of 7.625%, representing a spread at the time of pricing
of 5.162% to the yield on the August 2014 Treasury note. The notes have been reflected net of
discount of $1.4 million in the consolidated balance sheet as of December 31, 2009. The net
proceeds which amounted to $247.0 million after deducting underwriting discounts and offering
expenses were used to repay the Company’s indebtedness under its unsecured revolving credit
facility and for general corporate purposes.
On July 7, 2009, the Company closed a $60.0 million first mortgage on One Logan Square, a 594,361
square foot office property located in Philadelphia, Pennsylvania. This loan accrues interest at a
rate of LIBOR plus 3.5% with a minimum LIBOR rate of 1% over a seven-year term with three years of
interest only payments and interest and principal payments based on a thirty-year amortization
schedule for the remaining four years. The loan proceeds were used for general corporate purposes
including repayment of existing indebtedness.
F-23
Table of Contents
On June 29, 2009, the Company entered into a forward financing commitment to borrow up to $256.5
million under two separate loans which are secured by mortgages on the 30
th
Street Post
Office (the “Post Office project’), the Cira South Garage (the “garage project”) and by the leases
of space at these facilities upon the completion of these projects. Of the total borrowings, $209.7
million and $46.8 million will be allocated to the Post Office project and to the garage project,
respectively. The Company paid a $17.7 million commitment fee, which includes a $1.5 million
arrangement fee, in connection with this commitment. The total loan amount together with the net
commitment fee was deposited in an escrow account to be administered by The Bank of New York Mellon
(the “trustee”). In accordance with the trust agreement between the lender and the trustee, the
lender assigned its rights under the loans to the Trust. The Trust issued certificates to third
parties in an amount equal to the funding commitment. Upon investment of the escrow account in a
portfolio of U.S. Government treasuries, the net commitment fee of
$16.1 million will be used
together with the interest earned on the escrow account to pay interest costs of the loans through
August 26, 2010 which is also the anticipated completion date of the projects and the expected
funding date. In order for funding to occur, certain conditions must be met by the Company which
primarily relate to the completion of the projects and the commencement of the rental payments from
the respective leases with the IRS on these properties. The loans will bear interest at 5.93% and
require principal and interest payments based on a twenty year amortization schedule. The Company
intends to use the loan proceeds to reduce borrowings under its credit facility and for general
corporate purposes. As of December 31, 2009, the commitment fee is included as part of the
deferred costs in the Company’s consolidated balance sheet as it believes the funding is probable
of occurring. The Company will amortize this cost over the term of the loan starting on the date
the funding of the loans has occurred. In the event that the Company believes the funding will not
occur, this cost will be written off in the period that such determination was made. In addition,
should the funding not occur either because the Company does not meet the conditions or the Company
decides not to proceed with the funding, a termination fee is payable (see Note 20).
During 2009, 2008 and 2007, the Company’s weighted-average interest rate on its mortgage notes
payable was 6.45%, 6.40% and 6.74%, respectively. As of December 31, 2009 and 2008, the net
carrying value of the Company’s Properties that are encumbered
by mortgage indebtedness was $784.2
million and $691.6 million, respectively.
During the year ended December 31, 2009, the Company repurchased $444.7 million of its existing
Notes in a series of transactions which are summarized in the table below:
| Repurchase | Deferred Financing | |||||||||||||||
| Notes | Amount | Principal | Gain | Amortization | ||||||||||||
|
2009 Notes
|
$ | 92,736 | $ | 94,130 | $ | 1,377 | $ | 88 | ||||||||
|
2010 Notes
|
71,414 | 76,999 | 5,565 | 215 | ||||||||||||
|
2012 Notes
|
109,104 | 112,175 | 2,610 | 361 | ||||||||||||
|
2014 Notes
|
6,329 | 7,319 | 961 | 28 | ||||||||||||
|
3.875% Notes
|
136,880 | 154,070 | 12,664 | 1,289 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 416,463 | $ | 444,693 | $ | 23,177 | $ | 1,981 | ||||||||
|
|
||||||||||||||||
During the year ended December 31, 2008, the Company exercised the accordion feature on its $150.0
million unsecured term loan which it had entered into in October 2007 and borrowed an additional
$33.0 million, bringing its total outstanding balance to $183.0 million. All outstanding
borrowings under the term loan bear interest at a periodic rate of LIBOR plus 80 basis points. The
net proceeds of the term loan were used to reduce indebtedness under the Company’s unsecured
revolving credit facility. The Term Loan matures on October 18, 2010 and may be extended at the
Company’s option for two, one-year periods but not beyond the final maturity date of its revolving
credit facility. There is no scheduled principal amortization of the Term Loan and the Company may
prepay borrowings in whole or in part without premium or penalty. Portions of the Term Loan bear
interest at a per annum floating rate equal to: (i) the higher of (x) the prime rate or (y) the
federal funds rate plus 0.50% per annum or (ii) a London interbank offered rate that is the rate at
which Eurodollar deposits for one, two, three or six months are offered plus between 0.475% and
1.10% per annum (the “Libor Margin”), depending on the Company’s debt rating. The Term Loan
Agreement contains financial and operating covenants. Financial covenants include minimum net
worth, fixed charge coverage ratio, maximum leverage ratio, restrictions on unsecured and secured
debt as a percentage of unencumbered assets and other financial tests. Operating covenants include
limitations on the Company’s ability to incur additional indebtedness, grant liens on assets, enter
into affiliate transactions, and pay dividends. The Company was in compliance with all covenants as
of December 31, 2009.
F-24
Table of Contents
On April 30, 2007, the Operating Partnership completed an underwritten public offering of $300.0
million aggregate principal amount of 5.70% unsecured notes due 2017 (the “2017 Notes”).
Brandywine Realty Trust guaranteed the payment of principal and interest on the 2017 Notes. The
Company used proceeds from these notes to reduce borrowings under the Company’s revolving credit
facility. The Operating Partnership’s indenture relating to this unsecured note contains financial
restrictions and requirements, including (1) a leverage ratio not to exceed 60%, (2) a secured debt
leverage ratio not to exceed 40%, (3) a debt service coverage ratio of greater than 1.5 to 1.0, and
(4) an unencumbered asset value of not less than 150% of unsecured debt. The Company was in
compliance with all financial covenants as of December 31, 2009.
In April 2007, the Company entered into a $20.0 million Sweep Agreement (the “Sweep Agreement”) to
be used for cash management purposes. Borrowings under the Sweep Agreement bear interest at
one-month LIBOR plus 0.75%. The Sweep Agreement ended in April 2009 at which point the agreement
was not renewed.
The Company utilizes credit facility borrowings for general business purposes, including the
acquisition, development and redevelopment of properties and the repayment of other debt. The
maturity date of the $600.0 million Credit Facility (“the Credit Facility”) is June 29, 2011
(subject to an extension of one year, at the Company’s option, upon its payment of an extension fee
equal to 15 basis points of the committed amount under the Credit Facility). The per annum
variable interest rate on outstanding balances is LIBOR plus 0.725%. The interest rate and
facility fee are subject to adjustment upon a change in the Company’s unsecured debt ratings. The
Company has the option to increase the Credit Facility to $800.0 million subject to the absence of
any defaults and the Company’s ability to acquire additional commitments from its existing or new
lenders. As of December 31, 2009, the Company had $92.0 million of borrowings, $13.9 million of
letters of credit outstanding, and a $51.0 million holdback in connection with its historic tax
credit transaction, leaving $471.1 million of unused availability. During the years ended December
31, 2009 and 2008, the weighted-average interest rate on Credit Facility borrowings was 2.08% and
4.35% respectively. As of December 31, 2009 and 2008, the weighted average interest rate on Credit
Facility borrowings was 0.96% and 1.85%, respectively.
The Credit Facility requires the maintenance of ratios related to minimum net worth, debt-to-total
capitalization and fixed charge coverage and includes non-financial covenants. The Company was in
compliance with all financial covenants as of December 31, 2009.
As of December 31, 2009, the Company’s aggregate scheduled principal payments of debt obligations,
excluding amortization of discounts and premiums, are as follows (in thousands):
|
2010
|
$ | 432,804 | ||
|
2011
|
352,214 | |||
|
2012
|
239,483 | |||
|
2013
|
59,753 | |||
|
2014
|
246,394 | |||
|
Thereafter
|
1,130,563 | |||
|
|
||||
|
Total principal payments
|
2,461,211 | |||
|
Net unamortized premiums/discounts
|
(6,634 | ) | ||
|
|
||||
|
Outstanding indebtedness
|
$ | 2,454,577 | ||
|
|
||||
8.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following fair value disclosure was determined by the Company using available market
information and discounted cash flow analyses as of December 31, 2009 and 2008, respectively. The
discount rate used in calculating fair value is the sum of the current risk free rate and the risk
premium on the date of acquiring or assuming the instruments or obligations. Considerable judgment
is necessary to interpret market data and to develop the related estimates of fair value.
Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company
could realize upon disposition. The use of different estimation methodologies may have a material
effect on the estimated fair value amounts. The Company believes that the carrying amounts
reflected in the Consolidated Balance Sheets at December 31, 2009 and 2008 approximate the fair
values for cash and cash equivalents, accounts receivable, other assets, accounts payable and
accrued expenses.
F-25
Table of Contents
The following are financial instruments for which the Company estimates of fair value differ from
the carrying amounts (in thousands):
| December 31, 2009 | December 31, 2008 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
|
|
||||||||||||||||
|
Mortgage payable, net of premiums
|
$ | 551,873 | $ | 523,745 | $ | 484,890 | $ | 459,519 | ||||||||
|
Unsecured notes payable, net of discounts
|
$ | 1,557,011 | $ | 1,497,356 | $ | 1,854,186 | $ | 1,152,056 | ||||||||
|
Variable Rate Debt Instruments
|
$ | 353,610 | $ | 341,210 | $ | 414,610 | $ | 398,748 | ||||||||
|
Notes Receivable
|
$ | 71,989 | (a) | $ | 62,776 | $ | 48,048 | $ | 46,227 | |||||||
| (a) | For purposes of this disclosure, the Trenton Note is presented gross of the recognized deferred gain of $12.9 million. |
9.
RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS
Risk Management
In the course of its on-going business operations, the Company encounters economic risk. There are
three main components of economic risk: interest rate risk, credit risk and market risk. The
Company is subject to interest rate risk on its interest-bearing liabilities. Credit risk is
primarily the risk of inability or unwillingness of tenants to make contractually required payments
and counterparties on derivatives not fulfilling their obligations. Market risk is the risk of
declines in the value of properties due to changes in rental rates, interest rates or other market
factors affecting the valuation of properties held by the Company.
Risks and Uncertainties
Deteriorating economic conditions have generally resulted in a reduction of the availability of
financing and higher borrowing costs. These factors, coupled with a slowing economy, have reduced
the volume of real estate transactions and created credit stresses on most businesses. The Company
believes that vacancy rates may increase through 2010 and possibly beyond as the current economic
climate negatively impacts tenants in the Properties. The current financial markets also have an
adverse effect on the Company’s other counter parties such as the counter parties in its derivative
contracts.
The Company expects that the impact of the current state of the economy, including high
unemployment and the unprecedented volatility and illiquidity in the financial and credit markets,
will continue to have a dampening effect on the fundamentals of its business, including increases
in past due accounts, tenant defaults, lower occupancy and reduced effective rents. These
conditions would negatively affect the Company’s future net income and cash flows and could have a
material adverse effect on its financial condition.
The Company’s Credit Facility, Bank Term Loan and the indenture governing the unsecured public debt
securities (Note 7) contain restrictions, requirements and other limitations on the ability to
incur indebtedness, including total debt to asset ratios, secured debt to total asset ratios, debt
service coverage ratios and minimum ratios of unencumbered assets to unsecured debt which it must
maintain. The ability to borrow under the Credit Facility is subject to compliance with such
financial and other covenants. In the event that the Company fails to satisfy these covenants, it
would be in default under the Credit Facility, the Bank Term Loan and the indenture and may be
required to repay such debt with capital from other sources. Under such circumstances, other
sources of capital may not be available, or may be available only on unattractive terms.
Availability of borrowings under the Credit Facility is subject to a traditional material adverse
effect clause. Each time the Company borrows it must represent to the lenders that there have been
no events of a nature which would have a material adverse effect on the business, assets,
operations, condition (financial or otherwise) or prospects of the Company taken as a whole or
which could negatively effect the ability of the Company to perform its obligations under the
Credit Facility. While the Company believes that there are currently no material adverse effect
events, the Company is operating in unprecedented economic times and it is possible that such event
could arise which would limit the Company’s borrowings under the Credit Facility. If an event
occurs which is considered to have a material adverse effect, the lenders could consider the
Company in default under the terms of the Credit Facility and the borrowings under the Credit
Facility would become due and payable. If the Company is unable to obtain a waiver, this would have
a material adverse effect on the Company’s financial position and results of operations.
F-26
Table of Contents
The Company was in compliance with all financial covenants as of December 31, 2009. Management
continuously monitors the Company’s compliance with and anticipated compliance with the covenants.
Certain of the covenants restrict management’s ability to obtain alternative sources of capital.
While the Company currently believes it will remain in compliance with its covenants, in the event
of a continued slow-down and continued crisis in the credit markets, the Company may not be able to
remain in compliance with such covenants and if the lender would not provide a waiver, it could
result in an event of default.
Use of Derivative Financial Instruments
The Company’s use of derivative instruments is limited to the utilization of interest rate
agreements or other instruments to manage interest rate risk exposures and not for speculative
purposes. The principal objective of such arrangements is to minimize the risks and/or costs
associated with the Company’s operating and financial structure, as well as to hedge specific
transactions. The counterparties to these arrangements are major financial institutions with which
the Company and its affiliates may also have other financial relationships. The Company is
potentially exposed to credit loss in the event of non-performance by these counterparties.
However, because of the high credit ratings of the counterparties, the Company does not anticipate
that any of the counterparties will fail to meet these obligations as they come due. The Company
does not hedge credit or property value market risks through derivative financial instruments.
The Company formally assesses, both at inception of the hedge and on an on-going basis, whether
each derivative is highly-effective in offsetting changes in cash flows of the hedged item. If
management determines that a derivative is not highly-effective as a hedge or if a derivative
ceases to be a highly-effective hedge, the Company will discontinue hedge accounting prospectively.
The related ineffectiveness would be charged to the Statement of Operations.
The valuation of these instruments is determined using widely accepted valuation techniques
including discounted cash flow analysis on the expected cash flows of each derivative. This
analysis reflects the contractual terms of the derivatives, including the period to maturity, and
uses observable market-based inputs, including interest rate curves and implied volatilities. The
fair values of interest rate swaps are determined using the market standard methodology of netting
the discounted future fixed cash receipts (or payments) and the discounted expected variable cash
payments (or receipts). The variable cash payments (or receipts) are based on an expectation of
future interest rates (forward curves) derived from observable market interest rate curves.
To comply with the provisions of the accounting standard for fair value measurements and
disclosures, the Company incorporates credit valuation adjustments to appropriately reflect both
its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value
measurements. In adjusting the fair value of its derivative contracts for the effect of
nonperformance risk, the Company has considered the impact of netting and any applicable credit
enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives
fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with
its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the
likelihood of default by itself and its counterparties. However, as of December 31, 2009 and 2008,
the Company has assessed the significance of the impact of the credit valuation adjustments on the
overall valuation of its derivative positions and has determined that the credit valuation
adjustments are not significant to the overall valuation of its derivatives. As a result, the
Company has determined that its derivative valuations in their entirety are classified in Level 2
of the fair value hierarchy.
The fair values of the hedges at December 31, 2009 and 2008 are included in other liabilities and
accumulated other comprehensive income in the accompanying balance sheet, except for the $1.1
million fair value adjustment of the hedges charged as an expense to the consolidated statements of
operations during the year ended December 31, 2009, relating to two of the Company’s interest rate
swaps which were both cash settled in December 2009. The hedging relationship with these swaps
ceased upon the Company’s planned issuance of its unsecured notes effective September 21, 2009, and
as such the interest rate swaps no longer qualified for hedge accounting. Accordingly, changes in
the fair value of these interest rate swaps were charged to our consolidated statements of
operations until they were cash settled. The Company also recognized a gain of $0.1 million from
the ineffectiveness of the hedges during the year ended December 31, 2009 prior to the termination
of the hedging relationship.
F-27
Table of Contents
The following table summarizes the terms and fair values of the Company’s derivative financial
instruments at December 31, 2009 and 2008. The notional amounts provide an indication of the
extent of the Company’s involvement in these instruments at that time, but do not represent
exposure to credit, interest rate or market risks.
| Hedge | Hedge | Notional Amount | Trade | Maturity | Fair Value | |||||||||||||||||||||||||||||
| Product | Type | Designation | 12/31/2009 | 12/31/2008 | Strike | Date | Date | 12/31/2009 | 12/31/2008 | |||||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b) | $ | 123,000 | $ | 78,000 | (a) | 4.709 | % | 9/20/07 | 10/18/10 | $ | 5,162 | $ | 7,204 | ||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b) | 25,000 | 25,000 | 4.415 | % | 10/19/07 | 10/18/10 | 827 | 1,439 | |||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b) | 25,000 | 25,000 | 3.747 | % | 11/26/07 | 10/18/10 | 688 | 1,111 | |||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b) | — | 25,000 | 3.338 | % | 1/4/08 | 12/18/09 | — | 603 | |||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b) | 25,774 | 25,774 | 2.975 | % | 10/16/08 | 10/30/10 | 643 | 628 | |||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b),(c) | — | 25,000 | 4.770 | % | 1/4/08 | 12/18/19 | — | 4,079 | |||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b),(c) | — | 25,000 | 4.423 | % | 3/19/08 | 12/18/19 | — | 3,402 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||
|
|
$ | 198,774 | $ | 228,774 | $ | 7,320 | $ | 18,466 | ||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||
| (a)- | Notional amount accreting up to $155,000 through October 8, 2010. | |
| (b)- | Hedging unsecured variable rate debt. | |
| (c)- | Cash settled at their maturity dates. |
Concentration of Credit Risk
Concentrations of credit risk arise when a number of tenants related to the Company’s investments
or rental operations are engaged in similar business activities, or are located in the same
geographic region, or have similar economic features that would cause their inability to meet
contractual obligations, including those to the Company, to be similarly affected. The Company
regularly monitors its tenant base to assess potential concentrations of credit risk. Management
believes the current credit risk portfolio is reasonably well diversified and does not contain any
unusual concentration of credit risk. No tenant accounted for 5% or more of the Company’s rents
during 2009, 2008 and 2007. Recent developments in the general economy and the global credit
markets have had a significant adverse effect on companies in numerous industries. The Company has
tenants concentrated in various industries that may be experiencing adverse effects from the
current economic conditions and the Company could be adversely affected if such tenants go into
default on their leases.
10.
DISCONTINUED OPERATIONS
For the years ended December 31, 2009, 2008 and 2007, income from discontinued operations relates
to an aggregate of 36 properties containing approximately 6.7 million net rentable square feet that
the Company has sold since January 1, 2007.
The following table summarizes revenue and expense information for the properties sold which
qualify for discontinued operations reporting since January 1, 2007 (in thousands):
F-28
Table of Contents
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Revenue:
|
||||||||||||
|
Rents
|
$ | 8,055 | $ | 52,712 | $ | 82,049 | ||||||
|
Tenant reimbursements
|
5,309 | 7,829 | 11,114 | |||||||||
|
Termination fees
|
— | 25 | 183 | |||||||||
|
Other
|
123 | 227 | 404 | |||||||||
|
|
||||||||||||
|
Total revenue
|
13,487 | 60,793 | 93,750 | |||||||||
|
|
||||||||||||
|
Expenses:
|
||||||||||||
|
Property operating expenses
|
4,665 | 21,077 | 31,560 | |||||||||
|
Real estate taxes
|
1,763 | 6,270 | 8,953 | |||||||||
|
Depreciation & amortization
|
2,155 | 13,412 | 27,507 | |||||||||
|
Provision for impairment
|
3,700 | 6,850 | — | |||||||||
|
|
||||||||||||
|
Total operating expenses
|
12,283 | 47,609 | 68,020 | |||||||||
|
|
||||||||||||
|
Operating income
|
1,204 | 13,184 | 25,730 | |||||||||
|
|
||||||||||||
|
Interest income
|
(1 | ) | 17 | 26 | ||||||||
|
Interest expense
|
— | (4,595 | ) | (5,497 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Income from discontinued operations before gain on
sale of interests in real estate
|
1,203 | 8,606 | 20,259 | |||||||||
|
|
||||||||||||
|
Net gain on sale of interests in real estate
|
1,238 | 28,497 | 25,743 | |||||||||
|
|
||||||||||||
|
Income from discontinued operations
|
2,441 | 37,103 | 46,002 | |||||||||
|
Income from discontinued operations attributable
to non-controlling interest
|
(38 | ) | (1,399 | ) | (1,964 | ) | ||||||
|
|
||||||||||||
|
Income from discontinued operations attributable
to Brandywine Realty Trust
|
$ | 2,403 | $ | 35,704 | $ | 44,038 | ||||||
|
|
||||||||||||
Discontinued operations have not been segregated in the consolidated statements of cash flows.
Therefore, amounts for certain captions will not agree with respective data in the consolidated
statements of operations.
| 11. | NON-CONTROLLING INTEREST IN OPERATING PARTNERSHIP AND CONSOLIDATED REAL ESTATE VENTURES |
Operating Partnership
As of December 31, 2009 and 2008, the aggregate book value of the non-controlling interest
associated with these units in the accompanying consolidated balance
sheet was $38.3 million and
$53.0 million, respectively and the Company believes that the aggregate settlement value of these
interests was approximately $32.0 million and $21.7 million, respectively. This amount is based on
the number of units outstanding and the closing share price on the balance sheet date.
Non-controlling Interest — Partners’ Share of Consolidated Real Estate Ventures
As of December 31, 2009 and 2008, the Company owned interests in three consolidated real estate
ventures that own three office properties containing approximately 0.4 million net rentable square
feet. The Company is the primary beneficiary and these consolidated real estate ventures are
variable interest entities under the accounting standard for consolidation.
The non-controlling interests associated with certain of the Real Estate Ventures that have finite
lives under the terms of the partnership agreements represent mandatorily redeemable interests as
defined under the accounting standard for certain financial instruments with characteristics of
both liabilities and equity. The aggregate amount related to these non-controlling interests
classified within equity is $0.1 million at December 31, 2009 and a nominal amount as of December
31, 2008. The Company believes that the aggregate settlement value of these interests was
approximately $7.9 million and $9.1 million as of December 31, 2009 and 2008, respectively. This
amount is based on the estimated liquidation values of the assets and liabilities and the resulting
proceeds that the Company would distribute to its Real Estate Venture partners upon dissolution, as
required under the terms of the respective partnership agreements. Subsequent changes to the
estimated fair values of the assets and liabilities of the consolidated Real Estate Ventures will
affect the Company’s estimate of the aggregate settlement value. The partnership agreements do not
limit the amount that the non-controlling interest partners would be entitled to in the event of
liquidation of the assets and liabilities and dissolution of the respective partnerships.
F-29
Table of Contents
12.
BENEFICIARIES’ EQUITY
Earnings per Share (EPS)
The following table details the number of shares and net income used to calculate basic and diluted
earnings per share (in thousands, except share and per share amounts; results may not add due to
rounding):
| Years ended December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
|
Numerator
|
||||||||||||||||||||||||
|
Income from continuing operations
|
$ | 5,648 | $ | 5,648 | $ | 1,422 | $ | 1,422 | $ | 9,333 | $ | 9,333 | ||||||||||||
|
|
||||||||||||||||||||||||
|
Net income (loss) from continuing operations attributable to non-controlling interests
|
(25 | ) | (25 | ) | 91 | 91 | (490 | ) | (490 | ) | ||||||||||||||
|
Amount allocable to unvested restricted shareholders
|
(279 | ) | (279 | ) | (763 | ) | (763 | ) | (765 | ) | (765 | ) | ||||||||||||
|
Preferred share dividends
|
(7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Income (loss) from continuing operations available to common shareholders
|
(2,648 | ) | (2,648 | ) | (7,242 | ) | (7,242 | ) | 86 | 86 | ||||||||||||||
|
|
||||||||||||||||||||||||
|
Income from discontinued operations
|
2,441 | 2,441 | 37,103 | 37,103 | 46,002 | 46,002 | ||||||||||||||||||
|
Net income from discontinued operations attributable to non-controlling interests
|
(38 | ) | (38 | ) | (1,399 | ) | (1,399 | ) | (1,964 | ) | (1,964 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Discontinued operations attributable to common shareholders
|
2,403 | 2,403 | 35,704 | 35,704 | 44,038 | 44,038 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income (loss) available to common shareholders
|
$ | (245 | ) | $ | (245 | ) | $ | 28,462 | $ | 28,462 | $ | 44,124 | $ | 44,124 | ||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Denominator
|
||||||||||||||||||||||||
|
Weighted-average shares outstanding
|
111,898,045 | 111,898,045 | 87,574,423 | 87,574,423 | 87,272,148 | 87,272,148 | ||||||||||||||||||
|
Contingent securities/Stock based compensation
|
— | 1,353,246 | — | 8,740 | 49,128 | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total weighted-average shares outstanding
|
111,898,045 | 113,251,291 | 87,574,423 | 87,583,163 | 87,272,148 | 87,321,276 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Earnings per Common Share:
|
||||||||||||||||||||||||
|
Income from continuing operations attributable to common shareholders
|
$ | (0.02 | ) | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.08 | ) | $ | — | $ | — | ||||||||
|
Discontinued operations attributable to common shareholders
|
0.02 | 0.02 | 0.41 | 0.41 | 0.50 | 0.50 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income attributable to common shareholders
|
$ | — | $ | — | $ | 0.33 | $ | 0.33 | $ | 0.50 | $ | 0.50 | ||||||||||||
|
|
||||||||||||||||||||||||
Securities totaling 2,809,108 in 2009, 2,816,621 in 2008, and 3,838,229 in 2007 were excluded from
the earnings per share computations because their effect would have been antidilutive.
The contingent securities/stock based compensation impact is calculated using the treasury stock
method and relates to employee awards settled in shares of the Company. The effect of these
securities is anti-dilutive for periods that the Company incurs a net loss available to common
shareholders and therefore is excluded from the dilutive earnings per share calculation in such
periods.
Unvested restricted shares are considered participating securities which require the use of the
two-class method for the computation of basic and diluted earnings per share. For the twelve
months ended December 31, 2009, 2008 and 2007, earnings representing nonforfeitable dividends as
noted in the table above were allocated to the unvested restricted shares.
Common and Preferred Shares
On December 8, 2009, the Company declared a distribution of $0.15 per Common Share, totaling $19.3
million, which was paid on January 20, 2010 to shareholders of record as of January 6, 2010. On
December 8, 2009, the Company declared distributions on its Series C Preferred Shares and Series D
Preferred Shares to holders of record as of December 30, 2009. These shares are entitled to a
preferential return of 7.50% and 7.375%, respectively. Distributions paid on January 15, 2010 to
holders of Series C Preferred Shares and Series D Preferred Shares totaled $0.9 million and $1.1
million, respectively.
On June 2, 2009, the Company completed its public offering (the “offering”) of 40,250,000 of its
common shares, par value $0.01 per share. The common shares were issued and sold by the Company to
the underwriters at a public offering price of $6.30 per common share in accordance with an
underwriting agreement. The common shares sold include 5,250,000 shares issued and sold pursuant to
the underwriters’ exercise in full of their over-allotment option under the underwriting agreement.
The Company received net proceeds of approximately $242.3 million from the offering net of
underwriting discounts, commissions and expenses. The Company used the net proceeds from the
offering to repay outstanding borrowings under its $600.0 million unsecured revolving credit
facility amounting to $242.0 million and for general corporate purposes.
F-30
Table of Contents
Common Share Repurchases
The Company maintains a share repurchase program under which the Board has authorized the Company
to repurchase our common shares from time to time. The Board initially authorized this program in
1998 and has periodically replenished capacity under the program. On May 2, 2006 the Company’s
Board restored capacity to 3.5 million common shares.
The Company did not repurchase any shares during the year-ended December 31, 2009. As of December
31, 2009, the Company may purchase an additional 0.5 million shares under the plan.
Repurchases may be made from time to time in the open market or in privately negotiated
transactions, subject to market conditions and compliance with legal requirements. The share
repurchase program does not contain any time limitation and does not obligate the Company to
repurchase any shares. The Company may discontinue the program at any time.
13.
SHARE BASED COMPENSATION
Stock Options
At December 31, 2009, the Company had 2,404,567 options outstanding under its shareholder approved
equity incentive plan. There were 1,788,448 options unvested as of December 31, 2009 and $0.6
million of unrecognized compensation expense associated with these options will be recognized over
a weighted average period of 1.63 years. During the years ended December 31, 2009 and 2008, the
Company recognized $0.6 million and $0.3 million, respectively, of compensation expense included in
general and administrative expense related to unvested options. No options were unvested during
the year ended December 31, 2007.
Option activity as of December 31, 2009 and changes during the year ended December 31, 2009
were as follows:
| Weighted | Weighted Average | |||||||||||||||
| Average | Remaining Contractual | Aggregate Intrinsic | ||||||||||||||
| Shares | Exercise Price | Term (in years) | Value | |||||||||||||
|
Outstanding at January 1, 2009
|
1,754,648 | $ | 20.41 | 8.77 | $ | (30,093 | ) | |||||||||
|
Granted
|
676,491 | 2.91 | 9.25 | 5,743,405 | ||||||||||||
|
Exercised
|
— | |||||||||||||||
|
Forfeited or expired
|
(26,572 | ) | 20.61 | |||||||||||||
|
|
||||||||||||||||
|
Outstanding at December 31, 2009
|
2,404,567 | $ | 15.48 | 8.38 | $ | (9,816,670 | ) | |||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Vested/Exercisable at December 31, 2009
|
616,119 | $ | 20.03 | 7.54 | $ | (5,268,260 | ) | |||||||||
The fair value of share option awards is estimated on the date of the grant using the Black-Scholes
option valuation model. The following weighted-average assumptions were utilized in calculating the
fair value of options granted during the years ended December 31, 2009 and 2008:
| Grant Date | April 1, 2009 | March 20, 2008 | April 8, 2008 | |||||||||
|
Risk-free interest rate
|
2.20 | % | 2.74 | % | 3.03 | % | ||||||
|
Dividend yield
|
23.64 | % | 8.81 | % | 8.52 | % | ||||||
|
Volatility factor
|
40.99 | % | 23.15 | % | 23.22 | % | ||||||
|
Weighted-average expected life
|
7 yrs | 7 yrs | 7 yrs | |||||||||
There were no options granted during the year-ended December 31, 2007.
F-31
Table of Contents
| Years ended December 31, | ||||||||||||||||||||||||
| 2008 | 2007 | |||||||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||||||
| Average | Average | |||||||||||||||||||||||
| Weighted | Remaining | Weighted | Remaining | |||||||||||||||||||||
| Average | Contractual | Average | Contractual | |||||||||||||||||||||
| Exercise | Term | Exercise | Term | |||||||||||||||||||||
| Shares | Price | (in Years) | Shares | Price | (in Years) | |||||||||||||||||||
|
Outstanding at beginning of year
|
1,070,099 | $ | 26.13 | 0.54 | 1,286,075 | $ | 26.45 | 1.5 | ||||||||||||||||
|
Granted
|
1,824,594 | 20.61 | 8.61 | — | ||||||||||||||||||||
|
Prentiss options converted to Company options
as part of the Prentiss acquisition (See Note 3)
|
— | 0.00 | — | — | $ | 28.80 | 0.87 | |||||||||||||||||
|
Exercised
|
— | 0.00 | — | (198,495 | ) | $ | 0.00 | — | ||||||||||||||||
|
Forfeited/Expired
|
(1,140,045 | ) | 26.10 | — | (17,481 | ) | — | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Outstanding at end of year
|
1,754,648 | $ | 20.41 | 9.01 | 1,070,099 | $ | 26.13 | 0.54 | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Vested/Exercisable at end of year
|
60,224 | $ | 14.71 | 1.83 | 1,070,099 | $ | 26.13 | |||||||||||||||||
401(k) Plan
The Company sponsors a 401(k) defined contribution plan for its employees. Each employee may
contribute up to 100% of annual compensation, subject to specific limitations under the Internal
Revenue Code. At its discretion, the Company can make matching contributions equal to a percentage
of the employee’s elective contribution and profit sharing contributions. Employees vest in
employer contributions over a three-year service period. The Company contributions were $0.2
million in 2009, $0.6 million in 2008 and $0.6 million in 2007.
Restricted Share Awards
As of December 31, 2009, 708,580 restricted shares were outstanding and vest over three to seven
years from the initial grant date. The remaining compensation expense to be recognized at December
31, 2009 was approximately $5.2 million. That expense is expected to be recognized over a weighted
average remaining vesting period of 2.1 years. The Company
recognized stock compensation related
to outstanding restricted shares of $3.2 million during the year ended December 31, 2009, of which
$0.8 million was capitalized as part of the Company’s review of employee salaries eligible for
capitalization. For the years ended December 31, 2008 and 2007, the Company recognized $3.0
million of compensation expense included in general and administrative expense in the respective
period related to outstanding restricted shares.
The following table summarizes the Company’s restricted share activity for the twelve months-ended
December 31, 2009:
| Weighted | ||||||||
| Average Grant | ||||||||
| Shares | Date Fair value | |||||||
|
Non-vested at January 1, 2009
|
475,496 | $ | 26.21 | |||||
|
Granted
|
372,586 | 3.36 | ||||||
|
Vested
|
(119,268 | ) | 21.84 | |||||
|
Forfeited
|
(20,234 | ) | 14.65 | |||||
|
|
||||||||
|
Non-vested at December 31, 2009
|
708,580 | $ | 9.69 | |||||
|
|
||||||||
Restricted Performance Share Units Plan
On April 1, 2009 the Compensation Committee of the Company’s Board of Trustees awarded 488,292
share-based units, referred to as Restricted Performance Share Units (“RPSU”), to executive
participants. The awards are contingent upon the Company’s total shareholder return as compared to
its industry peers and the employment status of the participants through the performance period.
The performance period commenced on January 1, 2009 and will end on the earlier of December 31,
2011 or the date of a change in control.
F-32
Table of Contents
If the total shareholder return during the measurement period places the Company at or above a
certain percentile as compared to its peers based on an industry-based index at the end of the
measurement period then the number of shares that will be delivered shall equal a certain
percentage of the participant’s base units.
The participants will also receive dividend equivalent rights (“DER”) based on the initial number
of the units awarded. The DER will be calculated throughout the vesting period and the dollar value
of the DER will be used to purchase additional RPSU. All shares due to the participants will be
delivered on March 1, 2012. On April 1, 2009, the Company awarded 488,292 RPSU to its officers. The
shares awarded have a three year cliff vesting period which is the period the $1.1 million fair
value of the awards will be amortized. As of December 31, 2009, 470,861 of the RPSU awarded
remained outstanding and 20,525 DERs have been determined. On the date of the grant, the awards
were valued using a Monte Carlo simulation. For the year-ended December 31, 2009, the Company
recognized compensation expense of $0.3 million related to this plan.
Outperformance Program
On August 28, 2006, the Compensation Committee of the Company’s Board of Trustees adopted a
long-term incentive compensation program (the “outperformance program”) under the 1997 Plan. The
outperformance program provided for share-based awards, with share issuances (if any), to take the
form of both vested and restricted common shares and with any share issuances contingent upon the
Company’s total shareholder return during a three year measurement period exceeding specified
performance hurdles. These hurdles were not met and, accordingly, no shares were delivered under
the outperformance program and the outperformance program, has terminated in accordance with its
terms. The awards under the outperformance program were accounted for in accordance with the
accounting standard for stock-based compensation. The aggregate grant date fair values of the
awards under the outperformance program, as adjusted for estimated forfeitures, were approximately
$5.9 million (with the values determined through a Monte Carlo simulation) and are being amortized
into expense over the five-year vesting period beginning on the grant dates using a graded vesting
attribution model. For the years ended December 31, 2009, 2008 and 2007, the Company recognized
$0.9 million, $1.0 million and $1.4 million, respectively, of compensation expense related to the
outperformance program; $0.5 million remains to be recognized as compensation expense as of
December 31, 2009.
Employee Share Purchase Plan
On May 9, 2007, the Company’s shareholders approved the 2007 Non-Qualified Employee Share Purchase
Plan (the “ESPP”). The ESPP is intended to provide eligible employees with a convenient means to
purchase common shares of the Company through payroll deductions and voluntary cash purchases at an
amount equal to 85% of the average closing price per share for a specified period. Under the plan
document, the maximum participant contribution for the 2009 plan year is limited to the lesser of
20% of compensation or $25,000. The number of shares reserved for issuance under the ESPP is 1.25
million. During the year ended December 31, 2009, employees made purchases of $0.4 million under
the ESPP and the Company recognized $0.3 million of compensation expense related to the ESPP.
During the year ended December 31, 2008, employees made purchases of $0.6 million under the ESPP
and the Company recognized $0.1 million of compensation expense related to the ESPP. The Board of
Directors of the Company may terminate the ESPP at its sole discretion at anytime.
Deferred Compensation
In January 2005, the Company adopted a Deferred Compensation Plan (the “Plan”) that allows trustees
and certain key employees to voluntarily defer compensation. Compensation expense is recorded for
the deferred compensation and a related liability is recognized. Participants may elect designated
benchmark investment options for the notational investment of their deferred compensation. The
deferred compensation obligation is adjusted for deemed income or loss related to the investments
selected. At the time the participants defer compensation, the Company records a liability,
which is included in the Company’s consolidated balance sheet. The liability is adjusted for
changes in the market value of the participants selected investments at the end of each accounting
period, and the impact of adjusting the liability is recorded as an increase or decrease to
compensation cost. For the years ended December 31, 2009, 2008 and 2007, the Company recorded a
net increase in compensation cost of $1.5 million, a net reduction in compensation cost of $2.8
million and a net increase in compensation cost of $0.9 million, respectively, in connection with
the Plan due to the change in market value of the participant investments in the Plan.
The deferred compensation obligations are unfunded, but the Company has purchased assets,
company-owned life insurance policies and mutual funds, which can be utilized as a future funding
source for the obligations related to the Plan. Participants in the Plan have no interest in any
assets set aside by the Company to meet its obligations under the deferral plan. For the years
ended December 31, 2009, 2008 and 2007, the Company recorded a net reduction in compensation cost
of $1.8 million, a net increase in compensation cost of $2.7 million and a net decrease in
compensation cost of $0.8 million, respectively, in connection with the investments in the
Company-owned policies and mutual funds.
F-33
Table of Contents
Participants in the Plan may elect to have all or a portion of their deferred compensation invested
in the Company’s common shares. The Company holds these shares in a rabbi trust, which is subject
to the claims of the Company’s creditors in the event of the Company’s bankruptcy or insolvency.
The Plan does not provide for diversification of a participant’s deferral allocated to the Company
common share and deferrals allocated to Company common share can only be settled with a fixed
number of shares. In accordance with the accounting standard for deferred compensation
arrangements where amounts earned are held in a rabbi trust and invested, the deferred compensation
obligation associated with Company’s common shares is classified as a component of shareholder’s
equity and the related shares are treated as shares to be issued and are included in total shares
outstanding. At December 31, 2009 and 2008, there were 0.3 million and 0.2 million shares,
respectively, to be issued included in total shares outstanding. Subsequent changes in the fair
value of the common shares are not reflected in operations or shareholders’ equity of the Company.
14.
PREFERRED SHARES
In 2003, the Company issued 2,000,000 7.50% Series C Cumulative Redeemable Preferred Shares (the
“Series C Preferred Shares”) for net proceeds of $48.1 million. The Series C Preferred Shares are
perpetual. On or after December 30, 2008, the Company, at its option, may redeem the Series C
Preferred Shares, in whole or in part, by paying $25.00 per share, which is equivalent to its
liquidation preference, plus accrued but unpaid dividends.
In 2004, the Company issued 2,300,000 7.375% Series D Cumulative Redeemable Preferred Shares (the
“Series D Preferred Shares”) for net proceeds of $55.5 million. The Series D Preferred Shares are
perpetual. On or after February 27, 2009, the Company, at its option, may redeem the Series D
Preferred Shares, in whole or in part, by paying $25.00 per share, which is equivalent to its
liquidation preference, plus accrued but unpaid dividends. The Company could not redeem Series D
Preferred Shares before February 27, 2009 except to preserve its REIT status.
15.
DISTRIBUTIONS
| Years ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Common Share Distributions:
|
||||||||||||
|
Ordinary income
|
$ | 0.60 | $ | 1.53 | $ | 1.16 | ||||||
|
Capital gain
|
— | 0.11 | 0.46 | |||||||||
|
Non-taxable distributions
|
— | 0.12 | 0.14 | |||||||||
|
|
||||||||||||
|
Distributions per share
|
$ | 0.60 | $ | 1.76 | $ | 1.76 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Percentage classified as ordinary income
|
100.0 | % | 86.9 | % | 65.9 | % | ||||||
|
Percentage classified as capital gain
|
0.0 | % | 6.3 | % | 26.1 | % | ||||||
|
Percentage
classified as non-taxable distribution
|
0.0 | % | 6.8 | % | 8.0 | % | ||||||
|
|
||||||||||||
|
Preferred Share Distributions:
|
||||||||||||
|
Total distributions declared
|
$ | 7,992,000 | $ | 7,992,000 | $ | 7,992,000 | ||||||
16.
TAX CREDIT TRANSACTIONS
Historic Tax Credit Transaction
On November 17, 2008, the Company closed a transaction with US Bancorp (“USB”) related to the
historic rehabilitation of the 30th Street Post Office in Philadelphia, Pennsylvania (“Project”),
an 862,692 square foot office building which is 100% pre-leased to the Internal Revenue Service
(expected commencement of the IRS lease is August 2010). USB has agreed to contribute approximately
$67.9 million of Project costs and advanced $10.2 million of that contemporaneously with the
closing of the transaction. USB advanced another $23.8 million of the said funds in December 2009.
The remaining funds will be advanced in 2010 subject to the Company’s achievement of certain
construction milestones and its compliance with the federal rehabilitation regulations. In return
for the investment, USB will, upon completion of the Project in 2010, receive substantially all of
the rehabilitation credits available under section 47 of the Internal Revenue Code.
F-34
Table of Contents
In exchange for its contributions into the Project, USB is entitled to substantially all of the
benefits derived from the tax credit, but does not have a material interest in the underlying
economics of the property. This transaction also includes a put/call provision whereby the Company
may be obligated or entitled to repurchase USB’s interest in the Project. The Company believes the
put will be exercised and an amount attributed to that puttable non-controlling interest obligation
is included in other liabilities and is being accreted to the expected fixed put price.
Based on the contractual arrangements that obligate the Company to deliver tax benefits and provide
other guarantees to USB and that entitle the Company through fee arrangements to receive
substantially all available cash flow from the Project, the Company concluded that the Project
should be consolidated in accordance with the accounting standard for consolidation. The Company
also concluded that capital contributions received from USB, in substance, are consideration that
the Company receives in exchange for its obligation to deliver tax credits and other tax benefits
to USB. These receipts other than the amounts allocated to the put obligation will be recognized as
revenue in the consolidated financial statements only after the put/call provision is exercised and
when USB no longer has any ongoing interest in the Project. The tax credit is subject to 20%
recapture per year beginning one year after the completion of the Project in 2010. The Company
expects that USB will exercise the put/call provision in December 2015 when the recapture period
ends. The Company will recognize the cash received as income once either the put or the call is
exercised.
The USB contributions made during 2009 and 2008 of $23.8 million and $10.2 million, respectively
are presented within deferred income on the Company’s consolidated balance sheet at December 31,
2009 and 2008. The said contributions recorded as deferred income are net of the amounts allocated
to non-controlling interest as described above of $0.7 million
in 2009 and $0.3 million in 2008.
Direct and incremental costs incurred in structuring the arrangement are deferred and will be
recognized as expense in the consolidated financial statements upon the recognition of the related
revenue as discussed above. The deferred cost at December 31, 2009 is $2.4 million and is included
in other assets on the Company’s consolidated balance sheet. Amounts included in interest expense
related to the accretion of the non-controlling interest liability and the 2% return expected to be
paid to USB on its non-controlling interest aggregate to $0.2 million for the year-ended December
31, 2009.
New Markets Tax Credit Transaction
On December 30, 2008, the Company entered into a transaction with USB related to the Cira Garage
Project (“garage project”) in Philadelphia, Pennsylvania and expects to receive a net benefit of
$7.8 million under a qualified New Markets Tax Credit Program (“NMTC”). The NMTC was provided for
in the Community Renewal Tax Relief Act of 2000 (the “Act”) and is intended to induce investment
capital in underserved and impoverished areas of the United States. The Act permits taxpayers
(whether companies or individuals) to claim credits against their Federal income taxes for up to
39% of qualified investments in qualified, active low-income businesses or ventures.
USB contributed $13.3 million into the garage project and as such they are entitled to
substantially all of the benefits derived from the tax credit, but they do not have a material
interest in the underlying economics of the garage project. This transaction also includes a
put/call provision whereby the Company may be obligated or entitled to repurchase USB’s interest.
The Company believes the put will be exercised and an amount attributed to that obligation is
included in other liabilities. The said put price is insignificant.
Based on the contractual arrangements that obligate the Company to deliver tax benefits and provide
various other guarantees to USB, the Company concluded that the project should be consolidated in
accordance with the accounting
standard for consolidation. The USB contribution of $13.3 million is included in deferred income
on the Company’s consolidated balance sheet at December 31, 2009 and 2008. The USB contribution
other than the amount allocated to the put obligation will be recognized as income in the
consolidated financial statements only after the put/call provision is exercised and when USB no
longer has any ongoing interest in the Project. The NMTC is subject to 100% recapture for a
period of seven years as provided in the Internal Revenue Code. The Company expects that USB will
exercise the put/call provision in December 2015 at the end of the recapture period.
Direct and incremental costs incurred in structuring the arrangement are deferred and will be
recognized as expense in the consolidated financial statements upon the recognition of the related
revenue as discussed above. The deferred costs at December 31,
2009 is $5.3 million and is included
in other assets on the Company’s consolidated balance sheet.
F-35
Table of Contents
17.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table details the components of accumulated other comprehensive income (loss) as of
and for the three years ended December 31, 2009 (in thousands):
| Unrealized Gains | Cash Flow | Accumulated Other | ||||||||||
| (Losses) on Securities | Hedges | Comprehensive Loss | ||||||||||
|
|
||||||||||||
|
Balance at January 1, 2007
|
328 | 1,248 | 1,576 | |||||||||
|
Change during year
|
— | (3,600 | ) | (3,600 | ) | |||||||
|
Settlement of treasury locks
|
— | (3,860 | ) | (3,860 | ) | |||||||
|
Settlement of forward starting swaps
|
— | 1,148 | 1,148 | |||||||||
|
Reclassification adjustments for (gains) losses
reclassified into operations
|
(585 | ) | 3,436 | 2,851 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Balance at December 31, 2007
|
(257 | ) | (1,628 | ) | (1,885 | ) | ||||||
|
|
||||||||||||
|
Change during year
|
— | (15,288 | ) | (15,288 | ) | |||||||
|
Reclassification adjustments for (gains) losses
reclassified into operations
|
248 | (80 | ) | 168 | ||||||||
|
|
||||||||||||
|
Balance at December 31, 2008
|
$ | (9 | ) | $ | (16,996 | ) | $ | (17,005 | ) | |||
|
Change during year
|
— | 7,395 | 7,395 | |||||||||
|
Non-controlling interest — consolidated real estate venture
partner’s share of unrealized (gains)/losses on
derivative financial instruments
|
— | 290 | 290 | |||||||||
|
Ineffectiveness of forward starting swaps
|
— | (125 | ) | (125 | ) | |||||||
|
Other
|
491 | 491 | ||||||||||
|
Reclassification adjustments for (gains) losses
reclassified into operations
|
— | (184 | ) | (184 | ) | |||||||
|
|
||||||||||||
|
Balance at December 31, 2009
|
$ | (9 | ) | $ | (9,129 | ) | $ | (9,138 | ) | |||
|
|
||||||||||||
Over time, the unrealized gains and losses held in Accumulated Other Comprehensive Income (“AOCI”)
will be reclassified to earnings when hedged items are recognized in earnings. The current balance
held in AOCI is expected to be reclassified to earnings over the lives of the current hedging
instruments, or for realized losses on forecasted debt transactions over the related term of the
debt obligation (including the planned issuance related to previously forecasted transactions that
are considered to be reasonably possible of occurring), as applicable. During the year ended
December 31, 2008, the Company reclassified approximately $(0.5) million to interest expense
associated with treasury lock agreements and forward starting swaps previously settled.
18.
SEGMENT INFORMATION
As of December 31, 2009, the Company manages its portfolio within six segments: (1) Pennsylvania,
(2) Metropolitan Washington D.C, (3) New Jersey/Delaware, (4) Richmond, Virginia, (5) Austin, Texas
and (6) California. The Pennsylvania segment includes properties in Chester, Delaware, Bucks, and
Montgomery counties in the Philadelphia
suburbs and the City of Philadelphia in Pennsylvania. The Metropolitan Washington, D.C. segment
includes properties in Northern Virginia and suburban Maryland. The New Jersey/Delaware segment
includes properties in Burlington, Camden and Mercer counties and counties in the southern and
central part of New Jersey and in New Castle county in the state of Delaware. The Richmond,
Virginia segment includes properties primarily in Albemarle, Chesterfield, Goochland and Henrico
counties and Durham, North Carolina. The California segment includes properties in Oakland,
Concord, Carlsbad and Rancho Bernardo. The Austin, Texas segment includes properties in Coppell
and Austin. The corporate group is responsible for cash and investment management, development of
certain real estate properties during the construction period, and certain other general support
functions. Land held for development and construction in progress are transferred to operating
properties by region upon completion of the associated construction or project.
F-36
Table of Contents
Segment information for the three years ended December 31, 2009, 2008 and 2007 are as follows (in
thousands):
| Metropolitan, | New Jersey | Richmond, | ||||||||||||||||||||||||||||||
| Pennsylvania | D.C. | /Delaware | Virginia | Austin, Texas | California | Corporate | Total | |||||||||||||||||||||||||
|
2009:
|
||||||||||||||||||||||||||||||||
|
Real estate investments, at cost:
|
||||||||||||||||||||||||||||||||
|
Operating properties
|
$ | 1,726,267 | $ | 1,356,206 | $ | 598,122 | $ | 297,958 | $ | 282,093 | $ | 251,972 | $ | — | $ | 4,512,618 | ||||||||||||||||
|
Construction-in-progress
|
— | — | — | — | — | — | 271,962 | 271,962 | ||||||||||||||||||||||||
|
Land inventory
|
— | — | — | — | — | — | 97,368 | 97,368 | ||||||||||||||||||||||||
|
Total revenue
|
239,038 | 140,438 | 103,277 | 36,387 | 35,143 | 29,282 | (1,346 | ) | 582,219 | |||||||||||||||||||||||
|
Property operating expenses, real estate taxes and
third party management expenses
|
90,455 | 52,712 | 48,254 | 14,337 | 15,404 | 14,683 | (1,460 | ) | 234,385 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net operating income
|
$ | 148,583 | $ | 87,726 | $ | 55,023 | $ | 22,050 | $ | 19,739 | $ | 14,599 | $ | 114 | $ | 347,834 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2008:
|
||||||||||||||||||||||||||||||||
|
Real estate investments, at cost:
|
||||||||||||||||||||||||||||||||
|
Operating properties
|
$ | 1,734,946 | $ | 1,371,997 | $ | 674,503 | $ | 297,171 | $ | 280,826 | $ | 248,877 | $ | — | $ | 4,608,320 | ||||||||||||||||
|
Construction-in-progress
|
— | — | — | — | — | — | 122,219 | 122,219 | ||||||||||||||||||||||||
|
Land inventory
|
— | — | — | — | — | — | 100,516 | 100,516 | ||||||||||||||||||||||||
|
Total revenue
|
243,216 | 138,339 | 104,711 | 38,047 | 37,388 | 29,590 | (1,870 | ) | 589,421 | |||||||||||||||||||||||
|
Property operating expenses, real estate taxes and
third party management expenses
|
86,071 | 49,672 | 46,895 | 13,136 | 16,385 | 12,855 | 3,370 | 228,384 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net operating income
|
$ | 157,145 | $ | 88,667 | $ | 57,816 | $ | 24,911 | $ | 21,003 | $ | 16,735 | $ | (5,240 | ) | $ | 361,037 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2007:
|
||||||||||||||||||||||||||||||||
|
Real estate investments, at cost:
|
||||||||||||||||||||||||||||||||
|
Operating properties
|
$ | 1,682,840 | $ | 1,302,833 | $ | 663,503 | $ | 348,310 | $ | 236,959 | $ | 579,120 | $ | — | $ | 4,813,565 | ||||||||||||||||
|
Construction-in-progress
|
— | — | — | — | — | — | 332,380 | 332,380 | ||||||||||||||||||||||||
|
Land inventory
|
— | — | — | — | — | — | 70,297 | 70,297 | ||||||||||||||||||||||||
|
Total revenue
|
274,246 | 130,731 | 101,927 | 31,693 | 37,874 | 30,141 | (1,801 | ) | 604,811 | |||||||||||||||||||||||
|
Property operating expenses, real estate taxes and
third party management expenses
|
96,366 | 44,963 | 46,911 | 10,655 | 16,407 | 10,942 | 4,293 | 230,537 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net operating income
|
$ | 177,880 | $ | 85,768 | $ | 55,016 | $ | 21,038 | $ | 21,467 | $ | 19,199 | $ | (6,094 | ) | $ | 374,274 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
F-37
Table of Contents
Net operating income is defined as total revenue less property operating expenses, real estate
taxes and third party management expenses. Segment net operating income includes revenue, real
estate taxes and property operating expenses directly related to operation of the properties within
the respective geographical region. Segment net operating income excludes property level
depreciation and amortization, revenue and expenses directly associated with third party real
estate management services, expenses associated with corporate administrative support services, and
inter-company eliminations. Below is a reconciliation of consolidated net operating income to
consolidated income (loss) from continuing operations:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (amounts in thousands) | ||||||||||||
|
Consolidated net operating income
|
$ | 347,834 | $ | 361,037 | $ | 374,274 | ||||||
|
Less:
|
||||||||||||
|
Interest expense
|
(135,740 | ) | (146,646 | ) | (161,150 | ) | ||||||
|
Deferred financing costs
|
(5,864 | ) | (5,450 | ) | (4,496 | ) | ||||||
|
Loss on settlement of treasury lock agreements
|
— | — | (3,698 | ) | ||||||||
|
Depreciation and amortization
|
(208,590 | ) | (202,043 | ) | (219,553 | ) | ||||||
|
Administrative expenses
|
(20,821 | ) | (23,002 | ) | (27,932 | ) | ||||||
|
Provision for impairment on land inventory
|
— | (10,841 | ) | — | ||||||||
|
Recognized Hedge Activity
|
(916 | ) | — | — | ||||||||
|
Plus:
|
||||||||||||
|
Interest income
|
2,500 | 1,839 | 4,014 | |||||||||
|
Equity in income of real estate ventures
|
4,069 | 8,447 | 6,955 | |||||||||
|
Net gain on sales of interests in depreciated real estate
|
— | — | 40,919 | |||||||||
|
Net (loss) gain on sales of interests in undepreciated real estate
|
— | (24 | ) | — | ||||||||
|
Gain on early extinguishment of debt
|
23,176 | 18,105 | — | |||||||||
|
|
||||||||||||
|
Income (loss) from continuing operations
|
5,648 | 1,422 | 9,333 | |||||||||
|
Income from discontinued operations
|
2,441 | 37,103 | 46,002 | |||||||||
|
|
||||||||||||
|
Net income
|
$ | 8,089 | $ | 38,525 | $ | 55,335 | ||||||
|
|
||||||||||||
19.
OPERATING LEASES
The Company leases properties to tenants under operating leases with various expiration dates
extending to 2025. Minimum future rentals on non-cancelable leases at December 31, 2009 are as
follows (in thousands):
| Year | Minimum Rent | |||
|
2010
|
$ | 473,953 | ||
|
2011
|
421,120 | |||
|
2012
|
358,097 | |||
|
2013
|
309,052 | |||
|
2014
|
260,157 | |||
|
Thereafter
|
1,010,618 | |||
Total minimum future rentals presented above do not include amounts to be received as tenant
reimbursements for operating costs.
F-38
Table of Contents
20.
COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is involved from time to time in litigation on various matters, including disputes with
tenants and disputes arising out of agreements to purchase or sell properties. Given the nature of
the Company’s business activities, these lawsuits are considered routine to the conduct of its
business. The result of any particular lawsuit cannot be predicted, because of the very nature of
litigation, the litigation process and its adversarial nature, and the jury system. The Company
does not expect that the liabilities, if any, that may ultimately result from such legal actions
will have a material adverse effect on the consolidated financial position, results of operations
or cash flows of the Company.
Letters-of-Credit
Under certain mortgages, the Company has funded required leasing and capital reserve accounts for
the benefit of the mortgage lenders with letters-of-credit which totaled $13.9 million at December
31, 2009. Certain of the tenant rents at properties that secure these mortgage loans are deposited
into the loan servicer’s depository accounts, which are used to fund debt service, operating
expenses, capital expenditures and the escrow and reserve accounts, as necessary. At December 31,
2009, the Company guaranteed a $51.0 million holdback from the Credit Facility in connection with
its historic tax credit transaction. Any excess cash is included in cash and cash equivalents.
Ground Rent
Future minimum rental payments under the terms of all non-cancelable ground leases under which the
Company is the lessee are expensed on a straight-line basis regardless of when payments are due.
Minimum future rental payments on non-cancelable leases at December 31, 2009 are as follows (in
thousands):
|
2010
|
$ | 2,318 | ||
|
2011
|
2,318 | |||
|
2012
|
2,318 | |||
|
2013
|
2,318 | |||
|
2014
|
2,409 | |||
|
Thereafter
|
285,913 |
One of the land leases for a property (currently under development) provides for contingent rent
participation by the lessor in certain capital transactions and net operating cash flows of the
property after certain returns are achieved by the Company. Such amounts, if any, will be reflected
as contingent rent when incurred. The leases also provide for payment by the Company of certain
operating costs relating to the land, primarily real estate taxes. The above schedule of future
minimum rental payments does not include any contingent rent amounts nor any reimbursed expenses.
Other Commitments or Contingencies
As part of the Company’s September 2004 acquisition of a portfolio of properties from The
Rubenstein Company (which the Company refers to as the TRC acquisition), the Company acquired its
interest in Two Logan Square, a 702,006 square foot office building in Philadelphia, primarily
through its ownership of a second and third mortgage secured by this property. This property is
consolidated as the borrower is a variable interest entity and the Company, through its ownership
of the second and third mortgages, is the primary beneficiary. The Company currently does not
expect to take title to Two Logan Square until, at the earliest, September 2019. If the Company
takes fee title to Two Logan Square upon a foreclosure of its mortgage, the Company has agreed to
pay an unaffiliated third party that holds a residual interest in the fee owner of this property an
amount equal to $0.6 million (if the Company must pay a state and local transfer upon taking title)
and $2.9 million (if no transfer tax is payable upon the transfer).
The Company is currently being audited by the Internal Revenue Service for its 2004 tax year. The
audit concerns the tax treatment of the transaction in September 2004 in which the Company acquired
a portfolio of properties through the acquisition of a limited partnership. At this time it does
not appear that an adjustment if any, would result in a material tax liability for the Company.
However, an adjustment could raise a question as to whether a contributor of partnership interests
in the 2004 transaction could assert a claim against the Company under the tax protection agreement
entered into as part of the transaction.
F-39
Table of Contents
As part of the Company’s 2006 acquisition of Prentiss Properties Trust, the TRC acquisition in 2004
and several of our other transactions, the Company agreed not to sell certain of the properties it
acquired in transactions that would trigger taxable income to the former owners. In the case of the
TRC acquisition, the Company agreed not to sell acquired properties for periods up to 15 years from
the date of the TRC acquisition as follows at December 31, 2009: One Rodney Square and 130/150/170
Radnor Financial Center (January 2015); and One Logan Square, Two Logan Square and Radnor Corporate
Center (January 2020). In the Prentiss acquisition, the Company assumed the obligation of Prentiss
not to sell Concord Airport Plaza before March 2018. The Company’s agreements generally provide
that it may dispose of the subject properties only in transactions that qualify as tax-free
exchanges under Section 1031 of the Internal Revenue Code or in other tax deferred transactions. If
the Company were to sell a restricted property before expiration of the restricted period in a
non-exempt transaction, the Company may be required to make significant payments to the parties who
sold it the applicable property on account of tax liabilities attributed to them.
The Company invests in its properties and regularly incurs capital expenditures in the ordinary
course to maintain the properties. The Company believes that such expenditures enhance its
competitiveness. The Company also enters into construction, utility and service contracts in the
ordinary course of business which may extend beyond one year. These contracts typically provide
for cancellation with insignificant or no cancellation penalties.
During 2008, in connection with the development of the PO Box/IRS and Cira Garage projects, the
Company entered into a historic tax credit and new market tax credit arrangement, respectively.
The Company is required to be in compliance with various laws, regulations and contractual
provisions that apply to its historic and new market tax credit arrangements. Non-compliance with
applicable requirements could result in projected tax benefits not being realized and require a
refund or reduction of investor capital contributions, which are reported as deferred income in the
Company’s consolidated balance sheet, until such time as its obligation to deliver tax benefits is
relieved. The remaining compliance periods for its tax credit arrangements runs through 2015. The
Company does not anticipate that any material refunds or reductions of investor capital
contributions will be required in connection with these arrangements. Refer to Note 16 for further
discussion on the tax credit transactions.
On June 29, 2009, the Company entered into a forward financing commitment to borrow up to $256.5
million under two separate loans which are secured by mortgages on the Post Office project, the
garage project and by the leases of space at these facilities upon the completion of these projects
(See Note 7). In order for funding to occur, certain conditions must be met by the Company and
primarily relate to the completion of the projects and the commencement of the rental payments from
the respective leases on these properties. The expected funding date is scheduled on August 26,
2010 which is also the anticipated completion date of the projects. In the event the conditions
were not met, the Company has the right to extend the funding date by paying an extension fee
amounting to $1.8 million for each 30 day extension within the allowed two year extension period.
In addition, the Company can also voluntarily elect to terminate the loans during the forward
period including the extension period by paying a termination fee. The Company is also subject to
the termination fee if the conditions were not met on the final advance date. The termination fee
is calculated as the greater of the 0.5% of the total available principal to be funded or the
difference between the present value of the scheduled interest and principal payments (based on the
principal amount to be funded and the then 20-year treasury rate plus 50 basis points) from the
funding date through the loans’ maturity date and the amount to be funded. In addition, deferred
financing costs related to these loans will be accelerated if the Company chose to terminate the
forward financing commitment.
21.
SUBSEQUENT EVENT
On January 14, 2010, the Company sold an office property containing 121,815 net rentable square
feet located in Richmond, Virginia, for a sales price of $10.9 million.
The
Company has evaluated subsequent events.
F-40
Table of Contents
22.
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following is a summary of quarterly financial information as of and for the years ended
December 31, 2009 and 2008 (in thousands, except per share data):
| 1st | 2nd | 3rd | 4th | |||||||||||||
| Quarter | Quarter | Quarter (a) | Quarter (a) | |||||||||||||
|
2009:
|
||||||||||||||||
|
Total revenue
|
$ | 146,917 | $ | 142,074 | $ | 146,593 | $ | 146,635 | ||||||||
|
Net income
|
(873 | ) | 5,780 | 7,309 | (4,127 | ) | ||||||||||
|
Income allocated to Common Shares
|
(778 | ) | 5,612 | 7,148 | (3,956 | ) | ||||||||||
|
|
||||||||||||||||
|
Basic earnings per Common Share
|
$ | (0.03 | ) | $ | 0.03 | $ | 0.04 | $ | (0.04 | ) | ||||||
|
Diluted earnings per Common Share
|
$ | (0.03 | ) | $ | 0.03 | $ | 0.04 | $ | (0.04 | ) | ||||||
|
|
||||||||||||||||
|
2008:
|
||||||||||||||||
|
Total revenue
|
$ | 148,457 | $ | 147,516 | $ | 144,338 | $ | 149,110 | ||||||||
|
Net income
|
13,597 | 8,213 | 1,746 | 14,969 | ||||||||||||
|
Income allocated to Common Shares
|
13,070 | 7,912 | 1,697 | 14,538 | ||||||||||||
|
|
||||||||||||||||
|
Basic earnings per Common Share
|
$ | 0.13 | $ | 0.07 | $ | (0.01 | ) | $ | 0.14 | |||||||
|
Diluted earnings per Common Share
|
$ | 0.13 | $ | 0.06 | $ | (0.01 | ) | $ | 0.14 | |||||||
| (a) | The fourth quarter net income includes a $0.9 million out of period adjustment pertaining to the Company’s incorrect recording during the quarter ended September 30, 2009 of an amount released from Accumulated Other Comprehensive Income as a charge rather than a credit to recognized hedge activity. The amount released of $0.4 million relates to a forecasted transaction which was no longer expected to occur. The reversal of the entry resulted in the $0.9 million of income in the quarter ended December 31, 2009. In addition, the fourth quarter of 2009 contains an out of period depreciation adjustment of $1.3 million relating to tenant assets that should have been written off over the second and third quarters of 2009 amounting to $0.6 million and $0.7 million, respectively. |
The summation of quarterly earnings per share amounts do not necessarily equal the full year
amounts. The above information was updated to reclassify amounts previously reported to reflect
discontinued operations and the retrospective adoption of the new
accounting standards. See Note 2 and Note
10.
F-41
Table of Contents
Brandywine Realty Trust
Schedule II
Schedule II
Valuation and Qualifying Accounts
(in thousands)
(in thousands)
| Balance at | Balance | |||||||||||||||
| Beginning | at End | |||||||||||||||
| Description | of Period | Additions | Deductions (1) | of Period | ||||||||||||
|
Allowance for doubtful accounts:
|
||||||||||||||||
|
|
||||||||||||||||
|
Year ended December 31, 2009
|
$ | 15,474 | $ | 2,596 | $ | 1,707 | $ | 16,363 | ||||||||
|
|
||||||||||||||||
|
Year ended December 31, 2008
|
$ | 10,162 | $ | 6,900 | $ | 1,588 | $ | 15,474 | ||||||||
|
|
||||||||||||||||
|
Year ended December 31, 2007
|
$ | 9,311 | $ | 2,147 | $ | 1,296 | $ | 10,162 | ||||||||
|
|
||||||||||||||||
| (1) | Deductions represent amounts that the Company had fully reserved for in prior periods and pursuit of collection of such amounts was ceased during the period. |
F-42
Table of Contents
BRANDYWINE REALTY TRUST
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||
| City | State | December 31, 2009 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2009 (b) | Construction | Acquired | Life | ||||||||||||||||||||||||||||||||||||
|
PENNSYLVANIA
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
2929 Arch Street
|
Philadelphia | PA | — | — | 208,570 | 17,954 | — | 226,524 | 226,524 | 36,427 | 2005 | N/A | 40 | |||||||||||||||||||||||||||||||||||
|
130 North 18th Street
|
Philadelphia | PA | 89,800 | 14,496 | 107,736 | 9,874 | 14,473 | 117,633 | 132,106 | 20,451 | 1983 | 2004 | 23 | |||||||||||||||||||||||||||||||||||
|
100 North 18th Street
|
Philadelphia | PA | 60,000 | 16,066 | 100,255 | 3,940 | 16,066 | 104,195 | 120,261 | 17,168 | 1988 | 2004 | 33 | |||||||||||||||||||||||||||||||||||
|
150 Radnor Chester Road
|
Radnor | PA | — | 11,925 | 36,986 | 13,064 | 11,897 | 50,078 | 61,975 | 10,691 | 1983 | 2004 | 29 | |||||||||||||||||||||||||||||||||||
|
555 Lancaster Avenue
|
Radnor | PA | — | 8,014 | 16,508 | 25,497 | 8,609 | 41,410 | 50,019 | 10,236 | 1973 | 2004 | 24 | |||||||||||||||||||||||||||||||||||
|
One Radnor Corporate Center
|
Radnor | PA | — | 7,323 | 28,613 | 11,526 | 7,323 | 40,139 | 47,462 | 6,107 | 1998 | 2004 | 29 | |||||||||||||||||||||||||||||||||||
|
201 King of Prussia Road
|
Radnor | PA | — | 8,956 | 29,811 | 5,101 | 8,949 | 34,918 | 43,868 | 8,466 | 2001 | 2004 | 25 | |||||||||||||||||||||||||||||||||||
|
401 Plymouth Road
|
Plymouth Meeting | PA | — | 6,198 | 16,131 | 15,222 | 6,199 | 31,353 | 37,551 | 7,442 | 2001 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
Four Radnor Corporate Center
|
Radnor | PA | — | 5,406 | 21,390 | 8,976 | 5,705 | 30,067 | 35,772 | 6,300 | 1995 | 2004 | 30 | |||||||||||||||||||||||||||||||||||
|
Five Radnor Corporate Center
|
Radnor | PA | — | 6,506 | 25,525 | 1,892 | 6,578 | 27,345 | 33,923 | 4,678 | 1998 | 2004 | 38 | |||||||||||||||||||||||||||||||||||
|
101 West Elm Street
|
W. Conshohocken | PA | — | 6,251 | 25,209 | 1,031 | 6,251 | 26,239 | 32,491 | 3,261 | 1999 | 2005 | 40 | |||||||||||||||||||||||||||||||||||
|
4000 Chemical Road
|
Plymouth Meeting | PA | — | 4,373 | 24,546 | 1,295 | 4,373 | 25,841 | 30,214 | 1,157 | 2007 | N/A | 40 | |||||||||||||||||||||||||||||||||||
|
Three Radnor Corporate Center
|
Radnor | PA | — | 4,773 | 17,961 | 1,250 | 4,791 | 19,192 | 23,984 | 3,766 | 1998 | 2004 | 29 | |||||||||||||||||||||||||||||||||||
|
640 Freedom Business Center
|
King Of Prussia | PA | — | 4,222 | 16,891 | 2,689 | 4,222 | 19,580 | 23,802 | 6,628 | 1991 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
555 Croton Road
|
King of Prussia | PA | — | 4,486 | 17,943 | 1,026 | 4,486 | 18,969 | 23,455 | 4,261 | 1999 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
400 Berwyn Park
|
Berwyn | PA | — | 2,657 | 4,462 | 15,790 | 2,657 | 20,252 | 22,909 | 6,473 | 1999 | 1999 | 40 | |||||||||||||||||||||||||||||||||||
|
630 Allendale Road
|
King of Prussia | PA | — | 2,836 | 4,028 | 15,499 | 2,636 | 19,727 | 22,363 | 7,289 | 2000 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
101 Lindenwood Drive
|
Malvern | PA | — | 4,152 | 16,606 | 1,324 | 4,152 | 17,931 | 22,082 | 4,334 | 1988 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
52 Swedesford Square
|
East Whiteland Twp. | PA | — | 4,241 | 16,579 | 1,002 | 4,241 | 17,581 | 21,822 | 5,771 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
600 West Germantown Pike
|
Plymouth Meeting | PA | 10,626 | 3,652 | 15,288 | 1,456 | 3,652 | 16,744 | 20,396 | 3,685 | 1986 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
630 West Germantown Pike
|
Plymouth Meeting | PA | 10,652 | 3,558 | 14,743 | 2,094 | 3,558 | 16,836 | 20,395 | 3,376 | 1988 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
980 Harvest Drive
|
Blue Bell | PA | — | 3,304 | 16,960 | 0 | 3,304 | 16,961 | 20,264 | 5,098 | 1988 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
Two Radnor Corporate Center
|
Radnor | PA | — | 3,937 | 15,484 | 810 | 3,942 | 16,289 | 20,231 | 3,144 | 1998 | 2004 | 29 | |||||||||||||||||||||||||||||||||||
|
610 West Germantown Pike
|
Plymouth Meeting | PA | 10,682 | 3,651 | 14,514 | 1,921 | 3,651 | 16,434 | 20,086 | 3,588 | 1987 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
620 West Germantown Pike
|
Plymouth Meeting | PA | 10,682 | 3,572 | 14,435 | 1,417 | 3,572 | 15,851 | 19,424 | 3,843 | 1990 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
200 Barr Harbour Drive
|
Conshohocken | PA | 13,557 | 2,827 | 15,525 | 163 | 2,827 | 15,688 | 18,515 | 6,116 | 1999 | 2004 | 40 | |||||||||||||||||||||||||||||||||||
|
1050 Westlakes Drive
|
Berwyn | PA | — | 2,611 | 10,445 | 5,046 | 2,611 | 15,491 | 18,102 | 4,376 | 1984 | 1999 | 40 | |||||||||||||||||||||||||||||||||||
|
1 West Elm Street
|
W. Conshohocken | PA | — | 3,557 | 14,249 | — | 3,557 | 14,347 | 17,904 | 1,526 | 1999 | 2005 | 40 | |||||||||||||||||||||||||||||||||||
|
1200 Swedesford Road
|
Berwyn | PA | 3,255 | 2,595 | 11,809 | 3,370 | 2,595 | 15,178 | 17,774 | 2,189 | 1994 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
181 Washington Street
|
Conshohocken | PA | 10,158 | 2,672 | 14,221 | 812 | 2,673 | 15,032 | 17,705 | 6,688 | 1998 | 2004 | 40 | |||||||||||||||||||||||||||||||||||
|
300 Berwyn Park
|
Berwyn | PA | 10,506 | 2,206 | 13,422 | 1,983 | 2,206 | 15,405 | 17,611 | 5,478 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
620 Freedom Business Center
|
King Of Prussia | PA | — | 2,770 | 11,014 | 3,295 | 2,770 | 14,309 | 17,079 | 5,242 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
1000 First Avenue
|
King Of Prussia | PA | — | 2,772 | 10,936 | 3,177 | 2,772 | 14,113 | 16,885 | 4,494 | 1980 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
1060 First Avenue
|
King Of Prussia | PA | — | 2,712 | 10,953 | 2,609 | 2,712 | 13,562 | 16,274 | 4,279 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
301 Lindenwood Drive
|
Malvern | PA | — | 2,729 | 10,915 | 1,955 | 2,729 | 12,870 | 15,599 | 3,419 | 1984 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
1040 First Avenue
|
King Of Prussia | PA | — | 2,860 | 11,282 | 1,047 | 2,860 | 12,329 | 15,189 | 4,192 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
595 East Swedesford Road
|
Wayne | PA | — | 2,729 | 10,917 | 1,491 | 2,729 | 12,408 | 15,137 | 2,063 | 1998 | 2003 | 40 | |||||||||||||||||||||||||||||||||||
|
630 Freedom Business Center
|
King Of Prussia | PA | — | 2,773 | 11,144 | 978 | 2,773 | 12,122 | 14,895 | 4,203 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
1020 First Avenue
|
King Of Prussia | PA | — | 2,168 | 8,576 | 4,118 | 2,168 | 12,693 | 14,862 | 3,895 | 1984 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
130 Radnor Chester Road
|
Radnor | PA | — | 2,573 | 8,338 | 3,692 | 2,567 | 12,035 | 14,603 | 1,830 | 1983 | 2004 | 25 | |||||||||||||||||||||||||||||||||||
|
170 Radnor Chester Road
|
Radnor | PA | — | 2,514 | 8,147 | 3,340 | 2,509 | 11,493 | 14,001 | 2,246 | 1983 | 2004 | 25 | |||||||||||||||||||||||||||||||||||
|
200 Berwyn Park
|
Berwyn | PA | 7,254 | 1,533 | 9,460 | 2,351 | 1,533 | 11,811 | 13,344 | 4,564 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
575 East Swedesford Road
|
Wayne | PA | — | 2,178 | 8,712 | 1,856 | 2,178 | 10,568 | 12,746 | 1,842 | 1985 | 2003 | 40 | |||||||||||||||||||||||||||||||||||
|
1180 Swedesford Road
|
Berwyn | PA | — | 2,086 | 8,342 | 1,237 | 2,086 | 9,580 | 11,665 | 2,471 | 1987 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
610 Freedom Business Center
|
King Of Prussia | PA | — | 2,017 | 8,070 | 722 | 2,017 | 8,792 | 10,809 | 3,086 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
565 East Swedesford Road
|
Wayne | PA | — | 1,872 | 7,489 | 1,201 | 1,872 | 8,690 | 10,562 | 1,688 | 1984 | 2003 | 40 | |||||||||||||||||||||||||||||||||||
|
1160 Swedesford Road
|
Berwyn | PA | — | 1,781 | 7,124 | 1,245 | 1,781 | 8,369 | 10,150 | 2,248 | 1986 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
100 Berwyn Park
|
Berwyn | PA | 5,580 | 1,180 | 7,290 | 963 | 1,180 | 8,253 | 9,433 | 3,135 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
925 Harvest Drive
|
Blue Bell | PA | — | 1,671 | 6,606 | 1,128 | 1,671 | 7,734 | 9,405 | 2,775 | 1990 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
650 Park Avenue
|
King Of Prussia | PA | — | 1,916 | 4,378 | 2,530 | 1,916 | 6,908 | 8,824 | 2,950 | 1968 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
426 Lancaster Avenue
|
Devon | PA | — | 1,689 | 6,756 | 369 | 1,689 | 7,126 | 8,814 | 2,489 | 1990 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
1100 Cassett Road
|
Berwyn | PA | — | 1,695 | 6,779 | (0 | ) | 1,695 | 6,779 | 8,474 | 1,483 | 1997 | 2001 | 40 | ||||||||||||||||||||||||||||||||||
|
14 Campus Boulevard
|
Newtown Square | PA | 6,725 | 2,244 | 4,217 | 1,734 | 2,244 | 5,951 | 8,195 | 1,648 | 1998 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
500 North Gulph Road
|
King Of Prussia | PA | — | 1,303 | 5,201 | 1,564 | 1,303 | 6,765 | 8,068 | 2,661 | 1979 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
920 Harvest Drive
|
Blue Bell | PA | — | 1,209 | 6,595 | (245 | ) | 1,208 | 6,351 | 7,559 | 2,398 | 1990 | 1998 | 40 | ||||||||||||||||||||||||||||||||||
|
2240/2250 Butler Pike
|
Plymouth Meeting | PA | — | 1,104 | 4,627 | 1,666 | 1,104 | 6,293 | 7,397 | 2,811 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
One Progress Drive
|
Horsham | PA | — | 1,399 | 5,629 | 230 | 1,399 | 5,859 | 7,258 | 2,360 | 1986 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
585 East Swedesford Road
|
Wayne | PA | — | 1,350 | 5,401 | 358 | 1,350 | 5,758 | 7,109 | 902 | 1998 | 2003 | 40 | |||||||||||||||||||||||||||||||||||
|
429 Creamery Way
|
Exton | PA | — | 1,368 | 5,471 | 19 | 1,368 | 5,490 | 6,858 | 1,244 | 1996 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
741 First Avenue
|
King Of Prussia | PA | — | 1,287 | 5,151 | 219 | 1,287 | 5,369 | 6,657 | 1,956 | 1966 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
440 Creamery Way
|
Exton | PA | — | 982 | 3,927 | 1,717 | 982 | 5,644 | 6,626 | 1,508 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
412 Creamery Way
|
Exton | PA | — | 1,195 | 4,779 | 503 | 1,195 | 5,282 | 6,477 | 1,296 | 1999 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
875 First Avenue
|
King Of Prussia | PA | — | 618 | 2,473 | 3,302 | 618 | 5,775 | 6,393 | 2,086 | 1966 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
17 Campus Boulevard
|
Newtown Square | PA | 4,699 | 1,108 | 5,155 | 46 | 1,108 | 5,201 | 6,309 | 2,083 | 2001 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
479 Thomas Jones Way
|
Exton | PA | — | 1,075 | 4,299 | 808 | 1,075 | 5,107 | 6,182 | 1,231 | 1988 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
500 Enterprise Drive
|
Horsham | PA | — | 1,303 | 5,188 | (446 | ) | 1,303 | 4,741 | 6,045 | 1,804 | 1990 | 1996 | 40 | ||||||||||||||||||||||||||||||||||
|
11 Campus Boulevard
|
Newtown Square | PA | 4,610 | 1,112 | 4,067 | 802 | 1,112 | 4,869 | 5,981 | 1,429 | 1998 | 1999 | 40 | |||||||||||||||||||||||||||||||||||
|
Philadelphia Marine Center
|
Philadelphia | PA | — | 532 | 2,196 | 3,249 | 628 | 5,349 | 5,977 | 1,241 | Various | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
467 Creamery Way
|
Exton | PA | — | 906 | 3,623 | 1,365 | 906 | 4,988 | 5,894 | 1,171 | 1988 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
F-43
Table of Contents
BRANDYWINE REALTY TRUST
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||
| City | State | December 31, 2009 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2009 (b) | Construction | Acquired | Life | ||||||||||||||||||||||||||||||||||||
|
300 Lindenwood Drive
|
Malvern | PA | — | 848 | 3,394 | 1,362 | 849 | 4,756 | 5,604 | 1,110 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
436 Creamery Way
|
Exton | PA | — | 994 | 3,978 | 555 | 994 | 4,532 | 5,527 | 1,112 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
751-761 Fifth Avenue
|
King Of Prussia | PA | — | 1,097 | 4,391 | 31 | 1,097 | 4,422 | 5,519 | 1,505 | 1967 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
15 Campus Boulevard
|
Newtown Square | PA | 4,800 | 1,164 | 3,896 | 408 | 1,164 | 4,304 | 5,468 | 1,012 | 2002 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
600 Park Avenue
|
King Of Prussia | PA | — | 1,012 | 4,048 | 385 | 1,012 | 4,433 | 5,445 | 1,443 | 1964 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
620 Allendale Road
|
King Of Prussia | PA | — | 1,020 | 3,839 | 514 | 1,020 | 4,353 | 5,373 | 1,387 | 1961 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
442 Creamery Way
|
Exton | PA | — | 894 | 3,576 | 684 | 894 | 4,260 | 5,154 | 1,100 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
100 Arrandale Boulevard
|
Exton | PA | — | 970 | 3,878 | 274 | 970 | 4,152 | 5,122 | 983 | 1997 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
18 Campus Boulevard
|
Newtown Square | PA | 3,615 | 787 | 3,312 | 461 | 787 | 3,773 | 4,560 | 1,676 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
2260 Butler Pike
|
Plymouth Meeting | PA | — | 661 | 2,727 | 1,103 | 662 | 3,829 | 4,491 | 1,665 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
486 Thomas Jones Way
|
Exton | PA | — | 806 | 3,256 | 339 | 806 | 3,595 | 4,401 | 1,360 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
1700 Paoli Pike
|
Malvern | PA | — | 458 | 559 | 3,281 | 488 | 3,810 | 4,298 | 1,017 | 2000 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
120 West Germantown Pike
|
Plymouth Meeting | PA | — | 685 | 2,773 | 652 | 685 | 3,425 | 4,110 | 1,518 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
457 Creamery Way
|
Exton | PA | — | 777 | 3,107 | 25 | 777 | 3,132 | 3,909 | 699 | 1990 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
1336 Enterprise Drive
|
West Goshen | PA | — | 731 | 2,946 | 47 | 731 | 2,993 | 3,724 | 1,133 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
680 Allendale Road
|
King Of Prussia | PA | — | 689 | 2,756 | 9 | 689 | 2,765 | 3,454 | 946 | 1962 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
456 Creamery Way
|
Exton | PA | — | 635 | 2,548 | (48 | ) | 635 | 2,500 | 3,135 | 1,010 | 1987 | 1996 | 40 | ||||||||||||||||||||||||||||||||||
|
630 Clark Avenue
|
King Of Prussia | PA | — | 547 | 2,190 | 0 | 547 | 2,190 | 2,737 | 746 | 1960 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
140 West Germantown Pike
|
Plymouth Meeting | PA | — | 481 | 1,976 | 264 | 482 | 2,239 | 2,721 | 934 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
468 Thomas Jones Way
|
Exton | PA | — | 526 | 2,112 | 74 | 527 | 2,185 | 2,712 | 926 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
481 John Young Way
|
Exton | PA | — | 496 | 1,983 | 14 | 496 | 1,997 | 2,493 | 435 | 1997 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
100 Lindenwood Drive
|
Malvern | PA | — | 473 | 1,892 | 78 | 473 | 1,970 | 2,443 | 452 | 1985 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
640 Allendale Road
|
King of Prussia | PA | — | 439 | 432 | 1,480 | 439 | 1,912 | 2,351 | 445 | 2000 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
660 Allendale Road
|
King of Prussia | PA | — | 396 | 3,343 | (1,637 | ) | 396 | 1,706 | 2,102 | 821 | 1962 | 1998 | 40 | ||||||||||||||||||||||||||||||||||
|
200 Lindenwood Drive
|
Malvern | PA | — | 324 | 1,295 | 1 | 324 | 1,296 | 1,620 | 284 | 1984 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
351 Plymouth Road
|
Plymouth Meeting | PA | — | 1,043 | 555 | — | 1,043 | 555 | 1,598 | 66 | N/A | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
111 Arrandale Road
|
Exton | PA | — | 262 | 1,048 | 125 | 262 | 1,173 | 1,435 | 287 | 1996 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
922 Swedesford Road
|
Berwyn | PA | — | 218 | — | (218 | ) | — | — | — | — | N/A | N/A | 40 | ||||||||||||||||||||||||||||||||||
|
METROPOLITAN WASHINGTON, D.C.
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
1676 International Drive
|
Mclean | VA | 62,713 | 18,437 | 97,538 | 1,031 | 18,785 | 98,221 | 117,006 | 8,591 | 1999 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
2340 Dulles Corner Boulevard
|
Herndon | VA | — | 16,345 | 65,379 | 18,370 | 16,129 | 83,965 | 100,094 | 10,569 | 1987 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
13820 Sunrise Valley Drive
|
Herndon | VA | — | 11,082 | 47,290 | 19,687 | 11,082 | 66,977 | 78,059 | 1,931 | 2007 | N/A | 40 | |||||||||||||||||||||||||||||||||||
|
7101 Wisconsin Avenue
|
Bethesda | MD | — | 9,634 | 48,402 | 4,825 | 9,816 | 53,045 | 62,860 | 6,396 | 1975 | 2006 | 45 | |||||||||||||||||||||||||||||||||||
|
3130 Fairview Park Drive
|
Falls Church | VA | — | 6,576 | 51,605 | 2,262 | 6,700 | 53,743 | 60,443 | 4,739 | 1999 | 2006 | 53 | |||||||||||||||||||||||||||||||||||
|
2291 Wood Oak Drive
|
Herndon | VA | — | 8,243 | 52,413 | (741 | ) | 8,782 | 51,133 | 59,915 | 4,610 | 1999 | 2006 | 55 | ||||||||||||||||||||||||||||||||||
|
2355 Dulles Corner Boulevard
|
Herndon | VA | — | 10,365 | 43,876 | 5,245 | 10,365 | 49,121 | 59,486 | 5,514 | 1988 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
196/198 Van Buren Street
|
Herndon | VA | — | 7,931 | 43,812 | 7,171 | 8,348 | 50,565 | 58,914 | 6,513 | 1991 | 2006 | 53 | |||||||||||||||||||||||||||||||||||
|
2251 Corporate Park Drive
|
Herndon | VA | — | 11,472 | 45,893 | 42 | 11,472 | 45,936 | 57,407 | 3,636 | 2000 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
2411 Dulles Corner Park
|
Herndon | VA | — | 7,279 | 46,340 | 3,654 | 7,417 | 49,856 | 57,273 | 4,630 | 1990 | 2006 | 50 | |||||||||||||||||||||||||||||||||||
|
1900 Gallows Road
|
Vienna | VA | — | 7,797 | 47,817 | (897 | ) | 7,944 | 46,773 | 54,717 | 3,680 | 1989 | 2006 | 52 | ||||||||||||||||||||||||||||||||||
|
3141 Fairview Park Drive
|
Falls Church | VA | — | 5,918 | 40,981 | 841 | 6,050 | 41,691 | 47,741 | 4,573 | 1988 | 2006 | 51 | |||||||||||||||||||||||||||||||||||
|
13880 Dulles Corner Lane
|
Herndon | VA | — | 7,236 | 39,213 | 640 | 7,373 | 39,716 | 47,089 | 4,728 | 1997 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
6600 Rockledge Drive
|
Bethesda | MD | — | — | 37,421 | 8,329 | — | 45,750 | 45,750 | 4,819 | 1981 | 2006 | 50 | |||||||||||||||||||||||||||||||||||
|
2121 Cooperative Way
|
Herndon | VA | — | 5,598 | 38,639 | 219 | 5,795 | 38,661 | 44,456 | 3,536 | 2000 | 2006 | 54 | |||||||||||||||||||||||||||||||||||
|
8260 Greensboro Drive
|
Mclean | VA | 33,296 | 7,952 | 33,964 | 407 | 8,102 | 34,221 | 42,323 | 3,794 | 1980 | 2006 | 52 | |||||||||||||||||||||||||||||||||||
|
2273 Research Boulevard
|
Rockville | MD | 14,180 | 5,167 | 31,110 | 3,128 | 5,237 | 34,168 | 39,405 | 4,552 | 1999 | 2006 | 45 | |||||||||||||||||||||||||||||||||||
|
2201 Cooperative Way
|
Herndon | VA | — | 4,809 | 34,093 | (1,785 | ) | 4,809 | 32,309 | 37,118 | 2,772 | 1990 | 2006 | 54 | ||||||||||||||||||||||||||||||||||
|
2275 Research Boulevard
|
Rockville | MD | 14,180 | 5,059 | 29,668 | 1,389 | 5,154 | 30,962 | 36,116 | 3,158 | 1990 | 2006 | 45 | |||||||||||||||||||||||||||||||||||
|
8521 Leesburg Pike
|
Vienna | VA | — | 4,316 | 30,885 | (57 | ) | 4,397 | 30,746 | 35,143 | 3,276 | 1984 | 2006 | 51 | ||||||||||||||||||||||||||||||||||
|
1880 Campus Commons Drive
|
Reston | VA | — | 6,164 | 28,114 | 86 | 6,281 | 28,083 | 34,364 | 2,466 | 1985 | 2006 | 52 | |||||||||||||||||||||||||||||||||||
|
2277 Research Boulevard
|
Rockville | MD | 13,163 | 4,649 | 26,952 | (238 | ) | 4,733 | 26,629 | 31,362 | 2,451 | 1986 | 2006 | 45 | ||||||||||||||||||||||||||||||||||
|
12015 Lee Jackson Memorial Highway
|
Fairfax | VA | — | 3,770 | 22,895 | 2,188 | 3,842 | 25,012 | 28,853 | 3,605 | 1985 | 2006 | 42 | |||||||||||||||||||||||||||||||||||
|
11720 Beltsville Drive
|
Beltsville | MD | — | 3,831 | 16,661 | 4,660 | 3,904 | 21,248 | 25,151 | 2,913 | 1987 | 2006 | 46 | |||||||||||||||||||||||||||||||||||
|
11781 Lee Jackson Memorial Highway
|
Fairfax | VA | — | 3,246 | 19,836 | (229 | ) | 3,307 | 19,546 | 22,853 | 2,611 | 1982 | 2006 | 40 | ||||||||||||||||||||||||||||||||||
|
13825 Sunrise Valley Drive
|
Herndon | VA | — | 3,794 | 19,365 | (1,376 | ) | 3,866 | 17,917 | 21,783 | 1,590 | 1989 | 2006 | 46 | ||||||||||||||||||||||||||||||||||
|
11700 Beltsville Drive
|
Beltsville | MD | — | 2,808 | 12,081 | 743 | 2,863 | 12,769 | 15,632 | 1,707 | 1981 | 2006 | 46 | |||||||||||||||||||||||||||||||||||
|
4401 Fair Lakes Court
|
Fairfax | VA | — | 1,569 | 11,982 | (142 | ) | 1,599 | 11,810 | 13,409 | 1,171 | 1988 | 2006 | 52 | ||||||||||||||||||||||||||||||||||
|
11710 Beltsville Drive
|
Beltsville | MD | — | 2,278 | 11,100 | (709 | ) | 2,321 | 10,348 | 12,669 | 1,359 | 1987 | 2006 | 46 | ||||||||||||||||||||||||||||||||||
|
3141 Fairview Park Drive — I
|
Falls Church | VA | — | 733 | 4,939 | (100 | ) | 733 | 4,838 | 5,572 | 386 | 1988 | 2006 | 51 | ||||||||||||||||||||||||||||||||||
|
3141 Fairview Park Drive — II
|
Falls Church | VA | — | 297 | 1,964 | 0 | 297 | 1,964 | 2,261 | 157 | 1988 | 2006 | 51 | |||||||||||||||||||||||||||||||||||
|
11740 Beltsville Drive
|
Bethesda | MD | — | 198 | 870 | 18 | 202 | 884 | 1,086 | 75 | 1987 | 2006 | 46 | |||||||||||||||||||||||||||||||||||
|
NEW JERSEY/DELAWARE
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
920 North King Street
|
Wilmington | DE | — | 6,141 | 21,140 | 1,081 | 6,141 | 22,221 | 28,362 | 4,529 | 1989 | 2004 | 30 | |||||||||||||||||||||||||||||||||||
|
1009 Lenox Drive
|
Lawrenceville | NJ | — | 4,876 | 19,284 | 4,020 | 5,118 | 23,063 | 28,180 | 7,914 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
300 Delaware Avenue
|
Wilmington | DE | — | 6,368 | 13,739 | 2,614 | 6,369 | 16,353 | 22,721 | 4,168 | 1989 | 2004 | 23 | |||||||||||||||||||||||||||||||||||
|
525 Lincoln Drive West
|
Marlton | NJ | — | 3,727 | 17,620 | 1,009 | 3,727 | 18,630 | 22,356 | 4,090 | 1986 | 2004 | 40 | |||||||||||||||||||||||||||||||||||
|
700 East Gate Drive
|
Mt. Laurel | NJ | — | 3,569 | 14,436 | 2,153 | 3,569 | 16,590 | 20,158 | 5,362 | 1984 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
989 Lenox Drive
|
Lawrenceville | NJ | — | 3,701 | 14,802 | 1,481 | 3,850 | 16,134 | 19,984 | 2,839 | 1984 | 2003 | 40 | |||||||||||||||||||||||||||||||||||
|
10000 Midlantic Drive
|
Mt. Laurel | NJ | — | 3,206 | 12,857 | 2,613 | 3,206 | 15,470 | 18,676 | 6,307 | 1990 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
One Righter Parkway
|
Wilmington | DE | 9,227 | 2,545 | 10,195 | 5,456 | 2,545 | 15,651 | 18,196 | 5,871 | 1989 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
Main Street — Plaza 1000
|
Voorhees | NJ | — | 2,732 | 10,942 | 4,127 | 2,732 | 15,069 | 17,801 | 6,463 | 1988 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
2000 Lenox Drive
|
Lawrenceville | NJ | 10,496 | 2,291 | 12,221 | 3,210 | 2,684 | 15,038 | 17,722 | 6,400 | 2000 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
F-44
Table of Contents
BRANDYWINE REALTY TRUST
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||
| City | State | December 31, 2009 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2009 (b) | Construction | Acquired | Life | ||||||||||||||||||||||||||||||||||||
|
Two Righter Parkway
|
Wilmington | DE | — | 2,802 | 11,217 | 3,460 | 2,802 | 14,677 | 17,479 | 955 | 1987 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
15000 Midlantic Drive
|
Mt. Laurel | NJ | — | 3,061 | 12,254 | 1,106 | 3,061 | 13,360 | 16,421 | 4,889 | 1991 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
997 Lenox Drive
|
Lawrenceville | NJ | 7,917 | 2,410 | 9,700 | 4,140 | 2,540 | 13,710 | 16,250 | 4,021 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
993 Lenox Drive
|
Lawrenceville | NJ | 9,792 | 2,811 | 17,996 | (5,484 | ) | 2,960 | 12,363 | 15,323 | 4,372 | 1985 | 1998 | 40 | ||||||||||||||||||||||||||||||||||
|
1200 Lenox Drive
|
Lawrenceville | NJ | — | 1,071 | 12,967 | 851 | 1,071 | 13,817 | 14,889 | 549 | 2007 | N/A | 40 | |||||||||||||||||||||||||||||||||||
|
1000 Atrium Way
|
Mt. Laurel | NJ | — | 2,061 | 8,180 | 3,962 | 2,061 | 12,142 | 14,203 | 3,848 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
1120 Executive Boulevard
|
Marlton | NJ | — | 2,074 | 8,415 | 2,239 | 2,074 | 10,654 | 12,728 | 4,465 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
1000 Howard Boulevard
|
Mt. Laurel | NJ | — | 2,297 | 9,288 | 965 | 2,297 | 10,253 | 12,550 | 4,151 | 1988 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
400 Commerce Drive
|
Newark | DE | — | 2,528 | 9,220 | 733 | 2,528 | 9,953 | 12,481 | 2,262 | 1997 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
220 Lake Drive East
|
Cherry Hill | NJ | — | 2,144 | 8,798 | 878 | 2,144 | 9,676 | 11,820 | 2,417 | 1988 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
200 Lake Drive East
|
Cherry Hill | NJ | — | 2,069 | 8,275 | 1,474 | 2,069 | 9,749 | 11,818 | 2,752 | 1989 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
457 Haddonfield Road
|
Cherry Hill | NJ | 11,774 | 2,142 | 9,120 | 329 | 2,142 | 9,449 | 11,591 | 4,092 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
2000 Midlantic Drive
|
Mt. Laurel | NJ | 10,717 | 2,202 | 8,823 | 60 | 2,203 | 8,882 | 11,085 | 3,270 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
10 Lake Center Drive
|
Marlton | NJ | — | 1,880 | 7,521 | 1,619 | 1,880 | 9,140 | 11,020 | 2,534 | 1989 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
100 Lenox Drive
|
Lawrenceville | NJ | — | — | — | 10,771 | 1,134 | 9,637 | 10,771 | 539 | 1977 | 1999 | N/A | |||||||||||||||||||||||||||||||||||
|
701 East Gate Drive
|
Mt. Laurel | NJ | — | 1,736 | 6,877 | 1,005 | 1,736 | 7,882 | 9,618 | 2,785 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
210 Lake Drive East
|
Cherry Hill | NJ | — | 1,645 | 6,579 | 759 | 1,645 | 7,338 | 8,983 | 1,906 | 1986 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
308 Harper Drive
|
Moorestown | NJ | — | 1,643 | 6,663 | 219 | 1,644 | 6,881 | 8,525 | 2,209 | 1976 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
305 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,421 | 5,768 | 1,265 | 1,421 | 7,033 | 8,454 | 2,466 | 1980 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
307 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,565 | 6,342 | 449 | 1,565 | 6,792 | 8,356 | 2,259 | 1981 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
303 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,493 | 6,055 | 652 | 1,494 | 6,707 | 8,200 | 2,194 | 1979 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
309 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,518 | 6,154 | 397 | 1,518 | 6,551 | 8,069 | 2,087 | 1982 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
1000 Lenox Drive
|
Lawrenceville | NJ | — | 1,174 | 4,696 | 2,180 | 1,244 | 6,806 | 8,050 | 2,033 | 1982 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
1000 Bishops Gate
|
Mt. Laurel | NJ | — | 934 | 6,287 | — | 934 | 6,883 | 7,817 | 1,612 | 2005 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
9000 Midlantic Drive
|
Mt. Laurel | NJ | 5,926 | 1,472 | 5,895 | 95 | 1,472 | 5,990 | 7,462 | 2,230 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
6 East Clementon Road
|
Gibbsboro | NJ | — | 1,345 | 5,366 | 350 | 1,345 | 5,716 | 7,061 | 2,015 | 1980 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
Three Greentree Centre
|
Marlton | NJ | — | 323 | 6,024 | 607 | 324 | 6,631 | 6,954 | 4,930 | 1984 | 1986 | 40 | |||||||||||||||||||||||||||||||||||
|
100 Commerce Drive
|
Newark | DE | — | 1,160 | 4,633 | 849 | 1,160 | 5,482 | 6,642 | 2,139 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
200 Commerce Drive
|
Newark | DE | — | 911 | 4,414 | 1,018 | 911 | 5,432 | 6,343 | 1,340 | 1998 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
30 Lake Center Drive
|
Marlton | NJ | — | 1,043 | 4,171 | 912 | 1,043 | 5,084 | 6,126 | 1,310 | 1986 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
161 Gaither Drive
|
Mount Laurel | NJ | — | 1,016 | 4,064 | 714 | 1,016 | 4,778 | 5,794 | 1,183 | 1987 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
Two Greentree Centre
|
Marlton | NJ | — | 264 | 4,693 | 694 | 264 | 5,387 | 5,651 | 3,616 | 1983 | 1986 | 40 | |||||||||||||||||||||||||||||||||||
|
One Greentree Centre
|
Marlton | NJ | — | 345 | 4,440 | 590 | 345 | 5,030 | 5,375 | 3,365 | 1982 | 1986 | 40 | |||||||||||||||||||||||||||||||||||
|
Two Eves Drive
|
Marlton | NJ | — | 818 | 3,461 | 43 | 818 | 3,503 | 4,322 | 1,326 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
4000 Midlantic Drive
|
Mt. Laurel | NJ | 4,133 | 714 | 5,085 | (1,524 | ) | 714 | 3,561 | 4,275 | 1,412 | 1998 | 1997 | 40 | ||||||||||||||||||||||||||||||||||
|
20 East Clementon Road
|
Gibbsboro | NJ | — | 769 | 3,055 | 281 | 769 | 3,336 | 4,105 | 1,201 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
Five Eves Drive
|
Marlton | NJ | — | 703 | 2,819 | 491 | 703 | 3,310 | 4,013 | 1,303 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
8000 Lincoln Drive
|
Marlton | NJ | — | 606 | 2,887 | 303 | 606 | 3,189 | 3,796 | 1,442 | 1997 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
304 Harper Drive
|
Moorestown | NJ | — | 657 | 2,674 | 418 | 657 | 3,092 | 3,749 | 1,076 | 1975 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
Main Street — Piazza
|
Voorhees | NJ | — | 696 | 2,802 | 151 | 696 | 2,953 | 3,649 | 1,158 | 1990 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
815 East Gate Drive
|
Mt. Laurel | NJ | — | 636 | 2,584 | 307 | 636 | 2,891 | 3,527 | 995 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
817 East Gate Drive
|
Mt. Laurel | NJ | — | 611 | 2,426 | 360 | 611 | 2,785 | 3,397 | 886 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
Four B Eves Drive
|
Marlton | NJ | — | 588 | 2,369 | 381 | 588 | 2,749 | 3,338 | 1,148 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
Four A Eves Drive
|
Marlton | NJ | — | 539 | 2,168 | 142 | 539 | 2,310 | 2,849 | 876 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
Main Street — Promenade
|
Voorhees | NJ | — | 531 | 2,052 | 55 | 532 | 2,107 | 2,638 | 805 | 1988 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
10 Foster Avenue
|
Gibbsboro | NJ | — | 244 | 971 | 265 | 244 | 1,236 | 1,480 | 492 | 1983 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
7 Foster Avenue
|
Gibbsboro | NJ | — | 231 | 921 | 94 | 231 | 1,014 | 1,246 | 391 | 1983 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
50 East Clementon Road
|
Gibbsboro | NJ | — | 114 | 964 | 3 | 114 | 967 | 1,081 | 338 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
4 Foster Avenue
|
Gibbsboro | NJ | — | 183 | 726 | 37 | 183 | 763 | 946 | 280 | 1974 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
2 Foster Avenue
|
Gibbsboro | NJ | — | 185 | 730 | 24 | 185 | 754 | 939 | 269 | 1974 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
1 Foster Avenue
|
Gibbsboro | NJ | — | 93 | 364 | 63 | 93 | 428 | 520 | 157 | 1972 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
5 U.S. Avenue
|
Gibbsboro | NJ | — | 21 | 81 | 3 | 21 | 84 | 105 | 29 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
5 Foster Avenue
|
Gibbsboro | NJ | — | 9 | 32 | 26 | 9 | 58 | 67 | 19 | 1968 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
RICHMOND
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
300 Arboretum Place
|
Richmond | VA | 12,156 | 5,450 | 21,892 | 3,089 | 5,450 | 24,982 | 30,431 | 7,830 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
7501 Boulders View Drive
|
Richmond | VA | — | 4,669 | 19,699 | 474 | 4,925 | 19,917 | 24,842 | 1,234 | 1990 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
7300 Beaufont Springs Drive
|
Richmond | VA | — | 4,672 | 19,689 | 306 | 4,922 | 19,745 | 24,667 | 1,196 | 2000 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
6800 Paragon Place
|
Richmond | VA | — | 4,552 | 18,414 | 975 | 4,552 | 19,389 | 23,941 | 1,790 | 1986 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
6802 Paragon Place
|
Richmond | VA | — | 2,917 | 11,454 | 1,890 | 2,917 | 13,344 | 16,261 | 3,080 | 1989 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
1025 Boulders Parkway
|
Richmond | VA | — | 2,574 | 11,297 | 738 | 2,824 | 11,785 | 14,609 | 836 | 1994 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
F-45
Table of Contents
BRANDYWINE REALTY TRUST
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||
| City | State | December 31, 2009 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2009 (b) | Construction | Acquired | Life | ||||||||||||||||||||||||||||||||||||
|
2100-2116 West Laburnam Avenue
|
Richmond | VA | — | 2,482 | 8,846 | 2,533 | 2,482 | 11,378 | 13,861 | 3,618 | 1976 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
7325 Beaufont Springs Drive
|
Richmond | VA | — | 2,344 | 10,377 | 502 | 2,594 | 10,629 | 13,223 | 672 | 1999 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
7401 Beaufont Springs Drive
|
Richmond | VA | — | 2,349 | 10,396 | 276 | 2,599 | 10,422 | 13,021 | 632 | 1998 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
6806 Paragon Place
|
Richmond | VA | — | — | 10,288 | 809 | 403 | 10,695 | 11,097 | 1,473 | 2007 | 2005 | 40 | |||||||||||||||||||||||||||||||||||
|
9011 Arboretum Parkway
|
Richmond | VA | — | 1,857 | 7,702 | 877 | 1,857 | 8,579 | 10,436 | 2,799 | 1991 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
4805 Lake Brooke Drive
|
Glen Allen | VA | — | 1,640 | 6,567 | 1,373 | 1,640 | 7,939 | 9,580 | 2,534 | 1996 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
4364 South Alston Avenue
|
Durham | NC | — | 1,622 | 6,419 | 910 | 1,581 | 7,370 | 8,951 | 2,694 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2511 Brittons Hill Road
|
Richmond | VA | — | 1,202 | 4,820 | 1,863 | 1,202 | 6,683 | 7,885 | 2,329 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
9100 Arboretum Parkway
|
Richmond | VA | 3,313 | 1,362 | 5,489 | 590 | 1,362 | 6,079 | 7,441 | 1,948 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
100 Gateway Centre Parkway
|
Richmond | VA | — | 391 | 5,410 | 760 | 391 | 6,170 | 6,561 | 1,231 | 2001 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2812 Emerywood Parkway
|
Henrico | VA | — | 1,069 | 4,281 | 984 | 1,069 | 5,265 | 6,334 | 1,845 | 1980 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
9210 Arboretum Parkway
|
Richmond | VA | 2,747 | 1,110 | 4,474 | 457 | 1,110 | 4,931 | 6,041 | 1,611 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
9200 Arboretum Parkway
|
Richmond | VA | 2,831 | 985 | 3,973 | 993 | 985 | 4,966 | 5,951 | 1,389 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
1957 Westmoreland Street
|
Richmond | VA | — | 1,061 | 4,241 | 224 | 1,061 | 4,465 | 5,526 | 1,389 | 1975 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2201-2245 Tomlynn Street
|
Richmond | VA | — | 1,020 | 4,067 | 370 | 1,020 | 4,437 | 5,457 | 1,430 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
9211 Arboretum Parkway
|
Richmond | VA | — | 582 | 2,433 | 224 | 582 | 2,658 | 3,239 | 884 | 1991 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2248 Dabney Road
|
Richmond | VA | — | 512 | 2,049 | 234 | 512 | 2,283 | 2,795 | 793 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2221-2245 Dabney Road
|
Richmond | VA | — | 530 | 2,123 | 140 | 530 | 2,263 | 2,793 | 794 | 1994 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2244 Dabney Road
|
Richmond | VA | — | 550 | 2,203 | 37 | 550 | 2,240 | 2,790 | 727 | 1993 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2212-2224 Tomlynn Street
|
Richmond | VA | — | 502 | 2,014 | 157 | 502 | 2,170 | 2,673 | 714 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2277 Dabney Road
|
Richmond | VA | — | 507 | 2,034 | 15 | 507 | 2,049 | 2,556 | 662 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2161-2179 Tomlynn Street
|
Richmond | VA | — | 423 | 1,695 | 269 | 423 | 1,964 | 2,387 | 701 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2246 Dabney Road
|
Richmond | VA | — | 455 | 1,822 | 18 | 455 | 1,840 | 2,295 | 593 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2256 Dabney Road
|
Richmond | VA | — | 356 | 1,427 | 379 | 356 | 1,806 | 2,162 | 653 | 1982 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2251 Dabney Road
|
Richmond | VA | — | 387 | 1,552 | 111 | 387 | 1,663 | 2,050 | 535 | 1983 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2130-2146 Tomlynn Street
|
Richmond | VA | — | 353 | 1,416 | 194 | 353 | 1,609 | 1,963 | 578 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2120 Tomlynn Street
|
Richmond | VA | — | 281 | 1,125 | 106 | 281 | 1,231 | 1,512 | 384 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2240 Dabney Road
|
Richmond | VA | — | 264 | 1,059 | 11 | 265 | 1,068 | 1,334 | 344 | 1984 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
Boulders Land
|
Richmond | VA | — | 1,256 | — | 0 | 1,256 | — | 1,256 | — | NA | 2007 | N/A | |||||||||||||||||||||||||||||||||||
|
CALIFORNIA
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
155 Grand Avenue
|
Oakland | CA | — | 13,556 | 54,266 | 3,148 | 13,557 | 57,413 | 70,970 | 3,650 | 1990 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
5780 & 5790 Fleet Street
|
Carlsbad | CA | — | 7,073 | 22,907 | 2,854 | 7,517 | 25,317 | 32,834 | 2,485 | 1999 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
1200 Concord Avenue
|
Concord | CA | 18,320 | 6,395 | 24,664 | 640 | 6,515 | 25,183 | 31,698 | 6,635 | 1984 | 2006 | 34 | |||||||||||||||||||||||||||||||||||
|
1220 Concord Avenue
|
Concord | CA | 18,327 | 6,476 | 24,966 | 215 | 6,476 | 25,180 | 31,656 | 6,777 | 1984 | 2006 | 34 | |||||||||||||||||||||||||||||||||||
|
16870 W Bernardo Drive
|
San Diego | CA | — | 2,979 | 15,896 | 1,407 | 3,155 | 17,127 | 20,282 | 1,745 | 2002 | 2006 | 56 | |||||||||||||||||||||||||||||||||||
|
5900 & 5950 La Place Court
|
Carlsbad | CA | — | 3,706 | 11,185 | 1,537 | 3,956 | 12,472 | 16,428 | 1,397 | 1988 | 2006 | 48 | |||||||||||||||||||||||||||||||||||
|
5963 La Place Court
|
Carlsbad | CA | — | 2,824 | 9,413 | 1,619 | 3,000 | 10,856 | 13,856 | 1,121 | 1987 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
5973 Avenida Encinas
|
Carlsbad | CA | — | 2,121 | 8,361 | 1,216 | 2,257 | 9,441 | 11,698 | 1,220 | 1986 | 2006 | 45 | |||||||||||||||||||||||||||||||||||
|
2035 Corte Del Nogal
|
Carlsbad | CA | — | 3,261 | 6,077 | 1,026 | 3,500 | 6,865 | 10,364 | 1,034 | 1991 | 2006 | 39 | |||||||||||||||||||||||||||||||||||
|
Two Kaiser Plaza
|
Oakland | CA | — | 7,841 | — | — | 7,841 | — | 7,841 | — | N/A | 2006 | N/A | |||||||||||||||||||||||||||||||||||
|
Oakland Lot B
|
Oakland | CA | — | 4,342 | — | (0 | ) | 4,342 | — | 4,342 | — | N/A | 2006 | N/A | ||||||||||||||||||||||||||||||||||
|
AUSTIN
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
1250 Capital of Texas Hwy South
|
Austin | TX | — | 5,152 | 37,928 | 3,798 | 5,251 | 41,628 | 46,878 | 5,107 | 1984 | 2006 | 52 | |||||||||||||||||||||||||||||||||||
|
1301 Mopac Expressway
|
Austin | TX | — | 4,188 | 41,229 | 266 | 4,251 | 41,432 | 45,683 | 4,354 | 2001 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
1601 Mopac Expressway
|
Austin | TX | — | 3,538 | 34,346 | 2,241 | 3,606 | 36,520 | 40,126 | 5,324 | 2000 | 2006 | 54 | |||||||||||||||||||||||||||||||||||
|
1501 South Mopac Expressway
|
Austin | TX | — | 3,698 | 34,912 | (2,352 | ) | 3,769 | 32,489 | 36,257 | 2,535 | 1999 | 2006 | 53 | ||||||||||||||||||||||||||||||||||
|
1221 Mopac Expressway
|
Austin | TX | — | 3,290 | 31,548 | 89 | 3,370 | 31,556 | 34,926 | 3,000 | 2001 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
3711 South Mopac Expressway — I
|
Austin | TX | — | 1,688 | 21,011 | 2,884 | 1,689 | 23,894 | 25,583 | 103 | 2007 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
3711 South Mopac Expressway — II
|
Austin | TX | — | 1,688 | 19,229 | 2,640 | 1,689 | 21,868 | 23,557 | 1,524 | 2007 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
1177 East Beltline Road
|
Coppell | TX | 19,311 | 1,516 | 14,895 | 8 | 1,517 | 14,903 | 16,420 | 2,547 | 1998 | 2006 | 42 | |||||||||||||||||||||||||||||||||||
|
1801 Mopac Expressway
|
Austin | TX | — | 1,227 | 10,959 | 469 | 1,250 | 11,405 | 12,655 | 1,114 | 1999 | 2006 | 53 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Total:
|
$ | 551,720 | $ | 680,832 | $ | 3,396,822 | $ | 434,271 | $ | 690,441 | $ | 3,822,177 | $ | 4,512,618 | $ | 716,956 | ||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
F-46
Table of Contents
| (a) | Reconciliation of Real Estate: |
The following table reconciles the real estate investments from January 1, 2007 to
December 31, 2009 (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Balance at beginning of year
|
$ | 4,608,320 | $ | 4,825,747 | $ | 4,939,489 | ||||||
|
|
||||||||||||
|
Additions:
|
||||||||||||
|
Acquisitions
|
— | 122 | 158,399 | |||||||||
|
Capital expenditures
|
80,506 | 247,345 | 179,691 | |||||||||
|
|
||||||||||||
|
Less:
|
||||||||||||
|
Dispositions
|
(176,208 | ) | (464,894 | ) | (451,832 | ) | ||||||
|
|
||||||||||||
|
Balance at end of year
|
$ | 4,512,618 | $ | 4,608,320 | $ | 4,825,747 | ||||||
|
|
||||||||||||
The
aggregate cost for federal income tax purposes is $4.6 billion as of December 31, 2009
| (b) | Reconciliation of Accumulated Depreciation: |
The following table reconciles the
accumulated depreciation on real estate
investments from
January 1, 2007 to December 31, 2009 (in
thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Balance at beginning of year
|
$ | 639,688 | $ | 558,908 | $ | 515,698 | ||||||
|
|
||||||||||||
|
Additions:
|
||||||||||||
|
Depreciation expense — continued operations
|
141,309 | 144,631 | 167,160 | |||||||||
|
Depreciation expense — discontinued operations
|
6,494 | 6,494 | 4,748 | |||||||||
|
|
||||||||||||
|
Less:
|
||||||||||||
|
Dispositions
|
(70,535 | ) | (70,345 | ) | (128,698 | ) | ||||||
|
|
||||||||||||
|
Balance at end of year
|
$ | 716,956 | $ | 639,688 | $ | 558,908 | ||||||
|
|
||||||||||||
F-47
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Partners of Brandywine Operating Partnership:
In our opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial position of Brandywine
Operating Partnership and its subsidiaries (the “Partnership”) at December 31, 2009 and 2008, and
the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2009 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedules listed in the
index appearing under Item 15(a)(2) present fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial
statements. Also in our opinion, the Partnership maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on criteria established in
Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Partnership’s management is responsible for these financial
statements and financial statement schedules, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Report on Internal Control over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions on these financial statements, on the
financial statement schedules and on the Partnership’s internal control over financial reporting
based on our integrated audits. We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
As
discussed in Note 2 to the consolidated financial statements, as of
January 1, 2009, the Partnership changed the way it accounts for
convertible debt instruments that may be settled in cash upon
conversion and the way it accounts for non-controlling interests.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control Over Financial Reporting, management has
excluded the Partnership’s investments in Four and Six Tower Bridge Associates from its assessment
of internal control over financial reporting as of December 31, 2009 because the Partnership does
not have the right and authority to assess the internal control over financial reporting of the
individual entities and it lacks the ability to influence or modify the internal control over
financial reporting of the individual entities. Four and Six Tower Bridge Associates are two real
estate partnerships, created prior to December 13, 2003, which the Partnership started
consolidating in accordance with the accounting standard for the consolidation of variable interest
entities on March 31, 2004. We have also excluded Four and Six Tower Bridge Associates from our
audit of internal control over financial reporting. The total assets and total revenue of Four and
Six Tower Bridge Associates represent, in the aggregate less than 1% and 1%, respectively, of the
Partnership’s consolidated financial statement amounts as of and for the year ended December 31,
2009.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 1, 2010
Philadelphia, Pennsylvania
March 1, 2010
F-48
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit and per unit information)
| December 31, | ||||||||
| 2009 | 2008 (as adjusted) | |||||||
|
Real estate investments:
|
||||||||
|
Operating properties
|
$ | 4,512,618 | $ | 4,608,320 | ||||
|
Accumulated depreciation
|
(716,956 | ) | (639,688 | ) | ||||
|
|
||||||||
|
Operating real estate investments, net
|
3,795,662 | 3,968,632 | ||||||
|
Construction-in-progress
|
271,962 | 122,219 | ||||||
|
Land inventory
|
97,368 | 100,516 | ||||||
|
|
||||||||
|
Total real estate invesmtents, net
|
4,164,992 | 4,191,367 | ||||||
|
|
||||||||
|
Cash and cash equivalents
|
1,567 | 3,924 | ||||||
|
Cash in escrow
|
— | 31,385 | ||||||
|
Accounts receivable, net
|
10,934 | 16,413 | ||||||
|
Accrued rent receivable, net
|
87,173 | 86,362 | ||||||
|
Investment in real estate ventures, at equity
|
75,458 | 71,028 | ||||||
|
Deferred costs, net
|
106,097 | 89,327 | ||||||
|
Intangible assets, net
|
105,163 | 145,757 | ||||||
|
Notes receivable
|
59,008 | 48,048 | ||||||
|
Other assets
|
53,358 | 59,008 | ||||||
|
|
||||||||
|
|
||||||||
|
Total assets
|
$ | 4,663,750 | $ | 4,742,619 | ||||
|
|
||||||||
|
|
||||||||
|
LIABILITIES AND BENEFICIARIES’ EQUITY
|
||||||||
|
Mortgage notes payable
|
$ | 551,720 | $ | 487,525 | ||||
|
Borrowing under credit facilities
|
92,000 | 153,000 | ||||||
|
Unsecured term loan
|
183,000 | 183,000 | ||||||
|
Unsecured senior notes, net of discounts
|
1,627,857 | 1,917,970 | ||||||
|
Accounts payable and accrued expenses
|
88,599 | 79,475 | ||||||
|
Distributions payable
|
21,799 | 29,288 | ||||||
|
Tenant security deposits and deferred rents
|
58,572 | 58,692 | ||||||
|
Acquired below market leases, net
|
37,087 | 47,626 | ||||||
|
Deferred income
|
47,379 | 24,271 | ||||||
|
Other liabilities
|
33,997 | 39,274 | ||||||
|
|
||||||||
|
Total liabilities
|
2,742,010 | 3,020,121 | ||||||
|
|
||||||||
|
Commitments and contingencies (Note 20)
|
||||||||
|
Redeemable limited partnership units at redemption value;
2,809,108 and 2,816,621 issued and outstanding in 2009 and 2008, respectively |
44,620 | 54,166 | ||||||
|
Brandywine Operating Partnership’s equity:
|
||||||||
|
7.50%
Series D Preferred Mirror Units; issued and outstanding —
2,000,000 in 2009 and 2008
|
47,912 | 47,912 | ||||||
|
7.375%
Series E Preferred Mirror Units; issued and outstanding —
2,300,000 in 2009 and 2008
|
55,538 | 55,538 | ||||||
|
General Partnership Capital, 128,849,176 and 88,610,053 units issued in 2009
and 2008, respectively and 128,582,334 and
88,158,937 units outstanding
in 2009 and 2008, respectively
|
1,783,033 | 1,581,887 | ||||||
|
Accumulated other comprehensive loss
|
(9,428 | ) | (17,005 | ) | ||||
|
|
||||||||
|
Total Brandywine Operating Partnership’s equity
|
1,877,055 | 1,668,332 | ||||||
|
Non-controlling interest — consolidated real estate ventures
|
65 | — | ||||||
|
|
||||||||
|
Total Equity
|
1,877,120 | 1,668,332 | ||||||
|
|
||||||||
|
Total liabilities and partners’ equity
|
$ | 4,663,750 | $ | 4,742,619 | ||||
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-49
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit and per unit information)
| Years ended December 31, | ||||||||||||
| 2009 | 2008 (as adjusted) | 2007 (as adjusted) | ||||||||||
|
Revenue:
|
||||||||||||
|
Rents
|
$ | 478,228 | $ | 483,212 | $ | 493,309 | ||||||
|
Tenant reimbursements
|
79,796 | 78,090 | 75,821 | |||||||||
|
Termination fees
|
3,601 | 4,800 | 10,053 | |||||||||
|
Third party management fees, labor reimbursement and leasing
|
17,151 | 20,401 | 19,691 | |||||||||
|
Other
|
3,443 | 2,918 | 5,937 | |||||||||
|
|
||||||||||||
|
Total revenue
|
582,219 | 589,421 | 604,811 | |||||||||
|
|
||||||||||||
|
Operating Expenses:
|
||||||||||||
|
Property operating expenses
|
168,159 | 160,770 | 162,590 | |||||||||
|
Real estate taxes
|
58,230 | 58,649 | 57,586 | |||||||||
|
Third party management expenses
|
7,996 | 8,965 | 10,361 | |||||||||
|
Depreciation and amortization
|
208,590 | 202,043 | 219,553 | |||||||||
|
General & administrative expenses
|
20,821 | 23,002 | 27,932 | |||||||||
|
Provision for impairment on land inventory
|
— | 10,841 | — | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total operating expenses
|
463,796 | 464,270 | 478,022 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Operating income
|
118,423 | 125,151 | 126,789 | |||||||||
|
|
||||||||||||
|
Other Income (Expense):
|
||||||||||||
|
Interest income
|
2,500 | 1,839 | 4,014 | |||||||||
|
Interest expense
|
(135,740 | ) | (146,646 | ) | (161,150 | ) | ||||||
|
Interest expense — amortization of deferred financing costs
|
(5,864 | ) | (5,450 | ) | (4,496 | ) | ||||||
|
Loss on settlement of treasury lock agreements
|
— | — | (3,698 | ) | ||||||||
|
Recognized hedge activity
|
(916 | ) | — | — | ||||||||
|
Equity in income of real estate ventures
|
4,069 | 8,447 | 6,955 | |||||||||
|
Net gain on sale of interests in depreciated real estate
|
— | — | 40,919 | |||||||||
|
Net (loss) gain on sale of interests in undepreciated real estate
|
— | (24 | ) | — | ||||||||
|
Gain on early extinguishment of debt
|
23,176 | 18,105 | — | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Income from continuing operations
|
5,648 | 1,422 | 9,333 | |||||||||
|
|
||||||||||||
|
Discontinued operations:
|
||||||||||||
|
Income from discontinued operations
|
4,903 | 15,456 | 20,259 | |||||||||
|
Net gain on disposition of discontinued operations
|
1,238 | 28,497 | 25,743 | |||||||||
|
Provision for impairment
|
(3,700 | ) | (6,850 | ) | — | |||||||
|
|
||||||||||||
|
Total discontinued operations
|
2,441 | 37,103 | 46,002 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net income
|
8,089 | 38,525 | 55,335 | |||||||||
|
|
||||||||||||
|
Net (income) attributable to non-controlling interests
|
(30 | ) | (127 | ) | (465 | ) | ||||||
|
|
||||||||||||
|
Net income attributable to Brandywine Operating Partnership
|
8,059 | 38,398 | 54,870 | |||||||||
|
|
||||||||||||
|
Distribution to Preferred Shares
|
(7,992 | ) | (7,992 | ) | (7,992 | ) | ||||||
|
Amount allocated to unvested restricted shareholders
|
(279 | ) | (763 | ) | (765 | ) | ||||||
|
|
||||||||||||
|
Income allocated to Common Partnership Units
|
$ | (212 | ) | $ | 29,643 | $ | 46,113 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic earnings per Common Partnership Units:
|
||||||||||||
|
Continuing operations
|
$ | (0.02 | ) | $ | (0.08 | ) | $ | 0.01 | ||||
|
Discontinued operations
|
0.02 | 0.41 | 0.48 | |||||||||
|
|
||||||||||||
|
|
$ | — | $ | 0.33 | $ | 0.49 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Diluted earnings per Common Partnership Units:
|
||||||||||||
|
Continuing operations
|
$ | (0.02 | ) | $ | (0.08 | ) | $ | 0.01 | ||||
|
Discontinued operations
|
0.02 | 0.41 | 0.48 | |||||||||
|
|
||||||||||||
|
|
$ | — | $ | 0.33 | $ | 0.49 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic weighted average common partnership units outstanding
|
114,712,869 | 90,391,044 | 91,170,209 | |||||||||
|
|
||||||||||||
|
Diluted weighted average common partnership units outstanding
|
116,066,115 | 90,399,784 | 91,219,337 | |||||||||
|
|
||||||||||||
|
Net (loss) income attributable to Brandywine Operating Partnership
|
||||||||||||
|
Income (loss) from continuing operations
|
$ | 5,618 | $ | 1,295 | $ | 8,868 | ||||||
|
Income (loss) from discontinued operations
|
2,441 | 37,103 | 46,002 | |||||||||
|
|
||||||||||||
|
Net income
|
$ | 8,059 | $ | 38,398 | $ | 54,870 | ||||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-50
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE (LOSS) INCOME
(in thousands)
| Years ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Net income
|
$ | 8,089 | $ | 38,525 | $ | 55,335 | ||||||
|
|
||||||||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Unrealized gain (loss) on derivative financial instruments
|
7,395 | (15,288 | ) | (3,600 | ) | |||||||
|
Settlement of treasury locks
|
— | — | (3,860 | ) | ||||||||
|
Settlement of forward starting swaps
|
— | — | 1,148 | |||||||||
|
Ineffectiveness
of the hedges
|
(125 | ) | — | — | ||||||||
|
Reclassification of realized (gains)/losses on derivative financial
instruments to operations, net
|
(184 | ) | (80 | ) | 3,436 | |||||||
|
Unrealized gain (loss) on available-for-sale securities
|
— | 248 | (585 | ) | ||||||||
|
|
||||||||||||
|
Total other comprehensive income (loss)
|
7,086 | (15,120 | ) | (3,461 | ) | |||||||
|
|
||||||||||||
|
Comprehensive income
|
15,175 | 23,405 | 51,874 | |||||||||
|
|
||||||||||||
|
Comprehensive (income) loss attributable to non-controlling interest
|
(30 | ) | (127 | ) | (465 | ) | ||||||
|
|
||||||||||||
|
Comprehensive income attributable to Brandywine Operating Partnership
|
$ | 15,145 | $ | 23,278 | $ | 51,409 | ||||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-51
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENT OF PARTNERS’ EQUITY
For the years ended December 31, 2009, 2008 and 2007
(in thousands, except Units)
| Non-controlling Interest - | ||||||||||||||||||||||||||||||||||||
| Series D Preferred Mirror Units | Series E Preferred Mirror Units | General Partner Capital | Accumulated Other | Consolidated Real | Total Partner’s | |||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | Comprehensive Income | Estate Ventures | Equity | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2006 (as adjusted)
|
2,000,000 | 47,912 | 2,300,000 | 55,538 | 88,327,041 | 1,810,223 | 1,576 | 34,414 | 1,949,663 | |||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | 54,870 | — | 465 | 55,335 | |||||||||||||||||||||||||||
|
Other comprehensive income:
|
— | — | — | — | — | — | (3,461 | ) | (3,461 | ) | ||||||||||||||||||||||||||
|
Repurchase of common partnership units in treasury and for deferred comp plan
|
— | — | — | — | (1,780,600 | ) | (59,408 | ) | — | (59,408 | ) | |||||||||||||||||||||||||
|
Common partnership units used for deferred compensation plan
|
— | — | — | — | 172,565 | 5,890 | — | 5,890 | ||||||||||||||||||||||||||||
|
Conversion of LP units to common shares
|
— | — | — | — | 21,951 | 716 | — | 716 | ||||||||||||||||||||||||||||
|
Vesting of restricted units
|
— | — | — | — | 66,086 | 402 | — | 402 | ||||||||||||||||||||||||||||
|
Restricted stock amortization
|
— | — | — | — | — | 1,974 | — | 1,974 | ||||||||||||||||||||||||||||
|
Common partnership units cancellation
|
— | — | — | — | (915 | ) | — | — | — | |||||||||||||||||||||||||||
|
Outperformance plan amortization
|
— | — | — | — | — | 1,339 | — | 1,339 | ||||||||||||||||||||||||||||
|
Trustee fees paid in shares
|
— | — | — | — | 1,664 | 55 | — | 55 | ||||||||||||||||||||||||||||
|
Exercise of options
|
— | — | — | — | 206,893 | 7,837 | — | 7,837 | ||||||||||||||||||||||||||||
|
Non-controlling interest reclassification
|
— | — | — | — | — | (2,828 | ) | — | (2,828 | ) | ||||||||||||||||||||||||||
|
Adjustment of redeemable partnership units to liquidation value at period end
|
— | — | — | — | — | (833 | ) | — | (833 | ) | ||||||||||||||||||||||||||
|
Acquisition of non-controlling interest in consolidated JV
|
— | — | — | — | — | — | — | (34,527 | ) | (34,527 | ) | |||||||||||||||||||||||||
|
Distributions to Preferred Mirror Units
|
— | — | — | — | — | (7,992 | ) | — | — | (7,992 | ) | |||||||||||||||||||||||||
|
Distributions to general partnership unit holder
|
— | — | — | — | — | (153,780 | ) | — | (324 | ) | (154,104 | ) | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2007 (as adjusted)
|
2,000,000 | 47,912 | 2,300,000 | 55,538 | 87,014,685 | 1,658,465 | (1,885 | ) | 28 | 1,760,058 | ||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | 38,398 | — | 127 | 38,525 | |||||||||||||||||||||||||||
|
Other comprehensive income:
|
— | — | — | — | — | — | (15,120 | ) | — | (15,120 | ) | |||||||||||||||||||||||||
|
Deferred compensation obligation
|
— | — | — | — | 44,286 | 710 | — | — | 710 | |||||||||||||||||||||||||||
|
Conversion of LP units to common shares
|
— | — | — | — | 1,021,608 | 26,729 | — | — | 26,729 | |||||||||||||||||||||||||||
|
Share choice plan
|
— | — | — | — | — | (49 | ) | — | — | (49 | ) | |||||||||||||||||||||||||
|
Common partnership units cancellation
|
— | — | — | — | (4,419 | ) | (33 | ) | — | — | (33 | ) | ||||||||||||||||||||||||
|
Vesting of restricted units
|
— | — | — | — | 77,191 | 326 | — | — | 326 | |||||||||||||||||||||||||||
|
Restricted stock amortization
|
— | — | — | — | — | 2,887 | — | — | 2,887 | |||||||||||||||||||||||||||
|
Outperformance plan amortization
|
— | — | — | — | — | 989 | — | — | 989 | |||||||||||||||||||||||||||
|
Option amortization
|
— | — | — | — | — | 336 | — | 336 | ||||||||||||||||||||||||||||
|
Trustee fees paid in shares
|
— | — | — | — | 5,586 | 155 | — | — | 155 | |||||||||||||||||||||||||||
|
Adjustment of redeemable partnership units to liquidation value at period end
|
— | — | — | — | — | 3,726 | — | — | 3,726 | |||||||||||||||||||||||||||
|
Distributions to Preferred Mirror Units
|
— | — | — | — | — | (7,992 | ) | — | — | (7,992 | ) | |||||||||||||||||||||||||
|
Distributions to general partnership unit holder
|
— | — | — | — | — | (142,760 | ) | — | (155 | ) | (142,915 | ) | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2008 (as adjusted)
|
2,000,000 | $ | 47,912 | 2,300,000 | $ | 55,538 | 88,158,937 | $ | 1,581,887 | $ | (17,005 | ) | $ | — | $ | 1,668,332 | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | 8,059 | — | 30 | 8,089 | |||||||||||||||||||||||||||
|
Other comprehensive income:
|
— | — | — | — | — | — | 7,086 | — | 7,086 | |||||||||||||||||||||||||||
|
Deferred compensation obligation
|
— | — | — | — | 51,058 | 131 | — | — | 131 | |||||||||||||||||||||||||||
|
Issuance of LP Units
|
— | — | — | — | 40,250,000 | 242,323 | — | — | 242,323 | |||||||||||||||||||||||||||
|
Bonus Share Issuance
|
— | — | — | — | 36,826 | 123 | — | — | 123 | |||||||||||||||||||||||||||
|
Conversion of LP units to common shares
|
— | — | — | — | 7,513 | 254 | — | — | 254 | |||||||||||||||||||||||||||
|
Share choice plan
|
— | — | — | — | (7,081 | ) | (46 | ) | — | — | (46 | ) | ||||||||||||||||||||||||
|
Common partnership units cancellation
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Vesting of restricted units
|
— | — | — | — | 86,172 | (213 | ) | — | — | (213 | ) | |||||||||||||||||||||||||
|
Restricted stock amortization
|
— | 3,286 | — | — | 3,286 | |||||||||||||||||||||||||||||||
|
Restricted performance units amortization
|
— | — | — | — | — | 288 | — | — | 288 | |||||||||||||||||||||||||||
|
Outperformance plan amortization
|
— | — | — | — | — | 927 | — | — | 927 | |||||||||||||||||||||||||||
|
Option amortization
|
— | — | — | — | — | 602 | — | — | 602 | |||||||||||||||||||||||||||
|
Trustee fees paid in shares
|
— | — | — | — | 13,987 | 4,895 | — | — | 4,895 | |||||||||||||||||||||||||||
|
Adjustment of redeemable partnership units to liquidation value at period end
|
— | — | — | — | — | 3,470 | — | — | 3,470 | |||||||||||||||||||||||||||
|
Adjustment to non-controlling interest
|
— | — | — | — | — | — | — | 35 | 35 | |||||||||||||||||||||||||||
|
Other
|
— | — | — | — | — | — | 491 | — | 491 | |||||||||||||||||||||||||||
|
Distributions to Preferred Mirror Units
|
— | — | — | — | — | (7,992 | ) | — | — | (7,992 | ) | |||||||||||||||||||||||||
|
Distributions to general partnership unit holder
|
— | — | — | — | — | (54,961 | ) | — | — | (54,961 | ) | |||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2009
|
2,000,000 | $ | 47,912 | 2,300,000 | $ | 55,538 | 128,597,412 | $ | 1,783,033 | $ | (9,428 | ) | $ | 65 | $ | 1,877,120 | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-52
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Years ended December 31, | ||||||||||||
| 2009 | 2008 (as adjusted) | 2007 (as adjusted) | ||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$ | 8,089 | $ | 38,525 | $ | 55,335 | ||||||
|
Adjustments to reconcile net income to net cash from
operating activities:
|
||||||||||||
|
Depreciation
|
160,039 | 158,234 | 179,724 | |||||||||
|
Amortization:
|
||||||||||||
|
Deferred financing costs
|
5,864 | 5,450 | 4,497 | |||||||||
|
Amortization of debt discount
|
3,495 | 6,843 | 4,381 | |||||||||
|
Deferred leasing costs
|
18,037 | 16,561 | 15,672 | |||||||||
|
Acquired above (below) market leases, net
|
(6,661 | ) | (8,104 | ) | (12,225 | ) | ||||||
|
Acquired lease intangibles
|
32,387 | 40,663 | 51,669 | |||||||||
|
Deferred compensation costs
|
5,200 | 4,522 | 4,672 | |||||||||
|
Recognized hedge activity
|
916 | — | — | |||||||||
|
Straight-line rent
|
(9,116 | ) | (16,543 | ) | (28,304 | ) | ||||||
|
Provision for doubtful accounts
|
5,371 | 6,769 | 3,147 | |||||||||
|
Provision for impairment in real estate
|
3,700 | 6,850 | — | |||||||||
|
Provision for impairment on land inventory
|
— | 10,841 | — | |||||||||
|
Real estate venture income in excess of distributions
|
(2,512 | ) | (808 | ) | (55 | ) | ||||||
|
Net gain on sale of interests in real estate
|
(1,237 | ) | (28,473 | ) | (66,662 | ) | ||||||
|
Gain on early extinguishment of debt
|
(23,176 | ) | (18,105 | ) | — | |||||||
|
Cumulative interest accretion of repayments of unsecured notes
|
(5,009 | ) | (435 | ) | — | |||||||
|
Contributions from historic tax credit transaction, net of deferred costs
|
23,763 | 7,952 | — | |||||||||
|
Contributions from new market tax credit transaction, net of deferred costs
|
— | 8,965 | — | |||||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Accounts receivable
|
3,746 | (1,631 | ) | 6,449 | ||||||||
|
Other assets
|
2,373 | 3,683 | (1,366 | ) | ||||||||
|
Accounts payable and accrued expenses
|
(10,067 | ) | 2,491 | (11,091 | ) | |||||||
|
Tenant security deposits and deferred rents
|
2,397 | (827 | ) | 12,634 | ||||||||
|
Other liabilities
|
2,806 | (9,556 | ) | 6,328 | ||||||||
|
|
||||||||||||
|
Net cash from operating activities
|
220,405 | 233,867 | 224,805 | |||||||||
|
|
||||||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Acquisition of properties
|
— | — | (88,890 | ) | ||||||||
|
Acquisition
of non-controlling interest in consolidated real estate venture
|
— | — | (63,732 | ) | ||||||||
|
Sales of properties, net
|
101,305 | 370,087 | 472,590 | |||||||||
|
Capital expenditures
|
(206,311 | ) | (146,583 | ) | (267,516 | ) | ||||||
|
Investment in marketable securities
|
— | — | — | |||||||||
|
Investment in unconsolidated Real Estate Ventures
|
(14,980 | ) | (934 | ) | (897 | ) | ||||||
|
Escrowed cash
|
31,385 | (31,385 | ) | — | ||||||||
|
Cash distributions from unconsolidated Real Estate Ventures
in excess of equity in income
|
13,062 | 2,311 | 3,711 | |||||||||
|
Leasing costs
|
(27,010 | ) | (29,450 | ) | (16,104 | ) | ||||||
|
|
||||||||||||
|
Net cash from (used in) investing activities
|
(102,549 | ) | 164,046 | 39,162 | ||||||||
|
|
||||||||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Proceeds from Credit Facility borrowings
|
983,000 | 514,000 | 959,602 | |||||||||
|
Repayments of Credit Facility borrowings
|
(1,044,000 | ) | (491,727 | ) | (888,875 | ) | ||||||
|
Proceeds from mortgage notes payable
|
149,800 | — | — | |||||||||
|
Repayments of mortgage notes payable
|
(84,102 | ) | (25,155 | ) | (272,028 | ) | ||||||
|
Proceeds from unsecured term loan
|
— | 33,000 | 150,000 | |||||||||
|
Proceeds from unsecured notes
|
247,030 | — | 300,000 | |||||||||
|
Repayments of unsecured notes
|
(514,004 | ) | (260,088 | ) | (299,926 | ) | ||||||
|
Net settlement of of hedge transactions
|
(5,044 | ) | — | (2,712 | ) | |||||||
|
Debt financing costs
|
(24,620 | ) | (278 | ) | (4,474 | ) | ||||||
|
Net proceeds from issuance of shares
|
242,332 | — | — | |||||||||
|
Exercise of stock options
|
— | — | 6,011 | |||||||||
|
Repurchases of Common Shares
|
— | — | (59,426 | ) | ||||||||
|
Distributions
paid to preferred and common partnership unitholders
|
(70,605 | ) | (169,341 | ) | (171,918 | ) | ||||||
|
|
||||||||||||
|
Net cash used in (from) financing activities
|
(120,213 | ) | (399,589 | ) | (283,746 | ) | ||||||
|
|
||||||||||||
|
Increase (decrease) in cash and cash equivalents
|
(2,357 | ) | (1,676 | ) | (19,779 | ) | ||||||
|
Cash and cash equivalents at beginning of period
|
3,924 | 5,600 | 25,379 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 1,567 | $ | 3,924 | $ | 5,600 | ||||||
|
|
||||||||||||
|
Supplemental disclosure:
|
||||||||||||
|
Cash paid for interest, net of capitalized interest
|
$ | 139,636 | $ | 178,725 | $ | 182,790 | ||||||
|
Supplemental disclosure of non-cash activity:
|
||||||||||||
|
Note receivable issued in the Northern California transaction at its present value
|
— | 37,100 | — | |||||||||
|
Note receivable issued on the two Trenton properties sale transaction at its present value
|
9,600 | — | — | |||||||||
|
Debt assumed by the purchaser in the Northern California transaction
|
— | 95,300 | — | |||||||||
|
Capital expenditures financed through accounts payable as of year end
|
7,086 | 9,029 | 7,744 | |||||||||
|
Capital
expenditures financed through retention payable
|
5,862 | (928 | ) | 1,117 | ||||||||
|
Unfunded
tenant allowance
|
5,986 | — | — | |||||||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-53
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009, 2008 AND 2007
1.
ORGANIZATION AND NATURE OF OPERATIONS
Brandywine Operating Partnership, L.P. (referred to herein as “we”, “us” or the “Partnership’) is
the entity through which Brandywine Realty Trust, a Maryland real estate investment trust (the
“Company”), a self-administered and self-managed real estate investment trust, conducts its
business and own its assets. The Partnership’s activities include leasing, property management,
development, redevelopment, acquisition and other tenant-related services for a portfolio of office
and industrial properties. The Company’s common shares of beneficial interest are publicly traded
on the New York Stock Exchange under the ticker symbol “BDN”.
As of December 31, 2009, the Partnership owned 212 office properties, 22 industrial facilities and
one mixed-use property (collectively, the “Properties”) containing an aggregate of approximately
23.3 million net rentable square feet. The Partnership also has two properties under development
and three properties under redevelopment containing an aggregate 1.9 million net rentable square
feet. As of December 31, 2009, the Partnership consolidates three office properties owned by real
estate ventures containing 0.4 million net rentable square feet. Therefore, the Partnership owns
and consolidates 245 properties with an aggregate of 25.6 million net rentable square feet. As of
December 31, 2009, the Partnership owned economic interests in 11 unconsolidated real estate
ventures that contain approximately 4.2 million net rentable square feet (collectively, the “Real
Estate Ventures”). In addition, as of December 31, 2009, the Partnership owned approximately 492
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 and Central
New Jersey, Richmond, Virginia, Wilmington, Delaware, Austin, Texas and Oakland, Carlsbad and
Rancho Bernardo, California. In addition to managing properties that the Partnership owns, as of
December 31, 2009, the Partnership was managing approximately 8.9 million net rentable square feet
of office and industrial properties for third parties and Real Estate Ventures.
All references to building square footage, acres, occupancy percentage and the number of buildings
are unaudited.
Brandywine Realty Trust is the sole general partner of the Operating Partnership and, as of
December 31, 2009, owned a 97.9% interest in the Operating Partnership. The Partnership conducts
its third-party real estate management services business primarily through five management
companies (collectively, the “Management Companies”): Brandywine Realty Services Corporation
(“BRSCO”), BTRS, Inc. (“BTRS”), Brandywine Properties I Limited, Inc. (“BPI”), BDN Brokerage, LLC
(“BBL”) and Brandywine Properties Management, L.P. (“BPM”). Each of BRSCO, BTRS and BPI is a
taxable REIT subsidiary. The Operating Partnership owns, directly and indirectly, currently 100%
of each of BRSCO, BTRS, BPI, BBL and BPM.
As of December 31, 2009, the Management Companies were managing properties containing an aggregate
of approximately 34.0 million net rentable square feet, of which approximately 25.2 million net
rentable square feet related to Properties owned by the Partnership and approximately 8.9 million
net rentable square feet related to properties owned by third parties and Real Estate Ventures.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassification and Revisions
Certain amounts have been reclassified in prior years to conform to the current year presentation.
The reclassifications are primarily due to the treatment of sold or held for sale properties as
discontinued operations on the statement of operations for all periods presented and the adoption
of new accounting pronouncements that required retrospective application.
The Partnership is also now reflecting tenant reimbursements that are
payable to tenants of $4.7 million in accounts payable and accrued
expenses rather than in accounts receivable, net at December 31, 2008
to conform to the current year presentation. For the year ended
December 31, 2009, the Partnership has $5.4 million of tenant
reimbursement owed to tenants in accounts payable and accrued
expenses.
See “Recent
Accounting Pronouncements Adopted in 2009” for details pertaining to the changes to prior periods
resulting from the adoption of new accounting pronouncements.
F-54
Table of Contents
Principles of Consolidation
When the Partnership obtains an economic interest in an entity, the Partnership evaluates the
entity to determine if the entity is deemed a variable interest entity (“VIE”), and if the
Partnership is deemed to be the primary beneficiary, in
accordance with the accounting standard for the consolidation of variable interest entities. When
an entity is not deemed to be a VIE, the Partnership considers the provisions of the same
accounting standard to determine whether a general partner, or the general partners as a group,
controls a limited partnership or similar entity when the limited partner have certain rights. The
Partnership consolidates (i) entities that are VIEs and of which the Partnership is deemed to be
the primary beneficiary and (ii) entities that are non-VIEs which the Partnership controls and the
limited partners neither have the ability to dissolve the entity or remove the Partnership without
cause nor any substantive participating rights. Entities that the Partnership accounts for under
the equity method (i.e., at cost, increased or decreased by the Partnership’s share of earnings or
losses, plus contributions, less distributions) include (i) entities that are VIEs and of which the
Partnership is not deemed to be the primary beneficiary (ii) entities that are non-VIEs which the
Partnership does not control, but over which the Partnership has the ability to exercise
significant influence and (iii) entities that are non-VIE’s that the Partnership controls through
its general partner status, but the limited partners in the entity have the substantive ability to
dissolve the entity or remove the Partnership without cause or have substantive participating
rights. The Partnership will reconsider its determination of whether an entity is a VIE and who the
primary beneficiary is, and whether or not the limited partners in an entity have substantive
rights, if certain events occur that are likely to cause a change in the original determinations.
The portion of these entities not owned by the Partnership is presented as non-controlling interest
as of and during the periods consolidated. All intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. Management makes significant
estimates regarding revenue, valuation of real estate and related intangible assets and
liabilities, useful lives of fixed assets, impairment of long-lived assets, equity method
investments and securities, allowance for doubtful accounts and deferred costs.
Operating Properties
Operating properties are carried at historical cost less accumulated depreciation and impairment
losses. The cost of operating properties reflects their purchase price or development cost.
Pursuant to the Partnership’s adoption of the accounting
standard for business combination as of January 1, 2009,
acquisition related costs are expensed as incurred. Prior of the
adoption of the accounting standard, acquisition costs are capitalized
when incurred. Costs incurred for the renovation and
betterment of an operating property are capitalized to the Partnership’s investment in that
property. Ordinary repairs and maintenance are expensed as incurred; major replacements and
betterments, which improve or extend the life of the asset, are capitalized and depreciated over
their estimated useful lives. Fully-depreciated assets are removed from the accounts.
Purchase Price Allocation
The Partnership allocates the purchase price of properties to net tangible and identified
intangible assets acquired based on fair values. Above-market and below-market in-place lease
values for acquired properties are recorded based on the present value (using an interest rate
which reflects the risks associated with the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to the in-place leases and (ii) the Partnership’s estimate
of the fair market lease rates for the corresponding in-place leases, measured over a period equal
to the remaining non-cancelable term of the lease. Capitalized above-market lease values are
amortized as a reduction of rental income over the remaining non-cancelable terms of the respective
leases. Capitalized below-market lease values are amortized as an increase to rental income over
the remaining non-cancelable terms of the respective leases, including any below market fixed-rate
renewal periods.
Other intangible assets also include amounts representing the value of tenant relationships and
in-place leases based on the Partnership’s evaluation of the specific characteristics of each
tenant’s lease and the Partnership’s overall relationship with the respective tenant. The
Partnership estimates the cost to execute leases with terms similar to the remaining lease terms of
the in-place leases, including leasing commissions, legal and other related expenses. This
intangible asset is amortized to expense over the remaining term of the respective leases.
Partnership estimates of value are made using methods similar to those used by independent
appraisers or by using independent appraisals. Factors considered by the Partnership in this
analysis include an estimate of the carrying costs during the expected lease-up periods considering
current market conditions and costs to execute similar leases. In estimating carrying costs, the
Partnership includes real estate taxes, insurance and other operating expenses and estimates of
lost rentals at market rates during the expected
lease-up periods, which primarily range from three to twelve months. The Partnership also considers
information obtained about each property as a result of its pre-acquisition due diligence,
marketing and leasing activities in estimating the fair value of the tangible and intangible assets
acquired. The Partnership also uses the information obtained as a result of its pre-acquisition due
diligence as part of its consideration of the accounting standard governing asset retirement
obligations and when necessary, will record a conditional asset retirement obligation as part of
its purchase price.
F-55
Table of Contents
Characteristics considered by the Partnership in allocating value to its tenant relationships
include the nature and extent of the Partnership’s business relationship with the tenant, growth
prospects for developing new business with the tenant, the tenant’s credit quality and expectations
of lease renewals, among other factors. The value of tenant relationship intangibles is amortized
over the remaining initial lease term and expected renewals, but in no event longer than the
remaining depreciable life of the building. The value of in-place leases is amortized over the
remaining non-cancelable term of the respective leases and any below market fixed-rate renewal
periods.
In the event that a tenant terminates its lease, the unamortized portion of each intangible,
including market rate adjustments (above or below), in-place lease values and tenant relationship
values, is charged to expense and market rate adjustments are recorded to revenue.
Depreciation and Amortization
The costs of buildings and improvements are depreciated using the straight-line method based on the
following useful lives: buildings and improvements (five to 55 years) and tenant improvements (the
shorter of the lease term or the life of the asset).
Construction in Progress
Project costs directly associated with the development and construction of a real estate project
are capitalized as construction in progress. In addition, interest, real estate taxes and other
expenses that are directly associated with the Partnership’s development activities are capitalized
until the property is placed in service. Internal direct construction costs totaling $3.9 million
in 2009, $5.2 million in 2008 and $4.8 million in 2007 and interest totaling $8.8 million in 2009,
$16.7 million in 2008 and $17.9 million in 2007 were capitalized related to development of certain
Properties and land holdings.
Impairment or Disposal of Long-Lived Assets
The accounting standard for property, plant and equipment provides a single accounting model for
long-lived assets as held-for-sale, broadens the scope of businesses to be disposed of that qualify
for reporting as discontinued operations and changes the timing of recognizing losses on such
operations.
The Partnership reviews long-lived assets whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The review of recoverability is based on an
estimate of the future undiscounted cash flows (excluding interest charges) expected to result from
the long-lived asset’s use and eventual disposition. These cash flows consider factors such as
expected future operating income, trends and prospects, as well as the effects of leasing demand,
competition and other factors. If impairment exists due to the inability to recover the carrying
value of a long-lived asset, an impairment loss is recorded to the extent that the carrying value
exceeds the estimated fair-value of the property. The Partnership is required to make subjective
assessments as to whether there are impairments in the values of the investments in long-lived
assets. These assessments have a direct impact on its net income because recording an impairment
loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash
flows is highly subjective and is based in part on assumptions regarding future occupancy, rental
rates and capital requirements that could differ materially from actual results in future periods.
Although the Partnership’s strategy is generally to hold its properties over the long-term, the
Partnership will dispose of properties to meet its liquidity needs or for other strategic needs. If
the Company’s strategy changes or market conditions otherwise dictate an earlier sale date, an
impairment loss may be recognized to reduce the property to the lower of the carrying amount or
fair value less costs to sell, and such loss could be material. If the Partnership determines that
impairment has occurred and the assets are classified as held and used, the affected assets must be
reduced to their fair value.
Where properties have been identified as having a potential for sale, additional judgments are
required related to the determination as to the appropriate period over which the undiscounted cash
flows should include the operating cash flows and the amount included as the estimated residual
value. Management determines the amounts to be included based on a probability weighted cash flow.
This requires significant judgment. In some cases, the results of whether an
impairment is indicated are sensitive to changes in assumptions input into the estimates, including
the hold period until expected sale.
F-56
Table of Contents
During the first quarter of 2009, the Partnership determined that one of its properties,
during testing for impairment under the held and used model, had a historical cost greater than the
probability weighted undiscounted cash flows. Accordingly, the recorded amount was reduced to an
amount based on management’s estimate of the current fair value. This property was sold in the
second quarter. The Partnership also recorded an impairment on properties designated as held for
sale at June 30, 2008 of $6.85 million; these properties were sold during the last quarter of 2008.
During the Partnership’s impairment review for the remaining part of 2009, it was determined that
no additional impairment charges were necessary.
Cash and Cash Equivalents
Cash and cash equivalents are highly-liquid investments with original maturities of three months or
less. The Partnership maintains cash equivalents in financial institutions in excess of insured
limits, but believes this risk is mitigated by only investing in or through major financial
institutions.
Cash in Escrow
Cash in escrow of $31.4 million at December 31, 2009 represents cash that was used during 2009 for
the financing of the Cira South Garage. This cash was held in escrow pursuant to the new markets
tax credit transaction entered into by the Partnership on December 30, 2008.
Restricted Cash
Restricted cash consists of cash held as collateral to provide credit enhancement for the
Partnership’s mortgage debt, cash for property taxes, capital expenditures and tenant improvements.
Restricted cash is included in other assets as discussed below.
Accounts Receivable and Accrued Rent Receivable
Leases with tenants are accounted for as operating leases. Minimum annual rentals under tenant
leases are recognized on a straight-line basis over the term of the related lease. The cumulative
difference between lease revenue recognized under the straight-line method and contractual lease
payment terms is recorded as “accrued rent receivable, net” on the accompanying balance sheets.
Included in current tenant receivables are tenant reimbursements which are comprised of amounts
recoverable from tenants for common area maintenance expenses and certain other recoverable
expenses that are recognized as revenue in the period in which the related expenses are incurred.
As of December 31, 2009 and 2008, no tenant represented more than 10% of accounts receivable and
accrued rent receivables.
Tenant receivables and accrued rent receivables are carried net of the allowances for doubtful
accounts of $4.2 million and $12.2 million in 2009, respectively and $4.9 million and $10.6 million
in 2008, respectively. The allowance is an estimate based on two calculations that are combined to
determine the total amount reserved. First, the Partnership evaluates specific accounts where it
has determined that a tenant may have an inability to meet its financial obligations. In these
situations, the Partnership uses its judgment, based on the facts and circumstances, and records a
specific reserve for that tenant against amounts due to reduce the receivable to the amount that
the Partnership expects to collect. These reserves are reevaluated and adjusted as additional
information becomes available. Second, a reserve is established for all tenants based on a range
of percentages applied to receivable aging categories for tenant receivables. For accrued rent
receivables, the Partnership considers the results of the evaluation of specific accounts and also
considers other factors including assigning risk factors to different industries based on its
tenants SIC classification. Considering various factors including assigning a risk factor to
different industries, these percentages are based on historical collection and write-off experience
adjusted for current market conditions.
Investments in Unconsolidated Real Estate Ventures
The Partnership accounts for its investments in unconsolidated Real Estate Ventures under the
equity method of accounting as it is not the primary beneficiary (for VIE’s) and the Partnership
exercises significant influence, but does not control these entities under the provisions of the
entities’ governing agreements pursuant to the accounting standard for the consolidation of
variable interest entities. These investments are recorded initially at cost, as Investments in
Real Estate Ventures, and subsequently adjusted for equity in earnings and cash contributions and
distributions.
F-57
Table of Contents
On a periodic basis, management assesses whether there are any indicators that the value of the
Partnership’s investments in unconsolidated Real Estate Ventures may be other than temporarily
impaired. An investment is impaired only if the value of the investment, as estimated by
management, is less than the carrying value of the investment. To the extent impairment has
occurred, the loss shall be measured as the excess of the carrying amount of the investment over
the value of the investment, as estimated by management. The determination as to whether an
impairment exists requires significant management judgment about the fair value of its ownership
interest.
To the extent that the Partnership acquires an interest in or contributes assets to a Real Estate
Venture project, the difference between the Partnership’s cost basis in the investment and the
value of the Real Estate Venture or asset contributed is amortized over the life of the related
assets, intangibles and liabilities and such adjustment is included in the Partnership’s share of
equity in income of unconsolidated Real Estate Ventures. For purposes of cash flow presentation,
distributions from unconsolidated Real Estate Ventures are presented as part of operating
activities when they are considered as return on investments. Distributions in excess of the
Partnership’s share in the cumulative unconsolidated Real Estate Ventures’ earnings are considered
as return of investments and are presented as part of investing activities in accordance with the
accounting standard for cash flow presentation.
Deferred Costs
Costs incurred in connection with property leasing are capitalized as deferred leasing costs.
Deferred leasing costs consist primarily of leasing commissions and internal leasing costs that are
amortized on the straight-line method over the life of the respective lease which generally ranges
from one to 15 years. Management re-evaluates the remaining useful lives of leasing costs as
economic and market conditions change.
Costs incurred in connection with debt financing are capitalized as deferred financing costs and
charged to interest expense over the terms of the related debt agreements. Deferred financing
costs consist primarily of loan fees which are amortized over the related loan term. Management
re-evaluates the remaining useful lives of financing costs as economic and market conditions
change.
Other Assets
Other assets is comprised of the following as of December 31, 2009:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (amounts in thousands) | ||||||||
|
Prepaid ground rent
|
$ | 7,733 | $ | — | ||||
|
Prepaid real estate taxes
|
7,492 | 7,720 | ||||||
|
Rent inducements, net
|
6,680 | 8,432 | ||||||
|
Cash surrender value of life insurance
|
6,498 | 5,262 | ||||||
|
Restricted cash
|
5,632 | 13,292 | ||||||
|
Marketable securities
|
2,798 | 2,789 | ||||||
|
Prepaid insurance
|
2,747 | 4,058 | ||||||
|
Furnitures, fixtures and equipment
|
2,664 | 4,641 | ||||||
|
Deposits on future settlements
|
1,108 | 2,966 | ||||||
|
Others
|
10,006 | 9,848 | ||||||
|
|
||||||||
|
Total
|
$ | 53,358 | $ | 59,008 | ||||
|
|
||||||||
Notes Receivable
As of December 31, 2009, notes receivable included a $2.8 million purchase money mortgage with a 20
year amortization period that bears interest at 8.5%, a $7.5 million purchase money mortgage with a
20 year amortization period that bears interest at 8.5%, a $39.1 million purchase money mortgage
with an imputed interest rate of 4.0% accreting up to $40.0 million due in 2010 and a $22.5 million
seven year purchase money mortgage (due 2016) that bears interest at approximately 6% cash
pay/7.64% accrual. The $22.5 million notes receivable is related to the sale of the two
Trenton properties during the year and is presented net of $12.9 deferred gain in accordance with
the accounting standard for installment sales (the “Trenton Note”). The Partnership expects to
receive $27.8 million at maturity of the Trenton Note including the difference between the cash
payments and the stated accrual rate. See Note 3 for additional information regarding the sale and
the Trenton Note.
F-58
Table of Contents
As of December 31, 2008, notes receivable included a $2.8 million purchase money mortgage with a 20
year amortization period that bears interest at 8.5%, a $7.7 million purchase money mortgage with a
20 year amortization period that bears interest at 8.5% and a $37.5 million purchase money mortgage
with an imputed interest rate of 4.0% accreting up to $40.0 million due in 2010.
The Partnership periodically assesses the collectibility of the notes receivable in accordance with
the accounting standard for receivables. No collectibility issues were noted as of December 31,
2009 and 2008.
Revenue Recognition
Rental revenue is recognized on the straight-line basis from the later of the date of the
commencement of the lease or the date of acquisition of the property subject to existing leases,
which averages minimum rents over the terms of the leases. The straight-line rent adjustment
increased revenue by approximately $6.4 million in 2009, $14.0 million in 2008, and $25.0 million
in 2007. Deferred rents on the balance sheet represent rental revenue received prior to their due
dates and amounts paid by the tenant for certain improvements considered to be landlord assets that
will remain as the Partnership’s property at the end of the tenant’s lease term. The amortization
of the amounts paid by the tenant for such improvements is calculated on a straight-line basis over
the term of the tenant’s lease and is a component of straight-line rental income and increased
revenue by $2.7 million in 2009, $2.5 million in 2008, and $3.3 million in 2007. Lease incentives,
which are included as reductions of rental revenue in the accompanying consolidated statements of
operations, are recognized on a straight-line basis over the term of the lease. Lease incentives
decreased revenue by $1.8 million in 2009, $0.8 million in 2008, and $0.1 million in 2007.
Leases also typically provide for tenant reimbursement of a portion of common area maintenance and
other operating expenses to the extent that a tenant’s pro rata share of expenses exceeds a base
year level set in the lease or to the extent that the tenant has a lease on a triple net basis. For
certain leases, significant assumptions and judgments are made by the Partnership in determining
the lease term such as when termination options are provided to the tenant. The lease term impacts
the period over which minimum rents are determined and recorded and also considers the period over
which lease related costs are amortized. Termination fees received from tenants,
bankruptcy settlement fees, third party management fees, labor reimbursement and leasing income are
recorded when earned.
No tenant represented greater than 10% of the Partnership’s rental revenue in 2009, 2008 or 2007.
Income Taxes
No federal or state income taxes are payable by the Partnership, and accordingly, no provision for
taxes has been made in the accompanying consolidated financial statements. The partners are to
include their respective share of the Partnership’s profits or losses in their individual tax
returns. The Partnership’s tax returns and the amount of allocable Partnership profits and losses
are subject to examination by federal and state taxing authorities. If such examination results in
changes to Partnership profits or losses, then the tax liability of the partners would be changed
accordingly.
The Partnership has several subsidiary real estate investment trusts (“REITs”) that have elected to
be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the “Code”). In addition, the Partnership has several subsidiary REITs. In order to
maintain their qualification as a REIT, the Partnership and its REIT subsidiaries are required to,
among other things, distribute at least 90% of its REIT taxable income to its stockholders and meet
certain tests regarding the nature of its income and assets. The REIT subsidiaries are not subject
to federal income tax with respect to the portion of its income that meets certain criteria and is
distributed annually to the stockholders. Accordingly, no provision for federal income taxes is
included in the accompanying consolidated financial statements with respect to the operations of
these entities. The Partnership and its REIT subsidiaries intend to continue to operate in a
manner that allows them to continue to meet the requirements for taxation as REITs. Many of these
requirements, however, are highly technical and complex. If the Partnership or one of its REIT
subsidiaries were to fail to meet these requirements, the Partnership would be subject to federal
income tax. The Partnership is subject to certain state and local taxes. Provision for such taxes
has been included in general and administrative expenses in the Partnership’s Consolidated
Statements of Operations and Comprehensive Income.
The tax
basis in the Partnership’s assets was $4.6 billion as of December 31, 2009 and $4.4 billion
as of December 31, 2008.
F-59
Table of Contents
The Partnership is subject to a 4% federal excise tax if sufficient taxable income is not
distributed within prescribed time limits. The excise tax equals 4% of the annual amount, if any,
by which the sum of (a) 85% of the Partnership’s ordinary income and (b) 95% of the Partnership’s
net capital gain exceeds cash distributions and certain taxes paid by the Partnership. No excise
tax was incurred in 2008, 2007, or 2006.
The Partnership may elect to treat one or more of its subsidiaries as a taxable REIT subsidiary
(“TRS”). In general, a TRS of the Partnership may perform additional services for tenants of the
Partnership and generally may engage in any real estate or non-real estate related business (except
for the operation or management of health care facilities or lodging facilities or the provision to
any person, under a franchise, license or otherwise, of rights to any brand name under which any
lodging facility or health care facility is operated). A TRS is subject to corporate federal
income tax. The Partnership has elected to treat certain of its corporate subsidiaries as TRSs,
these entities provide third party property management services and certain services to tenants
that could not otherwise be provided.
In 2007, the Partnership adopted the provisions of accounting standards for income taxes which
changed the framework for accounting for uncertainty in income taxes. As a result of the adoption,
the Partnership recognized no material adjustments regarding its current tax accounting treatment.
The Partnership would recognize interest and penalties, to the extent incurred related to uncertain
tax positions, as income tax expense, which would be included in general and administrative
expense.
Earnings Per Share
Basic earnings per share is calculated by dividing income allocated to Common Shares by the
weighted-average number of shares outstanding during the period. Diluted earnings per share
includes the effect of common share equivalents outstanding during the period.
Treasury Shares
The Partnership accounts for its treasury share purchases using the cost method. Since repurchase,
shares have been reissued at an amount less than their cost basis. The losses on reissuances are
charged to the cumulative earnings of the Partnership using the FIFO basis.
Stock-Based Compensation Plans
The Partnership Agreement provides for the issuance by the Partnership to its general partner, the
Company, of a number of Common Partnership Units equal to the number of common shares issued by the
Company, the net proceeds of which are contributed to the Partnership. When the Company issues
common shares under its equity-based compensation plan, the Partnership issues to the Company an
equal number of Common Partnership Units. The Company maintains a shareholder-approved
equity-incentive plan known as the Amended and Restated 1997 Long-Term Incentive Plan (the “1997
Plan”). The 1997 Plan is administered by the Compensation Committee of the Company’s Board of
Trustees. Under the 1997 Plan, the Compensation Committee is authorized to award equity and
equity-based awards, including incentive stock options, non-qualified stock options, restricted
shares and performance-based shares. As of December 31, 2008, 3.3 million common shares remained
available for future awards under the 1997 Plan. Through December 31, 2008, all options awarded
under the 1997 Plan had a one to ten year term.
The Partnership incurred stock-based compensation expense of $4.5 million in 2009, of which $0.8
million was capitalized as part of the Partnership’s review of employee salaries eligible for
capitalization. The Partnership recognized stock-based compensation expense of $4.6 million and
$4.7 million in 2008 and 2007, respectively. The expensed amounts are included in general and
administrative expense on the Partnership’s consolidated income statement in the respective
periods.
Comprehensive Income
Comprehensive income or loss is recorded in accordance with the the accounting standard for
comprehensive income. This accounting standard establishes standards for reporting comprehensive
income and its components in financial statements. Comprehensive income includes unrealized gains
and losses on available-for-sale securities and the effective portions of changes in the fair value
of derivatives.
F-60
Table of Contents
Accounting for Derivative Instruments and Hedging Activities
The Partnership accounts for its derivative instruments and hedging activities in accordance with
the accounting standard for derivative and hedging activities. The accounting standard requires the
Partnership to measure every derivative instrument (including certain derivative instruments
embedded in other contracts) at fair value and record them in the balance sheet as either an asset
or liability. See disclosures below related to the Partnership’s adoption of the accounting
standard for fair value measurements and disclosures.
For derivatives designated as fair value hedges, the changes in fair value of both the
derivative instrument and the hedged item are recorded in earnings. For derivatives designated as
cash flow hedges, the effective portions of changes in the fair value of the derivative are
reported in other comprehensive income. During the year ended December 31, 2009, the Partnership
recorded a $(1.1) million fair value adjustment in its consolidated statements of operations
related to two of its interest swaps in which the hedging relationship ceased due to the issuance
of the unsecured notes on September 25, 2009. The ineffective portions of hedges are recognized in
earnings in the current period and during the year ended December 31, 2009, the Partnership
recognized $0.1 million for the ineffective portion of its forward starting swaps prior to the
termination of the hedging relationship (See Note 9).
The Partnership actively manages its ratio of fixed-to-floating rate debt. To manage its fixed and
floating rate debt in a cost-effective manner, the Partnership, from time to time, enters into
interest rate swap agreements as cash flow hedges, under which it agrees to exchange various
combinations of fixed and/or variable interest rates based on agreed upon notional amounts.
Fair Value Measurements
The Partnership adopted a newly issued accounting standard for fair value measurements and
disclosures. The new accounting standard defines fair value, establishes a framework for measuring
fair value in GAAP and provides for expanded disclosure about fair value measurements. The
accounting standard is applied prospectively and is applied to all other accounting pronouncements
that require or permit fair value measurements. The accounting standard was applied to the
Partnership’s financial instruments effective January 1, 2008 and to all non-financial assets and
non-financial liabilities effective January 1, 2009.
The accounting standard for fair value measurements and disclosures defines fair value as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. It also establishes a fair value hierarchy
which requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard describes three levels of inputs that
may be used to measure fair value. Financial assets and liabilities recorded on the Consolidated
Balance Sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Partnership has the ability to access. Level 2 inputs are inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as
well as inputs that are observable for the asset or liability (other than quoted prices), such as
interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted
intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically
based on an entity’s own assumptions, as there is little, if any, related market activity or
information. In instances where the determination of the fair value measurement is based on inputs
from different levels of the fair value hierarchy, the level in the fair value hierarchy within
which the entire fair value measurement falls is based on the lowest level input that is
significant to the fair value measurement in its entirety. The Partnership’s assessment of the
significance of a particular input to the fair value measurement in its entirety requires judgment,
and considers factors specific to the asset or liability.
The following table sets forth the Partnership’s financial assets and liabilities that were
accounted for at fair value on a recurring basis as of December 31, 2009:
| Fair Value Measurements at Reporting | ||||||||||||||||
| Date Using: | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Unobservable | ||||||||||||||
| December 31, | Identical Assets | Observable Inputs | Inputs | |||||||||||||
| Description | 2009 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
|
|
||||||||||||||||
|
Recurring
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Available-for-Sale Securities
|
$ | 431 | $ | 431 | $ | — | $ | — | ||||||||
|
|
||||||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Interest Rate Swaps
|
$ | 7,320 | $ | — | $ | 7,320 | $ | — | ||||||||
F-61
Table of Contents
The following table sets forth the Partnership’s financial assets and liabilities that were
accounted for at fair value on a recurring basis as of December 31, 2008:
| Fair Value Measurements at Reporting | ||||||||||||||||
| Date Using: | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Unobservable | ||||||||||||||
| December 31, | Identical Assets | Observable Inputs | Inputs | |||||||||||||
| Description | 2008 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
|
|
||||||||||||||||
|
Recurring
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Available-for-Sale Securities
|
$ | 423 | $ | 423 | $ | — | $ | — | ||||||||
|
|
||||||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Interest Rate Swaps
|
$ | 10,985 | $ | — | $ | 10,985 | $ | — | ||||||||
|
Forward Starting Interest Rate
Swaps
|
7,481 | — | 7,481 | — | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 18,466 | $ | — | $ | 18,466 | $ | — | ||||||||
The adoption of the accounting standard for fair value measurements and disclosures did not have a
material impact on the Partnership’s non-financial assets and liabilities. Non-financial assets and
liabilities recorded at fair value on a non-recurring basis to which the Partnership would apply
the accounting standard where a measurement was required under fair value would include:
| • | Non-financial assets and liabilities initially measured at fair value in an acquisition or business combination that are not remeasured at least annually at fair value, |
| • | Long-lived assets measured at fair value due to an impairment in accordance with the accounting standard for the impairment or disposal of long-lived assets, |
| • | Equity and cost method investments measured at fair value due to an impairment in accordance with the accounting standard for investments, |
| • | Notes receivable adjusted for any impairment in its value in accordance with the accounting standard for loan receivables and |
| • | Asset retirement obligations initially measured at fair value under the accounting standard for asset retirement obligations. |
There were no items that were accounted for at fair value on a non-recurring basis as of December
31, 2009.
Accounting Pronouncements Adopted in 2009
In June 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards
Codification (Codification). The Codification became the single source for all authoritative GAAP
recognized by the FASB to be applied for financial statements issued for periods ending after
September 15, 2009. The Codification is not expected to change GAAP and it did not have an effect
on the Partnership’s consolidated financial position or results of operations.
In May 2009, the FASB issued a new accounting standard for subsequent events reporting. The new
accounting standard established principles and requirements for evaluating and reporting subsequent
events and distinguishes which
subsequent events should be recognized in the financial statements versus which subsequent events
should be disclosed in the financial statements. The accounting standard also requires disclosure
of the date through which subsequent events are evaluated by management (see Note 17). The
Partnership’s adoption of the new standard did not have a material impact on its consolidated
financial position or results of operations.
F-62
Table of Contents
In April 2009, the FASB issued an amendment to the disclosure requirements about fair value
instruments. The amendment require disclosures about fair value of financial instruments for
interim reporting periods of publicly traded companies in addition to the annual financial
statements. It also requires those disclosures in summarized financial information at interim
reporting periods. The amendment is effective for interim periods ending after June 15, 2009. Prior
period presentation is not required for comparative purposes at initial adoption.
In April 2009, the FASB issued a new accounting standard for determining fair value when the volume
and level of activity for financial and non-financial assets or liabilities have significantly
decreased and for identifying transactions that are not orderly. The new accounting standard is
effective for fiscal years and interim periods ending after June 15, 2009 and shall be applied
prospectively. The Partnership’s adoption of the new standard did not have a material impact on its
consolidated financial position or results of operations.
In April 2009, the FASB issued amendments to the recognition and presentation requirements of
other-than-temporary impairments to make the guidance in U.S. GAAP for debt securities more
operational and to improve the presentation and disclosure of other-than temporary impairments on
debt and equity securities in the financial statements. The amendments are effective for fiscal
years and interim periods ending after June 15, 2009. The Partnership’s adoption of these
amendments did not have a material impact on its consolidated financial position or results of
operations.
In January 2009, the Partnership adopted the FASB issued accounting standard for disclosures about
derivative instruments and hedging activities. This new standard enhances disclosure requirements
for derivative instruments in order to provide users of financial statements with an enhanced
understanding of (i) how and why an entity uses derivative instruments, (ii) how derivative
instruments and related hedged items are accounted for under the accounting standard for derivative
instruments and hedging activities and (iii) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows. The new accounting
standard is to be applied prospectively for the first annual reporting period beginning on or after
November 15, 2008. See Note 9 for further discussion.
In January 2009, the Partnership adopted a newly issued accounting standard for convertible debt
instruments. The new accounting standard requires the initial proceeds from convertible debt that
may be settled in cash to be bifurcated between a liability component and an equity component. The
objective of the guidance is to require the liability and equity components of convertible debt to
be separately accounted for in a manner such that the interest expense recorded on the convertible
debt would not equal the contractual rate of interest on the convertible debt, but instead would be
recorded at a rate that would reflect the issuer’s conventional debt borrowing rate. This is
accomplished through the creation of a discount on the debt that would be accreted using the
effective interest method as additional non-cash interest expense over the period the debt is
expected to remain outstanding (i.e. through the first optional redemption date). The provisions of
the new accounting standard were adopted on January 1, 2009 and applied retrospectively.
The new accounting standard for convertible debt instruments impacted the Partnership’s accounting
for its 3.875% Exchangeable Notes and has a material impact on the Company’s consolidated financial
statements and results of operations. The principal amount outstanding is $128.0 million at
December 31, 2009 and $282.3 million at December 31, 2008 (see Note 7). At certain times and upon
certain events, the notes are exchangeable for cash up to their principal amount and, with respect
to the remainder, if any, of the exchange value in excess of such principal amount, cash or common
shares. The initial exchange rate is 25.4065 shares per $1,000 principal amount of notes (which is
equivalent to an initial exchange price of $39.36 per share). The carrying amount of the equity
component is $24.4 million. The unamortized debt discount is $4.3 million at December 31, 2009 and
$12.2 million at December 31, 2008 and will be amortized through October 15, 2011. The effective
interest rate at December 31, 2009 and 2008 was 5.5%. The Partnership recognized contractual coupon
interest of $8.3 million in 2009, $12.1 million in 2008 and $13.3 million in 2007. In addition,
the Partnership recognized interest on amortization of debt discount
of $4.0 million in 2009, $4.3
million in 2008 and $4.4 million in 2007. The application of the accounting standard for
convertible debt resulted in an aggregate of approximately $3.9 million and $4.0 million (net of
incremental capitalized interest) of additional non-cash interest expense retrospectively applied
for the years ended December 31, 2008 and 2007, respectively. Debt discount write-offs resulting
from debt repurchases amounted to $3.8 million in 2009 and $2.6 million in 2008. There were no
repurchases made in 2007. The application of the new accounting standard required the Partnership
to reduce the amount of gain recognized on early extinguishment of debt for the year ended December
31, 2008 by approximately $2.6 million.
F-63
Table of Contents
Effective January 1, 2009, the Partnership adopted a newly issued accounting standard related
to whether instruments granted in share-based payment transactions are participating securities.
This new standard requires that non-vested
share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents
be treated as participating securities in the computation of earnings per share pursuant to the
two-class method. The accounting standard was applied retrospectively to all periods presented. The
accounting standard required the Partnership to include the impact of its unvested restricted
shares in earnings per share using this more dilutive methodology. For dilutive earnings per share
this methodology or the treasury stock method would be used depending on which method is more
dilutive. The face of the Partnership’s consolidated statement of operations and earnings per
share disclosure (See Note 11) has been updated to reflect the adoption of this accounting standard
and are presented as amounts allocated to unvested restricted shareholders. The adoption of the new
accounting standard did not have a material impact on the Partnership’s consolidated financial
position or results of operations.
Effective January 1, 2009, the Partnership adopted a newly issued accounting standard for
non-controlling interests. In accordance with this accounting standard, non-controlling interests
are presented as a component of consolidated shareholders’ equity unless these interests are
considered redeemable. Also, under this standard, net income will encompass the total income of all
consolidated subsidiaries and there will be separate disclosure on the face of the income statement
of the attribution of that income between controlling and non-controlling interests. Lastly,
increases and decreases in non-controlling interests will be treated as equity transactions. The
face of the Partnership’s consolidated balance sheet, statement of operations and statements of
other comprehensive income has been updated to reflect the adoption of this accounting standard.
The adoption of this accounting standard did not have material impact on the Partnership’s
financial position or results of operations. As a result of the Partnership’s adoption of this
standard, amounts are now presented as non-controlling interests
within equity (amounts were nominal as of December 31, 2008).
Limited partnership units of the Partnership have been included in the mezzanine
section (between liability and equity) on the accompanying consolidated balance sheets. These units
are redeemable by the holders for the cash equivalent thereof, or at the Company’s option, a like
number of unregistered common shares of the Company. Historically we have recorded the redeemable
partnership units at their redemption amount (fair value) as of the balance sheet date. In
accordance with the new accounting standard the redeemable partnership units should be adjusted to
the maximum redemption amount at each balance sheet date, however it is not appropriate to reduce
the amounts below a certain floor. The units should not be recorded at less than the original issue
value of the units adjusted for income allocation and distributions. The revised presentation and
floor measurement required by this accounting standard have been adopted retrospectively.
In accordance with the Partnership’s retrospective adoption of the accounting standards for
convertible and non-controlling interest, the Partnership’s consolidated balance sheets and
selected line items from the statements of operations for all periods presented have been revised
as follows:
| As of December 31, 2008 | ||||||||||||||||
| Convertible Debt |
Redeemable
Limited
Partnership Units |
|||||||||||||||
| Balance Sheet: | As Reported | Adjustment | Interest Adjustment | As Revised | ||||||||||||
|
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Construction-in-progress
|
$ | 121,402 | $ | 817 | $ | — | $ | 122,219 | ||||||||
|
Deferred costs, net
|
89,866 | (539 | ) | — | 89,327 | |||||||||||
|
Total assets
|
4,737,690 | 278 | — | 4,737,968 | ||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Unsecured bonds, net of discount
|
1,930,147 | (12,177 | ) | 1,917,970 | ||||||||||||
|
Total liabilities
|
3,027,647 | (12,177 | ) | 3,015,470 | ||||||||||||
|
Redeemable limited partnership units
|
21,716 | — | 32,450 | 54,166 | ||||||||||||
|
Brandywine Operating Partnership’s
equity
|
$ | 1,688,327 | $ | 12,455 | $ | (32,450 | ) | $ | 1,668,332 | |||||||
The adoption of the accounting standards as described above increased/(reduced) total equity as of
December 31, 2007 and 2006 by $(2.3) million and $92.1 million, respectively.
| For the Year Ended December 31, 2008 | ||||||||||||||||
| Convertible Debt | Non-controlling | |||||||||||||||
| Income Statement: | As Reported | Adjustment | Interest Adjustment | As Revised | ||||||||||||
|
|
||||||||||||||||
|
Interest expense
|
$ | (142,770 | ) | $ | (3,876 | ) | $ | — | $ | (146,646 | ) | |||||
|
|
||||||||||||||||
|
Gain on extinguishment of debt
|
20,664 | (2,559 | ) | — | 18,105 | |||||||||||
|
|
||||||||||||||||
|
Net income
|
$ | 44,833 | $ | (6,435 | ) | $ | 127 | $ | 38,525 | |||||||
|
|
||||||||||||||||
| For the Year Ended December 31, 2007 | ||||||||||||||||
| Convertible Debt | Non-controlling | |||||||||||||||
| Income Statement: | As Reported | Adjustment | Interest Adjustment | As Revised | ||||||||||||
|
|
||||||||||||||||
|
Interest expense
|
$ | (157,178 | ) | $ | (3,972 | ) | $ | — | $ | (161,150 | ) | |||||
|
|
||||||||||||||||
|
Net income
|
$ | 58,843 | $ | (3,972 | ) | $ | 464 | $ | 55,335 | |||||||
F-64
Table of Contents
The impact of the retrospective adoption of the accounting standards discussed above to the
subtotals in the statements of cash flow was not material.
New Pronouncements
In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for
transfers of financial assets. This amendment requires greater transparency and additional
disclosures for transfers of financial assets and the entity’s continuing involvement with them and
changes the requirements for derecognizing financial assets. In addition, this amendment eliminates
the concept of a qualifying special-purpose entity (QSPE). This amendment is effective for fiscal
years beginning after November 15, 2009. The Partnership is currently evaluating the impact of
adopting this amendment on its consolidated financial position or results of operations.
In June 2009, the FASB also issued an amendment to the accounting and disclosure requirements for
the consolidation of variable interest entities (VIEs). The elimination of the concept of a QSPE,
as discussed above, removes the exception from applying the consolidation guidance within this
amendment. This amendment requires an enterprise to perform a qualitative analysis when determining
whether or not it must consolidate a VIE. The amendment also requires an enterprise to continuously
reassess whether it must consolidate a VIE. Additionally, the amendment requires enhanced
disclosures about an enterprise’s involvement with VIEs and any significant change in risk exposure
due to that involvement, as well as how its involvement with VIEs impacts the enterprise’s
financial statements. Finally, an enterprise will be required to disclose significant judgments and
assumptions used to determine whether or not to consolidate a VIE. This amendment is effective for
fiscal years beginning after November 15, 2009. The Partnership is currently evaluating the impact
of adopting this amendment on its consolidated financial position or results of operations.
3.
REAL ESTATE INVESTMENTS
As of December 31, 2009 and 2008, the gross carrying value of the Partnership’s Properties was as
follows:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (amounts in thousands) | ||||||||
|
Land
|
$ | 690,441 | $ | 707,591 | ||||
|
Building and improvements
|
3,393,498 | 3,481,289 | ||||||
|
Tenant improvements
|
428,679 | 419,440 | ||||||
|
|
||||||||
|
|
$ | 4,512,618 | $ | 4,608,320 | ||||
|
|
||||||||
Acquisitions and Dispositions
The Partnership did not complete any acquisitions during the years ended December 31, 2009 and
2008.
2009
On October 13, 2009, the Partnership sold a condominium interest in an office building consisting
of 40,508 square feet in Lawrenceville, New Jersey, for a sales price of $7.9 million.
On October 1, 2009, the Partnership sold two office properties, totaling 473,658 net rentable
square feet in Trenton, New Jersey for an aggregate sales price of $85.0 million. We provided to
the buyer a $22.5 million seven-year, approximately 6.00% cash pay/7.64% accrual second mortgage
loan. This sale was recorded using the installment sales method of accounting for real estate
sales which requires for each cash payment received (including the buyer’s payments under its first
mortgage) profit to be apportioned in the same ratio as total cost and total profit bear to sales
value. Accordingly, the Partnership recognized a gain on sale of $2.7 million upon receipt of cash
from the buyer in 2009 and expects to recognize the remaining gain of $12.9 million substantially
upon the repayment of the second mortgage in 2016. The buyer has the option to extend the maturity
date of the second mortgage for an additional three years subject to certain conditions under the
loan agreement. Interest income on the second mortgage is recognized as it is received. In
addition, the Partnership was engaged to manage the properties sold during the term of the second
mortgage and is entitled for a management fee equal to 2.5% of all gross receipts from the
operation of the properties and will be reimbursed for all management related expenses.
F-65
Table of Contents
On April 29, 2009, the Partnership sold 7735 Old Georgetown Road, a 122,543 net rentable square
feet office property located in Bethesda, Maryland, for a sales price of $26.5 million.
On March 16, 2009, the Partnership sold 305 Harper Drive, a 14,980 net rentable square feet office
property located in Moorestown, New Jersey, for a sales price of $1.1 million.
On February 4, 2009, the Partnership sold two office properties, totaling 66,664 net rentable
square feet in Exton, Pennsylvania, for an aggregate sales price of $9.0 million.
2008
On October 8, 2008, the Partnership sold five properties, totaling approximately 1.7 million net
rentable square feet in Oakland, California for an aggregate sales price of $412.5 million. The
buyer assumed three mortgage loans totaling 95.3 million and was granted by the Partnership a $40.0
million interest free note receivable secured by a first mortgage on two of the properties. The
present value of the note receivable on the sale date was $37.1 million and the balance will
accrete to $40.0 million as interest income is earned through the maturity date in August 2010 at
an imputed 4.0% interest rate. The Partnership incurred an impairment charge of $6.85 million upon
the classification of these properties as held for sale at June 30, 2008.
On October 1, 2008, the Partnership sold Main Street Centre, a 0.4 million net rentable square feet
office property located in Richmond, Virginia, for a sales price of $48.8 million.
On April 25, 2008, the Partnership sold 100 Brandywine Boulevard, an office property located in
Newtown, Pennsylvania containing 102,000 net rentable square feet, for a sales price of $28.0
million.
On February 29, 2008, the Partnership sold 1400 Howard Boulevard, an office property located in
Mount Laurel, New Jersey containing 75,590 net rentable square feet, for a sales price of $22.0
million.
On February 14, 2008, the Partnership sold a parcel of land located in Henrico, Virginia containing
3.24 acres, for a sales price of $0.4 million.
On January 14, 2008, the Partnership sold 7130 Ambassador Drive, an office property located in
Allentown, Pennsylvania containing 114,049 net rentable square feet, for a sales price of $5.8
million.
All sales presented above are included within discontinued operations. The sales prices above also
do not include transaction costs for each of the respective sales.
4.
INVESTMENT IN UNCONSOLIDATED VENTURES
As of December 31, 2009, the Partnership had an aggregate investment of approximately $75.5 million
in its 11 actively operating unconsolidated Real Estate Ventures. The Partnership formed these
ventures with unaffiliated third parties, or acquired them, to develop office properties or to
acquire land in anticipation of possible development of office properties. Ten of the Real Estate
Ventures own 45 office buildings that contain an aggregate of approximately 4.2 million net
rentable square feet, one Real Estate Venture developed a hotel property that contains 137 rooms in
Conshohocken, PA.
The Partnership accounts for its unconsolidated interests in its Real Estate Ventures using the
equity method. Unconsolidated interests range from 3% to 50%, subject to specified priority
allocations in certain of the Real Estate Ventures.
F-66
Table of Contents
The amounts reflected in the following tables (except for the Partnership’s share of equity and
income) are based on the historical financial information of the individual Real Estate Ventures.
One of the Real Estate Ventures, acquired in connection with the Prentiss Properties Trust merger
in 2006, had a negative equity balance on a historical cost basis as a result of historical
depreciation and distribution of excess financing proceeds. The Partnership reflected its
acquisition of this Real Estate Venture interest at its relative fair value as of the date of the
purchase of Prentiss. The difference between allocated cost and the underlying equity in the net
assets of the investee is accounted for as if the entity were consolidated (i.e., allocated to the
Partnership’s relative share of assets and liabilities with an adjustment to recognize equity in
earnings for the appropriate depreciation/amortization). The Partnership does not allocate
operating losses of the Real Estate Ventures in excess of its investment balance unless the
Partnership is liable for the obligations of the Real Estate Venture or is otherwise committed to
provide financial support to the Real Estate Venture.
The Partnership’s investment in Real Estate Ventures as of December 31, 2009 and the Partnership’s
share of the Real Estate Ventures’ income (loss) for the year ended December 31, 2009 was as
follows (in thousands):
| Company’s Share | ||||||||||||||||||||||||
| of 2009 Real | Real Estate | Current | ||||||||||||||||||||||
| Ownership | Carrying | Estate Venture | Venture | Interest | Debt | |||||||||||||||||||
| Percentage (1) | Amount | Income (Loss) | Debt at 100% | Rate | Maturity | |||||||||||||||||||
|
Two Tower Bridge Associates
|
35 | % | $ | 1,468 | $ | (114 | ) | $ | 15,560 | 5.90 | % | May-13 | ||||||||||||
|
Seven Tower Bridge Associates (2)
|
10 | % | — | (551 | ) | — | N/A | N/A | ||||||||||||||||
|
Eight Tower Bridge Associates (5)
|
3.4 | % | — | 339 | 52,500 | L+5.00 | % | Jun-12 | ||||||||||||||||
|
1000 Chesterbrook Boulevard
|
50 | % | 1,770 | 204 | 25,446 | 6.88 | % | Nov-11 | ||||||||||||||||
|
PJP Building Two, LC
|
30 | % | 263 | 120 | 4,703 | 6.12 | % | Nov-23 | ||||||||||||||||
|
PJP Building Three, LC
|
25 | % | — | 32 | — | N/A | N/A | |||||||||||||||||
|
PJP Building Five, LC
|
25 | % | 156 | 96 | 6,099 | 6.47 | % | Aug-19 | ||||||||||||||||
|
PJP Building Six, LC
|
25 | % | 115 | 55 | 9,215 | 6.08 | % | Apr-23 | ||||||||||||||||
|
PJP Building Seven, LC
|
25 | % | 177 | 177 | 8,508 | L+1.55 | % | Nov-13 | ||||||||||||||||
|
Macquarie BDN Christina LLC
|
20 | % | 6,859 | 797 | 59,000 | 8.00 | % | Jun-11 | ||||||||||||||||
|
Broadmoor Austin Associates
|
50 | % | 64,086 | 1,327 | 90,721 | 5.79 | % | Apr-11 | ||||||||||||||||
|
Residence Inn Tower Bridge
|
50 | % | 564 | 162 | 14,480 | 5.63 | % | Feb-16 | ||||||||||||||||
|
G&I Interchange Office LLC (DRA) (3)
|
20 | % | — | 1,180 | 184,000 | 5.78 | % | Jan-15 | ||||||||||||||||
|
Invesco, L.P. (4)
|
— | 244 | — | N/A | N/A | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 75,458 | $ | 4,068 | $ | 470,232 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
| (1) | Ownership percentage represents the Partnership’s entitlement to residual distributions after payments of priority returns, where applicable. | |
| (2) | The loss related to Seven Tower Bridge above represents a writeoff of our investment balance due to the Venture terminating development on a parcel of land owned by the partnership. | |
| (3) | The Partnership retained a 20% interest and received distributions from financing in excess of its basis. The Partnership has no commitment to fund and no expectation of operating losses, accordingly, the Partnership’s carrying value has not been reduced below zero. The income recognized for the year ended December 31, 2009 relates to the distributions in excess of the Partnership’s investment in the Venture. The amount is shown gross of the elimination of 20% portion of revenues we received for management fees of $0.4 million as of December 31, 2009. | |
| (4) | The Partnership’s interest consists solely of a residual profits interest. The Partnership no longer has an investment in this real estate venture. | |
| (5) | The Partnership has no commitment to fund and no expectations of operating losses, accordingly, the Partnership’s carrying value has not been reduced below zero. |
The following is a summary of the financial position of the unconsolidated Real Estate
Ventures in which the Partnership had investment interests as of December 31, 2009 and 2008 (in
thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
|
||||||||
|
Net property
|
$ | 503,932 | $ | 553,833 | ||||
|
Other assets
|
96,643 | 94,165 | ||||||
|
Other Liabilities
|
37,774 | 37,863 | ||||||
|
Debt
|
470,232 | 515,832 | ||||||
|
Equity
|
92,569 | 94,164 | ||||||
|
Partnership’s share of equity (Partnership’s
basis)
|
75,458 | 71,028 | ||||||
F-67
Table of Contents
The following is a summary of results of operations of the unconsolidated Real Estate Ventures in
which the Partnership had interests as of December 31, 2009, 2008 and 2007 (in thousands):
| Year ended December 31, | ||||||||||||
| 2009 | 2008 (a) | 2007 | ||||||||||
|
Revenue
|
$ | 105,236 | $ | 105,844 | $ | 75,541 | ||||||
|
Operating expenses
|
38,691 | 38,036 | 25,724 | |||||||||
|
Interest expense, net
|
30,858 | 30,585 | 21,442 | |||||||||
|
Depreciation and amortization
|
36,700 | 32,057 | (a) | 15,526 | ||||||||
|
Net income
|
(1,012 | ) | 416 | (a) | 12,849 | |||||||
|
Partnership’s share of income (Partnership’s basis)
|
4,069 | 8,447 | 6,955 | |||||||||
| (a) | - Pertains to the correction of an error in DRA’s unaudited financial statements. The adjustments relate to the understatement of depreciation expense amounting to $2.1 million. The adjustments have no impact on the Company’s consolidated financial statements. |
Equity in income of real estate ventures in the Partnership’s consolidated statement of operations
for the twelve-months ended December 31, 2007 includes a $3.9 million distribution on account of a
residual profits interest that is not included in the table above.
As of December 31, 2009, the aggregate principal payments of recourse and non-recourse debt payable
to third-parties are as follows (in thousands):
|
2010
|
$ | 21,410 | ||
|
2011
|
165,303 | |||
|
2012
|
56,072 | |||
|
2013
|
22,220 | |||
|
2014
|
3,162 | |||
|
Thereafter
|
202,065 | |||
|
|
||||
|
|
$ | 470,232 | ||
|
|
||||
As of December 31, 2009, the Partnership had guaranteed repayment of approximately $2.1
million of loans on behalf of certain Real Estate Ventures. The Partnership also provides
customary environmental indemnities in connection with construction and permanent financing both
for its own account and on behalf of its Real Estate Ventures.
5.
DEFERRED COSTS
As of December 31, 2009 and 2008, the Partnership’s deferred costs were comprised of the following
(in thousands):
| December 31, 2009 | ||||||||||||
| Accumulated | Deferred Costs, | |||||||||||
| Total Cost | Amortization | net | ||||||||||
|
|
||||||||||||
|
Leasing Costs
|
$ | 124,391 | $ | (50,643 | ) | $ | 73,748 | |||||
|
Financing Costs
|
42,965 | (10,616 | ) | 32,349 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 167,356 | $ | (61,259 | ) | $ | 106,097 | |||||
|
|
||||||||||||
| December 31, 2008 | ||||||||||||
| Accumulated | Deferred Costs, | |||||||||||
| Total Cost | Amortization | net | ||||||||||
|
|
||||||||||||
|
Leasing Costs
|
$ | 115,263 | $ | (39,528 | ) | $ | 75,735 | |||||
|
Financing Costs
|
25,169 | (11,577 | ) | $ | 13,592 | |||||||
|
|
||||||||||||
|
Total
|
$ | 140,432 | $ | (51,105 | ) | $ | 89,327 | |||||
|
|
||||||||||||
During 2009, 2008 and 2007, the Partnership capitalized internal direct leasing costs of $5.3
million, $7.9 million and $8.2 million, respectively, in accordance with the accounting standard
for the capitalization of leasing costs.
F-68
Table of Contents
6.
INTANGIBLE ASSETS AND LIABILITIES
As of December 31, 2009 and 2008, the Partnership’s intangible assets/liabilities were comprised of
the following (in thousands):
| December 31, 2009 | ||||||||||||
| Accumulated | Deferred Costs, | |||||||||||
| Total Cost | Amortization | net | ||||||||||
|
|
||||||||||||
|
In-place lease value
|
$ | 123,456 | $ | (71,402 | ) | $ | 52,054 | |||||
|
Tenant relationship value
|
97,566 | (49,374 | ) | 48,192 | ||||||||
|
Above market leases acquired
|
15,674 | (10,757 | ) | 4,917 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 236,696 | $ | (131,533 | ) | $ | 105,163 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Below market leases acquired
|
$ | 75,325 | $ | (38,238 | ) | $ | 37,087 | |||||
|
|
||||||||||||
| December 31, 2008 | ||||||||||||
| Accumulated | Deferred Costs, | |||||||||||
| Total Cost | Amortization | net | ||||||||||
|
|
||||||||||||
|
In-place lease value
|
$ | 145,518 | $ | (71,138 | ) | $ | 74,380 | |||||
|
Tenant relationship value
|
103,485 | (40,835 | ) | 62,650 | ||||||||
|
Above market leases acquired
|
23,351 | (14,624 | ) | 8,727 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 272,354 | $ | (126,597 | ) | $ | 145,757 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Below market leases acquired
|
$ | 82,950 | $ | (35,324 | ) | $ | 47,626 | |||||
|
|
||||||||||||
For the years ended December 31, 2009, 2008, and 2007, the Partnership wrote off through the
acceleration of amortization of approximately $2.4 million, $1.7 million and $4.1 million,
respectively, of intangible assets as a result of tenant move-outs prior to the end of the
associated lease terms. For the years ended December 31, 2009, 2008, and 2007, the Partnership
accelerated amortization of approximately $0.4 million, $0.1 million and $0.4 million,
respectively, of intangible liabilities as a result of tenant move-outs.
As of December 31, 2009, the Partnership’s annual amortization for its intangible
assets/liabilities is as follows (in thousands, assumes no early terminations):
| Assets | Liabilities | |||||||
|
2010
|
$ | 28,842 | $ | 8,307 | ||||
|
2011
|
22,452 | 7,013 | ||||||
|
2012
|
17,217 | 6,275 | ||||||
|
2013
|
12,438 | 5,836 | ||||||
|
2014
|
9,130 | 4,348 | ||||||
|
Thereafter
|
15,084 | 5,308 | ||||||
|
|
||||||||
|
Total
|
$ | 105,163 | $ | 37,087 | ||||
|
|
||||||||
7.
DEBT OBLIGATIONS
The following table sets forth information regarding the Partnership’s mortgage indebtedness
outstanding at December 31, 2009 and 2008 (in thousands):
| December 31, | December 31, | Maturity | ||||||||||||||
| 2009 | 2008 | Interest Rate | Date | |||||||||||||
|
|
||||||||||||||||
|
MORTGAGE DEBT:
|
||||||||||||||||
|
200 Commerce Drive
|
$ | — | $ | 5,684 | 7.12 | %(a) | Sep-09 | |||||||||
|
Plymouth Meeting Exec
|
42,042 | 42,785 | 7.00 | %(b) | Dec-10 | |||||||||||
|
Four Tower Bridge
|
10,158 | 10,404 | 6.62 | % | Feb-11 | |||||||||||
|
Arboretum I, II, III & V
|
21,046 | 21,657 | 7.59 | % | Jul-11 | |||||||||||
|
Midlantic Drive/Lenox Drive/DCC I
|
58,215 | 59,784 | 8.05 | % | Oct-11 | |||||||||||
|
Research Office Center
|
39,999 | 40,791 | 5.30 | %(b) | Oct-11 | |||||||||||
|
Concord Airport Plaza
|
35,594 | 36,617 | 5.55 | %(b) | Jan-12 | |||||||||||
|
Six Tower Bridge
|
13,557 | 14,185 | 7.79 | % | Aug-12 | |||||||||||
|
Newtown Square/Berwyn Park/Libertyview
|
59,557 | 60,910 | 7.25 | % | May-13 | |||||||||||
|
Coppell Associates
|
2,711 | 3,273 | 6.89 | % | Dec-13 | |||||||||||
|
Southpoint III
|
3,255 | 3,863 | 7.75 | % | Apr-14 | |||||||||||
F-69
Table of Contents
| December 31, | December 31, | Maturity | ||||||||||||||
| 2009 | 2008 | Interest Rate | Date | |||||||||||||
|
Tysons Corner
|
98,056 | 99,529 | 5.36 | %(b) | Aug-15 | |||||||||||
|
Coppell Associates
|
16,600 | 16,600 | 5.75 | % | Feb-16 | |||||||||||
|
Two Logan Square
|
89,800 | 68,808 | 7.57 | %(c) | Apr-16 | |||||||||||
|
One Logan Square
|
60,000 | — | 4.50 | %(d) | Jul-16 | |||||||||||
|
|
||||||||||||||||
|
Principal balance outstanding
|
550,590 | 484,890 | ||||||||||||||
|
Plus: unamortized fixed-rate debt premiums,
net
|
1,130 | 2,635 | ||||||||||||||
|
|
||||||||||||||||
|
Total mortgage indebtedness
|
$ | 551,720 | $ | 487,525 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
UNSECURED DEBT:
|
||||||||||||||||
|
$275.0M 4.500% Guaranteed Notes due 2009
|
— | 196,680 | 4.62 | % | Nov-09 | |||||||||||
|
Bank Term Loan
|
183,000 | 183,000 | LIBOR + 0.80 | % | Oct-10 | (e) | ||||||||||
|
$300.0M 5.625% Guaranteed Notes due 2010
|
198,545 | 275,545 | 5.61 | % | Dec-10 | |||||||||||
|
Credit Facility
|
92,000 | 153,000 | LIBOR + 0.725 | % | Jun-11 | (e) | ||||||||||
|
$320.7M 3.875% Guaranteed Exchangeable Notes due
2026
|
127,960 | 282,030 | 5.50 | % | Oct-11 | (f) | ||||||||||
|
$300.0M 5.750% Guaranteed Notes due 2012
|
187,825 | 300,000 | 5.77 | % | Apr-12 | |||||||||||
|
$250.0M 5.400% Guaranteed Notes due 2014
|
242,681 | 250,000 | 5.53 | % | Nov-14 | |||||||||||
|
$250.0M 7.500% Guaranteed Notes due 2015
|
250,000 | — | 7.75 | % | May-15 | |||||||||||
|
$250.0M 6.000% Guaranteed Notes due 2016
|
250,000 | 250,000 | 5.95 | % | Apr-16 | |||||||||||
|
$300.0M 5.700% Guaranteed Notes due 2017
|
300,000 | 300,000 | 5.75 | % | May-17 | |||||||||||
|
Indenture IA (Preferred Trust I)
|
27,062 | 27,062 | LIBOR + 1.25 | % | Mar-35 | |||||||||||
|
Indenture IB (Preferred Trust I)
|
25,774 | 25,774 | LIBOR + 1.25 | % | Apr-35 | |||||||||||
|
Indenture II (Preferred Trust II)
|
25,774 | 25,774 | LIBOR + 1.25 | % | Jul-35 | |||||||||||
|
|
||||||||||||||||
|
Principal balance outstanding
|
1,910,621 | 2,268,865 | ||||||||||||||
|
Less: unamortized exchangeable debt discount
|
(4,327 | ) | (12,177 | ) | ||||||||||||
|
unamortized fixed-rate debt discounts, net
|
(3,437 | ) | (2,718 | ) | ||||||||||||
|
|
||||||||||||||||
|
Total unsecured indebtedness
|
$ | 1,902,857 | $ | 2,253,970 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Debt Obligations
|
$ | 2,454,577 | $ | 2,741,495 | ||||||||||||
|
|
||||||||||||||||
| (a) | On September 30, 2009, the Partnership pre-paid the remaining balance of the mortgage debt with no penalty. | |
| (b) | Loans were assumed upon acquisition of the related property. Interest rates presented above reflect the market rate at the time of acquisition. | |
| (c) | The Two Logan Square mortgage loan was re-financed in the amount of $89.8 million on April 1, 2009. The new loan bears interest at 7.57% per annum and has a seven year term with three years of interest only payments followed by a thirty year amortization schedule. | |
| (d) | The Partnership obtained a mortgage on a previously unencumbered property during the third quarter 2009. The loan features a floating rate of LIBOR plus 350 basis points (subject to a LIBOR floor) and a seven-year term with three years interest only followed by a thirty-year amortization schedule at a 7.5% constant. | |
| (e) | These loans may be extended to June 29, 2012 at the Partnership’s discretion. | |
| (f) | On October 20, 2011, the holders of the Exchangeable Notes have the right to request the redemption of all or a portion of the Exchangeable Notes they hold at a price equal to 100% of the principal amount plus accrued and unpaid interest. Accordingly, the Exchangeable Notes have been presented with an October 20, 2011 maturity date. |
On September 25, 2009, the Partnership closed a registered offering of $250.0 million in
aggregate principal amount of its 7.50% senior unsecured notes due 2015. The notes were priced at
99.412% of their face amount with a yield to maturity of 7.625%, representing a spread at the time
of pricing of 5.162% to the yield on the August 2014 Treasury note. The notes have been reflected
net of discount of $1.4 million in the consolidated balance sheet as of December 31, 2009. The net
proceeds which amounted to $247.0 million after deducting underwriting discounts and offering
expenses were used to repay the Partnership’s indebtedness under its unsecured revolving credit
facility and for general corporate purposes.
On July 7, 2009, the Partnership closed a $60.0 million first mortgage on One Logan Square, a
594,361 square foot office property located in Philadelphia, Pennsylvania. This loan accrues
interest at a rate of LIBOR plus 3.5% with a minimum LIBOR rate of 1% over a seven-year term with
three years of interest only payments and interest and principal payments based on a thirty-year
amortization schedule for the remaining four years. The loan proceeds were used for general
corporate purposes including repayment of existing indebtedness.
F-70
Table of Contents
On June 29, 2009, the Partnership entered into a forward financing commitment to borrow up to
$256.5 million under two separate loans which are secured by mortgages on the 30
th
Street Post Office (the “Post Office project’), the Cira South Garage (the “garage project”) and by
the leases of space at these facilities upon the completion of these projects. Of the total
borrowings, $209.7 million and $46.8 million will be allocated to the Post Office project and to
the garage project, respectively. The Partnership paid a $17.7 million commitment fee, which
includes a $1.5 million arrangement fee, in connection with this commitment. The total loan amount
together with the net commitment fee was deposited in an escrow account to be administered by The
Bank of New York Mellon (the “trustee”). In accordance with the trust agreement between the lender
and the trustee, the lender assigned its rights under the loans to the Trust. The Trust issued
certificates to third parties in an amount equal to the funding commitment. Upon investment of the
escrow account in a portfolio of U.S. Government treasuries, the net commitment fee of $16.2
million will be used together with the interest earned on the escrow account to pay interest costs
of the loans through August 26, 2010 which is also the anticipated completion date of the projects
and the expected funding date. In order for funding to occur, certain conditions must be
met by the Partnership which primarily relate to the completion of the projects and the
commencement of the rental payments from the respective leases with the IRS on these properties.
The loans will bear interest at 5.93% and require principal and interest payments based on a twenty
year amortization schedule. The Partnership intends to use the loan proceeds to reduce borrowings
under its credit facility and for general corporate purposes. As of
December 31, 2009, the
commitment fee is included as part of the deferred costs in the Partnership’s consolidated balance
sheet as it believes the funding is probable of occurring. The Partnership will amortize this cost
over the term of the loan starting on the date the funding of the loans has occurred. In the event
that the Partnership believes the funding will not occur, this cost will be written off in the
period that such determination was made. In addition, should the funding not occur either because
the Partnership does not meet the conditions or the Partnership decides not to proceed with the
funding, a termination fee is payable (see Note 16).
During 2009, 2008 and 2007, the Partnership’s weighted-average interest rate on its mortgage notes
payable was 6.45%, 6.40% and 6.74%, respectively. As of December 31, 2009 and 2008, the net
carrying value of the Partnership’s Properties that are encumbered by mortgage indebtedness was
$784.2 million and $691.6 million, respectively.
During the year ended December 31, 2009, the Partnership repurchased $444.7 million of its existing
Notes in a series of transactions which are summarized in the table below:
| Repurchase | Deferred Financing | |||||||||||||||
| Notes | Amount | Principal | Gain | Amortization | ||||||||||||
|
2009 Notes
|
$ | 92,736 | $ | 94,130 | $ | 1,377 | $ | 88 | ||||||||
|
2010 Notes
|
71,414 | 76,999 | 5,565 | 215 | ||||||||||||
|
2012 Notes
|
109,104 | 112,175 | 2,610 | 361 | ||||||||||||
|
2014 Notes
|
6,329 | 7,319 | 961 | 28 | ||||||||||||
|
3.875% Notes
|
136,880 | 154,070 | 12,664 | 1,289 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 416,463 | $ | 444,693 | $ | 23,177 | $ | 1,981 | ||||||||
|
|
||||||||||||||||
During the year ended December 31, 2008, the Partnership exercised the accordion feature on its
$150.0 million unsecured term loan which it had entered into in October 2007 and borrowed an
additional $33.0 million, bringing its total outstanding balance to $183.0 million. All
outstanding borrowings under the term loan bear interest at a periodic rate of LIBOR plus 80 basis
points. The net proceeds of the term loan were used to reduce indebtedness under the Partnership’s
unsecured revolving credit facility. The Term Loan matures on October 18, 2010 and may be extended
at the Partnership’s option for two, one-year periods but not beyond the final maturity date of its
revolving credit facility. There is no scheduled principal amortization of the Term Loan and the
Partnership may prepay borrowings in whole or in part without premium or penalty. Portions of the
Term Loan bear interest at a per annum floating rate equal to: (i) the higher of (x) the prime rate
or (y) the federal funds rate plus 0.50% per annum or (ii) a London interbank offered rate that is
the rate at which Eurodollar deposits for one, two, three or six months are offered plus between
0.475% and 1.10% per annum (the “Libor Margin”), depending on the Company’s debt rating. The Term
Loan Agreement contains financial and operating covenants. Financial covenants include minimum net
worth, fixed charge coverage ratio, maximum leverage ratio, restrictions on unsecured and secured
debt as a percentage of unencumbered assets and other financial tests. Operating covenants include
limitations on the Partnership’s ability to incur additional indebtedness, grant liens on assets,
enter into affiliate transactions, and pay dividends. The Partnership was in compliance with all
covenants as of December 31, 2009.
On April 30, 2007, the Operating Partnership completed an underwritten public offering of
$300.0 million aggregate principal amount of 5.70% unsecured notes due 2017 (the “2017 Notes”).
Brandywine Realty Trust guaranteed the payment of principal and interest on the 2017 Notes. The
Company used proceeds from these notes to reduce borrowings under the Company’s revolving credit
facility. The Operating Partnership’s indenture relating to unsecured notes contains financial
restrictions and requirements, including (1) a leverage ratio not to exceed 60%, (2) a secured debt
leverage ratio not to exceed 40%, (3) a debt service coverage ratio of greater than 1.5 to 1.0, and
(4) an unencumbered asset value of not less than 150% of unsecured debt. The Partnership was in
compliance with all financial covenants as of December 31, 2009.
F-71
Table of Contents
In April 2007, the Partnership entered into a $20.0 million Sweep Agreement (the “Sweep
Agreement”) to be used for cash management purposes. Borrowings under the Sweep Agreement bear
interest at one-month LIBOR plus 0.75%. The
Sweep Agreement ended in April 2009 at which point the agreement was not renewed.
The Partnership utilizes credit facility borrowings for general business purposes, including the
acquisition, development and redevelopment of properties and the repayment of other debt. The
maturity date of the $600.0 million Credit Facility (“the Credit Facility”) is June 29, 2011
(subject to an extension of one year, at the Partnership’s option, upon its payment of an extension
fee equal to 15 basis points of the committed amount under the Credit Facility). The per annum
variable interest rate on outstanding balances is LIBOR plus 0.725%. The interest rate and
facility fee are subject to adjustment upon a change in the Partnership’s unsecured debt ratings.
The Partnership has the option to increase the Credit Facility to $800.0 million subject to the
absence of any defaults and the Partnership’s ability to acquire additional commitments from its
existing or new lenders. As of December 31, 2009, the Partnership had $92.0 million of borrowings,
$13.9 million of letters of credit outstanding, and a $51.0 million holdback in connection with its
historic tax credit transaction, leaving $471.1 million of unused availability. During the years
ended December 31, 2009 and 2008, the weighted-average interest rate on Credit Facility borrowings
was 2.08% and 4.35% respectively. As of December 31, 2009 and 2008, the weighted average interest
rate on Credit Facility borrowings was 0.96% and 1.85%, respectively.
The Credit Facility requires the maintenance of ratios related to minimum net worth, debt-to-total
capitalization and fixed charge coverage and includes non-financial covenants. The Partnership was
in compliance with all financial covenants as of December 31, 2009.
As of December 31, 2009, the Partnership’s aggregate principal payments are as follows (in
thousands):
|
2010
|
$ | 432,804 | ||
|
2011
|
352,214 | |||
|
2012
|
239,483 | |||
|
2013
|
59,753 | |||
|
2014
|
246,394 | |||
|
Thereafter
|
1,130,563 | |||
|
|
||||
|
Total principal payments
|
2,461,211 | |||
|
Net unamortized premiums/discounts
|
(6,634 | ) | ||
|
|
||||
|
Outstanding indebtedness
|
$ | 2,454,577 | ||
|
|
||||
| 8. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
The following fair value disclosure was determined by the Partnership using available market
information and discounted cash flow analyses as of December 31, 2009 and 2008, respectively. The
discount rate used in calculating fair value is the sum of the current risk free rate and the risk
premium on the date of acquiring or assuming the instruments or obligations. Considerable judgment
is necessary to interpret market data and to develop the related estimates of fair value.
Accordingly, the estimates presented are not necessarily indicative of the amounts that the
Partnership could realize upon disposition. The use of different estimation methodologies may have
a material effect on the estimated fair value amounts. The Partnership believes that the carrying
amounts reflected in the Consolidated Balance Sheets at December 31, 2009 and 2008 approximate the
fair values for cash and cash equivalents, accounts receivable, other assets, accounts payable and
accrued expenses.
F-72
Table of Contents
The following are financial instruments for which the Partnership estimates of fair value differ
from the carrying amounts (in thousands):
| December 31, 2009 | December 31, 2008 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
|
|
||||||||||||||||
|
Mortgage payable, net of premiums
|
$ | 551,720 | $ | 523,745 | $ | 484,890 | $ | 459,519 | ||||||||
|
Unsecured notes payable, net of discounts
|
$ | 1,557,011 | $ | 1,497,356 | $ | 1,854,186 | $ | 1,152,056 | ||||||||
|
Variable Rate Debt Instruments
|
$ | 353,610 | $ | 341,210 | $ | 414,610 | $ | 398,748 | ||||||||
|
Notes Receivable
|
$ | 71,989 | (a) | $ | 62,776 | $ | 48,048 | $ | 46,227 | |||||||
| (a) | For purposes of this disclosure, the Trenton Note is presented gross of the recognized deferred gain of $12.9 million. |
| 9. | RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS |
Risk Management
In the course of its on-going business operations, the Partnership encounters economic risk. There
are three main components of economic risk: interest rate risk, credit risk and market risk. The
Partnership is subject to interest rate risk on its interest-bearing liabilities. Credit risk is
primarily the risk of inability or unwillingness of tenants to make contractually required payments
and counterparties on derivatives not fulfilling their obligations. Market risk is the risk of
declines in the value of properties due to changes in rental rates, interest rates or other market
factors affecting the valuation of properties held by the Partnership.
Risks and Uncertainties
In the course of its on-going business operations, the Partnership encounters economic risk. There
are three main components of economic risk: interest rate risk, credit risk and market risk. The
Partnership is subject to interest rate risk on its interest-bearing liabilities. Credit risk is
primarily the risk of inability or unwillingness of tenants to make contractually required
payments. Market risk is the risk of declines in the value of properties due to changes in rental
rates, interest rates or other market factors affecting the valuation of properties held by the
Partnership.
The Partnership expects that the impact of the current state of the economy, including high
unemployment and the unprecedented volatility and illiquidity in the financial and credit markets,
will continue to have a dampening effect on the fundamentals of its business, including increases
in past due accounts, tenant defaults, lower occupancy and reduced effective rents. These
conditions would negatively affect the Partnership’s future net income and cash flows and could
have a material adverse effect on its financial condition.
The Partnership’s Credit Facility, Bank Term Loan and the indenture governing the unsecured public
debt securities (Note 7) contain restrictions, requirements and other limitations on the ability to
incur indebtedness, including total debt to asset ratios, secured debt to total asset ratios, debt
service coverage ratios and minimum ratios of unencumbered assets to unsecured debt which it must
maintain. The ability to borrow under the Credit Facility is subject to compliance with such
financial and other covenants. In the event that the Partnership fails to satisfy these covenants,
it would be in default under the Credit Facility, the Bank Term Loan and the indenture and may be
required to repay such debt with capital from other sources. Under such circumstances, other
sources of capital may not be available, or may be available only on unattractive terms.
Availability of borrowings under the Credit Facility is subject to a traditional material adverse
effect clause. Each time the Partnership borrows it must represent to the lenders that there have
been no events of a nature which would have a material adverse effect on the business, assets,
operations, condition (financial or otherwise) or prospects of the Partnership taken as a whole or
which could negatively effect the ability of the Partnership to perform its obligations under the
Credit Facility. While the Partnership believes that there are currently no material adverse
effect events, the Partnership is operating in unprecedented economic times and it is possible that
such event could arise which would limit the Partnership’s borrowings under the Credit Facility. If
an event occurs which is considered to have a material adverse effect, the lenders could consider
the Partnership in default under the terms of the Credit Facility and the borrowings under the
Credit Facility would become due and payable. If the Partnership is unable to obtain a waiver, this
would have a material adverse effect on the Partnership’s financial position and results of
operations.
The Partnership was in compliance with all financial covenants as of December 31, 2009. Management
continuously monitors the Partnership’s compliance with and anticipated compliance with the
covenants. Certain of the covenants restrict management’s ability to obtain alternative sources of
capital. While the Partnership currently believes it will remain in compliance with its covenants,
in the event of a continued slow-down and continued crisis in the credit markets, the Partnership
may not be able to remain in compliance with such covenants and if the lender would not provide a
waiver, it could result in an event of default.
F-73
Table of Contents
Use of Derivative Financial Instruments
The Partnership’s use of derivative instruments is limited to the utilization of interest rate
agreements or other instruments to manage interest rate risk exposures and not for speculative
purposes. The principal objective of such
arrangements is to minimize the risks and/or costs associated with the Partnership’s operating and
financial structure, as well as to hedge specific transactions. The counterparties to these
arrangements are major financial institutions with which the Partnership and its affiliates may
also have other financial relationships. The Partnership is potentially exposed to credit loss in
the event of non-performance by these counterparties. However, because of the high credit ratings
of the counterparties, the Partnership does not anticipate that any of the counterparties will fail
to meet these obligations as they come due. The Partnership does not hedge credit or property
value market risks through derivative financial instruments.
The Partnership formally assesses, both at inception of the hedge and on an on-going basis, whether
each derivative is highly-effective in offsetting changes in cash flows of the hedged item. If
management determines that a derivative is not highly-effective as a hedge or if a derivative
ceases to be a highly-effective hedge, the Partnership will discontinue hedge accounting
prospectively. The related ineffectiveness would be charged to the Statement of Operations.
The valuation of these instruments is determined using widely accepted valuation techniques
including discounted cash flow analysis on the expected cash flows of each derivative. This
analysis reflects the contractual terms of the derivatives, including the period to maturity, and
uses observable market-based inputs, including interest rate curves and implied volatilities. The
fair values of interest rate swaps are determined using the market standard methodology of netting
the discounted future fixed cash receipts (or payments) and the discounted expected variable cash
payments (or receipts). The variable cash payments (or receipts) are based on an expectation of
future interest rates (forward curves) derived from observable market interest rate curves.
To comply with the provisions of the accounting standard for fair value measurements and
disclosures, the Partnership incorporates credit valuation adjustments to appropriately reflect
both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair
value measurements. In adjusting the fair value of its derivative contracts for the effect of
nonperformance risk, the Partnership has considered the impact of netting and any applicable credit
enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although the Partnership has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments
associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads
to evaluate the likelihood of default by itself and its counterparties. However, as of December
31, 2009 and 2008, the Partnership has assessed the significance of the impact of the credit
valuation adjustments on the overall valuation of its derivative positions and has determined that
the credit valuation adjustments are not significant to the overall valuation of its derivatives.
As a result, the Partnership has determined that its derivative valuations in their entirety are
classified in Level 2 of the fair value hierarchy.
The fair values of the hedges at December 31, 2009 and 2008 are included in other liabilities and
accumulated other comprehensive income in the accompanying balance sheet, except for the $1.1
million fair value adjustment of the hedges charged as an expense to the consolidated statements of
operations during the year ended December 31, 2009, relating to two of the Partnership’s interest
rate swaps which were both cash settled in December 2009. The hedging relationship with these swaps
ceased upon the Partnership’s planned issuance of its unsecured notes effective September 21, 2009,
and as such the interest rate swaps no longer qualify for hedge accounting. Accordingly, changes
in the fair value of these interest rate swaps were charged to our consolidated statements of
operations until they were cash settled. The Partnership also
recognized $0.1 million of
ineffectiveness of the hedges during the year ended December 31, 2009 prior to the termination of
the hedging relationship.
F-74
Table of Contents
The following table summarizes the terms and fair values of the Partnership’s derivative financial
instruments at December 31, 2009 and 2008. The notional amounts provide an indication of the
extent of the Partnership’s involvement in these instruments at that time, but do not represent
exposure to credit, interest rate or market risks.
| Hedge | Hedge | Notional Amount | Trade | Maturity | Fair Value | |||||||||||||||||||||||||||||||
| Product | Type | Designation | 12/31/2009 | 12/31/2008 | Strike | Date | Date | 12/31/2009 | 12/31/2008 | |||||||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b | ) | $ | 123,000 | $ | 78,000 | (a) | 4.709 | % | 9/20/07 | 10/18/10 | $ | 5,162 | $ | 7,204 | |||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b | ) | 25,000 | 25,000 | 4.415 | % | 10/19/07 | 10/18/10 | 827 | 1,439 | ||||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b | ) | 25,000 | 25,000 | 3.747 | % | 11/26/07 | 10/18/10 | 688 | 1,111 | ||||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b | ) | — | 25,000 | 3.338 | % | 1/4/08 | 12/18/10 | — | 603 | ||||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (b | ) | 25,774 | 25,774 | 2.975 | % | 10/16/08 | 10/30/10 | 643 | 628 | ||||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (c | ) | — | 25,000 | 4.770 | % | 1/4/08 | 12/18/19 | — | 4,079 | ||||||||||||||||||||||||
|
Swap
|
Interest Rate | Cash Flow | (c | ) | — | 25,000 | 4.423 | % | 3/19/08 | 12/18/19 | — | 3,402 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
$ | 198,774 | $ | 228,774 | $ | 7,320 | $ | 18,466 | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
| (a) | - National amount accreting up to $155,000 through October 8, 2010. | |
| (b) | - Hedging unsecured variable rate debt. | |
| (c) | - Cash settled at their maturity dates. |
Concentration of Credit Risk
Concentrations of credit risk arise when a number of tenants related to the Partnership’s
investments or rental operations are engaged in similar business activities, or are located in the
same geographic region, or have similar economic features that would cause their inability to meet
contractual obligations, including those to the Partnership, to be similarly affected. The
Partnership regularly monitors its tenant base to assess potential concentrations of credit risk.
Management believes the current credit risk portfolio is reasonably well diversified and does not
contain any unusual concentration of credit risk. No tenant accounted for 5% or more of the
Partnership’s rents during 2009, 2008 and 2007. Recent developments in the general economy and the
global credit markets have had a significant adverse effect on companies in numerous industries.
The Partnership has tenants concentrated in various industries that may be experiencing adverse
effects from the current economic conditions and the Partnership could be adversely affected if
such tenants go into default on their leases.
10.
DISCONTINUED OPERATIONS
For the years ended December 31, 2009, 2008 and 2007, income from discontinued operations relates
to an aggregate of 36 properties containing approximately 6.7 million net rentable square feet that
the Partnership has sold since January 1, 2007.
The following table summarizes revenue and expense information for the properties sold which
qualify for discontinued operations reporting since January 1, 2007 (in thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Revenue:
|
||||||||||||
|
Rents
|
$ | 8,055 | $ | 52,712 | $ | 82,049 | ||||||
|
Tenant reimbursements
|
5,309 | 7,829 | 11,114 | |||||||||
|
Termination fees
|
— | 25 | 183 | |||||||||
|
Other
|
123 | 227 | 404 | |||||||||
|
|
||||||||||||
|
Total revenue
|
13,487 | 60,793 | 93,750 | |||||||||
|
|
||||||||||||
|
Expenses:
|
||||||||||||
|
Property operating expenses
|
4,665 | 21,077 | 31,560 | |||||||||
|
Real estate taxes
|
1,763 | 6,270 | 8,953 | |||||||||
|
Depreciation & amortization
|
2,155 | 13,412 | 27,507 | |||||||||
|
Provision for impairment
|
3,700 | 6,850 | — | |||||||||
|
|
||||||||||||
|
Total operating expenses
|
12,283 | 47,609 | 68,020 | |||||||||
|
|
||||||||||||
|
Operating income
|
1,204 | 13,184 | 25,730 | |||||||||
|
|
||||||||||||
|
Interest income
|
(1 | ) | 17 | 26 | ||||||||
|
Interest expense
|
— | (4,595 | ) | (5,497 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Income from discontinued operations before gain on
sale of interests in real estate and minority interest
|
1,203 | 8,606 | 20,259 | |||||||||
|
|
||||||||||||
|
Net gain on sale of interests in real estate
|
1,238 | 28,497 | 25,743 | |||||||||
|
|
||||||||||||
|
Income from discontinued operations
|
2,441 | 37,103 | 46,002 | |||||||||
|
Income from discontinued operations attributable
to non-controlling interest
|
(30 | ) | (127 | ) | (465 | ) | ||||||
|
|
||||||||||||
|
Income from discontinued operations attributable
to Brandywine Operating Partnership
|
$ | 2,411 | $ | 36,976 | $ | 45,537 | ||||||
|
|
||||||||||||
Discontinued operations have not been segregated in the consolidated statements of cash flows. Therefore,
amounts for certain captions will not agree with respective data in the consolidated statements of operations.
F-75
Table of Contents
11.
NON-CONTROLLING INTEREST IN CONSOLIDATED REAL ESTATE VENTURES
As of December 31, 2009 and 2008, the Partnership owned interests in three consolidated real estate
ventures that own three office properties containing approximately 0.4 million net rentable square
feet. The Partnership is the primary beneficiary and these consolidated real estate ventures are
variable interest entities under the accounting standard for consolidation.
The non-controlling interests associated with certain of the Real Estate Ventures that have finite
lives under the terms of the partnership agreements represent mandatorily redeemable interests as
defined under the accounting standard for certain financial instruments with characteristics of
both liabilities and equity. The aggregate amount related to these non-controlling interests
classified within equity is $0.1 million at December 31, 2009 and a nominal amount as of December
31, 2008. The Partnership believes that the aggregate settlement value of these interests was
approximately $7.9 million and $9.1 million as of December 31, 2009 and 2008, respectively. This
amount is based on the estimated liquidation values of the assets and liabilities and the resulting
proceeds that the Partnership would distribute to its Real Estate Venture partners upon
dissolution, as required under the terms of the respective partnership agreements. Subsequent
changes to the estimated fair values of the assets and liabilities of the consolidated Real Estate
Ventures will affect the Partnership’s estimate of the aggregate settlement value. The partnership
agreements do not limit the amount that the minority partners would be entitled to in the event of
liquidation of the assets and liabilities and dissolution of the respective partnerships.
12.
PARTNERS’ EQUITY
Earnings per Common Partnership Unit
The following table details the number of units and net income used to calculate basic and diluted
earnings per common partnership unit (in thousands, except unit and per unit amounts; results may
not add due to rounding):
| Years ended December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Numerator
|
||||||||||||||||||||||||
|
Income from continuing operations
|
$ | 5,648 | $ | 5,648 | $ | 1,422 | $ | 1,422 | $ | 9,333 | $ | 9,333 | ||||||||||||
|
|
||||||||||||||||||||||||
|
Net income (loss) from continuing operations attributable to non-controlling interests
|
(30 | ) | (30 | ) | (127 | ) | (127 | ) | (465 | ) | (465 | ) | ||||||||||||
|
Amount allocable to unvested restricted unitholders
|
(279 | ) | (279 | ) | (763 | ) | (763 | ) | (765 | ) | (765 | ) | ||||||||||||
|
Preferred units dividends
|
(7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Income (loss) from continuing operations available to common unitholders
|
(2,653 | ) | (2,653 | ) | (7,460 | ) | (7,460 | ) | 111 | 111 | ||||||||||||||
|
|
||||||||||||||||||||||||
|
Discontinued operations attributable to common unitholders
|
2,441 | 2,441 | 37,103 | 37,103 | 46,002 | 46,002 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income (loss) available to common unitholders
|
$ | (212 | ) | $ | (212 | ) | $ | 29,643 | $ | 29,643 | $ | 46,113 | $ | 46,113 | ||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Denominator
|
||||||||||||||||||||||||
|
Weighted-average units outstanding
|
114,712,869 | 114,712,869 | 90,391,044 | 90,391,044 | 91,170,209 | 91,170,209 | ||||||||||||||||||
|
Contingent securities/Stock based compensation
|
— | 1,353,246 | — | 8,740 | 49,128 | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total weighted-average units outstanding
|
114,712,869 | 116,066,115 | 90,391,044 | 90,399,784 | 91,170,209 | 91,219,337 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Earnings per Common Partnership Units:
|
||||||||||||||||||||||||
|
Income from continuing operations attributable to common unitholders
|
$ | (0.02 | ) | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.08 | ) | $ | 0.01 | $ | 0.01 | ||||||||
|
Discontinued operations attributable to common unitholders
|
0.02 | 0.02 | 0.41 | 0.41 | 0.48 | 0.48 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income attributable to common unitholders
|
$ | — | $ | — | $ | 0.33 | $ | 0.33 | $ | 0.49 | $ | 0.49 | ||||||||||||
|
|
||||||||||||||||||||||||
Unvested restricted units are considered participating securities which require the use of the
two-class method for the computation of basic and diluted earnings per unit. For the twelve months
ended December 31, 2009, 2008 and 2007, earnings representing nonforfeitable dividends as noted in
the table above were allocated to the unvested restricted units.
F-76
Table of Contents
Common Partnership Unit and Preferred Mirror Units
The Company is the sole general partner of the Partnership and conducts substantially all its
business and owns its assets through the Partnership and as a result does not have any significant
assets, liabilities or operations, other than its investment in the Partnership’s Units, nor does
it have any employees of its own. Pursuant to the Partnership Agreement, the Partnership reimburses
the Company for all expenses incurred on behalf of its operations.
The Partnership issues partnership units to the Company in exchange for the contribution of the net
proceeds of any equity security issuance by the Company. The number and terms of such partnership
units correspond in number and terms of the related equity securities issued by the Company. In
addition, the Partnership may also issue separate classes of partnership units. Historically, the
Partnership has had the following types of partnership units outstanding (i) Preferred Partnership
Units which have been issued to parties other than the Company (ii) Preferred Mirror Partnership
Units which have been issued to the Company and (iii) Common Partnership Units which include both
interests held by the Company and those held by other limited partners. Each of these interests is
described in more detail below.
Preferred Mirror Partnership Units
In exchange for the proceeds received in corresponding offerings by the Company of preferred shares
of beneficial interest, the Partnership has issued to the Company a corresponding amount of
Preferred Mirror Partnership Units with terms consistent with that of the preferred securities
issued by the Company.
On December 30, 2003, the Partnership issued 2,000,000 Series D Preferred Mirror Units to
Brandywine Realty Trust in exchange for its contribution of the proceeds of its Series C Preferred
Shares. The 2,000,000 Series D Preferred Mirror Units outstanding have an aggregate liquidation
preference of $50.0 million, or $25.00 per unit. Cumulative distributions on the Series D
Preferred Mirror Units are payable quarterly at an annualized rate of 7.50% of the liquidation
preference. In the event that any of the Series C Preferred Shares of Brandywine Realty Trust are
redeemed, which may occur at the option of Brandywine Realty Trust at any time on or after December
30, 2009, then an equivalent number of Series D Preferred Mirror Units will be redeemed.
On February 27, 2004, the Partnership issued 2,300,000 Series E Preferred Mirror Units to
Brandywine Realty Trust in exchange for its contribution of the net proceeds of its Series D
Preferred Shares. The 2,300,000 Series E Preferred Mirror Units outstanding have an aggregate
liquidation preference of $57.5 million, or $25.00 per unit. Cumulative distributions on the
Series E Preferred Mirror Units are payable quarterly at an annualized rate of 7.375% of the
liquidation preference. In the event that any of the Series D Preferred Shares of Brandywine
Realty Trust are redeemed, which may occur at the option of Brandywine Realty Trust at any time on
or after February 27, 2009, then an equivalent number of Series E Preferred Mirror Units will be
redeemed.
Common Partnership Units (Redeemable and General)
The Partnership has two classes of Common Partnership Units: (i) Class A Limited Partnership
Interest which are held by both the Company and outside third parties and (ii) General Partnership
Interests which are held by the Company. (Collectively, the Class A Limited Partnership Interest
and General Partnership Interests are referred to as “Common Partnership Units”). The holders of
the Common Partnership Units are entitled to share in cash distributions from, and in profits and
losses of, the Partnership, in proportion to their respective percentage interests, subject to
preferential distributions on the preferred mirror units and the preferred units.
The Common Partnership Units held by the Company (comprised of both General Partnership Units and
Class A Limited Partnership Units) are presented as partner’s equity in the consolidated financial
statements. Class A Limited Partnership Interest held by parties other than the Company are
redeemable at the option of the holder for a like number of common shares of the Company, or cash,
or a combination thereof, at the election of the Company. Because the form of settlement of these
redemption rights are not within the control of the Partnership, these Common Partnership Units
have been excluded from partner’s equity and are presented as redeemable limited partnership units
measured at the potential cash redemption value as of the end of the periods presented based on the
closing market price of the Company’s common shares at December 31, 2009, 2008 and 2007, which was
$11.40, $7.71, $17.93 respectively. As of December 31, 2009, 2008 and 2007, 2,809,108 and
2,816,229 Class A Units were outstanding and owned by outside limited partners of the Partnership.
On December 8, 2009, the Partnership declared a distribution of $0.15 per Common Share, totaling
$19.3 million, which was paid on January 20, 2010 to shareholders of record as of January 6, 2010.
On December 8, 2009, the Partnership
declared distributions on its Series C Preferred Shares and Series D Preferred Shares to holders of
record as of December 30, 2009. These shares are entitled to a preferential return of 7.50% and
7.375%, respectively. Distributions paid on January 15, 2010 to holders of Series C Preferred
Shares and Series D Preferred Shares totaled $0.9 million and $1.1 million, respectively.
F-77
Table of Contents
On June 2, 2009, the Partnership completed its public offering (the “offering”) of 40,250,000 of
its common shares, par value $0.01 per share. The common shares were issued and sold by the
Partnership to the underwriters at a public offering price of $6.30 per common share in accordance
with an underwriting agreement. The common shares sold include 5,250,000 shares issued and sold
pursuant to the underwriters’ exercise in full of their over-allotment option under the
underwriting agreement. The Partnership received net proceeds of approximately $242.3 million from
the offering net of underwriting discounts, commissions and expenses. The Partnership used the net
proceeds from the offering to repay outstanding borrowings under its $600.0 million unsecured
revolving credit facility amounting to $242.0 million and for general corporate purposes.
Common Share Repurchases
The Partnership maintains a share repurchase program under which the Board has authorized us to
repurchase our common shares from time to time. The Board initially authorized this program in
1998 and has periodically replenished capacity under the program. On May 2, 2006 the Partnership’s
Board restored capacity to 3.5 million common shares.
The Partnership did not repurchase any shares during the year-ended December 31, 2009. As of
December 31, 2009, the Partnership may purchase an additional 0.5 million shares under the plan.
Repurchases may be made from time to time in the open market or in privately negotiated
transactions, subject to market conditions and compliance with legal requirements. The share
repurchase program does not contain any time limitation and does not obligate the Partnership to
repurchase any shares. The Partnership may discontinue the program at any time.
13.
SHARE BASED COMPENSATION
Stock Options
At December 31, 2009, the Partnership had 2,404,567 options outstanding under its shareholder
approved equity incentive plan. There were 1,788,448 options unvested as of December 31, 2009 and
$0.6 million of unrecognized compensation expense associated with these options will be recognized
over a weighted average period of 1.63 years. During the year ended December 31, 2009 and 2008,
the Partnership recognized $0.6 million and $0.3 million, respectively, of compensation expense
included in general and administrative expense related to unvested options. No options were
unvested during the year ended December 31, 2007.
Option activity as of December 31, 2009 and changes during the year ended December 31, 2009 were as
follows:
| Weighted | Weighted Average | |||||||||||||||
| Average | Remaining Contractual | Aggregate Intrinsic | ||||||||||||||
| Shares | Exercise Price | Term (in years) | Value (in 000’s) | |||||||||||||
|
Outstanding at January 1, 2009
|
1,754,648 | $ | 20.41 | 8.77 | $ | (30,093 | ) | |||||||||
|
Granted
|
676,491 | 2.91 | 9.25 | 5,743,405 | ||||||||||||
|
Exercised
|
— | |||||||||||||||
|
Forfeited or expired
|
(26,572 | ) | 20.61 | |||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Outstanding at December 31, 2009
|
2,404,567 | $ | 15.48 | 8.38 | $ | (9,816,670 | ) | |||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Vested/Exercisable at December 31, 2009
|
616,119 | $ | 20.03 | 7.54 | $ | (5,268,260 | ) | |||||||||
F-78
Table of Contents
The fair value of share option awards is estimated on the date of the grant using the
Black-Scholes option valuation model. The following weighted-average assumptions were utilized in
calculating the fair value of options granted during the year ended December 31, 2009 and 2008:
| Grant Date | April 1, 2009 | March 20, 2008 | April 8, 2008 | |||||||||
|
Risk-free interest rate
|
2.20 | % | 2.74 | % | 3.03 | % | ||||||
|
Dividend yield
|
23.64 | % | 8.81 | % | 8.52 | % | ||||||
|
Volatility factor
|
40.99 | % | 23.15 | % | 23.22 | % | ||||||
|
Weighted-average expected life
|
7 yrs | 7 yrs | 7 yrs | |||||||||
There were no options granted during the year-ended December 31, 2007.
| Weighted | Weighted | |||||||||||||||||||||||
| Average | Average | |||||||||||||||||||||||
| Weighted | Remaining | Weighted | Remaining | |||||||||||||||||||||
| Average | Contractual | Average | Contractual | |||||||||||||||||||||
| Exercise | Term | Exercise | Term | |||||||||||||||||||||
| Shares | Price | (in Years) | Shares | Price | (in Years) | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Outstanding at beginning of year
|
1,070,099 | $ | 26.13 | 0.54 | 1,286,075 | $ | 26.45 | 1.5 | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Granted
|
1,824,594 | 20.61 | 8.61 | — | ||||||||||||||||||||
|
Prentiss options converted to Company options
as part of the Prentiss acquisition (See Note 3)
|
— | — | — | — | $ | 28.80 | 0.87 | |||||||||||||||||
|
Exercised
|
— | — | — | (198,495 | ) | $ | 0.00 | — | ||||||||||||||||
|
Forfeited/Expired
|
(1,140,045 | ) | 26.10 | — | (17,481 | ) | — | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Outstanding at end of year
|
1,754,648 | $ | 20.41 | 9.01 | 1,070,099 | $ | 26.13 | 0.54 | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Vested/Exercisable at end of year
|
60,224 | $ | 14.71 | 1.83 | 1,070,099 | $ | 26.13 | |||||||||||||||||
401(k) Plan
The Company sponsors a 401(k) defined contribution plan for its employees. Each employee may
contribute up to 100% of annual compensation, subject to specific limitations under the Internal
Revenue Code. At its discretion, the Company can make matching contributions equal to a percentage
of the employee’s elective contribution and profit sharing contributions. Employees vest in
employer contributions over a three-year service period. The Company contributions were $0.2
million in 2009, $0.6 million in 2008 and $0.6 million in 2007.
Restricted Share Awards
As of December 31, 2009, 708,580 restricted shares were outstanding and vest over three to seven
years from the initial grant date. The remaining compensation expense to be recognized at December
31, 2009 was approximately $5.2 million. That expense is expected to be recognized over a weighted
average remaining vesting period of 2.1 years. The Partnership
recognized stock compensation related to outstanding restricted shares of $3.2 million during the year ended December 31, 2009,
of which $0.8 million was capitalized as part of the Partnership’s review of employee salaries
eligible for capitalization. For the years ended December 31, 2008 and 2007, the Partnership
recognized $3.0 million of compensation expense included in general and administrative expense in
the respective period related to outstanding restricted shares.
The following table summarizes the Partnership’s restricted share activity for the twelve
months-ended December 31, 2009:
| Weighted | ||||||||
| Average Grant | ||||||||
| Shares | Date Fair value | |||||||
|
Non-vested at January 1, 2009
|
475,496 | $ | 26.21 | |||||
|
Granted
|
372,586 | 3.36 | ||||||
|
Vested
|
(119,268 | ) | 21.84 | |||||
|
Forfeited
|
(20,234 | ) | 14.65 | |||||
|
|
||||||||
|
|
||||||||
|
Non-vested at December 31, 2009
|
708,580 | $ | 9.69 | |||||
|
|
||||||||
F-79
Table of Contents
Restricted Performance Share Units Plan
On April 1, 2009 the Compensation Committee of the Partnership’s Board of Trustees awarded 488,292
share-based units, referred to as Restricted Performance Share Units (“RPSU”), to executive
participants. The awards are contingent upon the Partnership’s total shareholder return as compared
to its industry peers and the employment status of the participants through the performance period.
The performance period commenced on January 1, 2009 and will end on the earlier of December 31,
2011 or the date of a change in control.
If the total shareholder return during the measurement period places the Partnership at or above a
certain percentile as compared to its peers based on an industry-based index at the end of the
measurement period then the number of shares that will be delivered shall equal a certain
percentage of the participant’s base units.
The participants will also receive dividend equivalent rights (“DER”) based on the initial number
of the units awarded. The DER will be calculated throughout the vesting period and the dollar value
of the DER will be used to purchase additional RPSU. All shares due to the participants will be
delivered on March 1, 2012. On April 1, 2009, the Partnership awarded 488,292 RPSU to its officers.
As of December 31, 2009, 470,861 of the RPSU awarded remained outstanding and 20,525 DERs have been
determined. The shares awarded have a three year cliff vesting period which is the period the $1.1
million fair value of the awards will be amortized. On the date of the grant, the awards were
valued using a Monte Carlo simulation. For the year-ended December 31, 2009, the Partnership
recognized compensation expense of $0.3 million related to this plan.
Outperformance Program
On August 28, 2006, the Compensation Committee of the Company’s Board of Trustees adopted a
long-term incentive compensation program (the “outperformance program”) under the 1997 Plan. The
outperformance program provided for share-based awards, with share issuances (if any), to take the
form of both vested and restricted common shares and with any share issuances contingent upon the
Partnership’s total shareholder return during a three year measurement period exceeding specified
performance hurdles. These hurdles were not met and, accordingly, no shares were delivered under
the outperformance program and the outperformance program, has terminated in accordance with its
terms. The awards under the outperformance program were accounted for in accordance with the
accounting standard for stock-based compensation. The aggregate grant date fair values of the
awards under the outperformance program, as adjusted for estimated forfeitures, were approximately
$5.9 million (with the values determined through a Monte Carlo simulation) and are being amortized
into expense over the five-year vesting period beginning on the grant dates using a graded vesting
attribution model. For the years ended December 31, 2009, 2008 and 2007, the Partnership
recognized $0.9 million, $1.0 million and $1.4 million, respectively, of compensation expense
related to the outperformance program, $0.5 million remains to be recognized as compensation
expense as of December 31, 2009.
Employee Share Purchase Plan
On May 9, 2007, the Company’s shareholders approved the 2007 Non-Qualified Employee Share Purchase
Plan (the “ESPP”). The ESPP is intended to provide eligible employees with a convenient means to
purchase common shares of the Partnership through payroll deductions and voluntary cash purchases
at an amount equal to 85% of the average closing price per share for a specified period. Under the
plan document, the maximum participant contribution for the 2009 plan year is limited to the lesser
of 20% of compensation or $25,000. The number of shares reserved for issuance under the ESPP is
1.25 million. During the year ended December 31, 2009, employees made purchases of $0.4 million
under the ESPP and the Partnership recognized $0.3 million of compensation expense related to the
ESPP. During the year ended December 31, 2008, employees made purchases of $0.6 million under the
ESPP and the Partnership recognized $0.1 million of compensation expense related to the ESPP. The
Board of Directors of the Partnership may terminate the ESPP at its sole discretion at anytime.
Deferred Compensation
In January 2005, the Company adopted a Deferred Compensation Plan (the “Plan”) that allows trustees
and certain key employees to voluntarily defer compensation. Compensation expense is recorded for
the deferred compensation and a related liability is recognized. Participants may elect designated
benchmark investment options for the notational investment of their deferred compensation. The
deferred compensation obligation is adjusted for deemed income or loss related to the investments
selected. At the time the participants defer compensation, the Partnership records a liability,
which is included in the Partnership’s consolidated balance sheet. The liability is adjusted for
changes in the market value of the participants selected investments at the end of each accounting
period, and the impact of adjusting the liability is recorded as an increase or decrease to
compensation cost. For the years ended December 31, 2009, 2008 and 2007, the Partnership recorded
a net increase in compensation cost of $1.5 million, a net reduction in compensation cost of $2.8
million and a net increase in compensation cost of $0.9 million, respectively, in connection with
the Plan due to the change in market value of the participant investments in the Plan.
F-80
Table of Contents
The deferred compensation obligations are unfunded, but the Company has purchased assets,
company-owned life insurance policies and mutual funds, which can be utilized as a future funding
source for the obligations related to the Plan. Participants in the Plan have no interest in any
assets set aside by the Company to meet its obligations under the deferral plan. For the years
ended December 31, 2009, 2008 and 2007, the Company recorded a net reduction in compensation cost
of $1.8 million, a net increase in compensation cost of $2.7 million and a net decrease in
compensation cost of $0.8 million, respectively, in connection with the investments in the
Company-owned policies and mutual funds.
Participants in the Plan may elect to have all or a portion of their deferred compensation invested
in the Partnership’s common shares. The Partnership holds these shares in a rabbi trust, which is
subject to the claims of the Partnership’s creditors in the event of the Partnership’s bankruptcy
or insolvency. The Plan does not provide for diversification of a participant’s deferral allocated
to the Company common share and deferrals allocated to Partnership common share can only be settled
with a fixed number of shares. In accordance with the accounting standard for deferred
compensation arrangements where amounts earned are held in a rabbi trust and invested, the deferred
compensation obligation associated with Partnership’s common share is classified as a component of
shareholder’s equity and the related shares are treated as shares to be issued and are included in
total shares outstanding. At December 31, 2009 and 2008, there were 0.3 million and 0.2 million
shares, respectively, to be issued included in total shares outstanding. Subsequent changes in the
fair value of the common shares are not reflected in operations or shareholders’ equity of the
Partnership.
14.
DISTRIBUTIONS
| Years ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Common Partnership Unit
Distributions:
|
||||||||||||
|
Total distributions per unit
|
$ | 0.60 | $ | 1.76 | $ | 1.76 | ||||||
|
|
||||||||||||
|
Preferred Unit Distributions:
|
||||||||||||
|
Total distributions declared
|
$ | 7,992,000 | $ | 7,992,000 | $ | 7,992,000 | ||||||
15.
TAX CREDIT TRANSACTIONS
Historic Tax Credit Transaction
On November 17, 2008, the Partnership closed a transaction with US Bancorp (“USB”) related to the
historic rehabilitation of the 30th Street Post Office in Philadelphia, Pennsylvania (“Project”),
an 862,692 square foot office building which is 100% pre-leased to the Internal Revenue Service
(expected commencement of the IRS lease is August 2010). USB has agreed to contribute approximately
$67.9 million of Project costs and advanced $10.2 million of that contemporaneously with the
closing of the transaction. USB advanced another $23.8 million of the
said funds in December 2009. The remaining funds will be advanced in 2009 and 2010 subject to the
Partnership’s achievement of certain construction milestones and its compliance with the federal
rehabilitation regulations. In return for the investment, USB will, upon completion of the Project
in 2010, receive substantially all of the rehabilitation credits available under section 47 of the
Internal Revenue Code.
In exchange for its contributions into the Project, USB is entitled to substantially all of the
benefits derived from the tax credit, but does not have a material interest in the underlying
economics of the property. This transaction also includes a put/call provision whereby the
Partnership may be obligated or entitled to repurchase USB’s interest in the Project. The
Partnership believes the put will be exercised and an amount attributed to that puttable
non-controlling interest obligation is included in other liabilities and is being accreted to the
expected fixed put price.
Based on the contractual arrangements that obligate the Partnership to deliver tax benefits and
provide other guarantees to USB and that entitle the Partnership through fee arrangements to
receive substantially all available cash flow from the Project, the Partnership concluded that the
Project should be consolidated in accordance with the accounting standard for consolidation. The
Partnership also concluded that capital contributions received from USB, in substance, are
consideration that the Partnership receives in exchange for its obligation to deliver tax credits
and other tax benefits to USB. These receipts other than the amounts allocated to the put
obligation will be recognized as revenue in the consolidated financial statements only after the
put/call provision is exercised and when USB no longer has any ongoing interest in the Project.
The tax credit is subject to 20% recapture per year beginning one year after the completion of the
Project in 2010. The Partnership expects that USB will exercise the put/call provision in December
2015 when the recapture period ends. The Partnership will recognize the cash received as income
once either the put or the call is exercised.
F-81
Table of Contents
The USB contributions made during 2009 and 2008 of $23.8 million and $10.2 million, respectively,
is presented within deferred income on the Partnership’s consolidated balance sheet at December 31,
2009 and 2008. The said USB contributions recorded as deferred income are net of the amounts
allocated to non-controlling interest as described above of $0.7 million in 2009 and $0.2 million
in 2008.
Direct and incremental costs incurred in structuring the arrangement are deferred and will be
recognized as expense in the consolidated financial statements upon the recognition of the related
revenue as discussed above. The deferred cost at December 31, 2009 is $2.4 million and is included
in other assets on the Partnership’s consolidated balance sheet. Amounts included in interest
expense related to the accretion of the non-controlling interest liability and the 2% return
expected to be paid to USB on its non-controlling interest aggregate to $0.2 million for the
year-ended December 31, 2009.
New Markets Tax Credit Transaction
On December 30, 2008, the Partnership entered into a transaction with USB related to the Cira
Garage Project (“garage project”) in Philadelphia, Pennsylvania and expects to receive a net
benefit of $7.8 million under a qualified New Markets Tax Credit Program (“NMTC”). The NMTC was
provided for in the Community Renewal Tax Relief Act of 2000 (the “Act”) and is intended to induce
investment capital in underserved and impoverished areas of the United States. The Act permits
taxpayers (whether companies or individuals) to claim credits against their Federal income taxes
for up to 39% of qualified investments in qualified, active low-income businesses or ventures.
USB contributed $13.3 million into the garage project and as such they are entitled to
substantially all of the benefits derived from the tax credit, but they do not have a material
interest in the underlying economics of the garage project. This transaction also includes a
put/call provision whereby the Partnership may be obligated or entitled to repurchase USB’s
interest. The Partnership believes the put will be exercised and an amount attributed to that
obligation is included in other liabilities. The said put price is insignificant.
Based on the contractual arrangements that obligate the Partnership to deliver tax benefits and
provide various other guarantees to USB, the Partnership concluded that the project should be
consolidated in accordance with the accounting standard for consolidation. The USB contribution of
$13.3 million is included in deferred income on the Partnership’s consolidated balance sheet at
December 31, 2009 and 2008. The USB contribution other than the amount allocated to the put
obligation will be recognized as income in the consolidated financial statements only after the
put/call provision is exercised and when USB no longer has any ongoing interest in the Project.
The NMTC is subject to 100% recapture for a period of seven years as provided in the Internal
Revenue Code. The Partnership expects that USB will exercise the put/call provision in December
2015 at the end of the recapture period.
Direct and incremental costs incurred in structuring the arrangement are deferred and amortized
over the expected duration of the arrangement in proportion to the recognition of the related
revenue. The deferred costs at December 31, 2009 is $5.4 million and is included in other assets on
the Partnership’s consolidated balance sheet.
F-82
Table of Contents
16.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table details the components of accumulated other comprehensive income (loss) as of
and for the three years ended December 31, 2009 (in thousands):
| Unrealized Gains | Cash Flow | Accumulated Other | ||||||||||
| (Losses) on Securities | Hedges | Comprehensive Loss | ||||||||||
|
Balance at January 1, 2007
|
328 | 1,248 | 1,576 | |||||||||
|
|
||||||||||||
|
Change during year
|
— | (3,600 | ) | (3,600 | ) | |||||||
|
Settlement of treasury locks
|
— | (3,860 | ) | (3,860 | ) | |||||||
|
Settlement of forward starting swaps
|
— | 1,148 | 1,148 | |||||||||
|
Reclassification adjustments for (gains) losses
reclassified into operations
|
(585 | ) | 3,436 | 2,851 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Balance at December 31, 2007
|
(257 | ) | (1,628 | ) | (1,885 | ) | ||||||
|
Change during year
|
— | (15,288 | ) | (15,288 | ) | |||||||
|
Reclassification adjustments for (gains) losses
reclassified into operations
|
248 | (80 | ) | 168 | ||||||||
|
|
||||||||||||
|
Balance at December 31, 2008
|
$ | (9 | ) | $ | (16,996 | ) | $ | (17,005 | ) | |||
|
Change during year
|
— | 7,395 | 7,395 | |||||||||
|
Ineffectiveness of forward starting swaps
|
— | (125 | ) | (125 | ) | |||||||
|
Other
|
— | 491 | 491 | |||||||||
|
Reclassification adjustments for (gains) losses
reclassified into operations
|
— | (184 | ) | (184 | ) | |||||||
|
|
||||||||||||
|
Balance at December 31, 2009
|
$ | (9 | ) | $ | (9,419 | ) | $ | (9,428 | ) | |||
|
|
||||||||||||
Over time, the unrealized gains and losses held in Accumulated Other Comprehensive Income (“AOCI”)
will be reclassified to earnings when hedged items are recognized in
earnings. The current balance held in AOCI is expected to be reclassified to earnings over the
lives of the current hedging instruments, or for realized losses on forecasted debt transactions,
over the related term of the debt obligation (including the planned
issuance related to previously forecasted transactions that are
considered to be reasonably possible of occurring), as applicable. During the year ended December 31,
2008, the Partnership reclassified approximately $(0.5) million to interest expense associated with treasury lock agreements and forward starting
swaps previously settled.
17.
SEGMENT INFORMATION
As of December 31, 2009, the Partnership manages its portfolio within six segments: (1)
Pennsylvania, (2) Metropolitan Washington D.C, (3) New Jersey/Delaware, (4) Richmond, Virginia, (5)
Austin, Texas, and (6) California. The Pennsylvania segment includes properties in Chester,
Delaware, Bucks, and Montgomery counties in the Philadelphia
suburbs and the City of Philadelphia in Pennsylvania. The Metropolitan Washington, D.C. segment
includes properties in Northern Virginia and suburban Maryland. The New Jersey/Delaware segment
includes properties in counties in the southern and central part of New Jersey including
Burlington, Camden and Mercer counties and the state of Delaware. The Richmond, Virginia segment
includes properties primarily in Albemarle, Chesterfield and Henrico counties, the City of Richmond
and Durham, North Carolina. The California segment includes properties in Oakland, Concord,
Carlsbad and Rancho Bernardo. The Austin, Texas segment includes properties in Coppell and Austin.
The corporate group is responsible for cash and investment management, development of certain real
estate properties during the construction period, and certain other general support functions.
Land held for development and construction in progress are transferred to operating properties by
region upon completion of the associated construction or project.
F-83
Table of Contents
Segment information for the three years ended December 31, 2009, 2008 and 2007 are as follows (in
thousands):
| Metropolitan, | New Jersey | Richmond, | ||||||||||||||||||||||||||||||
| Pennsylvania | D.C. | /Delaware | Virginia | Austin, Texas | California | Corporate | Total | |||||||||||||||||||||||||
|
2009:
|
||||||||||||||||||||||||||||||||
|
Real estate investments, at cost:
|
||||||||||||||||||||||||||||||||
|
Operating properties
|
$ | 1,726,267 | $ | 1,356,206 | $ | 598,122 | $ | 297,958 | $ | 282,093 | $ | 251,972 | $ | — | $ | 4,512,618 | ||||||||||||||||
|
Construction-in-progress
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 271,962 | $ | 271,962 | ||||||||||||||||
|
Land inventory
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 97,368 | $ | 97,368 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total revenue
|
$ | 239,038 | $ | 140,438 | $ | 103,277 | $ | 36,387 | $ | 35,143 | $ | 29,282 | $ | (1,346 | ) | $ | 582,219 | |||||||||||||||
|
Property operating expenses, real estate taxes and
third party management expenses
|
90,455 | 52,712 | 48,254 | 14,337 | 15,404 | 14,683 | (1,460 | ) | 234,385 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net operating income
|
$ | 148,583 | $ | 87,726 | $ | 55,023 | $ | 22,050 | $ | 19,739 | $ | 14,599 | $ | 114 | $ | 347,834 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2008:
|
||||||||||||||||||||||||||||||||
|
Real estate investments, at cost:
|
||||||||||||||||||||||||||||||||
|
Operating properties
|
$ | 1,734,946 | $ | 1,371,997 | $ | 674,503 | $ | 297,171 | $ | 280,826 | $ | 248,877 | $ | — | $ | 4,608,320 | ||||||||||||||||
|
Construction-in-progress
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 122,219 | $ | 122,219 | ||||||||||||||||
|
Land inventory
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 100,516 | $ | 100,516 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total revenue
|
$ | 243,216 | $ | 138,339 | $ | 104,711 | $ | 38,047 | $ | 37,388 | $ | 29,590 | $ | (1,870 | ) | $ | 589,421 | |||||||||||||||
|
Property operating expenses, real estate taxes and
third party management expenses
|
86,071 | 49,672 | 46,895 | 13,136 | 16,385 | 12,855 | 3,370 | 228,384 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net operating income
|
$ | 157,145 | $ | 88,667 | $ | 57,816 | $ | 24,911 | $ | 21,003 | $ | 16,735 | $ | (5,240 | ) | $ | 361,037 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
2007:
|
||||||||||||||||||||||||||||||||
|
Real estate investments, at cost:
|
||||||||||||||||||||||||||||||||
|
Operating properties
|
$ | 1,682,840 | $ | 1,302,833 | $ | 663,503 | $ | 348,310 | $ | 236,959 | $ | 579,120 | $ | — | $ | 4,813,565 | ||||||||||||||||
|
Construction-in-progress
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 332,380 | $ | 332,380 | ||||||||||||||||
|
Land inventory
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 70,297 | $ | 70,297 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total revenue
|
$ | 274,246 | $ | 130,731 | $ | 101,927 | $ | 31,693 | $ | 37,874 | $ | 30,141 | $ | (1,801 | ) | $ | 604,811 | |||||||||||||||
|
Property operating expenses, real estate taxes and
third party management expenses
|
96,366 | 44,963 | 46,911 | 10,655 | 16,407 | 10,942 | 4,293 | 230,537 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net operating income
|
$ | 177,880 | $ | 85,768 | $ | 55,016 | $ | 21,038 | $ | 21,467 | $ | 19,199 | $ | (6,094 | ) | $ | 374,274 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
F-84
Table of Contents
Net operating income is defined as total revenue less property operating expenses, real estate
taxes and third party management expenses. Segment net operating income includes revenue, real
estate taxes and property operating expenses directly related to operation of the properties within
the respective geographical region. Segment net operating income excludes property level
depreciation and amortization, revenue and expenses directly associated with third party real
estate management services, expenses associated with corporate administrative support services, and
inter-company eliminations. Below is a reconciliation of consolidated net operating income to
consolidated income (loss) from continuing operations:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (amounts in thousands) | ||||||||||||
|
Consolidated net operating income
|
$ | 347,834 | $ | 361,037 | $ | 374,274 | ||||||
|
Less:
|
||||||||||||
|
Interest expense
|
(135,740 | ) | (146,646 | ) | (161,150 | ) | ||||||
|
Deferred financing costs
|
(5,864 | ) | (5,450 | ) | (4,496 | ) | ||||||
|
Loss on settlement of treasury lock agreements
|
— | — | (3,698 | ) | ||||||||
|
Depreciation and amortization
|
(208,590 | ) | (202,043 | ) | (219,553 | ) | ||||||
|
Administrative expenses
|
(20,821 | ) | (23,002 | ) | (27,932 | ) | ||||||
|
Provision for impairment on land inventory
|
— | (10,841 | ) | — | ||||||||
|
Recognized Hedge Activity
|
(916 | ) | — | — | ||||||||
|
Plus:
|
||||||||||||
|
Interest income
|
2,500 | 1,839 | 4,014 | |||||||||
|
Equity in income of real estate ventures
|
4,069 | 8,447 | 6,955 | |||||||||
|
Net gain on sales of interests in depreciated real estate
|
— | — | 40,919 | |||||||||
|
Net (loss) gain on sales of interests in undepreciated real estate
|
— | (24 | ) | — | ||||||||
|
Gain on early extinguishment of debt
|
23,176 | 18,105 | — | |||||||||
|
|
||||||||||||
|
Income (loss) from continuing operations
|
5,648 | 1,422 | 9,333 | |||||||||
|
Income from discontinued operations
|
2,441 | 37,103 | 46,002 | |||||||||
|
|
||||||||||||
|
Net income
|
$ | 8,089 | $ | 38,525 | $ | 55,335 | ||||||
|
|
||||||||||||
19.
OPERATING LEASES
The Partnership leases properties to tenants under operating leases with various expiration dates
extending to 2025. Minimum future rentals on non-cancelable leases at December 31, 2009 are as
follows (in thousands):
| Year | Minimum Rent | |||
|
2010
|
$ | 473,953 | ||
|
2011
|
421,120 | |||
|
2012
|
358,097 | |||
|
2013
|
309,052 | |||
|
2014
|
260,157 | |||
|
Thereafter
|
1,010,618 | |||
Total minimum future rentals presented above do not include amounts to be received as tenant
reimbursements for operating costs.
20.
COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Partnership is involved from time to time in litigation on various matters, including disputes
with tenants and disputes arising out of agreements to purchase or sell properties. Given the
nature of the Partnership’s business activities, these lawsuits are considered routine to the
conduct of its business. The result of any particular lawsuit cannot be predicted, because of the
very nature of litigation, the litigation process and its adversarial nature, and the jury system.
The Partnership does not expect that the liabilities, if any, that may ultimately result from such
legal actions will have a material adverse effect on the consolidated financial position, results
of operations or cash flows of the Partnership.
F-85
Table of Contents
Letters-of-Credit
Under certain mortgages, the Partnership has funded required leasing and capital reserve accounts
for the benefit of the mortgage lenders with letters-of-credit which totaled $13.9 million at
December 31, 2009. Certain of the tenant rents at properties that secure these mortgage loans are
deposited into the loan servicer’s depository accounts, which are used to fund debt service,
operating expenses, capital expenditures and the escrow and reserve accounts, as necessary. At
December 31, 2009, the Partnership guaranteed a $51.0 million holdback from the Credit Facility in
connection with its historic tax credit transaction. Any excess cash is included in cash and cash
equivalents.
Ground Rent
Future minimum rental payments under the terms of all non-cancelable ground leases under which the
Partnership is the lessee are expensed on a straight-line basis regardless of when payments are
due. Minimum future rental payments on non-cancelable leases at December 31, 2009 are as follows
(in thousands):
|
2010
|
$ | 2,318 | ||
|
2011
|
2,318 | |||
|
2012
|
2,318 | |||
|
2013
|
2,318 | |||
|
2014
|
2,409 | |||
|
Thereafter
|
285,913 |
One of the land leases for a property (currently under development) provides for contingent
rent participation by the lessor in certain capital transactions and net operating cash flows of
the property after certain returns are achieved by the Partnership. Such amounts, if any, will be
reflected as contingent rent when incurred. The leases also provide for payment by the Partnership
of certain operating costs relating to the land, primarily real estate taxes. The above schedule of
future minimum rental payments does not include any contingent rent amounts nor any reimbursed
expenses.
Other Commitments or Contingencies
As part of the Partnership’s September 2004 acquisition of a portfolio of properties from The
Rubenstein Company (which the Partnership refers to as the TRC acquisition), the Partnership
acquired its interest in Two Logan Square, a 696,477 square foot office building in Philadelphia,
primarily through its ownership of a second and third mortgage secured by this property. This
property is consolidated as the borrower is a variable interest entity and the Partnership, through
its ownership of the second and third mortgages, is the primary beneficiary. The Partnership
currently does not expect to take title to Two Logan Square until, at the earliest, September 2019.
If the Partnership takes fee title to Two Logan Square upon a foreclosure of its mortgage, the
Partnership has agreed to pay an unaffiliated third party that holds a residual interest in the fee
owner of this property an amount equal to $0.6 million (if we must pay a state and local transfer
upon taking title) and $2.9 million (if no transfer tax is payable upon the transfer).
The Partnership is currently being audited by the Internal Revenue Service for its 2004 tax year.
The audit concerns the tax treatment of the transaction in September 2004 in which the Partnership
acquired a portfolio of properties through the acquisition of a limited partnership. At this time
it does not appear that an adjustment would result in a material tax liability for the Partnership.
However, an adjustment could raise a question as to whether a contributor of partnership interests
in the 2004 transaction could assert a claim against the Partnership under the tax protection
agreement entered into as part of the transaction.
As part of the Partnership’s 2006 acquisition of Prentiss Properties Trust, the TRC acquisition in
2004 and several of our other transactions, the Partnership agreed not to sell certain of the
properties it acquired in transactions that would trigger
taxable income to the former owners. In the case of the TRC acquisition, the Partnership agreed not
to sell acquired properties for periods up to 15 years from the date of the TRC acquisition as
follows at September 30, 2009: One Rodney Square and 130/150/170 Radnor Financial Center (January
2015); and One Logan Square, Two Logan Square and Radnor Corporate Center (January 2020). In the
Prentiss acquisition, the Partnership assumed the obligation of Prentiss not to sell Concord
Airport Plaza before March 2018. The Partnership’s agreements generally provide that it may dispose
of the subject properties only in transactions that qualify as tax-free exchanges under
Section 1031 of the Internal Revenue Code or in other tax deferred transactions. If the Partnership
were to sell a restricted property before expiration of the restricted period in a non-exempt
transaction, the Partnership may be required to make significant payments to the parties who sold
it the applicable property on account of tax liabilities attributed to them.
The Partnership invests in its properties and regularly incurs capital expenditures in the ordinary
course to maintain the properties. The Partnership believes that such expenditures enhance our
competitiveness. The Partnership also enters into construction, utility and service contracts in
the ordinary course of business which may extend beyond one year. These contracts typically
provide for cancellation with insignificant or no cancellation penalties.
F-86
Table of Contents
During 2008, in connection with the development of the PO Box/IRS and Cira Garage projects, the
Company entered into a historic tax credit and new market tax credit arrangement, respectively.
The Partnership is required to be in compliance with various laws, regulations and contractual
provisions that apply to its historic and new market tax credit arrangements. Non-compliance with
applicable requirements could result in projected tax benefits not being realized and require a
refund or reduction of investor capital contributions, which are reported as deferred income in the
Partnership’s consolidated balance sheet, until such time as its obligation to deliver tax benefits
is relieved. The remaining compliance periods for its tax credit arrangements runs through 2015.
The Partnership does not anticipate that any material refunds or reductions of investor capital
contributions will be required in connection with these arrangements. Refer to Note 16 for further
discussion on the tax credit transactions.
On June 29, 2009, the Partnership entered into a forward financing commitment to borrow up to
$256.5 million under two separate loans which are secured by mortgages on the Post Office project,
the garage project and by the leases of space at these facilities upon the completion of these
projects (See Note 7). In order for funding to occur, certain conditions must be met by the
Partnership and primarily relate to the completion of the projects and the commencement of the
rental payments from the respective leases on these properties. The expected funding date is
scheduled on August 26, 2010 which is also the anticipated completion date of the projects. In the
event the conditions were not met, the Partnership has the right to extend the funding date by
paying an extension fee amounting to $1.8 million for each 30 day extension within the allowed two
year extension period. In addition, the Partnership can also voluntarily elect to terminate the
loans during the forward period including the extension period by paying a termination fee. The
Partnership is also subject to the termination fee if the conditions were not met on the final
advance date. The termination fee is calculated as the greater of the 0.5% of the total available
principal to be funded or the difference between the present value of the scheduled interest and
principal payments (based on the principal amount to be funded and the then 20-year treasury rate
plus 50 basis points) from the funding date through the loans’ maturity date and the amount to be
funded. In addition, deferred financing costs related to these loans will be accelerated if the
Partnership chose to terminate the forward financing commitment.
21.
SUBSEQUENT EVENT
On January 14, 2010, the Partnership sold an office property containing 121,815 net rentable square
feet located in Richmond, Virginia, for a sales price of $10.9 million.
The
Partnership has evaluated subsequent events.
F-87
Table of Contents
22.
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following is a summary of quarterly financial information as of and for the years ended
December 31, 2009 and 2008 (in thousands, except per share data):
| 1st | 2nd | 3rd | 4th | |||||||||||||
| Quarter | Quarter | Quarter (a) | Quarter (a) | |||||||||||||
|
2009:
|
||||||||||||||||
|
Total revenue
|
$ | 146,917 | $ | 142,074 | $ | 146,593 | $ | 146,635 | ||||||||
|
Net income
|
(873 | ) | 5,780 | 7,309 | (4,127 | ) | ||||||||||
|
Income allocated to Common Partnership Units
|
(778 | ) | 5,612 | 7,148 | (3,956 | ) | ||||||||||
|
|
||||||||||||||||
|
Basic earnings per Common Partnership Unit
|
$ | (0.03 | ) | $ | 0.03 | $ | 0.04 | $ | (0.04 | ) | ||||||
|
Diluted earnings per Common Partnership Unit
|
$ | (0.03 | ) | $ | 0.03 | $ | 0.04 | $ | (0.04 | ) | ||||||
|
|
||||||||||||||||
|
2008:
|
||||||||||||||||
|
Total revenue
|
$ | 148,457 | $ | 147,516 | $ | 144,338 | $ | 149,110 | ||||||||
|
Net income
|
13,597 | 8,213 | 1,746 | 14,969 | ||||||||||||
|
Income allocated to Common Partnership Units
|
13,070 | 7,912 | 1,697 | 14,538 | ||||||||||||
|
|
||||||||||||||||
|
Basic earnings per Common Partnership Unit
|
$ | 0.13 | $ | 0.07 | $ | (0.01 | ) | $ | 0.14 | |||||||
|
Diluted earnings per Common Partnership Unit
|
$ | 0.13 | $ | 0.06 | $ | (0.01 | ) | $ | 0.14 | |||||||
| (a) | The fourth quarter net income includes a $0.9 million out of period adjustment pertaining to the Company’s incorrect recording during the quarter ended September 30, 2009 of an amount released from Accumulated Other Comprehensive Income as a charge rather than a credit to recognized hedge activity. The amount released of $0.4 million relates to a forecasted transaction which was no longer expected to occur. The reversal of the entry resulted in the $0.9 million of income in the quarter ended December 31, 2009. In addition, the fourth quarter of 2009 contains an out of period depreciation adjustment of $1.3 million relating to tenant assets that should have been written off over the second and third quarters of 2009 amounting to $0.6 million and $0.7 million, respectively. |
The summation of quarterly earnings per share amounts do not necessarily equal the full year
amounts. The above information was updated to reclassify amounts previously reported to reflect
discontinued operations and the retrospective adoption of the new
accounting standards. See Note 2 and Note
10.
F-88
Table of Contents
Brandywine Operating Partnership
Schedule II
Valuation and Qualifying Accounts
(in thousands)
(in thousands)
| Balance at | Balance | |||||||||||||||
| Beginning | at End | |||||||||||||||
| Description | of Period | Additions | Deductions (1) | of Period | ||||||||||||
|
Allowance for doubtful accounts:
|
||||||||||||||||
|
|
||||||||||||||||
|
Year ended December 31, 2009
|
$ | 15,474 | $ | 2,596 | $ | 1,707 | $ | 16,363 | ||||||||
|
|
||||||||||||||||
|
Year ended December 31, 2008
|
$ | 10,162 | $ | 6,900 | $ | 1,588 | $ | 15,474 | ||||||||
|
|
||||||||||||||||
|
Year ended December 31, 2007
|
$ | 9,311 | $ | 2,147 | $ | 1,296 | $ | 10,162 | ||||||||
|
|
||||||||||||||||
| (1) | Deductions represent amounts that the Partnership had fully reserved for in prior periods and pursuit of collection of such amounts was ceased during the period. |
F-89
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||||||
| City | State | December 31, 2009 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2009 (b) | Construction | Acquired | Life | ||||||||||||||||||||||||||||||||||||||||
|
PENNSYLVANIA
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
2929 Arch Street
|
Philadelphia | PA | — | — | 208,570 | 17,954 | — | 226,524 | 226,524 | 36,427 | 2005 | N/A | 40 | |||||||||||||||||||||||||||||||||||||||
|
130 North 18th Street
|
Philadelphia | PA | 89,800 | 14,496 | 107,736 | 9,874 | 14,473 | 117,633 | 132,106 | 20,451 | 1983 | 2004 | 23 | |||||||||||||||||||||||||||||||||||||||
|
100 North 18th Street
|
Philadelphia | PA | 60,000 | 16,066 | 100,255 | 3,940 | 16,066 | 104,195 | 120,261 | 17,168 | 1988 | 2004 | 33 | |||||||||||||||||||||||||||||||||||||||
|
150 Radnor Chester Road
|
Radnor | PA | — | 11,925 | 36,986 | 13,064 | 11,897 | 50,078 | 61,975 | 10,691 | 1983 | 2004 | 29 | |||||||||||||||||||||||||||||||||||||||
|
555 Lancaster Avenue
|
Radnor | PA | — | 8,014 | 16,508 | 25,497 | 8,609 | 41,410 | 50,019 | 10,236 | 1973 | 2004 | 24 | |||||||||||||||||||||||||||||||||||||||
|
One Radnor Corporate Center
|
Radnor | PA | — | 7,323 | 28,613 | 11,526 | 7,323 | 40,139 | 47,462 | 6,107 | 1998 | 2004 | 29 | |||||||||||||||||||||||||||||||||||||||
|
201 King of Prussia Road
|
Radnor | PA | — | 8,956 | 29,811 | 5,101 | 8,949 | 34,918 | 43,868 | 8,466 | 2001 | 2004 | 25 | |||||||||||||||||||||||||||||||||||||||
|
401 Plymouth Road
|
Plymouth Meeting | PA | — | 6,198 | 16,131 | 15,222 | 6,199 | 31,353 | 37,551 | 7,442 | 2001 | 2000 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Four Radnor Corporate Center
|
Radnor | PA | — | 5,406 | 21,390 | 8,976 | 5,705 | 30,067 | 35,772 | 6,300 | 1995 | 2004 | 30 | |||||||||||||||||||||||||||||||||||||||
|
Five Radnor Corporate Center
|
Radnor | PA | — | 6,506 | 25,525 | 1,892 | 6,578 | 27,345 | 33,923 | 4,678 | 1998 | 2004 | 38 | |||||||||||||||||||||||||||||||||||||||
|
101 West Elm Street
|
W. Conshohocken | PA | — | 6,251 | 25,209 | 1,031 | 6,251 | 26,239 | 32,491 | 3,261 | 1999 | 2005 | 40 | |||||||||||||||||||||||||||||||||||||||
|
4000 Chemical Road
|
Plymouth Meeting | PA | — | 4,373 | 24,546 | 1,295 | 4,373 | 25,841 | 30,214 | 1,157 | 2007 | N/A | 40 | |||||||||||||||||||||||||||||||||||||||
|
Three Radnor Corporate Center
|
Radnor | PA | — | 4,773 | 17,961 | 1,250 | 4,791 | 19,192 | 23,984 | 3,766 | 1998 | 2004 | 29 | |||||||||||||||||||||||||||||||||||||||
|
640 Freedom Business Center
|
King Of Prussia | PA | — | 4,222 | 16,891 | 2,689 | 4,222 | 19,580 | 23,802 | 6,628 | 1991 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
555 Croton Road
|
King of Prussia | PA | — | 4,486 | 17,943 | 1,026 | 4,486 | 18,969 | 23,455 | 4,261 | 1999 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
400 Berwyn Park
|
Berwyn | PA | — | 2,657 | 4,462 | 15,790 | 2,657 | 20,252 | 22,909 | 6,473 | 1999 | 1999 | 40 | |||||||||||||||||||||||||||||||||||||||
|
630 Allendale Road
|
King of Prussia | PA | — | 2,836 | 4,028 | 15,499 | 2,636 | 19,727 | 22,363 | 7,289 | 2000 | 2000 | 40 | |||||||||||||||||||||||||||||||||||||||
|
101 Lindenwood Drive
|
Malvern | PA | — | 4,152 | 16,606 | 1,324 | 4,152 | 17,931 | 22,082 | 4,334 | 1988 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
52 Swedesford Square
|
East Whiteland Twp. | PA | — | 4,241 | 16,579 | 1,002 | 4,241 | 17,581 | 21,822 | 5,771 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
600 West Germantown Pike
|
Plymouth Meeting | PA | 10,626 | 3,652 | 15,288 | 1,456 | 3,652 | 16,744 | 20,396 | 3,685 | 1986 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||
|
630 West Germantown Pike
|
Plymouth Meeting | PA | 10,652 | 3,558 | 14,743 | 2,094 | 3,558 | 16,836 | 20,395 | 3,376 | 1988 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||
|
980 Harvest Drive
|
Blue Bell | PA | — | 3,304 | 16,960 | 0 | 3,304 | 16,961 | 20,264 | 5,098 | 1988 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Two Radnor Corporate Center
|
Radnor | PA | — | 3,937 | 15,484 | 810 | 3,942 | 16,289 | 20,231 | 3,144 | 1998 | 2004 | 29 | |||||||||||||||||||||||||||||||||||||||
|
610 West Germantown Pike
|
Plymouth Meeting | PA | 10,682 | 3,651 | 14,514 | 1,921 | 3,651 | 16,434 | 20,086 | 3,588 | 1987 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||
|
620 West Germantown Pike
|
Plymouth Meeting | PA | 10,682 | 3,572 | 14,435 | 1,417 | 3,572 | 15,851 | 19,424 | 3,843 | 1990 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||
|
200 Barr Harbour Drive
|
Conshohocken | PA | 13,557 | 2,827 | 15,525 | 163 | 2,827 | 15,688 | 18,515 | 6,116 | 1999 | 2004 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1050 Westlakes Drive
|
Berwyn | PA | — | 2,611 | 10,445 | 5,046 | 2,611 | 15,491 | 18,102 | 4,376 | 1984 | 1999 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1 West Elm Street
|
W. Conshohocken | PA | — | 3,557 | 14,249 | — | 3,557 | 14,347 | 17,904 | 1,526 | 1999 | 2005 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1200 Swedesford Road
|
Berwyn | PA | 3,255 | 2,595 | 11,809 | 3,370 | 2,595 | 15,178 | 17,774 | 2,189 | 1994 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
181 Washington Street
|
Conshohocken | PA | 10,158 | 2,672 | 14,221 | 812 | 2,673 | 15,032 | 17,705 | 6,688 | 1998 | 2004 | 40 | |||||||||||||||||||||||||||||||||||||||
|
300 Berwyn Park
|
Berwyn | PA | 10,506 | 2,206 | 13,422 | 1,983 | 2,206 | 15,405 | 17,611 | 5,478 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
620 Freedom Business Center
|
King Of Prussia | PA | — | 2,770 | 11,014 | 3,295 | 2,770 | 14,309 | 17,079 | 5,242 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1000 First Avenue
|
King Of Prussia | PA | — | 2,772 | 10,936 | 3,177 | 2,772 | 14,113 | 16,885 | 4,494 | 1980 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1060 First Avenue
|
King Of Prussia | PA | — | 2,712 | 10,953 | 2,609 | 2,712 | 13,562 | 16,274 | 4,279 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
301 Lindenwood Drive
|
Malvern | PA | — | 2,729 | 10,915 | 1,955 | 2,729 | 12,870 | 15,599 | 3,419 | 1984 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1040 First Avenue
|
King Of Prussia | PA | — | 2,860 | 11,282 | 1,047 | 2,860 | 12,329 | 15,189 | 4,192 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
595 East Swedesford Road
|
Wayne | PA | — | 2,729 | 10,917 | 1,491 | 2,729 | 12,408 | 15,137 | 2,063 | 1998 | 2003 | 40 | |||||||||||||||||||||||||||||||||||||||
|
630 Freedom Business Center
|
King Of Prussia | PA | — | 2,773 | 11,144 | 978 | 2,773 | 12,122 | 14,895 | 4,203 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1020 First Avenue
|
King Of Prussia | PA | — | 2,168 | 8,576 | 4,118 | 2,168 | 12,693 | 14,862 | 3,895 | 1984 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
130 Radnor Chester Road
|
Radnor | PA | — | 2,573 | 8,338 | 3,692 | 2,567 | 12,035 | 14,603 | 1,830 | 1983 | 2004 | 25 | |||||||||||||||||||||||||||||||||||||||
|
170 Radnor Chester Road
|
Radnor | PA | — | 2,514 | 8,147 | 3,340 | 2,509 | 11,493 | 14,001 | 2,246 | 1983 | 2004 | 25 | |||||||||||||||||||||||||||||||||||||||
|
200 Berwyn Park
|
Berwyn | PA | 7,254 | 1,533 | 9,460 | 2,351 | 1,533 | 11,811 | 13,344 | 4,564 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
575 East Swedesford Road
|
Wayne | PA | — | 2,178 | 8,712 | 1,856 | 2,178 | 10,568 | 12,746 | 1,842 | 1985 | 2003 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1180 Swedesford Road
|
Berwyn | PA | — | 2,086 | 8,342 | 1,237 | 2,086 | 9,580 | 11,665 | 2,471 | 1987 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
610 Freedom Business Center
|
King Of Prussia | PA | — | 2,017 | 8,070 | 722 | 2,017 | 8,792 | 10,809 | 3,086 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
565 East Swedesford Road
|
Wayne | PA | — | 1,872 | 7,489 | 1,201 | 1,872 | 8,690 | 10,562 | 1,688 | 1984 | 2003 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1160 Swedesford Road
|
Berwyn | PA | — | 1,781 | 7,124 | 1,245 | 1,781 | 8,369 | 10,150 | 2,248 | 1986 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
100 Berwyn Park
|
Berwyn | PA | 5,580 | 1,180 | 7,290 | 963 | 1,180 | 8,253 | 9,433 | 3,135 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
925 Harvest Drive
|
Blue Bell | PA | — | 1,671 | 6,606 | 1,128 | 1,671 | 7,734 | 9,405 | 2,775 | 1990 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
650 Park Avenue
|
King Of Prussia | PA | — | 1,916 | 4,378 | 2,530 | 1,916 | 6,908 | 8,824 | 2,950 | 1968 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
426 Lancaster Avenue
|
Devon | PA | — | 1,689 | 6,756 | 369 | 1,689 | 7,126 | 8,814 | 2,489 | 1990 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1100 Cassett Road
|
Berwyn | PA | — | 1,695 | 6,779 | (0 | ) | 1,695 | 6,779 | 8,474 | 1,483 | 1997 | 2001 | 40 | ||||||||||||||||||||||||||||||||||||||
|
14 Campus Boulevard
|
Newtown Square | PA | 6,725 | 2,244 | 4,217 | 1,734 | 2,244 | 5,951 | 8,195 | 1,648 | 1998 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
500 North Gulph Road
|
King Of Prussia | PA | — | 1,303 | 5,201 | 1,564 | 1,303 | 6,765 | 8,068 | 2,661 | 1979 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
920 Harvest Drive
|
Blue Bell | PA | — | 1,209 | 6,595 | (245 | ) | 1,208 | 6,351 | 7,559 | 2,398 | 1990 | 1998 | 40 | ||||||||||||||||||||||||||||||||||||||
|
2240/2250 Butler Pike
|
Plymouth Meeting | PA | — | 1,104 | 4,627 | 1,666 | 1,104 | 6,293 | 7,397 | 2,811 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
One Progress Drive
|
Horsham | PA | — | 1,399 | 5,629 | 230 | 1,399 | 5,859 | 7,258 | 2,360 | 1986 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
585 East Swedesford Road
|
Wayne | PA | — | 1,350 | 5,401 | 358 | 1,350 | 5,758 | 7,109 | 902 | 1998 | 2003 | 40 | |||||||||||||||||||||||||||||||||||||||
|
429 Creamery Way
|
Exton | PA | — | 1,368 | 5,471 | 19 | 1,368 | 5,490 | 6,858 | 1,244 | 1996 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
741 First Avenue
|
King Of Prussia | PA | — | 1,287 | 5,151 | 219 | 1,287 | 5,369 | 6,657 | 1,956 | 1966 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
440 Creamery Way
|
Exton | PA | — | 982 | 3,927 | 1,717 | 982 | 5,644 | 6,626 | 1,508 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
412 Creamery Way
|
Exton | PA | — | 1,195 | 4,779 | 503 | 1,195 | 5,282 | 6,477 | 1,296 | 1999 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
875 First Avenue
|
King Of Prussia | PA | — | 618 | 2,473 | 3,302 | 618 | 5,775 | 6,393 | 2,086 | 1966 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
17 Campus Boulevard
|
Newtown Square | PA | 4,699 | 1,108 | 5,155 | 46 | 1,108 | 5,201 | 6,309 | 2,083 | 2001 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
479 Thomas Jones Way
|
Exton | PA | — | 1,075 | 4,299 | 808 | 1,075 | 5,107 | 6,182 | 1,231 | 1988 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
500 Enterprise Drive
|
Horsham | PA | — | 1,303 | 5,188 | (446 | ) | 1,303 | 4,741 | 6,045 | 1,804 | 1990 | 1996 | 40 | ||||||||||||||||||||||||||||||||||||||
|
11 Campus Boulevard
|
Newtown Square | PA | 4,610 | 1,112 | 4,067 | 802 | 1,112 | 4,869 | 5,981 | 1,429 | 1998 | 1999 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Philadelphia Marine Center
|
Philadelphia | PA | — | 532 | 2,196 | 3,249 | 628 | 5,349 | 5,977 | 1,241 | Various | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
F-90
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||||||
| City | State | December 31, 2009 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2009 (b) | Construction | Acquired | Life | ||||||||||||||||||||||||||||||||||||||||
|
467 Creamery Way
|
Exton | PA | — | 906 | 3,623 | 1,365 | 906 | 4,988 | 5,894 | 1,171 | 1988 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
300 Lindenwood Drive
|
Malvern | PA | — | 848 | 3,394 | 1,362 | 849 | 4,756 | 5,604 | 1,110 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
436 Creamery Way
|
Exton | PA | — | 994 | 3,978 | 555 | 994 | 4,532 | 5,527 | 1,112 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
751-761 Fifth Avenue
|
King Of Prussia | PA | — | 1,097 | 4,391 | 31 | 1,097 | 4,422 | 5,519 | 1,505 | 1967 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
15 Campus Boulevard
|
Newtown Square | PA | 4,800 | 1,164 | 3,896 | 408 | 1,164 | 4,304 | 5,468 | 1,012 | 2002 | 2000 | 40 | |||||||||||||||||||||||||||||||||||||||
|
600 Park Avenue
|
King Of Prussia | PA | — | 1,012 | 4,048 | 385 | 1,012 | 4,433 | 5,445 | 1,443 | 1964 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
620 Allendale Road
|
King Of Prussia | PA | — | 1,020 | 3,839 | 514 | 1,020 | 4,353 | 5,373 | 1,387 | 1961 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
442 Creamery Way
|
Exton | PA | — | 894 | 3,576 | 684 | 894 | 4,260 | 5,154 | 1,100 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
100 Arrandale Boulevard
|
Exton | PA | — | 970 | 3,878 | 274 | 970 | 4,152 | 5,122 | 983 | 1997 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
18 Campus Boulevard
|
Newtown Square | PA | 3,615 | 787 | 3,312 | 461 | 787 | 3,773 | 4,560 | 1,676 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2260 Butler Pike
|
Plymouth Meeting | PA | — | 661 | 2,727 | 1,103 | 662 | 3,829 | 4,491 | 1,665 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
486 Thomas Jones Way
|
Exton | PA | — | 806 | 3,256 | 339 | 806 | 3,595 | 4,401 | 1,360 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1700 Paoli Pike
|
Malvern | PA | — | 458 | 559 | 3,281 | 488 | 3,810 | 4,298 | 1,017 | 2000 | 2000 | 40 | |||||||||||||||||||||||||||||||||||||||
|
120 West Germantown Pike
|
Plymouth Meeting | PA | — | 685 | 2,773 | 652 | 685 | 3,425 | 4,110 | 1,518 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
457 Creamery Way
|
Exton | PA | — | 777 | 3,107 | 25 | 777 | 3,132 | 3,909 | 699 | 1990 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1336 Enterprise Drive
|
West Goshen | PA | — | 731 | 2,946 | 47 | 731 | 2,993 | 3,724 | 1,133 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
680 Allendale Road
|
King Of Prussia | PA | — | 689 | 2,756 | 9 | 689 | 2,765 | 3,454 | 946 | 1962 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
456 Creamery Way
|
Exton | PA | — | 635 | 2,548 | (48 | ) | 635 | 2,500 | 3,135 | 1,010 | 1987 | 1996 | 40 | ||||||||||||||||||||||||||||||||||||||
|
630 Clark Avenue
|
King Of Prussia | PA | — | 547 | 2,190 | 0 | 547 | 2,190 | 2,737 | 746 | 1960 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
140 West Germantown Pike
|
Plymouth Meeting | PA | — | 481 | 1,976 | 264 | 482 | 2,239 | 2,721 | 934 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
468 Thomas Jones Way
|
Exton | PA | — | 526 | 2,112 | 74 | 527 | 2,185 | 2,712 | 926 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
481 John Young Way
|
Exton | PA | — | 496 | 1,983 | 14 | 496 | 1,997 | 2,493 | 435 | 1997 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
100 Lindenwood Drive
|
Malvern | PA | — | 473 | 1,892 | 78 | 473 | 1,970 | 2,443 | 452 | 1985 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
640 Allendale Road
|
King of Prussia | PA | — | 439 | 432 | 1,480 | 439 | 1,912 | 2,351 | 445 | 2000 | 2000 | 40 | |||||||||||||||||||||||||||||||||||||||
|
660 Allendale Road
|
King of Prussia | PA | — | 396 | 3,343 | (1,637 | ) | 396 | 1,706 | 2,102 | 821 | 1962 | 1998 | 40 | ||||||||||||||||||||||||||||||||||||||
|
200 Lindenwood Drive
|
Malvern | PA | — | 324 | 1,295 | 1 | 324 | 1,296 | 1,620 | 284 | 1984 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
351 Plymouth Road
|
Plymouth Meeting | PA | — | 1,043 | 555 | — | 1,043 | 555 | 1,598 | 66 | N/A | 2000 | 40 | |||||||||||||||||||||||||||||||||||||||
|
111 Arrandale Road
|
Exton | PA | — | 262 | 1,048 | 125 | 262 | 1,173 | 1,435 | 287 | 1996 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
922 Swedesford Road
|
Berwyn | PA | — | 218 | — | (218 | ) | — | — | — | — | N/A | N/A | 40 | ||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
METROPOLITAN WASHINGTON D.C.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
1676 International Drive
|
Mclean | VA | 62,713 | 18,437 | 97,538 | 1,031 | 18,785 | 98,221 | 117,006 | 8,591 | 1999 | 2006 | 55 | |||||||||||||||||||||||||||||||||||||||
|
2340 Dulles Corner Boulevard
|
Herndon | VA | — | 16,345 | 65,379 | 18,370 | 16,129 | 83,965 | 100,094 | 10,569 | 1987 | 2006 | 40 | |||||||||||||||||||||||||||||||||||||||
|
13820 Sunrise Valley Drive
|
Herndon | VA | — | 11,082 | 47,290 | 19,687 | 11,082 | 66,977 | 78,059 | 1,931 | 2007 | N/A | 40 | |||||||||||||||||||||||||||||||||||||||
|
7101 Wisconsin Avenue
|
Bethesda | MD | — | 9,634 | 48,402 | 4,825 | 9,816 | 53,045 | 62,860 | 6,396 | 1975 | 2006 | 45 | |||||||||||||||||||||||||||||||||||||||
|
3130 Fairview Park Drive
|
Falls Church | VA | — | 6,576 | 51,605 | 2,262 | 6,700 | 53,743 | 60,443 | 4,739 | 1999 | 2006 | 53 | |||||||||||||||||||||||||||||||||||||||
|
2291 Wood Oak Drive
|
Herndon | VA | — | 8,243 | 52,413 | (741 | ) | 8,782 | 51,133 | 59,915 | 4,610 | 1999 | 2006 | 55 | ||||||||||||||||||||||||||||||||||||||
|
2355 Dulles Corner Boulevard
|
Herndon | VA | — | 10,365 | 43,876 | 5,245 | 10,365 | 49,121 | 59,486 | 5,514 | 1988 | 2006 | 40 | |||||||||||||||||||||||||||||||||||||||
|
196/198 Van Buren Street
|
Herndon | VA | — | 7,931 | 43,812 | 7,171 | 8,348 | 50,565 | 58,914 | 6,513 | 1991 | 2006 | 53 | |||||||||||||||||||||||||||||||||||||||
|
2251 Corporate Park Drive
|
Herndon | VA | — | 11,472 | 45,893 | 42 | 11,472 | 45,936 | 57,407 | 3,636 | 2000 | 2006 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2411 Dulles Corner Park
|
Herndon | VA | — | 7,279 | 46,340 | 3,654 | 7,417 | 49,856 | 57,273 | 4,630 | 1990 | 2006 | 50 | |||||||||||||||||||||||||||||||||||||||
|
1900 Gallows Road
|
Vienna | VA | — | 7,797 | 47,817 | (897 | ) | 7,944 | 46,773 | 54,717 | 3,680 | 1989 | 2006 | 52 | ||||||||||||||||||||||||||||||||||||||
|
3141 Fairview Park Drive
|
Falls Church | VA | — | 5,918 | 40,981 | 841 | 6,050 | 41,691 | 47,741 | 4,573 | 1988 | 2006 | 51 | |||||||||||||||||||||||||||||||||||||||
|
13880 Dulles Corner Lane
|
Herndon | VA | — | 7,236 | 39,213 | 640 | 7,373 | 39,716 | 47,089 | 4,728 | 1997 | 2006 | 55 | |||||||||||||||||||||||||||||||||||||||
|
6600 Rockledge Drive
|
Bethesda | MD | — | — | 37,421 | 8,329 | — | 45,750 | 45,750 | 4,819 | 1981 | 2006 | 50 | |||||||||||||||||||||||||||||||||||||||
|
2121 Cooperative Way
|
Herndon | VA | — | 5,598 | 38,639 | 219 | 5,795 | 38,661 | 44,456 | 3,536 | 2000 | 2006 | 54 | |||||||||||||||||||||||||||||||||||||||
|
8260 Greensboro Drive
|
Mclean | VA | 33,296 | 7,952 | 33,964 | 407 | 8,102 | 34,221 | 42,323 | 3,794 | 1980 | 2006 | 52 | |||||||||||||||||||||||||||||||||||||||
|
2273 Research Boulevard
|
Rockville | MD | 14,180 | 5,167 | 31,110 | 3,128 | 5,237 | 34,168 | 39,405 | 4,552 | 1999 | 2006 | 45 | |||||||||||||||||||||||||||||||||||||||
|
2201 Cooperative Way
|
Herndon | VA | — | 4,809 | 34,093 | (1,785 | ) | 4,809 | 32,309 | 37,118 | 2,772 | 1990 | 2006 | 54 | ||||||||||||||||||||||||||||||||||||||
|
2275 Research Boulevard
|
Rockville | MD | 14,180 | 5,059 | 29,668 | 1,389 | 5,154 | 30,962 | 36,116 | 3,158 | 1990 | 2006 | 45 | |||||||||||||||||||||||||||||||||||||||
|
8521 Leesburg Pike
|
Vienna | VA | — | 4,316 | 30,885 | (57 | ) | 4,397 | 30,746 | 35,143 | 3,276 | 1984 | 2006 | 51 | ||||||||||||||||||||||||||||||||||||||
|
1880 Campus Commons Drive
|
Reston | VA | — | 6,164 | 28,114 | 86 | 6,281 | 28,083 | 34,364 | 2,466 | 1985 | 2006 | 52 | |||||||||||||||||||||||||||||||||||||||
|
2277 Research Boulevard
|
Rockville | MD | 13,163 | 4,649 | 26,952 | (238 | ) | 4,733 | 26,629 | 31,362 | 2,451 | 1986 | 2006 | 45 | ||||||||||||||||||||||||||||||||||||||
|
12015 Lee Jackson Memorial Highway
|
Fairfax | VA | — | 3,770 | 22,895 | 2,188 | 3,842 | 25,012 | 28,853 | 3,605 | 1985 | 2006 | 42 | |||||||||||||||||||||||||||||||||||||||
|
11720 Beltsville Drive
|
Beltsville | MD | — | 3,831 | 16,661 | 4,660 | 3,904 | 21,248 | 25,151 | 2,913 | 1987 | 2006 | 46 | |||||||||||||||||||||||||||||||||||||||
|
11781 Lee Jackson Memorial Highway
|
Fairfax | VA | — | 3,246 | 19,836 | (229 | ) | 3,307 | 19,546 | 22,853 | 2,611 | 1982 | 2006 | 40 | ||||||||||||||||||||||||||||||||||||||
|
13825 Sunrise Valley Drive
|
Herndon | VA | — | 3,794 | 19,365 | (1,376 | ) | 3,866 | 17,917 | 21,783 | 1,590 | 1989 | 2006 | 46 | ||||||||||||||||||||||||||||||||||||||
|
11700 Beltsville Drive
|
Beltsville | MD | — | 2,808 | 12,081 | 743 | 2,863 | 12,769 | 15,632 | 1,707 | 1981 | 2006 | 46 | |||||||||||||||||||||||||||||||||||||||
|
4401 Fair Lakes Court
|
Fairfax | VA | — | 1,569 | 11,982 | (142 | ) | 1,599 | 11,810 | 13,409 | 1,171 | 1988 | 2006 | 52 | ||||||||||||||||||||||||||||||||||||||
|
11710 Beltsville Drive
|
Beltsville | MD | — | 2,278 | 11,100 | (709 | ) | 2,321 | 10,348 | 12,669 | 1,359 | 1987 | 2006 | 46 | ||||||||||||||||||||||||||||||||||||||
|
3141 Fairview Park Drive — I
|
Falls Church | VA | — | 733 | 4,939 | (100 | ) | 733 | 4,838 | 5,572 | 386 | 1988 | 2006 | 51 | ||||||||||||||||||||||||||||||||||||||
|
3141 Fairview Park Drive — II
|
Falls Church | VA | — | 297 | 1,964 | 0 | 297 | 1,964 | 2,261 | 157 | 1988 | 2006 | 51 | |||||||||||||||||||||||||||||||||||||||
|
11740 Beltsville Drive
|
Bethesda | MD | — | 198 | 870 | 18 | 202 | 884 | 1,086 | 75 | 1987 | 2006 | 46 | |||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
NEW JERSEY/DELAWARE
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
920 North King Street
|
Wilmington | DE | — | 6,141 | 21,140 | 1,081 | 6,141 | 22,221 | 28,362 | 4,529 | 1989 | 2004 | 30 | |||||||||||||||||||||||||||||||||||||||
|
1009 Lenox Drive
|
Lawrenceville | NJ | — | 4,876 | 19,284 | 4,020 | 5,118 | 23,063 | 28,180 | 7,914 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
300 Delaware Avenue
|
Wilmington | DE | — | 6,368 | 13,739 | 2,614 | 6,369 | 16,353 | 22,721 | 4,168 | 1989 | 2004 | 23 | |||||||||||||||||||||||||||||||||||||||
|
525 Lincoln Drive West
|
Marlton | NJ | — | 3,727 | 17,620 | 1,009 | 3,727 | 18,630 | 22,356 | 4,090 | 1986 | 2004 | 40 | |||||||||||||||||||||||||||||||||||||||
F-91
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||||||
| City | State | December 31, 2009 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2009 (b) | Construction | Acquired | Life | ||||||||||||||||||||||||||||||||||||||||
|
700 East Gate Drive
|
Mt. Laurel | NJ | — | 3,569 | 14,436 | 2,153 | 3,569 | 16,590 | 20,158 | 5,362 | 1984 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
989 Lenox Drive
|
Lawrenceville | NJ | — | 3,701 | 14,802 | 1,481 | 3,850 | 16,134 | 19,984 | 2,839 | 1984 | 2003 | 40 | |||||||||||||||||||||||||||||||||||||||
|
10000 Midlantic Drive
|
Mt. Laurel | NJ | — | 3,206 | 12,857 | 2,613 | 3,206 | 15,470 | 18,676 | 6,307 | 1990 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
One Righter Parkway
|
Wilmington | DE | 9,227 | 2,545 | 10,195 | 5,456 | 2,545 | 15,651 | 18,196 | 5,871 | 1989 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Main Street — Plaza 1000
|
Voorhees | NJ | — | 2,732 | 10,942 | 4,127 | 2,732 | 15,069 | 17,801 | 6,463 | 1988 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2000 Lenox Drive
|
Lawrenceville | NJ | 10,496 | 2,291 | 12,221 | 3,210 | 2,684 | 15,038 | 17,722 | 6,400 | 2000 | 2000 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Two Righter Parkway
|
Wilmington | DE | — | 2,802 | 11,217 | 3,460 | 2,802 | 14,677 | 17,479 | 955 | 1987 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
15000 Midlantic Drive
|
Mt. Laurel | NJ | — | 3,061 | 12,254 | 1,106 | 3,061 | 13,360 | 16,421 | 4,889 | 1991 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
997 Lenox Drive
|
Lawrenceville | NJ | 7,917 | 2,410 | 9,700 | 4,140 | 2,540 | 13,710 | 16,250 | 4,021 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
993 Lenox Drive
|
Lawrenceville | NJ | 9,792 | 2,811 | 17,996 | (5,484 | ) | 2,960 | 12,363 | 15,323 | 4,372 | 1985 | 1998 | 40 | ||||||||||||||||||||||||||||||||||||||
|
1200 Lenox Drive
|
Lawrenceville | NJ | — | 1,071 | 12,967 | 851 | 1,071 | 13,817 | 14,889 | 549 | 2007 | N/A | 40 | |||||||||||||||||||||||||||||||||||||||
|
1000 Atrium Way
|
Mt. Laurel | NJ | — | 2,061 | 8,180 | 3,962 | 2,061 | 12,142 | 14,203 | 3,848 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1120 Executive Boulevard
|
Marlton | NJ | — | 2,074 | 8,415 | 2,239 | 2,074 | 10,654 | 12,728 | 4,465 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1000 Howard Boulevard
|
Mt. Laurel | NJ | — | 2,297 | 9,288 | 965 | 2,297 | 10,253 | 12,550 | 4,151 | 1988 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
400 Commerce Drive
|
Newark | DE | — | 2,528 | 9,220 | 733 | 2,528 | 9,953 | 12,481 | 2,262 | 1997 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||
|
220 Lake Drive East
|
Cherry Hill | NJ | — | 2,144 | 8,798 | 878 | 2,144 | 9,676 | 11,820 | 2,417 | 1988 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
200 Lake Drive East
|
Cherry Hill | NJ | — | 2,069 | 8,275 | 1,474 | 2,069 | 9,749 | 11,818 | 2,752 | 1989 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
457 Haddonfield Road
|
Cherry Hill | NJ | 11,774 | 2,142 | 9,120 | 329 | 2,142 | 9,449 | 11,591 | 4,092 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2000 Midlantic Drive
|
Mt. Laurel | NJ | 10,717 | 2,202 | 8,823 | 60 | 2,203 | 8,882 | 11,085 | 3,270 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
10 Lake Center Drive
|
Marlton | NJ | — | 1,880 | 7,521 | 1,619 | 1,880 | 9,140 | 11,020 | 2,534 | 1989 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
100 Lenox Drive
|
Lawrenceville | NJ | — | — | — | 10,771 | 1,134 | 9,637 | 10,771 | 539 | 1977 | 1999 | N/A | |||||||||||||||||||||||||||||||||||||||
|
701 East Gate Drive
|
Mt. Laurel | NJ | — | 1,736 | 6,877 | 1,005 | 1,736 | 7,882 | 9,618 | 2,785 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
210 Lake Drive East
|
Cherry Hill | NJ | — | 1,645 | 6,579 | 759 | 1,645 | 7,338 | 8,983 | 1,906 | 1986 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
308 Harper Drive
|
Moorestown | NJ | — | 1,643 | 6,663 | 219 | 1,644 | 6,881 | 8,525 | 2,209 | 1976 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
305 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,421 | 5,768 | 1,265 | 1,421 | 7,033 | 8,454 | 2,466 | 1980 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
307 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,565 | 6,342 | 449 | 1,565 | 6,792 | 8,356 | 2,259 | 1981 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
303 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,493 | 6,055 | 652 | 1,494 | 6,707 | 8,200 | 2,194 | 1979 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
309 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,518 | 6,154 | 397 | 1,518 | 6,551 | 8,069 | 2,087 | 1982 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1000 Lenox Drive
|
Lawrenceville | NJ | — | 1,174 | 4,696 | 2,180 | 1,244 | 6,806 | 8,050 | 2,033 | 1982 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1000 Bishops Gate
|
Mt. Laurel | NJ | — | 934 | 6,287 | — | 934 | 6,883 | 7,817 | 1,612 | 2005 | 2000 | 40 | |||||||||||||||||||||||||||||||||||||||
|
9000 Midlantic Drive
|
Mt. Laurel | NJ | 5,926 | 1,472 | 5,895 | 95 | 1,472 | 5,990 | 7,462 | 2,230 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
6 East Clementon Road
|
Gibbsboro | NJ | — | 1,345 | 5,366 | 350 | 1,345 | 5,716 | 7,061 | 2,015 | 1980 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Three Greentree Centre
|
Marlton | NJ | — | 323 | 6,024 | 607 | 324 | 6,631 | 6,954 | 4,930 | 1984 | 1986 | 40 | |||||||||||||||||||||||||||||||||||||||
|
100 Commerce Drive
|
Newark | DE | — | 1,160 | 4,633 | 849 | 1,160 | 5,482 | 6,642 | 2,139 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
200 Commerce Drive
|
Newark | DE | — | 911 | 4,414 | 1,018 | 911 | 5,432 | 6,343 | 1,340 | 1998 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||
|
30 Lake Center Drive
|
Marlton | NJ | — | 1,043 | 4,171 | 912 | 1,043 | 5,084 | 6,126 | 1,310 | 1986 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
161 Gaither Drive
|
Mount Laurel | NJ | — | 1,016 | 4,064 | 714 | 1,016 | 4,778 | 5,794 | 1,183 | 1987 | 2001 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Two Greentree Centre
|
Marlton | NJ | — | 264 | 4,693 | 694 | 264 | 5,387 | 5,651 | 3,616 | 1983 | 1986 | 40 | |||||||||||||||||||||||||||||||||||||||
|
One Greentree Centre
|
Marlton | NJ | — | 345 | 4,440 | 590 | 345 | 5,030 | 5,375 | 3,365 | 1982 | 1986 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Two Eves Drive
|
Marlton | NJ | — | 818 | 3,461 | 43 | 818 | 3,503 | 4,322 | 1,326 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
4000 Midlantic Drive
|
Mt. Laurel | NJ | 4,133 | 714 | 5,085 | (1,524 | ) | 714 | 3,561 | 4,275 | 1,412 | 1998 | 1997 | 40 | ||||||||||||||||||||||||||||||||||||||
|
20 East Clementon Road
|
Gibbsboro | NJ | — | 769 | 3,055 | 281 | 769 | 3,336 | 4,105 | 1,201 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Five Eves Drive
|
Marlton | NJ | — | 703 | 2,819 | 491 | 703 | 3,310 | 4,013 | 1,303 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
8000 Lincoln Drive
|
Marlton | NJ | — | 606 | 2,887 | 303 | 606 | 3,189 | 3,796 | 1,442 | 1997 | 1996 | 40 | |||||||||||||||||||||||||||||||||||||||
|
304 Harper Drive
|
Moorestown | NJ | — | 657 | 2,674 | 418 | 657 | 3,092 | 3,749 | 1,076 | 1975 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Main Street — Piazza
|
Voorhees | NJ | — | 696 | 2,802 | 151 | 696 | 2,953 | 3,649 | 1,158 | 1990 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
815 East Gate Drive
|
Mt. Laurel | NJ | — | 636 | 2,584 | 307 | 636 | 2,891 | 3,527 | 995 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
817 East Gate Drive
|
Mt. Laurel | NJ | — | 611 | 2,426 | 360 | 611 | 2,785 | 3,397 | 886 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Four B Eves Drive
|
Marlton | NJ | — | 588 | 2,369 | 381 | 588 | 2,749 | 3,338 | 1,148 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Four A Eves Drive
|
Marlton | NJ | — | 539 | 2,168 | 142 | 539 | 2,310 | 2,849 | 876 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Main Street — Promenade
|
Voorhees | NJ | — | 531 | 2,052 | 55 | 532 | 2,107 | 2,638 | 805 | 1988 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
10 Foster Avenue
|
Gibbsboro | NJ | — | 244 | 971 | 265 | 244 | 1,236 | 1,480 | 492 | 1983 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
7 Foster Avenue
|
Gibbsboro | NJ | — | 231 | 921 | 94 | 231 | 1,014 | 1,246 | 391 | 1983 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
50 East Clementon Road
|
Gibbsboro | NJ | — | 114 | 964 | 3 | 114 | 967 | 1,081 | 338 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
4 Foster Avenue
|
Gibbsboro | NJ | — | 183 | 726 | 37 | 183 | 763 | 946 | 280 | 1974 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2 Foster Avenue
|
Gibbsboro | NJ | — | 185 | 730 | 24 | 185 | 754 | 939 | 269 | 1974 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1 Foster Avenue
|
Gibbsboro | NJ | — | 93 | 364 | 63 | 93 | 428 | 520 | 157 | 1972 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
5 U.S. Avenue
|
Gibbsboro | NJ | — | 21 | 81 | 3 | 21 | 84 | 105 | 29 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
5 Foster Avenue
|
Gibbsboro | NJ | — | 9 | 32 | 26 | 9 | 58 | 67 | 19 | 1968 | 1997 | 40 | |||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
RICHMOND
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
300 Arboretum Place
|
Richmond | VA | 12,156 | 5,450 | 21,892 | 3,089 | 5,450 | 24,982 | 30,431 | 7,830 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
7501 Boulders View Drive
|
Richmond | VA | — | 4,669 | 19,699 | 474 | 4,925 | 19,917 | 24,842 | 1,234 | 1990 | 2007 | 40 | |||||||||||||||||||||||||||||||||||||||
|
7300 Beaufont Springs Drive
|
Richmond | VA | — | 4,672 | 19,689 | 306 | 4,922 | 19,745 | 24,667 | 1,196 | 2000 | 2007 | 40 | |||||||||||||||||||||||||||||||||||||||
|
6800 Paragon Place
|
Richmond | VA | — | 4,552 | 18,414 | 975 | 4,552 | 19,389 | 23,941 | 1,790 | 1986 | 2006 | 40 | |||||||||||||||||||||||||||||||||||||||
|
6802 Paragon Place
|
Richmond | VA | — | 2,917 | 11,454 | 1,890 | 2,917 | 13,344 | 16,261 | 3,080 | 1989 | 2002 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1025 Boulders Parkway
|
Richmond | VA | — | 2,574 | 11,297 | 738 | 2,824 | 11,785 | 14,609 | 836 | 1994 | 2007 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2100-2116 West Laburnam Avenue
|
Richmond | VA | — | 2,482 | 8,846 | 2,533 | 2,482 | 11,378 | 13,861 | 3,618 | 1976 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
F-92
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
SCHEDULE III
Real Estate and Accumulated Depreciation — December 31, 2009
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||||||
| City | State | December 31, 2009 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2009 (b) | Construction | Acquired | Life | ||||||||||||||||||||||||||||||||||||||||
|
7325 Beaufont Springs Drive
|
Richmond | VA | — | 2,344 | 10,377 | 502 | 2,594 | 10,629 | 13,223 | 672 | 1999 | 2007 | 40 | |||||||||||||||||||||||||||||||||||||||
|
7401 Beaufont Springs Drive
|
Richmond | VA | — | 2,349 | 10,396 | 276 | 2,599 | 10,422 | 13,021 | 632 | 1998 | 2007 | 40 | |||||||||||||||||||||||||||||||||||||||
|
6806 Paragon Place
|
Richmond | VA | — | — | 10,288 | 809 | 403 | 10,695 | 11,097 | 1,473 | 2007 | 2005 | 40 | |||||||||||||||||||||||||||||||||||||||
|
9011 Arboretum Parkway
|
Richmond | VA | — | 1,857 | 7,702 | 877 | 1,857 | 8,579 | 10,436 | 2,799 | 1991 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
4805 Lake Brooke Drive
|
Glen Allen | VA | — | 1,640 | 6,567 | 1,373 | 1,640 | 7,939 | 9,580 | 2,534 | 1996 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
4364 South Alston Avenue
|
Durham | NC | — | 1,622 | 6,419 | 910 | 1,581 | 7,370 | 8,951 | 2,694 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2511 Brittons Hill Road
|
Richmond | VA | — | 1,202 | 4,820 | 1,863 | 1,202 | 6,683 | 7,885 | 2,329 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
9100 Arboretum Parkway
|
Richmond | VA | 3,313 | 1,362 | 5,489 | 590 | 1,362 | 6,079 | 7,441 | 1,948 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
100 Gateway Centre Parkway
|
Richmond | VA | — | 391 | 5,410 | 760 | 391 | 6,170 | 6,561 | 1,231 | 2001 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2812 Emerywood Parkway
|
Henrico | VA | — | 1,069 | 4,281 | 984 | 1,069 | 5,265 | 6,334 | 1,845 | 1980 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
9210 Arboretum Parkway
|
Richmond | VA | 2,747 | 1,110 | 4,474 | 457 | 1,110 | 4,931 | 6,041 | 1,611 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
9200 Arboretum Parkway
|
Richmond | VA | 2,831 | 985 | 3,973 | 993 | 985 | 4,966 | 5,951 | 1,389 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1957 Westmoreland Street
|
Richmond | VA | — | 1,061 | 4,241 | 224 | 1,061 | 4,465 | 5,526 | 1,389 | 1975 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2201-2245 Tomlynn Street
|
Richmond | VA | — | 1,020 | 4,067 | 370 | 1,020 | 4,437 | 5,457 | 1,430 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
9211 Arboretum Parkway
|
Richmond | VA | — | 582 | 2,433 | 224 | 582 | 2,658 | 3,239 | 884 | 1991 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2248 Dabney Road
|
Richmond | VA | — | 512 | 2,049 | 234 | 512 | 2,283 | 2,795 | 793 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2221-2245 Dabney Road
|
Richmond | VA | — | 530 | 2,123 | 140 | 530 | 2,263 | 2,793 | 794 | 1994 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2244 Dabney Road
|
Richmond | VA | — | 550 | 2,203 | 37 | 550 | 2,240 | 2,790 | 727 | 1993 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2212-2224 Tomlynn Street
|
Richmond | VA | — | 502 | 2,014 | 157 | 502 | 2,170 | 2,673 | 714 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2277 Dabney Road
|
Richmond | VA | — | 507 | 2,034 | 15 | 507 | 2,049 | 2,556 | 662 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2161-2179 Tomlynn Street
|
Richmond | VA | — | 423 | 1,695 | 269 | 423 | 1,964 | 2,387 | 701 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2246 Dabney Road
|
Richmond | VA | — | 455 | 1,822 | 18 | 455 | 1,840 | 2,295 | 593 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2256 Dabney Road
|
Richmond | VA | — | 356 | 1,427 | 379 | 356 | 1,806 | 2,162 | 653 | 1982 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2251 Dabney Road
|
Richmond | VA | — | 387 | 1,552 | 111 | 387 | 1,663 | 2,050 | 535 | 1983 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2130-2146 Tomlynn Street
|
Richmond | VA | — | 353 | 1,416 | 194 | 353 | 1,609 | 1,963 | 578 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2120 Tomlynn Street
|
Richmond | VA | — | 281 | 1,125 | 106 | 281 | 1,231 | 1,512 | 384 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
2240 Dabney Road
|
Richmond | VA | — | 264 | 1,059 | 11 | 265 | 1,068 | 1,334 | 344 | 1984 | 1998 | 40 | |||||||||||||||||||||||||||||||||||||||
|
Boulders Land
|
Richmond | VA | — | 1,256 | — | 0 | 1,256 | — | 1,256 | — | NA | 2007 | N/A | |||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
CALIFORNIA
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
155 Grand Avenue
|
Oakland | CA | — | 13,556 | 54,266 | 3,148 | 13,557 | 57,413 | 70,970 | 3,650 | 1990 | 2007 | 40 | |||||||||||||||||||||||||||||||||||||||
|
5780 & 5790 Fleet Street
|
Carlsbad | CA | — | 7,073 | 22,907 | 2,854 | 7,517 | 25,317 | 32,834 | 2,485 | 1999 | 2006 | 55 | |||||||||||||||||||||||||||||||||||||||
|
1200 Concord Avenue
|
Concord | CA | 18,320 | 6,395 | 24,664 | 640 | 6,515 | 25,183 | 31,698 | 6,635 | 1984 | 2006 | 34 | |||||||||||||||||||||||||||||||||||||||
|
1220 Concord Avenue
|
Concord | CA | 18,327 | 6,476 | 24,966 | 215 | 6,476 | 25,180 | 31,656 | 6,777 | 1984 | 2006 | 34 | |||||||||||||||||||||||||||||||||||||||
|
16870 W Bernardo Drive
|
San Diego | CA | — | 2,979 | 15,896 | 1,407 | 3,155 | 17,127 | 20,282 | 1,745 | 2002 | 2006 | 56 | |||||||||||||||||||||||||||||||||||||||
|
5900 & 5950 La Place Court
|
Carlsbad | CA | — | 3,706 | 11,185 | 1,537 | 3,956 | 12,472 | 16,428 | 1,397 | 1988 | 2006 | 48 | |||||||||||||||||||||||||||||||||||||||
|
5963 La Place Court
|
Carlsbad | CA | — | 2,824 | 9,413 | 1,619 | 3,000 | 10,856 | 13,856 | 1,121 | 1987 | 2006 | 55 | |||||||||||||||||||||||||||||||||||||||
|
5973 Avenida Encinas
|
Carlsbad | CA | — | 2,121 | 8,361 | 1,216 | 2,257 | 9,441 | 11,698 | 1,220 | 1986 | 2006 | 45 | |||||||||||||||||||||||||||||||||||||||
|
2035 Corte Del Nogal
|
Carlsbad | CA | — | 3,261 | 6,077 | 1,026 | 3,500 | 6,865 | 10,364 | 1,034 | 1991 | 2006 | 39 | |||||||||||||||||||||||||||||||||||||||
|
Two Kaiser Plaza
|
Oakland | CA | — | 7,841 | — | — | 7,841 | — | 7,841 | — | N/A | 2006 | N/A | |||||||||||||||||||||||||||||||||||||||
|
Oakland Lot B
|
Oakland | CA | — | 4,342 | — | (0 | ) | 4,342 | — | 4,342 | — | N/A | 2006 | N/A | ||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
AUSTIN
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
1250 Capital of Texas Hwy South
|
Austin | TX | — | 5,152 | 37,928 | 3,798 | 5,251 | 41,628 | 46,878 | 5,107 | 1984 | 2006 | 52 | |||||||||||||||||||||||||||||||||||||||
|
1301 Mopac Expressway
|
Austin | TX | — | 4,188 | 41,229 | 266 | 4,251 | 41,432 | 45,683 | 4,354 | 2001 | 2006 | 55 | |||||||||||||||||||||||||||||||||||||||
|
1601 Mopac Expressway
|
Austin | TX | — | 3,538 | 34,346 | 2,241 | 3,606 | 36,520 | 40,126 | 5,324 | 2000 | 2006 | 54 | |||||||||||||||||||||||||||||||||||||||
|
1501 South Mopac Expressway
|
Austin | TX | — | 3,698 | 34,912 | (2,352 | ) | 3,769 | 32,489 | 36,257 | 2,535 | 1999 | 2006 | 53 | ||||||||||||||||||||||||||||||||||||||
|
1221 Mopac Expressway
|
Austin | TX | — | 3,290 | 31,548 | 89 | 3,370 | 31,556 | 34,926 | 3,000 | 2001 | 2006 | 55 | |||||||||||||||||||||||||||||||||||||||
|
3711 South Mopac Expressway — I
|
Austin | TX | — | 1,688 | 21,011 | 2,884 | 1,689 | 23,894 | 25,583 | 103 | 2007 | 2006 | 40 | |||||||||||||||||||||||||||||||||||||||
|
3711 South Mopac Expressway — II
|
Austin | TX | — | 1,688 | 19,229 | 2,640 | 1,689 | 21,868 | 23,557 | 1,524 | 2007 | 2006 | 40 | |||||||||||||||||||||||||||||||||||||||
|
1177 East Beltline Road
|
Coppell | TX | 19,311 | 1,516 | 14,895 | 8 | 1,517 | 14,903 | 16,420 | 2,547 | 1998 | 2006 | 42 | |||||||||||||||||||||||||||||||||||||||
|
1801 Mopac Expressway
|
Austin | TX | — | 1,227 | 10,959 | 469 | 1,250 | 11,405 | 12,655 | 1,114 | 1999 | 2006 | 53 | |||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Total:
|
$ | 551,720 | $ | 680,832 | $ | 3,396,822 | $ | 434,271 | $ | 690,441 | $ | 3,822,177 | $ | 4,512,618 | $ | 716,956 | ||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
F-93
Table of Contents
(a) Reconciliation of Real Estate:
The following table reconciles the real estate investments from January 1, 2007 to
December 31, 2009 (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Balance at beginning of year
|
$ | 4,608,320 | $ | 4,825,747 | $ | 4,939,489 | ||||||
|
|
||||||||||||
|
Additions:
|
||||||||||||
|
Acquisitions
|
— | 122 | 158,399 | |||||||||
|
Capital expenditures
|
80,506 | 247,345 | 179,691 | |||||||||
|
|
||||||||||||
|
Less:
|
||||||||||||
|
Dispositions
|
(176,208 | ) | (464,894 | ) | (451,832 | ) | ||||||
|
Assets transferred to held-for-sale
|
— | — | — | |||||||||
|
|
||||||||||||
|
Balance at end of year
|
$ | 4,512,618 | $ | 4,608,320 | $ | 4,825,747 | ||||||
|
|
||||||||||||
The
aggregate cost for federal income tax purposes is $4.6 billion as of December 31, 2009
(b) Reconciliation of Accumulated Depreciation:
The following table reconciles the accumulated depreciation on real estate investments from
January 1, 2007 to December 31, 2009 (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Balance at beginning of year
|
$ | 639,688 | $ | 558,908 | $ | 515,698 | ||||||
|
|
||||||||||||
|
Additions:
|
||||||||||||
|
Depreciation expense — continued operations
|
141,309 | 144,631 | 167,160 | |||||||||
|
Depreciation expense — discontinued operations
|
6,494 | 6,494 | 4,748 | |||||||||
|
Acquisitions
|
— | — | ||||||||||
|
|
||||||||||||
|
Less:
|
||||||||||||
|
Dispositions
|
(70,535 | ) | (70,345 | ) | (128,698 | ) | ||||||
|
Assets transferred to held-for-sale
|
— | — | — | |||||||||
|
|
||||||||||||
|
Balance at end of year
|
$ | 716,956 | $ | 639,688 | $ | 558,908 | ||||||
|
|
||||||||||||
F-94
Table of Contents
G&I VI Interchange Office, LLC
Consolidated Financial Statements for the Years
Ended December 31, 2009, 2008 and 2007
Consolidated Financial Statements for the Years
Ended December 31, 2009, 2008 and 2007
F-95
Table of Contents
G&I VI Interchange Office, LLC
Index
December 31, 2009, 2008 and 2007
Index
December 31, 2009, 2008 and 2007
| Page(s) | ||||
|
|
||||
| F-97 | ||||
|
|
||||
|
Consolidated Financial Statements
|
||||
|
|
||||
| F-98 | ||||
|
|
||||
| F-99 | ||||
|
|
||||
| F-100 | ||||
|
|
||||
| F-101 | ||||
|
|
||||
| F-102–110 | ||||
|
|
||||
F-96
Table of Contents
Report of Independent Auditors
To the Members of
G&I VI Interchange Office, LLC:
G&I VI Interchange Office, LLC:
In our opinion, the accompanying consolidated statements
of operations, Members’ equity, and cash flows present fairly, in all material respects, the results of
operations and cash flows of G&I Interchange Office, LLC (the
“Company”) for the period from October 24, 2007 (“Inception”) to December
31, 2007, in conformity with accounting principles generally accepted in the United States of
America. These consolidated statements of operations, Members’
equity, and cash flows are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated statements of operations, Members’
equity, and cash flows based on our audit. We conducted our audit of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the consolidated statements of operations, Members’
equity, and cash flows are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
statements of operations, Members’
equity, and cash flows, assessing
the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provide a reasonable basis for
our opinion.
/s/ PricewaterhouseCoopers
Philadelphia,
Pennsylvania
March 27, 2008
March 27, 2008
F-97
Table of Contents
G&I VI Interchange Office, LLC
Consolidated Balance Sheets
December 31, 2009 and 2008 (Not covered by Auditors Report)
December 31, 2009 and 2008 (Not covered by Auditors Report)
(in thousands of dollars)
| 2009 | 2008 | |||||||
|
|
||||||||
|
Assets
|
||||||||
|
Real estate investments:
|
||||||||
|
Land
|
$ | 36,741 | $ | 36,741 | ||||
|
Building and improvements
|
150,466 | 150,105 | ||||||
|
Development land and construction in progress
|
1,594 | 3,188 | ||||||
|
Tenant improvements
|
22,509 | 19,961 | ||||||
|
|
||||||||
|
|
211,310 | 209,995 | ||||||
|
|
||||||||
|
Accumulated depreciation
|
(20,022 | ) | (10,690 | ) | ||||
|
|
||||||||
|
Real estate investments, net
|
191,288 | 199,305 | ||||||
|
|
||||||||
|
Cash and cash equivalents
|
2,989 | 2,682 | ||||||
|
Restricted cash
|
1,328 | 1,398 | ||||||
|
Accounts receivable, net
|
469 | 42 | ||||||
|
Accrued rent receivable, net
|
2,988 | 1,782 | ||||||
|
Deferred costs, net of accumulated amortization of $618 and $187
|
2,162 | 1,309 | ||||||
|
Intangible assets, net of accumulated amortization of $17,135 and $10,754
|
26,509 | 35,094 | ||||||
|
Related party assets (Note 7)
|
5,124 | 5,517 | ||||||
|
Other assets
|
1,475 | 1,231 | ||||||
|
|
||||||||
|
Total assets
|
$ | 234,332 | $ | 248,360 | ||||
|
|
||||||||
|
|
||||||||
|
Liabilities and Members’ Equity
|
||||||||
|
Mortgage notes payable
|
$ | 184,000 | $ | 184,000 | ||||
|
Accounts payable and accrued expenses
|
2,328 | 2,162 | ||||||
|
Security deposits and deferred rents
|
1,941 | 1,436 | ||||||
|
Acquired below market leases, net of accumulated amortization of $2,765 and $1,517
|
3,766 | 5,075 | ||||||
|
|
||||||||
|
Total liabilities
|
192,035 | 192,673 | ||||||
|
Non-controlling interest
|
3,205 | 3,205 | ||||||
|
Commitments and contingencies (Note 8)
|
||||||||
|
Members’ equity
|
39,092 | 52,482 | ||||||
|
|
||||||||
|
Total liabilities, non-controlling interest, and members’ equity
|
$ | 234,332 | $ | 248,360 | ||||
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-98
Table of Contents
G&I VI Interchange Office, LLC
Consolidated Statements of Operations
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for the
Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for the
Period from October 24, 2007 (“Inception”) to December 31, 2007
(in thousands of dollars)
| For the Years Ended | For the Period From | |||||||||||
| December 31, | Inception to December 31, | |||||||||||
| 2008 | ||||||||||||
| 2009 | (as adjusted) | 2007 | ||||||||||
|
Revenue
|
||||||||||||
|
Rental income
|
$ | 28,381 | $ | 28,849 | $ | 991 | ||||||
|
Tenant reimbursements
|
4,605 | 2,815 | 82 | |||||||||
|
Termination fees
|
73 | 1,379 | — | |||||||||
|
Other income
|
363 | 302 | — | |||||||||
|
|
||||||||||||
|
Total revenues
|
33,422 | 33,345 | 1,073 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Expenses
|
||||||||||||
|
Property operating expenses
|
8,998 | 8,256 | 236 | |||||||||
|
Real estate taxes
|
3,227 | 3,213 | 111 | |||||||||
|
Interest
|
10,937 | 11,058 | 385 | |||||||||
|
Depreciation and amortization
|
17,911 | 22,084 | 767 | |||||||||
|
Administrative expenses
|
802 | 413 | — | |||||||||
|
|
||||||||||||
|
Total expenses
|
41,875 | 45,024 | 1,499 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net loss
|
(8,453 | ) | (11,679 | ) | (426 | ) | ||||||
|
Non-controlling interest
|
(272 | ) | (214 | ) | — | |||||||
|
|
||||||||||||
|
Net loss attributable to the Company
|
$ | (8,725 | ) | $ | (11,893 | ) | $ | (426 | ) | |||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-99
Table of Contents
G&I VI Interchange Office, LLC
Consolidated Statements of Members’ Equity
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
(in thousands of dollars)
| G&I VI | ||||||||||||
| Investment | Brandywine | |||||||||||
| Interchange | Operating | |||||||||||
| Office LLC | Partnership, L.P. | Total | ||||||||||
|
|
||||||||||||
|
Balance at Inception
|
$ | — | $ | — | $ | — | ||||||
|
Contributions
|
54,288 | 13,572 | 67,860 | |||||||||
|
Net loss
|
(341 | ) | (85 | ) | (426 | ) | ||||||
|
|
||||||||||||
|
Balance at December 31, 2007
|
53,947 | 13,487 | 67,434 | |||||||||
|
Distributions
|
(2,447 | ) | (612 | ) | (3,059 | ) | ||||||
|
Net loss
|
(9,514 | ) | (2,379 | ) | (11,893 | ) | ||||||
|
|
||||||||||||
|
Balance
at December 31, 2008 (as adjusted)
|
41,986 | 10,496 | 52,482 | |||||||||
|
Distributions
|
(3,732 | ) | (933 | ) | (4,665 | ) | ||||||
|
Net loss
|
(6,980 | ) | (1,745 | ) | (8,725 | ) | ||||||
|
|
||||||||||||
|
Balance at December 31, 2009
|
$ | 31,274 | $ | 7,818 | $ | 39,092 | ||||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-100
Table of Contents
G&I VI Interchange Office, LLC
Consolidated Statements of Cash Flows
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
(in thousands of dollars)
| 2008 | ||||||||||||
| 2009 | (as adjusted) | 2007 | ||||||||||
|
Cash flows from operating activities
|
||||||||||||
|
Net loss
|
$ | (8,453 | ) | $ | (11,679 | ) | $ | (426 | ) | |||
|
Adjustments to reconcile net loss to net cash
from operating activities
|
||||||||||||
|
Depreciation and amortization
|
17,911 | 22,084 | 767 | |||||||||
|
Straight
line rents and amortization of above/below market intangibles
|
(1,859 | ) | (1,140 | ) | (51 | ) | ||||||
|
Deferred financing cost amortization
|
184 | 184 | 7 | |||||||||
|
Changes in assets and liabilities related to operations
|
||||||||||||
|
Accounts receivable
|
(427 | ) | (42 | ) | — | |||||||
|
Related party assets (unearned rent receivable)
|
— | 319 | — | |||||||||
|
Other assets
|
(243 | ) | 6 | (1,237 | ) | |||||||
|
Tenant security deposits and deferred rents
|
505 | (170 | ) | — | ||||||||
|
Accounts payable and accrued expenses
|
166 | 1,855 | 154 | |||||||||
|
|
||||||||||||
|
Net cash provided by (used in) operating activities
|
7,784 | 11,417 | (786 | ) | ||||||||
|
|
||||||||||||
|
Cash flows from investing activities
|
||||||||||||
|
Cash paid for property acquisitions
|
— | — | (229,806 | ) | ||||||||
|
Property advance
|
— | — | (3,205 | ) | ||||||||
|
Construction receivable from affiliate of member
|
393 | 888 | (3,200 | ) | ||||||||
|
Capital expenditures
|
(1,966 | ) | (6,031 | ) | — | |||||||
|
Leasing costs
|
(1,037 | ) | (208 | ) | — | |||||||
|
Restricted cash
|
70 | (1,398 | ) | — | ||||||||
|
|
||||||||||||
|
Net cash used in investing activities
|
(2,540 | ) | (6,749 | ) | (236,211 | ) | ||||||
|
|
||||||||||||
|
Cash flows from financing activities
|
||||||||||||
|
Mortgage notes payable
|
— | — | 184,000 | |||||||||
|
Payments for deferred financing costs
|
— | — | (1,291 | ) | ||||||||
|
Contributions from members
|
— | — | 54,288 | |||||||||
|
Distributions to
non-controlling interests
|
(272 | ) | (214 | ) | — | |||||||
|
Distributions to members
|
(4,665 | ) | (3,059 | ) | — | |||||||
|
Related party assets (funding of tenant security deposit receivable)
|
— | 1,287 | — | |||||||||
|
|
||||||||||||
|
Net cash provided by (used in) financing activities
|
4,937 | 2,143 | 236,997 | |||||||||
|
|
||||||||||||
|
Net change in cash and cash equivalents
|
307 | 2,682 | — | |||||||||
|
Cash and cash equivalents — Beginning of period
|
2,682 | — | — | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents — End of period
|
$ | 2,989 | $ | 2,682 | $ | — | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Supplemental disclosure
|
||||||||||||
|
Cash paid for interest during the period
|
$ | 10,783 | $ | 9,930 | $ | 379 | ||||||
|
Supplemental disclosure of non-cash financing activity
|
||||||||||||
|
Contributions from member
|
— | — | 13,572 | |||||||||
|
Tenant security deposits and deferred rents
|
— | — | 1,606 | |||||||||
|
Related party assets
|
— | — | (1,606 | ) | ||||||||
|
Capital expenditures financed through accounts
payable as of year-end
|
133 | 153 | — | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-101
Table of Contents
G&I VI Interchange Office, LLC
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
(in thousands of dollars)
| 1. | Organization and Nature of Operations |
| G&I VI Interchange Office LLC (the “Company”) was formed on October 24, 2007 (“Inception”), as a Delaware Limited Liability Company. Two wholly-owned subsidiaries of Brandywine Operating Partnership, L.P. (collectively, “Brandywine”) were admitted as members of the Company on December 19, 2007. The other member of the Company is G&I VI Investment Interchange Office LLC (“G&I VI”), an investment vehicle advised by DRA Advisors LLC. Neither G&I VI nor DRA Advisors LLC is affiliated with Brandywine. The Company was formed for the purpose of acquiring, owning, leasing and managing 29 office buildings, (collectively, the “Properties”) totaling approximately 1,611,000 net rentable square feet. The Properties are located in the Montgomery, Bucks, and Lehigh counties in Pennsylvania. On December 19, 2007, Brandywine transferred to the Company 100% of its ownership interests in 26 of the Properties and transferred to the Company an 89% ownership interest in three of the Properties (“89/11 Properties”) with Brandywine’s remaining 11% ownership interest reflected as non-controlling interest on the consolidated balance sheet of the Company. As of December 31, 2009, G&I VI and Brandywine maintained an 80% and 20% interest in the Company, respectively. The Company engaged Brandywine to perform property management and leasing services for the Properties. (See Note 7). | ||
| 2. | Summary of Significant Accounting Policies | |
| Basis of Accounting and Principles of Consolidation | ||
| The consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements include the financial position, results of operations, and cash flows of the Company and the Properties in which the Company has a controlling interest. | ||
| When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a variable interest entity (“VIE”), and if the Company is deemed to be the primary beneficiary, in accordance with the accounting standard for the consolidation of variable interest entities. When an entity is not deemed to be a VIE, the Company considers the provisions of the same accounting standard in determining whether a general partner, or the general partners as a group, controls a limited partnership or similar entity when the limited partners have certain rights. The Company consolidates (i) entities that are VIEs and of which the Company is deemed to be the primary beneficiary and (ii) entities that are non-VIEs which the Company controls and in which the limited partners do not have the ability to dissolve the entity or remove the Company without cause nor substantive participating rights. The 89/11 Properties are considered VIEs of which the Company is the primary beneficiary and therefore these properties are consolidated. The Company will reconsider its determination of whether an entity is a VIE and who the primary beneficiary is, and whether or not the limited partners in an entity have substantive rights, if certain events occur that are likely to cause a change in the original determinations. The portion of the 89/11 Properties not owned by the Company is presented as non-controlling interest as of December 31, 2009. All intercompany accounts and transactions have been eliminated in consolidation. | ||
| Use of Estimates | ||
| The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue, impairment of long-lived assets, allowance for doubtful accounts and deferred costs. |
F-102
Table of Contents
G&I VI Interchange Office, LLC
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
(in thousands of dollars)
Real Estate Investments
Real estate investments are carried at historical cost less accumulated depreciation and
impairment losses, if any. The cost of real estate investments reflects their purchase price
or development cost. Costs incurred for the acquisition and renovation of an operating
property are capitalized to the Company’s investment in that property. Ordinary repairs and
maintenance are expensed as incurred; major replacements and betterments, which improve or
extend the life of the asset, are capitalized and depreciated over their estimated useful
lives. Fully-depreciated assets are removed from the accounts.
The cost of buildings and improvements are depreciated using the straight-line method based
on the following useful lives: buildings and improvements (five to 51 years) and tenant
improvements (the shorter of the lease term or the life of the asset).
In accordance with accounting standard for property, plant and equipment, long-lived assets,
such as real estate investments and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset group may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount
of an asset exceeds its estimated future cash flows, an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Assets to be disposed of are separately presented in the balance sheet and reported at the
lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
The other assets and liabilities related to assets classified as held-for-sale are presented
separately in the consolidated balance sheet. The Company had no properties classified as
held for sale at December 31, 2009.
Purchase Price Allocation
The Company allocates the purchase price of properties to net tangible and identified
intangible assets acquired based on fair values. Above-market and below-market lease values
for acquired properties are recorded based on the present value (using an interest rate which
reflects the risks
associated with the leases acquired) of the difference between (i) the contractual amounts to
be paid pursuant to the in-place leases and (ii) the Company’s estimate of the fair market
lease rates for the corresponding in-place leases, measured over a period equal to the
remaining non-cancelable term of the lease. Capitalized above-market lease values are
amortized as a reduction of rental income over the remaining non-cancelable terms of the
respective leases. Capitalized below-market lease values are amortized as an increase to
rental income over the remaining non-cancelable terms of the respective leases, including any
below market fixed-rate renewal periods.
F-103
Table of Contents
G&I VI Interchange Office, LLC
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
(in thousands of dollars)
Other intangible assets also include amounts representing the value of tenant relationships
and in-place leases based on the Company’s evaluation of the specific characteristics of each
tenant’s lease and the Company’s overall relationship with the respective tenant. The Company
estimates the cost to execute leases with terms similar to the remaining lease terms of the
in-place leases, including leasing commissions, legal and other related expenses. This
intangible asset is amortized to expense over the remaining term of the respective leases.
The Company estimates of value are made using methods similar to those used by independent
appraisers or by using independent appraisals. Factors considered by the Company in this
analysis include an estimate of the carrying costs during the expected lease-up periods
considering current market conditions and costs to execute similar leases. In estimating
carrying costs, the Company includes real estate taxes, insurance and other operating
expenses and estimates of lost rentals at market rates during the expected lease-up periods,
which primarily approximate six months. The Company also considers information obtained about
each property as a result of its pre acquisition due diligence, marketing and leasing
activities in estimating the fair value of the tangible and intangible assets acquired. The
Company also uses the information obtained as a result of its pre-acquisition due diligence
as part of its consideration of the accounting standard governing asset retirement
obligations, and when necessary, will record a conditional asset retirement obligation as
part of its purchase price.
Characteristics considered by the Company in allocating value to its tenant relationships
include the nature and extent of the Company’s business relationship with the tenant, growth
prospects for developing new business with the tenant, the tenant’s credit quality and
expectations of lease renewals, among other factors. The value of tenant relationship
intangibles is amortized over the remaining initial lease term and expected renewals, but in
no event longer than the remaining depreciable life of the building. The value of in-place
leases is amortized over the remaining non-cancelable term of the respective leases and any
below market fixed-rate renewal periods.
In the event that a tenant terminates its lease, the unamortized portion of each intangible,
including market rate adjustments (above or below), in-place lease values and tenant
relationship values, would be charged to expense and market rate adjustments would be
recorded to revenue.
Cash and Cash Equivalents
Cash and cash equivalents are highly-liquid investments with original maturities of three
months or less. The Company maintains cash equivalents in financial institutions in excess
of insured limits, but believes this risk is mitigated by only investing in or through major
financial institutions.
Restricted Cash
Restricted cash represents tenant security deposits, which are segregated and restricted
under the terms of the underlying leases.
Deferred Costs
The Company has capitalized as deferred costs certain expenditures related to the leasing and
financing of the Properties. Deferred leasing commissions are amortized, on a straight-line
basis, over the terms of the related leases. Deferred financing costs are charged to interest
expense over the terms of the related debt.
Revenue Recognition
Rental income from leases is recognized on a straight-line basis regardless of when payments
are due. The cumulative difference between rental income recognized and contractual lease
payments is recorded as “accrued rent receivable” on the accompanying balance sheet. The
straight-line rent adjustment increased revenue by approximately $1,218 in 2009, $1,700 in
2008 and $41 in 2007.
Certain lease agreements also contain provisions that require tenants to reimburse a pro-rata
share of real estate taxes and certain common area maintenance costs subject to their
proportionate share of increases over their respective base year amounts. These amounts are
included in tenant reimbursements on the accompanying consolidated statement of income and
are recorded when earned.
F-104
Table of Contents
G&I VI Interchange Office, LLC
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
(in thousands of dollars)
Other Assets
As of December 31, 2009 and 2008, respectively, other assets included prepaid real estate
taxes of $1,242 and $1,231 and prepaid service contracts of $233 and $0.
Deferred Rent
Deferred rent represents revenue received from tenants prior to their due dates.
Income Taxes
The Company has elected to be treated as a partnership for federal tax purposes and is
therefore not taxed directly. The taxable income or loss of the Company is included in the
income tax returns of the members; accordingly, no provision for income tax expense or
benefit is reflected in the accompanying consolidated financial statements.
The Company’s tax returns and the amount of allocable Company profit and losses are subject
to examination by federal and state taxing authorities. If such examination results in
changes to Company profits or losses, then the tax liability of the partners would be changed
accordingly.
New Accounting Pronouncements
FASB Codification
In June 2009, the Financial Accounting Standards Board (“FASB”) issued the “FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”,
(formerly FAS 168). FASB Accounting Standards Codification 105-10 (or “ASC” 105-10)
establishes the FASB Accounting Standards Codification (“Codification”) as the single source
for all authoritative GAAP recognized by the FASB to be applied for financial statements
issued for periods ending after September 15, 2009. The Codification does not change GAAP
and will not have an effect on the Company’s financial position, results of operations, or
liquidity.
Accounting for Uncertainty in Income Taxes
On January 1, 2009, the Company adopted the authoritative guidance on accounting for and
disclosure of uncertainty in tax positions in accordance with the FASB ASC 740-10 (formerly
FIN 48)
Accounting for Uncertainty in Income Taxes
. This guidance prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. The guidance requires that
an entity recognize in the financial statements the impact of a tax position if that position
is more likely than not to be sustained on audit, based on the technical merits of the
position. The guidance also provides clarification on de-recognition, balance sheet
classification, interest and penalties, and footnote disclosures. As the Company has elected
to be treated as a partnership for federal tax purposes and does not pay federal or state
income taxes, the adoption of the guidance as of January 1, 2009 did not have a material
effect on its financial statements.
Non-Controlling Interests
Effective January 1, 2009, the Company adopted a newly issued accounting standard for
non-controlling interests. In accordance with this accounting standard, non-controlling
interests are presented as a component of equity unless these interests are considered
redeemable. Also, under this standard, net income will encompass the total income of all
consolidated subsidiaries and there is separate disclosure on the face of the income
statement of the attribution of that income between controlling and non-controlling
interests. Lastly, increases and decreases in non-controlling interests are treated as equity
transactions. The face of the Company’s consolidated balance sheet, statement of operations
and statements of other comprehensive income has been updated to reflect the adoption of this
accounting standard. The adoption of this accounting standard did not have material impact on
the Company’s financial position or results of operations. As a result of the Company’s
adoption of this standard, amounts reported prior to adoption as minority interests on its
balance sheets are now presented as non-controlling interests within equity. There has been
no change in the measurement of this line item from amounts previously reported.
F-105
Table of Contents
G&I VI Interchange Office, LLC
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
(in thousands of dollars)
Subsequent Events
Effective December 31, 2009 the Company adopted ASC 855-10 (formerly SFAS No. 165),
Subsequent Events
, which establishes principles and requirements for evaluating and reporting
subsequent events and distinguishes which subsequent events should be recognized in the
financial statements versus which subsequent events should be disclosed in the financial
statements. ASC 855-10 also requires disclosure of the date through which subsequent events
are evaluated by management. Adoption of SFAS 165 (ASC 855-10) had no impact on the
Company’s results of operations at December 31, 2009. See Note 9, Subsequent Events, for
further discussion.
Correction of previously filed financial statements for the year ended December 31, 2008
Subsequent to the inclusion of these financial statements for the year ended December 31,
2008 in Brandywine Realty Trust’s Form 10K, adjustments primarily related to depreciation and
amortization expenses were recorded. See the tables below for the impact on the December 31,
2008 financial statements.
| (in thousands) | As of December 31, 2008 | |||||||||||
| Balance Sheet: | As Reported | Adjustments | As Revised | |||||||||
|
|
||||||||||||
|
Assets:
|
||||||||||||
|
Tenant improvements
|
$ | 19,947 | $ | 14 | $ | 19,961 | ||||||
|
Accumulated depreciation
|
(10,099 | ) | (591 | ) | $ | (10,690 | ) | |||||
|
Intangible
assets, net of accumulated amortization
|
37,207 | (2,113 | ) | $ | 35,094 | |||||||
|
Total assets
|
251,050 | (2,690 | ) | $ | 248,360 | |||||||
|
Liabilities and Members’ Equity:
|
||||||||||||
|
Accounts payable and accrued expenses
|
2,009 | 153 | $ | 2,162 | ||||||||
|
Members’ equity
|
55,325 | (2,843 | ) | $ | 52,482 | |||||||
|
Total liabilities and members’ equity
|
$ | 251,050 | $ | (2,690 | ) | $ | 248,360 | |||||
F-106
Table of Contents
G&I VI Interchange Office, LLC
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
(in thousands of dollars)
| (in thousands) | For the Year Ended December 31, 2008 | |||||||||||
| Income Statement: | As Reported | Adjustments | As Revised | |||||||||
|
|
||||||||||||
|
Rental income
|
$ | 28,901 | $ | (52 | ) | $ | 28,849 | |||||
|
|
||||||||||||
|
Depreciation and amortization
|
19,293 | 2,791 | 22,084 | |||||||||
|
|
||||||||||||
|
Net loss before non-controlling interest
|
(8,836 | ) | (2,843 | ) | (11,679 | ) | ||||||
|
|
||||||||||||
|
Net loss
attributable to the Company
|
$ | (9,050 | ) | $ | (2,843 | ) | $ | (11,893 | ) | |||
| 3. | Intangible Assets and Liabilities | |
| As of December 31, 2009 and 2008, the Company’s intangible assets and liabilities are comprised of the following: |
| 2009 | 2008 | |||||||
|
|
||||||||
|
Customer relationship value
|
$ | 19,418 | $ | 21,213 | ||||
|
Value of in-place leases
|
20,829 | 21,178 | ||||||
|
Above-market lease assets
|
3,397 | 3,457 | ||||||
|
|
||||||||
|
Total intangible assets
|
43,644 | 45,848 | ||||||
|
Less: Accumulated amortization
|
(17,135 | ) | (10,754 | ) | ||||
|
|
||||||||
|
Intangible assets, net
|
$ | 26,509 | $ | 35,094 | ||||
|
|
||||||||
|
|
||||||||
|
Acquired lease liability (below market rent)
|
$ | 6,531 | $ | 6,592 | ||||
|
|
||||||||
|
Less: Accumulated amortization
|
(2,765 | ) | (1,517 | ) | ||||
|
|
||||||||
|
Acquired lease liability, net
|
$ | 3,766 | $ | 5,075 | ||||
|
|
||||||||
F-107
Table of Contents
G&I VI Interchange Office, LLC
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
(in thousands of dollars)
As of December 31, 2009, the Company’s annual amortization for its intangible
assets/liabilities are as follows (in thousands, assumes no early terminations):
| Year | Assets | Liabilities | ||||||
|
2010
|
$ | 5,735 | $ | 1,002 | ||||
|
2011
|
5,074 | 885 | ||||||
|
2012
|
4,107 | 585 | ||||||
|
2013
|
3,429 | 355 | ||||||
|
2014
|
2,624 | 299 | ||||||
|
Thereafter
|
5,539 | 640 | ||||||
|
|
||||||||
|
|
||||||||
|
|
$ | 26,509 | $ | 3,766 | ||||
|
|
||||||||
| 4. | Mortgage Notes Payable | |
| On December 19, 2007, the Company obtained four mortgage notes payable aggregating $184,000 to finance the Properties, each with a maturity date of January 1, 2015. The mortgage notes payable require interest only payments through January 1, 2011 at an interest rate of 5.78% per annum and, after that date, interest and principal payments through December 1, 2014. All unpaid principal is due upon maturity. | ||
| The mortgages are collateralized by a first lien mortgage and an assignment of rents and leases on the Properties owned by the Company. | ||
| The mortgage notes are not prepayable for the first two years. Thereafter, the loans may be prepaid in whole or in part subject to prepayment penalties. A partial prepayment to release one or more of the properties from the lien is based on specifically allocated loan balance by property, subject to certain financial covenants with respect to the remaining properties. | ||
| The following fair value disclosure was determined by the Company using available market information and discounted cash flow analyses as of December 31, 2009. The discount rate used in calculating fair value is the sum of the current risk free rate and the risk premium on the measurement date. Considerable judgment is necessary to interpret market data and to develop the related estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize upon disposition. The use of different estimation methodologies may have a material effect on the estimated fair value amounts. As of December 31, 2009, the fair market value of the mortgage notes payable was approximately $173,656. |
F-108
Table of Contents
G&I VI Interchange Office, LLC
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
(in
thousands of dollars)
As of December 31, 2009, the Company’s aggregate principal payments are as follows (in
thousands):
|
2010
|
$ | — | ||
|
2011
|
2,153 | |||
|
2012
|
2,482 | |||
|
2013
|
2,629 | |||
|
2014
|
2,785 | |||
|
Thereafter
|
173,951 | |||
|
|
||||
|
Total
|
$ | 184,000 | ||
|
|
||||
| 5. | Members’ Equity | |
| Allocation of Net Income (Loss) | ||
| Net income (loss) is allocated to the members in accordance with the provisions of the Operating Agreement. Losses are generally allocated ratably. Certain incentives are provided to Brandywine to maximize the performance of the Company. Accordingly, the relative percentage of the total distributions actually received by Brandywine and G&I VI will vary depending on Company income. | ||
| Distributions of Cash Flows from Operations | ||
| Distributions of cash flows from operations, as defined in the operating agreement of the Company, are to be made quarterly to the members in accordance with their percentage interests. | ||
| Distributions of Net Proceeds from Capital Transactions | ||
| Distributions of net proceeds from a capital transaction are to be made, first, to return capital contributions of the members, pro rata in accordance with the percentage interests of the members, then to each member pro rata in accordance with their percentage until an internal rate of return hurdle has been achieved, and thereafter in accordance with an adjusted percentage that reflects Brandywine’s residual profits interest in the Company. | ||
| 6. | Leasing Arrangements | |
| The Company leases the Properties to tenants under operating leases with expiration dates extending to the year 2018. Future minimum rentals under noncancelable operating leases, excluding tenant reimbursements of operating costs, as of December 31, 2009, are as follows: |
| Year | Minimum Rent | |||
|
|
||||
|
2010
|
$ | 25,895 | ||
|
2011
|
22,238 | |||
|
2012
|
18,741 | |||
|
2013
|
14,411 | |||
|
2014
|
9,820 | |||
|
Thereafter
|
18,847 | |||
The Company may also receive reimbursements from tenants for certain property operating
expenses, including but not limited to, common area maintenance costs, insurance and real
estate taxes.
F-109
Table of Contents
G&I VI Interchange Office, LLC
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
Years Ended December 31, 2009, 2008 (Not covered by Auditors Report) and for
the Period from October 24, 2007 (“Inception”) to December 31, 2007
(in thousands of dollars)
| 7. | Related Party Transactions | |
| An affiliate of Brandywine provides management services to the Properties and in return receives a management fee equal to 3% of the monthly Effective Gross Revenue (as defined in the Operating Agreement). As of December 31, 2009, 2008 and 2007, the Company incurred approximately $974, $854 and $10, respectively. | ||
| In addition, other payroll and administrative costs, based on a per Property square foot amount, are allocated from Brandywine to the Company. As of December 31, 2009, 2008 and 2007, the Company incurred approximately $889, $889 and $37, respectively. | ||
| Upon transfer of certain of the Properties to the Company, Brandywine received $3,200 in exchange for the execution and delivery of an agreement related to future capital expenditures of the Company. This agreement requires Brandywine to fund $3,200 of the first $6,000 of capital expenditures incurred by the Company. The amount paid to Brandywine is included in related party assets on the accompanying consolidated balance sheet. | ||
| Upon transfer of certain of the Properties on December 19, 2007, the Company advanced Brandywine $3,205 which Brandywine expects to repay together with interest at 8.5% per annum in approximately 3 years. The amount paid to Brandywine is included in related party assets on the accompanying consolidated balance sheet. | ||
| A summary of related party receivables as of December 31, 2009 and 2008 is as follows: |
| 2009 | 2008 | |||||||
|
|
||||||||
|
Capital expenditure receivable
|
$ | 1,919 | $ | 2,312 | ||||
|
Property advance
|
3,205 | 3,205 | ||||||
|
|
||||||||
|
|
$ | 5,124 | $ | 5,517 | ||||
|
|
||||||||
| 8. | Commitments and Contingencies | |
| In the normal course of business, the Company may, from time to time, enter into contracts or agreements with tenants and other vendors that commit the Company to specific or contingent liabilities. As of December 31, 2009, there were no contracts or agreements with tenants or vendors that management considers significant (either individually or in the aggregate) to the financial position or results of operations of the Company. The Company is also subject to legal claims in the ordinary course of business as a property owner. | ||
| As an owner and operator of real estate, the Company is subject to various environmental laws of federal, state, and local governments. Compliance with these laws has not had a material effect on the financial statements and management does not believe it will have such an impact in the future. | ||
| 9. | Subsequent Events | |
| The Company has evaluated subsequent events through February 26, 2010 and none were considered significant. |
F-110
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For Registrant S Common Equity and Related Shareholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosure About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Shareholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules