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, 2010
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.)
000-24407 (Brandywine Operating Partnership, L.P.)
Brandywine Realty Trust
Brandywine Operating Partnership, L.P.
(Exact name of registrant as specified in its charter)
| MARYLAND (Brandywine Realty Trust) | 23-2413352 | |
| DELAWARE (Brandywine Operating Partnership L.P.) | 23-2862640 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| Incorporation or organization) | ||
| 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, | New York Stock Exchange | |
| par value $0.01 per share | ||
| (Brandywine Realty Trust) | ||
| 7.50% Series C Cumulative Redeemable Preferred | New York Stock Exchange | |
| Shares of Beneficial Interest | ||
| par value $0.01 per share | ||
| (Brandywine Realty Trust) | ||
| 7.375% Series D Cumulative Redeemable Preferred | New York Stock Exchange | |
| Shares of Beneficial Interest | ||
| par value $0.01 per share | ||
| (Brandywine Realty Trust) |
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 þ No o | |
|
Brandywine Operating Partnership, L.P.
|
Yes þ 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 |
As of June 30, 2010, the
aggregate market value of the Common Shares of Beneficial Interest held by
non-affiliates of Brandywine Realty Trust was $1,394,281,711 based upon the last reported sale
price of $10.75 per share on the New York Stock Exchange on June 30, 2010. An aggregate of
134,520,391 Common Shares of Beneficial Interest were outstanding as of February 23, 2011.
As of June 30, 2010, 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
$20,387,934 million based upon the last reported sale price of $10.75 per share on the New York
Stock Exchange on June 30, 2010 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 2011 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
EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the year ended December 31, 2010 of
Brandywine Realty Trust (the “Parent Company”) and Brandywine Operating Partnership (the “Operating
Partnership”). The Parent Company is a Maryland real estate investment trust, or REIT that owns
its assets and conducts its operations through the Operating Partnership, a Delaware limited
partnership, and subsidiaries of the Operating Partnership. The Parent Company, the Operating
Partnership and their consolidated subsidiaries are collectively referred to in this report as the
“Company”. In addition, terms such as “we”, “us”, or “our” used in this report may refer to the
Company, the Parent Company, or the Operating Partnership.
The Parent Company is the sole general partner of the Operating Partnership and as of December 31,
2010, owned a 93.1% interest in the Operating Partnership. The remaining 6.9% interest consists of
common units of limited partnership interest issued by the Operating Partnership in exchange for
contributions of properties to the Operating Partnership. As the sole general partner of the
Operating Partnership, the Parent Company has full and complete authority over the Operating
Partnership’s day-to-day operations and management.
The Company believes that combining the annual reports on Form 10-K of the Parent Company and the
Operating Partnership into a single report will result in the following benefits:
| • |
facilitate a better understanding by the investors of the Parent Company and the
Operating Partnership by enabling them to view the business as a whole in the same manner as
management views and operates the business;
|
| • |
remove duplicative disclosures and provide a more straightforward presentation in light
of the fact that a substantial portion of the disclosure applies to both the Parent Company
and the Operating Partnership; and
|
| • |
create time and cost efficiencies through the preparation of one combined report instead
of two separate reports.
|
Management operates the Parent Company and the Operating Partnership as one enterprise. The
management of the Parent Company consists of the same members as the management of the Operating
Partnership. These members are officers of both the Parent Company and of the Operating
Partnership.
There are few differences between the Parent Company and the Operating Partnership, which are
reflected in the footnote disclosures in this report. The Company believes it is important to
understand the differences between the Parent Company and the Operating Partnership in the context
of how these entities operate as an interrelated consolidated company. The Parent Company is a
REIT, whose only material asset is its ownership of the partnership interests of the Operating
Partnership. As a result, the Parent Company does not conduct business itself, other than acting
as the sole general partner of the Operating Partnership, issuing public equity from time to time
and guaranteeing the debt obligations of the Operating Partnership. The Operating Partnership holds
substantially all the assets of the Company and directly or indirectly holds the ownership
interests in the Company’s real estate ventures. The Operating Partnership conducts the operations
of the Company’s business and is structured as a partnership with no publicly traded equity. Except
for net proceeds from equity issuances by the Parent Company, which are contributed to the
Operating Partnership in exchange for partnership units, the Operating Partnership generates the
capital required by the Company’s business through the Operating Partnership’s operations, by the
Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of
partnership units of the Operating Partnership or equity interests in subsidiaries of the
Operating Partnership.
The equity and non-controlling interests in the Parent Company and the Operating Partnership’s
equity are the main areas of difference between the consolidated financial statements of the Parent
Company and the Operating Partnership. The common units of limited partnership interest in the
Operating Partnership are accounted for as partners’ equity in the Operating Partnership’s
financial statements while the common units of limited partnership interests held by parties other
than the Parent Company are presented as non-controlling interests in the Parent Company’s
financial statements. The differences between the Parent Company and the Operating Partnership’s
equity relate to the differences in the equity issued at the Parent Company and Operating
Partnership levels.
To help investors understand the significant differences between the Parent Company and the
Operating Partnership, this report presents the following as separate notes or sections for each of
the Parent Company and the Operating Partnership:
| • |
consolidated financial statements;
|
| • |
the following notes to the consolidated financial statements:
|
| • |
Noncontrolling Interests; and
|
| • |
Parent Company’s and Operating Partnership’s Equity
|
| • |
Liquidity and Capital Resources in the Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
|
3
Table of Contents
This report also includes separate Item 9A. (Controls and Procedures) disclosures and separate
Exhibit 31 and 32 certifications for each of the Parent Company and the Operating Partnership in
order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity
have made the requisite certifications and that the Parent Company and Operating Partnership are
compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and
18 U.S.C. § 1350.
In order to highlight the differences between the Parent Company and the Operating Partnership, the
separate sections in this report for the Parent Company and the Operating Partnership specifically
refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures
of the Parent Company and the Operating Partnership, this report refers to such disclosures as
those of the Company. Although the Operating Partnership is generally the entity that directly or
indirectly enters into contracts and real estate ventures and holds assets and debt, reference to
the Company is appropriate because the business is one enterprise and the Parent Company operates
the business through the Operating Partnership.
As general partner with control of the Operating Partnership, the Parent Company consolidates the
Operating Partnership for financial reporting purposes, and the Parent Company does not have
significant assets other than its investment in the Operating Partnership. Therefore, the assets
and liabilities of the Parent Company and the Operating Partnership are the same on their
respective financial statements. The separate discussions of the Parent Company and the Operating
Partnership in this report should be read in conjunction with each other to understand the results
of the Company operations on a consolidated basis and how management operates the Company.
4
TABLE OF CONTENTS
FORM 10-K
5
Table of Contents
Filing Format
This combined Form 10-K is being filed separately by Brandywine Realty Trust (the “Parent Company”)
and Brandywine Operating Partnership, L.P. (the “Operating Partnership”).
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;
|
| • |
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;
|
| • |
increases in interest rates;
|
| • |
failure of interest rate hedging contracts to perform as expected and the effectiveness
of such arrangements;
|
| • |
failure of acquisitions to perform as expected;
|
| • |
unanticipated costs associated with the acquisition, integration and operation of, our
acquisitions;
|
| • |
unanticipated costs to complete, lease-up and operate our developments and
redevelopments;
|
6
Table of Contents
| • |
unanticipated costs associated with land development, including building moratoriums and
inability to obtain necessary zoning, land-use, building, occupancy and other required
governmental approvals, construction cost increases or overruns and construction delays;
|
| • |
impairment charges;
|
| • |
increased costs for, or lack of availability of, adequate insurance, including for
terrorist acts;
|
| • |
actual or threatened terrorist attacks;
|
| • |
demand for tenant services beyond those traditionally provided by landlords;
|
| • |
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 our properties to comply with terms of their financing agreements to
us;
|
| • |
earthquakes and other natural disasters;
|
| • |
the unforeseen impact of climate change and compliance costs relating to laws and
regulations governing climate change;
|
| • |
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.
7
Table of Contents
| Item 1. |
Business
|
Introduction
We are a self-administered and self-managed 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, 2010, we owned and consolidated 233
properties (collectively, the “Properties”) containing an aggregate of approximately 25.6 million
net rentable square feet. The Properties include 208 office properties, 20 industrial properties,
four mixed-use properties and a garage property under redevelopment. As of December 31, 2010, we
also owned interests in 17 unconsolidated real estate ventures (collectively, the “Real Estate
Ventures”) that own properties that contain approximately 6.5 million net rentable square feet. In
addition, as of December 31, 2010, we owned approximately 509 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, Concord, Carlsbad and Rancho
Bernardo, California. In addition to managing properties that we own, as of December 31, 2010, we
were managing approximately 7.8 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
The Parent Company was organized and commenced its operations in 1986 as a Maryland REIT. The
Parent Company owns its assets and conducts its operations through the Operating Partnership and
subsidiaries of the Operating Partnership. The Operating Partnership was formed in 1996 as a
Delaware limited partnership. The Parent Company controls the Operating Partnership as its sole
general partner. As of December 31, 2010, the Parent Company owned a 93.1% interest in the
Operating Partnership. The remaining 6.9% interest in the Operating Partnership consists of common
units of limited partnership interest issued to the holders in exchange for contributions of
properties to the Operating Partnership. 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.
The common units in the Operating Partnership consist of two classes: Class A units and Class F
(2010) units. Holders of Class A units have the right to require redemption of their units at any
time. At our option, we may satisfy the redemption of a Class A unit either for a common share of
the Parent Company or for an amount of cash equal to the market price of one common share of the
Parent Company (based on the average closing prices of the common shares on the New York Stock
Exchange for the five-trading days ending on the redemption date). Class F (2010) units rank on a
parity with Class A units as to distributions but do not begin to accrue distributions
and are not entitled to allocations of income or loss prior to August 5, 2011. Thereafter,
Class F (2010) units will be entitled to receive the same distributions that the Parent Company
pays on its common shares, and the holder of the units will have the right to exchange the units
for an equal number of common shares (or, at the Parent Company’s option, a cash payment equal to
the number of units tendered for exchange multiplied by the average closing price of the common
shares on the New York Stock Exchange for the five trading days ending on the
date of the exchange).
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.
2010 Transactions
Real Estate Acquisitions/Dispositions
As of December 31, 2010, two of our building properties located in King of Prussia, Pennsylvania
were undergoing demolition and the remaining land balances have been presented as land inventory in
our consolidated balance sheets. We have determined that there was a change in the estimated useful
lives of the properties resulting from the ongoing demolition causing an acceleration of
depreciation expense. During the year ended December 31, 2010, we recognized the remaining net book
value of the two buildings aggregating to $2.7 million as depreciation, with the land amounts of
$1.1 million being reclassified to land inventory for potential future development. All related
demolition costs are charged to earnings.
8
Table of Contents
On December 29, 2010, we acquired a 12 acre parcel of land in Gibbsboro, New Jersey through the
foreclosure of a note receivable amounting to $2.8 million which was secured by this land and
payment of transaction related costs of $0.3 million. This parcel of land is held for future
development.
On August 5, 2010, we acquired Three Logan Square in Philadelphia, together with related ground
tenancy rights under a long-term ground lease, from BAT Partners, L.P., a third party unaffiliated
with us. Three Logan Square contains approximately 1.0 million of net rentable square feet and is
currently 67.2% leased. We acquired Three Logan Square for approximately $129.0 million funded
through a combination of $51.2 million in cash and 7,111,112 Class F (2010) Units. As indicated
above under “Organization”, the Class F (2010) Units do not begin to accrue distributions and are
not entitled to income or loss allocations prior to August 5, 2011. We funded the cash portion of
the acquisition price through an advance under our revolving credit facility and with available
corporate funds.
On December 23, 2010, we sold four office properties (One and Two Greentree Centre, 8000 Lincoln
Drive and Lake Center IV) containing a total of 243,195 net rentable square feet located in
Marlton, New Jersey for an aggregate sales price of $20.9 million. The properties were 76.1%
occupied at the date of sale.
On November 22, 2010, we sold Spyglass Point, a 58,576 net rentable square feet office property
located in Austin, Texas for a sales price of $13.5 million. The property was fully occupied at the
date of sale.
On September 20, 2010, we sold 630 Clark Avenue, a 50,000 net rentable square feet office property
located in King of Prussia, Pennsylvania for a sales price of $3.6 million. The property was fully
occupied at the date of sale.
On August 18, 2010, we sold 479 Thomas Jones Way, a 49,264 net rentable square feet office property
located in Exton, Pennsylvania, for a sales price of $3.8 million. The property was 63.0% occupied
at the date of sale.
On January 14, 2010, we sold 1957 Westmoreland Street, a 121,815 net rentable square feet property
located in Richmond, Virginia, for a sales price of $10.8 million. The property was vacant at the
date of sale.
Developments and Redevelopments
During 2010, we placed in service three office properties and one-mixed use property that we
developed or redeveloped and that contain an aggregate of 1.9 million net rentable square feet. We
place a property in service at the date the property reaches at least 95% occupancy. At December
31, 2010, we were proceeding on one garage redevelopment with total projected costs of $14.8
million of which $0.8 million remained to be funded. We expect to place this project in service in
or around the fourth quarter of 2011.
Unsecured Debt Activity
During the year ended December 31, 2010, we repurchased $82.7 million of our unsecured Notes as
summarized in the table below:
| Repurchase | Deferred Financing | |||||||||||||||
| Notes | Amount | Principal | Loss | Amortization | ||||||||||||
|
2010 5.625% Notes
|
$ | 2,002 | $ | 1,942 | $ | 37 | $ | 3 | ||||||||
|
2011 3.875% Notes
(a)
|
68,741 | 68,125 | 1,762 | 281 | ||||||||||||
|
2012 5.750% Notes
|
13,333 | 12,625 | 431 | 32 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 84,076 | $ | 82,692 | $ | 2,230 | $ | 316 | ||||||||
|
|
||||||||||||||||
| (a) |
On October 20, 2011, the holders of the Guaranteed Exchangeable Notes have the right to request
the redemption of all or a portion of the Guaranteed Exchangeable Notes they hold at a price equal
to 100% of the principal amount plus accrued and unpaid interest. Accordingly, the Guaranteed
Exchangeable Notes have been presented with an October 20, 2011 maturity date.
|
We funded these repurchases from a combination of proceeds from asset sales, cash flow from
operations and borrowings under our unsecured revolving credit facility (the “Credit Facility”). We
use borrowings under the Credit Facility for general business purposes, including the acquisition,
development and redevelopment of properties and the repayment of other debt. The maturity date of
the
Credit Facility is 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 per annum variable interest rate on the outstanding balances is LIBOR plus 0.725%.
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 $60.0 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 provided that we have not committed any defaults under the Credit
Facility and we are able to acquire additional commitments from its existing lenders or new
lenders.
9
Table of Contents
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, 2010. 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.
Secured Debt Activity
On August 26, 2010, the Operating Partnership received $254.0 million of gross proceeds from a
$256.5 million forward financing commitment that the Operating Partnership obtained on June 29,
2009. The Operating Partnership paid a $17.7 million commitment fee in connection with this
commitment. The loan proceeds, together with the commitment fee had been escrowed with an
institutional trustee pending the completion of the IRS Philadelphia Campus and the Cira South
Garage as well as the commencement of the leases at these facilities. The financing consists of
two separate loans: $209.7 million secured by the IRS Philadelphia Campus and $46.8 million secured
by the Cira South Garage. The lender held back $2.5 million of the loan proceeds pending completion
of certain conditions related to the IRS Philadelphia Campus and the Cira South Garage. As of
December 31, 2010, the Operating Partnership received $2.1 million of the amounts held back. The
loans are non-recourse and are secured by the IRS Philadelphia Campus and the Cira South Garage,
respectively. The loans bear interest at 5.93% with interest only through September 10, 2010 and
thereafter require principal and interest monthly payments through its maturity in September 2030.
The Operating Partnership used the loan proceeds to reduce borrowings under its Credit Facility and
for general corporate purposes.
Additional Financing Activity
On August 5, 2010, the Operating Partnership issued 7,111,112 of Class F (2010) units in connection
with the acquisition of Three Logan Square, an office property in Philadelphia, Pennsylvania. The
Class F (2010) units do not accrue a dividend and are not entitled to income or loss allocations
prior to August 5, 2011. They are also not exchangeable for Parent Company’s common shares for
that period. For purposes of computing the total purchase price of Three Logan Square, the Class F
(2010) units were valued based on the closing market price of the Parent Company’s common shares on
the acquisition date of $11.54 less $0.60 to reflect that these units do not begin to accrue a
dividend prior to August 5, 2011.
In June 2010, the Operating Partnership through one of its wholly owned taxable REIT subsidiaries
(a“TRS”) received a $27.4 million contribution under the historic tax credit transaction that we
entered into in 2008 with US Bancorp bringing the total contributions received to date to $61.4
million.
In March 2010, the Parent Company commenced a continuous equity offering program (the “Offering
Program”), under which the Parent Company may sell up to an aggregate amount of 15,000,000 common
shares until March 10, 2013. Through December 31, 2010, the Parent Company sold 5,742,268 shares
under the Offering Program at an average sales price of $12.54 per share resulting in net proceeds
of $70.8 million. The Parent Company contributed the net proceeds from the sale of its shares under
the Offering Program to the Operating Partnership in exchange for the issuance of 5,742,268 common
partnership units to the Parent Company. The Operating Partnership used the net proceeds from the
sales contributed by the Parent Company to reduce borrowings under the Credit Facility and for
general corporate purposes.
10
Table of Contents
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.
|
We also consider the following to be important objectives:
| • |
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.
|
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 and Moody’s Investor Service
could increase our cost of capital.
11
Table of Contents
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.
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 the 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.
12
Table of Contents
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.
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, 2010, the Management Companies were
managing properties containing an aggregate of approximately 33.4 million net rentable square feet,
of which approximately 25.6 million net rentable square feet related to Properties owned by us and
approximately 7.8 million net rentable square feet related to properties owned by third parties and
unconsolidated Real Estate Ventures.
Geographic Segments
As of December 31, 2010, we were managing our portfolio within seven segments: (1) Pennsylvania
Suburbs, (2) Philadelphia Central Business District (“CBD”), (3) Metropolitan Washington D.C, (4)
New Jersey/Delaware, (5) Richmond, Virginia, (6) Austin, Texas and (7) California. The Pennsylvania
Suburbs segment includes properties in Chester, Delaware, and Montgomery counties in the
Philadelphia suburbs. The Philadelphia CBD segment includes properties located in 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 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
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
certain real estate properties during the construction period, and certain other 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.
13
Table of Contents
Employees
As of December 31, 2010, we had 439 full-time employees, including 30 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.
14
Table of Contents
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.
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 10.0% of
our total 2010 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.
15
Table of Contents
| Item 1A. |
Risk Factors
|
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 continued uncertainty in the financial and credit markets, the
sluggish recovery in the global economy from the recent recession, and other market or economic
challenges experienced by the U.S. economy or the real estate industry as a whole. While there are
signs of recovery in the U.S. economy, the recovery rate has been much slower than anticipated.
Our portfolio consists primarily of office buildings (as compared to a more diversified real estate
portfolio); if economic conditions persist or again 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;
|
| • |
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;
|
16
Table of Contents
| • |
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.
|
The disruption in the debt capital markets could adversely affect us.
Notwithstanding the recent improvement in capital and credit markets, these markets are still
considered volatile and disruptions in these markets are still possible. 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. These events have an adverse effect on the
availability of credit, the terms on which credit 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 continue 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.
17
Table of Contents
Our Credit Facility, 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.
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 In the event that our
unsecured debt is downgraded by Moody’s Investor Services or Standard & Poor’s from the current
ratings, 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 in general.
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;
|
18
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 recently acquired properties, and may in the future continue to 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 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 risks 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 or pay down partnership debt 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.
|
19
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 the 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 termination 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, 2010, we had investments in 17
unconsolidated real estate ventures. Our net investments in the 17 unconsolidated real estate
ventures aggregated approximately $84.4 million as of December 31, 2010. 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.
20
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, and 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;
|
| • |
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.
|
21
Table of Contents
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.
22
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.
Failure to qualify as a REIT would subject us to U.S. federal income tax which would reduce the
cash available for distribution to our shareholders.
We operate our business to qualify to be taxed as a REIT for federal income tax purposes. We have
not requested and do not plan to request a ruling from the IRS that we qualify as a REIT, and the
statements in this Annual Report on Form 10-K are not binding on the IRS or any court. As a REIT,
we generally will not be subject to federal income tax on the income that we distribute currently
to our shareholders. Many of the REIT requirements, however, are highly technical and complex. The
determination that we are a REIT requires an analysis of various factual matters and circumstances
that may not be totally within our control. For example, to qualify as a REIT, at least 95% of our
gross income must come from specific passive sources, such as rent, that are itemized in the REIT
tax laws. In addition, to qualify as a REIT, we cannot own specified amounts of debt and equity
securities of some issuers. We also are required to distribute to our shareholders with respect to
each year at least 90% of our REIT taxable income (excluding net capital gains). The fact that we
hold substantially all of our assets through the Operating Partnership and its subsidiaries further
complicates the application of the REIT requirements for us. Even a technical or inadvertent
mistake could jeopardize our REIT status and, given the highly complex nature of the rules
governing REITs and the ongoing importance of factual determinations, we cannot provide any
assurance that we will continue to qualify as a REIT. Furthermore, Congress and the IRS might make
changes to the tax laws and regulations, and the courts might issue new rulings, that make it more
difficult, or impossible, for us to remain qualified as a REIT. If we fail to qualify as a REIT for
federal income tax purposes and are able to avail ourselves of one or more of the statutory savings
provisions in order to maintain our REIT status, we would nevertheless be required to pay penalty
taxes of $50,000 or more for each such failure.
If we fail to qualify as a REIT for federal income tax purposes, and are unable to avail ourselves
of certain savings provisions set forth in the Internal Revenue Code, we would be subject to
federal income tax at regular corporate rates on all of our income. As a taxable corporation, we
would not be allowed to take a deduction for distributions to shareholders in computing our taxable
income or pass through long term capital gains to individual shareholders at favorable rates. We
also could be subject to the federal alternative minimum tax and possibly increased state and local
taxes. We would not be able to elect to be taxed as a REIT for four years following the year we
first failed to qualify unless the IRS were to grant us relief under certain statutory provisions.
If we failed to qualify as a REIT, we would have to pay significant income taxes, which would
reduce our net earnings available for investment or distribution to our shareholders. This likely
would have a significant adverse effect on our earnings and likely would adversely affect the value
of our securities. In addition, we would no longer be required to pay 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.
23
Table of Contents
To maintain our REIT status, we may be forced to borrow funds on a short term basis during
unfavorable market conditions.
As a REIT, we are subject to certain distribution requirements, including the requirement to
distribute 90% of our REIT taxable income, that may result in our having to make distributions at
disadvantageous time or to borrow funds at unfavorable rates. Compliance with this requirement may
hinder our ability to operate solely on the basis of maximizing profits.
We will pay some taxes even if we qualify as a REIT, which will reduce the cash available for
distribution to our shareholders.
Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain
federal, state and local taxes on our income and property. For example, we will be subject to
income tax to the extent we distribute less than 100% of our REIT taxable income, including capital
gains. Additionally, we will be subject to a 4% nondeductible excise tax on the amount, if any, by
which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary
income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
Moreover, if we have net income from “prohibited transactions,” that income will be subject to a
100% penalty tax. In general, prohibited transactions are sales or other dispositions of property
held primarily for sale to customers in the ordinary course of business. The determination as to
whether a particular sale is a prohibited transaction depends on the facts and circumstances
related to that sale. We cannot guarantee that sales of our properties would not be prohibited
transactions unless we comply with certain statutory safe-harbor provisions.
In addition, any net taxable income earned directly by our taxable REIT subsidiaries, or through
entities that are disregarded for federal income tax purposes as entities separate from our taxable
REIT subsidiaries, will be subject to federal and possibly state corporate income tax. In this
regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a
taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For
example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments
made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments
that it receives or on some deductions taken by a taxable REIT subsidiary if the economic
arrangements between the REIT, the REIT’s customers, and the taxable REIT subsidiary are not
comparable to similar arrangements between unrelated parties. Finally, some state and local
jurisdictions may tax some of our income even though as a REIT we are not subject to federal income
tax on that income because not all states and localities follow the federal income tax treatment of
REITs. To the extent that we and our affiliates are required to pay federal, state and local taxes,
we will have less cash available for distributions to our shareholders.
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. The Operating Partnership has been audited by the Internal Revenue Service for its
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. On December
17, 2010, the IRS proposed an adjustment to the allocation of recourse liabilities allocated to the
contributor of the properties. The Operating Partnership intends to appeal the proposed
adjustment. The proposed adjustment, if upheld, would not 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 our 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.
24
Table of Contents
Although we have an employment agreement with Gerard H. Sweeney, our President and Chief Executive
Officer, 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.
25
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.
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.
26
Table of Contents
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 sluggish economic recovery from the recent recession, and any adverse changes in economic
conditions in the future in any of these economies or real estate markets could negatively 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.
| Item 1B. |
Unresolved Staff Comments
|
None.
| Item 2. |
Properties
|
Property Acquisitions
On December 29, 2010, we acquired a 12-acre parcel of land in Gibbsboro, New Jersey through the
foreclosure of a note receivable amounting to $2.8 million under which the said property was
encumbered and payment of transaction related costs of $0.3 million. The parcel of land is held
for future development.
On August 5, 2010, we acquired Three Logan Square in Philadelphia, together with related ground
tenancy rights under a long-term ground lease, from BAT Partners, L.P, a third party unaffiliated
with us. Three Logan Square contains approximately 1.0 million of net rentable square feet and is
currently 67.2% leased. We acquired Three Logan Square for approximately $129.0 million funded
through a combination of $51.2 million in cash and 7,111,112 Class F (2010) units. The Class F
(2010) units do not accrue a dividend and are not entitled to income or loss allocations prior to
August 5, 2011. We funded the cash portion of the acquisition price through an advance under the
Credit Facility and with available corporate funds.
Development and Redevelopment Properties Placed in Service
We placed in service the following office properties during the year ended December 31, 2010:
| Month Placed | # of | Rentable | ||||||||||
| in Service | Property/Portfolio Name | Location | Buildings | Square Feet | ||||||||
| Aug-10 |
IRS Philadelphia Campus
|
Philadelphia, PA | 1 | 862,692 | ||||||||
| Aug-10 |
Cira South Garage
|
Philadelphia, PA | 1 | 553,421 | ||||||||
| Apr-10 |
Radnor Corporate Center I
|
Radnor, PA | 1 | 201,980 | ||||||||
| Jan-10 |
300 Delaware Avenue
|
Wilmington, DE | 1 | 298,071 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total Properties Placed
in Service
|
4 | 1,916,164 | ||||||||||
|
|
||||||||||||
As of December 31, 2010, two of our properties located in King of Prussia, Pennsylvania were
undergoing demolition and the remaining land balances have been presented as land inventory in our
consolidated balance sheets. We have determined that there was a change in the estimated useful
lives of the buildings resulting from the ongoing demolition causing an acceleration of
depreciation
expense. During year ended December 31, 2010, we recognized the remaining net book value of the two
buildings aggregating to $2.7 million as depreciation, with the land amounts of $1.1 million being
reclassified to land inventory for potential future development. All related demolition costs are
charged to earnings.
27
Table of Contents
Property Sales
We sold the following office properties during the year ended December 31, 2010:
| Month of | # of | Rentable Square | Occupancy % | Sales | ||||||||||||||||||||
| Sale | Property/Portfolio Name | Location | Bldgs. | Feet/ Acres | at Date of Sale | Price | ||||||||||||||||||
| (in 000’s) | ||||||||||||||||||||||||
| Dec-10 |
One and Two Greentree Centre, 8000 Lincoln Drive and Lake Center IV
|
Marlton, NJ | 4 | 243,195 | 76.1 | % | $ | 20,915 | ||||||||||||||||
| Nov-10 |
Spyglass Point
|
Austin, TX | 1 | 58,576 | 100.0 | % | 13,472 | |||||||||||||||||
| Sep-10 |
630 Clark Avenue
|
King of Prussia, PA | 1 | 50,000 | 100.0 | % | 3,610 | |||||||||||||||||
| Aug-10 |
479 Thomas Jones Way
|
Exton, PA | 1 | 49,264 | 63.0 | % | 3,780 | |||||||||||||||||
| Jan-10 |
1957 Westmoreland Plaza
|
Richmond, VA | 1 | 121,815 | 0.0 | % | 10,780 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total Office Properties Sold
|
8 | 522,850 | $ | 52,557 | ||||||||||||||||||||
|
|
||||||||||||||||||||||||
Properties
As of December 31, 2010, we owned 208 office properties, 20 industrial facilities and four
mixed-use properties that contain an aggregate of approximately 25.6 million net rentable square
feet. The properties are located in or near Philadelphia, Pennsylvania, Metropolitan Washington,
D.C., Southern and Central New Jersey, Richmond, Virginia, Wilmington, Delaware, Austin, Texas, and
Oakland, Concord, Carlsbad and Rancho Bernardo, California. As of December 31, 2010, the Properties
were approximately 85.6% occupied by 1,368 tenants and had an average age of approximately 18.2
years. The office properties are primarily suburban office buildings containing an average of
approximately 0.1 million net rentable square feet. The industrial and mixed-use 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.
As of December 31, 2010, we were proceeding on one garage redevelopment with total projected costs
of $14.8 million, of which $0.8 million remained to be funded. The garage redevelopment project is
expected to be completed in or around the fourth quarter of 2011.
28
Table of Contents
The following table sets forth information with respect to our core properties at December 31,
2010:
| 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 | 2010 (a) | 2010 (b) (000’s) | 2010 (c) | ||||||||||||||||||||||
|
PENNSYLVANIA SUBURBS SEGMENT
|
|||||||||||||||||||||||||||||
|
150 Radnor Chester Road
|
Radnor | PA | 1983 | 340,262 | 99.2 | % | 9,575 | 29.41 | |||||||||||||||||||||
|
201 King of Prussia Road
|
Radnor | PA | 2001 | 251,434 | 100.0 | % | 6,045 | 28.97 | |||||||||||||||||||||
|
555 Lancaster Avenue
|
Radnor | PA | 1973 | 241,778 | 99.0 | % | 5,890 | 25.89 | |||||||||||||||||||||
|
One Radnor Corporate Center
|
Radnor | PA | 1998 | 201,980 | 90.8 | % | 2,054 | 1.89 | |||||||||||||||||||||
|
401 Plymouth Road
|
Plymouth Meeting | PA | 2001 | 201,883 | 79.5 | % | 5,087 | 33.36 | |||||||||||||||||||||
|
101 West Elm Street
|
W. Conshohocken | PA | 1999 | 175,009 | 95.1 | % | 3,546 | 20.61 | |||||||||||||||||||||
|
Four Radnor Corporate Center
|
Radnor | PA | 1995 | 164,723 | 90.7 | % | 3,507 | 25.60 | |||||||||||||||||||||
|
Five Radnor Corporate Center
|
Radnor | PA | 1998 | 164,655 | 100.0 | % | 4,636 | 30.45 | |||||||||||||||||||||
|
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 | 76.0 | % | 3,198 | 23.30 | |||||||||||||||||||||
|
640 Freedom Business Center
|
(d) | King Of Prussia | PA | 1991 | 132,000 | 87.8 | % | 2,209 | 24.23 | ||||||||||||||||||||
|
52 Swedesford Square
|
East Whiteland Twp. | PA | 1988 | 131,017 | 0.0 | % | 1,913 | — | |||||||||||||||||||||
|
400 Berwyn Park
|
Berwyn | PA | 1999 | 124,182 | 100.0 | % | 3,049 | 29.61 | |||||||||||||||||||||
|
4000 Chemical Road
|
Plymouth Meeting | PA | 2007 | 120,877 | 100.0 | % | 2,424 | 17.47 | |||||||||||||||||||||
|
Three Radnor Corporate Center
|
Radnor | PA | 1998 | 119,107 | 82.3 | % | 2,504 | 29.12 | |||||||||||||||||||||
|
101 Lindenwood Drive
|
Malvern | PA | 1988 | 118,121 | 63.5 | % | 1,186 | 19.14 | |||||||||||||||||||||
|
300 Berwyn Park
|
Berwyn | PA | 1989 | 106,038 | 87.8 | % | 1,385 | 12.91 | |||||||||||||||||||||
|
442 Creamery Way
|
(f) | Exton | PA | 1991 | 104,500 | 100.0 | % | 598 | 5.71 | ||||||||||||||||||||
|
Two Radnor Corporate Center
|
Radnor | PA | 1998 | 97,936 | 58.9 | % | 1,272 | 24.15 | |||||||||||||||||||||
|
301 Lindenwood Drive
|
Malvern | PA | 1984 | 97,813 | 87.3 | % | 1,692 | 21.07 | |||||||||||||||||||||
|
1 West Elm Street
|
W. Conshohocken | PA | 1999 | 97,737 | 100.0 | % | 2,176 | 27.15 | |||||||||||||||||||||
|
555 Croton Road
|
King of Prussia | PA | 1999 | 96,909 | 90.3 | % | 2,324 | 30.54 | |||||||||||||||||||||
|
500 North Gulph Road
|
King Of Prussia | PA | 1979 | 93,082 | 84.3 | % | 1,496 | 18.70 | |||||||||||||||||||||
|
620 West Germantown Pike
|
Plymouth Meeting | PA | 1990 | 90,183 | 86.6 | % | 1,454 | 24.35 | |||||||||||||||||||||
|
610 West Germantown Pike
|
Plymouth Meeting | PA | 1987 | 90,152 | 79.6 | % | 1,438 | 29.17 | |||||||||||||||||||||
|
630 West Germantown Pike
|
Plymouth Meeting | PA | 1988 | 89,925 | 97.1 | % | 2,040 | 27.91 | |||||||||||||||||||||
|
600 West Germantown Pike
|
Plymouth Meeting | PA | 1986 | 89,681 | 83.3 | % | 1,421 | 24.71 | |||||||||||||||||||||
|
630 Freedom Business Center
|
(d) | King Of Prussia | PA | 1989 | 86,683 | 76.8 | % | 1,232 | 21.43 | ||||||||||||||||||||
|
1200 Swedesford Road
|
Berwyn | PA | 1994 | 86,622 | 87.0 | % | 1,366 | 29.41 | |||||||||||||||||||||
|
620 Freedom Business Center
|
(d) | King Of Prussia | PA | 1986 | 86,570 | 89.4 | % | 1,766 | 20.53 | ||||||||||||||||||||
|
595 East Swedesford Road
|
Wayne | PA | 1998 | 81,890 | 100.0 | % | 1,750 | 23.66 | |||||||||||||||||||||
|
1050 Westlakes Drive
|
Berwyn | PA | 1984 | 80,000 | 100.0 | % | 1,984 | 25.50 | |||||||||||||||||||||
|
One Progress Drive
|
Horsham | PA | 1986 | 79,204 | 100.0 | % | 841 | 13.42 | |||||||||||||||||||||
|
1060 First Avenue
|
(e) | King Of Prussia | PA | 1987 | 77,718 | 100.0 | % | 1,378 | 21.41 | ||||||||||||||||||||
|
741 First Avenue
|
King Of Prussia | PA | 1966 | 77,184 | 100.0 | % | 193 | — | |||||||||||||||||||||
|
1040 First Avenue
|
(e) | King Of Prussia | PA | 1985 | 75,488 | 78.6 | % | 1,267 | 23.65 | ||||||||||||||||||||
|
200 Berwyn Park
|
Berwyn | PA | 1987 | 75,025 | 100.0 | % | 1,505 | 22.77 | |||||||||||||||||||||
|
1020 First Avenue
|
(e) | King Of Prussia | PA | 1984 | 74,556 | 100.0 | % | 1,608 | 21.00 | ||||||||||||||||||||
|
1000 First Avenue
|
(e) | King Of Prussia | PA | 1980 | 74,139 | 88.9 | % | 1,386 | 22.86 | ||||||||||||||||||||
|
436 Creamery Way
|
Exton | PA | 1991 | 72,300 | 100.0 | % | 731 | 14.43 | |||||||||||||||||||||
|
130 Radnor Chester Road
|
Radnor | PA | 1983 | 71,349 | 100.0 | % | 2,150 | 32.48 | |||||||||||||||||||||
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 | 2010 (a) | 2010 (b) (000’s) | 2010 (c) | ||||||||||||||||||||||
|
PENNSYLVANIA SUBURBS SEGMENT
|
|||||||||||||||||||||||||||||
|
14 Campus Boulevard
|
Newtown Square | PA | 1998 | 69,542 | 100.0 | % | 1,815 | 25.86 | |||||||||||||||||||||
|
170 Radnor Chester Road
|
Radnor | PA | 1983 | 68,143 | 100.0 | % | 1,670 | 26.85 | |||||||||||||||||||||
|
500 Enterprise Road
|
Horsham | PA | 1990 | 66,751 | 100.0 | % | 412 | 9.76 | |||||||||||||||||||||
|
575 East Swedesford Road
|
Wayne | PA | 1985 | 66,265 | 100.0 | % | 1,230 | 28.65 | |||||||||||||||||||||
|
429 Creamery Way
|
Exton | PA | 1996 | 63,420 | 83.9 | % | 569 | 14.47 | |||||||||||||||||||||
|
610 Freedom Business Center
|
(d) | King Of Prussia | PA | 1985 | 62,991 | 52.7 | % | 827 | 6.89 | ||||||||||||||||||||
|
925 Harvest Drive
|
Blue Bell | PA | 1990 | 62,957 | 93.3 | % | 913 | 19.08 | |||||||||||||||||||||
|
980 Harvest Drive
|
Blue Bell | PA | 1988 | 62,379 | 71.4 | % | 966 | 20.15 | |||||||||||||||||||||
|
426 Lancaster Avenue
|
Devon | PA | 1990 | 61,102 | 100.0 | % | 1,213 | 20.29 | |||||||||||||||||||||
|
1180 Swedesford Road
|
Berwyn | PA | 1987 | 60,371 | 100.0 | % | 1,880 | 33.65 | |||||||||||||||||||||
|
1160 Swedesford Road
|
Berwyn | PA | 1986 | 60,099 | 97.4 | % | 1,385 | 26.68 | |||||||||||||||||||||
|
100 Berwyn Park
|
Berwyn | PA | 1986 | 57,731 | 91.7 | % | 512 | 20.90 | |||||||||||||||||||||
|
440 Creamery Way
|
Exton | PA | 1991 | 57,218 | 100.0 | % | 813 | 16.38 | |||||||||||||||||||||
|
640 Allendale Road
|
(f) | King of Prussia | PA | 2000 | 56,034 | 100.0 | % | 323 | 8.86 | ||||||||||||||||||||
|
565 East Swedesford Road
|
Wayne | PA | 1984 | 55,456 | 88.5 | % | 911 | 19.85 | |||||||||||||||||||||
|
650 Park Avenue
|
King Of Prussia | PA | 1968 | 54,338 | 87.8 | % | 727 | 17.33 | |||||||||||||||||||||
|
910 Harvest Drive
|
Blue Bell | PA | 1990 | 52,611 | 100.0 | % | 1,040 | 20.71 | |||||||||||||||||||||
|
2240/50 Butler Pike
|
Plymouth Meeting | PA | 1984 | 52,229 | 100.0 | % | 1,014 | 21.94 | |||||||||||||||||||||
|
920 Harvest Drive
|
Blue Bell | PA | 1990 | 51,875 | 74.6 | % | 822 | 21.54 | |||||||||||||||||||||
|
486 Thomas Jones Way
|
Exton | PA | 1990 | 51,372 | 70.9 | % | 620 | 18.30 | |||||||||||||||||||||
|
875 First Avenue
|
King Of Prussia | PA | 1966 | 50,000 | 100.0 | % | 1,038 | 22.64 | |||||||||||||||||||||
|
620 Allendale Road
|
King Of Prussia | PA | 1961 | 50,000 | 67.0 | % | 536 | 16.05 | |||||||||||||||||||||
|
15 Campus Boulevard
|
Newtown Square | PA | 2002 | 49,621 | 100.0 | % | 1,063 | 25.77 | |||||||||||||||||||||
|
17 Campus Boulevard
|
Newtown Square | PA | 2001 | 48,565 | 100.0 | % | 841 | 19.07 | |||||||||||||||||||||
|
11 Campus Boulevard
|
Newtown Square | PA | 1998 | 47,699 | 100.0 | % | 1,256 | 25.90 | |||||||||||||||||||||
|
456 Creamery Way
|
Exton | PA | 1987 | 47,604 | 100.0 | % | 371 | 9.31 | |||||||||||||||||||||
|
585 East Swedesford Road
|
Wayne | PA | 1998 | 43,683 | 100.0 | % | 771 | 28.04 | |||||||||||||||||||||
|
1100 Cassett Road
|
Berwyn | PA | 1997 | 43,480 | 100.0 | % | 1,106 | 31.95 | |||||||||||||||||||||
|
467 Creamery Way
|
Exton | PA | 1988 | 42,000 | 100.0 | % | 603 | 19.08 | |||||||||||||||||||||
|
1336 Enterprise Drive
|
West Goshen | PA | 1989 | 39,330 | 0.0 | % | 518 | — | |||||||||||||||||||||
|
600 Park Avenue
|
King Of Prussia | PA | 1964 | 39,000 | 100.0 | % | 545 | 16.75 | |||||||||||||||||||||
|
412 Creamery Way
|
Exton | PA | 1999 | 38,098 | 86.0 | % | 671 | 26.54 | |||||||||||||||||||||
|
18 Campus Boulevard
|
Newtown Square | PA | 1990 | 37,374 | 100.0 | % | 790 | 23.90 | |||||||||||||||||||||
|
457 Creamery Way
|
Exton | PA | 1990 | 36,019 | 100.0 | % | 401 | 15.29 | |||||||||||||||||||||
|
100 Arrandale Boulevard
|
Exton | PA | 1997 | 34,931 | 100.0 | % | 456 | 17.75 | |||||||||||||||||||||
|
300 Lindenwood Drive
|
Malvern | PA | 1991 | 33,000 | 100.0 | % | 794 | 23.81 | |||||||||||||||||||||
|
2260 Butler Pike
|
Plymouth Meeting | PA | 1984 | 31,892 | 100.0 | % | 658 | 22.54 | |||||||||||||||||||||
|
120 West Germantown Pike
|
Plymouth Meeting | PA | 1984 | 30,574 | 100.0 | % | 505 | 21.10 | |||||||||||||||||||||
|
468 Thomas Jones Way
|
Exton | PA | 1990 | 28,934 | 100.0 | % | 550 | 20.00 | |||||||||||||||||||||
|
1700 Paoli Pike
|
Malvern | PA | 2000 | 28,000 | 0.0 | % | — | — | |||||||||||||||||||||
|
140 West Germantown Pike
|
Plymouth Meeting | PA | 1984 | 25,357 | 76.0 | % | 406 | 25.22 | |||||||||||||||||||||
|
481 John Young Way
|
Exton | PA | 1997 | 19,275 | 100.0 | % | 483 | 26.59 | |||||||||||||||||||||
|
100 Lindenwood Drive
|
Malvern | PA | 1985 | 18,400 | 100.0 | % | 363 | 21.51 | |||||||||||||||||||||
|
200 Lindenwood Drive
|
Malvern | PA | 1984 | 12,600 | 40.2 | % | 36 | 6.45 | |||||||||||||||||||||
|
111 Arrandale Road
|
Exton | PA | 1996 | 10,479 | 100.0 | % | 198 | 19.49 | |||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED
AVG — PENNSYLVANIA SUBURBS SEGMENT
|
7,026,511 | 89.3 | % | 128,471 | 21.34 | ||||||||||||||||||||||||
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 | 2010 (a) | 2010 (b) (000’s) | 2010 (c) | ||||||||||||||||||||||
|
METROPOLITAN WASHINGTON D.C. SEGMENT
|
|||||||||||||||||||||||||||||
|
1676 International Drive
|
McLean | VA | 1999 | 299,387 | 93.8 | % | 8,712 | 34.06 | |||||||||||||||||||||
|
13820 Sunrise Valley Drive
|
Herndon | VA | 2007 | 268,240 | 100.0 | % | 9,085 | 31.76 | |||||||||||||||||||||
|
2340 Dulles Corner Boulevard
|
Herndon | VA | 1987 | 264,405 | 100.0 | % | 8,024 | 31.19 | |||||||||||||||||||||
|
2291 Wood Oak Drive
|
Herndon | VA | 1999 | 230,389 | 98.8 | % | 5,326 | 30.89 | |||||||||||||||||||||
|
7101 Wisconsin Avenue
|
Bethesda | MD | 1975 | 223,054 | 96.8 | % | 6,864 | 32.60 | |||||||||||||||||||||
|
1900 Gallows Road
|
Vienna | VA | 1989 | 210,632 | 52.1 | % | 3,283 | 28.27 | |||||||||||||||||||||
|
3130 Fairview Park Drive
|
Falls Church | VA | 1999 | 180,645 | 79.7 | % | 5,014 | 33.66 | |||||||||||||||||||||
|
3141 Fairview Park Drive
|
Falls Church | VA | 1988 | 180,611 | 86.6 | % | 4,401 | 28.24 | |||||||||||||||||||||
|
2411 Dulles Corner Park
|
Herndon | VA | 1990 | 180,510 | 98.7 | % | 5,530 | 31.23 | |||||||||||||||||||||
|
2355 Dulles Corner Boulevard
|
Herndon | VA | 1988 | 179,176 | 83.6 | % | 4,873 | 33.43 | |||||||||||||||||||||
|
1880 Campus Commons Drive
|
Reston | VA | 1985 | 173,026 | 100.0 | % | 3,069 | 10.47 | |||||||||||||||||||||
|
2121 Cooperative Way
|
Herndon | VA | 2000 | 161,275 | 83.5 | % | 3,961 | 32.14 | |||||||||||||||||||||
|
6600 Rockledge Drive
|
(d) | Bethesda | MD | 1981 | 160,173 | 71.0 | % | 3,165 | 28.97 | ||||||||||||||||||||
|
8260 Greensboro Drive
|
McLean | VA | 1980 | 158,961 | 77.5 | % | 3,099 | 26.36 | |||||||||||||||||||||
|
2251 Corporate Park Drive
|
Herndon | VA | 2000 | 158,016 | 100.0 | % | 5,073 | 34.39 | |||||||||||||||||||||
|
12015 Lee Jackson Memorial Highway
|
Fairfax | VA | 1985 | 153,255 | 96.5 | % | 3,971 | 26.85 | |||||||||||||||||||||
|
13880 Dulles Corner Lane
|
Herndon | VA | 1997 | 151,747 | 100.0 | % | 4,678 | 36.45 | |||||||||||||||||||||
|
8521 Leesburg Pike
|
Vienna | VA | 1984 | 150,897 | 69.1 | % | 2,751 | 27.48 | |||||||||||||||||||||
|
2273 Research Boulevard
|
Rockville | MD | 1999 | 147,689 | 98.4 | % | 4,295 | 30.69 | |||||||||||||||||||||
|
2275 Research Boulevard
|
Rockville | MD | 1990 | 147,650 | 100.0 | % | 4,127 | 29.95 | |||||||||||||||||||||
|
2201 Cooperative Way
|
Herndon | VA | 1990 | 138,806 | 85.7 | % | 3,685 | 32.60 | |||||||||||||||||||||
|
2277 Research Boulevard
|
Rockville | MD | 1986 | 137,045 | 100.0 | % | 3,360 | 29.24 | |||||||||||||||||||||
|
11781 Lee Jackson Memorial Highway
|
Fairfax | VA | 1982 | 130,935 | 93.3 | % | 3,137 | 26.76 | |||||||||||||||||||||
|
11720 Beltsville Drive
|
Beltsville | MD | 1987 | 128,903 | 57.4 | % | 1,776 | 23.73 | |||||||||||||||||||||
|
13825 Sunrise Valley Drive
|
Herndon | VA | 1989 | 104,150 | 12.4 | % | 331 | 25.61 | |||||||||||||||||||||
|
198 Van Buren Street
|
Herndon | VA | 1996 | 98,934 | 100.0 | % | 2,886 | 32.24 | |||||||||||||||||||||
|
196 Van Buren Street
|
Herndon | VA | 1991 | 97,781 | 78.9 | % | 1,673 | 32.63 | |||||||||||||||||||||
|
11700 Beltsville Drive
|
Beltsville | MD | 1981 | 96,843 | 96.3 | % | 2,150 | 22.90 | |||||||||||||||||||||
|
11710 Beltsville Drive
|
Beltsville | MD | 1987 | 81,281 | 89.2 | % | 1,699 | 17.27 | |||||||||||||||||||||
|
4401 Fair Lakes Court
|
Fairfax | VA | 1988 | 55,972 | 95.6 | % | 1,438 | 28.43 | |||||||||||||||||||||
|
11740 Beltsville Drive
|
Beltsville | MD | 1987 | 6,783 | 100.0 | % | 140 | 27.60 | |||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED AVG — METROPOLITAN
WASHINGTON D.C. SEGMENT
|
4,857,171 | 87.7 | % | 121,576 | 29.58 | ||||||||||||||||||||||||
|
PHILADELPHIA CBD
|
|||||||||||||||||||||||||||||
|
1717 Arch Street
|
(d) | Philadelphia | PA | 1990 | 1,029,413 | 67.2 | % | 4,855 | 20.91 | ||||||||||||||||||||
|
2970 Market Street
|
Philadelphia | PA | 2010 | 862,692 | 100.0 | % | 6,658 | 31.03 | |||||||||||||||||||||
|
2929 Arch Street
|
(d) | Philadelphia | PA | 2005 | 729,897 | 100.0 | % | 24,406 | 35.41 | ||||||||||||||||||||
|
100 North 18th Street
|
(e) | Philadelphia | PA | 1988 | 706,288 | 93.7 | % | 20,102 | 32.82 | ||||||||||||||||||||
|
130 North 18th Street
|
Philadelphia | PA | 1989 | 595,041 | 100.0 | % | 12,800 | 28.95 | |||||||||||||||||||||
|
2930 Chestnut Street
|
(d), (g) | Philadelphia | PA | 2010 | 553,421 | 93.2 | % | — | 11.84 | ||||||||||||||||||||
|
Philadelphia Marine Center
|
(d), (g) | Philadelphia | PA | Various | 181,900 | 100.0 | % | 1,311 | 3.99 | ||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED AVG — PHILADELPHIA CBD SEGMENT
|
4,658,652 | 91.0 | % | 70,132 | 26.15 | ||||||||||||||||||||||||
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 | 2010 (a) | 2010 (b) (000’s) | 2010 (c) | ||||||||||||||||||||||
|
NEW JERSEY/DELAWARE SEGMENT
|
|||||||||||||||||||||||||||||
|
300 Delaware Avenue
|
Wilmington | DE | 1989 | 298,071 | 74.7 | % | 2,576 | 16.81 | |||||||||||||||||||||
|
920 North King Street
|
Wilmington | DE | 1989 | 203,328 | 96.7 | % | 4,576 | 26.90 | |||||||||||||||||||||
|
10000 Midlantic Drive
|
Mt. Laurel | NJ | 1990 | 183,147 | 46.5 | % | 2,056 | 25.27 | |||||||||||||||||||||
|
1009 Lenox Drive
|
Lawrenceville | NJ | 1989 | 180,734 | 88.5 | % | 4,579 | 26.96 | |||||||||||||||||||||
|
525 Lincoln Drive West
|
Marlton | NJ | 1986 | 165,956 | 94.2 | % | 2,829 | 24.68 | |||||||||||||||||||||
|
Main Street — Plaza 1000
|
Voorhees | NJ | 1988 | 162,364 | 33.0 | % | 1,559 | 22.16 | |||||||||||||||||||||
|
400 Commerce Drive
|
Newark | DE | 1997 | 154,086 | 100.0 | % | 2,321 | 16.64 | |||||||||||||||||||||
|
2000 Lenox Drive
|
Lawrenceville | NJ | 2000 | 122,169 | 81.8 | % | 2,560 | 27.12 | |||||||||||||||||||||
|
457 Haddonfield Road
|
Cherry Hill | NJ | 1990 | 121,737 | 91.2 | % | 2,125 | 24.87 | |||||||||||||||||||||
|
2000 Midlantic Drive
|
Mt. Laurel | NJ | 1989 | 121,658 | 61.3 | % | 1,041 | 23.20 | |||||||||||||||||||||
|
700 East Gate Drive
|
Mt. Laurel | NJ | 1984 | 119,272 | 88.8 | % | 1,834 | 24.98 | |||||||||||||||||||||
|
989 Lenox Drive
|
Lawrenceville | NJ | 1984 | 112,055 | 67.8 | % | 1,806 | 26.77 | |||||||||||||||||||||
|
993 Lenox Drive
|
Lawrenceville | NJ | 1985 | 111,124 | 100.0 | % | 2,552 | 28.75 | |||||||||||||||||||||
|
1000 Howard Boulevard
|
Mt. Laurel | NJ | 1988 | 105,312 | 44.7 | % | 1,723 | 22.09 | |||||||||||||||||||||
|
One Righter Parkway
|
(d) | Wilmington | DE | 1989 | 104,761 | 82.3 | % | 1,965 | 22.82 | ||||||||||||||||||||
|
1000 Atrium Way
|
Mt. Laurel | NJ | 1989 | 99,668 | 76.4 | % | 1,430 | 22.58 | |||||||||||||||||||||
|
997 Lenox Drive
|
Lawrenceville | NJ | 1987 | 97,277 | 80.4 | % | 2,144 | 26.66 | |||||||||||||||||||||
|
Two Righter Parkway
|
(d) | Wilmington | DE | 1987 | 95,514 | 60.7 | % | 986 | 14.31 | ||||||||||||||||||||
|
1120 Executive Boulevard
|
Mt. Laurel | NJ | 1987 | 95,278 | 50.9 | % | 1,031 | 25.17 | |||||||||||||||||||||
|
15000 Midlantic Drive
|
Mt. Laurel | NJ | 1991 | 84,056 | 77.8 | % | 966 | 25.26 | |||||||||||||||||||||
|
220 Lake Drive East
|
Cherry Hill | NJ | 1988 | 78,509 | 77.2 | % | 954 | 24.67 | |||||||||||||||||||||
|
1200 Lenox Drive
|
Lawrenceville | NJ | 2007 | 76,419 | 92.5 | % | 1,327 | 29.30 | |||||||||||||||||||||
|
200 Lake Drive East
|
Cherry Hill | NJ | 1989 | 76,352 | 91.1 | % | 1,161 | 22.67 | |||||||||||||||||||||
|
Three Greentree Centre
|
Marlton | NJ | 1984 | 69,300 | 87.1 | % | 1,250 | 24.50 | |||||||||||||||||||||
|
200 Commerce Drive
|
Newark | DE | 1998 | 68,034 | 100.0 | % | 1,327 | 20.32 | |||||||||||||||||||||
|
9000 Midlantic Drive
|
Mt. Laurel | NJ | 1989 | 67,299 | 74.2 | % | 558 | — | |||||||||||||||||||||
|
6 East Clementon Road
|
Gibbsboro | NJ | 1980 | 66,236 | 28.6 | % | 707 | 19.72 | |||||||||||||||||||||
|
100 Commerce Drive
|
Newark | DE | 1989 | 62,787 | 81.4 | % | 846 | 19.02 | |||||||||||||||||||||
|
701 East Gate Drive
|
Mt. Laurel | NJ | 1986 | 61,794 | 66.1 | % | 761 | 23.24 | |||||||||||||||||||||
|
210 Lake Drive East
|
Cherry Hill | NJ | 1986 | 60,604 | 89.2 | % | 831 | 23.41 | |||||||||||||||||||||
|
308 Harper Drive
|
Moorestown | NJ | 1976 | 59,500 | 88.6 | % | 367 | 13.94 | |||||||||||||||||||||
|
305 Fellowship Drive
|
Mt. Laurel | NJ | 1980 | 56,824 | 83.5 | % | 873 | 21.10 | |||||||||||||||||||||
|
309 Fellowship Drive
|
Mt. Laurel | NJ | 1982 | 55,911 | 77.2 | % | 729 | 24.23 | |||||||||||||||||||||
|
307 Fellowship Drive
|
Mt. Laurel | NJ | 1981 | 54,485 | 75.5 | % | 549 | 17.38 | |||||||||||||||||||||
|
303 Fellowship Drive
|
Mt. Laurel | NJ | 1979 | 53,768 | 63.7 | % | 517 | 23.00 | |||||||||||||||||||||
|
1000 Bishops Gate
|
Mt. Laurel | NJ | 2005 | 53,281 | 95.3 | % | 990 | 24.41 | |||||||||||||||||||||
|
1000 Lenox Drive
|
Lawrenceville | NJ | 1982 | 52,264 | 100.0 | % | 1,329 | 30.34 | |||||||||||||||||||||
|
100 Lenox Drive
|
Lawrenceville | NJ | 1991 | 50,942 | 100.0 | % | 972 | 23.45 | |||||||||||||||||||||
|
2 Foster Avenue
|
(f) | Gibbsboro | NJ | 1974 | 50,761 | 94.6 | % | 220 | 4.62 | ||||||||||||||||||||
|
4000 Midlantic Drive
|
Mt. Laurel | NJ | 1998 | 46,945 | 100.0 | % | 602 | 21.39 | |||||||||||||||||||||
|
Five Eves Drive
|
Marlton | NJ | 1986 | 45,564 | 100.0 | % | 726 | 22.48 | |||||||||||||||||||||
|
161 Gaither Drive
|
Mount Laurel | NJ | 1987 | 44,739 | 100.0 | % | 643 | 23.82 | |||||||||||||||||||||
|
Main Street — Piazza
|
Voorhees | NJ | 1990 | 44,708 | 65.4 | % | 521 | 21.05 | |||||||||||||||||||||
|
30 Lake Center Drive
|
Marlton | NJ | 1986 | 40,287 | 54.0 | % | 377 | 20.60 | |||||||||||||||||||||
32
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 | 2010 (a) | 2010 (b) (000’s) | 2010 (c) | ||||||||||||||||||||||
|
NEW JERSEY/DELAWARE SEGMENT
|
|||||||||||||||||||||||||||||
|
20 East Clementon Road
|
Gibbsboro | NJ | 1986 | 38,260 | 68.1 | % | 316 | 20.41 | |||||||||||||||||||||
|
Two Eves Drive
|
Marlton | NJ | 1987 | 37,532 | 89.8 | % | 349 | 17.59 | |||||||||||||||||||||
|
304 Harper Drive
|
Moorestown | NJ | 1975 | 32,978 | 97.4 | % | 472 | 22.39 | |||||||||||||||||||||
|
Main Street — Promenade
|
Voorhees | NJ | 1988 | 31,445 | 80.0 | % | 318 | 16.64 | |||||||||||||||||||||
|
Four B Eves Drive
|
Marlton | NJ | 1987 | 27,011 | 100.0 | % | 412 | 16.42 | |||||||||||||||||||||
|
815 East Gate Drive
|
Mt. Laurel | NJ | 1986 | 25,500 | 65.1 | % | 171 | 17.97 | |||||||||||||||||||||
|
817 East Gate Drive
|
Mt. Laurel | NJ | 1986 | 25,351 | 100.0 | % | 266 | 14.22 | |||||||||||||||||||||
|
Four A Eves Drive
|
Marlton | NJ | 1987 | 24,687 | 100.0 | % | 319 | 16.85 | |||||||||||||||||||||
|
1 Foster Avenue
|
(f) | Gibbsboro | NJ | 1972 | 24,255 | 100.0 | % | 111 | 4.65 | ||||||||||||||||||||
|
4 Foster Avenue
|
(f) | Gibbsboro | NJ | 1974 | 23,372 | 100.0 | % | 157 | 7.56 | ||||||||||||||||||||
|
7 Foster Avenue
|
Gibbsboro | NJ | 1983 | 22,158 | 76.3 | % | 252 | 19.64 | |||||||||||||||||||||
|
10 Foster Avenue
|
Gibbsboro | NJ | 1983 | 18,651 | 90.4 | % | 181 | 18.48 | |||||||||||||||||||||
|
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
|
4,476,160 | 78.7 | % | 65,318 | 22.06 | ||||||||||||||||||||||||
|
RICHMOND, VA SEGMENT
|
|||||||||||||||||||||||||||||
|
300 Arboretum Place
|
Richmond | VA | 1988 | 212,228 | 92.8 | % | 3,587 | 18.45 | |||||||||||||||||||||
|
6800 Paragon Place
|
Richmond | VA | 1986 | 144,722 | 76.1 | % | 2,251 | 20.06 | |||||||||||||||||||||
|
6802 Paragon Place
|
Richmond | VA | 1989 | 143,717 | 90.4 | % | 2,391 | 16.14 | |||||||||||||||||||||
|
7501 Boulders View Drive
|
Richmond | VA | 1990 | 136,641 | 94.0 | % | 1,777 | 8.90 | |||||||||||||||||||||
|
2511 Brittons Hill Road
|
(f) | Richmond | VA | 1987 | 132,548 | 100.0 | % | 686 | 6.75 | ||||||||||||||||||||
|
2100-2116 West Laburnam Avenue
|
Richmond | VA | 1976 | 128,337 | 97.5 | % | 1,762 | 14.81 | |||||||||||||||||||||
|
7300 Beaufont Springs Drive
|
Richmond | VA | 2000 | 120,665 | 100.0 | % | 2,569 | 22.41 | |||||||||||||||||||||
|
1025 Boulders Parkway
|
Richmond | VA | 1994 | 93,143 | 100.0 | % | 1,789 | 18.94 | |||||||||||||||||||||
|
2201-2245 Tomlynn Street
|
(f) | Richmond | VA | 1989 | 85,860 | 74.5 | % | 377 | 6.15 | ||||||||||||||||||||
|
7401 Beaufont Springs Drive
|
Richmond | VA | 1998 | 82,706 | 60.5 | % | 1,074 | 20.09 | |||||||||||||||||||||
|
7325 Beaufont Springs Drive
|
Richmond | VA | 1999 | 75,218 | 100.0 | % | 1,554 | 22.22 | |||||||||||||||||||||
|
100 Gateway Centre Parkway
|
Richmond | VA | 2001 | 74,991 | 72.0 | % | 551 | 16.52 | |||||||||||||||||||||
|
6806 Paragon Place
|
Richmond | VA | 2007 | 74,480 | 100.0 | % | 1,755 | 25.42 | |||||||||||||||||||||
|
9011 Arboretum Parkway
|
Richmond | VA | 1991 | 73,183 | 85.5 | % | 1,121 | 19.24 | |||||||||||||||||||||
|
4805 Lake Brooke Drive
|
Glen Allen | VA | 1996 | 60,867 | 100.0 | % | 777 | 19.48 | |||||||||||||||||||||
|
9100 Arboretum Parkway
|
Richmond | VA | 1988 | 58,445 | 86.2 | % | 884 | 16.92 | |||||||||||||||||||||
|
2812 Emerywood Parkway
|
Henrico | VA | 1980 | 56,984 | 100.0 | % | 821 | 16.81 | |||||||||||||||||||||
|
4364 South Alston Avenue
|
Durham | NC | 1985 | 56,601 | 100.0 | % | 1,133 | 21.79 | |||||||||||||||||||||
|
2277 Dabney Road
|
(f) | Richmond | VA | 1986 | 50,400 | 100.0 | % | 266 | 7.40 | ||||||||||||||||||||
|
9200 Arboretum Parkway
|
Richmond | VA | 1988 | 49,542 | 100.0 | % | 721 | 15.41 | |||||||||||||||||||||
|
9210 Arboretum Parkway
|
Richmond | VA | 1988 | 48,012 | 84.6 | % | 599 | 15.15 | |||||||||||||||||||||
|
2212-2224 Tomlynn Street
|
(f) | Richmond | VA | 1985 | 45,353 | 100.0 | % | 235 | 7.63 | ||||||||||||||||||||
|
2221-2245 Dabney Road
|
(f) | Richmond | VA | 1994 | 45,250 | 100.0 | % | 237 | 6.74 | ||||||||||||||||||||
|
2251 Dabney Road
|
(f) | Richmond | VA | 1983 | 42,000 | 100.0 | % | 210 | 6.83 | ||||||||||||||||||||
|
2161-2179 Tomlynn Street
|
(f) | Richmond | VA | 1985 | 41,550 | 89.9 | % | 204 | 7.98 | ||||||||||||||||||||
|
2256 Dabney Road
|
(f) | Richmond | VA | 1982 | 33,413 | 100.0 | % | 233 | 8.63 | ||||||||||||||||||||
|
2246 Dabney Road
|
(f) | Richmond | VA | 1987 | 33,271 | 100.0 | % | 287 | 11.37 | ||||||||||||||||||||
|
2244 Dabney Road
|
(f) | Richmond | VA | 1993 | 33,050 | 100.0 | % | 297 | 11.68 | ||||||||||||||||||||
|
9211 Arboretum Parkway
|
Richmond | VA | 1991 | 30,791 | 13.3 | % | 183 | 13.00 | |||||||||||||||||||||
|
2248 Dabney Road
|
(f) | Richmond | VA | 1989 | 30,184 | 87.6 | % | 189 | 8.66 | ||||||||||||||||||||
|
2130-2146 Tomlynn Street
|
(f) | Richmond | VA | 1988 | 29,700 | 57.6 | % | 194 | 14.11 | ||||||||||||||||||||
|
2120 Tomlyn Street
|
(f) | Richmond | VA | 1986 | 23,850 | 100.0 | % | 115 | 8.14 | ||||||||||||||||||||
|
2240 Dabney Road
|
(f) | Richmond | VA | 1984 | 15,389 | 100.0 | % | 139 | 12.04 | ||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED AVG — RICHMOND, VA SEGMENT
|
2,363,091 | 90.5 | % | 30,968 | 15.25 | ||||||||||||||||||||||||
33
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 | 2010 (a) | 2010 (b) (000’s) | 2010 (c) | ||||||||||||||||||||||
|
AUSTIN, TX
|
|||||||||||||||||||||||||||||
|
1250 Capital of Texas Highway South
|
Austin | TX | 1984 | 270,711 | 82.7 | % | 2,945 | 21.60 | |||||||||||||||||||||
|
1301 Mopac Expressway
|
Austin | TX | 2001 | 222,580 | 99.8 | % | 4,307 | 30.25 | |||||||||||||||||||||
|
3711 South Mopac Expressway
|
Austin | TX | 2007 | 205,195 | 97.7 | % | 3,598 | 27.96 | |||||||||||||||||||||
|
1601 Mopac Expressway
|
Austin | TX | 2000 | 195,639 | 100.0 | % | 2,962 | 26.29 | |||||||||||||||||||||
|
1501 South Mopac Expressway
|
Austin | TX | 1999 | 195,324 | 100.0 | % | 2,560 | 23.22 | |||||||||||||||||||||
|
1221 Mopac Expressway
|
Austin | TX | 2001 | 173,302 | 99.0 | % | 3,257 | 29.07 | |||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED — AUSTIN, TX SEGMENT
|
1,262,751 | 95.8 | % | 19,629 | 26.16 | ||||||||||||||||||||||||
|
CALIFORNIA
|
|||||||||||||||||||||||||||||
|
155 Grand Avenue
|
Oakland | CA | 1990 | 200,996 | 71.1 | % | 3,932 | 29.35 | |||||||||||||||||||||
|
2 Kaiser Land
|
(g) | Oakland | CA | N/A | — | — | — | — | |||||||||||||||||||||
|
Oakland Lot B
|
(g) | Oakland | CA | N/A | — | — | — | — | |||||||||||||||||||||
|
1220 Concord Avenue
|
Concord | CA | 1984 | 175,153 | 100.0 | % | 3,469 | 22.74 | |||||||||||||||||||||
|
1200 Concord Avenue
|
Concord | CA | 1984 | 175,103 | 100.0 | % | 4,248 | 24.69 | |||||||||||||||||||||
|
5780 & 5790 Fleet Street
|
Carlsbad | CA | 1999 | 121,381 | 73.0 | % | 2,087 | 25.25 | |||||||||||||||||||||
|
5900 & 5950 La Place Court
|
Carlsbad | CA | 1988 | 80,506 | 62.6 | % | 1,395 | 25.21 | |||||||||||||||||||||
|
16870 West Bernardo Drive
|
Rancho Bernardo | CA | 2002 | 68,708 | 84.1 | % | 1,282 | 31.99 | |||||||||||||||||||||
|
5963 La Place Court
|
Carlsbad | CA | 1987 | 61,587 | 56.0 | % | 764 | 21.74 | |||||||||||||||||||||
|
2035 Corte Del Nogal
|
Carlsbad | CA | 1991 | 53,982 | 72.9 | % | 623 | 17.45 | |||||||||||||||||||||
|
5973 Avendia Encinas
|
Carlsbad | CA | 1986 | 51,695 | 88.3 | % | 1,087 | 16.30 | |||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
SUBTOTAL/WEIGHTED — CALIFORNIA SEGMENT
|
989,111 | 81.8 | % | 18,887 | 24.89 | ||||||||||||||||||||||||
|
TOTAL CORE PORTFOLIO
|
25,633,447 | 87.6 | % | 454,981 | 23.63 | ||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
| (a) |
Calculated by dividing net rentable square feet included in leases signed on or before
December 31, 2010 at the property by the aggregate net rentable square feet of the property.
|
|
| (b) |
“Total Base Rent” for the twelve months ended December 31, 2010 represents base rents earned
during such period, excluding tenant reimbursements and deferred market rent adjustments,
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, 2010 plus the prorata 2010 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, 2010. In both
cases, the annualized rental rate is divided by the total square footage leased as of December
31, 2010 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 18th Street) 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.
|
34
Table of Contents
| (f) |
These properties are industrial facilities.
|
| (g) |
These are mixed-use properties.
|
The following table shows information regarding rental rates and lease expirations for the
Properties at December 31, 2010 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 | ||||||||||||||||||
|
2011
|
324 | 2,210,359 | $ | 45,814,934 | $ | 20.73 | 8.8 | % | 8.8 | % | ||||||||||||||
|
2012
|
310 | 2,826,334 | 68,786,205 | 24.34 | 13.3 | % | 22.1 | % | ||||||||||||||||
|
2013
|
218 | 2,344,110 | 46,837,279 | 19.98 | 9.0 | % | 31.1 | % | ||||||||||||||||
|
2014
|
187 | 2,451,204 | 55,670,270 | 22.71 | 10.7 | % | 41.9 | % | ||||||||||||||||
|
2015
|
187 | 2,485,688 | 56,156,913 | 22.59 | 10.8 | % | 52.7 | % | ||||||||||||||||
|
2016
|
131 | 1,543,286 | 36,493,928 | 23.65 | 7.0 | % | 59.8 | % | ||||||||||||||||
|
2017
|
85 | 2,111,282 | 56,838,758 | 26.92 | 11.0 | % | 70.7 | % | ||||||||||||||||
|
2018
|
46 | 1,207,241 | 35,169,498 | 29.13 | 6.8 | % | 77.5 | % | ||||||||||||||||
|
2019
|
35 | 932,710 | 32,894,121 | 35.27 | 6.3 | % | 83.9 | % | ||||||||||||||||
|
2020
|
26 | 818,232 | 19,491,601 | 23.82 | 3.8 | % | 87.6 | % | ||||||||||||||||
|
2021 and thereafter
|
47 | 3,009,356 | 64,224,192 | 21.34 | 12.4 | % | 100.0 | % | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
1,596 | 21,939,802 | $ | 518,377,699 | $ | 23.63 | 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, 2010, our Properties were leased to 1,368 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, 2010:
| 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 | ||||||||||||||||||
|
General Services Administration — U.S.
Govt.
|
14 | 201 | 1,551,557 | 7.1 | % | $ | 29,477 | 6.4 | % | |||||||||||||||
|
Northrop Grumman Corporation
|
6 | 59 | 471,789 | 2.2 | % | 14,137 | 3.1 | % | ||||||||||||||||
|
Wells Fargo Bank, N.A.
|
14 | 70 | 477,900 | 2.2 | % | 11,280 | 2.5 | % | ||||||||||||||||
|
Pepper Hamilton LLP
|
2 | 47 | 312,324 | 1.4 | % | 10,960 | 2.4 | % | ||||||||||||||||
|
Time Warner Cable, Inc.
|
2 | 98 | 288,645 | 1.3 | % | 9,007 | 2.0 | % | ||||||||||||||||
|
Lockheed Martin
|
8 | 33 | 556,584 | 2.5 | % | 8,769 | 1.9 | % | ||||||||||||||||
|
Dechert LLP
|
1 | 106 | 218,565 | 1.0 | % | 7,213 | 1.6 | % | ||||||||||||||||
|
KPMG, LLP
|
2 | 43 | 241,828 | 1.1 | % | 7,160 | 1.6 | % | ||||||||||||||||
|
Lincoln National Management Co.
|
1 | 115 | 193,626 | 0.9 | % | 6,085 | 1.3 | % | ||||||||||||||||
|
CA, Inc.
|
1 | 0 | 227,574 | 1.0 | % | 5,772 | 1.3 | % | ||||||||||||||||
|
Blank Rome LLP
|
1 | 133 | 236,903 | 1.1 | % | 5,613 | 1.2 | % | ||||||||||||||||
|
Hewlett Packard
|
2 | 66 | 141,339 | 0.6 | % | 3,911 | 0.9 | % | ||||||||||||||||
|
Marsh USA, Inc.
|
2 | 31 | 128,090 | 0.6 | % | 3,831 | 0.8 | % | ||||||||||||||||
|
Deltek Systems, Inc.
|
3 | 15 | 116,172 | 0.5 | % | 3,790 | 0.8 | % | ||||||||||||||||
|
AT&T
|
4 | 95 | 124,603 | 0.6 | % | 3,673 | 0.8 | % | ||||||||||||||||
|
Computer Sciences
|
5 | 39 | 226,637 | 1.0 | % | 3,643 | 0.8 | % | ||||||||||||||||
|
Woodcock Washburn, LLC
|
1 | 132 | 109,323 | 0.5 | % | 3,608 | 0.8 | % | ||||||||||||||||
|
United Healthcare Services
|
2 | 84 | 122,602 | 0.6 | % | 3,499 | 0.8 | % | ||||||||||||||||
|
Scitor Corporation
|
1 | 18 | 109,736 | 0.5 | % | 3,483 | 0.8 | % | ||||||||||||||||
|
Drinker Biddle & Reath LLP
|
1 | 42 | 209,584 | 1.0 | % | 3,449 | 0.8 | % | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Consolidated Total/Weighted Average
|
73 | 98 | 6,065,381 | 27.7 | % | $ | 148,360 | 32.6 | % | |||||||||||||||
| (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, 2010 multiplied by 12. Tenant reimbursements generally
include payment of a portion of real estate taxes, operating expenses and common area
maintenance and utility charges.
|
35
Table of Contents
Real Estate Ventures
As of December 31, 2010, we had an aggregate investment (net of returns of investment) of
approximately $84.4 million in 17 unconsolidated Real Estate Ventures. We formed these ventures
with unaffiliated third parties to develop or manage office properties or to acquire land in anticipation of
possible development of office properties. As of December 31, 2010, 15 of the Real Estate Ventures
owned 50 office buildings that contain an aggregate of approximately 6.5 million net rentable
square feet, one Real Estate Venture owned three acres of undeveloped land, 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 65%, 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.
During November 2010, we acquired a 25% interest in two partnerships which own One and Two
Commerce Square in Philadelphia, Pennsylvania. The other partner holds the remaining 75% interest
in each of the two partnerships.
As of December 31, 2010, we had guaranteed repayment of approximately $0.7 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. |
Removed and Reserved
|
36
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 or Class F (2010) of the
Operating
Partnership. On February 16, 2011, there were 691 holders of record of our common shares; 41
holders of record of the Class A units (in addition to Brandywine Realty Trust); and one
holder of
the Class F (2010) units. On February 23, 2011, the last reported sales price of
the common shares
on the NYSE was $11.92. 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 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 | ||||||
|
First Quarter 2010
|
$ | 12.90 | $ | 10.29 | $ | 0.15 | ||||||
|
Second Quarter 2010
|
$ | 13.36 | $ | 10.75 | $ | 0.15 | ||||||
|
Third Quarter 2010
|
$ | 12.62 | $ | 10.00 | $ | 0.15 | ||||||
|
Fourth Quarter 2010
|
$ | 12.99 | $ | 10.22 | $ | 0.15 | ||||||
For each quarter in 2010 and 2009, 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 2, 2010, our Board of Trustees declared a quarterly dividend distribution of $0.15 per
common share that was paid on January 20, 2011. Our Board of Trustees has adopted a dividend policy
designed to match our distributions to our projected, normalized taxable income for 2011.
On June 30, 2010, 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.
37
Table of Contents
The following table provides information as of December 31, 2010 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 | Weighted-average | future issuance under | ||||||||||
| be issued upon exercise of | exercise price of | equity compensation | ||||||||||
| outstanding options, | outstanding options, | plans (excluding securities | ||||||||||
| Plan category | warrants and rights | warrants and rights | reflected in column (a)) | |||||||||
|
Equity compensation
plans approved by
security holders
(1)
|
3,116,611 | $ | 14.56 | 6,742,239 | ||||||||
|
Equity compensation
plans not approved
by security holders
|
— | — | — | |||||||||
|
Total
|
3,116,611 | $ | 14.56 | 6,742,239 | ||||||||
| (1) |
Relates to our Amended and Restated 1997 Long-Term Incentive Plan (the “1997 Plan”) and 46,667
options awarded prior to adoption of the 1997 Plan. In June 2010, our shareholders approved
amendments to the 1997 Plan. The amendments, among other things, increased the number of common
shares available for awards under the 1997 Plan by 6,000,000 (of which 3,600,000 are available
solely for awards of options and share appreciation rights).
|
The following table presents information related to our common share repurchases during the year
ended December. 31, 2010:
| 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 1 to January 31
|
14,355 | (b) | $ | 11.42 | — | 539,200 | ||||||||||
|
February 1 to February 28
|
— | — | 539,200 | |||||||||||||
|
March 1 to March 31
|
4,846 | (b) | 12.30 | — | 539,200 | |||||||||||
|
April 1 to April 31
|
— | — | 539,200 | |||||||||||||
|
May 1 to May 31
|
— | — | 539,200 | |||||||||||||
|
June 1 to June 30
|
— | — | 539,200 | |||||||||||||
|
July 1 to July 31
|
— | — | 539,200 | |||||||||||||
|
August 1 to August 31
|
— | — | 539,200 | |||||||||||||
|
September 1 to September 31
|
— | — | 539,200 | |||||||||||||
|
October 1 to October 31
|
— | — | 539,200 | |||||||||||||
|
November 1 to November 31
|
— | — | 539,200 | |||||||||||||
|
December 1 to December 31
|
— | — | 539,200 | |||||||||||||
|
|
||||||||||||||||
|
Total
|
19,201 | — | ||||||||||||||
|
|
||||||||||||||||
| (a) |
Relates to the remaining share repurchase availability under the Parent Company’s share repurchase program.
There is no expiration date on the share repurchase program. The Parent Company’s Board of Trustees initially
authorized this program in 1998 and has periodically replenished capacity under the program.
|
|
| (b) |
Represents common shares cancelled by the Parent 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.
|
38
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, 2005 and ending
December 31, 2010.
| Period Ending | ||||||||||||||||||||||||
| Index | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | 12/31/09 | 12/31/10 | ||||||||||||||||||
|
Brandywine Realty Trust
|
100.00 | 124.09 | 71.01 | 33.97 | 55.38 | 59.60 | ||||||||||||||||||
|
S&P 500
|
100.00 | 115.79 | 122.16 | 76.96 | 97.33 | 111.99 | ||||||||||||||||||
|
Russell 2000
|
100.00 | 118.37 | 116.51 | 77.15 | 98.11 | 124.46 | ||||||||||||||||||
|
NAREIT All Equity REIT Index
|
100.00 | 135.06 | 113.87 | 70.91 | 90.76 | 116.12 | ||||||||||||||||||
39
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,
2006, which have been reclassified as discontinued operations for all periods presented in
accordance with the accounting standard governing discontinued operations.
Brandywine Realty Trust
(in thousands, except per common share data and number of properties)
| Year Ended December 31, | 2010 (a) | 2009 (a) | 2008 (a) | 2007 | 2006 | |||||||||||||||
|
|
||||||||||||||||||||
|
Operating Results
|
||||||||||||||||||||
|
Total revenue
|
$ | 566,897 | $ | 575,058 | $ | 580,932 | $ | 595,759 | $ | 542,999 | ||||||||||
|
Income (loss) from continuing operations
|
(29,638 | ) | 5,339 | (662 | ) | 6,885 | (40,003 | ) | ||||||||||||
|
Net income (loss)
|
(17,606 | ) | 8,089 | 38,525 | 55,335 | 10,949 | ||||||||||||||
|
Income (loss) allocated to Common Shares
|
(25,578 | ) | (245 | ) | 28,462 | 44,124 | 332 | |||||||||||||
|
Income (loss) from continuing operations per
Common Share
|
||||||||||||||||||||
|
Basic
|
$ | (0.28 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.03 | ) | $ | (0.52 | ) | |||||
|
Diluted
|
$ | (0.28 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.03 | ) | $ | (0.52 | ) | |||||
|
Earnings per Common Share
|
||||||||||||||||||||
|
Basic
|
$ | (0.19 | ) | $ | — | $ | 0.32 | $ | 0.50 | $ | — | |||||||||
|
Diluted
|
$ | (0.19 | ) | $ | — | $ | 0.32 | $ | 0.50 | $ | — | |||||||||
|
Cash distributions paid per Common Share
|
$ | 0.60 | $ | 0.60 | $ | 1.76 | $ | 1.76 | $ | 1.76 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Real estate investments, net of
accumulated depreciation
|
$ | 4,201,410 | $ | 4,164,992 | $ | 4,191,367 | $ | 4,657,333 | $ | 4,739,726 | ||||||||||
|
Total assets
|
4,690,378 | 4,663,750 | 4,742,619 | 5,213,968 | 5,508,479 | |||||||||||||||
|
Total indebtedness
|
2,430,446 | 2,454,577 | 2,741,495 | 3,081,949 | 3,133,934 | |||||||||||||||
|
Total liabilities
|
2,712,604 | 2,742,010 | 3,020,121 | 3,363,759 | 3,462,272 | |||||||||||||||
|
Noncontrolling interest
|
128,272 | 38,308 | 52,961 | 84,076 | 123,630 | |||||||||||||||
|
Brandywine Realty Trust’s equity
|
1,849,502 | 1,883,432 | 1,669,537 | 1,766,133 | 1,922,577 | |||||||||||||||
|
|
||||||||||||||||||||
|
Other Data
|
||||||||||||||||||||
|
Cash flows from:
|
||||||||||||||||||||
|
Operating activities
|
185,127 | 220,405 | 233,867 | 224,805 | 238,299 | |||||||||||||||
|
Investing activities
|
(171,936 | ) | (102,549 | ) | 164,046 | 39,162 | (912,813 | ) | ||||||||||||
|
Financing activities
|
1,807 | (120,213 | ) | (399,589 | ) | (283,746 | ) | 692,719 | ||||||||||||
|
|
||||||||||||||||||||
|
Property Data
|
||||||||||||||||||||
|
Number of properties owned at year end
|
233 | 245 | 248 | 257 | 313 | |||||||||||||||
|
Net rentable square feet owned at year end
|
25,633 | 25,563 | 26,257 | 28,888 | 31,764 | |||||||||||||||
| (a) |
During 2010, we recorded depreciation expense of $1.2 million related to projects
completed in prior years that were not closed out of our job cost system in a timely
manner. This resulted in the understatement of depreciation and amortization expense in the
prior years. During the years ended December 31, 2009 and 2008, depreciation expense was
understated by $0.9 million and $0.2 million, respectively. The remaining difference
relates to other prior years and was nominal. As these errors, both individually and in
aggregate, were not material to prior years’ consolidated financial statements and the
impact of correcting this error in the current year is not material to the our full year
consolidated financial statements, we recorded the related adjustments in the current year.
|
40
Table of Contents
Brandywine Operating Partnership, L.P.
(in thousands, except per common partnership unit data and number of properties)
| Year Ended December 31, | 2010 (a) | 2009 (a) | 2008 (a) | 2007 | 2006 | |||||||||||||||
|
|
||||||||||||||||||||
|
Operating Results
|
||||||||||||||||||||
|
Total revenue
|
$ | 566,897 | $ | 575,058 | $ | 580,932 | $ | 595,759 | $ | 542,999 | ||||||||||
|
Income (loss) from continuing operations
|
(29,638 | ) | 5,339 | (662 | ) | 6,885 | (40,003 | ) | ||||||||||||
|
Net income
|
(17,606 | ) | 8,089 | 38,525 | 55,335 | 10,949 | ||||||||||||||
|
Income from continuing operations per Common Partnership Unit
|
||||||||||||||||||||
|
Basic
|
$ | (0.28 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.03 | ) | $ | (0.52 | ) | |||||
|
Diluted
|
$ | (0.28 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.03 | ) | $ | (0.52 | ) | |||||
|
Earnings per Common Partnership Units
|
||||||||||||||||||||
|
Basic
|
$ | (0.19 | ) | $ | — | $ | 0.32 | $ | 0.50 | $ | 0.02 | |||||||||
|
Diluted
|
$ | (0.19 | ) | $ | — | $ | 0.32 | $ | 0.50 | $ | 0.02 | |||||||||
|
Cash distributions paid per Common Partnership Unit
|
$ | 0.60 | $ | 0.60 | $ | 1.76 | $ | 1.76 | $ | 1.76 | ||||||||||
|
|
||||||||||||||||||||
|
Balance Sheet Data
|
||||||||||||||||||||
|
Real estate investments, net of
accumulated depreciation
|
$ | 4,201,410 | $ | 4,164,992 | $ | 4,191,367 | $ | 4,657,333 | $ | 4,739,726 | ||||||||||
|
Total assets
|
4,690,378 | 4,663,750 | 4,742,619 | 5,213,968 | 5,508,479 | |||||||||||||||
|
Total indebtedness
|
2,430,446 | 2,454,577 | 2,741,495 | 3,081,949 | 3,133,935 | |||||||||||||||
|
Total liabilities
|
2,712,604 | 2,742,010 | 3,020,121 | 3,363,759 | 3,462,272 | |||||||||||||||
|
Redeemable limited partnership units
|
132,855 | 44,620 | 54,166 | 90,151 | 96,544 | |||||||||||||||
|
Non-controlling interest
|
— | 65 | — | 28 | 34,414 | |||||||||||||||
|
Brandywine Operating Partnership’s equity
|
1,844,919 | 1,877,055 | 1,668,332 | 1,760,030 | 1,915,249 | |||||||||||||||
|
|
||||||||||||||||||||
|
Other Data
|
||||||||||||||||||||
|
Cash flows from:
|
||||||||||||||||||||
|
Operating activities
|
185,127 | 220,405 | 233,867 | 224,805 | 238,299 | |||||||||||||||
|
Investing activities
|
(171,936 | ) | (102,549 | ) | 164,046 | 39,162 | (912,813 | ) | ||||||||||||
|
Financing activities
|
1,807 | (120,213 | ) | (399,589 | ) | (283,746 | ) | 692,719 | ||||||||||||
|
|
||||||||||||||||||||
|
Property Data
|
||||||||||||||||||||
|
Number of properties owned at year end
|
233 | 245 | 248 | 257 | 313 | |||||||||||||||
|
Net rentable square feet owned at year end
|
25,663 | 25,563 | 26,257 | 28,888 | 31,764 | |||||||||||||||
| (a) |
During 2010, we recorded depreciation expense of $1.2 million related to projects
completed in prior years that were not closed out of our job cost system in a timely
manner. This resulted in the understatement of depreciation and amortization expense in the
prior years. During the years ended December 31, 2009 and 2008, depreciation expense was
understated by $0.9 million and $0.2 million, respectively. The remaining difference
relates to other prior years and was nominal. As these
errors, both individually and in aggregate, were not material to prior years’ consolidated
financial statements and the impact of correcting this error in the current year is not
material to the our full year consolidated financial statements, we recorded the related
adjustments in the current year.
|
41
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, 2010, 2009 and 2008.
OVERVIEW
As of December 31, 2010, we manage our portfolio within seven segments: (1) Pennsylvania Suburbs,
(2) Philadelphia CBD, (3) Metropolitan Washington D.C, (4) New Jersey/Delaware, (5) Richmond,
Virginia, (6) Austin, Texas and (7) California. The Pennsylvania Suburbs segment includes
properties in Chester, Delaware, and Montgomery counties in the Philadelphia suburbs. The
Philadelphia CBD segment includes properties located in 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 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 Austin. The California segment includes
properties in Oakland, Concord, Carlsbad and Rancho Bernardo.
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., market and economic conditions have been unprecedented and challenging, characterized
by 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 volatility 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. Significantly challenging economic
conditions 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.
42
Table of Contents
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.
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 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 risks that tenant leases, upon expiration, are not renewed, that space may
not be relet; and 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 8.8% of our
aggregate final annualized base rents as of December 31, 2010 (representing approximately 8.6% of
the net rentable square feet of the properties) expire without penalty in 2011. 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 2010 was 65.9%. 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 $15.2 million or 12.0% of total receivables
(including accrued rent receivable) as of December 31, 2010 compared to $16.4 million or 14.3% of
total receivables (including accrued rent receivable) as of December 31, 2009.
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.
43
Table of Contents
Development Risk
:
At December 31, 2010, we were redeveloping one garage project located in Philadelphia with total
projected costs of $14.8 million of which $0.8 million then remained to be funded. In addition, we
were completing the lease-up of five recently completed developments, aggregating 0.9 million
square feet, for which we expect to spend an additional $14.2 million in 2011. 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.
As of December 31, 2010, we owned approximately 509 acres of undeveloped land. As market conditions
warrant, we will seek to opportunistically dispose of those parcels that we do not anticipate
developing. For the parcels of land that we ultimately develop, we will 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 (GAAP). The preparation of financial
statements in conformity with GAAP 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 acquisition 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.
44
Table of Contents
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 the same accounting standard.
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 (ii) entities that are non-VIEs which we do not control, but over which we have the
ability to exercise significant influence and (iii) entities that are non-VIEs which we control
through our general partner status, but the limited partners in the entity have the substantive
ability to dissolve the entity or remove us without cause or have substantive participating rights.
We continuously assess our 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, more
particularly if certain events occur that are likely to cause a change in 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.
Our Broadmoor Joint Venture owns an office park in Austin, Texas which is currently leased to a
single tenant who is also a partner in the joint venture. The said tenant is also the owner of the
land which the joint venture currently leases under an existing ground lease agreement. The
office buildings’ lease renewals are currently under negotiation. Given the current circumstances,
we have performed an impairment assessment of our investment in the venture using probability
weighted scenarios that include varying outcomes. We believe that a market participant would
assess the probabilities of these outcomes in the same fashion. In evaluating the scenarios, we
have determined that the fair value of our investment marginally exceeded its carrying value and
the investment is not impaired at December 31, 2010. However, given the lease has not yet been
executed and the negotiations of specific terms of the lease are ongoing, the ultimate outcome is
uncertain and could cause an impairment of our investment that could be material.
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 are 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 and the assets are classified as held and used, the affected assets
must be reduced to their fair-value.
45
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. At December 31, 2010, 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 our impairment review for 2010, we determined that no impairment charges were necessary.
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 equal to management’s estimate of
the then current fair value. We sold this property in the second quarter of 2009. We also recorded
a $6.85 million impairment charge on properties designated as held for sale at June 30, 2008, and
sold these properties during the fourth quarter of 2008.
We also entered into development agreements related to our two parcels of land under option for
ground lease that require us to commence development by December 31, 2012. If we determine that we
will not be able to start the construction by the date specified, or if we determine development is
not in our best economic interest and an extension of the development period cannot be negotiated,
we will have to write off all costs that we have incurred in preparing these parcels of land for
development amounting to $7.7 million as of December 31, 2010.
Income Taxes
Parent Company
The Parent 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 Parent Company has several
subsidiary REITs. In order to continue to qualify as a REIT, the Parent Company and each of its
REIT subsidiaries are required to, among other things, distribute at least 90% of their REIT
taxable income to their stockholders and meet certain tests regarding the nature of its income and
assets. As REITs, the Parent Company and its REIT subsidiaries are not subject to federal income
tax with respect to the portion of their 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. The
Parent 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 Parent Company or one of its REIT subsidiaries were to
fail to meet these requirements, they would be subject to federal income tax.
The Parent Company may elect to treat one or more of its subsidiaries as a 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. The Parent 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.
Operating Partnership
In general, the Operating Partnership is not subject to federal and state income taxes, and
accordingly, no provision for income taxes has been made in the accompanying consolidated financial
statements. The partners of the Operating Partnership are required to include their respective
share of the Operating Partnership’s profits or losses in their respective tax returns. The
Operating 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 the Operating Partnership profits or losses, then the tax liability of the partners
would be changed accordingly.
46
Table of Contents
The Operating Partnership has elected to treat several of its subsidiaries as REITs under
Sections 856 through 860 of the Code. Each subsidiary REIT has met the requirements for treatment
as a REIT under Sections 856 through 860 of the Code, and, accordingly, no provision has been made
for federal and state income taxes in the accompanying consolidated financial statements. If any
subsidiary REIT fails to qualify as a REIT in any taxable year, that subsidiary REIT will be
subject to federal and state income taxes and may not be able to qualify as a REIT for the four
subsequent taxable years. Also, each subsidiary REIT may be subject to certain local income taxes.
The Operating Partnership has elected to treat several of its subsidiaries as taxable TRSs, which
are subject to federal, state and local income tax.
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. For accrued rent receivables,
we consider the results of the evaluation of specific accounts as well as other factors including
assigning risk factors to different industries based on our 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.
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 on a basis that approximates the effective interest method while 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 (includes the below market fixed renewal period, if applicable). 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.
47
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 and any fixed-rate bargain renewal periods. 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 prior to the end of the lease term, the unamortized
portion of each intangible, including market rate adjustments, in-place lease values and tenant
relationship values, would be charged to expense.
48
Table of Contents
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 2010 to the Year Ended December 31, 2009
The table below shows selected operating information for the “Same Store Property Portfolio” and
the “Total Portfolio.” The Same Store Property Portfolio consists of 223 properties containing an
aggregate of approximately 22.3 million net rentable square feet that we owned for the entire
twelve-month periods ended December 31, 2010 and 2009. 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, 2010 and 2009) 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, 2010 and 2009 (in thousands).
The Total Portfolio net income presented in the table is equal to the net income of Brandywine
Realty Trust and Brandywine Operating Partnership.
49
Table of Contents
Comparison of twelve-months ended December 31, 2010 to the twelve-months ended December 31, 2009
| Acquired/Completed | Development/Redevelopment | Other/ | ||||||||||||||||||||||||||||||||||||||||||||||
| Same Store Property Portfolio | Properties | Properties (a) | (Eliminations) (b) | Total Portfolio | ||||||||||||||||||||||||||||||||||||||||||||
| Increase/ | Increase/ | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2010 | 2009 | (Decrease) | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | (Decrease) | ||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Revenue:
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Cash rents
|
$ | 425,787 | $ | 439,381 | $ | (13,594 | ) | $ | 13,665 | $ | 9,202 | $ | 9,626 | $ | 3,985 | $ | (2,544 | ) | $ | 4,839 | $ | 446,534 | $ | 457,407 | $ | (10,873 | ) | |||||||||||||||||||||
|
Straight-line rents
|
10,595 | 7,995 | $ | 2,600 | 1,954 | 810 | 1,125 | (146 | ) | — | 33 | 13,674 | 8,692 | 4,982 | ||||||||||||||||||||||||||||||||||
|
Above/below market rent amortization
|
5,574 | 6,542 | $ | (968 | ) | 417 | 508 | — | (379 | ) | — | — | 5,991 | 6,671 | (680 | ) | ||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Total rents
|
441,956 | 453,918 | (11,962 | ) | 16,036 | 10,520 | 10,751 | 3,460 | (2,544 | ) | 4,872 | 466,199 | 472,770 | (6,571 | ) | |||||||||||||||||||||||||||||||||
|
Tenant reimbursements
|
72,762 | 74,023 | (1,261 | ) | 3,359 | 2,197 | 2,260 | 557 | 393 | 1,420 | 78,774 | 78,197 | 577 | |||||||||||||||||||||||||||||||||||
|
Termination fees
|
5,553 | 2,387 | 3,166 | 107 | — | 106 | 1,214 | — | — | 5,766 | 3,601 | 2,165 | ||||||||||||||||||||||||||||||||||||
|
Third party management fees, labor reimbursement and leasing
|
— | — | — | — | — | — | — | 11,830 | 17,151 | 11,830 | 17,151 | (5,321 | ) | |||||||||||||||||||||||||||||||||||
|
Other
|
2,555 | 1,913 | 642 | 539 | 188 | 15 | 125 | 1,219 | 1,113 | 4,328 | 3,339 | 989 | ||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Total revenue
|
522,826 | 532,241 | (9,415 | ) | 20,041 | 12,905 | 13,132 | 5,356 | 10,898 | 24,556 | 566,897 | 575,058 | (8,161 | ) | ||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Property operating expenses
|
165,283 | 160,917 | 4,366 | 9,853 | 5,927 | 3,137 | 1,813 | (8,122 | ) | (3,486 | ) | 170,151 | 165,171 | 4,980 | ||||||||||||||||||||||||||||||||||
|
Real estate taxes
|
50,189 | 54,074 | (3,885 | ) | 2,840 | 1,235 | 550 | 526 | 865 | 1,258 | 54,444 | 57,093 | (2,649 | ) | ||||||||||||||||||||||||||||||||||
|
Third party management expenses
|
— | — | — | — | — | — | — | 5,866 | 7,996 | 5,866 | 7,996 | (2,130 | ) | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Subtotal
|
307,354 | 317,250 | (9,896 | ) | 7,348 | 5,743 | 9,445 | 3,017 | 12,289 | 18,788 | 336,436 | 344,798 | (8,362 | ) | ||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
General & administrative expenses
|
1 | — | 1 | 281 | — | 23 | — | 23,001 | 20,821 | 23,306 | 20,821 | 2,485 | ||||||||||||||||||||||||||||||||||||
|
Depreciation and amortization
|
191,040 | 188,776 | 2,264 | 11,535 | 7,457 | 5,089 | 3,741 | 5,111 | 5,889 | 212,775 | 205,863 | 6,912 | ||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Operating Income (loss)
|
$ | 116,313 | $ | 128,474 | $ | (12,161 | ) | $ | (4,468 | ) | $ | (1,714 | ) | $ | 4,333 | $ | (724 | ) | $ | (15,823 | ) | $ | (7,922 | ) | $ | 100,355 | $ | 118,114 | $ | (17,759 | ) | |||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Number of properties
|
223 | 223 | 6 | 6 | 4 | 4 | 233 | 233 | ||||||||||||||||||||||||||||||||||||||||
|
Square feet
|
22,282 | 22,282 | 1,734 | 1,734 | 1,618 | 1,618 | 25,634 | 25,634 | ||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Other Income (Expense):
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Interest income
|
3,222 | 2,499 | 723 | |||||||||||||||||||||||||||||||||||||||||||||
|
Interest expense
|
(132,640 | ) | (135,740 | ) | 3,100 | |||||||||||||||||||||||||||||||||||||||||||
|
Interest expense — Deferred financing costs
|
(3,770 | ) | (5,864 | ) | 2,094 | |||||||||||||||||||||||||||||||||||||||||||
|
Recognized hedge activity
|
— | (916 | ) | 916 | ||||||||||||||||||||||||||||||||||||||||||||
|
Equity in income of real estate ventures
|
5,305 | 4,069 | 1,236 | |||||||||||||||||||||||||||||||||||||||||||||
|
Gain (loss) on early extinguishment of debt
|
(2,110 | ) | 23,177 | (25,287 | ) | |||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Income (loss) from continuing operations
|
(29,638 | ) | 5,339 | (34,977 | ) | |||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Income from discontinued operations
|
12,032 | 2,750 | 9,282 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Net Income
|
$ | (17,606 | ) | $ | 8,089 | $ | (25,695 | ) | ||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Earnings per common share
|
$ | (0.19 | ) | $ | 0.00 | $ | (0.19 | ) | ||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
EXPLANATORY NOTES
| (a) |
- Results include: two development and two 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.
|
50
Table of Contents
Total Revenue
Cash rents from the Total Portfolio decreased by $10.9 million from 2009 to 2010, primarily
reflecting:
| • |
decrease of $13.6 million of rental income at the same store portfolio as a
result of the decrease in same store occupancy of 320 basis points;
|
||
| • |
decrease of $7.3 million due to the deconsolidation of three of our real estate
ventures as a result of the adoption of the new accounting standard for the
consolidation of variable interest entities beginning January 1, 2010 during the
first quarter of 2010. This standard does not require retrospective adoption;
|
||
| • |
decrease of $3.9 million of rental income due to the decrease in occupancy at
three redevelopment properties that we recently placed in service; and
|
||
| • |
an offsetting increase of $13.9 million of rental income due to our acquisition
of Three Logan Square and the completion and placement in service of the IRS
Philadelphia Campus and the Cira South Garage during the third quarter of 2010.
|
Straight-line rents at the Total Portfolio increased by $5.0 million due to $1.1 million of
straight-line rents from the acquisition of Three Logan Square during the third quarter of 2010.
The remainder of the increase is due to leases that commenced during the year of 2010 with free
rent periods at our same store properties and at one of our redevelopment properties.
Tenant reimbursements increased by $0.6 million from 2009 to 2010 primarily due to the significant
number of leases which includes base year operating expense recovery calculations that reached
their base year amounts quicker in 2010 than in 2009. Lease structure, the significant northeast
snowfall expenses in the first quarter of 2010, as well as the deferral to later months and timing
of the repairs and maintenance expenses in the second quarter of 2009, resulted in the base year
leases achieving their base year amounts earlier in 2010 than in 2009. This is consistent with the
increase in property operating expenses.
Termination fees at the Total Portfolio increased $2.2 million from 2009 to 2010 is mainly due to
increased tenant move-outs during 2010 which is consistent with the decrease in occupancy noted
above.
Third party management fees, labor reimbursement and leasing decreased by $5.3 million from 2009 to
2010 mainly due to the termination of third party management contracts during the course of 2009
totaling 4.3 million square feet. This is consistent with the decrease in third party management
fees. This decrease was off-set by the Company no longer eliminating third party management fee
income related to two of our real estate ventures of $0.4 million in 2010.
Other Income
Other Income increased by $1.0 million mainly as a result of additional construction management fee
income of $0.5 million from our agreement with the GSA relating to the IRS Philadelphia Campus. In
addition, we received $0.4 million of proceeds from bankruptcy settlements with two of our former
tenants and $0.1 million from a new energy efficiency rebate program in 2010.
Property Operating Expenses
Property operating expenses increased by $5.0 million mainly due to our acquisition of Three Logan
Square and the completion and placement in service of the IRS Philadelphia Campus and the Cira
South Garage during the third quarter of 2010 totaling $5.3 million of additional expenses. In
addition, we incurred higher snow removal and repairs and maintenance expenses totaling $2.1
million during 2010 compared to 2009. This net increase was off-set by a decrease of $2.7 million
in bad debt expense during 2010 as compared to 2009.
Real Estate Taxes
Real estate taxes decreased by $2.6 million mainly due to lower taxes assessed on our properties
during 2010 compared to 2009 and refunds related to prior years, offset by additional real estate
taxes due to our acquisition of Three Logan Square during the third quarter of 2010.
51
Table of Contents
General & Administrative Expenses
General and Administrative Expense increased by $2.5 million primarily due to:
| • |
an increase of $0.8 million in amortization of stock-based compensation as a
result of stock option and restricted stock performance units granted in March 2010;
|
||
| • |
an increase of $1.4 million in salaries, bonus and recruiting fees due to new
hires during 2010;
|
||
| • |
a $0.2 million one-time bonus payment made during 2010; and
|
||
| • |
a net increase of $0.1 million as a result of various corporate level expenses
during 2010, none of which were individually significant;
|
Depreciation and Amortization Expense
Depreciation and amortization increased by $6.9 million from 2009 to 2010, primarily due to our
depreciation and amortization expense on assets placed in service since 2009, particularly Three
Logan Square and the IRS Philadelphia Campus which totaled $8.2 million of depreciation and
amortization expense. During 2010, we also recorded $1.2 million of depreciation related to 2009
and prior years principally with respect to completed projects that were not closed out of our job
cost system timely. This net increase was off-set by a decrease in depreciation and amortization
expense from assets written-off related to early move-outs and fully amortized assets when
comparing 2010 to 2009.
Provision for Impairment on Real Estate
During our first quarter 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 its 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.
Interest Expense
The decrease in interest expense of $3.1 million is primarily due to the following:
| • |
a decrease of $14.6 million resulting from our buybacks of various
unsecured notes subsequent to 2009. The details of the various purchases completed
during 2010 are noted in the
(Loss) gain on early extinguishment of debt
section
below;
|
||
| • |
a decrease of $5.5 million resulting from the pay-off of an unsecured
note at maturity during the fourth quarter of 2009;
|
||
| • |
a decrease of $0.4 million resulting from lower weighted average interest rates
on our $183.0 million term loan and our three Preferred Trust borrowings. Such
borrowings have variable interest rates and a portion of such borrowings are swaps
which matured early in the quarters; and
|
||
| • |
an increase of $1.5 million in capitalized interest as a result of the
increase in cumulative spending on development projects in 2010 compared to 2009.
|
52
Table of Contents
The above described decrease of $22.0 million was offset by an increase of $14.3 million from the
sale of $250.0 million of unsecured notes in the third quarter of 2009 and a net increase of $3.4
million resulting from a higher outstanding mortgage notes payable balance as of December 31, 2010
compared to December 31, 2009. We also had an increase of $0.5 million in interest expense related
to the interest accretion of the Two Logan Square $2.9 million future liability (expected to be
settled in 2019). In addition, there was an increase of $0.6 million in interest expense related
to the estimated equity interest payments as a result of our partnership in the IRS Philadelphia
Campus.
Deferred financing costs decreased by $2.1 million mainly due to the acceleration of such expenses
incurred from greater debt repurchase activities during the 2009 compared to the 2010 offset by
deferred financing costs amortized relating to the forward financing on the IRS Philadelphia Campus
and Cira South Garage.
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 September 2009 offering of $250.0 million 7.50% senior unsecured notes due
2015. 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 settled in cash in December 2009. We paid
$5.1 million to terminate these swaps. 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 increase in equity in income of real estate ventures of $1.2 million from 2009 to 2010 is
mainly due to a distribution in 2010 of $0.6 million of sales proceeds that were held in escrow
until resolution of certain contingencies arising from the sale of the property held by the Five
Tower Bridge partnership. The remainder of the increase is the result of normal operating
activities at the partnership level, and includes $0.1 million of preferred return pick-up from our
ownership in a newly created real estate venture with Thomas Properties Group (Commerce Square).
Gain (loss) on early extinguishment of debt
During 2010, we repurchased (i) $68.1 million of our $345.0 million 3.875% Exchangeable Notes, (ii)
$1.9 million of our $300.0 million 5.625% Guaranteed Notes due 2010 and (iii) $12.6 million of our
$300.0 million 5.750% Guaranteed Notes due 2012 which resulted in a net loss on early
extinguishment of debt of $2.2 million. The net loss was off-set by a gain from the write-off of
the remaining premium on the PMEC note at the time of pay-off of $0.1 million resulting in an
aggregate net loss on early extinguishment of debt of $2.1 million.
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.
Discontinued Operations
During 2010, we sold one property in Richmond, VA, one property in Exton, PA, one property in King
of Prussia, PA, one property in Austin, TX, and four properties in Marlton, NJ. These properties
had total revenue of $6.4 million, operating expenses of $3.3 million, depreciation and
amortization expenses of $2.0 million and gain on sale of $11.0 million.
The December 31, 2009 amounts are reclassified to include the operations of the properties sold
during the twelve months period ended December 31, 2010, as well as all properties that were sold
through the year ended December 31, 2009. Therefore, the discontinued operations amount for the
twelve-months period ended December 31, 2009 includes total revenue of $20.6 million, operating
expenses of $10.6 million and depreciation and amortization expense of $4.9 million. During the
2009, we also recognized a provision for impairment of $3.7 million on a property that was sold
during the second quarter of 2009.
53
Table of Contents
Net Income
Net income decreased by $25.7 million from the twelve-month period ended December 31, 2009 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 $0.19 for the twelve-month period ended December 31, 2010
as compared to loss per share of $0.00 for the twelve-month period ended December 31, 2009 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 due to
the commencement of the continuous equity Offering Program in March 2010 and the result of the
$242.3 million public equity offering of 40,250,000 shares during the second quarter of 2009.
54
Table of Contents
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 and Brandywine Operating Partnership.
55
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 | 3,907 | 208,590 | 202,043 | 6,547 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Operating Income (loss)
|
$ | 131,370 | $ | 146,348 | $ | (14,978 | ) | $ | (169 | ) | $ | (247 | ) | $ | (2,435 | ) | $ | 1,280 | $ | (10,343 | ) | $ | (11,389 | ) | $ | 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
|
2,499 | 1,839 | 660 | |||||||||||||||||||||||||||||||||||||||||||||
|
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
|
23,177 | 18,105 | 5,072 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
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.
|
56
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 $7.4
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.
Interest Income/ Expense
Interest income increased by approximately $0.7 million, mainly due to the accretion of the $40.0
million non-interest bearing 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.
57
Table of Contents
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.
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.
58
Table of Contents
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.
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.
59
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES OF THE PARENT COMPANY
The Parent Company conducts its business through the Operating Partnership and its only material
asset is its ownership of the partnership interests of the Operating Partnership. The Parent
Company, other than acting as the sole general partner of the Operating Partnership, issues public
equity from time to time and guarantees the debt obligations of the Operating Partnership. The
Parent Company’s principal funding requirement is the payment of dividends on its common stock and
preferred stock. The Parent Company’s principal source of funding for its dividend payments is the
distributions it receives from the Operating Partnership.
As of December 31, 2010, the Parent Company owned a 93.1% interest in the Operating Partnership.
The remaining 6.9% interest consists of common units of limited partnership interest owned by
non-affiliated investors. As the sole general partner of the Operating Partnership, the Parent
Company has full and complete authority over the Operating Partnership’s day-to-day operations and
management.
The Parent Company’s principal source of capital is from the distributions it receives from the
Operating Partnership. The Parent Company believes that the Operating Partnership’s sources of
working capital, particularly its cash flows from operations and borrowings available under its
Credit Facility, are adequate for it to make its distribution payments to the Parent Company, which
in turn will enable the Parent Company to make dividend payments to its stockholders.
The Parent Company receives proceeds from equity issuances from time to time, but is required by
the Operating Partnership’s partnership agreement to contribute the proceeds from its equity
issuances to the Operating Partnership in exchange for partnership units of the Operating
Partnership. The Parent Company’s ability to sell common shares and preferred shares is dependent
on, among other things, general market conditions for REITs, market perceptions about the Company
as a whole and the current trading price of its shares. The Parent Company regularly analyzes which
source of capital is most advantageous to it at any particular point in time. In March 2010, the
Parent Company commenced a continuous equity Offering Program, under which it may sell up to an
aggregate amount of 15,000,000 common shares until March 10, 2013 in amounts and at times to be
determined by the Parent Company. Actual sales will depend on a variety of factors to be
determined by the Parent Company, including market conditions, the trading price of its common
shares and determinations by the Parent Company of the appropriate sources of funding. In
conjunction with the Offering Program, the Parent Company engaged sales agents who received
compensation, in aggregate, of up to 2% of the gross sales price per share sold during the twelve
months ended December 31, 2010. Through December 31, 2010, the Parent Company sold 5,742,268
shares under this program at an average sales price of $12.54 per share resulting in net proceeds
of $70.8 million. The Parent Company contributed the net proceeds from the sales to the Operating
Partnership.
On December 2, 2010, the Parent Company declared a distribution of $0.15 per common share, totaling
$20.3 million, which it paid on January 20, 2011 to its shareholders of record as of January 6,
2011. In addition, the Parent Company declared distributions on its Series C Preferred Shares and
Series D Preferred Shares to holders of record as of December 30, 2010. These shares are entitled
to a preferential return of 7.50% and 7.375%, respectively. Distributions paid on January 18, 2011
to holders of Series C Preferred Shares and Series D Preferred Shares totaled $0.9 million and $1.1
million, respectively.
The Parent Company also maintains a share repurchase program under which its Board of Trustees has
authorized the Parent Company to repurchase its common shares from time to time. As of December
31, 2010, there were approximately 0.5 million shares remaining to be repurchased under this
program. The Parent Company’s Board of Trustees has not limited the duration of the program;
however, it may be terminated at any time.
Together with the Operating Partnership, the Parent Company maintains a shelf registration
statement that has registered common shares, preferred shares, depositary shares and warrants and
unsecured debt securities. Subject to the Company’s ongoing compliance with securities laws, and
if warranted by market conditions, the Company may offer and sell equity and debt securities from
time to time under the shelf registration statement.
The Parent Company also guarantees the Operating Partnership’s secured and unsecured debt
obligations which as of December 31, 2010, amounted to $712.2 million and $1,722.3 million,
respectively. If the Operating Partnership were to fail to comply with its debt requirements, the
Parent Company would be required to fulfill the Operating Partnership’s commitments under such
guarantees. As of December 31, 2010, the Operating Partnership was in compliance with all of its
debt covenants.
In order to maintain its qualification as a REIT, the Parent Company is required to, among other
things, pay dividends to its shareholders of at least 90% of its REIT taxable income. The Parent
Company has historically satisfied this requirement.
Overall, the liquidity of the Parent Company is dependent on the Operating Partnership’s ability to
make distributions to the Parent Company. However, there can be no assurance that the Operating
Partnership’s sources of capital will continue to be available to meet its working capital needs
including its ability to make distribution payments to the Parent Company. In cases where the
Operating Partnership is faced with working capital problems or would need to raise capital to fund
acquisitions and developments,
the Parent Company will have to consider alternative sources to increase liquidity, including,
among other things, equity issuances through its existing Offering Program, use of its available
line of credit and potential sale of properties.
60
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES OF THE OPERATING PARTNERSHIP
General
The Operating Partnership’s 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 to the Parent Company.
|
The Operating Partnership believes that with the uncertain economic conditions, it is 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 its markets in 2011 and possibly beyond. As a result, the Operating Partnership’s
revenue from the overall reduced demand for office space, and its cash flow could be insufficient
to cover increased tenant installation costs over the short-term. If this situation were to occur,
the Operating Partnership expects that it would finance cash deficits through borrowings under our
Credit Facility and other debt and equity financings.
The Operating Partnership believes that its 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 its principal sources of cash used to
pay operating expenses, debt service, recurring capital expenditures and the minimum distributions
required to maintain its REIT qualification. The Operating Partnership seeks to increase cash flows
from its properties by maintaining quality standards for its properties that promote high occupancy
rates and permit increases in rental rates while reducing tenant turnover and controlling operating
expenses. The Operating Partnership’s revenue also includes third-party fees generated by its
property management, leasing, development, and construction businesses. The Operating Partnership
believes that its revenue, together with proceeds from property sales and debt financings, will
continue to provide funds for its short-term liquidity needs. However, material changes in its
operating or financing activities may adversely affect its net cash flows. Such changes, in turn,
would adversely affect its ability to fund distributions to the Parent Company, debt service
payments and tenant improvements. In addition, a material adverse change in its cash provided by
operations would affect the financial performance covenants under its Credit Facility, unsecured
term loan and unsecured notes.
Financial markets have experienced unusual volatility and uncertainty. The Operating Partnership’s
ability to fund development projects, as well as its ability to repay or refinance debt maturities
could be adversely affected by its inability to secure financing at reasonable terms beyond those
already completed. It is possible, in these unusual and uncertain times that one or more lenders in
its Credit Facility could fail to fund a borrowing request. Such an event could adversely affect
its ability to access funds from its Credit Facility when needed.
The Operating Partnership’s liquidity management remains a priority. The Operating Partnership is
proactively pursuing new financing opportunities to ensure an appropriate balance sheet position.
As a result of these dedicated efforts, the Operating Partnership is comfortable with its ability
to meet future debt maturities and development or property acquisition funding needs. The Operating
Partnership believes that its current balance sheet is in an adequate position at the date of this
filing, despite the volatility in the credit markets. The following are the Operating
Partnership’s significant activities during 2010 affecting its liquidity management:
| • |
From the inception of the Parent Company’s continuous equity Offering Program in March
2010 through December 31, 2010, the Parent Company had contributed $70.8 million in net
proceeds from the sale of 5,742,268 common shares to the Operating Partnership in exchange
for the issuance of 5,742,268 common partnership units to the Parent Company. The
Operating Partnership used the net proceeds contributed by the Parent Company to reduce
borrowings under the Credit Facility and for general corporate purposes.
|
| • |
In June 2010, the Operating Partnership through one of its wholly owned TRS entities,
received a $27.4 million contribution under the historic tax credit transaction entered
into in 2008 with US Bancorp.
|
61
Table of Contents
| • |
On August 5, 2010, the Operating Partnership issued 7,111,112 units of its
newly-established Class F (2010) Units in connection with the acquisition of Three Logan
Square. The Class F (2010) Units do not accrue a dividend and are not
entitled to income or loss allocations prior to the first anniversary of the closing. They
are also not convertible into the Parent Company’s common shares for that period. For
purposes of computing the total purchase price of Three Logan Square, the Class F (2010)
Units were valued based on the closing market price of the Parent Company’s common shares on
the acquisition date of $11.54 less the annual dividend rate per share of $0.60 to reflect
that these units do not begin to accrue a dividend prior to the first anniversary of their
issuance.
|
| • |
On August 26, 2010, the Operating Partnership received $254.0 million of gross proceeds
from a $256.5 million forward financing commitment that the Operating Partnership obtained
on June 29, 2009. The Operating Partnership paid a $17.7 million commitment fee in
connection with this commitment. The loan proceeds, together with the commitment fee, had
been escrowed with an institutional trustee pending the completion of the IRS Philadelphia
Campus and the Cira South Garage as well as the commencement of the leases at these
facilities. The financing consists of two separate loans: $209.7 million secured by the
IRS Philadelphia Campus and $46.8 million secured by the Cira South Garage. The lender held
back $2.5 million of the loan proceeds pending the completion of certain conditions related
to the IRS Philadelphia Campus and the Cira South Garage. As of December 31, 2010, the
Operating Partnership has received $2.1 million of the total amount held back. The loans
are non-recourse and are secured by the IRS Philadelphia Campus and the Cira South Garage,
respectively. The loans bear interest at 5.93% per annum with interest only through
September 10, 2010 and thereafter require principal and interest monthly payments through
its maturity in September 2030. The Operating Partnership used the loan proceeds to reduce
borrowings under its Credit Facility and for general corporate purposes.
|
The Operating Partnership uses multiple financing sources to fund its long-term capital needs. It
uses its Credit Facility for general business purposes, including the acquisition, development and
redevelopment of properties and the repayment of other debt. It will also consider other
properties within its portfolio as necessary, where it may be in its best interest to obtain a
secured mortgage.
The Operating Partnership’s ability to incur additional debt is dependent upon a number of factors,
including its credit ratings, the value of its unencumbered assets, its degree of leverage and
borrowing restrictions imposed by its current lenders. If more than one rating agency were to
downgrade its credit rating, its access to capital in the unsecured debt market would be more
limited and the interest rate under its existing Credit Facility and the term loan would increase.
The Operating Partnership’s ability to sell its limited partnership and preferred units is
dependent on, among other things, general market conditions for REITs, market perceptions about the
Company and the current trading price of the Parent Company’s shares. The Parent Company
contributes the proceeds it receives from its equity issuances to the Operating Partnership in
exchange for partnership units of the Operating Partnership in accordance with the Operating
Partnership’s partnership agreement. The Operating Partnership uses the net proceeds from the
sales contributed by the Parent Company to reduce borrowings under the Credit Facility and for
general corporate purposes. The Operating Partnership, from time to time, also issues its own
partnership units as consideration for property acquisitions and developments as shown in one of
the Operating Partnership’s activities during 2010 above
The Operating Partnership will also consider sales of selected Properties as another source of
managing its liquidity. Asset sales during 2009 and through 2010 have been a source of cash. During
2010, it sold 8 properties containing 0.5 million in net rentable square feet for net cash proceeds
of $50.1 million. Since mid-2007, the Operating Partnership has used proceeds from asset sales to
repay existing indebtedness, provide capital for its development activities and strengthen its
financial condition. There is no guarantee that it will be able to raise similar or even lesser
amounts of capital from future asset sales.
Cash Flows
The following summary discussion of the Operating Partnership’s cash flows is based on the
consolidated statement of cash flows 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, 2010 and 2009, the Operating Partnership maintained cash and cash equivalents of
$16.6 million and $1.6 million, respectively. The following are the changes in cash flows from its
activities for the years ended (in thousands):
| Activity | 2010 | 2009 | 2008 | |||||||||
|
Operating
|
$ | 185,127 | $ | 220,405 | $ | 233,867 | ||||||
|
Investing
|
(171,936 | ) | (102,549 | ) | 164,046 | |||||||
|
Financing
|
1,807 | (120,213 | ) | (399,589 | ) | |||||||
|
|
||||||||||||
|
Net cash flows
|
$ | 14,998 | $ | (2,357 | ) | $ | (1,676 | ) | ||||
|
|
||||||||||||
62
Table of Contents
The Operating Partnership’s principal source of cash flows is from the operation of its properties.
The Operating Partnership does not restate its cash flow for discontinued operations.
The net decrease of $35.3 million in cash flows from operating activities of the Operating
Partnership during the year ended December 31, 2010 compared to the year ended December 31, 2009 is
primarily the result of the following:
| • |
a decrease in average occupancy from 89.3% during the year ended December 31, 2009 to
87.6% during the year ended December 31, 2010;
|
| • |
a decrease in the number of operating properties due to dispositions. We sold a total of
eight properties during the year ended December 31, 2010;
|
| • |
timing of cash receipts from our tenants and cash expenditures in the normal course of
operations.
|
The net increase of $69.4 million in cash flows used in investing activities of the Operating
Partnership during the year ended December 31, 2010 compared to the year ended December 31, 2009 is
primarily attributable to the following:
| • |
$50.7 million of net cash paid related to the acquisition of Three Logan Square ($50.3
million) and the parcel of land in Gibbsboro, New Jersey ($0.4 million);
|
| • |
a decrease in cash of $1.4 million due to the deconsolidation of variable interest
entities;
|
| • |
receipt of funds placed in escrow during the last quarter of 2008 related to the Cira
South Garage amounting to $31.4 million which was also used to finance the development of
the Cira South Garage during the first quarter of 2009;
|
| • |
a decrease in net proceeds from sales of properties from $101.3 million during the year
ended December 31, 2009 to $50.1 million during the year ended December 31, 2010;
|
| • |
a decrease in cash distributions from unconsolidated Real Estate Ventures of $10.9
million during the year ended December 31, 2010 compared to the year ended December 31,
2009. This was offset by the $9.8 million decrease in contributions made to unconsolidated
Real Estate Ventures during the year ended December 31, 2010 compared to the year ended
December 31, 2009;
|
| • |
advances made for purchase of tenant assets, net of repayment, amounting to $1.7 million;
and
|
| • |
a $0.8 million loan was provided to an unconsolidated Real Estate Venture partner.
|
The net increase in cash used in investing activities was partially offset by the following
transactions:
| • |
receipt of $40.0 million of proceeds from repayment of notes receivable; and
|
| • |
decreased capital expenditures for tenant and building improvements and leasing
commissions by $28.9 million during the year ended December 31, 2010 compared to the year
ended December 31, 2009.
|
The net decrease of $118.4 million in cash used in financing activities of the Operating
Partnership during the year ended December 31, 2010 compared to the year ended December 31, 2009 is
mainly due to the following:
| • |
an increase of $106.3 million in proceeds from mortgage notes payable during the year
ended December 31, 2010 compared to the year ended December 31, 2009, primarily due to the
receipt of the $256.1 million from the forward financing entered into during 2009. In
addition, repayments of mortgage notes payable decreased from $84.1 million during the year
ended December 31, 2009 to $52.0 million during the year ended December 31, 2010;
|
||
| • |
a decrease in repayments of the Credit Facility and unsecured notes of $808.0 million
during the year ended December 31, 2010 compared to the year ended December 31, 2009, offset
by the decrease in proceeds from the Credit Facility and unsecured term loan borrowings of
$665.0 million;
|
63
Table of Contents
| • |
net settlement of hedge transactions during the year ended December 31, 2009 amounting to
$5.0 million; and
|
| • |
a decrease in debt financing costs of $24.0 million during the year ended December 31,
2010 compared to the year ended December 31, 2009, primarily due to the $17.7 million
forward financing commitment fee paid in 2009.
|
The above described net decrease in cash used in financing activities was partially offset by
the following transactions:
| • |
decrease in net proceeds received from the issuance of common shares of the Parent
Company amounting to $171.5 million during the year ended December 31, 2010 compared to the
year ended December 31, 2009; and
|
| • |
increase in distributions paid by the Parent Company to
its shareholders and on
non-controlling interests from $70.6 million during the year ended December 31, 2009 to
$89.0 during the year ended December 31, 2010.
|
Capitalization
The Operating Partnership is the issuer of our unsecured notes and the Parent Company has fully and
unconditionally guaranteed the payment of principal and interest on the notes. During the year
ended December 31, 2010, the Operating Partnership repurchased $82.7 million of its unsecured Notes
as summarized in the table below:
| Repurchase | Deferred Financing | |||||||||||||||
| Notes | Amount | Principal | Loss | Amortization | ||||||||||||
|
2010 5.625% Notes
|
$ | 2,002 | $ | 1,942 | $ | 37 | $ | 3 | ||||||||
|
2011 3.875% Notes (a)
|
68,741 | 68,125 | 1,762 | 281 | ||||||||||||
|
2012 5.750% Notes
|
13,333 | 12,625 | 431 | 32 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 84,076 | $ | 82,692 | $ | 2,230 | $ | 316 | ||||||||
|
|
||||||||||||||||
| (a) |
On October 20, 2011, the holders of the Guaranteed Exchangeable Notes have the right to request the redemption of all or a portion of the
Guaranteed Exchangeable Notes they hold at a price equal to 100% of the principal amount plus accrued and unpaid interest.
Accordingly, the Guaranteed Exchangeable Notes have been presented with an October 20, 2011 maturity date.
|
On August 26, 2010, the Operating Partnership received $254.0 million of gross proceeds from a
$256.5 million forward financing commitment the Operating Partnership obtained on June 29, 2009.
The Operating Partnership paid a $17.7 million commitment fee in connection with this commitment.
The loan proceeds, together with the commitment fee, had been escrowed with an institutional
trustee pending the completion of the IRS Philadelphia Campus and the Cira South Garage as well as
the commencement of the leases at these facilities. The financing consists of two separate loans:
$209.7 million secured by the IRS Philadelphia Campus and $46.8 million secured by the Cira South
Garage. The lender held back $2.5 million of the loan proceeds pending completion of certain
conditions related to the IRS Philadelphia Campus and the Cira South Garage. As of December 31,
2010, the Operating Partnership has received $2.1 million of the amounts held back. The loans are
non-recourse and are secured by the IRS Philadelphia Campus and the Cira South Garage,
respectively. The loans bear interest at 5.93% with interest only through September 10, 2010 and
thereafter require principal and interest monthly payments though its maturity in September 2030.
The Operating Partnership used the loan proceeds to reduce borrowings under its Credit Facility and
for general corporate purposes.
64
Table of Contents
As of December 31, 2010, the Operating Partnership had approximately $2.4 billion of outstanding
indebtedness. The table below summarizes the Operating Partnership’s mortgage notes payable, its
unsecured notes and its Credit Facility at December 31, 2010 and December 31, 2009:
| December 31, | December 31, | |||||||
| 2010 | 2009 | |||||||
| (dollars in thousands) | ||||||||
|
Balance:
|
||||||||
|
Fixed rate (includes
variable swapped to
fixed)
|
$ | 1,929,962 | $ | 2,246,375 | ||||
|
Variable rate — unhedged
|
504,610 | 214,836 | ||||||
|
|
||||||||
|
Total
|
$ | 2,434,572 | $ | 2,461,211 | ||||
|
|
||||||||
|
|
||||||||
|
Percent of Total Debt:
|
||||||||
|
Fixed rate (includes
variable swapped to
fixed)
|
79.3 | % | 91.3 | % | ||||
|
Variable rate — unhedged
|
20.7 | % | 8.7 | % | ||||
|
|
||||||||
|
Total
|
100 | % | 100 | % | ||||
|
|
||||||||
|
|
||||||||
|
Weighted-average interest rate at period end:
|
||||||||
|
Fixed rate (includes
variable swapped to
fixed)
|
6.4 | % | 5.9 | % | ||||
|
Variable rate — unhedged
|
1.6 | % | 2.6 | % | ||||
|
Total
|
5.4 | % | 5.6 | % | ||||
The variable rate debt shown above generally bears interest based on various spreads over a LIBOR
term selected by the Operating Partnership.
The Operating Partnership uses Credit Facility borrowings for general business purposes, including
the acquisition, development and redevelopment of properties and the repayment of other debt. It
has the option to increase the maximum borrowings under its Credit Facility to $800.0 million
subject to the absence of any defaults and its ability to obtain additional commitments from its
existing or new lenders.
The interest rates incurred under our revolving Credit Facility and term loan are subject to
modification depending on our rating status with qualified agencies.
As of December 31, 2010, the Operating Partnership had $183.0 million of borrowings and $11.2
million of letters of credit outstanding under the Credit Facility, leaving $405.8 million of
unused availability. For the years ended December 31, 2010 and 2009, the Operating Partnership’s
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 1.03% and 2.08% per annum, respectively.
The Credit Facility contains financial and non-financial covenants, including covenants that relate
to the Operating Partnership’s 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 the
Operating Partnership to make distributions to the Parent Company based on the greater of (i) an
amount required for the Parent Company to retain its qualification as a REIT and (ii) 95% of the
Operating Partnership’s funds from operations. The Credit Facility also contains financial
covenants that require the Operating Partnership 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.
The Operating Partnership continuously monitors its compliance with the covenants. Certain of the
covenants restrict the Operating Partnership’s ability to obtain alternative sources of capital.
The Operating Partnership was in compliance with all covenants as of December 31, 2010.
The indenture under which the Operating Partnership issued its unsecured Notes contains 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. The Operating Partnership was in compliance
with all covenants as of December 31, 2010.
The Operating Partnership has mortgage loans that are collateralized by certain of its Properties.
Payments on mortgage loans are generally due in monthly installments of principal and interest, or
interest only. The Operating Partnership intends to refinance or repay its 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.
65
Table of Contents
The Parent Company’s charter documents do not limit the amount or form of indebtedness that the
Operating Partnership may incur, and its policies on debt incurrence are solely within the
discretion of the Parent Company’s Board of Trustees, subject to financial covenants in the Credit
Facility, indenture and other credit agreements.
As of December 31, 2010, the Operating Partnership had guaranteed repayment of approximately $0.7
million of loans on behalf of one Real Estate Venture. See Item 2. Properties — Real Estate
Ventures. The Operating Partnership also provides customary environmental indemnities and
completion guarantees in connection with construction and permanent financing both for its own
account and on behalf of certain of the Real Estate Ventures.
Equity
On December 2, 2010, the Operating Partnership declared a distribution of $0.15 per Class A common
unit, totaling $20.3 million, which was paid on January 20, 2011 to unitholders of record as of
January 6, 2011.
On December 2, 2010, the Operating Partnership declared distributions on its Series D Preferred
Mirror Units and Series E Preferred Mirror Units to holders of record as of December 30, 2010.
These units are entitled to a preferential return of 7.50% and 7.375%, respectively. Distributions
paid on January 18, 2011 to holders of Series D Preferred Mirror Units and Series E Preferred
Mirror Units totaled $0.9 million and $0.1 million, respectively.
From the inception of the Offering Program in March 2010 through December 31, 2010, the Parent
Company contributed net proceeds of $70.8 million from the sale of 5,742,268 shares to the
Operating Partnership in exchange for the issuance of 5,742,268 common partnership units to the
Parent Company. The Operating Partnership used the net proceeds from the sales to reduce
borrowings under the Credit Facility and for general corporate purposes.
On August 5, 2010, the Operating Partnership issued 7,111,112 Class F (2010) units as part of its
consideration for the acquisition of Three Logan Square. The Class F (2010) units were valued
based on the closing market price of the Parent Company’s common shares on the acquisition date of
$11.54 less the annual dividend rate per share of $0.60 to reflect that these units do not begin to
accrue a dividend prior to the first anniversary of their issuance. The Class F (2010) units are
subject to redemption at the option of holder after August 5, 2011. The Operating Partnership may,
at its option, satisfy the redemption either for an amount, per unit, of cash equal to the market
price of one Parent Company common share (based on the five-day trading average ending on the date
of the redemption) or for one Parent Company common share. The Class F (2010) units do not begin
to accrue dividends and are not entitled to income or loss allocations prior to August 5, 2011.
Thereafter, the Class F (2010) units will receive the same dividend that the Parent Company pays on
its common shares.
The Parent Company did not purchase any shares during the year ended December 31, 2010 and
accordingly, during the year ended December 31, 2010, the Operating Partnership did not repurchase
any units in connection with the Parent Company’s share repurchase program.
Together with the Operating Partnership, the Parent Company maintains a shelf registration
statement that registered common shares, preferred shares, depositary shares and warrants and
unsecured debt securities. Subject to the Company’s ongoing compliance with securities laws, if
warranted by market conditions, the Company may offer and sell equity and debt securities from time
to time under the shelf registration statement.
66
Table of Contents
Short- and Long-Term Liquidity
The Operating Partnership believes that its cash flow from operations is adequate to fund its
short-term liquidity requirements, excluding principal payments under its 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. The Operating Partnership intends 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 to the Parent Company required to
maintain the Parent Company’s REIT qualification under the Internal Revenue Code. The Operating
Partnership expects to meet short-term scheduled debt maturities through borrowings under the
Credit Facility and proceeds from asset dispositions. As of December 31, 2010, the Operating
Partnership has $1,722.3 million of unsecured debt and $712.2 million of mortgage debt of which
$425.8 million and $128.5 million, respectively, are scheduled to mature through December 2011. The
Operating Partnership extended the maturity date of the $183.0 million Term Loan from October 18,
2010 to June 29, 2011. The Operating Partnership may extend the maturity dates of the Credit
Facility and the term loan to June 29, 2012. For the remaining debt maturities, the Operating
Partnership expects to have sufficient capacity under its Credit Facility but it will also evaluate
other listed sources to fund these maturities.
The Operating Partnership expects to meet its 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.
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 remain
wider than historic spreads. These circumstances have 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, the Operating Partnership expects debt financings
will be more difficult to obtain and that borrowing costs on new and refinanced debt will be more
expensive. Moreover, the volatility in the financial markets, in general, will make it more
difficult or costly, for it to raise capital through the issuance of common stock, preferred stock
or other equity instruments or through public issuances of debt securities from its shelf
registration statement as it has been able to do in the past. Such conditions would also limit its
ability to raise capital through asset dispositions at attractive prices or at all.
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”.
Inflation
A majority of the Operating Partnership’s leases provide for tenant reimbursement of real estate
taxes and operating expenses either on a triple net basis or over a base amount. In addition, many
of its office leases provide for fixed base rent increases. The Operating Partnership believes that
inflationary increases in expenses will be partially offset by expense reimbursement and
contractual rent increases.
67
Table of Contents
Commitments and Contingencies
The following table outlines the timing of payment requirements related to the Operating
Partnership’s contractual commitments as of December 31, 2010.
| Payments by Period (in thousands) | ||||||||||||||||||||
| Less than | More than | |||||||||||||||||||
| Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
|
|
||||||||||||||||||||
|
Mortgage notes payable (a)
|
$ | 712,246 | $ | 128,544 | $ | 112,973 | $ | 113,357 | $ | 357,372 | ||||||||||
|
Revolving credit facility
|
183,000 | 183,000 | — | — | — | |||||||||||||||
|
Unsecured term loan
|
183,000 | 183,000 | — | — | — | |||||||||||||||
|
Unsecured debt (a)
|
1,356,326 | — | 175,200 | 742,681 | 438,445 | |||||||||||||||
|
Ground leases (b)
|
298,712 | 1,818 | 5,545 | 5,727 | 285,622 | |||||||||||||||
|
Interest expense (d)
|
684,842 | 122,031 | 204,038 | 191,426 | 167,347 | |||||||||||||||
|
Development contracts (c)
|
5,519 | 5,519 | — | — | — | |||||||||||||||
|
Other liabilities
|
9,221 | — | — | — | 9,221 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 3,432,866 | $ | 623,912 | $ | 497,756 | $ | 1,053,191 | $ | 1,258,007 | ||||||||||
|
|
||||||||||||||||||||
| (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. The table above does
not include the future minimum annual rental payments related to the ground lease that we assumed in connection
with the acquisition of Three Logan Square as the amounts cannot be determined at this time as discussed below.
|
|
| (c) |
Represents contractual obligations for certain development projects and does not contemplate all costs expected to be incurred.
to be incurred for such developments
|
|
| (d) |
Variable rate debt future interest expense commitments are calculated using December 31, 2010 interest rates.
|
The Operating Partnership has ground tenancy rights under a long term ground lease agreement
through its acquisition of Three Logan Square on August 5, 2010. The annual rental payment under this ground
lease is ten dollars through August 2022 which is when the initial term of the ground lease will
end. After the initial term, the Operating Partnership has the option to renew the lease until
2091. The Operating Partnership also has the option to purchase the land at fair market value after
providing a written notice to the owner. The annual rental payment after 2022 will be adjusted at
the lower of $3.0 million or the prevailing market rent at that time until 2030. Subsequent to
2030, the annual rental payment will be adjusted at the lower of $4.0 million or the prevailing
market rent at that time until 2042 and at fair market value until 2091. The Operating Partnership
believes that based on conditions as of the date the lease was assigned (August 5, 2010), the lease
will reset to market after the initial term. Using the estimated fair market rent as of the date
of the acquisition over the extended term of the ground lease (assuming the purchase option is not
exercised), the future payments will aggregate $27.4 million. The Operating Partnership has not
included the amounts in the table above since such amounts are not fixed and determinable.
As part of the Operating Partnership’s September 2004 acquisition of a portfolio of properties from
The Rubenstein Company (which the Operating Partnership refers to as the “TRC acquisition”), the
Operating Partnership acquired interest in Two Logan Square, a 706,288 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
Operating Partnership, through its ownership of the second and third mortgages is the primary
beneficiary. It currently does not expect to take title to Two Logan Square until, at the earliest,
September 2019. If the Operating Partnership takes fee title to Two Logan Square upon a foreclosure
of its mortgage, the Operating 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 $2.9 million. On the TRC
acquisition, the Operating Partnership recorded a liability of $0.7 million and this amount will
accrete up to $2.9 million through September 2019. As of December 31, 2010, the Operating
Partnership has a balance of $1.2 million for this liability in its consolidated balance sheet.
The Operating Partnership has been audited by the Internal Revenue Service (the “IRS”) for its 2004
tax year. The audit concerns the tax treatment of the TRC acquisition in September 2004 in which
the Operating Partnership acquired a portfolio of properties through the acquisition of a limited
partnership. On December 17, 2010, the Operating Partnership received notice that the IRS proposed an adjustment to the allocation of recourse
liabilities allocated to the contributor of the properties. The Operating Partnership intends to
appeal the proposed adjustment. The proposed adjustment, if upheld, would not result in a
material tax liability for the Operating 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 Operating Partnership under the tax protection agreement entered into as part of the
transaction.
68
Table of Contents
As part of the Operating Partnership’s 2006 Prentiss acquisition and the TRC acquisition in 2004,
it 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 Operating Partnership
agreed not to sell acquired properties for periods up to 15 years from the date of the TRC
acquisition as follows at December 31, 2010: 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 Operating Partnership assumed the obligation of Prentiss
not to sell Concord Airport Plaza before March 2018. The Operating Partnership’s 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 the Operating Partnership was to sell a restricted property before expiration of
the restricted period in a non-exempt transaction, it would be required to make significant
payments to the parties who sold the applicable property to the Operating Partnership for tax
liabilities triggered to them.
As part of the Operating Partnership’s acquisition of properties from time to time in tax-deferred
transactions, it has agreed to provide certain of the prior owners of the acquired properties with
the right to guarantee its indebtedness. If the Operating Partnership was to seek to repay the
indebtedness guaranteed by the prior owner before the expiration of the applicable agreement, it
will be required to provide the prior owner an opportunity to guarantee a qualifying replacement
debt. These debt maintenance agreements may limit its ability to refinance indebtedness on terms
that will be favorable to the Operating Partnership.
In connection with the development of the IRS Philadelphia Campus and the Cira South Garage,
during 2008, the Operating Partnership entered into a historic tax credit and new markets tax
credit arrangement, respectively. The Operating 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 therefore, require a refund to USB or reduction of investor capital
contributions, which are reported as deferred income in the Operating 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 Operating Partnership
does not anticipate that any material refunds or reductions of investor capital contributions will
be required in connection with these arrangements.
The Operating Partnership invests in properties and regularly incurs capital expenditures in the
ordinary course of its business to maintain the properties. The Operating Partnership believes that
such expenditures enhance its competitiveness. The Operating Partnership also enters into
construction, utility and service contracts in the ordinary course of its business which may extend
beyond one year. These contracts typically provide for cancellation with insignificant or no
cancellation penalties.
Interest Rate Risk and Sensitivity Analysis
The analysis below presents the sensitivity of the market value of the Operating Partnership’s
financial instruments to selected changes in market rates. The range of changes chosen reflects its
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.
The Operating Partnership’s financial instruments consist of both fixed and variable rate debt. As
of December 31, 2010, its consolidated debt consisted of $652.2 million in fixed rate mortgages,
$60.0 million of variable rate mortgages, $183.0 million in borrowings under its Credit Facility,
$183.0 million borrowings in an unsecured term loan and $1,356.3 million in unsecured notes (before
reduction of discounts) of which $1,277.7 million are fixed rate borrowings and $78.6 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, 2010, based on prevailing interest rates and credit spreads, the fair value of
the Operating Partnership’s unsecured notes was $1.3 billion. For sensitivity purposes, a 100 basis
point change in the discount rate equates to a change in the total fair value of its debt,
including the Notes, of approximately $12.7 million at December 31, 2010.
From time to time or as the need arises, the Operating Partnership uses derivative instruments to
manage interest rate risk exposures and not for speculative purposes. All of the Operating
Partnership’s interest rate swap agreements matured on October 18, 2010.
The total carrying value of the Operating Partnership’s variable rate debt was approximately $444.6
million and $353.6 million at December 31, 2010 and December 31, 2009, respectively. The total fair
value of the Operating Partnership’s debt was approximately $432.6 million and $341.2 million at
December 31, 2010 and December 31, 2009, respectively. For sensitivity purposes, a 100 basis point
change in the discount rate equates to a change in the total fair value of its debt of
approximately $4.4 million at December 31, 2010, and a 100 basis point change in the discount rate
equates to a change in the total fair value of its debt of approximately $1.5 million at December
31, 2009.
69
Table of Contents
If market rates of interest were to increase by 1%, the fair value of the Operating Partnership’s
outstanding fixed-rate mortgage debt would decrease by approximately $33.4 million. If market rates
of interest were to decrease by 1%, the fair value of its outstanding fixed-rate mortgage debt
would increase by approximately $36.5 million.
At December 31, 2010, the Operating Partnership’s outstanding variable rate debt based on LIBOR
totaled approximately $444.6 million. At December 31, 2010, the interest rate on its variable rate
debt was approximately 1.1%. If market interest rates on its variable rate debt change by 100 basis
points, total interest expense would change by approximately $1.1 million for the year ended
December 31, 2010.
These amounts were determined solely by considering the impact of hypothetical interest rates on
the Operating Partnership’s financial instruments. Due to the uncertainty of specific actions the
Operating Partnership may undertake to minimize possible effects of market interest rate increases,
this analysis assumes no changes in its applicable financial instruments or structure.
| Item 7A. |
Quantitative and Qualitative Disclosure About Market Risk
|
See discussion in Management’s Discussion and Analysis included in Item 7 herein.
| Item 8. |
Financial Statements and Supplementary Data
|
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.
| Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
None
| Item 9A. |
Controls and Procedures
|
Controls and Procedures (Parent Company)
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of the Parent Company’s management, including its
principal executive officer and principal financial officer, the Parent Company’s management
conducted an evaluation of its 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 the Parent Company concluded that the Parent Company’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 the Parent Company 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 the Parent Company’s management, including its
principal executive officer and principal financial officer, the Parent Company’s management
conducted an evaluation of the effectiveness of the its 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
, the Parent Company’s management concluded that the its
internal control over financial reporting was effective as of December 31, 2010.
70
Table of Contents
Management of the Parent Company has excluded Three Logan Square from its assessment of internal
control over financial reporting as of December 31, 2010 because it was acquired by the Parent
Company in a purchase business combination during 2010. Three Logan Square is a wholly-owned
property of the Parent Company whose total assets and total revenue represent, 2.7% and 1.3%,
respectively, of the Parent Company’s consolidated financial statement amounts as of and for the
year ended December 31, 2010.
The effectiveness of the Parent Company’s internal control over financial reporting as of December
31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their reports which are included herein.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Parent Company’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, the Parent Company’s internal control over financial reporting.
Controls and Procedures (Operating Partnership)
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of the Operating Partnership’s management,
including its principal executive officer and principal financial officer, the Operating
Partnership’s management conducted an evaluation of its 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 Operating Partnership concluded that the Operating Partnership’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 the Operating Partnership 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 the Operating Partnership’s management,
including its principal executive officer and principal financial officer, the Operating
Partnership’s management conducted an evaluation of the effectiveness its 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
, the Operating Partnership’s
management concluded that the its internal control over financial reporting was effective as of
December 31, 2010.
Management of the Operating Partnership has excluded Three Logan Square from its assessment of
internal control over financial reporting as of December 31, 2010 because it was acquired by the
Operating Partnership in a purchase business combination during 2010. Three Logan Square is a
wholly-owned property of the Operating Partnership whose total assets and total revenue represent,
2.7% and 1.3%, respectively, of the Operating Partnership’s consolidated financial statement
amounts as of and for the year ended December 31, 2010.
The effectiveness of the Operating Partnership’s internal control over financial reporting as of
December 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their reports which are included herein.
Changes in Internal Control over Financial Reporting.
There have not been any changes in the Operating Partnership’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, the Operating Partnership’s internal control over financial
reporting.
| Item 9B. |
Other Information
|
None.
71
Table of Contents
| Item 10. |
Directors, Executive Officers and Corporate Governance
|
Incorporated herein by reference to the Company’s definitive proxy statement to be filed with
respect to its 2011 Annual Meeting of Shareholders.
| Item 11. |
Executive Compensation
|
Incorporated herein by reference to the Company’s definitive proxy statement to be filed with
respect to its 2011 Annual Meeting of Shareholders.
| Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
|
Incorporated herein by reference to the Company’s definitive proxy statement to be filed with
respect to its 2011 Annual Meeting of Shareholders.
| Item 13. |
Certain Relationships and Related Transactions, and Director Independence
|
Incorporated herein by reference to the Company’s definitive proxy statement to be filed with
respect to its 2011 Annual Meeting of Shareholders.
| Item 14. |
Principal Accounting Fees and Services
|
Incorporated herein by reference to the Company’s definitive proxy statement to be filed with
respect to its 2011 Annual Meeting of Shareholders.
72
Table of Contents
| Item 15. |
Exhibits and Financial Statement Schedules.
|
| (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.
73
Table of Contents
Index to Financial Statements and Schedules
| Page | ||||
|
|
||||
| F-1 | ||||
|
|
||||
| F-2 | ||||
|
|
||||
|
Financial Statements of Brandywine Realty Trust
|
||||
|
|
||||
| F-3 | ||||
|
|
||||
| F-4 | ||||
|
|
||||
| F-5 | ||||
|
|
||||
| F-6 | ||||
|
|
||||
| F-7 | ||||
|
|
||||
|
Financial Statements of Brandywine Operating Partnership, L.P.
|
||||
|
|
||||
| F-9 | ||||
|
|
||||
| F-10 | ||||
|
|
||||
| F-11 | ||||
|
|
||||
| F-12 | ||||
|
|
||||
| F-13 | ||||
|
|
||||
| F-15 | ||||
|
|
||||
| F-57 | ||||
|
|
||||
| F-58 | ||||
|
|
||||
74
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)
|
|||
75
Table of Contents
| Exhibits No. | Description | |||
| 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)
|
|||
|
|
||||
| 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 |
Sixteenth 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 9, 2010 and incorporated herein by reference)
|
|||
|
|
||||
| 3.1.27 |
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 June 4, 2010 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)
|
|||
76
Table of Contents
| Exhibits No. | Description | |||
| 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 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).
|
|||
|
|
||||
| 4.6 |
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).
|
|||
|
|
||||
| 4.7 |
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)
|
|||
|
|
||||
| 4.8 |
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)
|
|||
|
|
||||
| 4.9 |
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)
|
|||
|
|
||||
| 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 |
Sales Agency Financing Agreement dated as of March 10, 2010 with BNY Mellon Capital Markets, LLC
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated March 10, 2010 and
incorporated herein by reference)
|
|||
77
Table of Contents
| Exhibits No. | Description | |||
| 10.14 |
Sales Agency Financing Agreement dated as of March 10, 2010 with Citigroup Global Markets Inc.
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated March 10, 2010 and
incorporated herein by reference)
|
|||
|
|
||||
| 10.15 |
Sales Agency Financing Agreement dated as of March 10, 2010 with Deutsche Bank Securities Inc.
(previously filed as an exhibit to Brandywine Realty Trust’s Form 8-K dated March 10, 2010 and
incorporated herein by reference)
|
|||
|
|
||||
| 10.16 |
Registration Rights Agreement (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K dated August 9, 2010 and incorporated herein by reference)
|
|||
|
|
||||
| 10.17 |
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)
|
|||
|
|
||||
| 10.18 |
Amended and Restated 1997 Long-Term Incentive Plan (as amended effective June 2, 2010)**
(previously filed as an exhibit to Brandywine Realty Trust’s Registration Statement on Form S-8,
File No. 333-167266 and incorporated herein by reference)
|
|||
|
|
||||
| 10.19 |
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)
|
|||
|
|
||||
| 10.20 |
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)
|
|||
|
|
||||
| 10.21 |
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)
|
|||
|
|
||||
| 10.22 |
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)
|
|||
|
|
||||
| 10.23 |
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)
|
|||
|
|
||||
| 10.24 |
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)
|
|||
|
|
||||
| 10.25 |
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)
|
|||
|
|
||||
| 10.26 |
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)
|
|||
|
|
||||
| 10.27 |
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)
|
|||
|
|
||||
| 10.28 |
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)
|
|||
|
|
||||
| 10.29 |
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)
|
|||
|
|
||||
| 10.30 |
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)
|
|||
|
|
||||
| 10.31 |
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)
|
|||
78
Table of Contents
| Exhibits No. | Description | |||
| 10.32 |
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)
|
|||
|
|
||||
| 10.33 |
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)
|
|||
|
|
||||
| 10.34 |
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)
|
|||
|
|
||||
| 10.35 |
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)
|
|||
|
|
||||
| 10.36 |
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)
|
|||
|
|
||||
| 10.37 |
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)
|
|||
|
|
||||
| 10.38 |
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)
|
|||
|
|
||||
| 10.39 |
Form of Restricted Share Award (March 2010) for Executive Officers** (previously filed as an
exhibit to Brandywine Realty Trust’s Form 8-K filed on March 8, 2010 and incorporated herein by
reference)
|
|||
|
|
||||
| 10.40 |
Form of Restricted Performance Share Unit and Dividend Equivalent Rights Award Agreement (March
2010) for Executive Officers** (previously filed as an exhibit to Brandywine Realty Trust’s Form
8-K filed on March 8, 2010 and incorporated herein by reference)
|
|||
|
|
||||
| 10.41 |
Forms of Incentive Stock Option Agreement (March 2010) for Executive Officers** (previously
filed as an exhibit to Brandywine Realty Trust’s Form 8-K filed on March 8, 2010 and
incorporated herein by reference)
|
|||
|
|
||||
| 10.42 |
Forms of Non-Qualified Share Option Agreement (March 2010) for Executive Officers** (previously
filed as an exhibit to Brandywine Realty Trust’s Form 8-K filed on March 8, 2010 and
incorporated herein by reference)
|
|||
|
|
||||
| 10.43 |
2010-2012 Restricted Performance Share Unit Program** (previously filed as an exhibit to
Brandywine Realty Trust’s Form 8-K filed on March 8, 2010 and incorporated herein by reference)
|
|||
|
|
||||
| 10.44 |
Letter to RREEF America LLC relating to waiver of share ownership limit (previously filed as an exhibit to Brandywine
Realty Trust’s Form 10-K for the fiscal year ended December 31, 2009 and incorporated herein by reference)
|
|||
|
|
||||
| 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.
|
|||
79
Table of Contents
| Exhibits No. | Description | |||
| 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
|
80
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: February 25, 2011
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 | February 25, 2011 | ||
|
|
||||
|
/s/ Gerard H. Sweeney
|
President, Chief Executive Officer and Trustee (Principal Executive Officer) | February 25, 2011 | ||
|
|
||||
|
/s/ Howard M. Sipzner
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) | February 25, 2011 | ||
|
|
||||
|
/s/ Gabriel J. Mainardi
|
Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 25, 2011 | ||
|
|
||||
|
/s/ D. Pike Aloian
|
Trustee | February 25, 2011 | ||
|
|
||||
|
/s/ Wyche Fowler
|
Trustee | February 25, 2011 | ||
|
|
||||
|
/s/ Michael J. Joyce
|
Trustee | February 25, 2011 | ||
|
|
||||
|
/s/ Anthony A. Nichols, Sr.
|
Trustee | February 25, 2011 | ||
|
|
||||
|
/s/ Charles P. Pizzi
|
Trustee | February 25, 2011 |
81
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: February 25, 2011
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 | February 25, 2011 | ||
|
|
||||
|
/s/ Gerard H. Sweeney
|
President, Chief Executive Officer and Trustee (Principal Executive Officer) | February 25, 2011 | ||
|
|
||||
|
/s/ Howard M. Sipzner
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) | February 25, 2011 | ||
|
|
||||
|
/s/ Gabriel J. Mainardi
|
Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 25, 2011 | ||
|
|
||||
|
/s/ D. Pike Aloian
|
Trustee | February 25, 2011 | ||
|
|
||||
|
/s/ Wyche Fowler
|
Trustee | February 25, 2011 | ||
|
|
||||
|
/s/ Michael J. Joyce
|
Trustee | February 25, 2011 | ||
|
|
||||
|
/s/ Anthony A. Nichols, Sr.
|
Trustee | February 25, 2011 | ||
|
|
||||
|
/s/ Charles P. Pizzi
|
Trustee | February 25, 2011 |
82
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, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2010
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, 2010, 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.
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 Three Logan Square from its assessment of internal control over financial reporting as of
December 31, 2010 because it was acquired by the Company in a purchase business combination
during
2010. We have also excluded Three Logan Square from our audit of internal control over financial
reporting. Three Logan Square is a wholly-owned property whose total assets and total revenue
represent 2.7% and 1.3%, respectively, of the related consolidated financial statement
amounts
as of and for the year ended December 31, 2010.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 25, 2011
Philadelphia, Pennsylvania
February 25, 2011
F - 1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Partners of Brandywine
Operating Partnership, L.P.:
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, L.P. and its subsidiaries (the “Partnership”) at December 31, 2010 and 2009, and the results
of their operations and their cash flows for each of the three years in the period ended December
31, 2010 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, 2010, 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.
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 Three Logan Square from its assessment of internal control over financial reporting as of
December 31, 2010 because it was acquired by the Partnership in a purchase business combination
during 2010. We have also excluded Three Logan Square from our audit of internal control over
financial reporting. Three Logan Square is a wholly-owned property whose total assets and total
revenue represent 2.7% and 1.3%, respectively, of the related consolidated financial
statement
amounts as of and for the year ended December 31, 2010.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 25, 2011
Philadelphia, Pennsylvania
February 25, 2011
F - 2
Table of Contents
BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
(in thousands, except share and per share information)
| December 31, | December 31, | |||||||
| 2010 | 2009 | |||||||
|
ASSETS
|
||||||||
|
Real estate investments:
|
||||||||
|
Rental properties
|
$ | 4,834,111 | $ | 4,512,618 | ||||
|
Accumulated depreciation
|
(776,078 | ) | (716,956 | ) | ||||
|
|
||||||||
|
Operating real estate investments, net
|
4,058,033 | 3,795,662 | ||||||
|
Construction-in-progress
|
33,322 | 271,962 | ||||||
|
Land inventory
|
110,055 | 97,368 | ||||||
|
|
||||||||
|
Total real estate investments, net
|
4,201,410 | 4,164,992 | ||||||
|
|
||||||||
|
Cash and cash equivalents
|
16,565 | 1,567 | ||||||
|
Accounts receivable, net
|
16,009 | 10,934 | ||||||
|
Accrued rent receivable, net
|
95,541 | 87,173 | ||||||
|
Investment in real estate ventures, at equity
|
84,372 | 75,458 | ||||||
|
Deferred costs, net
|
106,117 | 106,097 | ||||||
|
Intangible assets, net
|
97,462 | 105,163 | ||||||
|
Notes receivable
|
18,205 | 59,008 | ||||||
|
Other assets
|
54,697 | 53,358 | ||||||
|
|
||||||||
|
|
||||||||
|
Total assets
|
$ | 4,690,378 | $ | 4,663,750 | ||||
|
|
||||||||
|
|
||||||||
|
LIABILITIES AND BENEFICIARIES’ EQUITY
|
||||||||
|
Mortgage notes payable
|
$ | 711,789 | $ | 551,720 | ||||
|
Borrowing under credit facilities
|
183,000 | 92,000 | ||||||
|
Unsecured term loan
|
183,000 | 183,000 | ||||||
|
Unsecured senior notes, net of discounts
|
1,352,657 | 1,627,857 | ||||||
|
Accounts payable and accrued expenses
|
72,235 | 88,599 | ||||||
|
Distributions payable
|
22,623 | 21,799 | ||||||
|
Deferred income, gains and rent
|
121,552 | 103,367 | ||||||
|
Acquired lease intangibles, net
|
29,233 | 37,087 | ||||||
|
Other liabilities
|
36,515 | 36,581 | ||||||
|
|
||||||||
|
Total liabilities
|
2,712,604 | 2,742,010 | ||||||
|
Commitments and contingencies (Note 22)
|
||||||||
|
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 2010 and 2009, respectively
|
20 | 20 | ||||||
|
7.375% Series D Preferred Shares, $0.01 par value; issued and outstanding-
2,300,000 in 2010 and 2009, respectively
|
23 | 23 | ||||||
|
Common Shares of Brandywine Realty Trust’s beneficial interest, $0.01 par value; shares
authorized 200,000,000; 134,601,796 and 128,849,176 issued in 2010 and 2009, respectively
and 134,485,117 and 128,597,412 outstanding in 2010 and 2009, respectively
|
1,343 | 1,286 | ||||||
|
Additional paid-in capital
|
2,671,217 | 2,610,421 | ||||||
|
Deferred compensation payable in common stock
|
5,774 | 5,549 | ||||||
|
Common shares in treasury,
at cost, 116,679 and 251,764
in 2010 and 2009,
respectively
|
(3,074 | ) | (7,205 | ) | ||||
|
Common shares in grantor trust, 291,281 in 2010 and 255,700 in 2009
|
(5,774 | ) | (5,549 | ) | ||||
|
Cumulative earnings
|
483,439 | 501,384 | ||||||
|
Accumulated other comprehensive loss
|
(1,945 | ) | (9,138 | ) | ||||
|
Cumulative distributions
|
(1,301,521 | ) | (1,213,359 | ) | ||||
|
|
||||||||
|
Total Brandywine Realty Trust’s equity
|
1,849,502 | 1,883,432 | ||||||
|
Non-controlling interests
|
128,272 | 38,308 | ||||||
|
|
||||||||
|
Total equity
|
1,977,774 | 1,921,740 | ||||||
|
|
||||||||
|
|
||||||||
|
Total liabilities and equity
|
$ | 4,690,378 | $ | 4,663,750 | ||||
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 3
Table of Contents
BRANDYWINE REALTY TRUST
(in thousands, except share and per share information)
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Revenue:
|
||||||||||||
|
Rents
|
$ | 466,199 | $ | 472,770 | $ | 476,249 | ||||||
|
Tenant reimbursements
|
78,774 | 78,197 | 76,617 | |||||||||
|
Termination fees
|
5,766 | 3,601 | 4,800 | |||||||||
|
Third party management fees, labor reimbursement and leasing
|
11,830 | 17,151 | 20,401 | |||||||||
|
Other
|
4,328 | 3,339 | 2,865 | |||||||||
|
|
||||||||||||
|
Total revenue
|
566,897 | 575,058 | 580,932 | |||||||||
|
|
||||||||||||
|
Operating Expenses:
|
||||||||||||
|
Property operating expenses
|
170,151 | 165,171 | 158,073 | |||||||||
|
Real estate taxes
|
54,444 | 57,093 | 57,561 | |||||||||
|
Third party management expenses
|
5,866 | 7,996 | 8,965 | |||||||||
|
Depreciation and amortization
|
212,775 | 205,863 | 199,447 | |||||||||
|
General and administrative expenses
|
23,306 | 20,821 | 23,002 | |||||||||
|
Provision for impairment on land inventory
|
— | — | 10,841 | |||||||||
|
|
||||||||||||
|
Total operating expenses
|
466,542 | 456,944 | 457,889 | |||||||||
|
|
||||||||||||
|
Operating income
|
100,355 | 118,114 | 123,043 | |||||||||
|
Other Income (Expense):
|
||||||||||||
|
Interest income
|
3,222 | 2,499 | 1,839 | |||||||||
|
Interest expense
|
(132,640 | ) | (135,740 | ) | (146,646 | ) | ||||||
|
Interest expense — amortization of deferred financing costs
|
(3,770 | ) | (5,864 | ) | (5,450 | ) | ||||||
|
Recognized hedge activity
|
— | (916 | ) | — | ||||||||
|
Equity in income of real estate ventures
|
5,305 | 4,069 | 8,447 | |||||||||
|
(Loss) gain on early extinguishment of debt
|
(2,110 | ) | 23,177 | 18,105 | ||||||||
|
|
||||||||||||
|
Income (loss) from continuing operations
|
(29,638 | ) | 5,339 | (662 | ) | |||||||
|
Discontinued operations:
|
||||||||||||
|
Income from discontinued operations
|
1,021 | 5,212 | 17,564 | |||||||||
|
Net (loss) gain on disposition of discontinued operations
|
11,011 | 1,238 | 28,473 | |||||||||
|
Provision for impairment
|
— | (3,700 | ) | (6,850 | ) | |||||||
|
|
||||||||||||
|
Total discontinued operations
|
12,032 | 2,750 | 39,187 | |||||||||
|
|
||||||||||||
|
Net income (loss)
|
(17,606 | ) | 8,089 | 38,525 | ||||||||
|
Net (income) loss from discontinued operations attributable to non-
controlling interests — LP units
|
(255 | ) | (45 | ) | (1,478 | ) | ||||||
|
Net income attributable to non-controlling interests — partners’ share
of consolidated real estate ventures
|
— | (30 | ) | (127 | ) | |||||||
|
Net (income) loss from continuing operations attributable to
non-controlling interests — LP units
|
787 | 12 | 297 | |||||||||
|
|
||||||||||||
|
Net (income) loss attributable to non-controlling interests
|
532 | (63 | ) | (1,308 | ) | |||||||
|
|
||||||||||||
|
Net income (loss) attributable to Brandywine Realty Trust
|
(17,074 | ) | 8,026 | 37,217 | ||||||||
|
Distribution to Preferred Shares
|
(7,992 | ) | (7,992 | ) | (7,992 | ) | ||||||
|
Amount allocated to unvested restricted shareholders
|
(512 | ) | (279 | ) | (763 | ) | ||||||
|
|
||||||||||||
|
Net income (loss) attributable to Common Shareholders of
Brandywine Realty Trust
|
$ | (25,578 | ) | $ | (245 | ) | $ | 28,462 | ||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic earnings per Common Share:
|
||||||||||||
|
Continuing operations
|
$ | (0.28 | ) | $ | (0.02 | ) | $ | (0.11 | ) | |||
|
Discontinued operations
|
0.09 | 0.02 | 0.43 | |||||||||
|
|
||||||||||||
|
|
$ | (0.19 | ) | $ | — | $ | 0.32 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Diluted earnings per Common Share:
|
||||||||||||
|
Continuing operations
|
$ | (0.28 | ) | (0.02 | ) | $ | (0.11 | ) | ||||
|
Discontinued operations
|
0.09 | 0.02 | 0.43 | |||||||||
|
|
||||||||||||
|
|
$ | (0.19 | ) | $ | — | $ | 0.32 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic weighted average shares outstanding
|
131,743,275 | 111,898,045 | 87,574,423 | |||||||||
|
|
||||||||||||
|
Diluted weighted average shares outstanding
|
131,743,275 | 113,251,291 | 87,583,163 | |||||||||
|
|
||||||||||||
|
Net income (loss) attributable to Brandywine Realty Trust
|
||||||||||||
|
Income (loss) from continuing operations
|
$ | (28,851 | ) | $ | 5,321 | $ | (492 | ) | ||||
|
Income (loss) from discontinued operations
|
11,777 | 2,705 | 37,709 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net income (loss)
|
$ | (17,074 | ) | $ | 8,026 | $ | 37,217 | |||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 4
Table of Contents
BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(in thousands)
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Net income (loss)
|
$ | (17,606 | ) | $ | 8,089 | $ | 38,525 | |||||
|
|
||||||||||||
|
Comprehensive income:
|
||||||||||||
|
Unrealized gain on derivative financial instruments
|
7,320 | 7,395 | (15,288 | ) | ||||||||
|
Ineffectiveness of the hedges
|
— | (125 | ) | — | ||||||||
|
Reclassification of realized (gains)/losses on derivative financial
instruments to operations, net
|
28 | (184 | ) | (80 | ) | |||||||
|
Unrealized gain (loss) on available-for-sale securities
|
— | — | 248 | |||||||||
|
|
||||||||||||
|
Total comprehensive income
|
7,348 | 7,086 | (15,120 | ) | ||||||||
|
|
||||||||||||
|
Comprehensive income (loss)
|
(10,258 | ) | 15,175 | 23,405 | ||||||||
|
|
||||||||||||
|
Comprehensive (income) loss attributable to non-controlling interest
|
377 | (63 | ) | (1,308 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Comprehensive income (loss) attributable to Brandywine Realty Trust
|
$ | (9,881 | ) | $ | 15,112 | $ | 22,097 | |||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 5
Table of Contents
BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF BENEFICIARIES’ EQUITY
For the Years Ended December 31, 2010, 2009 and 2008
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except number of shares)
| Number of Rabbi | Common Shares of | Deferred | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Par Value of | Number of | Par Value of | Trust/Deferred | Brandywine Realty | Compensation | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred C | Preferred C | Preferred D | Preferred D | Number of | Number of | Compensation | Trust’s beneficial | Additional Paid-in | Common Shares in | Payable in | Common Shares in | Cumulative | Comprehensive | Cumulative | Non-Controlling | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Shares | Shares | Shares | Common Shares | Treasury Shares | Shares | interest | Capital | Treasury | Common Stock | Grantor Trust | Earnings | Income (Loss) | Distributions | Interests | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2007
|
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
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 | (8,322 | ) | (27,059 | ) | (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
|
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
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 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
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 Interest
|
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 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
(17,074 | ) | (532 | ) | (17,606 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Comprehensive income
|
7,193 | 155 | 7,348 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance of Common Shares of Beneficial Interest
|
5,742,268 | 57 | 71,924 | 71,981 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Equity issuance costs
|
(1,214 | ) | (1,214 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance of LP Units
|
77,732 | 77,732 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Bonus Share Issuance
|
(32,607 | ) | 32,607 | 871 | 369 | (369 | ) | (502 | ) | 369 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Vesting of Restricted Stock
|
(76,598 | ) | 8,989 | (1,114 | ) | 2,304 | 103 | (103 | ) | (1,417 | ) | (227 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted Stock Amortization
|
3,483 | 3,483 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted Performance Units Amortization
|
965 | 965 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion of LP Units to Common Shares
|
(17,468 | ) | 732 | (266 | ) | (466 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Share Issuance from/to Deferred Compensation Plan
|
(2,409 | ) | (9,035 | ) | (282 | ) | 282 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Stock Option Amortization
|
1,131 | 1,131 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Outperformance Plan Amortization
|
380 | 380 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Trustee Fees Paid in Shares
|
(8,412 | ) | 3,020 | 224 | 35 | (35 | ) | (125 | ) | 99 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of Options
|
12,761 | 37 | 37 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Adjustment to Non-controlling Interest
|
(14,796 | ) | 14,796 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Cumulative Effect of Accounting Change for Variable Interest Entities
|
1,439 | (38 | ) | 1,401 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred Share distributions
|
(7,992 | ) | (7,992 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Distributions declared ($0.60 per share)
|
(80,170 | ) | (1,683 | ) | (81,853 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2010
|
2,000,000 | $ | 20 | 2,300,000 | $ | 23 | 134,601,796 | 116,679 | 291,281 | $ | 1,343 | $ | 2,671,217 | $ | (3,074 | ) | $ | 5,774 | $ | (5,774 | ) | $ | 483,439 | $ | (1,945 | ) | $ | (1,301,521 | ) | $ | 128,272 | $ | 1,977,774 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an intergral part of these consolidated financial statements.
F - 6
Table of Contents
BRANDYWINE REALTY TRUST
(in thousands)
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income (loss)
|
$ | (17,606 | ) | $ | 8,089 | $ | 38,525 | |||||
|
Adjustments to reconcile net income (loss) to net cash from operating activities:
|
||||||||||||
|
Depreciation
|
163,169 | 160,039 | 158,234 | |||||||||
|
Amortization:
|
||||||||||||
|
Deferred financing costs
|
3,770 | 5,864 | 5,450 | |||||||||
|
Amortization of debt discount/(premium), net
|
831 | 3,495 | 6,843 | |||||||||
|
Deferred leasing costs
|
21,516 | 18,037 | 16,561 | |||||||||
|
Acquired above (below) market leases, net
|
(5,960 | ) | (6,661 | ) | (8,104 | ) | ||||||
|
Assumed lease intangibles
|
30,091 | 32,387 | 40,663 | |||||||||
|
Deferred compensation costs
|
4,814 | 5,200 | 4,522 | |||||||||
|
Recognized hedge activity
|
— | 916 | — | |||||||||
|
Straight-line rent income
|
(13,705 | ) | (9,116 | ) | (16,543 | ) | ||||||
|
Straight-line ground rent expense
|
1,647 | 1,473 | 1,519 | |||||||||
|
Provision for doubtful accounts
|
2,479 | 5,371 | 6,769 | |||||||||
|
Provision for impairment on land inventory
|
— | — | 10,841 | |||||||||
|
Provision for impairment on discontinued operations
|
— | 3,700 | 6,850 | |||||||||
|
Real estate venture income in excess of cumulative distributions
|
(4,648 | ) | (2,512 | ) | (808 | ) | ||||||
|
Net loss (gain) on sale of interests in real estate
|
(11,011 | ) | (1,237 | ) | (28,473 | ) | ||||||
|
Loss (gain) on early extinguishment of debt
|
2,110 | (23,176 | ) | (18,105 | ) | |||||||
|
Cumulative interest accretion of repayments of unsecured notes
|
(3,433 | ) | (5,009 | ) | (435 | ) | ||||||
|
Contributions from historic tax credit transaction, net of deferred costs
|
27,396 | 23,763 | 7,952 | |||||||||
|
Contributions from new market tax credit transaction, net of deferred costs
|
— | — | 8,965 | |||||||||
|
Changes in assets and liabilities, net of acquisitions:
|
||||||||||||
|
Accounts receivable
|
(4,173 | ) | 3,746 | (1,631 | ) | |||||||
|
Other assets
|
(2,782 | ) | 2,373 | 3,683 | ||||||||
|
Accounts payable and accrued expenses
|
(7,980 | ) | (10,067 | ) | 2,491 | |||||||
|
Deferred income, gains and rents
|
(6,412 | ) | 3,059 | (1,164 | ) | |||||||
|
Other liabilities
|
5,014 | 671 | (10,738 | ) | ||||||||
|
|
||||||||||||
|
Net cash from operating activities
|
185,127 | 220,405 | 233,867 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Acquisition of properties
|
(50,681 | ) | — | — | ||||||||
|
Sales of properties, net
|
50,089 | 101,305 | 370,087 | |||||||||
|
Proceeds from repayment of mortgage notes receivable
|
40,000 | — | — | |||||||||
|
Capital expenditures
|
(180,943 | ) | (211,892 | ) | (146,583 | ) | ||||||
|
Advances for purchase of tenant assets, net of repayments
|
(1,715 | ) | — | — | ||||||||
|
Loan provided to an unconsolidated Real Estate Venture partner
|
(826 | ) | — | — | ||||||||
|
Investment in unconsolidated Real Estate Ventures
|
(5,180 | ) | (14,980 | ) | (934 | ) | ||||||
|
Escrowed cash
|
— | 31,385 | (31,385 | ) | ||||||||
|
Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income
|
2,205 | 13,062 | 2,311 | |||||||||
|
Decrease in cash due to the deconsolidation of variable interest entities
|
(1,382 | ) | — | — | ||||||||
|
Leasing costs
|
(23,503 | ) | (21,429 | ) | (29,450 | ) | ||||||
|
|
||||||||||||
|
Net cash used in investing activities
|
(171,936 | ) | (102,549 | ) | 164,046 | |||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Proceeds from Credit Facility borrowings
|
565,000 | 983,000 | 514,000 | |||||||||
|
Repayments of Credit Facility borrowings
|
(474,000 | ) | (1,044,000 | ) | (491,727 | ) | ||||||
|
Proceeds from mortgage notes payable
|
256,104 | 149,800 | — | |||||||||
|
Repayments of mortgage notes payable
|
(51,966 | ) | (84,102 | ) | (25,155 | ) | ||||||
|
Proceeds from unsecured term loan
|
— | — | 33,000 | |||||||||
|
Proceeds from unsecured notes
|
— | 247,030 | — | |||||||||
|
Repayments of unsecured notes
|
(276,270 | ) | (514,004 | ) | (260,088 | ) | ||||||
|
Net settlement of hedge transactions
|
— | (5,044 | ) | — | ||||||||
|
Debt financing costs
|
(595 | ) | (24,620 | ) | (278 | ) | ||||||
|
Refund of deferred financing costs related to forward commitment
|
1,659 | — | — | |||||||||
|
Net proceeds from issuance of shares
|
70,867 | 242,332 | — | |||||||||
|
Exercise of stock options
|
37 | — | — | |||||||||
|
Distributions paid to shareholders
|
(87,345 | ) | (68,914 | ) | (162,882 | ) | ||||||
|
Distributions to noncontrolling interest
|
(1,684 | ) | (1,691 | ) | (6,459 | ) | ||||||
|
|
||||||||||||
|
Net cash from (used in) financing activities
|
1,807 | (120,213 | ) | (399,589 | ) | |||||||
|
|
||||||||||||
|
Increase (decrease) in cash and cash equivalents
|
14,998 | (2,357 | ) | (1,676 | ) | |||||||
|
Cash and cash equivalents at beginning of period
|
1,567 | 3,924 | 5,600 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 16,565 | $ | 1,567 | $ | 3,924 | ||||||
|
|
||||||||||||
F - 7
Table of Contents
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Supplemental disclosure:
|
||||||||||||
|
Cash paid for interest, net of capitalized interest during the years ended December 31, 2010
2009 and 2008 of $10,385, $8,893 and $16,746, respectively
|
$ | 135,206 | $ | 139,636 | $ | 178,725 | ||||||
|
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 $12.9 million deferred gain
|
— | 9,600 | — | |||||||||
|
Settlement of note receivable through foreclosure of a parcel of land
|
(2,795 | ) | — | — | ||||||||
|
Debt assumed by the purchaser in the Northern California transaction
|
— | — | 95,300 | |||||||||
|
Proceeds from mortgage notes payable retained by lender and included in other assets (see Note 7)
|
396 | — | — | |||||||||
|
Change in capital expenditures financed through accounts payable at period end
|
(5,126 | ) | 7,086 | 9,029 | ||||||||
|
Change in capital expenditures financed through retention payable at period end
|
(2,066 | ) | 5,862 | (928 | ) | |||||||
|
Change in unfunded tenant allowance
|
— | 5,986 | — | |||||||||
|
Change in real estate investments due to the deconsolidation of variable interest entities
|
(37,126 | ) | — | — | ||||||||
|
Change in mortgage notes payable due to the deconsolidation of variable interest entities
|
(42,877 | ) | — | — | ||||||||
|
Change in non-controlling interest from issuance of limited partnership units (see Note 3)
|
77,733 | — | — | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 8
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit and per unit information)
| December 31, | December 31, | |||||||
| 2010 | 2009 | |||||||
|
ASSETS
|
||||||||
|
Real estate investments:
|
||||||||
|
Operating properties
|
$ | 4,834,111 | $ | 4,512,618 | ||||
|
Accumulated depreciation
|
(776,078 | ) | (716,956 | ) | ||||
|
|
||||||||
|
Operating real estate investments, net
|
4,058,033 | 3,795,662 | ||||||
|
Construction-in-progress
|
33,322 | 271,962 | ||||||
|
Land inventory
|
110,055 | 97,368 | ||||||
|
|
||||||||
|
Total real estate investments, net
|
4,201,410 | 4,164,992 | ||||||
|
|
||||||||
|
Cash and cash equivalents
|
16,565 | 1,567 | ||||||
|
Accounts receivable, net
|
16,009 | 10,934 | ||||||
|
Accrued rent receivable, net
|
95,541 | 87,173 | ||||||
|
Investment in real estate ventures, at equity
|
84,372 | 75,458 | ||||||
|
Deferred costs, net
|
106,117 | 106,097 | ||||||
|
Intangible assets, net
|
97,462 | 105,163 | ||||||
|
Notes receivable
|
18,205 | 59,008 | ||||||
|
Other assets
|
54,697 | 53,358 | ||||||
|
|
||||||||
|
|
||||||||
|
Total assets
|
$ | 4,690,378 | $ | 4,663,750 | ||||
|
|
||||||||
|
|
||||||||
|
LIABILITIES AND EQUITY
|
||||||||
|
Mortgage notes payable
|
$ | 711,789 | $ | 551,720 | ||||
|
Borrowing under credit facilities
|
183,000 | 92,000 | ||||||
|
Unsecured term loan
|
183,000 | 183,000 | ||||||
|
Unsecured senior notes, net of discounts
|
1,352,657 | 1,627,857 | ||||||
|
Accounts payable and accrued expenses
|
72,235 | 88,599 | ||||||
|
Distributions payable
|
22,623 | 21,799 | ||||||
|
Deferred income, gains and rent
|
121,552 | 103,367 | ||||||
|
Acquired lease intangibles, net
|
29,233 | 37,087 | ||||||
|
Other liabilities
|
36,515 | 36,581 | ||||||
|
|
||||||||
|
Total liabilities
|
2,712,604 | 2,742,010 | ||||||
|
|
||||||||
|
Commitments and contingencies (Note 22)
|
||||||||
|
Redeemable limited partnership units at redemption value;
9,902,752 and 2,809,108 issued and outstanding in 2010 and 2009, respectively |
132,855 | 44,620 | ||||||
|
|
||||||||
|
Brandywine Operating Partnership’s equity:
|
||||||||
|
7.50% Series D Preferred Mirror Units; issued and outstanding-
2,000,000 in 2010 and 2009, respectively
|
47,912 | 47,912 | ||||||
|
7.375% Series E Preferred Mirror Units; issued and outstanding-
2,300,000 in 2010 and 2009, respectively
|
55,538 | 55,538 | ||||||
|
General Partnership Capital, 134,601,796 and 128,849,176 units issued in 2010
and 2009, respectively and 134,485,117 and 128,597,412 units outstanding
in 2010 and 2009, respectively
|
1,743,549 | 1,783,033 | ||||||
|
Accumulated other comprehensive loss
|
(2,080 | ) | (9,428 | ) | ||||
|
|
||||||||
|
Total Brandywine Operating Partnership’s equity
|
1,844,919 | 1,877,055 | ||||||
|
Non-controlling interest — consolidated real estate ventures
|
— | 65 | ||||||
|
|
||||||||
|
Total Equity
|
1,844,919 | 1,877,120 | ||||||
|
|
||||||||
|
|
||||||||
|
Total liabilities and partners’ equity
|
$ | 4,690,378 | $ | 4,663,750 | ||||
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 9
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit and per unit information)
| For the year ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Revenue:
|
||||||||||||
|
Rents
|
$ | 466,199 | $ | 472,770 | $ | 476,249 | ||||||
|
Tenant reimbursements
|
78,774 | 78,197 | 76,617 | |||||||||
|
Termination fees
|
5,766 | 3,601 | 4,800 | |||||||||
|
Third party management fees, labor reimbursement and leasing
|
11,830 | 17,151 | 20,401 | |||||||||
|
Other
|
4,328 | 3,339 | 2,865 | |||||||||
|
|
||||||||||||
|
Total revenue
|
566,897 | 575,058 | 580,932 | |||||||||
|
|
||||||||||||
|
Operating Expenses:
|
||||||||||||
|
Property operating expenses
|
170,151 | 165,171 | 158,073 | |||||||||
|
Real estate taxes
|
54,444 | 57,093 | 57,561 | |||||||||
|
Third party management expenses
|
5,866 | 7,996 | 8,965 | |||||||||
|
Depreciation and amortization
|
212,775 | 205,863 | 199,447 | |||||||||
|
General & administrative expenses
|
23,306 | 20,821 | 23,002 | |||||||||
|
Provision for impairment on land inventory
|
— | — | 10,841 | |||||||||
|
|
||||||||||||
|
Total operating expenses
|
466,542 | 456,944 | 457,889 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Operating income
|
100,355 | 118,114 | 123,043 | |||||||||
|
|
||||||||||||
|
Other Income (Expense):
|
||||||||||||
|
Interest income
|
3,222 | 2,499 | 1,839 | |||||||||
|
Interest expense
|
(132,640 | ) | (135,740 | ) | (146,646 | ) | ||||||
|
Interest expense — Amortization of deferred financing costs
|
(3,770 | ) | (5,864 | ) | (5,450 | ) | ||||||
|
Recognized hedge activity
|
— | (916 | ) | — | ||||||||
|
Equity in income of real estate ventures
|
5,305 | 4,069 | 8,447 | |||||||||
|
(Loss) Gain on early extinguishment of debt
|
(2,110 | ) | 23,177 | 18,105 | ||||||||
|
|
||||||||||||
|
Income (loss) from continuing operations
|
(29,638 | ) | 5,339 | (662 | ) | |||||||
|
|
||||||||||||
|
Discontinued operations:
|
||||||||||||
|
Income from discontinued operations
|
1,021 | 5,212 | 17,564 | |||||||||
|
Net (loss) gain on disposition of discontinued operations
|
11,011 | 1,238 | 28,473 | |||||||||
|
Provision for impairment
|
— | (3,700 | ) | (6,850 | ) | |||||||
|
|
||||||||||||
|
|
12,032 | 2,750 | 39,187 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net income (loss)
|
(17,606 | ) | 8,089 | 38,525 | ||||||||
|
|
||||||||||||
|
Net income attributable to non-controlling interests
|
— | (30 | ) | (127 | ) | |||||||
|
|
||||||||||||
|
Net income (loss) attributable to Brandywine Operating Partnership
|
(17,606 | ) | 8,059 | 38,398 | ||||||||
|
Distribution to Preferred share dividends
|
(7,992 | ) | (7,992 | ) | (7,992 | ) | ||||||
|
Amount allocated to unvested restricted unitholders
|
(512 | ) | (279 | ) | (763 | ) | ||||||
|
|
||||||||||||
|
Net income (loss) attributable to Common Partnership Unitholders
Brandywine Operating Partnership
|
$ | (26,110 | ) | $ | (212 | ) | $ | 29,643 | ||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic earnings (loss) per Common Partnership Unit:
|
||||||||||||
|
Continuing operations
|
$ | (0.28 | ) | $ | (0.02 | ) | $ | (0.11 | ) | |||
|
Discontinued operations
|
0.09 | 0.02 | 0.43 | |||||||||
|
|
||||||||||||
|
|
$ | (0.19 | ) | $ | (0.00 | ) | $ | 0.32 | ||||
|
|
||||||||||||
|
|
||||||||||||
|
Diluted earnings (loss) per Common Partnership Unit:
|
||||||||||||
|
Continuing operations
|
$ | (0.28 | ) | $ | (0.02 | ) | $ | (0.11 | ) | |||
|
Discontinued operations
|
0.09 | 0.02 | 0.43 | |||||||||
|
|
||||||||||||
|
|
$ | (0.19 | ) | $ | (0.00 | ) | $ | 0.32 | ||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic weighted average common partnership units outstanding
|
137,454,796 | 114,712,869 | 90,391,044 | |||||||||
|
|
||||||||||||
|
Diluted weighted average common partnership units outstanding
|
137,454,796 | 116,066,115 | 90,399,784 | |||||||||
|
|
||||||||||||
|
Net income (loss) attributable to Brandywine Operating Partnership
|
||||||||||||
|
Income (loss) from continuing operations
|
$ | (29,638 | ) | $ | 5,309 | $ | (789 | ) | ||||
|
Income (loss) from discontinued operations
|
12,032 | 2,750 | 39,187 | |||||||||
|
|
||||||||||||
|
Net income (loss)
|
$ | (17,606 | ) | $ | 8,059 | $ | 38,398 | |||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 10
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| For the year ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Net income (loss)
|
$ | (17,606 | ) | $ | 8,089 | $ | 38,525 | |||||
|
|
||||||||||||
|
Comprehensive income:
|
||||||||||||
|
Unrealized gain on derivative financial instruments
|
7,320 | 7,395 | (15,288 | ) | ||||||||
|
Ineffectiveness of the hedges
|
— | (125 | ) | — | ||||||||
|
Reclassification of realized (gains)/losses on derivative financial
instruments to operations, net
|
28 | (184 | ) | (80 | ) | |||||||
|
Unrealized gain (loss) on available-for-sale securities
|
— | — | 248 | |||||||||
|
|
||||||||||||
|
Total comprehensive income
|
7,348 | 7,086 | (15,120 | ) | ||||||||
|
|
||||||||||||
|
Comprehensive income (loss)
|
(10,258 | ) | 15,175 | 23,405 | ||||||||
|
|
||||||||||||
|
Comprehensive (income) loss attributable to non-controlling interest
|
— | (30 | ) | (127 | ) | |||||||
|
|
||||||||||||
|
Comprehensive income (loss) attributable to Brandywine
Operating Partnership
|
$ | (10,258 | ) | $ | 15,145 | $ | 23,278 | |||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 11
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY
For the Years Ended December 31, 2010, 2009 and 2008
(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 Partners’ | |||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | Comprehensive Income | Estate Ventures | Equity | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2007
|
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 unitholder
|
— | — | — | — | — | (142,760 | ) | — | (155 | ) | (142,915 | ) | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2008
|
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 | ) | ||||||||||||||||||||||||
|
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 | 152 | — | — | 152 | |||||||||||||||||||||||||||
|
Adjustment of redeemable partnership units to liquidation value
at period end
|
— | — | — | — | — | 8,213 | — | — | 8,213 | |||||||||||||||||||||||||||
|
Adjustment to non-controlling interest
|
— | — | — | — | — | — | — | 35 | 35 | |||||||||||||||||||||||||||
|
Other
|
— | — | — | — | — | — | 491 | — | 491 | |||||||||||||||||||||||||||
|
Distributions to Preferred Mirror Units
|
— | — | — | — | — | (7,992 | ) | — | — | (7,992 | ) | |||||||||||||||||||||||||
|
Distributions to general partnership unitholder
|
— | — | — | — | — | (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 | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Net loss
|
— | — | — | — | — | (17,606 | ) | — | — | (17,606 | ) | |||||||||||||||||||||||||
|
Other comprehensive income
|
— | — | — | — | — | — | 7,348 | — | 7,348 | |||||||||||||||||||||||||||
|
Deferred compensation obligation
|
— | — | — | — | (2,409 | ) | — | — | — | — | ||||||||||||||||||||||||||
|
Issuance of LP Units
|
— | — | — | — | 5,742,268 | 71,981 | — | — | 71,981 | |||||||||||||||||||||||||||
|
Bonus share issuance
|
— | — | — | — | 32,607 | 369 | — | — | 369 | |||||||||||||||||||||||||||
|
Conversion of LP Units to common shares
|
— | — | — | — | 17,468 | 466 | — | — | 466 | |||||||||||||||||||||||||||
|
Vesting of restricted units
|
— | — | — | — | 76,598 | (227 | ) | — | — | (227 | ) | |||||||||||||||||||||||||
|
Restricted stock amortization
|
— | — | — | — | — | 3,483 | — | — | 3,483 | |||||||||||||||||||||||||||
|
Restricted performance units amortization
|
— | — | — | — | — | 965 | — | — | 965 | |||||||||||||||||||||||||||
|
Outperformance plan amortization
|
— | — | — | — | — | 380 | — | — | 380 | |||||||||||||||||||||||||||
|
Option amortization
|
— | — | — | — | — | 1,132 | — | — | 1,132 | |||||||||||||||||||||||||||
|
Trustee fees paid in shares
|
— | — | — | — | 8,412 | 98 | — | — | 98 | |||||||||||||||||||||||||||
|
Exercise of options
|
— | — | — | — | 12,761 | 37 | — | — | 37 | |||||||||||||||||||||||||||
|
Adjustment of redeemable partnership units to liquidation value
at period end
|
— | — | — | — | — | (13,839 | ) | — | — | (13,839 | ) | |||||||||||||||||||||||||
|
Adjustment to non-controlling interest
|
— | — | — | — | — | — | — | (27 | ) | (27 | ) | |||||||||||||||||||||||||
|
Cumulative effect of accounting change for variable interest entities
|
— | — | — | — | — | 1,439 | — | (38 | ) | 1,401 | ||||||||||||||||||||||||||
|
Distributions to Preferred Mirror Units
|
— | — | — | — | — | (7,992 | ) | — | — | (7,992 | ) | |||||||||||||||||||||||||
|
Distributions to general partnership unitholder
|
— | — | — | — | — | (80,170 | ) | — | — | (80,170 | ) | |||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2010
|
2,000,000 | $ | 47,912 | 2,300,000 | $ | 55,538 | 134,485,117 | $ | 1,743,549 | $ | (2,080 | ) | $ | — | $ | 1,844,919 | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 12
Table of Contents
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| For the year ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income (loss)
|
$ | (17,606 | ) | $ | 8,089 | 38,525 | ||||||
|
Adjustments to reconcile net income (loss) to net cash from operating activities:
|
||||||||||||
|
Depreciation
|
163,169 | 160,039 | 158,234 | |||||||||
|
Amortization:
|
||||||||||||
|
Deferred financing costs
|
3,770 | 5,864 | 5,450 | |||||||||
|
Amortization of debt discount/(premium), net
|
831 | 3,495 | 6,843 | |||||||||
|
Deferred leasing costs
|
21,516 | 18,037 | 16,561 | |||||||||
|
Acquired above (below) market leases, net
|
(5,960 | ) | (6,661 | ) | (8,104 | ) | ||||||
|
Assumed lease intangibles
|
30,091 | 32,387 | 40,663 | |||||||||
|
Deferred compensation costs
|
4,814 | 5,200 | 4,522 | |||||||||
|
Recognized hedge activity
|
— | 916 | — | |||||||||
|
Straight-line rent income
|
(13,705 | ) | (9,116 | ) | (16,543 | ) | ||||||
|
Straight-line ground rent expense
|
1,647 | 1,473 | 1,519 | |||||||||
|
Provision for doubtful accounts
|
2,479 | 5,371 | 6,769 | |||||||||
|
Provision for impairment on land inventory
|
— | — | 10,841 | |||||||||
|
Provision for impairment on discontinued operations
|
— | 3,700 | 6,850 | |||||||||
|
Real estate venture income in excess of cumulative distributions
|
(4,648 | ) | (2,512 | ) | (808 | ) | ||||||
|
Net loss (gain) on sale of interests in real estate
|
(11,011 | ) | (1,237 | ) | (28,473 | ) | ||||||
|
Loss (gain) on early extinguishment of debt
|
2,110 | (23,176 | ) | (18,105 | ) | |||||||
|
Cumulative interest accretion of repayments of unsecured notes
|
(3,433 | ) | (5,009 | ) | (435 | ) | ||||||
|
Contributions from historic tax credit transaction, net of deferred costs
|
27,396 | 23,763 | 7,952 | |||||||||
|
Contributions from new market tax credit transaction, net of deferred costs
|
— | — | 8,965 | |||||||||
|
Changes in assets and liabilities, net of acquisitions:
|
||||||||||||
|
Accounts receivable
|
(4,173 | ) | 3,746 | (1,631 | ) | |||||||
|
Other assets
|
(2,782 | ) | 2,373 | 3,683 | ||||||||
|
Accounts payable and accrued expenses
|
(7,980 | ) | (10,067 | ) | 2,491 | |||||||
|
Deferred income, gains and rents
|
(6,412 | ) | 3,059 | (1,164 | ) | |||||||
|
Other liabilities
|
5,014 | 671 | (10,738 | ) | ||||||||
|
|
||||||||||||
|
Net cash from operating activities
|
185,127 | 220,405 | 233,867 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Acquisition of properties
|
(50,681 | ) | — | — | ||||||||
|
Sales of properties, net
|
50,089 | 101,305 | 370,087 | |||||||||
|
Proceeds from repayment of mortgage notes receivable
|
40,000 | — | — | |||||||||
|
Capital expenditures
|
(180,943 | ) | (211,892 | ) | (146,583 | ) | ||||||
|
Advances for purchase of tenant assets, net of repayments
|
(1,715 | ) | — | — | ||||||||
|
Loan provided to an unconsolidated Real Estate Venture partner
|
(826 | ) | — | — | ||||||||
|
Investment in unconsolidated Real Estate Ventures
|
(5,180 | ) | (14,980 | ) | (934 | ) | ||||||
|
Escrowed cash
|
— | 31,385 | (31,385 | ) | ||||||||
|
Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income
|
2,205 | 13,062 | 2,311 | |||||||||
|
Decrease in cash due to the deconsolidation of variable interest entities
|
(1,382 | ) | — | — | ||||||||
|
Leasing costs
|
(23,503 | ) | (21,429 | ) | (29,450 | ) | ||||||
|
|
||||||||||||
|
Net cash used in investing activities
|
(171,936 | ) | (102,549 | ) | 164,046 | |||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Proceeds from Credit Facility borrowings
|
565,000 | 983,000 | 514,000 | |||||||||
|
Repayments of Credit Facility borrowings
|
(474,000 | ) | (1,044,000 | ) | (491,727 | ) | ||||||
|
Proceeds from mortgage notes payable
|
256,104 | 149,800 | — | |||||||||
|
Repayments of mortgage notes payable
|
(51,966 | ) | (84,102 | ) | (25,155 | ) | ||||||
|
Proceeds from unsecured term loan
|
— | — | 33,000 | |||||||||
|
Proceeds from unsecured notes
|
— | 247,030 | — | |||||||||
|
Repayments of unsecured notes
|
(276,270 | ) | (514,004 | ) | (260,088 | ) | ||||||
|
Net settlement of hedge transactions
|
— | (5,044 | ) | — | ||||||||
|
Debt financing costs
|
(595 | ) | (24,620 | ) | (278 | ) | ||||||
|
Refund of deferred financing costs related to forward commitment
|
1,659 | — | — | |||||||||
|
Net proceeds from issuance of operating units
|
70,867 | 242,332 | — | |||||||||
|
Exercise of unit options
|
37 | — | — | |||||||||
|
Distributions paid to preferred and common partnership unitholders
|
(89,029 | ) | (70,605 | ) | (169,341 | ) | ||||||
|
|
||||||||||||
|
Net cash from (used in) financing activities
|
1,807 | (120,213 | ) | (399,589 | ) | |||||||
|
|
||||||||||||
|
Increase (decrease) in cash and cash equivalents
|
14,998 | (2,357 | ) | (1,676 | ) | |||||||
|
Cash and cash equivalents at beginning of period
|
1,567 | 3,924 | 5,600 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 16,565 | $ | 1,567 | $ | 3,924 | ||||||
|
|
||||||||||||
F - 13
Table of Contents
| For the year ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Supplemental disclosure:
|
||||||||||||
|
Cash paid for interest, net of capitalized interest during the years ended December 31, 2010
2009 and 2008 of $10,385, $8,893 and $16,746, respectively
|
$ | 135,206 | $ | 139,636 | $ | 178,725 | ||||||
|
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 $12.9 million deferred gain
|
— | 9,600 | — | |||||||||
|
Settlement of note receivable through foreclosure of a parcel of land
|
(2,795 | ) | — | — | ||||||||
|
Debt assumed by the purchaser in the Northern California transaction
|
— | — | 95,300 | |||||||||
|
Proceeds from mortgage notes payable retained by lender and included in other assets (see Note 7)
|
396 | — | — | |||||||||
|
Change in capital expenditures financed through accounts payable at period end
|
(5,126 | ) | 7,086 | 9,029 | ||||||||
|
Change in capital expenditures financed through retention payable at period end
|
(2,066 | ) | 5,862 | (928 | ) | |||||||
|
Change in unfunded tenant allowance
|
— | 5,986 | — | |||||||||
|
Change in real estate investments due to the deconsolidation of variable interest entities
|
(37,126 | ) | — | — | ||||||||
|
Change in mortgage notes payable due to the deconsolidation of variable interest entities
|
(42,877 | ) | — | — | ||||||||
|
Change in non-controlling interest from issuance of limited partnership units (see Note 3)
|
77,733 | — | — | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 14
Table of Contents
BRANDYWINE REALTY TRUST AND
BRANDYWINE OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010, 2009 AND 2008
1.
ORGANIZATION OF THE PARENT COMPANY AND THE OPERATING PARTNERSHIP
The Parent Company is a self-administered and self-managed real estate investment trust (“REIT”)
that provides leasing, property management, development, redevelopment, acquisition and other
tenant-related services for a portfolio of office and industrial properties. The Parent Company
owns its assets and conducts its operations through the Operating Partnership and subsidiaries of
the Operating Partnership. The Parent Company is the sole general partner of the Operating
Partnership and, as of December 31, 2010, owned a 93.1% interest in the Operating Partnership. The
Parent Company’s common shares of beneficial interest are publicly traded on the New York Stock
Exchange under the ticker symbol “BDN”.
As of December 31, 2010, the Company owned 208 office properties, 20 industrial facilities and four
mixed-use properties (collectively, the “Properties”) containing an aggregate of approximately 25.6
million net rentable square feet. The Company also has a garage property under redevelopment.
Therefore, as of December 31, 2010, the Company owned 233 properties containing an aggregate of
25.6 million net rentable square feet. In addition, as of December 31, 2010, the Company owned
economic interests in 17 unconsolidated real estate ventures that contain approximately 6.5 million
net rentable square feet (collectively, the “Real Estate Ventures”). As of December 31, 2010, the
Company also owned approximately 509 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, Concord, Carlsbad and Rancho Bernardo, California. In addition to
managing properties that the Company owns, as of December 31, 2010, the Company was managing
approximately 7.8 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.
The Company conducts its third-party real estate management services business primarily through six
management companies (collectively, the “Management Companies”): Brandywine Realty Services
Corporation (“BRSCO”), BTRS, Inc. (“BTRS”), Brandywine Properties I Limited, Inc. (“BPI”), BDN
Brokerage, LLC (“BBL”), Brandywine Properties Management, L.P. (“BPM”) and Brandywine Brokerage
Services, LLC (“BBS”). Each of BRSCO, BTRS and BPI is a taxable REIT subsidiary. As of December 31,
2010, the Operating Partnership owns, directly and indirectly, 100% of each of BRSCO, BTRS, BPI,
BBL and BPM.
As of December 31, 2010, the Management Companies were managing properties containing an aggregate
of approximately 33.4 million net rentable square feet, of which approximately 25.6 million net
rentable square feet related to Properties owned by the Company and approximately 7.8 million net
rentable square feet related to properties owned by third parties and Real Estate Ventures.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain amounts have been reclassified in prior years to conform to the current year presentation
with no effect to previously reported net income and equity. The reclassifications are primarily
due to the treatment of sold properties as discontinued operations on the statement of operations
for all periods presented. Effective December 31, 2010, the Company is reflecting all deferred
income, gains, and rents that will be amortized to revenue as a separate line item in the
consolidated balance sheets and all liabilities that are expected to cash settle including security
deposits as other liabilities to conform to the current year presentation. The change in the
groupings of the liabilities combined deferred rents and income of $50.0 million and $47.4 million,
respectively, as of December 31, 2009, to the new line item “Deferred income, gains and rents” in
the consolidated balance sheets. The change in the groupings of the liabilities also increased
other liabilities in the consolidated balance sheets by $2.6 million as of December 31, 2009.
In addition, the Company changed $5.6 million from leasing costs to capital expenditures in the
investing section of the statement of cash flows for the year ended December 31, 2009. This change
had no effect on the subtotals within the consolidated statement of cash flows.
F - 15
Table of Contents
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 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 the limited partners neither have the ability to dissolve the entity nor 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 and impairments) 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, 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 were 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.
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 and any fixed-rate bargain renewal
periods. 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.
F - 16
Table of Contents
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).
During 2010, the Company recorded depreciation expense of $1.2 million related to projects
completed in prior years that were not closed out of the Company’s job cost system in a timely
manner. This resulted in the understatement of depreciation expense in the prior years. During the
years ended December 31, 2009 and 2008, depreciation expense was understated by $0.9 million and
$0.2 million, respectively. As these errors, both individually and in aggregate, were not material
to prior years’ consolidated financial statements and the impact of correcting this error in the
current year is not material to the Company’s full year consolidated financial statements, the
Company recorded the related adjustments in the current year.
Construction in Progress
Project costs directly associated with the development and construction of a real estate project
are capitalized as construction in progress. Construction in progress also includes costs related
to ongoing tenant improvement projects. 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 $3.4 million
in 2010, $3.9 million in 2009, $5.2 and million in 2008 and interest totaling $10.4 million in
2010, $8.9 million in 2009, and $16.7 million in 2008 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 - 17
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 Company’s impairment review for the year ended December 31, 2010, the Company determined
that no impairment charges were necessary. For the year ended December 31, 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 equal to management’s estimate of the then current
fair value. This property was sold in the second quarter of the prior year. The Company also
recorded an impairment charge 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.
The Company entered into development agreements related to two parcels of land under option for
ground lease that require the Company to commence development by December 31, 2012. If the Company
determines that it will not be able to start the construction by the date specified, or if the
Company determines development is not in its best economic interest and an extension of the
development period cannot be negotiated, the Company will have to write off all costs that it has
incurred in preparing these parcels of land for development amounting to $7.7 million as of
December 31, 2010.
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 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, 2010 and 2009, 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 $3.7 million and $11.6 million in 2010, respectively and $4.2 million and $12.2 million
in 2009, 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, which requires management’s judgments.
F - 18
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, cash contributions, less distributions and
impairments.
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 and the decline is 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 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.
The Company’s Broadmoor Joint Venture owns an office park in Austin, Texas which is currently
leased to a single tenant who is also a partner in the joint venture. The said tenant is also the
owner of the land which the joint venture currently leases under an existing ground lease
agreement. The office buildings’ lease renewals are currently under negotiation. Given the
current circumstances, the Company performed an impairment assessment of its investment in the
venture using probability weighted scenarios that include varying outcomes. The Company believes
that a market participant would assess the probabilities of these outcomes in the same fashion. In
evaluating the scenarios, the Company has determined that the fair value of its investment
marginally exceeded its carrying value and the investment is not impaired at December 31, 2010.
However, given the lease has not yet been executed and the negotiations of specific terms of the
lease are ongoing, the ultimate outcome is uncertain and could cause an impairment of the Company’s
investment that could be material.
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 using 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 on a basis that
approximates the effective interest method.
F - 19
Table of Contents
Other Assets
Other assets is comprised of the following as of December 31, 2010:
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
|
||||||||
|
Prepaid Ground Rent
|
$ | 7,704 | $ | 7,733 | ||||
|
Prepaid Real Estate Taxes
|
7,648 | 7,492 | ||||||
|
Rent inducements, net
|
6,262 | 6,680 | ||||||
|
Cash surrender value of life insurance
|
8,128 | 6,498 | ||||||
|
Restricted cash
|
4,029 | 5,632 | ||||||
|
Marketable securities
|
2,614 | 2,798 | ||||||
|
Prepaid insurance
|
2,432 | 2,747 | ||||||
|
Furniture, fixtures and equipment
|
1,613 | 2,664 | ||||||
|
Deposits on future settlements
|
2,035 | 1,108 | ||||||
|
Others
|
12,232 | 10,006 | ||||||
|
|
||||||||
|
Total
|
$ | 54,697 | $ | 53,358 | ||||
|
|
||||||||
Notes Receivable
As of December 31, 2010, notes receivable included a $7.4 million purchase money mortgage with a 20
year amortization period that bears interest at 8.5%, and a $22.9 million (including accrued but
unpaid interest) seven year purchase money mortgage (due 2016) that bears interest at approximately
6% cash pay/7.64% accrual. The $22.9 million notes receivable is related to the sale of the two
Trenton properties in the prior 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. In December 2010, the Company also extended a loan to one of its unconsolidated
Real Estate Venture partners. The said loan bears interest at 10% and will be due including the
accrued interest in 2015.
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% and a $22.5 million seven year purchase
money mortgage (due 2016) that bears interest at approximately 6% cash pay/7.64% accrual. See
related discussion about the Trenton Note above.
The Company periodically assesses the collectibility of the notes receivable in accordance with the
accounting standard for loan receivables. On December 29, 2010, the Company foreclosed on one of
its note receivables amounting to $2.8 million (See Note 3 for related discussion). Except for the
foreclosed note receivables in the current year, there were no other collectibility issues noted as
of December 31, 2010 and 2009.
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 $10.9 million in 2010, $6.4 million in 2009, and $14.0 million
in 2008. 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 $2.8 million in 2010, $2.7 million in 2009, and $2.5 million in 2008. 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 $1.5 million in 2010, $1.8 million in 2009, and $0.8 million in 2008.
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.
F - 20
Table of Contents
No tenant represented greater than 10% of the Company’s rental revenue in 2010, 2009 or 2008.
Income Taxes
Parent Company
The Parent 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 order to continue to qualify as a REIT,
the Parent Company is required to, among other things, distribute at least 90% of its annual REIT
taxable income to its shareholders and meet certain tests regarding the nature of its income and
assets. As a REIT, the Parent Company is not subject to federal and state income taxes with respect
to the portion of its income that meets certain criteria and is distributed annually to its
shareholders. Accordingly, no provision for federal and state income taxes is included in the
accompanying consolidated financial statements with respect to the operations of the Parent
Company. The Parent Company intends to continue to operate in a manner that allows it to meet the
requirements for taxation as a REIT. If the Parent Company fails to qualify as a REIT in any
taxable year, it will be subject to federal and state income taxes and may not be able to qualify
as a REIT for the four subsequent tax years. The Parent Company is subject to certain local income
taxes. Provision for such taxes has been included in general and administrative expenses in the
Parent Company’s Consolidated Statements of Operations and Comprehensive Income.
The tax basis of the Parent Company’s assets was $4.5 billion as of December 31, 2010 and $4.6
billion as of December 31, 2009.
The Parent 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 Parent Company’s ordinary income and (b) 95% of the Parent
Company’s net capital gain exceeds cash distributions and certain taxes paid by the Parent Company.
No excise tax was incurred in 2010, 2009, or 2008.
The Parent Company has elected to treat several of its subsidiaries as taxable REIT subsidiaries
(each a “TRS”). A TRS is subject to federal, state and local income tax. In general, a TRS may
perform non-customary services for tenants, hold assets that the Parent Company, as a REIT, cannot
hold directly and generally may engage in any real estate or non-real estate related business.
Operating Partnership
In general, the Operating Partnership is not subject to federal and state income taxes, and
accordingly, no provision for income taxes has been made in the accompanying consolidated financial
statements. The partners of the Operating Partnership are required to include their respective
share of the Operating Partnership’s profits or losses in their respective tax returns. The
Operating 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 the Operating Partnership profits or losses, then the tax liability of the partners
would be changed accordingly.
The tax basis of the Operating Partnership’s assets was $4.5 billion as of December 31, 2010
and $4.6 billion as of December 31, 2009.
The Operating 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 Operating Partnership’s ordinary income and (b) 95% of the
Operating Partnership’s net capital gain exceeds cash distributions and certain taxes paid by the
Operating Partnership. No excise tax was incurred in 2010, 2009, or 2008.
The Operating Partnership has elected to treat several of its subsidiaries as REITs under Sections
856 through 860 of the Code. Each subsidiary REIT has met the requirements for treatment as a REIT
under Sections 856 through 860 of the Code, and, accordingly, no provision has been made for
federal and state income taxes in the accompanying consolidated financial statements. If any
subsidiary REIT fails to qualify as a REIT in any taxable year, that subsidiary REIT will be
subject to federal and state income taxes and may not be able to qualify as a REIT for the four
subsequent taxable years. Also, each subsidiary REIT may be subject to certain local income taxes.
The Operating Partnership has elected to treat several of its subsidiaries as taxable TRSs, which
are subject to federal, state and local income tax.
F - 21
Table of Contents
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. As of December 31, 2010
and 2009, the total number of treasury shares outstanding was 116,679 shares and 251,764 shares,
respectively.
Stock-Based Compensation Plans
The Parent 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 Parent 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. On June
2, 2010, the Parent Company’s shareholders approved amendments to the 1997 Plan that, among other
things, increased the number of common shares available for future awards under the 1997 Plan by
6,000,000 (of which 3,600,000 shares are available solely for options and share appreciation
rights). As of December 31, 2010, 6.7 million common shares remained available for future awards
under the 1997 Plan (including those shares available solely for options and share appreciation
rights). Through December 31, 2010, all options awarded under the 1997 Plan had a one to ten-year
term.
The Company incurred stock-based compensation expense of $4.8 million during 2010, of which $1.3
million was capitalized as part of the Company’s review of employee salaries eligible for
capitalization. The Company recognized stock-based compensation expense of $4.5 million in 2009, of
which $0.8 million had been capitalized and $4.6 million in 2008. 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.
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 while the ineffective portions are recognized in earnings. 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. 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.
F - 22
Table of Contents
Fair Value Measurements
The Company estimates the fair value of its outstanding derivatives and
available-for-sale-securities in accordance with the accounting standard for fair value
measurements and disclosures. The accounting standard 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; and
|
| • |
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, 2010:
| Fair Value Measurements at Reporting | ||||||||||||||||
| Date Using: | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Unobservable | ||||||||||||||
| December 31, | Identical Assets | Observable Inputs | Inputs | |||||||||||||
| Description | 2010 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
|
Recurring
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Available-for-Sale Securities
|
$ | 248 | $ | 248 | $ | — | $ | — | ||||||||
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 - 23
Table of Contents
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, 2010.
Accounting Pronouncements Adopted During 2010
In January 2010, the FASB issued a new accounting standard for distributions to stockholders with
components of stock and cash. The guidance clarifies that in calculating earnings per share, an
entity should account for the stock portion of the distribution as a stock issuance and not as a
stock dividend. The new standard is effective for fiscal years and interim periods ending after
December 15, 2009, and should be applied on a retrospective basis. The Company’s adoption of the
new standard did not have a material impact on its consolidated financial position or results of
operations, as no distributions were paid with stock.
In January 2010, the FASB issued an amendment to the accounting standard for fair value
measurements and disclosures. The amendment clarifies and provides additional disclosure
requirements related to recurring and non-recurring fair value measurements. Specifically, the
guidance revises two disclosure requirements concerning fair value measurements and clarifies two
others. It requires separate presentation of significant transfers into and out of Levels 1 and 2
of the fair value hierarchy and disclosure of the reasons for such transfers. Also, it requires the
presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather
than on a net basis. The amendments clarify that disclosures should be disaggregated by class of
asset or liability and that disclosures about inputs and valuation techniques should be provided
for both recurring and non-recurring fair value measurements. This amendment is effective for
fiscal years and interim periods ending after December 15, 2009. The Company’s adoption of the new
standard did not have a material impact on its consolidated financial position or results of
operations.
In December 2009, the FASB issued a new accounting standard governing transfer of financial assets.
This new standard is a revision to the existing accounting standard for the transfer and servicing
of financial assets and amends the guidance on accounting for transfers of financial assets,
including securitization transactions, where entities have continued exposure to risks related to
transferred financial assets. The new accounting standard also expands the disclosure requirements
for such transactions. This amendment is effective for fiscal years beginning after November 15,
2009. The Company’s adoption of the new standard did not have a material impact on its consolidated
financial position or results of operations.
In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the
consolidation of VIEs. The elimination of the concept of a qualifying special-purpose entity (QSPE)
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 was adopted on
January 1, 2010 and applied prospectively.
F - 24
Table of Contents
As a result of the adoption of the amendment to the accounting and disclosure requirements for the
consolidation of VIEs, the Company has determined that it will no longer consolidate three of the
VIEs that it has previously consolidated. In reaching its conclusion, the Company considered the
requirements provided by the accounting standard to qualitatively assess if the Company was the
primary beneficiary of the VIEs based on whether the Company had (i) the power to direct those
matters that most significantly impacted the activities of the VIE and (ii) the obligation to
absorb losses or the right to receive benefits of the VIE that could potentially be significant to
the VIE. The Company’s consideration included an assessment of each of the entities with which it
has involvement and review of applicable documents such as, but not limited to applicable
partnership agreements, real estate venture agreements, LLC agreements, management and leasing
agreements. As of January 1, 2010, the Company held interests in 17 real
estate ventures, 15 of which are unconsolidated and two of which the Company continues to
consolidate. The Company’s basis in reaching its conclusion for these entities is provided below:
Previously Consolidated:
Four Tower Bridge and Six Tower Bridge Ventures
Each of the Four Tower Bridge and Six Tower Bridge Real Estate Ventures was formed as a limited
partnership to own and manage an office property located in Conshohocken, Pennsylvania. The
Company entered into these ventures with two other partners during 1997 and 1998, respectively.
The other partner in Four Tower Bridge owns a 35% interest in the partnership entity and the other
partner in Six Tower Bridge owns a 37% interest in the partnership entities. These Real Estate
Ventures were determined to be VIEs and were previously consolidated in the Company’s financial
statements in accordance with the amended accounting standard for the consolidation of VIEs. The
Real Estate Ventures were determined to be VIEs due to insufficient equity at the latest
reconsideration event. However, upon the Company’s adoption of the new accounting standard on
January 1, 2010, the Company has determined that it will no longer consolidate these Real Estate
Ventures after it was determined that the partners have shared power in the ventures and no related
party considerations were identified. All significant decisions are approved by both partners in
the venture. Accordingly, based on the Company’s analysis, the Company deconsolidated these two
Real Estate Ventures in accordance with the new accounting standard.
Coppell Associates
Coppell Associates is a Real Estate Venture that owns one property in Austin, Texas. The Company
entered into this venture with another partner which owns a 50% interest in the partnership. This
Real Estate Venture is a VIE and was previously consolidated in the Company’s financial statements
in accordance with the amended accounting standard for the consolidation of VIEs. The venture was
determined to be a VIE due to insufficient equity at the latest reconsideration event. However,
upon the Company’s adoption of the new accounting standard on January 1, 2010, the Company has
determined that it will no longer consolidate this Real Estate Venture after it concluded that the
partners have shared power in the venture. All significant decisions are approved by both partners
in the venture. Accordingly, based upon the Company’s analysis, the Company deconsolidated this
Real Estate Venture in accordance with the new accounting standard.
VIEs that Continue to be Consolidated:
Projects Related to the Company’s Tax Credit Transactions
During 2008, the Company closed two transactions with US Bancorp (“USB”) related to the historic
rehabilitation of the 30th Street Post Office now known as the Internal Revenue Service (“IRS”)
Philadelphia Campus and the Cira South Garage both located in Philadelphia, Pennsylvania. The real
estate ventures created to facilitate the tax credit transactions were considered as VIEs because
the equity investment at risk is not sufficient to permit the entities to receive the tax credits
without the financial support from USB or because the rights to determine the significant decisions
are not vested in the equity. The Company has also concluded that it is the primary beneficiary of
the IRS Philadelphia Campus and the Cira South Garage 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 said
entities and, accordingly, by design has substantially all the risks of the entities. Please refer
to Note 18 for a detailed discussion of these transactions as well as the amount of deferred income
related to these VIEs that the Company has included in its consolidated balance sheets. There were
no other significant amounts included in the Company’s consolidated balance sheet related to these
entities as the related amounts were eliminated during consolidation.
Other VIEs:
PJP VII
The Company holds a 25% interest in a Real Estate Venture that it entered into with two other
partners. One of the other partners holds a 50% interest in the venture while the other partner
holds a 25% interest. This venture is considered a VIE due to the fact that at the last
reconsideration event, it entered into a construction loan to fund the building construction of the
property and it was determined that there was insufficient equity in the joint venture. In
addition, this loan has not been refinanced as of December 31, 2010 and the Company guarantees $0.7
million or 8.75% of the total construction note. It is expected that this entity will remain a VIE
until the venture refinances the construction loan into a permanent financing. It was determined
that the Company does not have the power to direct the significant economic activities of the Real
Estate Venture in accordance with the standard and as a result is not the primary beneficiary of
this real estate venture.
F - 25
Table of Contents
Residence Inn Hotel
The Company holds a 50% interest in a Real Estate Venture that owns a Residence Inn Hotel located
in Conshohocken, Pennsylvania. This Real Estate Venture has two other partners, one of which holds
a 46.4% interest and the other holds a 3.6% interest. The Real Estate Venture was considered as a
VIE in accordance with the amended accounting standard for the consolidation of VIEs due to the
participating rights of the non-equity holder hotel manager. However, the Company has determined
that the partners have shared power in the venture. All significant decisions are approved by all
partners in the venture. Accordingly this Real Estate Venture was not consolidated in the financial
statements of the Company. Upon the adoption of the new accounting standard, the Company still has
the same determination that it does not have the power to control the business of the Real Estate
Venture and that it is still appropriate to account for this venture under the equity method of
accounting.
G&I VI Interchange Office LLC
The Company holds a 20% interest in a Real Estate Venture that owns a portfolio of 29 office
properties located in Montgomery, Bucks, and Lehigh counties in Pennsylvania. The other partner in
this venture holds an 80% ownership interest. The Real Estate Venture was considered as a VIE in
accordance with the amended accounting standard for the consolidation of VIEs. The venture
continues to be determined a VIE due to the disproportionate voting rights. The Company has
determined that it is not the primary beneficiary of the venture. Accordingly, this Real Estate
Venture was not consolidated in the financial statements of the Company. Upon the adoption of the
new accounting standard, the Company still has the same determination that it does not have the
power to control the business of the Real Estate Venture and that it is still appropriate to
account for this venture under the equity method of accounting.
Seven Tower Bridge
The Company has a 10% direct limited partnership ownership interest and a 20% ownership in a REIT
that has 50% ownership in a Real Estate Venture that anticipates developing a suburban office
building in Conshohocken, Pennsylvania. There are three other partners in this venture holding
ownership interests of 50%, 20%, and 20%, respectively. This venture is considered a VIE as the
property is under development and there is insufficient equity to fund the construction. The
Company has determined that it is not the primary beneficiary of the venture. Accordingly, this
Real Estate Venture was not consolidated in the financial statements of the Company. Upon the
adoption of the new accounting standard, the Company still has the same determination that it does
not have the power to control the business of the Real Estate Venture and that it is still
appropriate to account for this venture under the equity method of accounting.
Other Unconsolidated Real Estate Ventures
In accordance with the Company’s adoption of the accounting standard for the consolidation of VIEs,
it was determined that the Company would not consolidate the Real Estate Ventures below based on
the evaluation of the substantive participating rights of the partners in each venture under the
voting interest model:
| • |
Two Tower Bridge (Company as co-General Partner with 35% Ownership Interest)
|
| • |
Eight Tower Bridge (Company as Limited Partner with 3% Preferred Equity Interest)
|
| • |
PJP Real Estate Ventures (Company as Operating Member with 25% to 30% Ownership
Interest)
|
| • |
Macquarie BDN Office LLC (Company as Operating Member with 20% Ownership Interest)
|
| • |
Broadmoor Joint Venture (Company as co-Managing Venturer with 50% Ownership Interest)
|
| • |
1000 Chesterbrook (Company as co-General Partner with 50% Ownership Interest)
|
The “other unconsolidated real estate ventures” described above are not VIEs as the other partners
in the ventures have either the substantive participating rights in the entities’ normal business
operations or the power to direct the activities is shared amongst the partners. As a result of
the Company’s review, it has concluded that it is appropriate to account for these entities as
unconsolidated Real Estate Ventures under the equity method of accounting.
Additional Considerations
The supporting real estate venture agreements of the entities listed above provided a
straightforward determination of whether the Company has control to direct the business activities
of the entities. Where the Company has concluded that control is shared, it is generally because
of at least one other partner and the Company must agree on decisions that are considered
significant. The Company has also determined that it is not the primary beneficiary in these
entities as it does not have the power to direct the activities that most significantly impact the
economic performance of these entities. Also, if shared control was determined and the Company was
considered to be a related party, the Company is not the party deemed to be the most closely
associated with the business. For entities that the Company has determined to be VIEs but for
which it is not the primary beneficiary, its maximum exposure to loss is
the carrying amount of its investments, as the Company has not provided any guarantees other than
the guarantee described for PJP VII which was approximately $0.7 million at December 31, 2010.
Also, for all entities determined to be VIEs, the Company does not provide financial support to the
real estate ventures through liquidity arrangements, guarantees or other similar commitments, other
than perhaps through its general partner standing.
F - 26
Table of Contents
In accordance with the Company’s adoption of the accounting standard as discussed in detail above,
the Company’s consolidated balance sheet as of January 1, 2010 has been reduced by the following
amounts as a result of deconsolidating the three VIEs (in thousands):
| Combined Balance Sheets | After Deconsolidation | |||||||||||
| Balance Sheet: | As Reported | of Deconsolidated VIEs | of VIEs | |||||||||
|
|
||||||||||||
|
Assets:
|
||||||||||||
|
Real estate investments, net
|
$ | 4,164,992 | $ | 37,288 | $ | 4,127,704 | ||||||
|
Cash and cash equivalents
|
1,567 | 1,438 | 129 | |||||||||
|
Receivables, net
|
98,107 | 1,627 | 96,480 | |||||||||
|
Deferred costs, net
|
106,097 | 1,662 | 104,435 | |||||||||
|
Other assets
|
292,987 | 2,644 | 290,343 | |||||||||
|
|
||||||||||||
|
Total assets
|
$ | 4,663,750 | $ | 44,659 | $ | 4,619,091 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Liabilities:
|
||||||||||||
|
Long-term debt
|
$ | 2,454,577 | $ | 43,027 | $ | 2,411,550 | ||||||
|
Accounts payable and accrued expenses
|
88,599 | 367 | 88,232 | |||||||||
|
Other liabilities
|
198,834 | 682 | 198,152 | |||||||||
|
|
||||||||||||
|
Total liabilities
|
2,742,010 | 44,076 | 2,697,934 | |||||||||
|
|
||||||||||||
|
Equity:
|
||||||||||||
|
Company’s equity
|
1,883,432 | 583 | 1,882,849 | |||||||||
|
Noncontrolling interests
|
38,308 | — | 38,308 | |||||||||
|
|
||||||||||||
|
Total Liabilities and Equity
|
$ | 4,663,750 | $ | 44,659 | $ | 4,619,091 | ||||||
|
|
||||||||||||
The difference between the net amount removed from the Company’s consolidated balance sheet and the
amount of the Company’s retained interest in the deconsolidated VIEs, amounting to $1.4 million,
was recognized as a cumulative effect of accounting change to cumulative earnings in the Company’s
consolidated balance sheets.
3.
REAL ESTATE INVESTMENTS
As of December 31, 2010 and 2009, the gross carrying value of the Company’s Properties was as
follows:
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Land
|
$ | 697,724 | $ | 690,441 | ||||
|
Building and improvements
|
3,693,579 | 3,393,498 | ||||||
|
Tenant improvements
|
442,808 | 428,679 | ||||||
|
|
||||||||
|
|
$ | 4,834,111 | $ | 4,512,618 | ||||
|
|
||||||||
Acquisitions and Dispositions
2010
On August 5, 2010, the Company acquired a 53 story Class A office tower at 1717 Arch Street (“Three
Logan Square”) in Philadelphia, Pennsylvania, together with related ground tenancy rights under a
long-term ground lease, from BAT Partners, L.P. Three Logan Square contains approximately 1.0
million of net rentable square feet and is currently 67.2% leased. The Company acquired Three
Logan Square for approximately $129.0 million funded through a combination of $51.2 million in cash
and the issuance of 7,111,112 units of limited partnership interest in the Operating Partnership
designated as “Class F (2010) Units.” The Class F (2010) units rank on parity with the Operating
Partnership’s Class A units as to distributions but do not begin to accrue distributions and are
not entitled to allocations of income or loss prior to August 5, 2011. Thereafter, the Class F
(2010) units will be entitled to receive the same distributions that the Parent Company pays on its
common shares. Total cash paid after the assumption of security deposit obligations of existing
tenants in the property of $0.9 million amounted to $50.3 million. The Company funded the cash
portion of the acquisition price through an advance under its $600.0 million Credit Facility (the
“Credit Facility”) and with available corporate funds. The assumed security deposit obligation is
included in other liabilities in the Company’s consolidated balance sheets.
F - 27
Table of Contents
For purposes of computing the total purchase price, the Class F (2010) Units were valued based on
the closing market price of the Parent Company’s common shares on the acquisition date of $11.54
less the annual dividend rate per share of $0.60 to reflect that these units do not begin to accrue
a dividend prior to August 5, 2011. The Class F (2010) Units issued are subject to redemption at
the option of the holder after the first anniversary of the acquisition. The Operating Partnership
may, at its option, satisfy the redemption either for an amount, per unit, of cash equal to the
market price of one of the Parent Company’s common shares (based on the five-day trading average
ending on the date of the exchange) or for one of the Parent Company’s common shares.
The Company accounted for the acquisition using the acquisition method of accounting. As discussed
in Note 2, the Company utilized a number of sources in making estimates of fair values for purposes
of allocating the purchase price to tangible and intangibles assets acquired and intangible
liabilities assumed. The purchase price is allocated as follows:
| August 5, | ||||
| 2010 | ||||
|
Building and tenant improvements
|
$ | 98,188 | ||
|
Intangible assets acquired
|
28,856 | |||
|
Below market lease liabilities assumed
|
(683 | ) | ||
|
|
||||
|
Total
|
$ | 126,361 | ||
|
|
||||
Intangible assets acquired and intangible liabilities assumed consist of the following (in
thousands):
| Weighted Average | ||||||||
| August 5, | Amortization Period | |||||||
| 2010 | (in years) | |||||||
|
Intangible assets:
|
||||||||
|
In-place lease value
|
$ | 13,584 | 3 | |||||
|
Tenant relationship value
|
8,870 | 5 | ||||||
|
Above market tenant leases acquired
|
895 | 1 | ||||||
|
Below market ground lease acquired
|
5,507 | 82 | ||||||
|
|
||||||||
|
Total
|
$ | 28,856 | 23 | |||||
|
|
||||||||
|
|
||||||||
|
Intangible liabilities:
|
||||||||
|
Below market leases acquired
|
$ | 683 | 1 | |||||
|
|
||||||||
The Company also recognized tenant and other receivables of $1.1 million and prepaid real estate
taxes of $1.5 million from the acquisition and both are included as part of the accounts receivable
and the other asset sections, respectively, of the Company’s consolidated balance sheets.
The Company recognized $0.4 million of acquisition related costs which are included as part of
general and administrative expenses of the Company’s consolidated statements of operations.
F - 28
Table of Contents
The operating results of the acquired property are included in the Company’s results of operations
from the acquisition date and are presented below (in thousands):
| For the period from August 5 | ||||
| to December 31, 2010 | ||||
|
Revenue:
|
||||
|
Rents
|
$ | 6,347 | ||
|
Tenant Reimbursements
|
933 | |||
|
Other
|
45 | |||
|
|
||||
|
Total revenue
|
$ | 7,325 | ||
|
|
||||
|
|
||||
|
Loss from operations (includes depreciation
and intangible asset amortization)
|
$ | (3,602 | ) | |
|
|
||||
The unaudited pro forma information below summarizes the Company’s combined results of operations
for the years ended December 31, 2010 and 2009 as though the acquisition of Three Logan Square was
completed on January 1, 2009. The supplemental pro forma operating data is not necessarily
indicative of what the actual results of operations would have been assuming the transaction had
been completed as set forth above, nor do they purport to represent the Company’s results of
operations for future periods (in thousands except for per share amounts).
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (unaudited) | ||||||||
|
Pro forma revenues
|
$ | 582,642 | $ | 604,440 | ||||
|
Pro forma income (loss) from continuing operations
|
(29,000 | ) | 7,890 | |||||
|
Pro forma net income (loss) available to common
shareholders
|
(24,940 | ) | 2,306 | |||||
|
|
||||||||
|
Earnings per common share from continuing operations:
|
||||||||
|
Basic — as reported
|
$ | (0.28 | ) | $ | (0.02 | ) | ||
|
|
||||||||
|
Basic — as pro forma
|
$ | (0.28 | ) | $ | — | |||
|
|
||||||||
|
|
||||||||
|
Diluted — as reported
|
$ | (0.28 | ) | $ | (0.02 | ) | ||
|
|
||||||||
|
Diluted — as pro forma
|
$ | (0.28 | ) | $ | — | |||
|
|
||||||||
|
|
||||||||
|
Earnings per common share:
|
||||||||
|
Basic — as reported
|
$ | (0.19 | ) | $ | — | |||
|
|
||||||||
|
Basic — as pro forma
|
$ | (0.19 | ) | $ | 0.02 | |||
|
|
||||||||
|
|
||||||||
|
Diluted — as reported
|
$ | (0.19 | ) | $ | — | |||
|
|
||||||||
|
Diluted — as pro forma
|
$ | (0.19 | ) | $ | 0.02 | |||
|
|
||||||||
As of December 31, 2010, two of the Company’s building properties located in King of Prussia,
Pennsylvania are currently undergoing demolition and the remaining land balances are presented as
land inventory in the Company’s consolidated balance sheets. The Company has determined that there
was a change in the estimated useful lives of the buildings resulting from the ongoing demolition
causing an acceleration of depreciation expense. During year ended December 31, 2010, the Company
recognized the
remaining net book value of the two buildings aggregating to $2.7 million as depreciation, with the
land amounts of $1.1 million being reclassified to land inventory for potential future development.
All related demolition costs are charged to earnings.
On December 29, 2010, the Company acquired a 12 acre parcel of land in Gibbsboro, New Jersey
through the foreclosure of a note receivable amounting to $2.8 million under which the said
property was encumbered. The Company paid transaction related costs of $0.3 million which was
capitalized as part of land inventory in the Company’s consolidated balance sheets. The parcel of
land is held for future development.
On December 23, 2010, the Company sold four office properties (One and Two Greentree Centre, 8000
Lincoln Drive, and Lake Center IV) containing a total of 243,195 net rentable square feet in
Marlton, New Jersey for an aggregate sales price of $20.9 million. These properties were 76.1%
occupied at the date of sale.
On November 22, 2010, the Company sold Spyglass Point, a 58,576 net rentable square feet office
property located in Austin, Texas for a sales price of $13.5 million. This property was fully
occupied at the date of sale.
F - 29
Table of Contents
On September 20, 2010, the Company sold 630 Clark Avenue, a 50,000 net rentable square feet office
property located in King of Prussia, Pennsylvania for a sales price of $3.6 million. This property
was fully occupied at the date of sale.
On August 18, 2010, the Company sold 479 Thomas Jones Way, a 49,264 net rentable square feet office
property located in Exton, Pennsylvania, for a sales price of $3.8 million. This property was
63.0% occupied at the date of sale.
On January 14, 2010, the Company sold Westmoreland Plaza, a 121,815 net rentable square feet office
property located in Richmond, Virginia, for a sales price of $10.8 million. This property was
vacant at the date of sale.
2009
The Company did not complete any acquisitions during the year ended December 31, 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. This condominium unit was occupied at the dale of sale.
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. The Company 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 each cash payment received (including the buyer’s payments under its first mortgage) to be
apportioned in the same ratio as total cost and total profit bear to sales value as basis for
profit recognition. 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. These
properties were 96.5% occupied at the date of sale.
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. This property
was fully occupied at the date of sale.
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. This property was
vacant at the date of sale.
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. These properties were
85.7% occupied at the date of sale.
All sales presented above are included within discontinued operations (see Note 10).
4.
INVESTMENT IN UNCONSOLIDATED VENTURES
As of December 31, 2010, the Company had an aggregate investment of approximately $84.4 million in
its 17 actively operating unconsolidated Real Estate Ventures. The Company formed these ventures
with unaffiliated third parties, or acquired them, to develop or manage office properties or to acquire land
in anticipation of possible development of office properties. As of December 31, 2010, 15 of the
Real Estate Ventures own 50 office buildings that contain an aggregate of approximately 6.5 million
net rentable square feet, one Real Estate Venture owns three acres of undeveloped land 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 65%, 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 - 30
Table of Contents
The Company’s investment in Real Estate Ventures as of December 31, 2010 and the Company’s share of
the Real Estate Ventures’ income (loss) for the year ended December 31, 2010 was as follows (in
thousands):
| Company’s Share | ||||||||||||||||||||||||
| of 2010 Real | Real Estate | Current | ||||||||||||||||||||||
| Ownership | Carrying | Estate Venture | Venture | Interest | Debt | |||||||||||||||||||
| Percentage (a) | Amount | Income (Loss) | Debt at 100% | Rate | Maturity | |||||||||||||||||||
|
Broadmoor Austin Associates
|
50 | % | $ | 65,953 | $ | 1,867 | $ | 80,541 | 5.79 | % | Apr-2023 | (b) | ||||||||||||
|
Macquarie BDN Christina LLC
|
20 | % | 7,709 | 918 | 59,000 | 8.00 | % | June-2011 | (c) | |||||||||||||||
|
One Commerce Square (d)
|
25 | % | 2,533 | 33 | 130,000 | 5.67 | % | Dec-15 | ||||||||||||||||
|
Two Commerce Square (d)
|
25 | % | 2,533 | 33 | 107,612 | 6.30 | % | May-13 | ||||||||||||||||
|
Four Tower Bridge (e)
|
65 | % | 1,824 | 519 | 9,981 | 6.62 | % | Feb-11 | (f) | |||||||||||||||
|
1000 Chesterbrook Blvd.
|
50 | % | 1,516 | (194 | ) | 24,934 | 6.88 | % | Dec-11 | |||||||||||||||
|
Two Tower Bridge
|
35 | % | 1,145 | (322 | ) | 15,166 | (g) | (g) | ||||||||||||||||
|
Residence Inn Tower Bridge
|
50 | % | 873 | 310 | 14,480 | 5.63 | % | Feb-16 | ||||||||||||||||
|
PJP VII
|
25 | % | 383 | 205 | 8,295 | L+1.55 | % | Nov-13 | ||||||||||||||||
|
PJP II
|
30 | % | 282 | 109 | 4,490 | 6.12 | % | Nov-23 | ||||||||||||||||
|
PJP V
|
25 | % | 244 | 91 | 5,949 | 6.47 | % | Aug-19 | ||||||||||||||||
|
Seven Tower Bridge
|
20 | % | 105 | — | 10,603 | (h) | (h) | |||||||||||||||||
|
PJP VI
|
25 | % | 75 | 72 | 9,031 | 6.08 | % | Apr-23 | ||||||||||||||||
|
Six Tower Bridge (e)
|
63 | % | 64 | (77 | ) | 13,097 | 7.79 | % | Aug-12 | |||||||||||||||
|
G&I Interchange Office LLC (DRA — N. PA) (i)
|
20 | % | — | 935 | 184,000 | 5.78 | % | Jan-15 | ||||||||||||||||
|
Eight Tower Bridge
|
3.4 | % | — | 31 | 52,500 | L+5.00 | % | Jun-12 | ||||||||||||||||
|
Coppell Associates (e)
|
50 | % | (867 | ) | (159 | ) | 18,708 | (j) | (j) | |||||||||||||||
|
Five Tower Bridge
|
— | 631 | ||||||||||||||||||||||
|
Invesco, L.P.
|
— | 303 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 84,372 | $ | 5,305 | $ | 748,387 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
| (a) |
Ownership percentage represents the Company’s entitlement to residual distributions after
payments of priority returns, where
applicable.
|
|
| (b) |
The loan allows prepayment in April 2011 without penalty. The loan matures in 2023 and is
subject to an interest increase in April 2011.
over the five year treasury spread and interest only through maturity. The loan is expected to
close in the second quarter of 2011.
|
|
| (c) |
The real estate venture is currently finalizing a new five year loan for an expected amount of
$60.0 million with an interest of 4.5%
and interest only payments through maturity. The loan is expected to close in the second quarter of
2011.
|
|
| (d) |
During November, 2010, the Company acquired a 25% interest in two partnerships which own One
and Two Commerce Square
buildings in Philadelphia, PA. The other partner holds the remaining 75% interest in each of the
two partnerships.
|
|
| (e) |
As a result of the adoption of the new accounting standard for the consolidation of variable
interest entities, the Company
deconsolidated these three real estate ventures as of January 1, 2010.
|
|
| (f) |
This loan was replaced with a new financing of $11.0 million on February 8, 2011. The new loan
features a 5.2% rate
and a 10-year term with a 30 year amortization schedule.
|
|
| (g) |
Consists of a $11.9 million fixed rate mortgage with a 5.72% interest rate and May 2013
maturity date; also includes $3.3 million municipal
and state borrowings with nominal interest rates (0 — 1%) and maturity dates from 3 to 10 years.
|
|
| (h) |
Comprised of two fixed rate mortgages: $7.0 million and $1.0 million. Both mature in February
2013 and accrue interest at a fixed rate of
3% through February 2011, 4% through February 2012, and 5% through February 2013. The total loan
amount of $10.6 million as presented
above also includes a 3% fixed rate loan (interest only through maturity) with a balance of $0.6
million as of December 31, 2010. This loan
can be increased up to $1.3 million through its maturity date of September 2025. The remaining $2.0
million of the total amount features a
4% fixed rate with interest only through its maturity date of February 2014.
|
|
| (i) |
Proceeds received by the Company from the sale of an 80% ownership stake in the properties
exceeded the historical cost of those
properties. Accordingly, no investment in the real estate venture was reflected on the balance
sheet at period end.
|
|
| (j) |
Comprised of two fixed rate mortgages: a senior fixed rate note of $16,600 at 5.75% that
matures in March 2016 and a junior fixed
rate note of $2,462 at 6.89% that matures in December 2013; 5.89% is the blended rate.
|
F - 31
Table of Contents
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, 2010 and 2009 (in
thousands):
| December 31, | ||||||||
| 2010 (a) | 2009 | |||||||
|
Net property
|
$ | 804,705 | $ | 503,932 | ||||
|
Other assets
|
105,576 | 96,643 | ||||||
|
Other Liabilities
|
44,509 | 37,774 | ||||||
|
Debt
|
748,387 | 470,232 | ||||||
|
Equity
|
117,385 | 92,569 | ||||||
|
Company’s share of equity (Company’s basis)
|
84,372 | 75,458 | ||||||
| (a) - |
Includes the three real estate ventures that were deconsolidated upon the adoption of
the new accounting standard for the consolidation of VIEs.
|
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, 2010, 2009 and 2008 (in thousands):
| Years ended December 31, | ||||||||||||
| 2010 (a) | 2009 | 2008 | ||||||||||
|
Revenue
|
$ | 118,923 | $ | 105,236 | $ | 105,844 | ||||||
|
Operating expenses
|
44,942 | 38,691 | 38,036 | |||||||||
|
Interest expense, net
|
37,505 | 30,858 | 30,585 | |||||||||
|
Depreciation and amortization
|
32,703 | 36,700 | 32,057 | |||||||||
|
Net income
|
3,773 | (1,012 | ) | (416 | ) | |||||||
|
Company’s share of income (Company’s basis)
|
5,305 | 4,069 | 8,447 | |||||||||
| (a) - |
Includes the three real estate ventures that were deconsolidated upon the adoption of
the new accounting standard for the consolidation of VIEs.
|
As of December 31, 2010, the aggregate principal payments of recourse and non-recourse debt payable
to third-parties are as follows (in thousands):
|
2011
|
$ | 179,268 | ||
|
2012
|
71,877 | |||
|
2013
|
142,160 | |||
|
2014
|
8,774 | |||
|
2015
|
301,509 | |||
|
Thereafter
|
44,799 | |||
|
|
||||
|
|
$ | 748,387 | ||
|
|
||||
As of December 31, 2010, the Company had guaranteed repayment of approximately $0.7 million of
loans on behalf of a certain Real Estate Venture. 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.
F - 32
Table of Contents
| 5. |
DEFERRED COSTS
|
As of December 31, 2010 and 2009, the Company’s deferred costs were comprised of the following (in
thousands):
| December 31, 2010 | ||||||||||||
| Accumulated | Deferred Costs, | |||||||||||
| Total Cost | Amortization | net | ||||||||||
|
|
||||||||||||
|
Leasing Costs
|
$ | 123,724 | $ | (43,930 | ) | $ | 79,794 | |||||
|
Financing Costs
|
37,257 | (10,934 | ) | 26,323 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 160,981 | $ | (54,864 | ) | $ | 106,117 | |||||
|
|
||||||||||||
| 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 | |||||
|
|
||||||||||||
During 2010, 2009 and 2008, the Company capitalized internal direct leasing costs of $6.2
million, $5.3 million and $7.9 million, respectively, in accordance with the accounting standard
for the capitalization of leasing costs.
6.
INTANGIBLE ASSETS AND LIABILITIES
As of December 31, 2010 and 2009, the Company’s intangible assets/liabilities were comprised of the
following (in thousands):
| December 31, 2010 | ||||||||||||
| Accumulated | Deferred Costs, | |||||||||||
| Total Cost | Amortization | net | ||||||||||
|
|
||||||||||||
|
In-place lease value
|
$ | 108,456 | $ | (63,010 | ) | $ | 45,446 | |||||
|
Tenant relationship value
|
95,385 | (52,113 | ) | 43,272 | ||||||||
|
Above market leases acquired
|
18,319 | (9,575 | ) | 8,744 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 222,160 | $ | (124,698 | ) | $ | 97,462 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Below market leases acquired
|
$ | 67,198 | $ | (37,965 | ) | $ | 29,233 | |||||
|
|
||||||||||||
| 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 | |||||
|
|
||||||||||||
For the years ended December 31, 2010, 2009, and 2008, the Company wrote off through the
acceleration of amortization approximately $1.5 million, $2.4 million and $1.7 million,
respectively, of intangible assets as a result of tenant move-outs prior to the end of the
associated lease term. For the year ended December 31, 2010, the Company accelerated amortization
of a nominal amount of intangible liabilities as a result of tenant move-outs. For the years ended
December 31, 2009 and 2008, the Company accelerated amortization of approximately $0.4 million and
$0.1 million, respectively, of intangible liabilities as a result of tenant move-outs.
F - 33
Table of Contents
As of December 31, 2010, the Company’s annual amortization for its intangible assets/liabilities is
as follows (in thousands, assumes no early terminations):
| Assets | Liabilities | |||||||
|
2011
|
$ | 30,041 | $ | 7,224 | ||||
|
2012
|
22,155 | 6,473 | ||||||
|
2013
|
13,447 | 5,930 | ||||||
|
2014
|
10,210 | 4,348 | ||||||
|
2015
|
7,249 | 2,141 | ||||||
|
Thereafter
|
14,360 | 3,117 | ||||||
|
|
||||||||
|
Total
|
$ | 97,462 | $ | 29,233 | ||||
|
|
||||||||
| 7. DEBT OBLIGATIONS | ||
The Parent Company guarantees the debt obligations of the Operating Partnership but does not, by
itself hold any indebtedness except only for the mortgage debt on the Libertyview property which is
included in the table below. All other debt is held directly or indirectly by the Operating
Partnership.
The following table sets forth information regarding the Company’s consolidated debt obligations
outstanding at December 31, 2010 and 2009 (in thousands):
MORTGAGE DEBT:
| Effective | ||||||||||||||||
| December 31, | December 31, | Interest | Maturity | |||||||||||||
| Property / Location | 2010 | 2009 | Rate | Date | ||||||||||||
|
|
||||||||||||||||
|
Plymouth Meeting Exec.
|
$ | — | $ | 42,042 | 7.00 | %(a),(b) | Dec-10 | |||||||||
|
Four Tower Bridge
|
— | 10,158 | 6.62 | %(c) | Feb-11 | |||||||||||
|
Arboretum I, II, III & V
|
20,386 | 21,046 | 7.59 | % | Jul-11 | |||||||||||
|
Midlantic Drive/Lenox Drive/DCC I
|
56,514 | 58,215 | 8.05 | % | Oct-11 | |||||||||||
|
Research Office Center
|
39,145 | 39,999 | 5.30 | %(a) | Oct-11 | |||||||||||
|
Concord Airport Plaza
|
34,494 | 35,594 | 5.55 | %(a) | Jan-12 | |||||||||||
|
Six Tower Bridge
|
— | 13,557 | 7.79 | %(c) | Aug-12 | |||||||||||
|
Newtown Square/Berwyn Park/Libertyview
|
58,102 | 59,557 | 7.25 | % | May-13 | |||||||||||
|
Coppell Associates II
|
— | 2,711 | 6.89 | %(c) | Dec-13 | |||||||||||
|
Southpoint III
|
2,597 | 3,255 | 7.75 | % | Apr-14 | |||||||||||
|
Tysons Corner
|
96,507 | 98,056 | 5.36 | %(a) | Aug-15 | |||||||||||
|
Coppell Associates I
|
— | 16,600 | 5.75 | %(c) | Feb-16 | |||||||||||
|
Two Logan Square
|
89,800 | 89,800 | 7.57 | % | Apr-16 | |||||||||||
|
One Logan Square
|
60,000 | 60,000 | 4.50 | %(d) | Jul-16 | |||||||||||
|
IRS Philadelphia Campus
|
208,366 | — | 6.95 | %(e) | Sep-30 | |||||||||||
|
Cira South Garage
|
46,335 | — | 7.11 | %(e) | Sep-30 | |||||||||||
|
|
||||||||||||||||
|
Principal balance outstanding
|
712,246 | 550,590 | ||||||||||||||
|
Plus: unamortized fixed-rate debt premiums (discounts), net
|
(457 | ) | 1,130 | |||||||||||||
|
|
||||||||||||||||
|
Total mortgage indebtedness
|
$ | 711,789 | $ | 551,720 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
UNSECURED DEBT:
|
||||||||||||||||
|
$300.0M 5.625% Guaranteed Notes due 2010
|
— | 198,545 | 5.61 | %(f) | Dec-10 | |||||||||||
|
Bank Term Loan
|
183,000 | 183,000 | LIBOR + 0.80 | %(g) | Jun-11 | |||||||||||
|
Credit Facility
|
183,000 | 92,000 | LIBOR + 0.725 | %(g) | Jun-11 | |||||||||||
|
$345.0M 3.875% Guaranteed Exchangeable Notes due 2026
|
59,835 | 127,960 | 5.50 | %(h) | Oct-11 | |||||||||||
|
$300.0M 5.750% Guaranteed Notes due 2012
|
175,200 | 187,825 | 5.73 | % | Apr-12 | |||||||||||
|
$250.0M 5.400% Guaranteed Notes due 2014
|
242,681 | 242,681 | 5.53 | % | Nov-14 | |||||||||||
|
$250.0M 7.500% Guaranteed Notes due 2015
|
250,000 | 250,000 | 7.77 | % | 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 | 5.68 | % | 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
|
1,722,326 | 1,910,621 | ||||||||||||||
|
Less: unamortized exchangeable debt discount
|
(906 | ) | (4,327 | ) | ||||||||||||
|
unamortized fixed-rate debt discounts, net
|
(2,763 | ) | (3,437 | ) | ||||||||||||
|
|
||||||||||||||||
|
Total unsecured indebtedness
|
$ | 1,718,657 | $ | 1,902,857 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Debt Obligations
|
$ | 2,430,446 | $ | 2,454,577 | ||||||||||||
|
|
||||||||||||||||
F - 34
Table of Contents
| (a) |
These loans were assumed upon acquisition of the related properties. The interest rates
presented above reflects the market rate at the time of acquisition.
|
|
| (b) |
On October 1, 2010, the Company prepaid the remaining balance of the loan without penalty.
The unamortized fixed-rate debt premium of $0.1 million related to this loan was included as
part of loss on early extinguishment debt in the Company’s consolidated statement of
operations during the year.
|
|
| (c) |
These loans were removed from the Company’s balance sheet due to the deconsolidation of the
related VIEs as discussed in
Note 2.
|
|
| (d) |
This mortgage is subject to an interest rate floor of 4.50% on a monthly basis.
|
|
| (e) |
On August 26, 2010, the Company received $254.0 million of gross proceeds from a $256.5
million forward financing commitment it obtained on June 29, 2009 related to the IRS
Philadelphia Campus and the Cira South Garage (see related discussion below). The financing
consists of two separate loans: $209.7 million secured by the IRS Philadelphia Campus and
$46.8 million secured by the Cira South Garage.
|
|
| (f) |
On December 15, 2010, the Company paid off the loan at maturity.
|
|
| (g) |
On July 20, 2010, the maturity date of the Bank Term Loan was extended from October 18, 2010
to June 29, 2011. The Bank Term Loan and the Credit Facility may be extended to June 29, 2012
at the Company’s discretion.
|
|
| (h) |
On October 20, 2011, the holders of the Guaranteed Exchangeable Notes have the right to
request the redemption of all or a portion of the Guaranteed Exchangeable Notes they hold at a
price equal to 100% of the principal amount plus accrued and unpaid interest. Accordingly, the
Guaranteed Exchangeable Notes have been presented with an October 20, 2011 maturity date.
|
During 2010, 2009 and 2008, the Company’s weighted-average effective interest rate on its
mortgage notes payable was 6.59%, 6.45% and 6.40%, respectively. As of December 31, 2010 and 2009,
the net carrying value of the Company’s Properties that are encumbered by mortgage indebtedness was
$989.8 million and $784.2 million, respectively.
During the year ended December 31, 2010, the Company repurchased $82.7 million of its outstanding
unsecured Notes in a series of transactions which are summarized in the table below (in thousands):
| Repurchase | Deferred Financing | |||||||||||||||
| Notes | Amount | Principal | Loss | Amortization | ||||||||||||
|
2010 5.625% Notes
|
$ | 2,002 | $ | 1,942 | $ | 37 | $ | 3 | ||||||||
|
2011 3.875% Notes
|
68,741 | 68,125 | 1,762 | 281 | ||||||||||||
|
2012 5.750% Notes
|
13,333 | 12,625 | 431 | 32 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 84,076 | $ | 82,692 | $ | 2,230 | $ | 316 | ||||||||
|
|
||||||||||||||||
The Company utilizes its unsecured revolving credit facility (the 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 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 the 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 provided that the Company has not
committed any defaults under the Credit Facility and is able to acquire additional commitments from
its existing lenders or new lenders. As of December 31, 2010, the Company had $183.0 million of
borrowings, and $11.2 million in letters of credit outstanding, leaving $405.8 million of unused
availability under the Credit Facility. During the years ended December 31, 2010 and 2009, the
weighted-average interest rate on Credit Facility borrowings was 1.03% and 2.08%, respectively. As
of December 31, 2010 and 2009, the weighted average interest rate on the Credit Facility was 1.02%
and 0.96%, 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, 2010.
F - 35
Table of Contents
On August 26, 2010, the Company received $254.0 million of gross proceeds from a $256.5 million
forward financing commitment it obtained on June 29, 2009. The Company paid a $17.7 million
commitment fee in connection with this commitment. The loan proceeds, together with the commitment
fee, had been escrowed with an institutional trustee pending the completion of the development of
the IRS Philadelphia Campus and the Cira South Garage as well as the commencement of the leases at
these facilities. The financing consists of two separate loans of $209.7 million secured by the
IRS Philadelphia Campus and $46.8 million secured by the Cira South Garage. The lender held back
$2.5 million of the loan proceeds pending the completion of certain conditions related to the IRS
Philadelphia Campus and Cira South Garage. As of December 31, 2010, the Company has received $2.1
million of the total amounts held back. The loans are non-recourse and are secured by the IRS
Philadelphia Campus and Cira South Garage, respectively. The loans bear interest of 5.93% per annum
with interest only through September 10, 2010 and thereafter require principal and interest monthly
payments through its maturity in September 2030. As of December 31, 2010, total financing costs
related to this transaction amounted to $19.9 million which is included as part of the deferred
costs in the Company’s consolidated balance sheet and will be amortized over the 20 year term of
the loans using the effective interest rate method. The total financing costs included the
commitment fee which was reduced to $16.0 million after the receipt of a refund resulting from the
overpayment made on the commitment fee of $1.7 million. Other related transaction costs included
as part of total financing costs amounted to $3.8 million. The Company used the loan proceeds to
reduce borrowings under its Credit Facility and for general corporate purposes.
The Company accounts for its outstanding 3.875% Guaranteed Exchangeable Notes in accordance with
the accounting standard for convertible debt instruments. The 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 accounting standard requires the initial proceeds
from the Company’s issuance of the 3.875% Guaranteed Exchangeable Notes to be allocated between a
liability component and an equity component in a manner that reflects interest expense at the
interest rate of a similar nonconvertible debt that could have been issued by the Company at such
time. 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 principal amount outstanding of the 3.875% Guaranteed Exchangeable Notes was $59.8 million at
December 31, 2010 and $128.0 million at December 31, 2009, respectively. 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 and is reflected within additional paid-in capital in the Company’s
consolidated balance sheets. The unamortized debt discount is $0.9 million at December 31, 2010 and
$4.3 million at December 31, 2009, respectively, and will be amortized through October 15, 2011.
The effective interest rate at December 31, 2010 and December 31, 2009 was 5.5%. The Company
recognized contractual coupon interest of $3.2 million and $8.3 million for the years ended
December 31, 2010 and 2009, respectively. In addition, the Company recognized interest on
amortization of debt discount of $1.6 million and $4.0 million during the years ended December 31,
2010 and 2009, respectively. Debt discount write-offs resulting from debt repurchases amounted to
$2.0 million and $3.8 million for the years ended December 31, 2010 and 2009, respectively.
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 $1.1 million and $1.4 million in the consolidated balance sheet as of December 31, 2010
and 2009, respectively. 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.
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 June 29, 2011 and may be extended at the Company’s option
for another year 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, 2010.
F - 36
Table of Contents
As of December 31, 2010, the Company’s aggregate scheduled principal payments of debt obligations
are as follows (in thousands):
|
2011
|
$ | 554,378 | ||
|
2012
|
221,136 | |||
|
2013
|
67,037 | |||
|
2014
|
255,016 | |||
|
2015
|
350,157 | |||
|
Thereafter
|
986,848 | |||
|
|
||||
|
Total principal payments
|
2,434,572 | |||
|
Net unamortized premiums/(discounts)
|
(4,126 | ) | ||
|
|
||||
|
Outstanding indebtedness
|
$ | 2,430,446 | ||
|
|
||||
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, 2010 and 2009, 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, 2010 and 2009 approximate the fair
values for cash and cash equivalents, accounts receivable, other assets, accounts payable and
accrued expenses.
The following are financial instruments for which the Company estimates of fair value differ from
the carrying amounts (in thousands):
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
|
|
||||||||||||||||
|
Mortgage payable, net of premiums
|
$ | 712,246 | $ | 726,348 | $ | 550,590 | $ | 523,745 | ||||||||
|
Unsecured notes payable, net of discounts
|
$ | 1,277,716 | $ | 1,338,743 | $ | 1,557,011 | $ | 1,497,356 | ||||||||
|
Variable Rate Debt Instruments
|
$ | 444,610 | $ | 432,556 | $ | 353,610 | $ | 341,210 | ||||||||
|
Notes Receivable
|
$ | 31,216 | (a) | $ | 28,921 | $ | 71,989 | (a) | $ | 62,776 | ||||||
| (a) |
For purposes of this disclosure, one of the notes is presented gross of the deferred gain of $12.9 million arising from
the sale of the two Trenton properties in the prior year accounted for under the accounting standard for installment sales.
|
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.
F - 37
Table of Contents
Risks and Uncertainties
Significantly challenging current economic conditions have generally resulted in a reduction of the
availability of financing and higher borrowing costs. These factors, coupled with a sluggish
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 2011 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.
The Company was in compliance with all financial covenants as of December 31, 2010. 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 consolidated statement of operations.
F - 38
Table of Contents
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, during the current year until the
maturity of the remaining interest swaps and as of December 31, 2009, 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 changes in fair values of the hedges during the year ended December 31, 2010 and 2009 were
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 its interest rate swaps which were both cash settled in December 2009. The
hedging relationship with these swaps ceased upon the Company’s issuance of its unsecured notes on
September 25, 2009. Accordingly, changes in the fair value of these interest rate swaps were
charged to the 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.
All of the Company’s existing derivative financial instruments matured on October 18, 2010.
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 10% or more of the Company’s rents
during 2010, 2009 and 2008. 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, 2010, 2009 and 2008, income from discontinued operations relates
to an aggregate of 24 properties containing approximately 3.7 million net rentable square feet that
the Company has sold since January 1, 2008.
F - 39
Table of Contents
The following table summarizes revenue and expense information for the properties sold which
qualify for discontinued operations reporting since January 1, 2008 (in thousands):
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Revenue:
|
||||||||||||
|
Rents
|
$ | 4,265 | $ | 13,513 | $ | 59,675 | ||||||
|
Tenant reimbursements
|
2,043 | 6,908 | 9,302 | |||||||||
|
Termination fees
|
— | — | 25 | |||||||||
|
Other
|
52 | 226 | 279 | |||||||||
|
|
||||||||||||
|
Total revenue
|
6,360 | 20,647 | 69,281 | |||||||||
|
|
||||||||||||
|
Expenses:
|
||||||||||||
|
Property operating expenses
|
2,401 | 7,653 | 23,774 | |||||||||
|
Real estate taxes
|
936 | 2,900 | 7,358 | |||||||||
|
Depreciation and amortization
|
2,002 | 4,882 | 16,008 | |||||||||
|
|
||||||||||||
|
Total operating expenses
|
5,339 | 15,435 | 47,140 | |||||||||
|
|
||||||||||||
|
Operating income:
|
1,021 | 5,212 | 22,141 | |||||||||
|
Interest income
|
— | — | 17 | |||||||||
|
Interest expense
|
— | — | (4,595 | ) | ||||||||
|
|
||||||||||||
|
Income from discontinued operations before gain on
sale of interests in real estate
|
1,021 | 5,212 | 17,563 | |||||||||
|
|
||||||||||||
|
Net gain on disposition of discontinued operations
|
11,011 | 1,238 | 28,474 | |||||||||
|
Provision for impairment
|
— | (3,700 | ) | (6,850 | ) | |||||||
|
|
||||||||||||
|
Income from discontinued operations
|
$ | 12,032 | $ | 2,750 | $ | 39,187 | ||||||
|
|
||||||||||||
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 INTERESTS IN THE PARENT COMPANY
Non-controlling interests in the Parent Company’s financial statements relate to redeemable common
limited partnership interests in the Operating Partnership held by parties other than the Parent
Company and interests held by third party partners in the previously consolidated real estate
ventures.
Operating Partnership
As of December 31, 2010 and 2009, the aggregate book value of the non-controlling interest
associated with the redeemable common limited partnership interests in the accompanying
consolidated balance sheet was $128.3 million and $38.3 million, respectively. The Parent Company
believes that the aggregate settlement value of these interests (based on the number of units
outstanding and the closing price of the common shares on the balance sheet date) was approximately
$115.4 million and $32.0 million, respectively.
Non-controlling Interest — Partners’ Share of Previously Consolidated Real Estate Ventures
As discussed in Note 2, as of December 31, 2009, the Company owned interests in three consolidated
Real Estate Ventures (Four Tower Bridge, Six Tower Bridge and Coppell Associates) that the Company
determined to be VIEs and were consolidated until January 1, 2010. As of December 31, 2009 and
prior to their deconsolidation, the aggregate amount related to these non-controlling interests
classified within equity was $0.1 million. The Parent Company believes that the aggregate
settlement value of these interests was approximately $7.9 million as of December 31, 2009. This
amount is based on the estimated liquidation values of the assets and liabilities and the resulting
proceeds that the Parent Company would distribute to its real estate venture partners upon
dissolution
based on book value, as required under the terms of the respective partnership agreements. The
partnership agreements of the Real Estate Ventures 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.
As discussed in Note 2, the Parent Company, upon its adoption of the amendment to the accounting
and disclosure requirements for the consolidation of VIEs on January 1, 2010, determined that it
will no longer consolidate these VIEs.
F - 40
Table of Contents
12. NON-CONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP
As of December 31, 2009, the Operating Partnership owned interests in three consolidated Real
Estate Ventures (see Note 11 above) that own three office properties containing approximately 0.4
million net rentable square feet. These Real Estate Ventures were considered as VIEs under the
accounting standard for consolidation. As of December 31, 2009, the aggregate amount related to
these non-controlling interests classified within equity was $0.1 million. The Operating
Partnership believes that the aggregate settlement value of these interests was approximately $7.9
million as of December 31, 2009. This amount is based on the estimated liquidation values of the
assets and liabilities and the resulting proceeds that the Parent Company would distribute to its
real estate venture partners upon dissolution, as required under the terms of the respective
partnership agreements. The partnership agreements of the Real Estate Ventures 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.
As discussed in Note 2, the Operating Partnership, upon its adoption of the amendment to the
accounting and disclosure requirements for the consolidation of VIEs on January 1, 2010, determined
that it will no longer consolidate these VIEs.
13. BENEFICIARIES’ EQUITY OF THE PARENT COMPANY
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, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Numerator
|
||||||||||||||||||||||||
|
Income (loss) from continuing operations
|
$ | (29,638 | ) | $ | (29,638 | ) | $ | 5,339 | $ | 5,339 | (662 | ) | (662 | ) | ||||||||||
|
|
||||||||||||||||||||||||
|
Net (loss) income from continuing operations attributable to
non-controlling interests
|
787 | 787 | (18 | ) | (18 | ) | 170 | 170 | ||||||||||||||||
|
Amount allocable to unvested restricted shareholders
|
(512 | ) | (512 | ) | (279 | ) | (279 | ) | (763 | ) | (763 | ) | ||||||||||||
|
Preferred share dividends
|
(7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Loss from continuing operations available to common shareholders
|
(37,355 | ) | (37,355 | ) | (2,950 | ) | (2,950 | ) | (9,247 | ) | (9,247 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Income (loss) from discontinued operations
|
12,032 | 12,032 | 2,750 | 2,750 | 39,187 | 39,187 | ||||||||||||||||||
|
Discontinued operations attributable to non-controlling interests
|
(255 | ) | (255 | ) | (45 | ) | (45 | ) | (1,478 | ) | (1,478 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Discontinued operations attributable to common shareholders
|
11,777 | 11,777 | 2,705 | 2,705 | 37,709 | 37,709 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income available to common shareholders
|
$ | (25,578 | ) | $ | (25,578 | ) | $ | (245 | ) | $ | (245 | ) | $ | 28,462 | $ | 28,462 | ||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Denominator
|
||||||||||||||||||||||||
|
Weighted-average shares outstanding
|
131,743,275 | 131,743,275 | 111,898,045 | 111,898,045 | 87,574,423 | 87,574,423 | ||||||||||||||||||
|
Contingent securities/Stock based compensation
|
— | — | — | 1,353,246 | — | 8,740 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total weighted-average shares outstanding
|
131,743,275 | 131,743,275 | 111,898,045 | 113,251,291 | 87,574,423 | 87,583,163 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Earnings per Common Share:
|
||||||||||||||||||||||||
|
Income from continuing operations attributable to common shareholders
|
$ | (0.28 | ) | $ | (0.28 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.11 | ) | ||||||
|
Discontinued operations attributable to common shareholders
|
0.09 | 0.09 | 0.02 | 0.02 | 0.43 | 0.43 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income attributable to common shareholders
|
$ | (0.19 | ) | $ | (0.19 | ) | $ | — | $ | — | $ | 0.32 | $ | 0.32 | ||||||||||
|
|
||||||||||||||||||||||||
Securities totaling 9,902,752 in 2010, 2,809,108 in 2009, and 2,816,621 in 2008 were excluded from
the earnings per share computations because their effect would have been antidilutive. In addition,
the Class F (2010) Units, which make up 7,111,112 units out of the total 9,902,752 units as of
December 31, 2010, are not entitled to income or loss allocations prior to the first anniversary of
the acquisition of Three Logan Square (see Note 3).
The contingent securities/stock based compensation impact is calculated using the treasury stock
method and relates to employee awards settled in shares of the Parent Company. The effect of these
securities is anti-dilutive for periods that the Parent Company incurs a net loss available to
common shareholders and therefore is excluded from the dilutive earnings per share calculation in
such periods.
F - 41
Table of Contents
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, 2010, 2009 and 2008, earnings representing nonforfeitable dividends as noted in
the table above were allocated to the unvested restricted shares.
Common and Preferred Shares
On December 2, 2010, the Parent Company declared a distribution of $0.15 per common share, totaling
$20.3 million, which was paid on January 20, 2011 to shareholders of record as of January 6, 2011.
On December 2, 2010, the Parent Company declared distributions on its Series C Preferred Shares and
Series D Preferred Shares to holders of record as of December 30, 2010. These shares are entitled
to a preferential return of 7.50% and 7.375%, respectively. Distributions paid on January 18, 2011
to holders of Series C Preferred Shares and Series D Preferred Shares totaled $0.9 million and $1.1
million, respectively.
In March 2010, the Parent Company commenced a continuous equity offering program (the “Offering
Program”), under which the Parent Company may sell up to an aggregate amount of 15,000,000 common
shares until March 10, 2013 in amounts and at times to be determined by the Parent Company. Actual
sales will depend on a variety of factors as determined by the Company, including market
conditions, the trading price of its common shares and determinations by the Parent Company of the
appropriate sources of funding. In conjunction with the Offering Program, the Parent Company
engaged sales agents who received compensation, in aggregate, of up to 2% of the gross sales price
per share sold during the year ended December 31, 2010. Through December 31, 2010, the Parent
Company has sold 5,742,268 shares under this program at an average sales price of $12.54 per share
resulting in net proceeds of $70.8 million. The Parent Company contributed the net proceeds from
the sale of its shares to the Operating Partnership in exchange for the issuance of 5,742,268
common partnership units to the Parent Company. The Operating Partnership used the net proceeds
from the sales contributed by the Parent Company to repay balances on its Credit Facility and for
general corporate purposes.
On June 2, 2009, the Parent 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 Parent
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 Parent Company received net proceeds of approximately $242.3 million from the
offering net of underwriting discounts, commissions and expenses. The Parent Company used the net
proceeds from the offering to reduce its borrowings under its Credit Facility and for general
corporate purposes.
Common Share Repurchases
The Parent Company maintains a share repurchase program pursuant to which the Parent Company is
authorized to repurchase its common shares from time to time. The Parent Company’s Board of
Trustees initially authorized this program in 1998 and has periodically replenished capacity under
the program. On May 2, 2006, the Board of Trustees restored capacity to 3.5 million common shares.
The Parent Company did not repurchase any shares during the year-ended December 31, 2010. As of
December 31, 2010, 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 Parent Company to
repurchase any shares. The Parent Company may discontinue the program at any time.
F - 42
Table of Contents
14. PARTNERS’ EQUITY OF THE OPERATING PARTNERSHIP
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, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Numerator
|
||||||||||||||||||||||||
|
Income (loss) from continuing operations
|
$ | (29,638 | ) | $ | (29,638 | ) | $ | 5,339 | $ | 5,339 | (662 | ) | (662 | ) | ||||||||||
|
|
||||||||||||||||||||||||
|
Net (loss) income from continuing operations attributable to
non-controlling interests
|
— | — | (30 | ) | (30 | ) | (127 | ) | (127 | ) | ||||||||||||||
|
Amount allocable to unvested restricted unitholders
|
(512 | ) | (512 | ) | (279 | ) | (279 | ) | (763 | ) | (763 | ) | ||||||||||||
|
Preferred share dividends
|
(7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | (7,992 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Loss from continuing operations available to common unitholders
|
(38,142 | ) | (38,142 | ) | (2,962 | ) | (2,962 | ) | (9,544 | ) | (9,544 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Discontinued operations attributable to common unitholders
|
12,032 | 12,032 | 2,750 | 2,750 | 39,187 | 39,187 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income available to common unitholders
|
$ | (26,110 | ) | $ | (26,110 | ) | $ | (212 | ) | $ | (212 | ) | 29,643 | 29,643 | ||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Denominator
|
||||||||||||||||||||||||
|
Weighted-average units outstanding
|
137,454,796 | 137,454,796 | 114,712,869 | 114,712,869 | 90,391,044 | 90,391,044 | ||||||||||||||||||
|
Contingent securities/Stock based compensation
|
— | — | — | 1,353,246 | — | 8,740 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total weighted-average units outstanding
|
137,454,796 | 137,454,796 | 114,712,869 | 116,066,115 | 90,391,044 | 90,399,784 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Earnings per Common Share:
|
||||||||||||||||||||||||
|
Income from continuing operations attributable to common unitholders
|
$ | (0.28 | ) | $ | (0.28 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.11 | ) | ||||||
|
Discontinued operations attributable to common unitholders
|
0.09 | 0.08 | 0.02 | 0.02 | 0.43 | 0.43 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income attributable to common unitholders
|
$ | (0.19 | ) | $ | (0.19 | ) | $ | — | $ | — | $ | 0.32 | $ | 0.32 | ||||||||||
|
|
||||||||||||||||||||||||
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 years ended
December 31, 2010 and 2009, earnings representing nonforfeitable dividends as noted in the table
above were allocated to the unvested restricted shares.
Common Partnership Unit and Preferred Mirror Units
The Operating Partnership issues partnership units to the Parent Company in exchange for the
contribution of the net proceeds of any equity security issuance by the Parent Company. The number
and terms of such partnership units correspond to the number and terms of the related equity
securities issued by the Parent Company. In addition, the Operating Partnership may also issue
separate classes of partnership units. Historically, the Operating Partnership has had the
following types of partnership units outstanding (i) Preferred Partnership Units which have been
issued to parties other than the Parent Company (ii) Preferred Mirror Partnership Units which have
been issued to the Parent Company and (iii) Common Partnership Units which include both interests
held by the Parent 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 Parent Company of preferred
shares of beneficial interest, the Operating Partnership has issued to the Parent Company a
corresponding amount of Preferred Mirror Partnership Units with terms consistent with that of the
preferred securities issued by the Parent Company.
On December 30, 2003, the Operating Partnership issued 2,000,000 Series D Preferred Mirror Units to
the Parent Company 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 the Parent Company are redeemed, which may
occur at the option of the Parent Company 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 Operating Partnership issued 2,300,000 Series E Preferred Mirror Units to
the Parent Company 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 the Parent Company are redeemed, which
may occur at the option of the Parent Company at any time on or after February 27, 2009, then an
equivalent number of Series E Preferred Mirror Units will be redeemed.
F - 43
Table of Contents
Common Partnership Units (Redeemable and General)
The Operating Partnership has three
classes of Common Partnership Units: (i) Class A Limited
Partnership Interest which are held by both the Parent Company and outside third parties, (ii) Class F
(2010) Limited Partnership Interest which is held by one outside
third party and (iii) General Partnership Interests which are held by the
Parent Company (collectively, the
Class A Limited Partnership Interest, Class F (2010) 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 Operating Partnership, in
proportion to their respective percentage interests, subject to preferential distributions on the
preferred mirror units and the preferred units, provided, however, that the Class F (2010) Units do not
begin to accrue distributions and are not entitled to allocations of income or loss prior to August 5, 2011.
The Common Partnership Units held
by the Parent 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
Parent
Company are redeemable at the option of the holder for a like number of common shares of the Parent
Company, or cash, or a combination thereof, at the election of the Parent Company. Because the form
of settlement of these redemption rights are not within the control of the Operating 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 Parent Company’s common
shares at
December 31, 2010, 2009 and 2008, which was $11.65, $11.40, $7.71, respectively. As of
December 31,
2010 and 2009 2,791,640 and 2,809,108 of Class A Units, respectively, were
outstanding and owned by outside limited partners of the Operating Partnership.
The Operating
Partnership issued the 7,111,112 Class F (2010) Units on August 5, 2010 in connection with its
acquisition of Three Logan Square. The Class F (2010) Units were valued based on the
closing market price of the Parent Company’s common shares on the acquisition date ($11.54)
less $0.60 to reflect that these units do not begin to accrue a dividend prior to the first
anniversary of their issuance. The Class F (2010) Units are issued subject to redemption at
the option of the holders after the first anniversary of the acquisition. The Operating Partnership
may, at its option, satisfy the redemption either for an amount, per unit, of cash equal to the
market price of one of the Parent Company’s common share (based on the five-day trading
average ending on the date of the exchange) or for one of the Parent Company’s common shares.
The redemption value of these Class F (2010) Units and the other redeemable limited
partnership units are presented in the mezzanine section of the Operating Partnership’s
balance sheet because they can be redeemed in cash or with the Parent Company’s common shares.
On December 2, 2010, the Operating Partnership declared a distribution of $0.15 per Class A common
unit, totaling $20.3 million, which was paid on January 20, 2011 to unitholders of record as of
January 6, 2011.
On December 2, 2010, the Operating Partnership declared distributions on its Series D Preferred
Mirror Units and Series E Preferred Mirror Units to holders of record as of December 30, 2010.
These units are entitled to a preferential return of 7.50% and 7.375%, respectively. Distributions
paid on January 18, 2011 to holders of Series D Preferred Mirror Units and Series E Preferred
Mirror Units totaled $0.9 million and $1.1 million, respectively.
From the inception of the Offering Program in March 2010 through December 31, 2010, the Parent
Company has contributed net proceeds of $70.8 million from the sale of 5,742,268 common shares to
the Operating Partnership in exchange for the issuance of 5,742,268 common partnership units to the
Parent Company. The Operating Partnership used the net proceeds from the sales to repay balances
on its unsecured revolving credit facility and for general corporate purposes.
Common Share Repurchases
The Parent Company did not purchase any shares during the year-ended December 31, 2010 and
accordingly, during the year ended December 31, 2010, the Operating Partnership did not repurchase
any units in connection with the Parent Company’s share repurchase program.
F - 44
Table of Contents
15.
SHARE BASED COMPENSATION, 401(k) PLAN AND DEFERRED COMPENSATION
Stock Options
At December 31, 2010, the Company had 3,116,611 options outstanding under its shareholder approved
equity incentive plan. There were 1,731,883 options unvested as of December 31, 2010 and $1.6
million of unrecognized compensation expense associated with these options to be recognized over a
weighted average period of 1.3 years. During the years ended December 31, 2010, 2009, and 2008, the
Company recognized $1.0 million, $0.6 million, and $0.3 million, respectively, of compensation
expense included in general and administrative expense related to unvested options. The Company has
also capitalized nominal amounts of compensation expense for the said periods as part of the
Company’s review of employee salaries eligible for capitalization.
Option activity as of December 31, 2010 and changes during the year ended December 31, 2010 were as
follows:
| Weighted | Weighted Average | |||||||||||||||
| Average | Remaining Contractual | Aggregate Intrinsic | ||||||||||||||
| Shares | Exercise Price | Term (in years) | Value | |||||||||||||
|
Outstanding at January 1, 2010
|
2,404,567 | $ | 15.48 | 8.38 | $ | (9,816,670 | ) | |||||||||
|
Granted
|
724,805 | 11.31 | 9.18 | 246,434 | ||||||||||||
|
Exercised
|
(12,761 | ) | 2.91 | |||||||||||||
|
|
||||||||||||||||
|
Outstanding at December 31, 2010
|
3,116,611 | $ | 14.56 | 7.81 | $ | (9,080,625 | ) | |||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Vested/Exercisable at December
31, 2010
|
1,384,728 | $ | 17.63 | 7.14 | $ | (8,132,783 | ) | |||||||||
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, 2010 and 2009:
| Grant Date | March 4, 2010 | April 1, 2009 | ||||||
|
|
||||||||
|
Risk-free interest rate
|
3.03 | % | 2.20 | % | ||||
|
Dividend yield
|
6.53 | % | 23.64 | % | ||||
|
Volatility factor
|
46.89 | % | 40.99 | % | ||||
|
Weighted-average expected life
|
7 | yrs | 7 | yrs | ||||
| Years ended December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | |||||||||||||||||||||||
| 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
|
1,754,648 | $ | 20.41 | 8.77 | 1,070,099 | $ | 26.13 | 0.54 | ||||||||||||||||
|
Granted
|
676,491 | 2.91 | 9.25 | 1,824,594 | 20.61 | 8.61 | ||||||||||||||||||
|
Forfeited/Expired
|
(26,572 | ) | 20.61 | — | (1,140,045 | ) | 26.10 | — | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Outstanding at end of year
|
2,404,567 | $ | 15.48 | 8.38 | 1,754,648 | $ | 20.41 | 0.54 | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Vested/Exercisable at end
of year
|
616,119 | $ | 20.03 | 7.54 | 1,754,648 | $ | 14.71 | 1.83 | ||||||||||||||||
F - 45
Table of Contents
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 $0.3
million in 2010, $0.2 million in 2009 and $0.6 million in 2008.
Restricted Share Awards
As of December 31, 2010, 851,278 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, 2010 was approximately $4.3 million. That expense is expected to be recognized over a weighted
average remaining vesting period of 1.4 years. The Company recognized compensation expense related
to outstanding restricted shares of $4.0 million during the year ended December 31, 2010, of which
$0.9 million was capitalized as part of the Company’s review of employee salaries eligible for
capitalization. For the years ended December 31, 2009 and 2008, the Company recognized $3.2 million
(of which $0.8 million was capitalized) and $3.0 million, respectively, of compensation expense
included in general and administrative expense in the respective periods related to outstanding
restricted shares.
The following table summarizes the Company’s restricted share activity during the year ended
December 31, 2010:
| Weighted | ||||||||
| Average Grant | ||||||||
| Shares | Date Fair value | |||||||
|
Non-vested at January 1, 2010
|
708,580 | $ | 9.69 | |||||
|
Granted
|
240,302 | 11.56 | ||||||
|
Vested
|
(95,796 | ) | 20.46 | |||||
|
Forfeited
|
(1,808 | ) | 19.47 | |||||
|
|
||||||||
|
Non-vested at December 31, 2010
|
851,278 | $ | 10.75 | |||||
|
|
||||||||
Restricted Performance Share Units Plan
On March 4, 2010 and April 1, 2009, the Compensation Committee of the Parent Company’s Board of
Trustees awarded an aggregate of 120,955 and 488,292 share-based awards, respectively, to its
executives. These awards are referred to as Restricted Performance Share Units, or RPSUs. The
RPSUs represent the right to earn common shares. The number of common shares, if any, deliverable
to award recipients depends on the Company’s performance based on its total return to shareholders
during the three year measurement period that commenced on January 1, 2010 (in the case of the
March 4, 2010 awards) and January 1, 2009 (in the case of the April 1, 2009 awards) and that ends
on the earlier of December 31, 2012 or December 31, 2011 (as applicable) or the date of a change of
control, compared to the total shareholder return of REITs within an index over such respective
periods. The awards are also contingent upon the continued employment of the participants through
the performance periods (with exceptions for death, disability and qualifying retirement).
Dividends are deemed credited to the performance units accounts and are applied to “acquire” more
performance units for the account of the unit holder at the price per common share ending on the
dividend payment date. If earned, awards will be settled in common shares in an amount that
reflects both the number of performance units in the holder’s account at the end of the applicable
measurement period and the Company’s total return to shareholders during the applicable three year
measurement period relative to the total shareholder return of the REIT within the index.
If, based on an industry-based index at the end of the measurement period, the total shareholder
return during the measurement period places the Company at or above a certain percentile as
compared to its peers then the number of shares that will be delivered shall equal a certain
percentage (not to exceed 200%) of the participant’s base units.
The fair values of the 2010 and 2009 awards on the grant dates were $2.0 million and $1.1 million,
respectively, and are being amortized over the three year cliff vesting period. On the date of each
grant, the awards were valued using a Monte Carlo simulation. During the year ended December 31,
2010, the Company recognized total compensation expense for both the 2010 and 2009 awards of $0.6
million and $0.4 million, respectively, related to this plan of which nominal amounts were
capitalized as part of the Company’s review of employee salaries eligible for capitalization.
During the year ended December 31, 2009, the Company recognized total compensation expense for the
2009 award of $0.3 million related to this plan of which a nominal amount was also capitalized.
F - 46
Table of Contents
Outperformance Program
On August 28, 2006, the Compensation Committee of the Parent 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, 2010, 2009 and 2008, the Company
recognized $0.4 million, $0.9 million and $1.0 million, respectively, of compensation expense
related to the outperformance program; $0.1 million remains to be recognized as compensation
expense as of December 31, 2010.
Employee Share Purchase Plan
On May 9, 2007, the Parent 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 Parent 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 2010 plan year is limited to
the lesser of 20% of compensation or $50,000. The number of shares reserved for issuance under the
ESPP is 1.25 million. During the year ended December 31, 2010, employees made purchases of $0.5
million under the ESPP and the Company recognized $0.2 million of compensation expense related to
the ESPP. 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
Trustees of the Parent Company may terminate the ESPP at its sole discretion at anytime.
Deferred Compensation
In January 2005, the Parent 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 notional 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, 2010 and 2009, the Company recorded a net
increase in compensation costs of $1.0 million and $1.5 million, respectively, in connection with
the Plan due to the change in market value of the participant investments in the Plan. For the
year ended December 31, 2008, the Company recorded a net reduction in compensation cost of $2.8
million in connection with the Plan.
The deferred compensation obligations are unfunded, but the Company has purchased company-owned
life insurance policies and mutual funds, which can be utilized as a future funding source for the
Company’s obligations under the Plan. Participants in the Plan have no interest in any assets set
aside by the Company to meet its obligations under the Plan. For the years ended December 31, 2010
and 2009, the Company recorded a net reduction in compensation cost of $1.0 million and $1.8
million, respectively and net increase in compensation cost of $2.7 million during the year ended
December 31, 2008, 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 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, 2010 and 2009, 0.3 million of such shares were 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.
F - 47
Table of Contents
16.
PREFERRED SHARES
In 2003, the Parent 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 Parent 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. See Note 14 for related discussion.
In 2004, the Parent 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 Parent 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 Parent Company
could not redeem Series D Preferred Shares before February 27, 2009 except to preserve its REIT
status. See Note 14 for related discussion.
17.
DISTRIBUTIONS
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Common Share Distributions:
|
||||||||||||
|
Ordinary income
|
$ | 0.60 | $ | 0.60 | $ | 1.53 | ||||||
|
Capital gain
|
— | — | 0.11 | |||||||||
|
Non-taxable distributions
|
— | — | 0.12 | |||||||||
|
|
||||||||||||
|
Distributions per share
|
$ | 0.60 | $ | 0.60 | $ | 1.76 | ||||||
|
|
||||||||||||
|
Percentage classified as ordinary income
|
100.0 | % | 100.0 | % | 86.9 | % | ||||||
|
Percentage classified as capital gain
|
0.0 | % | 0.0 | % | 6.3 | % | ||||||
|
Percentage classified as non-taxable distribution
|
0.0 | % | 0.0 | % | 6.8 | % | ||||||
|
|
||||||||||||
|
Preferred Share Distributions:
|
||||||||||||
|
Total distributions declared
|
$ | 7,992,000 | $ | 7,992,000 | $ | 7,992,000 | ||||||
18.
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 IRS Philadelphia Campus, a 862,692 square foot office building that
is 100% leased to the IRS. On August 27, 2010, the Company completed the development of the IRS
Philadelphia Campus and the IRS lease commenced. USB agreed to contribute approximately $64.8
million of project costs and advanced $10.2 million of that amount contemporaneously with the
closing of the transaction. USB subsequently advanced an additional $27.4 million and $23.8 million
in June 2010 and December 2009, respectively. The remaining $3.4 million will be advanced upon the
Company’s completion of certain items and compliance with the federal rehabilitation regulations.
In exchange for its contributions into the development of IRS Philadelphia Campus, USB is entitled
to substantially all of the benefits derived from the tax rehabilitation credits available under
section 47 of the Internal Revenue Code. USB does not have a material interest in the underlying
economics of the property. This transaction includes a put/call provision whereby the Company may
be obligated or entitled to repurchase USB’s interest in the IRS Philadelphia Campus. The Company
believes the put will be exercised and the amount attributed to that puttable non-controlling
interest obligation is included in other liabilities and is being accreted to the expected fixed
put price.
F - 48
Table of Contents
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 IRS Philadelphia Campus, the Company concluded that
the IRS Philadelphia Campus should be consolidated. 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 beginning when the obligation to USB is relieved which occurs
upon delivery of the expected tax benefits net of any associated costs. The tax credit is subject
to 20% recapture per year beginning one year after the completion of the IRS Philadelphia Campus.
The total USB contributions made amounting to $61.4 million as of December 31, 2010 and $34.0
million as of December 31, 2009 are presented within deferred income in the Company’s consolidated
balance sheet. The contributions were recorded net of the amount allocated to non-controlling
interest as described above of $2.1 million and $1.1 million at December 31, 2010 and December 31,
2009, respectively. The Company anticipates that beginning in September 2011 it will recognize the
cash received as revenue net of allocated expenses over the five year tax credit recapture period
as defined in the Internal Revenue Code with other income (expense) in its consolidated statements
of operations. The Company also expects that the put/call provision will be exercised in December
2015 when the recapture period ends.
Direct and incremental costs incurred in structuring the transaction 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, 2010 and 2009 are $4.3 million and
$2.4 million, respectively, and are 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 $1.1 million for year-ended December 31, 2010.
New Markets Tax Credit Transaction
On December 30, 2008, the Company entered into a transaction with USB related to the Cira South
Garage 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 development of the Cira South Garage and as such it is
entitled to substantially all of the benefits derived from the tax credit, but it does not have a
material interest in the underlying economics of the Cira South Garage. 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 and is being accreted to the expected fixed put price.
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 investment entities established to
facilitate the NMTC transaction should be consolidated. The USB contribution of $13.3 million is
included in deferred income on the Company’s consolidated balance sheet at December 31, 2010 and
December 31, 2009. The USB contribution other than the amount allocated to the put obligation will
be recognized as income in the consolidated financial statements when the tax benefits are
delivered without risk of recapture to the tax credit investors and the Company’s obligation is
relieved. The Company anticipates that it will recognize the net cash received as revenue within
other income/expense in the year ended December 31, 2015. The NMTC is subject to 100% recapture
for a period of seven years as provided in the Internal Revenue Code. The Company expects that the
put/call provision will be exercised in December 2015 when the recapture period ends.
Direct and incremental costs incurred in structuring the transaction 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, 2010 and 2009 is $5.3 million and is
included in other assets on the Company’s consolidated balance sheet.
F - 49
Table of Contents
19.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table details the components of accumulated other comprehensive income (loss) of the
Parent Company and the Operating Partnership as of and for the three years ended December 31, 2010
(in thousands):
| Unrealized Gains | Cash Flow | Accumulated Other | ||||||||||
| Parent Company | (Losses) on Securities | Hedges | Comprehensive Loss | |||||||||
|
|
||||||||||||
|
Balance at January 1, 2008
|
(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 | ) | |||
|
Change during year
|
— | 7,320 | 7,320 | |||||||||
|
Non-controlling interest — consolidated real estate venture
partner’s share of unrealized (gains)/losses on
derivative financial instruments
|
— | (155 | ) | (155 | ) | |||||||
|
Reclassification adjustments for (gains) losses
reclassified into operations
|
— | 28 | 28 | |||||||||
|
|
||||||||||||
|
Balance at December 31, 2010
|
$ | (9 | ) | $ | (1,936 | ) | $ | (1,945 | ) | |||
|
|
||||||||||||
| Unrealized Gains | Cash Flow | Accumulated Other | ||||||||||
| Operating Partnership | (Losses) on Securities | Hedges | Comprehensive Loss | |||||||||
|
|
||||||||||||
|
Balance at January 1, 2008
|
(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
|
— | |||||||||||
|
Reclassification adjustments for (gains) losses
reclassified into operations
|
— | (184 | ) | (184 | ) | |||||||
|
|
||||||||||||
|
Balance at December 31, 2009
|
$ | (9 | ) | $ | (9,419 | ) | $ | (9,428 | ) | |||
|
Change during year
|
7,320 | 7,320 | ||||||||||
|
Reclassification adjustments for (gains) losses
reclassified into operations
|
— | 28 | 28 | |||||||||
|
|
||||||||||||
|
Balance at December 31, 2010
|
$ | (9 | ) | $ | (2,071 | ) | $ | (2,080 | ) | |||
|
|
||||||||||||
Over time, the unrealized gains and losses held in Accumulated Other Comprehensive Income (“AOCI”)
will be reclassified to earnings when the related hedged items are recognized in earnings. The
current balance held in AOCI is expected to be reclassified to earnings for realized losses on
forecasted debt transactions over the related term of the debt obligation, 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.
F - 50
Table of Contents
20.
SEGMENT INFORMATION
As of December 31, 2010, the Company manages its portfolio within seven segments: (1) Pennsylvania
Suburbs, (2) Philadelphia Central Business District (CBD) (3) Metropolitan Washington D.C, (4) New
Jersey/Delaware, (5) Richmond, Virginia, (6) Austin, Texas, and (7) California. The Pennsylvania
Suburbs segment includes properties in Chester, Delaware, and Montgomery counties in the
Philadelphia suburbs. The Philadelphia CBD segment includes properties in the City of Philadelphia,
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 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 Austin. The California
segment includes properties in Oakland, Concord, Carlsbad and Rancho Bernardo. 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.
As a result of the acquisition of Three Logan Square and the placement in service of the IRS
Philadelphia Campus and the Cira South Garage, the Company added the Philadelphia CBD segment
during the third quarter of the current year. The Philadelphia CBD includes Three Logan Square, the
IRS Philadelphia Campus, the Cira South Garage and certain other properties in Philadelphia, PA
that were previously included in the Pennsylvania segment. The results of prior periods have been
restated to conform to the current year presentation.
F - 51
Table of Contents
Segment information for the three years ended December 31, 2010, 2009 and 2008 are as follows (in
thousands):
| Pennsylvania | Philadelphia | Metropolitan, | New Jersey | Richmond, | ||||||||||||||||||||||||||||||||
| Suburbs | CBD | D.C. | /Delaware | Virginia | Austin, Texas | California | Corporate | Total | ||||||||||||||||||||||||||||
|
2010:
|
||||||||||||||||||||||||||||||||||||
|
Real estate investments, at cost:
|
||||||||||||||||||||||||||||||||||||
|
Operating properties
|
$ | 1,199,957 | $ | 911,354 | $ | 1,359,776 | $ | 568,413 | $ | 294,406 | $ | 254,019 | $ | 246,186 | $ | — | $ | 4,834,111 | ||||||||||||||||||
|
Construction-in-progress
|
33,322 | $ | 33,322 | |||||||||||||||||||||||||||||||||
|
Land inventory
|
110,055 | $ | 110,055 | |||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Total revenue
|
153,166 | 92,110 | 137,923 | 94,240 | 36,032 | 32,049 | 22,552 | (1,175 | ) | 566,897 | ||||||||||||||||||||||||||
|
Property operating expenses, real estate taxes and
third party management expenses
|
59,326 | 37,899 | 48,321 | 46,998 | 14,011 | 13,402 | 11,853 | (1,349 | ) | 230,461 | ||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Net operating income
|
$ | 93,840 | $ | 54,211 | $ | 89,602 | $ | 47,242 | $ | 22,021 | $ | 18,647 | $ | 10,699 | $ | 174 | $ | 336,436 | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
2009:
|
||||||||||||||||||||||||||||||||||||
|
Real estate investments, at cost:
|
||||||||||||||||||||||||||||||||||||
|
Operating properties
|
$ | 1,219,391 | $ | 490,602 | $ | 1,372,213 | $ | 605,181 | $ | 301,474 | $ | 268,806 | $ | 254,951 | $ | — | $ | 4,512,618 | ||||||||||||||||||
|
Construction-in-progress
|
— | — | — | — | — | — | — | 271,962 | 271,962 | |||||||||||||||||||||||||||
|
Land inventory
|
— | — | — | — | — | — | — | 97,368 | 97,368 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Total revenue
|
158,416 | 73,534 | 140,438 | 98,971 | 36,201 | 31,311 | 29,282 | 6,905 | 575,058 | |||||||||||||||||||||||||||
|
Property operating expenses, real estate taxes and
third party management expenses
|
56,511 | 31,479 | 52,899 | 45,916 | 13,871 | 14,300 | 14,735 | 549 | 230,260 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Net operating income
|
$ | 101,905 | $ | 42,055 | $ | 87,539 | $ | 53,055 | $ | 22,330 | $ | 17,011 | $ | 14,547 | $ | 6,356 | $ | 344,798 | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
2008:
|
||||||||||||||||||||||||||||||||||||
|
Real estate investments, at cost:
|
||||||||||||||||||||||||||||||||||||
|
Operating properties
|
$ | 1,232,559 | $ | 486,071 | $ | 1,387,717 | $ | 682,232 | $ | 300,576 | $ | 267,436 | $ | 251,729 | $ | — | $ | 4,608,320 | ||||||||||||||||||
|
Construction-in-progress
|
— | — | — | — | — | — | 122,219 | 122,219 | ||||||||||||||||||||||||||||
|
Land inventory
|
— | — | — | — | — | — | 100,516 | 100,516 | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Total revenue
|
160,107 | 76,502 | 138,339 | 100,027 | 36,944 | 33,598 | 29,590 | 5,825 | 580,932 | |||||||||||||||||||||||||||
|
Property operating expenses, real estate taxes and
third party management expenses
|
53,036 | 32,497 | 50,876 | 45,482 | 13,294 | 15,630 | 13,167 | 617 | 224,599 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Net operating income
|
$ | 107,071 | $ | 44,005 | $ | 87,463 | $ | 54,545 | $ | 23,650 | $ | 17,968 | $ | 16,423 | $ | 5,208 | $ | 356,333 | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
F - 52
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, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (amounts in thousands) | ||||||||||||
|
Consolidated net operating income
|
$ | 336,436 | $ | 344,798 | $ | 356,333 | ||||||
|
Less:
|
||||||||||||
|
Interest expense
|
(132,640 | ) | (135,740 | ) | (146,646 | ) | ||||||
|
Deferred financing costs
|
(3,770 | ) | (5,864 | ) | (5,450 | ) | ||||||
|
Depreciation and amortization
|
(212,775 | ) | (205,863 | ) | (199,447 | ) | ||||||
|
Administrative expenses
|
(23,306 | ) | (20,821 | ) | (23,002 | ) | ||||||
|
Provision for impairment on land inventory
|
— | — | (10,841 | ) | ||||||||
|
Recognized Hedge Activity
|
— | (916 | ) | — | ||||||||
|
Plus:
|
||||||||||||
|
Interest income
|
3,222 | 2,499 | 1,839 | |||||||||
|
Equity in income of real estate ventures
|
5,305 | 4,069 | 8,447 | |||||||||
|
Gain (loss) on early extinguishment of debt
|
(2,110 | ) | 23,177 | 18,105 | ||||||||
|
|
||||||||||||
|
Income (loss) from continuing operations
|
(29,638 | ) | 5,339 | (662 | ) | |||||||
|
Income from discontinued operations
|
12,032 | 2,750 | 39,187 | |||||||||
|
|
||||||||||||
|
Net income (loss)
|
$ | (17,606 | ) | $ | 8,089 | $ | 38,525 | |||||
|
|
||||||||||||
21.
OPERATING LEASES
The Company leases properties to tenants under operating leases with various expiration dates
extending to 2030. Minimum future rentals on non-cancelable leases at December 31, 2010 are as
follows (in thousands):
| Year | Minimum Rent | |||
|
2011
|
$ | 552,109 | ||
|
2012
|
487,290 | |||
|
2013
|
429,763 | |||
|
2014
|
372,185 | |||
|
2015
|
313,411 | |||
|
Thereafter
|
1,062,209 | |||
Total minimum future rentals presented above do not include amounts to be received as tenant
reimbursements for operating costs.
22.
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.
F - 53
Table of Contents
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 $13.2 million and $12.8
million at December 31, 2010 and 2009, respectively. 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. 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, 2010 are as follows (in
thousands):
|
2011
|
$ | 1,818 | ||
|
2012
|
1,818 | |||
|
2013
|
1,818 | |||
|
2014
|
1,909 | |||
|
2015
|
1,909 | |||
|
Thereafter
|
289,440 |
One of the land leases 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.
The Company acquired ground tenancy rights under a long term ground lease agreement
through its acquisition of Three Logan Square on August 5, 2010. The annual rental payment under this ground lease
is ten dollars through August 2022 which is when the initial term of the ground lease will end.
After the initial term, the Company has the option to renew the lease until 2091. The Company also
has the option to purchase the land at fair market value after providing a written notice to the
owner. The annual rental payment after 2022 will be adjusted at the lower of $3.0 million or the
prevailing market rent at that time until 2030. Subsequent to 2030, the annual rental payment will
be adjusted at the lower of $4.0 million or the prevailing market rent at the time until 2042 and
at fair market value until 2091. The Company believes that based on conditions as of the date the
lease was assigned (August 5, 2010), the lease will reset to market after the initial term. Using
the estimated fair market rent as of the date of the acquisition over the extended term of the
ground lease (assuming the purchase option is not exercised), the future payments will aggregate to
$27.4 million. The Company has not included the amounts in the table above since such amounts are
not fixed and determinable.
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 706,288 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 $2.9 million. On the TRC acquisition date, the Company recorded a liability of
$0.7 million and this amount will accrete up to $2.9 million through September 2019. As of
December 31, 2010, the Company has a balance of $1.2 million for this liability in its consolidated
balance sheet.
The Company is currently has been audited by the Internal Revenue Service (the “IRS”) for its 2004
tax year. The audit concerns the tax treatment of the TRC acquisition in September 2004 in which
the Company acquired a portfolio of properties through the acquisition of a limited partnership.
On December 17, 2010, the Company received notice that the IRS proposed an adjustment to the allocation of recourse liabilities
allocated to the contributor of the properties. The Company intends to appeal the proposed
adjustment. The proposed adjustment, if upheld, would not 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 - 54
Table of Contents
As part of the Company’s 2006 acquisition of Prentiss Properties Trust (the “Prentiss acquisition”)
and the TRC acquisition in 2004, 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, 2010: 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 the applicable property on account of tax liabilities attributed to them.
As part of the Company’s acquisition of properties from time to time in tax-deferred transactions,
the Company has agreed to provide certain of the prior owners of the acquired properties with the
right to guarantee the Company’s indebtedness. If the Company were to seek to repay the
indebtedness guaranteed by the prior owner before the expiration of the applicable agreement, the
Company will be required to provide the prior owner an opportunity to guaranty a qualifying
replacement debt. These debt maintenance agreements may limit the Company’s ability to refinance
indebtedness on terms that will be favorable to the Company.
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 IRS Philadelphia Campus and the Cira South
Garage, the Company entered into a historic tax credit and a new market tax credit arrangement (see
Note 18), 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.
23.
SUBSEQUENT EVENT
On January 20, 2011, the Company closed on a $9.3 million purchase of a parcel of land in
Philadelphia, Pennsylvania. The Company funded the cost of this acquisition with available
corporate cash and a draw on its Credit Facility. The Company will contribute the acquired property
into a real estate venture in return for a 50% limited interest in the partnership. The real estate
venture will be formed to construct a mixed-use development property in the city of Philadelphia.
F - 55
Table of Contents
24.
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following is a summary of quarterly financial information as of and for the years ended
December 31, 2010 and 2009 (in thousands, except per share data):
| 1st | 2nd | 3rd | 4th | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
|
2010:
|
||||||||||||||||
|
Total revenue
|
$ | 141,434 | $ | 135,840 | $ | 141,879 | $ | 147,744 | ||||||||
|
Net loss
|
(399 | ) | (5,600 | ) | (6,616 | ) | (4,991 | ) | ||||||||
|
Net loss allocated to Common Shares
|
(348 | ) | (5,441 | ) | (6,437 | ) | (4,848 | ) | ||||||||
|
|
||||||||||||||||
|
Basic earnings per Common Share
|
$ | (0.02 | ) | $ | (0.06 | ) | $ | (0.06 | ) | $ | (0.05 | ) | ||||
|
Diluted earnings per Common Share
|
$ | (0.02 | ) | $ | (0.06 | ) | $ | (0.06 | ) | $ | (0.05 | ) | ||||
|
|
||||||||||||||||
|
2009:
|
||||||||||||||||
|
Total revenue
|
$ | 144,958 | $ | 140,388 | $ | 144,824 | $ | 144,888 | ||||||||
|
Net income (loss)
|
(873 | ) | 5,781 | 7,309 | (4,127 | ) | ||||||||||
|
Income (loss) allocated to Common Shares
|
(778 | ) | 5,614 | 7,148 | (3,957 | ) | ||||||||||
|
|
||||||||||||||||
|
Basic earnings per Common Share
|
$ | (0.03 | ) | $ | 0.03 | $ | 0.04 | $ | (0.05 | ) | ||||||
|
Diluted earnings per Common Share
|
$ | (0.03 | ) | $ | 0.03 | $ | 0.04 | $ | (0.05 | ) | ||||||
| (a) |
During the fourth quarter of 2010, the Company recorded
an adjustment to depreciation
and amortization expense of $1.7 million related to prior years and prior quarters for
completed projects that were not closed out of our job cost system in a timely manner
resulting in the understatement of depreciation expense in the prior years and prior
quarters. The adjustment related to different quarters during the year and resulted in the
understatement of net losses of the affected quarters. Understatement of depreciation
expense for the first, second, and third quarters of the current year amounted to $0.4
million, $0.3 million, and $0.5 million, respectively. In addition, the Company recorded
other adjustments in prior quarters of 2010. In aggregate, all adjustments including the
aforementioned adjustments understated or (overstated) the reported net loss by ($0.5)
million in the third quarter; and $0.4 million and $0.2 million for the first and second
quarters, respectively. See also the disclosure under the caption depreciation and
amortization in Note 2. As the Company had concluded that these errors, both individually
and in aggregate, were not material to prior years’ consolidated financial statements and
the impact of correcting this error in the current year is not material to the Company’s
full year consolidated financial statements, the Company recorded the related adjustments
in the current year.
|
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. See Note 2 and Note 10.
F - 56
Table of Contents
Brandywine Realty Trust and Brandywine Operating Partnership, L.P.
Schedule II
Valuation and Qualifying Accounts
(in thousands)
| Balance at | Balance | |||||||||||||||
| Beginning | at End | |||||||||||||||
| Description | of Period | Additions | Deductions (1) | of Period | ||||||||||||
|
Allowance for doubtful accounts:
|
||||||||||||||||
|
|
||||||||||||||||
|
Year ended December 31, 2010
|
$ | 16,363 | $ | 763 | $ | 1,904 | $ | 15,222 | ||||||||
|
|
||||||||||||||||
|
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 | ||||||||
|
|
||||||||||||||||
| (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 - 57
Table of Contents
BRANDYWINE REALTY TRUST AND BRANDYWINE OPERATING PARTNERSHIP, L.P.
Real Estate and Accumulated Depreciation — December 31, 2010
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2010 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||
| Property Name | City | State | December 31, 2010 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2010 (b) | Construction | Acquired | Life | |||||||||||||||||||||||||||||||||||
|
PENNSYLVANIA SUBURBS
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
400 Berwyn Park
|
Berwyn | PA | — | 2,657 | 4,462 | 14,128 | 2,657 | 18,591 | 21,247 | 6,019 | 1999 | 1999 | 40 | |||||||||||||||||||||||||||||||||||
|
300 Berwyn Park
|
Berwyn | PA | 10,045 | 2,206 | 13,422 | 2,636 | 2,206 | 16,059 | 18,264 | 5,939 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
1050 Westlakes Drive
|
Berwyn | PA | — | 2,611 | 10,445 | 5,046 | 2,611 | 15,491 | 18,102 | 5,098 | 1984 | 1999 | 40 | |||||||||||||||||||||||||||||||||||
|
1200 Swedesford Road
|
Berwyn | PA | 2,597 | 2,595 | 11,809 | 3,369 | 2,595 | 15,178 | 17,773 | 2,887 | 1994 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
200 Berwyn Park
|
Berwyn | PA | 7,107 | 1,533 | 9,460 | 2,303 | 1,533 | 11,763 | 13,296 | 4,789 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
1180 Swedesford Road
|
Berwyn | PA | — | 2,086 | 8,342 | 1,276 | 2,086 | 9,618 | 11,704 | 2,839 | 1987 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
1160 Swedesford Road
|
Berwyn | PA | — | 1,781 | 7,124 | 1,127 | 1,781 | 8,251 | 10,032 | 2,441 | 1986 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
100 Berwyn Park
|
Berwyn | PA | 5,469 | 1,180 | 7,290 | 1,378 | 1,180 | 8,668 | 9,848 | 3,335 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
1100 Cassett Road
|
Berwyn | PA | — | 1,695 | 6,779 | (0 | ) | 1,695 | 6,779 | 8,474 | 1,652 | 1997 | 2001 | 40 | ||||||||||||||||||||||||||||||||||
|
980 Harvest Drive
|
Blue Bell | PA | — | 3,304 | 16,960 | (484 | ) | 3,304 | 16,476 | 19,780 | 4,815 | 1988 | 2002 | 40 | ||||||||||||||||||||||||||||||||||
|
925 Harvest Drive
|
Blue Bell | PA | — | 1,671 | 6,606 | 854 | 1,671 | 7,460 | 9,131 | 2,746 | 1990 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
920 Harvest Drive
|
Blue Bell | PA | — | 1,209 | 6,595 | (127 | ) | 1,208 | 6,470 | 7,677 | 2,733 | 1990 | 1998 | 40 | ||||||||||||||||||||||||||||||||||
|
426 Lancaster Avenue
|
Devon | PA | — | 1,689 | 6,756 | 392 | 1,689 | 7,148 | 8,837 | 2,675 | 1990 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
52 Swedesford Square
|
East Whiteland Twp. | PA | — | 4,241 | 16,579 | 555 | 4,241 | 17,134 | 21,375 | 5,922 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
429 Creamery Way
|
Exton | PA | — | 1,368 | 5,471 | 399 | 1,368 | 5,871 | 7,238 | 1,391 | 1996 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
412 Creamery Way
|
Exton | PA | — | 1,195 | 4,779 | 1,135 | 1,195 | 5,914 | 7,109 | 1,380 | 1999 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
440 Creamery Way
|
Exton | PA | — | 982 | 3,927 | 1,976 | 982 | 5,903 | 6,885 | 1,852 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
467 Creamery Way
|
Exton | PA | — | 906 | 3,623 | 1,365 | 906 | 4,988 | 5,894 | 1,422 | 1988 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
436 Creamery Way
|
Exton | PA | — | 994 | 3,978 | 675 | 994 | 4,653 | 5,647 | 1,242 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
442 Creamery Way
|
Exton | PA | — | 894 | 3,576 | 684 | 894 | 4,260 | 5,154 | 1,248 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
100 Arrandale Boulevard
|
Exton | PA | — | 970 | 3,878 | 274 | 970 | 4,152 | 5,122 | 1,129 | 1997 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
457 Creamery Way
|
Exton | PA | — | 777 | 3,107 | 1,020 | 777 | 4,127 | 4,904 | 855 | 1990 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
486 Thomas Jones Way
|
Exton | PA | — | 806 | 3,256 | 436 | 806 | 3,692 | 4,498 | 1,511 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
456 Creamery Way
|
Exton | PA | — | 635 | 2,548 | (48 | ) | 635 | 2,499 | 3,135 | 1,073 | 1987 | 1996 | 40 | ||||||||||||||||||||||||||||||||||
|
468 Thomas Jones Way
|
Exton | PA | — | 526 | 2,112 | 99 | 527 | 2,211 | 2,737 | 1,015 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
481 John Young Way
|
Exton | PA | — | 496 | 1,983 | 14 | 496 | 1,997 | 2,493 | 487 | 1997 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
111 Arrandale Road
|
Exton | PA | — | 262 | 1,048 | 125 | 262 | 1,173 | 1,435 | 331 | 1996 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
500 Enterprise Drive
|
Horsham | PA | — | 1,303 | 5,188 | 3,178 | 1,303 | 8,366 | 9,669 | 2,064 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
One Progress Drive
|
Horsham | PA | — | 1,399 | 5,629 | 225 | 1,399 | 5,855 | 7,253 | 2,498 | 1986 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
640 Freedom Business Center
|
King of Prussia | PA | — | 4,222 | 16,891 | 2,726 | 4,222 | 19,617 | 23,839 | 7,283 | 1991 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
555 Croton Road
|
King of Prussia | PA | — | 4,486 | 17,943 | 1,124 | 4,486 | 19,068 | 23,553 | 4,865 | 1999 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
630 Allendale Road
|
King of Prussia | PA | — | 2,836 | 4,028 | 11,784 | 2,636 | 16,012 | 18,648 | 3,867 | 2000 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
620 Freedom Business Center
|
King of Prussia | PA | — | 2,770 | 11,014 | 3,306 | 2,770 | 14,320 | 17,090 | 5,701 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
1000 First Avenue
|
King of Prussia | PA | — | 2,772 | 10,936 | 3,206 | 2,772 | 14,142 | 16,914 | 5,157 | 1980 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
1060 First Avenue
|
King of Prussia | PA | — | 2,712 | 10,953 | 2,437 | 2,712 | 13,390 | 16,102 | 4,592 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
630 Freedom Business Center
|
King of Prussia | PA | — | 2,773 | 11,144 | 1,096 | 2,773 | 12,240 | 15,013 | 4,580 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
1020 First Avenue
|
King of Prussia | PA | — | 2,168 | 8,576 | 4,117 | 2,168 | 12,693 | 14,861 | 4,487 | 1984 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
1040 First Avenue
|
King of Prussia | PA | — | 2,860 | 11,282 | 697 | 2,860 | 11,978 | 14,839 | 4,224 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
610 Freedom Business Center
|
King of Prussia | PA | — | 2,017 | 8,070 | 1,139 | 2,017 | 9,210 | 11,226 | 3,201 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
650 Park Avenue
|
King of Prussia | PA | — | 1,916 | 4,378 | 2,048 | 1,916 | 6,425 | 8,342 | 2,731 | 1968 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
500 North Gulph Road
|
King of Prussia | PA | — | 1,303 | 5,201 | 1,667 | 1,303 | 6,868 | 8,171 | 2,705 | 1979 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
741 First Avenue
|
King of Prussia | PA | — | 1,287 | 5,151 | 12 | 1,287 | 5,162 | 6,450 | 1,875 | 1966 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
875 First Avenue
|
King of Prussia | PA | — | 618 | 2,473 | 3,241 | 618 | 5,714 | 6,332 | 2,243 | 1966 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
751-761 Fifth Avenue
|
King of Prussia | PA | — | 1,097 | 4,391 | 31 | 1,097 | 4,422 | 5,519 | 1,599 | 1967 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
600 Park Avenue
|
King of Prussia | PA | — | 1,012 | 4,048 | 385 | 1,012 | 4,433 | 5,445 | 1,563 | 1964 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
620 Allendale Road
|
King of Prussia | PA | — | 1,020 | 3,839 | 503 | 1,020 | 4,342 | 5,362 | 1,513 | 1961 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
640 Allendale Road
|
King of Prussia | PA | — | 439 | 432 | 1,480 | 439 | 1,912 | 2,351 | 504 | 2000 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
101 Lindenwood Drive
|
Malvern | PA | — | 4,152 | 16,606 | 1,644 | 4,152 | 18,250 | 22,402 | 4,900 | 1988 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
301 Lindenwood Drive
|
Malvern | PA | — | 2,729 | 10,915 | 1,878 | 2,729 | 12,793 | 15,522 | 3,721 | 1984 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
300 Lindenwood Drive
|
Malvern | PA | — | 848 | 3,394 | 1,334 | 849 | 4,727 | 5,576 | 1,308 | 1991 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
1700 Paoli Pike
|
Malvern | PA | — | 458 | 559 | 3,344 | 488 | 3,873 | 4,361 | 1,162 | 2000 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
100 Lindenwood Drive
|
Malvern | PA | — | 473 | 1,892 | 179 | 473 | 2,071 | 2,544 | 520 | 1985 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
200 Lindenwood Drive
|
Malvern | PA | — | 324 | 1,295 | 110 | 324 | 1,405 | 1,729 | 322 | 1984 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
14 Campus Boulevard
|
Newtown Square | PA | 6,588 | 2,244 | 4,217 | 1,514 | 2,244 | 5,731 | 7,975 | 1,969 | 1998 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
11 Campus Boulevard
|
Newtown Square | PA | 4,519 | 1,112 | 4,067 | 1,053 | 1,112 | 5,119 | 6,232 | 1,633 | 1998 | 1999 | 40 | |||||||||||||||||||||||||||||||||||
|
17 Campus Boulevard
|
Newtown Square | PA | 4,601 | 1,108 | 5,155 | (940 | ) | 1,108 | 4,216 | 5,323 | 895 | 2001 | 1997 | 40 | ||||||||||||||||||||||||||||||||||
|
15 Campus Boulevard
|
Newtown Square | PA | 4,701 | 1,164 | 3,896 | 229 | 1,164 | 4,125 | 5,289 | 891 | 2002 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
18 Campus Boulevard
|
Newtown Square | PA | 3,541 | 787 | 3,312 | 392 | 787 | 3,704 | 4,491 | 1,657 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
401 Plymouth Road
|
Plymouth Meeting | PA | — | 6,198 | 16,131 | 14,225 | 6,199 | 30,356 | 36,554 | 7,886 | 2001 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
4000 Chemical Road
|
Plymouth Meeting | PA | — | 4,373 | 24,546 | 3,701 | 4,373 | 28,247 | 32,620 | 2,478 | 2007 | N/A | 40 | |||||||||||||||||||||||||||||||||||
|
600 West Germantown Pike
|
Plymouth Meeting | PA | — | 3,652 | 15,288 | 1,638 | 3,652 | 16,926 | 20,578 | 3,772 | 1986 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
630 West Germantown Pike
|
Plymouth Meeting | PA | — | 3,558 | 14,743 | 2,123 | 3,558 | 16,866 | 20,424 | 3,976 | 1988 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
610 West Germantown Pike
|
Plymouth Meeting | PA | — | 3,651 | 14,514 | 2,120 | 3,651 | 16,633 | 20,285 | 4,341 | 1987 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
620 West Germantown Pike
|
Plymouth Meeting | PA | — | 3,572 | 14,435 | 1,099 | 3,572 | 15,534 | 19,106 | 3,745 | 1990 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
2240/2250 Butler Pike
|
Plymouth Meeting | PA | — | 1,104 | 4,627 | 1,254 | 1,104 | 5,881 | 6,985 | 2,668 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
2260 Butler Pike
|
Plymouth Meeting | PA | — | 661 | 2,727 | 1,422 | 662 | 4,149 | 4,810 | 1,868 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
120 West Germantown Pike
|
Plymouth Meeting | PA | — | 685 | 2,773 | 410 | 685 | 3,183 | 3,868 | 1,335 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
140 West Germantown Pike
|
Plymouth Meeting | PA | — | 481 | 1,976 | 307 | 482 | 2,282 | 2,764 | 997 | 1984 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
351 Plymouth Road
|
Plymouth Meeting | PA | — | 1,043 | 555 | — | 1,043 | 555 | 1,598 | 80 | N/A | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
150 Radnor Chester Road
|
Radnor | PA | — | 11,925 | 36,986 | 11,720 | 11,897 | 48,734 | 60,631 | 11,913 | 1983 | 2004 | 29 | |||||||||||||||||||||||||||||||||||
|
One Radnor Corporate Center
|
Radnor | PA | — | 7,323 | 28,613 | 18,499 | 7,323 | 47,112 | 54,435 | 7,757 | 1998 | 2004 | 29 | |||||||||||||||||||||||||||||||||||
|
555 Lancaster Avenue
|
Radnor | PA | — | 8,014 | 16,508 | 24,505 | 8,609 | 40,417 | 49,027 | 12,851 | 1973 | 2004 | 24 | |||||||||||||||||||||||||||||||||||
F - 58
Table of Contents
BRANDYWINE REALTY TRUST AND BRANDYWINE OPERATING PARTNERSHIP, L.P.
Real Estate and Accumulated Depreciation — December 31, 2010
(in thousands)
Real Estate and Accumulated Depreciation — December 31, 2010
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2010 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||
| Property Name | City | State | December 31, 2010 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2010 (b) | Construction | Acquired | Life | |||||||||||||||||||||||||||||||||||
|
201 King of Prussia Road
|
Radnor | PA | — | 8,956 | 29,811 | 5,738 | 8,949 | 35,556 | 44,505 | 10,167 | 2001 | 2004 | 25 | |||||||||||||||||||||||||||||||||||
|
Four Radnor Corporate Center
|
Radnor | PA | — | 5,406 | 21,390 | 10,095 | 5,705 | 31,186 | 36,891 | 7,740 | 1995 | 2004 | 30 | |||||||||||||||||||||||||||||||||||
|
Five Radnor Corporate Center
|
Radnor | PA | — | 6,506 | 25,525 | 2,228 | 6,578 | 27,680 | 34,259 | 5,640 | 1998 | 2004 | 38 | |||||||||||||||||||||||||||||||||||
|
Three Radnor Corporate Center
|
Radnor | PA | — | 4,773 | 17,961 | 1,601 | 4,791 | 19,544 | 24,335 | 4,672 | 1998 | 2004 | 29 | |||||||||||||||||||||||||||||||||||
|
Two Radnor Corporate Center
|
Radnor | PA | — | 3,937 | 15,484 | 1,143 | 3,942 | 16,622 | 20,564 | 3,806 | 1998 | 2004 | 29 | |||||||||||||||||||||||||||||||||||
|
130 Radnor Chester Road
|
Radnor | PA | — | 2,573 | 8,338 | 3,541 | 2,567 | 11,885 | 14,452 | 2,243 | 1983 | 2004 | 25 | |||||||||||||||||||||||||||||||||||
|
170 Radnor Chester Road
|
Radnor | PA | — | 2,514 | 8,147 | 3,221 | 2,509 | 11,374 | 13,882 | 2,666 | 1983 | 2004 | 25 | |||||||||||||||||||||||||||||||||||
|
101 West Elm Street
|
W. Conshohocken | PA | — | 6,251 | 25,209 | 2,218 | 6,251 | 27,426 | 33,678 | 4,127 | 1999 | 2005 | 40 | |||||||||||||||||||||||||||||||||||
|
1 West Elm Street
|
W. Conshohocken | PA | — | 3,557 | 14,249 | — | 3,557 | 14,866 | 18,423 | 1,939 | 1999 | 2005 | 40 | |||||||||||||||||||||||||||||||||||
|
595 East Swedesford Road
|
Wayne | PA | — | 2,729 | 10,917 | 1,482 | 2,729 | 12,398 | 15,128 | 2,517 | 1998 | 2003 | 40 | |||||||||||||||||||||||||||||||||||
|
575 East Swedesford Road
|
Wayne | PA | — | 2,178 | 8,712 | 1,630 | 2,178 | 10,342 | 12,520 | 2,089 | 1985 | 2003 | 40 | |||||||||||||||||||||||||||||||||||
|
565 East Swedesford Road
|
Wayne | PA | — | 1,872 | 7,489 | 1,196 | 1,872 | 8,685 | 10,557 | 1,824 | 1984 | 2003 | 40 | |||||||||||||||||||||||||||||||||||
|
585 East Swedesford Road
|
Wayne | PA | — | 1,350 | 5,401 | 358 | 1,350 | 5,758 | 7,109 | 1,113 | 1998 | 2003 | 40 | |||||||||||||||||||||||||||||||||||
|
1336 Enterprise Drive
|
West Goshen | PA | — | 731 | 2,946 | 47 | 731 | 2,993 | 3,724 | 1,204 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
PHILADELPHIA CBD
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
2970 Market Street
|
Philadelphia | PA | 208,366 | 22,430 | 226,078 | — | 22,430 | 226,078 | 248,508 | 2,039 | 2010 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
2929 Arch Street
|
Philadelphia | PA | — | — | 208,570 | 18,289 | — | 226,859 | 226,859 | 46,937 | 2005 | N/A | 40 | |||||||||||||||||||||||||||||||||||
|
130 North 18th Street
|
Philadelphia | PA | 60,000 | 14,496 | 107,736 | 10,115 | 14,473 | 117,874 | 132,347 | 24,106 | 1998 | 2004 | 23 | |||||||||||||||||||||||||||||||||||
|
100 North 18th Street
|
Philadelphia | PA | 89,800 | 16,066 | 100,255 | 5,161 | 16,066 | 105,416 | 121,482 | 21,743 | 1988 | 2004 | 33 | |||||||||||||||||||||||||||||||||||
|
1717 Arch Street
|
Philadelphia | PA | — | — | 98,188 | (1 | ) | — | 98,187 | 98,187 | 2,056 | 1990 | 2010 | 40 | ||||||||||||||||||||||||||||||||||
|
2930 Chestnut Street
|
Philadelphia | PA | 46,335 | — | 77,968 | 2 | — | 77,970 | 77,970 | 629 | 2010 | N/A | 40 | |||||||||||||||||||||||||||||||||||
|
Philadelphia Marine Center
|
Philadelphia | PA | — | 532 | 2,196 | 3,249 | 628 | 5,349 | 5,977 | 1,503 | Various | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
METROPOLITAN WASHINGTON, D.C.
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
11720 Beltsville Drive
|
Beltsville | MD | — | 3,831 | 16,661 | 3,873 | 3,904 | 20,462 | 24,365 | 3,585 | 1987 | 2006 | 46 | |||||||||||||||||||||||||||||||||||
|
11700 Beltsville Drive
|
Beltsville | MD | — | 2,808 | 12,081 | 349 | 2,863 | 12,375 | 15,239 | 1,695 | 1981 | 2006 | 46 | |||||||||||||||||||||||||||||||||||
|
11710 Beltsville Drive
|
Beltsville | MD | — | 2,278 | 11,100 | (1,127 | ) | 2,321 | 9,930 | 12,251 | 1,290 | 1987 | 2006 | 46 | ||||||||||||||||||||||||||||||||||
|
7101 Wisconsin Avenue
|
Bethesda | MD | — | 9,634 | 48,402 | 4,639 | 9,816 | 52,859 | 62,675 | 7,833 | 1975 | 2006 | 45 | |||||||||||||||||||||||||||||||||||
|
6600 Rockledge Drive
|
Bethesda | MD | — | — | 37,421 | 8,736 | — | 46,157 | 46,157 | 6,499 | 1981 | 2006 | 50 | |||||||||||||||||||||||||||||||||||
|
11740 Beltsville Drive
|
Bethesda | MD | — | 198 | 870 | 42 | 202 | 908 | 1,110 | 125 | 1987 | 2006 | 46 | |||||||||||||||||||||||||||||||||||
|
12015 Lee Jackson Memorial Highway
|
Fairfax | VA | — | 3,770 | 22,895 | 1,872 | 3,842 | 24,696 | 28,538 | 3,179 | 1985 | 2006 | 42 | |||||||||||||||||||||||||||||||||||
|
11781 Lee Jackson Memorial Highway
|
Fairfax | VA | — | 3,246 | 19,836 | (494 | ) | 3,307 | 19,281 | 22,588 | 2,894 | 1982 | 2006 | 40 | ||||||||||||||||||||||||||||||||||
|
4401 Fair Lakes Court
|
Fairfax | VA | — | 1,569 | 11,982 | 305 | 1,599 | 12,257 | 13,856 | 1,508 | 1988 | 2006 | 52 | |||||||||||||||||||||||||||||||||||
|
3130 Fairview Park Drive
|
Falls Church | VA | — | 6,576 | 51,605 | 4,317 | 6,700 | 55,798 | 62,498 | 6,542 | 1999 | 2006 | 53 | |||||||||||||||||||||||||||||||||||
|
3141 Fairview Park Drive
|
Falls Church | VA | — | 5,918 | 40,981 | 7,931 | 7,081 | 47,750 | 54,830 | 5,239 | 1988 | 2006 | 51 | |||||||||||||||||||||||||||||||||||
|
2340 Dulles Corner Boulevard
|
Herndon | VA | — | 16,345 | 65,379 | 18,370 | 16,129 | 83,965 | 100,094 | 14,093 | 1987 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
13820 Sunrise Valley Drive
|
Herndon | VA | — | 11,082 | 47,290 | 19,687 | 11,082 | 66,977 | 78,059 | 5,133 | 2007 | N/A | 40 | |||||||||||||||||||||||||||||||||||
|
2291 Wood Oak Drive
|
Herndon | VA | — | 8,243 | 52,413 | (742 | ) | 8,782 | 51,133 | 59,914 | 5,562 | 1999 | 2006 | 55 | ||||||||||||||||||||||||||||||||||
|
2355 Dulles Corner Boulevard
|
Herndon | VA | — | 10,365 | 43,876 | 5,232 | 10,365 | 49,109 | 59,473 | 7,504 | 1988 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
196/198 Van Buren Street
|
Herndon | VA | — | 7,931 | 43,812 | 6,484 | 8,348 | 49,878 | 58,227 | 7,398 | 1991 | 2006 | 53 | |||||||||||||||||||||||||||||||||||
|
2251 Corporate Park Drive
|
Herndon | VA | — | 11,472 | 45,893 | 42 | 11,472 | 45,935 | 57,407 | 4,788 | 2000 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
2411 Dulles Corner Park
|
Herndon | VA | — | 7,279 | 46,340 | 3,713 | 7,417 | 49,916 | 57,333 | 6,240 | 1990 | 2006 | 50 | |||||||||||||||||||||||||||||||||||
|
13880 Dulles Corner Lane
|
Herndon | VA | — | 7,236 | 39,213 | 640 | 7,373 | 39,716 | 47,089 | 5,938 | 1997 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
2121 Cooperative Way
|
Herndon | VA | — | 5,598 | 38,639 | 87 | 5,795 | 38,529 | 44,324 | 4,310 | 2000 | 2006 | 54 | |||||||||||||||||||||||||||||||||||
|
2201 Cooperative Way
|
Herndon | VA | — | 4,809 | 34,093 | (1,766 | ) | 4,809 | 32,328 | 37,137 | 3,333 | 1990 | 2006 | 54 | ||||||||||||||||||||||||||||||||||
|
13825 Sunrise Valley Drive
|
Herndon | VA | — | 3,794 | 19,365 | (1,369 | ) | 3,866 | 17,924 | 21,790 | 2,054 | 1989 | 2006 | 46 | ||||||||||||||||||||||||||||||||||
|
1676 International Drive
|
Mclean | VA | 63,037 | 18,437 | 97,538 | 1,369 | 18,785 | 98,559 | 117,344 | 10,860 | 1999 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
8260 Greensboro Drive
|
Mclean | VA | 33,470 | 7,952 | 33,964 | (41 | ) | 8,102 | 33,773 | 41,875 | 3,690 | 1980 | 2006 | 52 | ||||||||||||||||||||||||||||||||||
|
1880 Campus Commons Drive
|
Reston | VA | — | 6,164 | 28,114 | 155 | 6,281 | 28,152 | 34,433 | 3,072 | 1985 | 2006 | 52 | |||||||||||||||||||||||||||||||||||
|
2273 Research Boulevard
|
Rockville | MD | 13,371 | 5,167 | 31,110 | 2,405 | 5,237 | 33,445 | 38,682 | 5,054 | 1999 | 2006 | 45 | |||||||||||||||||||||||||||||||||||
|
2275 Research Boulevard
|
Rockville | MD | 13,367 | 5,059 | 29,668 | 2,390 | 5,154 | 31,963 | 37,117 | 4,426 | 1990 | 2006 | 45 | |||||||||||||||||||||||||||||||||||
|
2277 Research Boulevard
|
Rockville | MD | 12,407 | 4,649 | 26,952 | 634 | 4,733 | 27,502 | 32,235 | 3,405 | 1986 | 2006 | 45 | |||||||||||||||||||||||||||||||||||
|
1900 Gallows Road
|
Vienna | VA | — | 7,797 | 47,817 | 2,784 | 7,944 | 50,454 | 58,398 | 5,020 | 1989 | 2006 | 52 | |||||||||||||||||||||||||||||||||||
|
8521 Leesburg Pike
|
Vienna | VA | — | 4,316 | 30,885 | (357 | ) | 4,397 | 30,446 | 34,844 | 3,891 | 1984 | 2006 | 51 | ||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
NEW JERSEY/DELAWARE
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
220 Lake Drive East
|
Cherry Hill | NJ | — | 2,144 | 8,798 | 1,073 | 2,144 | 9,871 | 12,015 | 2,831 | 1988 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
457 Haddonfield Road
|
Cherry Hill | NJ | 11,532 | 2,142 | 9,120 | 190 | 2,142 | 9,310 | 11,452 | 3,949 | 1990 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
200 Lake Drive East
|
Cherry Hill | NJ | — | 2,069 | 8,275 | 1,018 | 2,069 | 9,293 | 11,362 | 2,205 | 1989 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
210 Lake Drive East
|
Cherry Hill | NJ | — | 1,645 | 6,579 | 1,338 | 1,645 | 7,918 | 9,562 | 1,930 | 1986 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
6 East Clementon Road
|
Gibbsboro | NJ | — | 1,345 | 5,366 | 538 | 1,345 | 5,904 | 7,249 | 2,131 | 1980 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
20 East Clementon Road
|
Gibbsboro | NJ | — | 769 | 3,055 | 453 | 769 | 3,508 | 4,277 | 1,285 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
10 Foster Avenue
|
Gibbsboro | NJ | — | 244 | 971 | 118 | 244 | 1,089 | 1,333 | 418 | 1983 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
7 Foster Avenue
|
Gibbsboro | NJ | — | 231 | 921 | 68 | 231 | 988 | 1,220 | 401 | 1983 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
50 East Clementon Road
|
Gibbsboro | NJ | — | 114 | 964 | 3 | 114 | 967 | 1,081 | 361 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
4 Foster Avenue
|
Gibbsboro | NJ | — | 183 | 726 | 37 | 183 | 763 | 946 | 302 | 1974 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
2 Foster Avenue
|
Gibbsboro | NJ | — | 185 | 730 | 24 | 185 | 754 | 939 | 287 | 1974 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
1 Foster Avenue
|
Gibbsboro | NJ | — | 93 | 364 | 76 | 93 | 440 | 533 | 168 | 1972 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
5 U.S. Avenue
|
Gibbsboro | NJ | — | 21 | 81 | 3 | 21 | 84 | 105 | 31 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
5 Foster Avenue
|
Gibbsboro | NJ | — | 9 | 32 | 26 | 9 | 58 | 67 | 21 | 1968 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
F - 59
Table of Contents
BRANDYWINE REALTY TRUST AND BRANDYWINE OPERATING PARTNERSHIP, L.P.
Real Estate and Accumulated Depreciation — December 31, 2010
(in thousands)
Real Estate and Accumulated Depreciation — December 31, 2010
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2010 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||
| Property Name | City | State | December 31, 2010 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2010 (b) | Construction | Acquired | Life | |||||||||||||||||||||||||||||||||||
|
1009 Lenox Drive
|
Lawrenceville | NJ | — | 4,876 | 19,284 | 4,597 | 5,118 | 23,640 | 28,757 | 8,322 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
989 Lenox Drive
|
Lawrenceville | NJ | — | 3,701 | 14,802 | 1,457 | 3,850 | 16,110 | 19,960 | 3,146 | 1984 | 2003 | 40 | |||||||||||||||||||||||||||||||||||
|
997 Lenox Drive
|
Lawrenceville | NJ | 8,190 | 2,410 | 9,700 | 4,729 | 2,540 | 14,299 | 16,839 | 4,672 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
993 Lenox Drive
|
Lawrenceville | NJ | 9,356 | 2,811 | 17,996 | (5,366 | ) | 2,960 | 12,481 | 15,441 | 4,752 | 1985 | 1998 | 40 | ||||||||||||||||||||||||||||||||||
|
1200 Lenox Drive
|
Lawrenceville | NJ | — | 1,071 | 12,967 | 1,060 | 1,071 | 14,027 | 15,098 | 1,177 | 2007 | N/A | 40 | |||||||||||||||||||||||||||||||||||
|
2000 Lenox Drive
|
Lawrenceville | NJ | 10,286 | 2,291 | 12,221 | (532 | ) | 2,684 | 11,296 | 13,980 | 3,019 | 2000 | 2000 | 40 | ||||||||||||||||||||||||||||||||||
|
100 Lenox Drive
|
Lawrenceville | NJ | — | — | — | 12,081 | 1,134 | 10,947 | 12,081 | 1,213 | 1977 | 1999 | 40 | |||||||||||||||||||||||||||||||||||
|
1000 Lenox Drive
|
Lawrenceville | NJ | — | 1,174 | 4,696 | 2,180 | 1,244 | 6,806 | 8,050 | 2,355 | 1982 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
525 Lincoln Drive West
|
Marlton | NJ | — | 3,727 | 17,620 | 801 | 3,727 | 18,422 | 22,148 | 4,385 | 1986 | 2004 | 40 | |||||||||||||||||||||||||||||||||||
|
1120 Executive Boulevard
|
Marlton | NJ | — | 2,074 | 8,415 | 1,171 | 2,074 | 9,586 | 11,660 | 3,887 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
Three Greentree Centre
|
Marlton | NJ | — | 323 | 6,024 | 225 | 324 | 6,249 | 6,572 | 4,773 | 1984 | 1986 | 40 | |||||||||||||||||||||||||||||||||||
|
30 Lake Center Drive
|
Marlton | NJ | — | 1,043 | 4,171 | 530 | 1,043 | 4,702 | 5,744 | 1,346 | 1986 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
Two Eves Drive
|
Marlton | NJ | — | 818 | 3,461 | 157 | 818 | 3,618 | 4,436 | 1,450 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
Five Eves Drive
|
Marlton | NJ | — | 703 | 2,819 | 489 | 703 | 3,308 | 4,011 | 1,280 | 1986 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
Four B Eves Drive
|
Marlton | NJ | — | 588 | 2,369 | 422 | 588 | 2,790 | 3,379 | 1,128 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
Four A Eves Drive
|
Marlton | NJ | — | 539 | 2,168 | 142 | 539 | 2,310 | 2,849 | 947 | 1987 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
308 Harper Drive
|
Moorestown | NJ | — | 1,643 | 6,663 | 567 | 1,644 | 7,230 | 8,873 | 2,415 | 1976 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
304 Harper Drive
|
Moorestown | NJ | — | 657 | 2,674 | 369 | 657 | 3,042 | 3,700 | 1,059 | 1975 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
700 East Gate Drive
|
Mt. Laurel | NJ | — | 3,569 | 14,436 | 2,361 | 3,569 | 16,797 | 20,366 | 5,908 | 1984 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
10000 Midlantic Drive
|
Mt. Laurel | NJ | — | 3,206 | 12,857 | 1,494 | 3,206 | 14,351 | 17,557 | 5,786 | 1990 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
15000 Midlantic Drive
|
Mt. Laurel | NJ | — | 3,061 | 12,254 | 1,819 | 3,061 | 14,073 | 17,134 | 5,609 | 1991 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
1000 Atrium Way
|
Mt. Laurel | NJ | — | 2,061 | 8,180 | 3,766 | 2,061 | 11,945 | 14,007 | 4,431 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
1000 Howard Boulevard
|
Mt. Laurel | NJ | — | 2,297 | 9,288 | 873 | 2,297 | 10,161 | 12,458 | 3,954 | 1988 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
2000 Midlantic Drive
|
Mt. Laurel | NJ | 10,243 | 2,202 | 8,823 | 239 | 2,203 | 9,062 | 11,264 | 3,508 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
701 East Gate Drive
|
Mt. Laurel | NJ | — | 1,736 | 6,877 | 628 | 1,736 | 7,505 | 9,241 | 2,552 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
307 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,565 | 6,342 | 933 | 1,565 | 7,276 | 8,840 | 2,384 | 1981 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
305 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,421 | 5,768 | 1,431 | 1,421 | 7,198 | 8,620 | 2,731 | 1980 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
303 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,493 | 6,055 | 717 | 1,494 | 6,771 | 8,265 | 2,384 | 1979 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
309 Fellowship Drive
|
Mt. Laurel | NJ | — | 1,518 | 6,154 | 408 | 1,518 | 6,562 | 8,080 | 2,279 | 1982 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
1000 Bishops Gate
|
Mt. Laurel | NJ | — | 934 | 6,287 | — | 934 | 6,650 | 7,583 | 1,439 | 2005 | 2000 | 40 | |||||||||||||||||||||||||||||||||||
|
9000 Midlantic Drive
|
Mt. Laurel | NJ | 5,666 | 1,472 | 5,895 | 95 | 1,472 | 5,990 | 7,462 | 2,375 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
161 Gaither Drive
|
Mt Laurel | NJ | — | 1,016 | 4,064 | 813 | 1,016 | 4,877 | 5,893 | 1,399 | 1987 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
4000 Midlantic Drive
|
Mt. Laurel | NJ | 3,953 | 714 | 5,085 | (1,408 | ) | 714 | 3,677 | 4,391 | 1,604 | 1998 | 1997 | 40 | ||||||||||||||||||||||||||||||||||
|
815 East Gate Drive
|
Mt. Laurel | NJ | — | 636 | 2,584 | 253 | 636 | 2,837 | 3,473 | 1,003 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
817 East Gate Drive
|
Mt. Laurel | NJ | — | 611 | 2,426 | 360 | 611 | 2,785 | 3,397 | 991 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
400 Commerce Drive
|
Newark | DE | — | 2,528 | 9,220 | 1,167 | 2,528 | 10,387 | 12,915 | 2,615 | 1997 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
200 Commerce Drive
|
Newark | DE | — | 911 | 4,414 | 1,018 | 911 | 5,432 | 6,343 | 1,508 | 1998 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
100 Commerce Drive
|
Newark | DE | — | 1,160 | 4,633 | 468 | 1,160 | 5,101 | 6,261 | 1,988 | 1989 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
Main Street — Plaza 1000
|
Voorhees | NJ | — | 2,732 | 10,942 | 3,051 | 2,732 | 13,992 | 16,725 | 5,582 | 1988 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
Main Street — Piazza
|
Voorhees | NJ | — | 696 | 2,802 | 16 | 696 | 2,818 | 3,514 | 1,184 | 1990 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
Main Street — Promenade
|
Voorhees | NJ | — | 531 | 2,052 | 100 | 532 | 2,151 | 2,683 | 860 | 1988 | 1997 | 40 | |||||||||||||||||||||||||||||||||||
|
920 North King Street
|
Wilmington | DE | — | 6,141 | 21,140 | 1,192 | 6,141 | 22,332 | 28,473 | 5,472 | 1989 | 2004 | 30 | |||||||||||||||||||||||||||||||||||
|
300 Delaware Avenue
|
Wilmington | DE | — | 6,368 | 13,739 | 2,408 | 6,369 | 16,147 | 22,515 | 4,759 | 1989 | 2004 | 23 | |||||||||||||||||||||||||||||||||||
|
Two Righter Parkway
|
Wilmington | DE | — | 2,802 | 11,217 | 3,711 | 2,802 | 14,928 | 17,730 | 1,634 | 1987 | 2001 | 40 | |||||||||||||||||||||||||||||||||||
|
One Righter Parkway
|
Wilmington | DE | 8,820 | 2,545 | 10,195 | 4,764 | 2,545 | 14,959 | 17,504 | 6,324 | 1989 | 1996 | 40 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
RICHMOND
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
4364 South Alston Avenue
|
Durham | NC | — | 1,622 | 6,419 | 910 | 1,581 | 7,370 | 8,951 | 2,947 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
4805 Lake Brooke Drive
|
Glen Allen | VA | — | 1,640 | 6,567 | 1,373 | 1,640 | 7,940 | 9,580 | 2,860 | 1996 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2812 Emerywood Parkway
|
Henrico | VA | — | 1,069 | 4,281 | 1,024 | 1,069 | 5,305 | 6,374 | 2,010 | 1980 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
300 Arboretum Place
|
Richmond | VA | 11,749 | 5,450 | 21,892 | 3,518 | 5,450 | 25,411 | 30,860 | 8,644 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
7501 Boulders View Drive
|
Richmond | VA | — | 4,669 | 19,699 | 985 | 4,925 | 20,428 | 25,353 | 1,757 | 1990 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
7300 Beaufont Springs Drive
|
Richmond | VA | — | 4,672 | 19,689 | 350 | 4,922 | 19,789 | 24,711 | 1,709 | 2000 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
6800 Paragon Place
|
Richmond | VA | — | 4,552 | 18,414 | 1,528 | 4,552 | 19,942 | 24,494 | 2,491 | 1986 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
6802 Paragon Place
|
Richmond | VA | — | 2,917 | 11,454 | 1,754 | 2,917 | 13,209 | 16,125 | 3,153 | 1989 | 2002 | 40 | |||||||||||||||||||||||||||||||||||
|
1025 Boulders Parkway
|
Richmond | VA | — | 2,574 | 11,297 | 792 | 2,824 | 11,838 | 14,663 | 1,227 | 1994 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
2100-2116 West Laburnam Avenue
|
Richmond | VA | — | 2,482 | 8,846 | 2,854 | 2,482 | 11,700 | 14,182 | 4,058 | 1976 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
7325 Beaufont Springs Drive
|
Richmond | VA | — | 2,344 | 10,377 | 502 | 2,594 | 10,629 | 13,223 | 955 | 1999 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
7401 Beaufont Springs Drive
|
Richmond | VA | — | 2,349 | 10,396 | 315 | 2,599 | 10,461 | 13,060 | 899 | 1998 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
6806 Paragon Place
|
Richmond | VA | — | — | 10,288 | 827 | 403 | 10,712 | 11,115 | 2,033 | 2007 | 2005 | 40 | |||||||||||||||||||||||||||||||||||
|
9011 Arboretum Parkway
|
Richmond | VA | — | 1,857 | 7,702 | 828 | 1,857 | 8,530 | 10,387 | 3,077 | 1991 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2511 Brittons Hill Road
|
Richmond | VA | — | 1,202 | 4,820 | 1,815 | 1,202 | 6,636 | 7,837 | 2,557 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
9100 Arboretum Parkway
|
Richmond | VA | 3,236 | 1,362 | 5,489 | 552 | 1,362 | 6,041 | 7,403 | 2,097 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
100 Gateway Centre Parkway
|
Richmond | VA | — | 391 | 5,410 | 885 | 391 | 6,295 | 6,686 | 1,551 | 2001 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
9200 Arboretum Parkway
|
Richmond | VA | 2,743 | 985 | 3,973 | 1,332 | 985 | 5,305 | 6,290 | 1,594 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
9210 Arboretum Parkway
|
Richmond | VA | 2,658 | 1,110 | 4,474 | 544 | 1,110 | 5,018 | 6,128 | 1,726 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2201-2245 Tomlynn Street
|
Richmond | VA | — | 1,020 | 4,067 | 430 | 1,020 | 4,498 | 5,517 | 1,574 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
9211 Arboretum Parkway
|
Richmond | VA | — | 582 | 2,433 | 224 | 582 | 2,658 | 3,239 | 964 | 1991 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2244 Dabney Road
|
Richmond | VA | — | 550 | 2,203 | 37 | 550 | 2,240 | 2,790 | 782 | 1993 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2221-2245 Dabney Road
|
Richmond | VA | — | 530 | 2,123 | 80 | 530 | 2,204 | 2,733 | 735 | 1994 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2248 Dabney Road
|
Richmond | VA | — | 512 | 2,049 | 144 | 512 | 2,193 | 2,705 | 781 | 1989 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2212-2224 Tomlynn Street
|
Richmond | VA | — | 502 | 2,014 | 157 | 502 | 2,170 | 2,673 | 774 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2277 Dabney Road
|
Richmond | VA | — | 507 | 2,034 | 15 | 507 | 2,049 | 2,556 | 711 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
F - 60
Table of Contents
BRANDYWINE REALTY TRUST AND BRANDYWINE OPERATING PARTNERSHIP, L.P.
Real Estate and Accumulated Depreciation — December 31, 2010
(in thousands)
Real Estate and Accumulated Depreciation — December 31, 2010
(in thousands)
| Gross Amount at Which Carried | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | December 31, 2010 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||||||||||||||||
| Improvements | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| (Retirements) | Depreciation at | |||||||||||||||||||||||||||||||||||||||||||||||
| Encumberances at | Building and | Since | Building and | December 31, | Year of | Year | Depreciable | |||||||||||||||||||||||||||||||||||||||||
| Property Name | City | State | December 31, 2010 | Land | Improvements | Acquisition | Land | Improvements | Total (a) | 2010 (b) | Construction | Acquired | Life | |||||||||||||||||||||||||||||||||||
|
2246 Dabney Road
|
Richmond | VA | — | 455 | 1,822 | 18 | 455 | 1,840 | 2,295 | 637 | 1987 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2161-2179 Tomlynn Street
|
Richmond | VA | — | 423 | 1,695 | 173 | 423 | 1,868 | 2,291 | 687 | 1985 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2256 Dabney Road
|
Richmond | VA | — | 356 | 1,427 | 273 | 356 | 1,700 | 2,056 | 602 | 1982 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2251 Dabney Road
|
Richmond | VA | — | 387 | 1,552 | 98 | 387 | 1,650 | 2,037 | 579 | 1983 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2130-2146 Tomlynn Street
|
Richmond | VA | — | 353 | 1,416 | 185 | 353 | 1,601 | 1,954 | 629 | 1988 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2120 Tomlynn Street
|
Richmond | VA | — | 281 | 1,125 | 106 | 281 | 1,231 | 1,512 | 424 | 1986 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
2240 Dabney Road
|
Richmond | VA | — | 264 | 1,059 | 11 | 264 | 1,069 | 1,333 | 370 | 1984 | 1998 | 40 | |||||||||||||||||||||||||||||||||||
|
Boulders Land
|
Richmond | VA | — | 1,256 | — | 0 | 1,256 | — | 1,256 | — | NA | 2007 | N/A | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
CALIFORNIA
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
5780 & 5790 Fleet Street
|
Carlsbad | CA | — | 7,073 | 22,907 | 3,297 | 7,516 | 25,761 | 33,277 | 2,973 | 1999 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
5900 & 5950 La Place Court
|
Carlsbad | CA | — | 3,706 | 11,185 | 1,761 | 3,955 | 12,697 | 16,652 | 1,725 | 1988 | 2006 | 48 | |||||||||||||||||||||||||||||||||||
|
5963 La Place Court
|
Carlsbad | CA | — | 2,824 | 9,413 | 1,654 | 2,999 | 10,892 | 13,891 | 1,436 | 1987 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
5973 Avenida Encinas
|
Carlsbad | CA | — | 2,121 | 8,361 | 1,374 | 2,256 | 9,600 | 11,856 | 1,502 | 1986 | 2006 | 45 | |||||||||||||||||||||||||||||||||||
|
2035 Corte Del Nogal
|
Carlsbad | CA | — | 3,261 | 6,077 | 1,038 | 3,499 | 6,878 | 10,376 | 1,199 | 1991 | 2006 | 39 | |||||||||||||||||||||||||||||||||||
|
1200 Concord Avenue
|
Concord | CA | 17,245 | 6,395 | 24,664 | (2,737 | ) | 6,515 | 21,806 | 28,322 | 3,459 | 1984 | 2006 | 34 | ||||||||||||||||||||||||||||||||||
|
1220 Concord Avenue
|
Concord | CA | 17,249 | 6,476 | 24,966 | (4,211 | ) | 6,476 | 20,755 | 27,230 | 3,106 | 1984 | 2006 | 34 | ||||||||||||||||||||||||||||||||||
|
155 Grand Avenue
|
Oakland | CA | — | 13,556 | 54,266 | 4,053 | 13,556 | 58,319 | 71,875 | 5,646 | 1990 | 2007 | 40 | |||||||||||||||||||||||||||||||||||
|
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 | ||||||||||||||||||||||||||||||||||
|
16870 W Bernardo Drive
|
San Diego | CA | — | 2,979 | 15,896 | 1,643 | 3,154 | 17,364 | 20,518 | 2,163 | 2002 | 2006 | 56 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
AUSTIN
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
1250 Capital of Texas Hwy South
|
Austin | TX | — | 5,152 | 37,928 | 4,042 | 5,250 | 41,872 | 47,122 | 5,599 | 1984 | 2006 | 52 | |||||||||||||||||||||||||||||||||||
|
1301 Mopac Expressway
|
Austin | TX | — | 4,188 | 41,229 | 309 | 4,250 | 41,476 | 45,727 | 5,533 | 2001 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
1601 Mopac Expressway
|
Austin | TX | — | 3,538 | 34,346 | 1,384 | 3,605 | 35,664 | 39,269 | 5,872 | 2000 | 2006 | 54 | |||||||||||||||||||||||||||||||||||
|
1501 South Mopac Expressway
|
Austin | TX | — | 3,698 | 34,912 | (2,195 | ) | 3,768 | 32,647 | 36,414 | 3,207 | 1999 | 2006 | 53 | ||||||||||||||||||||||||||||||||||
|
1221 Mopac Expressway
|
Austin | TX | — | 3,290 | 31,548 | 862 | 3,366 | 32,331 | 35,697 | 3,838 | 2001 | 2006 | 55 | |||||||||||||||||||||||||||||||||||
|
3711 South Mopac Expressway - II
|
Austin | TX | — | 1,688 | 19,229 | 4,287 | 1,688 | 23,516 | 25,204 | 2,512 | 2007 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
3711 South Mopac Expressway - I
|
Austin | TX | — | 1,688 | 21,011 | 1,878 | 1,688 | 22,893 | 24,581 | 1,154 | 2007 | 2006 | 40 | |||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Total: | $ | 712,246 | $ | 686,908 | $ | 3,700,183 | $ | 447,020 | $ | 697,724 | $ | 4,136,387 | $ | 4,834,111 | $ | 776,078 | |||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
F - 61
Table of Contents
| (a) |
Reconciliation of Real Estate:
|
|
|
The following table reconciles the real estate investments from January 1, 2008 to December 31, 2010 (in thousands):
|
| 2010 | 2009 | 2008 | ||||||||||
|
Balance at beginning of year
|
$ | 4,512,618 | $ | 4,608,320 | $ | 4,825,747 | ||||||
|
|
||||||||||||
|
Additions:
|
||||||||||||
|
Acquisitions
|
102,475 | — | 122 | |||||||||
|
Capital expenditures
|
336,281 | 80,506 | 247,345 | |||||||||
|
|
||||||||||||
|
Less:
|
||||||||||||
|
Dispositions
|
(117,263 | ) | (176,208 | ) | (464,894 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Balance at end of year
|
$ | 4,834,111 | $ | 4,512,618 | $ | 4,608,320 | ||||||
|
|
||||||||||||
The aggregate cost for federal income tax purposes is $4.5 billion as of December 31, 2010
| (b) |
Reconciliation of Accumulated Depreciation:
|
|
|
The following table reconciles the accumulated depreciation on real estate investments from
January 1, 2008 to December 31, 2010 (in thousands):
|
| 2010 | 2009 | 2008 | ||||||||||
|
Balance at beginning of year
|
$ | 716,957 | $ | 639,688 | $ | 558,908 | ||||||
|
|
||||||||||||
|
Additions:
|
||||||||||||
|
Depreciation expense — continuing operations
|
133,740 | 141,309 | 144,631 | |||||||||
|
Depreciation expense — discontinued
operations
|
1,554 | 6,494 | 6,494 | |||||||||
|
|
||||||||||||
|
Less:
|
||||||||||||
|
Dispositions
|
(76,173 | ) | (70,534 | ) | (70,345 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Balance at end of year
|
$ | 776,078 | $ | 716,957 | $ | 639,688 | ||||||
|
|
||||||||||||
F - 62
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Removed and ReservedPart 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