The total consideration payable in the merger (including the proceeds from the sale of the Prudential Properties described below and excluding transaction and severance expenses that will be incurred in connection with the merger) will be approximately $3.2 billion, consisting of $2.1 billion in cash and assumption of Prentiss debt and approximately 35.5 million Brandywine Common Shares.
Completion of the merger is subject to a number of closing conditions, including approval of the merger by holders of Prentiss Common Shares and approval by holders of Brandywine Common Shares of the issuance of Brandywine Common Shares in the merger.
We have provided additional information about this transaction in our Current Report on Form 8-K that we filed with the SEC on October 4, 2005.
In October 2005, the Partnership entered into forward starting swaps in anticipation of a long-term fixed rate financing transaction. The forward starting swaps are for notional amounts totaling $125.0 million for an expiration of five years at a fixed rate of 4.9% and for notional amounts totaling $125.0 million for an expiration of ten years at a fixed rate of 5.1%.
Back to Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. This Form 10-Q contains forward-looking statements for purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934 and as such may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Partnership to be materially different from results, performance or achievements expressed or implied by such forward-looking statements. Although the Partnership believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, there can be no assurance that these expectations will be realized. The Partnership assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Factors that could cause actual results to differ materially from management’s current expectations include, but are not limited to, changes in general economic conditions, changes in local real estate conditions (including changes in rental rates and the number of competing properties), changes in the economic conditions affecting industries in which the Partnership's principal tenants compete, the Partnership’s failure to lease unoccupied space in accordance with the Partnership’s projections, the failure of the Partnership to re-lease occupied space upon expiration of leases, the bankruptcy of major tenants, changes in prevailing interest rates, the unavailability of equity and debt financing, unanticipated costs associated with the acquisition and integration of the Partnership’s acquisitions (including the Partnership’s pending acquisition by merger of Prentiss), costs to complete and lease-up pending developments, increased costs for, or lack of availability of, adequate insurance, including for terrorist acts, demand for tenant services beyond those traditionally provided by landlords, potential liability under environmental or other laws, the existence of complex regulations relating to the Company’s status as a REIT and to the Partnership’s acquisition, disposition and development activities, the adverse consequences of the Company’s failure to qualify as a REIT and the other risks identified in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2004.
OVERVIEW
The Partnership currently manages its portfolio within five geographic segments: (1) Pennsylvania–West, (2) Pennsylvania–North, (3) New Jersey, (4) Urban and (5) Virginia. The Partnership believes it has established an effective platform in these office and industrial markets that provides a foundation for achieving its goals of maximizing market penetration, optimizing operating economies of scale and creating long-term investment value.
As of September 30, 2005, the Partnership’s portfolio consisted of 227 office properties, 23 industrial facilities and one mixed-use property that contained an aggregate of approximately 19.6 million net rentable square feet. As of September 30, 2005, we held economic interests in nine unconsolidated real estate ventures that contained approximately 1.6 million net rentable square feet (the “Real Estate Ventures”) formed with third parties to develop or own commercial properties. In addition, we own interests in two consolidated real estate ventures that own two office properties containing approximately 0.2 million net rentable square feet.
On October 3, 2005, we and the Company entered into a merger agreement with Prentiss, a Dallas, Texas-based REIT focused on office and industrial properties. Under the merger agreement, we will acquire Prentiss and its subsidiaries for a combination of cash, debt assumption and common equity. We currently expect the transaction to close in December or the first quarter of 2006. Consummation of the transaction is subject to customary closing conditions and shareholders vote.
The Partnership receives income primarily from rental revenue (including tenant reimbursements) from the Properties and, to a lesser extent, from the management of properties owned by third parties and from investments in the Real Estate Ventures.
The Partnership’s financial performance is dependent upon the demand for office and other commercial space in its markets. Current economic conditions, including recessionary pressures and capital market volatility, have enhanced the challenges facing the Partnership.
The Partnership seeks revenue growth through an increase in occupancy of its portfolio (90.2% at September 30, 2005, 86.9% including the five lease-up assets acquired as part of the TRC acquisition in September 2004) and through acquisitions. However, with a downturn in general leasing activity, owners of commercial real estate, including the Partnership, are experiencing longer periods of rental downtime and are incurring higher capital costs and leasing commissions to achieve targeted tenancies.
32
Back to Contents
As the Partnership seeks to increase revenue, management also focuses on strategies to minimize operating risks, including (i) tenant rollover risk, (ii) tenant credit risk and (iii) development risk.
Tenant Rollover Risk:
The Partnership is subject to the risk that, upon expiration, leases may not be renewed, the space may not be re-leased, or the terms of renewal or re-leasing (including the cost of renovations) may be less favorable than the current lease terms. Leases totaling approximately 2.8% of the net rentable square feet of the Properties as of September 30, 2005 expire without penalty through the end of 2005. In addition, leases totaling approximately 11.3% of the net rentable square feet of the Properties as of September 30, 2005 are scheduled to expire without penalty in 2006. The Partnership maintains an active dialogue with its tenants in an effort to achieve lease renewals. The Partnership’s retention rate for leases that were scheduled to expire in the nine-month period ended September 30, 2005 was 73.3%. If the Partnership is unable to renew leases for a substantial portion of the space under expiring leases, or promptly re-lease this space at anticipated rental rates, the Partnership’s cash flow could be adversely impacted.
Tenant Credit Risk:
In the event of a tenant default, the Partnership may experience delays in enforcing its rights as a landlord and may incur substantial costs in protecting its investment. Management regularly evaluates its accounts receivable reserve policy in light of its tenant base and general and local economic conditions. The accounts receivable allowances were $4.7 million or 8.5% of total receivables (including accrued rent receivable) as of September 30, 2005 compared to $4.1 million or 8.4% of total receivables (including accrued rent receivable) as of December 31, 2004.
Development Risk:
As of September 30, 2005, the Partnership had in development two office properties and had in redevelopment three office properties aggregating 1.2 million square feet. The total net investment in these projects is estimated to be $233.8 million of which $178.4 million had been incurred as of September 30, 2005. As of September 30, 2005, these projects were approximately 67% leased. One of these development properties is Cira Centre, a 29-story office tower located adjacent to Amtrak’s 30th Street Station in the University City District of Philadelphia. The total net investment in this project is estimated to be $177.6 million and the Partnership expects to complete the project in the fourth quarter of 2005. As of September 30, 2005, the office portion of this project was approximately 93% leased with occupancy to occur over the next several quarters. While the Partnership is actively marketing space at these projects to prospective tenants, management cannot provide assurance as to the timing or terms of any leases for such space. If one or more of the Partnership’s assumptions regarding the successful efforts of development and leasing are incorrect, the resulting adjustments could impact earnings.
ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS
During the nine-month period ended September 30, 2005, the Partnership acquired one industrial property containing 385,884 net rentable square feet, two office properties containing 283,511 net rentable square feet and 36.4 acres of developable land for an aggregate purchase price of $94.5 million. The Partnership sold one industrial property containing 385,884 net rentable square feet and three parcels of land containing 18.0 acres for an aggregate $30.2 million, realizing net gains totaling $6.8 million.
During the three-month period ended September 30, 2005, the Partnership acquired two office properties containing 283,511 net rentable square feet and 8 acres of developable land for an aggregate purchase price of $52.7 million. The Partnership sold one industrial property containing 385,884 net rentable square feet and three parcels of land containing 18.0 acres for an aggregate $30.2 million, realizing net gains totaling $6.8 million.
On October 3, 2005, we entered into an agreement and plan of merger (the “Merger Agreement”) that provides for our acquisition of Prentiss and its operating subsidiary, Prentiss Properties Acquisition Partners, L.P. (“Prentiss OP”). In the merger, each Prentiss common share (a “Prentiss Common Share”) will be converted into the right to receive 0.69 of a Brandywine common share (a “Brandywine Common Share”) and $21.50 in cash, subject to adjustment if a pre-closing cash dividend is paid as described below (the “Per Share Merger Consideration”). Cash will be paid instead of fractional shares. In the merger, each unit of a limited partnership interest in Prentiss OP (“Prentiss OP Units”) will, at the option of the holder, be converted into Prentiss Common Shares with the right to receive the Per Share Merger Consideration or 1.3799 of our Class A Units (“Brandywine Class A Units”), subject to adjustment if the pre-closing cash dividend described below is paid. In addition, each series D preferred share of Prentiss outstanding at closing of the merger will be converted into one newly created Brandywine series E preferred share.
33
Back to Contents
The total consideration payable in the merger (including the proceeds from the sale of the Prudential Properties described below and excluding transaction and severance expenses that will be incurred in connection with the merger) will be approximately $3.2 billion, consisting of $2.1 billion in cash and assumption of Prentiss debt and approximately 35.5 million Brandywine Common Shares.
As part of the merger transaction, we, the Company and Prentiss have entered into separate agreements with The Prudential Insurance Company of America (“Prudential”) that provide for the acquisition by insurance company separate accounts or funds managed by Prudential (either on the day prior to, or the day of, the closing of the merger) of Prentiss properties that contain approximately 4.32 million net rentable square feet (“Prudential Properties”) for total consideration of approximately $747.7 million. If the Prudential Properties are sold on the day prior to the closing of the merger, then the Prentiss Board would declare a cash dividend that would be payable to holders of Prentiss Common Shares of record on such date and the cash portion of the Per Share Merger Consideration would be reduced by the per share amount of such dividend.
Completion of the merger is subject to a number of closing conditions, including approval of the merger by holders of Prentiss Common Shares and approval by holders of Brandywine Common Shares of the issuance of Brandywine Common Shares in the merger.
We and the Company have provided additional information about this transaction in our Current Report on Form 8-K that we filed with the SEC on October 4, 2005.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Partnership’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and assumptions on historical experience and current economic conditions. On an on-going basis, management evaluates its estimates and assumptions including those related to revenue, impairment of long-lived assets and the allowance for doubtful accounts. Actual results may differ from those estimates and assumptions.
The Partnership’s Annual Report on Form 10-K for the year ended December 31, 2004, contains a discussion of the Partnership’s critical accounting policies. There have been no significant changes in the Partnership’s critical accounting policies since December 31, 2004. See also Note 2 in the Partnership’s unaudited consolidated financial statements for the nine-month period ended September 30, 2005 as set forth herein. Management discusses the Partnership’s critical accounting policies and management’s judgments and estimates with the Partnership’s Audit Committee.
RESULTS OF OPERATIONS
Comparison of the Three-Month Periods Ended September 30, 2005 and 2004
The table below shows selected operating information for the Same Store Property Portfolio and the Total Portfolio. The Same Store Property Portfolio consists of 226 Properties containing an aggregate of approximately 15.0 million net rentable square feet that were owned for the entire three-month periods ended September 30, 2005 and 2004. 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 as during the three-month periods ended September 30, 2005 and 2004) by providing information for the properties which were acquired, sold, or placed into service and administrative/elimination information for the three-month periods ended September 30, 2005 and 2004.
34
Back to Contents
| | Same Store Property Portfolio | | | Properties
Acquired (a) | | | Development
Properties | | | Administrative/
Eliminations (b) | | | Total Portfolio | |
|
| |
| |
| |
| |
| |
| (dollars in thousands) | | 2005 | | | 2004 | | Increase/
(Decrease) | | %
Change | | | 2005 | | | 2004 | | | 2005 | | | 2004 | | | 2005 | | | 2004 | | | 2005 | | | 2004 | | | Increase/
(Decrease) | | %
Change | |
|
|
| |
|
| |
| |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rents | $ | 60,973 | | $ | 62,004 | | ($1,031) | | -2 | % | | $18,737 | | $ | 1,730 | | $ | 1,638 | | $ | 2,794 | | $ | — | | $ | 0 | | $ | 81,348 | | $ | 66,528 | | $ | 14,820 | | 22 | % |
Tenant
reimbursements | | 8,023 | | | 8,093 | | (70 | ) | -1 | % | | 2,999 | | | 192 | | | 156 | | | 120 | | | 625 | | | 1,207 | | | 11,803 | | | 9,612 | | | 2,191 | | 23 | % |
| Other | | 658 | | | 277 | | 381 | | 100 | % | | 140 | | | 1 | | | 503 | | | 26 | | | 1,326 | | | 2,251 | | | 2,627 | | | 2,555 | | | 72 | | 3 | % |
|
|
| |
|
| |
| |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
| Total revenue | | 69,654 | | | 70,374 | | (720 | ) | -1 | % | | 21,876 | | | 1,923 | | | 2,297 | | | 2,940 | | | 1,951 | | | 3,458 | | | 95,778 | | | 78,695 | | | 17,083 | | 22 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property operating
expenses | | 21,776 | | | 22,406 | | (630 | ) | -3 | % | | 7,374 | | | 693 | | | 698 | | | 563 | | | (2,770 | ) | | (1,772 | ) | | 27,078 | | | 21,890 | | | 5,188 | | 24 | % |
| Real estate taxes | | 7,254 | | | 7,107 | | 147 | | 2 | % | | 2,278 | | | 71 | | | 334 | | | 470 | | | — | | | — | | | 9,866 | | | 7,648 | | | 2,218 | | 29 | % |
Depreciation and
amortization | | 16,964 | | | 16,281 | | 683 | | 4 | % | | 10,506 | | | 912 | | | 1,169 | | | 427 | | | (104 | ) | | 660 | | | 28,535 | | | 18,280 | | | 10,255 | | 56 | % |
Administrative
expenses | | — | | | — | | — | | 0 | % | | — | | | 3 | | | — | | | — | | | 4,486 | | | 3,531 | | | 4,486 | | | 3,534 | | | 952 | | 27 | % |
|
|
| |
|
| |
| |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Total property
operating
expenses | | 45,994 | | | 45,794 | | 200 | | — | | | 20,158 | | | 1,679 | | | 2,201 | | | 1,460 | | | 1,612 | | | 2,419 | | | 69,965 | | | 51,352 | | | 18,613 | | 36 | % |
|
|
| |
|
| |
| |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
| Operating Income | | 23,660 | | | 24,580 | | (920 | ) | — | | | 1,718 | | | 244 | | | 96 | | | 1,480 | | | 339 | | | 1,039 | | | 25,813 | | | 27,343 | | | (1,530 | ) | -6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Income
(Expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 707 | | | 763 | | | (56 | ) | -7 | % |
| Interest expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (17,762 | ) | | (11,474 | ) | | (6,288 | ) | 55 | % |
Equity in income
of real estate
ventures | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 745 | | | 665 | | | 80 | | 12 | % |
Net gain on
sales of interest
in real estate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,640 | | | 1,753 | | | 2,887 | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
| |
Income before
minority interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,143 | | | 19,050 | | | (4,907 | ) | -26 | % |
Minority interest
attributable to
continuing
operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (41 | ) | | 346 | | | (387 | ) | -100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
| |
Income from
continuing
operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,102 | | | 19,396 | | | (5,294 | ) | -27 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
| |
Income from
discontinued
operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,177 | | | 2,459 | | | (282 | ) | -11 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
| |
| Net Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 16,279 | | $ | 21,855 | | | ($5,576) | | -26 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
| |
EXPLANATORY NOTES
(a) – Represents the operations of properties acquired that are not included in the definition of the Same Store Property Portfolio, primarily the TRC Properties.
(b) – Represents certain revenue and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation.
35
Back to Contents
Revenue
Revenue increased by $17.1 million primarily due to properties that were acquired in 2004, most significantly the TRC Properties. Revenue for Same Store Properties decreased by $0.7 million as a result of the timing of leases being entered into as well as a decrease in average rents collected. Average occupancy for the Same Store Properties increased to 90.9 % in 2005 from 90.7% in 2004.
Operating Expenses and Real Estate Taxes
Property operating expenses increased by $5.2 million in 2005 primarily due to the properties acquired in the latter half of 2004 and higher expense levels in 2005 on the Same Store Properties. Property operating expenses for the Same Store Properties decreased by $0.6 million in 2005 over 2004 due to decreases in repairs and maintenance expenses at various Same Store Properties.
Real estate taxes increased by $2.2 million primarily due to the properties acquired in the latter half of 2004, most significantly the TRC acquisition. Real estate taxes for the Same Store Properties increased by $0.1 million in 2005 as a result of higher tax rates and property assessments.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by $10.3 million in 2005 primarily due to the properties acquired in the second half of 2004 and amortization from additional tenant improvements and leasing commissions incurred over the year.
Administrative Expenses
Administrative expenses increased by $1.0 million in 2005 primarily due to the cost of additional personnel hired as part of the TRC acquisition in September 2004 and higher compensation and benefits costs for employees.
Interest Expense
Interest expense increased by $6.3 million in 2005 primarily due to increased debt from the Partnership’s fixed rate unsecured notes issued in the fourth quarter of 2004 offset by a decrease in the effective borrowing cost under the Partnership’s unsecured credit facilities, including the effect of interest rate hedges during 2004, as well as an increase in the amount of interest capitalized during 2005 over the comparable 2004 period.
Net Gain on Sales of Real Estate
During the three-month period ended September 30, 2005, the Partnership sold three parcels of land, realizing net gains totaling $4.6 million, an increase from a net gain of $1.8 million in 2004 for sales of non-operating parcels of land.
Minority Interest
Minority interest from continuing operations represents the income attributable to the interest of the outside joint venture partners in the net income (loss) of the Partnership’s two consolidated real estate ventures. These two real estate ventures were consolidated effective March 31, 2004.
Discontinued Operations
Discontinued operations decreased by $0.3 million in 2005 primarily due to the timing of sales for assets included in discontinued operations.
36
Back to Contents
Comparison of the Nine-Month Periods Ended September 30, 2005 and 2004
The table below shows selected operating information for the Same Store Property Portfolio and the Total Portfolio. The Same Store Property Portfolio consists of 226 Properties containing an aggregate of approximately 15.0 million net rentable square feet that were owned for the entire nine-month periods ended September 30, 2005 and 2004. This table also includes a reconciliation from the Same Store Property Portfolio to the Total Portfolio (i.e., all properties owned by us during the nine-month periods ended September 30, 2005 and 2004) by providing information for the properties which were acquired, sold, or placed into service and administrative/elimination information for the nine-month periods ended September 30, 2005 and 2004.
37
Back to Contents
| Same Store Property Portfolio | | | Properties
Acquired (a) | | | Development
Properties | | Administrative/
Eliminations (b) | | | Total Portfolio | |
|
| | |
| | |
| |
| |
| |
| (dollars in thousands) | 2005 | | 2004 | | Increase/
(Decrease) | | %
Change | | | 2005 | | 2004 | | | 2005 | | 2004 | | 2005 | | 2004 | | | 2005 | | | 2004 | | | Increase/
(Decrease) | | %
Change | |
|
| |
| |
| |
| | |
| |
| | |
| |
| |
| |
| |
|
| |
|
| |
|
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rents | $184,982 | $ | 186,411 | $ | ($1,429 | ) | -1 | % | $ | 55,230 | $ | 3,229 | | $ | 4,020 | $ | 4,884 | $ | — | $ | — | | $ | 244,232 | | $ | 194,524 | | $ | 49,708 | | 26 | % |
Tenant
reimbursements | 24,265 | | 23,808 | | 457 | | 2 | % | | 8,968 | | 384 | | | 439 | | 178 | | 1,250 | | 1,293 | | | 34,922 | | | 25,663 | | | 9,259 | | 36 | % |
| Other | 5,486 | | 1,814 | | 3,672 | | 100 | % | | 702 | | 12 | | | 582 | | 51 | | 3,842 | | 6,044 | | | 10,612 | | | 7,921 | | | 2,691 | | 34 | % |
|
| |
| |
| |
| | |
| |
| | |
| |
| |
| |
| |
|
| |
|
| |
|
| |
| |
| Total revenue | 214,733 | | 212,033 | | 2,700 | | 1 | % | | 64,900 | | 3,625 | | | 5,041 | | 5,113 | | 5,092 | | 7,337 | | | 289,766 | | | 228,108 | | | 61,658 | | 27 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property
operating
expenses | 68,226 | | 67,308 | | 918 | | 1 | % | | 22,060 | | 1,211 | | | 1,965 | | 1,869 | | (7,599 | ) | (6,294 | ) | | 84,652 | | | 64,094 | | | 20,558 | | 32 | % |
| Real estate taxes | 21,267 | | 20,343 | | 924 | | 5 | % | | 6,971 | | 94 | | | 871 | | 740 | | 12 | | 198 | | | 29,121 | | | 21,375 | | | 7,746 | | 36 | % |
Depreciation and
amortization | 51,150 | | 47,219 | | 3,931 | | 8 | % | | 29,475 | | 541 | | | 2,395 | | 1,227 | | 1,770 | | 1,926 | | | 84,790 | | | 50,913 | | | 33,877 | | 67 | % |
Administrative
expenses | 1 | | — | | 1 | | 0 | % | | 2 | | — | | | — | | 63 | | 13,613 | | 10,914 | | | 13,616 | | | 10,977 | | | 2,639 | | 24 | % |
|
| |
| |
| |
| | |
| |
| | |
| |
| |
| |
| |
|
| |
|
| |
|
| |
| |
Total property
operating
expenses | 140,644 | | 134,870 | | 5,774 | | 4 | % | | 58,508 | | 1,846 | | | 5,231 | | 3,899 | | 7,796 | | 6,744 | | | 212,179 | | | 147,359 | | | 64,820 | | 44 | % |
|
| |
| |
| |
| | |
| |
| | |
| |
| |
| |
| |
|
| |
|
| |
|
| |
| |
| Operating Income | 74,089 | | 77,163 | | (3,074 | ) | -4 | % | | 6,392 | | 1,779 | | | (190 | ) | 1,214 | | (2,704 | ) | 593 | | | 77,587 | | | 80,749 | | | (3,162 | ) | -4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Income
(Expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | | | | | | | | | | | | | | | | | | | | | | 2,174 | | | 1,815 | | | 359 | | 20 | % |
| Interest expense | | | | | | | | | | | | | | | | | | | | | | | | (53,366 | ) | | (35,526 | ) | | (17,840 | ) | 50 | % |
Equity in income
of real estate
ventures | | | | | | | | | | | | | | | | | | | | | | | | 2,296 | | | 1,573 | | | 723 | | 46 | % |
Net gain on
sales of interest
in real estate | | | | | | | | | | | | | | | | | | | | | | | | 4,640 | | | 2,901 | | | 1,739 | | | |
| | | | | | | | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
| |
Income before
minority interest | | | | | | | | | | | | | | | | | | | | | | | | 33,331 | | | 51,512 | | | (18,181 | ) | -35 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Minority interest
attributable to
continuing
operations | | | | | | | | | | | | | | | | | | | | | | | | (213 | ) | | 324 | | | (537 | ) | -100 | % |
| | | | | | | | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
| |
Income from
continuing
operations | | | | | | | | | | | | | | | | | | | | | | | | 33,118 | | | 51,836 | | | (18,718 | ) | -36 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income from
discontinued
operations | | | | | | | | | | | | | | | | | | | | | | | | 2,037 | | | 2,494 | | | (457 | ) | -18 | % |
| | | | | | | | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
| |
| Net Income | | | | | | | | | | | | | | | | | | | | | | | $ | 35,155 | | $ | 54,330 | | | ($19,175 | ) | -35 | % |
| | | | | | | | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
| |
| EXPLANATORY NOTE | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) – Represents the operations of properties acquired that are not included in the definition of the Same Store Property Portfolio, primarily the TRC Properties. |
| (b) – Represents certain revenue and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation. |
|
38
Back to Contents
Revenue
Revenue increased by $61.7 million primarily due to properties that were acquired in 2004, primarily the TRC Properties and an increase in other income in 2005 as compared to 2004. Other revenue represents lease termination fees, bankruptcy settlement proceeds, leasing commissions and third-party management fees. Total portfolio other revenue increased by $2.7 million when comparing the nine-month period ended September 30, 2005 to the comparable period in 2004 primarily due to an increase in net termination fee associated with tenant terminations in 2005 offset by the settlement of litigation totaling $1.0 million plus accrued interest on the Partnership’s security deposit in 2004.
Operating Expenses and Real Estate Taxes
Property operating expenses increased by $20.6 million in 2005 primarily due to the properties acquired in the latter half of 2004 and higher expense levels in 2005 on the Same Store Properties. Property operating expenses for the Same Store Properties increased by $0.9 million in 2005 over 2004 due to increases in snow removal costs, utility expenses and repairs and maintenance expenses at various Same Store Properties.
Real estate taxes increased by $7.7 million primarily due to the properties acquired in the latter half of 2004 most significantly the TRC acquisition. Real estate taxes for the Same Store Properties increased by $0.9 million in 2005 as a result of higher tax rates and property assessments.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by $33.9 million in 2005 primarily due to the properties acquired in the second half of 2004 and amortization from additional tenant improvements and leasing commissions incurred over the year.
Administrative Expenses
Administrative expenses increased by $2.6 million in 2005 primarily due to the cost of additional personnel hired as part of the TRC acquisition in September 2004, higher compensation and benefits costs for employees and increased spending on process and technology improvements.
Interest Expense
Interest expense increased by $17.8 million in 2005 primarily due to increased debt from the Partnership’s fixed rate unsecured notes issued in the fourth quarter of 2004 offset by a decrease in the effective borrowing cost under the Partnership’s unsecured credit facilities, including the effect of interest rate hedges during 2004, as well as an increase in the amount of interest capitalized during 2005 over the comparable 2004 period.
Equity in Income of Real Estate Ventures
Equity in income of Real Estate Ventures increased by $0.7 million in 2005 as a result of increased net income from the Real Estate Ventures.
Net Gain on Sales of Real Estate
During the nine-month period ended September 30, 2005, the Partnership sold three parcels of land containing, realizing net gains totaling $4.6 million, an increase from a net gain of $2.9million in 2004.
Minority Interest
Minority interest from continuing operations represents the income attributable to the interest of the outside joint venture partners in the net income (loss) of the Partnership’s two consolidated real estate ventures. These two real estate ventures were consolidated effective March 31, 2004.
39
Back to Contents
Discontinued Operations
Discontinued operations decreased by $0.5 million in 2005 primarily due to the timing of sales for assets included in discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
General
Our principal liquidity needs for the next twelve months are as follows:
| • | fund normal recurring expenses, |
| • | fund acquisition and transaction costs in our pending acquisition by merger of Prentiss, |
| • | meet debt service requirements, |
| • | fund capital expenditures, including capital and tenant improvements and leasing costs, |
| • | fund current development costs, including continued development of Cira Centre in University City, Philadelphia, and |
| • | fund distributions declared by our Board of Trustees. |
We believe that these needs will be satisfied using cash flows generated by operations and provided by financing activities. Rental revenue, recovery income from tenants, and other income from operations are our principal sources of cash used to pay operating expenses, debt service, recurring capital expenditures and the minimum distribution required to maintain the Company’s REIT qualification. We seek to increase cash flows from our existing properties by maintaining quality standards for our properties that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. Our sources of revenue also include third-party fees generated by our property management, leasing, development and construction businesses. Consequently, we believe our revenue, together with proceeds from financing activities, will continue to provide the necessary funds for our short-term liquidity needs. However, material changes in these factors may adversely affect our net cash flows. Such changes, in turn, would adversely affect our ability to fund distributions, debt service payments and tenant improvements. In addition, a material adverse change in our cash provided by operations may affect the financial performance covenants under our unsecured Credit Facility and unsecured notes.
Our principal recurring liquidity needs for periods beyond twelve months are for the costs of developments, redevelopments, property acquisitions, scheduled debt maturities, major renovations, expansions and other non-recurring capital improvements. We draw on multiple financing sources to fund our principal recurring long-term capital needs. Our Credit Facility is utilized for general business purposes, including the acquisition, development and redevelopment of properties and the repayment of other debt. In the fourth quarter of 2004 we completed two offerings of unsecured notes and expect to utilize the debt market and common equity as capital sources for other long-term capital needs.
As a result of our pending acquisition by merger of Prentiss, we will have additional short and long-term liquidity requirements. Historically, we have satisfied these types of requirements principally through the most advantageous source of capital at that time, which has included public offerings of unsecured debt and private placements of secured and unsecured debt, sales of equity by the Company and contributions of the proceeds to us, capital raised through the disposition of assets, and joint venture capital transactions. We believe these sources of capital will continue to be available in the future to fund our capital needs. In conjunction with our pending acquisition, we received a commitment from affiliates of JPMorgan for (i) a 364-day term loan in the amount of $750 million, (ii) an interim term loan in the amount of $240 million, and (iii) a back-stop revolving credit facility in the amount of $600 million. We expect to use proceeds from borrowings under the 364-day term loan to fund a portion of the cash component of the merger consideration. The interim term loan will only be drawn if certain properties owned by Prentiss and anticipated to be sold prior to or concurrently with the merger are not sold by such times. The interim term loan will have a term of 60 days. The back-stop revolving credit facility will only be put into place if we are not successful in completing, prior to the merger, an amendment and restatement of our existing revolving credit facility on terms which allow for the consummation of the merger and are otherwise satisfactory to us. The back-stop revolving credit facility will have a term of 60 days from the closing of the merger. The financing commitments are subject to completion of definitive loan documents and customary closing conditions.
40
Back to Contents
Our ongoing ability to incur additional debt is dependent upon a number of factors, including our credit ratings, the value of our unencumbered assets, our degree of leverage and borrowing restrictions imposed by our current lenders. We currently have investment grade ratings for prospective unsecured debt offerings from three major rating agencies. If we experienced a credit downgrade, we may be limited in our access to capital in the unsecured debt market, which we have used to fund investment activities, and the interest rate we are paying under our existing credit facility would increase.
Our ability to raise funds through sales of common and preferred shares is dependent on, among other things, general market conditions for REITs, market perceptions about our company and the current trading price of our shares. We will continue to analyze which source of capital is most advantageous to us at any particular point in time, but the equity markets may not be consistently available on terms that are attractive.
Cash Flows
The following summary discussion of our 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 September 30, 2005 and December 31, 2004, we maintained cash and cash equivalents of $23.3 million and $15.3 million, respectively, an increase of $8.0 million. This increase was the result of the following changes in cash flow from our activities for the nine-month period ended September 30:
| Activity | | | 2005 | | | 2004 | |
| |
|
| |
|
| |
| Operating | | $ | 103,766 | | $ | 100,710 | |
| Investing | | | (206,150 | ) | | (634,716 | ) |
| Financing | | | 110,378 | | | 535,317 | |
| |
|
| |
|
| |
| Net cash flows | | $ | 7,994 | | $ | 1,311 | |
| |
|
| |
|
| |
Our principle source of cash flows is from the operations of our Properties. Our increased cash flow from operating activities in the nine-months ended September 30, 2005 compared to the same period in 2004 is primarily attributable to reductions in other assets which generated positive cash flow of $6.2 million in the 2004 period, the timing of real estate tax and other payments which generated higher cash outflows in the 2005 period, and greater net cash inflows from a larger asset base in 2005 as compared to 2004.
Increased cash flows from investing activities in the nine-months ended September 30, 2005 compared to the same period in 2004 were attributable to the decrease in our acquisition of properties and developable land parcels to $92.7 million in 2005 from $569.5 million in 2004 and was offset by an increase of $57.6 million in construction costs related to our Cira Centre development project and various other capital and tenant improvement. 2004 included the TRC acquisition.
Decreased cash flows from financing activities were due to the absence of term loan borrowings in 2005 ($433.0 million in 2004) and the decrease in net proceeds from share issuances from $392.3 million in 2004 which were offset by the increase in net proceeds from draws on the Credit Facility to $188.0 million in 2005 from $17.0 million in 2004 and the absence of cash outflow from term loan repayments ($100.0 million in 2004).
41
Back to Contents
Capitalization
Indebtedness
As of September 30, 2005, we had approximately $1.5 billion of outstanding indebtedness. The table below summarizes our mortgage notes payable, our unsecured notes and our revolving credit facility at September 30, 2005 and December 31, 2004:
| | | | September 30,
2005 | | | December 31,
2004 | |
| |
|
| |
|
| |
| | | (dollars in thousands) | |
| Balance: | | | | | | | |
| Fixed rate | | $ | 1,126,135 | | $ | 1,133,513 | |
| Variable rate | | | 355,116 | | | 173,156 | |
| |
|
| |
|
| |
| Total | | $ | 1,481,251 | | $ | 1,306,669 | |
| |
|
| |
|
| |
| Percent of Total Debt: | | | | | | | |
| Fixed rate | | | 76 | % | | 87 | % |
| Variable rate | | | 24 | % | | 13 | % |
| |
|
| |
|
| |
| Total | | | 100 | % | | 100 | % |
| |
|
| |
|
| |
| | | | | | | | |
| Weighted-average interest rate at period end: | | | | | | | |
| Fixed rate | | | 5.9 | % | | 5.9 | % |
| Variable rate | | | 4.6 | % | | 3.5 | % |
| Total | | | 5.6 | % | | 5.6 | % |
The variable rate debt shown above generally bears interest based on various spreads over LIBOR (the term of which is selected by the Partnership).
The Partnership utilizes credit facility borrowings for general business purposes, including the acquisition, development and redevelopment of properties and the repayment of other debt. The Partnership maintains a $450 million unsecured credit facility (the “Credit Facility”) that matures in May 2007, subject to a one year extension option upon payment of a fee and absence any defaults at the time of the extension. Borrowings under the Credit Facility generally bear interest at LIBOR plus a spread over LIBOR ranging from 0.65% to 1.20% based on the Partnership’s unsecured senior debt rating. The Partnership has an option to increase its maximum borrowings under the Credit Facility to $600 million subject to the absence of any defaults and our ability to acquire additional commitments from our existing lenders or new lenders. The Credit Facility contains various financial and non-financial covenants. As of September 30, 2005, the Partnership was in compliance with all such covenants.
The Partnership utilizes unsecured notes as a long-term financing alternative. The indentures and note purchase agreements contain various financial restrictions and requirements, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 40%, (3) a debt service coverage ratio of greater than 1.5 to 1.0, and (4) an unencumbered asset value of not less than 150% of unsecured debt. In addition, the note purchase agreement relating to the 2008 Notes contains covenants that are similar to the above covenants. At September 30, 2005, the Partnership was in compliance with each of these financial restrictions and requirements.
The Partnership has mortgages, loans payable and other obligations which consist of various loans collateralized by certain of the Partnership’s Properties. Payments on mortgages, loans payable and other obligations are generally due in monthly installments of principal and interest, or interest only.
The Partnership intends to refinance its mortgage indebtedness as it matures primarily through the use of unsecured debt or equity.
42
Back to Contents
As of September 30, 2005, the Partnership’s debt-to-market capitalization ratio was 46.8%. As a general policy, the Partnership intends, but is not obligated, to adhere to a policy of maintaining a debt-to-market capitalization ratio of no more than 50%.
Partner’s Equity
On September 20, 2005, the Partnership declared a distribution of $0.44 per Common Unit, totaling $24.9 million, which was paid on October 17, 2005 to shareholders of record as of October 5, 2005. On this same date, the Partnership simultaneously declared a $0.44 per unit cash distribution to holders of Class A Units totaling $0.9 million.
On September 20, 2005, the Partnership declared distributions to holders of its Series D Preferred Mirror Units and Series E Mirror Units to holders of record on September 30, 2005. These units are currently entitled to a cumulative preferential return of 7.50% and 7.375%, respectively. Distributions paid on October 17, 2005 to holders of Series D Preferred Mirror Units and Series E Preferred Mirror Units totaled $0.9 million and $1.1 million, respectively.
The Board of Trustees of the Company approved a share repurchase program authorizing it to repurchase up to 4.0 million of its outstanding Common Shares. Through September 30, 2005, the Company had repurchased 3.2 million of its Common Shares at an average price of $17.75 per share. Concurrent with share repurchases by the Company, the Partnership has repurchased 3.2 million of Partnership Units from the Company at an average price of $17.75 per unit. Under the share repurchase program, the Company has the authority to repurchase an additional 762,000 shares, and, in exchange for the funds required to repurchase these shares, the Partnership will repurchase an equivalent number of Common Partnership Units from the Company. No time limit has been placed on the duration of the share repurchase program.
Shelf Registration Statement
The Company and the Partnership have an effective shelf registration statement on Form S-3 filed with the Securities and Exchange Commission that registered $750 million in common shares, preferred shares, depositary shares and warrants and $750 million in debt securities. As of September 30, 2005, the registration statement had the entire $750 million of capacity for future issuances of common shares, preferred shares, depositary shares and warrants and had the entire $750 million of capacity for future issuances of debt securities.
Short- and Long-Term Liquidity
The Partnership believes that its cash flow from operations is adequate to fund its short-term liquidity requirements. 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 Partnership intends to use these funds to meet short-term liquidity needs, which are to fund operating expenses, debt service requirements, recurring capital expenditures, tenant allowances, leasing commissions and the minimum distributions required to maintain the Company’s REIT qualification under the Internal Revenue Code.
The 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 its Credit Facility, other long-term secured and unsecured indebtedness, the issuance of equity securities and the proceeds from the disposition of selected assets.
Inflation
A majority of the Partnership’s leases provide for separate escalations of real estate taxes and operating expenses either on a triple net basis or over a base amount. In addition, many of the office leases provide for fixed base rent increases. The Partnership believes that inflationary increases in expenses will be significantly offset by increases in expense reimbursement from tenants and contractual rent increases.
43
Back to Contents
Commitments and Contingencies
The following table outlines the timing of payment requirements related to the Partnership’s contractual commitments as of September 30, 2005:
| | | | | | Payments by Period (in thousands) | |
| | | | |
| |
| | | | | | | | | Less than | | | | | | | | | More than | |
| | | | | | Total | | | 1 Year | | | 1-3 Years | | | 3-5 Years | | | 5 Years | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Mortgage notes payable (a) | $ | 498,301 | | $ | 18,923 | | $ | 43,568 | | $ | 86,395 | | $ | 349,415 | |
| Revolving credit facility | | 340,000 | | | — | | | 340,000 | | | — | | | — | |
| Unsecured debt (a) | | 638,000 | | | — | | | — | | | 388,000 | | | 250,000 | |
| Ground leases (b) | | 259,990 | | | 1,435 | | | 2,869 | | | 2,993 | | | 252,693 | |
| Other liabilities | | 1,525 | | | 837 | | | — | | | — | | | 688 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | $ | 1,737,816 | | $ | 21,195 | | $ | 386,437 | | $ | 477,388 | | $ | 852,796 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (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 the Company | |
| | | | is the lessee are expensed on a straight-line basis regardless of when payments are due. | | | | | | | |
The Partnership intends to refinance its mortgage notes payable as they become due or repay those that are secured by properties being sold. The Partnership expects to renegotiate its Credit Facility prior to maturity or extend its term.
We are a party to an agreement with one of our Trustees (Donald E. Axinn) in which we agreed to fund $5.5 million in September 2010 to acquire a fifty percent interest in an approximately 141,725 square foot office building located at 101 Paragon Drive, Montvale, New Jersey. Our agreement provides for proceeds of our $5.5 million payment to be used (together with funds provided by Mr. Axinn) to repay in full the third party loan that encumbers this property.
As part of our purchase of the TRC Properties in September 2004, the Partnership agreed to issue to the sellers up to a maximum of $9.7 million of Class A Units of the Partnership if certain of the acquired properties achieve at least 95% occupancy prior to September 21, 2007. At September 30, 2005, the maximum amount payable under this arrangement was $5.7 million.
As part of the TRC acquisition, we acquired our interest in Two Logan Square, a 696,477 square foot office building in Philadelphia, primarily through a second and third mortgage secured by this property. We currently do not expect to take title to Two Logan Square until, at the earliest, September 2019. In the event that we take title to Two Logan Square upon a foreclosure of our mortgage, we have agreed to make a payment to an unaffiliated third party with a residual interest in the fee owner of this property. The amount of the payment would be $0.6 million if we must pay a state and local transfer upon taking title, and $2.9 million if no transfer tax is payable upon the transfer.
In our acquisition of the TRC Properties and several of our other acquisitions, we agreed not to sell the acquired properties. In the case of the TRC Properties, we agreed not to sell the acquired properties for periods ranging from three to 15 years from the acquisition date as follows: 201 Radnor Financial Center, 555 Radnor Financial Center and 300 Delaware Avenue (three years); One Rodney Square and 130/150/170 Radnor Financial Center (10 years); and One Logan Square, Two Logan Square and Radnor Corporate Center (15 years). We also own 14 properties that aggregate 1.0 million square feet and have agreed not to sell these properties for periods that expire through 2008. 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 Code or in other tax deferred transactions. In the event that we sell any of the properties within the applicable restricted period in non-exempt transactions, we have agreed to pay significant tax liabilities that would be incurred by the parties who sold us the applicable property.
We invest in our Properties and regularly incur capital expenditures in the ordinary course to maintain the Properties. We believe that such expenditures enhance the competitiveness of the Properties. We also enter into construction, utility and service contracts in the ordinary course of business which may extend beyond one year. These contracts include terms that provide for cancellation with insignificant or no cancellation penalties.
44
Back to Contents
Interest Rate Risk and Sensitivity Analysis
The analysis below presents the sensitivity of the market value of the Partnership’s financial instruments to selected changes in market rates. The range of changes chosen reflects the Partnership’s 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 Partnership’s financial instruments consist of both fixed and variable rate debt. As of September 30, 2005, the Partnership’s consolidated debt consisted of $483.2 million in fixed rate mortgages and $15.1 million in variable rate mortgage notes, $340.0 million borrowings under its variable rate Credit Facility and $636.6 million in fixed rate unsecured notes (net of discounts). 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 the Partnership’s 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.
If market rates of interest on our variable rate debt increase by 1%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by approximately $3.6 million. If market rates of interest on our variable rate debt decrease by 1%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by approximately $3.6 million.
If market rates of interest increase by 1%, the fair value of our outstanding fixed-rate mortgage debt would decrease by approximately $28.9 million. If market rates of interest decrease by 1%, the fair value of our outstanding fixed-rate mortgage debt would increase by approximately $31.8 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, commodity prices and equity prices. In pursuing its business plan, the primary market risk to which the Partnership is exposed is interest rate risk. Changes in the general level of interest rates prevailing in the financial markets may affect the spread between the Partnership’s yield on invested assets and cost of funds and, in turn, the Partnership’s ability to make distributions or payments to its shareholders. While the Partnership has not experienced any significant credit losses, in the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in losses to the Partnership which adversely affects its operating results and liquidity.
There have been no material changes in Quantitative and Qualitative disclosures in 2005 from the disclosures included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2004. Reference is made to Item 7 included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2004 and the caption “Interest Rate Risk and Sensitivity Analysis” under Item 2 of this Quarterly Report on Form 10-Q.
Item 4. Controls and Procedures
| (a) | Evaluation of disclosure controls and procedures. The Partnership’s Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report, have concluded that the Partnership’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Partnership in the reports that it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. |
| | | |
| (b) | Changes in internal controls over financial reporting. There was no change in the Partnership’s internal control over financial reporting that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting. |
45
Back to Contents
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes the share repurchases during the three-month period ended September 30, 2005:
| | | | | | | | | | | | | Total | | | | |
| | | | | | | | | | | | | Number of | | | Maximum | |
| | | | | | | | | | | | | Units | | | Number of | |
| | | | | | | Total | | | | | | Purchased as | | | Units that May | |
| | | | | | | Number of | | | Average | | | Part of Publicly | | | Yet Be Purchased | |
| | | | | | | Units | | | Price Paid Per | | | Announced Plans | | | Under the Plans | |
| | | | | | | Purchased (A) | | | Unit | | | or Programs | | | or Programs | |
| | | | | |
|
| |
|
| |
|
| |
|
| |
| 2005: | | | | | | | | | | | | | |
| July | | | — | | $ | — | | | — | | | 762,000 | |
| August | | | — | | $ | — | | | — | | | 762,000 | |
| September | | | — | | $ | — | | | — | | | 762,000 | |
| | | | | |
|
| |
|
| |
|
| |
|
| |
| | | | Total | | | — | | $ | — | | | — | | | 762,000 | |
| | | | | |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | |
| | (A) | | Represent Common Partnership Units that relate to Common Shares cancelled by the Company upon vesting of restricted Common Shares previously awarded to Company employees, in satisfaction of tax withholding obligations. |
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
46
Back to Contents
Item 6. Exhibits
(a) Exhibits
| 2.1 | | | | | | Agreement and Plan of Merger dated as of October 3, 2005, by and among Brandywine, Brandywine Operating Partnership, Merger Sub I, L.P., Merger Sub, Prentiss, and Prentiss Acquisition Partners (incorporated by reference to Brandywine’s Current Report on Form 8-K filed on October 4, 2005) | |
| 3.1 | | | | | | Articles of Amendment to Declaration of Trust of Brandywine (incorporated by reference to Brandywine’s Current Report on Form 8-K filed on October 4, 2005) | |
| 10.2 | | | | | | Voting Agreement dated as of October 3, 2005 among Brandywine Realty Trust, Brandywine Operating Partnership and Michael V. Prentiss (incorporated by reference to Brandywine’s Current Report on Form 8-K filed on October 4, 2005) | |
| 10.3 | | | | | | Voting Agreement dated as of October 3, 2005 among Brandywine Realty Trust, Brandywine Operating Partnership and Thomas F. August (incorporated by reference to Brandywine’s Current Report on Form 8-K filed on October 4, 2005) | |
| 10.4 | | | | | | Master Agreement dated as of October 3, 2005 by and between Brandywine Operating Partnership, L.P. and The Prudential Insurance Company of America (incorporated by reference to Brandywine’s Current Report on Form 8-K filed on October 4, 2005) | |
| 10.5 | | | | | | Asset Purchase Agreement dated as of October 3, 2005 between Prentiss and The Prudential Insurance Company of America (incorporated by reference to Brandywine’s Current Report on Form 8-K filed on October 4, 2005) | |
| 10.6 | | | | | | Registration Rights Agreement (incorporated by reference to Brandywine’s Current Report on Form 8-K filed on October 4, 2005) | |
| 12.1 | | | | | | Statement re Computation of Ratios | |
| 31.1 | | | | | | Certification Pursuant to 13a-14 under the Securities Exchange Act of 1934 | |
| 31.2 | | | | | | Certification Pursuant to 13a-14 under the Securities Exchange Act of 1934 | |
| 32.1 | | | | | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | | | | | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 99.1 | | | | | | Financing Commitment Letter from JP Morgan Chase bank, N.A. and J.P. Morgan Securities, Inc. (incorporated by reference to Brandywine’s Current Report on Form 8-K filed on October 4, 2005) | |
| | | | | | | | |
47
Back to Contents
SIGNATURES OF REGISTRANT
Pursuant to the requirements 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. (Registrant)
BRANDYWINE REALTY TRUST, as general partner
| Date: November 14, 2005 | | By: /s/ Gerard H. Sweeney |
| | |
|
| | | Gerard H. Sweeney, President and Chief Executive Officer |
| | | (Principal Executive Officer) |
| Date: November 14, 2005 | | By: /s/ Christopher P. Marr |
| | |
|
| | | Christopher P. Marr, Senior Vice President and Chief Financial Officer |
| | | (Principal Financial Officer) |
| Date: November 14, 2005 | | By: /s/ Timothy M. Martin |
| | |
|
| | | Timothy M. Martin, Vice President-Finance and Chief Accounting Officer |
| | | (Principal Accounting Officer) |
48
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Transition Report Pursuant to Section 13 or 15(d) of the Securities