UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
---- Exchange Act of 1934
For the quarterly period ended March 31, 2002
or
____ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ____________ to ___________
Commission file number 1-9106
------
Brandywine Realty Trust
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 23-2413352
-------- ----------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
14 Campus Boulevard, Newtown Square, Pennsylvania 19073
----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 325-5600
-----------------------------
Registrant's telephone number
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
A total of 35,675,661 Common Shares of Beneficial Interest were
outstanding as of May 7, 2002.
BRANDYWINE REALTY TRUST
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2002
and December 31, 2001
Condensed Consolidated Statements of Operations for the
three-month periods ended March 31, 2002 and March 31,
2001
Condensed Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 2002 and March 31,
2001
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
BRANDYWINE REALTY TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands, except share and per share information)
March 31, December 31,
2002 2001
----------- -----------
ASSETS
Real estate investments:
Operating properties $ 1,770,222 $ 1,798,731
Accumulated depreciation (211,424) (220,599)
----------- -----------
1,558,798 1,578,132
Construction-in-progress 93,005 107,717
Land held for development 39,477 39,285
----------- -----------
1,691,280 1,725,134
Cash and cash equivalents 30,450 13,459
Escrowed cash 16,242 16,311
Accounts receivable, net 3,755 6,394
Accrued rent receivable, net 24,143 23,836
Marketable securities 10,790 10,735
Assets held for sale 88,296 90,598
Investment in real estate ventures, at equity 19,418 19,067
Deferred costs, net 22,426 23,313
Other assets 32,781 31,356
----------- -----------
Total assets $ 1,939,581 $ 1,960,203
=========== ===========
LIABILITIES AND BENEFICIARIES' EQUITY
Mortgage notes payable $ 611,055 $ 614,840
Borrowings under Credit Facility 383,325 394,325
Accounts payable and accrued expenses 29,066 39,678
Distributions payable 21,490 21,525
Tenant security deposits and deferred rents 19,551 21,790
Other liabilities 14,329 15,555
Liabilities related to assets held for sale 589 500
----------- -----------
Total liabilities 1,079,405 1,108,213
Minority interest 143,413 143,834
Commitments and contingencies
Beneficiaries' equity:
Preferred Shares (shares authorized-10,000,000):
7.25% Series A Preferred Shares, $0.01 par value;
issued and outstanding-750,000
in 2002 and 2001 8 8
8.75% Series B Preferred Shares, $0.01 par value;
issued and outstanding-4,375,000
in 2002 and 2001 44 44
Common Shares of beneficial interest, $0.01 par value;
shares authorized-100,000,000; issued and outstanding-
35,675,661 in 2002 and 35,640,935 in 2001 357 356
Additional paid-in capital 850,092 848,213
Share warrants 401 401
Cumulative earnings 186,602 163,502
Accumulated other comprehensive loss (2,167) (4,587)
Cumulative distributions (318,574) (299,781)
----------- -----------
Total beneficiaries' equity 716,763 708,156
----------- -----------
Total liabilities and beneficiaries' equity $ 1,939,581 $ 1,960,203
=========== ===========
The accompanying condensed notes are integral part of these consolidated
financial statements.
3
BRANDYWINE REALTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share information)
Three-Month Periods
Ended March 31,
-------------------------
2002 2001
-------- --------
Revenue:
Rents $ 59,810 $ 55,965
Tenant reimbursements 7,483 8,306
Other 2,881 2,255
-------- --------
Total revenue 70,174 66,526
Operating Expenses:
Property operating expenses 18,448 17,951
Real estate taxes 5,873 5,577
Interest 15,730 15,998
Depreciation and amortization 12,477 16,275
Administrative expenses 4,033 4,000
-------- --------
Total operating expenses 56,561 59,801
Income from continuing operations before equity in income of real estate
ventures, gain on sale of interests in real estate and minority interest 13,613 6,725
Equity in income of real estate ventures 464 1,466
-------- --------
Income from continuing operations before gain on sale of interests
in real estate and minority interest 14,077 8,191
Gain on sale of interests in real estate -- 182
Minority interest attributable to continuing operations (2,351) (2,024)
-------- --------
Income from continuing operations 11,726 6,349
Discontinued operations:
Income from discontinued operations 4,000 2,960
Gain on disposition of discontinued operations 8,446 --
Minority interest (703) (169)
-------- --------
11,743 2,791
-------- --------
Net income 23,469 9,140
Income allocated to Preferred Shares (2,977) (2,977)
-------- --------
Income allocated to Common Shares $ 20,492 $ 6,163
======== ========
Earnings per Common Share, before discontinued operations:
Basic $ 0.23 $ 0.08
======== ========
Diluted $ 0.23 $ 0.08
======== ========
Earnings per Common Share, after discontinued operations:
Basic $ 0.56 $ 0.16
======== ========
Diluted $ 0.55 $ 0.16
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Three-Month Periods Ended
March 31,
-------------------------
2002 2001
-------- --------
Cash flows from operating activities:
Net income $ 23,469 $ 9,140
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 12,353 17,452
Amortization:
Deferred financing costs 525 841
Deferred leasing costs 1,367 1,046
Notes payable discount -- 21
Deferred compensation costs 889 841
Straight-line rent (1,369) (1,494)
Provision for doubtful accounts 422 150
Equity in income of real estate ventures, net of
cash distributions received (46) --
Net gain on sale of interests in real estate (8,446) (182)
Minority interest 3,054 2,193
Distributions paid to minority partners (2,714) (2,651)
Changes in assets and liabilities:
Accounts receivable 2,225 (1,061)
Other assets 1,854 6,174
Accounts payable and accrued expenses (6,852) (5,172)
Tenant security deposits and deferred rents (2,675) 1,089
Other liabilities (557) --
-------- --------
Net cash from operating activites 23,499 28,387
Cash flows from investing activities:
Acquisitions of properties (22,887) (21,389)
Sales of properties 53,743 3,499
Capital expenditures (11,673) (14,779)
Investment in real estate ventures (305) (601)
Escrowed cash 986 (1,546)
Cash distributions from real estate ventures in excess
of income -- 1,511
Leasing costs (2,333) (986)
-------- --------
Net cash from investing activities 17,531 (34,291)
Cash flows from financing activites:
Proceeds from notes payable, Credit Facility 15,000 15,000
Repayments of notes payable, Credit Facility (26,000) --
Proceeds from mortgage notes payable 8,999 219
Repayments of mortgage notes payable (2,207) (1,968)
Debt financing costs -- (86)
Repayments on employee stock loans 721 --
Repurchases of Common Shares and minority interest units (1,739) --
Distributions paid to shareholders (18,813) (17,850)
-------- --------
Net cash from financing activities (24,039) (4,685)
-------- --------
Increase (decrease) in cash and cash equivalents 16,991 (10,589)
Cash and cash equivalents at beginning of period 13,459 16,040
-------- --------
Cash and cash equivalents at end of period $ 30,450 $ 5,451
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
BRANDYWINE REALTY TRUST
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
1. THE COMPANY
Brandywine Realty Trust (collectively with its subsidiaries, the "Company") is a
self-administered and self-managed real estate investment trust (a "REIT")
active in acquiring, developing, redeveloping, leasing and managing office and
industrial properties. As of March 31, 2002, the Company's portfolio included
218 office properties, 36 industrial facilities and one mixed-use property
(collectively, the "Properties") containing an aggregate of approximately 16.5
million net rentable square feet and managed an additional 43 properties
containing approximately 3.3 million net rentable square feet. As of March 31,
2002, the Company also owned approximately 443 acres of undeveloped land and
held options to purchase approximately 61 additional acres. The Properties are
located in the office and industrial markets surrounding Philadelphia,
Pennsylvania, New Jersey and Long Island, New York and Richmond, Virginia. As of
March 31, 2002, the Company also held economic interests in thirteen real estate
ventures (the "Real Estate Ventures") formed with third parties to develop
commercial properties. As of March 31, 2002, the Company had an aggregate
investment in the Real Estate Ventures of approximately $19.4 million (net of
returns of investment received by Company).
The Company owns its assets and conducts its operations through Brandywine
Operating Partnership, L.P. (the "Operating Partnership"). The Company is the
sole general partner of the Operating Partnership and, as of March 31, 2002, was
entitled to approximately 94.3% of the Operating Partnership's distributions
after distributions by the Operating Partnership to holders of its Series B
Preferred Units (defined below). The Operating Partnership owns a 95% interest
in Brandywine Realty Services Corporation (the "Management Company"), a taxable
REIT subsidiary that, as of March 31, 2002, was performing management and
leasing services for properties owned by third-parties that contain
approximately 3.3 million net rentable square feet.
Minority interest relates to interests in the Operating Partnership that are not
owned by the Company. Income allocated to the minority interest is based on the
percentage ownership of the Operating Partnership held by third parties
throughout the period. Minority interest is comprised of Class A Units of
limited partnership interest ("Class A Units") and Series B Preferred Units of
limited partnership interest ("Series B Preferred Units"). The Operating
Partnership issued these Units to persons that contributed assets to the
Operating Partnership. The Operating Partnership is obligated to redeem, at the
request of a holder, each Class A Unit for cash or one Common Share, at the
option of the Company. Each Series B Preferred Unit has a stated value of $50.00
and is convertible, at the option of the holder, into Class A Units at a
conversion price of $28.00. The conversion price declines to $26.50, if the
average trading price of the Common Shares during the 60-day period ending
December 31, 2003 is $23.00 or less. The Series B Preferred Units bear a
preferred distribution of 7.25% per annum ($3.625 per unit per annum), subject
to an increase in the event quarterly distributions paid to holders of Common
Shares exceed $0.51 per share. As of March 31, 2002, 2,117,741 Class A Units and
1,950,000 Series B Preferred Units were outstanding and held by third party
investors. Minority interest also relates to the 5% interest in the Management
Company that is not owned by the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared by the Company without
audit except as to the balance sheet as of December 31, 2001, which has been
prepared from audited data, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the included disclosures are adequate to make the
information presented not misleading. In the opinion of management, all
adjustments (consisting solely of normal recurring matters) necessary to fairly
present the financial position of the Company as of March 31, 2002, the results
of its operations for the three months ended March 31, 2002 and 2001, and its
cash flows for the three months ended March 31, 2002 and 2001 have been
included. The results of operations for such interim periods are not necessarily
indicative of the results for a full year. For further information, refer to the
Company's consolidated financial statements and footnotes included in the Annual
Report on Form 10-K for the year ended December 31, 2001. Certain prior period
amounts have been reclassified to conform with the current period presentation.
6
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Real Estate Investments
Real estate investments include capitalized direct internal development costs
totaling $365,000 for the three months ended March 31, 2002 and $654,000 for the
three months ended March 31, 2001. Interest totaling $.9 million for the three
months ended March 31, 2002 and $1.4 million for the three months ended March
31, 2001 was capitalized related to the development of certain Properties and
land holdings.
Effective January 1, 2002, the Company changed the estimated useful lives of
various buildings from 25 to 40 years which resulted in an increase of net
income of $4.8 million or $.13 per share for the three months ended March 31,
2002. The longer period was determined to be a better estimate of the useful
lives of the buildings.
Deferred Costs
Deferred costs include internal direct leasing costs totaling $711,000 for the
three months ended March 31, 2002 and $739,000 for the three months ended March
31, 2001. These costs are being amortized over the related lease term.
Accounting for Derivative Instruments and Hedging Activities
The Company accounts for its derivative instruments and hedging activities under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and
its corresponding amendments under SFAS No. 138. SFAS 133 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. 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. Changes in fair value of derivative
instruments and ineffective portions of hedges are recognized in earnings in the
current period. For the three months ended March 31, 2002, the Company was not
party to any derivative contract designated as a fair value hedge.
The Company recorded a gain of $2.4 million in other comprehensive income to
recognize the change in value during the three months ended March 31, 2002. The
unrealized gains/losses and the transition adjustment held in accumulated other
comprehensive income will be reclassified into earnings as the underlying hedged
items affect earnings, such as when the forecasted interest payments occur. It
is expected that $3.1 million of net losses will be reclassified into earnings
over the next twelve months.
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 fair
values of 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 Company manages its ratio of fixed-to-floating rate debt with the objective
of achieving a mix that management believes is appropriate. To manage this mix
in a cost-effective manner, the Company, from time to time, enters into interest
rate swap agreements, in which it agrees to exchange various combinations of
fixed and/or variable interest rates based on agreed upon notional amounts. As
of March 31, 2002, the maximum length of time until which the Company was
hedging its exposure to the variability in future cash flows for forecasted
transactions was through June 2004. There was no gain or loss reclassified from
accumulated other comprehensive income into earnings during the three months
ended March 31, 2002 as a result of the discontinuance of a cash flow hedge due
to the probability of the original forecasted transaction not occurring.
7
New Pronouncements
Effective January 1, 2002, the Company adopted Financial Accounting Standards
Board Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which established a single accounting model for the impairment or
disposal of long-lived assets including discontinued operations. This statement
requires that the operations related to properties that have been sold or
properties that are intended to be sold be presented as discontinued operations
in the statement of operations for all periods presented and properties intended
to be sold are to be designated as "held-for-sale" on the balance sheet.
3. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS
2002
During the first quarter of 2002, the Company sold ten office properties
containing 704,000 net rentable square feet and ten industrial properties
containing 602,000 net rentable square feet for an aggregate of $117.9 million,
realizing a net gain of $8.4 million. In addition, the Company purchased four
office properties containing 360,000 net rentable square feet for $67.2 million.
2001
During the first quarter of 2001, the Company sold one office property
containing 30,000 net rentable square feet, one industrial property containing
16,000 net rentable square feet and one parcel of land containing 2.1 acres for
an aggregate of $3.5 million, realizing a net gain of $182,000. In addition, the
Company purchased two office properties containing 146,000 net rentable square
feet for $18.0 million and one parcel of land containing 20 acres for $7.6
million.
4. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
As of March 31, 2002, the Company had an aggregate investment of approximately
$19.4 million in thirteen Real Estate Ventures (net of returns of investment
received by the Company). The Company, through subsidiaries, formed these
ventures with unaffiliated third parties to develop office properties or to
acquire land in anticipation of possible development of office properties. Nine
of the Real Estate Ventures own nine office buildings that contain an aggregate
of approximately 1.0 million net rentable square feet; one Real Estate Venture
is developing one office buildings that will contain, upon completion, an
aggregate of approximately 345,000 net rentable square feet; one Real Estate
Venture is developing a hotel property that will contain, upon completion,
approximately 137 rooms; and two Real Estate Ventures hold approximately nine
acres of land for future development.
The Company accounts for its non-controlling interests in Real Estate Ventures
using the equity method. Non-controlling ownership interests generally range
from 6% to 65%, subject to specified priority allocations in certain real estate
ventures. These investments, initially recorded at cost, are subsequently
adjusted for the Company's net equity in the ventures' income or loss and cash
contributions and distributions.
The following is a summary of the financial position of the unconsolidated joint
ventures in which the Company had investment interests as of March 31, 2002 and
December 31, 2001:
March 31, December 31,
2002 2001
--------- ---------
(amounts in thousands)
Net property $ 200,757 $ 180,497
Other assets 24,409 17,038
Liabilities 1,526 1,593
Third-party debt 155,023 145,463
Equity 68,617 50,479
Company's share of equity 19,418 19,067
8
The following is a summary of financial operations of the unconsolidated joint
ventures in which the Company had investment interests as of March 31, 2002 and
2001:
For the three months ended March 31,
------------------------------------
2002 2001
---------- -----------
(amounts in thousands)
Revenues $ 6,713 $ 9,180
Operating expenses 2,219 2,617
Depreciation and amortization 1,041 950
Interest expense, net 2,344 2,391
Net income 1,109 3,222
Company's share of income 464 1,466
As of March 31, 2002, the aggregate maturities of non-recourse debt of Real
Estate Ventures payable to third-parties is as follows (000's):
2002 $ 28,795
2003 1,157
2004 2,651
2005 19,319
2006 and thereafter 103,101
---------
$ 155,023
=========
As of March 31, 2002, the Company had guaranteed repayment of approximately $2.6
million of loans for the Real Estate Venture debt.
5. INDEBTEDNESS
The Company utilizes credit facility borrowings for general business purposes,
including the acquisition of properties and the repayment of debt. The Company
maintains a $500 million unsecured credit facility (the "Credit Facility") that
matures in June 2004. Borrowings under the Credit Facility bear interest at
LIBOR (LIBOR was 1.88% at March 31, 2002) plus 1.5%, with the spread over LIBOR
subject to reductions from .10% to .25% or increases of .25% based on the
Company's leverage. As of March 31, 2002, the Company had $383.3 million of
borrowings, $13.3 million of letters of credit outstanding and $103.4 million of
unused availability under the Credit Facility. The weighted-average interest
rate on borrowings under the Credit Facility was 5.22% for the three months
ended March 31, 2002 and 7.52% for the three months ended March 31, 2001.
As of March 31, 2002, the Company had $611.1 million of mortgage notes payable,
secured by 108 of the Properties and certain land holdings. Fixed rate
mortgages, totaling $514.8 million, require payments of principal and/or
interest (or imputed interest) at rates ranging from 6.8% to 9.25% and mature on
dates from July 2003 through July 2027. Variable rate mortgages, totaling $96.3
million, require payments of principal and/or interest at rates ranging from
LIBOR plus .76% to 1.75% or 75% of prime (prime rate was 4.75% at March 31,
2002) and mature on dates from February 2003 through July 2027. The
weighted-average interest rate on the Company's mortgages was 7.35% for the
three months ended March 31, 2002 and 7.69% for the three months ended March 31,
2001.
The Company has entered into interest rate swap and rate cap agreements designed
to reduce the impact of interest rate changes on its variable rate debt. At
March 31, 2002, the Company had three interest rate swap agreements for notional
principal amounts aggregating $175 million. The swap agreements effectively fix
the LIBOR interest rate on $100 million of Credit Facility borrowings at 6.383%,
$50 million at 6.080% and $25 million at 5.215% until September 2002. In October
2001, the Company entered into three additional interest rate swap agreements
that effectively fix the LIBOR interest rate on $100 million of Credit Facility
borrowings at 4.230% and on $75 million at 4.215% from September 2002 to June
2004. The interest rate cap agreements effectively fix the interest rate on two
variable rate mortgages. One rate cap fixes the interest rate on a mortgage with
a notional value of $75 million at 6.25% until maturity in April 2002. The
second interest rate cap fixes the interest rate on a mortgage with a notional
value of $28 million at 8.7% until July 2004. The impact of the cap agreements
is recorded as a component of interest expense.
For the three months ended March 31, 2002 and 2001, the Company paid interest
totaling $14.7 million in 2002 and $17.0 million in 2001.
9
6. DISCONTINUED OPERATIONS
For the three months ended March 31, 2002 and 2001, income from discontinued
operations relates to 20 properties containing 1.3 million net rentable square
feet that the Company sold during the first quarter of 2002 and 27 properties
containing 1.1 million net rentable square feet that the Company has designated
as "held-for-sale". The following table summarizes revenue and expense
information for these properties sold or held-for-sale.
Three months ended March 31,
----------------------------
2002 2001
------ ------
Revenue:
Rents $ 6,787 $ 7,219
Tenant reimbursements 1,158 1,222
Other 189 46
-------- -------
Total revenue 8,134 8,487
Operating Expenses:
Property operating expenses 1,869 2,150
Real estate taxes 1,019 1,154
Interest -- --
Depreciation and amortization 1,243 2,223
Administrative expenses 3 --
-------- -------
Total operating expenses 4,134 5,527
Income from discontinued operations before net gain on sale
of interests in real estate and minority interest 4,000 2,960
Net gain on sales of interest in real estate 8,446 --
Minority interest (703) (169)
-------- -------
Income from discontinued operations $ 11,743 $ 2,791
======== =======
Discontinued operations have not been segregated in the consolidated statements
of cash flows. Therefore, amounts for certain captions will not agree with
respective consolidated statements of operations.
7. BENEFICIARIES EQUITY
On March 22, 2002, the Company declared a distribution of $0.44 per Common
Share, totaling $15.8 million, which was paid on April 15, 2002 to shareholders
of record as of April 4, 2002. The Operating Partnership simultaneously declared
a $0.44 per unit cash distribution to holders of Class A Units totaling $0.9
million.
On March 22, 2002, the Company and the Operating Partnership, respectively, also
declared distributions to holders of Series A Preferred Shares, Series B
Preferred Shares and Series B Preferred Units, which are each currently entitled
to a preferential return of 7.25%, 8.75% and 7.25%, respectively. Distributions
paid on April 15, 2002 to holders of Series A Preferred Shares, Series B
Preferred Shares and Series B Preferred Units totaled $0.7 million, $2.3 million
and $1.8 million, respectively.
During the three month period ended March 31, 2002, the Company repurchased
28,274 Common Shares for an aggregate of $671,000 (an average price of $23.72
per share).
10
8. COMPREHENSIVE INCOME
Comprehensive income represents net income, plus the results of certain
non-shareholders' equity changes not reflected in the Consolidated Statements of
Operations. The components of comprehensive income are as follows:
Three-Month Periods
Ended March 31,
-------------------
2002 2001
---- ----
Net income $ 23,469 $ 9,140
Other comprehensive income:
Cumulative effect of change in accounting
principle (SFAS #133) on other comprehensive
income -- (1,300)
Unrealized derivative gains (losses) on cash flow hedges 2,365 (2,656)
Unrealized gain on available-for-sale securities 55 (144)
-------- -------
Comprehensive income $ 25,889 $ 5,040
======== =======
9. SEGMENT INFORMATION
The Company currently manages its portfolio within three segments: (1)
Pennsylvania, (2) New Jersey/New York, and (3) Virginia. Corporate is
responsible for cash and investment management and certain other general support
functions.
Segment information is as follows (in thousands):
New Jersey/
Pennsylvania New York Virginia Corporate Total
------------- ----------- --------- --------- -----------
As of March 31, 2002:
- ---------------------
Real estate investments, at cost $ 1,190,042 $ 514,459 $ 198,203 $ -- $ 1,902,704
Assets held for sale 30,387 49,672 8,237 -- 88,296
Investment in real estate ventures,
at equity -- -- -- 19,418 19,418
For three months ended March 31, 2002:
- --------------------------------------
Total revenue $ 41,725 $ 21,464 $ 6,436 $ 549 $ 70,174
Property operating expenses
and real estate taxes 14,025 8,067 2,229 -- 24,321
----------- --------- --------- -------- -----------
Net operating income $ 27,700 $ 13,397 $ 4,207 $ 549 $ 45,853
=========== ========= ========= ======== ===========
Interest $ -- $ -- $ -- $ 15,730 $ 15,730
Depreciation & amortization 6,986 3,827 1,386 278 12,477
Discontinued operations, net
of minority interest 4,650 6,947 146 -- 11,743
As of December 31, 2001:
Real estate investments, at cost $ 1,157,325 $ 590,016 $ 198,392 $ -- $ 1,945,733
Assets held for sale 33,130 49,369 8,099 -- 90,598
Investment in real estate ventures,
at equity -- -- -- 19,067 19,067
For three months ended March 31, 2001:
Total revenue $ 35,957 $ 20,440 $ 9,473 $ 656 $ 66,526
Property operating expenses
and real estate taxes 12,129 7,420 3,605 374 23,528
----------- --------- --------- -------- -----------
Net operating income $ 23,828 $ 13,020 $ 5,868 $ 282 $ 42,998
=========== ========= ========= ======== ===========
Interest $ -- $ -- $ -- $ 15,998 $ 15,998
Depreciation & amortization 8,228 5,210 2,652 185 16,275
Discontinued operations, net
of minority interest 1,050 1,650 91 -- 2,791
Net operating income is defined as total revenues less property operating
expenses and real estate taxes. Below is a reconciliation of consolidated net
operating income to consolidated income from continuing operations:
11
For the three months ended March 31,
------------------------------------
2002 2001
--------- ---------
(amounts in thousands)
Consolidated net operating income $ 45,853 $ 42,998
Less:
Interest expense 15,730 15,998
Depreciation and amortization 12,477 16,275
Administrative expenses 4,033 4,000
Minority interest attributable to continuing operations 2,351 2,024
Plus:
Equity in income of real estate ventures 464 1,466
Net gains on sales of interests in real estate -- 182
-------- --------
Consolidated income from continuing operations $ 11,726 $ 6,349
======== ========
10. EARNINGS PER COMMON SHARE
The following table details the number of shares and net income used to
calculate basic and diluted earnings per share (in thousands, except per share
amounts):
Three-Month Periods Ended March 31,
-----------------------------------------------------------------------------
2002 2001
-------------------------------- --------------------------------
Basic Diluted Basic Diluted
---------- ---------- ---------- ----------
Net income $ 23,469 $ 23,469 $ 9,140 $ 9,140
Preferred Share discount amortization (369) (369) (369) (369)
Income allocated to Preferred Shares (2,977) (2,977) (2,977) (2,977)
Incremental income from dilutive securities -- 4,744 -- --
---------- ---------- ---------- ----------
Net income available to common shareholders $ 20,123 $ 24,867 $ 5,794 $ 5,794
========== ========== ========== ==========
Weighted-average shares outstanding 35,700,964 35,700,964 35,745,208 35,745,208
Options and warrants -- 48,704 -- 25,568
Incremental shares from dilutive securities -- 9,469,340 -- --
---------- ---------- ---------- ----------
Total weighted-average shares outstanding 35,700,964 45,219,008 35,745,208 35,770,776
========== ========== ========== ==========
Earnings per share $ 0.56 $ 0.55 $ 0.16 $ 0.16
========== ========== ========== ==========
12
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 Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Although the Company 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 Company 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 rental rates and competing
properties), changes in the economic conditions affecting industries in which
the Company's principal tenants compete, the Company's failure to lease
unoccupied space in accordance with the Company's projections, the failure of
the Company to re-lease occupied space upon expiration of leases, changes in
prevailing interest rates, the unavailability of equity and debt financing,
unanticipated costs associated with the acquisition and integration of the
Company's acquisitions, costs to complete and lease-up pending developments,
demand for tenant services beyond those traditionally provided by landlords,
potential liability under environmental or other laws and the other risks
identified in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
OVERVIEW
The Company currently manages its portfolio within three segments: (1)
Pennsylvania, (2) New Jersey/New York, and (3) Virginia. As of March 31, 2002,
the Company's portfolio consisted of 218 office properties, 36 industrial
facilities and one mixed-use property that contain an aggregate of approximately
16.5 million net rentable square feet. As of March 31, 2002, the Company held
economic interests in thirteen Real Estate Ventures.
The Company 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 Company expects that revenue growth in the next two years will
result primarily from increases in occupancy, increases in rental rates and
rental revenue from the leasing of office properties under development or
redevelopment. As of March 31, 2002, the Company had four buildings in
development or redevelopment aggregating 478,000 square feet.
13
The Company sold or disposed of the following properties during the three months
ended March 31, 2002:
Sales/
Disposition Net Book Realized
Sale # of Rentable Price Value Gain/(Loss)
Date Property/Portfolio Name Location Bldgs. Square Feet (in 000's) (in 000's) (in 000's)
- ------ ---------------------------- ---------------- ------- ----------- ------------ ---------- -----------
Office:
- -------
Feb-02 2000 Cabot Boulevard Bucks County, PA 1 39,969 $ 2,760 $ 2,665 $ 95 65
Feb-02 2005 Cabot Boulevard Bucks County, PA 1 22,000 2,100 1,859 241
Feb-02 2010 Cabot Boulevard Bucks County, PA 1 52,831 3,420 3,405 15
Feb-02 2260/2270 Cabot Boulevard Bucks County, PA 2 29,638 2,405 1,920 485
Feb-02 3000 Cabot Boulevard Bucks County, PA 1 34,693 3,395 2,179 1,216
Feb-02 155 Rittenhouse Circle Bucks County, PA 1 22,500 1,913 1,712 201
Mar-02 470 John Young Way Exton, PA 1 15,085 2,850 2,147 703
Mar-02 Park 80 I Saddlebrook, NJ 1 223,666 33,637 33,136 501
Mar-02 Park 80 II Saddlebrook, NJ 1 264,074 39,713 36,611 3,102
----- --------- --------- --------- -------
Total Office Properties Sold 10 704,456 92,193 85,634 6,559
Industrial:
Feb-02 8 Engineers Lane Farmingdale, NY 1 15,000 865 915 (50)
Feb-02 2200 Cabot Boulevard Bucks County, PA 1 61,543 2,855 3,736 (881)
Feb-02 180 Wheeler Court Bucks County, PA 1 78,213 2,980 3,091 (111)
Feb-02 Metropolitan Drive Bucks County, PA 7 447,000 19,000 16,071 2,929
----- --------- --------- --------- -------
Total Industrial Properties Sold 10 601,756 25,700 23,813 1,887
----- --------- --------- --------- -------
Total Properties Sold 20 1,306,212 $ 117,893 $ 109,447 $ 8,446
===== ========= ========= ========= =======
The Company acquired the following
operating properties during the three months ended March 31, 2002:
Purchase
Month of # of Rentable Price
Acquisition Property/Portfolio Name Location Buildings Square Feet (in 000's)
- ----------- ------------------------- --------------------- --------- ------------ ----------
Office:
- -------
Mar-02 600 West Germantown Pike Plymouth Meeting, PA 1 90,004 $ 16,780
Mar-02 610 West Germantown Pike Plymouth Meeting, PA 1 90,152 16,808
Mar-02 620 West Germantown Pike Plymouth Meeting, PA 1 90,169 16,811
Mar-02 630 West Germantown Pike Plymouth Meeting, PA 1 89,925 16,766
----- ------- --------
Total Property Acquisitions 4 360,250 $ 67,165
===== ======= ========
Subsequent to March 31, 2002, the Company sold six office properties and two
industrial properties containing an aggregate of 443,000 net rentable square
feet for $39.7 million.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. 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 assets and 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 judgments on
historical experience and on various other factors that management believes to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. On an on-going basis, management
evaluates its estimates and judgments including those related to bad debts,
capitalization of costs, contingencies and litigation. Actual results may differ
from those estimates.
The Company's Annual Report on Form 10-K for the year ended December 31, 2001
contains a detailed discussion of the Company's critical accounting policies
that affect its more significant judgments and estimates used in preparation of
the financial statements. Management has discussed the Company's critical
accounting policies and estimates with the Company's Audit Committee.
14
The following accounting policy was implemented subsequent to December 31, 2001:
Discontinued Operations
Effective January 1, 2002, the Company adopted Financial Accounting Standards
Board Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which established a single accounting model for the impairment or
disposal of long-lived assets including discontinued operations. This statement
requires that the operations related to properties that have been sold or
properties that are intended to be sold be presented as discontinued operations
in the statement of operations for all periods presented and properties intended
to be sold are to be designated as "held-for-sale" on the balance sheet.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2002 and March 31, 2001
Three months ended March 31,
---------------------------- Dollar Percent
2002 2001 Change Change
-------- -------- -------- ------
Revenue:
Rents $ 59,810 $ 55,965 $ 3,845 6.9%
Tenant reimbursements 7,483 8,306 (823) -9.9%
Other 2,881 2,255 626 27.8%
-------- -------- -------- ------
Total revenue 70,174 66,526 3,648 5.5%
Operating Expenses:
Property operating expenses 18,448 17,951 497 2.8%
Real estate taxes 5,873 5,577 296 5.3%
Interest 15,730 15,998 (268) -1.7%
Depreciation and amortization 12,477 16,275 (3,798) -23.3%
Administrative expenses 4,033 4,000 33 0.8%
-------- -------- -------- ------
Total operating expenses 56,561 59,801 (3,240) -5.4%
Income from continuing operations before equity in
income of real estate ventures, net gain on sale
of interests in real estate and minority interest 13,613 6,725 6,888 102.4%
Equity in income of real estate ventures 464 1,466 (1,002) -68.3%
-------- -------- -------- ------
Income from continuing operations before net gain
on sale of interests in real estate and minority interest 14,077 8,191 5,886 71.9%
Net gain on sale of interests in real estate -- 182 (182) 100.0%
Minority interest attributable to continuing operations (2,351) (2,024) (327) -16.2%
-------- -------- -------- ------
Income from continuing operations 11,726 6,349 5,377 84.7%
Discontinued operations:
Income from discontinued operations, net of minority interest 3,774 2,791 983 35.2%
Gain on disposition of discontinued operations, net of
minority interest 7,969 -- 7,969 --
-------- -------- -------- ------
11,743 2,791 8,952 320.7%
-------- -------- -------- ------
Net income $ 23,469 $ 9,140 $ 14,329 156.8%
======== ======== ======== ======
The results of operations for the three months ended March 31, 2002 and 2001
include the respective operations of the Properties. Of the 255 Properties owned
by the Company as of March 31, 2002, a total of 215 Properties containing an
aggregate of 14.2 million net rentable square feet ("Same Store Properties")
were owned for the entire three-month periods ended March 31, 2002 and 2001. The
following table sets forth revenue and expense information for these Same Store
Properties for the three-month periods ended March 31, 2002 and 2001:
15
Three Months Ended March 31,
---------------------------- Dollar Percent
2002 2001 Change Change
-------- -------- -------- ------
Revenue:
Rents $ 54,131 $ 54,837 $ (706) -1.3%
Tenant reimbursements 7,585 8,275 (609) -8.3%
Other 88 76 12 15.8%
-------- -------- -------- -------
Total revenue 61,804 63,188 (1,384) -2.2%
Operating Expenses:
Property operating expenses 17,599 18,345 (746) -4.1%
Real estate taxes 5,721 5,624 97 1.7%
-------- -------- -------- -------
Total operating expenses 23,320 23,969 (649) -2.7%
-------- -------- -------- -------
Property NOI $ 38,484 $ 39,219 $ (735) -1.9%
======== ======== ======== =======
Revenue increased to $70.2 million for the three months ended March 31, 2002 as
compared to $66.5 million for the three months ended March 31, 2001, primarily
due to increased rental rates offset by decreased occupancy. The straight-line
rent adjustment increased revenues by $1.4 million for the three months ended
March 31, 2002 and $1.5 million for the comparable period in 2001. Average
occupancy decreased to 91.6% in 2002 as compared to 95.4% for 2001. Revenue for
Same Store Properties decreased to $61.8 million for the three months ended
March 31, 2002 as compared to $63.2 for the comparable period in 2001. This
decrease was the result of decreased occupancy offset by increased rental rates
in 2002 as compared to 2001. Average occupancy for the Same Store Properties for
the three months ended March 31, 2002 decreased to 91.8% from 95.6% for the
comparable period in 2001. Other income represents lease termination fees,
leasing commissions, third-party management fees and interest income. Other
income increased to $2.9 million for the three months ended March 31, 2002 from
$2.3 million for the comparable period in 2001 primarily due to lease
termination fees in 2002.
Property operating expenses increased to $18.4 million for the three months
ended March 31, 2002 as compared to $18.0 million for the comparable period in
2001, primarily due to an increase in the provision for bad debts in 2002.
Property operating expenses included a provision for doubtful accounts of
$422,000 for the three months ended March 31, 2002 and $150,000 for the
comparable period in 2001 to provide for increased credit risk related to
certain tenants. Property operating expenses for the Same Store Properties
decreased to $17.6 million for the three months ended March 31, 2002 as compared
to $18.3 million for the comparable period in 2001 as a result of decreased snow
removal costs in 2002 as compared to 2001.
Real estate taxes increased to $5.9 million for the three months ended March 31,
2002 as compared to $5.6 million for the comparable period in 2001, primarily
due to higher tax rates and property assessments in 2002. Real estate taxes for
the Same Store Properties increased to $5.7 million for the three months ended
March 31, 2002 as compared to $5.6 million for the comparable period in 2001 as
a result of higher tax rates and property assessments.
Interest expense decreased to $15.7 million for the three months ended March 31,
2002 as compared to $16.0 million for the comparable period in 2001, primarily
due to decreased interest rates offset by increased borrowings. Average
outstanding debt balances for the three months ended March 31, 2002 were $1.0
billion as compared to $872.8 million for the comparable period in 2001. The
Company's weighted-average interest rate after giving effect to hedging
activities on unsecured credit facilities decreased to 5.22% for the three
months ended March 31, 2002 from 7.52% for the comparable period in 2001. The
weighted-average interest rate on mortgage notes payable decreased to 7.35% for
the three months ended March 31, 2002 from 7.69% for the comparable period in
2001.
Depreciation decreased to $11.3 million for the three months ended March 31,
2002 as compared to $15.4 million for the comparable period in 2001. Of this
decrease, $4.8 million or $.13 per share was due to a change made by the Company
in the estimated useful lives of various buildings from 25 to 40 years. The
longer period was determined to be a better estimate of the useful lives of the
buildings. Amortization, related to deferred leasing costs, increased to $1.2
million for the three months ended March 31, 2002 as compared to $.9 million for
the comparable period in 2001, primarily due to increased leasing activity and
additional properties in 2002.
16
Administrative expenses were $4.0 million for the three months ended March 31,
2002 and 2001.
Equity in income of Real Estate Ventures decreased to $464,000 for the three
months ended March 31, 2002 as compared to $1.5 million for the comparable
period in 2001 primarily due to two Real Estate Ventures sold during the first
quarter of 2001.
Minority interest represents the equity in income attributable to the portion of
the Operating Partnership not owned by the Company. Minority interest increased
to $2.4 million for the three months ended March 31, 2002 as compared to $2.0
million for the comparable period in 2001, primarily due to increased revenues
and decreased expenses in 2002 as compared to 2001.
Income from discontinued operations, net of minority interest, increased to $3.8
million for the three months ended March 31, 2002 as compared to $2.8 million
for the comparable period in 2001 due to decreased deprecation expense in 2002.
During the first quarter of 2002, the Company sold ten office properties
containing 704,000 net rentable square feet and ten industrial properties
containing 602,000 net rentable square feet for an aggregate of $117.9 million,
realizing a net gain of $8.0 million, net of minority interest.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
During the three-month period ended March 31, 2002, the Company generated $23.5
million in cash flow from operating activities. Other sources of cash flow
consisted of: (i) $53.7 million of proceeds from sales of properties, (ii) $15.0
million of proceeds from draws on the Credit Facility, (iii) $9.0 million of
additional mortgage notes payable and (iv) $1.0 million of escrowed cash and (v)
$.7 million from payments on employee loans. During the three-month period ended
March 31, 2002, cash out-flows consisted of: (i) $26.0 million of Credit
Facility repayments, (ii) $22.9 million of property acquisitions, (iii) $18.8
million of distributions to shareholders, (iv) $11.7 million to fund development
and capital expenditures, (v) $2.3 million of deferred leasing costs, (vi) $2.2
million of mortgage note repayments, (vii) $1.7 million to repurchase Common
Shares and minority interest units and (viii) $.3 million of additional
investments in unconsolidated Real Estate Ventures.
Development
The Company is in the process of developing or redeveloping four sites
aggregating 478,000 square feet that are scheduled for completion on various
dates through July 2002. These projects are in various stages of development and
there can be no assurance that any of these projects will be completed or opened
on schedule. The total costs of these projects is estimated to be $92.0 million
of which $74.9 million has been incurred. As of March 31, 2002, these
developments were approximately 38% leased.
Capitalization
As of March 31, 2002, the Company had approximately $994.4 million of debt
outstanding, consisting of $383.3 million of borrowings under the Credit
Facility and $611.1 million of mortgage notes payable. The mortgage notes
payable consists of $514.8 million of fixed rate loans and $96.3 million of
variable rate loans. Additionally, the Company has entered into interest rate
swap and cap agreements to fix the interest rate on $278.0 million of the Credit
Facility and variable rate loans. The mortgage loans mature between February
2003 and July 2027. As of March 31, 2002, the Company also had $13.3 million of
letters-of-credit outstanding under the Credit Facility and $103.4 million of
unused availability under the Credit Facility. For the three months ended March
31, 2002, the weighted-average interest rate under the Company's Credit Facility
was 5.22%, and the weighted-average interest rate for borrowings under mortgage
notes payable was 7.35%.
17
The following table outlines the timing of payment requirements related to the
Company's commitments as of March 31, 2002:
Payments by Period (in thousands)
---------------------------------------------------------------------------------
Less than After
Total 1 Year 2-3 Years 4-5 Years 5 Years
-------------- --------------- -------------- -------------- ---------------
Mortgage notes payable:
Fixed rate $ 514,797 $ 6,206 $ 145,272 $ 17,717 $ 345,602
Variable rate 25,218 120 335 360 24,403
Construction loans 71,040 -- 71,040 -- --
----------- ------- --------- -------- ---------
611,055 6,326 216,647 18,077 370,005
Revolving credit facility 383,325 -- 383,325 -- --
Other liabilities 14,329 1,232 12,508 589 --
----------- ------- --------- -------- ---------
$ 1,008,709 $ 7,558 $ 612,480 $ 18,666 $ 370,005
=========== ======= ========= ======== =========
The Company intends to refinance its mortgage notes payable as they become due
or repay them if they relate to properties being sold. The Company expects to
renegotiate its Credit Facility at maturity or extend its term.
As of March 31, 2002, the Company had guaranteed repayment of approximately $2.6
million of loans for the Real Estate Venture debt.
As of March 31, 2002, the Company's debt-to-market capitalization ratio was
46.8%. As a general policy, the Company intends, but is not obligated, to adhere
to a policy of maintaining a long-term average debt-to-market capitalization
ratio of no more than 50%.
The Company's Board of Trustees approved a share repurchase program authorizing
the Company to repurchase up to 4,000,000 of its outstanding Common Shares.
During 2002, the Company has repurchased 28,274 Common Shares for an aggregate
of $671,000 (an average price of $23.72 per share). The Company may purchase an
additional 1.3 million Common Shares under this program. No time limit has been
placed on the duration of the share repurchase program.
Short- and Long-Term Liquidity
The Company believes that its cash flow from operations is adequate to fund
short-term liquidity requirements for the foreseeable future. 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 Company 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.
On March 22, 2002, the Company declared a distribution of $0.44 per Common
Share, totaling $15.8 million, which was paid on April 15, 2002 to shareholders
of record as of April 4, 2002. The Operating Partnership simultaneously declared
a $0.44 per unit cash distribution to holders of Class A Units totaling $0.9
million.
On March 22, 2002, the Company and the Operating Partnership, respectively, also
declared distributions to holders of Series A Preferred Shares, Series B
Preferred Shares and Series B Preferred Units, which are each currently entitled
to a preferential return of 7.25%, 8.75% and 7.25%, respectively. Distributions
paid on April 15, 2002 to holders of Series A Preferred Shares, Series B
Preferred Shares and Series B Preferred Units totaled $680,000, $2.3 million and
$1.8 million, respectively.
The Company 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 borrowings under its Credit Facility, long-term
secured and unsecured indebtedness, the issuance of equity securities and the
proceeds from the disposition of certain assets held for sale.
18
Funds from Operations
Management considers Funds from Operations ("FFO") as one measure of REIT
performance. FFO is calculated as net income (loss) adjusted for depreciation
expense attributable to real property, amortization expense attributable to
capitalized leasing costs, gains (losses) on sales of real estate investments,
extraordinary items and comparable adjustments for real estate ventures
accounted for using the equity method. Management believes that FFO is a useful
disclosure in the real estate industry; however, the Company's disclosure may
not be comparable to other REITs. FFO should not be considered an alternative to
net income as an indication of the Company's performance or to cash flows as a
measure of liquidity.
FFO for the three months ended March 31, 2002 and 2001 is summarized in the
following table (in thousands, except share data):
Three Months Ended March 31,
-----------------------------
2002 2001
---------- ----------
Income before net gain on sale of interests in real estate
and minority interest:
Continuing operations $ 14,077 $ 8,191
Discontinued operations 4,000 2,960
---------- ----------
18,077 11,151
Add:
Depreciation:
Real property 12,353 17,452
Real estate ventures 581 1,053
Amortization of leasing costs 1,367 1,046
Gain on sale of land interests -- 41
Less:
Gain included in equity in income of real estate ventures -- (785)
---------- ----------
Funds from operations before minority interest $ 32,378 $ 29,958
========== ==========
Weighted-average Common Shares (including Common
Share equivalents) and Operating Partnership units 47,358,998 47,396,137
========== ==========
Inflation
A majority of the Company'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 leases provide for fixed base rent increases or
indexed escalations (based on the CPI or other measure). The Company believes
that inflationary increases in expenses will be significantly offset by expense
reimbursement and contractual rent increases.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in Quantitative and Qualitative disclosures
in 2002. Reference is made to Item 7 included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
During the three months ended March 31, 2002, the Company did not file any
reports on Form 8-K.
19
BRANDYWINE REALTY TRUST
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 REALTY TRUST
(Registrant)
Date: May 7, 2002 By: /s/ Gerard H. Sweeney
----------- ----------------------------------------
Gerard H. Sweeney, President and Chief
Executive Officer
(Principal Executive Officer)
Date: May 7, 2002 By: /s/ Bradley W. Harris
----------- ----------------------------------------
Bradley W. Harris, Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
20