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 June 30, 2002
or
____ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ___________
Commission file number 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
401 Plymouth Road, Plymouth Meeting, Pennsylvania 19462
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 325-5600
--------------
Registrant's telephone number
14 Campus Boulevard, Newtown Square, Pennsylvania 19073
-------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months or for such shorter period that the
registrant was required to file such reports and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
A total of 35,476,315 Common Shares of Beneficial Interest, par value $.01 per
share, were outstanding as of August 14, 2002.
BRANDYWINE REALTY TRUST
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements (unaudited)........................................................
Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001......... 3
Condensed Consolidated Statements of Operations for the three- and six-month periods
ended June 30, 2002 and June 30, 2001................................................... 4
Condensed Consolidated Statements of Cash Flows for the six-month periods ended
June 30, 2002 and June 30, 2001......................................................... 5
Notes to Condensed Consolidated Financial Statements.................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................................. 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................. 23
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................................... 23
Item 5. Other Information....................................................................... 24
Item 6. Exhibits and Reports on Form 8-K........................................................ 25
Signatures.............................................................................. 25
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)
June 30, December 31,
2002 2001
----------- -----------
ASSETS
Real estate investments:
Operating properties $ 1,832,735 $ 1,893,039
Accumulated depreciation (221,685) (230,793)
----------- -----------
1,611,050 1,662,246
Construction-in-progress 62,724 111,378
Land held for development 40,407 39,285
----------- -----------
1,714,181 1,812,909
Cash and cash equivalents 24,476 13,459
Escrowed cash 16,231 16,311
Accounts receivable, net 3,048 6,394
Accrued rent receivable, net 25,461 25,222
Marketable securities 10,850 10,735
Assets held for sale 28,523 -
Investment in real estate ventures, at equity 19,082 19,067
Deferred costs, net 24,462 24,261
Other assets 58,714 31,845
----------- -----------
Total assets $ 1,925,028 $ 1,960,203
=========== ===========
LIABILITIES AND BENEFICIARIES' EQUITY
Mortgage notes payable $ 617,100 $ 614,840
Borrowings under Credit Facility 383,325 394,325
Accounts payable and accrued expenses 26,884 39,678
Distributions payable 21,382 21,525
Tenant security deposits and deferred rents 15,924 22,290
Other liabilities 13,973 15,555
Liabilities related to assets held for sale 130 -
----------- -----------
Total liabilities 1,078,718 1,108,213
Minority interest 137,285 143,834
Commitments and contingencies
Beneficiaries' equity:
Preferred Shares (shares authorized-10,000,000):
7.25% Series A Cumulative Convertible Preferred
Shares, $.01 par value; issued and outstanding-
750,000 in 2002 and 2001 8 8
8.75% Series B Cumulative Convertible Preferred
Shares, $.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-
35,689,115 in 2002 and 35,640,935 in 2001 355 355
Additional paid-in capital 851,223 848,214
Share warrants 401 401
Cumulative earnings 199,034 163,502
Accumulated other comprehensive loss (4,676) (4,587)
Cumulative distributions (337,364) (299,781)
----------- -----------
Total beneficiaries' equity 709,025 708,156
----------- -----------
Total liabilities and beneficiaries' equity $ 1,925,028 $ 1,960,203
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
BRANDYWINE REALTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share information)
Three-Month Periods Six-Month Periods
Ended June 30, Ended June 30,
------------------------- --------------------------
2002 2001 2002 2001
-------- -------- --------- ---------
Revenue:
Rents $ 62,976 $ 59,875 $ 123,066 $ 115,955
Tenant reimbursements 8,192 8,685 15,652 16,962
Other 2,758 2,064 5,639 4,319
-------- -------- --------- ---------
Total revenue 73,926 70,624 144,357 137,236
Expenses:
Property operating expenses 18,501 18,149 37,001 36,160
Real estate taxes 6,231 5,738 12,088 11,295
Interest 16,105 16,925 31,835 32,923
Depreciation and amortization 15,818 18,575 29,406 34,874
Administrative expenses 3,808 4,271 7,841 8,271
-------- -------- --------- ---------
Total operating expenses 60,463 63,658 118,171 123,523
Income from continuing operations before equity
in income of real estate ventures, net gain
on sale of interests in real estate, minority
interest and extraordinary item 13,463 6,966 26,186 13,713
Equity in income of real estate ventures 229 522 693 1,988
-------- -------- --------- ---------
Income from continuing operations before net gain
on sale of interests in real estate, minority
interest and extraordinary item 13,692 7,488 26,879 15,701
Net gain on sale of interests in real estate - 186 - 368
Minority interest attributable to continuing operations (2,274) (1,930) (4,575) (3,956)
-------- -------- --------- ---------
Income from continuing operations 11,418 5,744 22,304 12,113
Discontinued operations:
Income from discontinued operations 1,339 2,959 6,229 5,897
Gain on disposition of discontinued operations 116 - 8,562 -
Minority interest (73) (169) (826) (336)
-------- -------- --------- ---------
1,382 2,790 13,965 5,561
-------- -------- --------- ---------
Income before extraordinary item 12,800 8,534 36,269 17,674
Extraordinary item - (1,111) - (1,111)
-------- -------- --------- ---------
Net income 12,800 7,423 36,269 16,563
Income allocated to Preferred Shares (2,977) (2,977) (5,954) (5,954)
-------- -------- --------- ---------
Income allocated to Common Shares $ 9,823 $ 4,446 $ 30,315 $ 10,609
======== ======== ========= =========
Basic earnings per Common Share:
Continuing operations $ 0.23 $ 0.07 $ 0.44 $ 0.15
Discontinued operations 0.03 0.07 0.39 0.16
Extraordinary item - (0.03) - (0.03)
-------- -------- --------- ---------
$ 0.26 $ 0.11 $ 0.83 $ 0.28
======== ======== ========= =========
Diluted earnings per Common Share:
Continuing operations $ 0.23 $ 0.07 $ 0.43 $ 0.15
Discontinued operations 0.03 0.07 0.39 0.16
Extraordinary item - (0.03) - (0.03)
-------- -------- --------- ---------
$ 0.26 $ 0.11 $ 0.82 $ 0.28
======== ======== ========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
BRANDYWINE REALTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Six-Month Periods Ended
June 30,
--------------------------
2002 2001
--------- --------
Cash flows from operating activities:
Net income $ 36,269 $ 16,563
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 26,875 37,002
Amortization:
Deferred financing costs 1,007 1,544
Deferred leasing costs 2,706 2,304
Notes payable discount - 42
Deferred compensation costs 1,599 2,047
Straight-line rent (2,937) (3,088)
Provision for doubtful accounts 1,122 762
Net gain on sale of interests in real estate (8,562) (368)
Minority interest 5,401 4,292
Distributions paid to minority partners (5,413) (5,302)
Extraordinary item - 1,111
Changes in assets and liabilities:
Accounts receivable 2,498 (2,440)
Other assets 4,696 13,166
Accounts payable and accrued expenses (10,103) 3,779
Tenant security deposits and deferred rents (6,580) (11)
Other liabilities (913) -
--------- --------
Net cash from operating activites 47,665 71,403
Cash flows from investing activities:
Acquisitions of properties (22,887) (40,159)
Sales of properties 59,054 5,712
Capital expenditures (22,179) (37,145)
Investment in real estate ventures (476) (2,227)
Escrowed cash 997 (3,257)
Cash distributions from real estate ventures in excess
of equity in income 461 3,005
Leasing costs (6,518) (4,435)
--------- --------
Net cash from investing activities 8,452 (78,506)
Cash flows from financing activites:
Proceeds from notes payable, Credit Facility 15,000 60,000
Repayments of notes payable, Credit Facility (26,000) -
Proceeds from mortgage notes payable 14,021 93,336
Repayments of mortgage notes payable (4,229) (112,312)
Debt financing costs - (871)
Repayments on employee stock loans 1,618 -
Repurchases of Common Shares and minority interest units (7,905) (3,903)
Distributions paid to shareholders (37,605) (35,945)
--------- --------
Net cash from financing activities (45,100) 305
--------- --------
Increase (decrease) in cash and cash equivalents 11,017 (6,798)
Cash and cash equivalents at beginning of period 13,459 16,040
--------- --------
Cash and cash equivalents at end of period $ 24,476 $ 9,242
========= ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
BRANDYWINE REALTY TRUST
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 2002, the Company's portfolio included 214
office properties, 26 industrial facilities and one mixed-use property
(collectively, the "Properties") containing an aggregate of approximately 16.0
million net rentable square feet. As of June 30, 2002, the Company also owned
approximately 431 acres of undeveloped land and held options to purchase
approximately 63 additional acres. The Properties are located in the office and
industrial markets in and surrounding Philadelphia, Pennsylvania, New Jersey and
Richmond, Virginia. As of June 30, 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 June 30, 2002, the
Company had an aggregate investment in the Real Estate Ventures of approximately
$19.1 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 June 30, 2002, was
entitled to approximately 94.9% 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 June 30, 2002, was performing management and leasing
services for 44 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 minority interest in a period 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 each
Class A Unit, at the request of the holder, 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
cumulative 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 June 30, 2002, 1,876,814
Class A Units and 1,950,000 Series B Preferred Units were outstanding and held
by third party investors. Minority interest also includes the 5% interest in the
Management Company that is owned by a partnership comprised of two Company
executives.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed 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 of America
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 June 30, 2002, the results
of its operations for the three- and six-month periods ended June 30, 2002 and
2001, and its cash flows for the six-month periods ended June 30, 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 of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Management makes significant estimates regarding the collectibility of the
Company's accounts receivable and regularly evaluates the Company's long-lived
assets for impairment.
Real Estate Investments
Real estate investments include capitalized direct internal development costs
totaling $.3 million and $.7 million for the three- and six-month periods ended
June 30, 2002 and $.6 million and $1.2 million for three- and six-month periods
ended June 30, 2001. The Company capitalized interest totaling $724,000 and $1.6
million for the three- and six-month periods ended June 30, 2002 and $1.2
million and $2.6 million for the three- and six-month periods ended June 30,
2001 related to property developments.
Effective January 1, 2002, the Company changed the estimated useful lives of
various buildings from 25 to 40 years. This change resulted in an increase of
net income of $4.8 million or $.13 per share and $9.6 million or $.27 per share
for the three- and six-month periods ended June 30, 2002. Management, taking
into account industry standards, determined the longer period to be a better
estimate of the useful lives of the buildings.
Deferred Costs
Deferred costs include internal direct leasing costs totaling $1.0 million and
$1.7 million for the three- and six-month periods ended June 30, 2002 and $.7
million and $1.5 million for the three- and six-month periods ended June 30,
2001. The Company amortizes these costs over the related lease terms.
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 six-month period ended June 30, 2002, the Company was
not party to any derivative contract designated as a fair value hedge.
The Company recorded a loss of $2.6 million and $.2 million in other
comprehensive income to recognize the change in value of derivatives accounted
for as hedges during the three- and six-month periods ended June 30, 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 $3.2 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 or 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.
7
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 June 30, 2002, the maximum length of time until which the Company was hedging
its exposure to the variability in future cash flows through June 2004. There
was no gain or loss reclassified from accumulated other comprehensive income
into earnings during the three- and six-month periods ended June 30, 2002 as a
result of the discontinuance of a cash flow hedge due to the probability of the
original forecasted transaction not occurring.
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 six-month period ended June 30, 2002, the Company sold 16 office
properties containing an aggregate of 1.1 million net rentable square feet, 20
industrial properties containing an aggregate of .9 million net rentable square
feet and one parcel of land containing 10.0 acres for an aggregate of $168.1
million, realizing a net gain of $8.6 million. The Company also purchased five
office properties containing 503,000 net rentable square feet for an aggregate
of $82.0 million. During the three-month period ended June 30, 2002, the Company
sold six office properties containing an aggregate of 364,000 net rentable
square feet, 10 industrial properties containing an aggregate of 297,000 net
rentable square feet and one parcel of land containing 10.0 acres for an
aggregate of $50.2 million, realizing a net gain of $.1 million, and purchased
one office property containing 143,000 net rentable square feet for $14.8
million.
2001
During the six-month period ended June 30, 2001, the Company sold one office
property containing 30,000 net rentable square feet, two industrial properties
containing an aggregate of 55,000 net rentable square feet and one parcel of
land containing 2.1 acres for an aggregate of $5.7 million, realizing a net gain
of $368,000. During the three-month period ended June 30, 2001, the Company sold
one industrial property containing 25,000 net rentable square feet for $2.2
million, realizing a gain of $186,000.
In April 2001, the Company consumated an exchange of properties with Prentiss
Properties Acquisition Partners, L.P. ("Prentiss"). The Company acquired from
Prentiss 30 properties (29 office and one industrial) containing 1.6 million net
rentable square feet and 6.9 acres of developable land for total consideration
of $215.2 million. The Company conveyed to Prentiss four office properties
located in Northern Virginia that contain an aggregate of 657,000 net rentable
square feet, assumed $79.7 million of mortgage debt secured by certain of the
Prentiss properties, issued a $7.8 million promissory note, paid $15.9 million
in cash at closing and agreed to make additional payments totaling $7.0 million
(including $5.4 million of payments discounted at 7.5%) over a three year period
subsequent to closing. The Company also contributed to Prentiss its interest in
a real estate venture that owns two additional office properties that contain an
aggregate of 452,000 net rentable square feet and received a combination of
preferred and common units of limited partnership interest in Prentiss having a
value of $10.7 million as of the closing. In addition, as part of the Prentiss
transaction, in June 2001 the Company purchased a 103,000 square foot building
under construction and six acres of related developable land for $5.7 million,
plus $4.2 million on account of additional costs related to development.
8
Proforma
The properties acquired from Prentiss referenced above were accounted for by the
purchase method. The results of operations for each of the acquired properties
have been included from the respective purchase dates. All proforma financial
information presented within this footnote is unaudited and is not necessarily
indicative of the results which actually would have occurred if the acquisition
or sale of the related properties had been consummated on January 1, 2001, nor
does the pro forma information purport to represent the results of operations
for future periods.
The following unaudited pro forma financial information for the six-month period
ended June 30, 2001 gives effect to the exchange of properties with Prentiss as
if the transaction occurred on January 1, 2001:
Six-Month Period
Ended June 30, 2001
-------------------------------------
(in thousands, except per share data)
Pro forma total revenue $144,847
Pro forma net income - continuing operations $12,644
Pro forma net income - discontinued operations $5,561
Pro forma net income - extraordinary item ($1,111)
Pro forma net income per Common Share - continuing operations (diluted) $0.17
Pro forma net income per Common Share - discontinued operations (diluted) $0.16
Pro forma net income per Common Share - extraordinary item (diluted) ($0.03)
4. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
As of June 30, 2002, the Company had an aggregate investment of approximately
$19.1 million in thirteen Real Estate Ventures (net of returns of investment
received by the Company). The Company 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 building
that will contain, upon completion, an aggregate of approximately 345,000 net
rentable square feet; one Real Estate Venture developed a hotel property that
contains 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 of the Real
Estate Ventures. The Company's 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 Real
Estate Ventures in which the Company had interests as of June 30, 2002 and
December 31, 2001:
June 30, December 31,
2002 2001
--------- ---------
(amounts in thousands)
Net property $ 223,680 $ 180,497
Other assets 16,727 17,038
Liabilities 6,352 1,593
Debt 160,754 145,463
Equity 73,301 50,479
Company's share of equity 19,082 19,067
The following is a summary of financial operations of the unconsolidated Real
Estate Ventures in which the Company had interests as of June 30, 2002 and 2001:
9
For the six months ended June 30,
--------------------------------
2002 2001
-------- --------
(amounts in thousands)
Revenue $ 13,713 $ 14,664
Operating expenses 4,770 4,339
Interest expense, net 4,715 4,370
Depreciation and amortization 2,309 1,728
Net income 1,919 4,227
Company's share of income 693 1,988
The following is a summary of the financial position as of June 30, 2002 and the
financial operations for the six-month period ended June 30, 2002 of the
unconsolidated Real Estate Ventures in which the Company had interests as of
June 30, 2002:
1000 Christiana Christiana Christiana
Chesterbrook Center Center Center Two Tower Four Tower
Boulevard Operating Operating Operating Bridge Bridge
Partnership Company I, LLC Company II, LLC Company III, LLC Associates Associates
-------------- -------------- --------------- ---------------- ------------ ----------
(a) (a) (a)
Assets
Net property $ 32,968 $ 14,619 $ 6,033 $ 418 $ 12,281 $ 14,280
Other assets 2,506 1,702 564 - 224 3,150
--------- -------- ------- ----- -------- --------
Total assets $ 35,474 $ 16,321 $ 6,597 $ 418 $ 12,505 $ 17,430
========= ======== ======= ===== ======== ========
Liabilities and Equity
Other liabilities $ - $ 37 $ 8 $ - $ 4,619 $ 143
Debt 28,354 12,582 6,114 - 7,249 11,000
--------- -------- ------- ----- -------- --------
Total liabilities 28,354 12,619 6,122 - 11,868 11,143
Equity 7,120 3,702 475 418 637 6,287
--------- -------- ------- ----- -------- --------
Total liabilies and equity $ 35,474 $ 16,321 $ 6,597 $ 418 $ 12,505 $ 17,430
========= ======== ======= ===== ======== ========
Revenue
Rents $ 2,299 $ 1,089 $ 509 $ - $ 890 $ 1,348
Tenant reimbursements and other 385 48 24 - 166 199
--------- -------- ------- ----- -------- --------
Total revenue 2,684 1,137 533 - 1,056 1,547
Operating Expenses
Property operating expenses 547 217 111 - 232 209
Real estate taxes 209 73 31 - 79 72
Interest 1,019 459 257 - 252 557
Depreciation and amortization 448 222 107 - 179 364
Administrative expenses 5 - - - 75 74
--------- -------- ------- ----- -------- --------
Total operating expenses 2,228 971 506 - 817 1,276
--------- -------- ------- ----- -------- --------
Net Income $ 456 $ 166 $ 27 $ - $ 239 $ 271
========= ======== ======= ===== ======== ========
[RESTUBBED]
Five Tower Six Tower Eight Tower Tower TBFA PJP
Bridge Bridge Bridge Bridge Inn Partners, Building
Associates Associates Associates Associates LP Two, LC
------------ ------------ ------------ ------------ ----------- ----------
Assets
Net property $ 41,324 $ 16,815 $ 51,939 $ 16,884 $ 3,807 $ 5,645
Other assets 4,015 2,569 - 696 - 660
-------- -------- -------- -------- ------- -------
Total assets $ 45,339 $ 19,384 $ 51,939 $ 17,580 $ 3,807 $ 6,305
======== ======== ======== ======== ======= =======
Liabilities and Equity
Other liabilities $ 456 $ 608 $ - $ 332 $ - $ 47
Debt 27,600 16,078 29,179 11,700 - 5,172
-------- -------- -------- -------- ------- -------
Total liabilities 28,056 16,686 29,179 12,032 - 5,219
Equity 17,283 2,698 22,760 5,548 3,807 1,086
-------- -------- -------- -------- ------- -------
Total liabilies and equity $ 45,339 $ 19,384 $ 51,939 $ 17,580 $ 3,807 $ 6,305
======== ======== ======== ======== ======= =======
Revenue
Rents $ 2,204 $ 1,588 $ - $ 1,756 $ - $ 376
Tenant reimbursements and other 28 216 - 87 - 105
-------- -------- -------- -------- ------- -------
Total revenue 2,232 1,804 - 1,843 - 481
Operating Expenses
Property operating expenses 572 305 - 1,035 - 131
Real estate taxes 138 168 - 143 - 19
Interest 710 751 - 497 - 104
Depreciation and amortization 95 405 - 160 - 242
Administrative expenses 68 107 - - - -
-------- -------- -------- -------- ------- -------
Total operating expenses 1,583 1,736 - 1,835 - 496
-------- -------- -------- -------- ------- -------
Net Income $ 649 $ 68 $ - $ 8 $ - $ (15)
======== ======== ======== ======== ======= =======
[RESTUBBED TABLE]
PJP
Building
Five, LC Total
---------- ---------
Assets
Net property $ 6,667 $ 223,680
Other assets 641 16,727
------- ---------
Total assets $ 7,308 $ 240,407
======= =========
Liabilities and Equity
Other liabilities $ 102 $ 6,352
Debt 5,726 160,754
------- ---------
Total liabilities 5,828 167,106
Equity 1,480 73,301
------- ---------
Total liabilies and equity $ 7,308 $ 240,407
======= =========
Revenue
Rents $ 396 $ 12,455
Tenant reimbursements and other - 1,258
------- ---------
Total revenue 396 13,713
Operating Expenses
Property operating expenses 124 3,483
Real estate taxes 26 958
Interest 109 4,715
Depreciation and amortization 87 2,309
Administrative expenses - 329
------- ---------
Total operating expenses 346 11,794
------- ---------
Net Income $ 50 $ 1,919
======= =========
(a) In July 2002, the Company purchased the remaining interests in these Real
Estate Ventures for an aggregate of $2.9 million.
10
As of June 30, 2002, the aggregate maturities of non-recourse debt of Real
Estate Ventures payable to third-parties was as follows (000's):
2002 $ 2,864
2003 1,157
2004 2,651
2005 19,319
2006 and thereafter 134,763
---------
$ 160,754
=========
As of June 30, 2002, the Company had guaranteed repayment of approximately $2.0
million of loans for the Real Estate Ventures. The Company selectively provides
completion guaranties on behalf of Real Estate Ventures as part of their
development activities. As of June 30, 2002, the Company had provided a
completion guaranty relating to the construction of one development project that
management expects to be completed in the third quarter of 2002.
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 1.84% at June 30, 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 June 30, 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 5.32% for the six-month period
ended June 30, 2002 and 7.08% for the six-month period ended June 30, 2001.
As of June 30, 2002, the Company had $617.1 million of mortgage notes payable,
secured by 108 of the Properties and certain land holdings. Fixed rate
mortgages, totaling $515.9 million, require payments of principal and/or
interest (or imputed interest) at rates ranging from 6.80% to 9.25% and mature
on dates from July 2003 through July 2027. Variable rate mortgages, totaling
$101.2 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 June 30,
2002) and mature on dates from February 2003 through July 2027. The
weighted-average interest rate on the Company's mortgages was 7.25% for the
six-month period ended June 30, 2002 and 6.24% for the six-month period ended
June 30, 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 June
30, 2002, the Company had 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. The Company
entered into 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
agreement effectively limits the interest rate on a mortgage with a notional
value of $28 million at 8.7% until July 2004.
11
For the three- and six-month periods ended June 30, 2002 and 2001, the Company
paid interest totaling $16.6 million and $31.3 million in 2002 and $18.9 million
and $35.5 million in 2001.
Subsequent to June 30, 2002, the Company obtained a $100 million term loan. The
Company used proceeds of the term loan to repay indebtedness, including
indebtedness under its Credit Facility. The term loan is unsecured and matures
on July 15, 2005, subject to two extensions of one year each upon payment by the
Company of an extension fee and the absence of any defaults at the time of each
extension. There are no scheduled principal payments prior to maturity. The term
loan bears interest at a spread over the one, two, three or six month LIBOR that
varies between 1.05% and 1.90%, based on the Company's leverage ratio.
6. DISCONTINUED OPERATIONS
For the three- and six-month periods ended June 30, 2002 and 2001, income from
discontinued operations relates to 37 properties containing 2.0 million net
rentable square feet that the Company sold during the six months ended June 30,
2002 and nine properties containing 415,000 net rentable square feet that the
Company has designated as "held-for-sale". The following table summarizes
information for the nine properties designated as held-for-sale as of June 30,
2002 (amounts in thousands):
Real Estate Investments:
Operating Properties $ 32,770
Accumulated depreciation (4,904)
--------
27,866
Construction-in-progress 12
--------
27,878
Accrued rent receivable 372
Deferred costs, net 218
Other assets 55
--------
$ 28,523
========
The following table summarizes revenue and expense information for the above
properties sold or held-for-sale:
Three-month periods Six-month periods
ended June 30, ended June 30,
-------------------------- -------------------------
2002 2001 2002 2001
------- ------- ------- --------
(amounts in thousands)
Revenue:
Rents $ 1,699 $ 7,175 $ 8,206 $ 14,279
Tenant reimbursements 413 1,258 1,594 2,509
Other 281 68 470 114
------- ------- ------- --------
Total revenue 2,393 8,501 10,270 16,902
Expenses:
Property operating expenses 708 2,081 2,528 4,171
Real estate taxes 303 1,228 1,338 2,402
Depreciation and amortization 43 2,233 175 4,432
------- ------- ------- --------
Total operating expenses 1,054 5,542 4,041 11,005
Income from discontinued operations
before net gain on sale of interests in real
estate and minority interest 1,339 2,959 6,229 5,897
Net gain on sales of interest in real estate 116 - 8,562 -
Minority interest (73) (169) (826) (336)
------- ------- ------- --------
Income from discontinued operations $ 1,382 $ 2,790 $13,965 $ 5,561
======= ======= ======= ========
Discontinued operations have not been segregated in the Condensed Consolidated
Statements of Cash Flows. Therefore, amounts for certain captions will not agree
with respective Condensed Consolidated Statements of Operations.
Subsequent to June 30, 2002, the Company sold seven of the properties designated
as held-for-sale for an aggregate of $22.7 million.
12
7. BENEFICIARIES EQUITY
On June 21, 2002, the Company declared a distribution of $0.44 per Common Share,
totaling $15.8 million, which was paid on July 15, 2002 to shareholders of
record as of July 5, 2002. The Operating Partnership simultaneously declared a
$0.44 per unit cash distribution to holders of Class A Units totaling $.8
million.
On June 21, 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 cumulative preferential return of 7.25%, 8.75% and 7.25%, respectively.
Distributions paid on July 15, 2002 to holders of Series A Preferred Shares,
Series B Preferred Shares and Series B Preferred Units totaled $.7 million, $2.3
million and $1.8 million, respectively.
8. COMPREHENSIVE INCOME
Comprehensive income represents net income, plus the results of certain
non-shareholders' equity changes not reflected in the Condensed Consolidated
Statements of Operations. The components of comprehensive income are as follows:
Ended June 30, Ended June 30,
-------------------------- --------------------------
2002 2001 2002 2001
-------- ------- -------- --------
(amounts in thousands)
Net income $ 12,800 $ 7,423 $ 36,269 $ 16,563
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 (2,569) (274) (204) (2,930)
Unrealized gain (loss) on available-for-sale
securities 60 44 115 (100)
-------- ------- -------- --------
Comprehensive income $ 10,291 $ 7,193 $ 36,180 $ 12,233
======== ======= ======== ========
9. SEGMENT INFORMATION
The Company currently manages its portfolio within three segments: (1)
Pennsylvania, (2) New Jersey (included New York in prior periods) and (3)
Virginia. Corporate is responsible for cash and investment management and
certain other general support functions.
Segment information for the three-month periods ended June 30, 2002 and 2001 is
as follows (in thousands):
13
Pennsylvania New Jersey (a) Virginia Corporate Total
------------ -------------- --------- --------- -----------
As of June 30, 2002:
Real estate investments, at cost $ 1,202,698 $ 510,439 $ 222,729 $ - $ 1,935,866
Assets held for sale, at cost 20,074 8,449 - - 28,523
For three months ended June 30, 2002:
Total revenue $ 44,944 $ 22,036 $ 6,286 $ 660 $ 73,926
Property operating expenses
and real estate taxes 14,936 7,613 2,183 - 24,732
----------- --------- --------- -------- -----------
Net operating income $ 30,008 $ 14,423 $ 4,103 $ 660 $ 49,194
=========== ========= ========= ======== ===========
As of December 31, 2001:
Real estate investments, at cost $ 1,194,077 $ 642,645 $ 206,980 $ - $ 2,043,702
For three months ended June 30, 2001:
Total revenue $ 41,693 $ 22,005 $ 6,348 $ 578 $ 70,624
Property operating expenses
and real estate taxes 13,751 8,174 1,962 - 23,887
----------- --------- --------- -------- -----------
Net operating income $ 27,942 $ 13,831 $ 4,386 $ 578 $ 46,737
=========== ========= ========= ======== ===========
Segment information for the six-month period ended June 30, 2002 and 2001 is as
follows (in thousands):
Pennsylvania New Jersey (a) Virginia Corporate Total
------------ -------------- --------- --------- -----------
For six months ended June 30, 2002:
Total revenue $ 86,833 $ 43,325 $ 12,989 $ 1,210 $ 144,357
Property operating expenses
and real estate taxes 29,045 15,555 4,489 - 49,089
----------- --------- --------- -------- -----------
Net operating income $ 57,788 $ 27,770 $ 8,500 $ 1,210 $ 95,268
=========== ========= ========= ======== ===========
For six months ended June 30, 2001:
Total revenue $ 77,763 $ 42,403 $ 16,015 $ 1,055 $ 137,236
Property operating expenses
and real estate taxes 26,087 15,884 5,484 - 47,455
----------- --------- --------- -------- -----------
Net operating income $ 51,676 $ 26,519 $ 10,531 $ 1,055 $ 89,781
=========== ========= ========= ======== ===========
(a) The Company sold all but one of its properties located in New York by June
30, 2002.
Net operating income is defined as total revenue less property operating
expenses and real estate taxes. Below is a reconciliation of consolidated net
operating income to consolidated income from continuing operations:
Three-month periods Six-month periods
ended June 30, ended June 30,
--------------------------- --------------------------
2002 2001 2002 2001
--------- -------- -------- --------
(amounts in thousands) (amounts in thousands)
Consolidated net operating income $ 49,194 $ 46,737 $ 95,268 $ 89,781
Less:
Interest expense 16,105 16,925 31,835 32,923
Depreciation and amortization 15,818 18,575 29,406 34,874
Administrative expenses 3,808 4,271 7,841 8,271
Minority interest attributable to continuing
operations 2,274 1,930 4,575 3,956
Plus:
Equity in income of real estate ventures 229 522 693 1,988
Net gains on sales of interests in real estate - 186 - 368
--------- -------- -------- --------
Consolidated income from continuing operations $ 11,418 $ 5,744 $ 22,304 $ 12,113
========= ======== ======== ========
14
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 June 30,
-----------------------------------------------------------------------------
2002 2001
-------------------------------- --------------------------------
Basic Diluted Basic Diluted
---------- ---------- ---------- ----------
Net income $ 12,800 $ 12,800 $ 7,423 $ 7,423
Preferred Share discount amortization (369) (369) (369) (369)
Income allocated to Preferred Shares (2,977) (2,977) (2,977) (2,977)
---------- ---------- ---------- ----------
Net income available to common shareholders $ 9,454 $ 9,454 $ 4,077 $ 4,077
========== ========== ========== ==========
Weighted-average shares outstanding 35,684,100 35,684,100 35,665,182 35,665,182
Options and warrants - 74,668 - 36,928
---------- ---------- --------- ----------
Total weighted-average shares outstanding 35,684,100 35,758,768 35,665,182 35,702,110
========== ========== ========== ==========
Earnings per share $ 0.26 $ 0.26 $ 0.11 $ 0.11
========== ========== ========== ==========
Six-Month Periods Ended June 30,
-----------------------------------------------------------------------------
2002 2001
-------------------------------- --------------------------------
Basic Diluted Basic Diluted
---------- ---------- ---------- ----------
Net income $ 36,269 $ 36,269 $ 16,563 $ 16,563
Preferred Share discount amortization (738) (738) (738) (738)
Income allocated to Preferred Shares (5,954) (5,954) (5,954) (5,954)
---------- ---------- ---------- ----------
Net income available to common shareholders $ 29,577 $ 29,577 $ 9,871 $ 9,871
========== ========== ========== ==========
Weighted-average shares outstanding 35,692,678 35,692,678 35,705,335 35,705,335
Options and warrants - 162,216 - 31,347
---------- ---------- ---------- ----------
Total weighted-average shares outstanding 35,692,678 35,854,894 35,705,335 35,736,682
========== ========== ========== ==========
Earnings per share $ 0.83 $ 0.82 $ 0.28 $ 0.28
========== ========== ========== ==========
11. SUBSEQUENT EVENTS
Subsequent to June 30, 2002, the Company sold seven properties, containing
288,000 net rentable square feet, for $22.7 million. In addition, the Company
purchased one property, containing 56,000 net rentable square feet, for $7.6
million.
15
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, 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 Company's acquisitions, costs to complete and lease-up
pending developments, the Company's ability to obtain adequate insurance for
terrorist acts, 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 and (3) Virginia. As of June 30, 2002, the
Company's portfolio consisted of 214 office properties, 26 industrial facilities
and one mixed-use property that contain an aggregate of approximately 16.0
million net rentable square feet. As of June 30, 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'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 Company.
In the current economic climate, the Company continues to seek revenue growth
through an increase in occupancy of its portfolio (91% at June 30, 2002).
However, with a downturn in general leasing activity, owners of commercial real
estate, including the Company, are experiencing longer periods in which to lease
unoccupied space, and may face higher capital costs and leasing commissions to
achieve targeted tenancies.
Management anticipates that revenue growth will also come from the acquisition
and development of properties. However, the Company faces competition from other
real estate owners in acquisition and development opportunities and for tenants,
and the Company may be unable to acquire or develop additional properties that
meet both its return on investment targets and its credit risk parameters.
As the Company seeks to increase revenues, 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 Company is subject to the risk that, upon expiration, leases may not be
renewed, the space may not be relet, or the terms of renewal or reletting
(including the cost of renovations) may be less favorable than the current lease
terms. Leases accounting for approximately 4.9% of the aggregate annualized base
rents from the Properties as of June 30, 2002 (representing approximately 5.6%
of the net rentable square feet of the Properties) expire without penalty
through the end of 2002. In addition, leases accounting for approximately 12.2%
of the aggregate annualized base rents from the Properties as of June 30, 2002
(representing approximately 13.0% of the net rentable square feet of the
Properties) are scheduled to expire without penalty in 2003. The Company
maintains an active dialogue with its tenants in an effort to ensure a high
level of lease renewals. The Company's retention rate for leases that were
scheduled to expire in the six month period ended June 30, 2002 was 78.4%. If
the Company is unable to renew leases for a substantial portion of the space
under expiring leases, or to promptly relet this space, at anticipated rental
rates, the Company's cash flow could be adversely impacted.
Credit Risk:
- -----------
In the event of a tenant default, the Company 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. To
address the risk of tenant delinquencies, the Company has increased its accounts
receivable reserve over the last two years. The accounts receivable reserves
were $5.4 million or 15.7% of total receivables (including accrued rent
receivable) as of June 30, 2002 compared to $3.0 million or 8.4% of total
receivables (including accrued rent receivable) as of June 30, 2001.
16
Development Risk:
- ----------------
The Company currently has in development or redevelopment three sites
aggregating 428,000 square feet. The total cost of these projects is estimated
to be $83.7 million. As of June 30, 2002, these projects (one of which is the
site of the Company's new headquarters) were approximately 41% leased. While the
Company is actively marketing space at these projects to prospective tenants,
management cannot provide assurance as to the timing or terms of any leases of
such space. As of June 30, 2002, the Company owned approximately 431 acres of
undeveloped land and held options to purchase approximately 63 additional acres.
Risks associated with development of this land include construction cost
overruns and construction delays, insufficient occupancy rates and inability to
obtain necessary zoning, land-use, building, occupancy and other required
governmental approvals.
RECENT ACTIVITY
The Company sold or disposed of the following properties during the six-month
period ended June 30, 2002:
Sale # of Rentable Sales/Disposition
Date Property/Portfolio Name Location Bldgs. Square Feet Price
- ------ -------------------------- ------------------ ------- ----------- -----------------
Feb-02 8 Engineers Lane Long Island, NY 1 15,000 $ 865,000
Feb-02 Bucks County Portfolio Bucks County, PA 15 765,887 38,915,000
Feb-02 155 Rittenhouse Circle Bucks County, PA 1 22,500 1,912,500
Mar-02 470 John Young Way Exton, PA 1 15,085 2,850,000
Mar-02 Park 80 Saddlebrook, NJ 2 487,740 73,350,000
Apr-02 Long Island Long Island, NY 5 274,801 23,596,674
Apr-02 16 Campus Boulevard Newtown Square, PA 1 65,463 7,104,870
Apr-02 Jericho Long Island, NY 2 103,091 8,084,282
Jun-02 Plainview Long Island, NY 6 137,060 7,760,000
Jun-02 19 Engineers Lane Long Island, NY 1 10,000 630,000
Jun-02 91 North Industry Court Long Island, NY 1 71,000 2,272,000
-- --------- ------------
Total Properties Sold 36 1,967,627 $167,340,326
== ========= ============
The Company acquired the following operating properties during the six-month
period ended June 30, 2002:
Month of # of Rentable Purchase
Acquisition Property/Portfolio Name Location Buildings Square Feet Price
- ----------- --------------------------------- -------------------- --------- ------------ --------
Mar-02 Plymouth Meeting Executive Campus Plymouth Meeting, PA 4 360,250 $ 67,165,000
May-02 6802 Paragon Place Richmond, VA 1 142,499 14,800,000
-- ------- ------------
Total Property Acquisitions 5 502,749 $ 81,965,000
== ======= ============
During the six-month period ended June 30, 2002, the Company sold one parcel of
land, containing 10.0 acres, for $725,000.
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 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 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
assumptions on historical experience and current economic conditions. On an
on-going basis, management evaluates its estimates and assumptions including
those related to bad debts, capitalization of costs, contingencies and
litigation. Actual results may differ from those estimates and assumptions.
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 are influenced by its more significant estimates and assupmptions used in
preparation of the financial statements. Management has discussed the Company's
critical accounting policies and estimates with the Company's Audit Committee.
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
classified as "held-for-sale" subsequent to January 1, 2002 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.
17
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2002 and June 30, 2001
Three months ended June 30,
----------------------------- Dollar Percent
2002 2001 Change Change
-------- -------- ------- ------
(amounts in thousands)
--------------------------------------------------
Revenue:
Rents $ 62,976 $ 59,875 $ 3,101 5.2%
Tenant reimbursements 8,192 8,685 (493) -5.7%
Other 2,758 2,064 694 33.6%
-------- -------- ------- ------
Total revenue 73,926 70,624 3,302 4.7%
Expenses:
Property operating expenses 18,501 18,149 352 1.9%
Real estate taxes 6,231 5,738 493 8.6%
Interest 16,105 16,925 (820) -4.8%
Depreciation and amortization 15,818 18,575 (2,757) -14.8%
Administrative expenses 3,808 4,271 (463) -10.8%
-------- -------- ------- ------
Total operating expenses 60,463 63,658 (3,195) -5.0%
Income from continuing operations before equity in
income of real estate ventures, net gain on sale
of interests in real estate, minority interest
and extraordinary item 13,463 6,966 6,497 93.3%
Equity in income of real estate ventures 229 522 (293) -56.1%
-------- -------- ------- ------
Income from continuing operations before net gain
on sale of interests in real estate, minority
interest and extraordinary item 13,692 7,488 6,204 82.9%
Net gain on sale of interests in real estate - 186 (186) 100.0%
Minority interest attributable to continuing
operations (2,274) (1,930) (344) -17.8%
-------- -------- ------- ------
Income from continuing operations 11,418 5,744 5,674 98.8%
Discontinued operations:
Income from discontinued operations, net of
minority interest 1,272 2,790 (1,518) -54.4%
Gain on disposition of discontinued operations,
net of minority interest 110 - 110 -
-------- -------- ------- ------
1,382 2,790 (1,408) -50.5%
-------- -------- ------- ------
Income before extraordinary item 12,800 8,534 4,266 50.0%
Extraordinary item - (1,111) 1,111 -100.0%
-------- -------- ------- ------
Net income $ 12,800 $ 7,423 $ 5,377 72.4%
======== ======== ======= ======
18
Comparison of the Six Months Ended June 30, 2002 and June 30, 2001
Six months ended June 30,
----------------------------- Dollar Percent
2002 2001 Change Change
-------- -------- ------- ------
(amounts in thousands)
--------------------------------------------------
Revenue:
Rents $ 123,066 $ 115,955 $ 7,111 6.1%
Tenant reimbursements 15,652 16,962 (1,310) -7.7%
Other 5,639 4,319 1,320 30.6%
--------- --------- -------- ------
Total revenue 144,357 137,236 7,121 5.2%
Expenses:
Property operating expenses 37,001 36,160 841 2.3%
Real estate taxes 12,088 11,295 793 7.0%
Interest 31,835 32,923 (1,088) -3.3%
Depreciation and amortization 29,406 34,874 (5,468) -15.7%
Administrative expenses 7,841 8,271 (430) -5.2%
--------- --------- -------- ------
Total operating expenses 118,171 123,523 (5,352) -4.3%
Income from continuing operations before equity in
income of real estate ventures, net gain on sale
of interests in real estate, minority interest
and extraordinary item 26,186 13,713 12,473 91.0%
Equity in income of real estate ventures 693 1,988 (1,295) -65.1%
--------- --------- -------- ------
Income from continuing operations before net gain
on sale of interests in real estate, minority interest
and extraordinary item 26,879 15,701 11,178 71.2%
Net gain on sale of interests in real estate - 368 (368) 100.0%
Minority interest attributable to continuing operations (4,575) (3,956) (619) -15.6%
--------- --------- -------- ------
Income from continuing operations 22,304 12,113 10,191 84.1%
Discontinued operations:
Income from discontinued operations, net of minority
interest 5,886 5,561 325 5.8%
Gain on disposition of discontinued operations, net of
minority interest 8,079 - 8,079 -
--------- --------- -------- ------
13,965 5,561 8,404 151.1%
--------- --------- -------- ------
Income before extraordinary item 36,269 17,674 18,595 105.2%
Extraordinary item - (1,111) 1,111 -100.0%
--------- --------- -------- ------
Net income $ 36,269 $ 16,563 $ 19,706 119.0%
========= ========= ======== ======
Of the 241 Properties owned by the Company as of June 30, 2002, a total of 230
Properties containing an aggregate of 15.2 million net rentable square feet
("Same Store Properties") were owned for the entire three-month periods ended
June 30, 2002 and 2001. The following table sets forth revenue and expense
information for these Same Store Properties for the three-month periods ended
June 30, 2002 and 2001:
Three Months Ended June 30,
------------------------------ Dollar Percent
2002 2001 Change Change
-------- -------- -------- ------
(amounts in thousands)
----------------------------------------------------
Revenue:
Rents $ 58,956 $ 60,029 $ (1,073) -1.8%
Tenant reimbursements 8,070 8,491 (421) -5.0%
Other 292 115 177 153.9%
-------- -------- -------- -----
Total revenue 67,318 68,635 (1,317) -1.9%
Operating Expenses:
Property operating expenses 19,589 20,134 (545) -2.7%
Real estate taxes 5,833 5,619 214 3.8%
-------- -------- -------- -----
Total operating expenses 25,422 25,753 (331) -1.3%
-------- -------- -------- -----
Property NOI $ 41,896 $ 42,882 $ (986) -2.3%
======== ======== ======== =====
19
Revenue increased to $73.9 million and $144.4 million for the three- and
six-month periods ended June 30, 2002 as compared to $70.6 million and $137.2
million for the comparable periods in 2001, primarily due to increased rental
rates partially offset by decreased occupancy. The straight-line rent
adjustment, which reflects the difference between rents accrued in accordance
with generally accepted accounting principles and rents billed, increased
revenues by $1.5 million and $2.8 million for the three- and six-month periods
ended June 30, 2002 and $1.5 million and $2.9 million for the comparable periods
in 2001. Revenue for Same Store Properties decreased to $67.3 million for the
three months ended June 30, 2002 as compared to $68.6 million 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 June 30, 2002 decreased to
90.8% from 94.6% for the comparable period in 2001. Other revenue includes lease
termination fees, leasing commissions, third-party management fees and interest
income. Other revenue increased to $2.8 million and $5.6 million for the three-
and six-month periods ended June 30, 2002 from $2.1 million and $4.3 million for
the comparable periods in 2001 primarily due to lease termination fees in 2002.
Property operating expenses increased to $18.5 million and $37.0 million for the
three- and six-month periods ended June 30, 2002 as compared to $18.1 million
and $36.2 million for the comparable periods 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 $700,000 and $1,122,000 for the
three- and six-month periods ended June 30, 2002 and $612,000 and $762,000 for
the comparable periods in 2001 in response to perceived increases in credit risk
related to certain tenants and current economic conditions. Property operating
expenses for the Same Store Properties decreased to $19.6 million for the three
months ended June 30, 2002 as compared to $20.1 million for the comparable
period in 2001 as a result of decreased utilities costs in 2002 as compared to
2001.
Real estate taxes increased to $6.2 million and $12.1 million for the three- and
six-month periods ended June 30, 2002 as compared to $5.7 million and $11.3
million for the comparable periods in 2001, primarily due to higher tax rates
and property assessments in 2002. Real estate taxes for the Same Store
Properties increased to $5.8 million for the three months ended June 30, 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 $16.1 million and $31.8 million for the three- and
six-month periods ended June 30, 2002 as compared to $16.9 million and $32.9
million for the comparable periods in 2001, primarily due to decreased interest
rates offset by increased borrowings. Average outstanding debt balances for the
six months ended June 30, 2002 were $1.0 billion as compared to $910.9 million
for the comparable period in 2001, primarily due to the assumption of debt
related to property acquisitions, net of debt discharged in property
dispositions. The Company's weighted-average interest rate after giving effect
to hedging activities on unsecured credit facilities decreased to 5.32% for the
six months ended June 30, 2002 from 7.08% for the comparable period in 2001. The
weighted-average interest rate on mortgage notes payable increased to 7.25% for
the six months ended June 30, 2002 from 6.24% for the comparable period in 2001.
Depreciation decreased to $14.5 million and $26.7 million for the three- and
six-month periods ended June 30, 2002 as compared to $17.5 million and $32.8
million for the comparable periods in 2001. Of this decrease, $4.8 million ($.13
per share) and $9.6 million ($.27 per share) for the three- and six-month
periods ended June 30, 2002 was due to a change made by the Company in the
estimated useful lives of buildings from 25 to 40 years. Management determined
that the longer period better reflected the useful lives of the buildings. This
decrease was offset by $2.2 million of tenant improvements written-off during
the three-month period June 30, 2002. Amortization, related to deferred leasing
costs, increased to $1.3 million and $2.7 million for the three- and six-month
periods ended June 30, 2002 as compared to $1.1 million and $2.1 million for the
comparable periods in 2001, primarily due to increased leasing activity.
Administrative expenses decreased to $3.8 million and $7.8 million for the
three- and six-month periods ended June 30, 2002 as compared to $4.3 million and
$8.3 million for the comparable periods in 2001 primarily due to decreased
amortization of deferred compensation costs.
20
Equity in income of Real Estate Ventures decreased to $229,000 and $693,000 for
the three- and six-month periods ended June 30, 2002 as compared to $522,000 and
$2.0 million for the comparable periods in 2001 primarily due to the sale of two
Real Estate Ventures during the first quarter of 2001 and decreased occupancy.
Minority interest represents the equity in income attributable to the portion of
the Operating Partnership not owned by the Company. Minority interest increased
to $2.3 million and $4.6 million for the three- and six-month periods ended June
30, 2002 as compared to $1.9 million and $4.0 million for the comparable periods
in 2001, primarily due to increased results of operations in 2002 as compared to
2001.
During the six-month period ended June 30, 2002, the Company sold 16 office
properties containing an aggregate of 1.1 million net rentable square feet, 20
industrial properties containing an aggregate of .9 million net rentable square
feet and one parcel of land containing 10.0 acres for an aggregate of $168.1
million, realizing a net gain of $8.6 million. During the three-month period
ended June 30, 2002, the Company sold six office properties containing an
aggregate of 364,000 net rentable square feet, 10 industrial properties
containing an aggregate of 297,000 net rentable square feet and one parcel of
land containing 10.0 acres for an aggregate of $50.2 million, realizing a net
gain of $.1 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
During the six-month period ended June 30, 2002, the Company generated $47.7
million in cash flow from operating activities. Other sources of cash flow
consisted of: (i) $59.1 million of proceeds from sales of properties, (ii) $15.0
million of proceeds from draws on the Credit Facility, (iii) $14.0 million of
proceeds of additional mortgage notes, (iv) $1.6 million from repayments of
employee loans, (v) $1.0 million of escrowed cash and (vi) $.5 million of cash
distributions from Real Estate Ventures. During the six-month period ended June
30, 2002, cash out-flows consisted of: (i) $37.6 million of distributions to
shareholders, (ii) $26.0 million of Credit Facility repayments, (iii) $22.9
million for property acquisitions, (iv) $22.2 million to fund development and
capital expenditures, (v) $7.9 million to repurchase Common Shares and minority
interest units, (vi) $6.5 million of leasing costs, (vii) $4.2 million of
mortgage note repayments and (viii) $.5 million of additional investments in
unconsolidated Real Estate Ventures.
Development
The Company currently has in development or redevelopment three sites
aggregating 428,000 square feet that are scheduled for completion on various
dates through July 2002. The Company treats a property as under development or
redevelopment until it reaches 95% occupancy or one year after the completion of
shell construction, whichever is earlier. 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 $83.7 million of which $71.4 million was incurred as of June 30, 2002. As
of June 30, 2002, these developments were approximately 41% leased.
Capitalization
As of June 30, 2002, the Company had approximately $1 billion of debt
outstanding, consisting of $383.3 million of borrowings under the Credit
Facility and $617.1 million of mortgage notes payable. The mortgage notes
payable consists of $515.9 million of fixed rate loans and $101.2 million of
variable rate loans. Additionally, the Company has entered into interest rate
swap and cap agreements to fix the interest rate on $203.0 million of the Credit
Facility and variable rate loans. The mortgage loans mature between July 2003
and July 2027. As of June 30, 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- and six-month
periods ended June 30, 2002, the weighted-average interest rate under the
Company's Credit Facility was 5.40% and 5.32%, and the weighted-average interest
rate for borrowings under mortgage notes payable was 7.15% and 7.25%.
The following table outlines the timing of payment requirements related to the
Company's commitments as of June 30, 2002:
21
Payments by Period (in thousands)
-----------------------------------------------------------------------------
Less than After
Total 1 Year 2-3 Years 4-5 Years 5 Years
--------- ------- --------- --------- ---------
Mortgage notes payable:
Fixed rate $ 515,942 $ 4,420 $ 145,821 $ 18,327 $ 347,374
Variable rate 25,191 80 334 359 24,418
Construction loans 75,967 - 75,967 - -
---------- ------- --------- -------- ---------
617,100 4,500 222,122 18,686 371,792
Revolving credit facility 383,325 - 383,325 - -
Other liabilities 13,973 791 13,182 - -
---------- ------- --------- -------- ---------
$1,014,398 $ 5,291 $ 618,629 $ 18,686 $ 371,792
========== ======= ========= ======== =========
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 June 30, 2002, the Company had guaranteed repayment of approximately $2.0
million of loans for indebtedness of the Real Estate Ventures.
Subsequent to June 30, 2002, the Company obtained a $100 million term loan. The
Company used proceeds of the term loan to repay indebtedness, including
indebtedness under its existing $500 million revolving credit facility. The term
loan is unsecured and matures on July 15, 2005, subject to two extensions of one
year each upon payment by the Company of an extension fee and the absence of any
defaults at the time of each extension. There are no scheduled principal
payments prior to maturity. The term loan bears interest at a spread over the
one, two, three or six month LIBOR that varies between 1.05% and 1.90%, based on
the Company's leverage ratio.
As of June 30, 2002, the Company's debt-to-market capitalization ratio was
45.1%. As a general policy, the Company intends, but is not obligated, to adhere
to a policy of maintaining a debt-to-market capitalization ratio of no more than
50%.
The Company's Board of Trustees has previously 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 June 21, 2002, the Company declared a distribution of $0.44 per Common Share,
totaling $15.8 million, which was paid on July 15, 2002 to shareholders of
record as of July 5, 2002. The Operating Partnership simultaneously declared a
$0.44 per unit cash distribution to holders of Class A Units totaling $.8
million.
On June 21, 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 July 15, 2002 to holders of Series A Preferred Shares, Series B
Preferred Shares and Series B Preferred Units totaled $.7 million, $2.3 million
and $1.8 million, respectively.
22
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 selected assets.
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- and six- month periods ended June 30, 2002 and 2001 is
summarized in the following table (in thousands, except share data):
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2002 2001 2002 2001
---------- ----------- ---------- ----------
Income before net gain on sale of interests in real estate,
minority interest and extraordinary item:
Continuing operations $ 13,692 $ 7,488 $ 26,879 $ 15,701
Discontinued operations 1,339 2,959 6,229 5,897
---------- ----------- ---------- ----------
15,031 10,447 33,108 21,598
Add:
Depreciation:
Real property 14,522 19,550 26,875 37,002
Real estate ventures 739 411 1,320 1,464
Amortization of leasing costs 1,339 1,258 2,706 2,304
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 $ 31,631 $ 31,666 $ 64,009 $ 61,624
========== =========== ========== ==========
Weighted-average Common Shares (including Common
Share equivalents) and Operating Partnership units 47,152,178 47,326,364 47,355,479 47,361,479
========== =========== ========== ==========
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 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting on May 7, 2002. At the meeting, each of the
six individuals nominated for election to the Company's Board of Trustees was
elected to the Board. These individuals will serve on the Board, together with a
seventh Trustee (D. Pike Aloian), separately elected by the holder of a class of
the Company's preferred securities. The number of shares cast for, against or
withheld for each nominee is set forth below:
23
For Against Withheld
---------- ------- ---------
Anthony A. Nichols, Sr. 34,674,670 0 1,011,198
Gerard H. Sweeney 34,719,061 0 966,807
Donald E. Axinn 34,719,026 0 966,842
Walter D'Alessio 34,671,390 0 1,014,478
Robert Larson 34,673,838 0 1,012,030
Charles P. Pizzi 34,711,699 0 974,169
Item 5. Other Information
(i) Provision of Non-Auditing Services
----------------------------------
KPMG LLP is the Company's independent public accountants and also
provides the Company with tax compliance and tax advisory services. The Audit
Committee of the Company's Board of Trustees has approved the provision by KPMG
LLP of these services.
(ii) Equity Awards and Related Matters
---------------------------------
On July 25, 2002, the Company awarded to 36 employees an aggregate of
100,982 "restricted" common shares of beneficial interest ("Restricted Shares").
In structuring these awards, the Board of Trustees considered the analysis and
recommendation of an independent compensation consultant. The Restricted Shares
are subject to vesting in five equal annual installments, with the first
installment subject to vesting on January 1, 2003 and with each succeeding
installment subject to vesting through January 1, 2007, based on the continued
employment of the recipients with the Company, subject to accelerated vesting
upon a change of control of the Company. Prior to vesting of a Restricted Share,
the holder is entitled to receive dividends on and to vote such shares. The
executive officers of the Company, Gerard H. Sweeney, Henry J. DeVuouno, George
Sowa, Anthony Rimikis, Barbara Yamarick, Brad Molotsky, Anthony Nichols, Jr. and
Bradley Harris, received, respectively, 38,562 shares, 7,119 shares, 7,119
shares, 6,585 shares, 4,390 shares, 4,627 shares, 4,152 shares and 2,492 shares.
The balance of the shares were awarded to other Company employees.
The Board also approved an extension to the term of the employment
agreement of Gerard H. Sweeney, the Company's President and Chief Executive
Officer, through May 7, 2005. The revised employment agreement provides that if
the term of Mr. Sweeney's employment is not extended upon expiration, the
Company will be obligated to provide him with a severance benefit during the
one-year period following expiration of the term equal to the sum of his prior
year salary and bonus as well as health care benefits. The revised employment
agreement does not alter Mr. Sweeney's base annual salary of $325,000 or the
severance benefits to which Mr. Sweeney would be entitled if his employment is
terminated by the Company prior to expiration of the term.
In addition, on July 25, 2002, the Company replaced the warrant,
exercisable for 100,000 Common Shares at a per share exercise price of $19.50
and with an expiration date of August 22, 2002 held by the Company's President
and Chief Executive Officer, with an option exercisable for 100,000 Common
Shares at a per share exercise price of $19.50 and an expiration date of August
22, 2005. The Company will expense the cost of these options in accordance with
SFAS 173.
The form of Restricted Share Award for the President and Chief
Executive Officer is attached to this Form 10-Q as Exhibit 10.71, and the form
of Restricted Share Award for the other recipients is attached to this Form 10-Q
as Exhibit 10.72. The form of the revised employment agreement and replacement
option are attached as Exhibits 10.70 and 10.73.
(iii) New Chief Financial Officer
---------------------------
In addition, on August 15, 2002, Christopher P. Marr will join the
Company as Senior Vice President and Chief Financial Officer. Mr. Marr will
receive a base annual salary of $275,000, and will receive an award of
Restricted Shares. The number of Restricted Shares that Mr. Marr will receive
will equal $200,000 divided by the closing price of a Common Share on August 15,
2002.
24
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.70 Amended and Restated Employment Agreement for Gerard H. Sweeney
10.71 Restricted Share Award for Gerard H. Sweeney
10.72 Form of Restricted Share Award for Other Recipients
10.73 Option for Gerard H. Sweeney
99.1 Chief Executive Officer's Financial Statement Certification
99.2 Chief Accounting Officer's Financial Statement Certification
(b) Reports on Form 8-K:
During the three months ended June 30, 2002 and through August 14, 2002, the
Company filed the following:
(i) Current Report on Form 8-K filed May 8, 2002 (reporting under Item 9).
(ii) Current Report on Form 8-K filed May 30, 2002 (reporting under Items 4
and 7).
(iii) Current Report on Form 8-K filed July 16, 2002 (reporting under Items 5
and 7).
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: August 14, 2002 By: /s/ Gerard H. Sweeney
--------------- ----------------------------------------------------
Gerard H. Sweeney, President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2002 By: /s/ Bradley W. Harris
--------------- --------------------------------------------------
Bradley W. Harris, Vice President and Chief Accounting
Officer
(Principal Accounting Officer)
25