Exhibit 99.1
BRANDYWINE OPERATING PARTNERSHIP, L.P.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Condensed Consolidated Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003.................................F-1
Condensed Consolidated Statements of Operations for the three-month periods ended
March 31, 2004 and March 31, 2003.............................................................................F-2
Condensed Consolidated Statements of Cash Flows for the three-month periods ended
March 31, 2004 and March 31, 2003.............................................................................F-3
Notes to Condensed Consolidated Financial Statements.............................................................F-4
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm.........................................................F-22
Consolidated Balance Sheets as of December 31, 2003 and 2002....................................................F-23
Consolidated Statements of Operations for the years ended December 31, 2003, 2002,
and 2001.....................................................................................................F-24
Consolidated Statements of Comprehensive Income for the years ended December 31,
2003, 2002, and 2001.........................................................................................F-25
Consolidated Statements of Partners' Equity the years ended December 31, 2003, 2002,
and 2001.....................................................................................................F-26
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002,
and 2001.....................................................................................................F-27
Notes to Consolidated Financial Statements......................................................................F-28
Financial Statements Schedules..................................................................................F-57
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND IN THOUSANDS, EXCEPT UNIT INFORMATION)
MARCH 31, DECEMBER 31,
2004 2003
---------------- ----------------
ASSETS
Real estate investments:
Operating properties $ 1,907,836 $ 1,869,744
Accumulated depreciation (286,682) (268,091)
----------- -----------
1,621,154 1,601,653
Construction-in-progress 48,300 29,787
Land held for development 58,086 63,915
----------- -----------
1,727,540 1,695,355
Cash and cash equivalents 7,557 8,552
Escrowed cash 15,500 14,388
Accounts receivable, net 6,019 5,206
Accrued rent receivable, net 28,886 26,652
Marketable securities 377 12,052
Assets held for sale - 5,317
Investment in unconsolidated Real Estate Ventures 13,282 15,853
Deferred costs, net 27,509 27,269
Other assets 40,915 45,132
----------- -----------
Total assets $ 1,867,585 $ 1,855,776
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgage notes payable $ 452,049 $ 462,659
Borrowings under Credit Facility 265,000 305,000
Unsecured term loan 100,000 100,000
Accounts payable and accrued expenses 24,658 30,290
Distributions payable 23,014 20,947
Tenant security deposits and deferred rents 17,940 16,123
Other liabilities 5,303 16,413
Liabilities related to assets held for sale - 52
----------- -----------
Total liabilities 887,964 951,484
Commitments and contingencies
7.25% Series B Preferred Units, 1,950,000 issued and - 97,500
outstanding in 2003
Redeemable limited partnership units at redemption value;
1,737,203 issued and outstanding 53,072 46,505
Partners' Equity
7.25% Series A Preferred Mirror Units; 750,000 issued
and outstanding 37,500 37,500
7.50% Series D Preferred Mirror Units; 2,000,000
issued and oustanding 47,912 47,912
7.375% Series E Preferred Mirror Units; 2,300,000
issued and oustanding in 2004 55,538 -
General Partnership Capital, 45,663,743 and
41,040,710 units issued and outstanding 787,479 677,033
Accumulated other comprehensive loss (1,880) (2,158)
----------- -----------
Total partners' equity 926,549 760,287
----------- -----------
Total liabilities and partners' equity $ 1,867,585 $ 1,855,776
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-1
BRANDYWINE OPERATING PARTNERHSIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per unit information)
THREE-MONTH PERIODS
ENDED MARCH 31,
---------------------------
2004 2003
------------ -----------
REVENUE:
Rents $ 63,763 $ 63,921
Tenant reimbursements 8,060 8,593
Other 2,037 2,727
-------- --------
Total revenue 73,860 75,241
EXPENSES:
Property operating expenses 22,333 21,335
Real estate taxes 6,948 6,560
Interest 12,104 15,306
Depreciation and amortization 15,906 14,698
Administrative expenses 3,489 3,514
-------- --------
Total operating expenses 60,780 61,413
Income from continuing operations before equity in income of unconsolidated
Real Estate Ventures and net gain on sales of interests in real estate 13,080 13,828
Equity in income of unconsolidated Real Estate Ventures 234 158
-------- --------
Income from continuing operations before gain on sale of interests
in real estate 13,314 13,986
Gain on sale of interests in real estate - 1,152
-------- --------
Income from continuing operations 13,314 15,138
Discontinued operations:
Income from discontinued operations 201 588
Gains on disposition of discontinued operations 204 561
-------- --------
Income from discontinued operations 405 1,149
-------- --------
Net income 13,719 16,287
Income allocated to Preferred Units (2,850) (4,743)
Preferred Unit redemption gain 4,500 -
-------- --------
Income allocated to Common Partnership Unitholders $ 15,369 $ 11,544
======== ========
Basic earnings per Common Partnership Unit
Continuing operations $ 0.33 $ 0.27
Discontinued operations 0.01 0.03
-------- --------
Total $ 0.34 $ 0.30
======== ========
Diluted earnings per Common Partnership Unit
Continuing operations $ 0.32 $ 0.27
Discontinued operations 0.01 0.03
-------- --------
Total $ 0.33 $ 0.30
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-2
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
THREE-MONTH PERIOD ENDED
MARCH 31,
---------------------------
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,719 $ 16,287
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 13,987 13,388
Amortization:
Deferred financing costs 483 495
Deferred leasing costs 1,920 1,640
Deferred compensation costs 553 812
Straight-line rent (1,925) (1,484)
Provision for doubtful accounts 430 -
Net gain on sale of interests in real estate (204) (1,713)
Changes in assets and liabilities:
Accounts receivable (959) (807)
Other assets 6,982 2,496
Accounts payable and accrued expenses (5,302) (3,570)
Tenant security deposits and deferred rents 1,808 609
Other liabilities 1,576 (444)
-------- --------
Net cash from operating activites 33,068 27,709
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of properties 2,012 3,247
Capital expenditures (18,379) (7,123)
Investment in unconsolidated Real Estate Ventures (77) (75)
Escrowed cash (859) (1,155)
Cash distributions from unconsolidated Real Estate Ventures
in excess of equity in income 261 6
Cash acquired from consolidated variable interest entities 426 -
Leasing costs (2,026) (1,501)
-------- --------
Net cash from investing activities (18,642) (6,601)
CASH FLOWS FROM FINANCING ACTIVITES:
Proceeds from notes payable, Credit Facility 130,000 -
Repayments of notes payable, Credit Facility (170,000) (12,000)
Repayments of mortgage notes payable (37,204) (6,132)
Debt financing costs - (48)
Repayment of employee stock loans 1 -
Proceeds from preferred unit issuance, net 55,538 -
Proceeds from common partnership unit issuance, net 121,039 -
Repurchases of preferred and common partnership units (93,835) -
Distributions to preferred unit holders (2,531) (4,743)
Distributions to common partnership unit holders (18,429) (16,443)
-------- --------
Net cash from financing activities (15,421) (39,366)
-------- --------
Decrease in cash and cash equivalents (995) (18,258)
Cash and cash equivalents at beginning of period 8,552 26,801
-------- --------
Cash and cash equivalents at end of period $ 7,557 $ 8,543
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-3
BRANDYWINE OPERATING PARTNERSHIP, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
1. ORGANIZATION AND NATURE OF OPERATIONS
Brandywine Operating Partnership, L.P. (the "Partnership") is the entity through
which Brandywine Realty Trust, a Maryland real estate investment trust (the
"Company"), a self-administered and self-managed real estate investment trust
("REIT"), conducts its business and owns its assets. The Partnership's
activities include acquiring, developing, redeveloping, leasing and managing
office and industrial properties. The Company's common shares of beneficial
interest are publicly traded on the NYSE under the ticker symbol "BDN".
The Company's ownership interests in the Partnership consist of both general
partner and limited partner units ("Units" or "Common Partnership Units"). The
Partnership issued these Units to the Company in exchange for contributions to
the Partnership of the net proceeds from Brandywine Realty Trust's issuance of
its shares of beneficial interest or in connection with awards of shares of
beneficial interest by Brandywine Realty Trust to employees and trustees. The
number of Units owned by Brandywine Realty Trust, and the entitlements of these
Units to receive distributions and payments in liquidation, mirror the
outstanding shares of beneficial interest of Brandywine Realty Trust. As of
March 31, 2004, Brandywine Realty Trust owned 96.3% of the Partnership's
outstanding Units, excluding any preferred mirror Units. The remaining 3.7% is
owned by limited partners. Pursuant to its Partnership Agreement, the
Partnership reimburses Brandywine Realty Trust for all expenses incurred in its
operations. The Partnership owns a 95% interest in Brandywine Realty Services
Corporation (the "Management Company"), a taxable REIT subsidiary, which
performs management and leasing services for 41 properties owned by
third-parties.
As of March 31, 2004, the Partnership owned 207 office properties, 24 industrial
facilities and one mixed-use property (collectively, the "Properties") that
contained an aggregate of approximately 15.7 million net rentable square feet.
The Properties are located in the office and industrial markets in and
surrounding Philadelphia, Pennsylvania, New Jersey and Richmond, Virginia. As of
March 31, 2004, the Partnership also held economic interests in ten real estate
ventures (the "Real Estate Ventures") formed with third parties to develop or
own commercial properties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements have been prepared by the
Partnership without audit except as to the balance sheet as of December 31,
2003, 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 Partnership 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 Partnership as of March 31, 2004, the
results of its operations for the three-month period ended March 31, 2004 and
2003, and its cash flows for the three-month period ended March 31, 2004 and
2003 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 Partnership's consolidated financial statements for
the year ended December 31, 2003 included herein. Certain prior period amounts
have been reclassified to conform with the current period presentation.
F-4
Principles of Consolidation
The accompanying condensed consolidated financial statements include all
accounts of the Partnership, its majority-owned and/or controlled subsidiaries.
All intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Management makes significant estimates regarding revenue, impairment of
long-lived assets, allowance for doubtful accounts and deferred costs.
Operating Properties
Operating properties are carried at historical cost less accumulated
depreciation and impairment losses. The cost of operating properties reflects
their purchase price or development cost. Costs incurred for the acquisition and
renovation of an operating property are capitalized to the Partnership's
investment in that property. Ordinary repairs and maintenance are expensed as
incurred; major replacements and betterments, which improve or extend the life
of the asset, are capitalized and depreciated over their estimated useful lives.
Fully-depreciated assets are removed from the accounts.
Depreciation and Amortization
The costs of buildings and improvements are depreciated using the straight-line
method based on the following useful lives: buildings and improvements (five to
40 years) and tenant improvements (the shorter of the lease term or the life of
the asset).
Construction in Progress
Project costs directly associated with the development and construction of a
real estate project are capitalized as construction in progress. In addition,
interest, real estate taxes and general and administrative expenses that are
directly associated with the Partnership's development activities are
capitalized until completion of the building shell. Once the building shell of a
real estate project is completed, the costs capitalized to construction in
progress are transferred to land and buildings. The Partnership capitalized
direct construction costs totaling $548,000 for the three-month period ended
March 31, 2004, and $468,000 for the three-month period ended March 31, 2003.
The Partnership capitalized interest totaling $396,000 for the three-month
period ended March 31, 2004 and $343,000 for the three-month period ended March
31, 2003 related to development of certain Properties and land holdings.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 144 ("SFAS
144"), Accounting for the Impairment or Disposal of Long-Lived Assets,
long-lived assets, such as real estate investments and purchased intangibles
subject to amortization, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of are separately presented in
the balance sheet and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer depreciated. The other assets and
liabilities related to assets classified as held-for-sale are presented
separately in the consolidated balance sheet.
No impairment losses were recorded for the three-month period ended March 31,
2004 and 2003.
F-5
Cash and cash equivalents
Cash and cash equivalents are highly-liquid investments with original maturities
of three months or less. The Partnership maintains cash equivalents in financial
institutions in excess of insured limits, but believes this risk is mitigated by
only investing in or through major financial institutions.
Investments in Unconsolidated Real Estate Ventures
The Partnership currently accounts for its investments in unconsolidated Real
Estate Ventures under the equity method of accounting as certain Real Estate
Ventures are either not variable interest entities or the Partnership is not
considered the primary beneficiary. These investments are recorded initially at
cost, as Investments in Real Estate Ventures, and subsequently adjusted for
equity in earnings and cash contributions and distributions.
On a periodic basis, management assesses whether there are any indicators that
the value of the Partnership's investments in unconsolidated Real Estate
Ventures may be impaired. An investment is impaired only if the value of the
investment, as estimated by management, is less than the carrying value of the
investment. To the extent impairment has occurred, the loss is measured as the
excess of the carrying amount of the investment over the value of the
investment.
Deferred Costs
Costs incurred in connection with property leasing are capitalized as deferred
leasing costs. Deferred leasing costs consist primarily of leasing commissions
that are amortized on the straight-line method over the term of the respective
lease. Lease terms generally range from one to 15 years. Management re-evaluates
the deferred leasing costs for potential impairment as economic and market
conditions change. Internal direct leasing costs deferred totaled $1.0 million
for the three-month period ended March 31, 2004, and $951,000 for the
three-month period ended March 31, 2003.
Costs incurred in obtaining long-term financing are amortized and charged to
interest expense over the terms of the related debt agreements. The Partnership
uses the straight-line method to amortize its deferred financing costs which
approximates the effective interest rate.
Purchase Price Allocation
The Partnership allocates the purchase price of properties to net tangible and
identified intangible assets acquired based on fair values. Above-market and
below-market in-place lease values for acquired properties are recorded based on
the present value (using an interest rate which reflects the risks associated
with the leases acquired) of the difference between (i) the contractual amounts
to be paid pursuant to the in-place leases and (ii) the Partnership's estimate
of the fair market lease rates for the corresponding in-place leases, measured
over a period equal to the remaining non-cancellable term of the lease.
Capitalized above-market lease values are amortized as a reduction of rental
income over the remaining non-cancellable terms of the respective leases.
Capitalized below-market lease values amortized as an increase of rental income
over the remaining non-cancellable terms of the respective leases, including any
fixed-rate renewal periods.
The aggregate value of other intangibles acquired is measured based on the
difference between (i) the property valued with in-place leases adjusted to
market rental rates and (ii) the property valued as if it was vacant. The
Partnership estimates the cost to execute leases with terms similar to the
remaining lease terms of the in-place leases, include leasing commissions, legal
and other related expenses. This intangible asset is amortized to expense over
the remaining term of the respective leases. Company estimates of value are made
using methods similar to those used by independent appraisers. Factors
considered by the Partnership in their analysis include an estimate of the
carrying costs during the expected lease-up periods considering current market
conditions and costs to execute similar leases. The Partnership also considers
information obtained about each property as a result of its pre-acquisition due
diligence, marketing and leasing activities in estimating the fair value of the
tangible and intangible assets acquired. In estimating carrying costs, the
Partnership includes real estate taxes, insurance and other operating expenses
and estimates of lost rentals at market rates during the expected lease-up
periods, which primarily range from three to twelve months.
F-6
The total amount of these other intangible assets is further allocated to tenant
relationships and in-place leases based on the Partnership's evaluation of the
specific characteristics of each tenant's lease and the Partnership's overall
relationship with the respective tenant. Characteristics considered by the
Partnership in allocating value to its tenant relationships include the nature
and extent of the Partnership's business relationship with the tenant, growth
prospects for developing new business with the tenant, the tenant's credit
quality and expectations of lease renewals, among other factors. The value of
tenant relationship intangibles is amortized over the remaining initial lease
term and renewals, but in no event longer than the remaining depreciable life of
the building. The value of in-place leases is amortized over the remaining
non-cancellable term of the respective leases and any fixed-rate renewal
periods.
In the event that a tenant terminates its lease, the unamortized portion of each
intangible, including market rate adjustments, in-place lease values and tenant
relationship values, would be charged to expense.
Revenue Recognition
Rental revenue is recognized on the straight-line basis from the later of the
date of the origination of the lease or the date of acquisition of the facility
subject to existing leases. The straight-line basis averages minimum rents over
the terms of the leases. The cumulative difference between lease revenue
recognized under this method and contractual lease payment terms is recorded as
"accrued rent receivable" on the accompanying balance sheets. The straight-line
rent adjustment increased revenue by approximately $1.9 million for the
three-month period ended March 31, 2004 and approximately $1.5 million for the
three-month period ended March 31, 2003. Tenant receivables and accrued rent
receivables are carried net of the allowances for doubtful accounts of $4.2
million as of March 31, 2004 and $4.0 million as of December 31, 2003. The
allowance is based on management's evaluation of the collectability of
receivables, taking into account tenant specific considerations as well as the
overall tenant credit portfolio. The leases also typically provide for tenant
reimbursement of common area maintenance and other operating expenses. Deferred
rental revenue represents rental revenue received from tenants prior to their
due dates.
Equity-Based Compensation Plans
The Partnership Agreement provides for the issuance by the Partnership to its
general partner, the Company, of a number of Common Partnership Units equal to
the number of Common Shares issued by the Company, the net proceeds of which are
contributed to the Partnership. When the Company issues Common Shares under its
equity-based compensation plan, the Partnership issues to the Company an equal
number of Common Partnership Units.
In December 2002, the Financial Accounting Standards Board issued SFAS 148
("SFAS 148"), Accounting for Stock-Based Compensation - Transition and
Disclosure. SFAS 148 amends SFAS 123 ("SFAS 123"), Accounting for Stock-Based
Compensation, to provide alternative methods of transition for an entity that
voluntarily adopts the fair value recognition method of recording stock option
expense. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB
Opinion No. 28, Interim Financial Reporting, to require disclosure in the
summary of significant accounting policies of the effects of an entity's
accounting policy with respect to stock options on reported net income and
earnings per common partnership unit in annual and interim financial statements.
The Partnership adopted SFAS 148 on a prospective basis for all equity-based
compensation grants issued by the Company subsequent to January 1, 2002.
Prior to 2002, the Partnership accounted for equity based awards issued by the
Company under the recognition and measurement provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees and Related Interpretations. The
following table illustrates the effect on net income and earnings per common
partnership unit if the fair value based method had been applied to all
outstanding and unvested awards in each period (in thousands, except per unit
amounts):
F-7
Three-month period
ended March 31,
-------------------------
2004 2003
---------- ---------
Net income available to common partnership unitholders, as reported $15,369 $11,544
Add: Stock based compensation expense included in reported net income 553 683
Deduct: Total stock based compensation expense determined under
fair value recognition method for all awards (665) (796)
------- -------
Pro forma net income available to common partnership unitholders $15,257 $11,431
======= =======
Earnings per Common Partnership Unit
Basic - as reported $ 0.34 $ 0.30
======= =======
Basic - pro forma $ 0.33 $ 0.30
======= =======
Diluted - as reported $ 0.33 $ 0.30
======= =======
Diluted - pro forma $ 0.32 $ 0.30
======= =======
Accounting for Derivative Instruments and Hedging Activities
The Partnership accounts for its derivative instruments and hedging activities
under SFAS No. 133 ("SFAS 133"), Accounting for Derivative Instruments and
Hedging Activities, and its corresponding amendments under SFAS No. 138,
Accounting for Certain Derivative Instruments and Hedging Activities - An
Amendment of SFAS 133. SFAS 133 requires the Partnership to measure every
derivative instrument (including certain derivative instruments embedded in
other contracts) at fair value and record them in the balance sheet as either an
asset or liability. 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-month period ended March 31, 2004, the Partnership was not party
to any derivative contract designated as a fair value hedge.
The Partnership actively manages its ratio of fixed-to-floating rate debt. To
manage its fixed and floating rate debt in a cost-effective manner, the
Partnership, from time to time, enters into interest rate swap agreements as
cash flow hedges, under which it agrees to exchange various combinations of
fixed and/or variable interest rates based on agreed upon notional amounts.
Income Taxes
No federal or state income taxes are payable by the Partnership, and
accordingly, no provision for taxes has been made in the accompanying condensed
consolidated financial statements. The partners are to include their respective
share of the Partnership's profits or losses in their individual tax returns.
The Partnership's tax returns and the amount of allocable Partnership profits
and losses are subject to examination by federal and state taxing authorities.
If such examination results in changes to Partnership profits or losses, then
the tax liability of the partners would be changed accordingly.
The Partnership owns a subsidiary REIT that has elected to be taxed as a real
estate investment trust under Sections 856-860 of the Internal Revenue Code. In
management's opinion, the requirements to maintain this election are being met.
The Partnership's REIT subsidiary is subject to a 4% Federal excise tax, if
sufficient taxable income is not distributed within prescribed time limits. The
excise tax equals 4% of the annual amount, if any, by which the sum of (a) 85%
of the subsidiary's ordinary income and (b) 95% of the subsidiary's net capital
gain exceeds cash distributions and certain taxes paid by the subsidiary.
Recently Issued Accounting Standards
In January 2003, FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"), an interpretation of Accounting Research
Bulletin (ARB) 51. FIN 46 provides guidance on identifying entities for which
control is achieved through means other than through voting rights, variable
interest entities ("VIE's"), and how to determine when and which business
enterprises should consolidate the VIE. The consolidation provisions of FIN 46
were effective immediately for variable interests in VIE's created after January
31, 2003. In December 2003, FASB revised Interpretation FIN No. 46, which
adopted several Financial Statement Positions ("FSP's") and provided
transitional guidance for relationships with VIE's that are special purpose
entities ("SPEs") versus non-SPE's. The Partnership has no SPE's. The
Partnership implemented the revised guidance to previously existing non-SPE
relationships as of March 31, 2004. In connection with the full adoption, the
Partnership concluded that two previously unconsolidated Real Estate Ventures
(Four Tower Bridge Associates and Six Tower Bridge Associates) are VIE's and
that the Partnership is the primary beneficiary. As a consequence, effective on
March 31, 2004, these investments have been consolidated on the Partnership's
balance sheet, with the assets and liabilities of these two Real Estate Ventures
reflected as part of the Partnership's financial statements and the joint
venture partner's interest reflected as a minority interest. There was no
cumulative effect gain or loss upon adoption.
F-8
With respect to the Partnership's remaining investments in unconsolidated Real
Estate Ventures, the Partnership has concluded that these investments are not
VIE's or that the Partnership is not the primary beneficiary based on the terms
the arrangements. Accordingly, the Partnership will continue to reflect these
arrangements using the equity method. The terms of these arrangements are
described in Note 4 and the Partnership's maximum exposure to loss as a result
of its involvement with such potential VIE is also described in Note 4.
3. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS
2004
During the three-month period ended March 31, 2004, the Partnership sold one
office property containing 37,000 net rentable square feet and one industrial
property containing 45,000 net rentable square feet for an aggregate of $6.1
million, realizing a net gain of $.2 million.
2003
During the first quarter of 2003, the Partnership sold three units of one office
property containing 28,000 net rentable square feet and one parcel of land
containing 3.1 acres for an aggregate of $3.8 million, realizing a net gain of
$1.7 million.
4. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
As of March 31, 2004, the Partnership had an aggregate investment of
approximately $13.3 million in eight unconsolidated Real Estate Ventures (net of
returns of investment). The Partnership formed these ventures with unaffiliated
third parties to develop office properties or to acquire land in anticipation of
possible development of office properties. Seven of the unconsolidated Real
Estate Ventures own eight office buildings that contain an aggregate of
approximately 1.6 million net rentable square feet and one unconsolidated Real
Estate Venture developed a hotel property that contains 137 rooms.
The Partnership accounts for its non-controlling interests in its unconsolidated
Real Estate Ventures using the equity method. Non-controlling ownership
interests range from 6% to 50%, subject to specified priority allocations in
certain of the Real Estate Ventures. The Partnership's investments, initially
recorded at cost, are subsequently adjusted for the Partnership's net equity in
the Real Estate Ventures' income or loss and cash contributions and
distributions.
The following is a summary of the financial position of the unconsolidated Real
Estate Ventures as of March 31, 2004 and December 31, 2003 (in thousands):
March 31, December 31,
2004 2003
---------- -----------
Net property $ 292,239 $ 322,196
Other assets 33,301 29,982
Liabilities 26,681 27,900
Debt 204,497 231,401
Equity 94,363 92,877
Company's share of equity 13,282 15,853
F-9
The following is a summary of results of operations of the unconsolidated Real
Estate Ventures for the three-month periods ended March 31, 2004 and 2003 (in
thousands):
Three-month period ended March 31,
----------------------------------
2004 2003
---------- ---------
Revenue $ 10,281 $ 6,513
Operating expenses 4,515 4,198
Interest expense, net 2,898 1,750
Depreciation and amortization 2,190 1,212
Net (loss) income 678 (647)
Company's share of income 234 158
As of March 31, 2004, the aggregate maturities of non-recourse debt of
unconsolidated Real Estate Ventures payable to third-parties was as follows (in
thousands):
2004 $ 1,059
2005 45,068
2006 1,349
2007 11,900
2008 and thereafter 145,121
---------
$ 204,497
=========
As of March 31, 2004, the Partnership had guaranteed repayment of approximately
$1.2 million of loans for the unconsolidated Real Estate Ventures. The
Partnership also provides customary environmental indemnities in connection with
construction and permanent financing both for its own account and on behalf of
the Real Estate Ventures.
5. INDEBTEDNESS
The Partnership utilizes credit facility borrowings for general business
purposes, including the acquisition of properties and the repayment of other
debt. The Partnership maintained a $500 million unsecured credit facility (the
"Credit Facility") that matures in June 2004. Borrowings under the Credit
Facility bore interest at 30-day LIBOR (30-day LIBOR was 1.09% at March 31,
2004) plus 1.4% per annum, with the spread over LIBOR subject to reductions from
..10% to .25% or increases of .25% based on the Partnership's leverage. As of
March 31, 2004, the Partnership had $265 million of borrowings and $10.7 million
of letters of credit outstanding under the Credit Facility, leaving $224.3
million of unused availability. In May 2004, the Partnership obtained a $450
million unsecured credit facility. The credit facility will mature in May 2007.
The Partnership has the option to increase the credit facility to a maximum of
$600 million. The credit facility bears interest at LIBOR plus a spread
over LIBOR ranging from .65% to 1.35% based on the Partnership's leverage and
unsecured debt ratings.
The Partnership also maintains a $100 million term loan. The term loan is
unsecured and matures on July 15, 2005, subject to two extensions of one year
each upon payment 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% per annum (1.65% as of March
31, 2004), based on the Partnership's leverage ratio. The average interest rate
on the Partnership's term loan was 2.76% per annum for the three-month period
ended March 31, 2004.
F-10
As of March 31, 2004, the Partnership had $452.0 million of mortgage notes
payable, secured by 89 of the Properties and certain land holdings. Fixed rate
mortgages, totaling $427.3 million, require payments of principal and/or
interest (or imputed interest) at rates ranging from 6.62% to 9.25% per annum
and mature on dates from November 2004 through July 2027. Variable rate
mortgages, totaling $24.7 million, require payments of principal and/or interest
at rates ranging from 30-day LIBOR plus .76% to 1.75% per annum or 75% of prime
(prime rate was 4.00% at March 31, 2004) and mature on dates from March 2007
through July 2027. The weighted-average interest rate on the Partnership's
mortgages was 7.33% per annum for the three-month period ended March 31, 2004
and 7.10% per annum for the three-month period ended March 31, 2003.
During the three-month period ended March 31, 2004 and 2003, the Partnership
paid interest (net of capitalized interest) totaling $10.9 million in 2004 and
$14.7 million in 2003.
6. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS
Risk Management
In the normal course of its on-going business operations, the Partnership
encounters economic risk. There are three main components of economic risk:
interest rate risk, credit risk and market risk. The Partnership is subject to
interest rate risk on its interest-bearing liabilities. Credit risk is the risk
of inability or unwillingness of tenants to make contractually required
payments. Market risk is the risk of declines in the value of properties due to
changes in rental rates, occupancy levels, interest rates or other market
factors affecting the valuation of properties held by the Partnership.
Use of Derivative Financial Instruments
The Partnership's use of derivative instruments is limited to the utilization of
interest rate agreements or other instruments to manage interest rate risk
exposures and not for speculative purposes. The principal objective of such
arrangements is to minimize the risks and/or costs associated with the
Partnership's operating and financial structure, as well as to hedge specific
transactions. The counterparties to these arrangements are major financial
institutions with which the Partnership and its affiliates may also have other
financial relationships. The Partnership is potentially exposed to credit loss
in the event of non-performance by these counterparties. However, because of the
high credit ratings of the counterparties, the Partnership does not anticipate
that any of the counterparties will fail to meet these obligations as they come
due. The Partnership does not hedge credit or property value market risks.
The Partnership formally assesses, both at inception of the hedge and on an
on-going basis, whether each derivative is highly-effective in offsetting
changes in cash flows of the hedged item. If management determines that a
derivative is not highly-effective as a hedge or if a derivative ceases to be a
highly-effective hedge, the Partnership will discontinue hedge accounting
prospectively.
The following table summarizes the terms and fair values of the Partnership's
derivative financial instruments at March 31, 2004 (in thousands).
NOTIONAL FAIR
HEDGE PRODUCT HEDGE TYPE AMOUNT STRIKE MATURITY VALUE
- ----------------------------- ----------- -------- ------ -------- --------
Cap Cash flow $ 28,000 8.700% 7/12/2004 $ -
Swap Cash flow 100,000 4.230% 6/29/2004 (988)
Swap Cash flow 50,000 4.215% 6/29/2004 (491)
Swap Cash flow 25,000 4.215% 6/29/2004 (246)
--------
$ (1,725)
========
The Partnership has entered into interest rate swap and rate cap agreements
designated as cash flow hedges that are designed to reduce the impact of
interest rate changes on its variable rate debt. At March 31, 2004, the
Partnership had interest rate swap agreements for notional principal amounts
aggregating $175 million. The swap agreements effectively fix the 30-day LIBOR
interest rate on $100 million of Credit Facility borrowings at 4.230% per annum
and on $75 million of Credit Facility borrowings at 4.215% per annum, in each
case until June 29, 2004. The weighted-average interest rate on borrowings under
the Credit Facility, including the effect of cash flow hedges, was 4.64% per
annum for the three-month period ended March 31, 2004 and 4.60% per annum for
the three-month period ended March 31, 2003. The interest rate cap agreement
effectively limits the interest rate on a mortgage with a notional value of $28
million at 8.7% per annum until July 2004. The notional amount at March 31, 2004
provides an indication of the extent of the Partnership's involvement in these
instruments at that time, but does not represent exposure to credit, interest
rate or market risks.
F-11
As of March 31, 2004, the maximum length of time until which the Partnership was
hedging its exposure to the variability in future cash flows was through June
29, 2004. There was no gain or loss reclassified from accumulated other
comprehensive loss into earnings during the three- month period ended March 31,
2004 as a result of the discontinuance of a cash flow hedge due to the
probability of the original forecasted transaction not occurring.
Over time, the unrealized gains and losses held in Other Comprehensive Income
("OCI") will be reclassified to earnings in the same period(s) in which the
hedged items are recognized in earnings. The current balance held in OCI is
expected to be reclassified to earnings over the lives of the current hedging
instruments, or for realized losses on forecasted debt transactions, over the
related term of the debt obligation, as applicable.
Concentration of Credit Risk
Concentrations of credit risk arise when a number of tenants related to the
Partnership's investments or rental operations are engaged in similar business
activities, or are located in the same geographic region, or have similar
economic features that would cause their inability to meet contractual
obligations, including those to the Partnership, to be similarly affected. The
Partnership regularly monitors its tenant base to assess potential
concentrations of credit risk. Management believes the current credit risk
portfolio is reasonably well diversified and does not contain any unusual
concentration of credit risk. No tenant accounted for 5% or more of the
Partnership's rents during the three-month period ended March 31, 2004 and 2003.
See Note 10 for geographic segment information.
7. DISCONTINUED OPERATIONS
For the three-month period ended March 31, 2004 and 2003, income from
discontinued operations relates to 55 properties containing 2.8 million net
rentable square feet that the Partnership sold between January 1, 2002 and March
31, 2004. There were no properties designated as held-for-sale as of March 31,
2004.
The following table summarizes revenue and expense information for the 55
properties sold since January 1, 2002 (in thousands):
Three-month period
ended March 31,
--------------------------
2004 2003
------- --------
REVENUE:
Rents $ 110 $ 1,704
Tenant reimbursements 166 190
Other 17 11
----- -------
Total revenue 293 1,905
EXPENSES:
Property operating expenses 66 712
Real estate taxes 25 275
Depreciation and amortization 1 330
----- -------
Total operating expenses 92 1,317
Income from discontinued operations before net gain on sale
of interests in real estate 201 588
Net gain on sales of interest in real estate 204 561
----- -------
Income from discontinued operations $ 405 $ 1,149
===== =======
F-12
Discontinued operations have not been segregated in the condensed consolidated
statements of cash flows. Therefore, amounts for certain captions will not agree
with respective data in the condensed consolidated statements of operations.
8. PARTNERS' EQUITY
The Company is the sole general partner of the Partnership and conducts
substantially all its business and owns its assets through the Partnership and
as a result does not have any significant assets, liabilities or operations,
other than its investment in the Parntership's Units, nor does it have any
employees of its own. Pursuant to the Partnership Agreement, the Partnership
reimburses the Company for all expenses incurred on behalf of its operations.
The Partnership issues partnership units to the Company in exchange for the
contribution of the net proceeds of any equity security issuance by the Company.
The number and terms of such partnership units correspond in number and terms to
the related equity securities issued by the Company. In addition, the
Partnership may also issue separate classes of partnership units. Historically,
the Partnership has had the following types of partnership units outstanding (i)
Preferred Partnership Units which have been issued to parties other than the
Company (ii) Preferred Mirror Partnership Units which have been issued to the
Company and (iii) Common Partnership Units which include both interests held by
the Company and those held by other limited partners. Each of these interests is
described in more detail below.
Preferred Partnership Units
The Partnership issued 1,950,000 Series B Preferred Units for $97.5 million in
1998. The Preferred Units bear a preferred distribution of 7.25% per annum and
have a stated value of $50.00 per share. The Preferred Units are convertible
into Class A Limited Partnership Units at a conversion price of $28.00. As more
fully discussed in the Common Partnership Unit section, the Class A Limited
Partnership units are subject to certain redemption rights. Due to these
redemption rights, the Series B Preferred Partnership Units limited partnership
units have been excluded from partners' equity and reflected at the greater of
their liquidation preference or the Class A Limited Partnership redemption value
as of the end of the periods presented based on the closing market price of
Company's common stock at December 31, 2003, 2002 and 2001, which was $26.77,
$21.81 and $21.07 respectively. In February 2004, the Partnership redeemed all
of its outstanding Series B Preferred Units for an aggregate price of $93.0
million, together with accrued but unpaid distributions from January 1, 2004.
The Series B Preferred Units had an aggregate stated value of $97.5 million and
accrued distributions at 7.25% per annum. The Partnership recorded a gain of
$4.5 million related to the redemption as an adjustment to net income available
to common partnership unitholders.
Preferred Mirror Partnership Units
In exchange for the proceeds received in such offerings by the Company, the
Partnership has issued to the Company multiple classes of Preferred Mirror
Partnership Units with terms consistent with that of the preferred securities
issued by the Company.
On September 28, 1998, the Partnership issued 750,000 Series A Preferred Mirror
Units to Brandywine Realty Trust in exchange for its contribution of the net
proceeds of its Series A Preferred Shares. The 750,000 Series A Preferred Mirror
Units outstanding have an aggregate liquidation preference of $37.5 million, or
$50.00 per unit. Cumulative distributions on the Series A Preferred Mirror Units
are payable quarterly at an annualized rate of 7.25% of the liquidation
preference. In connection with, and at the time of the conversion of all or any
Series A Preferred Shares into Common Shares, an equivalent number of Series A
Preferred Mirror Units will be converted into Class A Units. In the event that
any of the Series A Preferred Shares of Brandywine Realty Trust are redeemed,
then an equivalent number of Series A Preferred Mirror Units will be redeemed.
F-13
In 1999, the Partnership issued Series C Preferred Mirror Units to the Company
in exchange for the net proceeds of $94.8 million from the Company's Series B
Preferred Share issuance. As part of the issuance, the Company issued 500,000
Common Share warrants to the holder at an exercise price of $24.00 per share. On
December 30, 2003, the Partnership redeemed 3,281,250 Series C Units at $27.50
per share for approximately $90.2 million and converted the remaining 1,093,750
Series C Units into Class A Units. This redemption and conversion occurred
concurrently with the Company's redemption and conversion of an equal number of
their Series B Preferred Shares. The Partnership incurred a charge as an
adjustment in arriving at net income available to Common Partnership units of
$20.6 million associated with this redemption and conversion.
On December 30, 2003, the Partnership issued 2,000,000 Series D Preferred Mirror
Units to Brandywine Realty Trust in exchange for its contribution of the
proceeds of its Series C Preferred Shares. The 2,000,000 Series D Preferred
Mirror Units outstanding have an aggregate liquidation preference of $50
million, or $25.00 per unit. Cumulative distributions on the Series D Preferred
Mirror Units are payable quarterly at an annualized rate of 7.50% of the
liquidation preference. In the event that any of the Series C Preferred Shares
of Brandywine Realty Trust are redeemed, which may occur at the option of
Brandywine Realty Trust at any time on or after December 30, 2008, then an
equivalent number of Series D Preferred Mirror Units will be redeemed.
On February 27, 2004, the Partnership issued 2,300,000 Series E Preferred Mirror
Units to Brandywine Realty Trust in exchange for its contribution of the net
proceeds of its Series D Preferred Shares. The 2,300,000 Series E Preferred
Mirror Units outstanding have an aggregate liquidation preference of $57.5
million, or $25.00 per unit. Cumulative distributions on the Series E Preferred
Mirror Units are payable quarterly at an annualized rate of 7.375% of the
liquidation preference. In the event that any of the Series D Preferred Shares
of Brandywine Realty Trust are redeemed, which may occur at the option of
Brandywine Realty Trust at any time on or after February 27, 2009, then an
equivalent number of Series E Preferred Mirror Units will be redeemed.
On March 25, 2004, the Partnership declared distributions to holders of its
Series A Preferred Units, Series D Preferred Units and Series E Preferred Units,
which are currently entitled to a cumulative preferential return of 7.25%, 7.50%
and 7.375%, respectively. Distributions paid on April 15, 2004 to holders of
Series A Preferred Units, Series D Preferred Units and Series E Preferred Units
totaled $.7 million, $.9 million and $.4 million, respectively.
Common Partnership Units (Redeemable and General)
The Partnership has two classes of Common Partnership Units: (i) Class A Limited
Partnership Interest which are held by both the Company and outside third
parties and (i) General Partnership Interests which are held by the Company.
(Collectively, the Class A Limited Partnership Interest and General Partnership
Interests are referred to as "Common Partnership Units"). The holders of the
Common Partnership Units are entitled to share in cash distributions from, and
in profits and losses of, the Partnership, in proportion to their respective
percentage interests, subject to preferential distributions on the preferred
mirror units and the preferred units.
The Common Partnership Units held by the Company (comprised of both General
Partnership Units and Class A Limited Partnership Units) are presented as
partners' equity in the consolidated financial statements. The outstanding Class
A Limited Partnership Interest held by parties other than the Company are
redeemable at the option of the holder for a like number of common shares of the
Company, or cash, or a combination thereof, at the election of the Company.
Because the form of settlement of these redemption rights are not within the
control of the Partnership, these Common Partnership Units have been excluded
from partners' equity and are presented as redeemable limited partnership units
measured at the potential cash redemption value as of the end of the periods
presented based on the closing market price of the Company's common shares at
December 31, 2003, 2002 and 2001, which was $26.77, $21.81 and $21.07
respectively. As of March 31, 2004 and December 31, 2003, 1,737,203 Class A
Units were outstanding and owned by outside limited partners of the Partnership.
F-14
On January 12, 2004, the Partnership issued 2,645,000 Common Partnership Units
to the Company in exchange for the contribution of the net proceeds
(approximately $69.3 million) from an underwritten public offering of the
Company's Common Shares. The Partnership used the proceeds to reduce the
outstanding balance under our revolving credit facility.
On March 3, 2004, the Partnership issued 1,840,000 Common Partnership Units to
the Company in exchange for the contribution of the net proceeds (approximately
$50.8 million) from an underwritten public offering of the Company's Common
Shares. The Partnership used the proceeds to reduce the outstanding balance
under our revolving credit facility.
On March 25, 2004, the Partnership declared a distribution of $0.44 per Common
Partnership Unit, totaling $20.2 million, which was paid on April 15, 2004 to
unit holders of record as of April 6, 2004.
9. COMPREHENSIVE INCOME
Comprehensive income represents net income, plus the results of certain
non-partners' equity changes not reflected in the Condensed Consolidated
Statements of Operations. The components of comprehensive income are as follows
(in thousands):
Three-month period
Ended March 31,
--------------------------
2004 2003
--------- --------
Net income $ 13,719 $ 16,287
Other comprehensive income (loss):
Reclassification adjustment for gains reclassified
into operations (233) -
Reclassification adjustments for losses reclassified
into operations 1,378 1,255
Unrealized derivative loss on cash flow hedges (76) (746)
Unrealized gain (loss) on available-for-sale securities (792) (32)
-------- --------
Comprehensive income $ 13,996 $ 16,764
======== ========
10. SEGMENT INFORMATION
The Partnership currently manages its portfolio within three segments: (1)
Pennsylvania, (2) New Jersey (including New York in 2003 periods) and (3)
Virginia. Corporate is responsible for cash and investment management and
certain other general support functions.
F-15
Segment information for the three-month period ended March 31, 2004 and 2003 is
as follows (in thousands):
Pennsylvania New Jersey Virginia Corporate Total
------------ ---------- --------- --------- -----------
As of March 31, 2004:
Real estate investments, at cost
Operating properties $ 1,183,546 $ 509,322 $ 214,968 $ - $ 1,907,836
Construction-in-progress 42,243 5,001 1,056 - 48,300
Land held for development 35,199 13,969 8,918 - 58,086
As of December 31, 2003: Real estate
investments, at cost:
Operating properties $ 1,146,350 $ 508,906 $ 214,488 $ - $ 1,869,744
Construction-in-progress 25,162 4,043 582 - 29,787
Land held for development 38,723 15,352 9,840 - 63,915
Assets held for sale, at cost 3,649 1,668 - 5,317
For three months ended March 31, 2004:
Total revenue $ 43,100 $ 23,636 $ 6,662 $ 462 $ 73,860
Property operating expenses
and real estate taxes 16,992 9,548 2,741 - 29,281
----------- -------- --------- ----- -----------
Net operating income $ 26,108 $ 14,088 $ 3,921 $ 462 $ 44,579
=========== ======== ========= ===== ===========
For three months ended March 31, 2003:
Total revenue $ 45,662 $ 22,253 $ 6,833 $ 493 $ 75,241
Property operating expenses
and real estate taxes 16,538 8,785 2,572 - 27,895
----------- -------- --------- ----- -----------
Net operating income $ 29,124 $ 13,468 $ 4,261 $ 493 $ 47,346
=========== ======== ========= ===== ===========
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 (in
thousands):
Three-month period
ended March 31,
--------------------------
2004 2003
--------- --------
Consolidated net operating income $ 44,579 $ 47,346
Less:
Interest expense 12,104 15,306
Depreciation and amortization 15,906 14,698
Administrative expenses 3,489 3,514
Plus:
Equity in income of real estate ventures 234 158
Net gains on sales of interests in real estate - 1,152
-------- --------
Consolidated income from continuing operations $ 13,314 $ 15,138
======== ========
F-16
11. EARNINGS PER COMMON PARTNERSHIP UNIT:
The following table details the number of Common Partnership Units and net
income used to calculate basic and diluted earnings per Common Partnership Unit
(in thousands, except units and per unit amounts):
Three-month period ended March 31,
------------------------------------------------------------------
2004 2003
--------------------------- ---------------------------
Basic Diluted Basic Diluted
---------- ---------- ---------- ----------
Income from continuing operations $ 13,314 $ 13,314 $ 15,138 $ 15,138
Income from discontinued operations 405 405 1,149 1,149
Preferred unit redemption gain 4,500 4,500 - -
Income allocated to Preferred Units (2,850) (2,850) (4,743) (4,743)
---------- ---------- ---------- -----------
15,369 15,369 11,544 11,544
Preferred Unit discount amortization - - (369) (369)
---------- ---------- ---------- -----------
Net income available Common Partnership Unitholders $ 15,369 $ 15,369 $ 11,175 $ 11,175
========== ========== ========== ==========
Weighted-average common partnership units outstanding 45,774,045 45,774,045 37,087,578 37,087,578
Options and warrants - 287,208 - 69,740
---------- ---------- ---------- -----------
Total weighted-average common partnership units outstanding 45,774,045 46,061,253 37,087,578 37,157,318
========== ========== ========== ==========
Earnings per Common Partnership Unit:
Continuing operations $ 0.33 $ 0.32 $ 0.27 $ 0.27
Discontinued operations 0.01 0.01 0.03 0.03
---------- ---------- ---------- -----------
Total $ 0.34 $ 0.33 $ 0.30 $ 0.30
========== ========== ========== ==========
Potentially dilutive securities (including those Preferred Mirror Units and
Preferred Units that are convertible) totaling 1,289,053 for the three-month
period ended March 31, 2004 and 9,967,723 for the three-month period ended March
31, 2003 were excluded from the earnings per unit computations above as their
effect would have been antidilutive. All of the Series C Preferred Mirror Units
were redeemed, or were converted into Partnership Units, in December 2003 and
are no longer outstanding. All of the Series B Preferred Units were redeemed by
the Partnership in February 2004 and are no longer outstanding.
12. CONDENSED CONSOLIDATING INFORMATION:
On July 1, 2004, the Company and the Partnership filed a Registration Statement
on Form S-3 (the "Registration Statement") with the Securities and Exchange
Commission to register: (i) common shares of beneficial interest, preferred
shares of beneficial interest, depositary shares and warrants of the Company;
(ii) debt securities of the Partnership ("Debt Securities"); and (iii) full and
unconditional guaranties of the Debt Securities by the Company and certain
wholly-owned subsidiaries of the Partnership (the "Subsidiary Guarantors"). The
Partnership has other subsidiaries ("Non-Guarantor Subsidiaries") that are not
Subsidiary Guarantors.
F-17
The following summarizes the condensed consolidating financial information for
the Partnership as of March 31, 2004 and December 31, 2003 and for each of the
three-month periods ended March 31, 2004 and 2003:
CONSOLIDATING BALANCE SHEET
MARCH 31, 2004
(in 000's)
The Guarantor Non-Guarantor Consolidation
Partnership Subsidiaries Subsidiaries Eliminations Consolidated
----------- ----------- ------------- ------------- ------------
ASSETS
Total Real estate investments, net $ 920,454 $ 361,079 $ 446,007 $ - $ 1,727,540
Cash and cash equivalents 7,557 - - - 7,557
Escrowed cash 6,666 802 8,032 - 15,500
Accounts receivable, net 19,481 8,350 7,074 - 34,905
Marketable securities 377 - - - 377
Investment in real estate ventures, at equity 13,282 - - - 13,282
Investments in Subsidiaries, at equity 637,843 - - (637,843) -
Deferred costs, net 21,574 2,118 3,817 - 27,509
Other assets 21,109 19,422 384 - 40,915
----------- --------- --------- ---------- -----------
Total assets $ 1,648,343 $ 391,771 $ 465,314 $ (637,843) $ 1,867,585
=========== ========= ========= ========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgage notes payable $ 239,807 $ 14,080 $ 198,162 $ - $ 452,049
Borrowings under Credit Facility 265,000 - - - 265,000
Unsecured term loan 100,000 - - - 100,000
Accounts payable and accrued expenses 20,188 1,777 2,693 - 24,658
Distributions payable 23,014 - - - 23,014
Tenant security deposits and deferred rents 15,487 819 1,634 - 17,940
Other liabilities 5,226 - 77 - 5,303
----------- --------- --------- ---------- -----------
Total liabilities 668,722 16,676 202,566 - 887,964
Redeemable limited partnership units 53,072 - - - 53,072
Total partners' equity 926,549 375,095 262,748 (637,843) 926,549
----------- --------- --------- ---------- -----------
Total liabilities and partners' equity $ 1,648,343 $ 391,771 $ 465,314 $ (637,843) $ 1,867,585
=========== ========= ========= ========== ===========
F-18
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2003
(IN 000'S)
The Guarantor Non-Guarantor Consolidation
Partnership Subsidiaries Subsidiaries Eliminations Consolidated
----------- ----------- ------------- ------------- ------------
ASSETS
Total Real estate investments, net $ 899,695 $ 348,578 $ 447,082 $ - $ 1,695,355
Cash and cash equivalents 8,552 - - - 8,552
Escrowed cash 5,906 806 7,676 - 14,388
Accounts receivable, net 16,166 8,467 7,225 - 31,858
Marketable securities 12,052 - - - 12,052
Assets held for sale - 1,668 3,649 - 5,317
Investment in real estate ventures, at equity 15,853 - - - 15,853
Investments in Subsidiaries, at equity 627,895 - - (627,895) -
Deferred costs, net 21,168 2,185 3,916 - 27,269
Other assets 25,249 18,350 1,533 - 45,132
----------- --------- --------- ---------- -----------
Total assets $ 1,632,536 $ 380,054 $ 471,081 $ (627,895) $ 1,855,776
=========== ========= ========= ========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgage notes payable $ 249,433 $ 14,251 $ 198,975 $ - $ 462,659
Borrowings under Credit Facility 305,000 - - - 305,000
Unsecured term loan 100,000 - - - 100,000
Accounts payable and accrued expenses 25,579 1,763 2,948 - 30,290
Distributions payable 20,947 - - - 20,947
Tenant security deposits and deferred rents 10,954 1,584 3,585 - 16,123
Other liabilities 16,332 - 81 - 16,413
Liabilities related to assets held for sale - 32 20 - 52
----------- --------- --------- ---------- -----------
Total liabilities 728,245 17,630 205,609 - 951,484
7.25% Series B Preferred Units 97,500 - - - 97,500
Redeemable limited partnership units 46,505 - - - 46,505
Total partners' equity 760,286 362,424 265,472 (627,895) 760,287
----------- --------- --------- ---------- -----------
Total liabilities and partners' equity $ 1,632,536 $ 380,054 $ 471,081 $ (627,895) $ 1,855,776
=========== ========= ========= ========== ===========
F-19
CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2004
(IN 000'S)
THE GUARANTOR NON-GUARANTOR CONSOLIDATION
PARTNERSHIP SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------- ------------
REVENUE:
Rents $ 36,280 $ 12,561 $ 14,922 $ - $ 63,763
Tenant reimbursements 3,780 2,616 1,664 - 8,060
Other 7,341 465 771 (6,540) 2,037
---------- --------- --------- --------- --------
Total revenue 47,401 15,642 17,357 (6,540) 73,860
OPERATING EXPENSES:
Property operating expenses 18,012 5,471 5,390 (6,540) 22,333
Real estate taxes 3,847 1,549 1,552 - 6,948
Interest 8,437 240 3,427 - 12,104
Depreciation and amortization 9,066 2,864 3,976 - 15,906
Administrative expenses 2,795 - 694 - 3,489
---------- --------- --------- --------- --------
Total operating expenses 42,157 10,124 15,039 (6,540) 60,780
---------- --------- --------- --------- --------
Income from continuing operations before
equity in income of real estate ventures
and equity in income of subsidiaries 5,244 5,518 2,318 - 13,080
Equity in income of real estate ventures 234 - - - 234
Equity in income of subsidiaries 8,229 - - (8,229) -
---------- --------- --------- --------- --------
Income from continuing operations 13,707 5,518 2,318 (8,229) 13,314
Discontinued operations:
Income from discontinued operations 12 23 166 - 201
Net Gain on Disposition - 382 (178) - 204
---------- --------- --------- --------- --------
Income from discontinued operations 12 405 (12) - 405
---------- --------- --------- --------- --------
Net income $ 13,719 $ 5,923 $ 2,306 $ (8,229) $ 13,719
========== ========= ========= ========= ========
CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTH PERIOD ENDED MARCH 31, 2004
(IN 000'S)
THE GUARANTOR NON-GUARANTOR CONSOLIDATION
PARTNERSHIP SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ ------------
Cash flows from operating activities $ 20,403 $ 6,783 $ 2,165 $ 3,717 $ 33,068
Cash flows from investing activities (8,904) (13,359) 3,621 - (18,642)
Cash flows from financing activities (12,494) 6,576 (5,786) (3,717) (15,421)
---------- --------- --------- --------- --------
Increase (decrease) in cash and
cash equivalents (995) - - - (995)
Cash and cash equivalents at
beginning of year 8,552 - - - 8,552
---------- --------- --------- --------- --------
Cash and cash equivalents at
end of year $ 7,557 $ - $ - $ - $ 7,557
========== ========= ========= ========= ========
F-20
CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2003
(IN 000'S)
THE GUARANTOR NON-GUARANTOR CONSOLIDATION
PARTNERSHIP SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ ------------
REVENUE:
Rents $ 37,023 $ 12,199 $ 14,699 $ - $ 63,921
Tenant reimbursements 4,505 2,539 1,549 - 8,593
Other 8,097 457 713 (6,540) 2,727
---------- --------- --------- --------- --------
Total revenue 49,625 15,195 16,961 (6,540) 75,241
OPERATING EXPENSES:
Property operating expenses 17,258 5,102 5,515 (6,540) 21,335
Real estate taxes 3,748 1,402 1,410 - 6,560
Interest 11,548 292 3,466 - 15,306
Depreciation and amortization 8,332 2,596 3,770 - 14,698
Administrative expenses 3,014 - 500 - 3,514
---------- --------- --------- --------- --------
Total operating expenses 43,900 9,392 14,661 (6,540) 61,413
---------- --------- --------- --------- --------
Income from continuing operations before equity in
income of real estate ventures, equity in income
of subsidiaries and net gains on sales of
real estate 5,725 5,803 2,300 - 13,828
Equity in income of real estate ventures 158 - - - 158
Equity in income of subsidiaries 8,355 - - (8,355) -
Net gains on sales of interests in real estate 1,152 - - - 1,152
---------- --------- --------- --------- --------
Income from continuing operations 15,390 5,803 2,300 (8,355) 15,138
Discontinued operations:
Income from discontinued operations 336 14 238 - 588
Net Gain on Disposition 561 - - - 561
---------- --------- --------- --------- --------
Income from discontinued operations 897 14 238 - 1,149
---------- --------- --------- --------- --------
Net income $ 16,287 $ 5,817 $ 2,538 $ (8,355) $ 16,287
========== ========= ========= ========= ========
CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTH PERIOD ENDED MARCH 31, 2003
(IN 000'S)
THE GUARANTOR NON-GUARANTOR CONSOLIDATION
PARTNERSHIP SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ ------------
Cash flows from operating activities $ 20,066 $ 7,503 $ 5,920 $ (5,780) $ 27,709
Cash flows from investing activities (2,097) (2,339) (2,165) - (6,601)
Cash flows from financing activities (36,227) (5,164) (3,755) 5,780 (39,366)
---------- --------- --------- --------- --------
Increase (decrease) in cash and
cash equivalents (18,258) - - - (18,258)
Cash and cash equivalents at
beginning of year 26,801 - - - 26,801
---------- --------- --------- --------- --------
Cash and cash equivalents at
end of year $ 8,543 $ - $ - $ - $ 8,543
========== ========= ========= ========= ========
F-21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of Brandywine Operating Partnership, L.P.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 7 present fairly, in all material respects, the
consolidated financial position of Brandywine Operating Partnership, L.P. and
its subsidiaries (the "Partnership") at December 31, 2003 and 2002, and the
results of their operations, cash flows, and other comprehensive income for each
of the three years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the consolidated financial statements schedules listed
in the index appearing under Item 7, present fairly, in all material respects
information set forth therein when read in conjunction with the related
consolidated financial statements. These consolidated financial statements are
the responsibility of the Partnership's management; our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
June 18, 2004
F-22
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF UNITS)
DECEMBER 31,
-------------------------------
2003 2002
----------- -----------
ASSETS
Real estate investments:
Operating properties $ 1,869,744 $ 1,890,009
Accumulated depreciation (268,091) (245,230)
----------- -----------
1,601,653 1,644,779
Construction-in-progress 29,787 41,986
Land held for development 63,915 59,216
----------- -----------
1,695,355 1,745,981
Cash and cash equivalents 8,552 26,801
Escrowed cash 14,388 16,318
Accounts receivable, net 5,206 3,657
Accrued rent receivable, net 26,652 28,333
Marketable securities 12,052 11,872
Assets held for sale 5,317 7,666
Investment in real estate ventures, at equity 15,853 14,842
Deferred costs, net 27,269 29,271
Other assets 45,132 34,547
----------- -----------
Total assets $ 1,855,776 $ 1,919,288
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgage notes payable $ 462,659 $ 597,729
Borrowings under Credit Facility 305,000 307,000
Unsecured term loan 100,000 100,000
Accounts payable and accrued expenses 30,290 27,576
Distributions payable 20,947 21,186
Tenant security deposits and deferred rents 16,123 22,276
Other liabilities 16,413 23,059
Liabilities related to assets held for sale 52 20
----------- -----------
Total liabilities 951,484 1,098,846
Commitments and Contingencies
7.25% Series B Preferred Units, 1,950,000 issued and 97,500 97,500
outstanding in 2003
Redeemable limited partnership units at redemption value;
1,737,203 and 1,787,436 issued and outstanding 46,505 38,984
Partners' Equity
7.25% Series A Mirror Preferred Units; 750,000 issued
and outstanding 37,500 37,500
8.75% Series C Mirror Preferred Units; 4,375,000
issued and outstanding in 2002 - 98,035
7.50% Series D Mirror Preferred Units; 2,000,000
issued and oustanding in 2003 47,912 -
General Partnership Capital, 41,040,710 and
35,226,315 units issued and outstanding 677,033 554,825
Accumulated other comprehensive income (2,158) (6,402)
----------- -----------
Total partners' equity 760,287 683,958
----------- -----------
Total liabilities and partners' equity $ 1,855,776 $ 1,919,288
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-23
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT INFORMATION)
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2003 2002 2001
--------- --------- ---------
REVENUE:
Rents $ 256,945 $ 248,075 $ 228,149
Tenant reimbursements 37,755 33,263 31,993
Other 10,959 9,702 10,346
--------- --------- ---------
Total revenue 305,659 291,040 270,488
OPERATING EXPENSES:
Property operating expenses 80,817 74,967 70,604
Real estate taxes 27,919 25,196 22,435
Interest 57,835 63,522 67,496
Depreciation and amortization 60,592 56,431 67,224
Administrative expenses 14,464 14,804 15,177
Non-recurring charges - - 6,600
--------- --------- ---------
Total operating expenses 241,627 234,920 249,536
--------- --------- ---------
Income from continuing operations before equity in income of
real estate ventures and net gains on sales of interests in real estate 64,032 56,120 20,952
Equity in income of real estate ventures 52 987 2,768
--------- --------- ---------
Income from continuing operations before net gains on sales of
interests in real estate 64,084 57,107 23,720
Net gains on sales of interests in real estate 20,537 - 4,524
--------- --------- ---------
Income from continuing operations 84,621 57,107 28,244
Discontinued operations:
Income from discontinued operations 2,156 7,467 14,100
Net gain on disposition of discontinued operations 9,690 8,562 -
--------- --------- ---------
Income from discontinued operations 11,846 16,029 14,100
--------- --------- ---------
Net income 96,467 73,136 42,344
Income allocated to Preferred Units (18,975) (18,975) (18,975)
Preferred Unit redemption/conversion charge (20,598) - -
--------- --------- ---------
Income allocated to common partnership unitholders $ 56,894 $ 54,161 $ 23,369
========= ========= =========
Basic earnings per Common Partnership Unit
Continuing operations $ 1.12 $ 0.98 $ 0.21
Discontinued operations 0.31 0.43 0.37
--------- --------- ---------
Total $ 1.43 $ 1.41 $ 0.58
========= ========= =========
Diluted earnings per Common Partnership Unit:
Continuing operations $ 1.12 $ 0.97 $ 0.21
Discontinued operations 0.31 0.43 0.37
--------- --------- ---------
Total $ 1.43 $ 1.40 $ 0.58
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
F-24
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
YEAR ENDED DECEMBER 31,
--------------------------------------
2003 2002 2001
--------- -------- --------
Net Income $ 96,467 $ 73,136 $ 42,344
Other comprehensive income:
Cumulative effect of adopting SFAS No. 133 - - (1,300)
Unrealized gain (loss) on derivative financial instruments (1,117) (7,954) (6,620)
Reclassification of unrealized (gains) losses on derivative financial
instruments to operations 5,311 5,406 3,249
Unrealized gain (loss) on available-for-sale securities 50 733 1,815
--------- -------- --------
Total other comprehensive income 4,244 (1,815) (2,856)
--------- -------- --------
Total Comprehensive Income $ 100,711 $ 71,321 $ 39,488
========= ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
F-25
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
(IN THOUSANDS, EXCEPT UNITS)
SERIES A PREFERRED SERIES C PREFERRED SERIES D PREFERRED
MIRROR UNITS MIRROR UNITS MIRROR UNITS
-------------------- ------------------------- -----------------------
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
------- -------- ---------- -------- --------- --------
BALANCE, JANUARY 1, 2001 750,000 $ 37,500 4,375,000 $ 95,083 - $ -
Net income - - - - - -
Net income allocable to redeemable partnership
units - - - - - -
Other comprehensive income - - - - - -
Vesting of restricted units - - - - - -
Repurchase of general partnership units - - - - - -
Employee stock loans used to purchase stock of
Brandywine Realty Trust - - - - - -
Repayment of employee stock loans - - - - - -
Accretion of preferred unit discount - - - 1,476 - -
Exercise of warrants/options to purchase general
partnership units - - - - - -
Adjustment of redeemable partnership units to
liquidation value at period end - - - - - -
Distributions to Preferred Mirror Units - - - - - -
Distributions to Preferred Units - - - - - -
Distributions to general partnership unit holder - - - - - -
------- -------- ---------- -------- --------- --------
BALANCE, DECEMBER 31, 2001 750,000 37,500 4,375,000 96,559 - -
Net income - - - - - -
Net income allocable to redeemable partnership
units - - - - - -
Other comprehensive income - - - - - -
Vesting of restricted units - - - - - -
Repurchase of general partnership units - - - - - -
Repayment of employee stock loans - - - - - -
Accretion of preferred unit discount - - - 1,476 - -
Amortization of stock options - - - - - -
Exercise of warrants/options to purchase general
partnership units - - - - - -
Adjustment of redeemable partnership units to
liquidation value at period end - - - - - -
Distributions to Preferred Mirror Units - - - - - -
Distributions to Preferred Units - - - - - -
Distributions to general partnership unit holder - - - - - -
------- -------- ---------- -------- --------- --------
BALANCE, DECEMBER 31, 2002 750,000 37,500 4,375,000 98,035 - -
Net income - - - - - -
Net income allocable to redeemable partnership
units - - - - - -
Other comprehensive income: - - - - - -
Vesting of restricted units - - - - - -
Issuance of Series D Mirror Preferred Units - - - - 2,000,000 47,912
Redemption of Series C Mirror Preferred units - - (3,281,250) (74,491) - -
Conversion of Series C Mirror Preferred units
to common shares - - (1,093,750) (25,020) - -
Issuance of general partnership units - - - - - -
Conversion of redeemable partnership units to
common shares - - - - - -
Repayment of employee stock loans - - - - - -
Accretion of preferred unit discount - - - 1,476 - -
Amortization of stock options - - - - - -
Adjustment of redeemable partnership units to
liquidation value at period end - - - - - -
Distributions to Preferred Mirror Units - - - - - -
Distributions to Preferred Units - - - - - -
Distributions to general partnership unit holder - - - - - -
------- -------- ---------- -------- --------- --------
BALANCE, DECEMBER 31, 2003 750,000 $ 37,500 - $ - 2,000,000 $ 47,912
======= ======== ========== ======== ========= ========
ACCUMULATED
GENERAL PARTNER CAPITAL OTHER TOTAL
---------------------------- COMPREHENSIVE PARTNER'S
UNITS AMOUNT INCOME EQUITY
---------- --------- ------------- ---------
BALANCE, JANUARY 1, 2001 35,681,314 $ 624,179 $ (1,731) $ 755,031
Net income - 42,344 - 42,344
Net income allocable to redeemable partnership
units - (1,553) - (1,553)
Other comprehensive income - - (2,856) (2,856)
Vesting of restricted units 175,411 3,985 - 3,985
Repurchase of general partnership units (373,713) (7,294) - (7,294)
Employee stock loans used to purchase stock of
Brandywine Realty Trust 71,276 - - -
Repayment of employee stock loans - 2,524 - 2,524
Accretion of preferred unit discount - (1,476) - -
Exercise of warrants/options to purchase general
partnership units 86,647 (524) - (524)
Adjustment of redeemable partnership units to
liquidation value at period end - (2,918) - (2,918)
Distributions to Preferred Mirror Units - (11,906) - (11,906)
Distributions to Preferred Units - (7,069) - (7,069)
Distributions to general partnership unit holder - (61,662) - (61,662)
---------- --------- -------- ---------
BALANCE, DECEMBER 31, 2001 35,640,935 578,630 (4,587) 708,102
Net income - 73,136 - 73,136
Net income allocable to redeemable partnership
units - (3,083) - (3,083)
Other comprehensive income - - (1,815) (1,815)
Vesting of restricted units 76,454 1,896 - 1,896
Repurchase of general partnership units (491,074) (11,053) - (11,053)
Repayment of employee stock loans - 1,658 - 1,658
Accretion of preferred unit discount - (1,476) - -
Amortization of stock options - 43 - 43
Exercise of warrants/options to purchase general
partnership units - (578) - (578)
Adjustment of redeemable partnership units to
liquidation value at period end - (2,431) - (2,431)
Distributions to Preferred Mirror Units - (11,906) - (11,906)
Distributions to Preferred Units - (7,069) - (7,069)
Distributions to general partnership unit holder - (62,942) - (62,942)
---------- --------- -------- ---------
BALANCE, DECEMBER 31, 2002 35,226,315 554,825 (6,402) 683,958
Net income - 96,467 96,467
Net income allocable to redeemable partnership
units - (3,589) - (3,589)
Other comprehensive income: - - 4,244 4,244
Vesting of restricted units 82,912 1,768 - 1,768
Issuance of Series D Mirror Preferred Units - - - 47,912
Redemption of Series C Mirror Preferred units - (16,959) - (91,450)
Conversion of Series C Mirror Preferred units
to common shares 1,093,750 25,020 - -
Issuance of general partnership units 4,587,500 110,982 - 110,982
Conversion of redeemable partnership units to
common shares 50,233 1,206 - 1,206
Repayment of employee stock loans - 2,509 - 2,509
Accretion of preferred unit discount - (1,476) - -
Amortization of stock options - 104 - 104
Adjustment of redeemable partnership units to
liquidation value at period end - (8,216) - (8,216)
Distributions to Preferred Mirror Units - (11,906) - (11,906)
Distributions to Preferred Units - (7,069) - (7,069)
Distributions to general partnership unit holder - (66,633) - (66,633)
---------- --------- -------- ---------
BALANCE, DECEMBER 31, 2003 41,040,710 $ 677,033 $ (2,158) $ 760,287
========== ========= ======== =========
The accompanying notes are an integral part of these consolidated
financial statements.
F-26
BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------------------------
2003 2002 2001
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 96,467 $ 73,136 $ 42,344
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 54,353 52,944 73,031
Amortization:
Deferred financing costs 2,304 1,795 3,790
Deferred leasing costs 7,032 5,820 5,158
Deferred compensation costs 2,869 3,182 3,711
Straight-line rental income (5,917) (5,930) (6,206)
Provision for doubtful accounts 189 894 2,867
Net gain on sales of interests in real estate (30,227) (8,562) (4,524)
Non-recurring charge - - 6,600
Impairment loss on assets held-for-sale - 665 -
Changes in assets and liabilities:
Accounts receivable (1,462) 2,582 (212)
Other assets (4,232) 11,029 17,464
Accounts payable and accrued expenses 1,911 (6,040) 4,367
Tenant security deposits and deferred rents (2,432) (521) 5,058
Other liabilities (2,062) (2,158) (1,332)
-------- -------- --------
Net cash from operating activities 118,793 128,836 152,116
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties (67,490) (25,146) (40,413)
Sales of properties, net 87,461 78,019 31,335
Capital expenditures (50,885) (38,787) (107,405)
Investment in real estate ventures (521) (446) (2,495)
Increase in escrowed cash 1,930 2,553 (1,016)
Cash distributions from real estate ventures in excess of income 3,258 1,969 5,492
Leasing costs (7,821) (13,124) (9,234)
-------- -------- --------
Net cash from investing activities (34,068) 5,038 (123,736)
CASH FLOWS FROM FINANCING ACTIVITES:
Proceeds from notes payable, Credit Facility 220,000 15,000 91,000
Repayment of notes payable, Credit Facility (222,000) (102,325) (35,000)
Proceeds from Term Loan - 100,000 -
Proceeds from mortgage notes payable - 20,186 135,165
Repayment of mortgage notes payable (82,131) (48,646) (127,876)
Debt financing costs (112) (658) (5,557)
Repayments on employee stock loans 2,509 1,658 2,524
Proceeds from common partnership unit issuances, net 110,982 - -
Proceeds from preferred unit issuances, net 48,125 - -
Redemption of Preferred Units (91,422) - -
Repurchases of common partnership units - (20,165) (8,019)
Distributions paid to preferred unit holders (21,271) (18,975) (18,975)
Distributions to common partnership unit holders (67,654) (66,607) (64,223)
-------- -------- --------
Net cash from financing activities (102,974) (120,532) (30,961)
-------- -------- --------
(Decrease) increase in cash and cash equivalents (18,249) 13,342 (2,581)
Cash and cash equivalents at beginning of year 26,801 13,459 16,040
-------- -------- --------
Cash and cash equivalents at end of year $ 8,552 $ 26,801 $ 13,459
======== ======== ========
Supplemental disclosure:
Cash paid for interest, net of capitalized interest $ 52,645 $ 61,814 $ 74,736
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
F-27
BRANDYWINE OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
1. ORGANIZATION AND NATURE OF OPERATIONS
Brandywine Operating Partnership, L.P. (the "Partnership") is the entity through
which Brandywine Realty Trust, a Maryland real estate investment trust (the
"Company"), a self-administered and self-managed real estate investment trust
("REIT"), conducts its business and owns its assets. The Partnership's
activities include acquiring, developing, redeveloping, leasing and managing
office and industrial properties. The Company's Common Shares are publicly
traded on the NYSE under the ticker symbol BDN.
The Company's ownership interests in the Partnership consists of both general
partner and limited partner units (collectively "Common Partnership Units"). The
Partnership issued these Units to the Company in exchange for contributions of
the Partnership of the net proceeds from Brandywine Realty Trust's issuance of
its shares of beneficial interest or in connection with awards of shares of
beneficial interest by Brandywine Realty Trust to employees and trustees. The
number of Units owned by Brandywine Realty Trust, and the entitlements of these
Units to receive distributions and payments in liquidation, mirror the
outstanding shares of beneficial interest of Brandywine Realty Trust. As of
December 31, 2003, Brandywine Realty Trust owned 95.8% of the Partnerships
outstanding units, excluding any preferred mirror units. The remaining 4.2% is
owned by limited partners. Pursuant to our Partnership Agreement, we reimburse
Brandywine Realty Trust for all expenses incurred on behalf of its operations
and its employees. The Partnership owns a 95% interest in Brandywine Realty
Services Corporation (the "Management Company"), a taxable REIT subsidiary,
which performs management and leasing services for 41 properties owned by
third-parties.
As of December 31, 2003, the Partnership owned 208 office properties, 25
industrial facilities and one mixed-use property (collectively, the
"Properties") that contained an aggregate of approximately 15.7 million net
rentable square feet. The Properties are located in the office and industrial
markets in and surrounding Philadelphia, Pennsylvania, New Jersey and Richmond,
Virginia. As of December 31, 2003, the Partnership also held economic interests
in ten unconsolidated real estate ventures (the "Real Estate Ventures") formed
with third parties to develop or own commercial properties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include all accounts of the
Partnership, its majority-owned and/or controlled subsidiaries, which includes
the Management Company (consolidated subsequent to January 1, 2001, see below).
All intercompany accounts and transactions have been eliminated in
consolidation.
Management Company
The Management Company, a taxable REIT subsidiary, provides management, leasing,
construction, development, redevelopment and other real estate related services
for the Partnership's properties and for third parties. Prior to December 31,
2000, the Partnership owned 100% of the Management Company's non-voting
preferred stock and 5% of its voting common stock and accounted for its
investment using the equity method. Effective January 1, 2001, the Partnership
converted its non-voting interest in the Management Company to a voting
interest. As a result, the Partnership owns 95% of the Management Company's
equity, has voting control and, therefore, has consolidated the Management
Company since January 1, 2001.
F-28
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Management makes significant estimates regarding revenue, impairment of
long-lived assets, allowance for doubtful accounts and deferred costs.
Operating Properties
Operating properties are carried at historical cost less accumulated
depreciation and impairment losses. The cost of operating properties reflects
their purchase price or development cost. Costs incurred for the acquisition and
renovation of an operating property are capitalized to the Partnership's
investment in that property. Ordinary repairs and maintenance are expensed as
incurred; major replacements and betterments, which improve or extend the life
of the asset, are capitalized and depreciated over their estimated useful lives.
Fully-depreciated assets are removed from the accounts.
Purchase Price Allocation
The Partnership allocates the purchase price of properties to net tangible and
identified intangible assets acquired based on fair values. Above-market and
below-market in-place lease values for acquired properties are recorded based on
the present value (using an interest rate which reflects the risks associated
with the leases acquired) of the difference between (i) the contractual amounts
to be paid pursuant to the in-place leases and (ii) the Partnership's estimate
of the fair market lease rates for the corresponding in-place leases, measured
over a period equal to the remaining non-cancellable term of the lease.
Capitalized above-market lease values are amortized as a reduction of rental
income over the remaining non-cancellable terms of the respective leases.
Capitalized below-market lease values amortized as an increase of rental income
over the remaining non-cancellable terms of the respective leases, including any
fixed-rate renewal periods.
The aggregate value of other intangibles acquired is measured based on the
difference between (i) the property valued with in-place leases adjusted to
market rental rates and (ii) the property valued as if it was vacant. The
Partnership estimates the cost to execute leases with terms similar to the
remaining lease terms of the in-place leases, include leasing commissions, legal
and other related expenses. This intangible asset is amortized to expense over
the remaining term of the respective leases. Company estimates of value are made
using methods similar to those used by independent appraisers. Factors
considered by the Partnership in their analysis include an estimate of the
carrying costs during the expected lease-up periods considering current market
conditions and costs to execute similar leases. The Partnership also considers
information obtained about each property as a result of its pre-acquisition due
diligence, marketing and leasing activities in estimating the fair value of the
tangible and intangible assets acquired. In estimating carrying costs, the
Partnership includes real estate taxes, insurance and other operating expenses
and estimates of lost rentals at market rates during the expected lease-up
periods, which primarily range from three to twelve months.
The total amount of these other intangible assets is further allocated to tenant
relationships and in-place leases based on the Partnership's evaluation of the
specific characteristics of each tenant's lease and the Partnership's overall
relationship with the respective tenant. Characteristics considered by the
Partnership in allocating value to its tenant relationships include the nature
and extent of the Partnership's business relationship with the tenant, growth
prospects for developing new business with the tenant, the tenant's credit
quality and expectations of lease renewals, among other factors. The value of
tenant relationship intangibles is amortized over the remaining initial lease
term and renewals, but in no event longer than the remaining depreciable life of
the building. The value of in-place leases is amortized over the remaining
non-cancellable term of the respective leases and any fixed-rate renewal
periods.
In the event that a tenant terminates its lease, the unamortized portion of
each intangible, including market rate adjustments, in-place lease values and
tenant relationship values, would be charged to expense.
F-29
As of December 31, 2003 and 2002, intangible assets and acquired lease
liabilities consist of the following:
As of December 31,
-----------------------
2003 2002
------- -------
(amounts in thousands)
Intangible assets (included in Other Assets and Other Liabilities):
Acquired lease asset, net of accumulated amortization of $345 and $99, respectively $ 1,866 $ 607
Value of In-Place leases, net of accumulated amortization of $564 and $256, respectively 3,533 959
Value of tenant relationships, net of accumulated amortization of $84 in 2003 2,033 -
------- -------
Net intangible assets $ 7,432 $ 1,566
======= =======
Acquired lease liability, net of accumulated amortization of $869 and $558, respectively $ 1,305 $ 1,547
======= =======
Depreciation and Amortization
The costs of buildings and improvements are depreciated using the straight-line
method based on the following useful lives: buildings and improvements (five to
40 years) and tenant improvements (the shorter of the lease term or the life of
the asset).
Effective January 1, 2002, the Partnership changed the estimated useful lives of
various buildings from 25 to 40 years. This change resulted in an increase of
net income of $19.0 million or $.53 per share for the year ended December 31,
2002. Management determined the longer period to be a better estimate of the
useful lives of the buildings.
Construction in Progress
Project costs directly associated with the development and construction of a
real estate project are capitalized as construction in progress. In addition,
interest, real estate taxes and general and administrative expenses that are
directly associated with the Partnership's development activities are
capitalized until completion of the building shell. Once the building shell of a
real estate project is completed, the costs capitalized to construction in
progress are transferred to land and buildings. Direct construction costs
totaling $1.7 million in 2003, $2.2 million in 2002 and $2.7 million in 2001 and
interest totaling $1.5 million in 2003, $2.9 million in 2002 and $5.2 million in
2001 were capitalized related to development of certain Properties and land
holdings.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standard No. 144 ("SFAS 144"), Accounting for
the Impairment or Disposal of Long-Lived Assets, provides a single accounting
model for long-lived assets as held-for-sale, broadens the scope of businesses
to be disposed of that qualify for reporting as discontinued operations and
changes the timing of recognizing losses on such operations. The Partnership
adopted SFAS 144 on January 1, 2002.
In accordance with SFAS 144, long-lived assets, such as real estate investments
and purchased intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Assets to be disposed of are
separately presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and are no longer depreciated.
The other assets and liabilities related to assets classified as held-for-sale
are presented separately in the consolidated balance sheet. For the year ended
December 31, 2002, the Partnership recorded an impairment charge associated with
an asset held-for-sale (See Note 9). The Partnership recorded no impairment
losses for the years ended December 31, 2003 and 2001.
F-30
Cash and Cash Equivalents
Cash and cash equivalents are highly-liquid investments with original maturities
of three months or less. The Partnership maintains cash equivalents in financial
institutions in excess of insured limits, but believes this risk is mitigated by
only investing in or through major financial institutions.
Escrowed Cash
Restricted cash consists of cash held as collateral to provide credit
enhancement for the Partnership's mortgage debt, cash for property taxes,
capital expenditures and tenant improvements.
Accounts Receivable
Leases with tenants are accounted for as operating leases. Minimum annual
rentals under tenant leases are recognized on a straight-line basis over the
term of the related lease. Accrued rent receivable represents the amount that
straight-line rental income exceeds rents currently due under the lease
agreements. Included in current tenant receivables are tenant reimbursements
which are comprised of amounts recoverable from tenants for common area
maintenance expenses and certain other recoverable expenses that are recognized
as revenue in the period in which the related expenses are incurred. As of
December 31, 2003 and 2002, no tenant represents more than 10% of accounts
receivable.
Tenant receivables and accrued rent receivables are carried net of the
allowances for doubtful accounts of $1.5 million and $2.5 million in 2003 and
$2.3 million and $2.3 million in 2002. Management's determination of the
adequacy of these allowances is based primarily upon evaluations of historical
loss experience, individual receivables and current economic conditions.
Marketable Securities
The Partnership accounts for its investments in equity securities according to
the provisions of SFAS 115, Accounting for Certain Investments in Debt and
Equity Securities, which requires securities classified as "available-for-sale"
to be stated at fair value. Adjustments to fair value of available-for-sale
securities are recorded as a component of other comprehensive income (loss). A
decline in the market value of equity securities below cost that is deemed to be
other than temporary results in a reduction in the carrying amount to fair
value. The impairment is charged to earnings and a new cost basis for the
security is established.
As of December 31, 2003, the Partnership had no material exposure to market risk
(including foreign currency exchange risk, commodity price risk or equity price
risk).
Investments in Unconsolidated Real Estate Ventures
The Partnership accounts for its investments in unconsolidated Real Estate
Ventures under the equity method of accounting as the Partnership exercises
significant influence, but does not control these entities under the provisions
of the entities' governing agreements. These investments are recorded initially
at cost, as Investments in Real Estate Ventures, and subsequently adjusted for
equity in earnings and cash contributions and distributions.
On a periodic basis, management assesses whether there are any indicators that
the value of the Partnership's investments in unconsolidated Real Estate
Ventures may be impaired. An investment is impaired only if management's
estimate of the value of the investment is less than the carrying value of the
investment. To the extent impairment has occurred, the loss shall be measured as
the excess of the carrying amount of the investment over the value of the
investment. During the year ended December 31, 2003, the Partnership recorded an
impairment charge associated with an investment in a non-operating Real Estate
Venture (see Note 5).
Deferred Costs
Costs incurred in connection with property leasing are capitalized as deferred
leasing costs. Deferred leasing costs consist primarily of leasing commissions
that are amortized on the straight-line method over the life of the respective
lease which generally ranges from one to 15 years. Management re-evaluates the
remaining useful lives of leasing costs as economic and market conditions
change. Internal direct leasing costs deferred totaled $3.9 million in 2003,
$3.6 million in 2002 and $3.1 million in 2001.
F-31
Costs incurred in connection with debt financing are capitalized as deferred
financing costs and charged to interest expense over the terms of the related
debt agreements. Deferred financing costs consist primarily of loan fees which
are amortized over the related loan term. Total accumulated amortization related
to these costs was $5.0 million and $3.5 million as of December 31, 2003 and
2002.
Other Assets
As of December 31, 2003, other assets included a direct financing lease of $16.1
million, intangible assets related to property acquisitions of $6.2 million,
prepaid real estate taxes of $5.4 million, deposits on properties to be
purchased in 2004 totaling $5.1 million, cash surrender value of life insurance
of $3.7 million, furniture, fixtures and equipment of $2.1 million and $6.5
million of other assets. As of December 31, 2002, other assets included a direct
financing lease of $16.0 million, prepaid real estate taxes of $5.6 million,
promissory notes of $4.0 million, furniture, fixtures and equipment of $2.1
million and $6.8 million of other assets.
Fair Value of Financial Instruments
Carrying amounts reported in the balance sheet for cash, accounts receivable,
other assets, accounts payable and accrued expenses, and borrowings under the
Credit Facility approximate fair value. Accordingly, these items have been
excluded from the fair value disclosures.
Revenue Recognition
Rental revenue is recognized on the straight-line basis from the later of the
date of the origination of the lease or the date of acquisition of the facility
subject to existing leases, which averages minimum rents over the terms of the
leases. The cumulative difference between lease revenue recognized under this
method and contractual lease payment terms is recorded as "accrued rent
receivable" on the accompanying balance sheets. The straight-line rent
adjustment increased revenue by approximately $5.9 million in 2003, $5.9 million
in 2002 and $6.2 million in 2001. The leases also typically provide for tenant
reimbursement of common area maintenance and other operating expenses. Deferred
rental revenue represents rental revenue received from tenants prior to their
due dates.
No tenant represented greater than 10% of the Partnership's rental revenue in
2003, 2002 or 2001.
Income Taxes
No federal or state income taxes are payable by the Partnership, and
accordingly, no provision for taxes has been made in the accompanying condensed
consolidated financial statements. The partners are to include their respective
share of the Partnership's profits or losses in their individual tax returns.
The Partnership's tax returns and the amount of allocable Partnership profits
and losses are subject to examination by federal and state taxing authorities.
If such examination results in changes to Partnership profits or losses, then
the tax liability of the partners would be changed accordingly.
The Partnership owns a REIT that has elected to be taxed as a real estate
investment trust under Sections 856-860 of the Internal Revenue Code. In
management's opinion, the requirements to maintain this election are being met.
Our REIT subsidiary is subject to a 4% Federal excise tax, if sufficient taxable
income is not distributed within prescribed time limits. The excise tax equals
4% of the annual amount, if any, by which the sum of (a) 85% of the subsidiary's
ordinary income and (b) 95% of the subsidiary's net capital gain exceeds cash
distributions and certain taxes paid by the subsidiary.
The aggregate cost basis, net of depreciation, for federal income tax purposes
of the Partnership's Properties was $1.4 billion and $1.3 billion as of December
31, 2003 and 2002, respectively.
F-32
The Management Company is subject to federal and state income taxes. There was
no provision required for income taxes in 2003, 2002, or 2001.
Earnings Per Common Partnership Unit
Basic earnings per Common Partnership Unit is calculated by dividing net income
available to Common Parnternship Unitholders by the weighted-average number of
common partnership units outstanding during the period. Diluted earnings per
Common Partnership Unit includes the effect of the common partnership unit
equivalents outstanding during the period.
Equity-Based Compensation Plans
The Partnership Agreement provides for the issuance by the Partnership to its
general partner, the Company, of a number of Common Partnership Units equal to
the number of Common Shares issued by the Company, the net proceeds of which are
contributed to the Partnership. When the Company issues Common Shares under its
equity-based compensation plan, the Partnership issues to the Company an equal
number of Common Partnership Units.
In December 2002, the Financial Accounting Standards Board issued SFAS 148
("SFAS 148"), Accounting for Stock-Based Compensation - Transition and
Disclosure. SFAS 148 amends SFAS 123 ("SFAS 123"), Accounting for Stock-Based
Compensation, to provide alternative methods of transition for an entity that
voluntarily adopts the fair value recognition method of recording stock option
expense. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB
Opinion No. 28, Interim Financial Reporting, to require disclosure in the
summary of significant accounting policies of the effects of an entity's
accounting policy with respect to stock options on reported net income and
earnings per share in annual and interim financial statements. The Partnership
adopted SFAS 148 on a prospective basis for all equity based awards issued by
the Company subsequent to January 1, 2002.
Prior to 2002, the Partnership accounted for equity based awards issued by the
Company under the recognition and measurement provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees and Related Interpretations. The
following table illustrates the effect on net income and earnings per Common
Partnership Unit if the fair value based method had been applied to all
outstanding and unvested awards in each period (in thousands, except per unit
amounts):
Year ended December 31,
--------------------------------------------
2003 2002 2001
-------- -------- --------
Net income available to Common Partnership Unitholders, as reported $ 56,894 $ 54,161 $ 23,369
Add: Stock based compensation expense included in reported net income 2,740 2,553 2,828
Deduct: Total stock based compensation expense determined under
fair value recognition method for all awards (3,191) (3,231) (3,506)
-------- -------- --------
Pro forma net income available to Common Partnership Unitholders $ 56,443 $ 53,483 $ 22,691
======== ======== ========
Earnings per Common Partnership Unit
Basic - as reported $ 1.43 $ 1.41 $ 0.58
======== ======== ========
Basic - pro forma $ 1.41 $ 1.39 $ 0.56
======== ======== ========
Diluted - as reported $ 1.43 $ 1.40 $ 0.58
======== ======== ========
Diluted - pro forma $ 1.41 $ 1.38 $ 0.56
======== ======== ========
Comprehensive Income
Comprehensive income or loss is recorded in accordance with the provisions of
SFAS 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS 130 establishes
standards for reporting comprehensive income and its components in financial
statements. Comprehensive income includes unrealized gains and losses on
available-for-sale securities and the effective portions of changes in the fair
value of derivatives.
F-33
Accounting for Derivative Instruments and Hedging Activities
The Partnership accounts for its derivative instruments and hedging activities
under SFAS No. 133 ("SFAS 133"), Accounting for Derivative Instruments and
Hedging Activities, and its corresponding amendments under SFAS No. 138,
Accounting for Certain Derivative Instruments and Hedging Activities - An
Amendment of SFAS 133. SFAS 133 requires the Partnership to measure every
derivative instrument (including certain derivative instruments embedded in
other contracts) at fair value and record them in the balance sheet as either an
asset or liability. 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 year ended December 31, 2003, the Partnership was not party to any
derivative contract designated as a fair value hedge.
The Partnership actively manages its ratio of fixed-to-floating rate debt. To
manage its fixed and floating rate debt in a cost-effective manner, the
Partnership, from time to time, enters into interest rate swap agreements as
cash flow hedges, under which it agrees to exchange various combinations of
fixed and/or variable interest rates based on agreed upon notional amounts. See
Note 7.
New Pronouncements
As of January 1, 2003, the Partnership adopted SFAS No. 145 ("SFAS 145"),
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13, and Technical Corrections. In adopting SFAS 145, the Partnership has
reclassified an extraordinary item recorded during 2001 relating to the
write-off of $1.1 million of unamortized deferred financing costs as interest
expense.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities," an interpretation of ARB 51. FIN
46 provides guidance on identifying entities for which control is achieved
through means other than through voting rights (a "variable interest entity" or
"VIE"), and how to determine when and which business enterprise should
consolidate a VIE. This new models for consolidation applies to an entity which
either (1) the equity investors (if any) do not have a controlling financial
interest or (2) the equity investment at risk is insufficient to finance that
entity's activities without receiving additional subordinated financial interest
from other parties. The provisions of this interpretation apply to the first
fiscal year or interim period ending after December 15, 2003.
The Partnership was originally required to implement the consolidation guidance
established in Interpretation No. 46 ("FIN 46"), Consolidation of Variable
Interest Entities, immediately for new or modified transactions and by July 1,
2003 for the Variable Interest Entities ("VIEs") with which the Partnership
became involved prior to February 1, 2003. However, in October 2003 and December
2003, the FASB deferred application of FIN 46 twice from July 1, 2003 to
December 31, 2003, and then to March 31, 2004 for VIEs entered into prior to
February 1, 2003. The Partnership is in process of determining whether it will
need to consolidate previously unconsolidated VIEs or to deconsolidate
previously consolidated VIEs. Based upon its relationships with such entities,
the Partnership believes that the implementation of the consolidation guidance
will not have a material effect on the Partnership's consolidated financial
position.
In May 2003, the FASB issued SFAS No. 150 ("SFAS 150"), Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. SFAS
150 generally applies to instruments that are mandatorily redeemable, that
represent obligations that will be settled with a variable number of the
Partnership's shares, or that represent an obligation to purchase a fixed number
of the Partnership's shares. For instruments within its scope, the statement
requires classification as a liability with initial measurement at fair value.
Subsequent measurement depends upon the certainty of the terms of the settlement
(amount, timing) and whether the obligation will be settled by a transfer of
assets or by issuance of a variable number of equity shares. SFAS 150 is
applicable now for instruments issued since SFAS 150 was issued, and as of July
1, 2003, for instruments that predate SFAS 150's issuance. On November 7, 2003,
the FASB issued Financial Statement Position 150-3 which among other things
deferred indefinitely certain portions of SFAS 150 affecting the accounting for
minority interests representing non-controlling interests in finite life
entities. The adoption of SFAS 150, as modified, did not have a significant
effect at adoption nor is it expected to have a significant prospective impact
on the Partnership's financial position, results of operations or comprehensive
income.
F-34
Emerging Issue Task Force 00-21 ("EITF 00-21"), Accounting for Revenue
Arrangements with Multiple Deliverables, issued during the fourth quarter of
2003, provides guidance on revenue recognition for revenues derived from a
single contract that contains multiple products or services. EITF 00-21 also
provides additional requirements to determine when these revenues may be
recorded separately for accounting purposes. EITF 00-21 did not impact our
consolidated financial statements.
In December 2003, the SEC issued Staff Accounting Bulletin No. 104 ("SAB 104"),
Revenue Recognition, which supercedes SAB 101, Revenue Recognition in Financial
Statements. SAB 104's primary purpose is to rescind the accounting guidance
contained in SAB 101 related to multiple element revenue arrangements,
superseded as a result of the issuance of EITF 00-21. SAB 104 did not impact our
consolidated financial statements.
3. REAL ESTATE INVESTMENTS
As of December 31, 2003 and 2002, the carrying value of the Partnership's
Properties is as follows:
December 31,
----------------------------------
2003 2002
----------- -----------
(amounts in thousands)
Land $ 342,424 $ 353,111
Building and improvements 1,426,925 1,442,819
Tenant improvements 100,395 94,079
----------- -----------
$ 1,869,744 $ 1,890,009
=========== ===========
4. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS
The Partnership's acquisitions were accounted for by the purchase method. The
results of each acquired property are included in the Partnership's results of
operations from their respective purchase dates.
2003
During 2003, the Partnership sold eight office properties containing an
aggregate of approximately 343,000 net rentable square feet, two industrial
properties containing an aggregate of approximately 131,000 net rentable square
feet and four parcels of land containing an aggregate of approximately 24.1
acres for an aggregate of $45.6 million. In December 2003, the Partnership sold
two office properties containing an aggregate of approximately 633,000 net
rentable square feet for an aggregate of $112.8 million, of which $52.9 million
of proceeds were used to pay off existing mortgage notes payable secured by the
two properties. The Partnership retained a 20% interest in the venture that
purchased the properties. The Partnership recognized a gain on the partial sale
of approximately $18.5 million for the portion sold and deferred the gain on the
piece retained. The gain on sale and historical results for these properties
have not been reflected as discontinued operations because of the Partnership's
continuing involvement. The Partnership also purchased five office properties
containing approximately 360,000 net rentable square feet and one parcel of land
containing approximately 10.0 acres for an aggregate of $67.8 million.
F-35
2002
During 2002, the Partnership sold 23 office properties containing an aggregate
of 1.4 million net rentable square feet, 20 industrial properties containing an
aggregate of .9 million net rentable square feet and two parcels of land
containing an aggregate of 12.8 acres for an aggregate of $190.8 million,
realizing a net gain of $8.6 million before minority interest. The Partnership
also purchased seven office properties containing 617,000 net rentable square
feet and one parcel of land containing 9.0 acres for an aggregate of $99.1
million.
2001
During 2001, the Partnership sold three office and eight industrial properties,
containing 440,000 net rentable square feet, and four parcels of land,
containing 15.8 acres, for $31.3 million, realizing a net gain of $4.5 million.
Seven of the properties were sold for $21.6 million realizing an aggregate gain
of $4.3 million, four of the properties were sold for $7.1 million, realizing an
aggregate loss of $.7 million and four land parcels were sold for $2.6 million
realizing an aggregate gain of $.9 million. The Partnership also acquired two
office properties, containing 146,000 net rentable square feet, and three
parcels of land, containing 36.0 acres, for $31.5 million, of which $4.2 million
was satisfied with an exchange of property.
In addition to the sales and acquisitions above, the Partnership consummated an
exchange of properties with Prentiss Properties Acquisition Partners, L.P.
("Prentiss") during 2001. The Partnership acquired from Prentiss 30 properties
(29 office and 1 industrial) containing 1.6 million net rentable square feet and
6.9 acres of developable land for total consideration of $215.2 million. The
Partnership 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 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
Partnership 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 Partnership purchased a 103,000 square foot building then under
construction for $4.2 million and six acres of related developable land for $5.7
million.
5. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
As of December 31, 2003, the Partnership had an aggregate investment of
approximately $15.9 million in ten Real Estate Ventures (net of returns of
investment received by the Partnership). The Partnership 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 ten office buildings that contain an aggregate of
approximately 1.8 million net rentable square feet and one Real Estate Venture
developed a hotel property that contains 137 rooms.
The Partnership accounts for its non-controlling interests in the Real Estate
Ventures using the equity method. Non-controlling ownership interests generally
range from 6% to 65%. Ownership percentages represent the Partnership's
entitlement to residual distributions after payments of priority returns. The
Partnership's investments, initially recorded at cost, are subsequently adjusted
for the Partnership's net equity in the ventures' income or loss and cash
contributions and distributions.
F-36
The Partnership's investment in Real Estate Ventures as of December 31, 2003 is
as follows (in thousands):
Company's Share
Real Estate of Real Estate Current
Ownership Carrying Venture Venture Interest Debt
Percentage (1) Amount Debt at 100% Income (Loss) Rate Maturity
------------- -------- ------------ --------------- -------- ---------
Two Tower Bridge Associates 35% $ 2,409 $ 10,501 $ 290 6.82% May-08
Four Tower Bridge Associates 65% 2,454 11,000 (21) 6.62% Feb-11
Five Tower Bridge Associates 15% - 30,600 - 6.77% Feb-09
Six Tower Bridge Associates 65% 113 15,683 (46) 7.79% Aug-12
Eight Tower Bridge Associates 6% 1,147 38,219 (189) 3.34% Feb-05
Tower Bridge Inn Associates 50% 2,291 11,547 (235) 8.50% Apr-07
1000 Chesterbrook Boulevard 50% 3,373 27,860 456 6.88% Nov-11
PJP Building Two, LC 30% 15 5,738 30 6.12% Nov-23
PJP Building Five, LC 25% 238 5,753 94 2.69% Oct-05
Macquarie 20% 3,813 74,500 64 4.62% Jan-09
Florig, LP (2) 30% - - (861) N/A N/A
Invesco Partnership, L.P. (3) 35% - - 470 N/A N/A
-------- --------- ----
$ 15,853 $ 231,401 $ 52
======== ========= ====
(1) Ownership percentage represents the Partnership's entitlement to residual
distributions after payments of priority returns.
(2) During 2003, the Partnership recorded an impairment charge of $861,000
associated with this non-operating real estate venture. This amount
consisted primarily of legal and acquisition costs related to a parcel of
land that ultimately was not acquired.
(3) Company's interest consists solely of a residual profit interest.
The following is a summary of the financial position of the unconsolidated Real
Estate Ventures in which the Partnership had investment interests as of December
31, 2003 and 2002 (in thousands):
December 31,
-----------------------------
2003 2002
------ ------
Net property $ 322,196 $ 193,552
Other assets 29,982 20,163
Liabilities 27,900 3,186
Debt 231,401 149,129
Equity 92,877 61,400
Company's share of equity 15,853 14,842
The following is a summary of results of operations of the unconsolidated Real
Estate Ventures in which the Partnership had interests as of December 31, 2003,
2002 and 2001 (in thousands):
Year ended December 31,
----------------------------------------
2003 2002 2001
------ ------ ------
Revenue $ 29,703 $ 27,219 $ 24,117
Operating expenses 11,576 10,406 8,237
Interest expense, net 9,585 9,212 7,495
Depreciation and amortization 8,085 5,531 3,211
Net (loss) income 457 2,070 5,174
Company's share of income 52 987 2,768
As of December 31, 2003, the aggregate principal payments of non-recourse debt
payable to third-parties is as follows (in thousands):
2004 $ 1,644
2005 45,542
2006 1,823
2007 12,411
2008 and thereafter 169,981
---------
$ 231,401
=========
As of December 31, 2003, the Partnership had guaranteed repayment of
approximately $17.4 million of loans on behalf of the Real Estate Ventures,
including a $16.2 million guaranty that terminated in January 2004. The
Partnership also provides customary environmental indemnities in connection with
construction and permanent financing both for its own account and on behalf of
its Real Estate Ventures.
F-37
6. INDEBTEDNESS
Credit Facility
The Partnership utilizes credit facility borrowings for general business
purposes, including the acquisition of properties and the repayment of other
debt. The Partnership maintains a $500 million unsecured credit facility (the
"Credit Facility") that matures in June 2004. Borrowings under the Credit
Facility bear interest at 30-day LIBOR (LIBOR was 1.12% at December 31, 2003)
plus 1.5% per annum, with the spread over LIBOR subject to reductions from .10%
to .25% or increases of .25% based on the Partnership's leverage. As of December
31, 2003, the Partnership had $305.0 million of borrowings and $10.7 million of
letters of credit outstanding under the Credit Facility, leaving $184.3 million
of unused availability. The weighted-average interest rate on the Partnership's
unsecured credit facilities was 4.60% in 2003, 5.41% in 2002, and 6.48% in 2001.
Unsecured Term Loan
The Partnership also maintains a $100 million term loan. The term loan is
unsecured and matures on July 15, 2005, subject to two extensions of one year
each upon payment 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% per annum (1.12% as of
December 31, 2003), based on the Partnership's leverage ratio. The
weighted-average interest rate on the Partnership's term loan was 3.0% in 2003
and 3.0% in 2002.
Mortgage Notes Payable
As of December 31, 2003, the Partnership had $462.7 million of mortgage notes
payable, secured by 93 of the Properties and certain land holdings. Fixed rate
mortgages, totaling $402.3 million, require payments of principal and/or
interest (or imputed interest) at rates ranging from 7.00% to 9.25% per annum
and mature on dates from November 2004 through July 2027. Variable rate
mortgages, totaling $60.4 million, require payments of principal and/or interest
at rates ranging from 30-day LIBOR plus .76% to 1.60% per annum or 75% of prime
(prime rate was 4.00% at December 31, 2003) and mature on dates from March 2004
through July 2027. The weighted-average interest rate on the Partnership's
mortgages was 7.09% in 2003, 7.27% in 2002, and 7.39% in 2001.
Debt Covenants
The Credit Facility and Term Loan require the maintenance of certain ratios
related to minimum net worth, debt-to-total capitalization and fixed charge
coverage and various non-financial covenants. As of December 31, 2003, the
Partnership was in compliance with all debt covenants. As of December 31, 2003,
the carrying value of the Partnership's debt was below fair market value by
approximately $85.7 million, as determined by using year-end interest rates and
market conditions.
F-38
Principal Payments
The following table outlines the timing of payment requirements related to the
Partnership's indebtedness as of December 31, 2003:
PAYMENTS BY PERIOD (IN THOUSANDS)
----------------------------------------------------------------------------
LESS THAN MORE THAN
TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS
--------- --------- --------- --------- ---------
Mortgage notes payable:
Fixed rate $ 402,321 $ 10,277 $ 24,759 $ 40,259 $ 327,026
Variable rate 24,815 172 407 552 23,684
Construction loans 35,523 35,523 - - -
--------- --------- --------- --------- ---------
462,659 45,972 25,166 40,811 350,710
Revolving credit facility 305,000 305,000 - - -
Unsecured debt 100,000 - 100,000 - -
--------- --------- --------- --------- ---------
$ 867,659 $ 350,972 $ 125,166 $ 40,811 $ 350,710
========= ========= ========= ======== =========
7. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS
Risk Management
In the normal course of its on-going business operations, the Partnership
encounters economic risk. There are three main components of economic risk:
interest rate risk, credit risk and market risk. The Partnership is subject to
interest rate risk on its interest-bearing liabilities. Credit risk is the risk
of inability or unwillingness of tenants to make contractually required
payments. Market risk is the risk of declines in the value of properties due to
changes in rental rates, interest rates or other market factors affecting the
valuation of properties held by the Partnership.
Use of Derivative Financial Instruments
The Partnership's use of derivative instruments is limited to the utilization of
interest rate agreements or other instruments to manage interest rate risk
exposures and not for speculative purposes. The principal objective of such
arrangements is to minimize the risks and/or costs associated with the
Partnership's operating and financial structure, as well as to hedge specific
transactions. The counterparties to these arrangements are major financial
institutions with which the Partnership and its affiliates may also have other
financial relationships. The Partnership is potentially exposed to credit loss
in the event of non-performance by these counterparties. However, because of the
high credit ratings of the counterparties, the Partnership does not anticipate
that any of the counterparties will fail to meet these obligations as they come
due. The Partnership does not hedge credit or property value market risks.
The Partnership formally assesses, both at inception of the hedge and on an
on-going basis, whether each derivative is highly-effective in offsetting
changes in cash flows of the hedged item. If management determines that a
derivative is not highly-effective as a hedge or if a derivative ceases to be a
highly-effective hedge, the Partnership will discontinue hedge accounting
prospectively.
The following table summarizes the terms and fair values of the Partnership's
derivative financial instruments at December 31, 2003 (in thousands).
NOTIONAL FAIR
HEDGE PRODUCT HEDGE TYPE AMOUNT STRIKE MATURITY VALUE (LIABILITY)
- ----------------------------- --------------------- --------------------- ----------------- ------------------ -------------------
Cap Cash flow $ 28,000 8.700% 7/12/2004 $ -
Swap Cash flow 100,000 4.230% 6/29/2004 (1,733)
Swap Cash flow 50,000 4.215% 6/29/2004 (863)
Swap Cash flow 25,000 4.215% 6/29/2004 (431)
--------
$ (3,027)
========
F-39
The Partnership has entered into interest rate swap and rate cap agreements
designated as cash flow hedges that are designed to reduce the impact of
interest rate changes on its variable rate debt. At December 31, 2003, the
Partnership had interest rate swap agreements for notional principal amounts
aggregating $175 million. The swap agreements effectively fix the 30-day LIBOR
interest rate on $100 million of Credit Facility borrowings at 4.230% per annum
and on $75 million of Credit Facility borrowings at 4.215% per annum, in each
case until June 2004. The weighted-average interest rate on borrowings under the
Credit Facility, including the effect of cash flow hedges, was 4.60% in 2003,
5.41% in 2002 and 6.48% in 2001. The interest rate cap agreement effectively
limits the interest rate on a mortgage with a notional value of $28 million at
8.7% per annum until July 2004. The notional amount at December 31, 2003
provides an indication of the extent of the Partnership's involvement in these
instruments at that time, but does not represent exposure to credit, interest
rate or market risks.
As of December 31, 2003, the maximum length of time until which the Partnership
was hedging its exposure to the variability in future cash flows was through
June 2004. There was no gain or loss reclassified from accumulated other
comprehensive loss into earnings during 2003, 2002 and 2001 as a result of the
discontinuance of a cash flow hedge due to the probability of the original
forecasted transaction not occurring.
Over time, the unrealized gains and losses held in Other Comprehensive Income
("OCI") will be reclassified to earnings in the same period(s) in which the
hedged items are recognized in earnings. The current balance held in OCI is
expected to be reclassified to earnings over the lives of the current hedging
instruments, or for realized losses on forecasted debt transactions, over the
related term of the debt obligation, as applicable. The Partnership expects that
$3.0 million of net hedging losses will be reclassified into earnings over the
next twelve months.
Concentration of Credit Risk
Concentrations of credit risk arise when a number of tenants related to the
Partnership's investments or rental operations are engaged in similar business
activities, or are located in the same geographic region, or have similar
economic features that would cause their inability to meet contractual
obligations, including those to the Partnership, to be similarly affected. The
Partnership regularly monitors its tenant base to assess potential
concentrations of credit risk. Management believes the current credit risk
portfolio is reasonably well diversified and does not contain any unusual
concentration of credit risk. No tenant accounted for 10% or more of the
Partnership's rents during 2003, 2002 and 2001. See Note 11 for geographic
segment information.
F-40
8. DISCONTINUED OPERATIONS
For the years ended December 31, 2003, 2002 and 2001, income from discontinued
operations relates to 53 properties containing approximately 2.7 million net
rentable square feet that the Partnership sold between January 1, 2002 and
December 31, 2003 and two properties containing approximately 82,000 net
rentable square feet that the Partnership has designated as "held-for-sale" as
of December 31, 2003. The following table summarizes information for two
properties designated as held-for-sale as of December 31, 2003 and December 31,
2002:
December 31,
---------------------------
2003 2002
------- -------
(amounts in thousands)
Real Estate Investments:
Operating Properties $ 6,143 $ 8,729
Accumulated depreciation (906) (1,235)
------- -------
5,237 7,494
Construction-in-progress - 55
------- -------
5,237 7,549
Accrued rent receivable 65 87
Deferred costs, net 15 2
Other assets - 28
------- -------
$ 5,317 $ 7,666
======= =======
Tenant security deposits and deferred rents $ 52 $ 20
======= =======
The following table summarizes revenue and expense information for the 53
properties sold since January 1, 2002 and the two properties designated as
held-for-sale as of December 31, 2003 (in thousands):
YEAR ENDED DECEMBER 31,
--------------------------------------------
2003 2002 2001
-------- -------- --------
REVENUE:
Rents $ 5,089 $ 14,566 $ 34,631
Tenant reimbursements 781 2,144 5,258
Other 34 663 448
-------- -------- --------
Total revenue 5,904 17,373 40,337
EXPENSES:
Property operating expenses 2,095 4,665 9,939
Real estate taxes 860 2,243 5,333
Depreciation and amortization 793 2,333 10,965
Impairment loss on assets held-for-sale - 665 -
-------- -------- --------
Total operating expenses 3,748 9,906 26,237
Income from discontinued operations before net gain on sale
of interests in real estate and minority interest 2,156 7,467 14,100
Net gain on sales of interest in real estate 9,690 8,562 -
-------- -------- --------
Income from discontinued operations $ 11,846 $ 16,029 $ 14,100
======== ======== ========
In 2002, the Partnership recorded an impairment charge of $665,000 in its
consolidated statements of operations related to one of the assets
held-for-sale.
Discontinued operations have not been segregated in the consolidated statements
of cash flows. Therefore, amounts for certain captions will not agree with
respective data in the Consolidated Statements of Operations.
9. PARTNERS' EQUITY
The Company is the sole general partner of the Partnership and conducts
substantially all its business and owns its assets through the Partnership and
as a result does not have any significant assets, liabilities or operations,
other than its investment in the Partnership's Units, nor does it have any
employees of its own. Pursuant to the Partnership Agreement, the Partnership
reimburses the Company for all expenses incurred on behalf of its operations and
its employees.
F-41
The Partnership issues partnership units to the Company in exchange for the
contribution of the net proceeds of any equity security issuance by the Company.
The number and terms of such partnership units correspond to the number and
terms of the equity security issued by the Company. In addition, the Partnership
may also issue separate classes of partnership interests. Historically, the
Partnership has had the following types of partnership units outstanding (i)
Preferred Partnership Units which have been issued to parties other than the
Company (ii) Preferred Mirror Partnership Units which have been issued to the
Company (ii) Common Partnership Units which include both interest held by the
Company and those held by other limited partners. Each these interests are
described in more detail below.
Preferred Partnership Units
The Partnership issued 1,950,000 Series B Preferred Units for $97.5 million in
1998. The Preferred Units bear a preferred distribution of 7.25% per annum and
have a stated value of $50.00 per share. The Preferred Units are convertible
into Class A Limited Partnership Units at a conversion price of $28.00. As more
fully discussed in the Common Partnership Unit section, the Class A Limited
Partnership units are subject to certain redemption rights. Due to these
redemption rights, the Series B Preferred Partnership Units limited partnership
units have been excluded from partners' equity and reflected at the greater of
their liquidation preference or the Class A Limited Partnership redemption value
as of the end of the periods presented based on the closing market price of
Company's common stock at December 31,2003, 2002 and 2001, which was $26.77,
$21.81 and $21.07 respectively. The Series B Preferred Units were redeemed by
the Partnership at a discount subsequent to December 31, 2003 (See Subsequent
Event Note 19).
Preferred Mirror Partnership Units
In exchange for the proceeds received in such offerings by the Company, the
Partnership has issued to the Company multiple classes of Preferred Mirror
Partnership Units with terms consistent with the preferred securities issued
by the Company.
On September 28, 1998, the Partnership issued 750,000 Series A Preferred Mirror
Units to Brandywine Realty Trust in exchange for its contribution of the net
proceeds of its Series A Preferred Shares. The 750,000 Series A Preferred Mirror
Units outstanding have an aggregate liquidation preference of $37.5 million, or
$50.00 per unit. Cumulative distributions on the Series A Preferred Mirror Units
are payable quarterly at an annualized rate of 7.25% of the liquidation
preference. In connection with, and at the time of the conversion of all or any
Series A Preferred Shares into Common Shares, an equivalent number of Series A
Preferred Mirror Units will be converted into Class A Units. In the event that
any of the Series A Preferred Shares of Brandywine Realty Trust are redeemed,
then an equivalent number of Series A Preferred Mirror Units will be redeemed.
In 1999, the Partnership issued Series C Preferred Mirror Units to the Company
in exchange for the net proceeds of $94.8 million from the Company's Series B
Preferred Share issuance. As part of the issuance, the Company issued 500,000
Common Share warrants to the holder at an exercise price of $24.00 per share. On
December 30, 2003, the Partnership redeemed 3,281,250 Series C Units at $27.50
per share for approximately $90.2 million and converted the remaining 1,093,750
Series C Units into Class A Units. This redemption and conversion occurred
subsequent to the Company's redemption and conversion of an equal number of
their Series B Preferred Shares. The Partnership incurred a charge for purposes
of net income attributed to Common Partnership units of $20.6 million associated
with this redemption and conversion.
On December 30, 2003, the Partnership issued 2,000,000 Series D Preferred Mirror
Units to Brandywine Realty Trust in exchange for its contribution of the
proceeds of its Series C Preferred Shares. The 2,000,000 Series D Preferred
Mirror Units outstanding have an aggregate liquidation preference of $50
million, or $25.00 per unit. Cumulative distributions on the Series D Preferred
Mirror Units are payable quarterly at an annualized rate of 7.50% of the
liquidation preference. In the event that any of the Series C Preferred Shares
of Brandywine Realty Trust are redeemed, which may occur at the option of
Brandywine Realty Trust at any time on or after December 30, 2008, then an
equivalent number of Series D Preferred Mirror Units will be redeemed.
F-42
Common Partnership Units (Redeemable and General)
The Partnership has two classes of Common Partnership Units: (i) Class A Limited
Partnership Interest which are held by both the Company and outside third
parties and (i) General Partnership Interests which are held by the Company.
(Collectively, the Class A Limited Partnership Interest and General Partnership
Interests are referred to as "Common Partnership Units"). The holders of the
Common Partnership Units are entitled to share in cash distributions from, and
in profits and losses of, the Partnership, in proportion to their respective
percentage interests, subject to preferential distributions on the preferred
mirror units and the preferred units.
The Common Partnership Units held by the Company (comprised of both General
Partnership Units and Class A Limited Partnership Units) are presented as
partners' equity in the consolidated financial statements. The outstanding Class
A Limited Partnership Interest which are held by parties other than the Company
are redeemable at the option of the holder for a like number of common shares of
of the Company, or cash, or a combination thereof, at the election of the
Company. Because the form of settlement of these redemption rights are not
within the control of the Partnership, these Common Partnership Units have been
excluded from partners' equity and are presented as redeemable limited
partnership units measured at the potential cash redemption value as of the end
of the periods presented based on the closing market price of the Company's
common shares at December 31, 2003, 2002 and 2001, which was $26.77, $21.81 and
$21.07 respectively. As of December 31, 2003 and 2002, 1,737,203 and 1,787,436
Class A Units were outstanding and owned by outside limited partners of the
Partnership. Any adjustments to their liquidation value from period to period is
presented as a separate line item in the statement of partners' equity for the
period presented.
At December 31, 2003, 362,321 unvested restricted shares of the Company were
held by employees of the Partnership. The restricted shares are amortized over
their respective vesting periods of three to eight years from dates of the
original award. Included in administrative expenses, the Partnership recorded
compensation expense of $2.6 million in 2003, $2.5 million in 2002 and $2.8
million in 2001 related to these shares.
Share/Unit Redemption Program
The Board of Trustees of the Company approved a share repurchase program
authorizing it to repurchase up to 4,000,000 of its outstanding Common Shares.
Through December 31, 2003, the Company had repurchased 3.2 million of its Common
Shares at an average price of $17.75 per share. Concurrent with share
repurchases by the Company, the Partnership has repurchased 3.2 million of
Partnership Units from the Company at an average price of $17.75 per unit. Under
the share repurchase program, the Company has the authority to repurchase an
additional 762,000 shares, and, in exchange for the funds required to repurchase
these shares, the Partnership will repurchase an equivalent number of Common
Partnership Units from the Company. No time limit has been placed on the
duration of the share repurchase program.
10. EQUITY BASED COMPENSATION AND EMPLOYEE BENEFITS
The Partnership Agreement provides for the issuance by the Partnership to its
general partner, the Company, of a number of Common Partnership Units equal to
the number of Common Shares issued by the Company, the net proceeds of which are
contributed to the Partnership. When the Company issues Common Shares under its
equity-based compensation plan, the Partnership issues to the Company an equal
number of Common Partnership Units.
The Company maintains a plan that authorizes the issuance of various
equity-based awards including incentive stock options. The terms and conditions
of option awards are determined by the Board of Trustees of the Company.
Incentive stock options may not be granted at exercise prices less than fair
value of the stock at the time of grant. Options granted by the Company
generally vest over two to five years. All options awarded by the Company to
date are non-qualified stock options. As of December 31, 2003, the Company is
authorized to issue five million equity-based awards of which 1.3 million shares
remain available for future issuance under the plan.
F-43
The following table summarizes option activity for the three years ended
December 31, 2003:
Number Weighted-
of Shares Average Grant Price Range
Under Exercise ------------------------
Option Price From To
------------- ----------- ------------ -----------
Balance at January 1, 2001 2,623,714 $ 26.36 $ 6.21 $ 29.04
Exercised (83,333) 19.50 19.50 19.50
Canceled (61,582) 27.53 25.25 29.04
---------
Balance at December 31, 2001 2,478,799 26.56 6.21 29.04
Granted 100,000 19.50 19.50 19.50
Exercised (55,000) 19.50 19.50 19.50
Canceled (151,172) 22.22 19.50 29.04
---------
Balance at December 31, 2002 and 2003 2,372,627 26.70 6.21 29.04
=========
The following table summarizes stock options outstanding as of December 31,
2003:
Weighted-
Average Weighted- Weighted-
Range of Number of Remaining Average Number of Average
Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
---------- ----------- ----------- --------- ----------- ---------
$6.21 to $14.31 46,667 .6 years $ 12.00 46,667 $ 12.00
$19.50 100,000 1.6 19.50 33,330 19.50
$24.00 to $29.04 2,225,960 4.1 27.33 2,225,960 27.33
$6.21 to $29.04 2,372,627 3.9 26.70 2,305,957 26.91
Based on the Black-Scholes option pricing model, the estimated weighted-average
fair value of stock options granted was $2.51 in 2002. Assumptions made in
determining estimates of fair value include: risk-free interest rate of 2.7% in
2002, a volatility factor of .280 in 2002, a dividend yield of 8.4% in 2002, and
a weighted-average life expectancy of 3 years in 2002.
Effective January 1, 2002, the Partnership voluntarily adopted the fair value
recognition provisions of SFAS 123, prospectively for all employee share based
awards granted, modified, or settled by the Company after January 1, 2002 (see
Note 2). Accordingly, the Partnership recorded compensation expense of $104,000
in 2003 and $43,000 in 2002. This compensation expense relates to the Company's
grant of 100,000 stock options during 2002.
The Company sponsors a 401(k) defined contribution plan for the Partnership's
employees. Each employee may contribute up to 100% of annual compensation,
subject to specific limitations under the Internal Revenue Code. At its
discretion, the Company can make matching contributions equal to a percentage of
the employee's elective contribution and profit sharing contributions. Employees
vest in employer contributions over a three-year service period. Pursuant to the
Partnership Agreement, the Partnership reimburses the Company for its expenses,
including expenses related to employees of the Partnership. The Partnership
reimbursed the Company $821,000 in 2003, $816,000 in 2002 and $669,000 in 2001
and recorded the reimbursement in administrative expense in the accompanying
statement of operations.
F-44
11. SEGMENT INFORMATION
The Partnership currently manages its portfolio within three segments: (1)
Pennsylvania, (2) New Jersey and (3) Virginia. Corporate is responsible for cash
and investment management and certain other general support functions.
Segment information for the three years ended December 31, 2003, 2002 and 2001
is as follows (in thousands):
Pennsylvania New Jersey Virginia Corporate Total
------------ ---------- -------- --------- ------
2003:
- -----
Real estate investments, at cost:
Operating properties $ 1,146,350 $ 508,906 $ 214,488 $ - $ 1,869,744
Construction-in-progress 25,162 4,043 582 - 29,787
Land held for development 38,723 15,352 9,840 - 63,915
Assets held for sale - 3,649 1,668 - 5,317
Total revenue $ 185,206 $ 88,453 $ 27,841 $ 4,159 $ 305,659
Property operating expenses
and real estate taxes 64,307 34,278 10,151 - 108,736
----------- --------- --------- ------- -----------
Net operating income $ 120,899 $ 54,175 $ 17,690 $ 4,159 $ 196,923
=========== ========= ========= ======= ===========
2002:
- -----
Real estate investments, at cost:
Operating properties $ 1,169,919 $ 506,818 $ 213,272 $ - $ 1,890,009
Construction-in-progress 51,469 3,619 3,039 - 58,127
Land held for development 25,051 10,023 8,001 - 43,075
Assets held for sale, at cost - 7,666 - - 7,666
Total revenue $ 178,145 $ 84,291 $ 26,652 $ 1,952 $ 291,040
Property operating expenses
and real estate taxes 60,114 30,543 9,506 - 100,163
----------- --------- --------- ------- -----------
Net operating income $ 118,031 $ 53,748 $ 17,146 $ 1,952 $ 190,877
=========== ========= ========= ======= ===========
2001:
- -----
Total revenue $ 159,662 $ 80,986 $ 27,309 $ 2,531 $ 270,488
Property operating expenses
and real estate taxes 52,931 30,182 9,926 - 93,039
----------- --------- --------- ------- -----------
Net operating income $ 106,731 $ 50,804 $ 17,383 $ 2,531 $ 177,449
=========== ========= ========= ======= ===========
Net operating income is defined as total revenue less property operating
expenses and real estate taxes. Below is reconciliation of consolidated net
operating income to consolidated income from continuing operations:
F-45
Year Ended December 31,
------------------------------------------------------
2003 2002 2001
-------- --------- ---------
(amounts in thousands)
Consolidated net operating income $ 196,923 $ 190,877 $ 177,449
Less:
Interest expense 57,835 63,522 67,496
Depreciation and amortization 60,592 56,431 67,224
Administrative expenses 14,464 14,804 15,177
Non-recurring charges - - 6,600
Plus:
Equity in income of real estate ventures 52 987 2,768
Net gains on sales of interests in real estate 20,537 - 4,524
--------- --------- ---------
Consolidated income from continuing operations $ 84,621 $ 57,107 $ 28,244
========= ========= =========
12. EARNINGS PER COMMON PARTNERSHIP UNIT
Total outstanding Common Partnership Units include units held by the Company and
Redeemable Class A Limited Partnership Units held by parties other than the
Company.
The following table details the number of Common Partnership Units and net
income used to calculate basic and diluted earnings per Common Partnership Unit
for the three years ended December 31, 2003 (in thousands, except per unit
amounts):
For the year ended December 31,
-----------------------------------------------------------------------------------
2003 2002 2001
-------------------------- ------------------------- --------------------------
Basic Diluted Basic Diluted Basic Diluted
----------- ----------- ----------- ----------- ----------- -----------
Income from continuing operations $ 84,621 $ 84,621 $ 57,107 $ 57,107 $ 28,244 $ 28,244
Income from discontinued operations 11,846 11,846 16,029 16,029 14,100 14,100
Income allocated to Preferred Units (18,975) (18,975) (18,975) (18,975) (18,975) (18,975)
Preferred Share redemption/conversion charge (20,598) (20,598) - - - -
----------- ----------- ----------- ----------- ----------- -----------
56,894 56,894 54,161 54,161 23,369 23,369
Preferred Share discount amortization (1,476) (1,476) (1,476) (1,476) (1,476) (1,476)
----------- ----------- ----------- ----------- ----------- -----------
Income available to Common Partnership
Unitholders $ 55,418 $ 55,418 $ 52,685 $ 52,685 $ 21,893 $ 21,893
=========== =========== =========== =========== =========== ===========
Weighted-average common partnership units
outstanding 38,696,552 38,696,552 37,424,841 37,424,841 37,800,424 37,800,424
Options, warrants and unvested restricted
stock - 150,402 - 131,997 - 27,809
----------- ----------- ----------- ----------- ----------- -----------
Total weighted-average common partnership
units outstanding 38,696,552 38,846,954 37,424,841 37,556,838 37,800,424 37,828,233
=========== =========== =========== =========== =========== ===========
Earnings per Common Partnership Unit:
Continuing operations $ 1.12 $ 1.12 $ 0.98 $ 0.97 $ 0.21 $ 0.21
Discontinued operations 0.31 0.31 0.43 0.43 0.37 0.37
----------- ----------- ----------- ----------- ----------- -----------
Total $ 1.43 $ 1.43 $ 1.41 $ 1.40 $ 0.58 $ 0.58
=========== =========== =========== =========== =========== ===========
Potentially dilutive securities (including those Preferred Mirror Units and
Preferred Units which are convertible) totaling 4,799,547 in 2003, 9,345,748 in
2002 and 9,469,340 in 2001 were excluded from the earnings per common
partnership unit computations above as their effect would have been
antidilutive. Certain preferred units would participate in earnings at certain
levels whether or not distributed. These thresholds have not been met in years
presented and therefore, no additional participation has occurred.
F-46
13. DISTRIBUTIONS (UNAUDITED):
Year ended December 31,
------------------------------------------------
2003 2002 2001
------------ ------------ ------------
Common Partnership unit distributions:
Total distributions per unit $1.76 $1.76 $1.70
Preferred Unit Distributions:
Total distributions declared $ 18,975,000 $ 18,975,000 $ 18,975,000
14. RELATED-PARTY TRANSACTIONS
In 1998, the Company's Board of Trustees authorized the Partnership to make
loans totaling up to $5.0 million to enable employees of the Partnership to
purchase Common Shares of the Company at fair market value. The loans have
five-year terms, are full recourse, and are secured by the Common Shares
purchased. Interest, payable quarterly, accrues on the loans at the lower of the
interest rate borne on borrowings under the Partnership's Credit Facility or a
rate based on the dividend payments on the Common Shares. As of December 31,
2003, the interest rate was 2.62% per annum. The loans are payable at the
earlier of the stated maturity date or 90 days following the employee's
termination. As of December 31, 2003, the outstanding balance of these loans
totaled $1.5 million and were secured by an aggregate of 85,163 Common Shares of
the Company.
The Partnership owns 384,615 shares of US Realtel, Inc. ("USR") Common Stock and
holds warrants exercisable for 600,000 additional shares. The warrants have an
exercise price of $8.00 per share and expire on December 31, 2004. In addition,
the Partnership held warrants exercisable for 123,077 shares at an exercise
price of $3.25, and these warrants expire on August 15, 2005. As of December 31,
2003, the Partnership's recorded value for its investment in USR was $1.1
million. An officer of the Company holds a position on USR's Board of Directors.
In February 2000, the Partnership loaned an aggregate of $2.5 million to two
executive officers to enable them to purchase Common Shares of the Partnership.
One loan had a four-year term and bears interest at the lower of the
Partnership's cost of funds or a rate based on the dividend payable on the
Common Shares, but not to exceed 10% annum. This loan was subject to forgiveness
over a three-year period, with the amount of forgiveness tied to the
Partnership's total shareholder return compared to the total shareholder return
of peer group companies. This loan was also subject to forgiveness in the event
of a change of control of the Partnership. This loan was reflected as a
reduction in beneficiaries equity. In 2001, the Partnership recorded a $4.1
million charge in connection with the executive's transition to a non-executive,
non-managerial status and to restructure the other loan. Principal and interest
totaling $1.0 million was forgiven related to these loans in 2003 and $.9
million in 2002 and 2001.
In connection with the sale by the Partnership of a land parcel in 2003, the
Partnership paid a $42,000 commission to Kevin Nichols, son of Anthony A.
Nichols, Sr., Chairman of the Board of Trustees of the Company, for brokerage
services relating to the sale.
Robert C. Larson, a Trustee of the Company, is a managing director of Lazard
Freres & Co. LLC ("Lazard"). The Partnership paid Lazard a fee of approximately
$909,000 for investment banking services related to the Partnership's sale of
two office properties to a Real Estate Venture in the fourth quarter of 2003.
F-47
15. OPERATING LEASES
The Partnership leases properties to tenants under operating leases with various
expiration dates extending to 2020. As of December 31, 2003, leases covering
approximately 1.8 million square feet or 12.8% of the net rentable square
footage are scheduled to expire during 2004. Minimum future rentals on
non-cancelable leases at December 31, 2003 are as follows (in thousands):
Year Minimum Rent
------------------- ------------
2004 $ 249,836
2005 216,862
2006 178,757
2007 148,915
2008 116,708
2009 and thereafter 344,434
-----------
$ 1,255,512
===========
Total minimum future rentals presented above do not include amounts to be
received as tenant reimbursements for increases in certain operating costs.
16. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following is a summary of quarterly financial information as of and for the
years ended December 31, 2003 and 2002 (in thousands, except per share data):
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
2003:
- -----
Total revenue $ 75,241 $ 74,464 $ 77,178 $ 78,776
Net income 16,287 15,860 19,876 44,444
Income allocated to Common Partnership Unitholders 11,544 11,117 15,133 19,101
Basic earnings per Common Partnership Unit $ 0.30 $ 0.29 $ 0.38 $ 0.45
Diluted earnings per Common Partnership Unit $ 0.30 $ 0.29 $ 0.38 $ 0.45
2002:
- -----
Total revenue $69,021 $ 72,491 $ 74,390 $ 75,138
Net income 26,523 15,147 16,373 15,093
Income allocated to Common Partnership Unitholders 21,779 10,403 11,630 10,350
Basic earnings per Common Partnership Unit $ 0.57 $ 0.27 $ 0.30 $ 0.27
Diluted earnings per Common Partnership Unit $ 0.57 $ 0.27 $ 0.30 $ 0.27
The summation of quarterly earnings per share amounts do not necessarily equal
year to date amounts.
17. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Partnership is involved from time to time in litigation on various matters,
including disputes with tenants and disputes arising out of agreements to
purchase or sell properties. Given the nature of the Partnership's business
activities, these lawsuits are considered routine to the conduct of its
business. The result of any particular lawsuit cannot be predicted, because of
the very nature of litigation, the litigation process and its adversarial
nature, and the jury system.
F-48
The Partnership is a defendant in a case in which the plaintiffs allege that the
Partnership breached its obligation to purchase a portfolio of properties of
approximately $83.0 million. On July 9, 1999, the Superior Court of New Jersey,
Camden County, dismissed the complaint against the Partnership with prejudice.
Plaintiffs subsequently filed a motion for reconsideration, which motion the
Superior Court denied. Plaintiffs then appealed to the Appellate Division, which
is the intermediate appellate level court in New Jersey. In December 2000, the
Appellate Division affirmed in part and reversed in part the Chancery Division's
earlier dismissal of the entire action. The Appellate Division affirmed the
dismissal of the non-contractual counts in the Complaint, but reversed the
contract and reformation counts and remanded these to the lower court for
further proceedings. The Partnership sought review of this decision by the
Supreme Court of New Jersey, but that Court declined to consider the appeal. The
case thereafter returned to the Chancery Division, where written and oral
discovery were conducted in 2002 and in the first quarter of 2003. Discovery
terminated on February 14, 2003. The Partnership filed a motion for summary
judgment seeking dismissal of all counts against it, and judgment for the
Partnership on our counterclaim. The Chancery Division granted the Partnership's
summary judgment motion on March 25, 2003 and dismissed the case with prejudice.
Plaintiffs appealed the judgment in our favor, and the Partnership does not know
whether plaintiffs will be successful in their appeal.
There have been recent reports of lawsuits against owners and managers of
multifamily and office properties asserting claims of personal injury and
property damage caused by the presence of mold in residential units or office
space. The Partnership has been named as a defendant in two lawsuits that allege
personal injury as a result of the presence of mold. Unspecified damages are
sought. The Partnership has referred these lawsuits to its environmental
insurance carrier and, as of the date of this Form 10-K, the insurance carrier
is tendering a defense to these claims.
Letters-of-Credit
In connection with certain mortgages, the Partnership is required to maintain
leasing and capital reserve accounts with the mortgage lenders through
letters-of-credit which totaled $11.5 million at December 31, 2003. The
Partnership is also required to maintain escrow accounts for taxes, insurance
and tenant security deposits that amounted to $14.4 million at December 31,
2003. The related tenant rents are deposited into the loan servicer's depository
accounts, which are used to fund debt service, operating expenses, capital
expenditures and the escrow and reserve accounts, as necessary. Any excess cash
is included in cash and cash equivalents.
Other Commitments
As of December 31, 2003, the Partnership owned 446 acres of land for future
development and held options to purchase 61 additional acres.
F-49
18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table details the components of accumulated other comprehensive
income (loss) as of and for the three years ended December 31, 2003 (in
thousands):
Unrealized Gains Cash Flow Accumulatged Other
(Losses) on Securities Hedges Comprehensive Loss
---------------------- --------- ------------------
Balance at January 1, 2001 $ (1,731) $ - $ (1,731)
Change during year 1,816 (7,921) (6,105)
Reclassification adjustments for losses
reclassified into operations - 3,249 3,249
-------- -------- --------
Balance at December 31, 2001 85 (4,672) (4,587)
Change during year 733 (7,954) (7,221)
Reclassification adjustments for losses
reclassified into operations - 5,406 5,406
-------- -------- --------
Balance at December 31, 2002 $ 818 $ (7,220) $ (6,402)
Change during year 51 (1,118) (1,067)
Reclassification adjustments for losses
reclassified into operations - 5,311 5,311
-------- -------- --------
Balance at December 31, 2003 $ 869 $ (3,027) $ (2,158)
======== ======== ========
19. CONDENSED CONSOLIDATING INFORMATION
On July 1, 2004, the Company and the Partnership filed a Registration Statement
on Form S-3 (the "Registration Statement") with the Securities and Exchange
Commission to register: (i) common shares of beneficial interest, preferred
shares of beneficial interest, depositary shares and warrants of the Company;
(ii) debt securities of the Partnership ("Debt Securities"); and (iii) full and
unconditional guaranties of the Debt Securities by the Company and certain
wholly-owned subsidiaries of the Partnership (the "Subsidiary Guarantors"). The
Partnership has other subsidiaries ("Non-Guarantor Subsidiaries") that are not
Subsidiary Guarantors.
F-50
The following summarizes the condensed consolidating financial information for
the Partnership as of December 31, 2003 and 2002 and for each of the three years
in the period ended December 31, 2003:
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2003
(IN 000'S)
The Guarantor Non-Guarantor Consolidation
Partnership Subsidiaries Subsidiaries Eliminations Consolidated
----------- ----------- ------------- ------------- ------------
ASSETS
Total Real estate investments, net $ 899,695 $ 348,578 $ 447,082 $ - $ 1,695,355
Cash and cash equivalents 8,552 - - - 8,552
Escrowed cash 5,906 806 7,676 - 14,388
Accounts receivable, net 16,166 8,467 7,225 - 31,858
Marketable securities 12,052 - - - 12,052
Assets held for sale - 1,668 3,649 - 5,317
Investment in real estate ventures, at equity 15,853 - - - 15,853
Investments in Subsidiaries, at equity 627,895 - - (627,895) -
Deferred costs, net 21,168 2,185 3,916 - 27,269
Other assets 25,249 18,350 1,533 - 45,132
----------- --------- --------- ---------- -----------
Total assets $ 1,632,536 $ 380,054 $ 471,081 $ (627,895) $ 1,855,776
=========== ========= ========= ========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgage notes payable $ 249,433 $ 14,251 $ 198,975 $ - $ 462,659
Borrowings under Credit Facility 305,000 - - - 305,000
Unsecured term loan 100,000 - - - 100,000
Accounts payable and accrued expenses 25,579 1,763 2,948 - 30,290
Distributions payable 20,947 - - - 20,947
Tenant security deposits and deferred rents 10,954 1,584 3,585 - 16,123
Other liabilities 16,332 - 81 - 16,413
Liabilities related to assets held for sale - 32 20 - 52
----------- --------- --------- ---------- -----------
Total liabilities 728,245 17,630 205,609 - 951,484
7.25% Series B Preferred Units 97,500 - - - 97,500
Redeemable limited partnership units 46,505 - - - 46,505
Total partners' equity 760,286 362,424 265,472 (627,895) 760,287
----------- --------- --------- ---------- -----------
Total liabilities and partners' equity $ 1,632,536 $ 380,054 $ 471,081 $ (627,895) $ 1,855,776
=========== ========= ========= ========== ===========
F-51
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
(IN 000'S)
The Guarantor Non-Guarantor Consolidation
Partnership Subsidiaries Subsidiaries Eliminations Consolidated
----------- ----------- ------------- ------------- ------------
ASSETS
Total Real estate investments, net $ 945,119 $ 353,838 $ 447,024 $ - $ 1,745,981
Cash and cash equivalents 26,801 - - - 26,801
Escrowed cash 7,643 788 7,887 - 16,318
Accounts receivable, net 19,702 6,287 6,001 - 31,990
Marketable securities 11,872 - - - 11,872
Assets held for sale - - 7,666 - 7,666
Investment in real estate ventures, at equity 14,842 - - - 14,842
Investments in Subsidiaries, at equity 629,038 - - (629,038) -
Deferred costs, net 22,840 2,331 4,100 - 29,271
Other assets 14,943 18,131 1,473 - 34,547
----------- --------- --------- ---------- -----------
Total assets $ 1,692,800 $ 381,375 $ 474,151 $ (629,038) $ 1,919,288
=========== ========= ========= ========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgage notes payable $ 380,481 $ 15,056 $ 202,192 $ - $ 597,729
Borrowings under Credit Facility 307,000 - - - 307,000
Unsecured term loan 100,000 - - - 100,000
Accounts payable and accrued expenses 22,495 2,339 2,742 - 27,576
Distributions payable 21,186 - - - 21,186
Tenant security deposits and deferred rents 18,235 1,417 2,624 - 22,276
Other liabilities 22,961 - 98 - 23,059
Liabilities related to assets held for sale - - 20 - 20
----------- --------- --------- ---------- -----------
Total liabilities 872,358 18,812 207,676 - 1,098,846
7.25% Series B Preferred Units 97,500 - - - 97,500
Redeemable limited partnership units 38,984 - - - 38,984
Total partners' equity 683,958 362,563 266,475 (629,038) 683,958
----------- --------- --------- ---------- -----------
Total liabilities and partners' equity $ 1,692,800 $ 381,375 $ 474,151 $ (629,038) $ 1,919,288
=========== ========= ========= ========== ===========
F-52
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
(in 000's)
THE GUARANTOR NON-GUARANTOR CONSOLIDATION
PARTNERSHIP SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------- ------------
REVENUE:
Rents $ 147,911 $ 49,938 $ 59,096 $ - $ 256,945
Tenant reimbursements 19,848 10,667 7,240 - 37,755
Other 12,983 1,986 2,246 (6,256) 10,959
--------- -------- -------- --------- ---------
Total revenue 180,742 62,591 68,582 (6,256) 305,659
OPERATING EXPENSES:
Property operating expenses 46,703 19,546 20,824 (6,256) 80,817
Real estate taxes 16,063 5,913 5,943 - 27,919
Interest 42,827 1,147 13,861 - 57,835
Depreciation and amortization 34,448 10,695 15,449 - 60,592
Administrative expenses 12,428 - 2,036 - 14,464
Non-recurring charges - - - - -
--------- -------- -------- --------- ---------
Total operating expenses 152,469 37,301 58,113 (6,256) 241,627
--------- -------- -------- --------- ---------
Income from continuing operations before equity in
income of real estate ventures, equity in income
of subsidaries and net gains on sales of interest
in real estate 28,273 25,290 10,469 - 64,032
Equity in income of real estate ventures 52 - - - 52
Equity in income of subsidiaries 37,614 - - (37,614) -
Net gains on sales of interests in real estate 20,537 - - - 20,537
--------- -------- -------- --------- ---------
Income from continuing operations 86,476 25,290 10,469 (37,614) 84,621
Discontinued operations:
Income from discontinued operations 1,502 33 621 - 2,156
Net Gain on Disposition 8,489 390 811 - 9,690
--------- -------- -------- --------- ---------
Income from discontinued operations 9,991 423 1,432 - 11,846
--------- -------- -------- --------- ---------
Net income $ 96,467 $ 25,713 $ 11,901 $ (37,614) $ 96,467
========= ======== ======== ========= =========
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2003
(in 000's)
THE GUARANTOR NON-GUARANTOR CONSOLIDATION
PARTNERSHIP SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------- ------------
Cash flows from operating activities $ 90,169 $ 33,537 $ 27,273 $ (32,186) $ 118,793
Cash flows from investing activities (16,016) (6,880) (11,172) - (34,068)
Cash flows from financing activities (92,402) (26,657) (16,101) 32,186 (102,974)
--------- -------- -------- --------- ---------
Increase (decrease) in cash and
cash equivalents (18,249) - - - (18,249)
Cash and cash equivalents at
beginning of year 26,801 - - - 26,801
--------- -------- -------- --------- ---------
Cash and cash equivalents at
end of year $ 8,552 $ - $ - $ - $ 8,552
========= ======== ======== ========= =========
F-53
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
(in 000's)
THE GUARANTOR NON-GUARANTOR CONSOLIDATION
PARTNERSHIP SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------- ------------
REVENUE:
Rents $ 142,828 $ 46,959 $ 58,288 $ - $ 248,075
Tenant reimbursements 17,587 9,413 6,263 - 33,263
Other 11,293 2,375 2,574 (6,540) 9,702
--------- -------- -------- --------- ---------
Total revenue 171,708 58,747 67,125 (6,540) 291,040
OPERATING EXPENSES:
Property operating expenses 45,335 17,575 18,597 (6,540) 74,967
Real estate taxes 14,448 5,232 5,516 - 25,196
Interest 48,360 1,734 13,428 - 63,522
Depreciation and amortization 33,134 9,257 14,040 - 56,431
Administrative expenses 12,367 - 2,437 - 14,804
--------- -------- -------- --------- ---------
Total operating expenses 153,644 33,798 54,018 (6,540) 234,920
--------- -------- -------- --------- ---------
Income from continuing operations before
equity in income of real estate ventures
and equity in income of subsidiaries 18,064 24,949 13,107 - 56,120
Equity in income of real estate ventures 987 - - - 987
Equity in income of subsidiaries 38,864 - - (38,864) -
--------- -------- -------- --------- ---------
Income from continuing operations 57,915 24,949 13,107 (38,864) 57,107
Discontinued operations:
Income from discontinued operations 6,831 107 529 - 7,467
Net Gain on Disposition 8,390 - 172 - 8,562
--------- -------- -------- --------- ---------
Income from discontinued operations 15,221 107 701 - 16,029
--------- -------- -------- --------- ---------
Net income $ 73,136 $ 25,056 $ 13,808 $ (38,864) $ 73,136
========= ======== ======== ========= =========
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002
(in 000's)
THE GUARANTOR NON-GUARANTOR CONSOLIDATION
PARTNERSHIP SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------- ------------
Cash flows from operating activities $ 115,291 $ 31,464 $ 26,426 $ (44,345) $ 128,836
Cash flows from investing activities 7,342 10,147 (12,451) - 5,038
Cash flows from financing activities (109,291) (41,611) (13,975) 44,345 (120,532)
--------- -------- -------- --------- ---------
Increase (decrease) in cash and
cash equivalents 13,342 - - - 13,342
Cash and cash equivalents at
beginning of year 13,459 - - - 13,459
--------- -------- -------- --------- ---------
Cash and cash equivalents at
end of year $ 26,801 $ - $ - $ - $ 26,801
========= ======== ======== ========= =========
F-54
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(IN 000'S)
THE GUARANTOR NON-GUARANTOR CONSOLIDATION
PARTNERSHIP SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------- ------------
REVENUE:
Rents $ 126,858 $ 40,790 $ 60,501 $ - $ 228,149
Tenant reimbursements 16,485 8,593 6,915 - 31,993
Other 11,519 1,586 3,781 (6,540) 10,346
--------- -------- -------- --------- ---------
Total revenue 154,862 50,969 71,197 (6,540) 270,488
OPERATING EXPENSES:
Property operating expenses 42,789 15,516 18,839 (6,540) 70,604
Real estate taxes 12,240 4,656 5,539 - 22,435
Interest 52,511 1,316 13,669 - 67,496
Depreciation and amortization 36,448 11,256 19,520 - 67,224
Administrative expenses 11,818 - 3,359 - 15,177
Non-recurring charges 6,600 - - - 6,600
--------- -------- -------- --------- ---------
Total operating expenses 162,406 32,744 60,926 (6,540) 249,536
--------- -------- -------- --------- ---------
Income from continuing operations before equity in
income of real estate ventures, equity in income
of subsidiaries and net gains on sales of real
estate (7,544) 18,225 10,271 - 20,952
Equity in income of real estate ventures 2,768 - - - 2,768
Equity in income of subsidiaries 30,950 - - (30,950) -
Net gains on sales of interests in real estate 4,017 327 180 - 4,524
--------- -------- -------- --------- ---------
Income from continuing operations 30,191 18,552 10,451 (30,950) 28,244
Discontinued operations:
Income from discontinued operations 12,153 95 1,852 - 14,100
Net Gain on Disposition - - - - -
--------- -------- -------- --------- ---------
Income from discontinued operations 12,153 95 1,852 - 14,100
--------- -------- -------- --------- ---------
Net income $ 42,344 $ 18,647 $ 12,303 $ (30,950) $ 42,344
========= ======== ======== ========= =========
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
(IN 000'S)
THE GUARANTOR NON-GUARANTOR CONSOLIDATION
PARTNERSHIP SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------- ------------
Cash flows from operating activities $ 45,475 $ 16,913 $ 34,099 $ 55,629 $ 152,116
Cash flows from investing activities (42,547) (158,705) 77,516 - (123,736)
Cash flows from financing activities (5,509) 141,792 (111,615) (55,629) (30,961)
--------- -------- -------- --------- ---------
Increase (decrease) in cash and
cash equivalents (2,581) - - - (2,581)
Cash and cash equivalents at
beginning of year 16,040 - - - 16,040
--------- -------- -------- --------- ---------
Cash and cash equivalents at
end of year $ 13,459 $ - $ - $ - $ 13,459
========= ======== ======== ========= =========
F-55
20. SUBSEQUENT EVENTS
On January 12, 2004, the Company sold 2,645,000 Common Shares in an underwritten
public offering for net proceeds (net of transaction costs) of $69.3 million.
The Company contributed these proceeds to the Partnership in exchange for
2,645,000 partnership units.
In February 2004, the Partnership redeemed 1,950,000 Series B Preferred Units,
with an aggregate stated value of $97.5 million, for $93.0 million plus accrued
but unpaid dividends from January 1, 2004.
On February 27, 2004, the Company sold 2,300,000 7.375% Series D Cumulative
Redeemable Preferred Shares (Series D Preferred Shares), each with a liquidation
preference of $25.00 per share in an underwritten public offering for net
proceeds (net of transaction costs) of $55.5 million. The Company contributed
the proceeds from this preferred share offering to the Partnership in exchange
for Series E Preferred Mirror Units. The terms of the Series E Preferred Mirror
Units mirror those of the Series D Preferred Shares.
On March 3, 2004, the Partnership sold 1,840,000 Common Shares in an
underwritten public offering for net proceeds (net of transaction costs) of
$50.7 million. The Company contributed these proceeds to the Partnership in
exchange for 1,840,000 partnership units.
In May 2004, the Partnership obtained a $450 million unsecured credit facility.
The credit facility will mature in May 2007. The Partnership has the option to
increase the credit facility to a maximum of $600 million. The credit facility
bears interest at LIBOR plus a spread over LIBOR ranging from .65% to 1.35%
based on the Partnership's leverage and unsecured debt ratings.
F-56
Brandywine Operating Partnership, L.P.
Schedule II
Valuation and Qualifying Accounts
(in thousands)
Additions
Balance at ------------ Balance
Beginning Charged to at End
Description of Period expense Deductions of Period
- ----------------------------------- ------------ ------------ ------------ -----------
Allowance for doubtful accounts:
Year ended December 31, 2003 $ 4,576 $ 189 $ 734 $ 4,031
Year ended December 31, 2002 $ 4,532 $ 894 $ 850 $ 4,576
Year ended December 31, 2001 $ 2,427 $ 2,867 $ 762 $ 4,532
F-57
Brandywine Operating Partnership, L.P.
Schedule III
Real Estate and Accumulated Depreciation
(in thousands)
Initial Cost
----------------------------------------
Net
Improvements
Encumberances (Retirements)
at December 31, Building and Since
City State 2003 Land Improvements Acquisition
- ----------------------------------- ---------------- ----- --------------- ---- ------------ -------------
One Greentree Centre Marlton NJ $ - $ 345 $ 4,440 $ 401
Three Greentree Centre Marlton NJ - 323 6,024 91
Two Greentree Centre Marlton NJ - 264 4,693 104
110 Summit Drive Exton PA - 403 1,647 157
1155 Business Center Drive Horsham PA 2,468 1,029 4,124 (182)
120 West Germantown Pike Plymouth Meeting PA - 685 2,773 400
1336 Enterprise Drive West Goshen PA - 731 2,946 51
140 West Germantown Pike Plymouth Meeting PA - 481 1,976 236
18 Campus Boulevard Newtown Square PA 3,408 787 3,312 22
2240/50 Butler Pike Plymouth Meeting PA - 1,104 4,627 603
2260 Butler Pike Plymouth Meeting PA - 661 2,727 157
33 Street Road - Greenwood Square I Bensalem PA - 851 3,407 419
33 Street Road - Greenwood Square II Bensalem PA - 1,126 4,511 924
33 Street Road - Greenwood Square II Bensalem PA - 350 1,401 101
456 Creamery Way Exton PA - 635 2,548 (47)
457 Haddonfield Road Cherry Hill NJ 11,410 2,142 9,120 2,536
468 Creamery Way Exton PA - 526 2,112 (37)
486 Thomas Jones Way Exton PA - 806 3,256 (92)
500 Enterprise Road Horsham PA - 1,303 5,188 (790)
500 North Gulph Road King of Prussia PA - 1,303 5,201 785
650 Dresher Road Horsham PA 1,713 636 2,501 314
6575 Snowdrift Road Allentown PA - 601 2,411 473
700 Business Center Drive Horsham PA 1,478 550 2,201 226
7248 Tilghman Street Allentown PA - 731 2,969 70
7310 Tilghman Street Allentown PA - 553 2,246 582
800 Business Center Drive Horsham PA 2,234 896 3,585 19
8000 Lincoln Drive Marlton NJ - 606 2,887 (194)
One Progress Avenue Horsham PA - 1,399 5,629 144
One Righter Parkway Talleyville DE 10,680 2,545 10,195 282
1 Foster Avenue Gibbsboro NJ - 93 364 35
10 Foster Avenue Gibbsboro NJ - 244 971 72
100 Berwyn Park Berwyn PA 7,135 1,180 7,290 158
100 Commerce Drive Newark DE - 1,160 4,633 516
100 Katchel Blvd Reading PA - 1,881 7,423 139
1000 Atrium Way Mt. Laurel NJ - 2,061 8,180 390
1000 Howard Boulevard Mt. Laurel NJ 3,647 2,297 9,288 434
10000 Midlantic Drive Mt. Laurel NJ - 3,206 12,857 1,127
100-300 Gundy Drive Reading PA - 6,495 25,180 5,829
1007 Laurel Oak Road Voorhees NJ - 1,563 6,241 17
105/140 Terry Drive Newtown PA - 2,299 8,238 2,256
111 Presidential Boulevard Bala Cynwyd PA - 5,419 21,612 850
1120 Executive Boulevard Mt. Laurel NJ - 2,074 8,415 762
15000 Midlantic Drive Mt. Laurel NJ - 3,061 12,254 8
2 Foster Avenue Gibbsboro NJ - 185 730 23
20 East Clementon Road Gibbsboro NJ - 769 3,055 248
200 Berwyn Park Berwyn PA 9,592 1,533 9,460 606
2000 Midlantic Drive Mt. Laurel NJ 9,421 2,202 8,823 462
220 Commerce Drive Fort Washington PA - 1,086 4,338 536
300 Berwyn Park Berwyn PA 13,200 2,206 13,422 334
300 Welsh Road - Building I Horsham PA 2,297 894 3,572 161
300 Welsh Road - Building II Horsham PA 1,038 396 1,585 109
321 Norristown Road Lower Gwyned PA - 1,290 5,176 1,292
323 Norristown Road Lower Gwyned PA - 1,685 6,751 757
4 Foster Avenue Gibbsboro NJ - 183 726 76
4000 Midlantic Drive Mt. Laurel NJ 3,158 714 5,085 (1,948)
Gross Amount at Which Carried
December 31, 2003
---------------------------------------------
Accumulated
Depreciation at
Building and December 31, Date of Date Depreciable
Land Improvements Total (a) 2003 (b) Construction Acquired Life
- ------------------------------------ ---- ------------ --------- --------------- ------------ -------- -----------
One Greentree Centre $ 345 $ 4,841 $ 5,186 $ 2,656 1982 1986 40
Three Greentree Centre 323 6,115 6,438 3,856 1984 1986 40
Two Greentree Centre 264 4,797 5,061 2,998 1983 1986 40
110 Summit Drive 403 1,804 2,207 446 1985 1996 40
1155 Business Center Drive 1,029 3,942 4,971 1,291 1990 1996 40
120 West Germantown Pike 685 3,173 3,858 812 1984 1996 40
1336 Enterprise Drive 731 2,997 3,728 716 1990 1996 40
140 West Germantown Pike 481 2,212 2,693 701 1984 1996 40
18 Campus Boulevard 787 3,334 4,121 1,003 1990 1996 40
2240/50 Butler Pike 1,104 5,230 6,334 1,791 1984 1996 40
2260 Butler Pike 661 2,884 3,545 813 1984 1996 40
33 Street Road - Greenwood Square I 851 3,826 4,677 1,008 1985 1996 40
33 Street Road - Greenwood Square II 1,126 5,435 6,561 1,593 1985 1996 40
33 Street Road - Greenwood Square II 350 1,502 1,852 367 1985 1996 40
456 Creamery Way 635 2,501 3,136 635 1987 1996 40
457 Haddonfield Road 2,142 11,656 13,798 4,072 1990 1996 40
468 Creamery Way 526 2,075 2,601 562 1990 1996 40
486 Thomas Jones Way 806 3,164 3,970 852 1990 1996 40
500 Enterprise Road 1,303 4,398 5,701 1,245 1990 1996 40
500 North Gulph Road 1,303 5,986 7,289 1,630 1979 1996 40
650 Dresher Road 636 2,815 3,451 733 1984 1996 40
6575 Snowdrift Road 601 2,884 3,485 1,050 1988 1996 40
700 Business Center Drive 550 2,427 2,977 611 1986 1996 40
7248 Tilghman Street 731 3,039 3,770 839 1987 1996 40
7310 Tilghman Street 553 2,828 3,381 869 1985 1996 40
800 Business Center Drive 896 3,604 4,500 899 1986 1996 40
8000 Lincoln Drive 606 2,693 3,299 699 1983 1996 40
One Progress Avenue 1,399 5,773 7,172 1,507 1986 1996 40
One Righter Parkway 2,545 10,477 13,022 2,633 1989 1996 40
1 Foster Avenue 93 399 492 83 1972 1997 40
10 Foster Avenue 244 1,043 1,287 224 1983 1997 40
100 Berwyn Park 1,180 7,448 8,628 1,717 1986 1997 40
100 Commerce Drive 1,160 5,149 6,309 1,151 1989 1997 40
100 Katchel Blvd 1,881 7,562 9,443 1,747 1970 1997 40
1000 Atrium Way 2,061 8,570 10,631 1,957 1989 1997 40
1000 Howard Boulevard 2,297 9,722 12,019 2,474 1988 1997 40
10000 Midlantic Drive 3,206 13,984 17,190 3,255 1990 1997 40
100-300 Gundy Drive 6,495 31,009 37,504 6,931 1970 1997 40
1007 Laurel Oak Road 1,563 6,258 7,821 1,314 1996 1997 40
105/140 Terry Drive 2,299 10,494 12,793 2,575 1974 1997 40
111 Presidential Boulevard 5,419 22,462 27,881 4,711 1974 1997 40
1120 Executive Boulevard 2,074 9,177 11,251 2,166 1987 1997 40
15000 Midlantic Drive 3,061 12,262 15,323 2,813 1991 1997 40
2 Foster Avenue 185 753 938 158 1974 1997 40
20 East Clementon Road 769 3,303 4,072 760 1986 1997 40
200 Berwyn Park 1,533 10,066 11,599 2,308 1987 1997 40
2000 Midlantic Drive 2,202 9,285 11,487 2,236 1989 1997 40
220 Commerce Drive 1,086 4,874 5,960 1,099 1974 1997 40
300 Berwyn Park 2,206 13,756 15,962 3,093 1989 1997 40
300 Welsh Road - Building I 894 3,733 4,627 862 1985 1997 40
300 Welsh Road - Building II 396 1,694 2,090 371 1985 1997 40
321 Norristown Road 1,290 6,468 7,758 1,490 1972 1997 40
323 Norristown Road 1,685 7,508 9,193 1,669 1988 1997 40
4 Foster Avenue 183 802 985 163 1974 1997 40
4000 Midlantic Drive 714 3,137 3,851 716 1981 1997 40
F-58
Brandywine Operating Partnership, L.P.
Schedule III
Real Estate and Accumulated Depreciation
(in thousands)
Initial Cost
----------------------------------------
Net
Improvements
Encumberances (Retirements)
at December 31, Building and Since
City State 2003 Land Improvements Acquisition
- ----------------------------------- ---------------- ----- --------------- ---- ------------ -------------
5 Foster Avenue Gibbsboro NJ - 9 32 25
5 U.S. Avenue Gibbsboro NJ - 21 81 2
50 East Clementon Road Gibbsboro NJ - 114 964 4
500 Office Center Drive Ft. Washington PA - 1,617 6,480 1,052
501 Office Center Drive Ft. Washington PA - 1,796 7,192 768
55 U.S. Avenue Gibbsboro NJ - 1,116 4,435 51
6 East Clementon Road Gibbsboro NJ - 1,345 5,366 340
655 Business Center Drive Horsham PA 1,810 544 2,529 572
7 Foster Avenue Gibbsboro NJ - 231 921 135
748 Springdale Drive Exton PA - 236 931 142
855 Springdale Drive Exton PA - 838 3,370 80
9000 Midlantic Drive Mt. Laurel NJ 6,135 1,472 5,895 114
Five Eves Drive Marlton NJ - 703 2,819 649
Four A Eves Drive Marlton NJ - 539 2,168 167
Four B Eves Drive Marlton NJ - 588 2,369 95
King & Harvard Cherry Hill NJ - 1,726 1,069 2,193
Main Street - Piazza Voorhees NJ - 696 2,802 88
Main Street - Plaza 1000 Voorhees NJ - 2,729 10,931 2,522
Main Street - Promenade Voorhees NJ - 531 2,052 207
Main Street- CAM Voorhees NJ - 3 11 98
One South Union Place Cherry Hill NJ - 771 8,047 480
Two Eves Drive Marlton NJ - 818 3,461 128
1000 First Avenue King of Prussia PA 4,516 2,772 10,936 277
1009 Lenox Drive Lawrenceville NJ - 4,876 19,284 3,304
1020 First Avenue King of Prussia PA 3,610 2,168 8,576 435
1040 First Avenue King of Prussia PA 4,940 2,860 11,282 1,156
1060 First Avenue King of Prussia PA 4,415 2,712 10,953 6
14 Campus Boulevard Newtown Square PA 5,340 2,244 4,217 (3)
150 Corporate Center Drive Camp Hill PA - 964 3,871 273
160-180 West Germantown Pike East Norriton PA 5,342 1,603 6,418 653
1957 Westmoreland Street Richmond VA 2,773 1,061 4,241 284
200 Corporate Center Drive Camp Hill PA - 1,647 6,606 60
2100-2108 West Laburnum Richmond VA 1,131 2,482 8,846 1,840
2120 Tomlynn Street Richmond VA 771 281 1,125 147
2130-2146 Tomlynn Street Richmond VA 1,022 353 1,416 289
2169-79 Tomlynn Street Richmond VA 1,064 423 1,695 25
2201-2245 Tomlynn Street Richmond VA 2,762 1,020 4,067 476
2212-2224 Tomlynn Street Richmond VA 1,284 502 2,014 71
2221-2245 Dabney Road Richmond VA 1,331 530 2,123 27
2240 Dabney Road Richmond VA 661 264 1,059 8
2244 Dabney Road Richmond VA 1,367 550 2,203 1
2246 Dabney Road Richmond VA 1,131 455 1,822 1
2248 Dabney Road Richmond VA 1,359 512 2,049 176
2251 Dabney Road Richmond VA 1,023 387 1,552 121
2256 Dabney Road Richmond VA 907 356 1,427 44
2277 Dabney Road Richmond VA 1,262 507 2,034 1
2401 Park Drive Harrisburg PA - 182 728 18
2404 Park Drive Harrisburg PA - 167 668 90
2490 Boulevard of the Generals King of Prussia PA - 348 1,394 45
2511 Brittons Hill Road Richmond VA 3,036 1,202 4,820 93
2812 Emerywood Parkway Henrico VA 3,286 1,069 4,281 1,268
300 Arboretum Place Richmond VA 14,872 5,450 21,892 2,076
300 Corporate Center Drive Camp Hill PA - 4,823 19,301 317
303 Fellowship Drive Mt. Laurel NJ 2,591 1,493 6,055 476
304 Harper Drive Mt. Laurel NJ 1,220 657 2,674 446
Gross Amount at Which Carried
December 31, 2003
---------------------------------------------
Accumulated
Depreciation at
Building and December 31, Date of Date Depreciable
Land Improvements Total (a) 2003 (b) Construction Acquired Life
- ------------------------------------ ---- ------------ --------- --------------- ------------ -------- -----------
5 Foster Avenue $ 9 57 66 9 1968 1997 40
5 U.S. Avenue 21 83 104 18 1987 1997 40
50 East Clementon Road 114 968 1,082 203 1986 1997 40
500 Office Center Drive 1,617 7,532 9,149 2,079 1985 1997 40
501 Office Center Drive 1,796 7,960 9,756 1,943 1985 1997 40
55 U.S. Avenue 1,116 4,486 5,602 943 1982 1997 40
6 East Clementon Road 1,345 5,706 7,051 1,298 1980 1997 40
655 Business Center Drive 544 3,101 3,645 911 1997 1997 40
7 Foster Avenue 231 1,056 1,287 238 1983 1997 40
748 Springdale Drive 236 1,073 1,309 311 1986 1997 40
855 Springdale Drive 838 3,450 4,288 796 1986 1997 40
9000 Midlantic Drive 1,472 6,009 7,481 1,367 1989 1997 40
Five Eves Drive 703 3,468 4,171 1,061 1986 1997 40
Four A Eves Drive 539 2,335 2,874 657 1987 1997 40
Four B Eves Drive 588 2,464 3,052 628 1987 1997 40
King & Harvard 1,726 3,262 4,988 956 1979 1997 40
Main Street - Piazza 696 2,890 3,586 693 1990 1997 40
Main Street - Plaza 1000 2,729 13,453 16,182 3,220 1988 1997 40
Main Street - Promenade 531 2,259 2,790 597 1988 1997 40
Main Street- CAM 3 109 112 31 1997 40
One South Union Place 771 8,527 9,298 2,547 1980 1997 40
Two Eves Drive 818 3,589 4,407 962 1987 1997 40
1000 First Avenue 2,772 11,213 13,985 1,991 1980 1998 40
1009 Lenox Drive 4,876 22,588 27,464 4,932 1989 1998 40
1020 First Avenue 2,168 9,011 11,179 1,590 1984 1998 40
1040 First Avenue 2,860 12,438 15,298 2,675 1985 1998 40
1060 First Avenue 2,712 10,959 13,671 1,941 1987 1998 40
14 Campus Boulevard 2,244 4,214 6,458 992 1998 1998 40
150 Corporate Center Drive 964 4,144 5,108 849 1987 1998 40
160-180 West Germantown Pike 1,603 7,071 8,674 1,515 1982 1998 40
1957 Westmoreland Street 1,061 4,525 5,586 911 1975 1998 40
200 Corporate Center Drive 1,647 6,666 8,313 1,300 1989 1998 40
2100-2108 West Laburnum 2,482 10,686 13,168 1,875 1976 1998 40
2120 Tomlynn Street 281 1,272 1,553 248 1986 1998 40
2130-2146 Tomlynn Street 353 1,705 2,058 280 1988 1998 40
2169-79 Tomlynn Street 423 1,720 2,143 307 1985 1998 40
2201-2245 Tomlynn Street 1,020 4,543 5,563 979 1989 1998 40
2212-2224 Tomlynn Street 502 2,085 2,587 372 1985 1998 40
2221-2245 Dabney Road 530 2,150 2,680 384 1994 1998 40
2240 Dabney Road 264 1,067 1,331 193 1984 1998 40
2244 Dabney Road 550 2,204 2,754 390 1993 1998 40
2246 Dabney Road 455 1,823 2,278 323 1987 1998 40
2248 Dabney Road 512 2,225 2,737 442 1989 1998 40
2251 Dabney Road 387 1,673 2,060 321 1983 1998 40
2256 Dabney Road 356 1,471 1,827 279 1982 1998 40
2277 Dabney Road 507 2,035 2,542 360 1986 1998 40
2401 Park Drive 182 746 928 145 1984 1998 40
2404 Park Drive 167 758 925 201 1983 1998 40
2490 Boulevard of the Generals 348 1,439 1,787 302 1975 1998 40
2511 Brittons Hill Road 1,202 4,913 6,115 898 1987 1998 40
2812 Emerywood Parkway 1,069 5,549 6,618 844 1980 1998 40
300 Arboretum Place 5,450 23,968 29,418 4,968 1988 1998 40
300 Corporate Center Drive 4,823 19,618 24,441 3,938 1989 1998 40
303 Fellowship Drive 1,493 6,531 8,024 1,342 1979 1998 40
304 Harper Drive 657 3,120 3,777 726 1975 1998 40
F-59
Brandywine Operating Partnership, L.P.
Schedule III
Real Estate and Accumulated Depreciation
(in thousands)
Initial Cost
----------------------------------------
Net
Improvements
Encumberances (Retirements)
at December 31, Building and Since
City State 2003 Land Improvements Acquisition
- ----------------------------------- ---------------- ----- --------------- ---- ------------ -------------
305 Fellowship Drive Mt. Laurel NJ 2,576 1,421 5,768 789
305 Harper Drive Mt. Laurel NJ 367 223 913 1
307 Fellowship Drive Mt. Laurel NJ 2,643 1,565 6,342 276
308 Harper Drive Mt. Laurel NJ - 1,643 6,663 432
309 Fellowship Drive Mt. Laurel NJ 2,783 1,518 6,154 945
33 West State Street Trenton NJ - 6,016 24,091 105
426 Lancaster Avenue Devon PA - 1,689 6,756 15
4364 South Alston Avenue Durham NC 2,846 1,622 6,419 771
4805 Lake Brooke Drive Glen Allen VA 4,134 1,640 6,567 121
50 East State Street Trenton NJ - 8,926 35,735 546
50 Swedesford Square Frazer PA 6,304 3,902 15,254 365
500 Nationwide Drive Harrisburg PA - 173 850 787
52 Swedesford Square Frazer PA 6,975 4,241 16,579 779
520 Virginia Drive Ft. Washington PA - 845 3,455 380
600 Corporate Circle Drive Harrisburg PA - 363 1,452 75
600 East Main Street Richmond VA 16,450 9,808 38,255 2,876
600 Park Avenue King of Prussia PA - 1,012 4,048 3
610 Freedom Business Center King of Prussia PA 5,339 2,017 8,070 668
620 Allendale Road King of Prussia PA - 1,020 3,839 980
620 Freedom Business Center King of Prussia PA 7,239 2,770 11,014 798
630 Clark Avenue King of Prussia PA - 547 2,190 1
630 Freedom Business Center King of Prussia PA 7,138 2,773 11,144 460
640 Allendale Road King of Prussia PA - 439 432 1,327
640 Freedom Business Center King of Prussia PA 11,203 4,222 16,891 1,453
650 Park Avenue King of Prussia PA - 1,916 4,378 903
660 Allendale Road King of Prussia PA - 396 3,343 (1,636)
680 Allendale Road King of Prussia PA - 689 2,756 678
700 East Gate Drive Mt. Laurel NJ 6,048 3,569 14,436 723
701 East Gate Drive Mt. Laurel NJ 2,971 1,736 6,877 588
7010 Snowdrift Way Allentown PA 1,370 818 3,324 101
7150 Windsor Drive Allentown PA 1,751 1,035 4,219 168
7350 Tilghman Street Allentown PA - 3,414 13,716 1,087
741 First Avenue King of Prussia PA - 1,287 5,151 210
7450 Tilghman Street Allentown PA 5,090 2,867 11,631 1,265
751-761 Fifth Avenue King of Prussia PA - 1,097 4,391 3
7535 Windsor Drive Allentown PA 5,659 3,376 13,400 747
755 Business Center Drive Horsham PA 2,156 1,362 2,334 646
800 Corporate Circle Drive Harrisburg PA - 414 1,653 115
815 East Gate Drive Mt. Laurel NJ 1,078 636 2,584 119
817 East Gate Drive Mt. Laurel NJ 1,005 611 2,426 74
875 First Avenue King of Prussia PA - 618 2,473 3,259
9011 Arboretum Parkway Richmond VA 4,884 1,857 7,702 279
9100 Arboretum Parkway Richmond VA 3,736 1,362 5,489 540
920 Harvest Drive Blue Bell PA - 2,433 9,738 502
9200 Arboretum Parkway Richmond VA 2,634 985 3,973 253
9210 Arboretum Parkway Richmond VA 2,867 1,110 4,474 87
9211 Arboretum Parkway Richmond VA 1,536 582 2,433 78
922 Swedesford Road Frazer PA - 218 1 (1)
925 Harvest Drive Blue Bell PA - 1,671 6,606 252
993 Lenox Drive Lawrenceville NJ 12,155 2,811 17,996 (5,986)
997 Lenox Drive Lawrenceville NJ 10,095 2,410 9,700 199
Marine Center - Pier #12 Philadelphia PA - - - 356
Marine Center - Pier #24 Philadelphia PA - - - 59
Marine Center Pier #13-15 Philadelphia PA - - - 106
Gross Amount at Which Carried
December 31, 2003
---------------------------------------------
Accumulated
Depreciation at
Building and December 31, Date of Date Depreciable
Land Improvements Total (a) 2003 (b) Construction Acquired Life
- ------------------------------------ ---- ------------ --------- --------------- ------------ -------- -----------
305 Fellowship Drive $ 1,421 6,557 7,978 1,621 1980 1998 40
305 Harper Drive 223 914 1,137 162 1979 1998 40
307 Fellowship Drive 1,565 6,618 8,183 1,327 1981 1998 40
308 Harper Drive 1,643 7,095 8,738 1,291 1976 1998 40
309 Fellowship Drive 1,518 7,099 8,617 1,442 1982 1998 40
33 West State Street 6,016 24,196 30,212 4,825 1988 1998 40
426 Lancaster Avenue 1,689 6,771 8,460 1,399 1990 1998 40
4364 South Alston Avenue 1,622 7,190 8,812 1,292 1985 1998 40
4805 Lake Brooke Drive 1,640 6,688 8,328 1,192 1996 1998 40
50 East State Street 8,926 36,281 45,207 7,239 1989 1998 40
50 Swedesford Square 3,902 15,619 19,521 2,769 1988 1998 40
500 Nationwide Drive 173 1,637 1,810 367 1977 1998 40
52 Swedesford Square 4,241 17,358 21,599 3,299 1986 1998 40
520 Virginia Drive 845 3,835 4,680 975 1987 1998 40
600 Corporate Circle Drive 363 1,527 1,890 300 1978 1998 40
600 East Main Street 9,808 41,131 50,939 7,483 1986 1998 40
600 Park Avenue 1,012 4,051 5,063 810 1964 1998 40
610 Freedom Business Center 2,017 8,738 10,755 1,989 1985 1998 40
620 Allendale Road 1,020 4,819 5,839 1,034 1961 1998 40
620 Freedom Business Center 2,770 11,812 14,582 2,436 1986 1998 40
630 Clark Avenue 547 2,191 2,738 438 1960 1998 40
630 Freedom Business Center 2,773 11,604 14,377 2,566 1989 1998 40
640 Allendale Road 439 1,759 2,198 97 2001 1998 40
640 Freedom Business Center 4,222 18,344 22,566 3,769 1991 1998 40
650 Park Avenue 1,916 5,281 7,197 1,032 1968 1998 40
660 Allendale Road 396 1,707 2,103 592 1962 1998 40
680 Allendale Road 689 3,434 4,123 784 1962 1998 40
700 East Gate Drive 3,569 15,159 18,728 2,884 1984 1998 40
701 East Gate Drive 1,736 7,465 9,201 1,326 1986 1998 40
7010 Snowdrift Way 818 3,425 4,243 612 1991 1998 40
7150 Windsor Drive 1,035 4,387 5,422 882 1988 1998 40
7350 Tilghman Street 3,414 14,803 18,217 3,049 1987 1998 40
741 First Avenue 1,287 5,361 6,648 1,069 1966 1998 40
7450 Tilghman Street 2,867 12,896 15,763 2,741 1986 1998 40
751-761 Fifth Avenue 1,097 4,394 5,491 879 1967 1998 40
7535 Windsor Drive 3,376 14,147 17,523 2,609 1988 1998 40
755 Business Center Drive 1,362 2,980 4,342 935 1998 1998 40
800 Corporate Circle Drive 414 1,768 2,182 369 1979 1998 40
815 East Gate Drive 636 2,703 3,339 569 1986 1998 40
817 East Gate Drive 611 2,500 3,111 441 1986 1998 40
875 First Avenue 618 5,732 6,350 822 1966 1998 40
9011 Arboretum Parkway 1,857 7,981 9,838 1,492 1991 1998 40
9100 Arboretum Parkway 1,362 6,029 7,391 1,248 1988 1998 40
920 Harvest Drive 2,433 10,240 12,673 2,126 1990 1998 40
9200 Arboretum Parkway 985 4,226 5,211 792 1988 1998 40
9210 Arboretum Parkway 1,110 4,561 5,671 812 1988 1998 40
9211 Arboretum Parkway 582 2,511 3,093 444 1991 1998 40
922 Swedesford Road 218 - 218 - 1986 1998 40
925 Harvest Drive 1,671 6,858 8,529 1,354 1990 1998 40
993 Lenox Drive 2,811 12,010 14,821 2,361 1985 1998 40
997 Lenox Drive 2,410 9,899 12,309 2,040 1987 1998 40
Marine Center - Pier #12 - 356 356 48 1998 40
Marine Center - Pier #24 - 59 59 7 1998 40
Marine Center Pier #13-15 - 106 106 76 1998 40
F-60
Brandywine Operating Partnership, L.P.
Schedule III
Real Estate and Accumulated Depreciation
(in thousands)
Initial Cost
----------------------------------------
Net
Improvements
Encumberances (Retirements)
at December 31, Building and Since
City State 2003 Land Improvements Acquisition
- ----------------------------------- ---------------- ----- --------------- ---- ------------ -------------
Philadelphia Marine Center Philadelphia PA - 532 2,196 37
11 Campus Boulevard Newtown Square PA 4,775 1,112 4,067 595
2000 Lenox Drive Lawrenceville NJ 14,349 2,291 12,221 2,984
630 Allendale Road King of Prussia PA 19,797 2,836 4,028 15,961
630 Dresher Road Horsham PA - 771 3,083 796
7130 Ambassador Drive Allentown PA - 761 3,046 10
1050 Westlakes Drive Berwyn PA - 2,611 10,445 1,762
1700 Paoli Pike East Goshen PA - 458 559 2,923
10 Lake Center Drive Marlton NJ - 1,880 7,521 366
100 Arrandale Boulevard Exton PA - 970 3,878 2
100 Gateway Centre Parkway Richmond VA - 391 5,410 1,256
100 Lindenwood Drive Malvern PA - 473 1,892 527
101 Lindenwood Drive Malvern PA - 4,152 16,606 171
1100 Cassett Road Berwyn PA - 1,695 6,779 4
111 Arrandale Boulevard Exton PA 1,152 262 1,048 1
111/113 Pencader Drive Newark DE - 1,092 4,366 3
1160 Swedesford Road Berwyn PA - 1,781 7,124 430
1180 Swedesford Road Berwyn PA - 2,086 8,342 345
161 Gaither Drive Mt. Laurel NJ - 1,016 4,064 342
17 Campus Boulevard Newtown Square PA 5,197 1,108 5,155 22
200 Lake Drive East Cherry Hill NJ - 2,069 8,275 168
200 Lindenwood Drive Malvern PA - 324 1,295 2
210 Lake Drive East Cherry Hill NJ - 1,645 6,579 164
220 Lake Drive East Cherry Hill NJ - 2,144 8,798 514
30 Lake Center Drive Marlton NJ - 1,043 4,171 145
300 Lindenwood Drive Malvern PA - 848 3,394 237
301 Lindenwood Drive Malvern PA - 2,729 10,915 648
412 Creamery Way Exton PA - 1,195 4,779 436
429 Creamery Way Exton PA 3,235 1,368 5,471 3
436 Creamery Way Exton PA - 994 3,978 14
440 Creamery Way Exton PA 3,093 982 3,927 87
442 Creamery Way Exton PA 2,769 894 3,576 2
457 Creamery Way Exton PA - 777 3,107 2
467 Creamery Way Exton PA - 906 3,623 2
479 Thomas Jones Way Exton PA - 1,075 4,299 260
481 John Young Way Exton PA 2,475 496 1,983 2
555 Croton Road King of Prussia PA 6,209 4,486 17,943 121
7360 Windsor Drive Allentown PA - 1,451 3,618 2,039
Two Righter Parkway Wilmington DE - 2,802 11,217 7
100 Brandywine Boulevard Newtown PA - 1,784 9,811 2,971
1000 Lenox Drive Lawrenceville NJ - 1,174 4,696 3
15 Campus Boulevard West Goshen PA 5,943 1,164 3,896 2,127
200 Commerce Drive Newark DE 6,165 911 4,414 1,552
400 Berwyn Park Berwyn PA 15,726 2,657 4,462 12,947
400 Commerce Drive Newark DE 12,346 2,528 9,220 4,495
401 Plymouth Road Plymouth Meeting PA - 6,198 16,131 16,467
600 Plymouth Mtg Exec Campus Plymouth Meeting PA 12,439 3,652 15,288 266
980 Harvest Drive Blue Bell PA - 2,079 7,821 27
Four Plymouth Mtg Exec Campus Plymouth Meeting PA 11,791 3,572 14,435 198
Three Plymouth Mtg Exec Campus Plymouth Meeting PA 12,078 3,558 14,743 348
Two Paragon Place Richmond VA - 2,917 11,454 760
Two Plymouth Mtg Exec Campus Plymouth Meeting PA 11,991 3,651 14,514 349
565 East Swedesford Road Wayne PA - 1,872 7,489 5
575 East Swedesford Road Wayne PA - 2,178 8,712 6
585 East Swedesford Road Wayne PA - 1,350 5,401 3
595 East Swedesford Road Wayne PA - 2,729 10,917 7
935 First Avenue King of Prussia PA - 3,255 11,693 7
989 Lenox Drive Lawrenceville NJ - 3,701 14,802 8
-------- -------- ---------- ---------
$456,402 $345,022 $1,380,642 $ 144,080
======== ======== ========== =========
Gross Amount at Which Carried
December 31, 2003
---------------------------------------------
Accumulated
Depreciation at
Building and December 31, Date of Date Depreciable
Land Improvements Total (a) 2003 (b) Construction Acquired Life
- ------------------------------------ ---- ------------ --------- --------------- ------------ -------- -----------
Philadelphia Marine Center 532 2,233 2,765 395 1998 40
11 Campus Boulevard 1,112 4,662 5,774 720 1999 1999 40
2000 Lenox Drive 2,291 15,205 17,496 2,518 1999 1999 40
630 Allendale Road 2,836 19,989 22,825 2,654 1999 1999 40
630 Dresher Road 771 3,879 4,650 558 1987 1999 40
7130 Ambassador Drive 761 3,056 3,817 446 1991 1999 40
1050 Westlakes Drive 2,611 12,207 14,818 1,765 1984 2000 40
1700 Paoli Pike 458 3,482 3,940 233 2000 2000 40
10 Lake Center Drive 1,880 7,887 9,767 577 1989 2001 40
100 Arrandale Boulevard 970 3,880 4,850 267 1997 2001 40
100 Gateway Centre Parkway 391 6,666 7,057 724 2001 2001 40
100 Lindenwood Drive 473 2,419 2,892 178 1985 2001 40
101 Lindenwood Drive 4,152 16,777 20,929 1,171 1988 2001 40
1100 Cassett Road 1,695 6,783 8,478 466 1997 2001 40
111 Arrandale Boulevard 262 1,049 1,311 72 1996 2001 40
111/113 Pencader Drive 1,092 4,369 5,461 300 1990 2001 40
1160 Swedesford Road 1,781 7,554 9,335 640 1986 2001 40
1180 Swedesford Road 2,086 8,687 10,773 651 1987 2001 40
161 Gaither Drive 1,016 4,406 5,422 351 1987 2001 40
17 Campus Boulevard 1,108 5,177 6,285 625 2001 2001 40
200 Lake Drive East 2,069 8,443 10,512 597 1989 2001 40
200 Lindenwood Drive 324 1,297 1,621 89 1984 2001 40
210 Lake Drive East 1,645 6,743 8,388 475 1986 2001 40
220 Lake Drive East 2,144 9,312 11,456 781 1988 2001 40
30 Lake Center Drive 1,043 4,316 5,359 303 1986 2001 40
300 Lindenwood Drive 848 3,631 4,479 233 1984 2001 40
301 Lindenwood Drive 2,729 11,563 14,292 839 1986 2001 40
412 Creamery Way 1,195 5,215 6,410 437 1999 2001 40
429 Creamery Way 1,368 5,474 6,842 376 1996 2001 40
436 Creamery Way 994 3,992 4,986 279 1991 2001 40
440 Creamery Way 982 4,014 4,996 296 1991 2001 40
442 Creamery Way 894 3,578 4,472 246 1991 2001 40
457 Creamery Way 777 3,109 3,886 214 1990 2001 40
467 Creamery Way 906 3,625 4,531 249 1988 2001 40
479 Thomas Jones Way 1,075 4,559 5,634 346 1988 2001 40
481 John Young Way 496 1,985 2,481 136 1997 2001 40
555 Croton Road 4,486 18,064 22,550 1,261 1999 2001 40
7360 Windsor Drive 1,451 5,657 7,108 708 2001 2001 40
Two Righter Parkway 2,802 11,224 14,026 1,001 1987 2001 40
100 Brandywine Boulevard 1,784 12,782 14,566 767 2002 2002 40
1000 Lenox Drive 1,174 4,699 5,873 176 1982 2002 40
15 Campus Boulevard 1,164 6,023 7,187 532 2002 2002 40
200 Commerce Drive 911 5,966 6,877 877 1998 2002 40
400 Berwyn Park 2,657 17,409 20,066 1,105 2002 2002 40
400 Commerce Drive 2,528 13,715 16,243 2,381 1997 2002 40
401 Plymouth Road 6,198 32,598 38,796 2,327 2002 2002 40
600 Plymouth Mtg Exec Campus 3,652 15,554 19,206 726 1986 2002 40
980 Harvest Drive 2,079 7,848 9,927 266 1988 2002 40
Four Plymouth Mtg Exec Campus 3,572 14,633 18,205 691 1990 2002 40
Three Plymouth Mtg Exec Campus 3,558 15,091 18,649 713 1988 2002 40
Two Paragon Place 2,917 12,214 15,131 548 1989 2002 40
Two Plymouth Mtg Exec Campus 3,651 14,863 18,514 786 1987 2002 40
565 East Swedesford Road 1,872 7,494 9,366 31 1984 2003 40
575 East Swedesford Road 2,178 8,718 10,896 36 1985 2003 40
585 East Swedesford Road 1,350 5,404 6,754 23 1998 2003 40
595 East Swedesford Road 2,729 10,924 13,653 45 1988 2003 40
935 First Avenue 3,255 11,700 14,955 156 2001 2003 40
989 Lenox Drive 3,701 14,810 18,511 - 1982 2003 40
--------- ---------- ---------- --------
$ 345,022 $1,524,722 $1,869,744 $268,091
========= ========== ========== ========
F-61
(a) Reconciliation of Real Estate:
The following table reconciles the real estate investments from January
1, 2002 to December 31, 2003 (in thousands):
2003 2002 2001
----------- ----------- -----------
Balance at beginning of year $ 1,890,009 $ 1,893,039 $ 1,754,895
Additions:
Acquisitions 59,149 120,627 217,212
Capital expenditures 57,721 94,086 65,210
Less:
Dispositions (135,118) (209,014) (144,278)
Assets transferred to held-for-sale (2,017) (8,729) -
----------- ----------- -----------
Balance at end of year $ 1,869,744 $ 1,890,009 $ 1,893,039
=========== =========== ===========
(b) Reconciliation of Accumulated Depreciation:
The following table reconciles the accumulated depreciation on real
estate investments from January 1, 2003 to December 31, 2003 (in
thousands):
2003 2002 2001
----------- ----------- -----------
Balance at beginning of year $ 245,230 $ 230,793 $ 179,558
Additions:
Depreciation expense - continued operations 51,191 46,190 59,348
Depreciation expense - discontinued operations 695 2,511 10,147
Acquisitions - 1,175 -
Less:
Dispositions (28,663) (34,204) (18,260)
Assets transferred to held-for-sale (362) (1,235) -
----------- ----------- -----------
Balance at end of year $ 268,091 $ 245,230 $ 230,793
=========== =========== ===========
F-62