SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 23, 1997
BRANDYWINE REALTY TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 1-9106 23-2413352
(State or other jurisdiction (Commission file number) (I.R.S. Employer
of incorporation) Identification Number)
16 Campus Boulevard, Newtown Square, Pennsylvania 19073
(Address of principal executive offices)
(610) 325-5600
(Registrant's telephone number, including area code)
Page 1 of 10 pages
Item 2. Acquisition or Disposition of Assets.
On May 23, 1997, Brandywine Operating Partnership, L.P. (the
"Operating Partnership"), a limited partnership of which Brandywine Realty Trust
(the "Company") is the sole general partner, acquired a 10 property portfolio of
office and flex/warehouse space (collectively, the "TA Properties") containing
an aggregate of approximately 687,821 net rentable square feet, as more fully
described below:
1. Oxford Corporate Center, Langhorne, Bucks County, PA,
contains three flex/warehouse buildings aggregating approximately 115,390 net
rentable square feet. As of May 23, 1997, this property was approximately 93.4%
leased to eight tenants. Ecogen, Inc. is the largest tenant.
2. Springhouse Corporate Center, Lower Gwynedd, Montgomery
County, PA, contains two office buildings aggregating approximately 139,467 net
rentable square feet. As of May 23, 1997, this property was 100% leased to 14
tenants. Bisys Plan Services is the largest tenant.
3. Greentree Commons, Evesham Township, Burlington County, NJ,
is a single-story garden office complex aggregating approximately 43,976 net
rentable square feet. As of May 23, 1997, this property was approximately 88.2%
leased to 22 tenants.
4. Highlands Business Center, Westampton, Burlington County,
NJ, contains four flex/warehouse buildings aggregating approximately 388,988 net
rentable square feet. As of May 23, 1997, this property was approximately 97.0%
leased to 11 tenants. The largest tenant is Pepsi Food Services. In addition to
four developed parcels, the property contains eight undeveloped parcels with an
area of approximately 37 acres.
The net purchase price for the TA Properties totaled
$41,625,000. The Operating Partnership paid the purchase price and closing
expenses of approximately $620,000 through a borrowing under the revolving
credit facility previously established with Smith Barney Mortgage Capital Group,
Inc., and NationsBank, N.A.
The sellers of the TA Properties, (i) Advent Realty Limited
Partnership, a Delaware limited partnership, by Advent Realty G.P. Limited
Partnership, a Delaware limited partnership, its general partner, and (ii)
Advent Realty Limited Partnership II, a Delaware limited partnership, by Advent
Realty G.P. II Limited Partnership, a Delaware limited partnership, general
partner and by Advent Real Estate Investment Texas Corporation, a Texas
corporation, general partner (collectively, the "Sellers") are parties
unaffiliated with the Company and the Operating Partnership. The purchase price
for the TA Properties was determined by arm's-length negotiation between the
Company and the Sellers.
-2-
The table set forth below shows certain information regarding
rental rates and lease expirations for the TA Properties.
Scheduled Lease Expirations
(The TA Properties)
Number of Leases Rentable Square Final Annualized Percentage of Total
Year of Expiring Within Footage Subject Base Rent from the Final Annualized Base
Lease the Year at the to Expiring Leases TA Properties under Rent from the TA Properties
Expiration TA Properties (1) at the TA Properties Expiring Leases (2) Under Expiring Leases
---------- ----------------- -------------------- ------------------- ---------------------
1997 10 42,372 $ 651,364 11.7%
1998 12 52,542 405,574 7.3%
1999 13 188,693 1,027,218 18.5%
2000 10 84,896 889,084 16.0%
2001 5 58,787 784,630 14.1%
2002 7 195,754 1,606,772 28.9%
2003 - - - -
2004 - - - -
2005 - - - -
2006 and
Thereafter 1 40,188 193,706 3.5%
--------- -------------- ------------------ -------------
Total 58 663,232 $ 5,558,348 100.0%
========= ============== ================== =============
(1) A lease is considered to expire if, and at any time, it is terminable by the
tenant without payment of penalty or premium.
(2) "Final Annualized Base Rent" for each lease scheduled to expire represents
the cash rental rate in the final month prior to expiration multiplied by
twelve.
On May 30, 1997, the Operating Partnership acquired a six
property portfolio of office space (collectively, the "Emmes Properties")
containing an aggregate of approximately 608,008 net rentable square feet, as
more fully described below:
1. Laurel Corporate Center, Mount Laurel, NJ, contains five
office properties (2000, 4000, 9000, 10000 and 15000 Midlantic Drive)
aggregating approximately 495,103 net rentable square feet. As of May 30, 1997,
the properties were approximately 79.8% leased to 21 tenants. Significant
tenants include New Jersey Bell Telephone, QAD, Inc., and Automotive Rentals,
Inc.
2. 7000 Geerdes Boulevard, King of Prussia, PA, is a 112,905
square foot office property. As of May 30, 1997, this property was 100% leased
to Martin Marietta.
-3-
The net purchase price for the Emmes Properties totaled
$66,200,000. The Operating Partnership paid the purchase price, and closing
expenses of approximately $294,000 as follows: (i) $14,275,000 was paid through
a borrowing under the revolving credit facility previously established with
Smith Barney Mortgage Capital Group, Inc. and NationsBank, N.A. and (ii) the
balance and closing expenses were paid through a borrowing under the Bridge Loan
established with Smith Barney Mortgage Capital Group, Inc. and NationsBank, N.A.
as defined in Item 5 of this filing.
The seller of the Emmes Properties, EDB Property Partners,
L.P. I, a Delaware limited partnership, by Emmes Laurel Property Corp., a
general partner (the "Emmes Seller"), is unaffiliated with the Company and the
Operating Partnership. The purchase price for the Emmes Properties was
determined by arm's-length negotiation between the Company and the Emmes Seller.
The table set forth below shows certain information regarding
rental rates and lease expirations for the Emmes Properties.
Scheduled Lease Expirations
(The Emmes Properties)
Number of Leases Rentable Square Final Annualized Percentage of Total
Year of Expiring Within Footage Subject Base Rent from the Final Annualized Base Rent
Lease the Year at the to Expiring Leases at Emmes Properties under from the Emmes Properties
Expiration Emmes Properties (1) the Emmes Properties Expiring Leases (2) Under Expiring Leases
---------- -------------------- -------------------- ------------------- ---------------------
1997 2 14,341 $ 194,800 2.8%
1998 3 20,591 255,116 3.6%
1999 4 158,931 1,899,474 27.0%
2000 5 108,323 1,389,319 19.8%
2001 4 76,068 1,042,933 14.8%
2002 2 41,176 790,911 11.3%
2003 - - - -
2004 1 13,956 127,139 1.8%
2005 - - - -
2006 and
Thereafter 1 74,728 1,326,048 18.9%
--------- -------------- ------------------
Total 22 508,114 $ 7,025,740 100.0%
========= ============== ================== =============
(1) A lease is considered to expire if, and at any time, it is terminable by the
tenant without payment of penalty or premium.
(2) "Final Annualized Base Rent" for each lease scheduled to expire represents
the cash rental rate in the final month prior to expiration multiplied by
twelve.
On June 5, 1997, the Operating Partnership acquired two
office buildings, 748 Springdale Road and 855 Springdale Road, located in West
Whiteland Township, Chester County, PA (collectively, "Springdale"), for a net
purchase price of $5,250,000. The buildings contain approximately 64,592 net
rentable square feet. As of June 5, 1997, the buildings were approximately 96%
leased to three tenants. Environmental Resources Management, Inc. is the largest
tenant. The pro forma information contained within this filing does not reflect
the Springdale acquisition.
-4-
After giving effect to the acquisitions of the TA Properties,
the Emmes Properties and Springdale, the Company's portfolio consists of 69
office properties and 5 industrial properties that contain an aggregate of
approximately 4.2 million net rentable square feet.
-5-
Item 5. Other Events
On May 12, 1997, the Annual Meeting of Shareholders of the Company was
held and action was taken on four matters described in the Company's proxy
statement prepared in connection with such meeting. A brief description of each
matter and the voting results follows:
1. The election of seven trustees (Anthony A. Nichols, Sr., Gerard H.
Sweeney, Joseph L. Carboni, Richard M. Osborne, Warren V. Musser,
Walter D'Alessio, and Charles P. Pizzi) to the Board of Trustees to
serve a term until the next annual meeting of shareholders and until
his successor is duly elected and qualified. The voting results are
summarized below:
Trustee For Withheld Total
------- --- -------- -----
Anthony A. Nichols, Sr. 9,017,147 91,455 9,108,602
Gerard H. Sweeney 9,017,552 91,050 9,108,602
Joseph L. Carboni 9,025,247 83,355 9,108,602
Richard M. Osborne 9,005,547 103,055 9,108,602
Warren V. Musser 9,021,786 86,816 9,108,602
Walter D'Alessio 9,016,952 91,650 9,108,602
Charles P. Pizzi 9,022,581 86,021 9,108,602
2. The conversion of the Company's outstanding Series A convertible
preferred shares of beneficial interest into common shares of
beneficial interest received votes as follows:
6,134,924 Votes in favor
46,758 Votes against
34,119 Abstentions
1,468,064 Broker non-votes
3. An amendment to the Declaration of Trust of the Company to permit the
Board of Trustees to alter the number of authorized shares of
beneficial interest in the Company received votes as follows:
8,722,180 Votes in favor
310,676 Votes against
37,457 Abstentions
1,463,026 Broker non-votes
4. Adoption of the 1997 Long-Term Incentive Plan received votes as
follows:
7,224,607 Votes in favor
1,803,875 Votes against
41,831 Abstentions
1,463,026 Broker non-votes
-6-
Each of the matters presented above received a sufficient amount of
votes to be approved.
On May 22, 1997, Mr. Joseph L. Carboni died. Mr. Carboni served as a
Trustee of the Company since May 1991. The Company recognizes Mr. Carboni's
valuable contributions and is grateful for his years of service.
Smith Barney Mortgage Capital Group, Inc. and NationsBank, N.A. (the
"Co-Lenders") agreed to loan the Company up to $70,000,000 (the "Bridge Loan")
for the purpose of acquiring the Emmes Properties and other potential
acquisitions. As of the date of this Current Report, the Bridge Loan is
collateralized by first lien mortgages and assignments of rents and leases on
the TA Properties, the Emmes Properties and the Company's recent 5 Eves Drive
and Greentree Executive Campus acquisitions in New Jersey. The Bridge Loan is
also collateralized by certain guaranties and indemnification agreements
supplied by the Company and various subsidiaries.
The Bridge Loan may be funded in up to four separate advances, accrues
interest at a designated Libor rate, and is prepayable without fee or penalty
upon certain designated re-set dates (but not otherwise), and matures on July
30, 1997. The Company expects to refinance the Bridge Loan with an increase
under its existing revolving credit facility.
In the event the Company is unable to refinance the Bridge Loan
through an increase in its existing revolving credit facility, the Company will
be required to refinance the Bridge Loan through an alternative source.
-7-
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
The audited statement of revenue and certain operating
expenses of the TA Properties for the year ended December 31,
1996 and the unaudited statements of revenue and certain
operating expenses for the three months ended March 31, 1997
and March 31, 1996 are included on pages F-13 to F-16.
The audited statement of revenue and certain operating
expenses of the Emmes Properties for the year ended December
31, 1996 and the unaudited statements of revenue and certain
operating expenses for the three months ended March 31, 1997
and March 31, 1996 are included on pages F-17 to F-20.
(b) Pro Forma Financial Information.
Pro forma financial information which reflects the Company's
acquisition of the TA Properties and the Emmes Properties as
of and for the three months ended March 31, 1997 and for the
year ended December 31, 1996 are included on pages F-1 to
F-12.
(c) Exhibits.
3.1 Amended and Restated Declaration of Trust
10.1 Agreement of Purchase and Sale - by and between
Advent Realty Limited Partnership and Advent Realty
Limited Partnership II and the Company regarding
Oxford Corporate Center, Bucks County, PA;
Springhouse Corporate Center, Montgomery County, PA;
Greentree Commons, Burlington County, NJ; and
Highlands Business Center, Burlington County, NJ.
10.2 Agreement of Sale - by and between EDB Property
Partners, L.P. I a Delaware limited partnership and
the Company regarding (i) 7000 Geerdes Boulevard,
located in King of Prussia, Pennsylvania and (ii)
2000/4000 Midlantic Drive, 9000 Midlantic Drive,
10000 Midlantic Drive and 15000 Midlantic Drive,
located in Mount Laurel, New Jersey.
10.3 Amendment No. 3 to Agreement of Limited Partnership
of Brandywine Operating Partnership, L.P.
-8-
Exhibits 10.4 to 10.11 relate to the Bridge Loan as defined
in Item 5
10.4 $35,000,000 Note (NationsBank, N.A.)
10.5 $35,000,000 Note (Smith Barney Mortgage Capital
Group, Inc.)
10.6 Credit Agreement
10.7 Form of Pennsylvania Mortgage
10.8 Form of New Jersey Mortgage
10.9 Assignment of Leases and Rents
10.10 Guaranty of Payment
10.11 Hazardous Material Guaranty and Indemnification
Agreement
23.1 Consent of Arthur Andersen LLP
-9-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRANDYWINE REALTY TRUST
Date: June 9, 1997 By: /s/ Gerard H. Sweeney
---------------------
Title: President and Chief Executive
Officer
-10-
BRANDYWINE REALTY TRUST
INDEX TO FINANCIAL STATEMENTS
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
o Pro Forma Condensed Consolidating Balance Sheet as of March 31, 1997..............F - 4
o Pro Forma Condensed Consolidating Statement of Operations for the
Year Ended December 31, 1996......................................................F - 5
o Pro Forma Condensed Consolidating Statement of Operations for the
Three Months Ended March 31, 1997.................................................F - 6
o Notes and Management's Assumptions to Unaudited Pro Forma Condensed
Consolidating Financial Information...............................................F - 7
II TA PROPERTIES
o Report of Independent Public Accountants..........................................F - 13
o Combined Statements of Revenue and Certain Expenses for the Year
Ended December 31, 1996 (audited) and for the Three Month Periods
Ended March 31, 1997 and March 31, 1996 (unaudited)...............................F - 14
o Notes to Combined Statements of Revenue and Certain Expenses......................F - 15
III EMMES PROPERTIES
o Report of Independent Public Accountants..........................................F - 17
o Combined Statements of Revenue and Certain Expenses for the Year
Ended December 31, 1996 (audited) and for the Three Month Periods
Ended March 31, 1997 and March 31, 1996 (unaudited)...............................F - 18
o Notes to Combined Statements of Revenue and Certain Expenses......................F - 19
F-1
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following sets forth the pro forma condensed consolidating balance
sheet of Brandywine Realty Trust ("the Company") as of March 31, 1997 and the
pro forma condensed consolidating statements of operations for the three months
ended March 31, 1997 and for the year ended December 31, 1996.
The pro forma condensed consolidating financial information should be
read in conjunction with the historical financial statements of (i) the Company;
(ii) the 19 "SSI/TNC" Properties acquired in August 1996; (iii) the LibertyView
Building acquired in July 1996; (iv) the 1996 Additional Acquisition Properties,
consisting of (a) the nine properties (the "SERS Properties") acquired in
November 1996 from the Pennsylvania State Employees Retirement System ("SERS")
and its subsidiaries, (b) Delaware Corporate Center I, (c) 700/800 Business
Center Drive and (d) 8000 Lincoln Drive; (v) the Columbia Acquisition Properties
acquired in January 1997; (vi) the Main Street Acquisition Properties acquired
in March 1997; (vii) the TA Properties acquired in May 1997; and (viii) the
Emmes Properties acquired in May 1997.
The unaudited pro forma condensed consolidating financial information
is presented as if the following events occurred no later than March 31, 1997,
for balance sheet purposes, and at the beginning of the period presented, for
purposes of the statements of operations:
- The Company acquired the LibertyView Building.
- The Company acquired its partnership interests in Brandywine Operating
Partnership, L.P. (the "Operating Partnership").
- The Operating Partnership acquired the 19 SSI/TNC Properties.
- The $774,000 loan from Turkey Vulture Fund XIII, Ltd. (the "RMO Fund")
was satisfied by the issuance of 46,321 Paired Units to the RMO Fund.
Each Paired Unit consists of one Common Share and a warrant exercisable
for one Common Share at a price of $19.50.
- The Company issued 4,600,000 Common Shares at $16.50 per share, of
which 600,000 shares related to the underwriter's exercise of the
over-allotment option (the "1996 Offering").
- The Operating Partnership acquired the 1996 Additional Acquisition
Properties for: (i) 481,818 Series A Convertible Preferred Shares
convertible into 1,606,060 Common Shares valued at $26,444,000; (ii)
discounted deferred payments of $3,225,000; (iii) warrants to purchase
133,333 Common Shares at an exercise price of $25.50 valued at $56,000
and (iv) $23,658,000 of cash.
- The Company issued 636,363 Common Shares at $16.50 per share to a
voting trust established for the benefit of SERS, in exchange for $10.5
million (the "SERS Offering") and contributed such proceeds to the
Operating Partnership in exchange for 636,363 units of general
partnership interest ("GP Units") in the Operating Partnership.
- The Company issued 709,090 Common Shares at $16.50 per share to two
investment funds managed by Morgan Stanley Asset Management Inc. (the
"Morgan Stanley Offering") and contributed the proceeds to the
Operating Partnership in exchange for 709,090 GP Units.
F-2
- The Operating Partnership repaid $49,805,000 of mortgage indebtedness
and $764,000 of loans made by Safeguard Scientifics, Inc. and paid a
$500,000 prepayment penalty with a portion of the proceeds of the 1996
Offering, the SERS Offering and the Morgan Stanley Offering.
- The Operating Partnership acquired the Columbia Acquisition Properties
for $31,481,000, including closing costs of $181,000, paid as follows:
(i) $7,000,000 of borrowings under the Company's revolving credit
facility, (ii) $12,157,000 through an assumption by the Operating
Partnership of mortgage indebtedness encumbering two of the office
buildings and (iii) the $12,324,000 balance from cash reserves.
- The Company issued 2,375,500 Common Shares at $20.625 per share, of
which 175,500 shares related to the underwriter's exercise of the
over-allotment option (the "1997 Offering").
- The Operating Partnership acquired the Main Street Acquisition
Properties for $21,583,000, including $83,000 of closing costs, paid as
follows: (i) cash of $19,683,000 and (ii) assumed debt of $1,900,000.
- The Operating Partnership acquired 1336 Enterprise Drive, Greentree
Executive Campus, Five Eves Drive and Kings Manor (the "Other 1997
Acquisitions") for approximately $21,785,000, including closing costs
of approximately $168,000, paid using existing cash reserves and
borrowings under the Company's revolving credit facility.
- The Operating Partnership acquired the TA Properties for $42,245,000,
including $620,000 of closing costs, paid through a borrowing under the
Company's revolving credit facility.
- The Operating Partnership acquired the Emmes Properties for
$66,494,000, including $294,000 of closing costs, paid as follows: (i)
$14,275,000 of borrowings under the Company's revolving credit facility
and (ii) the balance through a borrowing under the Bridge Loan.
The pro forma condensed consolidating financial information is unaudited
and is not necessarily indicative of what the actual financial position
would have been at March 31, 1997, nor does it purport to represent the
future financial position and the results of operations of the Company.
F-3
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1997 (Notes 1 and 2)
(Unaudited)
(In thousands)
BRANDYWINE OTHER EVENTS
REALTY TRUST SUBSEQUENT TA EMMES
HISTORICAL TO MARCH 31, PROPERTIES PROPERTIES PRO FORMA
CONSOLIDATED 1997 (A) (B) (C) CONSOLIDATED
--------- --------- --------- --------- ---------
ASSETS:
Real estate investments, net $ 208,825 $ 18,147 $ 42,245 $ 66,494 $ 335,711
Cash and cash equivalents 18,398 (3,550) -- -- 14,848
Escrowed cash 1,612 -- -- -- 1,612
Accounts receivable 2,074 -- -- -- 2,074
Due from affiliates 479 -- -- -- 479
Investment in management company 116 -- -- -- 116
Deferred costs and other assets 4,850 -- -- -- 4,850
--------- --------- --------- --------- ---------
Total assets 236,354 14,597 42,245 66,494 359,690
========= ========= ========= ========= =========
LIABILITIES:
Mortgages and notes payable 46,848 14,597 42,245 66,494 170,184
Accrued interest 257 -- -- -- 257
Accounts payable and accrued expenses 3,223 -- -- -- 3,223
Distributions payable 4,064 -- -- -- 4,064
Tenant security deposits and deferred rents 2,157 -- -- -- 2,157
--------- --------- --------- --------- ---------
Total liabilities 56,549 14,597 42,245 66,494 179,885
--------- --------- --------- --------- ---------
MINORITY INTEREST 6,356 -- -- -- 6,356
--------- --------- --------- --------- ---------
CONVERTIBLE PREFERRED SHARES 23,458 -- -- -- 23,458
--------- --------- --------- --------- ---------
BENEFICIARIES' EQUITY:
Common shares of beneficial interest 96 -- -- -- 96
Additional paid-in capital 162,885 -- -- -- 162,885
Share warrants 962 -- -- -- 962
Cumulative deficit (1,198) -- -- -- (1,198)
Cumulative distributions (12,754) -- -- -- (12,754)
--------- --------- --------- --------- ---------
Total beneficiaries' equity 149,991 -- -- -- 149,991
--------- --------- --------- --------- ---------
Total liabilities and beneficiaries equity $ 236,354 $ 14,597 $ 42,245 $ 66,494 $ 359,690
========= ========= ========= ========= =========
F-4
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (Notes 1 and 3)
(Unaudited)
(In thousands, except share and per share amounts)
1997 EVENTS
BRANDYWINE --------------------------------
REALTY
TRUST TA EMMES TOTAL
HISTORICAL 1996 OTHER PROPERTIES PROPERTIES PRO FORMA
CONSOLIDATED (A) EVENTS (B) SUBTOTAL EVENTS (D) (E) (F) CONSOLIDATED
----------------- ----------- --------- --------- -------- ---------- -----------
REVENUE:
Base rents $ 8,462 $ 12,646 $ 21,108 $ 11,913 $ 5,102 $ 6,214 $ 44,337
Tenant reimbursements 1,372 2,838 4,210 1,249 735 2,681 8,875
Other 196 100 296 377 9 10 692
-------- -------- -------- -------- -------- -------- --------
Total Revenue 10,030 15,584 25,614 13,539 5,846 8,905 53,904
-------- -------- -------- -------- -------- -------- --------
OPERATING EXPENSES:
Interest 2,751 513 3,264 2,250 3,168 4,987 13,669
Depreciation and amortization 2,836 4,687 7,523 2,334 1,352 2,128 13,337
Property expenses 3,709 6,830 10,539 5,830 1,962 3,482 21,813
General and administrative 825 148 973 -- -- -- 973
-------- -------- -------- -------- -------- -------- --------
Total operating expenses 10,121 12,178 22,299 10,414 6,482 10,597 49,792
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority
interest (91) 3,406 3,315 3,125 (636) (1,692) 4,112
Minority interest in (income) loss (45) (429) (474) 10 22 59 (383)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before uncombined entity (136) 2,977 2,841 3,135 (614) (1,633) 3,729
Equity in income of management company (26) 66 40 -- 105 65 210
-------- -------- -------- -------- -------- -------- --------
Net income (loss) (162) 3,043 2,881 3,135 (509) (1,568) 3,939
(Income) loss allocated to Preferred Shares (401) (1,847) (2,248) -- -- -- (2,248)
-------- -------- -------- -------- -------- -------- --------
Income (loss) allocated to Common Shares $ (563) $ 1,196 $ 633 $ 3,135 $ (509) $ (1,568) $ 1,691
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per Common Share $ (0.43) $ 0.18
========= ========
Weighted average number of shares
outstanding including share
equivalents 1,302,648 9,291,406
--------- ---------
F-5
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (Notes 1 and 3)
(Unaudited)
(In thousands, except share and per share amounts)
1997 EVENTS
BRANDYWINE -----------------------------------
REALTY
TRUST TA EMMES TOTAL
HISTORICAL OTHER PROPERTIES PROPERTIES PRO FORMA
CONSOLIDATED (A) EVENTS (C) (E) (F) CONSOLIDATED
---------------- --------- ----------- ------------- -----------
REVENUE:
Base rents $ 6,999 $ 1,744 $ 1,292 $ 1,542 $ 11,577
Tenant reimbursements 1,327 212 188 678 2,405
Other 272 25 4 1 302
-------- -------- -------- -------- --------
Total Revenue 8,598 1,981 1,484 2,221 14,284
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Interest 975 341 781 1,230 3,327
Depreciation and amortization 2,310 340 333 525 3,508
Property operating expenses 2,810 910 439 799 4,958
Other expenses 484 -- -- -- 484
-------- -------- -------- -------- --------
Total operating expenses 6,579 1,591 1,553 2,554 12,277
-------- -------- -------- -------- --------
Income (loss) before minority interest 2,019 390 (69) (333) 2,007
Minority interest in (income) loss (94) (14) 2 12 (94)
-------- -------- -------- -------- --------
Income (loss) before uncombined entity 1,925 376 (67) (321) 1,913
Equity in income of management company 125 -- 26 16 167
-------- -------- -------- -------- --------
Net income (loss) 2,050 376 (41) (305) 2,080
(Income) loss allocated to Preferred Shares (499) -- -- -- (499)
-------- -------- -------- -------- --------
Income (loss) allocated to Common Shares $ 1,551 $ 376 $ (41) $ (305) $ 1,581
======== ======== ======== ======== ========
Earnings (loss) per Common Share $ 0.20 $ 0.17
======== ========
Weighted average number of shares
outstanding including share equivalents 7,776,607 9,464,807
--------- ---------
F-6
BRANDYWINE REALTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
Brandywine Realty Trust (the "Company") is a Maryland real estate
investment trust. As of March 31, 1997, the Company owned 50 properties. The
Company's interest in 49 of the Properties is held through Brandywine Operating
Partnership, L.P. (the "Operating Partnership"). The Company is the sole general
partner of the Operating Partnership and as of March 31, 1997, the Company held
a 96.5% interest in the Operating Partnership.
These pro forma financial statements should be read in conjunction with
the historical financial statements and notes thereto of the Company, the
SSI/TNC Properties, the LibertyView Building, the 1996 Additional Acquisition
Properties, the Columbia Acquisition Properties, the Main Street Acquisition
Properties, the TA Properties and the Emmes Properties. In management's opinion,
all adjustments necessary to reflect the effects of the 1996 Offering, the SERS
Offering, the Morgan Stanley Offering, the 1997 Offering, the acquisitions of
the SSI/TNC Properties, the LibertyView Building, the 1996 Additional
Acquisition Properties, the Columbia Acquisition Properties, the Main Street
Acquisition Properties, the Other 1997 Acquisitions, the TA Properties and the
Emmes Properties by the Company have been made.
2. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET:
(A) Reflects the Company's acquisition of the Other 1997 Acquisitions
(only those acquisitions which occurred after March 31, 1997 are included as
1336 Enterprise Drive is included in the Company's historical March 31, 1997
balance sheet) based upon the respective purchase prices and closing costs as
follows:
TOTAL OTHER
GREENTREE EVENTS
EXECUTIVE FIVE EVES SUBSEQUENT TO
KINGS MANOR CAMPUS DRIVE MARCH 31, 1997
----------- ------ ----- --------------
Purchase Price $ 3,500 $11,150 $ 3,375 $18,025
Closing Costs 50 59 13 122
------- ------- ------- -------
$ 3,550 $11,209 $ 3,388 $18,147
(B) Reflects the Company's acquisition of the TA Properties based upon
the purchase price plus closing costs as follows:
TA Properties
-------------
Purchase Price $ 41,625
Closing Costs 620
-------------
$ 42,245
F-7
(C) Reflects the Company's acquisition of the Emmes Properties based
upon the purchase price plus closing costs as follows:
Emmes Properties
-------------
Purchase Price $ 66,200
Closing Costs 294
-------------
$ 66,494
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
(A) Reflects the historical consolidated operations of the Company.
(B) Reflects the historical operations of the SSI/TNC Properties,
LibertyView Building and the 1996 Additional Acquisition Properties from January
1, 1996 through the respective dates of acquisition, plus the pro forma 1996
Offering adjustments. The table below reflects the adjustments:
SSI/TNC 1996
Properties Pro Forma
and Delaware 700/800 & Other Total
Liberty View SERS Corporate Business Center 8000 Lincoln Offering Pro Forma
Building Properties Center Drive Drive Adjustments 1996 Events
------- ---------- ------ -------------- ----------- ----------- -----------
Revenue:
Base rents $ 5,714 $ 4,008 $ 2,036 $ 651 $ 237 $ -- $ 12,646
Tenant reimbursements 2,511 249 -- 76 2 -- 2,838
Other 100 -- -- -- -- -- 100
-------- -------- -------- -------- -------- -------- --------
Total revenue 8,325 4,257 2,036 727 239 -- 15,584
Operating Expenses:
Interest 3,783 194 -- -- -- (3,464) 513
Depreciation and amortization 2,819 818 374 212 89 375 4,687
Property expenses 2,831 2,217 552 270 231 729 6,830
General and administrative 715 -- -- -- -- (567) 148
-------- -------- -------- -------- -------- -------- --------
Total operating expenses 10,148 3,229 926 482 320 (2,927) 12,178
Income (loss) before minority interest (1,823) 1,028 1,110 245 (81) 2,927 3,406
Minority interest in (income) loss 513 -- -- -- -- (942) (429)
Income (loss) before uncombined entity (1,310) 1,028 1,110 245 (81) 1,985 2,977
Equity in income of management company 75 -- -- -- -- (9) 66
-------- -------- -------- -------- -------- -------- --------
Net income (loss) (1,235) 1,028 1,110 245 (81) 1,976 3,043
Income allocated to Preferred Shares -- -- -- -- -- 1,847 1,847
-------- -------- -------- -------- -------- -------- --------
Income (loss) allocated to Common Shares $ (1,235) $ 1,028 $ 1,110 $ 245 $ (81) $ 129 $ 1,196
======== ======== ======== ======== ======== ======== ========
F-8
(C) Reflects the pro forma adjustments relating to the Columbia
Acquisition Properties, the Main Street Acquisition Properties and the 1997
Other Acquisitions for the three months ended March 31, 1997 and other pro forma
adjustments to reflect the 1997 Offering for the three months ended March 31,
1997. The operating results reflected below include the historical results and
related pro forma adjustments to reflect the period January 1, 1997 through the
respective acquisition dates. Operating results from those dates forward are
included in the historical results of the Company.
Other 1997 Acquisitions
Main -----------------------------------------
Columbia Street 1336 Greentree Five
Acquisition Acquisition Enterprise Kings Executive Eves 1997 Total Other
Properties Properties Drive Manor Campus Drive Offering 1997 Events
---------- ---------- ----------- ----- ------ ----- -------- -----------
Revenue:
Base rents $ 338 $ 542 $ 78 $ 101 $ 599 $ 86 $ -- $1,744
Tenant reimbursements 24 60 13 26 79 10 -- 212
Other 25 -- -- -- -- -- -- 25
------ ------ ------ ------ ------ ------ ------ ------
Total revenue 387 602 91 127 678 96 -- 1,981
Operating Expenses:
Interest (i) 110 -- -- -- 207 63 (39) 341
Depreciation and amortization (ii) 66 109 21 28 89 27 -- 340
Property expenses 130 379 19 42 303 37 -- 910
General and administrative -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses 306 488 40 70 599 127 (39) 1,591
Income (loss) before minority interest 81 114 51 57 79 (31) 39 390
Minority interest in (income) loss (3) (4) (2) (2) (3) 1 (1) (14)
Income (loss) before uncombined entity 78 110 49 55 76 (30) 38 376
Equity in income of management company -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) 78 110 49 55 76 (30) 38 376
Income allocated to Preferred Shares -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) allocated to Common Shares $ 78 $ 110 $ 49 $ 55 $ 76 $ (30) $ 38 $ 376
====== ====== ====== ====== ====== ====== ====== ======
(i) Pro forma interest expense is presented assuming an effective rate of 7.5%
on borrowings under the Company's revolving credit facility. The adjustment for
the Columbia Acquisition Properties also reflects an effective interest rate of
9.5% on assumed debt. The adjustment for the 1997 Offering represents interest
savings related to the payoff of $7 million of credit facility borrowings at an
effective rate of 7.5%.
(ii) Pro forma depreciation expense is presented assuming an 80% building and
20% land allocation of the purchase price and capitalized closing costs and
assumes a useful life of 25 years.
F-9
(D) Reflects the pro forma statements of operations of the Columbia
Acquisition Properties, the Main Street Acquisition Properties and the 1997
Other Acquisitions for the year ended December 31, 1996 and other pro forma
adjustments to reflect the 1997 Offering for the year ended December 31, 1996.
The operating results reflected below include the historical results and related
pro forma adjustments to reflect the period January 1, 1996 through the earlier
of the respective acquisition dates or December 31, 1996. Operating results from
those dates forward are included in the historical results of the Company.
1997 Other Acquisitions
Main -----------------------------------------
Columbia Street 1336 Greentree Five
Acquisition Acquisition Enterprise Kings Executive Eves 1997 Total Other
Properties Properties Drive Manor Campus Drive Offering 1997 Events
---------- ---------- ----------- ----- ------ ----- -------- -----------
Revenue:
Base rents $ 5,146 $ 3,141 $ 437 $ 411 $ 2,430 $ 348 $ -- $11,913
Tenant reimbursements 359 347 75 107 322 39 -- 1,249
Other 376 -- -- -- -- 1 -- 377
------- ------- ------- ------- ------- ------- ------- -------
Total revenue 5,881 3,488 512 518 2,752 388 -- 13,539
Operating Expenses:
Interest (i) 1,680 -- -- -- 841 254 (525) 2,250
Depreciation and amortization (ii) 1,007 629 117 114 359 108 -- 2,334
Property expenses 1,979 2,194 107 170 1,229 151 -- 5,830
General and administrative -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses 4,666 2,823 224 284 2,429 513 (525) 10,414
Income (loss) before minority interest 1,215 665 288 234 323 (125) 525 3,125
Minority interest in (income) loss -- -- -- -- -- -- (29) 10
Income (loss) before uncombined entity 1,215 665 288 234 323 (125) 496 3,135
Equity in income of management company -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) 1,215 665 288 234 323 (125) 496 3,135
Income allocated to Preferred Shares -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) allocated to Common Shares $ 1,215 $ 665 $ 288 $ 234 $ 323 $ (125) $ 496 $ 3,135
======= ======= ======= ======= ======= ======= ======= =======
(i) Pro forma interest expense is presented assuming an effective rate of 7.5%
on borrowings under the Company's revolving credit facility. The adjustment for
the Columbia Acquisition Properties also reflects an effective interest rate of
9.5% on assumed debt. The adjustment for the 1997 Offering represents interest
savings related to the payoff of $7 million of credit facility borrowings at an
effective rate of 7.5%.
(ii) Pro forma depreciation expense is presented assuming an 80% building and
20% land allocation of the purchase price and capitalized closing costs and
assumes a useful life of 25 years.
F-10
(E) Reflects the pro forma statements of operations of the TA
Properties for the three months ended March 31, 1997 and for the year ended
December 31, 1996. All amounts represent historical operations of the TA
Properties except for the pro forma adjustments noted:
TA PROPERTIES
---------------------------
Three
Year Months
Ended Ended
December March
31, 1996 31, 1997
-------- --------
Revenue:
Base rents $ 5,102 $ 1,292
Tenant reimbursements 735 188
Other 9 4
------- -------
Total revenue 5,846 1,484
Operating Expenses:
Interest (i) 3,168 781
Depreciation and amortization (ii) 1,352 333
Property expenses 1,962 439
General and administrative -- --
------- -------
Total operating expenses 6,482 1,553
Income (loss) before minority interest (636) (69)
Minority interest in (income) loss 22 2
Income (loss) before uncombined entity (614) (67)
Equity in income of management company 105 26
------- -------
Net income (loss) (509) (41)
Income allocated to Preferred Shares -- --
------- -------
Income (loss) allocated to Common Shares $ (509) $ (41)
======= =======
(i) Pro forma interest expense is presented assuming an effective rate of 7.5%
on borrowings under the Company's revolving credit facility.
(ii) Pro forma depreciation expense is presented assuming an 80% building and
20% land allocation of the purchase price and capitalized closing costs and
assumes a useful life of 25 years.
F-11
(F) Reflects the pro forma statements of operations of the Emmes
Properties for the three months ended March 31, 1997 and for the year ended
December 31, 1996. All amounts represent historical operations of the Emmes
Properties except for the pro forma adjustments noted:
EMMES PROPERTIES
---------------------------
Three
Year Months
Ended Ended
December March
31, 1996 31, 1997
-------- --------
Revenue:
Base rents $ 6,214 $ 1,542
Tenant reimbursements 2,681 678
Other 10 1
-------- --------
Total revenue 8,905 2,221
Operating Expenses:
Interest (i) 4,987 1,230
Depreciation and amortization (ii) 2,128 525
Property expenses 3,482 799
General and administrative -- --
-------- --------
Total operating expenses 10,597 2,554
Income (loss) before minority interest (1,692) (333)
Minority interest in (income) loss 59 12
Income (loss) before uncombined entity (1,633) (321)
Equity in income of management company 65 16
-------- --------
Net income (loss) (1,568) (305)
Income allocated to Preferred Shares -- --
-------- --------
Income (loss) allocated to Common Shares $ (1,568) $ (305)
======== ========
(i) Pro forma interest expense is presented assuming an effective rate of 7.5%
on borrowings under the Company's revolving credit facility.
(ii) Pro forma depreciation expense is presented assuming an 80% building and
20% land allocation of the purchase price and capitalized closing costs and
assumes a useful life of 25 years.
F-12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brandywine Realty Trust:
We have audited the combined statement of revenue and certain expenses of the TA
Properties described in Note 1 for the year ended December 31, 1996. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The combined statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Current Report on Form 8-K of
Brandywine Realty Trust as described in Note 1 and is not intended to be a
complete presentation of the TA Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue and certain expenses of the TA Properties for
the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
May 29, 1997
F-13
TA PROPERTIES
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(Notes 1 and 2)
For the For the Three Month Period
Year Ended Ended March 31,
December 31, -------------------------------------
1996 1997 1996
----------------- ---------------- -----------------
(Unaudited)
REVENUE:
Base rents (Note 2) $ 5,102,000 $ 1,292,000 $ 1,228,000
Tenant reimbursements 735,000 188,000 200,000
Lease termination income (Note 2) 9,000 4,000 1,000
---------------- ---------------- ----------------
Total revenue 5,846,000 1,484,000 1,429,000
---------------- ---------------- ----------------
CERTAIN EXPENSES:
Maintenance and other operating expenses
955,000 197,000 309,000
Utilities 305,000 64,000 73,000
Real estate taxes 702,000 178,000 188,000
---------------- ---------------- ----------------
Total certain expenses 1,962,000 439,000 570,000
---------------- ---------------- ----------------
REVENUE IN EXCESS OF CERTAIN EXPENSES
$ 3,884,000 $ 1,045,000 $ 859,000
================ ================ ================
The accompanying notes are an integral part of these financial statements.
F-14
TA PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1996
1. BASIS OF PRESENTATION:
On May 23, 1997, Brandywine Operating Partnership, L.P. (the "Operating
Partnership"), a limited partnership of which Brandywine Realty Trust (the
"Company") is the sole general partner, acquired the TA Properties, a ten
property portfolio of office and flex/warehouse space located in Pennsylvania
and New Jersey. The TA Properties contain an aggregate net rentable area of
approximately 687,821 square feet, which was 94% leased as of December 31, 1996.
The net purchase price for the TA Properties was $41,625,000 plus costs. The
purchase price was primarily paid from borrowings under the Company's revolving
credit facility.
The combined statements of revenue and certain expenses reflect the operations
of the TA Properties. This combined statements of revenue and certain expenses
are to be included in the Company's Current Report on Form 8-K as the
acquisition has been deemed significant pursuant to the rules and regulations of
the Securities and Exchange Commission.
The accounting records of the TA Properties are maintained on a cash basis.
Adjusting entries have been made to present the accompanying financial
statements in accordance with generally accepted accounting principles. The
accompanying financial statements exclude certain expenses such as interest,
depreciation and amortization, and other costs not directly related to the
future operations of the TA Properties.
The combined statements of revenue and certain expenses for the three months
ended March 31, 1997 and 1996 are unaudited. In the opinion of management, all
adjustments necessary to present fairly the revenue and certain expenses of TA
Properties for the three months ended March 31, 1997 and 1996 have been
included. The combined revenue and certain expenses for such interim periods are
not necessarily indicative of the results for the full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets and liabilities which affect the reported amounts
of revenue and expenses during the reporting period. The ultimate results could
differ from those estimates.
F-15
2. OPERATING LEASES:
Base rents for the year ended December 31, 1996, and the three months ended
March 31, 1997 and 1996, includes straight-line adjustments for rental revenue
increases in accordance with generally accepted accounting principles. The
aggregate rental revenue increase resulting from the straight-line adjustments
for the year ended December 31, 1996, and the three months ended March 31, 1997
and 1996, were ($44,000), ($7,000) (unaudited) and $12,000 (unaudited),
respectively.
Rental revenues earned under leases with Bisys Qualified Plan were $834,661 and
accounted for 17% of the total base rents of the TA Properties in 1996.
The TA Properties are leased to tenants under operating leases with expiration
dates extending to the year 2009. Future minimum rentals under noncancelable
operating leases, excluding tenant reimbursements of operating expenses, as of
December 31, 1996, were as follows:
1997 $ 4,721,000
1998 3,308,000
1999 2,649,000
2000 1,364,000
2001 589,000
Thereafter 1,538,000
Certain leases also include provisions requiring tenants to reimburse the TA
Properties for management costs and other operating expenses up to stipulated
amounts.
F-16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brandywine Realty Trust:
We have audited the combined statement of revenue and certain expenses of the
Emmes Properties described in Note 1 for the year ended December 31, 1996. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The combined statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Current Report on Form 8-K of
Brandywine Realty Trust as described in Note 1 and is not intended to be a
complete presentation of the Emmes Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue and certain expenses of the Emmes Properties
for the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
June 3, 1997
F-17
EMMES PROPERTIES
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
For the For the Three Month Period
Year Ended Ended March 31,
December 31, ------------------------------------
1996 1997 1996
--------------- --------------- ----------------
(unaudited)
REVENUE:
Base rents (Note 2) $ 6,214,000 $ 1,542,000 $ 1,532,000
Tenant reimbursements 2,681,000 678,000 579,000
Other revenue 10,000 1,000 4,000
--------------- ---------------- ----------------
Total revenue 8,905,000 2,221,000 2,115,000
--------------- ---------------- ----------------
CERTAIN EXPENSES:
Maintenance and other operating
expenses 1,704,000 356,000 296,000
Utilities 1,082,000 283,000 302,000
Real estate taxes 696,000 160,000 174,000
--------------- ---------------- ----------------
Total certain expenses 3,482,000 799,000 772,000
--------------- ---------------- ----------------
REVENUE IN EXCESS OF CERTAIN EXPENSES
$ 5,423,000 $ 1,422,000 $ 1,343,000
=============== ================ ================
The accompanying notes are an integral part of these financial statements.
F-18
EMMES PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1996
1. BASIS OF PRESENTATION:
On May 30, 1997, Brandywine Operating Partnership, L.P. (the "Operating
Partnership"), a limited partnership of which Brandywine Realty Trust (the
"Company") is the sole general partner, acquired the Emmes Properties, a
portfolio of six office buildings located in New Jersey and Pennsylvania. The
Emmes Properties contain an aggregate net rentable area of approximately 608,008
square feet, which was 83% leased as of December 31, 1996. The net purchase
price for the Emmes Properties was $66.2 million. Approximately $52 million of
the purchase price was paid from a bridge loan taken out by the Company, and the
remaining amount was paid from borrowings under the Company's revolving credit
facility.
The combined statements of revenue and certain expenses reflect the operations
of the Emmes Properties. These combined statement of revenue and certain
expenses are to be included in the Company's Current Report on Form 8-K as the
acquisition has been deemed significant pursuant to the rules and regulations of
the Securities and Exchange Commission.
The accounting records of the Emmes Properties are maintained on an accrual
basis. Adjusting entries have been made to present the accompanying financial
statements in accordance with generally accepted accounting principles. The
accompanying financial statements exclude certain expenses such as interest,
depreciation and amortization, and other costs not directly related to the
future operations of the Emmes Properties.
The combined statements of revenue and certain expenses for the months ended
March 31, 1997 and 1996 are unaudited. In the opinion of management, all
adjustments necessary to present fairly the revenue and certain expenses of the
Emmes Properties for the three months ended March 31, 1997 and 1996 have been
included. The combined revenue and certain expenses for such interim periods are
not necessarily indicative of the results for the full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets and liabilities which affect the reported amounts
of revenues and expense during the reporting period. The ultimate results could
differ from those estimates.
F-19
2. OPERATING LEASES:
Base rents for the year ended December 31, 1996, and the three months ended
March 31, 1997 and 1996, include straight-line adjustments for rental revenue
increases in accordance with generally accepted accounting principles. The
aggregate rental revenue increase resulting from the straight-line adjustments
for the year ended December 31, 1996, and the three months ended March 31, 1997
and 1996, were 321,000, $1,000 (unaudited) and $64,000 (unaudited),
respectively.
During 1996, rental revenues earned under leases with Martin Marietta, New
Jersey Bell, QAD, Inc. and Automotive Rentals were $1,433,000, $1,122,000,
$745,000 and $662,000, respectively. Each of these leases individually
represented greater than 10% of the Emmes Properties' total rental revenue in
1996.
The Emmes Properties are leased to tenants under operating leases with
expiration dates extending to the year 2006. Future minimum rentals under
noncancelable operating leases, excluding tenant reimbursements of operating
expenses, as of December 31, 1996, were as follows:
1997 $ 6,263,000
1998 6,166,000
1999 4,465,000
2000 3,573,000
2001 2,758,000
Thereafter 7,172,000
Certain leases also include provisions requiring tenants to reimburse the Emmes
Properties for management costs and other operating expenses up to stipulated
amounts.
F-20