<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 1-9106
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Brandywine Realty Trust
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(Exact name of registrant as specified in its charter)
Maryland 23-2413352
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State or other jurisdiction of (I.R.S. Employer)
incorporation or organization Identification No.)
Two Greentree Centre, Suite 100, Marlton, New Jersey, 08053
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (609)797-0200
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Shares of Beneficial Interest American Stock Exchange
- --------------------------------------- -----------------------------------
(par value $0.01 per share)
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Securities registered pursuant to Section 12(g) of the Act:
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(Title of class)
- -------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $5,619,000 as of March 4, 1996. The aggregate market value has
been computed by reference to the closing price at which the stock was sold on
the American Stock Exchange on such date. A total of 1,856,200 Shares of
Beneficial Interest were outstanding as of March 4, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
TABLE OF CONTENTS
FORM 10-K
Page
PART I Item
1. Business
Industry Segment
Competition
Geographic Analysis of Revenue
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for Shares and Related Shareholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III
10. Trustees and Executive Officers
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners
and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
SIGNATURES OF REGISTRANT
INDEX TO EXHIBITS
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PART I
Item 1. Business
Brandywine Realty Trust (the "Trust"), a Maryland real estate investment
trust, was organized in 1986. The Trust's principal asset is its 70% general
partner interest in Brandywine Realty Partners ("Brandywine"), a Pennsylvania
general partnership which was formed in 1986 for the purpose of owning and
operating office and industrial real estate projects (the "Specified
Projects"). The other general partner of Brandywine is Brandywine Specified
Property Investors Limited Partnership, ("BSPI"), a Pennsylvania limited
partnership which owns a 30% interest in Brandywine. Effective January 1,
1994, the Trust was designated as Brandywine's administrative partner and now
has substantial control and authority with respect to the business and affairs
of Brandywine, including complete discretion with respect to the sale or
refinancing of any and all of the Specified Projects, without having to obtain
either the consent of BSPI or BSPI's limited partners.
At December 31, 1995, the Trust's portfolio includes four Specified Projects.
See Item 8, Note 5 to the Financial Statements of the Trust for a discussion
of the terms of the mortgage loans on the Specified Projects.
As of December 31, 1995, the Trust had three full-time employees. Effective
February 1, 1995, the Trust assumed management of three of the four Specified
Projects and entered into a management agreement with an unrelated party for
the management of the fourth Specified Project.
During 1995, the Trustees have considered, and expect to continue to consider,
potential acquisitions by the Trust of additional real estate and real
estate-related interests and potential third party equity and debt investments
in the Trust. At the current time the Trust is actively pursuing the potential
acquisition of additional real estate and evaluating third party equity and
debt investments in the Trust. The Trust's business plan contemplates a focus
on office and industrial projects in the greater Philadelphia, Pennsylvania
area. However, there can be no assurance that the Trust will make an
acquisition of additional real estate or real estate-related interests or that
any such acquisitions will produce satisfactory returns for the Trust.
Similarly, there can be no assurance that the Trust will consummate any third
party equity or debt investments in the Trust or that any investments that
might be made in the Trust would enable the Trust to generate greater returns
for the Shareholders. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
On March 20, 1996, the Trust entered into a Letter of Intent (the "Letter")
with Safeguard Scientifics, Inc. ("SSI") and SSI's real estate affiliate, The
Nichols Company ("TNC"). As of this date, definitive documentation of such
transaction has not been negotiated. Accordingly, there can be no assurance
that definitive documentation will be executed or that the terms on which
definitive documents are completed will not differ from the terms summarized
herein.
The Letter contemplates an approximately $4.36 million investment in the Trust
by SSI in the form of real estate interests and cash. The Trust will issue to
SSI 775,000 common shares ("Shares") at a per share price of $5.50 and six
year warrants exercisable for an additional 775,000 Shares at a per share
exercise price of $6.50. In exchange for the Shares and warrants, the Trust
will receive approximately $426,000 in cash and SSI's interest in a
partnership with TNC and its affiliates that own eight suburban
office/industrial buildings aggregating approximately 560,000 square feet. The
Trust, SSI and TNC have valued the SSI interest that the Trust is acquiring at
approximately $3.9 million. In addition, SSI, TNC and certain affiliates will
contribute ten properties aggregating approximately 394,000 square feet to a
partnership with the Trust and the Trust will enter into an option agreement
with TNC and certain of its affiliates to acquire an additional five
properties aggregating approximately 189,000 square feet. In total, the
transaction involves 23 properties aggregating approximately 1.14 million
square feet.
The Letter further contemplates that approximately 1,243,000 units in the
partnership(s) owning the 18 properties (each of which units would be
convertible after two years and subject to satisfaction of certain conditions
into one Share) would be issued at closing on account of the agreed-upon net
equity in such properties, with each unit having a stated value of $5.50.
Additional units would be issued in the event that the debt encumbering
certain of such properties is refinanced at a discount. Additional
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units would also be issued if the Trust were to exercise its option to acquire
the additional five properties.
In addition to the property transactions, the Letter provides that SSI and TNC
would contribute their property management, development and leasing operations
to an affiliate of the Trust, and that Warren Musser, CEO of SSI, Walter
D'Allessio, CEO of Legg Mason Realty Services, and Anthony A. Nichols, Sr.,
President of TNC, would be added to the Trust's Board of Trustees. Following
completion of the transaction, Gerard H. Sweeney will continue as a Trustee
and as the Trust's President and Chief Executive Officer. The Letter
contemplates that three executives of TNC will enter into two-year employment
agreements with the Trust and will be granted warrants covering an aggregate
of 400,000 Shares at a per share exercise price of $6.50.
The Trust has engaged Legg Mason Wood Walker, Incorporated as its financial
advisor on this transaction.
The transaction contemplated by the Letter is subject to customary conditions,
including completion of due diligence, negotiation and execution of definitive
documentation, required third party approvals, receipt by the Board of
Trustees of a fairness opinion from its financial advisor and approval by the
Trust's shareholders. The transaction is also subject to a combined debt and
equity investment of approximately $1.3 million in the Trust by Richard M.
Osborne, a Trustee of the Trust, on pricing terms comparable to the terms on
which SSI will be acquiring its Shares. Proceeds of Mr. Osborne's investment
would be used for general trust purposes, including working capital. As of
this date, the Trust and Mr. Osborne have not entered into a binding agreement
providing for an investment by him in the Trust. Such investment will not be
subject to shareholder approval. The transaction with SSI and TNC is expected
to be submitted to the Trust's shareholders in mid-1996.
The transaction described above will involve risks customarily associated with
equity investments in real estate such as, for example: (i) the potential
adverse impact on future distributions if funds generated from operations are
insufficient to maintain the current level of distributions on the outstanding
Shares and additional Shares that will be issued; (ii) the reduction in the
level of control possessed by the current shareholders; (iii) the significant
concentration of ownership in a small number of shareholders and their
corresponding ability to influence the affairs of the Trust; (iv) the risk of
future vacancies in the properties; (v) the inability of the Trust to
refinance the indebtedness encumbering the properties at attractive rates; and
(vi) the need to obtain additional working capital to maintain and operate
both the additional properties and the Trust's current properties.
On March 20, 1996, the Trust entered into an agreement (the "Osborne
Agreement") with Richard M. Osborne ("RMO") and the Richard M. Osborne Trust
(the "RMO Trust" and collectively with RMO, the "Holders"). RMO is currently a
Trustee of the Trust and is the sole trustee of the RMO Trust, which RMO
formed for estate planning purposes. The RMO Trust is currently the beneficial
owner of 538,800 Shares or approximately 29% of the Trust's outstanding
Shares.
In the Osborne Agreement, the Trust agreed, subject to certain conditions, to:
(i) nominate RMO for reelection to the Board of Trustees for as long as the
Holders are the beneficial owners of at least 10% of the outstanding Shares
and (ii) waive the statutory right of the Trust to redeem the Shares of the
Holders, whether now owned or hereafter acquired, for the fair value thereof.
In the Osborne Agreement, the Holders agreed, subject to certain conditions,
to: (i) limit their ownership of Shares and securities convertible into Shares
to approximately one-third of the outstanding Shares; (ii) refrain from
engaging in proxy solicitations in opposition to a majority of the Board of
Trustees; (iii) vote their Shares consistent with the recommendation of a
majority of the Board of Trustees on any matter submitted to a vote of
shareholders other than on matters involving a merger, consolidation or
liquidation of the Trust or any amendments to the Trust's Declaration of Trust
which adversely affect the rights of shareholders; (iv) dispose of their
Shares only under certain circumstances; and (v) not to pursue any action
which may disqualify the Trust's REIT status.
The Osborne Agreement has a three year term but is subject to earlier
termination under certain circumstances, including upon completion of an
equity offering achieving certain targets.
The summary of the Agreement is qualified by reference to the full text of the
Agreement, a copy of which is included as an exhibit to this Form 10-K.
<PAGE>
Industry Segment
The Trust is currently engaged in a single industry segment -- investment in
office real estate projects. Space is leased in the Specified Projects to
approximately 70 tenants. The Specified Projects are primarily leased for
office purposes. During 1995, a single tenant in Three Greentree Centre
represented 10% of the portfolio's total square footage and 10% of the
portfolio's total rental revenue; a single tenant in One Greentree Centre
represented 7% of the portfolio's total square footage and 10% of the
portfolio's total rental revenue; and a single tenant in Twin Forks
represented 8% of the portfolio's total square footage and 8% of the
portfolio's total rental revenue. Substantially all of the Trust's revenues
are derived from tenant rental revenue and tenant reimbursements of expenses
of the Specified Projects. The Trust's business is not seasonal.
Competition
The four Specified Projects held by the Trust on December 31, 1995 are located
in the greater Philadelphia, Pennsylvania and Raleigh, North Carolina
metropolitan areas. Each of these markets is competitive, with the principal
methods of competition consisting in each case of rental rates (including
rental concessions such as initial periods of free occupancy), location, level
of leasehold improvements and building amenities. The Specified Projects
compete for tenants with other properties which may have competitive
advantages. See Item 2, "Properties," for a discussion of occupancy rates and
other information relevant to the competitive position of each of the
Specified Projects.
Geographic Analysis of Revenue
The geographic breakdown of the Trust's gross revenue and square footage for
1995 is as follows:
Gross Square
Revenue Feet
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Marlton, New Jersey (three properties in the
greater Philadelphia area) $2,557,000 181,137
Raleigh, North Carolina 1,026,000 73,415
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Total rentals and tenant reimbursements 3,583,000 254,552
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Other income 83,000
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Total $3,666,000 254,552
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Item 2. Properties
At December 31, 1995, the Trust's four Specified Projects are office projects.
As of January 31, 1996, the overall occupancy rate of the Specified Projects
was approximately 97% as compared to 86% one year earlier. As of January 31,
1996, existing leases totaling approximately 78,000 square feet, or 31% of the
total square feet, were scheduled to expire during 1996. However, subsequent
to January 31, 1996, two tenants renewed their leases, each for five year
terms, representing total space of approximately 13,000 square feet. The
Specified Projects are described below.
South New Jersey Office Projects -- Marlton, New Jersey
One Greentree Centre
One Greentree Centre is located at the northeast corner of Route 73 and
Greentree Road in Marlton, New Jersey. The project is a three-story, mid-rise
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building consisting of approximately 56,000 square feet of net leasable area
and is situated, together with its sister building, Two Greentree Centre, on
approximately 8.3 acres of land. Exterior construction consists of brick and
dryvit with bronze tinted windows. The grounds surrounding One Greentree
Centre feature abundant landscaping and ample parking (4.4 spaces per 1,000
square feet). Occupancy of One Greentree Centre commenced in August 1982 and
was 91% as of January 31, 1996. As of January 31, 1996, existing leases
totaling approximately 13,000 square feet were scheduled to expire during
1996. However, subsequent to January 31, 1996, a single tenant renewed 8,000
square feet for a five year term.
Two Greentree Centre
Two Greentree Centre is located at the northeast corner of Route 73 and
Greentree Road in Marlton, New Jersey. The project is a three-story, mid-rise
building consisting of approximately 56,000 square feet of net leasable area
and is situated, together with its sister building, One Greentree Centre, on
approximately 8.3 acres of land. Exterior construction consists of brick and
dryvit with bronze tinted windows. The grounds surrounding Two Greentree
Centre feature abundant landscaping and ample parking (4.3 spaces per 1,000
square feet). Occupancy of Two Greentree Centre commenced in July 1983 and was
100% as of January 31, 1996. As of January 31, 1996, a single lease totaling
approximately 5,000 square feet was scheduled to expire during 1996. However,
subsequent to January 31, 1996, this lease was renewed for a three year term.
Three Greentree Centre
Three Greentree Centre is located at the southwest corner of Route 73 and
Greentree Road in Marlton, New Jersey. The project is a four-story, mid-rise
building consisting of approximately 69,000 square feet of net leasable area,
is the third of five mid-rise buildings to occupy the Greentree Complex and is
situated on approximately 5.4 acres of land. Exterior construction consists of
brick and dryvit with bronze tinted windows. Interior amenities include a
two-story lobby with open staircase to second floor. The project also features
abundant landscaping and ample parking (5.2 spaces per 1,000 square feet).
Occupancy of Three Greentree Centre commenced in February 1984 and was 99% as
of January 31, 1996. As of January 31, 1996, existing leases totaling
approximately 17,000 square feet were scheduled to expire during 1996.
Raleigh Office Project -- Raleigh, North Carolina
Twin Forks
Twin Forks is a red brick five building complex located at Six Forks Road and
Lynn Road in Raleigh, North Carolina. The buildings in Twin Forks contain in
the aggregate approximately 73,000 square feet of net leasable space situated
on approximately 9.1 acres of land and provide a parking ratio of 4.0 spaces
per 1,000 square feet. Occupancy of Twin Forks commenced in November 1982 and
was 97% as of January 31, 1996. As of January 31, 1996, existing leases
totaling approximately 43,000 square feet were scheduled to expire during
1996.
Encumbrances on Specified Projects
At December 31, 1995, the principal amount of the nonrecourse mortgage loans
totaled $8,931,000. These loans were secured by first mortgages on the
Specified Projects. See Item 8, Note 5 to the Financial Statements of the
Trust for a discussion of the terms of the mortgages.
Item 3. Legal Proceedings
Neither the Trust nor Brandywine was a party to any material pending legal
proceedings as of December 31, 1995, or as of the date of this Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
<PAGE>
PART II
Item 5. Market for Shares and Related Shareholder Matters
The Trust's shares are traded on the American Stock Exchange, Inc. under the
symbol "BDN". As of March 4, 1996, there were approximately 370 holders of
record of the Trust's Shares of Beneficial Interest and the Trust estimates
that there were approximately 1,000 beneficial owners of such Shares.
Distributions declared for each quarter in 1995 and 1994 are identified below
along with the high and low sale prices of the Trust's shares for each fiscal
quarter for the past eight quarters:
Stock Price Stock Price Distributions
High Low Declared
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First Quarter 1995 $ 4-1/2 $ 3-7/8 $ 0.40
Second Quarter 1995 $ 3-3/4 $ 3-9/16 $ 0.05
Third Quarter 1995 $ 3-7/8 $ 3-5/8 $ 0.05
Fourth Quarter 1995 $ 3-3/4 $ 3-3/8 $ 0.05
First Quarter 1994 $ 3-13/16 $ 1-5/8 $ 0.04
Second Quarter 1994 $ 4-1/4 $ 3-1/8 $ 0.05
Third Quarter 1994 $ 6 $ 3-15/16 $ 0.73
Fourth Quarter 1994 $ 4-1/2 $ 3-5/8 $ 0.75
Item 6. Selected Financial Data
Brandywine Realty Trust (dollars in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993 1992 1991
---------------------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Total operating revenue $ 3,666 $ 4,192 $ -- $ -- $ --
Income from acquisition of limited
partner interests in Brandywine
Specified Property Investors Limited
Partnership $ -- $ -- $ 2,469 $ -- $ --
Provision for loss on real estate investments $ -- $ (5,400) $ -- $ -- $ (6,000)
Gain on sales of real estate investments $ -- $ 1,410 $ -- $ -- $ --
Extraordinary item: gain on
extinguishment of debt $ -- $ 7,998 $ -- $ -- $ --
Net income (loss) $ (824) $ 7,567(b) $ 2,468 $ (1) $ (6,705)
Net income (loss) per share $ (0.44) $ 3.74 $ 1.33 $ -- $ (3.61)
Funds from operations (a) $ 578 $ (706)(b) $ 2,467 $ -- $ --
Cash flows from operating activities $ 497 $ (628) $ -- $ -- $ --
Cash flows from investing activities $ (701) $ 9,559 $ 2,469 $ -- $ --
Cash flows from financing activities $ (722) $ (9,635) $ -- $ -- $ --
Total assets $ 17,105 $ 17,873 $ 4,604 $ 2,123 $ 2,128
Mortgage notes payable $ 8,931 $ 6,899 $ -- $ -- $ --
</TABLE>
<PAGE>
(a) Funds from operations is defined as net income (loss) excluding
extraordinary items, gains and losses from sales of property, plus
depreciation and amortization and other non-cash charges and similar
adjustments for unconsolidated subsidiaries. Funds from operations
does not represent cash generated from operations as defined by
Generally Accepted Accounting Principles (GAAP) and is not
necessarily indicative of cash available to fund cash needs.
(b) Funds from operations and net income in 1994 include the payment
of $1,114,000 from escrowed cash reserves of all future Additional
Interest (as defined in Item 8, Note 5 to the Financial Statements of
the Trust) to the mortgage lender on December 28, 1994.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Year ended December 31, 1995 vs. December 31, 1994
For the year ended December 31, 1995, the Trust's consolidated net loss was
($824,000) or ($0.44) per share as compared to consolidated net income of
$7,567,000 or $3.74 per share for the year ended December 31, 1994.
Primarily, as a result of the sales of three of the Specified Projects during
1994, rental revenues decreased by $576,000 or 14% and property operating
expenses decreased by $494,000 or 24% for the year ended December 31, 1995, as
compared to the year ended December 31, 1994. When comparing 1995 to 1994
results within these same categories for the four remaining Specified
Projects, rental revenues increased by $130,000 or 4% primarily due to
improved overall occupancy levels and property operating expenses decreased by
$72,000 or 4% primarily due to reduced management fees as a result of the
Trust assuming management of three of the four Specified Projects effective
February 1, 1995. For the year ended December 31, 1995, as compared to the
year ended December 31, 1994, depreciation and amortization expense remained
relatively constant, primarily due to the write off of deferred loan fees
totaling $354,000 resulting from the April 21, 1995 refinancing of the
Specified Projects' mortgage loans and the termination of the $26 million
commitment which the Trust had obtained during 1994. Interest expense
decreased by $1,169,000 or 60% due to the overall reduced interest expense
associated with the new mortgage loans obtained upon the April 1995
refinancing. Administrative expense decreased by $152,000 or 18% primarily due
to nonrecurring 1994 costs related to mortgage restructuring efforts.
As discussed below, the Trust's net income for 1994 was primarily attributable
to extraordinary gain upon the extinguishment of debt and gain resulting from
property sales, offset in part by the December 1994 payment of all future
Additional Interest to the then mortgage lender. The term "Additional
Interest" is defined in Note 5 to the Trust's financial statements included in
Item 8.
At January 31, 1996, the overall occupancy level of the four Specified
Projects was 97% as compared to 86% at January 31, 1995.
Year ended December 31, 1994 vs. December 31, 1993
Historical:
For the year ended December 31, 1994, the Trust's consolidated net income was
$7,567,000 or $3.74 per share as compared to net income of $2,468,000 or $1.33
per share for the year ended December 31, 1993. The Trust's net income for
1994 was attributable to an extraordinary gain of $7,998,000 upon
extinguishment of debt resulting from the January 1994 refinancing of the
Specified Projects coupled with a $1,410,000 gain resulting from the sales of
three Specified Projects during 1994, offset primarily by the $1,114,000
payment of all future Additional Interest to the then mortgage lender in
December 1994 and the non cash expense of depreciation and amortization. The
Trust's 1993 income was primarily attributable to the settlements which the
Trust obtained with two of the limited partners of BSPI whereby the Trust
received $2,469,000 in cash.
Comparison to Consolidated Pro Forma 1993:
For the year ended December 31, 1994, the Trust's consolidated net income was
$7,567,000 or $3.74 per share as compared to consolidated pro forma net income
of $2,468,000 or $ 1.33 per share for the year ended December 31, 1993.
Significant components of these 1994 and 1993 net income amounts are discussed
above.
When comparing consolidated 1994 results to consolidated pro forma 1993
results, for the year ended December 31, 1994, rental revenue decreased by
$1,292,000 or 24% due primarily to the sales of three Specified Projects
coupled with lower aggregate occupancy during 1994 in three of the remaining
four Specified Projects. Other income decreased by $73,000 or 69% as escrowed
cash reserves were held with the then mortgage lender in a non interest
<PAGE>
bearing account. Interest expense decreased by 18% primarily as a result of
the January 1994 refinancing of the mortgage loans offset, in part, by the
$1,114,000 payment of Additional Interest to the then mortgage lender in
December 1994. Depreciation and amortization and operating expenses decreased
by $1,357,000 or 28% due primarily to the sales of the three Specified
Projects during 1994. In addition, approximately $70,000 in savings was
realized as a result of a successful tax appeal for the Lincoln Centre project
and an additional savings of $70,000 was realized as a result of management's
renegotiation of the property management contracts for each of the Specified
Projects. Administrative expenses decreased by $219,000 or 21% primarily due
to decreased professional fees attributable to 1993 foreclosure litigation,
bankruptcy investigation and mortgage restructuring efforts.
LIQUIDITY AND CAPITAL RESOURCES
The Trust's primary asset is its 70% general partner interest in Brandywine
which owns and operates the Specified Projects. The Trust's principal source
of liquidity consists of the distributions it receives from the operation of
the Specified Projects.
As of December 31, 1995, the Trust's consolidated cash balances were $840,000
as compared to $1,766,000 as of December 31, 1994. In addition, at December
31, 1995, escrowed cash balances totaled $1,155,000 as compared to $1,114,000
at December 31, 1994. The escrowed cash balances at December 31, 1995 were
comprised of $1,076,000 held by the Trust's mortgage lender to provide for
capital improvements, tenant improvements and leasing commissions associated
with the Specified Projects and $79,000 held by the lender to provide for real
estate tax payments with respect to the Specified Projects.
During 1995, the Trust paid $2,227,000 in distributions to shareholders,
including $1,299,000 in respect of dividends declared in 1994 and paid during
1995. Net cash provided by operating activities for this same period totaled
$497,000. On April 21, 1995, the Trust refinanced the then existing $6,899,000
mortgage note, borrowing $9,000,000 under mortgage loans which provide for a
fixed rate of interest, initially set at 8.75%, and which are
cross-collateralized by the Specified Projects. In connection with the
refinancing, the Trust paid $250,000 in associated transaction costs and
increased mortgage lender escrowed cash balances for the year by approximately
$41,000. Tenant improvements and leasing commissions during 1995 relative to
the Specified Projects were paid from lender escrow funds and totaled
$660,000.
During 1995, the Trustees have considered, and expect to continue to consider,
potential acquisitions by the Trust of additional real estate and real
estate-related interests and potential third party equity and debt investments
in the Trust. At the current time the Trust is actively pursuing the potential
acquisition of additional real estate and evaluating third party equity and
debt investments in the Trust. The Trust's business plan contemplates a focus
on office and industrial projects in the greater Philadelphia, Pennsylvania
area. However, there can be no assurance that the Trust will make an
acquisition of additional real estate or real estate-related interests or that
any such acquisitions will produce satisfactory returns for the Trust.
Similarly, there can be no assurance that the Trust will consummate any third
party equity or debt investments in the Trust or that any investments that
might be made in the Trust would enable the Trust to generate greater returns
for the Shareholders. See Item 1 "Business" for a discussion of the
transaction that the Trust is presently negotiating pursuant to the terms of
the Letter.
During 1995, the Trust paid $221,000 and accrued $136,000 in costs associated
with its pursuit of potential acquisitions of additional real estate and third
party equity investments. Such costs are included in deferred costs on the
Trust's balance sheet as of December 31, 1995. Further, in connection with
these efforts, as of December 31, 1995, the Trust had deposited $95,000 with
an unrelated party. Such deposit is included in other assets on the balance
sheet as of December 31, 1995.
During 1995, the Trust declared distributions as follows:
Declaration Date Record Date Payment Date Amount Per Share
- ---------------- ----------- ------------ ----------------
April 19, 1995 May 11, 1995 May 17, 1995 $0.05
April 21, 1995 May 11, 1995 May 17, 1995 $0.35
July 11, 1995 July 26, 1995 July 31, 1995 $0.05
October 11, 1995 October 26, 1995 October 31, 1995 $0.05
December 29, 1995 January 26, 1996 January 30, 1996 $0.05
<PAGE>
For the period January 1, 1995 through April 21, 1995, the Trust paid the then
mortgage lender total interest based on a weighted average rate of 10.3% on
the outstanding principal loan balance. For the period April 21, 1995 through
December 31, 1995, the Trust paid its current mortgage lender total interest
based on a weighted average rate of 8.7% on the outstanding principal loan
balances.
The Trust believes that current cash reserves are sufficient, and that
operation of the Specified Projects will provide sufficient cash flows, to
continue operations throughout 1996 and, to the extent foreseeable, in the
years to follow.
The Trust believes that it qualifies for federal income tax purposes as a real
estate investment trust and intends to remain so qualified.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index Page
- ----- ----
BRANDYWINE REALTY TRUST
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1994
Consolidated Statements of Operations for the Years Ended
December 31, 1995 and 1994 and Statement of Operations for the
Year Ended December 31, 1993
Unaudited Pro Forma Consolidated Statement of Operations
for the Year ended December 31, 1993 (Not Covered by
Report of Independent Public Accountants)
Consolidated Statements of Beneficiaries' Equity
for the Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, and 1994 and Statement of Cash Flows for the
Year Ended December 31, 1993
Unaudited Pro Forma Consolidated Statement of Cash Flows
for the Year Ended December 31, 1993 (Not Covered by
Report of Independent Public Accountants)
Notes to Financial Statements
BRANDYWINE REALTY PARTNERS
Report of Independent Public Accountants
Balance Sheet as of December 31, 1993
Statement of Operations for the Year Ended December 31, 1993
Statement of Partners' Equity (Deficit) for the Year Ended
December 31, 1993
Statement of Cash Flows for the Year Ended December 31, 1993
Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Beneficiaries of
Brandywine Realty Trust:
We have audited the consolidated balance sheets of Brandywine Realty Trust (a
Maryland corporation) as of December 31, 1995 and 1994, and the related
consolidated statements of operations, beneficiaries' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits 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 significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brandywine
Realty Trust as of December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Philadelphia, Pa.,
March 4, 1996 (except with respect
to the matter discussed in Note 11,
as to which the date is March 20, 1996)
ARTHUR ANDERSEN, LLP
<PAGE>
BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
as of December 31, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1995 1994
----------------- ---------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS
Operating properties, at adjusted cost $ 21,823 $ 21,335
Accumulated depreciation (8,114) (7,387)
----------------- ---------------
13,709 13,948
CASH AND CASH EQUIVALENTS 840 1,766
ESCROWED CASH 1,155 1,114
DEFERRED COSTS net of accumulated amortiza-
tion of $507 in 1995 and $519 in 1994 1,027 813
ACCOUNTS RECEIVABLE 261 207
OTHER ASSETS 113 25
----------------- ---------------
Total assets $ 17,105 $ 17,873
================= ===============
LIABILITIES AND BENEFICIARIES' EQUITY
MORTGAGE NOTES PAYABLE $ 8,931 $ 6,899
ACCRUED MORTGAGE INTEREST 33 57
TENANT SECURITY DEPOSITS AND DEFERRED
RENTS 250 207
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 454 222
DISTRIBUTIONS PAYABLE 93 1,299
----------------- ---------------
Total liabilities 9,761 8,684
----------------- ---------------
MINORITY INTEREST -- --
COMMITMENTS AND CONTINGENCIES
BENEFICIARIES' EQUITY
Shares of beneficial interest, $0.01 par value,
5,000,000 preferred shares, authorized,
none outstanding; 15,000,000 common
shares authorized, 1,856,200 shares
issued and outstanding 19 19
Additional paid-in capital 16,772 16,772
Cumulative deficit (3,086) (2,262)
Cumulative distributions (6,361) (5,340)
----------------- ---------------
Total beneficiaries' equity 7,344 9,189
----------------- ---------------
Total liabilities and beneficiaries' equity $ 17,105 $ 17,873
================= ===============
</TABLE>
The accompanying notes and the financial statements of Brandywine
Realty Partnersare an integral part of these statements.
<PAGE>
BRANDYWINE REALTY TRUST
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, and 1993
(in thousands, except per share information)
<TABLE>
<CAPTION>
Consolidated Consolidated Historical Consolidated
1995 1994 1993 1993
------------ ------------ ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Rents and tenant reimbursements $ 3,583 $ 4,159 $ -- $ 5,451
Income from acquisition of limited partner interests in
Brandywine Specified Property Investors Limited
Partnership -- -- 2,469 2,469
Allocated income from Brandywine Realty Partners -- -- 568 --
Other income 83 33 25 106
----------- ----------- ----------- -----------
Total revenue 3,666 4,192 3,062 8,026
----------- ----------- ----------- -----------
EXPENSES:
Interest 793 1,962 -- 2,400
Depreciation and amortization 1,402 1,370 1 1,949
Utilities 531 607 -- 762
Real estate taxes 391 498 -- 721
Maintenance 586 783 -- 910
Management fee 47 144 -- 264
Other operating expenses 53 70 -- 223
Administrative expenses 682 834 593 1,053
Provision for loss on real estate investments -- 5,400 -- --
----------- ----------- ----------- -----------
Total expenses 4,485 11,668 594 8,282
----------- ----------- ----------- -----------
(LOSS) INCOME BEFORE GAIN ON SALES OF REAL ESTATE
INVESTMENTS, MINORITY INTEREST AND EXTRORDINARY ITEM (819) (7,476) 2468 (256)
GAIN ON SALES OF REAL ESTATE INVESTMENTS -- 1,410 -- --
MINORITY INTEREST IN INCOME (LOSS) OF BRANDYWINE REALTY
PARTNERS 5 (5,635) -- (2,724)
----------- ----------- ----------- -----------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM (824) (431) 2,468 2,468
EXTRAORDINARY ITEM: GAIN ON EXTINGUISHMENT OF DEBT
(NET OF $20,109 ALLOCATED TO MINORITY INTEREST) -- 7,998 -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (824) $ 7,567 $ 2,468 $ 2,468
=========== =========== =========== ===========
PER SHARE DATA:
Earnings per share of beneficial interest
Primary
(Loss) income before extraordinary item $ (0.44) $ (0.21) $ 1.33 $ 1.33
Extraordinary item 0.00 3.95 0.00 0.00
----------- ----------- ----------- -----------
Net income $ (0.44) $ 3.74 $ 1.33 $ 1.33
=========== =========== =========== ===========
Distributions declared $ 0.55 $ 1.57 $ 0.00 $ 0.00
=========== =========== =========== ===========
Weighted average number of shares outstanding
including share equivalents 1,874,372 2,022,981 1,856,200 1,856,200
=========== =========== =========== ===========
</TABLE>
The accompanying notes and the financial statements of Brandywine Realty
Partners are an integral part of these statements.
<PAGE>
BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF BENEFICIARIES' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, and 1993
(in thousands, except number of shares)
<TABLE>
<CAPTION>
Common
Shares of Capital
Beneficial Par In Excess Cumulative Cumulative
Interest Value of Par Value Deficit Distributions
-------------- ----------- ----------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 1,856,200 $ 19 $ 16,772 $ (12,297) $ (2,426)
Net income -- -- -- 2,468 --
-------------- ---------- --------------- ---------------- ---------------
BALANCE, December 31, 1993 1,856,200 19 16,772 (9,829) (2,426)
Net income -- -- -- 7,567 --
Distributions ($1.57 per share) -- -- -- -- (2,914)
-------------- ----------- ------------------- -------------------- ---------------
BALANCE, December 31, 1994 1,856,200 19 16,772 (2,262) (5,340)
Net loss -- -- -- (824) --
Distributions ($0.55 per share) -- -- -- -- (1,021)
-------------- ---------- --------------- ---------------- ---------------
BALANCE, December 31, 1995 1,856,200 $ 19 $ 16,772 $ (3,086) $ (6,361)
============== =========== =================== ==================== ===============
</TABLE>
The accompanying notes and the financial statements of Brandywine
Realty Partners are an integral part of these statements.
<PAGE>
BRANDYWINE REALTY TRUST
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, and 1993
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Consolidated Consolidated Historical Consolidated
1995 1994 1993 1993
---------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
NET (LOSS) INCOME $ (824) $ 7,567 $ 2,468 $ 2,468
ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Extraordinary gain on extinguishment of debt (net of
$20,109 allocated to minority interest) -- (7,998) -- --
Gain on sales of real estate investments -- (1,410) -- --
Minority interest in income (loss) of Brandywine Realty Partners 5 (5,635) -- (2,724)
Income from acquisitions of limited partner interests in
Brandywine Specified Property Investors Limited Partnership -- -- (2,469) (2,469)
Depreciation and amortization 1,402 1,370 1 1,949
Provision for loss on real estate investments -- 5,400 -- --
Changes in assets and liabilities
(Increase) decrease in accounts receivable (54) 483 -- (140)
Decrease (increase) in other assets 13 (194) (13) 166
(Decrease) increase in other liabilities (45) (211) 13 81
---------- --------- --------- --------
Net cash provided by (used in) operating activities 497 (628) -- (669)
---------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash from Brandywine Realty Partners -- 2,110
Capital expenditures and leasing commissions paid (660) (493) -- (620)
Increase in escrowed cash (41) (1,114) -- --
Net proceeds from real estate and other assets sold -- 9,223 -- --
Cash received from acquisitions of limited partner interests in
Brandywine Specified Property Investors Limited Partnership -- -- 2,469 2,469
Sales commission paid to related party -- (167) -- --
---------- --------- --------- --------
Net cash (used in) provided by investing activities (701) 9,559 2,469 1,849
---------- --------- --------- --------
</TABLE>
(Continued)
<PAGE>
BRANDYWINE REALTY TRUST
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, and 1993
(in thousands)
(Continued)
<TABLE>
<CAPTION>
Pro Forma
Consolidated Consolidated Historical Consolidated
1995 1994 1993 1993
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to shareholders (2,227) (1,615) -- --
Minority Partner contributions -- 49 -- 51
Minority Partner distributions (5) (7) -- (34)
Proceeds from new mortgage loan 9,000 10,000 -- --
Repayment of mortgage notes payable (6,968) (16,301) -- --
Costs associated with refinancing transactions (250) (1,604) -- --
Costs associated with new ventures and financing commitments (221) (100) -- --
Refundable deposit associated potential financing commitments (95) -- -- --
Tenant security deposits and other financing activities 44 (57) -- 175
---------- --------- ------- --------
Net cash (used in) provided by financing activities (722) (9,635) -- 192
---------- --------- ------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (926) (704) 2,469 1,372
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,766 2,470 1 3,208
---------- --------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 840 $ 1,766 $ 2,470 $ 4,580
========== ========= ======= ========
</TABLE>
The accompanying notes and the financial statements of Brandywine Realty
Partners are an integral part of these statements.
<PAGE>
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND NATURE OF OPERATIONS:
Brandywine Realty Trust (the "Trust"), was formed on February 26, 1986 as a
real estate investment trust. On July 31, 1986, the Trust sold through an
initial public offering 1,856,200 shares of beneficial interest, the net
proceeds of which were $17,168,000. On July 31, 1986, the Trust acquired a 68%
general partner interest in Brandywine Realty Partners ("Brandywine"), at a
total cost of $16,787,000. As of December 31, 1995, the partners of Brandywine
and their percentage ownership were as follows:
% Ownership
-----------
Brandywine Realty Trust,
a Maryland real estate investment trust 70%
Brandywine Specified Property
Investors Limited Partnership ("BSPI"), a
Pennsylvania limited partnership 30%
----
100%
====
At December 31, 1995, the Trust's portfolio was comprised of four commercial
real estate projects ("the Specified Projects"). The Specified Projects are
leased for office purposes. As of December 31, 1995, the overall occupancy
rate of the Specified Projects was 97% as compared to 86% one year earlier. As
of December 31, 1995, existing leases totaling 95,000 square feet or 37% of
the total square feet, were scheduled to expire during 1996. However,
subsequent to year end, three different leases were renewed for 17,000, 8,000
and 5,000 square feet, respectively, for terms of ten, five and three years,
respectively.
The Specified Projects held on December 31, 1995 are located in the greater
Philadelphia, Pennsylvania and Raleigh, North Carolina metropolitan areas.
Each of these markets is competitive, with the principal methods of
competition consisting in each case of rental rates (including rental
concessions such as initial periods of free occupancy), location, level of
leasehold improvements and building amenities. The Specified Projects compete
for tenants with other properties which may have competitive advantages.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
Since the Trust gained control of Brandywine during 1994, the Trust
consolidates the accounts of Brandywine with the Trust and reflects the BSPI
investment as Minority Interest. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
Capitalization of Costs
The Trust has capitalized as deferred costs certain expenditures related to
the financing and leasing of the Specified Projects. Capitalized loan fees are
being amortized over the six-year term of the loan and leasing commissions are
being amortized over the term of the related leases.
As of December 31, 1995, the Trust had paid $221,000 and had accrued $136,000
in costs associated with its pursuit of potential acquisitions of additional
real estate and third party equity and debt investments. Such costs are
included in deferred costs on the Trust's balance sheet as of December 31,
1995. Further, in connection with these efforts, as of December 31, 1995, the
Trust had deposited $95,000 with an unrelated party. Such deposit is included
in other assets on the balance sheet as of December 31, 1995.
Depreciation and Amortization
Depreciation is computed using the straight-line method. Estimated useful
lives are 30 years for buildings and improvements and five years for personal
property. Amortization of tenant improvements is provided over the shorter of
the lease term or the life of the assets.
Investment in Brandywine
Until January 1994, the Trust had a 68% partnership interest in Brandywine
which was previously accounted for using the equity method. Summarized
financial information for this investment for the year ended December 31, 1993
is as follows (in thousands):
December 31, 1993
------------------------
Total assets $ 39,994
Total revenue $ 5,532
Net loss $ (2,156)
Allocated income from Brandywine $ 568
Federal Income Taxes
The Trust has elected to qualify as a real estate investment trust under
Sections 856-860 of the Internal Revenue Code and intends to remain so
qualified. Accordingly, no provision is made for Federal income taxes on any
real estate investment trust taxable income which has been or will be
distributed to shareholders within the prescribed time limits.
Taxable income (loss) for the years ended December 31, 1995, 1994 and 1993,
totaled $(652,000), $0 and ($926,000), respectively. In 1995 and 1994 the
differences between taxable income (loss) and net income (loss) as reported in
the financial statements were primarily due to differences between the
allocation of Brandywine's net income and loss for financial reporting
purposes and for tax reporting purposes. In 1993, the difference was primarily
due to the temporary difference related to the recognition of income from the
settlements with two limited partners of BSPI (see Note 8). For financial
reporting purposes, this item was recorded as income in 1993, while for tax
reporting purposes, it was deferred to 1994.
Under current law, the Trust is subject to a 4% Federal excise tax if it does
not distribute a sufficient amount of its taxable income within the prescribed
time limits. The excise tax equals 4% of the amount, if any, by which the sum
of (a) 85% of the Trust's ordinary income and (b) 95% of the Trust's capital
gain net income (which was zero in each year since the Trust's inception) for
the year exceeds cash distributions during the year and certain taxes paid by
the Trust, if any. No excise tax was incurred in 1995, 1994 or 1993.
Total assets of the Trust for tax purposes amounted to $12,497,000 and
$15,348,000, respectively as of December 31, 1995 and 1994 as compared to
total assets for financial reporting purposes which amounted to $17,105,000
and $17,873,000, respectively.
<PAGE>
Revenue Recognition
Rental income from tenants is recognized on a straight-line basis regardless
of when payments are due. Accrued rental income included in the balance sheets
with accounts receivable reflects such rental income due as follows:
1996 $ 32,000
1997 36,000
1998 29,000
1999 35,000
2000 36,000
2001 and thereafter 2,000
-------
Total $170,000
========
During 1995, two different tenants each accounted for approximately 10% of the
annual total rental income of the Trust. No tenant represented 10% or more of
the Trust's rental revenue in 1994 and 1993.
Reclassifications
Certain 1994 and 1993 amounts have been reclassified to conform to the current
year presentation.
Net Income (Loss) Per Share
Net income (loss) per share is calculated based upon the weighted average
shares outstanding which were 1,874,372 in 1995, 2,022,981 in 1994 and
1,856,200 in 1993. Earnings per share for 1995 and 1994 have been computed by
considering any share equivalents applying the "treasury stock" method and
assuming that all options were exercised on date of issue. The proceeds
obtained from the exercise of any options would be utilized to purchase
outstanding shares at the average market price for the primary earnings per
share calculation and at the higher of the average market price or the closing
market price as of December 31, 1995 and December 31, 1994, respectively, for
the fully diluted earnings per share calculation. No such options have been
exercised as of December 31, 1995. If these options had been exercised, the
per share results would not be materially different from the primary earnings
per share presented.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and short-term investments with original maturities of 90 days or
less. At December 31, 1995 and 1994, cash and cash equivalents totaling
$840,000 and $1,766,000, respectively included tenant escrow deposits of
$198,000 and $155,000, respectively.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents reported in the consolidated
balance sheets approximate the fair value of those assets. The fair values for
mortgage notes payable also approximate the carrying costs of those
liabilities.
3. REAL ESTATE INVESTMENTS:
Real estate investments are carried at the lower of adjusted cost or estimated
net realizable value. On January 31, 1994, the outstanding mortgage
indebtedness totaling approximately $43 million was extinguished in exchange
for the payment of $14 million resulting, after costs, in an extraordinary
gain of approximately $28 million in the first quarter of 1994. Of the total
extraordinary gain, $20,109,000 was allocable to the Minority Interest
partner. The consummation of this transaction resulted in management's
determination that the aggregate carrying value of the then owned seven
Specified Projects exceeded the estimated net realizable value of
approximately $22 million. Management based its estimate primarily upon
third-party appraisals (reviewing each appraisal in relation to the current
real estate market) and a $10 million nonrecourse mortgage. In the first
quarter of 1994, a writedown of $5.4 million was recorded to adjust the
carrying value of the Specified Projects to the estimated net realizable
value.
<PAGE>
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed of." This statement requires that long-lived
assets to be held and used by the Trust be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In performing the review for recoverability, the
Trust should estimate the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected future cash
flows is less than the carrying amount of the asset, an impairment loss should
be recognized. Measurement of an impairment loss for these assets should be
based on the fair market value of the asset. This statement is effective for
the Trust's financial statements in 1996. Management does not anticipate that
the effect of adopting this statement will be material to the Trust's
financial position or results of operations.
4. SALES OF REAL ESTATE INVESTMENTS:
On February 28, 1994, the Lincoln Centre project was sold for a net sales
price equal to its adjusted carrying value of approximately $2,300,000. Of the
total net proceeds, $1,500,000 was deposited with the mortgage lender as
escrowed cash reserves available for capital improvements, tenant improvements
and leasing commissions associated with the remaining Specified Projects and
the balance of net proceeds was maintained for general liquidity needs.
On August 8, 1994, the Academy Downs project was sold for a net sales price of
approximately $4,500,000. As a result, a net gain on the sale of $1,116,000
was recorded during the third quarter of 1994. Of the total net proceeds,
Brandywine paid the mortgage lender $2,497,000 as principal and $366,000 as
Additional Interest. After the required payments to the lender, eighty-five
percent of the balance of net proceeds or $1,355,000 was distributed to the
Trust's shareholders as distributions totaling $0.73 per share.
On December 15, 1994, the Iron Run project was sold for a net sales price of
approximately $2,400,000. As a result, a net gain on the sale of $294,000 was
recorded during the fourth quarter of 1994. Of the total net proceeds,
Brandywine paid the mortgage lender $604,000 as principal and $436,000 as
Additional Interest. After the required payments to the lender, the Trust, on
December 22, 1994, declared eighty-five percent of the balance of net proceeds
or approximately $1,207,000 as a distribution payable on February 2, 1995 to
the Trust's shareholders of record as of January 24, 1995. Such distribution
totaled $0.65 per share.
The following unaudited pro forma financial information for the year ended
December 31, 1994 of Brandywine Realty Trust gives effect to the above sales
of the three Specified Projects as if the events had occurred on January 1,
1994. The pro forma financial information is unaudited and is not necessarily
indicative of the results which actually would have occurred if the
transactions had been consummated at the beginning of the period presented,
nor does it purport to represent the results of operations for future periods.
Year Ended December 31, 1994 (unaudited in thousands)
Pro forma total revenue $ 3,479
Pro forma total expenses 10,763
--------
Pro forma loss before minority interest,
gain on sales of real estate investments
and extraordinary item ( 7,284)
Pro forma minority interest in loss of
Brandywine Realty Partners ( 5,635)
Pro forma extraordinary item: gain on
extinguishment of debt (net of $20,109
allocated to minority interest) 7,998
--------
Pro forma net income $ 6,349
========
Pro forma earnings per share:
Pro forma loss before extraordinary item $( 0.81)
Pro forma extraordinary item 3.95
--------
Pro forma net income per share $ 3.14
========
<PAGE>
5. MORTGAGE NOTES PAYABLE:
On April 21, 1995, the Trust refinanced its then existing mortgage loan with
proceeds of mortgage loans totaling $6,250,000 and $2,750,000, respectively,
and providing for a fixed rate of interest. The mortgage loans are
cross-collateralized by the Specified Projects. The mortgage loans are due on
April 15, 2001, and the lender has the right to call the loans at par on April
15, 1998. Monthly payments of interest and principal are due based on a 25
year amortization schedule for the period April 21, 1995 through April 15,
1998. After April 15, 1998, monthly payments of interest and principal are due
based on a 22 year amortization schedule. The interest rate will be set at
8.75% through April 15, 1996, 9.0% for the period from April 16, 1996 through
October 15, 1996 and 9.31% for the period from October 16, 1996 through April
15, 1998. After April 15, 1998 the loan rate is reset based upon the mortgage
lender's evaluation, at that time, of, among other factors, the financial
performance and projected risk of the Specified Projects, the financial status
of the Trust and the then outstanding balance of the loans. For the year ended
December 31, 1995, the difference between the interest calculated at a
weighted average rate of 9.19% and the rate at which the interest was paid has
been accrued as deferred interest. Deferred interest at December 31, 1995
totaled $27,000 and is included in accrued expenses. The mortgage loans
provide for prepayment upon certain conditions, including, among others, the
payment of a Make Whole Premium, defined as the greater of 1% of the principal
amount to be prepaid or the positive difference between the present value of
the mortgage (or part of the mortgage being prepaid) discounted at 9% through
May 15, 1998 and U.S. Treasury yields, thereafter, netted against the amount
of prepaid proceeds. At December 31, 1995, principal repayments on the
outstanding mortgage loans are as follows:
1996 $ 107,000
1997 111,000
1998 122,000
1999 134,000
2000 147,000
2001 8,310,000
-----------
$ 8,931,000
===========
The loan is generally nonrecourse to the Trust as to interest and principal,
except in the event of a sale or encumbrance of the mortgaged premises, or in
the event of fraud or willful misrepresentation in connection with the loan.
In addition, the Trust has agreed to be responsible to the lender for certain
other liabilities, including (i) environmental liabilities, (ii) waste
relating to the mortgaged premises, (iii) misapplication or misappropriation
of certain reserves and other amounts held in connection with the operation of
the mortgaged premises, (iv) failure to pay certain expenses relating to the
mortgage premises, including utilities, operating and maintenance, taxes,
assessments, and insurance, but only to the extent that the Trust received
rents or other proceeds from the mortgaged premises during the eighteen month
period prior to an event of default under the loan documents, or after the
occurrence thereof, and (v) certain other enumerated liabilities.
The lender is entitled to hold escrow cash reserves for real estate taxes and
capital requirements in two interest-bearing accounts. On April 21, 1995, an
initial deposit of $1,559,000 was made into this account. Deposits to the real
estate tax escrow account are required to be made on a monthly basis. Ongoing
deposits to the capital escrow account are required of $10,000 per month
during the first year of the loans and $25,000 per month over the remainder of
the term of the loans. Amounts held in the capital escrow account may be
advanced, from time to time and subject to certain conditions, to pay for
capital improvements, tenant improvements and leasing commissions associated
with the Projects and distributions to Shareholders of the Trust. The capital
escrow account held by the lender does not constitute additional collateral
for the mortgage loans. At December 31, 1995, the principal balance of the
loans totaled $8,931,000 and the capital and real estate tax escrow accounts
totaled $1,155,000.
<PAGE>
At December 31, 1994, the mortgage note payable totaled $6,899,000, was
non-recourse and was secured by first mortgages on the Specified Projects. The
mortgage loan was scheduled to mature on January 31, 1999 upon which date the
full outstanding principal balance would have been due. Minimum interest was
payable monthly at a floating rate equal to 4.25% per annum in excess of the
composite rate on the lender's United States commercial paper, adjusted
monthly. At December 31, 1994, the rate of minimum interest was set at 9.59%.
During the year ended December 31, 1994, the weighted average interest rate of
minimum interest and Additional Interest on the loan was 10.8% exclusive of
the payment, discussed below, of $1,114,000 made from escrowed cash to the
mortgage lender on December 28, 1994.
The Trust was also required to escrow cash reserves as additional security for
the repayment of the mortgage loan in non-interest bearing accounts held by
the lender. The lender held $125,000 as a deposit, escrowed real estate tax
payments with respect to the Specified Projects and escrowed cash reserves to
pay for capital improvements, tenant improvements and leasing commissions
associated with the Specified Projects. At December 31, 1994, total escrow
cash reserves held by the lender amounted to $1,114,000. In connection with
the refinancing, discussed above, these cash reserves were released to the
Trust.
During 1994, in connection with the sales of Academy Downs and Iron Run, the
Trust repaid $3,101,000 of the mortgage loan balance as required under the
loan documents, representing 115% of the allocable share of the original loan
balance attributable to Academy Downs and Iron Run.
Further, the lender was entitled to receive as additional interest
("Additional Interest") (i) a 25% participation in the net cash flow of the
Specified Projects (other than the Lincoln Centre property) (the "Additional
Interest Projects") to be paid monthly; (ii) a 25% participation in the net
proceeds of any sale of an Additional Interest Project in excess of the
allocable basis of the Additional Interest Project; (iii) a 25% participation
in any proceeds of a refinancing relating to an Additional Interest Project in
excess of the allocable basis of the Additional Interest Project; and (iv) a
25% participation at maturity, in the balance of the escrow account described
above in excess of $2,040,000 less funds deposited into the escrow account by
Brandywine pursuant to any sale or refinancing of an Additional Interest
Project. The sale and refinancing participations described in (ii) and (iii)
above were subject to a $1 million aggregate minimum payment. During 1994 in
connection with sales of Academy Downs and Iron Run, the Trust paid the
mortgage lender $802,000, representing Additional Interest which Additional
Interest was applied against the $1 million aggregate minimum payment amount.
On December 28, 1994, the Trust paid the mortgage lender $1,114,000 from
escrowed cash reserves. In return for receiving this payment, the mortgage
lender agreed to waive any future rights to receive Additional Interest from
the Specified Projects and to open the mortgages to prepayment without penalty
or premium. As a result of the lender receiving prepayment of Additional
Interest, the option agreement granted to the lender, described below, was
terminated. Further, the lender agreed to extend the commitment date on the
Trust's $26 million secured credit facility, described below, and to reduce
that facility's pay rate by 125 basis points.
On January 31, 1994, the Trust granted the mortgage lender an option,
exercisable for the greater of 375,000 Shares of Beneficial Interest or 15% of
the outstanding Shares, which amount was subject to reduction to the extent of
certain Additional Interest paid to the lender in connection with a sale or
refinancing of a Specified Project. As a result of the sales of Academy Downs
and Iron Run and the related payments of principal and Additional Interest to
the lender, the number of Shares underlying the option was reduced from
375,000 to 274,000. The option, priced at $1.875 per Share, was exercisable
only upon the new lender's release of its right to receive Additional
Interest, from and after the date of such exercise. As a result of the
mortgage lender receiving $1,114,000 as prepayment of Additional Interest on
December 28, 1994, this option was terminated.
During 1994, the Trust obtained a $26 million commitment from the mortgage
lender to provide nonrecourse financing for the acquisition of additional real
estate properties. At December 31, 1994, no amounts were borrowed against the
commitment. At December 31, 1995, such commitment had been terminated and
$100,000 of associated deferred costs have been expensed.
During the years ended December 31, 1995 and 1994, mortgage interest paid
totaled $784,000 and $3,056,000 respectively. On a pro forma consolidated
basis (unaudited), mortgage interest paid for the year ended December 31, 1993
totaled $2,230,000.
<PAGE>
6. MINORITY INTEREST AND BENEFICIARIES' EQUITY:
Minority Interest
Under the terms of the Brandywine Partnership Agreement, the methods followed
for 1995, 1994, and 1993 regarding contributions and distributions and
allocations of income (loss) were as follows:
Cash Contributions/Deficit Restoration Obligations
At December 31, 1993 BSPI, through its limited partners, had an
obligation to restore deficits in its capital account upon
liquidation of Brandywine to a maximum of $12,961,000 in accordance
with the Brandywine Partnership Agreement. This maximum obligation in
the event of liquidation would have been primarily available for
distribution to the Trust.
In connection with the January 1994 refinancing of the Specified
Projects in order to obtain the requisite approvals for the
refinancing, the Trust and Brandywine achieved a settlement (the
"BSPI Settlement") of the deficit restoration obligations
contingently owed by BSPI to Brandywine, which settlement was
approved by holders of 93% of BSPI's limited partner units. Under the
terms of the BSPI Settlement, effective January 1, 1994, the Trust
and Brandywine released BSPI and its limited partners from any
current or future obligation to restore deficit balances in BSPI's
capital account in Brandywine. In exchange, among other things, the
Trust's participation in Brandywine's operating cash flow was
increased to 98% and BSPI waived certain voting rights in Brandywine.
In connection with the BSPI Settlement, Brandywine National
transferred its interest in Brandywine to the Trust and the Trust was
designated as Brandywine's new administrative partner. Further, the
Trust's 25.83% interest in BSPI was transferred to a subsidiary of
BSPI's general partner and retired.
During the first quarter of 1994, in order to provide the cash
necessary to complete the January 1994 refinancing of the Specified
Projects, the Trust contributed cash of $2,466,000 to Brandywine.
This contribution increased the Trust's Unrecovered Capital,
originally defined in accordance with the Brandywine Partnership
Agreement as an amount equal to $18,562,000 to $21,028,000. Such
Unrecovered Capital represents the amount due to the Trust as a first
preference upon capital events related to the Specified Projects. At
December 31, 1995 and 1994, the Trust's Unrecovered Capital totaled
$17,817,000 and $18,467,000, respectively, in accordance with the
Brandywine Partnership Agreement.
Cash Distributions
Effective January 1, 1994, distributions of cash flow from operations
are due first to the Trust and BSPI, for reimbursement of
administrative expenses; and second to the Trust, 98% of remaining
cash flow; and to BSPI, 2% of remaining cash flow. Distributions from
capital events are due first to the Trust, up to its Unrecovered
Capital as defined in the Brandywine Partnership Agreement.
Brandywine made cash distributions in 1993, first to the Trust, in an
amount equal to the Trust's administrative expenses, and second to
BSPI, in an amount equal to BSPI's administrative expenses.
During 1993 no other cash distributions were made.
Allocation of Net Income (Losses) from Operations
During 1995 and 1994, for financial reporting purposes, income is
first allocated to the Trust and BSPI in an amount equal to cash
distributions made to each partner. Thereafter, net losses are
allocated to BSPI to the extent of its positive capital account
balance and its share of Brandywine's "minimum gain" (as defined in
the applicable United States Treasury Department regulations).
Remaining net income and net losses are allocated to the Trust.
During 1993, in accordance with the Brandywine Partnership Agreement,
net income (losses) from operations were allocated as follows:
<PAGE>
o First, income to the Trust and BSPI in an amount equal to cash
distributions made to such partner;
o Second, losses to Brandywine National in an amount equal to 1%
of Brandywine's gross rental income;
o Third, Net losses to BSPI to the extent of its positive capital
account balance, capital account deficit restoration obligation,
and its share of Brandywine's "minimum gain" (as defined in the
applicable United States Treasury Department regulations).
Cash Distributions
For the years ended December 31, 1995 and 1994, the Trust declared
distributions totaling $0.55 and $1.57 per share, respectively. The Trust
determined that 100% of 1995 distributions or $0.55 per share represented a
return of capital to the recipient. Further, the Trust determined that 45% of
1994 distributions or $0.70 per share represented a return of capital while
the remaining 55% of 1994 distributions or $0.87 per share represented
ordinary income to the recipient.
No distributions were declared by the Trust during 1993.
7. STOCK OPTIONS
On August 8, 1994, subject to shareholder approval which was received at the
Annual Meeting of Shareholders on October 11, 1994, the Board of Trustees
adopted a stock option compensatory plan benefiting an executive officer of
the Trust covering 140,000 common shares of beneficial interest. The plan
includes options exercisable for 100,000 shares at an exercise price of $6.50.
Of the remaining 40,000 shares subject to options, options covering 20,000
shares vested on August 8, 1995 and options covering 20,000 shares vest on
August 8, 1996. The exercise price of the 40,000 options was set at $3.80. The
per share exercise price of the options covering all 140,000 shares is subject
to reduction as proceeds from the sale of, or refinancing of debt secured by,
any Specified Projects are distributed by the Trust to shareholders by an
amount equal to the amount so distributed, from time to time, on account of
each share. Accordingly, the per share exercise prices of the options have
been reduced to $4.77 and $2.07, respectively, as a result of distributions to
shareholders from proceeds of the Academy Downs and Iron Run sales and the
April 21, 1995 mortgage refinancing. During 1995 and 1994 there were no
options exercised, canceled or expired.
8. INCOME FROM ACQUISITION OF LIMITED PARTNER INTERESTS IN BSPI:
During 1993, the Trust obtained settlements with two limited partners of BSPI
prior to the occurrence of any event that would have required the settling
limited partners to restore their negative capital accounts in BSPI. In the
settlements, the Trust received $2,469,000 in cash and the settling limited
partners' 25.83% limited partner interests in BSPI. As the successor to the
settling limited partners, the Trust assumed all rights and obligations of the
settling limited partners to BSPI, including the settling limited partners'
deficit restoration obligations totaling approximately $3,086,000. The Trust
also received from BSPI the right to setoff any future claims (direct or
indirect) between the Trust and BSPI, including the Trust's deficit
restoration obligations. The amount of cash received in conjunction with these
settlements has been recorded as income in the accompanying financial
statements due to the Trust having received the right of setoff.
Effective January 1, 1994, the Trust and Brandywine released BSPI and its
limited partners from any current or future obligation to restore deficit
balances in BSPI's capital account in Brandywine and the Trust's 25.83%
interest in BSPI was transferred to a subsidiary of BSPI's general partner and
retired.
9. RELATED-PARTY TRANSACTIONS:
Through January 31, 1994, upon the sale of a Specified Project, certain
related parties were entitled to a commission equal to 1.5% of the sales price
of the Specified Project. During 1994 an amount of $167,000 was paid from a
prior sale.
<PAGE>
Effective February 1, 1995, the Trust assumed management of three of the four
Specified Projects and entered into a management agreement with an unrelated
party for the management of the fourth Specified Project. During the period
January 1, 1995 through January 31, 1995 and the years 1994 and 1993, all of
the Specified Projects, except Academy Downs, were managed by related parties.
For their services, these property managers received an amount equal to 5% of
rental income (excluding tenant reimbursements), which amount totaled $10,000,
$187,000 and $219,000 in 1995, 1994 and 1993, respectively, and is included in
management fees in the accompanying statements of operations. During 1993, the
property managers also received reimbursements of certain direct costs
attributable to the operation of the Specified Projects. Such reimbursements
amounted to $154,000. Further, for the period February 1, 1994 through January
31, 1995, for the Specified Projects operated under a management agreement
with related parties, one affiliate absorbed an amount equal to 2% of gross
rents representing administrative costs, which costs would otherwise be borne
by the Trust. In 1995 and 1994, these amounts totaled $4,000 and $70,000,
respectively. Through the period January 1, 1995 through January 31, 1995, and
for the years 1994 and 1993, certain related parties or employees thereof were
paid leasing commissions with respect to leases obtained through them. Leasing
commissions paid to such related parties in 1995, 1994 and 1993 amounted to
$47,000, $56,000 and $28,000, respectively. Further, for the period February
1, 1994 through January 31, 1995, one affiliate absorbed an amount equal to
40% of the defined commission structure representing administrative costs,
which costs would otherwise be borne by the Trust. In 1995 and 1994, these
amounts totaled $19,000 and $22,000, respectively.
During 1994 and 1993 certain administrative and management functions for the
Trust were performed by a related party. During 1993 and continuing through
August 8, 1994, the Trust reimbursed the related party up to $100,000 per year
for certain administrative expenses directly attributable to the Trust. Such
reimbursements amounted to $75,000 in 1994, and $100,000 in 1993.
10. OPERATING LEASES:
The Trust leases its properties to tenants under operating leases with various
expiration dates extending to the year 2006. At December 31, 1995, leases
covering 95,000 square feet or approximately 37% of the net leasable space
were scheduled to expire during 1996. Subsequent to year end, three leases
were renewed which total 30,000 square feet or 12% of the net leasable space.
Gross minimum future rentals on noncancelable leases at December 31, 1995
were:
Year Amount
---- --------
1996 $3,223,000
1997 2,400,000
1998 1,660,000
1999 1,522,000
2000 1,371,000
2001 and thereafter 4,231,000
The total minimum future rentals presented above do not include amounts that
may be received as tenant reimbursements for charges to cover increases in
certain operating costs. Excluding projects sold in each year, these tenant
reimbursements amounted to $66,000, $47,000 and $148,000 in 1995, 1994, and
1993, respectively.
11. SUBSEQUENT EVENT:
On March 20, 1996, the Trust entered into a letter of intent with Safeguard
Scientifics, Inc. ("SSI") and SSI's real estate affiliate, The Nichols Company
("TNC"). The Trust intends to form an investment partnership with SSI and TNC
to acquire for cash and equity interests 18 properties currently owned by SSI,
TNC and their affiliates. The proposed transaction is subject to customary
conditions, including negotiation and execution of definitive documentation,
due diligence and approval by the Trust's shareholders.
<PAGE>
12. SUMMARY OF INTERIM RESULTS (UNAUDITED):
The following is a summary of unaudited interim financial information for the
Trust for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended
(in thousands, except per share information)
--------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1995
----
Operating revenue $ 927 $ 879 $ 885 $ 975
Income before depreciation
amortization and minority interest $ 212 $ 147 $ 133 $ 91
Net loss $ (70) $ (370)(a) $ (152) $ (232)(b)
Net loss per share $ (0.04) $ (0.20)(a) $ (0.08) $ (0.12)(b)
1994
----
Operating revenue $ 1,279 $ 1,092 $ 1,026 $ 795
Income (loss) before depreciation and
amortization, provision for loss on real
estate investments, gain on sales of real
estate investments and extraordinary gain $ 119 $ 185 $ 45 $ (1,055)(g)
Provision for loss on real estate investments $5,400(c) -- -- --
Gain on sales of real estate investments -- (d) -- $ 1,116(f) $ 294(h)
Extraordinary gain on extinguishment of debt $7,998(e) -- -- --
Net income (loss) $7,998(e) $ (188) $ 839(f) $ (1,082)(g)(h)
Net income (loss) per share $ 3.95(e) $ (0.09) $ 0.41(f) $ (0.53)(g)(h)
</TABLE>
(a) During the second quarter of 1995, the Trust's net loss includes the
write-off of deferred loan fees totaling $254,000 or $0.14 per share as a
result of the Trust's April 21, 1995 refinancing (see Note 5).
(b) During the fourth quarter of 1995, the Trust's net loss includes the
write-off of deferred costs totaling $100,000 or $0.05 per share as a result
of the termination of the Trust's $26 million commitment. (see Note 5).
(c) During the first quarter of 1994, the Trust recorded a write-down of
$5,400,000 to adjust the carrying value of the Specified Projects to estimated
net realizable value (see Note 3).
(d) During the first quarter of 1994, the Trust sold the Lincoln Centre
project for a net sales price equal to its adjusted carrying value (see Note
4).
(e) During the first quarter of 1994, the Trust extinguished mortgage
indebtedness totaling approximately $43 million resulting, after costs and
allocation to Minority Interest, in extraordinary gain to the Trust of
$7,998,000 or $3.95 per share (see Note 3). Such extraordinary gain is
included in the Trust's net income for the first quarter of 1994.
(f) During the third quarter of 1994, the Trust sold the Academy Downs project
resulting in a net gain of $1,116,000 or $0.55 per share (see Note 4). Such
gain is included in the Trust's net income for the third quarter of 1994.
<PAGE>
(g) During the fourth quarter of 1994, the Trust paid its then mortgage lender
$1,114,000 or $0.55 per share, which amount represented the prepayment of
Additional Interest and is included in the Trust's net loss for the fourth
quarter of 1994 (see Note 5).
(h) During the fourth quarter of 1994, the Trust sold the Iron Run project
resulting in a net gain of $294,000 or $0.15 per share (see Note 4). Such gain
is included in the Trust's net loss for the fourth quarter of 1994.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Brandywine Realty Partners:
We have audited the accompanying balance sheet of Brandywine Realty Partners
(a Pennsylvania general partnership) as of December 31, 1993, and the related
statements of operations, partner's equity (deficit) and cash flows for the
year ended December 31, 1993. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements 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 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brandywine Realty Partners as
of December 31, 1993, and the results of its operations and its cash flows for
the year ended December 31, 1993, in conformity with generally accepted
accounting principles.
Philadelphia, Pa.,
March 25, 1994
ARTHUR ANDERSEN, LLP
<PAGE>
BRANDYWINE REALTY PARTNERS
BALANCE SHEET
December 31, 1993
(in thousands)
ASSETS
REAL ESTATE INVESTMENTS:
Operating properties, at adjusted cost $ 48,822
Accumulated depreciation (12,493)
----------------------
36,329
CASH AND CASH EQUIVALENTS 1,460
RESTRICTED CASH 651
ACCOUNTS RECEIVABLE AND OTHER ASSETS 911
DEFERRED COSTS, net of accumulated
amortization of $1,684 643
----------------------
Total assets $ 39,994
======================
LIABILITIES AND PARTNERS' DEFICIT
MORTGAGE NOTES PAYABLE $ 40,446
ACCRUED MORTGAGE INTEREST AND
PENALITIES 2,480
TENANT SECURITY DEPOSITS AND
DEFERRED RENTS 308
ACCOUNTS PAYABLE 378
ACCRUED EXPENSES AND OTHER LIABILITIES 111
----------------------
Total liabilities $ 43,723
PARTNERS' DEFICIT (3,729)
----------------------
Total liabilities and partners' deficit $ 39,994
======================
The accompanying notes and the financial statements of Brandywine Realty Trust
are an integral part of this statement.
<PAGE>
BRANDYWINE REALTY PARTNERS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
1993
-----------------------
REVENUE:
Rents $ 4,932
Tenant reimbursements 519
Other income 81
-----------------------
Total revenue 5,532
-----------------------
EXPENSES:
Interest 2,400
Depreciation and amortization 1,948
Utilities 762
Real estate taxes 721
Maintenance 910
Management fees 264
Other operating expenses 223
Administrative expenses 460
-----------------------
Total expenses $ 7,688
-----------------------
NET LOSS $ (2,156)
=======================
The accompanying notes and the financial statements of Brandywine Realty Trust
are an integral part of this statement.
<PAGE>
BRANDYWINE REALTY PARTNERS
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
<TABLE>
<CAPTION>
Brandywine Brandywine Specified Brandywine
Realty Property Investors National
Trust Lmited Partnership Corporation Total
-------------- ------------------ -------------- ------------
<S> <C> <C> <C> <C>
EQUITY (DEFICIT)
January 1, 1993 $ 10,787 $ (11,758) $ (51) $ (1,022)
Contributions -- -- 51 51
Net income (loss) 568 (2,675) (49) (2,155)
Distributions (568) (34) -- (603)
------------ --------------- -------------- ---------------
EQUITY (DEFICIT)
December 31, 1993 $ 10,787 $ (14,467) $ (49) $ (3,729)
============== ================ =============== ================
</TABLE>
The accompanying notes and the financial statements of Brandywine Realty Trust
are an integral part of this statement.
<PAGE>
BRANDYWINE REALTY PARTNERS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
1993
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Rent receipts $ 5,540
Interest received 96
Rental expenses paid (3,048)
Mortgage interest paid (2,230)
General and administrative expenses paid (459)
--------------------
Net cash used in operating activities (101)
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (463)
Leasing commissions (157)
--------------------
Net cash used in investing activities (620)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner contributions 51
Partner distributions (602)
Deposits and other financing activities 175
--------------------
Net cash used in financing activities (376)
--------------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,097)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,208
--------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,111
====================
(Continued)
<PAGE>
BRANDYWINE REALTY PARTNERS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
(Continued)
Reconciliation of net loss to net cash
used in operating activities
1993
--------------------
NET LOSS $ (2,156)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED IN OPERATING ACTIVITIES
Depreciation and amortization 1,948
Decrease in other assets 39
Increase in other liabilities 68
--------------------
NET CASH USED IN OPERATING ACTIVITIES (101)
====================
The accompanying notes and the financial statements of Brandywine Realty Trust
are an integral part of this statement.
<PAGE>
BRANDYWINE REALTY PARTNERS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1993
1. ORGANIZATION AND NATURE OF BUSINESS:
Brandywine Realty Partners ("Brandywine" or "the Partnership") was formed as
of April 2, 1986. Brandywine's general partners initially contributed an
aggregate of $17,058,000 in equity. As of December 31, 1993, such partners and
their percentage ownership were as follows:
% Ownership
-----------
Brandywine Realty Trust, formerly
Linpro Specified Properties (the "Trust"),
a Maryland real estate investment trust 68%
Brandywine Specified Property
Investors Limited Partnership, formerly
Linpro Specified Property Investors
Limited Partnership ("BSPI"), a
Pennsylvania limited partnership 30%
Brandywine National Corporation, formerly
Linpro National Corporation ("Brandywine
National"), a Pennsylvania corporation
formed by principals of Linpro Entities 2%
-----
100%
=====
Brandywine was formed to acquire, operate and ultimately sell office and
industrial properties ("Specified Projects"). On June 26, 1986, Brandywine
commenced operations and by July 31, 1986 completed its acquisition of the
Specified Projects from related Linpro Entities at a total cost of
$63,845,000.
On January 31, 1994, Brandywine refinanced the Specified Projects. In
connection with this refinancing, Brandywine National, the original 2%
administrative partner of Brandywine, transferred its interest in Brandywine
to the Trust which was designated as the new administrative partner of
Brandywine.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
Brandywine's accounting records are maintained on the modified cash basis.
Adjusting entries have been made to present the accompanying financial
statements on the accrual basis of accounting in accordance with generally
accepted accounting principles.
Capitalization of Costs
Brandywine's policy is to capitalize all costs related to the improvement or
replacement of fixed assets. Maintenance and repairs are charged to expense as
incurred.
Brandywine has capitalized as deferred costs certain expenditures related to
the organization of the Partnership and the financing and leasing of the
Specified Projects. Organization costs have been fully amortized over five
years. Capitalized loan fees are being amortized over the ten year terms of
the loans and leasing commissions are being amortized over the term of the
related leases.
<PAGE>
Depreciation and Amortization
Depreciation is computed using the straight-line method. Estimated useful
lives are 30 years for buildings and improvements and five years for personal
property. Amortization of tenant improvements is provided over the shorter of
the lease term or the life of the assets.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and short-term investments with original maturities of 90 days or
less. At December 31, 1993 cash and cash equivalents totaling $2,111,000
included tenant escrow deposits of $261,000.
Federal Income Taxes
No Federal or state income taxes are payable by Brandywine and none have been
provided in the accompanying financial statements. The partners are to include
their respective share of Partnership profits and losses in their individual
tax returns.
Brandywine's taxable net loss for the year ended December 31, 1993 exceeded
its net loss for financial reporting purposes by approximately $569,000, due
principally to differences in the methods used to calculate depreciation for
Federal income tax and financial reporting purposes.
Revenue Recognition
Rental income from tenants is recognized on a straight-line basis regardless
of when payments are due. Accrued rental income included in the balance sheet
with accounts receivable and other assets reflects such rental income due as
follows:
1994 $116,000
1995 212,000
1996 199,000
1997 125,000
1998 16,000
---------
$668,000
=========
Significant Tenants
No tenant represented more than 10% of Brandywine's rental revenue in 1993.
3. REAL ESTATE INVESTMENTS:
Real estate investments are carried at the lower of adjusted cost or estimated
net realizable value. Management has historically evaluated net realizable
value by comparing their estimate of current market value to the outstanding
balance of nonrecourse debt. As of December 31, 1993, the carrying value of
the real estate investments of Brandywine was $36,329,000, as compared to the
outstanding nonrecourse mortgage loans, including accrued interest and
penalties, totaling $42,926,000. Due to the ongoing mortgage restructuring
discussions as of December 31, 1993, and the determination that Brandywine was
not exposed to any economic loss, no adjustment to the carrying value of the
real estate investments was made as of December 31, 1993.
On January 31, 1994, the outstanding mortgage indebtedness totaling
approximately $43 million was extinguished in exchange for the payment of $14
million resulting in an extraordinary gain of approximately $28 million in the
first quarter of 1994. The consummation of this transaction resulted in
management's determination that the carrying value of the Specified Projects
exceeded the estimated net realizable value based in part, upon the new
nonrecourse mortgage loan of $10 million. Management estimated the net
realizable value of Brandywine's real estate investments to be $22 million for
the seven Specified Projects basing its estimate primarily upon third-party
appraisals (reviewing each appraisal in relation to the current real estate
market) and the new mortgage financing. In the first quarter of 1994, a
<PAGE>
writedown of approximately $5 million was recorded to adjust further the
carrying value of the Specified Projects to estimated net realizable value.
On February 28, 1994, Brandywine sold the Lincoln Centre project for a net
sales price equal to its adjusted carrying value of approximately $2,400,000.
4. MORTGAGE NOTES PAYABLE:
The mortgage notes payable at December 31, 1993 were cross-collateralized by
the Specific Projects. These mortgages were nonrecourse and were scheduled to
mature on June 30, 1996, at which time all principal and unpaid accrued
interest would have been due. Each of the notes bore interest at specified
rates over the three-month London Interbank Offered Rate (LIBOR), adjusted
quarterly. At December 31, 1993, the note rate was 5.375%. Under the mortgage
loan documents, monthly payments of interest, principal, and unpaid deferred
interest were due based on a 30-year amortization schedule. Management, since
the first quarter of 1992, had ceased required mortgage loan debt service in
excess of the net cash flow from operations of the Specified Projects,
resulting in total cash payments to Brandywine's former mortgage lender which
were insufficient to meet the mortgage loan terms.
On January 31, 1994, management refinanced the mortgages of the Specified
Projects, borrowing $10 million under a nonrecourse mortgage loan. The then
new $10 million mortgage loan provided for a term of sixty months, with
minimum interest payable monthly at a floating rate equal to 4.25% per annum
in excess of the composite rate on the lender's United States commercial
paper, adjusted monthly. The initial rate of interest was set at 7.48%. The
mortgage loan was nonrecourse and was secured by first mortgages on the
Specified Projects.
Further, the lender was entitled to receive as additional interest
("Additional Interest") (i) a 25% participation in the net cash flow of the
Specified Projects (other than the Lincoln Centre property) (the "Additional
Interest Projects") to be paid monthly; (ii) a 25% participation in the net
proceeds of any sale of an Additional Interest Project in excess of the
allocable basis of the Additional Interest Project; (iii) a 25% participation
in any proceeds of a refinancing relating to an Additional Interest Project in
excess of the allocable basis of the Additional Interest Project; and (iv) a
25% participation at maturity, in the balance of the escrow account described
below in excess of $2,040,000 less funds deposited into the escrow account by
Brandywine pursuant to any sale or refinancing of an Additional Interest
Project. The sale and refinancing participations described in (ii) and (iii)
were subject to a $1 million aggregate minimum payment.
In addition, the Trust granted the then new lender an option, exercisable for
the greater of 375,000 Trust shares or 15% of outstanding Trust shares, which
amount was to be reduced to the extent of Additional Interest paid pursuant to
(ii) and (iii) above. The option, priced at $1.875 per share, was exercisable
only upon the new lender's release of its right to receive Additional Interest
described above, from and after the date of such exercise.
Brandywine was also required to escrow cash reserves as additional security
for the repayment of the mortgage loan in a non-interest bearing account held
by the new lender.
5. OPERATING LEASES:
Brandywine leases its properties to tenants under operating leases with
various expiration dates extending to the year 2001. During 1994, leases
covering 84,620 square feet or approximately 15.5% of the net leasable space
were scheduled to expire for all the Specified Projects. Excluding Lincoln
Centre, leases covering 81,364 square feet or approximately 17.4% of the
remaining net leasable space were scheduled to expire during 1994. Gross
minimum future rentals on noncancelable leases for all Specified Projects
excluding the Lincoln Centre property, at December 31, 1993 were:
<PAGE>
Year Amount
---- ----------
1994 $4,123,000
1995 3,261,000
1996 1,864,000
1997 975,000
1998 279,000
1999 and thereafter 818,000
The total minimum future rentals presented above do not include amounts that
may be received as tenant reimbursements for charges to cover increases in
certain operating costs. These tenant reimbursements, excluding Lincoln
Centre, amounted to $479,000 in 1993.
6. PARTNERS' EQUITY (DEFICIT):
Under the terms of the Brandywine Partnership Agreement, the methods followed
for 1993 regarding contributions and distributions and allocations of income
(loss), were as follows:
Cash Distributions
Brandywine made cash distributions in 1993, first to the Trust, an amount
equal to the Trust's administrative expenses, and second to BSPI, an amount
equal to BSPI's administrative expenses. During 1993, no other cash
distributions were made.
Effective January 1, 1994, distributions of cash flow from operations are due
first to the Trust and BSPI, for reimbursement of administrative expenses;
second to the Trust, 98% of remaining cash flow; and third to BSPI, 2% of
remaining cash flow. Distributions from capital events are due first to the
Trust, up to its Unrecovered Capital as defined in the Brandywine Partnership
Agreement.
Cash Contributions/Deficit Restoration Obligations
At December 31, 1993, BSPI through its limited partners, had an obligation to
restore deficits in its capital account upon liquidation of Brandywine to a
maximum of $12,961,000 in accordance with the Brandywine Partnership
Agreement. This maximum obligation in the event of liquidation would have been
primarily available for distribution to the Trust.
Effective January 1, 1994, in order to obtain the requisite approvals for the
refinancing of the Specified Projects, Brandywine and the Trust achieved a
settlement (the "BSPI Settlement") of the deficit restoration obligations
contingently owed by BSPI to Brandywine, which settlement, as of March 30,
1994, was approved by holders of 93% of BSPI's limited partner units. Under
the terms of the BSPI Settlement, Brandywine and the Trust released BSPI and
its limited partners from any current or future obligation to restore deficit
balances in BSPI's capital account in Brandywine. In exchange, the Trust's
participation in Brandywine's operating cash flow was increased to 98% and
BSPI waived certain voting rights in Brandywine. In connection with the BSPI
Settlement, Brandywine National transferred its interest in Brandywine to the
Trust and the Trust was designated as Brandywine's new administrative partner.
Further, the Trust's 25.83% interest in BSPI was transferred to a subsidiary
of BSPI's general partner and retired.
Subsequent to December 31, 1993, in order to provide the cash necessary to
complete the January 31, 1994 refinancing of the Specified Projects, the Trust
contributed cash of $2,466,000 to Brandywine. This total contribution
increased the Trust's Unrecovered Capital, originally defined in accordance
with the Brandywine Partnership Agreement as an amount equal to $18,562,000,
to $21,028,000. Such Unrecovered Capital represents the amount due to the
Trust as a first preference upon capital events related to the Specified
Projects.
Allocation of Net Income (Losses) from Operations
During 1993, in accordance with the Brandywine Partnership Agreement, net
income (losses) from operations were allocated as follows:
<PAGE>
o First, income to the Trust and BSPI in an amount equal to cash
distributions made to such partner;
o Second, losses to Brandywine National in an amount equal to 1% of
Brandywine's gross rental income;
o Third, net losses to BSPI to the extent of its positive capital account
balance, capital account deficit restoration obligation, and its share of
Brandywine's "minimum gain" (as defined in the applicable United States
Treasury Department regulations);
Effective January 1, 1994, for financial reporting purposes, income is first
allocated to the Trust and BSPI in an amount equal to cash distributions made
to each partner. Thereafter, net losses are allocated to BSPI to the extent of
its positive capital account balance and its share of Brandywine's "minimum
gain" (as defined in the applicable United States Treasury Department
regulations). Remaining net income and net losses, if any, are expected to be
allocated to the Trust.
7. RELATED-PARTY TRANSACTIONS:
Upon the sale of a Specified Project, certain related parties were entitled to
a commission equal to 1.5% of the sales price of the Specified Project,
provided that such commission, in combination with any commissions due a
third-party broker does not exceed 2% of such sales price. In 1988, a related
party received from Brandywine a promissory note in the amount of $103,000 for
payment of its commission due from the sale of Greentree Square Shopping
Center. The note bore interest at a rate of 9% per annum, compounded annually.
During 1993, all of the Specified Projects except Academy Downs were managed
by related parties. For their services, these property managers received an
amount equal to 5% rental income (excluding tenant reimbursements), which is
reflected as management fees in the accompanying statements of operations. The
property managers also receive reimbursements of certain direct costs
attributable to the operation of the Specified Projects. Such reimbursements
amounted to $154,000 in 1993.
During 1993, certain related parties or employees thereof were paid leasing
commissions with respect to leases obtained through them. Leasing commissions
paid to such related parties in 1993 amounted to $28,000.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There are no matters which are required to be reported under Item 9.
<PAGE>
PART III
Item 10. Trustees and Executive Officers
Trustees
The individuals who were serving as the Trustees at December 31, 1995, and
certain information about them, are set forth below:
Joseph L. Carboni (age 58) was elected a Trustee on May 14, 1991 and Chairman
of the Board on October 11, 1994. Mr. Carboni is the President of JLC
Associates, Inc., a commercial and real estate consulting firm. Prior to 1990,
Mr. Carboni was a Senior Vice President of BNE Realty Credit Corporation.
Garry P. Jerome (age 45) has been a Trustee since the formation of the Trust
in 1986 and is the managing director in the Philadelphia office of Wm. M.
Mercer, Incorporated. Prior to July 1, 1988, Mr. Jerome was a partner in the
law firm of Pepper, Hamilton & Scheetz. Wm. M. Mercer, Incorporated provides
employee benefits consulting services to certain Linpro Entities (See Item
13). Fees payable in connection with such services in 1995 were less than 5%
of the gross revenues of Wm. M. Mercer, Incorporated in 1995.
Dennis J. O'Leary (age 48) was elected a Trustee on February 10, 1993 and is
Senior Vice President - Taxes of Reliance Group Holdings, Inc. Reliance
Insurance Company, an indirectly wholly-owned subsidiary of Reliance Group
Holdings, Inc., provides or provided insurance services to Brandywine, the
Trust, Brandywine National and Brandywine Enterprises during 1995. Fees
payable in connection with the services rendered in 1995 were less than 5% of
the gross revenues of Reliance Insurance Company during 1995. On January 31,
1996, Mr. O'Leary resigned as a Trustee of the Trust.
Peter P. DiLullo (age 45) was elected a Trustee on February 24, 1994 and is
Executive Vice President and Chief Operating Officer of LCOR, Incorporated and
The Linpro Company. Mr. DiLullo is a partner in various Linpro Entities (See
Item 13). Prior to 1989, Mr. DiLullo was the Chief Financial Officer of The
Linpro Company. Mr. DiLullo also served as Vice President - Finance of the
Trust from November 9, 1989 through February 23, 1994. From March 13, 1986
until his election as Vice President - Finance, Mr. DiLullo served as a
Trustee of the Trust.
On February 9, 1996, the number of Trustees was expanded to five. The two
individuals elected, and certain information about them, are set forth below:
Richard M. Osborne (age 50) was elected a Trustee on February 9, 1996. Mr.
Osborne is President and Chief Executive Officer of OSAIR, Inc., a property
developer and manufacturer of industrial gases for pipeline delivery. Mr.
Osborne is sole Trustee of the Richard M. Osborne Trust, which, as of January
31, 1996, had acquired 538,800 or 29% of the outstanding Common Shares of the
Trust. Mr. Osborne also serves as a director for Great Lakes Bank, Mentor,
Ohio.
Gerard H. Sweeney (age 39) was elected a Trustee on February 9, 1996. As
discussed below, Mr. Sweeney serves as President and Chief Executive Officer
of the Trust.
Each of the above Trustees, except Mr. O'Leary as noted above, has been
elected to hold office for a term expiring at the next annual meeting of the
shareholders of the Trust to be held in 1996.
Management and Executive Officers
Gerard H. Sweeney (age 39) was elected by the Trustees as President and Chief
Executive Officer of the Trust on August 8, 1994. From November 9, 1989 until
August 8, 1994, Mr. Sweeney had served upon his election by the Trustees as
President of the Trust. Prior to August 8, 1994, Mr. Sweeney was Vice
President of LCOR, Incorporated. Mr. Sweeney is a partner in various Linpro
Entities. Prior to April 23, 1992, Mr. Sweeney was Financial Vice President of
The Linpro Company. Mr. Sweeney served as Vice President - Finance of the
Trust from March 13, 1986 until his election to serve as President of the
Trust.
<PAGE>
Francine M. Haulenbeek (age 39) was elected by the Trustees as Vice President
- - Finance and Secretary of the Trust on October 12, 1994 to serve until her
resignation or removal by the Trustees. Ms. Haulenbeek is the President of
Francine M. Haulenbeek & Company, a certified public accounting firm. From
February 13, 1991 until January 8, 1993, Ms. Haulenbeek had served as
Secretary-Treasurer of the Trust. From April 1992 through January 8, 1993, Ms.
Haulenbeek was an employee of LCOR, Incorporated. Prior to April 23, 1992, Ms.
Haulenbeek was Assistant Financial Vice President of The Linpro Company.
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Trust's officers, Trustees and persons who own more than 10% of the Trust's
Shares to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the American Stock Exchange. Officers,
Trustees and greater than 10% shareholders are required by regulation to
furnish the Trust with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Trust, or
written representations that no Annual Statements of Beneficial Ownership of
Securities on Form 5 were required, the Trust believes that during the fiscal
year ended December 31, 1995, all Section 16(a) filing requirements applicable
to its officers, Trustees and greater than 10% Shareholders were complied
with.
Item 11. Executive Compensation
Executive Management Compensation
Cash and Non-Cash Compensation Paid to Certain Executive Officers
The following table sets forth, for the year ended December 31, 1995,
compensation information with respect to the Trust's President and Chief
Executive Officer. No information is included in the tables set forth in this
Item 11 in respect of Ms. Haulenbeek. Effective on October 1, 1994, the Trust
entered into an employment agreement with Ms. Haulenbeek. The term of the
agreement is effective through April 15, 1996 and under the agreement Ms.
Haulenbeek is entitled to receive an annual salary of up to $100,000. Ms.
Haulenbeek's annual 1995 salary totaled $93,000. Ms. Haulenbeek has not been
granted any options or other equity awards in the Trust.
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
(a) (b) (c) (d)
Long -Term Compensation
Name and Principal Securities underlying
Position Year Salary Options/SAR's (#)
- -------------------------------------------------------------------------------
Gerard H. Sweeney 1995 $130,000 (1) -0- (1)
President and Chief 1994 $55,000 (1) (2) $140,000 (1)
Executive Officer 1993 (2) -0-
- -------------------------------------------------------------------------------
- ---------------------
(1) On August 8, 1994, the Trust entered into an employment agreement
with Mr. Sweeney. The term of the employment agreement is one year
and will continue thereafter until either party provides notice to
the other of its election to terminate the agreement. Under the
employment agreement, Mr. Sweeney is entitled to receive an annual
salary of $130,000. In addition, under the employment agreement, the
Trust granted Mr. Sweeney options to purchase 40,000 Common Shares at
a per share exercise price of $3.80 and options to purchase 100,000
Common Shares at a per share exercise price of $6.50. The per share
exercise price of the options is subject to reduction as proceeds
from the sale of, or refinancing of debt secured by, Specified
Projects are distributed by the Trust to holders of the Trust's
Shares by an amount equal to the amount so distributed, from time to
time, on account of each Share. Accordingly, the per share exercise
prices of the options has been reduced to $2.07 (in respect of the
options for 40,000 Shares) and to $4.77 (in respect to the options
for 100,000 Shares) as a result of distributions to shareholders from
proceeds of the sale of two Specified Projects during 1994 and the
April 1995 refinancing of the mortgage loan. In the event the
employment of Mr. Sweeney is terminated without cause, or in the
<PAGE>
event Mr. Sweeney terminates his employment under certain
circumstances, in either case following a change in control of the
Trust, the Trust will be obligated to pay Mr. Sweeney, as severance,
up to 150% of his base salary less the value of certain unexercisable
options on the date of termination.
(2) Prior to August 8, 1994, the date on which Mr. Sweeney became
employed by the Trust, under an employment agreement, his salary
and bonus were paid to him by LCOR, Incorporated. In February 1994,
the Trust paid LCOR, Incorporated $110,000, and LCOR, Incorporated
in turn used $60,000 of this amount to pay Mr. Sweeney a bonus in
recognition of his contribution to the restructuring by the Trust
of its debt in January 1994 and its sale of the Lincoln Centre
Project in February 1994.
In February 1994, the Trust paid LCOR, Incorporated $110,000, which LCOR,
Incorporated in turn used to pay each of Messrs. Sweeney, then President of
the Trust, Madere, then Trustee of the Trust, and DiLullo, then Trustee and
Vice-President - Finance and Treasurer of the Trust, $60,000, $30,000 and
$20,000, respectively, as a bonus in recognition of his contribution to the
Trust's restructuring of its debt in January 1994 and its sale of the Lincoln
Centre Project in February 1994.
Stock Options Granted to Executive Officer During Last Fiscal Year
No options were awarded by the Trust to executive officers of the Trust during
1995.
Stock Options Held by Certain Executive Officer at December 31, 1995
The following table sets forth certain information regarding options for the
purchase of the Trust's Shares that were exercised and/or held by the Trust's
President and Chief Executive Officer at December 31, 1995. No other executive
officer of the Trust held options for the purchase of the Trust's Shares at
any time during 1995.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR ENDED
DECEMBER 31, 1995 AND FY 1995-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the Money
Shares Value Options/SARs at FY- Options/SARs at FY-
Acquired on Realized End (#) Exercisable/ End ($) Exercisable/
Name Exercise (#) ($) Unexercisable (1) Unexercisable
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerard H. Sweeney...... N/A N/A 120,000 / 20,000 $30,000 / $30,000
President and Chief
Executive Officer
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) All figures represent options.
Compensation of Trustees
In 1995, the Trust paid each of Messrs. Carboni, DiLullo, Jerome and O'Leary
(former Trustee who resigned as of January 31, 1996) a fee of $5,000 per year
for his services as a Trustee plus $500 for each meeting of the Trustees or of
a committee of the Trustees attended in person. In 1995, the Trust paid Mr.
Carboni $7,917, each of Messrs. DiLullo and Jerome $7,417 and Mr. O'Leary
$6,417 for their services and attendance at meetings during 1995. The Trust
also reimburses the Trustees for their expenses incurred in connection with
their duties as Trustees.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of February 15, 1996, certain information
with respect to each person who is the beneficial owner of more than 5% of the
Shares, each person who is a Trustee and certain officers of the Trust:
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial % of Class
Name and Address of Ownership as of as of
Title of Class Beneficial Owner February 15, 1996 (1) February 15, 1996
-------------- ---------------- ---------------------- -----------------
<S> <C> <C> <C>
Shares of Joseph L. Carboni 500 less than 1%
Beneficial JLC Associates
Interest 212 Haddon Avenue
Westmont, NJ 08108
Shares of Peter P. DiLullo 66,500 (2)(3) 3.6%
Beneficial LCOR, Incorporated
Interest 300 Berwyn Park, Suite 115
Berwyn, PA 19312
Shares of Garry P. Jerome 937 less than 1%
Beneficial William M. Mercer, Inc.
Interest 1515 Market Street, Suite 400
Philadelphia, PA 19102
Shares of Richard M. Osborne Trust 538,800 29.0%
Beneficial Richard M. Osborne, Trustee
Interest OSAIR, Inc.
P.O. Box 1020
7001 Center Street
Mentor, OH 44061
Shares of Richard M. Osborne (4) (4)
Beneficial OSAIR, Inc.
Interest 7001 Center Street
Mentor, OH 44061
Shares of Gerard H. Sweeney 120,800 (5) 6.1%
Beneficial Brandywine Realty Trust
Interest Two Greentree Centre
Marlton, NJ 08053
Shares of Francine M. Haulenbeek - -
Beneficial Brandywine Realty Trust
Interest Two Greentree Centre
Marlton, NJ 08053
Shares of All Trustees and Executive Officers
Beneficial as a Group 727,537 36.8%
======= =====
Interest
</TABLE>
- ----------------------------------------
(1) Unless otherwise indicated, beneficial owners of such Shares have sole
voting and investment power.
(2) Includes 20,000 Shares owned by Brandywine Property Enterprises,
Inc. of which Mr. DiLullo is Vice President and 16.66% owner, with
respect to which Shares Mr. DiLullo disclaims beneficial ownership.
<PAGE>
(3) Consists of 46,500 Shares held by a trust of which Mr. DiLullo is a
trustee.
(4) Mr. Osborne is the sole Trustee of the Richard M. Osborne Trust which,
as of February 15, 1996, holds 538,800 or 29% of the outstanding
common Shares of the Trust.
(5) Includes options exercisable for 120,000 Shares. See Item 11.
Executive Compensation. Executive Management Compensation.
Item 13. Certain Relationships and Related Transactions
Approximately 40 individual partners operating through more than 350 different
limited partnerships, joint ventures and corporations (collectively, the
"Linpro Entities") were originally doing business under the name "The Linpro
Company". Central administrative and management functions for The Linpro
Entities are currently conducted by LCOR, Incorporated. Since its formation
and through February 1, 1995, the Trust directly and, through its investment
in Brandywine, indirectly entered into several transactions with Linpro
Entities, as described below.
Investment in Brandywine Realty Partners
The Trust was formed in 1986 to acquire a 68% general partner interest in
Brandywine. Brandywine was formed at the same time to acquire from Linpro
Entities the eight original Specified Projects located in Colorado, New
Jersey, North Carolina and Pennsylvania. One of these projects was sold in
1988 and three others were sold in 1994, in each case to an unrelated party.
The original partners of Brandywine, from its inception in 1986 through
January 1994, were the Trust, Brandywine National, which was formed by certain
principals of Linpro Entities to act as the Administrative Partner of
Brandywine, with a 2% general partner interest, and BSPI with a 30% general
partner interest. Brandywine Property Enterprises, Inc. ("Brandywine
Enterprises"), a Linpro Entity, acts as the sole general partner of BSPI.
In connection with the refinancing of the Specified Projects in January 1994,
in order to obtain the requisite approvals for the refinancing, the Trust and
Brandywine achieved a settlement of certain deficit restoration obligations
contingently owed by BSPI to Brandywine. Under the terms of the settlement,
the Trust and Brandywine released BSPI and its limited partners from any
current or future obligation to restore deficit balances in BSPI's capital
account in Brandywine. In exchange, among other things, the Trust's
participation in Brandywine's net cash flow was increased to 98% and BSPI
waived certain voting rights in Brandywine. Further, Brandywine National
transferred its interest in Brandywine to the Trust and the Trust was
designated as Brandywine's new administrative partner.
The Trust and BSPI, as general partners of Brandywine, are entitled, pursuant
to the Brandywine Partnership Agreement, to certain distributions from
Brandywine. Brandywine Enterprises as the general partner of BSPI, is entitled
to certain distributions from BSPI.
The principal purpose of Brandywine is to engage in the business of owning,
leasing, operating and ultimately selling the Specified Projects for the
benefit of the Trust and BSPI. Generally, all decisions relating to the
administrative and day-to-day operations of Brandywine, and all decisions
required or permitted to be made by Brandywine as a participant in any legal
entity in which it has an interest, were made through January 1994 by
Brandywine National in its capacity as Administrative Partner, or its
designee. However, pursuant to the Brandywine Partnership Agreement, through
January 1994 certain decisions affecting Brandywine required the unanimous
consent of the partners, including decisions relating to the acquisition of
real estate other than the Specified Projects, the refinancing of the
Specified Projects or the entry into certain other indebtedness by Brandywine
and, in some instances, the sale of the Specified Projects. Additionally, the
approval of at least 70% in interest of the Partners was required for certain
other actions, including (i) the approval of Brandywine's annual budget, (ii)
making certain expenditures in excess of budgeted amounts, (iii) the
settlement of condemnation cases or insured casualty losses or claims asserted
against Brandywine in excess of specified amounts, (iv) the entry into,
amendment or termination of a lease in excess of one-third of the net leasable
<PAGE>
area of a Specified Project or which requires the approval of Brandywine
pursuant to the terms of the management agreement and (v) the entry into,
amendment, renewal or extension of a contract between Brandywine and
Brandywine National or an affiliate of Brandywine National.
When the Trust was designated as the Administrative Partner of Brandywine, the
Trust received substantially complete control with respect to the business and
affairs of Brandywine, including complete discretion with respect to the sale
or refinancing of the Specified Projects, without the need to obtain the
consent of BSPI or BSPI's limited partners. However, the Trust must obtain
BSPI's consent in order to, among other things, (i) amend the Brandywine
Partnership Agreement to require additional capital contributions by BSPI or
to revise any cash or property distributions or tax allocations due BSPI, or
(ii) acquire any real estate investments in the name of Brandywine in addition
to the Specified Projects. The Trust, however, may, in its discretion, make
future real estate investments in its own name.
Settlement with BSPI
As part of the settlement with BSPI in connection with the January 1994
refinancing, the Trust's 25.83% limited partner interest in BSPI was
transferred to a subsidiary of Brandywine Enterprises and later retired. The
Trust also agreed to indemnify Brandywine Enterprises against potential
liability in connection with the foregoing transactions up to a maximum of
$300,000 and transferred to Brandywine Enterprises certain rights to receive
distributions relating to the contingent deficit restoration obligations.
Trust Administration
Administrative and management functions for the Trust were performed by LCOR,
Incorporated through August 8, 1994. Beginning in 1993 and continuing through
August 8, 1994, the Trust reimbursed LCOR, Incorporated up to $100,000 per
year for certain administrative expenses directly attributable to the Trust,
consisting, in part, of a portion of the salaries for certain personnel
provided by LCOR, Incorporated. During 1994, this reimbursement totaled
$75,000. During 1995, no such reimbursement was made.
During August of 1994, the Trust hired two full-time employees and, as of
December 31, 1995, has three full-time employees. Effective February 1, 1995,
the Trust assumed management of three of the four Specified Projects and
entered into a management agreement with an unrelated party for the management
of the fourth Specified Project.
Brandywine Property Management
In connection with the acquisition of each Specified Project in 1986,
Brandywine entered into management agreements with Linpro Entities engaged in
the property management business pursuant to which the property manager
provides leasing and property management services. During 1994, six of the
then seven remaining Specified Projects (including Lincoln Centre and Iron
Run) were operated under a management agreement with a Linpro Entity and one
of the Specified Projects was operated under a management agreement with an
entity which is not a Linpro Entity. For the period January 1, 1995 through
January 31, 1995, three of the four currently held Specified Projects were
operated under an agreement with a Linpro entity and one of the Specified
Projects was operated under a management agreement with an entity which is not
a Linpro Entity.
For their services rendered pursuant to the management agreements, the
property managers were entitled to reimbursement for certain expenses incurred
in connection with their management of the Specified Projects and are paid a
management fee monthly in arrears equal to 5% of the rental income of the
Specified Projects. In addition, during 1994 and through January 31, 1995, the
management companies received a 50% override in leasing commissions payable to
third party brokers and a full market commission on non-brokered transactions.
For the Specified Projects operated under a management agreement with a Linpro
Entity, during this same period, LCOR, Incorporated absorbed an amount equal
to 2% of gross rents and 40% of the defined commission structure representing
administrative costs, which costs would otherwise have been borne by the
Trust.
<PAGE>
Trustee and Officer Interests in Related Parties
Mr. DiLullo, a Trustee of the Trust as of December 31, 1995, is a partner in
or an officer of, or has direct or indirect ownership interests in, certain
Linpro Entities as follows: Brandywine Property Enterprises, Inc. (16.66%) and
the Property Manager of One, Two and Three Greentree Centres through January
31, 1995 (8.0%). Management fees paid to the Property Manager of One, Two and
Three Greentree Centres totaled $10,000 in 1995.
Mr. Sweeney, the President and Chief Executive Officer of the Trust as of
December 31, 1995, was a partner in or an officer of, or had direct or
indirect ownership interests in, certain Linpro Entities as follows:
Brandywine Property Enterprises, Inc., through January 1, 1995 and the
Property Manager of One, Two and Three Greentree Centres through January 31,
1995 (7.0%).
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Documents filed as part of this report:
(A) Financial Statements
(1) Financial Statements --See Index in Item 8
(2) Financial Statement Schedule
(a) III--Real Estate and Accumulated
Depreciation--December 31, 1995
Note:Schedules not included have been omitted because they are not
applicable or are not required or the required information is
reported in the financial statements or notes thereto.
(B) Reports on Form 8-K: The Trust filed a report on Form 8-K dated January
19, 1996 regarding the purchase of 538,800 Common Shares of the Trust or
approximately 29% of the outstanding Common Shares by the Richard M.
Osborne Trust of which Richard M. Osborne is the sole trustee.
(C) Exhibits:
The exhibits filed as part of this report are listed in the Index to Exhibits
located on pages 55 and 56 hereof.
<PAGE>
SCHEDULE III
BRANDYWINE REALTY TRUST
Real Estate and Accumulated Depreciation - December 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
Initial Cost Net
------------------------------------- Improvements Gross Amount at
Buildings (Retirements) Which Carried
Encumbrances and Since December 31, 1995
Property at December 31, Improvements Acquisition -----------------
Description 1995 Land (2) (3) Land
----------- --------------- ---- ------------ ------------- ----
<S> <C> <C> <C> <C> <C>
Twin Forks $ 2,729 (1) $2,442 $3,950 $(532) $2,194
Office
Raleigh, NC
One Greentree (1) 710 5,515 (1,562) 345
Office
Marlton, NJ
Two Greentree (1) 694 5,686 (1,496) 264
Office
Marlton, NJ
Three Greentree (1) 858 7,573 (2,015) 323
Office
Marlton, NJ
----------------------- ------------------ ------------------- ------------------- ------------------
$ 8,391 (1) $4,704 $22,724 $(5,605) $3,126
======================= ================== =================== =================== ==================
(Continued)
</TABLE>
<PAGE>
(Continued)
<TABLE>
<CAPTION>
Gross Amount at Which Carried
December 31, 1995 Accumulated
---------------------------------- Depreciation
Buildings at
Property and Total December 31, Date of Date Depreciable
Description Improvements (4) (5) & (6) 1995 (7) Construction Acquired Life
----------- ------------ ------------ ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Twin Forks $3,666 $5,860 $1,736 1982 1986 30 years
Office
Raleigh, NC
One Greentree 4,318 4,663 1,848 1982 1986 30 years
Office
Marlton, NJ
Two Greentree 4,620 4,884 1,886 1983 1986 30 years
Office
Marlton, NJ
Three Greentree 6,093 6,416 2,644 1984 1986 30 years
Office
Marlton, NJ
----------- ------------------- ------------------
$18,697 $21,823 $8,114
=========== =================== ==================
<PAGE>
Notes to Schedule III
(1) At December 31, 1995, the two mortgage loans total $2,729,000 and
$6,202,000, respectively. The loans are cross-collateralized and are
secured by first mortgages on each of the Specified Projects.
(2) Amounts exclude equipment, furniture and fixtures and related
accumulated depreciation.
(3) Amounts include provisions for losses on real estate investments
totaling $7,891,000 recorded subsequent to acquisition.
(4) Acquisitions: All real estate investments on Schedule III were
acquired in 1986 for cash, subject to certain encumbrances which
encumbrances were retired January 31, 1994.
(5) The aggregate basis for Federal income tax purposes is $33,415,000 as
of December 31, 1995.
(6) Reconciliation of Real Estate:
The following table reconciles the real estate investments from
January 1, 1995 to December 31, 1995 (in thousands):
Real Estate
Investments
-----------
Balance at beginning of year $ 21,335
Additions during period:
Capital expenditures 630
Deletions during period:
Sales --
Retirements (142)
----------------
Balance at end of year $ 21,823
================
(7) Reconciliation of Accumulated Depreciation:
The following table reconciles the accumulated depreciation from
January 1, 1995 to December 31, 1995 (in thousands):
Real Estate
Investments
-----------
Balance at beginning of year $ 7,387
Additions during period:
Depreciation expense 869
Deletions during period:
Sales --
Retirements (142)
----------------
Balance at end of year $ 8,114
================
<PAGE>
BRANDYWINE REALTY TRUST
SIGNATURES OF REGISTRANT
Pursuant to the requirements of Section 13 of the Securities and 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
By: /s/ Gerard H. Sweeney
--------------------------------------
Gerard H. Sweeney, President
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerard H. Sweeney President, Chief Executive Officer March 25, 1996
- -----------------------------
(Gerard H. Sweeney) and Trustee
(Principal Executive Officer)
/s/ Francine M. Haulenbeek Vice President - Finance and Secretary March 25, 1996
- ----------------------------
(Francine M. Haulenbeek) (Principal Financial
and Accounting Officer)
/s/ Joseph L. Carboni* Trustee and Chairman of the Board March 25, 1996
- ------------------------------
(Joseph L. Carboni)
/s/ Peter P. DiLullo* Trustee March 25, 1996
- ---------------------------------
(Peter P. DiLullo)
/s/ Garry P. Jerome* Trustee March 25, 1996
- -------------------------------
(Garry P. Jerome)
/s/ Richard M. Osborne* Trustee March 25, 1996
- -----------------------------
(Richard M. Osborne)
</TABLE>
*By: /s/ Gerard H. Sweeney
-----------------------------------------
Gerard H. Sweeney, Pursuant to
Power of Attorney on file with the
Commission
<PAGE>
INDEX TO EXHIBITS
Exhibit Page this
Number Description Filing
- ------- ----------- ---------
*** 3.1 Amended and Restated Declaration of Trust of the Trust
*** 3.2 Amended and Restated By-laws of the Trust
+ 4.1 Form of Share Certificates
* 10.01 Form of Brandywine Partnership Agreement
* 10.02 Form of Original Management Agreement (for
Specified Projects acquired indirectly)
* 10.03 Form of Original Management Agreement (for
Specified Projects acquired directly)
* 10.09 Form of Specified Project Partnership Agreement
* 10.11 Forms of Original Mortgage Loan Agreements and Certain Related
Documents
* 10.12 Form of Dividend Reinvestment Agreement
**10.17 Promissory Note and Certain Related Documents -
January 1994 Refinancing
**10.18 Indemnity Agreement - January 1994 Refinancing
**10.19 Option Agreement - January 1994 Refinancing
**10.20 Settlement Agreement with Mutual Release (among the
Trust, Brandywine, BSPI, Brandywine National,
Brandywine Enterprises and the BSPI limited
partners)
**10.21 Amendment to Brandywine Partnership Agreement
**10.22 Mutual Settlement and Release (among the Trust, Brandywine,
BSPI, Brandywine National and Brandywine Enterprises)
**10.23 Purchase Agreement and Certain Related Documents (relating to the
Trust's acquisition of an interest in BSPI)
**10.24 Purchase Agreement and Certain Related Documents (relating to the
Trust's acquisition of an interest in BSPI)
**10.25 Purchase and Sale Agreement and Certain Related Documents (relating
to sale of Trust's interest in BSPI)
**10.26 Purchase and Sale Agreement (relating to sale of Lincoln Centre)
+ 10.27 Purchase and Sale Agreement (relating to sale of Academy Downs)
<PAGE>
INDEX TO EXHIBITS
Exhibit Page this
Number Description Filing
- ------- ----------- ---------
+ 10.28 Purchase and Sale Agreement (relating to sale of Iron Run)
+ 10.29 Employment Agreement of Executive Officer ++
+ 10.30 Employment Agreement of Officer ++
+++10.31 Secured Promissory Notes, Security Agreements and Assignments
of Leases and Rents - April 1995 refinancing
+++10.32 Indemnity Agreement - April 1995 refinancing
+++10.33 Escrow Agreement - April 1995 refinancing
10.34 Agreement among the Trust, Richard M. Osborne and the 61-67
Richard M. Osborne Trust
24 Powers of Attorney 57-60
*Previously filed as an exhibit (with the same exhibit number) to the Trust's
Registration statement on Form S-11 (File No. 33-4175) and is incorporated by
reference as an exhibit to this report.
**Previously filed as an exhibit (with the same exhibit number) to the Trust's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and
incorporated by reference as an exhibit to this report.
***Previously filed as an exhibit (with the same exhibit number) to the
Trust's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994
and incorporated by reference as an exhibit to this report.
+Previously filed as an exhibit (with the same exhibit number) to the Trust's
Form 10-K for the fiscal year ended December 31, 1994 and incorporated by
reference as an exhibit to this report.
++Compensatory Arrangement.
+++Previously filed as an exhibit (with the same exhibit number) to the
Trust's Form 8-K dated April 21, 1995 and incorporated by reference as an
exhibit to this report.
- ----------
The Trust will furnish to any shareholder, upon written request, copies of any
exhibit incorporated by reference, for a fee of $0.20 per page, to cover the
cost of furnishing the exhibits. Written requests should be directed to:
Brandywine Realty Trust
Attn: Ms. Valerie Collins
Two Greentree Centre, Suite 100
Marlton NJ 08053
<PAGE>
POWER OF ATTORNEY
The undersigned, a trustee and/or officer of Brandywine Realty Trust,
a Maryland real estate investment trust (the "Trust"), revoking all prior
powers of attorney given with respect to the matters described herein, hereby
constitutes and appoints Gerard H. Sweeney, President and Chief Executive
Officer, and Francine M. Haulenbeek, Vice President-Finance and Secretary, or
either of them, my true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, to sign for me, in my name in
the capacities indicated above, any and all periodical or other reports
required to be filed by the Trust with the Securities Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, and any or all
amendments and supplements hereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact or agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
/s/ Joseph L. Carboni
-------------------------
(Joseph L. Carboni)
Dated March 6, 1996
<PAGE>
POWER OF ATTORNEY
The undersigned, a trustee and/or officer of Brandywine Realty Trust,
a Maryland real estate investment trust (the "Trust"), revoking all prior
powers of attorney given with respect to the matters described herein, hereby
constitutes and appoints Gerard H. Sweeney, President and Chief Executive
Officer, and Francine M. Haulenbeek, Vice President-Finance and Secretary, or
either of them, my true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, to sign for me, in my name in
the capacities indicated above, any and all periodical or other reports
required to be filed by the Trust with the Securities Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, and any or all
amendments and supplements hereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact or agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
/s/ Peter P. DiLullo
--------------------------
(Peter P. DiLullo)
Dated March 6, 1996
<PAGE>
POWER OF ATTORNEY
The undersigned, a trustee and/or officer of Brandywine Realty Trust,
a Maryland real estate investment trust (the "Trust"), revoking all prior
powers of attorney given with respect to the matters described herein, hereby
constitutes and appoints Gerard H. Sweeney, President and Chief Executive
Officer, and Francine M. Haulenbeek, Vice President-Finance and Secretary, or
either of them, my true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, to sign for me, in my name in
the capacities indicated above, any and all periodical or other reports
required to be filed by the Trust with the Securities Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, and any or all
amendments and supplements hereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact or agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
/s/ Garry P. Jerome
-----------------------------
(Garry P. Jerome)
Dated March 6, 1996
<PAGE>
POWER OF ATTORNEY
The undersigned, a trustee and/or officer of Brandywine Realty Trust,
a Maryland real estate investment trust (the "Trust"), revoking all prior
powers of attorney given with respect to the matters described herein, hereby
constitutes and appoints Gerard H. Sweeney, President and Chief Executive
Officer, and Francine M. Haulenbeek, Vice President-Finance and Secretary, or
either of them, my true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, to sign for me, in my name in
the capacities indicated above, any and all periodical or other reports
required to be filed by the Trust with the Securities Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, and any or all
amendments and supplements hereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact or agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
/s/ Richard M. Osborne
-----------------------------
(Richard M. Osborne)
Dated March 6, 1996
<PAGE>
Exhibit 10.34
AGREEMENT
THIS AGREEMENT is made as of the 20th day of March, 1996 by
and among Brandywine Realty Trust, a Maryland real estate investment trust
(the "Trust"), Richard M. Osborne ("RMO") and the Richard M. Osborne Trust
("RMO Trust") (RMO and the RMO Trust are collectively referred to herein as
the "Holders").
WHEREAS, as of the date hereof, the Holders beneficially own
an aggregate of 538,800 common shares of beneficial interest, par value $.01
per share ("Common Shares"), of the Trust; and
WHEREAS, the Trust desires to obtain from the Holders, and
the Holders desire to obtain from the Trust, certain agreements, as set forth
herein.
NOW, THEREFORE, intending to be legally bound hereby, the
parties hereto agree as follows:
1. Nomination of RMO to the Board. During the term hereof,
but only for so long as the Holders are the beneficial owners of at least ten
percent (10%) of the outstanding Common Shares), the Trust agrees to nominate
either RMO or, in the discretion of RMO, any person designated by RMO who is
reasonably acceptable to a majority of the Board of Trustees of the Trust for
election to the Board of Trustees at each annual meeting of shareholders of
the Trust at which elections to the Board of Trustees are to be held, provided
that such agreement of the Trust shall terminate in the event (i) of the
occurrence of any matter relating to RMO or such designee that would require
disclosure by the Trust in any filing to be made by it with the Securities and
Exchange Commission of any of the events enumerated in Item 401(f) of
Regulation S-K, as now in effect or as amended from time to time (an "Item
401(f) Occurrence") or (ii) RMO or such designee takes any action which could
reasonably be expected to have a material adverse effect on the Trust.
2. Waiver of Redemption Right. The Trust hereby waives its
right arising under Subtitle 7 of Title 3 of the Maryland General Corporation
Law to redeem any Common Shares currently owned by the Holders and any
additional Common Shares or Convertible Securities (as hereinafter defined)
acquired after the date hereof by the Holder up to the limits set forth in
Section 3 hereof.
3. Share Ownership Limitation. During the term hereof,
Holders agree that they will not, directly or indirectly, purchase, acquire or
own (of record or beneficially) any Common Shares or any securities
(collectively, "Convertible Securities") which are or may become directly or
indirectly convertible into or exercisable for Common Shares if the effect of
the purchase, acquisition or ownership of such Common Shares or Convertible
Securities would be to increase the aggregate percentage of Common Shares
beneficially owned by the Holders to one-third or more of the outstanding
Common Shares plus the Common Shares that would be outstanding if the
Convertible Securities held by the Holders were converted or exercised. For
purposes of this Agreement, beneficial ownership shall be determined in the
manner prescribed by Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), but, for purposes of computing the
percentage of outstanding Common Shares beneficially owned by the Holders, the
Holders shall be deemed to be the beneficial owners of the total number of
Common Shares into which the Convertible Securities may be converted or for
which they may be exercised, whether or not such Convertible Securities are,
at the time in question, then convertible or exercisable. In the event that
the percentage of outstanding Common Shares beneficially owned by Holders
falls below 9.8% during the term hereof, Holders will not thereafter increase
their beneficial ownership of Common Shares above 9.8% during the term hereof
without the prior consent of a majority of the Board of Trustees.
4. Proxy Solicitations. During the term hereof,
Holders agree that they will not: (i) other than, in the case of RMO or his
designee, solely in his capacity as a Trustee, consistent with the position of
<PAGE>
a majority of the Board of Trustees, make or participate in, directly or
indirectly, any "solicitation" of "proxies" (as such terms are defined or used
in Regulation 14A promulgated pursuant to the Exchange Act) or become a
"participant" in any "election contest" (as such terms are used in Regulation
14A) with respect to the Trust, (ii) seek to encourage any third person to
vote Common Shares in opposition to the recommendation of a majority of the
Board of Trustees, (iii) propose any change in the Declaration of Trust of the
Trust or (iv) assist any attempt by any other person or entity to do any of
the foregoing. During the term hereof, if the Holders learn of any efforts by
any third party to (i) make or participate in, directly or indirectly, any
solicitation of proxies or become a participant in any election contest with
respect to the Trust, (ii) encourage any third person to vote Common Shares in
opposition to the recommendation of a majority of the Board of Trustees, (iii)
propose any change in the Declaration of Trust or (iv) assist any person or
entity to do any of the foregoing, the Holders will promptly inform the Board
of Trustees.
5. Voting of Common Shares. During the term hereof,
the Holders agree to vote all Common Shares beneficially owned by them in
accordance with the recommendations of a majority of the Board of Trustees on
any matter submitted to a vote of shareholders other than on any of the
following matters: (i) a merger, consolidation or liquidation of the Trust or
a sale by the Trust of all or substantially all of its assets and (ii) any
amendment to the Declaration of Trust of the Trust which, in the reasonable
judgment of a majority of the Board of Trustees, adversely affects the rights
of shareholders. In any event, during the term hereof, the Holders agree to
vote all Common Shares beneficially owned by them in favor of (i) any
financing for which shareholder approval is sought, including without
limitation, any financing having the terms referenced in clause (ii) of the
first sentence of Section 9(a), and (ii) the SSI/TNC Transaction, provided
that, in each case, the financing or transaction is recommended by a majority
of the Board of Trustees. As used herein, the term "SSI/TNC Transaction" means
the transaction contemplated by the letter of intent among the Trust,
Safeguard Scientifics, Inc. ("SSI") and The Nichols Company, which letter of
intent is being executed on the date hereof.
6. Restrictions on Dispositions. During the term hereof,
the Holders shall not, directly or indirectly, sell, assign, transfer or
otherwise dispose of any Common Shares except: (i) in transactions under Rule
144 promulgated under the Securities Act of 1933, as amended; (ii) in a
private transaction to any person who is not then a business competitor of the
Trust and who, immediately following the transaction, would own less than five
percent (5%) of the outstanding Common Shares; (iii) in response to a bona
fide tender or exchange offer by a third party for at least 80% of the
outstanding Common Shares and supported by a majority of the Board of
Trustees; (iv) in a merger or statutory share exchange pursuant to which
ownership of the Trust is acquired by a third party; or (v) pursuant to the
laws of descent and distribution, provided that any person acquiring Common
Shares pursuant to such laws of descent and distribution shall hold them for
the balance of the term hereof subject to the agreements of the Holders
contained in this Agreement. During the term hereof, the Holders agree to
enter into a customary "lock-up" letter upon the request of the underwriters
in connection with any public equity offering by the Trust, provided that all
other holders of in excess of ten percent (10%) of the Common Shares execute a
substantially similar letter.
7. REIT Status. During the term hereof, the Holders
agree not to pursue any action which may disqualify the Trust's status as a
real estate investment trust under the Internal Revenue Code of 1986.
8. Legend. During the term hereof, the Trust may
cause any certificates evidencing Common Shares beneficially owned by the
Holders to bear a legend indicating the existence of this Agreement.
9. Term.
a. The term of this Agreement shall be for a
period ending on the earlier of the (i) third anniversary of the date of this
Agreement or (ii) completion by the Trust of a public or private equity
offering yielding (a) at least $35.0 million of net proceeds to the Trust at a
<PAGE>
price per share at least equal to the per share book value of the Common
Shares as of the end of the most recently preceding quarter or (b) at least
$25.0 million of net proceeds, but less than $35.0 million of net proceeds, at
a price per share of at least $5.50.
b. Notwithstanding anything herein to the contrary,
this Agreement shall automatically terminate in the event that the Board of
Trustees does not recommend to shareholders of the Trust, in connection with
the first meeting of shareholders held after the date hereof, that they vote
to restore voting rights on all Common Shares now or hereafter owned by the
Holders so long as at no time shall the voting power on all Common Shares now
or hereafter beneficially owned by the Holders equal or exceed one-third of
the voting power of the capital stock of the Trust. In addition,
notwithstanding anything herein to the contrary, RMO may terminate this
Agreement on or after November 1, 1996 in the event that, on or prior to
October 31, 1996, SSI has not executed an agreement containing (i) provisions
substantially similar to those contained herein (other than the limitation
contained in the first sentence of Section 3 hereof) and (ii) an agreement by
SSI to vote any Common Shares it acquires from the Trust, during the term of
this Agreement, either (a) for the election of RMO to the Board of Trustees so
long as there has been no Item 401(f) Occurrence with respect to RMO or (b)
for the election of a person designated by RMO and reasonably acceptable to a
majority of the Board of Trustees; provided that RMO may not terminate this
Agreement pursuant to the forgoing clause in the event that, prior to the
exercise of such termination right, the Trust has previously furnished to its
shareholders a proxy statement containing an unrevoked recommendation of the
Board of Trustees that shareholders vote to restore voting rights on all
Common Shares now or hereafter owned by the Holders so long as such ownership
does not equal or exceed one-third of the outstanding Common Shares. In
addition, in the event that negotiations of the SSI/TNC Transaction terminate
(as determined by a majority of the Board of Trustees) prior to October 31,
1996 and the Trust has not then furnished such a proxy statement to its
shareholders, containing such an unrevoked recommendation, RMO may, prior to
such time as such a proxy statement is so furnished to its shareholders,
terminate this Agreement.
c. In the event that shareholders of the Trust do
not vote to restore voting rights on all Common Shares now or hereafter owned
by the Holders up to the one-third limit referenced in subparagraph b above at
the next meeting of shareholders, the Board of Trustees shall recommend to
shareholders that such voting rights be restored at the succeeding meeting of
shareholders. In connection with the next such meeting, and, if necessary, the
succeeding meeting, the Board shall use its best efforts to obtain a favorable
shareholder vote.
d. Nothing contained in this Section 9 shall affect
the waiver contained in Section 2 hereof, which waiver is unconditional. Upon
expiration or termination of the term, all rights and obligations of the
parties hereto shall terminate, except for any rights arising out of the
breach by a party hereto of his or its obligations hereunder.
10. Specific Performance and Remedies. The parties to this
Agreement acknowledge and agree that irreparable damage would occur to the
aggrieved party in the event that any provision of this Agreement is not
performed in accordance with its specific terms or is otherwise breached, and
acknowledge and agree that termination of this Agreement and monetary damages
would not provide adequate remedies. It is accordingly agreed that each of the
parties shall be entitled to injunctive relief to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States in addition to any other
remedy to which it may be entitled at law or in equity, including, without
limitation, monetary damages.
11. Expenses. All fees and expenses incurred by any
party hereto shall be borne by the party incurring them; provided that if any
party incurs expenses in an effort to enforce compliance by another party of
its obligations hereunder and prevails in such effort, the prevailing party
shall be entitled to recover such expenses from such other party.
12. Entire Agreement. This Agreement constitutes
the entire agreement, and supersedes all prior agreements and understandings,
whether oral or written, among the parties hereto with respect to the subject
<PAGE>
matter hereof. This Agreement may not be amended orally, but may be amended
only by an instrument in writing signed by each of the parties hereto.
13. Counterparts. For the convenience of the parties,
any number of counterparts of this Agreement may be executed by the parties
hereto. Each such executed counterpart shall be, and shall be deemed, an
original instrument, and all such executed counterparts shall be deemed to be
one and the same instrument.
14. Notices. All notices given hereunder shall be
in writing and delivered personally, or sent by telex, telecopier or
registered mail, postage prepaid, or by overnight delivery service, if to:
The Trust
Two Greentree Centre
Suite 100
Marlton, NJ 08053
Telecopier No. (609) 797-0425
The Holders
7001 Center Street
Mentor, OH 44060
Telecopier No. (216) 255-8645
or to such other address, or such telex or telecopier number, as any party
may, from time to time, designate in a written notice given in like manner.
Notice given by overnight delivery service shall be deemed delivered on the
day following the date the same is accepted for next day delivery by said
service. Notice delivery by telecopier shall be deemed to be delivered when
transmitted. Notice delivered personally shall be deemed to be delivered when
delivered to the addressee.
15. Choice of Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the State of
Maryland, without reference to the conflict of laws principles thereof.
16. Headings. The headings in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement.
17. No Waiver. Any waiver by any party of a breach
of any provision of this Agreement shall not operate as or be construed to be
a waiver of any other breach of such provision or of any breach of any other
provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
18. Severability. If any clause, provision or section of
this Agreement is held illegal or invalid by any court, the illegality or
invalidity of such clause, provision or section shall not affect any of the
remaining clauses, provisions or sections of this Agreement, and this
Agreement shall be construed and enforced as if such illegal or invalid
clause, provision or section had not been contained herein. In case any
agreement or obligation contained in this Agreement is held to be in violation
of law, then such agreement or obligation shall be deemed to be the agreement
or obligation of the applicable party hereto to the full extent permitted by
law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
BRANDYWINE REALTY TRUST
By: /s/ Gerard H. Sweeney
-----------------------------
President
RICHARD M. OSBORNE TRUST
By: /s/ Richard M. Osborne
-----------------------------
Trustee
/s/ Richard M. Osborne
-----------------------------
Richard M. Osborne
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000790816
<NAME> BRANDYWINE REALTY TRUST
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,995,000
<SECURITIES> 0
<RECEIVABLES> 261,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,256,000
<PP&E> 21,823,000
<DEPRECIATION> (8,114,000)
<TOTAL-ASSETS> 17,105,000
<CURRENT-LIABILITIES> 580,000
<BONDS> 8,931,000
0
0
<COMMON> 19,000
<OTHER-SE> 7,325,000
<TOTAL-LIABILITY-AND-EQUITY> 17,105,000
<SALES> 3,583,000
<TOTAL-REVENUES> 3,666,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,692,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 793,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
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<CHANGES> 0
<NET-INCOME> (824,000)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
