<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A (Amendment 1)
(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
----------------------------------
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 ____________________
Commission file number 1-9106
----------------------------
Brandywine Realty Trust
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 23-2413352
- ------------------------------ -------------------
State or other jurisdiction of (I.R.S. Employer)
incorporation or organization Identification No.)
Two Greentree Centre, Suite 100, Marlton, New Jersey, 08053
- ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (609)797-0200
-------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ---------------------------------- -------------------------
Shares of Beneficial Interest American Stock Exchange
(par value $0.01 per share)
-------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
-------------------------------------------------------------
(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
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
<PAGE>
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 units would also be
issued if the Trust were to exercise its option to acquire the additional five
properties.
4
<PAGE>
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, as indicated above,
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 Osborne Agreement is qualified by reference to the full text
of the Osborne Agreement, a copy of which is included as an exhibit to this Form
10-K.
5
<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, Parker, McCay & Criscuolo in Three Greentree Centre
represented 10% of the portfolio's total square footage and 10% of the
portfolio's total rental revenue and American Executive Center in One Greentree
Centre represented 7% of the portfolio's total square footage and 10% 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:
<TABLE>
<CAPTION>
Gross Revenue Square Feet
----------------- --------------
<S> <C> <C>
Marlton, New Jersey (three properties in the
greater Philadelphia area) $2,557,000 181,137
Raleigh, North Carolina 1,026,000 73,415
----------------- --------------
Total rentals and tenant reimbursements 3,583,000 254,552
----------------- --------------
Other income 83,000
----------------- --------------
Total $3,666,000 254,552
================= ==============
</TABLE>
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. In management's
opinion, the properties are adequately covered by insurance.
The principal provisions of the Trust's two major tenants are as follows:
<TABLE>
<CAPTION>
One Greentree Centre Three Greentree Centre
- ----------------------------- ----------------------------
<S> <C>
American Executive Center Parker McCay & Criscuolo
Inception date; February 1, 1983 Inception date; February 1, 1984
Rent per annum for the year ended Rent per annum for the year ended
December 31, 1995; $336,000 December 31, 1995; $363,000
Lease expires; January 31, 2007 Lease expires; May 31, 1999
Renewal options; One period of ten (10) years. Renewal options; Two successive five (5) year terms
</TABLE>
See Schedule III to the Trust's financial statements which provides a summary of
the properties. See Note 10 to the Trust's financial statements which provides a
schedule of lease expirations. The Specified Projects are described below.
6
<PAGE>
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
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). Real estate taxes for the property for the year ended December 31, 1995
totaled $96,000. 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.
The following table sets forth the occupancy rate and average annual base rent
per leased square foot of total leaseable square feet of One Greentree Centre
during the periods specified:
<TABLE>
<CAPTION>
One Greentree Centre
Occupancy and Rental Rates
Year Percentage leased Average Annual Effective Rental Rate
(At December 31) at Period End (1) Per Leased Square Foot (2) Total Annual Rental Revenue (3)
------------------ ------------------------------------ -------------------------------
<S> <C> <C> <C>
1995 91% $17.62 $908,000
1994 93% 15.78 853,000
1993 100% 15.17 835,000
1992 97% 14.84 738,000
1991 81% 15.75 763,000
</TABLE>
(1) Percentage leased is as of January 31, following December 31 period end for
all years presented.
(2) Calculated as total annual rental revenue divided by the average total
leased square feet, averaging period beginning and end leasing status.
(3) Represents rental revenue for financial reporting purposes which is
determined on a straight-line basis.
- ------------------------------------------------------------------------------
The following table shows scheduled lease expirations for leases in place at
December 31, 1995 for each of the next ten years beginning January 1, 1996
assuming none of the tenants exercises renewal options or termination rights, if
any:
<TABLE>
<CAPTION>
One Greentree Centre
Lease Expirations
Total Annual Base Percentage of Total
Leaseable Square Annual Base Rent Rent per Square Annual Base Rent
Year of Lease Number of Leases Feet Subject to Under Expiring Foot Under Represented by
Expiration Expiring Expiring Leases Leases Expiring Leases Expiring Leases
------------- ----------------- ----------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
1996 5 14,000 $107,000 $ 7.84 14.40%
1997 4 14,000 226,000 16.18 30.44%
1998 3 6,000 96,000 15.53 12.88%
1999 0 0 0 0.00 0.00%
2000 0 0 0 0.00 0.00%
2001 0 0 0 0.00 0.00%
2002 0 0 0 0.00 0.00%
2003 0 0 0 0.00 0.00%
2004 0 0 0 0.00 0.00%
2005 0 0 0 0.00 0.00%
2006 1 17,000 315,000 18.67 42.28%
======= ======== ========= ======= =======
13 51,000 $744,000 $14.68 100.00%
======= ======== ========= ======= =======
</TABLE>
The aggregate tax basis for federal income tax purposes of One Greentree Centre
is $7,436,000 as of December 31, 1995. Of this amount, approximately $751,000
represents land, $5,667,000 represents real property depreciated over a 19 year
life, approximately $617,000 represents real property depreciated over a 31-1/2
year life and the balance of approximately $401,000 represents real property
depreciated over a 40 year life.
7
<PAGE>
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). Real estate taxes for the property for the year ended December 31, 1995
totaled $96,000. 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.
The following table sets forth the occupancy rate and average annual base rent
per leased square foot of total leaseable square feet of Two Greentree Centre
during the periods specified:
<TABLE>
<CAPTION>
Two Greentree Centre
Occupancy and Rental Rates
Year Percentage leased Average Annual Effective Rental Rate
(At December 31) at Period End (1) Per Leased Square Foot (2) Total Annual Rental Revenue (3)
------------------ ------------------------------------ -------------------------------
<S> <C> <C> <C>
1995 100% $13.60 $666,000
1994 75% 16.06 693,000
1993 79% 17.72 810,000
1992 84% 16.90 791,000
1991 83% 15.73 746,000
</TABLE>
(1) Percentage leased is as of January 31, following December 31 period end for
all years presented.
(2) Calculated as total annual rental revenue divided by the average total
leased square feet, averaging period beginning and end leasing status.
(3) Represents rental revenue for financial reporting purposes which is
determined on a straight-line basis.
The following table shows scheduled lease expirations for leases in place at
December 31, 1995 for each of the next ten years beginning January 1, 1996
assuming none of the tenants exercises renewal options or termination rights, if
any:
<TABLE>
<CAPTION>
Two Greentree Centre
Lease Expirations
Total Annual Base Percentage of Total
Leaseable Square Annual Base Rent Rent per Square Annual Base Rent
Year of Lease Number of Leases Feet Subject to Under Expiring Foot Under Represented by
Expiration Expiring Expiring Leases Leases Expiring Leases Expiring Leases
------------- ----------------- ----------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
1996 3 6,000 $ 17,000 $ 2.70 1.95%
1997 3 14,000 215,000 15.29 25.03%
1998 1 3,000 44,000 19.20 5,10%
1999 1 3,000 51,000 0.00 5.92%
2000 1 6,000 87,000 15.35 10.13%
2001 0 0 0 0.00 0.00%
2002 0 0 0 0.00 0.00%
2003 1 5,000 97,000 18.50 11.30%
2004 0 0 0 0.00 0.00%
2005 2 19,000 349,000 18.00 40.57%
2006 0 0 0 0.00 0.00%
======= ======== ========= ======= =======
12 56,000 $860,000 $15.34 100.00%
======= ======== ========= ======= =======
</TABLE>
The aggregate tax basis for federal income tax purposes of Two Greentree Centre
is $8,030,000 as of December 31, 1995. Of this amount, approximately $744,000
represents land, approximately $5,795,000 represents real property depreciated
over a 19 year life, approximately $594,000 represents real property depreciated
over a 31-1/2 year life and the balance of approximately $897,000 represents
real property depreciated over a 40 year life.
8
<PAGE>
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). Real
estate taxes for the property for the year ended December 31, 1995 totaled
$139,000. 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.
The following table sets forth the occupancy rate and average annual base rent
per leased square foot of total leaseable square feet of Three Greentree Centre
during the periods specified:
<TABLE>
<CAPTION>
Three Greentree Centre
Occupancy and Rental Rates
Year Percentage leased Average Annual Effective Rental Rate
(At December 31) at Period End (1) Per Leased Square Foot (2) Total Annual Rental Revenue (3)
------------------ ------------------------------------ -------------------------------
<S> <C> <C> <C>
1995 99% $15.41 $920,000
1994 74% 15.71 943,000
1993 100% 17.12 1,151,000
1992 95% 17.32 1,164,000
1991 100% 17.07 1,178,000
</TABLE>
(1) Percentage leased is as of January 31, following December 31 period end for
all years presented.
(2) Calculated as total annual rental revenue divided by the average total
leased square feet, averaging period beginning and end leasing status.
(3) Represents rental revenue for financial reporting purposes which is
determined on a straight-line basis.
The following table shows scheduled lease expirations for leases in place at
December 31, 1995 for each of the next ten years beginning January 1, 1996
assuming none of the tenants exercises renewal options or termination rights, if
any:
<TABLE>
<CAPTION>
Three Greentree Centre
Lease Expirations
Total Annual Base Percentage of Total
Leaseable Square Annual Base Rent Rent per Square Annual Base Rent
Year of Lease Number of Leases Feet Subject to Under Expiring Foot Under Represented by
Expiration Expiring Expiring Leases Leases Expiring Leases Expiring Leases
------------- ----------------- ----------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
1996 4 17,000 $133,000 $ 7.80 13.50%
1997 1 13,000 227,000 17.48 23.05%
1998 0 0 0 0.00 0.00%
1999 0 0 0 0.00 0.00%
2000 2 12,000 218,000 17.83 22.22%
2001 1 26,000 406,000 15.66 41.23%
2002 0 0 0 0.00 0.00%
2003 0 0 0 0.00 0.00%
2004 0 0 0 0.00 0.00%
2005 0 0 0 0.00 0.00%
2006 0 0 0 0.00 0.00%
======= ======== ========= ======= =======
8 68,000 $984,000 $14.44 100.00%
======= ======== ========= ======= =======
</TABLE>
The aggregate tax basis for federal income tax purposes of Three Greentree
Centre is $10,170,000 as of December 31, 1995. Of this amount, approximately
$987,000 represents land, approximately $7,626,000 represents real property
depreciated over a 19 year life, approximately $423,000 represents real property
depreciated over a 31-1/2 year life and the balance of approximately $1,134,000
represents real property depreciated over a 40 year life.
9
<PAGE>
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. Real estate taxes for the property for the year ended
December 31, 1995 totaled $60,000. 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.
The following table sets forth the occupancy rate and average annual base rent
per leased square foot of total leaseable square feet of Twin Forks Greentree
Centre during the periods specified:
<TABLE>
<CAPTION>
Twin Forks
Occupancy and Rental Rates
Year Percentage leased Average Annual Effective Rental Rate
(At December 31) at Period End (1) Per Leased Square Foot (2) Total Annual Rental Revenue (3)
------------------ ------------------------------------ -------------------------------
<S> <C> <C> <C>
1995 97% $14.23 $1,023,000
1994 100% 12.75 917,000
1993 97% 11.08 769,000
1992 93% 12.10 815,000
1991 92% 10.98 620,000
</TABLE>
(1) Percentage leased is as of January 31, following December 31 period end for
all years presented.
(2) Calculated as total annual rental revenue divided by the average total
leased square feet, averaging period beginning and end leasing status.
(3) Represents rental revenue for financial reporting purposes which is
determined on a straight-line basis.
- -------------------------------------------------------------------------------
The following table shows scheduled lease expirations for leases in place at
December 31, 1995 for each of the next ten years beginning January 1, 1996
assuming none of the tenants exercises renewal options or termination rights, if
any:
<TABLE>
<CAPTION>
Twin Forks
Lease Expirations
Total Annual Base Percentage of Total
Leaseable Square Annual Base Rent Rent per Square Annual Base Rent
Year of Lease Number of Leases Feet Subject to Under Expiring Foot Under Represented by
Expiration Expiring Expiring Leases Leases Expiring Leases Expiring Leases
------------- ----------------- ----------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
1996 21 43,000 $411,000 $ 9.60 51.66%
1997 12 19,000 264,000 13.61 33.12%
1998 3 3,000 44,000 13.96 5.58%
1999 3 6,000 77,000 13.59 9.64%
2000 0 0 0 0.00 0.00%
2001 0 0 0 0.00 0.00%
2002 0 0 0 0.00 0.00%
2003 0 0 0 0.00 0.00%
2004 0 0 0 0.00 0.00%
2005 0 0 0 0.00 0.00%
2006 1 0 0 0.00 0.00%
======= ======== ========= ======= =======
39 71,000 $796,000 $11.21 100.00%
======= ======== ========= ======= =======
</TABLE>
The aggregate tax basis for federal income tax purposes of Twin Forks is
$7,779,000 as of December 31, 1995. Of this amount, approximately $2,487,000
represents land, approximately $4,331,000 represents real property depreciated
over a 19 year life, approximately $537,000 represents real property depreciated
over a 31-1/2 year life and the balance of approximately $961,000 represents
real property depreciated over a 40 year life.
10
<PAGE>
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.
11
<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
----------- ----------- -------------
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 date)
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993 1992 1991
---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total operating revenue (a) $3,666 $ 4,192 $ - $ - $ -
Income from acquisitioin of limited partner
interests in Brandywine Specfied Property
Investors Limited Partnership $ - $ - $ 2,469 $ - $ -
Provision for loss on real estate investments $ - $ (5,400) $ - $ - $ (6,700)
Gain on sales of real estate investments $ - $ 1,410 $ - $ - $ -
Extraordinary item: gain on
extinguishment of debt $ - $ 7,998 $ - $ - $ -
Net income (loss) $ (824) $ 7,567(c) $ 2,468 $ (1) $ (6,705)
Net income (loss) per share $ (0.44) $ 3.74 $ 1.33 $ - $ (3.61)
Cash distributions $ 1,021 $ 2,914 $ - $ - $ -
Cash distributions per share $ 0.55 $ 1.57 $ - $ - $ -
Total assets $ 17,105 $ 17,873 $ 4,604 $ 2,123 $ 2,128
Mortgage notes payable $ 8,931 $ 6,899 $ - $ - $ -
Other Data:
Funds from operations (b) $ 578 $ (706)(c) $ 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) $ - $ - $ -
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
(a) Prior to 1994, the Trust accounted for its investment in Brandywine
using the equity method of accounting and accordingly, received no
operating revenue from its investment in Brandywine for the years ended
December 31, 1993, 1992 and 1991, respectively.
(b) 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. Management generally
considers Funds from Operations to be a useful financial performance
measure of the operating performance of an equity REIT because,
together with net income and cash flows, Funds from Operations provides
investors with an additional basis to evaluate the ability of a REIT to
incur and service debt and to fund acquisitions and other capital
expenditures. Funds from Operations does not represent net income or
cash flows from operations as defined by generally accepted accounting
principles (GAAP) and does not necessarily indicate that cash flows
will be sufficient to fund cash needs. It should not be considered as
an alternative to net income as an indicator of the Trust's operating
performance or to cash flows as a measure of liquidity. Funds from
Operations does not measure whether cash flow is sufficient to fund all
of the Trust's cash flow needs including principal amortization,
capital improvements and distributions to shareholders. Funds from
Operations also does not represent cash flows generated from operating,
investing or financing activities as defined by GAAP. Further, Funds
from Operations as disclosed by other REITs may not be comparable to
the Trust's calculation of Funds from Operations.
(c) 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.
13
<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. In the first quarter of 1994, a writedown of $5.4 million was recorded
to adjust the carrying value of the then seven Specified Projects to the then
estimated net realizable value. Such writedown was recorded as a provision for
loss on real estate investments in the Trust's 1994 financial statements. For
the year ended December 31, 1995, no such writedown was required to be recorded.
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.
14
<PAGE>
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 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. In the first quarter of 1994, a writedown of $5.4 million was recorded
to adjust the carrying value of the then seven Specified Projects to the then
estimated net realizable value. Such writedown was recorded as a provision for
loss on real estate investments in the Trust's 1994 financial statements. For
the year ended December 31, 1993, no such writedown was required to be recorded.
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.
15
<PAGE>
During 1995, the Trust declared distributions as follows:
<TABLE>
<CAPTION>
Declaration Date Record Date Payment Date Amount Per Share
- ---------------- ----------- ------------ ----------------
<S> <C> <C> <C>
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
</TABLE>
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.
16
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index
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
17
<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.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
March 4, 1996 (except with respect
to the matter discussed in Note 11,
as to which the date is March 20, 1996)
18
<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 Partners are an integral part of these statements.
19
<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>
Pro Forma
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.
20
<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.
21
<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)
22
<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.
23
<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.
24
<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, 1994
-----------------
Total sssets $ 39,994
Total revenue $ 5,532
Net loss $ (2,156)
Allocated incime 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.
25
<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, Parker, McCay & Criscuolo represented 10% of the Trust's total
rental revenue and American Executive Center represented 10% of the Trust's
total rental revenue. 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.
26
<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
(undiscounted and without interest charges) 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
=========
27
<PAGE>
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
=========
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.
28
<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.
29
<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:
30
<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.
31
<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.
32
<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
-------- ------- ------------ -----------
1995
----
<S> <C> <C> <C> <C>
Operating revenue $ 927 $ 879 $ 885 $ 975
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
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.
(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.
33
<PAGE>
This page left intentionally blank.
34
<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.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
March 25, 1994
35
<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.
36
<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.
37
<PAGE>
BRANDYWINE REALTY PARTNERS
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
<TABLE>
<CAPTION>
Brandywine
Specified
Property
Brandywine Investors Brandywine
Realty Limited National
Trust 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.
38
<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)
39
<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.
40
<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.
41
<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
writedown of approximately $5 million was recorded to adjust further the
carrying value of the Specified Projects to estimated net realizable value.
42
<PAGE>
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:
43
<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:
44
<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.
45
<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.
46
<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.
47
<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.
48
<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
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d)
Long -Term Compensation
Name and Principal Securities underlying
Position Year Salary Options/SAR's (#)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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-
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
(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)
49
<PAGE>
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 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.
50
<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.
51
<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 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.
52
<PAGE>
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. Such management fees paid to Linpro entities during 1995 and
1994 amounted to $10,000 and $187,000, respectively. 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. Such leasing commissions paid to Linpro
entities during 1995 and 1994 amounted to $47,000 and $56,000, respectively. 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.
Such amount absorbed by LCOR Incorporated representing administrative costs,
which would otherwise have been borne by the Trust, totaled $23,000 in 1995 and
$92,000 in 1994.
53
<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%).
54
<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 59 and 60 hereof.
55
<PAGE>
SCHEDULE III
BRANDYWINE REALTY TRUST
Real Estate and Accumulated Depreciation - December 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
Initial Cost Net
--------------------------------- Improvements
Buildings (Retirements)
Encumbrances and Since
Property at December 31, Improvements Acquisition
Description 1995 Land (2) (3)
----------- --------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Twin Forks $ 2,729(1) $ 2,442 3,950 $ (532)
Office
Raleigh, NC
One Greentree (1) 710 5,515 (1,562)
Office
Marlton, NJ
Two Greentree (1) 694 5,686 (1,496)
Office
Marlton, NJ
Three Greentree (1) 858 7,573 (2,015)
Office
Marlton, NJ
---------- ---------- -------- --------
$ 8,391(1) $ 4,704 22,724 (5,605)
========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried
December 31, 1995 Accumulated
-------------------------------------------- Depreciation
Buildings at
Property and Total December 31, Date of Date Depreciable
Description Land Improvements (4) (5) & (6) 1995 (7) Construction Acquired Life
----------- --------- ------------ ------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Twin Forks $ 2,194 $ 3,666 $ 5,860 $ 1,736 1982 1986 30 years
Office
Raleigh, NC
One Greentree 345 4,318 4,663 1,848 1982 1986 30 years
Office
Marlton, NJ
Two Greentree 264 4,620 4,884 1,886 1983 1986 30 years
Office
Marlton, NJ
Three Greentree 323 6,093 6,416 2,644 1984 1986 30 years
Office
Marlton, NJ
-------- --------- --------- ---------
$ 3,126 $ 18,697 $21,823 $ 8,114
======== ========= ========= =========
</TABLE>
56
<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
57
<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>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerard H. Sweeney President, Chief Executive Officer March 25, 1996
- ----------------------------- and Trustee
(Gerard H. Sweeney) (Principal Executive Officer)
/s/ Francine M. Haulenbeek Vice President - Finance and Secretary March 25, 1996
- ---------------------------- (Principal Financial
(Francine M. Haulenbeek) 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)
*By: /s/ Gerard H. Sweeney
----------------------------
Gerard H. Sweeney, Pursuant to
Power of Attorney on file with the
Commission
</TABLE>
58
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page this
Number Description Filing
- ------- ----------- ----------
<S> <C> <C>
*** 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)
</TABLE>
59
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page this
Number Description Filing
- ------- ----------- ----------
<S> <C> <C>
+ 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 65-69
Richard M. Osborne Trust
24 Powers of Attorney 61-64
</TABLE>
- ---------------
*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
60
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000790816
<NAME> BRANDYWINE REALTY TRUST
<S> <C>
<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
<INCOME-CONTINUING> (824,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (824,000)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
