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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________________ to ______________________
Commission file number 1-9106
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Brandywine Realty Trust
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(Exact name of registrant as specified in its charter)
Maryland 23-2413352
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
16 Campus Boulevard, Newtown Square, Pennsylvania 19073
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 325-5600
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Shares of Beneficial Interest, American Stock Exchange
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(par value $0.01 per share)
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Securities registered pursuant to Section 12(g) of the Act:
________________________________________________________________________________
(Title of class)
________________________________________________________________________________
(Title of class)
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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 [ ]
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 shares held by non-affiliates of
the registrant was approximately $163.8 million as of March 10, 1997. The
aggregate market value has been computed by reference to the closing price at
which the Common Shares were sold on the American Stock Exchange on such date.
An aggregate of 9,213,240 Common Shares of Beneficial Interest were outstanding
as of March 10, 1997 and an aggregate of 481,818 Preferred Shares of Beneficial
Interest (convertible under certain circumstances into 1,606,060 Common Shares
of Beneficial Interest) were outstanding as of March 10, 1997.
Documents Incorporated By Reference
None
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TABLE OF CONTENTS
FORM 10-K
Page
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PART I ......................................................................4
Item 1. Business.....................................................4
Item 2. Properties..................................................13
Item 3. Legal Proceedings...........................................26
Item 4. Submission of Matters to a Vote of Security Holders.........26
PART II .....................................................................26
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters................................26
Item 6. Selected Financial Data.....................................28
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................30
Item 8. Financial Statements and Supplementary Data.................34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................35
PART III.....................................................................35
Item 10. Trustees and Executive Officers of the Registrant..........35
Item 11. Executive Compensation.....................................38
Item 12. Security Ownership of Certain Beneficial Owners and
Management..........................................42
Item 13. Certain Relationships and Related Transactions.............43
PART IV .....................................................................46
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K............................................46
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PART I
Item 1. Business
General
Brandywine Realty Trust (together with its subsidiaries, the "Company") is
a self-administered, self-managed and fully integrated real estate investment
trust ("REIT") engaged in the ownership, management, leasing, acquisition and
development of primarily suburban office properties. As of December 31, 1996,
the Company owned a portfolio of 34 office buildings and three industrial
facilities (collectively, the "Initial Properties") that contained an aggregate
of approximately 2.0 million net rentable square feet. Thirty-four of the 37
Initial Properties are located in the Suburban Philadelphia Office and
Industrial Market (as defined below). The Company also owns an interest in and
operates a commercial real estate management services company (the "Management
Company") that as of December 31, 1996 managed approximately 2.7 million net
rentable square feet (including 36 of the Initial Properties). As of December
31, 1996, the Initial Properties were approximately 92.8% leased to 217 tenants.
The term "Suburban Philadelphia Office and Industrial Market" or "Market" means
the areas comprised of the following counties: Bucks, Chester, Delaware, Lehigh,
Montgomery and Northampton in Pennsylvania and Burlington and Camden in New
Jersey.
The Initial Properties consist primarily of suburban office and industrial
buildings (36 of which are Class A properties). The Company considers Class A
suburban office and industrial properties to be those that have desirable
locations, are well maintained and professionally managed and have the potential
of achieving rental and occupancy rates that are typically at or above those
prevailing in their respective markets. The average age of the Initial
Properties as of December 31, 1996 was approximately 10.9 years. The Company's
10 largest tenants (based on annualized base rent at the Initial Properties as
of December 31, 1996) aggregate approximately 29.7% of total annualized base
rent and approximately 27.5% of the Company's net rentable square feet at the
Initial Properties, and have a weighted average remaining lease term of
approximately 7.5 years. As of December 31, 1996, 30 tenants individually
represented more than 1.0% of the Company's aggregate annualized base rent.
The Company expects to focus its office and industrial building ownership
in submarkets located within the Suburban Philadelphia Office and Industrial
Market where it believes it can accumulate a critical mass of properties in
order to enhance operating efficiencies and, in turn, cash available for
distribution. The Company's primary business objective is to realize and
maximize growth in cash available for distribution and to increase shareholder
value by:
o optimizing cash flow from the Initial Properties and additional
properties added to its portfolio (collectively, the "Properties")
through continued active property management and prudent operating
strategies;
o acquiring suburban office and industrial properties and/or portfolios
of such properties at prices that are below replacement cost and at
yields which exceed the Company's cost of capital;
o redeveloping and improving acquired properties and, to a lesser
extent, developing build-to-suit properties as opportunities arise;
o generating third party fee-related revenues; and
o operating within a conservative capital structure with financing
policies that allow for continued growth.
The Company's business is not seasonal.
The Company was organized and commenced its operations in 1986 as a finite
life REIT that owned eight properties. In October 1994, the Company's
shareholders approved amendments to the Company's Declaration of Trust that
eliminated the Company's finite life status and increased the Company's
authorized capital. Since that time,
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the Company has sought to enhance the value of its portfolio by: (i) actively
managing its Properties; (ii) exploring acquisitions of individual and portfolio
properties in its submarkets; and (iii) seeking financing transactions that
could be used to fund future growth.
On November 25, 1996, the Company combined its common shares of beneficial
interest, par value $.01 per share ("Common Shares") by means of a one-for-three
reverse share split and all information contained herein has been adjusted to
give effect to the reverse share split.
The Company's principal executive offices are located at 16 Campus
Boulevard, Newtown Square, Pennsylvania 19073 and its telephone number is
610-325-5600.
The SSI/TNC Transaction
On August 22, 1996, the Company consummated a transaction (the "SSI/TNC
Transaction") in which the Company acquired, through a newly-formed limited
partnership (the "Operating Partnership"), substantially all of the real estate
holdings of Safeguard Scientifics, Inc. ("SSI") and SSI's real estate affiliate,
The Nichols Company, a private real estate development and management services
company operating in the Market. The Company is the sole general partner of the
Operating Partnership and, as of December 31, 1996, owned an approximately 95.5%
interest therein.
The SSI/TNC Transaction included the acquisition by the Company of 19
office and industrial properties containing approximately 958,000 net rentable
square feet with an occupancy rate of approximately 93.5% as of December 31,
1996 (the "SSI/TNC Properties") and an option to acquire four additional
properties (the "Option Properties") containing an aggregate of approximately
159,000 net rentable square feet, each of which is located within the Market.
The SSI/TNC Transaction also included the combination of the real estate
management, marketing and development functions of TNC with those of the
Company. The Company believes that the SSI/TNC Transaction significantly
enhanced its position as an owner and operator of office and industrial
properties in the Market.
In the SSI/TNC Transaction the Operating Partnership acquired: (i)
directly, title to six suburban office properties located in the Market; (ii)
indirectly, through subsidiary limited partnerships (collectively, the "Title
Holding Partnerships"), controlling interests in 13 additional suburban office
properties located in the Market; and (iii) all of the non-voting preferred
stock and 5% of the voting common stock (which collectively are entitled to
receive 95% of the dividends) of the Management Company. The Operating
Partnership, together with a subsidiary of the Company, acquired two Title
Holding Partnerships that own two of the Properties. In addition, the Operating
Partnership, together with a subsidiary of the Company, acquired an 89% capital
interest and a 99% cash flow and profits interest in 10 of the 13 Title Holding
Partnerships, and an 89% capital interest and a 64% cash flow and profits
interest in an eleventh Title Holding Partnership. Except as indicated below,
ownership of the residual 11% capital and 1% cash flow and profits interest (the
"Residual Interests") in these Title Holding Partnerships was retained by TNC
and SSI in order to avoid the incurrence of transfer taxes in connection with
the Company's acquisition of the Properties owned by the Title Holding
Partnerships. A tenant in one of the Properties (16 Campus Boulevard, Newtown
Square) owned by a Title Holding Partnership holds a subordinated 35% cash flow
interest in such partnership.
The Company acquired its interests in the SSI/TNC Properties, together with
approximately $426,000 in cash, in exchange for: (i) 258,333 Common Shares; (ii)
a six-year warrant to purchase 258,333 Common Shares at an exercise price of
$19.50 per share; (iii) 495,837 units of limited partnership interest ("Units")
in the Operating Partnership, convertible into 495,837 Common Shares; and (iv)
the obligation of the Operating Partnership to acquire by September 1999 the
Residual Interests in exchange for 44,322 Units, which are convertible into
44,322 Common Shares, plus an amount equal to all distributions that would have
been payable in respect of such Units had they been issued as of the closing of
the SSI/TNC Transaction. The Units are redeemable for cash or, at the option of
the Company, for Common Shares.
Pursuant to the terms of the SSI/TNC Transaction, if certain mortgage
indebtedness encumbering the SSI/TNC Properties is repaid at a discount, 75% of
the resulting increase in equity created would be allocated to the
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original owners of such properties and 25% of such equity would be allocated to
the Company through the issuance of additional interests in the Operating
Partnership at the rate of one Unit for each $16.50 of additional equity so
created. As of December 31, 1996, the mortgage indebtedness that was subject to
this provision had an outstanding principal balance of approximately $13.8
million and encumbered five of the SSI/TNC Properties.
Pursuant to the terms of the SSI/TNC Transaction, an affiliate of TNC
granted the Operating Partnership the right to acquire, during the two-year
period following the closing of the transaction (subject to two additional
one-year extensions), the four Option Properties. The Operating Partnership may
not exercise its option for less than all of the Option Properties. The purchase
price payable by the Operating Partnership upon exercise of its option will
consist of $10.00 in excess of the mortgage debt encumbering the Option
Properties at the time of exercise (which, as of December 31, 1996, aggregated
$21.1 million, including accrued interest). Exercise of the option is subject to
a right of first refusal in favor of, and the consent of, the holder of the
mortgage encumbering the Option Properties. There can be no assurance that the
Company will exercise its option or that the holder of such mortgage will
consent to the exercise of the option.
In connection with the SSI/TNC Transaction, the Company entered into
two-year employment agreements with the Company's four executive officers (three
of whom had been executives of TNC) and the Company issued to these four
executive officers six-year warrants to purchase, in the aggregate, 220,000
Common Shares at an exercise price of $19.50 per share. See Item 11. "Executive
Compensation."
The SERS Transaction
On November 14, 1996, the Company acquired nine properties (collectively,
the "SERS Properties") from the Commonwealth of Pennsylvania State Employes'
Retirement System ("SERS"). The SERS Properties aggregate approximately 418,000
net rentable square feet, have an average age (as of December 31, 1996) of
approximately 12 years and are located in the Market. As of December 31, 1996,
the SERS Properties were approximately 92.7% leased to 65 tenants. The SERS
Properties were acquired by the Company for an aggregate purchase price of $30.3
million, payable as follows: (i) by issuing 481,818 preferred shares of
beneficial interest, designated Series A Convertible Preferred Shares ("Series A
Preferred Shares") that, subject to certain conditions, are convertible into
1,606,060 Common Shares; (ii) by agreeing to make deferred payments aggregating
$3.8 million (as described below); and (iii) by issuing two-year warrants to
purchase 133,333 Common Shares at an exercise price of $25.50 per share. In
addition, at the closing of the SERS Transaction, SERS deposited approximately
$1.4 million into an escrow account to be used for tenant improvements, leasing
commissions and capital expenditures for the SERS Properties.
Each Series A Preferred Share entitles the holder to: (i) receive
distributions equal to the distributions payable in respect of a number of
Common Shares equal to the Conversion Number (defined below); (ii) vote,
together with holders of Common Shares, as a class, and to cast the number of
votes equal to the Conversion Number; and (iii) a liquidation preference equal
to the greater of (a) the amount that would have been payable with respect to
the Common Shares into which such Preferred Shares would have been convertible
immediately prior to the liquidation had the condition to convertibility been
satisfied and (b) the product of $16.50 multiplied by the Conversion Number plus
all declared but unpaid dividends. The Company will be required to pay $2.5
million of the deferred purchase price on June 30, 1998 and $1.3 million on
December 31, 1999 in cash or, at the Company's option, through the issuance of a
number of Common Shares equal to the applicable amount of the deferred purchase
price divided by the greater of the then book or market value per share. The
term "Conversion Number" means the number of Common Shares into which a Series A
Preferred Share is, or Series A Preferred Shares are, convertible. The
Conversion Number, in respect of each Series A Preferred Share, is currently
3.3333 and, in respect of all Series A Preferred Shares, is currently 1,606,060.
Prior to a Conversion Approval (defined below), Preferred Shares are
convertible into up to 181,323 Common Shares. In the event that a Conversion
Approval has not occurred by July 1, 1997, holders of Preferred Shares become
entitled to receive distributions equal to 120% of the distributions payable in
respect of a number of Common Shares equal to the Conversion Number. In the
event that a Conversion Approval has not occurred by July 1, 1998, holders of
Preferred Shares will have the right to require the Company to redeem all or a
portion of their Preferred Shares at the Redemption Price (defined below). SSI,
TNC, Anthony A. Nichols, Sr. (an executive officer
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and Trustee of the Company) and Richard M. Osborne (a Trustee of the Company)
have agreed to vote the Common Shares beneficially owned by them in favor of the
unlimited conversion.
The term "Conversion Approval" means approval at a meeting of shareholders
of the unlimited conversion of Series A Preferred Shares into Common Shares by a
majority of the votes cast by holders of Common Shares. Holders of Series A
Preferred Shares have no right to vote their Series A Preferred Shares on such
matter. The term "Redemption Price" means, in respect of a Series A Preferred
Share, the greater of: (i) the product of (a) $16.50 plus an amount (the "Return
Amount") equal to 8.0% of $16.50 per annum from the date of issuance of such
Series A Preferred Share to the redemption date thereof less an amount (not to
exceed the Return Amount) equal to distributions actually received by the holder
on account of such Series A Preferred Share and (b) the Conversion Number and
(ii) the product of the market price of a Common Share and the Conversion
Number.
Other 1996 Acquisitions
On July 19, 1996, the Company acquired from UM Real Estate Investment
Company, LLC a seven story, 121,737 net rentable square foot office building
(the "LibertyView Building") located in Cherry Hill, New Jersey for a cash price
of $10.6 million, of which $9.6 million was paid at closing. The balance is
payable to the seller, in installments due through December 31, 1997. The
building was built in 1990 and was 83% leased as of December 31, 1996 to 12
tenants.
On December 2, 1996, the Company acquired from K/B Fund II the ground
lessee's interest in the Delaware Corporate Center (One Righter Parkway), a
104,828 net rentable square foot office building located in New Castle County,
Delaware for $12.7 million in cash. The building was built in 1989 and was 100%
leased as of December 31, 1996 to six tenants.
On December 2, 1996, the Company acquired from Horsham Office Center
Associates Limited Partnership two buildings in Horsham, Pennsylvania for an
aggregate purchase price of $7.1 million in cash. The buildings include: 700
Business Center Drive, a 30,773 net rentable square foot office building built
in 1986 and 800 Business Center Drive, a 51,236 net rentable square foot office
building built in 1986. 700 and 800 Business Center Drive were each 100% leased
as of December 31, 1996 to two and three tenants, respectively.
On December 2, 1996, the Company acquired from Monumental Life Insurance
Company 8000 Lincoln Drive, a 54,923 net rentable square foot office building
built in 1983 and located in Evesham, New Jersey, for $3.0 million in cash. The
building was 100% leased as of December 31, 1996 to two tenants.
Recent Acquisitions
On January 24, 1997, the Company acquired a portfolio of five office
buildings (collectively, the "January Acquired Properties") containing an
aggregate of approximately 290,000 net rentable square feet:
1. 1120 Executive Plaza, Mt. Laurel, New Jersey, containing approximately
95,124 net rentable square feet. As of January 31, 1997, this property was
approximately 95.44% leased to seven tenants.
2. 1000 Howard Boulevard, Mt. Laurel Corporate Park, Mt. Laurel, New
Jersey, containing approximately 105,312 net rentable square feet. As of January
31, 1997, this property was approximately 99.56% leased to four tenants.
3. Building 2, Executive Court Business Park, Evesham Township, New Jersey,
containing approximately 37,517 net rentable square feet. As of January 31,
1997, this property was approximately 95.07% leased to twelve tenants.
4. Building 4A, Executive Court Business Campus, Evesham Township, New
Jersey, containing approximately 24,687 net rentable square feet. As of January
31, 1997, this property was approximately 90.61% leased to six tenants.
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5. Building 4(B), Executive Court Business Campus, Evesham, New Jersey,
containing approximately 26,982 net rentable square feet. As of January 31,
1997, this property was approximately 82.84% leased to two tenants.
The net purchase price for the January Acquired Properties totaled
approximately $31.3 million and was paid as follows: (i) $7,000,000 was paid
through a borrowing under the Credit Facility (described below); (ii)
approximately $12.1 million was paid through an assumption by the Operating
Partnership of mortgage indebtedness encumbering 1120 Executive Plaza and 1000
Howard Boulevard, held by Sun Life Assurance Company of Canada (U.S.) ("Sun
Life"); and (iii) the balance was paid with existing cash reserves.
In consideration for purchasing the January Acquired Properties, the
Company also acquired from MLCP Associates Limited Partnership, a Delaware
limited partnership, an option to acquire a parcel of land containing
approximately 8 acres (the "Additional Option Property"), located in the Mt.
Laurel Corporate Park, Mt. Laurel, New Jersey, immediately adjacent to the 1000
Howard Boulevard property. The purchase price for the Additional Option Property
is $1.0 million, and the option may be exercised at any time during the initial
option period which expires June 30, 1998. The Operating Partnership has the
right to extend the option period until June 30, 1999, by paying an extension
fee of $100,000, subject to certain other terms and conditions. The Additional
Option Property is currently unimproved.
In March 1997, the Company acquired an additional eight office buildings
containing an aggregate of approximately 274,000 net rentable square feet:
1. On March 4, 1997, the Company purchased seven office properties
containing approximately 235,209 net rentable square feet located in the Main
Street development in Voorhees, New Jersey for approximately $21.5 million. The
seller was Radnor-Camco Partnership. As of February 28, 1997, the occupancy rate
of the Main Street Properties was approximately 97.0%. Major tenants at the Main
Street Properties include Credit Lenders, AMC Theatres and Cooper Health Care
Services.
2. On March 6, 1997, the Company purchased 1336 Enterprise Drive, an
approximately 38,470 net rentable square foot, three-story office building
located in the Goshen Corporate Park in East Goshen Township, Chester County,
Pennsylvania for approximately $3.6 million. The seller was Hough/Loew
Construction, Inc. As of February 28, 1997, the building was 100% leased to CFM
Technologies, Inc. under a lease that expires on November 30, 2000.
Financings
On December 2, 1996, the Company consummated an underwritten public
offering (the "1996 Offering") of 4,000,000 Common Shares at a price to the
public of $16.50 per share. Pursuant to exercise by the underwriters of their
over-allotment option, on December 13, 1996, the Company issued an additional
600,000 Common Shares at a price to the public of $16.50 per share. In addition,
on December 2, 1996, the Company: (i) issued 709,090 Common Shares to two
investment funds (collectively, the "Morgan Stanley Funds") advised by Morgan
Stanley Asset Management Inc. at a price of $16.50 per Common Share and (ii)
issued 636,363 Common Shares to a voting trust established for the benefit of
SERS at a price of $16.50 per Common Share (collectively, the "Concurrent
Financings"). The net proceeds from these financings were used: (i) to repay
approximately $52.3 million of debt (including prepayment penalties and accrued
interest); (ii) to repay approximately $764,000 of debt owed to SSI; (iii) to
fund approximately $34.5 million of the cash portion of the purchase price and
related expenses in connection with the acquisition of nine additional
properties; (iv) to pay approximately $916,000 in fees and expenses relating to
the Credit Facility (described below); and (v) the balance for working capital
purposes.
On March 4, 1997, the Company consummated an underwritten public offering
(the "1997 Offering") of 2,200,000 Common Shares at a price to the public of
$20-5/8 per share. On March 17, 1997, the Company issued an additional 175,500
Common Shares pursuant to exercise by the underwriters of their over-allotment
option. Proceeds to the Company were and will be used by the Company to fund the
purchase of additional properties, to repay certain indebtedness and for working
capital purposes.
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The Management Company
The Company conducts its real estate management services business through
the Management Company. The Company manages all but one of the Properties
through the Management Company; the Twin Forks Building, located in North
Carolina, is managed for the Company by an unaffiliated third party. The Company
manages, through the Management Company, additional properties on behalf of
unaffiliated third parties. As of December 31, 1996, the Management Company was
managing properties containing an aggregate of approximately 2.7 million net
rentable square feet, of which approximately 1.9 million net rentable square
feet related to Properties owned by the Company, 159,000 net rentable square
feet related to the Option Properties, and approximately 575,000 net rentable
square feet related to properties owned by unaffiliated third parties. Through
its ownership of 100% of the preferred stock and 5% of the common stock of the
Management Company, the Operating Partnership is entitled to receive 95% of
amounts paid as dividends by the Management Company.
Industry Segments
The Company operates in one industry segment.
Competition
The Company competes with other owners and developers that have greater
resources and more experience than the Company. Within the Suburban Philadelphia
Office and Industrial Market, the Company's office and industrial Properties
compete generally with properties owned by other real estate developers and
institutions principally on the basis of price, property quality and location,
especially proximity to major area highways, suburban residential areas, and
access to the central Philadelphia business district and the northeast corridor
business communities of New York, Baltimore and Washington. The Company's
industrial Properties compete principally with buildings owned by other local
developers largely on the basis of services provided and access to
transportation, both highway and rail, and access to Northeast corridor and
national markets.
Environmental Matters
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real property may be liable for the
costs of removal or remediation of certain hazardous or toxic substances on, in
or under such property. Such laws often impose such liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The costs of remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to promptly remediate such substances, may adversely affect the owner's
or operator's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic wastes may be liable for the costs of removal or remediation
of such wastes at the disposal or treatment facility, regardless of whether such
facility is owned or operated by such person. Certain other federal, state and
local laws, ordinances and regulations may impose liability on an owner of real
property where on-site contamination discharges into waters of the state,
including groundwater, or otherwise affects the beneficial use of such waters.
Other federal, state and local laws, ordinances and regulations require
abatement or removal of certain asbestos-containing materials in the event of
demolition or certain renovations or remodeling and also govern emissions of
asbestos fibers in the air. The operation and subsequent removal of certain
underground storage tanks are also regulated by federal, state and local laws,
ordinances and regulations. In connection with its ownership and operation of
the Properties, the Company could be held liable for the costs of remedial
action with respect to contamination, asbestos-containing materials or tanks or
related claims.
All of the Properties have been subjected to either Phase I environmental
site assessments, or updates of earlier assessments, performed by independent
third parties. Phase I environmental site assessments are intended to evaluate
the environmental condition of, and potential environmental liabilities
associated with, the Property and include a site visit and review of public and
historical records, but involve no soil or groundwater sampling or subsurface
investigation. Such assessments generally consist of an investigation of
environmental conditions of the Properties, including a preliminary
investigation of the Properties and identification of publicly known conditions
concerning properties in the vicinity of the Properties, an investigation as to
the presence of polychlorinated
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biphenyls and aboveground and underground storage tanks at the Properties and
the preparation and issuance of written reports. The primary focus of the recent
Phase I environmental site assessments and updates of earlier assessments
conducted on the Properties was to identify any "recognized environmental
conditions." These are conditions arising from the presence or likely presence
of hazardous substances or petroleum products that would present a risk of harm
to the public health or environment or that would be the subject of an
enforcement action if brought to the attention of appropriate governmental
agencies, or of third party actions.
Except as discussed below with respect to the Whitelands Property (110
Summit Drive), the environmental site assessments have not revealed any
significant environmental liability, nor is the Company aware of any
environmental liability with respect to the Properties that the Company's
management believes would have a material adverse effect on the Company. An
environmental assessment has identified environmental contamination of potential
concern with respect to the Whitelands Property (110 Summit Drive). Petroleum
products, solvents and heavy metals were detected in the groundwater. These
contaminants are believed to be associated with debris deposited by others in a
quarry formerly located on the Whitelands Property. The quarry previously
appeared on the Comprehensive Environmental Response Compensation and Liability
Information System List, a list maintained by the United States Environmental
Protection Agency (the "EPA") of abandoned, inactive or uncontrolled hazardous
waste sites which may require cleanup. The EPA conducted a preliminary
assessment in 1984 with the result that no further action was taken.
Subsequently, the quarry was removed from the list. While the Company believes
it is unlikely that the Operating Partnership will be required to undertake
remedial action with respect to such contamination, there can be no assurance in
this regard. If the Operating Partnership were required to undertake remedial
action on the Whitelands Property, it has been indemnified against the cost of
such remediation by the seller, SSI, subject to a maximum of $2,018,000. The
term of SSI's indemnity agreement expires on August 22, 2001. If SSI is unable
to fulfill its obligations under its indemnity agreement or if the Operating
Partnership is required to undertake remedial action after the expiration of the
five-year term of the agreement, the costs of such remediation could be
substantial. Because the Company does not believe that any remediation at the
Whitelands Property is probable, no amounts have been accrued for any such
potential liability.
No assurance can be given that existing environmental studies with respect
to the Properties reveal all environmental liabilities or that any prior owner
of any such property did not create any material environmental condition not
known to the Company. Moreover, no assurance can be given that: (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Properties will not be
affected by tenants and occupants of the Properties, by the condition of
properties in the vicinity of the Properties (such as the presence of
underground storage tanks) or by third parties unrelated to the Company.
Employees
As of December 31, 1996, the Company employed 35 persons, including four
executive officers.
Legal Proceedings
The Company is not currently involved (nor was it involved at December 31,
1996) in any material legal proceedings nor, to the Company's knowledge, is any
material legal proceeding currently threatened against the Company, other than
routine litigation arising in the ordinary course of business, substantially all
of which is expected to be covered by liability insurance.
Mortgage Debt and Credit Facility
Mortgage Indebtedness
The following table sets forth the Company's mortgage indebtedness
outstanding at December 31, 1996. In addition to mortgage indebtedness listed
below, the Credit Facility, which had no outstanding balance as of December 31,
1996, was secured by cross-collateralized mortgages and assignments of rents on
25 of the Properties as of such date.
-10-
<PAGE> 11
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Properties -- Indebtedness
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------
Principal Interest Rate Maturity Prepayment
Balance as of as of Date Premiums
December 31, December 31,
1996 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Horsham Business Center $ 2,500 7.88% 8/1998 None
Horsham, PA
650 Dresher Road(1).................
- -----------------------------------------------------------------------------------------------------
Oaklands Corporate Center 6,397 8.00% 2/1998 None
Exton, PA
486 Thomas Jones Way(2)
468 Creamery Way(2).................
- -----------------------------------------------------------------------------------------------------
Iron Run Industrial Park 2,528 9.25% 3/2000 (7)
Allentown, PA
7310 Tilghman Street.................
- -----------------------------------------------------------------------------------------------------
6575 Snowdrift Road................... 2,338 8.00% 2/1998 None
- -----------------------------------------------------------------------------------------------------
500 North Gulph Road
King of Prussia, PA (3)...............
2200 Cabot Boulevard
Bucks County, PA (3)..................
2250 Cabot Boulevard
Bucks County, PA (3)..................
2260 Cabot Boulevard
Bucks County, PA (3)..................
2270 Cabot Boulevard
Bucks County, PA (3)..................
3000 Cabot Boulevard
Bucks County, PA (3)..................
3329 Street Road - Greenwood Sq.
Bucks County, PA (3)..................
3331 Street Road - Greenwood Sq.
Bucks County, PA (3)..................
3333 Street Road - Greenwood Sq. 3,284 8.00% 12/1999 None
Bucks County, PA (3)..................
- -----------------------------------------------------------------------------------------------------
Greentree Centre
Marlton, New Jersey
One Greentree Center(4)..............
Two Greentree Center (4).............
Three Greentree Center (4)........... 7,126 7.56% 1/2002 (8)
- -----------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE> 12
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Properties -- Indebtedness
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------
Principal Interest Rate Maturity Prepayment
Balance as of as of Date Premiums
December 31, December 31,
1996 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liberty View 8,429 8.00% 1/1999 (9)
Cherry Hill, NJ 929 8.00% 12/1997 None
457 Haddonfield Road (5)(6).......... 417 9.25% 1/1999 None
- -----------------------------------------------------------------------------------------------------
Twin Forks Office Park 2,696 7.56% 1/2002 (10)
Raleigh, NC
5910-6090 Six Forks(4)..............
- -----------------------------------------------------------------------------------------------------
TOTAL MORTGAGE $36,644
INDEBTEDNESS.......................... =======
- -----------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
(1) Interest rate is variable and equal to LIBOR plus 250 basis points. On
January 28, 1997, the Company repaid this loan in full.
(2) Both of these properties secure a single loan.
(3) These properties secure a single loan in the amount of $3,284,000, which was
incurred as a result of their acquisition on November 14, 1996. The mortgage
note payable is in the principal amount of $3,800,000, does not bear interest,
and is payable in two installments: $2,500,000 at December, 1998 and $1,300,000
at December, 1999. The Company recorded a $548,000 adjustment to the purchase
price and a corresponding reduction in debt to reflect the fair value of the
note payable to the seller and will accrue interest expense to the date of
maturity.
(4) These properties secure two loans payable to a single lender. At December
31, 1996, the interest rate was fixed at 9.31%. On February 15, 1997, (i) the
principal amount of the Greentree Centre loan was increased to $7.3 million and
the Twin Forks loan balance was set at $2.7 million, (ii) the interest rate was
fixed at 7.56%, (iii) the maturity date was extended to January 15, 2002, and
(iv) monthly payments were reset based upon a 20-year amortization of principal.
(5) The $8,429,000 debt was incurred as a result of the acquisition of this
Property on July 19, 1996. Pursuant to the terms of this loan, the Company has
the right to borrow up to approximately $1.4 million to fund tenant improvements
and leasing commissions at an interest rate of prime plus 1%. At December 31,
1996, $417,000 was borrowed against this portion of the loan.
(6) The $929,000 of debt was incurred as a result of the acquisition of this
Property on July 19, 1996. The mortgage note payable is in the principal amount
of $1.0 million, is due in December 1997 and does not bear interest. The Company
recorded a $104,000 adjustment to the purchase price and a corresponding
reduction in debt to reflect the fair value of the note payable to the seller
and will accrue interest expense to the date of maturity.
(7) Four percent through December 31, 1996, which prepayment penalty is reduced
by 1% for each subsequent year through 1999.
(8) This loan may not be prepaid unless the Twin Forks loan is also prepaid. The
prepayment penalty equals greater of 1% of principal amount prepaid or a yield
maintenance premium.
(9) One percent of any portion of the original acquisition portion of the loan
being prepaid.
-12-
<PAGE> 13
(10) This loan may be prepaid without prepayment of the loan secured by One
Greentree Centre, Two Greentree Centre and Three Greentree Centre, provided
certain loan-to-value ratios and coverage tests with regard to the Greentree
Centre loan are satisfied and upon payment of a premium equal to the greater of
1% of the principal amount prepaid or a yield maintenance premium.
Credit Facility
On December 2, 1996, the Company and Operating Partnership entered into a
two year, $80 million secured revolving Credit Facility with Smith Barney
Mortgage Capital Group, Inc. and NationsBank, N.A. The Credit Facility has been
and will be used to refinance existing indebtedness, fund acquisitions and new
development projects, and for general working capital purposes, including
capital expenditures and tenant improvements. The amount available to be
borrowed under the Credit Facility will be reduced by the amount of the letters
of credit issued by the lenders for as long as such letters of credit are
outstanding. The Credit Facility is recourse to the Company and the Operating
Partnership and, as of December 31, 1996, was secured by, among other items,
cross-collateralized and cross-defaulted first mortgage liens on 25 Properties,
owned directly or indirectly by the Company and the Operating Partnership.
The Credit Facility bears interest at a per annum floating rate equal to
the 30, 60, or 90-day LIBOR, plus 175 basis points. The Credit Facility requires
monthly payments of interest only, with all outstanding advances and all accrued
but unpaid interest due 2 years from the closing of the Credit Facility. A fee
equal to 0.75% of the maximum amount available under the Credit Facility was
paid to the lenders at the closing of the Credit Facility. In addition, a fee of
0.25% per annum (0.125% per annum until April 1, 1997) on the unused amount of
the Credit Facility will be payable quarterly in arrears. An annual fee in the
amount of $35,000 will be payable annually in advance to NationsBank, N.A. as
compensation for administration of the Credit Facility. The Credit Facility
carries minimum debt service coverage, fixed charge, debt-to-tangible net worth
ratios and other financial covenants and tests, and requires payment of
prepayment premiums in certain instances.
Item 2. Properties
As of December 31, 1996, the Company owned a portfolio of 34 office
buildings and three industrial facilities that contain an aggregate of
approximately 2.0 million net rentable square feet. Thirty-four of these 37
Initial Properties are located in the Suburban Philadelphia Office and
Industrial Market. As of December 31, 1996, the 34 office Properties and the
three industrial Properties were approximately 90.6% and 95.2% leased,
respectively, to 217 tenants. The 34 office Properties are primarily one to
three story suburban office buildings containing an average of 51,000 net
rentable square feet. All of these Properties are in business parks or
commercial business districts, and 19 of the Properties were developed by the
Company.
-13-
<PAGE> 14
The following table sets forth certain information with respect to the
Initial Properties at December 31, 1996:
<TABLE>
<CAPTION>
Average Total Base
Total Base Rent Plus Expense Average
Rent for the Recoveries Per Net Annualized
Net Percentage Twelve Months Rentable Square Rental Rate
Rentable Leased as of Ended Foot Leased as of
Year Square December December 31, December 31, December
Submarket/Property Built Feet 31, 1996(1) 1996(2) (000's) 1996(3) 31, 1996(4)
- ------------------ ----- ----- ------------ --------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Horsham/Willow Grove/Jenkintown, PA
650 Dresher Road....................... 1984 30,138 100.0% $ 356 $ 16.97 16.50
1155 Business Center Drive............. 1990 51,388 99.4% 608 16.38 17.22
500 Enterprise Road.................... 1990 67,800 98.5% 698 13.55 15.03
One Progress Avenue.................... 1986 79,204 100.0% 584 9.38 11.75
700 Business Center Drive (5).......... 1986
82,009 100.0% 860 12.40 13.18
800 Business Center Drive (5).......... 1986
Southern Route 202 Corridor, PA
456 Creamery Way....................... 1987 47,604 100.0% 341 7.44 7.38(6)
486 Thomas Jones Way................... 1990 51,500 50.9% 394 26.71 12.86
468 Creamery Way....................... 1990 28,934 100.0% 293 14.53 13.83
</TABLE>
Tenants Leasing 10%
or More of Rentable
Square Footage per
Property as of
December 31, 1996 and
Submarket/Property Lease Expiration Date
- ------------------ ----------------------
Horsham/Willow Grove/Jenkintown, PA
650 Dresher Road....................... GMAC (100%) - 5/03
1155 Business Center Drive............. IMS (79%) - 3/06:
Motorola (14%) - 2/99
500 Enterprise Road.................... Conti Mortgage (80%) -
4/01; Pioneer (19%) -
10/00
One Progress Avenue.................... Reed Technologies
(100%) - 6/11
700 Business Center Drive (5).......... Metpath (35%) - 1/12;
Sprint (19%) - 3/01;
Macro (19%) - 4/01;
Advanta (10%) - 6/99
800 Business Center Drive (5)..........
Southern Route 202 Corridor, PA
456 Creamery Way....................... Neutronics (100%) - 1/03
486 Thomas Jones Way................... First American Real
Estate (20%) - 4/00
468 Creamery Way....................... Franciscan Health (82%)
- 6/99; American Day
Treatment (18%) - 6/00
-14-
<PAGE> 15
<TABLE>
<CAPTION>
Average Total Base
Total Base Rent Plus Expense Average
Rent for the Recoveries Per Net Annualized
Net Percentage Twelve Months Rentable Square Rental Rate
Rentable Leased as of Ended Foot Leased as of
Year Square December December 31, December 31, December
Submarket/Property Built Feet 31, 1996(1) 1996(2) (000's) 1996(3) 31, 1996(4)
- ------------------ ----- ----- ------------ --------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
110 Summit Drive....................... 1985 43,660 67.6% 288 13.83 7.20(7)
King of Prussia, PA
500 North Gulph Road................... 1979 92,851 86.1% 1,153 14.42 16.51
Bucks County, PA
2200 Cabot Boulevard................... 1979 55,081 100.0% 238 5.76 4.40(7)
2250 Cabot Boulevard................... 1982 40,000 100.0% 156 5.46 3.50(7)
2260 Cabot Boulevard(5)................ 1984
29,638 89.3% 215 9.94 8.57
2270 Cabot Boulevard(5) 1984
3000 Cabot Boulevard................... 1986 34,640 90.3% 360 11.79 17.12
3329 Street Reed--Greenwood Sq.(5)..... 1985
3331 Street Road--Greenwood Sq.(5)..... 1986 165,929 93.2% 2,634 17.32 16.90
3333 Street Road--Greenwood Sq.(5)..... 1988
</TABLE>
Tenants Leasing 10%
or More of Rentable
Square Footage per
Property as of
December 31, 1996 and
Submarket/Property Lease Expiration Date
- ------------------ ----------------------
110 Summit Drive....................... Maris Equipment (49%) -
4/99
King of Prussia, PA
500 North Gulph Road................... Transition Software
(16%) - 8/00, Strohl Syst
(12%) - 10/99
Bucks County, PA
2200 Cabot Boulevard................... Hussman Corp (38%),
Nobel Printing (38%) -
6/97; McCaffrey Mgt
(24%) - 8/00
2250 Cabot Boulevard................... Bucks County Nut
(100%) - 7/99
2260 Cabot Boulevard(5)................ Sager Electrical (14%) -
10/98; Manufacturers
Survey (13%) - 12/01
2270 Cabot Boulevard(5)
3000 Cabot Boulevard................... Geraghty & Miller (31%)
- 11/97; Prudential Insur.
(21%) - 7/98; Luigi
Bormioli Co. (11%) -
6/98
3329 Street Reed--Greenwood Sq.(5).....
3331 Street Road--Greenwood Sq.(5)..... Waste Management
(27%) - 3/97
3333 Street Road--Greenwood Sq.(5).....
-15-
<PAGE> 16
<TABLE>
<CAPTION>
Average Total Base
Total Base Rent Plus Expense Average
Rent for the Recoveries Per Net Annualized
Net Percentage Twelve Months Rentable Square Rental Rate
Rentable Leased as of Ended Foot Leased as of
Year Square December December 31, December 31, December
Submarket/Property Built Feet 31, 1996(1) 996(2) (000's) 1996(3) 31, 1996(4)
- ------------------ ----- ----- ------------ -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Blue Bell/Plymouth Meeting/Fort Washington, PA
2240/50 Butler Pike......................... 1984 52,183 100.0% 583 16.23 17.42
120 West Germantown Pike.................... 1984 30,546 100.0% 375 17.58 17.52
140 West Germantown Pike.................... 1984 25,953 98.7% 303 17.06 17.09
2260 Butler Pike............................ 1984 31,892 100.0% 396 17.26 17.57
Main Line, PA
16 Campus Boulevard......................... 1990 65,463 100.0% 492 11.36 14.49
18 Campus Boulevard......................... 1990 37,700 100.0% 439 15.24 18.61
</TABLE>
Tenants Leasing 10%
or More of Rentable
Square Footage per
Property as of
December 31, 1996 and
Submarket/Property Lease Expiration Date
- ------------------ ----------------------
Blue Bell/Plymouth Meeting/Fort Washington, PA
2240/50 Butler Pike......................... CoreStates (59%) - 4/06;
TWA Marketing (33%) -
10/99
120 West Germantown Pike.................... Clair O'Dell (82%) -
7/01; Kleinerts (13%) -
10/98
140 West Germantown Pike.................... Healthcare, Inc. (46%) -
9/99; Henkel (29%) -
6/98; National - Health
Equity (20%) - 5/99
2260 Butler Pike............................ Information Resources
(66%) - 12/00; Med
Resorts (26%) - 1/01
Main Line, PA
16 Campus Boulevard......................... New England Mutual
(52%) - 5/06; Atlantic
Employees C.U. (35%) -
1/06
18 Campus Boulevard......................... Prudential (25%) - 6/01;
Devco Mutual (35%) -
1/01; Scott Paper (17%) -
11/97; Marshall
Dennehey (18%) - 10/01
-16-
<PAGE> 17
<TABLE>
<CAPTION>
Average Total Base
Total Base Rent Plus Expense Average
Rent for the Recoveries Per Net Annualized
Net Percentage Twelve Months Rentable Square Rental Rate
Rentable Leased as of Ended Foot Leased as of
Year Square December December 31, December 31, December
Submarket/Property Built Feet 31, 1996(1) 1996(2) (000's) 1996(3) 31, 1996(4)
- ------------------ ----- ----- ------------ --------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lehigh Valley, PA
7310 Tilghman Street................... 1985 40,000 99.0% 338 11.86 9.22(7)
7248 Tilghman Street................... 1987 42,863 93.8% 412 14.85 14.74
6575 Snowdrift Road.................... 1988 46,250 100.0% 303 9.15 7.15(7)
Lansdale, PA
1510 Gehman Road....................... 1990 152,625 100.0% 759 7.60 4.72
Burlington County, NJ
One Greentree Centre................... 1982 55,838 87.5% 870 18.98 15.89
Two Greentree Centre................... 1983 56,075 89.9% 902 19.15 16.62
</TABLE>
Tenants Leasing 10%
or More of Rentable
Square Footage per
Property as of
December 31, 1996 and
Submarket/Property Lease Expiration Date
- ------------------ ----------------------
Lehigh Valley, PA
7310 Tilghman Street................... AT&T (83%) - 12/97-
8/98
7248 Tilghman Street................... IDS Financial (29%) -
7/01; Ohio Casualty
(46%) - 7/01; Meridian
Mortgage (12%) - 6/99
6575 Snowdrift Road.................... Corning Packaging
(100%) - 2/99
Lansdale, PA
1510 Gehman Road....................... Ford Electronics (35%) -
6/98; Nibco (65%) - 8/99
Burlington County, NJ
One Greentree Centre................... American Executive
Centers (30%) - 1/06;
West Jersey (15%) -
4/01; Temple Sports
Med. (18%) - 12/97
Two Greentree Centre................... Merrill Lynch (23%) -
11/05; ReMax Suburban
(12%) - 11/05
-17-
<PAGE> 18
<TABLE>
<CAPTION>
Average Total Base
Total Base Rent Plus Expense Average
Rent for the Recoveries Per Net Annualized
Net Percentage Twelve Months Rentable Square Rental Rate
Rentable Leased as of Ended Foot Leased as of
Year Square December December 31, December 31, December
Submarket/Property Built Feet 31, 1996(1) 1996(2) (000's) 1996(3) 31, 1996(4)
- ------------------ ----- ----- ------------ --------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Three Greentree Centre................. 1984 69,101 96.2% 974 15.52 16.41
8000 Lincoln Drive..................... 1983 54,923 100.0% 278 5.06 17.13
Camden County, NJ
457 Haddonfield Road (LibertyView)..... 1990 121,737 82.8% 1,290 16.73 18.63
Other Markets
168 Franklin Corner Road............... 1976 32,000 54.5% 228 16.29 16.48
Lawrenceville, NJ
Twin Forks Office Park
Raleigh, NC
5910-6090 Six Forks.................... 1982 73,339 81.6% 994 16.47 14.49
Northern Suburban Wilmington
One Righter Parkway.................... 1989 104,828 100.0% 2,218 21.16 19.31
------- ----- ------- ------ ------
Consolidated Total/Weighted Average 1,993,692 92.8% $21,332 $13.80 $15.16(8)
--------- ====== ------- ------ ------
for All Properties........................
</TABLE>
Tenants Leasing 10%
or More of Rentable
Square Footage per
Property as of
December 31, 1996 and
Submarket/Property Lease Expiration Date
- ------------------ ----------------------
Three Greentree Centre................. Parker, McCay &
Criscuolo (39%) - 5/01;
Marshall Dennehey
(20%) - 5/97; Olde
Discounts (12%) - 3/00;
Surety Title (13%) -
11/03
8000 Lincoln Drive..................... CSC (67%) - 11/01; Blue
Cross (33%) - 2/07
Camden County, NJ
457 Haddonfield Road (LibertyView)..... HIP Health Plan (31%) -
12/07
Other Markets
168 Franklin Corner Road............... Dr. Belden (12%) - 5/01;
Lawrenceville, NJ Crawford & Co. (14%) -
11/99
Twin Forks Office Park
Raleigh, NC
5910-6090 Six Forks.................... N/A
Northern Suburban Wilmington
One Righter Parkway.................... Kimberly Clark (89%) -
12/05
Consolidated Total/Weighted Average
for All Properties........................
- ----------------------
-18-
<PAGE> 19
(1) Calculated by dividing net rentable square feet included in leases dated on
or before December 31, 1996 by the aggregate net rentable square feet
included in the Property.
(2) "Total Base Rent" for the twelve months ended December 31, 1996 represents
base rents received during such period, excluding tenant reimbursements,
calculated in accordance with generally accepted accounting principles
determined on a straight-line basis. Tenant reimbursements generally
include payment of real estate taxes, operating expenses, and escalations
and common area maintenance and utility charges.
(3) Represents the Total Base Rent for the twelve months ended December 31,
1996, plus tenant reimbursements for the twelve months ended December 31,
1996, divided by the net rentable square feet leased.
(4) "Average Annualized Rental Rate" is calculated as follows: (i) for office
leases written on a triple net basis, the sum of the annualized contracted
base rental rates payable for all space leased as of December 31, 1996
(without giving effect to free rent or scheduled rent increases that would
be taken into account under generally accepted accounting principles) plus
the 1996 budgeted operating expenses excluding tenant electricity; and (ii)
for office leases written on a full service basis, the annualized
contracted base rate payable for all space leased as of December 31, 1996.
In both cases, the annualized rental rate is divided by the total square
footage leased as of December 31, 1996 without giving effect to free rent
or scheduled rent increases that would be taken into account under
generally accepted accounting principles.
(5) The data reflected for these properties are presented on a consolidated
basis.
(6) Property occupied by a single tenant under a triple net lease agreement,
pursuant to which the tenant subcontracts directly with third party
contractors for all building services.
(7) These rates represent triple net lease rates (leases under which tenants
are required to pay all real property taxes, insurance and expenses of
maintaining the leased space).
(8) Excludes 1510 Gehman Road, 2200 Cabot Boulevard and 2250 Cabot Boulevard,
which are industrial properties.
-19-
<PAGE> 20
The table set forth below shows certain information regarding rental
rates and lease expirations for the Initial Properties in the Company's
portfolio at December 31, 1996, assuming none of the tenants exercise renewal
options or termination rights, if any, at or prior to scheduled expirations:
Scheduled Lease Expirations
<TABLE>
<CAPTION>
Net Rentable Percentage of Total
Square Final Annualized Final
Year of Number of Leases Footage Subject to Base Annualized Base Rent
Lease Expiring Within Expiring Rent Under Expiring Under Expiring
Expiration the Year Leases Leases (1) Leases Cumulative Total
---------- ---------- -------- ------------ -------- ----------------
<S> <C> <C> <C> <C> <C>
1997 69 258,197(2) $ 3,684,042 (2) 14.9% 15%
1998 35 148,450(2) 1,723,888(2) 7.0% 22%
1999 58 444,519(2) 4,173,237(2) 16.8% 39%
2000 14 97,678 1,319,720 5.3% 44%
2001 33 344,423 5,141,769 20.8% 65%
2002 4 21,589 388,595 1.6% 66%
2003 8 104,063 1,257,561 5.1% 71%
2004 1 9,262 185,240 0.7% 72%
2005 3 112,401 2,618,363 10.6% 83%
2006 6 145,449 1,942,732 7.8% 91%
2007 and thereafter 5 164,788 2,322,565 9.4% 100%
Total 236 1,850,819 $24,757,713 100.0%
=== ========= =========== ======
</TABLE>
- ---------------------
(1) "Final Annualized Base Rent" for each lease scheduled to expire represents
the cash rental rate of base rents, excluding tenant reimbursements, in the
final month prior to expiration multiplied by twelve. Tenant reimbursements
generally include payments on account of real estate taxes, operating
expense escalations and common area utility charges.
(2) Includes approximately 21,000, 54,000 and 160,000 net rentable square feet
and approximately $108,000, $361,000 and $640,000 of Final Annualized Base
Rent associated with 1997, 1998 and 1999 lease expirations, respectively,
on the Company's three industrial properties owned as of December 31, 1996.
-20-
<PAGE> 21
The Initial Properties owned by the Company at December 31, 1996 were
leased to 217 tenants that are engaged in a variety of businesses. The following
table sets forth information regarding leases at the Initial Properties with the
20 largest tenants based upon annualized base rent from the Initial Properties
as of December 31, 1996:
<TABLE>
<CAPTION>
Aggregate Net Percentage of
Remaining Rentable Percentage of Annualized Aggregate
Number of Lease Term Square Aggregate Leased Base Rent Annualized
Tenant Name Leases in Months Feet Leased Square Feet $ (000's) Base Rent
----------- -------- ----------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kimberly Clark........... 2 (a) 99,238 5.0% $ 1,892 8.3%
Waste Management......... 3 (b) 45,764 2.3% 765 3.3%
Reed Technology.......... 1 175 79,204 4.0% 733 3.2%
CSC...................... 1 60 36,830 1.8% 626 2.7%
Conti Mortgage........... 1 53 53,906 2.7% 596 2.6%
IMS...................... 1 112 40,774 2.0% 495 2.2%
HIP Health Plan NJ....... 1 133 37,515 1.9% 463 2.0%
Clair O'Dell Agency...... 1 56 25,177 1.3% 441 1.9%
CoreStates............... 1 113 30,359 1.5% 410 1.8%
Nibco, Inc............... 1 33 98,725 5.0% 395 1.7%
Parker, McKay &
Criscuolo................ 1 54 25,905 1.3% 389 1.7%
GMAC..................... 1 78 30,138 1.5% 355 1.6%
Neutronics............... 1 74 47,604 2.4% 346 1.5%
Corning Packaging........ 1 27 46,250 2.3% 331 1.4%
Ford Electronics......... 1 19 53,900 2.7% 327 1.4%
Marshall, Dennehey....... 2 (c) 19,633 1.0% 321 1.4%
New England Mutual....... 1 114 31,907 1.6% 320 1.4%
Blue Cross............... 1 123 18,093 0.9% 315 1.4%
AT&T Communications...... 3 (d) 32,774 1.6% 288 1.3%
Information Resources.... 1 49 21,008 1.1% 284 1.2%
-- --- ------- ---- ------- ----
Consolidated Total/
Weighted Average....... 26 73 874,704 43.9% $10,092 44.0%
== --- ======= ==== ======= ====
</TABLE>
- ------------------------
(a) Consists of two leases: a lease representing 93,014 square feet that
expires in December 2005, and a lease representing 6,224 square feet that
expires in November 1997.
(b) Consists of three leases: a lease representing 20,764 square feet that
expires March 1997 and two leases representing 12,500 each that expire
March 1997.
(c) Consists of two leases: a lease representing 12,971 square feet that
expires in May 1997 and a lease representing 6,662 square feet that expires
in October 2001.
(d) Consists of three leases: a lease representing 11,000 square feet that
expires in August 1998; a lease representing 13,107 square feet that
expires in December 1997 and a lease representing 8,667 square feet that
expires in November 1997.
-21-
<PAGE> 22
As the gross revenue of two of the Properties held in the Company's
portfolio at December 31, 1996 (Three Greentree Centre and Twin Forks)
represents in excess of 10% of the aggregate gross revenues of the Company for
the fiscal year ended December 31, 1996, additional information regarding these
Properties is provided below.
Three Greentree Centre
Three Greentree Centre, located in Marlton, New Jersey, is a four story,
mid-rise office building completed in 1984. This Property contains 69,101 net
rentable square feet and is situated on approximately 5.4 acres. This Property
is constructed of structural steel framing with a brick and dryvit exterior. The
two story lobby was renovated in 1996. Real estate taxes for the property for
the year ended December 31, 1996 totaled approximately $120,000. Occupancy of
Three Greentree Centre commenced in February 1984 and was approximately 96% as
of December 31, 1996. As of December 31, 1996, leases totaling approximately
18,000 square feet were scheduled to expire during 1997.
The following table sets forth the occupancy rate and average annual base
rent per leased square foot of total leasable square feet at Three Greentree
Centre during the periods specified:
Three Greentree Centre
Occupancy and Rental Rates
<TABLE>
<CAPTION>
Average Annual Effective
Year Percentage leased Rental Rate Per Leased Total Annual Rental
(At December 31) at Period End (1) Square Foot (2) Revenue (3)
---------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
1996 96% $ 15.31 $ 1,032,000
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
</TABLE>
(1) For the years 1995, 1994, 1993 and 1992, percentage leased is as of January
31 of the following year. The Company does not believe that percentages at
December 31 are materially different than the percentages at January 31 of
the following year.
(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, including tenant reimbursements, determined on a
straight-line basis in accordance with generally accepted accounting
principles. Tenant reimbursements generally include payment of real estate
taxes, operating expense escalations and common area utility charges.
-22-
<PAGE> 23
The table set forth below shows scheduled lease expirations for leases in
place at December 31, 1996 for each of the next ten years beginning January 1,
1997, assuming none of the tenants exercise renewal options or termination
rights, if any, at or prior to scheduled expirations:
Three Greentree Centre
Lease Expirations
<TABLE>
<CAPTION>
Percentage of
Final Final Annualized Total Final
Net Rentable Annualized Base Rent per Annualized
Number of Square Footage Base Rent Square Foot Base Rent
Year of Lease Leases Expiring Subject to Under Expiring Under Expiring Under Expiring Cumulative
Expiration Within the Year Expiring Leases Leases (1) Leases Leases Total
---------- --------------- --------------- ---------- ----------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1997 3 18,000 $ 317,000 $ 17.94 26.9% 27%
1998 0 0 0 0.00 0.0% 27%
1999 0 0 0 0.00 0.0% 27%
2000 2 13,000 242,000 18.41 20.5% 47%
2001 2 26,000 451,000 17.06 38.2% 86%
2002 0 0 0 0.00 0.0% 86%
2003 1 9,000 171,000 18.50 14.4% 100%
2004 0 0 0 0.00 0.0% 100%
2005 0 0 0 0.00 0.0% 100%
2006 0 0 0 0.00 0.0% 100%
--- -------------- ----------- -------------- --------
8 66,000 $ 1,181,000 $ 17.76 100.0%
=== ============== =========== ============== ========
</TABLE>
(1) "Final Annualized Base Rent" for each lease scheduled to expire represents
the cash rental rate of base rents, excluding tenant reimbursements, in the
final month prior to expiration multiplied by twelve. Tenant reimbursements
generally include payments on account of real estate taxes, operating
expense escalations and common area utility charges.
The aggregate tax basis for federal income tax purposes of Three Greentree
Centre was approximately $10,520,000 as of December 31, 1996. 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, approximately $36,000 represents
land improvements depreciated over a 15 year life, approximately $23,000
represents personal property depreciated over a 7 year life and the balance of
approximately $1,425,000 represents real property depreciated over a 40 year
life.
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<PAGE> 24
Twin Forks
Twin Forks is located in Raleigh, North Carolina. This Property was
completed in 1982 and contains 73,339 net rentable square feet and is situated
on approximately 9.1 acres. Real estate taxes for the property for the year
ended December 31, 1996 totaled approximately $60,000. Occupancy of Twin Forks
commenced in November 1982 and was approximately 82% as of December 31, 1996. As
of December 31, 1996, leases totaling approximately 28,000 square feet were
scheduled to expire during 1997.
The following table sets forth the occupancy rate and average annual base
rent per leased square foot of total leasable square feet at Twin Forks during
the periods specified.
Twin Forks
Occupancy and Rental Rates
<TABLE>
<CAPTION>
Average Annual Effective
Year Percentage leased Rental Rate Per Leased Total Annual Rental
(At December 31) at Period End (1) Square Foot (2) Revenue (3)
---------------- ----------------- ------------------------ -------------------
<S> <C> <C> <C>
1996 82% $ 15.04 $ 987,000
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
</TABLE>
(1) For the years 1995, 1994, 1993 and 1992, percentage leased is as of January
31 of the following year. The Company does not believe that percentages at
December 31 are materially different than the percentages at January 31 of
the following year.
(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, including tenant reimbursements, determined on a
straight-line basis in accordance with generally accepted accounting
principles. Tenant reimbursements generally include payment of real estate
taxes, operating expense escalations and common area utility charges.
-24-
<PAGE> 25
The table set forth below shows scheduled lease expirations for leases in
place at December 31, 1996 for each of the next ten years beginning January 1,
1997 assuming none of the tenants exercise renewal options or termination
rights, if any, at or prior to scheduled expirations:
Twin Forks
Lease Expiration
<TABLE>
<CAPTION>
Percentage of
Final Final Annualized Total Final
Net Rentable Annualized Base Rent per Annualized
Number of Square Footage Base Rent Square Foot Base Rent
Year of Lease Leases Expiring Subject to Under Expiring Under Expiring Under Expiring Cumulative
Expiration Within the Year Expiring Leases Leases (1) Leases Leases Total
- --------------- --------------- --------------- -------------- ------------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
1997 21 28,000 $ 400,000 $ 14.10 44.9% 45%
1998 6 5,000 80,000 14.96 8.9% 54%
1999 13 21,000 323,000 15.51 36.4% 90%
2000 0 0 0 0.00 0.0% 90%
2001 1 2,000 27,000 16.00 3.0% 93%
2002 0 0 0 0.00 0.0% 93%
2003 1 4,000 60,000 17.00 6.8% 100%
2004 0 0 0 0.00 0.0% 100%
2005 0 0 0 0.00 0.0% 100%
2006 0 0 0 0.00 0.0% 100%
--- ----------- ------------- -------------- ---------
42 60,000 $ 890,000 $ 14.89 100.0%
==== =========== ============= ============== =========
</TABLE>
(1) "Final Annualized Base Rent" for each lease scheduled to expire represents
the cash rental rate of base rents, excluding tenant reimbursements, in the
final month prior to expiration multiplied by twelve. Tenant reimbursements
generally include payments on account of real estate taxes, operating
expense escalations and common area utility charges.
The aggregate tax basis for federal income tax purposes of Twin Forks was
approximately $8,024,000 as of December 31, 1996. Of this amount, approximately
$2,487,000 represents land, approximately $4,331,000 represents real property
depreciated over a 19 year life, approximately $525,000 represents real property
depreciated over a 31-1/2 year life, approximately $207,000 represents personal
property depreciated over a 7 year life and the balance of approximately
$474,000 represents real property depreciated over a 40 year life.
-25-
<PAGE> 26
Item 3. Legal Proceedings
The Company is not currently involved (nor was it involved at December 31,
1996) in any material legal proceedings nor, to the Company's knowledge, is any
material legal proceeding currently threatened against the Company, other than
routine litigation arising in the ordinary course of business, substantially all
of which is expected to be covered by liability insurance.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to a vote of security holders in the
fourth quarter of the fiscal year ended December 31, 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Common Shares are traded on the AMEX under the symbol "BDN." On March
10, 1997, there were approximately 300 holders of record of the Common Shares.
On March 10, 1997, the last reported sale price of the Common Shares on the AMEX
was $20-7/8. The following table sets forth the quarterly high and low closing
sale price per share reported on the AMEX commencing with the quarter beginning
January 1, 1995 and the distributions paid by the Company with respect to each
such period. The data in the following table has been adjusted to give effect to
the one-for-three reverse split of the Common Shares effected on November 25,
1996.
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<PAGE> 27
Share Price Share Price Distributions
High Low Declared For Quarter
---- --- --------------------
First Quarter 1995 $14 1/4 $10 1/2 $1.20 (1)
Second Quarter 1995 $12 3/8 $10 11/16 $0.15
Third Quarter 1995 $11 13/16 $10 11/16 $0.15
Fourth Quarter 1995 $11 1/4 $10 1/8 $0.15
First Quarter 1996 $16 5/16 $10 1/2 $0.18 (2)
Second Quarter 1996 $22 1/8 $15 15/16 $0.18 (3)
Third Quarter 1996 $18 3/8 $17 1/16 $0.21 (4)
Fourth Quarter 1996 $19 7/8 $15 $0.25 (5)
- -----------------------
(1) Includes a regular dividend of $0.15 plus extraordinary dividends related
to the refinancing of Properties.
(2) On May 1, 1996, the Company declared a distribution of $0.18 per share
relating to first quarter operations that was paid to shareholders of
record as of May 10, 1996.
(3) On July 11, 1996, the Company declared a distribution of $0.18 per share
relating to second quarter operations that was paid to shareholders of
record as of July 26, 1996.
(4) On November 1, 1996, the Company declared a distribution of $0.21 per share
relating to third quarter operations that was paid to shareholders of
record as of November 11, 1996.
(5) Represents a distribution at a rate per share of $0.21 for the period from
October 1, 1996 through December 1, 1996 (the day prior to the closing of
the 1996 Offering) and a distribution at a rate per share of $0.35 for the
period from December 2, 1996 through December 31, 1996.
Summarized below is information regarding sales by the Company of
securities during 1996 that were not registered under the Securities Act of
1933.
On June 21, 1996, the Company sold 19,983 Common Shares and warrants
exercisable for an additional 19,983 Common Shares to Turkey Vulture Fund XIII,
Ltd. (the "RMO Fund"). The purchase price totaled $337,513 and was paid in cash.
The warrants are currently exercisable in full at a per share exercise price of
$19.50. The RMO Fund is controlled by Richard M. Osborne, a Trustee of the
Company.
On August 22, 1996, the Company sold 258,333 Common Shares and warrants
exercisable for an additional 258,333 Common Shares to Safeguard Scientifics,
Inc. ("SSI") in exchange for SSI's ownership interest in a limited partnership
owning real estate and $426,250 in cash. The warrants are currently exercisable
in full at a per share exercise price of $19.50.
On August 22, 1996, the Company awarded employees warrants exercisable for
an aggregate of 256,666 Common Shares, including warrants exercisable for
100,000 Common Shares awarded to the Company's President and Chief Executive
Officer and warrants exercisable for an aggregate of 130,000 Common Shares
awarded to three other executive officers of the Company. No monetary
consideration was paid to the Company for the warrants. The warrants are
currently exercisable in full at a per share exercise price of $19.50.
-27-
<PAGE> 28
On August 22, 1996, the Operating Partnership issued and committed to issue
an aggregate of 540,159 Units which are exchangeable for an equal number of
Common Shares. The Operating Partnership issued and committed to issue the Units
in exchange for the contribution to it of direct and indirect interests in 19
Properties by SSI, TNC and certain other persons.
On August 23, 1996, the Company issued to the RMO Fund 14,135 units (each
of which consists of one Common Share and one warrant exercisable for an
additional Common Share). Each unit so issued effected a $16.89 prepayment of a
loan (the "Osborne Loan") made by the RMO Fund to the Company on June 21, 1996
in the original principal amount of $992,293.
On November 14, 1996, the Company issued to a voting trust established for
the benefit of SERS 481,818 Series A Preferred Shares and warrants exercisable
for 133,333 Common Shares. The warrants are currently exercisable in full at a
per share exercise price of $25.50.
On November 15, 1996, the Company issued to the RMO Fund 46,411 units (each
of which consists of one Common Share and one warrant exercisable for an
additional Common Share). Each Unit so issued effected a $16.89 prepayment of
the Osborne Loan.
On December 2, 1996, the Company issued to the Morgan Stanley Funds an
aggregate of 709,090 Common Shares at a price of $16.50 per share.
On December 2, 1996, the Company issued to a voting trust established for
the benefit of SERS 636,363 Common Shares at a price of $16.50 per share.
No underwriter was involved in connection with any of the foregoing
securities issuances.
Each of the above transactions is exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended, as transactions not
involving public offerings.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1992(a) 1993(a) 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Total revenue.................................................. $ ---- $ ---- $ 4,192 $3,666 $10,030
Income from acquisition of limited partner
interests in Brandywine Specified Property
Investors Limited Partnership............................... ---- 2,469 ---- ---- ----
Provision for loss on real estate investments.................. ---- ---- (5,400) ---- ----
Gain on sales of real estate investments....................... ---- ---- 1,410 ---- ----
Extraordinary item-gain on extinguishment
of debt..................................................... ---- ---- 7,998 ---- ----
Income (loss) allocated to Common Shares....................... (1) 2,468 7,567(b) (824) (563)
Earnings per share:
Income (loss) before extraordinary items.................... ---- 3.99 (0.64) (1.32) (0.43)
Income (loss) allocated to Common Shares.................... ---- 3.99 11.22 (1.32) (0.43)
Cash distributions declared to Common Shares................... ---- ---- 2,914 1,021 2,143
Cash distributions per Common Share............................ ---- ---- 4.71 1.65 0.82
</TABLE>
-28-
<PAGE> 29
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1992(a) 1993(a) 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Real estate investments, net of accumulated
depreciation................................................ $ ---- $ ---- $13,948 $13,709 $151,901
Total assets................................................... 2,123 4,604 17,873 17,105 178,326
Mortgages and notes payable(b)................................. ---- ---- 6,899 8,931 36,644
Total liabilities.............................................. 55 68 8,684 9,761 43,558
Minority interest.............................................. ---- ---- ---- ---- 6,398
Convertible preferred shares................................... ---- ---- ---- ---- 26,444
Beneficiaries' equity.......................................... 2,068 4,536 9,189 7,344 101,926
Other Data:
Funds from Operations(c)....................................... $ (1) $ (1) $ (533) $ 537 2,103
Cash flows provided by (used in):
Operating activities........................................ ---- ---- (628) 497 2,536
Investing activities........................................ ---- 2,469 9,559 (701) (35,369)
Financing activities........................................ ---- ---- (9,635) (722) 50,272
<CAPTION>
Year Ended December 31,
----------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except number of properties data)
<S> <C> <C> <C> <C> <C>
Property Data:
Number of properties owned at period end.................... 7 7 4 4 37
Gross net rentable square feet owned at period end.......... 546 546 255 255 1,994
</TABLE>
(a) Prior to 1994, the Company accounted for its investment in Brandywine
Realty Partners ("BRP") using the equity method of accounting and,
accordingly, received no rents and tenant reimbursements from its
investment in BRP and received allocated income from BRP totaling $290,000,
and $568,000 for the years ended December 31, 1992, and 1993, respectively.
Subsequent to 1993, the Company acquired control of BRP and consolidated
this investment.
(b) On December 28, 1994, the Company paid $1,114,000 from escrowed cash
reserves to its then mortgage lender in exchange for termination of its
obligation to make future participating interest payments to the lender.
(c) Management generally considers Funds from Operations to be a useful 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 Company'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 Company's cash 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 Company's calculation of Funds from Operations. The Company adopted the
NAREIT definition of Funds from Operations in 1996 and has used it for all
periods presented. Funds from Operations is calculated as net income (loss)
adjusted for depreciation expense attributable to real property,
amortization expense attributable to capitalized leasing costs, tenant
allowances and improvements, gains on sales of real estate investments and
extraordinary and nonrecurring items.
-29-
<PAGE> 30
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following discussion should be read in conjunction with Selected
Financial Data and the financial statements appearing elsewhere herein. The
results of operations, liquidity and capital resources and cash flows of the
Company include the historical results of operations of the Properties held by
the Company during the years ended December 31, 1996, 1995 and 1994.
The Company receives income primarily from rental revenue (including tenant
reimbursements) from the Properties and, to a lesser extent, from the management
of certain properties owned by third parties. In August 1996, the Company
consummated the SSI/TNC Transaction whereby the Company acquired the SSI/TNC
Properties which constitute 19 of the Company's Properties and contain
approximately 958,000 net rentable square feet. The SSI/TNC Transaction also
included the combination of real estate management, marketing and development
functions of TNC with those of the Company. The Company will continue to provide
management, leasing and other related services for the Properties and, in
addition, will selectively pursue providing such services to third parties, as
well as exploring acquisitions of individual and portfolios of properties in the
Suburban Philadelphia Office and Industrial Market. In connection with the
Company's pursuit of potential acquisitions of additional real estate and third
party debt investments, the Company purchased an aggregate of 13 Properties in
the fourth quarter of 1996 (the "Additional Properties"). The Additional
Properties contain an aggregate of approximately 700,000 net rentable square
feet located primarily in the Suburban Philadelphia Office and Industrial
Market. The Company expects that revenue growth in the next two years will
result primarily from additional acquisitions, as well as from rent increases in
its current portfolio. The Company believes that if the commercial rental market
within the Suburban Philadelphia Office and Industrial Market continues to
improve, then rental rate increases will become a more substantial part of its
revenue growth over time.
Results of Operations
Historical Operating Results of the Company
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995. Primarily as a result of the Company's acquisition program during
1996, rental revenues increased by $6.3 million or 174% and property operating
and management fee expenses increased by $2.1 million or 131% for the year ended
December 31, 1996 compared to the year ended December 31, 1995.
Depreciation and amortization expense increased by $1.4 million or 102% for
the year ended December 31, 1996 compared to the year ended December 31, 1995
primarily as a result of the Company's acquisition of real estate during 1996.
Interest expense increased by $2.0 million or 247% primarily as a result of
additional debt recorded by the Company in August, 1996 in connection with the
SSI/TNC Transaction, offset, in part, by reductions in this and other debt made
by the Company from proceeds of the 1996 Offering and the Concurrent Financings.
Administrative expense increased by $143,000 or 21.0% primarily as a result of
the increase in management, marketing and development personnel resulting from
the SSI/TNC Transaction.
As a result of the foregoing, the Company's consolidated net loss was
approximately $162,000 and after income allocated to Series A Preferred Shares
of approximately $401,000, the Company's loss allocated to Common Shares was
$563,000 or $0.43 per share for the year ended December 31, 1996 compared to a
consolidated net loss of $824,000 or $1.32 per share for the year ended December
31, 1995.
Comparison of the Year Ended December 31, 1995 to the Year Ended December
31, 1994. Primarily as a result of the sales of three of the Company's
properties during 1994 as part of the Company's strategic decision to refocus
its efforts in the Suburban Philadelphia Office and Industrial Market, rental
revenues decreased by approximately $576,000 or 13.8% and property operating and
management fee expenses decreased by approximately $494,000 or 23.5% for the
year ended December 31, 1995 compared to the year ended December 31, 1994.
Depreciation and amortization expense remained relatively constant for the
year ended December 31, 1995 compared to the year ended December 31, 1994. This
was primarily due to the nonrecurring write-off of deferred
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<PAGE> 31
loan fees in 1995 totaling approximately $354,000 resulting from: (i)
the refinancing of mortgage debt in April 1995 and (ii) the termination of a
loan commitment, which was offset by a comparable reduction in depreciation and
amortization for the three properties sold in 1994. Interest expense decreased
by approximately $1.2 million or 59.6% for the year ended December 31, 1995
compared to the year ended December 31, 1994 due to the overall reduced interest
expense associated with mortgage loans obtained from the Principal Financial
Group in April 1995. Administrative expense decreased by approximately $152,000
or 18.2% 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 properties of the
Company to the then estimated net realizable value. Such writedown was recorded
as a provision for loss on real estate investments in the Company's 1994
financial statements. For the year ended December 31, 1995, no such writedown
was required to be recorded.
As a result of the foregoing, the Company's consolidated net loss was
approximately $824,000 or $1.32 per share for the year ended December 31, 1995
compared to consolidated net income of approximately $7.6 million or $11.22 per
share for the year ended December 31, 1994.
Liquidity and Capital Resources
As of December 31, 1996, cash and cash equivalents totaled $18.3 million.
On December 2, 1996, the Company consummated the 1996 Offering and the
Concurrent Financings. See "Item 1. Business -- Financings." During 1996, the
net proceeds from these financings were used: (i) to repay approximately $50.6
million of debt (including prepayment penalties and accrued interest); (ii) to
fund approximately $22.3 million of the cash portion of the purchase price and
related expenses in connection with the acquisition of four additional
Properties; (iii) to pay approximately $916,000 in fees and expenses relating to
the Credit Facility; and (iv) the balance for working capital purposes. During
the first quarter of 1997, the Company utilized the majority of the retained net
proceeds to repay $2.5 million of debt and to fund approximately $12.2 million
of the cash portion of the purchase price and related expenses in connection
with the purchase of five Properties on January 24, 1997.
As of December 31, 1996, the Company had approximately $36.6 million of
debt outstanding consisting of eight mortgage loans totaling $33.4 million
(which had a weighted average interest rate of 8.0% and will mature between
December 1997 and January 2002) and $3.8 million in deferred payments owed to
the seller of the SERS Properties, which amount has been discounted to $3.3
million based on its terms. One of the mortgage notes on the LibertyView
Building matures in December 1997, and totaled approximately $929,000 at
December 31, 1996, which amount represents a discounted value based on its
terms. Based upon the Company's total market capitalization at December 31, 1996
of approximately $212.5 million, the Company's consolidated debt represents
approximately 15.7% of its total market capitalization.
On December 2, 1996, the Company and Operating Partnership entered into the
Credit Facility with Smith Barney Mortgage Capital Group, Inc. and NationsBank,
N.A. The Credit Facility has been and will be used to refinance existing
indebtedness, fund acquisitions and new development projects, and for general
working capital purposes, including capital expenditures and tenant
improvements. The amount available to be borrowed under the Credit Facility will
be reduced by the amount of the letters of credit issued by the lenders for as
long as such letters of credit are outstanding. The Credit Facility is recourse
to the Company and the Operating Partnership and, as of December 31, 1996, was
secured by, among other items, cross-collateralized and cross-defaulted first
mortgage liens on 25 Properties, owned directly or indirectly by the Company and
the Operating Partnership. As of December 31, 1996, no amounts were borrowed
against the Credit Facility. See Item 1. "Business - Mortgage Debt and Credit
Facility."
The Company's operating properties require periodic investments of capital
for tenant related capital expenditures and for general capital improvements.
For the years ended December 31, 1996, 1995 and 1994 tenant related capital
expenditures including related leasing commissions paid by the Company for its
Properties totaled approximately $2.1 million, $660,000 and $493,000
respectively. During the year ended December 31, 1996, sources covering these
expenditures included approximately $417,000 in financing pursuant to an
existing commitment from the lender on the LibertyView Building and
approximately $804,000 in escrowed cash reserves in connection with the
Greentree Centre and Twin Forks Properties. The Company has estimated its next
annual tenant related capital expenditures and leasing commissions relating to
the 37 Properties owned as of December 31, 1996 to be approximately $5.0
million. Sources available to cover these costs include approximately $1.1
million in
-31-
<PAGE> 32
available lender financing pursuant to an existing commitment from the lender on
the LibertyView Building, approximately $500,000 in escrowed cash reserves in
connection with the Greentree Centre and Twin Forks Properties and approximately
$1.4 million in escrowed cash reserves that were set aside for this purpose by
the seller for the SERS Properties. The Company intends to fund the balance of
these costs totaling approximately $2.0 million through its rental revenues and
operating expense reimbursements from tenants and borrowings under the Credit
Facility.
The Company's primary sources of cash available for distribution will be
from rental revenues and operating expense reimbursements from tenants and the
management services income from providing services to the Properties and third
parties. The Company intends to use these funds to pay operating expenses, repay
borrowings under the Credit Facility, pay debt service, fund recurring capital
expenditures, make acquisitions, fund tenant allowances and pay regular
quarterly distributions to shareholders.
Cash and cash equivalents were $18.3 million and $840,000 at December 31,
1996 and December 31, 1995, respectively. The increase in cash and cash
equivalents primarily resulted from cash flows provided by operating and
financing activities in excess of cash used in investing activities, including
the impact of the Company's acquisition program during 1996 and the 1996
Offering and Concurrent Financings consummated on December 2, 1996.
During 1996 and 1995, the Company declared distributions totaling $0.82 and
$1.65 per Common Share, respectively, amounting to approximately $2.1 million
and $1.0 million, respectively. In addition, during 1996 the Company declared
distributions to Series A Preferred Shares totaling $401,000.
The Company expects to meet its short-term liquidity requirements generally
through its working capital and net cash provided by operations. The Company
believes that its net cash provided by operations will be sufficient to allow
the Company to make distributions necessary to enable the Company to continue to
remain qualified as a REIT. The Company also believes that the foregoing sources
of liquidity will be sufficient to fund its short-term liquidity needs for the
foreseeable future.
The Company expects to meet its long-term liquidity requirements, such as
for property acquisitions, scheduled debt maturities, renovations, expansions
and other non-recurring capital improvements, through long-term secured and
unsecured indebtedness and the issuance of additional equity securities. The
Company also expects to use funds available under the Credit Facility to finance
acquisitions and capital improvements on an interim basis.
Cash Flows
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995. Cash and cash equivalents were $18.3 million and $840,000 at December
31, 1996 and December 31, 1995, respectively. The increase in cash and cash
equivalents primarily resulted from cash flows provided by operating and
financing activities in excess of cash used in investing activities, including
the impact of the Company's acquisition program during 1996 and the 1996
Offering and Concurrent Financings consummated on December 2, 1996.
Net cash provided by operating activities increased in 1996 by $2.0 million
in comparison to 1995. The increase was primarily attributable to operating
activities of the 33 Properties acquired by the Company during 1996.
Net cash used in investing activities decreased in 1996 by $34.7 million in
comparison to 1995. The decrease was primarily attributable to the Company's
acquisition of 33 Properties during 1996 and capital expenditures and leasing
costs associated with the Company's Properties.
Net cash provided by financing activities increased by $51.0 million in
1996 in comparison to 1995. The increase was primarily attributable to net
proceeds received in connection with the 1996 Offering and Concurrent Financings
offset, in part, by debt repayments made by the Company primarily as a result of
these financings.
Comparison of the Year Ended December 31, 1995 to the Year Ended December
31, 1994. Cash and cash equivalents were $840,000 and $1.8 million at December
31, 1995 and December 31, 1994, respectively. The
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<PAGE> 33
decrease in cash and cash equivalents primarily resulted from cash flows used in
investing and financing activities in excess of cash flows provided by operating
activities.
Net cash provided by operating activities increased in 1995 by $1.1 million
in comparison to 1994. The increase was primarily attributed to a decrease in
interest expense of approximately $1.2 million due to the overall reduced
interest expense associated with mortgage loans obtained from the Principal
Financial Group in April 1995, which refinanced 100% of the debt encumbering the
Company's properties.
Net cash used in investing activities decreased in 1995 by approximately
$10.3 million in comparison to 1994. The decrease was primarily attributable to
the net proceeds on sales of three properties in 1994 of $9.2 million.
Net cash used in financing activities decreased by $8.9 million in 1995 in
comparison to 1994. The decrease was primarily attributable to repayment of
mortgage indebtedness and distributions to shareholders arising from sales of
three properties in 1994.
Inflation
Substantially all of the office leases provide for separate escalations of
real estate taxes and operating expenses either on a triple net basis or over a
base amount. In addition, many of the office leases provide for fixed base rent
increases or indexed escalations (based on the CPI or other measure). The
Company believes that inflationary increases in expenses will be offset by the
expense reimbursement and contractual rent increases.
Funds From Operations
Management generally considers Funds from Operations as one measure of REIT
performance. The Company adopted the NAREIT definition of Funds from Operations
in 1996 and has used this definition for all periods presented in the financial
statements included herein. Funds from Operations is calculated as net income
(loss) adjusted for depreciation expense attributable to real property,
amortization expense attributable to capitalized leasing costs, tenant
allowances and improvements, gains on sales of real estate investments and
extraordinary and nonrecurring items. Funds from Operations should not be
considered as an alternative to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity.
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<PAGE> 34
Funds from Operations for the five years ended December 31, 1996 is
summarized in the following table (in thousands, except share data).
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income (loss) ................... $ (1) $ 2,468 $ 7,567(a) $ (824) (162)
Add back (deduct from):
Depreciation attributable to real
property, net of minority
interest ........................ -- -- 1,146 869 2,059
Amortization attributable to
leasing costs, tenant allowances
and improvements, net of
minority interest ............... -- -- 162 138 206
Gain on sales of real estate
investments ..................... -- -- (1,410) -- --
Extraordinary gain on
extinguishment of debt, net of
minority interest ............... -- -- (7,998) -- --
Nonrecurring items:
Income from acquisition of
limited partner interests ....... -- (2,469) -- -- --
Write off of deferred loan costs
in connection with debt
refinancing ..................... -- -- -- 354 --
-------- -------- -------- -------- ----------
$ (1) $ (1) $ (533)(a) $ 537 $ 2,103
======== ======== ======== ======== ==========
Weighted average Common
Shares outstanding .............. 618,733 618,733 674,327 624,791 1,509,456(b)
======== ======== ======== ======== ==========
</TABLE>
-----------
(a) Funds from operations and net income in 1994 include $1,114,000 paid by
the Company from escrowed cash reserves to its then mortgage lender on
December 28, 1994 in exchange for termination of the Company's obligation
to make future participating interest payments to the lender.
(b) Includes the weighted average effect of 1,606,060 Common Shares issuable
upon the conversion of Series A Preferred Shares. Excludes the weighted
average effect of 399,575 Common Shares issuable upon the conversion of
399,575 Units and 762,104 Common Shares reserved for issuance upon the
exercise of outstanding warrants and options.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary financial data are listed under
Item 14(a) and filed as part of this Form 10-K. See Item 14.
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<PAGE> 35
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Trustees and Executive Officers of the Registrant
The following table sets forth certain information with respect to the
Trustees and executive officers of the Company:
Name Age Position
---- --- --------
Anthony A. Nichols, Sr.... 57 Chairman of the Board and Trustee
Gerard H. Sweeney......... 40 President, Chief Executive Officer and Trustee
Joseph L. Carboni......... 60 Trustee
Richard M. Osborne........ 51 Trustee
Warren V. Musser.......... 70 Trustee
Walter D'Alessio.......... 63 Trustee
Charles P. Pizzi.......... 46 Trustee
Brian F. Belcher.......... 45 Executive Vice President -- Marketing and
Development
John P. Gallagher......... 56 Executive Vice President -- Finance
Each Trustee has been elected to serve for a one-year term expiring at the
1997 annual meeting of shareholders and until the election and qualification of
his successor. Mr. Gallagher resigned as an officer of the Company effective
April 1, 1997.
Trustees of the Company
The following are biographical summaries of the Trustees of the Company:
Anthony A. Nichols, Sr., Chairman of the Board and Trustee. Mr. Nichols was
elected a Trustee on August 22, 1996. Mr. Nichols founded TNC through a
corporate joint venture with SSI, and has been its President and Chief Executive
Officer since 1982. From 1968 to 1982, Mr. Nichols was Senior Vice President of
Colonial Mortgage Service Company (now GMAC Mortgage Corporation), a subsidiary
of CoreStates Bank, N.A. Mr. Nichols has been a member of the National
Association of Real Estate Investment Trusts ("NAREIT"), a member of the Board
of Governors of the Mortgage Banking Association and Chairman of the Income Loan
Committee of the regional Mortgage Bankers Association. Mr. Nichols also serves
on the Board of Directors of CenterCore Inc. and is a member of the National
Association of Industrial and Office Parks, the Philadelphia Board of Realtors,
and the Urban Land Institute.
Gerard H. Sweeney, President, Chief Executive Officer and Trustee. Mr.
Sweeney was elected a Trustee on February 9, 1996. Mr. Sweeney has served as
President and Chief Executive Officer of the Company since August 8, 1994 and as
President since November 9, 1989. Prior to August 8, 1994, Mr. Sweeney served as
Vice President of LCOR, Incorporated ("LCOR"), a real estate development firm.
Mr. Sweeney was employed by The Linpro Company (a predecessor of LCOR) from 1983
to 1994 and served in several capacities, including Financial Vice
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<PAGE> 36
President and General Partner. Mr. Sweeney is a member of NAREIT, the Urban Land
Institute, the American Institute of Certified Public Accountants and the
Pennsylvania Institute of Certified Public Accountants.
Joseph L. Carboni, Trustee. Mr. Carboni was elected a Trustee on May 14,
1991 and served as Chairman of the Board from October 11, 1994 until August 22,
1996. Mr. Carboni has served as President of JLC Associates, Inc., a commercial
and real estate consulting firm since 1990. Prior to 1990, Mr. Carboni was a
Senior Vice President of BNE Realty Credit Corporation.
Richard M. Osborne, Trustee. Mr. Osborne 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 a director of Great Lakes Bank, Mentor, Ohio.
Warren V. Musser, Trustee. Mr. Musser was elected a Trustee on August 22,
1996. He has served as Chairman and Chief Executive Officer of SSI since 1953.
Mr. Musser also serves as the Chairman of the Board of Directors of Cambridge
Technology Partners, Inc., and is a director of Coherent Communications Systems
Corporation and CompuCom Systems, Inc. Mr. Musser also serves on a variety of
civic, educational, and charitable Boards of Directors, including the Franklin
Institute and the Board of Overseers of the Wharton School of the University of
Pennsylvania. He also serves as Vice President/Development, Cradle of Liberty
Council, Boy Scouts of America and as Vice Chairman of the Technology Council of
the Philadelphia metropolitan area.
Walter D'Alessio, Trustee. Mr. D'Alessio was elected a Trustee on August
22, 1996. He has served as President and Chief Executive Officer of Legg Mason
Real Estate Services, Inc., a mortgage banking firm headquartered in
Philadelphia, Pennsylvania since 1982. Previously, Mr. D'Alessio served as
Executive Vice President of the Philadelphia Industrial Development Corporation
and Executive Director of the Philadelphia Redevelopment Authority. He also
serves on the Board of Directors of the Philadelphia Electric Company,
Pennsylvania Blue Shield and Independence Blue Cross, the Philadelphia Private
Industry Council and the Greater Philadelphia Chamber of Commerce.
Charles P. Pizzi, Trustee. Mr. Pizzi was elected a Trustee on August 22,
1996. Mr. Pizzi has served as President of the Greater Philadelphia Chamber of
Commerce since 1989. Mr. Pizzi also serves on a variety of civic, educational
and charitable Boards of Directors, including the American Chamber of Commerce
Executives, Boy Scouts of America (Philadelphia Council), Drexel University,
Greater Philadelphia Chamber of Commerce, Independence Blue Cross, Pennsylvania
Academy of the Fine Arts, Philadelphia Convention & Visitors Bureau, Temple
University School of Business Management, United Way of Southeastern
Pennsylvania, University of Pennsylvania Graduate School of Education Board of
Overseers and the Urban League of Philadelphia.
Messrs. Nichols, Musser and D'Alessio were initially elected to the Board
of Trustees as nominees of SSI and TNC in connection with the Company's
acquisition of properties from SSI and TNC in August 1996, and Mr. Pizzi was
initially elected to the Board of Trustees as the joint nominee of SSI, TNC and
the Company in connection with such transaction.
Company Officers
The following are biographical summaries of the officers of the Company who
are not Trustees of the Company:
Brian F. Belcher, Executive Vice President -- Marketing and Development.
Mr. Belcher became an executive of the Company on August 22, 1996. Mr. Belcher
joined TNC in 1982 as Vice President of Marketing and, from 1986 until August
22, 1996, served as its Executive Vice President. From 1978 to 1982, Mr. Belcher
was a marketing specialist for Evans-Pitcairn Corporation, a real estate
development firm. Prior to that time, Mr. Belcher was a real estate broker with
Cushman & Wakefield, a national real estate firm, in the Philadelphia
metropolitan area. Mr. Belcher previously served as President of the Delaware
Valley Chapter of the National Association of Industrial and Office Parks, and
is currently a member of the Philadelphia Board of Realtors.
John M. Adderly, Jr., Senior Vice President -- Operations. Mr. Adderly has
served as an officer of the Company since January 1995. Mr. Adderly was employed
by the Rodin Group, a Philadelphia-based real estate
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<PAGE> 37
development, management and brokerage firm from 1982 until 1995, where he served
as Vice President and Chief Financial Officer from 1986 until 1995, and as
Corporate Controller from 1982 until 1986.
Anthony A. Nichols, Jr., Vice President -- Operations. Mr. Nichols became
an officer of the Company on August 22, 1996. Previously Mr. Nichols was
employed at TNC which he joined in 1989 as a marketing representative. In 1992
Mr. Nichols became an Assistant Vice President -- Property Management of TNC and
in 1995 he became Vice President -- Marketing. Mr. Nichols is the son of Anthony
A. Nichols, Sr., the Company's Chairman of the Board.
H. Jeffrey DeVuono, Vice President -- Operations. Mr. DeVuono became an
officer of the Company on January 15, 1997. Prior to that time he was employed
in several capacities by LCOR, Incorporated, a real estate development firm.
Mark S. Kripke, Chief Financial Officer and Secretary. Mr. Kripke became
Chief Financial Officer and Secretary of the Company on April 7, 1997.
Previously Mr. Kripke was Chief Financial Officer for Stoltz Management, a
privately-held firm.
John P. Gallagher, who was Executive Vice President -- Finance of the
Company at December 31, 1996, resigned his position as an officer of the Company
effective April 1, 1997. Francine M. Haulenbeek, who was Vice President,
Secretary and Treasurer of the Company at December 31, 1996, resigned her
position as an officer of the Company effective January 31, 1997.
Committees of the Board of Trustees
Audit Committee. The audit committee of the Board of Trustees (the "Audit
Committee") currently consists of Messrs. Carboni, D'Alessio and Pizzi. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
and results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls.
Compensation Committee. The compensation committee of the Board of Trustees
(the "Compensation Committee"), established in August 1996, currently consists
of Messrs. Carboni, D'Alessio and Pizzi. The Compensation Committee determines
compensation for the Company's executive officers and, pursuant to the
employment agreements between the Company and its executive officers, will
establish an incentive compensation program for the Company's employees.
Executive Committee. The executive committee of the Board of Trustees (the
"Executive Committee"), established in August 1996, currently consists of
Messrs. Nichols, the Chairman of the Executive Committee, Mr. Musser, Mr.
Osborne and Mr. Sweeney. The Executive Committee has been delegated all powers
of the Board of Trustees except the power to: (i) declare dividends or other
distributions on Shares; (ii) elect trustees; (iii) issue Shares (other than as
permitted by the By-Laws as in effect from time to time); (iv) recommend to
shareholders any action that requires shareholder approval; (v) amend the Bylaws
of the Company; or (vi) approve any merger or share exchange which does not
require shareholder approval.
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 Company's officers, Trustees and persons who own more than 10% of the 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 Company
with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Annual Statements of Beneficial
Ownership of Securities on Form 5 were required, the Company believes that
during the fiscal year ended December 31, 1996, all Section 16(a) filing
requirements applicable to its officers, Trustees and greater than 1 0%
Shareholders were complied with.
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<PAGE> 38
Item 11. Executive Compensation
Cash and Non-Cash Compensation Paid to Executive Officers
The following table sets forth certain information concerning the
compensation paid: (i) to the Company's President and Chief Executive Officer
for the years ended December 31, 1996, 1995 and 1994 and (ii) to the three other
executive officers of the Company for the year ended December 31, 1996. No
information is presented in the following table for such other executive
officers for the years ended December 31, 1995 or 1994, because none of them
became employees of the Company until August 22, 1996.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
-------------------------- ------------
Securities
Underlying
Name and Principal Position Year Salary Bonus Options/SARs(#)
- --------------------------- ---- ------ ----- ---------------
Anthony A. Nichols, Sr .......... 1996 $ 49,000(1) $30,000 40,000(5)
Chairman of the Board ........... 1995 -- -- --
1994 -- -- --
Gerard H. Sweeney, President and 1996 $134,000(2) $30,000 100,000(5)
Chief Executive Officer ......... 1995 $130,000 --
1994 $ 55,000 -- 46,666(6)
Brian F. Belcher, Executive Vice 1996 $ 43,000(3) $20,000 40,000(5)
President - Marketing and ....... 1995 -- -- --
Development ..................... 1994 -- -- --
John P. Gallagher, Executive Vice 1996 $ 36,000(4) $15,000 40,000(5)
President - Finance ............. 1995 -- -- --
1994 -- -- --
- ---------------
(1) Mr. Nichols did not become an employee of the Company until August 22,
1996. See "Employment Agreements" below.
(2) Prior to August 8, 1994, the date on which Mr. Sweeney became employed by
the Company, Mr. Sweeney's salary and bonus were paid to him by LCOR,
pursuant to his employment agreement with that firm. In February 1994, the
Company paid LCOR $110,000, and LCOR in turn used $60,000 of this amount to
pay Mr. Sweeney a bonus in recognition of his contribution to the Company's
January 1994 debt restructuring and its sale of the Lincoln Centre property
in February 1994. Mr. Sweeney entered into a new employment agreement with
the Company on August 22, 1996 that replaced his then existing employment
agreement with the Company.
(3) Mr. Belcher did not become an employee of the Company until August 22,
1996. See "Employment Agreements" below.
(4) Mr. Gallagher did not become an employee of the Company until August 22,
1996. See "Employment Agreements" below.
(5) The options awarded in 1996 are evidenced by certificates denominated as
"warrants" and were vested and exercisable on the date of grant.
(6) Amount reflects fully vested options to purchase 33,333 and 13,333 Common
Shares at exercise prices of $14.31 and $6.21 per share, respectively.
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<PAGE> 39
Employment Agreements
On August 22, 1996, each of Messrs. Nichols, Sweeney, Belcher and Gallagher
entered into a two-year employment agreement with a subsidiary of the Company.
With the consent of the Company's executives, these employment agreements were
subsequently assigned to the Company. These employment agreements established
annual base salaries for each of Messrs. Nichols, Sweeney, Belcher and Gallagher
at $141,500, $141,500, $125,500 and $104,500, respectively, which compensation
may be increased by the Board of Trustees in its discretion. Effective January
1, 1997, the annual base salaries of each of Messrs. Nichols and Sweeney were
increased to $200,000 and the annual base salary of Mr. Belcher was increased to
$150,000. Mr. Gallagher resigned from the Company effective April 1, 1997.
In the event the Company were to terminate the employment of any of Messrs.
Nichols, Sweeney or Belcher without cause, or were to elect not to renew the
applicable employment agreement on the second anniversary of the date it was
entered into, the Company would be obligated to provide the applicable executive
with severance for the greater of the remaining term under his employment
agreement or 12 months at a rate equal to his then effective salary. In
addition, in the event the particular executive were to terminate his employment
with the Company following a change in control, the Company would be obligated
to provide the applicable executive with the severance payments described in the
preceding sentence. The term "change in control," as defined in the employment
agreements, means the acquisition by any person (other than the Company and its
affiliates) of a majority of the outstanding Common Shares or voting securities
of the Company.
At the time each of the foregoing individuals entered into their employment
agreements, each received from the Company non-transferable warrants exercisable
for a six-year period at a price of $19.50 per share. The number of Common
Shares for which such warrants are exercisable are 40,000, 100,000, 40,000, and
40,000, for the warrants held by Messrs. Nichols, Sweeney, Belcher and
Gallagher, respectively.
Section 162(m) of the Code provides that a publicly-held corporation may
not deduct compensation paid to any one of certain specified officers in excess
of $1 million per year unless such compensation qualifies as "performance-based"
compensation within the meaning of that Section. Neither the options nor the
warrants granted by the Company qualify as performance-based compensation under
Section 162(m) of the Code. Therefore, if the aggregate taxable income
recognized in any year by certain of the executive officers of the Company,
including any income recognized upon the exercise of options or warrants and any
bonuses, exceeds $1 million, the excess will not be deductible by the Company
unless it qualified as performance-based compensation.
Stock Options Granted to Executive Officers During Last Fiscal Year
The following table sets forth certain information regarding options for
the purchase of Common Shares that were awarded during fiscal 1996 to the
Company's: (a) President and Chief Executive Officer and (b) each of the three
other executive officers of the Company.
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<PAGE> 40
Options/SAR Grants in Fiscal Year Ended December 31, 1996
<TABLE>
<CAPTION>
Individual Grants
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of
Securities Options/ Stock Price
Underlying SARs Exercise Appreciation
Options/ Granted to or Base For Option Term(2)
SAR Granted Employees in Price Expiration
Name (#)(1) Fiscal Year ($/sh) Date 5%($) 10%($)
---- -------- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Anthony A. Nichols, 0
Chairman of the Board........... 40,000 16.4% $19.5 8/22/2002 $185,000 $ 496,000
Gerard H. Sweeney, 0
President and Chief
Executive Officer............... 100,000 41.1% $19.5 8/22/2002 $462,000 $1,239,000
Brian F. Belcher, Executive 0
Vice President - Marketing
and Development................. 40,000 16.4% $19.5 8/22/2002 $185,000 $ 496,000
John P. Gallagher,
Executive Vice President -
Finance......................... 40,000 16.4% $19.50 8/22/2002 $185,000 $ 496,000
</TABLE>
- -------------------------------
(1) Options vested on date of grant. The options are evidenced by certificates
denominated as "warrants."
(2) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon the exercise of the options immediately
prior to the expiration of their term, assuming the specified compounded
rates of appreciation on Common Shares over the term of the options.
Stock Options Held by Executive Officers at December 31, 1996
The following table sets forth certain information regarding options
for the purchase of Common Shares that were exercised and/or held by: (a)
the Company's President and Chief Executive Officer and (b) each of the
three other executive officers of the Company at December 31, 1996.
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<PAGE> 41
Aggregated Option/SAR Exercises in Fiscal Year Ended
December 31, 1996 and 1996 Fiscal Year End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying
Unexercised
Options/SAR
at FY-End Value of Unexercised In-
(#) the-Money Options at
Shares Acquired Value Exercisable/ FY-End($) Exercisable/
Name on Exercise(#) Realized($) Unexercisable(1) Unexercisable(1)
- ---- -------------- ----------- ---------------- -------------
<S> <C> <C> <C> <C>
Anthony A. Nichols, Sr.,
Chairman of the Board ..... N/A N/A 40,000 $ 0
Gerard H. Sweeney,
President and Chief
Executive Officer ......... N/A N/A 146,666 $350,000
Brian F. Belcher,
Executive Vice President -
Marketing and
Development ............... N/A N/A 40,000 $ 0
John P. Gallagher,
Executive Vice President -
Finance.................... N/A N/A 40,000 $ 0
</TABLE>
- ---------------
(1) All options are exercisable.
401(k) Plan
TNC established a Section 401(k) and Profit Sharing Plan (the "401(k)
Plan") to cover its eligible employees and other designated affiliates. It
is anticipated that the Company will also adopt the 401(k) Plan for the
benefit of all of its eligible employees.
The 401(k) Plan will permit eligible employees of the adopting
employers (the "Participating Companies") to defer up to a designated
percentage of their annual compensation, subject to certain limitations
imposed by the Code. The employees' elective deferrals are immediately
vested and non-forfeitable upon contribution to the 401(k) Plan. Each
Participating Company reserves the right to make matching contributions or
discretionary profit sharing contributions in the future.
The 401(k) Plan is designed to qualify under section 401 of the Code
so that contributions by employees or by the Participating Companies to the
401(k) Plan, and income earned on plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan, and so that contributions
by the Participating Companies, if any, will be deductible by them when
made.
Compensation Committee Interlocks and Insider Participation
Prior to the completion of the SSI/TNC Transaction on August 22, 1996,
the Board of Trustees had not established a separate compensation
committee. No executive officer of the Company serves on the Compensation
Committee that was established by the Board of Trustees in August 1996.
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<PAGE> 42
Compensation of Trustees
During 1996, the Company paid its Trustees who are not officers of the
Company fees for their services as Trustees. During 1996, Trustees received
annual compensation of $5,000 and a fee of $500 plus expenses for attendance in
person at each meeting of the Board of Trustees or committee thereof and $500
for participation in each telephonic meeting of the Board of Trustees or
committee thereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 10, 1997
(except as indicated in note 3) regarding the beneficial ownership of Common
Shares (and Common Shares for which Units and Preferred Shares may be exchanged)
by each Trustee, by each executive officer, by all Trustees and executive
officers as a group, and by each person known to the Company to be the
beneficial owner of 5% or more of the outstanding Common Shares assuming the
issuance of Units in exchange for the Residual Interests. Except as indicted
below, to the Company's knowledge, all of such Common Shares are owned directly,
and the indicated person has sole voting and investment power.
<TABLE>
<CAPTION>
Name and Business Number of Percentage of
Address of Beneficial Owner(1) Common Common Shares(2)
- ------------------------------ Shares ----------------
---------
<S> <C> <C>
Morgan Stanley Group Inc.(3)................................ 1,130,800 12.27%
RAI Real Estate Advisers, Inc.(4)........................... 951,019 9.98
Safeguard Scientifics Inc.(5)............................... 336,869 4.00
Anthony A. Nichols, Sr.(6).................................. 738,753 7.61
Joseph L. Carboni(7)........................................ 285,503 3.05
Richard M. Osborne(8)....................................... 1,166 *
Gerard H. Sweeney(9)........................................ 440,478 4.74
Warren V. Musser(10)........................................ 146,934 1.57
Walter D'Alessio(11)........................................ 0 *
Charles P. Pizzi(12)........................................ 300 *
John P. Gallagher(13)....................................... 0 *
Brian F. Belcher(14)........................................ 251,955 2.69
All Trustees and Executive Officers as a Group (9 persons).. 259,200 2.77
961,626 9.93
</TABLE>
- ------------------------
*Less than one percent.
(1) Unless indicated otherwise, the business address of each person listed is 16
Campus Boulevard, Newtown Square, Pennsylvania 19073.
(2) Assumes that all Units and Preferred Shares eligible for conversion held by
each named person or entity are converted into Common Shares. The total number
of Common Shares outstanding used in calculating the percentage of Common Shares
assumes that none of the Units or Preferred Shares eligible for conversion held
by other named persons or entities are converted into Common Shares.
(3) Based on a Schedule 13G dated January 14, 1997, and filed for the year ended
December 31, 1996. Morgan Stanley Group Inc. maintains its principal office at
1585 Broadway, New York, New York 10036.
(4) The business address of RAI Real Estate Advisers, Inc. ("RAI") is 259
Radnor-Chester Road, Radnor, Pennsylvania 19087. Includes (a) 636,363 Common
Share, (b) 133,333 Common Shares issuable upon exercise of
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<PAGE> 43
warrants and (c) 181,323 Common Shares issuable upon conversion of Preferred
Shares prior to Conversion Approval. Does not include1,424,736 Common Shares
issuable upon conversion of Preferred Shares after Conversion Approval or 65,000
Common Shares held for the benefit of SERS by third parties that possess the
voting and investment power in respect of such Common Shares. RAI serves as the
voting trustee under the SERS Voting Trust established for the benefit of SERS.
RAI disclaims beneficial ownership of such shares in which it has no pecuniary
interest.
(5) The business address of SSI is 800 The Safeguard Building, 435 Devon Park
Drive, Wayne, Pennsylvania 19087. Includes (a) 241,560 Common Shares, (b)
241,560 Common Shares issuable upon exercise of warrants and (c) 255,633 Units
convertible into Common Shares. Safeguard Securities (Delaware), Inc.
("Safeguard Delaware"), a wholly-owned subsidiary of SSI, is the owner of the
foregoing securities other than 590 Units which are owned by C/N Leedom II,
Inc., another wholly-owned subsidiary. The Units referenced in clause (c) of the
preceding sentence include 3,246 Units issuable to a wholly-owned subsidiary of
SSI on or before September 1, 1999.
(6) Includes (a) 16,773 Common Shares, (b) 56,773 Common Shares issuable upon
exercise of warrants, (c) 110,281 Common Shares held by Newtown I, L.L.C. and
(d) 101, 674 Common Shares issuable upon conversion of Units beneficially owned
by TNC or issuable to TNC on or before September 1, 1999. Mr. Nichols shares
investment and voting power over the Common Shares beneficially owned by Newtown
I, L.L.C. and TNC. The foregoing includes 16,773 Common Shares and warrants to
purchase an additional 16,773 Common Shares which Mr. Nichols owns jointly with
his wife.
(7) The business address of Mr. Carboni is Two Greentree Centre, Marlton, New
Jersey 08053.
(8) The business address of Mr. Osborne is 7001 Center Street, Mentor, Ohio
44060. Includes (a) 179,600 Common Shares owned by The Richard M. Osborne Trust
(the "RMO Trust"), of which Mr. Osborne is the sole trustee and (b) 180,439
Common Shares and warrants exercisable for 80,439 Common Shares held by Turkey
Vulture Fund XIII, Ltd. (the "RMO Fund"). Mr. Osborne has advised the Company
that he possesses sole authority over the voting and disposition of Common
Shares owned by the RMO Fund.
(9) Includes (a) 267 Common Shares and (b) 146,666 Common Shares issuable upon
the exercise of options and warrants.
(10) The business address of Mr. Musser is 800 The Safeguard Building, 435 Devon
Park Drive, Wayne, Pennsylvania 19087.
(11) The business address of Mr. D'Alessio is 1735 Market Street, Philadelphia,
Pennsylvania 19103.
(12) The business address of Mr. Pizzi is 1234 Market Street, Philadelphia,
Pennsylvania 19107.
(13) Includes (a) 40,000 Common Shares issuable upon the exercise of warrants,
(b) 110,281 Common Shares held by Newtown I, L.L.C. and (c) 101,674 Common
Shares issuable upon conversion of Units beneficially owned by TNC or issuable
to TNC on or before September 1, 1999. Mr. Gallagher shares investment and
voting power over Common Shares beneficially owned by Newtown I, L.L.C. and TNC.
(14) Includes (a) 40,000 Common Shares issuable upon the exercise of warrants,
(b) 7,245 Common Shares issuable upon conversion of Units, (c) 110,281 Common
Shares held by Newtown I, L.C.C. and (d) 101,674 Units beneficially owned by TNC
or issuable to TNC on or before September 1, 1999. Mr. Belcher shares investment
and voting power over Common Shares beneficially owned by Newtown I, L.L.C. and
TNC.
Item 13. Certain Relationships and Related Transactions
Partnership Agreement; Redemption Rights
In connection with the SSI/TNC Transaction, the Company entered into an
Agreement of Limited Partnership (the "Partnership Agreement") with SSI, TNC and
11 other persons (collectively, the "Limited Partners"). The number of Units
issued by the Operating Partnership to the Limited Partners at the closing of
the SSI/TNC
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<PAGE> 44
Transaction (495,837) plus the number of additional Units that the Operating
Partnership will be required to issue to the Limited Partners by September 1,
1999 (44,322) to acquire the Residual Interests were and will be issued in
exchange for direct and indirect interests of the Limited Partners in the 19
SSI/TNC Properties contributed to the Operating Partnership. The Partnership
Agreement provides, among other things, for the Limited Partners to have the
right to cause the Company to redeem their Units for cash, at a per Unit price
based on the average closing price of the Common Shares for the five consecutive
trading days prior to such determination (or, at the option of the Company,
Common Shares on a one Common Share per Unit basis, subject to customary
antidilution adjustments). Pursuant to the terms of the Partnership Agreement,
in connection with the payment of an approximately $500,000 prepayment penalty
associated with the payoff of the debt encumbering certain of the Properties,
approximately 30,303 Units held by Limited Partners were canceled by the
Operating Partnership.
Repayment of Certain Advances to SSI
In connection with the SSI/TNC Transaction, SSI agreed to loan the
Operating Partnership an aggregate of $400,000 on account of transaction
expenses and agreed to advance the Operating Partnership up to $700,000 to
provide it with working capital for the operation of certain of the Properties.
SSI also agreed to advance funds to the Operating Partnership to enable it to
make certain preferred distributions to the Company. These advances bore
interest at the prime rate. In addition, in June 1996, SSI provided a second
mortgage loan in the amount of $460,000 to a subsidiary of the Operating
Partnership to fund the cost of tenant improvements at one of the Properties.
This loan also bore interest at the prime rate. The principal balance of the SSI
loans, including accrued interest thereon, was repaid in full on December 2,
1996 following consummation by the Company of the 1996 Offering.
Indemnification of Certain Limited Partners
Pursuant to the Partnership Agreement, the Company was obligated either to
contribute sufficient proceeds from the 1996 Offering to the Operating
Partnership to enable it to repay or refinance the mortgage debt encumbering the
SSI/TNC Properties, or in lieu thereof, either obtain general releases from the
holders of such mortgages indebtedness releasing the Limited Partners from all
liability with respect thereto or make other arrangements satisfactory to such
Limited Partners to indemnify them against such liability. As of December 31,
1996, approximately $13.8 million of such mortgage debt remained outstanding, of
which $8.7 million constitutes recourse debt. Accordingly, the Company has
indemnified the Limited Partners who are liable on such recourse debt against
liability thereon.
Partnership Agreement; General Indemnity
In the Partnership Agreement, SSI and TNC made customary representations
and warranties, on a several basis, in favor of the Company. The Company also
made customary representations and warranties in favor of SSI and TNC. In the
event the Company were to suffer a loss as a result of the inaccuracy of any of
the representations and warranties made in its favor, the recourse of the
Company against SSI and TNC is limited to the Units issued to them in the
SSI/TNC Transaction (less the Units that were forfeited in connection with the
repayment of debt upon closing of the 1996 Offering and any Units that the
Company may elect to release from the pledge).
Termination of Standstill Agreements
Each of SSI and Richard M. Osborne, a Trustee of the Company, was a party
to an agreement with the Company which, by its terms, terminated upon completion
of the 1996 Offering. In its respective agreement, each of SSI and Mr. Osborne
had agreed generally to vote its or his Common Shares in accordance with the
recommendation of a majority of the Board of Trustees on any matter submitted to
a vote of shareholders and to refrain from disposing of its or his Common Shares
other than in transactions under Rule 144, in certain private transactions and
in certain extraordinary transactions such as a third party tender offer or
merger.
Option Properties
At the closing of the SSI/TNC Transaction, the Operating Partnership
acquired an option from an affiliate of TNC entitling it to acquire, in the
Operating Partnership's discretion, the four Option Properties at any time
during the two-year period ending August 22, 1998 (subject to two extensions of
one year each). The parties have agreed
-44-
<PAGE> 45
that the purchase price payable by the Operating Partnership upon exercise of
its option will consist of $10.00 in excess of the mortgage debt encumbering the
Option Properties at the time of exercise (which as of December 31, 1996
aggregated $21.1 million, including accrued interest). Exercise of the option is
subject to a right of first refusal in favor of, and the consent of, the holder
of the mortgage encumbering the Option Properties. There can be no assurance
that the Company will exercise its option or that the holder of such mortgage
will consent to the exercise of the option.
Lease with SSI Affiliate
Approximately 21,580 net rentable square feet is leased by the Company to
an affiliate of SSI at an average rental rate of $9.66 per square foot under a
lease that expires in April 1999. The Company believes that this is the
prevailing market rate for comparable space.
Environmental Indemnity
SSI has agreed to indemnify the Operating Partnership against the cost of
remediation that may be required to be undertaken on account of certain
environmental conditions at one of the SSI/TNC Properties acquired in the
SSI/TNC transaction subject to an aggregate maximum of approximately $2.0
million. The term of the SSI indemnity agreement expires on August 22, 2001.
Employment Agreements; Award of Warrants
At the closing of the SSI/TNC Transaction, each of Messrs. Nichols,
Sweeney, Belcher and Gallagher entered into a two year employment agreement with
the Management Company. These employment agreements were, with the consent of
such executives, subsequently assigned to and assumed by the Company. In order
to induce each such executive to enter into such employment agreements, Messrs.
Nichols, Sweeney, Belcher and Gallagher were awarded warrants to purchase
40,000, 100,000, 40,000 and 40,000 Common Shares, respectively, at an exercise
price of $19.50 per share. See Item 11. "Executive Compensation."
Prior Involvement of Legg Mason
One of the underwriters of the 1996 Offering and the 1997 Offering, Legg
Mason Wood Walker, Incorporated ("Legg Mason"), served as financial advisor to
the Company in connection with the SSI/TNC Transaction. In connection with the
SSI/TNC Transaction, Legg Mason delivered to the Board of Trustees its opinion
to the effect that, as of July 12, 1996, the SSI/TNC Transaction was fair to the
Company's shareholders from a financial point of view. The Company paid Legg
Mason a $100,000 fee for its advisory services and reimbursed it $10,000 for
expenses. Legg Mason is the parent of Legg Mason Real Estate Services, Inc., a
mortgage banking firm of which Walter D'Alessio, a member of the Company's Board
of Trustees and Compensation Committee, is President.
Investment by RMO Fund
On June 21, 1996 (the "Investment Date"), Turkey Vulture Fund XIII, Ltd.
(the "RMO Fund"), a company controlled by Richard M. Osborne, a Trustee of the
Company, invested approximately $1.3 million in the Company by: (i) making an
unsecured loan (the "Osborne Loan") to the Company in the amount of
approximately $992,000 and (ii) by acquiring 19,983 Paired Units (defined below)
at a per unit price of $16.89. Under certain circumstances following the
issuance by the Company of additional Common Shares, the Company was obligated
to issue additional Paired Units, valued at $16.89 each, as a mandatory
prepayment of the Osborne Loan. The Osborne Loan was repaid pursuant to its
terms in 1996 through the issuance by the Company of an aggregate of 60,456
Paired Units. The term "Paired Units" means a unit comprised of one Common Share
and a six-year warrant exercisable for one Common Share at an exercise price of
$19.50 per share.
-45-
<PAGE> 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. and 2. Financial Statements and Schedules
The financial statements and schedules listed below are filed as part of
this annual report on the pages indicated.
Index to Financial Statements and Schedules
Page
----
BRANDYWINE REALTY TRUST
Report of Independent Public Accountants...................................F-1
Consolidated Balance Sheets as of December 31, 1996 and
December 31, 1995..........................................................F-2
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994 .......................................................F-3
Consolidated Statements of Beneficiaries' Equity
for the Years Ended December 31, 1996, 1995 and 1994.......................F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994 .......................................................F-5
Notes to Financial Statements..............................................F-6
Schedule III - Real Estate and Accumulated Depreciation...................F-17
3. Exhibits
Exhibits No. Description
- ------------ -----------
(1) 3.1.1 Amended and Restated Declaration of Trust of the Company
(amended and restated as of August 22, 1996).
(2) 3.1.2 Articles of Amendment to Declaration of Trust of the Company
(November 14, 1996).
(3) 3.1.3 Articles of Amendment to Declaration of Trust of the Company
(November 25, 1996).
3.2 Amended and Restated Bylaws of the Company.
(4) 10.01 Brandywine Realty Partners General Partnership Agreement.
(5) 10.02 Amendment to Brandywine Realty Partners General Partnership
Agreement.
(6) 10.03 Secured Promissory Notes, Security Agreements and Assignments
of Leases and Rents -- April 1995 refinancing.
(6) 10.4 Indemnity Agreement -- April 1995 refinancing.
(6) 10.5 Escrow Agreement -- April 1995 refinancing.
(7) 10.6 Agreement among the Company, Richard M. Osborne and the
Richard M. Osborne Trust.
(8) 10.7 Loan and Securities Purchase Agreement, dated June 21, 1996,
between Turkey Vulture Fund XIII,
Ltd. (the "RMO Fund") and the Company.
(8) 10.8 Promissory Note, dated June 21, 1996, in the original
principal amount of $992,293 issued by the Company to the
RMO Fund.
(8) 10.9 Warrant to purchase Common Shares, dated June 21, 1996,
issued by the Company to the RMO Fund.
(9) 10.10 Purchase and Sale Agreement between UM Real Estate Investment
Company, LLC ("UM") and the Company.
(9) 10.11 First Amendment to Purchase and Sale Agreement between UM and
the Company.
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<PAGE> 47
(9) 10.12 Second Amendment to Purchase and Sale Agreement between UM
and the Company.
(9) 10.13 Third Amendment to Purchase and Sale Agreement between UM and
the Company.
(9) 10.14 Promissory Note in the principal amount of $1,000,000 from
the Company to UM.
(9) 10.15 Subordinated Mortgage from the Company to UM.
(9) 10.16 Amended and Restated Loan Agreement between the Company and
Summit Bank ("SB").
(9) 10.17 Amended and Restated Promissory Note from the Company to SB.
(9) 10.18 Amended and Restated Mortgage from the Company to SB.
(10) 10.19 Contribution Agreement among the Company, Safeguard
Scientifics, Inc. ("SSI") and The Nichols Company ("TNC").
(10) 10.20 Share and Warrant Purchase Agreement between the Company and
SSI.
(10) 10.21 Employment Agreement between the Company and Anthony A.
Nichols, Sr.++
(10) 10.22 Employment Agreement between the Company and Gerard H.
Sweeney.++
(10) 10.23 Employment Agreement between the Company and Brian F.
Belcher.++
(10) 10.24 Employment Agreement between the Company and John P.
Gallagher.++
(1) 10.25 Agreement of Limited Partnership of Brandywine Operating
Partnership, L.P. (the "Operating Partnership").
(2) 10.26 Amendment No. 1 to Agreement of Limited Partnership of
Operating Partnership.
10.27 Amendment No. 2 to Agreement of Limited Partnership of
Operating Partnership.
(1) 10.28 Distribution Support and Loan Agreement between the Operating
Partnership and SSI
(1) 10.29 Agreement among the Company, SSI and Safeguard Scientifics
(Delaware), Inc.
(1) 10.30 Registration Rights Agreement among the Company, SSI, TNC,
the RMO Fund and certain other persons.
(1) 10.31 Warrant to purchase Common Shares issued by the Company to
SSI.
(1) 10.32 Third Amendment to Brandywine Realty Partners General
Partnership Agreement.
(1) 10.33 Form of Warrant issued to Executive Officers.++
(1) 10.34 Environmental Indemnity Agreement between the Company and SSI.
(1) 10.35 Option Agreement between the Operating Partnership and C/N
Horsham Towne Limited Partnership (the "Option Agreement").
(2) 10.36 Amendment No. 1 to Option Agreement.
(1) 10.37 Articles of Incorporation of Brandywine Realty Services
Corporation, as amended.
(2) 10.38 Contribution Agreement among the Company, Greenwood Square
Corporation, BCBC Holding Company, 500 North Gulph Road and
RAI Real Estate Advisers, Inc. ("RAI"), as voting trustee.
(2) 10.39 Securities Purchaser Agreement between the Company and RAI,
as voting trustee.
(2) 10.40 Form of Warrant to purchase Common Shares in favor of RAI,
as voting trustee.
(2) 10.41 Form of Standstill Agreement between the Company and RAI,
as voting trustee.
(2) 10.42 Form of Registration Rights Agreement between the Company
and RAI, as voting trustee.
(2) 10.43 Form of Pledge Agreement between the Company and RAI, as
voting trustee.
(2) 10.44 Form of Voting Agreement between the Company, RAI as voting
trustee, and certain other parties.
(2) 10.45 Purchase Agreement between the Company and K/B Fund II,
("K/B").
(2) 10.46 Reinstatement and First Amendment to Purchase Agreement
between the Company and K/B.
(2) 10.47 Real Estate Sale and Purchase Contract between the Company
and Monumental Life Insurance Company ("Monumental").
(2) 10.48 First Amendment to Real Estate Sale and Purchase Contract
between the Company and Monumental.
(2) 10.49 Second Amendment to Real Estate Sale and Purchase Contract
between the Company and Monumental.
(2) 10.50 Agreement for Purchase and Sale of Real Estate and Related
Property between the Company and Horsham Office Center
Associates Limited Partnership ("Horsham").
(2) 10.51 Amendment to Agreement for Purchase and Sale of Real Estate
and Related Property between the Company and Horsham.
(2) 10.52 Securities Purchase Agreement between the Company and Morgan
Stanley Funds.
(2) 10.53 Form of Registration Rights Agreement between the Company
and Morgan Stanley Funds.
(2) 10.54 Letter from Safeguard Scientifics, Inc. and subsidiary to the
Company.
(2) 10.55 Letter from Richard M. Osborne and affiliates to the Company.
(3) 10.56 Credit Agreement, with Exhibits.
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<PAGE> 48
(3) 10.57 Agreement of Sale - 1120 Executive Plaza, Mt. Laurel
Corporate Park, Executive Court and Option Parcel.
(11) 10.58 Assumption, Modification and Release Agreement -
1120 Executive Plaza.
(11) 10.59 Assumption, Modification and Release Agreement -
1000 Howard Boulevard, Mt. Laurel, New Jersey.
(11) 10.60 Option Agreement - Lot 8, Block 1104, Mt. Laurel, New Jersey.
(11) 10.61 Sun Life Mortgage Note - 1120 Associates Limited Partnership.
(11) 10.62 Sun Life Mortgage and Security Agreement - 1120 Associates
Limited Partnership.
(11) 10.63 Sun Life Letter - 1120 Associates Limited Partnership.
(11) 10.64 Sun Life Mortgage Note - MLCP Associates Limited Partnership.
(11) 10.65 Sun Life Mortgage and Security Agreement - MLCP Associates
Limited Partnership.
(11) 10.66 Sun Life Letter - MLCP Associates Limited Partnership.
(12) 10.67 Agreement of Sale for 1336 Enterprise Drive, Goshen Corporate
Park, E. Goshen Township, Chester County, Pennsylvania,
dated February 14, 1997, between Brandywine Realty Trust and
Hough/Loew Construction, Inc.
(12) 10.68 Agreement of Sale, dated as of February 21, 1997, between
Radnor-Camco Partnership and
Brandywine Realty Trust.
21.1 List of Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (included on signature page hereto).
27.1 Financial Data Schedule.
- --------------------
(1) Previously filed as an exhibit to the Company's Form 8-K dated
August 22, 1996 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Registration
Statement on Form S-11 (File No. 333-13969) and incorporated
herein by reference.
(3) Previously filed as an exhibit to the Company's Form 8-K dated
December 16, 1996 and incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Registration
statement of Form S-11 (File No. 33-4175) and incorporated herein
by reference.
(5) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1993 and incorporated herein by
reference.
(6) Previously filed as an exhibit to the Company's Form 8-K dated
April 21, 1995 and incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1995 and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Company's Form 8-K dated
June 21, 1996 and incorporated herein by reference.
(9) Previously filed as an exhibit to the Company's Form 8-K dated
August 1, 1996 and incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Form 10-Q for the
quarter ended June 30, 1996 and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Form 8-K dated
February 7, 1997 and incorporated herein by reference.
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<PAGE> 49
(12) Previously filed as an exhibit to the Company's Form 8-K dated
March 18, 1997 and incorporated herein by reference.
++ Compensatory Arrangement.
(b) Reports on Form 8-K
During the fourth quarter of the year ended December 31, 1996, the
Company filed a Current Report on Form 8-K dated November 27, 1996 (reporting
under Items 2 and 7) regarding the Company's consummation of the SERS
Transaction. Such Form 8-K incorporated (i) an audited statement of revenues and
certain operating expenses of the SERS Properties for the year ended December
31, 1995; (ii) unaudited interim statements of revenues and certain expenses of
the SERS Properties for the nine months ended September 30, 1995 and 1996; and
(iii) pro forma financial information as of September 30, 1996 and for the year
ended December 31, 1995 and the nine months ended September 30, 1996. The
Company filed a current Report on Form 8-K/A-No. 1 dated February 4, 1997
amending Items 2 and 7 as originally filed. In addition, the Company filed a
Current Report on Form 8-K dated December 16, 1996 (reporting under Items 2, 5
and 7) regarding the Company's consummation of the 1996 Offering and Concurrent
Financings and acquisition of four Properties. Such Form 8-K incorporated (i)
audited combined statement of revenue and certain expenses for the year ended
December 31, 1995 for each of the Delaware Corporate Center and 700/800 Business
Center Drive; (ii) unaudited interim combined statements of revenue and certain
expenses for the nine months ended September 30, 1995 and 1996 for each of the
Delaware Corporate Center and 700/800 Business Center Drive; and (iii) pro forma
financial information as of September 30, 1996 and for the year ended December
31, 1995 and the nine months ended September 30, 1996.
-49-
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Anthony A. Nichols, Sr. Chairman of the Board and Trustee March 25, 1997
- ---------------------------------------
Anthony A. Nichols, Sr.
/s/ Gerard H. Sweeney President, Chief Executive Officer and Trustee March 25, 1997
- --------------------------------------- (Principal Executive Officer)
Gerard H. Sweeney
/s/ John P. Gallagher Executive Vice President -- Finance (Principal March 25, 1997
- --------------------------------------- Financial and Accounting Officer)
John P. Gallagher
/s/ Joseph L. Carboni Trustee March 25, 1997
- ---------------------------------------
Joseph L. Carboni
/s/ Richard M. Osborne Trustee March 25, 1997
- ---------------------------------------
Richard M. Osborne
/s/ Warren V. Musser Trustee March 25, 1997
- ---------------------------------------
Warren V. Musser
/s/ Walter D'Alessio Trustee March 25, 1997
- ---------------------------------------
Walter D'Alessio
/s/ Charles P. Pizzi Trustee March 25, 1997
- ---------------------------------------
Charles P. Pizzi
</TABLE>
-50-
<PAGE> 51
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 real estate investment trust) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, beneficiaries'
equity and cash flows for each of the three years in the period ended December
31, 1996. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company'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 and subsidiaries as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule III is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not a required part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Philadelphia, Pa., ARTHUR ANDERSEN LLP
February 22, 1997
F-1
<PAGE> 52
BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
as of December 31, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1996 1995
---------- --------
ASSETS
<S> <C> <C>
REAL ESTATE INVESTMENTS
Operating properties $ 161,284 $ 21,823
Accumulated depreciation (9,383) (8,114)
--------- --------
151,901 13,709
CASH AND CASH EQUIVALENTS 18,279 840
ESCROWED CASH 2,044 1,155
ACCOUNTS RECEIVABLE 1,366 261
DUE FROM AFFILIATES 517 --
DEFERRED COSTS AND OTHER ASSETS 4,219 1,140
--------- --------
Total assets $ 178,326 $ 17,105
========= ========
LIABILITIES AND BENEFICIARIES' EQUITY
MORTGAGE NOTES PAYABLE $ 36,644 $ 8,931
ACCRUED MORTGAGE INTEREST 202 33
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 3,119 454
DISTRIBUTIONS PAYABLE 2,255 93
EXCESS OF LOSSES OVER INVESTMENT IN MANAGEMENT
COMPANY 14 --
TENANT SECURITY DEPOSITS AND DEFERRED RENTS 1,324 250
--------- --------
Total liabilities 43,558 9,761
--------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 6,398 --
--------- --------
CONVERTIBLE PREFERRED SHARES, $.01 par value, 5,000,000
preferred shares, authorized, 481,818 outstanding 26,444 --
--------- --------
BENEFICIARIES' EQUITY
Shares of beneficial interest, $0.01 par value, 25,000,000 common
shares, authorized, 7,013,240 shares issued and outstanding 70 6
Additional paid-in capital 113,047 16,785
Share warrants 962 --
Cumulative deficit (3,248) (3,086)
Cumulative distributions (8,905) (6,361)
--------- --------
Total beneficiaries' equity 101,926 7,344
--------- --------
Total liabilities and beneficiaries' equity $ 178,326 $ 17,105
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 53
BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(in thousands, except per share information)
<TABLE>
<CAPTION>
1996 1995 1994
----------- --------- ----------
<S> <C> <C> <C>
Revenue:
Rents $ 8,462 $ 3,517 $ 4,112
Tenant reimbursements 1,372 66 47
Other 196 83 33
----------- --------- ---------
Total revenue 10,030 3,666 4,192
----------- --------- ---------
Operating Expenses:
Interest 2,751 793 1,962
Depreciation and amortization 2,836 1,402 1,370
Property operating expenses 3,403 1,561 1,958
Management fee 306 47 144
Administrative expenses 825 682 834
Provision for loss on real estate investments -- -- 5,400
----------- --------- ---------
Total operating expenses 10,121 4,485 11,668
----------- --------- ---------
Loss before minority interest (91) (819) (7,476)
Gain on sales of real estate investments -- -- 1,410
Minority interest in (income) loss (45) (5) 5,635
Equity in income (loss) of management company (26) -- --
----------- --------- ---------
Loss before extraordinary item (162) (824) (431)
Extraordinary item: Gain on extinguishment of
debt (net of $20,109 allocated to minority
interest) -- -- 7,998
----------- --------- ---------
Net Income (Loss) (162) (824) 7,567
Income allocated to Preferred Shares 401 -- --
----------- --------- ---------
Income (Loss) allocated to Common Shares $ (563) $ (824) $ 7,567
=========== ========= =========
PER SHARE DATA:
Earnings per common share of beneficial interest
Loss before extraordinary item $ (0.43) $ (1.32) $ (0.64)
Extraordinary item -- -- 11.86
----------- --------- ---------
Income (loss) $ (0.43) $ (1.32) $ 11.22
=========== ========= =========
Weighted average number of shares
outstanding including share equivalents 1,302,648 624,791 674,327
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 54
BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF BENEFICIARIES' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(in thousands, except number of shares)
<TABLE>
<CAPTION>
Common Common
Shares of Shares Capital
Beneficial Par In Excess Share Cumulative Cumulative
Interest Value of Par Value Warrants Deficit Distributions
---------- ------ ------------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 618,733 $ 6 $ 16,785 $ -- $(9,829) $(2,426)
Net income -- -- -- -- 7,567 --
Distributions ($4.71 per share) -- -- -- -- -- (2,914)
--------- ------ -------- ------ ------- -------
BALANCE, December 31, 1994 618,733 6 16,785 -- (2,262) (5,340)
Net loss -- -- -- -- (824) --
Distributions ($1.65 per share) -- -- -- -- -- (1,021)
--------- ------ -------- ------ ------- -------
BALANCE, December 31, 1995 618,733 6 16,785 -- (3,086) (6,361)
Issuance of Common Shares 6,394,507 64 96,262 906 -- --
Issuance of warrants in connection with
Series A Preferred Shares -- -- -- 56 -- --
Net loss -- -- -- -- (162) --
Preferred Share Distributions -- -- -- -- -- (401)
Distributions ($0.82 per share) -- -- -- -- -- (2,143)
--------- ------ -------- ------ ------- -------
BALANCE, December 31, 1996 7,013,240 $ 70 $113,047 $ 962 $(3,248) $(8,905)
========= ====== ======== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 55
BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
INCOME (LOSS) $ (162) $ (824) $ 7,567
ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
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 affiliates 26 5 (5,635)
Depreciation and amortization 2,836 1,402 1,370
Equity in loss of affiliate 45 -- --
Provision for loss on real estate investments -- -- 5,400
Changes in assets and liabilities, net of effect of acquisitions
(Increase) decrease in accounts receivable (493) (54) 483
Increase in affiliate receivables (517) -- --
(Increase) decrease in other assets (45) 13 (194)
Increase (decrease) in accounts payable and accrued expenses 726 (50) --
Increase (decrease) in accrued mortgage interest (137) 24 --
Increase (decrease) in other liabilities 257 (19) (211)
-------- ------- --------
Net cash provided by (used in) operating activities 2,536 497 (628)
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties, net of cash acquired (33,886) -- --
Proceeds from real estate and other assets sold, net -- -- 9,223
Cash from Brandywine Realty Partners -- -- 2,110
Decrease (increase) in escrowed cash 600 (41) (1,114)
Sales commission paid to related party -- -- (167)
Capital expenditures and leasing commissions paid (2,083) (660) (493)
-------- ------- --------
Net cash (used in) provided by investing activities (35,369) (701) 9,559
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock and warrants, net 91,297 -- --
Contributions from minority partner -- -- 49
Distributions paid to shareholders (510) (2,227) (1,615)
Distributions paid to minority partner (9) (5) (7)
Proceeds from mortgage notes payable 9,896 9,000 10,000
Proceeds from shareholder loans 1,392 -- --
Repayment of mortgage notes payable (50,873) (6,968) (16,301)
Costs associated with new mortgage loans and Credit Facility (1,280) (250) (1,604)
Increase (decrease) in other financing activities 359 (272) (157)
-------- ------- --------
Net cash provided by (used in) financing activities 50,272 (722) (9,635)
-------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 17,439 (926) (704)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 840 1,766 2,470
-------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,279 $ 840 $ 1,766
-------- ------- --------
</TABLE>
See Notes 4 and 7 for Supplemental Disclosures of Cash Flow Information
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 56
BRANDYWINE REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
1. ORGANIZATION AND NATURE OF OPERATIONS:
Brandywine Realty Trust (the "Company"), was formed on February 26,
1986 as a Maryland real estate investment trust. The Company utilized the
proceeds from an initial public offering in 1986 to acquire its interest in
Brandywine Realty Partners ("Brandywine"). As of December 31, 1996, the Company
continues to hold four of the of the properties originally acquired plus an
additional 33 properties acquired during 1996 (collectively, the "Properties").
On July 19, 1996, the Company acquired an office building (the
"LibertyView Building") in Cherry Hill, New Jersey. On August 22, 1996, the
Company closed on the acquisition of 19 additional properties (the "SSI/TNC
Properties") and in the transaction (the "SSI/TNC Transaction") the Company
became the sole general partner of and obtained a 59% interest in Brandywine
Operating Partnership, L.P. (the "Operating Partnership"). On November 14, 1996,
the Company acquired nine properties (collectively, the "SERS Properties") from
the Commonwealth of Pennsylvania State Employees' Retirement System ("SERS"). On
December 2, 1996, the Company acquired 4 additional properties for cash from
unrelated parties (the "December Acquisition Properties").
At December 31, 1996, the Company's portfolio was comprised of 37
commercial real estate projects leased for office and industrial purposes. As of
December 31, 1996, the overall occupancy rate of the Properties was
approximately 92.8%.
The Company's Properties are primarily located within the suburban
Philadelphia office and industrial market area. A downturn in business activity
in the greater Philadelphia market could negatively impact the Company. The
Company has fewer resources than many of the owners and developers it competes
against. The principal methods of competition include primarily the basis of
price, property quality and location. Additionally, the Company has a limited
operating history with all but four of its properties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The Company consolidates the accounts of Brandywine and the
Operating Partnership and reflects the remaining interest in Brandywine and the
Operating Partnership 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.
F-6
<PAGE> 57
Capitalization of Costs
The Company has capitalized as deferred costs certain expenditures
related to the financing and leasing of the Properties. Capitalized loan fees
are being amortized over the terms of the related loans and leasing commissions
are being amortized over the term of the related leases. Deferred costs and
other assets are presented net of accumulated amortization totaling $729,000 and
$507,000 as of December 31, 1996 and 1995, respectively.
Depreciation and Amortization
Depreciation is computed using the straight-line method. Estimated
useful lives range from 25 to 35 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 Management Company
Investment in Brandywine Realty Services Corporation (the "Management
Company") in which the Operating Partnership owns all of the non-voting
Preferred Stock and 5% of the Common Stock is accounted for by the equity
method.
Federal Income Taxes
The Company intends to maintain its election to be taxed as a real
estate investment trust under Sections 856-860 of the Internal Revenue Code.
Accordingly, no provision for Federal income taxes has been reflected in the
financial statements.
Earnings and profits, which will determine the taxability of
distributions to shareholders, will differ from net income reported for
financial reporting purposes due to the differences in the cost basis for
federal tax purposes, differences in the estimated useful lives used to compute
depreciation and differences between the allocation of the Company's net income
and loss for financial reporting purposes and for tax reporting purposes.
Under current law, the Company 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 Company's ordinary income and (b) 95% of the Company's
capital gain net income (which was zero in each year since the Company's
inception) for the year exceeds cash distributions during the year and certain
taxes paid by the Company, if any. No excise tax was incurred in 1996, 1995 or
1994.
Revenue Recognition
Rental revenue from tenants is recognized on a straight-line basis over
the term of the lease agreements regardless of when payments are due and accrued
rents are included in accounts receivable on the balance sheets. Certain lease
agreements contain provisions which provide for reimbursement of the tenants'
share of real estate taxes and certain common area maintenance costs. These
reimbursements are reflected on the accrual basis.
No tenant represented 10% or more of the Company's rental revenue in
1996 or 1994. During 1995, Parker, McCay & Criscuolo and American Executive
Center each individually represented 10% of the Company's total rental revenue.
Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform to the
current year presentation.
F-7
<PAGE> 58
Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number
of common shares of beneficial interest ("Common Shares") outstanding adjusted
to give effect to common share equivalents.
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, 1996 and 1995, cash and cash equivalents totaling
$18,279,000 and $840,000, respectively, included tenant escrow deposits of
$789,000 and $198,000, respectively.
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 Properties 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 Properties to the estimated net realizable
value.
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 Company 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 Company 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. On January 1, 1996, the Company adopted this statement. There was no
effect from adopting this statement on the Company's financial position or
results of operations.
4. ACQUISITIONS OF REAL ESTATE INVESTMENTS:
On July 19, 1996, the Company acquired the LibertyView Building for
$10.7 million, of which $9.8 million was paid in cash and the remainder is due
to the seller between July 1997 and December 1997. The cash purchase price for
this acquisition was financed principally through borrowings under mortgage
notes.
On August 22, 1996, the Company acquired substantially all of the
real estate holdings of Safeguard Scientifics, Inc. ("SSI") and SSI's real
estate affiliate, The Nichols Company ("TNC"), a private real estate development
and management services company. In the SSI/TNC Transaction, the Company
acquired 19 properties in exchange for 258,333 Common Shares (valued at $14.79
per share, aggregate of $3.8 million), warrants to purchase 258,333 Common
Shares at an exercise price of $19.50 per share (valued at $2.10 per warrant
based on a modified Black Scholes calculation, aggregate of $542,000), 540,159
units of limited partnership interest in the Operating Partnership ("Units")
(valued at $16.50 per Unit, aggregate of $8.5 million) that are convertible into
540,159 Common Shares and the assumption of mortgage debt aggregating $63.6
million and other liabilities aggregating $1.2 million. The Company recorded the
fair value of real estate assets at $75.0 million and other assets received at
$2.7 million.
F-8
<PAGE> 59
At the closing of the SSI/TNC Transaction, the Company acquired an
option from an affiliate of TNC entitling the Operating Partnership to acquire
four additional Properties at any time through August 22, 1998 (subject to two
extensions of one year each).
Pursuant to the terms of the Operating Partnership, in connection
with the payment of an approximately $500,000 prepayment penalty associated with
the payoff of the debt encumbering certain of the SSI/TNC Properties with
proceeds of the 1996 Offering, approximately 30,303 Units were canceled by the
Operating Partnership on December 2, 1996. Further, on December 31, 1996,
110,281 Units were redeemed in exchange for 110,281 Common Shares.
On November 14, 1996, the Company acquired the SERS Properties
consisting of nine commercial properties located in suburban Philadelphia for an
aggregate purchase price of $30.3 million payable by agreeing to make deferred
payments aggregating $3.8 million and by issuing 481,818 Series A Preferred
Shares convertible into 1,606,060 Common Shares (valued at $16.47 per Common
Share equivalent, aggregate of $26.4 million), and two-year warrants to purchase
133,333 Common Shares at an exercise price of $25.50 per share (valued at $0.42
per warrant based on a modified Black Scholes calculation, aggregate of
$56,000). In addition, at the closing, SERS deposited approximately $1.4 million
into an escrow account to be used for tenant improvements, leasing commissions
and capital expenditures for the SERS Properties.
On December 2, 1996, the Company acquired four commercial properties
in suburban Philadelphia for an aggregate cash purchase price of $22.8 million.
All acquisitions which occurred during the year ended December 31,
1996 were accounted for by the purchase method. The results of operations for
each of the acquisition properties have been included from the respective
purchase dates for the year ended December 31, 1996. The following unaudited pro
forma financial information of the Company for the years ended December 31, 1996
and 1995 gives effect to the above acquisitions of 33 of the Properties as if
the purchases had occurred on January 1, 1996 and January 1, 1995, respectively.
The pro forma financial information is unaudited and is not necessarily
indicative of the results which actually would have occurred if the acquisitions
had occurred on January 1, 1996 and January 1, 1995, respectively, nor does it
purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
Year Ended December 31,
(Unaudited in thousands, except per share amounts)
--------------------------------------------------
1996 1995
-------- --------
<S> <C> <C>
Pro forma total revenues $ 25,614 $ 22,845
Pro forma net income (loss) allocated to Common Shares $ 632 ($ 1,243)
Pro forma net income (loss) per Common Share $ 0.09 ($ 0.18)
</TABLE>
5. SALES OF REAL ESTATE INVESTMENTS:
On February 28, 1994, a property 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 then remaining Properties and the balance of net
proceeds was maintained for general liquidity needs.
On August 8, 1994, a property 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, the
Company 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
Company's shareholders as distributions totaling $0.2433 per share.
F-9
<PAGE> 60
On December 15, 1994, a property 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, the
Company paid the mortgage lender $604,000 as principal and $436,000 as
additional interest. After the required payments to the lender, the Company, 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
Company's shareholders of record as of January 24, 1995. Such distribution
totaled $0.2167 per share.
The following unaudited pro forma financial information for the year
ended December 31, 1994 of the Company gives effect to the above sales of three
of the Properties 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, except per share data)
- -----------------------------------------------------------------------------
Pro forma total revenue $ 3,479
Pro forma total expenses 10,763
------
Pro forma loss before minority interest,
gain on sales of real estate investments
and extraordinary item (7,284)
Pro forma minority interest in loss of
Brandywine Realty Partners (5,635)
Pro forma extraordinary item: gain on
extinguishment of debt (net of $20,109
allocated to minority interest) 7,998
Pro forma net income $ 6,349
=======
Pro forma earnings per share:
Pro forma loss before extraordinary item $ (2.43)
Pro forma extraordinary item 11.86
-------
Pro forma net income per share $ 9.43
=======
6. INVESTMENT IN MANAGEMENT COMPANY:
The investment in the Management Company was made by the Operating
Partnership through an initial contribution totaling $25,000 on August 22, 1996
and consists of a 100% ownership interest in the preferred stock and a 5%
ownership interest in the common stock of the Management Company. The Management
Company is responsible for the managing, leasing and developing of the Company's
Properties and properties on behalf of third parties. Total management fees paid
by the Company's Properties to the Management Company are included in management
fee expense in the accompanying statements of operations and amounted to
$263,000 for the period August 22, 1996 (inception) to December 31, 1996. The
Management Company also receives reimbursements of certain direct costs
attributable to the operation of the Properties. Such reimbursements are
included in maintenance expense in the accompanying statements of operations and
amounted to $147,000 for the period August 22, 1996 (inception) to December 31,
1996. Summary unaudited financial information for the Management Company as of
December 31, 1996 and for the period from August 22, 1996 (inception) to
December 31, 1996 is as follows:
F-10
<PAGE> 61
Total assets $345,000
Total revenue $301,000
Net loss $(42,000)
Allocated net loss from Management Company
net of $13,000 allocated to minority interest $(26,000)
7. MORTGAGE NOTES PAYABLE:
At December 31, 1996 and 1995, the Company's mortgage loans totaled
$36.6 million and $8.9 million, respectively.
Mortgage loans on the Company's four Properties owned at December
31, 1995 aggregated $9.8 million and $8.9 million as of December 31, 1996 and
1995, respectively. Such loans were non recourse and were cross collateralized
by the four Properties. The mortgage loans were obtained through a refinancing
on April 21, 1995. Such loans were due on April 15, 2001 and provided for a
fixed rate of interest which, as of December 31, 1995 and 1996, was set at 8.75%
and 9.31%, respectively. On February 15, 1997, (i) such mortgage loans were
increased to $10.0 million; (ii) the interest rate was fixed at 7.56%; (iii) the
maturity date was extended to January 15, 2002; and (iv) monthly payments were
reset based upon a 20-year amortization of principal.
In connection with the Company's acquisition of the LibertyView
Building on July 19, 1996, the Company obtained mortgage loans which aggregate
$9.8 million at December 31, 1996. Of these mortgage loans, one loan provided
for acquisition funding which amount totaled $8.4 million as of December 31,
1996, bears interest at a fixed rate of 8% per annum and matures on January 1,
1999. Pursuant to the terms of this loan, the Company has the right to borrow
additional funds up to approximately $1.4 million, to fund tenant improvements
and leasing commissions at an interest rate of prime plus 100 basis points. As
of December 31, 1996, $400,000 was borrowed against this portion of the loan.
Further, a non-interest bearing mortgage loan totaling $1.0 million was provided
by the seller with discount principal payments due between July 1997 and
December 1997. The Company recorded a $104,000 discount to reflect the fair
value of the note payable to the seller. The mortgage loans are secured by the
LibertyView Building.
In connection with the SSI/TNC Transaction, the Company acquired 19
properties encumbered by mortgage debt totaling $63.6 million. As of December
31, 1996, such mortgage loans aggregate $13.8 million and are due between
February 1998 and March 2000. The mortgage notes are collateralized by five of
the Properties and generally require monthly principal and interest payments. Of
these mortgage notes payable, mortgage notes aggregating $11.3 million at
December 31, 1996 bear fixed annual interest at rates ranging from 8% to 9.25 %.
A mortgage note encumbering one of Properties totaled $2.5 million at December
31, 1996, was due in August, 1998 and bore interest at a variable rate of
interest based upon LIBOR plus 2.5%. On January 28, 1997, the Company repaid
this mortgage loan in full.
In connection with the Company's acquisition of the SERS Properties,
a non-interest bearing mortgage loan was provided by the seller aggregating $3.8
million of which $2.5 million is due on June 30, 1998 and $1.3 million is due on
December 31, 1999. The Company recorded a $548,000 discount to reflect the fair
value of the note payable to the seller. This mortgage loan is secured by the
SERS Properties.
Aggregate principal payments on all outstanding mortgage
indebtedness at December 31, 1996 are due, as follows:
F-11
<PAGE> 62
1997 $ 858,000
1998 13,881,000
1999 10,042,000
2000 2,613,000
2001 9,250,000
-----------
$36,644,000
On December 2, 1996, the Company and Operating Partnership obtained
an $80 million secured revolving Credit Facility from Smith Barney Mortgage
Capital Group, Inc. and NationsBank, N.A. (the "Credit Facility"). The Credit
Facility will be used to fund acquisitions and new development projects and for
general working capital purposes, including capital expenditures and tenant
improvements. The amount available to be borrowed under the Credit Facility will
be reduced by the amount of the letters of credit issued by the lenders for as
long as such letters of credit are outstanding. The Credit Facility is recourse
to the Company and the Operating Partnership and, as of December 31, 1996, was
secured by, among other items, cross-collateralized and cross-defaulted first
mortgage liens on 25 Properties, owned directly or indirectly by the Company and
the Operating Partnership.
The Credit Facility bears interest at a per annum floating rate
equal to the 30, 60, or 90-day LIBOR, plus 175 basis points. The Credit Facility
requires monthly payments of interest only, with all outstanding advances and
all accrued but unpaid interest due in December 1998. In addition, a fee of
0.25% per annum (0.125% per annum until April 1, 1997) on the unused amount of
the Credit Facility is payable quarterly in arrears. An annual fee in the amount
of $35,000 is payable annually in advance to NationsBank, N.A. as compensation
for administration of the Credit Facility. The Credit Facility carries minimum
debt service coverage, fixed charge, debt-to-tangible net worth ratios and other
financial covenants and tests, and will require payment of prepayment premiums
in certain instances. As of December 31, 1996, there were no amounts drawn on
the Credit Facility.
The weighted average interest rate on the Company's mortgage loans
for the years ended December 31, 1996, 1995 and 1994 was 8.35%, 9.19% and 10.8%,
respectively. During the years ended December 31, 1996, 1995 and 1994, mortgage
interest paid totaled $2,827,000, $784,000 and $3,056,000, respectively. As of
December 31, 1996, 35 of the 37 Properties were mortgaged or subject to liens,
aggregating $147,878,000 of net book value.
As of December 31, 1996, the fair values for mortgage notes payable
approximate the carrying costs of these liabilities.
8. ISSUANCE OF SHARES AND WARRANTS AND NOTES PAYABLE TO SHAREHOLDERS:
On June 21, 1996, an entity (the "RMO Fund") controlled by Richard
M. Osborne, a shareholder and Trustee of the Company, made an investment in the
Company in the aggregate amount of approximately $1,330,000 (the "Aggregate
Investment"). The Company issued 19,983 units (each consisting of one Common
Share and one warrant exercisable for six years for an additional Common Share
at an initial exercise price of $19.50) in exchange for approximately $338,000
of the Aggregate Investment. Of the $338,000 total equity investment, the share
warrants totaled $42,000 and were recorded based on a $2.10 per warrant value
(based on a modified Black Scholes calculation). Of the Aggregate Investment,
the balance of approximately $992,000 was made in the form of a loan (the
"Loan") that was subject to prepayment, under certain circumstances, through the
issuance by the Company of additional units. Proceeds of the investment were
used by the Company in its acquisition of the LibertyView Building on July 19,
1996.
The Loan was unsecured and, under its terms, the principal sum
outstanding bore interest an annual rate equal to the prime rate of interest.
Principal and accrued interest were payable in full on the third anniversary of
the date of the Loan. During 1996 and in accordance with the Loan terms, the
Company repaid all principal plus accrued interest on the Loan by issuing to the
RMO Fund an aggregate of 60,456 additional units at $16.89 per unit. In
connection with the SSI/TNC Transaction, the Company was required to pay down
principal (including accrued interest) on the Loan totaling $239,000 through the
issuance of 14,135 units. Of the $239,000 equity issuance, the share warrants
totaled $73,000 and were recorded based on $5.19 per warrant value (based on a
modified Black Scholes calculation). In connection with the Company's
acquisition of the SERS Properties, the Company was
F-12
<PAGE> 63
required to pay down principal (including accrued interest) on the Loan totaling
$764,000 through the issuance of 46,321 units. Of the $764,000 equity issuance,
the share warrants totaled $248,000 and were recorded based on a $5.40 per
warrant value (based on a modified Black Scholes calculation). As of December
31, 1996, no amount was outstanding on the Loan.
Additionally, certain tenant improvements and leasing costs
associated with one of the SSI/TNC Properties were financed by a loan from SSI
which was secured by a second mortgage on the property. This loan provided for
an aggregate balance of $460,000 of which $364,000 was outstanding during 1996.
In connection with the SSI/TNC Transaction, SSI advanced to the Operating
Partnership $400,000 to pay for a portion of the expenses incurred by the
Operating Partnership. Further, in connection with the SSI/TNC Transaction, SSI
committed to loan the Operating Partnership $700,000 to fund working capital
requirements of the Operating Partnership, subject to certain limitations. In
connection with the 1996 Offering, discussed below, the $400,000 loan was
repaid, the $364,000 loan was repaid and SSI's commitment to fund up to $700,000
was terminated.
In connection with the Company's acquisition of the SERS Properties,
the Company issued 481,818 preferred shares of beneficial interest, designated
Series A Convertible Preferred Shares ("Series A Preferred Shares") that,
subject to certain conditions, are convertible into 1,606,060 Common Shares and
issued two-year warrants to purchase 133,333 Common Shares at an exercise price
of $25.50 per share. Each Series A Preferred Share issued entitles the holder
to: (i) receive distributions equal to the distributions payable in respect of
3.3333 Common Shares; (ii) vote, together with holders of Common Shares, as a
class, and to cast the number of votes equal to 3.3333 Common Shares; and (iii)
a liquidation preference equal to the greater of (a) the amount that would have
been payable with respect to the Common Shares into which such Preferred Shares
would have been convertible immediately prior to the liquidation had the
condition to convertibility been satisfied and (b) the product of $16.50
multiplied by 3.3333 plus all declared but unpaid dividends. The equity issuance
aggregated $26,500,000 and of this amount, the share warrants totaled $56,000
and were recorded based on a $0.42 per warrant value (based upon a modified
Black Scholes calculation).
On December 2, 1996, the Company consummated an underwritten public
offering of 4,000,000 Common Shares at a price to the public of $16.50 per
share. Pursuant to exercise by the underwriters of their over-allotment option,
on December 13, 1996, the Company issued an additional 600,000 Common Shares at
a price to the public of $16.50 per share. In addition, on December 2, 1996 the
Company (i) issued 709,090 Common Shares to two investment funds advised by
Morgan Stanley Asset Management Inc. at a price of $16.50 per Common Share and
(ii) issued 636,363 Common shares to a voting trust established for the benefit
of SERS at a price of $16.50 per Common Share.
Immediately prior to the 1996 Offering, the Company effected a
one-for-three reverse share split of its Common Shares. All share and per share
amounts have been retroactively restated for all years presented.
9. DISTRIBUTIONS:
For the years ended December 31, 1996, 1995 and 1994, the Company
declared distributions totaling $0.82, $1.65 and $4.71 per share, respectively.
The Company determined that 88.5% of 1996 distributions or $0.73 per share
represented a return of capital to the recipient while the remaining 11.5% of
1996 distributions or $0.09 per share represented ordinary income to the
recipient. Furthermore, the Company determined that 100% of 1995 distributions
or $1.65 per share represented a return of capital to the recipient. For the
year ended December 31, 1994, the Company determined that $2.61 was taxable in
1994 as ordinary income and the balance of $2.10 per share represented 1995
dividends for tax purposes of which 100% represented a return of capital to the
recipient.
The Company declared distributions totaling $401,000 allocable to
preferred shareholders for the year ended December 31, 1996.
F-13
<PAGE> 64
10. SHARE OPTIONS AND WARRANTS:
The Company has reserved 762,105 Common Shares for issuance upon the
exercise of share options and warrants described below.
In August 1994, the Board of Trustees adopted a share option
compensatory plan benefiting an executive officer of the Company covering 46,667
Common Shares. The plan includes options to purchase 33,333 shares at an
exercise price of $19.50 per share. Of the remaining 13,333 shares subject to
options, options covering 6,667 shares vested on August 8, 1995 and options
covering 6,667 shares vested on August 8, 1996. The exercise price of the 13,333
options was set at $11.40. The per share exercise price of the options covering
all 46,667 shares is subject to reduction as proceeds from the sale of, or
refinancing of debt secured by, any of the six Properties in the Company's
portfolio in August 1994 are distributed by the Company 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 $14.31 and $6.21, 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.
In 1996, the Company issued six-year warrants to the RMO Fund,
exercisable for an aggregate of 80,439 Common Shares.
In connection with the SSI/TNC Transaction, the Company issued a
six-year warrant to SSI exercisable for an aggregate of 258,333 Common Shares at
a per share exercisable price of $19.50. Further, in connection with the
employment agreements entered into as part of the SSI/TNC Transaction, six-year
warrants were granted to four executive officers exercisable for an aggregate of
220,000 Common Shares at a per share exercise price of $19.50 and additional
six-year warrants for an aggregate of 23,333 Common Shares at a per share
exercise price of $19.50 were granted to employees of the Management Company.
In connection with the Company's acquisition of the SERS Properties,
the Company issued two-year warrants to the seller to purchase 133,333 Common
Shares at an exercise price of $25.50 per share.
During 1995 and 1996, there were no options or warrants exercised,
canceled or expired.
During 1996, the Company adopted a new stock-based compensation
accounting standard, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
SFAS No. 123 encourages a fair value method of accounting for employee stock
options and similar equity instruments. The statement also allows an entity to
continue to account for stock-based compensation using the intrinsic value based
method in APB Opinion No. 25. As provided for in the statement, the Company
elected to continue the intrinsic value method of expense recognition. If
compensation cost for the warrants granted to executive officers and employees,
as discussed above, had been determined using the fair value method prescribed
by SFAS No. 123, the Company's 1996 results would have been reduced to the pro
forma amounts indicated below.
Net loss allocated to Common Shares $ (894,000)
Loss per share allocated to Common Shares $ (0.69)
The pro forma effect on results may not be representative of the
impact in future years because the fair value method was not applied to options
granted before 1995.
The fair value of each warrant was estimated on the grant date using
the Black-Scholes option pricing model and the assumptions presented below.
F-14
<PAGE> 65
Management
Executive Company
officers employees
-------- ---------
Expected life in years 6 3
Risk-free interest rate 6.0% 6.0%
Volatility 17.5% 17.5%
Dividend yield 7.0% 7.0%
The weighted average fair value of warrants granted was $1.38 per
warrant for the executive officers and $1.13 per option for the Management
Company employees.
11. RELATED-PARTY TRANSACTIONS:
Pursuant to the Partnership Agreement of the Operating Partnership,
the Company was obligated either to contribute sufficient proceeds from the 1996
Offering to the Operating Partnership to enable it to repay or refinance the
mortgage debt encumbering the SSI/TNC Properties, or in lieu thereof, either
obtain general releases from the holders of such mortgages indebtedness
releasing the limited partners of the Operating Partnership from all liability
with respect thereto or make other arrangements satisfactory to such limited
partners to indemnify them against such liability. As of December 31, 1996,
approximately $13.8 million of such mortgage debt remained outstanding, of which
$8.7 million constitutes recourse debt. Accordingly, the Company has indemnified
the limited partners who are liable on such recourse debt against liability
thereon.
Approximately 21,580 net rentable square feet is leased by the
Company to an affiliate of SSI at an average rental rate of $9.66 per square
foot under a lease that expires in April 1999.
A member of the Company's Board of Trustees is President and Chief
Executive Officer of a subsidiary of Legg, Mason Wood Walker Incorporated which
performed investment banking services related to the 1996 Offering and other
financial advisory services related to the SSI/TNC Transaction.
12. OPERATING LEASES:
The Company leases its properties to tenants under operating leases
with various expiration dates extending to the year 2012. At December 31, 1996,
leases covering 258,000 square feet or approximately 14.9% of the net leasable
space were scheduled to expire during 1997. Gross minimum future rentals and
accrued rental income on noncancelable leases at December 31, 1996 are as
follows (in thousands):
Total accrual
Accrued rental basis rental
Year Cash rentals income income
- ---- ------------ ------ ------
1997 $ 20,269,000 $ 748,000 $ 21,017,000
1998 18,064,000 440,000 18,504,000
1999 15,738,000 260,000 15,998,000
2000 13,074,000 216,000 13,290,000
2001 10,507,000 (35,000) 10,472,000
2002 and thereafter 34,901,000 (2,142,000) 32,759,000
------------- ------------ -------------
$ 112,553,000 $ (513,000) $ 112,040,000
============= ============ ==============
F-15
<PAGE> 66
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.
13. SUBSEQUENT EVENTS:
On January 24, 1997, the Company acquired a portfolio of five office
buildings located in Burlington County, New Jersey. The net aggregate purchase
price totaled approximately $31.3 million and was paid as follows: (i) $7.0
million through a borrowing under the Credit Facility; (ii) approximately $12.1
million through an assumption of mortgage indebtedness encumbering two of the
five acquired buildings; and (iii) the balance with existing cash reserves.
Further, in connection with this transaction, the Company obtained an option to
acquire an unimproved parcel of land containing approximately eight acres,
located immediately adjacent to one of the acquired buildings for a purchase
price of $1.0 million. The Company may exercise the option at any time through
June 30, 1998 and may extend the option period until June 30, 1999 by paying an
extension fee of $100,000, subject to certain terms and conditions.
14. SUMMARY OF INTERIM RESULTS (UNAUDITED):
The following is a summary of unaudited interim financial
information for the Company for the years ended December 31, 1996 and 1995.
Three Months Ended
(in thousands, except per share information)
--------------------------------------------------
1996 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Operating revenue $ 1,045 $ 982 $ 2,572 $ 5,431
Net income (loss) 10 (9) (129) (34)
Income (loss) allocated to 10 (9) (129) (435)
Common Shares
Net income (loss) per Common $ 0.00 $ (0.00) $ (0.18) $ (0.14)
Share
1995
----
Operating revenue $ 927 $ 879 $ 885 $ 975
Net loss allocated to Common
Shares (70) (370)(a) (152) (232)(b)
Net loss per Common Share $ (0.12) $ (0.60)(a) $ (0.24) $ (0.36)(b)
(a) During the second quarter of 1995, the Company's net loss
includes the write-off of deferred loan fees totaling $254,000 or $0.42 per
share as a result of the Company's April 21, 1995 refinancing of mortgage loans.
(b) During the fourth quarter of 1995, the Company's net loss
includes the write-off of deferred costs totaling $100,000 or $0.15 per share as
a result of the termination of the Company's $26 million commitment.
F-16
<PAGE> 67
Schedule III
BRANDYWINE REALTY TRUST
Real Estate and Accumulated Depreciation - December 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
Gross Amount at Which Carried
Initial Cost December 31, 1996
------------------- ----------------------------
Net
Improvements
(Retirements)
Encumbrances at Building and Since Building and
Property Location December 31, 1996 Land Improvements Acquisition Land Improvements Total
----------------- ----------------- ---- ------------ ----------- ---- ------------ -----
(4) (5) (6)
<S> <C> <C> <C> <C> <C> <C> <C>
Horsham/Willow Grove/Jenkintown, PA
650 Dresher Road 2,500 633 2,554 (13) 633 2,541 3,174
1155 Business Center Drive 1,026 3,984 119 1,026 4,103 5,129
800 Enterprise Road 1,299 5,164 -- 1,299 5,164 6,463
One Progress Avenue 1,400 5,598 -- 1,400 5,598 6,998
700 Business Center Drive 550 2,200 -- 550 2,200 2,750
800 Business Center Drive 895 3,580 -- 895 3,580 4,475
Southern Route 202, Corrider, PA
456 Creamery Way 633 2,533 -- 633 2,533 3,166
486 Thomas Jones Way 6,397(1) 804 3,159 7 804 3,166 3,970
468 Creamery Way (1) 525 2,099 -- 525 2,099 2,624
110 Summit Drive 400 1,630 -- 400 1,630 2,030
King of Prussia, PA
500 North Gulph Road (2) 1,298 5,193 -- 1,298 5,193 6,491
Bucks County, PA
2200 Cabot Boulevard 3,284(2) 770 3,080 -- 770 3,080 3,850
2250 Cabot Boulevard (2) 559 2,237 -- 559 2,237 2,796
2260/2270 Cabot Boulevard (2) 414 1,657 -- 414 1,657 2,071
3000 Cabot Boulevard (2) 484 1,937 -- 484 1,937 2,421
33 Street Road - Greenwood Sq. (2) 850 3,400 -- 850 3,400 4,250
33 Street Road - Greenwood Sq. (2) 1,126 4,503 -- 1,126 4,503 5,629
33 Street Road - Greenwood Sq. (2) 350 1,398 -- 350 1,398 1,748
Blue Bell/Plymouth Meeting/Fort Washington,
PA
2240/50 Butler Pike 1,100 4,547 35 1,100 4,582 5,682
120 West Germantown Pike 683 2,755 5 683 2,760 3,443
140 West Germantown Pike 480 1,960 -- 480 1,960 2,440
2260 Butler Pike 659 2,702 5 659 2,707 3,366
Main Line, PA
16 Campus Boulevard 1,150 4,600 2 1,150 4,602 5,752
18 Campus Boulevard 784 3,138 159 784 3,297 4,081
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Depreciation at
December 31, Date of Date Depreciable
Property Location 1996 Construction Acquired Life
----------------- ---- ------------ -------- ----
(7)
<S> <C> <C> <C> <C>
Horsham/Willow Grove/Jenkintown, PA
650 Dresher Road 46 1984 1996 25 years
1155 Business Center Drive 113 1990 1996 25 years
800 Enterprise Road 130 1990 1996 25 years
One Progress Avenue 80 1986 1996 25 years
700 Business Center Drive 7 1986 1996 25 years
800 Business Center Drive 12 1986 1996 25 years
Southern Route 202, Corrider, PA
456 Creamery Way 41 1987 1996 25 years
486 Thomas Jones Way 105 1990 1996 25 years
468 Creamery Way 43 1990 1996 25 years
110 Summit Drive 26 1985 1996 25 years
King of Prussia, PA
500 North Gulph Road 26 1979 1996 25 years
Bucks County, PA
2200 Cabot Boulevard 15 1979 1996 25 years
2250 Cabot Boulevard 11 1982 1996 25 years
2260/2270 Cabot Boulevard 8 1984 1986 25 years
3000 Cabot Boulevard 10 1986 1996 25 years
33 Street Road - Greenwood Sq. 17 1985 1996 25 years
33 Street Road - Greenwood Sq. 23 1986 1996 25 years
33 Street Road - Greenwood Sq. 7 1988 1996 25 years
Blue Bell/Plymouth Meeting/Fort Washington,
PA
2240/50 Butler Pike 87 1984 1996 25 years
120 West Germantown Pike 62 1984 1996 25 years
140 West Germantown Pike 43 1984 1996 25 years
2260 Butler Pike 53 1984 1996 25 years
Main Line, PA
16 Campus Boulevard 81 1990 1996 25 years
18 Campus Boulevard 120 1990 1996 25 years
- -----------------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE> 68
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Lehigh Valley, PA
7310 Tilghman Street 2,528 551 2,228 -- 551 2,228 2,779
7248 Tilghman Street 726 2,940 -- 726 2,940 3,666
6575 Snowdrift Road 2,338 599 2,395 -- 599 2,395 2,994
1510 Gehman Road 1,198 4,835 (30) 1,198 4,805 6,003
Burlington County, NJ
One Greentree Centre 7,126(3) 710 5,515 (1,444)(5) 345 4,436 4,781
Two Greentree Centre (3) 694 5,686 (1,425)(5) 264 4,691 4,955
Three Greentree Centre (3) 858 7,573 (2,089)(5) 323 6,019 6,342
8000 Lincoln Drive 606 2,421 453 606 2,874 3,480
Camden County, NJ
457 Haddonfield Road 9,775 2,141 8,564 548 2,141 9,112 11,253
Other Markets
168 Franklin Corner Road,
Lawrenceville, NJ 397 1,532 56 397 1,588 1,985
Twin Forks Office Park, Raleigh NC
5910-6090 Six Forks 2,696(3) 2,442 3,950 (878)(5) 2,194 3,320 5,514
One Righter Parkway, Delaware 2,547 10,186 -- 2,547 10,186 12,733
------------- ------------- --------- -------------- -------- ---------- ----------
36,644 32,341 133,433 (4,490) 30,763 130,521 161,284
============= ============= ========= ============== ======== ========== ==========
<S> <C> <C> <C> <C>
Lehigh Valley, PA 78 1985 1996 25 years
7310 Tilghman Street 81 1987 1996 25 years
7248 Tilghman Street 59 1988 1996 25 years
6575 Snowdrift Road 163 1990 1996 25 years
1510 Gehman Road
Burlington County, NJ 1,904 1982 1986 30 years
One Greentree Centre 1,932 1983 1986 30 years
Two Greentree Centre 2,498 1984 1986 30 years
Three Greentree Centre 8 1983 1996 25 years
8000 Lincoln Drive
Camden County, NJ 114 1990 1996 35 years
457 Haddonfield Road
Other Markets
168 Franklin Corner Road, 23 1976 1996 25 years
Lawrenceville, NJ
Twin Forks Office Park, Raleigh NC 1,323 1982 1986 30 years
5910-6090 Six Forks 34 1989 1996 25 years
One Righter Parkway, Delaware ------------
9,383
============
</TABLE>
(1) Both of these properties secure a single loan
(2) These properties secure a single loan which was incurred as a result of
their acquisition on November 14, 1996.
(3) These properties secure two mortgage loans totaling $2,696,000 and
$7,126,000, respectively.
(4) Amounts exclude equipment, furniture and fixtures and related accumulated
depreciation.
(5) Amounts include provision for losses on real estate investments totaling
$7,891,000 recorded subsequent to acquisition.
(6) Reconciliation of Real Estate:
The following table reconciles the real estate investments from
January 1, 1996 to December 31, 1996 (in thousands)
Balance at beginning of year $ 21,823
Additions during year:
Acquisitions 138,346
Capital expenditures 2,338
Deletions during year:
Retirements (1,223)
---------
Balance at end of year $ 161,284
=========
F-18
<PAGE> 69
(7) Reconciliation of Accumulated Depreciation:
The following table reconciles accumulated depreciation from January 1,
1996 to December 31, 1996 (in thousands)
Balance at beginning of year $ 8,114
Additions during year:
Depreciation expense 2,492
Deletions during year:
Retirements (1,223)
--------
Balance at end of year $ 9,383
========
F-19
<PAGE> 70
Exhibit Index
Exhibit 3.2 Amended Restated Bylaws of the Company
Exhibit 10.27 Amendment No. 2 to Agreement of Limited Partnership of Operating
Partnership
Exhibit 21.1 Subsidiaries of Company
Exhibit 23.1 Consent of Arthur Andersen LLP
<PAGE> 1
Exhibit 3.2
BRANDYWINE REALTY TRUST
BYLAWS
ARTICLE I.
OFFICES
Section 1. Principal Office. The principal office of Brandywine
Realty Trust (the "Trust") shall be located at such place or places as the
Trustees may designate.
Section 2. Additional Offices. The Trust may have additional offices
at such places as the Trustees may from time to time determine or the business
of the Trust may require.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 1. Place. All meetings of shareholders shall be held at the
principal place of the Trust or at such other place within the United States as
shall be stated in the notice of the meeting.
Section 2. Annual Meeting. An annual meeting of the shareholders for
the election of Trustees and the transaction of any business within the powers
of the Trust shall be held annually and at the time set by the Trustees.
Section 3. Special Meetings. Subject to the rights of the holders of
any series of Preferred Shares of Beneficial Interest (as defined in the
Declaration of Trust) to elect additional Trustees under specified
circumstances, special meetings of the shareholders may be called by the
chairman or by a resolution adopted by one-half or more of the total number of
Trustees which the Trust would have if there were no vacancies (the "Whole
Board"). Special meetings of shareholders may also be called upon the written
request of shareholders to the extent permitted in Article 7 of the Declaration
of Trust.
Section 4. Notice. Not less than ten nor more than 90 days before
each meeting of shareholders, the secretary shall give to each shareholder
entitled to vote at such meeting and to each shareholder not entitled to vote
who is entitled to notice of the meeting written or printed notice stating the
time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by statute, the purpose for which the meeting is
called, either by mail or by presenting it to such shareholder personally or by
leaving it at his residence or usual place of business. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the shareholder at his post office address as it appears on the records of
the Trust, with postage thereon prepaid.
Section 5. Scope of Notice. Any business of the Trust may be
transacted at an annual meeting of shareholders without being specifically
designated in the notice, except such business as is required by statute to be
stated in such notice. No business shall be transacted at a special meeting of
shareholders except as specifically designated in the notice.
Section 6. Quorum. At any meeting of shareholders, the presence in
person or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the Declaration of Trust
for the vote necessary for the adoption of any measure. If, however, such quorum
shall not be present at any meeting of the shareholders, the shareholders
entitled to vote at such meeting, present in person or by proxy, shall have
power to adjourn the meeting from time to time to a date not more than 120 days
after the original record date without notice other than announcement at the
meeting. At such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified.
<PAGE> 2
Section 7. Voting. A plurality of all the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient to
elect a Trustee. Shareholders shall not be entitled to cumulate their votes in
the election of Trustees. A majority of the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient to
approve any other matter which may properly come before the meeting, unless more
than a majority of the votes cast is required by statute or by the Declaration
of Trust. Unless otherwise provided in the Declaration, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders.
Section 8. Proxies. A shareholder may vote the shares owned of
record by him, either in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the secretary of the Trust before or at the time of the meeting. No
proxy shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 9. Voting of Shares by Certain Holders. Shares registered in
the name of a corporation, partnership, trust or other entity, if entitled to be
voted, may be voted by the chief executive officer or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the board
of directors of such corporation or other entity presents a certified copy of
such bylaw or resolution, in which case such person may vote such shares. Any
trustee or other fiduciary may vote shares registered in his name as such
fiduciary, either in person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The Trustees may adopt by resolution a procedure by which a
shareholder may certify in writing to the Trust that any shares registered in
the name of the shareholder are held for the account of a specified person other
than the shareholder. The resolution shall set forth the class of shareholders
who may make the certification, the purpose for which the certification may be
made, the form of certification and the information to be contained in it; if
the certification is with respect to a record date or closing of the share
transfer books, the time after the record date or closing of the share transfer
books within which the certification must be received by the Trust; and any
other provisions with respect to the procedure which the Trustees consider
necessary or desirable. On receipt of such certification, the person specified
in the certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.
Section 10. Inspectors. At any meeting of shareholders, the chairman
of the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meetings. Such inspectors shall ascertain
and report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or
by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 11. Reports to Shareholders. Not later than 90 days after
the close of each fiscal year of the Trust, the Trustees shall deliver or cause
to be delivered a report of the business and operations of the Trust during such
fiscal year to the shareholders, containing a balance sheet and a statement of
income and surplus of the Trust, accompanied by the certification of an
independent certified public accountant, and such further information as the
Trustees may determine is required pursuant to any law or regulation to which
the Trust is subject. A signed copy of the annual report and the accountant's
certificate shall be filed by the Trustees with the State Department of
Assessments and Taxation of Maryland, and with such other governmental agencies
as may be required by law and as the Trustees may deem appropriate.
<PAGE> 3
Section 12. Voting by Ballot. Voting on any question or in any
election may be viva voce unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
Section 13. No Shareholder Action by Written Consent. Subject to the
rights of the holders of any series Preferred Shares to elect additional
Trustees under specific circumstances, any action required or permitted to be
taken by the shareholders of the Trust must be effected at an annual or special
meeting of shareholders and may not be effected by any consent in writing by
such shareholders.
Section 14. Exemption of Certain Shares. All of the acquisitions of:
(i) the common shares of beneficial interest ("Common Shares") of the Trust now
or hereafter owned by Safeguard Scientifics, Inc., The Nichols Company and any
of their current or future affiliates or associates (collectively, the "SSI/TNC
Affiliates"); (ii) the Common Shares and Preferred Shares now or hereafter owned
by Commonwealth of Pennsylvania State Employes' Retirement System, RAI Real
Estate Advisers, Inc. and any of their current or future affiliates or
associates (collectively, the "SERS Affiliates"); and (iii) the Common Shares
now or hereafter owned by Morgan Stanley Asset Management, Inc., Morgan Stanley
Institutional Fund, Inc. - U.S. Real Estate Portfolio and Morgan Stanley, Sicav
Subsidiary, SA and any of their current or future affiliates or associates
(collectively, the "Morgan Affiliates") are hereby exempted from Subtitle 7 of
Title 3 of the Maryland General Corporation Law, and the Trust shall have no
right to exercise the redemption right with respect to such Common Shares
arising under said Subtitle 7. In no event will any Shareholder of the Trust
have any rights under Section 3-708 of said Subtitle 7 as a result of the
ownership by the SSI/TNC Affiliates of Common Shares or by the SERS Affiliates
of Common Shares or Preferred Shares or by the Morgan Affiliates of Common
Shares as aforesaid. As used herein, the terms "affiliates" and "associates"
have the respective meanings assigned to them in Subtitles 6 and 7,
respectively, of said Title 3.
ARTICLE III.
TRUSTEES
Section 1. General Powers: Qualifications. The business and affairs
of the Trust shall be managed under the direction of its Board of Trustees. A
Trustee shall be an individual at least 21 years of age who is not under legal
disability.
Section 2. Annual and Regular Meetings. An annual meeting of the
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
Trustees may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of regular meetings of the
Trustees without other notice than such resolution.
Section 3. Special Meetings. Special meetings of the Trustees may be
called by or at the request of the chairman or chief executive officer or by
one-half or more of the Trustees then in office. The person or persons
authorized to call special meetings of the Trustees may fix any place, either
within or without the State of Maryland, as the place for holding any special
meeting of the Trustees called by them.
Section 4. Notice. Notice of any special meeting shall be given by
written notice delivered personally, transmitted by facsimile, telegraphed or
mailed to each Trustee at his business or residence address. Personally
delivered, facsimile transmitted or telegraphed notices shall be given at least
two days prior to the meeting.
Notice by mail shall be given at least five days prior to the
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail properly addressed, with postage thereon prepaid. If
given by telegram, such notice shall be deemed to be given when the telegram is
delivered to the telegraph company. Neither the business to be transacted at,
nor the purpose of, any annual, regular or special meeting of the Trustees need
be stated in the notice, unless specifically required by statute or these
Bylaws.
Section 5. Quorum. A whole number of Trustees equal to at least a
majority of the Whole Board Trustees shall constitute a quorum for transaction
of business at any meeting of the Trustees, provided that, if less than a quorum
are present at said meeting, a majority of the Trustees present may adjourn the
meeting from time to time without further notice, and provided further that if,
pursuant to the Declaration of Trust or these Bylaws, the vote of a majority of
a particular group of Trustees is required for action, a quorum must also
include a majority of such group.
<PAGE> 4
The Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Trustees to leave less than a quorum.
Section 6. Voting. The action of the majority of the Trustees
present at a meeting at which a quorum is present shall be the action of the
Trustees, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 7. Telephone Meetings. Trustees may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 8. Informal Action by Trustees. Any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each Trustee and
such written consent is filed with the minutes of proceedings of the Trustees.
Section 9. Vacancies. If for any reason any or all the Trustees
cease to be Trustees, such event shall not terminate the Trust or affect these
Bylaws or the powers of the remaining Trustees hereunder (even if fewer than
three Trustees remain). Any vacancy (including a vacancy created by an increase
in the number of Trustees) shall be filled, at any regular meeting or at any
special meeting called for that purpose, by a majority of the Trustees (although
less than a quorum). Any individual so elected as Trustee shall hold office
until the next annual meeting of shareholders and until his successor has been
duly elected and qualified.
Section 10. Compensation. Trustees shall not receive any stated
salary for their services as Trustees but, by resolution of the trustees, fixed
sums per year and/or per meeting. Expenses of attendance, if any, may be allowed
to trustees for attendance at each annual, regular or special meeting of the
Trustees or of any committee thereof; but nothing herein contained shall be
construed to preclude any Trustees from serving the Trust in any other capacity
and receiving compensation therefor.
Section 11. Removal of Trustees. The shareholders may, at any time,
remove any Trustee in the manner provided in the Declaration of Trust.
Section 12. Loss of Deposits. No Trustee shall be liable for any
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or shares
have been deposited.
Section 13. Surety Bonds. Unless required by law, no Trustee shall
be obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. Reliance. Each Trustee, officer, employee and agent of
the Trust shall, in the performance of his duties with respect to the Trust, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust by any of its
officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Trustees or officers of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
Section 15. Certain Rights of Trustees, Officers, Employees and
Agents. The Trustees shall have no responsibility to devote their full time to
the affairs of the Trust. Any Trustee or officer, employee or agent of the
Trust, in his personal capacity or in a capacity as an affiliate, employee, or
agent of any other person, or otherwise, may have business interests and engage
in business activities similar to or in addition to those of or relating to the
Trust.
<PAGE> 5
ARTICLE IV.
COMMITTEES
Section 1. Number, Tenure and Qualifications. The Trustees may, by
resolution or resolutions passed by a majority of the whole Board, appoint from
among its members an Executive Committee, an Audit Committee and other
committees, composed of two or more Trustees.
Section 2. Powers. The Trustees may delegate to committees appointed
under Section 1 of this Article any of the powers of the Board of Trustees,
subject to restrictions on such delegation expressly set forth in Section 2-411
of the Maryland General Corporation Law, as amended from time to time.
Section 3. Committee Procedures. Each Committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the action of a majority
of those present at a meeting at which a quorum is present shall be action of
the committee. In the absence of any member of any committee, the members
thereof present at any meeting, whether or not they constitute a quorum, may
appoint another Trustee to act in the place of such absent member. Any action
required or permitted to be taken at a meeting of a committee may be taken
without a meeting, if a unanimous written consent which sets forth the action is
signed by each member of the committee and filed with the minutes of the
proceedings of such committee. The members of a committee may conduct any
meeting thereof by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other at the
same time. Participation in a meeting by such means shall constitute presence in
person at the meeting.
Section 4. Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Trust by its Trustees and officers as contemplated by the
Declaration of Trust and these Bylaws, any two or more available members of the
then incumbent Executive Committee, if any, shall constitute a quorum of that
Committee for the full conduct and management of the affairs and business of the
Trust in accordance with the provisions of this Article. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available Trustees shall elect an Executive Committee
composed of any two members of the Board of Trustees, whether or not they be
officers of the Trust, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Trust in
accordance with the foregoing provisions of this Section. This Section shall be
subject to implementation by resolution of the Board of Trustees passed form
time to time for that purpose, and any provisions of the Bylaws (other than this
Section) and any resolutions which are contrary to the provisions of this
Section or to the provisions of any such implementing resolutions shall be
suspended until it shall be determined by any interim Executive Committee acting
under this Section that it shall be to the advantage of the Trust to resume the
conduct and management of its affairs and business under all the other
provisions of these Bylaws.
ARTICLE V.
OFFICERS
Section 1. General Provisions. The officers of the Trust may consist
of a chairman of the board, a chief executive officer, one or more vice
presidents, a chief financial officer, a secretary, and one or more assistant
secretaries. In addition, the Trustees may from time to time appoint such other
officers with such powers and duties as they shall deem necessary or desirable.
The officers of the Trust shall be elected annually by the Trustees at the first
meeting of the Trustees held after each annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as may be convenient. Each officer shall hold office
until his successor is elected and qualifies or until his death, resignation or
removal in the manner hereinafter provided. Any two or more offices may be held
by the same person. In their discretion, the Trustees may leave unfilled any
office. Election of an officer or agent shall not of itself create contract
rights between the Trust and such officer or agent.
Section 2. Removal and Resignation. Any officer or agent of the
Trust may be removed by a majority of the members of the Whole Board if in their
judgment the best interests of the Trust would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Any
<PAGE> 6
officer of the Trust may resign at any time by giving written notice of his
resignation to the Trustees, the chairman of the board, the chief executive
officer or the secretary. Any resignation shall take effect at any time
subsequent to the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. The acceptance
of a resignation shall not be necessary to make it effective unless otherwise
stated in the resignation.
Section 3. Vacancies. A vacancy in any office may be filled by the
Trustees for the balance of the term.
Section 4. Chairman of the Board. The chairman of the board shall
preside over the meetings of the Trustees and of the shareholders at which he
shall be present. The chairman of the board shall perform such other duties as
may be assigned to him by the Trustees. Except where by law the signature of the
chief executive officer is required, the chairman of the board shall possess the
same power as the chief executive officer to sign deeds, mortgages, bonds,
contracts or other instruments.
Section 5. Chief Executive Officer. The Trustees may designate a
chief executive officer from among the elected officers. In the absence of such
designation, the chairman of the board shall be the chief executive officer of
the Trust. The chief executive officer shall have general responsibility for
implementation of the policies of the Trust, as determined by the Trustees, and
for the management of the business affairs of the Trust. The chief executive
officer shall in general supervise and control all of the business and affairs
of the Trust. He may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Trustees or by these Bylaws to some other officer or agent of
the Trust or shall be required by law to be otherwise executed; and in general
shall perform all duties incident to the office of chief executive officer and
such other duties as may be prescribed by the Trustees from time to time.
Section 6. Vice Presidents. In the absence of the chief executive
officer or in the event of a vacancy in such office, the vice president (or in
the event there be more than one vice president, the vice presidents in the
order designated at the time of their election or, in the absence of any
designation, then in the order of their election ) shall perform the duties of
the chief executive officer and when so acting shall have all the powers of and
be subject to all the restrictions upon the chief executive officer; and shall
perform such other duties as form time to time may be assigned to him by the
chief executive officer or by the Trustees. The Trustees may designate one or
more vice presidents as executive vice president or as vice president for
particular areas of responsibility.
Section 7. Secretary. The secretary shall (a) keep the minutes of
the proceedings of the shareholders, the Trustees and committees of the Trustees
in one or more books provided for that purpose; (b) see that all notices are
duly given in accordance with the provisions of these Bylaws or as required by
law; (c) be custodian of the trust records and of the seal of the Trust; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the secretary by such shareholder; (e) have general charge of the
share transfer books of the Trust; and (f) in general perform such other duties
as from time to time may be assigned to him by the chief executive officer or by
the Trustees.
Section 8. Chief Financial Officer. The chief financial officer
shall have the custody of the funds and securities of the Trust and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Trust and shall deposit all moneys and other valuable effects in the name
and to the credit of the Trust in such depositories as may be designated by the
Trustees.
The chief financial officer shall disburse the funds of the Trust as
may be ordered by the Trustees, taking proper vouchers for such disbursements,
and shall render to the chief executive officer and Trustees, at the regular
meetings of the Trustees or whenever they may require it, an account of all his
transactions as chief financial officer and of the financial condition of the
Trust.
If required by the Trustees, he shall give the Trust a bond in such
sum and with such surety or sureties as shall be satisfactory to the Trustees
for the faithful performance of the duties of his office and for the restoration
of the Trust, in case of his death, resignation, retirement or removal from
office, all books, papers, vouchers, moneys and other property of whatever kind
in his possession or under his control belonging to the Trust.
<PAGE> 7
Section 9. Assistant Secretaries. The assistant secretaries, in
general, shall perform such duties as shall be assigned to them by the
secretary, or by the chief executive officer or the Trustees.
Section 10. Salaries. The salaries of the officers shall be fixed
from time to time by the Trustees and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Trustee.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Trustees may authorize any officer or
agent to enter into any contract or to execute and deliver any instrument in the
name of and on behalf of the Trust and such authority may be general or confined
to specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the Trustees or by an authorized person shall be
deemed valid and binding upon the Trustees and upon the Trust when so authorized
or ratified by action of the Trustees.
Section 2. Checks and Drafts. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Trust shall be signed by such officer or officers, agent or agents
of the Trust and in such manner as shall from time to time be determined by the
Trustees.
Section 3. Deposits. All funds of the Trust not otherwise employed
shall be deposited from time to time to the credit of the Trust in such banks,
trust companies or other depositories as the Trustees may designate.
ARTICLE VII.
SHARES
Section 1. Certificates. Each shareholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him in the Trust. Each
certificate shall be signed by the chief executive officer or a vice president
and countersigned by the secretary or an assistant secretary or the chief
financial officer or an assistant treasurer and may be sealed with the seal, if
any, of the Trust. The signatures may be either manual or facsimile.
Certificates shall be consecutively numbered; and if the Trust shall, from time
to time, issue several classes of shares, each class may have its own number
series. A certificate is valid and may be issued whether or not an officer who
signed it is still an officer when it is issued. Each certificate representing
shares which are restricted as to their transferability or voting powers, which
are preferred or limited as to their dividends or as to their allocable portion
of the assets upon liquidation or which are redeemable at the option of the
Trust, shall have a statement of such restriction, limitation, preference or
redemption provision, or a summary thereof, plainly stated on the certificate.
In lieu of such statement or summary, the Trust may set forth upon the face or
back of the certificate a statement that the Trust will furnish to any
shareholder, upon request and without charge, a full statement of such
information.
Section 2. Transfers. Certificates shall be treated as negotiable
and title thereto and to the shares they represent shall be transferred by
delivery thereof to the same extent as those of a Maryland stock corporation.
Upon surrender to the Trust or the transfer agent of the Trust of a share
certificate duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the Trust shall issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
The Trust shall be entitled to treat the holder of record of any
share or shares as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Section 3. Lost Certificate. The Trustees may direct a new
certificate to be issued in place of any certificate previously issued by the
Trust alleged to have been lost, stolen or destroyed upon the making of an
affidavit
<PAGE> 8
of that fact by the person claiming the certificate to be lost, stolen or
destroyed. When authorizing the issuance of a new certificate, the Trustees may,
in their discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or his legal
representative to advertise the same in such manner as they shall require and/or
to give bond, with sufficient surety, to the Trust to indemnify it against any
loss or claim which may arise as a result of the issuance of a new certificate.
Section 4. Closing of Transfer Books or Fixing of Record Date. The
Trustees may set, in advance a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders, or
shareholders entitled to receive payment of any dividend or the allotment of any
other rights, or in order to make a determination of shareholders for any other
proper purpose. Such date, in any case, shall not be prior to the close of
business on the day the record date is fixed and shall be not more than 90 days
and, in the case of a meeting of shareholders not less than ten days, before the
date on which the meeting or particular action requiring such determination of
shareholders is to be held or taken.
In lieu of fixing a record date, the Trustees may provide that the
share transfer books shall be closed for a stated period but not longer than 20
days. If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at lest ten days before the date of such meeting.
If no record date is fixed and the share transfer books are not
closed for the determination of shareholders, (a) the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
shareholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the Trustees, declaring the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except where the determination has been
made through the closing of the transfer books and the stated period of closing
has expired.
Section 5. Share Ledger. The Trust shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
shareholder and the number of shareholders of each class held by such
shareholder.
Section 6. Fractional Shares; Issuance of Units. Trustees may issue
fractional shares or provide for the issuance of scrip, all on such terms and
under such conditions as they may determine. Notwithstanding any other provision
of the Declaration or these Bylaws, the Trustees may issue units consisting of
different securities of the Trust. Any security issued in a unit shall have the
same characteristics as any identical securities issued by the Trust, except
that the Trustees may provide that for a specified period securities of the
Trust issued in such unit may be transferred on the books of the Trust only in
such unit.
ARTICLE VIII.
ACCOUNTING YEAR
The Trustees shall have the power, from time to time, to fix the
fiscal year of the Trust by a duly adopted resolution.
<PAGE> 9
ARTICLE IX.
DIVIDENDS
Section 1. Declaration. Dividends upon the shares of the Trust may
be declared by the Trustees, subject to the provisions of law and the
Declaration of Trust. Dividends may be paid in cash, property or shares of the
Trust, subject to the provisions of law and the Declaration.
Section 2. Contingencies. Before payment of any dividends, there may
be set aside out of any funds of the Trust available for dividends such sum or
sums as the Trustees may from time to time, in their absolute discretion, think
proper as the reserve fund for contingencies, for equalizing dividends, for
repairing or maintaining any property of the Trust or for such other purpose as
the Trustees shall determine to be in the best interest of the Trust, and the
Trustees may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE X.
INVESTMENT POLICY
Subject to the provisions of the Declaration of Trust, the Trustees
may from time to time adopt, amend, revise or terminate any policy or policies
with respect to investments by the Trust as they shall deem appropriate in their
sole discretion.
ARTICLE XI.
SEAL
Section 1. Seal. The Trustees may authorize the adoption of a seal
by the Trust. The seal shall have inscribed thereon the name of the Trust and
the year of its organization. The Trustees may authorize one or more duplicate
seals and provide for the custody thereof.
Section 2. Affixing Seal. Whenever the Trust is required to place
its seal to a document, it shall be sufficient to meet the requirements of any
law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent
to the signature of the person authorized to execute the document on behalf of
the Trust.
ARTICLE XII.
INDEMNIFICATION
To the maximum extent permitted by Maryland law in effect from time
to time, the Trust, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify (a) any Trustee,
officer or shareholder or any former Trustee, officer or shareholder (including
among the foregoing, for all purposes of this Article XII and without
limitation, any individual who, while a Trustee and at the request of the Trust,
serves or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise), who has been successful, on the merits or otherwise,
in the defense of a proceeding to which he was made a party by reason of such
status, against reasonable expenses incurred by him in connection with the
proceeding, (b) any Trustee or officer or any former Trustee or officer against
any claim or liability to which he may become subject by reason of such status
unless it is established that (i) his act or omission was committed in bad faith
or was the result of active and deliberate dishonesty, (ii) he actually received
an improper personal benefit in money, property or services, or (iii) in the
case of a criminal proceeding, he had reasonable cause to believe that his act
or omission was unlawful and (c) each shareholder or former shareholder against
any claim or liability to which he may be subject by reason of
<PAGE> 10
his status as a shareholder or former shareholder. In addition, the Trust shall
pay or reimburse, in advance of final disposition of a proceeding, reasonable
expenses incurred by a Trustee, officer or shareholder or former Trustee,
officer or shareholder made a party to a proceeding by reason of his status as a
Trustee, officer or shareholder provided that, in the case of a Trustee or
officer, the Trust shall have received (i) a written affirmation by the Trustee
or officer of his good faith belief that he has met the applicable standard of
conduct necessary for indemnification by the Trust as authorized by these Bylaws
and (ii) a written undertaking by or on his behalf to repay the amount paid or
reimbursed by the Trust if it shall ultimately be determined that the applicable
standard of conduct was not met. The Trust may, with the approval of its
Trustees, provide such indemnification and payment or reimbursement of expenses
to any Trustee, officer or shareholder or any former Trustee, officer or
shareholder who served a predecessor of the Trust and to any employee or agent
of the Trust or a predecessor of the Trust. Neither the amendment nor repeal of
this Section, nor the adoption or amendment of any other provision of the
Declaration of Trust or these Bylaws inconsistent with this Section, shall apply
to or affect in any respect the applicability of this paragraph with respect to
any act or failure to act which occurred prior to such amendment, repeal or
adoption. Any indemnification or payment or reimbursement of the expenses
permitted by these Bylaws shall be furnished in accordance with the procedures
provided for indemnification and payment or reimbursement of expenses under
Section 2-418 of the Maryland General Corporation Law (the "MGCL") for directors
of Maryland corporations. The Trust may provide to Trustees, officers and
shareholders such other and further indemnification or payment or reimbursement
of expenses as may be permitted by the MGCL, as in effect from time to time, for
directors of Maryland corporations.
ARTICLE XIII.
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIV.
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or
repeal any provision of these Bylaws and to make new Bylaws.
The foregoing are certified as the Bylaws of the Trust adopted by
the Trustees, as amended through March 17, 1997.
<PAGE> 1
Exhibit 10.27
AMENDMENT NO. 2 TO
AGREEMENT OF LIMITED PARTNERSHIP
OF
BRANDYWINE OPERATING PARTNERSHIP, L.P.
This Amendment No. 2 dated December 18, 1996 to Agreement of Limited
Partnership dated August 22, 1996, as amended by Amendment No. 1 dated November
6, 1996, by and among BRANDYWINE REALTY TRUST, a Maryland real estate investment
trust as general partner (the "General Partner"), and the PERSONS NAMED IN
EXHIBIT "A" attached hereto, as limited partners (the "Limited Partners"). The
General Partner and the Limited Partners are sometimes referred to individually
as a "Partner" and collectively as the "Partners".
BACKGROUND
A. The General Partner and the Limited Partners have entered into an
Agreement of Limited Partnership of Brandywine Operating Partnership, L.P. dated
August 22, 1996, as amended by Amendment No. 1 dated November 6, 1996, (the
"Partnership Agreement"). Capitalized terms not defined herein shall have the
meanings given to such terms in the Partnership Agreement.
B. The General Partner and the Limited Partners desire to amend the
Partnership Agreement as provided in this Amendment No. 2 to the Partnership
Agreement.
Accordingly, intending to be legally bound, the parties hereto agree
as follows:
1. Subparagraph (a) of Section 6.2 of the Partnership Agreement is
hereby amended and restated to read as follows:
(a) to the holders of the Class A Units, as a group, an amount
equal to the product that results from multiplying the total
amount to be distributed by the ratio of (i) the number of
shares of Common Stock then issuable to the holders of the
outstanding Class A Units in redemption of such Class A Units,
assuming redemption of such Class A Units entirely for shares,
to (ii) the number of shares of Common Stock described in
clause (i) plus the number of outstanding shares of Common
Stock (other than outstanding Excluded Common Shares),
assuming the conversion in full into shares of Common Stock of
Preferred Shares; and
2. No Other Amendments. This Amendment does not amend the
Partnership Agreement in any respect except as expressly provided herein, and
the Partnership Agreement, as amended by this Amendment No. 2, shall continue in
full force and effect after the date hereof in accordance with its terms.
3. Effective Time of Amendment. This Amendment No. 2 shall become
effective as of November 6, 1996 upon the execution and delivery of this
Amendment No. 2 by the General Partner, and the holders of 75% or more of the
outstanding Class A Units (as of the date of this Amendment).
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
or caused this Agreement to be executed as of the date and year first above
written.
GENERAL PARTNER:
BRANDYWINE REALTY TRUST
By: /s/ Gerard H. Sweeney
--------------------------------
Name: Gerard H. Sweeney
President
CLASS A LIMITED PARTNERS:
Safeguard Scientifics (Delaware), Inc.
By: /s/ James A. Ounsworth
--------------------------------
Name: James A. Ounsworth
Title: Vice President
THE NICHOLS COMPANY
By: /s/ Anthony A. Nichols, Sr.
--------------------------------
Anthony A. Nichols, President
By: /s/ Brian Belcher
--------------------------------
Brian Belcher
<PAGE> 1
Exhibit 21.1
EXHIBIT D
Subsidiaries of the Company
Brandywine Operating Partnership, a Delaware limited partnership
Fifteen Horsham, L.P., a Pennsylvania limited partnership
C/N Oaklands Limited Partnership I, a Pennsylvania limited partnership
Newtech IV Limited Partnership, a Pennsylvania limited partnership
Newtech III Limited Partnership, a Pennsylvania limited partnership
LC/N Keith Valley Limited Partnership I, a Pennsylvania limited partnership
LC/N Horsham Limited Partnership, a Pennsylvania limited partnership
Nichols Lansdale Limited Partnership III, a Pennsylvania limited partnership
Witmer Operating Partnership I, L.P., a Delaware limited partnership
C/N Leedom Limited Partnership II, a Pennsylvania limited partnership
C/N Oaklands Limited Partnership III, a Pennsylvania limited partnership
Iron Run Limited Partnership V, a Pennsylvania limited partnership
C/N Iron Run Limited Partnership III, a Pennsylvania limited partnership
Brandywine Realty Partners, a Pennsylvania general partnership
Brandywine Holdings I, Inc., a Pennsylvania corporation
Brandywine Holdings II, Inc., a Pennsylvania corporation
Brandywine Holdings III, Inc., a Pennsylvania corporation
Brandywine Realty Services Corporation, a Pennsylvania corporation
Brandywine Main Street, LLC, a Delaware limited liability company
Brandywine Acquisitions, LLC, a Delaware limited liability company
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Forms S-3 (File No. 333-20991 and File No. 333-20999)
and Form S-8 (File No. 333-14243).
ARTHUR ANDERSEN LLP
Philadelphia, PA
March 24, 1997
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,279
<SECURITIES> 0
<RECEIVABLES> 1,366
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 161,284
<DEPRECIATION> 9,383
<TOTAL-ASSETS> 178,326
<CURRENT-LIABILITIES> 5,576
<BONDS> 0
0
26,444
<COMMON> 70
<OTHER-SE> 101,856
<TOTAL-LIABILITY-AND-EQUITY> 178,326
<SALES> 0
<TOTAL-REVENUES> 10,030
<CGS> 0
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<OTHER-EXPENSES> 7,370
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<INTEREST-EXPENSE> 2,751
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