<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ______________ to ______________
Commission file number 1-9106
Brandywine Realty Trust
-----------------------
(Exact name of registrant as specified in its charter)
Maryland 23-2413352
-------- ----------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
16 Campus Boulevard, Newtown Square, Pennsylvania 19073
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 325-5600
--------------
Registrant's telephone number
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
A total of 23,336,046 Common Shares of Beneficial Interest were outstanding
as of November 14, 1997.
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BRANDYWINE REALTY TRUST
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1997 (unaudited) and
December 31, 1996
Consolidated Statements of Operations for the three months ended
September 30, 1997 (unaudited) and September 30, 1996 (unaudited)
Consolidated Statements of Operations for the nine months ended
September 30, 1997 (unaudited) and September 30, 1996 (unaudited)
Consolidated Statements of Cash Flow for the nine months ended
September 30, 1997 (unaudited) and September 30, 1996 (unaudited)
Notes to Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk--Not
Applicable
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
Signatures
2
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PART I--FINANCIAL INFORMATION
ITEM 1.--FINANCIAL STATEMENTS
BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate investments
Operating properties.............................................................. $ 480,581 $ 161,284
Accumulated depreciation.......................................................... (17,809) (9,383)
------------- ------------
462,772 151,901
Cash and cash equivalents........................................................... 19,965 18,279
Escrowed cash....................................................................... 348 2,044
Accounts receivable................................................................. 2,465 1,366
Due from affiliates................................................................. -- 517
Investment in management company.................................................... 318 --
Deferred costs and other assets..................................................... 8,470 4,219
------------- ------------
Total assets...................................................................... $ 494,338 $ 178,326
------------- ------------
------------- ------------
LIABILITIES AND BENEFICIARIES' EQUITY
Mortgage notes payable.............................................................. $ 47,984 $ 36,644
Notes payable, Credit Facility...................................................... 14,000 --
Accrued interest.................................................................... 303 202
Accounts payable and accrued expenses............................................... 4,128 3,119
Distributions payable............................................................... 8,338 2,255
Excess of losses over investment in management company.............................. -- 14
Tenant security deposits and deferred rents......................................... 3,960 1,324
Due to affiliates................................................................... 387 --
------------- ------------
Total liabilities................................................................. 79,100 43,558
------------- ------------
Minority interest................................................................... 4,894 6,398
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Preferred shares--$0.01 par value, 5,000,000 preferred shares authorized............ -- 26,444
------------- ------------
Beneficiaries' equity
Shares of beneficial interest, $0.01 par value,
100,000,000 common shares authorized,
23,336,046 shares issued and outstanding........................................ 234 70
Additional paid-in capital........................................................ 428,787 113,047
Share warrants.................................................................... 962 962
Cumulative earnings (deficit)..................................................... 5,209 (3,248)
Cumulative distributions.......................................................... (24,848) (8,905)
------------- ------------
Total beneficiaries' equity....................................................... 410,344 101,926
------------- ------------
Total liabilities and beneficiaries' equity....................................... $ 494,338 $ 178,326
------------- ------------
------------- ------------
</TABLE>
The accompanying condensed notes are an integral part of these consolidated
financial statements.
3
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BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share information)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
1997 1996 1997 1996
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Revenue:
Rents..................................................... $ 15,401 $ 2,136 $ 32,290 $ 4,063
Tenant reimbursements..................................... 2,446 419 5,731 467
Other..................................................... 274 17 818 69
------------ ---------- ------------ ----------
Total revenue........................................... 18,121 2,572 38,839 4,599
------------ ---------- ------------ ----------
Operating Expenses:
Interest.................................................. 1,840 926 4,899 1,342
Depreciation and amortization............................. 4,276 708 10,051 1,173
Property operating expenses............................... 6,277 900 13,309 1,759
Management fees........................................... 739 86 1,496 108
Administrative expenses................................... 275 180 705 439
------------ ---------- ------------ ----------
Total operating expenses................................ 13,407 2,800 30,460 4,821
------------ ---------- ------------ ----------
Income (loss) before equity in income of management
company and minority interest............................. 4,714 (228) 8,379 (222)
Equity in income of management company...................... 115 54 332 54
------------ ---------- ------------ ----------
Income (loss) before minority interest...................... 4,829 (174) 8,711 (168)
Minority interest in (income) loss.......................... (81) 45 (256) 40
------------ ---------- ------------ ----------
Net Income (loss)........................................... 4,748 (129) 8,455 (128)
Income allocated to Preferred Shares........................ -- -- (499) --
------------ ---------- ------------ ----------
Income (loss) allocated to Common Shares.................... $ 4,748 $ (129) $ 7,956 $ (128)
------------ ---------- ------------ ----------
------------ ---------- ------------ ----------
PER SHARE DATA:
Earnings per share of beneficial interest
Income (loss) allocated to Common Share................... $ 0.25 $ (0.17) $ 0.65 $ (0.19)
------------ ---------- ------------ ----------
------------ ---------- ------------ ----------
Weighted average number of shares outstanding,
including share equivalents.............................. 19,004,509 770,373 12,285,557 676,801
------------ ---------- ------------ ----------
------------ ---------- ------------ ----------
</TABLE>
The accompanying condensed notes are an integral part of these consolidated
financial statements.
4
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BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1997 1996
------------- ------------
(UNAUDITED AND IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................. $ 8,455 $ (128)
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest in income of affiliates................................................ 256 (40)
Depreciation and amortization............................................................ 10,051 1,173
Equity in income of affiliate............................................................ (332) (54)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable............................................. (1,099) (452)
Decrease in affiliate receivable....................................................... 903 --
(Increase) decrease in other assets.................................................... (2,368) 77
Increase (decrease) in accounts payable and accrued expenses........................... 1,859 302
Increase (decrease) in accrued mortgage interest....................................... 101 190
Increase (decrease) in other liabilities............................................... 2,636 (181)
---------- ---------
Net cash provided by operating activites............................................. 20,462 887
---------- ---------
Cash flows from investing activities:
Purchase of properties.................................................................... (314,348) (9,522)
Decrease (increase) in escrowed cash...................................................... 1,696 323
Capital expenditures and leasing commissions paid......................................... (7,311) (715)
---------- ---------
Net cash used in investing activities............................................... (319,963) (9,914)
---------- ---------
Cash flows from financing activites:
Proceeds from issuance of shares, net..................................................... 287,807 1,003
Distributions paid to shareholders........................................................ (9,951) (319)
Distributions paid to minority partners................................................... (287) (7)
Proceeds from note payable to shareholder................................................. -- 1,392
Proceeds from mortgage notes payable...................................................... 14,858 8,574
Repayment of mortgage notes payable....................................................... (3,518) (350)
Proceeds from notes payable, Credit Facility.............................................. 166,775 --
Repayment of notes payable, Credit Facility............................................... (152,775) --
Purchase of minority interests............................................................ (531) --
Costs associated with new ventures........................................................ -- (198)
Other debt costs.......................................................................... (1,191) (49)
---------- ---------
Net cash provided by (used in) financing activities................................... 301,187 10,046
---------- ---------
Increase (decrease) in cash and cash equivalents............................................ 1,686 1,019
Cash and cash equivalents at beginning of period............................................ 18,279 840
---------- ---------
Cash and cash equivalents at end of period.................................................. $ 19,965 $ 1,859
---------- ---------
---------- ---------
</TABLE>
The accompanying condensed notes are an integral part of these consolidated
financial statements.
5
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BRANDYWINE REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION AND NATURE OF OPERATIONS:
Brandywine Realty Trust (the "Company"), is a Maryland real estate
investment trust. As of September 30, 1997, the Company owned 93 properties
(collectively, the "Properties"). The Company's interest in 92 of the Properties
is held through Brandywine Operating Partnership, L.P. (the "Operating
Partnership"). The Company is the sole general partner of the Operating
Partnership and, as of September 30, 1997, the Company held a 98.7% interest in
the Operating Partnership. Brandywine Realty Services Corporation (the
"Management Company"), is owned by the Operating Partnership through a 100%
interest in the non-voting preferred stock and a 5% interest in the voting
common stock. As of September 30,1997, the Management Company was responsible
for managing and leasing 91 of the Company's Properties and other properties on
behalf of third parties, as well as development opportunities as they arise.
As of September 30, 1997, the Company's portfolio aggregated approximately
5.8 million square feet available for lease for office and industrial purposes.
As of September 30, 1997, the overall occupancy rate of the Properties was
approximately 92.4%. The Company's Properties are primarily located within the
suburban Philadelphia office and industrial market area.
2. GENERAL:
BASIS OF PRESENTATION
The financial statements have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of the Company, all adjustments
(consisting solely of normal recurring matters) necessary to fairly present the
financial position of the Company as of September 30, 1997, and the results of
its operations and its cash flows for the three and nine month periods ended
September 30, 1997 and 1996 have been included. The results of operations for
such interim periods are not necessarily indicative of the results for a full
year. For further information, refer to the Company's consolidated financial
statements and footnotes thereto included in the Annual Report on Form 10-K (as
amended by Form 10-K/A) for the year ended December 31, 1996.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform to the
current presentation.
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. In February, 1997, the Financial
Accounting Standards Board issued Statement No. 128, "Earnings per Share", which
is effective for financial statements for periods ending after December 15,
1997. At that time, the Company will be required to change the method currently
used to compute and disclose earnings per share and to
6
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restate all prior periods. The impact of Statement No. 128 on the calculation
of primary and fully diluted earnings per share for the interim periods
presented is expected to be immaterial.
3. ACQUISITIONS OF REAL ESTATE INVESTMENTS:
All acquisitions between January 1, 1996 and September 30, 1997 were
accounted for by the purchase method. For the year ended December 31, 1996, the
Company acquired 33 properties aggregating 1.7 million net rentable square feet.
During the period January 1, 1997 through September 30, 1997, the Company
acquired 56 properties (43 office and 13 industrial) totaling 3.9 million net
rentable square feet.
The following table summarizes certain information regarding acquisition
activity from January 1, 1997 through September 30, 1997:
<TABLE>
<CAPTION>
NET PURCHASE
DATE OF NUMBER OF RENTABLE PRICE
ACQUISITION PROPERTIES TYPE LOCATION SQUARE FEET (IN MILLIONS)
- ------------------------------ --------------- ----------- ------------------------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
January 24 3 Office Marlton, NJ 89,186 (a)
2 Office Mt. Laurel, NJ 200,436 (a)
March 4 7 Office Voorhees, NJ 235,209 $ 21.5
March 6 1 Office East Goshen, PA 38,470 $ 3.6
April 3 2 Industrial King of Prussia, PA 124,960 $ 3.5
April 18 4 Office Marlton, NJ 201,970 $ 14.5
May 23 4 Industrial Westampton, NJ 388,767 (b)
1 Office Marlton, NJ 43,719 (b)
3 Office Langhorne, PA 115,390 (b)
2 Office Lower Gwynedd, PA 139,467 (b)
May 30 5 Office Mt. Laurel, NJ 495,103 (c)
1 Office King of Prussia, PA 112,905 (c)
June 5 2 Office Exton, PA 64,594 $ 5.3
June 16 1 Office Broomall, PA 62,934 $ 4.1
July 29 3 Office Berwyn, PA 241,458 $ 37.2
July 31 5 Office Reading, PA 574,241 $ 40.0
August 15 2 Office Fort Washington, PA 211,000 $ 16.9
September 19 1 Office Newark, DE 63,898 $ 5.5
September 29 7 Industrial Trevose, PA 447,000 $ 16.1
--------------- ---------
56 3,850,707
</TABLE>
- ------------------------
(a) These properties were acquired for an aggregate purchase price
of $31.3 million.
(b) These properties were acquired for an aggregate purchase price
of $41.6 million.
(c) These properties were acquired for an aggregate purchase price
of $66.2 million.
On October 9, 1997, the Company purchased an office property located in
Mount Laurel, NJ ("Atrium I") containing an aggregate of approximately 96,660
net rentable square feet for a cash purchase price of approximately $10.3
million.
The results of operations for each of the properties acquired between
January 1, 1996 and September 30, 1997 have been included from their respective
purchase dates. The following unaudited pro forma financial information of the
Company has been prepared as if the sales of securities in 1996 (refer to the
7
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Company's Form 10-K for the year ended December 31, 1996 for more information),
the March 1997 Offering (see Note 5), the July 1997 Offering (see Note 5), the
September 1997 Offering (see Note 5), and the acquisitions of the 56 properties
(including Atrium I which was acquired subsequent to September 30,
1997) acquired from July 19, 1996 through October 9, 1997 had all occurred on
January 1, 1996. 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, nor does it purport to represent
the results of operations for future periods.
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED AND IN THOUSANDS)
Pro forma total revenues......................... $ 59,966 $ 74,030
Pro forma net income............................. $ 17,330 $ 18,628
Pro forma net income per Common Share............ $ 0.75 $ 0.76
As previously reported in Current Reports on Form 8-K, the Company, through
subsidiaries, entered into two joint ventures during the three-month period
ended September 30, 1997. Through November 14, 1997, the Company has made equity
contributions totaling approximately $1.4 million to these joint ventures, and,
in respect of one of the joint ventures, delivered a $1.5 million letter of
credit and a $14.5 million forward commitment of permanent financing for the
benefit of the construction lender that is financing construction of a planned
three-story office building.
4. INDEBTEDNESS:
As of September 30, 1997, the Company had mortgage notes payable of $48.0
million and notes payable under its revolving credit facility (the "Credit
Facility") of $14.0 million. The Credit Facility, which was established in
December 1996, is secured by mortgages on certain of the Company's properties
and enables borrowings to fund acquisitions, working capital and other business
needs. During July 1997, the maximum amount of borrowings available under the
Credit Facility was increased from $80 million to $150 million. Subsequent to
September 30, 1997, the Company borrowed $33.0 million under the Credit Facility
to fund property acquisitions, investments in joint ventures and for working
capital purposes.
5. ISSUANCE OF SHARES AND WARRANTS:
In March 1997, the Company completed the sale of 2,375,500 Common Shares to
the public at a price of $20 5/8 per share (the "March 1997 Offering"). The net
proceeds of the March 1997 Offering were used to fund the Company's
acquisitions, repay certain indebtedness and for working capital purposes.
In March 1997, 54,397 of the Series A Convertible Preferred Shares
("Preferred Shares") were converted into 181,323 Common Shares. In June 1997,
the remaining 427,421 Preferred Shares were converted into 1,424,736 Common
Shares.
In July, 1997, the Company completed the sale of 11,500,000 Common Shares to
the public at a price of $20 3/4 per share (the "July 1997 Offering"). The net
proceeds of the July 1997 Offering were used by the Company to repay
indebtedness under the Credit Facility and for working capital and investment
purposes.
In September 1997, the Company completed the sale of 786,840 Common Shares
to the public at a price of $22 5/16 per share (the "September 1997 Offering").
The net proceeds of the September 1997 Offering were used by the Company for
working capital and investment purposes.
8
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6. DISTRIBUTIONS:
On August 29, 1997, the Company declared a distribution of $0.36 per share
which was paid on October 9, 1997 to shareholders of record as of September 9,
1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1993 and Section 21E of the Securities
Exchange Act of 1934. The words "believe", "expect", "anticipate", "intend",
"estimate" and other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. The Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include but are not limited to the following: Real
estate investment considerations, such as the effect of economic and other
conditions in the market area on cash flows and values; the need to renew leases
or relet space upon the expiration of current leases, and the ability of a
property to generate revenues sufficient to meet debt service payments and other
operating expenses; and risks associated with borrowings, such as the
possibility that the Company will not have sufficient funds available to make
principal payments on outstanding debt, outstanding debt may be refinanced at
higher interest rates or otherwise on terms less favorable to the Company and
interest rates under the Credit Facility may increase.
The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with the accompanying financial
statements and notes thereto.
RESULTS OF OPERATIONS
Comparison of Three and Nine Months Ended
September 30, 1997 and September 30, 1996
Net income for the three and nine months ended September 30, 1997 was $4.7
million and $8.0 million, respectively, compared with net losses of $129,000 and
$128,000 for the corresponding periods in 1996. The increase in net income was
primarily attributable to the operating results contributed by the 89 properties
(the "Acquisition Properties") acquired during 1996 and through September 30,
1997.
Property acquisitions have increased the Company's leaseable area from
approximately 1.3 million net rentable square feet on September 30, 1996 to
approximately 5.8 million net rentable square feet on September 30, 1997.
Revenues, which include rental income, recoveries from tenants and other
income, increased by $15.5 million and $34.2 million for the three and nine
months ended September 30, 1997, respectively, as compared to the corresponding
prior year period primarily as a result of property acquisitions. The impact
of the straight-line rent adjustment increased revenues by $1.1 million for the
nine months ended September 30, 1997.
Property expenses, depreciation and amortization and management fees
increased in aggregate by $9.6 million and $21.8 million for the three and nine
months ended September 30, 1997 as compared with the corresponding prior year
periods primarily as a result of property acquisitions. Interest expense
increased as a result of additional indebtedness incurred to finance certain of
the Company's acquisitions. Administrative expenses increased primarily as a
result of the increase in management personnel, professional fees and public
filing costs associated with the Company's growth.
Minority interest primarily represents the portion of the Operating
Partnership which is not owned by the Company.
9
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LIQUIDITY AND CAPITAL RESOURCES
STATEMENT OF CASH FLOWS
During the nine months ended September 30, 1997, the Company generated $20.5
million in cash flow from operating activities, and together with $166.8 million
in borrowings under the Company's Credit Facility, $14.9 million in additional
mortgage notes payable, $287.8 million in net proceeds from share issuances and
escrowed cash of $1.7 million, used an aggregate $491.7 million to (i) purchase
56 Properties for $314.3 million, (ii) fund capital expenditures and leasing
commissions of $7.3 million, (iii) pay distributions to shareholders and
minority partners in the Operating Partnership totaling $10.2 million, (iv) pay
scheduled amortization on mortgage principal of $1.0 million, (v) satisfy $2.5
million of mortgage notes payable, (vi) pay down its outstanding borrowings on
its Credit Facility by $152.8 million, (vii) purchase minority interests in the
Operating Partnership for $0.5 million, (viii) pay other debt costs of $1.2
million; and (ix) increase existing cash reserves by $1.7 million.
CAPITALIZATION
As of September 30, 1997, the Company had approximately $62.0 million of
debt outstanding, consisting of mortgage loans totaling $48.0 million and notes
payable under the Company's revolving Credit Facility of $14.0 million. The
mortgage loans mature between December 1997 and November 2004. The Credit
Facility provides for borrowings up to $150.0 million and bears interest at a
per annum floating rate equal to the 30, 60 or 90-day LIBOR, plus 175 basis
points. For the nine months ended September 30, 1997, the weighted average
interest on the Company's debt was 8.24%.
The Company's debt to market capitalization was 10% as of September 30, 1997
(at the September 30, 1997 closing share price of $23.94). As a general policy,
the Company intends, but is not obligated, to adhere to a policy of maintaining
a debt to market capitalization ratio of no more than 50%. This policy is
intended to provide the Company with financial flexibility to select the optimal
source of capital to finance its growth.
As part of its debt strategy, the Company has received a non-binding
indicative term sheet from its existing lead lender to increase its revolving
Credit Facility from $150 million to $300 million and to convert to an
unsecured facility. The interest rate would be reduced by 37.5 to 60 basis
points depending on the Company's degree of leverage. Upon attainment of an
investment rating, the overall interest rate reduction would be between 60 to
75 basis points regardless of the degree of leverage. There can be no
assurance that the Company will be able to increase its Credit Facility, to
convert its Credit Facility to an unsecured facility or to have the interest
rate on the Credit Facility reduced.
SHORT AND LONG TERM LIQUIDITY
The Company believes that its cash flow from operations is adequate to
fund its short-term liquidity requirements for the foreseeable future. Cash
flow from operations is generated primarily from rental revenues and
operating expense reimbursements from tenants and the management services
income from providing services to third parties. The Company intends to use
these funds to meet its principal short-term liquidity needs which are to
fund operating expenses, debt service requirements, recurring capital
expenditures, tenant allowances, leasing commissions and the minimum
distribution required to maintain the Company's REIT qualifications under the
Internal Revenue Code.
For the quarter ended September 30, 1997, the Company declared a
distribution of $0.36 per Common Share (paid on October 9, 1997 to shareholders
of record on September 9, 1997) amounting to approximately $8.1 million in the
aggregate. In addition, during this period, the Company's distributions declared
to minority partners in the Operating Partnership totaled approximately
$114,000.
The Company expects to meet its long-term liquidity requirements, such as
for property acquisitions and development, scheduled debt maturities,
renovations, expansions and other non-recurring capital improvements, through
its Credit Facility and other long-term secured and unsecured indebtedness and
the issuance of additional Operating Partnership units and equity securities.
FUNDS FROM OPERATIONS
Management generally considers Funds from Operations ("FFO") as one measure
of REIT performance. The Company adopted the NAREIT definition of FFO in 1996
and has used this definition for all periods
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presented in the financial statements included herein. FFO is calculated as
net income (loss) adjusted for depreciation expense attributable to real
property, amortization expense attributable to capitalized leasing costs,
gains on sales of real estate investments and extraordinary and nonrecurring
items. FFO should not be considered an alternative to net income as an
indication of the Company's performance or to cash flows as a measure of
liquidity.
FFO for the nine months ended September 30, 1997 and September 30, 1996 is
summarized in the following table (in thousands, except share and per share
data).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1996 (2)
--------------- ---------
<S> <C> <C>
Income before minority interest........................ $ 8,711 $ (130)
Add (Deduct):
Depreciation attributable to real property........... 8,918 980
Amortization attributable to leasing costs........... 514 157
Minority interest not attributable to unit holders... (16) (6)
--------------- ---------
Funds from Operations before minority interest......... $ 18,127 $ 1,001
--------------- ---------
--------------- ---------
Weighted average Common Shares (including common
share equivalents) and Operating Partnership units... 13,576,682(1) 753,685
---------------- ---------
---------------- ---------
Funds from Operations per share........................ $ 1.34 $ 1.33
---------------- ---------
---------------- ---------
</TABLE>
(1) Includes the weighted average effect of 1,424,736 Common Shares issued upon
the conversion of the Preferred Shares for the period prior to conversion,
the weighted average effect of 317,450 Common Shares issuable upon the
conversion of 317,450 Operating Partnership units, the weighted average
effect of the 53,123 Common Shares issued upon the conversion of 53,123
Operating Partnership units for the period prior to conversion and the
weighted average effect of the 28,994 convertible Operating Partnership
units for the period prior to cancellation.
(2) In 1997 the Company began computing FFO using a methodology which, in
management's opinion, is more consistent with industry practice. This
methodology presents FFO before any adjustments for amounts attributable to
minority unit holders of the Operating Partnership and includes such units
in the FFO per share calculation. In restating FFO and FFO per share for the
nine months ended September 30, 1996, FFO increased from $837 to $1,001 and
FFO per share increased from $1.24 to $1.33 (after adjusting for the 1-for-3
reverse share split which occurred in the fourth quarter of 1996).
11
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Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved (nor was it involved at September 30,
1997) 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 2. CHANGES IN SECURITIES
(a) Not applicable.
(b) Not applicable.
(c) On September 2, 1997, the Company issued an aggregate of 1,285 common
shares to five persons in payment of one half of 1997 non-employee annual
Trustee fees (257 shares per person). These shares were issued in reliance on
the exemption from registration set forth in Section 4 (2) of the Securities Act
of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
During the three months ended September 30, 1997, and through November 15,
1997, the Company filed the following:
(i) a Current Report on Form 8-K/A No. 1 dated July 21, 1997 (amending Item
5 as originally filed) regarding the Company's acquisition of a 6.8 acre parcel
of undeveloped land located in Montgomery County, Pennsylvania, the Greentree
Executive Campus, a multi-building garden office complex located in Burlington
County, New Jersey and Five Eves Drive, a midrise office building, located in
Burlington County, New Jersey.
(ii) a Current Report on Form 8-K dated July 23, 1997 (reporting under Item
5 and Item 7) regarding the Company increasing the amount available for
borrowing under its revolving credit facility to up to $150.0 million and the
Company entering into an underwriting agreement with various underwriters
pursuant to which the Company agreed to sell an aggregate of 10,000,000 common
shares of beneficial interest, $.01
12
<PAGE>
par value per share, and granted the underwriters an option to purchase up to
an additional 1,500,000 common shares solely to cover over-allotments, if any.
(iii) a Current Report on Form 8-K dated August 7, 1997 (reporting under
Item 5) regarding the Company's earnings for the three and six months ended June
30, 1997 and certain other financial information.
(iv) a Current Report on Form 8-K dated August 22, 1997 (reporting under
Item 5) regarding the Company's acquisition of 500 and 501 Office Center Drive,
two office properties located in Fort Washington, PA containing an aggregate of
approximately 211,000 net rentable square feet.
(v) a Current Report on Form 8-K dated September 10, 1997 (reporting under
Item 5 and Item 7) regarding an increase in the Company's authorized common
shares of beneficial interest from 25,000,000 to 100,000,000. Such Form 8-K also
included an audited statement of revenue and certain expenses for 500 and 501
Office Center Drive, two office properties located in Fort Washington, PA, for
the year ended December 31, 1996; and pro forma financial information as of and
for the six months ended June 30, 1997 and for the year ended December 31, 1996.
(vi) a Current Report on Form 8-K dated September 12, 1997 (reporting under
Item 5 and Item 7) regarding the Company entering into an underwriting agreement
with Smith Barney Inc. pursuant to which the Company agreed to sell an aggregate
of 786,840 common shares of beneficial interest, $.01 par value per share.
(vii) a Current Report on Form 8-K dated October 3, 1997 (reporting under
Item 5 and Item 7) regarding the Company's acquisition of Metropolitan
Industrial Center, seven industrial properties located in Bensalem Township,
Bucks County, Pennsylvania which contain an aggregate of approximately 447,000
square feet; the acquisition of 100 Commerce Drive, a three-story office
building located in Newark, Delaware which contains approximately 64,000 square
feet; and the formation of two joint ventures, each of which were formed to
acquire land and develop commercial properties in Delaware.
(viii) a Current Report on Form 8-K dated October 30, 1997 (reporting under
Item 5 and Item 7) regarding the Company's acquisition of Atrium I, a 96,660
square foot office property located in Mt. Laurel, New Jersey; the acquisition
of 13.3 acres of land in New Castle County, Delaware by one of the
Company's joint ventures; and the commencement of trading the Company's common
shares on the New York Stock Exchange. Such Form 8-K also included audited
statements of revenue and certain expenses for Metropolitan Industrial Center
and for Atrium I, each for the year ended December 31, 1996; and pro forma
financial information as of and for the six months ended June 30, 1997 and for
the year ended December 31,1996.
13
<PAGE>
BRANDYWINE REALTY TRUST
SIGNATURES OF REGISTRANT
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BRANDYWINE REALTY TRUST
(Registrant)
Date: November 14, 1997 By: /s/ Gerard H. Sweeney
--------------------------------------------------
Gerard H. Sweeney,
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 By: /s/ Mark S. Kripke
--------------------------------------------------
Mark S. Kripke, Chief Financial Officer
(Principal Financial and Accounting Officer)
14
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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