<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A No. 1
Current Report
Filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 11, 1998
BRANDYWINE REALTY TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 1-9106 23-2413352
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) file number) Identification Number)
16 Campus Boulevard, Newtown Square, Pennsylvania 19073
(Address of principal executive offices)
(610) 325-5600
(Registrant's telephone number, including area code)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
In a Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 13, 1998, Brandywine Realty Trust (the "Company") reported
its acquisition of two portfolios of properties (the Lazard Properties and the
Axinn Properties). The Company is filing this amendment to the Current Report on
Form 8-K to include the financial statements identified in this Item 7. After
reasonable inquiry, the Company is not aware of any material factors relating to
the Lazard Properties or the Axinn Properties that would cause the reported
financial information not to be necessarily indicative of future operation
results.
(a) Financial Statements of Real Estate Assets Acquired.
The audited combined statement of revenue and certain operating
expenses of the Lazard Properties for the year ended December 31, 1997 and the
unaudited combined statement of revenue and certain operating expenses of the
Lazard Properties for the six months ended June 30, 1998 are included in pages
F-13 to F-19.
The audited combined statement of revenue and certain operating
expenses of the Axinn Properties for the year ended December 31, 1997 and the
unaudited combined statement of revenue and certain operating expenses of the
Axinn Properties for the six months ended June 30, 1998 are included in pages
F-20 to F-23.
(b) Pro Forma Financial Information.
Pro forma financial information which gives effect to the Company's
acquisitions of the Lazard Properties and the Axinn Properties as of and for the
year ended December 31, 1997 and as of and for the six months ended June 30,
1998 are included in pages F-1 to F-12.
(c) Exhibits.
23.1 Consent of Arthur Andersen LLP
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
BRANDYWINE REALTY TRUST
Date: October 21, 1998 By: /s/ Gerard H. Sweeney
----------------------------
Title: President and Chief
Executive Officer
<PAGE>
BRANDYWINE REALTY TRUST
INDEX TO FINANCIAL STATEMENTS
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
o Pro Forma Condensed Consolidating Balance Sheet as of June 30, 1998......F - 3
o Pro Forma Condensed Consolidating Statement of Operations for the
Year Ended December 31, 1997.............................................F - 4
o Pro Forma Condensed Consolidating Statement of Operations for the
Six Months Ended June 30, 1998...........................................F - 5
o Notes and Management's Assumptions to Unaudited Pro Forma Condensed
Consolidating Financial Information......................................F - 6
II. LAZARD PROPERTIES
o Report of Independent Public Accountants.................................F -13
o Combined Statements of Revenue and Certain Expenses for the Six Months
Ended June 30, 1998 (unaudited) and the Year Ended December 31, 1997
(audited) ...............................................................F -14
o Notes to Combined Statements of Revenue and Certain Expenses.............F -15
III. AXINN PROPERTIES
o Report of Independent Public Accountants.................................F -20
o Combined Statements of Revenue and Certain Expenses for the Six Months
Ended June 30, 1998 (unaudited) and the Year Ended December 31, 1997
(audited) ...............................................................F -21
o Notes to Combined Statements of Revenue and Certain Expenses.............F -22
F-1
<PAGE>
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following sets forth the pro forma condensed consolidating balance
sheet of Brandywine Realty Trust ("the Company") as of June 30, 1998 and the pro
forma condensed consolidating statements of operations for the six months ended
June 30, 1998 and the year ended December 31, 1997.
The pro forma condensed consolidating financial information should be
read in conjunction with the historical financial statements of the Company and
those acquisitions deemed significant pursuant to the rules and regulations of
the Securities and Exchange Commission.
The unaudited pro forma condensed consolidating financial information
is presented as if the following events occurred on June 30, 1998 for balance
sheet purposes, and on January 1, 1997 for purposes of the statements of
operations:
- - The Company acquired the properties described in Note 1 to these pro forma
financial statements.
- - The Company issued 2,375,500 Common Shares at $20.625 per share, of which
175,500 shares related to the underwriter's exercise of the over-allotment
option (the "March 1997 Offering"). The net proceeds from the March 1997
Offering were contributed to Brandywine Operating Partnership, L.P. (the
"Operating Partnership") in exchange for 2,375,500 units of general
partnership interest ("GP Units") in the Operating Partnership.
- - The Company issued 11,500,000 Common Shares at $20.75 per share, of which
1,500,000 shares related to the underwriter's exercise of the over-allotment
option (the "July 1997 Offering"). The net proceeds from the July 1997
Offering were contributed to the Operating Partnership in exchange for
11,500,000 GP Units.
- - The Company issued 786,840 Common Shares at $22.31 per share (the "September
1997 Offering"). The net proceeds from the September 1997 Offering were
contributed to the Operating Partnership in exchange for 786,840 GP Units.
- - The Company issued 751,269 Common Shares at $24.63 per share (the "December
1997 Offering"). The net proceeds from the December 1997 Offering were
contributed to the Operating Partnership in exchange for 751,269 GP Units.
- - The Company issued 11,000,000 Common Shares at $24.00 per share, of which
1,000,000 shares related to the underwriter's exercise of the over-allotment
option (the "January 1998 Offering"). The net proceeds from the January 1998
Offering were contributed to the Operating Partnership in exchange for
11,000,000 GP Units.
- - The Company issued an aggregate of 1,012,820 Common Shares at $24.06 per
share (the "February 18, 1998 Offering"). The net proceeds from the February
18, 1998 Offering were contributed to the Operating Partnership in exchange
for 1,012,820 GP Units.
- - The Company issued an aggregate of 629,921 Common Shares at $23.81 per share
(the "February 27, 1998 Offering"). The net proceeds from the February 27,
1998 Offering were contributed to the Operating Partnership in exchange for
629,921 GP Units.
- - The Company issued an aggregate of 625,000 Common Shares at $24.00 per share
(the "April 1998 Offering"). The net proceeds from the April 1998 Offering
were contributed to the Operating Partnership in exchange for 625,000 GP
Units.
The pro forma condensed consolidating financial information is
unaudited and is not necessarily indicative of what the actual financial
position would have been at June 30, 1998, nor does it purport to represent the
future financial position and the results of operations of the Company.
F-2
<PAGE>
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1998 (Notes 1 and 2)
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
BRANDYWINE
REALTY TRUST PROPERTY
HISTORICAL ACQUISITIONS PRO FORMA
CONSOLIDATED (A) CONSOLIDATED
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Real estate investments, net $ 1,127,994 $ 663,498 $ 1,791,492
Cash and cash equivalents 42,394 - 42,394
Escrowed cash 1,325 - 1,325
Accounts receivable 6,971 - 6,971
Due from affiliates - - -
Investment in management company 149 - 149
Investment in unconsolidated real estate ventures 11,965 - 11,965
Deposits 1,300 - 1,300
Deferred costs and other assets 8,311 3,000 11,311
----------- ---------- -----------
Total assets 1,200,409 666,498 1,866,907
=========== ========== ===========
LIABILITIES:
Mortgages and notes payable 423,392 525,344 948,736
Accrued interest 1,354 - 1,354
Accounts payable and accrued expenses 4,266 - 4,266
Distributions payable 14,870 - 14,870
Due to affiliates 239 - 239
Tenant security deposits and deferred rents 11,489 - 11,489
----------- ---------- -----------
Total liabilities 455,610 525,344 980,954
----------- ---------- -----------
MINORITY INTEREST 22,084 26,154 48,238
----------- ---------- -----------
CONVERTIBLE PREFERRED SHARES - 37,500 37,500
----------- ---------- -----------
CONVERTIBLE PREFERRED UNITS - 77,500 77,500
----------- ---------- -----------
BENEFICIARIES' EQUITY:
Common shares of beneficial interest 377 - 377
Additional paid-in capital 753,066 - 753,066
Share warrants 962 - 962
Cumulative earnings 30,119 - 30,119
Cumulative distributions (61,809) - (61,809)
----------- ---------- -----------
Total beneficiaries' equity 722,715 - 722,715
----------- ---------- -----------
Total liabilities and beneficiaries' equity $ 1,200,409 $ 666,498 $ 1,866,907
=========== ========== ===========
The accompanying condensed notes are an integral part of these consolidated financial statements.
</TABLE>
F-3
<PAGE>
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
(Notes 1 and 3)
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
BRANDYWINE 1997 EVENTS
REALTY -------------------------
TRUST HISTORICAL PRO FORMA
HISTORICAL OPERATIONS ADJUST-
CONSOLIDATED (A) MENTS (B) SUBTOTAL
------------ ---------- --------- --------
<S> <C> <C> <C> <C>
REVENUE:
Base rents $ 49,928 $ 28,640 $ 918 $ 79,486
Tenant reimbursements 9,396 3,954 - 13,350
Other 1,736 284 - 2,020
------------ -------- --------- --------
Total Revenue 61,060 32,878 918 94,856
------------ -------- --------- --------
OPERATING EXPENSES:
Interest 7,079 - 4,303 11,382
Depreciation and amortization 15,589 - 7,093 22,682
Property operating expenses 22,445 12,413 - 34,858
Administrative expenses 659 - - 659
------------ -------- --------- --------
Total operating expenses 45,772 12,413 11,396 69,581
------------ -------- --------- --------
Income (loss) before equity in income of
management company, equity income from real estate
ventures, distributions to preferred unitholders
and minority interest 15,288 20,465 (10,478) 25,275
Equity in income (loss) of management company 89 - 422 (C) 511
Equity income from real estate ventures - - - -
------------ -------- --------- --------
Income (loss) before distributions to preferred
unitholders and minority interest 15,377 20,465 (10,056) 25,786
Distributions to Preferred Unitholders - - - -
------------ -------- --------- --------
Income (loss) before minority interest 15,377 20,465 (10,056) 25,786
Minority interest in (income) loss (376) - (374) (D) (750)
------------ -------- --------- --------
Net income (loss) 15,001 20,465 (10,430) 25,036
Income allocated to Preferred Shares (499) - - (499)
------------ -------- --------- --------
Income (loss) allocated to Common Shares $ 14,502 $ 20,465 $ (10,430) $ 24,537
============ ======== ========= ========
Diluted earnings (loss) per Common Share $ 0.95
============
Diluted weighted average number of
shares outstanding 15,793,329
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 PROPERTY
ACQUISITIONS
1998 ----------------------------
SHARE HISTORICAL PRO FORMA TOTAL
OFFERINGS OPERATIONS ADJUST- PRO FORMA
(E) (F) MENTS (G) CONSOLIDATED
--------- ---------- --------- ------------
<S> <C> <C> <C> <C>
REVENUE:
Base rents $ - $ 136,054 $ (3,492) $ 212,048
Tenant reimbursements - 17,105 (198) 30,257
Other - 1,453 - 3,473
--------- --------- --------- ------------
Total Revenue - 154,612 (3,690) 245,778
--------- --------- --------- ------------
OPERATING EXPENSES:
Interest (22,607) 16,784 63,778 69,337
Depreciation and amortization - - 39,838 62,520
Property operating expenses - 54,592 (1,363) 88,087
Administrative expenses - - - 659
--------- --------- --------- ------------
Total operating expenses (22,607) 71,376 102,253 220,603
--------- --------- --------- ------------
Income (loss) before equity in income of
management company, equity income from real estate
ventures, distributions to preferred unitholders
and minority interest 22,607 83,236 (105,943) 25,175
Equity in income (loss) of management company - - 2,070 (C) 2,581
Equity income from real estate ventures - 262 - 262
--------- --------- --------- ------------
Income (loss) before distributions to preferred
unitholders and minority interest 22,607 83,498 (103,873) 28,018
Distributions to Preferred Unitholders - - (5,619) (H) (5,619)
--------- --------- --------- ------------
Income (loss) before minority interest 22,607 83,498 (109,492) 22,399
Minority interest in (income) loss (1,081) (D) - 490 (D) (1,341)
--------- --------- --------- ------------
Net income (loss) 21,526 83,498 (109,002) 21,058
Income allocated to Preferred Shares - - (2,719) (I) (3,218)
--------- --------- ---------- ------------
Income (loss) allocated to Common Shares $ 21,526 $ 83,498 $ (111,721) $ 17,840
========= ========= ========== ============
Diluted earnings (loss) per Common Share $ 0.49
============
Diluted weighted average number of
shares outstanding 36,721,485
============
The accompanying condensed notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Notes 1 and 3)
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1998 PROPERTY
BRANDYWINE ACQUISITIONS
REALTY 1998 ---------------------------
TRUST SHARE HISTORICAL PRO FORMA
HISTORICAL OFFERINGS OPERATIONS ADJUST-
CONSOLIDATED (E) (J) MENTS (K)
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Base rents $ 65,553 $ - $ 47,257 $ (1,013)
Tenant reimbursements 9,406 - 5,139 (112)
Other 1,273 - 444 -
------------ ------- -------- --------
Total Revenue 76,232 - 52,840 (1,125)
------------ ------- -------- --------
OPERATING EXPENSES:
Interest 11,017 (2,523) 8,681 16,843
Depreciation and amortization 18,193 - - 13,338
Amortization of deferred compensation costs 744 - - -
Property operating expenses 23,450 - 17,989 (860)
Management fees 2,882 - - -
Administrative expenses 627 - - -
------------ ------- -------- --------
Total operating expenses 56,913 (2,523) 26,670 29,321
------------ ------- -------- --------
Income (loss)before equity in income of management
company, gain on sales, distributions to
preferred unitholders, minority interest and
extraordinary item 19,319 2,523 26,170 (30,446)
Equity in income of management company 75 - - 552 (C)
Equity income from real estate ventures - - - 245
------------ ------- -------- --------
Income before gains on sales, distributions to preferred
unitholders, minority interest and extraordinary item 19,394 2,523 26,170 (29,649)
Gains on sales of interest in real estate 209 - - -
------------ ------- -------- --------
Income before distributions to preferred unitholders,
minority interest and extraordinary item 19,603 2,523 26,170 (29,649)
Distributions to Preferred Unitholders - - - (2,809) (H)
------------ ------- -------- --------
Income (loss) before minority interest 19,603 2,523 26,170 (32,458)
Minority interest in (income) loss (378) (755) (D) - 325 (D)
------------ ------- -------- --------
Income before extraordinary item 19,225 1,768 26,170 (32,133)
Extraordinary item (858) - - -
------------ ------- -------- ---------
Net Income $ 18,367 $ 1,768 $ 26,170 $ (32,133)
Income allocated to Preferred Shares - - - (1,359) (I)
------------ ------- -------- ---------
Income allocated to Common Shares $ 18,367 $ 1,768 $ 26,170 $ (33,492)
============ ======= ======== =========
Diluted earnings (loss) per Common Share $ 0.53
============
Diluted weighted average number of
shares outstanding 34,645,392
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
CONSOLIDATED
------------
<S> <C>
REVENUE:
Base rents $ 111,797
Tenant reimbursements 14,433
Other 1,717
------------
Total Revenue 127,947
------------
OPERATING EXPENSES:
Interest 34,018
Depreciation and amortization 31,531
Amortization of deferred compensation costs 744
Property operating expenses 40,579
Management fees 2,882
Administrative expenses 627
------------
Total operating expenses 110,381
------------
Income (loss)before equity in income of management
company, gain on sales, distributions to
preferred unitholders, minority interest and
extraordinary item 17,566
Equity in income of management company 627
Equity income from real estate ventures 245
------------
Income before gains on sales, distributions to preferred
unitholders, minority interest and extraordinary item 18,438
Gains on sales of interest in real estate 209
------------
Income before distributions to preferred unitholders,
minority interest and extraordinary item 18,647
Distributions to Preferred Unitholders (2,809)
------------
Income (loss) before minority interest 15,838
Minority interest in (income) loss (808)
------------
Income before extraordinary item 15,030
Extraordinary item (858)
------------
Net Income $ 14,172
Income allocated to Preferred Shares (1,359)
------------
Income allocated to Common Shares $ 12,813
============
Diluted earnings (loss) per Common Share $ 0.34
============
Diluted weighted average number of
shares outstanding 37,724,239
============
The accompanying condensed notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
BRANDYWINE REALTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
Brandywine Realty Trust (the "Company") is a Maryland real estate
investment trust. As of October 15, 1998, the Company owned 268 properties. The
Company's interest in all 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 October 15, 1998, the Company
held an approximately 94.8% interest in the Operating Partnership.
These pro forma financial statements should be read in conjunction with
the historical financial statements and notes thereto of the Company, the
Columbia Acquisition Properties, the Main Street Acquisition Properties, the TA
Properties, the Emmes Properties, the Greentree Executive Campus Acquisition
Properties, 748 & 855 Springdale Drive, the Green Hills Properties, the Berwyn
Park Properties, 500 & 501 Office Center Drive, Metropolitan Industrial Center,
Atrium 1, Bala Pointe Office Centre, the Scarborough Properties, the GMH
Properties, the RREEF Properties, Three Christina Centre, the DKM Properties,
the First Commercial Properties, One Christina Centre, the Lazard Properties and
the Axinn Properties. In management's opinion, all adjustments necessary to
reflect the effects of the March 1997 Offering, the July 1997 Offering, the
September 1997 Offering, the December 1997 Offering, the January 1998 Offering,
the February 18, 1998 Offering, the February 27, 1998 Offering, the April 1998
Offering, the acquisitions of the Columbia Acquisition Properties, the Main
Street Acquisition Properties, 1336 Enterprise Drive, the Greentree Executive
Campus Acquisition Properties, Five Eves Drive, Kings Manor, the TA Properties,
the Emmes Properties, 748 & 855 Springdale Drive, 1974 Sproul Road, the Green
Hills Properties, the Berwyn Park Properties, 500 & 501 Office Center Drive,
Christiana Corporate Center, Metropolitan Industrial Center, Atrium 1, 5 & 6
Cherry Hill Executive Campus, 220 Commerce Drive, Provident Place, the PECO
Building, Bala Pointe Office Centre, the Scarborough Properties, the GMH
Properties, the RREEF Properties, Three Christina Centre, 920 Harvest Drive,
Norriton Business Center, the DKM Properties, the First Commercial Properties,
One Christina Centre, 925 Harvest Drive, the Lazard Properties and the Axinn
Properties by the Company have been made.
F-6
<PAGE>
2. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET:
(A) Reflects the Company's recent property acquisitions as follows:
<TABLE>
<CAPTION>
Cost
---------------------------------------
Purchase Closing
Acquisition Price Costs Total
---------------------------------------
<S> <C> <C> <C>
Lazard Properties 599,100 1,100 600,200
Axinn Properties 62,698 600 63,298
---------------------------------------
Total $ 661,798 $ 1,700 $ 663,498
=======================================
</TABLE>
<TABLE>
<CAPTION>
Consideration
----------------------------------------------------------------------------------------
Mortgage Class A Series B Series A
Credit Facility Debt Operating Preferred Preferred Notes
Acquisition Borrowings Assumption Units Units Shares Receivable
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lazard Properties 248,499 239,701 - 77,500 37,500 (3,000)
Axinn Properties 37,144 - 26,154 - - -
----------------------------------------------------------------------------------------
Total $ 285,643 $ 239,701 $ 26,154 $ 77,500 $ 37,500 $ (3,000)
========================================================================================
</TABLE>
F-7
<PAGE>
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS:
(A) Reflects the historical statements of operations of the Columbia
Acquisition Properties, the Main Street Acquisition Properties, 1336 Enterprise
Drive, Kings Manor, Greentree Executive Campus, Five Eves Drive, the TA
Properties, the Emmes Properties, 748 & 855 Springdale Drive, 1974 Sproul Road,
the Berwyn Park Properties, the Green Hills Properties, 500/501 Office Center
Drive, Christiana Corporate Center, Metropolitan Industrial Center, Atrium 1, 5
& 6 Cherry Hill Executive Campus, 220 Commerce Drive, Provident Place, Bala
Pointe Office Centre and the Scarborough Properties. The historical statements
reflected below include the operating results for the period January 1, 1997
through the earlier of the respective acquisition dates or December 31, 1997.
Operating results from those dates forward are included in the historical
results of the Company.
Tenant Property
reimburse- operating
Acquisition / Offering Rents ments Other expenses
- ---------------------------------- -------------------------------------------
Columbia Acquisition Properties $ 338 $ 24 $ 25 $ 130
Main Street Acquisition Properties 542 60 - 379
1336 Enterprise Drive 78 13 - 19
Kings Manor 105 27 - 43
Greentree Executive Campus 602 17 - 272
Five Eves Drive 103 12 - 45
TA Properties 2,053 299 6 698
Emmes Properties 2,570 1,130 2 1,332
748 & 755 Springdale Drive 414 - - 99
1974 Sproul Road 354 54 - 225
Berwyn Park Properties 2,492 376 36 1,073
Green Hills Properties 4,567 - - 1,393
500/501 Office Center Drive 1,106 919 48 971
Christiana Corporate Center 615 22 45 218
Metropolitan Industrial Center 1,395 306 33 472
Atrium 1 994 34 26 573
5 & 6 Cherry Hill Executive Campus 127 - - 140
220 Commerce Drive 594 - - 186
Provident Place 644 90 7 283
Bala Pointe Office Centre 3,523 34 35 1,544
Scarborough Properties 5,424 537 21 2,318
=========================================
Total $ 28,640 $ 3,954 $ 284 $ 12,413
=========================================
(B) Reflects the Company's pro forma adjustments relative to the
acquisitions of the Columbia Acquisition Properties, the Main Street Acquisition
Properties, 1336 Enterprise Drive, Kings Manor, Greentree Executive Campus, Five
Eves Drive, the TA Properties, the Emmes Properties, 748 & 855 Springdale Drive,
1974 Sproul Road, the Berwyn Park Properties, the Green Hills Properties,
500/501 Office Center Drive, Christiana Corporate Center, Metropolitan
Industrial Center, Atrium 1, 5 & 6 Cherry Hill Executive Campus, 220 Commerce
Drive, Provident Place, the PECO Building, Bala Pointe Office Centre and the
Scarborough Properties for the year ended December 31, 1997 and pro forma
adjustments to reflect the March 1997 Offering, the July 1997 Offering, the
September 1997 Offering and the December 1997 Offering for the year ended
December 31, 1997. The pro forma adjustments below reflect the period January 1,
1997 through the earlier of the respective acquisition dates or December 31,
1997. Operating results from those dates forward are included in the historical
results of the Company.
F-8
<PAGE>
Depreciation
and
amortization
Acquisition / Offering Rents Interest (i) (ii)
- ---------------------------------- ----------------------------------------
Columbia Acquisition Properties $ - $ 110 $ 66
Main Street Acquisition Properties - - 109
1336 Enterprise Drive - - 21
Kings Manor - - 29
Greentree Executive Campus - 249 106
Five Eves Drive - 75 32
TA Properties - 1,241 530
Emmes Properties - 2,049 874
748 & 755 Springdale Drive - 171 73
1974 Sproul Road - - 61
Berwyn Park Properties - - 700
Green Hills Properties - 690 745
500/501 Office Center Drive - 700 340
Christiana Corporate Center - 308 132
Metropolitan Industrial Center - 926 395
Atrium 1 - 597 255
5 & 6 Cherry Hill Executive Campus - 218 93
220 Commerce Drive - 345 147
Provident Place - 411 175
PECO Building (iii) 918 652 278
Bala Pointe Office Centre - 1,891 807
Scarborough Properties - 1,957 1,125
March 1997 Offering - (91) -
July 1997 Offering - (6,905) -
September 1997 Offering - - -
December 1997 Offering - (1,291) -
-------------------------------------
Total $ 918 $ 4,303 $ 7,093
=====================================
(i) Pro forma interest expense is presented assuming an effective rate of 7.5%
on borrowings under the Company's revolving credit facility. The
adjustment for the Columbia Acquisition Properties also reflects an
effective interest rate of 9.5% on assumed debt.
(ii) Pro forma depreciation expense is presented assuming an 80% building and
20% land allocation of the purchase price and capitalized closing costs
and assumes a useful life of 25 years.
(iii) Pro forma base rents for the PECO Building are based on the lease in place
as of November 25, 1997 as historically the property was owner occupied
and was not an operating property. All property expenses are paid directly
by the tenant.
(C) Pro forma equity in income of management company is based on
management fees less incremental costs estimated to be incurred.
(D) Pro forma minority interest in income represents the incremental
pro forma earnings allocable to Class A minority interest unitsholders.
(E) Represents interest expense savings from debt repayments upon the
application of the net proceeds from the January 1998 Offering, the February 18,
1998 Offering, the February 27, 1998 Offering, and the April 1998 Offering.
F-9
<PAGE>
Interest savings Interest savings
For the Year Ended For the Six Months
12/31/97 Ended 6/30/98
Offering (i) (i)
- ---------------------------------------------------------- -------------------
January 1998 Offering $ (18,748) $ (1,798)
February 18, 1998 Offering (1,729) (232)
February 28, 1998 Offering (1,067) (170)
April 1998 Offering (1,063) (323)
--------- --------
Total $ (22,607) $ (2,523)
========= ========
(i) Pro forma interest expense is presented assuming an effective rate of 7.5%
on borrowings under the Company's revolving credit facility.
(F) Reflects the historical operations of the GMH Portfolio, the RREEF
Portfolio, Three Christina Centre, 920 Harvest Drive, Norriton Business Center,
the DKM Portfolio, the First Commercial Properties, One Christina Centre, 925
Harvest Drive, the Lazard Properties and the Axinn Properties for the year ended
December 31, 1997. Also reflects the exclusion of the historical operations of
Kings Mill which was sold by the Company.
<TABLE>
<CAPTION>
Tenant Property
reimburse- Interest operating
Acquisition Rents ments Other expense expenses
- -------------------------- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GMH Portfolio $ 25,049 $ 1,937 $ 174 $ - $ 10,935
RREEF Portfolio 4,160 705 - - 1,252
Three Christina Centre 4,635 2,427 22 - 2,830
920 Harvest Drive 1,658 63 - - 724
Norriton Business Center 1,161 - - - 276
DKM Portfolio 15,182 4,135 24 - 7,164
First Commercial Properties 6,235 719 116 - 2,307
One Christina Centre 4,789 519 569 - 2,241
925 Harvest Drive 946 - 92 - 329
Sale of Kings Mill (2,675) - - - (683)
Lazard Properties 64,579 5,315 456 16,784 23,351
Axinn Properties 10,335 1,285 - - 3,866
---------------------------------------------------------------------
Total $ 136,054 $ 17,105 $ 1,453 $ 16,784 $ 54,592
=====================================================================
</TABLE>
(G) Reflects the Company's pro forma adjustments relative to the
acquisitions of the GMH Portfolio, the RREEF Portfolio, Three Christina Centre,
920 Harvest Drive, Norriton Business Center, the DKM Portfolio, the First
Commercial Properties, One Christina Centre, 925 Harvest Drive, the Lazard
Properties and the Axinn Properties for the year ended December 31, 1997. Also
reflects the pro forma adjustment to exclude the results of operations of Kings
Mill which was sold by the Company.
F-10
<PAGE>
<TABLE>
<CAPTION>
Tenant Property
reimburse- Depreciation and operating
Acquisition Rents ments Other Interest (iii) amortization (iv) expenses
- --------------------------- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GMH Portfolio $ - $ - $ - $ 16,391 $ 7,382 $ -
RREEF Portfolio - - - 4,212 1,797 -
Three Christina Centre - - - 3,875 1,653 -
920 Harvest Drive - - - 912 389 -
Norriton Business Center - - - 658 257 -
DKM Portfolio - - - 10,016 4,422 -
First Commercial Properties - - - 2,959 1,559 -
One Christina Centre - - - 3,177 1,356 -
925 Harvest Drive - - - 630 269 -
Sale of Kings Mill - - - (1,121) (478) -
Lazard Properties (i) (425) (17) - 19,283 19,206 (33)
Axinn Properties (ii) (3,067) (181) - 2,786 2,026 (1,330)
-----------------------------------------------------------------------------
Total $(3,492) $ (198) $ - $ 63,778 $ 39,838 $ (1,363)
=============================================================================
</TABLE>
(i) Pro forma rents, reimbursements, other income and property operating
expenses represent a reduction of the results attributable to a property
which the Company deferred purchasing as part of the Lazard Acquisition.
These results had been included in the Lazard historical results.
(ii) Pro forma rents, reimbursements, other income and property operating
expenses represent a reduction of the results attributable to certain
Axinn properties which the Company deferred purchasing as part of the
Axinn Acquisition. These results had been included in the Axinn
historical results.
(iii) Pro forma interest expense is presented assuming an effective rate of 7.5%
on borrowings under the Company's revolving credit facility, and an
effective rate of 7.0% to 9.9% on assumed mortgage indebtedness.
(iv) Pro forma depreciation expense is presented assuming an 80% building and
20% land allocation of the purchase price and capitalized closing costs
and assumes a useful life of 25 years.
(H) Reflects the income allocated to the 1,550,000 Series B Preferred
Units issued as partial consideration in the acquisition of the Lazard
Properties. The Series B Preferred Units, with an aggregate stated value of
$77.5 million, are entitled to a 7.25% preferential return.
(I) Reflects the income allocated to the 750,000 Series A Preferred
Shares issued as partial consideration in the acquisition of the Lazard
Properties. The Series A Preferred Shares, with an aggregate stated value of
$37.5 million, are entitled to a 7.25% preferential return.
(J) Reflects the historical operations of the GMH Portfolio, the RREEF
Portfolio, Three Christina Centre, 920 Harvest Drive, Norriton Business Center,
the DKM Portfolio, the First Commercial Properties, One Christina Centre, 925
Harvest Drive, the Lazard Properties and the Axinn Properties through the
earlier of the respective acquisition dates or June 30, 1998. Operating results
from those dates forward are included in the historical results of the Company.
Also reflects the exclusion of the historical operations of Kings Mill which was
sold by the Company.
<TABLE>
<CAPTION>
Tenant Property
reimburse- Interest operating
Acquisition Rents ments Other expense expenses
- -------------------------- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GMH Portfolio $ 343 $ 27 $ 2 $ - $ 150
RREEF Portfolio 570 97 - - 172
Three Christina Centre 800 419 4 - 488
920 Harvest Drive 341 13 - - 149
Norriton Business Center 251 - - - 60
DKM Portfolio 3,744 1,020 6 - 1,766
First Commercial Properties 2,187 252 41 - 809
One Christina Centre 1,719 186 204 - 804
925 Harvest Drive 454 - 44 - 158
Sale of Kings Mill (1,180) - - - (301)
Lazard Properties 33,618 2,455 143 8,681 11,881
Axinn Properties 4,410 670 - - 1,853
---------------------------------------------------------------------
Total $ 47,257 $ 5,139 $ 444 $ 8,681 $ 17,989
=====================================================================
</TABLE>
F-11
<PAGE>
(K) Reflects the Company's pro forma adjustments relative to the
acquisitions of the GMH Portfolio, the RREEF Portfolio, Three Christina Centre,
920 Harvest Drive, Norriton Business Center, the DKM Portfolio, the First
Commercial Properties, One Christina Centre, 925 Harvest Drive, the Lazard
Properties and the Axinn Properties for the six months ended June 30, 1998. Also
reflects the pro forma adjustment to exclude the results of operations of Kings
Mill which was sold by the Company.
<TABLE>
<CAPTION>
Tenant Property
reimburse- Depreciation and operating
Acquisition Rents ments Other Interest (iii) amortization (iv) expenses
- --------------------------- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GMH Portfolio $ - $ - $ - $ 225 $ 101 $ -
RREEF Portfolio - - - 577 246 -
Three Christina Centre - - - 669 285 -
920 Harvest Drive - - - 187 80 -
Norriton Business Center - - - 143 56 -
DKM Portfolio - - - 2,470 1,090 -
First Commercial Properties - - - 1,038 547 -
One Christina Centre - - - 1,140 487 -
925 Harvest Drive - - - 302 129 -
Sale of Kings Mill - - - (494) (211) -
Lazard Properties (i) (116) (5) - 9,205 9,524 (82)
Axinn Properties (ii) (897) (107) - 1,381 1,004 (778)
------------------------------------------------------------------------------
Total $ (1,013) $ (112) $ - $ 16,843 $ 13,338 $ (860)
==============================================================================
</TABLE>
(i) Pro forma rents, reimbursements, other income and property operating
expenses represent a reduction of the results attributable to a property
which the Company deferred purchasing as part of the Lazard Acquisition.
These results had been included in the Lazard historical results.
(ii) Pro forma rents, reimbursements, other income and property operating
expenses represent a reduction of the results attributable to certain
Axinn properties which the Company deferred purchasing as part of the
Axinn Acquisition. These results had been included in the Axinn
historical results.
(iii) Pro forma interest expense is presented assuming an effective rate of 7.5%
on borrowings under the Company's revolving credit facility, and an
effective rate of 7% to 9.9% on assumed mortgage indebtedness.
(iv) Pro forma depreciation expense is presented assuming an 80% building and
20% land allocation of the purchase price and capitalized closing costs
and assumes a useful life of 25 years.
F-12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To LF Strategic Realty Investors, LP:
We have audited the combined statement of revenue and certain expenses of the
Lazard Properties for the year ended December 31, 1997. This financial statement
is the responsibility of the Properties' management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The combined statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission, as described in Note 1, and is not intended to be a
complete presentation of the Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue and certain expenses of the Lazard Properties
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
July 31, 1998
F-13
<PAGE>
LAZARD PROPERTIES
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES (NOTE 1)
(in thousands)
<TABLE>
<CAPTION>
For the Year For the Six
Ended Months Ended
December 31, June 30,
1997 1998
------------ ------------
(unaudited)
<S> <C> <C>
REVENUE:
Minimum rent (Note 2) $ 64,579 $ 33,618
Tenant reimbursements 5,315 2,455
Other income 456 143
------------ ------------
Total revenue 70,350 36,216
------------ ------------
CERTAIN EXPENSES:
Maintenance and other operating expenses (Notes 4 & 5) 12,414 6,346
Utilities 5,870 2,802
Interest expense (Note 6) 16,784 8,681
Real estate taxes 5,067 2,733
------------ ------------
Total certain expenses 40,135 20,562
------------ ------------
REVENUE IN EXCESS OF CERTAIN EXPENSES BEFORE INCOME FROM INVESTMENTS IN
LIMITED PARTNERSHIPS
30,215 15,654
INCOME FROM INVESTMENTS IN LIMITED PARTNERSHIPS (NOTE 3)
262 245
------------ ------------
REVENUE IN EXCESS OF CERTAIN EXPENSES AND INCOME FROM INVESTMENTS IN
LIMITED PARTNERSHIPS
$ 30,477 $ 15,899
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-14
<PAGE>
LAZARD PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
(in thousands)
1. BASIS OF PRESENTATION:
The combined statement of revenue and certain expenses reflects the operations
of the Lazard Properties (the "Properties"), located in New Jersey, North
Carolina, Pennsylvania, and Virginia. The Properties are expected to be sold by
LF Strategic Realty Investors, LP through its subsidiaries Atlantic American
Properties Trust and Commonwealth Atlantic Properties, Inc. subsequent to July
31, 1998. The Properties have an aggregate net rentable area of approximately
5,717,000 square feet (94% leased as of December 31, 1997). The statement of
revenue and certain expenses has been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission.
The accounting records of the Properties are maintained on an accrual basis. The
accompanying financial statements exclude certain expenses such as depreciation
and amortization, professional fees, and other costs not directly related to the
future operations of the Properties.
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 revenue and expenses during the reporting period.
The ultimate results could differ from those estimates.
The combined statement of revenue and certain expenses for the six months ended
June 30, 1998 is unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for
the fair presentation of the combined statement of revenue and certain expenses
for the interim period have been included. The results of the interim period are
not necessarily indicative of the results for the full year.
2. OPERATING LEASES:
Minimum rent presented includes straight-line adjustments for rental revenue
increases in accordance with generally accepted accounting principles. The
aggregate rental revenue increase resulting from the straight-line adjustment
for the year ended December 31, 1997, was $2,365 and for the six months ended
June 30, 1998 was $1,023 (unaudited). No tenants represent greater than 10% of
aggregate minimum rent.
F-15
<PAGE>
The Properties are leased to tenants under operating leases with expiration
dates extending to the year 2010. Future minimum rentals under noncancellable
operating leases, excluding tenant reimbursements of operating expenses as of
December 31, 1997, are as follows:
1998 $ 63,967
1999 53,118
2000 45,164
2001 36,217
2002 30,715
Thereafter 97,846
Certain leases also include provisions requiring tenants to reimburse the
Properties for management costs and other operating expenses up to stipulated
amounts.
3. INCOME FROM INVESTMENTS IN LIMITED PARTNERSHIPS:
The combined statement of revenue and certain expenses includes income from a
50% interest in the investment in Iron Run Northlight II. The summary financial
information for the investment in Iron Run Northlight II is as follows:
<TABLE>
<CAPTION>
For the Year For the Six
Ended Months Ended
December 31, June 30,
1997 1998
------------ ------------
(unaudited)
<S> <C> <C>
Revenue $ 1,214 $ 1,078
Maintenance and other operating expenses 38 87
Utilities -- 63
Interest 881 502
Real estate taxes -- 64
-------- ---------
Total certain expenses 919 716
-------- ---------
Total revenue in excess of certain expenses
295 362
-------- ---------
Share of income from investment in limited partnership
$ 148 $ 181
======== =========
</TABLE>
F-16
<PAGE>
The combined statement of revenue and certain expenses includes income from a
50% investment in Interstate Center. The summary financial information for the
investment in Interstate Center is as follows:
<TABLE>
<CAPTION>
For the Year For the Six
Ended Months Ended
December 31, June 30,
1997 1998
------------ ------------
(unaudited)
<S> <C> <C>
Revenue $ 1,399 $ 769
Maintenance and other operating expenses 315 168
Utilities 194 82
Interest 543 260
Real estate taxes 119 131
-------- ---------
Total certain expenses 1,171 641
-------- ---------
Total revenue in excess of certain expenses
228 128
-------- ---------
Share of income from investment in limited partnership
$ 114 $ 64
======== =========
</TABLE>
4. RELATED PARTY TRANSACTIONS:
The Properties paid management fees of $1,030 and $572 (unaudited) for the year
ended December 31, 1997 and for the six months ended June 30, 1998,
respectively, to Atlantic American Property Management, Inc., a related party,
based on percentages as defined in the management agreement. These management
fees are included in maintenance and other operating expenses in the
accompanying statements.
5. COMMITMENTS AND CONTINGENCIES:
The Properties lease land under ground leases that expire in 2029 and 2089.
Rental expense associated with ground leases was approximately $369 for the year
ended December 31, 1997 and $184 for the six months ended June 30, 1998, and has
been included in maintenance and other operating expenses in the accompanying
statements. Fixed annual rental expense to be paid for the five years subsequent
to December 31, 1997 is as follows:
1998 $ 308
1999 308
2000 308
2001 333
2002 333
F-18
<PAGE>
6. INTEREST EXPENSE:
Certain indebtedness is expected to be assumed by the purchaser of the property
portfolio based upon the terms and conditions of the subject debt agreements.
Accordingly, interest expense is included in the combined statements of revenue
and certain expenses as follows:
<TABLE>
<CAPTION>
For the Six
For the Year Months
Original Ended Ended
Principal Date December 31, June 30,
Amount Placed Maturity Rate 1997 1998
---------------- ----------------- ------------ ---------------- ------------------ -----------------
(unaudited)
<S> <C> <C> <C> <C> <C>
$ 163,284 June 1997 2027 7.48% $ 11,714 $ 5,991
$ 30,000 June 1997 2027 Libor + .93% 1,822 1,005
$ 20,000 June 1997 2027 Libor + .76% 1,184 653
$ 25,800 January 1994 2001 8.00% 2,064 1,032
----------------- ----------------
$ 16,784 $ 8,681
================ ================
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brandywine Realty Trust:
We have audited the combined statement of revenue and certain expenses of Axinn
Properties, described in Note 1, for the year ended December 31, 1997. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The combined statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Current Report on Form 8-K of
Brandywine Realty Trust as described in Note 1 and is not intended to be a
complete presentation of Axinn Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue and certain expenses of Axinn Properties for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
May 15, 1998
F-20
<PAGE>
AXINN PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (NOTE 1)
For the For the Six
Year Ended Months Ended
December 31, June 30,
1997 1998
------------ ------------
(unaudited)
REVENUE:
Base rents (Note 2) $ 10,335,000 $ 4,410,000
Tenant reimbursements 1,285,000 670,000
------------- ------------
Total revenue 11,620,000 5,080,000
------------- ------------
CERTAIN EXPENSES:
Maintenance and other operating expenses 1,203,000 524,000
Utilities 487,000 241,000
Real estate taxes 2,176,000 1,088,000
------------- ------------
Total certain expenses 3,866,000 1,853,000
------------- ------------
REVENUE IN EXCESS OF CERTAIN EXPENSES $ 7,754,000 $ 3,227,000
============= ============
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
AXINN PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BASIS OF PRESENTATION:
The accompanying combined statement of revenue and certain expenses reflects the
operations of nineteen industrial buildings and seven office buildings (the
"Axinn Properties") owned by Donald E. Axinn ("Axinn") and certain entities
controlled by Axinn located in New Jersey and New York. Brandywine Realty Trust
("BRT") and Brandywine Operating Partnership, L.P. (the "Operating Partnership")
entered into an agreement (the "Acquisition Agreement) on July 11, 1998 with
Axinn and certain entities controlled by Axinn to acquire the above mentioned
properties for an aggregate purchase price of approximately $83.4 million. The
Axinn Properties have an aggregate net rentable area of approximately 1,115,000
square feet and were 90% leased as of December 31, 1997.
In addition to the above properties, the Acquisition Agreement includes
provisions to acquire three other properties subject to certain terms and
contingencies. Such properties are excluded from the accompanying financial
statements. These properties are as follows:
31 Commercial Street
- --------------------
This property will be acquired only after certain environmental conditions
affecting the property have been satisfied. If the environment conditions are
not satisfied within two years from the closing date, then either the Operating
Partnership or Axinn may terminate its obligations to buy or sell, as
applicable, this property.
263 Old Country Road
- --------------------
This property will be acquired once construction is completed and a certificate
of occupancy is issued which is expected to occur in 1999.
101 Paragon Drive
- -----------------
The Operating Partnership will pay $500,000 to Axinn at the initial closing and,
subject to certain terms and conditions, will be required to acquire this
property in the year 2005 for $11,000,000. The Operating Partnership will be
entitled to receive $50,000 each year through the year 2005 subject to certain
terms and conditions. The tenant has a priority option to acquire the property
for $11,000,000 which is exercisable through the year 2005.
This combined statement of revenue and certain expenses is to be included in the
Company's Current Report on Form 8-K, pursuant to the rules and regulations of
the Securities and Exchange Commission.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles and exclude certain expenses such as
interest, depreciation and amortization, and other costs not directly related to
the future operations of the Axinn Properties.
The combined statement of revenue and certain expenses for the six months ended
June 30, 1998 is unaudited. In the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary to present fairly
the revenue and certain expenses of Axinn for the six months ended June 30, 1998
have been included. The combined revenue and certain expenses for such interim
period are not necessarily indicative of the results for the full year.
F-22
<PAGE>
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 during the reporting
period. The ultimate results could differ from those estimates.
2. OPERATING LEASES:
Base rents for the year ended December 31, 1997, and for the six months ended
June 30, 1998, include straight-line adjustments for rental revenue decreases in
accordance with generally accepted accounting principles. The aggregate rental
revenue decreases resulting from the straight-line adjustments for the year
ended December 31, 1997, and for the six months ended June 30, 1998 were
approximately ($36,000) and ($36,000), (unaudited), respectively.
Sony Corporation's and Volvo Corporation's minimum rental payments were
$1,405,000 and $1,189,000, respectively, and represented greater than 10% of the
total base rents in 1997. Sony's lease expired at the end of 1997 and was not
renewed, and the space has not been leased as of June 30, 1998.
The Axinn Properties are leased to tenants under operating leases with
expiration dates extending to the year 2013. Future minimum rentals under
noncancelable operating leases, excluding tenant reimbursements of operating
expenses as of December 31, 1997, are as follows:
1998 $ 8,452,000
1999 8,009,000
2000 7,798,000
2001 5,290,000
2002 3,432,000
Thereafter 9,770,000
--------------
Total $ 42,751,000
==============
Certain leases also include provisions requiring tenants to reimburse Axinn for
management costs and other operating expenses up to stipulated amounts.
3. RELATED PARTY TRANSACTIONS:
Axinn Properties have an agreement with an affiliate, which provides Axinn
Properties with certain property management and related services. The aggregate
costs incurred for these services and included in maintenance and other
operating expenses for the year ended December 31, 1997, and for the six months
ended June 30, 1998 were approximately $529,000 and $186,000, (unaudited),
respectively.
4. GROUND LEASES:
One of the Properties is subject to a ground lease which expires on November 30,
2026. Obligations under the ground lease are as follows:
1998 $ 22,000
1999 23,000
2000 23,000
2001 23,000
2002 23,000
Thereafter 777,000
------------
Total $ 891,000
============
5. SUBSEQUENT EVENT (unaudited)
A significant tenant that represents $898,000 of revenues for the year ended
December 31, 1997 filed for Chapter 11 bankruptcy protection on June 30, 1998.
The tenant has continued to make rental payments under the terms of its lease,
which expires on February 6, 2007. As security for the lease payments, the
tenant has posted an $817,000 Letter of Credit, which is available for payment
in the event of default.
F-23
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated July 31, 1998 in this Form 8-K/A No. 1 on the combined statement of
revenue and certain expenses of the Lazard Properties into the Company's
previously filed Registration Statements on Form S-3 (file No. 333-20991, File
No. 333-20999, File No. 333-56237, File No. 46647 and File No. 53359) and Forms
S-8 (File No. 333-14243, File No. 333-28427, and File No. 52957).
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
October 19, 1998
