<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, 1998
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 38,016,938 Common Shares of Beneficial Interest
were outstanding as of November 12, 1998.
<PAGE>
BRANDYWINE REALTY TRUST
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998 (unaudited)
And December 31, 1997
Consolidated Statements of Operations for the three
months and nine months Ended September 30, 1998
(unaudited) and September 30, 1997 (unaudited)
Consolidated Statements of Cash Flow for the nine months
Ended September 30, 1998 (unaudited) and September 30,
1997 (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
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
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
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
(unaudited)
ASSETS
<S> <C> <C>
Real estate investments
Operating properties $ 1,788,185 $ 586,414
Accumulated depreciation (50,762) (22,857)
----------- -----------
1,737,423 563,557
Cash and cash equivalents 38,539 29,442
Escrowed cash 7,865 212
Accounts receivable 9,276 3,689
Due from affiliates -- 214
Investment in management company 182 74
Investment in real estate ventures, at equity 15,393 5,480
Deposits 3,200 12,133
Deferred costs and other assets 17,023 6,680
----------- -----------
Total assets $ 1,828,901 $ 621,481
=========== ===========
LIABILITIES AND BENEFICIARIES' EQUITY
Mortgage notes payable $ 306,206 $ 48,731
Notes payable, Credit Facility 636,225 115,233
Accrued interest 1,683 857
Accounts payable and accrued expenses 6,584 2,377
Distributions payable 15,016 8,843
Due to affiliates 296 --
Tenant security deposits, deferred rents and other liabilities 10,576 5,535
----------- -----------
Total liabilities 976,586 181,576
----------- -----------
Commitments and Contingencies
Preferred Shares, $0.01 par value, 5,000,000 shares authorized,
750,000 convertible preferred shares issued
and outstanding at September 30, 1998 37,500 --
----------- -----------
Minority interest 99,454 14,377
----------- -----------
Beneficiaries' equity
Common Shares of beneficial interest, $0.01 par value,
100,000,000 common shares authorized,
38,016,938 and 24,087,315 shares issued and outstanding at
September 30, 1998 and December 31, 1997, respectively 376 241
Additional paid-in capital 751,797 446,054
Share warrants 962 962
Cumulative earnings 38,514 11,753
Cumulative distributions (76,288) (33,482)
----------- -----------
Total beneficiaries' equity 715,361 425,528
----------- -----------
Total liabilities and beneficiaries' equity $ 1,828,901 $ 621,481
=========== ===========
</TABLE>
The accompanying condensed notes are integral part of
these consolidated financial statements.
3
<PAGE>
BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Rents $ 39,856 $ 15,401 $ 105,409 $ 32,290
Tenant reimbursements 6,699 2,446 16,105 5,731
Other 701 274 1,974 818
--------- --------- --------- ---------
Total revenue 47,256 18,121 123,488 38,839
--------- --------- --------- ---------
Operating Expenses:
Interest 8,040 1,840 19,057 4,899
Depreciation and amortization 11,952 4,276 30,145 10,051
Amortization of deferred compensation costs 372 -- 1,116 --
Property operating expenses 15,236 6,277 38,686 13,309
Management fees 1,710 739 4,592 1,496
Administrative expenses 395 275 1,022 705
--------- --------- --------- ---------
Total operating expenses 37,705 13,407 94,618 30,460
--------- --------- --------- ---------
Income before equity in income of management company, equity in
income of real estate ventures, gains on sales, minority interest
and extraordinary items 9,551 4,714 28,870 8,379
Equity in income of management company 33 115 108 332
Equity in income of real estate ventures 251 -- 251 --
--------- --------- --------- ---------
Income before gains on sales, minority interest
and extraordinary items 9,835 4,829 29,229 8,711
Gains on sale of interests in real estate -- -- 209 --
--------- --------- --------- ---------
Income before minority interest and extraordinary items 9,835 4,829 29,438 8,711
Minority interest in income (276) (81) (654) (256)
--------- --------- --------- ---------
Net income before extraordinary items 9,559 4,748 28,784 8,455
Extraordinary items (1,145) -- (2,003) --
--------- --------- --------- ---------
Net income 8,414 4,748 26,781 8,455
Income allocated to Preferred Shares (22) -- (22) (499)
--------- --------- --------- ---------
Income allocated to Common Shares $ 8,392 $ 4,748 $ 26,759 $ 7,956
========= ========= ========= =========
Earnings per Common Share:
Basic $ 0.22 $ 0.25 $ 0.75 $ 0.65
========= ========= ========= =========
Diluted $ 0.22 $ 0.25 $ 0.75 $ 0.65
========= ========= ========= =========
</TABLE>
The accompanying condensed notes are an integral part of
these consolidated financial statements.
4
<PAGE>
BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited and in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 26,781 $ 8,455
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest 654 256
Depreciation and amortization 30,145 10,051
Equity in income of management company (108) (332)
Equity in income of real estate ventures (251) --
Amortization of deferred compensation costs 1,116 --
Issuance of shares to trustees 29 --
Amortization of discounted notes payable 188 --
Gain on sale of interest in real estate (209) --
Extraordinary items 2,003 --
Changes in assets and liabilities:
Accounts receivable (5,587) (1,099)
Affiliate receivable 510 903
Other assets (8,720) (2,368)
Accounts payable and accrued expenses 1,282 1,859
Accrued mortgage interest 826 101
Other liabilities 5,041 2,636
----------- -----------
Net cash provided by operating activites 53,700 20,462
----------- -----------
Cash flows from investing activities:
Acquisitions of properties (806,085) (314,348)
Sales of properties 14,704 --
Investment in real estate ventures (9,662) --
Decrease (increase) in escrowed cash (7,653) 1,696
Capital expenditures and leasing commissions paid (12,735) (7,311)
----------- -----------
Net cash used in investing activities (821,431) (319,963)
----------- -----------
Cash flows from financing activites:
Proceeds from issuance of shares, net 301,306 287,807
Repurchases of Common Shares (1,657) --
Distributions paid to shareholders (36,961) (9,951)
Distributions paid to minority partners (568) (287)
Proceeds from mortgage notes payable 9,143 14,858
Repayments of mortgage notes payable (13,621) (3,518)
Proceeds from notes payable, Credit Facility 1,329,367 166,775
Repayments of notes payable, Credit Facility (808,375) (152,775)
Purchase of minority interests -- (531)
Other debt costs (1,806) (1,191)
----------- -----------
Net cash provided by financing activities 776,828 301,187
----------- -----------
Increase in cash and cash equivalents 9,097 1,686
Cash and cash equivalents at beginning of period 29,442 18,279
----------- -----------
Cash and cash equivalents at end of period $ 38,539 $ 19,965
=========== ===========
</TABLE>
The accompanying condensed notes are an integral part of
these consolidated financial statements.
5
<PAGE>
BRANDYWINE REALTY TRUST
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. ORGANIZATION AND NATURE OF OPERATIONS:
Brandywine Realty Trust (collectively with its subsidiaries, the "Company") is a
self-administered, self-managed and fully integrated real estate investment
trust (a "REIT"). The Company owns a portfolio of real estate assets located
primarily in the Mid-Atlantic Region. As of September 30, 1998, the Company's
portfolio included 194 office properties, 51 industrial facilities and one mixed
use property (collectively, the "Properties") that contain an aggregate of
approximately 17.6 million net rentable square feet. As of September 30, 1998,
the Company also held economic interests in nine office real estate ventures
(the "Real Estate Ventures").
The Company's interest in the Properties and the Real Estate Ventures 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, 1998, the Company held an approximately 90.7% interest (computed
assuming conversion of the preferred units, as defined below, into Class A
Units, as defined below) in the Operating Partnership and was entitled to 97.6%
of the Operating Partnership's income after distributions to holders of
Preferred Units. The Operating Partnership holds a 95% economic interest in
Brandywine Realty Services Corporation (the "Management Company") through its
ownership of 100% of the Management Company's non-voting preferred stock and 5%
of its voting common stock. As of September 30, 1998, the Management Company was
responsible for managing and leasing 207 of the Properties and additional
properties on behalf of third parties.
A majority of the Properties are located within the suburban Philadelphia office
and industrial market. As such, a downturn in business activity in this market
could negatively impact the Company. Management believes that the Philadelphia
office and industrial market provides a well-diversified economic base which
helps to insulate the region from the types of market vicissitudes that can
adversely affect a single-sector economy.
2. BASIS OF PRESENTATION:
The consolidated financial statements have been prepared by the Company without
audit except as to the balance sheet as of December 31, 1997, which has been
prepared from audited data, 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 included
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, 1998, the results of its operations for the three
month periods ended September 30, 1998 and 1997, and the results of its
operations and its cash flows for the nine month periods ended September 30,
1998 and 1997 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 on
Form 10-K/A, for the year ended December 31, 1997.
3. MINORITY INTEREST IN THE OPERATING PARTNERSHIP:
Minority Interest in the Operating Partnership relates to interests in the
Operating Partnership that are not owned by the Company. Income allocated to the
minority interest is based on the weighted average percentage ownership of the
Operating Partnership throughout the year. Minority Interest is comprised of
Class A Units of limited partnership interest ("Class A Units") and Series B
Preferred Units of limited partnership interest ("Preferred Units"). The
Operating Partnership issued these interests to persons that contributed assets
to the Operating Partnership. The Operating Partnership will, at the request of
a holder, be obligated to redeem each Class A Unit held by such holder, at the
option of the Company, for cash or one Common Share. Each Preferred Unit has a
stated value of $50.00 and is
6
<PAGE>
convertible at the option of the holder into Class A Units at a conversion price
of $28.00. The conversion price is subject to reduction to $26.50 if the average
trading price of the Common Shares during the 60-day period ending December 31,
2003 is $23.00 or lower. The Preferred Units bear a preferred distribution of
7.25% per annum, subject to an increase in the event quarterly distributions
paid to holders of Common Shares exceeds $0.51 per share. As of September 30,
1998, there were 947,005 outstanding Class A Units held by holders other than
the Company. In addition, 1,550,000 Preferred Units were outstanding.
4. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS:
Subsequent to September 30, 1998
Subsequent to September 30, 1998 and through November 13, 1998, the Company
acquired four office properties and 18 industrial properties containing an
aggregate of approximately 889,993 net rentable square feet. The aggregate
purchase price for the 22 properties was approximately $62.7 million, funded
with approximately $36.5 million of cash and approximately $26.2 million in
Class A Units.
Third Quarter - 1998
During the third quarter of 1998, the Company consummated a transaction in which
it acquired 43 office properties, 23 industrial facilities, one mixed use
property, approximately 172 acres of undeveloped land, an interest in a Real
Estate Venture and an option to purchase a 294,800 square foot building under
development for an option price of $68.0 million on or before March 1, 1999. The
67 acquired properties contain an aggregate of approximately 5.5 million net
rentable square feet. The aggregate purchase price of the transaction was
approximately $599.1 million, which was funded with approximately $244.4 million
of cash; debt assumption of approximately $239.7 million; the issuance of
750,000 Preferred Shares (as defined below) with an aggregate stated value of
$37.5 million; and the issuance of 1,550,000 Preferred Units with an aggregate
stated value of $77.5 million.
As part of the transaction, the Company also agreed to purchase a property with
154,155 square feet for a purchase price of approximately $20.0 million which
will be satisfied through the issuance of 400,000 Preferred Units with an
aggregate stated value of $20.0 million. The Company expects to acquire this
property in the first quarter of 1999.
Second Quarter - 1998
During the second quarter of 1998, the Company acquired 13 office properties
containing an aggregate of approximately 796,150 net rentable square feet. The
aggregate purchase price of the 13 properties was approximately $98.2 million,
which was satisfied with approximately $87.9 million of cash, debt assumption of
approximately $1.0 million and the issuance of approximately $9.3 million in
Class A Units. During the second quarter of 1998, the Company sold an office
property located in Cincinnati, Ohio containing approximately 156,175 net
rentable square feet for a gross sales price of approximately $15.2 million.
First Quarter - 1998
During the first quarter of 1998, the Company acquired 44 office properties and
six industrial facilities containing an aggregate of approximately 4.3 million
net rentable square feet. The aggregate purchase price of the 50 properties was
approximately $492.7 million, funded with approximately $468.1 million of cash,
debt assumption of approximately $21.0 million and approximately $3.6 million in
Class A Units.
1997
During 1997, the Company acquired 80 properties (61 office properties and 19
industrial facilities) containing an aggregate of approximately 5.1 million net
rentable square feet. The aggregate purchase price for the 1997 property
acquisitions was approximately $403.7 million, funded with approximately $378.3
million of cash, debt assumption of approximately $15.9 million and
approximately $9.5 million in Class A Units.
The following unaudited pro forma financial information of the Company for the
nine months ended September 30, 1998 and 1997 gives effect to the Properties
acquired through September 30, 1998 and the offerings of Common Shares during
1998 and 1997 as if the purchases and offerings had occurred on January 1, 1997.
7
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------
1998 1997
------------------ ------------------
(in thousands, except per share data)
(Unaudited)
<S> <C> <C>
Pro forma total revenues $195,222 $184,272
Pro forma net income before extraordinary items $23,076 $19,970
Diluted pro forma net income per Common Share before
extraordinary items $0.52 $0.51
</TABLE>
All acquisitions described above were accounted for by the purchase method. The
results of operations for each of the acquired properties have been included
from the respective purchase dates. All pro forma financial information
presented within this footnote is unaudited and is not necessarily indicative of
the results which actually would have occurred if acquisitions had been
consummated on the respective dates indicated, nor does the pro forma
information purport to represent the results of operations for future periods.
5. INDEBTEDNESS
Notes Payable Credit Facility - The Company uses credit facility borrowings for
general business purposes, including the acquisition of office, industrial and
mixed use properties and the repayment of certain outstanding debt. At December
31, 1997, the Company had a $150.0 million secured credit facility (the "1997
Credit Facility"). The 1997 Credit Facility was secured by 39 of the Properties
and bore interest at a per annum floating rate equal to the Company's choice of
30, 60 or 90-day LIBOR, plus 175 basis points.
During the first quarter of 1998, the Company replaced the 1997 Credit Facility
with a $330.0 million unsecured revolving credit facility (the "1998 Credit
Facility"). The Company wrote off $858,000 of unamortized deferred financing
costs relating to the 1997 Credit Facility which has been accounted for as an
extraordinary item in the statement of operations. The 1998 Credit Facility bore
interest at a reduced interest rate equal to the 30, 60, 90 or 180-day LIBOR,
plus, in each case, a range of 100 to 137.5 basis points, depending on the
Company's then existing leverage and debt rating. Alternatively, the Company
could have borrowed funds at a base rate equal to the higher of (i) the Prime
Rate or (ii) the Fed Funds Rate plus 50 basis points.
The 1998 Credit Facility required the Company to maintain ongoing compliance
with a number of customary financial and other covenants, including leverage
ratios based on gross implied asset value and debt service coverage ratios,
limitations on liens and distributions and a minimum net worth requirement.
During the second quarter of 1998, the Company entered into a $150.0 million
unsecured credit facility (the "Additional Facility") to facilitate certain of
the Company's property acquisitions. Amounts repaid by the Company under the
Additional Facility were not subject to reborrowing. The Additional Facility
incorporated the covenants contained in the 1998 Credit Facility.
During the third quarter of 1998, the Company replaced the 1998 Credit Facility
with a new revolving credit facility of $550.0 million (the "New 1998 Credit
Facility"). The New 1998 Credit Facility is currently unsecured, but will
convert to a secured facility if certain leverage requirements are not met. The
Company wrote off approximately $1.1 million of unamortized deferred financing
costs related to the 1998 Credit Facility which has been accounted for as an
extraordinary item in the statement of operations. The interest rate borne by
the New 1998 Credit Facility was LIBOR plus 150 basis points initially, with the
spread over LIBOR subject to reductions of from 12.5 to 35 basis points and a
possible increase of 25 basis points based on the Company's leverage. The spread
over LIBOR may also be reduced to either 115 or 100 basis points depending on
the Company's long term debt rating. The New 1998 Credit Facility matures in
September 2001 and contains financial and operating convenants similar to those
contained in the 1998 Credit Facility with certain definitional and
computational modifications. On September 30, 1998, the Company had
approximately $493.2 million of indebtedness outstanding under the New 1998
Credit Facility.
8
<PAGE>
During the third quarter of 1998, the Company also replaced the Additional
Facility with a new $150 million unsecured credit facility (the "New Additional
Facility") which bears interest at LIBOR plus 200 basis points and is payable in
full on March 31, 1999. Amounts repaid under the New Additional Facility are not
subject to reborrowing. The New Additional Facility contains financial and
operating convenants that are identical to those applicable to the New 1998
Credit Facility. As of September 30, 1998, the Company had approximately $143.0
million of indebtedness outstanding under the New Additional Facility.
Borrowings under the New 1998 Credit Facility and the New Additional Facility
were used to fund the costs of acquiring properties. The Company is currently in
compliance with all covenants related to the new financings.
The Company paid interest totaling approximately $19.9 million during the nine
months ended September 30, 1998 and approximately $4.5 million during the nine
months ended September 30, 1997. As of September 30, 1998, the fair values of
mortgage notes payable and notes payable under the New 1998 Credit Facility and
the New Additional Facility approximate carrying costs. During the nine months
ended September 30, 1998, the Company capitalized interest related to
development and redevelopment projects totaling approximately $914,000.
As of September 30, 1998, the Company anticipated making equity contributions to
Real Estate Ventures under development totaling approximately $7.8 million of
which $2.3 million was contributed as of September 30, 1998. The Company has
also entered into guarantees for the benefit of certain Real Estate Ventures,
aggregating approximately $15.2 million. Payment under these guaranties would
constitute loan obligations of, or preferred equity positions in, the applicable
Real Estate Venture.
6. SHARES, WARRANTS AND OPTIONS:
The following table summarizes the Company's issuance of Common Shares, warrants
and options during the periods presented:
<TABLE>
<CAPTION>
Number of
Type of issuance Investor Date of issuance Common Shares Share Price
- ----------------------- ------------------------ ---------------- ------------- -----------
1998 Activity through September 30, 1998
- ---------------------------------------------------
<S> <C> <C> <C> <C>
Repurchases (ii) (86,744) (ii)
Trustee Fees (iii) Trustees 5/8/98 1,248 -
Share offering Public 4/21/98 625,000 $ 24.00
Share offering (iv) Public 3/6/98 1,000,000 $ 24.00
Share offering Public 2/27/98 629,921 $ 23.81
Share offering Public 2/18/98 1,012,820 $ 24.06
Share offering Public 2/4/98 10,000,000 $ 24.00
Unit redemptions (v) Various 6/30/98 1,434 -
Unit redemptions (v) Scarborough 6/22/98 50,000 -
Unit redemptions (v) Safeguard Scientifics 1/6/98 252,387 -
Employee share awards Company employees 1/2/98 443,557 -
Employee share options Company employees 1/2/98 - -
Employee share options Company employees 1/2/98 - -
Employee share options Company employees 1/2/98 - -
--------------
13,929,623
--------------
Amounts outstanding at December 31, 1997
- -------------------------------------------------
Shares outstanding Various 12/31/97 24,087,315
Options outstanding Various 12/31/97 -
--------------
24,087,315
--------------
Total outstanding as of September 30, 1998 38,016,938
==============
</TABLE>
<PAGE>
[TABLE RESTUBBED]
<TABLE>
<CAPTION>
Number of
options / Proceeds (in
Type of issuance Investor warrants Exercise Price thousands)(i)
- ----------------------- ------------------------ -------- -------------- -------------
1998 Activity through September 30, 1998
- ---------------------------------------------------
<S> <C> <C> <C> <C>
Repurchases
Trustee Fees (iii) Trustees - - -
Share offering Public - - 14,250
Share offering (iv) Public - - 22,770
Share offering Public - - 14,325
Share offering Public - - 23,152
Share offering Public - - 227,700
Unit redemptions (v) Various - - -
Unit redemptions (v) Scarborough - - -
Unit redemptions (v) Safeguard Scientifics - - -
Employee share awards Company employees - - -
Employee share options Company employees 748,874 $ 29.04 -
Employee share options Company employees 740,796 $ 27.78 -
Employee share options Company employees 554,034 $ 25.25 -
----------- =========
2,043,704 $ 302,197
----------- =========
Amounts outstanding at December 31, 1997
- -------------------------------------------------
Shares outstanding Various - - -
Options outstanding Various 762,105 $6.21 - $25.50 -
-----------
762,105
-----------
Total outstanding as of September 30, 1998 2,805,809
===========
</TABLE>
i. Proceeds are net of underwriter's discounts and before deducting other
expenses, if any.
ii. The Company repurchased 86,744 of its Common Shares on the open market
between August 11, 1998 and September 2, 1998 for prices ranging from
$17.75 per share to $20.125 per share.
iii. The Company issued Common Shares as partial payment of annual fees to
non-employee Trustees.
iv. This offering was pursuant to the exercise of underwriters' over-allotment
options.
v. Class A Unit Redemptions represent Common Shares issued upon redemption of
Class A Units.
9
<PAGE>
On January 2, 1998, the Company awarded an aggregate of 443,557 "restricted"
Common Shares to six of the Company's executives. These restricted shares vest
over five to eight year periods and were valued at approximately $11.2 million
(based on the closing price of Common Shares on January 2, 1998). Also on
January 2, 1998, the Company awarded certain of its employees options
exercisable for an aggregate 2,043,704 Common Shares. Of the options awarded,
1,737,261 were granted subject to shareholder approval, which was obtained on
May 15, 1998. These options vest over two to five years and have exercise prices
ranging from $25.25 to $29.04. The Company has reserved, as of September 30,
1998, 2,805,809 Common Shares for issuance upon the exercise of options and
warrants described above. There were no options or warrants exercised or
canceled and no options or warrants expired from January 1, 1997 to September
30, 1998.
As of September 30, 1998, 750,000 Series A Preferred Shares (the "Preferred
Shares") of the Company were outstanding. Each Preferred Share has a stated
value of $50.00 and is convertible at the option of the holder into Common
Shares at a conversion price of $28.00. The conversion price is subject to
reduction to $26.50 if the average trading price of the Common Shares during the
60-day period ending December 31, 2003 is $23.00 or lower. The Preferred Shares
bear a preferred distribution of 7.25% per annum, subject to an increase in the
event quarterly distributions paid to holders of Common Shares exceeds $0.51 per
share.
7. DISTRIBUTIONS:
On September 15, 1998, the Company declared a distribution of $0.38 per share,
totaling approximately $14.5 million, which was paid on October 15, 1998 to
shareholders of record as of September 28, 1998. The Operating Partnership
simultaneously declared a $0.38 per unit cash distribution to holders of Class A
Units totaling approximately $360,000.
The Company and the Operating Partnership, respectively, also paid distributions
to holders of Preferred Shares and Preferred Units, which are each entitled to a
7.25% preferential return. Distributions to holders of Preferred Shares and
Preferred Units were approximately $22,000 and $46,000, respectively.
8. NET INCOME PER SHARE:
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" ("SFAS 128"). SFAS 128 establishes standards for
computing and presenting earnings per share ("EPS"). Basic earnings per share
are based on the weighted average number of Common Shares outstanding during the
year. Diluted earnings per share are based on the weighted average number of
Common Shares outstanding during the year adjusted to give effect to common
share equivalents. All per share amounts for all periods presented have been
restated to conform to SFAS 128. A reconciliation between basic and diluted EPS
is shown below (in thousands, except share and per share data).
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Basic Diluted Basic Diluted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income before extraordinary item $ 9,559 $ 9,559 $ 4,748 $ 4,748
Income allocated to Preferred Shares (22) (22) -- --
------------ ------------ ------------ ------------
Income available to common shareholders before
extraordinary item $ 9,537 $ 9,537 $ 4,748 $ 4,748
Extraordinary item $ (1,145) $ (1,145)
------------ ------------ ------------ ------------
Net income available to common shareholders $ 8,392 $ 8,392 $ 4,748 $ 4,748
------------ ------------ ------------ ------------
Weighted average shares outstanding 37,622,205 37,622,205 18,925,081 18,925,081
Options and warrants -- 24,252 -- 79,429
------------ ------------ ------------ ------------
Total weighted average shares outstanding 37,622,205 37,646,457 18,925,081 19,004,510
------------ ------------ ------------ ------------
Earnings per share before extraordinary item $ 0.25 $ 0.25 $ 0.25 $ 0.25
============ ============ ============ ============
Earnings per share after extraordinary item $ 0.22 $ 0.22 $ 0.25 $ 0.25
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Basic Diluted Basic Diluted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income before extraordinary item $ 28,784 $ 28,784 $ 8,455 $ 8,455
Income allocated to Preferred Shares (22) (22) (499) (499)
------------ ------------ ------------ ------------
Income available to common shareholder before
extraordinary item $ 28,762 $ 28,762 $ 7,956 $ 7,956
Extraordinary Item (2,003) (2,003) -- --
------------ ------------ ------------ ------------
Net income available to common shareholders $ 26,759 $ 26,759 $ 7,956 $ 7,956
------------ ------------ ------------ ------------
Weighted average shares outstanding 35,568,411 35,568,411 12,206,129 12,206,129
Options and warrants -- 92,367 -- 79,429
------------ ------------ ------------ ------------
Total weighted average shares outstanding 35,568,411 35,660,778 12,206,129 12,285,558
------------ ------------ ------------ ------------
Earnings per share before extraordinary item $ 0.81 $ 0.81 $ 0.65 $ 0.65
============ ============ ============ ============
Earnings per share after extraordinary item $ 0.75 $ 0.75 $ 0.65 $ 0.65
============ ============ ============ ============
</TABLE>
INCOME TAXES:
The Company is taxed as a REIT under Section 856(c) of the Internal Revenue Code
of 1986, as amended, and generally will not be subject to federal income tax to
the extent it distributes at least 95% of its REIT taxable income to its
shareholders and meets certain other requirements. If the Company fails to
qualify as a REIT in any taxable year, the Company will be subject to federal
income tax on its taxable income at regular corporate rates. The Company may
also be subject to certain state and local taxes on its income and property and
federal income and excise taxes on its undistributed taxable income. The Company
was and is in compliance with all REIT requirements and was not subject to
federal income taxes.
10. NEWLY ISSUED ACCOUNTING STANDARDS:
Statement on Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for
Derivative Instruments and Hedging Activities" is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999, although earlier
application is encouraged. SFAS 133 established standards related to the
Company's financial risks associated with its activity as it relates to
financial activities with respect to derivative instruments and hedging. The
Company has not
11
<PAGE>
engaged in the practice of using financial derivative instruments and hedging
activities. The Company does not believe that the implementation of SFAS 133
will have a material impact on the Company's financial position or results of
operations.
11. RELATED PARTY TRANSACTIONS:
On October 20, 1998, the Company loaned certain employees an aggregate of
approximately $2.4 million to fund this purchase of 130,428 shares on the open
market. The loans are full recourse and mature in five years.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the financial
statements appearing elsewhere herein. This Form 10-Q contains forward-looking
statements for purposes of the Securities Act of 1933 and the Securities
Exchange Act of 1934 and as such may involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, there can
be no assurance that these expectations will be realized. Factors that could
cause actual results to differ materially from current expectations include, but
are not limited to, changes in general economic conditions, changes in local
real estate conditions (including rental rates and competing properties),
changes in industries in which the Company's principal tenants compete, the
failure to timely lease unoccupied space, the failure to timely re-lease
occupied space upon expiration of leases, the inability to generate sufficient
revenues to meet debt service payments and operating expenses, the
unavailability of equity and debt financing, unanticipated costs associated with
the acquisition and integration of the Company's recent and pending
acquisitions, potential liability under environmental or other laws and
regulations and the failure of the Company to manage its growth effectively.
OVERVIEW
The Company continued its growth during the nine months ended September 30, 1998
by purchasing 100 office properties, 29 industrial properties and one mixed use
property for an aggregate purchase price of approximately $1.2 billion and
investing approximately $9.9 million in unconsolidated real estate ventures.
These acquisitions increased the Company's market share in the suburban
Philadelphia office and industrial market and expanded the Company's presence
into several other markets within the Mid-Atlantic Region. In addition, the
Company sold an office property in Ohio which contains approximately 156,175 net
rentable square feet for a gross sale price of approximately $15.2 million. As
of September 30, 1998, the Company's portfolio consisted of 194 office
properties, 51 industrial facilities and one mixed use property totaling
approximately 17.6 million net rentable square feet.
The acquisitions consummated during the nine months ended September 30, 1998
were financed through a combination of: net proceeds of approximately $301.3
million received from four public offerings of an aggregate of approximately
13.3 million Common Shares; borrowings under the Company's revolving credit
facilities; assumption of mortgage notes payable; the issuance of 750,000
Preferred Shares having an aggregate stated value of $37.5 million; the issuance
by the Operating Partnership of 543,400 Class A Units valued at approximately
$12.9 million; and the issuance by the Operating Partnership of 1,550,000
Preferred Units having an aggregate stated value of $77.5 million. These
acquisitions expanded the Company's presence into Maryland; Delaware; Northern
New Jersey; Central New Jersey; Harrisburg, Pennsylvania; Northern Virginia;
Richmond, Virginia; and North Carolina while reinforcing the Company's presence
in suburban Philadelphia and Southern New Jersey.
During the period September 30, 1998 through November 13, 1998, the Company
acquired four office properties and 18 industrial facilities containing an
aggregate of approximately 889,993 net rentable square feet for approximately
$62.7 million. These acquisitions expanded the Company's portfolio into the Long
Island, New York market and strengthened the Company's presence in the Northern
New Jersey market.
The Company receives income primarily from rental revenue (including tenant
reimbursements) from the Properties and, to a lesser extent, from the management
of certain properties owned by third parties. The Company expects that
12
<PAGE>
revenue growth in the next two years will result primarily from additional
redevelopment, development and acquisition projects as well as from rent and
occupancy increases in its current portfolio.
RESULTS OF OPERATIONS
Comparison of the Three and Nine Months Ended September 30, 1998 and September
30, 1997
Net income before extraordinary items for the three months and nine months ended
September 30, 1998 was $9.6 million and $28.8 million compared with net income
of $4.7 million and $8.5 million for the corresponding periods in 1997. The
increases were primarily attributable to the operating results contributed by
the 210 properties acquired from January 1, 1997 through September 30, 1998.
Revenues, which include rental income, recoveries from tenants and other income,
increased from $18.1 million to $47.3 million for the three months ended
September 30, 1997 to 1998 and increased from $38.8 million to $123.5 million
for the nine months ended September 30, 1997 to 1998. These increases were
primarily as a result of property acquisitions and, to a lesser extent,
increased occupancy. The impact of the straight-line rent adjustment increased
revenues by $4.0 million for the nine months ended September 30, 1998 and $1.1
million for the nine months ended September 30, 1997.
Property operating expenses, depreciation and amortization and management fees
increased from $11.3 million to $29.3 million for the three months ended
September 30, 1997 to 1998 and increased from $24.9 million to $74.5 million for
the nine months ended September 30, 1997 to 1998. These increases were primarily
as a result of property acquisitions.
Property level operating income for the 93 properties owned as of September 30,
1997 increased from $24.0 million to $25.7 million for the nine months ended
September 30, 1997 to 1998, an increase of 7.0%. Occupancy for these 93
properties increased from 92.5% to 93.7% driving revenue growth of 5.9% and
causing expenses to increase by 3.9%.
During the nine month period ended September 30, 1998, 63 leases representing
332,140 square feet of office and industrial space commenced at an average rate
per square foot of $15.40 which was 15.8% higher than the average rate per
square foot on the expired leases.
Interest expense increased from $1.8 million to $8.0 million for the three
months ended September 30, 1997 to 1998 and increased from $4.9 million to $19.1
million for the nine months ended September 30, 1997 to 1998. The increase in
interest expense was primarily a result of additional indebtedness incurred to
finance certain of the Company's acquisitions.
Administrative expenses increased from $0.3 million to $0.4 million for the
three months ended September 30, 1997 to 1998 and increased from $0.7 million to
$1.0 million for the nine months ended September 30, 1997 to 1998. These
increases were primarily a result of management and staffing additions to
support the Company's growth.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
During the nine months ended September 30, 1998, the Company generated $54.0
million in cash flow from operating activities. Other sources of cash flow
consisted of: (i) $1.3 billion in net additional borrowings under the Company's
revolving credit facilities, (ii) $301.3 million in net proceeds from Common
Share issuances, (iii) $14.7 million from a property sale and (iv) $9.1 million
in proceeds from additional borrowings under mortgage notes payable. During the
nine months ended September 30, 1998, the Company used its cash to: (i) finance
the $806.1 million cash portion of the acquisition cost of 130 Properties, (ii)
repay notes payable under its credit facilities of $808.4 million, (iii) invest
$9.7 million in unconsolidated real estate ventures, (iv) fund capital
expenditures and leasing commissions of $12.7 million, (v) pay distributions
totaling $37.5 million to common shareholders, preferred shareholders and
minority
13
<PAGE>
interests in the Operating Partnership, (vi) repay mortgage notes payable of
$13.6 million (vii) increase escrowed cash by $7.7 million, (viii) pay other
debt costs of $1.8 million and (ix) increase existing cash reserves by $9.1
million.
Development
The Company is in the process of developing five sites (two wholly-owned and
three through Real Estate Ventures) and redeveloping two sites (one wholly-owned
and one through a Real Estate Venture) which have anticipated completions during
the fourth quarter of 1998 and the first quarter of 1999. These projects are in
various stages of development and there can be no assurance that any of these
projects will be completed or opened on schedule. During the nine months ended
September 30, 1998, the Company capitalized interest totaling approximately
$914,000 related to development and redevelopment projects and land held for
development.
Capitalization
During the first quarter of 1998, the Company replaced its $150 million secured
revolving credit facility (the "1997 Credit Facility") which bore interest at
the rate of LIBOR plus 175 basis points with a $330 million unsecured revolving
credit facility (the "1998 Credit Facility"). The interest rate was reduced by
37.5 to 60 basis points depending on the Company's degree of leverage.
During the second quarter of 1998, the Company and the Operating Partnership
entered into a $150 million unsecured credit facility (the "Additional
Facility") to facilitate certain of the Company's property acquisitions. Amounts
repaid by the Company under the Additional Facility were not subject to
reborrowing. The Additional Facility incorporated the covenants contained in the
1998 Credit Facility.
During the third quarter of 1998, the Company and the Operating Partnership
replaced the 1998 Credit Facility with a new $550 million unsecured revolving
credit facility (the "New 1998 Credit Facility"). The interest rate borne on the
New 1998 Credit Facility was LIBOR plus 150 basis points initially, subject to
certain adjustments based on the Company's leverage. The New 1998 Credit
Facility matures in September 2001.
Also during the third quarter of 1998, the Company and Operating Partnership
replaced the Additional Facility with a new $150 million unsecured facility (the
"New Additional Facility"). The New Additional Facility bears interest at LIBOR
plus 200 basis points and is payable in full on March 31, 1999.
As of September 30, 1998, the Company had approximately $942.4 million of debt
outstanding, consisting of mortgage loans totaling $306.2 million, notes payable
under the New 1998 Credit Facility of $493.2 million and borrowings under the
New Additional Facility of $143.0 million. The mortgage loans mature between
January 1999 and July 2027. As of September 30, 1998, the Company had $56.8
million of remaining availability under the New 1998 Credit Facility and had
$7.0 million of remaining availability under the New Additional Facility. For
the nine months ended September 30, 1998, the weighted average interest rate
under the Company's revolving credit facilities was 7.05%, and the weighted
average interest rate for borrowings under mortgage notes payable was 8.12%.
As of September 30, 1998, the Company's debt to market capitalization ratio was
52.5%. As a general policy, the Company seeks to maintain a long-term average
debt to market capitalization ratio of no more than 50%. This policy is intended
to provide the Company with financial flexibility to select what management
believes to be the optimal source of capital to finance the Company's growth.
The Company expects to reduce its current leverage through a combination of
asset sales, formation of joint venture transactions and the issuance of
preferred securities in the next six to twelve months.
During 1998, the Company sold an aggregate of 13.3 million Common Shares for net
proceeds of approximately $301.3 million pursuant to four public offerings.
Also, from August 11, 1998 to September 2, 1998, the Company repurchased 86,744
of its Common Shares in open market transactions at share prices ranging from
$17.75 per share to $20.25 per share for a total purchase price of approximately
$1.7 million.
During 1998, as consideration for certain of the Company's property
acquisitions, (i) the Operating Partnership issued 543,400 Class A Units with an
aggregate value of approximately $12.9 million, (ii) the Operating Partnership
issued
14
<PAGE>
1,550,000 Preferred Units with a stated value of $77.5 million, and (iii) the
Company issued 750,000 Preferred Shares with a stated value of $37.5 million.
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 management services income from the provision of
services to third parties. The Company intends to use these funds to meet its
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
qualification under the Internal Revenue Code.
On September 15, 1998, the Company declared a distribution of $0.38 per Common
Share, totaling $14.5 million, which was paid on October 15, 1998 to
shareholders of record as of September 28, 1998. The Operating Partnership
simultaneously declared a $0.38 per unit cash distribution to holders of Class A
Units totaling approximately $360,000.
On October 15, 1998, the Company and the Operating Partnership, respectively,
also paid distributions to holders of Preferred Shares and Preferred Units,
which are each entitled to a 7.25% preferential return. The distributions to the
Preferred Shares and the Preferred Units were approximately $22,000 and $46,000,
respectively.
As of September 30, 1998, the Company anticipated making equity contributions to
Real Estate Ventures under development totaling approximately $7.8 million of
which $2.3 million was contributed as of September 30, 1998. The Company has
also entered into guarantees for the benefit of certain Real Estate Ventures,
aggregating approximately $15.2 million. Payment under these guaranties would
constitute loan obligations of, or preferred equity positions in, the applicable
Real Estate Venture.
The Company expects to meet its long-term liquidity requirements, such as for
property acquisitions, development, investments in unconsolidated real estate
ventures, scheduled debt maturities, renovations, expansions and other
non-recurring capital improvements, through borrowings under the New 1998 Credit
Facility and other long-term secured and unsecured indebtedness and the issuance
of additional Class A Units and other 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 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 may not be calculated
in the same manner for all companies and accordingly FFO presented below may not
be comparable to similarly titled measures by other companies. 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 three months and nine months ended September 30, 1998 and 1997 is
summarized in the following table (in thousands, except share data).
15
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Income before gains on sales, minority interest and extraordinary items $ 9,835 $ 4,829
Add (Deduct):
Depreciation attributable to real property 11,225 3,825
Amortization attributable to leasing costs 489 175
Minority interest not attributable to unit holders -- --
------------ ------------
Funds from Operations before minority interest $ 21,549 $ 8,829
============ ============
Weighted average Common Shares (including common
share equivalents) and Operating Partnership units (1) 38,734,972 19,339,567
============ ============
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Income before gains on sales, minority interest and extraordinary items $ 29,229 $ 8,711
Add (Deduct):
Depreciation attributable to real property 28,326 8,918
Amortization attributable to leasing costs 1,225 514
Minority interest not attributable to unit holders -- (16)
------------ ------------
Funds from Operations before minority interest $ 58,780 $ 18,127
============ ============
Weighted average Common Shares (including common
share equivalents) and Operating Partnership units (1) 36,461,052 13,576,682
============ ============
</TABLE>
(1) Includes the weighted average effect of Common Shares issued upon the
conversion of preferred shares in 1997 for the period prior to conversion
and the weighted average effect of Common Shares issuable upon the
conversion of Class A Units.
Year 2000 Compliance
The Year 2000 compliance issue concerns the inability of computerized
information systems to accurately calculate, store or use a date after 1999.
This could result in a system failure or miscalculations causing disruptions of
operations. The Year 2000 issue affects virtually all companies and all
organizations. The Company recognizes the importance of ensuring that its
business operations are not disrupted as a result of Year 2000 related computer
system and software issues.
The Company is currently upgrading its internal computer information systems as
a normal part of its business. During this conversion, the Company will assess
the new hardware and software systems for Year 2000 compliance. The Company
planned to complete, and expects to complete, its conversion during 1999. The
planned conversion was not accelerated, nor were incremental costs incurred as a
result of the Year 2000 issue.
<PAGE>
In addition, the Company is currently evaluating and assessing those computer
systems that do not relate to information technology (such as systems designed
to operate a building, which typically include embedded technology), including,
without limitation, its telecommunication systems, security systems (such as
card-access door lock systems), energy management systems, sprinkler systems and
elevator systems. The Company's Year 2000 compliance program is being centrally
coordinated, but involves all property management personnel. For each of the
Company's properties, compliance letters have been sent to the manufacturers of
key operational systems, third-party service providers and vendors. In the event
a satisfactory response is not received, the Company intends to consider
changing service providers, testing systems for compliance, replacing systems,
or pursuing alternative measures to ensure Year 2000 compliance. This assessment
is approximately 50% complete for properties owned by the Company as of
September 27, 1998. For properties acquired after September 27, 1998, the
Company plans to immediately begin its Year 2000 assessment. The total cost of
bringing these internal systems and equipment into Year 2000 compliance has not
been quantified. The Company is unable to determine, based on available
information, whether these costs will have a material adverse effect on its
business, financial condition or results of operations.
The Company expects to be Year 2000 compliant by December 31, 1999. The Company
is currently evaluating the consequences of a potential failure to remediate
these matters on time and is in the process of developing contingency plans
regarding these matters. The Company expects to have such contingency plans in
place by June 30, 1999. Under a most reasonably likely worst case scenario,
until systems became operational, the Company would resort to a combination of
temporary hiring, operational system repair or replacement and alternative
software to process normal accounts and financial information.
Further, no estimates have been made as to any potential adverse impact
resulting from the failure of third-party service providers (including, without
limitation, its banks, its payroll processor and its telecommunications
providers) vendors and tenants to prepare for the Year 2000. The Company is
attempting to identify those risks as well as to receive compliance certificates
from all third-parties that could have a material impact on the Company's
operations by June 30, 1999. Although the Company is in the process of working
with such third-parties in order to attempt to
16
<PAGE>
eliminate its Year 2000 concerns the cost to the Company of the third-party Year
2000 compliance has not been quantified. The Company would consider changing
third-party service providers and vendors who are Year 2000 compliant before
incurring any significant additional costs.
To date, the Company has not expended significant funds to assess its Year 2000
issues, as the Company's evaluation of its Year 2000 concerns has been conducted
by its own personnel at routine staffing levels and without any out-of-pocket
expenses for consultants. The Company's evaluation has not been subject to any
independent verification or review process.
Inflation
A majority of the Company's leases provide for separate escalations of real
estate taxes and operating expenses either on a triple net basis or over a base
amount. In addition, many of the office leases provide for fixed base rent
increases or indexed escalations (based on the CPI or other measure). The
Company believes that inflationary increases in expenses will be partially
offset by the expense reimbursement and contractual rent increases.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
17
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved (nor was it involved at September 30,
1998) in any material legal proceedings 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) On September 28, 1998 and in conjunction with the issuance of the Preferred
Shares as described below, the Company's Declaration of Trust was amended by
filing Articles Supplementary establishing the rights, preferences and other
privileges of the Preferred Shares.
(b) On September 28, 1998, the Company issued 750,000 Preferred Shares. Holders
of Preferred Shares have certain preferences with respect to the receipt of
dividends and amounts payable upon liquidation over the holders of Common
Shares. The Company is prohibited from making distributions to holders of Common
Shares unless all required payments with respect to the Preferred Shares have
been made.
(c) On September 28, 1998, the Company issued 750,000 Preferred Shares in a
private transaction exempt from the registration of the Securities Act pursuant
to Section 4(2) thereof. The Preferred Shares were issued as part of the
purchase price for the Company's acquisition of certain properties. The
Preferred Shares are convertible into Common Shares at a conversion price of
$28.00 per Common Share, which conversion price will be reduced to $26.50 in the
event the average market price of a Common Share is less than $23.00 during the
60-day period ending on December 31, 2003.
(d) Not applicable
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:
27.1 Financial Data Schedule (electronic filers)
(b) Reports on Form 8-K:
During the three months ended September 30, 1998, and through November 13, 1998,
the Company filed the following:
(i) Current Report on Form 8-K/A No. 1 filed July 30, 1998 (reporting under Item
7). This amendment included (i) an audited financial statement of revenue and
certain expenses of the First Commercial Properties for the year ended December
31, 1997 and (ii) an audited financial statement of revenue and certain expenses
of One Christina Centre
18
<PAGE>
for the year ended December 31, 1997. This Amendment No. 1 also included
unaudited pro forma information for the year ended December 31, 1997.
(ii) Current Report on Form 8-K filed July 30, 1998 (reporting under Items 5 and
7). This Current Report included an audited combined statement of revenue and
certain expenses of the Axinn Properties for the year ended December 31, 1997
and an unaudited combined statement of revenue and certain expenses of the Axinn
Properties for the three months ended March 31, 1998. This Current Report also
included pro forma financial information for the three months ended March 31,
1998 and year ended December 31, 1997.
(iii) Current Report on Form 8-K filed October 13, 1998 (reporting under Items
2, 5 and 7). This Current Report disclosed the closings of both the Axinn and
Lazard Transactions.
(iv) Current Report on Form 8-K/A No. 1 filed October 21, 1998 (reporting under
Item 7). This amendment included (i) an audited financial statement of revenue
and certain expenses of the Axinn Properties for the year ended December 31,
1997, (ii) an audited financial statement of revenue and certain expenses of the
Lazard Properties for the year ended December 31, 1997, (iii) an unaudited
financial statement of revenue and certain expenses of the Axinn Properties for
the six months ended June 30, 1998 and (iv) an unaudited financial statement of
revenue and certain expenses of the Lazard Properties for the six months ended
June 30, 1998. This Amendment No. 1 also included unaudited pro forma
information for the six months ended June 30, 1998 and for the year ended
December 31, 1997.
19
<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)
<TABLE>
<S> <C>
Date: November 13 , 1998 By: /s/ Gerard H. Sweeney
------------------ --------------------------------------------------------
Gerard H. Sweeney, President and Chief Executive Officer
(Principal Executive Officer)
Date: November 13 , 1998 By: /s/ Mark S. Kripke
------------------ --------------------------------------------------------
Mark S. Kripke, Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000790816
<NAME> BRANDYWINE REALTY TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 38,539
<SECURITIES> 0
<RECEIVABLES> 9,276
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,680
<PP&E> 1,788,185
<DEPRECIATION> 50,762
<TOTAL-ASSETS> 1,828,901
<CURRENT-LIABILITIES> 34,155
<BONDS> 0
0
37,500
<COMMON> 376
<OTHER-SE> 714,985
<TOTAL-LIABILITY-AND-EQUITY> 1,828,901
<SALES> 0
<TOTAL-REVENUES> 123,488
<CGS> 0
<TOTAL-COSTS> 94,618
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,057
<INCOME-PRETAX> 26,781
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 2,003
<CHANGES> 0
<NET-INCOME> 26,759
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
</TABLE>
