<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A No. 1
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________________________ to ___________________
Commission file number 1-9106
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Brandywine Realty Trust
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(Exact name of registrant as specified in its charter)
Maryland 23-2413352
- ------------------------------- -----------------------------------
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)
Registrant's telephone number, including area code (610) 325-5600
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Shares of Beneficial Interest,
(par value $0.01 per share) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
________________________________________________________________________________
(Title of class)
________________________________________________________________________________
(Title of class)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting shares held by
non-affiliates of the registrant was approximately $864.0 million as of March
27, 1998. The aggregate market value has been computed by reference to the
closing price at which the Common Shares of Beneficial Interest were sold on
the New York Stock Exchange on such date. An aggregate of 37,426,000 Common
Shares of Beneficial Interest were outstanding as of March 30, 1998.
Documents Incorporated By Reference
None
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PART I
Item 1. Business
General
Brandywine Realty Trust (collectively with its subsidiaries, the
"Company") is a self-administered, self-managed and fully integrated real
estate investment trust ("REIT") active in acquiring, developing,
redeveloping, leasing and managing suburban office and industrial properties.
As of December 31, 1997, the Company owned a portfolio of 95 office properties
and 22 industrial facilities (the "Year-End Properties") that contained an
aggregate of approximately 7.1 million net rentable square feet. As of
December 31, 1997, the Year-End Properties (excluding two Year-End Properties
under development or redevelopment) were approximately 91.2% leased to 688
tenants and had an average age of approximately 14 years. Between January 1,
1998 and March 15, 1998, the Company acquired 32 office properties and six
industrial facilities and, as of March 15, 1998, the Company's portfolio
contained 127 office properties and 28 industrial facilities (together with
the Year-End Properties, the "Properties" ). As of March 15, 1998, the
Properties were approximately 93.4% leased to 909 tenants and had an average
age of approximately 15 years. As of March 15, 1998, 136 of the 155 Properties
(approximately 81.4% of the Company's portfolio based on net rentable square
feet) were located in the Suburban Philadelphia Office and Industrial Market.
The term "Suburban Philadelphia Office and Industrial Market" or "Market"
means the areas comprised of the following counties: Berks, Bucks, Chester,
Delaware, Lehigh, Montgomery and Northampton in Pennsylvania and Burlington
and Camden in New Jersey.
The Properties consist primarily of Class A suburban office and
industrial properties. The Company considers Class A suburban office and
industrial properties to be those that have desirable locations, are
well-maintained and professionally managed and have the potential of achieving
rental and occupancy rates that are typically at or above those prevailing in
their respective markets. Certain of the Properties serve as flex facilities,
accommodating office use, warehouse space and research and development
activities. As of December 31, 1997, 11 tenants individually represented more
than 1.0% of the Company's aggregate Annualized Escalated Rent (as defined
below) at the Year-End Properties. The Company's 10 largest tenants at
December 31, 1997 accounted for approximately 21.1% of total Annualized
Escalated Rent for the year ended December 31, 1997 and approximately 17.9% of
the net rentable square feet at the Year-End Properties.
As of March 15, 1998, the Company also owned, and held options to
purchase, approximately 264.5 acres of undeveloped land directly, and owned or
held options to purchase approximately 62 acres of undeveloped land through
its economic interests in seven joint venture development entities (the
"Development Entities"). The Company believes that this undeveloped land can
accommodate development of at least 2.1 million net rentable square feet of
office space and 340,000 net rentable square feet of industrial space. Two of
the Development Entities are currently constructing two Class A suburban
office properties which are scheduled for completion in 1998 and are expected
to contain an aggregate of approximately 235,000 net rentable square feet.
The Company's business objective is to increase cash available for
distribution and to maximize shareholder value by:
* maximizing cash flow through leasing strategies designed to capture
potential rental growth as rental rates increase and as below-market
leases are renewed;
* ensuring a high tenant retention rate through an aggressive tenant
services program responsive to the varying needs of the Company's
diverse base of 909 tenants as of March 15, 1998;
* broadening its geographic and economic diversification while
maximizing economies of scale;
* acquiring high-quality office and industrial properties and
portfolios of such properties at attractive yields in selected
submarkets within the Mid-Atlantic region (including Delaware,
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Maryland, New Jersey, New York, Ohio, Pennsylvania, Virginia and the
District of Columbia), which management expects will experience
economic growth;
* capitalizing on management's redevelopment expertise to selectively
acquire, redevelop and reposition underperforming Properties in
desirable locations;
* acquiring land in anticipation of developing office or industrial
properties on a build-to-suit basis, under circumstances where
significant pre-leasing can be arranged or as otherwise warranted by
market conditions;
* enhancing the Company's investment strategy through the pursuit of
joint venture opportunities with high quality partners having
attractive real estate holdings or significant financial resources;
and
* optimizing the use of debt and equity financing to create a flexible
and conservative capital structure that will enable the Company to
continue its aggressive growth strategy.
As a result of its business objective of increasing cash available
for distribution and maximizing shareholder value, the Company has recently
experienced rapid growth. Between January 1, 1997 and March 15, 1998, the
Company has acquired 93 office properties containing approximately 6.7 million
net rentable square feet and 25 industrial facilities containing approximately
1.7 million net rentable square feet and, together with the Development
Entities, has acquired ownership of, or rights to acquire, approximately 326.5
acres of undeveloped land. The aggregate purchase price for the 118 Properties
acquired by the Company since January 1, 1997 was approximately $738.8
million. The Company believes that, through the expertise and extensive
relationships of its management and its flexible capital structure, it will
continue to identify and capitalize on substantial opportunities for
additional real estate investments from a variety of sources, including
institutional and private holders of real estate seeking liquidity or
reduction in their holdings or tax-deferred dispositions.
The Company expects to continue to concentrate its real estate
activities in submarkets within the Mid-Atlantic region where it believes
that: (i) barriers to entry (such as zoning restrictions, infrastructure
limitations and limited developable land) are likely to create supply
constraints on office and industrial space; (ii) current market rents do not
justify new construction; (iii) it can maximize market penetration by
accumulating a critical mass of properties and thereby enhance operating
efficiencies; and (iv) there is potential for economic growth.
On November 25, 1996, the Company combined its common shares of
beneficial interest, par value $.01 per share ("Common Shares") by means of a
one-for-three reverse share split and all information contained herein has
been adjusted to give effect to the reverse share split. On October 21, 1997,
the Company changed the listing of its Common Shares from the American Stock
Exchange to the New York Stock Exchange (the "NYSE").
The Company's executive offices are located at 16 Campus Boulevard,
Newtown Square, Pennsylvania 19073 and its telephone number is (610) 325-5600.
Organization
The Company was organized and commenced its operations in 1986 as a
finite life Maryland real estate investment trust. In October 1994, the
Company's shareholders approved amendments to the Company's Declaration of
Trust that eliminated the Company's finite life status. The Company owns its
assets and conducts its operations through Brandywine Operating Partnership,
L.P. (the "Operating Partnership") and subsidiaries of the Operating
Partnership. As of December 31, 1997 and March 15, 1998, the Company's
ownership interest in the Operating Partnership was approximately 97.2% and
98.8%, respectively. The structure of the Company as an "UPREIT" is designed
to permit persons
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contributing properties (or interests in properties) to the Company to defer
some or all of the tax liability they might otherwise incur. The Company
conducts its real estate management services through a management company (the
"Management Company"). The Company, through its indirect ownership of
preferred and common stock of the Management Company, is entitled to receive
95% of amounts paid as dividends by the Management Company. See "-- Management
Company."
Recent Acquisitions
At December 31, 1997, the Company's portfolio consisted of 117
properties totaling approximately 7.1 million net rentable square feet
compared to 37 properties containing approximately 2.0 million net rentable
square feet at December 31, 1996 and four Properties containing approximately
254,000 net rentable square feet at December 31, 1995. Between January 1, 1998
and March 15, 1998, the Company acquired 32 office properties containing
approximately 2.8 million net rentable square feet and six industrial
properties containing approximately 413,000 net rentable square feet, for an
aggregate purchase price of approximately $335.1 million. The 1998
acquisitions (net of approximately $2.8 million of the aggregate purchase
price allocated to undeveloped land) had a weighted average purchase price of
approximately $103 per square foot (approximately $113 per square foot for the
office property acquisitions and approximately $37 per square foot for the
industrial property acquisitions). The following table sets forth certain
information regarding Property acquisitions completed between January 1, 1998
and March 15, 1998:
<TABLE>
<CAPTION>
Percent
Net Leased Purchase
Number Rentable as of Purchase Price
of Square March 15, Price Per Square
Property Location Properties Feet 1998 (in 000's) Foot
- -------------------------------------------------------- ------------- -------------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
OFFICE PROPERTIES
Pennsylvania
Blue Bell / Plymouth Meeting / Fort Washington 1 48,122 100.0% $ 4,100 $ 85
Southern Bucks County 2 128,659 93.9% 11,234 87
Main Line 1 61,102 100.0% 8,338 136
King of Prussia / Valley Forge 13 916,904 100.0% 99,598 106(1)
Reading / Allentown 2 95,805 91.5% 7,580 79
New Jersey
Bergen County 2 483,189 85.5% 69,614 144
Delaware 8 596,132 94.3% 70,941 119
Ohio 1 156,175 100.0% 14,696 94
Maryland 2 329,008 94.4% 33,571 102
-- --------- ----- -------- ----
TOTAL - OFFICE PROPERTIES 32 2,815,096 88.1% $319,672 $113(1)
-- --------- ----- -------- ----
INDUSTRIAL PROPERTIES
Pennsylvania
Southern Bucks County 1 78,213 100.0% $ 2,800 $360
King of Prussia / Valley Forge 5 334,835 92.7% 12,644 38
-- --------- ----- -------- ----
TOTAL - INDUSTRIAL PROPERTIES 6 413,048 94.1% $ 15,444 $ 37
-- --------- ----- -------- ----
TOTAL / WEIGHTED AVERAGE 38 3,228,144 88.8% $335,116 $103(1)
== ========= ===== ======== ====
</TABLE>
(1) Purchase price per square foot excludes $2,800,000, which is the cost of
an acquired parcel of undeveloped land.
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Equity Financings
Since January 1, 1997, the Company has consummated seven underwritten
public offerings pursuant to which the Company issued an aggregate of
28,056,350 Common Shares and raised aggregate net proceeds of approximately
$594.8 million. The net proceeds from these financings, which the Company
contributed to the Operating Partnership, were used: (i) to repay debt; (ii) to
fund property acquisitions (iii) to fund capital contributions to the
Development Entities; and (iv) for working capital purposes.
On March 4, 1997, the Company consummated an underwritten public
offering of 2,200,000 Common Shares at a price to the public of $20.62 per
share. On March 17, 1997, the Company issued an additional 175,500 Common
Shares pursuant to exercise by the underwriters of their over-allotment
option. Proceeds to the Company were used to fund the purchase of additional
properties, to repay indebtedness and for working capital purposes.
On July 28, 1997, the Company consummated an underwritten public
offering of 10,000,000 Common Shares at a price to the public of $20.75 per
share. On August 20, 1997, the Company issued an additional 1,500,000 Common
Shares pursuant to exercise by the underwriters of their over-allotment
option. Proceeds to the Company were used to fund the purchase of additional
properties, to repay indebtedness and for working capital purposes.
On September 16, 1997, the Company consummated an underwritten public
offering of 786,840 Common Shares at a price to the public of $22.31 per
share. Proceeds to the Company were used to fund the purchase of additional
properties and for working capital purposes.
On December 23, 1997, the Company consummated an underwritten public
offering of 751,269 Common Shares at a price to the public of $24.62 per
share. Proceeds to the Company were used to repay indebtedness.
On February 4, 1998, the Company consummated an underwritten public
offering of 10,000,000 Common Shares at a price to the public of $24.00 per
share. On March 6, 1998, the Company issued an additional 1,000,000 Common
Shares pursuant to exercise by the underwriters of their over-allotment
option. Proceeds to the Company were used to repay indebtedness and for
working capital purposes.
On February 18, 1998, the Company consummated an underwritten public
offering of 1,012,820 Common Shares at a price to the public of $24.06 per
share. Proceeds to the Company were used to repay indebtedness.
On February 27, 1998, the Company consummated an underwritten public
offering of 629,921 Common Shares at a price to the public of $23.81 per
share. Proceeds to the Company were used to repay indebtedness.
In addition, on December 11, 1997, the Operating Partnership issued
389,976 units of limited partnership interest ("Units"), which are redeemable
for an equal number of Common Shares, as part of the acquisition price for a
portfolio of 14 office and industrial properties.
Credit Facility
On January 5, 1998, the Company replaced its $150 million secured
revolving credit facility (the "1997 Credit Facility") with a $300 million
unsecured revolving credit facility (the "Credit Facility"). On March 15,
1998, the maximum amount available to be borrowed under the Credit Facility
was increased from $300 million to $330 million. The Credit Facility enables
the Company to borrow funds at an interest rate equal to the one, two, three
or six month 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 can borrow funds at a Base Rate equal to the higher
of (i) the Prime Rate or (ii) the Fed Funds Rate plus 50 basis points. As of
March 15, 1998, approximately $158.3 million was outstanding under the Credit
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Facility and such amounts bore interest at an average rate of 7.1% per annum.
The Credit Facility matures on January 5, 2001 and is extendible to January 5,
2002 by the Company in the absence of default and upon payment of a fee. The
Credit Facility requires the Company to maintain compliance with customary
financial and other covenants, including leverage ratios based on gross
implied asset value and debt service coverage ratios, limitations on
additional indebtedness, liens and distributions and a minimum net worth
requirement. A structuring fee equal to .15% of the maximum amount available
under the Credit Facility and a commitment fee equal to .15% of the first
$150,000,000 of availability under the Credit Facility plus .375% of the
second $150,000,000 of availability under the Credit Facility were paid to the
lender at the closing of the Credit Facility. In addition, an unused credit
fee is payable at the end of each quarter with respect to the portion of the
Credit Facility which is unutilized during such quarter. The fee is equal to
.15% per annum if at least fifty percent of the available credit under the
Credit Facility was utilized, based on daily averages, during such quarter and
equal to .20% per annum if less than fifty percent of the available credit
under the Credit Facility was utilized, based on daily averages, during such
quarter. An annual fee in the amount of $25,000 is payable annually in advance
to NationsBank, N.A. as compensation for administration of the Credit
Facility.
To facilitate certain 1998 property acquisitions, on January 5, 1998,
the Company also obtained an additional unsecured credit facility (the
"Additional Credit Facility") permitting advances of up to $100.0 million. The
Additional Credit Facility bore interest at a per annum floating rate equal to
the one month LIBOR plus 150 basis points and was scheduled to mature on May
5, 1998. The Company repaid all amounts outstanding under the Additional
Credit Facility with proceeds of the February 4, 1998 offering of Common
Shares.
Management Company
The Company conducts its real estate management services business
through the Management Company. The Company manages, through the Management
Company, certain of the Properties and additional properties on behalf of
unaffiliated third parties. As of December 31, 1997, the Management Company
was managing properties containing an aggregate of approximately 7.2 million
net rentable square feet, of which approximately 7.1 million net rentable
square feet related to Properties then owned by the Company or subject to
purchase options held by the Company, and approximately 102,000 net rentable
square feet related to properties owned by unaffiliated third parties. Through
its ownership of 100% of the non-voting preferred stock and 5% of the voting
common stock of the Management Company, the Operating Partnership is entitled to
receive 95% of amounts paid as dividends by the Management Company. Because
certain executive officers of the Company indirectly own 95% of the voting
common stock of the Management Company, the Company does not control the
timing or amount of distributions by, or the management and operation of, the
Management Company.
Industry Segments
The Company operates in one industry segment. The Company does not
have any foreign operations and its business is not seasonal.
Competition
The leasing of real estate is highly competitive. The Properties
compete for tenants with similar properties located in its markets primarily
on the basis of location, rent charged, services provided, and the design and
condition of the improvements. The Company also faces competition when
attempting to acquire real estate, including competition from domestic and
foreign financial institutions, other REIT's, life insurance companies,
pension trusts, trust funds, partnerships and individual investors.
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Possible Environmental Liabilities
Under various Federal, state and local laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or releases
at such property and may be held liable to a governmental entity or to third
parties for property damage and for investigation and clean-up costs incurred
by such parties in connection with contamination. The cost of investigation,
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to properly remediate such substances, may
adversely affect the owner's ability to sell or rent such property or to
borrow using such property as collateral. In connection with the ownership
(direct or indirect), operation, management and development of real
properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental fines
and injuries to persons and property. All of the Properties have been subject
to a Phase I or similar environmental site assessment (which involves general
inspections without soil sampling or groundwater analysis) completed by
independent environmental consultants. Except as indicated below with respect
to 110 Summit Drive at the Whitelands Business Park in Exton, Pennsylvania
(the " Whitelands Property") and the Affected Properties at the Paint Works
(as defined below), the Company is not aware of any environmental liability
with respect to the Properties that the Company's management believes would
have a material adverse effect on the Company.
An environmental assessment has identified environmental
contamination with respect to the Whitelands Property. Petroleum products,
solvents and heavy metals were detected in the groundwater. These contaminants
are believed to be associated with debris deposited by third parties in a
quarry formerly located on the Whitelands Property. The Whitelands Property
previously appeared on the Comprehensive Environmental Response Compensation
and Liability Information System List, a list maintained by the United States
Environmental Protection Agency (the "EPA") of abandoned, inactive or
uncontrolled hazardous waste sites which may require cleanup. The EPA
conducted a preliminary assessment of the Whitelands Property in 1984, and
subsequently the Whitelands Property was removed from the list. Although the
Company can offer no assurance, based on its review of prior test results and
consultation with counsel, the Company does not believe it is likely that it
will be required to undertake remedial action with respect to such
contamination, nor does the Company believe that any remediation which might
be requested would be material to the Company. If the Company were required to
undertake remedial action on the Whitelands Property, it has been indemnified
through August 2001 against the cost of such remediation by Safeguard
Scientifics, Inc. ("SSI") subject to a limitation of approximately $2.0
million. Because the Company does not believe that any remediation at the
Whitelands Property is probable, no amounts have been accrued for any such
potential liability. The Company acquired the Whitelands Property from SSI in
August 1996 as part of an acquisition of a portfolio of properties from SSI
and its real estate affiliate. At the time of the acquisition, Warren V.
Musser, Chairman and Chief Executive Officer of SSI, became a member of the
Company's Board of Trustees.
An environmental assessment has identified environmental
contamination at land acquired by the Company as part of its acquisition of
certain Properties that include 6 East Clementon and 1, 4, 5, 7 and 10 Foster
Avenue and an adjacent parking lot. These Properties (the "Affected
Properties") and certain non-affected Properties are commonly referred to as
the Paint Works Corporate Center ("Paint Works"). Volatile organic compounds,
semi-volatile organic compounds and metals were detected in the groundwater,
surface soils and sub-surface soils, principally on land acquired by the
Company that is adjacent to the buildings located on the Affected Properties.
These contaminants are associated with the use by prior owners and operators
of the properties and are believed to be associated with the historic use of
the Affected Properties as a paint and varnish factory since the
mid-nineteenth century. The Affected Properties have been the subject of
investigation by the New Jersey Department of Environmental Protection
("NJDEP") since the mid-1970's. The NJDEP has issued two directives to the
former owners and operators of the site, ordering them to investigate and
remediate the contamination at the site. The NJDEP has also entered into two
administrative consent orders (the "ACO's") with Sherwin-Williams, the former
owner and operator primarily responsible for the environmental contamination
at the site, pursuant to which Sherwin-Williams has agreed to investigate and
commence certain remediation. The NJDEP has provided written assurances to the
Company that the NJDEP will not require the Company to investigate or
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remediate the site so long as Sherwin-Williams continues to comply with the
ACO's. In addition to the foregoing, the NJDEP has also issued a letter of
non-applicability for the remainder of the Paint Works properties owned by the
Company at the site. This letter means that, based on the facts known to the
NJDEP, the remainder of the Paint Works properties is not within any state
statutory program requiring investigation or cleanup of environmental
conditions. The Company has also been indemnified against Sherwin-Williams'
failure to comply with the ACO's and from any migration of the aforesaid
compounds onto the adjacent Company-owned properties which are not part of the
Affected Properties by PWCCW, a New Jersey general partnership, and Robert K.
Scarborough (collectively, "Scarborough"). In the event that Sherwin-Williams
ceases to comply with the ACO's and Scarborough is unable to fulfill its
obligations under its agreement with the Company, the Company could
potentially be responsible for costs associated with any remediation. Because
the Company does not believe that the occurrence of both of these events is
probable, no amounts have been accrued for any such potential liability.
No assurance can be given that existing environmental studies with
respect to the Properties reveal all environmental liabilities or that any
prior owner of any such property did not create any material environmental
condition not known to the Company. Moreover, no assurance can be given that:
(i) future laws, ordinances or regulations will not impose any material
environmental liability on the Company, or (ii) the current environmental
condition of the Properties will not be affected by tenants and occupants of
the Properties, by the condition of properties in the vicinity of the
Properties (such as the presence of underground storage tanks) or by third
parties unrelated to the Company.
Employees
As of December 31, 1997, the Company employed 97 persons, including
executive officers.
Legal Proceedings
The Company is not currently involved (nor was it involved at
December 31, 1997) in any material legal proceedings nor, to the Company's
knowledge, is any material legal proceeding currently threatened against the
Company, other than routine litigation arising in the ordinary course of
business, substantially all of which is expected to be covered by existing
liability insurance.
Mortgage and Other Debt
Mortgage Indebtedness. The following table sets forth the Company's
mortgage indebtedness outstanding at December 31, 1997. In addition to
mortgage indebtedness listed below, on December 31, 1997, approximately $115.2
million was outstanding under the 1997 Credit Facility, which amounts were
secured by cross-collateralized mortgages and assignments of rents on certain
of the Properties. The 1997 Credit Facility was replaced with the Credit
Facility (which is unsecured) on January 5, 1998.
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Properties--Indebtedness
<TABLE>
<CAPTION>
Principal
Balance
as of Interest Annual
December 31, Rate at Debt
1997 December 31, Service Maturity Prepayment
Property / Location (in 000's) 1997 (in 000's)(1) Date Premiums
- ----------------------------------------------- --------------- --------------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Exton, PA
486 Thomas Jones Way (2) $ 6,279 8.00% $ 633 2/1998 None
468 Creamery Way(2)
Horsham, PA
Lot 17 & 18 - 655 Business Center Drive 369 0.00% - 3/1998 None
Newtown Square, PA
Lots 7,8 and 9 7/1998 to
Newtown Square Business Campus 1,638 9.00% 4 2/1999 None
Allentown, PA
7310 Tilghman Street 2,504 9.25% 257 3/2000 (5)
6575 Snowdrift Road 2,294 8.00% 232 2/1998 None
Reading, PA
Green Hills Corporate Center 1,500 5.00% 25 8/1998 to
8/2000 None
Marlton, NJ
One Greentree Centre (3) 7,138 7.56% 682 1/2002 (6)
Two Greentree Centre (3)
Three Greentree Centre (3)
Cherry Hill, NJ
457 Haddonfield Road (4) 8,294 8.00% 815 1/1999 (7)
805 9.25% 74 1/1999 None
Mt. Laurel, NJ
1120 Executive Plaza 5,922 9.875% 777 3/2002 (8)
1000 Howard Boulevard 5,784 9.25% 749 11/2004 (9)
Raleigh, NC
5910 - 6090 Six Forks(3) 2,658 7.56% 254 1/2002 (10)
-------- -------
Total Mortgage Indebtedness $ 45,185 $ 4,428
======== =======
</TABLE>
(1) "Annual Debt Service" is calculated for the twelve-month period ending
December 31, 1997 and represents normal principal and interest
amortization. For loans that bear interest at a variable rate, the rates
in effect at December 31, 1997 have been assumed to remain constant.
(2) Both of these Properties secure a single loan.
(3) All of these Properties secure a single loan.
(4) Pursuant to the terms of this loan, the Company has the right to borrow up
to approximately $1.3 million to fund tenant improvements and leasing
commissions and has a current outstanding balance of $805,000.
(5) Two percent through December 31, 1998, which prepayment penalty is
reduced by 1% in 1999.
(6) This loan may not be prepaid unless the Six Forks loan is also prepaid.
The prepayment penalty equals the greater of 1% of the principal amount
prepaid or a yield maintenance premium.
(7) One percent of the portion of the loan prepaid.
<PAGE>
(8) No prepayment is permitted until November, 1999, at which time the loan
can be prepaid in full (but not in part) along with a penalty equal to
the greater of 1% of the outstanding principal balance being prepaid or
a yield maintenance premium.
(9) No prepayment is permitted until March, 1999, at which time the loan can
be prepaid in full (but not in part) along with a penalty equal to the
greater of 1% of the outstanding principal balance being prepaid or a
yield maintenance premium.
(10) This loan may be prepaid without prepayment of the loan secured by One
Greentree Centre, Two Greentree Centre and Three Greentree Centre,
provided certain loan-to-value ratios and coverage tests with regard to
the Greentree Centre loan are satisfied and upon payment of a premium
equal to the greater of 1% of the principal balance being prepaid or a
yield maintenance premium.
Other Indebtedness. The Company incurred unsecured debt in the
principal amount of $3.8 million on November 14, 1996 in connection with its
acquisition of a property portfolio. The debt does not bear interest and is
payable in two installments: $2.5 million on June 30, 1998 and $1.3 million on
December 31, 1999. The Company recorded a $548,000 adjustment to the purchase
price and a corresponding reduction in debt to reflect the fair value of the
note payable to the seller and will accrue
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interest expense to the date of maturity. The Company also maintains the
Credit Facility. See "-- Credit Facility."
Guaranties. As of March 15, 1998, the Company has guaranteed: (i)
repayment of a $16.8 million construction loan made to a Development Entity;
(ii) repayment of a $14.5 million construction loan made to a Development
Entity (and has provided a $1.5 million letter of credit for the benefit of
the construction lender); and (iii) repayment of a $500,000 loan made to a
Development Entity. Payment under these guaranties would constitute loan
obligations of, or preferred equity positions in, the applicable Development
Entity in favor of the Company.
-11-
<PAGE>
Item 2. Properties
Properties
As of December 31, 1997, the Company owned a portfolio of 95 office
properties and 22 industrial facilities that contained an aggregate of
approximately 7.1 million net rentable square feet. One hundred and eleven of
the Year-End Properties (approximately 95% of the Company's December 31, 1997
portfolio based on net rentable square feet) were located in the Suburban
Philadelphia Office and Industrial Market. As of December 31, 1997, the
Year-End Properties (excluding two Year-End Properties under development or
redevelopment) were approximately 91.2% leased to 688 tenants. The office
Year-End Properties are primarily one to three story suburban office buildings
containing an average of 61,000 net rentable square feet. The Company carries
comprehensive liability, fire, extended coverage and rental loss insurance
covering all of the Properties, with policy specifications and insured limits
which the Company believes are adequate and appropriate under the
circumstances.
The following table sets forth certain information with respect to
the Year-End Properties at December 31, 1997:
-12-
<PAGE>
<TABLE>
<CAPTION>
Net Percentage
Rentable Leased as of Net
Year Square December Effective
Property Name Built Feet 31, 1997 (1) Rent (2)
- -------------------------- -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES
NORTHERN PHILADELPHIA SUBURBS
Horsham/Willow Grove/
Jenkingtown, PA
700 Business Center Drive (5) 1986 82,009 99.2% $1,064
800 Business Center Drive (5) 1986
One Progress Avenue 1986 79,204 100.0% 733
500 Enterprise Road 1990 67,800 98.5% 718
300 Welsh Road 1985 57,793 100.0% 138
1155 Business Center Drive 1990 51,388 99.4% 658
650 Dresher Road 1984 30,138 100.0% 354
655 Business Center Drive 1997 30,000 72.1% 70
------- ----- ------
398,332 97.4% 3,735
------- ----- ------
Blue Bell/Plymouth Meeting/
Fort Washington
501 Office Center Drive 1974 110,514 85.2% 333
500 Office Center Drive 1974 100,447 98.9% 371
323 Norristown Road 1988 79,083 100.0% 786
321 Norristown Road 1972 60,384 99.4% 634
2240/50 Butler Pike 1984 52,183 99.4% 653
220 Commerce Drive 1985 46,366 100.0% 114
2260 Butler Pike 1984 31,892 100.0% 420
120 West Germantown Pike 1984 30,546 100.0% 380
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Tenants Leasing 10%
Total Base Rent Annualized or More of Rentable
for the Twelve Rental Rate Square Footage per
Months Ended as of Property as of
December 31, December December 31, 1997 and
Property Name 1997 (3) (000's) 31, 1997 (4) Lease Expiration Date
- -------------------------- ---------------- ------------ -----------------------
<S> <C> <C> <C>
OFFICE PROPERTIES
NORTHERN PHILADELPHIA SUBURBS
Horsham/Willow Grove/
Jenkingtown, PA
700 Business Center Drive (5) $ 1,178 $ 14.83 Metpath (35%) -1/12
800 Business Center Drive (5) Macro (18%) - 4/01
Sprint (19%) - 4/01
Kelly Waldron (17%)-4/02
Advanta (10%) - 6/99
One Progress Avenue 782 9.80 Reed Technology (100%)
- 6/11
500 Enterprise Road 718 14.44 Conti Mortgage (80%)
- 4/01
Pioneer Technologies
(19%) - 10/00
300 Welsh Road 138 16.78 American Meter Corporation
(30%) - 9/99
Digital Cable Radio (18%)
- 9/98
A.G. Edwards & Sons (14%)
- 12/03
National Computer Systems
(13%) - 8/00
Abington OB/GYN (11%)
- 10/01
1155 Business Center Drive 669 20.24 IMS (79%) - 3/06
Motorola (16%) - 1/98
&2/99
650 Dresher Road 369 16.19 GMAC (100%) - 5/03
655 Business Center Drive 74 17.78 LD&B (50%) - 8/07
----- -----
Paccar Financial (22%)
- 6/02
3,928 15.01
----- -----
Blue Bell/Plymouth Meeting/
Fort Washington
501 Office Center Drive 346 16.96 Aetna Life Insurance
(18%) - 12/97
500 Office Center Drive 371 17.42 Advanta (43%) - 9/98
Main Line Financial
(15%) - 8/98
Flannigan, O'Hara &
Gentry (11%) - 3/00
323 Norristown Road 943 16.45 Bisys (58%) - 7/02
Siemans Energy (20%)
- 1/01
321 Norristown Road 646 17.38 Ecta Corporation (24%)
- 12/97
Bisys (20%) - 7/02
Bradford White Corporation
(19%) - 12/01
2240/50 Butler Pike 669 18.01 PNB/Corestates (58%)
- 4/06
TWA Marketing (33%)
- 10/99
220 Commerce Drive 115 16.12 U.S. Physicians, Inc.
(29%) - 6/02
Temple University (25%)
- 4/01
2260 Butler Pike 420 18.59 Information Resources
(66%) - 12/00
Ostroff, Fair & Company
(25%) - 7/04
120 West Germantown Pike 391 17.59 Clair Odell Insurance
(82%) - 7/01
Kleinert's, Inc. (13%)
- 10/01
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Net Percentage
Rentable Leased as of Net
Year Square December Effective
Property Name Built Feet 31, 1997 (1) Rent (2)
- -------------------------- -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
140 West Germantown Pike 1984 25,947 98.7% 315
-------- ----- ------
537,362 96.6% 4,006
-------- ----- ------
Southern Bucks County
3329 Street Road -
Greenwood Square (5) 1985 165,929 76.4% 2,162
3331 Street Road -
Greenwood Square (5) 1986
3333 Street Road -
Greenwood Square (5) 1988
2010 Cabot Boulevard 1985 53,421 85.7% 198
2000 Cabot Boulevard 1985 39,969 81.4% 186
3000 Cabot Boulevard 1986 34,640 90.3% 529
2260/70 Cabot Boulevard 1984 29,638 95.4% 248
2005 Cabot Boulevard 1985 22,000 100.0% 131
--------- ----- ------
345,597 82.9% 3,454
--------- ----- ------
TOTAL NORTHERN PHILADELPHIA
SUBURBS 1,281,291 93.1% 11,195
--------- ----- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Tenants Leasing 10%
Total Base Rent Annualized or More of Rentable
for the Twelve Rental Rate Square Footage per
Months Ended as of Property as of
December 31, December December 31, 1997 and
Property Name 1997 (3) (000's) 31, 1997 (4) Lease Expiration Date
- -------------------------- ---------------- ------------ -----------------------
<S> <C> <C> <C>
140 West Germantown Pike 317 17.73 Healthcare Inc. (46%)
---- ------ - 9/99
Henkel (29%) - 6/98
National Health Equity
(20%) - 5/99
4,218 17.22
---- ------
Southern Bucks County
3329 Street Road -
Greenwood Square (5) 2,273 0.02 Nextel Communications
(12%) - 7/02
3331 Street Road -
Greenwood Square (5)
3333 Street Road -
Greenwood Square (5)
2010 Cabot Boulevard 198 9.80 Computer Hardware
Maintenance (42%) - 1/98
DiMark, Inc. (32%) - 9/99
Digital Descriptive
Systems (11%) - 6/00
2000 Cabot Boulevard 187 10.48 Ecogen, Inc. (37%) - 3/00
Rom-Tec, Inc. (28%)
- 9/02
Agietron Corporation
(13%) - 1/98
3000 Cabot Boulevard 530 17.04 Geraghty & Miller (31%)
- 4/98
Prudential Insurance
(21%) - 7/98
Luigi Bormioli Company
(11%) - 6/98
2260/70 Cabot Boulevard 255 12.60 Sager Electrical (14%)
- 10/98
Manufacturers Survey
(13%) - 12/01
Terminix International
(13%) - 10/02
2005 Cabot Boulevard 131 10.84 Ecogen, Inc. (100%)
---- ------ - 3/00
3,574 6.70
---- ------
TOTAL NORTHERN PHILADELPHIA
SUBURBS 11,720 13.98
---- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Percentage
Rentable Leased as of Net
Year Square December Effective
Property Name Built Feet 31, 1997 (1) Rent (2)
- -------------------------- -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
WESTERN PHILADELPHIA SUBURBS
Southern Route
202 Corridor, PA
486 Thomas Jones Way 1990 51,500 80.5% 417
855 Springdale Drive 1986 50,750 100.0% 428
456 Creamery Way 1987 47,604 100.0% 345
110 Summit Drive 1985 43,660 100.0% 292
1336 Enterprise Drive 1989 38,470 100.0% 374
468 Creamery Way 1990 28,934 100.0% 292
Average Tenants Leasing 10%
Total Base Rent Annualized or More of Rentable
for the Twelve Rental Rate Square Footage per
Months Ended as of Property as of
December 31, December December 31, 1997 and
Property Name 1997 (2) (000's) 31, 1997 (3) Lease Expiration Date
- -------------------------- ---------------- ------------ -----------------------
<S> <C> <C> <C>
WESTERN PHILADELPHIA SUBURBS
Southern Route
202 Corridor, PA
486 Thomas Jones Way 424 16.59 First American Real
Estate (20%) - 12/99
Toshiba American Medical
Systems (12%) - 6/02
Cape Environmental
(12%) - 7/02
ICI America's Inc.
(12%) - 11/00
855 Springdale Drive 444 14.75 Environmental Resources
(100%) - 7/01
456 Creamery Way 355 7.36 Neutronics (100%)
- 1/03
110 Summit Drive 298 11.13 Maris Equipment (49%)
- 4/99
Pall Trincor (30 %)
- 3/02
DGH Technology (12%)
- 9/99
1336 Enterprise Drive 371 13.66 CFM Technologies Inc.
(100%) - 11/00
468 Creamery Way 292 14.76 Franciscan Health
Systems (82%) - 6/99
American Day Treatment
(18%) - 6/00
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Net Percentage
Rentable Leased as of Net
Year Square December Effective
Property Name Built Feet 31, 1997 (1) Rent (2)
- -------------------------- -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
748 Springdale Drive 1986 13,844 100.0% 120
--------- ------- ------
274,762 96.3% 2,268
--------- ------- ------
Main Line, PA
300 Berwyn Park 1989 107,919 100.0% 824
200 Berwyn Park 1987 76,065 100.0% 647
16 Campus Boulevard 1990 65,463 100.0% 636
1974 Sproul Road 1972 62,934 89.3% 424
100 Berwyn Park 1986 58,612 96.4% 421
18 Campus Boulevard 1990 37,700 83.0% 637
--------- ------- ------
408,693 96.3% 3,589
--------- ------- ------
King of Prussia / Valley Forge
7000 Geerdes Boulevard 1988 112,905 100.0% 834
1111 Old Eagle School Road 1962 107,000 100.0% 102
500 North Gulph Road 1979 92,851 99.9% 1,394
--------- ------- ------
312,756 100.0% 2,330
--------- ------- ------
Bala Cynwyd
111 Presidential Boulevard 1974 173,079 98.4% 284
--------- ------- ------
TOTAL WESTERN PHILADELPHIA SUBURBS 1,169,290 97.6% 8,471
--------- ------- ------
READING / ALLENTOWN, PA
100-300 Gundy Drive 1970 443,165 80.5% 2,247
100 Katchel Blvd 1970 131,076 97.5% 1,053
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Tenants Leasing 10%
Total Base Rent Annualized or More of Rentable
for the Twelve Rental Rate Square Footage per
Months Ended as of Property as of
December 31, December December 31, 1997 and
Property Name 1997 (3) (000's) 31, 1997 (4) Lease Expiration Date
- -------------------------- -- ---------------- ------------ -----------------------
<S> <C> <C> <C>
748 Springdale Drive 122 15.90 Automated Financial
Systems (68%) - 10/98
------ ----- Chester County District
Court (32%) - 1/99
2,306 13.01
------ -----
Main Line, PA
300 Berwyn Park 841 20.73 Delaware Valley Financial
(53%) - 3/04
Vertex Inc. (13%) - 12/98
C.G.I. Systems, Inc.
(11%) - 8/99 and 4/04
200 Berwyn Park 632 22.96 Devon Direct Mktg &
Advert. (52%) - 12/01
VHA East Corporation
(14%) - 11/99
Bucks Consultants (12%)
- 8/01
16 Campus Boulevard 691 14.76 Creative Financial (49%)
- 5/06
Atlantic E'ees Credit
Union (35%) - 1/06
Brandywine Realty Trust
(12%) - 3/01
1974 Sproul Road 428 14.53 Franklin Mint Credit
Union (30%) - 5/02
Main Line Book Company
(21%) - 12/98
TMR Inc. (11%) - 10/02
Allan Collautt Assoc.
(10%) - 2/00
100 Berwyn Park 436 21.42 Shared Medical Systems
(50%) - 3/98 and 3/02
Funds Associates, Ltd.
(28%) - 10/02
18 Campus Boulevard 637 19.36 Devco Mutual (35%)
- 1/98
------ ----- EMAX Solution Partners
(25%) - 6/01
Marshall Dennehey
(17%) - 10/01
3,665 19.27
------ -----
King of Prussia / Valley Forge
7000 Geerdes Boulevard 859 12.55 Lockheed Martin Corp.
(100%) - 12/98
1111 Old Eagle School Road 102 14.25 PECO (100%) -6/00
500 North Gulph Road 1,444 17.81 Transition Software (16%)
------ -----
- 9/00
Nason Cullen Group
(15%) - 8/01
Strohl Systems (12%)
- 10/99
2,405 14.69
------ -----
Bala Cynwyd
111 Presidential Boulevard 294 23.04 American Business
Financial (22%) - 1/03
------ -----
TOTAL WESTERN PHILADELPHIA SUBURBS 8,670 17.13
------ -----
READING / ALLENTOWN, PA
100-300 Gundy Drive 2,464 14.93 Parsons Corporation
(45%) - 3/05
Penske Truck Leasing
(25%) - 12/05
100 Katchel Blvd 1,139 19.82 Penske Truck Leasing
(55%) - 12/05
UGI Utilities, Inc.
(34%) - 3/03
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Net Percentage
Rentable Leased as of Net
Year Square December Effective
Property Name Built Feet 31, 1997 (1) Rent (2)
- -------------------------- -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
6575 Snowdrift Road 1988 46,250 100.0% 331
7248 Tilghman Street 1987 42,863 93.8% 439
7310 Tilghman Street 1985 40,000 78.0% 356
------------ ------- ------
703,354 85.6% 4,426
------------ ------- ------
SOUTHERN NEW JERSEY
Burlington County
10000 Midlantic Drive 1990 175,573 88.6% 1,275
2000 Midlantic Drive 1989 121,658 84.9% 778
1000 Howard Boulevard 1988 105,312 99.6% 1,931
1000 Atrium Way 1989 96,660 84.0% 317
1120 Executive Boulevard 1987 95,124 94.4% 1,146
15000 Midlantic Drive 1991 84,056 100.0% 619
Three Greentree Centre 1984 69,101 88.2% 1,003
9000 Midlantic Drive 1989 67,299 100.0% 396
4000/5000 West Lincoln Drive 1982 60,010 89.9% 489
1000/2000 West Lincoln Drive 1982 60,001 92.6% 511
Two Greentree Centre 1983 56,075 88.0% 852
One Greentree Centre 1982 55,838 92.2% 817
8000 Lincoln Drive 1983 54,923 100.0% 790
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Tenants Leasing 10%
Total Base Rent Annualized or More of Rentable
for the Twelve Rental Rate Square Footage per
Months Ended as of Property as of
December 31, December December 31, 1997 and
Property Name 1997 (3) (000's) 31, 1997 (4) Lease Expiration Date
- -------------------------- ---------------- ------------ -----------------------
<S> <C> <C> <C>
6575 Snowdrift Road 331 9.78 Corning Packaging (100%)
- 2/99
7248 Tilghman Street 439 15.43 Ohio Casualty (46%) - 7/01
IDS Financial (29%) - 7/01
Meridian Mortgage (12%)
- 2/98
7310 Tilghman Street 356 11.96 AT & T Communications
(60%) - 1/98 and 8/98
------- ------ Donnelley Directory (10%)
- 7/99
4,729 15.46
------- ------
SOUTHERN NEW JERSEY
Burlington County
10000 Midlantic Drive 1,303 20.58 QAD, Inc. (35%) - 8/01
Deutsche Financial
Services (13%) - 1/00
2000 Midlantic Drive 814 16.78 Lockheed Martin (47%) -
6/98, 5/99 and 10/04
Computer Associates Intl.
(26%) - 12/02
Moore Business Forms (12%)
- 4/00
1000 Howard Boulevard 1,952 21.01 Conrail (66%) - 6/00
Lincoln Technical (25%)
- 5/07
1000 Atrium Way 317 17.53 IBM (18%) - 3/01
Navistar Financial (17%)
- 12/99
Corporate Dynamics (14%)
- 2/04
Janney, Montgomery, Scott
(12%) - 9/02
Tri-Star Finance (10%)
- 10/01
1120 Executive Boulevard 1,153 23.18 Computer Sciences (50%)
- 5/02
Fleercorp (32%) - 4/00
15000 Midlantic Drive 722 17.86 New Jersey Bell (89%)
- 7/06
Gallagher Bassett
Services, Inc. (11%)
- 11/02
Three Greentree Centre 1,009 16.55 Parker McCay (37%) - 5/01
Surety Title Company
(15%) - 12/03
Eastern Mortgage Services
(12%) - 7/00
Olde Discount (12%) - 3/00
9000 Midlantic Drive 405 17.65 Automotive Rentals (100%)
- 8/00
4000/5000 West Lincoln Drive 489 13.47 Vitro Corporation (18%)
- 5/01
1000/2000 West Lincoln Drive 513 13.42 Occupational Training
(10%) - 7/02
Two Greentree Centre 834 18.31 Merrill Lynch (26%) -
12/98 and 11/05
Chubb Institute (10%)
- 12/00
Medical Imaging Center
(10 %) - 3/98
One Greentree Centre 838 17.52 American Executive Center
(30%) - 1/06
Temple University (18%)
- 12/97
West Jersey Health (15%)
- 4/01
8000 Lincoln Drive 859 17.30 Computer Sciences (67%)
- 11/01
Blue Cross (33%) - 5/07
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Net Percentage
Rentable Leased as of Net
Year Square December Effective
Property Name Built Feet 31, 1997 (1) Rent (2)
- -------------------------- -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
4000 Midlantic Drive 1981 46,945 0.0% --
Five Eves Drive 1986 45,889 65.1% 278
9000 West Lincoln Drive 1983 43,719 88.7% 309
Two Eves Drive 1987 37,517 95.0% 401
3000 West Lincoln Drive 1982 36,070 86.1% 304
Four B Eves Drive 1987 27,038 99.9% 265
Four A Eves Drive 1987 24,631 80.8% 193
--------- ------- -------
1,363,439 87.6% 12,674
--------- ------- -------
Camden County
Main Street - Plaza 1000 1988 162,364 97.6% 2,184
457 Haddonfield Road 1990 121,737 82.9% 1,658
One South Union Place(5) 1982 105,972 0.0% --
1007 Laurel Oak Road 1996 78,205 100.0% 35
6 East Clementon Road 1980 66,043 86.4% 52
King & Harvard(5) 1974 65,223 13.6% 14
Main Street - Piazza 1990 41,400 100.0% 472
20 East Clementon Road 1986 40,755 75.7% 31
Main Street - Promenade 1988 31,445 100.0% 317
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Tenants Leasing 10%
Total Base Rent Annualized or More of Rentable
for the Twelve Rental Rate Square Footage per
Months Ended as of Property as of
December 31, December December 31, 1997 and
Property Name 1997 (3) (000's) 31, 1997 (4) Lease Expiration Date
- -------------------------- ---------------- ------------ -----------------------
<S> <C> <C> <C>
4000 Midlantic Drive -
Five Eves Drive 278 13.26 ADP Financial Information
(36%) - 8/98
McCay Corporation (18%)
- 10/00
9000 West Lincoln Drive 312 14.13 Counseeling Program (18%)
- 1/00
Two Eves Drive 402 17.10 Basco Association (24%)
- 2/01
Acceptance Risk Mgmt. (18%)
- 4/00
3000 West Lincoln Drive 304 13.73 Abo, Uris & Allenburger
(20%) - 1/99
Four B Eves Drive 268 15.14 ISO Commercial Risk (66%)
- 6/00
Global Industries, Inc.
(17%) - 8/00
Banc One Financial (16%)
- 4/01
Four A Eves Drive 193 14.86 Advanced Systems (23%)
------- ---- - 4/99
Eastern American (18%)
- 9/02
Benefit Resources (17%)
- 2/99
HIP Health Plan of NJ
(13%) - 6/99
Columbia Investment
Builders (10%) - 1/01
12,965 17.79
------- -----
Camden County
Main Street - Plaza 1000 2,249 18.07 Credit Lenders (16%) - 4/98
Dean Witter (11%) - 9/01
AMC (10%) - 12/99
457 Haddonfield Road 1,777 20.01 PHP Healthcare Corp. (31%)
- 12/07
Dilworth Paxson (10%) - 5/04
One South Union Place(6) - 0.00
1007 Laurel Oak Road 35 7.94 R.F. Power (100%) - 10/06
6 East Clementon Road 52 16.74 West Jersey Health Systems
(35%) - 6/98 and 3/01
Equifax Credit Info.
Services (15%) - 12/99
Camden County Educational
Serv. (13%) - 6/98
Premium Bank (12%) - 9/00
King & Harvard(6) 14 17.15 General Services
Administration (14%) - 7/01
Main Street - Piazza 472 13.82 Cooper Hospital (41%)
- 2/01 and 7/01
Lincoln Investments (20%)
- 8/03
Chamber of Commerce (10%)
- 8/01
South NJ Medical (10%)
- 3/00
20 East Clementon Road 31 17.96 Serco, Inc. (15%) - 6/00
The State of NJ (GSA)
(13%) - 8/07
MedQuist, Inc. (12%) - 4/98
Main Street - Promenade 317 12.70 West Jersey Hospital (25%)
- 3/00
Morgenstern (14%) - 5/99
First Union (10%) - 2/99
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Net Percentage
Rentable Leased as of Net
Year Square December Effective
Property Name Built Feet 31, 1997 (1) Rent (2)
- -------------------------- -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
7 Foster Avenue 1983 21,843 90.2% 17
10 Foster Avenue 1983 18,941 98.5% 14
50 East Clementon Road 1986 3,080 100.0% 7
5 Foster Avenue 1968 2,000 100.0% --
--------- ----- -------
759,008 93.7% 4,801
--------- ----- -------
TOTAL SOUTHERN NEW JERSEY 2,122,447 89.0% 17,475
--------- ----- -------
DELAWARE
Northern Suburban Wimington
One Righter Parkway(7) 1989 104,828 97.5% 2,002
100 Commerce Drive 1989 63,898 98.3% 242
------- ----- -------
TOTAL DELAWARE PROPERTIES 168,726 97.8% 2,244
--------- ----- -------
OTHER MARKETS
Twin Forks Office Park,
Raleigh, NC
5910 -6090 Six Forks 1982 73,340 91.6% 954
Lawrenceville, NJ
168 Franklin Corner Drive 1976 32,000 55.8% 227
Atlantic County
500 Scarborough Drive 1987 44,750 66.4% 33
501 Scarborough Drive 1987 44,750 66.5% 51
--------- ----- -------
TOTAL - OFFICE PROPERTIES 5,639,948 91.1% 45,076
========= ===== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Tenants Leasing 10%
Total Base Rent Annualized or More of Rentable
for the Twelve Rental Rate Square Footage per
Months Ended as of Property as of
December 31, December December 31, 1997 and
Property Name 1997 (3) (000's) 31, 1997 (4) Lease Expiration Date
- -------------------------- ---------------- ------------ -----------------------
<S> <C> <C> <C>
7 Foster Avenue 17 15.41 West Jersey Health
Systems (45%) - 8/98
Equifax Services, Inc.
(35%) - 4/01
10 Foster Avenue 14 13.53 Dolphin, Inc. (35%)
- 6/99
Ruttland Homes of New
Jersey (29%) - 5/99
50 East Clementon Road 7 44.69 Corestates Financial
Corp. (100%) - 10/02
5 Foster Avenue - 0.00 Police Station (100%)
----- ------
4,985 16.03
----- ------
TOTAL SOUTHERN NEW JERSEY 17,950 17.24
----- ------
DELAWARE
Northern Suburban Wimington
One Righter Parkway(7) 2,315 19.43 Kimberly Clark (89%)
- 12/05
100 Commerce Drive 252 13.71 The Travelers Bank (69%)
- 12/01
------ ------ Blaze Systems Corporation
(12%) - 9/00
KCI Technologies (10%)
- 6/00
TOTAL DELAWARE PROPERTIES 2,567 17.25
----- ------
OTHER MARKETS
Twin Forks Office Park,
Raleigh, NC
5910 -6090 Six Forks 954 15.19
Lawrenceville, NJ
168 Franklin Corner Drive 227 14.36 Pennsbury Family Medical
(16%) - 7/98
Crawford & Company
(14%) - 11/99
Atlantic County Dr. Belden (12%) - 5/01
500 Scarborough Drive 33 19.84 Raytheon Services Co.
(16%) - 9/98
The Mitre Corporation
(16%) - 12/00
NYMA, Inc. (13%) - 10/98
501 Scarborough Drive 51 16.74 Computer Sciences (34%)
----- ----- Lockheed Martin Corp.
(33%) - 1/01
TOTAL - OFFICE PROPERTIES 46,901 16.19
====== =====
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Net Percentage
Rentable Leased as of Net
Year Square December Effective
Property Name Built Feet 31, 1997 (1) Rent (2)
- -------------------------- -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
NORTHERN PHILADELPHIA SUBURBS
Southern Bucks County, PA
4667 Somerton Road (5) 1974 118,000 83.1% 503
2595 Metropolitan Drive (5) 1981 80,000 100.0%
2575 Metropolitan Drive (5) 1981 60,000 64.6%
2560 Metropolitan Drive (5) 1983 70,000 81.7%
2535 Metropolitan Drive (5) 1974 42,000 100.0%
2520 Metropolitan Drive (5) 1981 37,000 100.0%
2510 Metropolitan Drive (5) 1981 40,000 100.0%
2250 Cabot Boulevard 1982 40,000 100.0% 140
2200 Cabot Boulevard 1979 55,081 98.2% 235
------- ---- -----
TOTAL NORTHERN PHILADELPHIA
SUBURBS 542,081 89.8% 878
------- ---- -----
WESTERN PHILADELPHIA SUBURBS
Lansdale, PA
1510 Gehman Road 1990 152,625 100.0% 711
King of Prussia, PA
201/221 King Manor Drive 1964 124,960 100.0% 344
------- ---- -----
TOTAL WESTERN PHILADELPHIA SUBURBS 277,585 100.0% 1,055
------- ---- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Tenants Leasing 10%
Total Base Rent Annualized or More of Rentable
for the Twelve Rental Rate Square Footage per
Months Ended as of Property as of
December 31, December December 31, 1997 and
Property Name 1997 (3) (000's) 31, 1997 (4) Lease Expiration Date
- -------------------------- ------------------- ------------ -----------------------
<S> <C> <C> <C>
INDUSTRIAL PROPERTIES
NORTHERN PHILADELPHIA SUBURBS
Southern Bucks County, PA
4667 Somerton Road (5) 522 5.16 American HomePatient Inc.
(17%) - 10/99
BVI Industries, Inc.
(17%) - 12/00
Brownell Electro, Inc.
(14%) - 6/99
Carpet Transport, Inc.
(14%) - 9/99
A.P. Green Refractories
Co. (13%) - 12/01
2595 Metropolitan Drive (5) 7.35 Northtec LLC (100%) 6/06
2575 Metropolitan Drive (5) 3.99 Northtec LLC ( 65%) - 6/06
2560 Metropolitan Drive (5) 7.86 Picker International
(48%) - 9/02
Delta Lighting Products,
Inc. (19%) - 5/01
Precicontact, Inc. (15%)
- 12/99
2535 Metropolitan Drive (5) 5.08 General Services
Administration (100%)
- 12/97
2520 Metropolitan Drive (5) 6.29 Bucks County Midweek, Inc.
(40%) - 6/98
William Adams II, Inc.
(30%) - 5/99
Philadelphia Newspapers,
Inc. 17%) - 10/00
Stolarik Donohue Assoc.
Inc. 14%) - 3/00
2510 Metropolitan Drive (5) 5.21 ACS Enterprises, Inc.
(100%) - 6/99
2250 Cabot Boulevard 140 5.78 Bucks County Nut (100%)
- 7/99
2200 Cabot Boulevard 240 6.84 Hussman Corporation (38%)
--- ---- - 3/99
Nobel Printing Inks (36%)
- 12/97
McCaffey Management (24%)
- 8/00
TOTAL NORTHERN PHILADELPHIA
SUBURBS 902 6.06
--- ----
WESTERN PHILADELPHIA SUBURBS
Lansdale, PA
1510 Gehman Road 719 6.92 Accupac, Inc. (65%) 1/01
Ford Electronics (35%)
- 6/98
King of Prussia, PA
201/221 King Manor Drive 362 4.29 Reber - Friel Company
(28%) - 6/01
--- ---- Country Fresh Batter
(20%) - 9/03
Central Sprinkler (16%)
- 4/99
Dillon Moving, Inc.
(13%) - 6/99
TOTAL WESTERN PHILADELPHIA SUBURBS 1,081 5.74
----- ----
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Net Percentage
Rentable Leased as of Net
Year Square December Effective
Property Name Built Feet 31, 1997 (1) Rent (2)
- -------------------------- -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
SOUTHERN NEW JERSEY
Burlington County, NJ
500 Highland Drive 1990 127,340 100.0% 295
300 Highland Drive 1990 126,905 100.0% 313
400 Highland Drive 1990 68,660 100.0% 126
600 Highland Drive 1990 65,862 82.5% 222
1000 East Lincoln Drive 1981 40,600 100.0% 7
------- ---- -----
429,367 97.3% 963
------- ---- -----
Camden County, NJ
55 U.S. Avenue 1982 138,700 59.1% 32
2 Foster Avenue 1974 50,761 94.6% 9
1 Foster Avenue 1972 24,255 100.0% 6
4 Foster Avenue 1974 23,372 100.0% 10
5 U.S. Avenue 1987 5,000 100.0% 1
------- ---- -----
242,088 75.4% 58
------- ---- -----
TOTAL SOUTHERN NEW JERSEY 671,455 89.4% 1,021
------- ---- -----
TOTAL - INDUSTRIAL PROPERTIES 1,491,121 91.5% 2,954
--------- ---- -----
TOTAL ALL PROPERTIES / WEIGHTED AVG. 7,131,069 91.2% 48,030
========= ===== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Tenants Leasing 10%
Total Base Rent Annualized or More of Rentable
for the Twelve Rental Rate Square Footage per
Months Ended as of Property as of
December 31, December December 31, 1997 and
Property Name 1997 (3) (000's) 31, 1997 (4) Lease Expiration Date
- -------------------------- ------------------ ------------ -----------------------
<S> <C> <C> <C>
SOUTHERN NEW JERSEY
Burlington County, NJ
500 Highland Drive 295 4.83 PFS - Pepsico (100%)
- 12/99
300 Highland Drive 323 4.44 Walpole (40%) - 10/02
U.S. Postal Service (32%)
- 4/09
Griffis Trucking , Inc.
(16%) - 9/99
Faultless Casters Div.,
FKI (12%) - 5/00
400 Highland Drive 134 3.00 MBO Binder & Company
(100%) - 1/02
600 Highland Drive 226 7.46 Excel Corporation (40%)
- 7/01
Key Food Beverage (14%)
- 9/02
Philadelphia Newspapers
(12%) - 10/98
1000 East Lincoln Drive 7 3.45 Packquisition Corp. (75%)
----- ---- - 2/01
Allison Andrews
Corporation (25%) - 10/99
985 4.62
--- ----
Camden County, NJ
55 U.S. Avenue 32 7.63 Micro Warehouse, Inc.
(59%) - 8/02
2 Foster Avenue 9 3.68 Harbor Laundry, Inc.
(95%) - 8/00
1 Foster Avenue 6 4.32 West Jersey Health Systems
(100%) - 3/98
4 Foster Avenue 10 7.56 Harbor Laundry, Inc.
(62%) - 8/00
Medical Data Exchange
(27%) - 8/98
Mr. William Feinberg
(11%) - 2/00
5 U.S. Avenue 1 0.00
----- ----
58 5.93
----- ----
TOTAL SOUTHERN NEW JERSEY 1,043 5.02
----- ----
TOTAL - INDUSTRIAL PROPERTIES 3,026 5.54
----- ----
TOTAL ALL PROPERTIES / WEIGHTED AVG. $49,927 $13.90
======= ======
</TABLE>
(1) Calculated by dividing net rentable square feet included in leases signed
on or before December 31, 1997 at the Property by the aggregate net
rentable square feet of the Property.
(2) "Net Effective Rent" for the twelve months ended December 31, 1997
represents base rents received during such period, excluding straight line
rent and tenant reimbursements. Tenant reimbursements generally include
payment of real estate taxes, operating expenses and common area
maintenance and utility charges.
<PAGE>
(3) "Total Base Rent" for the twelve months ended December 31, 1997
represents base rents received during such period, excluding tenant
reimbursements, calculated in accordance with generally accepted
accounting principles determined on a straight-line basis. Tenant
reimbursements generally include payment of real estate taxes, operating
expenses and common area maintenance and utility charges.
(4) "Average Annualized Rental Rate" is calculated as follows:(i) for office
leases written on a triple net basis, the sum of the annualized
contracted base rental rates payable for all space leased as of December
31, 1997 (without giving effect to free rent or scheduled rent increases
that would be taken into account under generally accepted accountin
principles) plus the 1997 budgeted operating expenses excluding tenant
electricity; and (ii) for office leases written on a full service basis,
the annualized contracted base rent payable for all space leased as of
December 31, 1997. In both cases the annualized rental rate is divided by
the total square footage leased as of December 31, 1997 without giving
effect to free rent or scheduled rent increases that would be taken into
account under generally accepted accounting principles.
(5) The data reflected for these properties are presented on a consolidated
basis.
(6) These Properties are under redevelopment and are excluded from the
percentages for weighted average Percentage Leased and Average Annualized
Rental Rate information.
(7) This Property is subject to a ground lease.
-20-
<PAGE>
The table set forth below shows certain information regarding rental
rates and lease expirations for the Year-End Properties in the Company's
portfolio at December 31, 1997, assuming none of the tenants exercise renewal
options or termination rights, if any, at or prior to scheduled expirations:
<TABLE>
<CAPTION>
Final Percentage
Rentable Final Annualized of Total Final
Number of Square Annualized Base Rent Annualized
Year of Leases Footage Base Rent Per Square Base Rent
Lease Expiring Subject to Under Foot Under Under
Expiration Within the Expiring Expiring Expiring Expiring Cumulative
December 31, Year Leases Leases (1) Leases Leases Total
- ------------------ --------------- --------------- ------------------ --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998 243 1,009,854 $ 12,774,453 $ 12.65 15.2% 15.2%
1999 156 996,945 9,542,978 9.57 11.4% 26.6%
2000 134 937,831 11,990,195 12.79 14.3% 40.9%
2001 108 1,080,532 14,894,432 13.78 17.8% 58.7%
2002 86 761,409 10,355,737 13.60 12.4% 71.1%
2003 36 260,066 4,321,969 16.62 5.2% 76.2%
2004 14 127,386 2,172,514 17.05 2.6% 78.8%
2005 16 494,286 9,984,512 20.20 11.9% 90.7%
2006 12 422,107 4,345,711 10.30 5.2% 95.9%
2007 7 106,494 1,835,273 17.23 2.2% 98.1%
2008 and after 5 152,059 1,605,899 10.56 1.9% 100.0%
---- --- --------- ------------ ------- ----
817 6,348,969 $ 83,823,673 $ 13.20 100.0%
==== ========== ============ ======= =====
</TABLE>
(1) "Final Annualized Base Rent" for each lease scheduled to expire
represents the cash rental rate of base rents, excluding tenant
reimbursements, in the final month prior to expiration multiplied by 12.
Tenant reimbursements generally include payment of real estate taxes,
operating expenses and common area maintenance and utility charges.
The table set forth below shows certain information regarding rental
rates and lease expirations for the Properties in the Company's portfolio at
March 15, 1998, assuming none of the tenants exercise renewal options or
termination rights, if any, at or prior to scheduled expirations:
-21-
<PAGE>
<TABLE>
<CAPTION>
Final Percentage
Rentable Final Annualized of Total Final
Number of Square Annualized Base Rent Annualized
Year of Leases Footage Base Rent Per Square Base Rent
Lease Expiring Subject to Under Foot Under Under
Expiration Within the Expiring Expiring Expiring Expiring Cumulative
December 31, Year Leases Leases (1) Leases Leases Total
- ------------------ --------------- --------------- ------------------ --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998 294 1,207,425 $15,510,213 $12.85 12.2% 12.2%
1999 204 1,228,666 13,454,854 10.95 10.6% 22.8%
2000 167 1,284,319 15,422,419 12.01 12.2% 35.0%
2001 152 1,489,063 21,247,940 14.27 16.7% 51.7%
2002 134 1,472,445 19,258,186 13.08 15.2% 66.9%
2003 61 492,646 8,176,324 16.60 6.4% 73.4%
2004 21 230,273 3,864,043 16.78 3.0% 76.4%
2005 24 809,851 14,538,912 17.95 11.5% 87.9%
2006 12 422,107 4,317,557 10.23 3.4% 91.3%
2007 8 118,880 2,135,510 17.96 1.7% 93.0%
2008 and after 32 568,058 8,933,001 15.73 7.0% 100.0%
-------- ----------- ----------- ------ -----
1,109 9,323,733 $126,858,959 $13.61 100.0%
======== =========== ============ ====== ======
</TABLE>
(1) "Final Annualized Base Rent" for each lease scheduled to expire
represents the cash rental rate of base rents, excluding tenant
reimbursements, in the final month prior to expiration multiplied by 12.
Tenant reimbursements generally include payment of real estate taxes,
operating expenses and common area maintenance and utility charges.
The Properties owned by the Company at December 31, 1997 were leased
to 688 tenants that are engaged in a variety of businesses. The following
table sets forth information regarding leases at the Year-End Properties with
the 20 largest tenants based upon Annualized Escalated Rent from the Year-End
Properties as of December 31, 1997:
<TABLE>
<CAPTION>
Percentage of
Remaining Aggregate Percentage Annualized Aggregate
Number Lease Square of Aggregate Escalated Annualized
of Term in Feet Leased Rent (in Escalated
Tenant Name (a) Leases Months Leased Square Feet thousands) (b) Rent
- -------------------------------------------- -------- ------------- ------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Parsons Corporation 4 87 200,000 3.1% $ 3,583 3.5%
Penske Truck Leasing 8 96 182,064 2.9% 3,333 3.2%
Lockheed Martin Corporation 5 (c) 184,389 2.9% 2,928 2.8%
Computer Sciences Corporation 3 (d) 99,006 1.6% 2,266 2.2%
Kimberly Clark Corporation 1 96 93,014 1.5% 2,000 1.9%
Consolidated Rail Corporation ("Conrail") 1 30 69,511 1.1% 1,746 1.7%
PECO 1 30 107,000 1.7% 1,739 1.7%
New Jersey Bell Telephone Company 1 103 74,728 1.2% 1,482 1.4%
QAD, Inc. 1 44 61,900 1.0% 1,377 1.3%
Automotive Rentals, Inc. 1 32 67,299 1.1% 1,322 1.3%
Delaware Valley Financial Services, Inc. 7 (e) 57,057 0.9% 1,293 1.3%
West Jersey Health Systems 6 (f) 73,612 1.2% 1,034 1.0%
Bisys Plan Services 5 55 58,586 0.9% 1,025 1.0%
UGI Utilities, Inc. 4 63 44,665 0.7% 1,022 1.0%
Advanta Corporation 3 (g) 51,547 0.8% 994 1.0%
Northtec LLC 2 102 118,775 1.9% 980 1.0%
Devon Direct Marketing & Advertising 2 (h) 39,330 0.6% 976 0.9%
American Business Financial 15 61 38,149 0.6% 970 0.9%
Reed Technology 1 162 79,204 1.2% 935 0.9%
Conti Mortgage 1 40 53,906 0.8% 907 0.9%
-- --- --------- ---- ------- ----
Consolidated Total/Weighted Average 72 65 1,753,742 27.6% $31,912 30.9%
== === ========= ==== ======= ====
</TABLE>
-22-
<PAGE>
(a) The identified tenant includes affiliates in certain circumstances.
(b) Annualized Escalated Rent represents the monthly Escalated Rent for each
lease in effect at December 31, 1997 multiplied by 12. Escalated Rent
represents fixed base rental amounts plus pass-throughs of operating
expenses, including electricity costs. The Company estimates operating
expense pass-throughs based on historical amounts and comparable market
data.
(c) Consists of five leases: a lease representing 112,905 net rentable square
feet that expires in December 1998, a lease representing 30,280 net
rentable square feet that expires in May 1999, a lease representing
14,750 net rentable square feet that expires in January 2001, a lease
representing 13,956 net rentable square feet that expires in October 2004
and a lease representing 12,498 net rentable square feet that expires in
June 1998.
(d) Consists of three leases: a lease representing 41,176 net rentable square
feet that expires in May 2002, a lease representing 36,830 net rentable
square feet that expires in November 2001 and a lease representing 15,000
net rentable square feet that expires in October 2000.
(e) Consists of seven leases: six leases representing 55,857 net rentable
square feet in the aggregate that expire in March 2004 and a lease
representing 1,200 net rentable square feet (storage) that is leased on a
month-to-month basis.
(f) Consists of six leases: a lease representing 24,255 net rentable square
feet that expires in March 1998, a lease representing 20,000 net rentable
square feet that expires in March 2001, a lease representing 9,875 net
rentable square feet that expires in August 1998, a lease representing
8,387 net rentable square feet that expires in April 2001, a lease
representing 7,976 net rentable square feet that expires in March 2000
and a lease representing 3,119 net rentable square feet that expires in
June 1998.
(g) Consists of three leases: a lease representing 43,130 net rentable square
feet that expires in September 1998, a lease representing 8,339 net
rentable square feet that expires in June 1999 and a lease representing
1,294 net rentable square feet that expires in January 1998.
(h) Consists of two leases: a lease representing 38,055 net rentable square
feet that expires in December 2001 and a lease representing 1,275 net
rentable square feet, which the tenant occupies on a month-to-month
basis.
Development Entities
Since January 1, 1997, the Company, through the Operating Partnership
and subsidiaries wholly-owned by the Operating Partnership, has entered into
seven Development Entities.
On September 19, 1997, the Operating Partnership acquired a 50%
interest in a newly-formed company that is currently in the process of
developing a three-story office property in Newark, Delaware which is expected
to contain approximately 150,000 net rentable square feet upon completion. The
Operating Partnership's initial equity contribution commitment to this company
is approximately $2.0 million. Total project costs are estimated to be
approximately $17.0 million, with construction scheduled to be completed
during the second quarter of 1998. Project costs are being financed
primarily through a $14.5 million third party construction loan, the repayment
of which has been guaranteed by the Operating Partnership.
On September 19, 1997, the Operating Partnership also acquired a 50%
interest in a newly-formed company that acquired two parcels of undeveloped
land containing an aggregate of approximately 11 acres in Newark, Delaware for
a purchase price of approximately $1.0 million in anticipation of the
construction on such land of two office buildings. The Operating Partnership's
initial equity contribution to this company was $1.0 million. Architectural
plans for the development of the land have not been completed and development
of the land is subject to receipt of a construction loan as well as certain
land development and other necessary approvals.
On November 4, 1997, the Operating Partnership acquired a 65%
interest in a newly-formed partnership that is currently in the process of
developing a four-story office property in West Conshohocken, Pennsylvania
which is expected to contain approximately 85,000 net rentable square feet
upon completion. The Operating Partnership has committed to make an equity
investment of $6.75 million upon maturity of the construction loan that is
financing construction of the office property. Total project costs are
estimated to be approximately $16.8 million, with construction scheduled to be
completed during
-23-
<PAGE>
the fourth quarter of 1998. Project costs are being financed primarily
through a $16.8 million third party construction loan, the repayment of which
has been guaranteed by the Operating Partnership.
On November 4, 1997, the Operating Partnership also acquired a 65%
interest in a newly-formed partnership that acquired an option to purchase
approximately 9.3 acres of undeveloped land in West Conshohocken, Pennsylvania
for approximately $3.2 million, subject to reduction in certain circumstances.
The Company believes this land can accommodate an office building containing
approximately 210,000 net rentable square feet. The term of the option is
one-year, subject to extension for an additional one-year period. The
Operating Partnership's initial equity contribution to this partnership was
approximately $48,000.
As part of the November 4, 1997 transactions, the Operating
Partnership also acquired the right to become a 35% partner in an existing
partnership that owns a four-story office property containing approximately
83,000 net rentable square feet in Conshohocken, Pennsylvania. This property
was 100% leased as of December 31, 1997. The Operating Partnership expects to
acquire its 35% interest for approximately $2.5 million during the second
quarter of 1998.
On December 31, 1997, the Operating Partnership acquired a 50%
interest in a newly-formed partnership that was established to own and operate
a project involving the redevelopment of a building situated on approximately
five acres in Delaware County, Pennsylvania. The building has previously been
used for retail and office purposes, and the partnership intends to redevelop
the building in 1998 at an estimated cost of approximately $1.0 million for
office purposes. The Operating Partnership's initial equity contribution to
this partnership was approximately $850,000, and the Operating Partnership has
agreed to contribute up to $650,000 in connection with the redevelopment of
the building. The Operating Partnership has also guaranteed payment of
$500,000 to secure a $1.75 million bank loan that funded a portion of the
purchase price of the building and related land.
On February 3, 1998, the Operating Partnership acquired an
approximately 60% economic interest in a partnership that owns approximately
12.5 acres of land in Plymouth Meeting, Pennsylvania. The Company believes the
land (on which an inn is currently situated) can accommodate an office
building containing approximately 130,000 net rentable square feet. The
Operating Partnership acquired its interest through a loan and equity
contribution aggregating approximately $4.2 million. As of the date of this
Annual Report on Form 10-K, the partnership has not determined its plans for
the land.
On February 25, 1998, the Operating Partnership acquired a 50%
interest in a newly-formed partnership that was established to develop a
three-story office property containing approximately 180,000 net rentable
square feet in Chester County, Pennsylvania. Total project costs are estimated
to be approximately $35.9 million. The Operating Partnership has agreed to
contribute $5.4 million to the partnership, and the other partner has agreed
to contribute approximately 12.5 acres of undeveloped land to the partnership
upon receipt of a construction loan. Architectural plans for the development
of the land have not been completed and development of the land is subject to
receipt of a construction loan as well as certain land development and other
necessary approvals.
-24-
<PAGE>
Item 7. 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. The results of operations,
liquidity and capital resources and cash flows of the Company include the
historical results of operations of the Properties held by the Company during
the years ended December 31, 1997, 1996 and 1995. This Annual Report on Form
10-K contains forward-looking statements for purposes of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, 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 changes in general
economic conditions, changes in local real estate conditions, 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 and the failure of the Company to manage its growth
effectively.
OVERVIEW
The Company believes it has established an effective platform in the
suburban Philadelphia, Pennsylvania market that provides a foundation for
achieving the Company's goal of maximizing market penetration and operating
economies of scale. The Company believes this platform provides a basis to
continue its penetration into additional targeted markets in the Mid-Atlantic
United States through strategic acquisitions structured to increase cash
available for distribution and maximize shareholder value.
The Company continued its growth in 1997 by purchasing 80 office and
industrial properties for an aggregate purchase price of approximately $403.7
million and investing approximately $5.5 million in unconsolidated real estate
ventures. As of December 31, 1997, the Company's portfolio consisted of 95
office and 22 industrial properties totaling approximately 7.1 million net
rentable square feet. The 1997 acquisitions expanded the Company's presence in
the suburban Philadelphia office and industrial market. The Company believes
it is one of the largest owners of suburban office space in this market.
The 1997 acquisitions were financed through a combination of proceeds
received from four public offerings of an aggregate of approximately 15.4
million Common Shares which raised gross proceeds of approximately $323.7
million, borrowings under the Company's revolving credit facility and the
issuance of 389,976 Units in the Operating Partnership valued at approximately
$9.5 million.
During the period January 1, 1998 through March 15, 1998, the Company
acquired 38 additional properties (32 office and 6 industrial) containing an
aggregate of approximately 3.4 million net rentable square feet for a total
purchase price of approximately $335.1 million. These acquisitions expanded
the Company's presence into Maryland, Delaware and Ohio while reinforcing its
presence in suburban Philadelphia.
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 revenue growth in the next two years will result primarily from
additional acquisitions, as well as from rent increases in its current
portfolio.
-25-
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 1997 to the Year Ended December 31,
1996
Net income for the year ended December 31, 1997 was $15.0 million
compared with a net loss of $162,000 for the corresponding period in 1996. The
increase in net income was primarily attributable to the operating results
contributed by the 112 properties acquired from August 22, 1996 through
December 31, 1997, and to a lesser extent attributable to a 1.9% increase in
occupancy from 1996 to 1997 at properties owned on December 31, 1996.
Revenues, which include rental income, recoveries from tenants and
other income, increased by $51.0 million for the year ended December 31, 1997
as compared to the corresponding prior year period 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 $1.7 million for
the year ended December 31, 1997.
Property operating expenses, depreciation and amortization and
management fees increased in the aggregate by $31.5 million for the year ended
December 31, 1997 as compared with the prior year period primarily as a result
of property acquisitions. Interest expense increased by $4.3 million as a
result of additional indebtedness incurred to finance certain of the Company's
acquisitions.
Minority interest primarily represents the portion of the Operating
Partnership which is not owned by the Company.
Comparison of the Year Ended December 31, 1996 to the Year Ended December 31,
1995
The Company had a net loss of $162,000 for the year ended December
31, 1996 compared with a net loss of $824,000 for the corresponding period in
1995. Revenues, which include rental income, recoveries from tenants and other
income, increased by $6.4 million for the year ended December 31, 1996 as
compared to 1995 primarily as a result of property acquisitions. These
increases were primarily attributable to the operating results contributed by
the 33 properties acquired during 1996. The impact of the straight-line rent
adjustment increased revenues by $337,000 for the year ended December 31,
1996.
Property operating expenses, depreciation and amortization and
management fees increased in aggregate by $3.5 million for the year ended
December 31, 1996 as compared with the prior year period primarily as a result
of property acquisitions. Interest expense increased by $2.0 million as a
result of additional indebtedness incurred to finance certain of the Company's
acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
During the year ended December 31, 1997, the Company generated $33.6
million in cash flow from operating activities. Other sources of cash flow
consisted of (i) $115.2 million in net additional borrowings under the
Company's revolving credit facility, (ii) $0.4 million in additional mortgage
notes payable, (iii) $305.1 million in net proceeds from share issuances and
(iv) escrowed cash of $1.8 million. During the year ended December 31, 1997,
the Company used an aggregate $456.1 million to (i) finance the cash portion
($406.9 million) of the acquisition cost of 80 Properties, (ii) invest $5.5
million in unconsolidated real estate ventures, (iii) fund capital
expenditures and leasing commissions of $7.7 million, (iv) pay distributions
to shareholders and minority partners in the Operating Partnership totaling
$18.5 million, (v) pay scheduled amortization on mortgage principal of $1.0
million, (vi) satisfy $3.5 million of mortgage notes payable, (vii) purchase
minority interests in the Operating Partnership for $0.5 million, (viii) pay
other debt costs of $1.3 million and (ix) increase existing cash reserves by
$11.2 million.
-26-
<PAGE>
Capitalization
As of December 31, 1997, the Company had approximately $163.9 million
of debt outstanding, consisting of mortgage loans totaling $48.7 million and
notes payable under the 1997 Credit Facility of $115.2 million. The mortgage
loans mature between February 1998 and November 2004. As of December 31, 1997,
the Company had $34.8 million of remaining availability under the 1997 Credit
Facility, which provided for total borrowings up to $150.0 million and bore
interest at a per annum floating rate equal to the 30, 60 or 90-day LIBOR,
plus 175 basis points. For the year ended December 31, 1997, the weighted
average interest rates on the Company's debt were 7.4% and 8.3% for borrowings
under the 1997 Credit Facility and mortgage notes payable, respectively.
The Company's debt to market capitalization was 20.8% as of December
31, 1997 and averaged 17.7% during the year. As a general policy, the Company
intends, but is not obligated, to adhere to a policy of maintaining a debt to
market capitalization ratio of no more than 50%. This policy is intended to
provide the Company with financial flexibility to select the optimal source of
capital to finance its growth.
During the first quarter of 1998, the Company replaced the 1997
Credit Facility with the Credit Facility. The interest rate was reduced by
37.5 to 60 basis points depending on the Company's degree of leverage. Upon
attainment of an investment rating, the overall interest rate reduction would
be between 60 to 75 basis points regardless of the degree of leverage. The
Credit Facility matures on January 5, 2001 and is extendible, under certain
circumstances, at the Company's option to January 5, 2002.
The Credit Facility requires the Company to maintain ongoing
compliance with 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 period January 1, 1998 through March 15, 1998, the Company
sold an aggregate 12,642,741 Common Shares for gross proceeds of $303.4
million pursuant to three public offerings.
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 principal short-term liquidity needs, which are to fund operating
expenses, debt service requirements, recurring capital expenditures, tenant
allowances, leasing commissions and the minimum distribution required to
maintain the Company's REIT qualifications under the Internal Revenue Code.
On December 5, 1997, the Board of Trustees declared a quarterly
dividend distribution of $0.37 per share, paid on January 15, 1998 to
shareholders of record as of December 15, 1997. The increase to $0.37 in the
fourth quarter was the fifth increase in the last six quarters. Cumulative
distributions for 1997 were $1.44 per share compared to $0.82 in 1996,
representing an increase of over 75%.
As of December 31, 1997, the Company had entered into guaranties, and
agreements contemplating the provision of guaranties, for the benefit of
unconsolidated real estate ventures, aggregating approximately $33.3 million.
Payment under these guaranties would constitute loan obligations of, or
preferred equity positions in, the applicable unconsolidated real estate
venture.
The Company expects to meet its long-term liquidity requirements,
such as for property acquisitions and development, scheduled debt maturities,
renovations, expansions and other non-recurring capital improvements, through
the Credit Facility and other long-term secured and unsecured indebtedness and
the issuance of additional Operating Partnership units and equity securities.
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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 years ended December 31, 1997 and 1996 is summarized in
the following table (in thousands).
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1997 1996 (2)
---------------- ---------------
<S> <C> <C>
Income before minority interest $ 15,377 $ (117)
Add (Deduct):
Depreciation attributable to real property 13,966 2,493
Amortization attributable to leasing costs 708 230
Minority interest not attributable to unit holders (16) (17)
------------ -----------
Funds from Operations before minority interest $ 30,035 $ 2,589
============ ===========
Weighted average Common Shares (including common
share equivalents) and Operating Partnership units 16,175,258 (1) 1,700,910
============ ===========
</TABLE>
(1) Includes the weighted average effect of 1,424,736 Common Shares issued
upon the conversion of preferred shares for the period prior to
conversion, the weighted average effect of 317,450 Common Shares issuable
upon the conversion of 317,450 Units, the weighted average effect of the
53,123 Common Shares issued upon the conversion of 53,123 Units for the
period prior to conversion and the weighted average effect of the 28,994
convertible Units for the period prior to cancellation.
(2) In 1997 the Company began computing FFO using a methodology which, in
management's opinion, is more consistent with industry practice. This
methodology presents FFO before any adjustments for amounts attributable
to minority unit holders of the Operating Partnership. In restating
FFO for the year ended December 31, 1996, FFO increased from $2,103 to
$2,589.
Year 2000 Issue
The Company has recognized the need to ensure that its systems,
equipment and operations will not be adversely impacted by the change to the
calendar year 2000. The Company has initiated the process of identifying
potential areas of risk and the related effects on planning, purchasing and
daily operations. No estimates can be made as to the potential adverse impact
resulting from the failure of third party suppliers and tenants to prepare for
the year 2000. However, the Company does not anticipate the total cost of
successfully converting all internal systems, equipment and operations to the
year 2000 to be material.
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
significantly offset by the expense reimbursement and contractual rent
increases.
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Item 13. Certain Relationships and Related Transactions
The Company believes that each of the transactions identified below
was consummated on terms that are as favorable to the Company as would have been
obtained from unrelated third parties.
August 22, 1996 Transaction
On August 22, 1996, the Company consummated a transaction (the
"SSI/TNC Transaction") in which the Company acquired, through the Operating
Partnership, substantially all of the real estate holdings of Safeguard
Scientifics, Inc. ("SSI") and SSI's real estate affiliate, The Nichols Company
("TNC"), then a private real estate development and management services
company. The then President of TNC, Anthony A. Nichols, Sr. and the Chairman
and Chief Executive Officer of SSI, Warren V. Musser, became members of the
Board of Trustees on August 22, 1996. In addition to the 495,837 Units issued
on August 22, 1996 by the Operating Partnership to SSI, TNC and the other
persons that became limited partners in the Operating Partnership as part of
the SSI/TNC Transaction (collectively, the "Original Limited Partners") the
Operating Partnership will be required to issue to certain of the Original
Limited Partners 44,322 Units by September 1, 1999 to acquire residual
interests retained by them in certain of the Properties contributed to the
Operating Partnership on August 22, 1996. The Partnership Agreement of the
Operating Partnership gives the Original Limited Partners the right to cause
the Company to redeem their Units for cash, at a per Unit price based on the
average closing price of the Common Shares for the five consecutive trading
days prior to such determination (or, at the option of the Company, Common
Shares on a one Common Share per Unit basis, subject to customary antidilution
adjustments). In the Partnership Agreement, SSI and TNC made customary
representations and warranties, on a several basis, in favor of the Company.
The Company also made customary representations and warranties in favor of SSI
and TNC. These representations survive until August 22, 1998.
Option Properties
At the closing of the SSI/TNC Transaction, the Operating Partnership
acquired an option from an affiliate of TNC entitling it to acquire, in the
Operating Partnership's discretion, four properties containing an aggregate of
approximately 159,000 net rentable square feet (collectively, the "Option
Properties") at any time during the two-year period ending August 22, 1998
(subject to two extensions of one year each). The parties have agreed that the
purchase price payable by the Operating Partnership upon exercise of its
option will consist of $10.00 in excess of the mortgage debt encumbering the
Option Properties at the time of exercise (which as of December 31, 1997
aggregated $21.4 million, including accrued interest). Exercise of the option
is subject to a right of first refusal in favor of, and the consent of, the
holder of the mortgage encumbering the Option Properties. There can be no
assurance that the Company will exercise its option or that the holder of such
mortgage will consent to the exercise of the option.
Lease with SSI Affiliate
Approximately 21,580 square feet of space is leased by the Company to
an affiliate of SSI at an average rental rate of $9.66 per square foot under a
lease that expires in April 1999. The Company believes that this is the
prevailing market rate for comparable space.
Environmental Indemnity
SSI has agreed to indemnify the Operating Partnership against the
cost of remediation that may be required to be undertaken on account of
certain environmental conditions at one of the Properties acquired in the
SSI/TNC Transaction subject to an aggregate maximum liability of approximately
$2.0 million. The term of the SSI indemnity agreement expires on August 22,
2001.
Repayment of Certain Obligations
On August 21, 1997, the Company paid an aggregate of approximately
$594,384 (the "Payment Amount") to satisfy obligations of TNC (a
company controlled by Mr. Nichols, Sr.) on account of brokerage commissions
and tenant improvements. In exchange, TNC transferred to the Company 28,994
Units. The number of Units transferred to the Company equaled the Payment
Amount divided by
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<PAGE>
the then market value of the number of Common Shares into which such
transferred Units were then redeemable.
Involvement of Legg Mason
Walter D'Alessio, a member of the Company's Board of Trustees and
Compensation Committee, is President of Legg Mason Real Estate Services, Inc.,
a mortgage banking firm and a subsidiary of Legg Mason, Inc. Legg Mason, Inc.
is the parent of Legg Mason Wood Walker, Incorporated, which was an
underwriter in five of the seven public offerings of Common Shares consummated
by the Company between January 1, 1997 and the date of this Annual Report on
Form 10-K.
Interests in Sellers
On March 7, 1997, the Company acquired a 6.8 acre parcel of
undeveloped land located in Horsham Township, Montgomery County, Pennsylvania
for approximately $1.0 million. The seller was Horsham Valley, Inc. The
purchase price was paid through a combination of approximately $645,000 in
cash and a non-interest bearing promissory note for $369,166 that was paid on
February 27, 1998. The purchase price for the property was determined by
negotiation between the Company and the seller. Mr. Nichols, Sr., the
Company's Chairman, holds an approximately 25% interest in the seller.
On December 17, 1997, the Company acquired an office property in
Valley Forge, Montgomery County, Pennsylvania (the "PECO Building") from PECO
Energy Company for a purchase price of $9.5 million. Mr. D'Alessio, a member
of the Company's Board of Trustees, is a director of PECO Energy Company. A
committee of the Board of Trustees, of which Mr. D'Alessio was not a
participant, made the decision to purchase the PECO Building and negotiated
the terms of the transaction.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BRANDYWINE REALTY TRUST
By: /s/ Gerard H. Sweeney
Dated: July 24, 1998 ------------------------
Gerard H. Sweeney
President and Chief Executive Officer
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