<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
---- Exchange Act of 1934
For the quarterly period ended March 31, 1998
or
---- Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ____________ to ___________
Commission file number 1-9106
Brandywine Realty Trust
-----------------------
(Exact name of registrant as specified in its charter)
Maryland 23-2413352
-------- ----------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
16 Campus Boulevard, Newtown Square, Pennsylvania 19073
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 325-5600
--------------
Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
A total of 38,051,000 Common Shares of Beneficial Interest were
outstanding as of May 14, 1998.
<PAGE>
BRANDYWINE REALTY TRUST
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997
Consolidated Statements of Operations for the three months
ended March 31, 1998 (unaudited) and March 31, 1997
(unaudited)
Consolidated Statements of Cash Flow for the three months
ended March 31, 1998 (unaudited) and March 31, 1997
(unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
--Not applicable
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ -----------
(unaudited)
ASSETS
<S> <C> <C>
Real estate investments
Operating properties $ 1,075,077 $ 586,414
Accumulated depreciation (29,923) (22,857)
------------ ------------
1,045,154 563,557
Cash and cash equivalents 38,042 29,442
Escrowed cash 1,241 212
Accounts receivable 4,877 3,689
Due from affiliates 348 214
Investment in management company 109 74
Investment in unconsolidated real estate ventures 7,276 5,480
Deposits 100 12,133
Deferred costs and other assets 9,197 6,680
----------- -----------
Total assets $ 1,106,344 $ 621,481
============ ============
LIABILITIES AND BENEFICIARIES' EQUITY
Mortgage notes payable $ 69,170 $ 48,731
Notes payable, Credit Facility 278,300 115,233
Accrued interest 1,164 857
Accounts payable and accrued expenses 6,875 2,377
Distributions payable 14,091 8,843
Tenant security deposits and deferred rents 8,899 5,535
------------ -----------
Total liabilities 378,499 181,576
------------ ------------
Commitments and Contingencies
Minority interest 14,074 14,377
------------ ------------
Beneficiaries' equity
Shares of beneficial interest, $0.01 par value,
100,000,000 common shares authorized,
37,426,000 shares issued and outstanding 370 241
Additional paid-in capital 740,071 446,054
Share warrants 962 962
Cumulative earnings 19,698 11,753
Cumulative distributions (47,330) (33,482)
------------ ------------
Total beneficiaries' equity 713,771 425,528
------------ ------------
Total liabilities and beneficiaries' equity $ 1,106,344 $ 621,481
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Rents $ 28,495 $ 6,999
Tenant reimbursements 3,823 1,327
Other 784 272
------------ ------------
Total revenue 33,102 8,598
------------ ------------
Operating Expenses:
Interest 4,387 975
Depreciation and amortization 7,713 2,310
Property operating expenses 10,137 2,810
Management fees 1,331 315
Administrative expenses 636 169
------------ ------------
Total operating expenses 24,204 6,579
------------ ------------
Income (loss) before equity in income of management
company, minority interest and extraordinary item 8,898 2,019
Equity in income of management company 35 125
------------ ------------
Income (loss) before minority interest and extraordinary item 8,933 2,144
Minority interest in income (130) (94)
------------ ------------
Net Income before extraordinary item 8,803 2,050
Extraordinary item (Note 5) (858) -
------------ ------------
Net income 7,945 2,050
Income allocated to Preferred Shares - (499)
------------ ------------
Income allocated to Common Shares $ 7,945 $ 1,551
============ ============
Earnings per Common Share:
Before extraordinary item
Basic $ 0.28 $ 0.20
============ ============
Diluted $ 0.28 $ 0.20
============ ============
After extraordinary item
Basic $ 0.25 $ 0.20
============ ============
Diluted $ 0.25 $ 0.20
============ ============
</TABLE>
The accompanying condensed notes are an integral part of these
consolidated financial statements.
4
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BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------
1998 1997
----------------------------
(unaudited and in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,945 $ 2,050
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest 130 94
Depreciation and amortization 7,713 2,310
Equity in income of management company (35) (125)
Amortization of deferred compensation 372 -
Amortization of discounted notes payable 67 -
Extraordinary item - write off of deferred financing costs 858 -
Changes in assets and liabilities:
Accounts receivable (1,188) (709)
Affiliate receivable (134) 38
Other assets (1,057) (103)
Accounts payable and accrued expenses 3,066 938
Accrued mortgage interest 367 55
Other liabilities 3,364 545
------------ ------------
Net cash provided by operating activites 21,468 5,093
------------ ------------
Cash flows from investing activities:
Purchase of properties (445,035) (58,143)
Investment in real estate ventures (1,796) -
Decrease (increase) in escrowed cash (1,029) 432
Capital expenditures and leasing commissions paid (4,762) (2,292)
------------ ------------
Net cash used in investing activities (452,622) (60,003)
------------ ------------
Cash flows from financing activites:
Proceeds from issuance of shares, net 287,462 45,534
Distributions paid to shareholders (8,634) (2,127)
Distributions paid to minority partners (134) (54)
Proceeds from mortgage notes payable - 21,682
Repayment of mortgage notes payable (646) (9,578)
Proceeds from notes payable, Credit Facility 570,867 -
Repayment of notes payable, Credit Facility (407,800) -
Other debt costs (1,361) (428)
------------ ------------
Net cash provided by (used in) financing activities 439,754 55,029
------------ ------------
Increase (decrease) in cash and cash equivalents 8,600 119
Cash and cash equivalents at beginning of period 29,442 18,279
------------ ------------
Cash and cash equivalents at end of period $ 38,042 $ 18,398
============ ============
</TABLE>
The accompanying condensed notes are an integral part of these
consolidated financial statements.
5
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BRANDYWINE REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. ORGANIZATION AND NATURE OF OPERATIONS:
Brandywine Realty Trust (collectively with its subsidiaries, the "Company") is a
self-administered, self-managed and fully integrated real estate investment
trust (a "REIT"). The Company currently owns a portfolio of real estate assets
located primarily in the Mid-Atlantic Region. As of March 31, 1998, the
Company's portfolio included 139 office properties and 28 industrial facilities
(collectively, the "Properties") that contain an aggregate of approximately 11.5
million net rentable square feet. As of March 31, 1998, the Company also held
economic interests in seven office development entities (the "Development
Entities").
The Company's interest in the Properties and the Development Entities is held
through Brandywine Operating Partnership, L.P. (the "Operating Partnership").
The Company is the sole general partner of the Operating Partnership and, as of
March 31, 1998, the Company held a 98.4% interest in the Operating Partnership.
The Operating Partnership holds a 95% economic interest in Brandywine Realty
Services Corporation (the "Management Company") through its ownership of 100% of
the Management Company's non-voting preferred stock and 5% of its voting common
stock. As of March 31, 1998, the Management Company was responsible for managing
and leasing 165 of the Company's Properties and additional properties on behalf
of third parties.
A majority of the Properties are located within the suburban Philadelphia office
and industrial market. As such, a downturn in business activity in this market
could negatively impact the Company. Management believes that the Philadelphia
office and industrial market provides a well-diversified economic base which
helps to insulate the region from the types of market vicissitudes that can
adversely affect a single-sector economy.
2. BASIS OF PRESENTATION:
The financial statements have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the included disclosures are adequate to make the
information presented not misleading. In the opinion of the Company, all
adjustments (consisting solely of normal recurring matters) necessary to fairly
present the financial position of the Company as of March 31, 1998, and the
results of its operations and its cash flows for the three month periods ended
March 31, 1998 and 1997 have been included. The results of operations for such
interim periods are not necessarily indicative of the results for a full year.
For further information, refer to the Company's consolidated financial
statements and footnotes thereto included in the Annual Report on Form 10-K for
the year ended December 31, 1997.
3. ACQUISITIONS OF REAL ESTATE INVESTMENTS:
Subsequent to March 31, 1998
Subsequent to March 31, 1998 and through May 14, 1998, the Company acquired 12
office properties which contained an aggregate of approximately 803,000 net
rentable square feet. The aggregate purchase price for the 12 properties was
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approximately $90.1 million, consisting of $79.5 million of cash and $10.6
million in units of limited partner interest ("Units") in the Operating
Partnership. Each Unit is redeemable at the option of the holder, subject to
certain conditions, for a cash payment equal to the market price of a Common
Share at the time of redemption or, at the Company's option, for one Common
Share.
First Quarter - 1998
During the first three months of 1998, the Company acquired 50 Properties (44
office properties and six industrial facilities) which contained an aggregate of
approximately 4.3 million net rentable square feet. The aggregate purchase price
of the 50 properties was $492.7 million, consisting of $489.1 million of cash
and $3.6 million in Units.
1997
During 1997, the Company acquired 80 properties (61 office properties and 19
industrial facilities) which contained an aggregate of approximately 5.1 million
net rentable square feet. The aggregate purchase price for the 1997 property
acquisitions was $403.7 million, consisting of $378.3 million of cash, $15.9
million of debt assumed and $9.5 million in Units.
The following unaudited pro forma financial information of the Company for the
three months ended March 31, 1998 and for the year ended December 31, 1997 gives
effect to the properties acquired and the common share offerings during 1998 and
1997 as if the purchases and offerings had occurred on January 1, 1997.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------
1998 1997
------------------- ------------------
<S> <C> <C>
(Unaudited and in thousands, except per share data)
Pro forma total revenues $48,129 $44,529
Pro forma net income before extraordinary items $15,109 $11,379
Diluted pro forma net income per Common Share before extraordinary items $0.40 $0.32
</TABLE>
All acquisitions described above were accounted for by the purchase method. The
results of operations for each of the acquired properties have been included
from the respective purchase dates. All pro forma financial information
presented within this footnote is unaudited and is not necessarily indicative of
the results which actually would have occurred if acquisitions had been
consummated on the respective dates indicated, nor does the pro forma
information purport to represent the results of operations for future periods.
4. INDEBTEDNESS
Notes Payable Credit Facility - The Company uses credit facility borrowings
for general business purposes, including the acquisition of office and
industrial properties and the repayment of certain outstanding debt. At December
31, 1997, the Company had a $150 million secured credit facility (the "1997
Credit Facility") which had remaining availability of $34.8 million. The 1997
Credit Facility was secured by 39 of the Properties and bore interest at a per
annum floating rate equal to the Company's choice of 30, 60 or 90-day LIBOR,
plus 175 basis points.
During the first quarter of 1998, the Company replaced the 1997 Credit Facility
with a $330 million unsecured revolving credit facility (the "1998 Credit
Facility"). The Company wrote off $858,000 of deferred financing costs relating
to the 1997 Credit Facility which has been accounted for as an extraordinary
item on the statement of operations. The new facility enables the Company to
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borrow funds at a reduced interest rate equal to the 30, 60, 90 or 180-day
LIBOR, plus, in each case, a range of 100 to 137.5 basis points, depending on
the Company's then existing leverage and debt rating. Alternatively, the Company
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. The 1998 Credit Facility matures
on January 5, 2001 and is extendible, under certain circumstances, at the
Company's option to January 5, 2002.
The 1998 Credit Facility requires the Company to maintain ongoing compliance
with a number of customary financial and other covenants, including leverage
ratios based on gross implied asset value and debt service coverage ratios,
limitations on liens and distributions and a minimum net worth requirement. As
of March 31, 1998, the Company was in compliance with all debt covenants.
On May 7, 1998 the Company and the Operating Partnership entered into an
unsecured credit facility (the "Additional Facility") with NationsBank, N.A.
permitting advances of up to $150 million, subject to certain conditions. The
Additional Facility matures on November 7, 1998, subject to a two-month
extension under certain circumstances, and allows the Company to borrow funds at
an interest rate equal to LIBOR plus 150 basis points or, at the Company's
option, the Prime Rate plus 25 basis points. Amounts repaid by the Company under
the Additional Facility are not subject to reborrowing. The Additional Credit
Facility incorporates the covenants contained in the Credit Facility.
The Company paid interest totaling $3,812,000 during the three months ended
March 31, 1998 and $836,000 during the three months ended March 31, 1997. As of
March 31, 1998, the fair values of mortgage notes payable and notes payable
under the Credit Facility approximate carrying costs.
As of March 31, 1998, 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.
8
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5. ISSUANCE OF SHARES, WARRANTS AND OPTIONS:
----------------------------------------
The following table summarizes the Company's issuance of shares,
warrants and options during the periods presented:
<TABLE>
<CAPTION>
Number of Number of
Date of Common Share options\ Exercise Proceeds
Type of issuance Investor issuaance Shares Price warrants Price (in thousands) (1)
- ------------------------- --------------- ---------- ---------- -------- --------- --------- ------------------
1998 Activity through March 31, 1998:
- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Share offering (2) Public 3/6/98 1,000,000 $ 24.00 - - 22,770
Share offering Public 2/27/98 629,921 $ 23.81 - - 14,325
Share offering Public 2/18/98 1,012,820 $ 24.06 - - 23,152
Share offering Public 2/4/98 10,000,000 $ 24.00 - - 227,700
Unit redemptions (3) Safeguard Scientifics 1/6/98 252,387 - - - -
Employee share awards Company employees 1/2/98 443,557 - - - 16,679
Employee share options Company employees 1/2/98 - - 748,874 $ 29.04 -
Employee share options Company employees 1/2/98 - - 740,796 $ 27.78 -
Employee share options Company employees 1/2/98 - - 554,034 $ 25.25 -
---------- --------- ---------
13,338,685 2,043,704 $ 304,626
---------- --------- =========
Amounts outstanding at December 31, 1997
- -----------------------------------------------
Shares outstanding Various 12/31/97 24,087,315 - - -
Options outstanding Various 12/31/97 - 762,105 $6.21 - $25.50 -
---------- ---------
24,087,315 762,105
---------- --------
Total outstanding as of March 31, 1998 37,426,000 2,805,809
========== =========
Activity subsequent to March 31, 1998
- -----------------------------------------------
Share offering Public 4/21/98 625,000 $ 24.00 - - 14,250
---------- ---------
Total outstanding as of May 14, 1998 38,051,000 2,805,809
========== =========
(1) Proceeds are net of underwriter's discounts and before deducting other expenses, if any.
(2) This offering was pursuant to the exercise of underwriters' over-allotment options.
(3) Unit Redemptions represent Common Shares issued upon redemption of Units.
</TABLE>
On January 2, 1998, the Company awarded an aggregate of 443,557 "restricted"
Common Shares to six of the Company's executives. These restricted shares vest
over five to eight year periods and were valued at approximately $11.2 million
(based on the closing price of Common Shares on January 2, 1998). Also on
January 2, 1998, the Company awarded certain of its employees options
exercisable for an aggregate 2,043,704 Common Shares. Of the options awarded,
1,737,261 were granted subject to shareholder approval. These options vest over
two to five years and have exercise prices ranging from $25.25 to $29.04. The
Company has reserved, as of March 31, 1998, 1,068,548 Common Shares for issuance
upon the exercise of options and warrants described above. There were no options
or warrants exercised or canceled and no options or warrants expired from
January 1, 1997 to March 31, 1998.
6. DISTRIBUTIONS:
On March 17, 1998, the Company declared a distribution of $0.37 per share which
was paid on April 15, 1998 to shareholders of record as of March 27, 1998.
7. NET INCOME (LOSS) PER SHARE:
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" ("SFAS 128"). SFAS 128 establishes standards for
computing and presenting earnings per share ("EPS"). Basic earnings per share
are based on the weighted average number of Common Shares outstanding during the
year. Diluted earnings per share are based on the weighted average number of
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Common Shares outstanding during the year adjusted to give effect to common
share equivalents. All per share amounts for all periods presented have been
restated to conform to SFAS 128. A reconciliation between basic and diluted EPS
is shown below (in thousands, except share and per share data).
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------------------
1998 1997
--------------------------------- --------------------------------
Basic Diluted Basic Diluted
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income (loss) $ 7,945 $ 7,945 $ 2,050 $ 2,050
Income allocated to Preferred Shares - - (499) (499)
--------------- --------------- --------------- ---------------
Income (loss) available to common shareholders $ 7,945 $ 7,945 $ 1,551 $ 1,551
--------------- --------------- --------------- ---------------
Weighted average shares outstanding 31,540,412 31,540,412 7,753,125 7,753,125
Options and warrants - 133,353 - 51,892
--------------- --------------- --------------- ---------------
Total weighted average shares outstanding 31,540,412 31,673,765 7,753,125 7,805,017
--------------- --------------- --------------- ---------------
Earnings (loss) per share $ 0.25 $ 0.25 $ 0.20 $ 0.20
=============== =============== =============== ===============
</TABLE>
10
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
financial statements appearing elsewhere herein. This Form 10-Q contains
forward-looking statements for purposes of the Securities Act of 1933, 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, but are not limited to, 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 during the three months ended March
31, 1998 by purchasing 50 office and industrial properties for an aggregate
purchase price of approximately $492.7 million (the "First Quarter 1998
Acquisitions") and investing approximately $1.8 million in unconsolidated real
estate ventures. As of March 31, 1998, the Company's portfolio consisted of 139
office and 28 industrial properties totaling approximately 11.5 million net
rentable square feet. These acquisitions increased the Company's market share in
the suburban Philadelphia office and industrial market and expanded the
Company's presence into several other markets within the Mid-Atlantic Region.
The First Quarter 1998 Acquisitions were financed through a combination
of proceeds received from three public offerings of an aggregate of
approximately 12.6 million Common Shares which raised gross proceeds of
approximately $303.4 million, borrowings under the Company's revolving credit
facility and the issuance of 153,036 Units in the Operating Partnership valued
at approximately $3.6 million. These acquisitions expanded the Company's
presence into Maryland, Delaware and New Jersey while reinforcing the Company's
presence in suburban Philadelphia.
During the period March 31, 1998 through May 14, 1998, the Company
acquired 12 additional office properties containing an aggregate of
approximately 803,000 net rentable square feet for a total of approximately
$90.1 million. These acquisitions expanded the Company's presence into the
Harrisburg, PA market and strengthened the Company's position in Delaware.
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.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 1998 to the Three Months Ended
March 31, 1997
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Net income before extraordinary items for the three months ended March
31, 1998 was $8.8 million compared with net income of $2.1 million for the
corresponding period in 1997. The increase was primarily attributable to the
operating results contributed by the 130 properties acquired from January 1,
1997 through March 31, 1998. The extraordinary item included in the statement of
operations for the three months ended March 31, 1998 reflects the Company's
write-off of costs associated with its then existing secured credit facility
which was replaced by an unsecured credit facility (see "Liquidity and Capital
Resources" for further discussion).
Revenues, which include rental income, recoveries from tenants and
other income, increased by $24.5 million for the three months ended March 31,
1998 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 $924,000 for the
three months ended March 31, 1998.
Property operating expenses, depreciation and amortization and
management fees increased in the aggregate by $13.7 million for the three months
ended March 31, 1998 as compared with the prior year period primarily as a
result of property acquisitions. Interest expense increased by $3.4 million as a
result of additional indebtedness incurred to finance certain of the Company's
acquisitions. Administrative expenses increased by $467,000 primarily as a
result of management and staffing additions to support the Company's growth.
Minority interest primarily represents the portion of the Operating
Partnership which is not owned by the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
During the three months ended March 31, 1998, the Company generated
$21.5 million in cash flow from operating activities. Other sources of cash flow
consisted of (i) $163.1 million in net additional borrowings under the Company's
revolving credit facility and (ii) $287.5 million in net proceeds from share
issuances. During the three months ended March 31, 1998, the Company used its
cash to (i) finance the cash portion ($445.0 million) of the acquisition cost of
50 Properties, (ii) invest $1.8 million in unconsolidated real estate ventures,
(iii) fund capital expenditures and leasing commissions of $4.8 million, (iv)
pay distributions totaling $8.8 million to shareholders and minority partners in
the Operating Partnership, (v) pay scheduled amortization on mortgage principal
of $0.6 million, (vi) increase escrowed cash by $1.0 million, (vii) pay other
debt costs of $1.4 million and (viii) increase existing cash reserves by $8.6
million.
Capitalization
During the first quarter of 1998, the Company replaced the 1997 Credit
Facility with the 1998 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 1998 Credit
Facility matures on January 5, 2001 and is extendible, under certain
circumstances, at the Company's option to January 5, 2002.
As of March 31, 1998, the Company had approximately $347.5 million of
debt outstanding, consisting of mortgage loans totaling $69.2 million and notes
payable under the 1998 Credit Facility of $278.3 million. The mortgage loans
mature between July 1998 and November 2004. As of March 31, 1998, the Company
had $51.7 million of remaining availability under the 1998 Credit Facility,
12
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which provides for total borrowings up to $330 million and bore interest at a
per annum floating rate equal to the 30, 60 or 90-day LIBOR, plus 137.5 basis
points. For the three months ended March 31, 1998, the weighted average interest
rates on the Company's debt were 7.1% and 8.3% for borrowings under the 1998
Credit Facility and mortgage notes payable, respectively.
The Company's debt to market capitalization ratio was 28% as of March
31, 1998 and averaged 25% during the quarter. 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 what management
believes to be the optimal source of capital to finance the Company's growth.
To provide financing for recent acquisitions, on May 7, 1998 the
Company and the Operating Partnership entered into an unsecured credit facility
(the "Additional Facility") with NationsBank, N.A. permitting advances of up to
$150 million, subject to certain conditions. The Additional Facility matures on
November 7, 1998, subject to a two-month extension under certain circumstances,
and allows the Company to borrow funds at an interest rate equal to LIBOR plus
150 basis points or, at the Company's option, the Prime Rate plus 25 basis
points. Amounts repaid by the Company under the Additional Facility are not
subject to reborrowing. The Additional Credit Facility incorporates the
covenants contained in the 1998 Credit Facility.
During the period January 1, 1998 through March 31, 1998, the Company
sold an aggregate 12,642,741 Common Shares for gross proceeds of $303.4 million
pursuant to three public offerings. On April 21, 1998, the Company sold 625,000
Common Shares for gross proceeds of $15.0 million pursuant to a public offering.
Short and Long Term Liquidity
The Company believes that its cash flow from operations is adequate to
fund its short-term liquidity requirements for the foreseeable future. Cash flow
from operations is generated primarily from rental revenues and operating
expense reimbursements from tenants and management services income from the
provision of services to third parties. The Company intends to use these funds
to meet its short-term liquidity needs, which are to fund operating expenses,
debt service requirements, recurring capital expenditures, tenant allowances,
leasing commissions and the minimum distribution required to maintain the
Company's REIT qualification under the Internal Revenue Code.
On March 17, 1998, the Board of Trustees declared a quarterly dividend
distribution of $0.37 per share, paid on April 15, 1998 to shareholders of
record as of March 27, 1998.
As of March 31, 1998, 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 1998 Credit Facility and other long-term secured and unsecured indebtedness
and the issuance of additional Units and other equity securities.
Funds from Operations
Management generally considers Funds from Operations ("FFO") as one
measure of REIT performance. The Company adopted the NAREIT definition of FFO in
1996 and has used this definition for all periods presented in the financial
13
<PAGE>
statements included herein. FFO is calculated as net income (loss) adjusted for
depreciation expense attributable to real property, amortization expense
attributable to capitalized leasing costs, gains on sales of real estate
investments and extraordinary and nonrecurring items. FFO should not be
considered an alternative to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity.
FFO for the three months ended March 31, 1998 and 1997 is summarized in
the following table (in thousands, except share and per share data).
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
Income before minority interest and extraordinary items $ 8,933 $ 2,144
Add (Deduct):
Depreciation attributable to real property 7,300 1,969
Amortization attributable to leasing costs 243 179
Minority interest not attributable to unit holders - (11)
---------------- ---------------
Funds from Operations before minority interest $ 16,476 $ 4,281
================ ===============
Weighted average Common Shares (including common
share equivalents) and Operating Partnership units (1) 32,144,535 9,758,066
================ ===============
Funds from Operations per share $ 0.51 $ 0.44
================ ===============
</TABLE>
(1) Includes the weighted average effect of Common Shares issued upon the
conversion of preferred shares for the period prior to conversion, the weighted
average effect of Common Shares issuable upon the conversion of Units.
Year 2000 Issue
The Company has recognized the need to ensure that its systems,
equipment and operations will not be adversely impacted upon the arrival of 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. The Company has not quantified 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 year
2000 compliance 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.
14
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved (nor was it involved at March 31, 1998) in
any material legal proceedings nor, to the Company's knowledge, is any material
legal proceeding currently threatened against the company, other than routine
litigation arising in the ordinary course of business, substantially all of
which is expected to be covered by liability insurance.
Item 2. Changes in Securities
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule (electronic filers)
(b) Reports on Form 8-K:
During the three months ended March 31, 1998, and through May 14, 1998, the
Company filed the following:
(i) Current Report on Form 8-K filed January 9, 1998 (reporting under Items 2, 5
and 7). Item 7 of this Current Report referenced financial statements filed
under Item 7 of a Current Report filed on December 17, 1997.
(ii) Current Report on Form 8-K filed January 27, 1998 (reporting under Items 5
and 7). This Current Report included an audited statement of revenue and certain
expenses of the RREEF Properties for the year ended December 31, 1996 and the
unaudited statement of revenue and certain expenses for the nine months ended
September 30, 1997. This Current Report also included pro forma financial
information for the nine months ended September 30, 1997 and for the year ended
December 31, 1996.
15
<PAGE>
(iii) Current Report on Form 8-K filed January 30, 1998 (reporting under Items
5 and 7).
(iv) Current Report on Form 8-K filed February 13, 1998 (reporting under Items 5
and 7).
(v) Current Report on Form 8-K filed February 23, 1998 (reporting under Items 2,
5 and 7). This Current Report included an audited statement of revenue and
certain expenses of Three Christina Centre for the year ended December 31, 1996
and the unaudited statement of revenue and certain expenses for the nine months
ended September 30, 1997. This Current Report also included pro forma financial
information for the nine months ended September 30, 1997 and for the year ended
December 31, 1996.
(vi) Current Report on Form 8-K filed February 25, 1998 (reporting under Items 5
and 7).
(vii) Current Report on Form 8-K filed March 17, 1998 (reporting under
Items 2, 5 and 7). Item 2 of this Current Report referenced financial statements
filed under Item 7 of a Current Report filed on February 23, 1998.
(viii) Current Report on Form 8-K filed April 13, 1998 (reporting under Items 2
and 7).
(ix) Current Report on Form 8-K/A No. 1 filed April 16, 1998 (reporting under
Items 5 and 7). This Amendment No. 1 included (i) an audited statement of
revenue and certain expenses of the DKM Properties for the year ended December
31, 1997 and (ii) an audited statement of revenue and certain expenses of Three
Christina Centre for the year ended December 31, 1997. This Amendment No. 1 also
included pro forma financial information for the year ended December 31, 1997.
(x) Current Report on Form 8-K filed May 14, 1998 (reporting under Items 2, 5
and 7). This Current Report included an audited combined statement of revenue
and certain expenses of the First Commercial Properties for the year ended
December 31, 1997 and an audited statement of revenue and certain expenses of
One Christina Centre for the year ended December 31, 1997. This Current Report
also included pro forma financial information for the year ended December 31,
1997.
16
<PAGE>
BRANDYWINE REALTY TRUST
SIGNATURES OF REGISTRANT
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BRANDYWINE REALTY TRUST
(Registrant)
Date: May 15, 1998 By: /s/ Gerard H. Sweeney
------------ -----------------------
Gerard H. Sweeney, President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1998 By: /s/ Mark S. Kripke
------------ --------------------
Mark S. Kripke, Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 38,042
<SECURITIES> 0
<RECEIVABLES> 4,877
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 44,160
<PP&E> 1,075,077
<DEPRECIATION> 29,923
<TOTAL-ASSETS> 1,106,344
<CURRENT-LIABILITIES> 31,029
<BONDS> 0
0
0
<COMMON> 370
<OTHER-SE> 713,401
<TOTAL-LIABILITY-AND-EQUITY> 1,106,344
<SALES> 0
<TOTAL-REVENUES> 33,102
<CGS> 0
<TOTAL-COSTS> 24,204
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,387
<INCOME-PRETAX> 8,898
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,945
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
