<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 June 30, 2000
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
14 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 36,133,825 Common Shares of Beneficial Interest were
outstanding as of August 11, 2000.
<PAGE>
BRANDYWINE REALTY TRUST
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999
Condensed Consolidated Statements of Operations for the
three months and six months ended June 30, 2000 and June
30, 1999
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and June 30, 1999
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
BRANDYWINE REALTY TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- --------------
<S> <C> <C>
ASSETS
Real estate investments:
Operating properties $ 1,785,589 $ 1,792,228
Construction-in-progress 52,238 24,742
Land held for development 32,653 11,127
------------ ------------
1,870,480 1,828,097
Accumulated depreciation (157,278) (125,744)
------------ ------------
1,713,202 1,702,353
Cash and cash equivalents 12,630 5,692
Escrowed cash 14,149 10,814
Accounts receivable, net 30,694 25,893
Due from affiliates 10,264 7,361
Investment in management company, at equity 158 228
Investment in real estate ventures, at equity 38,269 35,682
Deferred costs, net 17,857 17,960
Other assets 22,634 23,933
------------ ------------
Total assets $ 1,859,857 $ 1,829,916
============ ============
LIABILITIES AND BENEFICIARIES' EQUITY
Mortgage notes payable $ 481,461 $ 462,809
Borrowings under Credit Facility 421,825 376,825
Accounts payable and accrued expenses 13,458 17,596
Distributions payable 20,060 18,982
Tenant security deposits and deferred rents 16,672 18,871
------------ -----------
Total liabilities 953,476 895,083
Minority interest 145,129 145,941
Commitments and contingencies
Beneficiaries' equity
Preferred Shares (shares authorized-10,000,000):
7.25% Series A Preferred Shares, $0.01 par value;
issued and outstanding-750,000
in 2000 and 1999 8 8
8.75% Series B Preferred Shares, $0.01 par value;
issued and outstanding-4,375,000
in 2000 and 1999 44 44
Common Shares of beneficial interest, $0.01 par value;
shares authorized-100,000,000; issued and outstanding-
35,703,623 in 2000 and 36,372,590 in 1999 357 364
Additional paid-in capital 849,862 863,962
Share warrants 908 908
Cumulative earnings 95,226 76,643
Cumulative distributions (185,153) (153,037)
------------ -----------
Total beneficiaries' equity 761,252 788,892
------------ -----------
Total liabilities and beneficiaries' equity $ 1,859,857 $ 1,829,916
============ ============
</TABLE>
The accompanying condensed notes are integral part of these
consolidated financial statements.
3
<PAGE>
BRANDYWINE REALTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share information)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
2000 1999 2000 1999
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Revenue:
Rents $ 61,243 $ 61,199 $ 121,774 $ 120,638
Tenant reimbursements 9,047 9,079 18,003 17,813
Other 1,863 1,394 3,820 4,004
--------- --------- ---------- -----------
Total revenue 72,153 71,672 143,597 142,455
Operating Expenses:
Property operating expenses 15,771 16,675 32,134 32,662
Real estate taxes 6,405 6,029 12,689 12,228
Interest 16,361 18,138 32,315 36,901
Depreciation and amortization 16,557 17,538 33,120 34,602
Management fees 3,578 2,914 6,887 6,055
Administrative expenses 966 626 1,324 1,029
Amortization of deferred compensation costs 554 418 1,051 778
--------- --------- ---------- -----------
Total operating expenses 60,192 62,338 119,520 124,255
Income before equity in income of management company, equity in
income of real estate ventures and minority interest 11,961 9,334 24,077 18,200
Equity in (loss) income of management company (83) 38 (70) 71
Equity in income of real estate ventures 1,119 280 1,762 429
Gain on sale of interests in real estate 68 - 68 -
--------- --------- ---------- -----------
Income before minority interest 13,065 9,652 25,837 18,700
Minority interest (2,266) (1,819) (4,448) (3,669)
--------- --------- ---------- -----------
Net income 10,799 7,833 21,389 15,031
Income allocated to Preferred Shares (2,977) (1,070) (5,954) (1,750)
--------- --------- ---------- -----------
Income allocated to Common Shares $ 7,822 $ 6,763 $ 15,435 $ 13,281
========= ========= ========== ===========
Earnings per Common Share:
Basic $ 0.22 $ 0.18 $ 0.43 $ 0.35
========= ========= ========== ===========
Diluted $ 0.22 $ 0.18 $ 0.43 $ 0.35
========= ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE>
BRANDYWINE REALTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------
2000 1999
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,389 $ 15,031
Adjustments to reconcile net income to net cash from
operating activities:
Minority interest 4,448 3,669
Depreciation and amortization 33,120 34,602
Straight-line rent (3,548) (4,322)
Equity in loss (income) of management company 70 (71)
Equity in income of real estate ventures (1,762) (429)
Amortization of deferred compensation costs 1,051 778
Amortization of financing costs 1,733 1,516
Gain on sale of interests of real estate ventures (68) -
Changes in assets and liabilities:
Accounts receivable (1,253) (5,419)
Due from affiliates (2,903) 317
Deferred costs and other assets 1,299 5,212
Accounts payable and accrued expenses (4,592) (518)
Tenant security deposits and deferred rents (2,199) 3,332
---------- -----------
Net cash from operating activites 46,785 53,698
Cash flows from investing activities:
Acquisitions of properties (7,935) (12,426)
Sales of properties 825 123,109
Capital expenditures (35,543) (19,773)
Investment in real estate ventures (825) (7,966)
Increase in escrowed cash (3,335) (3,993)
Leasing costs (2,417) (3,101)
---------- -----------
Net cash from investing activities (49,230) 75,850
Cash flows from financing activites:
Proceeds from notes payable, Credit Facility 55,000 -
Repayments of notes payable, Credit Facility (10,000) (286,500)
Proceeds from mortgage notes payable 25,900 195,808
Repayments of mortgage notes payable (7,289) (31,719)
Debt financing costs (368) (3,278)
Proceeds from issuance of Preferred Shares, net - 31,207
Repurchases of Common Shares (14,811) (286)
Distributions paid to shareholders (33,789) (31,051)
Distributions paid to minority partners (5,260) (4,397)
---------- -----------
Net cash from financing activities 9,383 (130,216)
---------- -----------
Increase (decrease) in cash and cash equivalents 6,938 (668)
Cash and cash equivalents at beginning of period 5,692 13,075
---------- -----------
Cash and cash equivalents at end of period $ 12,630 $ 12,407
========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
BRANDYWINE REALTY TRUST
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. THE COMPANY
-----------
Brandywine Realty Trust (collectively with its subsidiaries, the "Company") is a
self-administered and self-managed real estate investment trust (a "REIT")
active in acquiring, developing, redeveloping, leasing and managing office and
industrial properties. As of June 30, 2000, the Company's portfolio included 198
office properties, 50 industrial facilities, one mixed-use property and five
properties under redevelopment (collectively, the "Properties") that contain an
aggregate of 16.7 million net rentable square feet. A majority of the Properties
are located in the office and industrial markets surrounding Philadelphia
(Northern and Western Suburbs and Wilmington, Delaware) and Southern/Central New
Jersey. The balance of the Properties are primarily located in Northern New
Jersey and Long Island, New York; and Northern and Richmond, Virginia. As of
June 30, 2000, the Company also held economic interests in twelve office real
estate ventures (the "Real Estate Ventures").
The Company's interest in its assets 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 June 30, 2000, held an
approximate 87.7% interest in the Operating Partnership and was entitled to
approximately 94.3% of the Operating Partnership's income after distributions to
holders of Series B Preferred Units. The Operating Partnership holds a 95%
economic interest in Brandywine Realty Services Corporation (the "Management
Company") through its ownership of 100% of the Management Company's non-voting
preferred stock and 5% of its voting common stock. As of June 30, 2000, the
Management Company was managing and leasing properties containing an aggregate
of approximately 20.7 million net rentable square feet, of which 16.7 million
net rentable square feet related to properties owned by the Company and
approximately 4.0 million net rentable square feet related to properties owned
by unaffiliated third parties or the Real Estate Ventures.
Minority interest relates to interests in the Operating Partnership that are not
owned by the Company. Income allocated to the minority interest is based on the
percentage ownership of the Operating Partnership held by third parties
throughout the year. Minority Interest is comprised of Class A Units of limited
partnership interest ("Class A Units") and Series B Preferred Units of limited
partnership interest ("Series B Preferred Units"). The Operating Partnership
issued these interests to persons that contributed assets to the Operating
Partnership. The Operating Partnership is obligated to redeem, at the request of
a holder, each Class A Unit for cash or one Common Share, at the option of the
Company. Each Series B Preferred Unit has a stated value of $50.00 and is
convertible, at the option of the holder, into Class A Units at a conversion
price of $28.00. The conversion price declines to $26.50, if the average trading
price of the Common Shares during the 60-day period ending December 31, 2003 is
$23.00 or less. The Series B Preferred Units bear a preferred distribution of
7.25% per annum, subject to an increase in the event quarterly distributions
paid to holders of Common Shares exceed $0.51 per share. As of June 30, 2000,
there were 2,156,150 Class A Units and 1,950,000 outstanding Series B Preferred
Units held by third party investors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
---------------------
The consolidated financial statements have been prepared by the Company without
audit except as to the balance sheet as of December 31, 1999, which has been
prepared from audited data, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the included
disclosures are adequate to make the information presented not misleading. In
the opinion of the Company, all adjustments (consisting solely of normal
recurring matters) necessary to fairly present the financial position of the
Company as of June 30, 2000, the results of its operations for the three and six
month periods ended June 30, 2000 and 1999, and its cash flows for the six
months ended June 30, 2000 and 1999 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 included in the Annual Report on
Form 10-K for the year ended December 31, 1999. Certain prior year amounts have
been reclassified to conform with the current year presentation.
6
<PAGE>
Real Estate Investments
-----------------------
Real estate investments include capitalized direct internal development costs
totaling $.6 million and $.9 million for the three and six months ended June 30,
2000 and $.4 million and $.6 million for the three and six months ended June 30,
1999.
Deferred Costs
--------------
Deferred costs include internal direct leasing costs totaling $.2 million and
$1.0 million for the three and six months ended June 30, 2000 and $.3 million
and $.6 million for the three and six months ended June 30, 1999.
New Pronouncements
------------------
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The FASB also issued SFAS No. 137 that
delays the effective date for SFAS 133 until fiscal years beginning after June
15, 2000. SFAS 133 establishes accounting and reporting standards for the
recognition and measurement of derivative instruments and hedging activities.
The Company has not quantified the impact of SFAS 133 on the Company's future
financial position or result of operations.
3. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS
--------------------------------------------------------
Second Quarter 2000
-------------------
During the second quarter of 2000, the Company purchased an aggregate of 19.6
acres of land for $2.7 million. In addition, the Company sold one building
containing 10,000 square feet for $.8 million resulting in a gain of $.1
million.
Second Quarter 1999
-------------------
During the second quarter of 1999, the Company sold 20 industrial properties and
one office property containing 2.1 million net rentable square feet for $99.8
million and acquired four office properties containing 277,000 net rentable
square feet for $14.4 million.
The results of operations on a pro forma basis on the above acquisitions and
dispositions are not significant.
4. INDEBTEDNESS
------------
The Company utilizes credit facility borrowings for general business purposes,
including the acquisition of properties and the repayment of debt. At June 30,
2000, the Company had a $450.0 million unsecured credit facility (the "Credit
Facility") that matures in September 2001, which can be extended through
September 2002 upon payment of a fee. The Credit Facility bears interest at
LIBOR (LIBOR was 6.70% at June 30, 2000) plus 1.5%, with the spread over LIBOR
subject to reductions from .125% to .35% and a possible increase of .25% based
on the Company's leverage. As of June 30, 2000, the Company had $421.8 million
of borrowings and $16.5 million of letters-of credit outstanding under the
Credit Facility. The weighted-average interest rate on the Credit Facility was
7.69% for the six months ended June 30, 2000. The Company is currently in
compliance with all covenants in the Credit Facility.
As of June 30, 2000, the Company had $481.5 million of mortgage notes payable
secured by 97 of the Properties and a portion of its land holdings. Fixed rate
mortgages, totaling $337.0 million, require payments of principal and/or
interest (or imputed interest) at rates ranging from 5.0% to 9.88% and mature at
various dates from August 2000 through July 2027. The weighted-average interest
rate on the Company's mortgages was 7.87% in 2000.
For the three months ended June 30, 2000 and 1999, the Company paid interest
totaling $16.8 million and $16.2 million including capitalized interest of
$2.0 million in 2000 and $.2 million in 1999. For the six months ended June 30,
2000 and 1999, the Company paid interest totaling $33.5 million and $35.0
million including capitalized interest of $3.4 in 2000 and $.2 million in 1999.
7
<PAGE>
5. BENEFICIARIES' EQUITY
---------------------
The Series A Preferred Shares, with a stated value of $50.00, are convertible
into Common Shares, at the option of the holder, at a conversion price of
$28.00. The conversion price declines to $26.50, if the trading price of the
Common Shares during the 60-day period ending December 31, 2003 is $23.00 or
less. The Series A Preferred Shares bear a preferred distribution of 7.25% per
annum, subject to an increase if quarterly distributions paid to Common Share
holders exceeds $0.51 per share. The Series A Preferred Shares are perpetual and
may be redeemed, at the Company's option, at par beginning in January 2004 or
earlier, if the market price of the Common Shares exceeds specified levels.
The Series B Preferred Shares, convertible into Common Shares at a conversion
price of $24.00 per share, are entitled to quarterly dividends equal to the
greater of $0.525 per share or the quarterly dividend on the number of Common
Shares into which a Series B Preferred Share is convertible. The Series B
Preferred Shares are perpetual and may be redeemed, at the Company's option, at
par, beginning in April 2007. In addition, the Company may require the
conversion of the Series B Preferred Shares into Common Shares starting in April
2004, if certain conditions are met, including that the Common Shares are then
trading in excess of 130% of the conversion price. Upon certain changes in
control of the Company, the holder may require the Company to redeem its Series
B Preferred Shares. However, the Company has the ability and intent to cause the
Series B Preferred Shares to be converted into Common Shares rather than
redeemed in such circumstances.
On June 26, 2000, the Company declared a distribution of $0.40 per Common Share,
totaling $14.5 million, which was paid on July 25, 2000 to shareholders of
record as of July 7, 2000. The Operating Partnership simultaneously declared a
$0.40 per unit cash distribution to holders of Class A Units totaling $.9
million.
On June 26, 2000, the Company and the Operating Partnership, respectively, also
declared distributions to holders of Series A Preferred Shares, Series B
Preferred Shares and Series B Preferred Units, which are each currently entitled
to a preferential return of 7.25%, 8.75% and 7.25%, respectively. Distributions
paid on July 15, 2000 to holders of Series A Preferred Shares, Series B
Preferred Shares and Series B Preferred Units totaled $.7 million, $2.3 million
and $1.7 million, respectively.
During the second quarter of 2000, the Company repurchased 14,733 Common Shares
for an aggregate of $.3 million (an average price of $17.31 per share).
6. SEGMENT INFORMATION
-------------------
The Company has four reportable segments: (1) Pennsylvania Suburbs (includes
Berks, Bucks, Chester, Cumberland, Dauphin, Delaware, Lehigh, Montgomery,
Northampton and Philadephia counties and Wilmington, Delaware), (2)
Southern/Central New Jersey (includes Atlantic, Burlington, Camden and Mercer
counties), (3) New York (includes Northern New Jersey and Long Island, New York)
and (4) Virginia (includes Northern Virginia and Richmond, Virginia). Corporate
is responsible for cash and investment management and certain other general
support functions.
8
<PAGE>
Segment information as of and for the three months ended June 30, 2000 and June
30, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Southern/
Pennsylvania Central
Suburbs New Jersey New York Virginia Corporate Total
------------- ------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
2000:
-----
Real estate investments, at cost $ 928,943 $ 465,094 $ 170,193 $ 306,250 $ - $ 1,870,480
Total revenue 36,343 18,615 6,710 10,301 184 72,153
Property operating expenses
and real estate taxes 10,824 6,345 2,157 2,850 - 22,176
Interest 1,848 2,625 743 546 10,599 16,361
Depreciation & amortization 2,782 7,192 2,784 3,799 - 16,557
1999:
-----
Real estate investments, at cost $ 890,586 $ 448,140 $ 167,293 $ 307,957 $ - $ 1,813,976
Total revenue 35,833 19,309 6,410 10,109 11 71,672
Property operating expenses
and real estate taxes 11,048 6,675 1,837 3,144 - 22,704
Interest 1,956 2,403 769 688 12,322 18,138
Depreciation & amortization 8,872 4,564 1,759 2,343 - 17,538
</TABLE>
Segment information for the six months ended June 30, 2000 and June 30, 1999 is
as follows (in thousands):
<TABLE>
<CAPTION>
Southern/
Pennsylvania Central
Suburbs New Jersey New York Virginia Corporate Total
------------- ------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
2000:
-----
Total revenue $ 71,671 $ 38,177 $ 13,401 $ 19,995 $ 353 $ 143,597
Property operating expenses
and real estate taxes 22,186 12,776 4,099 5,762 - 44,823
Interest 3,706 5,143 1,480 1,089 20,897 32,315
Depreciation & amortization 12,995 10,261 4,152 5,712 - 33,120
1999:
-----
Total revenue $ 72,684 $ 37,847 $ 12,518 $ 19,080 $ 326 $ 142,455
Property operating expenses
and real estate taxes 22,269 13,090 3,593 5,938 - 44,890
Interest 3,340 3,890 1,483 1,368 26,820 36,901
Depreciation & amortization 17,904 9,158 3,038 4,502 - 34,602
</TABLE>
9
<PAGE>
7. EARNINGS PER COMMON SHARE
-------------------------
The following table details the number of shares and net income used to
calculate basic and diluted earnings per share (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------------------
2000 1999
--------------------------------- ---------------------------------
Basic Diluted Basic Diluted
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income $ 10,799 $ 10,799 $ 7,833 $ 7,833
Income allocated to Preferred Shares (2,977) (2,977) (1,070) (1,070)
------------ ------------ ------------ ------------
Net income available to common shareholders $ 7,822 $ 7,822 $ 6,763 $ 6,763
============ ============ ============ ============
Weighted-average shares outstanding 35,701,256 35,701,256 37,573,381 37,573,381
Options and warrants - 15,391 - 17,077
------------ ------------ ------------ ------------
Total weighted-average shares outstanding 35,701,256 35,716,647 37,573,381 37,590,458
============ ============ ============ ============
Earnings per share $ 0.22 $ 0.22 $ 0.18 $ 0.18
============ =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------------------------------
2000 1999
--------------------------------- ---------------------------------
Basic Diluted Basic Diluted
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income $ 21,389 $ 21,389 $ 15,031 $ 15,031
Income allocated to Preferred Shares (5,954) (5,954) (1,750) (1,750)
------------ ------------ ------------ ------------
Net income available to common shareholders $ 15,435 $ 15,435 $ 13,281 $ 13,281
============ ============ ============ ============
Weighted-average shares outstanding 35,918,980 35,918,980 37,573,381 37,573,381
Options and warrants - 13,814 - 15,627
------------ ------------ ------------ ------------
Total weighted-average shares outstanding 35,918,980 35,932,794 37,573,381 37,589,008
============ ============ ============ ============
Earnings per share $ 0.43 $ 0.43 $ 0.35 $ 0.35
============ ============ ============ ============
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the financial
statements appearing elsewhere herein. This Form 10-Q contains forward-looking
statements for purposes of the Securities Act of 1933 and the Securities
Exchange Act of 1934 and as such may involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, there can
be no assurance that these expectations will be realized. Factors that could
cause actual results to differ materially from current expectations include, but
are not limited to, changes in general economic conditions, changes in local
real estate conditions (including rental rates and competing properties),
changes in industries in which the Company's principal tenants compete, the
failure to timely lease unoccupied space, the failure to timely re-lease
occupied space upon expiration of leases, the inability to generate sufficient
revenues to meet debt service payments and operating expenses, the
unavailability of equity and debt financing, unanticipated costs associated with
the acquisition and integration of the Company's acquisitions, potential
liability under environmental or other laws and regulations, the failure of the
Company to manage its growth effectively and the other risks identified in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
OVERVIEW
The Company operates in four geographic segments: (1) Pennsylvania Suburbs
(includes Berks, Bucks, Chester, Cumberland, Dauphin, Delaware, Lehigh,
Montgomery, Northampton and Philadelphia counties and Wilmington, Delaware), (2)
Southern/Central New Jersey (includes Atlantic, Burlington, Camden and Mercer
counties), (3) New York (includes Northern New Jersey and Long Island, New
York), and (4) Virginia (includes Northern Virginia and Richmond, Virginia). The
Company believes it has established an effective platform in these office and
industrial markets that provides a foundation for achieving its goals of
maximizing market penetration and operating economies of scale. As of June 30,
2000, the Company's portfolio consisted of 198 office properties, 50 industrial
facilities, one mixed-use property and five properties under redevelopment that
contain an aggregate of 16.7 million net rentable square feet.
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 rent increases in its
current portfolio.
RESULTS OF OPERATIONS
The results of operations for the three and six months ended June 30, 2000 and
1999 include the respective operations of the Properties. For comparative
purposes, the Company had a total of 243 of the Properties ("Same Store
Properties") for the entire three months ended June 30, 2000 and 1999 as
compared to 249 properties as of June 30, 2000.
Comparison of the Three and Six Months Ended June 30, 2000 and June 30, 1999
Revenue (which includes rental income, recoveries from tenants and other income)
increased to $72.2 million and $143.6 for the three and six months ended June
30, 2000 as compared to $71.7 million and $142.5 for the comparable periods in
1999. The straight-line rent adjustment increased revenues by $1.7 million and
$3.5 million for the three and six months ended June 30, 2000 and $2.1 million
and $4.3 million for the three and six months ended June 30, 1999. Rental income
for the Same Store Properties increased to $57.4 million for the three months
ended June 30, 2000 from $55.0 million for the comparable period in 1999 due to
increased rental rates and occupancy.
Property operating expenses and real estate taxes decreased to $22.2 million and
$44.8 million for the three and six months ended June 30, 2000 as compared to
$22.7 million and $44.9 million for the comparable periods in 1999. Property
operating expenses and real estate taxes for the Same Store Properties decreased
to $20.7 million for the three months ended June 30, 2000 from $21.0 million for
the comparable period in 1999. This decrease was primarily attributable to
expense savings from the Company's "Preferred Vendor Program," designed to take
advantage of economies of scale.
11
<PAGE>
Interest expense decreased to $16.4 million and $32.3 million for the three and
six months ended June 30, 2000 from $18.1 million and $36.9 million for the
comparable periods in 1999 as a result of decreased average borrowings on the
Company's Credit Facility and mortgage notes payable and increased capitalized
interest, offset by increased interest rates during 2000. Average debt balances
outstanding for the three and six months ended June 30, 2000 were $892.8 million
and $875.1 million as compared to $957.5 and $971.9 million for the comparable
periods in 1999. For the six months ended June 30, 2000, the weighted-average
interest rate on the Credit Facility and mortgage notes payable were 7.69% and
7.87% as compared to 6.95% and 6.75% for the comparable periods in 1999.
For the three months ended June 30, 2000 and 1999, the Company paid interest
totaling $16.8 million and $16.2 million including capitalized interest of
$2.0 million in 2000 and $.2 million in 1999. For the six months ended June 30,
2000 and 1999, the Company paid interest totaling $33.5 million and $35.0
million including capitalized interest of $3.4 in 2000 and $.2 million in 1999.
Depreciation and amortization expense decreased to $16.6 million and $33.1
million for the three and six months ended June 30, 2000 from $17.5 million and
$34.6 million for the comparable periods in 1999 as a result of property
dispositions during the second half of 1999.
Amortization of deferred compensation costs increased to $.6 million and $1.1
million for the three and six months ended June 30, 2000 as compared to $.4
million and $.8 million for the comparable periods in 1999 due to the issuance
of additional restricted Common Shares to Company executives in the latter part
of 1999.
Management fees increased to $3.6 million and $6.9 million for the three and six
months ended June 30, 2000 from $2.9 million and $6.1 million for the comparable
periods in 1999. This increase was attributable to increased management fee
rates in 2000 offset by properties sold during the second half of 1999.
Administrative expenses increased to $1.0 million and $1.3 million for the three
and six months ended June 30, 2000 from $.6 million and $1.0 million for the
comparable periods in 1999 as a result of the start-up of e-Tenants in May 2000.
e-Tenants is a web-based service provider featuring comprehensive
business-to-business, business-to-consumer and on-line work order placement
capabilities.
Equity in income in Real Estate Ventures increased to $1.1 million and $1.8
million for the three and six months ended June 30, 2000 from $.3 million and
$.4 million for the comparable periods of 1999. The increase is primarily
attributable to an increase in the number of ventures commencing operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
During the six months ended June 30, 2000, the Company generated $46.8 million
in cash flow from operating activities. Other sources of cash flow consisted of:
(i) $55.0 million of proceeds from draws on the Credit Facility, (ii) $25.9
million in additional mortgage notes payable and (iii) $.8 million of proceeds
from sales of properties. During the six months ended June 30, 2000, cash
out-flows consisted of: (i) $39.0 million of distributions to shareholders and
minority partners in the Operating Partnership, (ii) $35.5 million to fund
development and capital expenditures, (iii) $14.8 million to repurchase Common
Shares, (iv) $10.0 million of Credit Facility repayments, (v) $7.9 million of
property acquisitions, (vi) $7.3 million of mortgage note repayments, (vii) $3.3
million of escrowed cash, (viii) $2.8 million in deferred leasing and financing
costs and (ix) $.8 million of investment in unconsolidated real estate ventures.
12
<PAGE>
Development
The Company is in the process of developing three sites and redeveloping five
properties. These projects are in various stages of development and there can be
no assurance that any of these projects will be completed or opened on schedule.
The total projected costs of these developments and redevelopments are $76.3
million.
Capitalization
At June 30, 2000, the Company maintained a $450.0 million Credit Facility.
As of June 30, 2000, the Company had approximately $903.3 million of debt
outstanding, consisting of $421.8 million of borrowings under the Credit
Facility and $481.5 million of mortgage notes payable. The mortgage notes
payable consists of $337.0 million of fixed rate loans and $144.5 million of
variable rate loans. The mortgage loans mature between August 2000 and July
2027. As of June 30, 2000, the Company had $16.5 million of letters of credit
outstanding and $11.7 million of availability remaining under the Credit
Facility. For the six months ended June 30, 2000, the weighted-average interest
rate under the Credit Facility was 7.69%, and the weighted-average interest rate
for borrowings under mortgage notes payable was 7.87%.
As of June 30, 2000, the Company's debt-to-market capitalization ratio was
48.3%. As a general policy, the Company intends to maintain a long-term average
debt-to-market capitalization ratio of no more than 50%.
The Company's Board of Trustees previously approved a program authorizing the
Company to repurchase up to 3,000,000 of its outstanding Common Shares. The
Board imposed no time limit on the share repurchase program. During the second
quarter of 2000, the Company repurchased 14,733 Common Shares for an aggregate
of $.3 million (an average price of $17.31 per share). Under the share
repurchase program, the Company has authority to repurchase an additional
652,130 shares.
Short- and Long-Term Liquidity
The Company believes that cash flow from operations is adequate to fund
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
short-term liquidity needs, which are to fund operating expenses, debt service
requirements, recurring capital expenditures, tenant allowances, leasing
commissions and the minimum distributions required to maintain the Company's
REIT qualification under the Internal Revenue Code.
On June 26, 2000, the Company declared a distribution of $0.40 per Common Share,
totaling $14.5 million, which was paid on July 25, 2000 to shareholders of
record as of July 7, 2000. The Operating Partnership simultaneously declared a
$0.40 per unit cash distribution to holders of Class A Units totaling $.9
million.
On June 26, 2000, the Company and the Operating Partnership, respectively, also
declared distributions to holders of Series A Preferred Shares, Series B
Preferred Shares and Series B Preferred Units, which are each currently entitled
to a preferential return of 7.25%, 8.75% and 7.25%, respectively. Distributions
paid on July 15, 2000 to holders of Series A Preferred Shares, Series B
Preferred Shares and Series B Preferred Units totaled $.7 million, $2.3 million
and $1.7 million, respectively.
The Company expects to meet long-term liquidity requirements, such as for
property acquisitions, development, investments in unconsolidated real estate
ventures, scheduled debt maturities, renovations, expansions and other
non-recurring capital improvements, through asset dispositions, long-term
secured and unsecured indebtedness and the issuance of equity securities.
13
<PAGE>
Funds from Operations
Management generally considers Funds from Operations ("FFO") as one measure of
REIT performance. 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 items and comparable adjustments for real estate
ventures accounted for using the equity method. Management believes that FFO is
a useful disclosure in the real estate industry; however, the Company's
disclosure may not be comparable to other REITs. 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 and six month periods ended June 30, 2000 and 1999 is
summarized in the following table (in thousands, except share data):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Income before gains on sales and minority interest $ 12,997 $ 9,652 $ 25,769 $ 18,700
Add:
Depreciation:
Real property 15,925 16,931 31,872 33,271
Real estate ventures 587 230 1,124 471
Amortization of leasing costs 632 605 1,248 1,331
------------ ----------- ------------ -----------
Funds from operations before minority interest $ 30,141 $ 27,418 $ 60,013 $ 53,773
============ =========== ============ ===========
Weighted-average Common Shares (including Common
Share equivalents) and Operating Partnership units 47,342,146 45,082,040 47,558,293 44,586,540
============ =========== ============ ===========
</TABLE>
Year 2000 Compliance
The Company has not experienced any problems relating to the Year 2000 issue on
or after January 1, 2000. The Company implemented its Year 2000 compliance
program and intends to maintain its contingency plans until satisfied that
Company operations will not be adversely impacted by the possibility of a Year
2000 issue.
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 expense reimbursement and contractual rent increases.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
There have been no material changes in Quantitative and Qualitative disclosures
in 2000. Reference is made to Item 7 included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is a defendant in a case in which the plaintiffs allege that the
Company breached its obligation to purchase a portfolio of properties for
approximately $83.0 million. In July 1999, the complaint against the Company was
dismissed with prejudice. The plaintiffs then appealed the dismissal and filed a
motion for reconsideration. The case is currently on appeal before the Appellate
Division of the Superior Court of New Jersey. Briefing on the appeal has been
completed and the parties are awaiting a decision.
14
<PAGE>
In November 1999, a third-party complaint was filed in the Superior Court of New
Jersey, Burlington County, by BRI OP Limited Partnership ("BRI OP") against the
Company as well as several persons and entities, including several former
affiliates of the Company, relative to Greentree Shopping Center located in
Marlton, New Jersey ("Subject Property"). The Subject Property was owned and
managed by a subsidiary of the Company between 1986 and 1988. BRI OP, also a
former owner of the Subject Property, has been sued by the present owner and
manager of the Subject Property, seeking indemnification and contribution for
costs related to the remediation of environmental contamination allegedly caused
by a dry cleaning business, which was a tenant of the Subject Property. BRI OP,
in turn, brought a third-party action against the Company and others seeking
indemnification for environmental remediation and clean up costs for which it
may be held liable. The plaintiff has since filed a direct action against the
Company, raising the same claims as BRI OP derivatively. The litigation is
presently in the early stages of discovery; however, plaintiff's response to the
Company's interrogatories indicates that the estimated cost of soil remediation
and/or clean-up is approximately $.2 million. As of this date, the Company's
investigation of ground water impact is on-going, NJDEP has been advised and the
Company is unable to determine its ultimate responsibility for such costs.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its annual meeting of shareholders on May 16, 2000. At the
meeting, each of the seven individuals nominated for election to the Company's
Board of Trustees were elected to the Board. These individuals will serve on the
Board, together with an eighth Trustee (D. Pike Aloian), separately elected by
the holder of a class of the Company's preferred securities. The number of
shares cast for, against or withheld for each nominee is set forth below:
For Against Withheld
---------- ------- --------
Anthony A. Nichols, Sr. 36,420,039 0 79,316
Gerard H. Sweeney 36,420,055 0 79,300
Donald E. Axinn 36,410,827 0 88,528
Walter D'Alessio 36,425,846 0 73,509
Robert Larson 36,412,635 0 86,720
Warren V. Musser 36,409,161 0 90,194
Charles P. Pizzi 36,432,210 0 67,145
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 June 30, 2000, and through August 11, 2000, the
Company did not file any Reports on Form 8-K.
15
<PAGE>
BRANDYWINE REALTY TRUST
SIGNATURES OF REGISTRANT
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BRANDYWINE REALTY TRUST
(Registrant)
<TABLE>
<CAPTION>
<S> <C>
Date: August 11, 2000 By: /s/ Gerard H. Sweeney
--------------- ------------------------------------------------
Gerard H. Sweeney, President and Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 2000 By: /s/ Jeffrey F. Rogatz
--------------- ---------------------------------------------------------
Jeffrey F. Rogatz, Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 2000 By: /s/ Bradley W. Harris
--------------- ------------------------------------------------
Bradley W. Harris, Vice President and Chief Accounting Officer
(Principal Accounting Officer)
</TABLE>
16
