<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
---- Exchange Act of 1934
For the quarterly period ended September 30, 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 36,123,851 Common Shares of Beneficial Interest were
outstanding as of November 14, 2000.
<PAGE>
BRANDYWINE REALTY TRUST
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30, 2000
and September 30, 1999
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2000 and September 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>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Real estate investments:
Operating properties $ 1,722,319 $ 1,792,228
Construction-in-progress 59,067 24,742
Land held for development 43,199 11,127
----------- -----------
1,824,585 1,828,097
Accumulated depreciation (168,749) (125,744)
----------- -----------
1,655,836 1,702,353
Cash and cash equivalents 12,024 5,692
Escrowed cash 13,964 10,814
Accounts receivable, net 9,742 9,249
Accrued rent receivable 21,090 16,644
Due from affiliates 9,343 7,361
Investment in management company, at equity 265 228
Investment in real estate ventures, at equity 34,833 35,682
Deferred costs, net 17,711 17,960
Other assets 56,791 23,933
----------- -----------
Total assets $ 1,831,599 $ 1,829,916
=========== ===========
LIABILITIES AND BENEFICIARIES' EQUITY
Mortgage notes payable $ 531,251 $ 462,809
Borrowings under Credit Facility 333,825 376,825
Accounts payable and accrued expenses 20,384 17,596
Distributions payable 20,439 18,982
Tenant security deposits and deferred rents 16,515 18,871
----------- -----------
Total liabilities 922,414 895,083
Minority interest 145,319 145,941
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-
35,706,314 in 2000 and 36,372,590 in 1999 357 364
Additional paid-in capital 850,535 863,962
Share warrants 908 908
Cumulative earnings 117,707 76,643
Cumulative distributions (205,693) (153,037)
----------- -----------
Total beneficiaries' equity 763,866 788,892
----------- -----------
Total liabilities and beneficiaries' equity $ 1,831,599 $ 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 Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2000 1999 2000 1999
-------- ------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Rents $ 62,215 $ 59,528 $ 183,989 $ 180,166
Tenant reimbursements 8,302 8,898 26,305 26,711
Other 2,559 1,768 6,379 5,772
-------- ------- --------- ---------
Total revenue 73,076 70,194 216,673 212,649
Operating Expenses:
Property operating expenses 16,071 15,856 48,205 48,519
Real estate taxes 6,756 6,369 19,445 18,596
Interest 16,168 16,955 48,483 53,856
Depreciation and amortization 16,772 17,809 49,892 52,411
Management fees 3,222 2,939 10,109 8,994
Administrative expenses 833 411 2,157 1,440
Amortization of deferred compensation costs 779 420 1,830 1,198
-------- ------- --------- ---------
Total operating expenses 60,601 60,759 180,121 185,014
Income before equity in income of management company,
equity in income of real estate ventures, gain on
sale of interests in real estate and minority interest 12,475 9,435 36,552 27,635
Equity in income of management company 107 50 37 121
Equity in income of real estate ventures 611 238 2,373 667
Gain on sale of interests in real estate 9,496 3,465 9,564 3,465
-------- ------- --------- ---------
Income before minority interest 22,689 13,188 48,526 31,888
Minority interest (2,844) (2,124) (7,292) (5,793)
-------- ------- --------- ---------
Net income 19,845 11,064 41,234 26,095
Income allocated to Preferred Shares (2,977) (1,445) (8,931) (3,195)
-------- ------- --------- ---------
Income allocated to Common Shares $ 16,868 $ 9,619 $ 32,303 $ 22,900
======== ======= ======== ========
Earnings per Common Share:
Basic $ 0.47 $ 0.26 $ 0.90 $ 0.61
======== ======= ======== ========
Diluted $ 0.47 $ 0.26 $ 0.88 $ 0.61
======== ======= ======== ========
</TABLE>
The accompanying condensed notes are integral part of
these consolidated financial statements.
4
<PAGE>
BRANDYWINE REALTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 41,234 $ 26,095
Adjustments to reconcile net income to net cash from
operating activities:
Minority interest 7,292 5,793
Depreciation and amortization 49,892 52,411
Straight-line rent (5,147) (2,760)
Equity in income of management company (37) (121)
Equity in income of real estate ventures (2,373) (667)
Amortization of deferred compensation costs 1,830 1,198
Amortization of financing costs 2,841 2,450
Gain on sale of interests of real estate ventures (9,564) (3,465)
Changes in assets and liabilities:
Accounts receivable 208 (11,559)
Due from affiliates (1,982) (3,521)
Deferred costs and other assets (32,858) (246)
Accounts payable and accrued expenses 1,853 3,801
Tenant security deposits and deferred rents (2,356) 2,593
-------- --------
Net cash from operating activites 50,833 72,002
Cash flows from investing activities:
Acquisitions of properties (7,010) (17,721)
Sales of properties 99,925 157,558
Capital expenditures (79,398) (28,696)
Investment in real estate ventures (1,996) (15,964)
Increase in escrowed cash (3,657) (3,224)
Leasing costs (2,529) (4,523)
-------- --------
Net cash from investing activities 5,335 87,430
Cash flows from financing activites:
Proceeds from notes payable, Credit Facility 58,000 47,000
Repayments of notes payable, Credit Facility (101,000) (306,500)
Proceeds from mortgage notes payable 106,454 196,808
Repayments of mortgage notes payable (38,074) (57,487)
Debt financing costs (1,292) (4,267)
Proceeds from issuance of Preferred Shares, net - 31,207
Repurchases of Common Shares (14,811) (8,234)
Distributions paid to shareholders (51,223) (47,025)
Distributions paid to minority partners (7,890) (6,796)
-------- --------
Net cash from financing activities (49,836) (155,294)
-------- --------
Increase in cash and cash equivalents 6,332 4,138
Cash and cash equivalents at beginning of period 5,692 13,075
-------- --------
Cash and cash equivalents at end of period $ 12,024 $ 17,213
======== ========
</TABLE>
The accompanying condensed notes are integral part of
these consolidated financial statements.
5
<PAGE>
BRANDYWINE REALTY TRUST
-----------------------
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
SEPTEMBER 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 September 30, 2000, the Company's portfolio
included 193 office properties, 51 industrial facilities, one mixed-use property
and three properties under redevelopment (collectively, the "Properties") that
contain an aggregate of 16.4 million net rentable square feet. A majority of the
Properties are located in the office and industrial markets surrounding
Philadelphia, Pennsylvania, New Jersey and Long Island, New York and Richmond,
Virginia. As of September 30, 2000, the Company also held economic interests in
13 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 September 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 September 30, 2000, the
Management Company was managing and leasing properties containing an aggregate
of approximately 20.2 million net rentable square feet, of which 16.2 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 September 30,
2000, there were 2,156,150 Class A Units and 1,950,000 Series B Preferred Units
outstanding 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 September 30, 2000, the results of its operations for the three
and nine month periods ended September 30, 2000 and 1999, and its cash flows for
the nine months ended September 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 $.3 million and $1.2 million for the three and nine months ended
September 30, 2000 and $.2 million and $.8 million for the three and nine months
ended September 30, 1999.
Deferred Costs
--------------
Deferred costs include internal direct leasing costs totaling $0.4 million and
$1.4 million for the three and nine months ended September 30, 2000 and $.3
million and $.9 million for the three and nine months ended September 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. 138 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. In
June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," which amended SFAS No. 133. The
Company plans to adopt the statement effective January 1, 2001. In management's
opinion, the adoption of SFAS No. 133 as amended by SFAS No. 138, as of
September 30, 2000 would not have had a material impact on the consolidated
statements of income or comprehensive income.
3. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS
--------------------------------------------------------
Third Quarter 2000
------------------
During the third quarter of 2000, the Company sold seven office properties
containing 619,000 net rentable square feet for $99.1 million, realizing a net
gain of $9.5 million. Four properties were sold for $71.3 million realizing an
aggregate gain of $14.6 million and three properties were sold for $27.8 million
realizing an aggregate loss of $5.1 million.
Third Quarter 1999
------------------
During the third quarter of 1999, the Company sold one office property
containing 73,000 net rentable square feet for $7.8 million resulting in a gain
of $3.5 million and acquired one industrial property containing 114,000 net
rentable square feet for $3.8 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 September
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 6.62% at September 30, 2000) plus 1.5%, with the spread over
LIBOR subject to reductions from .125% to .35% based on the Company's leverage.
As of September 30, 2000, the Company had $333.8 million of borrowings and $14.6
million of letters of credit outstanding under the Credit Facility. The
weighted-average interest rate on the Credit Facility was 7.78% for the nine
months ended September 30, 2000. The Company is currently in compliance with all
covenants in the Credit Facility.
As of September 30, 2000, the Company had $531.3 million of mortgage notes
payable secured by 104 of the Properties and a portion of its land holdings.
Fixed rate mortgages, totaling $478.0 million, require payments of principal
and/or interest (or imputed interest) at rates ranging from 7.18% to 9.88% and
mature at various dates from January 2001 through July 2027. The
weighted-average interest rate on the Company's mortgages was 7.92% in 2000.
7
<PAGE>
The Company has entered into interest rate swap and rate cap agreements designed
to reduce the impact of interest rate changes on its variable rate debt. At
September 30, 2000, the Company had three interest rate swap agreements for
notional principal amounts aggregating $225 million. The swap agreements
effectively fix the interest rate on $50 million of Credit Facility borrowings
at 5.844% until November 2000 and on $100 million at 5.805% until November 2001.
The interest rate cap agreement effectively fixes the interest rate on a
variable rate mortgage with a notional value of $75 million at 6.25% until April
2001 and then at 7% until maturity in April 2002.
In September 2000, the Company completed a $68 million debt financing, secured
by seven office properties, which bears interest at a fixed rate of 8.05% and
matures on October 2011. With the proceeds, the Company repaid $56 million of
the Credit Facility and $11.7 million of an outstanding mortgage note payable.
For the three months ended September 30, 2000 and 1999, the Company paid
interest totaling $17.6 million and $11.0 million including capitalized interest
of $2.8 million in 2000 and $0.5 million in 1999. For the nine months ended
September 30, 2000 and 1999, the Company paid interest totaling $51.1 million
and $46.0 million including capitalized interest of $6.2 million in 2000 and
$0.7 million in 1999.
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 September 21, 2000, the Company declared a distribution of $0.41 per Common
Share, totaling $14.8 million, which was paid on October 16, 2000 to
shareholders of record as of October 7, 2000. The Operating Partnership
simultaneously declared a $0.41 per unit cash distribution to holders of Class A
Units totaling $.9 million.
On September 21, 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 October 16, 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.
6. SEGMENT INFORMATION
-------------------
The Company currently manages its portfolio within three segments: (1)
Pennsylvania, (2) New Jersey/New York, and (3) 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 September 30, 2000 and
September 30, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
New Jersey/
Pennsylvania New York Virginia Corporate Total
------------ --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
2000:
-----
Real estate investments, at cost $ 916,603 $ 599,904 $ 308,078 $ - $ 1,824,585
Total revenue 36,556 24,607 10,127 1,786 73,076
Property operating expenses
and real estate taxes 11,528 8,377 2,922 - 22,827
Interest 1,847 3,204 549 10,568 16,168
Depreciation & amortization 8,398 5,498 2,876 - 16,772
1999:
-----
Real estate investments, at cost $ 897,576 $ 617,389 $ 300,237 $ - $ 1,815,202
Total revenue 33,869 24,412 10,360 1,553 70,194
Property operating expenses
and real estate taxes 10,766 8,650 2,809 - 22,225
Interest 1,992 3,247 608 10,215 16,062
Depreciation & amortization 9,330 6,680 2,692 - 18,702
</TABLE>
Segment information for the nine months ended September 30, 2000 and September
30, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
New Jersey/
Pennsylvania New York Virginia Corporate Total
------------ --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
2000:
-----
Total revenue $ 108,217 $ 76,181 $ 30,135 $ 2,140 $ 216,673
Property operating expenses
and real estate taxes 33,759 25,285 8,606 - 67,650
Interest 5,553 9,826 1,638 31,466 48,483
Depreciation & amortization 19,476 21,567 8,849 - 49,892
1999:
-----
Total revenue $ 106,777 $ 74,674 $ 29,320 $ 1,878 $ 212,649
Property operating expenses
and real estate taxes 33,073 25,364 8,678 - 67,115
Interest 5,332 8,620 1,976 35,602 51,530
Depreciation & amortization 27,944 19,338 7,455 - 54,737
</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 September 30,
--------------------------------------------------------------
2000 1999
---------------------------- --------------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 19,845 $ 19,845 $ 11,064 $ 11,064
Preferred Share discount amortization (115) (115) - -
Income allocated to Preferred Shares (2,977) (2,977) (1,445) (1,445)
----------- ----------- ----------- -----------
Net income available to common shareholders $ 16,753 $ 16,753 $ 9,619 $ 9,619
=========== =========== =========== ===========
Weighted-average shares outstanding 35,705,115 35,705,115 37,422,651 37,422,651
Options and warrants - 50,978 - 15,630
----------- ----------- ----------- -----------
Total weighted-average shares outstanding 35,705,115 35,756,093 37,422,651 37,438,281
=========== =========== =========== ===========
Earnings per share $ 0.47 $ 0.47 $ 0.26 $ 0.26
=========== =========== =========== ===========
Nine Months Ended September 30,
--------------------------------------------------------------
2000 1999
---------------------------- --------------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
Net income $ 41,234 $ 41,234 $ 26,095 $ 26,095
Preferred Share discount amortization (170) (170) - -
Income allocated to Preferred Shares (8,931) (8,931) (3,195) (3,195)
----------- ----------- ----------- -----------
Net income available to common shareholders $ 32,133 $ 32,133 $ 22,900 $ 22,900
=========== =========== =========== ===========
Weighted-average shares outstanding 35,847,171 35,847,171 37,522,585 37,522,585
Options and warrants - 588,078 - 15,628
----------- ----------- ----------- -----------
Total weighted-average shares outstanding 35,847,171 36,435,249 37,522,585 37,538,213
=========== =========== =========== ===========
Earnings per share $ 0.90 $ 0.88 $ 0.61 $ 0.61
=========== =========== =========== ===========
</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 currently manages its portfolio within three segments: (1)
Pennsylvania, (2) New Jersey/New York, and (3) 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 September 30, 2000, the
Company's portfolio consisted of 193 office properties, 51 industrial
facilities, one mixed-use property and three properties under redevelopment that
contain an aggregate of 16.4 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 its development pipeline
and rent increases in its current portfolio. As of September 30, 2000, the
Company has seven properties in development or redevelopment aggregating 525,000
square feet.
RESULTS OF OPERATIONS
The results of operations for the three and nine months ended September 30, 2000
and 1999 include the respective operations of the Properties. For comparative
purposes, the Company had a total of 237 of the Properties ("Same Store
Properties") for the entire three months ended September 30, 2000 and 1999 as
compared to 245 properties as of September 30, 2000.
Comparison of the Three and Nine Months Ended September 30, 2000 and September
30, 1999
Revenue (which includes rental income, recoveries from tenants and other income)
increased to $73.1 million and $216.7 million for the three and nine months
ended September 30, 2000 as compared to $70.2 million and $212.6 for the
comparable periods in 1999. The straight-line rent adjustment increased revenues
by $1.6 million and $5.1 million for the three and nine months ended September
30, 2000 and $2.8 million and $7.1 million for the three and nine months ended
September 30, 1999. Rental income for the Same Store Properties increased to
$56.7 million for the three months ended September 30, 2000 from $52.8 million
for the comparable period in 1999. Average occupancy for the three months ended
September 30, 2000 increased to 95.6% from 93.4% for the comparable period in
1999.
Property operating expenses and real estate taxes increased to $22.8 million and
$67.6 million for the three and nine months ended September 30, 2000 as compared
to $22.2 million and $67.1 million for the comparable periods in 1999. Property
operating expenses and real estate taxes for the Same Store Properties increased
to $21.1 million for the three months ended September 30, 2000 from $20.2
million for the comparable period in 1999. Real estate taxes increased due to
higher tax rates and property assessments and property operating expenses
increased as a result of additional repairs and maintenance incurred during the
three months ended September 30, 2000.
11
<PAGE>
Interest expense decreased to $16.2 million and $48.5 million for the three and
nine months ended September 30, 2000 from $17.0 million and $53.9 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 balance outstanding for the nine months ended September 30, 2000 was $872.6
million as compared to $949.0 million for the comparable period in 1999. For the
nine months ended September 30, 2000, the weighted-average interest rate on the
Credit Facility and mortgage notes payable was 7.92% as compared to 6.97% for
the comparable period in 1999.
For the three months ended September 30, 2000 and 1999, the Company paid
interest totaling $17.6 million and $11.0 million, including capitalized
interest of $2.8 million in 2000 and $0.5 million in 1999. For the nine months
ended September 30, 2000 and 1999, the Company paid interest totaling $51.1
million and $46.0 million including capitalized interest of $6.2 in 2000 and
$0.7 million in 1999.
Depreciation and amortization expense decreased to $16.8 million and $49.9
million for the three and nine months ended September 30, 2000 from $17.8
million and $52.4 million for the comparable periods in 1999 as a result of
seven property dispositions during the third quarter of 2000.
Amortization of deferred compensation costs, related to restricted stock awards
and executive loans, increased to $0.8 million and $1.8 million for the three
and nine months ended September 30, 2000 as compared to $0.4 million and $1.2
million for the comparable periods in 1999. Stock loans issued to certain
executives in early 2000 provide for varying amounts of principal and interest
to be forgiven based on Company performance as compared to a specified peer
group. Higher performance targets were met during the three months ended
September 30, 2000.
Management fees increased to $3.2 million and $10.1 million for the three and
nine months ended September 30, 2000 from $2.9 million and $9.0 million for the
comparable periods in 1999. Management fees increased due to rate adjustments
offset by property dispositions during the third quarter of 2000.
Administrative expenses increased to $0.8 million and $2.2 million for the three
and nine months ended September 30, 2000 from $0.4 million and $1.4 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 providing comprehensive
business-to-business, business-to-consumer and on-line work order placement
capabilities.
Equity in income in Real Estate Ventures increased to $0.6 million and $2.4
million for the three and nine months ended September 30, 2000 from $0.2 million
and $0.7 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 nine months ended September 30, 2000, the Company generated $50.8
million in cash flow from operating activities. Other sources of cash flow
consisted of: (i) $106.5 million in additional mortgage notes payable, (ii)
$99.9 million of proceeds from sales of properties and (iii) $58.0 million of
proceeds from draws on the Credit Facility. During the nine months ended
September 30, 2000, cash out-flows consisted of: (i) $101.0 million of Credit
Facility repayments, (ii) $79.4 to fund development and capital expenditures,
(iii) $59.1 million of distributions to shareholders and minority partners in
the Operating Partnership, (iv) $38.1 million of mortgage note repayments, (v)
$14.8 million to repurchase Common Shares, (vi) $7.0 million of property
acquisitions, (vii) $3.8 million in deferred leasing and financing costs, (viii)
$3.7 million of escrowed cash and (ix) $2.0 million of investment in
unconsolidated real estate ventures.
12
<PAGE>
Development
The Company is in the process of developing four sites and redeveloping three
properties aggregating 525,000 square feet. 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 $89.2 million.
Capitalization
At September 30, 2000, the Company maintained a $450.0 million Credit Facility.
As of September 30, 2000, the Company had approximately $865.1 million of debt
outstanding, consisting of $333.8 million of borrowings under the Credit
Facility and $531.3 million of mortgage notes payable. The mortgage notes
payable consists of $478.0 million of fixed rate loans and $53.3 million of
variable rate loans. The mortgage loans mature between January 2001 and July
2027. As of September 30, 2000, the Company had $14.6 million of letters of
credit outstanding and $101.6 million of availability remaining under the Credit
Facility. For the nine months ended September 30, 2000, the weighted-average
interest rate under the Credit Facility was 7.78%, and the weighted-average
interest rate for borrowings under mortgage notes payable was 7.92%.
As of September 30, 2000, the Company's debt-to-market capitalization ratio was
47.4%. 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. Since August 1998,
the Company has repurchased 2,348,000 shares of its Common Stock at an average
price of $16.46 per share. Under the share repurchase program, the Company has
authority to repurchase an additional 652,000 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 September 21, 2000, the Company declared a distribution of $0.41 per Common
Share, totaling $14.8 million, which was paid on October 16, 2000 to
shareholders of record as of October 7, 2000. The Operating Partnership
simultaneously declared a $0.41 per unit cash distribution to holders of Class A
Units totaling $.9 million.
On September 21, 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 October 16, 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 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 nine month periods ended September 30, 2000 and 1999 is
summarized in the following table (in thousands, except share data):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Income before gains on sales and minority interest $ 13,193 $ 9,723 $ 38,962 $ 28,423
Add:
Depreciation:
Real property 15,910 16,989 47,782 50,260
Real estate ventures 601 219 1,725 690
Amortization of leasing costs 862 820 2,110 2,151
----------- ----------- ----------- -----------
Funds from operations before minority interest $ 30,566 $ 27,751 $ 90,579 $ 81,524
=========== =========== =========== ===========
Weighted-average Common Shares (including Common
Share equivalents) and Operating Partnership units 47,381,592 45,693,688 48,060,748 44,959,645
=========== =========== =========== ===========
</TABLE>
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.
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 the impact on ground water is on-going, New Jersey Department
of Environmental Protection has been advised and the Company is unable to
determine its ultimate responsibility for such costs.
14
<PAGE>
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
---------
27.1 Financial Data Schedule (electronic filers)
(b) Reports on Form 8-K:
--------------------
During the three months ended September 30, 2000, and through November 14, 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.
<TABLE>
<CAPTION>
BRANDYWINE REALTY TRUST
(Registrant)
<S> <C>
Date: November 14, 2000 By: /s/ Gerard H. Sweeney
----------------- -----------------------------------------------------------------
Gerard H. Sweeney, President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2000 By: /s/ Jeffrey F. Rogatz
----------------- -----------------------------------------------------------------
Jeffrey F. Rogatz, Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: November 14, 2000 By: /s/ Bradley W. Harris
----------------- -----------------------------------------------------------------
Bradley W. Harris, Vice President and Chief Accounting Officer
(Principal Accounting Officer)
</TABLE>
16
