UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 ------------------------------------------------------ OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 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) Registrant's telephone number, including area code (610) 325-5600 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Shares of Beneficial Interest, (par value $0.01 per share) New York Stock Exchange - ------------------------------------------- --------------------------- Securities registered pursuant to Section 12(g) of the Act: none - -------------------------------------------------------------------------------- (Title of class) - -------------------------------------------------------------------------------- (Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Common Shares of Beneficial Interest held by non-affiliates of the registrant was approximately $817.7 million as of March 25, 2002. The aggregate market value has been computed by reference to the closing price of the Common Shares of Beneficial Interest on the New York Stock Exchange on such date. An aggregate of 35,967,533 Common Shares of Beneficial Interest were outstanding as of March 25, 2002. Documents Incorporated By Reference ----------------------------------- Portions of the proxy statement for the Annual Meeting of Shareholders of Brandywine Realty Trust to be held in 2002 are incorporated by reference into Part III of this Form 10-K. -2-
TABLE OF CONTENTS ----------------- FORM 10-K --------- <TABLE> <CAPTION> Page ---- <S> <C> <C> PART I ............................................................................................... 4 Item 1. Business ................................................................................ 4 Item 2. Properties .............................................................................. 15 Item 3. Legal Proceedings ....................................................................... 30 Item 4. Submission of Matters to a Vote of Security Holders ..................................... 31 PART II .............................................................................................. 31 Item 5. Market for Registrant's Common Equity and Related Shareholder Matters ................... 31 Item 6. Selected Financial Data ................................................................ 32 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ... 32 Item 7A. Quantitative and Qualitative Disclosure About Market Risk .............................. 41 Item 8. Financial Statements and Supplementary Data ............................................. 41 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .... 41 PART III ............................................................................................. 41 Item 10. Trustees and Executive Officers of the Registrant ....................................... 41 Item 11. Executive Compensation .................................................................. 41 Item 12. Security Ownership of Certain Beneficial Owners and Management ......................... 42 Item 13. Certain Relationships and Related Transactions .......................................... 42 PART IV .............................................................................................. 43 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ......................... 43 </TABLE> -3-
PART I ------ Item 1. Business General Brandywine Realty Trust (collectively with its subsidiaries, the "Company") is a self-administered and self-managed real estate investment trust ("REIT") active in acquiring, developing, redeveloping, leasing and managing office and industrial properties. As of December 31, 2001, the Company owned 223 office properties, 46 industrial facilities and one mixed-use property (the "Properties") containing an aggregate of approximately 17.3 million net rentable square feet and managed an additional 43 properties containing 3.3 million net rentable square feet. As of December 31, 2001, the Company also owned approximately 443 acres of undeveloped land and held options to purchase approximately 61 additional acres. The properties, owned and managed by the Company, are located in the office and industrial markets surrounding Philadelphia, Pennsylvania; New Jersey and Long Island, New York; and Richmond, Virginia. As of December 31, 2001, the Company also owned economic interests in thirteen real estate ventures (the "Real Estate Ventures") with an aggregate investment of $19.1 million (net of returns). Nine of the Real Estate Ventures own nine office buildings that contain an aggregate of approximately 1.0 million net rentable square feet; one Real Estate Venture is developing one office building that will contain, upon completion, an aggregate of approximately 345,000 net rentable square feet; one Real Estate Venture is developing a hotel property that will contain, upon completion, approximately 137 rooms; and two Real Estate Ventures hold approximately nine acres of land for future development. Business Objectives The Company's business objectives are to: o maximize cash flow through leasing strategies designed to capture potential rental growth as rental rates increase and as below-market leases are renewed; o ensure a high tenant retention rate through aggressive tenant service programs responsive to the varying needs of the Company's diverse tenant base; o increase economic diversification while maximizing economies of scale; o develop high-quality office and industrial properties on the Company's existing inventory of land, as warranted by market conditions; o capitalize on management's redevelopment expertise to selectively acquire, redevelop and reposition underperforming properties in desirable locations; o acquire high-quality office and industrial properties and portfolios of such properties at attractive yields in selected submarkets within the Mid-Atlantic region that management expects will experience economic growth and that provide barriers to entry; and o enhance the Company's investment strategy through the pursuit of joint venture opportunities with high-quality partners having attractive real estate holdings or significant financial resources. The Company expects to continue to concentrate its real estate activities in submarkets within the Mid-Atlantic region where it believes that: (i) barriers to entry (such as zoning restrictions, utility availability, infrastructure limitations, development moratoriums and limited developable land) will create supply constraints on office and industrial space; (ii) current market rents and absorption statistics justify limited new construction activity; (iii) it can maximize market penetration by accumulating a critical mass of properties and thereby enhance operating efficiencies; and (iv) there is potential for economic growth. -4-
Organization The Company was organized and commenced its operations in 1986 as a Maryland real estate investment trust. The Company owns its assets and conducts its operations through Brandywine Operating Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"), and subsidiaries of the Operating Partnership. As of December 31, 2001, the Company's ownership interest in the Operating Partnership entitled it to approximately 94.3% of the Operating Partnership's distributions after distributions by the Operating Partnership to holders of its preferred units. The structure of the Company as an "UPREIT" is designed, in part, to permit persons contributing properties (or interests in properties) to the Company to defer some or all of the tax liability they might otherwise incur in a sale of properties. The Company conducts its third-party real estate management services through Brandywine Realty Services Corporation (the "Management Company"), a subsidiary 95% of which is owned by the Operating Partnership. See "Management Activities." The Company's executive offices are located at 14 Campus Boulevard, Suite 100, Newtown Square, Pennsylvania 19073 and its telephone number is (610) 325-5600. Credit Facility The Company and the Operating Partnership maintain an unsecured credit facility (the "Credit Facility") with a bank group led by Bank of America, N.A. comprising eighteen banks. A majority of the Company's direct and indirect subsidiaries are parties to the Credit Facility as guarantors. The Credit Facility provides up to $500 million in credit availability for working capital advances and letters of credit. As of December 31, 2001, there was unused availability of $92.3 million under the Credit Facility. The Credit Facility is currently scheduled to mature in June 2004, but may be extended at the Company's election for a period of one year upon payment of a fee equal to .25% of the amount of the Credit Facility at the time of extension. Advances under the Credit Facility currently bear interest at the London Inter-Bank Offered Rate ("LIBOR") (1.88% at December 31, 2001) plus 1.50%. The spread over LIBOR varies, based on the Company's leverage, from a low of 1.25% to a high of 1.75%. The Company has the option to elect an interest rate equal to the higher of the Federal Funds rate plus .75% or the Bank of America prime rate plus .25%. The Company generally elects the interest rate based on LIBOR for all or most of the Credit Facility. An alternative rate and pricing structure is set forth in the Credit Facility if the Company or the Operating Partnership obtains at least two investment grade debt ratings. The Credit Facility contains provisions limiting: the incurrence of additional debt; the granting of liens; the consummation of mergers and consolidations; the disposition of certain assets and interests in subsidiaries; the making of certain loans, advances and investments; and the payment of dividends. The restriction on dividends permits the Company to pay dividends in the amount required for it to retain its qualification as a REIT under the Code, and otherwise limits dividends to 90% of the Company's funds from operations, as defined in the Credit Facility. The Credit Facility also contains financial covenants that require the Company to maintain a debt service coverage ratio, an interest coverage ratio, a fixed charge coverage ratio, an unsecured debt ratio and an unencumbered cash flow ratio above certain specified minimum levels; to maintain net worth above an amount determined on a specified formula; and to maintain a leverage ratio and a secured debt ratio below certain maximum levels. One additional financial covenant limits the percentage of the Company's total assets (on a consolidated basis) that are held by subsidiaries not party to the Credit Facility. Additional Debt Mortgage Indebtedness. The following table sets forth information regarding the Company's mortgage indebtedness outstanding at December 31, 2001: -5-
<TABLE> <CAPTION> Annual Debt Principal Interest Service Balance Rate (in 000's) Maturity Property / Location (in 000's) (a) (a) (b) Date ------------------- ---------- --- ------- ---- <S> <C> <C> <C> <C> One & Three Christina, Park 80 I & II, and 10000 & 15000 Midlantic Drive $ 114,495 7.18% $ 9,982 2/04 Grande B (30 properties) 84,014 7.48% 7,444 7/27 993, 997 and 2000 Lenox Drive, 2000, 4000, 9000 Midlantic Drive and 1 Righter Parkway 67,857 8.05% 6,325 10/11 Grande A (24 properties) Tranche 1 66,300 7.48% 6,317 7/27 Tranche 2 (a) 20,000 2.64% 527 7/27 Tranche 3 (a) 5,035 2.81% 141 7/27 Newtown, Berwyn, Libertyview 66,000 7.25% 5,333 5/13 Lake Ctr II,IV / Wood Falls I, IV / Southpoint I,II / Valleybrooke I,II,III 58,129 6.80% 4,997 12/03 Arboretum I, II, III & V 24,858 7.59% 2,235 7/11 401 Plymouth Road (c) 20,291 3.63% 737 8/04 630 Allendale Road (c) 19,595 3.38% 980 2/03 400 Berwyn Park (c) 14,935 3.48% 520 7/03 1009 Lenox Drive 14,135 8.75% 1,628 7/03 Newtown Commons (c) 7,376 3.63% 268 6/04 Southpoint III 7,028 7.75% 887 4/14 440 & 442 Creamery 6,099 8.55% 631 7/07 Norriton Office Center 5,470 8.50% 524 10/07 1000 Howard Boulevard 4,494 9.25% 803 11/04 429 Creamery 3,496 8.30% 410 9/06 481 John Young Way 2,569 8.40% 261 9/06 Interstate Center (a) 1,423 3.56% 207 3/07 111 Arrandale Blvd. 1,241 8.65% 150 8/06 --------- ------- Total mortgage indebtedness $ 614,840 $51,307 ========= ======= </TABLE> (a) For loans that bear interest at a variable rate, the rates in effect at December 31, 2001 have been assumed to remain constant. (b) "Annual Debt Service" is calculated by annualizing the regularly scheduled principal and interest amortization. (c) "Annual Debt Service" for construction loans that require payment of interest only is calculated by annualizing the interest payment based on the outstanding debt balances and rates in effect at December 31, 2001. Guaranties. As of December 31, 2001, the Company had guaranteed repayment of approximately $2.6 million of loans on behalf of the Real Estate Ventures. The Company selectively provides completion guaranties on behalf of Real Estate Ventures as part of their development activities. As of December 31, 2001, the Company was obligated on a completion guaranty in favor of a lender to one of the Real Estate Ventures relating to construction of a development project expected to be completed during 2002. The Company also provides customary environmental indemnities in connection with construction and permanent financing both for its own account and on behalf of its Real Estate Ventures. Management Activities The Company conducts its third-party real estate management services business through the Management Company. As of December 31, 2001, the Management Company was managing properties containing an aggregate of approximately 20.6 million net rentable square feet, of which approximately 17.3 million net rentable square feet related to Properties owned by the Company or subject to purchase options held by the Company, and approximately 3.3 million net rentable square feet related to properties owned by unaffiliated third parties. Geographic Segments The Company currently manages its portfolio within three segments: (1) Pennsylvania, (2) New Jersey/New York and (3) Virginia. (See Note 10 to the Financial Statements.) The Company does not have any foreign operations and its business is not seasonal. -6-
Competition The leasing of real estate is highly competitive. The Properties compete for tenants with similar properties located in its markets primarily on the basis of location, total occupancy costs (including base rent and operating expenses), services provided, and the design and condition of the improvements. The Company also faces competition when attempting to acquire real estate, including competition from domestic and foreign financial institutions, other REIT's, life insurance companies, pension funds, partnerships and individual investors. Employees As of December 31, 2001, the Company employed 247 persons. Regulations Many laws and governmental regulations are applicable to the Properties and changes in these laws and regulations or their interpretation by agencies and the courts occur frequently. See "Risk Factors - Environmental problems at the Properties are possible and may be costly." Risk Factors The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Annual Report on Form 10-K and other materials filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contain statements that are forward-looking, such as statements relating to business development and real estate development activities, acquisitions, dispositions, future capital expenditures, financing sources and availability, and the effects of regulation (including environmental regulation) and competition. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. As forward-looking statements, these statements involve risks, uncertainties and other factors that could cause actual results to differ materially from the expected results and, accordingly, such results may differ from those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks, uncertainties and other factors include uncertainties affecting real estate businesses generally (such as entry into new leases, renewals of leases and dependence on tenants' business operations), risks relating to the Company's ability to maintain and increase property occupancy and rental rates, risks relating to construction and development activities, acquisitions, dispositions, possible environmental liabilities, risks relating to leverage and debt service (including availability of financing on terms acceptable to the Company and sensitivity of the Company's operations and financing arrangements to fluctuations in interest rates), dependence on the primary markets in which the Company's Properties are located, the existence of complex regulations relating to the Company's status as a REIT and the adverse consequences of the Company's failure to qualify as a REIT, and the potential adverse impact of market interest rates on the market price for the Company's securities. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. The Company refers to itself as "we" or "our" in the following risk factors. Our operations are concentrated in the Mid-Atlantic region, and our operational and financial performance depend on the economies in the markets in which we have a presence; changes in such markets may adversely affect our financial condition. Our Properties are located in suburban markets in Pennsylvania, New Jersey, New York, Virginia and Delaware. Like other real estate markets, these markets have experienced economic downturns in the past, and they are currently experiencing such a downturn similar to the broader economic slowdown in the U.S. Such slowdowns can lead companies to lay off employees, which might cause them to -7-
require less office space. They can also result in companies experiencing difficulty with their cash flow, which might cause them to delay or miss making their lease payments. Declines in the economies of any of these real estate markets could adversely affect our operations or cash flow and ability to make distributions to shareholders. Our financial performance will be particularly sensitive to the economic conditions in these markets. Our revenues and the value of our Properties may be adversely affected by a number of factors, including the economic climate in these markets (which may be adversely impacted by reductions in the employee workforce, industry slowdowns, changing demographics and other factors) and real estate conditions in these markets (such as oversupply of or reduced demand for office and industrial properties, including oversupply from space available for sublease). Slower economic conditions might also cause tenants to make their lease payments late. Furthermore, the sluggish climate might affect the timing of lease commitments by new tenants or of lease renewals by existing tenants as such parties delay or defer their leasing decisions to get the most current information possible about trends in their businesses or industries. These factors, when and if they occur in the areas in which our Properties are located, would adversely affect our cash flow and ability to make distributions to shareholders. Financially distressed tenants may limit our ability to realize the value of our investments. Following a tenant's lease default, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment and recovering lease and other payments owed to us. In addition, a tenant may seek bankruptcy law protection, which could relieve the tenant from its obligation to make lease payments. We may be unable to renew leases or relet space as leases expire. If tenants fail to renew their leases upon expiration, we may be unable to relet the subject space. Even if the tenants do renew their leases or we can relet the space, the terms of renewal or reletting (including the cost of required renovations) may be less favorable than current lease terms. Certain leases grant the tenants an early termination right upon payment of a termination penalty. While we have estimated our expenditures for new and renewal leases for 2002 and 2003, we cannot be assured as to the accuracy of such estimates. New development and acquisitions may not produce results in accordance with our expectations and may require development and renovation costs exceeding our estimates. Once made, our investments may not produce results in accordance with our expectations. Our actual renovation and improvement costs in bringing an acquired property up to market standards may exceed our estimates. In addition, we are active in developing and redeveloping office properties. Risks associated with these activities include: o the unavailability of favorable financing, including permanent financing to repay construction financing; o construction costs exceeding original estimates; o construction and lease-up delays resulting in increased debt service and construction costs; o complications in obtaining necessary zoning, occupancy and other governmental permits; and o insufficient occupancy levels and rental rates at a newly completed property causing the property to be unprofitable. -8-
Some potential losses are not covered by insurance. We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our Properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, types of losses, such as lease and other contract claims, that generally are not insured. As a consequence of the September 11, 2001 terrorist attacks, we may be unable to renew or duplicate our current insurance coverage in adequate amounts. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and toxic mold, or, if offered, these types of insurance may be prohibitively expensive. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a Property, as well as the anticipated future revenue from the Property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the Property. We cannot be assured that material losses in excess of insurance proceeds will not occur in the future. If any of our Properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the Property. Such events could adversely affect our cash flow and ability to make distributions to shareholders. We face significant competition from other real estate developers. We compete with real estate developers, operators and institutions for tenants and acquisition and development opportunities. Some of these competitors have significantly greater financial resources than we do. Such competition may reduce the number of suitable investment opportunities offered to us, interfere with our ability to attract and retain tenants and may increase vacancies, which increases supply and lowers market rental rates, reduces our bargaining leverage and adversely affects our ability to improve our operating leverage. We cannot be assured that this competition will not adversely affect our cash flow and ability to make distributions to shareholders. Because real estate is illiquid, we may not be able to sell Properties when appropriate. Real estate investments generally cannot be sold quickly. We may not be able to vary our portfolio promptly in response to economic or other conditions. In addition, the Internal Revenue Code of 1986 (the "Code") limits our ability to sell properties held for fewer than four years. Purchase options and rights of first refusal held by certain tenants may also limit our ability to sell certain properties. Any of these factors could adversely affect our cash flow and ability to make distributions to shareholders as well as the ability of someone to purchase us, even if a purchase were in our shareholders' best interests. We have agreed not to sell certain of our Properties. We have agreed with the former owners of 74 of our Properties aggregating approximately 4.3 million net rentable square feet not to sell these Properties for varying periods of time in transactions that would trigger taxable income to the former owners, subject to certain exceptions. Some of these agreements are with affiliates of current trustees of our company. In addition, we may enter into similar agreements with sellers of Properties bought by us in the future. These agreements generally provide that we may dispose of the applicable Properties in transactions that qualify as tax-free exchanges under Section 1031 of the Code or in other tax deferred transactions. Therefore, without suffering adverse financial consequences, we may be precluded from selling certain Properties other than in transactions that would qualify as tax-free exchanges for federal income tax purposes. Our operating costs might rise, which might reduce our profitability and have an adverse effect on our cash flow and our ability to make distributions to shareholders. We might face higher operating expenses as a result of rising costs generally and following the terrorist attacks in the U.S. on September 11, 2001 in particular. For example, it might cost more in the future than in the past for building security, property/casualty and liability insurance, and property maintenance. -9-
Following the September 11 attacks, we have increased the level of security at our Properties. We might not be able to pass along the increased costs associated with such increased building security to our tenants, which could reduce our profitability and cash flow. Our existing insurance policies expire in June 2002. As a result of the terrorist attacks, the cost of premiums for comparable coverage might be significantly higher when it is time to renew our coverage, which could increase our operating expenses and reduce our profitability and our cash flow. Because of rising costs in general, we might experience increases in our property maintenance costs, such as for cleaning, electricity, and heating, ventilation and air conditioning. In general, under our leases with tenants, we pass on a portion of these costs to them. We cannot be assured, however, that tenants will actually bear the full burden of these higher costs, or that such increased costs will not lead them, or other prospective tenants, to seek office space elsewhere. If operating expenses increase, the availability of other comparable office space in our specific geographic markets might limit our ability to increase rents, which could reduce our profitability (if operating expenses increase without a corresponding increase in revenues) and limit our ability to make distributions to shareholders. Our ability to make distributions is subject to various risks. We have been paying quarterly distributions to our shareholders. Our ability to make distributions in the future will depend upon: o the operational and financial performance of our Properties; o capital expenditures with respect to existing and newly acquired Properties; o the amount of, and the interest rates on, our debt; and o the absence of significant expenditures relating to environmental and other regulatory matters. Certain of these matters are beyond our control and any significant difference between our expectations and actual results could have a material adverse effect on our cash flow and our ability to make distributions to shareholders. Changes in the law may adversely affect our cash flow. Because increases in income and service taxes are generally not passed through to tenants under leases, such increases may adversely affect our cash flow and ability to make expected distributions to shareholders. The Properties are also subject to various regulatory requirements, such as those relating to fire and safety. Our failure to comply with these requirements could result in the imposition of fines and damage awards. Also, the costs to comply with any new or different regulations could adversely affect our cash flow and our ability to make distributions. While we believe that the Properties are currently in material compliance with all such requirements, we cannot be assured that these requirements will not change or that newly imposed requirements will not require significant unanticipated expenditures. Our indebtedness subjects us to additional risks. Debt Financing and Existing Debt Maturities. Like other real estate companies, we are subject to risks normally associated with debt financing, such as the insufficiency of cash flow to meet required debt service payment obligations and the inability to refinance existing indebtedness. If our debt cannot be paid, refinanced or extended at maturity, in addition to our failure to repay our debt, we may not be able to make distributions to shareholders at expected levels or at all. Furthermore, an increase in our interest expense could adversely affect our cash flow and ability to make distributions to shareholders. If we do not meet our debt service obligations, any Properties securing such indebtedness could be foreclosed on, which would have a material adverse effect on our cash flow and ability to make distributions and, depending on the number of Properties foreclosed on, could threaten our continued viability. -10-
Risk of Rising Interest Rates and Variable Rate Debt. Increases in interest rates on variable rate indebtedness would increase our interest expense, which could adversely affect our cash flow and ability to make distributions to shareholders. No Limitation on Debt. Our organizational documents do not contain any limitation on our ability to incur additional debt. Accordingly, we could increase our outstanding debt without restriction. The increased debt service could adversely affect our cash flow and ability to make distributions and could increase the risk of default on our indebtedness. Environmental problems at the Properties are possible and may be costly. Federal, state and local laws, ordinances and regulations may require a current or previous owner or operator of real estate to investigate and clean up hazardous or toxic substances or releases at such property. The owner or operator may be forced to pay for property damage and for investigation and clean-up costs incurred by others in connection with environmental contamination. Such laws typically impose clean-up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages and costs resulting from environmental contamination emanating from that site. These costs may be substantial and the presence of such substances may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. Independent environmental consultants have conducted a standard Phase I or similar general environmental site assessment ("ESA") of each of our Properties to identify potential sources of environmental contamination and assess environmental regulatory compliance. For a number of the Properties, the Phase I ESA either referenced a prior Phase II ESA obtained on such Property or prompted us to have a Phase II ESA of such Property conducted. A Phase II ESA generally involves invasive procedures, such as soil sampling and testing or the installation and monitoring of groundwater wells. While the ESAs conducted have identified environmental contamination on a few of the Properties, they have not revealed any environmental contamination, liability or compliance concern that we believe would have a material adverse effect on our cash flow or ability to make distributions to shareholders. It is possible that the existing ESAs relating to the Properties do not reveal all environmental contaminations, liabilities or compliance concerns which currently exist, and it is also possible that the cost of remediating identified contamination may exceed current estimates. In addition, future properties which we acquire may be subject to environmental conditions. By holding Properties through the Operating Partnership and various joint ventures, we are exposed to additional risks. We own the Properties and interests in Real Estate Ventures through the Operating Partnership. In the future, we expect to continue to participate with other entities in property ownership through joint ventures or partnerships. Partnership or joint venture investments may involve risks not otherwise present in direct investments. Such risks include: o the potential bankruptcy of our partners or co-venturers; o a conflict between our business goals and those of our partners or co-venturers; and o actions taken by our partners or co-venturers contrary to our instructions or objectives. There is no limitation under our organizational documents as to the amount of funds which we may invest in partnerships or joint ventures. -11-
Our status as a REIT is dependent on compliance with federal income tax requirements. Our failure to qualify as a REIT would have serious adverse consequences to our shareholders. We believe that since 1986, we have qualified for taxation as a REIT for federal income tax purposes. We plan to continue to meet the requirements for taxation as a REIT. Many of these requirements are highly technical and complex. The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from certain sources that are itemized in the REIT tax laws. We are also required to distribute to shareholders at least 90% of our REIT taxable income (excluding net capital gains). The fact that we hold our assets through the Operating Partnership and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore, Congress and the IRS might change the tax laws and regulations, and the courts might issue new rulings that make it more difficult, or impossible, for us to remain qualified as a REIT. We do not believe, however, that any pending or proposed tax law changes would jeopardize our REIT status. To maintain REIT status, a REIT may not own more than 10% of the stock of any corporation, except for a qualified REIT subsidiary (which must be wholly-owned by the REIT), taxable REIT subsidiary or another REIT. If we fail to qualify as a REIT, we would be subject to federal income tax at regular corporate rates. Also, unless the IRS granted us relief under certain statutory provisions, we would remain disqualified as a REIT for four years following the year we first failed to qualify. If we failed to qualify as a REIT, we would be required to pay significant income taxes and would, therefore, have less money available for investments or for distributions to shareholders. This would likely have a material adverse effect on the value of our securities. In addition, we would no longer be required to make any distributions to shareholders. In order to make the distributions required to maintain our REIT status, we may need to borrow funds. To obtain the favorable tax treatment associated with REIT qualification, we generally will be required to distribute to shareholders at least 90% of our annual REIT taxable income (excluding net capital gains). In addition, we will be subject to tax on our undistributed net taxable income and net capital gain and a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by us with respect to any calendar year are less than the sum of 85% of ordinary income plus 95% of capital gain net income for the calendar year, plus certain undistributed amounts from prior years. We intend to make distributions to shareholders to comply with the distribution provisions of the Code and to avoid income and other taxes. Our income will consist primarily of our share of the income of the Operating Partnership and our cash flow will consist primarily of our share of distributions from the Operating Partnership. Differences in timing between the receipt of income and the payment of expenses in arriving at taxable income (of the Company or the Operating Partnership) and the effect of required debt amortization payments could require us to borrow funds on a short-term basis or to liquidate funds on adverse terms to meet the REIT qualification distribution requirements. Failure of the Operating Partnership (or a subsidiary partnership) to be treated as a partnership would have serious adverse consequences to our shareholders. If the IRS were to successfully challenge the tax status of the Operating Partnership or any of its subsidiary partnerships for federal income tax purposes, the Operating Partnership or the affected subsidiary partnership would be taxable as a corporation. In such event, we would cease to qualify as a REIT and the imposition of a corporate tax on the Operating Partnership or a subsidiary partnership would reduce the amount of cash available for distribution from such partnership to us and our shareholders. We do pay some taxes. Even if we qualify as a REIT, we are required to pay certain federal, state and local taxes on our income and Properties. In addition, the Management Company is subject to federal, state and local income tax at regular corporate rates on its net taxable income derived from its management, leasing and related service business. If we have net income from a prohibited transaction, such income will be subject to a 100% tax. -12-
We own a subsidiary REIT. One of our subsidiaries, Atlantic American Properties Trust ("AAPT"), that indirectly holds 24 of the Properties, elected to be taxed as a REIT for the year ended December 31, 1997. So long as we seek to maintain AAPT's REIT status, AAPT will be subject to all the requirements and risks associated with maintaining REIT status summarized above, including the limitation on the ownership of more than 10% of the securities of any corporation (other than a qualified REIT subsidiary, taxable REIT subsidiary or another REIT). We are dependent upon our key personnel. We are dependent upon the efforts of our executive officers, particularly Gerard H. Sweeney. The loss of Mr. Sweeney's services could have an adverse affect on our operations and would entitle the banks under our Credit Facility to accelerate the amounts due thereunder. Although we have an employment agreement with Mr. Sweeney for a term extending to December 31, 2003, this agreement does not restrict his ability to become employed by a competitor following the termination of his employment with us. We do not have keyman life insurance coverage for Mr. Sweeney. Certain limitations exist with respect to a third party's ability to acquire us or effectuate a change in control. Limitations imposed to protect our REIT status. In order to protect us against loss of our REIT status, our Declaration of Trust limits any shareholder from owning more than 9.8% in value of our outstanding shares, subject to certain exceptions. The ownership limit may have the effect of precluding acquisition of control of the Company. If anyone acquires shares in excess of the ownership limit, we may: o consider the transfer to be null and void; o not reflect the transaction on our books; o institute legal action to stop the transaction; o not pay dividends or other distributions with respect to those shares; o not recognize any voting rights for those shares; and o consider the shares held in trust for the benefit of a person to whom such shares may be transferred. Limitation due to our ability to issue preferred shares. Our Declaration of Trust authorizes the Board of Trustees to issue preferred shares. The Board of Trustees may establish the preferences and rights of any preferred shares issued which could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our shareholders' best interests. Limitations imposed by the Business Combination Law. The Maryland General Corporation Law, as applicable to Maryland real estate investment trusts, establishes special restrictions against "business combinations" between a Maryland real estate investment trust and "interested shareholders" or their affiliates unless an exemption is applicable. An interested shareholder includes a person who beneficially owns, and an affiliate or associate of the trust who, at any time within the two-year period prior to the date in question, was the beneficial owner of, ten percent or more of the voting power of our then-outstanding voting shares. Among other things, the law prohibits (for a period of five years) a merger and certain other transactions between the trust and an interested shareholder unless the Board of Trustees approved the transaction before the party became an interested shareholder. The five-year period runs from the most recent date on which the interested shareholder became an interested shareholder. Thereafter, any such business combination must be recommended by the Board of Trustees and approved by two super-majority shareholder votes unless, among other conditions, the trust's common shareholders receive a minimum price for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for its shares or unless the Board of Trustees approved the transaction before the party in question became an interested shareholder. The business combination statute could have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, -13-
even if our acquisition would be in our shareholders' best interests. We have exempted any business combination involving Safeguard Scientifics, Inc., the Commonwealth of Pennsylvania State Employees' Retirement System and a voting trust established for its benefit, Morgan Stanley Asset Management Inc. and two funds managed by it, Lazard Freres Real Estate Investors, L.L.C., Five Arrows Realty Securities III L.L.C., Gerard H. Sweeney (the Company's President and Chief Executive Officer) and any of their respective affiliates or associates. Many factors can have an adverse effect on the market value of our securities. Like any publicly traded company, a number of factors might adversely affect the price of our securities, many of which are beyond our control. These factors include: o Increases in market interest rates, relative to the dividend yield on our shares. If market interest rates go up, prospective purchasers of our securities may require a higher yield. Higher market interest rates would not, however, result in more funds for us to distribute and, to the contrary, would likely increase our borrowing costs and potentially decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our common shares to go down. o Anticipated benefit of an investment in our securities as compared to investment in securities of companies in other industries. o Perception by market professionals of REITs generally and REITs comparable to us in particular. o Perception by market participants of our potential for payment of cash distributions and for growth. o Level of institutional investor interest in our securities. o Relatively low trading volumes in securities of REITs. o Our results of operations and financial condition. The issuance of Preferred Shares may adversely affect the rights of holders of Common Shares. Because the Board of Trustees has the power to establish the preferences and rights of each class or series of Preferred Shares, it may afford the holders in any series or class of preferred shares preferences, distributions, powers and rights, voting or otherwise, senior to the rights of holders of Common Shares. -14-
Item 2. Properties Operating Property Acquisitions The Company acquired the following operating properties during the year ended December 31, 2001: <TABLE> <CAPTION> Net Month of # of Rentable Investment Acquisition Property/Portfolio Name Location Buildings Square Feet (in thousands) - ----------- ---------------------------- ----------------- --------- ----------- ------------- Office: - ------- <S> <C> <C> <C> <C> <C> Jan-01 Delaware Corporate Center II Wilmington, DE 1 95,514 $ 13,750 Mar-01 200 Wireless Boulevard Hauppauge, NY 1 50,841 4,250 Apr-01 161 Gaither Drive Mount Laurel, NJ 1 44,739 6,434 Apr-01 Lake Center II Marlton, NJ 1 40,287 3,806 Apr-01 Lake Center IV Marlton, NJ 1 76,359 7,550 Apr-01 Woodland Falls I Cherry Hill, NJ 1 60,604 6,079 Apr-01 Woodland Falls III Cherry Hill, NJ 1 78,509 12,251 Apr-01 Woodland Falls IV Cherry Hill, NJ 1 76,352 8,890 Apr-01 412 Creamery Way Exton, PA 1 38,098 5,059 Apr-01 429 Creamery Way Exton, PA 1 63,420 8,018 Apr-01 436 Creamery Way Exton, PA 1 72,300 5,821 Apr-01 440 Creamery Way Exton, PA 1 57,218 4,399 Apr-01 457 Creamery Way Exton, PA 1 36,019 4,554 Apr-01 467 Creamery Way Exton, PA 1 42,000 5,310 Apr-01 100 Arrandale Blvd. Exton, PA 1 34,931 5,866 Apr-01 111 Arrandale Blvd. Exton, PA 1 10,479 1,614 Apr-01 470 John Young Way Exton, PA 1 15,085 1,652 Apr-01 481 John Young Way Exton, PA 1 19,275 3,048 Apr-01 479 Thomas Jones Way Exton, PA 1 49,264 4,565 Apr-01 Southpointe I Berwyn, PA 1 60,099 13,212 Apr-01 Southpointe II Berwyn, PA 1 60,371 8,771 Apr-01 Southpointe III Berwyn, PA 1 86,000 27,889 Apr-01 Southpointe V Berwyn, PA 1 43,480 10,116 Apr-01 Valleybrooke 100 Malvern, PA 1 18,400 1,784 Apr-01 Valleybrooke 200 Malvern, PA 1 12,600 1,222 Apr-01 Valleybrooke 300 Malvern, PA 1 33,000 3,200 Apr-01 Valleybrooke II Malvern, PA 1 97,762 9,850 Apr-01 Valleybrooke III Malvern, PA 1 118,121 11,900 Apr-01 Croton Road Corp Center King of Prussia, PA 1 96,909 18,564 Apr-01 111/113 Pencader Drive Newark, DE 2 52,665 8,006 -- --------- --------- Total Office Property Acquisitions 31 1,640,701 227,430 Industrial: - ----------- Apr-01 442 Creamery Way Exton, PA 1 104,500 5,770 -- --------- --------- Total Industrial Property Acquisitions 1 104,500 5,770 -- --------- --------- Total Operating Property Acquisitions 32 1,745,201 $ 233,200 == ========= ========= </TABLE> During 2001, the Company acquired three parcels of land, containing 30 acres, for $13.5 million. Development Properties Placed in Service The Company placed in service the following properties during the year ended December 31, 2001: <TABLE> <CAPTION> Net Date Placed # of Rentable Investment in Service Property/Portfolio Name Location Buildings Square Feet (in thousands) - ----------- ---------------------------- ----------------- --------- ----------- ------------- Office: - ------- <S> <C> <C> <C> <C> <C> Apr-01 17 Campus Boulevard Newtown Square, PA 1 48,565 $ 6,264 -- --------- --------- Total Office Properties Placed in Service 1 48,565 6,264 Industrial: - ----------- Jul-01 7360 Windsor Drive Allentown, PA 1 43,600 7,105 -- --------- --------- Total Industrial Properties Placed in Service 1 43,600 7,105 -- --------- ------- Total Properties Placed in Service 2 92,165 $ 13,369 == ========= ========= </TABLE> -15-
Property Sales and Dispositions The Company sold or disposed of the following properties during the year ended December 31, 2001: <TABLE> <CAPTION> Sales/Disposition Net Book Realized Sale # of Rentable Price Value Gain (Loss) Date Property/Portfolio Name Location Bldgs. Square Feet (in 000's) (in 000's) (in 000's) - ------- ------------------------------ ------------------ ------ ----------- --------- --------- --------- Office: - ------- <S> <C> <C> <C> <C> <C> <C> <C> Mar-01 168 Franklin Corner Road Lawrenceville, NJ 1 30,426 $ 2,504 $ 2,348 $ 156 Apr-01 Plaza 1900 Tysons Corner, VA 1 205,627 35,145 35,145 - Apr-01 Oakwood Center Fairfax, VA 1 127,568 17,820 17,820 - Apr-01 Greenwood Center Fairfax, VA 1 150,046 26,860 26,860 - Apr-01 Campus Point Reston, VA 1 172,448 27,375 27,375 - Oct-01 44 National Road Edison, NJ 1 50,000 1,950 1,761 189 Nov-01 1974 Sproul Road Broomall, PA 1 62,669 7,100 4,402 2,698 Dec-01 Greentree Exec. Campus (1 unit) Evesham, NJ - 10,530 1,060 722 338 -- --------- ---------- ---------- ---------- Total Office Properties Sold 7 809,314 119,814 116,433 3,381 Industrial: - ----------- Feb-01 2110 Tomlynn Street Richmond, VA 1 15,910 785 794 (9) Jun-01 100 Voice Road Carle Place, NY 1 25,000 2,213 2,029 184 Jul-01 835 New Durham Road Edison, NJ 1 58,095 3,054 3,353 (299) Jul-01 837 New Durham Road Edison, NJ 1 48,200 1,197 1,442 (245) Jul-01 1000 Axinn Avenue Garden City, NY 1 59,000 3,100 2,600 500 Aug-01 2405 Park Drive Harrisburg, PA 1 25,495 2,250 2,215 35 Aug-01 2407 Park Drive Harrisburg, PA 1 28,285 2,075 2,234 (159) Sep-01 110 Voice Road Carle Place, NY 1 25,920 1,426 1,211 215 -- --------- ---------- ---------- ---------- Total Industrial Properties Sold 8 285,905 16,100 15,878 222 -- --------- ---------- ---------- ---------- Total Properties Sold 15 1,095,219 $ 135,914 $ 132,311 $ 3,603 == ========= ========== ========== ========== </TABLE> During 2001, the Company sold four parcels of land, containing 15.8 acres, for $2.6 million, realizing an aggregate gain of $.9 million. 2002 Activities The Company sold or disposed of the following properties during the period from January 1, 2002 through March 25, 2002: <TABLE> <CAPTION> Sales/Disposition Net Book Realized Sale # of Rentable Price Value Gain (Loss) Date Property/Portfolio Name Location Bldgs. Square Feet (in 000's) (in 000's) (in 000's) - ------- ------------------------------ ------------------ ------ ----------- --------- --------- --------- Office: - ------- <S> <C> <C> <C> <C> <C> <C> <C> Feb-02 2000 Cabot Boulevard Bucks County, PA 1 39,969 $ 2,760 $ 2,680 $ 80 Feb-02 2005 Cabot Boulevard Bucks County, PA 1 22,000 2,100 1,874 226 Feb-02 2010 Cabot Boulevard Bucks County, PA 1 52,831 3,420 3,420 - Feb-02 2260/2270 Cabot Boulevard Bucks County, PA 2 29,638 2,405 1,935 470 Feb-02 3000 Cabot Boulevard Bucks County, PA 1 34,693 3,395 2,194 1,201 Feb-02 155 Rittenhouse Circle Bucks County, PA 1 22,500 1,913 1,732 181 -- --------- ---------- ---------- ---------- Total Office Properties Sold 7 201,631 15,993 13,835 2,158 Industrial: - ----------- Feb-02 8 Engineers Lane Farmingdale, NY 1 15,000 865 935 (70) Feb-02 2200 Cabot Boulevard Bucks County, PA 1 61,543 2,855 3,751 (896) Feb-02 180 Wheeler Court Bucks County, PA 1 78,213 2,980 3,106 (126) Feb-02 Metropolitan Drive Bucks County, PA 7 447,000 19,000 16,086 2,914 -- --------- ---------- ---------- ---------- Total Industrial Properties Sold 10 601,756 25,700 23,878 1,822 -- --------- ---------- ---------- ---------- Total Properties Sold 17 803,387 $ 41,693 $ 37,713 $ 3,980 == ========= ========== ========== ========== </TABLE> -16-
The Company acquired the following operating properties during the period from January 1, 2002 through March 25, 2002: <TABLE> <CAPTION> Net Month of # of Rentable Investment Acquisition Property/Portfolio Name Location Buildings Square Feet (in thousands) - ----------- ----------------------- -------- --------- ----------- -------------- Office: - ------- <S> <C> <C> <C> <C> <C> Mar-02 600 West Germantown Pike Plymouth Meeting, PA 1 90,004 $ 16,780 Mar-02 610 West Germantown Pike Plymouth Meeting, PA 1 90,152 16,808 Mar-02 620 West Germantown Pike Plymouth Meeting, PA 1 90,169 16,811 Mar-02 630 West Germantown Pike Plymouth Meeting, PA 1 89,925 16,766 - ------- --------- Total Properties Placed in Service 4 360,250 $ 67,165 = ======= ========= </TABLE> Properties As of December 31, 2001, the Company owned 223 office properties, 46 industrial facilities and one mixed-use property that contained an aggregate of approximately 17.3 million net rentable square feet. 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 December 31, 2001, the Properties were approximately 92.2% leased to 1,254 tenants and had an average age of approximately 16.5 years. The office Properties are primarily one to three story suburban office buildings containing an average of approximately 66,178 net rentable square feet. The industrial Properties accommodate a variety of tenant uses, including light manufacturing, assembly, distribution and warehousing. The Company carries comprehensive liability, fire, extended coverage and rental loss insurance covering all of the Properties, with policy specifications and insured limits which the Company believes are adequate. The following table sets forth certain information with respect to the Properties at December 31, 2001: -17-
<TABLE> <CAPTION> Net Percentage Rentable Leased as of Year Square December Property Name Location State Built Feet 31, 2001 (a) ------------- -------- ----- ----- ---- ------------ <S> <C> <C> <C> <C> <C> PENNSYLVANIA SEGMENT 100-300 Gundy Drive Reading PA 1970 438,032 99.0% Philadelphia Marine Center (f) Philadelphia PA Various 181,900 100.0% 300 Corporate Center Drive Camp Hill PA 1989 175,280 100.0% 111 Presidential Boulevard Bala Cynwyd PA 1997 172,798 98.4% 751-761 Fifth Avenue King Of Prussia PA 1967 158,000 100.0% 630 Allendale Road King of Prussia PA 2000 150,000 100.0% 640 Freedom Business Center (f) King Of Prussia PA 1991 132,000 46.9% 100 Katchel Blvd Reading PA 1970 131,082 100.0% 52 Swedesford Square East Whiteland Twp. PA 1988 131,017 100.0% 105 / 140 Terry Drive Newtown PA 1982 128,666 79.9% 7535 Windsor Drive Allentown PA 1988 128,114 42.3% 4667 Somerton Road (d) Trevose PA 1974 118,000 100.0% 101 Lindenwood Drive Malvern PA 1988 118,121 96.3% 501 Office Center Drive Fort Washington PA 1974 114,805 93.2% 7130 Ambassador Drive Allentown PA 1991 114,049 100.0% 7350 Tilghman Street Allentown PA 1987 111,500 100.0% 50 Swedesford Square East Whiteland Twp. PA 1986 109,800 100.0% 300 Berwyn Park Berwyn PA 1989 107,919 100.0% 920 Harvest Drive Blue Bell PA 1990 104,505 100.0% 442 Creamery Way Exton PA 1991 104,500 67.6% 500 Office Center Drive Fort Washington PA 1974 101,303 94.6% 7450 Tilghman Street Allentown PA 1986 100,000 94.5% 301 Lindenwood Drive Malvern PA 1984 97,459 74.4% 555 Croton Road King of Prussia PA 1999 96,909 100.0% 500 North Gulph Road King Of Prussia PA 1979 93,082 64.4% 630 Freedom Business Center (f) King Of Prussia PA 1989 86,683 89.9% 620 Freedom Business Center (f) King Of Prussia PA 1986 86,559 100.0% 1200 Swedsford Road Berwyn PA 1994 86,000 100.0% 3331 Street Road -Greenwood Square Bensalem PA 1986 83,097 98.5% 1050 Westlakes Drive Berwyn PA 1984 81,500 88.5% 2595 Metropolitan Drive (d) Trevose PA 1981 80,000 100.0% One Progress Avenue Horsham PA 1986 79,204 100.0% 323 Norristown Road Lower Gwyned PA 1988 79,083 100.0% 180 Wheeler Court Langhorne PA 1975 78,213 100.0% </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Average Tenants Leasing 10% Total Base Rent Annualized or More of Rentable for the Twelve Rental Rate Square Footage per Months Ended as of Property as of December 31, December December 31, 2000 and Property Name 2001 (b) (000's) 31, 2001 (c) Lease Expiration Date ------------- ---------------- ------------ --------------------- <S> <C> <C> <C> PENNSYLVANIA SEGMENT 100-300 Gundy Drive $ 6,542 $ 15.19 Parsons Corporation (40%) - 3/05 Penske Truck Leasing (46%) - 12/20 Philadelphia Marine Center 1,305 3.25 Dave & Busters of Pennsylvania, Inc. (81%) - 2/14 Meiji-En Restaurant (10%) - 6/03 300 Corporate Center Drive 3,341 19.44 Keystone Health Plan Center (70%) - 8/04 Highmark Incorporated (30%) - 8/04 111 Presidential Boulevard 4,637 29.26 American Business Financial (53%) - 7/03 751-761 Fifth Avenue 492 3.12 Lockheed Martin Corp. (100%) - 9/02 630 Allendale Road 3,375 22.75 Omnicare Clinical Research (100%) -7/10 640 Freedom Business Center 1,956 27.51 General Electric Company (30%) - 9/06 Medrisk, Inc. (17%) - 9/06 100 Katchel Blvd 2,745 21.11 Penske Truck Leasing (66%) - 12/20 UGI Utilities, Inc. (34%) - 3/03 52 Swedesford Square 2,792 22.41 Verizon (65%) - 8/04 The Vanguard Group (35%) - 7/06 105 / 140 Terry Drive 1,300 14.21 Department of General Services (16%) - 12/05 & 8/06 Magellan Behavioral Health (12%) - 12/04 Husky Injection Molding System (10%) - 5/05 Media Management Services, Inc. (10%) - 8/04 7535 Windsor Drive 1,763 16.52 Rosenbluth International (17%) - 4/04 Cadence Design Systems, Inc. (12%) - 12/03 4667 Somerton Road 2,305 6.48 BVI Industries, Inc. (34%) - 12/03 American Home Patient, Inc. (17%) - 10/02 Brownell Electro, Inc. (14%) - 5/02 Town & Country Van Lines, Inc. (14%) - 1/02 A.P. Green Refractories Co. (13%) - 12/01 101 Lindenwood Drive 1,963 22.81 Factory Mutual Insurance Co. (27%) - 5/05 Siemens Medical Solutions (19%) - 4/04 & 6/04 Daimlerchrysler Motors Co. (12%) - 11/03 501 Office Center Drive 1,831 20.46 Drug Information Resources (12%) - 8/02, 3/02, 2/02 & 6/05 7130 Ambassador Drive 492 5.91 Dispensing Containers Corporation (100%) - 9/05 7350 Tilghman Street 1,922 18.53 The Hartford Group (100%) - 12/04 & 12/07 50 Swedesford Square 1,865 16.98 Decision One Corporation (100%) - 12/05 300 Berwyn Park 2,096 23.70 Delaware Valley Financial (68%) - 3/04 920 Harvest Drive 1,674 16.29 Aetna Life Insurance (100%) - 6/02 442 Creamery Way 296 8.86 FedEx Ground (68%) - 6/02 & 1/02 500 Office Center Drive 1,870 22.15 Information Resources, Inc. (32%) - 1/06 Gateway Funding, Inc. (14%) - 12/04 Access Services, Inc. (10%) - 8/03 7450 Tilghman Street 1,614 18.18 The Hartford Group (68%) - 12/07 Optronx, Inc. (12%) - 7/03 Paychex, Inc. (10%) - 9/06 301 Lindenwood Drive 1,203 21.02 Cisco Systems, Inc. (22%) - 10/04 Alternative Resources Corp. (13%) - 6/02 555 Croton Road 2,090 28.91 BNP Cooper Neff, Inc. (41%) - 8/12 & 8/09 AstraZeneca (19%) - 5/02 500 North Gulph Road 1,644 23.19 Nason Cullen Group (14%) - 8/06 Ford Motor Credit Corp. (13%) - 10/04 630 Freedom Business Center 1,700 26.34 HQ King of Prussia, Inc. (27%) - 7/09 & 7/04 AT & T / TCG Delaware (24%) - 12/09 Cerexagri, Inc. (14%) - 4/06 Robert Half International, Inc. (12%) - 10/06 620 Freedom Business Center 2,062 27.81 Reliance Insurance Company (80%) - 10/02 Home Health Corporation (18%) - 9/05 1200 Swedsford Road 1,190 21.24 PQ Corporation (100%) - 6/14 3331 Street Road -Greenwood Square 1,552 20.18 Stelex, Inc. (14%) - 5/04 Capsule Communications (13%) - 8/04 Arlington Capital Mortgage Corp. (10%) - 6/04 1050 Westlakes Drive 1,983 28.00 Dermik Laboratories (89%) - 8/10 2595 Metropolitan Drive - 7.38 Northtec LLC (100 %) - 10/06 One Progress Avenue 799 11.79 Reed Technology (100%) - 6/11 323 Norristown Road 1,375 17.81 Bisys Plan Services (90%) - 7/02 180 Wheeler Court 348 5.86 Lainiere De Picardie, Inc. (59%) - 12/04 Eckerd Corporation (41%) - 8/05 </TABLE> -18-
<TABLE> <CAPTION> Net Percentage Rentable Leased as of Year Square December Property Name Location State Built Feet 31, 2001 (a) ------------- -------- ----- ----- ---- ------------ <S> <C> <C> <C> <C> <C> 1060 First Avenue (f) King Of Prussia PA 1987 77,718 100.0% 741 First Avenue King Of Prussia PA 1966 77,184 100.0% 1040 First Avenue (f) King Of Prussia PA 1985 75,488 100.0% 200 Berwyn Park Berwyn PA 1987 75,025 89.7% 1020 First Avenue (f) King Of Prussia PA 1984 74,556 100.0% 1000 First Avenue (f) King Of Prussia PA 1980 74,139 95.9% 160 - 180 West Germantown Pike East Norriton PA 1982 73,242 90.5% 2560 Metropolitan Drive Trevose PA 1983 70,000 100.0% 436 Creamery Way Exton PA 1991 72,300 92.2% 14 Campus Boulevard Newtown Square PA 1998 69,400 100.0% 1105 Berkshire Boulevard Reading PA 1987 68,985 98.9% 500 Enterprise Road Horsham PA 1990 66,751 100.0% 16 Campus Boulevard Newtown Square PA 1990 65,463 100.0% 925 Harvest Drive Blue Bell PA 1990 63,663 96.7% 429 Creamery Way Exton PA 1996 63,420 100.0% 610 Freedom Business Center (f) King Of Prussia PA 1985 62,991 100.0% 2200 Cabot Boulevard Langhorne PA 1979 61,543 100.0% 426 Lancaster Avenue Devon PA 1990 61,102 100.0% 3329 Street Road -Greenwood Square Bensalem PA 1985 60,705 91.7% 1180 Swedesford Road Berwyn PA 1987 60,371 100.0% 1160 Swedesford Road Berwyn PA 1986 60,006 88.4% 200 Corporate Center Drive Camp Hill PA 1989 60,000 100.0% 321 Norristown Road Lower Gwyned PA 1988 59,994 100.0% 2575 Metropolitan Drive Trevose PA 1981 60,000 100.0% 100 Berwyn Park Berwyn PA 1986 57,731 100.0% 440 Creamery Way Exton PA 1991 57,218 100.0% 640 Allendale Road King of Prussia PA 2000 56,034 100.0% 2010 Cabot Boulevard Langhorne PA 1985 52,831 100.0% 680 Allendale Road King Of Prussia PA 1962 52,528 100.0% 2240/50 Butler Pike Plymouth Meeting PA 1984 52,229 91.5% </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Average Tenants Leasing 10% Total Base Rent Annualized or More of Rentable for the Twelve Rental Rate Square Footage per Months Ended as of Property as of December 31, December December 31, 2000 and Property Name 2001 (b) (000's) 31, 2001 (c) Lease Expiration Date ------------- ---------------- ------------ --------------------- <S> <C> <C> <C> 1060 First Avenue 1,778 24.52 Integra, Inc. (36%) - 6/06 Finova Capital (21%) - 1/04 Aventis Behring (43%) - 10/02 741 First Avenue 540 8.30 Tozour - Trane, Incorporated (100%) - 4/05 1040 First Avenue 1,838 27.57 Cortech Consulting (47%) - 6/04 First USA, Inc. (26%) - 6/05 Aventis Behring (15%) - 1/03 200 Berwyn Park 1,633 26.46 Devon Direct Marketing & Advertising (53%) - 4/02 VHA East Corporation (12%) - 11/04 Buck Consultants (12%) - 8/06 1020 First Avenue 1,379 19.30 Aventis Behring (100%) - 10/02 1000 First Avenue 1,765 26.38 First USA, Inc. (27%) - 4/05 Atofina Chemicals, Inc. (22%) - 3/06 Aventis Behring (21%) - 1/03 Finova Capital (16%) - 1/04 160 - 180 West Germantown Pike 1,336 19.16 Icon Clinical Research (40%) - 8/02 Auxilium A2, Inc. (13%) - 1/06 2560 Metropolitan Drive - 7.96 Philips Medical Systems (48%) - 9/02 Delta Lighting Products, Inc. (19%) - 5/06 Nextel Communications (18%) - 5/03 Rentacom, Inc (15%) - 10/04 436 Creamery Way 463 12.22 Mobil Oil Corporation (52%) - 1/11 Engineering Solutions, Inc. - (14%) - 11/05 Adelphia Graphic Systems (11%) - 3/02 14 Campus Boulevard 1,209 22.64 Catholic Health East (43%) - 9/08 & 12/05 Naviant Technology Solutions, Inc. (28%) - 9/08 Brandywine Realty Trust (29%) - 12/03 1105 Berkshire Boulevard 1,034 16.45 The Travelers Indemnity Company (74%) - 2/02 Spicer Systems (14%) - 01/02 500 Enterprise Road 801 18.63 GMAC Mortgage (100%) - 4/04 16 Campus Boulevard 711 17.96 New England Life Insurance (61%) - 5/06 Atlantic Credit Union (35%) - 1/06 925 Harvest Drive 1,236 19.44 Elliott, Reihner, Siedzikowski & Egan (35%) - 6/08 Flamm, Boroff & Bacine, P.C. (24%) - 7/05 429 Creamery Way 488 12.33 Micron Technologies, Inc. (52%) - 1/12 Therakos, Inc. (48%) - 5/03 610 Freedom Business Center 1,421 26.41 Sun Microsystems, Inc. (38%) - 8/07 UNUM Life Insurance Company (34%) - 7/02 Agweb.Com, Inc. (11%) - 6/03 Home Properties of New York (10%) - 8/05 2200 Cabot Boulevard 296 7.03 McCaffrey Management (56%) - 8/05 Akzo Nobel Inks Corporation (44%) - 8/05 426 Lancaster Avenue 1,137 19.99 GE Transport International Pool (100%) - 9/03 3329 Street Road -Greenwood Square 1,019 18.87 FPA Corporation (31%) - 12/06 Orbital Engineering (12%) - 2/02 Model Consulting, Inc. (11%) - 7/03 Prudential Insurance Company (11%) - 6/02 1180 Swedesford Road 993 23.12 Davita, Inc. (71%) - 3/05 Main Line Health, Inc. (29%) - 8/03 1160 Swedesford Road 785 24.31 Computer Sciences Corp. (45%) - 2/06 Davita, Inc. (24%) - 3/05 200 Corporate Center Drive 1,086 17.40 Highmark, Incorporated (100%) - 5/04 321 Norristown Road 1,148 19.74 Navisys (29%) - 12/02 Bisys Plan Services (28%) - 7/02 Rohm and Haas Company (24%) - 4/05, 11/03 & 8/03 2575 Metropolitan Drive - 5.65 Northtec LLC (100%) - 10/06 100 Berwyn Park 1,222 27.92 Siemans Medical Solutions (49%) - 3/02 & 3/04 PFPC,Inc. (32%) - 10/02 LCOR, Inc. (13%) - 3/04 440 Creamery Way 381 11.56 Swets Blackwell (39%) - 1/04 Franciscan Healthcare Corp. (32%) - 1/03 Absorption Systems (12%) - 5/02 Storecast Merchandising Corp. (10%) - 6/02 640 Allendale Road 340 8.22 Sharp Corporation (100%) - 10/03 2010 Cabot Boulevard 436 11.01 Computer Hardware Maintenance (56%) - 1/03 DiMark, Inc. (33%) - 9/02 Four Seasons Mechanical, Inc. (11%) - 9/05 680 Allendale Road 478 11.47 The Immune Response Corporation (100%) - 10/11 2240/50 Butler Pike 858 20.60 Wachovia Corporation (58%) - 4/06 Johnson Controls, Inc. (33%) - 4/10 </TABLE> -19-
<TABLE> <CAPTION> Net Percentage Rentable Leased as of Year Square December Property Name Location State Built Feet 31, 2001 (a) ------------- -------- ----- ----- ---- ------------ <S> <C> <C> <C> <C> <C> 650 Park Avenue King Of Prussia PA 1968 51,711 97.0% 1155 Business Center Drive Horsham PA 1990 51,388 84.4% 486 Thomas Jones Way Exton PA 1990 51,072 100.0% 855 Springdale Drive Exton PA 1986 50,750 100.0% 660 Allendale Road King of Prussia PA 1962 50,635 100.0% 800 Business Center Drive Horsham PA 1986 50,609 100.0% 875 First Avenue King Of Prussia PA 1966 50,000 100.0% 630 Clark Avenue King Of Prussia PA 1960 50,000 100.0% 620 Allendale Road King Of Prussia PA 1961 50,000 50.0% 7150 Windsor Drive Allentown PA 1988 49,420 89.3% 479 Thomas Jones Way Exton PA 1988 49,264 79.6% 17 Campus Boulevard Newtown Square PA 2001 48,565 100.0% 520 Virginia Drive Fort Washington PA 1987 48,122 100.0% 11 Campus Boulevard Newtown Square PA 1998 47,700 100.0% 456 Creamery Way Exton PA 1987 47,604 100.0% 6575 Snowdrift Road Allentown PA 1988 46,858 87.5% 220 Commerce Drive Fort Washington PA 1985 46,065 92.6% 7248 Tilghman Street Allentown PA 1987 43,782 54.3% 110 Summit Drive Exton PA 1985 43,660 100.0% 7360 Windsor Drive Allentown PA 2001 43,600 100.0% 1100 Cassett Road Berwyn PA 1997 43,480 100.0% 467 Creamery Way Exton PA 1988 42,000 100.0% 2535 Metropolitan Drive (d) Trevose PA 1974 42,000 100.0% 300 Welsh Road - Building I Horsham PA 1980 40,042 100.0% 7310 Tilghman Street Allentown PA 1985 40,000 85.6% 2510 Metropolitan Drive (d) Trevose PA 1981 40,000 100.0% 2000 Cabot Boulevard Langhorne PA 1985 39,969 100.0% 150 Corporate Center Drive Camp Hill PA 1987 39,401 80.1% 1336 Enterprise Drive West Goshen PA 1989 39,330 66.5% 600 Park Avenue King Of Prussia PA 1964 39,000 100.0% 412 Creamery Way Exton PA 1999 38,098 64.8% 755 Business Center Drive Horsham PA 1998 38,050 100.0% 18 Campus Boulevard Newtown Square PA 1990 37,374 88.6% </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Average Tenants Leasing 10% Total Base Rent Annualized or More of Rentable for the Twelve Rental Rate Square Footage per Months Ended as of Property as of December 31, December December 31, 2000 and Property Name 2001 (b) (000's) 31, 2001 (c) Lease Expiration Date ------------- ---------------- ------------ --------------------- <S> <C> <C> <C> 650 Park Avenue 1,080 21.97 GE Transport International Pool (64%) - 9/03 Sunguard Recovery Services, Inc. (20%) - 10/05 1155 Business Center Drive 669 19.18 IMS (84%) - 3/06 486 Thomas Jones Way 684 19.27 First American Real Estate Tax Service (24%) - 1/04 Toshiba American Medical Systems (13%) - 6/02 Cape Environmental (12%) - 7/02 ICI America's, Inc. (12%) - 11/05 J. Reckner Associates, Inc. (11%) - 9/03 855 Springdale Drive 827 17.07 Environmental Resources (100%) - 7/03 660 Allendale Road 317 8.12 The Immune Response Corporation (100%) - 10/11 800 Business Center Drive 587 15.94 Quest Diagnostics Inc. (73%) - 1/12 KWS & P (27%) - 4/02 875 First Avenue 759 18.18 Comdisco, Inc. (100%) - 8/10 630 Clark Avenue 250 5.92 Metro Fiber Systems of Philadelphia (100%) - 9/12 620 Allendale Road 466 22.80 Agilent Technologies (33%) - 7/08 Koninklijke Philips Electronic (17%) - 7/08 7150 Windsor Drive 562 15.08 Verizon (35%) - 10/04 ICT Group (20%) - 2/02 Choice One Commumications (12%) - 11/04 Optronx, Inc. (23%) - 9/03 479 Thomas Jones Way 428 16.56 Catholic Health Initiatives (28%) - 2/02 Childrens Discovery Centers (16%) - 3/04 Caggiano & Lyons Orthopaedic (10%) - 12/03 17 Campus Boulevard 828 22.95 Sciquest.Com & Emax Solutions (80%) - 3/11 PNC bank (21%) - 4/11 520 Virginia Drive 824 17.82 TVG, Inc. (100%) - 8/05 11 Campus Boulevard 1,048 22.34 Department of Forestry (70%) - 10/09 Jobson Publishing (18%) - 10/06 Dilworth Paxson (12%) - 12/06 456 Creamery Way 357 8.53 Neutronics (100%) - 1/03 6575 Snowdrift Road 502 11.32 Liberty Mutual Insurance (50%) - 3/05 Fisher Clinical (38%) - 11/09 220 Commerce Drive 726 19.65 Ram Technologies (13%) - 3/04 Brandywine Realty Services (12%) - 6/02 Temple University (11%) - 4/04 Southeastern Abstract Co. (10%) - 12/06 7248 Tilghman Street 440 17.80 American Express, IDS (17%) - 7/06 Saqqara Systems (15%) - 11/05 110 Summit Drive 378 11.31 Laser Technologies and Service (49%) - 10/06 Pall Trincor (30%) - 3/02 DGH Technology (12%) - 9/04 7360 Windsor Drive 409 21.97 Cenix, Inc. (100%) - 6/11 1100 Cassett Road 742 22.76 Unisource Worldwide, Inc. (100%) - 1/13 467 Creamery Way 371 15.26 Petroleum Heat & Power Co. (71%) - 2/07 American Color (29%) - 7/04 2535 Metropolitan Drive - 7.04 Larson - Juhl (100%) - 10/03 300 Welsh Road - Building I 668 20.09 Music Choice (45%) - 9/03 American Meter Company - (43%) - 7/04 7310 Tilghman Street 447 15.81 H. Wilden & Associates (21%) - 5/09 Rosemont College (17%) - 12/05 Avaya, Inc. (15%) - 7/03 PECO Communications (14%) - 12/03 The Donnelley Directory (10%) - 6/02 SKF USA, Inc. (10%) - 6/03 2510 Metropolitan Drive - 6.54 Philadelphia Choice Television (100%) - 6/03 2000 Cabot Boulevard 406 12.43 Ecogen, Inc. (37%) - 3/05 Rom - Tec, Inc. (28%) - 9/02 CSX Transportation (23%) - 5/04 AGIE Corporation (13%) - 1/04 150 Corporate Center Drive 521 17.93 Highmark, Incorporated (37%) - 12/03 The Prudential Insurance Company (27%) - 9/06 1336 Enterprise Drive 612 18.50 VWR Scientific Products (66%) - 12/02 600 Park Avenue 470 13.87 Quest Diagnostics, Inc. (100%) - 5/02 412 Creamery Way 273 20.82 Hewlett Packard Corporation (42%) - 8/11 Accountable Software (23%) - 3/05 755 Business Center Drive 548 22.36 Scirex Corporation (100%) - 12/08 18 Campus Boulevard 409 23.87 New England Life Insurance Co. (47%) - 10/06 Marshall Dennehey (21%) - 9/06 LR, Inc. (20%) - 8/03 </TABLE> -20-
<TABLE> <CAPTION> Net Percentage Rentable Leased as of Year Square December Property Name Location State Built Feet 31, 2001 (a) ------------- -------- ----- ----- ---- ------------ <S> <C> <C> <C> <C> <C> 2512 Metropolitan Drive (d) Trevose PA 1981 37,000 100.0% 457 Creamery Way Exton PA 1990 36,019 100.0% 100 Arrandale Boulevard Exton PA 1997 34,931 100.0% 3000 Cabot Boulevard Langhorne PA 1986 34,693 93.9% 7010 Snowdrift Road Allentown PA 1991 33,029 100.0% 300 Lindenwood Drive Allentown PA 1991 33,000 100.0% 2260 Butler Pike Plymouth Meeting PA 1984 31,892 100.0% 700 Business Center Drive Horsham PA 1986 30,773 49.9% 120 West Germantown Pike Plymouth Meeting PA 1984 30,546 17.6% 650 Dresher Road Horsham PA 1984 30,071 0.0% 655 Business Center Drive Horsham PA 1997 29,849 100.0% 2260/70 Cabot Boulevard Langhorne PA 1984 29,638 100.0% 468 Thomas Jones Way Exton PA 1990 28,934 100.0% 630 Dresher Road (e) Horsham PA 1987 28,894 47.6% 1700 Paoli Pike Malvern PA 2000 28,000 55.6% 1150 Berkshire Boulevard Reading PA 1979 26,781 100.0% 140 West Germantown Pike Plymouth Meeting PA 1984 25,357 100.0% 3333 Street Road-Greenwood Square Bensalem PA 1988 25,000 100.0% 800 Corporate Circle Drive Harrisburg PA 1979 24,779 90.1% 155 Rittenhouse Circle Bristol PA 1985 22,500 100.0% 2005 Cabot Boulevard Langhorne PA 1985 22,000 100.0% 2490 Boulevard of the Generals King Of Prussia PA 1975 20,600 100.0% 481 John Young Way Exton PA 1997 19,275 100.0% 100 Lindenwood Drive Malvern PA 1985 18,400 0.0% 500 Nationwide Drive Harrisburg PA 1977 18,027 100.0% 600 Corporate Circle Drive Harrisburg PA 1978 17,858 100.0% 300 Welsh Road - Building II Horsham PA 1980 17,750 100.0% 470 John Young Way Exton PA 1999 15,085 100.0% 748 Springdale Drive Exton PA 1986 13,950 100.0% 200 Lindenwood Drive Malvern PA 1984 12,600 100.0% 2404 Park Drive Harrisburg PA 1983 11,000 100.0% 111 Arrandale Road Exton PA 1996 10,479 100.0% </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Average Tenants Leasing 10% Total Base Rent Annualized or More of Rentable for the Twelve Rental Rate Square Footage per Months Ended as of Property as of December 31, December December 31, 2000 and Property Name 2001 (b) (000's) 31, 2001 (c) Lease Expiration Date ------------- ---------------- ------------ --------------------- <S> <C> <C> <C> 2512 Metropolitan Drive - 7.15 Bucks County Midweek, Inc. (40%) - 6/03 American Bank Note Company (30%) - 12/04 Philadelphia Newspapers, Inc. (17%) - 10/03 Stolarik Donohue Associates, Inc. (14%) - 3/02 457 Creamery Way 297 13.25 Fujitsu Network Communications (100%) - 5/04 100 Arrandale Boulevard 377 18.36 Dopaco, Inc. (100%) - 11/07 3000 Cabot Boulevard 641 19.32 Arcadis Geraghty & Miller (27%) - 4/03 Integrated Data Solutions (15%) - 9/04 Luigi Bormioli Corporation (15%) - 7/04 7010 Snowdrift Road 408 17.02 Neighbor Care (61%) - 11/02 Anderson BDG Corporation (39%) - 6/03 300 Lindenwood Drive 494 19.95 Siemens Medical Solutions (100%) - 12/03 2260 Butler Pike 595 20.92 Wilmington National Finance (36%) - 2/05 Ostroff, Fair & Company P.C. (34%) - 7/04 Thoroughbred Direct International (28%) - 5/04 700 Business Center Drive 328 22.29 Arrow Electronics (34%) - 8/01 KWS & P (16%) - 4/02 120 West Germantown Pike 369 24.05 Kleinert's, Inc. (13%) - 9/04 650 Dresher Road 315 - 655 Business Center Drive 433 21.43 Diccicco Battista Communications (60%) - 9/07 Paccar Financial Corporation (22%) - 9/02 Legg Mason Wood Walker (14%) - 5/04 2260/70 Cabot Boulevard 312 14.68 Sager Electrical Supply Co. (14%) - 10/02 Manufacturers Survey (13%) - 6/02 Terminix International (13%) - 11/02 Pronet Incorporated (10%) - 3/02 468 Thomas Jones Way 476 17.57 Sartomer Company, Inc. (82%) - 1/08 Main Line Affiliates (19%) - 8/05 630 Dresher Road 182 22.65 PRA International, Inc. (48%) - 5/16 1700 Paoli Pike 304 22.54 Akcelerant Space Partnership (56%) - 6/03 1150 Berkshire Boulevard 455 17.20 Berks Cardiology (24%) - 3/02 Ervin Levin, D.D.S. (12%) - 3/08 CMA Evaluations Consultants (10%) - 9/07 Jessee L. Pleet, Esq. (10%) - 6/05 140 West Germantown Pike 493 22.82 Healthcare, Inc. (47%) - 9/04 Career Concepts (29%) - 2/04 PA Liquor Control Board (18%) - 6/09 3333 Street Road-Greenwood Square 436 20.10 Nextell Communications (100%) - 7/02 800 Corporate Circle Drive 288 14.90 Sacunas & Saline, Inc. (27%) - 7/05 PA Insurance & Financial Services (17%) - 5/04 Leukemia Society of America (13%) - 9/02 The Harrisburg Symphony (11%) - 6/03 155 Rittenhouse Circle 269 12.03 Osiris Investment, LP (100%) - 2/02 2005 Cabot Boulevard 371 17.20 Ensr Corporation (54%) - 6/05 Ecom Xml, Inc. (46%) - 10/05 2490 Boulevard of the Generals 355 20.00 Commonwealth of Pennsylvania (100%) - 6/02 481 John Young Way 304 21.42 The Childrens Hospital of Philadelphia (100%) - 11/09 100 Lindenwood Drive - - 500 Nationwide Drive 219 15.78 Paychex, Inc. (51%) - 9/07 Amerihealth Mercy Health Plan (49%) - 6/06 600 Corporate Circle Drive 267 14.94 Clear Channel, Incorporated (100%) - 7/02 300 Welsh Road - Building II 336 19.51 AG Edwards & Sons (45%) - 12/03 Abington Memorial Hospital (37%) - 10/06 SRS Marketing Company (18%) - 9/05 470 John Young Way 227 23.59 Comprehensive Oncology Care (41%) - 2/10 Mid Atlantic Medical Services (21%) - 11/05 Commonwealth Capital Corporation (20%) - 6/06 Beneficial Mutual Savings Bank (17%) - 9/14 748 Springdale Drive 231 18.22 Great American Insurance (46%) - 1/05 Chester County District Court - (32%) - 1/04 Apothecom Associates (22%) - 4/06 200 Lindenwood Drive 190 20.92 Strategic Link Consulting, Inc. (100%) - 10/05 2404 Park Drive 164 15.14 Tracking Systems Corporation (65%) - 3/04 Albright College (35%) - 7/03 111 Arrandale Road 136 18.97 Medpartners Professional Management (100%) - 3/06 </TABLE> -21-
<TABLE> <CAPTION> Net Percentage Rentable Leased as of Year Square December Property Name Location State Built Feet 31, 2001 (a) ------------- -------- ----- ----- ---- ------------ <S> <C> <C> <C> <C> <C> 2401 Park Drive Harrisburg PA 1984 10,074 90.1% 200 Nationwide Drive Harrisburg PA 1978 2,500 100.0% George Kachel Farmhouse Reading PA 2000 1,664 100.0% 301 North Walnut Street Wilmington DE 1989 321,511 100.0% 201 North Walnut Street Wilmington DE 1988 311,286 100.0% 4550 New Linden Hill Road Wilmington DE 1974 105,067 93.3% One Righter Parkway (f) Talleyville DE 1989 104,828 100.0% Two Righter Parkway DE 1987 95,514 100.0% 100 Commerce Drive Newark DE 1989 63,378 17.7% 111/113 Pencader Drive Newark DE 1990 52,665 100.0% 258 Chapman Road Newark DE 1983 40,667 51.0% 256 Chapman Road Newark DE 1983 33,747 92.0% 262 Chapman Road Newark DE 1983 30,620 59.3% 260 Chapman Road Newark DE 1983 29,368 84.7% 263 Chapman Road Newark DE 1983 24,773 91.7% 261 Chapman Road Newark DE 1983 23,700 100.0% NEW JERSEY / NEW YORK SEGMENT 50 East State Street Trenton NJ 1989 305,884 89.6% Park 80 West Plaza II Saddlebrook NJ 1988 264,074 96.2% Park 80 West Plaza I Saddlebrook NJ 1970 223,666 93.7% 1009 Lenox Drive Lawrenceville NJ 1989 180,460 81.8% 10000 Midlantic Drive Mt. Laurel NJ 1990 178,605 100.0% 33 West State Street Trenton NJ 1988 167,774 100.0% Main Street - Plaza 1000 Voorhees NJ 1988 162,364 84.6% 55 U.S. Avenue Gibbsboro NJ 1982 138,982 100.0% 457 Haddonfield Road Cherry Hill NJ 1990 121,737 91.2% 2000 Midlantic Drive Mt. Laurel NJ 1989 121,658 100.0% 2000 Lenox Drive Lawrenceville NJ 2000 119,114 100.0% 700 East Gate Drive Mt. Laurel NJ 1984 118,899 91.7% 993 Lenox Drive Lawrenceville NJ 1985 111,137 98.1% 1000 Howard Boulevard Mt. Laurel NJ 1988 105,312 100.0% One South Union Place Cherry Hill NJ 1982 99,573 50.2% 997 Lenox Drive Lawrenceville NJ 1987 97,277 100.0% 1000 Atrium Way Mt. Laurel NJ 1989 97,158 97.2% 1120 Executive Boulevard Marlton NJ 1987 95,278 93.8% </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Average Tenants Leasing 10% Total Base Rent Annualized or More of Rentable for the Twelve Rental Rate Square Footage per Months Ended as of Property as of December 31, December December 31, 2000 and Property Name 2001 (b) (000's) 31, 2001 (c) Lease Expiration Date ------------- ---------------- ------------ --------------------- <S> <C> <C> <C> 2401 Park Drive 157 16.04 Med Media, Inc. (46%) - 8/03 Moore Business Forms, Inc. (44%) - 6/02 200 Nationwide Drive 60 24.00 Fulton Bank (100 %) - 8/03 George Kachel Farmhouse 33 20.03 Salient 3 Communications (100%) - 12/03 301 North Walnut Street 5,384 20.27 First USA Bank (93%) - 12/15 & 6/10 201 North Walnut Street 4,444 20.81 First USA Bank (88%) - 1/17 4550 New Linden Hill Road 1,603 16.96 American International Insurance (53%) - 6/05 One Righter Parkway 2,334 22.62 Kimberly Clark (89%) - 12/05 Zeneca, Inc. (11%) -12/05 Two Righter Parkway 1,828 14.68 Zeneca, Inc. (100%) -11/06 100 Commerce Drive 780 16.93 Citifinancial, Inc. (12%) - 12/04 111/113 Pencader Drive 467 13.32 Strategic Diagnostics, Inc. (54%) -12/07 Delmarva Power & Light Co. (33%) - 6/02 Laboratory Corporation of America (13%) - 7/02 258 Chapman Road 470 20.17 Mia Shoes, Inc. (23%) - 6/04 Phillips & Cohen Associates (14%) - 7/05 256 Chapman Road 523 16.85 Chesapeake Decision (27%) - 8/04 & 11/05 Delaware Department of Admin. Services (20%) - 10/04 Computeruser.Com, Inc. (17%) - 3/05 262 Chapman Road 380 21.82 On-Board Chemical (11%) - 3/02 260 Chapman Road 350 14.89 Cavalier Telephone, L.L.C. (10%) - 7/04 Health Insurance Associates (10%) - 7/05 & 7/06 263 Chapman Road 349 16.07 Delaware Department of Admin. Services (92%) - 7/06 & 9/06 261 Chapman Road 336 14.41 Delaware Department of Admin. Services (100%) - 10/02 & 5/02 NEW JERSEY / NEW YORK SEGMENT 50 East State Street 4,798 24.34 State of N.J. Dept. of Human Services (73%) - 9/09 Park 80 West Plaza II 6,033 26.16 Vornado Realty Trust (10%) - 4/02 Pilgrim Capital Corporation (10%) - 8/03 Park 80 West Plaza I 4,811 25.85 New York Life Insurance Co. (12%) - 10/04 1009 Lenox Drive 3,748 24.97 Uniform Code Council, Inc. (27%) - 11/08 10000 Midlantic Drive 2,926 22.17 QAD, Inc. (37%) - 8/06 Automotive Rentals (13%) - 8/02 33 West State Street 2,798 23.99 The State of New Jersey (96%) - 7/05 & 8/08 Main Street - Plaza 1000 3,209 22.12 Morgan Stanley Dean Witter (14%) - 9/04 Ballard, Spahr, Andrews & Ingersoll (11%) - 8/10 55 U.S. Avenue 921 6.63 Micro Warehouse, Inc. (100%) - 8/02 457 Haddonfield Road 2,284 22.57 Montgomery McCracken (12%) - 2/05 Cozen & O'Conner (12%) - 5/05 Pepper Hamilton (13%) - 9/06 Dilworth, Paxson (10%) - 5/04 2000 Midlantic Drive 1,727 19.22 Lockheed Martin Corporation (59%) - 5/02, 6/02, 10/04, 7/05 Computer Associates International (26%) - 12/02 Telesciences, Inc. (13%) - 4/08 2000 Lenox Drive 3,177 26.61 International Thomson Publishing (55%) - 9/10 Nelson Communications, Inc. (17%) - 7/10 Ken Clark International, Inc. (14%) - 9/10 700 East Gate Drive 1,873 20.65 Citicorp Vendor Finance (50%) - 3/05 McCormick Taylor & Associates (16%) - 12/11 HBO & Company (13%) - 1/05 993 Lenox Drive 2,370 23.05 Stark & Stark, Inc. (64%) - 8/04 Office Concierge, Inc. (18%) - 4/04 Navigant Consulting (12%) - 6/03 1000 Howard Boulevard 2,103 21.39 Conrail (45%) - 6/05 State of New Jersey (26%) - 12/03 Lincoln Technical Institute (25%) - 11/09 One South Union Place 1,021 14.39 Pinnacle Food Corporation (50%) - 5/11 997 Lenox Drive 1,977 22.54 Fox,Rothschild,O'Brien & Frankel (34%) - 6/03 Dechert Price & Rhoads (25%) - 11/03 Smith Barney, Inc. (13%) - 9/05 1000 Atrium Way 1,733 20.01 IBM (18%) - 3/06 International Truck & Engine (18%) - 12/04 Fleet Insurance Services (17%) - 2/04 Janney, Montgomery, Scott (14%) - 6/05 1120 Executive Boulevard 1,833 26.09 Computer Sciences Corporation (63%) - 5/02 Fleer Skybox International (19%) - 4/03 </TABLE> -22-
<TABLE> <CAPTION> Net Percentage Rentable Leased as of Year Square December Property Name Location State Built Feet 31, 2001 (a) ------------- -------- ----- ----- ---- ------------ <S> <C> <C> <C> <C> <C> 15000 Midlantic Drive Mt. Laurel NJ 1991 84,056 100.0% 220 Lake Drive East Cherry Hill NJ 1988 78,509 100.0% 1007 Laurel Oak Road Voorhees NJ 1996 78,205 100.0% 10 Lake Center Drive Marlton NJ 1989 76,359 67.2% 200 Lake Drive East Cherry Hill NJ 1989 76,352 93.2% Three Greentree Centre Marlton NJ 1984 69,300 100.0% King & Harvard Avenue Cherry Hill NJ 1974 67,444 100.0% 9000 Midlantic Drive Mt. Laurel NJ 1989 67,299 100.0% 6 East Clementon Road Gibbsboro NJ 1980 66,236 87.3% 104 Windsor Center Drive East Windsor NJ 1987 65,980 100.0% 701 East Gate Drive Mt. Laurel NJ 1986 61,794 96.1% 210 Lake Drive East Cherry Hill NJ 1986 60,604 89.4% 4000/5000 West Lincoln Drive Marlton NJ 1982 60,091 71.1% 308 Harper Drive Mt. Laurel NJ 1976 59,500 100.0% 305 Fellowship Drive Mt. Laurel NJ 1980 56,824 100.0% Two Greentree Centre Marlton NJ 1983 56,075 75.2% 309 Fellowship Drive Mt. Laurel NJ 1982 55,911 76.7% One Greentree Centre Marlton NJ 1982 55,838 100.0% 8000 Lincoln Drive Marlton NJ 1997 54,923 100.0% 307 Fellowship Drive Mt. Laurel NJ 1981 54,485 96.1% 303 Fellowship Drive Mt. Laurel NJ 1979 53,848 82.7% 2 Foster Avenue Gibbsboro NJ 1974 50,761 100.0% 4000 Midlantic Drive Mt. Laurel NJ 1998 46,945 100.0% Five Eves Drive Marlton NJ 1986 45,564 92.4% 161 Gaither Drive Mount Laurel NJ 1987 44,739 86.2% 9000 West Lincoln Drive Marlton NJ 1983 43,719 87.4% Main Street - Piazza Voorhees NJ 1990 41,408 100.0% 1000 East Lincoln Drive Marlton NJ 1981 40,600 100.0% 30 Lake Center Drive Marlton NJ 1986 40,287 95.0% 1000/2000 West Lincoln Drive Marlton NJ 1982 38,950 72.8% 20 East Clementon Road Gibbsboro NJ 1986 38,260 100.0% </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Average Tenants Leasing 10% Total Base Rent Annualized or More of Rentable for the Twelve Rental Rate Square Footage per Months Ended as of Property as of December 31, December December 31, 2000 and Property Name 2001 (b) (000's) 31, 2001 (c) Lease Expiration Date ------------- ---------------- ------------ --------------------- <S> <C> <C> <C> 15000 Midlantic Drive 1,279 21.72 New Jersey Bell Telephone (89%) - 7/06 Gallagher Bassett Services, Inc. (11%) - 11/02 220 Lake Drive East 1,221 21.55 A.C. Nielsen Company (20%) - 8/06 Sagemark Consulting, Inc. (19%) - 12/02 Kenney & Kearney LLP (15%) - 4/05 Insurance Company of North America (14%) - 12/02 Compas, Inc. (14%) - 1/06 Schnader Harrison Segal (10%) - 11/03 1007 Laurel Oak Road 621 7.94 R.F. Power Products, Inc. (100%) - 10/06 10 Lake Center Drive 854 22.61 Xerox Corporation (21%) - 11/05 Risk Management Alternatives (17%) - 12/04 & 9/04 200 Lake Drive East 1,107 21.55 Liberty Mutual Insurance Co. (13%) - 9/03 Three Greentree Centre 1,313 19.98 Parker McCay (49%) - 7/10 Surety Title Company (19%) - 12/03 National City Mortgage Company (12%) - 7/03 H&R Block Financial Advisors (12%) - 3/05 King & Harvard Avenue 1,305 20.24 U.S. Government - Social Security (33%) - 5/10 UFCW Local 56, AFL-CIO (25%) - 3/10 N.J. Department of Law and Public Safety (38%) - 10/09 9000 Midlantic Drive 875 21.52 Automotive Rentals (100%) - 8/02 6 East Clementon Road 968 17.30 Virtua Health, Inc. (37%) - 4/07 Malvern Marketing (18%) - 12/04 Equifax Credit Information Services (15%) - 12/02 104 Windsor Center Drive 1,129 19.05 I-STAT Corporation (57%) - 9/03 Evans East (22%) - 12/05 Green Tree Learning Centers, Inc. (21%) - 9/02 701 East Gate Drive 1,161 22.00 Lockheed Martin Corporation (56%) - 4/02 Compaq Computer (16%) - 6/05 American International Recovery, Inc. (11%) - 1/03 210 Lake Drive East 863 21.81 Royal Indemnity Company (30%) - 4/08 Media Investments I (30%) - 4/05 & 4/02 4000/5000 West Lincoln Drive 732 16.88 No Tenants Leasing 10% or More Square Feet 308 Harper Drive 1,214 21.82 Harleysville Insurance Company (70%) - 4/03 Cisco Systems (3%) - 7/03 305 Fellowship Drive 1,148 21.41 Industri-Matematik American Operations, Inc. (68%) - 1/05 Dun & Bradstreet, Inc. (15%) - 9/05 Two Greentree Centre 916 22.01 Merrill, Lynch, Pierce, Fenner (32%) - 11/05 & 11/08 SLM Financial Corporation (10%) - 12/04 South Jersey Radiology (10%) - 5/04 309 Fellowship Drive 853 20.98 HQ Mount Laurel, Inc. (34%) - 4/08 Dean Witter Reynolds (21%) - 12/09 Merchants Mutual Insurance (13%) - 6/04 One Greentree Centre 1,026 19.64 American Executive Services (30%) - 1/06 Temple University (18%) - 12/02 8000 Lincoln Drive 981 19.42 Computer Sciences Corporation (67%) - 11/04 Blue Cross Blue Shield (33%) - 5/07 307 Fellowship Drive 1,029 21.05 Impact RX (10%) - 4/04 303 Fellowship Drive 995 19.64 Larami / Hasbro (22%) - 6/02 Metro Commercial (15%) - 2/05 The Prudential Insurance Company (14%) - 5/04 Expanets of North America, LLC (11%) - 4/06 2 Foster Avenue 255 5.24 Harbor Laundry, Inc. (95%) - 8/03 4000 Midlantic Drive 890 19.00 Lockheed Martin Corporation (100%) - 4/05 Five Eves Drive 736 16.53 Virtua Health (36%) - 11/06 & 11/02 Samaritan Hospice (25%) - 2/04 Residential Healthcare, Inc. (18%) - 3/06 161 Gaither Drive 555 19.61 Geac Computer Systems, Inc. (51%) American Home Assurance Co. (20%) - 2/05 9000 West Lincoln Drive 581 16.16 Circuit City Stores, Inc. (13%) - 9/06 Main Street - Piazza 613 16.07 Cooper Hospital (36%) - 7/11 & 3/11 Lincoln Investments (20%) - 8/03 Chamber of Commerce (12%) - 8/06 1000 East Lincoln Drive 170 6.38 Burrups Packard (100%) - 2/06 30 Lake Center Drive 555 19.73 Paychex, Inc. (47%) - 4/06 Bank of America F.S.B. (25%) - 7/03 First Horizon Home Loan Corporation (14%) - 11/04 1000/2000 West Lincoln Drive 587 16.73 Occupational Training Center (15%) - 7/02 Kaytes - Cooperman (10%) - 3/03 20 East Clementon Road 693 19.73 Medquist / Asset Care (18%) - 4/03 R.Randle Scarborough, Inc. (16%) - 10/02 Serco, Inc. (16%) - 12/05 Feinberg and Associates (16%) - 1/05 The State of New Jersey (16%) - 10/07 </TABLE> -23-
<TABLE> <CAPTION> Net Percentage Rentable Leased as of Year Square December Property Name Location State Built Feet 31, 2001 (a) ------------- -------- ----- ----- ---- ------------ <S> <C> <C> <C> <C> <C> Two Eves Drive Marlton NJ 1987 37,532 96.5% 1255 Broad Street Bloomfield NJ 1981 37,478 100.0% 3000 West Lincoln Drive Marlton NJ 1982 36,070 85.4% 304 Harper Drive Mt. Laurel NJ 1975 32,978 93.1% Main Street - Promenade Voorhees NJ 1988 31,445 93.2% Four B Eves Drive Marlton NJ 1987 27,011 82.8% 815 East Gate Drive Mt. Laurel NJ 1986 25,500 66.7% 817 East Gate Drive Mt. Laurel NJ 1986 25,351 100.0% Four A Eves Drive Marlton NJ 1987 24,687 100.0% 1 Foster Avenue (e) Gibbsboro NJ 1972 24,255 100.0% 4 Foster Avenue Gibbsboro NJ 1974 23,372 100.0% 7 Foster Avenue Gibbsboro NJ 1983 22,158 28.7% 10 Foster Avenue Gibbsboro NJ 1983 18,651 100.0% 305 Harper Drive Mt. Laurel NJ 1979 14,980 100.0% 5 U.S. Avenue Gibbsboro NJ 1987 5,000 100.0% 50 East Clementon Road Gibbsboro NJ 1986 3,080 100.0% 5 Foster Avenue Gibbsboro NJ 1968 2,000 100.0% 55 Ames Court Plainview NY 1961 90,000 100.0% 245 Old Country Road Melville NY 1978 82,308 100.0% 125 Jericho Turnpike Jericho NY 1969 75,308 87.3% 91 North Industry Court Deer Park NY 1965 71,000 100.0% 263 Old Country Road Melville NY 1999 62,500 100.0% 200 Wireless Boulevard Hauppauge NY 1986 50,841 48.1% 336 South Service Road Melville NY 1965 43,600 100.0% 645 Stewart Avenue Garden City NY 1962 35,552 100.0% 80 Skyline Drive Plainview NY 1961 29,521 100.0% 131 Jericho Turnpike Jericho NY 1967 27,783 86.2% 120 Express Street Plainview NY 1962 27,729 100.0% 10 Skyline Drive Plainview NY 1960 22,562 70.9% 180 Central Ave. / 2 Engineers Ln. Farmingdale NY 1960 21,700 100.0% 111 Ames Court Plainview NY 1959 18,000 100.0% 11 Commercial Street Plainview NY 1961 17,548 100.0% 8 Engineers Lane Farmingdale NY 1963 15,000 0.0% 19 Engineers Lane Farmingdale NY 1962 10,000 100.0% VIRGINIA SEGMENT 600 East Main Street Richmond VA 1986 422,993 75.1% </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Average Tenants Leasing 10% Total Base Rent Annualized or More of Rentable for the Twelve Rental Rate Square Footage per Months Ended as of Property as of December 31, December December 31, 2000 and Property Name 2001 (b) (000's) 31, 2001 (c) Lease Expiration Date ------------- ---------------- ------------ --------------------- <S> <C> <C> <C> Two Eves Drive 572 17.96 Resolution Management Consultants (14%) - 6/05 Dynamic Imaging Systems, Inc. (17%) - 2/06 1255 Broad Street 569 20.20 Charles M. Cummins & Elliot Shack (76%) - 2/06 Menno Travel Services (14%) - 10/03 3000 West Lincoln Drive 523 16.03 Abo, Uris & Allenburger (20%) - 1/04 304 Harper Drive 561 18.89 Basic Commerce Industries, Inc. (14%) - 8/05 Computer Sciences Corporation (18%) - 11/06 Panzano & Partners (14%) - 12/04 Tab Products (10%) - 6/02 Main Street - Promenade 346 15.86 Marlton Risk Management, Inc. (19%) - 1/06 Morgenstern & Associates (14%) - 5/04 Pub Management, Inc. (13%) - 9/09 Four B Eves Drive 301 16.84 ISO Commercial Risk (67%) - 6/05 Broadwing/Eclipse Communications (16%) - 1/05 815 East Gate Drive 307 17.35 Advanced Communication Systems (67%) - 4/04 817 East Gate Drive 346 14.72 Landress Co. - Emtec (62%) - 3/04 Concentra (39%) - 9/04 Four A Eves Drive 349 16.40 Groundwater Technology (39%) - 5/04 Advanced Systems (33%) - 4/04 Anthony Scialabba, Esq. (18%) - 3/03 Inphoto Surveillance (10%) - 6/03 1 Foster Avenue 101 6.62 Goldin Sports Management (100%) - 2/02 4 Foster Avenue 184 9.09 Harbor Laundry, Inc. (62%) - 8/03 Medical Data Exchange, Inc. (38%) - 10/02 7 Foster Avenue 103 14.10 Choice Point Services (23%) - 4/06 10 Foster Avenue 292 16.95 Dolphin, Inc. (35%) - 5/04 Rottland Homes of New Jersey (29%) - 5/04 305 Harper Drive 114 8.68 The Jerome Group (100%) - 9/02 5 U.S. Avenue 18 3.60 Mcfadden Catering, Inc. (100%) - 12/03 50 East Clementon Road 121 39.17 Corestates Financial Corporation (100%) - 10/02 5 Foster Avenue - - Borough of Gibbsboro - Police Station (50%) - 11/02 55 Ames Court 1,214 15.01 Cardholder Management Services (100%) - 2/03 245 Old Country Road 610 7.45 Citicorp Custom Credit, Inc. (100%) - 1/06 125 Jericho Turnpike 1,178 19.46 Getty Petroleum Corporation (42%) - 1/02 Satty, Levine & Ciacco, CPA (11%) - 9/06 91 North Industry Court 346 6.87 Windowrama Warehousing, Inc. (100%) - 1/02 263 Old Country Road 723 11.67 Ademco Distributing, Inc. (100%) - 2/19 200 Wireless Boulevard 287 15.32 Hirsch International Corporation (48%) - 3/11 336 South Service Road 423 10.03 Nikon, Inc. (100%) - 4/11 645 Stewart Avenue 231 10.77 Hearst Business Communications (100%) - 12/03 80 Skyline Drive 247 13.09 Scientific Cell Company, Inc. (29%) - 8/10 Aviarms Support Corporation (27%) - 2/05 Gentiva Health Services (27%) - 2/03 Blaise Advertising, Inc. (10%) - 5/03 131 Jericho Turnpike 535 25.12 Katzman Weinstein Company (23%) - 11/04 120 Express Street 237 12.63 Tyz - All Plastics, Inc. (55%) - 11/08 Henderson & Bodwell (45%) - 9/02 10 Skyline Drive 180 9.73 Shore Pharmaceutical (39%) - 6/05 Tomra Metro, LLC (25%) - 4/05 180 Central Ave. / 2 Engineers Ln. 131 6.19 Yaleet, Inc. (100%) - 5/05 111 Ames Court 119 7.65 Centroid, Inc. (45%) - 4/05 Technic, Inc. (41%) - 5/06 International Bonded Courier (13%) - 11/01 11 Commercial Street 135 10.98 Shore Pharmeceutical Providers, Inc. (100%) - 6/05 8 Engineers Lane 7 0.00 No Tenants Leasing 10% or More Square Feet 19 Engineers Lane 71 7.20 First Commercial Asset Management (100%) - 1/03 VIRGINIA SEGMENT 600 East Main Street 5,804 19.67 GSA Department of Taxation (23%) - 11/04 Verizon (19%) - 11/03 </TABLE> -24-
<TABLE> <CAPTION> Net Percentage Rentable Leased as of Year Square December Property Name Location State Built Feet 31, 2001 (a) ------------- -------- ----- ----- ---- ------------ <S> <C> <C> <C> <C> <C> 300 Arboretum Place Richmond VA 1988 212,126 94.3% 2511 Brittons Hill Road Richmond VA 1987 132,103 100.0% 2100-2116 West Laburnam Avenue Richmond VA 1976 127,239 75.6% 1957 Westmoreland Street Richmond VA 1975 121,815 100.0% 2201-2245 Tomlynn Street Richmond VA 1989 85,860 96.9% 100 Gateway Centre Parkway Richmond VA 2001 74,585 100.0% 9011 Arboretum Parkway Richmond VA 1991 72,851 94.9% 4805 Lake Brooke Drive Glen Allen VA 1996 61,657 100.0% 9100 Arboretum Parkway Richmond VA 1988 57,481 77.9% 2812 Emerywood Parkway Henrico VA 1980 56,076 100.0% 2277 Dabney Road Richmond VA 1986 50,400 100.0% 9200 Arboretum Parkway Richmond VA 1988 49,542 90.1% 9210 Arboretum Parkway Richmond VA 1988 47,943 57.8% 2212-2224 Tomlynn Street Richmond VA 1985 45,353 100.0% 2221-2245 Dabney Road Richmond VA 1994 45,250 100.0% 2201 Dabney Road Richmond VA 1962 45,000 100.0% 2251 Dabney Road Richmond VA 1983 42,000 100.0% 2161-2179 Tomlynn Street Richmond VA 1985 41,550 100.0% 2256 Dabney Road Richmond VA 1982 33,600 100.0% 2246 Dabney Road Richmond VA 1987 33,170 100.0% 2244 Dabney Road Richmond VA 1993 33,050 100.0% 9211 Arboretum Parkway Richmond VA 1991 30,791 69.8% 2248 Dabney Road Richmond VA 1989 30,184 100.0% 2130-2146 Tomlynn Street Richmond VA 1988 29,700 100.0% 2120 Tomlyn Street Richmond VA 1986 23,850 100.0% 2240 Dabney Road Richmond VA 1984 15,389 100.0% 4364 South Alston Avenue Durham NC 1985 56,601 74.6% ------------ TOTAL ALL PROPERTIES / WEIGHTED AVG. $ 249,322 92.2% ============ </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Average Tenants Leasing 10% Total Base Rent Annualized or More of Rentable for the Twelve Rental Rate Square Footage per Months Ended as of Property as of December 31, December December 31, 2000 and Property Name 2001 (b) (000's) 31, 2001 (c) Lease Expiration Date ------------- ---------------- ------------ --------------------- <S> <C> <C> <C> 300 Arboretum Place 3,554 17.27 The Travelers (43%) - 3/06 & 1/04 Trailblazer Health Enterprises (19%) - 12/08 2511 Brittons Hill Road 569 5.43 Colortree, Inc. (56%) - 7/07 Circuit City Stores, Inc. (44%) - 6/02 2100-2116 West Laburnam Avenue 1,805 19.06 Commercial Union Insurance (10%) - 2/02 1957 Westmoreland Street 514 4.70 Capital One Bank (100%) - 2/06 2201-2245 Tomlynn Street 636 7.83 Information Integration (27%) - 11/06 Halifax Corporation (24%) - 1/04 Virtual Image Technology, Inc. (13%) - 4/06 Leonard Fishman & Son, Inc. (13%) - 4/04 Lucent Technologies (10%) - 7/04 100 Gateway Centre Parkway 117 18.75 Philip Morris, Inc. (100%) - 11/06 9011 Arboretum Parkway 1,229 17.70 Elliptus Software (30%) - 8/03 4805 Lake Brooke Drive 1,046 18.14 Kemper Insurance (51%) - 10/10 Dayton Hudson -Target (34%) - 2/03 J. Sargeant Reynolds (11%) - 9/01 9100 Arboretum Parkway 879 18.02 New York Life Insurance Co. (15%) - 3/04 Saunders, Cary & Patterson (11%) - 1/05 2812 Emerywood Parkway 552 11.30 Charter One (100%) - 1/02 2277 Dabney Road 241 6.09 West Home Health (50%) - 10/10 KAP, Inc. (33%) - 2/06 Goodall Rubber Company (17%) - 5/01 9200 Arboretum Parkway 542 13.17 Bell Industries, Inc. (52%) - 5/06 & 6/05 General Dynamics Govt. Systems Corp. (11%) - 11/03 Crown Castle USA, Inc. (10%) - 5/05 DR2DR.Com, Inc. (10%) - 3/03 9210 Arboretum Parkway 577 13.99 U.S. Marine Corps (17%) - 6/02 West End Orthopedic Clinic, Inc. (15%) - 7/04 Whiting Turner Contracting Co. (11%) - 12/05 2212-2224 Tomlynn Street 245 6.75 Imaging Solutions, Inc. (60%) - 4/06 Jonathon Ball (13%) - 4/03 Suitable For Framing (11%) - 10/11 2221-2245 Dabney Road 301 7.11 Ademco Distribution (31%) - 7/04 Hearth Services, Inc. (24%) - 6/02 Dal - Tile Corporation (16%) - 9/04 United Power Corporation (16%) - 4/02 DHL Airways (14%) - 8/03 2201 Dabney Road 167 6.11 Golf Acres (100%) 2/06 2251 Dabney Road 254 6.65 United Power Corporation (30%) - 4/02 Ultrabronz (30%) - 10/05 Cavalier Flooring Systems, Inc. (20%) - 4/03 Dominion Restoration (10%) - 7/05 Kinetics Group (10%) - 7/02 2161-2179 Tomlynn Street 252 6.22 United Power Corporation (40%) - 4/02 Kathleen's Bake Shop (29%) - 4/04 Dillard Paper Company (20%) - 11/01 KCI USA, Inc. (10%) - 6/02 2256 Dabney Road 186 6.41 Daycon Products (25%) - 5/04 Visual Aids (25%) - 5/04 Stanley Stephens Co. (23%) - 2/07 Accu-Tech Corporation (15%) - 3/04 Royal Cup, Inc. (13%) - 4/06 2246 Dabney Road 215 7.88 PPD Development, L.L.C. (80%) - 8/14 Canning Corporation (14%) - 3/02 2244 Dabney Road 275 9.15 PPD Development, L.L.C (100%) - 8/14 9211 Arboretum Parkway 431 13.78 Bell Industries (50 %) - 12/02 Jess Duboy Advertising (10%) - 2/02 KCI Technologies (10%) - 8/03 2248 Dabney Road 217 9.16 A&J Telephone Systems (21%) - 1/03 Office Masters, Inc. (20%) - 3/06 PPD Development, L.L.C (14%) - 8/04 2130-2146 Tomlynn Street 208 7.05 United Power Corporation (100%) - 4/02 2120 Tomlyn Street 147 6.57 United Power Corporation (42%) - 4/02 Unijax/Unisource (30%) - 11/02 Fred & Gladys Connaster (15%) - 6/03 West End Signs (14%) - 11/01 2240 Dabney Road 131 9.50 PDD Development, L.L.C. (100%) - 8/14 4364 South Alston Avenue 869 18.30 Cato Research (71%) - 7/01 --------- TOTAL ALL PROPERTIES / WEIGHTED AVG. $ 249,322 $ 17.69 ========= </TABLE> -25-
(a) Calculated by dividing net rentable square feet included in leases signed on or before December 31, 2001 at the property by the aggregate net rentable square feet of the Property. (b) "Total Base Rent" for the twelve months ended December 31, 2001 represents base rents received during such period, excluding tenant reimbursements, calculated in accordance with generally accepted accounting principles (GAAP) determined on a straight-line basis. Tenant reimbursements generally include payment of real estate taxes, operating expenses and common area maintenance and utility charges. (c) "Average Annualized Rental Rate" is calculated as follows: (i) for office leases written on a triple net basis, the sum of the annualized contracted base rental rates payable for all space leased as of December 31, 2001 (without giving effect to free rent or scheduled rent increases that would be taken into account under GAAP) plus the 2001 budgeted operating expenses excluding tenant electricity; and (ii) for office leases written on a full service basis, the annualized contracted base rent payable for all space leased as of December 31, 2001. In both cases the annualized rental rate is divided by the total square footage leased as of December 31, 2001 without giving effect to free rent or scheduled rent increases that would be taken into account under GAAP. (d) "Total Base Rent" reflected for these Properties is presented on a consolidated basis. (e) These Properties are under redevelopment and are excluded from the percentages for Weighted Average Percentage Leased and Average Annualized Rental Rate information. (f) This Property is subject to a ground lease. The following table shows certain information regarding rental rates and lease expirations for the Properties at December 31, 2001, assuming none of the tenants exercises renewal options or termination rights, if any, at or prior to scheduled expirations: <TABLE> <CAPTION> Final Percentage Rentable Final Annualized of Total Final Number of Square Annualized Base Rent Annualized Year of Leases Footage Base Rent Per Square Base Rent Lease Expiring Subject to Under Foot Under Under Expiration Within the Expiring Expiring Expiring Expiring Cumulative December 31, Year Leases Leases (a) Leases Leases Total ------------ ---- ------ ---------- ------ ------ ----- <S> <C> <C> <C> <C> <C> <C> 2002 363 2,599,302 35,743,432 13.75 13.0% 13.0% 2003 342 2,218,497 36,594,723 16.50 13.3% 26.2% 2004 339 2,454,201 44,682,304 18.21 16.2% 42.4% 2005 271 2,399,417 45,426,523 18.93 16.5% 58.9% 2006 199 2,025,447 32,262,654 15.93 11.7% 70.6% 2007 59 625,141 11,054,910 17.68 4.0% 74.6% 2008 33 508,820 11,006,652 21.63 4.0% 78.6% 2009 64 492,814 10,400,960 21.11 3.8% 82.3% 2010 38 664,105 16,863,966 25.39 6.1% 88.4% 2011 24 527,075 8,925,776 16.93 3.2% 91.7% 2012 and thereafter 87 1,452,327 22,982,629 15.82 8.3% 100.0% ----- ---------- ------------ ------ ----- 1,819 15,967,146 $275,944,529 $17.28 100.0% ===== ========== ============ ====== ===== </TABLE> (a) "Final Annualized Base Rent" for each lease scheduled to expire represents the cash rental rate of base rents, excluding tenant reimbursements, in the final month prior to expiration multiplied by 12. Tenant reimbursements generally include payment of real estate taxes, operating expenses and common area maintenance and utility charges. At December 31, 2001, the Properties were leased to 1,254 tenants that are engaged in a variety of businesses. The following table sets forth information regarding leases at the Properties with the 20 tenants with the largest amounts leased based upon Annualized Escalated Rent from the Properties as of December 31, 2001: -26-
<TABLE> <CAPTION> Percentage of Remaining Aggregate Percentage Annualized Aggregate Number Lease Square of Aggregate Escalated Annualized of Term in Feet Leased Rent Escalated Tenant Name (a) Leases Months Leased Square Feet (in 000) (b) Rent - --------------- ------ ------ ------ ----------- ------------ ---- <S> <C> <C> <C> <C> <C> First USA Bank 7 (c) 612,282 3.8% $ 13,814 4.3% State of New Jersey 6 (d) 441,442 2.7% 11,739 3.6% Verizon 5 (e) 257,468 1.6% 6,419 2.0% Penske Truck Leasing 1 228 289,580 1.8% 5,065 1.6% Lockheed Martin 7 (f) 311,722 1.9% 4,193 1.3% Hartford Life 4 (g) 182,481 1.1% 3,803 1.2% Omnicare Clinical Research 1 103 150,000 0.9% 3,713 1.1% Parsons Corporation 3 (h) 174,689 1.1% 3,478 1.1% General Electric 3 (i) 133,371 0.8% 3,241 1.0% Aventis Behring 5 (j) 134,564 0.8% 3,212 1.0% Computer Sciences Corporation 4 (k) 129,786 0.8% 3,103 1.0% Zeneca 3 (l) 125,352 0.8% 3,062 0.9% American Business Financial Services 1 19 92,200 0.6% 2,895 0.9% Travelers 4 (m) 149,249 0.9% 2,829 0.9% Highmark Corporation 4 (n) 135,298 0.8% 2,757 0.9% Keystone Health Plan Central 1 32 122,101 0.8% 2,591 0.8% Kimberly Clark Corporation (Scott 1 48 93,014 0.6% 2,301 0.7% Paper) Siemans Medical Solutions 5 (o) 84,306 0.5% 2,164 0.7% Dermik Laboratories 1 104 72,094 0.4% 2,163 0.7% Decision One 1 48 109,800 0.7% 2,149 0.7% -- -- --------- ---- -------- ---- Consolidated Total/Weighted Average 67 80 3,800,799 23.6% $ 84,691 26.1% == == ========= ==== ======== ==== </TABLE> (a) The identified tenant includes affiliates in certain circumstances. (b) Annualized Escalated Rent represents the monthly Escalated Rent for each lease in effect at December 31, 2001 multiplied by 12. Escalated Rent represents fixed base rental amounts plus pass-throughs of operating expenses, including electricity costs. The Company estimates operating expense pass-throughs based on historical amounts and comparable market data. (c) Consists of six leases: a lease representing 274,531 net rentable square feet that expires in January 2017, a lease representing 244,080 net rentable square feet that expires in December 2015, two leases representing 53,894 net rentable square feet that expire in June 2010, a lease representing 19,708 net rentable square feet that expires in April 2005, a lease representing 19,666 net rentable square feet that expires in June 2005 and a lease representing 403 net rentable square feet that expires in March 2005. (d) Consists of seven leases: a lease representing 24,457 net rentable square feet that expires in October 2009, a lease representing 222,987 net rentable square feet that expires in September 2009, a lease representing 117,428 net rentable square feet that expires in August 2008, a lease representing 6,320 net rentable square feet that expires in October 2007, a lease representing 43,201 square feet that expires in July 2005 and a lease representing 27,049 net rentable square feet that expires in December 2003. (e) Consists of five leases: a lease representing 74,728 net rentable square feet that expires in July 2006, a lease representing 17,179 net rentable square feet that expires in October 2004, a lease representing 85,561 net rentable square feet that expires in August 2004, a lease representing 80,000 net rentable square feet that expires in November 2003 and a rooftop lease that expired in February 2001. (f) Consists of seven leases: a lease representing 15,237 net rentable square feet that expires in July 2005, a lease representing 46,945 net rentable square feet that expires in April 2005, a lease representing 13,956 net rentable square feet that expires in October 2004, a lease representing 158,000 net rentable square feet that expires in September 2002, a lease representing 12,498 net rentable square feet that expires in June 2002, a lease representing 30,280 net rentable square feet that expires in May 2002 and a lease representing 34,806 net rentable square feet that expires in April 2002 . (g) Consists of four leases: three leases that represent 147,461 net rentable square feet that expire in December 2007 and a lease representing 35,020 net rentable square feet that expires in December 2004. (h) Consists of three leases: a lease representing 169,013 net rentable square feet that expires in March 2010 and two leases that represent 5,676 net rentable square feet that expire in March 2005. (i) Consists of three leases: a lease representing 39,269 net rentable square feet that expires in September 2006 and two leases representing 94,102 net rentable square feet that expire in September 2003. -27-
(j) Consists of five leases: two leases that represent 26,652 net rentable square feet that expire in January 2003 and three leases that represent 107,912 net rentable square feet that expire in October 2002. (k) Consists of four leases: a lease representing 5,915 net rentable square feet that expires in November 2006, a lease representing 27,138 that expires in February 2006, a lease representing 36,830 net rentable square feet that expires in November 2004 and a lease representing 59,903 net rentable square feet that expires in May 2002. (l) Consists of three leases: a lease representing 95,514 net rentable square feet that expires in November 2006, a lease representing 11,814 net rentable square feet that expires in December 2005 and a lease representing 18,024 net rentable square feet that expires in May 2002. (m) Consists of four leases: a lease representing 6,961 net rentable square feet that expires in March 2006, a lease representing 7,537 net rentable square feet that expires in December 2004, a lease representing 83,437 net rentable square feet that expires in January 2004 and a lease representing 51,314 net rentable square feet that expires in February 2002. (n) Consists of four leases: a lease representing 7,619 net rentable square feet that expires in December 2004, a lease representing 53,179 net rentable square feet that expires in August 2004, a lease representing 60,000 net rentable square feet that expires in March 2004 and a lease representing 14,500 net rentable square feet that expires in December 2003. (o) Consists of five leases: a lease representing 17,426 net rentable square feet that expires in June 2004, a lease representing 5,368 net rentable square feet that expires in April 2004, a lease representing 21,647 net rentable square feet that expires in March 2004, a lease representing 33,000 net rentable square feet that expires in December 2003 and a lease representing 6,865 net rentable square feet that expires in March 2002. Real Estate Ventures Through December 31, 2001, the Company had invested approximately $19.1 million in thirteen Real Estate Ventures (net of returns of investment received by the Company). The Company, through subsidiaries, formed these ventures with unaffiliated third parties to develop office properties or to acquire land in anticipation of possible development of office properties. Nine of the Real Estate Ventures own nine office buildings that contain an aggregate of approximately 1.0 million net rentable square feet; one Real Estate Venture is developing one office buildings that will contain, upon completion, an aggregate of approximately 345,000 net rentable square feet; one Real Estate Venture is developing a hotel property that will contain, upon completion, approximately 137 rooms; and two Real Estate Ventures hold approximately nine acres of land for future development. At December 31, 2001, the operating properties owned by the Real Estate Ventures were approximately 86% leased to 52 tenants. The Company's investment in Real Estate Ventures is as follows (in thousands): <TABLE> <CAPTION> Real Estate Company's Share Ownership Carrying Venture of Real Estate Percentage (1) Amount Debt at 100% Venture Income -------------- ------ ------------ -------------- <S> <C> <C> <C> <C> Two Tower Bridge Associates 35% $ 2,743 $ 7,810 $ 735 Four Tower Bridge Associates 65% 4,081 11,000 264 Five Tower Bridge Associates 15% - 23,068 - Six Tower Bridge Associates 65% 1,190 16,500 (25) Eight Tower Bridge Associates 6% 857 17,747 - Tower Bridge Inn Associates 50% 2,940 11,700 70 Christiana Center Operating Company I, LLC 50% 2,006 12,645 150 Christiana Center Operating Company II, LLC 50% 258 6,136 30 Christiana Center Operating Company III, LLC 50% 418 - - 1000 Chesterbrook Boulevard Partnership 50% 3,943 28,476 662 PJP Building Two, LC 30% 76 4,917 15 PJP Building Five, LC 25% 160 5,464 - Florig, LP 30% 395 - - Interstate 202, G.P. (2) 0% - - 823 Baita Tysons International Partners (2) 0% - - 44 -------- --------- -------- $ 19,067 $ 145,463 $ 2,768 ======== ========= ======== </TABLE> (1) Ownership percentage represents the Company's entitlement to residual distributions after payment by the applicable venture of priority returns. (2) The Company transferred its interests in these Real Estate Ventures during 2001. -28-
Item 3. Legal Proceedings The Company is involved from time to time in litigation on various matters, which include disputes with tenants and disputes arising out of agreements to purchase or sell properties. Given the nature of the Company's business activities, these lawsuits are considered routine to the conduct of its business. The result of any particular lawsuit cannot be predicted, because of the very nature of litigation, the litigation process and its adversarial nature, and the jury system. Reference is made to the litigation disclosed in Part II, Item 1 of the Company's Form 10-K for the year ended December 31, 2000. On July 9, 1999, the Superior Court of New Jersey, Camden County, dismissed the complaint against the Company with prejudice. The plaintiffs subsequently filed a motion for reconsideration, which motion the Superior Court denied. Plaintiffs then appealed to the Appellate Division, which is the intermediate appellate level court in New Jersey. In December 2000, the Appellate Division affirmed in part and reversed in part the Chancery Division's earlier dismissal of the entire action. The Appellate Division affirmed the dismissal of the fraud and other non-contractual counts in the Complaint, but reversed the contract and reformation counts and remanded these to the lower court for further proceedings. The Company sought review of this decision by the Supreme Court of New Jersey, but in March 2001, that Court declined to consider the appeal. The case has therefore returned to the Chancery Division, where it is now in the written discovery stage. 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 and several other 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 ("Owner") 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. During the course of the proceeding, the Owner petitioned the New Jersey Department of Environmental Protection ("NJDEP") to issue a directive to clean up the Subject Property to certain parties, including the Company, BRI OP and the dry cleaner, who were allegedly responsible for the environmental contamination under the New Jersey Spill Compensation and Control Act ("Spill Act"). NJDEP issued such a directive to those parties and the Owner in May 2001 (the "Directive") which requires all of the parties to the Directive to remediate the Subject Property. Failure to comply with a Spill Act directive would subject a noncomplying party to treble damages (i.e., triple the cost of the cleanup if performed by NJDEP or others ) and, potentially, penalties under the Spill Act. Following issuance of the Directive, the parties to whom the Directive was issued commenced settlement negotiations. The negotiations resulted in an agreement in principle between the Company, BRI OP and the Owner, which the parties are in the process of reducing to writing. Under the settlement, the Owner would perform and obtain NJDEP approval of the cleanup and release and indemnify (with limited exceptions) the Company and BRI OP from and against liability for matters relating to the contamination. The Company believes that the agreement reached with the Owner, upon finalization and implementation, will also satisfy its obligation to participate in the remediation pursuant to the Directive; however, the Company has not yet confirmed this with the NJDEP (although it intends to do so upon finalization of the settlement). The Company believes that, regardless of whether the Superior Court action is settled or the Company is relieved of further responsibility under the Directive, based on its assessment of the estimated cost of any required remediation, the availability of other parties that are potentially responsible for all or a portion of such cost, and defenses that may be available to the Company, that this matter will not have a material adverse effect on the Company's financial position or results of operations. -29-
Item 4. Submission of Matters to a Vote of Security Holders The Company did not submit any matters to a vote of security holders in the fourth quarter of the fiscal year ended December 31, 2001. PART II ------- Item 5. Market for Registrant's Common Equity and Related Shareholder Matters The Common Shares are traded on the New York Stock Exchange ("NYSE") under the symbol "BDN." On March 25, 2002, there were approximately 330 holders of record of the Common Shares. On March 25, 2002, the last reported sales price of the Common Shares on the NYSE was $23.45. The following table sets forth the quarterly high and low closing sales price per share reported on the NYSE for the indicated periods and the distributions paid by the Company with respect to each such period. <TABLE> <CAPTION> Share Price Share Price Distributions High Low Declared For Quarter ---- --- -------------------- <S> <C> <C> <C> First Quarter 2000 $17.13 $15.38 $0.40 Second Quarter 2000 $19.38 $16.81 $0.40 Third Quarter 2000 $21.63 $19.50 $0.41 Fourth Quarter 2000 $21.38 $18.38 $0.41 First Quarter 2001 $21.75 $18.56 $0.41 Second Quarter 2001 $22.44 $18.81 $0.41 Third Quarter 2001 $22.75 $18.81 $0.44 Fourth Quarter 2001 $21.63 $18.44 $0.44 </TABLE> Future distributions by the Company will be declared at the discretion of the Board of Trustees and will depend on the actual cash flow of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986 and such other factors as the Board of Trustees deems relevant. During 2001 and through the date of this Annual Report on Form 10-K, the Company did not issue any securities that were not registered under the Securities Act of 1933. -30-
Item 6. Selected Financial Data (in thousands, except per Common Share data and number of properties) <TABLE> <CAPTION> Year Ended December 31, 2001 2000 1999 1998 1997 ------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Operating Results Total revenue $ 310,825 $ 287,084 $ 283,220 $ 192,861 $ 61,060 Net income 33,722 52,158 34,606 33,025 15,001 Income allocated to Common Shares 21,816 40,252 29,816 32,323 14,502 Earnings per Common Share Basic $ 0.57 $ 1.12 $ 0.80 $ 0.90 $ 0.96 Diluted $ 0.57 $ 1.12 $ 0.80 $ 0.89 $ 0.95 Cash distributions declared per Common Share $ 1.70 $ 1.62 $ 1.57 $ 1.52 $ 1.44 Balance Sheet Data Real estate investments, net of accumulated depreciation $1,812,909 $1,674,341 $1,702,353 $1,840,618 $ 563,557 Total assets 1,960,203 1,821,103 1,825,276 1,909,100 621,481 Total indebtedness 1,009,165 866,202 839,634 1,000,560 163,964 Total liabilities 1,108,213 923,961 895,083 1,040,828 181,576 Minority interest 143,834 144,974 145,941 127,198 14,377 Beneficiaries' equity 708,156 752,168 784,252 741,074 425,528 Other Data Funds from operations (1) $ 120,695 $ 120,505 $ 110,042 $ 84,569 $ 30,035 Cash flows from: Operating activities 141,373 102,178 80,333 73,116 33,124 Investing activities (123,682) (32,372) 69,195 (903,193) (418,256) Financing activities (20,272) (59,458) (156,911) 813,710 396,295 Property Data Number of properties owned at year end 270 250 251 272 117 Net rentable square feet owned at year end 17,312 16,471 16,607 18,834 7,131 </TABLE> (1) 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(losses) on sales of land interests and extraordinary items and comparable adjustments for real estate ventures accounted for using the equity method. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements appearing elsewhere herein. The results of operations, liquidity and capital resources and cash flows of the Company include the historical results of operations of the Properties held by the Company during the years ended December 31, 2001, 2000 and 1999. This Annual Report on Form 10-K 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. See Item 1. Business - Risk Factors. OVERVIEW The Company currently manages its portfolio within three geographic 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 optimizing operating economies of scale. -31-
During 2001, the Company sold three office and eight industrial properties, containing 440,000 net rentable square feet, and four parcels of land, containing 15.8 acres, for $31.3 million. The Company also acquired two office properties, containing 146,000 net rentable square feet, and three parcels of land, containing 30.0 acres, for $31.5 million. In addition to these sales and acquisitions, the Company consumated an exchange of properties with Prentiss Properties Acquisition Partners, L.P. ("Prentiss") during the second quarter of 2001. The Company acquired from Prentiss 30 properties (29 office and one industrial) containing 1.6 million net rentable square feet and 6.9 acres of land for total consideration of $215.2 million. The Company conveyed to Prentiss four office properties located in Northern Virginia that contain an aggregate of 657,000 net rentable square feet, assumed $79.7 million of mortgage debt secured by certain of the Prentiss properties, issued a $7.8 million promissory note, paid $15.9 million at closing and agreed to make additional payments totaling $7.0 million (including $5.4 million of payments discounted at 7.5%) over a three year period subsequent to closing. The Company also contributed to Prentiss its interest in a real estate venture that owns two additional office properties that contain an aggregate of 452,000 net rentable square feet and received a combination of preferred and common units of limited partnership interest in Prentiss having a value, as of closing, of $10.7 million. In addition, as part of the Prentiss transaction, in June 2001, the Company purchased a 103,000 square foot building under construction and six acres of related developable land for $9.9 million. 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 and from investments in the Real Estate Ventures. The Company expects that revenue growth in the next two years will result primarily from rent increases in its current portfolio and the development or redevelopment of office properties. As of December 31, 2001, the Company had five buildings in development or redevelopment aggregating 580,000 square feet. CRITICAL ACCOUNTING POLICIES Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates and judgments including those related to bad debts, capitalization of costs, contingencies and litigation. Actual results may differ from those estimates. Our significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. Management believes the following critical accounting policies affect its more significant judgments and estimates used in preparation of it financial statements: Revenue Recognition - ------------------- Rental revenue is recognized on a straight-line basis over the lease term regardless of when payments are due. Certain lease agreements contain provisions that require tenants to reimburse a pro rata share of real estate taxes and certain common area maintenance costs. Real Estate Investments - ----------------------- Real estate investments are carried at cost. Depreciation is computed using the straight-line method over the useful lives of buildings and capital improvements (25 to 40 years) and over the shorter of the lease term or the life of the asset for tenant improvements. Direct construction costs related to the development of certain Properties and land holdings are capitalized as incurred. The Company expenses routine repair and maintenance expenditures. -32-
Real Estate Ventures - -------------------- The Company accounts for its non-controlling interests in Real Estate Ventures using the equity method. These investments, initially recorded at cost, are subsequently adjusted for the Company's net equity in the venture's income or loss and cash contributions and distributions. Valuation of Long-Lived Assets - ------------------------------ Management reviews investments in real estate and real estate ventures for impairment if facts and circumstances indicate that the carrying value of such assets may not be recoverable. Measurement of any impairment loss will be based on the fair value of the asset; determined using customary valuation techniques, such as the present value of expected future cash flows. Allowance for Doubtful Accounts - ------------------------------- The Company maintains an allowance for doubtful accounts that represents an estimate of losses that may be incurred from the inability of tenants to make required payments. The allowance is an estimate based on two calculations that are combined to determine the total amount reserved. First, the Company evaluates specific accounts where it has been determined that a tenant may have an inability to meet its financial obligations. In these situations, the Company uses its judgment, based on the facts and circumstances, and records a specific reserve for that tenant against amounts due to reduce the receivable to the amount that the Company expects to collect. These reserves are reevaluated and adjusted as additional information becomes available. Second, a reserve is established for all tenants based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If the financial condition of the Company's tenants were to deteriorate, additional allowances may be required. Marketable Securities - --------------------- The Company accounts for its investments in equity securities according to the provisions of Statement of Financial Accounting Standards No. 115 ("SFAS 115"), Accounting for Certain Investments in Debt and Equity Securities, which requires securities classified as "available-for-sale" to be stated at fair value. Adjustments to fair value of available-for-sale securities are recorded as a component of other comprehensive income in beneficiaries' equity. The Company records an investment impairment charge when an investment has experienced a decline in value that management believes to be other than temporary. Deferred Costs - -------------- The Company incurs direct costs related to the financing and leasing of the Properties. Management is required to use professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed. Capitalized financing fees are amortized over the related loan term and capitalized leasing costs are amortized over the related lease term. Accounting for Derivative Instruments and Hedging Activities - ------------------------------------------------------------ The Company measures every derivative instrument (including certain derivative instruments embedded in other contracts) at fair value and records them in the balance sheet as either an asset or liability. For derivatives designated as fair value hedges, the changes in fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of changes in the fair value of the derivative are reported in other comprehensive income. Changes in fair value of derivative instruments and ineffective portions of hedges are recognized in earnings in the current period. -33-
The Company formally assesses, both at inception of the hedge and on an on-going basis, whether each derivative is highly-effective in offsetting changes in fair values of cash flows of the hedged item. If it is determined that a derivative is not highly-effective as a hedge or if a derivative ceases to be a highly-effective hedge, the Company will discontinue hedge accounting prospectively. The Company manages its ratio of fixed-to-floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this mix in a cost-effective manner, the Company, from time to time, enters into interest rate swap agreements, in which it agrees to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts. As of December 31, 2001, the maximum length of time which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is through June 2004. There was no gain or loss reclassified from accumulated other comprehensive income into earnings during 2001 as a result of the discontinuance of a cash flow hedge due to the probability of the original forecasted transaction not occurring. Legal Contingencies - ------------------- The Company is involved from time to time in litigation on various matters, including disputes with tenants and disputes arising out of agreements to purchase or sell properties. Given the nature of the Company's business activities, these lawsuits are considered to be routine to the conduct of its business. The result of any particular lawsuit cannot be predicted, because of the very nature of litigation, the litigation process and its adversarial nature, and the jury system. RESULTS OF OPERATIONS In 2000, the Operating Partnership held 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. Effective January 1, 2001, the Company converted its non-voting equity interest in the Management Company to a voting interest. Accordingly, the Company owns 95% of the equity of and has voting control over the Management Company. Therefore, the 2001 financial results of the Management Company have been consolidated. For purposes of the Management's Discussion and Analysis of Financial Condition and Results of Operations, the 2000 and 1999 results of operations presented below have been restated to reflect this presentation. -34-
Comparison of the Year Ended December 31, 2001 to the Year Ended December 31, 2000 <TABLE> <CAPTION> Year Ended December 31, -------------------------- Dollar Percent 2001 2000 Change Change ---------- --------- ---------- ---- <S> <C> <C> <C> <C> Revenue: Rents $ 262,780 $ 245,460 $ 17,320 7.1% Tenant reimbursements 37,251 34,506 2,745 8.0% Other 10,794 11,554 (760) -6.6% Total revenue 310,825 291,520 19,305 6.6% Operating Expenses: Property operating expenses 80,543 71,365 9,178 12.9% Real estate taxes 27,767 26,200 1,567 6.0% Interest 66,385 64,783 1,602 2.5% Depreciation and amortization 78,189 67,646 10,543 15.6% Administrative expenses 15,178 14,194 984 6.9% Non-recurring charges 6,600 - 6,600 - ---------- --------- ---------- ---- Total operating expenses 274,662 244,188 30,474 12.5% Income before equity in income of real estate ventures, net gain on sales, minority interest and 36,163 47,332 (11,169) -23.6% extraordinary item Equity in income of real estate ventures 2,768 2,790 (22) -0.8% ---------- --------- ---------- ---- Income before net gain on sales, minority interest and extraordinary item 38,931 50,122 (11,191) -22.3% Net gain on sales of interest in real estate 4,524 11,638 (7,114) -61.1% Minority interest (8,622) (9,602) 980 10.2% ---------- --------- ---------- ---- Income before extraordinary item 34,833 52,158 (17,325) -33.2% Extraordinary item (1,111) - (1,111) - ---------- --------- ---------- ---- Net income $ 33,722 $ 52,158 $ (18,436) -35.3% ========== ========= ========== ==== </TABLE> The results of operations for the year ended December 31, 2001 and 2000 include the respective operations of the Properties. Of the 270 Properties owned by the Company as of December 31, 2001, a total of 224 Properties containing an aggregate of 14.8 million net rentable square feet ("Same Store Properties") were owned for the entire twelve-month periods ended December 31, 2001 and 2000. The following table set forth revenue and expense information as to these Same Store Properties for the twelve-month periods ended December 31, 2001 and 2000: Year Ended December 31, ----------------------- Dollar Percent 2001 2000 Change Change Revenue: Rents $ 221,258 $ 215,990 $ 5,268 2.4% Tenant reimbursements 32,751 30,689 2,062 6.7% Other 567 659 (92) -14.0% Total revenue 254,576 247,338 7,238 2.9% Operating Expenses: Property operating expenses 73,510 69,436 4,074 5.9% Real estate taxes 23,933 23,186 747 3.2% Total operating expenses 97,443 92,622 4,821 5.2% Property NOI $ 157,133 $ 154,716 $ 2,417 1.6% Revenue increased to $310.8 million for 2001 as compared to $291.5 million for 2000, primarily due to increased rental rates and additional properties in 2001, offset by decreased occupancy. The straight-line rent adjustment increased revenues by $6.2 million in 2001 and $6.4 million in 2000. Average occupancy decreased to 94.5% in 2001 as compared to 95.0% for 2000. Revenue for Same Store Properties increased to $254.6 million in 2001 from $247.3 million in 2000. This increase was the result of increased rental rates offset by a slight decrease in occupancy in 2001 as compared to 2000. Average occupancy for the Same Store Properties decreased to 95.1% in 2001 from 95.3% in 2000. Other income represents lease termination fees, leasing commissions, third-party management fees and interest income. Other income decreased to $10.8 million in 2001 from $11.6 million in 2000 primarily due to additional interest income earned in 2000 on deposits made to acquire properties. -35-
Property operating expenses increased to $80.5 million in 2001 as compared to $71.4 million in 2000, primarily due to increased utilities expense, increased provision for doubtful accounts and additional properties in 2001. Property operating expenses included a provision for doubtful accounts of $2.9 million in 2001 and $332,000 in 2000 to provide for increased credit risk related to certain tenants. Property operating expenses for the Same Store Properties increased to $73.5 million in 2001 as compared to $69.4 million in 2000 as a result of higher utility expenses, increased repairs and maintenance costs and increased property management charges. Real estate taxes increased to $27.8 million in 2001 as compared to $26.2 million in 2000, primarily due to increased real estate tax assessments in 2001 and additional properties in 2001. Real estate taxes for the Same Store Properties increased to $23.9 million in 2001 as compared to $23.2 million in 2000 as a result of higher tax rates and property assessments. Interest expense increased to $66.4 million in 2001 as compared to $64.8 million in 2000, primarily due to increased average borrowings resulting from the Prentiss transaction in 2001, partially offset by decreased interest rates. Average outstanding debt balances for 2001 were $949.5 million as compared to $871.3 million for 2000. The Company's weighted-average interest rate after giving effect to hedging activities on unsecured credit facilities decreased to 6.48% in 2001 from 7.84% in 2000 and on mortgage notes payable decreased to 7.39% in 2001 from 7.92% in 2000. Depreciation increased to $73.0 million in 2001 as compared to $64.6 million in 2000 primarily due to additional properties in 2001. Amortization, related to deferred leasing costs, increased to $5.2 million in 2001 as compared to $3.0 million in 2000, primarily due to increased leasing activity and additional properties in 2001. Administrative expenses increased to $15.2 million in 2001 as compared to $14.2 million in 2000, primarily due to amortization of deferred compensation costs related to additional restricted Common Shares awarded in 2001. During the fourth quarter of 2001, the Company recorded a $6.6 million non-recurring charge related to the change in employment status of the Company's Chairman to a non-executive, non-managerial status and the write-down of the Company's $2.5 million investment in a telecommunications company that was deemed to be other than temporary. The $4.1 million charge related to the Company's Chairman reflects an accrual on account of payment obligations of the Company under its employment agreement with the Chairman, accelerated vesting of his restricted shares and restructuring of his executive stock loan. Equity in income of Real Estate Ventures was $2.8 million in 2001 and 2000. The income attributable to two ventures sold in 2001 was offset by four ventures commencing operations in 2001. During 2001, the Company sold three office properties, eight industrial properties and four land parcels for $31.3 million, realizing a net gain of $4.5 million. During 2000, the Company sold seven office properties and two land parcels for $101.1 million, realizing a net gain of $11.6 million. Minority interest represents the equity in income attributable to the portion of the Operating Partnership not owned by the Company. Minority interest decreased to $8.6 million in 2001 as compared to $9.6 million in 2000, primarily due to the $6.6 million non-recurring charge in 2001. -36-
Comparison of the Year Ended December 31, 2000 to the Year Ended December 31, 1999 <TABLE> <CAPTION> Year Ended December 31, ------------------------- Dollar Percent 2000 1999 Change Change --------- --------- --------- ------- <S> <C> <C> <C> <C> Revenue: Rents $ 245,460 $ 240,979 $ 4,481 1.9% Tenant reimbursements 34,506 35,270 (764) -2.2% Other 11,554 10,544 1,010 9.6% Total revenue 291,520 286,793 4,727 1.6% --------- --------- --------- ---- Operating Expenses: Property operating expenses 71,365 71,277 88 0.1% Real estate taxes 26,200 25,497 703 2.8% Interest 64,783 69,838 (5,055) -7.2% Depreciation and amortization 67,646 69,929 (2,283) -3.3% Administrative expenses 14,194 11,744 2,450 20.9% Non-recurring charges - - - - --------- --------- --------- ---- Total operating expenses 244,188 248,285 (4,097) -1.7% Income before equity in income of real estate ventures, net gain on sales and minority interest 47,332 38,508 8,824 22.9% Equity in income of real estate ventures 2,790 979 1,811 185.0% --------- --------- --------- ---- Income before net gain on sales and minority 50,122 39,487 10,635 26.9% interest Net gain on sales of interest in real estate 11,638 3,115 8,523 273.6% Minority interest (9,602) (7,996) (1,606) -20.1% --------- --------- --------- ---- Net income $ 52,158 $ 34,606 $ 17,552 50.7% ========= ========= ========= ==== </TABLE> Revenue increased to $291.5 million for 2000 as compared to $286.8 million for 1999, primarily due to increased rental rates and occupancy, partially offset by property dispositions in 2000. The straight-line rent adjustment increased revenues by $6.4 million in 2000 and $8.1 million in 1999. Average occupancy increased to 95.0% in 2000 as compared to 93.6% for 1999. Property operating expenses increased to $71.4 million in 2000 as compared to $71.3 million in 1999, primarily due to the start-up of e-Tenants.com in 2000. e-Tenants is a web-based service owned by the Company that provides tenants with comprehensive business-to-business, business-to-consumer and on-line work order placement capabilities. Real estate taxes increased to $26.2 million in 2000 as compared to $25.5 million in 1999, primarily due to increased real estate tax assessments in 2000, partially offset by property dispositions in 2000. Interest expense decreased to $64.8 million in 2000 as compared to $69.8 million in 1999, primarily due to decreased average borrowings resulting from property dispositions in 2000, partially offset by increased interest rates. Average outstanding debt balances for 2000 were $871.3 million as compared to $927.3 million for 1999. The Company's weighted-average interest rate on unsecured credit facilities increased to 7.84% in 2000 from 6.95% in 1999 and on mortgage notes payable increased to 7.92% in 2000 from 7.1% in 1999. Depreciation decreased to $64.6 million in 2000 as compared to $67.1 million in 1999 primarily due to property dispositions in 2000. Amortization, related to deferred leasing costs, increased to $3.0 million in 2000 as compared to $2.8 million in 1999, primarily due to increased leasing activity. Administrative expenses increased to $14.2 million in 2000 as compared to $11.7 million in 1999, primarily due to amortization of deferred compensation costs related to additional restricted Common Shares awarded in 2000 and a compensation accrual for loans made to executives to purchase Common Shares which will be forgiven over a three year period. Equity in income of Real Estate Ventures increased to $2.8 million in 2000 as compared to $1.0 million in 1999, primarily due to an increase in the number of ventures commencing operations. -37-
During 2000, the Company sold seven office properties and two land parcels for $101.1 million, realizing a net gain of $11.6 million. During 1999, the Company sold seven office properties and 20 industrial facilities, realizing a net gain of $3.1 million. Minority interest represents the equity in income attributable to the portion of the Operating Partnership not owned by the Company. Minority interest increased to $9.6 million in 2000 as compared to $8.0 million in 1999, primarily due to the allocation of the net gain from sales of property in 2000. LIQUIDITY AND CAPITAL RESOURCES Cash Flows During 2001, the Company generated $141.4 million in cash flow from operating activities. Other sources of cash in-flows consisted of: (i) proceeds from $135.2 million of additional mortgage notes payable, (ii) $91.0 million of proceeds from draws on the Credit Facility, (iii) $31.3 million of net proceeds from property sales, (iv) $5.5 million of cash distributions from Real Estate Ventures and (v) $1.0 million from payments on employee loans. During 2001, cash out-flows consisted of: (i) $127.9 million of mortgage note repayments, (ii) $107.4 million to fund capital expenditures, (iii) $72.5 million of distributions to shareholders, (iv) $40.4 million for property acquisitions, (v) $35.0 million to repay borrowings under the Credit Facility, (vi) $9.2 million of leasing costs, (vii) $6.5 million to repurchase Common Shares and minority interest units in the Operating Partnership, (viii) $5.6 million of debt costs, (ix) $2.5 million of additional investment in Real Estate Ventures and (x) $1.0 million of escrowed cash. Capitalization At December 31, 2001, the Company maintained a $500.0 million Credit Facility. (See Item 1. Business-Credit Facility) As of December 31, 2001, the Company had approximately $1.0 billion of debt outstanding, consisting of $394.3 million of borrowings under the Credit Facility and $614.8 million of mortgage notes payable. The mortgage notes payable consists of $526.2 million of fixed rate loans and $88.6 million of variable rate loans. Additionally, the Company has entered into interest rate swap and cap agreements to fix the interest rate on $278.0 million of the Credit Facility and variable rate loans. The mortgage loans mature between February 2003 and July 2027. As of December 31, 2001, the Company also had $13.4 million of letters-of-credit outstanding under the Credit Facility and $92.3 million of unused availability under the Credit Facility. For the year ended December 31, 2001, the weighted-average interest rate under the Company's Credit Facility was 6.48%, and the weighted-average interest rate for borrowings under mortgage notes payable was 7.39%. The following table outlines the timing of payment requirements related to the Company's commitments as of December 31, 2001: <TABLE> <CAPTION> Maturities Due by Period (in thousands) --------------------------------------------------------------------------- Less than After Total 1 Year 2-3 Years 4-5 Years 5 Years ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> Mortgage notes payable: Fixed rate $ 526,185 $ 8,715 $ 199,377 $ 16,593 $ 301,500 Variable rate 26,458 159 336 361 25,602 Construction loans 62,197 - 62,197 - - ---------- ---------- ---------- ---------- ---------- 614,840 8,874 261,910 16,954 327,102 Revolving credit facility 394,325 - - 394,325 - Other liabilities 15,555 2,250 12,716 589 - ---------- ---------- ---------- ---------- ---------- $1,024,720 $ 11,124 $ 274,626 $ 411,868 $ 327,102 ========== ========== ========== ========== ========== </TABLE> -38-
The Company intends to refinance its mortgage notes payable as they become due repay them if they relate to properties being sold. The Company expects to renegotiate its Credit Facility or extend its term for an additional year. As of December 31, 2001, the Company's debt-to-market capitalization ratio was 50.4%. As a general policy, the Company intends, but is not obligated, to adhere to a policy of maintaining a long-term average debt-to-market capitalization ratio of no more than 50%. The Company's Board of Trustees approved a share repurchase program authorizing the Company to repurchase up to 4,000,000 of its outstanding Common Shares. During 2001, the Company repurchased 302,437 Common Shares (net of 71,276 Common Shares purchased and re-issued under the employee loan share program) for an aggregate of $5.9 million (an average price of $19.54 per share). The Company may purchase an additional 1.3 million Common Shares under this program. No time limit has been placed on the duration of the share repurchase program. Short- and Long-Term Liquidity The Company believes that cash flow from operations and current financing alternatives are adequate to fund its short-term liquidity requirements for 2002. Cash flow from operations is generated primarily from rental revenues, operating expense reimbursements from tenants, and provision of management services to third parties. The Company intends to use these funds to meet its principal short-term liquidity needs, which are to fund operating expenses, debt service requirements, recurring capital expenditures, tenant allowances, leasing commissions and the minimum distributions required to maintain the Company's REIT qualifications under the Internal Revenue Code. On December 12, 2001, the Board of Trustees declared a quarterly dividend distribution of $0.44 per share, paid on January 15, 2002 to shareholders of record as of December 31, 2001. Distributions declared in 2001 totaled $1.70 per share as compared to $1.62 per share in 2000, representing an increase of approximately 4.9%. The Company expects to meet its long-term liquidity requirements, such as for property acquisitions, development, investments in real estate ventures, scheduled debt maturities, major renovations, expansions and other significant capital improvements, through borrowings under its Credit Facility, long-term secured and unsecured indebtedness, the issuance of equity securities and the disposition of certain properties. 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(losses) on sales of land interests, 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 operating performance or to operating cash flows as a measure of liquidity. -39-
The following table summarizes FFO for the years ended December 31, 2001 and 2000 (in thousands, except share data): <TABLE> <CAPTION> 2001 2000 ------------ ------------ <S> <C> <C> Income before gains on sale, minority interest and extraordinary $ 38,931 $ 50,118 Add (deduct): Depreciation: Attributable to real property 73,031 64,041 Attributable to real estate ventures 3,479 2,513 Amortization attributable to leasing costs 5,158 2,971 Gain on sale of land interests 881 862 Gain included in equity in income of real estate ventures (785) - ------------ ------------ Funds from operations before minority interest $ 120,695 $ 120,505 ============ ============ Weighted-average Common Shares (including Common Share equivalents) and Operating Partnership units 47,297,574 47,449,673 ============ ============ </TABLE> Inflation A majority of the Company's leases provide for 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. Interest Rate Risk and Sensitivity Analysis The analysis below presents the sensitivity of the market value of the Company's financial instruments to selected changes in market rates. The range of changes chosen reflects the Company's view of changes which are reasonably possible over a one-year period. Market values are the present value of projected future cash flows based on the market rates chosen. The Company's financial instruments consist of both fixed and variable rate debt. As of December 31, 2001, the Company's consolidated debt consisted of $526.2 million in fixed rate mortgages and $88.6 million in variable rate mortgage notes, and $394.3 million borrowed under its Credit Facility. All financial instruments were entered into for other than trading purposes and the net market value of these financial instruments is referred to as the net financial position. Changes in interest rates have different impacts on the fixed and variable rate portions of the Company's debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position, but has no impact on interest incurred or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact the net financial instrument position. 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 December 31, 2001, the Company had three interest rate swap agreements for notional principal amounts aggregating $175 million. The swap agreements effectively fix the interest rate on $100 million of Credit Facility borrowings at 6.383%, $50 million at 6.080% and $25 million at 5.215% until September 2002. In October 2001, the Company entered into three additional interest rate swap agreements that effectively fix the interest rate on $100 million of Credit Facility borrowings at 4.230% and on $75 million at 4.215% from September 2002 to June 2004. The interest rate cap agreements effectively fix the interest rate on two variable rate mortgages. One rate cap fixes the interest rate on a mortgage with a notional value of $75 million at 6.25% until maturity in April 2002. The second interest rate cap fixes the interest rate on a mortgage with a notional value of $28 million at 8.7% until July 2004. The impact of the cap agreements is recorded as a component of interest expense. -40-
The sensitivity analysis related to the fixed portion of the Company's debt portfolio assumes an instantaneous 1% move in interest rates from their actual levels at December 31, 2001 with all other variables held constant. As of December 31, 2001, a 1% increase in actual interest rates would result in a decrease in beneficiaries' equity of $27.3 million and a 1% decrease in actual interest rates would result in an increase in beneficiaries' equity of $30.3 million. Based on the Company's variable rate debt as of December 31, 2001, a 1% increase in interest rates would result in an additional $2.1 million in interest expense per year and a 1% decrease would reduce interest expense by $2.1 million per year. Item 7A. Quantitative and Qualitative Disclosure About Market Risk See discussion in Management's Discussion and Analysis included in Item 7 herein. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary financial data are listed under Item 14(a) and filed as part of this Annual Report on Form 10-K. See Item 14. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III -------- Item 10. Trustees and Executive Officers of the Company Incorporated herein by reference to the Company's definitive proxy statement to be filed with respect to its Annual Meeting of Shareholders expected to be held on May 7, 2002. Item 11. Executive Compensation Incorporated herein by reference to the Company's definitive proxy statement to be filed with respect to its Annual Meeting of Shareholders expected to be held on May 7, 2002. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference to the Company's definitive proxy statement to be filed with respect to its Annual Meeting of Shareholders expected to be held on May 7, 2002. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference to the Company's definitive proxy statement to be filed with respect to its Annual Meeting of Shareholders expected to be held on May 7, 2002. -41-
PART IV ------- Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K (a) 1. and 2. Financial Statements and Schedules The financial statements and schedules listed below are filed as part of this annual report on the pages indicated. Index to Financial Statements and Schedules ------------------------------------------- <TABLE> <CAPTION> Page ---- <S> <C> Report of Independent Public Accountants ........................................................ F-1 Consolidated Balance Sheets as of December 31, 2001 and December 31, 2000 ....................... F-2 Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999 ................................................................................... F-3 Consolidated Statements of Beneficiaries' Equity for the Years Ended December 31, 2001, 2000 and 1999 ................................................................................... F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 ................................................................................... F-5 Notes to Consolidated Financial Statements ...................................................... F-6 Schedule II - Valuation and Qualifying Accounts ................................................. F-21 Schedule III - Real Estate and Accumulated Depreciation ......................................... F-22 </TABLE> 3. Exhibits <TABLE> <CAPTION> Exhibits No. Description - ------------ ----------- <S> <C> (1) 3.1.1 Amended and Restated Declaration of Trust of the Company (amended and restated as of May 12, 1997). (2) 3.1.2 Articles of Amendment to Declaration of Trust of the Company (September 4, 1997). (3) 3.1.3 Articles of Amendment to Declaration of Trust of the Company (No. 2). (4) 3.1.4 Articles Supplementary to Declaration of Trust of the Company (September 28, 1998). (5) 3.1.5 Articles of Amendment to Declaration of Trust of the Company (March 19, 1999) 3.2 Amended and Restated Bylaws of the Company. (6) 10.01 Second Amended and Restated Partnership Agreement of Brandywine Realty Services Partnership. (7) 10.02 Form of Warrant issued to Executive Officers. ** (7) 10.03 Articles of Incorporation of Brandywine Realty Services Corporation, as amended. (8) 10.04 Amended and Restated Agreement of Limited Partnership of Brandywine Operating Partnership, L.P. (the "Operating Partnership"). (8) 10.05 Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of the Operating Partnership. (8) 10.06 First Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (8) 10.07 Tax Indemnification Agreement - PWCC (8) 10.08 Tax Indemnification Agreement - Laurel Oak </TABLE> -42-
<TABLE> <CAPTION> Exhibits No. Description - ------------ ----------- <S> <C> (8) 10.09 Tax Indemnification Agreement - English Creek (9) 10.10 Second Amendment, dated March 31, 1998, to the Amended and Restated Agreement of Limited Partnership Agreement of Brandywine Operating Partnership, L.P. (9) 10.11 Tax Indemnification Agreement, dated March 31, 1998, by and between Brandywine Operating Partnership, L.P. and Brookstone Investors, L.L.C. (9) 10.12 Tax Indemnification Agreement, dated March 31, 1998, by and between Brandywine Operating Partnership, L.P. and Brookstone Holdings of Del. -4, L.L.C. (9) 10.13 Tax Indemnification Agreement, dated March 31, 1998, by and between Brandywine Operating Partnership, L.P. and Brookstone Holdings of Del. -5, L.L.C. (9) 10.14 Tax Indemnification Agreement, dated March 31, 1998, by and between Brandywine Operating Partnership, L.P. and Brookstone Holdings of Del. -6, L.L.C. (10) 10.15 Contribution Agreement, dated April 7, 1998, by and between the entities listed on Schedule thereto and Brandywine Operating Partnership, L.P. (10) 10.16 First Amendment to Contribution Agreement dated May 8, 1998. (10) 10.17 Third Amendment, dated May 8, 1998, to the Amended and Restated Agreement of Limited Partnership of Brandywine Operating Partnership, L. P. (10) 10.18 Tax Indemnification Agreement dated May 8, 1998, by and between Brandywine Operating Partnership, L.P. and the parties identified on the signature page. (11) 10.19 Contribution Agreement dated as of July 10, 1998 (Axinn) (11) 10.20 Form of Donald E. Axinn Options ** (11) 10.21 Form of Mark Hamer Options ** (4) 10.22 Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership creating the Series A Preferred Mirror Units. (4) 10.23 Fifth Amendment to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership creating the Series B Preferred Units. (4) 10.24 Sixth Amendment to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (4) 10.25 First Amendment to Contribution Agreement (Axinn) (12) 10.26 Form of Board of Trustees Designation Letter (Lazard) (13) 10.27 Amended and Restated Employment Agreement dated as of December 8, 2000 of Anthony A. Nichols, Sr.** 10.28 Agreement dated as of December 31, 2001 with Anthony A. Nichols, Sr. replacing December 8, 2000 Employment Agreement** (13) 10.29 Amended and Restated Employment Agreement dated as of December 8, 2000 of Gerard H. Sweeney** (5) 10.30 Amended and Restated Non-Qualified Stock Option Award to Anthony A. Nichols, Sr. ** (5) 10.31 Amended and Restated Non-Qualified Stock Option Award to Gerard H. Sweeney ** (14) 10.32 Restricted Share Awards to Anthony A. Nichols, Sr. ** (14) 10.33 Restricted Share Awards to Gerard H. Sweeney ** (5) 10.34 Long-Term Performance Award for Anthony A. Nichols, Sr. ** (5) 10.35 Long-Term Performance Award for Gerard H. Sweeney** (5) 10.36 Long-Term Performance Award for Anthony S. Rimikis ** 10.37 Separation Agreement (Jeffrey F. Rogatz) (5) 10.38 Severance Agreement (Anthony S. Rimikis) ** (5) 10.39 Third Amendment to Restricted Share Award to Anthony A. Nichols, Sr.** (5) 10.40 Third Amendment to Restricted Share Award to Gerard H. Sweeney.** (5) 10.41 Restricted Share Award to Anthony S. Rimikis.** (5) 10.42 Loan Agreement with Gerard H. Sweeney.** (5) 10.43 Loan Agreement with Anthony A. Nichols, Sr.** (13) 10.44 Fourth Amendment to Restricted Share Award to Anthony A. Nichols, Sr.** (13) 10.45 Fourth Amendment to Restricted Share Award to Gerard H. Sweeney** (13) 10.46 Severance Agreement (Barbara L. Yamarick)** </TABLE> -43-
<TABLE> <CAPTION> Exhibits No. Description - ------------ ----------- <S> <C> (13) 10.47 Severance Agreement (Anthony A. Nichols, Jr.)** (13) 10.48 Severance Agreement (H. Jeffrey De Vuono)** (13) 10.49 Severance Agreement (George Sowa)** (13) 10.50 Severance Agreement (Bradley W. Harris)** (13) 10.51 Restricted Share Award to Anthony A. Nichols, Sr.** (13) 10.52 Restricted Share Award to Gerard H. Sweeney** (13) 10.53 Restricted Share Award to Anthony S. Rimikis** (13) 10.54 Restricted Share Award to Barbara L. Yamarick (13) 10.55 Restricted Share Award to Anthony A. Nichols, Jr.** (13) 10.56 Restricted Share Award to H. Jeffrey De Vuono** (13) 10.57 Restricted Share Award to George Sowa** (13) 10.58 Restricted Share Award to Bradley W. Harris** (15) 10.59 Exchange Agreement (Virginia properties) - Prentiss Transaction (15) 10.60 Exchange Agreement (Pennsylvania/New Jersey properties) - Prentiss Transaction (15) 10.61 Agreement of Purchase and Sale (Fee Transfer properties) - Prentiss Transaction (15) 10.62 Agreement of Purchase and Sale (Entity Transfer properties) - Prentiss Transaction (15) 10.63 Contribution Agreement (Joint Venture Interest) - Prentiss Transaction (15) 10.64 Agreement of Purchase and Sale (935) First Avenue) - Prentiss Transaction (16) 10.65 Fourteenth Amendment to Second Amended and Restated Agreement of Limited Partnership of Prentiss - Prentiss Transaction (17) 10.66 Third Amended and Restated Credit Agreement 21.1 List of Subsidiaries of the Company 23.1 Consent of Arthur Andersen LLP 99.1 Company Letter to Securities and Exchange Commission regarding Arthur Andersen LLP </TABLE> 1. Previously filed as an exhibit to the Company's Form 8-K dated June 9, 1997 and incorporated herein by reference. 2. Previously filed as an exhibit to the Company's Form 8-K dated September 10, 1997 and incorporated herein by reference. 3. Previously filed as an exhibit to the Company's Form 8-K dated June 3, 1998 and incorporated herein by reference. 4. Previously filed as an exhibit to the Company's Form 8-K dated October 13, 1998 and incorporated herein by reference. 5. Previously filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference. 6. Previously filed as an exhibit to the Company's Registration statement of Form S-11 (File No. 33-4175) and incorporated herein by reference. 7. Previously filed as an exhibit to the Company's Form 8-K dated August 22, 1996 and incorporated herein by reference. 8. Previously filed as an exhibit to the Company's Form 8-K dated December 17, 1997 and incorporated herein by reference. 9. Previously filed as an exhibit to the Company's Form 8-K dated April 13, 1998 and incorporated herein by reference. 10. Previously filed as an exhibit to the Company's Form 8-K dated May 14, 1998 and incorporated herein by reference. -44-
11. Previously filed as an exhibit to the Company's Form 8-K dated July 30, 1998 and incorporated herein by reference. 12. Previously filed as an exhibit to the Company's Form 8-K dated August 13, 1998 and incorporated herein by reference. 13. Previously filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference. 14. Previously filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference. 15. Previously filed as an exhibit to the Company's Form 8-K dated March 23, 2001 and incorporated herein by reference. 16. Previously filed as an exhibit to the Company's Form 8-K dated April 23, 2001 and incorporated herein by reference. 17. Previously filed as an exhibit to the Company's Form 8-K dated July 12, 2001 and incorporated herein by reference. ** Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K During the fourth quarter of the year ended December 31, 2001, the Company did not file any reports on Form 8-K. -45-
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRANDYWINE REALTY TRUST By: /s/ Gerard H. Sweeney ------------------------------------- Gerard H. Sweeney President and Chief Executive Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. <TABLE> <CAPTION> Signature Title Date --------- ----- ---- <S> <C> <C> /s/ Anthony A. Nichols, Sr. Chairman of the Board and Trustee March 28, 2002 - --------------------------- Anthony A. Nichols, Sr. /s/ Gerard H. Sweeney President, Chief Executive Officer and Trustee March 28, 2002 - --------------------- (Principal Executive Officer) Gerard H. Sweeney /s/ Bradley W. Harris Vice President and Chief Accounting Officer March 28, 2002 - --------------------- (Principal Accounting Officer) Bradley W. Harris /s/ Warren V. Musser Trustee March 28, 2002 - --------------------- Warren V. Musser /s/ Walter D'Alessio Trustee March 28, 2002 - --------------------- Walter D'Alessio /s/ Charles P. Pizzi Trustee March 28, 2002 - --------------------- Charles P. Pizzi /s/ Donald E. Axinn Trustee March 28, 2002 - --------------------- Donald E. Axinn /s/ Robert C. Larson Trustee March 28, 2002 - --------------------- Robert C. Larson - --------------------- /s/ D. Pike Aloian Trustee March 28, 2002 D. Pike Aloian </TABLE> -46-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Brandywine Realty Trust: We have audited the consolidated balance sheets of Brandywine Realty Trust (a Maryland real estate investment trust) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, beneficiaries' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brandywine Realty Trust and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedules listed in the index to financial statements and schedules in Item 14 are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania February 27, 2002 F - 1
BRANDYWINE REALTY TRUST CONSOLIDATED BALANCE SHEETS (in thousands, except number of shares) <TABLE> <CAPTION> December 31, ----------------------------- 2001 2000 ----------- ----------- <S> <C> <C> ASSETS Real estate investments: Operating properties $ 1,893,039 $ 1,754,895 Accumulated depreciation (230,793) (179,558) ----------- ----------- 1,662,246 1,575,337 Construction-in-progress 111,378 54,311 Land held for development 39,285 44,693 ----------- ----------- 1,812,909 1,674,341 Cash and cash equivalents 13,459 16,040 Escrowed cash 16,311 14,788 Accounts receivable, net 6,394 7,322 Accrued rent receivable, net 25,222 21,221 Marketable securities 10,735 769 Investment in management company, at equity - 392 Investment in real estate ventures, at equity 19,067 33,566 Deferred costs, net 24,261 19,828 Other assets 31,845 32,836 ----------- ----------- Total assets $ 1,960,203 $ 1,821,103 =========== =========== LIABILITIES AND BENEFICIARIES' EQUITY Mortgage notes payable $ 614,840 $ 527,877 Borrowings under Credit Facility 394,325 338,325 Accounts payable and accrued expenses 39,678 20,099 Distributions payable 21,525 20,428 Tenant security deposits and deferred rents 22,290 17,232 Other liabilities 15,555 - ----------- ----------- Total liabilities 1,108,213 923,961 Minority interest 143,834 144,974 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 2001 and 2000 8 8 8.75% Series B Preferred Shares, $0.01 par value; issued and outstanding- 4,375,000 in 2001 and 2000 44 44 Common Shares of beneficial interest, $0.01 par value; shares authorized-100,000,000; issued and outstanding- 35,640,935 in 2001 and 35,681,314 in 2000 356 357 Additional paid-in capital 848,213 847,538 Share warrants 401 908 Cumulative earnings 163,502 131,256 Accumulated other comprehensive loss (4,587) (1,731) Cumulative distributions (299,781) (226,212) ----------- ----------- Total beneficiaries' equity 708,156 752,168 ----------- ----------- Total liabilities and beneficiaries' equity $ 1,960,203 $ 1,821,103 =========== =========== </TABLE> The accompanying notes are an integral part of these consolidated financial statements. F - 2
BRANDYWINE REALTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share information) <TABLE> <CAPTION> Year ended December 31, ----------------------------------------- 2001 2000 1999 --------- --------- --------- <S> <C> <C> <C> Revenue: Rents $ 262,780 $ 245,460 $ 240,979 Tenant reimbursements 37,251 34,506 35,270 Other 10,794 7,118 6,971 --------- --------- --------- Total revenue 310,825 287,084 283,220 Operating Expenses: Property operating expenses 80,543 65,597 64,586 Real estate taxes 27,767 26,200 25,497 Interest 66,385 64,746 69,800 Depreciation and amortization 78,189 67,012 69,313 Management fees - 12,123 11,998 Administrative expenses 15,178 4,249 3,598 Non-recurring charges 6,600 - - --------- --------- --------- Total operating expenses 274,662 239,927 244,792 --------- --------- --------- Income before equity in income of management company, equity in income of real estate ventures, net gains on sales, minority interest and extraordinary items 36,163 47,157 38,428 Equity in income of management company - 164 80 Equity in income of real estate ventures 2,768 2,797 979 --------- --------- --------- Income before net gains on sales, minority interest and extraordinary items 38,931 50,118 39,487 Net gains on sales of interests in real estate 4,524 11,638 3,115 --------- --------- --------- Income before minority interest and extraordinary items 43,455 61,756 42,602 Minority interest (8,622) (9,598) (7,996) --------- --------- --------- Income before extraordinary items 34,833 52,158 34,606 Extraordinary items (1,111) - - --------- --------- --------- Net income 33,722 52,158 34,606 Income allocated to Preferred Shares (11,906) (11,906) (4,790) --------- --------- --------- Income allocated to Common Shares $ 21,816 $ 40,252 $ 29,816 ========= ========= ========= Earnings per Common Share before extraordinary item: Basic $ 0.60 $ 1.12 $ 0.80 ========= ========= ========= Diluted $ 0.60 $ 1.12 $ 0.80 ========= ========= ========= Earnings per Common Share after extraordinary item: Basic $ 0.57 $ 1.12 $ 0.80 ========= ========= ========= Diluted $ 0.57 $ 1.12 $ 0.80 ========= ========= ========= </TABLE> The accompanying notes are an integral part of these consolidated financial statements. F - 3
BRANDYWINE REALTY TRUST CONSOLIDATED STATEMENTS OF BENEFICIARIES' EQUITY For the years ended December 31, 2001, 2000 and 1999 (in thousands, except number of shares) <TABLE> <CAPTION> Par Value Par Value Number of of Number of of Number of Par Value of Additional Preferred Preferred A Preferred Preferred B Common Common Paid-in A Shares Shares B Shares Shares Shares Shares Capital --------- -------- ---------------- ---------- -------------- ------- ------------- <S> <C> <C> <C> <C> <C> <C> <C> BALANCE, January 1, 1999 750,000 $ 8 - $ - 37,573,381 $ 376 $ 789,381 Net income Vesting of Restricted Stock 19,083 1 1,894 Issuance of Preferred Shares 4,375,000 44 94,797 Repurchase of Common Shares (1,344,295) (14) (24,242) Employee stock loans used to purchase Common Shares 124,421 1 2,078 Payment/forgiveness of employee stock loans Expiration of Common Share warrants 54 Preferred Share distributions Distributions ($1.57 per share) --------- -------- ---------------- ---------- -------------- ------- ------------- BALANCE, December 31, 1999 750,000 8 4,375,000 44 36,372,590 364 863,962 Net income Unrealized loss on available-for-sale securities Comprehensive income Vesting of Restricted Stock 106,453 2,897 Repurchase of Common Shares (957,729) (9) (15,268) Employee stock loans used to purchase Common Shares 160,000 2 2,498 Payment/forgiveness of employee stock loans Accretion of Preferred Share discount 286 Preferred Share distributions Distributions ($1.62 per share) --------- -------- ---------------- ---------- -------------- ------- ------------- BALANCE, December 31, 2000 750,000 $ 8 4,375,000 $ 44 35,681,314 $ 357 $ 854,375 Net income Cumulative effect of adopting SFAS 133 Unrealized loss on derivative financial instruments Unrealized gain on available-for-sale securities Comprehensive income Vesting of Restricted Stock 175,411 2 3,983 Repurchase of Common Shares (373,713) (4) (7,290) Employee stock loans used to purchase Common Shares 71,276 1 1,385 Payment/forgiveness of employee stock loans Accretion of Preferred Share discount 1,476 Exercise of warrants/options 86,647 (17) Preferred Share distributions Distributions ($1.70 per share) --------- -------- ---------------- ---------- -------------- ------- ------------- BALANCE, December 31, 2001 750,000 $ 8 4,375,000 $ 44 35,640,935 $ 356 $ 853,912 ========= ======== ================ ========== ============== ======= ============= </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Accumulated Employee Share Cumulative Comprehensive Cumulative Stock Loans Warrants Earnings Income Distributions Total ------------ ------- ------------- ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> <C> BALANCE, January 1, 1999 $ (2,580) $ 962 $ 44,778 $ - $ (91,851) $ 741,074 Net income 34,606 34,606 Vesting of Restricted Stock 1,895 Issuance of Preferred Shares 94,841 Repurchase of Common Shares (24,256) Employee stock loans used to purchase Common Shares (2,079) - Payment/forgiveness of employee stock loans 19 19 Expiration of Common Share warrants (54) - Preferred Share distributions (4,790) (4,790) Distributions ($1.57 per share) (59,137) (59,137) ------------ ------- ------------- ------------ ------------ ------------ BALANCE, December 31, 1999 (4,640) 908 79,384 - (155,778) 784,252 Net income 52,158 52,158 Unrealized loss on available-for-sale securities (1,731) (1,731) ----------- Comprehensive income 50,427 Vesting of Restricted Stock 2,897 Repurchase of Common Shares (15,277) Employee stock loans used to purchase Common Shares (2,500) - Payment/forgiveness of employee stock loans 303 303 Accretion of Preferred Share discount (286) - Preferred Share distributions (11,906) (11,906) Distributions ($1.62 per share) (58,528) (58,528) ------------ ------- ------------- ------------ ------------ ------------ BALANCE, December 31, 2000 $ (6,837) $ 908 $ 131,256 $ (1,731) $(226,212) $ 752,168 Net income 33,722 33,722 Cumulative effect of adopting SFAS 133 (1,300) (1,300) Unrealized loss on derivative financial instruments (3,371) (3,371) Unrealized gain on available-for-sale securities 1,815 1,815 ----------- Comprehensive income (2,856) 30,866 Vesting of Restricted Stock 3,985 Repurchase of Common Shares (7,294) Employee stock loans used to purchase Common Shares (1,386) - Payment/forgiveness of employee stock loans 2,524 2,524 Accretion of Preferred Share discount (1,476) - Exercise of warrants/options (507) (524) Preferred Share distributions (11,906) (11,906) Distributions ($1.70 per share) (61,663) (61,663) ------------ ------- ------------- ------------ ------------ ------------ BALANCE, December 31, 2001 $ (5,699) $ 401 $ 163,502 $ (4,587) $(299,781) $ 708,156 ============ ======= ============= ============ ============ ============ </TABLE> The accompanying notes are an intergral part of these consolidated financial statements. F - 4
BRANDYWINE REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) <TABLE> <CAPTION> Year ended December 31, ----------------------------------------- 2001 2000 1999 --------- --------- --------- <S> <C> <C> <C> Cash flows from operating activities: Net income $ 33,722 $ 52,158 $ 34,606 Adjustments to reconcile net income to net cash from operating activities: Depreciation 73,031 64,041 66,493 Amortization: Deferred financing costs 2,679 3,478 3,303 Deferred leasing costs 5,158 2,971 2,820 Deferred compensation costs 3,710 2,685 1,758 Straight-line rental income (6,206) (6,396) (8,100) Provision for doubtful accounts 2,867 332 1,034 Equity in income of management company - (164) (80) Equity in income of real estate ventures, net of cash distributions received - (354) - Net gain on sales of interests in real estate (4,524) (11,638) (3,115) Minority interest 8,622 9,598 7,996 Distributions paid to minority partners (10,667) (10,543) (9,158) Non-recurring charge 6,600 - - Extraordinary items 1,111 - - Changes in assets and liabilities: Accounts receivable (212) 3,414 (8,058) Other assets 17,464 (8,480) (21,081) Accounts payable and accrued expenses 4,292 2,715 5,167 Tenant security deposits and deferred rents 5,058 (1,639) 6,748 Other liabilities (1,332) - - --------- --------- --------- Net cash from operating activites 141,373 102,178 80,333 Cash flows from investing activities: Acquisition of properties (40,359) (7,010) (20,000) Sales of properties 31,335 101,075 147,700 Capital expenditures (107,405) (113,137) (23,547) Investment in real estate ventures (2,495) (2,748) (21,059) Increase in escrowed cash (1,016) (3,974) (7,325) Cash distributions from real estate ventures in excess of income 5,492 - 692 Leasing costs (9,234) (6,578) (7,266) --------- --------- --------- Net cash from investing activities (123,682) (32,372) 69,195 Cash flows from financing activites: Proceeds from notes payable, Credit Facility 91,000 71,000 67,000 Repayment of notes payable, Credit Facility (35,000) (109,500) (371,500) Proceeds from mortgage notes payable 135,165 107,397 203,415 Repayment of mortgage notes payable (127,876) (42,412) (60,003) Debt financing costs (5,557) (1,656) (5,868) Proceeds from issuance of shares, net - - 95,366 Repayments on employee stock loans 1,024 - - Repurchases of Common Shares and minority interest units (6,494) (15,277) (22,177) Distributions paid to shareholders (72,534) (69,010) (63,144) --------- --------- --------- Net cash from financing activities (20,272) (59,458) (156,911) --------- --------- --------- (Decrease) increase in cash and cash equivalents (2,581) 10,348 (7,383) Cash and cash equivalents at beginning of year 16,040 5,692 13,075 --------- --------- --------- Cash and cash equivalents at end of year $ 13,459 $ 16,040 $ 5,692 ========= ========= ========= </TABLE> The accompanying notes are an integral part of these consolidated financial statements. F - 5
BRANDYWINE REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 1. ORGANIZATION AND NATURE OF OPERATIONS ------------------------------------- Brandywine Realty Trust, a Maryland Real Estate Investment 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 December 31, 2001, the Company's portfolio included 223 office properties, 46 industrial facilities and one mixed-use property (collectively, the "Properties") that contained an aggregate of 17.3 million net rentable square feet. 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 December 31, 2001, the Company also held economic interests in thirteen real estate ventures (the "Real Estate Ventures") formed with third parties to develop commercial properties. The Company's interest in its assets is held through Brandywine Operating Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership and, as of December 31, 2001, was entitled to approximately 94.3% of the Operating Partnership's distributions after distributions to holders of Series B Preferred Units (as defined in Note 3 below). The Operating Partnership owns a 95% interest in Brandywine Realty Services Corporation, a Pennsylvania corporation (the "Management Company"), a taxable REIT subsidiary that, as of December 31, 2001, was performing management and leasing services for properties containing an aggregate of approximately 20.6 million net rentable square feet, of which 17.3 million net rentable square feet related to properties owned by the Company and approximately 3.3 million net rentable square feet related to properties owned by unaffiliated third parties. The remaining 5% of the Management Company is owned by a partnership comprised of two executives of the Company. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of the Company and the Operating Partnership. The portion of the Operating Partnership not owned by the Company is presented as minority interest. Intercompany accounts and transactions have been eliminated. Certain amounts reported in prior years have been reclassified for comparative purposes. Management Company - ------------------ The Management Company, a taxable REIT subsidiary, provides management, leasing, construction, development, redevelopment and other real estate related services for the Company's properties and for third parties. Prior to December 31, 2000, the Company owned 100% of the Management Company's non-voting preferred stock, 5% of its voting stock and accounted for its investment using the equity method. Effective January 1, 2001, the Company converted its non-voting interest in the Management Company to a voting interest. As a result, the Company owns 95% of the Management Company's equity, has voting control and, therefore, consolidated the Management Company in 2001. Use of Estimates - ---------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Real Estate Investments - ----------------------- Real estate investments are carried at cost. Depreciation is computed using the straight-line method based on the following useful lives: buildings and improvements (5 to 40 years) and tenant improvements over the shorter of the lease term or the life of the asset. Direct construction costs totaling $2.7 million in 2001, $1.8 million in 2000 and $882,000 in 1999 and interest totaling $5.2 million in 2001, $8.2 million in 2000 and $2.1 million in 1999 were capitalized related to the development of certain Properties and land holdings. The Company expenses routine repair and maintenance expenditures. F - 6
Real estate investments will be reviewed for impairment if facts and circumstances indicate that the carrying value of such assets may not be recoverable. Measurement of any impairment loss will be based on the fair value of the asset; generally, determined using valuation techniques, such as the present value of expected future cash flows. No impairment adjustments have been made as a result of this review process during 2001, 2000 and 1999. Cash Equivalents - ---------------- Cash equivalents are highly-liquid investments with original maturities of three months or less. The Company maintains cash equivalents in financial institutions in excess of insured limits. Accounts Receivable - ------------------- The Company provides and maintains an allowance for doubtful accounts that includes a provision for specifically identified accounts, as well as a percentage of the unpaid receivable balance. Accounts receivable and accrued rent receivable are presented net of allowances for doubtful accounts of $2.5 million and $2.0 million in 2001 and $1.3 million and $1.1 million in 2000. As of December 31, 2001 and 2000, no tenant represents more than 10% of accounts receivable. Other Assets - ------------ As of December 31, 2001, other assets included a direct financing lease of $16.0 million, prepaid real estate taxes of $5.5 million, deposits on properties to be purchased in 2002 totaling $4.0 million, furniture, fixtures and equipment of $2.7 million and $3.6 million of other assets. As of December 31, 2000, other assets included deposits on properties to be purchased of $23.2 million, prepaid real estate taxes of $4.5 million, furniture, fixtures and equipment of $.8 million and $4.3 million of other assets. Marketable Securities - --------------------- The Company accounts for its investments in equity securities according to the provisions of Statement of Financial Accounting Standards No. 115 ("SFAS 115"), Accounting for Certain Investments in Debt and Equity Securities, which requires securities classified as "available-for-sale" to be stated at fair value. Adjustments to fair value of available-for-sale securities are recorded as a component of other comprehensive income in beneficiaries' equity. Deferred Costs - -------------- Direct costs related to the financing and leasing of the Properties are capitalized. Internal direct leasing costs deferred totaled $3.1 million in 2001 and $2.5 million in 2000. Capitalized financing fees are amortized over the related loan term and capitalized leasing costs are amortized over the related lease term. Accumulated amortization related to these costs was $11.8 million in 2001 and $13.1 million in 2000. Fair Value of Financial Instruments - ----------------------------------- Carrying amounts reported in the balance sheet for cash, accounts receivable, other assets, accounts payable and accrued expenses, and borrowings under the Credit Facility approximate fair value due to the nature of these instruments. Accordingly, these items have been excluded from the fair value disclosures. Revenue Recognition - ------------------- Rental revenue is recognized on a straight-line basis over the lease term regardless of when payments are due. The straight-line rent adjustment increased revenue by approximately $6.2 million in 2001, $6.4 million in 2000 and $8.1 million in 1999. Certain lease agreements contain provisions that require tenants to reimburse a pro rata share of real estate taxes and certain common area maintenance costs. No tenant represented 10% or more of the Company's rental revenue in 2001, 2000 or 1999. Income Taxes - ------------ The Company elects to be taxed as a real estate investment trust under Sections 856-860 of the Internal Revenue Code. In management's opinion, the requirements to maintain this election are being met. Accordingly, no provision for Federal income taxes has been reflected in the financial statements. F - 7
Earnings and profits, which determine the taxability of distributions to shareholders, differ from net income reported for financial reporting purposes due to differences in cost basis, the estimated useful lives used to compute depreciation, and the allocation of net income and loss for financial versus tax reporting purposes. The Company is subject to a 4% Federal excise tax, if sufficient taxable income is not distributed within prescribed time limits. The excise tax equals 4% of the annual amount, if any, by which the sum of (a) 85% of the Company's ordinary income and (b) 95% of the Company's net capital gain exceeds cash distributions and certain taxes paid by the Company. No excise tax was incurred in 2001, 2000, or 1999. The Management Company is subject to Federal and state income taxes. The operating results of the Management Company include a provision for income taxes of $115,000 in 2000 and $57,000 in 1999. There was no provision required for income taxes in 2001. Earnings Per Share - ------------------ Basic earnings per share is calculated by dividing income applicable to Common Shares by the weighted-average number of shares outstanding during the period. Diluted earnings per share includes the effect of common share equivalents outstanding during the period. Stock-Based Compensation Plans - ------------------------------ The Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for stock-based compensation plans and discloses the fair value of options granted and pro forma earnings as permitted by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Comprehensive Income - -------------------- Comprehensive income for the year ended December 31, 2001 includes unrealized gains and losses on available-for-sale securities and the effective portions of changes in the fair value of derivatives. Net income as reported by the Company reflects total comprehensive income for the years ended December 31, 2000 and 1999. Accounting for Derivative Instruments and Hedging Activities - ------------------------------------------------------------ Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its corresponding amendments under SFAS No. 138. SFAS 133 requires the Company to measure every derivative instrument (including certain derivative instruments embedded in other contracts) at fair value and record them in the balance sheet as either an asset or liability. For derivatives designated as fair value hedges, the changes in fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of changes in the fair value of the derivative are reported in other comprehensive income. Changes in fair value of derivative instruments and ineffective portions of hedges are recognized in earnings in the current period. For the twelve-month period ended December 31, 2001, the Company was not party to any derivative contract designated as a fair value hedge. Upon adoption of this new standard as of January 1, 2001, the Company recorded a charge of $1.3 million to comprehensive income for the cumulative effect of an accounting change to recognize at fair value all derivatives that are designed as cash flow hedging instruments. The Company recorded additional charges of $3.4 million in other comprehensive income to recognize the change in value during 2001. Over time, the unrealized gains/losses and the transition adjustment held in accumulated other comprehensive income will be reclassified into earnings as the underlying hedged items affect earnings, such as when the forecasted interest payments occurs. It is expected that $5.0 million of net losses will be reclassified into earnings over the next twelve months. F - 8
The Company formally assesses, both at inception of the hedge and on an on-going basis, whether each derivative is highly-effective in offsetting changes in fair values of cash flows of the hedged item. If it is determined that a derivative is not highly-effective as a hedge or if a derivative ceases to be a highly-effective hedge, the Company will discontinue hedge accounting prospectively. The Company manages its ratio of fixed-to-floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this mix in a cost-effective manner, the Company, from time to time, enters into interest rate swap agreements, in which it agrees to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts. As of December 31, 2001, the maximum length of time which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is through June 2004. There was no gain or loss reclassified from accumulated other comprehensive income into earnings during 2001 as a result of the discontinuance of a cash flow hedge due to the probability of the original forecasted transaction not occurring. New Pronouncements - ------------------ In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations (effective July 1, 2001), SFAS No. 142, Goodwill and Other Intangible Assets (effective for the Company on January 1, 2002) and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (effective for fiscal years beginning after December 15, 2001). SFAS No. 141 prohibits pooling-of-interests accounting for acquisitions. SFAS No. 142 specifies that goodwill and some intangible assets will no longer be amortized, but instead be subject to periodic impairment testing. Neither of these statements will have a material impact on the Company's financial statements. SFAS No. 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. While SFAS No. 144 will not impact net income, it will impact how operations related to properties that have been sold or properties that are intended to be sold are classified in the Company's balance sheet and statement of operations. The results of operations for such properties are to be presented as discontined in the statement of operations for all periods presented and properties intended to be sold are to be designated as "held for Sale" on the balance sheet. 3. MINORITY INTEREST ----------------- 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. The Company declared distributions of $7.1 million in 2001 and 2000 and $6.1 million in 1999 to the holders of Series B Preferred Units and $3.7 million in 2001, $3.5 million in 2000 and $3.4 million in 1999 to holders of Class A Units. As of December 31, 2001 and 2000, respectively, there were 2,151,658 and 2,156,150 Class A Units and 1,950,000 Series B Preferred Units held by third party investors. 4. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS -------------------------------------------------------- The Company's acquisitions were accounted for by the purchase method. The results of each acquired property are included in the Company's results of operations from their respective purchase dates. 2001 - ---- During 2001, the Company sold three office and eight industrial properties, containing 440,000 net rentable square feet, and four parcels of land, containing 15.8 acres, for $31.3 million, realizing a net gain of $4.5 million. Seven of the properties were sold for $21.6 million realizing an aggregate gain of $4.3 million, four of the properties were sold for $7.1 million, realizing an aggregate loss of $.7 million and four land parcels were sold for $2.6 million realizing an aggregate gain of $.9 million. The Company also acquired two office properties, containing 146,000 net rentable square feet, and three parcels of land, containing 30.0 acres, for $31.5 million, of which $4.2 million was satisfied with an exchange of property. F - 9
In addition to the sales and acquisitions above, the Company consumated an exchange of properties with Prentiss Properties Acquisition Partners, L.P. ("Prentiss") during 2001. The Company acquired from Prentiss 30 properties (29 office and 1 industrial) containing 1.6 million net rentable square feet and 6.9 acres of developable land for total consideration of $215.2 million. The Company conveyed to Prentiss four office properties located in Northern Virginia that contain an aggregate of 657,000 net rentable square feet, assumed $79.7 million of mortgage debt secured by certain of the Prentiss properties, issued a $7.8 million promissory note, paid $15.9 million at closing and agreed to make additional payments totaling $7.0 million (including $5.4 million of payments discounted at 7.5%) over a three year period subsequent to closing. The Company also contributed to Prentiss its interest in a real estate venture that owns two additional office properties that contain an aggregate of 452,000 net rentable square feet and received a combination of preferred and common units of limited partnership interest in Prentiss having a value of $10.7 million, as of the closing. In addition as part of the Prentiss transaction in June 2001, the Company purchased a 103,000 square foot building under construction and six acres of related developable land for $5.7 million, plus $4.2 million of additional costs related to development. Proforma - -------- The following unaudited pro forma financial information for the year ended December 31, 2001 and 2000 gives effect to the exchange of properties with Prentiss as if the transaction occurred on January 1, 2000. The proforma financial information presented below is not necessarily indicative of the results which actually would have occurred if the transaction had been consummated on January 1, 2000, nor does the pro forma information purport to represent the results of operations for future periods. <TABLE> <CAPTION> Year Ended December 31, 2001 2000 --------- --------- (unaudited and in thousands, except per share data) <S> <C> <C> Pro forma total revenues $ 314,630 $ 302,305 Pro forma net income before extraordinary items allocated to Common Shares 23,193 41,314 Pro forma net income after extraordinary items allocated to Common Shares 22,082 41,314 Pro forma net income per Common Share before extraordinary items (diluted) $ 0.65 $ 1.15 Pro forma net income per Common Share after extraordinary items (diluted) $ 0.62 $ 1.15 </TABLE> 2000 - ---- During 2000, the Company sold seven office properties, containing 630,000 net rentable square feet, and two parcels of land, containing 5.0 acres, for $101.1 million, realizing a net gain of $11.6 million. Four of the properties were sold for $72.1 million realizing an aggregate gain of $15.8 million, three of the properties were sold for $27.8 million realizing an aggregate loss of $5.1 million, and two land parcels were sold for $1.2 million realizing an aggregate gain of $.9 million. In addition, the Company purchased 36.0 acres of land for $7.0 million. The results of operations on a pro forma basis on the above acquisitions and dispositions are not material. 1999 - ---- During 1999, the Company sold 27 properties (seven office properties and 20 industrial facilities), containing 2.6 million net rentable square feet, for $147.7 million, realizing a net gain of $3.1 million, and acquired six properties (five office properties and one industrial facility), containing 463,000 net rentable square feet, for $42.0 million. The purchase price of these properties was satisfied with cash of $20.0 million, the issuance of 83,333 Class A Units valued at $2.0 million ($24 per unit), and the issuance of 400,000 Series B Preferred Units valued at $20.0 million ($50 per unit). The results of operations on a pro forma basis on the above acquisitions and dispositions were not material. 5. MANAGEMENT COMPANY ------------------ Prior to December 31, 2000, the Company owned 100% of the Management Company's non-voting preferred stock, 5% of its voting stock and accounted for its investment using the equity method. Effective January 1, 2001, the Company converted its non-voting interest in the Management Company to a voting interest. As a result, the Company owns 95% of the Management Company's equity, has voting control and, therefore, consolidated the Management Company in 2001. F - 10
Management fees paid by the Properties to the Management Company amounted to $11.9 million in 2000 and $11.3 million in 1999. The Management Company also receives reimbursement of certain costs attributable to the operations of the Properties. These costs, included in property operating expenses, amounted to $9.2 million in 2000 and $7.3 million in 1999. Summarized unaudited financial information for the Management Company as of and for the years ended December 31, 2000 and 1999 is as follows: 2000 1999 ------- ------- (unaudited and in thousands) Total assets $ 3,248 $ 3,659 Total revenue 26,190 22,103 Net income 173 85 Company's share of net income 164 80 6. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES ------------------------------------------------- As of December 31, 2001, the Company had invested approximately $19.1 million in thirteen Real Estate Ventures (net of returns of investment received by the Company). The Company, through subsidiaries, formed these ventures with unaffiliated third parties to develop office properties or to acquire land in anticipation of possible development of office properties. Nine of the Real Estate Ventures own nine office buildings that contain an aggregate of approximately 1.0 million net rentable square feet; one Real Estate Venture is developing one office buildings that will contain, upon completion, an aggregate of approximately 345,000 net rentable square feet; one Real Estate Venture is developing a hotel property that will contain, upon completion, approximately 137 rooms; and two Real Estate Ventures hold approximately nine acres of land for future development. The Company accounts for its non-controlling interests in Real Estate Ventures using the equity method. Non-controlling ownership interests generally range from 6% to 65%, subject to specified priority allocations in certain real estate ventures. These investments, initially recorded at cost, are subsequently adjusted for the Company's net equity in the ventures' income or loss and cash contributions and distributions. The following is a summary of the financial position of the unconsolidated joint ventures in which the Company had investment interests as of December 31, 2001 and 2000: December 31, December 31, 2001 2000 ----------- ---------- (amounts in thousands) Net property $ 180,497 $ 198,031 Other assets 17,038 58,718 Liabilities 1,593 8,370 Third-party debt 145,463 181,303 Equity 50,479 67,076 Company's share of equity 19,067 33,566 For the year ended December 31, ------------------------------ 2001 2000 ----------- ---------- (amounts in thousands) Revenues $ 24,117 $ 30,538 Operating expenses 8,237 8,826 Depreciation and amortization 3,211 6,250 Interest expense, net 7,495 10,914 Net income 5,174 4,368 Company's share of income 2,768 2,797 F - 11
As of December 31, 2001, the aggregate maturities of non-recourse debt payable to third-parties is as follows (000's): 2002 $ 28,795 2003 1,157 2004 2,651 2005 19,319 2006 and thereafter 93,541 ---------- $ 145,463 ========== As of December 31, 2001, the Company had guaranteed repayment of approximately $2.6 million of loans for the Real Estate Venture debt. The Company selectively provides completion guaranties on behalf of Real Estate Ventures as part of their development activities. As of December 31, 2001, the Company had provided a completion guaranty relating to the construction of one development project which is expected to be completed during the second quarter of 2002. 7. INDEBTEDNESS ------------ The Company utilizes credit facility borrowings for general business purposes, including the acquisition of properties and the repayment of debt. In June 2001, the Company amended its unsecured credit facility (the "Credit Facility") to increase its borrowing capacity from $450 million to $500 million and to extend the maturity to June 2004. The Credit Facility bears interest at LIBOR (LIBOR was 1.88% at December 31, 2001) plus 1.5%, with the spread over LIBOR subject to reductions from .10% to .25% or increases of .25% based on the Company's leverage. The Credit Facility matures in June 2004, subject to the Company's right upon payment of a fee to extend the maturity to June 2005. As of December 31, 2001, the Company had $394.3 million of borrowings and $13.4 million of letters-of-credit outstanding and $92.3 million of unused availability under the Credit Facility. The weighted-average interest rate on the Company's unsecured credit facilities was 6.48% in 2001, 7.84% in 2000, and 6.95% in 1999. As of December 31, 2001, the Company had $614.8 million of mortgage notes payable secured by 106 of the Properties and certain land holdings. Fixed rate mortgages, totaling $526.2 million, require payments of principal and/or interest (or imputed interest) at rates ranging from 6.80% to 9.25% and mature or matured at various dates from July 2003 through July 2027. Variable rate mortgages, totaling $88.6 million, require payments of principal and/or interest at rates ranging from LIBOR plus .76% to 1.75% or 75% of prime (the prime rate was 4.75% at December 31, 2001) and mature at various dates from February 2003 through July 2027. The weighted-average interest rate on the Company's mortgages was 7.39% in 2001, 7.92% in 2000, and 7.10% in 1999. The Company has entered into interest rate swap and rate cap agreements designed to reduce the impact of interest rate changes on certain variable rate debt. At December 31, 2001, the Company had three interest rate swap agreements for notional principal amounts aggregating $175 million. The swap agreements effectively fix the interest rate on $100 million of Credit Facility borrowings at 6.383%, $50 million at 6.080% and $25 million at 5.215% until September 2002. In October 2001, the Company entered into three additional interest rate swap agreements that effectively fix the interest rate on $100 million of Credit Facility borrowings at 4.230% and on $75 million at 4.215% from September 2002 to June 2004. The interest rate cap agreements effectively fix the interest rate on two variable rate mortgages. One rate cap fixes the interest rate on a mortgage with a notional value of $75 million at 6.25% until maturity in April 2002. The second interest rate cap fixes the interest rate on a mortgage with a notional value of $28 million at 8.7% until July 2004. The impact of these agreements is recorded as a component of interest expense. As of December 31, 2001, the fair value of the interest rate swap agreements, based on quotes from an independent third party, was $4.6 million, which represents the estimated amount that the Company would pay if the contracts were terminated. Aggregate principal payments on mortgage notes payable at December 31, 2001 are due as follows (in thousands): 2002 $ 8,874 2003 113,692 2004 148,218 2005 6,364 2006 10,590 2007 and thereafter 327,102 ---------- $ 614,840 ========== F - 12
The Credit Facility requires the maintenance as of certain ratios related to minimum net worth, debt-to-total capitalization and fixed charge coverage and various non-financial covenants. As of December 31, 2001, the Company was in compliance with all debt covenants. The Company paid interest totaling $74.2 million in 2001, $67.7 million in 2000, and $67.3 million in 1999. As of December 31, 2001, the carrying value of the Company's debt was below fair market value by approximately $93.4 million, as determined by using year-end interest rates and market conditions. During 2001, the Company wrote-off $1.1 million of unamortized deferred financing costs related to the refinancing of the Credit Facility and a mortgage note payable which were accounted for as extraordinary items. 8. PREFERRED SHARES AND BENEFICIARIES' EQUITY ------------------------------------------ In 1998, the Company issued $37.5 million of convertible preferred securities with a 7.25% coupon rate (the Series A Preferred Shares). 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 distribution is 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. In 1999, the Company issued $105.0 million of convertible preferred securities (the Series B Preferred Shares) with an 8.75% coupon rate for net proceeds of $94.8 million. The Company is accreting the discount as a charge to cumulative earnings through the redemption date in 2007. 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. In addition, as part of the transaction, the Company issued the holder seven-year warrants exercisable for 500,000 Common Shares at an exercise price of $24.00 per share. The Company's Board of Trustees approved a share repurchase program authorizing the Company to repurchase its outstanding Common Shares. During the third quarter of 2001, the Board of Trustees increased the number of shares authorized to be repurchased from three million shares to four million shares. Through December 31, 2001, the Company has repurchased 2.7 million of its Common Shares at an average price of $16.83 per share. The Company repurchased 302,437 Common Shares for $5.9 million (average price of $19.54 per share) in 2001; 957,729 Common Shares for $15.3 million (average price of $15.95 per share) in 2000 and 1,344,295 Common Shares for $22.2 million in 1999 (average price of $16.69 per share). Under the share repurchase program, the Company has authority to repurchase an additional 1.3 million shares. No time limit has been placed on the duration of the share repurchase program. At December 31, 2001, 450,747 restricted Common Shares were held by certain employees of the Company. The restricted shares, valued at $15.6 million at issuance, are amortized over their respective vesting periods of four to eight years. The Company recorded compensation expense of $2.8 million in 2001, $2.0 million in 2000 and $1.8 million in 1999 related to these shares. 9. SHARE PURCHASE OPTIONS AND WARRANTS ----------------------------------- The Company maintains a plan that authorizes the issuance of incentive stock options and non-qualified stock options to key employees to purchase five million Common Shares of the Company. The terms and conditions of option awards are determined by the Board of Trustees. Incentive stock options may not be granted at exercise prices less than fair value of the stock at the time of grant. Options granted by the Company generally vest over two to five years. All options awarded by the Company to date are non-qualified stock options. Options were granted at exercise prices ranging from 125% to 165% of fair market value on the grant date in 1999 and 100% to 115% of fair market value on the grant date in 1998. As of December 31, 2001, the Company has 1.7 million shares available for future issuance under the plan. F - 13
The following table summarizes option activity for the three years ended December 31, 2001: <TABLE> <CAPTION> Number Weighted- of Shares Average Grant Price Range Under Exercise --------------------- Option Price From To ------ ----- ---- -- <S> <C> <C> <C> <C> Balance at January 1, 1999 2,533,704 $ 25.51 $ 6.21 $ 29.04 Granted - above fair market value 250,763 27.51 25.25 29.04 Canceled (62,609) 27.93 25.25 29.04 --------- Balance at December 31, 1999 2,721,858 26.38 6.21 29.04 Exercised (5,000) 19.50 19.50 19.50 Canceled (93,144) 27.51 25.25 29.04 --------- Balance at December 31, 2000 2,623,714 26.36 6.21 29.04 Exercised (83,333) 19.50 19.50 19.50 Canceled (61,582) 27.53 25.25 29.04 --------- Balance at December 31, 2001 2,478,799 26.55 6.21 29.04 ========= </TABLE> The following table summarizes stock options outstanding as of December 31, 2001: Weighted- Average Weighted- Weighted- Range of Number of Remaining Average Number of Average Exercise Options Contractual Exercise Options Exercise Prices Outstanding Life Price Exercisable Price ------ ----------- ---- ----- ----------- ----- $6.21 to $14.31 46,667 2.6 years $12.00 46,667 $12.00 $19.50 155,000 0.6 19.50 155,000 19.50 $24.00 to $29.04 2,277,132 6.1 27.34 1,052,939 27.11 --------- --------- $6.21 to $29.04 2,478,799 5.7 26.56 1,254,606 25.61 ========= ========= Using the Black-Scholes option pricing model, the estimated weighted-average fair value of stock options granted was $1.21 in 1999. Assumptions made in determining estimates of fair value include: risk-free interest rates of 5.6% in 1999, a volatility factor of .280 in 1999, a dividend yield of 8.9% in 1999, and a weighted-average life expectancy of 10 years in 1999. F - 14
The following table summarizes the pro forma effects assuming compensation cost for such awards had been recorded based upon estimated fair values (in thousands, except per share amounts): Year ended December 31, ----------------------------------- 2001 2000 1999 -------- -------- -------- Net income: As reported $ 21,816 $ 40,252 $ 29,816 Pro forma 21,199 39,635 28,852 Earnings per Common Share after extraordinary item: As reported Basic $ 0.57 $ 1.12 $ 0.80 Diluted $ 0.57 $ 1.12 $ 0.80 Pro forma Basic $ 0.55 $ 1.11 $ 0.77 Diluted $ 0.55 $ 1.11 $ 0.77 Only options granted after December 31, 1994 are reflected in the calculations. Therefore, the pro forma disclosures are not likely to be representative of future pro forma amounts. As of December 31, 2001, there are 597,212 warrants outstanding to purchase Common Shares of the Company at exercise prices ranging from $19.50 to $24.00. 10. 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. F - 15
Segment information for the three years ended December 31, 2001, 2000 and 1999 is as follows (in thousands): <TABLE> <CAPTION> New Jersey/ Pennsylvania New York Virginia Corporate Total ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> 2001: Real estate investments, at cost $1,194,076 $ 642,646 $ 206,980 $ - $2,043,702 Investment in real estate ventures, at equity - - - 19,067 19,067 Total revenue $ 173,884 $ 106,908 $ 27,503 $ 2,530 $ 310,825 Property operating expenses and real estate taxes 58,149 40,189 9,972 - 108,310 ---------- ---------- ---------- ---------- ---------- Net operating income $ 115,735 $ 66,719 $ 17,531 $ 2,530 $ 202,515 Interest $ - $ - $ - $ 66,385 $ 66,385 Depreciation & amortization 42,027 27,642 8,520 - 78,189 2000: Real estate investments, at cost $ 938,602 $ 605,521 $ 309,776 $ - $1,853,899 Investment in real estate ventures, at equity - - - 33,566 33,566 Total revenue $ 144,943 $ 100,362 $ 39,539 $ 2,240 $ 287,084 Property operating expenses and real estate taxes 45,886 34,123 11,788 - 91,797 ---------- ---------- ---------- ---------- ---------- Net operating income $ 99,057 $ 66,239 $ 27,751 $ 2,240 $ 195,287 ========== ========== ========== ========== ========== Interest $ - $ - $ - $ 64,746 $ 64,746 Depreciation & amortization 32,258 24,472 10,282 - 67,012 1999: Real estate investments, at cost $ 895,697 $ 627,441 $ 304,959 $ - $1,828,097 Investment in real estate ventures, at equity - - - 35,682 35,682 Total revenue $ 142,427 $ 98,507 $ 39,562 $ 2,724 $ 283,220 Property operating expenses and real estate taxes 44,347 34,065 11,671 - 90,083 ---------- ---------- ---------- ---------- ---------- Net operating income $ 98,080 $ 64,442 $ 27,891 $ 2,724 $ 193,137 ========== ========== ========== ========== ========== Interest $ - $ - $ - $ 69,800 $ 69,800 Depreciation & amortization 34,610 25,328 9,375 - 69,313 </TABLE> Net operating income is defined as total revenues less property operating expenses and real estate taxes. Below is a reconciliation of consolidated net operating income to consolidated income minority interest and extraordinary items: F - 16
<TABLE> <CAPTION> Year Ended December 31, ------------------------------------------ 2001 2000 1999 ---------- ---------- --------- (amounts in thousands) <S> <C> <C> <C> Consolidated net operating income $ 202,515 $ 195,287 $ 193,137 Less: Interest expense 66,385 64,746 69,800 Depreciation and amortization 78,189 67,012 69,313 Management fees - 12,123 11,998 Administrative expenses 15,178 4,249 3,598 Non-recurring charges 6,600 - - Plus: Equity in income of management company - 164 80 Equity in income of real estate ventures 2,768 2,797 979 Net gains on sales of interests in real 4,524 11,638 3,115 estate Consolidated income before minority interest and extraordinary items $ 43,455 $ 61,756 $ 42,602 </TABLE> 11. NET INCOME PER COMMON SHARE --------------------------- The following table details the number of shares and net income used to calculate basic and diluted earnings per share for the three years ended December 31, 2001 (in thousands, except per share amounts). <TABLE> <CAPTION> For the year ended December 31, -------------------------------------------------------------------------------- 2001 2000 1999 ------------------------ ------------------------- -------------------------- Basic Diluted Basic Diluted Basic Diluted ---------- ----------- ----------- ----------- ----------- ------------ <S> <C> <C> <C> <C> <C> <C> Net income $ 33,722 $ 33,722 $ 52,158 $ 52,158 $ 34,606 $ 34,606 Income allocated to Preferred Shares (11,906) (11,906) (11,906) (11,906) (4,790) (4,790) ---------- ---------- ----------- ---------- ---------- ----------- 21,816 21,816 40,252 40,252 29,816 29,816 Preferred Share discount amortization (1,476) (1,476) (286) (286) - - ---------- ---------- ----------- ---------- ---------- ----------- Income available to common shareholders $ 20,340 $ 20,340 $ 39,966 $ 39,966 $ 29,816 $ 29,816 ========== ========== =========== ========== ========== =========== Weighted-average shares outstanding 35,646,842 35,646,842 35,807,598 35,807,598 37,348,022 37,348,022 Options and warrants - 27,809 - 16,576 - 14,932 ---------- ---------- ----------- ---------- ---------- ----------- Total weighted-average shares outstanding 35,646,842 35,674,651 35,807,598 35,824,174 37,348,022 37,362,954 ========== ========== =========== ========== ========== =========== Earnings per share after extraordinary item $ 0.57 $ 0.57 $ 1.12 $ 1.12 $ 0.80 $ 0.80 ========== ========== =========== ========== ========== =========== </TABLE> Securities totaling 11,622,922 in 2001, 11,625,490 in 2000 and 11,625,490 in 1999 were excluded from the earnings per share computations above as their effect would have been antidilutive. 12. DISTRIBUTIONS (UNAUDITED): -------------------------- <TABLE> <CAPTION> Year ended December 31, --------------------------------------- 2001 2000 1999 -------- -------- -------- <S> <C> <C> <C> Common Share Distributions: Ordinary income $ 1.60 $ 1.38 $ 1.44 Capital gain 0.10 0.24 0.13 Return of capital - - - Total distributions per share $ 1.70 $ 1.62 $ 1.57 Percentage classified as ordinary income 94.1% 85.2% 91.8% Percentage classified as capital gain 5.9% 14.8% 8.2% Percentage classified as return of capital 0.0% 0.0% 0.0% Preferred Share Distributions: Total distributions declared $ 11,906,000 $ 11,906,000 $ 4,790,000 </TABLE> F - 17
13. RELATED-PARTY TRANSACTIONS -------------------------- In 1998, the Board authorized the Company to make loans totaling up to $5.0 million to enable employees of the Company to purchase Common Shares at fair market value. The loans have five-year terms, are full recourse, and are secured by the Common Shares purchased. Interest, payable quarterly, accrues on the loans at the lower of the interest rate borne on borrowings under the Company's Credit Facility or a rate based on the dividend payments on the Common Shares. As of December 31, 2001, the interest rate was 3.40% per annum. The loans are payable at the earlier of the stated maturity date or 90 days following the employee's termination. As of December 31, 2001, the Company had funded loans of $4.7 million to employees secured by an aggregate of 260,494 Common Shares. The Company owns 384,615 shares of US Realtel, Inc. ("USR") Common Stock and holds warrants exercisable for 600,000 additional shares. The warrants have an exercise price of $8.00 per share and expire on December 31, 2004. In December 2001, the Company wrote-off its investment of $2.5 million in USR as the loss in value was deemed to be other than temporary. An officer of the Company holds a position on USR's Board of Directors. In February 2000, the Company loaned an aggregate of $2.5 million to two executive officers to enable them to purchase Common Shares of the Company. One loan has a four-year term and bears interest at the lower of the Company's cost of funds or a rate based on the dividend payable on the Common Shares, but not to exceed 10% annum. This loan is subject to forgiveness over a three-year period, with the amount of forgiveness tied to the Company's total shareholder return compared to the total shareholder return of peer group companies. This loan is also subject to forgiveness in the event of a change of control of the Company. The executive may repay the loan at maturity by surrendering Common Shares valued at the executive's initial per share purchase price of $15.625. This loan is reflected as a reduction in beneficiaries equity. The other loan was restructured, effective December 31, 2001, in connection with the executive's transition to a non-executive, non-managerial status to provide for its forgiveness in equal installments in April 2002 and April 2003. Principal and interest totaling $.9 million was forgiven related to these loans in 2001. 14. OPERATING LEASES ---------------- The Company leases properties to tenants under operating leases with various expiration dates extending to 2020. As of December 31, 2001, leases covering approximately 2.6 million square feet or 16.3% of the net rentable square footage were scheduled to expire during 2002. Minimum future rentals on noncancelable leases at December 31, 2001 are as follows (in thousands): Year Minimum Rent ---- ------------ 2002 $ 250,511 2003 221,205 2004 182,774 2005 140,128 2006 99,798 2007 and thereafter 335,217 ---------- $1,229,633 ========== Total minimum future rentals presented above do not include amounts to be received as tenant reimbursements for increases in certain operating costs. 15. EMPLOYEE BENEFIT PLAN --------------------- The Company sponsors a 401(k) defined contribution plan for its employees. Each employee may contribute up to 18% of annual compensation. At its discretion, the Company can make matching contributions equal to a percentage of the employee's elective contribution and profit sharing contributions. Employees vest in employer contributions over a five year service period. The Company contributions were $669,000 in 2001, $690,000 in 2000 and $331,000 in 1999. F - 18
16. SUMMARY OF INTERIM RESULTS (UNAUDITED) -------------------------------------- The following is a summary interim financial information as of and for the years ended December 31, 2001 and 2000 (in thousands, except per share data): <TABLE> <CAPTION> 1st 2nd 3rd 4th Quarter Quarter (B) Quarter (C) Quarter (A) --------- ------------ ----------- ----------- <S> <C> <C> <C> <C> 2001: Total revenue $ 75,013 $ 79,125 $ 79,311 $ 77,376 Net income 9,140 7,423 10,271 6,888 Income allocated to Common Shares 6,163 4,446 7,294 3,913 Net income per Common Share after extraordinary item: Basic $ 0.16 $ 0.11 $ 0.19 $ 0.10 Diluted $ 0.16 $ 0.11 $ 0.19 $ 0.10 2000: Total revenue $ 71,444 $ 72,153 $ 73,076 $ 70,411 Net income 10,590 10,799 19,845 10,924 Income allocated to Common Shares 7,613 7,822 16,868 7,949 Net income per Common Share: Basic $ 0.21 $ 0.22 $ 0.47 $ 0.22 Diluted $ 0.21 $ 0.22 $ 0.47 $ 0.22 </TABLE> (A) During the fourth quarter of 2001, the Company recorded a $6.6 million non-recurring charge related to the conversion of the Company's Chairman to a non-executive, non-managerial status and the write-down of the Company's $2.5 million investment in a telecommunications company that was deemed to be other than temporary. The $4.1 million charge related to the Company's Chairman reflects an accrual on account of payment obligations of the Company under its employment agreement with the Chairman, accelerated vesting of his restricted shares and restructuring of his executive stock loan. (B) The Company wrote-off $1.1 million of unamortized deferred financing costs related to the refinancing of the Credit Facility and a mortgage note payable which were accounted for as extraordinary items during the 2nd quarter of 2001. (C) The Company recorded gains on sales of properties of $9.5 million during the 3rd quarter of 2000. The summation of quarterly earnings per share amounts do not necessarily equal year to date amounts. 17. COMMITMENTS AND CONTINGENCIES ----------------------------- Legal Proceedings The Company is involved from time to time in litigation on various matters, including disputes with tenants and disputes arising out of agreements to purchase or sell properties. Given the nature of the Company's business activities, these lawsuits are considered routine to the conduct of its business. The result of any particular lawsuit cannot be predicted, because of the very nature of litigation, the litigation process and its adversarial nature, and the jury system. 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 Superior Court of New Jersey, Camden County, dismissed the complaint against the Company with prejudice. The plaintiffs subsequently filed a motion for reconsideration, which motion the Superior Court denied. Plaintiffs then appealed to the Appellate Division, which is the intermediate appellate level court in New Jersey. In December 2000, the Appellate Division affirmed in part and reversed in part the Chancery Division's earlier dismissal of the entire action. The Appellate Division affirmed the dismissal of the fraud and other non-contractual counts in the Complaint, but reversed the contract and reformation counts and remanded these to the lower court for further proceedings. The Company sought review of this decision by the Supreme Court of New Jersey, but in March 2001, that Court declined to consider the appeal. The case has therefore returned to the Chancery Division, where it is now in the written discovery stage. In management's opinion, this proceeding will not have a material adverse effect on the Company's financial position or results of operations. F - 19
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 and several other 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 ("Owner") 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. During the course of the proceeding, the Owner petitioned the New Jersey Department of Environmental Protection ("NJDEP") to issue a directive to clean up the Subject Property to certain parties, including the Company, BRI OP and the dry cleaner, who were allegedly responsible for the environmental contamination under the New Jersey Spill Compensation and Control Act ("Spill Act"). NJDEP issued such a directive to those parties and the Owner in May 2001 (the "Directive") which requires the all of the parties to the Directive to remediate the Subject Property. Failure to comply with a Spill Act directive would subject a noncomplying party to treble damages (i.e., triple the cost of the cleanup if performed by NJDEP or others ) and, potentially, penalties under the Spill Act. Following issuance of the Directive, the parties to whom the Directive was issued commenced settlement negotiations. The negotiations resulted in an agreement in principle between the Company, BRI OP and the Owner, which the parties are in the process of reducing to writing. Under the settlement, the Owner would perform and obtain NJDEP approval of the cleanup and release and indemnify (with limited exceptions) the Company and BRI OP from and against liability for matters relating to the contamination. The Company believes that the agreement reached with the Owner, upon finalization and implementation, will also satisfy its obligation to participate in the remediation pursuant to the Directive; however, the Company has not yet confirmed this with the NJDEP (although it intends to do so upon finalization of the settlement). The Company believes that, regardless of whether the Superior Court action is settled or the Company is relieved of further responsibility under the Directive, based on its assessment of the estimated cost of any required remediation, the availability of other parties that are potentially responsible for all or a portion of such cost, and defenses that may be available to the Company, that this matter will not have a material adverse effect on the Company's financial position or results of operations. Letters-of-Credit and Other Commitments In connection with certain mortgages, the Company is required to maintain leasing and capital reserve accounts with the mortgage lenders through letters-of-credit which totaled $13.4 million at December 31, 2001. The Company is also required to maintain escrow accounts for taxes, insurance and tenant security deposits that amounted to $16.3 million at December 31, 2001. The related tenant rents are deposited into the loan servicer's depository accounts, which are used to fund debt service, operating expenses, capital expenditures and the escrow and reserve accounts, as necessary. Any excess cash is included in cash and cash equivalents. The Company also provides customary environmental indemnities in connection with construction and permanent financings on behalf of Real Estate Ventures. As of December 31, 2001, the Company owned 443 acres of land for future development and held options to purchase 61 additional acres. 18. SUBSEQUENT EVENTS (UNAUDITED) ----------------------------- During 2002, the Company sold 17 properties, containing 803,000 net rentable square feet, for $41.7 million realizing a gain of $4.0 million. In addition, the Company purchased four properties, containing 360,000 net rentable square feet, for $67.2 million. F - 20
Brandywine Realty Trust Schedule II Valuation and Qualifying Accounts (in thousands) <TABLE> <CAPTION> Additions Balance at ------------- Balance Beginning Charged to at End Description of Period expense Deductions of Period - -------------------------------- ------------- ------------- ------------ ----------- <S> <C> <C> <C> <C> Allowance for doubtful accounts: Year ended December 31, 2001 $ 2,427 $ 2,867 $ 762 $ 4,532 ======== ========= ======== ======== Year ended December 31, 2000 $ 3,358 $ 332 $ 1,263 $ 2,427 ======== ========= ======== ======== Year ended December 31, 1999 $ 3,172 $ 1,034 $ 848 $ 3,358 ======== ========= ======== ======== </TABLE> (a) Reconciliation of Real Estate: The following table reconciles the real estate investments for the three years ended December 31, 2001 (in thousands): <TABLE> <CAPTION> 2001 2000 1999 ---- ---- ---- <S> <C> <C> <C> Balance at beginning of year $1,754,895 $1,771,475 $1,851,473 Additions: Acquisitions 217,212 13,056 42,000 Capital expenditures 65,210 34,905 30,813 Dispositions (144,278) (64,541) (152,811) ---------- ---------- ---------- Balance at end of year $1,893,039 $1,754,895 $1,771,475 ========== ========== ========== </TABLE> (b) Reconciliation of Accumulated Depreciation: The following table reconciles the accumulated depreciation on real estate investments for the three years ended December 31, 2001 (in thousands): <TABLE> <CAPTION> 2001 2000 1999 ---- ---- ---- <S> <C> <C> <C> Balance at beginning of year $ 179,558 $ 125,744 $ 67,477 Depreciation expense 69,495 63,940 66,493 Dispositions (18,260) (10,126) (8,226) --------- ---------- ---------- Balance at end year $ 230,793 $ 179,558 $ 125,744 ========= ========== ========== </TABLE>
<TABLE> <CAPTION> Initial Cost ------------------------------------- --------- Net Improvements (Retirements) Encumbrances at Building and Since City State December 31, 2001 Land Improvements Acquisition Land - ------------------------------------ ---- ----- ----------------- ---- ------------- ----------- ---- <S> <C> <C> <C> <C> <C> <C> <C> One Greentree Centre Marlton NJ - 345 4,440 238 345 Three Greentree Centre Marlton NJ - 323 6,024 217 323 Two Greentree Centre Marlton NJ - 264 4,693 (112) 264 110 Summit Drive Exton PA - 403 1,647 281 403 1155 Business Center Drive Horsham PA 2,621 1,029 4,124 (211) 1,029 120 West Germantown Pike Plymouth Meeting PA - 685 2,773 83 685 140 West Germantown Pike Plymouth Meeting PA - 481 1,976 234 481 16 Campus Boulevard Newtown Square PA 4,763 1,153 4,627 (118) 1,153 18 Campus Boulevard Newtown Square PA 3,478 786 3,312 36 786 2200 Cabot Boulevard Langhorne PA - 770 3,117 595 770 2240/50 Butler Pike Plymouth Meeting PA - 1,104 4,627 402 1,104 2260 Butler Pike Plymouth Meeting PA - 661 2,727 155 661 2260/70 Cabot Boulevard Langhorne PA - 415 1,661 209 415 3000 Cabot Boulevard Langhorne PA - 485 1,940 200 485 33 Street Road - Greenwood Square I Bensalem PA - 851 3,407 440 851 33 Street Road - Greenwood Square II Bensalem PA - 1,126 4,511 950 1,126 33 Street Road - Greenwood Square III Bensalem PA - 350 1,401 285 350 456 Creamery Way Exton PA - 635 2,548 - 635 457 Haddonfield Road Cherry Hill NJ 11,338 2,142 9,120 2,215 2,142 468 Creamery Way Exton PA - 527 2,112 (39) 527 486 Thomas Jones Way Exton PA - 806 3,256 470 806 500 Enterprise Road Horsham PA - 1,303 5,188 (794) 1,303 500 North Gulph Road King of Prussia PA - 1,303 5,201 528 1,303 650 Dresher Road Horsham PA 1,573 636 2,501 (172) 636 6575 Snowdrift Road Allentown PA - 601 2,411 393 601 700 Business Center Drive Horsham PA 1,538 550 2,201 149 550 7248 Tilghman Street Allentown PA - 731 2,969 (40) 731 7310 Tilghman Street Allentown PA - 553 2,246 531 553 800 Business Center Drive Horsham PA 2,407 896 3,585 57 896 8000 Lincoln Drive Marlton NJ - 606 2,887 252 606 One Progress Avenue Horsham PA - 1,399 5,629 127 1,399 One Righter Parkway Talleyville DE 11,017 2,545 10,195 275 2,545 1 Foster Avenue Gibbsboro NJ - 93 364 66 93 10 Foster Avenue Gibbsboro NJ - 244 971 68 244 100 Berwyn Park Berwyn PA 7,422 1,180 7,290 352 1,180 100 Commerce Drive Newark DE - 1,160 4,633 105 1,160 100 Katchel Blvd Reading PA - 1,881 7,423 222 1,881 1000 Atrium Way Mt. Laurel NJ - 2,061 8,180 446 2,061 1000 East Lincoln Drive Marlton NJ - 264 1,059 108 264 1000 Howard Boulevard Mt. Laurel NJ 4,494 2,298 9,288 418 2,298 1000/2000 West Lincoln Drive Marlton NJ - 575 3,568 (1,004) 575 10000 Midlantic Drive Mt. Laurel NJ 9,203 3,206 12,857 434 3,206 100-300 Gundy Drive Reading PA - 6,495 25,180 5,321 6,495 1007 Laurel Oak Road Voorhees NJ - 1,563 6,241 13 1,563 111 Presidential Boulevard Bala Cynwyd PA - 5,419 21,612 1,006 5,419 1120 Executive Boulevard Mt. Laurel NJ - 2,074 8,415 675 2,074 1336 Enterprise Drive West Goshen PA - 731 2,946 27 731 15000 Midlantic Drive Mt. Laurel NJ 8,602 3,061 12,254 104 3,061 2 Foster Avenue Gibbsboro NJ - 185 730 30 185 20 East Clementon Road Gibbsboro NJ - 769 3,055 220 769 200 Berwyn Park Berwyn PA 9,481 1,533 9,460 277 1,533 2000 Cabot Boulevard Langhorne PA - 569 2,281 223 569 2000 Midlantic Drive Mt. Laurel NJ 9,633 2,202 8,823 355 2,202 2005 Cabot Boulevard Langhorne PA - 313 1,257 614 313 2010 Cabot Boulevard Langhorne PA - 760 3,091 99 760 220 Commerce Drive Ft. Washington PA - 1,086 4,338 589 1,086 2510 Metropolitan Drive Trevose PA - 3,311 13,218 1,913 3,311 </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Gross Amount at Which Carried December 31, 2001 --------------------------------------- Accumulated Depreciation at Depre- Building and December 31, Date of Date ciable City State Improvements Total (a) 2001 (b) Construction Acquired Life - ------------------------------------ ---- ----- ------------ --------- -------------- ----------- -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> One Greentree Centre Marlton NJ 4,678 5,023 2,379 1982 1986 25 Three Greentree Centre Marlton NJ 6,241 6,564 3,793 1984 1986 25 Two Greentree Centre Marlton NJ 4,581 4,845 2,681 1983 1986 25 110 Summit Drive Exton PA 1,928 2,331 506 1985 1996 25 1155 Business Center Drive Horsham PA 3,913 4,942 994 1990 1996 25 120 West Germantown Pike Plymouth Meeting PA 2,856 3,541 589 1984 1996 25 140 West Germantown Pike Plymouth Meeting PA 2,210 2,691 522 1984 1996 25 16 Campus Boulevard Newtown Square PA 4,509 5,662 1,061 1990 1996 25 18 Campus Boulevard Newtown Square PA 3,348 4,134 798 1990 1996 25 2200 Cabot Boulevard Langhorne PA 3,712 4,482 863 1985 1996 25 2240/50 Butler Pike Plymouth Meeting PA 5,029 6,133 1,383 1984 1996 25 2260 Butler Pike Plymouth Meeting PA 2,882 3,543 677 1984 1996 25 2260/70 Cabot Boulevard Langhorne PA 1,870 2,285 439 1984 1996 25 3000 Cabot Boulevard Langhorne PA 2,140 2,625 502 1986 1996 25 33 Street Road - Greenwood Square I Bensalem PA 3,847 4,698 896 1985 1996 25 33 Street Road - Greenwood Square II Bensalem PA 5,461 6,587 1,362 1985 1996 25 33 Street Road - Greenwood Square III Bensalem PA 1,686 2,036 518 1985 1996 25 456 Creamery Way Exton PA 2,548 3,183 620 1987 1996 25 457 Haddonfield Road Cherry Hill NJ 11,335 13,477 3,019 1990 1996 31.5 468 Creamery Way Exton PA 2,073 2,600 440 1990 1996 25 486 Thomas Jones Way Exton PA 3,726 4,532 1,166 1990 1996 25 500 Enterprise Road Horsham PA 4,394 5,697 943 1990 1996 25 500 North Gulph Road King of Prussia PA 5,729 7,032 1,328 1979 1996 25 650 Dresher Road Horsham PA 2,329 2,965 495 1984 1996 25 6575 Snowdrift Road Allentown PA 2,804 3,405 671 1988 1996 25 700 Business Center Drive Horsham PA 2,350 2,900 522 1986 1996 25 7248 Tilghman Street Allentown PA 2,929 3,660 657 1987 1996 25 7310 Tilghman Street Allentown PA 2,777 3,330 775 1985 1996 25 800 Business Center Drive Horsham PA 3,642 4,538 769 1986 1996 25 8000 Lincoln Drive Marlton NJ 3,139 3,745 775 1983 1996 25 One Progress Avenue Horsham PA 5,756 7,155 1,233 1986 1996 25 One Righter Parkway Talleyville DE 10,470 13,015 2,122 1989 1996 25 1 Foster Avenue Gibbsboro NJ 430 523 88 1972 1997 25 10 Foster Avenue Gibbsboro NJ 1,039 1,283 174 1983 1997 25 100 Berwyn Park Berwyn PA 7,642 8,822 1,544 1986 1997 25 100 Commerce Drive Newark DE 4,738 5,898 800 1989 1997 25 100 Katchel Blvd Reading PA 7,645 9,526 1,440 1970 1997 25 1000 Atrium Way Mt. Laurel NJ 8,626 10,687 1,528 1989 1997 25 1000 East Lincoln Drive Marlton NJ 1,167 1,431 203 1981 1997 25 1000 Howard Boulevard Mt. Laurel NJ 9,706 12,004 2,004 1988 1997 25 1000/2000 West Lincoln Drive Marlton NJ 2,564 3,139 577 1982 1997 25 10000 Midlantic Drive Mt. Laurel NJ 13,291 16,497 2,557 1990 1997 25 100-300 Gundy Drive Reading PA 30,501 36,996 5,083 1970 1997 25 1007 Laurel Oak Road Voorhees NJ 6,254 7,817 1,021 1996 1997 25 111 Presidential Boulevard Bala Cynwyd PA 22,618 28,037 4,118 1974 1997 25 1120 Executive Boulevard Mt. Laurel NJ 9,090 11,164 2,211 1987 1997 25 1336 Enterprise Drive West Goshen PA 2,973 3,704 574 1989 1997 25 15000 Midlantic Drive Mt. Laurel NJ 12,358 15,419 2,335 1991 1997 25 2 Foster Avenue Gibbsboro NJ 760 945 127 1974 1997 25 20 East Clementon Road Gibbsboro NJ 3,275 4,044 574 1986 1997 25 200 Berwyn Park Berwyn PA 9,737 11,270 1,728 1987 1997 25 2000 Cabot Boulevard Langhorne PA 2,504 3,073 530 1985 1997 25 2000 Midlantic Drive Mt. Laurel NJ 9,178 11,380 1,781 1989 1997 25 2005 Cabot Boulevard Langhorne PA 1,871 2,184 380 1985 1997 25 2010 Cabot Boulevard Langhorne PA 3,190 3,950 620 1985 1997 25 220 Commerce Drive Ft. Washington PA 4,927 6,013 916 1985 1997 25 2510 Metropolitan Drive Trevose PA 15,131 18,442 3,061 1981 1997 25 </TABLE>
<TABLE> <CAPTION> Initial Cost ----------------------------------- --------------- Net Improvements (Retirements) Encumbrances at Building and Since City State December 31, 2001 Land Improvements Acquisition Land - ------------------------------- ---- ----- ----------------- ---- ------------- ----------- ---- <S> <C> <C> <C> <C> <C> <C> <C> 300 Berwyn Park Berwyn PA 13,277 2,206 13,422 154 2,206 300 Welsh Road - Building I Horsham PA 2,597 894 3,572 430 894 300 Welsh Road - Building II Horsham PA - 396 1,585 68 396 3000 West Lincoln Drive Marlton NJ - 569 2,293 140 569 321 Norristown Road Lower Gwyned PA - 1,289 5,176 290 1,289 323 Norristown Road Lower Gwyned PA - 1,685 6,751 394 1,685 4 Foster Avenue Gibbsboro NJ - 183 726 87 183 4000 Midlantic Drive Mt. Laurel NJ 3,232 714 5,085 (1,981) 714 4000/5000 West Lincoln Drive Marlton NJ - 877 3,526 277 877 5 Foster Avenue Gibbsboro NJ - 8 32 3 8 5 U.S. Avenue Gibbsboro NJ - 21 81 3 21 50 East Clementon Road Gibbsboro NJ - 114 964 2 114 500 Office Center Drive Ft. Washington PA - 1,617 6,480 1,382 1,617 501 Office Center Drive Ft. Washington PA - 1,796 7,192 1,318 1,796 55 U.S. Avenue Gibbsboro NJ - 1,116 4,435 48 1,116 6 East Clementon Road Gibbsboro NJ - 1,345 5,366 350 1,345 655 Business Center Drive Horsham PA 1,928 544 2,529 562 544 7 Foster Avenue Gibbsboro NJ - 231 921 54 231 748 Springdale Drive Exton PA - 236 931 142 236 855 Springdale Drive Exton PA - 838 3,370 69 838 9000 Midlantic Drive Mt. Laurel NJ 6,252 1,472 5,895 19 1,472 9000 West Lincoln Drive Marlton NJ - 610 2,422 271 610 Five Eves Drive Marlton NJ - 703 2,819 647 703 Four A Eves Drive Marlton NJ - 539 2,168 196 539 Four B Eves Drive Marlton NJ - 588 2,369 67 588 King & Harvard Cherry Hill NJ - 1,726 1,069 2,141 1,726 Main Street - Piazza Voorhees NJ - 696 2,802 78 696 Main Street - Plaza 1000 Voorhees NJ - 2,729 10,931 1,686 2,729 Main Street - Promenade Voorhees NJ - 531 2,052 162 531 Main Street- CAM Voorhees NJ - 3 11 98 3 One South Union Place Cherry Hill NJ - 771 8,047 (52) 771 Two Eves Drive Marlton NJ - 818 3,461 148 818 10 Skyline Drive Plainview NY - 239 951 37 239 1000 First Avenue King of Prussia PA 4,764 2,772 10,936 312 2,772 1009 Lenox Drive Lawrenceville NJ 14,135 4,876 19,284 2,148 4,876 1020 First Avenue King of Prussia PA 3,718 2,168 8,576 197 2,168 104 Windsor Center Drive East Windsor NJ - 977 3,918 1,003 977 1040 First Avenue King of Prussia PA 5,175 2,861 11,282 1,087 2,861 105 / 140 Terry Drive Newtown PA - 2,299 8,238 1,963 2,299 1060 First Avenue King of Prussia PA 4,685 2,712 10,953 122 2,712 11 Commercial Street Plainview NY - 237 942 46 237 1105 Berkshire Boulevard Reading PA - 1,115 4,510 133 1,115 111 Ames Court Plainview NY - 177 671 121 177 1150 Berkshire Boulevard Reading PA - 435 1,748 264 435 120 Express Street Plainview NY - 404 1,591 112 404 1255 Broad Street Bloomfield NJ - 992 3,947 38 992 14 Campus Boulevard Newtown Square PA 6,137 2,243 4,217 835 2,243 150 Corporate Center Drive Camp Hill PA - 964 3,871 69 964 155 Rittenhouse Circle Bristol PA 635 370 1,437 63 370 160-180 West Germantown Pike East Norriton PA 5,470 1,603 6,418 368 1,603 180 Central Ave/2 Engineers Lane Farmingdale NY - 221 882 5 221 180 Wheeler Court Langhorne PA - 608 2,436 423 608 19 Engineers Lane Farmingdale NY - 114 452 2 114 1957 Westmoreland Street Richmond VA 2,962 1,062 4,241 282 1,062 200 Corporate Center Drive Camp Hill PA - 1,647 6,606 55 1,647 200 Nationwide Drive Harrisburg PA - 100 403 - 100 201 North Walnut Street Wilmington DE 28,814 10,359 41,509 379 10,359 2100-2108 West Laburnum Richmond VA 1,423 2,482 8,846 1,309 2,482 2120 Tomlynn Street Richmond VA 764 280 1,125 35 280 2130-2146 Tomlynn Street Richmond VA 938 353 1,416 - 353 2169-79 Tomlynn Street Richmond VA 1,156 422 1,695 62 422 </TABLE>
[RESTUBBED TABLE} <TABLE> <CAPTION> Gross Amount at Which Carried December 31, 2001 ------------------------------------- Accumulated Depreciation at Depre- Building and December 31, Date of Date ciable City State Improvements Total (a) 2001 (b) Construction Acquired Life - ---------------------------- ---- ----- ------------ --------- ------------ ------------- -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 300 Berwyn Park Berwyn PA 13,576 15,782 2,409 1989 1997 25 300 Welsh Road - Building I Horsham PA 4,002 4,896 827 1985 1997 25 300 Welsh Road - Building II Horsham PA 1,653 2,049 278 1985 1997 25 3000 West Lincoln Drive Marlton NJ 2,433 3,002 481 1982 1997 25 321 Norristown Road Lower Gwyned PA 5,466 6,755 1,083 1972 1997 25 323 Norristown Road Lower Gwyned PA 7,145 8,830 1,328 1988 1997 25 4 Foster Avenue Gibbsboro NJ 813 996 175 1974 1997 25 4000 Midlantic Drive Mt. Laurel NJ 3,104 3,818 565 1981 1997 25 4000/5000 West Lincoln Drive Marlton NJ 3,803 4,680 782 1982 1997 25 5 Foster Avenue Gibbsboro NJ 35 43 6 1968 1997 25 5 U.S. Avenue Gibbsboro NJ 84 105 14 1987 1997 25 50 East Clementon Road Gibbsboro NJ 966 1,080 158 1986 1997 25 500 Office Center Drive Ft. Washington PA 7,862 9,479 1,686 1974 1997 25 501 Office Center Drive Ft. Washington PA 8,510 10,306 1,800 1974 1997 25 55 U.S. Avenue Gibbsboro NJ 4,483 5,599 731 1982 1997 25 6 East Clementon Road Gibbsboro NJ 5,716 7,061 1,050 1980 1997 25 655 Business Center Drive Horsham PA 3,091 3,635 723 1997 1997 31.5 7 Foster Avenue Gibbsboro NJ 975 1,206 158 1983 1997 25 748 Springdale Drive Exton PA 1,073 1,309 213 1986 1997 25 855 Springdale Drive Exton PA 3,439 4,277 629 1986 1997 25 9000 Midlantic Drive Mt. Laurel NJ 5,914 7,386 1,085 1989 1997 25 9000 West Lincoln Drive Marlton NJ 2,693 3,303 531 1983 1997 25 Five Eves Drive Marlton NJ 3,466 4,169 736 1986 1997 25 Four A Eves Drive Marlton NJ 2,364 2,903 526 1987 1997 25 Four B Eves Drive Marlton NJ 2,436 3,024 489 1987 1997 25 King & Harvard Cherry Hill NJ 3,210 4,936 537 1997 25 Main Street - Piazza Voorhees NJ 2,880 3,576 558 1990 1997 25 Main Street - Plaza 1000 Voorhees NJ 12,617 15,346 2,415 1988 1997 25 Main Street - Promenade Voorhees NJ 2,214 2,745 432 1988 1997 25 Main Street- CAM Voorhees NJ 109 112 12 1997 25 One South Union Place Cherry Hill NJ 7,995 8,766 1,584 1997 25 Two Eves Drive Marlton NJ 3,609 4,427 746 1987 1997 25 10 Skyline Drive Plainview NY 988 1,227 133 1960 1998 25 1000 First Avenue King of Prussia PA 11,248 14,020 1,486 1980 1998 25 1009 Lenox Drive Lawrenceville NJ 21,432 26,308 3,392 1989 1998 25 1020 First Avenue King of Prussia PA 8,773 10,941 1,139 1984 1998 25 104 Windsor Center Drive East Windsor NJ 4,921 5,898 1,168 1987 1998 25 1040 First Avenue King of Prussia PA 12,369 15,230 1,838 1985 1998 25 105 / 140 Terry Drive Newtown PA 10,201 12,500 1,824 1982 1998 25 1060 First Avenue King of Prussia PA 11,075 13,787 1,458 1987 1998 25 11 Commercial Street Plainview NY 988 1,225 150 1961 1998 25 1105 Berkshire Boulevard Reading PA 4,643 5,758 801 1987 1998 25 111 Ames Court Plainview NY 792 969 100 1959 1998 25 1150 Berkshire Boulevard Reading PA 2,012 2,447 339 1979 1998 25 120 Express Street Plainview NY 1,703 2,107 233 1962 1998 25 1255 Broad Street Bloomfield NJ 3,985 4,977 520 1981 1998 25 14 Campus Boulevard Newtown Square PA 5,052 7,295 1,288 1998 1998 25 150 Corporate Center Drive Camp Hill PA 3,940 4,904 588 1987 1998 25 155 Rittenhouse Circle Bristol PA 1,500 1,870 207 1985 1998 25 160-180 West Germantown Pike East Norriton PA 6,786 8,389 1,048 1982 1998 25 180 Central Ave/2 Engineers Lane Farmingdale NY 887 1,108 115 1960 1998 25 180 Wheeler Court Langhorne PA 2,859 3,467 439 1975 1998 25 19 Engineers Lane Farmingdale NY 454 568 59 1962 1998 25 1957 Westmoreland Street Richmond VA 4,523 5,585 641 1975 1998 25 200 Corporate Center Drive Camp Hill PA 6,661 8,308 975 1989 1998 25 200 Nationwide Drive Harrisburg PA 403 503 59 1978 1998 25 201 North Walnut Street Wilmington DE 41,292 51,651 6,343 1988 1998 25 2100-2108 West Laburnum Richmond VA 10,155 12,637 1,314 1976 1998 25 2120 Tomlynn Street Richmond VA 1,160 1,440 159 1986 1998 25 2130-2146 Tomlynn Street Richmond VA 1,416 1,769 184 1988 1998 25 2169-79 Tomlynn Street Richmond VA 1,757 2,179 248 1985 1998 25 </TABLE>
<TABLE> <CAPTION> Initial Cost ------------------------------------ -------------- Net Improvements (Retirements) Encumbrances at Building and Since City State December 31, 2001 Land Improvements Acquisition Land - --------------------------------- ---- ----- ----------------- ---- ------------- ----------- ---- <S> <C> <C> <C> <C> <C> <C> <C> 2201 Dabney Street Richmond VA - 367 1,470 180 367 2201-2245 Tomlynn Street Richmond VA 2,940 1,020 4,067 457 1,020 2212-2224 Tomlynn Street Richmond VA 1,372 502 2,014 70 502 2221-2245 Dabney Road Richmond VA 1,407 530 2,123 - 530 2240 Dabney Road Richmond VA 705 264 1,059 6 264 2244 Dabney Road Richmond VA 1,461 551 2,203 - 551 2246 Dabney Road Richmond VA 1,208 455 1,822 - 455 2248 Dabney Road Richmond VA 1,431 511 2,049 138 511 2251 Dabney Road Richmond VA 1,072 387 1,552 83 387 2256 Dabney Road Richmond VA 968 356 1,427 43 356 2277 Dabney Road Richmond VA 1,348 507 2,034 - 507 2401 Park Drive Harrisburg PA - 182 728 84 182 2404 Park Drive Harrisburg PA - 167 668 128 167 245 Old Country Road Mellville NY - 1,232 4,903 26 1,232 2490 Boulevard of the Generals King of Prussia PA - 348 1,394 27 348 2511 Brittons Hill Road Richmond VA 3,242 1,201 4,820 91 1,201 256-263 Chapman Road/Bellevue Newark DE - 374 1,547 196 374 256-263 Chapman Road/Camridge Newark DE - 292 1,185 39 292 256-263 Chapman Road/Chopin Newark DE - 484 1,958 216 484 256-263 Chapman Road/Commonwealth Newark DE - 351 1,421 193 351 256-263 Chapman Road/Oxford Newark DE - 410 1,663 308 410 256-263 Chapman Road/Stockton Newark DE - 291 1,176 4 291 2812 Emerywood Parkway Henrico VA 2,838 1,069 4,281 - 1,069 300 Arboretum Place Richmond VA 15,264 5,450 21,892 1,306 5,450 300 Corporate Center Drive Camp Hill PA - 4,823 19,301 240 4,823 301 North Walnut Street Wilmington DE 24,418 8,495 34,016 1,260 8,495 303 Fellowship Drive Mt. Laurel NJ 2,686 1,493 6,055 357 1,493 304 Harper Drive Mt. Laurel NJ 1,240 657 2,674 319 657 305 Fellowship Drive Mt. Laurel NJ 2,718 1,422 5,768 809 1,422 305 Harper Drive Mt. Laurel NJ 389 222 913 11 222 307 Fellowship Drive Mt. Laurel NJ 2,798 1,564 6,342 329 1,564 308 Harper Drive Mt. Laurel NJ - 1,643 6,663 196 1,643 309 Fellowship Drive Mt. Laurel NJ 2,854 1,518 6,154 727 1,518 33 West State Street Trenton NJ - 6,016 24,091 90 6,016 336 South Service Road Melville NY - 707 2,812 363 707 426 Lancaster Avenue Devon PA - 1,689 6,756 - 1,689 4364 South Alston Avenue Durham NC 2,795 1,622 6,419 186 1,622 4550 New Linden Hill Road Wilmington DE - 1,998 7,995 978 1,998 4805 Lake Brooke Drive Glen Allen VA 4,383 1,640 6,567 57 1,640 50 East State Street Trenton NJ - 8,926 35,735 350 8,926 50 Swedesford Square Frazer PA 6,629 3,902 15,254 354 3,902 500 Nationwide Drive Harrisburg PA - 173 850 777 173 52 Swedesford Square Frazer PA 7,309 4,242 16,579 690 4,242 520 Virginia Drive Ft. Washington PA - 845 3,455 378 845 55 Ames Court Plainview NY - 818 3,259 526 818 600 Corporate Circle Drive Harrisburg PA - 363 1,452 59 363 600 East Main Street Richmond VA 17,017 9,809 38,255 2,019 9,809 600 Park Avenue King of Prussia PA - 1,012 4,048 - 1,012 610 Freedom Business Center King of Prussia PA 5,663 2,017 8,070 591 2,017 620 Allendale Road King of Prussia PA - 1,020 3,839 632 1,020 620 Freedom Business Center King of Prussia PA 7,470 2,770 11,014 300 2,770 630 Clark Avenue King of Prussia PA - 547 2,190 - 547 630 Freedom Business Center King of Prussia PA 7,594 2,773 11,144 401 2,773 640 Allendale Road King of Prussia PA - - 432 208 - 640 Freedom Business Center King of Prussia PA 11,312 4,222 16,891 215 4,222 645 Stewart Avenue Garden City NY - 414 1,648 9 414 650 Park Avenue King of Prussia PA - 1,917 4,378 1,121 1,917 660 Allendale Road King of Prussia PA - 835 3,343 149 835 680 Allendale Road King of Prussia PA - 689 2,756 669 689 700 East Gate Drive Mt. Laurel NJ 6,220 3,569 14,436 300 3,569 701 East Gate Drive Mt. Laurel NJ 3,015 1,736 6,877 260 1,736 </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Gross Amount at Which Carried December 31, 2001 ------------------------------------- Accumulated Depreciation at Depre- Building and December 31, Date of Date ciable City State Improvements Total (a) 2001 (b) Construction Acquired Life - ---------------------------- ---- ----- ------------ --------- ------------ ------------- -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 2201 Dabney Street Richmond VA 1,650 2,017 221 1962 1998 25 2201-2245 Tomlynn Street Richmond VA 4,524 5,544 714 1989 1998 25 2212-2224 Tomlynn Street Richmond VA 2,084 2,586 264 1985 1998 25 2221-2245 Dabney Road Richmond VA 2,123 2,653 276 1994 1998 25 2240 Dabney Road Richmond VA 1,065 1,329 140 1984 1998 25 2244 Dabney Road Richmond VA 2,203 2,754 286 1993 1998 25 2246 Dabney Road Richmond VA 1,822 2,277 237 1987 1998 25 2248 Dabney Road Richmond VA 2,187 2,698 286 1989 1998 25 2251 Dabney Road Richmond VA 1,635 2,022 216 1983 1998 25 2256 Dabney Road Richmond VA 1,470 1,826 194 1982 1998 25 2277 Dabney Road Richmond VA 2,034 2,541 264 1986 1998 25 2401 Park Drive Harrisburg PA 812 994 150 1984 1998 25 2404 Park Drive Harrisburg PA 796 963 162 1983 1998 25 245 Old Country Road Mellville NY 4,929 6,161 641 1978 1998 25 2490 Boulevard of the Generals King of Prussia PA 1,421 1,769 228 1975 1998 25 2511 Brittons Hill Road Richmond VA 4,911 6,112 654 1987 1998 25 256-263 Chapman Road/Bellevue Newark DE 1,743 2,117 298 1983 1998 25 256-263 Chapman Road/Camridge Newark DE 1,224 1,516 201 1983 1998 25 256-263 Chapman Road/Chopin Newark DE 2,174 2,658 384 1983 1998 25 256-263 Chapman Road/Commonwealth Newark DE 1,614 1,965 276 1983 1998 25 256-263 Chapman Road/Oxford Newark DE 1,971 2,381 348 1983 1998 25 256-263 Chapman Road/Stockton Newark DE 1,180 1,471 189 1983 1998 25 2812 Emerywood Parkway Henrico VA 4,281 5,350 556 1980 1998 25 300 Arboretum Place Richmond VA 23,198 28,648 3,383 1988 1998 25 300 Corporate Center Drive Camp Hill PA 19,541 24,364 2,941 1989 1998 25 301 North Walnut Street Wilmington DE 35,276 43,771 5,257 1989 1998 25 303 Fellowship Drive Mt. Laurel NJ 6,412 7,905 901 1979 1998 25 304 Harper Drive Mt. Laurel NJ 2,993 3,650 455 1975 1998 25 305 Fellowship Drive Mt. Laurel NJ 6,577 7,999 1,044 1980 1998 25 305 Harper Drive Mt. Laurel NJ 924 1,146 127 1979 1998 25 307 Fellowship Drive Mt. Laurel NJ 6,671 8,235 962 1981 1998 25 308 Harper Drive Mt. Laurel NJ 6,859 8,502 903 1976 1998 25 309 Fellowship Drive Mt. Laurel NJ 6,881 8,399 949 1982 1998 25 33 West State Street Trenton NJ 24,181 30,197 3,645 1988 1998 25 336 South Service Road Melville NY 3,175 3,882 380 1965 1998 25 426 Lancaster Avenue Devon PA 6,756 8,445 1,081 1990 1998 25 4364 South Alston Avenue Durham NC 6,605 8,227 858 1985 1998 25 4550 New Linden Hill Road Wilmington DE 8,973 10,971 1,582 1974 1998 25 4805 Lake Brooke Drive Glen Allen VA 6,624 8,264 858 1996 1998 25 50 East State Street Trenton NJ 36,085 45,011 5,479 1989 1998 25 50 Swedesford Square Frazer PA 15,608 19,510 2,029 1988 1998 25 500 Nationwide Drive Harrisburg PA 1,627 1,800 193 1977 1998 25 52 Swedesford Square Frazer PA 17,269 21,511 2,368 1986 1998 25 520 Virginia Drive Ft. Washington PA 3,833 4,678 661 1987 1998 25 55 Ames Court Plainview NY 3,785 4,603 651 1961 1998 25 600 Corporate Circle Drive Harrisburg PA 1,511 1,874 223 1978 1998 25 600 East Main Street Richmond VA 40,274 50,083 5,409 1986 1998 25 600 Park Avenue King of Prussia PA 4,048 5,060 621 1964 1998 25 610 Freedom Business Center King of Prussia PA 8,661 10,678 1,420 1985 1998 25 620 Allendale Road King of Prussia PA 4,471 5,491 627 1961 1998 25 620 Freedom Business Center King of Prussia PA 11,314 14,084 1,819 1986 1998 25 630 Clark Avenue King of Prussia PA 2,190 2,737 336 1960 1998 25 630 Freedom Business Center King of Prussia PA 11,545 14,318 1,890 1989 1998 25 640 Allendale Road King of Prussia PA 640 640 277 2001 1998 25 640 Freedom Business Center King of Prussia PA 17,106 21,328 2,713 1991 1998 25 645 Stewart Avenue Garden City NY 1,657 2,071 215 1962 1998 25 650 Park Avenue King of Prussia PA 5,499 7,416 827 1968 1998 25 660 Allendale Road King of Prussia PA 3,492 4,327 554 1962 1998 25 680 Allendale Road King of Prussia PA 3,425 4,114 543 1962 1998 25 700 East Gate Drive Mt. Laurel NJ 14,736 18,305 1,974 1984 1998 25 701 East Gate Drive Mt. Laurel NJ 7,137 8,873 944 1986 1998 25 </TABLE>
<TABLE> <CAPTION> Initial Cost ------------------------------------ -------------- Net Improvements (Retirements) Encumbrances at Building and Since City State December 31, 2001 Land Improvements Acquisition Land - --------------------------- ---- ----- ----------------- ---- ------------- ------------- ---- <S> <C> <C> <C> <C> <C> <C> <C> 7010 Snowdrift Way Allentown PA 1,407 817 3,324 (1) 817 7150 Windsor Drive Allentown PA 1,878 1,034 4,219 273 1,034 7350 Tilghman Street Allentown PA - 3,414 13,716 1,079 3,414 741 First Avenue King of Prussia PA - 1,287 5,151 - 1,287 7450 Tilghman Street Allentown PA 5,345 2,867 11,631 1,232 2,867 751-761 Fifth Avenue King of Prussia PA - 1,097 4,391 - 1,097 7535 Windsor Drive Allentown PA 5,873 3,376 13,400 509 3,376 755 Business Center Drive Horsham PA 2,303 1,363 2,334 645 1,363 8 Engineers Lane Farmingdale NY - 194 774 4 194 80 Skyline Drive Plainview NY - 484 1,937 376 484 800 Corporate Circle Drive Harrisburg PA - 414 1,653 64 414 815 East Gate Drive Mt. Laurel NJ 1,134 637 2,584 117 637 817 East Gate Drive Mt. Laurel NJ 1,051 611 2,426 56 611 875 First Avenue King of Prussia PA - 618 2,473 3,399 618 9011 Arboretum Parkway Richmond VA 5,208 1,856 7,702 261 1,856 91 North Industry Court Deer Park NY - 550 2,191 48 550 9100 Arboretum Parkway Richmond VA 3,827 1,363 5,489 330 1,363 920 Harvest Drive Blue Bell PA - 2,433 9,738 110 2,433 9200 Arboretum Parkway Richmond VA 2,726 984 3,973 159 984 9210 Arboretum Parkway Richmond VA 3,042 1,110 4,474 125 1,110 9211 Arboretum Parkway Richmond VA 1,605 581 2,433 13 581 922 Swedesford Road Frazer PA - 218 1 (1) 218 925 Harvest Drive Blue Bell PA - 1,671 6,606 231 1,671 993 Lenox Drive Lawrenceville NJ 11,964 2,811 17,996 (6,674) 2,811 997 Lenox Drive Lawrenceville NJ 10,534 2,410 9,700 334 2,410 East Gate Land Mt. Laurel NJ - 1 1 - 1 Park 80 West Plaza I Saddlebrook NJ 20,726 6,242 26,938 3,972 6,242 Park 80 West Plaza II Saddlebrook NJ 22,732 7,668 30,533 2,547 7,668 Philadelphia Marine Center Philadelphia PA - 533 2,196 178 533 11 Campus Boulevard Newtown Square PA 4,834 1,112 4,067 567 1,112 125 Jericho Turnpike Jericho NY - 963 4,026 604 963 131 Jericho Turnpike Jericho NY - 340 1,295 431 340 2000 Lenox Drive Lawrenceville NJ 15,225 2,291 12,221 3,474 2,291 263 Old Country Road Mellville NY - 1,567 6,266 1 1,567 630 Allendale Road King of Prussia PA 19,595 2,836 4,028 15,098 2,836 630 Dresher Road Horsham PA - 771 3,083 788 771 7130 Ambassador Drive Allentown PA - 761 3,046 8 761 1050 Westlakes Drive Berwyn PA - - 13,056 1,645 - 1700 Paoli Pike East Goshen PA - 458 559 3,001 458 10 Lake Center Drive Marlton NJ 8,018 1,510 6,040 - 1,510 100 Arrandale Boulevard Exton PA - 1,173 4,693 - 1,173 100 Gateway Centre Parkway Richmond VA - - - - - 100 Lindenwood Drive Malvern PA 1,915 357 1,427 19 357 101 Lindenwood Drive Malvern PA - 2,390 9,520 15 2,390 1100 Cassett Road Berwyn PA - 2,023 8,093 - 2,023 111 Arrandale Boulevard Exton PA 1,241 323 1,291 - 323 111/113 Pencader Drive Newark DE - 1,601 6,405 - 1,601 1160 Swedesford Road Berwyn PA 14,232 2,643 10,570 188 2,643 1180 Swedesford Road Berwyn PA 9,328 1,754 7,016 13 1,754 1200 Swedesford Road Berwyn PA 7,028 2,438 9,552 - 2,438 161 Gaither Drive Mt. Laurel NJ - 1,287 5,147 - 1,287 17 Campus Boulevard Newtown Square PA 5,269 1,108 5,155 - 1,108 200 Lake Drive East Cherry Hill NJ 9,442 1,778 7,112 - 1,778 200 Lindenwood Drive Malvern PA 1,297 244 977 - 244 200 Wireless Boulevard Hauppauge NY - 857 3,469 - 857 210 Lake Drive East Cherry Hill NJ 6,456 1,216 4,863 - 1,216 220 Lake Drive East Cherry Hill NJ - 2,450 10,024 - 2,450 30 Lake Center Drive Marlton NJ 4,042 761 3,045 - 761 300 Lindenwood Drive Malvern PA 3,399 640 2,560 - 640 301 Lindenwood Drive Malvern PA - 1,970 7,880 142 1,970 412 Creamery Way Exton PA - 1,012 4,047 - 1,012 </TABLE>
[RESTUBBED TABLE] <TABLE> <CAPTION> Gross Amount at Which Carried December 31, 2001 ------------------------------------- Accumulated Depreciation at Depre- Building and December 31, Date of Date ciable City State Improvements Total (a) 2001 (b) Construction Acquired Life - ---------------------------- ---- ----- ------------ --------- ------------ ------------- -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 7010 Snowdrift Way Allentown PA 3,323 4,140 431 1991 1998 25 7150 Windsor Drive Allentown PA 4,492 5,526 653 1988 1998 25 7350 Tilghman Street Allentown PA 14,795 18,209 2,166 1987 1998 25 741 First Avenue King of Prussia PA 5,151 6,438 790 1966 1998 25 7450 Tilghman Street Allentown PA 12,863 15,730 1,907 1986 1998 25 751-761 Fifth Avenue King of Prussia PA 4,391 5,488 673 1967 1998 25 7535 Windsor Drive Allentown PA 13,909 17,285 1,852 1988 1998 25 755 Business Center Drive Horsham PA 2,979 4,342 600 1998 1998 31.5 8 Engineers Lane Farmingdale NY 778 972 101 1963 1998 25 80 Skyline Drive Plainview NY 2,313 2,797 332 1961 1998 25 800 Corporate Circle Drive Harrisburg PA 1,717 2,131 256 1979 1998 25 815 East Gate Drive Mt. Laurel NJ 2,701 3,338 402 1986 1998 25 817 East Gate Drive Mt. Laurel NJ 2,482 3,093 322 1986 1998 25 875 First Avenue King of Prussia PA 5,872 6,490 683 1966 1998 25 9011 Arboretum Parkway Richmond VA 7,963 9,819 1,111 1991 1998 25 91 North Industry Court Deer Park NY 2,239 2,789 294 1965 1998 25 9100 Arboretum Parkway Richmond VA 5,819 7,182 816 1988 1998 25 920 Harvest Drive Blue Bell PA 9,848 12,281 1,470 1990 1998 25 9200 Arboretum Parkway Richmond VA 4,132 5,116 546 1988 1998 25 9210 Arboretum Parkway Richmond VA 4,599 5,709 625 1988 1998 25 9211 Arboretum Parkway Richmond VA 2,446 3,027 322 1991 1998 25 922 Swedesford Road Frazer PA - 218 - 1986 1998 25 925 Harvest Drive Blue Bell PA 6,837 8,508 987 1990 1998 25 993 Lenox Drive Lawrenceville NJ 11,322 14,133 1,703 1985 1998 25 997 Lenox Drive Lawrenceville NJ 10,034 12,444 1,627 1987 1998 25 East Gate Land Mt. Laurel NJ 1 2 - 1998 25 Park 80 West Plaza I Saddlebrook NJ 30,910 37,152 5,863 1988 1998 25 Park 80 West Plaza II Saddlebrook NJ 33,080 40,748 5,735 1970 1998 25 Philadelphia Marine Center Philadelphia PA 2,374 2,907 297 1998 25 11 Campus Boulevard Newtown Square PA 4,634 5,746 446 1999 1999 25 125 Jericho Turnpike Jericho NY 4,630 5,593 556 1969 1999 25 131 Jericho Turnpike Jericho NY 1,726 2,066 271 1967 1999 25 2000 Lenox Drive Lawrenceville NJ 15,695 17,986 1,049 1999 1999 31.5 263 Old Country Road Mellville NY 6,267 7,834 669 1999 1999 25 630 Allendale Road King of Prussia PA 19,126 21,962 999 1999 31.5 630 Dresher Road Horsham PA 3,871 4,642 325 1987 1999 25 7130 Ambassador Drive Allentown PA 3,054 3,815 296 1991 1999 25 1050 Westlakes Drive Berwyn PA 14,701 14,701 755 2000 25 1700 Paoli Pike East Goshen PA 3,560 4,018 199 2000 2000 31.5 10 Lake Center Drive Marlton NJ 6,040 7,550 144 1989 2001 25 100 Arrandale Boulevard Exton PA 4,693 5,866 88 1997 2001 25 100 Gateway Centre Parkway Richmond VA - - - 2001 2001 25 100 Lindenwood Drive Malvern PA 1,446 1,803 27 1985 2001 25 101 Lindenwood Drive Malvern PA 9,535 11,925 182 1988 2001 25 1100 Cassett Road Berwyn PA 8,093 10,116 152 1997 2001 25 111 Arrandale Boulevard Exton PA 1,291 1,614 24 1996 2001 25 111/113 Pencader Drive Newark DE 6,405 8,006 120 1990 2001 25 1160 Swedesford Road Berwyn PA 10,758 13,401 215 1986 2001 25 1180 Swedesford Road Berwyn PA 7,029 8,783 132 1987 2001 25 1200 Swedesford Road Berwyn PA 9,552 11,990 179 1994 2001 25 161 Gaither Drive Mt. Laurel NJ 5,147 6,434 97 1987 2001 25 17 Campus Boulevard Newtown Square PA 5,155 6,263 142 2001 2001 25 200 Lake Drive East Cherry Hill NJ 7,112 8,890 133 1989 2001 25 200 Lindenwood Drive Malvern PA 977 1,221 18 1984 2001 25 200 Wireless Boulevard Hauppauge NY 3,469 4,326 80 1986 2001 25 210 Lake Drive East Cherry Hill NJ 4,863 6,079 61 1986 2001 25 220 Lake Drive East Cherry Hill NJ 10,024 12,474 220 1988 2001 25 30 Lake Center Drive Marlton NJ 3,045 3,806 57 1986 2001 25 300 Lindenwood Drive Malvern PA 2,560 3,200 48 1984 2001 25 301 Lindenwood Drive Malvern PA 8,022 9,992 158 1986 2001 25 412 Creamery Way Exton PA 4,047 5,059 76 1999 2001 25 </TABLE>
<TABLE> <CAPTION> Initial Cost ------------------------------------ ----------------- Net Improvements (Retirements) Encumbrances at Building and Since City State December 31, 2001 Land Improvements Acquisition Land - --------------------------- ---- ----- ----------------- ---- ------------- ------------- ---- <S> <C> <C> <C> <C> <C> <C> <C> 429 Creamery Way Exton PA 3,496 1,604 6,414 - 1,604 436 Creamery Way Exton PA - 1,164 4,657 12 1,164 440 Creamery Way Exton PA 2,638 880 3,519 - 880 442 Creamery Way Exton PA 3,461 1,154 4,616 - 1,154 457 Creamery Way Exton PA - 911 3,643 - 911 467 Creamery Way Exton PA - 1,062 4,248 - 1,062 470 John Young Way Exton PA - 330 1,322 131 330 479 Thomas Jones Way Exton PA - 913 3,652 32 913 481 John Young Way Exton PA 2,569 610 2,438 - 610 555 Croton Road King of Prussia PA - 3,633 14,532 59 3,633 7360 Windsor Drive Allentown PA - 1,451 3,618 2,036 1,451 Katchel Farmhouse Reading PA - - - 111 - Two Righter Parkway Wilmington DE - 2,802 11,217 - 2,802 --------- -------- ---------- ------- -------- $ 572,238 $353,655 $1,441,454 $98,526 $353,655 ========= ======== ========== ======= ======== </TABLE> [RESTUBBED TABLE] <TABLE> <CAPTION> Gross Amount at Which Carried December 31, 2001 ---------------------------------------- Accumulated Depreciation at Depre- Building and December 31, Date of Date ciable City State Improvements Total (a) 2001 (b) Construction Acquired Life - ------------------------ ---- ----- ------------ --------- ------------ ------------- -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 429 Creamery Way Exton PA 6,414 8,018 120 1996 2001 25 436 Creamery Way Exton PA 4,669 5,833 89 1991 2001 25 440 Creamery Way Exton PA 3,519 4,399 66 1991 2001 25 442 Creamery Way Exton PA 4,616 5,770 85 1991 2001 25 457 Creamery Way Exton PA 3,643 4,554 68 1990 2001 25 467 Creamery Way Exton PA 4,248 5,310 80 1988 2001 25 470 John Young Way Exton PA 1,453 1,783 38 1999 2001 25 479 Thomas Jones Way Exton PA 3,684 4,597 69 1988 2001 25 481 John Young Way Exton PA 2,438 3,048 46 1997 2001 25 555 Croton Road King of Prussia PA 14,591 18,224 293 1999 2001 25 7360 Windsor Drive Allentown PA 5,654 7,105 120 2001 2001 25 Katchel Farmhouse Reading PA 111 111 37 2001 2001 25 Two Righter Parkway Wilmington DE 11,217 14,019 449 1987 2001 25 ---------- ---------- -------- $1,539,384 $1,893,039 $230,793 ========== ========== ======== </TABLE>