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Brandywine Realty Trust
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#7081
Rank
$0.55 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
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$3.20
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๐Ÿ  Real estate๐Ÿ’ฐ Investment ๐Ÿ˜๏ธ REITs
Categories
  1. Brandywine Realty Trust
  2. Annual Reports (10-K)
  3. Submitted on 2003-03-27

Brandywine Realty Trust - 10-K annual report


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the fiscal year ended             December 31, 2002            

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
(State or other jurisdiction of
Incorporation or organization)		 23-2413352
(I.R.S. Employer
Identification Number)



 401 Plymouth Road, Plymouth Meeting, Pennsylvania
(Address of principal executive offices)		 19462
(Zip Code)

 (610) 325-5600
Registrant’s telephone number, including area code)

  
Securities registered pursuant to Section 12(b) of the Act:


 Title of each class
Common Shares of Beneficial Interest,
(par value $0.01 per share)		 Name of each exchange
on which registered
New York Stock Exchange

 NONE
Securities registered pursuant to Section 12(g) of the Act:

  
(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  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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

YES    NO  

The aggregate market value of the Common Shares of Beneficial Interest held by non-affiliates of the registrant as of the last day of the registrant’s most recently completed second fiscal quarter was $742.2 million. 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 35,301,820 Common Shares of Beneficial Interest were outstanding as of March 24, 2003.

Documents Incorporated By Reference

Portions of the proxy statement for the Annual Meeting of Shareholders of Brandywine Realty Trust to be held May 5, 2003 are incorporated by reference into Part III of this Form 10-K.

 

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TABLE OF CONTENTS

FORM 10-K

    Page
 
 
 
   
PART I
 
 
 
  4
 
 
 
   
Item 1.
 
 
  4
     
 
 
 
   
Item 2.
 
 
  17
     
 
 
 
   
Item 3.
 
 
  22
     
 
 
 
   
Item 4.
 
 
  23
 
 
 
   
PART II
 
 
 
  23
     
 
 
 
   
Item 5.
 
 
  23
     
 
 
 
   
Item 6.
 
 
  25
     
 
 
 
   
Item 7.
 
 
  25
     
 
 
 
   
Item 8.
 
 
  36
     
 
 
 
   
Item 9.
 
 
  37
 
 
 
   
PART III
 
 
 
  37
     
 
 
 
   
Item 10.
 
 
  37
     
 
 
 
   
Item 11.
 
 
  37
     
 
 
 
   
Item 12.
 
 
  37
     
 
 
 
   
Item 13.
 
 
  38
     
 
 
 
   
Item 14.
 
 
  38
 
 
 
   
PART IV
 
 
 
  38
     
 
 
 
   
Item 15.
 
 
  38
     
 
 
 
   
SIGNATURES
 
 
 
  43
     
 
 
 
   
  44

 

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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, 2002, the Company owned 210 office properties, 27 industrial facilities and one mixed-use property (collectively, the “Properties”) containing an aggregate of approximately 16.1 million net rentable square feet. The Company was also performing management and leasing services for 43 properties containing an aggregate of 3.1 million net rentable square feet. In addition, as of December 31, 2002, the Company held economic interests in ten unconsolidated real estate ventures (the “Real Estate Ventures”) that were formed with third parties to develop commercial properties. The Real Estate Ventures own eight office buildings that contain approximately 800,000 net rentable square feet. As of December 31, 2002, the Company had an aggregate investment in the Real Estate Ventures of approximately $14.8 million (net of returns of investment received by Company). As of December 31, 2002, the Company also owned approximately 444 acres of undeveloped land and held options to purchase approximately 63 additional acres. The Company also holds an option to enter into a long-term ground lease of property adjacent to Amtrak’s 30th Street Station in Philadelphia and develop a high-rise office property on the leasehold interest. The Properties are located in the office and industrial markets in and surrounding Philadelphia, Pennsylvania, New Jersey and Richmond, Virginia.

Business Objectives

The Company’s business objectives are to:

 •
maximize cash flow through leasing strategies designed to capture potential rental growth as rental rates increase and as below-market leases are renewed;
   
 •
attain a high tenant retention rate through aggressive tenant service programs responsive to the varying needs of the Company’s diverse tenant base;
   
 •
increase economic diversification while maximizing economies of scale;
   
 •
develop high-quality office and industrial properties on the Company’s existing inventory of land, as warranted by market conditions;
   
 •
capitalize on management’s redevelopment expertise to selectively acquire, redevelop and reposition underperforming properties in desirable locations;
   
 •
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
   
 •
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.

 

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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, 2002, the Company’s ownership interest in the Operating Partnership entitled it to approximately 94.9% 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 real estate management services through Brandywine Realty Services Corporation (the “Management Company”), a subsidiary of which 95% is owned by the Operating Partnership. The remaining five percent is owed by a partnership comprised of two executives of the Company. See “Management Activities.”

The Company’s executive offices are located at 401 Plymouth Road, Suite 500, Plymouth Meeting, Pennsylvania 19462 and its telephone number is (610) 325-5600. The Company has an internet website at www.brandywinerealty.com.

Credit Facility

The Company and the Operating Partnership maintain an unsecured credit facility (the “Credit Facility”) with a bank group (comprising 21 banks) led by Bank of America, N.A. 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, 2002, there was unused availability of $179.4 million under the Credit Facility. The Credit Facility is 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”) (1.38% at December 31, 2002) 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 Bank of America’s prime rate plus .25%. The Company generally elects the interest rate based on LIBOR for all or most of the borrowings on 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 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, 2002, the Company had interest rate swap agreements for notional principal amounts aggregating $175 million. The swap agreements effectively fix the LIBOR portion of the Company’s interest rate on $100 million of Credit Facility borrowings at 4.230% and $75 million of Credit Facility borrowings at 4.215%, in each case until June 2004. The interest rate cap agreement effectively limits the interest rate on a mortgage with a notional value of $28 million at 8.7% until July 2004.

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 Internal Revenue Code of 1986, and otherwise limits dividends to 90% of the Company’s funds from operations, as defined in the Credit Facility.

 

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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 can be held by subsidiaries not party to the Credit Facility.

Term Loan

On July 15, 2002, the Company and the Operating Partnership entered into an unsecured term loan agreement with a group of lenders under which those lenders funded a term loan of $100 million (the “Term Loan”) to the Company and the Operating Partnership. The proceeds of the Term Loan were used to repay existing indebtedness, consisting primarily of indebtedness that had been outstanding under the Credit Facility. The Term Loan, like the Credit Facility, is recourse to the Company, the Operating Partnership and those subsidiaries that are parties, as guarantors, to the Term Loan agreement (which are the same subsidiaries that are guarantors of the Credit Facility). Bank of America, N.A. serves as administrative agent for a group of lenders under the Term Loan, as it does for the lenders under the Credit Facility, although the groups of lenders are not identical under the Term Loan and Credit Facility.

There is no required principal amortization of the Term Loan prior to maturity. The Term Loan matures on July 15, 2005, subject to two extensions of one year each upon payment by the Company of an extension fee and the absence of any defaults at the time of each extension.

The Term Loan bears interest at a per annum floating rate equal to the one, two, three or six month LIBOR, plus between 1.05% and 1.90% (1.65% at December 31, 2002), depending on the leverage and debt rating of the Company and the Operating Partnership. At the Company’s option, the Term Loan may bear interest at the prime rate plus .25%. Interest is due at the end of the LIBOR term, unless a six month LIBOR term is selected, in which case interest is also paid at the end of the third month of the LIBOR term. If the Company elects interest based on the prime rate, then interest payments will be due monthly.

The agreement providing for the Term Loan contains financial and operating covenants identical to those in the agreement establishing the Credit Facility. In addition, the Term Loan agreement, like the Credit Facility agreement, requires payment of prepayment premiums in certain instances.

 

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Additional Debt

Mortgage Indebtedness. The following table sets forth information regarding the Company’s mortgage indebtedness outstanding at December 31, 2002:

  Principal
Balance
(in 000’s)		 Interest
Rate(a)		 Annual
DebtService
(in 000’s)
(a) (b)		 Maturity
Date		 
      
      
      
Property / Location
     
 
 
 
 
 
630 Allendale Road (c)
 $19,797  2.88%$891  Mar-03 
400 Berwyn Park (c)
  15,726  2.98% 469  Jul-03 
1009 Lenox Drive
  13,728  8.75% 1,628  Jul-03 
Lake Ctr II,IV / Wood Falls I, IV /
             
   Southpoint I,II / Valleybrooke I,II,III
  57,051  6.80% 4,900  Dec-03 
One & Three Christina, and 10000
             
   & 15000 Midlantic Drive
  57,608  7.18% 4,916  Feb-04 
1000 Howard Boulevard
  4,090  9.25% 803  Nov-04 
Croton Road
  6,309  7.81% 590  Jan-06 
111 Arrandale Blvd.
  1,200  8.65% 150  Aug-06 
429 Creamery
  3,371  8.30% 410  Sep-06 
Interstate Center (a)
  1,285  3.19% 193  Mar-07 
440 & 442 Creamery
  5,986  8.55% 631  Jul-07 
Norriton Office Center
  5,409  8.50% 524  Oct-07 
481 John Young Way
  2,526  8.40% 261  Nov-07 
400 Commerce Drive
  12,507  7.12% 1,059  Jun-08 
200 Commerce Drive
  6,272  7.12% 556  Jan-10 
Plymouth Meeting Executive Campus
  49,033  7.00% 4,142  Dec-10 
Arboretum I, II, III & V
  24,498  7.59% 2,235  Jul-11 
993, 997 and 2000 Lenox Drive,
             
   2000, 4000, 9000 Midlantic Drive
             
   and 1 Righter Parkway
  66,963  8.05% 6,325  Oct-11 
Newtown Square, Berwyn, Libertyview
  66,000  7.25% 4,785  May-13 
Southpoint III
  6,674  7.75% 887  Apr-14 
Grande B (30 properties)
  82,902  7.48% 7,444  Jul-27 
Grande A (24 properties)
             
   Tranche 1
  64,966  7.48% 6,317  Jul-27 
   Tranche 2 (a)
  20,000  2.14% 428  Jul-27 
   Tranche 3 (a)
  3,828  2.31% 88  Jul-27 
  
    
    
   Total mortgage indebtedness
 $597,729    $50,632    
  
    
    
  
(a)
For loans that bear interest at a variable rate, the rates in effect at December 31, 2002 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, 2002.

Guaranties. As of December 31, 2002, the Company had guaranteed repayment of approximately $2.0 million of loans on behalf of the Real Estate Ventures. See Item 2. Properties — Real Estate Ventures. The Company also guaranteed a $16.2 million loan on behalf of a former Real Estate Venture. Payment under the guaranty, which expires in January 2004, would be required only in the event of a default on the loan and if and to the extent the collateral for the loan were insufficient to provide for payment in full of the loan. 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, a taxable REIT subsidiary. As of December 31, 2002, the Management Company was managing properties containing an aggregate of approximately 19.0 million net rentable square feet, of which approximately 15.9 million net rentable square feet related to Properties owned by the Company or subject to purchase options held by the Company, and approximately 3.1 million net rentable square feet related to properties owned by unaffiliated third parties.

 

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Geographic Segments

The Company currently manages its portfolio within three segments: (1) Pennsylvania, (2) New Jersey and (3) Virginia. (See Note 12 to the Financial Statements.) The Company does not have any foreign operations and its business is not seasonal.

Competition

The leasing of real estate is highly competitive. The Properties compete for tenants with similar properties 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, 2002, the Company had 231 full-time employees.

Regulations

Many laws and governmental regulations are applicable to the Company and 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.”

Availability of SEC Reports

The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and other information with the SEC. Members of the public may read and copy materials that the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Members of the public may also obtain information on the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet web site that contains reports, proxy and information statements and other information regarding issuers, including the Company, that file electronically with the SEC. The address of that site is http://www.sec.gov. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and other information filed by the Company with the SEC are available, without charge, on the Company’s Internet web site, http://www.brandywinerealty.com, as soon as reasonably practicable after they are filed electronically with the SEC. Copies are also available, without charge, from Secretary, Brandywine Realty Trust, 401 Plymouth Road, Suite 500, Plymouth Meeting, PA 19462.

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. Factors that could cause actual

 

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results to differ materially from management’s current expectations include, but are not limited to, changes in general economic conditions, changes in local real estate conditions (including changes in rental rates and the number of competing properties), changes in the economic conditions affecting industries in which the Company’s principal tenants compete, the Company’s failure to lease unoccupied space in accordance with the Company’s projections, the failure of the Company to re-lease occupied space upon expiration of leases, the bankruptcy of major tenants, changes in prevailing interest rates, the unavailability of equity and debt financing, unanticipated costs associated with the acquisition and integration of the Company’s acquisitions, unanticipated costs to complete and lease-up pending developments, increased costs for, or lack of availability of, adequate insurance, including for terrorist acts, demand for tenant services beyond those traditionally provided by landlords, potential liability under environmental or other laws, the existence of complex regulations relating to the Company’s status as a REIT and to the Company’s acquisition, disposition and development activities, the adverse consequences of the Company’s failure to qualify as a REIT and the other risks identified in this Annual Report on Form 10-K. 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, Virginia and Delaware. Like other real estate markets, these markets have experienced economic downturns in the past, and they are currently experiencing 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 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 or to declare bankruptcy. 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. A prolonged decline in the economies of these real estate markets could adversely affect our operations or cash flow and ability to make distributions to shareholders.

Financially distressed tenants may reduce our cash flow.

We cannot assure you that any tenant that files for bankruptcy protection will continue to pay us rent. A bankruptcy filing by or relating to one of our tenants or a lease guarantor would bar all efforts by us to collect pre-bankruptcy debts from that tenant or the lease guarantor, or their property, unless we receive an order permitting us to do so from the bankruptcy court. A tenant or lease guarantor bankruptcy could delay our efforts to collect past due balances under the relevant leases, and could ultimately preclude collection of these sums. If a lease is assumed by the tenant in bankruptcy, all pre-bankruptcy balances due under the lease must be paid to us in full. However, if a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages. Any unsecured claim we hold may be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims, and there are restrictions under bankruptcy laws that limit the amount of the claim we can make if a lease is rejected. As a result, it is likely that we will recover substantially less than the full value of any unsecured claims we hold. For additional detail on tenant credit risk, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Tenant Credit Risk.

We may be unable to renew leases or relet space as leases expire.

If tenants do not 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. For additional detail on the risk of non-renewal of expiring leases, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Tenant Rollover Risk.

 

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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:

 •
the unavailability of favorable financing, including permanent financing to repay construction financing;
   
 •
construction costs exceeding original estimates;
   
 •
construction and lease-up delays resulting in increased debt service and construction costs;
   
 •
complications (including building moratoriums and anti-growth legislation) in obtaining necessary zoning, occupancy and other governmental permits; and
   
 •
insufficient occupancy levels and rental rates at a newly completed property causing the property to be unprofitable.

For additional detail on development risks, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Development Risk.

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 and acts of war, that generally are not insured. Some of our existing insurance policies expire in July 2003. We cannot be assured that we will be able to renew insurance coverage in an adequate amount or at reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and 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.

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. Furthermore, Properties that we acquired in exchange for units in the Operating Partnership often have a low tax basis. If we were to dispose of any of these Properties in a taxable transaction, we may be required to distribute a significant amount of the taxable gain to our security holders under the requirements of the Internal Revenue Code of 1986 applicable to REITs and this could, in turn, impact our cash flow and ability to make distributions to shareholders. In addition, purchase options and rights of first refusal held by certain tenants or partners in Real Estate Ventures may also limit our ability to sell certain properties. Any of these factors could

 

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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 67 of our Properties aggregating approximately 4.5 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 acquired 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. Such transactions can be difficult and result in the property acquired in exchange for the disposed of property inheriting the tax attributes (including tax protection covenants) of the disposed of property. 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. Following the September 11th 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. Some of our existing insurance policies expire in July 2003. As a result of the terrorist attacks and other market conditions, 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.

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.

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:

 •
the operational and financial performance of our Properties;

 

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 •
capital expenditures with respect to existing and newly acquired Properties;
   
 •
the amount of, and the interest rates on, our debt; and
   
 •
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 the environment, 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.

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. As of December 31, 2002, outstanding borrowings of approximately $264.6 million bear interest at variable rates.

No Limitation on Debt. Our organizational documents do not contain any limitation on our ability to incur additional debt. Accordingly, subject to limitations in our credit facilities, 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

 

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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.

Environmental laws that govern the presence, maintenance and removal of asbestos require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, notify and train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building. Such laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers.

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.

While we have an ongoing maintenance program in place to address indoor air quality, inquiries about indoor air quality may necessitate special investigation and, depending on the results, remediation. Indoor air quality issues can stem from inadequate ventilation, chemical contaminants from indoor or outdoor sources, and biological contaminants such as molds, pollen, viruses and bacteria. Indoor exposure to chemical or biological contaminants above certain levels can be alleged to be connected to allergic reactions or other health effects and symptoms in susceptible individuals. If these conditions occur at one of our Properties, we may need to undertake a targeted remediation program, including without limitation, steps to increase indoor ventilation rates and eliminate sources of contaminants. Such remediation programs are costly and could necessitate the temporary relocation of some or all of the property’s tenants or require rehabilitation of the affected property.

Americans with Disabilities Act compliance could be costly.

Under the Americans with Disabilities Act of 1990 (“ADA”), all public accommodations and commercial facilities must meet certain federal requirements related to access and use by disabled persons. Compliance with the ADA requirements could involve removal of structural barriers from certain disabled persons’ entrances. Other federal, state and local laws may require modifications to or restrict further renovations of our Properties with respect to such accesses. Although we believe that our properties are substantially in compliance with present requirements, noncompliance with the ADA or related laws or regulations could result in the United States government imposing fines or private litigants being awarded damages against us. Such costs may adversely affect our cash flow and ability to make distributions.

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:

 

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 •
the potential bankruptcy of our partners or co-venturers;
   
 •
a conflict between our business goals and those of our partners or co-venturers; and
   
 •
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.

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

 

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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.

We own a subsidiary REIT. One of our subsidiaries, Atlantic American Properties Trust (“AAPT”), that indirectly holds 22 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 May 7, 2005, 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:

 •
consider the transfer to be null and void;
   
 •
not reflect the transaction on our books;
   
 •
institute legal action to stop the transaction;
   
 •
not pay dividends or other distributions with respect to those shares;
   
 •
not recognize any voting rights for those shares; and
   
 •
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 Maryland Business Combination Law. The Maryland General Corporation Law, as applicable to Maryland real estate investment trusts, establishes special restrictions against

 

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“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, 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.

Maryland Control Share Acquisition Act. Maryland law provides that “control shares” of a real estate investment trust acquired in a “control share acquisition” shall have no voting rights except to the extent approved by a vote of two-thirds of the vote eligible to be cast on the matter under the Maryland Control Share Acquisition Act. “Control Shares” means shares that, if aggregated with all other shares previously acquired by the acquirer, would entitle the acquirer to exercise voting power in electing trustees within one of the following ranges of voting power: one-tenth or more but less than one-third, one-third or more but less than a majority or a majority or more of all voting power. A “control share acquisition” means the acquisition of control shares, subject to certain exceptions. If voting rights or control shares acquired in a control share acquisition are not approved at a shareholder’s meeting, then subject to certain conditions and limitations the issuer may redeem any or all of the control shares for fair value. If voting rights of such control shares are approved at a shareholder’s meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. Any control shares acquired in a control share acquisition which are not exempt under our bylaws will be subject to the Maryland Control Share Acquisition Act.

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:

 •
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.
   
 •
Anticipated benefit of an investment in our securities as compared to investment in securities of companies in other industries (including benefits associated with tax treatment of dividends and distributions).
   
 •
Perception by market professionals of REITs generally and REITs comparable to us in particular.

 

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 •
Perception by market participants of our potential for payment of cash distributions and for growth.
   
 •
Level of institutional investor interest in our securities.
   
 •
Relatively low trading volumes in securities of REITs.
   
 •
Our results of operations and financial condition.

The issuance of preferred securities 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. The Board of Trustees also has the power to establish the preferences and rights of each class or series of units in the Operating Partnership, and may afford the holders in any series or class of preferred units preferences, distributions, powers and rights, voting or otherwise, senior to the rights of holders of common units.

Item 2.      Properties

Operating Property Acquisitions

The Company acquired the following operating properties during the year ended December 31, 2002:

          Net 
Month of
     # of Rentable Investment 
Acquisition
 Property/Portfolio Name Location Buildings Square Feet (in thousands) 
 
 
 
 
 
 
Office:
                
          
Mar-02
  Plymouth Meeting Exec. Campus  Plymouth Meeting, PA  4  360,250 $67,165 
May-02
  6802 Paragon Place  Richmond, VA  1  142,499  14,800 
Jul-02
  1000 Lenox Drive  Lawrenceville, NJ   1  52,264  5,275 
Sep-02
  980 Harvest Drive  Whitpain, PA   1  62,379  10,400 
        
 
 
 
   Total Office Property Acquisitions      7  617,392  $ 97,640 
        
 
 
 
                 

During 2002, the Company acquired one parcel of land, containing 9.0 acres, for $1.5 million. In addition, the Company purchased the remaining partnership interests held by third parties in three of the Company’s Real Estate Ventures which owned two office properties containing 222,000 net rentable square feet and one parcel of land containing 1.0 acres for $2.3 million.

Development Properties Placed in Service

The Company placed in service the following properties during the year ended December 31, 2002:

          Net 
Date Placed
     # of Rentable Investment 
in Service
 Property/Portfolio Name Location Buildings Square Feet (in thousands) 
 
 
 
 
 
 
Office:
                
          
Feb-02
  Newtown Commons  Newtown, PA  1  102,000 $15,945 
Apr-02
  15 Campus Boulevard  Newtown Square, PA  1  50,000  8,231 
        
 
 
 
   Total Office Properties Placed in Service     2  152,000 $24,176 
        
 
 
 

The Company places properties under development in service once a property reaches 95% occupancy or one year after the completion of shell construction, whichever is earlier.

 

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Property Sales and Dispositions

The Company sold or disposed of the following properties during the year ended December 31, 2002:

          Sales/Disposition 
Sale
     # of Rentable Price 
Date
 Property/Portfolio Name Location  Bldgs.  Square Feet (in 000’s) 
 
 
 
 
 
 
Office:
                
          
Feb-02
  Bucks County Portfolio  Bucks County, PA  6  179,131 $14,080 
Feb-02
  155 Rittenhouse Circle  Bucks County, PA  1  22,500  1,913 
Mar-02
  470 John Young Way  Exton, PA  1  15,085  2,850 
Mar-02
  Park 80  Saddlebrook, NJ  2  487,740  73,350 
Apr-02
  Harvest  Long Island, NY  3  195,649  17,906 
Apr-02
  16 Campus Boulevard  Newtown Square, PA  1  65,463  7,105 
Apr-02
  Jericho  Long Island, NY  2  103,091  8,084 
Jul-02
  University Plaza and Linden Hill  Newark, DE  7  288,049  22,748 
        
 
 
 
   Total Office Properties Sold     23  1,356,708  148,036 
        
 
 
 
Industrial:
                
          
Feb-02
   8 Engineers Lane  Farmingdale, NY  1  15,000  865 
Feb-02
   Bucks County Portfolio  Bucks County, PA  9  586,756  24,835 
Apr-02
   Harvest  Long Island, NY  2  79,152  5,690 
Jun-02
   Plainview  Long Island, NY  6  137,060  7,760 
Jun-02
   19 Engineers Lane  Long Island, NY  1  10,000  630 
Jun-02
   91 North Industry Court  Long Island, NY  1  71,000  2,272 
        
 
 
 
    Total Industrial Properties Sold     20  898,968  42,052 
        
 
 
 
    Total Properties Sold     43  2,255,676 $190,088 
        
 
 
 

During 2002, the Company sold two parcels of land, containing 12.8 acres, for $.7 million.

Properties

As of December 31, 2002, the Company owned 210 office properties, 27 industrial facilities and one mixed-use property that contained an aggregate of approximately 16.1 million net rentable square feet. The properties are located in the markets in and surrounding Philadelphia, Pennsylvania; New Jersey; and Richmond, Virginia. As of December 31, 2002, the Properties were approximately 91.0% leased to 1,143 tenants and had an average age of approximately 17.4 years. The office Properties are primarily one to three story suburban office buildings containing an average of approximately 67,450 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 Company currently has in development or redevelopment three sites aggregating 428,000 square feet. The total cost of these projects is estimated to be $83.7 million, of which $73.9 million was incurred as of December 31, 2002. As of December 31, 2002, the Company owned approximately 444 acres of undeveloped land and held options to purchase approximately 63 additional acres. The Company also holds an option to enter into a long-term ground lease of property adjacent to Amtrak’s 30th Street Station in Philadelphia and develop a high-rise office property on the leasehold interest.

The following table sets forth certain information with respect to the Properties at December 31, 2002:

 

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  Property Name Location State Year
Built		  Net
Rentable
Square
Feet 		 Percentage
Leased as of
December 31,
2002 (a)		   Total Base Rent
for the Twelve
Months Ended
December 31,
2002 (b) (000’s)		 Average
Annualized
Rental Rate
as of
December 31,
2002 (c)
 
 
 
  
 
                   
PENNSYLVANIA SEGMENT                 
                   
 100-300 Gundy Drive Reading PA 1970  439,167  97.9%  $ 7,008   $ 15.29
                   
 Philadelphia Marine Center(d)Philadelphia PA Various  181,900  100.0%   1,228   3.30
                   
 300 Corporate Center Drive Camp Hill PA 1989  175,280  100.0%   3,391   20.03
                   
 111 Presidential Boulevard Bala Cynwyd PA 1997  173,095  94.8%   4,382   29.74
                   
 751-761 Fifth Avenue King of Prussia PA 1967  158,000  100.0%   492   3.12
                   
 630 Allendale Road King of Prussia PA 2000  150,000  100.0%   3,654   23.60
                   
 640 Freedom Business Center(d)King of Prussia PA 1991  132,000  72.5%   2,001   26.53
                   
 100 Katchel Blvd Reading PA 1970  131,082  100.0%   2,935   21.63
                   
 52 Swedesford Square East Whiteland Twp. PA 1988  131,017  100.0%   2,862   22.65
                   
 105 / 140 Terry Drive Newtown PA 1982  128,666  95.7%   1,553   13.80
                   
 7535 Windsor Drive Allentown PA 1988  128,061  52.7%   949   15.25
                   
 101 Lindenwood Drive Malvern PA 1988  118,121  96.3%   2,646   24.42
                   
 501 Office Center Drive Fort Washington PA 1974  114,805  73.6%   1,910   20.55
                   
 7130 Ambassador Drive  Allentown PA 1991  114,049  100.0%   559   6.16
                   
 7350 Tilghman Street Allentown PA 1987  111,500  100.0%   1,975   18.69
                   
 300 Berwyn Park Berwyn PA 1989  109,919  100.0%   2,105   23.69
                   
 50 Swedesford Square East Whiteland Twp. PA 1986  109,800  100.0%   1,928   17.59
                   
 920 Harvest Drive Blue Bell PA 1990  104,505  100.0%   1,888   19.50
                   
 442 Creamery Way Exton PA 1991  104,500  100.0%   580   6.79
                   
 100 Brandywine Boulevard Newtown PA 2002  102,000  100.0%   2,458   22.80
                   
 500 Office Center Drive Fort Washington PA 1974  101,303  95.7%   1,906   22.23
                   
 7450 Tilghman Street Allentown PA 1986  100,000  100.0%   1,723   18.71
                   
 301 Lindenwood Drive Malvern PA 1984  97,624  68.2%   1,621   24.41
                   
 555 Croton Road King of Prussia PA 1999  96,909  100.0%   2,875   31.12
                   
 500 North Gulph Road King of Prussia PA 1979  93,082  59.9%   1,212   20.38
                   
 620 West Germantown Pike Plymouth Meeting PA 1990  90,169  91.9%   1,838   26.92
                   
 610 West Germantown Pike Plymouth Meeting PA 1987  90,152  95.6%   1,878   28.37
                   
 630 West Germantown Pike Plymouth Meeting PA 1988  89,925  92.9%   1,756   25.67
                   
 600 West Germantown Pike Plymouth Meeting PA 1986  89,681  92.9%   1,865   26.55
                   
 630 Freedom Business Center(d)King of Prussia PA 1989  86,683  94.3%   1,908   26.03
                   
 620 Freedom Business Center(d)King of Prussia PA 1986  86,559  20.5%   671   28.39
                   
 1200 Swedsford Road Berwyn PA 1994  86,000  100.0%   1,589   21.32
                   
 3331 Street Road -Greenwood Square Bensalem PA 1986  81,575  100.0%   1,533   20.85
                   
 1050 Westlakes Drive Berwyn PA 1984  81,500  88.5%   2,275   29.10
                   
 One Progress Avenue Horsham PA 1986  79,204  100.0%   833   11.65
                   
 323 Norristown Road Lower Gwyned PA 1988  79,083  10.5%   851    -
                   
 1060 First Avenue(d)King of Prussia PA 1987  77,718  100.0%   1,756   17.19
                   
 741 First Avenue King of Prussia PA 1966  77,184  100.0%   557   8.28
                   
 1040 First Avenue(d)King of Prussia PA 1985  75,488  100.0%   1,959   29.58
                   
 200 Berwyn Park Berwyn PA 1987  75,025  76.9%   1,455   27.70
                   
 1020 First Avenue(d)King of Prussia PA 1984  74,556  100.0%   1,412   21.02
                   
 1000 First Avenue(d)King of Prussia PA 1980  74,139  100.0%   1,777   24.85
                   
 160 - 180 West Germantown Pike East Norriton PA 1982  73,242  78.1%   1,248   17.15
                   
 436 Creamery Way Exton PA 1991  72,300  81.3%   624   12.59
                   
 14 Campus Boulevard Newtown Square PA 1998  69,400  80.6%   847   23.79
                   
 1105 Berkshire Boulevard Reading PA 1987  68,985  91.6%   1,019   16.09

 

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  Property Name Location State Year
Built		  Net
Rentable
Square
Feet 		 Percentage
Leased as of
December 31,
2002 (a)		   Total Base Rent
for the Twelve
Months Ended
December 31,
2002 (b) (000’s)		 Average
Annualized
Rental Rate
as of
December 31,
2002 (c)
 
 
 
  
 
                   
 500 Enterprise Road Horsham PA 1990  66,751  100.0%   935   19.13
                   
 925 Harvest Drive Blue Bell PA 1990  63,663  96.7%   1,225   19.97
                   
 429 Creamery Way Exton PA 1996  63,420  100.0%   736   13.74
                   
 610 Freedom Business Center(d)King of Prussia PA 1985  62,991  88.6%   1,442   25.98
                   
 980 Harvest Drive Blue Bell PA 1988  62,379  100.0%   364   22.97
                   
 426 Lancaster Avenue Devon PA 1990  61,102  100.0%   1,126   19.81
                   
 3329 Street Road -Greenwood Square Bensalem PA 1985  60,705  70.8%   771   19.54
                   
 1180 Swedesford Road Berwyn PA 1987  60,371  100.0%   1,662   28.23
                   
 1160 Swedesford Road Berwyn PA 1986  60,099  100.0%   1,391   25.12
                   
 200 Corporate Center Drive Camp Hill PA 1989  60,000  100.0%   1,070   17.86
                   
 321 Norristown Road Lower Gwyned PA 1988  59,994  68.2%   1,049   20.02
                   
 100 Berwyn Park Berwyn PA 1986  57,731  100.0%   1,209   28.71
                   
 440 Creamery Way Exton PA 1991  57,218  100.0%   521   11.75
                   
 640 Allendale Road King of Prussia PA 2000  56,034  100.0%   355   8.38
                   
 680 Allendale Road King of Prussia PA 1962  52,528  100.0%   546   11.50
                   
 2240/50 Butler Pike Plymouth Meeting PA 1984  52,229  100.0%   844   20.22
                   
 650 Park Avenue King of Prussia PA 1968  51,711  38.8%   451   15.90
                   
 1155 Business Center Drive Horsham PA 1990  51,388  86.4%   568   19.02
                   
 800 Business Center Drive  Horsham PA 1986  51,236  100.0%   580   12.02
                   
 486 Thomas Jones Way Exton PA 1990  51,072  79.8%   723   19.86
                   
 855 Springdale Drive Exton PA 1986  50,750  100.0%   878   17.50
                   
 660 Allendale Road King of Prussia PA 1962  50,635  100.0%   365   8.16
                   
 15 Campus Boulevard Newtown Square PA 2002  50,000  100.0%   1,003   24.50
                   
 875 First Avenue King of Prussia PA 1966  50,000   -     219    -
                   
 630 Clark Avenue King of Prussia PA 1960  50,000  100.0%   288   6.78
                   
 620 Allendale Road King of Prussia PA 1961  50,000  50.0%   624   23.87
                   
 7150 Windsor Drive Allentown PA 1988  49,420  100.0%   643   15.65
                   
 479 Thomas Jones Way Exton PA 1988  49,264  74.1%   492   17.24
                   
 17 Campus Boulevard Newtown Square PA 2001  48,565  100.0%   1,225   25.04
                   
 520 Virginia Drive Fort Washington PA 1987  48,122  100.0%   904   18.75
                   
 11 Campus Boulevard Newtown Square PA 1998  47,700  100.0%   1,071   22.15
                   
 456 Creamery Way Exton PA 1987  47,604  100.0%   354   7.68
                   
 6575 Snowdrift Road Allentown PA 1988  47,091  100.0%   526   12.75
                   
 220 Commerce Drive Fort Washington PA 1985  46,080  100.0%   896   19.88
                   
 7248 Tilghman Street Allentown PA 1987  43,782  82.2%   505   16.90
                   
 110 Summit Drive Exton PA 1985  43,660  100.0%   397   11.13
                   
 7360 Windsor Drive Allentown PA 2001  43,600  100.0%   936   22.97
                   
 1100 Cassett Road Berwyn PA 1997  43,480  100.0%   1,106   24.38
                   
 467 Creamery Way Exton PA 1988  42,000  100.0%   530   16.48
                   
 300 Welsh Road - Building I Horsham PA 1980  40,042  100.0%   681   20.38
                   
 7310 Tilghman Street Allentown PA 1985  40,000  82.3%   450   16.64
                   
 150 Corporate Center Drive Camp Hill PA 1987  39,401  80.1%   585   18.38
                   
 1336 Enterprise Drive West Goshen PA 1989  39,330  100.0%   692   19.50
                   
 600 Park Avenue King of Prussia PA 1964  39,000  100.0%   506   14.86
                   
 412 Creamery Way Exton PA 1999  38,098  100.0%   759   20.33
                   
 755 Business Center Drive Horsham PA 1998  38,050  100.0%   576   22.62
                   
 18 Campus Boulevard Newtown Square PA 1990  37,374  88.6%   694   23.48
                   
 457 Creamery Way Exton PA 1990  36,019  100.0%   428   14.76

 

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  Property Name Location State Year
Built		  Net
Rentable
Square
Feet 		 Percentage
Leased as of
December 31,
2002 (a)		   Total Base Rent
for the Twelve
Months Ended
December 31,
2002 (b) (000’s)		 Average
Annualized
Rental Rate
as of
December 31,
2002 (c)
 
 
 
  
 
                   
 100 Arrandale Boulevard Exton PA 1997  34,931  100.0%   480   18.36
                   
 7010 Snowdrift Road Allentown PA 1991  33,029  100.0%   417   18.05
                   
 300 Lindenwood Drive Allentown PA 1991  33,000  100.0%   671   20.69
                   
 2260 Butler Pike Plymouth Meeting PA 1984  31,892  63.6%   457   22.06
                   
 700 Business Center Drive  Horsham PA 1986  30,773   -     56    -
                   
 120 West Germantown Pike Plymouth Meeting PA 1984  30,546  37.7%   149   20.82
                   
 650 Dresher Road Horsham PA 1984  30,071  100.0%   627   21.25
                   
 655 Business Center Drive Horsham PA 1997  29,849  77.8%   407   21.52
                   
 468 Thomas Jones Way Exton PA 1990  28,934  100.0%   543   18.43
                   
 630 Dresher Road Horsham PA 1987  28,894  100.0%   429   23.10
                   
 1700 Paoli Pike Malvern PA 2000  28,000  18.9%   153   23.59
                   
 1150 Berkshire Boulevard Reading PA 1979  26,781  89.0%   415   17.29
                   
 140 West Germantown Pike Plymouth Meeting PA 1984  25,357  100.0%   506   22.89
                   
 3333 Street Road -Greenwood Square Bensalem PA 1988  25,000  100.0%   477   20.50
                   
 800 Corporate Circle Drive Harrisburg PA 1979  24,862  100.0%   349   15.40
                   
 2490 Boulevard of the Generals King of Prussia PA 1975  20,600  100.0%   416   20.40
                   
 481 John Young Way Exton PA 1997  19,275  100.0%   405   21.61
                   
 100 Lindenwood Drive Malvern PA 1985  18,400   -     -    -
                   
 500 Nationwide Drive Harrisburg PA 1977  18,027  100.0%   322   18.13
                   
 600 Corporate Circle Drive Harrisburg PA 1978  17,858  100.0%   275   14.94
                   
 300 Welsh Road - Building II Horsham PA 1980  17,750  100.0%   350   20.49
                   
 748 Springdale Drive Exton PA 1986  13,950  100.0%   254   18.61
                   
 200 Lindenwood Drive Malvern PA 1984  12,600  50.0%   111   19.05
                   
 2404 Park Drive Harrisburg PA 1983  11,000  100.0%   165   15.55
                   
 111 Arrandale Road Exton PA 1996  10,479  100.0%   182   20.45
                   
 2401 Park Drive Harrisburg PA 1984  10,074  90.1%   144   16.29
                   
 200 Nationwide Drive Harrisburg PA 1978  2,500  100.0%   60   24.00
                   
 George Kachel Farmhouse Reading PA 2000  1,664  100.0%   33   20.03
                   
 301 North Walnut Street Wilmington DE 1989  321,511  100.0%   5,748   20.61
                   
 201 North Walnut Street Wilmington DE 1988  311,286  100.0%   5,245   20.93
                   
 400 Commerce Drive Newark DE 1997  154,086  100.0%   1,134   14.82
                   
 One Righter Parkway(d)Wilmington DE 1989  104,828  100.0%   2,293   22.55
                   
 Two Righter Parkway Wilmington DE 1987  95,514  100.0%   1,919   20.73
                   
 200 Commerce Drive Newark DE 1998  68,034  100.0%   536   15.50
                   
 100 Commerce Drive Newark DE 1989  63,218  39.4%   380   17.39
                   
 111/113 Pencader Drive Newark DE 1990  52,665  54.4%   511   12.01
                   
                   
NEW JERSEY / NEW YORK SEGMENT                 
                   
 50 East State Street Trenton NJ 1989  305,884  91.6%   5,066   24.62
                   
 1009 Lenox Drive Lawrenceville NJ 1989  180,460  84.5%   3,808   25.32
                   
 10000 Midlantic Drive Mt. Laurel NJ 1990  178,605  98.7%   3,102   23.00
                   
 33 West State Street Trenton NJ 1988  167,774  100.0%   2,969   26.25
                   
 Main Street - Plaza 1000 Voorhees NJ 1988  162,364  97.2%   3,203   22.88
                   
 55 U.S. Avenue Gibbsboro NJ 1982  138,982  25.5%   723   9.00
                   
 457 Haddonfield Road Cherry Hill NJ 1990  121,737  94.4%   2,444   23.01
                   
 2000 Midlantic Drive Mt. Laurel NJ 1989  121,658  97.3%   1,759   20.21
                   
 2000 Lenox Drive Lawrenceville NJ 2000  119,114  100.0%   3,113   26.81
                   
 700 East Gate Drive Mt. Laurel NJ 1984  118,899  100.0%   2,325   21.72

 

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  Property Name Location State Year
Built		  Net
Rentable
Square
Feet 		 Percentage
Leased as of
December 31,
2002 (a)		   Total Base Rent
for the Twelve
Months Ended
December 31,
2002 (b) (000’s)		 Average
Annualized
Rental Rate
as of
December 31,
2002 (c)
 
 
 
  
 
                   
 993 Lenox Drive Lawrenceville NJ 1985  111,137  100.0%   2,432   23.10
                   
 1000 Howard Boulevard Mt. Laurel NJ 1988  105,312  100.0%   2,170   21.65
                   
 One South Union Place Cherry Hill NJ 1982  99,573  80.0%   1,148   16.23
                   
 997 Lenox Drive Lawrenceville NJ 1987  97,277  100.0%   1,982   22.64
                   
 1000 Atrium Way Mt. Laurel NJ 1989  97,158  90.9%   1,882   20.61
                   
 1120 Executive Boulevard Marlton NJ 1987  95,278  98.1%   1,813   24.34
                   
 15000 Midlantic Drive Mt. Laurel NJ 1991  84,056  88.9%   1,384   22.56
                   
 220 Lake Drive East Cherry Hill NJ 1988  78,509  100.0%   1,744   22.91
                   
 1007 Laurel Oak Road Voorhees NJ 1996  78,205  100.0%   621   7.94
                   
 10 Lake Center Drive Marlton NJ 1989  76,359  88.9%   1,302   23.98
                   
 200 Lake Drive East Cherry Hill NJ 1989  76,352  98.7%   1,616   22.94
                   
 Three Greentree Centre Marlton NJ 1984  69,300  100.0%   1,369   20.27
                   
 King & Harvard Avenue Cherry Hill NJ 1974  67,444  100.0%   1,334   20.26
                   
 9000 Midlantic Drive Mt. Laurel NJ 1989  67,299  100.0%   875   21.40
                   
 6 East Clementon Road Gibbsboro NJ 1980  66,236  87.8%   983   17.04
                   
 104 Windsor Center Drive East Windsor NJ 1987  65,980  100.0%   1,126   19.57
                   
 701 East Gate Drive Mt. Laurel NJ 1986  61,794  100.0%   1,148   20.68
                   
 210 Lake Drive East Cherry Hill NJ 1986  60,604  100.0%   1,250   22.39
                   
 4000/5000 West Lincoln Drive Marlton NJ 1982  60,091  91.3%   692   16.52
                   
 308 Harper Drive Mt. Laurel NJ 1976  59,500  100.0%   1,199   22.51
                   
 305 Fellowship Drive Mt. Laurel NJ 1980  56,824  100.0%   1,190   21.87
                   
 Two Greentree Centre Marlton NJ 1983  56,075  85.9%   688   20.75
                   
 309 Fellowship Drive Mt. Laurel NJ 1982  55,911  97.5%   1,165   22.13
                   
 One Greentree Centre Marlton NJ 1982  55,838  100.0%   1,047   19.97
                   
 8000 Lincoln Drive Marlton NJ 1997  54,923  100.0%   1,018   19.85
                   
 307 Fellowship Drive Mt. Laurel NJ 1981  54,485  95.7%   1,090   21.91
                   
 303 Fellowship Drive Mt. Laurel NJ 1979  53,848  61.0%   751   20.33
                   
 1000 Lenox Drive Lawrenceville NJ 1982  52,264  100.0%   382   10.00
                   
 2 Foster Avenue Gibbsboro NJ 1974  50,761  100.0%   261   5.61
                   
 4000 Midlantic Drive Mt. Laurel NJ 1998  46,945  100.0%   904   20.09
                   
 Five Eves Drive Marlton NJ 1986  45,564  92.4%   699   17.38
                   
 161 Gaither Drive Mount Laurel NJ 1987  44,739  100.0%   784   20.58
                   
 9000 West Lincoln Drive Marlton NJ 1983  43,719  91.7%   651   16.40
                   
 Main Street - Piazza Voorhees NJ 1990  41,408  100.0%   681   16.64
                   
 1000 East Lincoln Drive  Marlton NJ 1981  40,600  100.0%   175   6.38
                   
 30 Lake Center Drive Marlton NJ 1986  40,287  100.0%   792   20.43
                   
 1000/2000 West Lincoln Drive Marlton NJ 1982  38,950  96.1%   502   15.49
                   
 20 East Clementon Road Gibbsboro NJ 1986  38,260  95.0%   673   19.30
                   
 Two Eves Drive Marlton NJ 1987  37,532  96.3%   654   18.52
                   
 1255 Broad Street Bloomfield NJ 1981  37,478  100.0%   589   21.59
                   
 3000 West Lincoln Drive Marlton NJ 1982  36,070  81.0%   459   15.82
                   
 304 Harper Drive Mt. Laurel NJ 1975  32,978  95.7%   571   19.85
                   
 Main Street - Promenade Voorhees NJ 1988  31,445  100.0%   444   16.12
                   
 Four B Eves Drive Marlton NJ 1987  27,011  100.0%   283   16.95
                   
 815 East Gate Drive Mt. Laurel NJ 1986  25,500  100.0%   268   15.42
                   
 817 East Gate Drive Mt. Laurel NJ 1986  25,351  100.0%   356   15.18
                   
 Four A Eves Drive Marlton NJ 1987  24,687  82.2%   237   15.74

 

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  Property Name Location State Year
Built		  Net
Rentable
Square
Feet 		 Percentage
Leased as of
December 31,
2002 (a)		   Total Base Rent
for the Twelve
Months Ended
December 31,
2002 (b) (000’s)		 Average
Annualized
Rental Rate
as of
December 31,
2002 (c)
 
 
 
  
 
                   
 1 Foster Avenue Gibbsboro NJ 1972  24,255  100.0%   117   6.26
                   
 4 Foster Avenue Gibbsboro NJ 1974  23,372  61.9%   158   5.42
                   
 7 Foster Avenue Gibbsboro NJ 1983  22,158  82.2%   218   17.21
                   
 10 Foster Avenue Gibbsboro NJ 1983  18,651  100.0%   299   17.15
                   
 305 Harper Drive Mt. Laurel NJ 1979  14,980  100.0%   113   8.96
                   
 5 U.S. Avenue Gibbsboro NJ 1987  5,000  100.0%   18   3.60
                   
 50 East Clementon Road Gibbsboro NJ 1986  3,080  100.0%   125   47.01
                   
 5 Foster Avenue Gibbsboro NJ 1968  2,000  100.0%   -    -
                   
 55 Ames Court Plainview NY 1961  90,000  100.0%   1,194   15.26
                   
                   
VIRGINIA SEGMENT                 
                   
 600 East Main Street Richmond VA 1986  424,199  77.9%   6,239   20.64
                   
 300 Arboretum Place Richmond VA 1988  212,339  98.9%   3,602   17.26
                   
 6802 Paragon Place Richmond VA 1989  143,273  99.5%   1,515   18.71
                   
 2511 Brittons Hill Road Richmond VA 1987  132,103  100.0%   593   5.52
                   
 2100-2116 West Laburnam Avenue Richmond VA 1976  127,300  83.9%   1,552   15.37
                   
 1957 Westmoreland Street Richmond VA 1975  121,815  100.0%   534   4.85
                   
 2201-2245 Tomlynn Street Richmond VA 1989  85,860  86.8%   605   7.89
                   
 100 Gateway Centre Parkway Richmond VA 2001  74,585  100.0%   1,476   19.24
                   
 9011 Arboretum Parkway Richmond VA 1991  72,851  100.0%   1,271   18.08
                   
 4805 Lake Brooke Drive Glen Allen VA 1996  61,657  100.0%   1,062   16.07
                   
 9100 Arboretum Parkway Richmond VA 1988  57,519  100.0%   991   18.47
                   
 2812 Emerywood Parkway Henrico VA 1980  56,076   -     46   0.00
                   
 2277 Dabney Road Richmond VA 1986  50,400  100.0%   248   6.12
                   
 9200 Arboretum Parkway Richmond VA 1988  49,542  100.0%   616   13.34
                   
 9210 Arboretum Parkway Richmond VA 1988  47,943  53.0%   386   14.68
                   
 2212-2224 Tomlynn Street Richmond VA 1985  45,353  100.0%   257   7.25
                   
 2221-2245 Dabney Road Richmond VA 1994  45,250  84.1%   269   7.53
                   
 2201 Dabney Road Richmond VA 1962  45,000  100.0%   164   2.91
                   
 2251 Dabney Road Richmond VA 1983  42,000  71.0%   204   6.78
                   
 2161-2179 Tomlynn Street  Richmond VA 1985  41,550  79.8%   199   6.06
                   
 2256 Dabney Road Richmond VA 1982  33,600  100.0%   208   6.96
                   
 2246 Dabney Road Richmond VA 1987  33,271  100.0%   288   9.16
                   
 2244 Dabney Road Richmond VA 1993  33,050  100.0%   298   9.36
                   
 9211 Arboretum Parkway Richmond VA 1991  30,791  100.0%   308   12.34
                   
 2248 Dabney Road Richmond VA 1989  30,184  78.6%   207   8.80
                   
 2130-2146 Tomlynn Street Richmond VA 1988  29,700   -     65    -
                   
 2120 Tomlyn Street Richmond VA 1986  23,850  56.0%   129   8.07
                   
 2240 Dabney Road Richmond VA 1984  15,389  100.0%   138   9.69
                   
 4364 South Alston Avenue Durham NC 1985  56,601  100.0%   1,110   18.66
         
    
   
                   
TOTAL ALL PROPERTIES / WEIGHTED AVG.        16,052,821  91.0%  $ 248,730   $ 18.79
       
    
   

 

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(a)
Calculated by dividing net rentable square feet included in leases signed on or before December 31, 2002 at the property by the aggregate net rentable square feet of the Property.
  
(b)
“Total Base Rent” for the twelve months ended December 31, 2002 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, 2002 (without giving effect to free rent or scheduled rent increases that would be taken into account under GAAP) plus the 2002 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, 2002. In both cases, the annualized rental rate is divided by the total square footage leased as of December 31, 2002 without giving effect to free rent or scheduled rent increases that would be taken into account under GAAP.
  
(d)
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, 2002, assuming none of the tenants exercises renewal options or termination rights, if any, at or prior to scheduled expirations:

   
Year of
Lease
Expiration
December 31,
 
Number of
Leases
Expiring
Within the
Year		 Rentable
Square
Footage
Subject to
Expiring
Leases		 Final
Annualized
Base Rent
Under
Expiring
Leases (a)		 Final
Annualized
Base Rent
Per Square
Foot Under
Expiring
Leases		 Percentage
of Total Final
Annualized
Base Rent
Under
Expiring
Leases		 Cumulative
Total		 
       
       
       
       
       
       
 
 
 
 
 
 
 
2003
  288  1,835,963  32,301,449  17.59  11.7% 11.7% 
2004
  286  2,395,459  42,808,907  17.87  15.5% 27.1% 
2005
  257  2,353,616  44,407,410  18.87  16.0% 43.2% 
2006
  155  1,764,095  30,837,369  17.48  11.1% 54.3% 
2007
  133  1,545,005  28,273,071  18.30  10.2% 64.5% 
2008
  42  705,482  15,443,243  21.89  5.6% 70.1% 
2009
  34  621,244  13,207,971  21.26  4.8% 74.9% 
2010
  27  978,236  21,133,218  21.60  7.6% 82.5% 
2011
  15  486,354  8,644,106  17.77  3.1% 85.6% 
2012
  15  560,451  14,447,469  25.78  5.2% 90.8% 
2013 and thereafter
  27  1,354,999  25,396,568  18.74  9.2% 100.0% 
  
 
 
 
 
    
   1,279  14,600,904 $276,900,781 $18.96  100.0%   
  
 
 
 
 
    
  
(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.

 

20

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At December 31, 2002, the Properties were leased to 1,143 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, 2002:

    
Tenant Name (a)
   Number
of
Leases
 Weighted
Average
Remaining
Lease Term
in Months		  Aggregate
Square
Feet
Leased		  Percentage
of Aggregate
Leased
Square Feet		  Annualized
Escalated
Rent (in
000) (b)		 Percentage of
Aggregate
Annualized
Escalated
Rent		 
       
       
       
       
 
 
 
 
 
 
 
First USA Bank
  6  148  612,282  4.2%$13,886  4.6%
State of New Jersey
  6  68  442,451  3.0% 12,202  4.0%
Computer Sciences Corporation
  7  44  345,284  2.4% 6,816  2.2%
Verizon
  5  26  257,468  1.8% 6,502  2.1%
Penske Truck Leasing
  1  216  308,205  2.1% 5,292  1.7%
Omnicare Clinical Research
  1  91  150,000  1.0% 3,840  1.3%
Hartford Life
  4  53  182,481  1.2% 3,797  1.3%
Lockheed Martin
  8  33  290,763  2.0% 3,766  1.2%
Parsons Corporation
  3  85  174,689  1.2% 3,572  1.2%
Aventis Behring
  1  58  143,025  1.0% 3,290  1.1%
American Business Financial Services
  1  7  99,994  0.7% 3,175  1.0%
Travelers
  4  27  149,249  1.0% 2,833  0.9%
Highmark Corporation
  4  18  135,298  0.9% 2,817  0.9%
ICT Group
  2  147  117,151  0.8% 2,814  0.9%
Keystone Health Plan Central
  1  20  122,101  0.8% 2,663  0.9%
General Electric
  2  35  100,371  0.7% 2,456  0.8%
Zeneca
  2  46  107,328  0.7% 2,455  0.8%
PPD Development
  5  91  134,222  0.9% 2,439  0.8%
Kimberly Clark Corporation (Scott Paper)
  1  36  93,014  0.6% 2,289  0.8%
Aetna Life Insurance
  1  30  104,505  0.7% 2,247  0.7%
  
 
 
 
 
 
 
   Consolidated Total/Weighted Average
  65  78  4,069,881  27.7%$89,151  29.2%
  
 
 
 
 
 
 
  
(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, 2002 multiplied by 12. Escalated Rent represents fixed base rental amounts plus tenant reimbursements which include payment of real estate taxes, operating expenses and common area maintenance and utility charges. The Company estimates operating expense reimbursements based on historical amounts and comparable market data.

The following table sets forth the year-end occupancy percentages of the Company’s Properties for the last five years:

 
Year ended December 31,
 Occupancy % 
 
 
 
 
2002
  91.0%
 
2001
  92.2%
 
2000
  95.6%
 
1999
  94.1%
 
1998
  93.6%

Real Estate Ventures

As of December 31, 2002, the Company had invested approximately $14.8 million in ten unconsolidated 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. Eight of the Real Estate Ventures own eight office buildings that contain an aggregate of approximately 1.1 million net rentable square feet; one Real Estate Venture developed a hotel property that contains 137 rooms; and one Real Estate Venture holds approximately three acres of land for future development. At December 31, 2002, the operating properties owned by the Real Estate Ventures were approximately 57% leased to 56 tenants.

 

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The Company’s investment in Real Estate Ventures is as follows (in thousands):

   Ownership
Percentage (1)		  Carrying
Amount		 Real Estate
Venture
Debt at 100%		 Company’s Share
of Real Estate
Venture Income (Loss)		 
      
      
  
 
 
 
 
Two Tower Bridge Associates
  35%$2,642 $7,855 $281 
Four Tower Bridge Associates
  65% 3,322  11,000  184 
Five Tower Bridge Associates
  15% —  27,600  — 
Six Tower Bridge Associates
  65% 725  15,951  106 
Eight Tower Bridge Associates
  6% 1,176  35,782  (116)
Tower Bridge Inn Associates
  50% 2,577  11,700  (200)
1000 Chesterbrook Boulevard Partnership
  50% 3,708  28,178  579 
PJP Building Two, LC
  30% 13  5,172  (63)
PJP Building Five, LC
  25% 179  5,891  56 
Florig, LP
  30% 500  —  — 
Christiana Center Operating Company I, LLC (2)
  50% —  —  147 
Christiana Center Operating Company II, LLC (2)
  50% —  —  13 
Christiana Center Operating Company III, LLC (2)
  50% —  —  — 
     
 
 
 
      $ 14,842 $149,129 $987 
     
 
 
 
              
  
(1)
Ownership percentage represents the Company’s entitlement to residual distributions after payment by the applicable venture of priority returns.
  
(2)
During 2002, the Company purchased the remaining partnership interests in these Real Estate Ventures. The results of operations of these Real Estate Ventures are consolidated from the date of purchase of the remaining interests.

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.

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. 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 thereafter returned to the Chancery Division, where written and oral discovery was conducted in 2002 and in the first quarter of 2003. Discovery terminated on February 14, 2003. The Company filed a motion for summary judgment on all counts, seeking dismissal of all counts against it, and judgment for the Company on its counterclaim. The Chancery Division granted the Company’s summary judgment motion on March 25, 2003. At this time, the Company does not know whether plaintiffs will appeal, or if they appeal, whether plaintiffs will be successful in the appeal.

There have been recent reports of lawsuits against owners and managers of multifamily and office properties asserting claims of personal injury and property damage caused by the presence of mold in residential units or office space. The Company has been named as a defendant in two lawsuits that allege personal injury as a result of the presence of mold. Unspecified damages are sought. The Company has referred these lawsuits to its environmental insurance carrier and, as of the date of this Form 10-K, the insurance carrier is evaluating coverage.

 

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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, 2002.

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 24, 2003, there were approximately 377 holders of record of the Common Shares. On March 24, 2003, the last reported sales price of the Common Shares on the NYSE was $21.50. 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.

  Share Price
High		 Share Price
Low		 Distributions
Declared For Quarter		 
     
  
 
 
 
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 
           
First Quarter 2002
 $23.90 $20.24 $0.44 
Second Quarter 2002
 $26.00 $22.91 $0.44 
Third Quarter 2002
 $24.96 $20.20 $0.44 
Fourth Quarter 2002
 $22.57 $19.08 $0.44 

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 2002 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.

The following table provides information as of December 31, 2002 with respect to compensation plans under which equity securities of the Company are authorized for issuance:

 

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Equity Compensation Plan Information as of December 31, 2002

 
           
  (a) (b) (c) 
 
Plan category
 Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 
 
Equity compensation plans approved by security holders (1)
  2,876,521 $26.70 (2) 1,391,436 
 
Equity compensation plans not approved by security holders
  —  —  — 
 
Total
  2,876,521 $26.70 (2) 1,391,436 
 

(1)
Relates to the Company’s 1997 Long-Term Incentive Plan.
  
(2)
Weighted-average exercise price of outstanding options, excludes restricted Common Shares.

 

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Item 6.      Selected Financial Data

(in thousands, except per Common Share data and number of properties)

Year Ended December 31,
 2002 2001 2000 1999 1998 
  
 
 
 
 
 
Operating Results
                
Total revenue
 $296,730 $276,546 $259,816 $253,190 $170,197 
Net income
  62,984  33,722  52,158  34,606  33,025 
Income allocated to Common Shares
  51,078  21,816  40,252  29,816  32,323 
Earnings per Common Share
                
   Basic
 $1.40 $0.57 $1.12 $0.80 $0.90 
   Diluted
 $1.39 $0.57 $1.12 $0.80 $0.89 
Cash distributions declared per Common Share
 $1.76 $1.70 $1.62 $1.57 $1.52 
     
                
Balance Sheet Data
                
   Real estate investments, net of accumulated depreciation
 $1,745,981 $1,812,909 $1,674,341 $1,702,353 $1,840,618 
Total assets
  1,919,288  1,960,203  1,821,103  1,825,276  1,909,100 
Total indebtedness
  1,004,729  1,009,165  866,202  839,634  1,000,560 
Total liabilities
  1,097,793  1,108,213  923,961  895,083  1,040,828 
Minority interest
  135,052  143,834  144,974  145,941  127,198 
Beneficiaries’ equity
  686,443  708,156  752,168  784,252  741,074 
     
                
Other Data
                
Cash flows from:
                
   Operating activities
  118,684  143,318  103,123  81,495  73,116 
   Investing activities
  5,038  (123,682) (32,372) 69,195  (903,193)
   Financing activities
  (110,380) (22,317) (60,403) (158,073) 813,710 
     
                
Property Data
                
Number of properties owned at year end
  238  270  250  251  272 
Net rentable square feet owned at year end
  16,052  17,312  16,471  16,607  18,834 

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, 2002, 2001 and 2000. 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 t hat 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 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.

During 2002, the Company sold 23 office and 20 industrial properties, containing 2.3 million net rentable square feet, and two parcels of land, containing 12.8 acres, for $190.8 million. The Company also acquired

 

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seven office properties, containing 617,000 net rentable square feet, and one parcel of land, containing 9.0 acres, for $99.1 million.

The Company receives income primarily from rental revenue (including tenant reimbursements) from the Properties and, to a lesser extent, from the management of properties owned by third parties and from investments in the Real Estate Ventures.

The Company’s financial performance is dependent upon the demand for office and other commercial space in its markets. Current economic conditions, including recessionary pressures and capital market volatility, have enhanced the challenges facing the Company.

In the current economic climate, the Company continues to seek revenue growth through an increase in occupancy of its portfolio (91.0% at December 31, 2002). However, with a downturn in general leasing activity, owners of commercial real estate, including the Company, are experiencing longer periods in which to lease unoccupied space, and may face higher capital costs and leasing commissions to achieve targeted tenancies.

As the Company seeks to increase revenue, management also focuses on strategies to minimize operating risks, including (i) tenant rollover risk, (ii) tenant credit risk and (iii) development risk.

Tenant Rollover Risk:

The Company is subject to the risk that, upon expiration, leases may not be renewed, the space may not be relet, or the terms of renewal or reletting (including the cost of renovations) may be less favorable than the current lease terms. Leases accounting for approximately 11.7% of the aggregate annualized base rents from the Properties as of December 31, 2002 (representing approximately 11.4% of the net rentable square feet of the Properties) expire without penalty through the end of 2003. The Company maintains an active dialogue with its tenants in an effort to achieve a high level of lease renewals. The Company’s retention rate for leases that were scheduled to expire in the year ended December 31, 2002 was 78.0%. If the Company is unable to renew leases for a substantial portion of the space under expiring leases, or to promptly relet this space, at anticipated rental rates, the Company’s cash flow could be adversely impacted.

Tenant Credit Risk:

In the event of a tenant default, the Company may experience delays in enforcing its rights as a landlord and may incur substantial costs in protecting its investment. Management regularly evaluates its accounts receivable reserve policy in light of its tenant base and general and local economic conditions. The accounts receivable allowances were $4.6 million or 12.5% of total receivables (including accrued rent receivable) as of December 31, 2002 compared to $4.5 million or 12.5% of total receivables (including accrued rent receivable) as of December 31, 2001.

Development Risk:

The Company currently has in development or redevelopment three sites aggregating 428,000 square feet. The total cost of these projects is estimated to be $83.7 million, of which $73.9 million was incurred as of December 31, 2002. As of December 31, 2002, these projects were approximately 43% leased. While the Company is actively marketing space at these projects to prospective tenants, management cannot provide assurance as to the timing or terms of any leases of such space. As of December 31, 2002, the Company owned approximately 444 acres of undeveloped land and held options to purchase approximately 63 additional acres. Risks associated with development of this land include construction cost overruns and construction delays, insufficient occupancy rates and inability to obtain necessary zoning, land-use, building, occupancy and other required governmental approvals.

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

 

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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 liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included this Annual Report on Form 10-K. While the estimates and judgments associated with the application of these accounting policies may be affected by different assumptions or conditions, the Company believes the estimates and judgments associated with the reported amounts are appropriate in the circumstances. The following explains several of the Company’s critical accounting policies that are used in preparing the Company’s consolidated financial statements which require the Company’s management to use significant judgment and estimates:

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. The Company records acquisition of real estate investments under the purchase method of accounting and allocates the purchase price to land, buildings and intangible assets on a relative fair value basis. 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.

Impairment 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.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as real estate investments and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

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

 

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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.

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. Management re-evaluates the remaining useful lives of leasing costs as the creditworthiness of the Company’s tenants and economic and market conditions change.

RESULTS OF OPERATIONS

Comparison of the Year Ended December 31, 2002 to the Year Ended December 31, 2001

  Year Ended December 31, Dollar
Change		 Percent
Change		 
  
   
  2002 2001   
  
 
 
 
 
  (amounts in thousands)    
  
    
Revenue:
             
   Rents
 $253,338 $233,612 $19,726  8.4%
   Tenant reimbursements
  33,624  32,470  1,154  3.6%
   Other
  9,768  10,464  (696) -6.7%
  
 
 
 
 
      Total revenue
  296,730  276,546  20,184  7.3%
     
             
Operating Expenses:
             
   Property operating expenses
  76,746  72,492  4,254  5.9%
   Real estate taxes
  25,854  23,077  2,777  12.0%
   Interest
  63,522  66,385  (2,863) -4.3%
   Depreciation and amortization
  57,599  69,047  (11,448) -16.6%
   Administrative expenses
  14,804  15,177  (373) -2.5%
   Non-recurring charges
  —  6,600  (6,600) — 
  
 
 
 
 
   Total operating expenses
  238,525  252,778  (14,253) -5.6%
  
 
 
 
 
Income from continuing operations before equity in
             
   income of real estate ventures, net gain on sales
             
   and minority interest
  58,205  23,768  34,437  144.9%
Equity in income of real estate ventures
  987  2,768  (1,781) -64.3%
  
 
 
 
 
Income from continuing operations before net gain
             
   on sales and minority interest
  59,192  26,536  32,656  123.1%
Net gain on sales of interest in real estate
  —  4,524  (4,524) -100.0%
Minority interest
  (9,375) (7,915) (1,460) -18.4%
  
 
 
 
 
Income from continuing operations
  49,817  23,145  26,672  115.2%
Income from discontinued operations, net of minority interest
  13,167  11,688  1,479  12.7%
  
 
 
 
 
Income before extraordinary item
  62,984  34,833  28,151  80.8%
Extraordinary item
  —  (1,111) 1,111  0.0%
  
 
 
 
 
   Net income
 $62,984 $33,722 $29,262  86.8%
  
 
 
 
 

The results of operations for the years ended December 31, 2002 and 2001 include the respective operations of the Properties. Of the 238 Properties owned by the Company as of December 31, 2002, a total of 194 Properties containing an aggregate of 13.2 million net rentable square feet (“Same Store Properties”) were owned for the entire twelve-month periods ended December 31, 2002 and 2001. The following table set forth revenue and expense information as to these Same Store Properties for the twelve-month periods ended December 31, 2002 and 2001:

 

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  Year Ended December 31,    Dollar
Change		    Percent
Change		 
  
   
  2002 2001   
  
 
 
 
 
  (amounts in thousands)    
  
    
Revenue:
             
   Rents
 $203,365 $207,071 $(3,706) -1.8 
   Tenant reimbursements
  29,324  29,143  181  0.6 
   Other
  615  427  188  44.0%
  
 
 
 
 
      Total revenue
  233,304  236,641  (3,337) -1.4%
     
             
Operating Expenses:
             
   Property operating expenses
  71,246  69,876  1,370  2.0%
   Real estate taxes
  21,909  20,779  1,130  5.4%
  
 
 
 
 
      Total operating expenses
  93,155  90,655  2,500  2.8%
  
 
 
 
 
Property NOI
 $140,149 $145,986 $(5,837) -4.0%
  
 
 
 
 

Revenue increased to $296.7 million for 2002 as compared to $276.5 million for 2001, primarily due to increased rental rates and additional properties in 2002, offset by decreased occupancy. The straight-line rent adjustment increased revenues by $ 5.9 million in 2002 and $6.2 million in 2001. Revenue for Same Store Properties decreased to $233.3 million in 2002 from $236.6 million in 2001. This decrease was the result of decrease occupancy in 2002 as compared to 2001. Average occupancy for the Same Store Properties decreased to 90.4% in 2002 from 94.5% in 2001. Other revenue represents lease termination fees, leasing commissions, third-party management fees and interest income. Other revenue decreased to $9.8 million in 2002 from $10.5 million in 2001 primarily due to reduced interest income earned in 2002 as compared to 2001.

Property operating expenses increased to $76.7 million in 2002 as compared to $72.5 million in 2001, primarily due to increased insurance and security costs and additional properties in 2002. Property operating expenses included a provision for doubtful accounts of $.9 million in 2002 and $2.9 million in 2001 to provide for increased tenant credit risk. Property operating expenses for the Same Store Properties increased to $71.2 million in 2002 as compared to $69.9 million in 2002 as a result of higher insurance and security costs.

Real estate taxes increased to $25.9 million in 2002 as compared to $23.1 million in 2001, primarily due to increased real estate tax assessments in 2002 and additional properties in 2002. Real estate taxes for the Same Store Properties increased to $21.9 million in 2002 as compared to $20.8 million in 2001 as a result of higher tax rates and property assessments.

Interest expense decreased to $63.5 million in 2002 as compared to $66.4 million in 2001, primarily due to decreased interest rates offset by increased average borrowings during 2002. Average outstanding debt balances for 2002 were $1.0 billion as compared to $949.5 million for 2001. The Company’s weighted- average interest rate from its unsecured credit facilities after giving effect to hedging activities on the unsecured credit facilities decreased to 5.41% in 2002 from 6.48% in 2001 and on mortgage notes payable decreased to 7.27% in 2002 from 7.39% in 2001.

Depreciation decreased to $51.9 million in 2002 as compared to $64.5 million in 2001 primarily due to a change made by the Company in the estimated useful lives of buildings from 25 to 40 years. The impact of this change in useful lives was $19.0 million or $.53 per share for the year ended December 31, 2002. Management determined that the longer period better reflected the useful lives of the buildings. Amortization, related to deferred leasing costs, increased to $5.7 million in 2002 as compared to $4.5 million in 2001, primarily due to increased leasing activity and additional properties in 2002.

Administrative expenses decreased to $14.8 million in 2002 as compared to $15.2 million in 2001, primarily due to decreased amortization of restricted stock.

 

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Equity in income of Real Estate Ventures decreased to $1.0 million in 2002 as compared to $2.8 million in 2001. The 2001 results include a $785,000 gain on the sale of the Company’s interests in a Real Estate Venture. In addition, the Company acquired the remaining partnership interests in three Real Estate Ventures, and, accordingly, the results attributable to these properties are now consolidated from the date of acquisition.

During 2002, the Company sold 23 office properties containing an aggregate of 1.4 million net rentable square feet, 20 industrial properties containing an aggregate of .9 million net rentable square feet and two land parcels containing of 12.8 acres for $190.8 million, realizing a net gain of $8.6 million. 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.

Minority interest from continuing operations represents the equity in income attributable to the portion of the Operating Partnership not owned by the Company. Minority interest from continuing operations increased to $9.3 million in 2002 as compared to $7.9 million in 2001, primarily due to increased results of continuing operations in 2002 as compared to 2001.

Discontinued operations increased from $13.2 million in 2002 as compared to $11.7 million in 2001 primarily due to net gain on sales of real estate investments of $8.6 million in 2002. During 2002, the Company recorded an impairment loss of $665,000 related to one property held-for-sale for which the anticipated net sales price is less than the book value of the asset.

Comparison of the Year Ended December 31, 2001 to the Year Ended December 31, 2000
  Year Ended December 31,    Dollar
Change		    Percent
Change		 
  
   
         2001 (a) 2000   
  
 
 
 
 
  (amounts in thousands)    
  
    
Revenue
             
   Rents
 $233,612 $218,520 $15,092  6.9%
   Tenant reimbursements
  32,470  29,898  2,572  8.6%
   Other
  10,464  11,398  (934) -8.2%
  
 
 
 
 
      Total revenue
  276,546  259,816  16,730  6.4%
              
Operating Expenses:
             
   Property operating expenses
  72,492  63,995  8,497  13.3%
      Real estate taxes
  23,077  21,731  1,346  6.2%
   Interest
  66,385  64,783  1,602  2.5%
   Depreciation and amortization
  69,047  59,950  9,097  15.2%
   Administrative expenses
  15,177  14,194  983  6.9%
   Non-recurring charges
  6,600  —  6,600  — 
  
 
 
 
 
      Total operating expenses
  252,778  224,653  28,125  12.5%
  
 
 
 
 
Income from continuing operations before equity in income of real estate ventures, net gain on sales, minority interest and extraordinary item
  23,768  35,163  (11,395) -32.4%
Equity in income of real estate ventures
  2,768  2,790  (22) -0.8%
  
 
 
 
 
Income from continuing operations before net gain on sales, minority interest and extraordinary item
  26,536  37,953  (11,417) -30.1%
Net gain on sales of interest in real estate
  4,524  11,638  (7,114) -61.1%
Minority interest
  (7,915) (8,908) 993  11.1%
  
 
 
 
 
Income from continuing operations before extraordinary item
  23,145  40,683  (17,538) -43.1%
Income from discontinued operations, net of minority interest
  11,688  11,475  213  1.9%
  
 
 
 
 
Income before extraordinary item
  34,833  52,158  (17,325) -33.2%
Extraordinary item
  (1,111) —  (1,111) -33.2%
  
 
 
 
 
   Net income
 $33,722 $52,158 $(18,436) -35.3%
  
 
 
 
 
  
(a)
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

 

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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 2002 and 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 results of operations presented below have been restated to reflect this presentation.

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
Change		 Percent
Change		 
  
   
  2001 2000   
  
 
 
 
 
  (amounts in thousands)    
  
    
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 $276.5 million for 2001 as compared to $259.8 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 the 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 revenue represents lease termination fees, leasing commissions, third-party management fees and interest income. Other revenue decreased to $10.5 million in 2001 from $11.4 million in 2000 primarily due to additional interest income earned in 2000 on deposits made to acquire properties.

Property operating expenses increased to $72.5 million in 2001 as compared to $64.0 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 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 $23.1 million in 2001 as compared to $21.7 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 Properties 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

 

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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 $64.5 million in 2001 as compared to $56.5 million in 2000 primarily due to additional properties in 2001. Amortization, related to deferred leasing costs, increased to $4.5 million in 2001 as compared to $3.5 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 decreased to $7.9 million in 2001 as compared to $8.9 million in 2000, primarily due to the $6.6 million non-recurring charge in 2001and decreased gains on sales of interests in real estate.

LIQUIDITY AND CAPITAL RESOURCES
Cash Flows

During 2002, the Company generated $118.7 million in cash flow from operating activities. Other sources of cash in-flows consisted of: (i) $115.0 million of proceeds from the Term Loan and draws on the Credit Facility , (ii) $78.0 million of net proceeds from property sales, (iii) proceeds from $20.2 million of additional mortgage notes payable, (iv) $2.5 million of escrowed cash, (v) $2.0 million of cash distributions from Real Estate Ventures and (vi) $1.7 million from payments on employee loans. During 2002, cash out-flows consisted of: (i) $102.3 million of Credit Facility repayments, (ii) $75.0 million of distributions to shareholders, (iii) $48.6 million of mortgage note repayments, (iv) $38.8 million to fund capital expenditures, (v) $25.1 million for property acquisitions, (vi) $20.2 million to repurchase Common Shares and minority interest units in the Operating Partnership, (vii) $13.1 million of leasing costs, (viii) $.7 million of debt costs, (ix) $.4 million of additional investment in Real Estate Ventures and (x) $.4 million of distributions to minority interest holders in excess of income allocated.

During 2001, the Company generated $143.4 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

 

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additional investment in Real Estate Ventures, (x) $2.0 million of distributions to minority interest holders in excess of income allocated and (xi) $1.0 million of escrowed cash.

During 2000, the Company generated $103.1 million in cash flow from operating activities. Other sources of cash in-flows consisted of: (i) $107.4 million of additional mortgage notes payable, (ii) $101.1 million of net proceeds from property sales and (iii) $71.0 million of proceeds from draws on the Credit Facility. During 2000, cash out-flows consisted of: (i) $113.1 million to fund capital expenditures, (ii) $109.5 million to repay borrowings under the Credit Facility, (iii) $69.0 million of distributions to shareholders, (iv) $42.4 million of mortgage note repayments, (v) $15.3 million to repurchase Common Shares, (vi) $7.0 million for property acquisitions, (vii) $6.6 million of leasing costs, , (viii) $4.0 million of escrowed cash, (ix) $2.7 million of additional investment in Real Estate Ventures, (x) $1.7 million of debt costs and (xi) $.9 million of distributions to minority interest holders in excess of income allocated.

Capitalization

At December 31, 2002, the Company maintained a $500.0 million Credit Facility. (See Item 1. Business-Credit Facility)

As of December 31, 2002, the Company had approximately $1 billion of debt outstanding, consisting of $307.0 million of borrowings under the Credit Facility, $100.0 million of borrowings under the Term Loan and $597.7 million of mortgage notes payable. The mortgage notes payable consists of $537.1 million of fixed rate loans and $60.6 million of variable rate loans. Additionally, the Company has entered into interest rate swap and cap agreements to fix the interest rate on $203.0 million of the Credit Facility and variable rate loans. The mortgage loans mature between March 2003 and July 2027. As of December 31, 2002, the Company also had $13.6 million of letters of credit outstanding under the Credit Facility and $179.4 million of unused availability under the Credit Facility. For the year ended December 31, 2002, the weighted-average interest rate under the Credit Facility and the related swap agreements was 5.41%, the weighted- average interest rate for the Term Loan was 3.39% and the weighted-average interest rate for borrowings under mortgage notes payable and the related cap agreements was 7.27%.

The following table outlines the timing of payment requirements related to the Company’s commitments as of December 31, 2002:

  Payments by Period (in thousands) 
  
 
    Less than     More than 
  Total 1 Year 1-3 Years 3-5 Years 5 Years 
  
 
 
 
 
 
Mortgage notes payable:
                
   Fixed rate
 $537,093 $77,934 $74,412 $38,041 $346,706 
   Variable rate
  25,113  154  364  767  23,828 
   Construction loans
  35,523  35,523  —  —  — 
  
 
 
 
 
 
   597,729  113,611  74,776  38,808  370,534 
     
                
Revolving credit facility
  307,000  —  307,000  —  — 
Unsecured debt
  100,000  —  100,000  —  — 
Other liabilities
  13,239  2,277  10,962  —  — 
  
 
 
 
 
 
  $1,017,968 $115,888 $492,738 $38,808 $370,534 
  
 
 
 
 
 

The Company intends to refinance its mortgage notes payable as they become due or repay those that are secured by properties being sold. The Company expects to renegotiate its Credit Facility and Term Loan prior to maturity or extend their terms.

As of December 31, 2002, the Company’s debt-to-market capitalization ratio was 49.8%. 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%.

 

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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. Through December 31, 2002, the Company had repurchased 3.2 million of its Common Shares at an average price of $17.71 per share. Under the share repurchase program, the Company has the authority to repurchase an additional 834,000 shares. No time limit has been placed on the duration of the share repurchase program. The following table summarizes the share repurchases during the three years ended December 31, 2002:

 

  Years Ended December 31, 
  
 
  2002 2001 2000 
  
 
 
 
Repurchased amount (shares)
  491,074  302,437  957,729 
Repurchased amount ($, in thousands)
 $11,053 $5,908 $15,277 
Average price per share
 $22.51 $19.54 $15.95 

The following table summarized the Class A Units tendered for redemption during the three years ended December 31, 2002:

  Years Ended December 31, 
  
 
  2002 2001 2000 
  
 
 
 
Repurchased amount (units)
  364,222  3,247          — 
Repurchased amount ($, in thousands)
 $8,536 $64,031 $— 
Average price per share
 $23.44 $19.72 $— 

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 2003. Cash flow from operations is generated primarily from rental revenues, operating expense reimbursements from tenants, and by providing 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 20, 2002, the Board of Trustees declared a quarterly dividend distribution of $0.44 per share, paid on January 15, 2003 to shareholders of record as of December 31, 2002. Distributions declared in 2002 totaled $1.76 per share as compared to $1.70 per share in 2001, representing an increase of approximately 3.5%.

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.

Non-GAAP Supplemental Financial Measure: Funds from Operations

Industry analysts generally consider Funds From Operations an alternative measure of performance for an equity REIT. The Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”) in its March 1995 White Paper (as clarified by the November 2000 NAREIT National Policy Bulletin which became effective on January 1, 2000) defines Funds From Operations to mean net income (loss) before minority interests of common unitholders (computed in accordance with GAAP), excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures.

 

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The Company considers Funds From Operations an appropriate alternative measure of performance for an equity REIT because it is predicated on cash flow analyses. While Funds From Operations is a relevant and widely used measure of operating performance of equity REITs, other equity REITs may use different methodologies for calculating Funds From Operations and, accordingly, Funds From Operations as disclosed by such other REITs may not be comparable to Funds From Operations published by the Company in this report. Therefore, the Company believes that in order to facilitate a clear understanding of the historical operating results of the Company, Funds From Operations should be examined in conjunction with net income as presented in the financial statements included elsewhere in this report. Funds From Operations should not be considered as a substitute to net income (loss) (computed in accordance with GAAP) as an indicator of the Company’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of the Company’s liquidity, nor is it indicative of funds available to fund the Company’s cash needs, including the Company’s ability to pay dividends or make distributions.

The following table summarizes FFO for the years ended December 31, 2002 and 2001 (in thousands, except share data):

  2002 2001 
  
 
 
Income before net gains on sale, minority interest and
       
   extraordinary item:
       
      Continuing operations
 $59,192 $26,536 
      Discontinued operations
  5,382  12,395 
  
 
 
   64,574  38,931 
Add (deduct):
       
   Depreciation:
       
      Attributable to real property
  52,944  73,031 
      Attributable to real estate ventures
  2,422  3,479 
   Amortization attributable to leasing costs
  5,820  5,158 
   Gain on sale of land interests
  –  881 
   Impairment loss on assets held-for-sale
  665  – 
   Gain included in equity in income of real estate ventures
  –  (785)
  
 
 
Funds from operations before minority interest
 $126,425 $120,695 
  
 
 
Weighted-average Common Shares (including Common Share
       
   equivalents) and Operating Partnership units
  46,928,420  47,297,574 
  
 
 

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. 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, 2002, the Company’s consolidated debt consisted of $537.1 million in fixed rate mortgages and $60.6 million in variable rate mortgage notes, $307.0 million borrowed under its Credit Facility and $100.0 million under its Term Loan. 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

 

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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, 2002, the Company had interest rate swap agreements for notional principal amounts aggregating $175 million. The swap agreements effectively fix the LIBOR interest rate on $100 million of Credit Facility borrowings at 4.230% and on $75 million of Credit Facility borrowings at 4.215%, in each case until June 2004. The interest rate cap agreement effectively limits the interest rate on a mortgage with a notional value of $28 million at 8.7% until July 2004. The impact of the cap agreement is recorded as a component of interest expense.

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, 2002 with all other variables held constant. As of December 31, 2002, a 1% increase in actual interest rates would result in a decrease in beneficiaries’ equity of $27.6 million and a 1% decrease in actual interest rates would result in an increase in beneficiaries’ equity of $30.5 million.

Based on the Company’s variable rate debt as of December 31, 2002, a 1% increase in interest rates would result in an additional $2.6 million in interest expense per year and a 1% decrease would reduce interest expense by $2.6 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 15(a) and filed as part of this Annual Report on Form 10-K. See Item 15.

KPMG LLP is the company’s independent public auditors and also provides the Company with tax compliance and advisory services. The Audit Committee of the Board of Trustees of the Company has approved the provision of services by KPMG to the Company.

Report of Management

The management of the Company is responsible for the preparation of the financial statements and related financial information included in this annual report. The statements were prepared in conformity with accounting principles generally accepted in the United States of America and, accordingly, include amounts that are based on informed estimates and judgments.

Management maintains a system of internal controls to provide reasonable assurance that assets are safeguarded and that transactions are properly authorized and accurately recorded. The concept of reasonable assurance is based on the recognition that there are inherent limitations in all systems of internal accounting control and that the costs of such systems should not exceed the benefits expected to be derived. The Company continually reviews and modifies these systems, where appropriate, to maintain such assurance. The system of internal controls includes careful selection, training and development of operating and financial personnel, well-defined organizational responsibilities and communication of Company policies and procedures throughout the organization.

The selection of the Company’s independent auditors, KPMG LLP, has been approved by the Board of Trustees. The Audit Committee of the Board of Trustees, comprised solely of outside Trustees, meets

 

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periodically with the Company’s independent auditors and management to review the financial statements and related information and to confirm that they are properly discharging their responsibilities. In addition, the independent auditors meet with the Audit Committee, without the presence of management, to discuss their findings and their observations on other relevant matters. Recommendations made by KPMG LLP are considered and appropriate action is taken to respond to these recommendations.

Gerard H. Sweeney, President and Chief Executive Officer
Christopher P. Marr, Senior Vice President and Chief Financial Officer
Bradley W. Harris, Vice President and Chief Accounting Officer

Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On May 23, 2002, the Company dismissed Arthur Andersen LLP as its independent public accountants and appointed KPMG LLP as its new independent public auditors. The decision to dismiss Arthur Andersen and to retain KPMG was approved by the Audit Committee of the Company’s Board of Trustees. Arthur Andersen’s reports on the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2001 and 2000 did not contain any adverse opinion or disclaimer or opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

During the Company’s two most recent fiscal years ended December 31, 2001 and the subsequent interim period through May 30, 2002, there were no disagreements between the Company and Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Arthur Andersen’s satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their reports.

None of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within the Company’s two most recent fiscal years ended December 31, 2001, and the subsequent interim period through May 30, 2002.

The Company provided Arthur Andersen with a copy of the foregoing disclosures. A copy of Arthur Andersen’s letter, dated May 30, 2002, stating their agreement with these statements is attached as Exhibit 16 to the Company’s Form 8-K filed with the Securities and Exchange Commission on May 30, 2002. During the Company’s two most recent fiscal years ended December 31, 2001, and the subsequent interim period through May 30, 2002, neither the Company nor anyone acting on behalf of the Company consulted with KPMG regarding any of the matters or events set forth in Item 304(a)(2) of Regulation S-K.

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 5, 2003.

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 5, 2003.

Item 12.      Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

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 5, 2003.

 

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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 5, 2003.

Item 14.      Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Within 90 days prior to the date of this report, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13(a)- 14(c). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the date of that evaluation. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation.

PART IV

Item 15.      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

  Page 
  
 
Report of Independent Public Auditors
  F-1 
     
    
Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001
  F-2 
     
    
Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000
  F-3 
     
    
Consolidated Statements of Beneficiaries’ Equity and Comprehensive Income for the Years Ended December 31, 2002, 2001 and 2000
  F-4 
     
    
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000
  F-5 
     
    
Notes to Consolidated Financial Statements
  F-6 
     
    
Schedule II – Valuation and Qualifying Accounts
  F-25 
     
    
Schedule III – Real Estate and Accumulated Depreciation
  F-26 

 

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3.      Exhibits

Exhibits No.
 
Description
 
(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) 
(6) 3.2
  Amended and Restated Bylaws of the Company. 
(7) 10.01
  Second Amended and Restated Partnership Agreement of Brandywine Realty Services Partnership. 
(8) 10.02
  Form of Warrant issued to Executive Officers. ** 
10.03
  Amended and Restated Articles of Incorporation of Brandywine Realty Services Corporation. 
(9) 10.04
  Amended and Restated Agreement of Limited Partnership of Brandywine Operating Partnership, L.P. (the “Operating Partnership”). 
(9) 10.05
  Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of the Operating Partnership. 
(9) 10.06
  First Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership 
(9) 10.07
  Tax Indemnification Agreement – PWCC 
(9) 10.08
  Tax Indemnification Agreement – Laurel Oak 
(9) 10.09
  Tax Indemnification Agreement – English Creek 
(10) 10.10
  Second Amendment, dated March 31, 1998, to the Amended and Restated Agreement of Limited Partnership Agreement of Brandywine Operating Partnership, L.P. 
(10) 10.11
  Tax Indemnification Agreement, dated March 31, 1998, by and between Brandywine Operating Partnership, L.P. and Brookstone Investors, L.L.C. 
     
(10) 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. 
(10) 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. 
(10) 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. 
(11) 10.15
  Contribution Agreement, dated April 7, 1998, by and between the entities listed on Schedule thereto and Brandywine Operating Partnership, L.P. 
(11) 10.16
  First Amendment to Contribution Agreement dated May 8, 1998. 
(11) 10.17
  Third Amendment, dated May 8, 1998, to the Amended and Restated Agreement of Limited Partnership of Brandywine Operating Partnership, L. P. 
(11) 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. 
(12) 10.19
  Contribution Agreement dated as of July 10, 1998 (Axinn) 
(12) 10.20
  Form of Donald E. Axinn Options ** 
(12) 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) 

 

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(13) 10.26
  Form of Board of Trustees Designation Letter (Lazard) 
(14) 10.27
  Amended and Restated Employment Agreement dated as of December 8, 2000 of Anthony A. Nichols, Sr.** 
(6) 10.28
  Agreement dated as of December 31, 2001 with Anthony A. Nichols, Sr. replacing December 8, 2000 Employment Agreement** 
(14) 10.29
  Amended and Restated Employment Agreement dated as of May 7, 2002 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 ** 
(16) 10.32
  Restricted Share Awards to Anthony A. Nichols, Sr. ** 
(16) 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 ** 
(6) 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.** 
(14) 10.44
  Fourth Amendment to Restricted Share Award to Anthony A. Nichols, Sr.** 
(14) 10.45
  Fourth Amendment to Restricted Share Award to Gerard H. Sweeney** 
(14) 10.46
  Severance Agreement (Barbara L. Yamarick)** 
(14) 10.47
  Severance Agreement (Anthony A. Nichols, Jr.)** 
(14) 10.48
  Severance Agreement (H. Jeffrey De Vuono)** 
(14) 10.49
  Severance Agreement (George Sowa)** 
(14) 10.50
  Severance Agreement (Bradley W. Harris)** 
(14) 10.51
  Restricted Share Award to Anthony A. Nichols, Sr.** 
(14) 10.52
  Restricted Share Award to Gerard H. Sweeney** 
(14) 10.53
  Restricted Share Award to Anthony S. Rimikis** 
(14) 10.54
  Restricted Share Award to Barbara L. Yamarick 
(14) 10.55
  Restricted Share Award to Anthony A. Nichols, Jr.** 
(14) 10.56
  Restricted Share Award to H. Jeffrey De Vuono** 
(14) 10.57
  Restricted Share Award to George Sowa** 
(14) 10.58
  Restricted Share Award to Bradley W. Harris** 
(17) 10.59
  Exchange Agreement (Virginia properties) – Prentiss Transaction 
(17) 10.60
  Exchange Agreement (Pennsylvania/New Jersey properties) – Prentiss Transaction 
(17) 10.61
  Agreement of Purchase and Sale (Fee Transfer properties) – Prentiss Transaction 
(17) 10.62
  Agreement of Purchase and Sale (Entity Transfer properties) – Prentiss Transaction 
(17) 10.63
  Contribution Agreement (Joint Venture Interest) – Prentiss Transaction 
(17) 10.64
  Agreement of Purchase and Sale (935) First Avenue) – Prentiss Transaction 
(18) 10.65
  Fourteenth Amendment to Second Amended and Restated Agreement of Limited Partnership of Prentiss – Prentiss Transaction 
(19) 10.66
  Third Amended and Restated Credit Agreement 
(15) 10.67
  2002 Restricted Share Award for Gerard H. Sweeney** 
(15) 10.68
  2002 Form of Restricted Share Award for Executive Officers** 
(20) 10.69
  Term Credit Agreement 
(20) 10.70
  Consent and First Amendment to Third Amended and Restated Credit Agreement 
(20) 10.71
  Second Amendment to Third Amended and Restated Credit Agreement 
(21) 10.72
  2002 Restricted Share Award to Christopher P. Marr** 
(21) 10.73
  Severance Agreement to Christopher P. Marr 
(22) 10.74
  2002 Non-Qualified Option to Gerard H. Sweeney** 
10.75
  Letter to Cohen & Steers 

 

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10.76
  Executive Deferred Compensation Plan 
10.77
  2003 Restricted Share Award to Gerard H. Sweeney** 
10.78
  2003 Restricted Share Award to Anthony S. Rimikis** 
10.79
  2003 Restricted Share Award to Barbara L. Yamarick** 
10.80
  2003 Restricted Share Award to Anthony A. Nichols, Jr.** 
10.81
  2003 Restricted Share Award to H. Jeffrey DeVuono** 
10.82
  2003 Restricted Share Award to George D. Sowa** 
10.83
  2003 Restricted Share Award to Bradley W. Harris** 
10.84
  2003 Restricted Share Award to Brad A. Molotsky** 
10.85
  2003 Restricted Share Award to Christopher P. Marr** 
14.1
  Code of Business Conduct and Ethics 
21.1
  List of Subsidiaries of the Company 
23.1
  Consent of KPMG LLP 
99.1
  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 
99.2
  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

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 Form 10-K for the fiscal year ended December 31, 2002 and incorporated herein by reference. 
7.
  Previously filed as an exhibit to the Company’s Registration statement of Form S-11 (File No. 33-4175) and incorporated herein by reference. 
8.
  Previously filed as an exhibit to the Company’s Form 8-K dated August 22, 1996 and incorporated herein by reference. 
9.
  Previously filed as an exhibit to the Company’s Form 8-K dated December 17, 1997 and incorporated herein by reference. 
10.
  Previously filed as an exhibit to the Company’s Form 8-K dated April 13, 1998 and incorporated herein by reference. 
11.
  Previously filed as an exhibit to the Company’s Form 8-K dated May 14, 1998 and incorporated herein by reference. 
12.
  Previously filed as an exhibit to the Company’s Form 8-K dated July 30, 1998 and incorporated herein by reference. 
13.
  Previously filed as an exhibit to the Company’s Form 8-K dated August 13, 1998 and incorporated herein by reference. 

 

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14.
  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. 
15.
  Previously filed as an exhibit to the Company’s Form 10-Q for the quarter ended June 30, 2002 and incorporated herein by reference. 
16.
  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. 
17.
  Previously filed as an exhibit to the Company’s Form 8-K dated March 23, 2001 and incorporated herein by reference. 
18.
  Previously filed as an exhibit to the Company’s Form 8-K dated April 23, 2001 and incorporated herein by reference. 
19.
  Previously filed as an exhibit to the Company’s Form 8-K dated July 12, 2001 and incorporated herein by reference. 
20.
  Previously filed as an exhibit to the Company’s Form 8-K dated July 16, 2002 and incorporated herein by reference. 
21.
  Previously filed as an exhibit to the Company’s Form 8-K dated August 27, 2002 and incorporated herein by reference. 
22
  Previously filed as an exhibit to the Company’s Form 10-Q for the quarter ended September 30, 2002 and incorporated herein by reference. 
  
**
Management contract or compensatory plan or arrangement.
   
 (b)
Reports on Form 8-K
  
 
During the three months ended December 31, 2002 and through March 27, 2003, the Company filed the following:
   
 (i)
Current Report on Form 8-K filed February 28, 2003 (reporting under Item 7 and 12).

 

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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.

Signature
 Title Date 
  
  
 
/s/ Anthony A. Nichols, Sr.
  Chairman of the Board and Trustee  March 27, 2003 
       
Anthony A. Nichols, Sr.
       
     
       
/s/ Gerard H. Sweeney
  President, Chief Executive Officer and Trustee  March 27, 2003 
       
Gerard H. Sweeney
  (Principal Executive Officer)    
     
       
/s/ Christopher P. Marr
  Senior Vice President and Chief Financial  March 27, 2003 
       
Christopher P. Marr
  Officer (Principal Financial Officer)    
     
       
/s/ Bradley W. Harris
  Vice President and Chief Accounting Officer  March 27, 2003 
  (Principal Accounting Officer)    
Bradley W. Harris
       
     
       
/s/ Walter D’Alessio
  Trustee  March 27, 2003 
       
Walter D’Alessio
       
     
       
/s/ Charles P. Pizzi
  Trustee  March 27, 2003 
       
Charles P. Pizzi
       
     
       
/s/ Donald E. Axinn
  Trustee  March 27, 2003 
       
Donald E. Axinn
       
     
       
/s/ Robert C. Larson
  Trustee  March 27, 2003 
       
Robert C. Larson
       
     
       
/s/ D. Pike Aloian
  Trustee  March 27, 2003 
       
D. Pike Aloian
       

 

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CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Gerard H. Sweeney, certify that:

 1.
I have reviewed this annual report on Form 10-K of Brandywine Realty Trust.
   
 2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
   
 3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
   
 4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
    
  a)
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
    
  b)
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
    
  c)
presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
   
 5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
    
  a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
    
  b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
   
 6.
The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

March 27, 2003
  /s/ Gerard H. Sweeney 
  
 
Date
  Gerard H. Sweeney 
   President and Chief Executive Officer 

 

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CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Christopher P. Marr, certify that:

 1.
I have reviewed this annual report on Form 10-K of Brandywine Realty Trust.
   
 2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
   
 3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
   
 4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
    
  a)
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
    
  b)
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
    
  c)
presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
   
 5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
    
  a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
    
  b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
   
 6.
The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

March 27, 2003
  /s/ Christopher P. Marr 
  
 
Date
  Christopher P. Marr 
   Senior Vice President and Chief Financial Officer 

 

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REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees of Brandywine Realty Trust:

We have audited the consolidated balance sheets of Brandywine Realty Trust and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, beneficiaries’ equity and comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2002. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Brandywine Realty Trust and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

  /s/ KPMG LLP 

Philadelphia, Pennsylvania
February 26, 2003

 

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BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)

  December 31, 
  
 
  2002 2001 
  
 
 
ASSETS
       
Real estate investments:
       
   Operating properties
 $1,890,009 $1,893,039 
   Accumulated depreciation
  (245,230) (230,793)
  
 
 
   1,644,779  1,662,246 
   Construction-in-progress
  58,127  111,378 
   Land held for development
  43,075  39,285 
  
 
 
   1,745,981  1,812,909 
     
       
Cash and cash equivalents
  26,801  13,459 
Escrowed cash
  16,318  16,311 
Accounts receivable, net
  3,657  6,394 
Accrued rent receivable, net
  28,333  25,222 
Marketable securities
  11,872  10,735 
Assets held for sale
  7,666  — 
Investment in real estate ventures, at equity
  14,842  19,067 
Deferred costs, net
  29,271  24,261 
Other assets
  34,547  31,845 
  
 
 
   Total assets
 $1,919,288 $1,960,203 
     
       
LIABILITIES AND BENEFICIARIES’ EQUITY
       
Mortgage notes payable
 $597,729 $614,840 
Borrowings under Credit Facility
  307,000  394,325 
Unsecured term loan
  100,000  — 
Accounts payable and accrued expenses
  27,576  35,054 
Distributions payable
  21,186  21,525 
Tenant security deposits and deferred rents
  22,276  22,290 
Other liabilities
  22,006  20,179 
Liabilities related to assets held for sale
  20  — 
  
 
 
   Total liabilities
  1,097,793  1,108,213 
Minority interest
  135,052  143,834 
     
       
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 2002 and 2001
  8  8 
      8.75% Series B Preferred Shares, $0.01 par value;
       
         issued and outstanding-4,375,000
       
         in 2002 and 2001
  44  44 
   Common Shares of beneficial interest, $0.01 par value;
       
      shares authorized-100,000,000; issued and outstanding-
       
      35,226,315 in 2002 and 35,640,935 in 2001
  352  356 
Additional paid-in capital
  841,659  848,213 
Share warrants
  401  401 
Cumulative earnings
  225,010  163,502 
Accumulated other comprehensive loss
  (6,402) (4,587)
Cumulative distributions
  (374,629) (299,781)
  
 
 
   Total beneficiaries’ equity
  686,443  708,156 
  
 
 
Total liabilities and beneficiaries’ equity
 $1,919,288 $1,960,203 
  
 
 

The accompanying notes are an integral part of these consolidated financial statements.

 

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BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)

  Year ended December 31, 
  
 
  2002 2001 2000 
  
 
 
 
Revenue:
          
   Rents
 $253,338 $233,612 $218,520 
   Tenant reimbursements
  33,624  32,470  29,898 
   Other
  9,768  10,464  6,962 
  
 
 
 
      Total revenue
  296,730  276,546  255,380 
Operating Expenses:
          
   Property operating expenses
  76,746  72,492  59,483 
   Real estate taxes
  25,854  23,077  21,731 
   Interest
  63,522  66,385  64,746 
   Depreciation and amortization
  57,599  69,047  59,316 
   Management fees
  —  —  10,867 
   Administrative expenses
  14,804  15,177  4,249 
   Non-recurring charges
  —  6,600  — 
  
 
 
 
Total operating expenses
  238,525  252,778  220,392 
  
 
 
 
Income from continuing operations before equity in income of management
          
   company, equity in income of real estate ventures, net gains on sales
          
   and minority interest
  58,205  23,768  34,988 
Equity in income of management company
  —  —  164 
Equity in income of real estate ventures
  987  2,768  2,797 
  
 
 
 
Income from continuing operations before net gains on sales and
          
   minority interest
  59,192  26,536  37,949 
Net gains on sales of interests in real estate
  —  4,524  11,638 
  
 
 
 
Income before minority interest and extraordinary items
  59,192  31,060  49,587 
Minority interest attributable to continuing operations
  (9,375) (7,915) (8,904)
  
 
 
 
Income from continuing operations
  49,817  23,145  40,683 
Discontinued operations:
          
   Income from discontinued operations
  5,382  12,395  12,169 
   Net gain on disposition of discontinued operations
  8,562  —  — 
   Minority interest
  (777) (707) (694)
  
 
 
 
Income from discontinued operations
  13,167  11,688  11,475 
  
 
 
 
Income before extraordinary item
  62,984  34,833  52,158 
Extraordinary item
  —  (1,111) — 
  
 
 
 
Net income
  62,984  33,722  52,158 
           
Income allocated to Preferred Shares
  (11,906) (11,906) (11,906)
  
 
 
 
Income allocated to Common Shares
 $51,078 $21,816 $40,252 
  
 
 
 
Basic earnings per Common Share:
          
   Continuing operations
 $1.03 $0.27 $0.80 
   Discontinued operations
  0.37  0.33  0.32 
   Extraordinary item
  —  (0.03) — 
  
 
 
 
  $1.40 $0.57 $1.12 
  
 
 
 
Diluted earnings per Common Share:
          
   Continuing operations
 $1.02 $0.27 $0.80 
   Discontinued operations
  0.37  0.33  0.32 
   Extraordinary item
  —  (0.03) — 
  
 
 
 
  $1.39 $0.57 $1.12 
  
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

 

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BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF BENEFICIARIES’ EQUITY AND COMPREHENSIVE INCOME
For the years ended December 31, 2002, 2001 and 2000
(in thousands, except number of shares)

  Number of Preferred A Shares Par Value of Preferred A Shares Number of Preferred B Shares Par Value of Preferred B Shares Number of Common Shares Par Value of Common Shares Additional Paid- in Capital Employee Stock Loans Share Warrants Cumulative Earnings Accumulated Other Comprehensive Income (Loss) Cumulative Distributions Total 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, January 1, 2000
  750,000 $8  4,375,000 $44  36,372,590 $364 $863,962 $(4,640)$908 $79,384 $— $(155,778)$784,252 
   Comprehensive income:
                                        
      Net income
                             52,158        52,158 
      Other comprehensive income:
                                        
         Unrealized loss on available-for-sale securities
                                (1,731)      
                                
       
            Total other comprehensive income
                                (1,731)    (1,731)
                                      
 
   Total comprehensive income
                                      50,427 
Vesting of Restricted Stock
              106,453     2,897                 2,897 
Repurchase of Common Shares
              (957,729) (9) (15,268)                (15,277) 
Employee stock loans used to purchase Common Shares
              160,000  2  2,498  (2,500)             — 
Payment/forgiveness of employee stock loans
                       303              303 
Accretion of Preferred Share discount
                    286        (286)       — 
Preferred Share distributions
                                   (11,906) (11,906)
Distributions ($1.62 per share)
                                   (58,528) (58,528)
  
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, December 31, 2000
  750,000  8  4,375,000  44  35,681,314  357  854,375  (6,837) 908  131,256  (1,731) (226,212) 752,168 
   Comprehensive income:
                                        
      Net income
                             33,722        33,722 
      Other comprehensive income:
                                        
         Cumulative effect of adopting SFAS 133
                                (1,300)      
         Unrealized loss on derivative financial instruments
                                (3,371)      
         Unrealized gain on available-for-sale securities
                                1,815       
                                
       
            Total other comprehensive income
                                (2,856)    (2,856) 
                                      
 
   Total comprehensive income
  30,866                                     
   Vesting of Restricted Stock
              175,411  2  3,983                 3,985 
   Repurchase of Common Shares
              (373,713) (4) (7,290)                (7,294)
   Employee stock loans used to purchase Common Shares
              71,276  1  1,385  (1,386)             — 
   Payment/forgiveness of employee stock loans
                       2,524              2,524 
   Accretion of Preferred Share discount
                    1,476        (1,476)       — 
   Exercise of warrants/options
              86,647     (17)    (507)          (524)
   Preferred Share distributions
                                   (11,906) (11,906)
   Distributions ($1.70 per share)
                                   (61,663) (61,663)
  
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, December 31, 2001
  750,000  8  4,375,000  44  35,640,935  356  853,912  (5,699) 401  163,502  (4,587) (299,781) 708,156 
   Comprehensive income:
                                        
      Net income
                             62,984        62,984 
      Other comprehensive income:
                                        
         Unrealized loss on derivative financial instruments
                                (2,548)      
         Unrealized gain on available-for-sale securities
                                733       
                                
       
            Total other comprehensive income
                                (1,815)    (1,815)
                                      
 
   Total comprehensive income
                                      61,169 
   Vesting of Restricted Stock
              76,454  1  1,895                 1,896 
   Repurchase of Common Shares
              (491,074) (5) (11,048)                (11,053)
   Employee stock loans used to purchase Common Shares
                                      — 
Payment/forgiveness of employee stock loans
                       1,658              1,658 
Accretion of Preferred Share discount
                    1,476        (1,476)       — 
Amortization of stock options
                    43                 43 
Exercise of warrants/options
                    (578)                (578)
Preferred Share distributions
                                   (11,906) (11,906)
Distributions ($1.76 per share)
                                   (62,942) (62,942)
  
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, December 31, 2002
  750,000 $8  4,375,000 $44  35,226,315 $352 $845,700 $(4,041)$401 $225,010 $(6,402)$(374,629)$686,443 
  
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an intergral part of these consolidated financial statements.

 

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BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

  Year ended December 31, 
  
 
  2002 2001 2000 
  
 
 
 
Cash flows from operating activities:
          
   Net income
 $62,984 $33,722 $52,158 
   Adjustments to reconcile net income to net cash from operating activities:
          
      Depreciation
  52,944  73,031  64,041 
      Amortization:
          
         Deferred financing costs
  1,795  2,679  3,478 
         Deferred leasing costs
  5,820  5,158  2,971 
         Deferred compensation costs
  3,182  3,710  2,685 
      Straight-line rental income
  (5,930) (6,206) (6,396)
      Provision for doubtful accounts
  894  2,867  332 
      Equity in income of management company
  —  —  (164)
      Equity in income of real estate ventures in excess of cash distributions received
  —  —  (354)
      Net gain on sales of interests in real estate
  (8,562) (4,524) (11,638)
      Non-recurring charge
  —  6,600  — 
      Impairment loss on assets held-for-sale
  665  —  — 
      Extraordinary items
  —  1,111  — 
      Changes in assets and liabilities:
          
         Accounts receivable
  2,582  (212) 3,414 
         Other assets
  11,029  17,464  (8,480)
         Accounts payable and accrued expenses
  (6,040) 4,292  2,715 
         Tenant security deposits and deferred rents
  (521) 5,058  (1,639)
         Other liabilities
  (2,158) (1,332) — 
  
 
 
 
      Net cash from operating activities
  118,684  143,418  103,123 
Cash flows from investing activities:
          
   Acquisition of properties
  (25,146) (40,359) (7,010)
   Sales of properties
  78,019  31,335  101,075 
   Capital expenditures
  (38,787) (107,405) (113,137)
   Investment in real estate ventures
  (446) (2,495) (2,748)
   Increase in escrowed cash
  2,553  (1,016) (3,974)
   Cash distributions from real estate ventures in excess of income
  1,969  5,492  — 
   Leasing costs
  (13,124) (9,234) (6,578)
  
 
 
 
      Net cash from investing activities
  5,038  (123,682) (32,372)
Cash flows from financing activites:
          
   Proceeds from notes payable, Credit Facility
  15,000  91,000  71,000 
   Repayment of notes payable, Credit Facility
  (102,325) (35,000) (109,500)
   Proceeds from Term Loan
  100,000  —  — 
   Proceeds from mortgage notes payable
  20,186  135,165  107,397 
   Repayment of mortgage notes payable
  (48,646) (127,876) (42,412)
   Debt financing costs
  (658) (5,557) (1,656)
   Repayments on employee stock loans
  1,658  1,024  — 
   Repurchases of Common Shares and minority interest units
  (20,165) (6,494) (15,277)
   Distributions to minority interest holders in excess of income allocated
  (408) (2,045) (945)
   Distributions paid to shareholders
  (75,022) (72,534) (69,010)
  
 
 
 
      Net cash from financing activities
  (110,380) (22,317) (60,403)
  
 
 
 
(Decrease) increase in cash and cash equivalents
  13,342  (2,581) 10,348 
Cash and cash equivalents at beginning of year
  13,459  16,040  5,692 
  
 
 
 
Cash and cash equivalents at end of year
 $26,801 $13,459 $16,040 
  
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

 

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BRANDYWINE REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000

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, 2002, the Company’s portfolio included 210 office properties, 27 industrial facilities and one mixed-use property (collectively, the “Properties”) that contained an aggregate of 16.1 million net rentable square feet. The Properties are located in the office and industrial markets in and surrounding Philadelphia, Pennsylvania, New Jersey and Richmond, Virginia. As of December 31, 2002, the Company also held economic interests in ten unconsolidated 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, 2002, was entitled to approximately 94.9% 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 a taxable REIT subsidiary, Brandywine Realty Services Corporation, a Pennsylvania corporation (the “Management Company”), that, as of December 31, 2002, was performing management and leasing services for properties containing an aggregate of approximately 19.0 million net rentable square feet, of which 15.9 million net rentable square feet related to properties owned by the Company and approximately 3.1 million net rentable square feet relate d 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. All intercompany accounts and transactions have been eliminated in consolidation. 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 and 5% of its voting common 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, has consolidated the Management Company since January 1, 2001.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Operating Properties

Operating properties are carried at the lower of historical cost less accumulated depreciation and impairment losses. The cost of operating properties includes the purchase price or development costs of the properties. Costs incurred for

 

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the acquisition, renovation and betterment of the operating properties are capitalized to the Company’s investment in that property. Maintenance and repairs are charged to expense as incurred.

Depreciation and Amortization

The costs of buildings and improvements are depreciated 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.

Effective January 1, 2002, the Company changed the estimated useful lives of various buildings from 25 to 40 years. This change resulted in an increase of net income of $19.0 million or $.53 per share for the year ended December 31, 2002. Management determined the longer period to be a better estimate of the useful lives of the buildings.

Construction in Progress

Project costs clearly associated with the development and construction of a real estate project are capitalized as construction in progress. In addition, interest, real estate taxes and general and administrative expenses that are directly associated with and incremental to the Company’s development activities are capitalized during the period in which activities necessary to get the property ready for its intended use are in progress. Once the development and construction of the building shell of a real estate project is completed, the costs capitalized to construction in progress are transferred to land and buildings. Direct construction costs totaling $2.2 million in 2002, $2.7 million in 2001 and $1.8 million in 2000 and interest totaling $2.9 million in 2002, $5.2 million in 2001 and $8.2 million in 2000 were capitalized related to development of certain Properties and land holdings.

Impairment of Long-Lived Assets

Statement of Financial Accounting Standards No. 144 (“SFAS 144”), Accounting for the Impairment or Disposal of Long-Lived Assets, provides a single accounting model for long-lived assets as held-for-sale, broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such operations. The Company adopted SFAS 144 on January 1, 2002.

In accordance with SFAS 144, long-lived assets, such as real estate investments and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The other assets and liabilities related to assets classified as held-for-sale are presented separately in the consolidated balance sheet.

Prior to adoption of SFAS 144, the Company accounted for the impairment of long-lived assets in accordance with SFAS 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.

The Company recorded impairment losses of $665,000 for the year ended December 31, 2002 relating to assets held-for-sale. The Company recorded no impairment losses for the years ended December 31, 2001 and 2000.

Cash and 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.

Restricted Cash

Restricted cash consists of cash held as collateral to provide credit enhancement for the Company’s mortgage debt, cash for property taxes, capital expenditures and tenant improvements.

 

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Accounts Receivable

Leases with tenants are accounted for as operating leases. Minimum annual rentals under tenant leases are recognized on a straight-line basis over the term of the related lease. Accrued rent receivable represents the amount that straight-line rental income exceeds rents currently due under the lease agreements. Included in current tenant receivables are tenant reimbursements which are comprised of amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses that are recognized as revenue in the period in which the related expenses are incurred. As of December 31, 2002 and 2001, no tenant represents more than 10% of accounts receivable.

Tenant receivables and accrued rent receivables are carried net of the allowances for doubtful accounts of $2.3 million and $2.3 million in 2002 and $2.5 million and $2.0 million in 2001. Management’s determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, individual receivables and current economic conditions.

Deferred Costs

Costs incurred in connection with property leasing are capitalized as deferred leasing costs. Deferred leasing costs consist primarily of leasing commissions that are amortized on the straight-line method over the life of the respective lease which generally ranges from one to 15 years. Management re-evaluates the remaining useful lives of leasing costs as economic and market conditions change. Internal direct leasing costs deferred totaled $3.6 million in 2002, $3.1 million in 2001 and $2.5 million in 2000.

Costs incurred in connection with debt financing are capitalized as deferred financing costs. Deferred financing costs consist primarily of loan fees which are amortized over the related loan term. Total accumulated amortization related to these costs was $14.9 million in 2002 and $11.8 million in 2001.

Other Assets

As of December 31, 2002, other assets included a direct financing lease of $16.0 million, prepaid real estate taxes of $5.6 million, promissory notes of $4.0 million, furniture, fixtures and equipment of $2.1 million and $6.8 million of 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.

Marketable Securities

The Company accounts for its investments in equity securities according to the provisions of 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 (loss). A decline in the market value of equity securities below cost that is deemed to be other than temporary results in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established.

Intangible Assets

On January 1, 2002, the Company adopted the provisions of SFAS 141, Business Combinations. This statement makes significant changes to the accounting for business combinations, goodwill, and intangible assets. Among other provisions, SFAS 141 requires that a portion of the purchase price of real estate acquisitions be assigned to the fair value of an intangible asset for above market operating leases or a liability for below market operating leases. Such intangible assets or liabilities are then required to be amortized into revenue over the remaining life of the related leases. Accordingly, during 2002, the Company recorded an intangible asset related to the origination value of acquired leases of $1.2 million (included in deferred costs), an acquired lease asset of $.7 million for above market leases (included in other assets) and an acquired lease liability of $2.1 million for below market leases (included in other liabilitie s). Amortization expense recorded during 2002 for the origination value of acquired leases totaled $256,000. The amortization of acquired leases resulted in a net increase in rental revenue of $459,000 during 2002. Management reviews the carrying value of intangible assets for impairment on an annual basis.

As of December 31, 2002, intangible assets and acquired lease liabilities consist of the following (in thousands):

 

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Intangible assets:
    
   Acquired lease asset, net of accumulated amortization of $99
 $607 
   Origination value, net of accumulated amortization of $256
  959 
  
 
      Net intangible assets
 $1,566 
  
 
Acquired lease liability, net of accumulated amortization of $558
 $1,547 
  
 

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. Deferred rental revenue represents rental revenue received from tenants prior to their due dates. The straight-line rent adjustment increased revenue by approximately $5.9 million in 2002, $6.2 million in 2001 and $6.4 million in 2000. 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 greater than 10% of the Company’s rental revenue in 2002, 2001 or 2000.

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.

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 tax basis in the Company’s assets was $1.3 billion as of December 31, 2002.

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 2002, 2001, or 2000.

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. There was no provision required for income taxes in 2002 and 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

In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS 148, Accounting for Stock-Based Compensation — Transition and Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that voluntarily adopts the fair value recognition method of recording stock option expense. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock options on reported net income and earnings per share in annual and interim financial statements.

At December 31, 2002, the Company had one stock option and incentive plan, which is described more fully in Note 11. Effective January 1, 2002, the Company voluntarily adopted the fair value recognition provisions of SFAS 123

 

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prospectively for all employee stock option awards granted or modified after January 1, 2002. Under the fair value recognition provisions of SFAS 123, total compensation expense related to stock options is determined using the fair value of the stock options on the date of grant. Total compensation expense is then recognized on a straight-line basis over the option vesting period

Prior to 2002, the Company accounted for stock options issued under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees and related Interpretations. As a result, no stock option expense is reflected in 2001 or 2000 net income, as all stock options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period (in thousands, except per share amounts):

  Year ended December 31, 
  
 
  2002 2001 2000 
  
 
 
 
Net income available to Common Shares, as reported
 $51,078 $21,816 $40,252 
     
          
Add: Stock based compensation expense included in reported net income
  2,553  2,828  1,931 
Deduct: Total stock based compensation expense determined under fair value
          
   recognition method for all awards
  (3,231) (3,506) (2,609)
  
 
 
 
     
          
Pro forma net income available to Common Shares
 $50,400 $21,138 $39,574 
  
 
 
 
Earnings per Common Share
          
   Basic — as reported
 $1.40 $0.57 $1.12 
  
 
 
 
   Basic — pro forma
 $1.38 $0.55 $1.10 
  
 
 
 
   Diluted — as reported
 $1.39 $0.57 $1.12 
  
 
 
 
   Diluted — pro forma
 $1.37 $0.55 $1.10 
  
 
 
 

Comprehensive Income

Comprehensive income or loss is recorded in accordance with the provisions of SFAS 130, Reporting Comprehensive Income. SFAS 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income includes unrealized gains and losses on available-for-sale securities and the effective portions of changes in the fair value of derivatives.

Accounting for Derivative Instruments and Hedging Activities

Effective January 1, 2001, the Company adopted SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and its corresponding amendments under SFAS 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. These amounts are subsequently reclassified to interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings. The ineffective portions of cash flow hedges are recognized in earnings in the current period. For the years ended December 31, 2002 and 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 loss for the cumulative effect of an accounting change to recognize at fair value all derivatives that are designated as cash flow hedging instruments. 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 occur. It is expected that $5.0 million of net losses will be reclassified into earnings over the next twelve months.

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.

 

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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 amounts based on fixed and/or variable interest rates applied to notional amounts. As of December 31, 2002, 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 loss into earnings during 2002 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 April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The most significant provisions of this statement relate to the rescission of Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Under SFAS 145, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet certain defined criteria must be reclassified. The provisions of SFAS 145 are effective for fiscal years beginning after May 15, 2002. Management expects that the adoption of this statement in 2003 will not have a material effect on the Company’s results of operations or financial condition.

In June 2002, FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3 Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. Management expects that the adoption of this statement will not have a material effect on the Company’s results of operations or financial condition.

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 significantly changes the current practice in the accounting for, and disclosure of, guarantees. Guarantees and indemnification agreements meeting the characteristics described in FIN 45 are required to be initially recorded as a liability at fair value. FIN 45 also requires a guarantor to make significant new disclosures for virtually all guarantees even if the likelihood of the guarantor having to make payment under the guarantee is remote. The disclosure requirements within FIN 45 are effective for financial statements for annual or interim periods ending after December 15, 2002. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company adopted the disclosure provisions of FIN 45 as of December 31, 2002. Management does not expect the adoption of the initial recognition and measurement provisions will have a material effect on the Company’s results of operations or financial condition.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements and provides guidance on the identification of entities for which control is achieved through means other than through voting rights (“variable interest entities” or “VIEs”) and how to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to an entity which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. The provisions of this interpretation are immediately effective for VIEs formed after January 31, 2003. For VIEs formed pr ior to January 31, 2003, the provisions of this interpretation apply to the first fiscal year or interim period beginning after June 15, 2003. Management does not expect that the adoption of this standard will have a material effect on the Company’s results of operations or beneficiaries’ equity and comprehensive income.

3. MINORITY INTEREST

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

 

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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. Income allocated to minority interest includes the amount of the Series B Preferred Unit distribution and the prorata share of net income of the Operating Partnership allocated to the Class A Units. The Company declared distributions of $7.1 mi llion in 2002, 2001 and 2000 to the holders of Series B Preferred Units and $3.3 million in 2002, $3.7 million in 2001 and $3.5 million in 2000 to holders of Class A Units. As of December 31, 2002 and 2001, respectively, there were 1,787,436 and 2,151,658 Class A Units and 1,950,000 Series B Preferred Units held by third party investors.

4. REAL ESTATE INVESTMENTS

As of December 31, 2002 and 2001, the carrying value of the Company’s Operating Properties is as follows:

  December 31, December 31, 
  2002 2001 
  
 
 
  (amounts in thousands) 
Land
 $353,111 $353,678 
Building and improvements
  1,442,819  1,460,165 
Tenant improvements
  94,079  79,196 
  
 
 
  $1,890,009 $1,893,039 
  
 
 

5. 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.

2002

During 2002, the Company sold 23 office properties containing an aggregate of 1.4 million net rentable square feet, 20 industrial properties containing an aggregate of .9 million net rentable square feet and two parcels of land containing an aggregate of 12.8 acres for an aggregate of $190.8 million, realizing a net gain of $8.6 million before minority interest. The Company also purchased seven office properties containing 617,000 net rentable square feet and one parcel of land containing 9.0 acres for an aggregate of $99.1 million.

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.

In addition to the sales and acquisitions above, the Company consummated 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
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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 then under construction for $4.2 million and six acres of related developable land for $5.7 million.

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.

  Year Ended December 31, 
  2001 2000 
  
 
 
  (unaudited and in thousands, 
  except per share data) 
        
Pro forma total revenue
 $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 

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.

6. MANAGEMENT COMPANY

Management fees paid by the Properties to the Management Company amounted to $11.9 million in 2000. 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. Summarized unaudited financial information for the Management Company as of and for the year ended December 31, 2000 is as follows:

  2000 
  
 
  (unaudited and in thousands) 
Total assets
 $3,248 
Total revenue
  26,190 
Net income
  173 
Company’s share of net income
  164 

7. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

As of December 31, 2002, the Company had invested approximately $14.8 million in ten 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. Eight of the Real Estate Ventures own eight office buildings that contain an aggregate of a .8 million net rentable square feet; one Real Estate Venture developed a hotel property that contains 137 rooms; and one Real Estate Venture holds 3.0 acres of land for future development.

 

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During 2002, the Company purchased the remaining partnership interests held by third parties in three Real Estate Ventures which owned two office properties containing 222,000 net rentable square feet and one parcel of land containing 1.0 acres for $2.3 million. The results of operations of these Real Estate Ventures are consolidated from the date the Company acquired the remaining partnership interests.

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 Real Estate Ventures in which the Company had investment interests as of December 31, 2002 and 2001 (in thousands):

  December 31, December 31, 
  2002 2001 
  
 
 
Net property
 $193,552 $180,497 
Other assets
  20,163  17,038 
Liabilities
  3,186  1,593 
Third-party debt
  149,129  145,463 
Equity
  61,400  50,479 
Company’s share of equity
  14,842  19,067 
  For the year ended December 31, 
  
 
  2002 2001 2000 
  
 
 
 
Revenues
 $27,219 $24,117 $30,538 
Operating expenses
  10,406  8,237  8,826 
Depreciation and amortization
  5,531  3,211  6,250 
Interest expense, net
  9,212  7,495  10,914 
Net income
  2,070  5,174  4,368 
Company’s share of income
  987  2,768  2,797 

 

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The following is a summary of the financial position as of December 31, 2002 and the results of operations for the year ended December 31, 2002 for each of the unconsolidated Real Estate Ventures in which the Company had interests as of December 31, 2002 (in thousands):

  1000 Christiana Christiana Christiana                               
  Chesterbrook Center Center Center Two Tower Four Tower Five Tower Six Tower Eight Tower Tower TBFA PJP PJP    
  Boulevard Operating Operating Operating Bridge Bridge Bridge Bridge Bridge Bridge Inn Partners, Building Building    
  Partnership Company I, LLC Company II, LLC Company III, LLC Associates Associates Associates Associates Associates Associates LP Two, LC Five, LC Total 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    (a) (a) (a)                               
Assets
                                           
Net property
 $31,588 $— $— $— $9,805 $11,000 $41,373 $13,029 $56,732 $14,303 $3,334 $5,513 $6,875 $193,552 
Other assets
  3,417  —  —  —  743  3,453  4,314  3,991  832  2,105  —  560  748  20,163 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 $35,005 $— $— $— $10,548 $14,453 $45,687 $17,020 $57,564 $16,408 $3,334 $6,073 $7,623 $213,715 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Equity
                                           
Other liabilities
 $269 $— $— $— $51 $305 $441 $440 $1,244 $197 $— $93 $146 $3,186 
Debt
  28,178  —  —  —  7,855  11,000  27,600  15,951  35,782  11,700  —  5,172  5,891  149,129 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities
  28,447  —  —  —  7,906  11,305  28,041  16,391  37,026  11,897  —  5,265  6,037  152,315 
Equity
  6,558  —  —  —  2,642  3,148  17,646  629  20,538  4,511  3,334  808  1,586  61,400 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilies and equity
 $35,005 $— $— $— $10,548 $14,453 $45,687 $17,020 $57,564 $16,408 $3,334 $6,073 $7,623 $213,715 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
                                           
Rents
 $5,086 $1,089 $511 $— $1,857 $2,372 $5,238 $3,027 $277 $3,876 $- $414 $750 $24,497 
Tenant reimbursements and other
  470  48  24  —  469  418  239  521  —  203  —  116  214  2,722 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue
  5,556  1,137  535  —  2,326  2,790  5,477  3,548  277  4,079  —  530  964  27,219 
Operating Expenses
                                           
Property operating expenses
  1,128  290  111  —  796  620  1,008  635  487  2,279  —  274  308  7,936 
Real estate taxes
  383  27  31  —  160  144  349  313  182  193  —  41  50  1,873 
Interest
  1,949  459  257  —  550  728  1,839  1,252  801  994  —  184  199  9,212 
Depreciation and amortization
  897  222  107  —  368  732  222  835  882  711  —  338  217  5,531 
Administrative expenses
  7  —  —  —  —  163  174  239  14  —  —  —  —  597 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses
  4,364  998  506  —  1,874  2,387  3,592  3,274  2,366  4,177  —  837  774  25,149 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
 $1,192 $139 $29 $— $452 $403 $1,885 $274 $(2,089) $(98) $— $(307) $190 $2,070 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
In July 2002, the Company purchased the remaining interests in these Real Estate Ventures for an aggregate of $2.3 million.

As of December 31, 2002, the aggregate maturities of non-recourse debt payable to third-parties is as follows (in thoudands):

2003
 $6,113  
2004
  1,485  
2005
  37,406  
2006
  8,452  
2007 and thereafter
  95,673 
  
 
  $149,129  

As of December 31, 2002, the Company had guaranteed repayment of approximately $2.0 million of loans on behalf of the Real Estate Ventures. See Item 2. Properties — Real Estate Ventures. The Company also guaranteed a $16.2 million loan on behalf of a former Real Estate Venture. Payment under the guaranty, which expires in January 2004, would be required only in the event of a default on the loan and if and to the extent the collateral for the loan were insufficient to provide for payment in full of the loan. 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.

The Company has assessed the investments in Real Estate Ventures using the guidelines established in FIN 46 to determine whether using the equity method of accounting is still appropriate. These Real Estate Ventures have sufficient total investment equity at risk to permit these entities to finance their activities without additional subordinated financial support from other parties, including the Company. Further, the equity investment at risk is not greater than the expected losses of the entity, if any, as of December 31, 2002.

 

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In addition, these entities are not considered variable interest entities because, in each case, the equity investors as a group, have (i) the ability to make decisions through voting rights or the terms of the partnership or operating agreements; (ii) the obligation to absorb the expected losses of the entity, if any; and (iii) the right to receive the expected residual returns of the entity, if they occur.

8. INDEBTEDNESS

The Company utilizes credit facility borrowings for general business purposes, including the acquisition of properties and the repayment of debt. The Company maintains a $500 million unsecured credit facility (the “Credit Facility”) that matures in June 2004. Borrowings under the Credit Facility bear interest at LIBOR (LIBOR was 1.38% at December 31, 2002) 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. As of December 31, 2002, the Company had $307 million of borrowings and $13.6 million of letters-of-credit outstanding under the Credit Facility, leaving $179.4 million of unused availability. The weighted-average interest rate on the Company’s unsecured credit facilities was 5.41% in 2002, 6.48% in 2001, and 7.84% in 2000.

During 2002, the Company obtained a $100 million term loan. The Company used proceeds of the term loan to repay indebtedness, including indebtedness under its Credit Facility. The term loan is unsecured and matures on July 15, 2005, subject to two extensions of one year each upon payment by the Company of an extension fee and the absence of any defaults at the time of each extension. There are no scheduled principal payments prior to maturity. The term loan bears interest at a spread over the one, two, three or six month LIBOR that varies between 1.05% and 1.90% (1.65% as of December 31, 2002), based on the Company’s leverage ratio.

As of December 31, 2002, the Company had $597.7 million of mortgage notes payable secured by 111 of the Properties and certain land holdings. Fixed rate mortgages, totaling $537.1 million, require payments of principal and/or interest (or imputed interest) at rates ranging from 6.80% to 9.25% and mature at various dates from July 2003 through July 2027. Variable rate mortgages, totaling $60.6 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 4.25% at December 31, 2002) and mature at various dates from March 2003 through July 2027. The weighted-average interest rate on the Company’s mortgages was 7.27% in 2002, 7.39% in 2001, and 7.92% in 2000.

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, 2002, the Company had interest rate swap agreements for notional principal amounts aggregating $175 million. The swap agreements effectively fix the LIBOR portion of the Company’s interest rate on $100 million of Credit Facility borrowings at 4.230% and $75 million of Credit Facility borrowings at 4.215%, in each case until June 2004. The interest rate cap agreement effectively limits the interest rate on a mortgage of $28 million to 8.7% until July 2004. As of December 31, 2002, the fair value of the interest rate swap agreements was $7.2 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, 2002 are due as follows (in thousands):

2003
 $113,611 
2004
  67,286 
2005
  7,490 
2006
  17,676 
2007
  21,132 
2008 and thereafter
  370,534 
  
 
  $597,729 
  
 

The Credit Facility and Term Loan require the maintenance 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, 2002, the Company was in compliance with all debt covenants. The Company paid interest (net of capitalized interest) totaling $61.8 million in 2002, $74.2 million in 2001 and $67.7 million in 2000. As of December 31, 2002, the carrying value of the Company’s debt was below fair market value by approximately $99.9 million, as determined by using year-end interest rates and market conditions.

 

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9. DISCONTINUED OPERATIONS

For the years ended December 31, 2002, 2001 and 2000, income from discontinued operations relates to 43 properties containing 2.3 million net rentable square feet that the Company sold during the year ended December 31, 2002 and two properties containing 127,000 net rentable square feet that the Company has designated as “held-for-sale” as of December 31, 2002. The following table summarizes information for the two properties designated as held-for-sale as of December 31, 2002 (in thousands):

Real Estate Investments:
    
   Operating Properties
 $8,729 
   Accumulated depreciation
  (1,235)
  
 
   7,494 
   Construction-in-progress
  55 
  
 
   7,549 
     
Accrued rent receivable
  87 
Deferred costs, net
  2 
Other assets
  28 
  
 
  $7,666 
  
 
Tennant security deposits and deferred rents
 $20 
  
 

The following table summarizes revenue and expense information for the above properties sold or held-for-sale in 2002:

  Year Ended December 31, 
  
 
  2002 2001 2000 
  
 
 
 
  (amounts in thousands) 
Revenue:
          
   Rents
 $9,303 $29,168 $26,940 
   Tenant reimbursements
  1,783  4,781  4,608 
   Other
  597  330  156 
  
 
 
 
      Total revenue
  11,683  34,279  31,704 
           
Expenses:
          
   Property operating expenses
  2,886  8,051  7,370 
   Real estate taxes
  1,585  4,691  4,469 
   Depreciation and amortization
  1,165  9,142  7,696 
   Impairment loss on assets held-for-sale
  665  —  — 
  
 
 
 
      Total operating expenses
  6,301  21,884  19,535 
           
Income from discontinued operations before net gain on sale of interests in real estate and minority interest
  5,382   12,395   12,169  
Net gain on sales of inteest in real estate
  8,562   —  — 
Minority interest
  (777) (707) (694)
  
 
 
 
Income from discontinued operations
 $13,167 $11,688 $11,475 
  
 
 
 

As of December 31, 2002, the Company recorded an impairment charge of $665,000 in its consolidated statements of operations related to one of the assets held-for-sale.

Discontinued operations have not been segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions will not agree with respective data in the Consolidated Statements of Operations.

10. 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

 

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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 unamortized discount was $6.4 million as of December 31, 2002 and $7.9 million as of December 31, 2001. 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 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, 2002, the Company has repurchased 3.2 million of its Common Shares at an average price of $17.71 per share. The Company repurchased 491,074 Common Shares for $11.1 million (average price of $22.51 per share) in 2002; 302,437 Common Shares for $5.9 million (average price of $19.54 per share) in 2001 and 957,729 Common Shares for $15.3 million (average price of $15.95 per share) in 2000. Under the share repurchase program, the Company has authority to repurchase an additional 834,000 shares. No time limit has been placed on the duration of the share repurchase program.

At December 31, 2002, 355,813 unvested restricted Common Shares were held by employees of the Company. The restricted shares, valued at $18.4 million at issuance, are amortized over their respective vesting periods of three to eight years. The Company recorded compensation expense of $2.5 million in 2002, $2.8 million in 2001 and $2.0 million in 2000 related to these shares.

11. SHARE PURCHASE OPTIONS AND WARRANTS

The Company maintains a plan that authorizes the issuance of various equity-based awards including incentive stock options. 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. As of December 31, 2002, the Company is authorized to issue five million equity-based awards of which 1.4 million shares remain available for future issuance under the plan.

The following table summarizes option activity for the three years ended December 31, 2002:

  Number
of Share
Under
Option		 Weighted—
Average
Exercise
Price		       
          
    Grant Price Range 
    
 
    From To 
  
 
 
 
 
Balance at January 1, 2000
  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  26.56  6.21  29.04 
   Granted
  100,000  19.50  19.50  19.50 
   Exercised
  (55,000) 19.50  19.50  19.50 
   Canceled
  (151,172) 22.22  19.50  29.04 
  
          
Balance at December 31, 2002
  2,372,627  26.70  6.21  29.04 

 

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The following table summarizes stock options outstanding as of December 31, 2002:

    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  1.6 years $12.00  46,667 $12.00 
$19.50
  100,000  2.6  19.50  0  0.00 
$24.00 to $29.04
  2,225,960  5.1  27.33  1,589,418  27.26 
  
       
    
$6.21 to $29.04
  2,372,627  4.9  26.70  1,636,085  26.83 
  
       
    

Using the Black-Scholes option pricing model, the estimated weighted-average fair value of stock options granted was $2.51 in 2002. Assumptions made in determining estimates of fair value include: risk-free interest rate of 2.7% in 2002, a volatility factor of .280 in 2002, a dividend yield of 8.4% in 2002, and a weighted-average life expectancy of 3 years in 2002.

As of December 31, 2002, there are 500,000 warrants outstanding to purchase Common Shares of the Company at an exercise price of $24.00.

Effective January 1, 2002, the Company voluntarily adopted the fair value recognition provisions of SFAS 123, prospectively for all employee awards granted, modified, or settled after January 1, 2002 (see Note 2). Accordingly, the Company recorded approximately $43,000 of compensation expense for the year ended December 31, 2002. This compensation expense relates to the Company’s grant of 100,000 stock options during 2002.

12. SEGMENT INFORMATION

The Company currently manages its portfolio within three segments: (1) Pennsylvania, (2) New Jersey and (3) Virginia. Corporate is responsible for cash and investment management and certain other general support functions.

 

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Segment information for the three years ended December 31, 2002, 2001 and 2000 is as follows (in thousands):

  Pennsylvania New Jersey Virginia Corporate Total 
  
 
 
 
 
 
2002:
                
Real estate investments, at cost
 $1,246,439 $520,460 $224,312 $— $1,991,211 
Assets held for sale
  —  7,666  —  —  7,666 
                 
Total revenue
 $179,646 $88,298 $26,834 $1,952 $296,730 
Property operating expenses and real estate taxes
  60,689  32,344  9,567  —  102,600 
  
 
 
 
 
 
Net operating income
 $118,957 $55,954 $17,267 $1,952 $194,130 
  
 
 
 
 
 
                 
2001:
                
Real estate investments, at cost
 $1,194,076 $642,646 $206,980 $— $2,043,702 
                 
Total revenue
 $161,278 $85,235 $27,503 $2,530 $276,546 
Property operating expenses and real estate taxes
  53,669  31,928  9,972  —  95,569 
  
 
 
 
 
 
Net operating income
 $107,609 $53,307 $17,531 $2,530 $180,977 
  
 
 
 
 
 
2000:
                
Real estate investments, at cost
 $938,602 $605,521 $309,776 $— $1,853,899 
                 
Total revenue
 $135,986 $76,893 $40,151 $2,350 $255,380 
Property operating expenses and real estate taxes
  44,251  24,208  12,755  —  81,214 
  
 
 
 
 
 
Net operating income
 $91,735 $52,685 $27,396 $2,350 $174,166 
  
 
 
 
 
 

Net operating income is defined as total revenue less property operating expenses and real estate taxes. Below is a reconciliation of consolidated net operating income to consolidated income from continuing operations:

  Year Ended December 31, 
  
 
  2002 2001 2000 
  
 
 
 
  (amounts in thousands) 
Consolidated net operating income
 $194,130 $180,977 $174,166 
Less:
          
   Interest expense
  63,522  66,385  64,746 
   Depreciation and amortization
  57,599  69,047  59,316 
   Management fees
  —  —  10,867 
   Administrative expenses
  14,804  15,177  4,249 
   Non-recurring charges
  —  6,600  — 
   Minority interest attributable to continuing operations
  9,375  7,915  8,904 
Plus:
          
   Equity in income of management company
  —  —  164 
   Equity in income of real estate ventures
  987  2,768  2,797 
   Net gains on sales of interests in real estate
  —  4,524  11,638 
  
 
 
 
Consolidated income from continuing operations
 $49,817 $23,145 $40,683 
  
 
 
 

13. 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, 2002 (in thousands, except per share amounts):

 

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  For the year ended December 31, 
  
 
  2002 2001 2000 
  
 
 
 
  Basic Diluted Basic Diluted Basic Diluted 
  
 
 
 
 
 
 
Income from continuing operations
 $49,817 $49,817 $23,145 $23,145 $40,683 $40,683 
Income from discontinued operations
  13,167  13,167  11,688  11,688  11,475  11,475 
Extraordinary item
  —  —  (1,111) (1,111) —  — 
Income allocated to Preferred Shares
  (11,906) (11,906) (11,906) (11,906) (11,906) (11,906)
  
 
 
 
 
 
 
   51,078  51,078  21,816  21,816  40,252  40,252 
Preferred Share discount amortization
  (1,476) (1,476) (1,476) (1,476) (286) (286)
  
 
 
 
 
 
 
Income available to common shareholders
 $49,602 $49,602 $20,340 $20,340 $39,966 $39,966 
  
 
 
 
 
 
 
Weighted-average shares outstanding
  35,513,813  35,513,813  35,646,842  35,646,842  35,807,598  35,807,598 
Options, warrants and unvested restricted stock
  —  131,997  —  27,809  —  16,576 
  
 
 
 
 
 
 
Total weighted-average shares outstanding
  35,513,813  35,645,810  35,646,842  35,674,651  35,807,598  35,824,174 
  
 
 
 
 
 
 
Earnings per Common Share:
                   
   Continuing operations
 $1.03 $1.02 $0.27 $0.27 $0.80 $0.80 
   Discontinued operations
  0.37  0.37  0.33  0.33  0.32  0.32 
   Extraordinary item
  —  —  (0.03) (0.03) —  — 
  
 
 
 
 
 
 
  $1.40 $1.39 $0.57 $0.57 $1.12 $1.12 
  
 
 
 
 
 
 

Securities totaling 11,256,776 in 2002, 11,622,922 in 2001 and 11,625,490 in 2000 were excluded from the earnings per share computations above as their effect would have been antidilutive.

14. DISTRIBUTIONS (UNAUDITED):

  Year ended December 31, 
  
 
  2002 2001 2000 
  
 
 
 
Common Share Distributions:
          
   Ordinary income
 $1.65 $1.60 $1.38 
   Capital gain
  0.11  0.10  0.24 
   Return of capital
  —  —  — 
  
 
 
 
   Total distributions per share
 $1.76 $1.70 $1.62 
  
 
 
 
   Percentage classified as ordinary income
  93.8% 94.1% 85.2%
   Percentage classified as capital gain
  6.2% 5.9% 14.8%
   Percentage classified as return of capital
  0.0% 0.0% 0.0%
           
Preferred Share Distributions:
          
   Total distributions declared
 $11,906,000 $11,906,000 $11,906,000 

15. 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, 2002, the interest rate was 2.92% 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, 2002, the Company had funded loans of $4.0 million to employees secured by an aggregate of 194,748 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. As of December 31, 2002, the Company’s investment in USR was $.4 million. An officer of the Company holds a position on USR’s Board of Directors.

 

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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. The Company recorded compensation expense of $877,000 in 2002, $881,000 in 2001 and $683,000 in 2000 relating to these executive stock loans. This loan is reflected as a reduction in beneficiaries equity. Effective December 31, 2001, the Company recorded a $4.1 million charge to restructure the other loan in connection with the executive’s transition to a non-executive, non-managerial status, which will be forgiven in equal installments in April 2002 and April 2003. Principal and interest totaling $.9 million was forgiven related to these loans in 2002 and 2001.

16. OPERATING LEASES

The Company leases properties to tenants under operating leases with various expiration dates extending to 2020. As of December 31, 2002, leases covering approximately 1.8 million square feet or 11.4% of the net rentable square footage are scheduled to expire during 2003. Minimum future rentals on noncancelable leases at December 31, 2002 are as follows (in thousands):

Year
 Minimum Rent 
 
 
2003
 $254,631 
2004
  220,625 
2005
  180,190 
2006
  142,930 
2007
  114,628 
2008 and thereafter
  417,997 
  
 
  $1,331,001 
  
 

Total minimum future rentals presented above do not include amounts to be received as tenant reimbursements for increases in certain operating costs.

17. 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 $816,000 in 2002, $669,000 in 2001 and $690,000 in 2000.

18. SUMMARY OF INTERIM RESULTS (UNAUDITED)

The following is a summary of interim financial information as of and for the years ended December 31, 2002 and 2001 (in thousands, except per share data):

 

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  1st 2nd 3rd 4th 
  Quarter (a) Quarter Quarter Quarter (b) 
  
 
 
 
 
2002:
             
Total revenue $70,431 $73,927 $75,788 $76,584 
Income before extraordinary item
  23,469  12,800  13,968  12,747 
Net income
  23,469  12,800  13,968  12,747 
Income allocated to Common Shares
  20,492  9,823  10,992  9,771 
              
Basic earnings per Common Share
             
   Before extraordinary item
 $0.56 $0.26 $0.30 $0.27 
   After extraordinary item
 $0.56 $0.26 $0.30 $0.27 
Diluted earnings per Common Share
             
   Before extraordinary item
 $0.55 $0.26 $0.30 $0.27 
   After extraordinary item
 $0.55 $0.26 $0.30 $0.27 
              
2001:
             
Total revenue $66,613 $70,624 $70,765 $68,544 
Income before extraordinary item
  9,140  8,534  10,271  6,888 
Net income
  9,140  7,423  10,271  6,888 
Income allocated to Common Shares
  6,163  4,446  7,294  3,913 
              
Basic earnings per Common Share
             
   Before extraordinary item
 $0.16 $0.14 $0.19 $0.10 
   After extraordinary item
 $0.16 $0.11 $0.19 $0.10 
              
Diluted earnings per Common Share
             
   Before extraordinary item
 $0.16 $0.14 $0.19 $0.10 
   After extraordinary item
 $0.16 $0.11 $0.19 $0.10 
  
(a)
The Company recorded gains on sales of properties of $8.4 million during the 1st quarter of 2002.
  
(b)
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 due to the impairment 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.(c) (d)

The summation of quarterly earnings per share amounts do not necessarily equal year to date amounts.

19. 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. 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 Supr eme Court of New Jersey, but in March 2001 that Court declined to consider the appeal. The case thereafter returned to the Chancery Division, where written and oral discovery was

 

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conducted in 2002 and in the first quarter of 2003. Discovery terminated on February 14, 2003. The Company filed a motion for summary judgment on all counts, seeking dismissal of all counts against it, and judgment for the Company on its counterclaim. The Chancery Division granted the Company’s summary judgment motion on March 25, 2003. At this time, the Company does not know whether plaintiffs will appeal, or if they appeal, whether plaintiffs will be successful in the appeal.

There have been recent reports of lawsuits against owners and managers of multifamily and office properties asserting claims of personal injury and property damage caused by the presence of mold in residential units or office space. The Company has been named as a defendant in two lawsuits that allege personal injury as a result of the presence of mold. Unspecified damages are sought. The Company has referred these lawsuits to its insurance carrier and, as of the date of this Form 10-K, the insurance carrier is evaluating coverage.

Letters-of-Credit

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 $13.6 million at December 31, 2002. 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, 2002. 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.

Other Commitments

As of December 31, 2002, the Company owned 444 acres of land for future development and held options to purchase 63 additional acres. The Company also holds an option to enter into a long-term ground lease of property adjacent to Amtrak’s 30th Street Station in Philadelphia and develop a high-rise office property on the leasehold interest.

20. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table details the components of accumulated other comprehensive income (loss) as of and for the three years ended December 31, 2002 (in thousands):

  Unrealized Gains Cash Flow Accumulated Other 
  (Losses) on Securities Hedges Comprehensive Loss 
  
 
 
 
Beginning balance at January 1, 2000
 $— $— $— 
   Change during year
  (1,731) —  (1,731)
  
 
 
 
Balance at December 31, 2000
  (1,731) —  (1,731)
  
 
 
 
   Change during year
  1,816  (7,921) (6,105)
   Reclassification adjustments for losses
          
      reclassified into operations
  —  3,249  3,249 
  
 
 
 
Balance at December 31, 2001
  85  (4,672) (4,587)
   Change during year
  733  (7,954) (7,221)
   Reclassification adjustments for losses
          
      reclassified into operations
  —  5,406  5,406 
  
 
 
 
Balance at December 31, 2002
 $818 $(7,220)$(6,402)
  
 
 
 

 

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Brandywine Realty Trust
Schedule II
Valuation and Qualifying Accounts
(in thousands)

  Balance at
Beginning
of Period		 Additions    Balance
at End
of Period
   
    
Description  Charged to
expense		 Deductions 
 
 
 
 
Allowance for doubtful accounts:            
             
Year ended December 31, 2002 $ 4,532  $ 894  $ 850  $ 4,576
  
 
 
 
Year ended December 31, 2001 $ 2,427  $ 2,867  $ 762  $ 4,532
  
 
 
 
Year ended December 31, 2000 $ 3,358  $ 332  $ 1,263  $ 2,427
  
 
 
 

 

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(a)Reconciliation of Real Estate:            
              
 The following table reconciles the real estate investments from January 1, 2002 to            
 December 31, 2002 (in thousands):            
    2002  2001  2000 
   
  
  
 
 Balance at beginning of year $  1,893,039   $  1,754,895   $  1,771,475  
              
 Additions:             
 
Acquisitions
   120,627     217,212     13,056  
 
Capital expenditures
   94,086     65,210     34,905  
              
 Less:             
 
Dispositions
   (209,014)    (144,278)    (64,541) 
 
Assets transferred to held-for-sale
   (8,729)    -     -  
    
   
   
 
 Balance at end of year $ 1,890,009   $ 1,893,039   $ 1,754,895  
    
   
   
 
              
(b)Reconciliation of Accumulated Depreciation:            
              
 The following table reconciles the accumulated depreciation on real estate investments from            
 January 1, 2002 to December 31, 2002 (in thousands):            
    2002  2001  2000 
   
  
  
 
 Balance at beginning of year  $230,793    $179,558    $125,744  
              
 Additions:             
 
Depreciation expense - continued operations
   47,668     60,963     56,402  
 
Depreciation expense - discontinued operations
   1,033     8,532     7,538  
              
 Less:             
 
Dispositions
   (33,029)   (18,260)   (10,126)
 
Assets transferred to held-for-sale
   (1,235)   -     -  
    
   
   
 
 Balance at end of year  $245,230    $230,793    $179,558  
   
  
  
 

 

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        Initial Cost  Gross Amount at Which Carried
December 31, 2002		      
        
  
      
            Net
Improvements
(Retirements)
Since
Acquisition		        Accumulated
Depreciation at
December 31,
2002 (b)		      
                          
       Encumberances at
December 31, 2002 		   Building and
Improvements		     Building and
Improvements		    Date of
Construction		 Date
Acquired		 Depreciable
Life
  City State  Land    Land  Total (a)    
 
 
 
 
 
 
  
 
 
 
 
 
 
                            
One Greentree Centre Marlton NJ  -   345   4,440   269    345   4,709   5,054   2,519  1982 1986 40
Three Greentree Centre Marlton NJ  -   323   6,024   24    323   6,048   6,371   3,707  1984 1986 40
Two Greentree Centre Marlton NJ  -   264   4,693   (23)  264   4,670   4,934   2,830  1983 1986 40
110 Summit Drive Exton PA  -   403   1,647   157    403   1,804   2,207   403  1985 1996 40
1155 Business Center Drive Horsham PA  2,541   1,029   4,124   (191)  1,029   3,933   4,962   1,141  1990 1996 40
120 West Germantown Pike Plymouth Meeting PA  -   685   2,773   263    685   3,036   3,721   690  1984 1996 40
1336 Enterprise Drive West Goshen PA  -   731   2,946   39    731   2,985   3,716   642  1990 1996 40
140 West Germantown Pike Plymouth Meeting PA  -   481   1,976   235    481   2,211   2,692   614  1984 1996 40
18 Campus Boulevard Newtown Square PA  3,429   786   3,312   38    786   3,350   4,136   941  1990 1996 40
2240/50 Butler Pike Plymouth Meeting PA  -   1,104   4,627   586    1,104   5,213   6,317   1,580  1984 1996 40
2260 Butler Pike Plymouth Meeting PA  -   661   2,727   149    661   2,876   3,537   717  1984 1996 40
33 Street Road - Greenwood Square I Bensalem PA  -   851   3,407   300    851   3,707   4,558   862  1985 1996 40
33 Street Road - Greenwood Square II Bensalem PA  -   1,126   4,511   995    1,126   5,506   6,632   1,532  1985 1996 40
33 Street Road - Greenwood Square III Bensalem PA  -   350   1,401   37    350   1,438   1,788   332  1985 1996 40
456 Creamery Way Exton PA  -   635   2,548   -    635   2,550   3,185   694  1987 1996 40
457 Haddonfield Road Cherry Hill NJ  11,135   2,142   9,120   2,169    2,142   11,289   13,431   3,455  1990 1996 40
468 Creamery Way Exton PA  -   527   2,112   (37)  527   2,075   2,602   501  1990 1996 40
486 Thomas Jones Way Exton PA  -   806   3,256   243    806   3,499   4,305   1,122  1990 1996 40
500 Enterprise Road Horsham PA  -   1,303   5,188   (790)  1,303   4,398   5,701   1,092  1990 1996 40
500 North Gulph Road King of Prussia PA  -   1,303   5,201   591    1,303   5,792   7,095   1,395  1979 1996 40
650 Dresher Road Horsham PA  1,767   636   2,501   314    636   2,815   3,451   611  1984 1996 40
6575 Snowdrift Road Allentown PA  -   601   2,411   473    601   2,884   3,485   870  1988 1996 40
700 Business Center Drive Horsham PA  1,509   550   2,201   195    550   2,396   2,946   534  1986 1996 40
7248 Tilghman Street Allentown PA  -   731   2,969   210    731   3,179   3,910   839  1987 1996 40
7310 Tilghman Street Allentown PA  -   553   2,246   787    553   3,033   3,586   920  1985 1996 40
800 Business Center Drive Horsham PA  2,304   896   3,585   19    896   3,604   4,500   815  1986 1996 40
8000 Lincoln Drive Marlton NJ  -   606   2,887   260    606   3,147   3,753   883  1983 1996 40
One Progress Avenue Horsham PA  -   1,399   5,629   144    1,399   5,773   7,172   1,368  1986 1996 40
One Righter Parkway Talleyville DE  10,925   2,545   10,195   282    2,545   10,477   13,022   2,375  1989 1996 40
1 Foster Avenue Gibbsboro NJ  -   93   364   35    93   399   492   72  1972 1997 40
10 Foster Avenue Gibbsboro NJ  -   244   971   69    244   1,040   1,284   202  1983 1997 40
100 Berwyn Park Berwyn PA  7,161   1,180   7,290   168    1,180   7,458   8,638   1,560  1986 1997 40
100 Commerce Drive Newark DE  -   1,160   4,633   354    1,160   4,987   6,147   955  1989 1997 40
100 Katchel Blvd Reading PA  -   1,881   7,423   242    1,881   7,665   9,546   1,650  1970 1997 40
1000 Atrium Way Mt. Laurel NJ  -   2,061   8,180   384    2,061   8,564   10,625   1,714  1989 1997 40
1000 East Lincoln Drive  Marlton NJ  -   264   1,059   108    264   1,167   1,431   245  1981 1997 40
1000 Howard Boulevard Mt. Laurel NJ  4,090   2,298   9,288   395    2,298   9,683   11,981   2,219  1988 1997 40
1000/2000 West Lincoln Drive Marlton NJ  -   575   3,568   (965)  575   2,603   3,178   671  1982 1997 40
10000 Midlantic Drive Mt. Laurel NJ  7,415   3,206   12,857   408    3,206   13,265   16,471   2,890  1990 1997 40
100-300 Gundy Drive Reading PA  -   6,495   25,180   5,633    6,495   30,813   37,308   5,957  1970 1997 40
1007 Laurel Oak Road Voorhees NJ  -   1,563   6,241   17    1,563   6,258   7,821   1,166  1996 1997 40
105/140 Terry Drive Newtown PA  -   2,299   8,238   2,089    2,299   10,327   12,626   2,249  1974 1997 40
111 Presidential Boulevard Bala Cynwyd PA  -   5,419   21,612   625    5,419   22,237   27,656   4,161  1974 1997 40
1120 Executive Boulevard Mt. Laurel NJ  -   2,074   8,415   517    2,074   8,932   11,006   1,883  1987 1997 40
15000 Midlantic Drive Mt. Laurel NJ  6,898   3,061   12,254   8    3,061   12,262   15,323   2,527  1991 1997 40
2 Foster Avenue Gibbsboro NJ  -   185   730   23    185   753   938   140  1974 1997 40
20 East Clementon Road Gibbsboro NJ  -   769   3,055   222    769   3,277   4,046   673  1986 1997 40
200 Berwyn Park Berwyn PA  9,414   1,533   9,460   362    1,533   9,822   11,355   1,983  1987 1997 40
2000 Midlantic Drive Mt. Laurel NJ  9,585   2,202   8,823   400    2,202   9,223   11,425   1,942  1989 1997 40
220 Commerce Drive Fort Washington PA  -   1,086   4,338   544    1,086   4,882   5,968   966  1974 1997 40
300 Berwyn Park Berwyn PA  13,151   2,206   13,422   234    2,206   13,656   15,862   2,743  1989 1997 40
300 Welsh Road - Building I Horsham PA  2,513   894   3,572   441    894   4,013   4,907   991  1985 1997 40
300 Welsh Road - Building II Horsham PA  1,067   396   1,585   102    396   1,687   2,083   324  1985 1997 40
3000 West Lincoln Drive Marlton NJ  -   569   2,293   119    569   2,412   2,981   519  1982 1997 40
321 Norristown Road Lower Gwyned PA  -   1,289   5,176   753    1,289   5,929   7,218   1,191  1972 1997 40
323 Norristown Road Lower Gwyned PA  -   1,685   6,751   365    1,685   7,116   8,801   1,429  1988 1997 40
4 Foster Avenue Gibbsboro NJ  -   183   726   17    183   743   926   138  1974 1997 40
4000 Midlantic Drive Mt. Laurel NJ  3,205   714   5,085   (1,979)  714   3,106   3,820   638  1981 1997 40
4000/5000 West Lincoln Drive Marlton NJ  -   877   3,526   382    877   3,908   4,785   845  1982 1997 40
5 Foster Avenue Gibbsboro NJ  -   8   32   25    8   57   65   7  1968 1997 40
5 U.S. Avenue Gibbsboro NJ  -   21   81   2    21   83   104   16  1987 1997 40
50 East Clementon Road Gibbsboro NJ  -   114   964   4    114   968   1,082   180  1986 1997 40

 

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        Initial Cost  Gross Amount at Which Carried
December 31, 2002		      
        
  
      
            Net
Improvements
(Retirements)
Since
Acquisition		        Accumulated
Depreciation at
December 31,
2002 (b)		      
                          
       Encumberances at
December 31, 2002 		   Building and
Improvements		     Building and
Improvements		    Date of
Construction		 Date
Acquired		 Depreciable
Life
  City State  Land    Land  Total (a)    
 
 
 
 
 
 
  
 
 
 
 
 
 
                            
500 Office Center Drive Ft. Washington PA  -   1,617   6,480   1,393    1,617   7,873   9,490   2,054  1985 1997 40
501 Office Center Drive Ft. Washington PA  -   1,796   7,192   1,146    1,796   8,338   10,134   2,024  1985 1997 40
55 U.S. Avenue Gibbsboro NJ  -   1,116   4,435   51    1,116   4,486   5,602   836  1982 1997 40
6 East Clementon Road Gibbsboro NJ  -   1,345   5,366   269    1,345   5,635   6,980   1,132  1980 1997 40
655 Business Center Drive Horsham PA  1,808   544   2,529   458    544   2,987   3,531   741  1997 1997 40
7 Foster Avenue Gibbsboro NJ  -   231   921   110    231   1,031   1,262   194  1983 1997 40
748 Springdale Drive Exton PA  -   236   931   142    236   1,073   1,309   262  1986 1997 40
855 Springdale Drive Exton PA  -   838   3,370   134    838   3,504   4,342   756  1986 1997 40
9000 Midlantic Drive Mt. Laurel NJ  6,200   1,472   5,895   23    1,472   5,918   7,390   1,222  1989 1997 40
9000 West Lincoln Drive Marlton NJ  -   610   2,422   272    610   2,694   3,304   622  1983 1997 40
Five Eves Drive Marlton NJ  -   703   2,819   649    703   3,468   4,171   898  1986 1997 40
Four A Eves Drive Marlton NJ  -   539   2,168   198    539   2,366   2,905   621  1987 1997 40
Four B Eves Drive Marlton NJ  -   588   2,369   86    588   2,455   3,043   556  1987 1997 40
King & Harvard Cherry Hill NJ  -   1,726   1,069   2,193    1,726   3,262   4,988   746    1997 40
Main Street - Piazza Voorhees NJ  -   696   2,802   80    696   2,882   3,578   635  1990 1997 40
Main Street - Plaza 1000 Voorhees NJ  -   2,729   10,931   2,219    2,729   13,150   15,879   2,792  1988 1997 40
Main Street - Promenade Voorhees NJ  -   531   2,052   226    531   2,278   2,809   518  1988 1997 40
Main Street- CAM Voorhees NJ  -   3   11   98    3   109   112   21    1997 40
One South Union Place Cherry Hill NJ  -   771   8,047   369    771   8,416   9,187   2,039    1997 40
Two Eves Drive Marlton NJ  -   818   3,461   124    818   3,585   4,403   853  1987 1997 40
1000 First Avenue King of Prussia PA  4,629   2,772   10,936   310    2,772   11,246   14,018   1,747  1980 1998 40
1009 Lenox Drive Lawrenceville NJ  13,728   4,876   19,284   2,526    4,876   21,810   26,686   4,034  1989 1998 40
1020 First Avenue King of Prussia PA  3,692   2,168   8,576   435    2,168   9,011   11,179   1,357  1984 1998 40
104 Windsor Center Drive East Windsor NJ  -   977   3,918   1,006    977   4,924   5,901   1,433  1987 1998 40
1040 First Avenue King of Prussia PA  5,032   2,861   11,282   1,094    2,861   12,376   15,237   2,252  1985 1998 40
1060 First Avenue King of Prussia PA  4,515   2,712   10,953   6    2,712   10,959   13,671   1,680  1987 1998 40
1105 Berkshire Boulevard Reading PA  -   1,115   4,510   451    1,115   4,961   6,076   934  1987 1998 40
1150 Berkshire Boulevard Reading PA  -   435   1,748   257    435   2,005   2,440   385  1979 1998 40
14 Campus Boulevard  Newtown Square PA  5,754   2,243   4,217   480    2,243   4,697   6,940   1,452  1998 1998 40
150 Corporate Center Drive Camp Hill PA  -   964   3,871   161    964   4,032   4,996   710  1987 1998 40
160-180 West Germantown Pike East Norriton PA  5,409   1,603   6,418   546    1,603   6,964   8,567   1,260  1982 1998 40
1957 Westmoreland Street Richmond VA  2,861   1,062   4,241   284    1,062   4,525   5,587   775  1975 1998 40
200 Corporate Center Drive Camp Hill PA  -   1,647   6,606   60    1,647   6,666   8,313   1,136  1989 1998 40
200 Nationwide Drive  Harrisburg PA  -   100   403   -    100   403   503   69  1978 1998 40
201 North Walnut Street Wilmington DE  23,557   10,359   41,509   462    10,359   41,971   52,330   7,493  1988 1998 40
2100-2108 West Laburnum Richmond VA  1,285   2,482   8,846   1,557    2,482   10,403   12,885   1,612  1976 1998 40
2120 Tomlynn Street Richmond VA  767   280   1,125   93    280   1,218   1,498   198  1986 1998 40
2130-2146 Tomlynn Street Richmond VA  906   353   1,416   1    353   1,417   1,770   217  1988 1998 40
2169-79 Tomlynn Street Richmond VA  1,123   422   1,695   75    422   1,770   2,192   301  1985 1998 40
2201 Dabney Street Richmond VA  -   367   1,470   181    367   1,651   2,018   292  1962 1998 40
2201-2245 Tomlynn Street Richmond VA  2,811   1,020   4,067   402    1,020   4,469   5,489   809  1989 1998 40
2212-2224 Tomlynn Street Richmond VA  1,325   502   2,014   71    502   2,085   2,587   318  1985 1998 40
2221-2245 Dabney Road Richmond VA  1,372   530   2,123   27    530   2,150   2,680   328  1994 1998 40
2240 Dabney Road Richmond VA  682   264   1,059   8    264   1,067   1,331   167  1984 1998 40
2244 Dabney Road Richmond VA  1,411   551   2,203   1    551   2,204   2,755   338  1993 1998 40
2246 Dabney Road Richmond VA  1,167   455   1,822   1    455   1,823   2,278   279  1987 1998 40
2248 Dabney Road Richmond VA  1,382   511   2,049   139    511   2,188   2,699   361  1989 1998 40
2251 Dabney Road Richmond VA  1,036   387   1,552   84    387   1,636   2,023   265  1983 1998 40
2256 Dabney Road Richmond VA  936   356   1,427   44    356   1,471   1,827   237  1982 1998 40
2277 Dabney Road Richmond VA  1,302   507   2,034   1    507   2,035   2,542   312  1986 1998 40
2401 Park Drive Harrisburg PA  -   182   728   75    182   803   985   169  1984 1998 40
2404 Park Drive Harrisburg PA  -   167   668   129    167   797   964   203  1983 1998 40
2490 Boulevard of the Generals King of Prussia PA  -   348   1,394   36    348   1,430   1,778   264  1975 1998 40
2511 Brittons Hill Road Richmond VA  3,131   1,201   4,820   93    1,201   4,913   6,114   775  1987 1998 40
2812 Emerywood Parkway Henrico VA  2,779   1,069   4,281   77    1,069   4,358   5,427   657  1980 1998 40
300 Arboretum Place Richmond VA  15,092   5,450   21,892   1,997    5,450   23,889   29,339   4,312  1988 1998 40
300 Corporate Center Drive Camp Hill PA  -   4,823   19,301   316    4,823   19,617   24,440   3,435  1989 1998 40
301 North Walnut Street Wilmington DE  19,740   8,495   34,016   1,340    8,495   35,356   43,851   6,145  1989 1998 40
303 Fellowship Drive Mt. Laurel NJ  2,612   1,493   6,055   361    1,493   6,416   7,909   1,113  1979 1998 40
304 Harper Drive Mt. Laurel NJ  1,244   657   2,674   437    657   3,111   3,768   584  1975 1998 40
305 Fellowship Drive Mt. Laurel NJ  2,643   1,422   5,768   813    1,422   6,581   8,003   1,344  1980 1998 40
305 Harper Drive Mt. Laurel NJ  375   222   913   1    222   914   1,136   140  1979 1998 40

 

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        Initial Cost  Gross Amount at Which Carried
December 31, 2002		      
        
  
      
            Net
Improvements
(Retirements)
Since
Acquisition		        Accumulated
Depreciation at
December 31,
2002 (b)		      
                          
       Encumberances at
December 31, 2002 		   Building and
Improvements		     Building and
Improvements		    Date of
Construction		 Date
Acquired		 Depreciable
Life
  City State  Land    Land  Total (a)    
 
 
 
 
 
 
  
 
 
 
 
 
 
                            
307 Fellowship Drive Mt. Laurel NJ  2,710   1,564   6,342   301    1,564   6,643   8,207   1,152  1981 1998 40
308 Harper Drive Mt. Laurel NJ  -   1,643   6,663   200    1,643   6,863   8,506   1,079  1976 1998 40
309 Fellowship Drive Mt. Laurel NJ  2,840   1,518   6,154   929    1,518   7,083   8,601   1,173  1982 1998 40
33 West State Street Trenton NJ  -   6,016   24,091   105    6,016   24,196   30,212   4,231  1988 1998 40
426 Lancaster Avenue Devon PA  -   1,689   6,756   4    1,689   6,760   8,449   1,238  1990 1998 40
4364 South Alston Avenue Durham NC  2,910   1,622   6,419   771    1,622   7,190   8,812   1,071  1985 1998 40
4805 Lake Brooke Drive Glen Allen VA  4,233   1,640   6,567   60    1,640   6,627   8,267   1,019  1996 1998 40
50 East State Street Trenton NJ  -   8,926   35,735   375    8,926   36,110   45,036   6,349  1989 1998 40
50 Swedesford Square Frazer PA  6,447   3,902   15,254   365    3,902   15,619   19,521   2,397  1988 1998 40
500 Nationwide Drive Harrisburg PA  -   173   850   787    173   1,637   1,810   280  1977 1998 40
52 Swedesford Square Frazer PA  7,108   4,242   16,579   702    4,242   17,281   21,523   2,829  1986 1998 40
520 Virginia Drive Ft. Washington PA  -   845   3,455   380    845   3,835   4,680   817  1987 1998 40
600 Corporate Circle Drive Harrisburg PA  -   363   1,452   61    363   1,513   1,876   261  1978 1998 40
600 East Main Street Richmond VA  16,619   9,809   38,255   2,259    9,809   40,514   50,323   6,523  1986 1998 40
600 Park Avenue King of Prussia PA  -   1,012   4,048   3    1,012   4,051   5,063   715  1964 1998 40
610 Freedom Business Center King of Prussia PA  5,503   2,017   8,070   660    2,017   8,730   10,747   1,700  1985 1998 40
620 Allendale Road King of Prussia PA  -   1,020   3,839   635    1,020   4,474   5,494   799  1961 1998 40
620 Freedom Business Center King of Prussia PA  7,254   2,770   11,014   382    2,770   11,396   14,166   2,110  1986 1998 40
630 Clark Avenue King of Prussia PA  -   547   2,190   1    547   2,191   2,738   387  1960 1998 40
630 Freedom Business Center King of Prussia PA  7,362   2,773   11,144   460    2,773   11,604   14,377   2,223  1989 1998 40
640 Allendale Road King of Prussia PA  -   -   432   208    -   640   640   484  2001 1998 40
640 Freedom Business Center King of Prussia PA  11,222   4,222   16,891   800    4,222   17,691   21,913   3,198  1991 1998 40
650 Park Avenue King of Prussia PA  -   1,917   4,378   1,077    1,917   5,455   7,372   966  1968 1998 40
660 Allendale Road King of Prussia PA  -   835   3,343   186    835   3,529   4,364   652  1962 1998 40
680 Allendale Road King of Prussia PA  -   689   2,756   678    689   3,434   4,123   663  1962 1998 40
700 East Gate Drive Mt. Laurel NJ  6,174   3,569   14,436   690    3,569   15,126   18,695   2,422  1984 1998 40
701 East Gate Drive Mt. Laurel NJ  2,932   1,736   6,877   266    1,736   7,143   8,879   1,124  1986 1998 40
7010 Snowdrift Way Allentown PA  1,379   817   3,324   35    817   3,359   4,176   520  1991 1998 40
7150 Windsor Drive Allentown PA  1,826   1,034   4,219   275    1,034   4,494   5,528   825  1988 1998 40
7350 Tilghman Street Allentown PA  -   3,414   13,716   1,087    3,414   14,803   18,217   2,602  1987 1998 40
741 First Avenue King of Prussia PA  -   1,287   5,151   3    1,287   5,154   6,441   909  1966 1998 40
7450 Tilghman Street Allentown PA  5,219   2,867   11,631   1,306    2,867   12,937   15,804   2,342  1986 1998 40
751-761 Fifth Avenue King of Prussia PA  -   1,097   4,391   3    1,097   4,394   5,491   775  1967 1998 40
7535 Windsor Drive Allentown PA  5,762   3,376   13,400   673    3,376   14,073   17,449   2,230  1988 1998 40
755 Business Center Drive Horsham PA  2,224   1,363   2,334   646    1,363   2,980   4,343   773  1998 1998 40
800 Corporate Circle Drive Harrisburg PA  -   414   1,653   109    414   1,762   2,176   310  1979 1998 40
815 East Gate Drive Mt. Laurel NJ  1,103   637   2,584   119    637   2,703   3,340   485  1986 1998 40
817 East Gate Drive Mt. Laurel NJ  1,022   611   2,426   59    611   2,485   3,096   381  1986 1998 40
875 First Avenue King of Prussia PA  -   618   2,473   2,417    618   4,890   5,508   646  1966 1998 40
9011 Arboretum Parkway Richmond VA  5,014   1,856   7,702   233    1,856   7,935   9,791   1,311  1991 1998 40
9100 Arboretum Parkway Richmond VA  3,802   1,363   5,489   540    1,363   6,029   7,392   1,022  1988 1998 40
920 Harvest Drive Blue Bell PA  -   2,433   9,738   482    2,433   10,220   12,653   1,765  1990 1998 40
9200 Arboretum Parkway Richmond VA  2,694   984   3,973   280    984   4,253   5,237   677  1988 1998 40
9210 Arboretum Parkway Richmond VA  2,909   1,110   4,474   72    1,110   4,546   5,656   698  1988 1998 40
9211 Arboretum Parkway Richmond VA  1,591   581   2,433   93    581   2,526   3,107   386  1991 1998 40
922 Swedesford Road Frazer PA  -   218   1   (1)  218   -   218   -  1986 1998 40
925 Harvest Drive Blue Bell PA  -   1,671   6,606   235    1,671   6,841   8,512   1,168  1990 1998 40
993 Lenox Drive Lawrenceville NJ  11,906   2,811   17,996   (6,615)  2,811   11,381   14,192   1,987  1985 1998 40
997 Lenox Drive Lawrenceville NJ  10,464   2,410   9,700   363    2,410   10,063   12,473   1,921  1987 1998 40
East Gate Land Mt. Laurel NJ  0   1   1   (1)  1   -   1   -    1998 40
Marine Center - Pier #12 Philadelphia PA  -   -   -   151    -   151   151   18    1998 40
Marine Center - Pier #24 Philadelphia PA  -   -   -   59    -   59   59   3    1998 40
Marine Center Pier #13-15 Philadelphia PA  -   -   -   25    -   25   25   10    1998 40
Philadelphia Marine Center Philadelphia PA  -   533   2,196   37    533   2,233   2,766   341    1998 40
11 Campus Boulevard  Newtown Square PA  4,787   1,112   4,067   595    1,112   4,662   5,774   582  1999 1999 40
2000 Lenox Drive Lawrenceville NJ  14,678   2,291   12,221   2,984    2,291   15,205   17,496   1,799  1999 1999 40
630 Allendale Road King of Prussia PA  19,797   2,836   4,028   15,945    2,836   19,973   22,809   1,825    1999 40
630 Dresher Road Horsham PA  -   771   3,083   796    771   3,879   4,650   441  1987 1999 40
7130 Ambassador Drive Allentown PA  -   761   3,046   10    761   3,056   3,817   371  1991 1999 40
1050 Westlakes Drive Berwyn PA  -   -   13,056   1,754    -   14,810   14,810   1,264    2000 40
1700 Paoli Pike East Goshen PA  -   458   559   3,326    458   3,885   4,343   445  2000 2000 40

 

Back to Index



         Initial Cost Gross Amount at Which Carried
December 31, 2002   		      
         
 
      
              Net
Improvements
(Retirements)
Since
Acquisition   		          Accumulated
Depreciation at
December 31,
2002 (b)  		      
                              
       Encumberances at
December 31, 2002 		    Building and
Improvements		     Building and
Improvements		     Date of
Construction 		 Date
Acquired 		 Depreciable
Life 
  City State  Land Land  Total (a)   
 
 
 
 
 
 
 
 
 
 
 
 
 
                           
10 Lake Center Drive Marlton NJ   8,793    1,880    7,521    107    1,880    7,628    9,508    342  1989 2001 40
100 Arrandale Boulevard Exton PA   -    970    3,878    2    970    3,880    4,850    170  1997 2001 40
100 Gateway Centre Parkway Richmond VA   -    391    5,410    1,225    391    6,635    7,026    357  2001 2001 40
100 Lindenwood Drive Malvern PA   2,214    473    1,892    29    473    1,921    2,394    85  1985 2001 40
101 Lindenwood Drive Malvern PA   -    4,152    16,606    77    4,152    16,683    20,835    735  1988 2001 40
1100 Cassett Road Berwyn PA   -    1,695    6,779    4    1,695    6,783    8,478    297  1997 2001 40
111 Arrandale Boulevard Exton PA   1,200    262    1,048    1    262    1,049    1,311    46  1996 2001 40
111/113 Pencader Drive Newark DE   -    1,092    4,366    3    1,092    4,369    5,461    191  1990 2001 40
1160 Swedesford Road Berwyn PA   8,633    1,781    7,124    430    1,781    7,554    9,335    390  1986 2001 40
1180 Swedesford Road Berwyn PA   9,814    2,086    8,342    184    2,086    8,526    10,612    400  1987 2001 40
161 Gaither Drive Mt. Laurel NJ   -    1,016    4,064    295    1,016    4,359    5,375    200  1987 2001 40
17 Campus Boulevard Newtown Square PA   5,211    1,108    5,155    22    1,108    5,177    6,285    384  2001 2001 40
200 Lake Drive East Cherry Hill NJ   9,686    2,069    8,275    130    2,069    8,405    10,474    368  1989 2001 40
200 Lindenwood Drive Malvern PA   1,499    324    1,295    2    324    1,297    1,621    57  1984 2001 40
210 Lake Drive East Cherry Hill NJ   7,652    1,645    6,579    50    1,645    6,629    8,274    291  1986 2001 40
220 Lake Drive East Cherry Hill NJ   -    2,144    8,798    54    2,144    8,852    10,996    466  1988 2001 40
30 Lake Center Drive Marlton NJ   4,837    1,043    4,171    16    1,043    4,187    5,230    189  1986 2001 40
300 Lindenwood Drive Malvern PA   3,925    848    3,394    2    848    3,396    4,244    148  1984 2001 40
301 Lindenwood Drive Malvern PA   -    2,729    10,915    264    2,729    11,179    13,908    533  1986 2001 40
412 Creamery Way Exton PA   -    1,195    4,779    436    1,195    5,215    6,410    255  1999 2001 40
429 Creamery Way Exton PA   3,371    1,368    5,471    3    1,368    5,474    6,842    239  1996 2001 40
436 Creamery Way Exton PA   -    994    3,978    14    994    3,992    4,986    178  1991 2001 40
440 Creamery Way Exton PA   3,134    982    3,927    4    982    3,931    4,913    172  1991 2001 40
442 Creamery Way Exton PA   2,852    894    3,576    2    894    3,578    4,472    156  1991 2001 40
457 Creamery Way Exton PA   -    777    3,107    2    777    3,109    3,886    136  1990 2001 40
467 Creamery Way Exton PA   -    906    3,623    2    906    3,625    4,531    159  1988 2001 40
479 Thomas Jones Way Exton PA   -    1,075    4,299    65    1,075    4,364    5,439    196  1988 2001 40
481 John Young Way Exton PA   2,526    496    1,983    2    496    1,985    2,481    87  1997 2001 40
555 Croton Road King of Prussia PA   6,309    4,486    17,943    69    4,486    18,012    22,498    804  1999 2001 40
7360 Windsor Drive Allentown PA   -    1,451    3,618    2,039    1,451    5,657    7,108    414  2001 2001 40
Katchel Farmhouse Reading PA   -    -    -    111    -    111    111    74  2001 2001 40
Two Righter Parkway Wilmington DE   -    2,802    11,217    7    2,802    11,224    14,026    724  1987 2001 40
100 Brandywine Boulevard Newtown  PA   -    1,784    9,811    2,971    1,784    12,782    14,566    324  2002 2002 40
1000 Lenox Drive Lawrenceville NJ   -    1,174    4,696    3    1,174    4,699    5,873    59  1982 2002 40
15 Campus Boulevard  West Goshen PA   5,958    1,164    3,896    2,127    1,164    6,023    7,187    223  2002 2002 40
200 Commerce Drive Newark DE   6,272    911    4,414    1,552    911    5,966    6,877    452  1998 2002 40
400 Berwyn Park Berwyn PA   15,726    2,657    4,462    2,264    2,657    6,726    9,383    440  2002 2002 40
400 Commerce Drive Newark DE   12,507    2,528    9,220    4,459    2,528    13,679    16,207    1,241  1997 2002 40
401 Plymouth Road Plymouth Meeting PA   -    7,241    16,131    4,689    7,241    20,820    28,061    830  2002 2002 40
600 West Germantown Pike Plymouth Meeting PA   12,633    3,652    15,288    47    3,652    15,335    18,987    320  1986 2002 40
980 Harvest Drive Blue Bell PA   -    2,079    7,821    5    2,079    7,826    9,905    66  1988 2002 40
630 West Germantown Pike Plymouth Meeting PA   12,009    3,572    14,435    43    3,572    14,478    18,050    302  1990 2002 40
620 West Germantown Pike Plymouth Meeting PA   12,220    3,558    14,743    65    3,558    14,808    18,366    309  1988 2002 40
6802 Paragon Place Richmond VA   -    2,917    11,454    251    2,917    11,705    14,622    168  1989 2002 40
610 West Germantown Pike Plymouth Meeting PA   12,170    3,651    14,514    126    3,651    14,640    18,291    315  1987 2002 40
      
 
 
 
 
 
 
 
      
                                   
       $ 591,055   $ 353,111   $ 1,424,682   $ 112,214   $ 353,111   $ 1,536,898   $ 1,890,009   $ 245,230       
      
 
 
 
 
 
 
 
      

 

F-27

What is the market capitalization of a company?

The market capitalization sometimes referred as Marketcap, is the value of a publicly listed company.
In most cases it can be easily calculated by multiplying the share price with the amount of outstanding shares.

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