UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities ---- Exchange Act of 1934 For the quarterly period ended March 31, 2002 or ____ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from ____________ to ___________ Commission file number 1-9106 ------ Brandywine Realty Trust ------------------------------------------------------ (Exact name of registrant as specified in its charter) Maryland 23-2413352 -------- ---------- State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization 14 Campus Boulevard, Newtown Square, Pennsylvania 19073 ---------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (610) 325-5600 ----------------------------- Registrant's telephone number Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] A total of 35,675,661 Common Shares of Beneficial Interest were outstanding as of May 7, 2002.
BRANDYWINE REALTY TRUST TABLE OF CONTENTS ----------------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2002 and March 31, 2001 Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2002 and March 31, 2001 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Signatures 2
PART I - FINANCIAL INFORMATION Item 1. - Financial Statements BRANDYWINE REALTY TRUST CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited and in thousands, except share and per share information) <TABLE> <CAPTION> March 31, December 31, 2002 2001 ----------- ----------- <S> <C> <C> ASSETS Real estate investments: Operating properties $ 1,770,222 $ 1,798,731 Accumulated depreciation (211,424) (220,599) ----------- ----------- 1,558,798 1,578,132 Construction-in-progress 93,005 107,717 Land held for development 39,477 39,285 ----------- ----------- 1,691,280 1,725,134 Cash and cash equivalents 30,450 13,459 Escrowed cash 16,242 16,311 Accounts receivable, net 3,755 6,394 Accrued rent receivable, net 24,143 23,836 Marketable securities 10,790 10,735 Assets held for sale 88,296 90,598 Investment in real estate ventures, at equity 19,418 19,067 Deferred costs, net 22,426 23,313 Other assets 32,781 31,356 ----------- ----------- Total assets $ 1,939,581 $ 1,960,203 =========== =========== LIABILITIES AND BENEFICIARIES' EQUITY Mortgage notes payable $ 611,055 $ 614,840 Borrowings under Credit Facility 383,325 394,325 Accounts payable and accrued expenses 29,066 39,678 Distributions payable 21,490 21,525 Tenant security deposits and deferred rents 19,551 21,790 Other liabilities 14,329 15,555 Liabilities related to assets held for sale 589 500 ----------- ----------- Total liabilities 1,079,405 1,108,213 Minority interest 143,413 143,834 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- 35,675,661 in 2002 and 35,640,935 in 2001 357 356 Additional paid-in capital 850,092 848,213 Share warrants 401 401 Cumulative earnings 186,602 163,502 Accumulated other comprehensive loss (2,167) (4,587) Cumulative distributions (318,574) (299,781) ----------- ----------- Total beneficiaries' equity 716,763 708,156 ----------- ----------- Total liabilities and beneficiaries' equity $ 1,939,581 $ 1,960,203 =========== =========== </TABLE> The accompanying condensed notes are integral part of these consolidated financial statements. 3
BRANDYWINE REALTY TRUST CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands, except per share information) <TABLE> <CAPTION> Three-Month Periods Ended March 31, ------------------------- 2002 2001 -------- -------- <S> <C> <C> Revenue: Rents $ 59,810 $ 55,965 Tenant reimbursements 7,483 8,306 Other 2,881 2,255 -------- -------- Total revenue 70,174 66,526 Operating Expenses: Property operating expenses 18,448 17,951 Real estate taxes 5,873 5,577 Interest 15,730 15,998 Depreciation and amortization 12,477 16,275 Administrative expenses 4,033 4,000 -------- -------- Total operating expenses 56,561 59,801 Income from continuing operations before equity in income of real estate ventures, gain on sale of interests in real estate and minority interest 13,613 6,725 Equity in income of real estate ventures 464 1,466 -------- -------- Income from continuing operations before gain on sale of interests in real estate and minority interest 14,077 8,191 Gain on sale of interests in real estate -- 182 Minority interest attributable to continuing operations (2,351) (2,024) -------- -------- Income from continuing operations 11,726 6,349 Discontinued operations: Income from discontinued operations 4,000 2,960 Gain on disposition of discontinued operations 8,446 -- Minority interest (703) (169) -------- -------- 11,743 2,791 -------- -------- Net income 23,469 9,140 Income allocated to Preferred Shares (2,977) (2,977) -------- -------- Income allocated to Common Shares $ 20,492 $ 6,163 ======== ======== Earnings per Common Share, before discontinued operations: Basic $ 0.23 $ 0.08 ======== ======== Diluted $ 0.23 $ 0.08 ======== ======== Earnings per Common Share, after discontinued operations: Basic $ 0.56 $ 0.16 ======== ======== Diluted $ 0.55 $ 0.16 ======== ======== </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands) <TABLE> <CAPTION> Three-Month Periods Ended March 31, ------------------------- 2002 2001 -------- -------- <S> <C> <C> Cash flows from operating activities: Net income $ 23,469 $ 9,140 Adjustments to reconcile net income to net cash from operating activities: Depreciation 12,353 17,452 Amortization: Deferred financing costs 525 841 Deferred leasing costs 1,367 1,046 Notes payable discount -- 21 Deferred compensation costs 889 841 Straight-line rent (1,369) (1,494) Provision for doubtful accounts 422 150 Equity in income of real estate ventures, net of cash distributions received (46) -- Net gain on sale of interests in real estate (8,446) (182) Minority interest 3,054 2,193 Distributions paid to minority partners (2,714) (2,651) Changes in assets and liabilities: Accounts receivable 2,225 (1,061) Other assets 1,854 6,174 Accounts payable and accrued expenses (6,852) (5,172) Tenant security deposits and deferred rents (2,675) 1,089 Other liabilities (557) -- -------- -------- Net cash from operating activites 23,499 28,387 Cash flows from investing activities: Acquisitions of properties (22,887) (21,389) Sales of properties 53,743 3,499 Capital expenditures (11,673) (14,779) Investment in real estate ventures (305) (601) Escrowed cash 986 (1,546) Cash distributions from real estate ventures in excess of income -- 1,511 Leasing costs (2,333) (986) -------- -------- Net cash from investing activities 17,531 (34,291) Cash flows from financing activites: Proceeds from notes payable, Credit Facility 15,000 15,000 Repayments of notes payable, Credit Facility (26,000) -- Proceeds from mortgage notes payable 8,999 219 Repayments of mortgage notes payable (2,207) (1,968) Debt financing costs -- (86) Repayments on employee stock loans 721 -- Repurchases of Common Shares and minority interest units (1,739) -- Distributions paid to shareholders (18,813) (17,850) -------- -------- Net cash from financing activities (24,039) (4,685) -------- -------- Increase (decrease) in cash and cash equivalents 16,991 (10,589) Cash and cash equivalents at beginning of period 13,459 16,040 -------- -------- Cash and cash equivalents at end of period $ 30,450 $ 5,451 ======== ======== </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. 5
BRANDYWINE REALTY TRUST NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 1. THE COMPANY Brandywine Realty Trust (collectively with its subsidiaries, the "Company") is a self-administered and self-managed real estate investment trust (a "REIT") active in acquiring, developing, redeveloping, leasing and managing office and industrial properties. As of March 31, 2002, the Company's portfolio included 218 office properties, 36 industrial facilities and one mixed-use property (collectively, the "Properties") containing an aggregate of approximately 16.5 million net rentable square feet and managed an additional 43 properties containing approximately 3.3 million net rentable square feet. As of March 31, 2002, the Company also owned approximately 443 acres of undeveloped land and held options to purchase approximately 61 additional acres. The Properties are located in the office and industrial markets surrounding Philadelphia, Pennsylvania, New Jersey and Long Island, New York and Richmond, Virginia. As of March 31, 2002, the Company also held economic interests in thirteen real estate ventures (the "Real Estate Ventures") formed with third parties to develop commercial properties. As of March 31, 2002, the Company had an aggregate investment in the Real Estate Ventures of approximately $19.4 million (net of returns of investment received by Company). The Company owns its assets and conducts its operations through Brandywine Operating Partnership, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership and, as of March 31, 2002, was entitled to approximately 94.3% of the Operating Partnership's distributions after distributions by the Operating Partnership to holders of its Series B Preferred Units (defined below). The Operating Partnership owns a 95% interest in Brandywine Realty Services Corporation (the "Management Company"), a taxable REIT subsidiary that, as of March 31, 2002, was performing management and leasing services for properties owned by third-parties that contain approximately 3.3 million net rentable square feet. Minority interest relates to interests in the Operating Partnership that are not owned by the Company. Income allocated to the minority interest is based on the percentage ownership of the Operating Partnership held by third parties throughout the period. 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 Units to persons that contributed assets to the Operating Partnership. The Operating Partnership is obligated to redeem, at the request of a holder, each Class A Unit for cash or one Common Share, at the option of the Company. Each Series B Preferred Unit has a stated value of $50.00 and is convertible, at the option of the holder, into Class A Units at a conversion price of $28.00. The conversion price declines to $26.50, if the average trading price of the Common Shares during the 60-day period ending December 31, 2003 is $23.00 or less. The Series B Preferred Units bear a preferred distribution of 7.25% per annum ($3.625 per unit per annum), subject to an increase in the event quarterly distributions paid to holders of Common Shares exceed $0.51 per share. As of March 31, 2002, 2,117,741 Class A Units and 1,950,000 Series B Preferred Units were outstanding and held by third party investors. Minority interest also relates to the 5% interest in the Management Company that is not owned by the Company. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements have been prepared by the Company without audit except as to the balance sheet as of December 31, 2001, which has been prepared from audited data, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the included disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary to fairly present the financial position of the Company as of March 31, 2002, the results of its operations for the three months ended March 31, 2002 and 2001, and its cash flows for the three months ended March 31, 2002 and 2001 have been included. The results of operations for such interim periods are not necessarily indicative of the results for a full year. For further information, refer to the Company's consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the year ended December 31, 2001. Certain prior period amounts have been reclassified to conform with the current period presentation. 6
Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Real Estate Investments Real estate investments include capitalized direct internal development costs totaling $365,000 for the three months ended March 31, 2002 and $654,000 for the three months ended March 31, 2001. Interest totaling $.9 million for the three months ended March 31, 2002 and $1.4 million for the three months ended March 31, 2001 was capitalized related to the development of certain Properties and land holdings. Effective January 1, 2002, the Company changed the estimated useful lives of various buildings from 25 to 40 years which resulted in an increase of net income of $4.8 million or $.13 per share for the three months ended March 31, 2002. The longer period was determined to be a better estimate of the useful lives of the buildings. Deferred Costs Deferred costs include internal direct leasing costs totaling $711,000 for the three months ended March 31, 2002 and $739,000 for the three months ended March 31, 2001. These costs are being amortized over the related lease term. Accounting for Derivative Instruments and Hedging Activities The Company accounts for its derivative instruments and hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its corresponding amendments under SFAS No. 138. SFAS 133 requires the Company to measure every derivative instrument (including certain derivative instruments embedded in other contracts) at fair value and record them in the balance sheet as either an asset or liability. For derivatives designated as fair value hedges, the changes in fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of changes in the fair value of the derivative are reported in other comprehensive income. Changes in fair value of derivative instruments and ineffective portions of hedges are recognized in earnings in the current period. For the three months ended March 31, 2002, the Company was not party to any derivative contract designated as a fair value hedge. The Company recorded a gain of $2.4 million in other comprehensive income to recognize the change in value during the three months ended March 31, 2002. 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 $3.1 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 management determines that a derivative is not highly-effective as a hedge or if a derivative ceases to be a highly-effective hedge, the Company will discontinue hedge accounting prospectively. The Company manages its ratio of fixed-to-floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this mix in a cost-effective manner, the Company, from time to time, enters into interest rate swap agreements, in which it agrees to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts. As of March 31, 2002, the maximum length of time until which the Company was hedging its exposure to the variability in future cash flows for forecasted transactions was through June 2004. There was no gain or loss reclassified from accumulated other comprehensive income into earnings during the three months ended March 31, 2002 as a result of the discontinuance of a cash flow hedge due to the probability of the original forecasted transaction not occurring. 7
New Pronouncements Effective January 1, 2002, the Company adopted Financial Accounting Standards Board Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which established a single accounting model for the impairment or disposal of long-lived assets including discontinued operations. This statement requires that the operations related to properties that have been sold or properties that are intended to be sold be presented as discontinued operations in the statement of operations for all periods presented and properties intended to be sold are to be designated as "held-for-sale" on the balance sheet. 3. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS 2002 During the first quarter of 2002, the Company sold ten office properties containing 704,000 net rentable square feet and ten industrial properties containing 602,000 net rentable square feet for an aggregate of $117.9 million, realizing a net gain of $8.4 million. In addition, the Company purchased four office properties containing 360,000 net rentable square feet for $67.2 million. 2001 During the first quarter of 2001, the Company sold one office property containing 30,000 net rentable square feet, one industrial property containing 16,000 net rentable square feet and one parcel of land containing 2.1 acres for an aggregate of $3.5 million, realizing a net gain of $182,000. In addition, the Company purchased two office properties containing 146,000 net rentable square feet for $18.0 million and one parcel of land containing 20 acres for $7.6 million. 4. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES As of March 31, 2002, the Company had an aggregate investment of approximately $19.4 million in thirteen Real Estate Ventures (net of returns of investment received by the Company). The Company, through subsidiaries, formed these ventures with unaffiliated third parties to develop office properties or to acquire land in anticipation of possible development of office properties. Nine of the Real Estate Ventures own nine office buildings that contain an aggregate of approximately 1.0 million net rentable square feet; one Real Estate Venture is developing one office buildings that will contain, upon completion, an aggregate of approximately 345,000 net rentable square feet; one Real Estate Venture is developing a hotel property that will contain, upon completion, approximately 137 rooms; and two Real Estate Ventures hold approximately nine acres of land for future development. The Company accounts for its non-controlling interests in Real Estate Ventures using the equity method. Non-controlling ownership interests generally range from 6% to 65%, subject to specified priority allocations in certain real estate ventures. These investments, initially recorded at cost, are subsequently adjusted for the Company's net equity in the ventures' income or loss and cash contributions and distributions. The following is a summary of the financial position of the unconsolidated joint ventures in which the Company had investment interests as of March 31, 2002 and December 31, 2001: March 31, December 31, 2002 2001 --------- --------- (amounts in thousands) Net property $ 200,757 $ 180,497 Other assets 24,409 17,038 Liabilities 1,526 1,593 Third-party debt 155,023 145,463 Equity 68,617 50,479 Company's share of equity 19,418 19,067 8
The following is a summary of financial operations of the unconsolidated joint ventures in which the Company had investment interests as of March 31, 2002 and 2001: For the three months ended March 31, ------------------------------------ 2002 2001 ---------- ----------- (amounts in thousands) Revenues $ 6,713 $ 9,180 Operating expenses 2,219 2,617 Depreciation and amortization 1,041 950 Interest expense, net 2,344 2,391 Net income 1,109 3,222 Company's share of income 464 1,466 As of March 31, 2002, the aggregate maturities of non-recourse debt of Real Estate Ventures payable to third-parties is as follows (000's): 2002 $ 28,795 2003 1,157 2004 2,651 2005 19,319 2006 and thereafter 103,101 --------- $ 155,023 ========= As of March 31, 2002, the Company had guaranteed repayment of approximately $2.6 million of loans for the Real Estate Venture debt. 5. 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 1.88% at March 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 March 31, 2002, the Company had $383.3 million of borrowings, $13.3 million of letters of credit outstanding and $103.4 million of unused availability under the Credit Facility. The weighted-average interest rate on borrowings under the Credit Facility was 5.22% for the three months ended March 31, 2002 and 7.52% for the three months ended March 31, 2001. As of March 31, 2002, the Company had $611.1 million of mortgage notes payable, secured by 108 of the Properties and certain land holdings. Fixed rate mortgages, totaling $514.8 million, require payments of principal and/or interest (or imputed interest) at rates ranging from 6.8% to 9.25% and mature on dates from July 2003 through July 2027. Variable rate mortgages, totaling $96.3 million, require payments of principal and/or interest at rates ranging from LIBOR plus .76% to 1.75% or 75% of prime (prime rate was 4.75% at March 31, 2002) and mature on dates from February 2003 through July 2027. The weighted-average interest rate on the Company's mortgages was 7.35% for the three months ended March 31, 2002 and 7.69% for the three months ended March 31, 2001. 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 March 31, 2002, the Company had three 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 6.383%, $50 million at 6.080% and $25 million at 5.215% until September 2002. In October 2001, the Company entered into three additional interest rate swap agreements that effectively fix the LIBOR interest rate on $100 million of Credit Facility borrowings at 4.230% and on $75 million at 4.215% from September 2002 to June 2004. The interest rate cap agreements effectively fix the interest rate on two variable rate mortgages. One rate cap fixes the interest rate on a mortgage with a notional value of $75 million at 6.25% until maturity in April 2002. The second interest rate cap fixes the interest rate on a mortgage with a notional value of $28 million at 8.7% until July 2004. The impact of the cap agreements is recorded as a component of interest expense. For the three months ended March 31, 2002 and 2001, the Company paid interest totaling $14.7 million in 2002 and $17.0 million in 2001. 9
6. DISCONTINUED OPERATIONS For the three months ended March 31, 2002 and 2001, income from discontinued operations relates to 20 properties containing 1.3 million net rentable square feet that the Company sold during the first quarter of 2002 and 27 properties containing 1.1 million net rentable square feet that the Company has designated as "held-for-sale". The following table summarizes revenue and expense information for these properties sold or held-for-sale. <TABLE> <CAPTION> Three months ended March 31, ---------------------------- 2002 2001 ------ ------ <S> <C> <C> Revenue: Rents $ 6,787 $ 7,219 Tenant reimbursements 1,158 1,222 Other 189 46 -------- ------- Total revenue 8,134 8,487 Operating Expenses: Property operating expenses 1,869 2,150 Real estate taxes 1,019 1,154 Interest -- -- Depreciation and amortization 1,243 2,223 Administrative expenses 3 -- -------- ------- Total operating expenses 4,134 5,527 Income from discontinued operations before net gain on sale of interests in real estate and minority interest 4,000 2,960 Net gain on sales of interest in real estate 8,446 -- Minority interest (703) (169) -------- ------- Income from discontinued operations $ 11,743 $ 2,791 ======== ======= </TABLE> Discontinued operations have not been segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions will not agree with respective consolidated statements of operations. 7. BENEFICIARIES EQUITY On March 22, 2002, the Company declared a distribution of $0.44 per Common Share, totaling $15.8 million, which was paid on April 15, 2002 to shareholders of record as of April 4, 2002. The Operating Partnership simultaneously declared a $0.44 per unit cash distribution to holders of Class A Units totaling $0.9 million. On March 22, 2002, the Company and the Operating Partnership, respectively, also declared distributions to holders of Series A Preferred Shares, Series B Preferred Shares and Series B Preferred Units, which are each currently entitled to a preferential return of 7.25%, 8.75% and 7.25%, respectively. Distributions paid on April 15, 2002 to holders of Series A Preferred Shares, Series B Preferred Shares and Series B Preferred Units totaled $0.7 million, $2.3 million and $1.8 million, respectively. During the three month period ended March 31, 2002, the Company repurchased 28,274 Common Shares for an aggregate of $671,000 (an average price of $23.72 per share). 10
8. COMPREHENSIVE INCOME Comprehensive income represents net income, plus the results of certain non-shareholders' equity changes not reflected in the Consolidated Statements of Operations. The components of comprehensive income are as follows: <TABLE> <CAPTION> Three-Month Periods Ended March 31, ------------------- 2002 2001 ---- ---- <S> <C> <C> Net income $ 23,469 $ 9,140 Other comprehensive income: Cumulative effect of change in accounting principle (SFAS #133) on other comprehensive income -- (1,300) Unrealized derivative gains (losses) on cash flow hedges 2,365 (2,656) Unrealized gain on available-for-sale securities 55 (144) -------- ------- Comprehensive income $ 25,889 $ 5,040 ======== ======= </TABLE> 9. SEGMENT INFORMATION The Company currently manages its portfolio within three segments: (1) Pennsylvania, (2) New Jersey/New York, and (3) Virginia. Corporate is responsible for cash and investment management and certain other general support functions. Segment information is as follows (in thousands): <TABLE> <CAPTION> New Jersey/ Pennsylvania New York Virginia Corporate Total ------------- ----------- --------- --------- ----------- <S> <C> <C> <C> <C> <C> As of March 31, 2002: - --------------------- Real estate investments, at cost $ 1,190,042 $ 514,459 $ 198,203 $ -- $ 1,902,704 Assets held for sale 30,387 49,672 8,237 -- 88,296 Investment in real estate ventures, at equity -- -- -- 19,418 19,418 For three months ended March 31, 2002: - -------------------------------------- Total revenue $ 41,725 $ 21,464 $ 6,436 $ 549 $ 70,174 Property operating expenses and real estate taxes 14,025 8,067 2,229 -- 24,321 ----------- --------- --------- -------- ----------- Net operating income $ 27,700 $ 13,397 $ 4,207 $ 549 $ 45,853 =========== ========= ========= ======== =========== Interest $ -- $ -- $ -- $ 15,730 $ 15,730 Depreciation & amortization 6,986 3,827 1,386 278 12,477 Discontinued operations, net of minority interest 4,650 6,947 146 -- 11,743 As of December 31, 2001: Real estate investments, at cost $ 1,157,325 $ 590,016 $ 198,392 $ -- $ 1,945,733 Assets held for sale 33,130 49,369 8,099 -- 90,598 Investment in real estate ventures, at equity -- -- -- 19,067 19,067 For three months ended March 31, 2001: Total revenue $ 35,957 $ 20,440 $ 9,473 $ 656 $ 66,526 Property operating expenses and real estate taxes 12,129 7,420 3,605 374 23,528 ----------- --------- --------- -------- ----------- Net operating income $ 23,828 $ 13,020 $ 5,868 $ 282 $ 42,998 =========== ========= ========= ======== =========== Interest $ -- $ -- $ -- $ 15,998 $ 15,998 Depreciation & amortization 8,228 5,210 2,652 185 16,275 Discontinued operations, net of minority interest 1,050 1,650 91 -- 2,791 </TABLE> Net operating income is defined as total revenues less property operating expenses and real estate taxes. Below is a reconciliation of consolidated net operating income to consolidated income from continuing operations: 11
<TABLE> <CAPTION> For the three months ended March 31, ------------------------------------ 2002 2001 --------- --------- (amounts in thousands) <S> <C> <C> Consolidated net operating income $ 45,853 $ 42,998 Less: Interest expense 15,730 15,998 Depreciation and amortization 12,477 16,275 Administrative expenses 4,033 4,000 Minority interest attributable to continuing operations 2,351 2,024 Plus: Equity in income of real estate ventures 464 1,466 Net gains on sales of interests in real estate -- 182 -------- -------- Consolidated income from continuing operations $ 11,726 $ 6,349 ======== ======== </TABLE> 10. EARNINGS PER COMMON SHARE The following table details the number of shares and net income used to calculate basic and diluted earnings per share (in thousands, except per share amounts): <TABLE> <CAPTION> Three-Month Periods Ended March 31, ----------------------------------------------------------------------------- 2002 2001 -------------------------------- -------------------------------- Basic Diluted Basic Diluted ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Net income $ 23,469 $ 23,469 $ 9,140 $ 9,140 Preferred Share discount amortization (369) (369) (369) (369) Income allocated to Preferred Shares (2,977) (2,977) (2,977) (2,977) Incremental income from dilutive securities -- 4,744 -- -- ---------- ---------- ---------- ---------- Net income available to common shareholders $ 20,123 $ 24,867 $ 5,794 $ 5,794 ========== ========== ========== ========== Weighted-average shares outstanding 35,700,964 35,700,964 35,745,208 35,745,208 Options and warrants -- 48,704 -- 25,568 Incremental shares from dilutive securities -- 9,469,340 -- -- ---------- ---------- ---------- ---------- Total weighted-average shares outstanding 35,700,964 45,219,008 35,745,208 35,770,776 ========== ========== ========== ========== Earnings per share $ 0.56 $ 0.55 $ 0.16 $ 0.16 ========== ========== ========== ========== </TABLE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. This Form 10-Q contains forward-looking statements for purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934 and as such may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, there can be no assurance that these expectations will be realized. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Factors that could cause actual 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 rental rates and 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, 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, costs to complete and lease-up pending developments, demand for tenant services beyond those traditionally provided by landlords, potential liability under environmental or other laws and the other risks identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. OVERVIEW The Company currently manages its portfolio within three segments: (1) Pennsylvania, (2) New Jersey/New York, and (3) Virginia. As of March 31, 2002, the Company's portfolio consisted of 218 office properties, 36 industrial facilities and one mixed-use property that contain an aggregate of approximately 16.5 million net rentable square feet. As of March 31, 2002, the Company held economic interests in thirteen Real Estate Ventures. 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 expects that revenue growth in the next two years will result primarily from increases in occupancy, increases in rental rates and rental revenue from the leasing of office properties under development or redevelopment. As of March 31, 2002, the Company had four buildings in development or redevelopment aggregating 478,000 square feet. 13
The Company sold or disposed of the following properties during the three months ended March 31, 2002: <TABLE> <CAPTION> Sales/ Disposition Net Book Realized Sale # of Rentable Price Value Gain/(Loss) Date Property/Portfolio Name Location Bldgs. Square Feet (in 000's) (in 000's) (in 000's) - ------ ---------------------------- ---------------- ------- ----------- ------------ ---------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> Office: - ------- Feb-02 2000 Cabot Boulevard Bucks County, PA 1 39,969 $ 2,760 $ 2,665 $ 95 65 Feb-02 2005 Cabot Boulevard Bucks County, PA 1 22,000 2,100 1,859 241 Feb-02 2010 Cabot Boulevard Bucks County, PA 1 52,831 3,420 3,405 15 Feb-02 2260/2270 Cabot Boulevard Bucks County, PA 2 29,638 2,405 1,920 485 Feb-02 3000 Cabot Boulevard Bucks County, PA 1 34,693 3,395 2,179 1,216 Feb-02 155 Rittenhouse Circle Bucks County, PA 1 22,500 1,913 1,712 201 Mar-02 470 John Young Way Exton, PA 1 15,085 2,850 2,147 703 Mar-02 Park 80 I Saddlebrook, NJ 1 223,666 33,637 33,136 501 Mar-02 Park 80 II Saddlebrook, NJ 1 264,074 39,713 36,611 3,102 ----- --------- --------- --------- ------- Total Office Properties Sold 10 704,456 92,193 85,634 6,559 Industrial: Feb-02 8 Engineers Lane Farmingdale, NY 1 15,000 865 915 (50) Feb-02 2200 Cabot Boulevard Bucks County, PA 1 61,543 2,855 3,736 (881) Feb-02 180 Wheeler Court Bucks County, PA 1 78,213 2,980 3,091 (111) Feb-02 Metropolitan Drive Bucks County, PA 7 447,000 19,000 16,071 2,929 ----- --------- --------- --------- ------- Total Industrial Properties Sold 10 601,756 25,700 23,813 1,887 ----- --------- --------- --------- ------- Total Properties Sold 20 1,306,212 $ 117,893 $ 109,447 $ 8,446 ===== ========= ========= ========= ======= </TABLE> The Company acquired the following operating properties during the three months ended March 31, 2002: <TABLE> <CAPTION> Purchase Month of # of Rentable Price Acquisition Property/Portfolio Name Location Buildings Square Feet (in 000's) - ----------- ------------------------- --------------------- --------- ------------ ---------- <S> <C> <C> <C> <C> <C> Office: - ------- Mar-02 600 West Germantown Pike Plymouth Meeting, PA 1 90,004 $ 16,780 Mar-02 610 West Germantown Pike Plymouth Meeting, PA 1 90,152 16,808 Mar-02 620 West Germantown Pike Plymouth Meeting, PA 1 90,169 16,811 Mar-02 630 West Germantown Pike Plymouth Meeting, PA 1 89,925 16,766 ----- ------- -------- Total Property Acquisitions 4 360,250 $ 67,165 ===== ======= ======== </TABLE> Subsequent to March 31, 2002, the Company sold six office properties and two industrial properties containing an aggregate of 443,000 net rentable square feet for $39.7 million. CRITICAL ACCOUNTING POLICIES Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates and judgments including those related to bad debts, capitalization of costs, contingencies and litigation. Actual results may differ from those estimates. The Company's Annual Report on Form 10-K for the year ended December 31, 2001 contains a detailed discussion of the Company's critical accounting policies that affect its more significant judgments and estimates used in preparation of the financial statements. Management has discussed the Company's critical accounting policies and estimates with the Company's Audit Committee. 14
The following accounting policy was implemented subsequent to December 31, 2001: Discontinued Operations Effective January 1, 2002, the Company adopted Financial Accounting Standards Board Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which established a single accounting model for the impairment or disposal of long-lived assets including discontinued operations. This statement requires that the operations related to properties that have been sold or properties that are intended to be sold be presented as discontinued operations in the statement of operations for all periods presented and properties intended to be sold are to be designated as "held-for-sale" on the balance sheet. RESULTS OF OPERATIONS Comparison of the Three Months Ended March 31, 2002 and March 31, 2001 <TABLE> <CAPTION> Three months ended March 31, ---------------------------- Dollar Percent 2002 2001 Change Change -------- -------- -------- ------ <S> <C> <C> <C> <C> Revenue: Rents $ 59,810 $ 55,965 $ 3,845 6.9% Tenant reimbursements 7,483 8,306 (823) -9.9% Other 2,881 2,255 626 27.8% -------- -------- -------- ------ Total revenue 70,174 66,526 3,648 5.5% Operating Expenses: Property operating expenses 18,448 17,951 497 2.8% Real estate taxes 5,873 5,577 296 5.3% Interest 15,730 15,998 (268) -1.7% Depreciation and amortization 12,477 16,275 (3,798) -23.3% Administrative expenses 4,033 4,000 33 0.8% -------- -------- -------- ------ Total operating expenses 56,561 59,801 (3,240) -5.4% Income from continuing operations before equity in income of real estate ventures, net gain on sale of interests in real estate and minority interest 13,613 6,725 6,888 102.4% Equity in income of real estate ventures 464 1,466 (1,002) -68.3% -------- -------- -------- ------ Income from continuing operations before net gain on sale of interests in real estate and minority interest 14,077 8,191 5,886 71.9% Net gain on sale of interests in real estate -- 182 (182) 100.0% Minority interest attributable to continuing operations (2,351) (2,024) (327) -16.2% -------- -------- -------- ------ Income from continuing operations 11,726 6,349 5,377 84.7% Discontinued operations: Income from discontinued operations, net of minority interest 3,774 2,791 983 35.2% Gain on disposition of discontinued operations, net of minority interest 7,969 -- 7,969 -- -------- -------- -------- ------ 11,743 2,791 8,952 320.7% -------- -------- -------- ------ Net income $ 23,469 $ 9,140 $ 14,329 156.8% ======== ======== ======== ====== </TABLE> The results of operations for the three months ended March 31, 2002 and 2001 include the respective operations of the Properties. Of the 255 Properties owned by the Company as of March 31, 2002, a total of 215 Properties containing an aggregate of 14.2 million net rentable square feet ("Same Store Properties") were owned for the entire three-month periods ended March 31, 2002 and 2001. The following table sets forth revenue and expense information for these Same Store Properties for the three-month periods ended March 31, 2002 and 2001: 15
<TABLE> <CAPTION> Three Months Ended March 31, ---------------------------- Dollar Percent 2002 2001 Change Change -------- -------- -------- ------ <S> <C> <C> <C> <C> Revenue: Rents $ 54,131 $ 54,837 $ (706) -1.3% Tenant reimbursements 7,585 8,275 (609) -8.3% Other 88 76 12 15.8% -------- -------- -------- ------- Total revenue 61,804 63,188 (1,384) -2.2% Operating Expenses: Property operating expenses 17,599 18,345 (746) -4.1% Real estate taxes 5,721 5,624 97 1.7% -------- -------- -------- ------- Total operating expenses 23,320 23,969 (649) -2.7% -------- -------- -------- ------- Property NOI $ 38,484 $ 39,219 $ (735) -1.9% ======== ======== ======== ======= </TABLE> Revenue increased to $70.2 million for the three months ended March 31, 2002 as compared to $66.5 million for the three months ended March 31, 2001, primarily due to increased rental rates offset by decreased occupancy. The straight-line rent adjustment increased revenues by $1.4 million for the three months ended March 31, 2002 and $1.5 million for the comparable period in 2001. Average occupancy decreased to 91.6% in 2002 as compared to 95.4% for 2001. Revenue for Same Store Properties decreased to $61.8 million for the three months ended March 31, 2002 as compared to $63.2 for the comparable period in 2001. This decrease was the result of decreased occupancy offset by increased rental rates in 2002 as compared to 2001. Average occupancy for the Same Store Properties for the three months ended March 31, 2002 decreased to 91.8% from 95.6% for the comparable period in 2001. Other income represents lease termination fees, leasing commissions, third-party management fees and interest income. Other income increased to $2.9 million for the three months ended March 31, 2002 from $2.3 million for the comparable period in 2001 primarily due to lease termination fees in 2002. Property operating expenses increased to $18.4 million for the three months ended March 31, 2002 as compared to $18.0 million for the comparable period in 2001, primarily due to an increase in the provision for bad debts in 2002. Property operating expenses included a provision for doubtful accounts of $422,000 for the three months ended March 31, 2002 and $150,000 for the comparable period in 2001 to provide for increased credit risk related to certain tenants. Property operating expenses for the Same Store Properties decreased to $17.6 million for the three months ended March 31, 2002 as compared to $18.3 million for the comparable period in 2001 as a result of decreased snow removal costs in 2002 as compared to 2001. Real estate taxes increased to $5.9 million for the three months ended March 31, 2002 as compared to $5.6 million for the comparable period in 2001, primarily due to higher tax rates and property assessments in 2002. Real estate taxes for the Same Store Properties increased to $5.7 million for the three months ended March 31, 2002 as compared to $5.6 million for the comparable period in 2001 as a result of higher tax rates and property assessments. Interest expense decreased to $15.7 million for the three months ended March 31, 2002 as compared to $16.0 million for the comparable period in 2001, primarily due to decreased interest rates offset by increased borrowings. Average outstanding debt balances for the three months ended March 31, 2002 were $1.0 billion as compared to $872.8 million for the comparable period in 2001. The Company's weighted-average interest rate after giving effect to hedging activities on unsecured credit facilities decreased to 5.22% for the three months ended March 31, 2002 from 7.52% for the comparable period in 2001. The weighted-average interest rate on mortgage notes payable decreased to 7.35% for the three months ended March 31, 2002 from 7.69% for the comparable period in 2001. Depreciation decreased to $11.3 million for the three months ended March 31, 2002 as compared to $15.4 million for the comparable period in 2001. Of this decrease, $4.8 million or $.13 per share was due to a change made by the Company in the estimated useful lives of various buildings from 25 to 40 years. The longer period was determined to be a better estimate of the useful lives of the buildings. Amortization, related to deferred leasing costs, increased to $1.2 million for the three months ended March 31, 2002 as compared to $.9 million for the comparable period in 2001, primarily due to increased leasing activity and additional properties in 2002. 16
Administrative expenses were $4.0 million for the three months ended March 31, 2002 and 2001. Equity in income of Real Estate Ventures decreased to $464,000 for the three months ended March 31, 2002 as compared to $1.5 million for the comparable period in 2001 primarily due to two Real Estate Ventures sold during the first quarter of 2001. Minority interest represents the equity in income attributable to the portion of the Operating Partnership not owned by the Company. Minority interest increased to $2.4 million for the three months ended March 31, 2002 as compared to $2.0 million for the comparable period in 2001, primarily due to increased revenues and decreased expenses in 2002 as compared to 2001. Income from discontinued operations, net of minority interest, increased to $3.8 million for the three months ended March 31, 2002 as compared to $2.8 million for the comparable period in 2001 due to decreased deprecation expense in 2002. During the first quarter of 2002, the Company sold ten office properties containing 704,000 net rentable square feet and ten industrial properties containing 602,000 net rentable square feet for an aggregate of $117.9 million, realizing a net gain of $8.0 million, net of minority interest. LIQUIDITY AND CAPITAL RESOURCES Cash Flows During the three-month period ended March 31, 2002, the Company generated $23.5 million in cash flow from operating activities. Other sources of cash flow consisted of: (i) $53.7 million of proceeds from sales of properties, (ii) $15.0 million of proceeds from draws on the Credit Facility, (iii) $9.0 million of additional mortgage notes payable and (iv) $1.0 million of escrowed cash and (v) $.7 million from payments on employee loans. During the three-month period ended March 31, 2002, cash out-flows consisted of: (i) $26.0 million of Credit Facility repayments, (ii) $22.9 million of property acquisitions, (iii) $18.8 million of distributions to shareholders, (iv) $11.7 million to fund development and capital expenditures, (v) $2.3 million of deferred leasing costs, (vi) $2.2 million of mortgage note repayments, (vii) $1.7 million to repurchase Common Shares and minority interest units and (viii) $.3 million of additional investments in unconsolidated Real Estate Ventures. Development The Company is in the process of developing or redeveloping four sites aggregating 478,000 square feet that are scheduled for completion on various dates through July 2002. These projects are in various stages of development and there can be no assurance that any of these projects will be completed or opened on schedule. The total costs of these projects is estimated to be $92.0 million of which $74.9 million has been incurred. As of March 31, 2002, these developments were approximately 38% leased. Capitalization As of March 31, 2002, the Company had approximately $994.4 million of debt outstanding, consisting of $383.3 million of borrowings under the Credit Facility and $611.1 million of mortgage notes payable. The mortgage notes payable consists of $514.8 million of fixed rate loans and $96.3 million of variable rate loans. Additionally, the Company has entered into interest rate swap and cap agreements to fix the interest rate on $278.0 million of the Credit Facility and variable rate loans. The mortgage loans mature between February 2003 and July 2027. As of March 31, 2002, the Company also had $13.3 million of letters-of-credit outstanding under the Credit Facility and $103.4 million of unused availability under the Credit Facility. For the three months ended March 31, 2002, the weighted-average interest rate under the Company's Credit Facility was 5.22%, and the weighted-average interest rate for borrowings under mortgage notes payable was 7.35%. 17
The following table outlines the timing of payment requirements related to the Company's commitments as of March 31, 2002: <TABLE> <CAPTION> Payments by Period (in thousands) --------------------------------------------------------------------------------- Less than After Total 1 Year 2-3 Years 4-5 Years 5 Years -------------- --------------- -------------- -------------- --------------- <S> <C> <C> <C> <C> <C> Mortgage notes payable: Fixed rate $ 514,797 $ 6,206 $ 145,272 $ 17,717 $ 345,602 Variable rate 25,218 120 335 360 24,403 Construction loans 71,040 -- 71,040 -- -- ----------- ------- --------- -------- --------- 611,055 6,326 216,647 18,077 370,005 Revolving credit facility 383,325 -- 383,325 -- -- Other liabilities 14,329 1,232 12,508 589 -- ----------- ------- --------- -------- --------- $ 1,008,709 $ 7,558 $ 612,480 $ 18,666 $ 370,005 =========== ======= ========= ======== ========= </TABLE> The Company intends to refinance its mortgage notes payable as they become due or repay them if they relate to properties being sold. The Company expects to renegotiate its Credit Facility at maturity or extend its term. As of March 31, 2002, the Company had guaranteed repayment of approximately $2.6 million of loans for the Real Estate Venture debt. As of March 31, 2002, the Company's debt-to-market capitalization ratio was 46.8%. 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%. The Company's Board of Trustees approved a share repurchase program authorizing the Company to repurchase up to 4,000,000 of its outstanding Common Shares. During 2002, the Company has repurchased 28,274 Common Shares for an aggregate of $671,000 (an average price of $23.72 per share). The Company may purchase an additional 1.3 million Common Shares under this program. No time limit has been placed on the duration of the share repurchase program. Short- and Long-Term Liquidity The Company believes that its cash flow from operations is adequate to fund short-term liquidity requirements for the foreseeable future. Cash flow from operations is generated primarily from rental revenues and operating expense reimbursements from tenants and management services income from providing services to third parties. The Company intends to use these funds to meet short-term liquidity needs, which are to fund operating expenses, debt service requirements, recurring capital expenditures, tenant allowances, leasing commissions and the minimum distributions required to maintain the Company's REIT qualification under the Internal Revenue Code. On March 22, 2002, the Company declared a distribution of $0.44 per Common Share, totaling $15.8 million, which was paid on April 15, 2002 to shareholders of record as of April 4, 2002. The Operating Partnership simultaneously declared a $0.44 per unit cash distribution to holders of Class A Units totaling $0.9 million. On March 22, 2002, the Company and the Operating Partnership, respectively, also declared distributions to holders of Series A Preferred Shares, Series B Preferred Shares and Series B Preferred Units, which are each currently entitled to a preferential return of 7.25%, 8.75% and 7.25%, respectively. Distributions paid on April 15, 2002 to holders of Series A Preferred Shares, Series B Preferred Shares and Series B Preferred Units totaled $680,000, $2.3 million and $1.8 million, respectively. 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 proceeds from the disposition of certain assets held for sale. 18
Funds from Operations Management considers Funds from Operations ("FFO") as one measure of REIT performance. FFO is calculated as net income (loss) adjusted for depreciation expense attributable to real property, amortization expense attributable to capitalized leasing costs, gains (losses) on sales of real estate investments, extraordinary items and comparable adjustments for real estate ventures accounted for using the equity method. Management believes that FFO is a useful disclosure in the real estate industry; however, the Company's disclosure may not be comparable to other REITs. FFO should not be considered an alternative to net income as an indication of the Company's performance or to cash flows as a measure of liquidity. FFO for the three months ended March 31, 2002 and 2001 is summarized in the following table (in thousands, except share data): <TABLE> <CAPTION> Three Months Ended March 31, ----------------------------- 2002 2001 ---------- ---------- <S> <C> <C> Income before net gain on sale of interests in real estate and minority interest: Continuing operations $ 14,077 $ 8,191 Discontinued operations 4,000 2,960 ---------- ---------- 18,077 11,151 Add: Depreciation: Real property 12,353 17,452 Real estate ventures 581 1,053 Amortization of leasing costs 1,367 1,046 Gain on sale of land interests -- 41 Less: Gain included in equity in income of real estate ventures -- (785) ---------- ---------- Funds from operations before minority interest $ 32,378 $ 29,958 ========== ========== Weighted-average Common Shares (including Common Share equivalents) and Operating Partnership units 47,358,998 47,396,137 ========== ========== </TABLE> Inflation A majority of the Company's leases provide for separate escalations of real estate taxes and operating expenses either on a triple net basis or over a base amount. In addition, many of the leases provide for fixed base rent increases or indexed escalations (based on the CPI or other measure). The Company believes that inflationary increases in expenses will be significantly offset by expense reimbursement and contractual rent increases. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in Quantitative and Qualitative disclosures in 2002. Reference is made to Item 7 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: During the three months ended March 31, 2002, the Company did not file any reports on Form 8-K. 19
BRANDYWINE REALTY TRUST SIGNATURES OF REGISTRANT Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRANDYWINE REALTY TRUST (Registrant) Date: May 7, 2002 By: /s/ Gerard H. Sweeney ----------- ---------------------------------------- Gerard H. Sweeney, President and Chief Executive Officer (Principal Executive Officer) Date: May 7, 2002 By: /s/ Bradley W. Harris ----------- ---------------------------------------- Bradley W. Harris, Vice President and Chief Accounting Officer (Principal Accounting Officer) 20