SEC Filing | Brandywine Realty Trust

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Prepared and Filed by St Ives Financial

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2006

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____________ to ___________

Commission file number 001-9106

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 No.)

555 East Lancaster Avenue, Radnor, Pennsylvania
(Address of principal executive offices)

19087
(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 (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 whether the registrant is a large accelerated filer, accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

A total of 88,249,748 Common Shares of Beneficial Interest, par value $0.01 per share, were outstanding as of November 7, 2006.

BRANDYWINE REALTY TRUST

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

		Page

Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005	3
	Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2006 and 2005	4
	Consolidated Statements of Other Comprehensive Income for the three- and nine-month periods ended September 30, 2006 and 2005	5
	Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2006 and September 30, 2005	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49
Item 4.	Controls and Procedures	49

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Submission of Matters to a Vote of Security Holders	50
Item 5.	Other Information	50
Item 6.	Exhibits	50
	Signatures	52

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PART I - FINANCIAL INFORMATION

Item 1. - Financial Statements

BRANDYWINE REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share information)

	September 30, 2006			December 31, 2005

ASSETS
Real estate investments:
Operating properties	$	4,871,978		$	2,560,061
Accumulated depreciation		(499,141	)		(390,333	)

Operating real estate investments, net		4,372,837			2,169,728
Construction-in-progress		309,783			273,240
Land held for development		118,181			98,518

Total real estate investments, net		4,800,801			2,541,486
Cash and cash equivalents		16,538			7,174
Escrowed cash		20,153			18,498
Accounts receivable, net		23,400			12,874
Accrued rent receivable, net		67,283			47,034
Marketable securities		187,162			—
Investment in unconsolidated ventures		78,288			13,331
Deferred costs, net		65,378			37,602
Intangible assets, net		325,119			78,097
Other assets		67,500			49,649

Total assets	$	5,651,622		$	2,805,745

LIABILITIES AND BENEFICIARIES’ EQUITY
Mortgage notes payable	$	892,935		$	494,777
Secured note payable		181,759			—
Unsecured notes		1,863,188			936,607
Unsecured credit facility		249,998			90,000
Accounts payable and accrued expenses		124,814			52,635
Distributions payable		43,752			28,880
Tenant security deposits and deferred rents		57,799			20,953
Acquired below market leases, net of accumulated amortization of $22,030 and $6,931		107,122			34,704
Other liabilities		14,927			4,466

Total liabilities		3,536,294			1,663,022
Minority interest - partners’ share of consolidated real estate ventures		109,074			37,861
Minority interest attributable to continuing operations - LP units		36,758			(2	)
Commitments and contingencies (Note 16)
Beneficiaries’ equity:
Preferred Shares (shares authorized-20,000,000):
7.50% Series C Preferred Shares, $0.01 par value; issued and outstanding-2,000,000 in 2006 and 2005		20			20

7.375% Series D Preferred Shares, $0.01 par value; issued and outstanding-2,300,000 in 2006 and 2005		23			23
Common Shares of beneficial interest, $0.01 par value; shares authorized 200,000,000; issued and outstanding-90,058,533 in 2006 and 56,179,075 in 2005		901			562
Additional paid-in capital		2,368,460			1,369,913
Cumulative earnings		399,647			413,282
Accumulated other comprehensive income (loss)		1,038			(3,169	)
Cumulative distributions		(800,593	)		(675,767	)

Total beneficiaries’ equity		1,969,496			1,104,864

Total liabilities, minority interest, and beneficiaries’ equity	$	5,651,622		$	2,805,745

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

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BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except share and per share information)

	For the three-month periods ended September 30,						For the nine-month periods ended September 30,

	2006			2005			2006			2005

Revenue:
Rents	$	149,374		$	80,288		$	437,913		$	241,207
Tenant reimbursements		23,802			11,710			58,203			34,716
Other		8,418			3,029			17,456			11,813

Total revenue		181,594			95,027			513,572			287,736
Operating Expenses:
Property operating expenses		53,465			26,664			149,828			83,679
Real estate taxes		18,220			9,744			51,203			28,763
Depreciation and amortization		68,277			28,230			199,275			83,983
Administrative expenses		6,490			4,486			22,704			13,616

Total operating expenses		146,452			69,124			423,010			210,041

Operating income		35,142			25,903			90,562			77,695
Other Income (Expense):
Interest income		2,479			304			7,702			966
Interest expense		(45,402	)		(17,762	)		(128,869	)		(53,366	)
Equity in income of real estate ventures		370			745			1,798			2,296
Net gain on sale of interests in real estate		—			4,640			2,608			4,640
Gain on termination of purchase contract		3,147			—			3,147			—

Income (loss) before minority interest		(4,264	)		13,830			(23,052	)		32,231
Minority interest - partners’ share of consolidated real estate ventures		279			(41	)		560			(213	)
Minority interest attributable to continuing operations - LP units		276			(401	)		1,267			(908	)

Income (loss) from continuing operations		(3,709	)		13,388			(21,225	)		31,110
Discontinued operations:
Income (loss) from discontinued operations		1,150			294			5,018			941
Net gain on disposition of discontinued operations		5,188			2,196			5,188			2,196
Minority interest - partners’ share of consolidated real estate ventures		(1,857	)		—			(2,239	)		—
Minority interest attributable to discontinued operations - LP units		(208	)		(84	)		(376	)		(108	)

Income (loss) from discontinued operations		4,273			2,406			7,591			3,029

Net income (loss)		564			15,794			(13,634	)		34,139
Income allocated to Preferred Shares		(1,998	)		(1,998	)		(5,994	)		(5,994	)

Income (loss) allocated to Common Shares	$	(1,434	)	$	13,796		$	(19,628	)	$	28,145

Basic earnings per Common Share:
Continuing operations	$	(0.06	)	$	0.20		$	(0.30	)	$	0.45
Discontinued operations		0.05			0.04			0.08			0.05

	$	(0.02	)	$	0.25		$	(0.22	)	$	0.50

Diluted earnings per Common Share:
Continuing operations	$	(0.06	)	$	0.20		$	(0.30	)	$	0.45
Discontinued operations		0.05			0.04			0.08			0.05

	$	(0.02	)	$	0.24		$	(0.22	)	$	0.50

Dividends declared per common share	$	0.44		$	0.44		$	1.32		$	1.32
Basic weighted average shares outstanding		90,042,270			56,071,973			89,963,541			55,734,114
Diluted weighted average shares outstanding		90,042,270			56,372,013			89,963,541			55,968,657

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

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BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

(unaudited, in thousands)

	For the three-month periods ended September 30,						For the nine-month periods ended September 30,

	2006			2005			2006			2005

Net income (loss)	$	564		$	15,794		$	(13,634	)	$	34,139
Other comprehensive income:
Unrealized gain (loss) on derivative financial instruments		(1,070	)		—			1,293			—
Less: minority interest - consolidated real estate venture partner’s share of unrealized gain (loss) on derivative financial instruments		525			—			(284	)		—
Realized gain on derivative financial instruments		—			—			3,266			—
Reclassification of realized (gains)/losses on derivative financial instruments to operations, net		9			113			113			340
Unrealized gain (loss) on available-for-sale securities		595			(257	)		(181	)		(20	)

Total other comprehensive income		59			(144	)		4,207			320

Comprehensive income (loss)	$	623		$	15,650		$	(9,427	)	$	34,459

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

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

	Nine-month periods ended September 30,

	2006			2005

Cash flows from operating activities:
Net income (loss)	$	(13,634	)	$	34,139
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation		143,893			63,588
Amortization:
Deferred financing costs		2,063			1,939
Deferred leasing costs		8,394			6,425
Acquired above (below) market leases, net		(6,067	)		(1,050	)
Assumed lease intangibles		50,471			14,854
Deferred compensation costs		2,332			1,618
Straight-line rent		(23,486	)		(10,852	)
Provision for doubtful accounts		2,970			600
Real estate venture income in excess of distributions		(162	)		(697	)
Net gain on sale of interests in real estate		(7,797	)		(6,820	)
Gain on termination of purchase contract		(3,147	)		—
Minority interest		788			1,229
Changes in assets and liabilities:
Accounts receivable		2,515			4,469
Other assets		(13,185	)		(12,837	)
Accounts payable and accrued expenses		36,192			5,861
Tenant security deposits and deferred rents		30,635			628
Other liabilities		904			672

Net cash from operating activities		213,679			103,766
Cash flows from investing activities:
Acquisition of Prentiss		(935,856	)		—
Acquisition of properties		(169,462	)		(92,674	)
Sales of properties, net		258,931			29,428
Gain on termination of purchase contract		3,147			—
Capital expenditures		(180,771	)		(136,801	)
Investment in marketable securities		183			404
Investment in unconsolidated Real Estate Ventures		(643	)		(258	)
Escrowed cash		(492	)		1,806
Cash distributions from unconsolidated Real Estate Ventures in excess of equity in income		2,444			390
Leasing costs		(30,524	)		(8,445	)

Net cash from investing activities		(1,053,043	)		(206,150	)
Cash flows from financing activities:
Proceeds from Credit Facility borrowings		462,000			250,000
Repayments of Credit Facility borrowings		(302,002	)		(62,000	)
Proceeds from mortgage notes payable		20,520			—
Repayments of mortgage notes payable		(29,327	)		(13,565	)
Proceeds from term loan		750,000			—
Repayments of term loan		(750,000	)		—
Proceeds from unsecured notes		847,818			—
Proceeds from forward starting swap termination		3,266			—
Repayments on employee stock loans		60			50
Debt financing costs		(6,991	)		(234	)
Exercise of stock options		9,120			19,283
Repurchases of Common Shares and minority interest units		(34,481	)		(240	)
Distributions paid to shareholders		(110,094	)		(79,752	)
Distributions to minority interest holders		(11,161	)		(3,164	)

Net cash from financing activities		848,728			110,378

Increase (decrease) in cash and cash equivalents		9,364			7,994
Cash and cash equivalents at beginning of period		7,174			15,346

Cash and cash equivalents at end of period	$	16,538		$	23,340

Supplemental disclosure:
Cash paid for interest, net of capitalized interest	$	99,987		$	27,374
Supplemental disclosure of non-cash activity:
Common shares issued in the Prentiss acquisition		1,021,269			—
Operating Partnership units issued in the Prentiss acquisition		64,103			—
Operating Partnership units issued in propety acquistions		13,819			—
Mortgage notes payable assumed in the Prentiss acquisition		532,607			—
Secured note payable assumed in the Prentiss acquisition		186,116			—

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

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

1.	THE COMPANY

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, or REIT, active in acquiring, developing, redeveloping, leasing and managing office and industrial properties. As of September 30, 2006, the Company owned 277 office properties, 23 industrial facilities and one mixed-use property (collectively, the “Properties”) containing an aggregate of approximately 30.0 million net rentable square feet. As of September 30, 2006, the Company owned economic interests in 11 unconsolidated real estate ventures that contain approximately 2.7 million net rentable square feet and in four consolidated real estate ventures that own 15 office properties containing approximately 1.5 million net rentable square feet (collectively, the “Real Estate Ventures”). The Properties and the properties owned by the Real Estate Ventures are located in or in areas surrounding Philadelphia, Pennsylvania; Wilmington, Delaware; Austin, Texas; Dallas, Texas; Richmond, Virginia; Northern and Southern California; Southern and Central New Jersey; and Northern Virginia.

As more fully described in Note 3, on January 5, 2006, the Company acquired Prentiss Properties Trust (“Prentiss”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) that the Company entered into with Prentiss on October 3, 2005.

The Company owns its assets 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 September 30, 2006, owned a 95.4% interest in the Operating Partnership. The Company conducts its third-party real estate management services business primarily through four management companies (collectively, the “Management Companies”), Brandywine Realty Services Corporation (“BRSCO”), BTRS, Inc., Brandywine Properties I Limited, Inc. (“BPI”), and Brandywine Properties Management, L.P. (“BPM”). BRSCO, BTRS, Inc. and BPI are taxable REIT subsidiaries. The Operating Partnership owns a 95% interest in BRSCO and the remaining 5% interest is owned by a partnership comprised of a current executive and former executive of the Company, each of whom is a member of the Company’s Board of Trustees. The Operating Partnership owns, directly and indirectly, 100% of each of BTRS, Inc., BPI and BPM.

As of September 30, 2006, the Management Companies were managing properties containing an aggregate of approximately 43.1 million net rentable square feet, of which approximately 30.0 million net rentable square feet related to Properties owned by the Company and approximately 13.1 million net rentable square feet related to properties owned by third parties and certain Real Estate Ventures.

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, 2005, which has been derived from audited data, pursuant to the rules and regulations of the U.S. 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 of America 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) for a fair statement of the financial position of the Company as of September 30, 2006, the results of its operations for the three- and nine-month periods ended September 30, 2006 and 2005 and its cash flows for the nine-month periods ended September 30, 2006 and 2005 have been included. The results of operations for such interim periods are not necessarily indicative of the results for a full year. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and footnotes included in the Company’s 2005 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to the current period presentation.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Principles of Consolidation

The accompanying consolidated financial statements include all accounts of the Company, and its majority-owned and/or controlled subsidiaries. The portion of these entities not owned by the Company is presented as minority interest as of and during the periods consolidated. All intercompany accounts and transactions have been eliminated in consolidation.

When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a variable interest entity (“VIE”), and if the Company is deemed to be the primary beneficiary, in accordance with FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”). The Company consolidates (i) entities that are VIEs where the Company is deemed to be the primary beneficiary and (ii) entities that are non-VIEs which the Company controls. Entities that the Company accounts for under the equity method (i.e., at cost, increased or decreased by the Company’s share of earnings or losses, less distributions) include (i) entities that are VIEs where the Company is not deemed to be the primary beneficiary and (ii) entities that are non-VIEs which the Company does not control, but over which the Company has the ability to exercise significant influence. The Company will reconsider its determination of whether an entity is a VIE and who the primary beneficiary is if certain events occur that are likely to cause a change in the original determinations.

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. Management makes significant estimates regarding revenue, impairment of long-lived assets, allowance for doubtful accounts and deferred costs.

Operating Properties

Operating properties are carried at historical cost less accumulated depreciation and impairment losses. The cost of operating properties reflects their purchase price or development cost. Costs incurred for the acquisition and renovation of an operating property are capitalized to the Company’s investment in that property. Ordinary repairs and maintenance are expensed as incurred. Major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts.

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, required us to separately report as discontinued operations the historical operating results attributable to operating properties sold or held for sale and the applicable gain or loss on the disposition of the properties. The consolidated statements of operations for prior periods are also adjusted to conform to this classification. In all cases, gains and losses are recognized using the full accrual method of accounting. Gains relating to transactions which do not meet the requirements of the full accrual method of accounting are deferred and recognized when the full accrual method of accounting criteria are met.

Purchase Price Allocation

The Company allocates the purchase price of properties to net tangible and identified intangible assets acquired based on fair values. Above-market and below-market in-place lease values for acquired properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) the Company’s estimate of the fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. Capitalized above-market lease values are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. Capitalized below-market lease values are amortized as an increase to rental income over the remaining non-cancelable terms of the respective leases, including any fixed-rate renewal periods.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Other intangible assets also include amounts representing the value of tenant relationships and in-place leases based on the Company’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. This intangible asset is amortized to expense over the remaining term of the respective leases. Company estimates of value are made using methods similar to those used by independent appraisers or by using independent appraisals. Factors considered by the Company in this analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, which primarily range from three to twelve months. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. The Company also uses the information obtained as a result of its pre-acquisition due diligence as part of its consideration of FIN 47, and when necessary, will record a conditional asset retirement obligation as part of its purchase price.

Characteristics considered by the Company in allocating value to its tenant relationships include the nature and extent of the Company’s business relationship with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors. The value of tenant relationship intangibles is amortized over the remaining initial lease term and expected renewals, but in no event longer than the remaining depreciable life of the building. The value of in-place leases is amortized over the remaining non-cancelable term of the respective leases and any fixed-rate renewal periods.

In the event that a tenant terminates its lease, the unamortized portion of each intangible, including market rate adjustments, in-place lease values and tenant relationship values, would be charged to expense.

Revenue Recognition and Accounts Receivable

Rental revenue is recognized on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases, which averages minimum rents over the terms of the leases. The cumulative difference between lease revenue recognized under this method and contractual lease payment terms is recorded as “accrued rent receivable” on the accompanying balance sheets. The straight-line rent adjustment increased revenue by approximately $7.5 million and $23.0 million for the three- and nine-month periods ended September 30, 2006 and approximately $4.3 million and $10.2 million for the three- and nine-month periods ended September 30, 2005. Tenant receivables and accrued rent receivables are carried net of the allowances for doubtful accounts of $8.8 million as of September 30, 2006 and $4.9 million as of December 31, 2005. The allowance is based on management’s evaluation of the collectability of receivables, taking into account tenant specific considerations as well as the overall credit of the tenant portfolio. The leases also typically provide for tenant reimbursement of a portion of common area maintenance and other operating expenses. Other income is recorded when earned and is primarily comprised of termination fees received from tenants, bankruptcy settlement fees, third party leasing commissions, and third party management fees. Other income includes net termination fees of $4.7 million and $6.5 million for the three- and nine-month periods ended September 30, 2006, and $1.0 million and $5.9 million for the three- and nine-month periods ended September 30, 2005. Deferred rents represent rental revenue received from tenants prior to their due dates.

Stock-based Compensation Plans

The Company maintains shareholder-approved equity incentive plans. The Compensation Committee of the Company’s Board of Trustees authorizes awards under these plans. In May 2005, the Company’s shareholders approved an amendment to the Amended and Restated 1997 Long-Term Incentive Plan (the “1997 Plan”) that increased the number of common shares that may be issued or subject to award under the 1997 Plan from 5,000,000 to 6,600,000. The May 2005 amendment provided that 500,000 of the shares under the 1997 Plan are available solely for awards under options and share appreciation rights that have an exercise or strike price not less than the market price of the common shares on the date of award, and the remaining 6,100,000 shares are available for any type of award under the 1997 Plan. Incentive stock options may not be granted at exercise prices less than fair value of the shares at the time of grant. All options awarded by the Company to date are non-qualified stock options that generally vested over two to five years. As of September 30, 2006, 2.6 million shares remained available for future award under the 1997 Plan. As part of the Company’s January 2006 acquisition of Prentiss, the Company assumed Prentiss’ three share incentive plans. As of September 30, 2006, approximately 1,685,676 common shares remain available for issuance or subject to award under the assumed Prentiss share incentive plans; however, any such issuances or awards under the assumed Prentiss plan may be made only to those Company employees who had been employed by Prentiss immediately prior to the Company’s acquisition of Prentiss or to those Company employees hired after the Prentiss acquisition.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

On January 1, 2002, the Company began to expense the fair value of stock-based compensation awards granted subsequent to January 1, 2002, over the applicable vesting period as a component of general and administrative expenses in the Company s consolidated statements of income. In the three- and nine-month periods ended September 30, 2006 the Company recognized $887,000 and $2,332,000 of stock-based compensation expense. In the three- and nine-month periods ended September 30, 2005 the Company recognized $684,000 and $2,072,000 of stock-based compensation expense.

For stock-based compensation awards granted prior to 2002, the Company accounted for stock options issued under the recognition and measurement provisions of APB No.25, Accounting for Stock Issued to Employees and Related Interpretations. Under this method, no stock-based compensation expense was recognized. Because stock options granted prior to 2002 vested over a three-year term, the resulting compensation cost based on the fair value of the awards on the date of grant, on a pro forma basis, would have been expensed in 2003, 2004, and 2005. Accordingly, had the Company applied the fair value recognition provisions of SFAS 123, the net income applicable to common shares would remain the same on a pro forma basis for the three- and nine-month periods ended September 30, 2006, and would have been reduced by $124,000 and $380,000 for the three- and nine-month periods ended September 30, 2005, with no change in basic or diluted net income per share.

Accounting for Derivative Instruments and Hedging Activities

The Company accounts for its derivative instruments and hedging activities under SFAS No. 133 (“SFAS 133”), Accounting for Derivative Instruments and Hedging Activities, and its corresponding amendments under SFAS No. 138, Accounting for Certain Derivative Instruments and Hedging Activities – An Amendment of SFAS 133. 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- and nine-month periods ended September 30, 2006 and 2005, the Company was not party to any derivative contract designated as a fair value hedge.

The Company actively manages its ratio of fixed-to-floating rate debt. To manage its fixed and floating rate debt in a cost-effective manner, the Company, from time to time, enters into interest rate swap agreements as cash flow hedges, under which it agrees to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts.

Income Taxes

The Company and its subsidiary REITs elect to be taxed as real estate investment trusts under Sections 856-860 of the Internal Revenue Code. In order to maintain its qualification as a REIT, the Company is required, among other things, to distribute at least 90% of its REIT taxable income to its shareholders and meet certain tests regarding the nature of its income and assets. As a REIT, the Company is not subject to federal income tax with respect to that portion of its income which meets certain criteria and is distributed annually to the shareholders. Accordingly, no provision for federal income taxes is included in the accompanying consolidated financial statements. The Company plans to continue to operate so that it meets the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. If the Company were to fail to meet these requirements, the Company would be subject to federal income tax. The Company is subject to certain state and local taxes. Provision for such taxes has been included in general and administrative expenses in the Company’s consolidated statements of operations.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value. This statement is effective in fiscal years beginning after November 15, 2007. We believe that the adoption of this standard on January 1, 2008 will not have a material effect on our consolidated financial statements.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB 108”), which becomes effective beginning on January 1, 2007. SAB 108 provides guidance on the consideration of the effects of prior period misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 provides for the quantification of the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. If a misstatement is material to the current year financial statements, the prior year financial statements should also be corrected, even though such revision was, and continues to be, immaterial to the prior year financial statements. Correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended. Such correction should be made in the current period filings. The Company is currently evaluating the impact of adopting SAB 108.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on description, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 becomes effective on January 1, 2007. The Company is currently evaluating the impact of adopting FIN 48 but does not expect it to have a material impact on the consolidated financial statements.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an Amendment of SFAS No. 140. SFAS No. 156 requires separate recognition of a servicing asset and a servicing liability each time an entity undertakes an obligation to service a financial asset by entering into a service contract. This statement also requires that servicing assets and liabilities be initially recorded at fair value and subsequently adjusted to the fair value at the end of each reporting period. This statement is effective in fiscal years beginning after September 15, 2006. The Company does not expect the adoption of this standard on January 1, 2007 to have a material effect on the consolidated financial statements.

In February 2006, the FASB issued SFAS No.155, Accounting for Certain Hybrid Financial Instruments – An Amendment of FASB No. 133 and 140. The purpose of SFAS No.155 is to simplify the accounting for certain hybrid financial instruments by permitting fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS No. 155 also eliminates the restriction on passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year beginning after September 15, 2006. The Company does not expect the adoption of this standard on January 1, 2007 to have a material effect on the consolidated financial statements.

In October 2005, the FASB issued Staff Position No. 13-1 “Accounting for Rental Costs Incurred during a Construction Period” (“FSP FAS 13-1”). FSP FAS 13-1 addresses the accounting for rental costs associated with operating leases that are incurred during the construction period. FSP FAS 13-1 makes no distinction between the right to use a leased asset during the construction period and the right to use that asset after the construction period. Therefore, rental costs associated with ground or building operating leases that are incurred during a construction period shall be recognized as rental expense, allocated over the lease term in accordance with SFAS No. 13 and Technical Bulletin 85-3. The terms of FSP FAS 13-1 are not applicable to lessees that account for the sale or rental of real estate projects in accordance with SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects.” FSP FAS 13-1 was effective for the first reporting period beginning after December 15, 2005. Retrospective application in accordance with SFAS 154 is permitted but not required. The adoption of FSP FAS 13-1 did not have a material effect on the consolidated financial statements of the Company.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

In September 2005, the Emerging Issues Task Force issued EITF 04-05, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-05”). The scope of EITF 04-05 is limited to limited partnerships or similar entities that are not variable interest entities under FIN 46R. The Task Force reached a consensus that the general partners in a limited partnership (or similar entity) are presumed to control the entity regardless of the level of their ownership and, accordingly, may be required to consolidate the entity. This presumption may be overcome if the agreements provide the limited partners with either (a) the substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause or (b) substantive participating rights. If it is deemed that the limited partners’ rights overcome the presumption of control by a general partner of the limited partnership, the general partner shall account for its investment in the limited partnership using the equity method of accounting. EITF 04-05 was effective immediately for all arrangements created or modified after September 29, 2005. For all other arrangements, application of EITF 04-05 is required effective for the first reporting period in fiscal years beginning after December 15, 2005 (i.e., effective January 1, 2006 for the Company) using either a cumulative-effect-type adjustment or using a retrospective application. The adoption of EITF 04-05 did not have an effect on the Company’s consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). SFAS 154 replaces APB No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements” and establishes retrospective application as the required method for reporting a change in accounting principle. SFAS 154 provides guidance for determining whether a retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company adopted SFAS 154 on January 1, 2006 and this adoption had no effect on the Company’s financial position and results of operations.

In March 2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143, Asset Retirement Obligations. FIN 47 provides clarification of the term “conditional asset retirement obligation” as used in SFAS 143, defined as a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the company. Under this standard, a company must record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47 became effective in the Company’s fiscal quarter ended December 31, 2005. The Company adopted FIN 47 as required effective December 31, 2005 and the initial application of FIN 47 did not have a material effect on the consolidated financial statements of the Company.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) is an amendment of SFAS 123 and requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is required to be measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) also contains additional minimum disclosures requirements including, but not limited to, the valuation method and assumptions used, amounts of compensation capitalized and modifications made. The effective date of SFAS 123(R) was subsequently amended by the SEC to be as of the beginning of the first interim or annual reporting period of the first fiscal year that begins on or after December 15, 2005, and allows several different methods of transition. The Company adopted SFAS 123(R) using the prospective method on January 1, 2006. This adoption did not have a material effect on our consolidated financial statements.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

3.	REAL ESTATE INVESTMENTS

As of September 30, 2006 and December 31, 2005, the carrying value of the Company’s operating properties was as follows (amounts in thousands):

	September 30, 2006			December 31, 2005

Land	$	764,916		$	456,736
Building and improvements		3,733,658			1,951,252
Tenant improvements		373,404			152,073

		4,871,978			2,560,061
Less: accumulated depreciation		(499,141	)		(390,333	)

Operating real estate investments, net	$	4,372,837		$	2,169,728

Acquisitions and Dispositions

The Company’s acquisitions are 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.

2006

On January 5, 2006, the Company acquired Prentiss Properties Trust (“Prentiss”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) that the Company entered into with Prentiss on October 3, 2005. In conjunction with the Company’s acquisition of Prentiss, designees of The Prudential Insurance Company of America (“Prudential”) acquired certain of Prentiss’ properties that contain an aggregate of approximately 4.32 million net rentable square feet for a total consideration of approximately $747.7 million. Through its acquisition of Prentiss (and after giving effect to the Prudential acquisition of certain of Prentiss’ properties), the Company acquired a portfolio of 79 office properties (including 13 properties that are owned by consolidated joint ventures and 7 properties that are owned by an unconsolidated joint venture) that contain an aggregate of 14.0 million net rentable square feet. The results of the operations of Prentiss have been included in the Company’s condensed consolidated financial statements since January 5, 2006.

Subsequent to its acquisition of Prentiss and the related sale of certain properties to Prudential, the Company sold eleven of the acquired properties that contain an aggregate of 2.3 million net rentable square feet and one parcel of land containing 10.9 acres.

The Company funded the approximately $1.05 billion cash portion of the merger consideration, related transaction costs and prepayments of approximately $543.3 million in Prentiss mortgage debt at the closing of the merger through (i) a $750 million unsecured term loan that matures on January 4, 2007; (ii) approximately $676.5 million of cash from Prudential’s acquisition of certain of the Prentiss properties; and (iii) approximately $195.0 million through borrowing under a revolving credit facility.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

	At January 5, 2006

Real estate investments
Land - operating	$	282,584
Building and improvements		1,942,728
Tenant improvements		120,610
Construction in progress and land inventory		57,329

Total real estate investments acquired		2,403,251
Rent receivables		6,031
Other assets acquired:
Intangible assets:
In-place leases		187,907
Relationship values		98,382
Above-market leases		26,352

Total intangible assets acquired		312,641
Investment in real estate ventures		66,921
Investment in marketable securities		193,089
Other assets		8,868

Total other assets		581,519

Total assets acquired		2,990,801
Liabilities assumed:
Mortgage notes payable		532,607
Unsecured notes		264,726
Security deposits and deferred rent		6,475
Other liabilities:
Below-market leases		78,911
Other liabilities		43,995

Total other liabilities assumed		122,906
Total liabilities assumed		926,714
Minority interest		104,658

Net assets acquired	$	1,959,429

In the acquisition of Prentiss, each then outstanding Prentiss common share was converted into the right to receive 0.69 of a Brandywine common share and $21.50 in cash (the “Per Share Merger Consideration”) except that 497,884 Prentiss common shares held in the Prentiss Deferred Compensation Plan converted solely into 720,737 Brandywine common shares. In addition, each then outstanding unit (each, a “Prentiss OP Unit”) of limited partnership interest in the Prentiss operating partnership subsidiary was, at the option of the holder, converted into Prentiss Common Shares with the right to receive the Per Share Merger Consideration or 1.3799 Class A Units of the Operating Partnership (“Brandywine Class A Units”). Accordingly, based on 49,375,723 Prentiss common shares outstanding and 139,000 Prentiss OP Units electing to receive merger consideration at closing of the acquisition, the Company issued 34,541,946 Brandywine common shares and paid an aggregate of approximately $1.05 billion in cash to the accounts of the former Prentiss shareholders. Based on 1,572,612 Prentiss OP Units outstanding at closing of the acquisition that did not elect to receive merger consideration, the Operating Partnership issued 2,170,047 Brandywine Class A Units. In addition, options issued by Prentiss that were exercisable for an aggregate of 342,662 Prentiss common shares were converted into options exercisable for an aggregate of 496,037 Brandywine common shares at a weighted average exercise price of $22.00 per share. Through its acquisition of Prentiss the Company also assumed approximately $611.2 million in aggregate principal amount of Prentiss debt.

Each Brandywine Class A Unit that was issued in the merger is subject to redemption at the option of the holder. The Operating Partnership may, at its option, satisfy the redemption either for an amount, per unit, of cash equal to the then market price of one Brandywine common share (based on the prior ten-day trading average) or for one Brandywine common share.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

For purposes of computing the total purchase price reflected in the financial statements, the common shares, operating units, restricted shares and options that were issued in the Prentiss transaction were valued based on the average trading price per Brandywine common share of $29.54. The average trading price was based on the average of the high and low trading prices for each of the two trading days before, the day of and the two trading days after the merger was announced (i.e., September 29, September 30, October 3, October 4 and October 5).

The Company considered the provisions of FIN 47 for these acquisitions and, where necessary, recorded a conditional asset retirement obligation as part of the purchase price. The aggregate asset retirement recorded in connection with the Prentiss acquisition was approximately $2.7 million.

Pro forma information relating to the acquisition of Prentiss is presented below as if Prentiss was acquired and the related financing transactions occurred on January 1, 2005. These pro forma results are not necessarily indicative of the results which actually would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods (in thousands, except per share amounts):

	Nine-month periods ended September 30,

	2006			2005

	(unaudited)
Pro forma revenue	$	516,976		$	485,473
Pro forma loss from continuing operations		(20,876	)		(13,160	)
Pro forma loss allocated to common shares		(19,279	)		(16,125	)
Earnings per common share from continuing operations
Basic — as reported	$	(0.30	)	$	0.45

Basic — as pro forma	$	(0.30	)	$	(0.21	)

Diluted - as reported	$	(0.30	)	$	0.45

Diluted - as pro forma	$	(0.30	)	$	(0.21	)

Earnings per common share
Basic — as reported	$	(0.22	)	$	0.51

Basic — as pro forma	$	(0.21	)	$	(0.18	)

Diluted - as reported	$	(0.22	)	$	0.51

Diluted - as pro forma	$	(0.21	)	$	(0.18	)

In addition to the acquisition activity related to Prentiss, during the nine-month period ended September 30, 2006, the Company acquired four office properties containing 681,688 net rentable square feet and 76.6 acres of developable land for an aggregate purchase price of $180.6 million. In addition to sales of assets acquired in the Prentiss merger, the Company sold two office properties containing 216,554 net rentable square feet and two parcels of land containing 6.8 acres for an aggregate $43.5 million, realizing net gains totaling $6.0 million.

In addition to the acquisition activity related to Prentiss, during the three-month period ended September 30, 2006, the Company acquired two office properties containing 443,581 net rentable square feet for $133.2 million. In addition to sales of assets acquired in the Prentiss merger, the Company sold two office properties containing 216,554 net rentable square feet for $38.6 million, realizing net gains totaling $3.4 million.

2005

During the nine-month period ended September 30, 2005, the Company acquired one industrial property containing 385,884 net rentable square feet, two office properties containing 283,511 net rentable square feet and 36.4 acres of developable land for an aggregate purchase price of $94.5 million. The Company sold one industrial property containing 385,884 net rentable square feet and three parcels of land containing 18.0 acres for an aggregate $30.2 million, realizing net gains totaling $6.8 million.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

During the three-month period ended September 30, 2005, the Company acquired two office properties containing 283,511 net rentable square feet and 8.0 acres of developable land for an aggregate purchase price of $52.7 million. The Company sold one industrial property containing 385,884 net rentable square feet and three parcels of land containing 18.0 acres for an aggregate $30.2 million, realizing net gains totaling $6.8 million.

4.	INVESTMENT IN UNCONSOLIDATED VENTURES

As of September 30, 2006, the Company had an aggregate investment of approximately $76.0 million in 11 unconsolidated Real Estate Ventures (net of returns of investment). The Company or Prentiss 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 15 office buildings that contain an aggregate of approximately 2.7 million net rentable square feet, one Real Estate Venture developed a hotel property that contains 137 rooms and one Real Estate Venture is developing an office property located in Albemarle County, VA.

The Company also has investments in four real estate ventures that are variable interest entities under FIN No. 46R and of which the Company is the primary beneficiary.

The Company accounts for its non-consolidating interests in its Real Estate Ventures using the equity method. Non-consolidating ownership interests range from 6% to 50%, subject to specified priority allocations in certain of the Real Estate Ventures. The Company’s investments, initially recorded at cost, are subsequently adjusted for the Company’s share of the Real Estate Ventures’ income or loss and cash contributions and distributions.

The amounts reflected below (except for Company’s share of equity and income) are based on the historical financial information of the individual Real Estate Ventures. One of the Real Estate Ventures, acquired in connection with the Prentiss acquisition, had a negative equity balance on a historical cost basis as a result of historical depreciation and distribution of excess financing proceeds. The Company reflected its acquisition of this Real Estate Venture interest at its relative fair value as of the date of the purchase of Prentiss. The difference between allocated cost and the underlying equity in the net assets of the investee is accounted for as if the entity were consolidated (i.e., allocated to the Company’s relative share of assets and liabilities with an adjustment to recognize equity in earnings for the appropriate additional depreciation/amortization).

The following is a summary of the financial position of the Real Estate Ventures as of September 30, 2006 and December 31, 2005 (in thousands):

	September 30, 2006		December 31, 2005

Operating property, net of accumulated depreciation	$	360,194	$	286,601
Other assets		50,739		32,267
Liabilities		28,009		24,855
Debt		328,388		205,018
Equity		54,536		88,995
Company’s investment in real estate ventures		76,032		13,331

In addition to its $76.0 million investment in the 11 unconsolidated Real Estate Ventures, the Company also has an investment of $2.3 million in Prentiss Properties Capital Trust I and Prentiss Properties Capital Trust II that is accounted for using the cost method of accounting. The investment, which is included in investment in unconsolidated ventures at September 30, 2006, was acquired by the Company as part of the Prentiss acquisition on January 5, 2006.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

The following is a summary of results of operations of the Real Estate Ventures for the three- and nine-month periods ended September 30, 2006 and 2005 (in thousands):

	Three-month periods ended September 30,				Nine-month periods ended September 30,

	2006		2005		2006		2005

Revenue	$	19,189	$	14,800	$	57,623	$	46,938
Operating expenses		7,696		7,123		22,433		24,573
Interest expense, net		5,282		3,238		15,356		8,844
Depreciation and amortization		4,826		2,255		14,998		6,697
Net income		1,385		2,184		4,836		6,824
Company’s share of income (Company basis)		370		745		1,798		2,296

As of September 30, 2006, the Company had guaranteed repayment of approximately $0.6 million of loans for the Real Estate Ventures. The Company also provides customary environmental indemnities in connection with construction and permanent financing both for its own account and on behalf of the Real Estate Ventures.

5.	INTANGIBLE ASSETS

As of September 30, 2006 and December 31, 2005, the Company’s intangible assets were comprised of the following (in thousands):

	September 30, 2006

	Total Cost		Accumulated Amortization			Deferred Costs, net

In-place lease value	$	231,177	$	(48,032	)	$	183,145
Tenant relationship value		133,062		(16,518	)		116,544
Above market leases acquired		38,177		(12,747	)		25,430

Total	$	402,416	$	(77,297	)	$	325,119

	December 31, 2005

	Total Cost		Accumulated Amortization			Deferred Costs, net

In-place lease value	$	47,965	$	(12,575	)	$	35,390
Tenant relationship value		37,845		(5,606	)		32,239
Above market leases acquired		14,404		(3,936	)		10,468

Total	$	100,214	$	(22,117	)	$	78,097

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

6.	MORTGAGE NOTES PAYABLE

The following table sets forth information regarding the Company’s mortgage indebtedness outstanding at September 30, 2006 and December 31, 2005 (in thousands):

Property / Location	September 30, 2006		December 31, 2005		Effective Interest Rate			Maturity Date

111 Arrandale Blvd	$	—	$	1,043	8.65	%		Aug-06
429 Creamery Way		—		2,927	8.30	%		Sep-06
Interstate Center		608		766	6.19	%	(b)	Mar-07
440 & 442 Creamery Way		5,462		5,581	8.55	%		Jul-07
Norriton Office Center		5,127		5,191	8.50	%		Oct-07
481 John Young Way		2,311		2,360	8.40	%		Nov-07
400 Commerce Drive		11,849		11,989	7.12	%		Jun-08
Two Logan Square		71,636		72,468	5.78	%	(a)	Jul-09
The Bluffs		10,700		—	6.00	%	(a)	Jul-09
Pacific Ridge		14,500		—	6.00	%	(a)	Aug-09
Pacific View/Camino		26,000		—	6.00	%	(a)	Aug-09
Computer Associates Building		31,000		—	6.00	%	(a)	Aug-09
200 Commerce Drive		5,860		5,911	7.12	%	(a)	Jan-10
Presidents Plaza		30,900		—	6.00	%	(a)	May-10
1333 Broadway		24,521		—	5.18	%	(a)	May-10
The Ordway		46,309		—	7.95	%	(a)	Aug-10
World Savings Center		27,583		—	7.91	%	(a)	Nov-10
Plymouth Meeting Exec.		44,253		44,687	7.00	%	(a)	Dec-10
Four Tower Bridge		10,661		10,763	6.62	%		Feb-11
Arboretum I, II, III & V		22,917		23,238	7.59	%		Jul-11
Midlantic Drive/Lenox Drive/DCC I		62,930		63,803	8.05	%		Oct-11
Research Office Center		42,314		—	7.64	%	(a)	Oct-11
Concord Airport Plaza		38,601		—	7.20	%	(a)	Jan-12
Six Tower Bridge		14,830		15,083	7.79	%		Aug-12
Newtown Square/Berwyn Park/Libertyview		63,576		64,429	7.25	%		May-13
Coppell Associates		3,794		—	6.89	%		Dec-13
Southpoint III		5,031		5,431	7.75	%		Apr-14
Tysons Corner		100,000		—	4.84	%	(a)	Aug-15
Coppell Associates		16,600		—	5.75	%		Mar-16
Grande A		59,816		61,092	7.48	%		Jul-27
Grande A		—		11,456	—			Jul-27
Grande A		—		1,551	—			Jul-27
Grande B		77,925		79,036	7.48	%		Jul-27

Principal balance outstanding		877,614		488,805
Plus: unamortized fixed-rate debt premiums		15,321		5,972

Total mortgage indebtedness	$	892,935	$	494,777

(a)	Loans were assumed upon acquisition of the related property. Interest rates presented above reflect the market rate at the time of acquisition.

(b)	For loans that bear interest at a variable rate, the rates in effect at September 30, 2006 have been presented.

During the three-month periods ended September 30, 2006 and 2005, the Company’s weighted-average interest rate on its mortgage notes payable was 6.16% and 7.21%, respectively.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

7.	UNSECURED NOTES

The following table sets forth information regarding the Company’s unsecured notes outstanding (in thousands):

Year of Maturity	September 30, 2006			December 31, 2005			Maturity	Stated Interest Rate		Effective Interest Rate

2008		113,000			113,000		Dec-08	4.34	%	4.34	%	(a)
2009		300,000			—		Apr-09	Libor + 0.45	%	5.41	%	(a)
2009		275,000			275,000		Nov-09	4.50	%	4.62	%	(a)
2010		300,000			300,000		Dec-10	5.625	%	5.61	%	(a)
2012		300,000			—		Apr-12	5.75	%	5.77	%	(a)
2014		250,000			250,000		Nov-14	5.40	%	5.53	%	(a)
2016		250,000			—		Apr-16	6.00	%	5.95	%	(a)
2035		27,062			—		Mar-35	Libor + 1.25	%	6.57	%
2035		25,774			—		Apr-35	Libor + 1.25	%	6.57	%
2035		25,774			—		Jul-35	Libor + 1.25	%	6.57	%

Total face amount	$	1,866,610		$	938,000
Less: unamortized discounts		(3,422	)		(1,393	)

Total unsecured notes	$	1,863,188		$	936,607

(a)	Rates include the effect of amortization related to discounts and costs related to settlement of treasury lock agreements.

On March 28, 2006, the Operating Partnership consummated the public offering of (1) $300,000,000 aggregate principal amount of its unsecured floating rate notes due 2009 (the “2009 Notes”), (2) $300,000,000 aggregate principal amount of its 5.75% notes due 2012 (the “2012 Notes”) and (3) $250,000,000 aggregate principal amount of its 6.00% notes due 2016 (the “2016 Notes”). The Company guaranteed the payment of principal and interest on the 2009 Notes, the 2012 Notes and the 2016 Notes.

The indenture relating to the $300 million 2009, $275 million 2009, $300 million 2010, $300 million 2012, $250 million 2014 and $250 million 2016 unsecured notes contains various financial restrictions and requirements, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 40%, (3) a debt service coverage ratio of greater than 1.5 to 1.0, and (4) an unencumbered asset value of not less than 150% of unsecured debt. In addition, the note purchase agreement relating to the 2008 unsecured notes contains covenants that are similar to the above covenants.

8.	SECURED NOTE PAYABLE

As the result of a voluntary defeasance that was completed in the fourth quarter of 2005 by Prentiss, the Company has a secured note payable with a maturity date of February 2007. As of September 30, 2006, the outstanding balance on the secured note payable is $181.8 million. On October 7, 2005, Prentiss exercised the right to complete a voluntary defeasance of its $180.1 million PPREFI portfolio loan collateralized by certain properties acquired by the Company. Pursuant to the defeasance, Prentiss transferred the mortgage loan to an unrelated successor entity along with the proceeds necessary to acquire U.S. Treasury Securities sufficient to cover debt service including both interest and principal payments from the defeasance date through maturity of the loan. The U.S. Treasury Securities of approximately $182.3 million relating to this defeasance are included in investment in marketable securities on the balance sheet. The loan may be repaid at par beginning in November 2006. The Company intends to elect to prepay the loan at par when allowed to do so, at which point the Company expects to receive the proceeds of the sales of the securities in excess of the loan balance.

9.	UNSECURED CREDIT FACILITY

The Company utilizes credit facility borrowings for general business purposes, including the acquisition, development and redevelopment of properties and the repayment of other debt. In December 2005, the Company replaced its then existing credit facility with a $600.0 million unsecured credit facility (the “Credit Facility”) that matures in December 2009, subject to a one-year extension option. Borrowings under the Credit Facility generally bear interest at LIBOR plus a spread over LIBOR ranging from 0.55% to 1.10% based on the Company’s unsecured senior debt rating. The Company has the option to increase the Credit Facility to $800.0 million subject to the absence of any defaults and the Company’s ability to acquire additional commitments from its existing lenders or new lenders. As of September 30, 2006, the Company had $250.0 million of borrowings and $23.4 million of letters of credit outstanding under the Credit Facility, leaving $326.6 million of unused availability. For the nine-month periods ended September 30, 2006 and 2005, the weighted-average interest rate on the Company’s unsecured credit facilities, including the effect of interest rate hedges, was 5.80% during 2006 and 4.40% during 2005.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

The Credit Facility requires the maintenance of certain ratios related to minimum net worth, debt-to-total capitalization and fixed charge coverage and various non-financial covenants.

10.	RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS

Risk Management

In the normal course of its on-going business operations, the Company encounters economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk on its interest-bearing liabilities. Credit risk is the risk of inability or unwillingness of tenants to make contractually required payments. Market risk is the risk of declines in the value of properties due to changes in rental rates, interest rates or other market factors affecting the valuation of properties held by the Company.

Use of Derivative Financial Instruments

The Company’s use of derivative instruments is limited to the utilization of interest rate agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure, as well as to hedge specific transactions. The counterparties to these arrangements are major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company is potentially exposed to credit loss in the event of non-performance by these counterparties. However, because of the high credit ratings of the counterparties, the Company does not anticipate that any of the counterparties will fail to meet these obligations as they come due. The Company does not hedge credit or property value market risks.

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 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.

Concentration of Credit Risk

Concentrations of credit risk arise when a number of tenants related to the Company’s investments or rental operations are engaged in similar business activities, or are located in the same geographic region, or have similar economic features that would cause their inability to meet contractual obligations, including those to the Company, to be similarly affected. The Company regularly monitors its tenant base to assess potential concentrations of credit risk. Management believes the current credit risk portfolio is reasonably well diversified and does not contain any unusual concentration of credit risk. No tenant accounted for 5% or more of the Company’s rents during the three- and nine-month periods ended September 30, 2006 or 2005.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

11.	DISCONTINUED OPERATIONS

For the three- and nine-month periods ended September 30, 2006, income from discontinued operations relates to thirteen properties that the Company sold during 2006, including eleven properties that were acquired by the Company as part of its acquisition of Prentiss. The following table summarizes the revenue and expense information for properties classified as discontinued operations for the three- and nine-month periods ended September 30, 2006 (in thousands):

	Three-month period ended September 30, 2006			Nine-month period ended September 30, 2006

Revenue:
Rents	$	2,445		$	13,660
Tenant reimbursements		288			2,226
Other		—			230

Total revenue		2,733			16,116
Expenses:
Property operating expenses		913			5,048
Real estate taxes		353			2,152
Depreciation & amortization		319			3,545

Total operating expenses		1,585			10,745
Operating income		1,148			5,371
Interest income		2			14
Interest expense		—			(367	)

Income from discontinued operations before gain on
sale of interests in real estate and minority interest		1,150			5,018
Net gain on sale of interests in real estate		5,188			5,188
Minority interest - partners’ share of net gain on sale		(1,757	)		(1,757	)
Minority interest - partners’ share of consolidated real estate venture		(100	)		(482	)
Minority interest attributable to discontinued operations - LP units		(208	)		(376	)

Income from discontinued operations	$	4,273		$	7,591

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

For the three- and nine-month periods ended September 30, 2005, income from discontinued operations relates to three properties that the Company sold during 2005 and 2006. The following table summarizes the revenue and expense information for the property classified as discontinued operations for the three- and nine-month periods ended September 30, 2005 (in thousands):

	Three-month period ended September 30, 2005			Nine-month period ended September 30, 2005

Revenue:
Rents	$	1,134		$	3,231
Tenant reimbursements		115			269
Other		1			13

Total revenue		1,250			3,513
Expenses:
Property operating expenses		486			1,151
Real estate taxes		122			443
Depreciation & amortization		348			978

Total operating expenses		956			2,572
Operating income		294			941
Interest income		—			—
Interest expense		—			—

Income from discontinued operations before gain on sale of interests in real estate and minority interest		294			941
Net gain on sale of interests in real estate		2,196			2,196
Minority interest attributable to discontinued operations - LP units		(84	)		(108	)

Income from discontinued operations	$	2,406		$	3,029

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.

12.	MINORITY INTEREST IN OPERATING PARTNERSHIP AND JOINT VENTURES

The Company is the sole general partner of the Operating Partnership and, as of September 30, 2006, owned a 95.4% interest in the Operating Partnership. On September 18, 2006, the Operating Partnership declared a $0.44 per unit cash distribution to holders of Class A Units totaling $2.0 million. On August 15, 2006 the Company acquired, through the Operating Partnership, two office properties in Northern Virginia. In connection with these acquisitions, the Operating Partnership issued 424,608 Class A Units valued at $32.546 per unit totaling $13.8 million.

As of September 30, 2006 the Company owned interests in four consolidated real estate ventures that own 15 office properties containing approximately 1.5 million net rentable square feet. Minority interest in joint ventures represents the portion of these consolidated real estate ventures not owned by the Company.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

13.	BENEFICIARIES’ EQUITY

Earnings per Share (EPS)

The following table details the number of shares and net income used to calculate basic and diluted earnings per share (in thousands, except share and per share amounts; results may not add due to rounding):

	Three-month periods ended September 30,

	2006						2005

	Basic			Diluted			Basic			Diluted

Income (loss) from continuing operations	$	(3,709	)	$	(3,709	)	$	13,388		$	13,388
Income (loss) from discontinued operations		4,273			4,273			2,406			2,406
Income allocated to Preferred Shares		(1,998	)		(1,998	)		(1,998	)		(1,998	)

Net income available to common shareholders	$	(1,434	)	$	(1,434	)	$	13,796		$	13,796

Weighted-average shares outstanding		90,042,270			90,042,270			56,071,973			56,071,973
Options		—			—			—			300,040

Total weighted-average shares outstanding		90,042,270			90,042,270			56,071,973			56,372,013

Earnings per Common Share:
Continuing operations	$	(0.06	)	$	(0.06	)	$	0.20		$	0.20
Discontinued operations		0.05			0.05			0.04			0.04

	$	(0.02	)	$	(0.02	)	$	0.25		$	0.24

	Nine-month periods ended September 30,

	2006						2005

	Basic			Diluted			Basic			Diluted

Income (loss) from continuing operations	$	(21,225	)	$	(21,225	)	$	31,110		$	31,110
Income (loss) from discontinued operations		7,591			7,591			3,029			3,029
Income allocated to Preferred Shares		(5,994	)		(5,994	)		(5,994	)		(5,994	)

Net income available to common shareholders	$	(19,628	)	$	(19,628	)	$	28,145		$	28,145

Weighted-average shares outstanding		89,963,541			89,963,541			55,734,114			55,734,114
Options		—			—			—			234,543

Total weighted-average shares outstanding		89,963,541			89,963,541			55,734,114			55,968,657

Earnings per Common Share:
Continuing operations	$	(0.30	)	$	(0.30	)	$	0.45		$	0.45
Discontinued operations		0.08			0.08			0.05			0.05

	$	(0.22	)	$	(0.22	)	$	0.50		$	0.50

Securities (including Class A Units of the Operating Partnership) totaling 4,893,669 and 1,945,267 as of September 30, 2006 and 2005, respectively, were excluded from the earnings per share computations because their effect would have been antidilutive.

Common and Preferred Stock

On September 18, 2006, the Company declared a distribution of $0.44 per Common Share, totaling $39.8 million, which was paid on October 16, 2006 to shareholders of record as of October 5, 2006. On September 18, 2006, the Company declared distributions on its Series C Preferred Shares and Series D Preferred Shares to holders of record as of September 30, 2006. These shares are entitled to a preferential return of 7.50% and 7.375%, respectively. Distributions paid on October 16, 2006 to holders of Series C Preferred Shares and Series D Preferred Shares totaled $0.9 million and $1.1 million, respectively.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Common Stock Repurchases

The Company repurchased 1,180,200 shares during the nine month period ending September 30, 2006 for an aggregate consideration of $34.5 million under its share repurchase program. As of September 30, 2006, the Company may purchase an additional 2,319,800 shares under the plan. Repurchases may be made from time to time in the open market or in privately negotiated transactions, subject to market conditions and compliance with legal requirements. The share repurchase program does not contain any time limitation and does not obligate the Company to repurchase any shares. The Company may discontinue the program at any time.

In September 2006, the Company obtained separate authorization to repurchase its common stock in connection with the October 2006 Debt Offering (see Note 18). Concurrently with the October 2006 Debt Offering, pursuant to such separate authorization, 1,829,000 shares were repurchased and retired at an average purchase price of $32.80 per share (approximately $60.0 million in aggregate value). Due to the fact that the Company completed the offering on October 3, 2006, no additional repurchases may be made pursuant to this authorization

Stock Based Compensation

Stock Options

At September 30, 2006, the Company had 1,368,878 options outstanding under its shareholder approved equity incentive plan. No options were unvested as of September 30, 2006 and therefore there is no remaining unrecognized compensation expense associated with these options. Option activity as of September 30, 2006 and changes during the nine months ended September 30, 2006 were as follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000’s)

Outstanding at January 1, 2006	1,276,722		$	26.82	2.15	1,888
Prentiss options converted to Company options as part of the Prentiss acquisition (see Note 3)	496,037			22.00	2.01	4,841
Exercised	(403,881	)		20.25	0.55	3,860
Forfeited	—			—	—	—

Outstanding at September 30, 2006	1,368,878


Vested at September 30, 2006	1,368,878		$	26.44	1.92	7,285

Exercisable at September 30, 2006	1,368,878		$	26.44	1.92	7,285

There were no option awards granted to employees during the three-and nine-month periods ended September 30, 2006 and 2005.

The Company has the ability and intent to issue shares upon stock option exercises. Historically, the Company has issued new common shares to satisfy such exercises.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Restricted Stock Awards

The Company’s primary form of share-based compensation has been restricted shares issued under a shareholder approved equity incentive plan that authorizes various equity-based awards. As of September 30, 2006, 347,377 restricted shares were outstanding and vest over five years from the initial grant date. The remaining compensation expense to be recognized for the 347,377 restricted shares outstanding at September 30, 2006 was approximately $9.8 million. That expense is expected to be recognized over a weighted average remaining vesting period of 1.7 years. For the three-month and nine-month periods ended September 30, 2006, the Company recognized $744,000 and $2,189,000 of compensation expense related to outstanding restricted shares. The following table summarizes the Company’s restricted share activity for the nine-months ended September 30, 2006:

	Shares		Weighted Average Grant Date Fair value

Non-vested at January 1, 2006	315,027		$	25.71
Granted	239,469			30.42
Vested	(160,972	)		26.28
Forfeited	(46,147	)		29.21

Non-vested at September 30, 2006	347,377		$	28.23

Outperformance Program

On August 28, 2006, the Compensation Committee of the Company s Board of Trustees adopted a long-term incentive compensation program (the “outperformance program” ). The Company will make payments (in the form of common shares) to executive-participants under the outperformance program only if total shareholder return exceeds percentage hurdles established under the outperformance program. The dollar value of any payments will depend on the extent to which our performance exceeds the hurdles. The Company established the outperformance program under the 1997 Plan.

The Compensation Committee adopted the outperformance program following extensive analysis of long-term, performance-based, executive compensation programs. In its analysis, the Compensation Committee considered data and recommendations of an independent compensation consulting firm, alternative approaches to compensation both within and outside of the REIT industry and the Company s current short and long-term compensation arrangements. The Compensation Committee believes that the outperformance program will enhance the Company s compensation goals. These goals include: (1) attracting best-in-class talent, (2) retaining our key leaders, (3) providing incentives for future performance and (4) aligning the long-term interests of the Company s executives with the interests of the Company s shareholders.

If the total shareholder return (share price appreciation plus cash dividends) during a three-year measurement period exceeds either of two hurdles (with one hurdle keyed to the greater of a fixed percentage and an industry-based index, and the other hurdle keyed to a fixed percentage), then the Company will fund an incentive compensation pool in accordance with a formula and make pay-outs from the compensation pool in the form of vested and restricted common shares. The awards issued are accounted for in accordance with FASB No. 123R. The fair value of the awards on the date of grant, as adjusted for estimated forfeitures, was approximately $5.6 million and will be amortized into expense over the five-year period beginning on the date of grant using a graded vesting attribution model. The fair value of $5.6 million on the date of grant represents approximately 89.9% of the total that may be awarded; the remaining amount available will be valued when the awards are granted to individuals. For the three-month and nine-month periods ended September 30, 2006, the Company recognized $143,000 of compensation expenses related to the outperformance program.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

14.	SEGMENT INFORMATION

The Company currently manages its portfolio within nine segments: (1) Pennsylvania—West, (2) Pennsylvania—North, (3) New Jersey, (4) Urban, (5) Richmond, Virginia, (6) California—North, (7) California—South, (8) Mid-Atlantic and (9) Southwest. The Pennsylvania—West segment includes properties in Chester, Delaware and Montgomery counties in the Philadelphia suburbs of Pennsylvania. The Pennsylvania—North segment includes properties north of Philadelphia in Berks, Bucks, Cumberland, Dauphin, Lehigh and Montgomery counties. The New Jersey segment includes properties in counties in the southern part of New Jersey including Burlington, Camden and Mercer counties and in Bucks County, Pennsylvania. The Urban segment includes properties in the City of Philadelphia, Pennsylvania and the state of Delaware. The Richmond, Virginia segment includes properties primarily in Albemarle, Chesterfield and Henrico counties, the City of Richmond and Durham, North Carolina. The California—North segment includes properties in the City of Oakland and Concord. The California—South segment includes properties in the City of Carlsbad and San Diego. The Mid-Atlantic segment includes properties in Northern Virginia and the City of Bethesda and Rockville, Maryland. The Southwest segment includes properties in Dallas and Travis counties of Texas. Corporate is responsible for cash and investment management, development of certain real estate properties during the construction period, and certain other general support functions.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Segment information as of and for the three-month periods ended September 30, 2006 and 2005 is as follows (in thousands):

	Pennsylvania– West		Pennsylvania– North		New Jersey		Urban		Richmond, Virginia		California – North		California – South		Mid-Atlantic		Southwest		Corporate		Total

As of September 30, 2006:
Real estate investments, at cost:
Operating properties	$	916,128	$	536,002	$	594,322	$	413,727	$	245,019	$	393,639	$	95,920	$	1,191,798	$	485,423	$	—	$	4,871,978
Construction-in-progress		—		—		—		—		—		—		—		—		—		309,783		309,783
Land held for development		—		—		—		—		—		—		—		—		—		118,181		118,181
As of December 31, 2005:
Real estate investments, at cost:
Operating properties	$	867,089	$	558,803	$	562,832	$	351,407	$	219,930	$	—	$	—	$	—	$	—	$	—	$	2,560,061
Construction-in-progress		—		—		—		—		—		—		—		—		—		273,240		273,240
Land held for development		—		—		—		—		—		—		—		—		—		98,518		98,518
For the three-months ended September 30, 2006:
Total revenue	$	35,143	$	18,702	$	25,999	$	22,185	$	8,509	$	14,655	$	3,035	$	28,774	$	21,462	$	3,130	$	181,594
Property operating expenses and real estate taxes		10,682		9,776		13,028		9,243		3,027		5,726		898		9,347		9,567		391		71,685

Net operating income	$	24,461	$	8,926	$	12,971	$	12,942	$	5,482	$	8,929	$	2,137	$	19,427	$	11,895	$	2,739	$	109,909

For the three-months ended September 30, 2005:
Total revenue	$	26,240	$	18,361	$	24,845	$	16,389	$	7,336	$	—	$	—	$	—	$	—	$	1,856	$	95,027
Property operating expenses and real estate taxes		8,187		8,312		10,541		6,546		2,818		—		—		—		—		4		36,408

Net operating income	$	18,053	$	10,049	$	14,304	$	9,843	$	4,518	$	—	$	—	$	—	$	—	$	1,852	$	58,619

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Segment information as of and for the nine-month periods ended September 30, 2006 and 2005 is as follows (in thousands):

	Pennsylvania – West		Pennsylvania – North		New Jersey		Urban		Richmond, Virginia		California – North		California – South		Mid-Atlantic		Southwest		Corporate		Total

For the nine-months ended September 30, 2006:
Total revenue	$	93,529	$	55,008	$	75,090	$	62,826	$	24,009	$	42,914	$	8,591	$	81,157	$	61,019	$	9,429	$	513,572
Property operating expenses and real estate taxes		30,147		29,553		33,893		26,060		9,045		16,175		2,425		25,179		28,399		155		201,031

Net operating income	$	63,382	$	25,455	$	41,197	$	36,766	$	14,964	$	26,739	$	6,166	$	55,978	$	32,620	$	9,274	$	312,541

For the nine-months ended September 30, 2005:
Total revenue	$	83,160	$	55,014	$	74,724	$	48,814	$	21,653	$	—	$	—	$	—	$	—	$	4,371	$	287,736
Property operating expenses and real estate taxes		28,259		25,125		30,811		19,584		8,515		—		—		—		—		148		112,442

Net operating income	$	54,901	$	29,889	$	43,913	$	29,230	$	13,138	$	—	$	—	$	—	$	—	$	4,223	$	175,294

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

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 net income (in thousands):

	Three-month periods ended September 30,						Nine-month periods ended September 30,

	2006			2005			2006			2005

Consolidated net operating income (loss)	$	109,909		$	58,619		$	312,541		$	175,294
Less:
Interest income		2,479			304			7,702			966
Interest expense		(45,402	)		(17,762	)		(128,869	)		(53,366	)
Depreciation and amortization		(68,277	)		(28,230	)		(199,275	)		(83,983	)
Administrative expenses		(6,490	)		(4,486	)		(22,704	)		(13,616	)
Minority interest - partners’ share of consolidated real estate ventures		279			—			560			—
Minority interest attributable to continuing operations - LP units		276			(442	)		1,267			(1,121	)
Plus:
Equity in income of real estate ventures		370			745			1,798			2,296
Net gain on sales of interests in real estate		—			4,640			2,608			4,640
Gain on termination of purchase contract		3,147			—			3,147			—

Income (loss) from continuing operations		(3,709	)		13,388			(21,225	)		31,110
Income (loss) from discontinued operations		4,273			2,406			7,591			3,029

Net income (loss)	$	564		$	15,794		$	(13,634	)	$	34,139

15.	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 does not expect that the liabilities, if any, that may ultimately result from such legal actions will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

There have been 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 in the State of New Jersey that allege personal injury as a result of the presence of mold. In 2005, one lawsuit was dismissed by way of summary judgment with prejudice. Unspecified damages are sought on the remaining lawsuit. The Company has referred this lawsuit to its environmental insurance carrier and, as of the date of this Form 10-Q, the insurance carrier is tendering a defense to this claim.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state, and local governments. The Company’s compliance with existing laws has not had a material adverse effect on its financial condition and results of operations, and the Company does not believe it will have a material adverse effect in the future. However, the Company cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on its current Properties or on properties that the Company may acquire.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Related Party Transaction

The Company held a fifty percent economic interest in an approximately 141,724 square foot office building located at 101 Paragon Drive, Montvale, New Jersey. The remaining fifty percent interest was held by Donald E. Axinn, one of the Company’s Trustees. Although the Company and Mr. Axinn had each committed to provide one half of the $11 million necessary to repay the mortgage loan secured by this property at the maturity of the loan, in February 2006 an unaffiliated third party entered into an agreement to purchase this property for $18.3 million. As a result of the purchase by an unaffiliated third party during August 2006, the Company recognized a $3.1 million gain on termination of its rights under a 1998 contribution agreement, modified in 2005, that entitled the Company to the 50% interest in the joint venture to operate the property. This gain is shown separately on the Company’s income statement as a gain on termination of purchase contract.

Ground Rent

Future minimum rental payments under the terms of all non-cancelable ground leases under which the Company is the lessee are expensed on a straight-line basis regardless of when payments are due.

Other Commitments or Contingencies

As part of the Company’s September 2004 acquisition of a portfolio of 14 properties (the “TRC Acquisition”), the Operating Partnership agreed to issue to the sellers up to a maximum of $9.7 million of Class A Units of the Operating Partnership if certain of the acquired properties achieve at least 95% occupancy prior to September 21, 2007. At September 30, 2006, the maximum amount payable under this arrangement was $2.4 million.

As part of the TRC acquisition, the Company acquired an interest in Two Logan Square, a 696,477 square foot office building in Philadelphia, Pennsylvania, primarily through a second and third mortgage secured by this property pursuant to which the Company receives substantially all cash flows from the property. The Company currently does not expect to take title to Two Logan Square until, at the earliest, September 2019. In the event that the Company takes title to Two Logan Square upon a foreclosure of its mortgages, the Company has agreed to make a payment to an unaffiliated third party with a residual interest as a fee owner of this property. The amount of the payment would be $0.6 million if the Company must pay a state and local transfer tax upon taking title, or $2.9 million if no transfer tax is payable upon the transfer.

As part of the Prentiss acquisition, TRC acquisition and several of our other acquisitions, the Company has agreed not to sell certain of the acquired properties. In the case of TRC, the Company agreed not to sell certain of the acquired properties for periods ranging from three to 15 years from the acquisition date as follows: 201 Radnor Financial Center, 555 Radnor Financial Center and 300 Delaware Avenue (three years); One Rodney Square and 130/150/170 Radnor Financial Center (10 years); and One Logan Square, Two Logan Square and Radnor Corporate Center (15 years). In the case of the Prentiss acquisition, the Company assumed the obligation of Prentiss not to sell Concord Airport Plaza before March 2018 and 6600 Rockledge before July 2008. The Company also owns 14 other properties that aggregate 1.0 million square feet and has agreed not to sell these properties for periods that expire through 2008. These agreements generally provide that the Company may dispose of the subject Properties only in transactions that qualify as tax-free exchanges under Section 1031 of the Code or in other tax deferred transactions. In the event that the Company sells any of the properties within the applicable restricted period in non-exempt transactions, the Company has agreed to pay significant tax liabilities that would be incurred by the parties who sold the applicable property.

The Company invests in its Properties and regularly incurs capital expenditures in the ordinary course of business to maintain the Properties. The Company believes that such expenditures enhance the competitiveness of the Properties. The Company also enters into construction, utility and service contracts in the ordinary course of business which may extend beyond one year. These contracts include terms that provide for cancellation with insignificant or no cancellation penalties.

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BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

16.	SUBSEQUENT EVENT

On October 4, 2006, the Company’s operating partnership issued $300 million aggregate principal amount of exchangeable guaranteed notes due October 15, 2026 with a coupon of 3.875%. On October 16, 2006, the Company’s operating partnership issued an additional $45 million aggregate principal amount of notes to cover over-allotments.

The Company used the net proceeds from the sale of the notes to repurchase approximately $60 million of outstanding common shares (1,829,000 common shares at a price of $32.80 per share); to repay approximately $180 million under the Company’s revolving credit facility; and to invest the balance in short term securities pending redemption of the Operating Partnership’s $300 million Floating Rate Guaranteed Notes due 2009 on January 2, 2007.

The notes will be exchangeable for cash and common shares at an initial exchange rate of 25.4065 common shares per $1,000 principal amount of notes (equivalent to an initial exchange price of approximately $39.36 per common share). The initial exchange price represents a 20% premium to the last reported sales price prior to issuance for the common shares on the New York Stock Exchange on September 28, 2006. The exchange value will be based on the exchange rate and the then trading price of the common shares. The initial exchange rate is subject to adjustment in certain circumstances.

The repurchase of 1,829,000 common shares with a portion of the proceeds of the notes did not reduce the 2,319,800 common shares that may be repurchased under the Company’s Board-approved share repurchase program.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This Quarterly Report on Form 10-Q and other materials filed by us with the SEC (as well as information included in oral or other written statements made by us) contain statements that are forward-looking, including statements relating to business and real estate development activities, acquisitions, dispositions, future capital expenditures, financing sources, governmental regulation (including environmental regulation) and competition. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. As forward-looking statements, these statements involve important 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 us or on our behalf. Factors that could cause actual results to differ materially from our 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 our principal tenants compete, our failure to lease unoccupied space in accordance with our projections, our failure 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 our acquisitions, unanticipated costs to complete and lease-up pending developments, impairment charges, 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, earthquakes and other natural disasters, the existence of complex regulations relating to our status as a REIT and to our acquisition, disposition and development activities, the adverse consequences of our failure to qualify as a REIT, the impact of newly adopted accounting principles on our accounting policies and on period-to-period comparisons of financial results and the other risks identified in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2005. Given these uncertainties, we caution readers not to place undue reliance on forward-looking statements. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events except as required by law.

OVERVIEW

As of September 30, 2006, we managed our portfolio within nine geographic segments: (1) Pennsylvania—West, (2) Pennsylvania—North, (3) New Jersey, (4) Urban, (5) Richmond, Virginia, (6) California—North, (7) California—South, (8) Mid-Atlantic and (9) Southwest. We believe we have established an effective platform in these office and industrial markets for maximizing market penetration, optimizing operating economies of scale and creating long-term investment value.

Through our January 2006 acquisition of Prentiss, we acquired interests in properties that contain an aggregate of 14.0 million net rentable square feet. Through this acquisition, we also entered into new markets, including markets in California, Northern Virginia, Maryland, and Texas.

Subsequent to our acquisition of Prentiss and the related sale of certain of Prentiss’s properties to Prudential, we sold 11 additional properties that contain an aggregate of 2.3 million net rentable square feet and one parcel of land containing 10.9 acres.

As of September 30, 2006, our portfolio consisted of 277 office properties, 23 industrial facilities and one mixed-use property that contain an aggregate of approximately 30.0 million net rentable square feet. We held economic interests in 11 unconsolidated real estate ventures that contain approximately 2.7 million net rentable square feet (the “Real Estate Ventures”) formed with third parties to develop or own commercial properties. In addition, as of September 30, 2006 we owned interests in four consolidated real estate ventures that own 15 office properties containing approximately 1.5 million net rentable square feet.

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

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Our financial performance is dependent upon the demand for office, industrial and other commercial space in our markets and upon prevailing interest rates.

We continue to seek revenue growth through an increase in occupancy of our portfolio and our investment strategies. Our occupancy was 91.3% at September 30, 2006, or 90.2% including four lease-up properties that we acquired in our September 2004 acquisition of a portfolio of 14 properties (the “TRC Properties” or the “TRC acquisition”).

The Prentiss acquisition and the TRC acquisition, and to a lesser extent, other property acquisitions have already or will materially impact our operations. Accordingly, the reported historical financial information for periods prior to these transactions is not believed to be fully indicative of our future operating results or financial condition.

As we seek to increase revenue through our operating activities, our 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:

We are subject to the risk that tenant leases, upon expiration, are not renewed, that space may not be relet, or that the terms of renewal or reletting (including the cost of renovations) may be less favorable to us than the current lease terms. Leases accounting for approximately 2.9% of our aggregate annualized base rents as of September 30, 2006 (representing approximately 2.9% of the net rentable square feet of the Properties) expire without penalty through the end of 2006. We maintain an active dialogue with our tenants in an effort to achieve a high level of lease renewals. Our retention rate for leases that were scheduled to expire in the nine-month period ended September 30, 2006 was 73.4%. If we were unable to renew leases for a substantial portion of the space under expiring leases, or to promptly relet this space, at anticipated rental rates, our cash flow would be adversely impacted.

Tenant Credit Risk:

In the event of a tenant default, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. Our management regularly evaluates our accounts receivable reserve policy in light of its tenant base and general and local economic conditions. The accounts receivable allowances were $8.8 million or 8.9% of total receivables (including accrued rent receivable) as of September 30, 2006 compared to $4.9 million or 7.6% of total receivables (including accrued rent receivable) as of December 31, 2005.

Development Risk:

As of September 30, 2006, we had in development or redevelopment eleven sites aggregating approximately 2.2 million square feet. We estimate the total cost of these projects to be $523.2 million and we had incurred $302.9 million of these costs as of September 30, 2006. We are actively marketing space at these projects to prospective tenants but can provide no assurance as to the timing or terms of any leases of space at these projects. As of September 30, 2006, we owned approximately 378 acres of undeveloped land. Risks associated with development of this land include construction cost increases or overruns and construction delays, insufficient occupancy rates, building moratoriums and inability to obtain zoning, land-use, building, occupancy and other required governmental approvals.

ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS

On January 5, 2006, we acquired Prentiss pursuant to an Agreement and Plan of Merger that we entered into with Prentiss on October 3, 2005. In conjunction with our acquisition of Prentiss, designees of The Prudential Insurance Company of America (“Prudential”) acquired certain Prentiss properties that contain an aggregate of approximately 4.32 million net rentable square feet for total consideration of approximately $747.7 million. Through our acquisition of Prentiss (and after giving effect to the Prudential acquisition of certain Prentiss properties), we acquired a portfolio of 79 office properties (including 13 properties that are owned by consolidated real estate ventures and seven properties that are owned by unconsolidated real estate ventures) that contain an aggregate of 14.0 million net rentable square feet.

Subsequent to our acquisition of Prentiss and the related sale of properties to Prudential, through September 30, 2006, we sold 11 additional properties acquired from Prentiss that contain an aggregate of 2.3 million net rentable square feet and one parcel of land containing 10.9 acres.

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In our acquisition of Prentiss, each then outstanding Prentiss common share was converted into the right to receive 0.69 of a Brandywine common share and $21.50 in cash except that 497,884 Prentiss common shares held in the Prentiss Deferred Compensation Plan converted solely into 720,737 Brandywine common shares. In addition, each then outstanding unit of limited partnership interest in Prentiss’s operating partnership subsidiary was, at the option of the holder, converted into Prentiss Common Shares with the right to receive the per share merger consideration or 1.3799 Class A Units of our Operating Partnership. Accordingly, based on 49,375,723 Prentiss common shares outstanding and 139,000 Prentiss OP Units electing to receive merger consideration at closing of the acquisition, we issued 34,541,946 Brandywine common shares and paid an aggregate of approximately $1.05 billion in cash for the accounts of the former Prentiss shareholders. Based on 1,572,612 Prentiss OP Units outstanding at closing of the acquisition, we issued 2,170,047 Brandywine Class A Units. In addition, options issued by Prentiss that were exercisable for an aggregate of 342,662 Prentiss common shares were converted into options exercisable for an aggregate of 496,037 Brandywine common shares at a weighted average exercise price of $22.00 per share. Through our acquisition of Prentiss we assumed approximately $611.2 million in aggregate principal amount of Prentiss debt.

Each Brandywine Class A Unit that we issued in the merger is subject to redemption at the option of the holder. At our option, we may satisfy the redemption either for an amount, per unit, of cash equal to the then market price of one Brandywine common share (based on the prior ten-day trading average) or for one Brandywine common share.

In addition to the acquisition activity related to Prentiss, during the nine-month period ended September 30, 2006, we also acquired four office properties containing 681,688 net rentable square feet and 76.6 acres of developable land for an aggregate purchase price of $180.6 million. In addition to sales of assets acquired in the Prentiss merger, we sold two office properties containing 216,554 net rentable square feet and two parcels of land containing 6.8 acres for an aggregate $43.5 million, realizing net gains totaling $6.0 million.

In addition to the acquisition activity related to Prentiss, during the three-month period ended September 30, 2006, we acquired two office properties containing 443,581 net rentable square feet for $133.2 million. In addition to sales of assets acquired in the Prentiss merger, we sold two office properties containing 216,554 net rentable square feet for $38.6 million, realizing net gains totaling $3.4 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these 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 the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Certain accounting policies are considered to be critical accounting policies, as it requires management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in accounting policies are reasonably likely to occur from period to period. Management bases its estimates and assumptions on historical experience and current economic conditions. On an on-going basis, management evaluates its estimates and assumptions including those related to revenue, impairment of long-lived assets and the allowance for doubtful accounts. Actual results may differ from those estimates and assumptions.

Our Annual Report on Form 10-K for the year ended December 31, 2005 contains a discussion of our critical accounting policies. There have been no significant changes in our critical accounting policies since December 31, 2005. See also Note 2 in our unaudited consolidated financial statements for the nine-month period ended September 30, 2006 as set forth herein. Management discusses our critical accounting policies and management’s judgments and estimates with our Audit Committee.

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RESULTS OF OPERATIONS

Comparison of the Three-Month Periods Ended September 30, 2006 and 2005

The table below shows selected operating information for the Same Store Property Portfolio and the Total Portfolio. The Same Store Property Portfolio consists of 238 Properties containing an aggregate of approximately 17.8 million net rentable square feet that we owned for the entire three-month periods ended September 30, 2006 and 2005. This table also includes a reconciliation from the Same Store Property Portfolio to the Total Portfolio net income (i.e., all properties owned by us during the three-month periods ended September 30, 2006 and 2005) by providing information for the properties which were acquired, under development (including lease-up assets) or placed into service and administrative/elimination information for the three-month periods ended September 30, 2006 and 2005 (in thousands).

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Comparison of three-months ended September 30, 2006 to the three-months ended September 30, 2005

	Same Store Property Portfolio									Prentiss Portfolio				Properties Acquired				Development Properties (a)						Administrative/ Eliminations (b)						Total Portfolio

*(dollars in thousands)*	2006		2005		Increase/ (Decrease)			% Change		2006		2005		2006		2005		2006			2005			2006			2005			2006			2005			Increase/ (Decrease)			% Change

Revenue:
Cash rents	$	75,669	$	73,742	$	1,927		3	%	$	54,059	$	—	$	3,231	$	41	$	6,518		$	1,916		$	157		$	41		$	139,634		$	75,740		$	63,894		84	%
Straight-line rents		1,272		3,461		(2,189	)	-63	%		2,602		—		230		—		3,379			825			—			—			7,483			4,286			3,197		75	%
Rents - FAS 141		688		324		364		112	%		1,413		—		218		—		(62	)		(62	)		—			—			2,257			262			1,995		761	%

Total rents		77,629		77,527		102		0	%		58,074		—		3,679		41		9,835			2,679			157			41			149,374			80,288			69,086		86	%
Tenant reimbursements		14,026		11,397		2,629		23	%		8,566		—		253		3		890			217			67			93			23,802			11,710			12,092		103	%
Other (c)		5,127		1,176		3,951		336	%		454		—		156		—		52			528			2,629			1,325			8,418			3,029			5,389		178	%

Total revenue		96,782		90,100		6,682		7	%		67,094		—		4,088		44		10,777			3,424			2,853			1,459			181,594			95,027			86,567		91	%
Operating Expenses:
Property operating expenses		30,856		27,748		3,108		11	%		20,319		—		900		8		3,797			1,537			(2,407	)		(2,629	)		53,465			26,664			26,801		101	%
Real estate taxes		9,619		8,851		768		9	%		6,332		—		389		2		1,173			768			707			123			18,220			9,744			8,476		87	%
Administrative expenses		—		—		—		0	%		—		—		—		—		—			—			6,490			4,486			6,490			4,486			2,004		45	%

Total property operating expenses		40,475		36,599		3,876		11	%		26,651		—		1,289		10		4,970			2,305			4,790			1,980			78,175			40,894			37,281		91	%
Subtotal		56,307		53,501		2,806		5	%		40,443		—		2,799		34		5,807			1,119			(1,937	)		(521	)		103,419			54,133			49,286		91	%
Depreciation and amortization		29,588		26,581		3,007		11	%		31,875		—		1,048		—		5,157			1,704			609			(55	)		68,277			28,230			40,047		142	%

Operating Income (loss)	$	26,719	$	26,920	$	(201	)	-1	%	$	8,568	$	—	$	1,751	$	34	$	650		$	(585	)	$	(2,546	)	$	(466	)	$	35,142		$	25,903		$	9,239		36	%

Number of properties		238									61				6				11												316
Square feet		17,828									10,590				964				2,101												31,483
Other Income (Expense):
Interest income																															2,479			304			2,175		715	%
Interest expense																															(45,402	)		(17,762	)		(27,640	)	156	%
Equity in income of real estate ventures																															370			745			(375	)	-50	%
Net gain on sales of interests in real estate																															—			4,640			(4,640	)	100	%
Gain on termination of purchase contract																															3,147			—			3,147		100	%

Income (loss) before minority interest																															(4,264	)		13,830			(18,094	)	-131	%
Minority interest - partners’ share of consolidated real estate ventures																															279			(41	)		320		-780	%
Minority interest attributable to continuing operations - LP units																															276			(401	)		677		-169	%

Income (loss) from continuing operations																															(3,709	)		13,388			(17,097	)	-128	%
Income (loss) from discontinued operations																															4,273			2,406			1,867		78	%

Net Income (loss)																														$	564		$	15,794		$	(15,230	)	-96	%

Earnings per common share																															($0.02	)	$	0.24		$	(0.26	)	-108	%

EXPLANATORY NOTES

(a) - Results include: three redevelopments; four lease-up assets; three properties placed in service; and Cira Centre

(b) - Represents certain revenues and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation

(c) - Includes net termination fee income of $4,338 for 2006 and $510 for 2005 for the same store property portfolio and $165 for 2006 for the Prentiss portfolio

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Revenue

Revenue increased by $86.6 million primarily due to the acquisition of Prentiss, which represents $67.1 million of this increase. The increase is also the result of two properties that we acquired in the fourth quarter of 2005, one property acquired in the first quarter of 2006, one property acquired in the second quarter of 2006, two properties acquired in the third quarter of 2006 and additional tenant occupancy at Cira Centre (included in Development Properties).

Revenues also increased by $2.6 million for tenant reimbursements as a result of increased property operating expenses for our same store portfolio. Our termination fee income increased by $3.8 million as result of tenant move-outs.

Operating Expenses and Real Estate Taxes

Property operating expenses increased by $26.8 million primarily due to the acquisition of Prentiss, which represents $20.3 million of this increase. Property operating expenses attributable to the occupied portion of Cira Centre and other properties acquired accounted for $4.7 million of the increase with the remainder of the increase attributable to increased property operating expenses for our same store portfolio.

Real estate taxes increased by $8.5 million primarily due to the acquisition of Prentiss, which represents $6.3 million of this increase. The remainder of the increase is primarily the result of increased real estate tax assessments in our same store properties and properties acquired or under development.

Depreciation and Amortization Expense

Depreciation and amortization increased by $40.0 million primarily due to the acquisition of Prentiss, which increased total portfolio depreciation expense by $31.9 million. The remaining increase is the result of the timing of assets being placed in service upon completion of tenant improvement and capital improvement projects subsequent to the end of the three month period ending September 30, 2005. A significant portion of the remaining increased depreciation for tenant improvements relates to Cira Centre where tenants have taken occupancy.

Administrative Expenses

Administrative expenses increased by approximately $2.0 million primarily due to the acquisition of Prentiss. Of this increase, $0.9 million was primarily attributable to increased payroll and related costs associated with employees that we hired as part of the acquisition of Prentiss. We also incurred an additional $0.6 million in professional fees in connection with our merger integration activities. The remainder of the increase reflects other increased costs of the combined companies.

Interest Income/ Expense

Interest expense increased by approximately $27.6 million primarily as a result of 14 fixed rate mortgages, three unsecured notes, and one note secured by U.S. treasury notes (“PPREFI debt”) that we assumed or entered into to finance the Prentiss merger. The mortgages assumed have maturity dates ranging from July 2009 through March 2016 and the unsecured notes have maturities of March, April, and July 2035, and the PPREFI debt has a maturity of February 2007.

The PPREFI debt was defeased by Prentiss in the fourth quarter of 2005 and is secured by an investment in U.S. treasury notes. The interest earned on the treasury notes is included in interest income and substantially offsets the amount of interest expense incurred on the PPREFI debt, resulting in an immaterial amount of net interest expense incurred. The increase of $2.2 million in interest income is primarily attributable to the interest income earned on these treasury notes.

See the Notes to the Unconsolidated Combined Financial Statements in Part I, Item I for details of our mortgage indebtedness and unsecured notes outstanding.

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Minority Interest-partners’ share of consolidated real estate ventures

Minority interest-partners’ share of consolidated real estate ventures increased by $0.3 million from the prior year as a result of our acquisition of one consolidated joint venture as part of our acquisition of Prentiss. This consolidated joint venture, of which we own 51%, owns 13 properties which aggregate approximately 1.2 million square feet of office space.

Subsequent to our acquisition of Prentiss, we entered into a joint venture with IBM. We consolidate this joint venture, and own a 50% interest in it.

As of September 30, 2006 we held an ownership interest in 15 properties through consolidated joint ventures, compared to two properties owned by consolidated joint ventures at September 30, 2005.

Minority Interest attributable to continuing operations – LP units

Minority interest attributable to continuing operations – LP units, represents the equity in loss (income) attributable to the portion of the Operating Partnership not owned by us. The increase from the prior year is primarily the result of the fact that at September 30, 2006 the LP units share in our net loss compared to their share of net income in the prior year. Minority interests owned 4.6% and 3.4% of the Operating Partnership as of September 30, 2006 and 2005, respectively. The change in minority interest ownership is primarily the result of Operating Partnership units issued in the Prentiss merger.

Discontinued Operations

Income from discontinued operations increased by $1.9 million from the prior year as a result of the sale of one property in Dallas, TX and one property in Chicago, IL that we acquired in the Prentiss acquisition. We also sold two properties that were previously included in our same store portfolio. These four properties combined had net income of $1.2 million and gains on sale of $5.2 million during the quarter ended September 30, 2006. Included in the gain on sale amount was $1.8 million attributable to minority interest in the Chicago property. During the quarter ended September 30, 2005, we sold one property that had net income of $0.1 million and a gain on sale of $2.2 million.

Net Income

Net income declined in the third quarter of 2006, compared to the third quarter of 2005, by $15.2 million as increased revenues were offset by increases in operating costs (primarily depreciation and amortization) and financing costs. All major financial statement captions increased as a result of our acquisition of Prentiss and the related financing required to complete the transaction. A significant element of these costs relate to additional depreciation and amortization charges relating to the significant property additions (including both the TRC acquisition and the Prentiss acquisition) and the values ascribed to related acquired intangibles (e.g., in-place leases). These charges do not affect our ability to pay dividends and may not be comparable to those of other real estate companies that have not made such acquisitions. Such charges can be expected to continue until the values ascribed to the lease intangibles are fully amortized. These intangibles are amortizing over the related lease terms or estimated tenant relationship.

Earnings Per Share

Earnings per share was $0.24 in the third quarter of 2005 as compared to a loss per share of $(0.02) in the third quarter of 2006 as a result of the factors described in “Net Income” above and an increase in the average number of common shares outstanding. We issued 34.6 million of our common shares in our acquisition of Prentiss.

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Comparison of the Nine-Month Periods Ended September 30, 2006 and 2005

The table below shows selected operating information for the Same Store Property Portfolio and the Total Portfolio. The Same Store Property Portfolio consists of 238 Properties containing an aggregate of approximately 17.8 million net rentable square feet that we owned for the entire nine-month periods ended September 30, 2006 and 2005. This table also includes a reconciliation from the Same Store Property Portfolio to the Total Portfolio net income (i.e., all properties owned by us during the nine-month periods ended September 30, 2006 and 2005) by providing information for the properties which were acquired, under development (including lease-up assets) or placed into service and administrative/elimination information for the nine-month periods ended September 30, 2006 and 2005 (in thousands).

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Comparison of the nine-months ended September 30, 2006 to the nine-months ended September 30, 2005

	Same Store Property Portfolio									Prentiss Portfolio			Properties Acquired				Development Properties (a)						Administrative/ Eliminations (b)						Total Portfolio

(dollars in thousands)	2006		2005		Increase/ (Decrease)			% Change		2006		2005	2006		2005		2006			2005			2006			2005			2006			2005			Increase/ (Decrease)			% Change

Revenue:
Cash rents	$	226,393	$	224,811	$	1,582		1	%	$	158,050	$—	$	6,843	$	41	$	16,743		$	5,069		$	531		$	125		$	408,560		$	230,046		$	178,514		78	%
Straight-line rents		6,591		8,346		(1,755	)	-21	%		8,424	—		483		—		7,464			1,854			—			—			22,962			10,200			12,762		125	%
Rents - FAS 141		1,938		951		987		104	%		4,486	—		152		—		(186	)		(180	)		1			190			6,391			961			5,430		565	%

Total rents		234,922		234,108		814		0	%		170,960	—		7,478		41		24,021			6,743			532			315			437,913			241,207			196,706		82	%
Tenant reimbursements		34,803		33,665		1,138		3	%		20,429	—		560		3		1,987			554			424			494			58,203			34,716			23,487		68	%
Other (c)		8,009		7,377		632		9	%		1,264	—		157		2		93			593			7,933			3,841			17,456			11,813			5,643		48	%

Total revenue		277,734		275,150		2,584		1	%		192,653	—		8,195		46		26,101			7,890			8,889			4,650			513,572			287,736			225,836		78	%
Operating Expenses:
Property operating expenses		87,154		85,779		1,375		2	%		58,229	—		2,252		8		10,072			4,936			(7,879	)		(7,044	)		149,828			83,679			66,149		79	%
Real estate taxes		27,858		25,997		1,861		7	%		18,556	—		807		2		3,087			2,553			895			211			51,203			28,763			22,440		78	%
Administrative expenses		—		—		—		—	%		—	—		—		—		—			—			22,704			13,616			22,704			13,616			9,088		67	%

Total property operating expenses		115,012		111,776		3,236		3	%		76,785	—		3,059		10		13,159			7,489			15,720			6,783			223,735			126,058			97,677		77	%
Subtotal		162,722		163,374		(652	)	0	%		115,868	—		5,136		36		12,942			401			(6,831	)		(2,133	)		289,837			161,678			128,159		79	%
Depreciation and amortization		92,168		77,454		14,714		19	%		94,344	—		2,051		—		9,009			4,364			1,703			2,165			199,275			83,983			115,292		137	%

Operating Income (loss)	$	70,554	$	85,920	$	(15,366	)	-18	%	$	21,524	$—	$	3,085	$	36	$	3,933		$	(3,963	)	$	(8,534	)	$	(4,298	)	$	90,562		$	77,695		$	12,867		17	%
Number of properties		238									61			6				11												316
Square feet		17,828									10,590			964				2,101												31,483
Other Income (Expense):
Interest income																														7,702			966			6,736		697	%
Interest expense																														(128,869	)		(53,366	)		(75,503	)	141	%
Equity in income of real estate ventures																														1,798			2,296			(498	)	-22	%
Net gain on sales of interests in real estate																														2,608			4,640			(2,032	)	-44	%
Gain on termination of purchase contract																														3,147			—			3,147		100	%

Income (loss) before minority interest																														(23,052	)		32,231			(55,283	)	-172	%

Minority interest - partners’ share of consolidated real estate ventures																														560			(213	)		773		-363	%
Minority interest attributable to continuing operations - LP units																														1,267			(908	)		2,175		240	%

Income (loss) from continuing operations																														(21,225	)		31,110			(52,335	)	-168	%
Income (loss) from discontinued operations																														7,591			3,029			4,562		151	%

Net Income (loss)																													$	(13,634	)	$	34,139		$	(47,773	)	-140	%

Earnings per common share																														($0.22	)		$0.51		$	(0.73	)	-143	%

EXPLANATORY NOTES

(a) - Results include: three redevelopments; four lease-up assets; three properties placed in service; and Cira Centre

(b) - Represents certain revenues and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation

(c) - Includes net termination fee income of $5,890 for 2006 and $5,888 for 2005 for the same store property portfolio and $479 for 2006 for the Prentiss portfolio

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Revenue

Revenue increased by $225.8 million primarily due to the acquisition of Prentiss, which represents $195.4 million of this increase. The operations of the properties acquired from Prentiss contributed $192.7 million to this increase and $2.7 million resulted from additional third party management fees as a result of management contracts assumed and entered into at the time of acquisition. The increase is also the result of two properties that were acquired in the fourth quarter of 2005, one property acquired in the first quarter of 2006, one property acquired in the second quarter of 2006 and two properties acquired in the third quarter of 2006, as well as additional tenant occupancy at Cira Centre (included in development properties) that will continue throughout 2006.

The increase in revenue of $2.6 million for our same store portfolio is due to increased occupancy and increased tenant reimbursements resulting from increased property operating expenses.

Operating Expenses and Real Estate Taxes

Property operating expenses increased by $66.1 million primarily due to the acquisition of Prentiss, which represents $58.2 million of this increase. Property operating expenses attributable to the occupied portion of Cira Centre and other property acquisitions accounted for the remainder of the increase.

Real estate taxes increased by $22.4 million primarily due to the acquisition of Prentiss, which represents $18.6 million of this increase. The remainder of the increase primarily is the result of increased real estate tax assessments in our same store portfolio and properties acquired or under development.

Depreciation and Amortization Expense

Depreciation and amortization increased by $115.3 million primarily due to the acquisition of Prentiss, which increased total portfolio depreciation expense by $94.3 million. A significant portion of the increase is also due to accelerated depreciation expense for one of our properties totaling $11.9 million that is associated with the planned demolition of an existing building as part of an office park development in suburban Philadelphia. This property was part of our same store portfolio; therefore the remaining increase in depreciation and amortization for our same store portfolio is $2.8 million. This increase resulted from the timing of assets being placed in service upon completion of tenant improvement and capital improvement projects subsequent to the end of the nine month period ending September 30, 2005. The six properties that we acquired subsequent to September 30, 2005 caused an increase of $2.1 million in depreciation and amortization expense. Depreciation and amortization for our development properties increased by $4.6 million as a result of Cira Centre where tenants have taken occupancy.

Administrative Expenses

Administrative expenses increased by approximately $9.1 million primarily due to the acquisition of Prentiss. Of this increase, $3.0 million was primarily attributable to increased payroll and related costs associated with employees that we hired as part of the acquisition of Prentiss. We also incurred an additional $3.6 million in professional fees in connection with our merger integration activities. The remainder of the increase reflects other increased costs of the combined companies which includes an increase in deferred compensation expense of $1.0 million.

Interest Income/ Expense

Interest expense increased by approximately $75.5 million primarily as a result of 14 fixed rate mortgages, three unsecured notes, and one note secured by U.S. treasury notes (“PPREFI debt”) that we assumed or entered into to finance the Prentiss merger. The mortgages assumed have maturity dates ranging from July 2009 through March 2016 and the unsecured notes have maturities of March, April, and July 2035, and the PPREFI debt has a maturity of February 2007.

The PPREFI debt was defeased by Prentiss in the fourth quarter of 2005 and is secured by an investment in U.S. treasury notes. The interest earned on the treasury notes is included in interest income and substantially offsets the amount of interest expense incurred on the PPREFI debt, resulting in an immaterial amount of net interest expense incurred. The increase of $6.7 million in interest income is primarily attributable to the interest income earned on these treasury notes.

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See the Notes to the Unconsolidated Combined Financial Statements in Part I, Item I for details of our mortgage indebtedness and unsecured notes outstanding.

Minority Interest-partners’ share of consolidated real estate ventures

Minority interest-partners’ share of consolidated real estate ventures increased by $0.8 million from the prior year as a result of our acquisition of one consolidated joint venture as part of our acquisition of Prentiss. This consolidated joint venture, of which we own 51%, owns 13 properties which aggregate approximately 1.2 million square feet of office space.

Subsequent to our acquisition of Prentiss, we entered into a joint venture with IBM. We consolidate this joint venture, and own a 50% interest in it.

As of September 30, 2006 we hold an ownership interest in 15 properties through consolidated joint ventures, compared to two properties owned by consolidated joint ventures at September 30, 2005.

Minority Interest attributable to continuing operations – LP units

Discontinued Operations

Income from discontinued operations increased by $4.6 million from the prior year as a result of the sale of eight properties in Chicago, IL, two in Dallas, TX, and one in Allen, TX that we acquired in the Prentiss acquisition. We also sold two properties that were previously included in our same store portfolio. These 13 properties combined had net income of $5.0 million and gain on sale of $5.2 million during the nine month period ended September 30, 2006. Included in the gain on sale amount was $1.8 million attributable to minority interest in the Chicago property. During the nine-month ended September 30, 2005, we sold one property that had net operating income of $0.1 million and a gain on sale of $2.2 million. The two properties that we sold from our same store portfolio during the quarter ended September 30, 2006 had net income of $0.2 million.

Net Income

Net income declined in the nine month period ending September 30, 2006, compared to the same period in 2005 by $47.8 million as increased revenues were offset by increases in operating costs (primarily depreciation and amortization) and financing costs. All major financial statement captions increased as a result of our acquisition of Prentiss and the related financing required to complete the transaction. A significant element of these costs relate to additional depreciation and amortization charges relating to the significant property additions (including both the TRC acquisition and the Prentiss acquisition) and the values ascribed to related acquired intangibles (e.g., in-place leases). These charges do not affect our ability to pay dividends and may not be comparable to those of other real estate companies that have not made such acquisitions. Such charges can be expected to continue until the values ascribed to the lease intangibles are fully amortized. These intangibles are amortizing over the related lease terms or estimated tenant relationship. In addition, a significant portion of the decrease in net income is attributable to the $11.9 million in depreciation expense described in the Depreciation and Amortization Expense section above.

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Earnings Per Share

Earnings per share was $0.51 for the nine month period ended September 30, 2005 as compared to a loss per share of $(0.22) in the nine month period ended September 30, 2006 as a result of the factors described in “Net Income” above and an increase in the average number of common shares outstanding. We issued 34.6 million of our common shares in our acquisition of Prentiss.

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LIQUIDITY AND CAPITAL RESOURCES

General

Our principal liquidity needs for the next twelve months are as follows:

•

fund normal recurring expenses,

•

fund capital expenditures, including capital and tenant improvements and leasing costs,

•

fund current development and redevelopment costs, and

•

fund distributions declared by our Board of Trustees.

We believe that our liquidity needs will be satisfied through cash flows generated by operations and financing activities. Rental revenue, expense recoveries from tenants, and other income from operations are our principal sources of cash that we use to pay operating expenses, debt service, recurring capital expenditures and the minimum distributions required to maintain our REIT qualification. We seek to increase cash flows from our properties by maintaining quality standards for our properties that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. Our revenue also includes third-party fees generated by our property management, leasing, development and construction businesses. We believe our revenue, together with proceeds from equity and debt financings, will continue to provide funds for our short-term liquidity needs. However, material changes in our operating or financing activities may adversely affect our net cash flows. Such changes, in turn, would adversely affect our ability to fund distributions, debt service payments and tenant improvements. In addition, a material adverse change in our cash provided by operations would affect the financial performance covenants under our unsecured credit facility and unsecured notes.

Our principal liquidity needs for periods beyond twelve months are for costs of developments, redevelopments, property acquisitions, scheduled debt maturities, major renovations, expansions and other non-recurring capital improvements. We draw on multiple financing sources to fund our long-term capital needs. We use our credit facility for general business purposes, including the acquisition, development and redevelopment of properties and the repayment of other debt. In March 2006 and December 2005, we sold $850 million and $300 million, respectively of unsecured notes and expect to utilize the debt and equity markets for other long-term capital needs.

As a result of our acquisition of Prentiss, we will have additional short and long-term liquidity requirements. Historically, we have satisfied these types of requirements principally through the most advantageous source of capital at that time, which has included public offerings of unsecured debt and private placements of secured and unsecured debt, sales of common and preferred equity, capital raised through the disposition of assets, and joint venture transactions. We believe these sources of capital will continue to be available in the future to fund our capital needs.

We funded the approximately $1.05 billion cash portion of the Prentiss merger consideration, related transaction costs and prepayments of approximately $543.3 million in Prentiss mortgage debt at the closing of the merger through (i) a $750 million unsecured term loan that originally matured on January 4, 2007; (ii) approximately $676.5 million of cash from Prudential’s acquisition of certain of the Prentiss properties; and (iii) approximately $195.0 million through borrowing under our revolving credit facility. We repaid in full the $750 million term loan on March 28, 2006 with the proceeds of the $850 million unsecured notes described more fully in Capitalization below.

Our ability to incur additional debt is dependent upon a number of factors, including our credit ratings, the value of our unencumbered assets, our degree of leverage and borrowing restrictions imposed by our current lenders. We currently have investment grade ratings for prospective unsecured debt offerings from three major rating agencies. If a rating agency were to downgrade our credit rating, our access to capital in the unsecured debt market would be more limited and the interest rate under our existing credit facility would increase.

Our ability to sell common and preferred shares is dependent on, among other things, general market conditions for REITs, market perceptions about our company and the current trading price of our shares. We regularly analyze which source of capital is most advantageous to us at any particular point in time. The equity markets may not be consistently available on terms that we consider attractive.

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Cash Flows

The following summary discussion of our cash flows is based on the consolidated statement of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented.

As of September 30, 2006 and December 31, 2005, we maintained cash and cash equivalents of $16.5 million and $7.2 million, respectively, an increase of $9.3 million. This increase was the result of the following changes in cash flow from our activities for the nine-month period ended September 30 (in thousands):

Activity	2006			2005

Operating	$	213,679		$	103,766
Investing		(1,053,043	)		(206,150	)
Financing		848,728			110,378

Net cash flows	$	9,364		$	7,994

Our increased cash flow from operating activities in the nine-months ended September 30, 2006 compared to the same period in 2005 is primarily attributable to our acquisition of Prentiss.

The increase in cash outflows from investing activities is primarily attributable to our acquisition of Prentiss and other property and land acquisitions totaling $1,105.3 million. In addition, we incurred approximately $180.7 million of capital expenditures for the properties that we own. These increases in investing activity are offset by the net proceeds of $221.3 million received from the sale of eight properties in Chicago and three in Texas that we acquired in our acquisition of Prentiss and subsequently sold. We received net proceeds of $37.6 million from sales of properties in our same store portfolio.

Increased cash flow from financing activities is primarily attributable to the issuance of $850.0 million of unsecured notes resulting in net proceeds of $847.8 million. The proceeds of the note issuance were used to satisfy the $750.0 million term loan that was obtained in connection with the acquisition of Prentiss, as well to repay a portion of the outstanding borrowings on our credit facility. We also had net borrowings of $160.0 million on our line of credit. These cash inflows are offset by our repurchase of common shares totaling $34.5 million and our three distribution payments totaling $110.1 million.

Capitalization

Indebtedness

On October 4, 2006 our Operating Partnership consummated the offering of $300,000,000 aggregate principal amount of 3.875% exchangeable guaranteed notes due October 15, 2026 (the “2026 Notes”). On October 16, 2006, our Operating Partnership issued an additional $45,000,000 aggregate principal amount of 3.875% exchangeable guaranteed notes due October 15, 2026 to cover over-allotments. The Company used the net proceeds from the sale of the notes to repurchase approximately $60 million of outstanding common shares (1,829,000 common shares at a price of $32.80 per share); to repay approximately $180 million under the Company’s revolving credit facility; and to invest the balance in short term securities pending redemption of the Operating Partnership’s $300 million Floating Rate Guaranteed Notes due 2009 on January 2, 2007.

On March 28, 2006, our Operating Partnership consummated the public offering of (1) $300,000,000 aggregate principal amount of its unsecured floating rate notes due 2009 (the “2009 Notes”), (2) $300,000,000 aggregate principal amount of its 5.75% notes due 2012 (the “2012 Notes”) and (3) $250,000,000 aggregate principal amount of its 6.00% notes due 2016 (the “2016 Notes” and, together with the 2009 Notes and 2012 Notes, the “Notes”). We guaranteed the payment of principal of and interest on the Notes.

On March 28, 2006, we terminated, and repaid all amounts outstanding under, the $750 million Term Loan Agreement that we entered into on January 5, 2006 with JPMorgan Chase Bank, N.A., as Administrative Agent and Syndication Agent, J.P. Morgan Securities Inc., as Lead Arranger and Sole Bookrunner, and the lenders identified therein. We entered into the Term Loan Agreement in connection with our acquisition through the merger of Prentiss on January 5, 2006.

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As of September 30, 2006, we had approximately $3.2 billion of outstanding indebtedness. The table below summarizes our mortgage notes payable, our secured note payable, our unsecured notes and our revolving credit facility at September 30, 2006 and December 31, 2005:

	September 30, 2006			December 31, 2005

	(dollars in thousands)
Balance:
Fixed rate	$	2,558,664		$	1,417,611
Variable rate		629,216			103,773

Total	$	3,187,880		$	1,521,384

Percent of Total Debt:
Fixed rate		80	%		93	%
Variable rate		20	%		7	%

Total		100	%		100	%

Weighted-average interest rate at period end:
Fixed rate		5.9	%		5.9	%
Variable rate		5.8	%		5.3	%
Total		5.8	%		5.8	%

The variable rate debt shown above generally bears interest based on various spreads over LIBOR (the term of which is selected by us).

We have used credit facility borrowings for general business purposes, including the acquisition, development and redevelopment of properties and the repayment of other debt. In December 2005, we replaced our then existing unsecured credit facility with a $600 million unsecured credit facility (the “Credit Facility”) that matures in December 2009, subject to a one year extension option upon payment of a fee and the absence of any defaults. Borrowings under the new Credit Facility generally bear interest at LIBOR (LIBOR was 5.32% as of September 30, 2006) plus a spread over LIBOR ranging from 0.55% to 1.10% based on our unsecured senior debt rating. We have an option to increase the maximum borrowings under the Credit Facility to $800 million subject to the absence of any defaults and our ability to obtain additional commitments from our existing or new lenders. The Credit Facility requires the maintenance of certain ratios related to minimum net worth, debt to total capitalization and fixed charge coverage and various non-financial covenants. We believe that we are in compliance with all financial covenants as of September 30, 2006.

We utilize unsecured notes as a long-term financing alternative. The indentures and note purchase agreements relating to our unsecured notes contain financial restrictions and requirements, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 40%, (3) a debt service coverage ratio of greater than 1.5 to 1.0, and (4) an unencumbered asset value of not less than 150% of unsecured debt. In addition, the note purchase agreement relating to the 2008 Notes contains covenants that are similar to the above covenants. At September 30, 2006, we were in compliance with each of these financial restrictions and requirements.

We have mortgage loans that are collateralized by certain of our properties. Payments on mortgage loans are generally due in monthly installments of principal and interest, or interest only.

We intend to refinance or repay our mortgage loans as they mature, primarily through the use of unsecured debt or equity.

The amount of indebtedness that we may incur, and the policies with respect thereto, are not limited by our declaration of trust and bylaws, and are solely within the discretion of our board of trustees, limited only by various financial covenants in our credit agreements.

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Equity

On September 18, 2006, we declared a distribution of $0.44 per Common Share, totaling $39.8 million, which we paid on October 16, 2006 to shareholders of record as of October 5, 2006. The Operating Partnership simultaneously declared a $0.44 per unit cash distribution to holders of Class A Units totaling $2.0 million.

On September 18, 2006, we declared distributions on our Series C Preferred Shares and Series D Preferred Shares to holders of record as of September 30, 2006. These shares are entitled to a preferential return of 7.50% and 7.375%, respectively. Distributions paid on October 16, 2006 to holders of Series C Preferred Shares and Series D Preferred Shares totaled $0.9 million and $1.1 million, respectively.

At September 30, 2006, we had a share repurchase program under which our Board has authorized us to repurchase from time to time up to 6,700,000 common shares. Through September 30, 2006, we had repurchased approximately 4.4 million common shares under this program at an average price of $20.82 per share. Our Board placed no time limit on the duration of the program. As of September 30, 2006, we may purchase an additional 2,319,800 additional shares under the plan.

We used a portion of the net proceeds from the issuance of the 2026 Notes to repurchase 1,829,000 common shares. This repurchase did not reduce the number of common shares that may be repurchased under the Board-approved share repurchase program.

Shelf Registration Statement

Together with our Operating Partnership, we maintain a shelf registration statement that registered common shares, preferred shares, depositary shares and warrants and unsecured debt securities. Subject to our ongoing compliance with securities laws, and if warranted by market conditions, we may offer and sell equity and debt securities from time to time under the registration statement.

Short- and Long-Term Liquidity

We believe that our cash flow from operations is adequate to fund its short-term liquidity requirements. 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. We intend 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 our REIT qualification under the Internal Revenue Code.

We expect to meet our 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 cash from operations, borrowings under its Credit Facility, other long-term secured and unsecured indebtedness, the issuance of equity securities and the proceeds from the disposition of selected assets.

Inflation

A majority of our leases provide for reimbursement of real estate taxes and operating expenses either on a triple net basis or over a base amount. In addition, many of our office leases provide for fixed base rent increases. We believe that inflationary increases in expenses will be significantly offset by expense reimbursement and contractual rent increases.

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Commitments and Contingencies

The following table outlines the timing of payment requirements related to our contractual commitments as of September 30, 2006:

	Payments by Period (in thousands)

	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years

Mortgage notes payable (a)	$	877,615	$	17,965	$	197,467	$	228,381	$	433,802
Secured note payable		181,759		181,759		—		—		—
Revolving credit facility		249,998		—		249,998		—		—
Unsecured debt (a)		1,866,610		—		688,000		600,000		578,610
Ground leases (b)		280,413		1,736		3,472		3,636		271,569
Other liabilities		688		—		—		—		688

	$	3,457,083	$	201,460	$	1,138,937	$	832,017	$	1,284,669

(a)	Amounts do not include unamortized discounts and/or premiums.

(b)	Future minimum rental payments under the terms of all non-cancelable ground leases under which we are the lessee are expensed on a straight-line basis regardless of when payments are due.

We intend to refinance our mortgage notes payable as they become due or repay those that are secured by properties being sold.

As part of our acquisition of the TRC Properties in September 2004, we agreed to issue to the sellers up to a maximum of $9.7 million of Class A Units of the Operating Partnership if certain of the acquired properties achieve at least 95% occupancy prior to September 21, 2007. The maximum number of Units that we are obligated to issue declines monthly and, as of September 30, 2006, the maximum balance payable under this arrangement was $2.4 million, with no amount currently due.

As part of the TRC acquisition, we acquired our interest in Two Logan Square, a 696,477 square foot office building in Philadelphia, primarily through a second and third mortgage secured by this property. We currently do not expect to take title to Two Logan Square until, at the earliest, September 2019. In the event that we take fee title to Two Logan Square upon a foreclosure of our mortgage, we have agreed to make a payment to an unaffiliated third party with a residual interest in the fee owner of this property. The amount of the payment would be $0.6 million if we must pay a state and local transfer upon taking title, and $2.9 million if no transfer tax is payable upon the transfer.

As part of the Prentiss acquisition, the TRC acquisition and several of our other acquisitions, we agreed not to sell certain of the acquired properties. In the case of the TRC acquisition, we agreed not to sell certain of the acquired properties for periods ranging from three to 15 years from the acquisition date as follows: 201 Radnor Financial Center, 555 Radnor Financial Center and 300 Delaware Avenue (three years); One Rodney Square and 130/150/170 Radnor Financial Center (10 years); and One Logan Square, Two Logan Square and Radnor Corporate Center (15 years). In the case of the Prentiss acquisition, we assumed the obligation of Prentiss not to sell Concord Airport Plaza before March 2018 and 6600 Rockledge before July 2008. We also own 14 other properties that aggregate 1.0 million square feet and have agreed not to sell these properties for periods that expire by the end of 2008. Our agreements generally provide that we may dispose of the subject properties only in transactions that qualify as tax-free exchanges under Section 1031 of the Internal Revenue Code or in other tax deferred transactions. In the event that we sell any of the properties within the applicable restricted period in non-exempt transactions, we would be required to pay significant tax liabilities that would be incurred by the parties who sold us the applicable property.

We held a fifty percent economic interest in an approximately 141,724 square foot office building located at 101 Paragon Drive, Montvale, New Jersey. The remaining fifty percent interest was held by Donald E. Axinn, one of our Trustees. Although we and Mr. Axinn had each committed to provide one half of the $11 million necessary to repay the mortgage loan secured by this property, in February 2006, an unaffiliated third party entered into an agreement to purchase this property for $18.3 million. As a result of the purchase by an unaffiliated third party during August 2006, we recognized a $3.1 million gain on termination of our rights under a 1998 contribution agreement, modified in 2005, that entitled us to the 50% interest in the joint venture to operate the property. This gain is shown separately on our income statement as a gain on termination of purchase contract.

We invest in our properties and regularly incur capital expenditures in the ordinary course to maintain the properties. We believe that such expenditures enhance our competitiveness. We also enter into construction, utility and service contracts in the ordinary course of business which may extend beyond one year. These contracts typically provide for cancellation with insignificant or no cancellation penalties.

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Interest Rate Risk and Sensitivity Analysis

The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market rates. The range of changes chosen reflects our 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.

Our financial instruments consist of both fixed and variable rate debt. As of September 30, 2006, our consolidated debt consisted of $892.3 million in fixed rate mortgages and $0.6 million in variable rate mortgage notes, $181.8 million in fixed rate secured note payable, $250.0 million variable rate borrowings under our Credit Facility and $1.9 billion in unsecured notes (net of discounts) of which $1.5 billion are fixed rate borrowings and $0.4 billion are variable rate borrowings. 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 our debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position, but has no impact on interest incurred or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact the net financial instrument position.

If market rates of interest on our variable rate debt increase by 1%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by approximately $6.3 million. If market rates of interest on our variable rate debt decrease by 1%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by approximately $6.3 million.

If market rates of interest increase by 1%, the fair value of our outstanding fixed-rate debt would decrease by approximately $94.4 million. If market rates of interest decrease by 1%, the fair value of our outstanding fixed-rate debt would increase by approximately $101.2 million.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, commodity prices and equity prices. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk. Changes in the general level of interest rates prevailing in the financial markets may affect the spread between our yield on invested assets and cost of funds and, in turn, our ability to make distributions or payments to our shareholders. While we have not experienced any significant credit losses, in the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in losses to us which adversely affect our operating results and liquidity.

There have been no material changes in Quantitative and Qualitative disclosures in 2006 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2005. Reference is made to Item 7 included in our Annual Report on Form 10-K for the year ended December 31, 2005 and the caption “Interest Rate Risk and Sensitivity Analysis” under Item 2 of this Quarterly Report on Form 10-Q.

Item 4. Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of the end of the period covered by this quarterly report, have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

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(b)

Changes in internal controls over financial reporting. There was no change in the Company’s internal control over financial reporting that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

There has been no material change to the risk factors previously disclosed by us in our Form 10-K for the fiscal year ended December 31, 2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes the share repurchases during the three-month period ended September 30, 2006:

	Total Number of Shares Purchased	Average Price Paid Per Share	Purchased as Part of Publicly Announced Plans or Programs	Shares that May Yet Be Purchased Under the Plans or Programs (a)

2006:
July	—		—	2,319,800
August	—		—	2,319,800
September	—		—	2,319,800

Total	—		—

(a) On May 2, 2006, our Board of Trustees authorized an increase in the number of common shares that we may repurchase, whether in open-market or privately negotiated transactions. The Board authorized us to purchase up to an aggregate of 3,500,000 common shares (inclusive of the remaining share repurchase availability under the Board's prior authorization from September 2001). There is no expiration date on the share repurchase program.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

(a) Exhibits

10.1

Form of Fifteenth Amendment to Agreement of Limited Partnership of Brandywine Operating Partnership, L.P. (incorporated by reference to Brandywine’s Current Report on Form 8-K filed on August 18, 2006)

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10.2

2006 Long-Term Outperformance Compensation Program (incorporated by reference to Brandywine’s Current Report on Form 8-K filed on September 1, 2006)**

12.1

Statement re Computation of Ratios

31.1

Certification Pursuant to 13a-14 under the Securities Exchange Act of 1934

31.2

Certification Pursuant to 13a-14 under the Securities Exchange Act of 1934

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Management contract or compensatory plan or arrangement

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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: November 9, 2006	By:	/s/ Gerard H. Sweeney

		Gerard H. Sweeney, President and Chief Executive Officer (Principal Executive Officer)


Date: November 9, 2006	By:	/s/ Timothy M. Martin

		Timothy M. Martin, Vice President and Treasurer (Principal Financial Officer)


Date: November 9, 2006	By:	/s/ Scott W. Fordham

		Scott W. Fordham, Vice President and Chief Accounting Officer (Principal Accounting Officer)

Prepared and Filed by St Ives Financial

Brandywine Realty Trust

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Share Distributions

(in thousands)

	For the nine months ended September 30,						For the years ended December 31,

	2006			2005			2005			2004			2003			2002			2001

Earnings before fixed charges:
Add:
Income from continuing operations (a)	$	(21,225	)	$	31,111		$	39,329		$	57,746		$	74,457		$	45,347		$	17,422
Minority interest attributable to continuing operations		(1,827	)		1,121			1,277			2,477			9,231			9,264			7,644
Fixed charges - per below		140,807			62,236			86,636			61,894			69,476			76,950			83,627
Less:
Capitalized interest		(7,210	)		(6,902	)		(9,603	)		(3,030	)		(1,503	)		(2,949	)		(5,178	)
Preferred Distributions of consolidated subsidiaries		-			-			-			(832	)		(7,069	)		(7,069	)		(7,069	)

Earnings before fixed charges	$	110,545		$	87,566		$	117,639		$	118,255		$	144,592		$	121,543		$	96,446

Fixed charges and Preferred Distributions:
Interest expense (including amortization)	$	128,869		$	53,366		$	74,363		$	55,061		$	57,835		$	63,522		$	67,496
Capitalized interest		7,210			6,902			9,603			3,030			1,503			2,949			5,178
Proportionate share of interest for unconsolidated real estate ventures		4,728			1,968			2,670			2,971			3,069			3,410			3,884
Distributions to preferred unitholders in Operating Partnership		-			-			-			832			7,069			7,069			7,069

Total Fixed Charges		140,807			62,236			86,636			61,894			69,476			76,950			83,627
Income allocated to preferred shareholders		5,994			5,994			7,992			9,720			11,906			11,906			11,906

Total Preferred Distributions		5,994			5,994			7,992			9,720			11,906			11,906			11,906

Total combined fixed charges and preferred distributions	$	146,801		$	68,230		$	94,628		$	71,614		$	81,382		$	88,856		$	95,533

Ratio of earnings to combined fixed charges and preferred distributions		0.75			1.28			1.24			1.65			1.78			1.37			1.01

Prepared and Filed by St Ives Financial

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED

I, Gerard H. Sweeney, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Brandywine Realty Trust:

2.	Based on my knowledge, this 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 in this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by other within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	Date: November 9, 2006				/s/ Gerard H. Sweeney

					Gerard H. Sweeney President and Chief Executive Officer

Prepared and Filed by St Ives Financial

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED

I, Timothy M. Martin, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Brandywine Realty Trust:

2.	Based on my knowledge, this 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 in this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2006			/s/ Timothy M. Martin
			Timothy M. Martin Vice President – Finance and Treasurer

Prepared and Filed by St Ives Financial

Exhibit 32.1

RULE 13(a)-14(b) CERTIFICATION

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*

In connection with the Quarterly Report of Brandywine Realty Trust (the “Company”) on Form 10-Q for the quarter ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gerard H. Sweeney, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


/s/ Gerard H. Sweeney

Gerard H. Sweeney President and Chief Executive Officer Date: November 9, 2006

*	A signed original of this written statement required by Section 906 has been provided to Brandywine Realty Trust and will be retained by Brandywine Realty Trust and furnished to the Securities and Exchange Commission or its staff upon request.

Prepared and Filed by St Ives Financial

Exhibit 32.2

RULE 13(a)-14(b) CERTIFICATION

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*

In connection with the Quarterly Report of Brandywine Realty Trust (the “Company”) on Form 10-Q for the quarter ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy M. Martin, Vice President – Finance and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Timothy M. Martin
Timothy M. Martin Vice President – Finance and Treasurer Date: November 9, 2006

*	A signed original of this written statement required by Section 906 has been provided to Brandywine Realty Trust and will be retained by Brandywine Realty Trust and furnished to the Securities and Exchange Commission or its staff upon request.