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Prepared and filed by St Ives Burrups
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): May 5, 2005
 
BRANDYWINE REALTY TRUST
(Exact name of issuer as specified in charter)
 
MARYLAND
 
001-9106
 
23-2413352
(State or Other
Jurisdiction
of Incorporation or
Organization)
 
(Commission
file
number)
 
(I.R.S. Employer
Identification
Number)
 
401 Plymouth Road, Suite 500
Plymouth Meeting, Pennsylvania 19462
(Address of principal executive offices)
 
(610) 325-5600
(Registrant’s telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Item 9.01          Financial Statements and Exhibits
 
          We are filing this Current Report on Form 8-K to update through December 31, 2004 pro forma financial information relating to our acquisition of The Rubenstein Company, L.P. on September 21, 2004 and related financing transactions.
 
          Our Current Report on Form 8-K filed on September 3, 2004 included audited financial statements of the portfolio of properties (the “TRC Properties”) that we acquired through our acquisition of The Rubenstein Company, L.P., together with pro forma financial information as of, and for the six month period ended on, June 30, 2004.
 
          As we indicated in our Current Report on Form 8-K that we filed on September 3, 2004, we are not affiliated with any of the former owners of The Rubenstein Company, L.P, or any of their respective affiliates.  After reasonable inquiry, other than as disclosed in the notes to our pro forma financial statements included herein, we are not aware of any material factors relating to the TRC Properties that would cause the reported financial information not to be necessarily indicative of future operating results.
 
 
(a)
Pro Forma Financial Information (unaudited)
 
 
 
 
 
 
 
Unaudited Pro Forma Consolidated Financial Information
F-1
 
 
 
 
 
 
Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2004
F-2
 
 
 
 
 
 
Notes to Unaudited Pro Forma Consolidated Financial Information
F-3
Exhibits
 
23.1
Consent of Ernst and Young, LLP
99.1
Current Report on Form 8-K, filed September 3, 2004
Signatures
 
          Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
 
 
  
BRANDYWINE REALTY TRUST
 
  
 
Date: May 5, 2005
  
By: 
/s/ GERARD H. SWEENEY
 
  
 
 
  
 
Gerard H. Sweeney
 
  
 
President and Chief Executive Officer
EXHIBIT INDEX
 
Exhibit
No.
 
Description
 
23.1
 
Consent of Ernst and Young, LLP
99.1
 
Current Report on Form 8-K, filed September 3, 2004
BRANDYWINE REALTY TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
 
The following sets forth the unaudited pro forma consolidated statement of operations of Brandywine Realty Trust (the “Company”) for the year ended December 31, 2004.  The unaudited pro forma consolidated financial information is presented as if the acquisition of The Rubenstein Company, L.P. by Brandywine Operating Partnership, L.P. (the “Operating Partnership”), the entity through which the Company owns its assets and conducts its business, and related financing transactions had occurred on January 1, 2004 for the pro forma consolidated statements of operations.
 
The unaudited pro forma consolidated financial information should be read in conjunction with the historical financial statements of the Company filed pursuant to the rules and regulations of the Securities and Exchange Commission. The unaudited pro forma consolidated financial information is not necessarily indicative of what the actual combined results of operations of the Company and the Rubenstein Company, L.P., would have been for the periods presented, nor do they purport to represent the Company’s results of operations for any future period.  A pro forma consolidated balance sheet of the Company is not presented herein as the actual balance sheet included in the Company’s Annual Report on Form 10-K includes all pro forma transactions.
 
On September 21, 2004, the Operating Partnership completed the acquisition of 100% of the partnership interests in The Rubenstein Company, L.P. (the “Rubenstein Acquisition”). Through the acquisition, the Operating Partnership acquired 14 office properties located in Pennsylvania and Delaware that contain approximately 3.5 million net rentable square feet. The results of operations have been included in the consolidated financial statements since that date.
 
The aggregate consideration for the Rubenstein Acquisition was $631.3 million including $29.3 million of closing costs, debt prepayment penalties and debt premiums that are included in the basis of the assets acquired. The consideration was paid with $540.4 million of cash, $79.3 million of debt assumed, $1.6 million of other liabilities assumed, and 343,006 Class A Units valued at $10.0 million. The value of the debt assumed was based on prevailing market rates at the time of acquisition. The value of the Class A Units was based on the average trading price of the Company’s common shares. 
 
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-cancellable term of the lease. Capitalized above-market lease values are amortized as a reduction of rental income over the remaining non-cancellable terms of the respective leases. Capitalized below-market lease values are amortized as an increase of rental income over the remaining non-cancellable terms of the respective leases, including any fixed-rate renewal periods.
 
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, include 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 fair value are made using methods similar to those used by independent appraisers or by using independent appraisals. Factors considered by the Company in their analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. 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. In estimating carrying
 
F-1
 
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.
 
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-cancellable 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.
 
Our purchase price allocation for the Rubenstein Acquisition was completed as follows:
 
 
 
At September 21,
2004
 
 
 
 
Real estate investments
 
 
 
 
Land
 
 
$105,302
 
Building and improvements
 
 
434,795
 
Tenant improvements
 
 
20,322
 
 
 
 
 
Total real estate investments acquired
 
 
560,419
 
Rent receivables
 
 
5,537
 
Other assets acquired:
 
 
 
 
Intangible assets:
 
 
 
 
In-Place leases
 
 
49,455
 
Relationship values
 
 
35,548
 
Above-market leases
 
 
13,240
 
 
 
 
 
Total intangible assets acquired
 
 
98,243
 
Other assets
 
 
6,292
 
 
 
 
 
Total Other assets
 
 
104,535
 
 
 
 
 
Total assets acquired
 
 
670,491
 
Liabilities assumed:
 
 
 
 
Mortgage notes payable
 
 
79,330
 
Security deposits and deferred rent
 
 
618
 
Other liabilities:
 
 
 
 
Below-market leases
 
 
39,204
 
Other liabilities
 
 
943
 
 
 
 
 
Total other liabilities assumed
 
 
40,147
 
 
 
 
 
Total liabilities assumed
 
 
120,095
 
 
 
 
 
Net assets acquired
 
 
$550,396
 
 
 
 
 
 
The Operating Partnership has agreed to issue the sellers up to a maximum of $9.7 million of additional Class A Units if certain of the Rubenstein Acquisition properties achieve at least 95% occupancy prior to September 21, 2007.  Any contingent amounts ultimately payable would represent additional purchase price and would be reflected within the basis of the assets acquired and liabilities assumed.
 
At the closing of this transaction, the Operating Partnership agreed not to sell the Rubenstein Acquisition properties in a transaction that would trigger taxable income to the contributors (i.e., sellers) for periods ranging from three to 15 years.  In the event that the Operating Partnership sells any of the properties in such a transaction within the applicable restricted period, the Operating Partnership will be required to pay significant tax liabilities that would be incurred by the contributors.
 
The unaudited pro forma consolidated financial information gives effect to:
 
 
•
the Rubenstein Acquisition;
 
 
 
 
•
The Company’s September 2004 issuance of 7,750,000 common shares
 
 
 
 
•
The Operating Partnership‘s repayment of an existing $100 million term loan facility in September 2004
 
F-2
 
 
 
 
•
The Operating Partnership‘s issuance in October 2004, of $275.0 million of its 2009 4.5% unsecured notes (the “2009 Notes”) and $250.0 million of its 2014 5.4% unsecured notes (the “2014 Notes”) in an underwritten public offering. The Operating Partnership received net proceeds, after discounts, of approximately $520.1 million. We and certain of the wholly-owned subsidiaries of the Operating Partnership fully and unconditionally guaranteed the payment of principal and interest on the Notes. In anticipation of the issuance of the Notes, we entered into treasury lock agreements with notional amounts totaling $194.8 million with an expiration of 5 years at an all-in rate of 4.8% and with notional amounts totaling $188.0 million with an expiration of 10 years at an all-in rate of 5.6%. Upon issuance of the Notes, we terminated the treasury lock agreements at a total cost of $3.2 million that will be amortized to interest expense over the life of the respective Notes.
 
 
 
 
•
The Operating Partnership’s sale in December 2004 of $113.0 million aggregate principal amount of its 2008 unsecured notes (the “2008 Notes”) to a group of institutional investors. The 2008 Notes bear interest from their date of issuance at the rate of 4.34% per annum and mature on December 14, 2008.
 
 
 
 
•
Actual repayments on the Company’s and Operating Partnership’s revolving credit facility of $200.0 million in October 2004 as a result of the above transactions.
 
The Operating Partnership initially financed the Rubenstein Acquisition with $433.0 million in unsecured term loans.  The unaudited pro forma consolidated financial information excludes the incremental interest expense on the $433 million in term loans as the Operating Partnership repaid these term loans in October 2004 and December 2004 from the issuance of the 2008, 2009, and 2014 Notes.  As a result of the repayment of the term loans, the Company wrote-off the incremental deferred financing cost amortization totaling $3.0 million that is excluded from the unaudited pro forma financial information.
 
The statements contained in this filing may include forward-looking statements within the meaning of the Federal securities laws. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. As forward-looking statements, these statements involve risks and uncertainties that could cause actual results to differ materially from the expected results. These risks and uncertainties include, but are not limited to, uncertainties affecting real estate businesses generally, risks relating to acquisition activities and risks relating to leasing and re-leasing activities. Additional information on factors, which could impact the Company and the forward-looking statements contained herein, are detailed in the Company’s filings with the Securities and Exchange Commission.
 
F-3
BRANDYWINE REALTY TRUST
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
(unaudited, in thousands, except share and per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company
Historical
 
Rubenstein
Acquisition
Historical
 
Pro Forma
Adjustments
 
The Company
Pro Forma
 
 
 
 
 
 
 
 
 
 
(A)
 
 
(B)
 
 
(C)
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
Rents
 
$
275,631
 
$
43,570
 
$
2,294
(D)
$
321,495
 
Tenant reimbursements
 
 
37,572
 
 
9,725
 
 
—
 
 
47,297
 
Other
 
 
10,389
 
 
—
 
 
—
 
 
10,389
 
 
 
 
 
 
 
 
 
 
 
Total Revenue
 
 
323,592
 
 
53,295
 
 
2,294
 
 
379,181
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses
 
 
89,857
 
 
20,808
 
 
(1,363
)(E)
 
109,302
 
Real estate taxes
 
 
31,062
 
 
7,247
 
 
—
 
 
38,309
 
Depreciation and amortization
 
 
79,904
 
 
—
 
 
30,371
(F)
 
110,275
Administrative expenses
 
 
15,100
 
 
—
 
 
—
 
 
15,100
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses
 
 
215,923
 
 
28,055
 
 
29,008
 
 
272,986
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
 
107,669
 
 
25,240
 
 
(26,714
)
 
106,195
 
Other income
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
 
2,469
 
 
—
 
 
—
 
 
2,469
 
Interest expense
 
 
(55,061
)
 
(15,801
)
 
(2,634
) (G)
 
(73,496
)
Equity in income of real estate ventures
 
 
2,024
 
 
—
 
 
—
 
 
2,024
 
Net gains on sales of interest in real estate
 
 
2,975
 
 
—
 
 
—
 
 
2,975
 
 
 
 
 
 
 
 
 
 
 
Income before minority interest
 
 
60,076
 
 
9,439
 
 
(29,348
)
 
40,167
 
Minority interest attributable to continuing operations
 
 
(2,472
)
 
—
 
 
520
(H)
 
(1,952
)
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
57,604
 
$
9,439
 
$
(28,828
)
$
38,215
 
 
 
 
 
 
 
 
 
 
 
Basic Earnings per Common Share from continuing operations
 
$
1.09
(I)
 
 
 
 
 
 
$
0.62
(I)
 
 
 
 
 
 
 
 
 
 
 
 
Diluted Earnings per Common Share from continuing operations
 
$
1.09
(I)
 
 
 
 
 
 
$
0.62
(I)
 
 
 
 
 
 
 
 
 
 
 
 
 
F-4
 
Notes to Unaudited Pro Forma Consolidated Financial Statement
 
1.
Adjustments to Unaudited Pro Forma Consolidated Statement of Operations for the year-ended December 31, 2004
 
 
 
 
(A)
Reflects our historical consolidated statement of operations for the year ended December 31, 2004 as filed on our Annual Report on Form 10-K in March 2005.
 
 
 
 
(B)
Reflects the historical results of operations for the Rubenstein Acquisition for the period from January 1, 2004 to September 21, 2004 (the acquisition date).  These amounts are based on the following information: 
 
Period
 
Rental
Income
 

Tenant
Reimbursements
 
Property
Operating
Expenses
 
Real
Estate
Taxes
 
Interest
Expense on
Mortgages
 
 
 
 
 
 
 
January 1, 2004 to June 30, 2004
 
$
30,048
 
$
6,707
 
$
14,350
 
$
4,998
 
$
10,897
 
July 1, 2004 to September 21, 2004
 
 
13,522
 
 
3,018
 
 
6,458
 
 
2,249
 
 
4,904
 
 
 
 
 
 
 
 
Total
 
$
43,570
 
$
9,725
 
$
20,808
 
$
7,247
 
$
15,801
 
 
 
 
 
 
 
 
 
 
(C)
These amounts represent adjustments to the historical results for the Rubenstein Acquisition and the Company to ultimately present pro forma results of operations assuming that the Rubenstein Acquisition and related financing transactions occurred in January 1, 2004. Hence, each was computed from January 1, 2004 to the date the respective transaction was included in the Company’s historical results of operations.
 
 
 
 
(D)
Reflects the pro forma adjustments to the historical base rental revenue of the Rubenstein Acquisition as a result of acquired above- and below-market leases amortized to revenue and an adjustment to the historical straight-line rent adjustment of the Rubenstein Acquisition properties.  The pro forma adjustment for above- and below-market lease intangibles is computed by amortizing the above-market leases over the remaining non-cancelable term of the related leases and by amortizing the below-market leases over the remaining non-cancelable lease term plus all fixed rate renewal periods.
 
Description
 
Amount
 
Adjustment
 
 
 
 
Above (Below) market lease intangibles, net
 
$
(25,964
)
$
1,131
 
 
 
 
 
 
 
Pro forma straight-line rental adjustment
 
 
 
 
$
2,253
 
Less: Historical straight-line rental adjustment of the Rubenstein Acquisition
 
 
 
 
 
(1,090
)
 
 
 
 
 
 
Pro-forma adjustment
 
 
 
 
$
1,163
 
 
 
 
 
 
 
Total Pro forma adjustment
 
 
 
 
$
2,294
 
 
 
 
 
 
 
 
 
(E)
Reflects the pro forma adjustment to eliminate in consolidation management fees included in the historical property operating expenses of the Rubenstein Acquisition.  Subsequent to our consummation of the Rubenstein Acquisition, the Operating Partnership has provided all management services to the Rubenstein Acquisition properties.  As a result, these fees are considered inter-company fees in our consolidated financial statements and were eliminated.
 
F-5
 
 
 
(F)
Reflects the pro forma adjustment for depreciation and amortization expense on the 14 properties and intangible assets acquired in the Rubenstein Acquisition.  Depreciation expense for buildings is computed using a useful life of 40 years.  Amortization for in-place lease intangible assets is computed based on the respective tenant’s remaining non-cancelable lease term.  Amortization for relationship intangible assets is computed based on the remaining non-cancelable lease term of the respective tenants plus all renewal periods.

Description
 
Amount
 
Adjustment
 
 
 
 
Buildings and improvements
 
$
455,117
 
$
13,755
 
In-place lease intangibles
 
 
49,455
 
 
14,156
 
Relationship intangibles
 
 
35,548
 
 
2,460
 
 
 
 
 
 
 
Pro forma adjustment
 
 
 
 
$
30,371
 
 
 
 
 
 
 

 
(G)
Reflects a net increase in interest expense as a result of the following transactions:

 
 
Description
 
Amount
 
Interest
Rate
 
 
Adjustment
 
 
 
 
 
 
 
 
(i)
 
Interest expense associated with assumed mortgages adjusted to current rates not included in the historical period
 
$
79,643
 
 
5.6
%
 
$
3,320
 
(ii)
 
Additional interest on the 2009 notes (including amortization of the related discounts, deferred financing costs, and costs related to settlement of the treasury lock agreements) not included in the historical period
 
 
275,000
 
 
4.8
%
 
 
10,359
 
(iii)
 
Additional interest on the 2014 notes (including amortization of the related discounts, deferred financing costs, and costs related to settlement of the treasury lock agreements) not included in the historical period
 
 
250,000
 
 
5.6
%
 
 
11,084
 
(iv)
 
Additional interest on the 2008 notes (including amortization of the related deferred financing costs) not included in the historical period
 
 
113,000
 
 
4.4
%
 
 
4,805
 
(v)
 
Removal of interest expense associated with the $100.0 million term loan facility that was included in the historical period
 
 
(100,000
)
 
2.6
%
 
 
(1,897
)
(vi)
 
Removal of incremental interest expense associated with the $433.0 million term loan facilities that were included in the historical period (including $3.0 million of deferred financing costs that were written-off upon repayment in 2004)
 
 
(433,000
)
 
3.0
%
 
 
(4,581
)
(vii)
 
Removal of historical interest expense associated with actual repayments on the revolving credit facility as a result of the TRC acquisition and related financing transactions
 
 
(200,000
)
 
2.7
%
 
 
(4,655
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total pro forma interest expense adjustment as a result of the Rubsenstein Acquisition and related financing transactions
 
 
 
 
 
 
 
 
 
18,435
 
 
 
Less: Historical interest expense associated with the Rubenstein Acquisition
 
 
 
 
 
 
 
 
 
(15,801
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pro forma adjustment
 
 
 
 
 
 
 
 
$
2,634
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-6
 
 
(H)
Reflects the pro forma adjustment to minority interest from the pro forma transactions that are included for a full year 2004.
 
 
(I)
Reflects our earnings per common share from continuing operations for the historical and pro forma periods.
 
 
 
The Company (Historical)
 
The Company (Pro Forma)
 
 
 
 
 
 
 
Basic
 
Diluted
 
Basic
 
Diluted
 
 
 
 
 
 
 
Income from continuing operations
 
$
57,604
 
$
57,604
 
$
38,215
 
$
38,215
 
Income allocated to Preferred Shares
 
 
(9,720
)
 
(9,720
)
 
(9,720
)
 
(9,720
)
Preferred Share redemption/ conversion
 
 
4,500
 
 
4,500
 
 
4,500
 
 
4,500
 
 
 
 
 
 
 
Net income available to common shareholders
 
$
52,384
 
$
52,384
 
$
32,995
 
$
32,995
 
 
 
 
 
 
 
Weighted-average common shares outstanding
 
 
47,781,789
 
 
47,781,789
 
 
47,781,789
 
 
47,781,789
 
Pro forma adjustment for additional common shares issued in September 2004
 
 
—
 
 
—
 
 
5,505,464
 
 
5,505,464
 
Options and warrants
 
 
—
 
 
236,915
 
 
—
 
 
236,915
 
 
 
 
 
 
 
Total weighted-average common shares outstanding
 
 
47,781,789
 
 
48,018,704
 
 
53,287,253
 
 
53,524,168
 
 
 
 
 
 
 
Earnings per Common Share,
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
1.09
 
$
1.09
 
$
0.62
 
$
0.62
 
 
 
 
 
 
 
 
F-7
Prepared and filed by St Ives Burrups
Exhibit 23.1
 
Consent of Independent Registered Public Accounting Firm
 
We consent to the use of our report dated August 31, 2004, with respect to the combined statement of revenue and certain expenses of The Rubenstein Portfolio for the year ended December 31, 2003 included in Brandywine Realty Trust’s Current Report on Form 8-K dated May 5, 2005.
 
 
/s/ ERNST & YOUNG LLP
 
 
Philadelphia, Pennsylvania
 
May 5, 2005
 
 
Prepared and filed by St Ives Burrups

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

FORM 8-K

CURRENT REPORT
Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 18, 2004

BRANDYWINE REALTY TRUST
(Exact name of issuer as specified in charter)

MARYLAND
(State or Other Jurisdiction
of Incorporation or
Organization)		   001-09106
(Commission
file
number)		   23-2413352
(I.R.S. Employer
Identification
Number)

401 Plymouth Road, Suite 500
Plymouth Meeting, Pennsylvania 19462
(Address of principal executive offices)

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

 

Item 9.01.      Financial Statements and Exhibits.

                        In a Current Report on Form 8-K filed with the Securities and Exchange Commission on August 19, 2004, we reported the entry of our subsidiary, Brandywine Operating Partnership, L.P., into an agreement to acquire 100% of the partnership interests in The Rubenstein Company, L.P. and certain assets held by certain affiliates of The Rubenstein Company, L.P. We are filing this Current Report to include the financial statements identified below. As indicated in the August 19, 2004 Current Report on Form 8-K, we are not affiliated with any of the owners of The Rubenstein Company, L.P, or any of their respective affiliates, and the price payable under the contribution agreement was determined by arm’s-length negotiation between us and the owners of The Rubenstein Company, L.P. We based our determination of the purchase price on the expected cash flow, physical condition, location and existing tenancies of the properties that we will acquire through the acquisition and opportunities to retain and attract additional tenants. After reasonable inquiry, other than as disclosed in the notes to our pro forma financial statements included herein, we are not aware of any material factors relating to the properties that would cause the reported financial information not to be necessarily indicative of future operating results.

  (a) Combined Statements of Revenue and Certain Expenses Pursuant to Rule 3-14 of Regulation S-X  
           
    Report of Independent Registered Public Accounting Firm   F-1  
           
    Combined Statements of Revenue and Certain Expenses for the Year Ended December 31, 2003 and for the Six Months Ended June 30, 2004   F-2  
           
    Notes to Combined Statements of Revenue and Certain Expenses   F-3  
           
           
  (b) Pro Forma Financial Information      
           
    Unaudited Pro Forma Condensed Consolidated Financial Information   F-7  
           
    Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2004   F-8  
           
    Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2004   F-9  
           
    Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2003   F-10  
           
    Notes to Unaudited Pro Forma Condensed Consolidated Financial Information   F-11  

1

(c)      Exhibits

23.1      Consent of Ernst & Young LLP

 

 

2

Signatures

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, hereunto duly authorized.

 

  BRANDYWINE REALTY TRUST
       
       
Date: September 3, 2004   By: /s/ Gerard H. Sweeney                          
      Gerard H. Sweeney
President and Chief Executive Officer

 

3

 

Report of Independent Registered Public Accounting Firm

The Board of Directors
The Rubenstein Company, L.P.:

We have audited the accompanying combined statement of revenue and certain expenses of The Rubenstein Portfolio for the year ended December 31, 2003. This financial statement is the responsibility of the management of The Rubenstein Company, L.P. Our responsibility is to express an opinion on this financial statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The accompanying combined statement of revenue and certain expenses of The Rubenstein Portfolio was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 1 to the combined statement of revenue and certain expenses. The presentation is not intended to be a complete presentation of the combined revenue and expenses of The Rubenstein Portfolio.

In our opinion, the financial statement referred to above presents fairly, in all material respects, the combined revenue and certain expenses of The Rubenstein Portfolio for the year ended December 31, 2003, on the basis of accounting described in Note 1.

/s/ Ernst & Young LLP

Philadelphia, PA
August 31, 2004

F-1

 

The Rubenstein Portfolio

Combined Statements of Revenue and Certain Expenses

(in thousands)

    For the
Year Ended
December 31, 2003 		  For the
Six Months Ended
June 30, 2004 		 
   
 
            (Unaudited)  
Revenue:              
     Minimum rent   $ 81,446   $ 30,048  
     Tenant reimbursements     14,271     6,707  
   
 
 
          Total revenue     95,717     36,755  
               
Certain Expenses:              
     Operating and maintenance costs     9,127     5,580  
     Real estate and other taxes     9,858     4,998  
     Utilities     8,052     4,747  
     Administrative costs     3,596     3,083  
     Management fees     2,064     940  
     Interest expense     25,248     10,897  
   
 
 
          Total certain expenses     57,945     30,245  
   
 
 
Revenue in excess of certain expenses   $ 37,772   $ 6,510  
   
 
 

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

F-2

Back to Contents

The Rubenstein Portfolio
Notes to Combined Statements of Revenue and Certain Expenses
For the Year Ended December 31, 2003 and
For the Six Months Ended June 30, 2004 (Unaudited)

(in thousands)

     (1)      Basis of Presentation

The accompanying combined statements of revenue and certain expenses include the combined operations for the periods presented of a portfolio of 14 office buildings (the “Properties”) known as The Rubenstein Portfolio that are owned and managed by The Rubenstein Company, L.P. (the “Company”) and its affiliates, as follows:

                        Property    Location
One Logan Square Philadelphia, PA
Two Logan Square Philadelphia, PA
Radnor Corporate Center (consists of 5 buildings) Radnor, PA
130/150/170 Radnor Financial Center Radnor, PA
201 Radnor Financial Center Radnor, PA
555 Radnor Financial Center Radnor, PA
One Rodney Square Wilmington, DE
300 Delaware Avenue Wilmington, DE

The partners of the Company entered into a definitive contribution agreement with Brandywine Operating Partnership, L.P. (“Brandywine”) pursuant to which Brandywine will acquire 100% of the partnership interests in the Company. Through its acquisition of the Company, Brandywine will indirectly acquire fee title to 13 of the Properties and the second and third mortgages secured by Two Logan Square (see Note 3), all for approximately $610 million subject to adjustments provided in the contribution agreement. The Company expects that the purchase will occur in September 2004.

The accompanying combined statements of revenue and certain expenses have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for the acquisition of real estate properties. The combined statements of revenue and certain expenses are not representative of the actual results of operations of the Properties for the periods presented due to the exclusion of revenue and certain expenses that may not be comparable to the proposed future operations of the Properties, including interest income, depreciation and amortization expense, professional fees, and certain interest expense related to debt not expected to be outstanding after the acquisition.

F-3

     (2)      Summary of Significant Accounting Policies

Revenue Recognition – Minimum rent is recognized on a straight-line basis over the term of the respective leases. Tenant reimbursements are recognized on the accrual basis based upon the estimated costs incurred and billable for the respective lease period.

Use of Estimates – The Company has made a number of estimates and assumptions relating to the reporting and disclosure of revenue and certain expenses during the reporting periods in preparation of the combined statements of revenue and certain expenses in conformity with U.S. generally accepted accounting principles. Actual results could differ from such estimates.

Unaudited Interim Financial Information – The combined statement of revenue and certain expenses for the six-month period ended June 30, 2004 is unaudited. In the opinion of management, the statement reflects all adjustments necessary for a fair presentation of the results of the interim period. All such adjustments are of a normal recurring nature.

Cost Capitalization – Expenditures for ordinary maintenance and repairs are expensed as incurred. Renovations and improvements that improve and extend the useful life of the assets are capitalized.

     (3)      Two Logan Square

Brandywine will obtain control over Two Logan Square through its acquisition of the second and third mortgages that are secured by the property and the general and limited partnership interests which provide control of the entity which provide fee title to Two Logan Square. The contribution agreement provides for Brandywine to maintain tax protection agreements for the benefit of third parties that hold equity ownership interests in Two Logan Square. The revenue and certain expenses of Two Logan Square have been included in the accompanying statements, after elimination adjustments related to interest income and interest expense on the mortgages, as if Brandywine was acquiring fee title to this property. The Company believes that this presentation represents the most useful information as Brandywine will acquire the controlling financial interests in the entity that holds fee title to this property.

     (4)      Operating Leases

The Properties are leased to various tenants under long-term leases that are accounted for as operating leases. The leases include provisions related to the reimbursement of certain common area maintenance, real estate taxes, utilities and insurance costs by the tenants. The leases generally contain renewal options at various intervals and at various rental rates.

F-4

Minimum rents expected to be received from tenants under operating leases in effect as of December 31, 2003, excluding tenant reimbursements of operating expenses, are as follows:

2004
$55,529
2005
50,785
2006
44,777
2007
41,104
2008
32,497
Thereafter
107,586
Total
$332,278

For the year ended December 31, 2003, one tenant (Wyeth) represented 34% of the minimum rents of the Portfolio. For the six months ended June 30, 2004, another tenant (Pepper Hamilton LLP) represented 11% of the minimum rents of the Portfolio. The following table presents the minimum rents from significant tenants for the periods ended December 31, 2003 and June 30, 2004:

    December 31, 2003   June 30, 2004
Wyeth $ 28,018 $ -
Pepper Hamilton LLP $ 6,061 $ 3,439

During 2003,Wyeth vacated the buildings and terminated their leases such that all revenue associated with their leases was recognized through December 31, 2003. Under the terms of the Wyeth leases, Wyeth was required to pay directly their share of all utilities and common area expenses through December 31, 2003. Accordingly, all such costs and expenses were excluded from certain expenses in the accompanying financial statement for 2003.

     (5)      Indebtedness

In connection with the acquisition of the Properties, Brandywine will assume the following existing mortgage notes:

Property    Principal at
December 31, 2003		     Principal at
June 30, 2004		     Maturity
Date		     Interest
Rate		  
One Logan Square   $ 51,983   $ 52,318     5/07     6.50%  
Two Logan Square     74,475     74,002     7/09     7.78%  
Radnor Corporate Center     115,000     114,337     11/13     6.25%  
300 Delaware Avenue     15,469     15,316     7/07     Libor+2.00%  
One Rodney Square     18,766     18,500     1/07     8.05%  
201 Radnor Financial Center     21,636     32,500     3/08     Libor+2.90%   
130/150/170 Radnor Fin. Ctr     52,440     29,677     3/07     Libor+2.25%   
555 Radnor Financial Center     21,000     13,360     4/07     5.00%  
   
 
             
          Total   $ 370,769   $ 350,010              
   
 
             

F-5

As of December 31, 2003 and June 30, 2004, the 30-day Libor rate was 1.19% and 1.13%, respectively.

The debt matures through November 2013 with minimum annual principal payments as of December 31, 2003 as follows:

 Year Ending December 31
   
2004
$73,874
2005
4,243
2006
 4,540
2007
92,618
2008
 3,796
Thereafter
 91,698
 
 
$370,769
 

 

     (6) Management Fees and Other Related Party Transactions

The Company manages the Properties under management agreements that are cancelable with 30 days notice. The Company charges a fee based on gross income, as defined, which generally is at a rate of 3% of cash receipts. The Company also charges for leasing commissions and other services provided for the Properties. Such leasing commissions are excluded from the accompanying statements since they were capitalized during the periods presented.

F-6

BRANDYWINE REALTY TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following sets forth the unaudited pro forma condensed consolidated balance sheet of Brandywine Realty Trust (the “Company”) as of June 30, 2004 and the unaudited pro forma condensed consolidated statements of operations for the six month period ended June 30, 2004 and the year ended December 31, 2003. The unaudited pro forma condensed consolidated financial information is presented as if the acquisition of The Rubenstein Company, L.P. had occurred on June 30, 2004 for balance sheet purposes and on January 1, 2003 for the pro forma condensed consolidated statements of operations.

The pro forma condensed consolidated financial information should be read in conjunction with the historical financial statements of the Company filed pursuant to the rules and regulations of the Securities and Exchange Commission. The pro forma condensed consolidated financial information does not purport to represent the Company’s financial position or results of operations that would actually have occurred as presented in the pro forma financial information, nor do they purport to project the Company’s financial position or results of operations for any future period.

On August 18, 2004, Brandywine Operating Partnership, L.P (the “Operating Partnership”), the subsidiary through which the Company owns its assets and conducts its business, entered into a contribution agreement to acquire 100 percent of the partnership interests in The Rubenstein Company, L.P. and certain assets held by certain affiliates of The Rubenstein Company, L.P. The agreement provides for the Operating Partnership’s acquisition of a portfolio of 14 office properties (the “TRC Portfolio”) located in Pennsylvania and Delaware totaling approximately 3.5 million square feet. Total consideration for the acquisition will be approximately $616.7 million, including closing costs, estimated debt premiums and prepayment penalties. At or prior to closing the acquisition, the Company intends to repay its existing $100 million unsecured term loan (the “Old Term Loan”). The Company expects to initially finance the acquisition and repayment of the Old Term Loan using proceeds from a $400 million unsecured term loan facility (the “New Term Loan”), approximately $305.3 million of assumed mortgage debt from various lenders, the issuance of approximately $10 million in Class A Units of the Company’s operating partnership and borrowings under its revolving credit facility. It is the Company’s intention that, at, or shortly after closing, the Company will prepay approximately $228 million of the assumed mortgage debt. While not reflected in the pro forma financial statements, the Company anticipates that the total consideration will increase by approximately $15.0 million as a result of costs associated with the prepayment of certain assumed mortgage debt.

The Company has received commitments from a group of lenders to provide the New Term Loan. The New Term Loan is expected to bear interest at a rate per annum equal to: (i) the higher of (x) the prime rate or (y) the federal funds rate plus 0.50% per annum, plus, in either case, between 0.10% and 0.70%, depending on the Company’s debt rating or (ii) a Eurodollar rate that is the rate at which Eurodollar deposits for one, two, three or six months are offered plus between 1.10% and 1.70%, depending on the Company’s debt rating. The New Term Loan is expected to contain financial and operating covenants similar to those in the Company’s existing revolving credit facility and is expected to mature in May 2007.

The statements contained in this filing may include forward-looking statements within the meaning of the Federal securities laws. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. As forward-looking statements, these statements involve risks and uncertainties that could cause actual results to differ materially from the expected results. These risks and uncertainties include, but are not limited to, uncertainties affecting real estate businesses generally, risks relating to acquisition activities and risks relating to leasing and re-leasing activities. Additional information on factors, which could impact the Company and the forward-looking statements contained herein, are detailed in the Company’s filings with the Securities and Exchange Commission.

F-7

BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2004

(Unaudited and in thousands, except share and per share amounts)

               
    The Company   TRC Portfolio   The Company Pro
Forma		  
   
 
 
 
ASSETS   (A)          
   Real estate investments                    
         Operating properties   $ 1,902,122   $ 567,766 (B) $ 2,469,888  
         Accumulated depreciation     (297,744 )   -     (297,744 )
   
 
 
 
      1,604,378     567,766     2,172,144  
         Construction in progress     63,889     -     63,889  
         Land held for development     56,646     -     56,646  
   
 
 
 
      1,724,913     567,766     2,292,679  
   Cash and cash equivalents     10,545     -     10,545  
   Escrowed cash     15,824     -     15,824  
   Accounts receivable, net     4,515     5,264 (B)   9,779  
   Accrued rent receivable, net     29,801     -     29,801  
   Marketable securities     235     -     235  
   Investment in unconsolidated Real Estate Ventures   13,586     2,000 (B)   15,586  
   Deferred costs, net     30,213     2,000 (G)   32,213  
   Other assets     35,250     73,100 (B)   108,350  
   
 
 
 
         Total assets   $ 1,864,882   $ 650,130   $ 2,515,012  
   
 
 
 
                     
LIABILITIES AND BENEFICIARIES’ EQUITY                  
   Mortgage notes payable   $ 450,110   $ 305,360 (C) $ 755,470  
   Borrowings under Credit Facility     270,000     2,659 (D)   272,659  
   Unsecured term loan     100,000     300,000 (E)   400,000  
   Accounts payable and accrued expenses     26,918     -     26,918  
   Distributions payable     23,667     -     23,667  
   Tenant security deposits and deferred rents     16,399     -     16,399  
   Other liabilities     1,783     32,111 (B)   33,894  
   
 
 
 
      Total liabilities     888,877     640,130     1,529,007  
                     
   Minority interest     33,889     10,000 (F)   43,889  
   Commitments and contingencies                    
   Beneficiaries’ equity:                    
         Preferred Shares (shares authorized-10,000,000):                  
               7.25% Series A Preferred Shares, $0.01 par value;                  
                  issued and outstanding-750,000                    
                  in 2004 and 2003     8     -     8  
               7.50% Series C Preferred Shares, $0.01 par value;                  
                  issued and outstanding-2,000,000                  
                  in 2004 and 2003     20     -     20  
               7.375% Series D Preferred Shares, $0.01 par value;                  
                  issued and outstanding-2,300,000 in 2004                  
                  and no shares issued and outstanding in 2003   23     -     23  
Common Shares of Beneficial Interest, $0.01 par value;                  
               shares authorized-100,000,000; issued and outstanding-   457     -     457  
               45,663,743 in 2004 and 41,040,710 in 2003                  
   Additional paid-in capital     1,114,885     -     1,114,885  
   Share warrants     401     -     401  
   Cumulative earnings     340,931     -     340,931  
   Accumulated other comprehensive loss     (169 )   -     (169 )
   Cumulative distributions     (514,440 )   -     (514,440 )
   
 
 
 
         Total beneficiaries’ equity     942,116     -     942,116  
   
 
 
 
   Total liabilities and beneficiaries’ equity   $ 1,864,882   $ 650,130   $ 2,515,012  
   
 
 
 

The accompanying notes are an integral part of this statement.

F-8

BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2004

(Unaudited and in thousands, except share and per share data)

  The Company
Historical		   TRC Portfolio   Pro Forma
Adjustments		     The Company Pro
Forma		  
 
 
 
   
 
Revenue:   (H)     (I)                
      Rents $ 128,161   $ 30,048   $ 1,759   (J) $ 159,968  
      Tenant reimbursements   16,184     6,707     -       22,891  
      Other   6,418     -     -       6,418  
 
 
 
   
 
            Total Revenue   150,763     36,755     1,759       189,277  
                           
Expenses:                          
      Property operating expenses   42,422     14,350     (940 ) (K)   55,832  
      Real estate taxes   13,829     4,998     -       18,827  
      Interest   24,052     10,897     1,574   (L)   36,523  
      Depreciation and amortization   32,684     -     9,719   (M)   42,403  
      Administrative expenses   7,443     -     -       7,443  
 
 
 
   
 
         Total operating expenses   120,430     30,245     10,353       161,028  
   Income from continuing operations before equity in income                          
            of unconsolidated Real Estate Ventures, net gain on                          
            sales of interests in real estate and minority interest   30,333     6,510     (8,594 )     28,249  
   Equity in income of unconsolidated Real Estate Ventures   908     -     -       908  
 
 
 
   
 
   Income from continuing operations before gain on sale of                          
            interests in real estate   31,241     6,510     (8,594 )     29,157  
   Gain on sale of interests in real estate   1,148     -     -       1,148  
 
 
 
   
 
   Income from continuing operations before minority interest   32,389     6,510     (8,594 )     30,305  
   Minority interest attributable to continuing operations   (1,883 )   -     (359 ) (N)   (2,242 )
 
 
 
   
 
   Income from continuing operations $ 30,506   $ 6,510   $ (8,953 )   $ 28,063  
 
 
 
   
 
                           
Basic Earnings per Common Share                          
         from continuing operations $ 0.68                 $ 0.62 (O)
 
               
 
Diluted Earnings per Common Share                          
            from continuing operations $ 0.67                 $ 0.62 (O)
 
               
 

The accompanying notes are an integral part of this statement.

F-9

BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003

(Unaudited and in thousands, except share and per share data)

  The Company
Historical		   TRC Portfolio
Historical		   Pro Forma
Adjustments		     The Company
Pro Forma		  
 
 
 
   
 
Revenue: (P)   (Q)            
      Rents $ 256,944   $ 81,446   $ 3,621   (R) $ 342,011  
      Tenant reimbursements   37,755     14,271     -       52,026  
      Other   10,958     -     -       10,958  
 
 
 
   
 
            Total Revenue   305,657     95,717     3,621       404,995  
                           
Expenses:                          
      Property operating expenses   80,648     22,839     (2,064 ) (S)   101,423  
      Real estate taxes   27,887     9,858     -       37,745  
      Interest   57,835     25,248     (633 ) (T)   82,450  
      Depreciation and amortization   60,437     -     25,993   (U)   86,430  
      Administrative expenses   14,464     -     -       14,464  
 
 
 
   
 
         Total operating expenses   241,271     57,945    
23,296
       322,512  
   Income from continuing operations before equity in income                          
            of unconsolidated Real Estate Ventures, net gain on                          
            sales of interests in real estate and minority interest   64,386     37,772     (19,675 )     82,483  
   Equity in income of unconsolidated Real Estate Ventures   52     -     -       52  
 
 
 
   
 
   Income from continuing operations before gain on sale of                          
            interests in real estate   64,438     37,772     (19,675 )     82,535  
   Gain on sale of interests in real estate   20,537     -     -       20,537  
 
 
 
   
 
   Income from continuing operations before minority interest   84,975     37,772     (19,675 )     103,072  
   Minority interest attributable to continuing operations   (9,265 )   -     (2,247 ) (V)   (11,512 )
 
 
 
   
 
   Income from continuing operations $ 75,710   $ 37,772   $ (21,922 )   $ 91,560  
 
 
 
   
 
                           
Basic Earnings per Common Share                          
         from continuing operations $ 1.13                 $ 1.56 (W) 
 
               
 
Diluted Earnings per Common Share                          
         from continuing operations $ 1.13                 $ 1.55 (W)
 
               
 
                           

The accompanying notes are an integral part of this statement.

F-10

     BRANDYWINE REALTY TRUST NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION

(Unaudited and in thousands, except shares, units and per share amounts)

1.     BASIS OF PRESENTATION

Brandywine Realty Trust (collectively with its subsidiaries, the “Company”) is a self-administered and self-managed real estate investment trust (a “REIT”) active in acquiring, developing, redeveloping, leasing and managing office and industrial properties. As of June 30, 2004, the Company’s portfolio included 206 office properties (excluding two office properties that are held by two consolidated real estate ventures), 24 industrial properties and one mixed-use property (collectively, the “Properties”) that contained an aggregate of 15.6 million net rentable square feet. The Properties are located in the office and industrial markets in and surrounding Philadelphia, Pennsylvania, New Jersey and Richmond, Virginia. As of June 30, 2004, the Company also held ownership interests in nine unconsolidated real estate ventures formed with third parties to develop commercial properties.

On August 18, 2004, Brandywine Operating Partnership, L.P (the “Operating Partnership”), the subsidiary through which the Company owns its assets and conducts its business, entered into a contribution agreement to acquire 100 percent of the partnership interests in The Rubenstein Company, L.P. and certain assets held by certain affiliates of The Rubenstein Company, L.P. The agreement provides for the Company’s acquisition of a portfolio of 14 office properties (the “TRC Portfolio”) located in Pennsylvania and Delaware totaling approximately 3.5 million square feet. Total consideration for the acquisition will be approximately $616.7 million, including closing costs. At or prior to closing the acquisition, the Company expects to repay its existing $100 million unsecured term loan (the “Old Term Loan”). The Company expects to initially finance the acquisition and repayment of the Old Term Loan using proceeds from a $400.0 million unsecured term loan facility (the “New Term Loan”), approximately $305.3 million of assumed mortgage debt from various lenders, the issuance of approximately $10.0 million in Class A Units of the Company’s operating partnership and borrowings under its revolving credit facility. It is the Company’s intention that, at, or shortly after closing, the Company will prepay approximately $228.0 million of the assumed mortgage debt. While not reflected in the pro forma financial statements, the Company anticipates that the total consideration will increase by approximately $15.0 million as a result of costs associated with the prepayment of certain assumed mortgage debt.

The sellers of The Rubenstein Company, L.P. were unaffiliated entities at the time of the execution of the contribution agreement. The contribution agreement also provides for additional contingent consideration of up to $9.7 million which may be payable to the sellers if certain leasing occupancy rates are achieved on 130/150/170 Radnor Financial Center, 201 Radnor Financial Center, and 555 Radnor Financial Center within three years of closing.

The Company has received commitments from a group of lenders to provide the New Term Loan. The New Term Loan is expected to bear interest at a rate per annum equal to: (i) the higher of (x) the prime rate or (y) the federal funds rate plus 0.50% per annum, plus, in either case, between 0.10% and 0.70%, depending on the Company’s debt rating or (ii) a Eurodollar rate that is the rate at which Eurodollar deposits for one, two, three or six months are offered plus between 1.10% and 1.70%, depending on the Company’s debt rating. The New Term Loan is expected to contain financial and operating covenants similar to those in the Company’s existing revolving credit facility and is expected to mature in May 2007, subject to a one year extension upon payment of an extension fee and the absence of any defaults at the time of extension.

These pro forma financial statements should be read in conjunction with the historical financial statements and notes thereto of the Company. The unaudited pro forma condensed consolidated financial information is presented as if the following event occurred on June 30, 2004 for balance sheet purposes and on January 1, 2003 for the pro forma condensed consolidated statements of operations.

F-11

 

2. ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2004
     
  (A) Reflects the Company’s historical condensed consolidated balance sheet as of June 30, 2004.
  (B) Reflects the allocation of the Company’s purchase price of the TRC Portfolio to the assets acquired and liabilities assumed based on their relative fair values.
     
    The Company allocates the purchase price of properties acquired to net tangible and identified intangible assets acquired based on relative 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 of rental income over the remaining non-cancelable terms of the respective leases, including any fixed-rate renewal periods.
     
    The aggregate value of other intangibles acquired is measured based on the difference between (i) the property valued with in-place leases adjusted to market rental rates and (ii) the property valued as if it was vacant. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, include 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. Factors considered by the Company in their analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. 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. 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 total amount of these other intangible assets is further allocated to 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. 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 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.

F-12

 

    Amount  
Real estate investments acquired:  
 
   Land   $ 113,553  
   Building and improvements     454,213  
   
 
   Total real estate investments acquired:     567,766  
Intangible assets (liabilities) acquired:        
   Value of in place leases     35,311  
   Relationship values     25,554  
   Above market leases     12,235  
   
 
      Total intangible assets acquired     73,100  
   Below market leases     (31,422 )
   
 
   Net intangible assets (liabilities) acquired     41,678  
Investment in unconsolidated real estate investments     2,000  
Rent receivable purchased, discounted at market rates   $ 5,264  
   
 
Total consideration of assets acquired (a) $ 616,708  
   
 
Other liabilities assumed at fair value   $ 689  
   
 

    (a) includes approximately $6.5 million in estimated closing costs and $7.5 million in estimated debt premiums and prepayment penalties
 
  The purchase price above does not include any amounts potentially due the sellers as contingent consideration under the contribution agreement. Any contingent amounts ultimately payable would represent additional purchase price.
   
(C) Reflects the mortgage notes payable expected to be assumed upon closing of the transaction adjusted to current market rates. It is the Company’s intention that, at, or shortly after closing, the Company will prepay approximately $228 million of the assumed mortgage debt. While not reflected in the pro forma financial statements, the Company anticipates that the total consideration will increase by approximately $15 million as a result of costs associated with the prepayment of certain assumed mortgage debt.
   
(D) Reflects additional borrowings under the Company’s revolving credit facility to fund the acquisition.
   
(E) Reflects the Company’s anticipated proceeds from the New Term Loan, offset by the cash used to repay the Company’s Old Term Loan.
   
(F) Reflects the issuance of approximately 357,000 Class A Units of the Company’s Operating Partnership with an estimated value of approximately $10 million as of the estimated closing date.
   
(G) Represents additional deferred financing costs associated with the New Term Loan as discussed in (E).

 

3. ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2004
     
  The accompanying unaudited pro forma condensed consolidated statement of operations contains certain adjustments, which are explained below, to give effect to the acquisition of the TRC Portfolio described in Note 1. The historical combined statement of revenue and certain expenses of the TRC Portfolio exclude certain expenses that would not be comparable with those resulting from the proposed future operations. The pro forma adjustments include results of operations for the indicated period of the properties based on our

 

F-13

accounting policies where such policies differ from those which were applied in preparing the historical statements of the properties.
   
(H) Reflects the Company’s historical condensed consolidated statement of operations for the six month period ended June 30, 2004 as filed in the Company’s Form 10-Q in August 2004.
   
(I) Reflects the historical results of operations of the TRC Portfolio for the six month period ended June 30, 2004 as reflected in the TRC Portfolio financial statements included herein.

   Portfolio Rental
Income		   Tenant
Reimbursements		   Property
Operating
Expenses		   Real Estate
Taxes		   Interest Expense
on assumed
mortgages		  
 
 
 
 
 
 
TRC Portfolio   $ 30,048   $ 6,707   $ 14,350   $ 4,998   $ 10,897  

(J)   Reflects the pro forma adjustments to the historical base rental revenue of the TRC Portfolio as a result of acquired above and below market leases amortized to revenue and an adjustment to the historical straight-line rent adjustment of the TRC Portfolio. These adjustments have been computed assuming the Company acquired the portfolio on January 1, 2003. The pro forma adjustment for above and below market lease intangibles is computed by amortizing the above market leases over the remaining noncancellable term of the related leases and by amortizing the below market leases over the remaining non-cancellable lease term plus all fixed rate renewal periods.

           
           
      Description   Amount   Adjustment  
 
 
 
Above market lease intangibles $ 12,235   $ (1,174 )
Below market lease intangibles   31,422     2,131  
 
 
 
            Pro forma adjustment $ 19,187   $ 957  
 
 
 
             
Pro forma straight line rental adjustment       $ 1,554  
Less: Historical straight line rental adjustment of the TRC Portfolio         (752 )
       
 
            Pro forma Adjustment       $ 802  
       
 
            Total Pro forma Adjustment       $ 1,759  
       
 

(K) Reflects the pro forma adjustment to eliminate in consolidation management fees included in the historical property operating expenses of the TRC Portfolio. Upon the acquisition of the TRC Portfolio by the Company, all management services will be provided by the Company’s operating partnership. As a result, these fees are considered intercompany fees in the Company’s consolidated financial statements and would be eliminated.
(L) Reflects additional interest expense associated with (i) the New Term Loan offset by (ii) the elimination of interest expense from the Old Term Loan and (iii) the adjustment of the assumed mortgage notes payable to current market rates.

F-14

               
  Description Amount   Interest
Rate		   Adjustment  
 
 
 
 
(i) Additional interest associated with the New Term                  
      Loan (included deferred financing cost                  
      amortization)   $ 400,000   2.6 % $ 5,223  
                     
(ii) Removal of historical interest expense                  
      associated with the Old Term Loan     100,000   2.7 %   (1,325 )
                     
(iii) Interest expense associated with assumed                  
      mortgages adjusted to current market rates     307,840   5.6 %   8,573  
               
 
Total pro forma interest expense as a result of the TRC                  
  Portfolio acquisition               12,471  
Less: Historical interest expense for the TRC Portfolio               (10,897 )
               
 
Pro forma adjustment             $ 1,574  
             
 

  (M) Reflects depreciation and amortization expense on the 14 properties and intangible assets acquired in the TRC Portfolio. Depreciation expense for buildings is computed using a useful life of 40 years. Amortization for in-place lease intangible assets is computed based on the respective tenant's remaining non-cancellable lease term. Amortization for relationship intangible assets is computed based on the remaining non-cancellable lease term of the respective tenatns plus all renewal periods.

      Description Amount   Adjustment  
 
 
 
Building and improvements   $ 454,213   $ 5,677  
In-place lease intangible asset     35,311     2,947  
Relationship intangible asset     25,554     1,095  
   
 
 
   Total   $ 515,078   $ 9,719  
   
 
 

  (N) Reflects adjustment to minority interest from the issuance of additional Class A Operating Partnership Units. Minority interest in the Company’s Operating Partnership increased from 3.6% to 4.3% as of June 30, 2004.
     
  (O)       Reflects the Company’s earnings per share for the historical and pro forma periods.
     
    Year ended December 31, 2003  
                                   
  The Company Historical       The Company Pro Forma  
 
   
 
    Basic       Diluted       Basic       Diluted  
 
   
   
   
 
Income from continuing operations $ 30,506     $ 30,506     $ 28,063     $ 28,063  
Income allocated to Preferred Shares   (4,695 )      (4,695 )     (4,695 )     (4,695 ) 
 
   
   
   
 
    25,811       25,811       23,368       23,368  
Preferred Share redemption/ conversion   4,500       4,500       4,500       4,500  
Preferred Share discount amortization   —       —       —       —  
 
   
   
   
 
Net income available to common shareholders $ 30,311     $ 30,311     $ 27,868     $ 27,868  
 
   
   
   
 
Weighted-average shares outstanding   44,876,459       44,876,459       44,876,459       44,876,459  
Options and warrants   —       220,276       —       220,276  
 
   
   
   
 
Total weighted-average shares outstanding   44,876,459       45,096,735       44,876,459       45,096,735  
 
   
   
   
 
                               
Earnings per Common Share,
   
   
   
 
Continuing operations
 $ 0.68     $ 0.67     $ 0.62     $ 0.62  
 
   
   
   
 

F-15

4.  ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
 
The accompanying unaudited pro forma condensed consolidated statement of operations contains certain adjustments, which are explained below, to give effect to the acquisition of the TRC Portfolio described in Note 1. The historical combined statement of revenue and certain expenses of the TRC Portfolio excludes certain expenses that would not be comparable with those resulting from the proposed future operations. The pro forma adjustments include results of operations for the indicated period of the properties based on our accounting policies where such policies differ from those which were applied in preparing the historical statement of the properties.
     
(P) Reflects the Company’s historical condensed consolidated statement of operations for the year ended December 31, 2003 as filed in the Company’s Form 8-K in September 2004.
(Q)   Reflects the historical results of operations for the TRC Portfolio for the year ended December 31, 2003 as reflected in the TRC Portfolio financial statements included herein.

   Portfolio Rental
Income		   Tenant
Reimbursements		   Property
Operating
Expenses		   Real Estate
Taxes		   Interest Expense
on assumed
mortgages		  
 
 
 
 
 
 
TRC Portfolio   $ 81,446   $ 14,271   $ 22,839   $ 9,858   $ 25,248  

  Rental income for the TRC Portfolio for the year ended December 31, 2003 includes $28,018 of rental income from Wyeth. During 2003, Wyeth vacated the buildings and terminated their leases such that all revenue associated with their leases was recognized through December 31, 2003. As of June 30, 2004, this space has not been re-leased.
   
(R) Reflects the pro forma adjustments to the historical base rental revenue of the TRC Portfolio as a result of acquired above and below market leases amortized to revenue and an adjustment to the historical straight-line rent adjustment of the TRC Portfolio. These adjustments have been computed assuming the Operating Partnership acquired the portfolio on January 1, 2003. The pro forma adjustment for above and below market lease intangibles is computed by amortizing the above market leases over the remaining noncancellable term of the related leases and by amortizing the below market leases over the remaining non-cancellable lease term plus all fixed rate renewal periods.

      Description Amount   Adjustment  
 
 
 
Above market lease intangibles   $ 12,235   $ (2,992 )
Below market lease intangibles     31,422     5,869  
   
 
 
Total Pro Forma Adjustment
   $ 43,657   $ 2,877  
   
 
 
               
Pro forma straight line rental adjustment         $ 2,532  
Less: Historical straight line rental adjustment of the TRC Portfolio           (1,788 )
         
 
Pro forma Adjustment
         $ 744  
         
 
Total Pro Forma Adjustment
         $ 3,621  
     
 

(S) Reflects the pro forma adjustment to eliminate in consolidation management fees included in the historical property operating expenses of the TRC Portfolio. Upon the acquisition of the TRC Portfolio by the Operating Partnership, all management services will be provided by the Company’s operating partnership. As a result, these fees are considered intercompany fees in the Company’s consolidated financial statements and would be eliminated.
(T) Reflects a reduction to interest expense associated with (i) the elimination of interest expense from the Old Term Loan, offset by (ii) the New Term Loan and (iii) the adjustment of the assumed mortgage notes payable to current market rates.

F-16

             
  Description     Amount   Interest
Rate		   Adjustment  
 
 
 
 
(i) Removal of historical interest expense                  
      associated with the Old Term Loan   $ 100,000   3.0 % $ (3,000 )
(iii) Additional interest associated with the New Term Loan                  
      (included deferred financing cost amortization)     400,000   2.6 %   10,467  
(ii) Interest expense associated with assumed                  
      mortgages adjusted to current market rates     307,840   5.6 %   17,148  
               
 
Total pro forma interest expense as a result of the TRC Portfolio                  
  acquisition               24,615  
Less: Historical interest expense for the TRC Portfolio               (25,248 )
               
 
Pro forma adjustment             $ (633 )
             
 

(U) Reflects depreciation and amortization expense on the 14 properties and intangible assets acquired in the TRC Portfolio. Depreciation expense for buildings is computed using a useful life of 40 years. Amortization for in-place lease intangible assets is computed based on the respective tenant's remaining non-cancellable lease term. Amortization for relationship intangible assets is computed based on the remaining non-cancellable lease term of the respective tenatns plus all renewal periods.

      Description   Amount   Adjustment  
 
 
 
Building and improvements   $ 454,213   $ 11,355  
In-place lease intangible asset     35,311     12,449  
Relationship intangible asset     25,554     2,189  
   
 
 
   Total   $ 515,078   $ 25,993  
   
 
 

(V) Reflects adjustment to minority interest from the issuance of additional Class A Operating Partnership Units. Minority interest in the Company’s Operating Partnership increased from 4.2% to 4.9% as of December 31, 2004.
   
(W)       Reflects the Company’s earnings per share for the historical and pro forma periods.
    Year ended December 31, 2003  
             
  The Company Historical     The Company Pro Forma  
 
 
 
  Basic      Diluted   Basic     Diluted  
 
   
 
   
 
                             
Income from continuing operations $ 75,710     $ 75,710   $ 91,560     $ 91,560  
Income allocated to Preferred Shares   (11,906 )     (11,906 )   (11,906 )     (11,906 )
 
   
 
   
 
    63,804       63,804     79,654       79,654  
Preferred Share redemption/ conversion   (20,598 )     (20,598 )   (20,598 )     (20,598 )
 
   
 
   
 
Preferred Share discount amortization   (1,476 )     (1,476 )   (1,476 )     (1,476 )
 
   
 
   
 
Net income available to common shareholders $ 41,730     $ 41,730   $ 57,580     $ 57,580  
 
   
 
   
 
Weighted-average shares outstanding   36,937,467       36,937,467     36,937,467       36,937,467  
Options and warrants   —       150,402     —       150,402  
 
   
 
   
 
Total weighted-average shares outstanding   36,937,467       37,087,869     36,937,467       37,087,869  
 
   
 
   
 
                             
Earnings per Common Share,
   
 
   
 
Continuing operations
 $ 1.13     $ 1.13   $ 1.56     $ 1.55  
 
   
 
   
 

F-17