-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UJR1X6G8CZeUmfzLT3GIQDN5DTgcSimszPKGMyGib3fhfv6xPyhmD4N88qJ7iCbG Kqf8up5arG/jag8UfEfTtg== 0000950116-98-001153.txt : 19980518 0000950116-98-001153.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950116-98-001153 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRANDYWINE REALTY TRUST CENTRAL INDEX KEY: 0000790816 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 232413352 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09106 FILM NUMBER: 98623473 BUSINESS ADDRESS: STREET 1: 16 CAMPUS BLVD STREET 2: STE 100 CITY: NEWTOWN SQUARE STATE: PA ZIP: 19073 BUSINESS PHONE: 6103255600 MAIL ADDRESS: STREET 1: TWO GREENTREE CENTRE STREET 2: SUITE 100 CITY: MARLTON STATE: NJ ZIP: 08053 FORMER COMPANY: FORMER CONFORMED NAME: LINPRO SPECIFIED PROPERTIES DATE OF NAME CHANGE: 19920703 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities ---- Exchange Act of 1934 For the quarterly period ended March 31, 1998 or ---- Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from ____________ to ___________ Commission file number 1-9106 Brandywine Realty Trust ----------------------- (Exact name of registrant as specified in its charter) Maryland 23-2413352 -------- ---------- State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization 16 Campus Boulevard, Newtown Square, Pennsylvania 19073 ------------------------------------------------------- (Address of principal executive offices) (Zip Code) (610) 325-5600 -------------- Registrant's telephone number Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] A total of 38,051,000 Common Shares of Beneficial Interest were outstanding as of May 14, 1998. BRANDYWINE REALTY TRUST TABLE OF CONTENTS ----------------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997 Consolidated Statements of Operations for the three months ended March 31, 1998 (unaudited) and March 31, 1997 (unaudited) Consolidated Statements of Cash Flow for the three months ended March 31, 1998 (unaudited) and March 31, 1997 (unaudited) Notes to Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk --Not applicable PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures 2 PART I - FINANCIAL INFORMATION Item 1. - Financial Statements BRANDYWINE REALTY TRUST CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, December 31, 1998 1997 ------------ ----------- (unaudited) ASSETS Real estate investments Operating properties $ 1,075,077 $ 586,414 Accumulated depreciation (29,923) (22,857) ------------ ------------ 1,045,154 563,557 Cash and cash equivalents 38,042 29,442 Escrowed cash 1,241 212 Accounts receivable 4,877 3,689 Due from affiliates 348 214 Investment in management company 109 74 Investment in unconsolidated real estate ventures 7,276 5,480 Deposits 100 12,133 Deferred costs and other assets 9,197 6,680 ----------- ----------- Total assets $ 1,106,344 $ 621,481 ============ ============ LIABILITIES AND BENEFICIARIES' EQUITY Mortgage notes payable $ 69,170 $ 48,731 Notes payable, Credit Facility 278,300 115,233 Accrued interest 1,164 857 Accounts payable and accrued expenses 6,875 2,377 Distributions payable 14,091 8,843 Tenant security deposits and deferred rents 8,899 5,535 ------------ ----------- Total liabilities 378,499 181,576 ------------ ------------ Commitments and Contingencies Minority interest 14,074 14,377 ------------ ------------ Beneficiaries' equity Shares of beneficial interest, $0.01 par value, 100,000,000 common shares authorized, 37,426,000 shares issued and outstanding 370 241 Additional paid-in capital 740,071 446,054 Share warrants 962 962 Cumulative earnings 19,698 11,753 Cumulative distributions (47,330) (33,482) ------------ ------------ Total beneficiaries' equity 713,771 425,528 ------------ ------------ Total liabilities and beneficiaries' equity $ 1,106,344 $ 621,481 ============ ============
The accompanying notes are an integral part of these statements. 3 BRANDYWINE REALTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share information) (Unaudited)
Three Months Ended March 31, ---------------------------- 1998 1997 ------------ ------------ Revenue: Rents $ 28,495 $ 6,999 Tenant reimbursements 3,823 1,327 Other 784 272 ------------ ------------ Total revenue 33,102 8,598 ------------ ------------ Operating Expenses: Interest 4,387 975 Depreciation and amortization 7,713 2,310 Property operating expenses 10,137 2,810 Management fees 1,331 315 Administrative expenses 636 169 ------------ ------------ Total operating expenses 24,204 6,579 ------------ ------------ Income (loss) before equity in income of management company, minority interest and extraordinary item 8,898 2,019 Equity in income of management company 35 125 ------------ ------------ Income (loss) before minority interest and extraordinary item 8,933 2,144 Minority interest in income (130) (94) ------------ ------------ Net Income before extraordinary item 8,803 2,050 Extraordinary item (Note 5) (858) - ------------ ------------ Net income 7,945 2,050 Income allocated to Preferred Shares - (499) ------------ ------------ Income allocated to Common Shares $ 7,945 $ 1,551 ============ ============ Earnings per Common Share: Before extraordinary item Basic $ 0.28 $ 0.20 ============ ============ Diluted $ 0.28 $ 0.20 ============ ============ After extraordinary item Basic $ 0.25 $ 0.20 ============ ============ Diluted $ 0.25 $ 0.20 ============ ============
The accompanying condensed notes are an integral part of these consolidated financial statements. 4 BRANDYWINE REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOW
Three Months Ended March 31, ---------------------------- 1998 1997 ---------------------------- (unaudited and in thousands) Cash flows from operating activities: Net income $ 7,945 $ 2,050 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 130 94 Depreciation and amortization 7,713 2,310 Equity in income of management company (35) (125) Amortization of deferred compensation 372 - Amortization of discounted notes payable 67 - Extraordinary item - write off of deferred financing costs 858 - Changes in assets and liabilities: Accounts receivable (1,188) (709) Affiliate receivable (134) 38 Other assets (1,057) (103) Accounts payable and accrued expenses 3,066 938 Accrued mortgage interest 367 55 Other liabilities 3,364 545 ------------ ------------ Net cash provided by operating activites 21,468 5,093 ------------ ------------ Cash flows from investing activities: Purchase of properties (445,035) (58,143) Investment in real estate ventures (1,796) - Decrease (increase) in escrowed cash (1,029) 432 Capital expenditures and leasing commissions paid (4,762) (2,292) ------------ ------------ Net cash used in investing activities (452,622) (60,003) ------------ ------------ Cash flows from financing activites: Proceeds from issuance of shares, net 287,462 45,534 Distributions paid to shareholders (8,634) (2,127) Distributions paid to minority partners (134) (54) Proceeds from mortgage notes payable - 21,682 Repayment of mortgage notes payable (646) (9,578) Proceeds from notes payable, Credit Facility 570,867 - Repayment of notes payable, Credit Facility (407,800) - Other debt costs (1,361) (428) ------------ ------------ Net cash provided by (used in) financing activities 439,754 55,029 ------------ ------------ Increase (decrease) in cash and cash equivalents 8,600 119 Cash and cash equivalents at beginning of period 29,442 18,279 ------------ ------------ Cash and cash equivalents at end of period $ 38,042 $ 18,398 ============ ============
The accompanying condensed notes are an integral part of these consolidated financial statements. 5 BRANDYWINE REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 1. ORGANIZATION AND NATURE OF OPERATIONS: Brandywine Realty Trust (collectively with its subsidiaries, the "Company") is a self-administered, self-managed and fully integrated real estate investment trust (a "REIT"). The Company currently owns a portfolio of real estate assets located primarily in the Mid-Atlantic Region. As of March 31, 1998, the Company's portfolio included 139 office properties and 28 industrial facilities (collectively, the "Properties") that contain an aggregate of approximately 11.5 million net rentable square feet. As of March 31, 1998, the Company also held economic interests in seven office development entities (the "Development Entities"). The Company's interest in the Properties and the Development Entities is held through Brandywine Operating Partnership, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership and, as of March 31, 1998, the Company held a 98.4% interest in the Operating Partnership. The Operating Partnership holds a 95% economic interest in Brandywine Realty Services Corporation (the "Management Company") through its ownership of 100% of the Management Company's non-voting preferred stock and 5% of its voting common stock. As of March 31, 1998, the Management Company was responsible for managing and leasing 165 of the Company's Properties and additional properties on behalf of third parties. A majority of the Properties are located within the suburban Philadelphia office and industrial market. As such, a downturn in business activity in this market could negatively impact the Company. Management believes that the Philadelphia office and industrial market provides a well-diversified economic base which helps to insulate the region from the types of market vicissitudes that can adversely affect a single-sector economy. 2. BASIS OF PRESENTATION: The financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles 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 the Company, all adjustments (consisting solely of normal recurring matters) necessary to fairly present the financial position of the Company as of March 31, 1998, and the results of its operations and its cash flows for the three month periods ended March 31, 1998 and 1997 have been included. The results of operations for such interim periods are not necessarily indicative of the results for a full year. For further information, refer to the Company's consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 1997. 3. ACQUISITIONS OF REAL ESTATE INVESTMENTS: Subsequent to March 31, 1998 Subsequent to March 31, 1998 and through May 14, 1998, the Company acquired 12 office properties which contained an aggregate of approximately 803,000 net rentable square feet. The aggregate purchase price for the 12 properties was 6 approximately $90.1 million, consisting of $79.5 million of cash and $10.6 million in units of limited partner interest ("Units") in the Operating Partnership. Each Unit is redeemable at the option of the holder, subject to certain conditions, for a cash payment equal to the market price of a Common Share at the time of redemption or, at the Company's option, for one Common Share. First Quarter - 1998 During the first three months of 1998, the Company acquired 50 Properties (44 office properties and six industrial facilities) which contained an aggregate of approximately 4.3 million net rentable square feet. The aggregate purchase price of the 50 properties was $492.7 million, consisting of $489.1 million of cash and $3.6 million in Units. 1997 During 1997, the Company acquired 80 properties (61 office properties and 19 industrial facilities) which contained an aggregate of approximately 5.1 million net rentable square feet. The aggregate purchase price for the 1997 property acquisitions was $403.7 million, consisting of $378.3 million of cash, $15.9 million of debt assumed and $9.5 million in Units. The following unaudited pro forma financial information of the Company for the three months ended March 31, 1998 and for the year ended December 31, 1997 gives effect to the properties acquired and the common share offerings during 1998 and 1997 as if the purchases and offerings had occurred on January 1, 1997.
Three Months Ended March 31, ------------------------------------------- 1998 1997 ------------------- ------------------ (Unaudited and in thousands, except per share data) Pro forma total revenues $48,129 $44,529 Pro forma net income before extraordinary items $15,109 $11,379 Diluted pro forma net income per Common Share before extraordinary items $0.40 $0.32
All acquisitions described above were accounted for by the purchase method. The results of operations for each of the acquired properties have been included from the respective purchase dates. All pro forma financial information presented within this footnote is unaudited and is not necessarily indicative of the results which actually would have occurred if acquisitions had been consummated on the respective dates indicated, nor does the pro forma information purport to represent the results of operations for future periods. 4. INDEBTEDNESS Notes Payable Credit Facility - The Company uses credit facility borrowings for general business purposes, including the acquisition of office and industrial properties and the repayment of certain outstanding debt. At December 31, 1997, the Company had a $150 million secured credit facility (the "1997 Credit Facility") which had remaining availability of $34.8 million. The 1997 Credit Facility was secured by 39 of the Properties and bore interest at a per annum floating rate equal to the Company's choice of 30, 60 or 90-day LIBOR, plus 175 basis points. During the first quarter of 1998, the Company replaced the 1997 Credit Facility with a $330 million unsecured revolving credit facility (the "1998 Credit Facility"). The Company wrote off $858,000 of deferred financing costs relating to the 1997 Credit Facility which has been accounted for as an extraordinary item on the statement of operations. The new facility enables the Company to 7 borrow funds at a reduced interest rate equal to the 30, 60, 90 or 180-day LIBOR, plus, in each case, a range of 100 to 137.5 basis points, depending on the Company's then existing leverage and debt rating. Alternatively, the Company can borrow funds at a base rate equal to the higher of (i) the Prime Rate or (ii) the Fed Funds Rate plus 50 basis points. The 1998 Credit Facility matures on January 5, 2001 and is extendible, under certain circumstances, at the Company's option to January 5, 2002. The 1998 Credit Facility requires the Company to maintain ongoing compliance with a number of customary financial and other covenants, including leverage ratios based on gross implied asset value and debt service coverage ratios, limitations on liens and distributions and a minimum net worth requirement. As of March 31, 1998, the Company was in compliance with all debt covenants. On May 7, 1998 the Company and the Operating Partnership entered into an unsecured credit facility (the "Additional Facility") with NationsBank, N.A. permitting advances of up to $150 million, subject to certain conditions. The Additional Facility matures on November 7, 1998, subject to a two-month extension under certain circumstances, and allows the Company to borrow funds at an interest rate equal to LIBOR plus 150 basis points or, at the Company's option, the Prime Rate plus 25 basis points. Amounts repaid by the Company under the Additional Facility are not subject to reborrowing. The Additional Credit Facility incorporates the covenants contained in the Credit Facility. The Company paid interest totaling $3,812,000 during the three months ended March 31, 1998 and $836,000 during the three months ended March 31, 1997. As of March 31, 1998, the fair values of mortgage notes payable and notes payable under the Credit Facility approximate carrying costs. As of March 31, 1998, the Company had entered into guaranties, and agreements contemplating the provision of guaranties, for the benefit of unconsolidated real estate ventures, aggregating approximately $33.3 million. Payment under these guaranties would constitute loan obligations of, or preferred equity positions in, the applicable unconsolidated real estate venture. 8 5. ISSUANCE OF SHARES, WARRANTS AND OPTIONS: ---------------------------------------- The following table summarizes the Company's issuance of shares, warrants and options during the periods presented:
Number of Number of Date of Common Share options\ Exercise Proceeds Type of issuance Investor issuaance Shares Price warrants Price (in thousands) (1) - ------------------------- --------------- ---------- ---------- -------- --------- --------- ------------------ 1998 Activity through March 31, 1998: - ----------------------------------------------- Share offering (2) Public 3/6/98 1,000,000 $ 24.00 - - 22,770 Share offering Public 2/27/98 629,921 $ 23.81 - - 14,325 Share offering Public 2/18/98 1,012,820 $ 24.06 - - 23,152 Share offering Public 2/4/98 10,000,000 $ 24.00 - - 227,700 Unit redemptions (3) Safeguard Scientifics 1/6/98 252,387 - - - - Employee share awards Company employees 1/2/98 443,557 - - - 16,679 Employee share options Company employees 1/2/98 - - 748,874 $ 29.04 - Employee share options Company employees 1/2/98 - - 740,796 $ 27.78 - Employee share options Company employees 1/2/98 - - 554,034 $ 25.25 - ---------- --------- --------- 13,338,685 2,043,704 $ 304,626 ---------- --------- ========= Amounts outstanding at December 31, 1997 - ----------------------------------------------- Shares outstanding Various 12/31/97 24,087,315 - - - Options outstanding Various 12/31/97 - 762,105 $6.21 - $25.50 - ---------- --------- 24,087,315 762,105 ---------- -------- Total outstanding as of March 31, 1998 37,426,000 2,805,809 ========== ========= Activity subsequent to March 31, 1998 - ----------------------------------------------- Share offering Public 4/21/98 625,000 $ 24.00 - - 14,250 ---------- --------- Total outstanding as of May 14, 1998 38,051,000 2,805,809 ========== ========= (1) Proceeds are net of underwriter's discounts and before deducting other expenses, if any. (2) This offering was pursuant to the exercise of underwriters' over-allotment options. (3) Unit Redemptions represent Common Shares issued upon redemption of Units.
On January 2, 1998, the Company awarded an aggregate of 443,557 "restricted" Common Shares to six of the Company's executives. These restricted shares vest over five to eight year periods and were valued at approximately $11.2 million (based on the closing price of Common Shares on January 2, 1998). Also on January 2, 1998, the Company awarded certain of its employees options exercisable for an aggregate 2,043,704 Common Shares. Of the options awarded, 1,737,261 were granted subject to shareholder approval. These options vest over two to five years and have exercise prices ranging from $25.25 to $29.04. The Company has reserved, as of March 31, 1998, 1,068,548 Common Shares for issuance upon the exercise of options and warrants described above. There were no options or warrants exercised or canceled and no options or warrants expired from January 1, 1997 to March 31, 1998. 6. DISTRIBUTIONS: On March 17, 1998, the Company declared a distribution of $0.37 per share which was paid on April 15, 1998 to shareholders of record as of March 27, 1998. 7. NET INCOME (LOSS) PER SHARE: In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 establishes standards for computing and presenting earnings per share ("EPS"). Basic earnings per share are based on the weighted average number of Common Shares outstanding during the year. Diluted earnings per share are based on the weighted average number of 9 Common Shares outstanding during the year adjusted to give effect to common share equivalents. All per share amounts for all periods presented have been restated to conform to SFAS 128. A reconciliation between basic and diluted EPS is shown below (in thousands, except share and per share data).
Three Months Ended March 31, ------------------------------------------------------------------- 1998 1997 --------------------------------- -------------------------------- Basic Diluted Basic Diluted --------------- --------------- --------------- --------------- Net income (loss) $ 7,945 $ 7,945 $ 2,050 $ 2,050 Income allocated to Preferred Shares - - (499) (499) --------------- --------------- --------------- --------------- Income (loss) available to common shareholders $ 7,945 $ 7,945 $ 1,551 $ 1,551 --------------- --------------- --------------- --------------- Weighted average shares outstanding 31,540,412 31,540,412 7,753,125 7,753,125 Options and warrants - 133,353 - 51,892 --------------- --------------- --------------- --------------- Total weighted average shares outstanding 31,540,412 31,673,765 7,753,125 7,805,017 --------------- --------------- --------------- --------------- Earnings (loss) per share $ 0.25 $ 0.25 $ 0.20 $ 0.20 =============== =============== =============== ===============
10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements appearing elsewhere herein. This Form 10-Q contains forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, there can be no assurance that these expectations will be realized. Factors that could cause actual results to differ materially from current expectations include, but are not limited to, changes in general economic conditions, changes in local real estate conditions, changes in industries in which the Company's principal tenants compete, the failure to timely lease unoccupied space, the failure to timely re-lease occupied space upon expiration of leases, the inability to generate sufficient revenues to meet debt service payments and operating expenses, the unavailability of equity and debt financing and the failure of the Company to manage its growth effectively. OVERVIEW The Company believes it has established an effective platform in the suburban Philadelphia, Pennsylvania market that provides a foundation for achieving the Company's goal of maximizing market penetration and operating economies of scale. The Company believes this platform provides a basis to continue its penetration into additional targeted markets in the Mid-Atlantic United States through strategic acquisitions structured to increase cash available for distribution and maximize shareholder value. The Company continued its growth during the three months ended March 31, 1998 by purchasing 50 office and industrial properties for an aggregate purchase price of approximately $492.7 million (the "First Quarter 1998 Acquisitions") and investing approximately $1.8 million in unconsolidated real estate ventures. As of March 31, 1998, the Company's portfolio consisted of 139 office and 28 industrial properties totaling approximately 11.5 million net rentable square feet. These acquisitions increased the Company's market share in the suburban Philadelphia office and industrial market and expanded the Company's presence into several other markets within the Mid-Atlantic Region. The First Quarter 1998 Acquisitions were financed through a combination of proceeds received from three public offerings of an aggregate of approximately 12.6 million Common Shares which raised gross proceeds of approximately $303.4 million, borrowings under the Company's revolving credit facility and the issuance of 153,036 Units in the Operating Partnership valued at approximately $3.6 million. These acquisitions expanded the Company's presence into Maryland, Delaware and New Jersey while reinforcing the Company's presence in suburban Philadelphia. During the period March 31, 1998 through May 14, 1998, the Company acquired 12 additional office properties containing an aggregate of approximately 803,000 net rentable square feet for a total of approximately $90.1 million. These acquisitions expanded the Company's presence into the Harrisburg, PA market and strengthened the Company's position in Delaware. The Company receives income primarily from rental revenue (including tenant reimbursements) from the Properties and, to a lesser extent, from the management of certain properties owned by third parties. The Company expects that revenue growth in the next two years will result primarily from additional acquisitions, as well as from rent increases in its current portfolio. RESULTS OF OPERATIONS Comparison of the Three Months Ended March 31, 1998 to the Three Months Ended March 31, 1997 11 Net income before extraordinary items for the three months ended March 31, 1998 was $8.8 million compared with net income of $2.1 million for the corresponding period in 1997. The increase was primarily attributable to the operating results contributed by the 130 properties acquired from January 1, 1997 through March 31, 1998. The extraordinary item included in the statement of operations for the three months ended March 31, 1998 reflects the Company's write-off of costs associated with its then existing secured credit facility which was replaced by an unsecured credit facility (see "Liquidity and Capital Resources" for further discussion). Revenues, which include rental income, recoveries from tenants and other income, increased by $24.5 million for the three months ended March 31, 1998 as compared to the corresponding prior year period primarily as a result of property acquisitions and, to a lesser extent, increased occupancy. The impact of the straight-line rent adjustment increased revenues by $924,000 for the three months ended March 31, 1998. Property operating expenses, depreciation and amortization and management fees increased in the aggregate by $13.7 million for the three months ended March 31, 1998 as compared with the prior year period primarily as a result of property acquisitions. Interest expense increased by $3.4 million as a result of additional indebtedness incurred to finance certain of the Company's acquisitions. Administrative expenses increased by $467,000 primarily as a result of management and staffing additions to support the Company's growth. Minority interest primarily represents the portion of the Operating Partnership which is not owned by the Company. LIQUIDITY AND CAPITAL RESOURCES Cash Flows During the three months ended March 31, 1998, the Company generated $21.5 million in cash flow from operating activities. Other sources of cash flow consisted of (i) $163.1 million in net additional borrowings under the Company's revolving credit facility and (ii) $287.5 million in net proceeds from share issuances. During the three months ended March 31, 1998, the Company used its cash to (i) finance the cash portion ($445.0 million) of the acquisition cost of 50 Properties, (ii) invest $1.8 million in unconsolidated real estate ventures, (iii) fund capital expenditures and leasing commissions of $4.8 million, (iv) pay distributions totaling $8.8 million to shareholders and minority partners in the Operating Partnership, (v) pay scheduled amortization on mortgage principal of $0.6 million, (vi) increase escrowed cash by $1.0 million, (vii) pay other debt costs of $1.4 million and (viii) increase existing cash reserves by $8.6 million. Capitalization During the first quarter of 1998, the Company replaced the 1997 Credit Facility with the 1998 Credit Facility. The interest rate was reduced by 37.5 to 60 basis points depending on the Company's degree of leverage. Upon attainment of an investment rating, the overall interest rate reduction would be between 60 to 75 basis points regardless of the degree of leverage. The 1998 Credit Facility matures on January 5, 2001 and is extendible, under certain circumstances, at the Company's option to January 5, 2002. As of March 31, 1998, the Company had approximately $347.5 million of debt outstanding, consisting of mortgage loans totaling $69.2 million and notes payable under the 1998 Credit Facility of $278.3 million. The mortgage loans mature between July 1998 and November 2004. As of March 31, 1998, the Company had $51.7 million of remaining availability under the 1998 Credit Facility, 12 which provides for total borrowings up to $330 million and bore interest at a per annum floating rate equal to the 30, 60 or 90-day LIBOR, plus 137.5 basis points. For the three months ended March 31, 1998, the weighted average interest rates on the Company's debt were 7.1% and 8.3% for borrowings under the 1998 Credit Facility and mortgage notes payable, respectively. The Company's debt to market capitalization ratio was 28% as of March 31, 1998 and averaged 25% during the quarter. As a general policy, the Company intends, but is not obligated, to adhere to a policy of maintaining a debt to market capitalization ratio of no more than 50%. This policy is intended to provide the Company with financial flexibility to select what management believes to be the optimal source of capital to finance the Company's growth. To provide financing for recent acquisitions, on May 7, 1998 the Company and the Operating Partnership entered into an unsecured credit facility (the "Additional Facility") with NationsBank, N.A. permitting advances of up to $150 million, subject to certain conditions. The Additional Facility matures on November 7, 1998, subject to a two-month extension under certain circumstances, and allows the Company to borrow funds at an interest rate equal to LIBOR plus 150 basis points or, at the Company's option, the Prime Rate plus 25 basis points. Amounts repaid by the Company under the Additional Facility are not subject to reborrowing. The Additional Credit Facility incorporates the covenants contained in the 1998 Credit Facility. During the period January 1, 1998 through March 31, 1998, the Company sold an aggregate 12,642,741 Common Shares for gross proceeds of $303.4 million pursuant to three public offerings. On April 21, 1998, the Company sold 625,000 Common Shares for gross proceeds of $15.0 million pursuant to a public offering. Short and Long Term Liquidity The Company believes that its cash flow from operations is adequate to fund its short-term liquidity requirements for the foreseeable future. Cash flow from operations is generated primarily from rental revenues and operating expense reimbursements from tenants and management services income from the provision of services to third parties. The Company intends to use these funds to meet its short-term liquidity needs, which are to fund operating expenses, debt service requirements, recurring capital expenditures, tenant allowances, leasing commissions and the minimum distribution required to maintain the Company's REIT qualification under the Internal Revenue Code. On March 17, 1998, the Board of Trustees declared a quarterly dividend distribution of $0.37 per share, paid on April 15, 1998 to shareholders of record as of March 27, 1998. As of March 31, 1998, the Company had entered into guaranties, and agreements contemplating the provision of guaranties, for the benefit of unconsolidated real estate ventures, aggregating approximately $33.3 million. Payment under these guaranties would constitute loan obligations of, or preferred equity positions in, the applicable unconsolidated real estate venture. The Company expects to meet its long-term liquidity requirements, such as for property acquisitions and development, scheduled debt maturities, renovations, expansions and other non-recurring capital improvements, through the 1998 Credit Facility and other long-term secured and unsecured indebtedness and the issuance of additional Units and other equity securities. Funds from Operations Management generally considers Funds from Operations ("FFO") as one measure of REIT performance. The Company adopted the NAREIT definition of FFO in 1996 and has used this definition for all periods presented in the financial 13 statements included herein. FFO is calculated as net income (loss) adjusted for depreciation expense attributable to real property, amortization expense attributable to capitalized leasing costs, gains on sales of real estate investments and extraordinary and nonrecurring items. FFO should not be considered an alternative to net income as an indication of the Company's performance or to cash flows as a measure of liquidity. FFO for the three months ended March 31, 1998 and 1997 is summarized in the following table (in thousands, except share and per share data).
Three Months Ended March 31, ----------------------------------- 1998 1997 ---------------- --------------- Income before minority interest and extraordinary items $ 8,933 $ 2,144 Add (Deduct): Depreciation attributable to real property 7,300 1,969 Amortization attributable to leasing costs 243 179 Minority interest not attributable to unit holders - (11) ---------------- --------------- Funds from Operations before minority interest $ 16,476 $ 4,281 ================ =============== Weighted average Common Shares (including common share equivalents) and Operating Partnership units (1) 32,144,535 9,758,066 ================ =============== Funds from Operations per share $ 0.51 $ 0.44 ================ ===============
(1) Includes the weighted average effect of Common Shares issued upon the conversion of preferred shares for the period prior to conversion, the weighted average effect of Common Shares issuable upon the conversion of Units. Year 2000 Issue The Company has recognized the need to ensure that its systems, equipment and operations will not be adversely impacted upon the arrival of the calendar year 2000. The Company has initiated the process of identifying potential areas of risk and the related effects on planning, purchasing and daily operations. The Company has not quantified the potential adverse impact resulting from the failure of third party suppliers and tenants to prepare for the year 2000. However, the Company does not anticipate the total cost of successfully converting all internal systems, equipment and operations to year 2000 compliance to be material. Inflation A majority of the Company's leases provide for separate escalations of real estate taxes and operating expenses either on a triple net basis or over a base amount. In addition, many of the office leases provide for fixed base rent increases or indexed escalations (based on the CPI or other measure). The Company believes that inflationary increases in expenses will be significantly offset by the expense reimbursement and contractual rent increases. 14 Part II. OTHER INFORMATION Item 1. Legal Proceedings The Company is not currently involved (nor was it involved at March 31, 1998) in any material legal proceedings nor, to the Company's knowledge, is any material legal proceeding currently threatened against the company, other than routine litigation arising in the ordinary course of business, substantially all of which is expected to be covered by liability insurance. Item 2. Changes in Securities (a) Not applicable. (b) Not applicable. (c) Not applicable. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27.1 Financial Data Schedule (electronic filers) (b) Reports on Form 8-K: During the three months ended March 31, 1998, and through May 14, 1998, the Company filed the following: (i) Current Report on Form 8-K filed January 9, 1998 (reporting under Items 2, 5 and 7). Item 7 of this Current Report referenced financial statements filed under Item 7 of a Current Report filed on December 17, 1997. (ii) Current Report on Form 8-K filed January 27, 1998 (reporting under Items 5 and 7). This Current Report included an audited statement of revenue and certain expenses of the RREEF Properties for the year ended December 31, 1996 and the unaudited statement of revenue and certain expenses for the nine months ended September 30, 1997. This Current Report also included pro forma financial information for the nine months ended September 30, 1997 and for the year ended December 31, 1996. 15 (iii) Current Report on Form 8-K filed January 30, 1998 (reporting under Items 5 and 7). (iv) Current Report on Form 8-K filed February 13, 1998 (reporting under Items 5 and 7). (v) Current Report on Form 8-K filed February 23, 1998 (reporting under Items 2, 5 and 7). This Current Report included an audited statement of revenue and certain expenses of Three Christina Centre for the year ended December 31, 1996 and the unaudited statement of revenue and certain expenses for the nine months ended September 30, 1997. This Current Report also included pro forma financial information for the nine months ended September 30, 1997 and for the year ended December 31, 1996. (vi) Current Report on Form 8-K filed February 25, 1998 (reporting under Items 5 and 7). (vii) Current Report on Form 8-K filed March 17, 1998 (reporting under Items 2, 5 and 7). Item 2 of this Current Report referenced financial statements filed under Item 7 of a Current Report filed on February 23, 1998. (viii) Current Report on Form 8-K filed April 13, 1998 (reporting under Items 2 and 7). (ix) Current Report on Form 8-K/A No. 1 filed April 16, 1998 (reporting under Items 5 and 7). This Amendment No. 1 included (i) an audited statement of revenue and certain expenses of the DKM Properties for the year ended December 31, 1997 and (ii) an audited statement of revenue and certain expenses of Three Christina Centre for the year ended December 31, 1997. This Amendment No. 1 also included pro forma financial information for the year ended December 31, 1997. (x) Current Report on Form 8-K filed May 14, 1998 (reporting under Items 2, 5 and 7). This Current Report included an audited combined statement of revenue and certain expenses of the First Commercial Properties for the year ended December 31, 1997 and an audited statement of revenue and certain expenses of One Christina Centre for the year ended December 31, 1997. This Current Report also included pro forma financial information for the year ended December 31, 1997. 16 BRANDYWINE REALTY TRUST SIGNATURES OF REGISTRANT Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRANDYWINE REALTY TRUST (Registrant) Date: May 15, 1998 By: /s/ Gerard H. Sweeney ------------ ----------------------- Gerard H. Sweeney, President and Chief Executive Officer (Principal Executive Officer) Date: May 15, 1998 By: /s/ Mark S. Kripke ------------ -------------------- Mark S. Kripke, Chief Financial Officer (Principal Financial and Accounting Officer) 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 US DOLLARS 3-MOS DEC-31-1997 MAR-31-1998 1 38,042 0 4,877 0 0 44,160 1,075,077 29,923 1,106,344 31,029 0 0 0 370 713,401 1,106,344 0 33,102 0 24,204 0 0 4,387 8,898 0 0 0 0 0 7,945 0.25 0.25
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