-----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, K2vHTPAiGOky7ygbAEEpco0U9t924RaPmEKuRd0k88cWxe3pKYqbn3PeCUzJ8KVz pzXT0brwh7CgvIveN/6iCA== 0000950116-03-003476.txt : 20030813 0000950116-03-003476.hdr.sgml : 20030813 20030813150704 ACCESSION NUMBER: 0000950116-03-003476 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030813 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: 1934 Act SEC FILE NUMBER: 001-09106 FILM NUMBER: 03840798 BUSINESS ADDRESS: STREET 1: 14 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 ten-q.txt 10-Q 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 June 30, 2003 or ____ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ___________ Commission file number 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 401 Plymouth Road, Plymouth Meeting, Pennsylvania 19462 ------------------------------------------------------- (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 or for such shorter period that the registrant was required to file such reports and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] A total of 37,359,460 Common Shares of Beneficial Interest, par value $.01 per share, were outstanding as of August 13, 2003. BRANDYWINE REALTY TRUST TABLE OF CONTENTS ----------------- PART I - FINANCIAL INFORMATION
Page ---- Item 1. Financial Statements (unaudited) Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002................ 3 Condensed Consolidated Statements of Operations for the three- and six-month periods ended June 30, 2003 and June 30, 2002.......................................................... 4 Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2003 and June 30, 2002..................................................................... 5 Notes to Condensed Consolidated Financial Statements........................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................................... 19 Item 3. Quantitative and Qualitative Disclosures about Market Risk..................................... 27 Item 4. Controls and Procedures........................................................................ 27 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................................................. 28 Item 4. Submission of Matters to a Vote of Security Holders........................................... 28 Item 6. Exhibits and Reports on Form 8-K............................................................... 28 Signatures..................................................................................... 30
2 PART I - FINANCIAL INFORMATION Item 1. - Financial Statements BRANDYWINE REALTY TRUST CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share information)
June 30, December 31, 2003 2002 ---------- ---------- (unaudited) ASSETS Real estate investments: Operating properties $1,896,697 $1,890,009 Accumulated depreciation (263,327) (245,230) ---------- ---------- 1,633,370 1,644,779 Construction-in-progress 43,624 58,127 Land held for development 43,637 43,075 ---------- ---------- 1,720,631 1,745,981 Cash and cash equivalents 7,520 26,801 Escrowed cash 17,605 16,318 Accounts receivable, net 3,729 3,657 Accrued rent receivable, net 30,959 28,333 Marketable securities 11,918 11,872 Assets held for sale 23,262 7,666 Investment in real estate ventures, at equity 14,646 14,842 Deferred costs, net 28,279 29,271 Other assets 28,246 34,547 ---------- ---------- Total assets $1,886,795 $1,919,288 ========== ========== LIABILITIES AND BENEFICIARIES' EQUITY Mortgage notes payable $ 575,839 $ 597,729 Borrowings under Credit Facility 264,000 307,000 Unsecured term loan 100,000 100,000 Accounts payable and accrued expenses 21,786 27,576 Distributions payable 22,106 21,186 Tenant security deposits and deferred rents 21,685 22,276 Other liabilities 18,869 22,006 Liabilities related to assets held for sale 254 20 ---------- ---------- Total liabilities 1,024,539 1,097,793 Minority interest 133,468 135,052 Commitments and contingencies Beneficiaries' equity: Preferred Shares (shares authorized-10,000,000): 7.25% Series A Cumulative Convertible Preferred Shares, $.01 par value; issued and outstanding- 750,000 in 2003 and 2002 8 8 8.75% Series B Cumulative Convertible Preferred Shares, $.01 par value; issued and outstanding- 4,375,000 in 2003 and 2002 44 44 Common Shares of Beneficial Interest, $0.01 par value; shares authorized-100,000,000; issued and outstanding- 37,359,131 in 2003 and 35,226,315 in 2002 373 352 Additional paid-in capital 894,051 841,659 Share warrants 401 401 Cumulative earnings 251,713 225,010 Accumulated other comprehensive loss (4,923) (6,402) Cumulative distributions (412,879) (374,629) ---------- ---------- Total beneficiaries' equity 728,788 686,443 ---------- ---------- Total liabilities and beneficiaries' equity $1,886,795 $1,919,288 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3
BRANDYWINE REALTY TRUST CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands, except per share information) Three-Month Periods Six-Month Periods Ended June 30, Ended June 30, -------------------- -------------------- 2003 2002 2003 2002 ------- ------- -------- -------- Revenue: Rents $64,961 $62,095 $129,281 $121,301 Tenant reimbursements 8,559 8,102 17,164 15,472 Other 1,356 2,717 4,083 5,586 ------- ------- -------- -------- Total revenue 74,876 72,914 150,528 142,359 Expenses: Property operating expenses 19,281 18,232 40,799 36,453 Real estate taxes 6,819 6,118 13,423 11,854 Interest 15,241 16,105 30,547 31,835 Depreciation and amortization 15,062 15,268 29,856 27,542 Administrative expenses 3,809 3,805 7,323 7,841 ------- ------- -------- -------- Total operating expenses 60,212 59,528 121,948 115,525 Income from continuing operations before equity in income of real estate ventures, net gain on sales of interests in real estate and minority interest 14,664 13,386 28,580 26,834 Equity in income of real estate ventures 411 229 569 693 ------- ------- -------- -------- Income from continuing operations before gain on sale of interests in real estate and minority interest 15,075 13,615 29,149 27,527 Gain on sale of interests in real estate - - 1,152 - Minority interest attributable to continuing operations (2,299) (2,270) (4,618) (4,612) ------- ------- -------- -------- Income from continuing operations 12,776 11,345 25,683 22,915 Discontinued operations: Income from discontinued operations 395 1,416 895 5,581 Gains on disposition of discontinued operations 390 116 951 8,562 Minority interest (37) (77) (88) (789) ------- ------- -------- -------- Income from discontinued operations 748 1,455 1,758 13,354 ------- ------- -------- -------- Net income 13,524 12,800 27,441 36,269 Income allocated to Preferred Shares (2,976) (2,977) (5,952) (5,954) ------- ------- -------- -------- Income allocated to Common Shares $10,548 $ 9,823 $ 21,489 $ 30,315 ======= ======= ======== ======== Basic earnings per Common Share: Continuing operations $ 0.27 $ 0.22 $ 0.54 $ 0.46 Discontinued operations 0.02 0.04 0.05 0.37 ------- ------- -------- -------- $ 0.29 $ 0.26 $ 0.59 $ 0.83 ======= ======= ======== ======== Diluted earnings per Common Share: Continuing operations $ 0.27 $ 0.22 $ 0.53 $ 0.45 Discontinued operations 0.02 0.04 0.05 0.37 ------- ------- -------- -------- $ 0.29 $ 0.26 $ 0.58 $ 0.82 ======= ======= ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 BRANDYWINE REALTY TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands)
Six-Month Periods Ended June 30, ------------------------ 2003 2002 -------- -------- Cash flows from operating activities: Net income $ 27,441 $ 36,269 Adjustments to reconcile net income to net cash from operating activities: Depreciation 26,899 26,875 Amortization: Deferred financing costs 1,004 1,007 Deferred leasing costs 3,404 2,706 Deferred compensation costs 1,500 1,599 Straight-line rent (2,913) (2,937) Provision for doubtful accounts 300 1,122 Net gain on sale of interests in real estate (2,103) (8,562) Minority interest 4,706 5,401 Changes in assets and liabilities: Accounts receivable (243) 2,498 Other assets 6,008 4,696 Accounts payable and accrued expenses (5,476) (10,103) Tenant security deposits and deferred rents (328) (6,580) Other liabilities (988) (913) -------- -------- Net cash from operating activites 59,211 53,078 Cash flows from investing activities: Acquisitions of properties - (22,887) Sales of properties 4,078 59,054 Capital expenditures (19,140) (22,179) Investment in real estate ventures (192) (476) Escrowed cash (1,287) 997 Cash distributions from real estate ventures in excess of equity in income 388 461 Leasing costs (3,640) (6,518) -------- -------- Net cash from investing activities (19,793) 8,452 Cash flows from financing activites: Proceeds from notes payable, Credit Facility 21,000 15,000 Repayments of notes payable, Credit Facility (64,000) (26,000) Proceeds from mortgage notes payable - 14,021 Repayments of mortgage notes payable (21,890) (4,229) Debt financing costs (50) - Repayments on employee stock loans 1,613 1,618 Proceeds from issuance of shares, net 47,042 - Repurchases of Common Shares and minority interest units - (7,905) Distributions paid to shareholders (37,307) (37,605) Distributions to minority interest holders (5,107) (5,413) -------- -------- Net cash from financing activities (58,699) (50,513) -------- -------- (Decrease) increase in cash and cash equivalents (19,281) 11,017 Cash and cash equivalents at beginning of period 26,801 13,459 -------- -------- Cash and cash equivalents at end of period $ 7,520 $ 24,476 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 BRANDYWINE REALTY TRUST ----------------------- NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------- JUNE 30, 2003 ------------- 1. THE COMPANY ----------- Brandywine Realty Trust (collectively with its subsidiaries, the "Company") is a self-administered and self-managed real estate investment trust (a "REIT") active in acquiring, developing, redeveloping, leasing and managing office and industrial properties. As of June 30, 2003, the Company's portfolio included 209 office properties, 27 industrial properties and one mixed-use property (collectively, the "Properties") that contained an aggregate of 16.2 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, 2003, the Company also held economic interests in ten unconsolidated real estate ventures (the "Real Estate Ventures") formed with third parties to develop commercial properties. The Company owns its assets and conducts its operations through Brandywine Operating Partnership, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership and, as of June 30, 2003, was entitled to approximately 95.6% of the Operating Partnership's distributions after distributions by the Operating Partnership to holders of its Series B Preferred Units (defined below). The Operating Partnership owns a 95% interest in Brandywine Realty Services Corporation (the "Management Company"), a taxable REIT subsidiary that, as of June 30, 2003, was performing management and leasing services for 39 properties owned by third-parties. Minority interest is comprised of Class A Units of limited partnership interest ("Class A Units") and Series B Preferred Units of limited partnership interest ("Series B Preferred Units"). The Operating Partnership issued these Units to persons that contributed assets to the Operating Partnership. The Operating Partnership is obligated to redeem each Class A Unit, at the request of the holder, for cash or one Common Share, at the option of the Company. Each Series B Preferred Unit has a stated value of $50.00 and is convertible, at the option of the holder, into Class A Units at a conversion price of $28.00. The conversion price declines to $26.50, if the average trading price of the Common Shares during the 60-day period ending December 31, 2003 is $23.00 or less. The Series B Preferred Units bear a cumulative preferred distribution of 7.25% per annum ($3.625 per unit per annum), subject to an increase in the event quarterly distributions paid to holders of Common Shares exceed $0.51 per share. Income allocated to minority interest includes the amount of the Series B Preferred Unit distribution and the pro rata share of net income of the Operating Partnership allocated to the Class A Units held by third parties. As of June 30, 2003, 1,737,203 Class A Units and 1,950,000 Series B Preferred Units were outstanding and held by third party investors. Minority interest also includes the 5% interest in the Management Company that is owned by a partnership comprised of two Company executives. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Basis of Presentation - --------------------- The condensed consolidated financial statements have been prepared by the Company without audit except as to the balance sheet as of December 31, 2002, which has been prepared from audited data, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the included disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary to fairly present the financial position of the Company as of June 30, 2003, the results of its operations for the three- and six-month periods ended June 30, 2003 and 2002, and its cash flows for the six-month periods ended June 30, 2003 and 2002 have been included. The results of operations for such interim periods are not necessarily indicative of the results for a full year. For further information, refer to the Company's consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the year ended December 31, 2002. Certain prior period amounts have been reclassified to conform with the current period presentation. 6 Principles of Consolidation - --------------------------- The accompanying consolidated financial statements include all accounts of the Company, its majority-owned and/or controlled subsidiaries, which consist principally of Operating Partnership as well as the Management Company (consolidated subsequent to January 1, 2001, see below). The portion of these entities not owned by the Company is presented as minority interest as of and during the periods consolidated. All intercompany accounts and transactions have been eliminated in consolidation. See Investments in Unconsolidated Real Estate Ventures in Note 4 for the Company's treatment of unconsolidated real estate venture interests. All significant intercompany accounts and transactions have been eliminated. Use of Estimates - ---------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue, impairment of long-lived assets, allowance for doubtful accounts and deferred costs. Operating Properties - -------------------- Operating properties are carried at historical cost less accumulated depreciation and impairment losses. The cost of operating properties reflects their purchase price or development cost. Costs incurred for the acquisition and renovation of an operating property are capitalized to the Company's investment in that property. Maintenance and repairs are charged to expense as incurred. Depreciation and Amortization - ----------------------------- The costs of buildings and improvements are depreciated using the straight-line method based on the following useful lives: buildings and improvements (five to 40 years) and tenant improvements (the shorter of the lease term or the life of the asset). Construction in Progress - ------------------------ Project costs directly associated with the development and construction of a real estate project are capitalized as construction in progress. In addition, interest, real estate taxes and general and administrative expenses that are directly associated with the Company's development activities are capitalized until completion of the building shell. Once the building shell of a real estate project is completed, the costs capitalized to construction in progress are transferred to land and buildings. The Company capitalized direct construction costs totaling $.4 million and $.9 million for the three- and six-month periods ended June 30, 2003, and $.3 million and $.7 million for the three- and six-month periods ended June 30, 2002. The Company capitalized interest totaling $.2 million and $.6 million for the three- and six-month periods ended June 30, 2003 and $.7 million and $1.6 million for the three- and six-month periods ended June 30, 2002 related to development of certain Properties and land holdings. Impairment of Long-Lived Assets - ------------------------------- In accordance with Statement of Financial Accounting Standards No. 144 ("SFAS 144"), Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as real estate investments and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The other assets and liabilities related to assets classified as held-for-sale are presented separately in the consolidated balance sheet. No impairment losses were recorded for the three- and six-month periods ended June 30, 2003 and 2002. 7 Cash and cash equivalents - ------------------------- Cash and cash equivalents are highly liquid investments with original maturities of three months or less. The Company maintains cash equivalents in financial institutions in excess of insured limits. Investments in Unconsolidated Real Estate Ventures - -------------------------------------------------- The Company accounts for its investments in unconsolidated Real Estate Ventures under the equity method of accounting as the Company exercises significant influence, but does not control these entities under the provisions of the entities' governing agreements. These investments are recorded initially at cost, as Investments in Real Estate Ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions. On a periodic basis, management assesses whether there are any indicators that the value of the Company's investments in unconsolidated Real Estate Ventures may be impaired. An investment is impaired only if management's estimate of the value of the investment is less than the carrying value of the investment. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the value of the investment. Management does not believe that the value of any of the Company's investments in Real Estate Ventures is impaired. See Note 4. Deferred Costs - -------------- Costs incurred in connection with property leasing are capitalized as deferred leasing costs. Deferred leasing costs consist primarily of leasing commissions that are amortized on the straight-line method over the term of the respective lease. Lease terms generally range from one to 15 years. Management re-evaluates the deferred leasing costs for potential impairment as economic and market conditions change. Internal direct leasing costs deferred totaled $1.0 million and $1.9 million for the three-and six-month periods ended June 30, 2003, and $1.0 million and $1.7 million for the three-and six-month periods ended June 30, 2002. Costs incurred in obtaining long-term financing are amortized on a straight line basis and charged to interest expense over the terms of the related debt agreements. This approach approximates the effective interest rate method. Intangible Assets - ----------------- The Company allocates the purchase price of properties to net tangible and identified intangible assets (included in Other 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 amortized as an increase of rental income over the remaining non-cancellable 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 allocates a portion of the purchase price to lease origination costs. 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. 8 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-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, lease origination costs, in-place lease values and tenant relationship values, would be charged to expense. Revenue Recognition - ------------------- Rental revenue is recognized on the straight-line basis from the later of the date of the origination of the lease or the date of acquisition of the facility subject to existing leases, which averages minimum rents over the terms of the leases. The cumulative difference between lease revenue recognized under this method and contractual lease payment terms is recorded as "accrued rent receivable"on the accompanying balance sheets. The straight-line rent adjustment increased revenue by approximately $1.4 million and $2.9 million for the three- and six-month periods ended June 30, 2003 and approximately $1.6 million and $2.9 million for the three- and six-month periods ended June 30, 2002. Tenant receivables and accrued rent receivables are carried net of the allowances for doubtful accounts of $1.8 million and $2.4 million as of June 30, 2003 and $2.3 million and $2.3 million as of December 31, 2002. The allowance is based on management's evaluation of the collectability of receivables, taking into account tenant specific considerations as well as the overall tenant credit portfolio. The leases also typically provide for tenant reimbursement of common area maintenance and other operating expenses. Deferred rental revenue represents rental revenue received from tenants prior to their due dates. Stock-Based Compensation Plans - ------------------------------ In December 2002, the Financial Accounting Standards Board issued SFAS 148 ("SFAS 148"), Accounting for Stock-Based Compensation - Transition and Disclosure. SFAS 148 amends SFAS 123 ("SFAS 123"), Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that voluntarily adopts the fair value recognition method of recording stock option expense. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock options on reported net income and earnings per share in annual and interim financial statements. Prior to 2002, the Company accounted for stock options issued under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees and Related Interpretations. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period (in thousands, except per share amounts):
Three-month period Six-month period ended June 30, ended June 30, --------------------- ------------------- 2003 2002 2003 2002 ------- ------ ------- ------- Net income available to Common Shares, as reported $10,548 $9,823 $21,489 $30,315 Add: Stock based compensation expense included in reported net income 688 582 1,372 1,229 Deduct: Total stock based compensation expense determined under fair value recognition method for all awards (801) (762) (1,597) (1,589) ------- ------ ------- ------- Pro forma net income available to Common Shares $10,435 $9,643 $21,264 $29,955 ======= ====== ======= ======= Earnings per Common Share Basic - as reported $ 0.29 $ 0.26 $ 0.59 $ 0.83 ======= ====== ======= ======= Basic - pro forma $ 0.28 $ 0.26 $ 0.58 $ 0.82 ======= ====== ======= ======= Diluted - as reported $ 0.29 $ 0.26 $ 0.58 $ 0.82 ======= ====== ======= ======= Diluted - pro forma $ 0.28 $ 0.26 $ 0.58 $ 0.81 ======= ====== ======= =======
9 Accounting for Derivative Instruments and Hedging Activities - ------------------------------------------------------------ The Company accounts for its derivative instruments and hedging activities under SFAS No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities, and its corresponding amendments under SFAS No. 138, Accounting for Certain Derivative Instruments and Hedging Activities - An Amendment of SFAS 133. SFAS 133 requires the Company to measure every derivative instrument (including certain derivative instruments embedded in other contracts) at fair value and record them in the balance sheet as either an asset or liability. For derivatives designated as fair value hedges, the changes in fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of changes in the fair value of the derivative are reported in other comprehensive income. Changes in fair value of derivative instruments and ineffective portions of hedges are recognized in earnings in the current period. For the six-month period ended June 30, 2003, the Company was not party to any derivative contract designated as a fair value hedge. The Company actively manages its ratio of fixed-to-floating rate debt. To manage its fixed and floating rate debt in a cost-effective manner, the Company, from time to time, enters into interest rate swap agreements, in which it agrees to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts. Income Taxes - ------------ The Company has elected to be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). In order to maintain its qualification as a REIT, among other things, the Company is required to distribute at least 90% of its REIT taxable income to its shareholders and meet certain tests regarding the nature of its income and assets. As a REIT, the Company is not subject to federal income tax with respect to that portion of its income which meets certain criteria and is distributed annually to the shareholders. Accordingly, no provision for federal income taxes is included in the accompanying consolidated financial statements. The Company plans to continue to operate so that it meets the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. If the Company were to fail to meet these requirements, the Company would be subject to federal income tax. The Company is subject to certain state and local taxes. Provision for such taxes has been included in general and administrative expenses in the Company's consolidated statement of operations. Recently Issued Accounting Standards - ------------------------------------ In May 2003, the FASB issued SFAS No. 150 ("SFAS 150"), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 generally applies to instruments that are mandatorily redeemable, that represent obligations that will be settled with a variable number of the Company's shares, or that represent an obligation to purchase a fixed number of the Company's shares. For instruments within its scope, the statement requires classification as a liability with initial measurement at fair value. Subsequent measurement depends upon the certainty of the terms of the settlement (amount, timing) and whether the obligation will be settled by a transfer of assets or by issuance of a fixed or variable number of equity shares. SFAS No. 150 is applicable now for instruments issued since SFAS No. 150 was issued, and as of July 1, 2003, for instruments that predate SFAS No. 150's issuance. The Company does not expect the adoption of SFAS No. 150 to have a significant effect to the Company's financial position, results of operations or comprehensive income. 3. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS -------------------------------------------------------- 2003 - ---- During the six-month period ended June 30, 2003, the Company sold one office property and three units of one office property containing 31,000 net rentable square feet and one parcel of land containing 3.1 acres for an aggregate of $4.6 million, realizing a net gain of $2.1 million. During the three-month period ended June 30, 2003, the Company sold one office property containing 2,500 net rentable square feet for $.9 million, realizing a gain of $.4 million. 2002 - ---- During the six-month period ended June 30, 2002, the Company sold 16 office properties containing an aggregate of 1.1 million net rentable square feet, 20 industrial properties containing an aggregate of .9 million net rentable square feet and one parcel of land containing 10.0 acres for an aggregate of $168.1 million, realizing a net gain of $8.6 million. The Company also purchased five office properties containing 503,000 net rentable square feet for an aggregate of $82.0 million. During the three-month period ended June 30, 2002, the Company sold six office properties containing an aggregate of 364,000 net rentable square feet, 10 industrial properties containing an aggregate of 297,000 net rentable square feet and one parcel of land containing 10.0 acres for an aggregate of $50.2 million, realizing a net gain of $.1 million, and purchased one office property containing 143,000 net rentable square feet for $14.8 million. 10 4. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES ------------------------------------------------- As of June 30, 2003, the Company had an aggregate investment of approximately $14.6 million in ten Real Estate Ventures (net of returns of investment received by the Company). The Company formed these ventures with unaffiliated third parties to develop office properties or to acquire land in anticipation of possible development of office properties. Eight of the Real Estate Ventures own eight office buildings that contain an aggregate of approximately 1.2 million net rentable square feet; one Real Estate Venture developed a hotel property that contains 137 rooms; and one Real Estate Venture holds approximately 3.0 acres of land for future development. The Company accounts for its non-controlling interests in the Real Estate Ventures using the equity method. Non-controlling ownership interests generally range from 6% to 65%, subject to specified priority allocations in certain of the Real Estate Ventures. The Company's investments, initially recorded at cost, are subsequently adjusted for the Company's net equity in the ventures' income or loss and cash contributions and distributions. The following is a summary of the financial position of the unconsolidated Real Estate Ventures in which the Company had interests as of June 30, 2003 and December 31, 2002 (in thousands): June 30, December 31, 2003 2002 -------- -------- Net property $198,489 $193,552 Other assets 18,071 20,163 Liabilities 2,283 3,186 Debt 149,739 149,129 Equity 64,538 61,400 Company's share of equity 14,646 14,842 The following is a summary of results of operations of the unconsolidated Real Estate Ventures in which the Company had interests as of June 30, 2003 and 2002 (in thousands): For the six-month periods ended June 30, ---------------------------------------- 2003 2002 ------- ------- Revenue $14,142 $13,713 Operating expenses 7,143 4,770 Interest expense, net 4,077 4,715 Depreciation and amortization 2,624 2,309 Net (loss) income 298 1,919 Company's share of income 569 693 The following is a summary of the financial position as of June 30, 2003 and the results of operations for the six-month period ended June 30, 2003 for each of the unconsolidated Real Estate Ventures in which the Company had interests as of June 30, 2003: 11
1000 Chesterbrook Two Tower Four Tower Five Tower Six Tower Eight Tower Boulevard Bridge Bridge Bridge Bridge Bridge Partnership Associates Associates Associates Associates Associates ----------- ---------- ----------- ----------- ----------- ----------- Assets Net Property $31,296,358 $9,621,708 $11,177,114 $42,623,411 $12,680,977 $59,182,417 Other Assets 3,635,242 207,364 3,137,185 3,749,710 3,776,864 1,743,812 ----------- ---------- ----------- ----------- ----------- ----------- Total Assets $34,931,600 $9,829,072 $14,314,299 $46,373,121 $16,457,841 $60,926,229 =========== ========== =========== =========== =========== =========== Liabilities and Equity Other Liabilities $ 266,638 $ 55,362 $ 147,976 $ 888,153 $ 144,800 $ 271,866 Debt 28,047,624 7,213,000 11,000,000 27,600,000 15,821,000 37,370,328 ----------- ---------- ----------- ----------- ----------- ----------- Total Liabilities 28,314,262 7,268,362 11,147,976 28,488,153 15,965,800 37,642,194 Equity 6,617,338 2,560,710 3,166,323 17,884,968 492,041 23,284,035 ----------- ---------- ----------- ----------- ----------- ----------- Total Liabilities and Equity $34,931,600 $9,829,072 $14,314,299 $46,373,121 $16,457,841 $60,926,229 =========== ========== =========== =========== =========== =========== Revenues Revenues $ 2,598,687 $1,130,610 $ 1,278,096 $ 3,151,440 $ 1,505,039 $ 508,184 Tenant reimbursements and other 313,702 155,490 142,965 118,564 205,086 36,155 ----------- ---------- ----------- ----------- ----------- ----------- Total Revenue 2,912,389 1,286,100 1,421,061 3,270,004 1,710,125 544,339 Operating Expenses Property Operating Expenses 590,883 542,568 455,268 1,152,956 567,450 1,017,021 Real Estate Taxes 209,125 88,801 77,164 187,220 123,161 182,834 Depreciation and Amortization 448,531 153,030 305,050 93,051 348,005 828,624 Interest 967,934 209,761 303,416 964,959 625,313 348,186 Administrative Expenses 1,875 - 81,056 54,636 69,017 - ----------- ---------- ----------- ----------- ----------- ----------- Total Operating Expenses 2,218,348 994,160 1,221,954 2,452,822 1,732,946 2,376,665 ----------- ---------- ----------- ----------- ----------- ----------- Net Income $ 694,041 $ 291,940 $ 199,107 $ 817,182 $ (22,821) $(1,832,326) =========== ========== =========== =========== =========== ===========
[RESTUBBED TABLE]
Tower TBFA PJP PJP Bridge Inn Partners, Building Building Associates LP Two, LC Five, LC Total ----------- ---------- ---------- ---------- ------------ Assets Net Property $15,584,590 $3,848,740 $5,673,043 $6,800,208 $198,488,566 Other Assets 855,829 - 477,777 487,612 18,071,395 ----------- ---------- ---------- ---------- ------------ Total Assets $16,440,419 $3,848,740 $6,150,820 $7,287,820 $216,559,961 =========== ========== ========== ========== ============ Liabilities and Equity Other Liabilities $ 292,211 $ - $ 117,743 $ 98,348 $ 2,283,097 Debt 11,681,340 - 5,172,367 5,833,047 149,738,706 ----------- ---------- ---------- ---------- ------------ Total Liabilities 11,973,551 - 5,290,110 5,931,395 152,021,803 Equity 4,466,868 3,848,740 860,710 1,356,425 64,538,158 ----------- ---------- ---------- ---------- ------------ Total Liabilities and Equity $16,440,419 $3,848,740 $6,150,820 $7,287,820 $216,559,961 =========== ========== ========== ========== ============ Revenues Revenues $ 2,027,928 $ - $ 381,161 $ 443,809 $ 13,024,954 Tenant reimbursements and other - - 3,668 141,081 1,116,711 ----------- ---------- ---------- ---------- ------------ Total Revenue 2,027,928 - 384,829 584,890 14,141,665 Operating Expenses Property Operating Expenses 1,237,425 - 163,773 193,053 5,920,397 Real Estate Taxes 98,427 - 22,800 26,599 1,016,131 Depreciation and Amortization 289,195 - 77,506 80,572 2,623,564 Interest 497,250 - 67,262 93,039 4,077,120 Administrative Expenses - - - - 206,584 ----------- ---------- ---------- ---------- ------------ Total Operating Expenses 2,122,297 - 331,341 393,263 13,843,796 ----------- ---------- ---------- ---------- ------------ Net Income $ (94,369) $ - $ 53,488 $ 191,627 $ 297,869 =========== ========== ========== ========== ============
12 As of June 30, 2003, the aggregate maturities of non-recourse debt of Real Estate Ventures payable to third-parties was as follows (in thousands): 2003 $ 1,550 2004 6,658 2005 37,406 2006 8,452 2007 and thereafter 95,673 -------- $149,739 ======== As of June 30, 2003, the Company had guaranteed repayment of approximately $1.6 million of loans for the Real Estate Ventures. The Company also guaranteed a $16.2 million loan on behalf of a former Real Estate Venture. Payment under the guaranty, which expires in January 2004, would be required only in the event of a default on the loan and if and to the extent the collateral for the loan were insufficient to provide for payment in full of the loan. The Company also provides customary environmental indemnities in connection with construction and permanent financing both for its own account and on behalf of its Real Estate Ventures. The Company will implement the consolidation guidance established in Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities, by July 1, 2003 for the Variable Interest Entities ("VIEs") with which the Company became involved prior to February 1, 2003. The Company is in process of determining whether it will need to consolidate previously unconsolidated VIEs or to deconsolidate previously consolidated VIEs. Based upon its relationships with such entities, the Company believes that the implementation of the consolidation guidance will not have a material effect on the Company's consolidated financial position. 5. INDEBTEDNESS ------------ The Company utilizes credit facility borrowings for general business purposes, including the acquisition of properties and the repayment of other debt. The Company maintains a $500 million unsecured credit facility (the "Credit Facility") that matures in June 2004. Borrowings under the Credit Facility bear interest at LIBOR (LIBOR was 1.10% at June 30, 2003) plus 1.5%, with the spread over LIBOR subject to reductions from .10% to .25% or increases of .25% based on the Company's leverage. As of June 30, 2003, the Company had $264.0 million of borrowings and $11.0 million of letters of credit outstanding under the Credit Facility, leaving $225.0 million of unused availability. The Company also maintains a $100 million term loan. The term loan is unsecured and matures on July 15, 2005, subject to two extensions of one year each upon payment of an extension fee and the absence of any defaults at the time of each extension. There are no scheduled principal payments prior to maturity. The term loan bears interest at a spread over the one, two, three or six month LIBOR that varies between 1.05% and 1.90% (1.65% as of June 30, 2003), based on the Company's leverage ratio. The average interest rate on the Company's term loan was 3.00% for the six-month period ended June 30, 2003. As of June 30, 2003, the Company had $575.8 million of mortgage notes payable, secured by 103 of the Properties and certain land holdings. Fixed rate mortgages, totaling $515.4 million, require payments of principal and/or interest (or imputed interest) at rates ranging from 6.80% to 9.25% and mature on dates from December 2003 through July 2027. Variable rate mortgages, totaling $60.5 million, require payments of principal and/or interest at rates ranging from LIBOR plus .76% to 1.75% or 75% of prime (prime rate was 4.00% at June 30, 2003) and mature on dates from March 2004 through July 2027. The weighted-average interest rate on the Company's mortgages was 7.11% for the six-month period ended June 30, 2003 and 7.25% for the six-month period ended June 30, 2002. For the three- and six-month periods ended June 30, 2003 and 2002, the Company paid interest (net of capitalized interest) totaling $13.2 million and $27.8 million in 2003 and $16.6 million and $31.3 million in 2002. 6. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS ------------------------------------------------ Risk Management - --------------- In the normal course of its on-going business operations, the Company encounters economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk on its interest-bearing liabilities. Credit risk is the risk of inability or unwillingness of tenants to make contractually required payments. Market risk is the risk of declines in the value of properties due to changes in rental rates, interest rates or other market factors affecting the valuation of properties held by the Company. 13 Use of Derivative Financial Instruments - --------------------------------------- The Company's use of derivative instruments is primarily limited to the utilization of interest rate agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company's operating and financial structure, as well as to hedge specific transactions. The counterparties to these arrangements are major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company is potentially exposed to credit loss in the event of non-performance by these counterparties. However, because of the high credit ratings of the counterparties, the Company does not anticipate that any of the counterparties will fail to meet these obligations as they come due. The Company does not hedge credit or property value market risks. The Company formally assesses, both at inception of the hedge and on an on-going basis, whether each derivative is highly-effective in offsetting changes in cash flows of the hedged item. If management determines that a derivative is not highly-effective as a hedge or if a derivative ceases to be a highly-effective hedge, the Company will discontinue hedge accounting prospectively. The following table summarizes the terms and fair values of the Company's derivative financial instruments at June 30, 2003 (in thousands).
Notional Fair Hedge Product Hedge Type Amount Strike Maturity Value ------------- ---------- ------------ ------ --------- ----------- Cap Cash flow $ 28,000,000 8.700% 7/12/2004 $ - Swap Cash flow 100,000,000 4.230% 6/29/2004 (3,313,633) Swap Cash flow 50,000,000 4.215% 6/29/2004 (1,648,820) Swap Cash flow 25,000,000 4.215% 6/29/2004 (824,410) ----------- $(5,786,863) ===========
The Company has entered into interest rate swap and rate cap agreements designated as cash flow hedges that are designed to reduce the impact of interest rate changes on its variable rate debt. At June 30, 2003, the Company had interest rate swap agreements for notional principal amounts aggregating $175 million. The swap agreements effectively fix the LIBOR interest rate on $100 million of Credit Facility borrowings at 4.230% and on $75 million of Credit Facility borrowings at 4.215%, in each case until June 2004. The weighted-average interest rate on borrowings under the Credit Facility, including the effect of cash flow hedges, was 4.66% for the six-month period ended June 30, 2003 and 5.32% for the six-month period ended June 30, 2002. The interest rate cap agreement effectively limits the interest rate on a mortgage with a notional value of $28 million at 8.7% until July 2004. The notional amount at June 30, 2003 provides an indication of the extent of the Company's involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks. As of June 30, 2003, the maximum length of time until which the Company was hedging its exposure to the variability in future cash flows was through June 2004. There was no gain or loss reclassified from accumulated other comprehensive loss into earnings during the three-and six-month periods ended June 30, 2003 as a result of the discontinuance of a cash flow hedge due to the probability of the original forecasted transaction not occurring. Over time, the unrealized gains and losses held in Other Comprehensive Income ("OCI") will be reclassified to earnings in the same period(s) in which the hedged items are recognized in earnings. The current balance held in OCI is expected to be reclassified to earnings over the lives of the current hedging instruments, or for realized losses on forecasted debt transactions, over the related term of the debt obligation, as applicable. The Company recorded a gain of $.9 million and $1.4 million in OCI to recognize the change in value of derivatives accounted for as cash flow hedges during the three- and six-month periods ended June 30, 2003. The unrealized gains/losses and the transition adjustment recorded in accumulated OCI will be reclassified into earnings as the underlying hedged items affect earnings, such as when the forecasted interest payments occur. The Company expects that $5.5 million of net losses will be reclassified into earnings over the next twelve months. 14 Concentration of Credit Risk - ---------------------------- Concentrations of credit risk arise when a number of tenants related to the Company's investments or rental operations are engaged in similar business activities, or are located in the same geographic region, or have similar economic features that would cause their inability to meet contractual obligations, including those to the Company, to be similarly affected. The Company regularly monitors its tenant base to assess potential concentrations of credit risk. Management believes the current credit risk portfolio is reasonably well diversified and does not contain any unusual concentration of credit risk. No tenant accounted for 5% or more of the Company's rents during the six-month periods ended June 30, 2003 and 2002. See note 10 for geographic segment information. 7. DISCONTINUED OPERATIONS ----------------------- For the three- and six-month periods ended June 30, 2003 and 2002, income from discontinued operations relates to 44 properties containing 2.3 million net rentable square feet that the Company sold between January 1, 2002 and June 30, 2003 and eight properties containing 384,000 net rentable square feet that the Company has designated as "held-for-sale" as of June 30, 2003. The following table summarizes information for the eight properties designated as held-for-sale as of June 30, 2003 (in thousands): Real Estate Investments: Operating Properties $28,089 Accumulated depreciation (5,423) ------- 22,666 Construction-in-progress 75 ------- 22,741 Accrued rent receivable 234 Deferred costs, net 199 Other assets 88 ------- $23,262 ======= Tenant security deposits and deferred rents $ 254 ======= The following table summarizes revenue and expense information for the above properties sold or held-for-sale (in thousands):
Three-month periods Six-month periods ended June 30, ended June 30, ---------------------- ----------------------- 2003 2002 2003 2002 ------ ------ ------ ------- Revenue: Rents $1,173 $2,580 $2,478 $ 9,971 Tenant reimbursements 175 503 353 1,774 Other 5 322 16 523 ------ ------ ------ ------- Total revenue 1,353 3,405 2,847 12,268 Expenses: Property operating expenses 522 980 1,051 3,076 Real estate taxes 223 416 454 1,572 Depreciation and amortization 213 593 447 2,039 ------ ------ ------ ------- Total operating expenses 958 1,989 1,952 6,687 Income from discontinued operations before net gain on sale of interests in real estate and minority interest 395 1,416 895 5,581 Net gain on sales of interest in real estate 390 116 951 8,562 Minority interest (37) (77) (88) (789) ------ ------ ------ ------- Income from discontinued operations $ 748 $1,455 $1,758 $13,354 ====== ====== ====== =======
Discontinued operations have not been segregated in the condensed consolidated statements of cash flows. Therefore, amounts for certain captions will not agree with respective data in the condensed consolidated statements of operations. 8. BENEFICIARIES EQUITY -------------------- In June 2003, the Company consummated a public offering and sold 2,000,000 Common Shares for net proceeds (after deduction of transaction costs) of $47.0 million. 15 On June 27, 2003, the Company declared a distribution of $0.44 per Common Share, totaling $16.6 million, which was paid on July 15, 2003 to shareholders of record as of July 7, 2003. The Operating Partnership simultaneously declared a $0.44 per unit cash distribution to holders of Class A Units totaling $.8 million. On June 27, 2003, the Company and the Operating Partnership, respectively, also declared distributions to holders of Series A Preferred Shares, Series B Preferred Shares and Series B Preferred Units, which are currently entitled to a cumulative preferential return of 7.25%, 8.75% and 7.25%, respectively. Distributions paid on July 15, 2003 to holders of Series A Preferred Shares, Series B Preferred Shares and Series B Preferred Units totaled $.7 million, $2.3 million and $1.8 million, respectively. 9. COMPREHENSIVE INCOME -------------------- Comprehensive income represents net income, plus the results of certain non-shareholders' equity changes not reflected in the Condensed Consolidated Statements of Operations. The components of comprehensive income are as follows (in thousands):
Three-month period Six-month period Ended June 30, Ended June 30, ------------------------ -------------------- 2003 2002 2003 2002 ------- ------- ------- ------- Net income $13,524 $12,800 $27,441 $36,269 Other comprehensive income (loss): Reclassification adjustments for losses reclassified into operations 1,287 1,909 2,544 3,758 Unrealized derivative loss on cash flow hedges (363) (4,478) (1,110) (3,962) Unrealized gain (loss) on available-for-sale securities 77 60 (46) 115 ------- ------- ------- ------- Comprehensive income $14,525 $10,291 $28,829 $36,180 ======= ======= ======= =======
10. SEGMENT INFORMATION ------------------- The Company currently manages its portfolio within three segments: (1) Pennsylvania, (2) New Jersey (including New York in 2002 periods) and (3) Virginia. Corporate is responsible for cash and investment management and certain other general support functions. 16 Segment information for the three-month periods ended June 30, 2003 and 2002 is as follows (in thousands):
Pennsylvania New Jersey Virginia Corporate Total ------------ ---------- -------- --------- ---------- As of June 30, 2003: - -------------------- Real estate investments, at cost Operating properties $1,194,473 $487,564 $214,660 $ - $1,896,697 Construction-in-progress 36,984 4,305 2,335 - 43,624 Land held for development 24,977 10,476 8,184 43,637 Assets held for sale, at cost - 23,262 - - 23,262 For three months ended June 30, 2003: - ------------------------------------- Total revenue $ 46,525 $ 21,070 $ 6,995 $ 286 $ 74,876 Property operating expenses and real estate taxes 15,717 7,994 2,389 - 26,100 ---------- -------- -------- ------- ---------- Net operating income $ 30,808 $ 13,076 $ 4,606 $ 286 $ 48,776 ========== ======== ======== ======= ========== As of December 31, 2002: - ------------------------ Real estate investments, at cost: Operating properties $1,169,919 $506,818 $213,272 $ - $1,890,009 Construction-in-progress 51,469 3,619 3,039 - 58,127 Land held for development 25,051 10,023 8,001 - 43,075 Assets held for sale, at cost - 7,666 - - 7,666 For three months ended June 30, 2002: - ------------------------------------- Total revenue $ 44,931 $ 21,037 $ 6,286 $ 660 $ 72,914 Property operating expenses and real estate taxes 14,936 7,231 2,183 - 24,350 ---------- -------- -------- ------- ---------- Net operating income $ 29,995 $ 13,806 $ 4,103 $ 660 $ 48,564 ========== ======== ======== ======= ==========
Segment information for the six-month periods ended June 30, 2003 and 2002 is as follows (in thousands):
Pennsylvania New Jersey Virginia Corporate Total ------------ ---------- -------- --------- ---------- For six months ended June 30, 2003: - ----------------------------------- Total revenue $ 92,532 $ 43,363 $ 13,854 $ 779 $ 150,528 Property operating expenses and real estate taxes 32,471 16,780 4,971 - 54,222 ---------- -------- -------- ------- ---------- Net operating income $ 60,061 $ 26,583 $ 8,883 $ 779 $ 96,306 ========== ======== ======== ======= ========== For six months ended June 30, 2002: - ----------------------------------- Total revenue $ 86,800 $ 41,360 $ 12,989 $ 1,210 $ 142,359 Property operating expenses and real estate taxes 29,043 14,775 4,489 48,307 ---------- -------- -------- ------- ---------- Net operating income $ 57,757 $ 26,585 $ 8,500 $ 1,210 $ 94,052 ========== ======== ======== ======= ==========
Net operating income is defined as total revenue less property operating expenses and real estate taxes. Below is a reconciliation of consolidated net operating income to consolidated income from continuing operations (in thousands):
Three-month periods Six-month periods ended June 30, ended June 30, ------------------------ ------- -------- 2003 2002 2003 2002 -------- ------- ------- -------- Consolidated net operating income $ 48,776 $48,564 $96,306 $ 94,052 Less: Interest expense 15,241 16,105 30,547 31,835 Depreciation and amortization 15,062 15,268 29,856 27,542 Administrative expenses 3,809 3,805 7,323 7,841 Minority interest attributable to continuing operations 2,299 2,270 4,618 4,612 Plus: Equity in income of real estate ventures 411 229 569 693 Net gains on sales of interests in real estate - - 1,152 - -------- ------- ------- -------- Consolidated income from continuing operations $ 12,776 $11,345 $25,683 $ 22,915 ======== ======= ======= ========
17 11. EARNINGS PER COMMON SHARE ------------------------- The following table details the number of shares and net income used to calculate basic and diluted earnings per share (in thousands, except share and per share amounts):
Three-month periods ended June 30, ------------------------------------------------------------- 2003 2002 ----------------------------- ---------------------------- Basic Diluted Basic Diluted ----------- ----------- ----------- ----------- Income from continuing operations $ 12,776 $ 12,776 $ 11,345 $ 11,345 Income from discontinued operations 748 748 1,455 1,455 Income allocated to Preferred Shares (2,976) (2,976) (2,977) (2,977) ----------- ----------- ----------- ----------- 10,548 10,548 9,823 9,823 Preferred Share discount amortization (369) (369) (369) (369) ----------- ----------- ----------- ----------- Net income available to common shareholders $ 10,179 $ 10,179 $ 9,454 $ 9,454 =========== =========== =========== =========== Weighted-average shares outstanding 35,603,061 35,603,061 35,684,100 35,684,100 Options and warrants - 86,395 - 74,688 ----------- ----------- ----------- ----------- Total weighted-average shares outstanding 35,603,061 35,689,456 35,684,100 35,758,788 =========== =========== =========== =========== Earnings per Common Share: Continuing operations $ 0.27 $ 0.27 $ 0.22 $ 0.22 Discontinued operations 0.02 0.02 0.04 0.04 ----------- ----------- ----------- ----------- $ 0.29 $ 0.29 $ 0.26 $ 0.26 =========== =========== =========== =========== Six-month periods ended June 30, ------------------------------------------------------------- 2003 2002 ----------------------------- ---------------------------- Basic Diluted Basic Diluted ----------- ----------- ----------- ----------- Income from continuing operations $ 25,683 $ 25,683 $ 22,915 $ 22,915 Income from discontinued operations 1,758 1,758 13,354 13,354 Income allocated to Preferred Shares (5,952) (5,952) (5,954) (5,954) ----------- ----------- ----------- ----------- 21,489 21,489 30,315 30,315 Preferred Share discount amortization (738) (738) (738) (738) ----------- ----------- ----------- ----------- Net income available to common shareholders $ 20,751 $ 20,751 $ 29,577 $ 29,577 =========== =========== =========== =========== Weighted-average shares outstanding 35,452,855 35,452,855 35,692,678 35,692,678 Options and warrants - 102,832 - 162,216 ----------- ----------- ----------- ----------- Total weighted-average shares outstanding 35,452,855 35,555,687 35,692,678 35,854,894 =========== =========== =========== =========== Earnings per Common Share: Continuing operations $ 0.54 $ 0.53 $ 0.46 $ 0.45 Discontinued operations 0.05 0.05 0.37 0.37 ----------- ----------- ----------- ----------- $ 0.59 $ 0.58 $ 0.83 $ 0.82 =========== =========== =========== ===========
Securities (including Series A Preferred Shares and Series B Preferred Shares of the Company, and Series B Preferred Units and Class A Units of the Operating Partnership) totaling 11,244,632 and 11,250,670 for the three- and six-month periods ended June 30, 2003 and 11,393,401and 11,500,577 for the three- and six-month periods ended June 30, 2002 were excluded from the earnings per share computations above as their effect would have been antidilutive. 12. SUBSEQUENT EVENTS ----------------- Subsequent to June 30, 2003, the Company repaid $56.5 million of debt, without prepayment fees, scheduled to mature in December 2003. In addition, the Company sold two properties, containing 51,000 net rentable square feet, for $3.0 million. 18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ---------------------------------------------------------------------- The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. This Form 10-Q contains forward-looking statements for purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934 and as such may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from results, performance or achievements expressed or implied by such forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, there can be no assurance that these expectations will be realized. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Factors that could cause actual results to differ materially from management's current expectations include, but are not limited to, changes in general economic conditions, changes in local real estate conditions (including changes in rental rates and the number of competing properties), changes in the economic conditions affecting industries in which the Company's principal tenants compete, the Company's failure to lease unoccupied space in accordance with the Company's projections, the failure of the Company to re-lease occupied space upon expiration of leases, the bankruptcy of major tenants, changes in prevailing interest rates, the unavailability of equity and debt financing, unanticipated costs associated with the acquisition and integration of the Company's acquisitions, costs to complete and lease-up pending developments, increased costs for, or lack of availability of, adequate insurance, including for terrorist acts, demand for tenant services beyond those traditionally provided by landlords, potential liability under environmental or other laws, the existence of complex regulations relating to the Company's status as a REIT and to the Company's acquisition, disposition and development activities, the adverse consequences of the Company's failure to qualify as a REIT and the other risks identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. OVERVIEW The Company currently manages its portfolio within three segments: (1) Pennsylvania, (2) New Jersey and (3) Virginia. As of June 30, 2003, the Company's portfolio consisted of 209 office properties, 27 industrial facilities and one mixed-use property that contain an aggregate of approximately 16.2 million net rentable square feet. As of June 30, 2003, the Company held economic interests in ten Real Estate Ventures. The Company receives income primarily from rental revenue (including tenant reimbursements) from the Properties and, to a lesser extent, from the management of properties owned by third parties and from investments in the Real Estate Ventures. The Company's financial performance is dependent upon the demand for office and other commercial space in its markets. Current economic conditions, including recessionary pressures and capital market volatility, have enhanced the challenges facing the Company. In the current economic climate, the Company continues to seek revenue growth through an increase in occupancy of its portfolio (90.9% at June 30, 2003). However, with a downturn in general leasing activity, owners of commercial real estate, including the Company, are experiencing longer periods in which to lease unoccupied space, and may face higher capital costs and leasing commissions to achieve targeted tenancies. As the Company seeks to increase revenues, management also focuses on strategies to minimize operating risks, including (i) tenant rollover risk, (ii) tenant credit risk and (iii) development risk. Tenant Rollover Risk: - --------------------- The Company is subject to the risk that, upon expiration, leases may not be renewed, the space may not be relet, or the terms of renewal or reletting (including the cost of renovations) may be less favorable than the current lease terms. Leases totaling approximately 6.1% of the net rentable square feet of the Properties as of June 30, 2003 expire without penalty through the end of 2003. In addition, leases totaling approximately 14.5% of the net rentable square feet of the Properties as of June 30, 2003 are scheduled to expire without penalty in 2004. The Company maintains an active dialogue with its tenants in an effort to achieve a high level of lease renewals. The Company's retention rate for leases that were scheduled to expire in the six-month period ended June 30, 2003 was 80.0%. If the Company is unable to renew leases for a substantial portion of the space under expiring leases, or promptly relet this space at anticipated rental rates, the Company's cash flow could be adversely impacted. 19 Tenant Credit Risk: - ------------------- In the event of a tenant default, the Company may experience delays in enforcing its rights as a landlord and may incur substantial costs in protecting its investment. Management regularly evaluates its accounts receivable reserve policy in light of its tenant base and general and local economic conditions. The accounts receivable allowances were $4.2 million or 10.7% of total receivables (including accrued rent receivable) as of June 30, 2003 compared to $4.6 million or 12.5% of total receivables (including accrued rent receivable) as of December 31, 2002. Development Risk: - ----------------- As of June 30, 2003, the Company has in development two office properties and has in redevelopment two office properties. These four properties aggregate 328,000 square feet. The total cost of these projects is estimated to be $31.8 million of which $17.7 million was incurred as of June 30, 2003. As of June 30, 2003, these projects were approximately 46% leased. While the Company is actively marketing space at these projects to prospective tenants, management cannot provide assurance as to the timing or terms of any leases of such space. As of June 30, 2003, the Company owned approximately 425 acres of undeveloped land and held options to purchase approximately 61 additional acres. Risks associated with development of this land include construction cost overruns and construction delays, insufficient occupancy rates and inability to obtain necessary zoning, land-use, building, occupancy and other required governmental approvals. If the Company's assumptions regarding the successful efforts of development and leasing are incorrect, the resulting adjustments could impact earnings. RECENT ACTIVITY The Company sold or disposed of the following properties during the six-month period ended June 30, 2003:
Sale # of Rentable Sales/Disposition Date Property/Portfolio Name Location Bldgs. Square Feet Price - ------------ ------------------------------------ ---------------- --------- ----------- ----------------- Feb-03 Greentree Executive Campus (3 units) Mount Laurel, NJ - 28,444 $ 2,559,960 May-03 200 Nationwide Drive Harrisburg, PA 1 2,500 $ 875,000 ---------- ---------- ------------ Total Properties Sold 1 30,944 $ 3,434,960 ========== ========== ============
During the six-month period ended June 30, 2003, the Company sold one parcel of land containing an aggregate of 3.1 acres for $1.2 million. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and assumptions on historical experience and current economic conditions. On an on-going basis, management evaluates its estimates and assumptions including those related to revenue, impairment of long-lived assets, allowance for doubtful accounts, deferred costs, contingencies and litigation. Actual results may differ from those estimates and assumptions. The Company's Annual Report on Form 10-K for the year ended December 31, 2002 contains a discussion of the Company's critical accounting policies. See also Note 2 in the Company's unaudited condensed consolidated financial statements for the six-month period ended June 30, 2003 as set forth herein. Management discusses the Company's critical accounting policies and estimates with the Company's Audit Committee. 20 RESULTS OF OPERATIONS Comparison of the Three Months Ended June 30, 2003 and June 30, 2002
Three months ended June 30, -------------------------- Dollar Percent 2003 2002 Change Change ----------- ----------- ----------- ---------- (amounts in thousands) ----------------------------------------- Revenue: Rents $ 64,961 $ 62,095 $ 2,866 4.6% Tenant reimbursements 8,559 8,102 457 5.6% Other 1,356 2,717 (1,361) -50.1% ---------- ---------- ---------- --------- Total revenue 74,876 72,914 1,962 2.7% Operating Expenses: Property operating expenses 19,281 18,232 1,049 5.8% Real estate taxes 6,819 6,118 701 11.5% Interest 15,241 16,105 (864) -5.4% Depreciation and amortization 15,062 15,268 (206) -1.3% Administrative expenses 3,809 3,805 4 0.1% ---------- ---------- ---------- --------- Total operating expenses 60,212 59,528 684 1.1% ---------- ---------- ---------- --------- Income from continuing operations before equity in income of real estate ventures, net gain on sales and minority interest 14,664 13,386 1,278 9.5% Equity in income of real estate ventures 411 229 182 79.5% ---------- ---------- ---------- --------- Income from continuing operations before net gain on sales and minority interest 15,075 13,615 1,460 10.7% Minority interest (2,299) (2,270) (29) -1.3% ---------- ---------- ---------- --------- Income from continuing operations 12,776 11,345 1,431 12.6% Income from discontinued operations, net of minority interest 748 1,455 (707) -48.6% ---------- ---------- ---------- --------- Net income $ 13,524 $ 12,800 $ 724 5.7% ========== ========== ========== =========
Of the 237 Properties owned by the Company as of June 30, 2003, a total of 230 Properties containing an aggregate of 15.4 million net rentable square feet ("Same Store Properties") were owned for the entire three-month periods ended June 30, 2003 and 2002. The following table sets forth revenue and expense information for these Same Store Properties for the three-month periods ended June 30, 2003 and 2002:
Three Months Ended June 30, ------------------------ Dollar Percent 2003 2002 Change Change ----------- ----------- ---------- --------- (amounts in thousands) ------------------------------------ Revenue: Rents $ 62,648 $ 61,855 $ 793 1.3% Tenant reimbursements 8,544 8,200 344 4.2% Other 208 1,050 (842) -80.2% ---------- ---------- ---------- Total revenue 71,400 71,105 295 0.4% Operating Expenses: Property operating expenses 21,056 20,382 674 3.3% Real estate taxes 6,513 5,993 520 8.7% ---------- ---------- ---------- Total operating expenses 27,569 26,375 1,194 4.5% ---------- ---------- ---------- Net operating income $ 43,831 $ 44,730 $ (899) -2.0% ========== ========== ==========
21 The following table is a reconciliation of income from continuing operations to Same Store net operating income:
Three Months Ended June 30, --------------------------------- 2003 2002 ------------- -------------- (amounts in thousands) Income from continuing operations $ 12,776 $ 11,345 Add/(deduct): Interest expense 15,241 16,105 Depreciation and amortization 15,062 15,268 Adminstrative expenses 3,809 3,805 Equity in income of Real Estate Ventures (411) (229) Net gain on sale of interest in real estate - - Minority interest attributable to continuing operations 2,299 2,270 Income from discontinued operations 395 1,416 ------------- -------------- Consolidated net operating income 49,171 49,980 Less: Net operating income of non same store properties (5,340) (5,250) ------------- -------------- Same Store net operating income $ 43,831 $ 44,730 ============= ==============
Revenue increased to $74.9 million for the three-month period ended June 30, 2003 as compared to $72.9 million for the comparable period in 2002, primarily due to properties added to the portfolio since second quarter 2002 partially offset by decreased occupancy. The straight-line rent adjustment, which reflects the difference between rents accrued in accordance with generally accepted accounting principles and rents billed, increased revenues by $1.4 million for the three-month period ended June 30, 2003 and $1.6 million for the comparable period in 2002. Other revenue includes lease termination fees, leasing commissions, third-party management fees and interest income. Other revenue decreased to $1.4 million for the three-month period ended June 30, 2003 as compared to $2.7 million for the comparable period in 2002 primarily due to decreased termination fee income during 2003. Revenue for Same Store Properties increased to $71.4 million for the three months ended June 30, 2003 as compared to $71.1 million for the comparable period in 2002. This increase was the result of increased rental rates offset by decreased occupancy in 2003 as compared to 2002. Average occupancy for the Same Store Properties for the three months ended June 30, 2003 decreased to 91.2% from 91.6% for the comparable period in 2002. Property operating expenses increased to $19.3 million for the three-month period ended June 30, 2003 as compared to $18.2 million for the comparable period in 2002, primarily due to additional properties in 2003. Property operating expenses included a provision for doubtful accounts of $300,000 for the three-month period ended June 30, 2003 and $700,000 for the comparable period in 2002 to provide for increased credit risk. Property operating expenses for the Same Store Properties increased to $21.1 million for the three months ended June 30, 2003 as compared to $20.4 million for the comparable period in 2002 as a result of increased snow removal and insurance costs in 2003. Real estate taxes increased to $6.8 million for the three-month period ended June 30, 2003 as compared to $6.1 million for the comparable period in 2002, primarily due to higher tax rates, property assessments and additional properties in 2003. Real estate taxes for the Same Store Properties increased to $6.5 million for the three months ended June 30, 2003 as compared to $6.0 million for the comparable period in 2002 as a result of higher tax rates and property assessments in 2003. Interest expense decreased to $15.2 million for the three-month period ended June 30, 2003 as compared to $16.1 million for the comparable period in 2002, primarily due to decreased interest rates and decreased average borrowings. Average outstanding debt balances for the three months ended June 30, 2003 were $963.2 million as compared to approximately $1.0 billion for the comparable period in 2002. The Company's weighted-average interest rate after giving effect to hedging activities on unsecured credit facility decreased to 4.80% for the three months ended June 30, 2003 from 5.40% for the comparable period in 2002. The weighted-average interest rate on mortgage notes payable decreased to 7.13% for the three months ended June 30, 2003 from 7.15% for the comparable period in 2002. Depreciation expense decreased to $13.3 million for the three-month period ended June 30, 2003 as compared to $14.0 million for the comparable period in 2002 primarily due to the expense associated with early terminated leases in 2002 offset by additional properties in 2003. Amortization expense, related to deferred leasing costs, increased to $1.7 million for the three-month period ended June 30, 2003 as compared to $1.3 million for the comparable period in 2002, primarily due to increased leasing activity. 22 Administrative expenses were $3.8 million for the three-month periods ended June 30, 2003 and 2002. Equity in income of Real Estate Ventures increased to $411,000 for the three-month period ended June 30, 2003 as compared to $229,000 for the comparable period in 2002 primarily due to increased returns related to one of the ventures in 2003. Minority interest from continuing operations represents the equity in income attributable to the portion of the Operating Partnership not owned by the Company. Minority interest was $2.3 million for the three-month periods ended June 30, 2003 and 2002. Discontinued operations decreased to $.7 million for the three-month period ended June 30, 2003 as compared to $1.5 million for the comparable period in 2002 primarily due to 43 properties sold during 2002. During the three-month period ended June 30, 2003, the Company sold one office property containing 2,500 net rentable square feet for $.9 million, realizing a gain of $.4 million. Comparison of the Six Months Ended June 30, 2003 and June 30, 2002
Six months ended June 30, --------------------------- Dollar Percent 2003 2002 Change Change ------------ ------------ ------------ ----------- (amounts in thousands) ------------------------------------------ Revenue: Rents $ 129,281 $ 121,301 $ 7,980 6.6% Tenant reimbursements 17,164 15,472 1,692 10.9% Other 4,083 5,586 (1,503) -26.9% ------------ ------------ ------------ ----------- Total revenue 150,528 142,359 8,169 5.7% Operating Expenses: Property operating expenses 40,799 36,453 4,346 11.9% Real estate taxes 13,423 11,854 1,569 13.2% Interest 30,547 31,835 (1,288) -4.0% Depreciation and amortization 29,856 27,542 2,314 8.4% Administrative expenses 7,323 7,841 (518) -6.6% ------------ ------------ ------------ ----------- Total operating expenses 121,948 115,525 6,423 5.6% ------------ ------------ ------------ ----------- Income from continuing operations before equity in income of real estate ventures, net gain on sales and minority interest 28,580 26,834 1,746 6.5% Equity in income of real estate ventures 569 693 (124) -17.9% ------------ ------------ ------------ ----------- Income from continuing operations before net gain on sales and minority interest 29,149 27,527 1,622 5.9% Net gain on sales of interest in real estate 1,152 - 1,152 100.0% Minority interest (4,618) (4,612) (6) -0.1% ------------ ------------ ------------ ----------- Income from continuing operations 25,683 22,915 2,768 12.1% Income from discontinued operations, net of minority interest 1,758 13,354 (11,596) -86.8% ------------ ------------ ------------ ----------- Net income $ 27,441 $ 36,269 $ (8,828) -24.3% ============ ============ ============ ===========
Revenue increased to $150.5 million for the six-month period ended June 30, 2003 as compared to $142.4 million for the comparable period in 2002, primarily due to properties added to the portfolio since the second quarter 2002 partially offset by decreased occupancy. The straight-line rent adjustment, which reflects the difference between rents accrued in accordance with generally accepted accounting principles and rents billed, increased revenues by $2.9 million for each of the six-month periods ended June 30, 2003 and 2002. Other revenue includes lease termination fees, leasing commissions, third-party management fees and interest income. Other revenue decreased to $4.1 million for the six-month period ended June 30, 2003 as compared to $5.6 million for the comparable period in 2002 primarily due to decreased lease termination fee income in 2003. Property operating expenses increased to $40.8 million for the six-month period ended June 30, 2003 as compared to $36.5 million for the comparable period in 2002, primarily due to increased snow removal costs and additional properties in 2003. Property operating expenses included a provision for doubtful accounts of $.3 million for the six-month period ended June 30, 2002 and $1.1 million for the comparable period in 2002 to provide for increased credit risk. 23 Real estate taxes increased to $13.4 million for the six-month period ended June 30, 2003 as compared to $11.9 million for the comparable period in 2002, primarily due to higher tax rates, property assessments and additional properties in 2003. Interest expense decreased to $30.5 million for the six-month period ended June 30, 2003 as compared to $31.8 million for the comparable period in 2002, primarily due to decreased interest rates and decreased average borrowings. Average outstanding debt balances for the six months ended June 30, 2003 were $977.1 million as compared to approximately $1.0 billion for the comparable period in 2002. The Company's weighted-average interest rate after giving effect to hedging activities on unsecured credit facility decreased to 4.66% for the six months ended June 30, 2003 from 5.32% for the comparable period in 2002. The weighted-average interest rate on mortgage notes payable decreased to 7.11% for the six months ended June 30, 2003 from 7.25% for the comparable period in 2002. Depreciation expense increased to $26.5 million for the six-month period ended June 30, 2003 as compared to $25.0 million for the comparable period in 2002 primarily due to additional properties in 2003. Amortization expense, related to deferred leasing costs, increased to $3.4 million for the six-month period ended June 30, 2003 as compared to $2.5 million for the comparable period in 2002, primarily due to increased leasing activity. Administrative expenses decreased to $7.3 million for the six-month period ended June 30, 2003 as compared to $7.8 million for the comparable period in 2002 primarily due to decreased advertising and marketing expenses in 2003 as compared to 2002. Equity in income of Real Estate Ventures decreased to $569,000 for the six-month period ended June 30, 2003 as compared to $693,000 for the comparable period in 2002. During the third quarter of 2002, the Company acquired the remaining partnership interests in three Real Estate Ventures, and accordingly, the results attributable to the properties owned by these Ventures are now consolidated from the date of acquisition. During the six-month period ended June 30, 2003, the Company sold one parcel of land containing an aggregate of 3.1 acres for $1.2 million, realizing a net gain of $1.2 million. Minority interest from continuing operations represents the equity in income attributable to the portion of the Operating Partnership not owned by the Company. Minority interest was $4.6 million for the six-month periods ended June 30, 2003 and 2002. Discontinued operations decreased to $1.8 million for the six-month period ended June 30, 2003 as compared to $13.3 million for the comparable period in 2002 primarily due to 43 properties sold during 2002. During the six-month period ended June 30, 2003, the Company sold one office property and three units of one office property containing 31,000 net rentable square feet for an aggregate of $3.4 million, realizing a net gain of $.9 million. LIQUIDITY AND CAPITAL RESOURCES Cash Flows During the six-month period ended June 30, 2003, the Company generated $59.2 million in cash flow from operating activities. Other sources of cash flow for the six-month period consisted of: (i) $47.0 million in net proceeds from share issuances, (ii) $21.0 million of proceeds from draws on the Credit Facility, (iii) $4.1 million of proceeds from sales of properties, (iv) $1.6 million from payments on employee loans and (v) $.4 million of cash distributions from Real Estate Ventures. During the six-month period ended June 30, 2003, cash out-flows consisted of: (i) $64.0 million of Credit Facility repayments, (ii) $42.4 million of distributions to shareholders and minority interest holders, (iii) $21.9 million of mortgage note repayments, (iv) $19.1 million to fund development and capital expenditures, (v) $3.6 million of leasing costs, (vi) $1.3 million of escrowed cash and (vii) $.2 million of additional investment in Real Estate Ventures. 24 During the six-month period ended June 30, 2002, the Company generated $53.1 million in cash flow from operating activities. Other sources of cash flow for the six-month period consisted of: (i) $59.1 million of proceeds from sales of properties, (ii) $15.0 million of proceeds from draws on the Credit Facility, (iii) $14.0 million of proceeds of additional mortgage notes, (iv) $1.6 million from repayments of employee loans, (v) $1.0 million of escrowed cash and (vi) $.5 million of cash distributions from Real Estate Ventures. During the six-month period ended June 30, 2002, cash out-flows consisted of: (i) $37.6 million of distributions to shareholders, (ii) $26.0 million of Credit Facility repayments, (iii) $22.9 million for property acquisitions, (iv) $22.2 million to fund development and capital expenditures, (v) $7.9 million to repurchase Common Shares and minority interest units, (vi) $6.5 million of leasing costs, (vii) $4.2 million of mortgage note repayments and (viii) $.5 million of additional investments in unconsolidated Real Estate Ventures. Capitalization As of June 30, 2003, the Company had approximately $939.8 million of debt outstanding, consisting of $264.0 million of borrowings under the Credit Facility, $100 million under the Term Loan and $575.8 million of mortgage notes payable. The mortgage notes payable consists of $515.4 million of fixed rate loans and $60.5 million of variable rate loans. Additionally, the Company has entered into interest rate swap and cap agreements to fix the interest rate on $203.0 million of the Credit Facility and variable rate loans through July 2004. The mortgage loans mature between December 2003 and July 2027. As of June 30, 2003, the Company also had $11.0 million of letters of credit outstanding under the Credit Facility and $225.0 million of unused availability under the Credit Facility. For the six-month period ended June 30, 2003, the weighted-average interest rate under the Company's Credit Facility and the related swap agreements was 4.66%, the average interest rate for the Term Loan was 3.0% and the weighted-average interest rate for borrowings under mortgage notes payable and the related cap agreements was 7.11%. The following table outlines the timing of payment requirements related to the Company's commitments as of June 30, 2003:
Payments by Period (in thousands) -------------------------------------------------------------------------------- 2008 and Total 2003 2004 - 2005 2006 - 2007 Beyond ------------- -------------- ------------- ------------- -------------- Mortgage notes payable: Fixed rate $ 515,366 $ 60,072 $ 70,548 $ 38,041 $ 346,705 Variable rate 24,950 79 364 767 23,740 Construction loans 35,523 - 35,523 - ------------- -------------- ------------- ------------- -------------- 575,839 60,151 106,435 38,808 370,445 Revolving credit facility 264,000 - 264,000 - - Term loan 100,000 - 100,000 - - Other liabilities 11,838 569 11,269 - - ------------- -------------- ------------- ------------- -------------- $ 951,677 $ 60,720 $ 481,704 $ 38,808 $ 370,445 ============= ============== ============= ============= ==============
The Company intends to refinance its mortgage notes payable as they become due or repay those that are secured by properties being sold. The Company expects to renegotiate its Credit Facility and Term Loan prior to maturity or extend their terms. As of June 30, 2003, the Company's debt-to-market capitalization ratio was 44.0%. 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%. The Company's Board of Trustees approved a share repurchase program authorizing the Company to repurchase up to 4,000,000 of its outstanding Common Shares. Through June 30, 2003, the Company had repurchased 3.2 million of its Common Shares at an average price of $17.71 per share. Under the share repurchase program, the Company has the authority to repurchase an additional 834,000 shares. No time limit has been placed on the duration of the share repurchase program. The following table summarizes the share repurchases during the six-month periods ended June 30, 2003 and 2002: 25 Six months ended June 30, ------------------------------- 2003 2002 -------------- -------------- Repurchased amount (shares) - 28,274 Repurchased amount ($, in thousands) $ - $ 671 Average price per share $ - $ 23.72 The following table summarizes the Class A Units tendered for redemption in cash during the six-month periods ended June 30, 2003 and 2002: Six months ended June 30, ------------------------------- 2003 2002 -------------- -------------- Repurchased amount (units) - 274,844 Repurchased amount ($, in thousands) $ - $ 6,659 Average price per share $ - $ 24.23 Short- and Long-Term Liquidity The Company believes that its cash flow from operations is adequate to fund its short-term liquidity requirements. Cash flow from operations is generated primarily from rental revenues and operating expense reimbursements from tenants and management services income from providing services to third parties. The Company intends to use these funds to meet short-term liquidity needs, which are to fund operating expenses, debt service requirements, recurring capital expenditures, tenant allowances, leasing commissions and the minimum distributions required to maintain the Company's REIT qualification under the Internal Revenue Code. On June 27, 2003, the Company declared a distribution of $0.44 per Common Share, totaling $16.6 million, which was paid on July 15, 2003 to shareholders of record as of July 7, 2003. The Operating Partnership simultaneously declared a $0.44 per unit cash distribution to holders of Class A Units totaling $.8 million. On June 27, 2003, the Company and the Operating Partnership, respectively, also declared distributions to holders of Series A Preferred Shares, Series B Preferred Shares and Series B Preferred Units, which are currently entitled to a preferential return of 7.25%, 8.75% and 7.25%, respectively. Distributions paid on July 15, 2003 to holders of Series A Preferred Shares, Series B Preferred Shares and Series B Preferred Units totaled $.7 million, $2.3 million and $1.8 million, respectively. The Company expects to meet its long-term liquidity requirements, such as for property acquisitions, development, investments in real estate ventures, scheduled debt maturities, major renovations, expansions and other significant capital improvements, through cash from operations, borrowings under its Credit Facility, other long-term secured and unsecured indebtedness, the issuance of equity securities and the proceeds from the disposition of selected assets. Non-GAAP Supplemental Financial Measure: Funds from Operations (FFO) FFO is a widely recognized measure of REIT performance. Although FFO is a non-GAAP financial measure, the Company believes that information regarding FFO is helpful to shareholders and potential investors. The Company computes FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than the Company. NAREIT defines FFO as net income (loss) before minority interest of unitholders (preferred and common) and excluding gains (losses) on sales of depreciable operating property and extraordinary items (computed in accordance with GAAP); plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated joint ventures. The GAAP measure that the Company believes to be most directly comparable to FFO, net income, includes depreciation and amortization expenses, gains or losses on property sales and minority interest. In computing FFO, the Company eliminates substantially all of these items because, in the Company's view, they are not indicative of the results from the Company's property operations. To facilitate a clear understanding of the Company's historical operating results, FFO should be examined in conjunction with net income (determined in accordance with GAAP) as presented in the financial statements included elsewhere in this Quarterly Report on Form 10-Q. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (loss) (determined in accordance with GAAP) as an indication of the Company's financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available for the Company's cash needs, including its ability to make cash distributions to shareholders. 26 The following table summarizes FFO for the three- and six-month periods ended June 30, 2003 and 2002 (in thousands, except share data):
Three months ended June 30, Six months ended June 30, ---------------------------- ----------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Net income $ 13,524 $ 12,800 $ 27,441 $ 36,269 Add/(deduct): Minority interest attributable to continuing operations 2,299 2,270 4,618 4,612 Net gain on sale of interests in real estate - - (1,152) - Minority interest attributable to discontinued operations 37 77 88 789 Net gain on disposition of discontinued operations (390) (116) (951) (8,562) ------------ ------------ ------------ ------------ Income before net gains on sales of interests in real estate and minority interest 15,470 15,031 30,044 33,108 Add (deduct): Depreciation: Attributable to real property 13,511 14,522 26,899 26,875 Attributable to real estate ventures 520 739 1,013 1,320 Amortization attributable to leasing costs 1,764 1,339 3,404 2,706 ------------ ------------ ------------ ------------ Funds from operations $ 31,265 $ 31,631 $ 61,360 $ 64,009 ============ ============ ============ ============ Weighted-average Common Shares (including Common Share equivalents) and Operating Partnership units 47,152,178 46,934,097 46,806,367 47,355,479 ============ ============ ============ ============
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. The Company believes that inflationary increases in expenses will be significantly offset by expense reimbursement and contractual rent increases. Item 3. Quantitative and Qualitative Disclosures about Market Risk ---------------------------------------------------------- Market risk is the exposure to loss resulting from changes in interest rates, commodity prices and equity prices. In pursuing its business plan, the primary market risk to which the Company is exposed is interest rate risk. Changes in the general level of interest rates prevailing in the financial markets may affect the spread between the Company's yield on invested assets and cost of funds and, in turn, the Company's ability to make distributions or payments to its shareholders. While the Company has not experienced any significant credit losses, in the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in losses to the Company which adversely affect its operating results and liquidity. There have been no material changes in Quantitative and Qualitative disclosures in 2003 from the disclosures included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. Reference is made to Item 7 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and the caption "Liquidity and Capital Resources" under Item 2 of this Quarterly Report on Form 10-Q. Item 4. Controls and Procedures ----------------------- The Company's Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report, have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in rules and forms of the Securities and Exchange Commission. 27 Part II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- As indicated in the Company's Annual Report on Form 10-K for the year ended December 31, 2002, the Company is a defendant in a case in which the plaintiffs allege that the Company breached its obligation to purchase a portfolio of properties for approximately $83.0 million. On July 9, 1999, the Superior Court of New Jersey, Camden County, dismissed the complaint against the Company with prejudice. The plaintiffs subsequently filed a motion for reconsideration, which motion the Superior Court denied. Plaintiffs then appealed to the Appellate Division, which is the intermediate appellate level court in New Jersey. In December 2000, the Appellate Division affirmed in part and reversed in part the Chancery Division's earlier dismissal of the entire action. The Appellate Division affirmed the dismissal of the fraud and other non-contractual counts in the Complaint, but reversed the contract and reformation counts and remanded these to the lower court for further proceedings. The Company sought review of this decision by the Supreme Court of New Jersey, but in March 2001 that Court declined to consider the appeal. The case thereafter returned to the Chancery Division, where written and oral discovery was conducted in 2002 and in the first quarter of 2003. Discovery terminated on February 14, 2003. The Company filed a motion for summary judgment on all counts, seeking dismissal of all counts against it, and judgment for the Company on its counterclaim. The Chancery Division granted the Company's summary judgment motion on March 25, 2003. By order dated May 9, 2003, the Chancery Division dismissed the plaintiffs' remaining claims and entered judgment in favor of the Company on its counterclaims. Also on May 9, 2003, the plaintiffs filed a Notice of Appeal with the Appellate Division seeking review of the Chancery Division's March 25, 2003 ruling (and resulting May 9, 2003 Order) and two earlier procedural decisions. Briefing on this appeal is scheduled to commence on August 27, 2003 and a decision from the Appellate Division is expected in 2004. Item 4. Submission of Matters to a Vote on Security Holders --------------------------------------------------- The Company held its annual meeting on May 5, 2003. At the meeting, each of the six individuals nominated for election to the Company's Board of Trustees was elected to the Board. These individuals will serve on the Board, together with a seventh Trustee (D. Pike Aloian), separately elected by the holder of a class of the Company's preferred securities. The number of shares cast for, against or withheld for each nominee is set forth below: For Against Withheld --- ------- -------- Anthony A. Nichols, Sr. 36,041,126 0 584,225 Gerard H. Sweeney 36,041,842 0 583,509 Donald E. Axinn 35,857,188 0 768,163 Walter D'Alessio 27,965,806 0 8,659,545 Robert C. Larson 27,955,032 0 8,670,319 Charles P. Pizzi 36,047,288 0 578,063 Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits -------- 3.2 Amended and Restated Bylaws of the Company 10.1 Letter to Cohen & Steers Capital Management Inc. 31.1 Certification Pursuant to 13a-14 of the Securities Exchange Act of 1934 31.2 Certification Pursuant to 13a-14 of the Securities Exchange Act of 1934 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 28 (b) Reports on Form 8-K: -------------------- During the three months ended June 30, 2003 and through August 13, 2003, the Company filed the following: (i) Current Report on Form 8-K filed April 25, 2003 (reporting under Items 7, 9 and 12). (ii) Current Report on Form 8-K filed June 12, 2003 (reporting under Items 5 and 7). (iii) Current Report on Form 8-K filed June 13, 2003 (reporting under Items 5 and 7). (iv) Current Report on Form 8-K filed June 25, 2003 (reporting under Items 4 and 7). (v) Current Report on Form 8-K filed July 25, 2003 (reporting under Items 7 and 12). 29 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: August 13, 2003 By: /s/ Gerard H. Sweeney --------------- ---------------------------------------------------------------------- Gerard H. Sweeney, President and Chief Executive Officer (Principal Executive Officer) Date: August 13, 2003 By: /s/ Christopher P. Marr --------------- ---------------------------------------------------------------------- Christopher P. Marr, Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 13, 2003 By: /s/ Bradley W. Harris --------------- ---------------------------------------------------------------------- Bradley W. Harris, Vice President and Chief Accounting Officer (Principal Accounting Officer)
30 EX-3 3 ex3-2.txt EXHIBIT 3.2 Exhibit 3.2 BRANDYWINE REALTY TRUST ----------------------- BYLAWS ------ ARTICLE I. OFFICES Section 1. Principal Office. The principal office of Brandywine Realty Trust (the "Trust") shall be located at such place or places as the Board of Trustees may designate. Section 2. Additional Offices. The Trust may have additional offices at such places as the Trustees may from time to time determine or the business of the Trust may require. ARTICLE II. MEETINGS OF SHAREHOLDERS Section 1. Place. All meetings of shareholders shall be held at the principal executive office of the Trust or at such other place as shall be stated in the notice of the meeting. Section 2. Annual Meeting. An annual meeting of the shareholders for the election of Trustees and the transaction of any business within the powers of the Trust shall be held annually and at the time set by the Trustees. Section 3. Special Meetings. (a) General. The President, Chairman of the Board or Board of Trustees may call a special meeting of the shareholders. Subject to subsection (b) of this Section 3, a special meeting of shareholders shall also be called by the Secretary of the Trust upon the written request of the shareholders in accordance with Article 7 of the Declaration of Trust of the Trust. (b) (1) Any shareholder of record seeking to have shareholders request a special meeting shall, by sending written notice to the secretary (the "Record Date Request Notice") by registered mail, return receipt requested, request the Board of Trustees to fix a record date to determine the shareholders entitled to request a special meeting (the "Request Record Date"). The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at it, shall be signed by one or more shareholders of record as of the date of signature (or their duly authorized proxies or other agents), shall bear the date of signature of each such shareholder (or proxy or other agent) and shall set forth all information relating to each such shareholder that must be disclosed in solicitations of proxies for election of trustees in an election contest (even if an election contest is not involved), or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder. Upon receiving the Record Date Request Notice, the Board of Trustees may fix a Request Record Date. The Request Record Date shall not precede and shall not be more than ten days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board of Trustees. If the Board of Trustees, within ten days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date and make a public announcement of such Request Record Date, the Request Record Date shall be the close of business on the tenth day after the first date on which the Record Date Request Notice is received by the secretary. (2) In order for any shareholder to request a special meeting, one or more written requests for a special meeting signed by shareholders of record (or their duly authorized proxies or other agents) as of the Request Record Date entitled to vote not less than ten percent (the "Special Meeting Percentage") of the issued and outstanding Common Shares of Beneficial Interest (as defined in the Declaration of Trust) (the "Special Meeting Request") shall be delivered to the secretary. In addition, the Special Meeting Request shall set forth the purpose of the meeting and the matters proposed to be acted on at it (which shall be limited to the matters set forth in the Record Date Request Notice received by the secretary), shall bear the date of signature of each such shareholder (or proxy or other agent) signing the Special Meeting Request, shall set forth the name and address, as they appear in the Trust's books, of each shareholder signing such request (or on whose behalf the Special Meeting Request is signed) and the class and number of shares of beneficial interest of the Trust which are owned of record and beneficially by each such shareholder, shall be sent to the secretary by registered mail, return receipt requested, and shall be received by the secretary within 60 days after the Request Record Date. Any requesting shareholder may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary. (3) The secretary shall inform the requesting shareholders of the reasonably estimated cost of preparing and mailing the notice of meeting (including the Trust's proxy materials). The secretary shall not be required to call a special meeting upon shareholder request and such meeting shall not be held unless, in addition to the documents required by paragraph (2) of this Section 3(b), the secretary receives payment of such reasonably estimated cost prior to the mailing of any notice of the meeting. (4) Except as provided in the next sentence, any special meeting shall be held at such place, date and time as may be designated by the chairman or Board of Trustees, whoever has called the meeting. In the case of any special meeting called by the secretary upon the request of shareholders (a "Shareholder Requested Meeting"), such meeting shall be held at such place, date and time as may be designated by the Board of Trustees; provided, however, that the date of any Shareholder Requested Meeting shall be not more than 90 days after the record date for such meeting (the "Meeting Record Date"); and provided further that if the Board of Trustees fails to designate, within ten days after the date that a valid Special Meeting Request is actually received by the secretary (the "Delivery Date"), a date and time for a Shareholder Requested Meeting, then such meeting shall be held at 2:00 p.m. local time on the 90th day after the Meeting Record Date or, if such 90th day is not a Business Day (as defined below), on the first preceding Business Day; and provided further that in the event that the Board of Trustees fails to designate a place for a Shareholder Requested Meeting within ten days after the Delivery Date, then such meeting shall be held at the principal executive offices of the Trust. In fixing a date for any special meeting, the chairman or Board of Trustees may consider such factors as he, she or it deems relevant within the good faith exercise of business judgment, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for meeting and any plan of the Board of Trustees to call an annual meeting or a special meeting. In the case of any Shareholder Requested Meeting, if the Board of Trustees fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date. (5) If at any time as a result of written revocations of requests for the special meeting, shareholders of record (or their duly authorized proxies or other agents) as of the Request Record Date entitled to cast less than the Special Meeting Percentage shall have delivered and not revoked requests for a special meeting, the secretary may refrain from mailing the notice of the meeting or, if the notice of the meeting has been mailed, the secretary may revoke the notice of the meeting at any time before ten days before the meeting if the secretary has first sent to all other requesting shareholders written notice of such revocation and of intention to revoke the notice of the meeting. Any request for a special meeting received after a revocation by the secretary of a notice of a meeting shall be considered a request for a new special meeting. (6) The chairman, President or the Board of Trustees may appoint regionally or nationally recognized independent inspectors of elections to act as the agent of the Trust for the purpose of promptly performing a ministerial review of the validity of any purported Special Meeting Request received by the secretary. For the purpose of permitting the inspectors to perform such review, no such purported Special Meeting Request shall be deemed to have been delivered to the secretary until the earlier of (i) five Business Days after receipt by the secretary of such purported request and (ii) such date as the independent inspectors certify to the Trust that the valid requests received by the secretary represent at least ten percent of the issued and outstanding Common Shares of Beneficial Interest. Nothing contained in this paragraph (6) shall in any way be construed to suggest or imply that the Trust or any shareholder shall not be entitled to contest the validity of any request, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). (7) For purposes of these Bylaws, "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York or the Commonwealth of Pennsylvania are authorized or obligated by law or executive order to close. (8) Notwithstanding the foregoing provisions of this Section 3, holders of a class or series of preferred shares of beneficial interest of the Trust may call a special meeting in accordance with applicable provisions of the Declaration of Trust or as otherwise permitted by law. Section 4. Notice. Not less than ten nor more than 90 days before each meeting of shareholders, the secretary shall give to each shareholder entitled to vote at such meeting and to each shareholder not entitled to vote who is entitled to notice of the meeting written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by statute, the purpose for which the meeting is called, either by mail, by presenting it to such shareholder personally, by leaving it at his residence or usual place of business or by any other means permitted by Maryland law. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder at his post office address as it appears on the records of the Trust, with postage thereon prepaid. Section 5. Scope of Notice. Any business of the Trust may be transacted at an annual meeting of shareholders without being specifically designated in the notice, except such business as is required by statute to be stated in such notice. No business shall be transacted at a special meeting of shareholders except as specifically designated in the notice. Section 6. Organization and Conduct of Meetings. Every meeting of shareholders shall be conducted by an individual appointed by the Board of Trustees to be chairman of the meeting or, in the absence of such appointment, by the chairman of the board or, in the case of a vacancy in the office or absence of the chairman of the board, by one of the following officers present at the meeting: the president, the vice presidents in their order of rank and seniority or, in the absence of such officers, a chairman chosen by the shareholders by the vote of a majority of the votes cast by shareholders present in person or by proxy. The secretary or, in the secretary's absence, an assistant secretary, or in the absence of both the secretary and assistant secretaries, a person appointed by the Board of Trustees or, in the absence of such appointment, a person appointed by the chairman of the meeting shall act as secretary. In the event that the secretary presides at a meeting of the shareholders, an assistant secretary shall record the minutes of the meeting. The order of business and all other matters of procedure at any meeting of shareholders shall be determined by the chairman of the meeting. The chairman of the meeting may prescribe such rules, regulations, and procedures and take such action as, in the discretion of such chairman, are appropriate for the proper conduct of the meeting, including, without limitation, (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to shareholders of record of the Trust, their duly authorized proxies or other such persons as the chairman of the meeting may determine; (c) limiting participation at the meeting on any matter to shareholders of record of the Trust entitled to vote on such matter, their duly authorized proxies or other such persons as the chairman of the meeting may determine; (d) limiting the time allotted to questions or comments by participants; (e) maintaining order and security at the meeting; (f) removing any shareholder who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairman; and (g) recessing or adjourning the meeting to a later date and time and place announced at the meeting. Unless otherwise determined by the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with the rules of parliamentary procedure. Section 7. Quorum. At any meeting of shareholders, the presence in person or by proxy of shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum; but this section shall not affect any requirement under any statute or the Declaration of Trust for the vote necessary for the adoption of any measure. If, however, such quorum shall not be present at any meeting of the shareholders, the chairman of the meeting or the shareholders entitled to vote at such meeting, present in person or by proxy, shall have power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 8. Voting. A plurality of all the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to elect a Trustee. Shareholders shall not be entitled to cumulate their votes in the election of Trustees. A majority of the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority of the votes cast is required by statute or by the Declaration of Trust. Unless otherwise provided in the Declaration, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Section 9. Proxies. A shareholder may cast the votes entitled to be cast by the shares of beneficial interest owned of record by the shareholder, either in person or by proxy executed in any manner permitted by law by the shareholder or by his duly authorized agent. Such proxy shall be filed with the secretary of the Trust before or at the meeting. No proxy shall be valid more than eleven months after its date, unless otherwise provided in the proxy. Section 10. Voting of Shares by Certain Holders. Shares registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the chief executive officer or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such shares pursuant to a bylaw or a resolution of the board of directors of such corporation or other entity presents a certified copy of such bylaw or resolution, in which case such person may vote such shares. Any trustee or other fiduciary may vote shares registered in his name as such fiduciary, either in person or by proxy. Shares of the Trust directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time. The Trustees may adopt by resolution a procedure by which a shareholder may certify in writing to the Trust that any shares registered in the name of the shareholder are held for the account of a specified person other than the shareholder. The resolution shall set forth the class of shareholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the share transfer books, the time after the record date or closing of the share transfer books within which the certification must be received by the Trust; and any other provisions with respect to the procedure which the Trustees consider necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the shareholder of record of the specified shares in place of the shareholder who makes the certification. Section 11. Inspectors. At any meeting of shareholders, the chairman of the meeting may, or upon the request of any shareholder shall, appoint one or more persons as inspectors for such meetings. Such inspectors shall ascertain and report the number of shares represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. Section 12. Voting by Ballot. Voting on any question or in any election may be viva voce unless the presiding officer shall order or any shareholder shall demand that voting be by ballot. Section 13. No Shareholder Action by Written Consent. Subject to the rights of the holders of any series Preferred Shares to elect additional Trustees under specific circumstances, any action required or permitted to be taken by the shareholders of the Trust must be effected at an annual or special meeting of shareholders and may not be effected by any consent in writing by such shareholders. Section 14. Nominations and Proposals by Shareholders. (a) Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board of Trustees and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (i) pursuant to the Trust's notice of meeting, (ii) by or at the direction of the Board of Trustees or (iii) by any shareholder of the Trust who was a shareholder of record both at the time of giving of notice provided for in this Section 14(a) and at the time of the annual meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 14(a). (2) For nominations for election to the Board of Trustees or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of this Section 14, the shareholder must have given timely notice thereof in writing to the secretary of the Trust and such other business must otherwise be a proper matter for action by shareholders. To be timely, a shareholder's notice must be delivered to the secretary at the principal executive office of the Trust by not later than the close of business on the 90th day prior to the first anniversary of the date of mailing of the notice for the preceding year's annual meeting nor earlier than the close of business on the 120th day prior to the first anniversary of the date of mailing of the notice for the preceding year's annual meeting; provided, however, that in the event that the date of the mailing of the notice for the annual meeting is advanced or delayed by more than 30 days from the anniversary date of the mailing of the notice for the preceding year's annual meeting, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to the date of mailing of the notice for such annual meeting and not later than the close of business on the later of the 90th day prior to the date of mailing of the notice for such annual meeting or the tenth day following the day on which public announcement of the date of mailing of the notice for such meeting is first made by the Trust. In no event shall the public announcement of a postponement of the mailing of the notice for such annual meeting or of an adjournment or postponement of an annual meeting to a later date or time commence a new time period for the giving of a shareholder's notice as described above. A shareholder's notice to be proper must set forth (i) as to each person whom the shareholder proposes to nominate for election or reelection as a Trustee (A) the name, age, business address and residence address of such person, (a) the class and number of shares of beneficial interest of the Trust that are beneficially owned or owned of record by such person and (C) all other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest or is otherwise required, in each case pursuant to Regulation 14A (or any successor provision) under the Exchange Act (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Trustee if elected); (ii) as to any other business that the shareholder proposes to bring before the meeting, a description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder (including any anticipated benefit to the shareholder therefrom) and of each beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the shareholder giving the notice and each beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such shareholder, as they appear on the Trust's share ledger and current name and address, if different, and of such beneficial owner and (y) the class and number of shares of beneficial interest of the Trust which are owned beneficially and of record by such shareholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 14 to the contrary, in the event that the number of Trustees to be elected to the Board of Trustees is increased and there is no public announcement by the Trust of such action or specifying the size of the increased Board of Trustees at least 100 days prior to the first anniversary of the date of mailing of the notice for the preceding year's annual meeting, a shareholder's notice required by this Section 14(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if the notice is delivered to the secretary at the principal executive offices of the Trust not later than the close of business on the tenth day immediately following the day on which such public announcement is first made by the Trust. (b) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Trust's notice of meeting. (c) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 14 shall be eligible to serve as Trustees, and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 14. The chairman of the meeting shall have the power and duty to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 14 and, if any proposed nomination or other business is not in compliance with this Section 14, to declare that such nomination or proposal shall be disregarded. (2) For purposes of this Section 14, (a) the "date of mailing of the notice" shall mean the date of the proxy statement for the solicitation of proxies for election of Trustees and (b) "public announcement" shall mean disclosure (i) in a press release either transmitted to the principal securities exchange on which shares of the Trust's common shares are traded or reported by a recognized news service or (ii) in a document publicly filed by the Trust with the Securities and Exchange Commission. (3) Notwithstanding the foregoing provisions of this Section 14, a shareholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 14. Nothing in this Section 14 shall be deemed to affect any right of a shareholder to request inclusion of a proposal in, nor the right of the Trust to omit a proposal from, the Trust's proxy statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act. Section 15. Exemption of Certain Shares. All of the acquisitions of: (i) the common shares of beneficial interest ("Common Shares") of the Trust now or hereafter owned by Safeguard Scientifics, Inc., The Nichols Company and any of their current or future affiliates or associates (collectively, the "SSI/TNC Affiliates"); (ii) the Common Shares and Preferred Shares now or hereafter owned by Commonwealth of Pennsylvania State Employees' Retirement System, RAI Real Estate Advisers, Inc. and any of their current or future affiliates or associates (collectively, the "SERS Affiliates");(iii) the Common Shares now or hereafter owned by Morgan Stanley Asset Management, Inc., Morgan Stanley Institutional Fund, Inc. - U.S. Real Estate Portfolio and Morgan Stanley, Sicav Subsidiary, SA and any of their current or future affiliates or associates (collectively, the "Morgan Affiliates"); and (iv) the Common Shares now or hereafter owned by Cohen & Steers Capital Management, Inc. and any of their current or future affiliates or associates (collectively, the "C&S Affiliates") are hereby exempted from Subtitle 7 of Title 3 of the Maryland General Corporation Law, and the Trust shall have no right to exercise the redemption right with respect to such Common Shares arising under said Subtitle 7. In no event will any Shareholder of the Trust have any rights under Section 3-708 of said Subtitle 7 as a result of the ownership by the SSI/TNC Affiliates of Common Shares or by the SERS Affiliates of Common Shares or Preferred Shares or by the Morgan Affiliates of Common Shares or by the C&S Affiliates of Common Shares as aforesaid. As used herein, the terms "affiliates" and "associates" have the respective meanings assigned to them in Subtitles 6 and 7, respectively, of said Title 3. ARTICLE III. TRUSTEES Section 1. General Powers: Qualifications. The business and affairs of the Trust shall be managed under the direction of its Board of Trustees. A Trustee shall be an individual at least 21 years of age who is not under legal disability. Section 2. Annual and Regular Meetings. An annual meeting of the Trustees shall be held immediately after and at the same place as the annual meeting of shareholders, no notice other than this Bylaw being necessary. The Trustees may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Trustees without other notice than such resolution. Section 3. Special Meetings. Special meetings of the Trustees may be called by or at the request of the chairman or chief executive officer or by one-half or more of the Trustees then in office. The person or persons authorized to call special meetings of the Trustees may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Trustees called by them. Section 4. Notice. Notice of any special meeting of the Board of Trustees shall be delivered personally or by telephone, electronic mail, facsimile transmission, United States mail or courier to each Trustee at his business, electronic mail or residence address. Notice by personal delivery, telephone, electronic mail, facsimile transmission or courier shall be given at least two days prior to the meeting. Notice by United States mail shall be given at least five business days prior to the meeting and shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Telephone notice shall be deemed to be given when the Trustee or the Trustee's agent is personally given such notice in a telephone call to which the Trustee or the Trustee's agent is a party. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Trust by the Trustee and receipt of a completed answer-back indicating receipt. Electronic mail shall be deemed to be given upon transmission of the message to the electronic mail address given to the Trust by the Trustee. Notice by courier shall be deemed to be given upon delivery to the address given to the Trust by the Trustee and receipt by such courier of a signature evidencing delivery thereat. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Trustees need be stated in the notice, unless specifically required by statute or these Bylaws. Section 5. Quorum. A whole number of Trustees equal to at least a majority of the Whole Board Trustees shall constitute a quorum for transaction of business at any meeting of the Trustees, provided that, if less than a quorum are present at said meeting, a majority of the Trustees present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the Declaration of Trust or these Bylaws, the vote of a majority of a particular group of Trustees is required for action, a quorum must also include a majority of such group. The Trustees present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Trustees to leave less than a quorum. Section 6. Voting. The action of the majority of the Trustees present at a meeting at which a quorum is present shall be the action of the Trustees, unless the concurrence of a greater proportion is required for such action by applicable law or the Declaration of Trust. If enough Trustees have withdrawn from a meeting to leave less than a quorum but the meeting is not adjourned, the action of the majority of the Trustees present at such meeting shall be the action of the Board of Trustees, unless the concurrence of a greater portion is required for such action by applicable law. Section 7. Telephone Meetings. Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 8. Action by Written Consent of Trustees. Any action required or permitted to be taken at any meeting of the Trustees may be taken without a meeting, if a consent in writing to such action is signed by each Trustee and such written consent is filed with the minutes of proceedings of the Trustees. Section 9. Vacancies and Resignations. If for any reason any or all the Trustees cease to be Trustees, such event shall not terminate the Trust or affect these Bylaws or the powers of the remaining Trustees hereunder (even if fewer than three Trustees remain). Any vacancy (including a vacancy created by an increase in the number of Trustees) shall be filled, at any regular meeting or at any special meeting called for that purpose, by a majority of the remaining Trustees, even if such majority is less than a quorum. Any individual so elected as Trustee shall serve for the unexpired term of the trustee he is replacing until his successor has been duly elected and qualified. Any Trustee of the Trust may resign at any time by giving written notice of his resignation to the Board of Trustees, the chairman of the board, the president or the secretary. Any resignation shall take effect immediately upon its receipt or at such later time as specified therein. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Section 10. Compensation. Trustees shall not receive any stated salary for their services as Trustees but, by resolution of the trustees, fixed sums per year and/or per meeting. Expenses of attendance, if any, may be allowed to trustees for attendance at each annual, regular or special meeting of the Trustees or of any committee thereof; but nothing herein contained shall be construed to preclude any Trustees from serving the Trust in any other capacity and receiving compensation therefor. Section 11. Removal of Trustees. The shareholders may, at any time, remove any Trustee in the manner provided in the Declaration of Trust. Section 12. Loss of Deposits. No Trustee shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or shares have been deposited. Section 13. Surety Bonds. Unless required by law, no Trustee shall be obligated to give any bond or surety or other security for the performance of any of his duties. Section 14. Reliance. Each Trustee, officer, employee and agent of the Trust shall, in the performance of his duties with respect to the Trust, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Trust, upon an opinion of counsel or upon reports made to the Trust by any of its officers or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Trustees or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee. Section 15. Certain Rights of Trustees, Officers, Employees and Agents. The Trustees shall have no responsibility to devote their full time to the affairs of the Trust. Any Trustee or officer, employee or agent of the Trust, in his personal capacity or in a capacity as an affiliate, employee, or agent of any other person, or otherwise, may have business interests and engage in business activities similar to or in addition to those of or relating to the Trust. ARTICLE IV. COMMITTEES Section 1. Number, Tenure and Qualifications. The Trustees may, by resolution or resolutions passed by a majority of the whole Board, appoint from among its members an Executive Committee, an Audit Committee and other committees, composed of one or more Trustees. Section 2. Powers. The Trustees may delegate to committees appointed under Section 1 of this Article any of the powers of the Board of Trustees. Section 3. Committee Procedures. Each Committee may fix rules of procedure for its business. A majority of the members of a committee shall constitute a quorum for the transaction of business and the action of a majority of those present at a meeting at which a quorum is present shall be action of the committee. In the absence of any member of any committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another Trustee to act in the place of such absent member. Any action required or permitted to be taken at a meeting of a committee may be taken without a meeting, if a unanimous written consent which sets forth the action is signed by each member of the committee and filed with the minutes of the proceedings of such committee. The members of a committee may conduct any meeting thereof by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by such means shall constitute presence in person at the meeting. Section 4. Emergency. In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Trust by its Trustees and officers as contemplated by the Declaration of Trust and these Bylaws, any two or more available members of the then incumbent Executive Committee, if any, shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Trust in accordance with the provisions of this Article. In the event of the unavailability, at such time, of a minimum of two members of the then incumbent Executive Committee, the available Trustees shall elect an Executive Committee composed of any two members of the Board of Trustees, whether or not they be officers of the Trust, which two members shall constitute the Executive Committee for the full conduct and management of the affairs of the Trust in accordance with the foregoing provisions of this Section. This Section shall be subject to implementation by resolution of the Board of Trustees passed form time to time for that purpose, and any provisions of the Bylaws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementing resolutions shall be suspended until it shall be determined by any interim Executive Committee acting under this Section that it shall be to the advantage of the Trust to resume the conduct and management of its affairs and business under all the other provisions of these Bylaws. ARTICLE V. OFFICERS Section 1. General Provisions. The officers of the Trust may consist of a chairman of the board, a chief executive officer, one or more vice presidents, a chief financial officer, a secretary, and one or more assistant secretaries. In addition, the Trustees may from time to time appoint such other officers with such powers and duties as they shall deem necessary or desirable. The officers of the Trust shall be elected annually by the Trustees. Each officer shall hold office until his successor is elected and qualifies or until his death, resignation or removal in the manner hereinafter provided. Any two or more offices may be held by the same person. In their discretion, the Trustees may leave unfilled any office. Election of an officer or agent shall not of itself create contract rights between the Trust and such officer or agent. Section 2. Removal and Resignation. Any officer of the Trust may be removed by a majority of the members of the Whole Board if in their judgment the best interests of the Trust would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Trust may resign at any time by giving written notice of his resignation to the Trustees, the chairman of the board, the chief executive officer or the secretary. Any resignation shall take effect immediately after its receipt or at such late time specified therein. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Section 3. Vacancies. A vacancy in any office may be filled by the Trustees for the balance of the term. Section 4. Chairman of the Board. The chairman of the board shall preside over the meetings of the Trustees and of the shareholders at which he shall be present. The chairman of the board shall perform such other duties as may be assigned to him by the Trustees. Except where by law the signature of the chief executive officer is required, the chairman of the board shall possess the same power as the chief executive officer to sign deeds, mortgages, bonds, contracts or other instruments. Section 5. Chief Executive Officer. The Trustees may designate a chief executive officer from among the elected officers. In the absence of such designation, the chairman of the board shall be the chief executive officer of the Trust. The chief executive officer shall have general responsibility for implementation of the policies of the Trust, as determined by the Trustees, and for the management of the business affairs of the Trust. The chief executive officer shall in general supervise and control all of the business and affairs of the Trust. He may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Trustees or by these Bylaws to some other officer or agent of the Trust or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of chief executive officer and such other duties as may be prescribed by the Trustees from time to time. Section 6. Vice Presidents. In the absence of the chief executive officer or in the event of a vacancy in such office, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election ) shall perform the duties of the chief executive officer and when so acting shall have all the powers of and be subject to all the restrictions upon the chief executive officer; and shall perform such other duties as form time to time may be assigned to him by the chief executive officer or by the Trustees. The Trustees may designate one or more vice presidents as executive vice president or as vice president for particular areas of responsibility. Section 7. Secretary. The secretary shall (a) keep the minutes of the proceedings of the shareholders, the Trustees and committees of the Trustees in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the trust records and of the seal of the Trust; (d) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (e) have general charge of the share transfer books of the Trust; and (f) in general perform such other duties as from time to time may be assigned to him by the chief executive officer or by the Trustees. Section 8. Chief Financial Officer. The chief financial officer shall have the custody of the funds and securities of the Trust and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust and shall deposit all moneys and other valuable effects in the name and to the credit of the Trust in such depositories as may be designated by the Trustees. The chief financial officer shall disburse the funds of the Trust as may be ordered by the Trustees, taking proper vouchers for such disbursements, and shall render to the chief executive officer and Trustees, at the regular meetings of the Trustees or whenever they may require it, an account of all his transactions as chief financial officer and of the financial condition of the Trust. If required by the Trustees, he shall give the Trust a bond in such sum and with such surety or sureties as shall be satisfactory to the Trustees for the faithful performance of the duties of his office and for the restoration of the Trust, in case of his death, resignation, retirement or removal from office, all books, papers, vouchers, moneys and other property of whatever kind in his possession or under his control belonging to the Trust. Section 9. Assistant Secretaries. The assistant secretaries, in general, shall perform such duties as shall be assigned to them by the secretary, or by the chief executive officer or the Trustees. Section 10. Salaries. The salaries of the officers shall be fixed from time to time by the Trustees and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Trustee. ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. Contracts. The Trustees may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Trust and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document shall be valid and binding upon the Trustees and upon the Trust when so authorized or ratified by action of the Board of Trustees and executed by an authorized person. Section 2. Checks and Drafts. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Trust shall be signed by such officer or officers, agent or agents of the Trust and in such manner as shall from time to time be determined by the Trustees. Section 3. Deposits. All funds of the Trust not otherwise employed shall be deposited from time to time to the credit of the Trust in such banks, trust companies or other depositories as the Trustees may designate. ARTICLE VII. SHARES Section 1. Certificates. Except as otherwise provided in these Bylaws, this Section shall not be interpreted to limit the authority of the Board of Trustees to issue some or all of the shares of any or all classes or series without certificates. Each shareholder, upon written request to the Secretary of Trust, shall be entitled to a certificate or certificates which shall represent and certify the number of shares of each class of beneficial interests held by him in the Trust. Each certificate shall be signed by the chief executive officer or a vice president and countersigned by the secretary or an assistant secretary or the chief financial officer or an assistant treasurer and may be sealed with the seal, if any, of the Trust. The signatures may be either manual or facsimile. Certificates shall be consecutively numbered; and if the Trust shall, from time to time, issue several classes of shares, each class may have its own number series. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. Each certificate representing shares which are restricted as to their transferability or voting powers, which are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or which are redeemable at the option of the Trust, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. In lieu of such statement or summary, the Trust may set forth upon the face or back of the certificate a statement that the Trust will furnish to any shareholder, upon request and without charge, a full statement of such information. Section 2. Transfers. Certificates shall be treated as negotiable and title thereto and to the shares they represent shall be transferred by delivery thereof to the same extent as those of a Maryland stock corporation. Upon surrender to the Trust or the transfer agent of the Trust of a share certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Trust shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The Trust shall be entitled to treat the holder of record of any share or shares as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland. Section 3. Lost Certificate. The Trustees may direct a new certificate to be issued in place of any certificate previously issued by the Trust alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, the Trustees may, in their discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or his legal representative to advertise the same in such manner as they shall require and/or to give bond, with sufficient surety, to the Trust to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate. Section 4. Closing of Transfer Books or Fixing of Record Date. The Trustees may set, in advance a record date for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of shareholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of shareholders not less than ten days, before the date on which the meeting or particular action requiring such determination of shareholders is to be held or taken. In lieu of fixing a record date, the Trustees may provide that the share transfer books shall be closed for a stated period but not longer than 20 days. If the share transfer books are closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at lest ten days before the date of such meeting. If no record date is fixed and the share transfer books are not closed for the determination of shareholders, (a) the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (b) the record date for the determination of shareholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Trustees, declaring the dividend or allotment of rights, is adopted. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except where the determination has been made through the closing of the transfer books and the stated period of closing has expired. Section 5. Share Ledger. The Trust shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger containing the name and address of each shareholder and the number of shareholders of each class held by such shareholder. Section 6. Fractional Shares; Issuance of Units. Trustees may issue fractional shares or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Declaration or these Bylaws, the Trustees may issue units consisting of different securities of the Trust. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Trust, except that the Trustees may provide that for a specified period securities of the Trust issued in such unit may be transferred on the books of the Trust only in such unit. ARTICLE VIII. ACCOUNTING YEAR The Trustees shall have the power, from time to time, to fix the fiscal year of the Trust by a duly adopted resolution. ARTICLE IX. DIVIDENDS Section 1. Authorization. Dividends and other distributions upon the shares of the Trust may be authorized by the Board of Trustees, subject to the provisions of law and the Declaration of Trust. Dividends may be paid in cash, property or shares of the Trust, subject to the provisions of law and the Declaration. Section 2. Contingencies. Before payment of any dividends, there may be set aside out of any funds of the Trust available for dividends such sum or sums as the Trustees may from time to time, in their absolute discretion, think proper as the reserve fund for contingencies, for equalizing dividends, for repairing or maintaining any property of the Trust or for such other purpose as the Trustees shall determine to be in the best interest of the Trust, and the Trustees may modify or abolish any such reserve. ARTICLE X. INVESTMENT POLICY Subject to the provisions of the Declaration of Trust, the Trustees may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Trust as they shall deem appropriate in their sole discretion. ARTICLE XI. SEAL Section 1. Seal. The Trustees may authorize the adoption of a seal by the Trust. The seal shall have inscribed thereon the name of the Trust and the year of its organization. The Trustees may authorize one or more duplicate seals and provide for the custody thereof. Section 2. Affixing Seal. Whenever the Trust is required to place its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the signature of the person authorized to execute the document on behalf of the Trust. ARTICLE XII. INDEMNIFICATION To the maximum extent permitted by Maryland law in effect from time to time, the Trust, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall indemnify (a) any Trustee, officer or shareholder or any former Trustee, officer or shareholder (including among the foregoing, for all purposes of this Article XII and without limitation, any individual who, while a Trustee and at the request of the Trust, serves or has served as a director, officer, partner or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise), who has been successful, on the merits or otherwise, in the defense of a proceeding to which he was made a party by reason of such status, against reasonable expenses incurred by him in connection with the proceeding, (b) any Trustee or officer or any former Trustee or officer against any claim or liability to which he may become subject by reason of such status unless it is established that (i) his act or omission was committed in bad faith or was the result of active and deliberate dishonesty, (ii) he actually received an improper personal benefit in money, property or services, or (iii) in the case of a criminal proceeding, he had reasonable cause to believe that his act or omission was unlawful and (c) each shareholder or former shareholder against any claim or liability to which he may be subject by reason of his status as a shareholder or former shareholder. In addition, the Trust shall pay or reimburse, in advance of final disposition of a proceeding, reasonable expenses incurred by a Trustee, officer or shareholder or former Trustee, officer or shareholder made a party to a proceeding by reason of his status as a Trustee, officer or shareholder provided that, in the case of a Trustee or officer, the Trust shall have received (i) a written affirmation by the Trustee or officer of his good faith belief that he has met the applicable standard of conduct necessary for indemnification by the Trust as authorized by these Bylaws and (ii) a written undertaking by him or on his behalf to repay the amount paid or reimbursed by the Trust if it shall ultimately be determined that the applicable standard of conduct was not met. The Trust may, with the approval of its Trustees, provide such indemnification and payment or reimbursement of expenses to any Trustee, officer or shareholder or any former Trustee, officer or shareholder who served a predecessor of the Trust and to any employee or agent of the Trust or a predecessor of the Trust. Neither the amendment nor repeal of this Section, nor the adoption or amendment of any other provision of the Declaration of Trust or these Bylaws inconsistent with this Section, shall apply to or affect in any respect the applicability of this paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. Any indemnification or payment or reimbursement of the expenses permitted by these Bylaws shall be furnished in accordance with the procedures provided for indemnification and payment or reimbursement of expenses under Section 2-418 of the Maryland General Corporation Law (the "MGCL") for directors of Maryland corporations. The Trust may provide to Trustees, officers and shareholders such other and further indemnification or payment or reimbursement of expenses as may be permitted by the MGCL, as in effect from time to time, for directors of Maryland corporations. ARTICLE XIII. WAIVER OF NOTICE Whenever any notice is required to be given pursuant to the Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE XIV. AMENDMENT OF BYLAWS The Trustees shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws. The foregoing are certified as the Bylaws of the Trust, as amended, approved by the Trustees on June 27, 2003. /s/ Brad A. Molotsky --------------------------- Secretary EX-10 4 ex10-1.txt EXHIBIT 10.1 Exhibit 10.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF COHEN & STEERS CAPITAL MANAGEMENT, INC The undersigned hereby certifies to Brandywine Realty Trust, a Maryland real estate investment trust (the "Company"), that he is the duly appointed President of Cohen & Steers Capital Management, Inc., a New York corporation ("C&S"), and on behalf of C&S, pursuant to due authorization, does further hereby certify, represent, warrant, and agree that: 1. C&S acknowledges its understanding that the representations, warranties and agreements contained herein are made in order to obtain an exception for C&S to the ownership limitations (the "Ownership Limit") set forth in the Declaration of Trust, as amended to date (the "Articles"), of the Company. Such exception, which is sought with respect to the common shares of beneficial interest of the Company (the "Common Shares"), will allow C&S to be a "beneficial owner," as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (a "Rule 13d-3 Owner"), of up to, but not in excess of, 15.0% of the outstanding Common Shares (the "C&S Shares"). 2. C&S's ownership, as a Rule 13d-3 Owner, of the C&S Shares will not result in any Individual being the Tax Owner of Common Shares in excess of 9.8% of the value of all outstanding Common Shares. As used herein, the term "Tax Owner" of Common Shares shall mean the person who is considered to own such Common Shares applying the rules of Section 856(h) of the Internal Revenue Code of 1986 (the "Code"), including the relevant provisions of Section 542(a)(2) and Section 544 as modified by Section 856(h) of the Code. The term "Individual" shall mean a natural person or an organization treated as an individual under the provisions of Section 542(a)(2) of the Code, applying the relevant rules of Section 856(h) of the Code. 3. Neither C&S nor any Investor owns directly or indirectly any stock or other equity interest in excess of 9.8% in any Tenant. The term "Investor" means any owner of C&S or any open-end or closed-end fund for which C&S or an affiliate acts as an investment advisor. The term "Tenant" means any entity that leases space from the Company or from any direct or indirect subsidiary partnership, corporation or limited liability company in which Company owns an interest. C&S shall notify the Company in the event that C&S or any Investor acquires any stock or other equity interest in excess of 9.8% in any Tenant. 4. C&S will not dispose of any of the C&S Shares in violation of the Ownership Limit or in a manner that would cause any Individual to be the Tax Owner of more than 9.8% of the outstanding Common Shares. 5. C&S agrees that if, for any reason, (i) any of the above representations or warranties is violated, (ii) the ownership, as a Rule 13d-3 Owner, of the C&S Shares causes any Individual to be the Tax Owner of more than 9.8% of the outstanding Common Shares, (iii) C&S or any Investor acquires any stock or other equity interest in excess of 9.8% in any Tenant, or (iv) in the sole reasonable judgment of the Company, the ownership, as a Rule 13d-3 Owner, of the C&S Shares could otherwise jeopardize the Company's tax status as a real estate investment trust for federal income tax purposes, then the waiver of the ownership limits granted by the Company to C&S shall be deemed void ab initio and shall result in a conversion of all or a portion (as reasonably determined by the Company to be necessary) of the C&S Shares into Excess Shares under the Articles. 6. C&S acknowledges its understanding that the foregoing exception to the Ownership Limit is only being granted to C&S, and not to any other person (including any of the Investors). 7. C&S agrees that solely with respect to any Common Shares for which C&S is the beneficial owner as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended, in excess of 9.8% of the outstanding Common Shares (such excess shares being referred to below as "Additional Shares"), C&S shall not take any actions that are inconsistent with its status as an investment manager that is eligible to file a Form 13G under the Securities Exchange Act of 1934 including the following: a. Solicit proxies from shareholders of the Company, become a "participant" in any "election contest" (as such terms are used in Rule 14a-11 of the Securities Exchange Act of 1934, as amended), with respect to the Company, or make any communication (other than as required by law) referred to in Rule 14a-1(l)(2)(iv) of the Securities Exchange Act of 1934, as amended, in connection with any election contest or other vote by shareholders of the Company or otherwise; b. Vote for the removal of any member of the Board, except removal "for cause" as such term is used under Maryland law, except that this shall not limit C&S's ability to vote against the reelection of a Board member; c. Call or seek to have called any meeting of the shareholders of the Company; 8. Otherwise act, alone or in concert with others to (i) solicit, propose, seek to effect or negotiate with any other person with respect to (A) any business combination with the Company or (B) any restructuring, recapitalization or similar transaction of the Company, (ii) solicit, propose, seek to effect or negotiate with any other person with respect to, or announce an intent to make, any tender offer or exchange offer for any voting securities of the Company, or (iii) assist, participate in, facilitate or solicit any effort or attempt by any persons to do or seek to do any of the foregoing. 9. The undersigned has the authority to execute this document on behalf of C&S. IN WITNESS WHEREOF, I have executed this certificate as of this 27th day of June, 2003. Cohen & Steers Capital Management, Inc. By: _____________________________ Martin Cohen President WAIVER OF OWNERSHIP LIMITS [BRANDYWINE REALTY TRUST LETTERHEAD] June 27, 2003 Cohen & Steers Capital Management, Inc. 757 Third Avenue New York, New York 10017 Re: Share Ownership Limits Reference is made to the Representations, Warranties and Agreements executed as of July 1, 2003 of Cohen & Steers Capital Management, Inc. ("C&S") to Brandywine Realty Trust (the "Company"), containing certain representations, warranties and agreements, a copy of which is attached to this letter as Attachment I (the "Representation Letter"). Based upon the Representation Letter, the Company hereby advises you that an exception to the Ownership Limit referred to in the Representation Letter has been established for C&S under the Declaration of Trust of the Company effective as the date received on and subject to the terms, conditions and limitations set forth in the Representation Letter. Very truly yours, BRANDYWINE REALTY TRUST By: ------------------------------------------------ Name: Gerard H. Sweeney Title: President and Chief Executive Officer EX-31 5 ex31-1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATIONS PURSUANT TO RULE 13a - 14 OF THE SECURITIES EXCHANGE ACT OF 1934 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Gerard H. Sweeney, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Brandywine Realty Trust 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 6. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 13, 2003 /s/ Gerard H. Sweeney --------------- --------------------------- Date Gerard H. Sweeney President and Chief Executive Officer EX-31 6 ex31-2.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATIONS PURSUANT TO RULE 13a - 14 OF THE SECURITIES EXCHANGE ACT OF 1934 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Christopher P. Marr, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Brandywine Realty Trust 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 6. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 13, 2003 /s/ Christopher P. Marr --------------- ----------------------------- Date Christopher P. Marr Senior Vice President and Chief Financial Officer CERTIFICATIONS PURSUANT TO RULE 13a - 14 OF THE SECURITIES EXCHANGE ACT OF 1934 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Christopher P. Marr, certify that: 7. I have reviewed this quarterly report on Form 10-Q of Brandywine Realty Trust 8. Based on my knowledge, this quarterly does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 9. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 10. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)0 for the registrant and have: e) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; f) designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; g) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and h) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 11. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): b) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 12. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 8, 2003 /s/ Christopher P. Marr -------------- ----------------------------- Date Christopher P. Marr Senior Vice President and Chief Financial Officer 2 EX-32 7 ex32-1.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Brandywine Realty Trust (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gerard H. Sweeney, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Gerard H. Sweeney Gerard H. Sweeney President and Chief Executive Officer August 13, 2003 A signed original of this written statement required by Section 906 has been provided to Brandywine Realty Trust and will be retained by Brandywine Realty Trust and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 8 ex32-2.txt EXHIBIT 32.2 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Brandywine Realty Trust (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher P. Marr, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Christopher P. Marr Christopher P. Marr Senior Vice President and Chief Financial Officer August 13, 2003 A signed original of this written statement required by Section 906 has been provided to Brandywine Realty Trust and will be retained by Brandywine Realty Trust and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----