Brandywine Realty Trust(BDN) - 2022 Q2 - Quarterly Report

Filing Information This section details the quarterly report filing information for Brandywine Realty Trust and Brandywine Operating Partnership, L.P - This is a Quarterly Report on Form 10-Q for the period ended June 30, 2022, filed by Brandywine Realty Trust and Brandywine Operating Partnership, L.P[1] - Brandywine Realty Trust is a large accelerated filer, while Brandywine Operating Partnership, L.P. is a non-accelerated filer[2][3] - As of July 25, 2022, 171,569,807 Common Shares of Beneficial Interest of Brandywine Realty Trust were outstanding[4] Explanatory Note on Combined Report This note explains the combined financial reporting for Brandywine Realty Trust and its Operating Partnership - This report combines the quarterly reports of Brandywine Realty Trust (Parent Company, a Maryland REIT) and Brandywine Operating Partnership L.P. (Operating Partnership, a Delaware limited partnership). The Parent Company owns its assets and conducts operations through the Operating Partnership and its subsidiaries, collectively referred to as the 'Company'[5] - The Parent Company is the sole general partner of the Operating Partnership, owning a 99.7% interest as of June 30, 2022, and consolidates the Operating Partnership for financial reporting[6][8] - The combined report aims to facilitate investor understanding, remove duplicative disclosures, and create time and cost efficiencies[9] - Key differences between the Parent Company and Operating Partnership are primarily in equity and non-controlling interests, with the Parent Company's only material asset being its investment in the Operating Partnership[10][11] PART I — FINANCIAL INFORMATION This section presents the Company's financial statements, management's analysis, and market risk disclosures Item 1. Financial Statements Unaudited consolidated financial statements for Brandywine Realty Trust and its Operating Partnership are presented Financial Statements of Brandywine Realty Trust This section provides the unaudited consolidated financial statements specifically for Brandywine Realty Trust Consolidated Balance Sheets (Brandywine Realty Trust) (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :---------------- | | Total assets | $ 3,966,688 | $ 3,846,196 | | Total liabilities | $ 2,315,125 | $ 2,144,977 | | Total beneficiaries' equity | $ 1,651,563 | $ 1,701,219 | Consolidated Statements of Operations (Brandywine Realty Trust) (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $ 124,042 | $ 120,102 | $ 251,547 | $ 240,871 | | Total operating expenses | $ 101,936 | $ 98,568 | $ 203,636 | $ 192,169 | | Operating income | $ 26,377 | $ 21,602 | $ 53,079 | $ 50,837 | | Net income (loss) attributable to Brandywine Realty Trust | $ 4,637 | $ (167) | $ 10,730 | $ 6,754 | | Basic income per Common Share | $ 0.03 | $ — | $ 0.06 | $ 0.04 | | Diluted income per Common Share | $ 0.03 | $ — | $ 0.06 | $ 0.04 | Consolidated Statements of Comprehensive Income (Brandywine Realty Trust) (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $ 4,651 | $ (175) | $ 10,752 | $ 6,789 | | Total comprehensive income | $ 1,935 | $ 1,048 | $ 5,887 | $ 2,146 | | Comprehensive income attributable to Brandywine Realty Trust | $ 6,566 | $ 875 | $ 16,599 | $ 8,888 | Consolidated Statements of Cash Flows (Brandywine Realty Trust) (in thousands) | Item | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $ 78,494 | $ 79,126 | | Net cash used in investing activities | $ (188,862) | $ (68,403) | | Net cash provided by (used in) financing activities | $ 111,848 | $ (9,288) | | Increase in cash and cash equivalents and restricted cash | $ 1,480 | $ 1,435 | | Cash and cash equivalents and restricted cash at end of period | $ 29,780 | $ 48,512 | Financial Statements of Brandywine Operating Partnership, L.P. Unaudited consolidated financial statements for Brandywine Operating Partnership, L.P. are presented Consolidated Balance Sheets (Brandywine Operating Partnership, L.P.) (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :---------------- | | Total assets | $ 3,966,688 | $ 3,846,196 | | Total liabilities | $ 2,315,125 | $ 2,144,977 | | Total partners' equity | $ 1,646,504 | $ 1,690,079 | Consolidated Statements of Operations (Brandywine Operating Partnership, L.P.) (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $ 124,042 | $ 120,102 | $ 251,547 | $ 240,871 | | Total operating expenses | $ 101,936 | $ 98,568 | $ 203,636 | $ 192,169 | | Operating income | $ 26,377 | $ 21,602 | $ 53,079 | $ 50,837 | | Net income (loss) attributable to Brandywine Operating Partnership | $ 4,653 | $ (174) | $ 10,756 | $ 6,791 | | Basic income per Common Partnership Unit | $ 0.03 | $ — | $ 0.06 | $ 0.04 | | Diluted income per Common Partnership Unit | $ 0.03 | $ — | $ 0.06 | $ 0.04 | Consolidated Statements of Comprehensive Income (Brandywine Operating Partnership, L.P.) (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $ 4,651 | $ (175) | $ 10,752 | $ 6,789 | | Total comprehensive income | $ 1,935 | $ 1,048 | $ 5,887 | $ 2,146 | | Comprehensive income attributable to Brandywine Operating Partnership | $ 6,588 | $ 874 | $ 16,643 | $ 8,937 | Consolidated Statements of Cash Flows (Brandywine Operating Partnership, L.P.) (in thousands) | Item | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $ 78,494 | $ 79,126 | | Net cash used in investing activities | $ (188,862) | $ (68,403) | | Net cash provided by (used in) financing activities | $ 111,848 | $ (9,288) | | Increase in cash and cash equivalents and restricted cash | $ 1,480 | $ 1,435 | | Cash and cash equivalents and restricted cash at end of period | $ 29,780 | $ 48,512 | Notes to Unaudited Consolidated Financial Statements This section provides detailed notes on the Company's organization, accounting policies, real estate, and debt Note 1. Organization of the Parent Company and the Operating Partnership This note details the Company's organizational structure, property portfolio, and real estate ventures - As of June 30, 2022, the Company owned 78 properties totaling approximately 13.6 million net rentable square feet, with 74 core properties (12.9 million sq ft) and additional development/redevelopment properties[53][54] - The Company also owned 164.6 acres of land held for development and economic interests in ten unconsolidated real estate ventures[54] - Management company subsidiaries managed approximately 23.0 million net rentable square feet, including Company-owned properties and third-party/unconsolidated venture properties[54] Note 2. Basis of Presentation This note outlines the basis for preparing the consolidated financial statements and management's judgments - The consolidated financial statements are prepared in accordance with SEC rules for interim financial statements, with certain information condensed or omitted compared to annual GAAP statements[55] - Management believes all adjustments are normal recurring matters, resulting in a fair statement of financial position, operations, and cash flows[55] - The Company elected to apply hedge accounting expedients related to probability and effectiveness assessments for future LIBOR-indexed cash flows and changes in critical terms of derivative or hedged transactions during Q2 2022[57] Note 3. Real Estate Investments This note details the Company's real estate investments, including properties, acquisitions, and dispositions Gross Carrying Value of Operating Properties (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Land | $ 410,891 | $ 410,144 | | Building and improvements | $ 2,710,368 | $ 2,653,492 | | Tenant improvements | $ 423,843 | $ 408,966 | | Total | $ 3,545,102 | $ 3,472,602 | Property Acquisitions (Six Months Ended June 30, 2022) (in thousands) | Property/Portfolio Name | Acquisition Date | Location | Property Type | Rentable Square Feet/Acres | Purchase Price | | :---------------------- | :--------------- | :------- | :------------ | :------------------------- | :------------- | | 631 Park Avenue | January 21, 2022 | King of Prussia, PA | Land | 3.3 acres | $ 3,650 | | 3151 Market Street (a) | April 29, 2022 | Philadelphia, PA | Leasehold Interest | 0.8 acres | $ 27,349 | Property Dispositions (Six Months Ended June 30, 2022) (in thousands) | Property/Portfolio Name | Disposition Date | Location | Property Type | Rentable Square Feet/Acres | Sales Price | Gain/(Loss) on Sale | | :---------------------- | :--------------- | :------- | :------------ | :------------------------- | :---------- | :------------------ | | Gateway G & H | January 20, 2022 | Richmond, VA | Land | 10.0 acres | $ 1,600 | $ 897 | | 25 M Street | April 14, 2022 | Washington, D.C. | Land | 0.8 acres | $ 29,675 | $ 3,436 | | Gibbsboro Portfolio | June 28, 2022 | Gibbsboro, NJ | Office/Land | 42,809/4.0 acres | $ 4,100 | $ 831 | - The One Uptown Ventures closed on two construction loans totaling $206.7 million in July 2022, leading to the recognition of joint venture formation and deconsolidation of the projects[61] Note 4. Investment in Unconsolidated Real Estate Ventures This note details the Company's equity method investments in unconsolidated real estate ventures - As of June 30, 2022, the Company held interests in ten unconsolidated real estate ventures with a net aggregate investment balance of $429.3 million[62] - The Company accounts for these interests (ranging from 15% to 70%) using the equity method[63] Management Fees and Leasing Commissions from Unconsolidated Real Estate Ventures (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Management fees | $ 2,100 | $ 2,100 | $ 4,000 | $ 4,100 | | Leasing commissions | $ 800 | $ 600 | $ 1,100 | $ 1,900 | Summary of Financial Position of Unconsolidated Real Estate Ventures (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Net property | $ 1,962,902 | $ 1,563,263 | | Other assets | $ 516,328 | $ 434,687 | | Other liabilities | $ 415,816 | $ 331,947 | | Debt, net | $ 1,218,561 | $ 956,668 | | Equity | $ 844,853 | $ 709,335 | Summary of Results of Operations of Unconsolidated Real Estate Ventures (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $ 64,957 | $ 53,228 | $ 118,173 | $ 106,585 | | Net loss | $ (6,304) | $ (8,918) | $ (10,432) | $ (16,815) | | Company's share of net loss | $ (4,822) | $ (7,281) | $ (9,439) | $ (13,822) | | Equity in loss of unconsolidated real estate ventures | $ (4,981) | $ (7,240) | $ (9,544) | $ (14,164) | - On March 17, 2022, the Company formed Cira Square Venture, acquiring a 20% common equity interest in an office property for $383.0 million, with an initial capital contribution of $28.6 million[69] Note 5. Leases This note provides an allocation of the Company's lease revenue, distinguishing fixed and variable payments Allocation of Lease Revenue (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Fixed contractual payments | $ 88,672 | $ 86,117 | $ 177,435 | $ 172,497 | | Variable lease payments | $ 25,234 | $ 22,060 | $ 49,565 | $ 46,208 | | Total | $ 113,906 | $ 108,177 | $ 227,000 | $ 218,705 | Note 6. Intangible Assets and Liabilities This note details the Company's intangible assets and liabilities, including lease values and amortization Intangible Assets, Net (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | In-place lease value | $ 22,812 | $ 28,310 | | Tenant relationship value | $ 67 | $ 70 | | Above market leases acquired | $ 136 | $ 176 | | Total intangible assets, net | $ 23,015 | $ 28,556 | Intangible Liabilities, Net (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Below market leases acquired | $ 11,277 | $ 12,981 | Estimated Amortization of Intangible Assets and Liabilities (in thousands) | Period | Assets | Liabilities | | :-------------------- | :----- | :---------- | | 2022 (six months remaining) | $ 4,100 | $ 883 | | 2023 | $ 6,724 | $ 1,540 | | 2024 | $ 4,433 | $ 1,321 | | 2025 | $ 3,255 | $ 1,044 | | 2026 | $ 1,195 | $ 754 | | Thereafter | $ 3,308 | $ 5,735 | | Total | $ 23,015 | $ 11,277 | Note 7. Debt Obligations This note details the Company's consolidated debt obligations, including credit facilities, senior notes, and covenants Consolidated Debt Obligations (in thousands) | Item | June 30, 2022 | December 31, 2021 | Effective Interest Rate | Maturity Date | | :----------------------------------- | :------------ | :---------------- | :---------------------- | :------------ | | $600 million Unsecured Credit Facility | $ 214,000 | $ 23,000 | SOFR + 1.15% | June 2026 | | Term Loan - Swapped to fixed | $ 250,000 | $ 250,000 | 2.87% | June 2027 | | Unsecured senior notes, net | $ 1,580,712 | $ 1,580,978 | (various) | (various) | | Total unsecured indebtedness | $ 2,042,759 | $ 1,853,586 | | | - On June 30, 2022, the Company executed the Second Amended and Restated Credit Agreement, maintaining a $600.0 million Revolving Credit Facility (extended to June 2026) and providing a $250.0 million Term Loan (maturing June 2027)[78] - The Company was in compliance with all financial covenants as of June 30, 2022, including fixed charge coverage, leverage, and unsecured indebtedness ratios[81][82][83] Aggregate Scheduled Principal Payments on Debt Obligations (in thousands) | Period | Principal Payments | | :-------------------- | :----------------- | | 2022 (six months remaining) | $ — | | 2023 | $ 350,000 | | 2024 | $ 350,000 | | 2025 | $ — | | 2026 | $ 214,000 | | Thereafter | $ 1,128,610 | | Total principal payments | $ 2,042,610 | Note 8. Fair Value of Financial Instruments This note explains the fair value measurement of the Company's financial instruments by valuation input levels - The Company categorizes financial assets and liabilities based on Level 1, Level 2, or Level 3 inputs for valuation[85] - Carrying amounts for cash, accounts receivable, and short-term liabilities approximate fair values[85] Fair Value of Financial Instruments (in thousands) | Item | June 30, 2022 Carrying Amount | June 30, 2022 Fair Value | December 31, 2021 Carrying Amount | December 31, 2021 Fair Value | | :-------------------- | :------------------------------ | :----------------------- | :-------------------------------- | :----------------------- | | Unsecured notes payable | $ 1,502,102 | $ 1,461,960 | $ 1,502,368 | $ 1,588,780 | | Variable rate debt | $ 540,657 | $ 542,610 | $ 351,218 | $ 344,754 | | Notes receivable | $ 44,430 | $ 44,058 | $ 44,430 | $ 45,230 | - Unsecured notes payable are valued using Level 2 inputs (quoted market prices), while variable rate debt and notes receivable use Level 3 inputs (discounted cash flow models)[87] Note 9. Derivative Financial Instruments This note details the Company's derivative financial instruments, including interest rate swaps and fair value Derivative Financial Instruments (in thousands) | Hedge Product | Hedge Type | Designation | Notional Amount 6/30/2022 | Notional Amount 12/31/2021 | Strike | Trade Date | Maturity Date | Fair Value 6/30/2022 | Fair Value 12/31/2021 | | :------------ | :--------- | :---------- | :------------------------ | :------------------------- | :----- | :--------- | :------------ | :------------------- | :-------------------- | | Swap | Interest Rate | Cash Flow | $ 250,000 | $ 250,000 | 2.868 % | October 8, 2015 | October 8, 2022 | $ 415 | $ (2,461) | - Derivative instruments are measured at fair value and recorded in 'Other assets' and 'Other liabilities'[89] - The majority of inputs for derivative valuation are Level 2, with credit valuation adjustments using Level 3 inputs, though these adjustments are not significant to the overall valuation[89] Note 10. Limited Partners' Noncontrolling Interests in the Parent Company This note details noncontrolling interests in the Operating Partnership, including redemptions and values - Noncontrolling interests relate to redeemable common limited partnership interests in the Operating Partnership held by third parties and consolidated properties not wholly owned by the Operating Partnership[90] - During the six months ended June 30, 2022, 307,516 Class A units were redeemed for $4.0 million cash[91] Noncontrolling Interests Book Value and Settlement Value (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Aggregate book value | $ 5,000 | $ 8,200 | | Aggregate settlement value | $ 5,100 | $ 11,100 | Note 11. Beneficiaries' Equity of the Parent Company This note details the Parent Company's beneficiaries' equity, including EPS, distributions, and share repurchases Earnings per Share (EPS) (Brandywine Realty Trust) (in thousands, except share and per share amounts) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common shareholders | $ 4,539 | $ (261) | $ 10,484 | $ 6,514 | | Basic income per Common Share | $ 0.03 | $ — | $ 0.06 | $ 0.04 | | Diluted income per Common Share | $ 0.03 | $ — | $ 0.06 | $ 0.04 | | Basic weighted-average shares outstanding | 171,527,031 | 170,848,894 | 171,411,631 | 170,737,437 | | Diluted weighted-average shares outstanding | 172,260,429 | 170,848,894 | 172,575,408 | 171,996,119 | - On May 18, 2022, the Parent Company declared a distribution of $0.19 per common share, totaling $32.8 million[95] - No common shares were repurchased during the six months ended June 30, 2022 or 2021 under the $150.0 million repurchase program[95] Note 12. Partners' Equity of the Parent Company This note details the Operating Partnership's partners' equity, including EPS, distributions, and unit repurchases Earnings per Common Partnership Unit (Brandywine Operating Partnership, L.P.) (in thousands, except unit and per unit amounts) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common unitholders | $ 4,555 | $ (268) | $ 10,510 | $ 6,551 | | Basic income per Common Partnership Unit | $ 0.03 | $ — | $ 0.06 | $ 0.04 | | Diluted income per Common Partnership Unit | $ 0.03 | $ — | $ 0.06 | $ 0.04 | | Basic weighted-average units outstanding | 172,043,498 | 171,792,415 | 171,985,863 | 171,699,909 | | Diluted weighted-average units outstanding | 172,776,896 | 171,792,415 | 173,149,640 | 172,958,591 | - On May 18, 2022, the Operating Partnership declared a distribution of $0.19 per common partnership unit, totaling $32.8 million[99] - No common units were repurchased during the six months ended June 30, 2022 or 2021[99] Note 13. Segment Information This note provides financial information by operating segment, including real estate investments and NOI - The Company operates in five segments: Philadelphia CBD, Pennsylvania Suburbs, Austin, Texas, Metropolitan Washington, D.C., and Other (Camden County, NJ and New Castle County, DE)[100] Real Estate Investments, at Cost, by Segment (in thousands) | Segment | June 30, 2022 | December 31, 2021 | | :---------------------------- | :------------ | :---------------- | | Philadelphia CBD | $ 1,506,350 | $ 1,460,510 | | Pennsylvania Suburbs | $ 870,510 | $ 866,223 | | Austin, Texas | $ 794,734 | $ 778,145 | | Metropolitan Washington, D.C. | $ 287,215 | $ 280,921 | | Other | $ 86,293 | $ 86,803 | | Operating Properties Total | $ 3,545,102 | $ 3,472,602 | Consolidated Net Operating Income (NOI) by Segment (in thousands) | Segment | Three Months Ended June 30, 2022 NOI | Three Months Ended June 30, 2021 NOI | Six Months Ended June 30, 2022 NOI | Six Months Ended June 30, 2021 NOI | | :---------------------------- | :----------------------------------- | :----------------------------------- | :--------------------------------- | :--------------------------------- | | Philadelphia CBD | $ 34,888 | $ 33,186 | $ 68,616 | $ 67,002 | | Pennsylvania Suburbs | $ 21,075 | $ 20,517 | $ 42,724 | $ 41,563 | | Austin, Texas | $ 13,483 | $ 15,551 | $ 28,105 | $ 32,006 | | Metropolitan Washington, D.C. | $ 2,370 | $ 910 | $ 4,137 | $ 1,386 | | Other | $ 1,577 | $ 1,134 | $ 3,171 | $ 2,065 | | Corporate | $ 1,000 | $ 1,377 | $ 7,227 | $ 2,748 | | Operating properties Total | $ 74,393 | $ 72,675 | $ 153,980 | $ 146,770 | Unconsolidated Real Estate Ventures Investment and Equity in Income (Loss) (in thousands) | Segment | Investment in Real Estate Ventures As of June 30, 2022 | Investment in Real Estate Ventures As of December 31, 2021 | Equity in Income (Loss) Three Months Ended June 30, 2022 | Equity in Income (Loss) Three Months Ended June 30, 2021 | | :---------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Philadelphia CBD | $ 341,748 | $ 317,959 | $ (2,574) | $ (4,661) | | Metropolitan Washington, D.C. | $ 85,614 | $ 85,867 | $ (381) | $ (778) | | Mid-Atlantic Office JV | $ 31,478 | $ 31,680 | $ (101) | $ 117 | | MAP Venture | $ (29,594) | $ (24,396) | $ (1,925) | $ (1,918) | | Total | $ 429,246 | $ 411,110 | $ (4,981) | $ (7,240) | Note 14. Commitments and Contingencies This note details the Company's commitments and contingencies, including litigation, venture guarantees, and funding - The Company is involved in routine litigation but does not expect material adverse effects on its financial position[108] - Unconsolidated real estate ventures had aggregate indebtedness of $1,224.5 million as of June 30, 2022, with the Company providing customary recourse carve-outs, cost overrun, and completion guarantees[111] - The Company recognized a $0.8 million reduction in estimated restoration costs and received $2.4 million in additional insurance proceeds during the six months ended June 30, 2022, related to prior winter storm damage in Austin, Texas[113] - The Company has future fixed contractual obligations of $7.2 million and estimated additional contributions of $2.3 million for the Schuylkill Yards Project neighborhood engagement program[115] - The Company committed to investing an additional $20.0 million of preferred equity in the Commerce Square Venture, with $5.9 million contributed as of June 30, 2022[116] Note 15. Subsequent Events This note reports significant events after the reporting period, including a new joint venture - On July 14, 2022, the Company formed a joint venture to develop a 417,000 sq ft life science/office building at 3151 Market Street in Philadelphia, with an estimated project cost of $307 million. The joint venture partner will fund up to $55 million for a 45% preferred equity interest[119] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition, operational results, accounting policies, liquidity, and capital resources Overview This overview describes the Company's revenue generation, performance drivers, and key operating and leasing statistics - The Company generates revenue from property leases, third-party management/development, and unconsolidated real estate ventures, focusing on increasing occupancy and rental rates[122] - Financial performance is influenced by demand for office/residential/retail space, leasing results, acquisition/disposition/development activity, financing, and economic conditions, including the ongoing COVID-19 pandemic and inflation[122] Selected Operating and Leasing Statistics (Wholly Owned Properties) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Occupancy percentage (end of period) | 89.6 % | 90.5 % | 89.6 % | 90.5 % | | Tenant retention rate | 70.3 % | 57.5 % | 60.6 % | 54.1 % | | New and expansion rental rates change | 26.2 % | 32.7 % | 23.9 % | 29.8 % | | Renewal rental rates change | 8.3 % | 13.3 % | 17.9 % | 11.6 % | | Combined rental rates change | 18.4 % | 22.2 % | 19.6 % | 18.7 % | | Weighted average lease term for leases commenced (years) | 8.0 | 8.5 | 8.3 | 7.1 | | Total capital per square foot per lease year | $ 4.85 | $ 4.29 | $ 4.44 | $ 3.83 | - The Company manages tenant rollover risk (3.3% of base rents expiring in H2 2022), tenant credit risk (accrued rent receivable allowance at 2.1% of balance as of June 30, 2022), and development risk[125][126][129] Active Development and Redevelopment Projects (in thousands) | Property/Portfolio Name | Location | Expected Completion Date | Activity Type | Approximate Square Footage | Estimated Costs | Amount Funded (as of June 30, 2022) | | :---------------------------- | :------- | :----------------------- | :------------ | :------------------------- | :-------------- | :---------------------------------- | | 405 Colorado Street | Austin, TX | Q2 2021 (c) | Development | 205,803 | $ 121,987 | $ 103,312 | | 250 King of Prussia Road | Radnor, PA | Q3 2022 | Redevelopment | 168,294 | $ 82,854 | $ 52,134 | | 2340 Dulles Corner Boulevard | Herndon, VA | Q2 2023 | Redevelopment | 268,365 | $ 117,974 | $ 68,266 | | One Uptown (JV) | Austin, TX | N/A | Mixed-use Development | 348,000 SF office, 341 apt units | $ 328,400 | $ 75,900 | | 3151 Market Street (JV) | Philadelphia, PA | N/A | Life Science Development | 417,000 SF | $ 307,000 | $ 43,000 | | 3025 JFK Boulevard (JV) | Philadelphia, PA | Q3 2023 | Mixed-use Development | 428,000 SF | $ 287,272 | $ 99,371 | Critical Accounting Policies and Estimates This section confirms the Company's critical accounting policies and estimates remain unchanged - The Company's critical accounting policies, which require significant management estimates and assumptions, remain unchanged since December 31, 2021[136] Results of Operations This section analyzes the Company's financial performance for the three and six months ended June 30 Comparison of the Three Months Ended June 30, 2022 and June 30, 2021 This section compares the Company's financial results for the three months ended June 30, 2022, and 2021 Key Financial Highlights (Three Months Ended June 30, 2022 vs. 2021) (in millions) | Item | 2022 | 2021 | $ Change | % Change | | :--------------------------------------------------- | :--- | :--- | :------- | :------- | | Total revenue | $ 124.0 | $ 120.0 | $ 4.0 | 3.3 % | | Property operating expenses | $ 33.1 | $ 29.3 | $ 3.8 | 13.0 % | | Real estate taxes | $ 13.7 | $ 14.6 | $ (0.9) | (6.2)% | | Net operating income | $ 74.4 | $ 72.5 | $ 1.9 | 2.6 % | | Depreciation and amortization | $ 43.9 | $ 42.7 | $ 1.2 | 2.8 % | | Net gain on sale of undepreciated real estate | $ 4.1 | $ — | $ 4.1 | — % | | Operating income (loss) | $ 26.4 | $ 21.5 | $ 4.9 | 22.8 % | | Net income (loss) | $ 4.7 | $ (0.2) | $ 4.9 | (2450.0)% | | Net income attributable to Common Shareholders of Brandywine Realty Trust | $ 0.03 | $ — | $ 0.03 | — % | - Total revenue increased by $4.0 million (3.3%) due to new operations (B.Labs), recently completed/acquired properties, and higher occupancy at FMC Tower[141][142][143] - Property operating expenses increased by $3.8 million (13.0%) due to a development property in Austin, B.Labs operations, and increased activity at FMC Tower's restaurant component[141][146] - Net gain on sale of undepreciated real estate was $4.1 million, primarily from land sales in Metropolitan Washington, D.C. and an office/land portfolio in the Other segment[141][148] - Equity in loss of unconsolidated real estate ventures decreased by $2.2 million (30.6%), mainly due to reduced amortization of in-place lease intangibles at Commerce Square Venture[141][149] Comparison of the Six Months Ended June 30, 2022 and June 30, 2021 This section compares the Company's financial results for the six months ended June 30, 2022, and 2021 Key Financial Highlights (Six Months Ended June 30, 2022 vs. 2021) (in millions) | Item | 2022 | 2021 | $ Change | % Change | | :--------------------------------------------------- | :--- | :--- | :------- | :------- | | Total revenue | $ 251.5 | $ 240.9 | $ 10.6 | 4.4 % | | Property operating expenses | $ 64.7 | $ 58.2 | $ 6.5 | 11.2 % | | Real estate taxes | $ 27.6 | $ 29.4 | $ (1.8) | (6.1)% | | Net operating income | $ 153.9 | $ 146.8 | $ 7.1 | 4.8 % | | Depreciation and amortization | $ 87.6 | $ 83.2 | $ 4.4 | 5.3 % | | General & administrative expenses | $ 18.3 | $ 14.9 | $ 3.4 | 22.8 % | | Net gain on sale of undepreciated real estate | $ 5.0 | $ 2.0 | $ 3.0 | 150.0 % | | Operating income (loss) | $ 53.1 | $ 50.8 | $ 2.3 | 4.5 % | | Net income | $ 10.8 | $ 6.8 | $ 4.0 | 58.8 % | | Net income attributable to Common Shareholders of Brandywine Realty Trust | $ 0.06 | $ 0.04 | $ 0.02 | 50.0 % | - Total revenue increased by $10.6 million (4.4%) driven by development properties placed into service, recently acquired properties, higher occupancy at FMC Tower, and new B.Labs operations[151][152] - Other income increased significantly due to $3.4 million in excess insurance proceeds and $2.2 million in settlement proceeds from a general contractor[155] - Property operating expenses increased by $6.5 million (11.2%) due to new operations (B.Labs), a development property in Austin, increased activity at FMC Tower, and general increases across the portfolio[156][157] - Depreciation and amortization expense increased by $4.4 million (5.3%) due to reassessment of useful life for Austin properties and B.Labs operations[159] - Net gain on sale of undepreciated real estate was $5.0 million, primarily from land sales in Metropolitan Washington, D.C. and an office/land portfolio in the Other segment[160] - Equity in loss of unconsolidated real estate ventures decreased by $4.7 million (33.1%), mainly due to reduced amortization of in-place lease intangibles at Commerce Square Venture[162][163] Liquidity and Capital Resources This section discusses the Company's liquidity needs, funding sources, cash flow changes, and debt obligations - Principal liquidity needs include recurring expenses, capital expenditures, debt service, development costs, venture commitments, REIT distributions, potential acquisitions, and share repurchases[165] - Funding sources include cash flows from operations, distributions from unconsolidated ventures, cash balances, unsecured credit facility, secured/unsecured debt, property sales, and equity issuances[166] - As of June 30, 2022, the Company had $28.8 million in cash and cash equivalents and $381.7 million available under its unsecured credit facility[178] - The Parent Company unconditionally guarantees the Operating Partnership's unsecured debt obligations, which totaled $2,042.6 million as of June 30, 2022[175] - During the six months ended June 30, 2022, the Company sold three parcels of land for $38.8 million and a portfolio of properties in Gibbsboro, NJ for $4.0 million[178] Changes in Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | (Decrease) Increase | | :-------------------- | :----------------------------- | :----------------------------- | :------------------ | | Operating | $ 78,494 | $ 79,126 | $ (632) | | Investing | $ (188,862) | $ (68,403) | $ (120,459) | | Financing | $ 111,848 | $ (9,288) | $ 121,136 | | Net cash flows | $ 1,480 | $ 1,435 | $ 45 | Indebtedness under Unsecured Debt (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :---------------- | | Fixed rate | $ 1,750,000 | $ 1,750,000 | | Variable rate - unhedged | $ 292,610 | $ 101,610 | | Total | $ 2,042,610 | $ 1,851,610 | | Percent of Total Debt: Fixed rate | 85.7 % | 94.5 % | | Percent of Total Debt: Variable rate - unhedged | 14.3 % | 5.5 % | | Weighted-average interest rate at period end: Fixed rate | 3.8 % | 3.8 % | | Weighted-average interest rate at period end: Variable rate - unhedged | 2.5 % | 1.3 % | | Weighted-average maturity in years: Fixed rate | 4.2 | 4.0 | | Weighted-average maturity in years: Variable rate - unhedged | 6.5 | 10.6 | | Weighted-average maturity in years: Total | 4.5 | 4.4 | Scheduled Principal Payments and Weighted Average Interest Rates (in thousands) | Period | Principal Maturities | Weighted Average Interest Rate of Maturing Debt | | :-------------------- | :------------------- | :---------------------------------------------- | | 2022 (six months remaining) | $ — | — % | | 2023 | $ 350,000 | 3.87 % | | 2024 | $ 350,000 | 3.78 % | | 2025 | $ — | — % | | 2026 | $ 214,000 | 2.59 % | | 2027 | $ 700,000 | 3.61 % | | 2028 | $ — | — % | | 2029 | $ 350,000 | 4.30 % | | 2030 | $ — | — % | | 2031 | $ — | — % | | Thereafter | $ 78,610 | 2.44 % | | Totals | $ 2,042,610 | 3.65 % | - The Company anticipates refinancing its $350 million 3.95% Guaranteed Notes due February 2023 with new notes likely having a higher effective interest rate[186] Funds from Operations (FFO) Reconciliation (in thousands, except share information) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common unitholders | $ 4,555 | $ (268) | $ 10,510 | $ 6,551 | | Funds from operations (FFO) | $ 60,635 | $ 56,061 | $ 121,184 | $ 116,492 | | FFO available to common share and unit holders | $ 60,481 | $ 55,911 | $ 120,792 | $ 116,129 | | Weighted-average shares/units outstanding — basic | 172,043,498 | 171,792,415 | 171,985,863 | 171,699,909 | | Weighted-average shares/units outstanding — fully diluted | 172,776,896 | 173,289,294 | 173,149,640 | 172,958,591 | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's market risk exposure, primarily interest rate risk, and sensitivity analysis Interest Rate Risk and Sensitivity Analysis This section details the Company's interest rate risk exposure and sensitivity of financial instruments to rate changes - The Company's primary market risk exposure is interest rate risk, affecting the spread between asset yield and cost of funds[195] - As of June 30, 2022, consolidated debt included $1,500.0 million in fixed-rate unsecured notes, $78.6 million in variable-rate trust preferred securities, $214.0 million outstanding on a $600.0 million revolving credit facility, and a $250.0 million unsecured term loan (swapped to fixed rate)[196] - A 100-basis point increase in the discount rate would decrease the fair value of unsecured notes by approximately $14.6 million[196] - A 100-basis point increase in market interest rates would decrease the fair value of variable rate debt by approximately $27.4 million, while a 100-basis point decrease would increase it by $29.3 million[197] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures, with no material changes in internal control Controls and Procedures (Parent Company) This section confirms the effectiveness of the Parent Company's disclosure controls, with no material changes - The Parent Company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2022[198] - No material changes in internal control over financial reporting occurred during the period[198] Controls and Procedures (Operating Partnership) This section confirms the effectiveness of the Operating Partnership's disclosure controls, with no material changes - The Operating Partnership's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2022[199] - No material changes in internal control over financial reporting occurred during the period[199] PART II — OTHER INFORMATION This section presents other required information, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section states that there are no legal proceedings to report - No legal proceedings to report[201] Item 1A. Risk Factors This section indicates no material changes to the risk factors disclosed in the Annual Report on Form 10-K - No material changes to the Risk Factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[202] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities or common share repurchases - No unregistered sales of equity securities[202] - No common share repurchases under the Parent Company's share repurchase program during the fiscal quarter ended June 30, 2022[203] - As of June 30, 2022, $82.9 million remained available for repurchases under the share repurchase program[203] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - No defaults upon senior securities[203] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Mine Safety Disclosures are not applicable[203] Item 5. Other Information This section states that there is no other information to report - No other information to report[203] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Credit Agreement and certifications - Exhibits include the Second Amended and Restated Credit Agreement (dated June 30, 2022), certifications of the CEO and CFO for both Brandywine Realty Trust and Brandywine Operating Partnership, L.P. (pursuant to Sections 13a-14(a), 15d-14(a) of the Exchange Act and 18 U.S.C. Section 1350), and iXBRL financial statements[205] Signatures This section contains the signatures of authorized officers for Brandywine Realty Trust and its Operating Partnership - The report is signed by Gerard H. Sweeney (President and CEO), Thomas E. Wirth (Executive Vice President and CFO), and Daniel Palazzo (Vice President and Chief Accounting Officer) for both Brandywine Realty Trust and Brandywine Operating Partnership, L.P. on July 29, 2022[208][210]