BDN

Business Context and Reporting Period

Company: Brandywine Realty Trust (REIT)
Reporting Period: Fiscal Year Ended December 31, 1999
Business Overview: A self-administered REIT focused on acquiring, developing, and managing office and industrial properties in the Mid-Atlantic region (Pennsylvania, New Jersey, New York, Virginia, Delaware).
Portfolio: As of December 31, 1999, the Company owned 251 properties (199 office, 51 industrial, 1 mixed-use) totaling approximately 16.6 million net rentable square feet. The portfolio was 94.1% leased to 1,318 tenants.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 46.8% to $283.2 million, driven primarily by property acquisitions in late 1998 and increased rental rates. Straight-line rent adjustments added $8.1 million to 1999 revenue.
• Property Transactions: The Company sold 27 properties (2.6 million sq. ft.) for $147.7 million, realizing a $3.1 million gain. It acquired 6 properties (463,000 sq. ft.) for $42.0 million.
• Debt Reduction: Total indebtedness decreased by approximately $161 million to $839.6 million. The Company repaid significant borrowings under its Credit Facility ($371.5 million) and mortgage notes ($60.0 million).
• Equity Issuance: Issued 4,375,000 Series B Preferred Shares, raising net proceeds of approximately $95.4 million to repay debt and fund working capital.
• Share Repurchases: Repurchased 1,344,295 Common Shares for $22.2 million.

Guidance, Outlook, and Risks

Outlook: Management expects revenue growth in the next two years to result primarily from rent increases in the current portfolio. The Company maintains a policy of adhering to a long-term average debt-to-market capitalization ratio of no more than 50% (currently 49%).

Liquidity: The Company maintains a $450 million unsecured Credit Facility with $73.2 million of unused availability as of year-end. Management believes cash flow from operations and current financing alternatives are adequate for short-term liquidity needs.

Risks and Contingencies:

• Legal Proceedings: The Company is involved in an appeal regarding a dismissed complaint alleging breach of obligation to purchase a property portfolio. Additionally, a third-party complaint was filed in November 1999 regarding environmental remediation costs for a former property (Greentree Shopping Center); costs are currently unestimable.
• Market Risk: A 1% increase in interest rates on variable rate debt would result in an additional $5.0 million in annual interest expense. A 1% increase in rates on fixed debt would decrease beneficiaries' equity by $18.8 million.
• REIT Status: Failure to qualify as a REIT would subject the Company to corporate income taxes and disqualify it for four years.

Investor Verification Checklist

• Debt Maturities: Verify the repayment schedule for the $462.8 million in mortgage notes, with significant maturities in 2001 ($43.4 million) and 2002 ($95.2 million).
• Lease Expirations: Review the lease expiration schedule; 13.1% of rentable square footage is scheduled to expire in 2000, with a cumulative 28.9% expiring by the end of 2001.
• Environmental Liability: Monitor the status of the Greentree Shopping Center litigation regarding potential environmental remediation costs.
• Preferred Share Terms: Note the 4,375,000 Series B Preferred Shares are convertible into Common Shares and carry a dividend rate of 8.75% (or greater of $0.525/share quarterly).
• Concentration Risk: The top 20 tenants represent 28.5% of annualized escalated rent; First USA Bank is the largest single tenant (4.4%).