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BDN Brandywine Realty Trust


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________________________________________________________
FORM 10-Q
_____________________________________________________________________________________________
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2020
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
_____________________________________________________________________________________________
Brandywine Realty Trust
Brandywine Operating Partnership, L.P.
(Exact name of registrant as specified in its charter)
_____________________________________________________________________________________________
Registrant’s telephone number, including area code (610) 325-5600
_____________________________________________________________________________________________
Maryland        
(Brandywine Realty Trust)   001-9106   23-2413352
Delaware        
(Brandywine Operating Partnership, L.P.)   000-24407   23-2862640
(State or Other Jurisdiction of Incorporation
or Organization)
   (Commission file number)   (I.R.S. Employer Identification Number)
2929 Walnut Street
Suite 1700
Philadelphia, PA 19104
(Address of principal executive offices) (Zip Code)
(610) 325-5600
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Shares of Beneficial Interest BDN NYSE
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.
Brandywine Realty TrustYes
  No 
 
Brandywine Operating Partnership, L.P.Yes
  No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Brandywine Realty TrustYes
  No 
 
Brandywine Operating Partnership, L.P.Yes
  No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Brandywine Realty Trust:
Large accelerated filer
Accelerated filer 
Non-accelerated filer 
Smaller reporting companyEmerging growth company 
Brandywine Operating Partnership, L.P.:
Large accelerated filer 
Accelerated filer 
Non-accelerated filer
 
Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Brandywine Realty TrustYes   
 No
Brandywine Operating Partnership, L.P.Yes   
 No
A total of 170,495,608 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of April 23, 2020.



EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2020 of Brandywine Realty Trust (the “Parent Company”) and Brandywine Operating Partnership L.P. (the “Operating Partnership”). The Parent Company is a Maryland real estate investment trust, or REIT, that owns its assets and conducts its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company”. In addition, as used in this report, terms such as “we”, “us”, and “our” may refer to the Company, the Parent Company, or the Operating Partnership.
The Parent Company is the sole general partner of the Operating Partnership and, as of March 31, 2020, owned a 99.4% interest in the Operating Partnership. The remaining 0.6% interest consists of common units of limited partnership interest issued by the Operating Partnership to third parties in exchange for contributions of properties to the Operating Partnership. As the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management.
Management operates the Parent Company and the Operating Partnership as one enterprise. The management of the Parent Company consists of the same members as the management of the Operating Partnership.
As general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company's operations on a consolidated basis and how management operates the Company.
The Company believes that combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into a single report will:
facilitate a better understanding by the investors of the Parent Company and the Operating Partnership by enabling them to view the business as a whole in the same manner as management views and operates the business;
remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the disclosure applies to both the Parent Company and the Operating Partnership; and
create time and cost efficiencies through the preparation of one combined report instead of two separate reports.
There are few differences between the Parent Company and the Operating Partnership, which are reflected in the footnote disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as an interrelated consolidated company. The Parent Company is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time (and contributing the net proceeds of such issuances to the Operating Partnership) and guaranteeing the debt obligations of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company, including the Company's ownership interests in the real estate ventures described below. The Operating Partnership conducts the operations of the Company’s business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness (directly and through subsidiaries) and through the issuance of partnership units of the Operating Partnership or equity interests in subsidiaries of the Operating Partnership.
The equity and non-controlling interests in the Parent Company and the Operating Partnership’s equity are the main areas of difference between the consolidated financial statements of the Parent Company and the Operating Partnership. The common units of limited partnership interest in the Operating Partnership are accounted for as partners’ equity in the Operating Partnership’s financial statements while the common units of limited partnership interests held by parties other than the Parent Company are presented as non-controlling interests in the Parent Company’s financial statements. The differences between the Parent Company and the Operating Partnership’s equity relate to the differences in the equity issued at the Parent Company and Operating Partnership levels.
To help investors understand the significant differences between the Parent Company and the Operating Partnership, this report presents the following as separate notes or sections for each of the Parent Company and the Operating Partnership:
Consolidated Financial Statements; and

2


Notes to the Parent Company’s and Operating Partnership’s Equity.
This report also includes separate Item 4. (Controls and Procedures) disclosures and separate Exhibit 31 and 32 certifications for each of the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Parent Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.
In order to highlight the differences between the Parent Company and the Operating Partnership, the separate sections in this report for the Parent Company and the Operating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures of the Parent Company and the Operating Partnership, this report refers to such disclosures as those of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and real estate ventures and holds assets and incurs debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership.

3


TABLE OF CONTENTS
 Page
  
 
  
 
  
 
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Filing Format
This combined Form 10-Q is being filed separately by Brandywine Realty Trust and Brandywine Operating Partnership, L.P.

4


PART I - FINANCIAL INFORMATION
Item 1. — Financial Statements


BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share information)
 March 31,
2020
 December 31,
2019
ASSETS   
Real estate investments:   
Operating properties$4,004,118
 $4,006,459
Accumulated depreciation(992,997) (973,318)
Right of use asset - operating leases, net21,485
 21,656
Operating real estate investments, net3,032,606
 3,054,797
Construction-in-progress193,160
 180,718
Land held for development108,213
 96,124
Prepaid leasehold interests in land held for development, net39,490
 39,592
Total real estate investments, net3,373,469
 3,371,231
Assets held for sale, net10,698
 7,349
Cash and cash equivalents52,702
 90,499
Accounts receivable, net of allowance of $284 as of both March 31, 2020 and December 31, 201916,928
 16,363
Accrued rent receivable, net of allowance of $7,484 and $7,691 as of March 31, 2020 and December 31, 2019, respectively175,277
 174,144
Investment in Real Estate Ventures119,998
 120,294
Deferred costs, net94,336
 95,560
Intangible assets, net75,670
 84,851
Other assets126,264
 115,678
Total assets$4,045,342
 $4,075,969
LIABILITIES AND BENEFICIARIES' EQUITY   
Mortgage notes payable, net$312,001
 $313,812
Unsecured credit facility50,000
 
Unsecured term loan, net248,692
 248,561
Unsecured senior notes, net1,581,907
 1,582,045
Accounts payable and accrued expenses109,755
 113,347
Distributions payable32,692
 33,815
Deferred income, gains and rent34,673
 35,284
Intangible liabilities, net20,605
 22,263
Lease liability - operating leases22,606
 22,554
Other liabilities28,597
 15,985
Total liabilities$2,441,528
 $2,387,666
Commitments and contingencies (See Note 15)

 

Brandywine Realty Trust's Equity:   
Common Shares of Brandywine Realty Trust's beneficial interest, $0.01 par value; shares authorized 400,000,000; 170,965,987 and 176,480,095 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively1,710
 1,766
Additional paid-in-capital3,140,194
 3,192,158
Deferred compensation payable in common shares17,012
 16,216
Common shares in grantor trust, 1,117,783 and 1,105,542 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively(17,012) (16,216)
Cumulative earnings812,578
 804,556
Accumulated other comprehensive loss(10,195) (2,370)
Cumulative distributions(2,350,733) (2,318,233)
Total Brandywine Realty Trust's equity1,593,554
 1,677,877
Noncontrolling interests10,260
 10,426
Total beneficiaries' equity$1,603,814
 $1,688,303
Total liabilities and beneficiaries' equity$4,045,342
 $4,075,969
The accompanying notes are an integral part of these consolidated financial statements.

5


BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share information)
 Three Months Ended March 31,
 2020 2019
Revenue   
Rents$139,204
 $138,098
Third party management fees, labor reimbursement and leasing4,954
 3,955
Other930
 1,843
Total revenue145,088
 143,896
Operating expenses   
Property operating expenses37,461
 39,500
Real estate taxes16,787
 15,783
Third party management expenses2,662
 2,117
Depreciation and amortization52,038
 51,444
General and administrative expenses8,561
 9,844
Total operating expenses117,509
 118,688
Gain on sale of real estate   
Net gain on disposition of real estate2,586
 
Net gain on sale of undepreciated real estate
 1,001
Total gain on sale of real estate2,586
 1,001
Operating income30,165
 26,209
Other income (expense):   
Interest income575
 525
Interest expense(20,009) (20,357)
Interest expense - amortization of deferred financing costs(749) (666)
Equity in loss of Real Estate Ventures(1,891) (1,358)
Net gain on real estate venture transactions
 259
Net income before income taxes8,091
 4,612
Income tax provision(4) (29)
Net income8,087
 4,583
Net income attributable to noncontrolling interests(65) (60)
Net income attributable to Brandywine Realty Trust8,022
 4,523
Nonforfeitable dividends allocated to unvested restricted shareholders(131) (119)
Net income attributable to Common Shareholders of Brandywine Realty Trust$7,891
 $4,404
    
Basic income per Common Share$0.04
 $0.03
    
Diluted income per Common Share$0.04
 $0.02
    
Basic weighted average shares outstanding176,069,968
 175,857,358
Diluted weighted average shares outstanding176,653,459
 176,464,218
 
The accompanying notes are an integral part of these consolidated financial statements.

6


BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 Three Months Ended March 31,
 2020 2019
Net income$8,087
 $4,583
Comprehensive loss:   
Unrealized loss on derivative financial instruments(8,057) (2,689)
Amortization of interest rate contracts (1)188
 206
Total comprehensive loss(7,869) (2,483)
Comprehensive income218
 2,100
Comprehensive income attributable to noncontrolling interest(21) (44)
Comprehensive income attributable to Brandywine Realty Trust$197
 $2,056
(1) 
Amounts reclassified from comprehensive income to interest expense within the Consolidated Statements of Operations.
The accompanying notes are an integral part of these consolidated financial statements.

7


BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF BENEFICIARIES’ EQUITY
(unaudited, in thousands, except number of shares)
 Number of Common Shares Number of Rabbi
Trust/Deferred
Compensation Shares
 Common Shares of
Brandywine Realty
Trust's beneficial interest
 Additional Paid-in
Capital
 Deferred Compensation
Payable in Common
Shares
 Common Shares in
Grantor Trust
 Cumulative Earnings Accumulated Other
Comprehensive Income (Loss)
 Cumulative Distributions Noncontrolling Interests Total
BALANCE, beginning of period176,480,095
 1,105,542
 $1,766
 $3,192,158
 $16,216
 $(16,216) $804,556
 $(2,370) $(2,318,233) $10,426
 $1,688,303
Net income            8,022
     65
 8,087
Other comprehensive loss              (7,825)   (44) (7,869)
Repurchase and retirement of Common Shares of Beneficial Interest(5,644,200)   (57) (53,801)             (53,858)
Share-based compensation activity142,468
 50,967
 1
 2,030
             2,031
Share Issuance from/(to) Deferred Compensation Plan(12,376) (38,726)   (193) 796
 (796)         (193)
Distributions declared ($0.19 per share)                (32,500) (187) (32,687)
BALANCE, March 31, 2020170,965,987
 1,117,783
 $1,710
 $3,140,194
 $17,012
 $(17,012) $812,578
 $(10,195) $(2,350,733) $10,260
 $1,603,814

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

8


BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENT OF BENEFICIARIES’ EQUITY
(unaudited, in thousands, except number of shares)
 Number of Common Shares 
Number of Rabbi
Trust/Deferred
Compensation Shares
 
Common Shares of
Brandywine Realty
Trust's beneficial
interest
 
Additional Paid-in
Capital
 
Deferred Compensation
 Payable
in Common
 Shares
 
Common Shares in
 Grantor Trust
 Cumulative Earnings 
Accumulated Other
Comprehensive Income (Loss)
 Cumulative Distributions Noncontrolling Interests Total
BALANCE, beginning of period176,873,324
 977,120
 $1,770
 $3,200,312
 $14,021
 $(14,021) $775,625
 $5,029
 $(2,183,909) $12,201
 $1,811,028
Cumulative effect of accounting change            (5,336)       (5,336)
Net income            4,523
     60
 4,583
Other comprehensive loss              (2,469)   (14) (2,483)
Repurchase and retirement of Common Shares of Beneficial Interest(1,337,169)   (13) (17,268)             (17,281)
Issuance of partnership interest in consolidated real estate ventures                  22
 22
Share-based compensation activity465,883
 41,342
 4
 3,673
             3,677
Share Issuance from/(to) Deferred Compensation Plan(458) (5,920)     619
 (619)         
Reallocation of Noncontrolling interest      57
           (57) 
Distributions declared ($0.19 per share)                (33,560) (187) (33,747)
BALANCE, March 31, 2019176,001,580
 1,012,542
 $1,761
 $3,186,774
 $14,640
 $(14,640) $774,812
 $2,560
 $(2,217,469) $12,025
 $1,760,463

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

9


BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) 
 Three Months Ended March 31,
 2020 2019
Cash flows from operating activities:   
Net income$8,087
 $4,583
Adjustments to reconcile net income to net cash from operating activities:   
Depreciation and amortization52,038
 51,444
Amortization of deferred financing costs749
 666
Amortization of debt discount/(premium), net(395) 175
Amortization of stock compensation costs2,349
 3,449
Straight-line rent income(2,183) (4,165)
Amortization of acquired above (below) market leases, net(1,495) (1,805)
Ground rent expense366
 370
Provision for doubtful accounts213
 
Net gain on sale of interests in real estate(2,586) (1,001)
Loss from Real Estate Ventures, net of distributions1,890
 1,159
Income tax provision4
 29
Changes in assets and liabilities:   
Accounts receivable(1,348) (3,539)
Other assets(14,548) (39,088)
Accounts payable and accrued expenses(1,213) (10,822)
Deferred income, gains and rent(230) (3,148)
Other liabilities3,360
 19,459
Net cash provided by operating activities45,058
 17,766
Cash flows from investing activities:   
Acquisition of properties(11,432) 
Proceeds from the sale of properties17,711
 5,273
Proceeds from real estate venture sales
 259
Proceeds from repayment of mortgage notes receivable
 15
Capital expenditures for tenant improvements(13,707) (14,978)
Capital expenditures for redevelopments(9,973) (10,777)
Capital expenditures for developments(19,426) (18,645)
Advances for the purchase of tenant assets, net of repayments585
 (1,615)
Investment in unconsolidated Real Estate Ventures
 (182)
Deposits for real estate(1,011) 3,152
Capital distributions from Real Estate Ventures
 1,851
Leasing costs paid(5,315) (5,696)
Net cash used in investing activities(42,568) (41,343)
Cash flows from financing activities:   
Repayments of mortgage notes payable(1,945) (1,871)
Proceeds from credit facility borrowings66,000
 198,000
Repayments of credit facility borrowings(16,000) (130,000)
Proceeds from the exercise of stock options47
 800
Shares used for employee taxes upon vesting of share awards(722) (1,230)
Partner contributions to consolidated real estate venture
 23
Repurchase and retirement of common shares(53,857) (17,282)
Distributions paid to shareholders(33,622) (33,084)
Distributions to noncontrolling interest(187) (187)
Net cash provided by (used in) financing activities(40,286) 15,169
Decrease in cash and cash equivalents and restricted cash(37,796) (8,408)
Cash and cash equivalents and restricted cash at beginning of year91,170
 23,211
Cash and cash equivalents and restricted cash at end of period$53,374
 $14,803
    
Reconciliation of cash and cash equivalents and restricted cash:   
Cash and cash equivalents, beginning of period$90,499
 $22,842
Restricted cash, beginning of period671
 369
Cash and cash equivalents and restricted cash, beginning of period$91,170
 $23,211
Cash and cash equivalents, end of period$52,702
 $14,449
Restricted cash, end of period672
 354
Cash and cash equivalents and restricted cash, end of period$53,374
 $14,803
Supplemental disclosure:   
Cash paid for interest, net of capitalized interest during the three months ended March 31, 2020 and 2019 of $1,201 and $728, respectively$12,961
 $14,251
Cash paid for income taxes1
 
Supplemental disclosure of non-cash activity:   
Dividends and distributions declared but not paid32,692
 34,107
Change in capital expenditures financed through accounts payable at period end2,745
 (1,080)
Change in capital expenditures financed through retention payable at period end23
 (4,503)
The accompanying notes are an integral part of these consolidated financial statements.

10




BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except unit and per unit information)
 March 31,
2020
 December 31,
2019
ASSETS   
Real estate investments:   
Operating properties$4,004,118
 $4,006,459
Accumulated depreciation(992,997) (973,318)
Right of use asset - operating leases, net21,485
 21,656
Operating real estate investments, net3,032,606
 3,054,797
Construction-in-progress193,160
 180,718
Land held for development108,213
 96,124
Prepaid leasehold interests in land held for development, net39,490
 39,592
Total real estate investments, net3,373,469
 3,371,231
Assets held for sale, net10,698
 7,349
Cash and cash equivalents52,702
 90,499
Accounts receivable, net of allowance of $284 as of both March 31, 2020 and December 31, 201916,928
 16,363
Accrued rent receivable, net of allowance of $7,484 and $7,691 as of March 31, 2020 and December 31, 2019, respectively175,277
 174,144
Investment in Real Estate Ventures119,998
 120,294
Deferred costs, net94,336
 95,560
Intangible assets, net75,670
 84,851
Other assets126,264
 115,678
Total assets$4,045,342
 $4,075,969
LIABILITIES AND PARTNERS' EQUITY   
Mortgage notes payable, net$312,001
 $313,812
Unsecured credit facility50,000
 
Unsecured term loan, net248,692
 248,561
Unsecured senior notes, net1,581,907
 1,582,045
Accounts payable and accrued expenses109,755
 113,347
Distributions payable32,692
 33,815
Deferred income, gains and rent34,673
 35,284
Intangible liabilities, net20,605
 22,263
Lease liability - operating leases22,606
 22,554
Other liabilities28,597
 $15,985
Total liabilities$2,441,528
 2,387,666
Commitments and contingencies (See Note 15)

 

Redeemable limited partnership units at redemption value; 981,634 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively9,981
 15,388
Brandywine Operating Partnership, L.P.'s equity:   
General Partnership Capital; 170,965,987 and 176,480,095 units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively1,603,314
 1,674,539
Accumulated other comprehensive income(10,584) (2,715)
Total Brandywine Operating Partnership, L.P.'s equity1,592,730
 1,671,824
Noncontrolling interest - consolidated real estate ventures1,103
 1,091
Total partners' equity$1,593,833
 $1,672,915
Total liabilities and partners' equity$4,045,342
 $4,075,969
The accompanying notes are an integral part of these consolidated financial statements.

11


BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except unit and per unit information)
 Three Months Ended March 31,
 2020 2019
Revenue   
Rents$139,204
 $138,098
Third party management fees, labor reimbursement and leasing4,954
 3,955
Other930
 1,843
Total revenue145,088
 143,896
Operating expenses   
Property operating expenses37,461
 39,500
Real estate taxes16,787
 15,783
Third party management expenses2,662
 2,117
Depreciation and amortization52,038
 51,444
General and administrative expenses8,561
 9,844
Total operating expenses117,509
 118,688
Gain on sale of real estate   
Net gain on disposition of real estate2,586
 
Net gain on sale of undepreciated real estate
 1,001
Total gain on sale of real estate2,586
 1,001
Operating income30,165
 26,209
Other income (expense):   
Interest income575
 525
Interest expense(20,009) (20,357)
Interest expense - amortization of deferred financing costs(749) (666)
Equity in loss of Real Estate Ventures(1,891) (1,358)
Net gain on real estate venture transactions
 259
Net income before income taxes8,091
 4,612
Income tax provision(4) (29)
Net income8,087
 4,583
Net income attributable to noncontrolling interests - consolidated real estate ventures(12) (34)
Net income attributable to Brandywine Operating Partnership8,075
 4,549
Nonforfeitable dividends allocated to unvested restricted unitholders(131) (119)
Net income attributable to Common Partnership Unitholders of Brandywine Operating Partnership, L.P.$7,944
 $4,430
    
    
Basic income per Common Partnership Unit$0.04
 $0.03
    
Diluted income per Common Partnership Unit$0.04
 $0.02
    
Basic weighted average common partnership units outstanding177,051,602
 176,840,229
Diluted weighted average common partnership units outstanding177,635,093
 177,447,089
The accompanying notes are an integral part of these consolidated financial statements.

12


BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 Three Months Ended March 31,
 2020 2019
Net income$8,087
 $4,583
Comprehensive loss:   
Unrealized loss on derivative financial instruments(8,057) (2,689)
Amortization of interest rate contracts (1)188
 206
Total comprehensive loss(7,869) (2,483)
Comprehensive income218
 2,100
Comprehensive income attributable to noncontrolling interest - consolidated real estate ventures(12) (34)
Comprehensive income attributable to Brandywine Operating Partnership$206
 $2,066
(1)Amounts reclassified from comprehensive income to interest expense within the Consolidated Statements of Operations.
The accompanying notes are an integral part of these consolidated financial statements.

13


BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY
(unaudited, in thousands, except number of units)
 General Partner Capital      
 Units Amount Accumulated Other Comprehensive Income Noncontrolling Interest - Consolidated Real Estate Ventures Total Partners' Equity
BALANCE, beginning of period176,480,095
 $1,674,539
 $(2,715) $1,091
 $1,672,915
Net income  8,075
   12
 8,087
Other comprehensive loss    (7,869)   (7,869)
Deferred compensation obligation(12,376) (193)     (193)
Repurchase and retirement of LP units(5,644,200) (53,858)     (53,858)
Share-based compensation activity142,468
 2,031
     2,031
Adjustment of redeemable partnership units to liquidation value at period end  5,220
     5,220
Distributions declared to general partnership unitholders ($0.19 per unit)  (32,500)     (32,500)
BALANCE, March 31, 2020170,965,987
 $1,603,314
 $(10,584) $1,103
 $1,593,833

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

14


BRANDYWINE OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENT OF PARTNERS’ EQUITY
(unaudited, in thousands, except number of units)
 General Partner Capital      
 Units Amount Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest - Consolidated Real Estate Ventures Total Partners' Equity
BALANCE, beginning of period176,873,324
 $1,791,591
 $4,725
 $2,192
 $1,798,508
Cumulative effect of accounting change  (5,336)     (5,336)
Net income  4,549
   34
 4,583
Other comprehensive loss    (2,483)   (2,483)
Deferred compensation obligation(458)       
Repurchase and retirement of LP units(1,337,169) (17,281)     (17,281)
Issuance of partnership interest in consolidated real estate ventures      22
 22
Share-based compensation activity465,883
 3,677
     3,677
Adjustment of redeemable partnership units to liquidation value at period end  (3,088)     (3,088)
Distributions declared to general partnership unitholders ($0.19 per unit)  (33,560)     (33,560)
BALANCE, March 31, 2019176,001,580
 $1,740,552
 $2,242
 $2,248
 $1,745,042

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

15


BRANDYWINE OPERATING PARTNERSHIP L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) 
 Three Months Ended March 31,
 2020 2019
Cash flows from operating activities:   
Net income$8,087
 $4,583
Adjustments to reconcile net income to net cash from operating activities:   
Depreciation and amortization52,038
 51,444
Amortization of deferred financing costs749
 666
Amortization of debt discount/(premium), net(395) 175
Amortization of stock compensation costs2,349
 3,449
Straight-line rent income(2,183) (4,165)
Amortization of acquired above (below) market leases, net(1,495) (1,805)
Ground rent expense366
 370
Provision for doubtful accounts213
 
Net gain on sale of interests in real estate(2,586) (1,001)
Loss from Real Estate Ventures, net of distributions1,890
 1,159
Income tax provision4
 29
Changes in assets and liabilities:   
Accounts receivable(1,348) (3,539)
Other assets(14,548) (39,088)
Accounts payable and accrued expenses(1,213) (10,822)
Deferred income, gains and rent(230) (3,148)
Other liabilities3,360
 19,459
Net cash provided by operating activities45,058
 17,766
Cash flows from investing activities:   
Acquisition of properties(11,432) 
Proceeds from the sale of properties17,711
 5,273
Proceeds from real estate venture sales
 259
Proceeds from repayment of mortgage notes receivable
 15
Capital expenditures for tenant improvements(13,707) (14,978)
Capital expenditures for redevelopments(9,973) (10,777)
Capital expenditures for developments(19,426) (18,645)
Advances for the purchase of tenant assets, net of repayments585
 (1,615)
Investment in unconsolidated Real Estate Ventures
 (182)
Deposits for real estate(1,011) 3,152
Capital distributions from Real Estate Ventures
 1,851
Leasing costs paid(5,315) (5,696)
Net cash used in investing activities(42,568) (41,343)
Cash flows from financing activities:   
Repayments of mortgage notes payable(1,945) (1,871)
Proceeds from credit facility borrowings66,000
 198,000
Repayments of credit facility borrowings(16,000) (130,000)
Proceeds from the exercise of stock options47
 800
Shares used for employee taxes upon vesting of share awards(722) (1,230)
Partner contributions to consolidated real estate venture
 23
Repurchase and retirement of common shares(53,857) (17,282)
Distributions paid to preferred and common partnership units(33,809) (33,271)
Net cash provided by (used in) financing activities(40,286) 15,169
Decrease in cash and cash equivalents and restricted cash(37,796) (8,408)
Cash and cash equivalents and restricted cash at beginning of year91,170
 23,211
Cash and cash equivalents and restricted cash at end of period$53,374
 $14,803
    
Reconciliation of cash and cash equivalents and restricted cash:   
Cash and cash equivalents, beginning of period$90,499
 $22,842
Restricted cash, beginning of period671
 369
Cash and cash equivalents and restricted cash, beginning of period$91,170
 $23,211
    
Cash and cash equivalents, end of period$52,702
 $14,449
Restricted cash, end of period672
 354
Cash and cash equivalents and restricted cash, end of period$53,374
 $14,803
Supplemental disclosure:   
Cash paid for interest, net of capitalized interest during the three months ended March 31, 2020 and 2019 of $1,201 and $728, respectively$12,961
 $14,251
Cash paid for income taxes1
 
Supplemental disclosure of non-cash activity:   
Dividends and distributions declared but not paid32,692
 34,107
Change in capital expenditures financed through accounts payable at period end2,745
 (1,080)
Change in capital expenditures financed through retention payable at period end23
 (4,503)
The accompanying notes are an integral part of these consolidated financial statements.

16


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION OF THE PARENT COMPANY AND THE OPERATING PARTNERSHIP
Brandywine Realty Trust (the "Parent Company") is a self-administered and self-managed real estate investment trust (“REIT”) engaged in the acquisition, development, redevelopment, ownership, management, and operation of a portfolio of office and mixed-use properties. The Parent Company owns its assets and conducts its operations through Brandywine Operating Partnership, L.P. (the "Operating Partnership") and subsidiaries of the Operating Partnership. The Parent Company is the sole general partner of the Operating Partnership and, as of March 31, 2020, owned a 99.4% interest in the Operating Partnership. The Parent Company’s common shares of beneficial interest are publicly traded on the New York Stock Exchange under the ticker symbol “BDN”. The Parent Company, the Operating Partnership, and their consolidated subsidiaries are collectively referred to as the "Company".
As of March 31, 2020, the Company owned 94 properties that contained an aggregate of approximately 16.6 million net rentable square feet (collectively, the “Properties”). The Company’s core portfolio of operating properties excludes development properties, redevelopment properties, and properties held for sale (the “Core Properties”). The Properties were comprised of the following as of March 31, 2020:
 Number of Properties Rentable Square Feet
Office properties85
 15,319,340
Mixed-use properties4
 659,625
Core Properties89
 15,978,965
Development property1
 204,108
Redevelopment properties4
 397,237
The Properties94
 16,580,310

In addition to the Properties, as of March 31, 2020, the Company owned 242.5 acres of land held for development, of which 49.2 acres were held for sale. The Company also held leasehold interests in 2 land parcels totaling 1.8 acres, each acquired through prepaid 99-year ground leases, and held options to purchase approximately 55.5 additional acres of undeveloped land.  As of March 31, 2020, the total potential development that this inventory of land could support under current zoning and entitlements, including the parcels under option, amounted to an estimated 14.4 million square feet, of which 0.3 million square feet relates to 49.2 acres held for sale. As of March 31, 2020, the Company also owned economic interests in 7 unconsolidated real estate ventures (collectively, the “Real Estate Ventures”) (see Note 4, ''Investment in Unconsolidated Real Estate Ventures”) for further information). The Properties and the properties owned by the Real Estate Ventures are located in or near Philadelphia, Pennsylvania; Austin, Texas; Metropolitan Washington, D.C.; Southern New Jersey; and Wilmington, Delaware.
The Company conducts its third-party real estate management services business primarily through wholly-owned management company subsidiaries. As of March 31, 2020, the management company subsidiaries were managing properties containing an aggregate of approximately 24.1 million net rentable square feet, of which approximately 16.6 million net rentable square feet related to Properties owned by the Company and approximately 7.5 million net rentable square feet related to properties owned by third parties and Real Estate Ventures.
Unless otherwise indicated, all references in this Form 10-Q to square feet represent net rentable area.
2. BASIS OF PRESENTATION
Basis of Presentation
The consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments consist solely of normal recurring matters, and result in a fair statement of the financial position of the Company as of March 31, 2020, the results of its operations for the three months ended March 31, 2020 and 2019 and its cash flows for the three months ended March 31, 2020 and 2019. The results of operations for such interim periods are not necessarily indicative of the results for a full year. These consolidated financial statements should be read in conjunction with the Parent Company’s and the Operating Partnership’s consolidated financial statements and footnotes included in their combined 2019 Annual Report on Form 10-K filed with the SEC on March 2, 2020.
The Company's Annual Report on Form 10-K for the year ended December 31, 2019 contains a discussion of our significant accounting policies under Note 2, "Summary of Significant Accounting Policies". There have been no significant changes in our significant accounting policies since December 31, 2019.

17


Adoption of New Accounting Guidance
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326), which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current incurred loss model with an expected loss approach, resulting in more timely recognition of such losses. In November 2018, the FASB released ASU 2018-19, Codification Improvements to Topic 326, Financial Instrument - Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. The guidance was effective for the Company as of January 1, 2020. The Company adopted ASU 2016-13 effective January 1, 2020 and it did not have a material impact on the consolidated financial statements.
3. REAL ESTATE INVESTMENTS
As of March 31, 2020 and December 31, 2019, the gross carrying value of the operating properties was as follows (in thousands):
 March 31, 2020 December 31, 2019
Land$485,420
 $489,702
Building and improvements3,044,461
 3,049,395
Tenant improvements474,237
 467,362
Total$4,004,118
 $4,006,459

Acquisitions
The following table summarizes the property acquisitions during the three months ended March 31, 2020 (dollars in thousands):
Property/Portfolio Name Acquisition Date Location Property Type Rentable Square Feet/Acres Purchase Price
145 King of Prussia Road February 27, 2020 Radnor, PA Land  7.75 acres $11,250

Dispositions
The following table summarizes the property dispositions during the three months ended March 31, 2020 (dollars in thousands):
Property/Portfolio Name Disposition Date Location Property Type Rentable Square Feet/Acres Sales Price Gain/(Loss) on Sale (a)
52 East Swedesford Road March 19, 2020 Malvern, PA Office 131,077 $18,000
 $2,336
(a)Gain/(Loss) on Sale is net of closing and other transaction related costs.
Held for Sale
As of March 31, 2020, the Company determined that the sale of one parcel of land within the Pennsylvania Suburbs segment and 2 parcels of land within the Other segment totaling 49.2 acres was probable and classified these properties as held for sale. As such, $10.7 million was classified as "Assets held for sale, net" on the consolidated balance sheets. As of March 31, 2020, the fair value less the anticipated costs of sale of the properties exceeded the carrying values. The fair value of the properties is based on the pricing in the purchase and sale agreement.
As of December 31, 2019, the Company determined that the sale of two parcels of land within the Other segment totaling 35.2 acres was probable and classified these properties as held for sale. As such, $7.3 million was classified as “Assets held for sale, net” on the consolidated balance sheets.
4. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
As of March 31, 2020, the Company held ownership interests in 7 unconsolidated real estate ventures for an aggregate investment balance of $118.4 million, which includes a negative investment balance in one unconsolidated real estate venture, reflected within 'Other liabilities' in the consolidated balance sheets. As of March 31, 2020, 3 of the real estate ventures owned properties that contained an aggregate of approximately 5.4 million net rentable square feet of office space; 2 real estate ventures

18


owned 1.4 acres of land held for development; 1 real estate venture owned 1.3 acres of land in active development; and 1 real estate venture owned a residential tower that contained 321 apartment units.
The Company accounts for its interests in the Real Estate Ventures, which range from 15% to 70%, using the equity method. Certain of the Real Estate Ventures are subject to specified priority allocations of distributable cash.
The Company earned management fees from its Real Estate Ventures of $1.1 million for each of the three months ended March 31, 2020 and 2019.
The Company earned leasing commission income from its Real Estate Ventures of $0.4 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively.
The Company had outstanding accounts receivable balances from its Real Estate Ventures of $0.9 million and $0.8 million as of March 31, 2020 and December 31, 2019, respectively.
The amounts reflected in the following tables (except for the Company’s share of equity in income) are based on the financial information of the individual Real Estate Ventures.
The following is a summary of the financial position of the Real Estate Ventures in which the Company held interests as of March 31, 2020 and December 31, 2019 (in thousands):
 March 31, 2020
 MAP Venture Other Total
Net property$189,953
 $650,323
 $840,276
Other assets256,904
 87,201
 344,105
Other liabilities266,798
 21,188
 287,986
Debt, net181,768
 419,352
 601,120
Equity (a)(1,709) 296,984
 295,275
 December 31, 2019
 MAP Venture Other Total
Net property$192,582
 $641,785
 $834,367
Other assets256,453
 85,549
 342,002
Other liabilities266,200
 23,871
 290,071
Debt, net181,525
 403,543
 585,068
Equity (a)1,310
 299,920
 301,230
(a)This amount does not include the effect of the basis difference between the Company's historical cost basis and the basis recorded at the real estate venture level, which is typically amortized over the life of the related assets and liabilities. Basis differentials occur from the impairment of investments, purchases of third party interests in existing real estate ventures and upon the transfer of assets that were previously owned by the Company into a real estate venture. In addition, certain acquisition, transaction and other costs may not be reflected in the net assets at the real estate venture level.

19


The following is a summary of results of operations of the Real Estate Ventures in which the Company held interests during the three-month periods ended March 31, 2020 and 2019 (in thousands):
 Three Months Ended March 31, 2020
 MAP Venture Other Total
Revenue$17,313
 $13,838
 $31,151
Operating expenses(12,228) (5,733) (17,961)
Interest expense, net(2,047) (2,942) (4,989)
Depreciation and amortization(6,058) (6,465) (12,523)
Net loss$(3,020) $(1,302) $(4,322)
Ownership interest %50% Various
 Various
Company's share of net loss$(1,510) $(352) $(1,862)
Basis adjustments and other(10) (19) (29)
Equity in loss of Real Estate Ventures$(1,520) $(371) $(1,891)
 Three Months Ended March 31, 2019
 MAP Venture Other Total
Revenue$18,288
 $16,771
 $35,059
Operating expenses(12,155) (6,563) (18,718)
Interest expense, net(2,536) (1,384) (3,920)
Depreciation and amortization(6,349) (7,363) (13,712)
Net income (loss)$(2,752) $1,461
 $(1,291)
Ownership interest %50% Various
 Various
Company's share of net income (loss)$(1,376) $64
 $(1,312)
Basis adjustments and other(56) 10
 (46)
Equity in income (loss) of Real Estate Ventures$(1,432) $74
 $(1,358)

5. LEASES
Lessor Accounting
The table below sets forth the allocation of lease revenue between fixed contractual payments and variable lease payments for the three months ended March 31, 2020 and 2019 (in thousands):
  Three Months Ended March 31, Three Months Ended March 31,
Lease Revenue 2020 2019
Fixed contractual payments $104,401
 $104,649
Variable lease payments 30,639
 28,731
Total $135,040
 $133,380

6. INTANGIBLE ASSETS AND LIABILITIES
As of March 31, 2020 and December 31, 2019, the Company’s intangible assets/liabilities were comprised of the following (in thousands):
 March 31, 2020
 Total Cost Accumulated Amortization Intangible Assets, net
Intangible assets, net:     
In-place lease value$153,328
 $(79,024) $74,304
Tenant relationship value5,142
 (4,775) 367
Above market leases acquired4,866
 (3,867) 999
Total intangible assets, net$163,336
 $(87,666) $75,670
      
 Total Cost Accumulated Amortization Intangible Liabilities, net
Intangible liabilities, net:     
Below market leases acquired$43,302
 $(22,697) $20,605
 December 31, 2019
 Total Cost Accumulated Amortization Intangible Assets, net
Intangible assets, net:     
In-place lease value$167,357
 $(84,123) $83,234
Tenant relationship value5,268
 (4,815) 453
Above market leases acquired4,956
 (3,792) 1,164
Total intangible assets, net$177,581
 $(92,730) $84,851
      
 Total Cost Accumulated Amortization Intangible Liabilities, net
Intangible liabilities, net:     
Below market leases acquired$44,757
 $(22,494) $22,263

As of March 31, 2020, the Company’s annual amortization for its intangible assets/liabilities, assuming no prospective early lease terminations, was as follows (dollars in thousands):
 Assets Liabilities
2020 (nine months remaining)$18,801
 $3,665
202117,854
 3,838
202212,043
 2,257
20239,213
 1,716
20246,294
 1,428
Thereafter11,465
 7,701
Total$75,670
 $20,605


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7. DEBT OBLIGATIONS
The following table sets forth information regarding the Company’s consolidated debt obligations outstanding at March 31, 2020 and December 31, 2019 (in thousands):
 March 31, 2020 December 31, 2019 
Effective
Interest Rate
 
Maturity
Date
MORTGAGE DEBT:       
Two Logan Square$80,667
 $81,103
 3.98% August 2020
Four Tower Bridge9,230
 9,291
 4.50% February 2021
One Commerce Square115,647
 116,571
 3.64% April 2023
Two Commerce Square107,948
 108,472
 4.51% April 2023
Principal balance outstanding313,492
 315,437
    
Plus: fair market value premium (discount), net(1,289) (1,383)    
Less: deferred financing costs(202) (242)    
Mortgage indebtedness$312,001
 $313,812
    
        
UNSECURED DEBT       
$600 million Unsecured Credit Facility$50,000
 $
 LIBOR + 1.10% July 2022
Seven-Year Term Loan - Swapped to fixed250,000
 250,000
 2.87% October 2022
$350.0M 3.95% Guaranteed Notes due 2023350,000
 350,000
 3.87% February 2023
$350.0M 4.10% Guaranteed Notes due 2024350,000
 350,000
 3.78% October 2024
$450.0M 3.95% Guaranteed Notes due 2027450,000
 450,000
 4.03% November 2027
$350.0M 4.55% Guaranteed Notes due 2029350,000
 350,000
 4.30% October 2029
Indenture IA (Preferred Trust I)27,062
 27,062
 LIBOR + 1.25% March 2035
Indenture IB (Preferred Trust I) - Swapped to fixed25,774
 25,774
 3.30% April 2035
Indenture II (Preferred Trust II)25,774
 25,774
 LIBOR + 1.25% July 2035
Principal balance outstanding1,878,610
 1,828,610
    
Plus: original issue premium (discount), net11,601
 12,090
    
Less: deferred financing costs(9,612) (10,094)    
Total unsecured indebtedness$1,880,599
 $1,830,606
    
Total Debt Obligations$2,192,600
 $2,144,418
    

In addition to the debt described above, the Company utilizes borrowings under its unsecured revolving credit facility (the “Unsecured Credit Facility”) for general business purposes, including to fund costs of acquisitions, developments and redevelopments of properties, fund share repurchases and repay other debt. The Unsecured Credit Facility provides for borrowings of up to $600.0 million and the per annum variable interest rate on borrowings is LIBOR plus 1.10%. The interest rate and facility fee are subject to adjustment upon a change in the Company’s unsecured debt ratings. During the three months ended March 31, 2020, the weighted-average interest rate on Unsecured Credit Facility borrowings was 2.1% resulting in a nominal amount of interest expense. As of March 31, 2020, the effective interest rate on Credit Facility borrowings was 2.1%.
The Parent Company unconditionally guarantees the unsecured debt obligations of the Operating Partnership (or is a co-borrower with the Operating Partnership) but does not by itself incur unsecured indebtedness. The Parent Company has no material assets other than its investment in the Operating Partnership.
The Company was in compliance with all financial covenants as of March 31, 2020. Certain of the covenants restrict the Company’s ability to obtain alternative sources of capital.

21


As of March 31, 2020, the Company’s aggregate scheduled principal payments of debt obligations are as follows (in thousands):
2020 (nine months remaining)$85,281
202115,143
2022306,332
2023556,736
2024350,000
Thereafter878,610
Total principal payments2,192,102
Net unamortized premiums/(discounts)10,312
Net deferred financing costs(9,814)
Outstanding indebtedness$2,192,600

8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial assets and liabilities recorded on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access;
Level 2 inputs are inputs, other than quoted prices included in Level 1, which are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals; and
Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity or information.
The Company determined the fair values disclosed below using available market information and discounted cash flow analyses as of March 31, 2020 and December 31, 2019, respectively. The discount rate used in calculating fair value is the sum of the current risk free rate and the risk premium on the date of measurement of the instruments or obligations. Considerable judgment is necessary to interpret market data and to develop the related estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize upon disposition. The use of different estimates and valuation methodologies may have a material effect on the fair value amounts shown. The Company believes that the carrying amounts reflected in the consolidated balance sheets at March 31, 2020 and December 31, 2019 approximate the fair values for cash and cash equivalents, accounts receivable, other assets and liabilities, accounts payable and accrued expenses because they are short-term in duration. The following are financial instruments for which the Company’s estimates of fair value differ from the carrying amounts (in thousands):
 March 31, 2020 December 31, 2019
 Carrying Amount (a) Fair Value Carrying Amount (a) Fair Value
Unsecured notes payable$1,503,297
 $1,511,215
 $1,503,435
 $1,591,830
Variable rate debt$377,302
 $359,532
 $327,171
 $309,947
Mortgage notes payable$312,001
 $331,341
 $313,812
 $317,031
Notes receivable$44,430
 $46,640
 $44,430
 $43,322
(a)Net of deferred financing costs of $8.3 million and $8.7 million for unsecured notes payable, $1.3 million and $1.4 million for variable rate debt and $0.2 million for mortgage notes payable as of both March 31, 2020 and December 31, 2019.
On June 26, 2018, the Company provided a $44.4 million mortgage loan to Brandywine 1919 Ventures, an unconsolidated real estate venture in which the Company holds a 50% ownership interest, and recorded a related party note receivable of $44.4 million within 'Other assets' on the consolidated balance sheets. Refer to Note 4, ''Investment in Unconsolidated Real Estate Ventures" to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for further detail regarding this financing.
The Company used quoted market prices as of March 31, 2020 and December 31, 2019 to value the unsecured notes payable and, as such, categorized them as Level 2.
The inputs utilized to determine the fair value of the Company’s mortgage notes payable and variable rate debt are categorized as Level 3. The fair value of the variable rate debt was determined using a discounted cash flow model that considered borrowing

22


rates available to the Company for loans with similar terms and characteristics. The fair value of the mortgage notes payable was determined using a discounted cash flow model that considered the contractual interest and principal payments discounted at a blended market rate for loans with similar terms, maturities and loan-to-value. These inputs have been categorized as Level 3 because the Company considers the rates used in the valuation techniques to be unobservable.
The inputs utilized to determine fair value of the Company's notes receivable are unobservable and, as such, were categorized as Level 3. Fair value was determined using a discounted cash flow model that considered the contractual interest and principal payments discounted at a blended interest rate of the notes receivable.
For the Company’s level 3 financial instruments for which fair value is disclosed, an increase in the discount rate used to determine fair value would result in a decrease to the fair value. Conversely, a decrease in the discount rate would result in an increase to the fair value.
Disclosure about the fair value of financial instruments is based upon pertinent information available to management as of March 31, 2020 and December 31, 2019. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts were not comprehensively revalued for purposes of these financial statements since March 31, 2020. Current estimates of fair value may differ from the amounts presented herein.
9. DERIVATIVE FINANCIAL INSTRUMENTS
The following table summarizes the terms and fair values of the Company’s derivative financial instruments as of March 31, 2020 and December 31, 2019. The notional amounts provide an indication of the extent of the Company’s involvement in these instruments at that time, but do not represent exposure to credit, interest rate or market risks (amounts presented in thousands).
Hedge Product Hedge Type Designation Notional Amount Strike Trade Date Maturity Date Fair value
      3/31/2020 12/31/2019       3/31/2020 12/31/2019
Liabilities                  
Swap Interest Rate Cash Flow(a)$250,000
 $250,000
 2.868% October 8, 2015 October 8, 2022 $(8,423) $(562)
Swap Interest Rate Cash Flow(a)$25,774
 $25,774
 3.300% December 22, 2011 January 30, 2021 (293) (94)
      $275,774
 $275,774
          
(a)Hedging unsecured variable rate debt.
The Company measures its derivative instruments at fair value and records them in “Other assets” and (“Other liabilities”) on the Company’s consolidated balance sheets.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that the inputs utilized to determine the fair value of derivative instruments are classified in Level 2 of the fair value hierarchy.
Disclosure about the fair value of derivative instruments is based upon pertinent information available to management as of March 31, 2020 and December 31, 2019. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since March 31, 2020. Current estimates of fair value may differ from the amounts presented herein.
10. LIMITED PARTNERS' NONCONTROLLING INTERESTS IN THE PARENT COMPANY
Non-controlling interests in the Parent Company’s financial statements relate to redeemable common limited partnership interests in the Operating Partnership held by parties other than the Parent Company and properties which are consolidated but not wholly owned by the Operating Partnership.
Operating Partnership
The aggregate book value of the non-controlling interests associated with the redeemable common limited partnership interests in the accompanying consolidated balance sheet of the Parent Company was $9.2 million and $9.3 million as of March 31, 2020 and December 31, 2019, respectively. Under the applicable accounting guidance, the redemption value of limited partnership units are carried at, on a limited partner basis, the greater of historical cost adjusted for the allocation of income and distributions or fair value. The Parent Company believes that the aggregate settlement value of these interests (based on the number of units

23


outstanding and the closing price of the common shares on the balance sheet date) was approximately $10.3 million and $15.5 million as of March 31, 2020 and December 31, 2019, respectively.
11. BENEFICIARIES' EQUITY OF THE PARENT COMPANY
Earnings per Share (EPS)
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; results may not add due to rounding):
 Three Months Ended March 31,
 2020 2019
 Basic Diluted Basic Diluted
Numerator       
Net income$8,087
 $8,087
 $4,583
 $4,583
Net income attributable to noncontrolling interests(65) (65) (60) (60)
Nonforfeitable dividends allocated to unvested restricted shareholders(131) (131) (119) (119)
Net income attributable to common shareholders$7,891
 $7,891
 $4,404
 $4,404
Denominator       
Weighted-average shares outstanding176,069,968
 176,069,968
 175,857,358
 175,857,358
Contingent securities/Share based compensation
 583,491
 
 606,860
Weighted-average shares outstanding176,069,968
 176,653,459
 175,857,358
 176,464,218
Earnings per Common Share:       
Net income attributable to common shareholders$0.04
 $0.04
 $0.03
 $0.02
Redeemable common limited partnership units totaling 981,634 at March 31, 2020 and 982,871 at March 31, 2019, were excluded from the diluted earnings per share computations because they are not dilutive.
Unvested restricted shares are considered participating securities which require the use of the two-class method for the computation of basic and diluted earnings per share. For the three months ended March 31, 2020 and 2019, earnings representing nonforfeitable dividends as noted in the table above were allocated to the unvested restricted shares issued to the Company’s executives and other employees under the Company's shareholder-approved long-term incentive plan.
Common Shares
On February 27, 2020 the Parent Company declared a distribution of $0.19 per common share, totaling $32.7 million, which was paid on April 21, 2020 to shareholders of record as of April 7, 2020.
The Parent Company maintains a common share repurchase program under which the Board of Trustees has authorized the Parent Company to repurchase common shares. On January 3, 2019, the Board of Trustees authorized the repurchase of up to $150.0 million common shares from and after January 3, 2019. During the three months ended March 31, 2020, the Company repurchased and retired 5,644,200 common shares at an average price of $9.54 per share, totaling $53.9 million. During the three months ended March 31, 2019, the Company repurchased and retired 1,337,169 common shares at an average price of $12.92 per share, totaling $17.3 million.
12. PARTNERS' EQUITY OF THE PARENT COMPANY
Earnings per Common Partnership Unit
The following table details the number of units and net income used to calculate basic and diluted earnings per common partnership unit (in thousands, except unit and per unit amounts; results may not add due to rounding):

24


 Three Months Ended March 31,
 2020 2019
 Basic Diluted Basic Diluted
Numerator       
Net income$8,087
 $8,087
 $4,583
 $4,583
Net income attributable to noncontrolling interests(12) (12) (34) (34)
Nonforfeitable dividends allocated to unvested restricted unitholders(131) (131) (119) (119)
Net income attributable to common unitholders$7,944
 $7,944
 $4,430
 $4,430
Denominator       
Weighted-average units outstanding177,051,602
 177,051,602
 176,840,229
 176,840,229
Contingent securities/Share based compensation
 583,491
 
 606,860
Total weighted-average units outstanding177,051,602
 177,635,093
 176,840,229
 177,447,089
Earnings per Common Partnership Unit:       
Net income attributable to common unitholders0.04
 0.04
 0.03
 0.02

Unvested restricted units are considered participating securities which require the use of the two-class method for the computation of basic and diluted earnings per share. For the three months ended March 31, 2020 and 2019, earnings representing nonforfeitable dividends were allocated to the unvested restricted units issued to the Parent Company's executives and other employees under the Parent Company's shareholder-approved long-term incentive plan.
Common Partnership Units
On February 27, 2020 the Operating Partnership declared a distribution of $0.19 per common partnership unit, totaling $32.7 million, which was paid on April 21, 2020 to unitholders of record as of April 7, 2020.
In connection with the Parent Company’s common share repurchase program, 1 common unit of the Operating Partnership is retired for each common share repurchased. During the three months ended March 31, 2020, the Company retired 5,644,200 common partnership units at an average price of $9.54 per unit, totaling $53.9 million, in connection with an equal number of common share repurchases. During the three months ended March 31, 2019, the Company retired 1,337,169 common partnership units at an average price of $12.92 per unit, totaling $17.3 million, in connection with an equal number of share repurchases.
13. SHARE BASED COMPENSATION
Restricted Share Rights Awards
As of March 31, 2020, 689,184 restricted share rights ("Restricted Share Rights") were outstanding under the Company's long term equity incentive plan. These Restricted Share Rights vest over one to three years from the initial grant dates. The remaining compensation expense to be recognized with respect to these awards at March 31, 2020 was $3.5 million and is expected to be recognized over a weighted average remaining vesting period of 1.40 years. During the three months ended March 31, 2020 and 2019, the amortization related to outstanding Restricted Share Rights was $1.9 million (of which $0.3 million was capitalized) and $1.6 million (of which $0.2 million was capitalized), respectively. Compensation expense related to outstanding Restricted Share Rights is included in general and administrative expense.
The following table summarizes the Company’s Restricted Share Rights activity during the three months ended March 31, 2020:
  Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value (in thousands)
Non-vested at January 1, 2020 479,144
 $15.90
 $44.7
Granted 224,678
 $14.66
 $
Vested (12,718) $15.60
 $
Forfeited (1,920) $15.63
 $
Non-vested at March 31, 2020 689,184
 $15.50
 $

On March 5, 2020, the Compensation Committee of the Parent Company’s Board of Trustees awarded to officers of the Company an aggregate of 183,758 Restricted Share Rights, which vest over three years from the grant date. Each Restricted Share Right

25


entitles the holder to 1 common share upon settlement. The Parent Company pays dividend equivalents on the Restricted Share Rights prior to the settlement date. Vesting and/or settlement would accelerate if the recipient of the award were to die, become disabled or, in the case of certain of such Restricted Share Rights, retire in a qualifying retirement prior to the vesting or settlement date. Qualifying retirement generally means the recipient’s voluntary termination of employment after reaching at least age 57 and accumulating at least 15 years of service with the Company. In addition, vesting would also accelerate if the Parent Company were to undergo a change of control and, on or before the first anniversary of the change of control, the recipient’s employment were to cease due to a termination without cause or resignation with good reason.
The Restricted Share Rights granted in 2020 to certain senior executives include an “outperformance feature” whereby additional shares may be earned, up to 200% of the shares subject to the basic award, based on the Company’s achievement of targets for same-store net operating cash income growth and investment activity provided certain operating and balance sheet metrics are also achieved during the three-year period ending December 31, 2022. Half of any additional shares earned will vest based on continued service through each of January 1, 2023 and January 1, 2024, respectively, provided that this additional service requirement will be waived in the event of a death, disability or qualifying retirement. In addition to the basic award, up to 316,306 shares may be awarded under the outperformance feature. As of March 31, 2020, the Company has not recognized any compensation expense for the outperformance feature of these awards as it has been determined that it is not probable that the performance metrics will be achieved. The Company will evaluate progression towards achievement of the performance metrics on a quarterly basis and recognize compensation expense for the outperformance feature of these awards should it be determined that achievement of these metrics is probable.
In addition, on March 5, 2020, the Compensation Committee awarded non-officer employees an aggregate of 40,920 Restricted Share Rights that generally vest in 3 equal installments on April 15, 2021, 2022, and 2023. Vesting of these awards is subject to acceleration upon death, disability or termination without cause within one year following a change of control.
In accordance with the accounting standard for share-based compensation, the Company amortizes share-based compensation costs through the qualifying retirement dates for those executives who meet the conditions for qualifying retirement during the scheduled vesting period and whose award agreements provide for vesting upon a qualifying retirement.
Restricted Performance Share Units Plan
The Compensation Committee of the Parent Company’s Board of Trustees has granted performance share-based awards (referred to as Restricted Performance Share Units, or RPSUs) to officers of the Parent Company. The RPSUs are settled in common shares, with the number of common shares issuable in settlement determined based on the Company’s total shareholder return over specified measurement periods compared to total shareholder returns of comparative groups over the measurement periods. The table below presents certain information as to unvested RPSU awards.
  RPSU Grant
  2/28/2018 2/21/2019 3/5/2020 Total
(Amounts below in shares, unless otherwise noted)        
Non-vested at January 1, 2020 190,296
 206,069
 
 396,365
Units Granted 
 
 319,600
 319,600
Non-vested at March 31, 2020 190,296
 206,069
 319,600
 715,965
Measurement Period Commencement Date 1/1/2018
 1/1/2019
 1/1/2020
 
Measurement Period End Date 12/31/2020
 12/31/2021
 12/31/2022
 
Units Granted 209,193
 213,728
 319,600
 
Fair Value of Units on Grant Date (in thousands) $4,276
 $4,627
 $5,389
 


The Company values each RPSU on its grant date using a Monte Carlo simulation. The fair values of each award are being amortized over the three year performance period. During the performance period, dividend equivalents are credited as additional RPSU's, subject to the same terms and conditions as the original RPSU's. The performance period will be abbreviated and the determination and delivery of earned shares will be accelerated in the event of a change in control or if the recipient of the award were to die, become disabled or retire in a qualifying retirement prior to the end of the otherwise applicable three year performance period; provided that, in the case of qualifying retirement for the March 5, 2020 grant, the number of shares deliverable will be pro-rated based on the portion of the performance period actually worked before retirement. In accordance with the February 2019 and 2018 grants, the Company amortizes stock-based compensation costs through the qualifying retirement date for those executives who meet the conditions for qualifying retirement during the scheduled vesting period.

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For the three months ended March 31, 2020, the Company recognized amortization of the 2020, 2019 and 2018 RPSU awards of $0.6 million, of which $0.1 million was capitalized consistent with the Company’s policies for capitalizing eligible portions of employee compensation. For the three months ended March 31, 2019, amortization for the 2019, 2018 and 2017 RPSU awards was $2.7 million, of which $0.4 million was capitalized consistent with the Company’s policies for capitalizing eligible portions of employee compensation.
The remaining compensation expense to be recognized with respect to the non-vested RPSU's at March 31, 2020 was approximately $6.9 million and is expected to be recognized over a weighted average remaining vesting period of 2.37 years.
The Company issued 121,897 common shares on February 1, 2020 in settlement of RPSUs that had been awarded on March 1, 2017 (with a three-year measurement period ended December 31, 2019). Holders of these RPSUs also received a cash dividend of $0.19 per share for these common shares on January 22, 2020.
14. SEGMENT INFORMATION
As of March 31, 2020, the Company owns and manages properties within 5 segments: (1) Philadelphia Central Business District ("Philadelphia CBD"), (2) Pennsylvania Suburbs, (3) Austin, Texas (4) Metropolitan Washington, D.C. and (5) Other. The Philadelphia CBD segment includes properties located in the City of Philadelphia, Pennsylvania. The Pennsylvania Suburbs segment includes properties in Chester, Delaware, and Montgomery counties in the Philadelphia suburbs. The Austin, Texas segment includes properties in the City of Austin, Texas. The Metropolitan Washington, D.C. segment includes properties in the District of Columbia, Northern Virginia and Southern Maryland. The Other segment includes properties located in Camden County, New Jersey and New Castle County, Delaware. In addition to the five segments, the corporate group is responsible for cash and investment management, development of certain real estate properties during the construction period, and certain other general support functions. Land held for development and construction in progress is transferred to operating properties by region upon completion of the associated construction or project.
The following tables provide selected asset information and results of operations of the Company's reportable segments (in thousands):
Real estate investments, at cost:   
 March 31, 2020 December 31, 2019
Philadelphia CBD$1,733,987
 $1,726,299
Pennsylvania Suburbs991,788
 1,003,890
Austin, Texas722,873
 721,255
Metropolitan Washington, D.C.468,416
 468,035
Other87,054
 86,980
Operating Properties$4,004,118
 $4,006,459
    
Right of use asset - operating leases, net$21,485
 $21,656
    
Corporate   
Construction-in-progress$193,160
 $180,718
Land held for development (a)$108,213
 $96,124
Prepaid leasehold interests in land held for development, net (b)$39,490
 $39,592

(a)Does not include 49.2 acres and 35.2 acres of land classified as held for sale as of March 31, 2020 and December 31, 2019, respectively.
(b)Includes leasehold interests in prepaid 99-year ground leases at 3025 and 3001-3003 JFK Boulevard, in Philadelphia, Pennsylvania as of March 31, 2020 and December 31, 2019.

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Net operating income:
 Three Months Ended March 31,
 2020 2019
 Total revenue Operating expenses (a) Net operating income (loss) Total revenue Operating expenses (a) Net operating income (loss)
Philadelphia CBD$65,915
 $(24,198) $41,717
 $65,798
 $(25,185) $40,613
Pennsylvania Suburbs37,237
 (12,678) 24,559
 35,627
 (12,991) 22,636
Austin, Texas26,581
 (10,145) 16,436
 24,766
 (9,076) 15,690
Metropolitan Washington, D.C.10,754
 (5,512) 5,242
 13,520
 (6,204) 7,316
Other3,652
 (2,693) 959
 3,182
 (2,145) 1,037
Corporate949
 (1,684) (735) 1,003
 (1,799) (796)
Operating properties$145,088
 $(56,910) $88,178
 $143,896
 $(57,400) $86,496
(a)Includes property operating expenses, real estate taxes and third party management expense.

Unconsolidated real estate ventures:    
 Investment in real estate ventures Equity in income (loss) of real estate venture
 As of Three Months Ended March 31,
 March 31, 2020 December 31, 2019 2020 2019
Philadelphia CBD$17,602
 $17,524
 $78
 $78
Metropolitan Washington, D.C.102,396
 102,840
 (449) (175)
MAP Venture (a)(1,590) (70) (1,520) (1,367)
Other
 
 
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Total$118,408
 $120,294
 $(1,891) $(1,358)

(a)Included in Other liabilities on the consolidated balance sheets.
Net operating income (“NOI”) is a non-GAAP financial measure, which we define as total revenue less property operating expenses, real estate taxes and third party management expenses. Property operating expenses that are included in determining NOI consist of costs that are necessary and allocable to our operating properties such as utilities, property-level salaries, repairs and maintenance, property insurance and management fees. General and administrative expenses that are not reflected in NOI primarily consist of corporate-level salaries, amortization of share awards and professional fees that are incurred as part of corporate office management. NOI presented by the Company may not be comparable to NOI reported by other companies that define NOI differently. NOI is the measure that is used by the Company’s management to evaluate the operating performance of the Company’s real estate assets by segment. The Company believes NOI provides useful information to investors regarding the financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. While NOI is a relevant and widely used measure of operating performance of real estate investment trusts, it does not represent cash flow from operations or net income as defined by GAAP and should not be considered as an alternative to those measures in evaluating our liquidity or operating performance. NOI does not reflect interest expenses, real estate impairment losses, depreciation and amortization costs, capital expenditures and leasing costs. The Company believes that net income (loss), as defined by GAAP, is the most appropriate earnings measure. The following is a reconciliation of consolidated net income, as defined by GAAP, to consolidated NOI, (in thousands):

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 Three Months Ended March 31,
 2020 2019
Net income$8,087
 $4,583
Plus:   
Interest expense20,009
 20,357
Interest expense - amortization of deferred financing costs749
 666
Depreciation and amortization52,038
 51,444
General and administrative expenses8,561
 9,844
Equity in loss of Real Estate Ventures1,891
 1,358
Less:   
Interest income575
 525
Income tax provision(4) (29)
Net gain on disposition of real estate2,586
 
Net gain on sale of undepreciated real estate
 1,001
Net gain on real estate venture transactions
 259
Consolidated net operating income$88,178
 $86,496

15. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is involved from time to time in litigation on various matters, including disputes with tenants, vendors and disputes arising out of agreements to purchase or sell properties. Given the nature of the Company’s business activities, these lawsuits are considered routine to the conduct of its business. The result of any particular lawsuit cannot be predicted, because of the very nature of litigation, the litigation process and its adversarial nature, and the jury system. The Company will establish reserves for specific legal proceedings when it determines that the likelihood of an unfavorable outcome is probable and when the amount of loss is reasonably estimable. The Company does not expect that the liabilities, if any, that may ultimately result from such legal actions will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.
Letters-of-Credit
Under certain mortgages, the Company has funded required leasing and capital reserve accounts for the benefit of the mortgage lenders with letters-of-credit. There were 0 letters-of-credit for a mortgage lender as of March 31, 2020. Certain of the tenant rents at properties that secure these mortgage loans are deposited into the loan servicer’s depository accounts, which are used to fund debt service, operating expenses, capital expenditures and the escrow and reserve accounts, as necessary. Any excess cash is included in cash and cash equivalents.
Environmental
As an owner of real estate, the Company is subject to various environmental laws of federal, state, and local governments. The Company’s compliance with existing laws has not had a material adverse effect on its financial condition and results of operations, and the Company does not believe it will have a material adverse effect in the future. However, the Company cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on its current Properties or on properties that the Company may acquire.
Debt Guarantees
As of March 31, 2020, the Company’s Real Estate Ventures had aggregate indebtedness of $611.6 million. These loans are generally mortgage or construction loans, most of which are nonrecourse to the Company, except for customary recourse carve-outs. As of March 31, 2020, the $150.0 million construction loan obtained by 4040 Wilson, located in Arlington, Virginia, for which the Company has a payment guarantee up to $41.3 million, is recourse to the Company. In addition, during construction undertaken by the Real Estate Ventures, including 4040 Wilson, the Company has provided, and expects to continue to provide, cost overrun and completion guarantees, with rights of contribution among partners or members in the real estate ventures, as well as customary environmental indemnities and guarantees of customary exceptions to nonrecourse provisions in loan agreements.  
Other Commitments or Contingencies
In connection with the Schuylkill Yards Project, the Company entered into a neighborhood engagement program and, as of March 31, 2020, had $8.4 million of future fixed contractual obligations. The Company is also committed to make additional

29


contributions under the program. As of March 31, 2020, the Company estimates that these additional contributions, which are not fixed under the terms of agreement, will be $2.7 million.
As of March 31, 2020, the Company was under contract to acquire an office property containing approximately 170,000 rentable square feet located in Radnor, Pennsylvania for a purchase price of $20.3 million. The Company has paid $1.0 million towards the purchase price in the form of a non-refundable deposit and the transaction is expected to close during 2020.
The Company invests in its properties and regularly incurs capital expenditures in the ordinary course of business to maintain the properties. The Company believes that such expenditures enhance its competitiveness. The Company also enters into construction, utility and service contracts in the ordinary course of business which may extend beyond one year. These contracts typically provide for cancellation with insignificant or no cancellation penalties.
16. SUBSEQUENT EVENTS
On April 2, 2020, we settled the purchase of 604,283 common shares, which had a trade date of March 31, 2020, for an aggregate of $6.1 million.
The recent outbreak of COVID-19 across many countries around the globe, including the U.S., has significantly slowed global
economic activity, caused significant volatility in financial markets, and resulted in unprecedented job losses causing many to fear an imminent global recession. The global impact of the outbreak has been rapidly evolving the responses of many countries, including the U.S., have included quarantines, restrictions on business activities, including construction activities, restrictions on group gatherings, and restrictions on travel. These actions are creating disruption in the global economy and supply chains and adversely impacting many industries, including owners and developers of office and mixed-use buildings. Moreover, there is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. economy and consumer confidence. Demand for space at our properties is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, rent levels and availability of competing space. These factors can be significantly adversely affected by a variety of factors beyond our control. The extent to which COVID-19 impacts our results will depend on future developments, many of which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact. If the outbreak continues, there will likely be continued negative economic impacts, market volatility, and business disruption which could negatively impact our tenants’ ability to pay rent, our ability to lease vacant space, and our ability to complete development and redevelopment projects, and these consequences, in turn, could materially impact our results of operations.
On April 10, 2020, the Financial Accounting Standards Board (the "FASB") issued a Staff Q&A to respond to some frequently asked questions about accounting for lease concessions related to the effects of the COVID-19 pandemic. Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance to those contracts. Entities may make the elections for any lessor-provided concessions related to the effects of the COVID-19 pandemic (e.g., deferrals of lease payments, cash payments made to the lessee, reduced future lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. The Company is currently working with tenants impacted by the COVID-19 pandemic to determine appropriate lease concessions. To date, the impact of lease concessions granted has not had a material effect on the financial statements. The Company will continue to evaluate the impact of lease concessions and the appropriate accounting for those concessions.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Private Securities Litigation Reform Act of 1995 (the “1995 Act”) provides a “safe harbor” for forward-looking statements. This Quarterly Report on Form 10-Q and other materials filed by us with the SEC (as well as information included in oral or other written statements made by us) contain statements that are forward-looking, including statements relating to business and real estate development activities, acquisitions, dispositions, future capital expenditures, financing sources, governmental regulation (including environmental regulation) and competition. We intend such forward-looking statements to be covered by the safe-harbor provisions of the 1995 Act. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. As forward-looking statements, these statements involve important risks, uncertainties and other factors that could cause actual results to differ materially from the expected results and, accordingly, such results may differ from those expressed in any forward-looking statements made by us or on our behalf. Factors that could cause actual results to differ materially from our expectations are set forth under the heading “Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended December 31, 2019, many of which may be more likely to impact us as a result of the ongoing coronavirus (COVID-19) outbreak.
Given these uncertainties, and the other risks identified in the “Risk Factors ” section of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A of this Quarterly Report, we caution readers not to place undue reliance on forward-looking statements. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.
The discussion that follows is based primarily on our consolidated financial statements as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 and should be read along with the consolidated financial statements and related notes appearing elsewhere in this report. The ability to compare one period to another may be significantly affected by acquisitions completed, development properties placed in service and dispositions made during those periods.
OVERVIEW
During the three months ended March 31, 2020, we owned and managed properties within five markets: (1) Philadelphia Central Business District (“Philadelphia CBD”), (2) Pennsylvania Suburbs, (3) Austin, Texas, (4) Metropolitan Washington, D.C., and (5) Other. The Philadelphia CBD segment includes properties located in the City of Philadelphia in Pennsylvania. The Pennsylvania Suburbs segment includes properties in Chester, Delaware and Montgomery counties in the Philadelphia suburbs. The Austin, Texas segment includes properties in the City of Austin, Texas. The Metropolitan Washington, D.C. segment includes properties in Northern Virginia, Washington, D.C. and Southern Maryland. The Other segment includes properties in Camden County, New Jersey and New Castle County, Delaware. In addition to the five markets, our corporate group is responsible for cash and investment management, development of certain real estate properties during the construction period, and certain other general support functions.
We generate cash and revenue from leases of space at our Properties and, to a lesser extent, from the management and development of properties owned by third parties and from investments in the Real Estate Ventures. Factors that we evaluate when leasing space include rental rates, costs of tenant improvements, tenant creditworthiness, current and expected operating costs, the length of the lease term, vacancy levels and demand for space. We also generate cash through sales of assets, including assets that we do not view as core to our business plan, either because of location or expected growth potential, and assets that are commanding premium prices from third party investors.
Our financial and operating performance is dependent upon the demand for office, residential and retail space in our markets, our leasing results, our acquisition, disposition and development activity, our financing activity, our cash requirements and economic and market conditions, including prevailing interest rates.
Adverse changes in economic conditions could result in a reduction of the availability of financing and potentially in higher borrowing costs. Vacancy rates may increase, and rental rates and rent collection rates may decline, during the remainder of 2020 and possibly beyond as the current economic climate may negatively impact tenants.
Overall economic conditions, including but not limited to higher unemployment and deteriorating financial and credit markets, could have a dampening effect on the fundamentals of our business, including increases in past due accounts, tenant defaults, lower occupancy and reduced effective rents. These adverse conditions would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition. We believe that the quality of our assets and the strength of our balance sheet will enable us to raise debt capital, if necessary, in various forms and from different sources, including through secured or unsecured loans from banks, pension funds and life insurance companies. However, there can be no assurance that we will be able to borrow funds on terms that are economically attractive or at all.

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We continue to seek revenue growth throughout our portfolio by increasing occupancy and rental rates. Occupancy at our Core Properties at March 31, 2020 was 93.3% compared to 92.1% at March 31, 2019.
The table below summarizes selected operating and leasing statistics of our wholly owned properties for the three months ended March 31, 2020 and 2019:
 Three Months Ended March 31,
 2020 2019
Leasing Activity   
Core Properties (1):   
Total net rentable square feet owned15,978,965
 16,379,261
Occupancy percentage (end of period)93.3% 92.1%
Average occupancy percentage93.0% 91.8%
Total Portfolio, less properties in development (2):   
Tenant retention rate (3)75.6% 66.2%
New leases and expansions commenced (square feet)224,417
 404,925
Leases renewed (square feet)87,449
 412,123
Net absorption (square feet)62,507
 (65,796)
Percentage change in rental rates per square feet (4):   
New and expansion rental rates21.1% 13.6%
Renewal rental rates8.6% 14.9%
Combined rental rates15.7% 14.6%
Capital Costs Committed (5):   
Leasing commissions (per square feet)$6.28
 $7.87
Tenant Improvements (per square feet)$18.02
 $22.33
Weighted average lease term (years)6.7
 7.7
Total capital per square foot per lease year$3.96
 $4.81
(1)Does not include properties under development, redevelopment, held for sale, or sold.
(2)Includes leasing related to completed developments and redevelopments, as well as sold properties.
(3)Calculated as percentage of total square feet.
(4)Includes base rent plus reimbursement for operating expenses and real estate taxes.
(5)Calculated on a weighted average basis.
In seeking to increase revenue through our operating, financing and investment activities, we also seek to minimize operating risks, including (i) tenant rollover risk, (ii) tenant credit risk and (iii) development risk.
Tenant Rollover Risk
We are subject to the risk that tenant leases, upon expiration, will not be renewed, that space may not be relet, or that the terms of renewal or reletting (including the cost of renovations) may be less favorable to us than the current lease terms. Leases that accounted for approximately 5.5% of our aggregate final annualized base rents as of March 31, 2020 (representing approximately 5.7% of the net rentable square feet of the properties) are scheduled to expire without penalty in 2020. We maintain an active dialogue with our tenants in an effort to maximize lease renewals. If we are unable to renew leases or relet space under expiring leases, at anticipated rental rates, or if tenants terminate their leases early, our cash flow would be adversely impacted.
Tenant Credit Risk
In the event of a tenant default, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. Our management evaluates our accounts receivable reserve policy in light of our tenant base and general and local economic conditions. Our accounts receivable allowance was $7.8 million or 3.9% of total receivables (including accrued rent receivable) as of March 31, 2020 compared to $8.0 million or 4.0% of total receivables (including accrued rent receivable) as of December 31, 2019.

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If economic conditions deteriorate, including as a result of the recent COVID-19 outbreak, we may experience increases in past due accounts, defaults, lower occupancy and reduced effective rents. This condition would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition.
Development Risk
Development projects are subject to a variety of risks, including construction delays, construction cost overruns, building moratoriums, inability to obtain financing on favorable terms, inability to lease space at projected rates, inability to enter into construction, development and other agreements on favorable terms, and unexpected environmental and other hazards.
As of March 31, 2020 the following development and redevelopment projects remain under construction in progress and we were proceeding on the following activity (dollars, in thousands):
Property/Portfolio Name Location Expected Completion Activity Type Approximate Square Footage Estimated Costs Amount Funded
The Bulletin Building (a) Philadelphia, PA Q3 2020 Redevelopment 283,000
 $84,800
 $67,300
405 Colorado Street (b) Austin, TX Q1 2021 Development 204,000
 116,000
 38,800
426 W. Lancaster Avenue (c) Devon, PA Q1 2019 Redevelopment 56,000
 14,900
 13,100
3000 Market Street (d) Philadelphia, PA Q1 2021 Redevelopment 64,000
 38,000
 13,000
(a)Estimated costs include $37.8 million of building basis, representing the acquisition cost.
(b)Estimated costs include $2.1 million of existing property basis through a ground lease. Project includes 520 parking spaces.
(c)The property was vacated during the third quarter of 2017. Total project costs include $4.9 million of existing property basis. The renovation of the base building was substantially completed during the first quarter of 2019 and remaining costs as of March 31, 2020 primarily represent tenant improvements.
(d)Estimated costs include $12.8 million of existing property basis.
In addition to the properties listed above, we have classified one parking facility in Philadelphia, Pennsylvania as redevelopment. As of March 31, 2020, there has been no material construction spend on this project.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements in conformity with GAAP 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. Certain accounting policies are considered to be critical accounting policies, as they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in accounting estimate are reasonably likely to occur from period to period. Management bases its estimates and assumptions on historical experience and current economic conditions.
Our Annual Report on Form 10-K for the year ended December 31, 2019 contains a discussion of our critical accounting policies. There have been no significant changes in our critical accounting policies since December 31, 2019.
RESULTS OF OPERATIONS
The following discussion is based on our consolidated financial statements for the three months ended March 31, 2020 and 2019. We believe that presentation of our consolidated financial information, without a breakdown by segment, will effectively present important information useful to our investors.
Net operating income (“NOI”) as presented in the comparative analysis below is a non-GAAP financial measure defined as total revenue less property operating expenses, real estate taxes and third party management expenses. Property operating expenses that are included in determining NOI consist of costs that are necessary and allocable to our operating properties such as utilities, property-level salaries, repairs and maintenance, property insurance, and management fees. General and administrative expenses that are not reflected in NOI primarily consist of corporate-level salaries, amortization of share awards and professional fees that are incurred as part of corporate office management. NOI is a non-GAAP financial measure that we use internally to evaluate the operating performance of our real estate assets by segment, as presented in Note 14, ''Segment Information," to our consolidated financial statements, and of our business as a whole. We believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property

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level. While NOI is a relevant and widely used measure of operating performance of real estate investment trusts, it does not represent cash flow from operations or net income as defined by GAAP and should not be considered as an alternative to those measures in evaluating our liquidity or operating performance. NOI does not reflect interest expenses, real estate impairment losses, depreciation and amortization costs, capital expenditures and leasing costs. We believe that net income, as defined by GAAP, is the most appropriate earnings measure. See Note 14, ''Segment Information” to our Consolidated Financial Statements for a reconciliation of NOI to our consolidated net income as defined by GAAP.
Comparison of the Three Months Ended March 31, 2020 and March 31, 2019
The following comparison for the three months ended March 31, 2020 to the three months ended March 31, 2019, makes reference to the effect of the following:
(a)“Same Store Property Portfolio,” which represents 88 properties containing an aggregate of approximately 15.8 million net rentable square feet, and represents properties that we owned for the three-month periods ended March 31, 2020 and 2019. The Same Store Property Portfolio includes properties acquired or placed in service on or prior to January 1, 2019 and owned through March 31, 2020,
(b)“Total Portfolio,” which represents all properties owned by us during the three months ended March 31, 2020 and 2019,
(c)"Recently Completed/Acquired Properties," which represents 1 property placed into service or acquired on or subsequent to January 1, 2019,
(d)"Development/Redevelopment Properties," which represents 5 properties currently in development/redevelopment. A property is excluded from our Same Store Property Portfolio and moved into Development/Redevelopment in the period that we determine to proceed with development/redevelopment for a future development strategy, and
(e)"Q1 2019 through Q1 2020 Dispositions," which represents 2 properties disposed of from the three months ended March 31, 2019 through the three months ended March 31, 2020.

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Comparison of three months ended March 31, 2020 to the three months ended March 31, 2019
  Same Store Property Portfolio Recently Completed/Acquired Properties Development/Redevelopment Properties Other (Eliminations) (a) Total Portfolio
(dollars and square feet in millions except per share amounts) 2020 2019 $ Change % Change 2020 2019 2020 2019 2020 2019 2020 2019 $ Change % Change
Revenue:                            
Rents $132.8
 $129.6
 $3.2
 2.5 % $1.8
 $1.0
 $1.5
 $2.7
 $3.1
 $4.8
 $139.2
 $138.1
 $1.1
 0.8 %
Third party management fees, labor reimbursement and leasing 
 
 
  % 
 
 
 
 5.0
 4.0
 5.0
 4.0
 1.0
 25.0 %
Other 0.3
 0.4
 (0.1) (25.0)% 
 
 
 
 0.6
 1.4
 0.9
 1.8
 (0.9) (50.0)%
Total revenue 133.1
 130.0
 3.1
 2.4 % 1.8
 1.0
 1.5
 2.7
 8.7
 10.2
 145.1
 143.9
 1.2
 0.8 %
Property operating expenses 35.4
 36.2
 (0.8) (2.1)% 0.3
 
 0.6
 1.1
 1.1
 2.2
 37.4
 39.5
 (2.1) (5.2)%
Real estate taxes 15.5
 14.8
 0.7
 4.7 % 0.4
 0.2
 0.4
 0.3
 0.5
 0.4
 16.8
 15.7
 1.1
 7.0 %
Third party management expenses 
 
 
  % 
 
 
 
 2.7
 2.1
 2.7
 2.1
 0.6
 28.6 %
Net operating income 82.2
 79.0
 3.2
 4.0 % 1.1
 0.8
 0.5
 1.3
 4.4
 5.5
 88.2
 86.6
 1.6
 1.8 %
Depreciation and amortization 48.2
 46.3
 1.9
 4.1 % 0.5
 0.2
 1.0
 1.4
 2.3
 3.6
 52.0
 51.5
 0.5
 1.0 %
General & administrative expenses 
 
 
  % 
 
 
 
 8.6
 9.8
 8.6
 9.8
 (1.2) (12.2)%
Net gain on disposition of real estate                     (2.6) 
 (2.6)  %
Net gain on sale of undepreciated real estate                     
 (1.0) 1.0
 (100.0)%
Operating income (loss) $34.0
 $32.7
 $1.3
 3.9 % $0.6
 $0.6
 $(0.5) $(0.1) $(6.5) $(7.9) $30.2
 $26.3
 $3.9
 14.6 %
Number of properties 88
 88
     1
   5
       94
      
Square feet 15.8
 15.8
     0.2
   0.6
       16.6
      
Core Occupancy % (b) 93.3% 92.2%     100.0%                  
Other Income (Expense):                            
Interest income                     0.6
 0.5
 0.1
 20.0 %
Interest expense                     (20.0) (20.4) 0.4
 (2.0)%
Interest expense — Deferred financing costs                     (0.7) (0.7) 
  %
Equity in loss of Real Estate Ventures                     (1.9) (1.4) (0.5) 35.7 %
Net gain on real estate venture transactions                     
 0.3
 (0.3) (100.0)%
Net income                     $8.2
 $4.6
 $3.6
 77.2 %
Net income attributable to Common Shareholders of Brandywine Realty Trust                     $0.04
 $0.02
 $0.02
 100.0 %

(a)Represents certain revenues and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation, third-party management fees, provisions for impairment, and changes in the accrued rent receivable allowance. Other/(Eliminations) also includes properties sold and properties classified as held for sale.
(b)Pertains to Core Properties.
Total Revenue
Rents from the Total Portfolio increased by $1.1 million during the first quarter of 2020 compared to the first quarter of 2019. The increase in Rents is primarily driven by a $3.2 million increase across the Same Store Portfolio due to increased occupancy at several properties within the Philadelphia CBD Segment and a $1.3 million increase in termination fee income, as well as a $0.8 million increase related to leasing activity at the Recently Completion/Acquired Properties. These increases are partially offset by a decrease of $1.6 million related to the Q1 2019 through Q1 2020 Dispositions and a decrease of $1.2 million related to redevelopments included in Development/Redevelopment Properties.

Third party management fees, labor reimbursement, and leasing income increased by $1.0 million during the first quarter of 2020 compared to the first quarter of 2019 primarily due to an increase general contractor management services provided to MAP Venture.

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Property Operating Expenses
Property operating expenses across our Total Portfolio decreased $2.1 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, of which $0.8 million relates to decreases across our Same Store Property Portfolio, $0.5 million relates to decreases due to vacancies at our Development/Redevelopment Properties in advance of beginning redevelopment activities, and $0.4 million relates to the Q1 2019 through Q1 2020 Dispositions.
Real Estate Taxes
Real estate taxes increased $1.1 million for the first quarter of 2020 compared to the first quarter of 2019, of which $0.7 million related to our Same Store Property Portfolio and $0.2 million relates to our Recently Completed/Acquired Properties.
Depreciation and Amortization
Depreciation and amortization expense increased by $0.5 million for the first quarter of 2020 compared to the first quarter of 2019, of which $1.9 million relates to the Same Store Property Portfolio, primarily due to the write off of assets for a terminated tenant in the Philadelphia CBD Segment and $0.3 million relates to our Recently Completed/Acquired Properties. This increase was offset by a decrease of $0.8 million related to 650 Park Avenue, which was demolished in July 2019, $0.6 million related to the Q1 2019 through Q1 2020 Dispositions and $0.4 million related to the Development/Redevelopment Properties.
General and Administrative
The $1.2 million decrease for the first quarter of 2020 compared to the first quarter of 2019 is primarily related to a $1.8 million decrease in compensation related expenses, which is driven by changes to the vesting period of retirement eligible officers for the 2020 Restricted Performance Share Unit awards compared to the 2019 Restricted Performance Share Unit awards. This was partially offset by a $0.3 million increase due to an increase in capitalized general and administrative costs.
Net Gain on Disposition of Real Estate
The gain of $2.6 million recognized during the three months ended March 31, 2020 is primarily related to the disposition of 52 East Swedesford Road, an office property in our Pennsylvania Suburbs Segment.
Net Gain on Sale of Undepreciated Real Estate
The gain of $1.0 million recognized during the first quarter of 2019 was primarily related to the a $0.8 million gain from the disposition of 9 Presidential Boulevard.
Net Income
Net income increased by $3.6 million for the first quarter of 2020 compared to the first quarter of 2019 as a result of the factors described above.
Net Income per Common Share – fully diluted
Net income per share was $0.04 for the first quarter of 2020 as compared to net income per share of $0.02 for the first quarter of 2019 as a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
General
Our principal liquidity funding needs for the next twelve months are as follows:
normal recurring expenses;
capital expenditures, including capital and tenant improvements and leasing costs;
debt service and principal repayment obligations;
current development and redevelopment costs;
commitments to unconsolidated real estate ventures;
distributions to shareholders to maintain our Parent Company’s REIT status;
possible acquisitions of properties, either directly or indirectly through the acquisition of equity interest therein; and
possible common share repurchases.
We expect to satisfy these needs using one or more of the following:
cash flows from operations;

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distributions of cash from our unconsolidated real estate ventures;
cash and cash equivalent balances;
availability under our unsecured Credit Facility;
secured construction loans and long-term unsecured indebtedness;
issuances of Parent Company equity securities and/or units of the Operating Partnership; and
sales of real estate.
As of March 31, 2020, the Parent Company owned a 99.4% interest in the Operating Partnership. The remaining interest of approximately 0.6% pertains to common limited partnership interests owned by non-affiliated investors who contributed property to the Operating Partnership in exchange for their interests. As the sole general partner of the Operating Partnership, the Parent Company has full and complete responsibility for the Operating Partnership’s day-to-day operations and management. The Parent Company’s source of funding for its dividend payments and other obligations is the distributions it receives from the Operating Partnership.
As summarized above, we believe that our liquidity needs will be satisfied through available cash balances and cash flows from operations, financing activities and real estate sales. Rental revenue and other income from operations are our principal sources of cash to pay operating expenses, debt service, recurring capital expenditures and the minimum distributions required to maintain our REIT qualification. We seek to increase cash flows from our properties by maintaining quality standards for our properties that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. Our revenue also includes third-party fees generated by our property management, leasing, development and construction businesses. We believe that our revenue, together with proceeds from property sales and debt financings, will continue to provide funds for our short-term liquidity needs. However, material changes in our operating or financing activities may adversely affect our net cash flows. With uncertain economic conditions, vacancy rates may increase, effective rental rates on new and renewed leases may decrease and tenant installation costs, including concessions, may increase in most or all of our markets during 2020 and possibly beyond. As a result, our revenues and cash flows could be insufficient to cover operating expenses, including increased tenant installation costs, pay debt service or make distributions to shareholders over the short-term. If this situation were to occur, we expect that we would finance cash deficits through borrowings under our unsecured revolving credit facility and other sources of debt and equity financings. In addition, a material adverse change in cash provided by operations could adversely affect our compliance with financial performance covenants under our unsecured revolving credit facility, including unsecured term loans and unsecured notes. As of March 31, 2020 we were in compliance with all of our debt covenants and requirement obligations.
In addition, we are continuing to monitor the outbreak of the novel coronavirus (“COVID-19”) and the related economic impacts, market volatility, and business disruption, and its impact on our tenants. The severity and duration of the pandemic and its impact on our operations and liquidity is uncertain as this continues to evolve globally. However, if the outbreak continues, there will likely be continued negative economic impacts, market volatility, and business disruption which could negatively impact our tenants’ ability to pay rent, our ability to lease vacant space, and our ability to complete development and redevelopment projects, and these consequences, in turn, could materially impact our results of operations. Approximately 96% of April total cash-based rent has been received from our tenants which reflects a 97% collection rate from our office tenants. We have received rent relief requests primarily from our co-working and retail tenants, who represent approximately 2.1% and 1.6% of April billings, respectively. The relief requests have substantially all been in the form of rent deferral for varying lengths of time and we are currently assessing the merits of each request. For those tenants we believe require rent relief, we expect to grant deferrals and, in some instances, seek extended lease terms through favorable lease extensions. We can give no assurances on the outcomes of these ongoing negotiations, the amount and nature of the rent relief packages and ultimate recovery of the amounts deferred.
We use multiple financing sources to fund our long-term capital needs. When needed, we use borrowings under our unsecured revolving credit facility for general business purposes, including to meet debt maturities and to fund distributions to shareholders as well as development and acquisition costs and other expenses. In light of the volatility in financial markets and economic uncertainties, it is possible, that one or more lenders under our unsecured revolving credit facility could fail to fund a borrowing request. Such an event could adversely affect our ability to access funds under our unsecured credit facility when needed to fund distributions or pay expenses.
Our ability to incur additional debt is dependent upon a number of factors, including our credit ratings, the value of our unencumbered assets, our degree of leverage and borrowing restrictions imposed by our lenders. If one or more rating agencies were to downgrade our unsecured credit rating, our access to the unsecured debt market would be more limited and the interest rate under our unsecured credit facility and unsecured term loans would increase.
The Parent Company unconditionally guarantees the Operating Partnership’s secured and unsecured obligations, which, as of March 31, 2020, amounted to $313.5 million and $1,878.6 million, respectively.

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Capital Markets
The Parent Company issues equity from time to time, the proceeds of which it contributes to the Operating Partnership in exchange for additional interests in the Operating Partnership, and guarantees debt obligations of the Operating Partnership. The Parent Company’s ability to sell common shares and preferred shares is dependent on, among other things, general market conditions for REITs, market perceptions about the Company as a whole and the current trading price of the Parent Company’s shares. The Parent Company generally maintains a shelf registration statement that covers the offering and sale of common shares, preferred shares, depositary shares, warrants and unsecured debt securities. Subject to our ongoing compliance with securities laws, and if warranted by market conditions, we may offer and sell equity and debt securities from time to time under the shelf registration statement or in transactions exempt from registration.
See Note 11, ''Beneficiaries' Equity of the Parent Company” to our Consolidated Financial Statements for further information related to our share repurchase program during the three months ended March 31, 2020. We expect to fund any additional share repurchases with a combination of available cash balances and availability under our unsecured revolving credit facility. The timing and amounts of any repurchases will depend on a variety of factors, including market conditions, regulatory requirements, share prices, capital availability and other factors as determined by our management team. The repurchase program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time without notice.
Capital Recycling
The Operating Partnership also considers net sales of selected properties and recapitalization of unconsolidated real estate ventures as additional sources of managing its liquidity. During the three months ended March 31, 2020, we sold one office property for net cash proceeds of $17.5 million.
We expect that our primary uses of capital during the remainder of 2020 will be to fund our current development and redevelopment projects and also to repay $80.5 million in principal due upon maturity of the mortgage note for Two Logan Square, in Philadelphia, Pennsylvania, in August 2020, if not refinanced or extended. As of March 31, 2020, we had $52.7 million of cash and cash equivalents and $548.3 million of available borrowings under our Credit Facility, net of $1.7 million in letters of credit outstanding. Based on the foregoing, as well as cash flows from operations net of dividend requirements, we believe we have sufficient capital to fund our remaining capital requirements on existing development and redevelopment projects and pursue additional attractive investment opportunities.
Cash Flows
The following discussion of our cash flows is based on the consolidated statement of cash flows and is not meant to be a comprehensive discussion of the changes in our cash flows for the periods presented.
As of March 31, 2020 and December 31, 2019, we maintained cash and cash equivalents and restricted cash of $53.4 million and $91.2 million, respectively. We report and analyze our cash flows based on operating activities, investing activities, and financing activities. The following table summarizes changes in our cash flows (in thousands):
  Three Months Ended March 31,
Activity 2020 2019 (Decrease) Increase
Operating $45,058
 $17,766
 $27,292
Investing (42,568) (41,343) (1,225)
Financing (40,286) 15,169
 (55,455)
Net cash flows $(37,796) $(8,408) $(29,388)
Our principal source of cash flows is from the operation of our Properties. Our Properties provide a relatively consistent stream of cash flows that provides us with the resources to fund operating expenses, debt service and quarterly dividends.

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Cash is used in investing activities to fund acquisitions, development, or redevelopment projects and recurring and nonrecurring capital expenditures. We selectively invest in new projects that enable us to take advantage of our development, leasing, financing, and property management skills and invest in existing buildings that meet our investment criteria. During the three months ended March 31, 2020, when compared to the three months ended March 31, 2019, the change in investing cash flows was due to the following activities (in thousands):
Acquisitions of real estate $(11,432)
Capital expenditures and capitalized interest 1,294
Capital improvements/acquisition deposits/leasing costs (1,582)
Joint venture investments (77)
Distributions from joint ventures (1,851)
Proceeds from the sale of properties 12,438
Proceeds from notes receivable (15)
Increase in net cash used in investing activities $(1,225)
We generally fund our investment activity through the sale of real estate, property-level financing, credit facilities, senior unsecured notes, convertible or exchangeable securities, and construction loans. From time to time, we may issue common or preferred shares of beneficial interest, or the Operating Partnership may issue common or preferred units of limited partnership interest. During the three months ended March 31, 2020, when compared to the three months ended March 31, 2019, the change in financing cash flows was due to the following activities (in thousands):
Proceeds from debt obligations $(132,000)
Repayments of debt obligations 113,926
Proceeds from the exercise of stock options (753)
Repurchase and retirement of common shares (36,575)
Other financing activities 485
Dividends and distributions paid (538)
Increase in net cash used in financing activities $(55,455)
Off-Balance Sheet Arrangements
As of March 31, 2020, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Capitalization
Indebtedness
The table below summarizes indebtedness under our mortgage notes payable and our unsecured debt at March 31, 2020 and December 31, 2019:  
 March 31, 2020 December 31, 2019
 (dollars in thousands)
Balance: (a)
   
Fixed rate$2,089,266
 $2,091,211
Variable rate - unhedged102,836
 52,836
Total$2,192,102
 $2,144,047
Percent of Total Debt:   
Fixed rate95.3% 97.5%
Variable rate - unhedged4.7% 2.5%
Total100.0% 100.0%
Weighted-average interest rate at period end:   
Fixed rate3.9% 3.9%
Variable rate - unhedged2.6% 3.2%
Total3.8% 3.8%
Weighted-average maturity in years:   
Fixed rate5.3
 5.6
Variable rate - unhedged9.0
 15.6
Total5.5
 5.9
(a)Consists of unpaid principal and does not reflect premium/discount or deferred financing costs.
Scheduled principal payments and related weighted average annual effective interest rates for our debt as of March 31, 2020 were as follows (in thousands):
Period Scheduled amortization Principal maturities Total Weighted Average Interest Rate of Maturing Debt
2020 (nine months remaining) $4,760
 $80,521
 $85,281
 3.98%
2021 6,142
 9,001
 15,143
 4.28%
2022 6,332
 300,000
 306,332
 2.76%
2023 1,620
 555,116
 556,736
 3.94%
2024 
 350,000
 350,000
 3.78%
2025 
 
 
 %
2026 
 
 
 %
2027 
 450,000
 450,000
 4.03%
2028 
 
 
 %
2029 
 350,000
 350,000
 4.30%
Thereafter 
 78,610
 78,610
 3.18%
Totals $18,854
 $2,173,248
 $2,192,102
 3.80%
The indenture under which the Operating Partnership issued its unsecured notes contains financial covenants, including: (i) a leverage ratio not to exceed 60%; (ii) a secured debt leverage ratio not to exceed 40%; (iii) a debt service coverage ratio of greater than 1.5 to 1.0; and (iv) an unencumbered asset value of not less than 150% of unsecured debt. The Operating Partnership is in compliance with all covenants as of March 31, 2020.
The Operating Partnership has mortgage loans that are collateralized by certain of its Properties. Payments on mortgage loans are generally due in monthly installments of principal and interest, or interest only. The Operating Partnership intends to refinance or

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repay its indebtedness as it matures, subject to tax guarantees, through the use of proceeds from selective property sales and secured or unsecured borrowings. However, in the current and expected future economic environment one or more of these sources may not be available on attractive terms or at all.
Equity
In order to maintain its qualification as a REIT, the Parent Company is required to, among other things, pay dividends to its shareholders of at least 90% of its REIT taxable income. See Note 11, ''Beneficiaries' Equity of the Parent Company,” to our Consolidated Financial Statements for further information related to our dividends declared for the first quarter of 2020.
Contractual Obligations
Refer to our 2019 Annual Report on Form 10-K for a discussion of our contractual obligations. There have been no material changes, outside the ordinary course of business, to these contractual obligations during the three months ended March 31, 2020.
Funds from Operations (FFO)
Pursuant to the revised definition of FFO adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), we calculate FFO by adjusting net income/(loss) attributable to common unit holders (computed in accordance with GAAP) for gains (or losses) from sales of properties, impairment losses on depreciable consolidated real estate, impairment losses on investments in unconsolidated real estate ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated Real Estate Ventures, real estate related depreciation and amortization, and after similar adjustments for unconsolidated Real Estate Ventures. FFO is a non-GAAP financial measure. We believe that the use of FFO combined with the required GAAP presentations, has been beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REITs’ operating results more meaningful. We consider FFO to be a useful measure for reviewing comparative operating and financial performance because, by excluding gains or losses related to sales of previously depreciated operating real estate assets and real estate depreciation and amortization, FFO can help the investing public compare the operating performance of a company’s real estate between periods or as compared to other companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently.
We consider net income, as defined by GAAP, to be the most comparable earnings measure to FFO. While FFO and FFO per unit are relevant and widely used measures of operating performance of REITs, FFO does not represent cash flow from operations or net income as defined by GAAP and should not be considered as alternatives to those measures in evaluating our liquidity or operating performance. We believe that to further understand our performance, FFO should be compared with our reported net income/ (loss) attributable to common unit holders and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.

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The following table presents a reconciliation of net income attributable to common unit holders to FFO for the three months ended March 31, 2020 and 2019:
 Three Months Ended March 31,
 2020 2019
 (amounts in thousands, except share information)
Net income attributable to common unitholders$7,944
 $4,430
Add (deduct):   
Amount allocated to unvested restricted unitholders131
 119
Net gain on real estate venture transactions
 (259)
Net gain on disposition of real estate(2,586) 
Depreciation and amortization:   
Real property38,353
 35,606
Leasing costs including acquired intangibles13,199
 15,406
Company’s share of unconsolidated real estate ventures4,599
 5,041
Partners’ share of consolidated real estate ventures(60) (53)
Funds from operations$61,580
 $60,290
Funds from operations allocable to unvested restricted shareholders(190) (214)
Funds from operations available to common share and unit holders (FFO)$61,390
 $60,076
Weighted-average shares/units outstanding — basic (a)177,051,602
 176,840,229
Weighted-average shares/units outstanding — fully diluted (a)177,635,093
 177,447,089
(a)Includes common share and partnership units outstanding through the three months ended March 31, 2020 and 2019, respectively.
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 our business plan, the primary market risk to which we are exposed is interest rate risk. Changes in the general level of interest rates prevailing in the financial markets may affect the spread between our yield on invested assets and cost of funds and, in turn, our ability to make distributions or payments to our shareholders. While we have not experienced any significant credit losses, in the event of a significant rising interest rate environment and/or continued economic slowdown, defaults could increase and result in losses to us which would adversely affect our operating results and liquidity.
Interest Rate Risk and Sensitivity Analysis
The analysis below presents the sensitivity of the market value of the Operating Partnership’s financial instruments to selected changes in market rates. The range of changes chosen reflects its view of changes which are reasonably possible over a one-year period. Market values are the present value of projected future cash flows based on the market rates chosen.
Our financial instruments consist of both fixed and variable rate debt. As of March 31, 2020, our consolidated debt consisted of mortgage loans with an outstanding principal balance of $313.5 million and unsecured notes with an outstanding principal balance of $1,500.0 million, all of which are fixed rate borrowings. We also have variable rate debt consisting of trust preferred securities with an outstanding principal balance of $78.6 million, a $600.0 million Credit Facility with an outstanding balance of $50.0 million and an unsecured term loan with an outstanding principal balance of $250.0 million, all of which have been swapped to fixed rates, except for two trust preferred securities with an outstanding principal balance of $52.8 million and our unsecured credit facility. All financial instruments were entered into for other than trading purposes and the net market value of these financial instruments is referred to as the net financial position. Changes in interest rates have different impacts on the fixed and variable rate portions of our debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position, but has no impact on interest incurred or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact the net financial instrument position.
If market rates of interest increase by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt would decrease by approximately $7.0 million. If market rates of interest decrease by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt would increase by approximately $7.2 million.

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As of March 31, 2020, based on prevailing interest rates and credit spreads, the fair value of our unsecured notes was $1,511.2 million. For sensitivity purposes, a 100-basis point change in the discount rate equates to a change in the total fair value of our unsecured notes of approximately $15.1 million at March 31, 2020.
From time to time or as the need arises, we use derivative instruments to manage interest rate risk exposures and not for speculative or trading purposes. The total outstanding principal balance of our variable rate debt was approximately $378.6 million and $328.6 million at March 31, 2020 and December 31, 2019, respectively. The total fair value of our debt was approximately$359.5 million and $309.9 million at March 31, 2020 and December 31, 2019, respectively. For sensitivity purposes, if market rates of interest increase by 100 basis points the fair value of our variable rate debt would decrease by approximately $14.0 million at March 31, 2020. If market rates of interest decrease by 100 basis points the fair value of our outstanding variable rate debt would increase by approximately $15.2 million.
These amounts were determined solely by considering the impact of hypothetical interest rates on our financial instruments. Due to the uncertainty of specific actions we may undertake to minimize possible effects of market interest rate increases, this analysis assumes no changes in our financial structure.
Item 4. Controls and Procedures
Controls and Procedures (Parent Company)
(a)
Evaluation of disclosure controls and procedures. Under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, the Parent Company conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this quarterly report. Based on this evaluation, the Parent Company’s principal executive officer and principal financial officer have concluded that the Parent Company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.
(b)
Changes in internal control over financial reporting. There was no change in the Parent Company’s internal control over financial reporting that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the Parent Company’s internal control over financial reporting.
Controls and Procedures (Operating Partnership)
(a)
Evaluation of disclosure controls and procedures. Under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, the Operating Partnership conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act as of the end of the period covered by this quarterly report. Based on this evaluation, the Operating Partnership’s principal executive officer and principal financial officer have concluded that the Operating Partnership’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.
(b)
Changes in internal control over financial reporting. There was no change in the Operating Partnership’s internal control over financial reporting that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
The risks set out below represent changes to risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019. The information in this Quarterly Report on Form 10-Q should be read in conjunction with the other factors described in "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

The ongoing coronavirus (“COVID-19”) pandemic and measures intended to prevent its spread present material uncertainty and risk and could have a material adverse effect on our business, results of operations, cash flows and financial condition.
 
The recent outbreak of COVID-19 across many countries around the globe, including the U.S., has significantly slowed global economic activity, caused significant volatility in financial markets, and resulted in unprecedented job losses causing many to fear an imminent global recession. The global impact of the outbreak has been rapidly evolving and the responses of many countries, including the U.S., have included quarantines, restrictions on business activities, including construction activities, restrictions on group gatherings, and restrictions on travel. These actions are creating disruption in the global economy and supply chains and adversely impacting many industries, including owners and developers of office and mixed-use buildings. Moreover, there is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. economy and consumer confidence. Demand for space at our properties is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, rent levels and availability of competing space. These factors can be significantly adversely affected by a variety of factors beyond our control. The extent to which COVID-19 impacts our results will depend on future developments, many of which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact. The impact of COVID-19 could negatively impact our business in a number of ways, including: (i) deterioration in the financial condition of our tenants and in their ability to pay rents; (ii) reduction in demand for space in our portfolio; (iii) costs associated with construction delays and cost overruns at our development and redevelopment projects; (iv) reduction in availability of, and increased costs of, capital; and (v) failure of our contract counterparties, including partners in Real Estate Ventures, to meet their obligations. The ongoing situation presents material uncertainty and risk and could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)None.
(b)Not applicable.
(c)
Our Board of Trustees has authorized a share repurchase program under which we may repurchase up to $150.0 million of our outstanding common shares. We may repurchase shares from time to time on the open market or in privately negotiated transactions or otherwise, depending on market prices and other conditions. During the fiscal quarter ended March 31, 2020, we repurchased 5,644,200 common shares at an average price of $9.54 per share for a total of approximately $53.9 million. As of March 31, 2020, $89.0 million remained available for repurchases under our share repurchase program. For each common share repurchased, one of our units in the Operating Partnership was redeemed. Repurchases of common shares were financed with general corporate funds, including borrowings under our unsecured Credit Facility. On April 2, 2020, we settled the purchase of an additional 604,283 shares at an average price of $10.17 per share, which had a trade date of March 31, 2020, for an aggregate of $6.1 million.

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A summary of our repurchases of common shares for the three month period ended March 31, 2020 is as follows:
Period Total number of shares (or units) purchased 

Average price paid per share (or unit)
 
Total number of shares (or units) purchased as part of publicly announced plans or programs


 
Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs

January 1, 2020 - January 31, 2020        
Open Market Purchases 
 $
 
  
February 1, 2020 - February 29, 2020        
Open Market Purchases 
 
 
  
March 1, 2020 - March 31, 2020        
Open Market Purchases 5,644,200
 9.54
 5,644,200
  
Totals 5,644,200
 $9.54
 5,644,200
 $89.0 million
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Exhibit 99.1 (Material Federal Income Tax Considerations) filed with this Form 10-Q replaces Exhibit 99.1 (Material Federal Income Tax Considerations) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 to reflect recent legislative changes under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020.


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Item 6. Exhibits
(a)Exhibits  
 Exhibits No. Description
 10.1
 
 10.2
 
 10.3
 
 31.1
 
 31.2
 
 31.3
 
 31.4
 
 32.1
 
 32.2
 
 32.3
 
 32.4
 
 99.1
 
 101.1
 The following materials from the Quarterly Reports on Form 10-Q of Brandywine Realty Trust and Brandywine Operating Partnership, L.P. for the quarter ended March 31, 2020 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Equity, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, detailed tagged and filed herewith.
 104
 Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
** Management contract or compensatory plan or arrangement.
Exhibits 32.1, 32.2, 32.3 and 32.4 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liability of that section, nor shall any of such exhibits be deemed to be incorporated by reference in any filing of Brandywine Realty Trust or Brandywine Operating Partnership, L.P. under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise stated in such filing.

46


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:April 28, 2020 By:/s/ Gerard H. Sweeney
    
Gerard H. Sweeney, President and
Chief Executive Officer
    (Principal Executive Officer)
     
Date:April 28, 2020 By:/s/ Thomas E. Wirth
    
Thomas E. Wirth, Executive Vice President
and Chief Financial Officer
    (Principal Financial Officer)
     
Date:April 28, 2020 By:/s/ Daniel Palazzo
    
Daniel Palazzo, Vice President and
Chief Accounting Officer
    (Principal Accounting Officer)

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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 OPERATING PARTNERSHIP, L.P.
(Registrant)
BRANDYWINE REALTY TRUST,
as general partner
     
Date:April 28, 2020 By:/s/ Gerard H. Sweeney
    
Gerard H. Sweeney, President and
Chief Executive Officer
    (Principal Executive Officer)
    
Date:April 28, 2020 By:/s/ Thomas E. Wirth
    
Thomas E. Wirth, Executive Vice President
and Chief Financial Officer
    (Principal Financial Officer)
    
Date:April 28, 2020 By:/s/ Daniel Palazzo
    
Daniel Palazzo, Vice President and
Chief Accounting Officer
    (Principal Accounting Officer)

48