UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2007

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission file number		001-9106 (Brandywine Realty Trust)      000-24407 (Brandywine Operating Partnership, L.P.)

Brandywine Realty Trust
Brandywine Operating Partnership, L.P.

(Exact name of registrant as specified in its charter)

MARYLAND (Brandywine Realty Trust)		23-2413352
DELAWARE (Brandywine Operating Partnership L.P.)		23-2862640
(State or other jurisdiction of
Incorporation or organization)		(I.R.S. Employer Identification No.)
555 East Lancaster Avenue
Radnor, Pennsylvania		19087
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code		(610) 325-5600

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 Trust		Yes þ No o
Brandywine Operating Partnership, L.P.		Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Brandywine Realty Trust		Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Brandywine Operating Partnership, L.P.		Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Brandywine Realty Trust		Yes o No þ
Brandywine Operating Partnership, L.P.		Yes o No þ

A total of 87,045,858 Common Shares of Beneficial Interest, par value $0.01 per share, were outstanding as of May 9, 2007.

 

 

TABLE OF CONTENTS

		PART I - FINANCIAL INFORMATION
		Brandywine Realty Trust
				Page
Item 1.		Financial Statements (unaudited)
		Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006			3
		Consolidated Statements of Operations for the three-month periods ended March 31, 2007 and 2006			4
		Consolidated Statements of Other Comprehensive Income for the three-month periods ended March 31, 2007 and 2006			5
		Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2007 and March 31, 2006			6
		Notes to Unaudited Consolidated Financial Statements			7
		Brandywine Operating Partnership, L.P.
Item 1.		Financial Statements (unaudited)
		Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006			30
		Consolidated Statements of Operations for the three-month periods ended March 31, 2007 and 2006			31
		Consolidated Statements of Other Comprehensive Income for the three-month periods ended March 31, 2007 and 2006			32
		Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2007 and March 31, 2006			33
		Notes to Unaudited Consolidated Financial Statements			34
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations			56
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			68
Item 4.		Controls and Procedures			68
		PART II - OTHER INFORMATION
Item 1.		Legal Proceedings			68
Item 1A.		Risk Factors			69
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			69
Item 3.		Defaults Upon Senior Securities			69
Item 4.		Submission of Matters to a Vote of Security Holders			69
Item 5.		Other Information			69
Item 6.		Exhibits			69
		Signatures			71
Amended and Restated 1997 Long-Term Incentive Plan
2007 Non-Qualified Employee Share Purchase Plan
Restricted Share Award
Statement re Computation of Ratios of Brandywine Realty Trust
Statement re Computation of Ratios of Brandywine Operating Partnership, L.P.
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer, in its capacity as the general partner
Certification of Chief Financial Officer, in its capacity as the general partner
Certification of Chief Executive Officer, as Adopted Pursuant to Section 906
Certification of Chief Financial Officer, as Adopted Pursuant to Section 906
Certification of Chief Executive Officer, in its capacity as the general partner, as Adopted Pursuant to Section 906
Certification of Chief Financial Officer, in its capacity as the general partner, as Adopted Pursuant to Section 906

Filing Format

This combined Form 10-Q is being filed separately by Brandywine Realty Trust and Brandywine Operating Partnership, L.P.

PART I — FINANCIAL INFORMATION

BRANDYWINE REALTY TRUST

		March 31,				December 31,
		2007				2006
ASSETS
Real estate investments:
Operating properties		$	4,773,814			$	4,927,305
Accumulated depreciation			(522,286	)			(515,698	)
Operating real estate investments, net			4,251,528				4,411,607
Development land and construction-in-progress			346,555				328,119
Total real estate investments, net			4,598,083				4,739,726
Cash and cash equivalents			3,885				25,379
Cash escrowed with qualified intermediary (Note 3)			109,102				—
Accounts receivable, net			18,339				19,957
Accrued rent receivable, net			72,433				71,589
Asset held for sale, net			127,333				126,016
Investment in real estate ventures, at equity			72,983				74,574
Deferred costs, net			77,002				73,708
Intangible assets, net			248,384				281,251
Other assets			107,936				96,818
Total assets		$	5,435,480			$	5,509,018
LIABILITIES AND BENEFICIARIES’ EQUITY
Mortgage notes payable		$	879,232			$	883,920
Unsecured notes, net of discounts			1,908,435				2,208,310
Unsecured credit facility			404,000				60,000
Accounts payable and accrued expenses			103,650				108,400
Distributions payable			42,321				42,760
Tenant security deposits and deferred rents			58,655				55,697
Acquired below market leases, net			76,639				92,527
Other liabilities			16,620				14,661
Mortgage notes payable and other liabilities held for sale			14,404				20,826
Total liabilities			3,503,956				3,487,101
Minority interest — partners’ share of consolidated real estate ventures			—				34,428
Minority interest attributable to continuing operations — LP units			87,664				89,563
Commitments and contingencies (Note 14)
Beneficiaries’ equity:
Preferred Shares (shares authorized—20,000,000):
7.50% Series C Preferred Shares, $0.01 par value; issued and outstanding—2,000,000 in 2007 and 2006			20				20
7.375% Series D Preferred Shares, $0.01 par value; issued and outstanding—2,300,000 in 2007 and 2006			23				23
Common Shares of beneficial interest, $0.01 par value; shares authorized 200,000,000; issued and outstanding—87,302,191 in 2007 and 88,327,041 in 2006			872				883
Additional paid-in capital			2,277,828				2,311,541
Cumulative earnings			443,136				423,764
Accumulated other comprehensive income (loss)			2,428				1,576
Cumulative distributions			(880,447	)			(839,881	)
Total beneficiaries’ equity			1,843,860				1,897,926
Total liabilities, minority interest and beneficiaries’ equity		$	5,435,480			$	5,509,018

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

BRANDYWINE REALTY TRUST

		For the three-month periods
		ended March 31,
		2007				2006
Revenue:
Rents		$	137,940			$	123,069
Tenant reimbursements			20,823				16,634
Other			4,338				4,215
Total revenue			163,101				143,918
Operating Expenses:
Property operating expenses			61,232				55,181
Depreciation and amortization			62,047				51,212
Administrative expenses			7,269				8,490
Total operating expenses			130,548				114,883
Operating income			32,553				29,035
Other Income (Expense):
Interest income			787				2,650
Interest expense			(40,358	)			(40,378	)
Interest expense — Deferred financing costs			(1,258	)			(479	)
Equity in income of real estate ventures			754				965
Income (loss) before minority interest			(7,522	)			(8,207	)
Minority interest — partners’ share of consolidated real estate ventures			(116	)			298
Minority interest attributable to continuing operations — LP units			411				435
Income (loss) from continuing operations			(7,227	)			(7,474	)
Discontinued operations:
Income from discontinued operations			1,776				5,246
Net gain on disposition of discontinued operations			26,009				—
Minority interest — partners’ share of consolidated real estate ventures			—				(187	)
Minority interest attributable to discontinued operations — LP units			(1,186	)			(227	)
Income from discontinued operations			26,599				4,832
Net income (loss)			19,372				(2,642	)
Income allocated to Preferred Shares			(1,998	)			(1,998	)
Income (loss) allocated to Common Shares		$	17,374			$	(4,640	)
Basic earnings per Common Share:
Continuing operations		$	(0.10	)		$	(0.11	)
Discontinued operations			0.30				0.05
		$	0.20			$	(0.05	)
Diluted earnings per Common Share:
Continuing operations		$	(0.10	)		$	(0.11	)
Discontinued operations			0.30				0.05
		$	0.19			$	(0.05	)
Dividends declared per Common Share		$	0.44			$	0.44
Basic weighted average shares outstanding			88,287,426				89,299,967
Diluted weighted average shares outstanding			89,236,342				89,742,981

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

BRANDYWINE REALTY TRUST

		For the three-month periods
		ended March 31,
		2007				2006
Net income (loss)		$	19,372			$	(2,642	)
Other comprehensive income:
Unrealized gain (loss) on derivative financial instruments			1,450				1,758
Less: minority interest — consolidated real estate venture partner’s share of unrealized gain (loss) on derivative financial instruments			—				(513	)
Settlement of forward starting swaps			—				3,266
Reclassification of realized (gains)/losses on derivative financial instruments to operations, net			9				96
Unrealized gain (loss) on available-for-sale securities			(607	)			(592	)
Total other comprehensive income (loss)			852				4,015
Comprehensive income		$	20,224			$	1,373

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

BRANDYWINE REALTY TRUST

		Three-month periods
		ended March 31,
		2007				2006
Cash flows from operating activities:
Net income (loss)		$	19,372			$	(2,642	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation			48,508				41,079
Amortization:
Deferred financing costs			1,257				480
Deferred leasing costs			3,842				2,166
Acquired above (below) market leases, net			(3,613	)			(1,939	)
Acquired lease intangibles			14,247				16,806
Deferred compensation costs			1,213				776
Straight-line rent			(7,063	)			(7,708	)
Provision for doubtful accounts			500				1,056
Real estate venture income in excess of distributions			(84	)			(486	)
Net gain on sale of interests in real estate			(26,009	)			—
Minority interest			891				(319	)
Changes in assets and liabilities:
Accounts receivable			5,416				(4,018	)
Other assets			(11,167	)			(7,482	)
Accounts payable and accrued expenses			7,286				3,870
Tenant security deposits and deferred rents			3,390				10,918
Other liabilities			(7,465	)			2,681
Net cash from operating activities			50,521				55,238
Cash flows from investing activities:
Acquisition of Prentiss			—				(935,856	)
Acquisition of properties			—				(12,480	)
Acquisition of minority interest — partners’ share of consolidated real estate venture			(63,732	)			—
Sales of properties, net			109,127				134,064
Capital expenditures			(68,015	)			(52,364	)
Investment in unconsolidated real estate ventures			(512	)			(358	)
Cash distributions from unconsolidated real estate ventures in excess of equity in income			1,849				1,717
Leasing costs			(9,259	)			(2,621	)
Net cash from investing activities			(30,542	)			(867,898	)
Cash flows from financing activities:
Proceeds from Credit Facility borrowings			442,000				215,000
Repayments of Credit Facility borrowings			(98,000	)			(205,000	)
Proceeds from mortgage notes payable			—				20,520
Repayments of mortgage notes payable			(4,695	)			(6,807	)
Proceeds from term loan			—				750,000
Repayments of term loan			—				(750,000	)
Proceeds from unsecured notes			—				847,818
Repayments of unsecured notes			(299,866	)			—
Proceeds from forward starting swap termination			—				3,266
Repayments on employee stock loans			—				10
Debt financing costs			(72	)			(5,581	)
Exercise of stock options			6,166				1,923
Repurchases of Common Shares			(44,677	)			—
Distributions paid to shareholders			(41,031	)			(27,985	)
Distributions to minority interest holders			(1,298	)			(1,377	)
Net cash from financing activities			(41,473	)			841,787
Increase (decrease) in cash and cash equivalents			(21,494	)			29,127
Cash and cash equivalents at beginning of period			25,379				7,174
Cash and cash equivalents at end of period		$	3,885			$	36,301
Supplemental disclosure:
Cash paid for interest, net of capitalized interest		$	24,023			$	23,350
Supplemental disclosure of non-cash activity:
Common shares issued in the Prentiss acquisition			—				1,022,173
Operating Partnership units issued in Prentiss acquisitions			—				64,103
Operating Partnership units issued in property acquisitions			—				13,819
Cash escrowed with qualified intermediary (Note 3)			109,102				—
Debt, minority interest and other liabilities, net, assumed in the Prentiss acquisition			—				679,520

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

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

1. THE COMPANY

Brandywine Realty Trust, a Maryland real estate investment trust, or REIT, is a self-administered and self-managed real estate investment trust, or REIT, active in acquiring, developing, redeveloping, leasing and managing office and industrial properties. Brandywine Realty Trust owns its assets and conducts its operations through Brandywine Operating Partnership, L.P. a Delaware limited partnership (the “Operating Partnership”) and subsidiaries of the Operating Partnership. Brandywine Realty Trust, the Operating Partnership and their consolidated subsidiaries are collectively referred to below as the “Company.”

As of March 31, 2007, the Company owned 236 office properties, 23 industrial facilities and one mixed-use property (collectively, the “Properties”) containing an aggregate of approximately 26.5 million net rentable square feet. The Company also has six properties under development and 12 properties under redevelopment containing an aggregate 2.7 million net rentable square feet. As of March 31, 2007, the Company consolidates three office properties owned by real estate ventures containing 0.4 million net rentable square feet. Therefore, the Company wholly owns or consolidates 281 properties with an aggregate of 29.6 million net rentable square feet. As of March 31, 2007, the Company owned economic interests in 11 unconsolidated real estate ventures that contain approximately 2.8 million net rentable square feet (collectively, the “Real Estate Ventures”). The Properties and the properties owned by the Real Estate Ventures are located in and surrounding Philadelphia, PA, Wilmington, DE, Southern and Central New Jersey, Richmond, VA, Metropolitan Washington, D.C., Dallas/Fort Worth, TX, Austin, TX, Oakland and San Diego, CA.

As more fully described in Note 3, on January 5, 2006, the Company acquired Prentiss Properties Trust (“Prentiss”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) that the Company entered into with Prentiss on October 3, 2005.

Brandywine Realty Trust is the sole general partner of the Operating Partnership and, as of March 31, 2007, owned a 95.7% interest in the Operating Partnership. The Company conducts its third-party real estate management services business primarily through four management companies (collectively, the “Management Companies”): Brandywine Realty Services Corporation (“BRSCO”), BTRS, Inc. (“BTRS”), Brandywine Properties I Limited, Inc. (“BPI”) and Brandywine Properties Management, L.P. (“BPM”). Each of BRSCO, BTRS and BPI is a taxable REIT subsidiary. The Operating Partnership owns a 95% interest in BRSCO and the remaining 5% interest is owned by a partnership comprised of a current executive and former executive of the Company, each of whom is a member of the Company’s Board of Trustees. The Operating Partnership owns, directly and indirectly, 100% of each of BTRS, BPI and BPM.

As of March 31, 2007, the Management Companies were managing properties containing an aggregate of approximately 41.1 million net rentable square feet, of which approximately 26.5 million net rentable square feet related to Properties owned by the Company and approximately 12.8 million net rentable square feet related to properties owned by third parties and Real Estate Ventures. Unless otherwise indicated, all references to square feet represent net rentable area.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements have been prepared by the Company without audit except as to the balance sheet as of December 31, 2006, which has been derived from audited data, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the included disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting solely of normal recurring matters) for a fair statement of the financial position of the Company as of March 31, 2007, the results of its operations for the three-month periods ended March 31, 2007 and

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

2006 and its cash flows for the three-month periods ended March 31, 2007 and 2006 have been included. 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 Company’s consolidated financial statements and footnotes included in the Company’s 2006 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to the current period presentation.

Principles of Consolidation

When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a variable interest entity (“VIE”), and if the Company is deemed to be the primary beneficiary, in accordance with FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”). When an entity is not deemed to be a VIE, the Company considers the provisions of EITF 04-05, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-05”). The Company consolidates (i) entities that are VIEs and of which the Company is deemed to be the primary beneficiary and (ii) entities that are non-VIEs which the Company controls and the limited partners do not have the ability to dissolve the entity or remove the Company without cause nor substantive participating rights. Entities that the Company accounts for under the equity method (i.e. at cost, increased or decreased by the Company’s share of earnings or losses, less distributions) include (i) entities that are VIEs and of which the Company is not deemed to be the primary beneficiary (ii) entities that are non-VIEs which the Company does not control, but over which the Company has the ability to exercise significant influence and (iii) entities that are non-VIE’s that the Company controls through its general partner status, but the limited partners in the entity have the substantive ability to dissolve the entity or remove the Company without cause or have substantive participating rights. The Company will reconsider its determination of whether an entity is a VIE and who the primary beneficiary is, and whether or not the limited partners in an entity have substantive rights, if certain events occur that are likely to cause a change in the original determinations. The portion of these entities not owned by the Company is presented as minority interest as of and during the periods consolidated. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue, impairment of long-lived assets, allowance for doubtful accounts and deferred costs.

Operating Properties

Operating properties are carried at historical cost less accumulated depreciation and impairment losses. The cost of operating properties reflects their purchase price or development cost. Costs incurred for the acquisition and renovation of an operating property are capitalized to the Company’s investment in that property. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts.

Purchase Price Allocation

The Company allocates the purchase price of properties to net tangible and identified intangible assets acquired based on fair values. Above-market and below-market in-place lease values for acquired properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) the Company’s estimate of the fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

cancelable term of the lease. Capitalized above-market lease values are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. Capitalized below-market lease values are amortized as an increase to rental income over the remaining non-cancelable terms of the respective leases, including any fixed-rate renewal periods.

Other intangible assets also include amounts representing the value of tenant relationships and in-place leases based on the Company’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. This intangible asset is amortized to expense over the remaining term of the respective leases. Company estimates of value are made using methods similar to those used by independent appraisers or by using independent appraisals. Factors considered by the Company in this analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, which primarily range from three to twelve months. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. The Company also uses the information obtained as a result of its pre-acquisition due diligence as part of its consideration of FIN 47, and when necessary, will record a conditional asset retirement obligation as part of its purchase price.

Characteristics considered by the Company in allocating value to its tenant relationships include the nature and extent of the Company’s business relationship with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors. The value of tenant relationship intangibles is amortized over the remaining initial lease term and expected renewals, but in no event longer than the remaining depreciable life of the building. The value of in-place leases is amortized over the remaining non-cancelable term of the respective leases and any fixed-rate renewal periods.

In the event that a tenant terminates its lease, the unamortized portion of each intangible, including market rate adjustments, in-place lease values and tenant relationship values, would be charged to expense.

Revenue Recognition

Rental revenue is recognized on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases, which averages minimum rents over the terms of the leases. The cumulative difference between lease revenue recognized under this method and contractual lease payment terms is recorded as “accrued rent receivable” on the accompanying balance sheets. The straight-line rent adjustment increased revenue by approximately $7.1 and $7.7 million for the three-month periods ended March 31, 2007 and 2006. The leases also typically provide for tenant reimbursement of a portion of common area maintenance and other operating expenses to the extent that a tenant’s pro rata share of expenses exceeds a base year level set in the lease. Tenant receivables and accrued rent receivables are carried net of the allowances for doubtful accounts of $8.7 million as of March 31, 2007 and $9.3 million as of December 31, 2006. The allowance is based on management’s evaluation of the collectability of receivables, taking into account tenant specific considerations as well as the overall credit of the tenant portfolio. Other income is recorded when earned and is primarily comprised of termination fees received from tenants, bankruptcy settlement fees, third party leasing commissions, and third party management fees. During the three-month periods ended March 31, 2007 and 2006, other income includes termination fees of $1.3 million and $0.6 million, respectively. Deferred rents represent rental revenue received prior to their due dates.

Stock-Based Compensation Plans

The Company maintains shareholder-approved equity incentive plans. The Compensation Committee of the Company’s Board of Trustees authorizes awards under these plans. In May 2005, the Company’s shareholders approved an amendment to the Amended and Restated 1997 Long-Term Incentive Plan (the “1997 Plan”) that increased the number of common shares that may be issued or subject to award under the 1997 Plan from 5,000,000 to

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

6,600,000. The May 2005 amendment provided that 500,000 of the shares under the 1997 Plan are available solely for awards under options and share appreciation rights that have an exercise or strike price not less than the market price of the common shares on the date of award, and the remaining 6,100,000 shares are available for any type of award under the 1997 Plan. Incentive stock options may not be granted at exercise prices less than fair value of the shares at the time of grant. All options awarded by the Company to date are non-qualified stock options that generally vested over two to ten years. As of March 31, 2007, 2.5 million shares remained available for future award under the 1997 Plan. As part of the Company’s January 2006 acquisition of Prentiss, the Company assumed Prentiss’ three share incentive plans. As of March 31, 2007, approximately 1.6 million common shares remain available for issuance or subject to award under the assumed Prentiss share incentive plans.

On January 1, 2002, the Company began to expense the fair value of stock-based compensation awards granted subsequent to January 1, 2002 over the applicable vesting period as a component of general and administrative expenses in the Company’s consolidated Statements of Operations. The Company recognized stock-based compensation expense of $1.2 million and $0.8 million during the three-month periods ended March 31, 2007 and 2006.

Accounting for Derivative Instruments and Hedging Activities

The Company accounts for its derivative instruments and hedging activities under SFAS No. 133 (“SFAS 133”), Accounting for Derivative Instruments and Hedging Activities, and its corresponding amendments under SFAS No. 138, Accounting for Certain Derivative Instruments and Hedging Activities — An Amendment of SFAS 133. SFAS 133 requires the Company to measure every derivative instrument (including certain derivative instruments embedded in other contracts) at fair value and record them in the balance sheet as either an asset or liability. For derivatives designated as fair value hedges, the changes in fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of changes in the fair value of the derivative are reported in other comprehensive income. Changes in fair value of derivative instruments and ineffective portions of hedges are recognized in earnings in the current period. For the three-month periods ended March 31, 2007 and 2006, the Company was not party to any derivative contract designated as a fair value hedge and there are no ineffective portions of our cash flow hedges.

The Company actively manages its ratio of fixed-to-floating rate debt. To manage its fixed and floating rate debt in a cost-effective manner, the Company, from time to time, enters into interest rate swap agreements as cash flow hedges, under which it agrees to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts.

Income Taxes

Brandywine Realty Trust has elected to be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). In addition, Brandywine Realty Trust has several subsidiary REITs. In order to maintain their qualification as a REIT, Brandywine Realty Trust and its REIT subsidiaries are required to, among other things, distribute at least 90% of its REIT taxable income to its stockholders and meet certain tests regarding the nature of its income and assets. As REITs, Brandywine Realty Trust and its REIT subsidiaries are not subject to federal income tax with respect to the portion of its income that meets certain criteria and is distributed annually to the stockholders. Accordingly, no provision for federal income taxes is included in the accompanying consolidated financial statements with respect to the operations of these operations. Brandywine Realty Trust and its REIT subsidiaries intend to continue to operate in a manner that allows them to continue to meet the requirements for taxation as REITs. Many of these requirements, however, are highly technical and complex. If Brandywine Realty Trust or one of its REIT subsidiaries were to fail to meet these requirements, Brandywine Realty Trust would be subject to federal income tax. Brandywine Realty Trust is subject to certain state and local taxes. Provision for such taxes has been included in general and administrative expenses in Brandywine Realty Trust’s Consolidated Statements of Operations and Comprehensive Income.

Brandywine Realty Trust may elect to treat one or more of its subsidiaries as a taxable REIT subsidiary (“TRS”). In

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

general, a TRS of Brandywine Realty Trust may perform additional services for tenants of Brandywine Realty Trust and generally may engage in any real estate or non-real estate related business (except for the operation or management of health care facilities or lodging facilities or the provision to any person, under a franchise, license or otherwise, of rights to any brand name under which any lodging facility or health care facility is operated). A TRS is subject to corporate federal income tax. Brandywine Realty Trust has elected to treat certain of its corporate subsidiaries as TRSs, these entities provide third party property management services and certain services to tenants that could not otherwise be provided.

New Pronouncements

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), which gives entities the option to measure eligible financial assets, financial liabilities and firm commitments at fair value on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes (i.e., unrealized gains and losses) in fair value must be recorded in earnings. Additionally, SFAS 159 allows for a one-time election for existing positions upon adoption, with the transition adjustment recorded to beginning retained earnings. The Company is currently assessing the potential impact that the adoption of SFAS 159 will have on its financial position and results of operations.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value. This statement is effective in fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact and believes that the adoption of this standard on January 1, 2008 will not have a material effect on our consolidated financial statements.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on description, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no material adjustments regarding its tax accounting treatment. The Company expects to recognize interest and penalties, to the extent incurred related to uncertain tax positions, if any, as income tax expense, which would be included in general and administrative expense.

3. REAL ESTATE INVESTMENTS

As of March 31, 2007 and December 31, 2006, the gross carrying value of the Company’s operating properties was as follows (amounts in thousands):

		March 31, 2007				December 31, 2006
Land		$	724,642			$	756,400
Building and improvements			3,665,362				3,807,040
Tenant improvements			383,810				363,865
			4,773,814				4,927,305

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

Acquisitions and Dispositions

The Company’s acquisitions are accounted for by the purchase method. The results of each acquired property are included in the Company’s results of operations from their respective purchase dates.

2007

During the three-months ended March 31, 2007, the Company acquired the remaining 49% interest in a consolidated real estate venture previously owned by Stichting Pensioenfonds ABP containing ten office properties for a purchase price of $63.7 million. The Company owned a 51% interest in this real estate venture through the acquisition of Prentiss in January 5, 2006 and had already consolidated this venture. This purchase was accounted for as a step acquisition and the difference between the purchase price of the minority interest and the carrying value of the pro rata share of the assets of the real estate venture was allocated to the real estate venture’s assets and liabilities based on their relative fair value.

During the three-months ended March 31, 2007, the Company sold seventeen office properties containing an aggregate of 2.2 million net rentable square feet and 4.7 acres of land for an aggregate sales price of $234.1 million. The net proceeds from the sale of ten of these properties, totaling $109.1 million, have been recorded as cash escrowed with qualified intermediary in the Company’s Consolidated Balance Sheet because the cash is held in escrow for the purpose of potentially accomplishing a like-kind exchange under Section 1031 of the Code. The Company is in the process of identifying replacement assets to accomplish the like-kind exchange by May 14, 2007 and purchase such assets by the statutory expiration date of September 26, 2007.

2006

Prentiss Acquisition

On January 5, 2006, the Company acquired Prentiss pursuant to the Merger Agreement that the Company entered into with Prentiss on October 3, 2005. In conjunction with the Company’s acquisition of Prentiss, designees of The Prudential Insurance Company of America (“Prudential”) acquired certain of Prentiss’ properties that contain an aggregate of approximately 4.32 million net rentable square feet for a total consideration of approximately $747.7 million. Through its acquisition of Prentiss (and after giving effect to the Prudential acquisition of Prentiss’ properties), the Company acquired a portfolio of 79 office properties (including 13 properties that were owned by consolidated Real Estate Ventures and seven properties that were owned by an unconsolidated Real Estate Venture) that contain an aggregate of 14.0 million net rentable square feet. The results of the operations of Prentiss have been included in the Company’s condensed consolidated financial statements since January 5, 2006.

The Company funded the approximately $1.05 billion cash portion of the merger consideration, related transaction costs and prepayments of approximately $543.3 million in Prentiss mortgage debt at the closing of the merger through (i) a $750 million unsecured term loan; (ii) approximately $676.5 million of cash from Prudential’s acquisition of the Prentiss properties; and (iii) approximately $195.0 million through borrowing under a revolving credit facility.

The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition of Prentiss (in thousands):

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

		At January 5, 2006
Real estate investments
Land — operating		$	282,584
Building and improvements			1,942,728
Tenant improvements			120,610
Construction in progress and land inventory			57,329
Total real estate investments acquired			2,403,251
Rent receivables			6,031
Other assets acquired:
Intangible assets:
In-place leases			187,907
Relationship values			98,382
Above-market leases			26,352
Total intangible assets acquired			312,641
Investment in real estate ventures			66,921
Investment in marketable securities			193,089
Other assets			8,868
Total other assets			581,519
Total assets acquired			2,990,801
Liabilities assumed:
Mortgage notes payable			532,607
Unsecured notes			78,610
Secured note payable			186,116
Security deposits and deferred rent			6,475
Other liabilities:
Below-market leases			78,911
Other liabilities			43,995
Total other liabilities assumed			122,906
Total liabilities assumed			926,714
Minority interest			104,658
Net assets acquired		$	1,959,429

In the acquisition of Prentiss, each then outstanding Prentiss common share was converted into the right to receive 0.69 of a Brandywine common share and $21.50 in cash (the “Per Share Merger Consideration”) except that 497,884 Prentiss common shares held in the Prentiss Deferred Compensation Plan converted solely into 720,737 Brandywine common shares. In addition, each then outstanding unit (each, a “Prentiss OP Unit”) of limited partnership interest in the Prentiss operating partnership subsidiary was, at the option of the holder, converted into Prentiss Common Shares with the right to receive the Per Share Merger Consideration or 1.3799 Class A Units of the Operating Partnership (“Brandywine Class A Units”). Accordingly, based on 49,375,723 Prentiss common shares outstanding and 139,000 Prentiss OP Units electing to receive merger consideration at closing of the acquisition, the Company issued 34,541,946 Brandywine common shares and paid an aggregate of approximately $1.05 billion in cash to the accounts of the former Prentiss shareholders. Based on 1,572,612 Prentiss OP Units outstanding at closing of the acquisition that did not elect to receive merger consideration, the Operating Partnership issued 2,170,047 Brandywine Class A Units. In addition, options issued by Prentiss that were exercisable for an aggregate of 342,662 Prentiss common shares were converted into options exercisable for an aggregate of 496,037 Brandywine common shares at a weighted average exercise price of $22.00 per share. Through its acquisition of Prentiss the Company also assumed approximately $611.2 million in aggregate principal amount of Prentiss debt.

Each Brandywine Class A Unit that was issued in the merger is subject to redemption at the option of the holder. The Operating Partnership may, at its option, satisfy the redemption either for an amount, per unit, of cash equal to the then market price of one Brandywine common share (based on the prior ten-day trading average) or for one Brandywine common share.

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

For purposes of computing the total purchase price reflected in the financial statements, the Brandywine common shares (including restricted common shares), operating partnership units and options that were issued in the Prentiss transaction were valued based on the average trading price per Brandywine common share of $29.54. The average trading price was based on the average of the high and low trading prices for each of the two trading days before, the day of and the two trading days after the merger was announced (i.e., September 29, September 30, October 3, October 4 and October 5).

The Company considered the provisions of FIN 47 for these acquisitions and, where necessary, recorded a conditional asset retirement obligation as part of the purchase price. The aggregate asset retirement recorded in connection with the Prentiss acquisition was approximately $2.7 million.

Pro forma information relating to the acquisition of Prentiss is presented below as if Prentiss was acquired and the related financing transactions occurred on January 1, 2006. These pro forma results are not necessarily indicative of the results which actually would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods (in thousands, except per share amounts):

		Three-month period
		ended March 31, 2006
		(unaudited)
Pro forma revenue		$	147,322
Pro forma loss from continuing operations			(7,124	)
Pro forma loss allocated to common shares			(4,289	)
Earnings per common share from continuing operations
Basic — as reported		$	(0.11	)
Basic — as pro forma		$	(0.10	)
Diluted — as reported		$	(0.11	)
Diluted — as pro forma		$	(0.10	)
Earnings per common share
Basic — as reported		$	(0.05	)
Basic — as pro forma		$	(0.05	)
Diluted — as reported		$	(0.05	)
Diluted — as pro forma		$	(0.05	)

Subsequent to its acquisition of Prentiss and the related sale of certain properties to Prudential, the Company sold eight of the acquired properties that contained an aggregate of 1.6 million net rentable square feet during the three-month period ended March 31, 2006. One additional property acquired in the acquisition of Prentiss was classified as held for sale at March 31, 2006.

During the quarter ended March 31, 2007, the Company sold four of the acquired properties that contained an aggregate of 1.1 million net rentable square feet and a 4.7 acre parcel of land. As of March 31, 2007, one of the acquired properties was classified as held for sale.

Since January 5, 2006, the Company has sold a total of 21 of the acquired properties that contained an aggregate of 4.0 million net rentable square feet and two parcels of land totaling 15.6 acres. Upon the completion of the sale of the one property classified as held for sale at March 31, 2007 (which occurred on April 30, 2007), the Company no longer has any wholly owned properties in Dallas, TX.

Other Acquisitions and Dispositions

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

In addition to the acquisition activity related to Prentiss, during the three-month period ended March 31, 2006, the Company also acquired one office property containing 93.0 net rentable square feet for $10.2 million.

4. INVESTMENT IN UNCONSOLIDATED VENTURES

As of March 31, 2007, the Company had an aggregate investment of approximately $73.0 million in 11 unconsolidated Real Estate Ventures (net of returns of investment). The Company formed these ventures with unaffiliated third parties, or acquired them, to develop office properties or to acquire land in anticipation of possible development of office properties. Nine of the Real Estate Ventures own 15 office buildings that contain an aggregate of approximately 2.8 million net rentable square feet, one Real Estate Venture developed a hotel property that contains 137 rooms and one Real Estate Venture is developing an office property located in Albemarle County, VA.

The Company accounts for its unconsolidated interests in its Real Estate Ventures using the equity method. Unconsolidated interests range from 6% to 50%, subject to specified priority allocations in certain of the Real Estate Ventures.

The Company also has investments in three unconsolidated Real Estate Ventures that are variable interest entities under FIN 46R and of which the Company is the primary beneficiary, and one investment in a Real Estate Venture for which the Company serves as the general partner and the limited partner does not have substantive participating rights.

The amounts reflected below (except for Company’s share of equity and income) are based on the historical financial information of the individual Real Estate Ventures. One of the Real Estate Ventures, acquired in connection with the Prentiss acquisition, had a negative equity balance on a historical cost basis as a result of historical depreciation and distributions of excess financing proceeds. The Company reflected its acquisition of this Real Estate Venture interest at its relative fair value as of the date of the purchase of Prentiss. The difference between allocated cost and the underlying equity in the net assets of the investee is accounted for as if the entity were consolidated (i.e., allocated to the Company’s relative share of assets and liabilities with an adjustment to recognize equity in earnings for the appropriate additional depreciation/amortization).

The following is a summary of the financial position of the Real Estate Ventures as of March 31, 2007 and December 31, 2006 (in thousands):

		2007				2006
Operating property, net of accumulated depreciation		$	376,574			$	365,168
Other assets			42,645				52,935
Liabilities			26,333				28,764
Debt			358,659				332,589
Equity			39,610				56,888
Company’s share of equity (Company’s basis)			72,983				74,574

The following is a summary of results of operations of the Real Estate Ventures for the three-month periods ended March 31, 2007 and 2006 (in thousands):

		Three-month periods
		ended March 31,
		2007				2006
Revenue		$	18,314			$	19,724
Operating expenses			6,297				7,994
Interest expense, net			5,238				4,994
Depreciation and amortization			4,229				4,873
Net income			2,551				1,862
Company’s share of income (Company basis)			754				965

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

As of March 31, 2007, the Company had guaranteed repayment of approximately $0.6 million of loans for the Real Estate Ventures. The Company also provides customary environmental indemnities and completion guarantees in connection with construction and permanent financing both for its own account and on behalf of the Real Estate Ventures.

5. DEFERRED COSTS

As of March 31, 2007 and December 31, 2006, the Company’s deferred costs were comprised of the following (in thousands):

		March 31, 2007
						Accumulated				Deferred Costs,
		Total Cost				Amortization				net
Leasing Costs		$	88,913			$	(29,083	)		$	59,830
Financing Costs			22,322				(5,150	)			17,172
Total		$	111,235			$	(34,233	)		$	77,002

		December 31, 2006
						Accumulated				Deferred Costs,
		Total Cost				Amortization				net
Leasing Costs		$	83,629			$	(28,278	)		$	55,351
Financing Costs			24,648				(6,291	)			18,357
Total		$	108,277			$	(34,569	)		$	73,708

6. INTANGIBLE ASSETS

As of March 31, 2007 and December 31, 2006, the Company’s intangible assets were comprised of the following (in thousands):

		March 31, 2007
						Accumulated
		Total Cost				Amortization				Deferred Costs, net
In-place lease value		$	183,089			$	(51,153	)		$	131,936
Tenant relationship value			119,377				(22,375	)			97,002
Above market leases acquired			31,878				(12,432	)			19,446
Total		$	334,344			$	(85,960	)		$	248,384
Below market leases acquired		$	103,865			$	(27,226	)		$	76,639

		December 31, 2006
						Accumulated
		Total Cost				Amortization				Deferred Costs, net
In-place lease value		$	207,513			$	(52,293	)		$	155,220
Tenant relationship value			124,605				(19,572	)			105,033
Above market leases acquired			32,667				(11,669	)			20,998
Total		$	364,785			$	(83,534	)		$	281,251
Below market leases acquired		$	118,536			$	(26,009	)		$	92,527

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

As of March 31, 2007, the Company’s annual amortization for its intangible assets/liabilities is as follows (in thousands, and assuming no early lease terminations):

		Assets				Liabilities
2007		$	39,395			$	14,009
2008			45,049				14,747
2009			39,795				12,758
2010			33,920				10,258
2011			27,040				8,471
Thereafter			63,185				16,396
Total		$	248,384			$	76,639

7. DEBT OBLIGATIONS

The following table sets forth information regarding the Company’s debt obligations outstanding at March 31, 2007 and December 31, 2006 (in thousands):

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

MORTGAGE DEBT

										Effective
		March 31,				December 31,				Interest				Maturity
Property / Location		2007				2006				Rate				Date
Interstate Center			—				552			6.19%				Mar-07
The Bluffs			10,700				10,700			6.00%		(a), (b)		Apr-07
Pacific Ridge			14,500				14,500			6.00%		(a), (b)		Apr-07
Pacific View/Camino			26,000				26,000			6.00%		(a), (b)		Apr-07
Computer Associates Building			31,000				31,000			6.00%		(a), (b)		Apr-07
Presidents Plaza			30,900				30,900			6.00%		(a), (b)		Apr-07
440 & 442 Creamery Way			5,379				5,421			8.55%		(b)		May-07
481 John Young Way			2,277				2,294			8.40%				Nov-07
400 Commerce Drive			11,742				11,797			7.12%				Jun-08
Two Logan Square			71,054				71,348			5.78%		(a)		Jul-09
200 Commerce Drive			5,821				5,841			7.12%		(a)		Jan-10
1333 Broadway			24,311				24,418			5.18%		(a)		May-10
The Ordway			46,033				46,199			7.95%		(a)		Aug-10
World Savings Center			27,424				27,524			7.91%		(a)		Nov-10
Plymouth Meeting Exec.			43,949				44,103			7.00%		(a)		Dec-10
Four Tower Bridge			10,591				10,626			6.62%				Feb-11
Arboretum I, II, III & V			22,623				22,750			7.59%				Jul-11
Midlantic Drive/Lenox Drive/DCC I			62,289				62,678			8.05%				Oct-11
Research Office Center			42,040				42,205			7.64%		(a)		Oct-11
Concord Airport Plaza			38,245				38,461			7.20%		(a)		Jan-12
Six Tower Bridge			14,655				14,744			7.79%				Aug-12
Newtown Square/Berwyn Park/Libertyview			63,011				63,231			7.25%				May-13
Coppell Associates			3,682				3,737			6.89%				Dec-13
Southpoint III			4,822				4,949			7.75%				Apr-14
Tysons Corner			100,000				100,000			4.84%		(a)		Aug-15
Coppell Associates			16,600				16,600			5.75%				Mar-16
Grande A			59,190				59,513			7.48%				Jul-27
Grande B			77,120				77,535			7.48%				Jul-27
Principal balance outstanding			865,958				869,626
Plus: unamortized fixed-rate debt premiums			13,274				14,294
Total mortgage indebtedness		$	879,232			$	883,920
UNSECURED DEBT:
Line-of-Credit			404,000				60,000			Libor + 0.80%				Dec-09
2009 Five Year Notes			275,000				275,000			4.62%				Nov-09
2014 Ten Year Notes			250,000				250,000			5.53%				Nov-14
Private Placement Notes due 2008			113,000				113,000			4.34%				Dec-08
2010 Five Year Notes			300,000				300,000			5.61%				Dec-10
Indenture IA (Preferred Trust I)			27,062				27,062			Libor + 1.25%				Mar-35
Indenture IB (Preferred Trust I)			25,774				25,774			Libor + 1.25%				Apr-35
Indenture II (Preferred Trust II)			25,774				25,774			Libor + 1.25%				Jul-35
2009 Three Year Notes			-				300,000			Libor + 0.45				Apr-09
2012 Six Year Notes			300,000				300,000			5.77%				Apr-12
2016 Ten Year Notes			250,000				250,000			5.95%				Apr-16
3.874% Exchangeable Notes			345,000				345,000			3.87%				Oct-11
Principal balance outstanding			2,315,610				2,271,610
Plus: unamortized fixed-rate debt premiums			(3,175	)			(3,300	)
Total mortgage indebtedness		$	2,312,435			$	2,268,310
Total Debt Obligations		$	3,191,667			$	3,152,230

(a) Loans were assumed upon acquisition of the related property. Interest rates presented above reflect the market rate at the time of acquisition.

(b) In April, 2007, the Company elected to prepay the loan on the date indicated in the Maturity date column.

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

The mortgage note payable balance of $5.1 million for Norriton Office Center as of December 31, 2006, not included in the table above, is included in Mortgage notes payable and other liabilities held for sale on the consolidated balance sheets.

During the three-month periods ended March 31, 2007 and 2006, the Company’s weighted-average effective interest rate on its mortgage notes payable was 6.67% and 6.30%, respectively.

On March 28, 2006, the Operating Partnership completed an underwritten public offering of (1) $300,000,000 aggregate principal amount of unsecured floating rate notes due 2009 (the “2009 Notes”), (2) $300,000,000 aggregate principal amount of 5.75% unsecured notes due 2012 (the “2012 Notes”) and (3) $250,000,000 aggregate principal amount of 6.00% unsecured notes due 2016 (the “2016 Notes”). Brandywine Realty Trust guaranteed the payment of principal and interest on the 2009 Notes, the 2012 Notes and the 2016 Notes. The Company used proceeds from these notes to repay a term loan obtained to finance a portion of the consideration paid in the Prentiss merger and to reduce borrowings under the Company’s revolving credit facility.

On October 4, 2006, the Operating Partnership completed an offering of $300.0 million aggregate principal amount of 3.875% senior convertible notes due 2026 in an offering made in reliance upon an exemption from registration rights under Rule 144A under the Securities Act of 1933 and issued an additional $45 million of exchangeable notes on October 16, 2006 to cover over-allotments. At certain times and upon the occurrence of certain events, the notes are convertible into cash up to their principal amount and, with respect to the remainder, if any, of the exchange value in excess of such principal amount, cash or shares of the Company’s common share. The initial exchange rate is 25.4065 shares per $1,000 principal amount of notes (which is equivalent to an initial exchange price of $39.36 per share). The notes may not be redeemed by the Company prior to October 20, 2011 (except to preserve the Company’s status as a REIT for U.S, federal income tax purposes), but are redeemable anytime thereafter, in whole or in part, at a redemption price equal to the principal amount of the notes plus any accrued and unpaid interest (including additional interest), if any. In addition, on October 20, 2011, October 15, 2016, and October 15, 2021, or upon the occurrence of certain change in control transactions prior to October 20, 2011, note holders may require the Company to repurchase all or a portion of the notes at a purchase price equal to the principal amount plus any accrued and unpaid interest on the notes. Net proceeds from the October 2006 Debt Offering were used to repurchase approximately $60.0 million of the Company’s common stock at a price of $32.80 per share and for general corporate purposes, including the repayment of outstanding borrowings under the Company’s unsecured revolving credit facility.

On November 29, 2006, the Company gave notice of redemption of the 2009 Notes and redeemed the 2009 Notes on January 2, 2007.

The Operating Partnership’s indenture relating to unsecured notes contains financial restrictions and requirements, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 40%, (3) a debt service coverage ratio of greater than 1.5 to 1.0, and (4) an unencumbered asset value of not less than 150% of unsecured debt.

In addition, the note purchase agreement relating to the Operating Partnership’s $113 million principal unsecured notes due 2008 contains covenants that are similar to the covenants in the indenture.

The Company utilizes credit facility borrowings for general business purposes, including the acquisition, development and redevelopment of properties and the repayment of other debt. In December 2005, the Company replaced its then existing credit facility with a $600.0 million unsecured credit facility (the “Credit Facility”) that matures in December 2009, subject to a one-year extension option. Borrowings under the Credit Facility generally bear interest at LIBOR plus a spread over LIBOR ranging from 0.55% to 1.10% based on the Company’s unsecured senior debt rating. The Company has the option to increase the Credit Facility to $800.0 million subject to the absence of any defaults and the Company’s ability to acquire additional commitments from its existing lenders or new lenders. As of March 31, 2007, the Company had $404.0 million of borrowings and $24.2 million of letters of credit outstanding under the Credit Facility, leaving $171.8 million of unused availability. For the three-month periods ended March 31, 2007 and 2006, the weighted-average interest rate on the Credit Facility, including the effect of interest rate hedges, was 6.1% and 5.4%, respectively.

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

The Credit Facility requires the maintenance of ratios related to minimum net worth, debt-to-total capitalization and fixed charge coverage and includes non-financial covenants.

As of March 31, 2007, the Company’s aggregate scheduled principal payments of debt obligations, excluding amortization of discounts and premiums, are as follows (in thousands):

2007		$	129,683
2008			138,227
2009			762,306
2010			453,803
2011			481,158
Thereafter			1,216,391
Total indebtedness		$	3,181,568

8. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS

Risk Management

In the normal course of its on-going business operations, the Company encounters economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk on its interest-bearing liabilities. Credit risk is the risk of inability or unwillingness of tenants to make contractually required payments. Market risk is the risk of declines in the value of properties due to changes in rental rates, interest rates or other market factors affecting the valuation of properties held by the Company.

Use of Derivative Financial Instruments

The Company’s use of derivative instruments is limited to the utilization of interest rate agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure, as well as to hedge specific transactions. The counterparties to these arrangements are major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company is potentially exposed to credit loss in the event of non-performance by these counterparties. However, because of the high credit ratings of the counterparties, the Company does not anticipate that any of the counterparties will fail to meet these obligations as they come due. The Company does not hedge credit or property value market risks.

In March 2007, in anticipation of the offering of $300 million of 5.70% unsecured guaranteed notes due May 1, 2017 (“2017 Notes”) (See Note 15), the Company entered into two treasury lock agreements. The treasury lock agreements were designated as cash flow hedges on interest rate risk and qualified for hedge accounting. Each of the treasury lock agreements were for notional amounts of $75.0 million for an expiration of 10 years at all-in rates of 4.5585% and 4.498% and had fair values of $0.7 million and $1.0 million, respectively at March 31, 2007. The agreements were settled in April 2007 upon completion of the offering of the 2017 Notes at a total benefit of $1.1 million. This benefit will be recorded as a component of accumulated other comprehensive income in the accompanying consolidated balance sheet and amortized over the term of the 2017 Notes.

In March 2006, in anticipation of the offering of the 2009 Notes, the 2012 Notes and the 2016 Notes, the Company entered into forward starting swaps. The forward starting swaps were designated as cash flow hedges of interest rate risk and qualified for hedge accounting. The forward starting swaps were for notional amounts totaling $200.0 million at an all-in-rate of 5.2%. Two of the forward starting swaps had a six year maturity date and one had a ten year maturity date. The forward starting swaps were settled in March 2006 upon the completion of the offering of the 2009, 2012, and 2016 Notes at a total benefit of approximately $3.3 million. The benefit was recorded as a component of accumulated other comprehensive income in the accompanying consolidated balance sheet and is being amortized to interest expense over the term of the unsecured notes.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

The Company entered into two interest rate swaps in January 2006 aggregating $90 million in notional amount as part of its acquisition of Prentiss. The instruments are used to hedge the risk of interest cash outflows on secured variable rate debt on properties that were included as part of the real estate venture in which the Company purchased the remaining 49% of the minority interest partner’s share in March 2007. One of the swaps with a notional amount of $20 million has a maturity date of February 1, 2010 at an all-in rate of 4.675% and had a fair value of $0.1 million at March 31, 2007. The other, with a notional amount of $70 million, has a maturity date of August 1, 2008 at an all in rate of 4.675% and had a fair value of $0.3 million at March 31, 2007. The agreements were settled in April 2007 in connection with the repayment of five mortgage notes (see Note 7), at a total benefit of $0.4 million.

The Company formally assesses, both at inception of the hedge and on an on-going basis, whether each derivative is highly-effective in offsetting changes in cash flows of the hedged item. If management determines that a derivative is not highly-effective as a hedge or if a derivative ceases to be a highly-effective hedge, the Company will discontinue hedge accounting prospectively.

Concentration of Credit Risk

Concentrations of credit risk arise when a number of tenants related to the Company’s investments or rental operations are engaged in similar business activities, or are located in the same geographic region, or have similar economic features that would cause their inability to meet contractual obligations, including those to the Company, to be similarly affected. The Company regularly monitors its tenant base to assess potential concentrations of credit risk. Management believes the current credit risk portfolio is reasonably well diversified and does not contain any unusual concentration of credit risk. No tenant accounted for 5% or more of the Company’s rents during the three-month periods ended March 31, 2007 or 2006.

9. DISCONTINUED OPERATIONS

For the three-month periods ended March 31, 2007, income from discontinued operations relates to 17 properties that the Company sold during 2007 and one property designated as held for sale as of March 31, 2007. The following table summarizes the revenue and expense information for properties classified as discontinued operations for the three-month period ended March 31, 2007 (in thousands):

		Three-month period
		ended March 31, 2007
Revenue:
Rents		$	10,937
Tenant reimbursements			684
Other			69
Total revenue			11,690
Expenses:
Property operating expenses			4,012
Real estate taxes			1,308
Depreciation and amortization			4,594
Total operating expenses			9,914
Income from discontinued operations before gain on sale of interests in real estate and minority interest			1,776
Net gain on sale of interests in real estate			26,009
Minority interest attributable to discontinued operations — LP units			(1,186	)
Income from discontinued operations		$	26,599

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

For the three-month period ended March 31, 2006, income from discontinued operations relates to properties sold during 2006 and 2007 and one property held for sale at March 31, 2007. The following table summarizes the revenue and expense information for the properties classified as discontinued operations for the three-month period ended March 31, 2006 (in thousands):

		Three-month period
		ended March 31, 2006
Revenue:
Rents		$	24,713
Tenant reimbursements			2,469
Other			370
Total revenue			27,552
Expenses:
Property operating expenses			9,411
Real estate taxes			3,487
Depreciation and amortization			9,122
Total operating expenses			22,020
Operating income			5,532
Interest expense			(286	)
Income from discontinued operations before gain on sale of interests in real estate and minority interest			5,246
Minority interest — partners’ share of consolidated real estate venture			(187	)
Minority interest attributable to discontinued operations — LP units			(227	)
Income from discontinued operations		$	4,832

The following table summarizes the balance sheet information for the property identified as held for sale at March 31, 2007 (in thousands):

Real Estate Investments:
Operating Property		$	114,237
Accumulated depreciation			(7,774	)
			106,463
Other assets			20,870
Total Assets Held for Sale		$	127,333
Other liabilities		$	14,404

Discontinued operations have not been segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions will not agree with respective data in the consolidated statements of operations.

10. MINORITY INTEREST IN OPERATING PARTNERSHIP AND REAL ESTATE VENTURES

The Company is the sole general partner of the Operating Partnership and, as of March 31, 2007, owned a 95.7% interest in the Operating Partnership. On March 14, 2007, the Operating Partnership declared a $0.44 per unit cash distribution to holders of Class A Units totaling $1.7 million.

As of March 31, 2007, the Company owned interests in three consolidated real estate ventures that own three office properties containing approximately 0.4 million net rentable square feet. Minority interest in consolidated real estate ventures represents the portion of these consolidated real estate ventures not owned by the Company.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

On March 1, 2007, the Company acquired the remaining 49% interest in a real estate venture previously owned by Stichting Pensioenfonds ABP containing ten office properties for a purchase price of $63.7 million. The Company owned a 51% interest in this real estate venture through the acquisition of Prentiss in January 5, 2006.

11. BENEFICIARIES’ EQUITY

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-month periods ended March 31,
		2007								2006
		Basic				Diluted				Basic				Diluted
Income (loss) from continuing operations		$	(7,227	)		$	(7,227	)		$	(7,474	)		$	(7,474	)
Income (loss) from discontinued operations			26,599				26,599				4,832				4,832
Income allocated to Preferred Shares			(1,998	)			(1,998	)			(1,998	)			(1,998	)
Net income available to common shareholders		$	17,374			$	17,374			$	(4,640	)		$	(4,640	)
Weighted-average shares outstanding			88,287,426				88,287,426				89,299,967				89,299,967
Contingent securities/Stock based compensation			—				948,916				—				443,014
Total weighted-average shares outstanding			88,287,426				89,236,342				89,299,967				89,742,981
Earnings per Common Share:
Continuing operations		$	(0.10	)		$	(0.10	)		$	(0.11	)		$	(0.11	)
Discontinued operations			0.30				0.30				0.05				0.05
		$	0.20			$	0.19			$	(0.05	)		$	(0.05	)

Securities (including Class A Units of the Operating Partnership) totaling 3,939,284 and 4,115,314 as of March 31, 2007 and 2006, respectively, were excluded from the earnings per share computations because their effect would have been antidilutive.

Common and Preferred Shares

On March 14, 2007, the Company declared a distribution of $0.44 per Common Share, totaling $38.6 million, which was paid on April 18, 2007 to shareholders of record as of April 4, 2007. On March 14, 2007, the Company declared distributions on its Series C Preferred Shares and Series D Preferred Shares to holders of record as of March 30, 2007. These shares are entitled to a preferential return of 7.50% and 7.375%, respectively. Distributions paid on April 16, 2007 to holders of Series C Preferred Shares and Series D Preferred Shares totaled $0.9 million and $1.1 million, respectively.

In 2003, the Company issued 2,000,000 7.50% Series C Cumulative Redeemable Preferred Shares (the “Series C Preferred Shares”) for net proceeds of $48.1 million. The Series C Preferred Shares are perpetual. The Company may not redeem Series C Preferred Shares before December 30, 2008 except to preserve its REIT status. On or after December 30, 2008, the Company, at its option, may redeem the Series C Preferred Shares, in whole or in part, by paying $25.00 per share plus accrued but unpaid dividends.

In 2004, the Company issued 2,300,000 7.375% Series D Cumulative Redeemable Preferred Shares (the “Series D Preferred Shares”) for net proceeds of $55.5 million. The Series D Preferred Shares are perpetual. The Company may not redeem Series D Preferred Shares before February 27, 2009 except to preserve its REIT status. On or after

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

February 27, 2009, the Company, at its option, may redeem the Series D Preferred Shares, in whole or in part, by paying $25.00 per share plus accrued but unpaid dividends.

Common Share Repurchases

The Company repurchased 1,301,000 shares during the three-month period ending March 31, 2007 for an aggregate consideration of $44.7 million under its share repurchase program. As of March 31, 2007, the Company may purchase an additional 1,018,800 shares under the plan. Repurchases may be made from time to time in the open market or in privately negotiated transactions, subject to market conditions and compliance with legal requirements. The share repurchase program does not contain any time limitation and does not obligate the Company to repurchase any shares. The Company may discontinue the program at any time.

12. SHARE BASED COMPENSATION

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) is an amendment of SFAS 123 and requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is required to be measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) also contains additional minimum disclosures requirements including, but not limited to, the valuation method and assumptions used, amounts of compensation capitalized and modifications made. The effective date of SFAS 123(R) was subsequently amended by the SEC to be as of the beginning of the first interim or annual reporting period of the first fiscal year that begins on or after December 15, 2005, and allows several different methods of transition. The Company adopted SFAS 123(R) using the prospective method on January 1, 2006. This adoption did not have a material effect on our consolidated financial statements.

Stock Options

At March 31, 2007, the Company had 1,087,575 options outstanding under its shareholder approved equity incentive plan. No options were unvested as of March 31, 2007 and therefore there is no remaining unrecognized compensation expense associated with these options. Option activity as of March 31, 2007 and changes during the three months ended March 31, 2007 were as follows:

						Weighted				Weighted Average
						Average				Remaining Contractual				Aggregate Intrinsic
		Shares				Exercise Price				Term (in years)				Value (in 000's)
Outstanding at January 1, 2007			1,286,070			$	26.45				1.50				8,739
Granted			—				—				—				—
Exercised			(198,495	)			28.80				0.87				1,171
Forfeited			—				—				—				—
Outstanding at March 31, 2007			1,087,575			$	26.03				1.32				8,029
Vested at March 31, 2007			1,087,575			$	26.03				1.32				8,029
Exercisable at March 31, 2007			1,087,575			$	26.03				1.32				8,029

There were no option awards granted to employees during the three-month period ended March 31, 2007.

The Company has the ability and intent to issue shares upon stock option exercises. Historically, the Company has issued new common shares to satisfy such exercises.

Restricted Stock Awards

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

The Company’s primary form of share-based compensation has been restricted shares issued under a shareholder approved equity incentive plan that authorizes various equity-based awards. As of March 31, 2007, 457,496 restricted shares were outstanding and vest over five to seven years from the initial grant date. The remaining compensation expense to be recognized for the 457,496 restricted shares outstanding at March 31, 2007 was approximately $14.9 million. That expense is expected to be recognized over a weighted average remaining vesting period of 4.6 years. For the three-month period ended March 31, 2007 and 2006, the Company recognized $0.8 million of compensation expense included in general and administrative expense in each period related to outstanding restricted shares. The following table summarizes the Company’s restricted share activity for the three-months ended March 31, 2007:

						Weighted
						Average Grant
		Shares				Date Fair value
Non-vested at January 1, 2007			338,860			$	28.23
Granted			216,828				35.19
Vested			(96,068	)			26.28
Forfeited			(2,124	)			30.55
Non-vested at March 31, 2007			457,496			$	31.90

Outperformance Program

On August 28, 2006, the Compensation Committee of the Company’s Board of Trustees adopted a long-term incentive compensation program (the “outperformance program”). The Company will make payments (in the form of common shares) to executive-participants under the outperformance program only if total shareholder return exceeds percentage hurdles established under the outperformance program. The dollar value of any payments will depend on the extent to which our performance exceeds the hurdles. The Company established the outperformance program under the 1997 Plan.

If the total shareholder return (share price appreciation plus cash dividends) during a three-year measurement period exceeds either of two hurdles (with one hurdle keyed to the greater of a fixed percentage and an industry-based index, and the other hurdle keyed to a fixed percentage), then the Company will fund an incentive compensation pool in accordance with a formula and make pay-outs from the compensation pool in the form of vested and restricted common shares. The awards issued are accounted for in accordance with FASB No. 123R. The fair value of the awards on the date of grant, as adjusted for estimated forfeitures, was approximately $5.6 million and will be amortized into expense over the five-year period beginning on the date of grant using a graded vesting attribution model. The fair value of $5.6 million on the date of grant represents approximately 86.5% of the total that may be awarded; the remaining amount available will be valued when the awards are granted to individuals. In January 2007, the Company awarded an additional 4.5% under the outperformance program. The fair value of the additional award is $0.3 million and will be amortized over the remaining portion of the 5 year period. For the three-month period ended March 31, 2007, the Company recognized $0.4 million of compensation expenses related to the outperformance program.

13. SEGMENT INFORMATION

The Company currently manages its portfolio within nine segments: (1) Pennsylvania—West, (2) Pennsylvania—North, (3) New Jersey, (4) Urban, (5) Richmond, Virginia, (6) Northern California (7) Southern California, (8) Metropolitan Washington, D.C. and (9) Southwest. The Pennsylvania—West segment includes properties in Chester, Delaware and Montgomery counties in the Philadelphia suburbs of Pennsylvania. The Pennsylvania—North segment includes properties north of Philadelphia in Bucks, Lehigh and Montgomery counties. The New Jersey segment includes properties in counties in the southern part of New Jersey including Burlington, Camden and Mercer counties and in Bucks County, Pennsylvania. The Urban segment includes properties in the City of Philadelphia, Pennsylvania and the state of Delaware. The Richmond, Virginia segment includes properties primarily in Albemarle, Chesterfield and Henrico counties, the City of Richmond and Durham, North Carolina. The Northern California segment includes

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

properties in the City of Oakland and Concord. The Southern California segment includes properties in San Diego County. The Metropolitan Washington, D.C. segment includes properties in Northern Virginia and Suburban Maryland. The Southwest segment includes properties in Travis County of Texas. Corporate is responsible for cash and investment management, development of certain real estate properties during the construction period, and certain other general support functions.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

Segment information as of and for the three-month periods ended March 31, 2007 and 2006 is as follows (in thousands):

		Pennsylvania —				Pennsylvania —												Richmond,				Northern				Southern				Metropolitan
		West				North				New Jersey				Urban				Virginia				California				California				Washington, D.C.				Southwest				Corporate				Total
As of March 31, 2007:
Real estate investments, at cost:
Operating properties		$	926,700			$	440,726			$	554,586			$	575,636			$	250,935			$	402,033			$	105,810			$	1,284,748			$	232,640			$	—			$	4,773,814
Development and construction-in-progress			—				—				—				—				—				—				—				—				—				346,555				346,555
As of December 31, 2006:
Real estate investments, at cost:
Operating properties		$	922,347			$	530,436			$	570,009			$	568,008			$	244,519			$	396,927			$	95,942			$	1,255,940			$	343,177			$	—			$	4,927,305
Development and construction-in-progress			—				—				—				—				—				—				—				—				—				328,119				328,119
For the three-months ended March 31, 2007:
Total revenue		$	27,509			$	19,481			$	24,675			$	23,455			$	8,940			$	15,091			$	3,141			$	32,385			$	8,239			$	185			$	163,101
Property operating expenses			11,696				7,641				11,264				9,734				3,495				6,679				1,727				11,785				4,222				(7,011	)			61,232
Net operating income		$	15,813			$	11,840			$	13,411			$	13,721			$	5,445			$	8,412			$	1,414			$	20,600			$	4,017			$	7,196			$	101,869
For the three-months ended March 31, 2006:
Total revenue		$	25,233			$	18,275			$	23,695			$	19,560			$	7,483			$	13,678			$	2,674			$	26,157			$	9,409			$	(2,246	)		$	143,918
Property operating expenses			8,468				9,776				9,815				8,871				2,966				5,137				1,103				9,270				3,795				(4,020	)			55,181
Net operating income		$	16,765			$	8,499			$	13,880			$	10,689			$	4,517			$	8,541			$	1,571			$	16,887			$	5,614			$	1,774			$	88,737