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 September 30, 2014



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		(I.R.S. Employer
incorporation or organization)		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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).



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, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Brandywine Realty Trust:



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

Brandywine Operating Partnership, L.P.:



Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company 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 178,982,369 Common Shares of Beneficial Interest, par value $0.01 per share of Brandywine Realty Trust, were outstanding as of October 29, 2014.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2014 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 September 30, 2014, owned a 98.9% interest in the Operating Partnership. The remaining 1.1% 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 result in the following benefits:


•	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 guaranteeing the debt obligations of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and directly or indirectly holds the ownership interests in the Company’s Real Estate Ventures. 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


•	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 debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership.

TABLE OF CONTENTS



	Page

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Brandywine Realty Trust

Financial Statements of Brandywine Realty Trust (unaudited)

Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	6

Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2014 and 2013	7

Consolidated Statements of Comprehensive Income for the three and nine-month periods ended September 30, 2014 and 2013	8

Consolidated Statements of Beneficiaries’ Equity for the nine-month periods ended September 30, 2014 and 2013	9

Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2014 and 2013	11

Brandywine Operating Partnership, L.P.

Financial Statements of Brandywine Operating Partnership, L.P. (unaudited)

Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	13

Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2014 and 2013	14

Consolidated Statements of Comprehensive Income for the three and nine-month periods ended September 30, 2014 and 2013	15

Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2014 and 2013	16

Notes to Unaudited Consolidated Financial Statements	18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	43

Item 3. Quantitative and Qualitative Disclosures about Market Risk	66

Item 4. Controls and Procedures	68

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	69

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. Mine Safety Disclosures	69

Item 5. Other Information	69

Item 6. Exhibits	70

Signatures	71

Index to Exhibits	73

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


Item 1.	— Financial Statements

BRANDYWINE REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share information)



	September 30, 2014			December 31, 2013
	(unaudited)
ASSETS
Real estate investments:
Operating properties	$	4,608,895		$	4,669,289
Accumulated depreciation	(1,053,571		)	(983,808		)
Operating real estate investments, net	3,555,324			3,685,481
Construction-in-progress	140,456			74,174
Land inventory	90,842			93,351
Total real estate investments, net	3,786,622			3,853,006
Cash and cash equivalents	671,943			263,207
Accounts receivable, net	19,825			17,389
Accrued rent receivable, net	131,211			126,295
Assets held for sale	37,647			—
Investment in real estate ventures, at equity	197,539			180,512
Deferred costs, net	122,881			122,954
Intangible assets, net	105,300			132,329
Other assets	75,383			69,403
Total assets	$	5,148,351		$	4,765,095
LIABILITIES AND BENEFICIARIES’ EQUITY
Mortgage notes payable	$	658,601		$	670,151
Unsecured term loans	200,000			450,000
Unsecured senior notes, net of discounts	1,854,779			1,475,230
Accounts payable and accrued expenses	97,022			83,693
Distributions payable	28,857			25,584
Deferred income, gains and rent	53,219			71,635
Acquired lease intangibles, net	27,388			34,444
Other liabilities	36,824			32,923
Liabilities related to assets held for sale	1,771			—
Total liabilities	2,958,461			2,843,660
Commitments and contingencies (Note 16)
Brandywine Realty Trust’s equity:
Preferred Shares (shares authorized-20,000,000):
6.90% Series E Preferred Shares, $0.01 par value; issued and outstanding- 4,000,000 in 2014 and 2013	40			40
Common Shares of Brandywine Realty Trust’s beneficial interest, $0.01 par value; shares authorized 400,000,000; 178,982,369 and 156,731,993 issued and outstanding in 2014 and 2013, respectively	1,790			1,566
Additional paid-in capital	3,310,313			2,971,596
Deferred compensation payable in common shares	6,219			5,407
Common shares in grantor trust, 384,536 in 2014 and 312,280 in 2013	(6,219		)	(5,407		)
Cumulative earnings	531,294			522,528
Accumulated other comprehensive loss	(2,658		)	(2,995		)
Cumulative distributions	(1,671,888		)	(1,592,515		)
Total Brandywine Realty Trust’s equity	2,168,891			1,900,220
Non-controlling interests	20,999			21,215
Total beneficiaries' equity	2,189,890			1,921,435
Total liabilities and beneficiaries' equity	$	5,148,351		$	4,765,095

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

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except share and per share information



	Three-month periods ended						Nine-month periods ended
	September 30,						September 30,
	2014			2013			2014			2013
Revenue:
Rents	$	120,288		$	116,382		$	363,581		$	347,054
Tenant reimbursements	20,095			20,694			64,057			60,595
Termination fees	1,418			2,040			6,970			2,946
Third party management fees, labor reimbursement and leasing	3,932			3,263			12,269			9,652
Other	825			975			2,295			3,305
Total revenue	146,558			143,354			449,172			423,552
Operating expenses:
Property operating expenses	42,675			40,639			132,612			119,421
Real estate taxes	12,869			14,167			39,167			42,639
Third party management expenses	1,687			1,317			5,133			4,105
Depreciation and amortization	52,616			50,583			157,773			149,300
General and administrative expenses	5,900			6,436			20,086			20,323
Total operating expenses	115,747			113,142			354,771			335,788
Operating income	30,811			30,212			94,401			87,764
Other income (expense):
Interest income	528			268			1,298			448
Historic tax credit transaction income	11,853			11,853			11,853			11,853
Interest expense	(31,481		)	(30,338		)	(94,837		)	(91,689		)
Amortization of deferred financing costs	(1,566		)	(1,158		)	(3,952		)	(3,502		)
Interest expense — financing obligation	(273		)	(264		)	(861		)	(693		)
Recognized hedge activity	(828		)	—			(828		)	—
Equity in income (loss) of real estate ventures	(486		)	714			(733		)	3,757
Net gain on disposition of real estate	4,698			—			4,698			—
Net gain (loss) on sale of undepreciated real estate	—			(129		)	1,184			(129		)
Net gain from remeasurement of investment in RE ventures	—			—			458			7,847
Net gain (loss) on real estate venture transactions	—			—			(417		)	3,683
Loss on early extinguishment of debt	(2,606		)	(11		)	(2,606		)	(1,127		)
Provision for impairment on assets held for sale	(1,765		)	—			(1,765		)	—
Income from continuing operations	8,885			11,147			7,893			18,212
Discontinued operations:
Income (loss) from discontinued operations	—			(43		)	18			946
Net gain (loss) on disposition of discontinued operations	(3		)	(16		)	900			3,029
Total discontinued operations	(3		)	(59		)	918			3,975
Net income	8,882			11,088			8,811			22,187
Net (income) loss from discontinued operations attributable to non-controlling interests — LP units	—			1			(10		)	(52		)
Net income attributable to non-controlling interest — partners' share of consolidated real estate ventures	(24		)	—			(12		)	—
Net income attributable to non-controlling interests — LP units	(84		)	(106		)	(35		)	(143		)
Net income attributable to non-controlling interests	(108		)	(105		)	(57		)	(195		)
Net income attributable to Brandywine Realty Trust	8,774			10,983			8,754			21,992
Distribution to Preferred Shares	(1,725		)	(1,725		)	(5,175		)	(5,175		)
Nonforfeitable dividends allocated to unvested restricted shareholders	(82		)	(85		)	(268		)	(278		)
Net income attributable to Common Shareholders of Brandywine Realty Trust	$	6,967		$	9,173		$	3,311		$	16,539
Basic income per Common Share:
Continuing operations	$	0.04		$	0.06		$	0.01		$	0.08
Discontinued operations	—			—			0.01			0.03
	$	0.04		$	0.06		$	0.02		$	0.11
Diluted income per Common Share:
Continuing operations	$	0.04		$	0.06		$	0.01		$	0.08
Discontinued operations	—			—			0.01			0.03
	$	0.04		$	0.06		$	0.02		$	0.11

Basic weighted average shares outstanding	171,606,722			156,703,348			161,866,955			151,933,441
Diluted weighted average shares outstanding	173,193,870			157,992,082			163,353,970			153,142,825
Net income attributable to Brandywine Realty Trust
Total continuing operations	$	8,777		$	11,041		$	7,846		$	18,069
Total discontinued operations	(3		)	(58		)	908			3,923
Net income	$	8,774		$	10,983		$	8,754		$	21,992

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

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)



	Three-month periods ended						Nine-month periods ended
	September 30,						September 30,
	2014			2013			2014			2013
Net income	$	8,882		$	11,088		$	8,811		$	22,187
Other comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments	4,232			(1,302		)	967			9,978
Recognized hedge activity	(828		)	—			(828		)	—
Reclassification of realized losses on derivative financial instruments to operations, net (1)	76			64			196			232
Comprehensive income	12,362			9,850			9,146			32,397
Comprehensive income attributable to non-controlling interest	(141		)	(91		)	(55		)	(312		)
Comprehensive income attributable to Brandywine Realty Trust	$	12,221		$	9,759		$	9,091		$	32,085

(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.

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF BENEFICIARIES’ EQUITY

For the nine-month period ended September 30, 2014

(unaudited, in thousands, except number of shares)



	Number of Preferred Shares	Par Value of Preferred 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			Non-Controlling Interests			Total
BALANCE, December 31, 2013	4,000,000	$	40	156,731,993	312,280	$	1,566	$	2,971,596		$	5,407	$	(5,407	)	$	522,528	$	(2,995	)	$	(1,592,515	)	$	21,215		$	1,921,435
Net loss																8,754								57			8,811
Comprehensive loss																		337						(2		)	335
Issuance of Common Shares of Beneficial Interest				21,850,000		219		335,179																			335,398
Conversion of LP Units to Common Shares				41,734				655																(655		)	—
Equity issuance costs								(452		)																	(452		)
Share-based compensation activity				279,913		5		4,597								12											4,614
Share issuance from/to Deferred Compensation Plan				78,729	72,256			(90		)	812		(812		)												(90		)
Adjustment to non-controlling interest								(1,172		)														1,172			—
Preferred Share distributions																					(5,175		)				(5,175		)
Distributions declared ($0.45 per share)																					(74,198		)	(788		)	(74,986		)
BALANCE, September 30, 2014	4,000,000	$	40	178,982,369	384,536	$	1,790	$	3,310,313		$	6,219	$	(6,219	)	$	531,294	$	(2,658	)	$	(1,671,888	)	$	20,999		$	2,189,890

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

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENT OF BENEFICIARIES’ EQUITY

For the nine-month period ended September 30, 2013

(unaudited, in thousands, except number of shares)



	Number of Preferred Shares	Par Value of Preferred 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			Non-Controlling Interests			Total
BALANCE, December 31, 2012	4,000,000	$	40	143,538,733		290,745		$	1,434	$	2,780,194		$	5,352	$	(5,352	)	$	479,734	$	(15,918	)	$	(1,493,206	)	$	21,238		$	1,773,516
Net income																		21,992								195			22,187
Comprehensive income																				10,093						117			10,210
Issuance of Common Shares of Beneficial Interest				12,650,000				127		181,907																			182,034
Equity issuance costs										(382		)																	(382		)
Conversion of LP Units to Common Shares				81,998				1		1,240																(1,241		)	—
Bonus share issuance				27,918						361																			361
Share-based compensation activity				409,979		34,117		3		8,022								9											8,034
Share issuance from/to Deferred Compensation Plan				(4,838	)	(11,839	)						79		(79		)												—
Adjustment to non-controlling interest										(766		)														766			—
Preferred Share distributions																							(5,175		)				(5,175		)
Distributions declared ($0.45 per share)																							(68,821		)	(806		)	(69,627		)
BALANCE, September 30, 2013	4,000,000	$	40	156,703,790		313,023		$	1,565	$	2,970,576		$	5,431	$	(5,431	)	$	501,735	$	(5,825	)	$	(1,567,202	)	$	20,269		$	1,921,158

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

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Nine-month periods ended
	September 30,
	2014			2013
Cash flows from operating activities:
Net income	$	8,811		$	22,187
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization	157,773			151,066
Amortization of deferred financing costs	3,952			3,502
Amortization of debt discount/(premium), net	(455		)	1,112
Amortization of stock compensation costs	3,622			5,510
Shares used for employee taxes upon vesting of share awards	(1,263		)	(1,062		)
Recognized hedge activity	828			—
Straight-line rent income	(11,416		)	(16,337		)
Amortization of acquired above (below) market leases, net	(5,206		)	(5,372		)
Straight-line ground rent expense	66			1,286
Provision for doubtful accounts	1,687			1,777
Net (gain) loss on real estate venture transactions	417			(3,683		)
Net gain on sale of interests in real estate	(5,882		)	(3,044		)
Net gain from remeasurement of investment in a real estate venture	(458		)	(7,847		)
Loss on early extinguishment of debt	2,606			1,127
Provision for impairment on assets held for sale	1,765			—
Historic tax credit transaction income	(11,853		)	(11,853		)
Real estate venture income in excess of distributions	659			(2,371		)
Deferred financing obligation	(864		)	(1,392		)
Changes in assets and liabilities:
Accounts receivable	(4,586		)	(287		)
Other assets	(10,317		)	(6,660		)
Accounts payable and accrued expenses	9,304			14,684
Deferred income, gains and rent	(4,430		)	1,265
Other liabilities	(1,760		)	1,718
Net cash from operating activities	133,000			145,326
Cash flows from investing activities:
Acquisition of properties	(12,405		)	(20,758		)
Sales of properties, net	81,625			145,931
Distribution of sales proceeds from real estate ventures	—			16,963
Proceeds from repayment of mortgage notes receivable	5,125			200
Capital expenditures for tenant improvements	(85,698		)	(64,481		)
Capital expenditures for redevelopments	(10,195		)	(5,288		)
Capital expenditures for developments	(48,057		)	(5,399		)
Reimbursement from real estate venture for pre-formation development costs	—			1,976
Advances for purchase of tenant assets, net of repayments	(212		)	(420		)
Investment in unconsolidated Real Estate Ventures	(16,330		)	(30,142		)
Escrowed cash	1,076			902
Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income	7,341			3,661
Leasing costs	(17,018		)	(25,704		)
Net cash from (used in) investing activities	(94,748		)	17,441
Cash flows from financing activities:
Proceeds from Credit Facility borrowings	—			186,000
Repayments of Credit Facility borrowings	—			(255,000		)
Repayments of mortgage notes payable	(9,994		)	(8,351		)
Repayments of unsecured term loans	(250,828		)	—
Proceeds from unsecured notes	496,459			—
Deferred financing obligation interest expense	—			697
Net proceeds from issuance of common shares	335,016			181,527
Repayments of unsecured notes	(120,361		)	(13,027		)
Debt financing costs	(3,630		)	(6		)



Exercise of stock options	709			2,240
Distributions paid to shareholders	(76,081		)	(72,061		)
Distributions to noncontrolling interest	(806		)	(818		)
Net cash from financing activities	370,484			21,201
Increase in cash and cash equivalents	408,736			183,968
Cash and cash equivalents at beginning of period	263,207			1,549
Cash and cash equivalents at end of period	$	671,943		$	185,517

Supplemental disclosure:
Cash paid for interest, net of capitalized interest during the nine months ended September 30, 2014 and 2013 of $4,466 and $2,012, respectively	$	92,196		$	76,528
Supplemental disclosure of non-cash activity:
Change in operating real estate related to a non-cash acquisition of an operating property	—			(21,649		)
Change in intangible assets, net related to non-cash acquisition of an operating property	—			(3,517		)
Change in acquired lease intangibles, net related to non-cash acquisition of an operating property	—			462
Change in investments in joint venture related to non-cash disposition of property	(5,897		)	—
Change in investments in joint venture related to non-cash acquisition of property	—			13,040
Change in operating real estate related to non-cash adjustment to land	—			(4,386		)
Change in receivable from settlement of acquisitions	619			—
Change in investments in real estate ventures related to a contribution of land	—			(6,058		)
Change in capital expenditures financed through accounts payable at period end	4,415			1,210
Change in capital expenditures financed through retention payable at period end	3,479			(736		)
Change in unfunded tenant allowance	(327		)	(811		)
Conversion of LP Units to Common Shares	655			1,241

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

BRANDYWINE OPERATING PARTNERSHIP, L.P.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except unit and per unit information)



	September 30, 2014			December 31, 2013
	(unaudited)
ASSETS
Real estate investments:
Operating properties	$	4,608,895		$	4,669,289
Accumulated depreciation	(1,053,571		)	(983,808		)
Operating real estate investments, net	3,555,324			3,685,481
Construction-in-progress	140,456			74,174
Land inventory	90,842			93,351
Total real estate investments, net	3,786,622			3,853,006
Cash and cash equivalents	671,943			263,207
Accounts receivable, net	19,825			17,389
Accrued rent receivable, net	131,211			126,295
Assets held for sale	37,647			—
Investment in real estate ventures, at equity	197,539			180,512
Deferred costs, net	122,881			122,954
Intangible assets, net	105,300			132,329
Other assets	75,383			69,403
Total assets	$	5,148,351		$	4,765,095
LIABILITIES AND PARTNERS' EQUITY
Mortgage notes payable	$	658,601		$	670,151
Unsecured term loans	200,000			450,000
Unsecured senior notes, net of discounts	1,854,779			1,475,230
Accounts payable and accrued expenses	97,022			83,693
Distributions payable	28,857			25,584
Deferred income, gains and rent	53,219			71,635
Acquired lease intangibles, net	27,388			34,444
Other liabilities	36,824			32,923
Liabilities related to assets held for sale	1,771			—
Total liabilities	2,958,461			2,843,660
Commitments and contingencies (Note 16)
Redeemable limited partnership units at redemption value; 1,721,905 and 1,763,739 issued and outstanding in 2014 and 2013, respectively	25,985			26,486
Brandywine Operating Partnership, L.P.’s equity:
6.90% Series E-Linked Preferred Mirror Units; issued and outstanding- 4,000,000 in 2014 and 2013	96,850			96,850
General Partnership Capital, 178,982,369 and 156,731,993 units issued and outstanding in 2014 and 2013, respectively	2,069,031			1,800,530
Accumulated other comprehensive loss	(3,042		)	(3,377		)
Total Brandywine Operating Partnership, L.P.’s equity	2,162,839			1,894,003
Non-controlling interest - consolidated real estate ventures	1,066			946
Total partners’ equity	2,163,905			1,894,949

Total liabilities and partners’ equity	$	5,148,351		$	4,765,095

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

BRANDYWINE OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except unit and per unit information)



	Three-month periods ended						Nine-month periods ended
	September 30,						September 30,
	2014			2013			2014			2013
Revenue:
Rents	$	120,288		$	116,382		$	363,581		$	347,054
Tenant reimbursements	20,095			20,694			64,057			60,595
Termination fees	1,418			2,040			6,970			2,946
Third party management fees, labor reimbursement and leasing	3,932			3,263			12,269			9,652
Other	825			975			2,295			3,305
Total revenue	146,558			143,354			449,172			423,552
Operating expenses:
Property operating expenses	42,675			40,639			132,612			119,421
Real estate taxes	12,869			14,167			39,167			42,639
Third party management expenses	1,687			1,317			5,133			4,105
Depreciation and amortization	52,616			50,583			157,773			149,300
General & administrative expenses	5,900			6,436			20,086			20,323
Total operating expenses	115,747			113,142			354,771			335,788
Operating income	30,811			30,212			94,401			87,764
Other income (expense):
Interest income	528			268			1,298			448
Historic tax credit transaction income	11,853			11,853			11,853			11,853
Interest expense	(31,481		)	(30,338		)	(94,837		)	(91,689		)
Amortization of deferred financing costs	(1,566		)	(1,158		)	(3,952		)	(3,502		)
Interest expense — financing obligation	(273		)	(264		)	(861		)	(693		)
Recognized hedge activity	(828		)	—			(828		)	—
Equity in income (loss) of real estate ventures	(486		)	714			(733		)	3,757
Net gain on disposition of real estate	4,698			—			4,698			—
Net gain (loss) on sale of undepreciated real estate	—			(129		)	1,184			(129		)
Net gain from remeasurement of investment in RE ventures	—			—			458			7,847
Net gain (loss) on real estate venture transactions	—			—			(417		)	3,683
Loss on early extinguishment of debt	(2,606		)	(11		)	(2,606		)	(1,127		)
Provision for impairment on assets held for sale	(1,765		)	—			(1,765		)	—
Income from continuing operations	8,885			11,147			7,893			18,212
Discontinued operations:
Income (loss) from discontinued operations	—			(43		)	18			946
Net gain (loss) on disposition of discontinued operations	(3		)	(16		)	900			3,029
Total discontinued operations	(3		)	(59		)	918			3,975
Net income	8,882			11,088			8,811			22,187
Net income attributable to non-controlling interests	(24		)	—			(12		)	—
Net income attributable to Brandywine Operating Partnership	8,858			11,088			8,799			22,187
Distribution to Preferred Units	(1,725		)	(1,725		)	(5,175		)	(5,175		)
Amount allocated to unvested restricted unitholders	(82		)	(85		)	(268		)	(278		)
Net income attributable to Common Partnership Unitholders of Brandywine Operating Partnership, L.P.	$	7,051		$	9,278		$	3,356		$	16,734
Basic income per Common Partnership Unit:
Continuing operations	$	0.04		$	0.06		$	0.01		$	0.08
Discontinued operations	—			—			0.01			0.03
	$	0.04		$	0.06		$	0.02		$	0.11
Diluted income per Common Partnership Unit:
Continuing operations	$	0.04		$	0.06		$	0.01		$	0.08
Discontinued operations	—			—			0.01			0.03
	$	0.04		$	0.06		$	0.02		$	0.11
Basic weighted average common partnership units outstanding	173,341,782			158,467,087			163,620,963			153,731,070
Diluted weighted average common partnership units outstanding	174,928,930			159,755,821			165,107,978			154,940,454
Net income (loss) attributable to Brandywine Operating Partnership, L.P.
Total continuing operations	$	8,861		$	11,147		$	7,881		$	18,212
Total discontinued operations	(3		)	(59		)	918			3,975
Net income	$	8,858		$	11,088		$	8,799		$	22,187

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

BRANDYWINE OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)



	Three-month periods ended						Nine-month periods ended
	September 30,						September 30,
	2014			2013			2014			2013
Net income	$	8,882		$	11,088		$	8,811		$	22,187
Other comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments	4,232			(1,302		)	967			9,978
Recognized hedge activity	(828		)	—			(828		)	—
Reclassification of realized losses on derivative financial instruments to operations, net (1)	76			64			196			232
Other comprehensive income (loss)	3,480			(1,238		)	335			10,210
Comprehensive income attributable to Brandywine Operating Partnership, L.P.	$	12,362		$	9,850		$	9,146		$	32,397

(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.

BRANDYWINE OPERATING PARTNERSHIP L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Nine-month periods ended
	September 30,
	2014			2013
Cash flows from operating activities:
Net income	$	8,811		$	22,187
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization	157,773			151,066
Amortization of deferred financing costs	3,952			3,502
Amortization of debt discount/(premium), net	(455		)	1,112
Amortization of stock compensation costs	3,622			5,510
Shares used for employee taxes upon vesting of share awards	(1,263		)	(1,062		)
Recognized hedge activity	828			—
Straight-line rent income	(11,416		)	(16,337		)
Amortization of acquired above (below) market leases, net	(5,206		)	(5,372		)
Straight-line ground rent expense	66			1,286
Provision for doubtful accounts	1,687			1,777
Net (gain) loss on real estate venture transactions	417			(3,683		)
Net gain on sale of interests in real estate	(5,882		)	(3,044		)
Net gain on remeasurement of investment in a real estate venture	(458		)	(7,847		)
Historic tax credit transaction income	(11,853		)	(11,853		)
Loss on early extinguishment of debt	2,606			1,127
Provision for impairment on assets held for sale	1,765			—
Real Estate venture income in excess of distributions	659			(2,371		)
Deferred financing obligation	(864		)	(1,392		)
Changes in assets and liabilities:
Accounts receivable	(4,586		)	(287		)
Other assets	(10,317		)	(6,660		)
Accounts payable and accrued expenses	9,304			14,684
Deferred income, gains and rent	(4,430		)	1,265
Other liabilities	(1,760		)	1,718
Net cash from operating activities	133,000			145,326
Cash flows from investing activities:
Acquisition of properties	(12,405		)	(20,758		)
Sales of properties, net	81,625			145,931
Distribution of sales proceeds from real estate venture	—			16,963
Proceeds from repayment of mortgage notes receivable	5,125			200
Capital expenditures for tenant improvements	(85,698		)	(64,481		)
Capital expenditures for redevelopments	(10,195		)	(5,288		)
Capital expenditures for developments	(48,057		)	(5,399		)
Reimbursement from real estate venture for pre-formation development costs	—			1,976
Advances for purchase of tenant assets, net of repayments	(212		)	(420		)
Investment in unconsolidated Real Estate Ventures	(16,330		)	(30,142		)
Escrowed cash	1,076			902
Cash distributions from unconsolidated Real Estate Ventures in excess of cumulative equity income	7,341			3,661
Leasing costs	(17,018		)	(25,704		)
Net cash from (used in) investing activities	(94,748		)	17,441
Cash flows from financing activities:
Proceeds from Credit Facility borrowings	—			186,000
Repayments of Credit Facility borrowings	—			(255,000		)
Repayments of mortgage notes payable	(9,994		)	(8,351		)
Repayments of unsecured term loans	(250,828		)	—
Proceeds from unsecured notes	496,459			—
Deferred financing obligation interest expense	—			697
Net proceeds from issuance of common units	335,016			181,527
Repayments of unsecured notes	(120,361		)	(13,027		)



Debt financing costs	(3,630		)	(6		)
Exercise of stock options	709			2,240
Distributions paid to preferred and common partnership unitholders	(76,887		)	(72,879		)
Net cash from (used in) financing activities	370,484			21,201
Increase (Decrease) in cash and cash equivalents	408,736			183,968
Cash and cash equivalents at beginning of period	263,207			1,549
Cash and cash equivalents at end of period	$	671,943		$	185,517

Supplemental disclosure:
Cash paid for interest, net of capitalized interest during the nine months ended September 30, 2014 and 2013 of $4,466 and $2,012, respectively	$	92,196		$	76,528
Supplemental disclosure of non-cash activity:
Change in operating real estate related to a non-cash acquisition of an operating property	—			(21,649		)
Change in intangible assets, net related to a non-cash acquisition of an operating property	—			(3,517		)
Change in acquired lease intangibles, net related to a non-cash acquisition of an operating property	—			462
Change in investments in joint venture related non-cash disposition of property	(5,897		)	—
Change in investments in joint venture related to non-cash acquisition of property	—			13,040
Change in operating real estate related to non-cash adjustment to land	—			(4,386		)
Change in receivable from settlement of acquisitions	619			—
Change in investments in real estate ventures related to a contribution of land	—			(6,058		)
Change in capital expenditures financed through accounts payable at period end	4,415			1,210
Change in capital expenditures financed through retention payable at period end	3,479			(736		)
Change in unfunded tenant allowance	(327		)	(811		)
Conversion of LP Units to Common Shares	655			1,241

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

BRANDYWINE REALTY TRUST AND BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

1. ORGANIZATION OF THE PARENT COMPANY AND THE OPERATING PARTNERSHIP

The Parent Company is a self-administered and self-managed real estate investment trust (“REIT”) that provides leasing, property management, development, redevelopment, acquisition and other tenant-related services for a portfolio of office, industrial, retail and mixed-use properties. The Parent Company owns its assets and conducts its operations through the Operating Partnership and subsidiaries of the Operating Partnership. The Parent Company is the sole general partner of the Operating Partnership and, as of September 30, 2014, owned a 98.9% 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”.

As of September 30, 2014, the Company owned 205 properties, consisting of 169 office properties, 20 industrial facilities, five mixed-use properties, one retail property (195 core properties), five properties classified as held for sale, three development properties, one redevelopment property and one re-entitlement property (collectively, the “Properties”) containing an aggregate of approximately 25.4 million net rentable square feet. In addition, as of September 30, 2014, the Company owned economic interests in 17 unconsolidated real estate ventures that own properties containing an aggregate of approximately 6.1 million net rentable square feet (collectively, the “Real Estate Ventures”). As of September 30, 2014, the Company also owned 415 acres of undeveloped land, and held options to purchase approximately 50 additional acres of undeveloped land. As of September 30, 2014, these land parcels could support, under current zoning and entitlements, approximately 5.7 million square feet of development inclusive of options to purchase approximately 50 additional acres of undeveloped land. The Properties and the properties owned by the Real Estate Ventures are located in or near Philadelphia, Pennsylvania; Metropolitan Washington, D.C.; Southern New Jersey; Richmond, Virginia; Wilmington, Delaware; Austin, Texas and Oakland, Concord and Carlsbad, California.

The Company conducts its third-party real estate management services business primarily through wholly-owned management company subsidiaries. As of September 30, 2014, the management company subsidiaries were managing properties containing an aggregate of approximately 33.7 million net rentable square feet, of which approximately 25.4 million net rentable square feet related to Properties owned by the Company and approximately 8.3 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 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 (consisting solely of normal recurring matters) for a fair statement of the financial position of the Company as of September 30, 2014, the results of its operations for the three and nine-month periods ended September 30, 2014 and 2013 and its cash flows for the nine-month periods ended September 30, 2014 and 2013 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 Parent Company’s and the Operating Partnership’s consolidated financial statements and footnotes included in their combined 2013 Annual Report on Form 10-K filed with the SEC on February 25, 2014.

Reclassifications

Certain amounts have been reclassified in prior years to conform to the current year presentation, including the reclassification of notes receivable to other assets within the balance sheets and the reclassification of changes in escrow balances from operating cash flows to investing cash flows in the statements of cash flows. All other reclassifications are related to the treatment of sold properties as discontinued operations on the statement of operations for all periods presented. See Recent Accounting Pronouncements below for revisions to the accounting guidance for discontinued operations.

Recent Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board ("FASB") issued guidance regarding an Entity’s Ability to Continue as a Going Concern, which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Before this new standard, there was minimal guidance in U.S. GAAP specific

to going concern. Under the new standard, disclosures are required when conditions give rise to substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early adoption permitted. The Company has not yet determined the impact, if any, that the adoption of this guidance will have on its consolidated financial statements.

In May 2014 FASB issued guidance requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for goods and services. The guidance requires the disclosure of sufficient quantitative and qualitative information for financial statement users to understand the nature, amount, timing and uncertainty of revenue and associated cash flows arising from contracts with customers. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early adoption precluded. The Company has not yet determined the impact, if any, that the adoption of this guidance will have on its consolidated financial position or results of operations.

In April 2014 the FASB issued revised guidance on discontinued operations and disclosures of disposals of components of an entity. The update revises the definition to include only disposals involving a strategic shift that has a major effect on the entity’s operations and financial results when the disposal asset or group meets the existing criterion for treatment as held for sale. Examples of a strategic shift include the withdrawal from a major geographic area, line of business, equity method investment or any other major parts of a business, as applicable. A component of the entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In addition, the revised standard no longer precludes presentation as a discontinued operation if there are operations and cash flows of the component that have not been eliminated from the reporting entity’s ongoing operations, or if there is significant continuing involvement with a component after its disposal.

The amendments require additional disclosures about discontinued operations including; the major classes of net income or loss where net income is otherwise presented, the operating and investing cash flows of discontinued operations where net income is otherwise presented, depreciation, amortization, capital expenditures and significant operating and investing non-cash items of the discontinued operation for the periods in which net income is otherwise presented and, if there is a non-controlling interest, the related allocation to the parent company.

Application is prospective, and required for periods beginning on or after December 15, 2014. This update should not be applied to assets classified as held for sale before the effective date even if the component of an entity is disposed of after the effective date. Early adoption is permitted for disposals or assets held for sale that have not been reported in the financial statements previously issued or available for issuance. The Company has elected to early adopt this standard as of January 1, 2014. All properties sold or determined held for sale prior to January 1, 2014 are classified as discontinued operations for all periods presented.

3. REAL ESTATE INVESTMENTS

As of September 30, 2014 and December 31, 2013, the gross carrying value of the Company’s Properties was as follows (in thousands):



	September 30, 2014		December 31, 2013
Land	$	675,109	$	680,513
Building and improvements	3,419,903		3,504,060
Tenant improvements	513,883		484,716
	$	4,608,895	$	4,669,289

Acquisitions

During the nine months ended September 30, 2014, the Company recorded a $0.5 million gain on remeasurement of its investment in partnerships with Parkway Properties, Inc. On December 19, 2013, the Company increased its equity ownership interest from 25% to 99% in each of the two partnerships that own One and Two Commerce Square, two 41-story trophy-class office towers in Philadelphia, Pennsylvania. As of December 31, 2013, the Company had recorded a $1.6 million net receivable balance from its former partner. This receivable balance represented the former partner's estimated portion of the net current assets pursuant to the terms of the agreement (the "Redemption Agreement") that provided for the forgoing transaction. In accordance with settlement procedures provided for in the Redemption Agreement, the Company and Parkway finalized the purchase accounting based on facts and circumstances that existed at the date of the acquisition but that were not fully known at such time. During the nine months ended September 30, 2014, $2.1 million of consideration was received from the former partner in full settlement of the

aforementioned provision and a measurement period adjustment was made to adjust the fair value of the Company's previously held equity investment, resulting in a gain on remeasurement of the Company's investment in the partnerships of $0.5 million. For additional information related to this transaction, see the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

On February 19, 2014, the Company acquired 54.1 acres of undeveloped land known as Encino Trace in Austin, Texas for $14.0 million. The land is fully entitled with a site plan and building permits in place allowing for the development of two four-story office buildings containing approximately 320,000 net rentable square feet. The purchase price included an in-place lease, which was placed into construction in progress. As such, the Company has treated this transaction as a business combination and allocated the purchase price to the tangible and intangible assets. The Company capitalized $8.4 million in construction in progress, recorded $4.6 million in land inventory and recorded a deposit for a portion of the future development fee held in escrow of $1.0 million. The net assets were purchased using available corporate funds.

As of September 30, 2014, each of the two office buildings at Encino Trace were in development, and the Company had funded, through such date, $28.7 million, inclusive of the $14.0 million acquisition cost. During the second quarter of 2014, the Company reclassified the $4.6 million remaining in land inventory to construction in progress in connection with commencement of development of the second building. Additional project costs will be funded over the remaining construction period.

Dispositions

On September 30, 2014, the Company sold an office building containing 172,943 rentable square feet at 1880 Campus Commons Drive in Reston, Virginia commonly known as Campus Pointe for a sales price of $42.5 million resulting in a gain on sale of $4.7 million after closing and other transaction related costs. The disposal of Campus Pointe does not represent a strategic shift that has a major effect on the Company's operations and financial results. Accordingly, the property remains classified within continuing operations for all periods presented.

On April 16, 2014, the Company sold a 5.3 acre parcel of land located in Dallas, Texas for a sales price of $1.6 million resulting in a nominal gain on sale after closing and other transaction related costs. The land parcel was undeveloped as of the date of sale.

On April 7, 2014, the Company received $0.9 million from an escrow account that was established in connection with the sale of eight office properties containing 800,546 square feet in Lawrenceville, New Jersey, known as Princeton Pike Corporate Center. The sale of Princeton Pike Corporate Center was completed on February 25, 2013 for an aggregate sales price of $121.0 million and resulted in a $5.3 million gain on sale after closing and other transaction related costs. The escrow account was funded with $2.0 million at closing and was established for use by the buyer to fund certain tenant improvement projects with any unused portion to be returned to the Company. The unused amount received from the escrow account was recognized as a gain on sale during the period ended September 30, 2014. The aforementioned gain was recognized within discontinued operations which is consistent with the accounting classification of the assets that were disposed of on February 25, 2013.

On April 3, 2014, the Company contributed two 3-story, Class A office buildings, containing an aggregate of approximately 192,396 net rentable square feet known as Four Points Centre in Austin, Texas to an existing real estate venture (the "Austin Venture") that the Company formed in 2013 with G&I VII Austin Office LLC, an investment vehicle advised by DRA Advisors LLC ("DRA"). The Company contributed the properties to the Austin Venture at an agreed upon value of $41.5 million. In conjunction with the contribution: (i) the Austin Venture obtained a $29.0 million mortgage loan; (ii) the DRA member contributed $5.9 million in net cash to the capital of the Austin Venture; and (iii) the Austin Venture distributed $34.4 million to the Company and credited the Company with a $5.9 million capital contribution to the Austin Venture. The Company incurred a $0.2 million loss on the contribution, driven primarily by closing costs. The disposal of Four Points Centre does not represent a strategic shift that has a major effect on the Company's operations and financial results. Accordingly, the property remains classified within continuing operations for all periods presented.

On March 27, 2014, the Company sold a 16.8 acre undeveloped parcel of land located in Austin, Texas for a sales price of $3.5 million resulting in a $1.2 million gain on sale of undepreciated real estate after closing and other transaction related costs. The land parcel was undeveloped as of the date of sale.

Held for Sale

On October 24, 2014, the Company sold its Valleybrooke Office Park, comprised of five properties consisting of 279,934 rentable square feet, located in Malvern, Pennsylvania for a sale price of $37.9 million. As of September 30, 2014, the Company categorized its Valleybooke portfolio as held for sale on its consolidated balance sheet. The carrying value of the property exceeds the fair value less the costs of sale. As a result, the Company recognized an impairment loss totaling approximately $1.8 million during the three months ended September 30, 2014. The disposal of the Valleybrooke Office Park does not represent a strategic shift that

has a major effect on the Company's operations and financial results. Accordingly, the impairment loss and operating results of this property remain classified within continuing operations for all periods presented.

4. INVESTMENT IN UNCONSOLIDATED VENTURES

As of September 30, 2014, the Company held ownership interests in 17 unconsolidated Real Estate Ventures, of which $197.5 million is included in assets and $1.2 million is included in other liabilities relating to the negative investment balance of one real estate venture. The Company formed or acquired interests in these ventures with unaffiliated third parties to develop or manage office properties or to acquire land in anticipation of possible development of office or residential properties. As of September 30, 2014, 11 of the Real Estate Ventures owned 58 office buildings that contain an aggregate of approximately 6.1 million net rentable square feet; two Real Estate Ventures owned 3.8 acres of undeveloped parcels of land; three Real Estate Venture owned 21.8 acres of land under development; one Real Estate Venture owned a residential tower that contains 345 apartment units and one Real Estate Venture owned a hotel property that contains 137 rooms in Conshohocken, PA.

The Company accounts for its unconsolidated interests in its Real Estate Ventures using the equity method. The Company’s unconsolidated interests range from 20% to 65%, subject to specified priority allocations of distributable cash in certain of the Real Estate Ventures.

The amounts reflected in the following tables (except for the Company’s share of equity and income) are based on the historical financial information of the individual Real Estate Ventures. The Company does not record operating losses of a Real Estate Venture in excess of its investment balance unless the Company is liable for the obligations of the Real Estate Venture or is otherwise committed to provide financial support to the Real Estate Venture.

The following is a summary of the financial position of the Real Estate Ventures as of September 30, 2014 and December 31, 2013 (in thousands):



	September 30, 2014			December 31, 2013
Net property	$	1,140,798		$	965,475
Other assets	166,020			164,152
Other liabilities	59,690			49,442
Debt	852,636			699,860
Equity	394,492			380,325

Company’s share of equity (Company’s basis) (a)	197,539		(b)	180,512

(a) This amount includes 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.

(b) Does not include the negative investment balance of one real estate venture totaling $1.2 million as of September 30, 2014, which is included in other liabilities.

The Company held interests in 17 Real Estate Ventures containing an aggregate of approximately 6.1 million net rentable square feet as of the three and nine-month periods ended September 30, 2014 and 17 Real Estate Ventures containing an aggregate of approximately 6.2 million net rentable square feet as of the three and nine-month periods ended September 30, 2013. The following is a summary of results of operations of the Real Estate Ventures in which the Company had interests during these periods (in thousands):



	Three-month periods ended September 30,						Nine-month periods ended September 30,
	2014			2013			2014			2013
Revenue	$	37,446		$	30,684		$	106,905		$	108,500
Operating expenses	(15,433		)	(13,199		)	(44,257		)	(48,671		)
Interest expense, net	(9,245		)	(9,223		)	(26,234		)	(28,167		)
Depreciation and amortization	(13,552		)	(9,893		)	(40,423		)	(33,778		)
Net loss	(784		)	(1,631		)	(4,009		)	(2,116		)
Company’s share of income (loss) (Company’s basis)	(486		)	714			(733		)	3,757

Austin Venture - The Crossings

On July 31, 2014, the Austin Venture completed the acquisition of the Crossings at Lakeline, comprised of two 3-story buildings containing 232,274 rentable square feet located in Austin, TX for $48.2 million. The transaction was funded with $34.5 million of mortgage loan proceeds and $12.8 million (net of $0.9 million in purchase adjustments) of cash contributions, with $6.4 million from each of DRA and the Company. The fixed rate mortgage loan was financed through a non-affiliated third party. The Austin Venture incurred approximately $0.1 million of transaction costs to acquire the property. The Austin Venture expensed the acquisition costs and allocated the purchase price of the property, net of $0.6 million credit from the seller.

Based on the facts and circumstances of this acquisition, the consummation of the acquisition did not cause the Austin Venture to become a VIE to the Company. Accordingly, the Company continues to assess the consolidation of the Austin Venture under the voting interest model and its investment continues to be accounted for under the equity method of accounting.

Austin Venture - Four Points Centre

On April 3, 2014, the Company contributed two 3-story, Class A office buildings, containing an aggregate of 192,396 net rentable square feet, known as Four Points Centre in Austin, Texas to the Austin Venture. See Note 3 for further information on the contribution.

Guarantees

As of September 30, 2014, the Company had provided guarantees on behalf of certain real estate ventures, consisting of (i) a $24.7 million payment guarantee on the construction loan for the project being undertaken by evo at Cira; (ii) a $3.2 million payment guarantee on the construction loan for the development project being undertaken by TB-BDN Plymouth Apartments; and (iii) a $0.5 million payment guarantee on a loan provided to PJP VII. In addition, during construction undertaken by Real Estate Ventures, the Company has provided and expects to continue to provide cost overrun and completion guarantees, with rights of contribution among partners in the real estate venture, as well as customary environmental indemnities and guarantees of customary exceptions to nonrecourse provisions in loan agreements. For additional information regarding these real estate ventures, see "Investments in Unconsolidated Ventures" in notes to the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

5. DEFERRED COSTS

As of September 30, 2014 and December 31, 2013, the Company’s deferred costs were comprised of the following (in thousands):



	September 30, 2014
	Total Cost		Accumulated Amortization			Deferred Costs, net
Leasing Costs	$	159,744	$	(63,136	)	$	96,608
Financing Costs	42,265		(15,992		)	26,273
Total	$	202,009	$	(79,128	)	$	122,881



	December 31, 2013
	Total Cost		Accumulated Amortization			Deferred Costs, net
Leasing Costs	$	155,885	$	(58,805	)	$	97,080
Financing Costs	40,317		(14,443		)	25,874
Total	$	196,202	$	(73,248	)	$	122,954

During each of the three and nine-month periods ended September 30, 2014, the Company capitalized internal direct leasing costs of $1.6 million and $5.6 million, respectively, and $1.8 million and $5.8 million during the three and nine-month periods ended September 30, 2013 in accordance with the accounting standard for the capitalization of leasing costs.

6. INTANGIBLE ASSETS AND LIABILITIES

As of September 30, 2014 and December 31, 2013, the Company’s intangible assets/liabilities were comprised of the following (in thousands):



	September 30, 2014
	Total Cost		Accumulated Amortization			Intangible assets/liabilities, net
Intangible assets, net:
In-place lease value	$	130,594	$	(38,403	)	$	92,191
Tenant relationship value	35,186		(26,517		)	8,669
Above market leases acquired	5,715		(1,275		)	4,440
Total intangible assets, net	$	171,495	$	(66,195	)	$	105,300

Acquired lease intangibles, net:
Below market leases acquired	$	53,049	$	(25,661	)	$	27,388



	December 31, 2013
	Total Cost		Accumulated Amortization			Intangible assets/liabilities, net
Intangible assets, net:
In-place lease value	$	150,782	$	(35,607	)	$	115,175
Tenant relationship value	38,692		(26,868		)	11,824
Above market leases acquired	6,673		(1,343		)	5,330
Total intangible assets, net	$	196,147	$	(63,818	)	$	132,329

Acquired lease intangibles, net:
Below market leases acquired	$	81,991	$	(47,547	)	$	34,444

As of September 30, 2014, the Company’s annual amortization for its intangible assets/liabilities were as follows (in thousands, and assuming no prospective early lease terminations):



	Assets		Liabilities
2014 (three months remaining)	$	5,892	$	1,378
2015	21,363		5,212
2016	16,898		3,253
2017	15,148		2,664
2018	11,399		2,241
Thereafter	34,600		12,640
Total	$	105,300	$	27,388

7. DEBT OBLIGATIONS

The following table sets forth information regarding the Company’s consolidated debt obligations at September 30, 2014 and December 31, 2013 (in thousands):



Property / Location	September 30, 2014			December 31, 2013			Effective Interest Rate		Maturity Date
MORTGAGE DEBT:
Tysons Corner	$	89,995		$	91,395		5.36%	(a)	Aug 2015
One Commerce Square	123,691			125,089			3.68%	(a)	Jan 2016
Two Logan Square	87,982			88,583			7.57%		Apr 2016
Fairview Eleven Tower	21,373			21,630			4.25%	(b)	Jan 2017
Two Commerce Square	112,000			112,000			4.51%	(a)	Apr 2023
Cira Square (GSA Philadelphia Campus)	186,109			190,964			7.00%		Sep 2030
Cira Centre South Garage	38,362			40,101			7.12%		Sep 2030
Principal balance outstanding	659,512			669,762
Plus: fair market value premiums (discounts), net	(911		)	389
Total mortgage indebtedness	$	658,601		$	670,151
UNSECURED DEBT:
Three-Year Term Loan - Swapped to fixed	$	—		$	150,000		2.60%	(d)	Feb 2015
Four-Year Term Loan	—			100,000			LIBOR + 1.75%	(c), (d)	Feb 2016
Seven-Year Term Loan - Swapped to fixed	200,000			200,000			3.62%		Feb 2019
$250.0M 5.400% Guaranteed Notes due 2014	143,500			218,549			5.53%	(e)	Nov 2014
$250.0M 7.500% Guaranteed Notes due 2015	114,919			157,625			7.76%	(e)	May 2015
$250.0M 6.000% Guaranteed Notes due 2016	149,919			149,919			5.95%		Apr 2016
$300.0M 5.700% Guaranteed Notes due 2017	300,000			300,000			5.68%		May 2017
$325.0M 4.950% Guaranteed Notes due 2018	325,000			325,000			5.13%		Apr 2018
$250.0M 3.950% Guaranteed Notes due 2023	250,000			250,000			4.02%		Feb 2023
$250.0M 4.100% Guaranteed Notes due 2024	250,000			—			4.23%	(e)	Oct 2024
$250.0M 4.550% Guaranteed Notes due 2029	250,000			—			4.60%	(e)	Oct 2029
Indenture IA (Preferred Trust I)	27,062			27,062			2.75%		Mar 2035
Indenture IB (Preferred Trust I)	25,774			25,774			3.30%		Apr 2035
Indenture II (Preferred Trust II)	25,774			25,774			3.09%		Jul 2035
Principal balance outstanding	2,061,948			1,929,703
Plus: original issue premiums (discounts), net	(7,169		)	(4,473		)
Total unsecured indebtedness	$	2,054,779		$	1,925,230
Total Debt Obligations	$	2,713,380		$	2,595,381


(a)	These loans were assumed upon acquisition of the related properties. The interest rate reflects the market rate at the time of acquisition.


(b)	Represents the full debt amount secured by a property owned by a consolidated real estate venture in which the Company holds a 50% interest.


(c)	London Interbank Offered Rate (“LIBOR”).


(d)	On September 16, 2014, the Company repaid all balances outstanding under its $150.0 million three-year term loan and its $100.0 million four-year term loan prior to the scheduled maturity dates of February 1, 2015 and February 1, 2016, respectively.

(e)

On September 16, 2014, the Company closed on an underwritten offering of $250 million 4.10% Guaranteed Notes due 2024 (the "2-24 Notes") and $250.0 million 4.55% Guaranteed Notes due 2029 (the "2029 Notes"). The Company used the net proceeds, together with cash on hand, to redeem a portion of its 5.40% Guaranteed Notes due November 1, 2014 (the "2014 Notes") and its 7.50% Guaranteed Notes due May 15, 2015 (the "2015 Notes"). (See further discussion below).

During the nine-month periods ended September 30, 2014 and 2013, the Company’s weighted-average effective interest rate on its mortgage notes payable was 5.73% and 6.64%, respectively.

On September 16, 2014, the Company closed on an underwritten offering of its 2024 Notes and 2029 Notes (as defined above). The 2024 Notes were priced at 99.388% of their face amount with a yield to maturity of 4.175%, representing a spread at the time of pricing of 1.70%. The 2029 Notes were priced at 99.191% of their face amount with a yield to maturity of 4.625%, representing a spread at the time of pricing of 2.15%. The 2024 Notes and 2029 Notes have been reflected net of discount of $1.5 million and $2.0 million, respectively, in the consolidated balance sheet as of September 30, 2014.

The Company used a portion of the net proceeds from the sale of the 2024 Notes and 2029 Notes, aggregating $492.9 million after the deduction for underwriting discounts and offering expenses, to fund its repurchase, through a tender offer, of a portion of 2014 Notes and 2015 Notes (as defined above). Specifically, on September 16, 2014, the Company funded, under the tender offer, $75.1 million in respect of the 2014 Notes and $42.7 million in respect of the 2015 Notes. The Company recognized a $2.6 million loss on early extinguishment of debt related to the total repurchase.

On September 16, 2014, the Company repaid the entire $150.0 million three-year term loan and $100.0 million four-year term loan prior to their scheduled February 2015 and 2016 maturities, respectively. In connection with these repayments, the Company accelerated $0.3 million of deferred financing amortization expense and also incurred a $0.8 million charge on the termination of associated interest rate swap contracts, as reflected in the Company's consolidated statements of operations. Please refer to Footnote 9 for further information related to the termination of the interest rate swap contracts.

On September 16, 2014, the Company gave notice of redemption, in full, of the $143.5 million of 2014 Notes that remained outstanding following completion of the tender offer. The Company completed the redemption of the 2014 Notes on October 16, 2014 at a cash redemption price of 1,026.88 per $1,000 principal amount of the 2014 Notes (inclusive of accrued interest to the redemption date). Also on September 16, 2014, the Company gave notice of redemption, in full, of the $114.9 million of 2015 Notes that remained outstanding following completion of the tender offer. The Company completed the redemption of the 2015 Notes on October 16, 2014 at a cash redemption price of $1,070.24 per $1,000 principal amount of the 2015 Notes (inclusive of accrued interest to the redemption date).

The following table provides additional information on the Company’s repurchase of $117.8 million in aggregate principal amount of its outstanding unsecured notes (consisting of a portion of the 2014 Notes and 2015 Notes, as indicated above) during the nine-month period ended September 30, 2014 (in thousands):




Notes	Repurchase Amount		Principal		Loss			Deferred Financing Amortization
2014 5.400% Notes	$	75,531	$	75,049	$	(527	)	$	5
2015 7.500% Notes	44,593		42,706		(2,079		)	41
	$	120,124	$	117,755	$	(2,606	)	$	46

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 utilizes its unsecured revolving credit facility (the "Credit Facility") for general business purposes, including funding costs of acquisitions, developments and redevelopments and repayment of other debt. The scheduled maturity date of the Credit Facility in place at September 30, 2014 is February 1, 2016. The per annum variable interest rate on balances outstanding under the Credit Facility is LIBOR plus 1.50%. The interest rate and facility fee are subject to adjustment upon a change in the Company’s unsecured debt ratings. As of September 30, 2014, the Company did not have any outstanding borrowings on its Credit Facility, with $2.8 million in letters of credit outstanding, leaving $597.2 million of unused availability under the Credit Facility. During each of the three and nine-month periods ended September 30, 2014 and 2013, there were no weighted-average interest rates associated with the Credit Facility because there were no borrowings outstanding under the Credit Facility during either period.

The Company has the option to increase the amounts available to be advanced under the Credit Facility, subject to customary conditions and limitations, by obtaining additional commitments from the current lenders and other financial institutions. The Company also has the option to extend by one year the maturity dates of the Credit Facility, subject to payment of an extension fee and other customary conditions and limitations. The $200.0 million seven-year term loan is subject to a prepayment penalty of 1.00% through February 1, 2015 with no penalty thereafter.

The spread to LIBOR for LIBOR-based loans under the Credit Facility and under the $200.0 million seven-year term loan depends on the Company's unsecured senior debt credit rating. Based on the Company's current credit rating, the spread will be 150 basis points under the Credit Facility and 190 basis points under the seven-year term loan. At the Company's option, advances under the Credit Facility and term loan may also bear interest at a per annum floating rate equal to the higher of the prime rate or the federal funds rate plus 0.50% per annum. The Credit Facility contains a competitive bid option that allows banks that are part of the lender consortium to bid on loans to the Company at a reduced rate.

The Company executed hedging transactions that fix the rate on the $200.0 million seven-year term loan at a 3.623% average rate for its full term. All hedges commenced on February 1, 2012 and the rates are inclusive of the LIBOR spread based on the Company's current investment grade rating. See Note 9 for details of the interest rate swaps entered into as of September 30, 2014.

The Credit Facility and term loan contain financial and operating covenants and restrictions. The Company was in compliance with all such restrictions and financial covenants as of September 30, 2014. In the event of a default related to the financing and operating covenants, the Company's dividend distributions are limited to the greater of 95% of funds from operations or the minimum amount necessary for the Company to maintain its status as a REIT.

As of September 30, 2014, the Company’s aggregate scheduled principal payments on debt obligations, excluding amortization of discounts and premiums, were as follows (in thousands):



2014 (three months remaining)	$	261,996		(a)
2015	102,030
2016	367,703
2017	330,323
2018	336,954
Thereafter	1,322,454
Total principal payments	2,721,460
Net unamortized premiums/(discounts)	(8,080		)
Outstanding indebtedness	$	2,713,380


(a)	The Company completed the redemption of the 5.40% Guaranteed Notes due November 1, 2014 and 7.50% Guaranteed Notes due May 15, 2015 through a tender offer on October 16, 2014. See Note 17 - Subsequent Events, for discussion of redemption.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company determined the fair values disclosed below using available market information and discounted cash flow analyses as of September 30, 2014 and December 31, 2013, 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 September 30, 2014 and December 31, 2013 approximate the fair values for cash and cash equivalents, accounts receivable, other assets (excluding notes receivable), accounts payable and accrued expenses.

The following are financial instruments for which the Company’s estimates of fair value differ from the carrying amounts (in thousands):



	September 30, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Unsecured notes payable	$	1,776,169	$	1,848,107	$	1,396,620	$	1,471,041
Variable rate debt	$	278,610	$	257,212	$	528,610	$	526,693
Mortgage notes payable	$	658,601	$	691,022	$	670,151	$	715,244
Notes receivable	$	1,901	$	3,517	$	7,026	$	7,759

The fair value of the Company's unsecured notes payable are categorized as Level 2 (as provided by the accounting standard for Fair Value Measurements and Disclosures), as these instruments are valued using quoted market prices as of September 30, 2014 and December 31, 2013.

The fair value of the variable rate debt was estimated using a discounted cash flow analysis valuation on the borrowing rates currently available to the Company for loans with similar terms and maturities, as applicable. The fair value of the mortgage debt was determined by discounting the future contractual interest and principal payments by a blended market rate for fully secured loans with similar terms and maturities. The weighted average discount rate for the combined variable rate debt and mortgage loans as of September 30, 2014 was 4.01%. The fair value of the notes receivable was estimated using the expected cash flows of the notes receivable, and discounting those cash flows using the market rate of interest for mortgage notes with a comparable level of risk. The Company used a discount rate of 14.66% for the notes receivable as of September 30, 2014. The Company applies its knowledge of the debt markets to determine appropriate discount rates to utilize in the discounted cash flow models. As these inputs are unobservable, the Company has categorized the valuation of mortgage notes payable, variable rate debt and notes receivable as Level 3 (as provided by the accounting standard for Fair Value Measurements and Disclosures).

Disclosure about the fair value of financial instruments is based upon pertinent information available to management as of September 30, 2014 and December 31, 2013. 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 September 30, 2014, and current estimates of fair value may differ from the amounts presented herein.

9. FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS

The following table summarizes the terms and fair values of the Company's derivative financial instruments as of September 30, 2014 and December 31, 2013. 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

BRANDYWINE OPERATING PARTNERSHIP, L.P. 10-Q