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, 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		(I.R.S. Employer Identification No.)
Incorporation or organization)
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 86,843,035 Common Shares of Beneficial Interest, par value $0.01 per share, were outstanding as of November 1, 2007.

 

 

TABLE OF CONTENTS

				Page
		Brandywine Realty Trust
PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements (unaudited)
		Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006			3
		Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2007 and 2006			4
		Consolidated Statements of Other Comprehensive Income for the three- and nine-month periods ended September 30, 2007 and 2006			5
		Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2007 and September 30, 2006			6
		Notes to Unaudited Consolidated Financial Statements			7
		Brandywine Operating Partnership, L.P.
Item 1.		Financial Statements (unaudited)
		Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006			35
		Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2007 and 2006			36
		Consolidated Statements of Other Comprehensive Income for the three- and nine-month periods ended September 30, 2007 and 2006			37
		Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2007 and September 30, 2006			38
		Notes to Unaudited Consolidated Financial Statements			39
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			67
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			86
Item 4.		Controls and Procedures			86
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			87
Item 1A.		Risk Factors			87
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			87
Item 3.		Defaults Upon Senior Securities			87
Item 4.		Submission of Matters to a Vote of Security Holders			87
Item 5.		Other Information			87
Item 6.		Exhibits			88
		Signatures			89
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, Pursuant to Section 906
Certification of Chief Financial Officer
Certification of Chief Executive Officer, in its capacity as the general partner, Pursuant to Section 906
Certification of Chief Financial Officer, in its capacity as the general partner, 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

Item 1. — Financial Statements

BRANDYWINE REALTY TRUST

		September 30,				December 31,
		2007				2006
ASSETS
Real estate investments:
Operating properties		$	4,997,025			$	4,927,305
Accumulated depreciation			(583,843	)			(515,698	)
Operating real estate investments, net			4,413,182				4,411,607
Development land and construction-in-progress			406,732				328,119
Total real estate invesmtents, net			4,819,914				4,739,726
Cash and cash equivalents			17,661				25,379
Accounts receivable, net (Note 2)			17,644				19,957
Accrued rent receivable, net			81,529				71,589
Asset held for sale, net			—				126,016
Investment in real estate ventures, at equity (Note 4)			72,237				74,574
Deferred costs, net (Note 5)			84,309				73,708
Intangible assets, net (Note 6)			233,405				281,251
Other assets			79,358				96,818
Total assets		$	5,406,057			$	5,509,018
LIABILITIES AND BENEFICIARIES’ EQUITY
Mortgage notes payable (Note 7)		$	617,645			$	883,920
Unsecured notes, net of discounts (Note 7)			2,208,207				2,208,310
Unsecured credit facility (Note 7)			442,664				60,000
Accounts payable and accrued expenses			111,480				108,400
Distributions payable			42,253				42,760
Tenant security deposits and deferred rents			59,107				55,697
Acquired below market leases, net (Note 6)			72,731				92,527
Other liabilities			17,899				14,661
Mortgage notes payable and other liabilities held for sale			—				20,826
Total liabilities			3,571,986				3,487,101
Minority interest — partners’ share of consolidated real estate ventures (Note 10)			—				34,428
Minority interest — LP units (Note 10)			81,583				89,563
Commitments and contingencies (Note 14 )
Beneficiaries’ equity (Note 11):
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- 86,843,035 in 2007 and 88,327,041 in 2006			868				883
Additional paid-in capital			2,269,250				2,311,541
Cumulative earnings			446,706				423,764
Accumulated other comprehensive (loss) income			(2,865	)			1,576
Cumulative distributions			(961,514	)			(839,881	)
Total beneficiaries’ equity			1,752,488				1,897,926
Total liabilities, minority interest and beneficiaries’ equity		$	5,406,057			$	5,509,018

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

BRANDYWINE REALTY TRUST

		For the three-month periods ended								For the nine-month periods ended
		September 30,								September 30,
		2007				2006				2007				2006
Revenue:
Rents		$	142,089			$	131,649			$	418,626			$	385,185
Tenant reimbursements			21,415				22,648				63,254				54,778
Other			11,900				8,145				20,929				16,826
Total revenue			175,404				162,442				502,809				456,789
Operating Expenses:
Property operating expenses			48,866				46,396				140,036				128,874
Real estate taxes			15,848				15,724				48,310				44,319
Depreciation and amortization			61,516				60,292				181,790				175,649
General & administrative expenses			7,452				6,490				21,714				22,704
Total operating expenses			133,682				128,902				391,850				371,546
Operating income			41,722				33,540				110,959				85,243
Other Income (Expense):
Interest income			1,060				2,479				3,450				7,702
Interest expense			(40,868	)			(44,504	)			(122,029	)			(126,478	)
Interest expense — Deferred financing costs			(1,058	)			(789	)			(3,381	)			(2,062	)
Equity in income of real estate ventures			763				370				6,021				1,798
Net gain on disposition of undepreciated real estate			421				—				421				2,608
Gain on termination of purchase contract			—				3,147				—				3,147
Income (loss) before minority interest and discontinuted operations			2,040				(5,757	)			(4,559	)			(28,042	)
Minority interest — partners’ share of consolidated real estate ventures			5				279				(103	)			560
Minority interest attributable to continuing operations — LP units			(2	)			344				456				1,486
Income (loss) from continuing operations			2,043				(5,134	)			(4,206	)			(25,996	)
Discontinued operations:
Income from discontinued operations			—				2,643				2,869				10,008
Net gain on disposition of discontinued operations			338				5,188				25,491				5,188
Minority interest — partners’ share of consolidated real estate ventures			—				(1,857	)			—				(2,239	)
Minority interest attributable to discontinued operations — LP units			(14	)			(276	)			(1,211	)			(595	)
Income from discontinued operations			324				5,698				27,149				12,362
Net income (loss)			2,367				564				22,943				(13,634	)
Income allocated to Preferred Shares			(1,998	)			(1,998	)			(5,994	)			(5,994	)
Income (loss) allocated to Common Shares		$	369			$	(1,434	)		$	16,949			$	(19,628	)
Basic earnings (loss) per Common Share:
Continuing operations		$	0.00			$	(0.08	)		$	(0.12	)		$	(0.36	)
Discontinued operations			0.00				0.06				0.31				0.14
		$	0.00			$	(0.02	)		$	0.19			$	(0.22	)
Diluted earnings (loss) per Common Share:
Continuing operations		$	0.00			$	(0.08	)		$	(0.12	)		$	(0.36	)
Discontinued operations			0.00				0.06				0.31				0.14
		$	0.00			$	(0.02	)		$	0.19			$	(0.22	)
Dividends declared per Common Share		$	0.44			$	0.44			$	1.32			$	1.32
Basic weighted average shares outstanding			86,897,335				90,042,270				87,416,757				89,963,541
Diluted weighted average shares outstanding			87,114,598				90,042,270				87,416,757				89,963,541

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

BRANDYWINE REALTY TRUST

		For the three-month periods								For the nine-month periods
		ended September 30,								ended September 30,
		2007				2006				2007				2006
Net income (loss)		$	2,367			$	564			$	22,943			$	(13,634	)
Other comprehensive income:
Unrealized gain (loss) on derivative financial instruments			(461	)			(1,070	)			(883	)			1,293
Less: minority interest — consolidated real estate venture partner’s share of unrealized gain (loss) on derivative financial instruments			—				525				—				(284	)
Settlement of treasury locks			(3,860	)			—				(3,860	)			—
Settlement of forward starting swaps			—				—				1,148				3,266
Reclassification of realized (gains)/losses on derivative financial instruments to operations, net			171				9				(214	)			113
Unrealized gain (loss) on available — for — sale securities			(37	)			595				(632	)			(181	)
Total other comprehensive income (loss)			(4,187	)			59				(4,441	)			4,207
Comprehensive income (loss)		$	(1,820	)		$	623			$	18,502			$	(9,427	)

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

BRANDYWINE REALTY TRUST

		Nine-month periods
		ended September 30,
		2007				2006
Cash flows from (used in) operating activities:
Net income (loss)		$	22,943			$	(13,634	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation			135,354				143,893
Amortization:
Deferred financing costs			3,381				2,063
Deferred leasing costs			11,570				8,394
Acquired above (below) market leases, net			(9,311	)			(6,067	)
Acquired lease intangibles			39,463				50,471
Deferred compensation costs			3,486				2,332
Straight-line rent			(20,260	)			(23,486	)
Provision for doubtful accounts			1,000				2,970
Real estate venture income in excess of distributions			(20	)			(162	)
Net gain on sale of interests in real estate			(25,912	)			(7,797	)
Gain on termination of purchase contract			—				(3,147	)
Minority interest (expense)/income			858				788
Changes in assets and liabilities:
Accounts receivable			4,607				2,515
Other assets			(5,812	)			(13,494	)
Accounts payable and accrued expenses			27,449				36,192
Tenant security deposits and deferred rents			5,989				30,635
Other liabilities			(5,346	)			904
Net cash from operating activities			189,439				213,370
Cash flows from (used in) investing activities:
Acquisition of Prentiss			—				(935,856	)
Acquisition of properties			(88,890	)			(169,462	)
Acquisition of minority interest — partners’ share of consolidated real estate venture			(63,732	)			—
Sales of properties, net			234,428				258,931
Proceeds from termination of purchase contract			—				3,147
Capital expenditures			(194,009	)			(180,771	)
Investment in unconsolidated real estate ventures			(809	)			(643	)
Cash distributions from unconsolidated real estate ventures in excess of equity in income			2,917				2,444
Leasing costs			(13,854	)			(30,524	)
Net cash used in investing activities			(123,949	)			(1,052,734	)
Cash flows from (used in) financing activities:
Proceeds from Credit Facility borrowings			886,539				462,000
Repayments of Credit Facility borrowings			(503,875	)			(302,002	)
Proceeds from mortgage notes payable			—				20,520
Repayments of mortgage notes payable			(266,280	)			(29,327	)
Proceeds from term loan			—				750,000
Repayments of term loan			—				(750,000	)
Proceeds from unsecured notes			299,784				847,818
Repayments of unsecured notes			(299,866	)			—
Net settlement of hedge transactions			(2,712	)			3,266
Repayments on employee stock loans			—				60
Debt financing costs			(3,822	)			(6,991	)
Exercise of stock options			6,278				9,120
Repurchases of Common Shares			(59,426	)			(34,481	)
Distributions paid to shareholders			(122,075	)			(110,094	)
Distributions to minority interest holders			(7,753	)			(11,161	)
Net cash (used in) from financing activities			(73,208	)			848,728
Increase (decrease) in cash and cash equivalents			(7,718	)			9,364
Cash and cash equivalents at beginning of period			25,379				7,174
Cash and cash equivalents at end of period		$	17,661			$	16,538
Supplemental disclosure:
Cash paid for interest, net of capitalized interest of $12,757 in 2007 and $7,209 in 2006		$	118,766			$	108,426
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 acquistions			—				13,819
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

September 30, 2007

1. THE COMPANY

Brandywine Realty Trust, a Maryland real estate investment trust (“REIT”), is a self-administered and self-managed real estate investment trust 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.” The 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, 2007, the Company owned 244 office properties, 23 industrial facilities and one mixed-use property (collectively, the “Properties”) containing an aggregate of approximately 26.1 million net rentable square feet. The Company also has seven properties under development and 10 properties under redevelopment containing an aggregate 4.1 million net rentable square feet. As of September 30, 2007, the Company consolidates three office properties owned by real estate ventures containing 0.4 million net rentable square feet. Therefore, the Company owns and consolidates 288 properties with an aggregate of 30.6 million net rentable square feet. As of September 30, 2007, the Company owned economic interests in 13 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., Austin, TX and Oakland and San Diego, CA.

Brandywine Realty Trust is the sole general partner of the Operating Partnership and, as of September 30, 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 September 30, 2007 the Management Companies were managing properties containing an aggregate of approximately 43.7 million net rentable square feet, of which approximately 30.2 million net rentable square feet related to Properties owned by the Operating Partnership and approximately 13.5 million net rentable square feet related to properties owned by third parties and certain 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 September 30, 2007, the results of its operations for the three- and nine-month periods ended September 30, 2007 and 2006 and its cash flows for the nine-month periods ended September 30, 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

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

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, primarily the result of reclassifying the operations of properties sold to discontinued operations on the consolidated statement of operations.

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 either the ability to dissolve the entity or remove the Company without cause or 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 presented. 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 when applicable. 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-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

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

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 in-place lease values and tenant relationship values would be charged to expense and market rate adjustments would be recorded to revenue.

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. This straight-line rent adjustment increased revenue by approximately $4.8 million and $17.4 million for the three- and nine-month periods ended September 30, 2007 and approximately $7.5 million and $23.0 million for the three- and nine-month periods ended September 30, 2006. Deferred rents on the balance sheet represent rental revenue received prior to their due dates and tenant reimbursements of certain leasehold improvements that will remain the Company’s property at the end of the tenant’s lease term. The amortization of the leasehold improvement reimbursement is calculated on a straight-line basis over the term of the tenant’s lease and is a component of straight-line rental income and increased revenue by $0.7 million and $2.8 million for the three- and nine-month periods ended September 30, 2007 and approximately $0.1 million for the three- and nine-month periods ended September 30, 2006. 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 $8.0 million as of September 30, 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 third party leasing commissions, third party management fees, termination fees received from tenants and bankruptcy settlement fees. Other income includes

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

termination fees of $7.7 million and $9.5 million for the three- and nine-month periods ended September 30, 2007 and $4.7 million and $6.5 million for the three- and nine-month periods ended September 30, 2006.

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 2007, the Company’s shareholders approved an amendment to the Company’s Amended and Restated 1997 Long-Term Incentive Plan (the “1997 Plan”). The amendment provided for the merger of the Prentiss Properties Trust 2005 Share Incentive Plan (the “Prentiss 2005 Plan”) with and into the 1997 Plan, thereby transferring into the 1997 Plan all of the shares that remained available for award under the Prentiss 2005 Plan. The Company had previously assumed the Prentiss 2005 Plan, together with other Prentiss incentive plans, as part of the Company’s January 2006 acquisition of Prentiss Properties Trust (“Prentiss”). The 1997 Plan reserves 500,000 common shares solely for awards under options and share appreciation rights that have an exercise or strike price at least equal to the market price of the common shares on the date of award and the remaining shares under the 1997 Plan are available for any type of award, including restricted share and performance share awards and options. Incentive stock options may not be granted with an exercise price that is lower than the market price of the common shares on the grant date. All options awarded by the Company to date are non-qualified stock options that generally had an initial vesting schedule that ranged from two to ten years. As of September 30, 2007, approximately 4.1 million common shares remained available for future award under the 1997 Plan (including the 500,000 shares that are limited to option awards as described above, and without giving effect to any shares that would become available for awards if and to the extent that outstanding awards lapse, expire or are forfeited).

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 $0.9 million and $3.5 million during the three- and nine-month periods ended September 30, 2007 and $0.9 million and $2.3 million during the three- and nine-month periods ended September 30, 2006, respectively.

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. 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, may enter 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. For the three-month and nine-month periods ended September 30, 2007 and 2006, the Company was not party to any derivative contract designated as a fair value hedge. For the three-month period ended September 30, 2007, the Company recognized $0.2 million in the statement of operations for the ineffective portion of its cash flow hedges. See Note 8.

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

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

order to maintain their qualification as REITs, Brandywine Realty Trust and each of its REIT subsidiaries are required to, among other things, distribute at least 90% of their 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 their 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 REITs. 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 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. 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 June 2007, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 addresses when the accounting principles of the AICPA Audit and Accounting Guide “Investment Companies” must be applied by an entity and whether investment company accounting must be retained by a parent company in consolidation or by an investor in the application of the equity method of accounting. In addition, SOP 07-1 includes certain disclosure requirements for parent companies and equity method investors in investment companies that retain investment company accounting in the parent company’s consolidated financial statements or the financial statements of an equity method investor. SOP 07-1 is effective for the fiscal year beginning January 1, 2008. The Company has determined that it is not an investment company under the provisions of SOP 07-1 and does not expect to retain specialized investment company accounting for any of its consolidated or equity method investments where the investment entity may be deemed an investment company. Accordingly, the Company does not expect the adoption of SOP 07-1 to have a material impact on its financial position and results of operations.

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. This Statement is effective for fiscal years beginning after November 15, 2007. 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. SFAS No. 157 also provides for certain disclosure requirements, including, but not limited to,

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

the valuation techniques used to measure fair value and a discussion of changes in valuation techniques, if any, during the period. 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 its financial position and results of operations.

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 September 30, 2007 and December 31, 2006, the gross carrying value of the Company’s operating properties was as follows (amounts in thousands):

		September 30, 2007				December 31, 2006
Land		$	759,231			$	756,400
Building and improvements			3,813,882				3,807,040
Tenant improvements			423,912				363,865
		$	4,997,025			$	4,927,305

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

On September 7, 2007, the Company sold Iron Run Land, seven land parcels located in Lehigh County, Pennsylvania containing an aggregate 51.5 acres of land, for an aggregate sales price of $6.6 million.

On July 19, 2007, the Company acquired the United States Post Office building, an office property located in Philadelphia, Pennsylvania containing 862,692 net rentable square feet, for an aggregate purchase price of $28.0 million. The Company intends to redevelop the building into office space for the Internal Revenue Service (“IRS”). As part of this acquisition, the Company also acquired a 90 year ground lease interest in an adjacent parcel of ground of approximately 2.54 acres, commonly referred to as the “postal annex”. The Company intends to demolish the existing structure located on the postal annex and to rebuild a parking facility containing approximately 733,000 square feet that will primarily be used by the IRS employees upon their move into the planned office space at the Post Office building. The remaining postal annex ground leased parcels can also accommodate additional office, retail, hotel and residential development and the Company is currently in the planning stage with respect to these parcels and is seeking specific zoning authorization related thereto.

On July 19, 2007, the Company acquired five office properties containing 508,607 net rentable square feet and a 4.9 acre land parcel in the Boulders office park in Richmond, Virginia for an aggregate purchase price of $96.3 million. The Company funded $36.6 million of the purchase price using the remaining proceeds from the sale of the 10 office properties located in Reading and Harrisburg, Pennsylvania in March 2007.

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

On May 10, 2007, the Company acquired Lake Merritt Tower, an office property located in Oakland, California containing 204,278 net rentable square feet for an aggregate purchase price of $72.0 million. A portion of the proceeds from the sale of the 10 office properties located in Reading and Harrisburg, Pennsylvania in March 2007 was used to fully fund this purchase.

On April 30, 2007, the Company sold Cityplace Center, an office property located in Dallas, Texas containing 1,295,832 net rentable square feet, for a sales price of $115.0 million.

On March 30, 2007, the Company sold 10 office properties located in Reading and Harrisburg, Pennsylvania containing 940,486 net rentable square feet, for an aggregate sales price of $112.0 million. The Company structured this transaction to qualify as a like-kind exchange under Section 1031 of the Code and the cash from the sale was held by a qualified intermediary for purposes of accomplishing the like-kind exchange.

On March 30, 2007, the Company sold 1007 Laurel Oak, an office property located in Voorhees, New Jersey containing 78,205 net rentable square feet, for a sales price of $7.0 million.

On March 1, 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.

On January 31, 2007, the Company sold George Kachel Farmhouse, an office property located in Reading, Pennsylvania containing 1,664 net rentable square feet, for a sales price of $0.2 million.

On January 19, 2007, the Company sold four office properties located in Dallas, Texas containing 1,091,186 net rentable square feet and a 4.7 acre land parcel, for an aggregate sales price of $107.1 million.

January 18, 2007, the Company sold Norriton Office Center, an office property located in East Norriton, Pennsylvania containing 73,394 net rentable square feet, for a sales price of $7.8 million.

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 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

September 30, 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

September 30, 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. There is no pro forma adjustment necessary for the quarter-ended September 30, 2006 since the pro forma amounts represent activity for the first 4 days of 2006. Therefore only the year-to-date pro forma amounts are presented. 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 period presented, nor does the pro forma financial information purport to represent the results of operations for future periods (in thousands, except per share amounts):

		Nine-month period
		ended September 30, 2006
Pro forma revenue		$	460,193
Pro forma loss from continuing operations			(25,646	)
Pro forma loss allocated to common shares			(19,278	)
Earnings per common share from continuing operations
Basic — as reported		$	(0.36	)
Basic — as pro forma		$	(0.35	)
Diluted — as reported		$	(0.36	)
Diluted — as pro forma		$	(0.35	)
Earnings per common share
Basic — as reported		$	(0.22	)
Basic — as pro forma		$	(0.21	)
Diluted — as reported		$	(0.22	)
Diluted — as pro forma		$	(0.21	)

Subsequent to its acquisition of Prentiss and the related sale of certain properties to Prudential, the Company sold eleven of the acquired properties that contained an aggregate of 2.3 million net rentable square feet and one parcel of land containing 10.9 acres during the nine-month period ended September 30, 2006.

During the nine-months ended September 30, 2007, the Company sold five of the acquired properties that contained an aggregate of 2.4 million net rentable square feet and a 4.7 acre parcel of land.

Since January 5, 2006, the Company has sold a total of 22 of the acquired properties that contained an aggregate of 5.3 million net rentable square feet and two parcels of land totaling 15.6 acres.

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

Other 2006 Acquisitions and Dispositions

In addition to the acquisition and disposition activity related to Prentiss, during the nine-month period ended September 30, 2006, the Company did the following:

On August 28, 2006, the Company sold 111 Presidential Boulevard, an office property located in Bala Cynwyd, Pennsylvania containing 172,894 net rentable square feet, for a sales price of $34.9 million.

On August 21, 2006, the Company acquired 2340 and 2355 Dulles Corner Boulevard, two office properties located in Herndon, Virginia containing an aggregate of 443,581 net rentable square feet, for an aggregate purchase price of $133.2 million.

On July 12, 2006, the Company sold 110 Summit Drive, an office property located in Exton, Pennsylvania containing 43,660 net rentable square feet, for a sales price of $3.7 million.

On June 27, 2006, the Company acquired a parcel of land located in Goochland County, Virginia containing 23.2 acres, for a purchase price of $4.6 million.

On June 21, 2006, the Company sold a parcel of land located in Westampton, New Jersey containing 5.5 acres, for a sales price of $0.4 million.

On April 21, 2006, the Company acquired a parcel of land located in Newtown, Pennsylvania containing 5.5 acres for a purchased price of $1.9 million.

On April 20, 2006, the Company sold a parcel of land located in Radnor, Pennsylvania containing 1.3 acres, for a sales price of $4.5 million.

On April 17, 2006, the Company acquired a parcel of land located in Mount Laurel, New Jersey containing 47.9 acres, for a purchase price of $6.7 million.

On April 4, 2006, the Company acquired One Paragon Place, an office property located in Richmond, Virginia containing 145,127 net rentable square feet, for a purchase price of $24.0 million.

On February 1, 2006, the Company acquired 100 Lenox Drive, an office property located in Lawrenceville, New Jersey containing 92,980 net rentable square feet, for a purchase price of $10.2 million.

4. INVESTMENT IN UNCONSOLIDATED VENTURES

As of September 30, 2007, the Company had an aggregate investment of approximately $72.2 million in 13 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. Eight 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, one Real Estate Venture is developing an office property located in Albemarle County, VA, one Real Estate Venture constructed and sold condominiums in Charlottesville, VA and two Real estate Ventures are in the planning stages of office developments in Conshohocken, PA and Charlottesville, 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 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

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

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 September 30, 2007 and December 31, 2006 (in thousands):

		September 30,				December 31,
		2007				2006
Operating property, net of accumulated depreciation		$	393,262			$	365,168
Other assets			44,788				52,935
Liabilities			33,033				28,764
Debt			355,501				332,589
Equity			49,540				56,888
Company’s share of equity (Company’s basis)			72,237				74,574

The following is a summary of results of operations of the Real Estate Ventures for the three- and nine-month periods ended September 30, 2007 and 2006 (in thousands):

		Three-month periods								Nine-month periods
		ended September 30,								ended September 30,
		2007				2006				2007				2006
Revenue		$	19,374			$	19,189			$	56,674			$	57,623
Operating expenses			6,793				7,696				19,733				22,433
Interest expense, net			5,421				5,282				16,069				15,356
Depreciation and amortization			3,970				4,826				11,974				14,998
Net income			3,191				1,385				8,898				4,836
Company’s share of income (Company’s basis)			763				370				2,149				1,798

Equity in income of real estate ventures in the Company’s consolidated statement of operations for the nine- months ended September 30, 2007 includes a $3.9 million distribution on account of a residual profits interest that is not included in the table above.

As of September 30, 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 September 30, 2007 and December 31, 2006, the Company’s deferred costs were comprised of the following (in thousands):

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

		September 30, 2007
						Accumulated				Deferred Costs,
		Total Cost				Amortization				net
Leasing Costs		$	97,066			$	(32,525	)		$	64,541
Financing Costs			26,944				(7,176	)			19,768
Total		$	124,010			$	(39,701	)		$	84,309

		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 AND LIABILITIES

As of September 30, 2007 and December 31, 2006, the Company’s intangible assets and liabilities were comprised of the following (in thousands):

		September 30, 2007
						Accumulated				Deferred Costs,
		Total Cost				Amortization				net
Intangible Assets:
In-place lease value		$	184,537			$	(61,072	)		$	123,465
Tenant relationship value			122,236				(29,777	)			92,459
Above market leases acquired			30,968				(13,487	)			17,481
Total intangible assets		$	337,741			$	(104,336	)		$	233,405
Intangible Liability:
Below market leases acquired		$	105,437			$	(32,706	)		$	72,731

		December 31, 2006
						Accumulated				Deferred Costs,
		Total Cost				Amortization				net
Intangible Assets:
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 intangible assets		$	364,785			$	(83,534	)		$	281,251
Intangible Liability:
Below market leases acquired		$	118,536			$	(26,009	)		$	92,527

As of September 30, 2007, the Company’s annual amortization for its intangible assets/liabilities is as follows (in thousands, and assuming no early lease terminations):

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

		Assets				Liabilities
2007 (remainder)		$	13,931			$	4,225
2008			49,233				14,432
2009			42,729				12,269
2010			35,458				9,586
2011			27,445				7,860
Thereafter			64,609				24,359
Total		$	233,405			$	72,731

7. DEBT OBLIGATIONS

The following table sets forth information regarding the Company’s debt obligations outstanding at September 30, 2007 and December 31, 2006 (in thousands):

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

										Effective
		September 30,				December 31,				Interest				Maturity
Property / Location		2007				2006				Rate				Date
MORTGAGE DEBT:
Interstate Center		$	—			$	552				6.19	%		Mar-07
The Bluffs			—				10,700				6.00	%(a)		Apr-07
Pacific Ridge			—				14,500				6.00	%(a)		Apr-07
Pacific View/Camino			—				26,000				6.00	%(a)		Apr-07
Computer Associates Building			—				31,000				6.00	%(a)		Apr-07
Presidents Plaza			—				30,900				6.00	%(a)		Apr-07
440 & 442 Creamery Way			—				5,421				8.55	%		May-07
Grande A			—				59,513				7.48	%		Jul-07
Grande B			—				77,535				7.48	%		Jul-07
481 John Young Way			2,241				2,294				8.40	%		Dec-07
400 Commerce Drive			11,631				11,797				7.12	%		Jun-08
Two Logan Square			70,437				71,348				5.78	%(a)		Jul-09
200 Commerce Drive			5,785				5,841				7.12	%(a)		Jan-10
1333 Broadway			24,105				24,418				5.18	%(a)		May-10
The Ordway			45,687				46,199				7.95	%(a)		Aug-10
World Savings Center			27,242				27,524				7.91	%(a)		Nov-10
Plymouth Meeting Exec.			43,633				44,103				7.00	%(a)		Dec-10
Four Tower Bridge			10,554				10,626				6.62	%		Feb-11
Arboretum I, II, III & V			22,360				22,750				7.59	%		Jul-11
Midlantic Drive/Lenox Drive/DCC I			61,621				62,678				8.05	%		Oct-11
Research Office Center			41,700				42,205				7.64	%(a)		Oct-11
Concord Airport Plaza			37,798				38,461				7.20	%(a)		Jan-12
Six Tower Bridge			14,565				14,744				7.79	%		Aug-12
Newtown Square/Berwyn Park/Libertyview			62,425				63,231				7.25	%		May-13
Coppell Associates			3,571				3,737				6.89	%		Dec-13
Southpoint III			4,561				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
Principal balance outstanding			606,516				869,626
Plus: unamortized fixed-rate debt premiums, net			11,129				14,294
Total mortgage indebtedness		$	617,645			$	883,920
UNSECURED DEBT:
Sweep Agreement Line			13,664				—			Libor + 0.75		%		Mar-08
Private Placement Notes due 2008			113,000				113,000				4.34	%		Dec-08
2009 Three Year Notes			—				300,000			Libor + 0.45		%		Apr-09
2009 Five Year Notes			275,000				275,000				4.62	%		Nov-09
2010 Five Year Notes			300,000				300,000				5.61	%		Dec-10
Line-of-Credit			429,000				60,000			Libor + 0.725		%		Jun-11
3.875% Exchangeable Notes			345,000				345,000				3.87	%		Oct-11
2012 Six Year Notes			300,000				300,000				5.77	%		Apr-12
2014 Ten Year Notes			250,000				250,000				5.53	%		Nov-14
2016 Ten Year Notes			250,000				250,000				5.95	%		Apr-16
2017 Ten Year Notes			300,000				—				5.72	%		May-17
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
Principal balance outstanding			2,654,274				2,271,610
Plus: unamortized fixed-rate debt discounts, net			(3,403	)			(3,300	)
Total unsecured indebtedness		$	2,650,871			$	2,268,310
Total Debt Obligations		$	3,268,516			$	3,152,230

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

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

consolidated balance sheets. This property was classified as held for sale at December 31, 2006 and sold in January 2007.

As of September 30, 2007 and 2006, the Company’s weighted-average effective interest rate on its mortgage notes payable was 6.75% and 6.16%, respectively.

On April 30, 2007, the Operating Partnership completed an underwritten public offering of $300,000,000 aggregate principal amount of 5.70% unsecured notes due 2017 (the “2017 Notes”). Brandywine Realty Trust guaranteed the payment of principal and interest on the 2017 Notes. The Company used proceeds from these notes to reduce borrowings under the Company’s revolving credit facility.

On November 29, 2006, the Company called for redemption of the $300 million aggregate principal amount of unsecured floating rate notes due 2009 (the “2009 Notes”) and repaid these notes on January 2, 2007 in accordance with the November call using proceeds from our Credit Facility. As a result of the early repayment of these notes, the Company incurred accelerated amortization of $1.4 million in associated deferred financing costs in the fourth quarter 2006.

On October 4, 2006, the Operating Partnership sold $300.0 million aggregate principal amount of unsecured 3.875% Exchangeable Guaranteed Notes due 2026 in reliance upon an exemption from registration rights under Rule 144A under the Securities Act of 1933 and sold an additional $45 million of 3.875% Exchangeable Guaranteed Notes due 2026 on October 16, 2006 to cover over-allotments. The Operating Partnership has registered the resale of the exchangeable notes. At certain times and upon certain events, the notes are exchangeable for 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 the Company’s common shares. 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 Operating Partnership may not redeem the notes prior to October 20, 2011 (except to preserve the Company’s status as a REIT for U.S. federal income tax purposes), but we may redeem the notes at any time thereafter, in whole or in part, at a redemption price equal to the principal amount of the notes to be redeemed plus accrued and unpaid interest. In addition, on October 20, 2011, October 15, 2016 and October 15, 2021 as well as upon the occurrence of certain change in control transactions prior to October 20, 2011, holders of notes may require the Company to repurchase all or a portion of the notes at a purchase price equal to the principal amount plus accrued and unpaid interest. The Operating Partnership used net proceeds from the notes 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 Credit Facility.

On March 28, 2006, the Operating Partnership completed an underwritten public offering of (1) 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.

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 amount 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. On June 29, 2007, the Company amended its $600.0 million unsecured revolving credit facility (the “Credit Facility”). The amendment extended the maturity date of the Credit Facility from December 22, 2009 to June 29, 2011 (subject to an extension of one year, at the Company’s option, upon its payment of an extension fee equal to 15 basis points of the committed amount under the Credit Facility). The amendment also reduced the per annum variable interest rate on outstanding balances from Eurodollar

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

plus 0.80% to Eurodollar plus 0.725% per annum. In addition, the amendment reduced the quarterly facility fee from 20 basis points to 17.5 basis points per annum. The interest rate and facility fee are subject to adjustment upon a change in the Company’s unsecured debt ratings. The amendment also lowered to 7.50% from 8.50% the capitalization rate used in the calculation of several of the financial covenants; increased our swing loan availability from $50.0 million to $60.0 million; and increased the number of competitive bid loan requests available to the Company from two to four in any 30 day period. The competitive bid feature allows banks that are part of the lender consortium under the Credit Facility to bid to make loans to the Company at a reduced Eurodollar rate. 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 September 30, 2007, the Company had $429.0 million of borrowings and $12.6 million of letters of credit outstanding under the Credit Facility, leaving $158.4 million of unused availability. As of September 30, 2007 and 2006, the weighted-average interest rate on the Credit Facility, including the effect of interest rate hedges, was 5.83% and 5.80%, respectively.

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.

In April 2007, the Company entered into a $20.0 million Sweep Agreement (the “Sweep Agreement”) to be used for cash management purposes. Borrowings under the Sweep Agreement bear interest at one-month LIBOR plus 0.75%. As of September 30, 2007 the Company had $13.7 million borrowing outstanding under the Sweep Agreement, leaving $6.3 million of unused availability.

As of September 30, 2007, the Company’s aggregate scheduled principal payments of debt obligations, excluding amortization of discounts and premiums, are as follows (in thousands):

2007		$	4,813
2008			148,812
2009			354,955
2010			450,189
2011			906,261
Thereafter			1,395,760
Total indebtedness		$	3,260,790

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

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

they come due. The Company does not hedge credit or property value market risks through derivative financial instruments.

In September 2007, the Company entered into an interest rate swap agreement that is designated as a cash flow hedge of interest rate risk and qualified for hedge accounting. The interest rate swap is for a notional amount of $155.0 million at a fixed rate of 4.709% with a maturity date of October 18, 2010 and will be used to hedge the risk of interest cash outflows on unsecured variable rate debt. The fair value of the hedge at September 30, 2007 was $(0.5) million and is included in other liabilities and accumulated other comprehensive income in the accompanying consolidated balance sheet.

In July 2007, in anticipation of an expected debt offering, the Company entered into four treasury lock agreements. The treasury lock agreements were designated as cash flow hedges on interest rate risk and qualified for hedge accounting. The treasury lock agreements have an expiration of 5 years with the following trade dates, notional amounts and all-in rates:

Trade Date		Notional Amount		All-in Rate
July 10, 2007		$50.0 million		4.984%
July 18, 2007		$50.0 million		4.915%
July 20, 2007		$25.0 million		4.848%
July 25, 2007		$25.0 million		4.780%

The agreements were settled on September 21, 2007, the original termination date of each agreement, at a total cost of $3.9 million. The cost is recorded as a component of accumulated other comprehensive income in the accompanying consolidated balance sheet based on the Company’s current assessment that an issuance of 5 year debt is probable. If the Company determines the issuance is not probable or that the derivative will not be highly effective, it will be required to record this amount as an expense for the residual balance of $3.7 million in the period that such determination is made. For the three-month period ending September 30, 2007, the Company recorded the ineffective portion of these agreements, totaling $0.2 million, in the accompanying consolidated statement of operations.

In March 2007, in anticipation of the offering of 2017 Notes, 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%. The agreements were settled in April 2007 upon completion of the offering of the 2017 Notes at a total benefit of $1.1 million, with nominal ineffectiveness. This benefit was recorded as a component of accumulated other comprehensive income in the accompanying consolidated balance sheet and is being 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 nine 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 with nominal ineffectiveness. 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.

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 were 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 had a maturity date of February 1, 2010 at an all-in rate of 4.675%. The other, with a notional amount of $70 million, had a maturity date of August 1, 2008 at an all in rate of 4.675%. The agreements were settled in April

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

2007 in connection with the repayment of five mortgage notes, at a total benefit of $0.4 million with nominal ineffectiveness.

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- and nine-month periods ended September 30, 2007 or 2006.

9. DISCONTINUED OPERATIONS

For the three- and nine-month periods ended September 30, 2007, income from discontinued operations relates to 18 properties that the Company sold during 2007. The following table summarizes the revenue and expense information for properties classified as discontinued operations as of September 30, 2007 for the three- and nine-month periods ended September 30, 2007 (in thousands):

		Three-month period				Nine-month period
		ended September 30, 2007				ended September 30, 2007
Revenue:
Rents		$	—			$	12,397
Tenant reimbursements			—				1,246
Other			—				214
Total revenue			—				13,857
Expenses:
Property operating expenses			—				4,845
Real estate taxes			—				1,549
Depreciation and amortization			—				4,594
Total operating expenses			—				10,988
Operating income			—				2,869
Income from discontinued operations before (loss) gain on sale of interests in real estate and minority interest			—				2,869
Net (loss) gain on sale of interests in real estate			338				25,491
Minority interest attributable to discontinued operations — LP units			(14	)			(1,211	)
Income from discontinued operations		$	324			$	27,149

For the three- and nine-month periods ended September 30, 2006, income from discontinued operations relates to the 23 properties sold in 2006 and the 18 properties sold in 2007. The following table summarizes the revenue and expense information for the properties classified as discontinued operations as of September 30, 2007 for the three- and nine-month periods ended September 30, 2006 (in thousands):

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

		Three-month period				Nine-month period
		ended September 30, 2006				ended September 30, 2006
Revenue:
Rents		$	20,170			$	66,388
Tenant reimbursements			1,442				5,651
Other			273				860
Total revenue			21,885				72,899
Expenses:
Property operating expenses			7,982				26,002
Real estate taxes			2,849				9,036
Depreciation and amortization			8,304				27,173
Total operating expenses			19,135				62,211
Operating income			2,750				10,688
Interest income			2				15
Interest expense (a)			(109	)			(695	)
Income from discontinued operations before gain on sale of interests in real estate and minority interest			2,643				10,008
Net gain (loss) on sale of interests in real estate			5,188				5,188
Minority interest — partners’ share of net gain on sale			(1,757	)			(1,757	)
Minority interest — partners’ share of consolidated real estate venture			(100	)			(482	)
Minority interest attributable to discontinued operations — LP units			(276	)			(595	)
Income from discontinued operations		$	5,698			$	12,362

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 September 30, 2007, owned a 95.7% interest in the Operating Partnership. On September 12, 2007, the Operating Partnership declared a $0.44 per unit cash distribution to holders of Class A Units totaling $1.7 million.

As of September 30, 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 and as a result of losses allocated to these minority interest partners there is no balance at September 30, 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 on 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):

BRANDYWINE REALTY TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

		Three-month periods ended September 30,
		2007								2006
		Basic				Diluted				Basic				Diluted
Income (loss) from continuing operations		$	2,043			$	2,043			$	(5,134	)		$	(5,134	)
Income from discontinued operations			324				324				5,698				5,698
Income allocated to Preferred Shares			(1,998	)			(1,998	)			(1,998	)			(1,998	)
Net income available to common shareholders		$	369			$	369			$	(1,434	)		$	(1,434	)
Weighted-average shares outstanding			86,897,335				86,897,335				90,042,270				90,042,270
Contingent securities/Stock based compensation			—				217,263				—				—
Total weighted-average shares outstanding			86,897,335				87,114,598				90,042,270				90,042,270
Earnings (loss) per Common Share:
Continuing operations		$	0.00			$	0.00			$	(0.08	)		$	(0.08	)
Discontinued operations			0.00				0.00				0.06				0.06
		$	0.00			$	0.00			$	(0.02	)		$	(0.02	)