What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-24 · 139 added, 144 removed, 331 unchanged (46% of the section changed)

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The following discussion should be read in conjunction with the Consolidated Financial Statements appearing elsewhere herein and is based primarily on our Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019.

This report including the following discussion, contains forward-looking statements, which we intend to be covered by the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities

Exchange Act of 1934, as amended.

The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements.

Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved.

Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance

that our expectations will be achieved.

These forward-looking statements are inherently uncertain, and actual results may differ from expectations.

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(1) Philadelphia Central Business District (“Philadelphia CBD”), (2) Pennsylvania Suburbs, (3) Austin, Texas, (4) Metropolitan Washington, D.C., and (5) Other.

The Philadelphia CBD segment includes properties located in the City of Philadelphia, Pennsylvania.

The Philadelphia CBD segment includes properties located in the City of Philadelphia in Pennsylvania.

The Pennsylvania Suburbs segment includes properties in Chester, Delaware and Montgomery counties in the Philadelphia suburbs.

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and Southern Maryland.

The Other segment includes properties in Camden County, New Jersey and properties in New Castle County, Delaware.

The Other segment includes properties in Camden County, New Jersey and New Castle County, Delaware.

In addition to the five segments, our corporate group is responsible for cash and investment management, development of certain real estate properties during the construction period, and certain other general support functions.

We generate cash and revenue from leases of space at our properties and, to a lesser extent, from the management of properties owned by third parties and from investments in the Real Estate Ventures.

We generate cash and revenue from leases of space at our Properties and, to a lesser extent, from the management and development of properties owned by third parties and from investments in the unconsolidated real estate ventures.

Factors that we evaluate when leasing space include rental rates, costs of tenant improvements, tenant creditworthiness, current and expected operating costs, the length of the lease term, vacancy levels, and demand for space.

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Our financial and operating performance is dependent upon the demand for office, residential, parking, and retail space in our markets, our leasing results, our acquisition, disposition and development activity, our financing activity, our cash requirements and economic and market conditions, including prevailing interest rates.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it is impacting our tenants, employees, and business partners.

Adverse changes in economic conditions, including the ongoing effects of the global COVID-19 pandemic, could result in a reduction of the availability of financing and potentially in higher borrowing costs.

Vacancy rates may increase, and rental rates and rent collection rates may decline, beyond 2020 as the current economic climate may negatively impact tenants.

Overall economic conditions, including but not limited to higher unemployment and deteriorating financial and credit markets, could have a dampening effect on the fundamentals of our business, including increases in past due accounts, tenant defaults, lower occupancy and reduced effective rents.

The ongoing COVID-19 pandemic has significantly slowed global economic activity, caused significant volatility in financial markets, and resulted in unprecedented job losses.

In addition, the government responses to control the pandemic are creating disruption in the global economy and supply chains and adversely impacting many industries, including owners and developers of office and mixed-use building.

These adverse conditions have impacted our net income and cash flows and could have a material adverse effect on our financial condition.

We believe that the quality of our assets and the strength of our balance sheet will enable us to raise debt capital, if necessary, in various forms and from different sources, including through secured or unsecured loans from banks, pension funds and life insurance companies.

Adverse changes in economic conditions, including the ongoing effects of the global COVID-19 pandemic and inflation, could result in a reduction of the availability of financing and higher borrowing costs.

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it is impacting our tenants, employees, and business partners.

Vacancy rates may increase, and rental rates and rent collection rates may decline as the current economic climate may negatively impact tenants.The long-term impact of the ongoing COVID-19 pandemic on the global economy and our tenants and prospective tenants remains uncertain and will depend on new information which may emerge concerning the severity of COVID-19, new variants of COVID-19 and the actions taken to contain it or treat its impact.

Overall economic conditions, including but not limited to labor shortages, supply chain constraints, and deteriorating financial and credit markets, could have a dampening effect on the fundamentals of our business, including increases in past due accounts, tenant defaults, lower occupancy and reduced effective rents.

These adverse conditions could impact our net income and cash flows and could have a material adverse effect on our financial condition.

We believe that the quality of our assets and the strength of our balance sheet will enable us to raise capital, if necessary, in various forms and from different sources, including through secured or unsecured loans from banks, pension funds and life insurance companies.

However, there can be no assurance that we will be able to borrow funds on terms that are economically attractive or at all.

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Occupancy at our Core Properties at December 31, 2021 was 91.3% compared to 91.9% at December 31, 2020.

The table below summarizes selected operating and leasing statistics of our wholly owned operating properties for the years ended December 31, 2020 and 2019:

The table below summarizes selected operating and leasing statistics of our wholly owned properties for the years ended December 31, 2021 and 2020:

Year Ended December 31,

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Net absorption (square feet) (49,724) (91,207)

Percentage change in rental rates per square feet (4):

Percentage change in rental rates per square foot (4):

New and expansion rental rates 23.1 % 21.5 %

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Capital Costs Committed (5):

Leasing commissions (per square feet) $ 9.18 $ 7.94

Tenant Improvements (per square feet) $ 22.06 $ 25.25

Leasing commissions (per square foot) $ 8.54 $ 9.18

Tenant Improvements (per square foot) $ 18.38 $ 22.06

Weighted average lease term (years) 7.0 7.6

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We maintain an active dialogue with our tenants in an effort to maximize lease renewals.

If we are unable to renew leases or relet space under expiring leases, at anticipated rental rates, or if tenants terminate their leases early, our results of operations and cash flow would be adversely impacted.

If we are unable to renew leases or relet space under expiring leases, at anticipated rental rates, or if tenants terminate their leases early, our cash flow would be adversely impacted.

Tenant Credit Risk

In the event of a tenant default, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment.

Our management regularly evaluates our accounts receivable reserve policy in light of our tenant base and general and local economic conditions.

Our accounts receivable allowance was $5.1 million or 2.9% of total receivables (including accrued rent receivable) as of December 31, 2020 compared to $8.0 million or 4.0% of total receivables (including accrued rent receivable) as of December 31, 2019.

The decrease in the accounts receivable allowance as a percentage of the total receivables is primarily due to the write-off of the accrued rent receivable for certain retail tenants where revenue is now being recognized on a cash basis due to collectability concerns arising from the economic conditions resulting from the COVID-19 pandemic.

If economic conditions deteriorate, including as a result of the ongoing COVID-19 pandemic, we may experience increases in past due accounts, defaults, lower occupancy and reduced effective rents.

Our management evaluates our accrued rent receivable reserve policy in light of our tenant base and general and local economic conditions.

Our accrued rent receivable allowance was $4.1 million or 2.4% of our accrued rent receivable balance as of December 31, 2021 compared to $5.1 million or 3.2% of our accrued rent receivable balance as of December 31, 2020.

If economic conditions deteriorate, including as a result of the ongoing COVID-19 pandemic and inflation, we may experience increases in past due accounts, defaults, lower occupancy and reduced effective rents.

This condition would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition.

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Development projects are subject to a variety of risks, including construction delays, construction cost overruns, building moratoriums, inability to obtain financing on favorable terms, inability to lease space at projected rates, inability to enter into construction, development and other agreements on favorable terms, and unexpected environmental and other hazards.

During the second quarter of 2020, certain development projects were impacted by building moratoriums imposed by local governments as a result of the COVID-19 pandemic.

These moratoriums have since been lifted in all geographies in which we have active development projects, but could be reinstated in the event of a significant increase in COVID-19 cases.

The construction delays did not materially impact the development projects.

As of December 31, 2021 the following active development and redevelopment projects remain under construction in progress and we were proceeding on the following activity (dollars, in thousands):

Property/Portfolio Name Location Expected Completion Activity Type Approximate Square Footage/ Units Estimated Costs Amount Funded

405 Colorado Street (a) Austin, TX Q1 2021 Development 205,803 $ 122,000 $ 67,000

3000 Market Street (b) Philadelphia, PA Q3 2021 Redevelopment 64,070 $ 35,000 $ 16,900

(a) Estimated costs includes $2.1 million of existing property basis through a ground lease.

Property/Portfolio Name Location Completion Date Activity Type Approximate Square Footage Estimated Costs Amount Funded

405 Colorado Street (a) Austin, TX Q2 2021 (c) Development 205,803 $ 121,864 $ 87,033

250 King of Prussia Road (b) Radnor, PA Q2 2022 Redevelopment 168,294 $ 82,854 $ 28,400

(a) Estimated costs include $2.1 million of existing property basis through a ground lease.

Project includes 520 parking spaces.

(b) Estimated costs include $12.8 million of existing property basis.

In addition to the properties listed above, we have classified one office building in Radnor, Pennsylvania (acquired during the fourth quarter of 2020) and one parking facility in Philadelphia, Pennsylvania as redevelopment.

(b) Total project costs include $20.6 million of existing property basis.

In addition to the properties listed above, we have classified one office building in Herndon, Virginia that has yet to incur significant redevelopment costs, and one parking facility in Philadelphia, Pennsylvania as redevelopment.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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The estimation of future cash flows is subjective and is based on various assumptions, including but not limited to market rental rates, capitalization rates, and recent sales data for comparable real estate investments.

Estimated future cash flows are discounted

when determining fair value of an asset.

Estimated future cash flows are discounted when determining fair value of an asset.

Most of these assumptions are influenced by our direct experience with the real estate investments and their markets as well as market data obtained from real estate leasing and brokerage firms.

Determining the appropriate capitalization or discount rate also requires significant judgment and is typically based on many factors, including the prevailing rate for the market or submarket, as well as the quality and location of the real estate investment.

Determining the appropriate capitalization or discount rate also requires significant judgment and is typically based on many

factors, including the prevailing rate for the market or submarket, as well as the quality and location of the real estate investment.

Changes in the estimated future cash flows due to changes in our plans for a real estate investment, views of market and economic conditions and/or our ability to obtain development rights could result in recognition of an impairment which could be material.

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The following comparison for the year ended December 31, 2021 to the year ended December 31, 2020, makes reference to the effect of the following:

(a) “Same Store Property Portfolio,” which represents 74 properties containing an aggregate of approximately 12.8 million net rentable square feet, and represents properties that we owned for the twelve-month periods ended December 31, 2020 and 2019.

The Same Store Property Portfolio includes properties acquired or placed in service on or prior to January 1, 2019 and owned through December 31, 2020, excluding properties classified as held for sale,

(b) “Total Portfolio,” which represents all properties owned by us during 2020 and 2019,

(a) “Same Store Property Portfolio,” which represents 73 properties containing an aggregate of approximately 12.5 million net rentable square feet that we owned and consolidated for the twelve-month periods ended December 31, 2021 and 2020.

The Same Store Property Portfolio includes properties acquired or placed in service on or prior to January 1, 2020 and owned and consolidated through December 31, 2021, excluding properties classified as held for sale,

(b) “Total Portfolio,” which represents all properties owned and consolidated by us during 2021 and 2020,

(c) "Recently Completed/Acquired Properties," which represents four properties placed into service or acquired on or subsequent to January 1, 2020,

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A property is excluded from our Same Store Property Portfolio and moved into Development/Redevelopment in the period that we determine to proceed with development/redevelopment for a future development strategy, and

(e) "2019 and 2020 Dispositions," which represents 16 properties disposed of or contributed to unconsolidated joint ventures during 2019 and 2020.

(e) "2020 and 2021 Dispositions," which represents 15 properties disposed of during 2020 and 2021.

Comparison of Year Ended December 31, 2021 to the Year Ended December 31, 2020

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Other Income (Expense):

Interest income 1.9 2.3 (0.4) (17.4) %

Interest and investment income 8.3 1.9 6.4 336.8 %

Interest expense (62.6) (73.9) 11.3 (15.3) %

Interest expense — Deferred financing costs (2.8) (2.9) 0.1 (3.4) %

Equity in loss of Real Estate Ventures (18.6) (9.9) (8.7) 87.9 %

Equity in loss of unconsolidated real estate ventures (26.7) (18.6) (8.1) 43.5 %

Net gain on real estate venture transactions 3.0 0.1 2.9 2,900.0 %

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Total Revenue

Rents from the Total Portfolio decreased by $41.2 million from 2019 to 2020.

The decrease in rents is primarily driven by the following:

Rents from the Total Portfolio decreased primarily as a result of the following:

• $64.0 million decrease related to the 2020 and 2021 Dispositions;

• $4.5 million decrease related to the October 2019 early termination of a large tenant at 1676 International Drive in the Metropolitan Washington D.C.

• $3.5 million decrease related to reduced parking income due to the COVID-19 pandemic;

• $1.4 million decrease related to properties placed into redevelopment.

The remaining change was primarily attributable to a $2.9 million increase in rents, which was driven by increases in occupancy at certain properties in the Philadelphia suburbs and Philadelphia CBD segments as well increases related to the Recently Completed/Acquired Properties for 2020 compared to 2019.

Third party management fees, labor reimbursement, and leasing income decreased $1.0 million from 2019 to 2020, primarily due to a decrease in construction management fees for a third party building that was completed in the first quarter of 2020.

Other income at our Total Portfolio decreased by $3.3 million from 2019 to 2020, which was primarily related to a decrease in income from the restaurant component of FMC Tower, as well as decreases in various fees from third parties due to the COVID-19 pandemic and associated store and building closures.

• $9.9 million decrease related to a property that has been vacated and placed into redevelopment in our Metropolitan Washington D.C.

• $3.7 million decrease related to a property that has been vacated and taken out of service for future demolition in our Austin, Texas segment;

• $7.6 million increase related to the Recently Completed/Acquired Properties;

• $2.1 million increase related to the residential and hotel components at the FMC Tower in our Philadelphia CBD segment related to higher occupancy partially due to the lifting of COVID-19 pandemic restrictions;

The remaining $5.9 million increase in Rents is primarily due to partial occupancy at 405 Colorado, a development property in our Austin, Texas segment, and increased occupancy and rental rates for lease renewals at certain properties across our Same Store Property Portfolio, as well as increased use of our properties by the tenants related to the lifting of COVID-19 pandemic restrictions, resulting in an increase in tenant reimbursements.

Third party management fees, labor reimbursement, and leasing income increased primarily due to $4.2 million of fees earned from the Mid-Atlantic Office Venture formed in the fourth quarter of 2020, $2.1 million of fees earned from the Commerce Square Venture formed

in the third quarter of 2020, and a $1.9 million increase in fees earned from our MAP Venture primarily related to increases in leasing commissions and construction management fees.

Other income at our Total Portfolio increased primarily as a result of the following:

• $3.9 million in excess insurance proceeds primarily related to a property in our Austin, Texas segment;

• $0.8 million increase related to a settlement received from a general contractor for liquidated damages as a result of a construction delay at a property in our Austin, Texas segment;

• $0.7 million increase in income from the restaurant component of FMC Tower as a result of the lifting of COVID-19 pandemic restrictions;

• $0.4 million increase related a legal settlement during the second quarter of 2021.

Property Operating Expenses

Property operating expenses decreased $22.2 million from 2019 to 2020 primarily driven by the following:

Property operating expenses decreased primarily as a result of the following:

• $20.0 million decrease related to 2020 and 2021 Dispositions;

• $5.7 million decrease across our Same Store Property Portfolio, most significantly driven by the termination of a large tenant (and resulting vacancy) at 1676 International Drive in our Metropolitan Washington, D.C.

segment and decreased use of properties by tenants during the COVID-19 pandemic;

• $3.0 million decrease at the hotel and restaurant components of FMC Tower due to the COVID-19 pandemic

The remaining $2.2 million decrease is related to miscellaneous decreases across our portfolio, including a decrease in payroll and salary expense related to operating the properties.

• $1.1 million increase related to the Recently Completed/Acquired Properties.

The remaining offsetting increase of $8.6 million is related to miscellaneous increases in property operating expenses across our Total Portfolio, primarily driven by increased use of our properties by the tenants as a result of lifting of COVID-19 pandemic restrictions and increases in property-related employee compensation expenses, marketing expenses, and repairs and maintenance.

Real Estate Taxes

Real estate taxes decreased primarily due to a $7.1 million decrease related to the 2020 and 2021 Dispositions as well as a decrease related to a property that has been vacated and placed into redevelopment in our Metropolitan Washington D.C.

Depreciation and Amortization

Depreciation and amortization expense decreased by $21.7 million from 2019 to 2020 primarily driven by the following:

Depreciation and amortization expense decreased primarily as a result of the following:

• $23.2 million decrease related to the 2020 and 2021 Dispositions;

• $7.7 million decrease related to our Same Store Property Portfolio, largely due to the completion of amortization of acquired in-place lease intangibles and the write-off of lease intangibles in connection with an early lease termination at 1676 International Drive in our Metropolitan Washington, D.C.

segment in 2019;

• $1.5 million decrease related to our Development/Redevelopment Properties primarily related to a property placed into redevelopment in our Philadelphia CBD segment.

General and Administrative Expenses

General and administrative expenses across our Total Portfolio decreased by $1.9 million from 2019 to 2020, primarily related to a $0.8 million decrease in payroll, bonus, stock compensation expense, and related benefits, $0.4 million decrease in travel and entertainment/meals, and $0.4 million decrease in professional fees.

• $9.8 million increase due to the reassessment of the estimated useful life of seven properties in our Austin, Texas segment pursuant to future demolition plans as part of our Uptown ATX master development plan beginning in the second quarter of 2021;

• $2.2 million increase related to an early write-off of lease intangibles in connection with a property in our Austin, Texas segment in 2021.

Net Gain on Disposition of Real Estate

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• $2.3 million related to the disposition of 52 East Swedesford Road, an office property in our Pennsylvania Suburbs segment.

The $0.4 million gain on disposition of real estate for 2019 relates to the disposition of the office property at 1900 Gallows Road in Vienna, Virginia.

Net Gain on Sale of Undepreciated Real Estate

The gain of $2.9 million recognized during 2021 is due to the following:

• $2.0 million related to the formation of the 3025 JFK Venture, which resulted in deconsolidation of the project and recognition of our investment in the real estate venture at fair value;

• $0.9 million related to the sale of three parcels of land in our Other Segment.

The gain of $0.2 million recognized during 2020 primarily resulted from the sale of a land parcel in Horsham, Pennsylvania.

The gain of $2.0 million recognized during 2019 relates to the sale of 9 Presidential Boulevard and from additional consideration received during 2019 related to the Libertyview disposition, which occurred in 2015.

Interest and Investment Income

Interest and investment income increased by $6.4 million primarily as a result of a preferred equity investment we funded on December 31, 2020 and that was redeemed prior to maturity on September 3, 2021.

Of the $6.4 million increase, $2.8 million related to our receipt of an accelerated minimum return and exit fees paid in cash on the redemption date.

There was no income recognized in 2020 related to this investment.

Interest Expense

Interest expense decreased $7.6 million from 2019 to 2020 primarily driven by the following:

Interest expense decreased primarily due to the following:

• $4.8 million decrease due to deconsolidation of One Commerce Square and Two Commerce Square and the associated mortgage loans on July 21, 2020;

• $2.0 million reduction to prior period accretions of interest expense on account of a contingent payment to an unaffiliated third party, a portion of which contingent payment ceased to be probable in the third quarter due to the purchase of the Two Logan Square first mortgage;

• $1.5 million decrease due to an increase in capitalized interest for 2020 compared to 2019.

• $0.3 million additional decrease in interest expense due to the acquisition of the first mortgage on Two Logan Square;

• $4.5 million decrease primarily related to decreased borrowings on the line of credit and lower interest rates during 2020 compared to 2019.

These decreases were offset by a $4.9 million increase in interest expense related to our issuance of an additional $100.0 million in aggregate principal amount of each of our outstanding 4.100% Guaranteed Notes due 2024 and 4.550% Guaranteed Notes due 2029 during the fourth quarter of 2019.

Equity in Loss of Real Estate Ventures

Equity in loss of Real Estate Ventures increased $8.7 million from 2019 to 2020 is primarily related to:

• $4.0 million decrease due to an increase in capitalized interest on our various development projects as well as capitalized interest on our investment in 3025 JFK Venture;

• $3.2 million decrease due to the purchase of the Two Logan Square mortgage in the fourth quarter of 2020;

• $2.0 million increase due to a reduction of interest expense recognized during the three months ended September 30, 2020 on account of a contingent payment to an unaffiliated third party.

The amount had previously accreted through interest expense and a portion of the contingent payment ceased to be probable in the third quarter of 2020 due to the anticipated purchase of the Two Logan Square mortgage in the fourth quarter of 2020.

The remaining decrease is primarily related to lower interest rates during 2021 compared to 2020.

Equity in Loss of unconsolidated real estate ventures

Equity in loss of unconsolidated real estate ventures increased primarily due to:

• $6.4 million increase associated with our Commerce Square Venture formed on July 21, 2020;

• $1.8 million increase related to depreciation and interest expense being recorded at our 4040 Wilson Venture due to portions of the project being placed into service during 2020 as leases commenced;

• $0.5 million increase related to our MAP Venture due to lower revenues from lower occupancy rate during 2020 than 2019;

• $0.3 million increase related to reduced parking income at our 1919 Market Street Venture due to the COVID-19 pandemic.

These increases were offset by a decrease in Equity in Loss of Real Estate Ventures of $2.8 million at our Allstate Venture related to a held for use impairment recorded during 2019, compared to no impairments in 2020.

• $2.1 million increase related to our MAP Venture due to lower revenues driven by lower occupancy during the year ended December 31, 2021 than the year ended December 31, 2020;

• $0.9 million increase associated with our BDN AI Venture, which is primarily driven by our $0.7 million share of the held for sale impairment on the remaining property held by the venture.

See Note 4, ''Investment in Unconsolidated Real Estate Ventures" to our Consolidated Financial Statements for further information;

• $0.8 million decrease associated with our Mid-Atlantic Office Venture formed on December 21, 2020;

• $0.4 million decrease associated with our 1919 Market Street Venture.

Net Gain on Real Estate Venture Transactions

The $11.6 million net gain on Real Estate Venture transactions during 2019 primarily relates to the following:

• $8.0 million related to the disposition of the PJP II, PJP VI and PJP VII Ventures;

• $2.2 million related to the transfer of 3130 Fairview to the mortgage lender in full satisfaction of the outstanding mortgage loan by the BDN AI Venture;

• $1.3 million related to proceeds received from the third-party owner of an adjacent property for the right to construct an “above-grade connection” with the building owned by the 51 N Street venture.

Net income increased by $272.8 million from 2019 to 2020 as a result of the factors described above.

Net Income per Common Share – fully diluted

Net income per share was $1.77 during 2020 as compared to net income per share of $0.19 during 2019 as a result of the factors described above.

The $3.0 million net gain on real estate venture transactions is due to the sale of the remaining office property at our BDN AI Venture and distribution of the sale proceeds to the partners during the fourth quarter of 2021.

See Note 4, ''Investment in Unconsolidated Real Estate Ventures" to our Consolidated Financial Statements for further information.

LIQUIDITY AND CAPITAL RESOURCES

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As a result, our revenues and cash flows could be insufficient to cover operating expenses, including increased tenant installation costs, pay debt service or make distributions to shareholders over the short-term.

If this situation were to occur, we expect that we would finance cash deficits through borrowings under our unsecured revolving credit facility and other sources of debt and equity financings.

In addition, a material adverse change in cash provided by operations could adversely affect our compliance with financial performance covenants under our unsecured revolving credit facility, including unsecured term loans and unsecured notes.

If this situation were to occur, we expect that we would finance cash deficits through borrowings under our unsecured credit facility and other sources of debt and equity financings.

In addition, a material adverse change in cash provided by operations could adversely affect our compliance with financial performance covenants under our unsecured credit facility, including unsecured term loans and unsecured notes.

As of December 31, 2021 we were in compliance with all of our debt covenants and requirement obligations.

In addition, we are continuing to monitor the ongoing COVID-19 pandemic and the related economic impacts, market volatility, and business disruption, and its impact on our tenants.

The severity and duration of the pandemic and its impact on our operations and liquidity is uncertain as this continues to evolve globally.

However, if the outbreak continues, there will likely be continued negative economic impacts, market volatility, and business disruption which could negatively impact our tenants’ ability to pay rent, our ability to lease vacant space, and our ability to complete development and redevelopment projects, and these consequences, in turn, could materially impact our results of operations.

We collected 98.3% of total cash-based rent due from tenants during the fourth quarter of 2020.

In addition, approximately 97.9% of January 2021 total cash-based rent has been received from our tenants to date, which reflects a 98.7% collection rate from our office tenants.

The severity and duration of the pandemic and its impact on our operations and liquidity is uncertain and continues to evolve globally.

However, if the pandemic continues, there will likely be continued negative economic impacts, market volatility, and business disruption which could negatively impact our tenants’ ability to pay rent, our ability to lease vacant space, and our ability to complete development and redevelopment projects, and these consequences, in turn, could materially impact our results of operations.

We have granted rent relief requests primarily to our co-working and retail tenants.

The relief requests have substantially all been in the form of rent deferral for varying lengths of time, but were/are primarily being repaid in 2020 and 2021.

For those tenants we believe require rent relief, we have granted deferrals and, in some instances, rent abatements while receiving extended lease terms through favorable lease extensions.

To date, we have provided $4.1 million of rent relief to 62 tenants approximating 0.8 million square feet.

The deferrals represent approximately 0.8% of annualized revenue.

The relief requests have substantially all been in the form of rent deferral for varying lengths of time, but were primarily repaid in 2020 and 2021.

For those tenants

we believe require rent relief, we have granted deferrals and, in some instances, rent abatements while receiving extended lease terms through favorable lease extensions.

We continue to assess the merits of rent deferral requests and can give no assurances on the outcomes of these ongoing negotiations, the amount and nature of the rent relief packages and ultimate recovery of the amounts deferred.

See Note 2, ''Summary of Significant Accounting Policies," to our Consolidated Financial Statements for further information related to our accounting policies for rent concessions.

Pursuant to our accounting elections, rental revenue continued to be recognized for tenants subject to deferral agreements, as long as such agreements did not result in a substantial increase in our rights as the lessor.

As a result, rent deferrals did not have a material impact on revenues for the year ended December 31, 2020.

We use multiple financing sources to fund our long-term capital needs.

When needed, we use borrowings under our unsecured revolving credit facility for general business purposes, including to meet debt maturities and to fund distributions to shareholders as well as development and acquisition costs and other expenses.

In light of the volatility in financial markets and economic uncertainties, it is possible, that one or more lenders under our unsecured revolving credit facility could fail to fund a borrowing request.

Such an event could adversely affect our ability to access funds from our unsecured revolving credit facility when needed to fund distributions or pay expenses.

When needed, we use borrowings under our unsecured credit facility for general business purposes, including to meet debt maturities and to fund distributions to shareholders as well as development and acquisition costs and other expenses.

In light of the volatility in financial markets and economic uncertainties, it is possible, that one or more lenders under our unsecured credit facility could fail to fund a borrowing request.

Such an event could adversely affect our ability to access funds under our unsecured credit facility when needed to fund distributions or pay expenses.

Our ability to incur additional debt is dependent upon a number of factors, including our credit ratings, the value of our unencumbered assets, our degree of leverage and borrowing restrictions imposed by our lenders.

If one or more rating agencies were to downgrade our unsecured credit rating, our access to the unsecured debt market would be more limited and the interest rate under our unsecured revolving credit facility and unsecured term loans would increase.

The Parent Company unconditionally guarantees the Operating Partnership’s unsecured obligations, which, as of December 31, 2020, amounted to $1,828.6 million.

The Company did not have any secured debt obligations as of December 31, 2020.

If one or more rating agencies were to downgrade our unsecured credit rating, our access to the unsecured debt market would be more limited and the interest rate under our unsecured credit facility and unsecured term loan would increase.

The Parent Company unconditionally guarantees the Operating Partnership’s unsecured debt obligations, which, as of December 31, 2021, amounted to $1,851.6 million.

We did not have any secured debt obligations as of December 31, 2021.

Capital Markets

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Subject to our ongoing compliance with securities laws, and if warranted by market conditions, we may offer and sell equity and debt securities from time to time under the shelf registration statement or in transactions exempt from registration.

See Note 13, ''Beneficiaries' Equity of the Parent Company,” to our Consolidated Financial Statements for further information related our former continuous offering program that we have generally maintained as well as information related to our share repurchase program during the year ended December 31, 2020.

We expect to fund any additional share repurchases with a combination of available cash balances and availability under our unsecured revolving credit facility.

See Note 13, ''Beneficiaries' Equity of the Parent Company,” to our Consolidated Financial Statements for further information related to our share repurchase program.

We expect to fund any additional share repurchases with a combination of available cash balances and availability under our unsecured credit facility.

The timing and amounts of any repurchases will depend on a variety of factors, including market conditions, regulatory requirements, share prices, capital availability and other factors as determined by our management team.

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The Operating Partnership also considers net sales of selected properties and recapitalization of unconsolidated real estate ventures as additional sources of managing its liquidity.

During 2020, we sold 14.0 acres of land as well as one office property for net cash proceeds of $3.5 and $17.5 million, respectively.

In addition, we sold a 30% preferred equity interest in One Commerce Square and Two Commerce Square for net cash proceeds of $100.8 million and a 60% equity interest in the Mid-Atlantic Office Portfolio for net cash proceeds of $155.8 million.

As of December 31, 2020, we had $46.3 million of cash and cash equivalents and $598.4 million of available borrowings under our Credit Facility, net of $1.6 million in letters of credit outstanding.

During 2021, we closed on the sale of three parcels of land as well as one office property in our Brandywine - AI Venture for net cash proceeds of $10.2 and $12.6 million, respectively.

In addition, we contributed our investment in a 99-year prepaid leasehold interest in a one-acre land parcel held for development to 3025 JFK Venture.

As of December 31, 2021, we had $27.5 million of cash and cash equivalents and $575.8 million of available borrowings under our unsecured credit facility, net of $1.2 million in letters of credit outstanding.

Based on the foregoing, as well as cash flows from operations net of dividend requirements, we believe we have sufficient capital to fund our remaining capital requirements on existing development and redevelopment projects and pursue additional attractive investment opportunities.

We expect that our primary uses of capital during 2022 will be to fund our current development and redevelopment projects.

The following discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be a comprehensive discussion of the changes in our cash flows for the years presented.

The following discussion of our cash flows is based on the consolidated statement of cash flows and is not meant to be a comprehensive discussion of the changes in our cash flows for the years presented.

As of December 31, 2021 and 2020, we maintained cash and cash equivalents and restricted cash of $28.3 million and $47.1 million, respectively.

The following are the changes in cash flow from our activities for the years ended December 31, 2020 and 2019 (in thousands):

We report and analyze our cash flows based on operating activities, investing activities, and financing activities.

The following table summarizes changes in our cash flows (in thousands):

Year Ended December 31,

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Our principal source of cash flows is from the operation of our Properties.

Our Properties provide a relatively consistent stream of cash flows that provide us with the resources to fund operating expenses, debt service and quarterly dividends.

Our Properties provide a relatively consistent stream of cash flows that provides us with the resources to fund operating expenses, debt service and quarterly dividends.

The decrease in operating cash flows is primarily due to the 15 properties disposed of or contributed to an unconsolidated real estate venture during 2020 and 2021.

Cash is used in investing activities to fund acquisitions, development, or redevelopment projects and recurring and nonrecurring capital expenditures.

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Capital expenditures and capitalized interest 25,129

Leasing costs/acquisition deposits 4,795

Capital improvements/acquisition deposits/leasing costs (6,226)

Joint venture investments (30,924)

Distributions from joint ventures (26,905)

Proceeds from the sale of properties (267,811)

Debt and preferred equity and other investments (53,341)

Increase in net cash provided by investing activities $ 148,949

Proceeds from note receivable 50,000

Issuance of note receivable 50,000

Capital distributions from unconsolidated real estate ventures 18,027

Other investing activities 1,250

Increase in net cash used in investing activities $ (118,605)

We generally fund our investment activity through the sale of real estate, property-level financing, credit facilities, senior unsecured notes, and construction loans.

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Repayments of debt obligations 281,993

Proceeds from the exercise of stock options (3,724)

Redemption of limited partnership units (2,334)

Repurchase and retirement of common shares 60,000

Other financing activities 2,146

Dividends and distributions paid 955

Increase in net cash used in financing activities $ (252,577)

Other financing activities 2,239

Decrease in net cash used in financing activities $ 178,853

Capitalization

The table below summarizes indebtedness under our mortgage notes payable and our unsecured debt at December 31, 2020 and December 31, 2019:

The table below summarizes indebtedness under our unsecured debt at December 31, 2021 and December 31, 2020:

December 31, 2021 December 31, 2020

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Total 4.4 5.4

(a) Consists of unpaid principal and does not include premium/discount or deferred financing costs.

(a) Consists of unpaid principal and does not reflect premium/discount or deferred financing costs.

Scheduled principal payments and related weighted average annual effective interest rates for our debt as of December 31, 2021 were as follows (dollars in thousands):

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Totals $ 1,851,610 3.70 %

For information related to our debt obligations and their covenants see Note 9, ''Debt Obligations,” to our Consolidated Financial Statements.

Unsecured Debt

The Operating Partnership is the issuer of our unsecured notes which are fully and unconditionally guaranteed by the Parent Company.

The indenture under which the Operating Partnership issued its unsecured notes contains financial covenants, including (i) a leverage ratio not to exceed 60%, (ii) a secured debt leverage ratio not to exceed 40%, (iii) a debt service coverage ratio of greater than 1.5 to 1.0 and (iv) an unencumbered asset value of not less than 150% of unsecured debt.

The Operating Partnership was in compliance with all covenants as of December 31, 2020 and 2019.

The indenture under which the Operating Partnership issued its unsecured notes contains financial covenants, including:

(i) a leverage ratio not to exceed 60%;

(ii) a secured debt leverage ratio not to exceed 40%;

(iii) a debt service coverage ratio of greater than 1.5 to 1.0;

and (iv) an unencumbered asset value of not less than 150% of unsecured debt.

The Operating Partnership is in compliance with all covenants as of December 31, 2021.

The charter documents of the Parent Company and Operating Partnership do not limit the amount or form of indebtedness that the Operating Partnership may incur, and its policies on debt incurrence are solely within the discretion of the Parent Company’s Board of Trustees, subject to the financial covenants in the Credit Facility, indenture and other credit agreements.

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During the year ended December 31, 2021, the Parent Company paid dividends in excess of the 90% criterion.

See Note 13, ''Beneficiaries' Equity of the Parent Company,” to our Consolidated Financial Statements for further information related to our dividends declared for the fourth quarter, information related to our former continuous offering program, and information related to our share repurchase program during the year ended December 31, 2020.

See Note 13, ''Beneficiaries' Equity of the Parent Company,” to our Consolidated Financial Statements for further information related to our dividends declared for the fourth quarter of 2021.

Contractual Obligations

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In connection with the Schuylkill Yards Project, we entered into a neighborhood engagement program and, as of December 31, 2021, had $7.0 million of future contractual obligations.

We are also committed to make additional contributions under the program.

We are also committed to making additional contributions under the program.

We estimate that, as of December 31, 2021, these additional contributions, which are not fixed under the terms of agreement, will be $2.4 million.

See Note 20, ''Commitments and Contingencies,” to our Consolidated Financial Statements for further information.

In connection with the formation of the Commerce Square Venture, we committed to investing an additional $20.0 million of preferred equity in the properties on a pari passu basis with our joint venture partner.

As part of our September 2004 acquisition of a portfolio of properties from The Rubenstein Company (which the we refer to as the “TRC acquisition”), we acquired our interest in Two Logan Square, a 708,844 square foot office building in Philadelphia, Pennsylvania primarily through ownership of a second and third mortgage secured by this property.

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The $0.6 million payment is included within "Other liabilities" on the consolidated balance sheets.

Similarly, as part of our 2013 acquisition of substantially all of the equity interests in the partnerships that own One and Two Commerce Square, we agreed, for the benefit of affiliates of the holder of the 1% residual ownership interest in these properties, to not sell these two properties in certain taxable transactions prior to October 20, 2021 without the holder’s consent.

The Commerce Square Venture Transaction did not violate such covenant.

As part of our acquisition of properties, from time to time in tax-deferred transactions, the Company has agreed to provide certain of the prior owners of the acquired properties the right to guarantee the Company’s indebtedness.

If the Company were to seek to repay the indebtedness guaranteed by the prior owner before the expiration of the applicable agreement, the Company would be required to provide the prior owner an opportunity to guaranty qualifying replacement debt.

These debt maintenance agreements may limit the Company’s ability to refinance indebtedness on terms favorable to the Company.

As part of our 2013 acquisition of substantially all of the equity interests in the partnerships that own One and Two Commerce Square, the Company agreed, for the benefit of affiliates of the holder of the 1% residual ownership interest in these properties, to maintain qualifying mortgage debt through October 20, 2021, in the amounts of not less than $125.0 million on One Commerce Square and $100.0 million on Two Commerce Square.

Similarly, the Company agreed with other contributors of assets that obligate it to maintain debt available for them to guaranty.

As part of our acquisition of properties, from time to time in tax-deferred transactions, we have agreed to provide certain of the prior owners of the acquired properties the right to guarantee our indebtedness.

If we were to seek to repay the indebtedness guaranteed by the prior owner before the expiration of the applicable agreement, we would be required to provide the prior owner an opportunity to guaranty qualifying replacement debt.

These debt maintenance agreements may limit our ability to refinance indebtedness on terms favorable to us.

We invest in properties and regularly incur capital expenditures in the ordinary course of business to maintain the properties.

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In addition, during construction undertaken by real estate ventures we have provided, and expect to continue to provide, cost overrun, and completion guarantees, with rights of contribution among partners in ventures, as well as customary environmental indemnities and guarantees of customary exceptions to nonrecourse provisions in loan agreements.

See Note 20, ''Commitments and Contingencies," to our Consolidated Financial Statements for further details on payment guarantees provided on the behalf of real estate ventures.

Interest Rate Risk and Sensitivity Analysis

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As of December 31, 2021, our consolidated debt consisted of unsecured notes with an outstanding principal balance of $1,500.0 million, all of which are fixed rate borrowings.

We also have variable rate debt consisting of trust preferred securities with an outstanding principal balance of $78.6 million, a $600.0 million Credit Facility with no amounts borrowed and an unsecured term loan with an outstanding principal balance of $250.0 million, all of which have been swapped to fixed rates, except for two trust preferred securities with an outstanding principal balance of $52.8 million and the Credit Facility.

We also have variable rate debt consisting of trust preferred securities with an outstanding principal balance of $78.6 million, a $600.0 million Credit Facility with an outstanding balance of $23.0 million and an unsecured term loan with an outstanding principal balance of $250.0 million.

The unsecured term loan has been swapped to a fixed rate.

All financial instruments were entered into for other than trading purposes and the net market value of these financial instruments is referred to as the net financial position.

Changes in interest rates have different impacts on the fixed and variable rate portions of our debt portfolio.

A change in interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position, but has no impact on

interest incurred or cash flows.

A change in interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position, but has no impact on interest incurred or cash flows.

A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact the net financial instrument position.

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For sensitivity purposes, a 100 basis point change in the discount rate equates to a change in the total fair value of our debt of approximately $15.9 million at December 31, 2021.

From time to time or as the need arises, we use derivative instruments to manage interest rate risk exposures and not for speculative purposes.

The total outstanding principal balance of our variable rate debt was approximately $328.6 million as of both December 31, 2020 and December 31, 2019.

The total fair value of our variable rate debt was approximately $308.8 million and $309.9 million at December 31, 2020 and December 31, 2019, respectively.

For sensitivity purposes, if market rates of interest increase by 100 basis points the fair value of our variable rate debt would decrease by approximately $11.5 million on December 31, 2020.

If market rates of interest decrease by 100 basis points, the fair value of our outstanding variable rate debt would increase by approximately $12.6 million.

From time to time or as the need arises, we use derivative instruments to manage interest rate risk exposures and not for speculative or trading purposes.

The total outstanding principal balance of our variable rate debt was approximately $351.6 million as of December 31, 2021.

The total fair value of our variable rate debt was approximately $344.8 million at December 31, 2021.

For sensitivity purposes, if market rates of interest increase by 100 basis points the fair value of our variable rate debt would decrease by approximately $10.1 million at December 31, 2021.

If market rates of interest decrease by 100 basis points, the fair value of our outstanding variable rate debt would increase by approximately $11.3 million at December 31, 2021.

These amounts were determined solely by considering the impact of hypothetical interest rates on our financial instruments.

Due to the uncertainty of specific actions it may undertake to minimize possible effects of market interest rate increases, this analysis assumes no changes in our financial structure.

Due to the uncertainty of specific actions we may undertake to minimize possible effects of market interest rate increases, this analysis assumes no changes in our financial structure.

Funds from Operations (FFO)

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Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently.

We consider net income, as defined by U.S.

GAAP, to be the most comparable earnings measure to FFO.

While FFO and FFO per unit are relevant and widely used measures of operating performance of REITs, FFO does not represent cash flow from operations or net income as defined by U.S.

GAAP and should not be considered as alternatives to those measures in evaluating our liquidity or operating performance.

We consider net income, as defined by GAAP, to be the most comparable earnings measure to FFO.

While FFO and FFO per unit are relevant and widely used measures of operating performance of REITs, FFO does not represent cash flow from operations or net income as defined by GAAP and should not be considered as alternatives to those measures in evaluating our liquidity or operating performance.

We believe that to further understand our performance, FFO should be compared with our reported net income/(loss) attributable to common unit holders and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.

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Weighted-average shares/units outstanding — fully diluted (a) 173,165,898 173,298,710

(a) Includes common shares and partnership units outstanding through the year ended December 31, 2020 and December 31, 2019, respectively.

(a) Includes common shares and partnership units outstanding through the years ended December 31, 2021 and December 31, 2020, respectively.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis