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Item 7. Management’s Discussion and Analysis

2023-02-21 compared with 2022-02-24 · 135 added, 94 removed, 376 unchanged (38% 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, 2022, 2021 and 2020.

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.

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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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.

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.

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 buildings.

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.

Adverse changes in economic conditions, including the ongoing effects of the global COVID-19 pandemic, inflation, and rising interest rates, 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, inflation and rising interest rates on all aspects of our business, including the impact on 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.

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

Overall economic conditions, including but not limited to labor shortages, supply chain constraints, inflation, rising interest rates 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.

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Average occupancy percentage 89.8 % 89.6 %

Total Portfolio, less properties in development (2):

Total Portfolio, less properties in development/redevelopment (2):

Tenant retention rate (3) 64.1 % 52.8 %

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Combined rental rates 18.7 % 16.2 %

Weighted average lease term for leases commenced (years) 6.8 7.0

Capital Costs Committed (5):

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Tenant Improvements (per square foot) $ 30.77 $ 18.38

Weighted average lease term (years) 7.0 7.6

Total capital per square foot per lease year $ 4.26 $ 3.23

(1) Does not include properties under development, redevelopment, held for sale, or sold.

(2) Includes leasing related to completed developments and redevelopments, as well as sold properties.

(2) Includes leasing related to completed developments and redevelopments, recently completed not yet stabilized, and sold properties.

(3) Calculated as percentage of total square feet.

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Our accrued rent receivable allowance was $3.9 million or 2.1% of our accrued rent receivable balance as of December 31, 2022 compared to $4.1 million or 2.4% of our accrued rent receivable balance as of December 31, 2021.

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.

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

This condition

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

Development Risk

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As of December 31, 2022 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 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.

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

250 King of Prussia Road (a) Radnor, PA Q3 2022 Redevelopment 168,294 $ 103,680 $ — $ 73,469

2340 Dulles Corner Boulevard (b) Herndon, VA Q2 2023 Redevelopment 268,365 $ 117,974 $ — $ 72,978

155 King of Prussia Road Radnor, PA Q4 2024 Development 144,685 $ 80,000 $ 48,000 (c) $ 16,308

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

Base building was completed in Q3 2022.

The remaining amounts unfunded relate to tenant fit-out work to be completed.

(b) Total project costs include $58.0 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.

In addition to the properties listed above, we have classified one parking facility in Philadelphia, Pennsylvania as redevelopment.

As of December 31, 2022 the following recently completed development project was not yet stabilized (dollars, in thousands):

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

405 Colorado Street (a) Austin, TX Q2 2021 (b) Development 205,803 $ 122,000 $ 106,964

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

The project includes 520 parking spaces.

Recently Completed not Stabilized properties are recorded on our consolidated balance sheet in land, buildings and tenant improvements and deferred leasing costs, not construction-in-progress.

Stabilization is expected during the first quarter of 2023.

(b) The parking garage and occupied portions of the office building were placed into service during 2021.

As of December 31, 2022 the following active unconsolidated real estate venture development projects remain under construction in progress and we were proceeding on the following activity (dollars, in thousands):

Property/Portfolio Name Location Expected Completion Date Approximate Square Footage Estimated Costs Amount Funded Construction Loan Financing Our Share Remaining to be Funded Partner's Share Remaining to be Funded

3025 JFK Boulevard (55%) Philadelphia, PA Q3 2023 (a) $ 287,272 $ 159,605 $ 186,727 $ — $ —

3151 Market Street (55%) Philadelphia, PA Q2 2024 441,000 $ 307,586 $ 63,221 $ 184,552 (b) $ 4,448 $ 55,365

One Uptown - Office (50%) Austin, TX Q3 2023 362,679 $ 191,616 $ 86,851 $ 121,650 $ — $ —

One Uptown - Multifamily (50%) Austin, TX Q3 2024 341 Units $ 144,029 $ 46,308 $ 85,000 $ — $ 12,721

(a) Mixed used building with 428,000 rentable square feet consisting of 200,000 SF of life science/innovation office, 219,000 SF of residential (326 units), and 9,000 SF of retail.

(b) Debt financing amount represents an estimate at 60% Loan-to-Value ratio.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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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These judgments are similar to those outlined above in the impairment of real estate investments.

We also use judgment in making the determination as to whether or not the impairment is temporary by considering, among other things, the length of time that the market value has been less than cost, the financial condition of the unconsolidated real estate venture and our ability and intent to retain the investment long enough for a recovery in value.

We also use judgment in making the determination as to whether

or not the impairment is temporary by considering, among other things, the length of time that the market value has been less than cost, the financial condition of the unconsolidated real estate venture and our ability and intent to retain the investment long enough for a recovery in value.

Our judgments related to the determination of fair value and whether an impairment is other than temporary could result in the recognition of an impairment which could be material.

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A change in any of the key assumptions can materially change not only the presentation of acquired real estate investments in our consolidated financial statements but also our reported results of operations.

Common Development Cost Estimates for Contributions to Development Joint Ventures

When land is contributed to a development joint venture, estimated common development costs include actual costs incurred and estimates of future common development costs benefiting the property sold.

When land is sold, common development costs, if they cannot be specifically identified, are allocated to each sold parcel based upon its relative sales value.

For purposes of allocating common development costs, estimates of future sales proceeds and common development costs are re-evaluated throughout the year, with adjustments being allocated prospectively to the remaining land parcels available for sale.

The common development cost estimates for development joint ventures are highly judgmental as they are sensitive to cost escalation, sales price escalation and pace of absorption, which are subject to judgment and are affected by expectations about future market or economic conditions.

Changes in the assumptions used to estimate future common development costs could result in a significant impact on the amounts recorded as net gain on disposition of real estate or net gain on sale of undepreciated real estate.

RESULTS OF OPERATIONS

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(b) “Total Portfolio,” which represents all properties owned and consolidated by us during 2022 and 2021,

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

(c) “Recently Completed/Acquired Properties,” which represents two properties placed into service or acquired on or subsequent to January 1, 2021,

(d) “Development/Redevelopment Properties,” which represents four properties currently in development/redevelopment.

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

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

(e) “2021 and 2022 Dispositions,” which represents four properties disposed of during 2021 and 2022.

Comparison of Year Ended December 31, 2022 to the Year Ended December 31, 2021

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General & administrative expenses 35.0 30.2 35.0 30.2 4.8 15.9 %

Provision for impairment 4.7 — 4.7 — 4.7 — %

Net gain on disposition of real estate (17.7) (0.1) (17.6) 17,600.0 %

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Net gain on real estate venture transactions 26.7 3.0 23.7 790.0 %

Income tax benefit — 0.2 (0.2) (100.0) %

Loss on early extinguishment of debt (0.4) — (0.4) — %

Income tax provision (0.1) — (0.1) — %

Net income $ 54.0 $ 12.4 $ 41.6 335.5 %

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Total Revenue

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

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

• $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.

Rents from the Total Portfolio increased $19.4 million primarily as a result of the following:

• $3.3 million increase related to our a redevelopment property in our Philadelphia CBD segment that was placed into service in the fourth quarter of 2022;

• $4.7 million increase at a property in our Metropolitan, Washington D.C.

segment due to an increase in occupancy;

• $3.8 million increase related to a development property in our Austin, Texas segment that was partially placed into service during the third quarter of 2021

• $3.5 million increase related to the commencement of operations of B.Labs, a life science incubator lab in our Philadelphia CBD segment, during the first quarter of 2022;

• $2.6 million increase related to the restaurant, residential and hotel components at the FMC Tower in our Philadelphia CBD segment related to higher rental rates and higher occupancy partially due to the lifting of COVID-19 pandemic restrictions.

The remaining $1.5 million increase in Rents is primarily due to increased occupancy at certain properties across our Same Store Property Portfolio, as well as increased use of our properties as more tenants return to work related to the lifting of COVID-19 pandemic restrictions,resulting in higher tenant reimbursements.

Third party management fees, labor reimbursement, and leasing income decreased primarily due to $1.6 million decrease in fees and reimbursements associated with a third party management contract that was terminated during the Fourth quarter of 2021.

Other income at our Total Portfolio increased primarily as a result of a $2.2 million of settlement proceeds received from a general contractor for liquidated damages as a result of a construction delay at a property in our Austin, Texas segment.

Property Operating Expenses

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

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

• $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 primarily as a result of the following:

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

• $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.

Property operating expenses increased $8.3 million primarily as a result of the following:

• $3.4 million increase related to higher energy rates in our Philadelphia CBD and Pennsylvania Suburbs segments as a result of the bankruptcy of our energy generation provider during 2022 resulting in higher rates;

• $1.5 million increase related to the commencement of operations of B.Labs, a life science incubator lab in our Philadelphia CBD segment, during the first quarter of 2022.

• $1.4 million increase related to a recently completed but not yet stabilized development property in our Austin, Texas segment that was partially placed into service during the third quarter of 2021 and entirely placed into service in third quarter 2022;

• $1.2 million increase at the restaurant, residential and hotel components of FMC Tower primarily as a result of the lifting of COVID-19 pandemic restrictions;.

The remaining increase of $0.8 million is primarily related to miscellaneous increases in property operating expenses across our Total Portfolio, primarily driven by increased usage of our properties partially due to the lifting of COVID-19 pandemic restrictions and associated repairs and maintenance.

Third party management expenses

Third party management expense s decreased primarily due to the loss of a third party management contract in the fourth quarter of 2021 and the sale of the final property in the Brandywine - AI Venture in 2021, which resulted in $1.2 million and $0.8 million decreases, respectively.

General and Administrative

General and administrative expenses increased primarily as a result of a $2.4 million recovery of previously expensed legal fees incurred in pursuit of a settlement that was received in the first quarter of 2021.

In addition, $2.4 million of the increase is related to increased non-cash compensation expense during the twelve months ended December 31, 2022 compared to the twelve months ended December 31, 2022.

Provision for impairment

During 2022, we recognized a provision for impairment of $ 4.7 million on an office property located in our Metropolitan Washington, D.C.

segment that we expect to sell to a third party.

See Note 3 “Real Estate Investments,” for further information.

Net Gain on Disposition of Real Estate

The $17.6 million gain on disposition of real estate for 2022 primarily resulted from the following sales transactions:

• $271.9 million related to the sale of a 30% preferred equity interest in One Commerce Square and Two Commerce Square, which resulted in deconsolidation of the properties and recognition of our investment in the properties at fair value;

• $15.2 million related to the sale of a 60% equity interest in a portfolio of twelve suburban office properties located in suburban Pennsylvania and Maryland, containing an aggregate of 1.1 million square feet ("Mid-Atlantic Office Portf olio"), which resulted in deconsolidation of the properties and recognition of our investment in the properties at fair value;

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

3 million gain due to the formation of the One Uptown Ventures, which resulted in deconsolidation of the project and recognition of our investment in the real estate venture at fair value;

• $8.7 million gain related to the sale of an office building located at 200 Barr Harbor Drive, West Conshohocken, Pennsylvania for a gross sales price of $30.5 million and net cash proceeds of $29.3 million.

Net Gain on Sale of Undepreciated Real Estate

The gain of $8 million recognized during 2022 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.

• $0.9 million related to the sale of two parcels of land in our Other Segment during the three months ended March 31, 2022;

• $4.1 million related to the sale of one parcel of land in our Metropolitan Washington, D.C.

segment and the sale of a portfolio of four parcels of land and two office buildings in our Other segment during the three months ended June 30, 2022;

• $2.6 million gain due to formation of the 3151 Market Street Venture, which resulted in deconsolidation of the project.

The gain of $2.9 million recognized during 2021 primarily resulted from 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 and the sale of three parcels of land in our Other Segment.

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 and investment income decreased 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 decrease, $2.8 million related to our receipt of an accelerated minimum return and exit fees paid in cash on the redemption date.

Interest Expense

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;

• $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.

Interest expense increased primarily due to a higher average balance outstanding on our line of credit throughout 2022 and a higher weighted average interest rate on our line of credit and other floating rate debt during the twelve months ended December 31, 2022 compared to the twelve months ended December 31, 2021.

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;

• $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.

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

• $3.4 million decrease associated with our Commerce Square Venture primarily due to a decrease in the amortization of in-place lease intangibles during the December 31, 2022 compared to the twelve months ended December 31, 2021;

• $1.0 million decrease associated with our 4040 Wilson Venture.

• $1.0 million decrease associated with our 1919 Market Venture due to the sale of our equity interest during the fourth quarter 2022;

• $0.7 million decrease associated with our Brandywine - AI Venture due to the sale of the remaining property in 2021;

• $1.0 million decrease associated with our investment in Cira Square acquired in the first quarter of 2022.

Net Gain on Real Estate Venture Transactions

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.

The $26.7 million net gain on real estate venture transactions is due to the sale of our 50% ownership interest in the 1919 Market Joint Venture for a gross sales price of $38.8 million.

We received cash proceeds of $83.3 million, inclusive of proceeds from the repayment of the $44.3 million outstanding loan between Brandywine and the venture.

See Note 4 “Investment in Unconsolidated Real Estate Ventures” to our Consolidated Financial Statements for further information.

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As of December 31, 2022 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 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 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.

On June 30, 2022, we executed the 2022 Credit Agreement, which, among other things, provides for the Revolving Credit Facility and Term Loan.

As of December 31, 2022, based on the Operating Partnership's unsecured senior debt rating, the applicable margin for revolving loans under the Revolving Credit Facility was 105.0 basis points (excluding the applicable facility fee of 25 basis points) and was 120.0 basis points for the Term Loan, plus, in each case, a daily SOFR adjustment of 10 basis points.

Through a series of interest rate swaps, the $250.0 million principal amount of the Term Loan had a fixed interest rate of 2.87% until October 8, 2022.

See Note 9, “Debt Obligations,” for further information.

On December 13, 2022, the Company completed an underwriting offering of its $350.0 million 7.55% Guaranteed Notes due 2028 (the “2028 Notes”).

The 2028 Notes were priced at 99.06% of their face amount and they have been reflected net of a discount of $3.3 million in the consolidated balance sheet as of December 31, 2022.

The Company received approximately $344.6 million after deduction for underwriting discounts and offering expenses.

On December 20, 2022, the Company used a portion of the net proceeds from the offering of the 2028 Notes to repurchase $295.7 million aggregate principal amount of its outstanding 3.95% guaranteed notes due 2023 (the “2023 Notes”), through a tender offer, together with $4.1 million of accrued and unpaid interest thereon.

The Company recognized a $0.4 million loss on early extinguishment of debt related to the total repurchase.

On January 20, 2023, the Company completed the redemption of the remaining $54.3 million aggregate principal amount of the 2023 Notes.

See Note 21, “Subsequent Events” for further information regarding the redemption.

On January 19, 2023, the Company closed on a term loan secured by seven operating properties with an aggregate principal amount of $245.0 million (the “Secured Facility”).

The Company used the net proceeds of the loan for general corporate purposes, including to reduce outstanding borrowings under the Company’s unsecured revolving credit facility.

See Note 21, “Subsequent Events” for further information regarding the Secured Facility.

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

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We did not have any secured debt obligations as of December 31, 2022.

See Note 21 “Subsequent Events,” for further information regarding the Secured Facility.

Capital Markets

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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 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.

During 2022, we closed on the sale of three parcels of land for net cash proceeds of $38.8 million as well as a portfolio of three office properties and five parcels of land in Gibbsboro, New Jersey for net cash proceeds of $4.0 million.

We contributed our investment in a 99-year prepaid leasehold interest in a 0.8 acre land parcel held for development to the 3151 Market Street Venture and 4.7 acres of land held for development to the One Uptown Ventures.

We completed the sale of an office building located at 200 Barr Harbor Drive, West Conshohocken, Pennsylvania for net cash proceeds of $29.3 million.

Additionally, we completed the sale of our 50% ownership interest in the 1919 Market joint venture for a gross sales price of $83.2 million, a portion of which satisfied repayment of the $44.4 million outstanding loan between the Company and the venture.

As of December 31, 2022, we had $17.6 million of cash and cash equivalents and $505.2 million of available borrowings under our unsecured credit facility, net of $6.3 million in letters of credit outstanding.

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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.

The increase in operating cash flows is primarily due to the gain on sales for the 2022 property dispositions.

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

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Proceeds from note receivable (5,700)

Issuance of note receivable 50,000

Capital distributions from unconsolidated real estate ventures 19,870

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Redemption of limited partnership units (1,672)

Repurchase and retirement of common shares 60,000

Debt financing costs paid (9,875)

Dividends and distributions paid (233)

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Fixed rate $ 1,554,301 $ 1,750,000

Variable rate - unhedged 101,610 52,836

Variable rate - unhedged (b) 417,110 101,610

Total $ 1,971,411 $ 1,851,610

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

(b) On November 23, 2022, our unsecured term loan of $250.0 million was swapped to a fixed rate of 5.01% and matures on June 30, 2027.

The effective date of the swap is January 31, 2023.

Scheduled principal payments and related weighted average annual effective interest rates for our debt as of December 31, 2022 were as follows (dollars in thousands):

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2028 350,000 7.73 %

2029 350,000 4.30 %

Thereafter 78,610 5.41 %

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

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

(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.

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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 2022.

Substantially all our leases are structured as base year or triple net leases which provide for reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per square-foot basis, or in some cases, annual reimbursement of operating expenses above certain per square-foot allowances.

In addition, approximately 96% of our leases (as a proportion of our wholly-owned portfolio square feet) contain effective annual rent escalations that are either fixed (generally ranging from 2.5% to 3.0%) or indexed based on a consumer price index or other indices.

Accordingly, we do not believe that our cash flows or earnings from real estate operations are subject to significant risks from inflation.

However, a period of high inflation would cause an increase in the borrowing cost on our variable rate debt resulting in higher borrowing costs.

Contractual Obligations

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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 of which $7.2 million has been contributed by us as of December 31, 2022.

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.

As part of our September 2004 acquisition of a portfolio of properties (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.

This property is consolidated, as the borrower is a VIE and we, through our ownership of the second and third mortgages, are the primary beneficiary.

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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.

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.

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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 $88.5 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.

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Pursuant to the revised definition of FFO adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), we calculate FFO by adjusting net income/(loss) attributable to common unit holders (computed in accordance with GAAP) for gains (or losses) from sales of properties, impairment losses on depreciable consolidated real estate, impairment losses on investments in unconsolidated real estate ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated real estate ventures, real estate related depreciation and amortization, and after similar adjustments for unconsolidated real estate ventures.

Our calculation of FFO includes gains from sale of undepreciated real estate and other assets, considered incidental to our main business, to third parties or unconsolidated real estate ventures.

FFO is a non-GAAP financial measure.

We believe that the use of FFO combined with the required GAAP presentations has been beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REITs’ operating results more meaningful.

We believe that the use of FFO

combined with the required GAAP presentations has been beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REITs’ operating results more meaningful.

We consider FFO to be a useful measure for reviewing comparative operating and financial performance because, by excluding property impairments, gains or losses related to sales of previously depreciated operating real estate assets and real estate depreciation and amortization, FFO can help the investing public compare the operating performance of a company’s real estate between periods or as compared to other companies.

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Net gain on disposition of real estate (17,677) (142)

Provision for impairment 4,663 —

Company's share of impairment of an unconsolidated real estate venture — 696

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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