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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-22 · 141 added, 94 removed, 416 unchanged (36% of the section changed)

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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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The Other segment includes properties in Northern Virginia, Washington, D.C., Southern Maryland, Camden County, New Jersey and New Castle County, Delaware.

In addition to the four 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 and development of properties owned by third parties and from investments in the unconsolidated real estate ventures.

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

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

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

We also generate cash through sales of assets, including assets that we do not view as core to our business plan, either because of location or expected growth potential, and assets that are commanding premium prices from third party investors.

Our financial and operating performance is dependent upon the demand for office, life science, 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 inflation, and high 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 inflation and high 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.

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

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.

Overall macroeconomic conditions, including but not limited to inflation and high interest rates and changes in work patterns, including remote working arrangements, that have contributed to negative lease absorption within our office markets, have had a dampening effect on the fundamentals of our business, as reflected in, among other metrics, our increased borrowing costs and lower occupancy as well as downward pressures on asset valuations.

These adverse conditions could continue to impact our net income, cash flows and liquidity and could have a material adverse effect on our financial condition and results of operations.

Notwithstanding the challenging macroeconomic conditions, which have contributed to recent difficulties in asset dispositions at acceptable prices, leasing of vacant space at attractive rents and sourcing of capital for development projects at acceptable costs, as well as to impairments of assets, we believe that our portfolio of Properties and investments, and liquidity profile, will allow us to maintain stable operating performance.

In our ongoing assessment of our Properties as “quality” or “high quality”, we consider both their quantitative and qualitative attributes, including in relation to other properties within a given submarket or adjacent submarkets that compete with our portfolio for tenants.

The attributes that we consider in our assessment include the age and condition of the property, average asking rental rates, access to mass transit and highways, floorplate efficiencies, amenities within, and nearby, the property and availability of parking as well as market demographics such that bear on demand for space at our portfolio.

We also believe that our portfolio and liquidity profile will enable us to raise capital, as 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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The table below summarizes selected operating and leasing statistics of our wholly owned properties for the years ended December 31, 2024 and 2023:

Three Months Ended December 31,

Year Ended December 31,

2024 2023 2024 2023

Leasing Activity

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Weighted average lease term for leases commenced (years) 6.4 4.9 6.2 6.2

Average annual rent (per square foot) (6) (7)

$ 40.07 $ 36.54 $ 40.08 $ 37.25

Capital Costs Committed (5)(6):

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Tenant improvements (per square foot)

$ 12.32 $ 11.30 $ 21.19 $ 14.11

Total capital per square foot per lease year $ 3.07 $ 3.10 $ 3.88 $ 3.23

Average annualized capital as % of average annual rent (6) (7)

8.9 % 10.8 % 12.0 % 10.0 %

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

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

(2) Includes leasing at recently completed not-stabilized Properties.

The statistics presented for periods ended prior to the three-month period ended December 31, 2024 have not been adjusted for properties sold subsequent to the periods presented.

(3) Calculated as percentage of total square feet.

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(5) Calculated on a weighted average basis.

(6) For comparison purposes, we exclude new leases of space when the previous lease of such space ended more than 12 months from the signing date for the new leases.

(7) Average annual rent represents total initial contractual rent under the applicable leases plus contractual fixed rent increases due under the applicable leases averaged over the total terms of the applicable leases.

Our actual leasing capital costs as a percentage of rents are largely a function of the composition of our leases to new tenants or renewals with existing tenants, in addition to size and timing of occupancy.

We generally experience lower leasing costs in connection with the renewal of leases with existing tenants compared to leases with new tenants.

Our properties compete for tenants with similar properties primarily on the basis of location, total occupancy costs (including base rent and operating expenses), services and amenities, and the design and condition of the properties.

As leases at our properties expire, we face competition to renew or re-let space in light of the competing properties within the applicable markets.

As a result, and as part of customary lease negotiations, we are often required to provide rent concessions or abatements, incur charges for tenant improvements and other inducements, including early termination rights or potential below market renewal options, all of which impact, in varying degrees, annualized rents.

The table below summarizes occupancy statistics of our Core Properties by segment for the twelve months ended December 31, 2024 and 2023:

Twelve months ended December 31,

Philadelphia CBD 93.7 % 95.2 %

Pennsylvania Suburbs 88.2 % 86.5 %

Austin, Texas 77.8 % 81.7 %

Other 83.2 % 80.5 %

Total - Core Properties

87.8 % 88.0 %

The table below summarizes the occupancy statistics of our Properties, broken down by property types for the twelve months ended December 31, 2024 and 2023:

Twelve months ended December 31, Twelve months ended December 31,

% Net Operating Income (4)

2024 2023 2024 2023

90.8 % 91.1 % 89.5 % 89.2 %

Life Science (1)

6.1 % 6.1 % 81.7 % 84.6 %

Residential (2)

3.1 % 2.8 % 82.2 % 83.7 %

100.0 % 100.0 % 88.9 % 89.1 %

(1) Represents Philadelphia portfolio assets located at 3000 Market Street and 3025 Market Street in Philadelphia, Pennsylvania, dedicated life science floors at Cira Centre in Philadelphia, Pennsylvania and 250 King of Prussia Road in Radnor, Pennsylvania.

(2) Represents our residential operation at 2929 Walnut Street in Philadelphia, Pennsylvania.

(3) Does not include Properties under development/redevelopment.

(4) See Note 18 “Segment Information,” to our Consolidated Financial Statements for the definition of Net Operating Income.

In seeking to increase revenue through our operating, financing, and investment activities, we also seek to minimize operating risks, including (i) tenant rollover risk, (ii) tenant credit risk and (iii) development risk.

We have compared our weighted-average in-place rental rates to our leases signed in 2024 and our current market leasing assumptions, and while the actual results will be dependent on the leases expiring in any particular period, we believe the current portfolio should generate positive rental rate increases for the remainder of fiscal 2024.

Tenant Rollover Risk

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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

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.

As of December 31, 2023 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 Date Activity Type Approximate Square Footage Estimated Costs Construction Loan Financing Amount Funded

155 King of Prussia Road Radnor, PA Q4 2024 Development 144,685 $ 80,000 $ 50,000 $ 42,435

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

Development and Redevelopment Risk

Development and Redevelopment 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.

As of December 31, 2024, the following recently completed development project was not yet stabilized (dollars, in thousands):

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As of December 31, 2024, 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

Property/Portfolio Name Location Completion Date

Approximate Square Footage Estimated Costs (c)

Amount Funded Construction Loan Financing Our Share Remaining to be Funded Partner's Share Remaining to be Funded

3025 JFK Boulevard (64%)

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One Uptown - Multifamily (50%) Austin, TX Q3 2024 341 Units $ 144,029 $ 128,984 $ 85,000 $ — $ —

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

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

(b) Debt financing amount represents an estimate at 55% Loan-to-Value ratio for 3151 Market Street.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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If we believe there is a significant possibility that we might dispose of the assets earlier, we assess the recoverability using a probability weighted analysis of the estimated undiscounted future cash flows expected to be generated from the operations and eventual disposition of the assets over the various possible holding periods.

If the recoverability assessment indicates that the carrying value of a tested real estate investment is not recoverable from estimated undiscounted future cash flows, it is written down to its estimated fair value and an impairment is recognized.

If the recoverability assessment indicates that

the carrying value of a tested real estate investment is not recoverable from estimated undiscounted future cash flows, it is written down to its estimated fair value and an impairment is recognized.

If and when our plans change, we revise our recoverability analyses to use the cash flows expected from the operations and eventual disposition of each asset using holding periods that are consistent with our revised plans.

Real estate investment fair values are estimated based on contract prices, discounted cash flows, or comparable sales.

Real estate investment fair values are estimated based on agreements with third parties, discounted cash flows, or comparable sales.

Estimated future cash flows used in such analyses are based on our views of market and economic conditions.

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When we are required to provide improvements under the terms of a lease, we need to determine whether the improvements constitute landlord assets or tenant assets.

improvements are landlord assets, we capitalize the cost of the improvements and recognize depreciation expense associated with such improvements over the shorter of the estimated useful life or the term of the lease.

If the improvements are landlord assets, we capitalize the cost of the improvements and recognize depreciation expense associated with such improvements over the shorter of the estimated useful life or the term of the lease.

If the improvements are tenant assets, we defer the cost of improvements funded by us as a lease incentive asset and amortize it as a reduction of rental revenue over the term of the lease.

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whether the improvements are unique to the tenant or reusable by other tenants;

whether the tenant is permitted to alter or remove the improvements without our consent or without compensating us for any lost fair value;

whether the tenant is permitted to alter or remove the improvements without our consent or without compensating us for any

lost fair value;

whether the ownership of the improvements remains with us or remains with the tenant at the end of the lease term;

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(c) “Recently Completed/Acquired Properties,” which represents three properties placed into service or acquired on or subsequent to January 1, 2023,

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

(d) “Development/Redevelopment Properties,” which represents zero 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

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Net gain on real estate venture transactions 56.8 0.2 56.6 28,300.0 %

Gain (loss) on early extinguishment of debt 0.2 (0.4) 0.6 (150.0) %

Gain on early extinguishment of debt 1.0 0.2 0.8 400.0 %

Income tax provision — (0.1) 0.1 (100.0) %

Net income (loss) $ (197.4) $ 54.0 $ (251.4) (465.6) %

Net income (loss) attributable to Common Shareholders of Brandywine Realty Trust $ (1.15) $ 0.31 $ (1.46) (471.0) %

Net loss $ (196.5) $ (197.4) $ 0.9 (0.5) %

Net loss attributable to Common Shareholders of Brandywine Realty Trust $ (1.14) $ (1.15) $ 0.01 (0.9) %

(a) Represents certain revenues and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation, third-party management fees, provisions for impairment, and changes in the accrued rent receivable allowance.

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Total Revenue

Rents from the Total Portfolio increased $8.9 million primarily as a result of the following:

• $18.0 million increase related to our Recently Completed/Acquired Properties which comprise 405 Colorado, Austin TX, 250 King of Prussia Road, Radnor, PA and 2340 Dulles Corner Boulevard, Herndon VA;

• $7.3 million decrease due to the sales of 8521 Leesburg Pike, Vienna, VA in the fourth quarter of 2023, T hree Barton Skyway, Austin, TX in the third quarter of 2023 and 200 Barr Harbor Drive in the fourth quarter of 2022;

• $3.2 million decrease due to the early termination of a single tenant occupant at a property in our Austin, Texas segment in the third quarter of 2023 and removing one building from service in our Philadelphia CBD segment in the third quarter of 2022.

The remaining $1.4 million increase in Rents is primarily due to increased rental rates across our Same Store Property Portfolio, as well as increased use of our properties as more tenants implement return to office policies resulting in higher tenant reimbursements.

Real Estate Taxes

The $3.6 million decrease is primarily due to a reduction in tax assessments in 2023 compared to 2022 on properties in our Austin Texas segment.

Rents from the Total Portfolio decreased $(10.6) million primarily as a result of the following:

• $6.6 million decrease due to the sales of 200 North Radnor Chester Road, Radnor, PA and 8521 Leesburg Pike, Vienna, VA in the fourth quarter of 2023 and T hree Barton Skyway, Austin, TX in the third quarter of 2023;

• $3.3 million decrease due to the sale of five Class B office properties in the Plymouth Meeting Executive Center in Plymouth Meeting, PA in the third quarter of 2024;

• $2.5 million decrease due to the early termination of a single tenant occupant at a property in our Austin, Texas segment in the third quarter of 2023;

• $7.3 million increase relate Recently Completed/Acquired Properties which comprise 250 King of Prussia Road, Radnor, PA, 155 King of Prussia Road, Radnor, PA and 2340 Dulles Corner Boulevard, Herndon VA.

The remaining $5.5 million decrease in Rents is primarily due to increase vacancies across our Same Store Property Portfolio.

Depreciation and Amortization

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

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

• $5.6 million decrease related to the reduction in the cost basis of assets as a result of the provision for impairment recorded on two properties in the Metropolitan Washington, D.C.

area within our Other segment in 2023;

• $4.0 million decrease related to accelerated depreciation on tenant improvements due to the early termination of a single tenant occupant at a property in our Austin, Texas segment in 2023;

• $2.9 million decrease related to the sales of three properties in 2023;

• $2.0 million decrease due to the sale of five Class B office properties in the Plymouth Meeting Executive Center in Plymouth Meeting, PA in the third quarter of 2024;

• $3.0 million increase due to the placement into service of our Recently Completed/Acquired Properties.

• $2.6 million increase related to accelerated depreciation on the tenant improvements due to the early termination of a single tenant occupant at a property in our Austin, Texas segment;

General & Administrative Expenses

General and Administrative Expenses increase is primarily as a result of increased deferred compensation expenses.

Provision for Impairment

During the fourth quarter of 2024, we recognized a provision for impairment of $17.3 million on two office properties sold during the fourth quarter of 2024 located in our Austin, Texas segment.

During the third quarter of 2024, we recognized a provision for impairment of $3.8 million on six properties sold during the third quarter of 2024, five of which were located in our Pennsylvania Suburbs segment and one of which was located in our Other segment .

In addition, during the third quarter of 2024, w e recognized a provision for impairment of $23.5 million on one property in our Other segment.

The estimated fair value for this property was based upon a purchase and sale agreement pending as of September 30, 2024.

The purchase and sale agreement was terminated during the fourth quarter of 2024 and the property currently remains in our portfolio.

During the fourth quarter of 2023, we recognized a provision for impairment of $103.2 million on three properties in the Metropolitan Washington, D.C.

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During the second quarter of 2023, we recognized a provision for impairment of $4.5 million on an office property located in our Austin Texas, segment which met the held for sale criteria as of June 30, 2023 and was sold during the three months ended September 30, 2023.

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

area of our Other 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 $7.7 million gain on disposition of real estate for 2023 is due to the sale of a retail building located at 200 North Radnor Chester Road, Radnor, Pennsylvania for a gross sales price of $14.2 million and net cash proceeds of $13.8 million.

The $17.7 million gain on disposition of real estate for 2022 primarily resulted from the following sales transactions:

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 $1.2 million recognized during 2023 is due to the following:

• The $0.8 million gain related to the contribution of a prepaid leasehold interest to the 3151 Market Street Venture at fair value;

• The $0.4 million gain related to the sale of Dabney East, a 11.6 acre lot of land located in Richmond Virginia ("Dabney East").

The gain of $8.0 million recognized during 2022 is due to the following:

• $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 Other 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 $2.3 million gain on disposition of real estate for 2024 is due to the sale of a parking lot property in Richmond, VA for a gross sales price of $8.5 million and net cash proceeds of $8.3 million.

The $7.7 million gain on disposition of real estate for 2023 is due to the sale of a retail building located at 200 North Radnor Chester Road, Radnor, PA for a gross sales price of $14.2 million and net cash proceeds of $13.8 million.

Interest Expense

Interest expense increased primarily due to a full year of our interest incurred on the $350.0 million principal amount of the 2028 Notes which carry an effective interest rate of 7.98% per annum compared to the retired 3.95% Guaranteed Notes due 2023 (the “2023 Notes”), which carried an effective interest rate of 3.87% per annum.

In addition, we closed on our $245 million secured term loan which we used to pay down our line of credit and obtained another $70 million unsecured term loan in March 2023, resulting in higher leverage at higher interest rates over the prior period.

Interest expense increased primarily due to our issuance of $400 million aggregate principal amount of 2029 Notes in April 2024, partially offset by the tender offer and redemption of our $350 million 4.10% Guaranteed Notes due 2024 in June 2024.

Additionally, interest expense increased during the third quarter of 2023 when Moody’s downgraded our senior unsecured credit rating from Baa3 to Ba1.

As a result of the downgrade, the interest rate on our 2028 Notes increased 25 basis points in September 2023 due to the coupon adjustment provisions within the 2028 Notes.

During the first quarter of 2024, S&P downgraded our senior unsecured credit rating from BBB- to BB+.

As a result of the downgrade, the interest rate on the 2028 Notes increased 25 basis points to 8.05% in March 2024 due to the coupon adjustment provisions within the 2028 Notes.

During the second quarter of 2024, Moody's downgraded our senior unsecured credit rating from Ba1 to Ba2.

As a result of the downgrade, the interest rate on the 2028 Notes increased 25 basis points to 8.30% in April 2024 due to the coupon adjustment provisions within the 2028 Notes.

Equity in Loss of Unconsolidated Real Estate Ventures

The increased losses from our unconsolidated real estate ventures is due to the other-than-temporary impairment of approximately $37.2 million related to our unconsolidated joint ventures and $12.5 million due to higher interest rates on the outstanding indebtedness of the portfolio of joint ventures.

Equity in loss of real estate ventures increased primarily due to our recognition of an impairment charge on the properties in our Commerce Square Venture and JBG Venture.

Additionally, the increased losses from our unconsolidated real estate ventures are due to higher interest rates on the ventures’ outstanding indebtedness.

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

Net Gain on Real Estate Venture Transactions

The $26.7 million net gain on real estate venture transactions in 2022 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.

On June 28, 2024, we recapitalized our Original MAP Venture, in which we had a negative investment balance of $52.2 million as of March 31, 2024.

In connection with the recapitalization, we recognized a one-time, non-cash gain of $53.8 million in connection with the derecognition of the negative investment balance in the Original MAP 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, 2024, we were in compliance with all of our debt covenants and requirement obligations.

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, 2023, 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 Secured Overnight Offering Rate ("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 5.01% until June 30, 2027.

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

On December 13, 2022, we completed an underwriting offering of 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.

We received approximately $344.6 million after deducting for underwriting discounts and offering expenses.

On December 20, 2022, we used a portion of the net proceeds from the offering of the 2028 Notes to repurchase $295.7 million aggregate principal amount of the 2023 Notes, through a tender offer, together with $4.1 million of accrued and unpaid interest thereon.

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

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

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

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The Unsecured Term Loan has a scheduled maturity date of February 28, 2024 with an option to extend for twelve months and bears interest at Daily Simple SOFR plus 1.75% with a 0.10% SOFR adjustment.

The Company exercised its option to extend the Facility for an additional twelve months on January 24, 2024.

The Company exercised its

option to extend the Facility for an additional twelve months on January 24, 2024.

See Note 8 “Debt Obligations,” for further information.

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The Construction Loan bears interest at SOFR plus 2.5%.

The 2028 Notes include an interest rate adjustment provision whereby the interest rate payable on the notes is subject to a 25 basis point adjustment if either Moody's Investors Services Inc, and its successors, ("Moody's") or S&P Global Ratings, and its successors ("S&P") downgrades (or subsequently upgrades) its rating assigned to the 2028 Notes.

On April 12, 2024, we completed an underwritten offering of $400.0 million aggregate principal amount of our 8.875% Guaranteed Notes due 2029 (the “2029 Notes”).

The 2029 Notes were priced at approximately 99.51% of their face amount.

We received approximately $391.8 million of net proceeds after the deduction for underwriting discounts and offering expenses.

On April 15, 2024, we commenced a tender offer (the “Tender Offer”) for any and all of the outstanding $335.1 million principal amount of our 4.10% Guaranteed Notes due 2024 (the “2024 Notes”).

The purchase price offered per $1,000 principal amount of 2024 Notes pursuant to the Tender Offer was determined by reference to the fixed spread for the 2024 Notes of 0 basis points plus the yield based on the bid-side price of the 4.250% U.S.

Treasury due September 30, 2024.

The Tender Offer expired on April 19, 2024.

Upon completion of the Tender Offer, on April 23, 2024, the Company issued a redemption notice to redeem any 2024 Notes that remained outstanding after the Tender Offer.

On June 7, 2024, we redeemed the remaining $113.4 million of our 2024 Bonds at the aggregate principal amount outstanding together with accrued and unpaid interest thereon to the redemption date.

Our outstanding 7.55% Guaranteed Notes due 2028 (the “2028 Notes”) include an interest rate adjustment provision whereby the interest rate payable on the 2028 Notes is subject to a 25 basis point adjustment if either Moody's Investors Services Inc, and its successors ("Moody's"), or S&P Global Ratings, and its successors ("S&P") downgrades (or subsequently upgrades) its rating assigned to the 2028 Notes.

During the third quarter of 2023, Moody’s downgraded our senior unsecured credit rating from Baa3 to Ba1.

As a result of the downgrade, the interest rate on the 2028 Notes increased 25 basis points to 7.80% in September 2023 due to the coupon adjustment provisions within the note.

As a result of the downgrade, the interest rate on the 2028 Notes increased 25 basis points to 7.80% in September 2023.

In January 2024, S&P downgraded our senior unsecured credit rating from BBB- to BB+.

As a result of the downgrade, the interest rate on the 2028 Notes increased 25 basis points to 8.05% in March 2024.

During the second quarter of 2024, Moody's downgraded our senior unsecured credit rating from Ba1 to Ba2.

As a result of the downgrade, the interest rate on the 2028 Notes increased 25 basis points to 8.30% in April 2024 due to the coupon adjustment provisions within the 2028 Notes.

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 credit facility and unsecured term loan would increase.

As of December 31, 2024, our senior unsecured credit ratings and outlook were as follows:

Long-term debt

Subsequent to December 31, 2023, S&P downgraded our senior unsecured credit rating from BBB- to BB+.

As a result of the downgrade, the interest rate will increase 25 basis points to 8.05% in March 2024.

If our credit ratings are lowered further, our ability to access the public debt markets, our costs of funds, and other terms for new debt issuances could be adversely impacted.

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The repurchase program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time without notice.

Capital Recycling

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 2023, we contributed to the 3151 Market Street Venture 200,000 square feet of FAR, which represents buildable density, at the project site, and, upon contribution at fair market value, recognized a gain, net of transaction costs, of $0.8 million.

During the year ended December 31, 2023, we completed the sale of Three Barton Skyway, a 173,302 square foot office building located in Austin, Texas for $53.3 million, 200 N Radnor Chester Road, a 17,884 square foot retail building located in Radnor, Pennsylvania for $14.2 million and 8521 Leesburg Pike a 150,897 square foot office building located in Vienna, Virginia for $11.0 million.

We also completed the sale of our Byberry land purchase option, an option to purchase 50.0 acres of land located in Philadelphia, Pennsylvania for $9.6 million and the sale of Dabney East for $1.6 million.

The net proceeds were used for general corporate purposes.

During the year ended December 31, 2024 we completed the sales of the Plymouth Meeting Executive Center, comprised of five office properties totaling a 521,288 square feet located in Plymouth Meeting, PA for a gross sales price of $65.5 million, One and Two Barton, comprised of two office properties totaling 390,963 square feet in Austin, TX for a gross sales price of $107.6 million, 55 US Avenue, 11.0 Acres of land located in Gibbsboro, NJ for a gross sales price of $6.5 million, and Dabney Land Westwood, 11.0 Acres parking lot in Richmond VA for a gross sales price of $8.5 million.

As of December 31, 2024, we had $90.2 million of cash and cash equivalents and $560.8 million of available borrowings under our unsecured credit facility, net of $39.2 million in letters of credit outstanding.

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Net cash flows $ 28,643 $ 49,147 $ (20,504)

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

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

The decrease in operating cash flows is primarily due to the decrease in average occupancy in 2023 compared to 2022.

Our principal source of cash flows is from the leasing of space at our Properties.

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 increase in operating cash flows is primarily due to the decrease in average occupancy in 2024 compared to 2023.

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

We selectively invest in new projects that enable us to take advantage of our development, leasing, financing, and property management skills and invest in existing buildings that meet our investment criteria.

We selectively invest in new projects that we expect will enable us to take advantage of our development, leasing, financing, and property management skills and invest in existing buildings that meet our investment criteria for additional capital.

During the year ended December 31, 2024, when compared to the year ended December 31, 2023, the change in investing cash flows was due to the following activities (in thousands):

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Proceeds from the sale of properties 79,063

Proceeds from note receivable (44,300)

Capital distributions from unconsolidated real estate ventures 52,803

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Other financing activities (657)

Increase in net cash provided by financing activities $ 75,417

Increase in net cash used in financing activities $ (79,083)

Capitalization

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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.

(b) On November 23, 2022, the unsecured term loan of $250.0 million was swapped to a fixed rate.

At December 31, 2024, the fixed rate for this instrument was 5.41% and matures on June 30, 2027.

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

(c) On January 16, 2024, the Trust Preferred I - Indenture IA was swapped to a fixed rate at 5.14% for the period from March 30, 2024 to December 30, 2026 and Trust Preferred I - Indenture IB and Trust Preferred II - Indenture II were swapped to a fixed rate at 5.24% for the period from January 30, 2024 to January 30, 2027.

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2029 750,000 6.8 %

2029 350,000 4.3 %

Thereafter 78,610 5.2 %

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See Note 12 “Beneficiaries' Equity of the Parent Company,” to our Consolidated Financial Statements for further information related to our dividends declared for the fourth quarter of 2024.

Inflation and Lease Pass-Through Provisions

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.

In addition, as of December 31, 2024, approximately 96% of our leases (as a percentage of the aggregate net rentable square feet of our wholly-owned portfolio) contain annual rent escalations that are either fixed (generally ranging from 2.0% to 3.0% per lease year) or indexed based on a consumer price index or other indices.

We believe such lease provisions mitigate adverse impacts of inflation on our earnings from real estate operations.

However, recent inflation and higher interest rates have caused an increase in our borrowing costs, including on our variable rate debt, and on our operating expenses that are not subject to the lease pass-through provisions.

While we have experienced increased inflation, our Same Store Property Portfolio operating margins remained consistent at 63.1% for the twelve months ended December 31, 2024 and 2023, respectively, primarily due to the expense reimbursement provisions noted above.

The expense reimbursement provisions in our leases resulted in Same Store Property Portfolio operating expense recovery rates of 52.7% and 52.9% for the twelve months ended December 31, 2024 and 2023, respectively.

Contractual Obligations

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See Note 19 “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 of which $9.5 million has been contributed by us as of December 31, 2023.

We have committed to contribute $15.0 million to a newly-formed venture capital fund that invests in early-stage life science companies.

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.

As of December 31, 2024 we had funded $2.7 million of the foregoing commitment.

As part of our September 2004 acquisition of a portfolio of properties (which 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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If we were to sell the restricted property before the expiration of the restricted period in a non-exempt transaction, we may be required to make significant payments to certain of the former owners of Two Logan Square on account of tax liabilities attributed to them.

Additionally, we will be required to pay these certain former owners an amount estimated at approximately $0.6 million to redeem their residual interest in the fee owner of this property.

Additionally, we will be required to pay these certain former owners an amount estimated at approximately

$0.6 million to redeem their residual interest in the fee owner of this property.

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

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Our financial instruments consist of both fixed and variable rate debt.

As of December 31, 2023, our consolidated debt consisted of (i) unsecured notes with an outstanding principal balance of $1,490.0 million, all of which are fixed rate borrowings, (ii) variable rate debt consisting of trust preferred securities with an outstanding principal balance of $78.6 million, (iii) a $600.0 million Credit Facility with no outstanding borrowings, (iv) a secured fixed rate term loan with an outstanding principal balance of $245.0 million, (v) a construction loan for the property at 155 King of Prussia Road with an outstanding balance of $13.8 million and (v) two unsecured term loans of $250.0 million and $70.0 million.

As of December 31, 2024, our consolidated debt consisted of (i) unsecured notes with an outstanding principal balance of $1,550.0 million, all of which are fixed rate borrowings, (ii) variable rate debt consisting of trust preferred securities that have been swapped to fixed rates with an outstanding principal balance of $78.6 million, (iii) a $600.0 million Credit Facility with no outstanding borrowings, (iv) a secured fixed rate term loan with an outstanding principal balance of $245.0 million, (v) a construction loan for the property at 155 King of Prussia Road with an outstanding balance of $32.7 million and (v) two unsecured term loans of $250.0 million and $70.0 million.

The $250.0 million unsecured term loan has been swapped to a fixed rate.

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Funds from Operations (FFO)

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.

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.

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(amounts in thousands, except share information)

Net income (loss) attributable to common unitholders $ (197,948) $ 53,538

Net loss attributable to common unitholders $ (197,670) $ (197,948)

Add (deduct):

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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