UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

| | Quarterly
        Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
        of 1934
| | -------------------------------------------------------------------------------------------------------

|For
        the quarterly period ended September 30, 2006
|---------------------------------------------------------

or

| | Transition
        Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
        of 1934
| | --------------------------------------------------------------------------------------------------------

|For
        the transition period from ____________ to ___________
|------------------------------------------------------------------

Commission
  file number000-24407

Brandywine Operating Partnership, L.P.

(Exact name of registrant as specified in its charter)



| | DelawareState or other jurisdiction ofincorporation or organization |  | 23-2862640(I.R.S. Employer Identification No.) | 
| | ------------------------------------------------------------------- |  | ---------------------------------------------- | 

| |  |  |  | 
| |  |  |  | 

| | 555 East Lancaster
      Avenue, Radnor, Pennsylvania(Address of principal executive offices) | 19087(Zip Code) | 
| | --------------------------------------------------------------------------------------------- | --------------- | 

| |  |  |  | 
| |  |  |  | 

(610)
  325-5600

Registrants telephone number

Indicate
  by check mark whether the registrant (1) has filed all reports required to be
  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
  preceding 12 months (or for such shorter period that the registrant was required
  to file such reports), and (2) has been subject to such filing requirements
  for the past 90 days. YesNo

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or a non-accelerated filer. See definitions of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer


      Accelerated Filer


      Non-Accelerated Filer


Indicate
  by check mark whether the registrant is a shell Partnership (as defined in Rule
  12b-2 of the Exchange Act). 
  NoYes




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BRANDYWINE OPERATING PARTNERSHIP, L.P.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION



PageItem
          1.
      
      Financial
          Statements (unaudited)Consolidated
          Balance Sheets as of September 30, 2006 and December 31, 2005
      3Consolidated
          Statements of Operations for the three- and nine-month periods ended
          September 30, 2006 and 2005
      4Consolidated
          Statements of Other Comprehensive Income for the three- and nine-month
          periods ended September 30, 2006 and 2005
      5Consolidated
          Statements of Cash Flows for the nine-month periods ended September
          30, 2006 and September 30, 2005
      6Notes
          to Unaudited Consolidated Financial Statements
      7Item
          2.
      
      Managements
          Discussion and Analysis of Financial Condition and Results of Operations
      32Item
          3.
      
      Quantitative
          and Qualitative Disclosures about Market Risk
      48Item
          4.
      
      Controls
          and Procedures
      48PART
          II - OTHER INFORMATIONItem
          1.
      
      Legal
          Proceedings
      49Item
          1A.
      
      Risk
          Factors
      49Item
          2.
      
      Unregistered
          Sales of Equity Securities and Use of Proceeds
      49Item
          3.
      
      Defaults
          Upon Senior Securities
      49Item
          4.
      
      Submission
          of Matters to a Vote of Security Holders
      49Item
          5.
      
      Other
          Information
      49Item
          6.
      
      Exhibits
      50Signatures
      51


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PART I - FINANCIAL INFORMATION

Item 1. - Financial Statements

BRANDYWINE
  OPERATING PARTNERSHIP, L.P.

CONSOLIDATED BALANCE SHEETS

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



September
          30,2006
      
      December
          31,2005ASSETSReal
          estate investments:Operating
          properties
      
      $
      4,871,978
      
      $
      2,560,061Accumulated
          depreciation
      
      
      (499,141
      )
      
      (390,333
      )Operating
          real estate investments, net
      
      
      4,372,837
      
      
      2,169,728Construction-in-progress
      
      
      309,783
      
      
      273,240Land
          held for development
      
      
      118,181
      
      
      98,518Total
          real estate investments, net
      
      
      4,800,801
      
      
      2,541,486Cash
          and cash equivalents
      
      
      16,538
      
      
      7,174Escrowed
          cash
      
      
      20,153
      
      
      18,498Accounts
          receivable, net
      
      
      23,400
      
      
      12,874Accrued
          rent receivable, net
      
      
      67,283
      
      
      47,034Marketable
          securities
      
      
      187,162
      
      
      Investment
          in unconsolidated ventures
      
      
      78,288
      
      
      13,331Deferred
          costs, net
      
      
      65,378
      
      
      37,602Intangible
          assets, net
      
      
      325,119
      
      
      78,097Other
          assets
      
      
      67,500
      
      
      49,649Total
          assets
      
      $
      5,651,622
      
      $
      2,805,745LIABILITIES
          AND PARTNERS EQUITYMortgage
          notes payable
      
      $
      892,935
      
      $
      494,777Secured
          note payable
      
      
      181,759
      
      
      Unsecured
          notes
      
      
      1,863,188
      
      
      936,607Unsecured
          credit facility
      
      
      249,998
      
      
      90,000Accounts
          payable and accrued expenses
      
      
      124,814
      
      
      52,635Distributions
          payable
      
      
      43,752
      
      
      28,880Tenant
          security deposits and deferred rents
      
      
      57,799
      
      
      20,953Acquired
          below market leases, net of accumulated amortization of $17,024 and
          $6,931
      
      
      107,122
      
      
      34,704Other
          liabilities
      
      
      14,927
      
      
      4,411Total
          liabilities
      
      
      3,536,294
      
      
      1,662,967Minority
          interest - partners share of consolidated real estate ventures
      
      
      36,765
      
      
      Commitments
          and contingencies (Note 15)Redeemable
          limited partnership units at redemption value;4,529,922
             and 1,945,267 issued and outstanding in 2006 and 2005, respectively
      
      
      147,449
      
      
      54,300Partners
          equity:7.50%
          Series D Preferred Mirror Units; 2,000,000 issued and outstanding in
          2006 and 2005
      
      
      47,912
      
      
      47,9127.375%
          Series E Preferred Mirror Units; 2,300,000 issued and outstanding in
          2006 and 2005
      
      
      55,538
      
      
      55,538General
          Partnership Capital, 90,014,708 and 56,179,075 units issued and outstanding
          in 2006 and 2005, respectively
      
      
      1,826,626
      
      
      988,197Accumulated
          other comprehensive loss
      
      
      1,038
      
      
      (3,169
      )Total
          partners equity
      
      
      1,931,114
      
      
      1,088,478Total
          liabilities, minority interest, and partners equity
      
      $
      5,651,622
      
      $
      2,805,745


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

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BRANDYWINE
  OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

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



For
          the three-month periodsended September 30,
      
      For
          the nine-month periodsended September 30,2006
      
      2005
      
      2006
      
      2005Revenue:Rents
      
      $
      149,374
      
      $
      80,288
      
      $
      437,913
      
      $
      241,207Tenant
          reimbursements
      
      
      23,802
      
      
      11,710
      
      
      58,203
      
      
      34,716Other
      
      
      8,418
      
      
      3,029
      
      
      17,456
      
      
      11,813Total
          revenue
      
      
      181,594
      
      
      95,027
      
      
      513,572
      
      
      287,736Operating
          Expenses:Property
          operating expenses
      
      
      53,465
      
      
      26,664
      
      
      149,828
      
      
      83,679Real
          estate taxes
      
      
      18,220
      
      
      9,744
      
      
      51,203
      
      
      28,763Depreciation
          and amortization
      
      
      68,277
      
      
      28,230
      
      
      199,275
      
      
      83,983Administrative
          expenses
      
      
      6,490
      
      
      4,486
      
      
      22,704
      
      
      13,616Total
          operating expenses
      
      
      146,452
      
      
      69,124
      
      
      423,010
      
      
      210,041Operating
          income
      
      
      35,142
      
      
      25,903
      
      
      90,562
      
      
      77,695Other
          Income (Expense):Interest
          income
      
      
      2,479
      
      
      304
      
      
      7,702
      
      
      966Interest
          expense
      
      
      (45,402
      )
      
      (17,762
      )
      
      (128,869)
      
      
      (53,366
      )Equity
          in income of real estate ventures
      
      
      370
      
      
      745
      
      
      1,798
      
      
      2,296Net
          gain on sale of interests in real estate
      
      
      
      
      
      4,640
      
      
      2,608
      
      
      4,640Gain
          on termination of purchase contract
      
      
      3,147
      
      
      
      
      
      3,147
      
      
      Income
          (loss) before minority interest
      
      
      (4,264
      )
      
      13,830
      
      
      (23,052
      )
      
      32,231Minority
          interest - partners' share of consolidated real estate ventures
      
      
      279
      
      
      (41
      )
      
      560
      
      
      (213
      )Income
          (loss) from continuing operations
      
      
      (3,985
      )
      
      13,789
      
      
      (22,492
      )
      
      32,018Discontinued
          operations:Income
          (loss) from discontinued operations
      
      
      1,150
      
      
      294
      
      
      5,018
      
      
      941Net
          gain on disposition of discontinued operations
      
      
      5,188
      
      
      2,196
      
      
      5,188
      
      
      2,196Minority
          interest - partners' share of consolidated real estate ventures
      
      
      (1,857
      )
      
      
      
      
      (2,239
      )
      
      Income
          (loss) from discontinued operations
      
      
      4,481
      
      
      2,490
      
      
      7,967
      
      
      3,137Net
          income (loss)
      
      
      496
      
      
      16,279
      
      
      (14,525
      )
      
      35,155Income
          allocated to Preferred Units
      
      
      (1,998
      )
      
      (1,998
      )
      
      (5,994
      )
      
      (5,994
      )Income
          (loss) allocated to Common Partnership Units
      
      $
      (1,502
      )
      $
      14,281
      
      $
      (20,519
      )
      $
      29,161Basic
          earnings per Common Partnership Unit:Continuing
          operations
      
      $
      (0.06
      )
      $
      0.20
      
      $
      (0.30
      )
      $
      0.45Discontinued
          operations
      
      
      0.05
      
      
      0.04
      
      
      0.08
      
      
      0.05$
      (0.02
      )
      $
      0.25
      
      $
      (0.22
      )
      $
      0.50Diluted
          earnings per Common Partnership Unit:Continuing
          operations
      
      $
      (0.06
      )
      $
      0.20
      
      $
      (0.30
      )
      $
      0.45Discontinued
          operations
      
      
      0.05
      
      
      0.04
      
      
      0.08
      
      
      0.05$
      (0.02
      )
      $
      0.24
      
      $
      (0.22)
      
      $
      0.50Distributions
          declared per common partnership unit
      
      $
      0.44
      
      $
      0.44
      
      $
      1.32
      
      $
      1.32Basic
          weighted average common partnership units
      
      
      94,147,584
      
      
      58,040,651
      
      
      94,043,030
      
      
      57,761,348Diluted
          weighted average common partnership units
      
      
      94,147,584
      
      
      58,340,691
      
      
      94,043,030
      
      
      57,995,891


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

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BRANDYWINE
  OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

(unaudited, in thousands)



For
          the three-month periodsended September 30,
      
      For
          the nine-month periodsended September 30,2006
      
      2005
      
      2006
      
      2005Net
          income (loss)
      
      $
      496
      
      $
      16,279
      
      $
      (14,525
      )
      $
      35,155Other
          comprehensive income:Unrealized
          gain (loss) on derivative financial instruments
      
      
      (1,070
      )
      
      
      
      
      1,293
      
      
      Less: minority interest - consolidated real estate venture partners
          share of unrealized gain (loss) on derivative financial instruments
      
      
      525
      
      
      
      
      
      (284
      )
      
      Realized
          gain on derivative financial instruments
      
      
      
      
      
      
      
      
      3,266
      
      
      Reclassification
          of realized (gains)/losses on derivative financial instruments to operations,
          net
      
      
      9
      
      
      113
      
      
      113
      
      
      340Unrealized
        gain (loss) on available-for-sale securities
      
      
      595
      
      
      (257
      )
      
      (181
      )
      
      (20
      )Total
          other comprehensive income
      
      
      59
      
      
      (144
      )
      
      4,207
      
      
      320Comprehensive
          income (loss)
      
      $
      555
      
      $
      16,135
      
      $
      (10,318
      )
      $
      35,475


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

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

CONSOLIDATED
  STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



Nine-month
          periods 
          ended September 30,2006


      

        2005Cash flows from operating activities:Net income (loss)


      


      $


      (14,525


      )


      $


      35,155Adjustments to reconcile net income (loss) to net cash from operating activities:Depreciation

        

        

        143,893

        

        

        63,588Amortization:Deferred financing costs

        

        

        2,063

        

        

        1,939Deferred leasing costs

        

        

        8,394

        

        

        6,425Acquired above (below) market leases, net

        

        

        (6,067

        )

        

        (1,050

        )Assumed lease intangibles

        

        

        50,471

        

        

        14,854Deferred compensation costs

        

        

        2,332

        

        

        1,618Straight-line rent

        

        

        (23,486

        )

        

        (10,852

        )Provision for doubtful accounts

        

        

        2,970

        

        

        600Real estate venture income in excess of distributions

        

        

        (162

        )

        

        (697

        )Net gain on sale of interests in real estate

        

        

        (7,797

        )

        

        (6,820

        )Gain on termination of purchase contract

        

        

        (3,147

        )

        

        Minority interest

        

        

        1,679

        

        

        213Changes in assets and liabilities:Accounts receivable

        

        

        2,515

        

        

        4,469Other assets

        

        

        (13,185

        )

        

        (12,837

        )Accounts payable and accrued expenses

        

        

        36,192

        

        

        5,861Tenant security deposits and deferred rents

        

        

        30,635

        

        

        628Other liabilities

        

        

        904

        

        

        672Net cash from operating activities

        

        

        213,679

        

        

        103,766Cash flows from investing activities:Acquisition of Prentiss

        

        

        (935,856

        )

        

        Acquisition of properties

        

        

        (169,462

        )

        

        (92,674

        )Sales of properties, net

        

        

        258,931

        

        

        29,428Gain on termination of purchase contract

        

        

        3,147

        

        

        Capital expenditures

        

        

        (180,771

        )

        

        (136,801

        )Investment in marketable securities

        

        

        183

        

        

        404Investment in unconsolidated Real Estate Ventures

        

        

        (643

        )

        

        (258

        )Escrowed cash

        

        

        (492

        )

        

        1,806Cash distributions from unconsolidated Real Estate Ventures in excess of equity in income

        

        

        2,444

        

        

        390Leasing costs

        

        

        (30,524

        )

        

        (8,445

        )Net cash from investing activities

        

        

        (1,053,043

        )

        

        (206,150

        )Cash flows from financing activities:Proceeds from Credit Facility borrowings

        

        

        462,000

        

        

        250,000Repayments of Credit Facility borrowings

        

        

        (302,002

        )

        

        (62,000

        )Proceeds from mortgage notes payable

        

        

        20,520

        

        

        Repayments of mortgage notes payable


      


      


      (29,327


      )


      


      (13,565


      )Proceeds from term loan

        

        

        750,000

        

        

        Repayments of term loan

        

        

        (750,000

        )

        

        Proceeds from unsecured notes

        

        

        847,818

        

        

        Proceeds from forward starting swap termination

        

        

        3,266

        

        

        Repayments on employee stock loans

        

        

        60

        

        

        50Debt financing costs

        

        

        (6,991

        )

        

        (234

        )Exercise of stock options

        

        

        9,120

        

        

        19,283Repurchases of common partnership and minority interest units

        

        

        (34,481

        )

        

        (240

        )Distributions paid to preferred and common partnership unitholders

        

        

        (110,094

        )

        

        (79,752

        )Distributions to minority interest holders - consolidated real estate ventures

        

        

        (11,161

        )

        

        (3,164

        )Net cash from financing activities

        

        

        848,728

        

        

        110,378Increase (decrease) in cash and cash equivalents

        

        

        9,364

        

        

        7,994Cash and cash equivalents at beginning of period

        

        

        7,174

        

        

        15,346Cash and cash equivalents at end of period

        

        $

        16,538

        

        $

        23,340Supplemental disclosure:Cash paid for interest, net of capitalized interest

        

        $

        99,987

        

        $

        27,374Supplemental disclosure of non-cash activity:Common shares issued in the Prentiss acquisition

        

        

        1,021,269

        

        

        Partnership units issued in the Prentiss acquisition

        

        

        64,103

        

        

        Partnership units issued in propety acquistions

        

        

        13,819

        

        

        Mortgage notes payable assumed in the Prentiss acquisition

        

        

        532,607

        

        

        Secured note payable assumed in the Prentiss acquisition

        

        

        186,116

        

        

        


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

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES
  TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

|1. | ORGANIZATION
        AND NATURE OF ORGANIZATION
|-- | -----------------------------------------------

Brandywine Operating Partnership, L.P. (the Partnership) is the entity through which Brandywine Realty Trust, a Maryland real estate investment trust (the Company), a self-administered and self-managed real estate investment trust, conducts its business and own its assets. The Partnerships activities include acquiring, developing, redeveloping, leasing and managing office and industrial properties. The Companys common shares of beneficial interest are publicly traded on the New York Stock Exchange under the ticker symbol BDN. As of September 30, 2006, the Partnership owned 277 office properties, 23 industrial facilities and one mixed-use property (collectively, the Properties) containing an aggregate of approximately 30.0 million net rentable square feet. As of September 30, 2006, the Partnership owned economic interests in 11
unconsolidated real estate ventures that contain approximately 2.7 million net rentable square feet and in four consolidated real estate ventures that own 15 office properties containing approximately 1.5 million net rentable square feet (collectively, the Real Estate Ventures). The Properties and the properties owned by the Real Estate Ventures are located in or in areas surrounding Philadelphia, Pennsylvania; Wilmington, Delaware; Austin, Texas; Dallas, Texas; Richmond, Virginia; Northern and Southern California; Southern and Central New Jersey; and Northern Virginia.

As
    more fully described in Note 3, on January 5, 2006, the Partnership acquired
    Prentiss Properties Trust (Prentiss) pursuant to an Agreement
    and Plan of Merger (the Merger Agreement) that the Partnership
    entered into with Prentiss on October 3, 2005.

The Company is the sole general partner of the Partnership and, as of September 30, 2006, owned a 95.4 % interest in the Partnership. The Company conducts its third-party real estate management services business primarily through four management companies (collectively, the Management Companies), Brandywine Realty Services Corporation (BRSCO), BTRS, Inc., Brandywine Properties I Limited, Inc. (BPI), and Brandywine Properties Management, L.P. (BPM). BRSCO, BTRS, Inc. and BPI are taxable REIT subsidiaries. The Partnership owns a 95% interest in BRSCO and the remaining 5% interest is owned by a partnership comprised of a current executive and former executive of the Company, each of whom is a member of the Companys Board of Trustees. The Partnership owns, directly and indirectly, 100% of each of BTRS, Inc., BPI and BPM.

As of September 30, 2006, the Management Companies were managing properties containing an aggregate of approximately 43.1 million net rentable square feet, of which approximately 30.0 million net rentable square feet related to Properties owned by the Partnership and approximately 13.1 million net rentable square feet related to properties owned by third parties and certain Real Estate Ventures.

|2. | SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES
|-- | --------------------------------------------------

Basis of Presentation

The consolidated financial statements have been prepared by the Partnership without audit except as to the balance sheet as of December 31, 2005, which has been derived from audited data, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Partnership believes that the included disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting solely of normal recurring matters) for a fair statement of the financial position of the Partnership as of September 30, 2006, the results of its operations for the three- and
nine-month periods ended September 30, 2006 and 2005 and its cash flows for the nine-month periods ended September 30, 2006 and 2005 have been included. The results of operations for such interim periods are not necessarily indicative of the results for a full year. These consolidated financial statements should be read in conjunction with the Partnerships consolidated financial statements and footnotes included in the Partnerships 2005 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to the current period presentation.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Principles of Consolidation

The accompanying consolidated financial statements include all accounts of the Partnership, and its majority-owned and/or controlled subsidiaries. The portion of these entities not owned by the Partnership is presented as minority interest as of and during the periods consolidated. All intercompany accounts and transactions have been eliminated in consolidation.

When the Partnership obtains an economic interest in an entity, the Partnership evaluates the entity to determine if the entity is deemed a variable interest entity (VIE), and if the Partnership is deemed to be the primary beneficiary, in accordance with FASB Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46R). The Partnership consolidates (i) entities that are VIEs where the Partnership is deemed to be the primary beneficiary and (ii) entities that are non-VIEs where the Partnership controls. Entities that the Partnership accounts for under the equity method (i.e., at cost, increased or decreased by the Partnerships share of earnings or losses, less distributions) include (i) entities that are VIEs where the Partnership is not
deemed to be the primary beneficiary and (ii) entities that are non-VIEs which the Partnership does not control, but over which the Partnership has the ability to exercise significant influence. The Partnership will reconsider its determination of whether an entity is a VIE and who the primary beneficiary is if certain events occur that are likely to cause a change in the original determinations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue, impairment of long-lived assets, allowance for doubtful accounts and deferred costs.

Operating Properties

Operating properties are carried at historical cost less accumulated depreciation and impairment losses. The cost of operating properties reflects their purchase price or development cost. Costs incurred for the acquisition and renovation of an operating property are capitalized to the Partnerships investment in that property. Ordinary repairs and maintenance are expensed as incurred. Major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts.

SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, required us to separately report as discontinued operations the historical operating results attributable to operating properties sold or held for sale and the applicable gain or loss on the disposition of the properties. The consolidated statements of operations for prior periods are also adjusted to conform to this classification. In all cases, gains and losses are recognized using the full accrual method of accounting. Gains relating to transactions which do not meet the requirements of the full accrual method of accounting are deferred and recognized when the full accrual method of accounting criteria are met.

Purchase Price Allocation

The Partnership allocates the purchase price of properties to net tangible and identified intangible assets acquired based on fair values. Above-market and below-market in-place lease values for acquired properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) the Partnerships estimate of the fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. Capitalized above-market lease values are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. Capitalized below-market leasevalues are amortized as an increase to
rental income over the remaining non-cancelable terms of the respective leases, including any fixed-rate renewal periods.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Other intangible assets also include amounts representing the value of tenant relationships and in-place leases based on the Partnerships evaluation of the specific characteristics of each tenants lease and the Partnerships overall relationship with the respective tenant. The Partnership estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. This intangible asset is amortized to expense over the remaining term of the respective leases. Partnership estimates of value are made using methods similar to those used by independent appraisers or by using independent
appraisals. Factors considered by the Partnership in this analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, the Partnership includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, which primarily range from three to twelve months. The Partnership also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. The Partnership also uses the information obtained as a result of its pre-acquisition due diligence as part of its consideration of FIN 47, and when necessary, will record a conditional asset retirement obligation as part of its purchase price.

Characteristics considered by the Partnership in allocating value to its tenant relationships include the nature and extent of the Partnerships business relationship with the tenant, growth prospects for developing new business with the tenant, the tenants credit quality and expectations of lease renewals, among other factors. The value of tenant relationship intangibles is amortized over the remaining initial lease term and expected renewals, but in no event longer than the remaining depreciable life of the building. The value of in-place leases is amortized over the remaining non-cancelable term of the respective leases and any fixed-rate renewal periods.

In the event that a tenant terminates its lease, the unamortized portion of each intangible, including market rate adjustments, in-place lease values and tenant relationship values, would be charged to expense.

Revenue Recognition and Accounts Receivable

Rental revenue is recognized on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases, which averages minimum rents over the terms of the leases. The cumulative difference between lease revenue recognized under this method and contractual lease payment terms is recorded as accrued rent receivable on the accompanying balance sheets. The straight-line rent adjustment increased revenue by approximately $7.5 million and $23.0 million for the three- and nine-month periods ended September 30, 2006 and approximately $4.3 million and $10.2 million for the three- and nine-month periods ended September 30, 2005. Tenant receivables and accrued rent receivables are carried net of the allowances for doubtful accounts of $8.8 million as of September 30, 2006 and $4.9 million as of December 31,
2005. The allowance is based on managements evaluation of the collectability of receivables, taking into account tenant specific considerations as well as the overall credit of the tenant portfolio. The leases also typically provide for tenant reimbursement of a portion of common area maintenance and other operating expenses. Other income is recorded when earned and is primarily comprised of termination fees received from tenants, bankruptcy settlement fees, third party leasing commissions, and third party management fees. Other income includes net termination fees of $4.7 million and $6.5 million for the three- and nine-month periods ended September 30, 2006, and $1.0 million and $5.9 million for the three- and nine-month periods ended September 30, 2005. Deferred rents represent rental revenue received from tenants prior to their due dates.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Stock-based Compensation Plans

The
  Partnership Agreement provides for the issuance by the Partnership to its general
  partner, the Company, of a number of Common Partnership Units equal to the number
  of Common Shares issued by the Company, the net proceeds of which are contributed
  to the Partnership. When the Company issues Common Shares under its equity-based
  compensation plan, the Partnership issues to the Company an equal number of
  Common Partnership Units. The Company maintains shareholder-approved equity
  incentive plans. The Compensation Committee of the Companys Board of Trustees
  authorizes awards under these plans. In May 2005, the Companys shareholders
  approved an amendment to the Amended and Restated 1997 Long-Term Incentive Plan
  (the 1997 Plan) that increased the number of common shares that
  may be issued or subject to award under the 1997 Plan from 5,000,000 to 6,600,000.
  The May 2005 amendment provided that 500,000 of the shares under the 1997 Plan
  are available solely for awards under options and share appreciation rights
  that have an exercise or strike price not less than the market price of the
  common shares on the date of award, and the remaining 6,100,000 shares are available
  for any type of award under the 1997 Plan. Incentive stock options may not be
  granted at exercise prices less than fair value of the shares at the time of
  grant. All options awarded by the Company to date are non-qualified stock options
  that generally vested over two to five years. As of September 30, 2006, 2.6
  million shares remained available for future award under the 1997 Plan. As part
  of the Companys January 2006 acquisition of Prentiss, the Company assumed
  Prentiss three share incentive plans. As of September 30, 2006, approximately
  1,685,676 common shares remain available for issuance or subject to award under
  the assumed Prentiss share incentive plans; however, any such issuances or awards
  under the assumed Prentiss plan may be made only to those Company employees
  who had been employed by Prentiss immediately prior to the Companys acquisition
  of Prentiss or to those Company employees hired after the Prentiss acquisition.

On January 1, 2002, the Partnership began to expense the fair value of stock-based compensation awards granted subsequent to January 1, 2002, over the applicable vesting period as a component of general and administrative expenses in the Partnership s consolidated statements of income. In the three- and nine-month periods ended September 30, 2006 the Partnership recognized $887,000 and $2,332,000 of stock-based compensation expense. In the three- and nine-month periods ended September 30, 2005 the Partnership recognized $684,000 and $2,072,000 of stock-based compensation expense.

For stock-based compensation awards granted prior to 2002, the Partnership accounted for stock options issued under the recognition and measurement provisions of APB No.25,Accounting for Stock Issued to Employees and Related Interpretations. Under this method, no stock-based compensation expense was recognized. Because stock options granted prior to 2002 vested over a three-year term, the resulting compensation cost based on the fair value of the awards on the date of grant, on a pro forma basis, would have been expensed in 2003, 2004, and 2005. Accordingly, had the Partnership applied the fair value recognition provisions of SFAS 123, the net income applicable to common shares would remain the same on a pro forma basis for the three- and nine-month periods ended September 30, 2006, and would have been reduced by
$124,000 and $380,000 for the three- and nine-month periods ended September 30, 2005, with no change in basic or diluted net income per share.

Accounting for Derivative Instruments and Hedging Activities

The Partnership accounts for its derivative instruments and hedging activities under SFAS No. 133 (SFAS 133),Accounting for Derivative Instruments and Hedging Activities, and its corresponding amendments under SFAS No. 138,Accounting for Certain Derivative Instruments and Hedging Activities  An Amendment of SFAS 133. SFAS 133 requires the Partnership to measure every derivative instrument (including certain derivative instruments embedded in other contracts) at fair value and record them in the balance sheet as either an asset or liability. For derivatives designated as fair value hedges, the changes in fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives
designated as cash flow hedges, the effective portions of changes in the fair value of the derivative are reported in other comprehensive income. Changes in fair value ofderivative instruments and ineffective portions of hedges are recognized in earnings in the current period. For the three- and nine-month periods ended September 30, 2006 and 2005, the Partnership was not party to any derivative contract designated as a fair value hedge.

The Partnership actively manages its ratio of fixed-to-floating rate debt. To manage its fixed and floating rate debt in a cost-effective manner, the Partnership, from time to time, enters into interest rate swap agreements as cash flow hedges, under which it agrees to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Income Taxes

No federal or state income taxes are payable by the Partnership, and accordingly, no provision for taxes has been made in the accompanying consolidated financial statements. The partners are to include their respective share of the Partnerships profits or losses in their individual tax returns. The Partnerships tax returns and the amount of allocable Partnership profits and losses are subject to examination by federal and state taxing authorities. If such examination results in changes to Partnership profits or losses, then the tax liability of the partners would be changed accordingly.

The Partnership owns subsidiary real estate investment trusts (REIT) that have elected to be taxed as real estate investment trusts under Sections 856-860 of the Internal Revenue Code. In managements opinion, the requirements to maintain this election are being met. The Partnerships REIT subsidiaries are subject to a 4% Federal excise tax, if sufficient taxable income is not distributed within prescribed time limits. The excise tax equals 4% of the annual amount, if any, by which the sum of (a) 85% of the subsidiaries ordinary income and (b) 95% of the subsidiaries net capital gain exceeds cash distributions and certain taxes paid by the subsidiary.

The Partnership may elect to treat one or more of its corporate subsidiaries as a taxable REIT subsidiary (TRS). In general, a TRS may perform additional services for its tenants and generally may engage in any real estate or non-real estate related business (except for the operation or management of health care facilities or providing to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated). A TRS is subject to corporate income tax. The Partnership has elected to treat certain of its corporate subsidiaries as TRSs.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157,Fair Value Measurements(SFAS No. 157). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value. This statement is effective in fiscal years beginning after November 15, 2007. The Partnership believes that the adoption of this standard on January 1, 2008 will not have a material effect on our
consolidated financial statements.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (SAB 108), which becomes effective beginning on January 1, 2007. SAB 108 provides guidance on the consideration of the effects of prior period misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 provides for the quantification of the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. If a misstatement is material to the current year financial statements, the prior year financial statements should also be corrected, even though such revision was, and continues to be, immaterial to the prior year financial statements. Correcting prior year financial statements for immaterial errors would not require previously filed
reports to be amended. Such correction should be made in the current period filings. The Partnership is currently evaluating the impact of adopting SAB 108.

In June 2006, the FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a Partnerships financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on description, classification, interest and penalties, accounting in interim periods,disclosure and transition. FIN 48 becomes effective on January 1, 2007. The Partnership is currently evaluating the impact of adopting FIN 48 but does not expect it to have a material
impact on the consolidated financial statements.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



In March 2006, the FASB issued SFAS No. 156,Accounting for Servicing of Financial Assets, an Amendment of SFAS No. 140.SFAS No. 156 requires separate recognition of a servicing asset and a servicing liability each time an entity undertakes an obligation to service a financial asset by entering into a service contract. This statement also requires that servicing assets and liabilities be initially recorded at fair value and subsequently adjusted to the fair value at the end of each reporting period. This statement is effective in fiscal years beginning after September 15, 2006. The Partnership does not expect the adoption of this standard on January 1, 2007 to have a material effect on the consolidated financial statements.

In February 2006, the FASB issued SFAS No.155,Accounting for Certain Hybrid Financial Instruments  An Amendment of FASB No. 133 and 140.The purpose of SFAS No.155 is to simplify the accounting for certain hybrid financial instruments by permitting fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS No. 155 also eliminates the restriction on passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year beginning after September 15, 2006. The Partnership does not expect the adoption of this standard on January 1, 2007 to have a material effect on the consolidated
financial statements.

In October 2005, the FASB issued Staff Position No. 13-1 Accounting for Rental Costs Incurred during a Construction Period (FSP FAS 13-1). FSP FAS 13-1 addresses the accounting for rental costs associated with operating leases that are incurred during the construction period. FSP FAS 13-1 makes no distinction between the right to use a leased asset during the construction period and the right to use that asset after the construction period. Therefore, rental costs associated with ground or building operating leases that are incurred during a construction period shall be recognized as rental expense, allocated over the lease term in accordance with SFAS No. 13 and Technical Bulletin 85-3. The terms of FSP FAS 13-1 are not applicable to lessees that account for the sale or rental of real estate projects in accordance with SFAS No. 67, Accounting for Costs and
Initial Rental Operations of Real Estate Projects. FSP FAS 13-1 was effective for the first reporting period beginning after December 15, 2005.   Retrospective application in accordance with SFAS 154 is permitted but not required. The adoption of FSP FAS 13-1 did not have a material effect on the consolidated financial statements of the Partnership.

In September 2005, the Emerging Issues Task Force issued EITF 04-05, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (EITF 04-05). The scope of EITF 04-05 is limited to limited partnerships or similar entities that are not variable interest entities under FIN 46R.  The Task Force reached a consensus that the general partners in a limited partnership (or similar entity) are presumed to control the entity regardless of the level of their ownership and, accordingly, may be required to consolidate the entity. This presumption may be overcome if the agreements provide the limited partners with either (a) the substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause or (b) substantive
participating rights. If it is deemed that the limited partners rights overcome the presumption of control by a general partner of the limited partnership, the general partner shall account for its investment in the limited partnership using the equity method of accounting. EITF 04-05 was effective immediately for all arrangements created or modified after September 29, 2005. For all other arrangements, application of EITF 04-05 is required effective for the first reporting period in fiscal years beginning after December 15, 2005 (i.e., effective January 1, 2006 for the Partnership) using either a cumulative-effect-type adjustment or using a retrospective application. The adoption of EITF 04-05 did not have an effect on the Partnerships consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (SFAS 154). SFAS 154 replaces APB No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements and establishes retrospective application as the required method for reporting a change in accounting principle. SFAS 154 provides guidance for determining whether a retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Partnership adopted SFAS 154 on January 1, 2006 and this adoption had no effect on the Partnerships financial position and results of operations.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



In March 2005, the FASB issued FIN 47,Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143,Asset Retirement Obligations. FIN 47 provides clarification of the term conditional asset retirement obligation as used in SFAS 143, defined as a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Partnership. Under this standard, a Partnership must record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47 became effective in the Partnerships fiscal quarter ended
December 31, 2005. The Partnership adopted FIN 47 as required effective December 31, 2005 and the initial application of FIN 47 did not have a material effect on the consolidated financial statements of the Partnership.

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment (SFAS 123(R)). SFAS 123(R) is an amendment of SFAS 123 and requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is required to be measured based on the fair value of the equity or liability instruments issued.  SFAS 123(R) also contains additional minimum disclosures requirements including, but not limited to, the valuation method and assumptions used, amounts of compensation capitalized and modifications made. The effective date of SFAS 123(R) was subsequently amended by the SEC to be as of the beginning of the first interim or annual reporting period of the first fiscal year that begins on or after December 15, 2005, and allows several different methods of transition. The Partnership adopted SFAS 123(R) using the
prospective method on January 1, 2006. This adoption did not have a material effect on our consolidated financial statements.

3.

        REAL ESTATE INVESTMENTS


As of September 30, 2006 and December 31, 2005, the carrying value of the Partnerships operating properties was as follows (amounts in thousands):



September
          30, 2006
      
      December
          31,2005Land
      
      $
      764,916
      
      $
      456,736Building
          and improvements
      
      
      3,733,658
      
      
      1,951,252Tenant
          improvements
      
      
      373,404
      
      
      152,0734,871,978
      
      
      2,560,061Less:
          accumulated depreciation
      
      
      (499,141
      )
      
      (390,333
      )Operating
          real estate investments, net
      
      $
      4,372,837
      
      $
      2,169,728


Acquisitions and Dispositions

The Partnerships acquisitions are accounted for by the purchase method. The results of each acquired property are included in the Partnerships results of operations from their respective purchase dates.

2006

On
    January 5, 2006, the Partnership acquired Prentiss Properties Trust (Prentiss)
    pursuant to an Agreement and Plan of Merger (the Merger Agreement)
    that the Partnership entered into with Prentiss on October 3, 2005. In conjunction
    with the Partnerships acquisition of Prentiss, designees of The Prudential
    Insurance Company of America (Prudential) acquired certain of
    Prentiss properties that contain an aggregate of approximately 4.32
    million net rentable square feet for a total consideration of approximately
    $747.7 million. Through its acquisition of Prentiss (and after giving effect
    to the Prudential acquisition of certain of Prentiss properties), the
    Partnership acquired a portfolio of 79 office properties (including 13 properties
    that are owned by consolidated joint ventures and 7 properties that are owned
    by an unconsolidated joint venture) that contain  an aggregate of 14.0 million
    net rentable square feet. The results of the operations of Prentiss have
    been included in the Partnerships condensed consolidated financial statements
    since January 5, 2006.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



Subsequent to its acquisition of Prentiss and the related sale of certain properties to Prudential, the Partnership sold eleven of the acquired properties that contain an aggregate of 2.3 million net rentable square feet and one parcel of land containing 10.9 acres.

The Partnership funded the approximately $1.05 billion cash portion of the merger consideration, related transaction costs and prepayments of approximately $543.3 million in Prentiss mortgage debt at the closing of the merger through (i) a $750 million unsecured term loan that matures on January 4, 2007; (ii) approximately $676.5 million of cash from Prudentials acquisition of certain of the Prentiss properties; and (iii) approximately $195.0 million through borrowing under a revolving credit facility.

The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):



At
          January 5, 2006Real
          estate investmentsLand
          - operating
      
      $
      282,584Building
          and improvements
      
      
      1,942,728Tenant
          improvements
      
      
      120,610Construction
          in progress and land inventory
      
      
      57,329Total
          real estate investments acquired
      
      
      2,403,251Rent
          receivables
      
      
      6,031Other
          assets acquired:Intangible
          assets:In-place
          leases
      
      
      187,907Relationship
          values
      
      
      98,382Above-market
          leases
      
      
      26,352Total
          intangible assets acquired
      
      
      312,641Investment
          in real estate ventures
      
      
      66,921Investment
          in marketable securities
      
      
      193,089Other
          assets
      
      
      8,868Total
          other assets
      
      
      581,519Total
          assets acquired
      
      
      2,990,801Liabilities
          assumed:Mortgage
          notes payable
      
      
      532,607Unsecured
          notes
      
      
      264,726Security
          deposits and deferred rent
      
      
      6,475Other
          liabilities:Below-market
          leases
      
      
      78,911Other
          liabilities
      
      
      43,995Total
          other liabilities assumed
      
      
      122,906Total
          liabilities assumed
      
      
      926,714Minority
          interest
      
      
      104,658Net
          assets acquired
      
      $
      1,959,429


In the acquisition of Prentiss, each then outstanding Prentiss common share was converted into the right to receive 0.69 of a Brandywine common share and $21.50 in cash (the Per Share Merger Consideration) except that 497,884 Prentiss common shares held in the Prentiss Deferred Compensation Plan converted solely into 720,737 Brandywine common shares. In addition, each then outstanding unit (each, a Prentiss OP Unit) of limited partnership interest in the Prentiss operating partnership subsidiary was, at the option of the holder, converted into Prentiss Common Shares with the right to receive the Per Share Merger Consideration or 1.3799 Class A Units of the Operating Partnership (Brandywine Class A Units). Accordingly, based on 49,375,723 Prentiss common shares outstanding and 139,000 Prentiss OP Units electing to receive merger consideration at closing of
the acquisition, the Company issued 34,541,946 Brandywine common shares and paid an aggregate of approximately $1.05 billion in cash to the accounts of the former Prentiss shareholders. Based on 1,572,612 Prentiss OP Units outstanding at closing of the acquisition that did not elect to receive merger consideration, the Operating Partnership issued 2,170,047 Brandywine Class A Units. In addition, options issued by Prentiss that were exercisable for an aggregate of 342,662 Prentiss common shares were converted into options exercisable for an aggregate of 496,037 Brandywine common shares at a weighted average exercise price of $22.00 per share. Through its acquisition of Prentiss the Partnership also assumed approximately $611.2 million in aggregate principal amount of Prentiss debt.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



Each Brandywine Class A Unit that was issued in the merger is subject to redemption at the option of the holder.  The Operating Partnership may, at its option, satisfy the redemption either for an amount, per unit, of cash equal to the then market price of one Brandywine common share (based on the prior ten-day trading average) or for one Brandywine common share.

For purposes of computing the total purchase price reflected in the financial statements, the common shares, operating units, restricted shares and options that were issued in the Prentiss transaction were valued based on the average trading price per Brandywine common share of $29.54. The average trading price was based on the average of the high and low trading prices for each of the two trading days before, the day of and the two trading days after the merger was announced (i.e., September 29, September 30, October 3, October 4 and October 5).

The Company considered the provisions of FIN 47 for these acquisitions and, where necessary, recorded a conditional asset retirement obligation as part of the purchase price. The aggregate asset retirement recorded in connection with the Prentiss acquisition was approximately $2.7 million.

Pro forma information relating to the acquisition of Prentiss is presented below as if Prentiss was acquired and the related financing transactions occurred on January 1, 2005. These pro forma results are not necessarily indicative of the results which actually would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods (in thousands, except per share amounts):



Nine-month
          periodsended September 30,2006
      
      2005(unaudited)Pro
          forma revenue
      
      $
      516,976
      
      $
      485,473Pro
          forma loss from continuing operations
      
      
      (22,127
      )
      
      (13,847
      )Pro
          forma loss allocated to common shares
      
      
      (20,154
      )
      
      (16,704
      )Earnings
          per common share from continuing operationsBasic
           as reported
      
      $
      (0.30
      )
      $
      0.45Basic
           as pro forma
      
      $
      (0.30
      )
      $
      (0.22
      )Diluted
          - as reported
      
      $
      (0.30
      )
      $
      0.45Diluted
          - as pro forma
      
      $
      (0.30
      )
      $
      (0.22
      )Earnings
          per common shareBasic
           as reported
      
      $
      (0.22
      )
      $
      0.50Basic
           as pro forma
      
      $
      (0.21
      )
      $
      (0.18
      )Diluted
          - as reported
      
      $
      (0.22
      )
      $
      0.50Diluted
          - as pro forma
      
      $
      (0.21
      )
      $
      (0.18
      )


In addition to the acquisition activity related to Prentiss, during the nine-month period ended September 30, 2006; the Partnership acquired four office properties containing 681,688 net rentable square feet and 76.6 acres of developable land for an aggregate purchase price of $180.6 million. In addition to sales of assets acquired in the Prentiss merger, the Partnership sold two office properties containing 216,554 net rentable square feet and two parcels of land containing 6.8 acres for an aggregate $43.5 million, realizing net gains totaling $6.0 million.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



In addition to the acquisition activity related to Prentiss, during the three-month period ended September 30, 2006; the Partnership acquired two office properties containing 443,581 net rentable square feet for $133.2 million. In addition to sales of assets acquired in the Prentiss merger, the Partnership sold two office properties containing 216,554 net rentable square feet for $38.6 million, realizing net gains totaling $3.4 million.

2005

During the nine-month period ended September 30, 2005, the Partnership acquired one industrial property containing 385,884 net rentable square feet, two office properties containing 283,511 net rentable square feet and 36.4 acres of developable land for an aggregate purchase price of $94.5 million. The Partnership sold one industrial property containing 385,884 net rentable square feet and three parcels of land containing 18.0 acres for an aggregate $30.2 million, realizing net gains totaling $6.8 million.

During the three-month period ended September 30, 2005,the Partnership acquired two office properties containing 283,511 net rentable square feet and 8.0 acres of developable land for an aggregate purchase price of $52.7 million. The Partnership sold one industrial property containing 385,884 net rentable square feet and three parcels of land containing 18.0 acres for an aggregate $30.2 million, realizing net gains totaling $6.8 million.

4.

        INVESTMENT IN UNCONSOLIDATED VENTURES


As of September 30, 2006, the Partnership had an aggregate investment of approximately $76.0 million in 11 unconsolidated Real Estate Ventures (net of returns of investment). The Partnership or Prentiss formed these ventures with unaffiliated third parties to develop office properties or to acquire land in anticipation of possible development of office properties. Nine of the Real Estate Ventures own 15 office buildings that contain an aggregate of approximately 2.7 million net rentable square feet, one Real Estate Venture developed a hotel property that contains 137 rooms and one Real Estate Venture is developing an office property located in Albemarle County, VA.

The Partnership also has investments in four real estate ventures that are variable interest entities under FIN No. 46R and of which the Partnership is the primary beneficiary.

The Partnership accounts for its non-consolidating interests in its Real Estate Ventures using the equity method. Non-consolidating ownership interests range from 6% to 50%, subject to specified priority allocations in certain of the Real Estate Ventures. The Partnerships investments, initially recorded at cost, are subsequently adjusted for the Partnerships share of the Real Estate Ventures income or loss and cash contributions and distributions.

The amounts reflected below (except for Partnerships share of equity and income) are based on the historical financial information of the individual Real Estate Ventures. One of the Real Estate Ventures, acquired in connection with the Prentiss acquisition, had a negative equity balance on a historical cost basis as a result of historical depreciation and distribution of excess financing proceeds. The Partnership reflected its acquisition of this Real Estate Venture interest at its relative fair value as of the date of the purchase of Prentiss. The difference between allocated cost and the underlying equity in the net assets of the investee is accounted for as if the entity were consolidated (i.e., allocated to the Partnerships relative share of assets and liabilities with an adjustment to recognize equity in earnings for the appropriate additional depreciation/amortization).

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



The following is a summary of the financial position of the Real Estate Ventures as of September 30, 2006 and December 31, 2005 (in thousands):



September 30,2006


      

        December 31,2005Operating property, net of accumulated depreciation


      


      $


      360,194


      


      $


      286,601Other assets

        

        

        50,739

        

        

        32,267Liabilities

        

        

        28,009

        

        

        24,855Debt

        

        

        328,388

        

        

        205,018Equity

        

        

        54,536

        

        

        88,995Partnerships
          investment in real estate ventures

        

        

        76,032

        

        

        13,331


In addition to its $76.0 million investment in the 11 unconsolidated Real Estate Ventures, the Partnership also has an investment of $2.3 million in Prentiss Properties Capital Trust I and Prentiss Properties Capital Trust II that is accounted for using the cost method of accounting. The investment, which is included in investment in unconsolidated ventures at September 30, 2006, was acquired by the Partnership as part of the Prentiss acquisition on January 5, 2006.

The following is a summary of results of operations of the Real Estate Ventures for the three- and nine-month periods ended September 30, 2006 and 2005 (in thousands):



Three-month periodsended September 30,


      

        Nine-month periodsended September 30,2006


      

        2005


      

        2006


      

        2005Revenue


      


      $


      19,189


      


      $


      14,800


      


      $


      57,623


      


      $


      46,938Operating expenses

        

        

        7,696

        

        

        7,123

        

        

        22,433

        

        

        24,573Interest expense, net

        

        

        5,282

        

        

        3,238

        

        

        15,356

        

        

        8,844Depreciation and amortization

        

        

        4,826

        

        

        2,255

        

        

        14,998

        

        

        6,697Net income

        

        

        1,385

        

        

        2,184

        

        

        4,836

        

        

        6,824Partnerships share of income (Partnership basis)

        

        

        370

        

        

        745

        

        

        1,798

        

        

        2,296


As
  of September 30, 2006, the Partnership had guaranteed repayment of approximately
  $0.6 million of loans for the Real Estate Ventures. The Partnership also provides
  customary environmental indemnities in connection with construction and permanent
  financing both for its own account and on behalf of the Real Estate Ventures.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

|5. | INTANGIBLE ASSETS
|-- | -----------------

As of September 30, 2006 and December 31, 2005, the Partnerships intangible assets were comprised of the following (in thousands):



September 30, 2006Total Cost


      

        Accumulated Amortization


      

        Deferred Costs, netIn-place lease value


      


      $


      231,177


      


      $


      (48,032


      )


      $


      183,145Tenant relationship value

        

        

        133,062

        

        

        (16,518

        )

        

        116,544Above market leases acquired

        

        

        38,177

        

        

        (12,747

        )

        

        25,430Total

        

        $

        402,416

        

        $

        (77,297

        )

        $

        325,119




December 31, 2005Total
          Cost
      
      Accumulated
          Amortization
      
      Deferred
          Costs, netIn-place
          lease value
      
      $
      47,965
      
      $
      (12,575
      )
      $
      35,390Tenant
          relationship value
      
      
      37,845
      
      
      (5,606
      )
      
      32,239Above
          market leases acquired
      
      
      14,404
      
      
      (3,936
      )
      
      10,468Total
      
      $
      100,214
      
      $
      (22,117
      )
      $
      78,097


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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



6.


      MORTGAGE NOTES PAYABLE


The following table sets forth information regarding the Partnerships mortgage indebtedness outstanding at September 30, 2006 and December 31, 2005 (in thousands):



Property
          / Location
      
      September
          30,2006
      
      December
          31,2005
      
      EffectiveInterestRate
      
      MaturityDate111
          Arrandale Blvd
      
      $
      
      
      $
      1,043
      
      8.65
      %
      Aug-06429
          Creamery Way
      
      
      
      
      
      2,927
      
      8.30
      %
      Sep-06Interstate
          Center
      
      
      608
      
      
      766
      
      6.19
      %(b)
      Mar-07440
          & 442 Creamery Way
      
      
      5,462
      
      
      5,581
      
      8.55
      %
      Jul-07Norriton
          Office Center
      
      
      5,127
      
      
      5,191
      
      8.50
      %
      Oct-07481
          John Young Way
      
      
      2,311
      
      
      2,360
      
      8.40
      %
      Nov-07400
          Commerce Drive
      
      
      11,849
      
      
      11,989
      
      7.12
      %
      Jun-08Two
          Logan Square
      
      
      71,636
      
      
      72,468
      
      5.78
      %(a)
      Jul-09The
          Bluffs
      
      
      10,700
      
      
      
      
      6.00
      %(a)
      Jul-09Pacific
          Ridge
      
      
      14,500
      
      
      
      
      6.00
      %(a)
      Aug-09Pacific
          View/Camino
      
      
      26,000
      
      
      
      
      6.00
      %(a)
      Aug-09Computer
          Associates Building
      
      
      31,000
      
      
      
      
      6.00
      %(a)
      Aug-09200
          Commerce Drive
      
      
      5,860
      
      
      5,911
      
      7.12
      %(a)
      Jan-10Presidents
          Plaza
      
      
      30,900
      
      
      
      
      6.00
      %(a)
      May-101333
          Broadway
      
      
      24,521
      
      
      
      
      5.18
      %(a)
      May-10The
          Ordway
      
      
      46,309
      
      
      
      
      7.95
      %(a)
      Aug-10World
          Savings Center
      
      
      27,583
      
      
      
      
      7.91
      %(a)
      Nov-10Plymouth
          Meeting Exec.
      
      
      44,253
      
      
      44,687
      
      7.00
      %(a)
      Dec-10Four
          Tower Bridge
      
      
      10,661
      
      
      10,763
      
      6.62
      %
      Feb-11Arboretum
          I, II, III & V
      
      
      22,917
      
      
      23,238
      
      7.59
      %
      Jul-11Midlantic
          Drive/Lenox Drive/DCC I
      
      
      62,930
      
      
      63,803
      
      8.05
      %
      Oct-11Research
          Office Center
      
      
      42,314
      
      
      
      
      7.64
      %(a)
      Oct-11Concord
          Airport Plaza
      
      
      38,601
      
      
      
      
      7.20
      %(a)
      Jan-12Six
          Tower Bridge
      
      
      14,830
      
      
      15,083
      
      7.79
      %
      Aug-12Newtown
          Square/Berwyn Park/Libertyview
      
      
      63,576
      
      
      64,429
      
      7.25
      %
      May-13Coppell
          Associates
      
      
      3,794
      
      
      
      
      6.89
      %
      Dec-13Southpoint
          III
      
      
      5,031
      
      
      5,431
      
      7.75
      %
      Apr-14Tysons
          Corner
      
      
      100,000
      
      
      
      
      4.84
      %(a)
      Aug-15Coppell
          Associates
      
      
      16,600
      
      
      
      
      5.75
      %
      Mar-16Grande
          A
      
      
      59,816
      
      
      61,092
      
      7.48
      %
      Jul-27Grande
          A
      
      
      
      
      
      11,456
      
      
      
      Jul-27Grande
          A
      
      
      
      
      
      1,551
      
      
      
      Jul-27Grande
          B
      
      
      77,925
      
      
      79,036
      
      7.48
      %
      Jul-27Principal
          balance outstanding
      
      
      877,614
      
      
      488,805Plus:
          unamortized fixed-rate debt premiums
      
      
      15,321
      
      
      5,972Total
          mortgage indebtedness
      
      $
      892,935
      
      $
      494,777


|(a) | Loans were assumed upon acquisition of the related property. Interest rates presented above reflect the market rate at the time of acquisition.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

(b)

        For loans that bear interest at a variable rate, the rates in effect at September 30, 2006 have been presented.


During the three-month periods ended September 30, 2006 and 2005, the Partnerships weighted-average interest rate on its mortgage notes payable was 6.16% and 7.21%, respectively.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



7.
      UNSECURED NOTES


The following table sets forth information regarding the Partnerships unsecured notes outstanding (in thousands):



Year
          of Maturity
      
      September
          30,2006
      
      December
          31,2005
      
      Maturity
      
      StatedInterest Rate
      
      EffectiveInterest Rate2008
      
      
      113,000
      
      
      113,000
      
      Dec-08
      
      4.34
      %
      4.34
      %(a)2009
      
      
      300,000
      
      
      
      
      Apr-09
      
      Libor
          + 0.45
      %
      5.41
      %(a)2009
      
      
      275,000
      
      
      275,000
      
      Nov-09
      
      4.50
      %
      4.62
      %(a)2010
      
      
      300,000
      
      
      300,000
      
      Dec-10
      
      5.625
      %
      5.61
      %(a)2012
      
      
      300,000
      
      
      
      
      Apr-12
      
      5.75
      %
      5.77
      %(a)2014
      
      
      250,000
      
      
      250,000
      
      Nov-14
      
      5.40
      %
      5.53
      %(a)2016
      
      
      250,000
      
      
      
      
      Apr-16
      
      6.00
      %
      5.95
      %(a)2035
      
      
      27,062
      
      
      
      
      Mar-35
      
      Libor
          + 1.25
      %
      6.57
      %2035
      
      
      25,774
      
      
      
      
      Apr-35
      
      Libor
          + 1.25
      %
      6.57
      %2035
      
      
      25,774
      
      
      
      
      Jul-35
      
      Libor
          + 1.25
      %
      6.57
      %Total
          face amount
      
      $
      1,866,610
      
      $
      938,000Less:
          unamortized discounts
      
      
      (3,422
      )
      
      (1,393
      )Total
          unsecured notes
      
      $
      1,863,188
      
      $
      936,607


(a)

        Rates include the effect of amortization related to discounts and costs related to settlement of treasury lock agreements.


On March 28, 2006, the Partnership consummated the public offering of (1) $300,000,000 aggregate principal amount of its unsecured floating rate notes due 2009 (the 2009 Notes), (2) $300,000,000 aggregate principal amount of its 5.75% notes due 2012  (the 2012 Notes) and (3) $250,000,000 aggregate principal amount of its 6.00% notes due 2016 (the 2016 Notes). The Company guaranteed the payment of principal and interest on the 2009 Notes, the 2012 Notes and the 2016 Notes.

The indenture relating to the $300 million 2009, $275 million 2009, $300 million 2010, $300 million 2012, $250 million 2014 and $250 million 2016 unsecured notes contains various financial restrictions and requirements, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 40%, (3) a debt service coverage ratio of greater than 1.5 to 1.0, and (4) an unencumbered asset value of not less than 150% of unsecured debt. In addition, the note purchase agreement relating to the 2008 unsecured notes contains covenants that are similar to the above covenants.

8.

        SECURED NOTE PAYABLE


As the result of a voluntary defeasance that was completed in the fourth quarter of 2005 by Prentiss, the Partnership has a secured note payable with a maturity date of February 2007. As of September 30, 2006, the outstanding balance on the secured note payable is $181.8 million. On October 7, 2005, Prentiss exercised the right to complete a voluntary defeasance of its $180.1 million PPREFI portfolio loan collateralized by certain properties acquired by the Partnership. Pursuant to the defeasance, Prentiss transferred the mortgage loan to an unrelated successor entity along with the proceeds necessary to acquire U.S. Treasury Securities sufficient to cover debt service including both interest and principal payments from the defeasance date through maturity of the loan. The U.S. Treasury Securities of approximately $182.3 million relating to this defeasance are included in investment in
marketable securities on the balance sheet. The loan may be repaid at par beginning in November 2006. The Partnership intends to elect to prepay the loan at par when allowed to do so, at which point the Partnership expects to receive the proceeds of the sales of the securities in excess of the loan balance.

9.

        UNSECURED CREDIT FACILITY


The
  Partnership utilizes credit facility borrowings for general business purposes,
  including the acquisition, development and redevelopment of properties and the
  repayment of other debt. In
  December 2005, the Partnership replaced its then existing credit facility with
  a $600.0 million unsecured credit facility (the Credit Facility)
  that matures in December 2009, subject to a one-year extension option. Borrowings
  under the Credit Facility generally  bear
  interest at LIBOR plus a spread over LIBOR ranging from 0.55% to 1.10% based
  on the Partnerships unsecured senior debt rating. The Partnership has
  the option to increase the Credit Facility to $800.0 million subject to the
  absence of any defaults and the Partnerships ability to acquire additional
  commitments from its existing lenders or new lenders. As of September 30, 2006,
  the Partnership had $250.0 million of borrowings and $23.4 million of letters
  of credit outstanding under the Credit Facility, leaving $326.6 million of unused
  availability. For the nine-month periods ended September 30, 2006 and 2005,
  the weighted-average interest rate on the Partnerships unsecured credit
  facilities, including the effect of interest rate hedges, was 5.80% during 2006
  and 4.40% during 2005.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006





The Credit Facility requires the maintenance of certain ratios related to minimum net worth, debt-to-total capitalization and fixed charge coverage and various non-financial covenants.

10.

        RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS


Risk Management

In the normal course of its on-going business operations, the Partnership encounters economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Partnership is subject to interest rate risk on its interest-bearing liabilities. Credit risk is the risk of inability or unwillingness of tenants to make contractually required payments. Market risk is the risk of declines in the value of properties due to changes in rental rates, interest rates or other market factors affecting the valuation of properties held by the Partnership.

Use of Derivative Financial Instruments

The Partnerships use of derivative instruments is limited to the utilization of interest rate agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Partnerships operating and financial structure, as well as to hedge specific transactions. The counterparties to these arrangements are major financial institutions with which the Partnership and its affiliates may also have other financial relationships. The Partnership is potentially exposed to credit loss in the event of non-performance by these counterparties. However, because of the high credit ratings of the counterparties, the Partnership does not anticipate that any of the counterparties will fail to meet these obligations as they come due. The Partnership does not hedge credit
or property value market risks.

The Partnership formally assesses, both at inception of the hedge and on an on-going basis, whether each derivative is highly-effective in offsetting changes in cash flows of the hedged item. If management determines that a derivative is not highly-effective as a hedge or if a derivative ceases to be a highly-effective hedge, the Partnership will discontinue hedge accounting prospectively.

Concentration of Credit Risk

Concentrations of credit risk arise when a number of tenants related to the Partnerships investments or rental operations are engaged in similar business activities, or are located in the same geographic region, or have similar economic features that would cause their inability to meet contractual obligations, including those to the Partnership, to be similarly affected. The Partnership regularly monitors its tenant base to assess potential concentrations of credit risk. Management believes the current credit risk portfolio is reasonably well diversified and does not contain any unusual concentration of credit risk. No tenant accounted for 5% or more of the Partnerships rents during the three- and nine-month periods ended September 30, 2006 or 2005.

11.

        DISCONTINUED OPERATIONS


For the three- and nine-month periods ended September 30, 2006, income from discontinued operations relates to thirteen properties that the Partnership sold during 2006, including eleven properties that were acquired by the Partnership as part of its acquisition of Prentiss. The following table summarizes the revenue and expense information for properties classified as discontinued operations for the three- and nine-month periods ended September 30, 2006 (in thousands):

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006







Three-month
          
          period ended 
          September 30, 2006
      
      Nine-month
          
          period ended 
          September 30, 2006Revenue:Rents
      
      $
      2,445
      
      $
      13,660Tenant
          reimbursements
      
      
      288
      
      
      2,226Other
      
      
      
      
      
      230Total
          revenue
      
      
      2,733
      
      
      16,116Expenses:Property
          operating expenses
      
      
      913
      
      
      5,048Real
          estate taxes
      
      
      353
      
      
      2,152Depreciation
          & amortization
      
      
      319
      
      
      3,545Total
          operating expenses
      
      
      1,585
      
      
      10,745Operating
          income
      
      
      1,148
      
      
      5,371Interest
          income
      
      
      2
      
      
      14Interest
          expense
      
      
      
      
      
      (367
      )Income
          from discontinued operations before gain on
          sale of interests in real estate and minority
          interest
      
      
      1,150
      
      
      5,018Net
          gain on sale of interests in real estate
      
      
      5,188
      
      
      5,188Minority
          interest - partners share of net gain on sale
      
      
      (1,757
      )
      
      (1,757
      )Minority
          interest - partners share of consolidatedreal estate venture
      
      
      (100
      )
      
      (482
      )Income
          from discontinued operations
      
      $
      4,481
      
      $
      7,967


For the three- and nine-month periods ended September 30, 2005, income from discontinued operations relates to three properties that the Partnership sold during 2005 and 2006. The following table summarizes the revenue and expense information for the property classified as discontinued operations for the three- and nine-month periods ended September 30, 2005 (in thousands):



Three-month
          
          period ended 
          September 30, 2005
      
      Nine-month
          
          periods ended 
          September 30, 2005Revenue:Rents
      
      $
      1,134
      
      $
      3,231Tenant
          reimbursements
      
      
      115
      
      
      269Other
      
      
      1
      
      
      13Total
          revenue
      
      
      1,250
      
      
      3,513Expenses:Property
          operating expenses
      
      
      486
      
      
      1,151Real
          estate taxes
      
      
      122
      
      
      443Depreciation
          & amortization
      
      
      348
      
      
      978Total
          operating expenses
      
      
      956
      
      
      2,572Operating
          income
      
      
      294
      
      
      941Interest
          income
      
      
      
      
      
      Interest
          expense
      
      
      
      
      
      Income
          from discontinued operations before gain onsale of interests in real estate and minority
          interest
      
      
      294
      
      
      941Net
          gain on sale of interests in real estate
      
      
      2,196
      
      
      2,196Income
      from discontinued operations
      
      $
      2,490
      
      $
      3,137




Discontinued operations have not been segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions will not agree with respective data in the consolidated statements of operations.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006





12.

        MINORITY INTEREST IN JOINT VENTURES


As of September 30, 2006, the Partnership owned interests in four consolidated real estate ventures that own 15 office properties containing approximately 1.5 million net rentable square feet. Minority interest in joint ventures represents the portion of these consolidated real estate ventures not owned by the Partnership.

13.


      PARTNERS EQUITY


Earnings per Common Partnership Unit

The following table details the number of units and net income used to calculate basic and diluted earnings per common partnership unit (in thousands, except unit and per unit amounts; results may not add due to rounding):



Three-month
          periods ended September 30,2006
      
      2005Basic
      
      Diluted
      
      Basic
      
      DilutedIncome
          (loss) from continuing operations
      
      $
      (3,985
      )
      $
      (3,985
      )
      $
      13,789
      
      $
      13,789Income
          (loss) from discontinued operations
      
      
      4,481
      
      
      4,481
      
      
      2,490
      
      
      2,490Income
          allocated to Preferred Units
      
      
      (1,998
      )
      
      (1,998
      )
      
      (1,998
      )
      
      (1,998
      )Net
          income available to common partnership unitholders
      
      $
      (1,502
      )
      $
      (1,502
      )
      $
      14,281
      
      $
      14,281Weighted-average
          common partnership units outstanding
      
      
      94,147,584
      
      
      94,147,584
      
      
      58,040,651
      
      
      58,040,651Options
      
      
      
      
      
      
      
      
      
      
      
      300,040Total
          weighted-average common partnership units outstanding
      
      
      94,147,584
      
      
      94,147,584
      
      
      58,040,651
      
      
      58,340,691Earnings
          per Common Partnership Unit:Continuing
          operations
      
      $
      (0.06
      )
      $
      (0.06
      )
      $
      0.20
      
      $
      0.20Discontinued
          operations
      
      
      0.05
      
      
      0.05
      
      
      0.04
      
      
      0.04$
      (0.02
      )
      $
      (0.02
      )
      $
      0.25
      
      $
      0.24




Nine-month
          periods ended September 30,2006
      
      2005Basic
      
      Diluted
      
      Basic
      
      DilutedIncome
          (loss) from continuing operations
      
      $
      (22,492
      )
      $
      (22,492
      )
      $
      32,018
      
      $
      32,018Income
          (loss) from discontinued operations
      
      
      7,967
      
      
      7,967
      
      
      3,137
      
      
      3,137Income
          allocated to Preferred Units
      
      
      (5,994
      )
      
      (5,994
      )
      
      (5,994
      )
      
      (5,994
      )Net
          income available to common partnership unitholders
      
      $
      (20,519
      )
      $
      (20,519
      )
      $
      29,161
      
      $
      29,161Weighted-average
          common partnership units outstanding
      
      
      94,043,030
      
      
      94,043,030
      
      
      57,761,348
      
      
      57,761,348Options
      
      
      
      
      
      
      
      
      
      
      
      234,543Total
          weighted-average common partnership units outstanding
      
      
      94,043,030
      
      
      94,043,030
      
      
      57,761,348
      
      
      57,995,891Earnings
          per Common Partnership Unit:Continuing
          operations
      
      $
      (0.30
      )
      $
      (0.30
      )
      $
      0.45
      
      $
      0.45Discontinued
          operations
      
      
      0.08
      
      
      0.08
      
      
      0.05
      
      
      0.05$
      (0.22
      )
      $
      (0.22
      )
      $
      0.50
      
      $
      0.50




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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



Common Partnership Unit and Preferred Mirror Units

On September 18, 2006, the Partnership declared a $0.44 per unit cash distribution to holders of Class A Units totaling $2.0 million. On August 15, 2006, the Partnership acquired two office properties in Northern Virginia. In connection with these acquisitions, the Partnership issued 424,608 Class A Units valued at $32.546 per unit totaling $13.8 million.

On September 18, 2006, the Company declared a distribution of $0.44 per Common Partnership Unit, totaling $39.8 million, which was paid on October 16, 2006 to unitholders of record as of October 5, 2006. On September 18, 2006, the Partnership declared distributions on its Series D Preferred Mirror Units and Series E Preferred Mirror Units to holders of record as of September 30, 2006. These units are entitled to a preferential return of 7.50% and 7.375%, respectively. Distributions paid on October 16, 2006 to holders of Series D Preferred Mirror Units and Series E Preferred Mirror Units totaled $0.9 million and $1.1 million, respectively.

Common Stock Repurchases

The Company repurchased 1,180,200 shares during the nine month period ending September 30, 2006 for an aggregate consideration of $34.5 million under its share repurchase program. As of September 30, 2006, the Company may purchase an additional 2,319,800 shares under the plan. Repurchases may be made from time to time in the open market or in privately negotiated transactions, subject to market conditions and compliance with legal requirements. The share repurchase program does not contain any time limitation and does not obligate the Company to repurchase any shares. The Company may discontinue the program at any time.

In
  September 2006, the Company obtained a separate authorization to repurchase
  its common shares in connection with the October 2006 Debt Offering (see Note
  16). Concurrently with the October 2006 Debt Offering, pursuant to such separate
  authorization, 1,829,000 shares were repurchased and retired at an average purchase
  price of $32.80 per share (approximately $60.0 million in aggregate value).
  Due to the fact that the Company completed the Debt Offering on October 4, 2006,
  no additional repurchases may be made pursuant to this separate authorization.

Stock Based Compensation

When
    the Company issues Common Shares under its equity-based compensation plan,
    the Partnership issues an equal number of Common Partnership Units, for all
    stock based compensation below.

Stock Options

At September 30, 2006, the Company had 1,368,878 options outstanding under its shareholder approved equity incentive plan. No options were unvested as of September 30, 2006 and therefore there is no remaining unrecognized compensation expense associated with these options. Option activity as of September 30, 2006 and changes during the nine months ended September 30, 2006 were as follows:



Shares


      

        WeightedAverageExercise Price


      


      Weighted
          AverageRemaining
          ContractualTerm (in years)


      


      Aggregate IntrinsicValue (in 000s)Outstanding at January 1, 2006


      


      1,276,722


      


      $


      26.82


      


      2.15


      


      1,888Prentiss options converted to Company options as part of the Prentiss acquisition (see Note 3)

        

        496,037

        

        

        22.00

        

        2.01

        

        4,841Exercised

        

        (403,881

        )

        

        20.25

        

        0.55

        

        3,860Forfeited

        

        

        

        

        

        

        

        

        Outstanding at September 30, 2006

        

        1,368,878Vested at September 30, 2006

        

        1,368,878

        

        $

        26.44

        

        1.92

        

        7,285Exercisable at September 30, 2006

        

        1,368,878

        

        $

        26.44

        

        1.92

        

        7,285


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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



There were no option awards granted to employees during the three-and nine-month periods ended September 30, 2006 and 2005.

The Company has the ability and intent to issue shares upon stock option exercises. Historically, the Company has issued new common shares to satisfy such exercises.

Stock Awards

The Companys primary form of share-based compensation has been restricted shares issued under a shareholder approved equity incentive plan that authorizes various equity-based awards. As of September 30, 2006, 347,377 restricted shares were outstanding and vest over five years from the initial grant date. The remaining compensation expense to be recognized for the 347,377 restricted shares outstanding at September 30, 2006 was approximately $9.8 million. That expense is expected to be recognized over a weighted average remaining vesting period of 1.7 years. For the three-month and nine-month periods ended September 30, 2006, the Company recognized $744,000 and $2,189,000 of compensation expense related to outstanding restricted shares. The following table summarizes the Companys restricted share activity for the nine-months ended September 30, 2006:



Shares


      

        WeightedAverage GrantDate Fair valueNon-vested at January 1, 2006


      


      315,027


      


      $


      25.71Granted

        

        239,469

        

        

        30.42Vested

        

        (160,972

        )

        

        26.28Forfeited

        

        (46,147

        )

        

        29.21Non-vested at September 30, 2006

        

        347,377

        

        $

        28.23


Outperformance Program

On August 28, 2006, the Compensation Committee of the Companys Board of Trustees adopted a long-term incentive compensation program (the outperformance program). The Company will make payments (in the form of common shares) to executive-participants under the outperformance program only if total shareholder return exceeds percentage hurdles established under the outperformance program. The dollar value of any payments will depend on the extent to which our performance exceeds the hurdles. The Company established the outperformance program under the 1997 Plan.

The Compensation Committee adopted the outperformance program following extensive analysis of long-term, performance-based, executive compensation programs. In its analysis, the Compensation Committee considered data and recommendations of an independent compensation consulting firm, alternative approaches to compensation both within and outside of the REIT industry and the Company s current short and long-term compensation arrangements. The Compensation Committee believes that the outperformance program will enhance the Company s compensation goals. These goals include: (1) attracting best-in-class talent, (2) retaining our key leaders, (3) providing incentives for future performance and (4) aligning the long-term interests of the Company s executives with the interests of the Company s shareholders.

If the total shareholder return (share price appreciation plus cash dividends) during a three-year measurement period exceeds either of two hurdles (with one hurdle keyed to the greater of a fixed percentage and an industry-based index, and the other hurdle keyed to a fixed percentage), then the Company will fund an incentive compensation pool in accordance with a formula and make pay-outs from the compensation pool in the form of vested and restricted common shares. The awards issued are accounted for in accordance with FASB No. 123R. The fair value of the awards on the date of grant, as adjusted for estimated forfeitures, was approximately $5.6 million and will be amortized into expense over the five-year period beginning on the date of grant using a graded vesting attribution model. The fair value of $5.6 million on the date of grant represents approximately 89.9% of the total that may be
awarded; the remaining amount available will be valued when the awards are granted to individuals. For the three-month and nine-month periods ended September 30, 2006, the Company recognized $143,000 of compensation expenses related to the outperformance program.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



14.

        SEGMENT INFORMATION


The Partnership currently manages its portfolio within nine segments:  (1) PennsylvaniaWest, (2) PennsylvaniaNorth, (3) New Jersey, (4) Urban, (5) Richmond, Virginia, (6) CaliforniaNorth, (7) CaliforniaSouth, (8) Mid-Atlantic and (9) Southwest. The PennsylvaniaWest segment includes properties in Chester, Delaware and Montgomery counties in the Philadelphia suburbs of Pennsylvania. The PennsylvaniaNorth segment includes properties north of Philadelphia in Berks, Bucks, Cumberland, Dauphin, Lehigh and Montgomery counties. The New Jersey segment includes properties in counties in the southern part of New Jersey including Burlington, Camden and Mercer counties and in Bucks County, Pennsylvania. The Urban segment includes properties in the City of Philadelphia, Pennsylvania and the state of Delaware. The Richmond, Virginia segment includes properties primarily in
Albemarle, Chesterfield and Henrico counties, the City of Richmond and Durham, North Carolina. The CaliforniaNorth segment includes properties in the City of Oakland and Concord. The CaliforniaSouth segment includes properties in the City of Carlsbad and San Diego. The Mid-Atlantic segment includes properties in Northern Virginia and the City of Bethesda and Rockville, Maryland. The Southwest segment includes properties in Dallas and Travis counties of Texas. Corporate is responsible for cash and investment management, development of certain real estate properties during the construction period, and certain other general support functions.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



Segment information as of and for the three-month periods ended September 30, 2006 and 2005 is as follows (in thousands):



Pennsylvania
          West
      
      Pennsylvania
          North
      
      New
          Jersey
      
      Urban
      
      Richmond,Virginia
      
      California
          North
      
      California
          South
      
      Mid-Atlantic
      
      Southwest
      
      Corporate
      
      TotalAs
          of September 30, 2006:Real
          estate investments, at cost:Operating
          properties
      
      $
      916,128
      
      $
      536,002
      
      $
      594,322
      
      $
      413,727
      
      $
      245,019
      
      $
      393,639
      
      $
      95,920
      
      $
      1,191,798
      
      $
      485,423
      
      $
      
      
      $
      4,871,978Construction-in-progress
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      309,783
      
      
      309,783Land
          held for development
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      118,181
      
      
      118,181As
          of December 31, 2005:Real
          estate investments, at cost:Operating
          properties
      
      $
      867,089
      
      $
      558,803
      
      $
      562,832
      
      $
      351,407
      
      $
      219,930
      
      $
      
      
      $
      
      
      $
      
      
      $
      
      
      $
      
      
      $
      2,560,061Construction-in-progress
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      273,240
      
      
      273,240Land
          held for development
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      98,518
      
      
      98,518For
          the three-months ended September 30, 2006:Total
          revenue
      
      $
      35,143
      
      $
      18,702
      
      $
      25,999
      
      $
      22,185
      
      $
      8,509
      
      $
      14,655
      
      $
      3,035
      
      $
      28,774
      
      $
      21,462
      
      $
      3,130
      
      $
      181,594Property
          operating expenses and real estate taxes
      
      
      10,682
      
      
      9,776
      
      
      13,028
      
      
      9,243
      
      
      3,027
      
      
      5,726
      
      
      898
      
      
      9,347
      
      
      9,567
      
      
      391
      
      
      71,685Net
          operating income
      
      $
      24,461
      
      
      $8,926
      
      $
      12,971
      
      $
      12,942
      
      $
      5,482
      
      $
      8,929
      
      $
      2,137
      
      $
      19,427
      
      $
      11,895
      
      $
      2,739
      
      $
      109,909For
          the three-months ended September 30, 2005:Total
          revenue
      
      $
      26,240
      
      $
      18,361
      
      $
      24,845
      
      $
      16,389
      
      $
      7,336
      
      $
      
      
      $
      
      
      $
      
      
      $
      
      
      $
      1,856
      
      $
      95,027Property
          operating expenses and real estate taxes
      
      
      8,187
      
      
      8,312
      
      
      10,541
      
      
      6,546
      
      
      2,818
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      4
      
      
      36,408Net
          operating income
      
      $
      18,053
      
      $
      10,049
      
      $
      14,304
      
      $
      9,843
      
      $
      4,518
      
      $
      
      
      $
      
      
      $
      
      
      $
      
      
      $
      1,852
      
      $
      58,619


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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Segment information as of and for the nine-month periods ended September 30, 2006 and 2005 is as follows (in thousands):



Pennsylvania West


      

        Pennsylvania North


      

        New Jersey


      

        Urban


      

        Richmond,Virginia


      

        California North


      

        California South


      

        Mid-Atlantic


      

        Southwest


      

        Corporate


      

        TotalFor the nine-months ended September 30, 2006:Total revenue

        

        $

        93,529

        

        $

        55,008

        

        $

        75,090

        

        $

        62,826

        

        $

        24,009

        

        $

        42,914

        

        $

        8,591

        

        $

        81,157

        

        $

        61,019

        

        $

        9,429

        

        $

        513,572Property operating expenses and real estate taxes

        

        

        30,147

        

        

        29,553

        

        

        33,893

        

        

        26,060

        

        

        9,045

        

        

        16,175

        

        

        2,425

        

        

        25,179

        

        

        28,399

        

        

        155

        

        

        201,031Net operating income

        

        $

        63,382

        

        $

        25,455

        

        $

        41,197

        

        $

        36,766

        

        $

        14,964

        

        $

        26,739

        

        $

        6,166

        

        

        $55,978

        

        $

        32,620

        

        $

        9,274

        

        $

        312,541For the nine-months ended September 30, 2005:Total revenue

        

        $

        83,160

        

        $

        55,014

        

        $

        74,724

        

        $

        48,814

        

        $

        21,653

        

        $

        

        

        $

        

        

        $

        

        

        $

        

        

        $

        4,371

        

        $

        287,736Property operating expenses and real estate taxes

        

        

        28,259

        

        

        25,125

        

        

        30,811

        

        

        19,584

        

        

        8,515

        

        

        

        

        

        

        

        

        

        

        

        

        

        

        148

        

        

        112,442Net operating income

        

        $

        54,901

        

        $

        29,889

        

        $

        43,913

        

        $

        29,230

        

        $

        13,138

        

        $

        

        

        $

        

        

        $

        

        

        $

        

        

        $

        4,223

        

        $

        175,294


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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Net operating income is defined as total revenue less property operating expenses and real estate taxes. Below is a reconciliation of consolidated net operating income to net income (in thousands):



Three-month periodsended September 30,


      

        Nine-month periodsended September 30,2006


      

        2005


      

        2006


      

        2005Consolidated net operating income (loss)


      


      $


      109,909


      


      $


      58,619


      


      $


      312,541


      


      $


      175,294Less:Interest income

        

        

        2,479

        

        

        304

        

        

        7,702

        

        

        966Interest expense

        

        

        (45,402

        )

        

        (17,762

        )

        

        (128,869

        )

        

        (53,366

        )Depreciation and amortization

        

        

        (68,277

        )

        

        (28,230

        )

        

        (199,275

        )

        

        (83,983

        )Administrative expenses

        

        

        (6,490

        )

        

        (4,486

        )

        

        (22,704

        )

        

        (13,616

        )Minority interest - partners share of consolidatedreal estate ventures

        

        

        279

        

        

        (41

        )

        

        560

        

        

        (213

        )Plus:Equity in income of real estate ventures

        

        

        370

        

        

        745

        

        

        1,798

        

        

        2,296Net gain on sales of interests in real estate

        

        

        

        

        

        4,640

        

        

        2,608

        

        

        4,640Gain on termination of purchase contract

        

        

        3,147

        

        

        

        

        

        3,147

        

        

        Income (loss) from continuing operations

        

        

        (3,985

        )

        

        13,789

        

        

        (22,492

        )

        

        32,018Income (loss) from discontinued operations

        

        

        4,481

        

        

        2,490

        

        

        7,967

        

        

        3,137Net income (loss)

        

        $

        496

        

        $

        16,279

        

        $

        (14,525

        )

        $

        35,155




15.

        COMMITMENTS AND CONTINGENCIES


Legal Proceedings

The Partnership is involved from time to time in litigation on various matters, including disputes with tenants and disputes arising out of agreements to purchase or sell properties. Given the nature of the Partnerships business activities, these lawsuits are considered routine to the conduct of its business. The result of any particular lawsuit cannot be predicted, because of the very nature of litigation, the litigation process and its adversarial nature, and the jury system. The Partnership does not expect that the liabilities, if any, that may ultimately result from such legal actions will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Partnership.

There have been lawsuits against owners and managers of multifamily and office properties asserting claims of personal injury and property damage caused by the presence of mold in residential units or office space. The Partnership has been named as a defendant in two lawsuits in the State of New Jersey that allege personal injury as a result of the presence of mold. In 2005, one lawsuit was dismissed by way of summary judgment with prejudice. Unspecified damages are sought on the remaining lawsuit. The Partnership has referred this lawsuit to its environmental insurance carrier and, as of the date of this Form 10-Q, the insurance carrier is tendering a defense to this claim.

Environmental

As an owner of real estate, the Partnership is subject to various environmental laws of federal, state, and local governments. The Partnerships compliance with existing laws has not had a material adverse effect on its financial condition and results of operations, and the Partnership does not believe it will have a material adverse effect in the future. However, the Partnership cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on its current Properties or on properties that the Partnership may acquire.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Related Party Transaction

The Partnership held a fifty percent economic interest in an approximately 141,724 square foot office building located at 101 Paragon Drive, Montvale, New Jersey. The remaining fifty percent interest was held by Donald E. Axinn, one of the Companys Trustees. Although the Partnership and Mr. Axinn had each committed to provide one half of the $11 million necessary to repay the mortgage loan secured by this property at the maturity of the loan, in February 2006 an unaffiliated third party entered into an agreement to purchase this property for $18.3 million. As a result of the purchase by an unaffiliated third party during August 2006, the Partnership recognized a $3.1 million gain on termination of its rights under a 1998 contribution agreement, modified in 2005, that entitled the Partnership to the 50% interest in the joint venture to operate the property. This gain is shown
separately on the Partnerships income statement as a gain on termination of purchase contract.

Ground Rent

Future minimum rental payments under the terms of all non-cancelable ground leases under which the Partnership is the lessee are expensed on a straight-line basis regardless of when payments are due.

Other Commitments or Contingencies

As part of the Partnerships September 2004 acquisition of a portfolio of 14 properties (the TRC Acquisition), the Operating Partnership agreed to issue to the sellers up to a maximum of $9.7 million of Class A Units of the Operating Partnership if certain of the acquired properties achieve at least 95% occupancy prior to September 21, 2007. At September 30, 2006, the maximum amount payable under this arrangement was $2.4 million.

As part of the TRC acquisition, the Partnership acquired an interest in Two Logan Square, a 696,477 square foot office building in Philadelphia, Pennsylvania, primarily through a second and third mortgage secured by this property pursuant to which the Partnership receives substantially all cash flows from the property. The Partnership currently does not expect to take title to Two Logan Square until, at the earliest, September 2019. In the event that the Partnership takes title to Two Logan Square upon a foreclosure of its mortgages, the Partnership has agreed to make a payment to an unaffiliated third party with a residual interest as a fee owner of this property. The amount of the payment would be $0.6 million if the Partnership must pay a state and local transfer tax upon taking title, or $2.9 million if no transfer tax is payable upon the transfer.

As part of the Prentiss acquisition, TRC acquisition and several of our other acquisitions, the Partnership has agreed not to sell certain of the acquired properties. In the case of TRC, the Partnership agreed not to sell certain of the acquired properties for periods ranging from three to 15 years from the acquisition date as follows: 201 Radnor Financial Center, 555 Radnor Financial Center and 300 Delaware Avenue (three years); One Rodney Square and 130/150/170 Radnor Financial Center (10 years); and One Logan Square, Two Logan Square and Radnor Corporate Center (15 years). In the case of the Prentiss acquisition, the Partnership assumed the obligation of Prentiss not to sell Concord Airport Plaza before March 2018 and 6600 Rockledge before July 2008. The Partnership also owns 14 other properties that aggregate 1.0 million square feet and has agreed not to sell these properties for periods
that expire through 2008. These agreements generally provide that the Partnership may dispose of the subject Properties only in transactions that qualify as tax-free exchanges under Section 1031 of the Code or in other tax deferred transactions. In the event that the Partnership sells any of the properties within the applicable restricted period in non-exempt transactions, the Partnership has agreed to pay significant tax liabilities that would be incurred by the parties who sold the applicable property.

The
  Partnership invests in its Properties and regularly incurs capital expenditures
  in the ordinary course of business to maintain the Properties. The Partnership
  believes that such expenditures enhance the competitiveness of the Properties.
  The Partnership also enters into construction, utility and service contracts
  in the ordinary course of business which may extend beyond one year. These contracts
  include terms that provide for cancellation with insignificant or no cancellation
  penalties.

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BRANDYWINE OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006



16.

        SUBSEQUENT EVENT


On October 4, 2006, the Partnership issued $300 million aggregate principal amount of exchangeable guaranteed notes due October 15, 2026 with a coupon of 3.875%. On October 16, 2006, the Partnership issued an additional $45 million aggregate principal amount of notes to cover over-allotments.

The Partnership used the net proceeds from the sale of the notes to repurchase approximately $60 million of outstanding common units (1,829,000 common units at a price of $32.80 per unit); to repay approximately $180 million under the Partnerships revolving credit facility; and to invest the balance in short term securities pending redemption of the Partnerships $300 million Floating Rate Guaranteed Notes due 2009 on January 2, 2007.

The notes will be exchangeable for cash and common shares at an initial exchange rate of 25.4065 common shares per $1,000 principal amount of notes (equivalent to an initial exchange price of approximately $39.36 per common share). The initial exchange price represents a 20% premium to the last reported sales price prior to issuance for the common shares on the New York Stock Exchange on September 28, 2006. The exchange value will be based on the exchange rate and the then trading price of the common shares. The initial exchange rate is subject to adjustment in certain circumstances.

The repurchase of 1,829,000 common shares with a portion of the proceeds of the notes did not reduce the 2,319,800 common shares that may be repurchased under the Companys Board-approved share repurchase program.

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

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. This Quarterly Report on Form 10-Q and other materials filed by us with the SEC (as well as information included in oral or other written statements made by us) contain statements that are forward-looking, including statements relating to business and real estate development activities, acquisitions, dispositions, future capital expenditures, financing sources, governmental regulation (including environmental regulation) and competition. 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. As forward-looking statements, these statements involve important risks, uncertainties and other factors that could cause actual results to differ materially from the expected results and, accordingly, such results may differ from those expressed in any forward-looking statements made by us or on our behalf. Factors that could cause actual results to differ materially from our expectations include, but are not limited to, changes in general economic conditions, changes in local real estate conditions (including changes in rental rates and the number of competing properties), changes in the economic conditions affecting industries in which our principal tenants compete, our failure to lease unoccupied space in accordance with our projections, our failure to re-lease occupied space upon expiration of leases, the bankruptcy of major tenants, changes in prevailing interest rates, the
unavailability of equity and debt financing, unanticipated costs associated with the acquisition and integration of our acquisitions, unanticipated costs to complete and lease-up pending developments, impairment charges, increased costs for, or lack of availability of, adequate insurance, including for terrorist acts, demand for tenant services beyond those traditionally provided by landlords, potential liability under environmental or other laws, earthquakes and other natural disasters, the existence of complex regulations relating to our status as a REIT and to our acquisition, disposition and development activities, the adverse consequences of our failure to qualify as a REIT, the impact of newly adopted accounting principles on our accounting policies and on period-to-period comparisons of financial results and the other risks identified in the Risk Factors section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2005. Given these
uncertainties, we caution readers not to place undue reliance on forward-looking statements. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events except as required by law.

OVERVIEW

As of September 30, 2006, we managed our portfolio within nine geographic segments: (1) PennsylvaniaWest, (2) PennsylvaniaNorth, (3) New Jersey, (4) Urban, (5) Richmond, Virginia, (6) CaliforniaNorth, (7) CaliforniaSouth, (8) Mid-Atlantic and (9) Southwest. We believe we have established an effective platform in these office and industrial markets for maximizing market penetration, optimizing operating economies of scale and creating long-term investment value.

Through our January 2006 acquisition of Prentiss, we acquired interests in properties that contain an aggregate of 14.0 million net rentable square feet. Through this acquisition, we also entered into new markets, including markets in California, Northern Virginia, Maryland, and Texas.

Subsequent to our acquisition of Prentiss and the related sale of certain of Prentisss properties to Prudential, we sold 11 additional properties that contain an aggregate of 2.3 million net rentable square feet and one parcel of land containing 10.9 acres.

As of September 30, 2006, our portfolio consisted of 277 office properties, 23 industrial facilities and one mixed-use property that contain an aggregate of approximately 30.0 million net rentable square feet. We held economic interests in 11 unconsolidated real estate ventures that contain approximately 2.7 million net rentable square feet (the Real Estate Ventures) formed with third parties to develop or own commercial properties. In addition, as of September 30, 2006 we owned interests in four consolidated real estate ventures that own 15 office properties containing approximately 1.5 million net rentable square feet.

We receive income primarily from rental revenue (including tenant reimbursements) from our properties and, to a lesser extent, from the management of properties owned by third parties and from investments in the Real Estate Ventures.

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Our financial performance is dependent upon the demand for office, industrial and other commercial space in our markets and upon prevailing interest rates.

We continue to seek revenue growth through an increase in occupancy of our portfolio and our investment strategies. Our occupancy was 91.3% at September 30, 2006, or 90.2% including four lease-up properties that we acquired in our September 2004 acquisition of a portfolio of 14 properties (the TRC Properties or the TRC acquisition).

The Prentiss acquisition and the TRC acquisition, and to a lesser extent, other property acquisitions have already or will materially impact our operations. Accordingly, the reported historical financial information for periods prior to these transactions is not believed to be fully indicative of our future operating results or financial condition.

As we seek to increase revenue through our operating activities, our management also focuses on strategies to minimize operating risks, including (i) tenant rollover risk, (ii) tenant credit risk and (iii) development risk.

Tenant Rollover Risk:

We are subject to the risk that tenant leases, upon expiration, are not renewed, that space may not be relet, or that the terms of renewal or reletting (including the cost of renovations) may be less favorable to us than the current lease terms. Leases accounting for approximately 2.9% of our aggregate annualized base rents as of September 30, 2006 (representing approximately 2.9% of the net rentable square feet of the Properties) expire without penalty through the end of 2006. We maintain an active dialogue with our tenants in an effort to achieve a high level of lease renewals. Our retention rate for leases that were scheduled to expire in the nine-month period ended September 30, 2006 was 73.4%. If we were unable to renew leases for a substantial portion of the space under expiring leases, or to promptly relet this space, at anticipated rental rates, our cash flow would be adversely impacted.

Tenant Credit Risk:

In the event of a tenant default, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. Our management regularly evaluates our accounts receivable reserve policy in light of its tenant base and general and local economic conditions. The accounts receivable allowances were $8.8 million or 8.9% of total receivables (including accrued rent receivable) as of September 30, 2006 compared to $4.9 million or 7.6% of total receivables (including accrued rent receivable) as of December 31, 2005.

Development Risk:

As of September 30, 2006, we had in development or redevelopment eleven sites aggregating approximately 2.2 million square feet. We estimate the total cost of these projects to be $523.2 million and we had incurred $302.9 million of these costs as of September 30, 2006. We are actively marketing space at these projects to prospective tenants but can provide no assurance as to the timing or terms of any leases of space at these projects. As of September 30, 2006, we owned approximately 378 acres of undeveloped land. Risks associated with development of this land include construction cost increases or overruns and construction delays, insufficient occupancy rates, building moratoriums and inability to obtain zoning, land-use, building, occupancy and other required governmental approvals.

ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS

On January 5, 2006, we acquired Prentiss pursuant to an Agreement and Plan of Merger that we entered into with Prentiss on October 3, 2005. In conjunction with our acquisition of Prentiss, designees of The Prudential Insurance Company of America (Prudential) acquired certain Prentiss properties that contain an aggregate of approximately 4.32 million net rentable square feet for total consideration of approximately $747.7 million. Through our acquisition of Prentiss (and after giving effect to the Prudential acquisition of certain Prentiss properties), we acquired a portfolio of 79 office properties (including 13 properties that are owned by consolidated real estate ventures and seven properties that are owned by unconsolidated real estate ventures) that contain an aggregate of 14.0 million net rentable square feet.

Subsequent to our acquisition of Prentiss and the related sale of properties to Prudential, through September 30, 2006, we sold 11 additional properties acquired from Prentiss that contain an aggregate of 2.3 million net rentable square feet and one parcel of land containing 10.9 acres.

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In our acquisition of Prentiss, each then outstanding Prentiss common share was converted into the right to receive 0.69 of a Brandywine common share and $21.50 in cash except that 497,884 Prentiss common shares held in the Prentiss Deferred Compensation Plan converted solely into 720,737 Brandywine common shares. In addition, each then outstanding unit of limited partnership interest in Prentisss operating partnership subsidiary was, at the option of the holder, converted into Prentiss Common Shares with the right to receive the per share merger consideration or 1.3799 Class A Units of our Operating Partnership. Accordingly, based on 49,375,723 Prentiss common shares outstanding and 139,000 Prentiss OP Units electing to receive merger consideration at closing of the acquisition, we issued 34,541,946 Brandywine common shares and paid an aggregate of approximately $1.05
billion in cash for the accounts of the former Prentiss shareholders. Based on 1,572,612 Prentiss OP Units outstanding at closing of the acquisition, we issued 2,170,047 Brandywine Class A Units. In addition, options issued by Prentiss that were exercisable for an aggregate of 342,662 Prentiss common shares were converted into options exercisable for an aggregate of 496,037 Brandywine common shares at a weighted average exercise price of $22.00 per share. Through our acquisition of Prentiss we assumed approximately $611.2 million in aggregate principal amount of Prentiss debt.

Each Brandywine Class A Unit that we issued in the merger is subject to redemption at the option of the holder. At our option, we may satisfy the redemption either for an amount, per unit, of cash equal to the then market price of one Brandywine common share (based on the prior ten-day trading average) or for one Brandywine common share.

In addition to the acquisition activity related to Prentiss, during the nine-month period ended September 30, 2006, we also acquired four office properties containing 681,688 net rentable square feet and 76.6 acres of developable land for an aggregate purchase price of $180.6 million. In addition to sales of assets acquired in the Prentiss merger, we sold two office properties containing 216,554 net rentable square feet and two parcels of land containing 6.8 acres for an aggregate $43.5 million, realizing net gains totaling $6.0 million.

In addition to the acquisition activity related to Prentiss, during the three-month period ended September 30, 2006, we acquired two office properties containing 443,581 net rentable square feet for $133.2 million. In addition to sales of assets acquired in the Prentiss merger, we sold two office properties containing 216,554 net rentable square feet for $38.6 million, realizing net gains totaling $3.4 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Managements Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Certain accounting policies are considered to be critical accounting policies, as it requires management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in accounting policies
are reasonably likely to occur from period to period. Management bases its estimates and assumptions on historical experience and current economic conditions. On an on-going basis, management evaluates its estimates and assumptions including those related to revenue, impairment of long-lived assets and the allowance for doubtful accounts. Actual results may differ from those estimates and assumptions.

Our Annual Report on Form 10-K for the year ended December 31, 2005 contains a discussion of our critical accounting policies. There have been no significant changes in our critical accounting policies since December 31, 2005. See also Note 2 in our unaudited consolidated financial statements for the nine-month period ended September 30, 2006 as set forth herein. Management discusses our critical accounting policies and managements judgments and estimates with our Audit Committee.

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RESULTS OF OPERATIONS

Comparison of the Three-Month Periods Ended September 30, 2006 and 2005

The table below shows selected operating information for the Same Store Property Portfolio and the Total Portfolio. The Same Store Property Portfolio consists of 238 Properties containing an aggregate of approximately 17.8 million net rentable square feet that we owned for the entire three-month periods ended September 30, 2006 and 2005. This table also includes a reconciliation from the Same Store Property Portfolio to the Total Portfolio net income (i.e., all properties owned by us during the three-month periods ended September 30, 2006 and 2005) by providing information for the properties which were acquired, under development (including lease-up assets) or placed into service and administrative/elimination information for the three-month periods ended September 30, 2006 and 2005 (in thousands).

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Comparison of three-months ended September 30, 2006 to the three-months ended September 30, 2005



Same
          Store Property Portfolio
      
      PrentissPortfolio
      
      PropertiesAcquired
      
      DevelopmentProperties (a)
      
      Administrative/Eliminations (b)
      
      Total
          Portfolio(dollars
          in thousands)
      
      2006
      
      2005
      
      Increase/(Decrease)
      
      %Change
      
      2006
      
      2005
      
      2006
      
      2005
      
      2006
      
      2005
      
      2006
      
      2005
      
      2006
      
      2005
      
      Increase/(Decrease)
      
      %ChangeRevenue:Cash
          rents
      
      $
      75,669
      
      $
      73,742
      
      $
      1,927
      
      3
      %
      $
      54,059
      
      $
      
      
      $
      3,231
      
      $
      41
      
      $
      6,518
      
      $
      1,916
      
      $
      157
      
      $
      41
      
      $
      139,634
      
      $
      75,740
      
      $
      63,894
      
      84
      %Straight-line
          rents
      
      
      1,272
      
      
      3,461
      
      
      (2,189
      )
      -63
      %
      
      2,602
      
      
      
      
      
      230
      
      
      
      
      
      3,379
      
      
      825
      
      
      
      
      
      
      
      
      7,483
      
      
      4,286
      
      
      3,197
      
      75
      %Rents
          - FAS 141
      
      
      688
      
      
      324
      
      
      364
      
      112
      %
      
      1,413
      
      
      
      
      
      218
      
      
      
      
      
      (62
      )
      
      (62
      )
      
      
      
      
      
      
      
      2,257
      
      
      262
      
      
      1,995
      
      761
      %Total
          rents
      
      
      77,629
      
      
      77,527
      
      
      102
      
      0
      %
      
      58,074
      
      
      
      
      
      3,679
      
      
      41
      
      
      9,835
      
      
      2,679
      
      
      157
      
      
      41
      
      
      149,374
      
      
      80,288
      
      
      69,086
      
      86
      %Tenant
          reimbursements
      
      
      14,026
      
      
      11,397
      
      
      2,629
      
      23
      %
      
      8,566
      
      
      
      
      
      253
      
      
      3
      
      
      890
      
      
      217
      
      
      67
      
      
      93
      
      
      23,802
      
      
      11,710
      
      
      12,092
      
      103
      %Other
          (c)
      
      
      5,127
      
      
      1,176
      
      
      3,951
      
      336
      %
      
      454
      
      
      
      
      
      156
      
      
      
      
      
      52
      
      
      528
      
      
      2,629
      
      
      1,325
      
      
      8,418
      
      
      3,029
      
      
      5,389
      
      178
      %Total
          revenue
      
      
      96,782
      
      
      90,100
      
      
      6,682
      
      7
      %
      
      67,094
      
      
      
      
      
      4,088
      
      
      44
      
      
      10,777
      
      
      3,424
      
      
      2,853
      
      
      1,459
      
      
      181,594
      
      
      95,027
      
      
      86,567
      
      91
      %Operating
          Expenses:Property
          operating expenses
      
      
      30,856
      
      
      27,748
      
      
      3,108
      
      11
      %
      
      20,319
      
      
      
      
      
      900
      
      
      8
      
      
      3,797
      
      
      1,537
      
      
      (2,407
      )
      
      (2,629
      )
      
      53,465
      
      
      26,664
      
      
      26,801
      
      101
      %Real
          estate taxes
      
      
      9,619
      
      
      8,851
      
      
      768
      
      9
      %
      
      6,332
      
      
      
      
      
      389
      
      
      2
      
      
      1,173
      
      
      768
      
      
      707
      
      
      123
      
      
      18,220
      
      
      9,744
      
      
      8,476
      
      87
      %Administrative
          expenses
      
      
      
      
      
      
      
      
      
      
      0
      %
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      6,490
      
      
      4,486
      
      
      6,490
      
      
      4,486
      
      
      2,004
      
      45
      %Total
          property operating expenses
      
      
      40,475
      
      
      36,599
      
      
      3,876
      
      11
      %
      
      26,651
      
      
      
      
      
      1,289
      
      
      10
      
      
      4,970
      
      
      2,305
      
      
      4,790
      
      
      1,980
      
      
      78,175
      
      
      40,894
      
      
      37,281
      
      91
      %Subtotal
      
      
      56,307
      
      
      53,501
      
      
      2,806
      
      5
      %
      
      40,443
      
      
      
      
      
      2,799
      
      
      34
      
      
      5,807
      
      
      1,119
      
      
      (1,937
      )
      
      (521
      )
      
      103,419
      
      
      54,133
      
      
      49,286
      
      91
      %Depreciation
          and amortization
      
      
      29,588
      
      
      26,581
      
      
      3,007
      
      11
      %
      
      31,875
      
      
      
      
      
      1,048
      
      
      
      
      
      5,157
      
      
      1,704
      
      
      609
      
      
      (55
      )
      
      68,277
      
      
      28,230
      
      
      40,047
      
      142
      %Operating
          Income (loss)
      
      $
      26,719
      
      $
      26,920
      
      $
      (201
      )
      -1
      %
      $
      8,568
      
      $
      
      
      $
      1,751
      
      $
      34
      
      $
      650
      
      $
      (585
      )
      $
      (2,546
      )
      $
      (466
      )
      $
      35,142
      
      $
      25,903
      
      $
      9,239
      
      36
      %Number
          of properties
      
      
      238
      
      
      
      
      
      
      
      
      
      
      61
      
      
      
      
      
      6
      
      
      
      
      
      11
      
      
      
      
      
      
      
      
      
      
      
      316Square
          feet
      
      
      17,828
      
      
      
      
      
      
      
      
      
      
      10,590
      
      
      
      
      
      964
      
      
      
      
      
      2,101
      
      
      
      
      
      
      
      
      
      
      
      31,483Other
          Income (Expense):Interest
          income
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      2,479
      
      
      304
      
      
      2,175
      
      715
      %Interest
          expense
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (45,402
      )
      
      (17,762
      )
      
      (27,640
      )
      156
      %Equity
          in income of real estate ventures
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      370
      
      
      745
      
      
      (375
      )
      -50
      %Net
          gain on sales of interests in real estate
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      4,640
      
      
      (4,640
      )
      100
      %Gain
          on termination of purchase contract
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      3,147
      
      
      
      
      
      3,147
      
      100
      %Income
          (loss) before minority interest
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (4,264
      )
      
      13,830
      
      
      (18,094
      )
      -131
      %Minority
          interest - partners share of consolidated real estate ventures
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      279
      
      
      (41
      )
      
      320
      
      -780
      %Income
          (loss) from continuing operations
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (3,985
      )
      
      13,789
      
      
      (17,774
      )
      -129
      %Income
          (loss) from discontinued operations
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      4,273
      
      
      2,406
      
      
      1,867
      
      78
      %Net
          Income (loss)
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      288
      
      $
      16,195
      
      $
      (15,907
      )
      -98
      %Earnings
          per common partnership unit
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      (0.02
      )
      $
      0.24
      
      $
      (0.26
      )
      -108
      %


EXPLANATORY NOTES

(a) - Results include: three redevelopments; four lease-up assets; three properties placed in service; and Cira Centre

(b) - Represents certain revenues and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation

(c) - Includes net termination fee income of $4,338 for 2006 and $510 for 2005 for the same store property portfolio and $165 for 2006 for the Prentiss portfolio

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Revenue

Revenue increased by $86.6 million primarily due to the acquisition of Prentiss, which represents $67.1 million of this increase. The increase is also the result of two properties that we acquired in the fourth quarter of 2005, one property acquired in the first quarter of 2006, one property acquired in the second quarter of 2006, two properties acquired in the third quarter of 2006 and additional tenant occupancy at Cira Centre (included in Development Properties).

Revenues also increased by $2.6 million for tenant reimbursements as a result of increased property operating expenses for our same store portfolio. Our termination fee income increased by $3.8 million as result of tenant move-outs.

Operating Expenses and Real Estate Taxes

Property operating expenses increased by $26.8 million primarily due to the acquisition of Prentiss, which represents $20.3 million of this increase. Property operating expenses attributable to the occupied portion of Cira Centre and other properties acquired accounted for $4.7 million of the increase with the remainder of the increase attributable to increased property operating expenses for our same store portfolio.

Real estate taxes increased by $8.5 million primarily due to the acquisition of Prentiss, which represents $6.3 million of this increase. The remainder of the increase is primarily the result of increased real estate tax assessments in our same store properties and properties acquired or under development.

Depreciation and Amortization Expense

Depreciation and amortization increased by $40.0 million primarily due to the acquisition of Prentiss, which increased total portfolio depreciation expense by $31.9 million. The remaining increase is the result of the timing of assets being placed in service upon completion of tenant improvement and capital improvement projects subsequent to the end of the three month period ending September 30, 2005. A significant portion of the remaining increased depreciation for tenant improvements relates to Cira Centre where tenants have taken occupancy.

Administrative Expenses

Administrative expenses increased by approximately $2.0 million primarily due to the acquisition of Prentiss. Of this increase, $0.9 million was primarily attributable to increased payroll and related costs associated with employees that we hired as part of the acquisition of Prentiss. We also incurred an additional $0.6 million in professional fees in connection with our merger integration activities. The remainder of the increase reflects other increased costs of the combined companies.

Interest Income/ Expense

Interest expense increased by approximately $27.6 million primarily as a result of 14 fixed rate mortgages, three unsecured notes, and one note secured by U.S. treasury notes (PPREFI debt) that we assumed or entered into to finance the Prentiss merger. The mortgages assumed have maturity dates ranging from July 2009 through March 2016 and the unsecured notes have maturities of March, April, and July 2035, and the PPREFI debt has a maturity of February 2007.

The PPREFI debt was defeased by Prentiss in the fourth quarter of 2005 and is secured by an investment in U.S. treasury notes. The interest earned on the treasury notes is included in interest income and substantially offsets the amount of interest expense incurred on the PPREFI debt, resulting in an immaterial amount of net interest expense incurred. The increase of $2.2 million in interest income is primarily attributable to the interest income earned on these treasury notes.

See the Notes to the Unconsolidated Combined Financial Statements in Part I, Item I for details of our mortgage indebtedness and unsecured notes outstanding.

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Minority Interest-partners share of consolidated real estate ventures

Minority interest-partners share of consolidated real estate ventures increased by $0.3 million from the prior year as a result of our acquisition of one consolidated joint venture as part of our acquisition of Prentiss. This consolidated joint venture, of which we own 51%, owns 13 properties which aggregate approximately 1.2 million square feet of office space.

Subsequent to our acquisition of Prentiss, we entered into a joint venture with IBM. We consolidate this joint venture, and own a 50% interest in it.

As of September 30, 2006 we held an ownership interest in 15 properties through consolidated joint ventures, compared to two properties owned by consolidated joint ventures at September 30, 2005.

Discontinued Operations

Income from discontinued operations increased by $1.9 million from the prior year as a result of the sale of one property in Dallas, TX and one property in Chicago, IL that we acquired in the Prentiss acquisition. We also sold two properties that were previously included in our same store portfolio. These four properties combined had net income of $1.2 million and gains on sale of $5.2 million during the quarter ended September 30, 2006. Included in the gain on sale amount was $1.8 million attributable to minority interest in the Chicago property. During the quarter ended September 30, 2005, we sold one property that had net income of $0.1 million and a gain on sale of $2.2 million.

Net Income

Net income declined in the third quarter of 2006, compared to the third quarter of 2005, by $15.2 million as increased revenues were offset by increases in operating costs (primarily depreciation and amortization) and financing costs. All major financial statement captions increased as a result of our acquisition of Prentiss and the related financing required to complete the transaction. A significant element of these costs relate to additional depreciation and amortization charges relating to the significant property additions (including both the TRC acquisition and the Prentiss acquisition) and the values ascribed to related acquired intangibles (e.g., in-place leases). These charges do not affect our ability to pay dividends and may not be comparable to those of other real estate companies that have not made such acquisitions. Such charges can be expected to continue until the values
ascribed to the lease intangibles are fully amortized. These intangibles are amortizing over the related lease terms or estimated tenant relationship.

Earnings Per Common Partnership Unit

Earnings per partnership unit was $0.24 in the third quarter of 2005 as compared to a loss per unit of $(0.02) in the third quarter of 2006 as a result of the factors described in Net Income above and an increase in the average number of common units outstanding. We issued 34.6 million of our common units in our acquisition of Prentiss.

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Comparison of the Nine-Month Periods Ended September 30, 2006 and 2005

The table below shows selected operating information for the Same Store Property Portfolio and the Total Portfolio. The Same Store Property Portfolio consists of 238 Properties containing an aggregate of approximately 17.8 million net rentable square feet that we owned for the entire nine-month periods ended September 30, 2006 and 2005. This table also includes a reconciliation from the Same Store Property Portfolio to the Total Portfolio net income (i.e., all properties owned by us during the nine-month periods ended September 30, 2006 and 2005) by providing information for the properties which were acquired, under development (including lease-up assets) or placed into service and administrative/elimination information for the nine-month periods ended September 30, 2006 and 2005 (in thousands).

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Comparison of the nine-months ended September 30, 2006 to the nine-months ended September 30, 2005



Same
          Store Property Portfolio
      
      PrentissPortfolio
      
      PropertiesAcquired
      
      DevelopmentProperties (a)
      
      Administrative/Eliminations (b)
      
      Total
          Portfolio(dollars
          in thousands)
      
      2006
      
      2005
      
      Increase/(Decrease)
      
      %Change
      
      2006
      
      2005
      
      2006
      
      2005
      
      2006
      
      2005
      
      2006
      
      2005
      
      2006
      
      2005
      
      Increase/(Decrease)
      
      %ChangeRevenue:Cash
          rents
      
      $
      226,393
      
      $
      224,811
      
      $
      1,582
      
      1
      %
      $
      158,050
      
      $
      
      
      $
      6,843
      
      $
      41
      
      $
      16,743
      
      $
      5,069
      
      $
      531
      
      $
      125
      
      $
      408,560
      
      $
      230,046
      
      $
      178,514
      
      78
      %Straight-line
          rents
      
      
      6,591
      
      
      8,346
      
      
      (1,755
      )
      -21
      %
      
      8,424
      
      
      
      
      
      483
      
      
      
      
      
      7,464
      
      
      1,854
      
      
      
      
      
      
      
      
      22,962
      
      
      10,200
      
      
      12,762
      
      125
      %Rents
          - FAS 141
      
      
      1,938
      
      
      951
      
      
      987
      
      104
      %
      
      4,486
      
      
      
      
      
      152
      
      
      
      
      
      (186
      )
      
      (180
      )
      
      1
      
      
      190
      
      
      6,391
      
      
      961
      
      
      5,430
      
      565
      %Total
          rents
      
      
      234,922
      
      
      234,108
      
      
      814
      
      0
      %
      
      170,960
      
      
      
      
      
      7,478
      
      
      41
      
      
      24,021
      
      
      6,743
      
      
      532
      
      
      315
      
      
      437,913
      
      
      241,207
      
      
      196,706
      
      82
      %Tenant
          reimbursements
      
      
      34,803
      
      
      33,665
      
      
      1,138
      
      3
      %
      
      20,429
      
      
      
      
      
      560
      
      
      3
      
      
      1,987
      
      
      554
      
      
      424
      
      
      494
      
      
      58,203
      
      
      34,716
      
      
      23,487
      
      68
      %Other
          (c)
      
      
      8,009
      
      
      7,377
      
      
      632
      
      9
      %
      
      1,264
      
      
      
      
      
      157
      
      
      2
      
      
      93
      
      
      593
      
      
      7,933
      
      
      3,841
      
      
      17,456
      
      
      11,813
      
      
      5,643
      
      48
      %Total
          revenue
      
      
      277,734
      
      
      275,150
      
      
      2,584
      
      1
      %
      
      192,653
      
      
      
      
      
      8,195
      
      
      46
      
      
      26,101
      
      
      7,890
      
      
      8,889
      
      
      4,650
      
      
      513,572
      
      
      287,736
      
      
      225,836
      
      78
      %Operating
          Expenses:Property
          operating expenses
      
      
      87,154
      
      
      85,779
      
      
      1,375
      
      2
      %
      
      58,229
      
      
      
      
      
      2,252
      
      
      8
      
      
      10,072
      
      
      4,936
      
      
      (7,879
      )
      
      (7,044
      )
      
      149,828
      
      
      83,679
      
      
      66,149
      
      79
      %Real
          estate taxes
      
      
      27,858
      
      
      25,997
      
      
      1,861
      
      7
      %
      
      18,556
      
      
      
      
      
      807
      
      
      2
      
      
      3,087
      
      
      2,553
      
      
      895
      
      
      211
      
      
      51,203
      
      
      28,763
      
      
      22,440
      
      78
      %Administrative
          expenses
      
      
      
      
      
      
      
      
      
      
      0
      %
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      22,704
      
      
      13,616
      
      
      22,704
      
      
      13,616
      
      
      9,088
      
      67
      %Total
          property operating expenses
      
      
      115,012
      
      
      111,776
      
      
      3,236
      
      3
      %
      
      76,785
      
      
      
      
      
      3,059
      
      
      10
      
      
      13,159
      
      
      7,489
      
      
      15,720
      
      
      6,783
      
      
      223,735
      
      
      126,058
      
      
      97,677
      
      77
      %Subtotal
      
      
      162,722
      
      
      163,374
      
      
      (652
      )
      0
      %
      
      115,868
      
      
      
      
      
      5,136
      
      
      36
      
      
      12,942
      
      
      401
      
      
      (6,831
      )
      
      (2,133
      )
      
      289,837
      
      
      161,678
      
      
      128,159
      
      79
      %Depreciation
          and amortization
      
      
      92,168
      
      
      77,454
      
      
      14,714
      
      19
      %
      
      94,344
      
      
      
      
      
      2,051
      
      
      
      
      
      9,009
      
      
      4,364
      
      
      1,703
      
      
      2,165
      
      
      199,275
      
      
      83,983
      
      
      115,292
      
      137
      %Operating
          Income (loss)
      
      $
      70,554
      
      $
      85,920
      
      $
      (15,366
      )
      -18
      %
      $
      21,524
      
      $
      
      
      $
      3,085
      
      $
      36
      
      $
      3,933
      
      $
      (3,963
      )
      $
      (8,534
      )
      $
      (4,298
      )
      $
      90,562
      
      $
      77,695
      
      $
      12,867
      
      17
      %Number
          of properties
      
      
      238
      
      
      
      
      
      
      
      
      
      
      61
      
      
      
      
      
      6
      
      
      
      
      
      11
      
      
      
      
      
      
      
      
      
      
      
      316Square
          feet
      
      
      17,828
      
      
      
      
      
      
      
      
      
      
      10,590
      
      
      
      
      
      964
      
      
      
      
      
      2,101
      
      
      
      
      
      
      
      
      
      
      
      31,483Other
          Income (Expense):Interest
          income
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      7,702
      
      
      966
      
      
      6,736
      
      697
      %Interest
          expense
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (128,869
      )
      
      (53,366
      )
      
      (75,503
      )
      141
      %Equity
          in income of real estate ventures
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      1,798
      
      
      2,296
      
      
      (498
      )
      -22
      %Net
          gain on sales of interests in real estate
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      2,608
      
      
      4,640
      
      
      (2,032
      )
      -44
      %Gain
          on termination of purchase contract
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      3,147
      
      
      
      
      
      3,147
      
      100
      %Income
          (loss) before minority interest
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (23,052
      )
      
      32,231
      
      
      (55,283
      )
      -172
      %Minority
          interest - partners' share of consolidated real estate ventures
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      560
      
      
      (213
      )
      
      773
      
      -633
      %Income
          (loss) from continuing operations
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (22,492
      )
      
      32,018
      
      
      (54,510
      )
      -170
      %Income
          (loss) from discontinued operations
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      7,591
      
      
      3,029
      
      
      4,562
      
      151
      %Net
          Income (loss)
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      (14,901
      )
      $
      35,047
      
      $
      (49,948
      )
      -143
      %Earnings
          per common partnership unit
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      ($0.22
      )
      $
      0.51
      
      $
      (0.73
      )
      -143
      %


EXPLANATORY NOTES

(a) - Results include: three redevelopments; four lease-up assets; three properties placed in service; and Cira Centre


(b) - Represents certain revenues and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation

(c) - Includes net termination fee income of $5,890 for 2006 and $5,888 for 2005 for the same store property portfolio and $479 for 2006 for the Prentiss portfolio

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Revenue

Revenue increased by $225.8 million primarily due to the acquisition of Prentiss, which represents $195.4 million of this increase.  The operations of the properties acquired from Prentiss contributed $192.7 million to this increase and $2.7 million resulted from additional third party management fees as a result of management contracts assumed and entered into at the time of acquisition. The increase is also the result of two properties that were acquired in the fourth quarter of 2005, one property acquired in the first quarter of 2006, one property acquired in the second quarter of 2006 and two properties acquired in the third quarter of 2006, as well as additional tenant occupancy at Cira Centre (included in development properties) that will continue throughout 2006.

The increase in revenue of $2.6 million for our same store portfolio is due to increased occupancy and increased tenant reimbursements resulting from increased property operating expenses.

Operating Expenses and Real Estate Taxes

Property operating expenses increased by $66.1 million primarily due to the acquisition of Prentiss, which represents $58.2 million of this increase. Property operating expenses attributable to the occupied portion of Cira Centre and other property acquisitions accounted for the remainder of the increase.

Real estate taxes increased by $22.4 million primarily due to the acquisition of Prentiss, which represents $18.6 million of this increase. The remainder of the increase primarily is the result of increased real estate tax assessments in our same store portfolio and properties acquired or under development.

Depreciation and Amortization Expense

Depreciation and amortization increased by $115.3 million primarily due to the acquisition of Prentiss, which increased total portfolio depreciation expense by $94.3 million. A significant portion of the increase is also due to accelerated depreciation expense for one of our properties totaling $11.9 million that is associated with the planned demolition of an existing building as part of an office park development in suburban Philadelphia. This property was part of our same store portfolio; therefore the remaining increase in depreciation and amortization for our same store portfolio is $2.8 million. This increase resulted from the timing of assets being placed in service upon completion of tenant improvement and capital improvement projects subsequent to the end of the nine month period ending September 30, 2005. The six properties that we acquired subsequent to September 30, 2005 caused an
increase of $2.1 million in depreciation and amortization expense. Depreciation and amortization for our development properties increased by $4.6 million as a result of Cira Centre where tenants have taken occupancy.

Administrative Expenses

Administrative expenses increased by approximately $9.1 million primarily due to the acquisition of Prentiss. Of this increase, $3.0 million was primarily attributable to increased payroll and related costs associated with employees that we hired as part of the acquisition of Prentiss. We also incurred an additional $3.6 million in professional fees in connection with our merger integration activities. The remainder of the increase reflects other increased costs of the combined companies which includes an increase in deferred compensation expense of $1.0 million.

Interest Income/ Expense

Interest expense increased by approximately $75.5 million primarily as a result of 14 fixed rate mortgages, three unsecured notes, and one note secured by U.S. treasury notes (PPREFI debt) that we assumed or entered into to finance the Prentiss merger. The mortgages assumed have maturity dates ranging from July 2009 through March 2016 and the unsecured notes have maturities of March, April, and July 2035, and the PPREFI debt has a maturity of February 2007.

The PPREFI debt was defeased by Prentiss in the fourth quarter of 2005 and is secured by an investment in U.S. treasury notes. The interest earned on the treasury notes is included in interest income and substantially offsets the amount of interest expense incurred on the PPREFI debt, resulting in an immaterial amount of net interest expense incurred. The increase of $6.7 million in interest income is primarily attributable to the interest income earned on these treasury notes.

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See the Notes to the Unconsolidated Combined Financial Statements in Part I, Item I for details of our mortgage indebtedness and unsecured notes outstanding.

Minority Interest-partners share of consolidated real estate ventures

Minority interest-partners share of consolidated real estate ventures increased by $0.8 million from the prior year as a result of our acquisition of one consolidated joint venture as part of our acquisition of Prentiss. This consolidated joint venture, of which we own 51%, owns 13 properties which aggregate approximately 1.2 million square feet of office space.

Subsequent to our acquisition of Prentiss, we entered into a joint venture with IBM. We consolidate this joint venture, and own a 50% interest in it.

As of September 30, 2006 we hold an ownership interest in 15 properties through consolidated joint ventures, compared to two properties owned by consolidated joint ventures at September 30, 2005.

Discontinued Operations

Income from discontinued operations increased by $4.6 million from the prior year as a result of the sale of eight properties in Chicago, IL, two in Dallas, TX, and one in Allen, TX that we acquired in the Prentiss acquisition. We also sold two properties that were previously included in our same store portfolio. These 13 properties combined had net income of $5.0 million and gain on sale of $5.2 million during the nine month period ended September 30, 2006. Included in the gain on sale amount was $1.8 million attributable to minority interest in the Chicago property. During the nine-month ended September 30, 2005, we sold one property that had net operating income of $0.1 million and a gain on sale of $2.2 million. The two properties that we sold from our same store portfolio during the quarter ended September 30, 2006 had net income of $0.2 million.

Net Income

Net income declined in the nine month period ending September 30, 2006, compared to the same period in 2005 by $47.8 million as increased revenues were offset by increases in operating costs (primarily depreciation and amortization) and financing costs. All major financial statement captions increased as a result of our acquisition of Prentiss and the related financing required to complete the transaction. A significant element of these costs relate to additional depreciation and amortization charges relating to the significant property additions (including both the TRC acquisition and the Prentiss acquisition) and the values ascribed to related acquired intangibles (e.g., in-place leases). These charges do not affect our ability to pay dividends and may not be comparable to those of other real estate companies that have not made such acquisitions. Such charges can be expected to continue
until the values ascribed to the lease intangibles are fully amortized. These intangibles are amortizing over the related lease terms or estimated tenant relationship. In addition, a significant portion of the decrease in net income is attributable to the $11.9 million in depreciation expense described in the Depreciation and Amortization Expense section above.

Earnings Per Common Partnership Unit

Earnings per partnership unit was $0.51 for the nine month period ended September 30, 2005 as compared to a loss per unit of $(0.22) in the nine month period ended September 30, 2006 as a result of the factors described in Net Income above and an increase in the average number of common units outstanding. We issued 34.6 million of our common units in our acquisition of Prentiss.

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LIQUIDITY AND CAPITAL RESOURCES

General

Our principal liquidity needs for the next twelve months are as follows:



        fund normal recurring expenses,




        fund capital expenditures, including capital and tenant improvements and leasing costs,




        fund current development and redevelopment costs, and




        fund distributions declared by the Companys Board of Trustees.


We believe that our liquidity needs will be satisfied through cash flows generated by operations and financing activities. Rental revenue, expense recoveries from tenants, and other income from operations are our principal sources of cash that we use to pay operating expenses, debt service, recurring capital expenditures and the minimum distributions required to maintain the Companys REIT qualification. We seek to increase cash flows from our properties by maintaining quality standards for our properties that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. Our revenue also includes third-party fees generated by our property management, leasing, development and construction businesses. We believe our revenue, together with proceeds from equity and debt financings, will continue to provide funds for our
short-term liquidity needs. However, material changes in our operating or financing activities may adversely affect our net cash flows. Such changes, in turn, would adversely affect our ability to fund distributions, debt service payments and tenant improvements. In addition, a material adverse change in our cash provided by operations would affect the financial performance covenants under our unsecured credit facility and unsecured notes.

Our principal liquidity needs for periods beyond twelve months are for costs of developments, redevelopments, property acquisitions, scheduled debt maturities, major renovations, expansions and other non-recurring capital improvements. We draw on multiple financing sources to fund our long-term capital needs. We use our credit facility for general business purposes, including the acquisition, development and redevelopment of properties and the repayment of other debt. In March 2006 and December 2005, we sold $850 million and $300 million, respectively of unsecured notes and expect to utilize the debt and equity markets for other long-term capital needs.

As a result of our acquisition of Prentiss, we will have additional short and long-term liquidity requirements. Historically, we have satisfied these types of requirements principally through the most advantageous source of capital at that time, which has included public offerings of unsecured debt and private placements of secured and unsecured debt, sales of common and preferred equity, capital raised through the disposition of assets, and joint venture transactions. We believe these sources of capital will continue to be available in the future to fund our capital needs.

We funded the approximately $1.05 billion cash portion of the Prentiss merger consideration, related transaction costs and prepayments of approximately $543.3 million in Prentiss mortgage debt at the closing of the merger through (i) a $750 million unsecured term loan that originally matured on January 4, 2007; (ii) approximately $676.5 million of cash from Prudentials acquisition of certain of the Prentiss properties; and (iii) approximately $195.0 million through borrowing under our revolving credit facility. We repaid in full the $750 million term loan on March 28, 2006 with the proceeds of the $850 million unsecured notes described more fully in Capitalization below.

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 current lenders. We currently have investment grade ratings for prospective unsecured debt offerings from three major rating agencies. If a rating agency were to downgrade our credit rating, our access to capital in the unsecured debt market would be more limited and the interest rate under our existing credit facility would increase.

The Companys ability to sell common and preferred shares is dependent on, among other things, general market conditions for REITs, market perceptions about our company and the current trading price of our shares. We regularly analyze which source of capital is most advantageous to us at any particular point in time. The equity markets may not be consistently available on terms that we consider attractive.

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Cash Flows

The following summary discussion of our cash flows is based on the consolidated statement of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented.

As of September 30, 2006 and December 31, 2005, we maintained cash and cash equivalents of $16.5 million and $7.2 million, respectively, an increase of $9.3 million. This increase was the result of the following changes in cash flow from our activities for the nine-month period ended September 30 (in thousands):



Activity
      
      2006
      
      2005Operating
      
      $
      213,679
      
      $
      103,766Investing
      
      
      (1,053,043
      )
      
      (206,150
      )Financing
      
      
      848,728
      
      
      110,378Net
          cash flows
      
      $
      9,364
      
      $
      7,994


Our increased cash flow from operating activities in the nine-months ended September 30, 2006 compared to the same period in 2005 is primarily attributable to our acquisition of Prentiss.

The increase in cash outflows from investing activities is primarily attributable to our acquisition of Prentiss and other property and land acquisitions totaling $1,105.3 million. In addition, we incurred approximately $180.7 million of capital expenditures for the properties that we own. These increases in investing activity are offset by the net proceeds of $221.3 million received from the sale of eight properties in Chicago and three in Texas that we acquired in our acquisition of Prentiss and subsequently sold. We received net proceeds of $37.6 million from sales of properties in our same store portfolio.

Increased cash flow from financing activities is primarily attributable to the issuance of $850.0 million of unsecured notes resulting in net proceeds of $847.8 million. The proceeds of the note issuance were used to satisfy the $750.0 million term loan that was obtained in connection with the acquisition of Prentiss, as well to repay a portion of the outstanding borrowings on our credit facility. We also had net borrowings of $160.0 million on our line of credit. These cash inflows are offset by our repurchase of common shares totaling $34.5 million and our three distribution payments totaling $110.1 million.

Capitalization

Indebtedness

On October 4, 2006 we consummated the offering of $300,000,000 aggregate principal amount of 3.875% exchangeable guaranteed notes due October 15, 2026 (the 2026 Notes). On October 16, 2006, our Operating Partnership issued an additional $45,000,000 aggregate principal amount of 3.875% exchangeable guaranteed notes due October 15, 2026 to cover over-allotments. The Partnership used the net proceeds from the sale of the notes to repurchase approximately $60 million of outstanding common shares (1,829,000 common shares at a price of $32.80 per share); to repay approximately $180 million under the Partnerships revolving credit facility; and to invest the balance in short term securities pending redemption of the Partnerships $300 million Floating Rate Guaranteed Notes due 2009 on January 2, 2007.

On March 28, 2006, we consummated the public offering of (1) $300,000,000 aggregate principal amount of its unsecured floating rate notes due 2009 (the 2009 Notes), (2) $300,000,000 aggregate principal amount of its 5.75% notes due 2012 (the 2012 Notes) and (3) $250,000,000 aggregate principal amount of its 6.00% notes due 2016 (the 2016 Notes and, together with the 2009 Notes and 2012 Notes, the Notes). The Company guaranteed the payment of principal of and interest on the Notes.

On March 28, 2006, we terminated, and repaid all amounts outstanding under, the $750 million Term Loan Agreement that we entered into on January 5, 2006 with JPMorgan Chase Bank, N.A., as Administrative Agent and Syndication Agent, J.P. Morgan Securities Inc., as Lead Arranger and Sole Bookrunner, and the lenders identified therein. We entered into the Term Loan Agreement in connection with our acquisition through the merger of Prentiss on January 5, 2006.

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As of September 30, 2006, we had approximately $3.2 billion of outstanding indebtedness. The table below summarizes our mortgage notes payable, our secured note payable, our unsecured notes and our revolving credit facility at September 30, 2006 and December 31, 2005:



September
          30,2006
      
      December31,2005(dollars
          in thousands)Balance:Fixed
          rate
      
      $
      2,558,664
      
      $
      1,417,611Variable
          rate
      
      
      629,216
      
      
      103,773Total
      
      $
      3,187,880
      
      $
      1,521,384Percent
          of Total Debt:Fixed
          rate
      
      
      80
      %
      
      93
      %Variable
          rate
      
      
      20
      %
      
      7
      %Total
      
      
      100
      %
      
      100
      %Weighted-average
          interest rate at period end:Fixed
          rate
      
      
      5.9
      %
      
      5.9
      %Variable
          rate
      
      
      5.8
      %
      
      5.3
      %Total
      
      
      5.8
      %
      
      5.8
      %


The variable rate debt shown above generally bears interest based on various spreads over LIBOR (the term of which is selected by us).

We have used credit facility borrowings for general business purposes, including the acquisition, development and redevelopment of properties and the repayment of other debt. In December 2005, we replaced our then existing unsecured credit facility with a $600 million unsecured credit facility (the Credit Facility) that matures in December 2009, subject to a one year extension option upon payment of a fee and the absence of any defaults. Borrowings under the new Credit Facility generally bear interest at LIBOR (LIBOR was 5.32% as of September 30, 2006) plus a spread over LIBOR ranging from 0.55% to 1.10% based on our unsecured senior debt rating. We have an option to increase the maximum borrowings under the Credit Facility to $800 million subject to the absence of any defaults and our ability to obtain additional commitments from our existing or new lenders. The Credit Facility
requires the maintenance of certain ratios related to minimum net worth, debt to total capitalization and fixed charge coverage and various non-financial covenants. We believe that we are in compliance with all financial covenants as of September 30, 2006.

We utilize unsecured notes as a long-term financing alternative. The indentures and note purchase agreements relating to our unsecured notes contain financial restrictions and requirements, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 40%, (3) a debt service coverage ratio of greater than 1.5 to 1.0, and (4) an unencumbered asset value of not less than 150% of unsecured debt. In addition, the note purchase agreement relating to the 2008 Notes contains covenants that are similar to the above covenants. At September 30, 2006, we were in compliance with each of these financial restrictions and requirements.

We have mortgage loans that are collateralized by certain of our properties. Payments on mortgage loans are generally due in monthly installments of principal and interest, or interest only.

We intend to refinance our mortgage loans as they mature, primarily through the use of unsecured debt or equity.

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The amount of indebtedness that we may incur, and the policies with respect thereto, are not limited by the Companys declaration of trust and bylaws or our Partnership Agreement, and are solely within the discretion of the Companys board of trustees, limited only by various financial covenants in our credit agreements.

Equity

On September 18, 2006, we declared a $0.44 per unit cash distribution to holders of Class A Units totaling $2.0 million. On August 15, 2006, we acquired two office properties in Northern Virginia. In connection with these acquisitions, we issued 424,608 Class A Units valued at $32.546 per unit totaling $13.8 million.

On September 18, 2006, we declared a distribution of $0.44 per Common Partnership Unit, totaling $39.8 million, which was paid on October 16, 2006 to unitholders of record as of October 5, 2006. On September 18, 2006, we declared distributions on our Series D Preferred Mirror Units and Series E Preferred Mirror Units to holders of record as of September 30, 2006. These units are entitled to a preferential return of 7.50% and 7.375%, respectively. Distributions paid on October 16, 2006 to holders of Series D Preferred Mirror Units and Series E Preferred Mirror Units totaled $0.9 million and $1.1 million, respectively.

At September 30, 2006, the Company had a share
repurchase program under which the Companys Board has authorized it to
repurchase from time to time up to 6,700,000 common shares. Through September
30, 2006, the Company had repurchased approximately 4.4 million common shares
under this program at an average price of $20.82 per share. The Companys
Board placed no time limit on the duration of the program. As of September 30,
2006, the Company may purchase an additional 2,319,800 additional shares under
the plan. When the Company repurchases Common Shares, we repurchase an equal
number
of
Common
Partnership
Units.



We used a portion of the net proceeds from the issuance of the 2026 Notes to repurchase 1,829,000 common shares. This repurchase did not reduce the number of common shares that may be repurchased under the Board-approved share repurchase program.

Shelf Registration Statement

Together
    with the Company, we maintain a shelf registration statement that registered
    common shares, preferred shares, depositary shares and warrants and unsecured
    debt securities. Subject to our ongoing compliance with securities laws,
    and if warranted by market conditions, we may offer and sell equity and debt
    securities from time to time under the registration statement.

Short- and Long-Term Liquidity

We believe that our cash flow from operations is adequate to fund its short-term liquidity requirements. Cash flow from operations is generated primarily from rental revenues and operating expense reimbursements from tenants and management services income from providing services to third parties. We intend to use these funds to meet short-term liquidity needs, which are to fund operating expenses, debt service requirements, recurring capital expenditures, tenant allowances, leasing commissions and the minimum distributions required to maintain the Companys REIT qualification under the Internal Revenue Code.

We expect to meet our long-term liquidity requirements, such as for property acquisitions, development, investments in real estate ventures, scheduled debt maturities, major renovations, expansions and other significant capital improvements, through cash from operations, borrowings under its Credit Facility, other long-term secured and unsecured indebtedness, the issuance of equity securities and the proceeds from the disposition of selected assets.

Inflation

A majority of our leases provide for reimbursement of real estate taxes and operating expenses either on a triple net basis or over a base amount. In addition, many of our office leases provide for fixed base rent increases. We believe that inflationary increases in expenses will be significantly offset by expense reimbursement and contractual rent increases.

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Commitments and Contingencies

The following table outlines the timing of payment requirements related to our contractual commitments as of September 30, 2006:



Payments
          by Period (in thousands)Total
      
      Less
          than1 Year
      
      1-3
          Years
      
      3-5
          Years
      
      More
          than5 YearsMortgage
          notes payable (a)
      
      $
      877,615
      
      $
      17,965
      
      $
      197,467
      
      $
      228,381
      
      $
      433,802Secured
          note payable
      
      
      181,759
      
      
      181,759
      
      
      
      
      
      
      
      
      Revolving
          credit facility
      
      
      249,998
      
      
      
      
      
      249,998
      
      
      
      
      
      Unsecured
          debt (a)
      
      
      1,866,610
      
      
      
      
      
      688,000
      
      
      600,000
      
      
      578,610Ground
          leases (b)
      
      
      280,413
      
      
      1,736
      
      
      3,472
      
      
      3,636
      
      
      271,569Other
          liabilities
      
      
      688
      
      
      
      
      
      
      
      
      
      
      
      688$
      3,457,083
      
      $
      201,460
      
      $
      1,138,937
      
      $
      832,017
      
      $
      1,284,669


(a)

        Amounts do not include unamortized discounts and/or premiums.


(b)

        Future minimum rental payments under the terms of all non-cancelable ground leases under which we are the lessee are expensed on a straight-line basis regardless of when payments are due.


We intend to refinance or repay our mortgage notes payable as they become due or repay those that are secured by properties being sold.

As part of our acquisition of the TRC Properties in September 2004, we agreed to issue to the sellers up to a maximum of $9.7 million of Class A Units of the Operating Partnership if certain of the acquired properties achieve at least 95% occupancy prior to September 21, 2007. The maximum number of Units that we are obligated to issue declines monthly and, as of September 30, 2006, the maximum balance payable under this arrangement was $2.4 million, with no amount currently due.

As part of the TRC acquisition, we acquired our interest in Two Logan Square, a 696,477 square foot office building in Philadelphia, primarily through a second and third mortgage secured by this property. We currently do not expect to take title to Two Logan Square until, at the earliest, September 2019. In the event that we take fee title to Two Logan Square upon a foreclosure of our mortgage, we have agreed to make a payment to an unaffiliated third party with a residual interest in the fee owner of this property. The amount of the payment would be $0.6 million if we must pay a state and local transfer upon taking title, and $2.9 million if no transfer tax is payable upon the transfer.

As part of the Prentiss acquisition, the TRC acquisition and several of our other acquisitions, we agreed not to sell certain of the acquired properties. In the case of the TRC acquisition, we agreed not to sell certain of the acquired properties for periods ranging from three to 15 years from the acquisition date as follows: 201 Radnor Financial Center, 555 Radnor Financial Center and 300 Delaware Avenue (three years); One Rodney Square and 130/150/170 Radnor Financial Center (10 years); and One Logan Square, Two Logan Square and Radnor Corporate Center (15 years). In the case of the Prentiss acquisition, we assumed the obligation of Prentiss not to sell Concord Airport Plaza before March 2018 and 6600 Rockledge before July 2008. We also own 14 other properties that aggregate 1.0 million square feet and have agreed not to sell these properties for periods that expire by the end of 2008. Our
agreements generally provide that we may dispose of the subject properties only in transactions that qualify as tax-free exchanges under Section 1031 of the Internal Revenue Code or in other tax deferred transactions. In the event that we sell any of the properties within the applicable restricted period in non-exempt transactions, we would be required to pay significant tax liabilities that would be incurred by the parties who sold us the applicable property.

We held a fifty percent economic interest in an approximately 141,724 square foot office building located at 101 Paragon Drive, Montvale, New Jersey. The remaining fifty percent interest was held by Donald E. Axinn, one of our Trustees. Although we and Mr. Axinn had each committed to provide one half of the $11 million necessary to repay the mortgage loan secured by this property, in February 2006, an unaffiliated third party entered into an agreement to purchase this property for $18.3 million. As a result of the purchase by an unaffiliated third party during August 2006, we recognized a $3.1 million gain on termination of our rights under a 1998 contribution agreement, modified in 2005, that entitled us to the 50% interest in the joint venture to operate the property. This gain is shown separately on our income statement as a gain on termination of purchase contract.

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We invest in our properties and regularly incur capital expenditures in the ordinary course to maintain the properties. We believe that such expenditures enhance our competitiveness. We also enter into construction, utility and service contracts in the ordinary course of business which may extend beyond one year. These contracts typically provide for cancellation with insignificant or no cancellation penalties.

Interest Rate Risk and Sensitivity Analysis

The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market rates. The range of changes chosen reflects our view of changes which are reasonably possible over a one-year period. Market values are the present value of projected future cash flows based on the market rates chosen.

Our financial instruments consist of both fixed and variable rate debt. As of September 30, 2006, our consolidated debt consisted of $892.3 million in fixed rate mortgages and $0.6 million in variable rate mortgage notes, $181.8 million in fixed rate secured note payable, $250.0 million variable rate borrowings under our Credit Facility and $1.9 billion in unsecured notes (net of discounts) of which $1.5 billion are fixed rate borrowings and $0.4 billion are variable rate borrowings. All financial instruments were entered into for other than trading purposes and the net market value of these financial instruments is referred to as the net financial position. Changes in interest rates have different impacts on the fixed and variable rate portions of our debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position, but has no
impact on interest incurred or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact the net financial instrument position.

If market rates of interest on our variable rate debt increase by 1%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by approximately $6.3 million. If market rates of interest on our variable rate debt decrease by 1%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by approximately $6.3 million.

If market rates of interest increase by 1%, the fair value of our outstanding fixed-rate debt would decrease by approximately $94.4 million. If market rates of interest decrease by 1%, the fair value of our outstanding fixed-rate debt would increase by approximately $101.2 million.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, commodity prices and equity prices. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk. Changes in the general level of interest rates prevailing in the financial markets may affect the spread between our yield on invested assets and cost of funds and, in turn, our ability to make distributions or payments to our shareholders. While we have not experienced any significant credit losses, in the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in losses to us which adversely affect our operating results and liquidity.

There have been no material changes in Quantitative and Qualitative disclosures in 2006 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2005. Reference is made to Item 7 included in our Annual Report on Form 10-K for the year ended December 31, 2005 and the caption Interest Rate Risk and Sensitivity Analysis under Item 2 of this Quarterly Report on Form 10-Q.

Item 4.Controls and Procedures

(a)

        Evaluation of disclosure controls and procedures.Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of the end of the period covered by this quarterly report, have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and
Exchange Commission.


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(b)

        Changes in internal controls over financial reporting.There was no change in the Companys internal control over financial reporting that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.


Part II.

        OTHER INFORMATION


Item 1.Legal Proceedings

Not applicable.

Item 1A. Risk Factors

There has been no material change to the risk factors previously disclosed by us in our Form 10-K for the fiscal year ended December 31, 2005.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes the share repurchases during the three-month period ended September 30, 2006:



TotalNumber ofSharesPurchased


      


      AveragePrice Paid PerShare


      


      Purchased asPart of PubliclyAnnounced Plansor Programs


      


      Shares that MayYet Be PurchasedUnder the Plansor Programs (a)2006:July

        

        

        

        

        

        

        

        2,319,800August

        

        

        

        

        

        

        

        2,319,800September

        

        

        

        

        

        

        

        2,319,800Total

        

        

        

        

        

        


(a)

        On
             May 2, 2006, the Companys Board of Trustees authorized an
             increase  in the number of common shares that it may repurchase,
             whether in open-market
          or privately negotiated transactions. The Board authorized the Company
             to purchase up to an aggregate of 3,500,000 common shares (inclusive
             of the
             remaining
          share repurchase availability under the Boards prior authorization
           from September 2001). There is no expiration date on the share repurchase

          program. When the Company repurchases Common Shares, the Operating Partnership repurchases an equal number of Common Partnership Units.


Item 3.Dfaults Upon Senior Securities

Not applicable.

Item 4.Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5.Other Information

Not applicable.

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Item 6.Exhibits

(a)Exhibits



10.1

        Form of Fifteenth Amendment to Agreement of Limited Partnership of Brandywine Operating Partnership, L.P. (incorporated by reference to Brandywines Current Report on Form 8-K filed on August 18, 2006)10.2

        2006 Long-Term Outperformance Compensation Program (incorporated by reference to Brandywines Current Report on Form 8-K filed on September 1, 2006)**12.1

        Statement re Computation of Ratios31.1

        Certification Pursuant to 13a-14 under the Securities Exchange Act of 193431.2

        Certification Pursuant to 13a-14 under the Securities Exchange Act of 193432.1

        Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2

        Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


**

        Management contract or compensatory plan or arrangement


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SIGNATURES OF REGISTRANT

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



BRANDYWINE OPERATING PARTNERSHIP, L.P. (Registrant)BRANDYWINE REALTY TRUST, as general partnerDate: November 14, 2006

        

        By:

        /s/ Gerard H. SweeneyGerard H. Sweeney, President and Chief Executive Officer(Principal Executive Officer)Date: November 14, 2006

        

        By:

        /s/ Timothy M. MartinTimothy M. Martin, Vice President and Treasurer(Principal Financial Officer)Date: November 14, 2006

        

        By:

        /s/ Scott W. FordhamScott W. Fordham, Vice President and Chief Accounting Officer(Principal Accounting Officer)


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