Brandywine Realty Trust Announces First Quarter Results

Philadelphia, Pennsylvania, UNITED STATES


PHILADELPHIA, April 20, 2022 (GLOBE NEWSWIRE) -- Brandywine Realty Trust (NYSE:BDN) today reported its financial and operating results for the three months ended March 31, 2022.

Management Comments

“We continue to experience increased levels of physical occupancy and traffic as tenants focus on higher quality, well amenitized buildings,” stated Gerard H. Sweeney, President and Chief Executive Officer for Brandywine Realty Trust. “During the first quarter, we made excellent progress on our 2022 business plan. At the midpoint of our range, we have achieved 84% of our speculative revenue target and, for the quarter, experienced mark-to-market rents increase 20.4% and 12.9% on an accrual and cash basis, respectively. From a development standpoint our 405 Colorado project in Austin, Texas is now over 80% leased and our development projects continue to see increasing tenant activity. Turning to capital markets, we are excited to acquire a 20% interest in Cira Square with two high quality partners and control an 863,000 square foot property in University City. We funded our portion of the acquisition through the sale of a vacant land parcel located in Washington, DC. Our balance sheet and liquidity remain strong during the quarter and we continue to make excellent progress on our life science development initiatives.”

First Quarter 2022 Highlights

Financial Results

  • Net income allocated to common shareholders; $5.9 million, or $0.03 per diluted share.
  • Funds from Operations (FFO); $60.3 million, or $0.35 per diluted share.

Portfolio Results

  • Core Portfolio: 89.4% occupied and 92.4% leased.
  • New and renewal leases signed: 428,000 square feet.
  • Rental rate mark-to-market: Increased 20.4% on an accrual basis and 12.9% on a cash basis.
  • Same store net operating income: 0.8% on an accrual basis and 2.9% on a cash basis.

Transaction Activity

Joint Venture Activity

  • On March 17, 2022, we formed a joint venture with two institutional investors for the purpose of acquiring Cira Square for $383.0 million. Cira Square is an 863,000 square foot office property located at 2970 Market Street in Philadelphia, Pennsylvania and is 100% leased to a single tenant through August 2030. Our initial contribution was $28.6 million and we own a 20% common equity interest. At closing, the joint venture secured a $257.7 million mortgage loan. Brandywine will provide management and construction management services to the joint venture.

Disposition Activity

  • As previously announced, on January 20, 2022, we completed the sale two adjacent land parcels known as Gateway G & H in Richmond, Virginia for a gross sales price of $1.6 million. We received net cash proceeds of $1.4 million and recorded a gain on sale of $0.9 million during the first quarter of 2022.
  • On April 14, 2022, we completed the sale of a land parcel located at 25 M Street in Washington, DC for a gross sales price of $29.7 million. We received net cash proceeds of $28.6 million and recorded a gain on sale of $3.4 million during the second quarter of 2022.

Finance Activity

  • We had $156.0 million outstanding on our $600.0 million unsecured revolving credit facility as of March 31, 2022.
  • We had $39.3 million of cash and cash equivalents on-hand as of March 31, 2022.

Results for the Three Months Ended March 31, 2022

Net income allocated to common shares totaled $5.9 million, or $0.03 per diluted share, in the first quarter of 2022 compared to a net income allocated to common shares of $6.8 million, or $0.04 per diluted share in the first quarter of 2021.

FFO available to common shares and units in the first quarter of 2022 totaled $60.3 million, or $0.35 per diluted share, versus $60.2 million or $0.35 per diluted share in the first quarter of 2021. Our first quarter 2022 payout ratio ($0.19 common share distribution / $0.35 FFO per diluted share) was 54.3%.

Operating and Leasing Activity

In the first quarter of 2022, our Net Operating Income (NOI) excluding termination revenues and other income items increased 0.8% on an accrual basis and 2.9% on a cash basis for our 76 same store properties, which were 89.3% and 90.3% occupied on March 31, 2022 and March 31, 2021, respectively.

We leased approximately 428,000 square feet and commenced occupancy on 494,000 square feet during the first quarter of 2022.   The first quarter occupancy activity includes 382,000 square feet of renewals, 77,000 square feet of new leases and 35,000 square feet of tenant expansions. We executed on an additional 389,000 square feet of new leases scheduled to commence subsequent to March 31, 2022.   We achieved a 56% tenant retention ratio in our core portfolio with negative absorption of (252,000) square feet during the first quarter of 2022, however, we have relet 144,000 square feet, or 57%, of the negative absorption at an 11% cash mark-to-market with occupancies to occur later this year. First quarter rental rate growth increased 20.4% as our renewal rental rates increased 21.3% and our new lease/expansion rental rates increased 7.3%, all on an accrual basis.

At March 31, 2022, our core portfolio of 77 properties comprising 13.0 million square feet was 89.4% occupied and, as of April 19, 2022, we are now 92.4% leased (reflecting new leases commencing after March 31, 2022).

Distributions

On February 23, 2022, our Board of Trustees declared a quarterly cash dividend of $0.19 per common share and OP Unit that was paid on April 20, 2022 to holders of record on April 6, 2022.

2022 Earnings and FFO Guidance

Based on current plans and assumptions and subject to the risks and uncertainties more fully described in our Securities and Exchange Commission filings, we are maintaining our 2022 earnings per share guidance of $0.17 - $0.25 per diluted share and maintaining our 2022 FFO guidance of $1.37 - $1.45 per diluted share. This guidance is provided for informational purposes and is subject to change. The following is a reconciliation of the calculation of 2022 FFO and earnings per diluted share:

Guidance for 2022   Range
       
Earnings per diluted share allocated to common shareholders  $0.17 to $0.25
Plus:  real estate depreciation, amortization   1.20     1.20
FFO per diluted share   $1.37   to   $1.45
       

Our 2022 FFO key assumptions include:

  • Speculative Revenue Target: $34.0 - $36.0 million, as of April 19, 2022, $29.4 million achieved from a leasing plan of 2.0 million square feet, 1.4 million square feet achieved;
  • Year-end Core Occupancy Range: 91-93%;
  • Year-end Core Leased Range: 92-94%;
  • Tenant Retention Rate Range: 58-60%;
  • Rental Rate Growth (accrual): 16-18%;
  • Rental Rate Growth (cash): 8-10%;
  • Same Store (accrual) NOI Range: 0-2%;
  • Same Store (cash) NOI Range: 0-2%:
    • Timing of occupancy and free rent on 200,000 square feet in Philadelphia CBD would equate to an increase in our range by approximately 3.0%;
  • Property Acquisition Activity: None;
  • Property Sales Activity: None;
  • Joint Venture Activity: Acquired a 20% common equity interest in 2970 Market Street, Philadelphia, PA;
  • Development Starts: Three starts;
  • Financing Activity: Refinance our $600 million unsecured line of credit and our $250 million term loan;
  • Share Buyback Activity: None;
  • Annual earnings and FFO per diluted share based on 174.0 million fully diluted weighted average common shares.

About Brandywine Realty Trust

Brandywine Realty Trust (NYSE: BDN) is one of the largest, publicly traded, full-service, integrated real estate companies in the United States with a core focus in the Philadelphia, Austin and Washington, D.C. markets. Organized as a real estate investment trust (REIT), we own, develop, lease and manage an urban, town center and transit-oriented portfolio comprising 168 properties and 23.1 million square feet as of March 31, 2022 which excludes assets held for sale. Our purpose is to shape, connect and inspire the world around us through our expertise, the relationships we foster, the communities in which we live and work, and the history we build together. For more information, please visit www.brandywinerealty.com.

Conference Call and Audio Webcast

We will hold our first quarter conference call on Thursday, April 21, 2022 at 9:00 a.m. Eastern. The conference call can be accessed by dialing 1-833-818-6810 and providing conference ID: 5163677. Beginning two hours after the conference call, a taped replay of the call can be accessed through Friday, May 6, 2022, by calling 1-855-859-2056 and entering access code 5163677. The conference call can also be accessed via a webcast on our website at www.brandywinerealty.com 

Looking Ahead – Second Quarter 2022 Conference Call

We expect to release our second quarter 2022 earnings on Monday, July 25, 2022, after the market close and will host our second quarter 2022 conference call on Tuesday, July 26, 2022 at 9:00 a.m. Eastern. We expect to issue a press release in advance of these events to reconfirm the dates and times and provide all related information.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “will,” “strategy,” “expects,” “seeks,” “believes,” “potential,” or other similar words. Because such statements involve known and unknown risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. These forward-looking statements, including our 2022 guidance, are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and not within our control. Such risks, uncertainties and contingencies include, among others: risks related to the impact of COVID-19 and other potential future outbreaks of infectious diseases on our financial condition, results of operations and cash flows and those of our tenants as well as on the economy and real estate and financial markets; reduced demand for office space and pricing pressures, including from competitors, that could limit our ability to lease space or set rents at expected levels or that could lead to declines in rent; uncertainty and volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital; the effect of inflation and interest rate fluctuations, including on the costs of our planned debt refinancing; the potential loss or bankruptcy of tenants or the inability of tenants to meet their rent and other lease obligations; risks of acquisitions and dispositions, including unexpected liabilities and integration costs; delays in completing, and cost overruns incurred in connection with, our developments and redevelopments; disagreements with joint venture partners; unanticipated operating and capital costs; uninsured casualty losses and our ability to obtain adequate insurance, including coverage for terrorist acts; asset impairments; our dependence upon certain geographic markets; changes in governmental regulations, tax laws and rates and similar matters; unexpected costs of REIT qualification compliance; and costs and disruptions as the result of a cybersecurity incident or other technology disruption. The declaration and payment of future dividends (both timing and amount) is subject to the determination of our Board of Trustees, in its sole discretion, after considering various factors, including our financial condition, historical and forecast operating results, and available cash flow, as well as any applicable laws and contractual covenants and any other relevant factors. Our Board’s practice regarding declaration of dividends may be modified at any time and from time to time. Additional information on factors which could impact us and the forward-looking statements contained herein are included in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2021. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events except as required by law.

Non-GAAP Supplemental Financial Measures

We compute our financial results in accordance with generally accepted accounting principles (GAAP). Although FFO and NOI are non-GAAP financial measures, we believe that FFO and NOI calculations are helpful to shareholders and potential investors and are widely recognized measures of real estate investment trust performance. At the end of this press release, we have provided a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure.

Funds from Operations (FFO)

We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than us. NAREIT defines FFO as net income (loss) before non-controlling interests and excluding gains (losses) on sales of depreciable operating property, impairment losses on depreciable consolidated real estate, impairment losses on investments in unconsolidated real estate ventures and extraordinary items (computed in accordance with GAAP); plus real estate related depreciation and amortization (excluding amortization of deferred financing costs), and after similar adjustments for unconsolidated joint ventures. Net income, the GAAP measure that we believe to be most directly comparable to FFO, includes depreciation and amortization expenses, gains or losses on property sales, extraordinary items and non-controlling interests. To facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income (determined in accordance with GAAP) as presented in the financial statements included elsewhere in this release. FFO does not represent cash flow from operating activities (determined in accordance with GAAP) and should not be considered to be an alternative to net income (loss) (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders. We generally consider FFO and FFO per share to be useful measures for understanding and comparing our operating results because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses and real estate asset depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO per share can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies.

Net Operating Income (NOI)

NOI (accrual basis) is a financial measure equal to net income available to common shareholders, the most directly comparable GAAP financial measure, plus corporate general and administrative expense, depreciation and amortization, interest expense, non-controlling interest in the Operating Partnership and losses from early extinguishment of debt, less interest income, development and management income, gains from property dispositions, gains on sale from discontinued operations, gains on early extinguishment of debt, income from discontinued operations, income from unconsolidated joint ventures and non-controlling interest in property partnerships. In some cases we also present NOI on a cash basis, which is NOI after eliminating the effects of straight-lining of rent and deferred market intangible amortization. NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently. NOI should not be considered an alternative to net income as an indication of our performance or to cash flows as a measure of the Company's liquidity or its ability to make distributions. We believe NOI is a useful measure for evaluating the operating performance of our properties, as it excludes certain components from net income available to common shareholders in order to provide results that are more closely related to a property's results of operations. We use NOI internally to evaluate the performance of our operating segments and to make decisions about resource allocations. We concluded that NOI provides useful information to investors regarding our financial condition and results of operations, as it reflects only the income and expense items incurred at the property level, as well as the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and development activity on an unlevered basis.

Same Store Properties

In our analysis of NOI, particularly to make comparisons of NOI between periods meaningful, it is important to provide information for properties that were in-service and owned by us throughout each period presented. We refer to properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by us through the end of the latest period presented as Same Store Properties. Same Store Properties therefore exclude properties placed in-service, acquired, repositioned, held for sale or in development or redevelopment after the beginning of the earliest period presented or disposed of prior to the end of the latest period presented. Accordingly, it takes at least one year and one quarter after a property is acquired for that property to be included in Same Store Properties.

Core Portfolio

Our core portfolio is comprised of our wholly-owned properties, excluding any properties currently in development, re-development or re-entitlement.


BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands)

  March 31, 2022 December 31, 2021
ASSETS    
Real estate investments:    
Operating properties $3,517,995  $3,472,602 
Accumulated depreciation  (980,860)  (957,450)
Right of use asset - operating leases, net  20,150   20,313 
Operating real estate investments, net  2,557,285   2,535,465 
Construction-in-progress  283,323   277,237 
Land held for development  94,411   114,604 
Prepaid leasehold interests in land held for development, net  27,762   27,762 
Total real estate investments, net  2,962,781   2,955,068 
Assets held for sale, net  25,205   562 
Cash and cash equivalents  39,306   27,463 
Accounts receivable  14,214   11,875 
Accrued rent receivable, net of allowance of $4,081 and $4,133 as of March 31, 2022 and December 31, 2021, respectively  170,275   167,210 
Investment in unconsolidated real estate ventures  461,389   435,506 
Deferred costs, net  87,652   86,862 
Intangible assets, net  25,580   28,556 
Other assets  148,493   133,094 
Total assets $3,934,895  $3,846,196 
LIABILITIES AND BENEFICIARIES' EQUITY    
Unsecured credit facility $156,000  $23,000 
Unsecured term loan, net  249,738   249,608 
Unsecured senior notes, net  1,580,845   1,580,978 
Accounts payable and accrued expenses  130,073   150,151 
Distributions payable  32,814   32,765 
Deferred income, gains and rent  24,758   23,849 
Intangible liabilities, net  12,085   12,981 
Lease liability - operating leases  23,014   22,962 
Other liabilities  49,705   48,683 
Total liabilities $2,259,032  $2,144,977 
Brandywine Realty Trust's Equity:    
Common Shares of Brandywine Realty Trust's beneficial interest, $0.01 par value; shares authorized 400,000,000; 171,383,912 and 171,126,257 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively  1,714   1,712 
Additional paid-in-capital  3,147,231   3,146,786 
Deferred compensation payable in common shares  19,386   18,491 
Common shares in grantor trust, 1,185,541 and 1,169,703 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively  (19,386)  (18,491)
Cumulative earnings  1,128,465   1,122,372 
Accumulated other comprehensive income (loss)  1,920   (2,020)
Cumulative distributions  (2,611,294)  (2,578,583)
Total Brandywine Realty Trust's equity  1,668,036   1,690,267 
Noncontrolling interests  7,827   10,952 
Total beneficiaries' equity $1,675,863  $1,701,219 
Total liabilities and beneficiaries' equity $3,934,895  $3,846,196 
 
 

BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)

 Three Months Ended March 31,
  2022   2021 
Revenue   
Rents$115,901  $113,484 
Third party management fees, labor reimbursement and leasing 5,108   6,651 
Other 6,496   634 
Total revenue 127,505   120,769 
Operating expenses   
Property operating expenses 31,548   28,935 
Real estate taxes 13,813   14,761 
Third party management expenses 2,557   2,978 
Depreciation and amortization 43,782   40,343 
General and administrative expenses 10,000   6,584 
Total operating expenses 101,700   93,601 
Gain on sale of real estate   
Net gain on disposition of real estate    74 
Net gain on sale of undepreciated real estate 897   1,993 
Total gain on sale of real estate 897   2,067 
Operating income 26,702   29,235 
Other income (expense):   
Interest and investment income 440   1,674 
Interest expense (15,742)  (16,293)
Interest expense - amortization of deferred financing costs (709)  (709)
Equity in loss of unconsolidated real estate ventures (4,563)  (6,924)
Net income before income taxes 6,128   6,983 
Income tax provision (27)  (19)
Net income 6,101   6,964 
Net income attributable to noncontrolling interests (8)  (43)
Net income attributable to Brandywine Realty Trust 6,093   6,921 
Nonforfeitable dividends allocated to unvested restricted shareholders (148)  (146)
Net income attributable to Common Shareholders of Brandywine Realty Trust$5,945  $6,775 
PER SHARE DATA   
Basic income per Common Share$0.03  $0.04 
Basic weighted average shares outstanding 171,294,949   170,624,741 
Diluted income per Common Share$0.03  $0.04 
Diluted weighted average shares outstanding 172,888,994   171,636,120 
 
 

BRANDYWINE REALTY TRUST
FUNDS FROM OPERATIONS
(unaudited, in thousands, except share and per share data)

 Three Months Ended March 31,
  2022   2021 
Reconciliation of Net Income to Funds from Operations:   
Net income attributable to common shareholders$5,945  $6,775 
Add (deduct):   
Net income attributable to noncontrolling interests - LP units 10   44 
Nonforfeitable dividends allocated to unvested restricted shareholders 148   146 
Net gain on disposition of real estate    (74)
Depreciation and amortization:   
Real property 36,162   31,534 
Leasing costs including acquired intangibles 6,994   8,280 
Company’s share of unconsolidated real estate ventures 11,295   13,731 
Partners’ share of consolidated real estate ventures (5)  (5)
Funds from operations$60,549  $60,431 
Funds from operations allocable to unvested restricted shareholders (238)  (213)
Funds from operations available to common share and unit holders (FFO)$60,311  $60,218 
FFO per share - fully diluted$0.35  $0.35 
Weighted-average shares/units outstanding - fully diluted 173,521,633   172,617,754 
Distributions paid per common share$0.19  $0.19 
FFO payout ratio (distributions paid per common share/FFO per diluted share) 54.3%  54.3%
 
 

BRANDYWINE REALTY TRUST
SAME STORE OPERATIONS – 1st QUARTER
(unaudited and in thousands)
  

Of the 81 properties owned by the Company as of March 31, 2022, a total of 76 properties ("Same Store Properties") containing an aggregate of 12.9 million net rentable square feet were owned for the entire three months ended March 31, 2022 and 2021. As of March 31, 2022, one property was recently completed/acquired, and four properties were in development/redevelopment. Average occupancy for the Same Store Properties was 89.9% and 90.4% during the three-month periods ended March 31, 2022 and 2021, respectively. The following table sets forth revenue and expense information for the Same Store Properties:

  Three Months Ended March 31,
   2022   2021 
Revenue    
Rents $110,846  $110,989 
Other  304   213 
Total revenue  111,150   111,202 
Operating expenses    
Property operating expenses  28,896   28,084 
Real estate taxes  13,164   13,102 
Net operating income $69,090  $70,016 
Net operating income - percentage change over prior year  (1.3)%    
Net operating income, excluding other items $68,328  $67,770 
Net operating income, excluding other items - percentage change over prior year  0.8%  
Net operating income $69,090  $70,016 
Straight line rents & other  (2,831)  (4,179)
Above/below market rent amortization  (875)  (1,351)
Amortization of tenant inducements  188   193 
Non-cash ground rent expense  204   208 
Cash - Net operating income $65,776  $64,887 
Cash - Net operating income - percentage change over prior year  1.4%  
Cash - Net operating income, excluding other items $64,325  $62,502 
Cash - Net operating income, excluding other items - percentage change over prior year  2.9%  
  Three Months Ended March 31,
   2022   2021 
Net income: $6,101  $6,964 
Add/(deduct):    
Interest income  (440)  (1,674)
Interest expense  15,742   16,293 
Interest expense - amortization of deferred financing costs  709   709 
Equity in loss of unconsolidated real estate ventures  4,563   6,924 
Net gain on disposition of real estate     (74)
Net gain on sale of undepreciated real estate  (897)  (1,993)
Depreciation and amortization  43,782   40,343 
General & administrative expenses  10,000   6,584 
Income tax provision  27   19 
Consolidated net operating income  79,587   74,095 
Less: Net operating income of non-same store properties and elimination of non-property specific operations  (10,497)  (4,079)
Same store net operating income $69,090  $70,016 
 

Company / Investor Contact:

 Tom Wirth
 EVP & CFO
 610-832-7434
 tom.wirth@bdnreit.com