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CEO Annual Letter

CEO Annual Letter

Investor Letter

March 17, 2020

For more than 25 years, Brandywine Realty Trust has leaned in to innovation with a disciplined approach. We have embraced change and challenged the status quo—creating new realities that stimulate long-term economic growth, deliver value to stakeholders, and shape the communities in which we work.

2019 was no exception. Over the course of the year, we signed 330 office leases across 3,271,791 million SF, launched marketing for 1.9 million SF of active development, hit major milestones in our master-planned projects, and achieved new accolades in our ongoing ESG practices, including earning a perfect score for our commitment to Social Engagement on the annual GRESB benchmark.

We credit much of this success to our ability to remain nimble in a rapidly changing world. Across all industries, technology is advancing innovation and reshaping how we live, work, connect and communicate. The industries that are thriving are the ones that are pushing boundaries in how we address the fundamental desires of the human being... health and wellness, community and connection, experiences and fulfillment.

As creators of spaces and communities, we strive to imbue our products with a vibrancy that reinforces human connection and creates durable value. In an ever-changing landscape, we emphasize what we know will remain constant: great location, thoughtful design, quality material, and devoted people committed to creating exceptional spaces.

Sometimes, we demonstrate this by undertaking innovative new developments like 155 King of Prussia Road in Radnor, PA—a ground-up, transit-oriented office space within our master-planned development for Penn Medicine, or 650 Park Road in King of Prussia, PA—a full redevelopment creating 100,000 SF of highly-efficient office space in one of the region’s fastest growing submarkets. Other times, we decide to successfully reposition assets already in our portfolio like 1676 International in Tysons, VA, or 426 West Lancaster in Devon, PA, to ensure our spaces respond to the demands of the future workforce. At Schuylkill Yards and Broadmoor, our two multiphase, master-planned sites, we are only dedicating 50% of space to office, life science, and academic space, while reserving the balance for the vibrant retail, lifestyle, hospitality, and greenspace offerings that bring these communities to life.

We remain bullish on the value and opportunity of our three core markets: Greater Philadelphia, PA, Austin, TX and Washington, D.C.-three markets defined by unparalleled quality of life factors that attract talent and enable businesses to thrive.

In the Greater Philadelphia area, where we are the largest landlord of Trophy Class office space, we are continuing to expand the Philadelphia skyline with our master-planned, mixed-use development, Schuylkill Yards. The 14-acre, $3.5 billion development is centrally located within a Qualified Opportunity Zone between the city’s traditional central business district and the booming University City neighborhood—a hotbed for talent and the city’s rapidly-expanding Life Sciences sector, which saw close to $1B in NIH funding in 2019.

Schuylkill Yards became a reality this year with the completion of Drexel Square, which turned a surface parking lot into a 1.3-acre public park directly adjacent to Amtrak’s 30th Street Station. It is the first piece of 6.5 acres of dedicated green space within the masterplan, inspired by our belief in the power of placemaking for long-term value creation. The park will soon be complemented by the entirely reimagined historic Bulletin Building in Q2 2020, which is 100% leased to leading life science company Spark Therapeutics. Adjacent to the park, we plan to commence Phase I of our master plan with two striking towers on JFK Boulevard, containing close to 1 million square feet of office and life science space, 326 apartment units, ground floor retail, and parking.

Momentum in Austin remains strong, with the city topping U.S. News and World Report’s ranking of the best places to live in the United States for the third year in a row. Rent growth has remained high at 4.7% over 2019, and the city has seen absorption double its historic pace over the past three years. Here, we are projecting a year-end 2020 completion at 405 Colorado, a downtown high-rise featuring about 200K sf of office and retail and an elevated Sky Lounge. In Austin’s second downtown, we are moving forward with Broadmoor—the city’s first true transit-oriented, mixed-use development on 66 acres adjacent to The Domain in Northeast Austin. We are in a position to break ground on two blocks in the second half of 2020. We are also moving forward on public space sequencing, retail and hospitality options, and the addition of a CAPP Metro rail station. At both our Four Points and Garza Ranch developments, demand drivers remain exceptional, resulting in a strong leasing pipeline.

Metro D.C. continues to be widely considered one of the most envied investment markets in the world and the nation’s top region for fast-growing private companies. Taking advantage of the strengths of this market, we made a decision to invest in the complete reimagination of 1676 International to introduce urban design, smart and flexible space layouts, and a multitude of amenities intended to attract leading, forward-thinking companies. In the vibrant Ballston Community of Arlington, VA, we are nearing completion on our venture with Shooshan Company—4040 Wilson—a soaring mixed-use tower being that will soon serve as AvalonBay’s new headquarters. Our development pipeline also boasts exciting opportunities at 25 M St. SE in the thriving Capitol Riverfront Market, and a mixed-use site in the connected NOMA neighborhood.

In all of these undertakings, we are guided by the belief that our development process transcends the physical act of construction. Responsible environmental, social, and governance practices have remained at the forefront of our business plan. In 2019, our landmark FMC Tower at Cira Centre South became the first WELL Core Certified project at the Bronze level, globally, as well as the first WELL v2 certificated building in the United States. We were also named a Fitwel champion for operating 5.4M SF of Fitwel certified office space—the most of any company worldwide! We continue to demonstrate our commitment to good corporate governance, earning an industry-leading ISS Governance Quality score of 1 in 2019—representing the lowest shareholder risk and highest possible score. In our interactions with partners, vendors, and our own employees, we promote diversity and inclusion by conducting trainings on emotional intelligence, unconscious bias, and LGBTQ+ inclusion, and committing to the CEO Action for Diversity & Inclusion™—the largest CEO-driven business commitment to advance diversity and inclusion in the workplace.

These core values inspire our actions. We understand that good business requires a macro perspective and an integrity-driven approach. That’s why we nearly tripled our Schuylkill Yards Neighborhood Engagement Initiative in 2019, taking it from $5.6M to $16.3M. The program addresses stated areas of community need, including low-cost business loans, capacity building, affordable housing, local sourcing, educational support, and a skilled building trade apprenticeship program. The young father who got a second chance to support his family through our Construction Apprenticeship Preparatory program, or the local minority entrepreneur who can now finance her dream show us that investing in people and communities creates the best social and economic outcomes.

We entered 2020 from a position of great strength. We remain laser-focused on transit-oriented, integrated work and lifestyle experiences, and are prioritizing optionality, accessibility and connectivity in cities where quality of life factors are drawing talent. Our 2020 business plan is simple: take advantage of strong market conditions to drive net effective rent growth, generate strong cash-flow growth, and meet our market targets, while capitalizing on all of the development opportunities that we laid the groundwork for in 2019. Two key metrics that demonstrate our excellent long-term earnings potential are the mark-to-market increases in our expiring leases: our CASH at 8-10%, and GAAP at 17-19%.

I think we are in one of the most exciting industries ever created. Going back in history, you can easily see the desire to build is a core part of the human spirit. It’s how we translate our values into physical structures that enrich peoples’ lives. We can change the landscape of a neighborhood or the calibration of a city. And all across our portfolio, we are. Our Board, employees, and leadership team are grateful for the continued support of the investor community, and look forward to sharing our bright future with you.



With all best wishes,
Gerard H. Sweeney
President and Chief Executive Officer