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Press Release
Brandywine Realty Trust Announces Second Quarter Results Narrows 2022 Guidance
Jul 25, 2022
Management Comments
“We continue to see tenants prefer higher quality, well amentized buildings, a trend that will benefit both our operating portfolio and development projects,” stated
Second Quarter Highlights
Financial Results
- Net Income to common shareholders:
$4.5 million , or$0.03 per share. - Funds from Operations (FFO):
$60.5 million , or$0.35 per share.
Portfolio Results
- Core Portfolio: 89.6% occupied and 92.1% leased.
- New and Renewal Leases Signed: 686,000 square feet
- Rental Rate Mark-to-Market: Increased 18.4% / 7.8% on an accrual / cash basis
- Same Store Net Operating Income: Decreased (1.2%) on an accrual basis and Increased 1.7% on a cash basis
- Tenant Retention Ratio: 70%
2022 Business Plan Revisions
Interest Expense Range : Increased from$70-72 million to$75 – 76 million.
Recent Transaction Activity
Joint Venture and Development Activity
- On
July 14, 2022 , we formed a joint venture with a global institutional investor to commence development of3151 Market Street inPhiladelphia, Pennsylvania . The project cost is approximately$307 million , and the joint venture partner has agreed, subject to customary funding conditions, to fund up to approximately$55 million of the project costs in exchange for a 45% preferred equity interest in the venture. We anticipate securing a construction loan totaling approximately$185 million , representing 60% of total project costs. The loan is expected to close in the fourth quarter of 2022. We commenced demolition of the site inJune 2022 with substantial completion anticipated for the second quarter of 2024. The project is the second ground-up development in our Schuylkill Yards master planned development. The 12-story building will consist of 417,000 square feet of customizable life science/innovation office space, 18,000 square feet of retail amenity space, 6,000 square feet of outdoor terrace space, and 70 below grade parking spaces. - As previously announced, on
May 24, 2022 , we commenced the redevelopment of2340 Dulles Corner Boulevard inHerndon, Virginia in Metro, DC, a 268,000 square foot office building. The redevelopment is commencing with execution of an anchor lease from a leading telecommunications company for 221,000 square feet representing 84% of the property. The 11-year lease will commence upon tenant occupancy which is planned for Q2 2023.
Disposition Activity
- As previously announced, on
April 14, 2022 , we sold a land parcel located at25 M Street inWashington, 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.
Financing Activity
- On
June 30, 2022 , we entered into a restated credit facility agreement which extends the maturity dates of (1) our$600 million unsecured revolving credit facility (the “Revolving Credit Facility”) and (2) our$250 million unsecured term loan (the “Term Loan”). The Revolving Credit Facility has a scheduled maturity date ofJune 30, 2026 , subject to two six-month extensions, and the Term Loan has a scheduled maturity date ofJune 30, 2027 . The current borrowing spread for the Revolving Credit Facility is 1.05% over adjusted Term Secured Overnight Financing Rate (“SOFR”) and the borrowing spread for the Term Loan is 1.20% over adjusted SOFR.
2022 Finance / Capital Markets Activity
- We have
$214.0 million outstanding on our$600.0 million unsecured revolving credit facility as ofJune 30, 2022 . - We have
$28.8 million of cash and cash equivalents on-hand as ofJune 30, 2022 .
Results for the Three and Six Month Periods Ended
Net income allocated to common shares totaled
FFO available to common shares and units totaled
Net income allocated to common shares totaled
Our FFO available to common shares and units for the first six months of 2022 totaled
Operating and Leasing Activity
In the second quarter of 2022, our same store Net Operating Income (NOI) excluding termination revenues and other income items decreased (1.2%) on an accrual basis and increased 1.7% on a cash basis for our 73 same store properties, which were 89.5% and 90.5% occupied on
We leased approximately 686,000 square feet and commenced occupancy on 385,000 square feet during the second quarter of 2022. The second quarter occupancy activity includes 137,000 square feet of renewals, 134,000 square feet of new leases and 114,000 square feet of tenant expansions. We have an additional 331,000 square feet of executed new leasing scheduled to commence subsequent to
Our second quarter tenant retention ratio was 70% in our core portfolio with net absorption of 27,000 square feet during the second quarter of 2022. Second quarter rental rate growth increased 18.4% as our renewal rental rates increased 8.3% and our new lease/expansion rental rates increased 26.2%, all on an accrual basis.
As of
Distributions
On
2022 Earnings and FFO Guidance
Based on current plans and assumptions and subject to the risks and uncertainties more fully described in our
Guidance for 2022 | Range | |||
Earnings per diluted share allocated to common shareholders | to | |||
Plus: real estate depreciation, amortization | 1.23 | 1.23 | ||
FFO per diluted share | to | |||
Our 2022 FFO key assumptions include:
- Speculative Revenue Target:
$34.0 -$36.0 million , as ofJuly 19, 2022 ,$33.7 million achieved from a leasing plan of 1.8 million square feet, 1.6 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 / Redevelopment Starts: Three starts. We have commenced two starts in 2022 located at 2340 Dulles Corner and
3151 Market Street ; - Financing Activity: Completed the anticipated refinance of 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
Conference Call and Audio Webcast
We will hold our second quarter conference call on
Looking Ahead – Third Quarter 2022 Conference Call
We expect to release our third quarter 2022 earnings on
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 generally 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
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
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
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
Core Portfolio
Our core portfolio is comprised of our wholly-owned properties, excluding any properties currently in development, re-development or re-entitlement.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share data)
ASSETS | |||||||
Real estate investments: | |||||||
Operating properties | $ | 3,545,102 | $ | 3,472,602 | |||
Accumulated depreciation | (1,009,108 | ) | (957,450 | ) | |||
Right of use asset - operating leases, net | 19,988 | 20,313 | |||||
Operating real estate investments, net | 2,555,982 | 2,535,465 | |||||
Construction-in-progress | 366,823 | 277,237 | |||||
Land held for development | 93,887 | 114,604 | |||||
Prepaid leasehold interests in land held for development, net | 35,576 | 27,762 | |||||
Total real estate investments, net | 3,052,268 | 2,955,068 | |||||
Assets held for sale, net | — | 562 | |||||
Cash and cash equivalents | 28,849 | 27,463 | |||||
Accounts receivable | 13,584 | 11,875 | |||||
Accrued rent receivable, net of allowance of |
172,076 | 167,210 | |||||
Investment in unconsolidated real estate ventures | 458,840 | 435,506 | |||||
Deferred costs, net | 93,570 | 86,862 | |||||
Intangible assets, net | 23,015 | 28,556 | |||||
Other assets | 124,486 | 133,094 | |||||
Total assets | $ | 3,966,688 | $ | 3,846,196 | |||
LIABILITIES AND BENEFICIARIES' EQUITY | |||||||
Unsecured credit facility | $ | 214,000 | $ | 23,000 | |||
Unsecured term loan, net | 248,047 | 249,608 | |||||
Unsecured senior notes, net | 1,580,712 | 1,580,978 | |||||
Accounts payable and accrued expenses | 131,669 | 150,151 | |||||
Distributions payable | 32,800 | 32,765 | |||||
Deferred income, gains and rent | 21,195 | 23,849 | |||||
Intangible liabilities, net | 11,277 | 12,981 | |||||
Lease liability - operating leases | 23,066 | 22,962 | |||||
Other liabilities | 52,359 | 48,683 | |||||
Total liabilities | $ | 2,315,125 | $ | 2,144,977 | |||
Common Shares of |
1,716 | 1,712 | |||||
Additional paid-in-capital | 3,149,146 | 3,146,786 | |||||
Deferred compensation payable in common shares | 19,601 | 18,491 | |||||
Common shares in grantor trust, 1,202,385 and 1,169,703 issued and outstanding as of |
(19,601 | ) | (18,491 | ) | |||
Cumulative earnings | 1,133,102 | 1,122,372 | |||||
Accumulated other comprehensive income (loss) | 3,849 | (2,020 | ) | ||||
Cumulative distributions | (2,643,999 | ) | (2,578,583 | ) | |||
1,643,814 | 1,690,267 | ||||||
Noncontrolling interests | 7,749 | 10,952 | |||||
Total beneficiaries' equity | $ | 1,651,563 | $ | 1,701,219 | |||
Total liabilities and beneficiaries' equity | $ | 3,966,688 | $ | 3,846,196 | |||
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
Three Months Ended |
Six Months Ended |
||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenue | |||||||||||||||
Rents | $ | 116,897 | $ | 111,235 | $ | 232,798 | $ | 224,719 | |||||||
Third party management fees, labor reimbursement and leasing | 5,924 | 6,627 | 11,032 | 13,278 | |||||||||||
Other | 1,221 | 2,240 | 7,717 | 2,874 | |||||||||||
Total revenue | 124,042 | 120,102 | 251,547 | 240,871 | |||||||||||
Operating expenses | |||||||||||||||
Property operating expenses | 33,111 | 29,264 | 64,659 | 58,199 | |||||||||||
Real estate taxes | 13,746 | 14,602 | 27,559 | 29,363 | |||||||||||
Third party management expenses | 2,792 | 3,561 | 5,349 | 6,539 | |||||||||||
Depreciation and amortization | 43,959 | 42,785 | 87,741 | 83,128 | |||||||||||
General and administrative expenses | 8,328 | 8,356 | 18,328 | 14,940 | |||||||||||
Total operating expenses | 101,936 | 98,568 | 203,636 | 192,169 | |||||||||||
Gain on sale of real estate | |||||||||||||||
Net gain on disposition of real estate | 144 | 68 | 144 | 142 | |||||||||||
Net gain on sale of undepreciated real estate | 4,127 | — | 5,024 | 1,993 | |||||||||||
Total gain on sale of real estate | 4,271 | 68 | 5,168 | 2,135 | |||||||||||
Operating income | 26,377 | 21,602 | 53,079 | 50,837 | |||||||||||
Other income (expense): | |||||||||||||||
Interest and investment income | 449 | 1,677 | 889 | 3,351 | |||||||||||
Interest expense | (16,341 | ) | (15,490 | ) | (32,083 | ) | (31,783 | ) | |||||||
Interest expense - amortization of deferred financing costs | (805 | ) | (709 | ) | (1,514 | ) | (1,418 | ) | |||||||
Equity in loss of unconsolidated real estate ventures | (4,981 | ) | (7,240 | ) | (9,544 | ) | (14,164 | ) | |||||||
Net income (loss) before income taxes | 4,699 | (160 | ) | 10,827 | 6,823 | ||||||||||
Income tax provision | (48 | ) | (15 | ) | (75 | ) | (34 | ) | |||||||
Net income (loss) | 4,651 | (175 | ) | 10,752 | 6,789 | ||||||||||
Net (income) loss attributable to noncontrolling interests | (14 | ) | 8 | (22 | ) | (35 | ) | ||||||||
Net income (loss) attributable to |
4,637 | (167 | ) | 10,730 | 6,754 | ||||||||||
Nonforfeitable dividends allocated to unvested restricted shareholders | (98 | ) | (94 | ) | (246 | ) | (240 | ) | |||||||
Net income (loss) attributable to Common Shareholders of |
$ | 4,539 | $ | (261 | ) | $ | 10,484 | $ | 6,514 | ||||||
PER SHARE DATA | |||||||||||||||
Basic income per Common Share | $ | 0.03 | $ | — | $ | 0.06 | $ | 0.04 | |||||||
Basic weighted average shares outstanding | 171,527,031 | 170,848,894 | 171,411,631 | 170,737,437 | |||||||||||
Diluted income per Common Share | $ | 0.03 | $ | — | $ | 0.06 | $ | 0.04 | |||||||
Diluted weighted average shares outstanding | 172,260,429 | 170,848,894 | 172,575,408 | 171,996,119 | |||||||||||
FUNDS FROM OPERATIONS
(unaudited, in thousands, except share and per share data)
Three Months Ended |
Six Months Ended |
||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||
Reconciliation of Net Income to Funds from Operations: | |||||||||||||||
Net income (loss) attributable to common shareholders | $ | 4,539 | $ | (261 | ) | $ | 10,484 | $ | 6,514 | ||||||
Add (deduct): | |||||||||||||||
Net income (loss) attributable to noncontrolling interests - LP units | 16 | (7 | ) | 26 | 37 | ||||||||||
Nonforfeitable dividends allocated to unvested restricted shareholders | 98 | 94 | 246 | 240 | |||||||||||
Net gain on disposition of real estate | (144 | ) | (68 | ) | (144 | ) | (142 | ) | |||||||
Depreciation and amortization: | |||||||||||||||
Real property | 36,631 | 34,294 | 72,793 | 65,828 | |||||||||||
Leasing costs including acquired intangibles | 6,597 | 7,954 | 13,591 | 16,234 | |||||||||||
Company’s share of unconsolidated real estate ventures | 12,903 | 14,060 | 24,198 | 27,791 | |||||||||||
Partners’ share of consolidated real estate ventures | (5 | ) | (5 | ) | (10 | ) | (10 | ) | |||||||
Funds from operations | $ | 60,635 | $ | 56,061 | $ | 121,184 | $ | 116,492 | |||||||
Funds from operations allocable to unvested restricted shareholders | (154 | ) | (150 | ) | (392 | ) | (363 | ) | |||||||
Funds from operations available to common share and unit holders (FFO) | $ | 60,481 | $ | 55,911 | $ | 120,792 | $ | 116,129 | |||||||
FFO per share - fully diluted | $ | 0.35 | $ | 0.32 | $ | 0.70 | $ | 0.67 | |||||||
Weighted-average shares/units outstanding - fully diluted | 172,776,896 | 173,289,294 | 173,149,640 | 172,958,591 | |||||||||||
Distributions paid per common share | $ | 0.19 | $ | 0.19 | $ | 0.38 | $ | 0.38 | |||||||
FFO payout ratio (distributions paid per common share/FFO per diluted share) | 54.3 | % | 59.4 | % | 54.3 | % | 56.7 | % | |||||||
SAME STORE OPERATIONS – 2nd QUARTER
(unaudited and in thousands)
Of the 78 properties owned by the Company as of
Three Months Ended |
|||||||
2022 | 2021 | ||||||
Revenue | |||||||
Rents | $ | 110,120 | $ | 108,984 | |||
Other | 266 | 263 | |||||
Total revenue | 110,386 | 109,247 | |||||
Operating expenses | |||||||
Property operating expenses | 29,261 | 27,504 | |||||
Real estate taxes | 13,108 | 13,324 | |||||
Net operating income | $ | 68,017 | $ | 68,419 | |||
Net operating income - percentage change over prior year | (0.6 | )% | |||||
Net operating income, excluding other items | $ | 66,940 | $ | 67,719 | |||
Net operating income, excluding other items - percentage change over prior year | (1.2 | )% | |||||
Net operating income | $ | 68,017 | $ | 68,419 | |||
Straight line rents & other | (1,568 | ) | (3,462 | ) | |||
Above/below market rent amortization | (789 | ) | (1,222 | ) | |||
Amortization of tenant inducements | 180 | 263 | |||||
Non-cash ground rent expense | 201 | 205 | |||||
Cash - Net operating income | $ | 66,041 | $ | 64,203 | |||
Cash - Net operating income - percentage change over prior year | 2.9 | % | |||||
Cash - Net operating income, excluding other items | $ | 64,453 | $ | 63,349 | |||
Cash - Net operating income, excluding other items - percentage change over prior year | 1.7 | % | |||||
Three Months Ended |
|||||||
2022 | 2021 | ||||||
Net income (loss): | $ | 4,651 | $ | (175 | ) | ||
Add/(deduct): | |||||||
Interest income | (449 | ) | (1,677 | ) | |||
Interest expense | 16,341 | 15,490 | |||||
Interest expense - amortization of deferred financing costs | 805 | 709 | |||||
Equity in loss of unconsolidated real estate ventures | 4,981 | 7,240 | |||||
Net gain on disposition of real estate | (144 | ) | (68 | ) | |||
Net gain on sale of undepreciated real estate | (4,127 | ) | — | ||||
Depreciation and amortization | 43,959 | 42,785 | |||||
General & administrative expenses | 8,328 | 8,356 | |||||
Income tax provision | 48 | 15 | |||||
Consolidated net operating income | 74,393 | 72,675 | |||||
Less: Net operating income of non-same store properties and elimination of non-property specific operations | (6,376 | ) | (4,256 | ) | |||
Same store net operating income | $ | 68,017 | $ | 68,419 | |||
SAME STORE OPERATIONS – SIX MONTHS
(unaudited and in thousands)
Of the 78 properties owned by the Company as of
Six Months Ended |
|||||||
2022 | 2021 | ||||||
Revenue | |||||||
Rents | $ | 220,822 | $ | 219,865 | |||
Other | 569 | 475 | |||||
Total revenue | 221,391 | 220,340 | |||||
Operating expenses | |||||||
Property operating expenses | 58,044 | 55,504 | |||||
Real estate taxes | 26,236 | 26,390 | |||||
Net operating income | $ | 137,111 | $ | 138,446 | |||
Net operating income - percentage change over prior year | (1.0 | )% | |||||
Net operating income, excluding other items | $ | 135,272 | $ | 135,500 | |||
Net operating income, excluding other items - percentage change over prior year | (0.2 | )% | |||||
Net operating income | $ | 137,111 | $ | 138,446 | |||
Straight line rents & other | (4,399 | ) | (7,642 | ) | |||
Above/below market rent amortization | (1,664 | ) | (2,573 | ) | |||
Amortization of tenant inducements | 369 | 456 | |||||
Non-cash ground rent expense | 405 | 413 | |||||
Cash - Net operating income | $ | 131,822 | $ | 129,100 | |||
Cash - Net operating income - percentage change over prior year | 2.1 | % | |||||
Cash - Net operating income, excluding other items | $ | 128,783 | $ | 125,861 | |||
Cash - Net operating income, excluding other items - percentage change over prior year | 2.3 | % | |||||
Six Months Ended |
|||||||
2022 | 2021 | ||||||
Net income: | $ | 10,752 | $ | 6,789 | |||
Add/(deduct): | |||||||
Interest income | (889 | ) | (3,351 | ) | |||
Interest expense | 32,083 | 31,783 | |||||
Interest expense - amortization of deferred financing costs | 1,514 | 1,418 | |||||
Equity in loss of unconsolidated real estate ventures | 9,544 | 14,164 | |||||
Net gain on disposition of real estate | (144 | ) | (142 | ) | |||
Net gain on sale of undepreciated real estate | (5,024 | ) | (1,993 | ) | |||
Depreciation and amortization | 87,741 | 83,128 | |||||
General & administrative expenses | 18,328 | 14,940 | |||||
Income tax provision | 75 | 34 | |||||
Consolidated net operating income | 153,980 | 146,770 | |||||
Less: Net operating income of non-same store properties and elimination of non-property specific operations | (16,869 | ) | (8,324 | ) | |||
Same store net operating income | $ | 137,111 | $ | 138,446 | |||
Company / Investor Contact:
EVP & CFO
610-832-7434
tom.wirth@bdnreit.com
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Source: Brandywine Realty Trust