UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 4, 2016

Brandywine Realty Trust

Brandywine Operating Partnership, L.P.

(Exact name of registrant as specified in charter)

 

 

555 East Lancaster Avenue, Suite 100

Radnor, PA 19087

(Address of principal executive offices)

 

(610) 325-5600

(Registrant's telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

 

 

 

---

 

Item 2.02Results of Operations and Financial Condition 

The information in this Current Report on Form 8-K is furnished under Item 2.02 - “Results of Operations and Financial Condition.”  Such information, including the exhibits attached hereto, shall not be deemed to be “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section.  The information in this Current Report on Form 8-K shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing.

On February 4, 2016, we issued a press release announcing our financial results for the three and twelve-months ended December 31, 2015.  That press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.

The press release includes “non-GAAP financial measures” within the meaning of the Securities and Exchange Commission's Regulation G.  With respect to such non-GAAP financial measures, we have disclosed in the press release the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”) and have provided a reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measure.

Item 2.06Material Impairment

On December 31, 2015, the Registrant held for sale a portfolio of 58 suburban office properties (the “Portfolio”) in order to reduce its holdings in certain geographic markets. On February 4, 2016, the Portfolio was disposed of in a series of related transactions with affiliates of Och Ziff Capital Management Group LLC (“Och Ziff Real Estate”) involving the sale of its fee interests in the Portfolio land parcels and the sale of its leasehold interests in the Portfolio to a new formed real estate venture with Och Ziff Real Estate.  In connection with the disposition, the Registrant recorded an impairment charge of $45.4 million as of December 31, 2015, reducing the aggregate carrying value of these properties from $426.2 million to the sales price less estimated closing costs of $380.8 million. The fair value measurement related to these impairment charges was determined by the pricing in the sales agreements.

In connection with its quarterly held for use impairment analysis, the Registrant evaluated the recoverability of the carrying value of three suburban office properties located in the Metropolitan D.C. segment. Due to deterioration in performance of the property and related market conditions, management shortened its expected hold period of ownership and, accordingly, determined that it was necessary to reduce the carrying value of these properties to estimated fair value.  The Registrant recorded an impairment charge of $27.5 million as of December 31, 2015, reducing the aggregate carrying value of these properties from $40.4 million to their estimated fair value of $12.9 million.   The impairments were determined using a discounted cash flow analysis.

 

 

 

2

---

 

 

Item 9.01Financial Statements and Exhibits

Exhibits

99.1    Brandywine Realty Trust Press Release dated February 4, 2016.

 

 

Signatures

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, hereunto duly authorized.

 

 

 

 

Date: February 4, 2016

 

 

3

 

Exhibit 99.1

 

Brandywine Realty Trust Announces $0.39 FFO per Diluted Share for the Fourth Quarter 2015

and $1.45 for 2015, Additional Disposition Activity and Provides

Adjusted 2016 FFO Guidance of $1.23 to $1.30 per Diluted Share

 

 

 

Radnor, PA, February 4, 2016 — Brandywine Realty Trust (NYSE:BDN) today reported its financial and operating results for the three and twelve months ended December 31, 2015.

Management Comments

“During 2015, we achieved our operating goals, made significant progress on improving our forward growth prospects and strengthened our balance sheet,” stated Gerard H. Sweeney, President and Chief Executive Officer for Brandywine Realty Trust. “Our most recent announcements, including the sale of Cira Square and the large portfolio transaction with Och Ziff, have substantially completed our multi-year portfolio repositioning strategy.  These transactions bring our overall 2015 and 2016 year-to-date sales transactions to $1.1 billion at an average cap rate of 7.0%. The 2015 and early 2016 dispositions provide significant liquidity and results in a portfolio much more focused on urban and town center properties.  Our overall disposition efforts have resulted in a significant reduction of our non-core holdings in Pennsylvania, New Jersey, Delaware, Richmond and Northern Virginia.  In addition, these transactions significantly increase our financial capacity, reduce debt and provide ample liquidity for our development pipeline.”

Fourth Quarter Highlights

Financial Results

Portfolio Results

 

 

 

 

 

---

 

2016 Transaction Activity

The transaction was completed through a series of simultaneous transactions which involved (a) the sale of our fee interests in the portfolio land parcels to MAP Fee Owner LLC (“MAP”), an affiliate of Och-Ziff, totaling $188.1 million and (b) the sale of our leasehold interests, pursuant to long-term ground leases with MAP, in the portfolio to newly formed Och-Ziff joint venture (the “Venture”) totaling $210.0 million with an affiliate of Brandywine retaining a 50% interest in the Venture with an investment balance of approximately $25.6 million. The Venture has secured $180.8 million of non-recourse mortgage debt.  

Brandywine received approximately $353.0 million of proceeds, after $19.5 million of transaction costs.  Brandywine will continue to provide property management, leasing and construction management services for a majority of the portfolio.  These transactions have resulted in the company recording an impairment totaling approximately $45.4 million.

2015 Transaction Activity

Finance / Capital Markets

 

 

-2-

 

---

 

Development

Results for the Three and Twelve Months Ended December 31, 2015

FFO available to common shares and units in the fourth quarter of 2015 totaled $69.0 million or $0.39 per diluted share versus $54.1 million or $0.30 per diluted share in the fourth quarter of 2014.  Our fourth quarter 2015 FFO included a one-time, non-cash new market income item totaling $8.1 million.  Our fourth quarter 2014 FFO included a $5.1 million loss on the early extinguishment of debt.  Our fourth quarter 2015 payout ratio ($0.15 common share distribution / $0.39 FFO per diluted share) was 38.5%.  

Net loss allocated to common shares totaled ($63.9) million or ($0.37) per diluted share in the fourth quarter of 2015 compared to a net loss of ($3.6) million or ($0.02) per diluted share in the fourth quarter of 2014.

Our FFO available to common shares and units in the twelve months of 2015 totaled $261.8 million or $1.45 per diluted share versus $227.7 million or $1.34 per diluted share in the twelve months of 2014.  Our twelve months 2015 FFO payout ratio ($0.60 common share distribution / $1.45 FFO per diluted share) was 41.4%.

Net loss allocated to common shares totaled ($37.6) million or ($0.21) per diluted share in the twelve months of 2015 compared to a net loss of ($0.3) million or $0.00 per diluted share in the twelve months of 2014.

Operating and Leasing Activity

In the fourth quarter of 2015, our Net Operating Income (NOI) excluding termination revenues and other income items increased 5.0% on a GAAP basis and increased 4.1% on a cash basis for our 109 same store properties, which were 93.1% and 91.3% occupied on December 31, 2015 and December 31, 2014, respectively.

We leased approximately 929,000 square feet and commenced occupancy on 662,000 square feet during the fourth quarter of 2015.  The fourth quarter occupancy activity includes 331,000 square feet of renewals, 273,000 square feet of new leases and 58,000 square feet of tenant expansions.  We have an additional 140,000 square feet of executed new leasing scheduled to commence subsequent to December 31, 2015.

We achieved an 80.6% tenant retention ratio in our core portfolio with net absorption of 178,900 square feet during the fourth quarter of 2015.  Fourth quarter rental rate growth increased 13.4% as our renewal rental rates increased 2.8% and our new lease/expansion rental rates increased 24.2%, all on a GAAP basis.

At December 31, 2015, our core portfolio of 116 properties comprising 17.0 million square feet was 93.5% occupied and we are now 94.4% leased (reflecting new leases commencing after December 31, 2015).

Distributions

On December 8, 2015, our Board of Trustees declared a quarterly cash dividend of $0.15 per common share, payable on January 20, 2016 to holders of record on January 6, 2016.  Our Board of Trustees also declared a quarterly dividend of $0.43125 for each 6.90% Series E Cumulative Redeemable Preferred Share, payable on January 15, 2016 to holders of record on December 30, 2015.

 

-3-

 

---

 

2016 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 updating our previously issued 2016 guidance from $1.25 to $1.35 per diluted share to $1.23 to $1.30 per diluted share.  This guidance is provided for informational purposes and is subject to change.  The following is a reconciliation of the calculation of 2016 FFO and earnings per diluted share:

 

Our 2016 FFO guidance does not include income arising from the sale of undepreciated real estate.  Other key assumptions include:

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, Washington, D.C., and Austin markets.  Organized as a real estate investment trust (REIT), we own, develop, lease and manage an urban, town center and transit-oriented portfolio comprising 232 properties and 28.9 million square feet as of December 31, 2015.  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.  Our deep commitment to our communities was recognized by NAIOP naming Brandywine the 2014 Developer of the Year – the highest honor in the commercial real estate industry.  For more information, please visit www.brandywinerealty.com.

Conference Call and Audio Webcast

BDN management will discuss updated earnings guidance for fiscal 2016 on Friday, February 5, 2016, during the company’s earnings call.  The conference call will begin at 9:00 a.m. Eastern Time and will last approximately one hour.  The conference call can be accessed by dialing 1-800-683-1525 and providing conference ID: 95089085.  Beginning two hours after the conference call, a taped replay of the call can be accessed through Thursday, February 18, 2016, by calling 1-855-859-2056 and entering access code 95089085. The conference call can also be accessed via a webcast on our website at www.brandywinerealty.com.

 

-4-

 

---

 

Looking Ahead - First Quarter 2016 Conference Call

We anticipate we will release our first quarter 2016 earnings on Wednesday, April 20, 2016, after the market close and will host our first quarter 2016 conference call on Thursday, April 21, 2016 at 9:00 a.m. Eastern Time.  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

Estimates of future earnings per share, FFO per share, common share dividend distributions and certain other statements in this release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our and our affiliates’ actual results, performance, achievements or transactions to be materially different from any future results, performance, achievements or transactions expressed or implied by such forward-looking statements.  Such risks, uncertainties and other factors relate to, among others: our ability to lease vacant space and to renew or relet space under expiring leases at expected levels; competition with other real estate companies for tenants; the potential loss or bankruptcy of major tenants; interest rate levels; the availability of debt, equity or other financing; risks of acquisitions, dispositions and developments, including the cost of construction delays and cost overruns; unanticipated operating and capital costs; our ability to obtain adequate insurance, including coverage for terrorist acts; dependence upon certain geographic markets; and general and local economic and real estate conditions, including the extent and duration of adverse changes that affect the industries in which our tenants operate. 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, 2014. 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.

 

 

 

 

 

 

-5-

 

---

 

Net Operating Income (NOI)

NOI is a non-GAAP 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 interests 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 interests.  In some cases, we also present NOI on a cash basis, which is NOI after eliminating the effect 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 as an alternative to cash flow from operating activities as a measure of our liquidity or ability to make cash distributions to shareholders.

-6-

 

---

 

BRANDYWINE REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

-7-

 

---

 

BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

 

-8-

 

---

 

BRANDYWINE REALTY TRUST

FUNDS FROM OPERATIONS

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

 

 

-9-

 

---

 

BRANDYWINE REALTY TRUST

SAME STORE OPERATIONS – 4^th QUARTER

(unaudited and in thousands)

 

 

Of the 179 properties owned by the Company as of December 31, 2015, a total of 109 properties ("Same Store Properties") containing an aggregate of 15.8 million net rentable square feet were owned for the entire three-month periods ended December 31, 2015 and 2014. Average occupancy for the Same Store Properties was 91.7% during 2015 and 89.9% during 2014. The following table sets forth revenue and expense information for the Same Store Properties:

 

 

-10-

 

---

 

BRANDYWINE REALTY TRUST

SAME STORE OPERATIONS – TWELVE MONTHS

(unaudited and in thousands)

 

 

Of the 179 properties owned by the Company as of December 31, 2015, a total of 107 properties ("Same Store Properties") containing an aggregate of 15.7 million net rentable square feet were owned for the entire twelve-month periods ended December 31, 2015 and 2014. Average occupancy for the Same Store Properties was 91.1% during 2015 and 88.9% during 2014. The following table sets forth revenue and expense information for the Same Store Properties:

 

 

 

-11-