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): July 21, 2017

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):

 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

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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 July 21, 2017, we issued a press release announcing our financial results for the six months ended June 30, 2017.  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 9.01Financial Statements and Exhibits

Exhibits

99.1    Brandywine Realty Trust Press Release dated July 21, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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: July 21, 2017

 

 

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Exhibit 99.1

 

 

 

Brandywine Realty Trust Announces Second Quarter 2017 Results

and Revises 2017 Guidance

 

 

Radnor, PA, July 20, 2017 — Brandywine Realty Trust (NYSE:BDN) today reported its financial and operating results for the three and six-month periods ended June 30, 2017.

 

Management Comments

“We are encouraged by the continued execution of our 2017 business plan during the second quarter,” stated Gerard H. Sweeney, President and Chief Executive Officer of Brandywine Realty Trust.  “Our 2017 speculative revenue target is now 98% complete.  We have also completed 75% of our 2017 net disposition target.  Our balance sheet continued to strengthen during the second quarter as we redeemed our $100.0 million, 6.9% perpetual preferred shares, at par, and repaid our $300.0 million unsecured bonds upon maturity funded through a combination of cash and our unsecured line of credit.  During the quarter, we also delivered our 111,000 square foot, 100% pre-leased, build-to-suit property in King of Prussia, Pennsylvania.  With our operating plan substantially complete and, in assessing the occupancy timing of our leasing pipeline, several tenants delaying actual occupancy of their leased space and the staged delivery of some of the residential units at FMC Tower at Cira Centre South, we are revising and narrowing our 2017 FFO guidance range from $1.33 to $1.40 to $1.34 to $1.38 per diluted share.”

 

Second Quarter Highlights

Financial Results

Portfolio Results

2017 Business Plan Revisions

555 East Lancaster Avenue, Suite 100, Radnor, PA  19087 Phone: (610) 325-5600 • Fax: (610) 325-5622

 

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Recent Transaction Activity

Recent Finance / Capital Markets Activity

Results for the Three and Six Month Period Ended June 30, 2017

Net income allocated to common shares totaled $4.1 million or $0.02 per diluted share in the second quarter of 2017 compared to a net loss of ($3.1 million) or ($0.02) per diluted share in the second quarter of 2016.

FFO available to common shares and units $57.4 million or $0.32 per diluted share in each of the second quarters ended in 2017 and 2016.  Our 2017 results include a one-time, non-cash charge related to our preferred share redemption totaling $3.2 million, or $0.02 per diluted share.  Our second quarter 2017 payout ratio ($0.16 common share distribution / $0.32 FFO per diluted share) was 50.0%.  

Net income allocated to common shares totaled $23.4 million or $0.13 per diluted share in the first six months of 2017 compared to net income of $41.0 million or $0.23 per diluted share in the first six months of 2016.

Our FFO available to common shares and units for the first six months of 2017 totaled $113.5 million, or $0.64 per diluted share versus $45.7 million, or $0.26 per diluted share in the first six months of 2016.  Our 2016 results included a $66.6 million, or $0.38 per share, charge for the early extinguishment of debt related to our sale of Cira Square.  Excluding the early extinguishment of debt, FFO available to common shares and units in the first six months of 2016 totaled $112.3 million or $0.63 per diluted.  Our first six months 2017 FFO payout ratio ($0.32 common share distribution / $0.64 FFO per diluted share) was 50.0%.

Operating and Leasing Activity

In the second quarter of 2017, our Net Operating Income (NOI) excluding termination revenues and other income items increased 1.2% on a GAAP basis and increased 10.1% on a cash basis for our 93 same store properties, which were 92.2% and 94.0% occupied on June 30, 2017 and June 30, 2016, respectively.

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We leased approximately 995,000 square feet and commenced occupancy on 973,000 square feet during the second quarter of 2017.  The second quarter occupancy activity includes 781,000 square feet of renewals, 173,000

 

square feet of new leases and 19,000 square feet of tenant expansions.  We have an additional 191,000 square feet of executed new leasing scheduled to commence subsequent to June 30, 2017.

We achieved a 77.0% tenant retention ratio in our core portfolio with net negative absorption of (60,000) square feet during the second quarter of 2017.  Second quarter rental rate growth increased 1.3% as our renewal rental rates increased 1.1% and our new lease/expansion rental rates increased 7.1%, all on a GAAP basis.

At June 30, 2017, our core portfolio of 94 properties comprising 15.0 million square feet was 92.2% occupied and we are currently 93.5% leased (reflecting new leases commencing after June 30, 2017).

Distributions

On May 18, 2017, our Board of Trustees declared a quarterly dividend distribution of $0.16 per common share that is payable on July 21, 2017 to shareholders of record as of July 7, 2017.  

2017 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 adjusting our previously issued 2017 net income guidance of $0.20 to $0.27 per diluted share to $0.17 to $0.21 per diluted share and adjusting our previously issued 2017 FFO guidance of $1.33 to $1.40 per diluted share to $1.34 to $1.38 per diluted share.  This guidance is provided for informational purposes and is subject to change.  The following is a reconciliation of the calculation of 2017 FFO and earnings per diluted share:

 

Our 2017 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 199 properties and 26.7 million square feet as of June 30, 2017, which excludes assets held for sale.  Our purpose is to shape, connect and inspire the world around us through our

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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

BDN management will discuss 2017 financial results and earnings guidance for fiscal 2017 on Friday, July 21, 2017, during the company’s earnings call.  The call will begin at 9:00 a.m. EDT and will last approximately one hour.  The conference call can be accessed by dialing 1-800-683-1525 and providing conference ID: 26630557.  Beginning two hours after the conference call, a taped replay of the call can be accessed through Friday, August 4, 2017, by calling 1-855-859-2056 and entering access code 26630557.  The conference call can also be accessed via a webcast on our website at www.brandywinerealty.com.

Looking Ahead – Third Quarter 2017 Conference Call

We anticipate we will release our third quarter 2017 earnings on Wednesday, October 18, 2017, after the market close and will host our third quarter 2017 conference call on Thursday, October 19, 2017 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, 2016.  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

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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.

Net Operating Income (NOI)

NOI 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.  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.  NOI is used 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.

Core Portfolio

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

 

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BRANDYWINE REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

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BRANDYWINE REALTY TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

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BRANDYWINE REALTY TRUST

FUNDS FROM OPERATIONS

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

 

 

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BRANDYWINE REALTY TRUST

SAME STORE OPERATIONS – 2^nd QUARTER

(unaudited and in thousands)

 

 

Of the 99 properties owned by the Company as of June 30, 2017, a total of 93 properties ("Same Store Properties") containing an aggregate of 14.9 million net rentable square feet were owned for the entire three-month periods ended June 30, 2017 and 2016. As of June 30, 2017, one property was recently completed/acquired, two properties were in development and three properties were in redevelopment. Average occupancy for the Same Store Properties was 92.8% during 2017 and 94.0% during 2016. The following table sets forth revenue and expense information for the Same Store Properties:

 

 

 

 

 

 

 

 

 

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BRANDYWINE REALTY TRUST

SAME STORE OPERATIONS – SIX MONTHS

(unaudited and in thousands)

 

 

Of the 99 properties owned by the Company as of June 30, 2017, a total of 93 properties ("Same Store Properties") containing an aggregate of 14.9 million net rentable square feet were owned for the entire six-month periods ended June 30, 2017 and 2016. As of June 30, 2017, one property was recently completed/acquired, two properties were in development and three properties were in redevelopment. Average occupancy for the Same Store Properties was 93.1% during 2017 and 93.9% during 2016. The following table sets forth revenue and expense information for the Same Store Properties:

 

 

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