SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 24, 2003
BRANDYWINE REALTY TRUST
(Exact name of registrant as specified in its charter)
MARYLAND |
1-9106 | 23-2413352 |
(State or Other Jurisdiction |
(Commission | (I.R.S. Employer |
of Incorporation) |
file number) | Identification Number) |
401 Plymouth Road, Plymouth Meeting, Pennsylvania 19462
(Address of principal executive offices)
(610) 325-5600
(Registrant’s telephone number, including area code)
Page 1 of 3 pages
Item 7. Financial Statements and Exhibits. |
| (c) | Exhibits. |
| 99.1 | Press Release dated July 24, 2003 |
Item 9. Regulation FD Disclosure. |
Item 12. Results of Operations and Financial Condition. |
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SIGNATURE
| Date: July 25, 2003 | BRANDYWINE REALTY TRUST By: /s/ Gerard H. Sweeney Title: President and Chief Executive Officer |
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 |
FOR IMMEDIATE RELEASE |
Contact:
Press Contact: |
Investor Contact: | |
Michael Beckerman |
Gerard H. Sweeney | |
Beckerman Public Relations |
Christopher P. Marr | |
908-781-6420 |
Brandywine Realty Trust | |
michael@beckermanpr.com |
610-325-5600 | |
| info@brandywinerealty.com |
| Brandywine Realty Trust Announces Second Quarter 2003 Earnings |
PLYMOUTH MEETING, PA, July 24, 2003 - Brandywine Realty Trust (BDN-NYSE) announced today that fully diluted earnings per share (EPS) were $.29 for the second quarter of 2003, an increase of $.03 per share as compared to $.26 for the second quarter of 2002. Net income was $13.5 million for the second quarter of 2003, an increase of $0.7 million, as compared to $12.8 million for the second quarter of 2002. The increase in net income and EPS in the second quarter of 2003 as compared to the similar period in 2002 was primarily due to the increase in revenues from properties added to the portfolio since the second quarter of 2002.
Fully diluted EPS was $.58 for the six-months ended June 30, 2003, a decrease of $.24 per share, as compared to $.82 per share for the six months ended June 30, 2002. Net income was $27.4 million for the six months ended June 30, 2003, a decrease of $8.9 million, as compared to $36.3 million for the six months ended June 30, 2002. The decrease in net income was primarily the result of net gains on disposition of discontinued operations of $0.9 million in 2003 as compared to $8.6 million in 2002.
Fully diluted funds from operations (FFO) were $31.3 million or $.67 per share for the second quarter 2003 compared to $31.6 million or $0.67 per share for the second quarter of 2002. FFO for the six months ended June 30, 2003 was $61.4 million or $1.31 per share as compared to $64.0 million or $1.35 for the same period in 2002. FFO represents a non-generally accepted accounting principle (GAAP) financial measure. A table reconciling FFO to net income, the GAAP measure that the Company believes to be most directly comparable, is within the consolidated financial statements included in this release.
“We are very pleased with our operating and financial performance this quarter. While we continue to experience market pressure on our rental rates and tenant capital, our effective rents remain in-line with our budgeted expectations,” commented Gerard H. Sweeney, Brandywine’s President and Chief Executive Officer. Mr. Sweeney went on to say, “our positive absorption during the quarter and our unusually high tenant retention level of 90% are a direct result of the focused efforts by our first-class leasing and property management team. However, the leasing market remains challenging, and we continue to be cautious in our outlook for the third and fourth quarter.”
Brandywine Realty Trust Summary Portfolio Performance |
| • | FFO payout ratio was 66.1% for the quarter and 67.1% YTD |
| • | Quarterly rental rate decreases on new leases were 2.8% on a cash basis and rental rate increases on new leases were 2.9% on a straight-line basis |
| • | Quarterly rental rate decreases on renewals were 3.8% on a cash basis and 0.1% on a straight-line basis |
| 401 Plymouth Road, Suite 500 · Plymouth Meeting, PA 19462 | Phone:
(610) 325-5600 · Fax: (610) 325-5622 · www.brandywinerealty.com |
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| • | YTD rental rate decreases on new leases were 4.4% on a cash basis and rental rate increases on new leases were 0.5% on a straight-line basis |
| • | YTD rental rate decreases on renewals were 3.4% on a cash basis and 0.4% on a straight-line basis |
| • | Quarterly retention rate was 90.0% and YTD retention rate was 80.0% |
| • | Portfolio was 90.9% occupied and 91.9% leased as of June 30, 2003 |
| • | Leases expired or were terminated for approximately 747,000 square feet during the quarter |
| • | Leases were renewed for 672,000 square feet during the quarter and new leases were signed for 232,000 square feet during the quarter |
| • | Leases expired or were terminated for approximately 1.5 million square feet YTD |
| • | Leases were renewed for 1.2 million square feet YTD and new leases were signed for 367,000 square feet YTD |
Distributions |
On June 27, 2003, the Board of Trustees declared a regular quarterly dividend distribution of $0.44 per common share that was paid on July 15, 2003 to shareholders of record as of July 7, 2003.
2003 Financial Outlook |
As a result of economic conditions in the Company’s markets, we continue to experience challenging operational conditions resulting in difficult earnings visibility. Our expectations for 2003 are based on the following key assumptions:
| • | Average occupancy is expected to decline slightly from the average levels achieved in 2002. |
| • | Same-store net operating income is expected to decrease in the range of 1.5% to 3.0%. |
| • | Operating expenses (excluding snow removal) and real estate taxes and general and administrative expenses as a percentage of revenues are expected to be consistent with those experienced in 2002. |
Based on these key assumptions and management’s view of current and anticipated market conditions, we expect third quarter 2003 EPS to be $.29 - $.30 and FFO to be $.66 - $.67 per share and full year 2003 EPS to be $1.16 - $1.23 and FFO to be $2.64 - $2.69 per share.
Forward-Looking Statements |
Estimates of future earnings per share and FFO per share 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 the actual results, performance, achievements or transactions of the Company and its affiliates 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: the Company’s 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 and equity financing, competition for real estate acquisitions and risks of acquisitions, dispositions and developments, including the cost of construction delays and cost overruns, unanticipated operating and capital costs, the Company’s 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 the Company’s tenants compete. Additional information on factors which could impact the Company and the forward-looking statements contained herein are included in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report for the year ended December 31, 2002. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.
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Non-GAAP Supplemental Financial Measures |
Funds from Operations (FFO) |
FFO is a widely recognized measure of REIT performance. Although FFO is a non-GAAP financial measure, the Company believes that information regarding FFO is helpful to shareholders and potential investors. The Company computes 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 the Company. NAREIT defines FFO as net income (loss) before minority interest of unitholders (preferred and common) and excluding gains (losses) on sales of depreciable operating property and extraordinary items (computed in accordance with GAAP); plus real estate related depreciation and amortization (excluding amortization of deferred financing costs), and after adjustment for unconsolidated joint ventures. The GAAP measure that the Company believes to be most directly comparable to FFO, net income, includes depreciation and amortization expenses, gains or losses on property sales and minority interest. In computing FFO, the Company eliminates substantially all of these items because, in the Company’s view, they are not indicative of the results from the Company’s property operations. To facilitate a clear understanding of the Company’s 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 generated from operating activities 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 the Company’s financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company’s liquidity, nor is it indicative of funds available for the Company’s cash needs, including its ability to make cash distributions to shareholders.
Cash Available for Distribution (CAD) |
Cash available for distribution, CAD, is a non-GAAP financial measure that is not intended to represent cash flow for the period and is not indicative of cash flow provided by operating activities as determined under GAAP. CAD is presented solely as a supplemental disclosure with respect to liquidity because the Company believes it provides useful information regarding the Company’s ability to fund its dividends. Because all companies do not calculate CAD the same way, the presentation of CAD may not be comparable to similarly titled measures of other companies.
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| BRANDYWINE REALTY TRUST CONSOLIDATED BALANCE SHEETS (unaudited, in thousands, except per share information) |
| June 30, | December 31, | ||||||
| 2003 | 2002 | ||||||
ASSETS |
|||||||
Real estate investments: |
|||||||
Operating properties |
$ | 1,896,697 | $ | 1,890,009 | |||
Accumulated depreciation |
(263,327 | ) | (245,230 | ) | |||
| 1,633,370 | 1,644,779 | ||||||
Construction-in-progress |
43,624 | 58,127 | |||||
Land held for development |
43,637 | 43,075 | |||||
| 1,720,631 | 1,745,981 | ||||||
Cash and cash equivalents |
7,520 | 26,801 | |||||
Escrowed cash |
17,605 | 16,318 | |||||
Accounts receivable, net |
3,729 | 3,657 | |||||
Accrued rent receivable |
30,959 | 28,333 | |||||
Investment in marketable securities |
11,918 | 11,872 | |||||
Assets held for sale |
23,262 | 7,666 | |||||
Investment in joint ventures, at equity |
14,646 | 14,842 | |||||
Deferred costs, net |
28,279 | 29,271 | |||||
Other assets |
28,246 | 34,547 | |||||
Total assets |
$ | 1,886,795 | $ | 1,919,288 | |||
LIABILITIES AND BENEFICIARIES’ EQUITY |
|||||||
Mortgage notes payable |
$ | 575,839 | $ | 597,729 | |||
Borrowings under Credit Facility |
264,000 | 307,000 | |||||
Unsecured term loan |
100,000 | 100,000 | |||||
Accounts payable and accrued expenses |
21,786 | 27,576 | |||||
Distributions payable |
22,106 | 21,186 | |||||
Tenant security deposits and deferred rents |
21,685 | 22,276 | |||||
Other liabilities |
18,869 | 22,006 | |||||
Liabilities related to assets held for sale |
254 | 20 | |||||
Total liabilities |
1,024,539 | 1,097,793 | |||||
Minority interest |
133,468 | 135,052 | |||||
Beneficiaries’ equity: |
|||||||
Preferred Shares: |
|||||||
7.25% Series A Preferred Shares, $0.01 par value; shares authorized-10,000,000; issued and outstanding-750,000 in 2003 and 2002 |
8 | 8 | |||||
8.75% Series B Preferred Shares, $0.01 par value; shares authorized-10,000,000; issued and outstanding-4,375,000 in 2003 and 2002 |
44 | 44 | |||||
Common Shares of beneficial interest, $0.01 par value; shares authorized-100,000,000; issued and outstanding-37,359,131 in 2003 and 35,226,315 in 2002 |
373 | 352 | |||||
Additional paid-in capital |
894,051 | 841,659 | |||||
Share warrants |
401 | 401 | |||||
Cumulative earnings |
251,713 | 225,010 | |||||
Accumulated other comprehensive loss |
(4,923 | ) | (6,402 | ) | |||
Cumulative distributions |
(412,879 | ) | (374,629 | ) | |||
Total beneficiaries’ equity |
728,788 | 686,443 | |||||
Total liabilities and beneficiaries’ equity |
$ | 1,886,795 | $ | 1,919,288 | |||
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| BRANDYWINE REALTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except share and per share data) |
| Quarter Ended June 30, |
Six Months Ended June 30, |
||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||
Revenue |
|||||||||||||
Rents |
$ | 64,961 | $ | 62,095 | $ | 129,281 | $ | 121,301 | |||||
Tenant reimbursements |
8,559 | 8,102 | 17,164 | 15,472 | |||||||||
Other |
1,356 | 2,717 | 4,083 | 5,586 | |||||||||
Total revenue |
74,876 | 72,914 | 150,528 | 142,359 | |||||||||
Operating Expenses |
|||||||||||||
Property operating expenses |
19,281 | 18,232 | 40,799 | 36,453 | |||||||||
Real estate taxes |
6,819 | 6,118 | 13,423 | 11,854 | |||||||||
Interest |
15,241 | 16,105 | 30,547 | 31,835 | |||||||||
Depreciation and amortization |
15,062 | 15,268 | 29,856 | 27,542 | |||||||||
Administrative expenses |
3,809 | 3,805 | 7,323 | 7,841 | |||||||||
Total operating expenses |
60,212 | 59,528 | 121,948 | 115,525 | |||||||||
Income from continuing operations before equity in income of real estate ventures, |
|||||||||||||
net gain on sales of interests in real estate and minority interest |
14,664 | 13,386 | 28,580 | 26,834 | |||||||||
Equity in income of real estate ventures |
411 | 229 | 569 | 693 | |||||||||
Income from continuing operations before net gain on sales of interests |
|||||||||||||
in real estate and minority interest |
15,075 | 13,615 | 29,149 | 27,527 | |||||||||
Net gain on sales of interests in real estate |
– | – | 1,152 | – | |||||||||
Minority interest attributable to continuing operations |
(2,299 | ) | (2,270 | ) | (4,618 | ) | (4,612 | ) | |||||
Income from continuing operations |
12,776 | 11,345 | 25,683 | 22,915 | |||||||||
Discontinued operations: |
|||||||||||||
Income from discontinued operations |
395 | 1,416 | 895 | 5,581 | |||||||||
Net gain on disposition of discontinued operations |
390 | 116 | 951 | 8,562 | |||||||||
Minority interest |
(37 | ) | (77 | ) | (88 | ) | (789 | ) | |||||
Income from discontinued operations |
748 | 1,455 | 1,758 | 13,354 | |||||||||
Net Income |
13,524 | 12,800 | 27,441 | 36,269 | |||||||||
Income allocated to Preferred Shares |
(2,976 | ) | (2,977 | ) | (5,952 | ) | (5,954 | ) | |||||
Income allocated to Common Shares |
$ | 10,548 | $ | 9,823 | $ | 21,489 | $ | 30,315 | |||||
Earnings per Common Share after discontinued operations: |
|||||||||||||
Basic income per Common Share |
$ | 0.29 | $ | 0.26 | $ | 0.59 | $ | 0.83 | |||||
Basic weighted-average shares outstanding |
35,603,061 | 35,684,100 | 35,452,855 | 35,692,678 | |||||||||
Diluted income per Common Share |
$ | 0.29 | $ | 0.26 | $ | 0.58 | $ | 0.82 | |||||
Diluted weighted-average shares outstanding |
35,689,456 | 35,758,768 | 35,555,688 | 35,854,894 | |||||||||
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| BRANDYWINE REALTY TRUST FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION (unaudited, in thousands, except share and per share data) |
| Quarter Ended June 30, |
Six Months Ended June 30, |
||||||||||||
2003 |
2002 |
2003 |
2002 |
||||||||||
Reconciliation of Net Income to Funds from Operations (FFO): |
|||||||||||||
Net income |
$ | 13,524 | $ | 12,800 | $ | 27,441 | $ | 36,269 | |||||
Add (deduct): |
|||||||||||||
Minority interest attributable to continuing operations |
2,299 | 2,270 | 4,618 | 4,612 | |||||||||
Net gain on sale of interests in real estate |
– | – | (1,152 | ) | – | ||||||||
Minority interest attributable to discontinued operations |
37 | 77 | 88 | 789 | |||||||||
Net gain on disposition of discontinued operations |
(390 | ) | (116 | ) | (951 | ) | (8,562 | ) | |||||
Income before net gains on sales of interests in real estate and minority interest |
15,470 | 15,031 | 30,044 | 33,108 | |||||||||
Add: |
|||||||||||||
Depreciation: |
|||||||||||||
Real property |
13,511 | 14,522 | 26,899 | 26,875 | |||||||||
Real estate ventures |
520 | 739 | 1,013 | 1,320 | |||||||||
Amortization of leasing costs |
1,764 | 1,339 | 3,404 | 2,706 | |||||||||
Funds from operations (FFO) |
$ | 31,265 | $ | 31,631 | $ | 61,360 | $ | 64,009 | |||||
Number of weighted-average Common Shares |
46,934,097 | 47,152,178 | 46,806,367 | 47,358,998 | |||||||||
FFO per weighted-average Common Share - fully diluted |
$ | 0.67 | $ | 0.67 | $ | 1.31 | $ | 1.35 | |||||
Dividend per Common Share |
$ | 0.44 | $ | 0.44 | $ | 0.88 | $ | 0.88 | |||||
Payout ratio of FFO (1) |
66.1 | % | 65.6 | % | 67.1 | % | 65.1 | % | |||||
EPS per weighted-average Common Share - fully diluted |
$ | 0.29 | $ | 0.26 | $ | 0.58 | $ | 0.82 | |||||
Cash Available for Distribution (CAD): |
|||||||||||||
FFO |
$ | 31,265 | $ | 31,631 | $ | 61,360 | $ | 64,009 | |||||
Add (deduct): |
|||||||||||||
Rental income from straight-line rents |
(1,429 | ) | (1,568 | ) | (2,913 | ) | (2,937 | ) | |||||
Deferred market rental income |
(91 | ) | – | (189 | ) | – | |||||||
Amortization: |
|||||||||||||
Deferred financing costs |
509 | 482 | 1,004 | 1,007 | |||||||||
Deferred compensation costs |
688 | 710 | 1,500 | 1,599 | |||||||||
Second generation capital expenditures (2): |
|||||||||||||
Building and tenant improvements |
(7,450 | ) | (5,373 | ) | (12,767 | ) | (8,600 | ) | |||||
Lease commissions |
(1,079 | ) | (1,987 | ) | (2,460 | ) | (3,610 | ) | |||||
Cash
available for distribution |
$ | 22,413 | $ | 23,895 | $ | 45,535 | $ | 51,468 | |||||
Number of weighted-average Common Shares |
46,934,097 | 47,152,178 | 46,806,367 | 47,358,998 | |||||||||
Dividend per Common Share |
$ | 0.44 | $ | 0.44 | $ | 0.88 | $ | 0.88 | |||||
Cash flows from: |
|||||||||||||
Operating activities |
$ | 33,872 | $ | 24,166 | $ | 59,211 | $ | 53,078 | |||||
Investing activities |
(13,192 | ) | (9,079 | ) | (19,793 | ) | 8,452 | ||||||
Financing activities |
(21,703 | ) | (21,061 | ) | (58,699 | ) | (50,513 | ) | |||||
| (1) | Payout ratio is calculated by dividing dividend per Common Share by FFO per weighted-average Common Share |
| (2) | Represents expenditures incurred during the period (regardless if lease commencement is after quarter end). Excludes first generation costs, which consist of capital expenditures, tenant improvements and leasing commissions associated with development and purchase price adjustments relating to acquisitions (including seller escrows, purchase price reduction or costs anticipated to
initially lease-up acquired properties). |
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| BRANDYWINE REALTY TRUST SAME STORE OPERATIONS (unaudited) |
Of the 237 properties owned by the Company as of June 30, 2003, a total of 230 properties (“Same Store Properties”) containing an aggregate of 15.4 million net rentable square feet were owned for the entire three-month periods ended June 30, 2003 and 2002. Average occupancy for the Same Store Properties during the three-month periods ended June 30, was 91.2% during 2003 and 91.6% during 2002. The following table sets forth revenue and expense information for the Same Store Properties:
| Quarter Ended June 30, | |||||||||||||
| Dollar | Percent | ||||||||||||
| 2003 | 2002 | Change | Change | ||||||||||
| (amounts in thousands) | |||||||||||||
Revenue |
|||||||||||||
Rents (a) |
$ | 62,648 | $ | 61,855 | $ | 793 | 1.3 | % | |||||
Tenant reimbursements |
8,544 | 8,200 | 344 | 4.2 | % | ||||||||
Other (b) |
208 | 1,050 | (842 | ) | -80.2 | % | |||||||
Total revenue |
71,400 | 71,105 | 295 | 0.4 | % | ||||||||
Operating Expenses |
|||||||||||||
Property operating expenses |
21,056 | 20,382 | 674 | 3.3 | % | ||||||||
Real estate taxes |
6,513 | 5,993 | 520 | 8.7 | % | ||||||||
Total property operating expenses |
27,569 | 26,375 | 1,194 | 4.5 | % | ||||||||
Net operating income |
$ 43,831 | $ 44,730 | $ (899) | -2.0 | % | ||||||||
| (a) | Includes straight-line rental income of $1,392 for 2003 and $1,446 for 2002 |
| (b) | Includes termination fee income of $69 for 2003 and $887 for 2002 |
The following table is a reconciliation of income from continuing operations to Same Store net operating income:
| Quarter Ended June 30, |
|||||||
| 2003 | 2002 | ||||||
(amounts in thousands) |
|||||||
Income from continuing operations |
$ | 12,776 | $ | 11,345 | |||
Add/(deduct): |
|||||||
Interest expense |
15,241 | 16,105 | |||||
Depreciation and amortization |
15,062 | 15,268 | |||||
Administrative expenses |
3,809 | 3,805 | |||||
Equity in income of real estate ventures |
(411 | ) | (229 | ) | |||
Minority interest attributable to continuing operations |
2,299 | 2,270 | |||||
Income from discontinued operations |
395 | 1,416 | |||||
Consolidated net operating income |
49,171 | 49,980 | |||||
Less: Net operating income of non same store properties |
(5,340 | ) | (5,250 | ) | |||
Same Store Net Operating Income |
$ | 43,831 | $ | 44,730 | |||
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Second Quarter Earnings Call and Supplemental Information Package |
Brandywine President and CEO, Gerard H. Sweeney, will be hosting a conference call on Friday, July 25, 2003 at 1:00 p.m. EST. Call 1-888-889-5602. After the conference, a taped replay of the call can be accessed 24 hours a day through Friday, August 8, 2003 by calling 1-877-519- 4471 – access code 4015598. In addition, the conference call can be accessed via a webcast located on the Company’s website @ brandywinerealty.com.
The Company has prepared a Supplemental Information package that includes financial results and operational statistics to support the announcement of second quarter earnings. The Supplemental Information package is available through the Company’s website @ brandywinerealty.com. The Supplemental Information Package will be found in both the “About The Company” section and the “Investor Relations – Annual Reports” section of the web page.
Brandywine Realty Trust, with headquarters in Plymouth Meeting, PA and regional offices in Mount Laurel, NJ and Richmond, VA, is one of the Mid-Atlantic Region’s largest full-service real estate companies. Brandywine owns, manages or has an ownership interest in 285 office and industrial properties, aggregating 20.4 million square feet.
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