Management Comments
“During the quarter we remained fully engaged with all of our stakeholders to ensure the health and safety of our employees, tenants, public officials and community groups,” stated
Third Quarter Highlights
Financial Results
- Net income available to common shareholders;
$274.4 million , or$1.60 per diluted share. Third quarter results include a$271.9 million , or$1.59 per diluted share, net gain on disposition of real estate from our previously announced joint venture ofCommerce Square . - Funds from Operations (FFO);
$60.0 million , or$0.35 per diluted share.
Portfolio Results
- Core Portfolio: 91.0% occupied and 92.6% leased.
- New and Renewal Leases Signed: 231,000 square feet.
- Tenant Retention Ratio: 60%.
- Rental Rate Mark-to-Market Increase: 17.1% on an accrual basis and 9.0% on a cash basis.
2020 Business Plan Revisions
- None.
COVID-19 Update
We continue to monitor events related to COVID-19 and are taking steps to mitigate the potential impact and risks to Brandywine. While the duration and economic impact of the COVID-19 pandemic remains unknown, as of the date of this press release, we believe that the impact of COVID-19 has been reflected in our updated 2020 business plan and earnings estimates. We are continually assessing the ongoing effects of the pandemic to our business plan, our tenants and earnings estimates.
The following is a summary of our third quarter consolidated cash base rent collections as of
- 99.5% of total cash-based rent due has been received from our tenants during the third quarter 2020.
- We have granted rent relief requests primarily to our co-working and retail tenants, totaling approximately 0.9% of annualized billings. The relief requests have substantially all been in the form of rent deferrals that are primarily being repaid in 2020 and 2021.
Through
Recent Transaction Activity
Joint Venture Activity
- One and Two Commerce,
Philadelphia, PA
As previously announced, we closed on our$600 million joint venture for One andTwo Commerce Square , selling a 30% preferred equity interest to a global institutional investor for$115 million . As part of this transaction, each of Brandywine and the investor have committed to investing an additional$20 million of preferred equity in the property. The transaction is subject to an existing$222 million mortgage, and we realized approximately$100 million in net cash proceeds. Brandywine will continue as Property Manager and Leasing Agent for the properties. We recorded a gain on the transaction during the third quarter totaling$271.9 million .The Commerce Square complex comprises an entire city block frontingMarket Street between 20th & 21st Streets inCenter City, Philadelphia , and consists of two 40-story, identical, Trophy Class office towers, totaling 1.9 million square feet, along with a 519-space underground parking garage, and a stunning central courtyard of 30,000 square feet. The towers were designed by renowned architects,IM Pei & Partners , and have individual floorplates between 15K and 34K SF to accommodate a variety of flexible, modern workspaces, while providing unobstructed panoramic views.
Finance Activity
- We had no outstanding balance on our
$600.0 million unsecured revolving credit facility as ofSeptember 30, 2020 . - We had
$62.3 million of cash and cash equivalents on-hand as ofSeptember 30, 2020 . - Two
Logan Square : we acquired the first mortgage, totaling$79.8 million onOctober 21, 2020 . The first mortgage was acquired with cash-on-hand and proceeds from our unsecured line of credit.
Results for the Three and Nine-Month Periods Ended September 30, 2020
Net income allocated to common shares totaled
FFO available to common shares and units in the third quarter of 2020 totaled
Net income allocated to common shares totaled
Our FFO available to common shares and units for the first nine months of 2020 totaled
Operating and Leasing Activity
In the third quarter of 2020, our Net Operating Income (NOI), excluding termination revenues and other income items, decreased (2.3%) on an accrual basis and (5.3%) on a cash basis for our 87 same store properties, which were 91.0% and 93.2% occupied on
We leased approximately 231,000 square feet and commenced occupancy on 651,000 square feet during the third quarter of 2020. The third quarter occupancy activity includes 281,000 square feet of renewals, 323,000 square feet of new leases and 47,000 square feet of tenant expansions. We have an additional 234,000 square feet of executed new leasing scheduled to commence subsequent to
We achieved a 60% tenant retention ratio in our core portfolio with net absorption of 102,000 square feet during the third quarter of 2020. Third quarter rental rate growth increased 17.1% as our renewal rental rates increased 10.6% and our new lease/expansion rental rates increased 22.8%, all on an accrual basis.
At
Distributions
On
2020 Earnings and FFO Guidance
Based on current plans and assumptions and subject to the risks and uncertainties more fully described in our
Guidance for 2020 | Range | |||
Earnings per diluted share allocated to common shareholders | $1.77 | to | $1.79 | |
Plus: real estate depreciation, amortization | 1.22 | 1.22 | ||
Less: gain on disposition of real estate | (1.59) | (1.59) | ||
FFO per diluted share | $ 1.40 | to |
Our 2020 FFO key assumptions include:
Year-end Core Occupancy Range : 92-93%;Year-end Core Leased Range : 94-95%;- Rental Rate Mark-to-Market (accrual): 17-19%;
- Rental Rate Mark-to-Market (cash): 8-10%;
- Same Store (accrual)
NOI Range : 0-2%; - Same Store (cash)
NOI Range : (2)-0%; - Speculative Revenue Target:
$26.0 million , 100% achieved; - Tenant Retention Rate: 51%;
$0.19 per share quarterly dividend;- Property Acquisition Activity: 250 King of
Prussia Road ,Radnor, Pennsylvania scheduled during the fourth quarter of 2020; - Property Sales Activity:
$18.0 million , 100% achieved; - Joint Venture Activity: Sold 30% interest in a new joint venture for
$115.0 million ; - One Development/Redevelopment Start:
3000 Market Street ,Philadelphia, Pennsylvania ; - Financing/Liability Management:
Acquired Two Logan Square first mortgage totaling$79.8 million and repay the first mortgage atFour Tower Bridge totaling$9.1 million ; - Share Buyback Activity: 6,248,483 shares repurchased during first quarter 2020;
- Annual earnings and FFO per diluted share based on 173.0 million fully diluted weighted average common shares.
2021 Earnings, Business Plan and FFO Guidance
We normally provide 2021 earnings, business plan and FFO guidance during our third quarter earnings cycle. As previously announced, based on the current COVID-19 pandemic creating an uncertain business climate, we do not plan on providing our 2021 guidance during our third quarter earnings cycle.
About
Conference Call and Audio Webcast
BDN management will discuss 2020 financial results and earnings guidance for fiscal 2020 on
Looking Ahead –Fourth Quarter 2020 Conference Call
We anticipate we will release our fourth quarter 2020 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 2020 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 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 in 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 and in thousands)
ASSETS | ||||||||
Real estate investments: | ||||||||
Operating properties | $ | 3,715,765 | $ | 4,006,459 | ||||
Accumulated depreciation | (980,664 | ) | (973,318 | ) | ||||
Right of use asset - operating leases, net | 21,145 | 21,656 | ||||||
Operating real estate investments, net | 2,756,246 | 3,054,797 | ||||||
Construction-in-progress | 186,853 | 180,718 | ||||||
Land held for development | 115,474 | 96,124 | ||||||
Prepaid leasehold interests in land held for development, net | 39,287 | 39,592 | ||||||
Total real estate investments, net | 3,097,860 | 3,371,231 | ||||||
Assets held for sale, net | 7,349 | 7,349 | ||||||
Cash and cash equivalents | 62,256 | 90,499 | ||||||
Accounts receivable, net of allowance of | 20,433 | 16,363 | ||||||
Accrued rent receivable, net of allowance of | 159,952 | 174,144 | ||||||
Investment in | 377,486 | 120,294 | ||||||
Deferred costs, net | 90,601 | 95,560 | ||||||
Intangible assets, net | 50,715 | 84,851 | ||||||
Other assets | 124,408 | 115,678 | ||||||
Total assets | $ | 3,991,060 | $ | 4,075,969 | ||||
LIABILITIES AND BENEFICIARIES' EQUITY | ||||||||
Mortgage notes payable, net | $ | 88,913 | $ | 313,812 | ||||
Unsecured term loan, net | 248,953 | 248,561 | ||||||
Unsecured senior notes, net | 1,581,645 | 1,582,045 | ||||||
Accounts payable and accrued expenses | 117,248 | 113,347 | ||||||
Distributions payable | 32,705 | 33,815 | ||||||
Deferred income, gains and rent | 25,070 | 35,284 | ||||||
Intangible liabilities, net | 17,500 | 22,263 | ||||||
Lease liability - operating leases | 22,707 | 22,554 | ||||||
Other liabilities | 40,537 | 15,985 | ||||||
Total liabilities | $ | 2,175,278 | $ | 2,387,666 | ||||
Common Shares of | 1,707 | 1,766 | ||||||
Additional paid-in-capital | 3,136,851 | 3,192,158 | ||||||
Deferred compensation payable in common shares | 17,516 | 16,216 | ||||||
Common shares in grantor trust, 1,160,494 and 1,105,542 issued and outstanding as of | (17,516 | ) | (16,216 | ) | ||||
Cumulative earnings | 1,091,095 | 804,556 | ||||||
Accumulated other comprehensive loss | (8,749 | ) | (2,370 | ) | ||||
Cumulative distributions | (2,415,736 | ) | (2,318,233 | ) | ||||
1,805,168 | 1,677,877 | |||||||
Noncontrolling interests | 10,614 | 10,426 | ||||||
Total beneficiaries' equity | 1,815,782 | 1,688,303 | ||||||
Total liabilities and beneficiaries' equity | $ | 3,991,060 | $ | 4,075,969 |
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
Three Months Ended | Nine Months Ended | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Revenue | |||||||||||||||
Rents | $ | 121,277 | $ | 139,228 | $ | 392,661 | $ | 415,113 | |||||||
Third party management fees, labor reimbursement and leasing | 4,324 | 4,938 | 13,339 | 14,041 | |||||||||||
Other | 505 | 1,165 | 2,031 | 4,224 | |||||||||||
Total revenue | 126,106 | 145,331 | 408,031 | 433,378 | |||||||||||
Operating expenses | |||||||||||||||
Property operating expenses | 31,567 | 38,358 | 102,320 | 116,542 | |||||||||||
Real estate taxes | 14,923 | 15,247 | 48,525 | 47,119 | |||||||||||
Third party management expenses | 2,509 | 2,469 | 7,546 | 7,035 | |||||||||||
Depreciation and amortization | 43,533 | 55,627 | 145,314 | 158,738 | |||||||||||
General and administrative expenses | 7,069 | 6,974 | 23,973 | 25,217 | |||||||||||
Total operating expenses | 99,601 | 118,675 | 327,678 | 354,651 | |||||||||||
Gain on sale of real estate | |||||||||||||||
Net gain on disposition of real estate | 271,901 | 356 | 274,487 | 356 | |||||||||||
Net gain on sale of undepreciated real estate | — | 250 | 201 | 1,501 | |||||||||||
Total gain on sale of real estate | 271,901 | 606 | 274,688 | 1,857 | |||||||||||
Operating income | 298,406 | 27,262 | 355,041 | 80,584 | |||||||||||
Other income (expense): | |||||||||||||||
Interest income | 467 | 558 | 1,487 | 1,636 | |||||||||||
Interest expense | (16,310 | ) | (20,400 | ) | (56,510 | ) | (61,273 | ) | |||||||
Interest expense - amortization of deferred financing costs | (715 | ) | (694 | ) | (2,195 | ) | (2,026 | ) | |||||||
Equity in loss of | (5,788 | ) | (1,965 | ) | (9,882 | ) | (4,814 | ) | |||||||
Net gain on real estate venture transactions | 75 | 2,059 | 75 | 3,594 | |||||||||||
Net income before income taxes | 276,135 | 6,820 | 288,016 | 17,701 | |||||||||||
Income tax (provision) benefit | (2 | ) | — | 224 | (46 | ) | |||||||||
Net income | 276,133 | 6,820 | 288,240 | 17,655 | |||||||||||
Net income attributable to noncontrolling interests | (1,612 | ) | (48 | ) | (1,701 | ) | (155 | ) | |||||||
Net income attributable to | 274,521 | 6,772 | 286,539 | 17,500 | |||||||||||
Nonforfeitable dividends allocated to unvested restricted shareholders | (93 | ) | (93 | ) | (317 | ) | (305 | ) | |||||||
Net income attributable to Common Shareholders of | $ | 274,428 | $ | 6,679 | $ | 286,222 | $ | 17,195 | |||||||
PER SHARE DATA | |||||||||||||||
Basic income per Common Share | $ | 1.61 | $ | 0.04 | $ | 1.66 | $ | 0.10 | |||||||
Basic weighted average shares outstanding | 170,573,028 | 176,195,244 | 172,380,410 | 176,066,507 | |||||||||||
Diluted income per Common Share | $ | 1.60 | $ | 0.04 | $ | 1.66 | $ | 0.10 | |||||||
Diluted weighted average shares outstanding | 171,026,492 | 176,750,600 | 172,735,436 | 176,617,726 |
FUNDS FROM OPERATIONS
(unaudited, in thousands, except share and per share data)
Three Months Ended | Nine Months Ended | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Reconciliation of Net Income to Funds from Operations: | |||||||||||||||
Net income attributable to common shareholders | $ | 274,428 | $ | 6,679 | $ | 286,222 | $ | 17,195 | |||||||
Add (deduct): | |||||||||||||||
Net income attributable to noncontrolling interests - LP units | 1,614 | 37 | 1,681 | 97 | |||||||||||
Nonforfeitable dividends allocated to unvested restricted shareholders | 93 | 93 | 317 | 305 | |||||||||||
Net gain on real estate venture transactions | (75 | ) | (2,059 | ) | (75 | ) | (2,318 | ) | |||||||
Net gain on disposition of real estate | (271,901 | ) | (356 | ) | (274,487 | ) | (356 | ) | |||||||
Depreciation and amortization: | |||||||||||||||
Real property | 34,479 | 40,695 | 110,026 | 112,833 | |||||||||||
Leasing costs including acquired intangibles | 8,542 | 14,374 | 33,786 | 44,478 | |||||||||||
Company’s share of unconsolidated real estate ventures | 13,014 | 4,800 | 22,243 | 14,815 | |||||||||||
Partners’ share of consolidated real estate ventures | (5 | ) | (61 | ) | (124 | ) | (168 | ) | |||||||
Funds from operations | $ | 60,189 | $ | 64,202 | $ | 179,589 | $ | 186,881 | |||||||
Funds from operations allocable to unvested restricted shareholders | (172 | ) | (179 | ) | (529 | ) | (567 | ) | |||||||
Funds from operations available to common share and unit holders (FFO) | $ | 60,017 | $ | 64,023 | $ | 179,060 | $ | 186,314 | |||||||
FFO per share - fully diluted | $ | 0.35 | $ | 0.36 | $ | 1.03 | $ | 1.05 | |||||||
Weighted-average shares/units outstanding - fully diluted | 172,008,126 | 177,732,226 | 173,717,070 | 177,599,840 | |||||||||||
Distributions paid per common share | $ | 0.19 | $ | 0.19 | $ | 0.57 | $ | 0.57 | |||||||
FFO payout ratio (distributions paid per common share/FFO per diluted share) | 54.3 | % | 52.8 | % | 55.3 | % | 54.3 | % |
SAME STORE OPERATIONS – 3rd QUARTER
(unaudited and in thousands)
Of the 92 properties owned by the Company as of
Three Months Ended | ||||||||
2020 | 2019 | |||||||
Revenue | ||||||||
Rents | $ | 113,167 | $ | 115,414 | ||||
Other | 151 | 429 | ||||||
Total revenue | 113,318 | 115,843 | ||||||
Operating expenses | ||||||||
Property operating expenses | 28,683 | 30,019 | ||||||
Real estate taxes | 13,778 | 12,526 | ||||||
Net operating income | $ | 70,857 | $ | 73,298 | ||||
Net operating income - percentage change over prior year | (3.3 | )% | ||||||
Net operating income, excluding other items | $ | 70,426 | $ | 72,102 | ||||
Net operating income, excluding other items - percentage change over prior year | (2.3 | )% | ||||||
Net operating income | $ | 70,857 | $ | 73,298 | ||||
Straight line rents & other | (3,784 | ) | (1,493 | ) | ||||
Above/below market rent amortization | (988 | ) | (1,440 | ) | ||||
Amortization of tenant inducements | 237 | 230 | ||||||
Non-cash ground rent | 208 | 211 | ||||||
Cash - Net operating income | $ | 66,530 | $ | 70,806 | ||||
Cash - Net operating income - percentage change over prior year | (6.0 | )% | ||||||
Cash - Net operating income, excluding other items | $ | 65,528 | $ | 69,184 | ||||
Cash - Net operating income, excluding other items - percentage change over prior year | (5.3 | )% | ||||||
Three Months Ended | ||||||||
2020 | 2019 | |||||||
Net income: | $ | 276,133 | $ | 6,820 | ||||
Add/(deduct): | ||||||||
Interest income | (467 | ) | (558 | ) | ||||
Interest expense | 16,310 | 20,400 | ||||||
Interest expense - amortization of deferred financing costs | 715 | 694 | ||||||
Equity in loss of | 5,788 | 1,965 | ||||||
Net gain on real estate venture transactions | (75 | ) | (2,059 | ) | ||||
Net gain on disposition of real estate | (271,901 | ) | (356 | ) | ||||
Net gain on sale of undepreciated real estate | — | (250 | ) | |||||
Depreciation and amortization | 43,533 | 55,627 | ||||||
General & administrative expenses | 7,069 | 6,974 | ||||||
Income tax provision | 2 | — | ||||||
Consolidated net operating income | 77,107 | 89,257 | ||||||
Less: Net operating income of non-same store properties and elimination of non-property specific operations | (6,250 | ) | (15,959 | ) | ||||
Same store net operating income | $ | 70,857 | $ | 73,298 |
SAME STORE OPERATIONS – NINE MONTHS
(unaudited and in thousands)
Of the 92 properties owned by the Company as of
Nine Months Ended | ||||||||
2020 | 2019 | |||||||
Revenue | ||||||||
Rents | $ | 339,718 | $ | 341,231 | ||||
Other | 723 | 1,086 | ||||||
Total revenue | 340,441 | 342,317 | ||||||
Operating expenses | ||||||||
Property operating expenses | 87,003 | 90,990 | ||||||
Real estate taxes | 40,324 | 38,219 | ||||||
Net operating income | $ | 213,114 | $ | 213,108 | ||||
Net operating income - percentage change over prior year | — | % | ||||||
Net operating income, excluding other items | $ | 210,250 | $ | 210,564 | ||||
Net operating income, excluding other items - percentage change over prior year | (0.1 | )% | ||||||
Net operating income | $ | 213,114 | $ | 213,108 | ||||
Straight line rents & other | (7,684 | ) | (5,032 | ) | ||||
Above/below market rent amortization | (3,378 | ) | (4,196 | ) | ||||
Amortization of tenant inducements | 730 | 614 | ||||||
Non-cash ground rent | 628 | 639 | ||||||
Cash - Net operating income | $ | 203,410 | $ | 205,133 | ||||
Cash - Net operating income - percentage change over prior year | (0.8 | )% | ||||||
Cash - Net operating income, excluding other items | $ | 198,999 | $ | 201,921 | ||||
Cash - Net operating income, excluding other items - percentage change over prior year | (1.4 | )% | ||||||
Nine Months Ended | ||||||||
2020 | 2019 | |||||||
Net income: | $ | 288,240 | $ | 17,655 | ||||
Add/(deduct): | ||||||||
Interest income | (1,487 | ) | (1,636 | ) | ||||
Interest expense | 56,510 | 61,273 | ||||||
Interest expense - amortization of deferred financing costs | 2,195 | 2,026 | ||||||
Equity in loss of | 9,882 | 4,814 | ||||||
Net gain on real estate venture transactions | (75 | ) | (3,594 | ) | ||||
Net gain on disposition of real estate | (274,487 | ) | (356 | ) | ||||
Net gain on sale of undepreciated real estate | (201 | ) | (1,501 | ) | ||||
Depreciation and amortization | 145,314 | 158,738 | ||||||
General & administrative expenses | 23,973 | 25,217 | ||||||
Income tax provision (benefit) | (224 | ) | 46 | |||||
Consolidated net operating income | 249,640 | 262,682 | ||||||
Less: Net operating income of non-same store properties and elimination of non-property specific operations | (36,526 | ) | (49,574 | ) | ||||
Same store net operating income | $ | 213,114 | $ | 213,108 |
Company / Investor Contact: |
EVP & CFO |
610-832-7434 |
tom.wirth@bdnreit.com |
Source:
2020 GlobeNewswire, Inc., source