- FFO: $0.22 per share, totaling $38 million.
- Net Income: $29.9 million, or $0.17 per share.
- Revenue Plan: Increased speculative revenue range to $25 million to $26 million, with $25.6 million already executed.
- Leasing Activity: 500,000 square feet total, including 164,000 square feet of new leases.
- Debt Reduction: Eliminated $163 million of debt attribution from joint ventures.
- Occupancy: 87.3% occupied and 88.5% leased.
- Rental Rate Mark to Market: 10.8% on a GAAP basis and -0.4% on a cash basis.
- Net Debt to EBITDA: 7.9x.
- FFO Guidance: Narrowed to $0.91 to $0.96 per share.
- Dividend Payout Ratios: 68% FFO and 97% CAD for the second quarter.
- Sales Activity: Targeting $80 million to $100 million in sales, with $200 million of properties in the market.
- Development Pipeline: 200,000 square feet in active lease negotiations, 900,000 square feet of proposals outstanding.
- Interest Expense: $2.2 million below reforecast due to higher capitalized interest and lower projected borrowings.
- G&A Expense: $8.9 million, $600,000 above reforecast.
- Debt Service and Interest Coverage Ratios: 2.2.
- Core Net Debt to EBITDA: 7.0x.
- Bond Offering: Completed $400 million bond offering, eliminating near-term maturity risk.
- Joint Venture Debt Reduction: Over $100 million in the quarter.
- Capital Plan: $180 million, with CAD range of 90% to 95%.
- Cash on Hand: Projected $4 million at year-end with undrawn line of credit.
Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Brandywine Realty Trust (BDN, Financial) successfully redeemed its October 2024 bonds, eliminating near-term maturity risks.
- The company has resolved two non-recourse mortgages, reducing debt attribution by $101 million.
- Development lease-up activities are progressing well, with a strong pipeline and advanced lease negotiations for 200,000 square feet.
- The residential components of their projects are performing well, with high absorption and rent rates.
- Brandywine Realty Trust (BDN) reported second-quarter FFO of $0.22 per share, in line with consensus estimates.
Negative Points
- The Austin portfolio remains a challenge with an 80% occupancy rate, below historical levels.
- The company faces liquidity and valuation challenges in the commercial real estate sector.
- Quarterly rental rate mark-to-market was negative 0.4% on a cash basis, impacted by a lease renewal in Austin.
- Occupancy rates decreased slightly to 87.3% from the previous quarter.
- The leasing activity for the quarter totaled 164,000 square feet, which may be considered low.
Q & A Highlights
Q: Jerry, can you provide an update on the leasing pipeline for the three commercial projects under development?
A: The pipeline remains strong, reflecting the quality of our projects. We have several larger leases under active negotiation. The pipeline for 3025 and 3151 has remained stable, while One Uptown has seen a dramatic uptick in activity. We are focused on converting these prospects into leases.
Q: Given the limited rollover in the next few years, are there any impediments to absorbing vacancies?
A: We feel the operating portfolio is in solid shape. Our largest expiration in 2025 is a 50,000 square foot tenant in Radnor, for which we have a lease issued. The opportunity lies in the Austin portfolio, which has a 20% vacancy level. We are working to convert the new deal pipeline to occupancy.
Q: Can you help frame out what percentage of tenants in the development pipeline are new-to-market versus expiration-driven?
A: Many prospects in Schuylkill Yards are existing tenants needing significant expansion, indicating urgency. Some are new to the market, which can be more deliberative. At One Uptown, most prospects are in-market tenants with pending maturities, adding pressure to make decisions soon.
Q: What are you seeing in terms of life science tenant demand for 3151 Market?
A: Discussions are constructive, with major prospects in negotiations. The market had about 1 million square feet of life science prospects at the beginning of the year, now down to 800,000. We are encouraged by the capital raising environment, which should generate additional activity.
Q: Can you provide insight into the tour activity being notably above pre-COVID levels?
A: It's a combination of flight to quality and concerns about financial stability of landlords. We are well-positioned to take advantage of this shift. The competitive set is shrinking, and our financial flexibility and quality portfolio are attracting more prospects.
Q: Regarding the MAP JV restructuring, what is the potential upside from this move?
A: The restructuring has not significantly impacted our 2024 guidance. However, we expect an uplift in 2025 as we start leasing and stabilizing the assets. The restructuring also provides a solid revenue stream from management and leasing services.
Q: How should we think about the dividend given the tighter cash payout ratios?
A: We evaluate the dividend every quarter, balancing our business plan with maintaining a good payout to shareholders. While the CAD ratio was higher this quarter, year-to-date we are below our targeted range. We remain focused on executing our business plan and improving liquidity.
Q: Can you provide an update on the properties identified to help reduce vacancy in the portfolio?
A: We are advancing residential conversions for River Place and Delaware, marketing Plymouth Meeting for sale, and completing lobby renovations at One West Elm. Cira Center is expanding its life science space, and we are actively leasing properties in Austin and Plymouth Road.
Q: Do you anticipate any impact from the mandate for Philadelphia government employees to return to the office full-time?
A: The return of city employees is a positive development, increasing street traffic and contributing to a safer, cleaner environment in Center City. This leadership move by the mayor is encouraging other businesses to bring employees back to the office.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
