Brandywine Realty Trust Announces First Quarter Results and Adjusts 2020 Guidance

PHILADELPHIA, April 22, 2020 (GLOBE NEWSWIRE) — Brandywine Realty Trust (NYSE:BDN) today reported its financial and operating results for the three months ended March 31, 2020.
Management Comments“As the current global health crisis and its economic impact continue to evolve daily, new challenges arise and Brandywine is rising to the occasion, with a swift response that prioritizes the health and safety of our employees, tenants, and other stakeholders, and includes clear plans for continued successful business plan execution.” stated Gerard H. Sweeney, President and Chief Executive Officer for Brandywine Realty Trust.  “We are thoughtfully addressing the impact of the near-term realities, while preparing for a range of possible outcomes.  Our operating and financial platform remains strong and secure, with excellent liquidity.  Turning to our 2020 business plan, we began the year in great shape.  First quarter leasing activity was robust and we experienced strong mark-to-market rent growth on both a cash and accrual basis.  Despite our strong first quarter results, the uncertainty surrounding the current state of the healthcare crisis has our tenants and prospective tenants focused on their employees’ safety and business rather than new space requirements.  We have carefully assessed our 2020 business plan and revised guidance to reflect the current state of uncertainty and have also reduced 2020 capital spending by approximately $50.0 million, including $20.0 million of leasing-related capital.  In addition, we also took advantage of the capital markets dislocation to purchase $60.0 million of our common stock funded partially through an asset sale.  After an exceptionally productive first quarter, but based on an uncertain business climate ahead, we are reducing our current 2020 FFO guidance range from $1.41 – $1.51 to $1.37-$1.45 and appropriately adjusting a number of other business plan metrics.”First Quarter 2020 HighlightsFinancial ResultsNet income allocated to common shareholders; $7.9 million, or $0.04 per diluted share.Funds from Operations (FFO); $61.4 million, or $0.35 per diluted share. Portfolio ResultsCore portfolio was 93.3% occupied and 95.3% leased.New and renewal leases signed:  796,000 square feet.Tenant retention ratio:  76%.Rental rate mark-to-market increased 15.7% on an accrual basis and increased 7.9% on a cash basis.Same store net operating income:  2.7% on an accrual basis and 4.0% on a cash basis.2020 Business Plan RevisionsYear-end Core Occupancy and Leased Ranges:  92-93% occupied and 94-95% leased.Speculative Revenue:  $5.0 million reduction to $26.0 million due to construction work stoppage and lower forward expected leasing volume; 96% achieved.Same Store Growth (accrual):  1-3%, as compared to previous 2-4%.Same Store Growth (cash):  (1)-1%, as compared to previous 0-2%.Monitoring COVID-19We continue to monitor events and are taking steps to mitigate the potential impact and risks of COVID-19 to Brandywine.  While we currently are unable to completely estimate the impact COVID-19 will have on our financial condition, as of the date of this press release, we believe that the impact has been reasonably estimated in our updated 2020 business plan.  We will continue to assess the ongoing effects to our business plan and our tenants and make and communicate timely adjustments, as appropriate.The following is a summary of our April 2020 consolidated cash base rent collections as of April 20, 2020:Approximately 95% of April total cash-based rent has been received from our tenants which includes 96% collection rate from our office tenants.We have received rent relief requests primarily from our co-working and retail tenants, who represent approximately 2.1% and 1.6%, of April billings, respectively.  The relief requests have substantially all been in the form of rent deferral for varying lengths of time and we are currently assessing the merits of each request.  For those tenants we believe require rent relief, we expect to grant deferrals and, in some instances, seek extended lease terms through favorable lease extensions.  We can give no assurances on the outcomes of these ongoing negotiations, the amount of the rent relief packages and ultimate recovery of the amounts deferred.Recent Transaction ActivityDisposition ActivityDuring March 2020, we completed the sale of an office building located at 52 E. Swedesford Road in Malvern, Pennsylvania for $18.0 million.  We received net cash proceeds of $17.5 million and recorded a $2.3 million gain on the sale.Acquisition ActivityDuring March 2020, we acquired a 7.8-acre land parcel located in Radnor, Pennsylvania for a gross purchase price of $11.3 million.Development/Redevelopment ActivityWe commenced the redevelopment of 3000 Market Street, a vacant 64,000 square foot office building located in Philadelphia, Pennsylvania, into a life science building.2020 Finance / Capital Markets ActivityWe have $50.0 million outstanding on our $600.0 million unsecured revolving credit facility as of March 31, 2020.We have $52.7 million of cash and cash equivalents on-hand as of March 31, 2020.During March 2020, we repurchased and retired 6,248,483 common shares at an average price of $9.60 per share, totaling $60.0 million, including $6.1 million of the common shares that were repurchased and funded subsequent to March 31, 2020.  We partially funded the share repurchase with proceeds from a property disposition that was not in our 2020 business plan.  The shares were repurchased through our existing $150.0 million share repurchase program, which has $83.0 million of remaining capacity.Results for the Three Months Ended March 31, 2020Net income allocated to common shares totaled $7.9 million, or $0.04 per diluted share, in the first quarter of 2020 compared to a net income allocated to common shares of $4.4 million, or $0.02 per diluted share in the first quarter of 2019.FFO available to common shares and units in the first quarter of 2020 totaled $61.4 million, or $0.35 per diluted share, versus $60.1 million or $0.34 per diluted share in the first quarter of 2019.  Our first quarter 2020 payout ratio ($0.19 common share distribution / $0.35 FFO per diluted share) was 54.3%.Operating and Leasing ActivityIn the first quarter of 2020, our Net Operating Income (NOI) excluding termination revenues and other income items increased 2.7% on an accrual basis and increased 4.0% on a cash basis for our 88 same store properties, which were 93.3% and 92.2% occupied on March 31, 2020 and March 31, 2019, respectively.We leased approximately 796,000 square feet and commenced occupancy on 312,000 square feet during the first quarter of 2020.  The first quarter occupancy activity includes 88,000 square feet of renewals, 123,000 square feet of new leases and 101,000 square feet of tenant expansions.  We executed on an additional 311,000 square feet of new leases scheduled to commence subsequent to March 31, 2020.We achieved a 76% tenant retention ratio in our core portfolio with net absorption of 62,500 square feet during the first quarter of 2020.  First quarter rental rate growth increased 15.7% as our renewal rental rates increased 8.6% and our new lease/expansion rental rates increased 21.1%, all on an accrual basis.At March 31, 2020, our core portfolio of 89 properties comprising 16.0 million square feet was 93.3% occupied and, as of April 17, 2020, we are now 95.3% leased (reflecting new leases commencing after March 31, 2020).DistributionsOn February 27, 2020, our Board of Trustees declared a quarterly cash dividend of $0.19 per common share and OP Unit that was paid on April 21, 2020 to holders of record on April 7, 2020.2020 Earnings and FFO GuidanceBased 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 2020 net income guidance of $0.26 – $0.36 to $0.16 – $0.24 per diluted share and 2020 FFO guidance of $1.41 – $1.51 to $1.37 – $1.45 per diluted share.  This guidance is provided for informational purposes and is subject to change.  The following is a reconciliation of the calculation of 2020 FFO and earnings per diluted share:Our 2020 FFO key assumptions to 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:  1-3%;Same Store (cash) NOI Range:  (1)-1%;Speculative Revenue Target:  $26.0 million, 96% achieved;Tenant Retention Rate:  50%;$0.19 per share quarterly dividend;Property Acquisition Activity:  250 King of Prussia Road, Radnor, Pennsylvania scheduled to occur 2H20;Property Sales Activity:  $18.0 million, 100% achieved;One Development/Redevelopment Start:  3000 Market Street, Philadelphia, Pennsylvania;Share Buyback Activity:  6,248,483 shares repurchased during first quarter 2020;Annual earnings and FFO per diluted share based on 174.0 million fully diluted weighted average common shares.About Brandywine Realty TrustBrandywine 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 172 properties and 24.1 million square feet as of March 31, 2020, which excludes assets held for sale.  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.  For more information, please visit www.brandywinerealty.com.Conference Call and Audio WebcastBDN management will discuss 2020 financial results and earnings guidance for fiscal 2020 on Thursday, April 23, 2020 at 9:00 a.m. Eastern Time.  The conference call can be accessed by dialing 1-833-818-6810 and providing conference ID: 3316979.  Beginning two hours after the conference call, a taped replay of the call can be accessed through Friday, May 8, 2020, by calling 1-855-859-2056 and entering access code 3316979.  The conference call can also be accessed via a webcast on our website at www.brandywinerealty.com.Looking Ahead – Second Quarter 2020 Conference CallWe anticipate we will release our second quarter 2020 earnings on Wednesday, July 22, 2020, after the market close and will host our second quarter 2020 conference call on Thursday, July 23, 2020 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 StatementsThis 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; unanticipated operating and capital costs; uninsured casualty losses our 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 Board of Trustees, in its sole discretion, after considering various factors, including our financial condition, historical and forecast operating results, and available cash flow, as well as any applicable laws and contractual covenants and any other relevant factors.  Our Board’s practice regarding declaration of dividends may be modified at any time and from time to time.  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, 2019.  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