Brandywine Realty Trust Announces Fourth Quarter, Full Year 2022 Results

PHILADELPHIA, PA — Brandywine Realty Trust (NYSE: BDN) this week reported its financial and operating results for the three and twelve-month periods ended December 31, 2022.

Management Comments
“During 2022 we accomplished our 2022 business plan objectives and exceeded our midpoint goals for speculative revenue, same store results and rental rate mark-to-markets,” stated Jerry Sweeney, President and Chief Executive Office of Brandywine Realty Trust. “In addition, since our last earnings release we have raised over $705 million through fourth quarter asset sales, an unsecured bond transaction in December 2022 and a secured loan transaction in January 2023.  The net proceeds were used to redeem our February 2023 unsecured bond maturity totaling $350 million and completely repay the outstanding balance on our $600 million unsecured line of credit.  We now have complete availability on our $600 million unsecured line of credit and 96% of our wholly-owned debt is fixed. Other than our October 2024 bond maturity, we have no other wholly-owned debt maturities until June 2026. All of our development projects remain on schedule and on budget.  Looking ahead, we are introducing our 2023 FFO guidance range of $1.12 to $1.20 per diluted share which is impacted by higher interest expense from our recent debt refinancings.”

Fourth Quarter Highlights

Financial Results

• Net income available to common shareholders; $29.5 million, or $0.17 per diluted share.
• Funds from Operations (FFO); $55.7 million, or $0.32 per diluted share.

Portfolio Results

• Core Portfolio: 89.8% occupied and 91.0% leased.
• New and Renewal Leases Signed: 226,000 square feet in the fourth quarter and 1,852,000 square feet for 2022.
• Rental Rate Growth: 21.0% on an accrual basis and 12.5% on a cash basis.
• Tenant Retention Ratio: 38% in fourth quarter and 64% for 2022.

Transaction Activity

Development Activity

• As previously announced, the Company is developing a fully leased 145,000-square-foot build-to-suit office building located in Radnor, Pennsylvania. The building will be the North American Headquarters for Arkema S.A., a global supplier of specialty materials. Construction commenced during January 2023 and the scheduled completion is the fourth quarter 2024. The Company plans to fund the development through a combination of a construction loan, the Company’s line of credit and cash on hand.

Disposition Activity

• As previously announced, during the fourth quarter of 2022 the Company sold one office property in suburban Philadelphia and the Company’s ownership interest in a mixed-use property in Philadelphia for an aggregate sales price of approximately $113.6 million and it received $112.6 million in net proceeds. The sales generated a gain totaling $35.4 million, or $0.21 per share, that was recorded in the fourth quarter.   Proceeds were used to reduce the outstanding balance on its unsecured line of credit.

Finance Activity

• As previously announced, the Company completed an underwritten public offering of $350 million of the Company’s 7.550% guaranteed notes due 2028 (the “2028 Notes”). Interest on the 2028 Notes will be payable semi-annually on March 15 and September 15 of each year, commencing March 15, 2023. The sale of the 2028 Notes closed on December 13, 2022. The net proceeds of the offering, after deducting underwriting discounts and transaction expenses related to this offering, totaled approximately $344.1 million. The Company used the net proceeds of the offering to tender or redeem the $350 million outstanding principal amount of its 3.95% Guaranteed Notes due February 15, 2023 (the “2023 Notes”) and for general corporate purposes.
• As previously announced, the Company has redeemed 100% of the Company’s outstanding 2023 Notes. On December 20, 2022, the Company redeemed approximately $295.7 million of the 2023 Notes through a tender offer to the existing bond holders and subsequently on January 20, 2023, the Company redeemed approximately $54.3 million of the 2023 Notes. All of the 2023 Notes were redeemed at par plus any accrued interest. The 2023 Notes were redeemed with proceeds from its December 2028 Guaranteed Note issuance, cash-on-hand and its unsecured line of credit.
• On January 19, 2023, the Company entered into a non-recourse secured loan agreement in the aggregate principal amount of $245.0 million which bears interest at 5.875% (the “Secured Loan”).   The Secured Loan has a scheduled maturity date of February 6, 2028 and may be prepaid in full on or after March 6, 2025, subject to a prepayment premium, and may be prepaid in full on or after August 6, 2027 without any prepayment premium. The Secured Loan is collateralized by 7 wholly-owned properties. Net cash proceeds totaled $235.7 million which were used to escrow $15.2 million for property-level 2023 reserves and capital, fully pay-off the outstanding balance on the Company’s unsecured line of credit and other corporate purposes.
• The Company had $88.5 million outstanding on its $600.0 million unsecured revolving credit facility as of December 31, 2022, and, as of today, there is no outstanding balance on its facility.
• The Company had $17.6 million of cash and cash equivalents on-hand as of December 31, 2022.

Results for the Three and Twelve-Month Periods Ended December 31, 2022

Net income allocated to common shares totaled $29.5 million or $0.17 per diluted share in the fourth quarter of 2022 compared to a net income of $4.5 million or $0.03 per diluted share in the fourth quarter of 2021.

FFO in the fourth quarter of 2022 totaled $55.7 million or $0.32 per diluted share versus $60.4 million or $0.35 per diluted share in the fourth quarter of 2021. The Company’s fourth quarter 2022 FFO payout ratio ($0.19 common share distribution / $0.32 FFO per diluted share) was 59.4%.

Net income totaled $53.4 million or $0.31 per diluted share for the twelve months of 2022 compared to net income of $11.9 million allocated to common shares or $0.07 per diluted share in the twelve months of 2021.

The Company’s FFO available to common shares and units for the twelve months ended 2022 totaled $238.2 million, or $1.38 per diluted share compared to FFO available to common shares and units of the twelve months of 2021 which totaled $237.6 million, or $1.37 per diluted share. OThe Company’s 2022 FFO payout ratio ($0.76 common share distribution / $1.38 FFO per diluted share) was 55.1%.

Operating and Leasing Activity

In the fourth quarter of 2022, the Company’s Net Operating Income (NOI), excluding termination revenues, write-off of prior straight-line rent receivables and other income items increased 2.4% on an accrual basis and increased 1.5% on a cash basis for its 71 same store properties, which were 89.8% and 91.1% occupied on December 31, 2022 and 2021, respectively.

The Company leased approximately 226,000 square feet and commenced occupancy on 168,000 square feet during the fourth quarter of 2022. The fourth quarter occupancy activity includes 87,000 square feet of renewals, 57,000 square feet of new leases and 24,000 square feet of tenant expansions. The Company has an additional 142,000 square feet of executed new leases scheduled to commence subsequent to December 31, 2022.

The Company experienced 38% tenant retention ratio in the Company’s core portfolio with net negative absorption of (123,000) square feet during the fourth quarter of 2022 which includes a 65,000 square foot tenant in Austin, Texas that vacated early. Fourth quarter rental rate growth increased 21.0% as its renewal rental rates increased 21.3% and its new lease/expansion rental rates increased 19.9%, all on an accrual basis.

For the year, the Company’s 2022 leasing activity totaled approximately 1,852,000 square feet and commenced occupancy on 1,659,000 square feet. The 2022 occupancy activity includes 848,000 of renewals, 486,000 of new leases and 325,000 square feet of tenant expansions.

At December 31, 2022, the Company’s core portfolio of 72 properties comprising 12.8 million square feet was 89.8% occupied and the Company is now 91.0% leased (reflecting new leases commencing after December 31, 2022).

Distributions

On December 6, 2022, the Company’s Board of Trustees declared a quarterly dividend distribution of $0.19 per common share that was paid on January 19, 2023 to shareholders of record as of January 5, 2023.

2023 Earnings and FFO Guidance

Based on current plans and assumptions and subject to the risks and uncertainties more fully described in the Company’s Securities and Exchange Commission filings, the Company provided its 2023 loss per share guidance of $(0.12) – $(0.04) per diluted share and 2023 FFO guidance of $1.12 – $1.20 per diluted share. This guidance is provided for informational purposes and is subject to change. The following is a reconciliation of the calculation of 2023 FFO and earnings per diluted share:

The Company’s 2023 FFO key assumptions include:

• Year-end Core Occupancy Range: 90-91%;
• Year-end Core Leased Range: 91-92%;
• Rental Rate Growth (accrual): 11-13%;
• Rental Rate Growth (cash): 4-6%;
• Same Store (accrual) NOI Growth Range: 0-2%;
• Same Store (cash) NOI Growth Range: 2.5-4.5%;
• Speculative Revenue Target: $17.0 – $19.0 million, $10.0 million achieved;
• Tenant Retention Rate Range: 49-51%;
• Property Acquisition Activity: None;
• Property Sales Activity: $100 – $125 million;
• Joint Venture Activity: None;
• Development Starts: None;
• Financing Activity: $245 Million Secured Financing (Complete) and Construction Loan at 155 King of Prussia Rd in Radnor, PA;
• Share Buyback Activity: None;
• Annual earnings and FFO per diluted share based on 174.0 million fully diluted weighted average common shares.

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