PHILADELPHIA, PA — Brandywine Realty Trust (NYSE: BDN) recently reported its financial and operating results for the three and six-month periods ended June 30, 2022.
“We continue to see tenants prefer higher quality, well amentized buildings, a trend that will benefit both our operating portfolio and development projects,” stated Gerard H. Sweeney, President and Chief Executive Officer for Brandywine Realty Trust. “During the second quarter, we made excellent progress on our 2022 business plan. At the midpoint of our range, we have now achieved 96% of our speculative revenue target. During the quarter we continued to experience positive mark-to-market rent increases of 18.4% and 7.8% on an accrual and cash basis. We have commenced the redevelopment of 2340 Dulles Corner after signing a 221,000 square foot anchor tenant lease which represents the largest lease signed in Northern Virginia this year. We are also excited to announce the commencement of 3151 Market Street, a 417,000-square-foot life science building within our Schuylkill Yards master development, further expanding our relationship with an existing partner. We have also extended our $600 million line of credit to June 30, 2026, and extended our $250 million term loan to June 30, 2027, on favorable terms. Despite the progress made on our 2022 Business Plan, we are being impacted by rising interest rates. Based on this anticipated impact, we are adjusting and narrowing our 2022 FFO range from $1.37 to $1.45 per share to $1.36 to $1.40 per share.”
Second Quarter Highlights
- Net Income to common shareholders: $4.5 million, or $0.03 per share.
- Funds from Operations (FFO): $60.5 million, or $0.35 per share.
- Core Portfolio: 89.6% occupied and 92.1% leased.
- New and Renewal Leases Signed: 686,000 square feet
- Rental Rate Mark-to-Market: Increased 18.4% / 7.8% on an accrual / cash basis
- Same Store Net Operating Income: Decreased (1.2%) on an accrual basis and Increased 1.7% on a cash basis
- Tenant Retention Ratio: 70%
2022 Business Plan Revisions
- Interest Expense Range: Increased from $70-72 million to $75 – 76 million.
Recent Transaction Activity
Joint Venture and Development Activity
- On July 14, 2022, the Company formed a joint venture with a global institutional investor to commence development of 3151 Market Street in Philadelphia, Pennsylvania. The project cost is approximately $307 million, and the joint venture partner has agreed, subject to customary funding conditions, to fund up to approximately $55 million of the project costs in exchange for a 45% preferred equity interest in the venture. The Company anticipates securing a construction loan totaling approximately $185 million, representing 60% of total project costs. The loan is expected to close in the fourth quarter of 2022. The Company commenced demolition of the site in June 2022 with substantial completion anticipated for the second quarter of 2024. The project is the second ground-up development in our Schuylkill Yards master planned development. The 12-story building will consist of 417,000 square feet of customizable life science/innovation office space, 18,000 square feet of retail amenity space, 6,000 square feet of outdoor terrace space, and 70 below grade parking spaces.
- As previously announced, on May 24, 2022, the Company commenced the redevelopment of 2340 Dulles Corner Boulevard in Herndon, Virginia in Metro, DC, a 268,000 square foot office building. The redevelopment is commencing with execution of an anchor lease from a leading telecommunications company for 221,000 square feet representing 84% of the property. The 11-year lease will commence upon tenant occupancy which is planned for Q2 2023.
- As previously announced, on April 14, 2022, the Company sold a land parcel located at 25 M Street in Washington, DC for a gross sales price of $29.7 million. The Company received net cash proceeds of $28.6 million and recorded a gain on sale of $3.4 million during the second quarter of 2022.
- On June 30, 2022, the Company entered into a restated credit facility agreement which extends the maturity dates of (1) our $600 million unsecured revolving credit facility (the “Revolving Credit Facility”) and (2) our $250 million unsecured term loan (the “Term Loan”). The Revolving Credit Facility has a scheduled maturity date of June 30, 2026, subject to two six-month extensions, and the Term Loan has a scheduled maturity date of June 30, 2027. The current borrowing spread for the Revolving Credit Facility is 1.05% over adjusted Term Secured Overnight Financing Rate (“SOFR”) and the borrowing spread for the Term Loan is 1.20% over adjusted SOFR.
2022 Finance / Capital Markets Activity
- The Company has $214.0 million outstanding on our $600.0 million unsecured revolving credit facility as of June 30, 2022.
- The Company has $28.8 million of cash and cash equivalents on-hand as of June 30, 2022.
Results for the Three and Six Month Periods Ended June 30, 2022
Net income allocated to common shares totaled $4.5 million or $0.03 per diluted share in the second quarter of 2022 compared to a net loss of ($0.3) million or less than ($0.01) per diluted share in the second quarter of 2021.
FFO available to common shares and units totaled $60.5 million or $0.35 per diluted share in the second quarter of 2022 as compared to $55.9 million, or $0.32 per diluted share for the second quarter of 2021. Our second quarter 2022 payout ratio ($0.19 common share distribution / $0.35 FFO per diluted share) was 54.3%.
Net income allocated to common shares totaled $10.5 million or $0.06 per diluted share in the first six months of 2022 compared to net income of $6.5 million or $0.04 per diluted share in the first six months of 2021.
Our FFO available to common shares and units for the first six months of 2022 totaled $120.8 million or $0.70 per diluted share versus $116.1 million, or $0.67 per diluted share in the first six months of 2021. Our payout ratio for the first half 2022 ($0.38 common share distribution / $0.70 FFO per diluted share) was 54.3%.
Operating and Leasing Activity
In the second quarter of 2022, our same store Net Operating Income (NOI) excluding termination revenues and other income items decreased (1.2%) on an accrual basis and increased 1.7% on a cash basis for our 73 same store properties, which were 89.5% and 90.5% occupied on June 30, 2022 and 2021, respectively.
The Company leased approximately 686,000 square feet and commenced occupancy on 385,000 square feet during the second quarter of 2022. The second quarter occupancy activity includes 137,000 square feet of renewals, 134,000 square feet of new leases and 114,000 square feet of tenant expansions. The Company has an additional 331,000 square feet of executed new leasing scheduled to commence subsequent to June 30, 2022.
Our second quarter tenant retention ratio was 70% in our core portfolio with net absorption of 27,000 square feet during the second quarter of 2022. Second quarter rental rate growth increased 18.4% as our renewal rental rates increased 8.3% and our new lease/expansion rental rates increased 26.2%, all on an accrual basis.
As of June 30, 2022, our core portfolio of 74 properties comprise 13.0 million square feet. As of June 30, 2022, our core portfolio was 89.6% occupied and the Company is currently 92.1% leased (reflecting new leases commencing after June 30, 2022).
On May 18, 2022, our Board of Trustees declared a quarterly dividend distribution of $0.19 per common share that was paid on July 20, 2022 to shareholders of record as of July 6, 2022.
2022 Earnings and FFO Guidance
Based on current plans and assumptions and subject to the risks and uncertainties more fully described in our Securities and Exchange Commission filings, the Company is adjusting our 2022 earnings per share guidance of $0.17 – $0.25 per diluted share to $0.13 – $0.17 per diluted share and adjusting our 2022 FFO guidance of $1.37 – $1.45 per diluted share to $1.36 – $1.40 per diluted share. This guidance is provided for informational purposes and is subject to change. The following is a reconciliation of the calculation of 2022 FFO guidance and earnings per diluted share guidance:
|Guidance for 2022||Range|
|Earnings per diluted share allocated to common shareholders||$0.13||to||$0.17|
|Plus: real estate depreciation, amortization||1.23||1.23|
|FFO per diluted share||$1.36||to||$1.40|
- Speculative Revenue Target: $34.0 – $36.0 million, as of July 19, 2022, $33.7 million achieved from a leasing plan of 1.8 million square feet, 1.6 million square feet achieved;
- Year-end Core Occupancy Range: 91-93%;
- Year-end Core Leased Range: 92-94%;
- Tenant Retention Rate Range: 58-60%;
- Rental Rate Growth (accrual): 16-18%;
- Rental Rate Growth (cash): 8-10%;
- Same Store (accrual) NOI Range: 0-2%;
- Same Store (cash) NOI Range: 0-2%;
- Timing of occupancy and free rent on 200,000 square feet in Philadelphia CBD would equate to an increase in our range by approximately 3.0%;
- Property Acquisition Activity: None;
- Property Sales Activity: None;
- Joint Venture Activity: Acquired a 20% common equity interest in 2970 Market Street, Philadelphia, PA;
- Development / Redevelopment Starts: Three starts. The Company has commenced two starts in 2022 located at 2340 Dulles Corner and 3151 Market Street;
- Financing Activity: Completed the anticipated refinance of our $600 million unsecured line of credit and our $250 million term loan;
- Share Buyback Activity: None;
- Annual earnings and FFO per diluted share based on 174.0 million fully diluted weighted average common shares.
For more information, please visit www.brandywinerealty.com.
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