Brandywine Realty Trust Announces Second Quarter Results

PHILADELPHIA, PA — Brandywine Realty Trust (NYSE: BDN) this week reported its financial and operating results for the three and six-month periods ended June 30, 2023.

Management Comments

“We continue to make excellent progress on our 2023 business plan highlighted by achieving 89% of our speculative revenue target based on the midpoint of our guidance.” stated Gerard H. Sweeney, President and Chief Executive Officer for Brandywine Realty Trust. “Tenants continue to prefer high quality buildings and landlords, which has benefited our portfolio including positive mark-to-market increases of 17.6% and 5.8% on an accrual and cash basis.  Our same store portfolio generated positive net operating growth of 6.2% and 6.6% on an accrual and cash basis as well. Our 405 Colorado project is now 100% leased and included in our core portfolio.  Our active development projects continue to progress as highlighted by the planned opening of our Avira residential units at 3025 JFK later this quarter.  We also made progress on our 2023 maturities by closing a 5-year mortgage on our Commerce Square property. Based on our steady progress on our 2023 business plan we are narrowing our FFO range from $1.12 to $1.20 per share to $1.14 to $1.18 per share.”

Second Quarter Highlights
Financial Results

• Net Loss to common shareholders: $(12.9) million, or ($0.08) per share.
• Funds from Operations (FFO): $49.6 million, or $0.29 per diluted share.

Portfolio Results

• Core Portfolio: 89.4% occupied and 91.1% leased. The Company’sPhiladelphia CBD and Pennsylvania Suburb Segments were 95.4% leased and 93.8% occupied and, on an accrual basis, comprised 74.6% of its YTD NOI.
• New and Renewal Leases Signed: 568,000 square feet wholly-owned and 969,000 square feet, including its joint ventures.
• Rental Rate Mark-to-Market: Increased 17.6% / 5.8% on an accrual / cash basis
• Same Store Net Operating Income: increased 6.2% on an accrual basis and increased 6.6% on a cash basis
• Tenant Retention Ratio: 71%

Recent Transaction Activity

Joint Venture and Development Activity

• On June 2, 2023, the Company refinanced the mortgage debt for its Commerce Square Venture, through a new $220.0 million mortgage loan. The new mortgage bears an all-in fixed interest rate of 7.7875% per annum and matures in June 2028. In connection with the financing transaction, the Company contributed $50.5 million to the Commerce Square Venture in exchange for an additional equity interest and to fund loan closing costs on behalf of the joint venture. As a result of its equity contribution, its ownership increased from 70% to 78%.

Disposition Activity

• As of June 30, 2023, the Company was under an agreement to sell an office property located in Austin, Texas to an unaffiliated third party for $53.3 million. The Company has determined that consummation of the sale is probable and has classified the property as held for sale on the consolidated balance sheets. The sale is subject to customary closing conditions.

2023 Finance / Capital Markets Activity

• The Company has no outstanding balance on its $600.0 million unsecured revolving credit facility as of June 30, 2023.
• The Company has $32.1 million of cash and cash equivalents on-hand as of June 30, 2023.

Results for the Three and Six Month Periods Ended June 30, 2023

Net loss allocated to common shares totaled ($12.9) million or ($0.08) per diluted share in the second quarter of 2023 compared to a net income of $4.5 million or $0.03 per diluted share in the second quarter of 2022.

FFO available to common shares and units totaled $49.6 million or $0.29 per diluted share in the second quarter of 2023 as compared to $60.5 million, or $0.35 per diluted share for the second quarter of 2022.  The Company’s second quarter 2023 payout ratio ($0.19 common share distribution / $0.29 FFO per diluted share) was 65.5%.

Net loss allocated to common shares totaled ($18.2) million or ($0.11) per diluted share in the first six months of 2023 compared to net income of $10.5 million or $0.06 per diluted share in the first six months of 2022.

The Company’s FFO available to common shares and units for the first six months of 2023 totaled $100.4 million or $0.58 per diluted share versus $120.8 million, or $0.70 per diluted share in the first six months of 2022. The Company’s payout ratio for the first half 2023 ($0.38 common share distribution / $0.58 FFO per diluted share) was 65.5%.

Operating and Leasing Activity

In the second quarter of 2023, te Company’s same store Net Operating Income (NOI) excluding termination revenues and other income items increased 6.2% on an accrual basis and increased 6.6% on a cash basis for its 71 same store properties, which were 89.4% occupied on both June 30, 2023 and 2022.

The Company leased approximately 568,000 square feet and commenced occupancy on 207,000 square feet during the second quarter of 2023. The second quarter occupancy activity includes 114,000 square feet of renewals, 73,000 square feet of new leases and 20,000 square feet of tenant expansions. The Company has an additional 224,000 square feet of executed new leasing scheduled to commence subsequent to June 30, 2023.

The Company’s second quarter tenant retention ratio was 71% in its core portfolio with net absorption of 18,000 square feet during the second quarter of 2023. Second quarter rental rate growth increased 17.6% as its renewal rental rates increased 13.0% and its new lease/expansion rental rates increased 30.1%, all on an accrual basis.

At June 30, 2023, its core portfolio of 72 properties comprises 12.8 million square feet was 89.4% occupied and, as of July 19, 2023, the Company are now 91.1% leased (reflecting new leases commencing after June 30, 2023).

Distributions

On May 25, 2023, the Company’s Board of Trustees declared a quarterly dividend distribution of $0.19 per common share that was paid on July 20, 2023 to shareholders of record as of July 6, 2023.

2023 Earnings and FFO Guidance

Based on current plans and assumptions and subject to the risks and uncertainties more fully described in its Securities and Exchange Commission filings, the Company is narrowing its 2023 loss per share guidance from ($0.15) – ($0.07) per share to ($0.16) – ($0.12) per share due to projected higher depreciation and amortization expense and the Company is narrowing its 2023 FFO guidance from $1.12 – $1.20 per diluted share to $1.14 – $1.18 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 remain unchanged from the previous quarter and 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, $16.1 million achieved;
• Tenant Retention Rate Range: 49-51%;
• Property Acquisition Activity: None;
• Property Sales Activity: $100 – $125 million; $53.3 million sale currently under agreement
• Joint Venture Activity: The Company’s ownership interest in its Commerce Square joint venture increased from 70% to 78%;
• Development Starts: None;
• Financing Activity: $245 Million Secured Financing (complete); $70.0 Million 2-Year Unsecured Term Loan (complete); $220.0 million secured financing for Commerce Square (complete) and Construction Loan at 155 King of Prussia Rd in Radnor, PA (in process);
• 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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