Brandywine Realty Trust Announces Second Quarter 2010 Earnings

RADNOR, Pa., July 28 /PRNewswire-FirstCall/ -- Brandywine Realty Trust (NYSE: BDN), a real estate investment trust focused on the ownership, management and development of Class A, suburban and urban office properties in the mid-Atlantic region and other selected markets throughout the United States, today reported its financial and operating results for the three and six-month periods ended June 30, 2010.  

"The second quarter extends our record of solid execution on our 2010 business plan," stated Gerard H. Sweeney, President and Chief Executive Officer of Brandywine Realty Trust.  "We continue to achieve strong leasing with our renewals, expansions and new leases reflecting the ongoing transition to a recovering real estate market.  While pricing power and concession packages remain mixed, strong landlords such as us remain best positioned to outperform the overall market.  Our 44.1% FFO coverage ratio on our dividend is among the best in the REIT industry.  We raised an additional $24.8 million of net proceeds during the second quarter through our continuous equity program, bringing year-to-date net proceeds to $40.9 million and enhancing our deleveraging efforts.  During the third quarter, we expect to deliver the 30th Street Post Office Project to the Internal Revenue Service on time and under budget with $13.5 million of expected savings against our original cost estimates.  Lastly, and as a result of these accomplishments, we are raising our 2010 FFO guidance per diluted share from $1.27-$1.34 to $1.30-$1.34."

Financial Highlights - Second Quarter

• Net loss allocated to common shares totaled ($7.6 million) or ($0.06) per diluted share in the second quarter of 2010 compared to net income of $3.5 million or $0.03 per diluted share in the second quarter of 2009.  Our weighted average diluted share count increased to 131.5 million shares in the second quarter of 2010 from 102.7 million shares in the second quarter of 2009 due primarily to our issuance of 40.25 million common shares on June 2, 2009.  
• Funds from operations available to common shares and units (FFO) in the second quarter of 2010 totaled $46.6 million or $0.34 per diluted share compared to $59.2 million or $0.56 per diluted share in the second quarter of 2009.  Our second quarter 2010 FFO payout ratio was 44.1% ($0.15 common share dividend paid / $0.34 FFO per share).  Our weighted average fully diluted share count for FFO (and CAD) calculations increased to 136.1 million shares in the second quarter of 2010 from 105.6 million shares in the second quarter of 2009 due primarily to the aforementioned 40.25 million common share issuance.
• In the second quarter of 2010, we incurred $13.5 million of revenue maintaining capital expenditures which along with our other adjustments to FFO, resulted in $31.0 million of cash available for distribution (CAD) or $0.23 per diluted share compared to $44.9 million of CAD or $0.43 per diluted share in the second quarter of 2009 when we incurred $12.9 million of revenue maintaining capital expenditures.  Our second quarter 2010 CAD payout ratio was 65.2% ($0.15 common share dividend paid / $0.23 CAD per share).

Financial Highlights – Six Months

• Net loss allocated to common shares totaled ($10.0 million) or ($0.08) per diluted share in the first six months of 2010 compared to net income of $0.7 million or $0.01 per diluted share in the first six months of 2009.  Our weighted average diluted share count increased to 130.1 million shares in the first six months of 2010 from 95.5 million shares in the first six months of 2009 due primarily to the aforementioned 40.25 million common share issuance.
• FFO available to common shares and units in the first six months of 2010 totaled $92.3 million or $0.68 per diluted share compared to $109.7 million or $1.12 per diluted share in the first six months of 2009 ($113.4 million or $1.15 per diluted share excluding a $3.7 million impairment charge).  Our FFO payout ratio for the first six months of 2010 was 44.1% ($0.30 common share dividend paid / $0.68 FFO per share).  Our weighted average fully diluted share count for FFO (and CAD) calculations increased to 134.7 million shares for the first half of 2010 from 98.3 million shares in the first half of 2009 due primarily to the aforementioned 40.25 million common share issuance.
• During the first six months of 2010, we incurred $22.5 million of revenue maintaining capital expenditures which along with our other adjustments to FFO, resulted in $64.8 million of CAD or $0.48 per diluted share compared to $88.8 million of CAD or $0.90 per diluted share for the first six months of 2009 when we incurred $21.4 million of revenue maintaining capital expenditures.  Our CAD payout ratio for the first six months of 2010 was 62.5% ($0.30 common share dividend paid / $0.48 CAD per share).

Portfolio Highlights

• In the second quarter of 2010, our net operating income (NOI) excluding termination revenues and other income items declined 1.9% on a GAAP basis and 2.3% on a cash basis for our 230 same store properties which were 87.5% occupied on June 30, 2010.
• During the second quarter of 2010, we commenced occupancy on 847,339 square feet of total leasing activity including 527,967 square feet of renewals, 249,478 square feet of new leases and 69,894 square feet of tenant expansions.  We currently have an additional 1,926,192 square feet of executed leasing in place scheduled to commence subsequent to June 30, 2010 including 547,941 square feet attributable to our core portfolio and the balance attributable to our two developments.  During the second quarter of 2010, we achieved a 65.8% retention rate in our core portfolio with negative net absorption of 61,307 square feet excluding 150,041 square feet of early terminations, or 56.5% overall.  During the second quarter of 2010, we experienced a 0.9% increase on our renewal rental rates and a 5.6% decline on our new lease and expansion rental rates, both on a GAAP basis.
• At June 30, 2010, our core portfolio was 86.4% occupied and 88.7% leased (reflecting leases which will commence after June 30, 2010).  We owned 239 properties at June 30, 2010 encompassing 236 core properties aggregating 23.6 million square feet and three development/redevelopment properties aggregating 1.4 million square feet.

Investment Highlights

• At June 30, 2010, we were proceeding on two developments and one redevelopment with total costs of $356.4 million of which a total of $54.5 million remained to be funded in 2010 and which are now 97.3% leased.  These amounts include $342.0 million of total costs for the combined 30^th Street Post Office (100% leased to the Internal Revenue Service) and Cira South Garage (up to 93.2% leased primarily to the Internal Revenue Service) in Philadelphia, Pennsylvania of which $53.5 million remained to be funded in 2010.  The updated cost estimate for the combined project reflects a $13.5 million reduction from the previous figure.  Upon completion of the project, we will receive $256.5 million from our 5.93% 20-year, forward financing that has been escrowed since June 2009, as well as approximately $3.0 million of additional remaining funding related to our historic rehabilitation financing program.  We received $27.4 million related to this program in June 2010 representing the next-to-last installment of the total funding commitment of approximately $64.4 million.

Capital Markets Highlights

• During the second quarter of 2010, we issued 2.0 million shares of our common stock under our continuous equity program realizing $24.8 million of net proceeds.  The net proceeds of the issuances were used to repay balances on our unsecured revolving credit facility and for general corporate purposes.  Year-to-date, we have issued a total of 3.3 million shares under the 15.0 million share program raising $40.9 million of net proceeds and have remaining authorization of 11.7 million shares of common stock.
• During the second quarter of 2010, we repurchased a total of $19.3 million of our 2010, 2011 (our exchangeable notes due 2026 with a put date in October 2011) and 2012 unsecured senior notes in a series of open-market transactions and incurred an aggregate loss of ($0.4 million) on the early extinguishment of debt.  We funded these repurchases with draws on our unsecured revolving credit facility and with other available corporate funds.
• At June 30, 2010, our net debt to gross assets measured 45.0% compared to a peak of 54.3% at September 30, 2007, reflecting a cumulative $828.8 million reduction in our net debt over that period.  At June 30, 2010, we had $160.0 million outstanding on our $600.0 million unsecured revolving credit facility with $333.9 million available for use and drawdown.  Subsequent to quarter end, we exercised an eight-month extension option of our $183.0 million term loan to June 29, 2011.
• For the quarter ended June 30, 2010, we achieved a 2.5 EBITDA to interest coverage ratio and a 7.5 ratio of net debt to annualized quarterly EBITDA based on consolidated EBITDA excluding non-recurring items, and inclusive of our pro rata share of unconsolidated EBITDA, interest and net debt.

Distributions

On June 2, 2010, our Board of Trustees declared a quarterly dividend distribution of $0.15 per common share that was paid on July 20, 2010 to shareholders of record as of July 6, 2010, bringing total year-to-date 2010 dividend payments to $0.45 per common share.  Our Board also declared regular quarterly dividend distributions of $0.46875 per 7.50% Series C Cumulative Redeemable Preferred Share and $0.460938 per 7.375% Series D Cumulative Redeemable Preferred Share that were paid on July 15, 2010 to holders of record as of June 30, 2010 of the Series C and Series D Preferred Shares, respectively.

2010 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, we are revising our previously issued guidance for full year 2010 FFO per diluted share to be in a range of $1.30 to $1.34 versus the prior range of $1.27 to $1.34 and the original range of $1.23 to $1.34.  This guidance is provided for informational purposes and is subject to change.  The following is a reconciliation of the calculation of 2010 FFO per diluted share and earnings per diluted share:

Our 2010 FFO guidance does not include income arising from future sales or impairments which may be taken in the future should the circumstances arise, and does not include any income from the sale of undepreciated real estate in accordance with our current practice.

Accounting Disclosure

On January 1, 2010, we adopted the new accounting standard for the consolidation of variable interest entities.  The new standard revises the prior guidance related to the consolidation of variable interest entities, and among other provisions, includes a new approach for determining which party should consolidate a variable interest entity and the frequency as to when each party should reassess its consolidation decision.  As a result of our adoption of the new standard, we will no longer consolidate three variable interest entities that were previously consolidated in our financial statements.  The new standard was applied prospectively beginning January 1, 2010 and accordingly, only our current year financial statements reflect this adoption.

Non-GAAP Supplemental Financial Measures

We compute our financial results in accordance with generally accepted accounting principles (GAAP).  Although FFO, NOI and CAD are non-GAAP financial measures, we believe that FFO, NOI and CAD calculations are helpful to shareholders and potential investors and are widely recognized measures of real estate investment trust performance.  At the end of this press release, we have provided a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure.

Funds from Operations (FFO)  

We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than us.  NAREIT defines FFO as net income (loss) before non-controlling interests and excluding gains (losses) on sales of property and extraordinary items (computed in accordance with GAAP); plus real estate related depreciation and amortization (excluding amortization of deferred financing costs), and after similar adjustments for unconsolidated joint ventures.  Net income, the GAAP measure that we believe to be most directly comparable to FFO, includes depreciation and amortization expenses, gains or losses on property sales, extraordinary items and non-controlling interests.  To facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income (determined in accordance with GAAP) as presented in the financial statements included elsewhere in this release.  FFO does not represent cash flow from operating activities (determined in accordance with GAAP) and should not be considered to be an alternative to net income (loss) (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders.

For information purposes, we may also provide FFO adjusted for impairment charges.  Although our calculation of FFO as adjusted differs from NAREIT's definition of FFO and may not be comparable to that of other REITs and real estate companies, we believe it provides a meaningful supplemental measure of our operating performance because we believe that by excluding impairment charges, shareholders and potential investors are presented with an indicator of our operating performance that more closely achieves the objectives of the real estate industry in presenting FFO.

Net Operating Income (NOI)

NOI is a non-GAAP financial measure equal to net income available to common shareholders, the most directly comparable GAAP financial measure, plus corporate general and administrative expense, depreciation and amortization, interest expense, non-controlling interests and losses from early extinguishment of debt, less interest income, development and management income, gains from property dispositions, gains on sale from discontinued operations, gains on early extinguishment of debt, income from discontinued operations, income from unconsolidated joint ventures and non-controlling interests.  In some cases, we also present NOI on a cash basis, which is NOI after eliminating the effect of straight-lining of rent and deferred market intangible amortization.  NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently.  NOI should not be considered an alternative to net income as an indication of our performance, or as an alternative to cash flow from operating activities as a measure of our liquidity or ability to make cash distributions to shareholders.

Cash Available for Distribution (CAD)

CAD is a non-GAAP financial measure that is not intended as an alternative to cash flow from operating activities as determined under GAAP.  CAD is presented solely as a supplemental disclosure with respect to liquidity because we believe it provides useful information regarding our ability to fund our distributions.  Because other companies do not necessarily calculate CAD the same way as we do, our presentation of CAD may not be comparable to similarly titled measures provided by other companies.

Revenue Maintaining Capital Expenditures

Revenue maintaining capital expenditures, a non-GAAP financial measure, are a component of our CAD calculation and represent the portion of capital expenditures required to maintain our current level of funds available for distribution.  Revenue maintaining capital expenditures include current tenant improvement and allowance expenditures for all tenant spaces that have been owned for at least one year, and that were not vacant during the twelve-month period prior to the date that the tenant improvement or allowance expenditure was approved.  Revenue maintaining capital expenditures also include other expenditures intended to maintain our current revenue base.  Accordingly, we exclude capital expenditures related to development and redevelopment projects, as well as certain projects at our core properties that are intended to attract prospective tenants in order to increase revenues and/or occupancy rates.

Second Quarter Earnings Call and Supplemental Information Package

We will host a conference call on Thursday, July 29 at 10:00 a.m. EDT.  The conference call can be accessed by calling 1-800-683-1525 and referencing conference ID #62521593.  Beginning two hours after the conference call, a taped replay of the call can be accessed 24 hours a day through Thursday, August 12, 2010 by calling 1-800-642-1687 and providing access code 62521593.  In addition, the conference call can be accessed via a webcast located on our website at www.brandywinerealty.com.

We have prepared a supplemental information package that includes financial results and operational statistics related to the second quarter earnings report.  The supplemental information package is available in the "Investor Relations – Financial Reports" section of our website at www.brandywinerealty.com.  

Looking Ahead - Third Quarter 2010 Conference Call

As previously announced, we will release our third quarter 2010 earnings on Wednesday, October 27, 2010, after the market close and will host our third quarter 2010 conference call on Thursday, October 28, 2010, at 9:00 a.m. EDT.  We expect to issue a press release in advance of these events to reconfirm the dates and times and provide all related information.

About Brandywine Realty Trust

Brandywine Realty Trust is one of the largest, publicly traded, full-service, integrated real estate companies in the United States.  Organized as a real estate investment trust and operating in select markets, Brandywine owns, develops, manages and has ownership interests in a primarily Class A, suburban and urban office portfolio comprising 319 properties and 33.4 million square feet, including 239 properties and 25.0 million square feet owned on a consolidated basis.  For more information, please visit our website at www.brandywinerealty.com.

Forward-Looking Statements

Estimates of future earnings per share, FFO per share, common share dividend distributions and certain other statements in this release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our and our affiliates' actual results, performance, achievements or transactions to be materially different from any future results, performance, achievements or transactions expressed or implied by such forward-looking statements.  Such risks, uncertainties and other factors relate to, among others: our ability to lease vacant space and to renew or relet space under expiring leases at expected levels; competition with other real estate companies for tenants; the potential loss or bankruptcy of major tenants; interest rate levels; the availability of debt, equity or other financing; risks of acquisitions, dispositions and developments, including the cost of construction delays and cost overruns; unanticipated operating and capital costs; our ability to obtain adequate insurance, including coverage for terrorist acts; dependence upon certain geographic markets; and general and local economic and real estate conditions, including the extent and duration of adverse changes that affect the industries in which our tenants operate. 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, 2009. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events except as required by law.

SOURCE Brandywine Realty Trust