Brandywine Realty Trust (BDN)

BDN 
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Industry: Consumer Services
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Brandywine Realty Trust (BDN)

Q4 2012 Results Earnings Call

February 7, 2013 9:00 AM ET

Executives

Jerry Sweeney - President and CEO

George Johnstone - SVP, Operations and Asset Management

Gabe Mainardi - Vice President and CAO

Howard Sipzner - Executive Vice President and CFO

Tom Wirth - EVP, Portfolio Management and Investments

Analysts

Jamie Feldman - Bank of America Merrill Lynch

Josh Attie - Citi

John Guinee - Stifel Nicolaus & Company Inc.

Evan Smith - Cantor Fitzgerald

Michael Knott - Green Street Advisors

George Auerbach - ISI Group

Jordan Sadler - KeyBanc Capital Markets

Mitch Germain - JMP Securities

Brendan Maiorana - Wells Fargo

Presentation

Operator

Good morning. My name is [Latingy] and I will be your conference operator today. At this time, I would like to welcome everyone to the Brandywine Realty Trust Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn the conference over to Mr. Jerry Sweeney, President and CEO of Brandywine Realty Trust. Please go ahead sir.

Jerry Sweeney

Latingy, thank you very much. Good morning, everyone and thank you for participating in our year-end 2012 earnings call. On today's call with me are George Johnstone, our Senior Vice President of Operations, Gabe Mainardi, our Vice President and Chief Accounting Officer; Howard Sipzner, our Executive Vice President and Chief Financial Officer; and Tom Wirth, our Executive Vice President of Portfolio Management and Investments.

Prior to beginning, I'd like to remind everyone that certain information discussed during our call may constitute forward-looking statements within the meaning of the federal securities laws. Although we believe the estimates reflected in these statements are based on reasonable assumptions we cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports filed with the SEC.

To start our call, as is our normal practice, I'll provide an overview of our three key business plan components; of operations, balance sheet and investments as well as some color on recent transactional activity. George and Howard will then discuss the operating and financial results in more detail.

The macro-economy remains the focal point in our thinking, uncertainty remains a concern, tenants do remain cautious on the near term economic picture however, generally speaking our portfolio remains a beneficiary of tenants like the quality product as is evidenced by our strong trend-lines in operating metrics as well as our moderating capita cost.

And looking at operations, 2012 was a very good year. The leasing momentum, we built the year is improving our operating metrics across the board and we ended the year at over 88% occupied and over 90% leased. Positive pricing dynamics remain in several key markets with strong performance particularly in several of our Pennsylvania suburban locations, CBD Philadelphia and Austin, Texas.

In addition, our operations in Metro DC and New Jersey have clearly troughed and are on the path to recovery, retention rate for the quarter was the highest of the year at 74% and moved our over 2012 retention rate to over 66%. We also improved our marked to market on both new and renewal leases and our 2012 marked to market was much better than our original business plan forecast. Capital cost continue to moderate and we are in a much better position closing out 2012 then in 2011.

We averaged capital cost of $2.10 per square foot per lease year for the fourth quarter and our 2012 full number was $2.61 right within our targeted range. Our same store number for the quarter was particularly strong for the year we had positive same store growth on a GAAP base of 2.9% and 1.8% on a cash basis which has established a very strong platform as we move into our 2013 business plan execution.

During the fourth quarter we also [covered] 2.9 million square feet of inspections which is also of year-over-year. Another key positive as we look at 2013, and certainly 2014 and beyond is our low level (Inaudible) roll over. For 2013 we have just 1.0 million square feet remaining to renew which is about 7% of our portfolio, our lowest level in over 7 years.

And looking at our balance sheet, we had a very active fourth quarter, from a forward liability debt management standpoint we are in extraordinarily good shape. The overall objective of our fourth quarter transactions was to lengthen our maturity profile reduce our average weighted cost of debt and increase the size of our unencumbered pool and on each of these metrics we were successful.

Our average weighted maturity moved from [5.] years to 6.4 years an improvement of 10%. We reduced our weighted average debt cost 24 basis points and we increased the size of our unencumbered pool to 86% of assets which is the strongest in the company's history. All of these capital market transactions are outlined on page 8 of our supplemental package.

Reducing our debt levels below 40% and achieving a 6.5 EBITDA ratio if not lower remains a core objective. The pursuit of this objective is amply evidenced by the recently announced sale of Princeton Pike Corporate Center, when this sale close it will eliminate our year end line of credit balance and provide for further debt reduction.

Liquidity for the company remains extraordinarily strong operations are driving continued improvements to our financial metrics and rigorously adhering to our deleveraging, path remains a primary objective. On the investment front, we achieved our 2012 sales target, having sold a $176 million, at an overall disposition cap rate of 7.1%. Also during the year we acquired $76 million at an average cap rate of 8.5% on a cash basis thereby achieving our objective of being a net seller approaching $100 million. From a joint venture standpoint, during the year we invested $22 million on all-state joint venture to acquire Station Square, $120 million, 5000 square foot project in Silver Spring, Maryland.

Now turning our attention to 2013, we do expect tenant activity levels to remain strong and consistent with our expectations in all of our markets, and we've had very good success since our last call, as George will touch on, Our 2013 leasing plan is already 66% executed. We are targeting a yearend 2013 occupancy target to be 90%, a 200 basis point increase over where we showed at the end of 2012 with most of that occurring in the second half.

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