Brandywine Realty Trust (BDN)

BDN 
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Industry: Consumer Services
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Brandywine Realty Trust (BDN)

Q3 2012 Earnings Call

October 25, 2012 9:00 a.m. ET

Executives

Gerard Sweeney - President and CEO

George Johnstone - SVP, Operations and Asset Management

Gabe Mainardi – VP and CAO

Howard Sipzner – EVP and CFO

Thomas Wirth – EVP, Portfolio Management and Investments

Analysts

John Guinee – Stifel Nicolaus

Michael Knott – Green Street Advisors

Jordan Sadler - Keybanc Capital Markets

Steve Sakwa - ISI Group

Brendan Maiorana – Wells Fargo

Jamie Feldman – Bank of America

Rich Anderson – BMO Capital Markets

Josh Attie – Citigroup

David Anderson - Green Street Advisors

Mitch Germain – JMP Securities

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 Third 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. Gerry Sweeney, President and CEO of Brandywine Realty Trust. Please go ahead sir.

Gerard Sweeney

Latingy, thank you very much. Good morning and thank you all for participating in our third-quarter 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 would like to remind everyone that certain information discussed during our call may constitute forward-looking statements within the meaning of 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.

That being said, during the third quarter our operations continued to benefit from stable leasing activity, strong market positioning and improving fundamentals. As is our normal practice, I will provide an overview on our three key business plan components - that is operations, balance sheet and investments as well as provide some color on our 2013 guidance. George and Howard will then discuss the operating and financial results in more detail.

The macroeconomic climate remains our biggest concern. Data points remain mix and in this time of Congressional gridlock, fiscal cliff, global slowdown and a presidential election, our hope is we all get clarity on the trajectory of the economy and political climate within the next 90 days. In the meantime though, uncertainty remains the order of the day and tenants are cautious on near-term economic growth prospects.

Overall though, we continued to benefit from a moderate recovery in our office markets. During the third quarter, we had over 3 million square feet of inspections, which compares favorably to 2.8 million square feet in the third quarter of 2011 but is down from the 3.5 million square feet we experienced in the second quarter of 2012.

Several of our markets have a positive pricing dynamic, and we continue to expect rental rate growth in those operations. This is particularly evident in several of our Pennsylvanian suburban locations, CBD Philadelphia, and Austin, Texas. In every market we continue to benefit from a flight to quality product that is either pushing rents up or holding rents steady.

As we close out 2012, several top-level observations. We’ve outperformed our original business plan forecast in Philadelphia CBD, the Pennsylvania suburbs, Austin, Texas and our New Jersey operations. Northern Virginia remains extremely competitive and as mentioned on our last call, we will not be achieving the spec revenue or occupancy levels we were originally anticipating nor will our operations in Richmond meet their business objectives for 2012. George will discuss the impact of this in our [2013] business plan in a few moments.

Our retention rate though has improved. We will have a 62% 2012 retention rate which is up 60% from our last forecast. We've also increased our 2012 same-store guidance on both a cash and GAAP basis and we’ve also further increased our GAAP mark-to-market on new leasing activity. So overall, a steady improvement in many of our key metrics.

Looking at our balance sheet, we remain an extremely strong shape. We closed the quarter with tremendous liquidity, $242 million of cash and cash equivalents on hand, and we also do not have any balances outstanding on our $600 million unsecured revolving credit facility. From a board liability and debt management standpoint, the company is in an extraordinarily good shape and our next unsecured note is not due until November of 2014.

For the quarter, we improved our net debt to gross assets to 42.4% in pursuit of our long-term goal of 35% and we’re clearly moving in the right direction. This period of economic uncertainty requires that we remain highly liquid and retain ample financial capacity as our portfolio transitions to higher occupancy levels, NOI growth and increasingly strong same-store operating performance.

On the investment front, we’ve already achieved our 2012 sales target. Activity in the recent quarter is outlined in our press release but for the year, we have sold $176 million of properties at an average cash cap rate of 7.3%. This sales activity is consistent with our strategy of recycling out of non-core assets and redeploying capital through urban and transit hubs, town center markets along with our ongoing deleveraging efforts.

Our goal to monetize and deploy up to 35% of our existing land bank over the next several years remains on track and we continue pursuing number of near-term deployments, particularly in the Pennsylvania’s New Jersey suburbs as well as in CBD Philadelphia. As a result of continued progress on all aspects of our business plan, we've increased the 2012 FFO guidance range from its current $1.32 to $1.36 per share to a new FFO range of $1.33 per share to $1.36 per share.

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