Management Comments
“We are excited to see an increasing number of our tenants returning to the workplace. As physical building occupancy increases, we will continue to prioritize the safety of our employees, tenants and stakeholders,” stated
Second Quarter Highlights
Financial Results
- Net loss to common shareholders:
($0.3) million , or less than ($0.01 ) per share. - Funds from Operations (FFO):
$55.9 million , or$0.32 per share.
Portfolio Results
- Core Portfolio: 90.5% occupied and 92.5% leased.
- New and Renewal Leases Signed: 435,000 square feet
- Rental Rate Mark-to-Market: Increased 22.2% / 13.7% on accrual / cash basis
- Same Store Net Operating Income: 0.5% on an accrual basis and 1.8% on a cash basis
- Tenant Retention Ratio: 58%
2021 Business Plan Revisions
Speculative Revenue Range : Narrowed from$18.0-$22.0 million to$20.0-$21.0 million increasing the midpoint guidance by$0.5 million ; 98% achieved.
COVID-19 Update
We continue to monitor events related to COVID-19 and take steps to reduce risks to Brandywine and our tenants. While the duration and economic impact of the COVID-19 pandemic remains unknown, we believe that as of the date of this press release, our 2021 business plan and earnings estimates account for the impact of COVID-19. We are continually assessing the ongoing effects of the pandemic to our business plan, our tenants and our earnings estimates.
The following is a summary of our second quarter consolidated cash base rent collections as of
- 99.3% of total cash-based rent due has been received from our tenants during the second quarter 2021, which represents a 99.8% collection rate from our office tenants.
- A majority of the rental revenue that has been in the form of rent deferrals is scheduled to be repaid by year-end 2021.
- We have collected 58% of the rent deferrals not provided as free rent with an associated lease extension.
Recent Transaction Activity
Financing Activity
- On
July 23, 2021 , in connection with our development project at3025 JFK Boulevard , also known as Schuylkill Yards West, we closed on a$186.7 million construction loan. The construction loan represents approximately 65% of total project costs and initially bears interest at 3.75% per annum and matures inJuly 2025 .
2021 Finance / Capital Markets Activity
- We have
$58.0 million outstanding on our$600.0 million unsecured revolving credit facility as ofJune 30, 2021 . - We have
$47.7 million of cash and cash equivalents on-hand as ofJune 30, 2021 .
Results for the Three and Six Month Periods Ended
Net loss allocated to common shares totaled
FFO available to common shares and units totaled
Net income allocated to common shares totaled
Our FFO available to common shares and units for the first six months of 2021 totaled
Operating and Leasing Activity
In the second quarter of 2021, our Net Operating Income (NOI) excluding termination revenues and other income items increased 0.5% on an accrual basis and increased 1.8% on a cash basis for our 73 same store properties, which were 90.3% and 90.7% occupied on
We leased approximately 435,000 square feet and commenced occupancy on 252,000 square feet during the second quarter of 2021. The second quarter occupancy activity includes 96,000 square feet of renewals, 118,000 square feet of new leases and 38,000 square feet of tenant expansions. We have an additional 258,000 square feet of executed new leasing scheduled to commence subsequent to
Our second quarter tenant retention ratio was 58% in our core portfolio with net absorption of 20,000 square feet during the second quarter of 2021. Second quarter rental rate growth increased 22.2% as our renewal rental rates increased 13.3% and our new lease/expansion rental rates increased 32.7%, all on an accrual basis.
As of
Distributions
On
2021 Earnings and FFO Guidance
Based on current plans and assumptions and subject to the risks and uncertainties more fully described in our
Guidance for 2021 | Range | ||||
Earnings per diluted share allocated to common shareholders | to | ||||
Plus: real estate depreciation, amortization | 1.09 | 1.09 | |||
FFO per diluted share | to |
Our 2021 FFO key assumptions include:
Year-end Core Occupancy Range : 91-93%;Year-end Core Leased Range : 92-94%;- Rental Rate Mark-to-Market (accrual): 14-16%;
- Rental Rate Mark-to-Market (cash): 8-10%;
- Same Store (accrual)
NOI Range : 0-2%; - Same Store (cash)
NOI Range : 3-5%; Speculative Revenue Range : Narrowed from$18.0 -$22.0 million to$20.0 -$21.0 million , 98% achieved;Tenant Retention Rate Range : 51-53%;- Property Acquisition Activity: None;
- Property Sales Activity: None;
- Development/Redevelopment Starts: Two starts; one start commenced, Schuylkill Yards West;
- Core and Same Store Portfolio Adjustments: Effective
January 1, 2021 , we removed 2340 Dulles (placed into redevelopment) and effectiveJanuary 1, 2021 , 905 Broadmoor was removed from our first quarter same store portfolio and was subsequently taken out of service, as part of our Broadmoor Master Plan; - Financing Activity: None;
- Share Buyback Activity: None;
- Annual earnings and FFO per diluted share based on 173.0 million fully diluted weighted average common shares.
About
Conference Call and Audio Webcast
We will hold our second quarter conference call on
Looking Ahead – Third Quarter 2021 Conference Call
We expect to release our third quarter 2021 earnings on
Forward-Looking Statements
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “will,” “strategy,” “expects,” “seeks,” “believes,” “potential,” or other similar words. Because such statements involve known and unknown risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. These forward-looking statements, including our 2021 guidance, are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally not within our control. Such risks, uncertainties and contingencies include, among others: risks related to the impact of COVID-19 and other potential future outbreaks of infectious diseases on our financial condition, results of operations and cash flows and those of our tenants as well as on the economy and real estate and financial markets; reduced demand for office space and pricing pressures, including from competitors, that could limit our ability to lease space or set rents at expected levels or that could lead to declines in rent; uncertainty and volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital; the potential loss or bankruptcy of tenants or the inability of tenants to meet their rent and other lease obligations; risks of acquisitions and dispositions, including unexpected liabilities and integration costs; delays in completing, and cost overruns incurred in connection with, our developments and redevelopments; disagreements with joint venture partners; unanticipated operating and capital costs; uninsured casualty losses and in ability to obtain adequate insurance, including coverage for terrorist acts; asset impairments; our dependence upon certain geographic markets; changes in governmental regulations, tax laws and rates and similar matters; unexpected costs of REIT qualification compliance; and costs and disruptions as the result of a cybersecurity incident or other technology disruption. The declaration and payment of future dividends (both timing and amount) is subject to the determination of our
Non-GAAP Supplemental Financial Measures
We compute our financial results in accordance with generally accepted accounting principles (GAAP). Although FFO and NOI are non-GAAP financial measures, we believe that FFO and NOI 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
Net Operating Income (NOI)
NOI (accrual basis) is a 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 interest in the
In our analysis of NOI, particularly to make comparisons of NOI between periods meaningful, it is important to provide information for properties that were in-service and owned by us throughout each period presented. We refer to properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by us through the end of the latest period presented as
Core Portfolio
Our core portfolio is comprised of our wholly-owned properties, excluding any properties currently in development, re-development or re-entitlement.
CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands)
ASSETS | |||||||||
Real estate investments: | |||||||||
Operating properties | $ | 3,392,734 | $ | 3,474,109 | |||||
Accumulated depreciation | (928,245 | ) | (896,561 | ) | |||||
Right of use asset - operating leases, net | 20,643 | 20,977 | |||||||
Operating real estate investments, net | 2,485,132 | 2,598,525 | |||||||
Construction-in-progress | 286,208 | 210,311 | |||||||
Land held for development | 118,181 | 117,984 | |||||||
Prepaid leasehold interests in land held for development, net | 27,762 | 39,185 | |||||||
Total real estate investments, net | 2,917,283 | 2,966,005 | |||||||
Assets held for sale, net | 7,349 | 7,349 | |||||||
Cash and cash equivalents | 47,730 | 46,344 | |||||||
Accounts receivable | 10,667 | 13,536 | |||||||
Accrued rent receivable, net of allowance of | 162,479 | 155,372 | |||||||
Investment in unconsolidated real estate ventures | 441,464 | 401,327 | |||||||
Deferred costs, net | 83,957 | 84,856 | |||||||
Intangible assets, net | 39,726 | 48,570 | |||||||
Other assets | 178,903 | 176,747 | |||||||
Total assets | $ | 3,889,558 | $ | 3,900,106 | |||||
LIABILITIES AND BENEFICIARIES' EQUITY | |||||||||
Unsecured credit facility | $ | 58,000 | $ | — | |||||
Unsecured term loan, net | 249,346 | 249,084 | |||||||
Unsecured senior notes, net | 1,581,245 | 1,581,511 | |||||||
Accounts payable and accrued expenses | 109,639 | 121,982 | |||||||
Distributions payable | 32,727 | 32,706 | |||||||
Deferred income, gains and rent | 22,917 | 21,396 | |||||||
Intangible liabilities, net | 15,829 | 18,448 | |||||||
Lease liability - operating leases | 22,860 | 22,758 | |||||||
Other liabilities | 45,942 | 47,573 | |||||||
Total liabilities | $ | 2,138,505 | $ | 2,095,458 | |||||
Common Shares of | 1,709 | 1,707 | |||||||
Additional paid-in-capital | 3,140,575 | 3,138,152 | |||||||
Deferred compensation payable in common shares | 18,491 | 17,516 | |||||||
Common shares in grantor trust, 1,175,343 and 1,160,494 issued and outstanding as of | (18,491 | ) | (17,516 | ) | |||||
Cumulative earnings | 1,116,837 | 1,110,083 | |||||||
Accumulated other comprehensive loss | (5,427 | ) | (7,561 | ) | |||||
Cumulative distributions | (2,513,373 | ) | (2,448,238 | ) | |||||
1,740,321 | 1,794,143 | ||||||||
Noncontrolling interests | 10,732 | 10,505 | |||||||
Total beneficiaries' equity | $ | 1,751,053 | $ | 1,804,648 | |||||
Total liabilities and beneficiaries' equity | $ | 3,889,558 | $ | 3,900,106 |
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
Three Months Ended | Six Months Ended | ||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||
Revenue | |||||||||||||||||||
Rents | $ | 111,235 | $ | 132,180 | $ | 224,719 | $ | 271,384 | |||||||||||
Third party management fees, labor reimbursement and leasing | 6,627 | 4,061 | 13,278 | 9,015 | |||||||||||||||
Other | 2,240 | 596 | 2,874 | 1,526 | |||||||||||||||
Total revenue | 120,102 | 136,837 | 240,871 | 281,925 | |||||||||||||||
Operating expenses | |||||||||||||||||||
Property operating expenses | 29,264 | 33,292 | 58,199 | 70,753 | |||||||||||||||
Real estate taxes | 14,602 | 16,815 | 29,363 | 33,602 | |||||||||||||||
Third party management expenses | 3,561 | 2,375 | 6,539 | 5,037 | |||||||||||||||
Depreciation and amortization | 42,785 | 49,743 | 83,128 | 101,781 | |||||||||||||||
General and administrative expenses | 8,356 | 8,343 | 14,940 | 16,904 | |||||||||||||||
Total operating expenses | 98,568 | 110,568 | 192,169 | 228,077 | |||||||||||||||
Gain on sale of real estate | |||||||||||||||||||
Net gain on disposition of real estate | 68 | — | 142 | 2,586 | |||||||||||||||
Net gain on sale of undepreciated real estate | — | 201 | 1,993 | 201 | |||||||||||||||
Total gain on sale of real estate | 68 | 201 | 2,135 | 2,787 | |||||||||||||||
Operating income | 21,602 | 26,470 | 50,837 | 56,635 | |||||||||||||||
Other income (expense): | |||||||||||||||||||
Interest and investment income | 1,677 | 445 | 3,351 | 1,020 | |||||||||||||||
Interest expense | (15,490 | ) | (20,191 | ) | (31,783 | ) | (40,200 | ) | |||||||||||
Interest expense - amortization of deferred financing costs | (709 | ) | (731 | ) | (1,418 | ) | (1,480 | ) | |||||||||||
Equity in loss of unconsolidated real estate ventures | (7,240 | ) | (2,203 | ) | (14,164 | ) | (4,094 | ) | |||||||||||
Net income (loss) before income taxes | (160 | ) | 3,790 | 6,823 | 11,881 | ||||||||||||||
Income tax (provision) benefit | (15 | ) | 230 | (34 | ) | 226 | |||||||||||||
Net income (loss) | (175 | ) | 4,020 | 6,789 | 12,107 | ||||||||||||||
Net (income) loss attributable to noncontrolling interests | 8 | (24 | ) | (35 | ) | (89 | ) | ||||||||||||
Net income (loss) attributable to | (167 | ) | 3,996 | 6,754 | 12,018 | ||||||||||||||
Nonforfeitable dividends allocated to unvested restricted shareholders | (94 | ) | (93 | ) | (240 | ) | (224 | ) | |||||||||||
Net income (loss) attributable to Common Shareholders of | $ | (261 | ) | $ | 3,903 | $ | 6,514 | $ | 11,794 | ||||||||||
PER SHARE DATA | |||||||||||||||||||
Basic income per Common Share | $ | — | $ | 0.02 | $ | 0.04 | $ | 0.07 | |||||||||||
Basic weighted average shares outstanding | 170,848,894 | 170,518,095 | 170,737,437 | 173,294,031 | |||||||||||||||
Diluted income per Common Share | $ | — | $ | 0.02 | $ | 0.04 | $ | 0.07 | |||||||||||
Diluted weighted average shares outstanding | 170,848,894 | 170,770,078 | 171,996,119 | 173,605,948 |
FUNDS FROM OPERATIONS
(unaudited, in thousands, except share and per share data)
Three Months Ended | Six Months Ended | ||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||
Reconciliation of Net Income to Funds from Operations: | |||||||||||||||||||
Net income (loss) attributable to common shareholders | $ | (261 | ) | $ | 3,903 | $ | 6,514 | $ | 11,794 | ||||||||||
Add (deduct): | |||||||||||||||||||
Net income (loss) attributable to noncontrolling interests - LP units | (7 | ) | 14 | 37 | 67 | ||||||||||||||
Nonforfeitable dividends allocated to unvested restricted shareholders | 94 | 93 | 240 | 224 | |||||||||||||||
Net gain on disposition of real estate | (68 | ) | — | (142 | ) | (2,586 | ) | ||||||||||||
Depreciation and amortization: | |||||||||||||||||||
Real property | 34,294 | 37,194 | 65,828 | 75,547 | |||||||||||||||
Leasing costs including acquired intangibles | 7,954 | 12,045 | 16,234 | 25,244 | |||||||||||||||
Company’s share of unconsolidated real estate ventures | 14,060 | 4,630 | 27,791 | 9,229 | |||||||||||||||
Partners’ share of consolidated real estate ventures | (5 | ) | (59 | ) | (10 | ) | (119 | ) | |||||||||||
Funds from operations | $ | 56,061 | $ | 57,820 | $ | 116,492 | $ | 119,400 | |||||||||||
Funds from operations allocable to unvested restricted shareholders | (150 | ) | (167 | ) | (363 | ) | (357 | ) | |||||||||||
Funds from operations available to common share and unit holders (FFO) | $ | 55,911 | $ | 57,653 | $ | 116,129 | $ | 119,043 | |||||||||||
FFO per share - fully diluted | $ | 0.32 | $ | 0.34 | $ | 0.67 | $ | 0.68 | |||||||||||
Weighted-average shares/units outstanding - fully diluted | 173,289,294 | 171,751,712 | 172,958,591 | 174,587,582 | |||||||||||||||
Distributions paid per common share | $ | 0.19 | $ | 0.19 | $ | 0.38 | $ | 0.38 | |||||||||||
FFO payout ratio (distributions paid per common share/FFO per diluted share) | 59.4 | % | 55.9 | % | 56.7 | % | 55.9 | % |
SAME STORE OPERATIONS – 2nd QUARTER
(unaudited and in thousands)
Of the 81 properties owned by the Company as of
Three Months Ended | |||||||||
2021 | 2020 | ||||||||
Revenue | |||||||||
Rents | $ | 104,965 | $ | 102,683 | |||||
Other | 260 | 257 | |||||||
Total revenue | 105,225 | 102,940 | |||||||
Operating expenses | |||||||||
Property operating expenses | 26,642 | 25,921 | |||||||
Real estate taxes | 13,140 | 12,600 | |||||||
Net operating income | $ | 65,443 | $ | 64,419 | |||||
Net operating income - percentage change over prior year | 1.6 | % | |||||||
Net operating income, excluding other items | $ | 64,746 | $ | 64,394 | |||||
Net operating income, excluding other items - percentage change over prior year | 0.5 | % | |||||||
Net operating income | $ | 65,443 | $ | 64,419 | |||||
Straight line rents & other | (2,542 | ) | (2,714 | ) | |||||
Above/below market rent amortization | (840 | ) | (1,096 | ) | |||||
Amortization of tenant inducements | 263 | 207 | |||||||
Non-cash ground rent | 205 | 209 | |||||||
Cash - Net operating income | $ | 62,529 | $ | 61,025 | |||||
Cash - Net operating income - percentage change over prior year | 2.5 | % | |||||||
Cash - Net operating income, excluding other items | $ | 61,678 | $ | 60,563 | |||||
Cash - Net operating income, excluding other items - percentage change over prior year | 1.8 | % | |||||||
Three Months Ended | |||||||||
2021 | 2020 | ||||||||
Net income (loss): | $ | (175 | ) | $ | 4,020 | ||||
Add/(deduct): | |||||||||
Interest income | (1,677 | ) | (445 | ) | |||||
Interest expense | 15,490 | 20,191 | |||||||
Interest expense - amortization of deferred financing costs | 709 | 731 | |||||||
Equity in loss of unconsolidated real estate ventures | 7,240 | 2,203 | |||||||
Net gain on disposition of real estate | (68 | ) | — | ||||||
Net gain on sale of undepreciated real estate | — | (201 | ) | ||||||
Depreciation and amortization | 42,785 | 49,743 | |||||||
General & administrative expenses | 8,356 | 8,343 | |||||||
Income tax provision (benefit) | 15 | (230 | ) | ||||||
Consolidated net operating income | 72,675 | 84,355 | |||||||
Less: Net operating income of non-same store properties and elimination of non-property specific operations | (7,232 | ) | (19,936 | ) | |||||
Same store net operating income | $ | 65,443 | $ | 64,419 |
SAME STORE OPERATIONS – SIX MONTHS
(unaudited and in thousands)
Of the 81 properties owned by the Company as of
Six Months Ended | |||||||||
2021 | 2020 | ||||||||
Revenue | |||||||||
Rents | $ | 211,842 | $ | 210,045 | |||||
Other | 467 | 543 | |||||||
Total revenue | 212,309 | 210,588 | |||||||
Operating expenses | |||||||||
Property operating expenses | 53,505 | 53,952 | |||||||
Real estate taxes | 26,035 | 25,266 | |||||||
Net operating income | $ | 132,769 | $ | 131,370 | |||||
Net operating income - percentage change over prior year | 1.1 | % | |||||||
Net operating income, excluding other items | $ | 129,831 | $ | 130,079 | |||||
Net operating income, excluding other items - percentage change over prior year | (0.2 | ) | % | ||||||
Net operating income | $ | 132,769 | $ | 131,370 | |||||
Straight line rents & other | (5,789 | ) | (4,986 | ) | |||||
Above/below market rent amortization | (1,810 | ) | (2,391 | ) | |||||
Amortization of tenant inducements | 456 | 409 | |||||||
Non-cash ground rent | 413 | 420 | |||||||
Cash - Net operating income | $ | 126,039 | $ | 124,822 | |||||
Cash - Net operating income - percentage change over prior year | 1.0 | % | |||||||
Cash - Net operating income, excluding other items | $ | 122,808 | $ | 122,602 | |||||
Cash - Net operating income, excluding other items - percentage change over prior year | 0.2 | % | |||||||
Six Months Ended | |||||||||
2021 | 2020 | ||||||||
Net income: | $ | 6,789 | $ | 12,107 | |||||
Add/(deduct): | |||||||||
Interest income | (3,351 | ) | (1,020 | ) | |||||
Interest expense | 31,783 | 40,200 | |||||||
Interest expense - amortization of deferred financing costs | 1,418 | 1,480 | |||||||
Equity in loss of unconsolidated real estate ventures | 14,164 | 4,094 | |||||||
Net gain on disposition of real estate | (142 | ) | (2,586 | ) | |||||
Net gain on sale of undepreciated real estate | (1,993 | ) | (201 | ) | |||||
Depreciation and amortization | 83,128 | 101,781 | |||||||
General & administrative expenses | 14,940 | 16,904 | |||||||
Income tax provision (benefit) | 34 | (226 | ) | ||||||
Consolidated net operating income | 146,770 | 172,533 | |||||||
Less: Net operating income of non-same store properties and elimination of non-property specific operations | (14,001 | ) | (41,163 | ) | |||||
Same store net operating income | $ | 132,769 | $ | 131,370 |
Company / Investor Contact:
EVP & CFO
610-832-7434
tom.wirth@bdnreit.com
Source:
2021 GlobeNewswire, Inc., source