Brandywine Realty Trust Announces Third Quarter 2017 Results, Revises 2017 Guidance, Increased Sales Activity, Provides Initial 2018 Guidance and Plans 2018 Dividend Increase

PHILADELPHIA, Oct. 18, 2017 /PRNewswire/ -- Brandywine Realty Trust (NYSE:BDN) today reported its financial and operating results for the three and nine-month periods ended September 30, 2017, revised full year 2017 guidance and introduced 2018 earnings guidance.

Management Comments

"In addition to the progress on our 2017 operating plan, we have commenced our anticipated development start in Austin, Texas and accelerated our disposition program well above the $200 million goal outlined in our 2017 Business Plan," stated Gerard H. Sweeney, President and Chief Executive Officer of Brandywine Realty Trust.  "Taking advantage of the current investment sales market, we are increasing our anticipated 2017 disposition target by $230 million to $430 million, highlighted by a $333 million portfolio sale within our Austin Joint Venture where we have a 50% ownership position.  Our latest development project is a 165,000 square foot, 100% pre-leased office building on one of our development sites at our Four Points project with an existing tenant that needs expansion.  As a result of the increased sales activity, we are revising and narrowing our 2017 FFO guidance range from $1.34 to $1.38 per share to $1.32 to $1.34 per share.  We are also introducing our 2018 FFO guidance range of $1.36 to $1.46 per share which includes the effects of our increased 2017 sales activity.  Reflecting confidence in our business plan and strong cash flow outlook, our Board of Trustees intends to increase our quarterly cash dividend rate by $0.02 per common share, or 12.5%, commencing in calendar year 2018, from an annualized rate of $0.64 per common share to an annualized rate of $0.72 per common share.  Dividends will continue to be declared and paid quarterly and remain, as always, subject to the discretion of the Board as to both timing and amount."

Third Quarter Highlights

Financial Results

• Net income available to common shareholders; $18.8 million, or $0.11 per diluted share.
• Funds from Operations (FFO); $61.9 million, or $0.35 per diluted share.

Portfolio Results

• Core portfolio was 92.0% occupied and 94.1% leased.
• Signed 888,000 square feet of new and renewal leases.
• Achieved 81% tenant retention ratio.
• Rental rate mark-to-market increased 10.7% on a GAAP basis and increased 3.2% on a cash basis.

2017 Business Plan Revisions

• Increased 2017 disposition target by $230 million to $430 million.

2018 Business Plan and Guidance Introduced

• Net income:  $0.34 to $0.44 per diluted share
• FFO:  $1.36 to $1.46 per diluted share
• Same Store Growth Range: 1-3% cash and (1)-1% GAAP
• Anticipate an $0.02 per share, or 12.5%, increase to our quarterly dividend commencing in 2018

Transaction Activity

Joint Venture Dispositions

• On October 18, 2017, the Austin Joint Venture, a real estate venture in which we own a 50% interest, sold five office portfolios containing an aggregate of approximately 1,164,500 square feet located in Austin, Texas for a gross sales price of $333.3 million.  These properties were encumbered with $151.4 million of first mortgage financing.  After closing costs and related debt payoffs, we received net cash proceeds totaling approximately $86.4 million.  These properties were 86% occupied and 95% leased at September 30, 2017.  Net cash proceeds will be used to lower the outstanding balance on our unsecured line of credit.

• On September 14, 2017, Allstate DC JV, in which our ownership interest is 50%, completed the sale of an office property containing approximately 231,000 rentable square feet located in Bethesda, Maryland, known as 7101 Wisconsin Avenue, for a gross sales price of $105.7 million.  At the time of sale, the property was encumbered by a $37.4 million first mortgage.  We received net cash proceeds of $31.8 million after closing costs and related first mortgage payoff.  Net cash proceeds were used to lower the outstanding balance on our unsecured line of credit.

Dispositions

• During October 2017, we entered into an agreement to sell five buildings in Newtown Square, Pennsylvania for $42.0 million.  The buildings total approximately 253,000 square feet and are classified as held-for-sale in our balance sheet as of September 30, 2017.  Subject to customary closing conditions, the transaction is expected to close during fourth quarter 2017.  Net cash proceeds will be used to lower the outstanding balance on our unsecured line of credit.

• During September 2017, we entered into an agreement to sell an office property located in King of Prussia, Pennsylvania for $17.5 million.  The property contains approximately 150,000 rentable square feet, and is classified as held-for-sale in our balance sheet as of September 30, 2017.  Subject to customary closing conditions, the transaction is expected to close during the fourth quarter 2017.  Net cash proceeds will be used to lower the outstanding balance on our unsecured line of credit.

• On September 13, 2017, we completed the sale of 12 acres of land known as 50 E. Swedesford Square, in Malvern, PA, for a gross sales price of $7.2 million.

• As previously disclosed, on July 18, 2017, we completed the sale of 49.5 acres of land known as Bishops Gate, in Mount Laurel, New Jersey for a gross sales price of $6.0 million.

Development/Redevelopment Acquisitions

Schuylkill Yards

• On October 13, 2017, we acquired a leasehold interest in an office building known as One Drexel Plaza in Philadelphia, Pennsylvania, containing approximately 283,000 rentable square feet for a gross purchase price of $35.0 million.  The acquisition represents an investment in our Schuylkill Yards development and the property will be repositioned over the next 12-18 months.  The acquisition was funded from borrowings under our unsecured line of credit.

• On July 28, 2017, we acquired an office building known as 3000 Market Street in Philadelphia, Pennsylvania, containing approximately 59,000 rentable square feet, for $32.0 million.  The acquisition was funded with the 1031 exchange proceeds from the Concord Airport Plaza sale on February 2, 2017.  The property is located within the overall Schuylkill Yards development and represents an additional development site in the University City sub-market.

Development

• During October, we signed a 165,000 square foot, 10-year lease for a build-to-suit property located in our project at Four Points in Austin, Texas.  We have commenced construction on the 100% pre-leased building in October 2017.  Estimated construction costs total $48.2 million, with delivery anticipated in the first quarter 2019.  We expect to fund the project with available cash balances and/or our unsecured line of credit.

Finance Activity

• We have $178.0 million outstanding balance on our $600.0 million unsecured revolving credit facility as of September 30, 2017.

• We have $25.3 million of cash and cash equivalents on-hand as of September 30, 2017.

Results for the Three and Nine-Month Periods Ended September 30, 2017

Net income allocated to common shares totaled $18.8 million or $0.11 per diluted share in the third quarter of 2017 compared to a net income of $6.0 million or $0.03 per diluted share in the third quarter of 2016. 

FFO available to common shares and units in the third quarter of 2017 totaled $61.9 million or $0.35 per diluted share versus $58.3 million or $0.33 per diluted share in the third quarter of 2016.  Our third quarter 2017 payout ratio ($0.16 common share distribution / $0.35 FFO per diluted share) was 45.7%. 

Net income allocated to common shares totaled $42.2 million or $0.24 per diluted share for the first nine months of 2017 compared to net income of $47.0 million or $0.27 per diluted share in the first nine months of 2016. 

Our FFO available to common shares and units for the first nine months of 2017 totaled $175.5 million, or $0.99 per diluted share compared to FFO available to common shares and units of $104.0 million, or $0.59 per diluted share, for the first nine months of 2016, which includes a $66.6 million, or $0.38 per share, charge for the early extinguishment of debt related to our sale of our Cira Square property located in Philadelphia, Pennsylvania.  Excluding the early extinguishment of debt, FFO available to common shares and units in the first nine months of 2016 totaled $170.6 million, or $0.96 per diluted share.  Our first nine months 2017 FFO payout ratio ($0.48 common share distribution / $0.99 FFO per diluted share) was 48.5%.

Operating and Leasing Activity

In the third quarter of 2017, our Net Operating Income (NOI) excluding termination revenues and other income items decreased (1.3%) on a GAAP basis and increased 6.3% on a cash basis for our 83 same store properties, which were 92.7% and 94.5% occupied on September 30, 2017 and September 30, 2016, respectively.

We leased approximately 888,000 square feet and commenced occupancy on 525,000 square feet during the third quarter of 2017.  The third quarter occupancy activity includes 250,000 square feet of renewals, 154,000 square feet of new leases and 121,000 square feet of tenant expansions.  We have an additional 322,000 square feet of executed new leasing scheduled to commence subsequent to September 30, 2017.

We achieved an 81% tenant retention ratio in our core portfolio with net absorption of 69,000 square feet during the third quarter of 2017.  Third quarter rental rate growth increased 10.7% as our renewal rental rates increased 12.4% and our new lease/expansion rental rates increased 5.7%, all on a GAAP basis.

At September 30, 2017, our core portfolio of 87 properties comprising 15.6 million square feet was 92.0% occupied and we are now 94.1% leased (reflecting new leases commencing after September 30, 2017).

Distributions

On September 12, 2017, our Board of Trustees declared a quarterly dividend distribution of $0.16 per common share that was paid on October 18, 2017 to shareholders of record as of October 4, 2017. 

2017 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 adjusting our previously issued 2017 net income guidance of $0.17 to $0.21 per diluted share to $0.72 to $0.74 per diluted share and adjusting our previously issued 2017 FFO guidance of $1.34 to $1.38 per diluted share to $1.32 to $1.34 per diluted share.  This guidance is provided for informational purposes and is subject to change.  The following is a reconciliation of the calculation of 2017 FFO and earnings per diluted share:

Our 2017 FFO guidance does not include income arising from the sale of undepreciated real estate.  Other key assumptions include:

• Core Occupancy ranging between 93-94% by year-end 2017 with 95-96% leased;
• 6-7% GAAP increase in overall lease rates during 2017 with a resulting 0-1% increase in 2017 same store GAAP NOI;
• 10-11% cash increase in overall lease rates during 2017 resulting in a 7-8% increase in 2017 same store cash NOI;
• Speculative Revenue Target: $27.7 million, 99% achieved;
• $430 million of net sales activity; 100% executed or under contract;
• One development start (Four Points, Building 3), and
• Annual FFO per diluted share based on 178.3 million fully diluted weighted average common shares.

2018 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 initiating our 2018 net income guidance of $0.34 to $0.44 per diluted share and 2018 FFO guidance of $1.36 to $1.46 per diluted share.  This guidance is provided for informational purposes and is subject to change.  The following is a reconciliation of the calculation of 2018 FFO and earnings per diluted share:

Our 2018 FFO guidance does not include income arising from the sale of undepreciated real estate.  Other key assumptions include:

• Core Occupancy improving to a range of 94-95% by year-end 2018 and 95-96% leased;
• Average Same-Store Occupancy of 92.6% during 2018 versus 93.5% during 2017;
• 8-10% GAAP increase in overall lease rates during 2018 with a resulting (1)-1% (decrease)/increase in 2018 same store GAAP NOI;
• (2)-2% cash increase in overall lease rates during 2018 with a resulting 1-3% increase in 2018 same store cash NOI growth;
• Speculative Revenue Target:  $26.3 million, 49% achieved;
• Anticipate an $0.02 per share, or 12.5%, increase to our quarterly dividend commencing in 2018
• No acquisition activity;
• No sales activity;
• One development start; and
• Annual earnings and FFO per diluted share based on 179.0 million fully diluted weighted average common shares.

About Brandywine Realty Trust

Brandywine Realty Trust (NYSE: BDN) is one of the largest, publicly traded, full-service, integrated real estate companies in the United States with a core focus in the Philadelphia, Washington, D.C., and Austin markets.  Organized as a real estate investment trust (REIT), we own, develop, lease and manage an urban, town center and transit-oriented portfolio comprising 190 properties and 26.0 million square feet as of September 30, 2017, which excludes assets held for sale.  Our purpose is to shape, connect and inspire the world around us through our expertise, the relationships we foster, the communities in which we live and work, and the history we build together.  For more information, please visit www.brandywinerealty.com.

Conference Call and Audio Webcast

BDN management will discuss updated earnings guidance for fiscal 2017 on Thursday, October 19, 2017, during the company's earnings call.  The conference call will begin at 9:00 a.m. Eastern Time and will last approximately one hour.  The conference call can be accessed by dialing 1-800-683-1525 and providing conference ID: 26645917.  Beginning two hours after the conference call, a taped replay of the call can be accessed through Thursday, November 2, 2017, by calling 1-855-859-2056 and entering access code 26645917.  The conference call can also be accessed via a webcast on our website at www.brandywinerealty.com.

Looking Ahead - Fourth Quarter 2017 Conference Call

We anticipate we will release our fourth quarter 2017 earnings on Thursday, January 25, 2018, after the market close and will host our fourth quarter 2017 conference call on Friday, January 26, 2018 at 9:00 a.m. Eastern Time.  We expect to issue a press release in advance of these events to reconfirm the dates and times and provide all related information.

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.  The declaration and payment of future dividends (both timing and amount) is subject to the determination of our Board of Trustees, in its sole discretion, after considering various factors, including the Company's financial condition, historical and forecast operating results, and available cash flow, as well as any applicable laws and contractual covenants and any other relevant factors.  The Company's practice regarding payment of dividends may be modified at any time and from time to time.  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, 2015.  We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events except as required by law.

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 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 depreciable operating property, impairment losses on depreciable consolidated real estate, impairment losses on investments in unconsolidated real estate ventures 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.

Net Operating Income (NOI)

NOI 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 Operating Partnership 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 interest in property partnerships.  In some cases we also present NOI on a cash basis, which is NOI after eliminating the effects 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 to cash flows as a measure of the Company's liquidity or its ability to make distributions.  NOI is a useful measure for evaluating the operating performance of our properties, as it excludes certain components from net income available to common shareholders in order to provide results that are more closely related to a property's results of operations.  NOI is used internally to evaluate the performance of our operating segments and to make decisions about resource allocations.  We concluded that NOI provides useful information to investors regarding our financial condition and results of operations, as it reflects only the income and expense items incurred at the property level, as well as the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and development activity on an unlevered basis.

Core Portfolio

Our core portfolio is comprised of our wholly-owned properties, excluding any properties currently in development, re-development or re-entitlement.

SOURCE Brandywine Realty Trust

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