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Brandywine Reports In Line

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Brandywine Realty Trust (BDN - Free Report) , a real estate investment trust (REIT), reported its second quarter 2012  FFO (funds from operations) of 30 cents per share, in line with the Zacks Consensus Estimate. However, this compares unfavorably with FFO of 32 cents in the year-earlier quarter.

In the second quarter, Brandywine reported FFO of $44.6 million or 30 cents per share in the second quarter of 2012 compared with $47.5 million or 32 cents per share in the year-earlier quarter. The company reported CAD (cash available for distribution) of $29.1 million or 20 cents per share compared with $20.5 million or 15 cents per share in the year-earlier quarter.

Total revenue during the reported quarter was $137.6 million, down from $139.2 million in the year-ago quarter and beating the Zacks Consensus Estimate of $137 million.

Quarter Highlights

In the reported quarter, Brandywine’s net operating income (NOI) increased to $80.3 million from $79.6 million in year-earlier quarter. NOI, excluding termination revenues and other income items, upped 3.8% on a GAAP basis and 2.4% on a cash basis in the reported quarter.

Brandywine executed strong leasing activities during the reported quarter. The company signed leasing agreements for approximately 600,485 square feet of space, comprising 175,229 square feet of new leases, 80,021 square feet of tenant expansions and 345,235 square feet of renewed leases. In addition, Brandywine signed new leases for 527,721 square feet of space, with the leasing period commencing after the second quarter.

The company achieved a tenant retention ratio of 73.3% with positive net absorption of space spanning 19,957 square feet in its core portfolio. As of June 30, 2012, Brandywine’s core portfolio comprising 218 properties and spanning 24.3 million square feet was 86.9% occupied and 89.0% leased, including new leases starting subsequent to the end of the quarter.

Acquisitions and Dispositions

During the reported quarter, Brandywine completed the disposition of Pacific Ridge Corporate Center, a two-building office property in California spanning 121,381 square feet, for $29.0 million.

As of June 30, 2012, Brandywine had an urban town center and suburban office portfolio of 305 properties spanning 34.5 million square feet. This includes 230 properties spanning 24.9 million square feet owned on a consolidated basis and 53 properties spanning 6.5 million square feet owned in unconsolidated real estate ventures.

Subsequent to the end of the quarter, Brandywine’s joint Venture completed the acquisition of Station Square, a three-property office portfolio in Maryland spanning 499,395 square feet for $120.6 million. In addition, Brandywine completed the disposition of Oaklands Corporate Center, a Pennsylvania-based eleven-property office portfolio spanning 466,719 square feet for $52.7 million.


At the end of the quarter, the company had cash and cash equivalents of $190.1 million and net debt to gross assets ratio of 42.8%. The company had no outstanding balance on its $600.0 million unsecured revolving credit facility. Brandywine declared a dividend of 15 cents per share in the reported quarter.

2012 Outlook

Brandywine raised its 2012 FFO guidance to the range of $1.32 to $1.36 per share from the previous range of $1.30 to $1.35 per share. The optimism reflects the strong leasing and disposition activities in the reported quarter.

Based on Brandywine’s significant leasing activity, strong balance sheet and liquidity position, we expect analysts to revise their estimates upward in coming days. Currently, the Zacks Consensus Estimate for 2012 and 2013 are pegged at $1.33 and $1.39, respectively.

Brandywine carries a Zacks #3 Rank, implying a short-term Hold rating. We also reiterate our long-term Neutral recommendation on the stock. One of its competitors – Mack-Cali Realty Corp. (CLI - Free Report) – carries a Zacks #4 Rank (short-term Sell rating).

Note: FFO, a widely accepted and reported measure of REIT’s performance, is derived by adding depreciation, amortization and other non-cash expenses to net income. CAD, a measure to ascertain a REIT’s ability to generate cash, is derived by subtracting straight-line rent and non-recurring real estate expenses from funds from operations.

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