Brandywine Realty Trust (
Q3 2010 Earnings Call
October 28, 2010 9:00 a.m. ET
Gerry Sweeney - President & CEO
George Johnstone - SVP, Operations & Asset Management
Howard Sipzner - EVP & CFO
Tom Wirth - EVP, Portfolio Management and Investments
Michael Billerman - Citi
Jamie Feldman - BofA Merrill Lynch
Jordan Sadler - KeyBanc Capital Markets
John Guinee - Stifel
Rich Anderson - BMO Capital Market
Rene Bayarna - Wells Fargo Securities
John Stewart - Green Street Advisors
Anthony Paolone - JPMorgan
Dave Rogers - RBC Capital
Previous Statements by BDN
» Brandywine Realty Trust Q2 2010 Earnings Call Transcript
» Brandywine Realty Trust Q1 2010 Earnings Call Transcript
» Brandywine Realty Trust Q4 2009 Earnings Call Transcript
» Brandywine Realty Trust Q3 2009 Earnings Call Transcript
Good morning my name is Latangie and I will 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 Gerry Sweeney, President and CEO of Brandywine Realty Trust. Please go ahead, sir.
Well Latangie thank you very much. Good morning, everyone, and thank you all for joining us for our third quarter 2010 earnings call. Participating on today's call with me are Gabe Mainardi, our Vice President and Chief Accounting Office; George Johnstone, our Senior Vice President of Operations; Tom Wirth, our Executive Vice President, Portfolio Management and Investments; and Howard Sipzner, our Executive Vice President and Chief Financial Officer.
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 Law. 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.
Before addressing our quarterly performance, just a quick observation on the overall state of the real estate markets and the economy. On the last call we talked about the recovery we are seeing in our primary markets. We continue to believe that recovery that market has bottomed and that the recovery is still underway.
As we have seen with broader economic indicators however this recovery while we anticipated it to be steady will be slow. From a real estate standpoint even though there are an increasing number of tenants already looking at their 2011 and 2012 space requirements as evidence by some of our traffic and pipeline activity that positive continuous to be offset by tenant downsizing an space give backs.
These two factors combine to create a market that while positively biased is one that will have very competitive conditions persisting well under 2011. In this type of climate given very little new incremental demand we will generate leasing activity primarily by increasing our market share and as such upward pricing pressure will be minimal and will remain selling to our markets return to normal levels of observation and reduce the vacancy rates below their current low to mid-teen averages.
So with that overall comment and looking at the third quarter we continue good execution of 2010 business plan including strong leasing performance. As you look at the quarter and remainder of the year several points to note, our first, the headline news for the quarter for us was 1.4 million square feet of leasing activity during the quarter.
A new deal pipeline of 3 million square feet, 414,000 square feet have executed forward new leasing transactions and 518,000 square feet of leases and negotiations, all strong indicators.
Overall velocity was in-line with our expectations, even with this strong leasing metric we continue to face space consolidations by a number of larger tenants that had impacted both our 2010 and will impact our 2011 business plans.
From an operating metric standpoint our business plan always anticipated that the third quarter will be challenging so we did see continued pressure on our operating trends during the quarter. Our mark to market on rents remain negative, same store NOI declined both in line with expectations. Our NOI margins however remain stable and we project we will exceed our 2010 spec revenue target by $3 million or 11%.
Our tenant retention rate for the third quarter was 68.3% excluding early terminations and 63.3% with early terminations. Traffic through the portfolio is up 4% from the second quarter and up 14% year-over-year. Our strongest performing markets in terms of both activity and rental rates remained Philadelphia CBD, Radnor Plymouth Meeting in Newtown Square submarkets in Suburban Philadelphia, the Toll Road Carter in Metropolitan DC, and our operations in Richmond.
As outlined on our last call, our 2010 operating business plan assumptions are they originally contemplated a 46% retention rate. Based on results thus far we anticipate we'll have an actual retention rate that will approach 60%. Our core portfolio occupancy for the quarter at the end of the quarter was 84.9%. This occupancy level is down 150 basis points from last quarter's 86.4%, primarily due to 1717 Arch as we now know as Three Logan being 67% leased which has about 90 basis points of vacancy with the balance of the decline due to several large known moves of our tenants back to corporately owned facilities, notably .ARI in Southern New Jersey to move that 158,000 square feet and Verizon and Vanguard to vacate a square feet in our Pennsylvania operations as well as about 33,000 square feet of bankruptcies and lease defaults during the quarter.
During the third quarter we did deliver the IRS Philadelphia Campus which is 100% leased to the IRS and the Cira South Garage which is 93.2% leased. The GSA is now our largest single tenant comprising 6.4% of our annual based rents.