Brandywine Realty Trust (BDN)
Q1 2010 Earnings Call Transcript
April 29, 2010 10:00 am ET
Gerry Sweeney – President and CEO
Howard Sipzner – EVP and CFO
Tom Wirth – EVP, Portfolio Management and Investments
George Johnstone – SVP, Operations and Asset Management
Josh Attie – Citi
Michael Bilerman – Citi
Craig Mailman – KeyBanc Capital Markets
Jamin Callon – Bank of America/Merrill Lynch
Yanku [ph] – Wells Fargo
Mitch Germain – JMP Securities
Rich Anderson – BMO Capital Markets
Stephen Mead – Anchor Capital Advisors
Dave Rogers – RBC Capital Markets
Dan Donlan – Janney Capital Market
John Stewart – Green Street Advisors
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Good morning. My name is Tangie and I will be your conference operator today. At this time, I would like to welcome everyone to the Brandywine Realty Trust first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s 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.
Tangie, thank you and thank you all very much for joining us for our first quarter 2010 earnings call. Participating on today’s call with me today, 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 Investments, and Howard Sipzner, our Executive Vice President and Chief Financial Officer.
Before we begin, I would 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.
Onto the agenda, during the first quarter, we continue our capital market activities and strong leasing performance. As you look at this past quarter and more importantly, the balance of the year, several overall observations to note. First, leasing activity remains strong, leasing velocity was up significantly and we do expect fundamentals to continue firming.
While most markets will have negative absorption for the year, thereby continuing the existing tenant’s market, some markets are in fact addressing faster than others. Run rate declines have moved out and tenant contractions are factored into our business plan and we believe the worst is generally behind us.
As such, our 2010 plan reflects our view on the market bottoming, a company by run rates fidelity in some markets with continued downward pressure in several others. As shown by our first quarter results, negative operating trends will persist in the near term.
During the quarter, we leased over a million square feet, have about 75% of our annual spec revenue targets executed. We still experience negative absorption during the quarter along with the resultant decline in occupancy. This transition period, our activity levels are increasing but not at a pace of fully offset known contractions and terminations as our current dilemma and one of the more frustrating aspects of being at this point in the cycle.
Our business plan anticipates these negative trends continuing for the rest of the year with hopefully positive trends developing by Q4 in 2011. Our tenant retention rate for the first quarter was 77.2%, excluding early terminations and 65% with early terminations. Same-store occupancy for the quarter was 87.8% and our capital costs were 14.5% of gross revenues for new leases and 8% of gross revenues for renewals, all of these very much in line with our expectations.
During the quarter, we commenced occupancy on 788,000 square feet including 571,000 square feet of renewals, 93,000 square feet of new leases and 124,000 square feet of tenant expansions. We currently have over 1.8 million square feet of executive leasing in place, scarcely commenced subsequence in March 31, 2010.
And as previously announced, subsequent to the quarter end, we did execute a 334,000 square foot seven year renewal with Wells Fargo Bank at our Concord Airport Plaza, a two building complex in Concord, California, keeping that complex at 99% occupied. During the quarter, traffic through the portfolio was up 34% quarter-over-quarter and 36% year-over-year.
Every region but one was up and we had a solid increases in showings in Pennsylvania DC and our New Jersey and Delaware operations. The pipeline of transactions remain strong with 2.4 million square feet of new prospects of which 640,000 square feet on active lease negotiations.
Our strongest performing markets are Philadelphia's CBD, the Radner Plymouth Meeting Carter in Suburban Philadelphia, the Toll Road Carter in DC, Austin and Richmond, Virginia. We continue to face leasing challenges in New Jersey, Delaware and Maryland.
During the quarter, as we announced, we leased over 1 million square feet in 124 separate transactions and 831,000 square feet of which generated forward-leasing activity which will help offset any further early terminations or tenant departures. Despite these strong leasing levels as I mentioned we continue to face higher then normal rate of tenant move out and terminations which are negatively impacting our portfolio statistics. That activity has clearly been factored into our 2000 plan as I mentioned hopefully a lot of that is in the rearview mirror.
As outlined in our last call, our 2010 operating and business plan assumptions are a major objectives for 2010, simply the lease space and controller operating margins, really nothing more complicated than that. That’s the primary focus of the entire organization.