Brandywine Realty Trust ( BDN) Q2 2011 Earnings Call July 28, 2011 9:00 AM ET Executives Gerard Sweeney – President and CEO George Johnstone – SVP, Operations and Asset Management Howard Sipzner – EVP and CFO Analysts Jordan Sadler – KeyBanc Capital Jamie Feldman – Bank of America Brendan Maiorana – Wells Fargo David Rodgers – RBC Capital Markets John Guinee – Stifel Josh Attie – Citi Richard Anderson – BMO Capital Markets John Stewart – Green Street Advisors Presentation Operator
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Moving in to the presentation, our actual results are progressing well ahead of our 2011 business plan and we are very pleased to report solid progress during the second quarter. Market conditions range from stable to improving and we continue to see strong tenant activity levels. Certainly the return of strong real estate fundamentals generally is subject to macroeconomics events such as the federal deficit to divide on public policy which appears to be ongoing, steady municipal budgetary constraints and private sector employment growth. Essentially, however, we continue to see a steady recovery. This recovery top with our tactic of aggressively pursuing occupancy has created a solid platform for Brandywine to exceed our original 2011 business forecast.We will continue this market driving leasing strategy and this approach will vary by submarket. In some we have been pushing rents and in others we will continue to buy occupancy. In those weaker submarkets we will continue this aggressive approach until those markets returned to start activity levels. We also continue to see a slight up the quality curve that has greatly benefited our portfolio. Some observations on our second quarter leasing, balance sheet, management and investment efforts tacking leasing first. On the leasing front we posted another very strong quarter. There is no single bigger contribution to our growth profile than simply leasing up our existing space. As evidence by our second quarter results we are making strong progress and leasing production remains our primary focus. We had our third consecutive quarter of leasing activity in access of 1 million square feet, additionally our 65% tenant retention rate for the quarter significant had plan and as a result we are projecting a 2011 retention rate of 60% versus 55% in our original plan. The strength of this leasing production has resulted in the following positive adjustments to our key metrics. We are increasing our projected 2011 core occupancy percentage at year end to be 86.6%, a 90 basis improvement over our projection last quarter, and 100-basis point improvement over our year end 2011 levels.
We have moved our speculative revenue target of 6.2% to $34.4 million and we are 94% executed on that planned component. Our same-store has improved from our original forecast and from last quarter. We are now projecting a same-store GAAP NOI decline of 3% to 4% versus our originally forecasted 4% to 6%, and a cash-based decline of 4.4% to 5.5% versus 5% to 7% previously forecasted.Capital costs are up quarter-over-quarter, George will outline the detail in a few minutes, but note that we have accelerated leasing activity and while doing so, have increased the average length of our lease by about 20%. We’re up to 5.4 years on average versus our 2011 business plan. More importantly, we’re up 35% from the 4.0 year average lease term that we experienced in 2010. For leases commencing in Q2, the average lease term was 6.5 years. Additionally, as George will outline the size of our four leasing commencements as an early paying of commissions on leases that will not commence for a number of quarters. We continue to make progress on managing rental rate declines, even as we are aggressively pursuing tenants, our GAAP rental rate decline has remained at 1.5% to 3%, which is in line with last quarter, but a significant improvement over earlier projections. On a cash basis we continue to anticipate a range of between 6 to 8% which has tightened a bit from last quarter and the upper limit is down from the 10% we originally forecast. Increasing market share remains a major objective and on that front the plan also continues to progress well. By way of example, in Southern New Jersey we experienced a 51% increase in activity Q2 over Q1 but more importantly our leasing teams did 36% of all the deals in the market place compared to 19% ownership stake. In the Pennsylvania suburbs we had similar results where we captured 58% of the market share for leasing activity versus a 14% ownership stake. Read the rest of this transcript for free on seekingalpha.com