Brandywine Discusses Q4 2011 & Year End 2011 - Earnings Call Transcript

Brandywine Realty Trust ( BDN)

Q4 2011 & Year End 2011

February 9, 2011 9:00 am ET

Executives

Gerard H. Sweeny – President, Chief Executive Officer & Treasurer

George Johnston – Senior Vice President Operations & Asset Management

Gabriel Mainardi – Chief Accounting Officer, Vice President & Treasurer

Howard M. Sipzner – Chief Financial Officer & Executive Vice President

Thomas Wirth – Executive Vice President Portfolio Management & Investments

Analysts

James Feldman – Bank of America Merrill Lynch

Jordan Sadler – Keybanc Capital Markets

Josh Attie – Citigroup

John Guinee – Stifel Nicolaus & Company, Inc.

Richard Anderson – BMO Capital Markets

David B. Rodgers – RBC Capital Markets

Michael Knott – Green Street Advisors

Mitchell Germain – JMP Securities

Young Ku – Wells Fargo Securities, LLC

Anthony Paolone – J.P. Morgan

Presentation

Operator

At this time I would like to welcome everyone to the Brandywine Realty Trust fourth 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) I would now like to turn the conference over to Mr. Gerry Sweeney, President and CEO of Brandywine Realty Trust.

Gerard H. Sweeny

Thank you all for joining in our fourth quarter year end 2011 earnings call. On today’s call with me are George Johnston, Senior Vice President of Operations, Gabe Mainardi our Vice President and Chief Accounting Officer, Howard Sipzner our Executive Vice President and Chief Financial Officer and Tom Wirth our Executive Vice President of Portfolio Management and Investments.

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.

2011 wrapped up on several strong notes for us. The fourth quarter represented a solid continuation in the execution of our 2011 business plan. George and Howard will discuss fourth quarter results so my opening comments will address 2011 full year activity and a look ahead to 2012 with a focus being on the three key business areas of operations, balance sheet, and investments.

Looking at operations first, during 2011 we leased a record 4.5 million square feet. This surpassed 2010’s 4.2 million square feet and exceeded our original business plan projection of 3.9 million square feet. This success clearly evidences continued recovery in the levels of both leasing activity and in many of our markets the pace of absorption.

During the year we saw gradually firming of fundamentals and ongoing flight to quality and wide variation of the recovery pace among our various submarkets. Our Philadelphia CBD portfolio which comprises 23% of revenues, our Pennsylvania crescent markets which comprised 17% of revenues and Austin Texas which is 5% of revenue all are over 95% leased and performed very well during the year.

Several other markets, notably Northern Virginia which is 17% of rents and Southern New Jersey which is 5% of rents continue to recover from large move outs and downsizings but Brandywine traffic levels through our portfolios generally improved during the course of the year.

Looking at the entire company, our core portfolio occupancy was 86.5% up 110 basis points since 2010 year end. We also ended the year 89.5% leased up 180 basis points from the beginning of the year and we are maintaining a very healthy 300 basis points of lease to occupied spread. Our tenant retention rate for the year came in at 65% versus our original plan of 56%. We also had net absorption during the year of over 277,000 square feet. A real step in the right direction and compared to negative absorption of over 600,000 square feet during 2010 so our portfolio is definitely on the right track.

In 2011 we experienced rental rate declines on both a GAAP and cash basis far from acceptable but both significant improvements from 2010 levels. Additionally, our leasing capital cost per square foot trended higher during the year and elevated capital spending remains a key focus for the company and George will address this in more detail during his comments.

During 2011 our average lease term increased to six years, up from our business plan forecast of four years. We plan continued negotiation for longer term leases with built in annual escalators ranging from 1.5% to 3% to offset larger upfront capital commitments. The portfolio is in much better position entering 2012 and this success we had during ’11 reflects the quality and location of our portfolio, a steadily recovering market, the skills of our leasing and property management teams and our continuing focus on market outperformance.

Now, looking at our balance sheet, as we entered 2011 we faced significant debt maturities over $500 million with $400 million of our debt exposed to floating rates, or about 20% of our total debt. Our primary objective during 2011 was to stabilize our financial platform by eliminating debt maturity risk and protecting future EBITDA improvement from interest rate volatility.


During 2011 we paid off $219 million of secured mortgages so at year end our unencumbered pool now represents 84% of our total assets compared to 77% of our asset base at year end 2010. The bank financing the particulars of which are detailed on page six of the supplemental package was announced at the end of December. It funded last week and the combination of our line of credit renewal and three individual term loans accomplished the following objectives. First, it fully retired the balance on our revolving credit facility. As such, we do not have any outstanding balance on our new four year $600 million revolving line of credit and more importantly, our current business plan does not anticipate any draws on this facility during 2012.

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