Brandywine Realty Trust (BDN) Analyst Meeting Conference Call June 26, 2012 10:00 am ET Executives Michael A. Nutter – Mayor, City of Philadelphia Gerard H. Sweeney – President, Chief Executive Officer and Trustee George D. Johnstone – Senior Vice President, Operations Howard M. Sipzner – Executive Vice President and Chief Financial Officer Thomas E. Wirth – Executive Vice President, Portfolio Management and Investments William D. Redd – Senior Vice President and Managing Director Robert K. Wiberg – Executive Vice President and Senior Managing Director H. Jeffrey DeVuono – Executive Vice President and Senior Managing Director – Pennsylvania Presentation Unidentified Company Representative
What our objective for today is to by the end of the presentation this morning, and then tour this afternoon to get you a real good window into the operational growth opportunities we have in front of us as a company, the financial discipline is implicated into our business plan and the growth opportunities we have through our investment strategy over the next couple of years.So again we really appreciate you taking the time to come in. Before we get started, I just want to take a moment to introduce some of the Brandywine team that’s here today. And we will, as we always, will take the back row. So, and this is always like the church, no one sits in the front pew. So with that as a standard predicate, we have Howard Sipzner, our Chief Financial Officer, George Johnstone, our Senior Vice President of Operations, Tom Wirth, our Executive VP of Investments and Portfolio Management, Jeff DeVuono who is our Executive Managing Director of Pennsylvania operations, George Sowa, Managing Director of New Jersey and Delaware operations, Bill Redd who heads up our Austin and Richmond operations and Bob Wiberg who heads up our Washington D.C. operations. They will all be presenting today. In addition, some other Brandywine executives, here is George Hasenecz, our Senior Vice President of Investments, George is right there, Gabe Mainardi, our Chief Accounting Officer, Charles [Wulff] who is one of our top financial analysts and works in our financial model, Brad Molotsky, our General Counsel and we also have, I just want to take a moment. Things like this don’t happen without a great deal of work. And I want to say you guys and ladies real high maintenance, but the logistics involved in pulling together an Investor Day, as you all know, takes a lot of time. So we’d like to specifically [gives cheers] to Marge Boccuti, our Head of Investor Relations for the great job she did organizing today with a really strong assist from Melissa (inaudible) our Head of Graphics, Design, (inaudible) and Marge who just did a great job in so many other [Powerpoint].
So with that, we’ll kind of move into the presentation. We’re going to do today the company overview that I’ll walk through; George will do an operations review; Howard will do a financial update; Tom an investment review. And then we’ll spend some time going through each of the regional operations against give you a sense of what we are looking at over the next couple of years, I have a couple of wrap up comments and then certainly the floor will be opened up for Q&A. But during any of the presentations, please feel free to raise your hands, and if you can’t see one of the numbers on the screen, I know the light reflecting here somewhat challenging at times, please raise your hands.So I’m looking at the overall company review, most of you already know the story, watched the story and our game plans towards amplify those parts for you. But the real focus we have as an organization is from an operational standpoint the focus is clearly on dominant market share, quality sub market positioning, we think that drives both near-term value, but also long-term competitive advantage. And then as we phrase it a best of market infrastructure, which relates to our products, our people in the service platform that we have tenant to our entire asset base. This gives you a little bit of a snapshot of Brandywine portfolio you can see we have 283 buildings, sold-out 32 million square feet including our joint venture properties. Our overall core portfolio of occupancy is 87%, which is on its past even higher numbers as we look at over the next couple of years. We are just shy of 89% leased. Then we’ve also showed in the far right-hand column, the revenue contributions. Now couple of interesting points, if you go back three and a half years, the revenue contributions from Philadelphia CBD was about 12%. We have more than doubled that in the last three and a half years through some of the acquisitions we’ve made downtown including this building right here.
In addition to that one of the other points of note is the New Jersey portfolio, which has been reduced from about 18% to 19% 3.5 years ago, down towards by about a third to about 12%. So with those two variables, we’re in a position where we now have this landscape for the company.So let me break from the presentation for a moment, because it’s my great honor to introduce the Mayor of the City of Philadelphia. Michael Nutter is in his second term as Mayor, has been a great advocate for business growth in the city. Going back to his days of the Member of City Council, he has been a great friend to the business community, has focused very much on economic development, improving Philadelphia’s competitive platform, and he has done a marvelous job, navigating the city through some very challenging economic times. And while the city is still in the mist of a budget review this year, he is trying to balance that with the budget of the Commonwealth of Pennsylvania. There is a lot of balls in the air, but he really has become a national advocate for both sustainability and economic development and that advocacy and that expertise has been recently recognized where he was just elected as the Chairperson President of the U.S. Conference of Mayors. So in addition to his very pivotal role here in the City of Philadelphia, he will also have a very important seat in the national dialog on how this country can address major urban issues. So with that, I would like to welcome the Mayor. Thank him for coming. He will make a few comments. Mr. Mayor, it’s mostly investors and analysts here, no reporters, but in our world, analysts are like investigative journalists, so it’s part of us, that’s great.
Michael A. NutterGary, thank you very, very much, and thanks for the invitation, but also thanks for the investment in the city of Philadelphia, one of our largest building owners, property owners, 6.8 million square feet, 11 buildings and growing. And we’re very, very appreciative of you and what you do here on the business side. And then of course Jerry is also Chair of the Schuylkill River Development Corporation, which is helping us open new parks and create additional green space and more economic opportunity here in the city on the ground making Philadelphia helping us in our goal of number one Green City in the United States of America. So for that and many, many other things, I want to say thank you to you and thank you for bringing all of these investors and analysts together here in Philadelphia and thinks for taking this building as well. My mom used to work here. I let her know that her former place is in good hand with the Brandywine. Welcome to the City of Philadelphia and I want to thank all of you for being here this morning. This is a quite important for us given what you do, the outlook that you have, the decisions that you make, the influence that you have all across the country in terms of where people might want to invest. And I came on this morning to talk a little about my home town, the place that I love so, so very much and the opportunity for our business here in the city and certainly in the region. To give you a little bit of context for Philadelphia, fifth largest city in the United States of America and we experienced population growth in the 2010 census for the first time in 60 years. And the one-year subsequent survey that’s done also showed continued growth about 10,000 more of Philadelphian after the 2010 census.
And it’s due to a lot of factors, one we’re holding on to more and more of the young people to come to Philadelphia, the Philadelphia region to get great education, 101 colleges and universities in the tri-state area. And we’ve seen population growth in that 25 to 34 year old sector.Second, we are experiencing growth because many empty nesters in the suburbs, house is gotten too big kids are away, it’s not easier to be here in the city and many of those folks wanted to do spend a lot of time in Philadelphia anyway. Constantly, going through a restaurant, renaissance we, Philadelphia was rated one of the top 10 shopping destinations in the world by CNBC. And of course hospitality, tourism, art and culture, Travel and Leisure Magazine recently rated Philadelphia, the number one city for culture. In the United States of America and that was before the barn is open, just a couple of weeks ago, which will be an international phenomenon for us. Hospitality is a great growth industry for us. We continue to pursue hotel development and we still need nearly 1000 new rooms from the hotel sector, because we doubled, virtually doubled the size of our convention center over on with the new North Broad Street entrance. North Broad Street is a great area of growth for the City of Philadelphia, as well as our Waterfront, which we expect to have one of the best Waterfronts anywhere in the United States of America. We are also seeing population growth from immigrant communities we had a 50% growth in the Hispanic, Latino population here in Philadelphia going from a little over 8%, to now over 12% of the population as well as from African countries, Caribbean community as well as the Asian population growing in Philadelphia as well.
So, tremendously diverse city, and we feel that diversity is one of our strength here in Philadelphia with a commercial corridors all throughout our neighborhoods and of course a strong Central Business District.Philadelphia, unlike many other cities, not only has great a commercial sector or retail sector in Center City that as I mentioned earlier, a great residential component. So, a lot of people live in Center City, and of course, they also walk to work, or by Philadelphia has the largest percent of folks who use cycling to commute to work with any major city in the country. On the business side, we’re trying constantly to create a more friendly business environment here in the city, notwithstanding the recession, like any of the city, we were hit pretty hard, but unemployment continues to come down. One of the strengths of our city of course, is education and medicine. One out of five doctors in the United States of America gets training in Philadelphia or the Philadelphia area. So Penn, Temple, Drexel, San José, Jefferson all of those entities continued to grow, continued to invest top children’s hospital. Philadelphia recently rated this as the number one children’s hospital in the country. For instance, we will spend $5 billion between now and 2017, investing in the area over in the University City. The University City area continues to grow and demonstrate strength. Certainly, Brandywine has contributed to that with the Sierra and the opportunities for Sierra South the conversion of the old post office down to the IRS center upgrades at the Amtrak Station, the new port area on market street, and that continues right out and pass the 40th street with the University City Science Center, the first one of its kind as the business incubator or science incubator in the United States and that continues to grow and develop in the University City area.
Philadelphia is the classic city of neighborhoods. People strongly identify with their communities and we support that with strong commercial corridors in a variety of places, again all across the City of Philadelphia. We’ve aligned our Commerce Department to have individuals the com share a kind of model working with businesses when people call us and they get a person who work with them on a regular basis.Customer service is a big part of what the government is about, we’ve actually taken in many of our business areas; customer service training from our hospitality sector and the hotel community to help folks when they come in. Our goal is to get you in, get you out, but having very positive experience and actually spend less time with us as we put more and more of our services, licenses, which we’ve reduced significantly online as opposed to people standing inline to try to get service. I’ve spend a lot of time going around the city, but also developing strong partnerships throughout the region. As Jerry mentioned, I was a Member of City Council for 14.5 years before resigning and to run for Mayor in 2006. I represented an area that [bordered] Macomb County. If you know the city, the city avenue in Philadelphia is in the district of I used to represent. So I’ve spend a lot of time with my counterparts in lower Marine and Macomb County and created based on what Marydale had done a number of years ago, something called Metropolitan Caucus, bringing together the county commissioners of the other four counties around Philadelphia. Read the rest of this transcript for free on seekingalpha.com