Brandywine Realty Trust's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Brandywine Realty Trust (BDN)

Q2 2012 Earnings Conference Call

July 26, 2012 09:00 ET

Executives

Gerry Sweeney – President and Chief Executive Officer

George Johnstone – Senior Vice President, Operations

Gabe Mainardi – Vice President and Chief Accounting Officer

Howard Sipzner – Executive Vice President and Chief Financial Officer

Tom Wirth – Executive Vice President, Portfolio Management and Investments

Analysts

Jordan Sadler

Jamie Feldman – Bank of America

Brendan Maiorana – Wells Fargo

Josh Attie – Citigroup

John Guinee – Stifel

Rich Anderson – BMO Capital Markets

Michael Knott – Green Street Advisors

Ross Nussbaum – UBS

Mitch Germain – JMP Securities

Presentation

Operator

Good morning. My name is (Steve) and I will be your conference operator today. At this time, I would like to welcome everyone to the Brandywine Realty Trust Second 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.

Mr. Gerry Sweeney, President and CEO of Brandywine Realty Trust, you may begin your conference.

Gerry Sweeney

(Steve), thank you. Good morning and thank you everyone for participating on our second quarter 2012 earnings call. On today’s call with me today are George Johnstone, our 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 our prepared comments, 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.

We made significant progress on all aspects of our 2012 business plan during the second quarter. Our objectives remain very much on track and we are well positioned to finish the year strong. I’ll provide an overview of our three business plan components that is operations, balance sheet management and investments, then George and Howard will discuss our operating and financial results in more detail and Tom is certainly also available to discuss investment market activity.

Overall, the macroeconomic picture remains the biggest risk to our business plan and frankly the business plans of every other company. Data continues to shift like you we track it daily and try to discern the impact of this ever changing climate on our business plan. Due to the many conflicting data points in which we are all familiar, the word uncertainty has begun to creep back into some customer conversations during the last quarter. So, while we continue to be very pleased with the level of tenant activity through our portfolio, we fully understand the impact that macroeconomic data can have on tenant psychology. As such accelerating leasing absorption is our continual priority. And from an overall standpoint we still believe that the moderate recovery in our office markets remains well underway. Vacancy rates continued to decline in most of our markets and total leasing activity remained solid through most of our portfolio.

Looking at the operational components of our business plan several of our markets have a positive pricing dynamic and in these markets we continued seeing encouraging signs of rental rate growth. In all of our markets we continued to benefit from a flight up the quality curve. Our leasing approach remains tactical and is sub-market driven. Our stronger markets Austin, Philadelphia, CBD and the Crescent markets in the Pennsylvania suburbs are experiencing increasing rental rates, lengthening of lease terms and downward pressure on capital concessions.

In other markets we continued to pursue absorption through expanding our market share of current tenant activity levels. Levels of activity in the Philadelphia, CBD the Pennsylvania suburbs and Austin Texas is strong and solid. These three operations will exceed our original business plan revenue forecast. Conversely we have not seen a continuation of leasing activity that we saw last year in Northern Virginia. In particular activities and levels in that market are below our expectations and we will not achieving the 2012 spec revenue levels that we originally anticipated.

Additionally our operations in Richmond are beginning to fall a bit behind plan due a lower level of anticipated tenant activity in our Southwest Richmond market in particular. Our Southern New Jersey operation we continued to experience strong leasing activity significantly above last year’s levels. We anticipate meeting our business plan projections in our New Jersey, Delaware operations. And given the current high activity levels have a potential to perform to the upside. Our expectation is that out-performance in our strongly performing markets will overcome any anticipated shortfalls in either Northern Virginia or Richmond. As such we are maintaining our $44.9 million spec revenue goal and are 87% executed on that target.

From operational and leasing standpoints notable accomplishments during the quarter, the transaction pipeline remained steady at 3.1 million square feet. During the quarter we had a solid 73% customer retention rate which brings us to year-to-date average of 69%. Even given no move-outs, we’re now forecasting an overall improvement to our 2012 retention rate of 60% which is up from 57% in our last forecast. George will outline the operational improvements in more detail. But given the strengthening of the portfolio’s overall metrics we’ve increased our same store NOI growth range on both GAAP and cash basis and we’ve also improved the range of our rental rate mark-to-market.

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