Brandywine Realty Trust — Q2 2021 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2021. Brandywine is an office and mixed-use REIT operating primarily in Philadelphia, Austin, and the Washington, D.C. area. At quarter-end it owned 81 properties totaling approximately 13.7 million rentable square feet; core-property occupancy was 90.5%. Unless indicated otherwise, amounts below are in U.S. dollars.
Financial and operating results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $120.1 million | $136.8 million | $240.9 million | $281.9 million |
| GAAP net income (loss) | ($0.2 million) | $4.0 million | $6.8 million | $12.1 million |
| Net income (loss) per share | $0.00 | $0.02 | $0.04 | $0.07 |
| Net operating income (NOI), non-GAAP | $72.7 million | $84.4 million | $146.8 million | $172.5 million |
| Cash provided by operations | — | $79.1 million | $100.3 million |
Q2 revenue declined 12.2% year over year; first-half revenue declined 14.6%. First-half GAAP net income fell 43.9%. Q2 NOI was 60.5% of revenue, versus 61.6% a year earlier; first-half NOI was 60.9% versus 61.2%. These NOI margins are calculated from the filing’s figures; NOI is a non-GAAP measure and excludes, among other items, interest, depreciation, capital expenditures, and leasing costs.
At June 30, cash and cash equivalents were $47.7 million. Debt principal outstanding was $1.887 billion, approximately 92.8% fixed-rate; weighted-average interest rate was 3.7% and weighted-average maturity was 4.8 years. The company reported $540.7 million available under its $600 million revolver, net of letters of credit, and compliance with debt covenants. Scheduled principal maturities include $308 million in 2022, $350 million in 2023, and $350 million in 2024.
Material changes and drivers
- Lower rent revenue primarily reflected property dispositions: approximately $22.7 million of Q2 and $46.9 million of first-half year-over-year rent decreases were attributed to dispositions. Same-store revenue increased modestly, while core occupancy edged down from 90.7% at June 2020 to 90.5%.
- First-half property-level NOI declined 14.9%. The company collected 99.3% of Q2 cash-based rent due, including 99.8% from office tenants; reported rent relief to 66 tenants totaled $4.9 million.
- Equity-method losses from unconsolidated real estate ventures rose to $14.2 million for the first half from $4.1 million, mainly due to the Commerce Square venture and weaker MAP Venture results. Interest expense fell to $31.8 million from $40.2 million.
- Operating cash flow decreased by $21.2 million. Investing used $68.4 million, including development, redevelopment, tenant improvements, and leasing costs; financing used $9.3 million. Cash and restricted cash increased by $1.4 million.
Outlook, risks, and unusual items
No specific earnings or occupancy guidance is provided. Management said it believes available cash, operating cash flow, financing capacity, and real estate sales can meet liquidity needs; it expects development and redevelopment projects to be the main capital uses for the rest of 2021. Management cautioned that the pandemic and economic uncertainty could pressure occupancy, rents, collections, tenant costs, financing access, and project execution.
- The company contributed its 3025 JFK Boulevard leasehold interest to a joint venture, recognized a $2.0 million gain, and recorded a $34.8 million initial venture investment. After quarter-end, the venture closed on a $186.7 million construction loan; Brandywine provided a carry guarantee and a limited payment guarantee of up to 25% of principal, in addition to project completion and cost-overrun guarantees.
- A February 2021 Austin winter storm caused a $1.2 million fixed-asset write-off and estimated restoration costs of $7.2 million. The company reported $13.0 million of insurance proceeds received and full recovery of costs incurred to date.
- Other disclosed exposures include a payment guarantee of up to $41.3 million on the 4040 Wilson venture’s construction loan and development-related guarantees. The company reported no material change to previously disclosed risk factors and no material adverse effect expected from routine litigation.
Important facts for investors to verify
- Whether leasing, occupancy, and rent collection trends improved after quarter-end, and the status and repayment of rent deferrals.
- The timing, cost, leasing, and financing progress of development and redevelopment projects, including 405 Colorado Street and 3025 JFK.
- Performance and funding needs of unconsolidated ventures, especially Commerce Square and MAP, and the extent of potential guarantee obligations.
- How the 2022–2024 debt maturities will be refinanced or repaid, and whether liquidity and covenant headroom remain adequate.
- Whether disposition-related revenue declines and Austin storm insurance recoveries create further material effects; the filing says the two land parcels classified as held for sale were sold July 6, 2021 for $8.9 million.