Brandywine Realty Trust — Q1 2020 Form 10-Q
Business context and period. The filing covers the three months ended March 31, 2020. Brandywine is an office and mixed-use REIT operating primarily in Philadelphia, its suburbs, Austin, and the Washington, D.C. area. At quarter-end, it owned 94 properties totaling approximately 16.6 million rentable square feet. The parent trust and operating partnership are presented as one consolidated enterprise.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $145.1 million | $143.9 million, up 0.8% |
| Net income | $8.1 million | $4.6 million |
| Net income attributable to common shareholders | $7.9 million; diluted EPS $0.04 | $4.4 million; diluted EPS $0.02 |
| Net operating income (NOI), non-GAAP | $88.2 million | $86.5 million, up 1.8% |
| Funds from operations available to common shareholders and unit holders (FFO), non-GAAP | $61.4 million | $60.1 million |
| Net cash from operating activities | $45.1 million | $17.8 million |
| Cash and cash equivalents at March 31 | $52.7 million | $90.5 million at December 31, 2019 |
| Total debt obligations | $2.193 billion | $2.144 billion at December 31, 2019 |
Core-property occupancy was 93.3%, versus 92.1% a year earlier. Same-store revenue rose 2.4% and same-store NOI rose 4.0%. Tenant retention improved to 75.6% from 66.2%, while new and expansion leases commenced fell to 224,417 square feet from 404,925, and renewals fell to 87,449 square feet from 412,123.
Liquidity, capital and material changes
- At March 31, cash was $52.7 million and available borrowing capacity under the $600 million revolving credit facility was $548.3 million, net of letters of credit.
- Debt was 95.3% fixed-rate; the reported weighted-average interest rate was 3.8% and weighted-average maturity was 5.5 years. The company reported compliance with all debt covenants.
- Approximately $80.5 million of principal on the Two Logan Square mortgage was due in August 2020 unless refinanced or extended. The company also cited $306.3 million of scheduled principal payments in 2022 and $556.7 million in 2023.
- Investing activities used $42.6 million and financing activities used $40.3 million; cash and restricted cash declined $37.8 million during the quarter.
- The company repurchased 5.64 million shares for $53.9 million at an average $9.54 per share, compared with $17.3 million in Q1 2019. $89.0 million remained authorized at quarter-end. A further $6.1 million share purchase settled April 2.
- A quarterly distribution of $0.19 per share was declared, totaling $32.7 million, and paid April 21.
- The company sold an office property for $18.0 million, recording a $2.6 million gain, and acquired 7.75 acres in Radnor, Pennsylvania, for $11.25 million.
Outlook, risks and unusual items
The filing gives no numerical earnings or operating guidance. Management said liquidity was expected to cover existing development and redevelopment commitments and potential investment opportunities, but warned that the pandemic could affect collections, leasing, project completion, financing access, and operating results. The company reported receiving approximately 96% of April cash-based rent, including 97% from office tenants. Rent-relief requests came mainly from coworking and retail tenants, representing approximately 2.1% and 1.6% of April billings, respectively; requests were primarily for deferrals, and negotiations were ongoing. Management stated that concessions granted to date had not materially affected the financial statements.
COVID-19 and its uncertain duration were identified as material risks, including tenant payment distress, lower demand, construction delays or cost overruns, reduced or more expensive capital, and counterparty failures. The company had $8.4 million of fixed future obligations under a Schuylkill Yards neighborhood program and estimated a further $2.7 million of non-fixed contributions. It also disclosed a payment guarantee of up to $41.3 million on a venture’s $150 million construction loan. Routine legal proceedings were not expected to have a material adverse effect. The quarter included an $8.1 million unrealized derivative loss in other comprehensive income.
Key investor verification points
- Monitor rent collections, tenant deferrals and concessions, defaults, and any subsequent changes to receivable allowances.
- Verify the refinancing or repayment plan for the $80.5 million Two Logan Square maturity and the availability and terms of credit-facility funding.
- Track leasing activity, occupancy, rental-rate trends, and lease expirations, particularly given lower Q1 leasing volume and 5.5% of annualized base rent scheduled to expire in 2020.
- Assess construction progress, remaining costs, leasing, and timing for development and redevelopment projects amid pandemic-related disruption.
- Review continued share repurchases and distributions against liquidity needs, debt maturities, covenant headroom, and future operating cash flow.