Brandywine Realty Trust — Q1 2021 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2021; comparison is with Q1 2020. Brandywine is an office and mixed-use REIT operating primarily in Philadelphia, Austin and the Washington, D.C. region. At quarter-end it owned 81 properties totaling approximately 13.7 million rentable square feet and held interests in 10 unconsolidated real estate ventures. The filing combines the Trust and its operating partnership, which are managed as one enterprise.
Key financial and operating metrics
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $120.8 million | $145.1 million |
| Net income | $7.0 million | $8.1 million |
| Net income attributable to common shareholders | $6.8 million; $0.04 per share | $7.9 million; $0.04 per share |
| Net operating income (NOI, non-GAAP) | $74.1 million | $88.2 million |
| Funds from operations available to common shareholders and units (FFO, non-GAAP) | $60.2 million | $61.4 million |
| Cash from operating activities | $41.2 million | $45.1 million |
| Cash and cash equivalents | $45.7 million | $46.3 million at Dec. 31, 2020 |
| Total assets / liabilities | $3.89 billion / $2.11 billion | $3.90 billion / $2.10 billion at Dec. 31, 2020 |
| Debt principal outstanding | $1.84 billion; weighted-average rate 3.7% | $1.83 billion at Dec. 31, 2020 |
NOI was approximately 61% of revenue, versus approximately 61% in Q1 2020 (calculated from reported figures). Core-property occupancy was 90.3% at quarter-end, down from 93.3% a year earlier. Cash from investing activities was an outflow of $21.2 million, while financing activities used $20.5 million. The quarterly distribution declared was $0.19 per share/unit.
Material changes versus the prior period
- Revenue declined 16.7%, mainly reflecting $24.3 million less rent associated with property dispositions, alongside lower parking income, a redevelopment-related vacancy and a tenant move-out. Same-store revenue declined 0.6%, while same-store NOI increased 0.4%.
- NOI fell 15.9%; total-portfolio occupancy and leasing activity weakened. Net absorption was negative 165,126 square feet, compared with positive 62,507 square feet in Q1 2020. Tenant retention was 51.9%, versus 75.6%.
- Net income declined 13.9%. Lower interest expense and reduced depreciation partially offset lower revenue and a larger equity-method loss from real estate ventures. FFO available to common shareholders and units declined approximately 1.9%.
- Operating cash flow decreased $3.9 million. Investing outflows were lower than a year ago, and financing outflows decreased, in part because the company made no share repurchases in Q1 2021; it repurchased $53.9 million of shares in Q1 2020.
Outlook, risks, contingencies and unusual items
- No specific earnings or operating guidance was provided. Management said it expected sufficient capital for existing development and redevelopment commitments and attractive investment opportunities; development and redevelopment were expected to be primary uses of capital for the remainder of 2021.
- Available liquidity at March 31 included $45.7 million cash and $585.7 million of available revolving-credit borrowings, net of letters of credit. The $600 million facility had $13 million drawn. Management reported compliance with debt covenants.
- Scheduled debt principal maturities include $263 million in 2022, $350 million in 2023 and $350 million in 2024. Approximately 95% of debt was fixed-rate; the weighted-average debt maturity was 5.2 years.
- COVID-19 remains a risk to occupancy, rents, tenant credit, leasing and development. The company collected 98.9% of Q1 cash-based rent due, including 99.1% from office tenants. It had provided $4.9 million of rent relief to 65 tenants, primarily through deferrals, and noted recovery is not assured.
- February 2021 winter-storm damage at an Austin property resulted in a $1.2 million fixed-asset write-off and $6.4 million of estimated restoration costs. The company had received $4.0 million in insurance proceeds and recorded a $3.6 million insurance receivable.
- The company contributed a prepaid leasehold interest at 3025 JFK Boulevard to a joint venture, deconsolidated the project and recognized a $2.0 million gain. It expects to fund an estimated $20.2 million of project costs; the project plan assumes a construction loan of approximately $187 million. The company also provided or may provide completion and cost-overrun guarantees on certain venture developments.
- Other commitments include $7.6 million of fixed future obligations and an estimated $2.5 million of additional contributions for the Schuylkill Yards neighborhood program, plus a further $17.9 million commitment to invest in Commerce Square preferred equity. Routine legal proceedings were not expected to materially affect the company; no material risk-factor changes were reported.
Important facts for investors to verify
- Whether occupancy, net absorption, retention and rent collections stabilize as pandemic-related effects evolve.
- The expected timing, cost, leasing and financing progress of 405 Colorado Street and 3000 Market Street, and the assumptions behind the 3025 JFK venture financing and capital commitment.
- The company’s ability to meet 2022–2024 maturities while funding development, leasing costs, distributions and venture commitments, including continued covenant compliance and access to the revolving facility.
- How much deferred rent relief is ultimately collected and whether venture losses, including those from Commerce Square and MAP, continue to increase.
- Actual insurance recovery and restoration costs for the Austin storm damage, and the extent of exposure under venture loan guarantees.
- Non-GAAP NOI and FFO definitions and reconciliations; these measures are not substitutes for GAAP net income or operating cash flow.