Brandywine Realty Trust(BDN) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net loss of $12.9 million or $0.08 per share for Q2 2023, with FFO totaling $49.6 million or $0.29 per diluted share, which was $0.02 above consensus estimates [22] - The annualized core net debt to EBITDA ratio was 6.5 times, within the 2023 range, while the combined net debt to EBITDA was 7.6, slightly above guidance [23][30] - The company anticipates improvements in the net debt to EBITDA ratio with higher EBITDA and projected asset sales [24] Business Line Data and Key Metrics Changes - The company executed 568,000 square feet of leases in its wholly-owned portfolio, with a rental rate mark-to-market of 17.6% on a GAAP basis [3][4] - Tenant retention came in at 71%, above the full-year forecast range of 49% to 51% [5] - The speculative revenue range remains between $17 million to $19 million, with $16.1 million already achieved [5] Market Data and Key Metrics Changes - The company noted a 21% increase in total leasing portfolio from the previous quarter, now standing at 3.5 million square feet [7] - The occupancy rate is currently at 89.4%, with a lease rate of 91.1% based on 224,000 square feet of leases [4] - The company is experiencing a slowdown in leasing activity in Austin, with anticipated negative cash and GAAP mark-to-market [4] Company Strategy and Development Direction - The company aims to grow its Life Science platform to over 23% of its square footage based on owned or controlled land [16] - The development pipeline includes $302 million in wholly-owned projects, with 30% in life science and 70% in office [14] - The company plans to sell non-core land assets and recapitalize several joint ventures to reduce attributed debt by approximately $100 million by year-end [21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the office sector but noted an increase in leasing activity and a strong pipeline of prospects [31] - The company is actively pursuing financing activities to improve liquidity and leverage metrics [32] - Management expressed optimism about the quality of their projects and the potential for lease executions despite macroeconomic uncertainties [34] Other Important Information - The company is assessing the impact of a lease termination by the State of Texas, which could reduce total forecasted rent by over $14 million [8] - The company has approximately $32 million of unrestricted cash on its balance sheet and no access to any balance on its $600 million unsecured line of credit at the end of the quarter [12][30] - The company is in advanced discussions for a construction loan on the 155 King of Prussia Road project, expected to close in August [12] Q&A Session Summary Question: Can you expand on the leasing pipeline and what is holding back decision-making? - Management noted that the development pipeline is nearing completion, which typically accelerates leasing activity, but macroeconomic concerns are causing hesitation among potential tenants [33][34] Question: Regarding the State of Texas lease termination, is it about the ability to cancel or the timing? - Management clarified that they are assessing whether the lease termination notice was valid and are working through the implications of this potential loss of revenue [37][38] Question: What are the retention dynamics during the quarter? - Management reported a strong retention rate of 71%, but noted two pending move-outs that could affect future retention metrics [40] Question: Is there lender appetite for construction loans at targeted LTV? - Management indicated that there is lender appetite for construction loans, particularly for well-structured deals with good tenant credit [41] Question: Can you provide more details on the Commerce Square refinancing? - Management expressed satisfaction with the refinancing, highlighting the asset's NOI growth potential and the positive trajectory of the property [44][45] Question: What is the outlook for the life science space? - Management noted that while demand for life science space is slower than last year, occupancy levels are higher compared to general office space, and they expect continued interest in their quality projects [53][54]