Brandywine Realty Trust(US:BDN)2023-02-02 21:05Financial Data and Key Metrics Changes - The company reported fourth quarter FFO of $0.32 per share, in line with consensus, and full year FFO of $1.38 per share, exceeding consensus estimates by $0.01 per share [4] - The net debt to EBITDA ratio decreased to 7.0x from 7.2x in the previous quarter, while core net debt to EBITDA ended the year at 6.2x [6][18] - The fourth quarter net income totaled $29.5 million or $0.17 per diluted share, with interest expense totaling $20.5 million, which was $2 million below guidance [16][18] Business Line Data and Key Metrics Changes - The company executed 226,000 square feet of leases in Q4 2022, including 142,000 square feet of new leasing activity, and leased 1.8 million square feet for the full year [4][5] - The rental rate mark-to-market was 21% on a GAAP basis and 12.5% on a cash basis for Q4 2022, with a full year mark-to-market just shy of 19% on a GAAP basis [4][5] - The company experienced negative absorption of 123,000 square feet in Q4, primarily due to a tenant default in Austin [5] Market Data and Key Metrics Changes - The occupancy rate at the end of Q4 was 89.8%, with a leasing rate of 91%, both below targets [5] - The DC portfolio continues to underperform, while the Philadelphia suburbs and Austin portfolios, which comprise about 93% of NOI, were 91.7% occupied and 92.7% leased [5] - The leasing pipeline consists of 3 million square feet, with 1.2 million in the operating portfolio and 1.8 million in development projects [5] Company Strategy and Development Direction - The company plans to focus on a business plan for 2023 that includes an FFO range of $1.12 to $1.20 per share, with a midpoint of $1.16 [8] - The strategy includes reducing forward rollover exposure through 2024 to an average of 6.2% and through 2026 to an average of 7% [5] - The company aims to grow its life science platform to 21% of its square footage, with a current development pipeline of $1.2 billion [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth characteristics of Austin despite recent challenges, noting a shift in strategy towards a multi-tenant approach [25][27] - The company anticipates that occupancy levels will average around 90% for 2023, driven by strong performance in Pennsylvania and CBD Philadelphia [25] - Management acknowledged that the dividend payout ratio for 2023 will be tight but believes it is adequately covered by baseline cash flow [43][44] Other Important Information - The company completed a five-year $350 million unsecured bond offering at a 7.5% coupon and a five-year $245 million secured financing at an 8.75% coupon [6][18] - The company plans to sell between $100 million and $125 million of properties in the second half of 2023 [11][15] - The company has a strong liquidity position with full availability on its $600 million unsecured line of credit and approximately $30 million of unrestricted cash on hand [7] Q&A Session Summary Question: Outlook for lease and core occupancy - Management acknowledged that Q4 occupancy came up short due to a tenant default in Austin and anticipated that occupancy levels would average around 90% for 2023, driven by strong performance in Pennsylvania and CBD Philadelphia [25] Question: Financing environment for joint ventures - Management indicated that while traditional lenders are pulling back, they are exploring other financing sources, including securitized loans and debt funds [28][29] Question: Life science demand for 250 King of Prussia - Management expressed confidence in demand for the 250 King of Prussia project, noting strong life science demand drivers in both University City and suburban locations [34][38] Question: Tenant default in Austin - Management confirmed a tenant default in Austin but stated that there are currently no other tenants of concern in the portfolio [39][41] Question: Dividend coverage and future outlook - Management acknowledged that the dividend payout ratio for 2023 will be tight but believes it is adequately covered by baseline cash flow and plans to monitor it closely throughout the year [43][44]