Brandywine Realty Wells Fargo Conference

Brandywine Realty Trust Wells Fargo Securities
Global Real Estate

BDN Securities Conference Dec. 9, 2009
Company▲ Ticker▲ Event Type▲ Date▲
MANAGEMENT DISCUSSION SECTION
Young Ku, Analyst, Wells Fargo Securities
Good afternoon, everyone. Welcome to Wells Fargo’s Global Real Estate Conference. My name
is Young Ku, I work in the Wells Fargo Securities. I have here with us Jerry Sweeney, CEO, and
Howard Sipzner, the CFO of Brandywine Realty Trust. We’re going to have a brief introduction of
the company and then we’re going to go directly into Q&A. Jerry?
Gerard H. Sweeney, President and Chief Executive Officer
Great. Thank you very much and I thank you all for joining. Doesn’t seem like I need a microphone
but it’s here, so we’ll use it. We had in 2009 – I’ll just do as directed, just do a couple minute
overview and then certainly, hopefully, answer any questions you may have.
You know, 2009 was a challenging year for everybody and for us it was very interesting and
ultimately very productive on a number of fronts. We had laid a capital plan at the beginning of the
year that we’re pleased to say we got the vast majority of our goals accomplished on target, on
schedule. So we – we’re closing out the year with about $130 million of sales at about a mid-8 cap
rate so we’re pretty pleased with the level of sale velocity we had during the year. Three
mortgages, one was a Ford mortgage that we’ll fund when our IRS project is complete in
September of 2010, and that’s a 20-year government lease, and that project is on time and on
budget.
We did do an equity issuance at the beginning of the summer, which had a significant impact on
improving our balance sheet metrics. And during the course of the year we wound up buying just
corrected transcript
shy of $600 million worth of our own securities back, just shy of a 10% discount, which really
helped us out not only from an overall leverage standpoint but more importantly really reduced the
amount of near-term maturities we have. So it’s a good result coming out of the year. So we were
able to reduce debt by about $600 million through some of these capital activities over the last five
or six quarters. So good steps in what as we all know is a very challenging cycle.
From the – from an operations standpoint, we’re going to wind up the year around 89% occupied,
which is pretty much in line with our plan. We’ll exceed our targeted 65% tenant retention rate;
we’ll wind up in the mid-70s, which is closer to our historical average. Our same store number will
be negative this year but we projected that and a driver in that was really a couple of bankruptcies
as well as a number of tenant regional office consolidations, which created a negative net
absorption number for the portfolio. But we should end the year between 88 and 89% and as we
look at the 2010 business plan, certainly a key focus of what we’re going to be doing is on
operations and balance sheet management.
But looking at the market conditions we’ve had pretty good increase in pipeline activity. Frankly the
second and third quarter of 2009 were two of our best leasing quarters in the last several years. So
year-over-year our pipeline of activity is up about 30%, fortunately because a year ago at this point
things were really slow so activity is up. But even given that we do expect 2010 to be a bit of a
challenging year. So we’re actually expecting our occupancies to decline year-over-year by about
100 basis points and we’ll trough midpoint during the year in the mid-80% or 85% range or so due
to some known move-outs.
We did come out with earnings guidance on our last earnings call, sort of forecasting an FFO range
between 1.23 and 1.34, and the key drivers there from an operating standpoint are, we did budget
for ourselves historically low tenant retention. Now what we did – so it’s below 50% in our budget
numbers compared to our long-term average well into the 70% range. Reason for that is just given
w w w .Ca ll St r eet . com • 21 2- 84 9- 40 7 0 • C op yr i g ht © 20 0 1- 2 00 9 C a ll S tr ee t 1

Global Real Estate
the uncertainty in the climate and the recovery of the jobs market, what we basically did is took any
tenant that we weren’t sure was going to absolutely renew, when we did our budget, and assume
that they vacated. So our hope is that during the course of the year, a lot of those tenants who
were undecided at the time we did the budget a few months ago will ultimately wind up making a
decision to stay with us.
So we’re hopefully going to be posting a number in excess of our guidance from a retention
standpoint, but I don’t think we had much of a choice other than to be fairly cautious as we did our
budget.
We also took a look at our overall speculative revenue targets for the year. This year we’ll do close
to $40 million of speculative revenue, we’re forecasting about $27 million or so in 2010, so about a
30% reduction in speculative revenue again given the lack of clarity in the marketplace.
Our capital assumptions are pretty much in line with what we saw in 2009. We are giving a little
more in concessions to attract tenants, and we do in fact expect in most of our markets continued
downward pressure, albeit moderate on some of our rents.
The capital plan is fairly benign for 2010. We certainly plan on continuing to improve our balance
sheet metrics. We have $80 million of dispositions planned that will probably occur in the latter half
of the year. Again, as I mentioned we have our big IRS project coming on line in the third quarter.
We don’t have any acquisitions or any development starts planned. No new secured mortgages or
any more unsecured financings. We did a bond deal a few months ago which will carry us through
until 2011. And we did announce yesterday that we did raise our dividend from $0.10 a quarter to
$0.15, so a whopping 50% increase but off of a very low base. But that puts our FFO payout ratios
in the 50% range and our CAD payout ratio about 70%.
So I think as we look forward moving into 2010 it’s going to be a very clear and aggressive focus on
operations. Our portfolio has traditionally outperformed in poor – times of poor challenging
markets. We think we have in a number of key markets significant advantages over our private
market competitors. We’re taking advantage of that to the extent those opportunities present
themselves.
On the capital plan standpoint, the watchword is to continue to use the balance sheet as a tool for
us to continue our deleveraging activities and do that in a pragmatic way during the course of the
year into 2011. As we stated on the earnings call we are right now BBB- company and our game
plan over the next several years is to upgrade that to BBB. So it means we’ll have to continue to
improve our balance sheet metrics through a combination of NOI increases, which will be
challenging from our same-store portfolio this year. But we do have our developments coming on
line finally in 2010. So the IRS project coming on line, the last wave of developments achieving
that 84% leasing level coming on line during 2010. That will provide a little bit of an uplift to the
same-store performance.
So we’re looking forward to outperforming a very challenging market cycle. We’re looking back on
the work we did in 2009 feeling good about our balance sheet improvements. But also more
importantly with the market position we have from a real estate standpoint in some of our key
markets.
So with that I’ll open it up to questions.

Global Real Estate
QUESTION AND ANSWER SECTION

<Q – Young Ku>: Let me just kick it off with a couple of questions, specifically on guidance going
back to your retention comment, you’re expecting below 50% retention that’s because you assume
that any leads that you’re not certain about will be moving out. What if you brought that up, say,
50%? How would that impact your retention and how would that impact your guidance?
<A – Gerard Sweeney>: Well, I mean certainly to the extent that we – that the retention rate
comes up, depending upon how that stage is indoor in the year that will have a positive impact on
guidance. And we’re working hard to try and improve that number. Now, we have about 22% of
the rollover in – of our 2010 rollover already put away. And we’re working hard on the balance, but
we also know, as we talked on the call, about 20% of our rollover in 2010 is leaving. So if
everything hit on all cylinders we would max out around 80%. We don’t think that will happen, but
certainly it would start to handicap the portfolio. We would expect to see that retention rate be
higher, and to go to the core of your question, our hope is that that would provide a cushion for us
against any inability to achieve our pure speculative revenue target, because certainly in this kind of
marketplace it’s very hard to predict the velocity of leasing transactions.
So by way of example, while there are more deals in the market, and I think those deals are more
high quality, they’re still taking a long time to get done. We track the amount of time it takes for
leases to get executed through different steps of that leasing cycle. And for example, the average
in the last quarter was a little over 100 days to do a lease. So from the time the tenant comes
through the space to the time that they sign the lease was a little bit north of 100 days. Now that’s
down from about 120 or so days last year, but the reality that’s way above the historic norm of
about 50 days. So we try and do is we build our budget suite by suite is make our best guess
based upon the pipeline we have, or the pipeline we think we can create on what we’ll be able to do
from a speculative leasing standpoint. So we’re really hoping that the increase in retention will wind
up serving either, as pushing us towards the upper end of the range or even beyond that, but a lot
of things have to happen before we get to that level.
<Q – Young Ku>: Got you. Okay. And could you – provided us a comment regarding where –
which markets I guess the CBD versus suburban markets that you guys have, which markets do
you expect to outperform in a recovery?
<A – Gerard Sweeney>: Certainly. I mean we’re – as we go through our markets, and I’ll just
spend a moment if you don’t mind going through some of the key ones. You know we have about
40% of our portfolio is in Pennsylvania which includes Philadelphia CBD and the Pennsylvania
suburbs. Philadelphia CBD is actually performing pretty well. I mean the trophy class, or Class A
properties where we are, has a -- well below a 10% vacancy factor. Our One and Two Logan
properties are performing very well and our Cira Centre building’s performing very well. So we,
number one, have very little rollover in 2010 but more generally speaking that CBD market seems
like it’s performing pretty well.
In the suburban counties we have about a million square feet rolling or about 10% of our portfolio
base. That’s about average for us. And most of those markets are performing pretty well. I mean
our key concentrations are in the very high-end markets of Radnor, King of Prussia, Plymouth
Meeting, Contra Hawkin. So markets that are served either by both car and rail, or at the
intersection of major interstate highways.
In several of those markets, particularly Radnor and Contra Hawkin, we’re actually able to move
rents up a little bit. And in King of Prussia and Plymouth Meeting it’s still pretty much of a flat rent
curve.

Global Real Estate
Metro D.C., we’re doing very well. We have less than 5% of our portfolio rolling next year. We’re
actually projecting positive rent growth in a couple of our major lease transactions. And that
portfolio is in very good shape. Our team down there did an extraordinarily good job in getting way
ahead of our 2010 rollovers. So did a number of very – very large early rollovers, which put us in a
very good position in that marketplace.
Southern New Jersey, as we’ve talked on the calls, actually Southern and Central Jersey are
probably our more challenging markets. And, unfortunately, for 2010 it’s also the market in which
we have the highest level – highest percentage of space rolling. So we’ve about 20% of our
portfolio rolling in Southern New Jersey. So our budgeted assumptions there are fairly cautious.
We’re projecting negative rent growth in the low double-digits, and that market contrasting with
Pennsylvania and Washington D.C. So when we look at the real operating challenge we have in the
company, the primary one is really in our Central and Southern New Jersey portfolio.
Richmond we again have very little space rolling in 2010. It’s not already taken care of as well as
the same situation down in Austin, Texas, where we have just about 2% or so of our portfolio rolling
in all of 2010.
<Q – Young Ku>: Okay. Any questions?
<Q>: [inaudible]
<A – Gerard Sweeney>: No, we’ve actually been financing that off -
<Q – Young Ku>: Gerry, could you repeat the question?

<A – Gerard Sweeney>: The question was what happens with the proceeds from the forward
financing that we did on the IRS project. That total project cost including – it has two component
parts. One is a historic renovation of the 30th Street post office building; excuse me, and a 1,600-
car garage. Total budget there is about $350 million. This mortgage is for $256 million. In addition
to that in round numbers we realized about $70 million of historic tax credits as well as new markets
tax credits. So what will happen with that project that will actually create a – when that mortgage
funds in September of 2010 that will actually create a recovery for us of some invested capital. So
we wind up having roughly $60 million or so of Brandywine’s Capital invested in that project and we
take a look at how that project will perform when we factor in the historic and the new markets tax
credit we’ll be getting close to about a 9% return on cost on that project.
<Q>: [inaudible]
<A – Gerard Sweeney>: No, I’m sorry. It’s actually been – we’ve been funding that off of our line
of credit as well as the proceeds from the historic tax credits. We would repay the line of credit.
<Q>: Going forward how will you de-lever? Is it as simple as a dividend payout [inaudible]?
<A – Gerard Sweeney>: Right. The question was how will we continue to de-lever. A couple of
things, even with our new dividend payment, which we set the taxable income and rates to $0.60
for the year, we’ll generate around $45 million of free cash flow. So that’s kind of piece one. Piece
two, we’ll certainly be looking at sales and joint venture activities during the course of 2010 to find
out whether they can create an opportunity for us to de-lever the company even further. Obviously
we’ll be losing NOIs as part of those sales so we need to make sure that there’s a counterbalance
there.
And then certainly as we look ahead at the potential investment climate one of the things that we’ve
been targeting to the extent that opportunities present themselves, and again we have none built
Global Real Estate
into our 2010 plan; we would be looking at financing those on an equity basis versus a debt basis.
So the hope would be that we would bring high quality NOI into the company and do that on an
equity finance basis versus what we’ve traditionally done, which is use the line of credit or debt
financing to bring those acquisitions on line.
<Q>: [inaudible]
<A – Gerard Sweeney>: Yeah, and certainly, Howard, feel free to jump in. I mean I think as we
look at it – the measure we’ve been using traditionally is debt to asset value. That’s the one that
tends to be the one that’s consistent through all the quarters. And certainly given our stock price,
it’s been a little more pleasant to look at that number than the debt to total market Cap.
But more realistically we look at the actual credit metrics. And again, I mentioned our investment
grade rating. You know it really goes to our covenant calculations, which we published in our
supplemental package. You know certainly debt to EBITDA is becoming a more important
benchmark. So right now we’re in that 7% range and our hope is to move that further down into the
low sixes over time. Keep our fixed charge well north of two, hopefully up to 2.2 and above that
level. And then as we look at our debt to asset value ratio, I think over time we’ve historically run
the company in kind of a 45 to 50% level. We’re at 46% today and certainly as we lay out the
business plan going forward we’re hoping to move that down to about 40 to 45% range. But again,
that will take some time.
<Q>: [inaudible]
<A – Gerard Sweeney>: In that – that’s book value. When I said that 46%, yes.
<Q>: Okay, so -
<A – Gerard Sweeney>: I’m sorry, is there a follow-up here?
<Q>: [inaudible]
<A – Gerard Sweeney>: I think that’s a great question, and frankly I don’t have a definitive answer
for you. I mean I think we – as we’ve kind of viewed it internally you know we’re looking at 2010 as
the year of missionary work. You know there’s – I don’t think there’s going to be this tsunami or
tidal wave of distressed high-quality asset potential buys that everyone was thinking were going to
be there a few quarters ago. And certainly from our standpoint we have a very aggressive portfolio
management program for our own existing portfolio well underway, where objective is to you know
call out the lower performing growth properties over time as market conditions permit. So with that
as a framework we’re going to continue to kind of keep our eyes and ears to the Street. We
certainly know a lot of people on the institutional side as well as our private development
counterparts to look for those opportunities that are both additive to quality and additive to our NOI
growth rates going forward.
Now like most companies I would hope, but certainly speaking only for Brandywine, we’re not
looking to add any more problems to our portfolio. That’s one of the reasons why we really haven’t
identified any specific acquisition targets. I mean we are still very focused on credit of all of our
tenants. I mean the conditions are improving so we’re spending a lot of time making sure that we
have full credit reserves. But I think as we look down the road I mean we’re hopeful that cap rates
will start to move. We’ve actually seen that anecdotally. We get a lot of reverse inquiries on
properties that we had listed for sale earlier in 2009 where some of those same buyers are coming
back with much better pricing. So I think you know with the investment grade market firming for
general corporates, the REIT unsecured market opening up, that’s had a positive impact on the
price of debt be it unsecured or secured. So even of late we’re seeing some pretty attractive
Global Real Estate
mortgage rates being quoted on some competitive properties. And I think that gives a level of
clarity to how people start to price real estate.
As I think a couple more quarters go by where there’s more visibility to the leasing, the jobs front,
what’s going to happen with the vacancy rates in some of these market places and markets start to
stabilize I think that will be another interesting data point. So we can’t say for sure that they’ll be
acquisition opportunities out there that will fit all of our underwriting criteria, and from a real estate
standpoint and all of our financial criteria. But we’re certainly going to start to beat the bushes and
see what’s out there. Yes, sir?
<Q>: If you were looking to deal, how would you look at your cost [inaudible].
<A – Gerard Sweeney>: Yeah, I’d say that’s a challenging topic in terms of – certainly given the
volatility we have from day to day. But I mean I think certainly one of the things we look at is the
trading cap rate on our stock and what the implied cap rate would be. We – we certainly look to
that as a data point. Look to how that number compares to our internal estimate of net asset value.
So we kind of get a couple of very good operating metrics there that are helpful for us in how we
assess what that cost of equity really is for us.
<Q>: Could you provide a little bit color on some of the larger consolidating tenants that you
mentioned in 2010 [inaudible]?
<A – Gerard Sweeney>: Sure. In terms of a couple of our larger tenants, I mean one of our – a
couple of ones that we already have done, which are I think a little bit illustrative, we had a 160,000
square foot tenant down in Northern Virginia who needed to consolidate down to about 100,000
square feet. So we were able to sign a long-term lease with them, actually a 14-year lease. We
moved – reconfigured their location of buildings, so we had the two top floors back and we have
some good prospects for that. And that’s been generally the case through the – a good part of the
portfolio. A lot of our larger tenants we’re hitting on with a couple of notable exceptions. One is we
know we’re losing a major tenant in Southern New Jersey who is buying their own building. So
they’re in about 160,000 square feet and they’ll be leaving in the third quarter of 2010, which is one
of the reasons our occupancy troughs down a bit.
The only good news, and there’s never really good news when you lose a tenant of any size, but
looking for the silver lining in this situation is they are moving into a building that’s just a few years
old that was built for Sandaner PHH Mortgage, who has obviously had some hard times and that
space – that whole building was on the market for sub-lease and was creating a lot of downward
pressure on rents generally in the marketplace. That tenant moving into that space will take all of
that sub-lease space off the market.
More to the point from Brandywine’s standpoint, though, is they’re moving out of two of our best
buildings. So we’re actually getting back very high quality space. We certainly haven’t assumed
that we’re going to lease that up in 2010, but as that market continues to firm, and it certainly will,
there will be no new construction, we’ll have the highest quality space available in the marketplace.
So generally throughout the portfolio, I mean our pipeline, Mike, to go to your more general
question, as I mentioned, has been pretty steady state in the last couple of quarters. The rate at
which that pipeline advancing through the various leasing stages is continuing to accelerate. What
we are beginning to see as I touched on is a number of tenants who are actively looking to either
move up in the quality stack of inventory, which positions us pretty well, and/or having reservations
about the stability of some of their existing landlords. So we see those situations we’re trying to
capitalize on those as quickly as we can.

Global Real Estate
<Q – Young Ku>: Gerry, going back to your comment about trying to find new potential
investments with equity, how do you think about ATM or CEO program for some full-blown EPI
offering?
<A – Gerard Sweeney>: Well, I think that’s certainly a tool that we’re giving some consideration to.
There’s no question we’ve announced as a core priority for the company over the next several
years is to de-lever. We want to do that in a very pragmatic fashion. So as we look at the various
tools that are available to us out there that’s certainly one of them that we’ll give some serious
consideration to. And that certainly puts the company in a position where we can have that tool
available for us if we find an acquisition that’s $20 million, it doesn’t justify a full equity raise if we
think the numbers work. So that’s something we’ll be giving some serious thoughts to.
<Q – Young Ku>: So outside of your development deliveries you really don’t have any, say, growth
opportunities outside of that, especially since you guys are looking to sell about $80 million in
assets in 2010? How do you look five to 10 years from today, and then what is kind of your growth
strategy going forward?
<A – Gerard Sweeney>: Well, I think the best growth opportunities we have right now are frankly
in our own portfolio. And we’ve historically run the company at 93 to 95% leased. As I mentioned,
right now we’re about 88 to 89% leased. So one of the areas we certainly hope that we can do is,
and achieve, is to get our overall level of internal occupancy up to where the historical run rates
have been.
And I think looking forward in the core markets where we are a couple things are going to happen.
One is, as we all know, there is going to be much lower levels of construction. I mean the reality
that rents in most of our markets need to ramp up between 20 and 30% to justify development
yields that make sense in this kind of financing climate. So there will clearly be a period of time as
activity and absorption turns positive, well there’s going to wind up being some upward pressure on
rents. So we think in most of our core markets we’re in a very good position to take advantage of
that upward rent mobility.
Second thing we’re going to do is during that period of time through our portfolio management
program we rank every one of our properties on a quarterly basis using the criteria of NOI growth
rates, return on incremental invested capital and the ability of that property to create investment
value for us using steady state cap rates going forward, and the objective is for properties that don’t
screen very well on those metrics we’ll look to move those lower growth properties out of our
portfolio. So as we look at our own inventory, so to speak, right now, even without bringing on any
new development, we think there’s an opportunity to improve our same-store growth rate over time
by improving our occupancy levels as well as culling out what we view to be lower growth – not just
today but longer term lower growth properties.
From an external standpoint, we have a good inventory of land. That land clearly is not going to be
deployed anytime in the near future. But we are looking at a number of build-to-suit opportunities
that – again, I don’t think they really go anywhere given the rents that are required. But over time I
think that market will return for us. We’ll diligently avoid doing a lot more spec development, and
we’d be focused very clearly on build-to-suits or heavily pre-leased properties. And I think
exercising a fair degree of diligence on how we allocate capital on those opportunities, whether
they be for acquisitions or whether they be for new development.
I mean one of the interesting things when we looked at our development pipeline that we completed
between 1996 and 2005; our average free and clear going in development return was in the mid-
11% range. The recent round of developments we did in 2006 through 2008, that was much lower
than that was between seven and 8%. And I think one of the things that we did is we basically let,
on our development pipeline, chase the cap rate curve down and wound up in a very bad position
Global Real Estate
on some of our developments. So I think as we look whether it’s for a new acquisition of a
stabilized asset or a value-add acquisition or development, I think there’s going to be a much higher
level of focus on what long term cap rates have been in these various markets, what we expect
long term cost of debt to be, what real effective rents will be relative to that specific sub-market, and
make those external growth decisions using that as a framework.
<Q>: When you look at your use of cash in terms of cash spending on [inaudible] does that assume
that really low extension rate or does that incorporate [inaudible] higher than that?
<A – Howard Sipzner>: Well on the TIs, we’ve elevated the levels that we’re going to spend. And
the mix with the lower retention rate was probably disproportionately weighted to new
replacements. We generally incur higher costs. Really about a million and a half square feet in
both categories in 2010, roughly, the mix ends up being higher towards greater retention. Number
one, we wanted to replace some of that vacant space, and two, as Gerry said we want a little bit of
a cushion against that [inaudible].
The best case scenario is we do higher retention but some of the sort of long standing vacant
space gets leased as well. That’s a win-win [inaudible]. But the new leasing is somewhat
backended as we progress, we just don’t have the full visibility yet in the pipeline to lay our
[inaudible] so it’s a little backended. So, we’re going to need to watch that as the year progresses.
On the February call perhaps you’ll have a little bit more visibility.
Again, the larger the space – and we do have some large spaces on the leasing plan, the earlier
you tend to know what’s going to happen. But generally capital will trend up; we’ve seen that
[inaudible] from the lows two or three quarters ago, just at the margin on capital per square foot per
year, or capital as a percent of the overall value [inaudible]. We’re actually using capital in more of
an offensive category as many of our weaker competitors either don’t have the equity capital or
can’t go to the lender or are already under water. So in many cases having capital, be able to
demonstrate it [inaudible] a line that’s 90% available, as ours is, are all competitive advantages
[inaudible].
<A – Gerard Sweeney>: And we certainly expected capital to go up year over year because if you
recall back to 2008 almost without exception you know tenants were either staying put where they
were and doing short-term extensions that required very little capital, and most of those short-term
leases – for most of that short-term leasing activity they wanted to go into the marketplace to hire a
broker so there was very little capital. So in addition to looking at the year-over-year increase, what
we really look at is what it’s costing us a percentage of rents for both renewal and new leases. And
we have some pretty stringent internal targets that we’ve set and we’re closing out 2009 pretty
much in line with those targets. We typically, when we do our capital plan looking out, so our 2010
capital plan, we’ll typically be pretty cautious in what we expect to spend and then hope for a
positive surprise. So as we look at it we will probably pick up some additional renewals that we’re
not doing, which as Howard touched on will skew that back down.
And to amplify a very good point he made is, you know, we are being able to use capital as a real
competitive damage against some of our private market peers. When I say that, that’s not that
we’re overspending for capital, but you know one of the reasons that we run such a highly
unsecured debt model, and have a very large unencumbered pool, is I think there’s good financial
reasons for that. But one – the genesis of that decision as we converted from a secure to an
unsecured model a number of years ago was it gives us a tremendously powerful marketing
advantage over our private market competitors who typically finance on a secured basis.
So again, if you follow the detail with one of our private marketing competitors is working with a
tenant today the odds are that that mortgage that they have on that property, or that bank loan, is
equal to or dare I say above the value of the property. So when that landlord’s negotiating a lease
Global Real Estate
transaction they need to get lender or partner approval to invest capital. And if that property’s
underwater the partners will generally say – the equity partners will generally say, well geez, we’re
not prepared to put money into this property when in fact the property’s not worth the debt.
So by putting the money in for the tenant the only thing that we’re doing is preserving value for the
lender. So please go back and talk to the lender and get them to agree to some type of concession
when that concession is forthcoming we will then be in a position to put some additional capital in
and recapitalize this property. That’s the good news if they’re able to put capital in. Most of them
will not. But from a marketing standpoint what that does is that takes a lot of time. And that’s not
what tenants and that’s not what brokers want to hear. So when the tenant’s ready to sign the
lease they don’t want to have to go back for a lender approval that may take 30 or 60 days. So
what we’re able to do, and it’s happened with increasing frequency, is our managing directors
working through George Johnstone, our Senior VP of Operations, and Howard to get involved in
some of these leasing decisions, is we’re able to make those decisions quickly and convert them
very, very – with -- right on schedule without any kind of blip. So I think that will happen more and
more.
We announced a 150,000-square foot lease transaction in the middle of the summer in Radnor,
and that was exactly that kind of situation where the tenant got very nervous about that landlord’s
ability to deliver their space fit-out on time because that private development company was
negotiating with their lender. We knew their CEO pretty well, made the call at the opportune time.
And literally within 10 days had a 150,000 square foot, 11-year lease executed. Didn’t cost us
more in capital, we were just able to be there and demonstrate the capacity and the ability to write a
check fairly quickly.
<Q – Young Ku>: Any more questions? Just in terms of your recent hiring of Tom Wirth for
Portfolio Management EVP position. Given that he used to work for an urban office company,
could we get anything from that in terms of where your next focus could potentially be, especially
since you might be a capital recycler?
<A – Gerard Sweeney>: Actually, you’re the first person to ask that question. No, the hiring of
Tom had no bearing on that we’re moving any more urban markets. I think we’re looking for that is
in our Portfolio Management program is very quantitatively based. It requires an awful lot of
interaction, with both the finance side of the business and the operating side of the business. So,
Tom was really brought into run that whole portfolio management program for us. Certainly given
his experience with SL Green in both a finance and a CFO position, I think he brings a lot of
financial strength to the table, which will help us as Howard and I evaluate our portfolio
management strategy. And Tom will also be a good – is also a good addition to the team to help us
get out there and talk to more institutions and more private capital players about different kinds of
things we can do. I wouldn’t read any product type of mix into that.
<Q – Young Ku>: And finally, where do you expect cap rates to peak? Or where do you see cap
rates right now?
<A – Gerard Sweeney>: Well look, I’m not sure anybody can tell you for sure. The evidence we
can give you is that we closed $130 million of sales during 2008, which is not a good market to sell.
And our average cap rate cash was in the mid-8s. Several were below 8. Obviously, several were
in the 9s, which kind of created that mid-8%. On a GAAP basis, it was below 9% cap rate, but we
really look at the cash more than the GAAP.
You know, when we look at the – at cap rates earlier in the year, as I mentioned, we saw when we
put $300 million of properties on the market with the hope of selling about a million or so, 100
million or so, there were some properties where there were not a lot of bids for, and the bids that

Global Real Estate
came in were very high cap rates, long due diligence periods, and big financing contingencies,
because up through March, April people really did not have any visibility on financing.
I’ll give you an example. The sale of two buildings we sold in Trenton, an $85 million transaction,
and that was almost a year in the making because of the financing on that property, as opposed to
the cap rate. So look, we’ve looked at the historic run cap rates in every one of our markets and
our sub-markets. So we pretty much know where the 10, 15-year averages have been for different
kinds of properties. It’s fair to say those cap rates are still well above those historic run rates even
when we throw out the period of time 2006 to 2008, which you could make a case for kind of
aberrations from the historical norm on cap rates. So I don’t know what cap rates are. I just know
that we’ve been able to sell our properties at pretty good cap rates. And to the extent that we
achieve the $80 million sales next year we’ll see where those come in. But we are seeing more
cap rate compression from where rates were earlier this year. I just don’t know where they settle
in.
<Q – Young Ku>: Okay. More questions?
<Q>: [inaudible]
<A – Gerard Sweeney>: I mean our average – our average run that we’re kind of rolling is in the
low 20s on an effective basis. I think that’s pretty much where market is. You know we’ve – some
quarters we have positive cash and positive GAAP rents. The next quarter they’re negative. So I
think as we view it the portfolio is mark-to-market I wouldn’t say that we have any areas where we
think that there’s significantly embedded upside based upon where rents in our portfolio today
versus where rents are today. What I do think is that when we look forward in some of our core
markets if those rental rate levels start to return to where they were several years ago we do in fact
have a nice embedded growth rate. But looking at this window for 2010 we’re basically projecting
kind of still downward pressure on rents, which would imply a negative mark-to-market near term.
Yes sir?
<Q>: [inaudible]
<A – Gerard Sweeney>: And I think we’re seeing cap rates long term in the 7, 8% range, with a
bias in the Metro D.C. market, including the Reston/Herndon corridor at the lower end of that range,
even below that to some degree. And we look at markets like New Jersey, Richmond, they tend to
be in the 8 to 8.5% range.
<Q>: You’re saying those are average rates? [inaudible]
<A – Gerard Sweeney>: Right.
<Q>: [inaudible]
<A – Gerard Sweeney>: 10 years, 10 years, yeah.
Young Ku, Analyst, Wells Fargo Securities
Great. I think that’s it. Thank you, Gerry. Thank you, Howard.
Gerard H. Sweeney, President and Chief Executive Officer
Great. Thank you very much for taking the time. Appreciate it.

Global Real Estate
Disclaimer
The information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete or error-free statement or summary of the
available data. As such, we do not warrant, endorse or guarantee the completeness, accuracy, integrity, or timeliness of the information. You must evaluate, and bear all risks
associated with, the use of any information provided hereunder, including any reliance on the accuracy, completeness, safety or usefulness of such information. This information is not
intended to be used as the primary basis of investment decisions. It should not be construed as advice designed to meet the particular investment needs of any investor. This report is
published solely for information purposes, and is not to be construed as financial or other advice or as an offer to sell or the solicitation of an offer to buy any security in any state where
such an offer or solicitation would be illegal. Any information expressed herein on this date is subject to change without notice. Any opinions or assertions contained in this information
do not represent the opinions or beliefs of FactSet CallStreet, LLC. FactSet CallStreet, LLC, or one or more of its employees, including the writer of this report, may have a position in
any of the securities discussed herein.
THE INFORMATION PROVIDED TO YOU HEREUNDER IS PROVIDED "AS IS," AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, FactSet CallStreet, LLC
AND ITS LICENSORS, BUSINESS ASSOCIATES AND SUPPLIERS DISCLAIM ALL WARRANTIES WITH RESPECT TO THE SAME, EXPRESS, IMPLIED AND STATUTORY,
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY, COMPLETENESS, AND NON-
INFRINGEMENT. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, NEITHER FACTSET CALLSTREET, LLC NOR ITS OFFICERS, MEMBERS, DIRECTORS,
PARTNERS, AFFILIATES, BUSINESS ASSOCIATES, LICENSORS OR SUPPLIERS WILL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOST PROFITS OR REVENUES, GOODWILL, WORK STOPPAGE, SECURITY BREACHES, VIRUSES,
COMPUTER FAILURE OR MALFUNCTION, USE, DATA OR OTHER INTANGIBLE LOSSES OR COMMERCIAL DAMAGES, EVEN IF ANY OF SUCH PARTIES IS ADVISED OF THE
POSSIBILITY OF SUCH LOSSES, ARISING UNDER OR IN CONNECTION WITH THE INFORMATION PROVIDED HEREIN OR ANY OTHER SUBJECT MATTER HEREOF.
The contents and appearance of this report are Copyrighted FactSet CallStreet, LLC 2009. CallStreet and FactSet CallStreet, LLC are trademarks and service marks of FactSet
CallStreet, LLC. All other trademarks mentioned are trademarks of their respective companies. All rights reserved.

Brandywine Realty Wells Fargo Conference

Загружено:

Сведения о документе

Исходное описание:

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Brandywine Realty Wells Fargo Conference

Загружено:

Авторское право:

Доступные форматы

Brandywine Realty Trust Wells Fargo Securities

Global Real Estate

MANAGEMENT DISCUSSION SECTION

Young Ku, Analyst, Wells Fargo Securities

Gerard H. Sweeney, President and Chief Executive Officer

w w w .Ca ll St r eet . com • 21 2- 84 9- 40 7 0 • C op yr i g ht © 20 0 1- 2 00 9 C a ll S tr ee t 1

So with that I’ll open it up to questions.

w w w .Ca ll St r eet . com • 21 2- 84 9- 40 7 0 • C op yr i g ht © 20 0 1- 2 00 9 C a ll S tr ee t 2

QUESTION AND ANSWER SECTION

w w w .Ca ll St r eet . com • 21 2- 84 9- 40 7 0 • C op yr i g ht © 20 0 1- 2 00 9 C a ll S tr ee t 3

<Q – Young Ku>: Okay. Any questions?

<Q – Young Ku>: Gerry, could you repeat the question?

<A – Gerard Sweeney>: I’m sorry, is there a follow-up here?

w w w .Ca ll St r eet . com • 21 2- 84 9- 40 7 0 • C op yr i g ht © 20 0 1- 2 00 9 C a ll S tr ee t 6

w w w .Ca ll St r eet . com • 21 2- 84 9- 40 7 0 • C op yr i g ht © 20 0 1- 2 00 9 C a ll S tr ee t 9

<Q – Young Ku>: Okay. More questions?

<Q>: You’re saying those are average rates? [inaudible]

<A – Gerard Sweeney>: Right.

<A – Gerard Sweeney>: 10 years, 10 years, yeah.

Young Ku, Analyst, Wells Fargo Securities

Gerard H. Sweeney, President and Chief Executive Officer

w w w .Ca ll St r eet . com • 21 2- 84 9- 40 7 0 • C op yr i g ht © 20 0 1- 2 00 9 C a ll S tr ee t 10

w w w .Ca ll St r eet . com • 21 2- 84 9- 40 7 0 • C op yr i g ht © 20 0 1- 2 00 9 C a ll S tr ee t 11

Вам также может понравиться