Management Comments
“During the third quarter, we made strong progress on our 2023 business plan,” stated
Third Quarter Highlights
Financial Results
- Net loss available to common shareholders:
$(21.7) million , or$(0.13) per share. Those results include an$11.7 million , or$(0.07) per share, non-cash impairment charge. - Funds from Operations (FFO):
$50.6 million , or$0.29 per diluted share.
Portfolio Results
- Core Portfolio: 88.3% occupied and 90.4% leased.
- New and Renewal Leases Signed: 351,000 square feet wholly-owned and 624,000 square feet including our joint ventures.
- Tenant Retention Ratio: 44%.
- Rental Rate Mark-to-Market Increase: 2.8% on an accrual basis and 0.8% on a cash basis.
- Same Store Results: Increased 1.7% on an accrual basis and 7.0% on a cash basis.
2023 Business Plan Changes
Same Store NOI Growth Range : Increased from 0-2% to 2-3% on an accrual basis and increased from 2.5-4.5% to 5-6% on a cash basis.- Same Store and Core Year-End Occupancy: Decreased from 90-91% to 89-90%.
Disposition Activity
- We sold Three Barton Skyway, a 173,302 square foot office building located at
1221 S. Mopac Expressway inAustin, Texas for$53.3 million , or$307 per square foot. We closed on the sale duringAugust 2023 and we received net proceeds totaling$51.3 million . Net proceeds are being used for general corporate purposes.
Finance Activity
- As previously announced, we closed on a construction loan on our development project located at 155 King of
Prussia Rd. Construction commenced duringJanuary 2023 and the scheduled completion is the fourth quarter 2024. The$50.0 million construction loan bears interest at 2.50% over the secured overnight financing rate and has an initial maturity date inAugust 2026 . We anticipate our first draw on the construction loan during the fourth quarter 2023.
Located inRadnor, Pennsylvania , 155 King ofPrussia Rd. is a fully leased 144,685 square foot build-to-suit office property. The building will be the North American Headquarters forArkema S.A. , a global supplier of specialty materials.
- We had no outstanding balance on our
$600.0 million unsecured revolving credit facility as ofSeptember 30, 2023 . - We had
$47.9 million of cash and cash equivalents on-hand as ofSeptember 30, 2023 .
Results for the Three and Nine-Month Periods Ended
Net loss allocated to common shares totaled
FFO available to common shares and units in the third quarter of 2023 totaled
Net loss allocated to common shares totaled
Our FFO available to common shares and units for the first nine months of 2023 totaled
Operating and Leasing Activity
In the third quarter of 2023, our Net Operating Income (NOI), excluding termination revenues, bad debt expense and other income items, increased 1.7% on an accrual basis and 7.0% on a cash basis for our 69 same store properties, which were 88.2% and 91.0% occupied on
We leased approximately 351,000 square feet and commenced occupancy on 175,000 square feet during the third quarter of 2023. The third quarter occupancy activity includes 115,000 square feet of renewals, 34,000 square feet of new leases and 26,000 square feet of tenant expansions. We have an additional 256,000 square feet of executed new leasing scheduled to commence subsequent to
We achieved a 44% tenant retention ratio in our core portfolio with net negative absorption of (145,000) square feet during the third quarter of 2023. Third quarter accrual rental rate growth increased 2.8% on our renewal leasing.
At
Distributions
On
2023 Earnings and FFO Guidance
Based on current plans and assumptions and subject to the risks and uncertainties more fully described in our
Guidance for 2023 | Range | ||||
Loss per share allocated to common shareholders | ( | to | ( | ||
Plus: real estate depreciation, amortization | 1.34 | 1.34 | |||
FFO per diluted share | to |
Our 2023 FFO key assumptions include:
Year-end Core Occupancy Range : Adjusted from 90-91% to 89-90%;Year-end Core Leased Range : 91-92%;- Rental Rate Growth (accrual): 11-13%;
- Rental Rate Growth (cash): 4-6%;
- Same Store (accrual)
NOI Growth Range : Adjusted from 0-2% to 2-3%; - Same Store (cash)
NOI Growth Range : Adjusted from 2.5-4.5% to 5-6%; - Speculative Revenue Target:
$17.0 -$19.0 million ,$17.0 million achieved; Tenant Retention Rate Range : 49-51%;- Property Acquisition Activity: None;
- Property Sales Activity:
$100 -$125 million ;$53.3 million completed; - Joint Venture Activity: Our ownership interest in our
Commerce Square joint venture increased from 70% to 78%; - Development Starts: None;
- Financing Activity:
$245 Million Secured Financing (complete);$70.0 Million 2-Year Unsecured Term Loan (complete);$220.0 million secured financing forCommerce Square (complete) and$50.0 million Construction Loan at 155 King ofPrussia Rd inRadnor, PA (complete); - Share Buyback Activity: None;
- Annual earnings and FFO per diluted share based on 173.5 million fully diluted weighted average common shares.
About
Conference Call and Audio Webcast
We will release our third quarter earnings after the market close on
Looking Ahead – Fourth Quarter 2023 Conference Call
We expect to release our fourth quarter 2023 earnings on
Forward-Looking Statements
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “will,” “strategy,” “expects,” “seeks,” “believes,” “potential,” or other similar words. Because such statements involve known and unknown risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. These forward-looking statements, including our 2023 guidance and the progress of our projects under development, are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and not within our control. Such risks, uncertainties and contingencies include, among others: risks related to the impact of COVID-19 and other potential future outbreaks of infectious diseases on our financial condition, results of operations and cash flows and those of our tenants as well as on the economy and real estate and financial markets; reduced demand for office space and pricing pressures, including from competitors, that could limit our ability to lease space or set rents at expected levels or that could lead to declines in rent; uncertainty and volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital or that delay receipt of our planned debt financings and refinancings; the effect of inflation and interest rate fluctuations, including on the costs of our planned debt financings and refinancings; the potential loss or bankruptcy of tenants or the inability of tenants to meet their rent and other lease obligations; risks of acquisitions and dispositions, including unexpected liabilities and integration costs; delays in completing, and cost overruns incurred in connection with, our developments and redevelopments; disagreements with joint venture partners; unanticipated operating and capital costs; uninsured casualty losses and our ability to obtain adequate insurance, including coverage for terrorist acts; asset impairments; our dependence upon certain geographic markets; changes in governmental regulations, tax laws and rates and similar matters; unexpected costs of REIT qualification compliance; and costs and disruptions as the result of a cybersecurity incident or other technology disruption. The declaration and payment of future dividends (both timing and amount) is subject to the determination of our
Non-GAAP Supplemental Financial Measures
We compute our financial results in accordance with generally accepted accounting principles (GAAP). Although FFO and NOI are non-GAAP financial measures, we believe that FFO and NOI calculations are helpful to shareholders and potential investors and are widely recognized measures of real estate investment trust performance. At the end of this press release, we have provided a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure.
Funds from Operations (FFO)
We compute FFO in accordance with standards established by the
Net Operating Income (NOI)
NOI (accrual basis) is a financial measure equal to net income available to common shareholders, the most directly comparable GAAP financial measure, plus corporate general and administrative expense, depreciation and amortization, interest expense, non-controlling interest in the
In our analysis of NOI, particularly to make comparisons of NOI between periods meaningful, it is important to provide information for properties that were in-service and owned by us throughout each period presented. We refer to properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by us through the end of the latest period presented as
Core Portfolio
Our core portfolio is comprised of our wholly-owned properties, excluding any properties currently in development, re-development or re-entitlement.
CONSOLIDATED BALANCE SHEETS | ||||||||
(unaudited, in thousands, except share and per share data) | ||||||||
ASSETS | ||||||||
Real estate investments: | ||||||||
Operating properties | $ | 3,694,633 | $ | 3,617,240 | ||||
Accumulated depreciation | (1,153,030 | ) | (1,063,060 | ) | ||||
Right of use asset - operating leases, net | 19,188 | 19,664 | ||||||
Operating real estate investments, net | 2,560,791 | 2,573,844 | ||||||
Construction-in-progress | 143,929 | 218,869 | ||||||
Land held for development | 76,058 | 76,499 | ||||||
Prepaid leasehold interests in land held for development, net | 27,762 | 35,576 | ||||||
Total real estate investments, net | 2,808,540 | 2,904,788 | ||||||
Cash and cash equivalents | 47,872 | 17,551 | ||||||
Restricted cash and escrow | 10,745 | — | ||||||
Accounts receivable | 23,130 | 11,003 | ||||||
Accrued rent receivable, net of allowance of | 185,135 | 179,771 | ||||||
Investment in unconsolidated real estate ventures | 638,096 | 567,635 | ||||||
Deferred costs, net | 98,049 | 96,639 | ||||||
Intangible assets, net | 8,539 | 18,451 | ||||||
Other assets | 102,557 | 78,667 | ||||||
Total assets | $ | 3,922,663 | $ | 3,874,505 | ||||
LIABILITIES AND BENEFICIARIES' EQUITY | ||||||||
Secured term loan, net | $ | 241,654 | $ | — | ||||
Unsecured credit facility | — | 88,500 | ||||||
Unsecured term loan, net | 318,282 | 248,168 | ||||||
Unsecured senior notes, net | 1,574,524 | 1,628,370 | ||||||
Accounts payable and accrued expenses | 132,731 | 132,440 | ||||||
Distributions payable | 26,018 | 32,792 | ||||||
Deferred income, gains and rent | 23,222 | 25,082 | ||||||
Intangible liabilities, net | 8,536 | 10,322 | ||||||
Lease liability - operating leases | 23,318 | 23,166 | ||||||
Other liabilities | 60,010 | 52,331 | ||||||
Total liabilities | $ | 2,408,295 | $ | 2,241,171 | ||||
Common Shares of | 1,719 | 1,716 | ||||||
Additional paid-in-capital | 3,161,568 | 3,153,229 | ||||||
Deferred compensation payable in common shares | 19,965 | 19,601 | ||||||
Common shares in grantor trust, 1,194,127 and 1,179,643 issued and outstanding as of | (19,965 | ) | (19,601 | ) | ||||
Cumulative earnings | 1,136,686 | 1,176,195 | ||||||
Accumulated other comprehensive income | 8,125 | 3,897 | ||||||
Cumulative distributions | (2,801,074 | ) | (2,709,405 | ) | ||||
1,507,024 | 1,625,632 | |||||||
Noncontrolling interests | 7,344 | 7,702 | ||||||
Total beneficiaries' equity | $ | 1,514,368 | $ | 1,633,334 | ||||
Total liabilities and beneficiaries' equity | $ | 3,922,663 | $ | 3,874,505 |
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(unaudited, in thousands, except share and per share data) | |||||||||||||||
Three months ended | Nine Months Ended | ||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||
Revenue | |||||||||||||||
Rents | $ | 121,661 | $ | 117,481 | $ | 360,642 | $ | 350,279 | |||||||
Third party management fees, labor reimbursement and leasing | 6,553 | 6,872 | 18,782 | 17,904 | |||||||||||
Other | 1,158 | 1,216 | 5,057 | 8,933 | |||||||||||
Total revenue | 129,372 | 125,569 | 384,481 | 377,116 | |||||||||||
Operating expenses | |||||||||||||||
Property operating expenses | 31,123 | 32,624 | 96,608 | 97,283 | |||||||||||
Real estate taxes | 12,808 | 12,313 | 38,981 | 39,872 | |||||||||||
Third party management expenses | 2,468 | 2,549 | 7,664 | 7,898 | |||||||||||
Depreciation and amortization | 48,966 | 45,134 | 141,645 | 132,875 | |||||||||||
General and administrative expenses | 8,069 | 7,564 | 26,911 | 25,892 | |||||||||||
Provision for impairment | 11,666 | — | 16,134 | — | |||||||||||
Total operating expenses | 115,100 | 100,184 | 327,943 | 303,820 | |||||||||||
Gain on sale of real estate | |||||||||||||||
Net gain on disposition of real estate | — | 8,669 | — | 8,813 | |||||||||||
Net gain on sale of undepreciated real estate | — | 2,983 | 781 | 8,007 | |||||||||||
Total gain on sale of real estate | — | 11,652 | 781 | 16,820 | |||||||||||
Operating income | 14,272 | 37,037 | 57,319 | 90,116 | |||||||||||
Other income (expense): | |||||||||||||||
Interest and investment income | 293 | 498 | 1,318 | 1,387 | |||||||||||
Interest expense | (24,355 | ) | (17,061 | ) | (70,677 | ) | (49,144 | ) | |||||||
Interest expense - amortization of deferred financing costs | (1,110 | ) | (745 | ) | (3,251 | ) | (2,259 | ) | |||||||
Equity in income of unconsolidated real estate ventures | (10,739 | ) | (6,260 | ) | (24,504 | ) | (15,804 | ) | |||||||
Net gain on real estate venture transactions | — | — | 181 | — | |||||||||||
Net income (loss) before income taxes | (21,639 | ) | 13,469 | (39,614 | ) | 24,296 | |||||||||
Income tax benefit (provision) | 3 | 9 | (35 | ) | (66 | ) | |||||||||
Net income (loss) | (21,636 | ) | 13,478 | (39,649 | ) | 24,230 | |||||||||
Net income attributable to noncontrolling interests | 82 | (37 | ) | 140 | (59 | ) | |||||||||
Net income (loss) attributable to | (21,554 | ) | 13,441 | (39,509 | ) | 24,171 | |||||||||
Nonforfeitable dividends allocated to unvested restricted shareholders | (159 | ) | (105 | ) | (433 | ) | (351 | ) | |||||||
Net income (loss) attributable to Common Shareholders of | $ | (21,713 | ) | $ | 13,336 | $ | (39,942 | ) | $ | 23,820 | |||||
PER SHARE DATA | |||||||||||||||
Basic income (loss) per Common Share | $ | (0.13 | ) | $ | 0.08 | $ | (0.23 | ) | $ | 0.14 | |||||
Basic weighted average shares outstanding | 172,097,661 | 171,569,807 | 171,912,552 | 171,464,936 | |||||||||||
Diluted income (loss) per Common Share | $ | (0.13 | ) | $ | 0.08 | $ | (0.23 | ) | $ | 0.14 | |||||
Diluted weighted average shares outstanding | 172,097,661 | 172,152,256 | 171,912,552 | 172,435,153 |
FUNDS FROM OPERATIONS | |||||||||||||||
(unaudited, in thousands, except share and per share data) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||
Net income (loss) attributable to common shareholders | $ | (21,713 | ) | $ | 13,336 | $ | (39,942 | ) | $ | 23,820 | |||||
Add (deduct): | |||||||||||||||
Net income (loss) attributable to noncontrolling interests - LP units | (84 | ) | 38 | (141 | ) | 64 | |||||||||
Nonforfeitable dividends allocated to unvested restricted shareholders | 159 | 105 | 433 | 351 | |||||||||||
Net gain on real estate venture transactions | — | — | (181 | ) | — | ||||||||||
Net gain on disposition of real estate | — | (8,669 | ) | — | (8,813 | ) | |||||||||
Provision for impairment | 11,666 | — | 16,134 | — | |||||||||||
Depreciation and amortization: | |||||||||||||||
Real property | 40,493 | 38,095 | 118,242 | 110,888 | |||||||||||
Leasing costs including acquired intangibles | 7,594 | 6,244 | 20,837 | 19,835 | |||||||||||
Company’s share of unconsolidated real estate ventures | 12,840 | 12,804 | 36,549 | 37,002 | |||||||||||
Partners’ share of consolidated real estate ventures | (4 | ) | (4 | ) | (12 | ) | (14 | ) | |||||||
Funds from operations | $ | 50,951 | $ | 61,949 | $ | 151,919 | $ | 183,133 | |||||||
Funds from operations allocable to unvested restricted shareholders | (347 | ) | (198 | ) | (880 | ) | (590 | ) | |||||||
Funds from operations available to common share and unit holders (FFO) | $ | 50,604 | $ | 61,751 | $ | 151,039 | $ | 182,543 | |||||||
FFO per share - fully diluted | $ | 0.29 | $ | 0.36 | $ | 0.87 | $ | 1.06 | |||||||
Weighted-average shares/units outstanding — fully diluted | 173,236,769 | 172,668,723 | 172,954,267 | 172,989,918 | |||||||||||
Distributions paid per common share | $ | 0.19 | $ | 0.19 | $ | 0.57 | $ | 0.57 | |||||||
FFO payout ratio (distributions paid per common share/FFO per diluted share) | 66 | % | 53 | % | 66 | % | 54 | % |
SAME STORE OPERATIONS – 3rd QUARTER | ||||||||
(unaudited and in thousands) | ||||||||
Of the 74 properties owned by the Company as of | ||||||||
Three Months Ended | ||||||||
2023 | 2022 | |||||||
Revenue | ||||||||
Rents | $ | 108,229 | $ | 108,628 | ||||
Other | 238 | 241 | ||||||
Total revenue | 108,467 | 108,869 | ||||||
Operating expenses | ||||||||
Property operating expenses | 27,929 | 29,138 | ||||||
Real estate taxes | 11,609 | 10,921 | ||||||
Net operating income | $ | 68,929 | $ | 68,810 | ||||
Net operating income - percentage change over prior year | 0.2 | % | ||||||
Net operating income, excluding other items | $ | 69,253 | $ | 68,077 | ||||
Net operating income, excluding other items - percentage change over prior year | 1.7 | % | ||||||
Net operating income | $ | 68,929 | $ | 68,810 | ||||
Straight line rents & other | (362 | ) | (3,546 | ) | ||||
Above/below market rent amortization | (268 | ) | (367 | ) | ||||
Amortization of tenant inducements | 175 | 159 | ||||||
Non-cash ground rent expense | 196 | 200 | ||||||
Cash - Net operating income | $ | 68,670 | $ | 65,256 | ||||
Cash - Net operating income - percentage change over prior year | 5.2 | % | ||||||
Cash - Net operating income, excluding other items | $ | 68,233 | $ | 63,777 | ||||
Cash - Net operating income, excluding other items - percentage change over prior year | 7.0 | % | ||||||
Three Months Ended | ||||||||
2023 | 2022 | |||||||
Net income (loss): | $ | (21,636 | ) | $ | 13,478 | |||
Add/(deduct): | ||||||||
Interest income | (293 | ) | (498 | ) | ||||
Interest expense | 24,355 | 17,061 | ||||||
Interest expense - amortization of deferred financing costs | 1,110 | 745 | ||||||
Equity in loss of unconsolidated real estate ventures | 10,739 | 6,260 | ||||||
Net gain on disposition of real estate | — | (8,669 | ) | |||||
Net gain on sale of undepreciated real estate | — | (2,983 | ) | |||||
Depreciation and amortization | 48,966 | 45,134 | ||||||
General & administrative expenses | 8,069 | 7,564 | ||||||
Income tax provision (benefit) | (3 | ) | (9 | ) | ||||
Provision for impairment | 11,666 | — | ||||||
Consolidated net operating income | 82,973 | 78,083 | ||||||
Less: Net operating income of non-same store properties and elimination of non-property specific operations | (14,044 | ) | (9,273 | ) | ||||
Same store net operating income | $ | 68,929 | $ | 68,810 | ||||
SAME STORE OPERATIONS – NINE MONTHS | ||||||||
(unaudited and in thousands) | ||||||||
Of the 74 properties owned by the Company as of | ||||||||
Nine Months Ended | ||||||||
2023 | 2022 | |||||||
Revenue | ||||||||
Rents | $ | 326,528 | $ | 322,905 | ||||
Other | 772 | 809 | ||||||
Total revenue | 327,300 | 323,714 | ||||||
Operating expenses | ||||||||
Property operating expenses | 85,848 | 85,615 | ||||||
Real estate taxes | 34,640 | 35,697 | ||||||
Net operating income | $ | 206,812 | $ | 202,402 | ||||
Net operating income - percentage change over prior year | 2.2 | % | ||||||
Net operating income, excluding other items | $ | 206,933 | $ | 199,832 | ||||
Net operating income, excluding other items - percentage change over prior year | 3.6 | % | ||||||
Net operating income | $ | 206,812 | $ | 202,402 | ||||
Straight line rents & other | (4,138 | ) | (8,151 | ) | ||||
Above/below market rent amortization | (839 | ) | (1,063 | ) | ||||
Amortization of tenant inducements | 511 | 494 | ||||||
Non-cash ground rent expense | 593 | 605 | ||||||
Cash - Net operating income | $ | 202,939 | $ | 194,287 | ||||
Cash - Net operating income - percentage change over prior year | 4.5 | % | ||||||
Cash - Net operating income, excluding other items | $ | 200,938 | $ | 189,771 | ||||
Cash - Net operating income, excluding other items - percentage change over prior year | 5.9 | % | ||||||
Nine Months Ended | ||||||||
2023 | 2022 | |||||||
Net income: | $ | (39,649 | ) | $ | 24,230 | |||
Add/(deduct): | ||||||||
Interest income | (1,318 | ) | (1,387 | ) | ||||
Interest expense | 70,677 | 49,144 | ||||||
Interest expense - amortization of deferred financing costs | 3,251 | 2,259 | ||||||
Equity in loss of unconsolidated real estate ventures | 24,504 | 15,804 | ||||||
Net gain on real estate venture transactions | (181 | ) | — | |||||
Net gain on disposition of real estate | — | (8,813 | ) | |||||
Net gain on sale of undepreciated real estate | (781 | ) | (8,007 | ) | ||||
Depreciation and amortization | 141,645 | 132,875 | ||||||
General & administrative expenses | 26,911 | 25,892 | ||||||
Income tax provision | 35 | 66 | ||||||
Provision for impairment | 16,134 | — | ||||||
Consolidated net operating income | 241,228 | 232,063 | ||||||
Less: Net operating income of non-same store properties and elimination of non-property specific operations | (34,416 | ) | (29,661 | ) | ||||
Same store net operating income | $ | 206,812 | $ | 202,402 |
Company / Investor Contact:
EVP & CFO
610-832-7434
tom.wirth@bdnreit.com
Source:
2023 GlobeNewswire, Inc., source