Hi Peter -
I also like HRP over BDN for the reasons you described. With the company's announcement of a dividend cut just shows that expected future FFO will probably get worse so the company is conserving their cash. Marty Whitman likes their high cash flow coverage levels but they may not look that attractive in 24 months after 15.6% of their leases rollover. Your analysis looks good to me except your property valuation (always subject to error) may be a bit low and your total liability number may be too high. See the link to the Hunter Report below.
Finally, BDN has some property under development where HRP does not. This further strains BDN's future capital needs.
Below are some recent company events and analysis that might be of interest.
1) I am not sure if your debt analysis included the recent sale of $460 million of assets in October 2008 which recently closed.
Brandywine Announces Closing of the $412.5 Million Oakland, California Portfolio Sale and of a $48.8 Million Richmond, Virginia Sale
biz.yahoo.com
2) The Third Avenue Real Estate Fund managed by the value investor Martin Whitman recently acquired a $12.5 million position in 2009 of BDN's senior debt (Brandywine Operating Partnership 3.875% Convertible Senior Notes putable October 2011 (“Brandywine Senior Notes”)
( thirdave.com )
From their Q1 2009 letter to investors (pg. 12):"...Brandywine’s portfolio is more than 92% occupied with a diversified tenant base that provides steady cash flows. Brandywine will likely face deteriorating fundamentals (albeit not as severe as retail) and, over the next three years, it must address about $1.2 billion of debt maturities. However, the company’s high cash flow coverage, manageable debt levels, and approximately $4 billion unencumbered asset base, gives us confidence that Brandywine’s Notes will remain performing. In the unlikely event of default, the notes should be fully covered in a restructuring or liquidation....".
3) Insiders were buying shares (totaling 12K shares) between March 5, 2009 - March 16, 2009 based on the last Yahoo insider report ( finance.yahoo.com ). I would like to see 10x this level from the Directors which would show a higher level of confidence for the company looking forward.
4) This is from the Citigroup Global Markets Report dated March 6, 2009 that Spekulatius posted March 7, 2009.
theHunter — Our REIT Industry Comparative Valuation Analysis
citigroupgeo.com
From the article:"...Brandywine Realty Trust (BDN)
BDN Presents at Citi's 2009 Global Property CEO Conference — BDN's CEO, Jerry Sweeney, commented that the company is committed to delevering its balance sheet, primarily through asset sales, and the company’s top priority is securing construction financing for its IRS development in Philadelphia. Additionally, management outlined Brandywine’s projected sources and uses of cash. Fundamentals in the company’s core markets have been relatively stable, but management expects some downward pressure and has been aggressive on leasing to retain tenants in 2009.
Sources & Uses — The company has $550m of upcoming cash need, including a December bond maturity ($152m), payoff of secured mortgage $69m, $160m of spend for its IRS project, and $135m of revenue maintaining capex. Sources include $180m of asset sales ($300m of unencumbered properties are currently on the market), mortgage refinancings, and $180m of mortgages ($90m is currently underway); additionally, the company is looking at JVs on existing assets. The company is also in the market for a $165m construction facility for the IRS project (expecting 300-400 bp spreads over LIBOR) and is in talks for longer-term financing for the facility. The spectrum of potential buyers is wide given the size and scope of assets ($3m-$50m).
Fundamentals — Brandywine’s markets have been fairly stable, and vacancies have not increased that much, according to management. The company expects that a vast majority of tenants who are looking to relocatewill probably stay in place. BDN’s goal on leasing is to be as aggressive as possible; as a result, 44% of 09 renewals have already been signed.
From the "Hunter Report"
On page 61 of the report they show BDN's CAP rate to be 7.50.
On page 64 of the report it shows BDN has 19.9 % of its LT debt coming due in the next two years (2009 & 2010), a bit less than your number. They show the Gross Asset Value of $4,851 million (including assets under development) vs total debt $2,967 million (61.16% debt/value).
On page 66 of the report they show that 15.3 % (based on total sq ft) of their leases rollover in 2009. This number seems a bit high when compared to the other companies in this sector.
They rate BDN as a 2H which is a high risk - Hold. Their target price on the common is $4.50/share.
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EKS |
