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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: anializer who wrote (34526)	5/20/2009 1:33:48 PM
From: rllee	Read Replies (1) \| Respond to of 78746

The following a a recent clip from a poster who analyzed BDN in great detail. Apparently he is negative on the stock. Perhaps one of you who follows BDN may formulate a more favorable view than him: I've taken a new, long look at Brandywine (BDN) following their recent 1Q09 report and subsequent news. As a result, I am selling my small holding of their BDNprC preferred shares. I still rate the company as a ? in my rating system of ?, safe, or very safe. BDN appears to have good management but they have a lot of problems, in my view. I would particularly not be a holder of their common stock. Here is the basis for my opinion: BDN's unsecured debt, including their bonds, a term loan and their current $200M owed on their line of credit is for the next 4 years: 2009: $152M 2010: $434M 2011: $276M (assuming that they extend their line of credit to 2012) 2012: $500M In their 1Q09 report, BDN said their capital needs were: $140M on IRS (Old Post Office) building and parking lot development project + $20M to finish redevelopment 'leaseups', $35M to finish ground-up 'leaseups' + $30M for maintenance capital expenditures and $25M for new leasing capital expenditures = $250M. They have since received a mortgage loan for the IRS building and parking lot that will be paid from escrow upon completion of the project in 2010. This should enable BDN to get a construction loan for the entire amount of the future mortgage loan proceeds, thus eliminating the need for the $140M mentioned above. Therefore, the total 2009 development capital needed is: $110M BDN's debt repayments in 2009 were $68M for maturing mortgage, $152M for maturing bonds and $55M needed to pay 2010 bond holders who accept the recent BDN bond tender offer (90cents on the dollar). Recently BDN received $90M by refinancing the $68M maturing mortgage. Therefore, the total 2009 debt repayment is now: $207M. In summary, in 2009 BDN needs $110M + $207M = $317M BDN should generate the following cash in 2009: $50M of free cash + $24M of tax credit proceeds + $22M (excess of mortgage refi of $90M versus mortgage loan maturing of $68M) + $36M of asset sales closed + $85M of asset sales committed but not closed + $60M mortgage financing committed but not closed = $277M BDN should be able to make up the difference between the $317M needed and the $277M already obtained with additional asset sales and mortgage financing planned. Beyond 2009: If BDN maintains their reduced dividend of $1.20 per year, they will have free cash in 2009 of slighty more than $50M. This is based on their projection of FFO for 2009 of $2.12 (midpoint of their range of $2.04-$2.21). The calculation for free cash is: [$2.12-$1.20)*91M shares - $30M cap ex = $53.7M. I believe it is optimistic to assume that BDN will continue to have $50M of free cash available per year due to their upcoming lease expirations: 2009: 9.6% of total base rent 2010: 15.6% 2011: 12.4% 2012: 11.8% For 2009 - 2012, a total of 49.4% of the existing rent will have to be recovered though renewals or new leases. They have been getting rent increases on renewals and decreases on new leases. Their tenant retention in 1Q09 was 78%. However, I doubt if BDN can renew or replace the tenants in the 49%+ of their leases that are expiring. Conclusion: If you assume 2009 cash needed is satisfied by cash generated and if you further assume that all secured debt will be refinanced when it is maturing (which I believe is very likely after looking at the properties in detail), BDN still has to come up with $1.21B between now and 2012 to repay their bonds, line of credit and term loan coming due. They have enough unencumbered property and enough room within their covenants to generate at least 1/2 of what they need with new secured financing. The rest can come from asset sales and the free cash of <$50M per year. FFO will suffer as a result of their asset sales and declining occupancy, in my view. There could eventually be a problem with the fixed charge coverage covenant. It is likely, in my view, that the common stock dividend will be cut again. I think BDN will probably survive but their common stock will very possibly take a big hit over the next couple of years and, as a result, I think the preferred shares will also decline over time. I doubt if BDN will ever suspend paying their preferred dividends. On the other hand, if the economy improves more rapidly than the current forecast, BDN will fare better.

To: anializer who wrote (34526)	6/4/2009 12:03:16 PM
From: E_K_S	Read Replies (2) \| Respond to of 78746

Hi anialzer - Are you doing any reshuffling with your REIT common and preferred shares? Brandywine Realty Trust (BDN) said it completed a secondary stock offering (June 2, 2009) of 40.25 million shares of stock at $6.30 per share (it was over subscrbed too). From the offer, it raised $242.5 million in net proceeds. This helps their looming refinancing concerns for their $600 million revolving credit facility. I am not sure if I should peel off a few shares of my preferred and add to my BDN common shares. The preferred C series traded at a recovery high of $18.34 today. Up just over 100% from the low in Nov 2008 and March 2009 where it traded around $9.00/share. finance.yahoo.com The common dividend was cut and now yields 5.5% while the yield on the Preferred C series is still around 10%. I am tempted to stay with my preferred shares even though the tangible BV for BDN is around $18.00/share. My strategy was to lock in the healthy dividend by buying the preferred series but now there may be more "potential" value by owning the common shares. EJS