Brandywine Realty Trust, one of
the Nation’s largest full-service real estate companies, is a completely
integrated, real estate operating company organized as a real estate
investment trust (REIT). Brandywine is engaged in the ownership, management,
leasing, acquisition and development of office and industrial properties
located in strategic markets across the United States.
Brandywine Realty Trust is
headquartered in Radnor, PA and maintains regional operations in
Pennsylvania, Metro DC, New Jersey, Richmond, Delaware, Texas, Northern
California, and Southern California.
Shares are traded on the New York Stock Exchange under the symbol BDN.
President & Chief Executive
Officer and Trustee
Brandywine Realty Trust
Mr. Sweeney has served as
President, Chief Executive Officer and Trustee of the Company since 1994 and
as President since 1988. Mr. Sweeney has overseen the growth of Brandywine
from four properties and a total market capitalization of less than $5
million to over 37 million square feet and a total market capitalization of
approximately $4 billion. Prior to 1988, in addition to serving as President
of Brandywine, Mr. Sweeney also served as Vice President of LCOR,
Incorporated (“LCOR”), a real estate development firm. Mr. Sweeney was
employed by the Linpro Company (a predecessor of LCOR) from 1983 to 1994 and
served in several capacities, including Financial Vice President and General
Partner. During this time, Mr. Sweeney was responsible for the marketing,
management, construction, asset management and financial oversight of a
diversified portfolio consisting of urban high-rise, mid-rise, flex,
warehouse and distribution facilities, retail and apartment complexes.
Mr. Sweeney is a member of Boards of Governors of NAREIT, ULI and the Real
Estate Roundtable, and Chairman of the Schuylkill River Development
Corporation (“SRDC”) and WHYY. Mr. Sweeney is also a Board Member of
The Pennsylvania Academy of the Fine Arts and Thomas Jefferson University.
Interview conducted by: Lynn
Fosse, Senior Editor, CEOCFOinterviews.com, Published – January 1, 2010
Sweeney, how has the vision changed for Brandywine Realty Trust, if at all
in the past economic time, and how are you dealing with it?
Every business, not just real estate has been severely impacted by the
recession and more acutely by the complete dislocation of the capital
markets. Brandywine has been dealing with that situation on a couple of
different fronts. First job losses, and lower business spending have really
affected the demand drivers for commercial real estate. Additionally, we
were dealing with a situation where the normal financing and capital cycle
that runs real estate businesses were completely dislocated for a period of
time. So our vision, which is to be a premier provider of first-class office
space in the mid-Atlantic region was impacted by the day-to-day battle to
hold on to our tenant base, maintain our operating margins and make sure
that we generated capital capacity sufficient enough to meet all of our
liquidity needs. Our vision has remained the same, but the priorities have
been executing a capital plan and tenant service plan to ensure that we
maintain our margins, our tenant base, and have ample financial capacity.
is your plan working?
It is working well. We actually had great success with our capital plan that
was designed to both generate financial capacity and liquidity. In this past
year, particularly the last three quarters have been very successful for us,
and we have executed the key elements of the plan. In 2007 and 2008 we sold
about $1.1 billion of real estate in preparation for the recession and high
valuations on real estate. In 2008, we sold $130 million of properties and
at an 8% cap rate. We have raised additional money by mortgaging some
properties. We did a large common stock issuance back in June that further
solidified our balance sheet. We have been an aggressive buyer of our own
debt to take advantage of the capital market dislocation and reduce our near
term maturities. These repurchase efforts have had the affect of both
reducing leverage and our overall interest. On the operating front we have
actually done fairly well. We have had very good leasing activity for the
first three quarters of the year; in fact the second and third quarters of
2009 were the highest level of leasing activity that we had in the last year
and a half. We are a full-service company so we manage and lease our own
properties. Our leasing staff and our property management teams have done a
marvelous job of staying in front of our tenant base and prospects for space
to make sure we have good deal velocity in each of our operating regions.
What is special about a Brandywine property?
Our properties are extremely desirable in terms of location, design, and
quality of building materials. We are a high quality developer that develops
efficient buildings that are well presented and are places that our tenants
are proud to call home. We augment that approach by one of the best tenant
service programs in the country. We have active property management,
maintenance, engineering capabilities that are actively engaged with our
tenants on a daily basis. We have an automated work order system that we
pioneered in the business called eTenants. That enables a tenant to use
email and text messages to contact their property manager/maintenance teams
to ensure that we provide timely service. We invest capital in our
buildings, so we are constantly doing building renovations and upgrades to
ensure our properties are “top of the market.” These are things that make
the buildings present themselves well to both our existing client base and
Geographically, why have you chosen the areas you are in now?
About 90% of our revenues come from central and southern New Jersey,
Philadelphia CBD, Pennsylvania, Delaware, Maryland and Virginia. One of the
reasons we like those markets, as well as our operation in Austin, Texas, is
that these markets have long term stability, and several of them have very
good growth characteristics. All of these markets have zoning and approval
impediments that tend to restrict the supply of office space, and the
entitlement process is getting increasingly difficult. Our portfolio has
about 1,600 different tenants in it, and it is well diversified. While we
are geographically concentrated, we have managed the risk of that
concentration by having excellent credit diversification in our tenant base.
Speaking of credit, what do you look for now in a tenant that might be
different from what you would have looked for two years ago?
We are in the secondary credit business. Everyone has become much more
focused on credit. The dramatic downturn we have seen in some of the largest
financial institutions and manufacturing companies in the country, have made
everyone concerned about credit. As I mentioned, we have always operated our
company on the premise that, in essence we are a secondary credit business,
so when we lease space to a tenant we are relying on their ability to pay us
rent; it is that simple. As a consequence we have always been very diligent
on doing credit reviews, and bank reference checking on all of our tenants.
Our tenants who are non-public have requirements to disclose financial
information to us on an annual basis. Our regional executive teams stay in
very close touch with our major tenants to track their business. So we are
very focused on our tenants’ financial condition, but also on their business
plan. We track that in a variety of ways. For example, our maintenance
staff when they are going into a space to change a light bulb they are
looking for empty cubicles as well as where there is any excess space – both
of these tend to be an early warning system of a tenant’s business plan
changing. Our buildings have automated security systems. Therefore, we know
right away when people are getting laid off so we can track layoffs by
buildings and by tenants. That acts as a harbinger of future tenant demand.
We have always been very focused on credit, but now we are peeling the onion
back a few additional layers to make sure we understand the strength of
their customer base, their banking relationships, how they are financing
their business and the stability of their own income stream.
What is your occupancy rate?
Our occupancy rate is approximately 90%. We have had a little bit of decline
over the last couple of quarters, which we anticipated in our business plan
for 2009, and will end the year around 89% overall occupancy. We think that
holds us in pretty good shape compared to our overall competition.
What is the financial picture for Brandywine Realty Trust today?
The financial picture is very strong – and our plan is to make it better! We
have been able to reduce our overall level of leverage from about 55% down
to about 46%, so a fairly significant reduction. We have repaid about $615
million of debt. We operate the company on a line of credit that is
comprised of a banking syndicate of fifteen banks. That line of credit
doesn’t mature until 2012. We have less than $100 million of a $600 million
availability outstanding, so we have plenty of liquidity. One of the more
positive developments in the REIT stage in the last several weeks has been a
reopening of the unsecured debt market. Brandywine is an investment grade
company. We have been an issuer of public bonds in the past and we recently
had a very successful issuance of 250 million unsecured notes.
As a consequence of good execution of our capital plan, the financial
picture has changed very much for the positive over the last couple of
quarters. We have a large unencumbered asset pool that affords us great
flexibility and have been able to take advantage of that by placing two very
effectively priced mortgages totaling about $150 million in the last couple
of quarters. So we are also able to raise some additional capital that way.
The bottom line we have is that we have met all of our capital plan
objectives, but in this type of volatile environment, our objective is to
continue to strengthen our balance sheet and generate liquidity wherever we
can either by additional financings, continued asset sales, or formation of
joint ventures on some of our properties. We are continuing on our path of
reducing our leverage, improving our financial metrics, and putting the
company in a very good position so that when the market starts to turn, we
are able to take advantage of what we expect to be some interesting growth
Wall Street pleased with your performance?
I think Wall Street has been pleased thus far. We issued stock back in June,
and it has performed well since then. Once the REITs demonstrated the
ability to raise equity and debt financing, the specter of an industry-wide
collapse disappeared and REITs, in general, have returned to more solid
footing. As this situation continues to improve, we will then see more money
come back into the sector. Our stock has underperformed the last couple of
years, so one of the key missions we have as a company is to continue the
recent track record of success, so that we are able to improve the share
price performance going forward.
What challenges do you see ahead?
The challenge is the continuation of the slow recovery, which does affect
the demand drivers for commercial real estate. Until we see business
psychology turn uniformly positive, and job creation, there will be
continued pressure on leasing office space. At a fundamental level, until
the economy shows stronger signs of consistent recovery, leasing office
space is going to remain challenging for at least the next year. We have
implemented a number of expense control programs to make sure we maintain
our operating margins, but the real key to success is growing top-line
revenues and that will be a challenge until the economic picture has more
clarity. On the capital side, until we see more stabilization in the debt
markets, as well as some resolution to the CMBS market, and continued
strengthening of the major banks and life insurance companies, there is
going to remain some concern over financeability of real estate.
should potential investors pick REITs, and in particular why Brandywine
When investors look at REITs they should be looking at companies that have
high quality, well located and well managed assets. Those characteristics
will ultimately drive performance – we possess all those attributes! REITs
typically own the better assets in their respective market places. The stock
market clearly overreacted and created a tremendous downward pressure on
REITs stock prices. We are now beginning to return to some level of
normalcy, but I think what REITs have shown in the last couple of quarters
is an unprecedented ability to access capital. That ability to access
capital is going to hold REITs in very good stead as the commercial real
estate market works its way through this recession. Compared to our private
market competitors, REITs are going to be in a very strong position.
Brandywine will continue to solidify our own financial picture and put
ourselves in a position to take advantage of whatever growth opportunity
this type of dislocated market presents. Why Brandywine? We have very strong
market positions in the markets in which we do business, and an experienced,
cycle-tested management team. We have been through these real estate
downturns before. Our long track record with our portfolio has shown that
our properties out-perform in down markets. We always out-performed the
markets where we do business. Having addressed our near-term capital issues
and now being positioned to raise additional capital, we will be able to
take advantage where we see opportunities occurring in our markets.
Final thoughts, what should people remember about Brandywine Realty Trust?
Sweeney: One is
we have a long track of successful operations. We do well in challenging
markets. From an investor standpoint they should take a look at the capital
plan that we designed about two years ago, and measure our credibility based
upon the success we have had meeting all of our capital plan targets. So,
when the market gets challenging, and the business gets very tough, that is
what really tests the quality of management teams. When I look back over the
last several years, we certainly had our fair share of challenges. However,
we laid out a plan to address each one and, on every metric, whether it was
from a financing plan, leasing our development projects, maintaining our
operating margins, strengthening our balance sheet, we have done very well
compared to the objectives we set for ourselves. That type of credibility
comes from a lot of experience and dedication to accomplishing our goals. So
we would hope investors would look at our ability to lay out a plan, execute
it well, and position the company for future success.
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Brandywine Realty Trust
555 East Lancaster Avenue,
Radnor, PA 19087