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Heard Of Brandywine Realty? This Analyst Thinks The REIT Is Worth Buying

Bill Stoller

Brandywine Realty Trust (NYSE: BDN) is a $2.8 billion cap office REIT which owns and manages a portfolio of 286 properties totaling 24.1 million SF.


Source: Company Presentation

The company portfolio is weighted toward Mid-Atlantic markets, with assets located in Philadelphia, Washington, D.C., New Jersey, Austin, Texas and California.

Tale Of The Tape

During the past 12 months, Brandywine has only posted modest gains compared to the broader market, or SPDR S&P 500 (NYSE: SPY), and the overall REIT sector, represented by the Vanguard REIT Index EFT (NYSE: VNQ).


Brandywine shares have traded in a range of $13.77-$17.13 over the past 52 weeks and closed at $15.85 on Friday, February 27.

Argus Research - Buy Rating, $18 PT

  • Argus Research published a report on February 27, reiterating its Buy rating and $18 price target, noting "that Brandywine shares are attractively valued at current prices near $16."
  • Based on the stock's recent closing price, the Argus target represents a ~14 percent upside, plus a 3.8 percent dividend, for a ~17.8 percent total return in 2015.

Related Link: 3 High-Yield mREITs Wall Street Is Watching

Brandywine Q4 Results - Key Takeaways

  • On February 4, Brandywine posted Q4 2014 "FFO of $0.30 per diluted share, up from $0.29 in 4Q13 and above the consensus of $0.28," according to the company.
  • "Revenue rose 6.6% from the prior-year period and same-store cash NOI rose 2.0%."
  • At the end of 4Q14, occupancy was 91.4%, up 190 basis points from the end of 4Q13 and 250 basis points sequentially.

Brandywine Guidance

  • BDN "raised its 2015 FFO guidance range to $1.39-$1.48 per share, up a penny at the low end."
  • Brandywine forecast "same-store cash NOI growth of 2%-4% in 2015."
  • Argus is maintaining its "2015 FFO forecast of $1.44 per share, just above the midpoint of the guidance range...and initiated 2016 [FFO] estimate of $1.50 per share."
  • Argus "long-term growth rate estimate remains 4%."

Earnings & Growth - Regional Analysis

  • "Brandywine's strongest markets are currently the "crescent markets" of suburban Philadelphia; the Philadelphia central business district (CBD); and Austin, Texas."
  • "In the Philadelphia CBD, properties are 97.3% leased and rents are expected to increase 6% on a cash basis in 2015. Similarly, in the crescent markets, properties are 96.6% leased, with a 5% projected increase in rents this year."
  • "Austin properties are 95.8% leased and rents are expected to be up 6%."
  • "The Philadelphia CBD and the crescent markets accounted for 32% and 18%, respectively, of 2014 NOI."
  • "The company's properties in Austin, which are owned through a joint venture, accounted for 6% of 2014 NOI. Northern Virginia, another core market, represented 16% of NOI."
  • "Noncore markets, including New Jersey/Delaware, Maryland, and California, accounted for the remainder, or 28%, of 2014 NOI."

Rental Rates

  • Q4 "rental rates fell 6.9% on a cash basis for new leases and renewals combined...FY 2014 cash rental rates fell 1.0% on a combined basis, at the low end of management's projected range."
  • Guidance for 2015, "cash rental rates are expected to be down 1% to up 1%."
  • "BDN continues to absorb space and increase occupancy before significantly raising rates in selected markets."

Valuation Assumptions

  • BDN shares are trading at 11.0x [Argus] 2015 FFO estimate.
  • The Argus $18 PT is based on 12.5x its 2015 FFO per share estimate, "still below the peer average multiple of 16.9x."
  • Brandywine pays a quarterly dividend of $0.15 per share, or $0.60 annually, yielding ~3.9%, well covered by a payout ratio of 44 percent FY 2014.
  • Argus is lowering its 2015 dividend estimate "to $0.60 from $0.63 and [is] initiating a 2016 estimate of $0.64."
  • Argus noted that BDN "has also strengthened its balance sheet and gained additional liquidity through several recent capital markets transactions."

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Latest Ratings for BDN

Date Firm Action From To
Dec 2014 Citigroup Maintains Neutral
Nov 2014 Credit Suisse Initiates Coverage on Neutral
Oct 2014 Stifel Nicolaus Upgrades Hold Buy

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