(The following statement was released by the rating agency)
NEW YORK, August 28 (Fitch) Fitch Ratings has revised the Rating
Positive for Brandywine Realty Trust and its operating
Operating Partnership, L.P. The ratings were affirmed as
Brandywine Realty Trust
--Issuer Default Rating (IDR) at 'BB+';
--Preferred stock at 'BB-'.
Brandywine Operating Partnership, L.P.
--IDR at 'BB+';
--Senior unsecured lines of credit at 'BB+';
--Senior unsecured term loans at 'BB+';
--Senior unsecured notes at 'BB+'.
KEY RATING DRIVERS
The ratings reflect Brandywine's improved portfolio of central
(CBD) and suburban office assets located principally in the
States, improved operating fundamentals, demonstrated actual and
reduced leverage/increasing fixed-charge coverage, and financial
highlighted by robust liquidity and strong access to capital.
The Outlook revision to Positive reflects Fitch's view that
metrics will continue to see incremental improvement over the
next 12-24 months
and approach levels that are consistent with an investment-grade
MID-ATLANTIC PORTFOLIO FOCUS
Brandywine's office portfolio is focused in the Mid-Atlantic
Pennsylvania and greater Washington, D.C. generating 53% and 20%
quarter 2013 (2Q'13) net operating income (NOI), respectively.
portfolio is well-diversified across various submarkets, with
CBD representing the largest submarket at 25% of total portfolio
expects the company to continue growing its footprint in the CBD
regions over the medium term while reducing exposure to slower
properties in New Jersey, Delaware and Blue Bell, Pennsylvania.
STRONG TENANT DIVERSIFICATION
The General Services Administration (GSA) is BDN's largest
contributes 7.6% of annual base rent (ABR). Excluding the GSA,
the top 10
tenants represent only 18% of total base rent, with no tenant
greater than 3% of ABR. The tenant base is also of strong
credit quality with
nine of the 20 largest tenants rated investment grade by Fitch.
SOLID PORTFOLIO FUNDAMENTALS
Operating fundamentals have remained strong with cash same-store
NOI growth of
5.5% during the first six months of 2013. Fitch forecasts
growth in the latter portion of the year, driven by favorable
and improving occupancy that will approach 90%. Year-to-date
GAAP and cash
leasing spreads improved 10.2% and 2.7%, respectively.
capex has continued to moderate to less than $2.30/sf per lease
year for each of
the last four quarters versus roughly $2.60/sf on average in
Reasonable expiring rent levels over the next several years
sustained positive leasing spreads over the next 12-24 months.
LIMITED LEASE ROLLOVER
Brandywine has a well-laddered lease maturity schedule with
rollover. Less than 22% of base rent expires through 2015,
driven by proactive
leasing executed well in advance of expirations.
IMPROVING CREDIT METRICS
Leverage decreased to 6.8x at June 30, 2013 from 7.6x and 7.2x
at Dec. 31, 2012
and Dec. 31, 2011, respectively. The decline was driven
primarily by increased
cash balances from the April 2013 equity offering. Fitch expects
will continue to decline to approximately 6.5x over the next
driven primarily by sustained same-store NOI growth across the
Fixed-charge coverage for the trailing 12 months (TTM) ended
June 30, 2013 was
1.8x, compared to 1.7x for TTM Dec. 31, 2012 and 1.5x for TTM
Dec. 31, 2011.
Fitch expects that fixed-charge coverage will exceed 2.0x over
the next 12-24
months as growth in recurring operating EBITDA complements
expense from de-levering and moderating recurring capex from an
Brandywine has strong near-term liquidity highlighted by $216
unrestricted cash, full availability under the $600 million
unsecured line of
credit, and no sizable debt maturities until late 2014. Sources
cover uses of liquidity by 2.8x from July 1, 2013 - Dec. 31,
declines materially to 1.2x through 2015 given $480 million of
maturities in 2015. However, Fitch expects the company to
continue to access
capital via the unsecured bond markets to term out these
company's December 2012 offering of $250 million 3.95% senior
illustrates strong access to capital.
MODEST AFFO PAYOUT RATIO
Improving operating fundamentals have led to moderating
recurring capex across
Brandywine's portfolio, which has complemented an already
prudent funds from
operations (FFO) payout ratio. Fitch believes that there is
potential for a
dividend increase over the next 12-24 months but expects that
the adjusted FFO
(AFFO) payout ratio will remain in a reasonable range given
longer-term de-levering targets.
ADEQUATE UNENCUMBERED ASSET COVERAGE
Brandywine's unencumbered asset coverage of unsecured debt
(based on 2Q'13
unencumbered NOI capitalized at a stressed 9% cap rate) was 1.6x
based on gross
unsecured debt. When considering current cash balances, coverage
1.8x. These metrics are adequate for the rating.
The following factors may have a positive impact on Brandywine's
--Fitch's expectation of leverage sustaining below 6.8x
(leverage at June 30,
2013 was 6.8x);
--Fitch's expectation of fixed-charge coverage sustaining above
for the TTM ended June 30, 2013 was 1.8x);
--Unencumbered asset coverage of unsecured debt (based on a
stressed 9% cap
rate) maintaining above 2.0x.
The following factors may have a negative impact on the
company's ratings and/or
--Fitch's expectation of leverage sustaining above 8.0x;
--Fitch's expectation of fixed-charge coverage sustaining below
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'Parent and Subsidiary Rating Linkage' (Aug. 5, 2013);
--'Criteria for Rating U.S. Equity REITs and REOCs' (Feb. 26,
--'Treatment and Notching of Hybrids in Nonfinancial Corporates
and REIT Credit
Analysis' (Dec. 13, 2012);
--'Recovery Ratings and Notching Criteria for Equity REITs'
(Nov. 12, 2012).
Applicable Criteria and Related Research:
Recovery Ratings and Notching Criteria for Equity REITs
Treatment and Notching of Hybrids in Nonfinancial Corporate and
Criteria for Rating U.S. Equity REITs and REOCs â€“ Effective
Feb. 27, 2012 to
Feb. 26, 2013
Parent and Subsidiary Rating Linkage
Corporate Rating Methodology: Including Short-Term Ratings and
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