Management Comments
“During the first quarter, we made excellent progress on our 2024 business plan highlighted by achieving 98% of our speculative revenue target based on the midpoint of our guidance,” stated
First Quarter 2024 Highlights
Financial Results
- Net loss allocated to common shareholders:
($16.7) million , or ($0.10 ) per share. - Funds from Operations (FFO):
$41.2 million , or$0.24 per diluted share.
Portfolio Results
- Core Portfolio: 87.7% occupied and 89.0% leased.
- New and renewal leases signed: 359,000 square feet.
- Rental rate mark-to-market: Increased 16.9% on an accrual basis and 3.3% on a cash basis.
- Same store net operating income: 1.9% on an accrual basis and 5.3% on a cash basis.
Transaction Activity
Finance Activity
- As previously announced, we completed an underwritten public offering of
$400 million aggregate principal amount of our 8.875% guaranteed Notes due 2029 (the “2029 Notes”). Interest on the 2029 Notes will be payable semi-annually onApril 12 andOctober 12 of each year, commencingOctober 12, 2024 . The offering of the 2029 Notes closed onApril 12, 2024 The net proceeds from the offering, after deducting underwriting discounts and transaction expenses related to the offering, totaled approximately$391.9 million . We will use the net proceeds of the offering to tender or redeem$335.1 million in aggregate principal amount outstanding of our 4.10% Guaranteed Notes dueOctober 1, 2024 (the “2024 Notes”) and for general corporate purposes.
- As previously announced, on
April 15, 2024 we commenced a Tender Offer for any and all of our outstanding 2024 Notes (the “Tender Offer”). The Tender Offer is scheduled to expire onApril 19, 2024 and, on which date, the purchase price of the 2024 Notes will be determined by reference to the fixed spread for the 2024 Notes to the yield based on the bid-side price of the 4.250%U.S. Treasury dueSeptember 30, 2024 . Upon completion of the Tender Offer, we plan to redeem any 2024 Notes outstanding after the Tender Offer. - As of
March 31, 2024 , we had a$37.0 million outstanding balance on our$600.0 million unsecured line of credit. - As of
March 31, 2024 , we had$43.2 million of cash and cash equivalents on-hand.
Results for the Three Months Ended
Net loss allocated to common shares totaled
FFO available to common shares and units in the first quarter of 2024 totaled
Operating and Leasing Activity
In the first quarter of 2024, our Net Operating Income (NOI) excluding termination revenues and other income items increased 1.9% on an accrual basis and 5.3% on a cash basis for our 68 same store properties, which were 87.6% and 88.0% occupied on
We leased approximately 359,000 square feet and commenced occupancy on 293,000 square feet during the first quarter of 2024. The first quarter occupancy activity includes 164,000 square feet of renewals, 63,000 square feet of new leases and 66,000 square feet of tenant expansions. We have an additional 168,000 square feet of executed new leasing scheduled to commence subsequent to
We achieved a 67% tenant retention ratio in our core portfolio with negative absorption of (49,000) square feet during the first quarter of 2024. First quarter rental rate growth increased 16.9% as our renewal rental rates increased 16.9% and our new lease/expansion rental rates increased 16.8%, all on an accrual basis.
At
Distributions
On
2024 Earnings and FFO Guidance
Based on current plans and assumptions and subject to the risks and uncertainties more fully described in our
Guidance for 2024 | Range | ||
Loss per diluted share allocated to common shareholders | ( | to | ( |
Plus: real estate depreciation, amortization | 1.26 | 1.26 | |
FFO per diluted share | to | ||
Our 2024 FFO key assumptions include:
Year-end Core Occupancy Range : 87-88%;Year-end Core Leased Range : 88-89%;- Rental Rate Growth (accrual): 11-13%;
- Rental Rate Growth (cash): 0-2%;
- Same Store (accrual)
NOI Growth Range : (1)-1%; - Same Store (cash)
NOI Growth Range : 1-3%; - Speculative Revenue Target:
$24.0 -$25.0 million ,$24.1 million achieved; Tenant Retention Rate Range : 51-53% increased to 57-59%: 600 Basis Point Improvement;Interest Expense Range :$125 -$130 million ;- Property Acquisition Activity: None;
- Property Sales Activity (excluding land):
$80 -$100 million ; - Joint Venture Activity: None;
- Development Starts: None;
- Financing Activity: Completed the refinance of our 2024 Notes (
$335.1 million outstanding); - Share Buyback Activity: None; and
- Annual earnings and FFO per diluted share based on 176.0 million fully diluted weighted average common shares.
About
Conference Call and Audio Webcast
We are releasing our first quarter earnings after the market close on
Looking Ahead – Second Quarter 2023 Conference Call
We expect to release our second quarter 2024 earnings on
Forward-Looking Statements
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “will,” “strategy,” “expects,” “seeks,” “believes,” “potential,” or other similar words. Because such statements involve known and unknown risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. These forward-looking statements, including our 2024 guidance, the expected use of proceeds from the offering of our 2029 Notes, the completion of the tender or redemption of our outstanding 2024 Notes and the progress of our projects under development, are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and not within our control. Such risks, uncertainties and contingencies include, among others: risks related to the impact of other potential future outbreaks of infectious diseases on our financial condition, results of operations and cash flows and those of our tenants as well as on the economy and real estate and financial markets; reduced demand for office space and pricing pressures, including from competitors, that could limit our ability to lease space or set rents at expected levels or that could lead to declines in rent; uncertainty and volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital or that delay receipt of our planned debt financings and refinancings; the effect of inflation and interest rate fluctuations, including on the costs of our planned debt financings and refinancings; the potential loss or bankruptcy of tenants or the inability of tenants to meet their rent and other lease obligations; risks of acquisitions and dispositions, including unexpected liabilities and integration costs; delays in completing, and cost overruns incurred in connection with, our developments and redevelopments; disagreements with joint venture partners; unanticipated operating and capital costs; uninsured casualty losses and our ability to obtain adequate insurance, including coverage for terrorist acts; additional asset impairments; our dependence upon certain geographic markets; changes in governmental regulations, tax laws and rates and similar matters; unexpected costs of REIT qualification compliance; and costs and disruptions as the result of a cybersecurity incident or other technology disruption. The declaration and payment of future dividends (both timing and amount) is subject to the determination of our
Non-GAAP Supplemental Financial Measures
We compute our financial results in accordance with generally accepted accounting principles (GAAP). Although FFO and NOI are non-GAAP financial measures, we believe that FFO and NOI calculations are helpful to shareholders and potential investors and are widely recognized measures of real estate investment trust performance. At the end of this press release, we have provided a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure.
Funds from Operations (FFO)
We compute FFO in accordance with standards established by the
Net Operating Income (NOI)
NOI (accrual basis) is a financial measure equal to net income available to common shareholders, the most directly comparable GAAP financial measure, plus corporate general and administrative expense, depreciation and amortization, interest expense, non-controlling interest in the
In our analysis of NOI, particularly to make comparisons of NOI between periods meaningful, it is important to provide information for properties that were in-service and owned by us throughout each period presented. We refer to properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by us through the end of the latest period presented as
Core Portfolio
Our core portfolio is comprised of our wholly-owned properties, excluding any properties currently in development, re-development, re-entitlement or recently completed and not stabilized.
CONSOLIDATED BALANCE SHEETS (unaudited, in thousands, except share and per share data) | ||||||||
ASSETS | ||||||||
Real estate investments: | ||||||||
Operating properties | $ | 3,549,674 | $ | 3,542,232 | ||||
Accumulated depreciation | (1,163,782 | ) | (1,131,792 | ) | ||||
Right of use asset - operating leases, net | 18,875 | 19,031 | ||||||
Operating real estate investments, net | 2,404,767 | 2,429,471 | ||||||
Construction-in-progress | 146,194 | 135,529 | ||||||
Land held for development | 81,616 | 82,510 | ||||||
Prepaid leasehold interests in land held for development, net | 27,762 | 27,762 | ||||||
Total real estate investments, net | 2,660,339 | 2,675,272 | ||||||
Cash and cash equivalents | 43,210 | 58,319 | ||||||
Restricted cash and escrow | 8,089 | 9,215 | ||||||
Accounts receivable | 11,628 | 11,977 | ||||||
Accrued rent receivable, net of allowance of | 189,718 | 186,708 | ||||||
Investment in unconsolidated real estate ventures | 618,042 | 601,227 | ||||||
Deferred costs, net | 95,049 | 95,984 | ||||||
Intangible assets, net | 7,112 | 7,694 | ||||||
Other assets | 103,573 | 86,051 | ||||||
Total assets | $ | 3,736,760 | $ | 3,732,447 | ||||
LIABILITIES AND BENEFICIARIES' EQUITY | ||||||||
Secured debt, net | $ | 260,936 | $ | 255,671 | ||||
Unsecured credit facility | 37,000 | — | ||||||
Unsecured term loan, net | 318,494 | 318,499 | ||||||
Unsecured senior notes, net | 1,564,825 | 1,564,662 | ||||||
Accounts payable and accrued expenses | 114,162 | 123,825 | ||||||
Distributions payable | 26,248 | 26,017 | ||||||
Deferred income, gains and rent | 25,363 | 24,248 | ||||||
Intangible liabilities, net | 8,022 | 8,270 | ||||||
Lease liability - operating leases | 23,415 | 23,369 | ||||||
Other liabilities | 66,049 | 63,729 | ||||||
Total liabilities | $ | 2,444,514 | $ | 2,408,290 | ||||
Common Shares of | 1,721 | 1,719 | ||||||
Additional paid-in-capital | 3,168,661 | 3,163,949 | ||||||
Deferred compensation payable in common shares | 19,996 | 19,965 | ||||||
Common shares in grantor trust, 1,145,121 and 1,194,127 issued and outstanding as of | (19,996 | ) | (19,965 | ) | ||||
Cumulative earnings | 963,038 | 979,406 | ||||||
Accumulated other comprehensive income | 5,339 | (668 | ) | |||||
Cumulative distributions | (2,853,199 | ) | (2,827,022 | ) | ||||
1,285,560 | 1,317,384 | |||||||
Noncontrolling interests | 6,686 | 6,773 | ||||||
Total beneficiaries' equity | $ | 1,292,246 | $ | 1,324,157 | ||||
Total liabilities and beneficiaries' equity | $ | 3,736,760 | $ | 3,732,447 | ||||
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except share and per share data) | |||||||
Three months ended | |||||||
2024 | 2023 | ||||||
Revenue | |||||||
Rents | $ | 119,008 | $ | 120,848 | |||
Third party management fees, labor reimbursement and leasing | 5,894 | 6,002 | |||||
Other | 1,582 | 2,377 | |||||
Total revenue | 126,484 | 129,227 | |||||
Operating expenses | |||||||
Property operating expenses | 32,279 | 33,594 | |||||
Real estate taxes | 12,592 | 14,602 | |||||
Third party management expenses | 2,543 | 2,639 | |||||
Depreciation and amortization | 45,042 | 45,600 | |||||
General and administrative expenses | 11,104 | 9,482 | |||||
Total operating expenses | 103,560 | 105,917 | |||||
Gain on sale of real estate | |||||||
Net gain on sale of undepreciated real estate | — | 781 | |||||
Total gain on sale of real estate | — | 781 | |||||
Operating income | 22,924 | 24,091 | |||||
Other income (expense): | |||||||
Interest and investment income | 421 | 505 | |||||
Interest expense | (25,049 | ) | (22,653 | ) | |||
Interest expense - amortization of deferred financing costs | (1,091 | ) | (1,027 | ) | |||
Equity in loss of unconsolidated real estate ventures | (13,588 | ) | (6,167 | ) | |||
Net loss on real estate venture transactions | (29 | ) | — | ||||
Net loss before income taxes | (16,412 | ) | (5,251 | ) | |||
Income tax provision | (2 | ) | (25 | ) | |||
Net loss | (16,414 | ) | (5,276 | ) | |||
Net loss attributable to noncontrolling interests | 46 | 17 | |||||
Net loss attributable to | (16,368 | ) | (5,259 | ) | |||
Nonforfeitable dividends allocated to unvested restricted shareholders | (336 | ) | (70 | ) | |||
Net loss attributable to Common Shareholders of | $ | (16,704 | ) | $ | (5,329 | ) | |
PER SHARE DATA | |||||||
Basic loss per Common Share | $ | (0.10 | ) | $ | (0.03 | ) | |
Basic weighted average shares outstanding | 172,207,037 | 171,673,167 | |||||
Diluted loss per Common Share | $ | (0.10 | ) | $ | (0.03 | ) | |
Diluted weighted average shares outstanding | 172,207,037 | 171,673,167 |
FUNDS FROM OPERATIONS (unaudited, in thousands, except share and per share data) | |||||||
Three months ended | |||||||
2024 | 2023 | ||||||
Net loss attributable to common shareholders | $ | (16,704 | ) | $ | (5,329 | ) | |
Add (deduct): | |||||||
Net loss attributable to noncontrolling interests - LP units | (49 | ) | (16 | ) | |||
Nonforfeitable dividends allocated to unvested restricted shareholders | 336 | 70 | |||||
Net loss on real estate venture transactions | 29 | — | |||||
Depreciation and amortization: | |||||||
Real property | 39,117 | 38,630 | |||||
Leasing costs including acquired intangibles | 5,019 | 6,140 | |||||
Company’s share of unconsolidated real estate ventures | 13,852 | 11,564 | |||||
Partners’ share of consolidated real estate ventures | — | (4 | ) | ||||
Funds from operations | $ | 41,600 | $ | 51,055 | |||
Funds from operations allocable to unvested restricted shareholders | (419 | ) | (224 | ) | |||
Funds from operations available to common share and unit holders (FFO) | $ | 41,181 | $ | 50,831 | |||
FFO per share - fully diluted | $ | 0.24 | $ | 0.29 | |||
Weighted-average shares/units outstanding — fully diluted | 174,864,742 | 172,823,496 | |||||
Distributions paid per common share | $ | 0.15 | $ | 0.19 | |||
FFO payout ratio (distributions paid per common share/FFO per diluted share) | 63 | % | 66 | % |
SAME STORE OPERATIONS – 1st QUARTER
(unaudited and in thousands)
Of the 72 properties owned by the Company as of
Three Months Ended | ||||||||
2024 | 2023 | |||||||
Revenue | ||||||||
Rents | $ | 111,378 | $ | 112,591 | ||||
Other | 270 | 284 | ||||||
Total revenue | 111,648 | 112,875 | ||||||
Operating expenses | ||||||||
Property operating expenses | 29,324 | 30,495 | ||||||
Real estate taxes | 12,049 | 13,407 | ||||||
Net operating income | $ | 70,275 | $ | 68,973 | ||||
Net operating income - percentage change over prior year | 1.9 | % | ||||||
Net operating income, excluding other items | $ | 70,238 | $ | 68,898 | ||||
Net operating income, excluding other items - percentage change over prior year | 1.9 | % | ||||||
Net operating income | $ | 70,275 | $ | 68,973 | ||||
Straight line rents & other | (960 | ) | (2,861 | ) | ||||
Above/below market rent amortization | (246 | ) | (286 | ) | ||||
Amortization of tenant inducements | 150 | 138 | ||||||
Non-cash ground rent expense | 243 | 253 | ||||||
Cash - Net operating income | $ | 69,462 | $ | 66,217 | ||||
Cash - Net operating income - percentage change over prior year | 4.9 | % | ||||||
Cash - Net operating income, excluding other items | $ | 69,014 | $ | 65,517 | ||||
Cash - Net operating income, excluding other items - percentage change over prior year | 5.3 | % | ||||||
Three Months Ended | ||||||||
2024 | 2023 | |||||||
Net loss: | $ | (16,414 | ) | $ | (5,276 | ) | ||
Add/(deduct): | ||||||||
Interest and investment income | (421 | ) | (505 | ) | ||||
Interest expense | 25,049 | 22,653 | ||||||
Interest expense - amortization of deferred financing costs | 1,091 | 1,027 | ||||||
Equity in loss of unconsolidated real estate ventures | 13,588 | 6,167 | ||||||
Net loss on real estate venture transactions | 29 | — | ||||||
Net gain on sale of undepreciated real estate | — | (781 | ) | |||||
General & administrative expenses | 11,104 | 9,482 | ||||||
Income tax provision | 2 | 25 | ||||||
Consolidated net operating income | 79,070 | 78,392 | ||||||
Less: Net operating income of non-same store properties and elimination of non-property specific operations | (8,795 | ) | (9,419 | ) | ||||
Same store net operating income | $ | 70,275 | $ | 68,973 | ||||
Company / Investor Contact: |
EVP & CFO 610-832-7434 tom.wirth@bdnreit.com |
Source:
2024 GlobeNewswire, Inc., source