Brandywine Realty Stock: Outlook for 11%-Yielder Bullish on Interest Rate Cuts
September 30, 2024
BDN Stock’s on the Move
It’s a good time to look at Brandywine Realty stock.
With interest rates starting to decline, investors are starting to turn their attention to real estate investment trusts (REITs) like Brandywine Realty Trust (NYSE:BDN). High interest rates are not great for capital-intensive sectors like real estate.
That’s because REITs need to borrow a lot of money to expand their portfolios. On top of that, high interest rates make it expensive to borrow and service debt, which cuts into profitability.
But with interest rate cuts expected to continue into 2025, REITs will begin to see their financing costs decline, and hopefully, expand their margins.
Brandywine Realty stock is one of the largest, publicly traded REITs in the U.S. with a core focus of urban, town center, research and lab space, life science, and transit-oriented properties in the Philadelphia, Austin, and Washington, D.C. markets. (Source: “Investor Update 2024 Second Quarter,” Brandywine Realty Trust, last accessed September 18, 2024.)
Why these markets?
Because they’re growing. Of course, Washington, D.C. which is the nation’s capital and one of the most sought-after investment markets in the world. And here are some factoids on Brandywine Realty Trust’s other markets.
Austin is:
- The #1 in gross domestic product (GDP) growth over the last two years
- The best performing job market of the top 50 Metros
- The #1 fastest growing Metro
Greater Philadelphia boasts:
- The #1 growth rate of a highly educated population since 2008
- $880.0 million in life science venture capital deals in 2023
- The offices of 80% of all pharmaceutical and biotech companies in the U.S.
Philadelphia also ranks amongst most affordable cities in the country.
Since its founding in 1994, Brandywine has grown from 200,000 square feet and a total market capitalization of less than $5.0 million to over 22.3 million square feet and a total portfolio worth approximately $5.0 billion.
Another Strong Quarter for Brandywine
For the second quarter ended June 30, 2024, Brandywine reported net income of $29.9 million, or $0.17 per share, compared to a net loss of $12.9 million, or a loss of $0.08 per diluted share, in the second quarter of 2023.
Funds from operations (FFO) were $38.0 million, or $0.22 per share, versus $49.6 million, or $0.29 per share, in the same prior year period. The second-quarter 2024 payout ratio on its dividend ($0.15 per share/$0.22 FFO per share) was 68.2%.
Year-to-date net income was $13.2 million, or $0.08 per diluted share, compared to a net loss of $18.2 million, or a loss of $0.11 per diluted share, in the first six months of 2023. FFO for the first six months of 2024 totaled $79.2 million, or $0.45 per diluted share, compared to $100.4 million, or $0.58 per diluted share, in the first six months of 2023.
As of July 19, Brandywine’s core portfolio of 69 properties covered 12.7 million square feet and was 88.5% leased.
Commenting on the results, Gerard H. Sweeney, the REIT’s president and chief executive officer, said, “We continue to make excellent progress on our 2024 business plan highlighted by exceeding our speculative revenue target at the midpoint of our guidance. Based on our 2024 first half leasing performance, we are raising our full year midpoint target by $1.0 million from $24.5 million to $25.5 million. […] Based on the progress made on our 2024 business plan we are narrowing our FFO range from $0.90 to $0.97 per share to $0.91 to $0.96 per share.”
2024 Business Outlook
For 2024, Brandywine Realty currently expects to report:
- Per-share guidance of a loss of $0.01 to earnings of $0.04, an improvement over previous guidance of a loss of $0.36 to a loss of $0.29 per share
- FFO guidance of $0.91 to $0.96, narrowed from $0.90 to $0.97
Maintains Quarterly Dividend of $0.15 Per Share
Thanks to Brandywine’s solid earnings, rental rate growth, occupancy rate, and strong tenant retention rate, it is able to provide investors with a reliable dividend. Also keep in mind that, as a REIT, Brandywine is legally obligated to distribute at least 90% of its taxable income to shareholders as dividends.
In May, Brandywine Realty stock declared a second-quarter cash distribution of $0.15 per share, or $0.60 per share on an annual basis, for a current yield of 11.15%. As noted above, the payout ratio for the second quarter was 68.2%. (Source: “Dividends,” Brandywine Realty Trust, last accessed September 18, 2024.)
Brandywine Realty Stock Up 31% Over the Last Six Months
As you can see in the chart below, Brandywine Realty stock fared poorly during the period in which the Federal Reserve raised its key lending rate. From March 17, 2022 through July 26, 2023, the Fed raised its rates 11 times, from a range of 0.25%–0.5% to 5.25%–5.5%.
Over that period, BDN stock tumbled 56.5%. (Source: “Federal Funds Rate History 1990 to 2024,” Forbes, May 20, 2024.)
However, Brandywine Realty stock has since rebounded on investor optimism about the economy, inflation, and lower interest rates. Over the last six months, BDN stock has rallied 31.2%.
More broadly, Brandywine Realty stock is up:
- 22% over the last three months
- 10% year to date
- 26% year over year
Looking ahead, Wall Street analysts believe that Brandywine Realty stock will outperform the broader market over the next 12 months, with a median target of $6.00. This points to potential gains of 10.8%.
Chart courtesy of StockCharts.com
The Lowdown on Brandywine Realty Stock
Brandywine Realty Trust is a great REIT with an enviable property portfolio in three of the most sought-after metropolitan regions in the country. It has a strong balance sheet, a growing pipeline, and great occupancy rates, all of which allows it to provide investors with a reliable, high-yield dividend.
