Fitch Rates Brandywine Realty Trust's $100MM 6.90% Series E Cumulative Redeemable Pfd Shares 'BB-'

Fitch Ratings assigns a credit rating of 'BB-' to the 6.90% series E cumulative redeemable preferred shares issued by Brandywine Realty Trust (NYSE: BDN) for gross proceeds of $100 million. The offering is expected to close on April 11, 2012.

Brandywine Realty Trust intends to use the net proceeds from this offering to fund its previously announced redemption of all 2,000,000 shares of its outstanding 7.50% series C cumulative redeemable preferred shares for total consideration of approximately $50 million and for other general corporate purposes, which may include acquisitions, real estate development activities and repurchases or redemption of debt or other outstanding preferred shares.

Fitch currently rates Brandywine Realty Trust and its subsidiary, Brandywine Operating Partnership, L.P. (collectively, Brandywine or the company) as follows:

Brandywine Realty Trust

--Issuer Default Rating (IDR) at 'BB+';

--Preferred stock at 'BB-'.

Brandywine Operating Partnership, L.P.

--IDR at 'BB+';

--Unsecured revolving credit facility at 'BB+';

--Senior unsecured notes at 'BB+.'

The Rating Outlook is Stable.

Brandywine's 'BB+' IDR reflects the company's credit strengths, including its manageable debt maturity and lease expiration schedules, granular tenant base, and access to the capital markets. Offsetting these strengths are operating fundamentals in Brandywine's markets, which remain weak and will likely be soft in the near to medium term. However, the company's leverage and coverage metrics are expected to remain appropriate for the rating over the next 12-24 months. The Stable Rating Outlook considers these expected soft property-level fundamentals, offset by Brandywine's solid liquidity and unencumbered asset coverage of unsecured debt.

The economic recovery remains fragile, with the high unemployment rate continuing to adversely impact business prospects of many of Brandywine's current or potential tenants. Brandywine's portfolio is focused primarily in the Mid-Atlantic region, with the top five submarkets represented by Philadelphia central business district (CBD, 23.1% of NOI for the 12-months ended Dec. 31, 2011), Dulles Toll Road Corridor (15.1%), Radnor, PA (10.2%), King of Prussia/Berwyn/N202 Corridor (7.6%), and Southwest Austin (5.3%).

The company's geographic focus, with exposure to some weaker submarkets with low barriers to entry, has provided limited growth in recent quarters and relatively weak tenant demand has resulted in declining occupancy. As a result of lower occupancies and driven by weak tenant demand, Brandywine has reported negative same-store cash NOI declines of 5.2% , 3.7% and 2.7% in 2011, 2010 and 2009, respectively.

Since 2006, Brandywine has underperformed a selected group of office REIT peers by approximately 250 basis points (bps) in both same-property NOI growth and occupancy. Brandywine has also underperformed its markets on a NOI and occupancy basis, as followed by Property & Portfolio Research (PPR), each by almost 100 bps since 2006.

Occupancy and rent level deterioration since early 2008 have negatively affected fixed charge coverage levels. Fitch defines fixed charge coverage as recurring operating EBITDA less recurring capital expenditures less straight line rent adjustments, divided by total interest incurred and preferred dividends.

Fixed-charge coverage levels began to weaken in recent quarters, falling to 1.5 times (x) for the 12 months ended Dec. 31, 2011 from 1.7x in 2010. While recurring operating EBITDA improved in 2011, recurring capital expenditures increased significantly to $95 million in 2011 from $50.5 million the year prior. Fitch projects the company's fixed charge coverage ratio to rise above 1.5x during 2012 as recurring operating EBITDA improves and capital expenditures moderate.

The company benefits from a diverse tenant base, with the top 10 tenants representing 23.9% of total base rent at Dec. 31, 2011 and no tenant except for the U.S. Government Services Administration (GSA) comprises more than 3% of total base rent. In addition, the company has a fairly even distribution of lease expirations and an average of 10% of annual base rent expires in each of the next 10 years.

With the delivery of the Post Office Square development to the IRS in August 2010, Brandywine's largest submarket became the Philadelphia CBD and the largest tenant became the U.S. Government. Fitch views the company's presence in the Philadelphia region as a credit positive, as Brandywine is a well established operator in this market.

Leverage (net debt to recurring operating EBITDA) was 7.5x as of Dec. 31, 2011, compared with 7.6x and 7.3x as of Dec. 31, 2010 and 2009, respectively. Leverage remains appropriate for the 'BB+' rating and is expected to remain so during the forecast period. Fitch expects that improvements in EBITDA should cause leverage to fall back into the low to mid-7x range in 2012 and 2013, absent delevering common equity raises. This range is appropriate for the 'BB+' rating. In addition, the company has a well laddered debt maturity schedule with no major unsecured debt maturities until 2014.

The Stable Outlook reflects Fitch's view that Brandywine maintains capital markets access, adequate liquidity and adequate coverage of unsecured debt by unencumbered assets. The company issued senior unsecured bonds in March 2011 and successfully refinanced its unsecured line of credit in February 2012.

In addition, the company's liquidity coverage ratio is adequate, with a projected liquidity coverage ratio of 1.1x for Jan. 1, 2012 through Dec. 31, 2013. Fitch calculates liquidity coverage as sources of liquidity (unrestricted cash, availability from the company's unsecured revolving credit facility, retained cash flows from operating activities less dividends and distributions paid for 2011, multiplied by two for a run rate from Jan. 1, 2012-Dec. 31, 2013) divided by uses of liquidity (pro rata debt maturities and projected recurring capital expenditures).

Finally, the company has improved its contingent liquidity. Unencumbered assets (calculated as estimated unencumbered NOI divided by a stressed capitalization rate of 9%) covered unsecured debt by 1.5x as of Dec. 31, 2011, which is adequate for a 'BB+' rating. The covenants in the company's credit agreements do not limit financial flexibility.

The two-notch differential between Brandywine's IDR and preferred stock rating is consistent with Fitch's criteria for corporate entities with an IDR of 'BB+'. Based on Fitch research titled 'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis', available on Fitch's web site at 'www.fitchratings.com', these preferred securities are deeply subordinated and have loss absorption elements that would likely result in poor recoveries in the event of a corporate default.

Fitch does not anticipate positive rating momentum over the near- to medium-term. However, the following factors may have a positive impact on Brandywine's ratings and/or Outlook:

--Positive operating trends.

--Continued demonstration of access to multiple sources of capital.

--Net debt to recurring operating EBITDA declining below 6.5x (for the 12 months ended Dec. 31, 2011, leverage was 7.5x).

--Maintaining fixed-charge coverage above 2.0x (for the 12 months ended Dec. 31, 2011, coverage was 1.5x).

The following factors may result in negative momentum on Brandywine's ratings and/or Rating Outlook:

--Maintaining fixed-charge coverage below 1.5x.

--A sustained decline in unencumbered asset coverage below 1.5x (with asset value defined as annualized unencumbered property net operating income divided by a 9% capitalization rate).

--Leverage increasing above 8.0x

Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:

--'Criteria for Rating U.S. Equity REITs and REOCs,' Feb. 27, 2012;

--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis,' Dec. 15, 2011;

--'Corporate Rating Methodology,' Aug. 12, 2011;

--'Parent and Subsidiary Rating Linkage,' Aug. 12, 2011;

--'Recovery Rating and Notching Criteria for Equity REITs,' May 12, 2011.

Applicable Criteria and Related Research:

Criteria for Rating U.S. Equity REITs and REOCs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=671869

Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656516

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

Recovery Rating and Notching Criteria for Equity REITs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628490

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