Brandywine Realty Trust (BDN)

Well run commercial REIT that operates in about six different markets. Brandywine has relatively low leverage with a 63.3% Liability/Value ratio that is probably overstated a bit due to many of their older property holdings that are undervalued on the Balance Sheet when compared to their peers. There have been a substantial number of insider buys on this stock, as well. BDN's properties are not overly concentrated in bubble markets, but they do have some holdings in the DC Metro and California. From my glance through their holdings, they appear to have fairly strong asset quality.

FFOs and cash flows for BDN have been historically strong and even with a difficult operating environment, I believe they can continue to be profitable. BDN's guidance for FY '09 was FFOs between $2.04 - $2.21 per share. Even if that's a bit high, when you consider the fact that the stock is trading in the $6 - $7 range, that's not bad.

The market seems to be assuming an absolute commercial real estate apocalypse is on the horizon. Based on my analysis, BDN's property values have to fall at least 25% - 30% off their book values in order to come up with the current stock price. After discounting intangible assets, BDN's book value is $15.12 per share. When you consider the fact that many of their properties were purchased pre-2000 and have significant amounts of accumulated depreciation carried on the books (all the while, book values don't go up, but market values do over time), there's a possibility that even after significant declines in commercial RE prices, that the $15 figure is still not that off-base.

I came up with a valuation of $23 for BDN, which in some ways, seems a bit conservative. That assumes a 20% decline in property values from book values (which could be more like a 25% - 40% decline in actual market prices) and a 30% drop in revenues.

If you want to read a much more thorough analysis on BDN's property holdings, revenues, potential margin pressure, potential impairments, and valuation, check out my Seeking Alpha article on the company:

http://seekingalpha.com/article/138942-brandywine-realty-a-reit-bargain-even-with-impending-carnage