Stock of the month -- BDN

The stock of the month for September is Brandywine Reality (symbol BDN). It is a real estate investment trust that trades on the NYSE. It closed today at $10.93. It pays a divident of about 5.5%. It also has options which can provide an additional return.

The main reason for purchasing Brandywine, however, is not its immediate position, but rather where it is likely to go in the next few years. Brandywine is involved in a series of developments in Philadelphia along the west bank of the Schuylkill river south of Market Street and adjacent to the University of Pennsylvania. The first of these, redevelopment of the old Post Office at 30th street has just been completed. This building was redone at a cost of about 200 million dollars and it is now fully leased to the IRS for 20 years. I do not know all of the details of this lease, but I have to assume that the 20 year lease is on favorable terms since it predates the real estate collapse of the last few years. The project also includes a garage across the street from the main building which has some retail space that is almot fully rented as well.

Beyond the post office/IRS building, however, there is also nearly half a square mile of land along the river which will be developed by both Penn and BDN. Some portion will be athletic fields and other university facilities which will have nothing to do with BDN, but there will be substantial development that will be done in partnership between the university and Brandywine. this is a location ready made for success. The prospect for more winning projects is great.

BDN has also recently acquired some other major projects in Philadelphia. these include the former Bell Atlantic Tower that it acquired from the Blackstone group (which simultaneously took a large ownership interest in BDN. They also include a 25% limited partnership interest in Commerce Square at 20th and Market. While Philadelhia is far from the hotest of real markets in good times, it is currently one of the most stable markets in the country. Brandywine seems to be using the current climate to get a much bigger position in this market which will lead to continuing profits in the next few years.

Even at the moment, a current purchase of the stock at 10.93 while writing the January 12.5 calls for 45 cents yields a current cash return of about nearly 20% until option expiration.