Q4 2020 Brandywine Realty Trust Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Brandywine Realty Trust fourth quarter, 'twenty and 'twenty earnings call.
At this time all participants lines are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press Star and then one of your telephone.
Please be advised that today's conference may be recorded if you require any further assistance. Please press star and then zero I would now like to hand, the conference over to your speaker today, Mr. Jerry Sweeney, President and CEO, Sir you may begin.
Crystal and thank you very much good morning, everyone and thank you for participating in our fourth quarter 2020 earnings call on today's call with me as usual are George Johnstone, Our executive Vice President of operations, Dan Palazzo, Our Vice President and Chief Accounting Officer, and Tom Wirth our.
Executive Vice President and Chief financial.
Financial Officer.
Prior to beginning today's call certain information discussed during the call may constitute forward looking statements within the meaning of the federal Securities law, Although we believe estimates reflected and these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved for further information on factors that could impact.
Our anticipated results. Please reference our press release as well as our most recent annual and quarterly reports that we filed with the SEC well.
Well first and foremost all of us at Brandywine sincerely hope that you and yours continue to be safe healthy and engaged and while we remain optimistic about the accelerating vaccine deployment and the path to recovery.
Endemic still continues to disrupt all of our lives and every business.
And unfortunately duration of the recovery cycle still remains a bit unclear.
Our portfolio remains about 15% to 20% occupied which is comparable to our occupancy levels as of October call and as noted the shift most of the jurisdictions, where we have properties still have significant return to work restrictions in place additional details and our COVID-19 approach.
<unk> are outlined on pages, one to five of our supplemental package during during our comments today will briefly review fourth quarter results discuss our 21 business plan and provide color on our recent transactions and developments and <unk>.
Tom will then provide a brief review of 2020 discuss our 'twenty one guidance and update you on our strong liquidity position after that certainly Tom Dan George and I are available for any questions.
We closed 2020 on a very strong note many of our revised 'twenty business plan objectives were achieved despite the protracted nature of the recovery, we exceeded our speculative revenue target by $400000 executed lease volumes increased quarter over quarter and our pipeline.
And increased by 229000 square feet for the fourth quarter, we posted strong rental rate mark to market of almost 19% on a GAAP basis and 11% on a cash basis.
For the full year 'twenty, our mark to market was a very strong 17, 5% on a GAAP basis and nine 3% on a cash basis. In addition, we had 59000 square feet of positive absorption during the quarter, which included 33000 square feet of tenant expansions with no tenant contractions.
Our full year 2020 same store number did come in below our revised business plan, primarily due to the JV sales activity that we will discuss several COVID-19 related occupancy delays and parking revenues that were well below our original forecast due to the slower reach.
Turn to the workplace are turning cash collection efforts continue to be among the best in the quarter and the sector, rather and we have collected over 98% of fourth quarter Billings and our January collection rate continues to track very well with 98, 5% of office rents collected as of yesterday, our capital costs for 'twenty and where.
Better than our targeted range due to very good success and generating short term lease extensions with minimal capital outlay.
Tenant retention came in at 52% slightly above our full year forecast and our core occupancy and lease targets were below our range is simply due to pandemic related delays and targeted move ins and lease executions and negotiations sliding into early 'twenty, one we did post assets.
And with 36 cents per share, which was in line with most consensus estimates and <unk>.
General update on COVID-19 impact is first consistent with all applicable state and local CDC guidelines and we do remain and are doors open lifestyle and conditional of our buildings.
As we noted and the most large employers have yet to return to the workplace for a variety of factors primarily public policy mandates employer liability concerns mass transit virtual schooling and safety and starts however were seeing more small and midsized companies beginning to return more employ.
And to their various workspaces.
Portfolio stability remains top of mind and our progress on several key factors can be found on pages one to three of the ship. We do continue to stay in touch with our tenants to understand their concerns and their transition plans. Our key priority of ours has been to work with those tenants.
And who spaces rolling in next two years.
Those efforts have resulted in 79 active tenant renewal discussions totaling about 750000 square feet and to date have resulted in 62 tenants aggregating 500000 square feet actually executing leases. These leases had an average term of 30 months with base roughly.
And 4% cash mark to market and 4% capital ratio and important point to note is that this early renewal activity. When we exclude the large known rollouts at $23 40, Dulles and the retirement of 905 broad more we've reduced our remaining 21 rollover to just for 2%.
So looking at 'twenty one.
We are providing 2021 earnings guidance.
Frankly, not an easy call given the overall economic and pandemic picture. However, our early renewal efforts expense control programs.
Near term visibility into our forward pipeline and the recently executed transactions. We think have established a solid operating plan with a clear pathway to execution.
That plan is based on a gradual return to work environment beginning in the second quarter through the balance of the year.
So our approach was to be conservative, but as transparent as possible to frame at a defined operating plan with all key metrics quantified and present the 'twenty one earnings guidance range as a platform to build from and with the 'twenty. One plan set we do remain focused on revenue and earnings growth whether that be through access.
<unk> leasing margin improving cost controls or working with institutional partners to seek investments and capital structures, where we can create value.
The 'twenty one plan is really head headlined by two key operating metrics that we think demonstrate excellent growth potential.
Our cash Mark to market range is between eight and 10% and our GAAP Mark to market range is between 14 and 16%.
For 2021, we do expect all of our regions will post positive mark to market results from both a cash and GAAP basis, we do have several larger blocks of space to fill particularly at Barton Skyway, and Austin, and $16 76 international and Tysons and several others, but looking forward.
Sheathing, our leasing objectives on those spaces can be significant revenue boosters and our 'twenty. One plan only has about $1 million of revenue coming in from those larger spaces.
Our GAAP same store NOI growth and zero to 2% and our cash same store three of 5% is primarily driven by Austin up about 8%, Pennsylvania suburbs close to 5% increase and Philadelphia are around 2% or.
Our Metro DC region will continue to be negative while the $16 76 International drive continues through its re absorption phase.
With that renovation now complete our overall leasing activity has really accelerated and our pipeline is up significantly to about 600000 square feet this quarter versus around 370000 square feet last quarter.
As we noted in the press release, our same store forecast does not include $23 $40, which is fully bacon and being placed into redevelopment very similar to our 3000 market Street renovation and also we will be retiring 905 broad more permanently as part of our broad more master plan development.
Other key operating highlights spec revenue will range between 18 and $22 million, we have $14 $7 million achieved or 74% achieved at this point.
This is the first time, we're providing a spec revenue range versus a dollar target, but given the lack of real forward visibility on the acceleration of leasing we felt that it was warranted occupancy levels, we think will be between 91 and 92% at year end and with lease the leasing percentage is staying between 92 and <unk>.
94%.
Capital run about 11% of revenues, which is below our 2020 target range and we are forecasting a debt to EBITDA being between six three and six five times and Tom will certainly talk about that our leasing pipeline pipeline has picked up and stands at one 3 million square feet.
And <unk>, including about 88000 square feet and advanced stages of negotiations and as I mentioned before that pipeline is up about 230000 square feet.
Interestingly two knowing that physical tours have yet to fully return for a variety of pandemic related reasons, we have launched a virtual tour platform for all of our availabilities and to date, we are generating close to 300 tours per month with over 500000 square feet being inspected so we think thats early harbinger.
And of tenants and to really look at their office space requirements going forward from liquidity standpoint, we're in great shape, we anticipate having $562 million on our line of credit available year, and we have no unsecured bond maturities and two until 2023 and with the recent secured mortgage.
We have a fully unencumbered wholly owned asset base the dividend remains extremely well covered with a 53% SSO and 68% CAD payout ratio.
Now looking at our investment and development opportunities during the fourth quarter. We completed several investment transactions, we did execute a joint venture with an institutional partner when 12 properties totaling one 1 million square feet. These properties are located in suburban Philadelphia.
And Rockville, Maryland.
Portfolio was added $193 million, we retained a 20% ownership stake in addition to the $121 million first mortgage finance and we put in place. We also elected to provide seller financing and the form of a $20 million preferred equity position that has a 9% current pay.
<unk>.
As a result of that we did receive about $156 million of net cash proceeds and with all of <unk> as with all of our ventures, we will generate an attractive fee stream by retaining property and asset management as well as leasing and construction management services.
On our previous calls we had highlighted that we had about $250 million of remaining non core assets and our wholly owned pool. This portfolio had been our primary target and leaves us with very few assets that are not considered core holdings.
This partnership similar to others, we have done did create a different capital structure it more than doubles, our return on invested equity from a mid single digit returned to mid teen return on our remaining invested capital and also.
Voids and about a $20 million of direct capital investment by Brandywine.
It's interesting as well too with this transaction, we now have over 80% of our revenue stream coming in from sub markets that are ranked a plus or a double plus by green Street's recent office market snapshot.
We had also made a preferred investment and 90% leased two building portfolio totaling 550000 square feet and in Austin near the airport that preferred investment totaled $50 million also has a 9% current pay excellent cash coverage and a several year term.
And this was similar to the type of transaction, we did a number of years ago at Commerce square here in Philadelphia. This investment increases our revenue contribution from Austin towards our 25% goal and really enabled us to take advantage of the market knowledge and position we have to create a structured wall color covered financial instrument.
And also as we announced early this morning, we are delighted that we have entered into a joint venture arrangement with a global institutional investor to commence our Schuylkill yards West project, which is a combination life science office and residential tower, our partner will have a 45% preferred interest and the joint venture.
Sure with Brandywine holding the remaining 55% equity interest the project what was built for a 7% blended yield.
It will consist of 326 apartment units, a 100000 square foot feet of life Science, and 100000 square feet and innovative office, along with underground parking and 9000 square feet of street level retail, we do have an active pipeline pipeline totaling over 300000 square feet.
For the life Science and office space component of this project and based on this level of interest we do plan and construction start in March of 'twenty. One we are currently sourcing construction loans financing and plan to have a loan in place for the next 90 days for the targeted 55% to 60% loan to cost.
And given the front loading of the equity commitment of about $115 million, assuming a 60% loan to cost construction financing for the first funding of the construction loan when and occur until April of 'twenty, two and our share of the equity will be about $63 million of which about 30.
$5 billion is already invested.
And looking at our production assets. They all remain ready to go subject to pre leasing.
As we've noted every quarter each of these projects can be completed within four to six quarters and cost between $40 million to $70 million the pipeline on those production assets.
Is around 450000 square feet and we are continuing actively our marketing efforts along those lines to hopefully get some free leasing done there was a market recovers and looking at the two existing development projects for a five Colorado is on track for a Q1 'twenty. One completion, we have a pipeline that is <unk>.
Built since our last call that approaches 360000 square feet, including 53000 square feet and advanced discussions to be conservative given the pace of the recovery and the market. We have extended the stabilization until Q1 'twenty two we've increased our cost by approximately $6 million primarily due.
For additional Ti and leasing commissions a bit longer absorptions schedule, which has resulted in our target yield being reduced to 8%.
<unk> 3000 market construction is underway on this building, which will be fully occupied by Q for the building is fully leased for 12 years and will deliver or develop yield of nine 6%.
The commencement date did slide one quarter due to COVID-19 related construction delay, but we have increased our yield and the project by 110 basis points due to some design scope modifications and success on the buyout and couple other quick comments on Schuylkill yards and broad more we do continue our strong life science push at Schuylkill yards.
The overall Master plan is about 3 million square feet can be life science space.
So we can really build on the work we've done at 3000 market. The Bulletin building and now Schuylkill yards West plans for $31 51, which is our 500000 square for life Science dedicated building is well underway. We do have a leasing pipeline of over 500000 square feet for that project and.
The goal would be to start that and later this year, assuming a pre lease and market conditions permit we have started constructing to convert several floors within Cirrus center and our life science use.
And that program is moving along per our plan and broad more we are advancing blocks and app, which is a total of 350000 square feet of office and 870 apartments blocked a had $164 million two and a 50000 square foot office as part of that phase along with 300.
And 41 multifamily units at a cost of $116 million, we are heavily engaged and joint venture partnerships selection process that process is going very well with discussions well underway with several parties and we hope to be able to start the residential component of block a by the third quarter of <unk>.
'twenty one.
Tom will now provide an overview of our financial results.
Thank you Jerry our fourth quarter net income totaled $18 9 million or <unk> 11 per diluted share and <unk> totaled 61, 4 million or for a <unk> <unk> per diluted share some general observations regarding the fourth quarter results.
They were generally in line with a couple of exceptions portfolio operating income total about $17 $75 5 million and exceeded our $74 million previous estimate primarily due to lower operating costs benefited by lower tenant physical occupancy termination and other income totaled $1 six.
Million or $3 million below our third quarter guidance. The results were negatively impacted by several onetime transactions than we anticipated occurring in the fourth quarter that are now anticipated to close and the first half of 2021.
<unk> contribution from unconsolidated joint ventures totaled $6 3 million or $1 $2 million below our third quarter guidance number primarily due to some co working tenant write offs and that was slightly offset by the JV announced at the end of the year.
Our cash and GAAP same store results came in at 100 and choices of basis points lower.
Again, due to lower parking revenue and some tenant leases slides all of which have commenced our fourth quarter fixed charge and interest coverage ratios were three 8% and for one respectively, both metrics and prune as compared to the third quarter.
Our fourth for annualized net debt to EBITDA decreased to $6 three at the lower end of our six 3% to six five range.
The ratio is benefit for improved operating income and higher than expected year end cash balances due to our recent fourth quarter transactions.
And additional points on cash collections. Our overall collection rate continues to be very strong above 38.
98%. Additionally, our fourth quarter deferred billings were less than $100000. So our core collection rate, which essentially remained unchanged.
For those deferrals and our write offs and the fourth quarter on the wholly owned portfolio were minimal.
For cash same store is outlined on page and one of our supplemental we have included $4 1 million of rent deferrals and our year to date results, while not bill and we feel this presentation. It will more accurately represents our current same store metrics and.
Subsequently, we have collected roughly 30% of those deferrals.
Looking at 'twenty, one guidance at the midpoint net income will be 37 per diluted share and <unk> will be a $1 37 per diluted share.
And that includes roughly for sensitive dilution related to the fourth quarter true.
<unk> transactions, we announced our 'twenty one range was built with the following general assumptions portfolio operating income property level GAAP income will be roughly $285 million or a decrease of about $30 million compared to 2021 due to the following items.
And $23 40 jealous quarter.
And the retirement of 905 broad more will generate about $10 million reduction from 'twenty to 'twenty one and.
And the mid Atlantic.
Portfolio JV results and another $17 million decrease the full year effect of Commerce square results and a $19 million decrease those are partially offset by the full year.
<unk> of one Drexel Park and Bell at building being about $4 million for 'twenty 'twenty, one completions of 405, Colorado and 3000 market.
For about $3 million and about $3 million increase and our same store portfolio.
GAAP NOI.
<unk> contribution from our unconsolidated joint ventures will total $20 million to $25 million that increase is primarily due to the full year effect of.
And <unk>.
G E Commerce square as well as the.
Transaction with the mid Atlantic portfolio, G&A will be between 31 and $32 million investments. There is no new property acquisition or sales activity and our guidance interest expense will decrease to approximately $67 million to $68 million, that's primarily due to the <unk>.
Pay off our two remaining mortgages at higher interest rates and capitalized interest will approximate $4 million as we complete the for O five Colorado building, but also commenced schuylkill yards West investment income will will increase to $6 5 million, primarily due to the new structured fin.
And investment.
And at Austin, Texas.
Land sales and tax provision will net to about 2 million dollar as we anticipate selling some non core land parcels.
Termination and other income totaling $7 5 million, which is above the 'twenty 'twenty amount, primarily due to onetime items and again were being moved from the fourth quarter of 2020 into the first half of 'twenty, one net management leasing and development fees will be $16 million, which is just above our.
2020, actual until there's a full year effect of Commerce square and the JV for the mid Atlantic properties and addition.
We anticipate that we will get some development fees from Schuylkill yards West once we commence operation there with the development no anticipated ATM or share buyback activity.
Looking close more closely at the first quarter, we anticipate portfolio property NOI totaling about $70 million and will be about sequentially about $5 5 million lower primarily due to 23 for Dallas as well as the mid Atlantic JV <unk> contribution from our unconsolidated.
For the joint ventures will be $6 5 million.
G&A for the first quarter will increase from six three to 8 million a sequential increase is consistent with prior years and primarily timing of compensation expense recognition and interest expense will approximate 16 million and capitalized interest will be roughly a million five termination and other <unk>.
Income, we continue to anticipate that to be $4 million.
With some of those transactions moving to the 21 net management fee and development fee income will be for $5 million.
And with investment income being one 6 million.
We expect some land gains potentially and the first quarter about half a million dollars. Our capital plan is very straightforward and totals $350 million, our 'twenty and 'twenty CAD ratio is between 75 and 81%. The main contributors to the lower coverage ratio is going to be the property level NOI.
And reductions as well as anticipated lease up and the upcoming with the upcoming rollovers.
And using that as a guide or uses in in 2021 will be $145 million of development and redevelopment that does include the additional cash and that's going to be necessary to complete our equity contribution interest schuylkill yards, West Hollywood and $30 million of common dividends.
$35 million of revenue maintain and $40 million of revenue, creating capex.
Mary sources will be $185 million and cash flow after interest payments and 99 million dollar used for the line $46 million of using the cash on hand, and roughly $20 million and proceeds from land and other sales based on the capital plan outlined our line of credit balance will be.
Roughly 500 million, we havent projected that our net debt to EBITDA range of 663% to six five with the main variable being timing and scope of our development activities and addition R.
Our net debt to JV will approximate 40% and it.
In addition, we anticipate our fixed charge ratio and to be three seven and our interest coverage ratio to be three nine I will now turn the call back over to share.
Thank you Tom.
So a couple of key takeaways.
Our portfolio and operations are really in solid shape.
We have excellent visibility and towards tenant base all signs at this point as evidenced by the numbers, we presented our market seem to be holding up fairly well.
Our leasing pipeline continues to increase as tenants think about their workplace return.
Look at safety and health, both and design and execution are really and rapidly becoming tennant's top priorities and we do believe.
That new development and our trophy class stock.
As well as its extensive capital maintenance programs, we have in place for viewers will really benefit from that trend.
The private equity and debt markets are extremely competitive and strong operating platforms like Brandywine are gaining I think significant traction for project level investments and certainly as evidenced by our recent activity.
I think our recent investment activity further improved our liquidity and create additional frameworks for growth for our for our shareholders and our partnership at Schuylkill yards West I think really reinforces.
The increasing attractiveness of the emerging life science sector in Philadelphia, and I really think does create and excellent catalyst to accelerate the overall pace for the Schuylkill yards development, So well and where we started which is that we wish you were all doing well and your families are safe and with that Crystal we're delighted to open up.
The floor for questions. We do ask for the interest of time, you limit yourself to one question a follow up.
Thank you.
Ladies and gentlemen, if you have a question and at this time.
And <unk> followed by the number one key on your touch sounds telephone is your question has been answered or you wish to remove yourself from the queue. Please press the pound key once again to ask a question. Please press star and then one now.
And our first question comes from Craig Mailman from Keybanc capital market. Your line is open.
Hey, good morning, guys.
Jerry on the joint venture I'm wondering and I apologize if I missed this but.
Could you give us a sense of maybe where you were able to price the JV versus.
Construction costs or maybe on the stabilized yield basis, just trying to get a sense of the pricing you were able to achieve.
Free leasing on a project like that.
Sure Craig.
And the.
And we're targeting.
Our 7% blended return on costs from that property USA blended between its because its residential and life science and office.
And we we have and number of.
Offers and from construction lenders, we think that that will be price somewhere off a LIBOR floor of roughly $3 to 350 basis points.
So we think there'll be very effectively price debt and I think in terms of the overall pricing I think.
These things are always a challenge to think your way through but I think what we really did is start with the premise that we really believe that these projects can generate significant profit to our shareholders.
We also recognize the reality of our ability to raise public equity. So the preferred structure I think really enables us to retain a larger percentage of the direct ownership, which was one of our goals and and at lower overall cost of capital than a traditional parry pursue deal.
We're also able to retain a disproportionate share of the upside and we think this transaction will pencil at very well to over two times equity multiple with the very high teens internal rate of return.
So I think we're very happy with the structure, we are delighted with our with our partner and.
And the status they have in terms of the real estate investment marketplace and their acumen and their belief and in the ability of us to execute a successful transaction schuylkill yards.
And that's helpful and just I know you had talked about 300000 square feet of active demand does that include anything from Drexel and they're kind of right, but they haven't done that.
Yeah, Great question, Greg that pipeline.
<unk> West does not include anything from Drexel.
And they indicated anything on that side I saw the commentary from them and the press release.
Look I think they're very excited about us moving forward and this joint effort as well, but I don't think there are near term requirements would.
It would be it would be a receiver for schuylkill yards west.
And then just one quick one for Tom I think you said 17 million of revenue coming from the JV. So was that closer to like and mine 10 cap.
And with.
I think that moving.
Sorry, mid eights cap rate on that.
And I know I'm over my question can you just walk through how you get to the for net dilution.
Starting in the eight and have cap with them shortly.
Yes, the way that works Craig as I say, if you take the if you take that number we get 80% of that.
NOI coming to us there and so that's going to be.
80% of that 17 million, we're also going to pick up that though because we had to put and interest we put a piece of debt on it.
So that's the dilution is those two pieces, we pick that we also we pick up a million eight which is a 9% yield on the $20 million and we pick up four five which is the.
9% on the 50, so when you add those all up.
It rounds to a force that number.
Got you so theres no redeployment of any of the other and or no. We just took those now we just took that and and put it and put cash on the balance sheet pay down a little bit of a line, but no that doesn't account for any redeployment that would be into other assets going forward and that's just those three.
Transactions together.
Perfect. Thank you.
Thank you.
Thank you. Our next question comes from Emmanuel Emmanuel Korchman from Citi. Your line is open.
Hey, Thanks, good morning, everyone.
And maybe we can switch to Austin for a minute.
What drove the preferred investment and.
A couple of assets there.
I'm, sorry, Manny you cut out for a second.
I said, what drove the preferred investment and Austin.
I think we certainly have an objective to continue to grow our revenue contribution from Austin.
And certainly cap rate compression due to investor demand has kind of made direct acquisitions, a little bit pricey. So we certainly we spent a lot of time.
Understanding whats going to market and a very granular level with our local team and an opportunity was presented to us that enabled us to help and existing owner recapitalize their existing partnership.
Did so on a project that was an extremely well leased with excellent cash flow coverage and from our perspective and enabled us to deploy some money and the Austin, which is clearly one of our target markets with a good tower and secure coupon.
And a good asset that's located out close to the airport.
And then staying and Austin for Colorado.
You said you have a 360.
<unk> thousand square foot pipeline, there if I heard correctly.
If we look at the pipeline and leases that may come from that versus the initial underwriting and the building has there been much change.
The primary change.
Manny has been really on the Ti side.
We're certainly programming because we think there's good opportunity for us to keep our face rates.
In that.
And that.
Mid forties range, but certainly the market softening with some of the sublease space. We felt it was.
Conservative book Pragmatic this slide and some additional ti costs.
But we're actually we are seeing an uptick and activity.
Just in the last 30 days and as I think mentioned in our comments, we do have.
About 50000 square feet and kind of active negotiations.
So we're that project now being delivered the curtain wall up the lobby finished the sky lobby finished it just shows so much better and we're getting a lot more traction coming through.
So I guess, the confidence and the and then revised 8% yield.
Hi, Jerry and taking all that into accounts.
Yes, it would be very high.
Thanks, everyone.
Thank you Manny.
Thank you. Our next question comes from Steve Aqua from Evercore ISI. Your line is open.
Thanks, Good morning, Gerry I was wondering if you could just share a little bit more of the underwriting for the.
And the new joint venture I know you sort of talk about.
And that a blended seven yield.
But in the press release, you talked about kind of luxury.
Residential so I'm just sort of curious what kind of rents youre looking for for both life science, and Ramsey and how those compare to kind of current market rents today.
Sure Steve Yes.
Yes on the on the residential side the rent levels were projecting to achieve are very comparable to what we're achieving here today at our 8-K development at FMC tower.
The unit mix is different we think the amenity package is incorrect we'll.
And outperform anything thats being planned for the city right now I'm going to 29000 square feet amenity for that will be available too.
Both the.
The residents as well as the office and life Science users.
So we feel very good about the assumptions, we build into that including our marketing and <unk> program on the commercial side again. The project is really playing to be about 200000 square feet.
Equally distributed between life science, and innovative office and there we're looking for rental rate levels.
And the in the mid fifties.
So we feel very good about that rent level too given the ex.
Exchange, we are having with existing tenants as well as other transactions being done and the marketplace.
Okay and then maybe follow up question just as you are having all these discussions with tenants on other renewables for new tenants for existing space.
And kind of help us think through sort of what the tenants are how they're sort of programming the space, how they're thinking about.
Space per person, obviously, the work from home and Hot Desking and just what trends are you seeing.
And from existing or new tenants is there as theyre looking at existing or new states and the portfolio.
And we'll tag team this George and I see I think we're seeing tenants.
Honestly trying to think through what table on it too.
To me, it's it's been an interesting dynamic to see how thoughts evolve and different size companies.
But what we're generally seeing and part of this is being driven by we offered free space planning services to any of our tenants that would take US who can help them post COVID-19 is there space and whats generally coming out of that is.
And more square feet per employee evidenced by larger higher profile workstations more partition walls, more but smaller conference rooms, and our target to lower density breaking up maybe one large cafeteria.
Our kitchen area into a couple.
So we actually think that the trend line that we're seeing is a reversal of the densification we've seen before.
And what remains to be seen is some companies are talking about we're going to put.
10%, 15% of our employees on a work from home schedule and whether those employees will hot desk have space to come into.
People, who were going to be on.
One day, a week work from home or two days a week they will still maintain a desk. So if you're on permanent work from home we have a desk. When you came in and so I think a lot of companies are really honestly, Steve thinking through that.
The one common denominator, we are hearing though is a real focus on.
Ventilation touchless environments.
High quality landlords, who are who can demonstrate.
Multiple year program of investing capital in their buildings. So that they are state of the art Hvac's systems, they are well staffed and.
And we're even seeing that being a receiver.
Market for some of our development projects as well, but George maybe you can pick up with some more.
Certainly, yes, I do think the biggest trend we're seeing really is just how people are planning to spread out and.
And navigate through the workspace I think more consideration being given in terms of what direction you.
Come in from which way you egress out to kitchen areas conference areas and I do think built for large conference rooms have.
Or maybe you're going to be a thing of the past where youre going to see just smaller rooms for fewer people.
And just spaced out a little bit differently, the workstations and I think it will get a little bit bigger I think youll see plexiglass.
As part of the design and many.
Up down desk, I think is kind of here to stay.
For all of that as well.
Great. Thanks very much.
Thank you Steve.
Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open.
Thank you.
And congrats on the capital raises.
Hi, Good morning, I, just wanted to get a little bit more color on that day.
Schuylkill yards JV. So you said, it's a preferred and preferred JV can you just talk about what the flow as to the partner and why.
And I was structured that way.
Yes, I think it is a preferred structure and our partner will receive for.
First call on capital to their return on a current basis and on distribution of first call on recovering their capital as well and I think Jamie and I was trying to outline with Craig and from US. It's all about what the overall cost of capital is and I think fundamentally being convinced that we're going to be very successful here we felt that.
This was the structure that fit our Ara prop.
Profit target best and.
So the structure, we're very happy with tell you the truth.
Okay.
And then.
I guess, just taking a step back here. So you did the the mid.
Mid Atlantic JV sale, you've now got and your first project at Schuylkill yards JV and.
How should we think about your capital needs to get.
Broadmoor and Schuylkill yards and done.
Going forward as.
Has anything changed in either how much you want to raise how much you need what you think your percentage ownership can be and these projects based on what you've accomplished.
It's a great question and Tom and I can tag team, but I mean look.
And certainly ample sources of private capital out there, particularly those looking for good operating partners. So I think we've we've we've done a fairly effective job of accessing and number of really high quality organizations and both the mid Atlantic portfolio, and our Schuylkill yards West J D.
We do view these jv's as we've talked before.
And a relationship building transitional capital I mean, the reality is we don't have the ability to sell equity ties. These opportunities that we think are really.
Significantly attractive in terms of generating profit for our shareholders.
But as we really think about the structures.
The focus remains on what's the best cost of capital in those and those structures.
Answer one of your points directly I mean, as we look at Schuylkill yards West, we're retaining a 55% stake with.
A significant portion of the upside our remaining capital to put into that project from an equity standpoint is about $28 million.
And we're certainly going to the discussions in.
And the Austin market as well, which is our objective would be to try and hold on to as much of the notional and upside of that project as we can just because we know that these first steps, we're taking schuylkill yards west at Schuylkill yards or block a broad more they are the first moves and.
And.
Significantly large developments and I think our ability to execute the first couple of steps well and both of those developments I think can really signal some significant profitability to our shareholders, which can hopefully translate into us looking at other capital structures, even wholly owning a number the developments go.
And forward and future phases.
Jamie it's Tom to add to that and I think that part of that has also been as we've seen for the last six months is that we've seen not only the capital sources be there, but the debt markets continue to open up so as we look at the.
For financing for Schuylkill yards for example, with the construction loan and where we're looking to be between 55 and 60%.
And if we were looking for that call. It three four months ago, we probably would have got we're not we wouldn't be expecting the pricing. We think we're gonna get and the next couple of months. So that also helps us that we see the debt markets opening up from our lenders that help us.
And get the attractively price capital from them, but also a little higher up on the.
Loan to cost ratio.
Okay. That's helpful. And then is there any kind of earn out and the <unk>.
<unk> from <unk>.
And so anything like that.
Oh, yes, they all have significant promotes.
You can can you increase your stake over time.
Well we.
I think we can increase our stake by performing above the promote level. So the economics rich.
Return would be disproportionate to our ownership stake.
But your ownership stake won't change.
Not as currently contemplated.
Okay alright, thank you.
Thank you Jim.
Thank you. Our next question comes from Michael Lewis from True Your line is open.
Great. Thank you.
My first question is about the suburban credit.
And.
And I guess.
Why why is it.
Why do you decide to sell these assets at this cap rate.
He said.
Versus versus other options and <unk>.
Assembled the answer has something to do with capital needed and.
Profile.
Why not just sell all of that and Hawaii like Keith capital deployed here.
And when you have moved elsewhere.
Yes, Michael ill start off and <unk>.
George and Tom can weigh in.
Look we had identified this pool of assets and number of years ago as part of our overall repositioning plan.
Some of the assets, we wind up doing into.
The joint venture with rock point down and in Northern Virginia, and this was the this was the second piece of that and I think that's we really go through an evaluation and looking at the relative growth rates of return on invested capital capital ratios pretty quantitatively assessing every single one of our projects.
And now that quantitative assessment doesn't always doesn't directly factor and the value we can generate by having a.
Broader market position and the deal flow that creates for both the JV and for our directly owned assets. So when we go to put these portfolios on the market. We are always looking for either a sale or JV and when we're trying to trade out of some of these larger scale opportunities like we do with the minerals.
Atlantic portfolio.
A lot of very smart money once the people have been running at the assets for a number of years to stay in.
It derisked the deal for them it drives our ability to increase pricing metrics and create a nice promote structure for us and more importantly from our perspective maintains our maintains our market network.
And deal flow.
And also as I pointed out and the comments really significantly changes.
The.
The return on invested capital trajectory.
What are moderately growing assets. So when we looked at this transaction great partner.
And maybe we can grow that with them and over time. They certainly have a fair amount of capital with very smart real estate investment folks.
And we move and asset from a group of assets from.
And on a cash flow basis.
Our mid single digit return by changing the capital structure and move that to a high teens overall return on our invested capital.
And then as we frankly saw down and.
And our Austin transaction Michael.
With the DRA.
Market's changed circumstances changed so being involved in these ventures and having them perform well essentially gives us a forward proxy to either sell or sell that portfolio, along with our partner and a terminal event.
Or through an effective and fairly balanced by cell mechanism.
Regroup some ownership stake.
As market conditions present themselves, so and that was a little bit longer and I hope that kind of answers your question.
No I think that's it.
And Sir and that leads into kind of a second question, which is.
A bigger picture question for you kind of looking back and looking forward.
Now that your guidance is out for for next year, and so it's going to be nine years and era.
So that would be for a proposed between $1 30 and $1 42.
And I don't think that sounded like youre spinning your wheels, because there's certainly the quality of the portfolios and proves that the cash flow has improved.
But maybe talk a little bit about the strategy of capital recycling and capital allocation and both as you look back and as you look forward for the company.
How do you think about what your what your growth profile should be and could be.
And how to achieve it.
Yes happy to answer that and that's the discussion we just had really on.
And the joint venture is a key part of that strategy as well in terms of its ability to generate.
Good returns for US I mean look we have completely repositioned the portfolio and the.
And the last half dozen plus years and have created a really significant.
Forward development pipeline that can do.
And.
Between Schuylkill yards and broad more.
A significant amount of development that is mixed use its office its life science.
It's a residential and <unk>.
So certainly we think the company has a real opportunity to pivot into higher growth mixed use product types that will generate higher rates of return.
The path to get back on growth is going to come down to our ability to execute some of our existing vacant space. We have some key targeted vacancies as we've disclosed and everyone knows about.
Our ability to lease those up could generate significant growth and <unk>.
As those as as those assets come online and that's really our objective. So we're focused on tactically what do we need to do to lease up all this space, which will generate some significant growth.
As I mentioned earlier, we have our rollover for the balance of 'twenty, one is down to four 2% on and net basis, we're really working hard and ahead of our 22 renew explorations.
And we think the portfolio quality of the location of the properties and our tactical plan I think will translate into higher growth look we're certainly frustrated that.
Our <unk> target for this year.
And is below where the consensus was.
We're frankly at one level.
And quite pleased though that with the significant rollouts that we had with.
IBM with the retirement of that building and.
The vacation by Northrop Grumman that we're able to kind of keep our <unk> and <unk>.
And the direction its moving in and as I said at the beginning Michael.
Not every company is going to give guidance, we're trying to handicap that.
And the pace of vaccine rollout, whether the astrazeneca role that vaccines will be better than the Johnson and Johnson, we're talking with the pace of recovery of mass transit and so we really try to look at the guidance. We gave this year.
As a springboard to grow from and I think we're.
As the economy recovers, we know we have great assets to lease we know we've got a great leasing team and all of these projects. So our hope is really to get back on a on a growth program now that their overall recycling needs to be done and we have great opportunities and the near term on it on the development side.
Yeah, that's helpful. Obviously, a tough environment.
Consider aggressive question and ask you about growth.
As we sit here today.
Thank you.
And thank you.
Thank you. Our next question comes from <unk> Okusanya from Mizuho. Your line is open.
Hi, Good morning, everyone and again also congrats on the JV.
And regards to Schuylkill, the 45% preferred interest that JV partner has just following up on Jamie's question about the cash flow. The waterfall is there a minimum return that we get first before you start to pick and pay them to cash moves exactly.
Yes, that's the standard preferred structure.
And can you tell us what that what that hurdle is.
No I can't.
Alright.
Yes.
And we can't we can't disclose that.
Well I will tell you, it's a very effectively price.
Coupon that.
Again creates a significant profit opportunity the company. So I don't mean to be Coy, just were not at liberty to to frame out the total details.
No worries and.
And then the JV partner, and BB hub, and you'd kind of right and so options to participate and other pieces. The scope at this point or just a one off based on cyclical west right now.
I think certainly given as I mentioned earlier, we view. These these ventures as relationship building I think this we are delighted with our relationship with this partner.
And.
And I think they have a high interest in and participating.
Participating at their election.
And in in future phases, and so certainly as we look at <unk>.
Identifying.
Forward sources of capital one of the key components, we talked about is whether we can create a renewable capital source, if and to the extent, we're looking to bring a partner into those projects.
Gotcha Okay.
That's helpful. Thank you.
Thank you.
Thank you. Our next question comes from Anthony per loan from Jpmorgan. Your line is open.
Okay. Thank you. My first question is can you give us an update on a couple of law firms with near term lease expirations.
Sure George.
Sure Toni Good morning, this is George.
So.
Book really kind of the largest in the and the near term Q as Decker at at Cirrus Center.
We are getting some other space back.
During 2021.
And part of that will become part of the life science incubator on the fourth floor.
And then we are still in active dialog with them on a long term extension on the upper bank floors, which is roughly 110000 square feet.
The other law firm.
And that we had at Sierra has since announced that theyre going to be relocating.
For 2017 35 market Street they were in them.
<unk>.
And kind of mid rise section of the stack there and.
They had an opportunity to relocate into the upper stack over at $17 35. So.
One of those floors and the lower bank could could also be part of the.
The life Science retrofit for Seara Center, and then Florida, 10, 11 and 12.
Lay out contiguously for a.
For anywhere.
80000 square foot tenancy and the and we've actually had some initial inquiries about that space already since that announcement came out so.
Those are really for two law firm deals and Philadelphia.
Okay and so.
But the bigger horsepower space that won't impact 'twenty, one numbers that for 'twenty two.
I'm trying to think about it that's correct yes.
Our lease expires on 12 31 of 'twenty, one so that's a 'twenty two event.
Alright, and then just.
And thinking about dividend coverage and and we'll get your sources and uses.
And the revenue producing capex and it wouldnt really be and development redevelopment.
Sorry, Jamie this is Tom on the revenue you're asking about the revenue producing capex.
And just.
And looking at your your cash flow and sort of dividend coverage and see the revenue maintaining capex and if we take that out of your cash flow.
And is well covered.
But then you have this revenue, creating capex and I'm just wondering what's in that that it just wouldn't be like development redevelopment spending.
Well.
And it's sort of a combination Jamie it's smaller redevelopment projects that building such that.
They don't fall into the bucket of work.
And we put them on the redevelopment page.
And number one and then number two we do have it's also where we have space that's been down for quite a while but that is being re less so it's no longer within the window of revenue being maintained its for space. It's been down over 12 months. So there's revenue ti and that number.
For as well for this combination of those two.
Okay.
Thank you.
Thank you Tony.
Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open.
Great. Thank you I just wanted to follow up on the leasing pipeline. You had mentioned one 3 million square feet up 230000 square feet per quarter over quarter can you just talk about what the composition is of that $1 3 million square feet.
Sure.
Jamie It's Georgia, a good portion of that is.
And is down and the Metro D C with $16 76.
And then we.
We've got.
Quite a bit of activity in CBD, Philadelphia as well.
The one three breakdown regionally.
<unk>, 30% D C.
35%, Philadelphia, and the balance and being in the suburbs and Austin.
And.
And what about new versus renewal for.
Our development versus non development.
Well as always that pipeline when we when we quoted never includes development. So that's that's really just kind of the core portfolio.
And the breakdown new versus renewal is.
One of my my other sheet.
And it's.
About 65%, new and 35% renewal.
Okay great.
And then I guess just to take a step back on Austin.
On the one hand sub leases growth.
And quickly and a lot.
And town.
But we can all these corporate announcements and actually positive job growth. There I mean, what's your just big picture view on how you think that market plays out both downtown and.
And by the domain or Brian Moore.
And just next 12 to 18 months, what's your expectation.
And Jamie I think we are.
Increasingly optimistic on Austin.
And having an accelerated recovery.
A.
And we put we put a page and the Sip on.
Stats for Austin, and I think one other things that currently opportunity Austin.
As of early January data 190 <unk>.
Prospects and I think what's really kind of interesting is that breakdown is pretty well diversified among industry sectors. Some you have 21 life science tenants.
Sure.
39 software companies.
<unk> semiconductor and Youre starting to see the beginning sign of.
The joint command being located there with the.
With the defense contractors.
Seven seven plus requirements there so yes I think.
And as we're looking at it with some of these major announcements.
Including digital really realty locating to Austin and their headquarters.
Youre seeing more and more companies I think it very focused on the quality of life and the cost and the quality of life and the cost of doing business and.
In Austin.
We have seen our pipeline increase over the last 30 days and Austin, So I think as that city starts to reopen Jamie and I know you know that city well.
And just getting a lot of inquiries coming in about a forward demand drivers for large office users. So.
We're in our and our capital raising program for broad more block and includes 350000 square feet of office and 341 apartments.
We're actively marketing the the office component and some of these larger users emerging and hopefully getting into a decision mode and the next couple of quarters, We certainly think car program.
At.
At.
Broad more will be very very attractive cash.
And that drove through there.
Project connect program is poised to do a lot of infrastructure improvements, including the rail access we are still working with a.
A train station, there and would expect to be able to announce something on that and the not too distant future that will again be a distinguishing for broad more because of its rail access so.
We're very optimistic on Austin.
For the optimistic until we see some of these things translate into real deals, but there's a lot of activity and I think the trend line is extremely good for really good long term growth for Austin.
Would you do build to suit out there like just straight with the tenant.
Of course infrastructure.
Look we certainly we're keeping all of our options on the table as we go into these discussions so certainly theres a couple of large corporations looking for.
Half of millions and millions square feet.
Looking to create campuses I think just as we've done in the past with major corporations like Subaru and a few others.
We're certainly open to build to suit development joint ventures with users.
I mean, that's part of our business. So I think we're certainly open for those types of discussions.
Okay Alright, thank you thank.
Thank you Jamie.
Thank you. Our next question comes from Daniel Ismail from Green Street Advisors. Your line is open.
Great. Thank you and I'm, just curious on $23 $40.
And I believe last quarter, you mentioned looking to market that property and I'm curious.
I guess two questions how the reception and the markets was to that marketing and then two what.
The overall.
Desire is out there for value and office product these days.
Yes, Hey, Dani.
Yes, we are.
And we had been talking to a number of potential investors and that project. We have also been moving on a parallel path with our renovation program.
And where we are right now is our expectations and we're going to begin the execution of the renovation program. There are a number of larger tenants moving around that market of which.
$23 40, given its size and quality location and visibility could be a very attractive receiver site. So we've made the decision to.
Move forward the renovation program of which we think every dollar we put in is dollar. Good if we would elect to sell but also use that and renovation period of time to actively market. The project for large users.
The building has a higher than normal parking ratio has incredibly efficient floor plates.
So we think it could be a distinguishing competitor.
Add and add in that section of the toll roads. So.
And when we were looking at.
Folks that want to come in and buy it.
The pricing was how we would underwrite buying enough and empty building certainly not we would expect to realize in terms of full value. So after having vetted that talking to a number of potential venture partners. We've made the decision to kind of go down the path that we're on and.
And the market will present whatever opportunities the best for us whether it's for at least it up ourselves where to continue to execute the renovation program at that point.
Our expectation is the market will be better than than it is today and that should improve our ability to either sell or joint venture and just continue on the path of a wholly owned assets.
Great. Thank you.
Thank you and our next question comes from Bill Crow from Raymond James Your line is now open.
Yeah. Thanks, good morning, guys.
I guess my first question is.
And get the whole day densification of reversal, but have you actually seen tenants take more space.
And to make up for that.
Yes, I mean, I think during this past quarter.
And I forget the exact number and my script and we actually had.
The number of square feet of tenant expansions.
And I think bill, we're really kind of focused on reaching out to all of our tenants, but right now given where we are there's really a bifurcation between.
The larger and the smaller tenants.
I think the smaller mid sized companies.
Tend to 50 employees.
We're very focused and getting back to the workplace as soon as they possibly can and they are at the leading edge of the companies were doing space planning for space planning is being done for them. They kind of try and can figure out how they think their space at work I think the larger companies.
And George Please go and I think the larger companies.
They are trying to figure out what they want to do with the bulk of their employee base I mean do they want to have X percent on work from home ex percent in the office full time and I think the only the only anecdote I can share with you is there seems to be a lot of debate among C level executives at these large companies, what's the what's the best path towards <unk>.
Activity. So I really do think that will take another couple of quarters until.
And theres more visibility on vaccine deployment.
And the vibrancy of the other return and the timing of that return. These mass transit systems that will really start to factor into what these larger employers want to do but with Georgia Bill for the quarter, We had just a little bit north of 33000 square foot.
Of expansions and 191000 for calendar year 2020.
As Jerry said, we're seeing a lot of this really and kind of the kind of small and mid sized tenancies, where that 8000 square footer on the first space plan ultimately agrees to take 11000 square feet.
For the 6000 square footer ends up growing to 10.
So kind of singles and doubles.
I think.
Unfortunately, we haven't really seen that many deals where it's a <unk>.
<unk> floor tenant who says give me give me a sixth floor, but but we think that that.
Once the whole returned to work and who is going to continue to work from home equation fully plays out and I think you might start to see.
And some some expansion as a result of.
The densify and in the larger deals too.
<unk>.
And Bill Im sorry, just I think the other dynamic we're seeing which I think is really important and it's I think it's relevant for Brandywine is false.
A number of other high quality office companies is there is clearly a and accelerating trend towards quality.
So I do believe that.
Laughs, a trophy quality property will start to pick up some demand drivers out of the b or C quality buildings, where employers will be very focused on communicating to their employees that they've selected a workplace environment. That's truly high quality that has great great airflow.
And.
All those things that we talked about and one of the earlier questions and I think that's one of the real green shoots so to speak.
For these companies that have very high quality inventory.
Yes, no I agree with that I guess my question was whether there's any direct linkage to.
De Densification and.
Some of these companies have organic growth I'm sure that we're going to take more space and I think that will play out over time and my next question is you called yourself for high quality Office company and I agree but.
But I'm wondering if through all the joint ventures through going into life sciences through additional residential.
In fact, but youre not overly complicated and the stories such as the.
And the value as a public company and neighbor comes up towards the value of the assets.
I mean is that a risk that you that you.
And think about.
Well certainly and think.
The creation of these joint venture structures.
Does create some some complications which I think is why we try and always.
Lay up very clearly in our supplemental and our communications how everything layers in.
But I actually think that.
Not to disagree with you, but I actually think that the.
The ability for us and particularly and broad more and schuylkill yards too.
Have a multiplicity of product.
Within a master planned community is incredibly value accretive.
To our story and.
And.
Certainly given the outlook that some folks have on.
On the future demand drivers overall and office as you just touched on I think us having fully approved.
Designed ready to go mixed use communities like the two we're talking about I think is a huge driver of growth for our company and the market will dictate how that growth is best harvested.
But I think certainly our ability to do residential with life science with office with retail net adds higher value to every physical space, we built and I think whether that's here at schuylkill yards or down it broad more I think our shareholders will benefit from that comprehensive master planning.
Approach than if we were just to do and office building here and office building there.
Yes.
First of all you can disagree with me and I don't necessarily.
And with what you just said the market has been hesitant to award multi sector rates with higher multiples from the past so that's more of a concern but.
Alright. Thank you appreciate the time thank.
Thank you Bill.
Thank you. Our next question comes from Emmanuel Korchman from Citi. Your line is open.
Hey, it's Michael Bilerman here with Manny good morning.
Gerry I wanted to sort of you talked a little bit about the disappointment in terms of where the FERC trajectory has been and where it is for this year.
How do you sort of match that up with.
These preferred your investments that youre, making and Austin at 9% yield retention has a higher coupon preferred and the joint venture.
All of those is propping up SSO and the near term and putting you on a treadmill that as that capital comes back and Youre going to have to try to find reinvestments and the likelihood of finding something and get it nine bankers probably.
Non open so how do you sort of weigh all of those things together.
Yes, I think it is.
From our perspective first of all the investment has to make sense. So when we looked at the.
The investment and Austin I think there was actually a fairly easy decision point from the standpoint of.
Cap rates and that market or sub five.
We want to grow our revenue countries from Austin, So we kind of said that the best way for us to do that and Austin is to proceed with the <unk>.
Like with our development program, and then to try and find opportunities like we uncovered here that creates.
Really driven by unique capital structure.
And when that 9% coupon.
Terminates and several years, unless it's extended et cetera.
At that point and Tom I think we'll we'll figure out other places to put that.
To redeploy that but I also think one other things.
Top of mind for us is that.
Given some of the larger blocks of vacancy we need to fill right now.
And have planned to do over the next.
Year, and so we think that generates a lot of core <unk> growth, which hopefully translates into better public market pricing and gives us the ability to.
Two.
Keep moving down that path of growing SFO, while looking at whether these structured type of preferred investments for us are good interim deployments of capital.
So I think that's how we look at that and certainly the creation of these joint ventures as I mentioned.
Really driven towards <unk>.
How we improve our overall reach.
Turn on invested capital and.
And minimize or reduce our direct capital outlay and a certain set of properties and we think that funnels and very well to this strategy of creating deployment capacity into either development projects or other transactions like the one you mentioned.
When you think about the JV with suburban and sales in Philly and why not exit those.
Assets completely.
And I recognize by not doing that youre, keeping a $20 million preferred and that's giving you some better less dilution you're getting from fees, which is less dilution.
And at some point the story does become more complicated and was there just not a buyer for that.
And was willing to buy 100% of those assets that require you to stick 20.
<unk> 20 million and <unk>.
10% of the cap structure.
And it in and also maintaining a 20% equity stake.
And as I mentioned two and.
And earlier answer.
Earlier question was look some of these institutions they are looking for.
Operators, who are really good at what they do so theres gypsum and the operating investor or a financial investor.
And we've seen the higher price and come in from financial investors and those financial investors typically are looking for folks to stay in the property and run them.
We have the back office operations reporting structures in place so.
As I mentioned and it can't go find someone else share you're right I mean like I think from the perspective of what they want. The question is what does what should Brandywine Brandywine shareholders, right and they're going to want.
A complete exit maximize proceeds and sorted and to get out and focus.
Whole element of leaving a little bit on the table and getting the fees and little less dilution.
I guess I'm, having a harder time understanding the capital allocation decisions from your perspective right.
You can find another Philadelphia, operator, youre not the only one and the marketplace, that's where I'm struggling with.
And look.
It's a fair point, you're raising and I would posit back to you that sometimes those financial investors.
As opposed to hiring a brokerage firm or a property management firm to do.
Leasing or whatever it might be with them. They like the fact, they have and incentive partner and in many cases that the.
Existence of that incentive partner like Brandywine and this case is.
And create higher pricing for us. So that's how we evaluate and think it was very clear earlier when.
And we go to put something on the market. We're we're always looking to either sell or if we can maximize proceeds by doing a JV. We do that in fact, we have sold and number of properties directly.
And and I don't I don't think you can lose sight of the fact that these ventures are really transitional capital for US we have recycled in and out of a number of these that are developed and delivered significant returns to our shareholders.
So it's all about how we deploy the capital and maximize the return that we get.
Last question just in terms of the terms of these two preferreds are they accrued are they cash pay.
What level are they at in terms of price per foot. So if you can just talk about the Austin, one and then the retention of the JV the preferred equity and the suburban asset sales.
Yes, I think Theres zone.
<unk> West.
It's.
As cash flow comes in a day crews.
And Tom do you have the.
And so on.
And while the priority of the preferred and Austin is a current pay at nine.
Our investment base per square foot is fair and last dollar in our last dollar and is $2 60 and foot and.
And we have in that case, Michael over two times cash flow coverage based on leases in place.
And the same thing for the for the other preferred in the and.
And the mid Atlantic portfolio. There it is current pay up to 9%.
As well as a very very good cash flow coverage okay.
Okay. Thank you.
Youre welcome. Thank you.
Thank you and that does conclude our question and answer session for todays conference and I'd like to turn the call back over to Jerry Sweeney for any closing remarks.
Great. Thank you everyone for joining us for our fourth quarter 2020 call and we look forward to updating you on our next.
First quarter 'twenty, one call and in the meantime, everyone. Please stay safe and sound and thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect everyone have a wonderful day.
And then.
And.
And then.
And.
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