Q4 2021 Brandywine Realty Trust Earnings Call

[music].

Yeah.

Good day and thank you for standing by welcome to the Brandywine Realty Trust fourth quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To 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 is being recorded.

You require any further assistance please press star and then zero.

I would now like to hand, the conference over to your host today, Jerry Sweeney President and CEO . Please go ahead.

Michelle Thank you very much good morning, everyone and thank you for participating in our fourth quarter 2021 earnings call on today's call with me are George Johnstone, Our executive Vice President of operations, Dan Palazzo, Our Vice President and Chief Accounting Officer, Tom Wirth, Executive Vice President and Chief Financial Officer.

Prior to beginning certain information discussed during our call may constitute forward looking statements within the meaning of the federal Securities law. Although we believe these estimates are based on.

Reflected in the 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. So first and foremost we hope that you and yours had a wonderful holiday season and are looking forward to a very successful 2022.

In our world certainly after some reopening delays related to the latest variants, we have stronger tenant interest in high quality office space as tour activity lease negotiations and deal execution remain on a very positive trend line, a definitive trend and one that we believe will accelerate.

Tenants are requiring very high quality workspaces and we believe this trend positions, our existing portfolio and our development portfolio extremely well.

During our prepared comments will briefly review fourth quarter results outline our 2022 business plan and provide color on recent activities. Both on the development and transactional side. Tom will then review, our 2021 results and frame out the key assumptions driving our 2022 guidance.

After that Tom.

George Dan and I are available to answer any questions you may have.

So looking past back to 2021, we closed the year on a very strong note with many business plan objectives achieved we exceeded our speculative revenue target by $1 million raising guidance twice during the year, we execute our executed lease volumes remained in line with last quarter.

And our operating portfolio leasing pipeline increased by 120000 square feet.

For the fourth quarter, we posted.

Rental rate mark to market of eight 1% on a GAAP basis and $2 six on a cash basis with our full year mark to market being very strong at 16, 2% on a GAAP basis and 10, 3% on a on a cash basis. In addition, we had 116000 square feet of pause.

Absorption during the quarter.

Our full year 2021 cash same store numbers came in below our revised business plan, primarily due to lower parking revenue.

Bad debt related to one retail tenant and free rent for a backfill tenancy full year capital costs have or were in line with our business plan range tenant retention was 53%, which was at the top end of our full year forecast and core occupancy and lease targets were also within our forecasted range, where we ended two.

21, 93% leased and actually 93, 9% leased within our core markets.

We posted fourth quarter <unk> 35 per share, which is in line with consensus estimates and full year 2021, <unk> of $1 37 per share, which was a penny above consensus for.

For 2022, we're providing guidance with an <unk> range of $1 37 to $1 45 per share for a midpoint of $1 41 per share.

Our early renewal efforts expense control programs forward near term pipeline visibility and our recently executed transactions establish a clear pathway for growth.

Our 2022 plant is headlined by two operating metrics that demonstrate the underlying strength of our core markets and foretell excellent growth potential our cash mark to market range is between 8% and 10% our GAAP Mark to market range is between 16 and 18%.

Our GAAP same store cash or GAAP same store NOI growth for both cash and GAAP is between zero and 2%.

And we expect all of our regions will post positive mark to market results on both the cash and GAAP basis.

And looking at a moment, our cash same store NOI range of zero to 2%. It is impacted by the timing of rollover and the subsequent backfill from leases already executed. So for example.

<unk> in Philadelphia, we renewed a 120000 square foot tenant commencing February one of 'twenty to the free rent in that 16 year deal will last the balance of 'twenty. Two. In addition, we had 110000 square foot tenant Vacates Sera Center in 'twenty, one we've already leased 75.

5% of that square footage with a commencement in July and those lease structures on those replacement tenants are 10 years in term and incorporate free rent for the balance of 'twenty to just those two transactions represented three 1%.

Cash same store impact we believe based on leases, we already have executed and visibility into our near term pipeline that portfolio is well positioned to deliver much better same store growth in 'twenty three.

Our spec revenue range is between 34 and $36 million with $25 6 million or 73% at the midpoint achieved that speculative revenue range represents approximately 2 million square feet of leasing velocity, which compares to leasing velocity of one 2 million square.

Our feet in 'twenty and one four in 2019.

Other key highlights occupancy levels will remain between 91%, 93% lease levels between 92 and 94%.

We expect our retention rate between 58% 60%.

And capital for 2022 will run about 14% of revenue and Thats above 2021, primarily due to several of those very large long term leases commencing during the course of the year.

Based on our 2022 leasing activity and higher development and redevelopment spend we project our.

Our net debt to EBITDA to be in a range on a combined basis between six six to six nine times.

We view this leverage increases purely transitional while we are in a period of investing significant capital into construction without recognizing any NOI.

Income recognition occurs this leverage will decrease significantly to amplify this point, we've segmented our EBITDA metrics between core and combined.

On page three of the Sip if you look at that we've included in other leverage metric that focuses just on our core portfolio by eliminating our joint venture non recourse debt and our active development and redevelopment spend we believe that our projected core leverage range between 6.63 provides a more accurate measure.

<unk> of how we're managing our core operations as it eliminates our more highly leveraged joint ventures and eliminates the volatility associated with the timing of project spending project capital, which increases leverage and the subsequent delay in income recognition.

Yes.

Over the last couple of years, we've reduced our forward rollover through 2024 to an average below 8% further looking further looking further out our rollover exposure is below 10% annually through 2026 so.

So value creation and earnings growth remain a top priority key near earning drivers for US are we have key vacancies that many of you're familiar with that will generate between seven and 10 cents a share upon lease up we continue to make progress on leasing up those spaces, but our 2022 plan only include.

<unk> approximately <unk> <unk> per share of revenue from those vacancies of which 20% has already been executed.

Looking at our activity levels, our overall leasing pipeline stands at $3 8 million square feet broken down between one 4 million square feet on our operating portfolio and $2 4 million square feet on our development projects.

The $1 4 million square feet leasing pipeline on the existing portfolio increased by 120000 square feet during the quarter and is 14% higher than our pre pandemic levels from the fourth quarter of 2019.

The leasing pipeline on our development projects of two 4 million square feet also increased during the quarter by 100000 square feet.

And looking at our liquidity and and dividend with excellent liquidity and even with our anticipated development spend and absent any other financing sources, we anticipate having $383 million on our line of credit availability available by year end 'twenty. Two we also do anticipate.

<unk> renewing both our line of credit and our $250 million term loan during the first half of the year on at similar terms.

Two the existing instruments the dividend is very well covered with a 54% <unk> payout ratio at the midpoint. Our CAD ratio has migrated to about 90% and above recent years, primarily due to our elevated leasing activity, which is at 2 million square feet, we plan on <unk>.

Leasing and in addition for 2022, we did include all JV capital spend in our CAD calculation, regardless of whether those dollars are financed through good news funding at our JV level secured mortgages and that did have an impact of <unk> a share of about five 5% of our CAD ratio we do.

Anticipate that coverage improving significantly as leases commence and we recognize revenue.

From a capital allocation standpoint, we made progress on many fronts, we liquidated our final <unk>.

<unk>, our Allstate joint venture and recognized the gain of $3 million. We also continued selling non core land parcels during the course of the year.

In fact in January we sold one parcel for one $4 million generating at $900000 gain.

And looking at our development opportunity set 250 King of Prussia Road.

In our Radnor Submarket is scheduled for delivery.

And then.

In the second quarter of 'twenty two the project will be the first delivery in our Radnor Life Science Center, which consists of more than 300000 square feet of life science space, and where we can sort of be the region's best performing submarket. The current pipeline on that project is north of 260000 square.

Feet, including 86000 square feet in lease negotiations.

405, Colorado in downtown Austin that price is now complete and is 48, 3% leased with a growing and very active pipeline. We have a leasing pipeline right now of 144000 square feet of which 31000 square feet are in lease negotiations and we are working through.

<unk> 6000 square foot expansion.

Our <unk> labs incubator at <unk> Center.

It consists of 240 seats that opened in January and is 95% leased to 12 companies.

Well ahead of our plan and based on that success, we're planning to add another floor totaling approximately 27000 square feet.

By year end 'twenty, two and we additionally have plans underway to add another 78000 square feet of life science capability through four nine.

Just taking a look at an update on schuylkill yards in Uptown ACX.

At Schuylkill yards West our life Science office residential tower is on time and on budget for Q3 dollars 23 delivery.

We currently have an active pipeline totaling 410000 square feet.

For the life Science and office space component that pipeline is up 70000 square feet from last quarter, and we do expect it to continue to grow as construction progresses.

Our $56 $8 million equity commitment is fully funded and our partner's equity investments currently being made in the first funding of our construction loan will occur in the second quarter of 'twenty two.

$31 51 market or 424000 square foot life Science building is fully designed and priced we.

We have a leasing pipeline totaling about 270000 square feet, which is up from 150000 square feet in the third quarter and our goal remains to being able to start that project. This year.

In Uptown ATX, we've had a very productive 90 days at the 66 acre community, which has the development capacity approaching 7 million square feet. We've rebranded the project from broad more to Uptown ATX recognizing it can create a new center of gravity within the within the city of Austin We.

Broke ground on block, a which consists of 348000 square feet of office.

341 residential units and 15000 square feet of ground floor retail.

As part of this we are delighted with our 50 50 venture with Canyon partners that structure is similar to our $3 25, Schuylkill yards West project with Canyon, providing 50% of the equity on a preferred basis.

We are currently in the process of obtaining a 65% construction loan, which we expect to close before the close of Q1 as.

As we discussed in the past these preferred structures enabled brandywine to retain a significant portion of value creation upon stabilization under our preferred structures once the partners and Brandywine received the accrued return.

Significant value accretion comes to Brandywine after that.

So based on our stabilized underwriting that creates an incremental 4% to 500 basis points lower cost of third party equity capital than a traditional joint venture. We also anticipate the completion of that office component and three Q2, three and the residential component and three Q 'twenty four.

We have a pipeline on the office component right now of about 300000 square feet with since announcing the project. We have received inquiries aggregating just shy of one 3 million square feet. So a lot of activity on that project now that it's finally coming out of the ground.

We also had a groundbreaking for the train station that will be building through a 50 50 public private partnership with Metro, which is the regional rail authority in Austin.

That station as we've outlined before we will provide uptown ATX direct access to downtown Austin in the northern suburbs. They expected to open for service during 2024.

We further anticipate that we will be starting the first phase of block F.

Which is 272 apartment units.

Under the same format with canyon in the second quarter of 'twenty two.

One final note.

While our 2022 business plan does not incorporate any dispositions or acquisitions, we do anticipate being active on the capital recycling front we.

We do anticipate continue to sell select non core land parcels.

Also with the office remark will be office recovery underway and premium pricing being paid for well leased assets. We believe we will have several opportunities to harvest profits with low cap rate sales.

We also anticipate sales of select properties out of our existing joint ventures.

So the dollars generated from these activities will be used to certainly fund our development pipeline continued to reduce leverage and then read and certainly redeploy dollars into higher growth opportunities with that Tom will now provide an overview of our financial results. Thank you Jerry our fourth quarter net income totaled $4 five.

$1 million or <unk> <unk> per diluted share and <unk> totaled $60 4 million or <unk> 35 per diluted share and in line with consensus estimates some general observations on our fourth quarter results, while fourth quarter results were in line with consensus we had a number of moving pieces.

Several variances to our second quarter guidance.

Portfolio operating income approximated $70 million and was in line with our third quarter guidance and our portfolio did experience a 116000 square feet of positive absorption.

We focused we forecasted two land sales generated $1 3 million of gains which did not occur. These two land sales have been delayed until 'twenty two and one sale has already closed in January generating a.

$900000 gain.

Termination and other income totaled $4 2 million and was $1 $7 million above our third quarter forecast, primarily due to unbundle onetime insurance income.

G&A expense totaled $8 1 million a $1 million above our estimate this increase was primarily due to higher employee related costs and professional fees.

Our fourth quarter fixed charge and income ratios were four two and three nine respectively and better than our third quarter and year end forecast both metrics benefited from lower than forecasted capital spend.

Our fourth quarter annualized net debt to EBITDA was $6 five and met the high end of our six 3% to six five guidance.

Regarding cash collections overall collection rate for the fourth quarter, what continues to be over 99% as in previous quarters.

There were no significant tenant write offs during the quarter.

Portfolio changes, we as we mentioned last quarter based on the completion of 3000 market that was added to our core portfolio. During the fourth quarter and is 100%, 100% leased life science building to spark therapeutics on the financing activity, we restructured and extended our current low.

<unk> and covering our joint venture at 40, 40, Wilson lowering our average borrowing costs by approximately 100 100 basis points generating minimal initial proceeds, but allowing for increased borrowings.

Fleet, the leasing of the vacant office space.

Turning to the 'twenty two guidance at the midpoint net income will be 21 per diluted share and <unk> will be $1 one.

Per diluted share in a range is built with some of the following assumptions our portfolio operating results.

For GAAP NOI will be about $290 million, an increase of $17 million from last year. We have the full effect of 3000 market and 405, Colorado totaling $5 million $16 76 will be about $4 million the completion of our life science and redevelopment of.

The 250 King of Prussia Road will start to generate income and will be $2 million. We will have increase in our residential income of about $2 million and the balance being a net increase from the same store portfolio.

Our contribution from unconsolidated joint ventures will total about $28 million to $29 million.

G&A will be between 34 and $35 million, excluding a one time credit in 2021 that represents an increase of $1 9 million.

Total interest expense, including deferred financing costs will increase to approximately 70% to $71 million, that's going to be due to the higher forecasted spend on our line of credit. We're also forecasting higher interest rates as well.

Capitalized interest will increase to about $7 million, that's due to the current developments ongoing as well as some of our anticipated development starts later in 'twenty, two and our land sales as Jerry mentioned, we have about $4 million to $5 million of land sales anticipated. This is selling noncore land parcels and as.

As mentioned one has already closed in January .

Termination and other income of $11 million, which is above 22.

Again due to some onetime special items, we expect to have occurring during the year transactions I said.

Net income leasing and development fees will be between 15 and $16 million as Jerry mentioned, we have no property acquisitions or dispositions in our guidance, we plan no ATM or share buyback activity at this time.

We anticipate refinancing our credit line of credit in 2000 $2 million to $250 million of our term loan during the first half of 'twenty two or.

Our share count will approximate $174 million.

Diluted shares.

Taking a closer look at the first quarter guidance.

We're expecting portfolio income of about $72 million that will be sequentially higher by $1 million and thats, primarily due to 3000 market.

116000 square feet of.

Absorption that occurred in the fourth quarter, and then ill be partial partially offset by several known move outs a majority of which has already been re leased later in 2022.

<unk> contribution from our unconsolidated joint ventures will total $6 5 million for the first quarter G&A for the first quarter will increase from eight one to nine five.

And that sequential increase is consistent with prior years and is primarily due to the timing of.

Compensation expense recognition.

Total interest expense will approximate $17 five with capitalized interest of $2 $5 million and termination fees.

Total about $3 $5 million and net management fee and development fees will also totaled $3 $5 million and we have land sales.

<unk> the one we already announced another 400000 occurring to total $1 3 million.

Our capital plan is very straightforward and totals about $445 million.

As Jerry mentioned, the CAD range of 84% to 95% is higher than normal.

But when we do take a look at going out beyond this year, we do see that number coming back towards our range in 2020.

Looking at the sources and uses $190 million of development $131 million of common dividends.

Revenue maintain of about $55 million revenue creative about 40% and $29 million of contributions to our joint ventures during the year.

Primary sources is going to be $190 million of cash flow after interest payments of $193 million for the line of credit use.

Hi.

Cash on hand of $27 million and $35 million of proceeds from land sales.

Other.

Based on that capital plan, our line of credit will increase by $217 million, leaving 383 $383 million available. We also project that our net debt to EBITDA will range.

From six 7%.

609.

With the main barrier will be the scope of our development activities in the spend.

Our net debt to net debt to JV will approximately 40% to 41%. In addition, we anticipate our fixed charge ratio will approximate four ROE and our fixed our interest coverage will be three eight which represents sequential decreases but again, primarily due to the capital spend we expect during the year.

We've also included a new metric looking at our core net debt to EBITDA, which at the end of the year was $5 nine and.

And does exclude our joint ventures, and our active development pipeline. We believe this is a better measure of how you should look at how we're monitoring our leverage on our core portfolio as we do expect over time.

The development projects to come online as well as Jerry mentioned that we will be looking to sell some of our joint ventures potentially over the next year or so.

With that I will turn it back over to Gerry great. Thanks, Tom.

So the key takeaways you kind of look at our 22 business plan. We know, we're certainly still facing some headwinds as an industry on the recovery of the economy and the return to workplace environment, but I think we do view that in the context of our portfolio and operations being in very solid.

Great.

We think the leasing activity and the forward rollover reduction we've done over the last couple of years provides excellent visibility for forward growth.

And our 22 business plan incorporates strong mark to markets managed capital spend and strong leasing activity and I do want to emphasize that we really do see in all of our tenant discussions a real focus on higher quality safety health multi modal access.

And we really do believe that and actually as evidenced by the increase in our pipeline just in the last couple of quarters.

That trend line will continue and benefit and benefit our company.

So with that we would like to open up the floor for questions.

As we always do we ask for the interest of time, you limit yourself to one question and a follow up.

Thank you.

As a reminder to ask a question you will need to press Star and then one on your telephone to withdraw.

Your question. Please press the pound key.

Please standby, while we compile the Q&A roster.

And our first question comes from Manny Korchman from Citi. Your line is open.

Hey, good morning, everyone.

Jerry and Tom I appreciate the comments on breaking out.

Your leverage thats sort of core.

Headline.

But I guess just getting to the root cause of that you've been big developers or getting bigger.

And that has stressed the leverage stats you look at this year youre borrowing almost $100 million on the line of credit.

You've done a bunch of these jv's.

The latest one of 50 50 and then.

If you do sell down the Jv's, where you sell some more noncore that just gets you to another year of dilution. So I guess the question is how do you sort of fix leverage more permanently.

Other than waiting for these big developments that come online, which is going to take two or three or four years from now.

Do you need to do equity isn't a matters.

Maybe doing a bigger sale or maybe something more core or just bigger in general to sort of fund the tank.

Yes.

Yeah, Hey, Matt a great question and good good to hear from you.

I think it's an excellent question, we do spend a lot of time on how to optimize our capital allocation.

And I think we do have a number of core land sales that will generate near term liquidity.

In a non dilutive way I think we also have some fairly.

It's a fairly well leased premium priced assets, both on our balance sheet and within our joint venture structures that can raise capital that we think will be will be non dilutive to current earnings and certainly timing those.

Sales to some of these nearer term deliveries we still if you think about where they have 405, which is not generating that much income for us in 'twenty two but it's delivered that'll be leased up very shortly we are $2 50 coming online during 'twenty, two and the leasing activity there is very encouraging.

We have a number of large leases.

As I outlined on the same store number that already signed but kind of in free rent periods. It will generate some additional liquidity for us. So we really do think we have a lot of near term.

Opportunities to generate liquidity in a non dilutive way.

To kind of manage that leverage down as the course of the year into 'twenty three continues and I think the real opportunity lies into.

Some of those developments really coming online and performing as we know they will.

So the long term opportunity. We think is very very much. There in fact, it's funny you raised the question because I do recall I think.

And one of the euro.

Resolutions for 'twenty two.

I think it was number five really focus on optimal capital allocation, including doing accretive transactions development and redevelopment and fund it on a long term leverage neutral basis, using a range of financing tools and I think certainly.

The third party equity markets are incredibly viable.

There is no shortage of equity partners, who would like to do different transactions. So that really does give us a fairly effective price of third party equity to help finance these developments I think managing.

An active sales program of those land wholly owned and joint venture assets will enable us to move it to a lower leverage model as well I think long term.

And that long term could be two or three years, we actually believe when these properties come online our leverage metrics will approach a historic low for us.

Great and then Terry going back to the same store growth comment.

You walked us through the plus 300 basis points from those couple of big leases.

But you also made the point of 2023 growth being better.

I understand your guidance correctly, you've got roundabout, 60% retention in the guidance.

That 1 million square feet of expertise.

So it looks like Youre going to have.

Call. It 400, roughly 400000 square feet of non renewal.

How is that going to weigh against the positives of these couple of big leases that you talked about becoming <unk>.

Cash.

Cash flow positive.

Yes, Andrew.

Hey, good morning, it's George.

Right.

Some of that.

Part of what's not going to renew.

Have successfully backfill and.

Evidenced by the 75% of the space here at Cira Centre that Baker Hochstetler gave back so.

So that will be negative retention for us, but then.

Reabsorbed space with the free rent burning off in 'twenty, two and fully cash producing in 'twenty three the large renewal that we did.

Over at the Logan.

Again, 11 months of free rent burning off so one month in 'twenty.

<unk> to 12 months and 23 those are kind of really the big drivers.

Then the other.

Part of our same store that really had some continued lease up to go is $16 76 down in Tysons.

And we've got about $1 million of incremental revenue.

<unk> for that asset in 'twenty, two and then we think the balance of the building.

It builds up in 'twenty three.

Thanks Al.

Thanks, Tony.

Thank you. Our next question comes from Steve <unk> from Evercore ISI. Your line is open.

Thanks, Good morning, Terry I was hoping you could maybe break down a little bit I think you talked about 2 million square feet of leasing activity excuse me in 'twenty, two and I'm just trying to get a sense for how much of that is core portfolio. How much of that is development in the core portfolio, how much of that would you attribute to renew.

And how much would you attribute to new leasing.

Yeah, Steve Good morning, it's George I'll jump in here as well.

So of the 2 million square feet, one 2 million square feet of it are new deals and about 800000 square feet of renewals. It's all within the core portfolio. So that does not include any of our development redevelopment. It does not include.

405, Colorado. It does not include 250 Radnor.

Obviously, the ground up development or doesn't include.

The square footage is about 34% coming out of our Philadelphia, CBD operation, 33% out of the Pennsylvania suburbs, 20% out of Austin and about 12% out of D. C.

Okay, and Jerry maybe you could talk a little bit about the leasing in Austin, you sort of mentioned that you had good activity for our county, PX as you announced that project and it sounded like the pipeline ramped up but leasing at 405, Colorado has been slower than expected I think you've picked up.

Roughly five points of lease percentage in the quarter and that's still sitting sub 50% today. So whats the dynamic going on is it a downtown versus sort of suburban play or why is 405, just been a sluggish as it is.

Yes, Steve.

Certainly, we're hoping to make a lot of significant progress for the next couple of quarters.

I don't think its an issue of suburban versus.

Versus downtown we really just deliver the building finished the lobby finished the sky lobby. The garage is now open. So we are getting more activity through the building.

And I think as we look at it as a pipeline really has been very strong and as I mentioned in our comments we have.

30000, plus square feet of leases and negotiations we already have one tenant who wants to expand by over 25000 square feet at our pipeline of deals behind that.

I think four or five has been emblematic that some degree of the increase cycle time that we're seeing in a number of our marks in terms of tenants actually getting across the finish line selling leases.

We've seen that across our whole portfolio and.

Some of these discussions with our tenants in that building have have gone on for a number of months all very positive but no.

No real key decisions being made.

That's kind of one factor too is it's a smaller floor plate building as you know.

So it's really geared towards.

10% to 20000 square foot users.

There are two floor user of their 40000 square feet. So it's not really geared towards some of the larger tenant movements that are taking place within the Austin market in general.

And I think one of the third piece, which is kind of a contributing factor to the velocity in Austin for particularly the smaller sized tenancies is that for whatever reason that market has the lowest level of occupancy through our whole portfolio I mean, we're.

Between 40, and 60% in a number of buildings around the portfolio in Austin, I think George around 15015% yeah. So.

So you've really hasnt come back for workplace standpoint, so we share the disappointment with the pace of leasing there.

We have however been able to hold effective rents capital costs, and we're very confident that.

And the next.

60 days will be able to get some of these key leases across the finish line and really change the income trajectory that properties certainly moving into 'twenty three.

Okay. If I could just ask one technical question for Tom straight line rent Fas 141, I didn't hear you provide a number for 'twenty two do you have that handy.

Not right off the top Steve I'll have to get that to you all follow up right. After the call. Okay. Thank you. Thanks.

Thanks, Steve.

Yes.

Thank you.

Our next question comes from Craig Mailman from Keybanc capital markets. Your line is open.

Hey, good morning good.

Good morning, Gary.

Jerry I just wanted to circle back to the commentary about.

The ability to kind of take off some low cap rate sales.

To fund development and kind of bring down leverage I know in the past you've hinted that something like a JV of seara.

Some of your trophy buildings, I mean could you just give us a hint at what Youre thinking about would these be.

<unk> sales are continue to be kind of in this JV.

Thought process.

Great question, Craig I think our perspective right now is we're much more biased to full sales on existing earning assets I think obviously given the capital requirement Craig on some of these larger scale development stated uptown or ATX, I'm, sorry, uptown or schuylkill yards.

I think there.

Until the capital markets conditions improve for office confident I think we are still biased probably doing these kind of preferred structures, where we essentially borrower low cost equity with a clean governance structure, bringing third party debt to get those projects executed I think on the asset.

Sale side.

Whether those assets are currently held in the JV today, we're wholly own I think the clear bias.

It has to do a complete liquidation.

We still have the goal of continuing to reduce the number of operating joint ventures, and we think that's a natural occurrence with some of the liquidations. We have planned over the next couple of years.

And you guys are youre trading kind of in the low 7% implied cap rate on my numbers.

Sure developments are kind of in that seven to eight maybe a little bit higher.

Where do you think or what do you think the kind of the.

Public private arbitrage is on some of these buildings you want to sell but give us a sense of where you think.

Your best assets or assets targeted would sell.

Yes.

As we're looking at some of the assets that we're evaluating for liquidation.

Some.

There is a both office and residential in that targeted pool and the cap rates, we're seeing between kind of current yield and sales prices between.

I would say around 250 basis points.

Maybe even low on a couple of the other assets I mean, what's been kind of intriguing is that youre really saying premium pricing.

Made for long leased asset so if there is.

Good weighted average lease term good credit.

There has certainly been a real push towards cap rate compression, even while the office market is going through this recovery.

So we would expect to be able to realize through both timing and identifying the right assets. We can generate additional liquidity for the company without really creating any downward pressure on earnings.

And then just one more quick one.

It would this include potentially <unk> at Uptown or would you not want to giveaway any control of that uptick.

<unk> Google.

Yes.

We're really focused more on the existing assets that we have.

So certainly our perspective is on the development projects.

Get those completed get the value stabilize we think there is an awful lot of data that will accrue to the branding one shareholders as part of that program. So.

Our efforts really Craig we're focused on kind of existing earning assets.

Great. Thank you thank.

Thank you.

Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open.

Great. Thanks, and good morning, Thanks for taking the question. So you had talked about 7% seven to 10 cents a share from vacancy lease up but you've only got to sense of that in your 'twenty. Two guidance, 20% has been executed can you just talk about the composition of that remaining call. It I guess.

Maybe talk about the specific spaces in your leasing prospects.

Sure George Yeah, absolutely Jamie good morning.

I think as I mentioned earlier, the largest piece of that really is that.

At $16 76.

It's probably about.

45% of that.

Of that 7% to 10%.

We've got.

100 and.

171000 square feet still to lease down there.

Got.

About 100000 square feet in our.

Plan for 'twenty, two with kind of later in the year commencement so not a full year of revenue contribution.

The next biggest pieces are.

At our river place project down in Austin.

We've got several several vacancies down there.

That again not a lot in the plan.

For 'twenty two.

Contributor for 'twenty three.

And then we've got.

About $1 million in that.

Kind of a bucket of properties.

The Plymouth meeting suburb and we've got good traction on on a majority of that space.

Okay, and one of your larger remaining spaces downtown.

Pretty much buttoned up at this point.

While downtown.

Wholly owned side.

Well buttoned down the opportunity for us in Philadelphia remains of Commerce square and.

We.

We obviously got the Macquarie space and the reliance space that that we're still dealing with we've got a we've got a pipeline over at.

At Commerce is about 150000 square feet.

It can continue to see good levels of tour, but.

We have not.

Had many large lease executions to date.

So is that you are not including that in the seven to 10.

No that was just more to address your question about the Philadelphia.

<unk>, we cited Jamie really were hopeful from our wholly owned portfolio I mean, we think when we look at some of our joint venture properties.

The operating joint venture properties. There is certainly an opportunity to kind of move up the income stream areas as well as the market continues to recover.

Okay. Thank you guys.

I think thats a 'twenty two event.

Look it is sitting here now we are in February I think the the lease up we had planned on a number of these properties for the larger vacancies really won't kick in until Q4, so their impact on 'twenty two numbers is minimal.

And so the bigger impact will be in 'twenty, three and we are seeing very good activity across a lot of those vacancies.

But by the time, we get through lease execution.

Every place we do business.

Municipalities are taking longer to approve plans.

The construction markets pretty.

Pretty robust in a number of areas. So it's taken a little bit longer to build out space and so as we kind of went through and risk assess when we could actually deliver spaces, Jamie we were more bias, which kind of fourth quarter versus third quarter deliveries, depending upon where we thought the lease negotiation process was.

Okay. Thank you and then to your initial comments about tenants want high quality Workspaces.

About your portfolio and I guess, specifically Philadelphia downtown in suburbs.

What do you put in that category.

Sticking I guess more about your suburban assets.

We think that all.

Fits into the flight to quality I know you mentioned Plymouth meeting is it sell market, but just how are you thinking about either capex needs to upgrade assets in the suburbs or maybe they are their finances.

Yes look it certainly.

As we look kind of across the board.

In our call Philadelphia Operation, We think everything that we have downtown is either really fully leased and put away for a long period of time and where we do have a vacancy like E. Commerce. We've made a number of building upgrades for our joint venture.

A number of prebuilt spaces.

The amenity package in the building. So we think that that remains a very high trophy class type of properties that really does have the ability Jamie with this kind of shift in tenant appetite to really start drawing in.

Tenants, who were kind of in the.

B plus type of inventory as they think about the return to workplace programs I think in the suburban areas. We certainly our radnor portfolio in King of Prussia portfolio were all pretty well leased and we've invested capital there for a number of years, we just actually wrapped up a capital renovation plan last year.

At our Plymouth meeting project.

If you can just have lobby restroom landscaping.

Les upgrade signage upgrades and we've actually seen a very big uptick in activity out there so that it kind of validates the supposition that if you invest money in the building positioned even better if it's well located you'll get the tenant demand drivers. So.

As we're looking forward there is a few properties that we plan on doing lobby renovations.

Actually the <unk> center here, we're actually wrapping up.

Lobby renovations had a lot of great success, particularly as we attracted all those companies and for the incubator in the life science companies. So it is a continual reinvestment model is going to make sure that where you are investing money you are getting a return on invested capital that justifies that investment and if you don't that becomes a predicate for selling that asset that's really what drove a lot of our.

What process over the last five years.

Okay and then finally for me I know in the press release, you talked about the Austin land sale gain.

It sounds like Thats different than what you sold in the first quarter and even what's in guidance what are your thoughts on how youre going to record that in earnings in.

And even the magnitude.

We're actually still that's also under review right now Jamie that's why we haven't really announced any numbers on it but yes. It will be something we'll announce in the first quarter, Jamie just to clarify I'll take a look.

With that land sale was actually in Richmond, Virginia.

We did have so it wasn't Texas sale.

And then.

As Gerry mentioned, we're still looking at how we're going to record the gains.

They are not included just to be clear they are not included in our.

Land gain range that we put into the supplemental a $4 million to $5 million.

That will be those land gains we haven't included yet.

Still assessing or those land gains.

For <unk> purposes, or not but we certainly are going to be taking will certainly be disclosing that.

Yes.

Okay. Thank you.

Thanks, Jamie.

Thank you. Our next question comes from Daniel Ismail from Green Street Advisors. Your line is open.

Great. Thank you.

I understand.

These types of discussions can be sensitive given open.

<unk>, but I'm just curious how pro forma rents have trended for the non life science development.

It just feels like with the demand for quality.

<unk> off the Capex, particularly in Austin.

Potential upside here.

Hi, Danny.

And George you and I can tag So look I think I think one of the things that we've been.

Very pleasantly surprised both with the scale and with the volume of it is our ability to kind of really move rents across the board I mean, it's been interesting for us to be able to see.

For really the last few years, posting really good mark to markets, keeping our capital costs.

Below that 15% long range target we've had in fact closed out 'twenty, one with a really good numbers.

And as you know that number can change based upon different larger term and larger sized deal to do.

<unk>.

But I think.

Look back over the last couple of years, where a lot of the expectation in the marketplace with rents were going to fall through the floor.

There would be no demand drivers.

I think in the asset class that we're in the very high end and all of our key Submarkets, we've actually seen a fairly good degree of resiliency and rents.

And im.

On a non life science side of life Science, we've seen an amazing escalation, but even on the office side, we take a look at where we're able to do in.

Our suburban counties.

Rental rates for negotiating with some of our Austin vacancies.

<unk> been able to do in CBD Philadelphia.

All been surprisingly resilient.

And I think that does play into the quality narrative, we'll see how long that that process continues.

Now that being said I think there are certain projects, we have where we have been very effective in meeting the market. So.

George had talked about $16 76.

Wonderful.

We've renovated project, but in a marketplace that really does not have a lot of demand drivers and is.

Within that situations pre pandemic as that situation today. So there we've been aggressively.

Marketing the space and in some of those cases are rental rates versus original pro forma has gone down but thats a very isolated case I think when we take a look across the board.

Our on the ground.

Daily engaged leasing agents one of their major responsibility is to make sure that the senior operating executives here read the market well and understand where we can push where we can and I think we've all been surprised leasing agents through senior executives that george's level about.

How strong some of those demand drivers have been in house, how really.

Economically viable a lot of these leases have been.

Got it and then Jeremy maybe on shop rates in Philadelphia.

Spoken about this previously, but historically, that's miscellaneous struggled to attract outside firms, particularly given the tax complications, but im curious if youre seeing or anticipating any improvement in that trend.

We are anticipating some improvement as the.

Kind of a city returns to the workplace.

It's been interesting Danny to that one of the early expectations was that you'd see more employer shipped to suburban locations nationally I think and filled up their.

Looking at it from the answer there was concern that that trend might accelerate we really haven't seen.

<unk>.

Companies looking to relocate outside the city.

Due to either the tax structure.

Or any other circumstance.

In fact, we've seen the opposite we've actually seen enough, we actually moved the tenant into.

One Logan who came in from outside the city and you can never forget that attracted attracting labor pool is very very important to a lot of our customers.

Philadelphia has done an amazing job.

In the last decade of really growing the residential population.

Worker base within the city Center city or some of the adjoining neighborhoods. So we're talking to a lot of companies who are looking at moving downtown primarily because thats, where a lot of the younger workers globally.

Where they live in very close in suburbs. So I think the next year, so it'd be very interesting in terms of <unk>.

The job creation trends in Philadelphia actually does bottom line, we have seen a very nice uptick in activity coming out of the life science sector.

I think that's been very very exciting and we think that will be both in a relative from a relative standpoint.

A disproportionate growth jobs within the city.

That's a good green shoots that we're tracking very carefully.

Got it thanks, Gerry and then maybe just one last one.

Between machines.

The potential dispositions in 2022.

Tax consequences that May necessitate, a 10 31 or all of the potential disposition kind of all three.

Capital gains taxes or it can be covered by the dividend.

Yes.

Yes, we do look at the capital gains that whether we havent need for a special dividend right now some of the ones we are targeting.

We don't think we need to be concerned about that as always though if there is an opportunity.

With a acquisition and disposition to defer the gain into a 10 31, we'll certainly look at those opportunities.

But right now we don't see a concern on the coverage of the dividend in these sales.

Got it thank you Ron.

Okay.

Thank you. Thank you.

And I am showing no further questions from our phone lines I'd now like to turn the conference back over to Jerry Sweeney for any closing remarks, great. Only closing remark is thank you for your attention and your engagement with our company and we look forward to updating you on our activities at the next earnings conference call. Thank you very much.

Thank you. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

Okay.

[music].

Okay.

Okay.

Thanks.

Okay.

Sure.

Okay.

Jeremy.

Yes.

Yes.

Okay.

[music].

Okay.

Okay.

Okay.

Yes.

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Okay.

Thank you.

[music].

[music].

Good day and thank you for standing by welcome to the Brandywine Realty Trust first quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press Star and then one on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star and then zero.

I would now like to hand, the conference over to your host today, Jerry Sweeney President and CEO . Please go ahead.

Michelle Thank you very much good morning, everyone and thank you for participating in our fourth quarter 2021 earnings call on today's call with me are George Johnstone, Our executive Vice President of operations, Dan Palazzo, Our Vice President and Chief Accounting Officer, Tom Wirth, Executive Vice President and Chief Financial Officer.

Prior to beginning certain information discussed during our call may constitute forward looking statements within the meaning of the federal Securities law. Although we believe these estimates are based on.

Reflected in the 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 <unk>.

Anticipated results. Please reference our press release as well as our most recent annual and quarterly reports that we filed with the SEC.

So first and foremost we hope that you and yours had a wonderful holiday season and are looking forward to a very successful 2022.

In our world certainly after some reopening delays related to the latest variance we have stronger tenant interest in high quality office space as tour activity lease negotiations and deal execution remain on a very positive trend line, a definitive trend and one that we believe will accelerate is.

The tenants are requiring very high quality workspaces and we believe this trend positions, our existing portfolio and our development portfolio extremely well.

During our prepared comments will briefly review fourth quarter results outline our 2022 business plan and provide color on our recent activities. Both on the development and transactional side. Tom will then review, our 2021 results and frame that the key assumptions driving our 2022 guidance.

After that Tom George Dan and I are available to answer any questions you may have.

So looking past back to 2021, we closed the year on a very strong note with many business plan objectives achieved we exceeded our speculative revenue target by $1 million raising guidance twice during the year, we execute our executed lease volumes remained in line with last quarter.

In our operating portfolio leasing pipeline increased by 120000 square feet.

For the fourth quarter, we posted.

Rental rate mark to market of eight 1% on a GAAP basis, and two six on a cash basis with our full year mark to market being very strong at 16, 2% on a GAAP basis and 10, 3% on a cash basis. In addition, we had 116000 square feet of pause.

Net absorption during the quarter.

Our full year 2021 cash same store numbers came in below our revised business plan, primarily due to lower parking revenue.

Bad debt related to one retail tenant and free rent for a backfill tenancy full year capital costs ever were in line with our business plan range tenant retention was 53%, which was at the top end of our full year forecast and core occupancy and lease targets were also within our forecasted range, where we ended two.

21, 93% leased and actually 93, 9% leased within our core markets.

We posted fourth quarter <unk> 35 per share, which is in line with consensus estimates and full year 2021, <unk> of $1 37 per share, which was a penny above consensus for 2022, we're providing guidance with an <unk> range of $1 37 to $1 <unk>.

45 per share for a midpoint of $1 41 per share.

Our early renewal efforts expense control programs forward near term pipeline visibility and our recently executed transactions establish a clear pathway for growth.

Our 2022 plant is headlined by two operating metrics that demonstrate the underlying strength of our core markets and for excellent growth potential our cash mark to market range is between eight and 10%.

Our GAAP mark to market range to between 16 and 18%.

Our GAAP same store cash or GAAP same store NOI growth for both cash and GAAP is between zero and 2%.

And we expect all of our regions will post positive mark to market results on both a cash and GAAP basis.

And looking at a moment, our cash same store NOI range of zero to 2%. It is impacted by the timing of rollover and the subsequent backflow from leases already executed.

So for example in Philadelphia, we renewed a 120000 square foot tenant commencing February one of 'twenty two the free rent in that 16 year deal will last the balance of 'twenty. Two. In addition, we had 110000 square foot tenant vacate Cero center in 'twenty, one we've already leased.

75% of that square footage with a commencement in July and those lease structures on those replacement tenants are 10 years in term and incorporate free rent for the balance of 'twenty to just those two transactions represented three 1%.

Cash same store impact we believe based on leases, we already have executed and visibility into our near term pipeline that portfolio is well positioned to deliver much better same store growth in 'twenty three.

Our spec revenue range is between 34 and $36 million with $25 6 million or 73% at the midpoint achieved that speculative revenue range represents approximately 2 million square feet of leasing velocity, which compares to leasing velocity of one 2 million square.

Our feet in 'twenty and one four in 2019.

Other key highlights occupancy levels have remained between 91 and 93% lease levels between 92 and 94%.

We expect our retention rate between 58 and 60%.

<unk> capital for 2022 will run about 14% of revenue and Thats above 2021, primarily due to several of those very large long term leases commencing during the course of the year.

Our 2022 leasing activity and higher development and redevelopment spend we project our net debt to EBITDA to be in a range on a combined basis between six six to six nine times. We view this leverage increase is purely transitional while we are in a period of investing.

Significant capital into construction without recognizing any NOI.

As income recognition occurs this leverage will decrease significantly to amplify. This point, we have segmented our EBITDA metrics between core and combined on page three of the Sip. If you look at that we've included in other leverage metric that focuses just on our core portfolio by eliminating our joint venture nonrecourse.

That and our active development and redevelopment spend we believe that our projected core leverage range between 6.63 provides a more accurate measurement of how we're managing our core operations as it eliminates our more highly leveraged joint ventures and eliminates the volatility associated with the timing.

The project of spending project capital, which increases leverage and the subsequent delay in income recognition.

Yes.

Over the last couple of years, we've reduced our forward rollover through 2024 to an average below 8%.

Further looking further looking further out our rollover exposure is below 10% annually through 2026.

So value creation and earnings growth remain a top priority senior earning drivers for US are we have key vacancies that many of you're familiar with that will generate between seven and 10 cents a share upon lease up we continue to make progress on leasing up those spaces.

But our 2022 plan only includes approximately <unk> <unk> per share of revenue from those vacancies of which 20% has already been executed.

And looking at our activity levels, our overall leasing pipeline stands at $3 8 million square feet.

Oaken down between one 4 million square feet on our operating portfolio and $2 4 million square feet on our development projects.

One 4 million square feet leasing pipeline on the existing portfolio increased by 120000 square feet during the quarter and is 14% higher than our pre pandemic levels from the fourth quarter of 2019.

The leasing pipeline on our development projects of $2 4 million square feet also increased during the quarter by 100000 square feet.

And looking at our liquidity and and dividend with excellent liquidity and even with our anticipated development spend and absent any other financing sources, we anticipate having $383 million on our line of credit availability available by year end 'twenty. Two we also do anticipate.

<unk> renewing both our line of credit and our $250 million term loan during the first half of the year on at similar terms.

Two the existing instruments the dividend is very well covered with a 54% <unk> payout ratio at the midpoint. Our CAD ratio has migrated to about 90% and above recent years, primarily due to our elevated leasing activity, which is at 2 million square feet, we plan on <unk>.

Leasing and in addition for 2022, we did include all JV capital spend in our CAD calculation regards to whether those dollars are financed through good news funding in our JV level secured mortgages and that did have an impact of five a share about five 5% of our CAD ratio we do.

Anticipate that coverage improving significantly as leases commence and we recognize revenue.

From a capital allocation standpoint, we made progress on many fronts, we liquidated our final property in our Allstate joint venture and recognized the gain of $3 million. We also continued selling non core land parcels during the course of the year.

In fact in January we sold one parcel for $1 $4 million generating at $900000 gain.

And looking at our development opportunity set 250 King of Prussia Road.

In our Radnor Submarket is scheduled for delivery.

In a minute.

In the second quarter of 'twenty two the project will be the first delivery in our Radnor Life Science Center, which consists of more than 300000 square feet of life science space and what we consider to be the region's best performing sub market. The current pipeline on that project is north of 260000 square.

Feet, including 86000 square feet in lease negotiations.

405, Colorado in downtown Austin that prices is now complete and is 48, 3% leased with a growing and very active pipeline. We have a leasing pipeline right now of 144000 square feet of which 31000 square feet are in lease negotiations and we're working through it.

<unk> 6000 square foot expansion.

Our <unk> labs incubator at Cira centre.

It consists of 240 seats that opened in January and is 95% leased to 12 companies.

Well ahead of our plan and based on that success, we're planning to add another floor totaling approximately 27000 square feet.

By year end 'twenty, two and we additionally have plans underway to add another 78000 square feet of life science capability through four nine.

Just taking a look at an update on schuylkill yards in Uptown ACX.

At Schuylkill yards West our life Science office residential tower is on time and on budget for Q3 dollars 23 delivery.

We currently have an active pipeline totaling 410000 square feet.

For the life Science and office space component that pipeline is up 70000 square feet from last quarter, and we do expect it to continue to grow as construction progresses.

$56 $8 million equity commitment is fully funded and our partner's equity investments currently being made in the first funding of our construction loan will occur in the second quarter of 'twenty two.

$31 51 market or 424000 square foot life Science building is fully designed and priced we.

We have a leasing pipeline totaling about 270000 square feet, which is up from 150000 square feet in the third quarter and our goal remains to being able to start that project. This year.

And Uptown ACX, we've had a very productive 90 days at the 66 acre community, which has the development capacity approaching 7 million square feet. We've rebranded the project from broad more to Uptown ATX recognizing it can create a new center of gravity within the within the city of Austin We.

Broke ground on block, a which consists of 348000 square feet of office.

341 residential units and 15000 square feet of ground floor retail.

As part of this we are delighted with our 50 50 venture with Canyon partners that structure is similar to our $30 25, Schuylkill yards West project with Canyon, providing 50% of the equity on a preferred basis. We are currently in the process of obtaining a 65% construction loan, which we expect to close before.

The close of Q1 as.

As we discussed in the past these preferred structures enabled brandywine to retain a significant portion of value creation upon stabilization.

Under our preferred structures once the partners and Brandywine received the accrued return.

Significant value accretion comes to Brandywine after that.

So based on our stabilized underwriting that creates an incremental 4% to 500 basis points lower cost of third party equity capital than a traditional joint venture. We also anticipate the completion of that office component and three Q2, three and the residential component and three Q 'twenty four.

We have a pipeline on the office component right now of about 300000 square feet, but since announcing the project. We have received inquiries aggregating just shy of one 3 million square feet. So a lot of activity on that project now that it's finally coming out of the ground.

We also had a groundbreaking for the train station that will be building through a 50 50 public private partnership with Metro, which is the regional rail authority in Austin.

That station as we've outlined before we will provide uptown ACX direct access to downtown Austin in the northern suburbs. They expected to open for service during 2024 with.

We further anticipate that we will be starting the first phase of block F.

Which is 272 apartment units.

Under the same format with canyon in the second quarter of 'twenty two.

One final note.

While our 2022 business plan does not incorporate any dispositions or acquisitions, we do anticipate being active on the capital recycling front we.

We do anticipate continue to sell select non core land parcels.

Also with the office remark the office recovery underway and premium pricing being paid for well leased assets. We believe we will have several opportunities to harvest profits with low cap rate sales.

We also anticipate sales of select properties out of our existing joint ventures.

So the dollars generated from these activities will be used to certainly fund our development pipeline.

We need to reduce leverage and then read and certainly redeploy dollars into higher growth opportunities with that Tom will now provide an overview of our financial results. Thank you Jerry our fourth quarter net income totaled $4 $5 million or <unk> <unk> per diluted share and <unk> totaled $60 4 million.

Or <unk> 35 per diluted share and in line with consensus estimates some general observations on our fourth quarter results, while fourth quarter results were in line with consensus we had a number of moving pieces.

Several variances to our second quarter guidance.

Portfolio operating income approximated $70 million and was in line with our third quarter guidance and our portfolio did experience a 116000 square feet of positive absorption.

We focused we forecasted two land sales generated $1 3 million of gains which did not occur. These two land sales have been delayed until 'twenty, two and one sales already closed in January generating a.

$900000 gain.

Termination and other income totaled $4 2 million and was $1 $7 million above our third quarter forecast, primarily due to unbundle onetime insurance income.

G&A expense totaled $8 1 million alone million above our estimate this increase was primarily due to higher employee related costs and professional fees are.

Our fourth quarter fixed charge and income ratios were four two and three nine respectively and better than our third quarter and year end forecast both metrics benefited from lower than forecasted capital spend.

Our fourth quarter annualized net debt to EBITDA was $6 five I met the high end of our six 3% to six five guidance.

Regarding cash collections overall collection rate for the fourth quarter, what continues to be over 99% as in previous quarters.

And there were no significant tenant write offs during the quarter.

Portfolio changes, we as we mentioned last quarter based on the completion of 3000 market that was added to our core portfolio. During the fourth quarter and is 100%, 100% leased life science building to spark therapeutics on the financing activity, we restructured and extended our current low.

<unk> and covering our joint venture at 40, 40, Wilson lowering our average borrowing costs by approximately 100 100 basis points generating minimal initial proceeds, but allowing for increased borrowings.

Fleet, the leasing of the vacant office space.

Turning to the 'twenty two guidance at the midpoint net income will be 21 per diluted share and <unk> will be $1 one.

Per diluted share in a range is built with some of the following assumptions our portfolio operating results.

For GAAP NOI will be about $290 million, an increase of $17 million from last year. We had the full effect of 3000 market and 405, Colorado totaling $5 million $16 76 will be about $4 million. The completion of our life science and redevelopment of.

The 250 King of Prussia Road will start to generate income and will be $2 million. We will have increase in our residential income of about $2 million and the balance being a net increase from the same store portfolio.

Our contribution from unconsolidated joint ventures will total about 28% to $29 million.

G&A will be between 34 and $35 million, excluding a one time credit in 2021 that represents an increase of $1 9 million.

Total interest expense, including deferred financing costs will increase to approximately $70 million to $71 million, that's going to be due to the higher forecasted spend on our line of credit were also forecasting a higher interest rates as well.

Capitalized interest will increase to about $7 million, that's due to the current developments ongoing as well as some of our anticipated development starts later in 'twenty, two and our land sales as Jerry mentioned, we have about $4 million to $5 million of land sales anticipated. This is selling noncore land parcels and as many.

<unk> one is already closed in January <unk>.

Termination and other income of $11 million, which is above 22.

Again due to some onetime special items, we expect to have the current during the year transactions I set.

Net income leasing and development fees will be between 15 and $16 million as Jerry mentioned, we have no property acquisitions or dispositions in our guidance, we plan no ATM or share buyback activity at this time and we anticipate refinancing our credit line of credit in 2002 to 250.

<unk> million dollars term loan during the first half of 'twenty two.

Our share count will approximate $174 million.

Diluted shares.

Taking a closer look at the first quarter guidance.

We're expecting portfolio income of about $72 million that'll be sequentially higher by $1 million and Thats, primarily due to 3000 market.

116000 square feet of.

Absorption that occurred in the in the fourth quarter, and then ill be partial partially offset by several known move outs a majority of which has already been re leased later in 2022.

<unk> contribution from our unconsolidated joint ventures will total $6 5 million for the first quarter.

For the first quarter will increase from eight one to nine five.

And that sequential increase is consistent with prior years and is primarily due to the timing of AR.

Compensation expense recognition.

Total interest expense will approximate $17 five with capitalized interest of $2 $5 million and termination fees.

Total about $3 $5 million and net management fee and development fees will also totaled $3 $5 million and we have land sales.

Besides the one we already announced another 400000 occurring to total $1 3 million.

Our capital plan is very straightforward and totaled about $445 million.

As Jerry mentioned, the CAD range of 84% to 95% is higher than normal.

But when we do take a look at going out beyond this year, we do see that number coming back towards our range in 2020.

Looking at the sources and uses $190 million of development $131 million of common dividends.

Revenue maintain of about $55 million revenue creative about 40, and $29 million of contributions to our joint ventures during the year.

Primary sources is going to be a $190 million of cash flow after interest payments of $193 million for the line of credit use.

Yeah.

Cash on hand of $27 million and $35 million of proceeds from land sales.

Other.

Based on that capital plan, our line of credit will increase by $217 million, leaving 383 $383 million available. We also project that our net debt to EBITDA will range.

From 67 to <unk>.

609.

With the main variably.

<unk> of our development activities in the spend.

Our net debt to net debt to JV will approximately 40% to 41%. In addition, we anticipate our fixed charge ratio will approximate four ROE and our fixed our interest coverage will be three eight which represents sequential decreases but again, primarily due to the capital spend we expect during the year.

We've also included a new metric looking at our core net debt to EBITDA, which at the end of the year was $5 nine and.

And does exclude our joint ventures, and our active development pipeline. We believe this is a better measure of how you should look at how we're monitoring our leverage on our core portfolio as we do expect over time.

The development projects to come online as well as Jerry mentioned that we will be looking to sell some of our joint ventures potentially over the next year or so.

With that I will turn it back over to Gerry great. Thanks, Tom.

So the key takeaways you kind of look at our 22 business plan. We know, we're certainly still facing some headwinds as an industry on the recovery of the economy and the return to workplace environment, but I think we do view that in the context of our portfolio and operations being in very solid.

Right.

We think the leasing activity and the forward rollover reduction we've done over the last couple of years provides excellent visibility for forward growth.

R 22 business plan incorporates strong mark to markets managed capital spend and strong leasing activity and I do want to emphasize that we really do see in all of our tenant discussions a real focus on higher quality safety health multi modal access.

And we really do believe that and actually as evidenced by the increase in our pipeline just in the last couple of quarters.

That trend line will continue and benefit and benefit our company.

So with that we would like to open up the floor for questions.

Yes, as we always do we ask for the interest of time, you limit yourself to one question and a follow up.

Jonathan Thank you.

As a reminder to ask a question you will need to press Star and then one on your telephone to withdraw.

Your question. Please press the pound key.

Please standby, while we compile the Q&A roster.

And our first question comes from Manny Korchman from Citi. Your line is open.

Hi, good morning, everyone.

Jerry and Tom I appreciate the comments on breaking out.

Your leverage that into sort of corn.

Headline.

But I guess just getting to the root cause of that you have been big developers or getting bigger.

And that has stressed the leveraged stats you look at this year youre borrowing almost $200 million on the line of credit.

You've done a bunch of these jv's.

The latest one of 50 50 and then.

If you do sell down the JV as you sell some more noncore that just gets you to another year of dilution. So I guess the question is how do you sort of fix leverage more permanently.

Other than waiting for these big developments that come online, which is going to take two or three or four years from now.

Do you need to do equity is isn't a matters.

Maybe doing a bigger sale or maybe something more core or just bigger in general sort of fun.

The tank.

Thanks.

Yes, Matt Great question and good good to hear from you.

I think it is.

Excellent question, we do spend a lot of time on how to optimize our capital allocation.

And I think we do have a number of core land sales that will generate near term liquidity.

In a non dilutive way I think we also have some fairly.

It's a fairly well leased premium priced assets, both on our balance sheet and within our joint venture structures that can raise capital that we think will be will be non dilutive to current earnings and certainly timing those.

Sales to some of these nearer term deliveries. We saw if you think about we shouldnt really have 405, which is not generating that much income for us in 'twenty two but it's delivered that will be leased up very shortly we are $2 50 coming online during 'twenty, two and the leasing activity there is very encouraging.

We have a number of large leases.

That is outlined on the same store number that already signed but kind of in free rent periods will generate some additional liquidity for us. So we really do think we have a lot of near term.

Opportunities to generate liquidity in a non dilutive way.

To kind of manage that leverage down as the course of the year into 'twenty three continues and I think the real opportunity lies into.

Some of those developments truly coming online and performing as we know they will.

So the long term opportunity, we think is very very much Darren.

It's funny you raised the question because I do recall I think.

And one of the Euro reached resolution.

Resolutions for 'twenty two one I think it was number five really focus on optimal capital allocation, including doing accretive transactions development and redevelopment and fund it on a long term leverage neutral basis, using a range of of financing tools and I think search.

<unk>.

Yes.

The third party equity markets are incredibly viable.

There is no shortage of equity partners, who would like to do different transactions. So that really does give us a fairly effective price of third party equity to help finance these developments I think managing.

An active sales program of those land wholly owned and joint venture assets will enable us to move to a lower leverage model as well I think long term.

And that long term could be two or three years, we actually believe when these properties come online our leverage metrics will approach a historic low for us.

Great and then.

Sorry going back to the same store growth comment.

You walked us through the plus 300 basis points from those couple of big leases.

But you also made the point of 2023 growth being better.

Understand your guidance correctly, you've got roundabout, 60% retention in the guidance and about 1 million square feet of expertise.

So it looks like Youre going to have.

Call. It 400, roughly 400000 square feet of non renewal.

How is that going to weigh against the positives of these couple of big leases that you talked about becoming.

Cash.

Cash flow positive.

Yes.

Hey, good morning, it's George.

Try and take.

Some of that.

Sure.

Part of what's not going to renew.

Have successfully backfill and.

Evidenced by the 75% of the space here at Cira Centre that Baker Hochstetler gave back so.

So that'll be negative retention for us, but then reabsorbed space with the free rent burning off in 'twenty, two and fully cash producing in 2003, the large renewal that we did.

Over at the Logan.

Again, 11 months of free rent burning off so.

One month and two to 12 months and 23 those are kind of really the big drivers.

And then the other part of our same store that really had some continued lease up to go is $16 76 down and.

And we've got about $1 million of incremental revenue.

Plans for that asset in 'twenty, two and then we think the balance of the building.

Fills up in 'twenty three.

Thanks Al.

Thanks, Tony.

Thank you. Our next question comes from Steve <unk> from Evercore ISI. Your line is open.

Thanks, Good morning, Terry I was hoping you could maybe break down a little bit I think you talked about 2 million square feet of leasing activity excuse me in 'twenty, two and I'm just trying to get a sense for how much of that is core portfolio. How much of that is development and in the core portfolio how much of that would you attribute to renew.

<unk> and how much would you attribute to new leasing.

Steve Good morning, it's George I'll jump in here as well.

So of the 2 million square feet, one 2 million square feet of it are new deals and about 800000 square feet of renewals. It's all within the core portfolio. So that does not include any of our development redevelopment. It does not include.

405, Colorado does not include 250 Radnor.

Obviously, the ground up development doesn't include.

The square footage is about 34% coming out of our Philadelphia, CBD operation, 33% out of the Pennsylvania suburbs, 20% out of Austin and about 12% out of D. C.

Okay, and Jerry maybe you could talk a little bit about the leasing in Austin, you sort of mentioned that you had good activity for Uptown ATX as you announced that project and it sounded like the pipeline ramped up but leasing at 405, Colorado has been slower than expected I think you've picked up.

Roughly five points of lease percentage in the quarter and that's still sitting sub 50% today. So whats the dynamic going on is it a downtown versus sort of suburban play or why is 405, just been a sluggish as it is.

Yes, Steve.

Certainly, we're hoping to make a lot of significant progress for the next couple of quarters.

I don't think its an issue of suburban versus.

Versus downtown we really just deliver the building finished the lobby finished the sky lobby. The garage is now open so we're getting more activity through the building.

And I think as we look at it as a pipeline really has been very strong and as I mentioned in our comments we have.

30000, plus square feet of leases and negotiations we already have one tenant who wants to expand by over 25000 square feet at our pipeline of deals behind that.

I think four or five has been emblematic as some degree of the increase cycle time that we're seeing in a number of our marks in terms of tenants actually getting across the finish line selling leases.

We've seen that across our whole portfolio and.

Some of these discussions with our tenants in that building have have gone on for a number of months all very positive but.

No real key decisions being made.

That's kind of one factor too is it's a smaller floor plate building issue no.

So it's really geared towards.

10% to 20000 square foot users.

There are two floor user of their 40000 square feet. So it's not really geared towards some of the larger tenant movements that are taking place within the Austin market in general.

And I think one of the third piece, which is kind of a contributing factor to the velocity in Austin for particularly the smaller sized tenancies is that for whatever reason that market has the lowest level of occupancy through our whole portfolio.

We're <unk>.

Between 40, and 60% in a number of buildings around the portfolio in Austin, I think George around 15015% yeah. So.

So you've really hasnt come back for workplace standpoint, so.

We share the disappointment with the pace of leasing there.

We have however been able to hold effective rents capital cost and we're very confident that.

And the next.

60 days will be able to get some of these key leases across the finish line and really change the income trajectory that properties certainly moving into 'twenty three.

Okay. If I could just ask one technical question for Tom straight line rent SaaS 141, I didn't hear you provide a number for 'twenty two do you have that handy.

Not right off the top Steve I'll have to get that to you all follow up right. After the call. Okay. Thank you.

Thanks Jade.

Thank you.

Our next question comes from Craig Mailman from Keybanc capital markets. Your line is open.

Hey, good morning good.

Good morning, Terry.

Jerry I just wanted to circle back to the commentary about.

The ability to kind of take off some low cap rate sales.

To fund development and kind of bring down leverage I know in the past you've hinted at something like a JV of seara.

Some of your trophy buildings, I mean could you just give us a hint at what Youre thinking about would these be.

Wholesales are continue to be kind of in this JV.

Thought process.

Great question, Craig I think our perspective right now is we're much more biased to wholesales on.

On existing <unk>.

Turning assets I think obviously given the capital requirement Craig on some of these larger scale development stated uptown or ATX, I'm, sorry, uptown or Schuylkill yards I think there.

Until the capital markets conditions improve for office comp and I think we are still biased probably doing these kind of preferred structures, where we essentially borrowed low cost equity with a clean governance structure, bringing third party debt to get those projects executed I think on the assets.

Sales side.

Whether those assets are currently held in the JV today, we're wholly own I think a clear bias is to do a complete liquidation.

We still have the goal of continuing to reduce the number of operating joint ventures, and we think that's a natural occurrence with some of the liquidations. We have planned over the next couple of years.

And you guys are you're trading kind of in the low seven imply cap rate on my numbers.

Sure developments are kind of in that seven to eight maybe a little bit higher.

Where do you think or what do you think the kind of the pulp.

Public private arbitrage is on some of these buildings you want to sell but give us a sense of where you think your best assets or assets targeted would sell.

Yes as.

As we're looking at some of the assets that we're evaluating for liquidation.

Yes.

There is a both office and residential in that targeted pool and the cap rates, we're seeing between kind of current yield and sales prices between.

I would say around 250 basis points.

Maybe even low on a couple of the other assets I mean, what's been kind of intriguing is that you're really seeing premium pricing.

Jade for long leased asset so if there is.

Good weighted average lease term good credit.

There's certainly been a real push towards cap rate compression, even while the office market is going through this recovery.

So we would expect to be able to realize through both timing.

Identifying the right assets, we can generate additional liquidity for the company without really creating any downward pressure on earnings.

And then just one more quick one.

It would this include potentially <unk> at Uptown or would you not want to giveaway and the control that uptown.

<unk> Google.

Yes.

We're really focused more on the existing assets that we have.

So certainly our perspective is on the development projects.

Get those completed get the value stabilize we think theres, an awful lot of data that will accrue to the brandywine shareholders as part of that program. So.

Our efforts really Craig we're focused on kind of existing earning assets.

Great. Thank you thank.

Thank you.

Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open.

Great. Thanks, and good morning, Thanks for taking the question. So you had talked about 7% seven to 10 cents a share from vacancy lease up but you've only got to sense of that in your 'twenty. Two guidance, 20% has been executed can you just talk about the composition of that remaining call. It I guess <unk>.

Maybe talk about the specific spaces in your leasing prospects.

Sure George Yeah, absolutely Jamie good morning.

I think as I mentioned earlier, the largest piece of that really is that.

At $16 76.

It's probably about.

45% of that.

Of that 7% to 10 10.

We've got.

100 and.

171000 square feet still to lease down there.

Got.

About 100000 square feet in our.

Plan for 'twenty, two with kind of later in the year commencement so not a full year of revenue contribution.

The next biggest pieces are.

At our river place project down in Austin.

We've got several several vacancies down there.

That again not a lot in the plan.

For 'twenty two.

All contributor for 'twenty three.

And then we've got about $1 million in that.

Kind of a bucket of properties out.

<unk> meeting suburb and we've got good traction on on a majority of that space.

Okay, and one of your larger remaining spaces downtown are Ya.

Pretty much buttoned up at this point.

While downtown on the on the <unk>.

We owned side, it's very well buttoned down the opportunity for us in Philadelphia remains at Commerce square and.

We've obviously got the Macquarie space and the reliance space that that we're still dealing with we've got a we've got a pipeline over at <unk>.

At Commerce of about 150000 square feet.

It can continue to see good levels of tour, but.

Have not.

Had.

Any large lease execution to date.

So is that you are not including that in the seven to 10.

No that was just more to address your question about the Philadelphia and the numbers. We cited Jamie really were hopeful from our wholly owned portfolio. I mean, we think when we look at some of our joint venture properties.

The operating joint venture properties. There is certainly an opportunity to kind of move up the income stream as well as the market continues to recover.

Okay.

That's a 'twenty two event.

Look at it.

Here now we are in February I think the the lease up we had planned on.

Number of these properties for the larger vacancies really won't kick in until Q4, so their impact on 'twenty two numbers is minimal.

And so the bigger impact will be in 'twenty, three and we are seeing very good activity across a lot of those vacancies.

But by the time, we get through lease execution.

Every place we do business.

Municipalities are taking longer to approve plans.

The construction markets pretty.

Pretty robust in a number of areas. So it's taken a little bit longer to build out space and so as we kind of went through and risk assess when we could actually deliver spaces. Jamie we were more bias towards kind of fourth quarter versus third quarter deliveries, depending upon where we thoughtful lease negotiation process was.

Okay. Thank you and then to your initial comments about tenants want high quality Workspaces.

Think about your portfolio and I guess, specifically Philadelphia downtown in suburbs.

What do you put in that category.

Thinking I guess more about your suburban assets do you think at all.

Fits into that flight to quality I know you mentioned Plymouth meeting is it sell market, but just how are you thinking about either capex needs to upgrade assets in the suburbs or maybe they are their finances.

Yeah look it certainly.

As we look kind of across the board.

In our call Philadelphia Operation, We think everything that we have downtown is either really fully leased and put away for a long period of time and where we do have a vacancy like E. Commerce. We've made a number of building upgrades for our joint venture.

A number of prebuilt spaces.

Improve the amenity package in the building. So we think that that remains a very high trophy class type of properties that really does have the ability Jamie with this kind of shift in tenant appetite to really start drawing in.

Tenants, who were kind of in the.

B plus type of inventory as they think about their return to workplace programs I think in the suburban areas. We certainly our radnor portfolio in King of Prussia portfolio were all pretty well leased and we've invested capital there for a number of years, we just actually wrapped up a capital renovation plan last year.

At our Plymouth meeting project in Kansas that lobby restroom landscaping.

Partway upgrade signage upgrades and we've actually seen a very big uptick in activity out there so that kind of validates the supposition that if you invest money in the building positioned even better if it's well located you'll get the tenant demand drivers. So.

As we're looking forward there is a few properties that we plan on doing lobby renovations.

Actually the <unk> center here, we're actually wrapping up.

Lobby renovations a lot of great success, particularly as we attracted all of those companies and for the incubator in the life science companies. So it is a continual reinvestment models seem to make sure that where you are investing money youre getting a return on invested capital that justifies that investment and if you don't that becomes a predicate for selling that asset that's really what drove a lot.

Our thought process over the last five years.

Okay and then finally for me I know in the press release, you talked about the Austin land sale gain it.

Sounds like that's different than what you sold in the first quarter and even what's in guidance what are your thoughts on how youre going to record that in earnings in.

And even the magnitude.

We're actually still that's also under review right now Jamie that's why we haven't really announced any numbers on it but yes, there'll be some more announced in the first quarter and Jamie just to clarify I'll take a look.

With that land sale was actually in Richmond, Virginia.

We did have so it wasn't Texas sale.

And then.

As Gerry mentioned, we're still looking at how we're going to record the gains.

They are not included just to be clear they are not included in our.

Land gain.

<unk> that we put into the supplemental a $4 million to $5 million that.

That will be those land gains we haven't included yet.

Still assessing or those land gains.

For <unk> purposes, or not but we certainly are going to be taking will certainly be disclosing that.

Okay. Thank you.

Thanks, Jamie.

Thank you.

Next question comes from Daniel Ismail from Green Street Advisors. Your line is open.

Great. Thank you.

I understand.

These types of discussions can be sensitive given open.

<unk>, but I'm just curious how pro forma rents have trended for the non life science development.

It just feels like with demand for quality office asset, particularly in Austin.

Potential upside here.

Hi, Danny.

And George you and I can tag So look I think when I think one of the things that we've been.

Very pleasantly surprised both with the scale and with the volume of it is our ability to kind of really move rents across the board I mean, it's been interesting for us to be able to see.

For really the last few years, posting really good mark to markets, keeping our capital costs.

Below that 15% long range target we've had in fact closed out 'twenty, one with a really good numbers.

And as you know that number can change based upon different larger term and larger sizes.

But I think.

Look back over the last couple of years, where a lot of the expectation in the marketplace with rents were going to fall through the floor.

There would be no demand drivers.

I think in the asset class that we're in the very high end and all of our key Submarkets, we've actually seen a fairly good degree of resiliency and rents.

<unk>.

On a non life science side and life science, we've seen an amazing escalation, but even on the office side, we take a look at where we're able to do in <unk>.

Our suburban counties.

Rental rates for negotiating with some of our Austin vacancies.

What we've been able to do in CBD Philadelphia.

Has all been surprisingly resilient.

And I think that does play into the quality narrative.

See how long that that process continues now that being said I think there are certain projects, we have where we have been very effective in meeting the market. So.

George had talked about $16 76.

That's a wonderful.

Wonderfully renovated project, but in a marketplace that really does not have a lot of demand drivers and is within.

Within that situations pre pandemic as that situation today. So there we've been aggressively.

Marketing the space and in some of those cases are rental rates versus original pro forma has gone down but thats a very isolated case I think when we take a look across the board.

Our on the ground.

Daily engaged leasing agents one of their major responsibility is to make sure that the senior operating executives here read the market well and understand where we can push where we can and I think we've all been surprised leasing agents through senior executives with George's level about.

How strong some of those demand drivers have been in house, how really.

Economically viable a lot of these leases have been.

Got it and then Jeremy maybe on charter rates in Philadelphia.

Spoken about this previously, but historically that <unk> struggled to attract outside firms, particularly given the tax complications, but im curious if youre seeing or anticipating any improvement in that trend.

Okay.

We are anticipating some improvement as the.

The city of returns to the workplace.

It's been interesting Danny to that one of the early expectations was that it seemed more employer shipped to suburban locations nationally.

You can fill it up there.

Looking at it from the answer there was concern that that trend might accelerate we really haven't seen.

Companies looking to relocate outside the city.

Due to either the tax structure or or any other circumstance.

In fact, we've seen the opposite we've actually seen a number we actually moved the tenant into one Logan who came in from outside the city and you can never forget that attractive attracting labor pool is very very important to a lot of our customers.

Philadelphia has done an amazing job.

In the last decade of really growing the residential population.

Worker base within the city Center city or some of the adjoining neighborhoods. So we're talking to a lot of companies who are looking at moving downtown primarily because that's where a lot of the younger workers globally.

Where they live in very close in suburbs. So I think the next year, so it'd be very interesting in terms of.

How the job creation trends in Philadelphia actually does bottom line, we have seen a very nice uptick in activity coming out of the life science sector.

I think that's been very very exciting and we think that will be both in a relative from a relative standpoint.

Disproportionate growth jobs within the cities.

Thats a good green shoots that we're tracking very carefully.

Got it thanks, Gerry and then maybe just one last one.

Additionally machines.

The potential dispositions in 2022.

Any.

Tax consequences that May necessitate, a 10 31 or all of the potential disposition kind of all three.

Capital gains taxes or it can be covered by the dividend.

Yes, Hi, Jay Yes, we do look at the capital gains that whether we havent need for a special dividend right now some of the ones we are targeting.

We don't think we need to be concerned about that as always though if there is an opportunity.

With a acquisition and disposition to defer the gain into a 10 31, we'll certainly look at those opportunities.

But right now we don't see a concern on the coverage of the dividend in these sales.

Got it thank you Ron.

Okay.

Thank you. Thank you.

And I am showing no further questions from our phone lines I'd now like to turn the conference back over to Jerry Sweeney for any closing remarks, great. Only closing remark is thank you for your attention and your engagement with our company and we look forward to updating you on our activities at the next earnings conference call. Thank you very much.

Thank you. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.