Brandywine Realty Belief (NYSE:BDN) This fall 2021 Earnings Convention Name February 3, 2022 9:00 AM ET

Firm Members

Tom Wirth – Government Vice President & Chief Monetary Officer

George Johnstone – Government Vice President of Operations

Convention Name Members

Manny Korchman – Citi

Steve Sakwa – Evercore ISI

Craig Mailman – KeyBanc Capital Markets

James Feldman – Financial institution of America

Daniel Ismail – Inexperienced Avenue Advisors

Operator

Good day and thanks for standing by. Welcome to the Brandywine Realty Belief Fourth Quarter 2021 Earnings Convention Name. At the moment, all contributors are in a listen-only mode. After the audio system’ presentation, there can be a question-and-answer session. [Operator Instructions] Please be suggested that right this moment’s convention is being recorded. [Operator Instructions]

I might now like handy the convention over to your host right this moment, Jerry Sweeney, President and CEO. Please, go forward.

Jerry Sweeney

Michelle, thanks very a lot. Good morning, everybody, and thanks for taking part in our fourth quarter 2021 earnings name.

On right this moment’s name with me are, George Johnstone, our Government Vice President of Operations; Dan Palazzo, Vice President and Chief Accounting Officer; Tom Wirth, Government Vice President and Chief Monetary Officer.

Previous to starting, sure info mentioned throughout our name could represent forward-looking statements inside the that means of the Federal Securities Regulation. Though, we imagine these estimates are based mostly on — mirrored within the statements are based mostly on cheap assumptions, we can’t give assurance that the anticipated outcomes can be achieved. For additional info on info that would influence our anticipated outcomes, please reference our press launch, in addition to our most up-to-date annual and quarterly experiences that we filed with the SEC.

So at the start, we hope that you simply and yours had a beautiful vacation season and are wanting ahead to a really profitable 2022. And in our world, definitely after some reopening delays associated to the newest variants, now we have stronger tenant curiosity in high-quality workplace area, as tour exercise, lease negotiations and deal executions stay on a really constructive development line.

A definitive development and one which we imagine will speed up is that tenants are requiring very high-quality workspaces and we imagine this development positions our present portfolio and our growth portfolio extraordinarily properly.

Throughout our ready feedback, we’ll briefly evaluation fourth quarter outcomes, define our 2022 marketing strategy and supply shade on latest actions, each on the event and transactional facet. Tom will then evaluation our 2021 outcomes and body out the important thing assumptions driving our 2022 steerage. After that Tom, George, Dan and I can be found to reply any questions you will have.

So wanting previous — again to 2021, we closed the yr on a really robust be aware with many marketing strategy goals achieved. We exceeded our speculative income goal by $1 million, elevating steerage twice in the course of the yr. We execute — our executed lease volumes remained consistent with final quarter and our working portfolio leasing pipeline elevated by 120,000 sq. ft.

For the fourth quarter we posted rental fee mark-to-market of 8.1% on a GAAP foundation and a pair of.6% on a money foundation, with our full yr mark-to-market being very robust at 16.2% on a GAAP foundation and 10.3% on a money foundation. As well as, we had 116,000 sq. ft of constructive absorption in the course of the quarter.

Our full yr 2021 money similar retailer numbers got here in beneath our revised marketing strategy, primarily because of decrease parking income, dangerous debt associated to at least one retail tenant and free lease for a backfill tenancy.

Full yr capital prices, nevertheless, have been consistent with our marketing strategy vary. Tenant retention was 53%, which was on the prime finish of our full yr forecast and core occupancy and lease targets have been additionally inside our forecasted vary, the place we ended 2021 93% leased and — truly 93.9% leased inside our core markets.

We posted fourth quarter FFO of $0.35 per share, which is consistent with consensus estimates and full yr 2021 FFO of $1.37 per share, which was $0.01 above consensus. For 2022, we’re offering steerage with an FFO vary of $1.37 to $1.45 per share for a midpoint of $1.41 per share. Our early renewal efforts, expense management applications, ahead near-term pipeline visibility and our lately executed transactions, established a transparent pathway for progress.

Our 2022 plan is headlined by two working metrics that reveal the underlying energy of our core markets and for it is wonderful progress potential. Our money mark-to-market vary is between 8% and 10%. Our GAAP mark-to-market vary is between 16% and 18%.

Our GAAP similar retailer NOI progress for each money and GAAP is between 0% and a pair of% and we count on all of our areas will submit constructive mark-to-market outcomes on each a money and GAAP foundation.

In a second at our money similar retailer NOI vary of 0% to 2%, it is impacted by the timing of rollover and the following backfill from leases already executed. So for instance, in Philadelphia, we renewed a 120,000 sq. foot tenant commencing February one among ’22. The free lease in that 16-year deal will final the steadiness of ’22.

As well as, we had 110,000 sq. foot tenant vacate Cira Centre in 2021. We have already leased 75% of that sq. footage with a graduation in July. And people lease buildings on these alternative tenants are 10 years in time period and incorporate free lease for the steadiness of ’22. Simply these two transactions represented 3.1% money similar retailer influence. We imagine based mostly on leases we have already got executed and visibility into our near-term pipeline, that portfolio is properly positioned to ship significantly better similar retailer progress in ’23.

Our spec income vary is between $34 million and $36 million, with $25.6 million or 73% on the midpoint achieved. That speculative income vary represents roughly two million sq. ft of leasing velocity which compares to leasing velocity of 1.2 million sq. ft in ’20 and 1.4 million in 2019.

Different key highlights. Occupancy ranges will stay between 91% and 93%, lease ranges between 92% and 94%. We count on a retention fee between 58% and 60%. And the capital for 2022 will run about 14% of income and that is above 2021, primarily because of a number of of these very giant long-term leases commencing in the course of the course of the yr.

Primarily based on our 2022 leasing exercise and better growth and redevelopment spend, we undertaking our web debt to EBITDA to be in a spread on a mixed foundation between 6.6 to six.9 occasions. We view this leverage improve is solely transitional, whereas we’re in a interval of investing important capital into building, with out recognizing any NOI. As revenue recognition happens, this leverage will lower considerably. To amplify this level, now we have segmented our EBITDA metrics between core and mixed.

On web page three of the SIP, when you take a look at that, we have included one other leverage metric, that focuses simply on our core portfolio by eliminating our three way partnership nonrecourse debt and our lively growth and redevelopment spend. We imagine that our projected core leverage vary between 6.0 and 6.3 gives a extra correct measurement of how we’re managing our core operations, because it eliminates our extra extremely leveraged joint ventures and eliminates the volatility related to the timing of spending undertaking capital, which will increase leverage and the following delay in revenue recognition.

During the last couple of years, we have diminished our ahead rollover via 2024 to a mean beneath 8%. Additional – wanting additional out, our rollover publicity is beneath 10% yearly via 2026. So worth creation and earnings progress stay a prime precedence. Senior incomes drivers for us as now we have key vacancies that a lot of you might be conversant in that may generate between $0.07 and $0.10 a share upon lease-up. We proceed to make progress on leasing up these areas however our 2022 plan solely contains roughly $0.02 per share of income from these vacancies, of which 20% has already been executed.

In our exercise ranges, our total leasing pipeline stands at 3.8 million sq. ft, damaged down between 1.4 million sq. ft on our working portfolio and a pair of.4 million sq. ft on our growth tasks. The 1.4 million sq. ft leasing pipeline on the present portfolio elevated by 120,000 sq. ft in the course of the quarter and is 14% increased than our pre-pandemic ranges from the fourth quarter of 2019. The leasing pipeline on our growth tasks of two.4 million sq. ft additionally elevated in the course of the quarter by 100,000 sq. ft.

In our liquidity and dividend, now we have wonderful liquidity. And even with our anticipated growth spend and absent another financing sources, we anticipate having $383 million on our line of credit score obtainable by year-end 2022. We additionally do anticipate renewing each our line of credit score and our $250 million time period mortgage in the course of the first half of the yr on – at comparable phrases to the present devices.

The dividend may be very properly lined with a 54% FFO payout ratio on the midpoint. Our CAD ratio has migrated to about 90% and above latest years, primarily because of our elevated leasing exercise, which is that 2 million sq. ft we plan on leasing. And as well as for 2022, we did embrace all JV capital spend in our CAD calculation, regards as to whether these {dollars} are financed via excellent news funding at our JV degree secured mortgages and that did have an effect of $0.05 a share about 5.5% of our CAD ratio. We do anticipate that protection enhancing considerably as leases start and we acknowledge income.

From a capital allocation standpoint, we made progress on many fronts. We liquidated our closing property in our Allstate three way partnership and acknowledged the acquire of $3 million. We additionally continued promoting non-core land parcels in the course of the course of the yr. And actually in January, we offered one parcel for $1.4 million, producing a $900,000 acquire.

In our growth alternative set, 250 King of Prussia Street, in our Radnor sub-market is scheduled for supply within the second quarter of 2022. The undertaking would be the first supply in our Radnor Life Science Heart, which consists of greater than 300,000 sq. ft of Life Science area, in what we think about to be the area’s finest performing submarket. The present pipeline on that undertaking is north of 260,000 sq. ft, together with 86,000 sq. ft in lease negotiations.

405 Colorado in Downtown Austin that undertaking is now full and is 48.3% leased with a rising and really lively pipeline. We’ve got a leasing pipeline proper now of 144,000 sq. ft of which 31,000 sq. ft are in lease negotiations and we’re working via a 26,000 sq. foot growth.

Our B.Labs incubator at Cira Centre it consists of 240 seats. That opened in January and is 95% leased to 12 corporations. Properly forward of our plan and based mostly on that success, we’re planning so as to add one other flooring totaling roughly 27,000 sq. ft by yr finish 2022. And we moreover have plans underway so as to add one other 78,000 sq. ft of life science functionality via Flooring 9.

Simply looking at an replace on Schuylkill Yards and Uptown ATX. In Schuylkill Yards West, our life science workplace residential tower is on time and on price range for Q3 2023 supply. We at present have an lively pipeline totaling 410,000 sq. ft for the life science and workplace area part. That pipeline is up 70,000 sq. ft from final quarter and we do count on it to proceed to develop as building progresses.

Our $56.8 million fairness dedication is absolutely funded and our accomplice’s fairness funding is at present being made and the primary funding of our building mortgage will happen within the second quarter of 2022. 3151 market, our 424,000 sq. foot life science constructing is absolutely designed and priced. We’ve got a leasing pipeline totaling about 270,000 sq. ft, which is up from 150,000 sq. ft within the third quarter and our aim stays to with the ability to begin that undertaking this yr.

At Uptown ATX, we have had a really productive 90 days on the 66-acre neighborhood which has the event capability approaching seven million sq. ft. We rebranded the undertaking from Broadmoor to Uptown ATX recognizing it could actually create a brand new middle of gravity inside the metropolis of Austin.

We broke floor on Block A, which consists of 348000 sq. ft of workplace, 341 residential models and 15000 sq. ft of floor flooring retail. As a part of this we’re delighted with our 50-50 enterprise with Canyon Companions.

That construction is just like our 3025 Schuylkill Yards West undertaking with Canyon offering 50% of the fairness on a most popular foundation. We’re at present within the means of acquiring a 65% building mortgage which we count on to shut earlier than the shut of Q1.

As we mentioned up to now these most popular buildings allow Brandywine to retain a good portion of worth creation upon stabilization. Underneath our most popular buildings as soon as the companions in Brandywine obtained the accrued return, a major worth accretion involves Brandywine after that.

So based mostly on our stabilized underwriting that creates an incremental 400 foundation factors to 500 foundation factors decrease price of third-party fairness capital than a conventional three way partnership. We additionally anticipate the completion of that workplace part in 3Q 2023 and the residential part in 3Q 2024.

We’ve got a pipeline on the workplace part proper now about 300,000 sq. ft. However since asserting the undertaking we obtained inquiries aggregating simply shy of 1.3 million sq. ft. So loads of exercise on that undertaking now that it is lastly popping out of the bottom.

We additionally had our groundbreaking for the prepare station that we’ll be constructing via a 50-50 public-private partnership with CapMetro which is the regional rail authority in Austin. That station as we have outlined earlier than, will present Uptown ATX direct entry to downtown Austin and the northern suburbs and we count on it to open for service throughout 2024. We additional anticipate that we are going to be beginning the primary part of Block F which is 272 condominium models below the identical format with Canyon within the second quarter of ’22.

One closing be aware. Whereas our 2022 marketing strategy didn’t incorporate any inclinations or acquisitions, we do anticipate being lively on the capital recycling entrance. We do anticipate to proceed to promote choose non-core land parcels. Additionally with the workplace restoration underway and premium pricing being paid for well-leased property, we imagine now we have a number of alternatives to reap income with low cap fee gross sales.

We additionally anticipate gross sales of choose properties out of our present joint ventures. So the {dollars} generated from these actions can be used to definitely fund our growth pipeline, proceed to scale back leverage after which definitely redeploy {dollars} into increased progress alternatives.

With that Tom will now present an summary of our monetary outcomes.

Tom Wirth

Thanks, Jerry. Our fourth quarter web revenue totaled $4.5 million or $0.03 per diluted share and FFO totaled $60.4 million or $0.35 per diluted share and consistent with consensus estimates. Some common observations on our fourth quarter outcomes. Whereas fourth quarter outcomes have been consistent with consensus, we had quite a lot of shifting items and several other variances to our second quarter steerage. Portfolio working revenue approximated $70 million and was consistent with our third quarter steerage. And our portfolio did expertise 116,000 sq. ft of constructive absorption.

We targeted — we forecasted two land gross sales producing $1.3 million of good points which didn’t happen. These two land gross sales have been delayed till ’22 and one sale’s already closed in January producing a $900,000 acquire. Termination and different revenue totaled $4.2 million and was $1.7 million above our third quarter forecast, primarily because of unbudgeted onetime insurance coverage revenue.

G&A expense totaled $8.1 million or $1 million above our estimate. This improve is primarily because of increased employee-related prices {and professional} charges. Our fourth quarter mounted cost and revenue ratios have been 4.2 and three.9 respectively and higher than our third quarter and year-end forecast Each metrics benefited from decrease than forecasted capital spend.

Our fourth quarter annualized web debt to EBITDA was 6.5 and met the excessive finish of our 6.3 to six.5 steerage. Concerning money collections total assortment fee for the fourth quarter continues to be over 99% as in earlier quarters and there have been no important tenant write-offs in the course of the quarter.

Portfolio adjustments. We — as we talked about final quarter based mostly on the completion of three,000 Market that was added to our core portfolio in the course of the fourth quarter and is 100% leased life science constructing to Spark Therapeutics. On the financing exercise, we restructured and prolonged our present mortgage encumbering our three way partnership at 4040 Wilson, reducing our common borrowing price by roughly 100 foundation factors, producing minimal preliminary proceeds however permitting for elevated borrowings to finish the leasing of the vacant workplace area.

Turning to the 2022 steerage. On the midpoint, web revenue can be $0.21 per diluted share and FFO can be $1.01 per diluted share, and our vary is constructed with a few of the following assumptions. Our portfolio working outcomes for GAAP NOI can be about $290 million, a rise of $17 million from final yr.

We’ve got the complete impact of 3000 Market and 405 Colorado totaling $5 million. 1676 can be about $4 million. The completion of our life science and redevelopment of the 250 King of Prussia Street will begin to generate revenue and can be $2 million. We could have improve in our residential revenue of about $2 million and the steadiness being a web improve from the same-store portfolio.

Our contribution from unconsolidated joint ventures will complete about $28 million to $29 million, and G&A can be between $34 million and $35 million, excluding a one-time credit score in 2021 that represents a rise of $1.9 million.

Complete curiosity expense, together with deferred financing prices, will improve to roughly $70 million to $71 million, that is going to be because of the increased forecasted spend on our line of credit score. We’re additionally forecasting increased rates of interest as properly.

Capitalized curiosity will improve to about $7 million. That is because of the present developments ongoing in addition to a few of our anticipated growth begins later in 2022. And our land gross sales, as Jerry talked about, now we have about $4 million to $5 million of land gross sales anticipated. That is promoting non-core land parcels, and as talked about, one is already closed in January.

Termination and different revenue of $11 million, which is above 2022, once more because of some onetime particular objects we count on to have occurring in the course of the yr transactions as I mentioned. Internet revenue, leasing and growth charges can be between $15 million and $16 million.

As Jerry talked about, now we have no property acquisitions or inclinations in our steerage. We plan no ATM or share buyback exercise right now, and we anticipate refinancing our credit score — line of credit score and $250 million time period mortgage in the course of the first half of 2022. Our share rely will approximate 174 million diluted shares.

Taking a more in-depth take a look at the primary quarter steerage, we’re anticipating portfolio revenue of about $72 million. That can be sequentially increased by $1 million and that is primarily because of 3000 Market, the 116,000 sq. ft of absorption that occurred within the fourth quarter and that can be partially offset by a number of identified move-outs, a majority of which has already been launched later in 2022.

FFO contribution from our unconsolidated joint ventures will complete $6.5 million for the primary quarter. G&A for the primary quarter will improve from $8.1 million to $9.5 million, and that sequential improve is according to prior years, and is primarily because of the timing of rec compensation expense recognition.

Our complete curiosity expense will approximate $17.5 million, with capitalized curiosity of $2.5 million. And termination charges will complete about $3.5 million and web administration charge and growth charges can even complete $3.5 million. And now we have land gross sales, apart from the one we already introduced, one other $400,000 occurring to complete $1.3 million.

Our capital plan may be very easy and totals about $445 million. As Jerry talked about, the CAD vary of 84% to 95% is increased than regular. However after we do check out going out past this yr, we do see that quantity coming again in direction of our vary in 2020.

Wanting on the sources and makes use of, $190 million of growth; $131 million of frequent dividends; income keep of about $55 million; income create of about $40 million; and $29 million of contributions to our joint ventures in the course of the yr. Major sources goes to be $190 million of money movement after curiosity funds $193 million for the road of credit score use, credit score money readily available of $27 million and $35 million of proceeds from land gross sales and in different.

Primarily based on that capital plan, our line of credit score will improve about $217 million leaving $383 million obtainable. We additionally undertaking that our web debt to EBITDA will vary from 6.7 to six.9 with the primary variable being the scope of our growth actions and the spend. Our web debt to GAV will roughly 40% to 41%. As well as, we anticipate our mounted cost ratio will roughly 4.0 and our mounted — our curiosity protection can be 3.8, which represents sequential decreases however once more primarily because of the capital spend we count on in the course of the yr.

We have additionally included a brand new metric our core web debt to EBITDA, which on the finish of the yr was 5.9. And that does exclude our joint ventures and our lively growth pipeline. We imagine this can be a higher measure of how you need to take a look at how we’re monitoring our leverage on our core portfolio as we do count on over time, the event tasks to come back on-line in addition to Jerry mentioning that we are going to be seeking to promote a few of our joint ventures doubtlessly over the subsequent yr or so.

With that, I’ll flip it again over to Jerry.

Jerry Sweeney

Nice. Thanks Tom. So the important thing takeaway is to take a look at our 2022 marketing strategy, we all know we’re definitely nonetheless going through some headwinds as an business on the restoration of the economic system and the return to office setting. However I feel we do view that within the context of our portfolio and operations being in very strong form. We expect the leasing exercise and the ahead rollover discount we have performed during the last couple of years gives wonderful visibility for ahead progress.

And our 2022 marketing strategy incorporates robust mark-to-markets, managed capital spend and robust leasing exercise. And I do need to emphasize that we actually do see in all of our tenant discussions, an actual concentrate on increased high quality, security well being, multimodal entry. And we actually do imagine that — and really as evidenced by the rise in our pipeline simply within the final couple of quarters that that development line will proceed and profit our firm.

So with that, we want to open up the ground for questions. As we all the time do, we ask for the curiosity of time you restrict your self to at least one query and a follow-up. Michelle?

Query-and-Reply Session

Operator

Thanks. [Operator Instructions] And our first query comes from Manny Korchman from Citi. Your line is open.

Manny Korchman

Hello. Good morning, everybody. Jerry and Tom, I admire the feedback on breaking out your leverage stats into form of core and headline. However I suppose simply attending to the foundation explanation for that, you’ve got been huge builders and getting greater and that has burdened the leverage stats. You take a look at this yr you are borrowing nearly $200 million on the road of credit score. You have performed a bunch of those JVs the newest one among 50-50. After which when you do promote down the JVs otherwise you promote some extra non-core that simply will get you one other yr of dilution. So I suppose the query is how do you form of repair leverage extra completely aside from ready for these huge developments to come back on-line, which goes to take two or three or 4 years from now? Do it’s worthwhile to do fairness? Is it a matter of perhaps doing an even bigger sale of perhaps one thing extra core or simply greater generally to form of fund the tank? Thanks.

Jerry Sweeney

Yeah. Manny, nice query and good to listen to from you. No, I feel it is a wonderful query. We do spend loads of time on methods to optimize our capital allocation. And I feel we do have quite a lot of core land gross sales that may generate near-term liquidity in a non-dilutive means. I feel we even have some pretty well-leased premium-priced property each on our steadiness sheet and inside our three way partnership buildings that may increase capital that we predict can be non-dilutive to present earnings, and positively timing these gross sales to a few of these nearer-term deliveries. We nonetheless have to consider — we form of have 405, which isn’t producing that a lot revenue for us in 2022 but it surely’s delivered. That can be leased up very shortly.

We’ve got 250 coming on-line throughout 2022 and the leasing exercise there may be very encouraging. We’ve got quite a lot of giant leases that as outlined on the identical retailer quantity. They’re already signed, however form of in free lease durations. It’ll generate some further liquidity for us. So we actually do assume now we have loads of near-term alternatives to generate liquidity in a non-dilutive solution to form of handle that leverage down because the course of the yr and the 2023 continues. And I feel the actual alternative lies into a few of these developments actually coming on-line and performing as we all know they’ll. So the long-term alternative we predict may be very a lot there.

In actual fact, it is humorous you raised the query as a result of I do recall I feel in one among your resolutions for 2022 I feel it was quantity 5 actually targeted on optimum capital allocation together with doing accretive transactions growth and redevelopment and fund it on a long-term leverage-neutral foundation utilizing a spread of financing instruments. And I feel definitely the third-party fairness markets are extremely viable. There is no scarcity of fairness companions who want to do totally different transactions. So that actually does give us a reasonably efficient value of third-party fairness to assist finance these developments.

I feel managing an lively sale program of each land wholly owned and three way partnership property will allow us to maneuver right into a decrease leverage mannequin as properly. I feel long run and that long run could possibly be two or three years we truly imagine when these properties come on-line. Our leverage metrics will method a historic low for us.

Manny Korchman

Nice. After which Jerry, going again to the identical retailer progress remark. You walked us via the plus 300 foundation factors from these couple of huge leases. However you additionally made the purpose of 2023 progress being higher. If I perceive your steerage accurately, you’ve got obtained spherical about 60% retention within the steerage and about a million sq. ft of expiries. So it appears to be like like you are going to have name it 400 – roughly 400,000 sq. ft of non-renewal, how is that going to weigh towards the positives of those couple of huge leases that you simply talked about turning into money movement constructive?

George Johnstone

Yeah. Manny, good morning, it is George. Let me attempt to take a few of that. A part of what’s not going to resume, now we have efficiently backfilled and evidenced by the 75% of the area right here at Cira Centre that Baker Hostetler gave again. In order that can be adverse retention for us, however then reabsorb area with the free lease burning off in 2022 and absolutely money producing in 2023. The big renewal that we did over on the Logans once more 11 months of free lease form of burning off. So one month in 2022, 12 months in 2023. These are form of actually the large drivers.

After which the opposite a part of our similar retailer that actually had some continued lease-up to go is 1,676 down in Tysons. And we have about $1 million of incremental income plan for that asset in 2022. After which we predict the steadiness of the constructing fills up in 2023.

Manny Korchman

Thanks, George.

George Johnstone

Thanks, Manny.

Operator

Thanks. Our subsequent query comes from Steve Sakwa from Evercore ISI. Your line is open.

Steve Sakwa

Thanks. Good morning. Jerry, I hoped you possibly can perhaps break down a bit bit. I feel you talked about two million sq. ft of leasing exercise in 2022. And I am simply making an attempt to get a way for the way a lot of that’s core portfolio? How a lot of that is growth within the core portfolio? How a lot of that will you attribute to renewals? And the way a lot would you attribute to new leasing?

George Johnstone

Yeah, Steve, good morning, it is George. I am going to soar in right here as properly. So of the 2 million sq. ft 1.2 million sq. ft of it are new offers and about 800,000 sq. ft of renewals. It is all inside the core portfolio. So that doesn’t embrace any of our growth redevelopment. It doesn’t embrace 405 Colorado. It doesn’t embrace 250 Radnor. Clearly, the ground-up growth it would not embrace. The sq. footage is about 34% popping out of our Philadelphia CBD operation, 33% out of the Pennsylvania suburbs, 20% out of Austin, and about 12% out of D.C.

Steve Sakwa

Okay. And Jerry, perhaps you possibly can speak a bit bit concerning the leasing in Austin. You form of talked about that you simply had good exercise for Uptown, ATX as you introduced that undertaking and it sounded just like the pipeline ramped up, however leasing at 405 Colorado has been slower than anticipated. I feel you picked up roughly 5 factors of lease proportion within the quarter and that is nonetheless sitting sub-50% right this moment. So what is the dynamic happening? Is it a downtown versus form of suburban play, or why is 405, simply been as sluggish as it’s?

Jerry Sweeney

Yeah, Steve, look it is definitely – we’re hoping to make loads of important progress within the subsequent couple of quarters. I do not assume it is a difficulty of suburban versus downtown. We actually simply delivered the constructing completed the foyer, completed the sky foyer. The storage is now open so we’re getting extra exercise via the constructing. And I feel as we take a look at it – as a result of the pipeline actually has been very robust. And as I discussed in our feedback, now we have 30,000-plus sq. ft of leases and negotiations. We have already got one tenant, who desires to develop by over 25,000 sq. ft and a pipeline of offers behind that.

I feel 405 has been emblematic to some extent of the elevated cycle time that we’re seeing in quite a lot of our marks, when it comes to, tenants truly getting throughout the end line and promoting leases. We have seen that throughout our entire portfolio. And a few of these discussions with our tenants in that constructing have gone on for quite a lot of months, all very constructive, however no actual key selections being made.

In order that’s form of one issue. Two, is it is a smaller flooring plate constructing, as you realize. So it is actually geared in direction of 10,000 to twenty,000 sq. foot customers. If there are two flooring customers they’re 40,000 sq. ft. So it is not likely geared in direction of a few of the bigger tenant actions which can be going down inside the Austin market, generally. And I feel one of many — the third piece, which is form of a contributing issue to the rate in Austin for significantly the smaller sized tenancies, is that for no matter purpose that market has the bottom degree of occupancy via our entire portfolio. I imply, we’re between 40% and 60% in quite a lot of buildings across the portfolio. In Austin’s — I feel George round 15%?

George Johnstone

About 15%, sure.

Jerry Sweeney

So loads — that metropolis actually hasn’t come again from a office standpoint. So we share the frustration with the tempo of leasing there. We’ve got nevertheless, been in a position to maintain efficient rents, capital prices and we’re very assured that within the subsequent 60 days we would in a position to get a few of these key leases throughout the end line and actually change the revenue trajectory of that property’s definitely shifting into 2023.

Steve Sakwa

Okay. If I can simply ask one technical query for, Tom. Straight-line lease FAS 141. I did not hear you present a quantity for 2022. Do you’ve gotten that useful?

Tom Wirth

Not proper off the highest, Steve, I’ve to get that to you. I am going to observe up proper after the decision.

Steve Sakwa

Okay. Thanks.

Jerry Sweeney

Thanks, Steve.

Operator

Thanks. Our subsequent query comes from Craig Mailman from KeyBanc Capital Markets. Your line is open.

Craig Mailman

Hello, good morning.

Jerry Sweeney

Good morning, Craig.

Craig Mailman

Jerry I simply need to circle again to the commentary concerning the means to form of kick off some low cap fee gross sales, to fund growth and form of convey down leverage. I do know up to now you’ve got hinted at one thing like a JV of Cira, a few of your trophy buildings. I imply may you simply give us a touch at what you are eager about — would these be full gross sales or proceed to be form of on this JV thought course of?

Jerry Sweeney

Sure. Nice query, Craig. I feel our perspective proper now’s, we’re way more biased to full gross sales on present incomes property. I feel clearly given the capital requirement Craig, on a few of these bigger scale developments be it Uptown or ATX — I am sorry Uptown or Schuylkill Yards. I feel there till the capital markets situations enhance for workplace comp [ph] I feel we’re nonetheless biased to in all probability doing these form of most popular buildings the place we primarily borrow low-cost fairness, with a clear governance construction bringing third-party debt to get these tasks executed. However I feel on the asset gross sales facet, whether or not these property are at present held within the JV right this moment or wholly owned, I feel the clear bias is to do an entire liquidation. We nonetheless have the aim of constant to scale back the variety of working joint ventures, and we predict that is a pure prevalence with a few of the liquidations now we have deliberate over the subsequent couple of years.

Craig Mailman

And also you guys are — you are buying and selling form of within the low 7% implied cap fee on my numbers. Your developments are form of in that 7% to eight% perhaps a bit bit increased. The place do you assume — or what do you assume the form of the general public personal arbitrage is on a few of these buildings you need to promote? Like give us a way of the place you assume your finest property or property focused would promote?

Jerry Sweeney

Sure. As we’re a few of the property that we’re evaluating for liquidation, some — there’s each workplace and residential in that focused pool and the cap charges we’re saying between form of present yield and gross sales costs between — I might say round 250 foundation factors perhaps even decrease on a few the opposite property.

I imply, it has been form of intriguing is that you simply’re actually seeing premium pricing paid for lengthy leased property. So if there is a good weighted common lease time period, good credit score. There is definitely been an actual push in direction of cap fee compression even whereas the off-mark’s going via this restoration. So we might count on to have the ability to understand via each timing and figuring out the correct property we will generate further liquidity for the corporate with out actually creating any downward strain on earnings.

Craig Mailman

Okay. After which only one extra fast one. Would this embrace doubtlessly resi at Uptown, or would you not need to give away any management at Uptown or Schuylkill?

Jerry Sweeney

Sure. We’re actually targeted extra on the present property that now we have. So, definitely, our perspective is on the event tasks, get these accomplished, get the worth stabilized. We expect there’s an terrible lot of worth that may accrue to the Brandywine shareholders as a part of that program. So our efforts actually, Craig, are targeted on form of present incomes property.

Craig Mailman

Nice. Thanks.

Jerry Sweeney

Thanks.

Operator

Thanks. Our subsequent query comes from James Feldman from Financial institution of America. Your line is open.

James Feldman

Nice. Thanks and good morning. Thanks for taking the questions. So that you had talked about $0.07 to $0.10 a share from emptiness lease-up, however you’ve got solely obtained $0.02 of that in your 2022 steerage. 20% has been executed. Are you able to simply speak concerning the composition of that remaining name it I suppose $0.08? And perhaps speak concerning the particular areas and your leasing prospects?

Jerry Sweeney

Positive. George?

George Johnstone

Sure, completely, Jamie. I feel as I discussed earlier the most important piece of that actually is at 1676. It is in all probability about 45% of that $0.07 to $0.10. We have 171,000 sq. ft nonetheless to lease down there. We have about 100,000 sq. ft in our plan for 2022 with form of later within the yr graduation. So, not a full yr of income contribution. The subsequent largest items are at our River Place undertaking down in Austin. We have a number of vacancies down there that once more not loads within the plan for 2022, however a full contributor for 2023. After which we have about $1 million in that form of bucket of properties out within the Plymouth Assembly suburb. And we have good traction on a majority of that area.

James Feldman

Okay. And what are your bigger remaining areas, downtown? Are you just about buttoned up at this level?

George Johnstone

Properly, downtown on the wholly owned facet. It’s totally properly, buttoned down. The chance for us in Philadelphia stays at Commerce Sq.. And we have clearly obtained the Macquarie area and the Reliance area that we’re nonetheless coping with. We have a pipeline over at Commerce that’s about 150,000 sq. ft. And proceed to see good ranges of tour, however haven’t had many giant lease executions to-date.

James Feldman

So is that — you are not together with that within the $0.07 to $0.10?

Jerry Sweeney

That was not.

George Johnstone

That was not. That was simply extra to handle your query concerning the Philadelphia…

Jerry Sweeney

The numbers we cited Jamie it actually have been from our wholly owned portfolio. I imply we predict after we take a look at a few of our three way partnership properties — the working three way partnership properties there is definitely a chance to form of transfer up the revenue stream there in addition to the market continues to get well.

James Feldman

Okay. However then, you do not assume that is a 2022 occasion?

Jerry Sweeney

Yeah. Look, it’s. As sitting right here now we’re in February, I feel the lease-up now we have deliberate on quite a lot of these properties the bigger vacancies, actually will not kick in till This fall, proper? So their influence on 2022 numbers is minimal. And so the larger influence can be in 2023.

And we’re seeing excellent exercise throughout loads of these vacancies. However by the point you get via lease execution, each place we do enterprise the municipal has taken longer to approve plans. The development market’s fairly sturdy in quite a lot of areas. So it is taking a bit bit longer to construct out areas.

In order we form of went via and danger assessed after we may truly ship areas Jamie, we have been extra biased in direction of form of fourth quarter versus third quarter deliveries, relying upon the place we thought the lease negotiation course of was.

James Feldman

Yeah. Okay. Thanks. After which, to your preliminary feedback about tenants need high-quality workspaces. As you concentrate on your portfolio and I suppose particularly Philadelphia downtown and suburbs, what do you set in that class? Considering, I suppose extra about your suburban property.

Do you assume that each one suits into the combat to high quality? I do know you talked about Plymouth Assembly as a promote market, however simply how are you eager about, both CapEx must improve property within the suburbs, or perhaps their finance is?

Jerry Sweeney

Yeah. Look, definitely, as we glance form of throughout the board in our name it Philadelphia operation we predict every little thing that now we have downtown is both actually absolutely leased and put away for a protracted time frame.

And the place we do have the emptiness like at Commerce, we have made quite a lot of constructing upgrades via our three way partnership the variety of pre-built areas improved the amenity package deal within the constructing.

So we predict that that continues to be a really excessive trophy class sort of property that actually does have the power Jamie with this sort of shift-in tenant urge for food to essentially begin drawing in tenants who’re form of within the B, B+ sort of inventories as they consider the return to office applications.

I feel within the suburban areas, we definitely — our Radnor portfolio and King of Prussia portfolio we’re all fairly properly leased. And we have invested capital there for quite a lot of years. We simply truly wrapped up a capital renovation plan final yr, at our Plymouth Assembly undertaking. And it was only a foyer, restroom, landscaping a parkway upgrades signage upgrades. And we have truly seen a really huge uptick in exercise on the market. So, that form of validates the supposition that when you make investments cash within the constructing place even higher. If it is properly situated you may get the tenant demand drivers.

So, as we’re wanting ahead, there’s a number of properties that we plan on doing foyer renovations. Really Cira Centre, we’re truly wrapping up a foyer renovation. It is had loads of nice success significantly as we attracted all these corporations for the incubator and the life science corporations. So, it’s a continuous reinvestment mannequin. We have to guarantee that the place you might be investing cash you are getting a return on invested capital that justifies that funding. And when you do not that turns into a predicate for promoting that asset. And that is actually what drove loads of our thought course of during the last 5 years.

James Feldman

Okay. After which lastly for me I do know within the press launch you talked concerning the Austin land sale acquire. It feels like that is totally different than what you offered within the first quarter and even what’s in steerage. What are your ideas on how you are going to report that in earnings and even the magnitude?

Jerry Sweeney

Sure, we’re truly nonetheless that is all nonetheless below evaluation proper now Jamie. That is why we have not actually introduced any numbers on it however that can be one thing we’ll announce within the first quarter.

Tom Wirth

Hey Jamie simply to make clear I am going to have a look. That land sale was truly in Richmond Virginia that we did have. So, it wasn’t a Texas sale. After which as Jerry talked about we’re nonetheless how we’ll report the good points. They aren’t included — simply to be clear they don’t seem to be included in our land acquire vary that we put into the supplemental of $4 million to $5 million. That can be — these land good points we have not included but. We’re nonetheless assessing are these land good points for FFO functions or not however we definitely are going to be taking we’ll definitely be disclosing that.

James Feldman

Okay. Thanks.

Tom Wirth

Thanks Jamie.

Operator

Thanks. Our subsequent query comes from Daniel Ismail from Inexperienced Avenue Advisors. Your line is open.

Daniel Ismail

Nice. Thanks. I perceive a few of these forms of discussions goes to be delicate given open lease negotiations. However I am simply curious how professional forma rents have trended for the non-life science developments? It simply looks like with the demand for high quality workplace property significantly in Austin there may be some potential upside right here in rents.

Jerry Sweeney

Hello Danny. And George you and I can take this. Look I feel one of many issues that we have been very pleasantly stunned each with the dimensions and with the amount of it’s our means to form of actually transfer rents throughout the board. I imply it has been fascinating for us to have the ability to see for actually the previous couple of years posting actually good mark-to-markets retaining our capital price beneath that 15% long-range goal. We have had the truth is closed out 2021 with actually good numbers.

And as you realize that quantity can change based mostly upon totally different bigger time period and bigger measurement offers that we do. However no I feel I look again during the last couple of years the place loads of the expectation within the market was you realize rents have been going to fall via the ground. There can be no demand drivers.

I feel within the asset class that we’re in of the very excessive finish in all of our key submarkets we have truly seen a reasonably good diploma of resiliency in rents. And I am speaking on the non-life science facet.

In life science, we have seen an incredible escalation. However even on the workplace facet we check out what we’re in a position to do in our suburban counties. The rental charges we’re negotiating on a few of our Austin vacancies. What we have been in a position to do in CBD Philadelphia has all been surprisingly resilient. And I feel that does play into the standard narrative. We’ll see how lengthy that course of continues.

Now that being mentioned I feel there are specific tasks now we have the place we have been very efficient in assembly the market. So George had talked about 1676. That is a splendidly renovated undertaking however in a market that actually doesn’t have loads of demand drivers. And inside that state of affairs pre-pandemic is that state of affairs right this moment.

So there we have been aggressively advertising the area. And in a few of these circumstances our rental charges versus authentic professional forma have gone down. However that is a really remoted case. I feel after we have a look throughout the board or on-the-ground each day engaged leasing brokers one among their main duties to guarantee that the senior working executives right here learn the market properly and perceive the place we will push the place we will.

And I feel we have all been stunned leasing brokers to senior executives at George’s degree about how robust a few of these demand drivers have been in-house have actually economically viable loads of these leases have been.

Daniel Ismail

Acquired it. After which Jerry perhaps on job charges in Philadelphia. I do know we have spoken about this beforehand. However traditionally the town has struggled to draw outdoors corporations significantly given the tax problems however I am curious when you’re seeing or anticipating any enchancment in that entrance?

Jerry Sweeney

We’re anticipating some enchancment because the form of the town returns to the office. It has been fascinating Danny too that one of many early expectations was that you simply’d see extra employer ship to suburban places nationally. I feel in Philadelphia it from the surface that was involved that that development would possibly speed up.

We actually have not seen corporations seeking to relocate outdoors the town because of both the tax construction or another circumstance. In actual fact, we have seen the other. We have truly seen — we have truly moved the tenant into one Logan who got here in from outdoors the town. And you may always remember that attracting labor pool may be very, crucial to loads of our clients.

Philadelphia has performed an incredible job within the final decade of actually rising the residential inhabitants employee base inside the metropolis whether or not it is Heart Metropolis or a few of the adjoining neighborhoods. So we’re speaking to loads of corporations who’re shifting downtown primarily as a result of that is the place loads of the youthful staff dwell the place they dwell in very shut in suburbs.

So I feel the subsequent yr goes to be very fascinating when it comes to how the job creation development in Philadelphia truly does bottom-line. We’ve got seen a really good uptick in exercise popping out of the life science sector. And I feel that is been very thrilling and we predict that can be each in a relative — from a relative standpoint an excellent a disproportionate progress of jobs inside the metropolis, however that is an excellent inexperienced shoot that we’re monitoring very fastidiously.

Daniel Ismail

Acquired it. Thanks very a lot. After which perhaps only one final one. On the inclinations the potential inclinations in 2022. Any tax penalties which will necessitate to 1031, or all of the potential inclinations form of all freed from capital acquire taxes or can grow to be a part of the dividend?

Jerry Sweeney

Tom?

Tom Wirth

Sure. We do take a look at the capital good points and whether or not now we have a necessity for a particular dividend. Proper now a few of the ones we’re concentrating on we do not assume we should be involved about that. As all the time although if there’s a chance with a acquisition and disposition to defer the acquire right into a 1031, we’ll definitely take a look at these alternatives. However proper now we do not see a priority on the protection of the dividend and these gross sales.

Daniel Ismail

Acquired it. Thanks, everybody.

Tom Wirth

Thanks, Dan.

Operator

Thanks. And I’m displaying no additional questions from our telephone strains. I might now like to show the convention again over to Jerry Sweeney for any closing remarks.

Jerry Sweeney

Nice. Solely closing comment thanks in your consideration and your engagement with our firm, and we stay up for updating on our actions on the subsequent earnings convention name. Thanks very a lot.

Operator

Thanks. This concludes right this moment’s convention name. Thanks in your participation. It’s possible you’ll now disconnect. Everybody have a beautiful day.