Gerald Sweeney – President and CEO George Johnstone – EVP, Operations Tom Wirth – EVP and CFO.

John Guinee – Stifel Nicolaus Jordan Sadler – KeyBanc Capital Markets Craig Mailman – KeyBanc Capital Markets James Feldman – Bank of America Merrill Lynch. Michael Bilerman – Citigroup David Toti – Cantor Fitzgerald Jed Reagan – Green Street Advisors Young Ku – Wells Fargo John Peterson – MLV and Company.

Good morning. My name is Alicia and I will be your conference operator today. At this time, I would like to welcome everyone to the Brandywine Realty Trust First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

(Operator Instructions) Thank you. I would now like to turn the conference over to Mr. Gerry Sweeney, President and CEO of Brandywine Realty Trust. Please go ahead, sir..

Alicia, thank you very much. Good morning everyone and thank you for participating in our first quarter 2014 earnings call. On today’s call with me today are George Johnstone, our Senior Vice President of Operations; Tom Wirth, our Executive Vice President and Chief Financial Officer, and Gabe Mainardi, Vice President and Chief Accounting 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 the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved.

For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports filed with the SEC.

As is our normal practice, we will provide an overview of our three key business plan components, operations, balance sheet and investments, George will then discuss the status of our leasing and operating efforts. He will then turn the call over to Tom to summarize our financial results. We had an excellent first quarter.

We achieved outstanding results on leasing operations and made additional progress in our development projects.

We continue our growth plans in Austin, Texas including the acquisition of a 54 acre development site at Encino Trace and the previously announced or previously anticipated contribution of our Four Points project to our joint venture platform.

Given our strong first quarter results and year-to-date 2014 goal achievement, we have adjusted our 2014 FFO guidance range from $1.40 to $1.49 per diluted share, up to $1.42 to $1.48 per diluted share.

Broadly speaking, our market steady recovery continues, demand drivers continue to emerge with a clear bias towards quality products which is benefiting our portfolio. Operationally, the first quarter did present some weather-related challenges like all other Northeast based companies we had increased utility and snow removal costs.

However, given our multi-year migration towards triple net leases and segmented expense stops, we are able to recover the majority of these increased expenses. The remaining non-recovery did impact our margins for the quarter but we anticipate for 2014, our operating margins will be a 50 basis point improvement over that achieved in 2013.

During the first quarter we leased over 1 million square feet further evidencing our markets’ ongoing recovery and leasing activity was strong across the board.

As George will discuss, we have a number of larger near-term transactions in our pipeline, furthermore the level of throughput in most of our markets is improving with increased visibility on declining vacancy rates, positive absorption and a continued moderation of all leasing concessions.

So all in all, a positive steadily improving picture in our markets.

Our regional teams also did a great job in aggressively outperforming their respective markets, particularly strong performance continued in our Pennsylvania Town Center locations, CVD Philadelphia and Austin, Texas, just as notably though, our metro DC and New Jersey operations continue to see good activity while remaining on the path to recovery.

Our mark-to-market rental rate spreads were very strong on new leasing, a bit below our target on renewals for a tenant-specific region that George will touch on, but they both showed solid improvement over the last several quarters. Tenant retention was lower than our plan due to several known large move outs.

However, given more visibility, we have increased our year-end retention target to 63%. Leasing capital cost once again, like last quarter, remained under our business plan range of $2.25 to $2.75 per square foot.

Despite the very tough winter, we continued our positive trend in same-store growth on a GAAP basis of 1.6% and 4% on a cash basis continuing to harvest the benefits of our strong leasing progress and improving rent spreads.

Looking ahead to 2015 and 2016, we continue to de-risk our portfolio by reducing our four rollover exposure to only 7.5% in 2015 and 7.8% in 2016. We are also targeting a year-end occupancy level to range between 91% and 92% with an overall leasing level to be between 93% and 94%.

Bottom-line the key operating metrics we outlined is drivers of our 2014 business plan remained very much on track. Also, as George will touch on, we have increased several of our key targets to our strong first quarter performance and improved visibility in our leasing pipeline.

In looking our balance sheet, we remain in excellent shape with strong liquidity. We have no outstanding balance on our $600 million unsecured line and over $230 million of cash and cash equivalents on hand at the end of the quarter.

Our cash balances remain available for acquisition activity funding our development pipeline, liability management and straight debt pay-downs, we believe that continued occupancy gains, continued positive operating metrics and capital recycling will be major contributors in achieving our long-term leverage of getting us below six times EBITDA and mid 30% debt GAV basis.

Those leverage reduction targets remain driving predicates of our business plan.

Given the favorable interest rate environment, we continue to assess a number of liability management and bank term loan extension options, our objectives remain lengthening our maturity curve, reducing our weighted average cost of debt capital, increasing the size of our unencumbered pool, all while reducing overall levels of leverage.

In looking at our investment program, like the other components of our business plan, that program is also on target. We remain optimistic and are continually evaluating on both the buy and the sell side growth opportunities.

Our plan continues to assume, we will be a $150 million net seller during 2014 with most of those sales projected for the second half of the year. Our press release and supplemental package provide specifics on several recent transactions. I’ll cover those very quickly.

The acquisition of Encino Trace is a development site in the Southwest Texas that can accommodate 320,000 square feet. We purchased that for $9.3 million or $29 per FAR foot. Concurrent with that acquisition, we actually leased for a 120,000 square feet, which equates to a 76% pre-leasing, construction on that building has commenced.

We are also evaluating the start on the second building depending upon the extent of our leasing activity. The total construction cost for the first building is roughly $43.6 million or $270 per square foot and we anticipate this project generating an 8% cash return on cost and upon completion contributing this asset to our joint venture with DRA.

Furthermore, consistent with our expectations, we also contribute our Four Point Center in Austin, Texas aggregating 192,000 square feet into our joint venture with DRA during the first quarter. We also sold a 17 acre parcel of land in Austin but that has been rezone residential for $3.5 million as part of our overall land monetization program.

All well executed trade that advances our business plan objectives in Austin. Also on our development activity as detailed in our press release on pages 10 through 12 of the supplemental package, all of those projects are progressing on schedule and on budget. As we discussed in the last call, we have several projects in the pre-development stage.

We remain focused on our project at 1919 markets which is a mixed use project. We have obtained all final approvals. Finalized our development plan, identified our joint venture partner, are completing documentation of financing programs and we are planning to break ground on that in the next 120 days.

The FMC Tower at Cira South will break ground in the next several weeks with a targeted mid-2016 delivery. Since our announcement, due to FMC’s expansion some refinement to our residential component. We have increased the size of the building by adding several additional floors.

We have also added an expanded amenity program, incorporated additional residential units, and enhanced street engagement in public space. The revised building will contain 870,000 square feet consisting of 635,000 square feet of office, 4000 square feet of retail and 268 residential units.

The total cost is anticipated to be approximately $385 million. Given the increased office square footage, the increased residential units we do is continued to project the same baseline clear return of 8% on a combined basis with an additional 8% to 8.5% return on the office space.

We have entered the market to assess both debt and equity financing options and anticipating having more feedback on our next quarterly call. The Stock Exchange building in 1900 Market Street in Philadelphia has commenced the redevelopment process. We purchased this 456,000 square foot building at the end of 2012.

It remains 77% leased, but that’s a major tenant rollout at the end of 2015. The full range of the site, entrance, lobby, mechanical system upgrades will put our overall investment base between $180 to $200 per square foot and we expect full completion in time for that tenant vacation by year end 2015.

On a broader front, we continue to evaluate a wide range of investment opportunities both in Austin Texas, Metro DC as well as some of our other core market areas. We continue to be encouraged by the level of activity we are seeing on the assets we have in the market for sale.

The range of buyers is from smaller private investment and development companies to financial institutions looking to place larger amounts of capital. Solid progress continues to be made our land management program and e remain on track to achieve our overall land monetization goals as we have outlined on page 13.

In summary, the first quarter was very solid and build a great foundation for the balance of the year. All of our first quarter business plan goals and objective have been met and the plan for the balance of the year is on schedule. So at this point, let me turn it over to George to provide an overview of our operational performance..

Thank you, Gerry and good morning everyone. Fundamentals continue to improve in all of our markets as the momentum of our regional leasing teams continues to move the company back to a historical occupancy levels.

We are outperforming market vacancy in all of our markets with the exception of Richmond and Maryland, both due to significant first quarter move outs that I’ll touch on shortly. In CVD Philadelphia, we are 94% leased with only 1% and 4% of the remaining lease expirations in 2014 and 2015 respectively.

Our regional mark-to-market for the quarter was 5.4% on a GAAP basis and 13.4% on a cash basis. In the Pennsylvania suburbs, with our crescent markets at 98% leased, the deal flow is being pushed to our western suburbs which are now 91% leased. Our regional mark-to-market for the quarter was 9.5% on a GAAP basis and negative 3.4% on a cash basis.

The cash number was adversely impacted by one, 17 year lease renewal for the 78,000 square foot tenant in Conshohocken. Activity in the corridor continues at an encouraging pace. Inspections were up 87% for the quarter. We continue to aggressively pursue occupancy and have the corridor portion of our Northern Virginia portfolio of 91% leased.

A known move out Northrop Grumman and 100,000 square feet will occur on June 30. But deal activity and our projected building capital program to re-position the building will increase its marketability. We also continue to see good levels of activity in New Jersey from tenants ranging from 5000 to 50,000 square feet.

Markets still slower on the path to recovery are Delaware and Maryland. Now turning to the specifics of the quarter, we find over 1 million square feet of leases including 413,000 square feet of new leases and 609,000 square feet of renewals.

We commenced 838,00 square feet of leases during the quarter including 336,000 square feet of new leases, 166,000 square feet of expansions and 336,000 square feet of renewal leases. This leasing activity resulted in occupancy of 89.2% and a 91.2% lease percentage.

Absorption for the quarter was negative 52,000 square feet as a result of Lockheed Martin vacating a 137,000 square feet in Maryland and Travelers vacating 85,000 square feet in Richmond. Offsetting these move outs was the commencement of Reed Smith 130,000 square foot lease at Three Logan.

This leasing activity has allowed us to raise two of our business plan metrics, while maintaining the rest. Our spec revenue target has increased an additional $1 million to $44 million, based on additional renewals and earlier commencements on several new leases.

We are 89% complete on this target and 65% complete on the 3.5 million square feet required to generate that spec revenue. Based on additional clarity on expiring leases, we’ve increased our retention target 300 basis points to 63%. Some additional color on other metrics that performed outside our annual range during the quarter.

Cash leasing spreads for the quarter of negative 3% were adversely impacted by the previously mentioned lease renewal in Pennsylvania. GAAP leasing spreads were within our targeted range for the year.

Leasing capital performed very well for the quarter at $2.8 per square foot for this year as our regional teams continue to push for reduced capital and longer lease terms. Our weighted average lease term for the quarter was 10.3 years.

Retention for the quarter was impacted by the two large move outs I mentioned, but we have increased the annual target to 63%. In terms of the back-fill of Lockheed and Travelers, we have a prospect currently in lease negotiations for 100,000 square feet of the Lockheed space in Maryland.

We continue to negotiate with several tenants in Richmond for the backfill of Travelers ranging from 7,000 to 35,000 square feet. So in conclusion, another solid quarter with strong operating metrics which I was confident in completing the balance of the business plan. And at this point, I’ll turn it over to Tom..

$240 million of cash on hand, $128 million of cash flow before financing, dividends, and interest payments, $150 million of sales including $26 million which has occurred from Four Points and the two land sales $14 million in net proceeds from the Four Points mortgage and $6 million for the repayment of a note receivable.

With that, I’ll turn this back over to Gerry..

Tom, thank you very much. George, thank you as well. We know it’s a very busy day.

So to wrap up our prepared remarks, first quarter results were very strong consistent with our business plan and I think created great platform for us to continue the execution of our 2014 plan and just as importantly this point really lay the foundation for a very strong 2015 and 2016.

So with that, we’d be delighted to open up the floor for questions. As we always do, we ask that in the interest of time you limit yourself to one question and a follow-up..

(Operator Instructions) Your first question comes from the line of John Guinee with Stifel. Mr. Guinee, your line is open..

Oh. Hi, thank you. Things appear to be going very well. Congratulations. Couple comments, Gerry, you guys are clearly becoming more and more Philadelphia and CBD-centric.

Can you drill down, maybe, George on the same-store numbers or what the CapEx commitments are to make deals in the Philadelphia CBD? Also, Gerry, can you touch on the level of interest you’d have in the Commonwealth portfolio I think Commonwealth owns maybe 4 million square feet in your backyard..

Sure George?.

Yes, John on the leasing side of things, I mean, clearly we are able to achieve longer lease terms. So, I mean, the deals we have done during the first quarter approximated nine years in duration.

The capital on those deals on average is about $4 per foot per year, but again, it kind of depends on that length of lease term, level of finish and then we also look at free rent as kind of part of the capital stags we try to balance how much free rent were given as part of that concession package.

But, I think all in all, most tenants are recognizing that, the more the TI cost, the more the rent needs to go up. I think people are starting to kind of balance space needs and going to a little bit more of an open floor plan which can sometimes help control those costs as well..

And then John, on your second question relative to other assets in Philadelphia. Look, we continue to look at our business plan having growth avenues in both Austin, Texas and in Metro DC and augmenting that clearly is a strong position we have in Philadelphia.

We have targeted a number of assets that we would have an interest in, if they would come to market. Certainly, Commonwealth owns a number of properties in Philadelphia that could be good additions to our portfolio, but, let’s see what happens with what they want to do relative to their own business plan.

We certainly think we are in a very good position to continue being extremely competitive and successful in Philadelphia without any ownership change in any of the assets down there.

But certainly to the extent that any owners of good high quality assets in Philadelphia would like to put those on the market, I think we would certainly be open to evaluate on those potential additions to our portfolio.

Certainly in the context of what are other commitments how the rest of our business plan is going, how our asset recycling plan is going in terms of maintaining our portfolio growth, moderate leverage reductions and moving toward the execution of our growth plan..

Okay, and then as a follow-up, and Tom, you might have said this in your prepared remarks, so, I apologize, but if I look at $236 million of cash $150 million in net dollar contributions into JVs, development in capital spend, redevelopment capital spend, what’s your cash balance at the end of the year, $236 million now is? Can you just give us a range as what you are expecting for the cash balance at the end of the year?.

Yes, I think we will be somewhere in the $20 million range with the additional capital we’ve outlined for this year, John..

Okay, great. Thank you very much..

Thank you..

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets..

Thank you. Good morning. I wanted to just drill down on the development a little bit if I could.

Tom or Gerry, how much is embedded in guidance in terms of development starts, development spend for the year and was some portion I might have missed this of the tweak to guidance this quarter, reflecting the Encino Trace start?.

Well, hey Tom, certainly feel free to pick up. Tom did walk through, Jordan, is part of our uses of capital this year all of our projected development spends that we anticipate for all of our development and redevelopment projects for the year. Encino Trace really won’t be delivered until next year.

So, it really had no impact at all on our tweaking our guidance..

So, I mean, if you spend $14 million, I presume, was there was a cash component there? I mean, is there a capitalization of development? I mean, what’s the treatment there from an accounting perspective?.

Sure, Jordan. This is Tom.

In my prepared, I said, we had about $86 million of development starts, of that, $23 million for example was Encino Trace spend and you are correct, it will just become CIP and we will have a element of interest capitalization on those costs for the balance of this year as well as next year with the delivery date expected to be in the second quarter of 2016.

And that would go with all the other projects, I mentioned, $5 million for 1900 Market and I mentioned, $53 million for a combined FMC and Cira Green spend..

Okay, I did catch that. Thank you. I think, Craig Mailman has one as well follow-up..

Yes, Gerry, a quick question on FMC tower, just some more color on the decision there to add more office space into the marker you guys have some redev going on at the Stock Exchange, Liberty is bringing on buildings come – has some vacancy, why not, just have the FMC expansion just take down the space you as it originally planned.

What was the reason for the expansion?.

Yes, Gerry, a quick question on FMC tower, just some more color on the decision there to add more office space into the marker you guys have some redev going on at the Stock Exchange, Liberty is bringing on buildings come – has some vacancy, why not, just have the FMC expansion just take down the space you as it originally planned.

What was the reason for the expansion?.

Well, a couple factors, one is we’ve had certainly a lot of interest in the project on the pre-marketing basis. So, I think we got some visibility into how well this project will be received.

On both the office and the residential standpoint, FMC did exercise an additional expansion, which they took another floor and we’ll see what they want to do over the next several months.

But certainly as part of their announcement a few months ago about splitting their existing company into two pieces, there will actually be two corporate headquarters in that building which we think change the near and the intermediate term demand drivers for space in that building.

And then frankly, Craig, as we really assess the marketplace, we really do see this continued movement to quality in the market. As George alluded to really across all of our markets, but certainly we think that the renovation of the Stock Exchange building provides a different price point for tenants who have been in high-quality space.

That price point will be below the price point we are offering at Commerce Square which is slightly below the price point that we are offering at the Logan, which again is a little bit below we are offering at FMC Tower.

So I think, as we segment our portfolio, and compare it to that competitive set, for that segment, we think that we are in a very, very good position and so the increase of the additional office square foot at FMC Tower, we think we will be able to increase our overall level of returns and our expectation.

As we talked about early on is that we hope to be able to in a position with FMC that when that project is delivered in mid-year 2016, we anticipate having the same level of success we have with the original Cira Center where it was almost completely occupied upon lease outs.

So, it was really a market assessment call on both the residential and the office front, and then really take a look at the competitive set and the pre-leasing pipeline we have for the FMC Tower..

Great, thank you..

Great, thank you..

You are welcome..

Your next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch..

Great, thank you and good morning. I guess, just first starting out a question for Tom.

With taking over the CFO role, can you talk a little bit about what maybe different going forward? Do you have any plans to change anything or kind of business as usual?.

I think, Jamie, it’s going to be business as usual. I think that the goals of reducing leverage and it’s still paramount, still be involved in investments a bit. But I would say, generally it’s going to be business as usual going forward..

Okay, and any plan changes in any kind of reporting or supplemental or the way you provide any data?.

I think we will continue to look to improve the supplemental package. We have thoughts to improve it going forward. Any suggestions would be welcome. I think, other than that, it would probably the same. I made you a little more in terms of guidance on some of the various components on more of a run rate basis for you guys.

But other than that, no, don’t expect any – too many changes..

Okay.

And then, I am sorry if I missed this, but did you say the tenant in Austin and can you just talk a little bit more about your opportunities for leasing the second building and what that market looks like for future developments?.

Sure, we did not actually named the tenant yet, there will be a press release forthcoming on that, but it’s an existing tenant in one of our other buildings that’s essentially doubling in size and we are layering some backfill strategies for their space which as it mature for a couple of years.

Look, the leasing pipeline in Austin remains incredibly robust with continued upward pressure on rents. The location of this have been seen in the Southwest quadrant, it really positions that project to a tap into all the leasing activity in that market.

since we have broken ground on the first building, we’ve been approached by a number of tenants that range from 50,000 to 150,000 square feet looking for forward occupancy dates. The benefit we have in the Encino Trace given the size of the site itself. The low level of impervious coverage will be around 13% or so.

We have a huge – a good opportunity there to present a campus environment with the full range of amenity package in terms of outdoor recreational areas, fitness centers, on-site food service opportunities. So it really does very well play into the open space technology-oriented tenants that seem to be major drivers of space in that market.

So, we will be assessing what we think that the visibility on that additional leasing pipeline is over the next couple months and if we feel well so, we can get one of those across the finish-line I think we’ll assess starting the second building. But that will be a function of what we see over the next as I said, couple months.

And we’ve already priced out the program there to start both buildings at the same time versus a delayed start. Several of our construction cost number is pretty well now down..

Okay. And my understanding on Austin is that southwest is one of the few sub-markets where you can see more new construction, given some of the barriers on new supply.

Is that true and how do you think about competitive new supply coming into that market or that sub-market?.

Well, there has been a couple projects already announced that have a fairly significant levels of pre-leasing. You are correct.

The southwest market primarily due to infrastructure and – constraints tend to be a much more conservative environmentally focused part of Austin, which tend to serve as a barrier to new construction But if we do operate on a premise that those barriers maybe a bit higher, but they are not instrumentable and then other competition could come online.

So and we look that the Encino Trace acquisition, how that will layer into our overall rollover schedule in Austin, we clearly took a look at what we – what the known construction starts are, what we anticipate the construction stats could be in 2015 and 2016 and really looked at the deliveries in 2015, 2016 and 2017 and felt that we are well positioned in that market through this development and through some of the rollover in our existing portfolio..

Okay.

And then, can you talk a little bit more about Northern Virginia and where you guys think that market is now and in the cycle and – either risks going forward or maybe even upside?.

Well, I think it’s still recovering. I think, clearly tenants are making that flight to quality and that really is what has aided us in kind of getting that toll road corridor kind of up to 91% leased. We are hoping and only expecting that Northrop is kindly the last of our big large move outs and contractions.

But we are seeing good levels of deal size from full floor users, the multi-floor users. We are seeing expansion within our own tenant base that you know we are able to accommodate. So, I think we are still probably another 12 to 24 months until it’s all kind of turned around in that market. There is still a lot of inventory beyond what we have.

But we are seeing contracting agencies through the portfolio, cyber security is kind of been an increased tenant mix that we’ve been trying to accommodate. So, we are most of the way there, but not fully there and I guess this is how I would categorize it. But it’s also a good window in the market for us to be as aggressive as we have been and we are.

We have identified a couple of major capital renovation plans that we are moving forward with representing new pallets in the marketplace. Our leasing team down there has done an extremely effective job in broadening our reach.

Working with our existing tenant base and certainly working both directly and with third-party brokers to get a higher level of exposure to our own inventor, most of which is on the roll road. So it has some clear advantages to some of the other properties in the marketplace.

We continue to see a good strong recovery in Tyson’s Corner and look forward to the opening of the Metro sometime later this year. But look, it’s a price takers market. I think, we have good inventory. I think we see an diminishment of larger blocks of space.

All the feedback that we are getting both from our tenant base, from tenant prospects, from our government relations people as that there tends to be a much more positive bias to the tone of the market. But as George touched on, it’s still in the stage of recovery. We think it’s well past the nascent stages.

We think it’s more towards the latter stages of recovery with very good visibility particularly given the fact that a lot of the brack situations behind us and that there tends to be some more positive dynamics relative to forward-looks in government spending..

Okay. So, I guess, back to – I guess, George’s comment, in terms of who is expanding, you are saying it’s cyber and is it more you are seeing a fight to quality.

Are you seeing actual expansion or is it more a musical chairs?.

I would say, it’s more musical chairs fight to quality, but we are seeing some expansion within our own tenant base..

Okay. And then I guess, given where you think we are in the recovery, I know in the past, you said you’d want to expand in that market, or do you see the core market for you to grow especially maybe Tyson’s as the train opens up there.

Did this make you want to get more aggressive on acquisitions here?.

Well, we’ve been aggressive on acquisitions in terms of underwriting them, both in auction situations and private negotiations. We are still very mindful of where we see rental rates going, very mindful of replacement costs.

So, we will continue to be aggressive, Jamie, whether we actually get our expectations to meet the seller’s expectations remains to be same. But we will continue to focus on trying to grow that marketplace and looking for those spot opportunities where we can get engaged on pricing that seems to make sense for us..

Okay, great. Thank you..

You are welcome..

Your next question comes from the line of Michael Bilerman with Citi.

Hey, good morning. Many questions on with me. Gerry, you decided to relief Howard Sipzner of the CFO duties in March then promote Tom and give him the role.

Can you sort of talk about what drove your decision to do that? And why you did that?.

Certainly, I mean, look, I think the – as we assess the company going forward, I think that we felt that Tom’s broader base of experience and knowledge in a lot of our markets would help us in executing our growth platform going forward, but I think as the results of this quarter have shown, there was a very effective job being done by Howard and his assistants in terms of maintaining solid financial reporting, forward financial projecting.

And we saw the evidence of that with this quarterly update right now..

So you decided to spend almost $1 million to make the change for future savings or for – I mean, because there was obviously a cost of doing that?.

Well, there was a cost of doing that and certainly it’s always challenging to make those types of decisions, but I think as we assess the – where were the company was where we anticipate it to go, we felt that was a good move to make at that point in time..

And then, Tom, just in terms of making sure we understand guidance. So if you turn to page 24, you have two reported FFOs, one that is the reported FFO of $0.34 and then one this FFO excluding a number of items that’s $0.33. As we think about the guidance of $1.42 to $1.48, I am assuming that relates to the $0.34 just the pure reported FFO.

But within that, can you share with us if there is any other sort of landfill gains or any other one-timers that would be propping up that number, because I guess if we just look at it, you are going from $0.34 in the quarter, up to $0.37 in the next three quarters on average to hit the midpoint and I just want to understand; A.

What that growth is? So where is that increase coming from as we move through the year, number one, and number two, is there any other one-timers that are in there?.

Yes, I’ll start with the page 24, Mike, yes, the $0.34 was embedded in our guidance for the $1.42 to $1.48. We left it, and we feel like going more to a – I think in the past, we had sort of core, non-core FFO reporting. I think it’s better to just go with a FFO as definition and then give you the components of what’s in there.

And you can make a sort of out of whether some of those are one-time and whether they would go forward. We left this footnote in on page 2, just to highlight some of those one-time and also keep the chart and to see what people, to take it out, we take out all the previous quarter information. So I thought just to be consistent, we would leave it in.

In terms of in the press release, we did talk about what we thought were some of the more – not one-timer or hopefully non-recurring items relative to what was in the $0.34. Looking at the – so that's kind of why 24 was done that way.

Looking at the guidance going forward, there are no – in our plan right now, there are no more – there are no one-time items like a land sale that would create a gain that would be included in FFO. When you think about the run rate going forward, that $0.37 average does include the HCC credit income that will hit in the third quarter of about $0.07.

So we will still have that anomaly hit in the third quarter. But more immediate, looking at the second quarter, I think as I mentioned, looking at the core NOI run rate of the core properties, that will be fairly consistent with what you saw this quarter, it’s sort of a guiding rent starting point..

Right, so you are back to basically flat at $0.34 for the year and we get the $0.07 of third quarter payment recognition?.

Yes..

Got it. Thank you..

Thank you..

Your next question comes from the line of David Toti with Cantor Fitzgerald..

Hey, good morning guys..

Good morning..

Just couple of quick ones and I might have missed this.

What drove the spec revenue target change? Was it based on the higher renewal rates or changes in working in the retention rates?.

Yes, it really was that clarity on additional renewals which led to both the spec revenue increase and the retention increase..

Okay and then also, I know you touched on this a little bit as well.

The assets you have in the market for pricing discovery, how would you characterize those markets? Are they skewed in particular regions? Are you sort of testing across the board? Does it tend to be more suburban than CBD in terms of what’s out there?.

David, you are cutting out a little bit, but I think we were getting the thrust of it. The properties we have on the market tend to be certainly more suburban and urban. They are in almost every market in which we have a current platform.

So we are continuing to follow our program that we have in the past few years, really going through a price discovery process by putting a number of projects on the market. Understanding what we think the inherent value of those projects are and then testing and see what the marketplace will deliver for those.

So we typically tend to have a pre- active dialogue with both buyers and investment bankers, brokers, et cetera on how to assess the various offers that come in. When we do take a look at our sales plan, there are properties that we have on the market for sale in Pennsylvania, New Jersey, Delaware and Maryland, Virginia, California.

As you saw, we sold a piece of ground in Austin Texas in the first quarter. We sold another piece of ground in Dallas Texas which were a last piece there after the quarter closed.

So we tend to take a pretty comprehensive look at our entire portfolio and put a number of things in the marketplace to really test and see what the market will deliver to us. And then certainly, respond to reverse enquiries from either individual buyers or from larger institutions who are looking to deploy capital..

And I assume the primary criteria is, for selection, is that the forward growth profile or are there other characteristics that are pushing those assets forward?.

Okay, great question. I think we really assess what we would actually trade. We take a look at forward NOI growth. We take a look frankly at capital ratio. So the amount of capital that’s required to sustain that growth rate on a relative basis.

And we certainly developed, as I mentioned a moment ago our view, our quantitative view on what we think that value that piece of property is and we use that to benchmark the offers. But certainly forward growth and the capital required to grow that are the key primary determinants.

The secondary considerations tend to be market specifics that we want to be in that sub-market long-term.

Do we see a lot of pricing power that we would have as a landlord in that sub-market and if we don’t think that’s achievable, then that’s certainly a sub-market we would look to exit and then we always take a look at what there is an element of functional obsolescence in the building.

Whether it’s through ceiling high, it’s A/C systems, parking ratios, ease of access, change in neighborhoods, et cetera to really develop. But we hope a full four corners view of what we think the full value in every piece of real estate is..

Okay, that's very helpful. Thank you..

You are welcome.

Your next question comes from the line of Michael Knott with Green Street Advisors..

Hey, morning guys. Jed Reagan here with Michael.

Wondering if you’ve seen any changes in cap rates and valuations in your core markets so far this year and in particular I’d be curious, comment specifically on Philadelphia?.

We have not seen anything that really changed the trend line from what we were saying last year. I think, we continue to be positively surprised on the wall of capital and it’s aggressiveness in pricing assets.

So, certainly from a buying standpoint that creates a bit of a hurdle for us, but as we are looking to continue our movement to – towards – through our portfolio transition that remains encouraging.

Certainly we are seeing continued cap rate compression in almost every market in which we do business which is one of the reasons why we are continuing to really push for us some forward asset sales as an effective cost of capital for us.

But nothing dramatic from the last call, Jed, I think it’s the continuation of a strong line of our strong pool of potential buyers. Interest rates have remained incredibly benign. And in fact, the Treasury continues to hover around that 2.6, 2.7 range with spreads coming in.

As you all well know, the CMBS market is a major fuel for the acquisition market on the private side. That remains incredibly robust. Commercial bank financing is readily available. So, we think all of those items I think play very well into those companies like ours are looking to continue to upgrade our portfolio.

And as I mentioned, it presents some challenges as we – one of the earlier questions about can we be aggressive in expanding our footprint in DC, what we are seeing is with that wall of capital.

With those large pools of equity that want to be placed in a more highly levered model, that it‘s very difficult to compete on auction price transactions and how that makes sense for us. But, I think capital to some degree is driving the pricing metric.

But I also think in a number of other markets, there is clearly a higher degree of confidence in the continued economic recovery on the part of buyers who are beginning to underwrite more aggressive rents, higher levels of stabilized occupancy, lower capital run rates.

So I think that does bode very well for the office sector in general that you will continue to see increasing values over the next several quarters..

Okay, that's helpful and to that point, are you seeing rent growth trends changing in your market, is there any pick up in momentum or is it sort of a steady trend that you are seeing?.

George and I are attacking this, look, I think we are seeing a real firming across the board of rental rates as George and I both mentioned a diminishment of concessions. We are very pleased that we’ve been able to migrate of our annual rent escalations from a range of 1% to 2% to clearly 2% to 3%.

Lengthen our lease terms, so whether it was in the CBD Philadelphia or some of our accounts in the markets – even now the residual out in the western suburbs at Philadelphia we are being able to firm rents and push higher.

We are seeing that generally across the board, New Jersey we had some good activity in our remaining portfolio there, in emergence of some larger tenants who have kept pricing very firm for some of the larger blocks and space that we leased.

Yes, Jed, I think some of the markets that I touched on in my commentary, I think the fact that vacancy is getting sub 10% is really helping us push those asking rents, but even in a market like Northern Virginia where we have necessarily been able to push the asking rent, we are getting kind of that 2.5% to 3% annual escalator to keep those bumps going and trying to get the highest ending rent as possible..

Okay, thank you and just one for me.

Can you talk a little more specifically about your leasing prospects for the 4040 Wilson development in DC and how we should think about the start of the garage build out in the context of you guys potentially moving forward on the rest of the space?.

Certainly, well, look, we did make a decision in conjunction with our partner to commence construction of the garage. We did that for a couple reasons. One we had negotiated a very good deal on the construction cost side. So we don’t want to maintain the favorable cost components we had on building that garage.

But also, to your point Jed, when we looked at the forward-leasing pipeline, a lot of the larger tenants we were talking to and remain in discussions with have delivery dates in 2016 and early 2017.

So one of the major reasons why we started the garage was really to compress the delivery period of the project to the extent that those tenants would sign leases with us. We did not make – and purposely do not make the decision to pursue with the vertical construction of the building until there is much more visibility on the leasing front..

Okay, great. Thank you..

Thank you..

And your next question comes from the line of Young Ku with Wells Fargo..

Great thank you. Maybe this question is for either Tom or George. So, it looks like your Q2 is going to be pretty much similar to Q1 in terms of core cash flow level. So, assuming that then, that assumes 230 BPS of kind of occupancy gains in the back half. I know you guys have 90% of your spec revenue target locked up.

But, I know, that does necessarily a jive with your occupancy, so I was wondering how much of that 230 basis points of occupancy gain, it’s kind of in the back versus what is kind of left to go?.

Yes, sure, it’s George. We’ve got as we kind of lay out on page 5 in the supplemental we’ve got 821,000 square feet of new leasing still to execute. But, look, we’ve maintained kind of that total amount of new leasing for the year based on the pipeline of deals we currently have.

So, we kind of go through a suite-by-suite assessment, who is the prospect, where do we stand in the negotiation stage and we still feel confident based on the pipeline of deals, the weekly inspections we are seeing, the quality of some of that space that we will be able to source, negotiate and close and then obviously get the lease commenced.

Some of that’s going to be a third quarter event and then some of it’s obviously going to be a fourth quarter event. That’s why at a 65% achievement to-date on the square footage we are close to 90% achieved on the revenue because these later occupying deals obviously, just don’t have as much calendar time to contribute on the revenue side..

Okay, thank you for that George. And maybe this is somewhat related to, just looking ahead to 2015, I know you guys said previously that you are expecting kind of year end occupancy to be about 93%.

So I was wondering how that occupancy projection, you should progress? And whether there are any major move outs or contracts that you guys are expecting?.

Well, I think, we are projecting to get between 91 and 92 occupied at the end of 2014 with a 100 basis points on either end of that range from a pre-leased perspective.

We haven’t kind of formalized the 2015 business plan yet, but I think the expectation as we kind of do our forward modeling is that, we would get occupancy into that 92 to 93 range based on where we are. Look, we have mitigated a lot of our rollover exposure of 2015 already and have and that really kind of started the focus on 2016 as well.

So, we don’t have the level of known move outs in 2015 that we’ve had in 2014 kind of Lockheed and Travelers of the world I think hopefully knock on water in the rearview mirror..

Okay, thank you for that..

And your next question comes from the line of John Peterson with MLV and Company..

Great, thank you. I wanted to ask specifically about the EVO student housing development at Cira Center. Campus Crest earlier this week pre-leasing, it looks like it was 17% which is pretty far below our typical student housing property will be leased at this point.

I am just kind of curious, how – just your thoughts on how that is projecting relative to your underwriting and what kind of lease percentage you guys would need opening to get your cash the other 7.6%..

Certainly, I have to answer it, I mean, from a construction standpoint the project is moving on pace on schedule. So that very important element is very much on track. I think your point is on target if EVO was purely an undergraduate student housing project.

By design, is I am sure Campus Crest alluded to in their call, this is a project both had a mix of graduates, undergraduates and young professionals.

So the undergraduate leasing cycle is occurring kind of April and May and I think we’ve been very pleased with the acceleration of leasing activity just over the last 30 days and the increasingly large pipeline that the leasing folks at Campus Crest are pulling together.

So I think the next 30 days or so in the undergraduates that are going to be fairly telling the leasing cycle for graduate students is really later mid-summer in August.

And I think we are very pleased with the pipeline of activity we are seeing out of the graduate schools at both University of Pennsylvania and Drexel University as well as the outreach that Campus Crest is doing very effectively to some other Philadelphia based universities.

So, I think from our perspective and certainly I would expect Campus Crest would share, it’s a little bit too early to tell in terms of where we are lined up in September because so much of the thrust to the marketing program is geared towards graduate students.

The feedback that we are receiving from tenant prospects is incredibly favorable in terms of the design, location, and amenity package of the project.

So I think we are all pretty happy of being Campus Crest hovers a suite in Brandywine with that level of market feedback, but we are learning to be a little bit more patient in terms of when we are getting leases signed particularly with the graduate students. We have programmed in the 80%, 85% lease range for the opening year.

So there is still some work to do on that. But again, I think, as we look at the sequencing of the pipeline, the growth rate in that prospect list I think, all the partners right now are very much still maintaining a very positive tone on being able to meet or come very close to that objective..

Okay great, thank you for that, and then can you remind us on just what your long-term intentions are in terms of a property obviously the locations sets with the Brandywine portfolio, but student housing doesn’t necessarily.

Is it something over the long-term you would want to sell your interest and maybe one of the partners at a third-party or do you want to hold on it just because of the strategic location of it?.

No, we obviously love the location, we love the project and we are very happy with our partners, but I think as we announce when we initially brought this program out, student housing is not our business. We are fortunate to have some – a good financial partner and good operator to kind of augment the leasing process here.

And I think it’s TBD, the partnership structure provides for buy sell options as they all do. So we are very happy with the way things are going and we will assess what our long-term intentions are as the project reaches stabilization we see the value accretion.

And then certainly respond to what the market is telling us in terms of pricing and whole strategy..

Got you. All right, thank you. Appreciate it..

And there are no further questions at this time. I would now like to hand the conference over to Mr. Sweeny for any closing remarks..

Very well, certainly, thank you all for participating in our first quarter conference call and we look forward to a continued execution on our business plan as well as updating you on those activities in our second quarter call. Thank you very much..

Thank you. This concludes today’s Brandywine Realty Trust first quarter earnings conference call. You may now disconnect..