Gerald Sweeney - President and CEO George Johnstone - EVP, Operations.

Jed Reagan - Green Street Jamie Feldman - Bank of America Merrill Lynch Manny Korchman - Citi Brendan Maiorana - Wells Fargo Jordan Sadler - KeyBanc Gabriel Hilmoe - ISI Group Rich Anderson - Mizuho Mitch Germain - JMP Securities.

Good morning. My name is April, and I will be your conference operator today. At this time, I would like to welcome everyone to the Brandywine Realty Trust Second 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 call over to your host Gerry Sweeney, President and CEO of Brandywine Realty Trust. Please go ahead, sir..

April, thank you very much. Good morning everyone and thank you for participating in our second quarter 2014 earnings call.

On today's call with me today are George Johnstone, our Executive Vice President of Operations; Tom Wirth, our Executive Vice President and Chief Financial Officer, and Gabe Mainardi, our 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 estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will, in fact 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. Okay.

As we normally do, we'll start off with in overview of our three key business plan components namely, operations, balance sheet and investments, George will then discuss the status of our leasing and operating efforts. And we'll then turn the call over to Tom to review our financial results.

Since our last call we've continued to make excellent progress on our 2014 business plan. And our market steady recovery continues, we are seeing tenants increasingly focused on the high quality efficient space we provide as their businesses grow and expand.

During the quarter, we achieved strong leasing and operating results and our development and redevelopment initiatives remain on track, so all in all excellent business plan progression during the first half of the year.

For the quarter, we exceeded consensus FFO by a $0.01 primarily driven by anticipated core portfolio performance and a lease termination fee, given the steady progression Tom will walk through the details removing up our bottom end of our guidance range by a $0.01 to a range of $1.43 to a $1.48 per share.

And looking at operations, operational performance remains strong and our 2014 plan as indicated in our press release remains on target. Our pipeline of deals at the proposals stage stands at 2.7 million square feet up 8% from the first quarter.

For the quarter we also leased over 1 million square feet of space consistent with the very strong performance in the first quarter and reflect of the continued strength of our four leasing pipeline.

Occupancy stood at 89.3% and preleasing at 91.7%, the leasing numbers up 50 basis points quarter-over-quarter and our portfolio remains on track to achieve our year-end occupancy and leasing targets.

From a spec revenue standpoint our business plan is 95% accomplished it's also important to note that we have reduced our specs square footage component by 55% since our first quarter call on May 1st, so truly significant progress in de-risking our remaining year business plan.

We continue to lease a lot of space in metro DC and other recovering markets and we've also been successful in lengthening lease terms and achieving 2% to 3% annual rent bumps. As a result for the year our GAAP mark to market is trending towards the high end of our 6 to 8% range, while our cash target is trending towards the lower end of our range.

Leasing activity was strong and as George will touch on we made significant progress on our portfolio vacancies.

In particular in Maryland as you know we had a total roll over exposure of 216,000 square feet with Lockheed Martin, given other leasing activity as well as the recently announced CNS idea with a 118,000 square feet, we've already absorbed a 174,000 square feet or 80% of that total rollover exposure within months of Lockheed's departure, so really a good job by our DC leasing team.

Excellent operating traction continues in our Pennsylvania town center markets, CBD Philadelphia, University of City and Austin, Texas. We also noted a strong increase in our tenant retention ratio to almost 78% during the quarter, and as we move last quarter we increased our 2014 projection up to 67%.

Leasing cost for the quarter were up over the first quarter run rate but still within our range of 2.25 to 2.75 per square foot for this year. The quarterly increase is primarily driven by several leases in New Jersey than average close to $4 a square foot, our run rate excluding those 4 was around $2.30 well within our target range.

We continue our positive trend with very strong same store growth and on a GAAP basis reported 3.5% and 6.7% on a cash basis, so we continue to harvest the benefits of our strong leasing progress and improving rent spreads.

Given the demand drivers we're seeing in our market place and our build to both extent lease terms that increase bumps we continue to focus on for derisking our portfolio by reducing rollover exposure in out years so for example in 2015 we have our rollover exposure down to 7.5% and less than 8% in 2016.

So, for both years we have less than 2 million square feet rolling and we'll continue to make good progress on that through year end 2014. Now looking at our balance sheet, we remain in a very strong position with excellent liquidity. We have no outstanding balance in our $600,000 line of credit and we continue that $235 million of cash on hand.

As indicated on previous calls, our cash balances remain available to fund our development pipeline, acquisition activity and for debt pay downs.

And as we're seeing in the numbers, occupancy gains, positive operating trend in capital recycling remain major contributors to achieving our intermediate term leverage targets of 6.5 times EBITDA and 40% debt to GAV and our long term leverage target of being below six times EBITDA and mid 30 set to GAV.

And as we reinforce on every call, a GAV needs benchmarks over time remain driving predicates of our business plan. Look, certainly given the favorable interest rate environment, we have been actively monitoring a variety of refinancing and liability management options.

We continue to evaluate ways to both lengthen our maturity curve, reduce our weighted average cost of debt, increase the size of our unencumbered pool all consistent with our overall leverage reduction targets.

Looking at investments, capitals clearly moving in the right direction and we are pleased with the increased demand at the institutional money being focused on the office sector.

Nationally office sector sales are up significantly year-over-year, and while the focus remains on primary markets, increased competition for deals is clearly driving institutional money to non-gateway markets looking for incrementally higher yields.

So, the low cost of debt capital significant amounts of equity looking to be deployed, the recovery in most of our real estate markets we think all portend increased buying appetite for the parts of the portfolio we are looking to sell.

Our business plan goal of being $150 million net seller this year remains on target, we currently have over $80 million under contract, on advanced contract negotiations, at an average cash cap rate just north of 8% and its value is at $180 per square foot.

We also have over $300 million in the product on the market today for sale and so all in all remain confident with what we have under agreement in advanced negotiations or on the market that will be able to achieve our sales target by the end of the year.

The press release and the supplemental package provides specific on a number of our recent transactions and our development work so I'll just touch on a few of those.

As noted last quarter we acquired a 54 acre site in Southwest Austin known as Encino Trace, that side is permitted to develop two four-story buildings totaling 320,000 square feet and at 1,375 car parking deck. The first building is 75% preleased to an anchor tenant and we commence construction on that project at the end of the first quarter of 2014.

Based on the leasing pipeline activity that occurred after our announcement to that start during the second quarter we commenced construction on the second building totaling 161,000 square feet, both buildings will be completed during the second quarter of 2015.

Our estimated cost are $87 million, we have about $19 million funded as of the end of the second quarter. The pipeline activity for the balance of the space remains very strong and we are targeting 11% free and clear yield on cost.

Also in Austin, we did during the second quarter contribute our four point center which consisted of two buildings aggregating just shy of 200,000 square feet into our joint venture with DRA advisors. Development activity is also detailed in our press release on pages 11 through 13 with supplemental, just some notable highlights.

We did break ground during the second quarter on the FMC tower at Cira Center South, that project that remains on schedule for a targeted midyear 2016 delivery.

The building incorporates an expanded amenity program, additional residential units, enhanced street engagement in public spaces and the revised building will contain 635,000 square feet of office space, that 6,000 square feet of retail and 268 residential units. We continue to believe the total cost will anticipate up to $385 million.

We have about 255,000 square feet of office space to lease, we recently launched our marketing campaign for the balance of this space, and we'll really gear up our full efforts in the fall. Pipeline activity looks very encouraging and remain very enthusiastic about meeting our pro forma targets.

Of the 268 residential units, we anticipate about 100 will be extended stay fully furnished corporate suites with the balance stay in market like rental.

We continue to explore as we talked in the last call, variety of financing avenues for this project include potential joint venture financing for the entire project with a residential component as well as sourcing construction financing and we are still projecting the same baseline frame for a return just north of 8%.

Our EVO project at Cira Centre South is on track for opening this academic year and the project remains on schedule and on budget. We anticipate the certificate of occupancy will we obtain very shortly with about -- that with over 50 tenant moving schedules started for August 1st.

The project is currently 37.8% leased with significant activity growing quickly and as originally anticipated we do expect the project to stabilize in the third quarter of 2015 at a projective free and clear return of 7.6%.

All of our other development projects are on track and on schedule, the land monetization plan which is outlined on page 14 of our supplement remains very much on track.

And as a final point the redevelopment program for 1900 market street is well underway, the range of innovations, are entrance lobby, mechanical system upgrades as well as significant side enhancements and put our overall investment bases we projected along between $180 to $200 per square foot and we expect that renovation to be completed by the end of year 2015.

I guess in summary the second quarter was a real solid continuation of our 2014 business plan and really builds a great foundation for the company looking ahead for the next several years. At this point George will take a look at our second quarter operational performance and then Tom will touch on our financial results. George..

Thank you, Gerry. Our markets continue to demonstrate sign of recovery and our regional leasing teams continue to generate activity, expeditiously negotiate terms and execute lease transactions.

During the quarter we signed over 1 million square feet of leases which mitigates non-move outs, positions us to achieve business plan targets and reduces forward lease expiration exposure. Inspections during the second quarter were up 14.7% over last quarter and up 9.8% year-over-year. We're outperforming market vacancy in all but one of our markets.

In CVD Philadelphia, we're 94.5% leased and well ahead of our future lease expirations with less than 1% remaining in 2014 and sub 5% rollover for each year through 2017. Leasing activity at commerce square remains strong as those properties are now 90% leased, up 330 basis points from our acquisition in late December.

Our Pennsylvania suburban properties are 93.3% leased with the crescent markets at 97% and the western suburbs at 89%. Deal flow continues to gravitate towards King of Prussia due to the lack of available space in the crescent markets. Inspections in metro DC region were up 10% on both a quarter-over-quarter and year-over-year basis.

Our repositioning plans are underway in Dulles Corner and Northrop Grumman vacated their 1000 square feet as anticipated on June 30. The buildings is already generating interest as two prospects each in excess of 50,000 square feet are entertaining proposals.

Now turning to the specifics of the quarter, we commenced 587,000 square feet of leases of this amount a 167,000 were expansions, our fifth consecutive quarter of expansion activity in excess of 1000 square feet. This leasing activity resulted in occupancy of 89.3% but more importantly a 91.7 leased percentage.

All but 48,000 square feet of our 564,000 square feet of forward leasing will commence in the third and fourth quarters. So commencement of our executed forward leasing, leasing the remainder of the new square footage in the business plan offset by known tenant move outs in early terminations gets us to 91%.

Additional conversion of pipeline beyond our remaining 364,000 square feet of planned activity places us within the 91% to 92% range. Some additional color on other metrics that performed outside our annual range during the quarter, leasing spreads were 2.6% on a GAAP basis and negative 7.4% on a cash basis.

Both of these metric were adversely impacted by the majority of our marked leasing coming from metro DC, New Jersey and Richmond where leasing spreads remain negative while the markets fully recover.

Our anticipated third quarter mark-to-market is in a range of 16% to 18% on a GAAP basis and 6% to 8% on a cash basis driven by leases already executed primarily Drinker Biddle in Philadelphia and KPMG in Tysons.

We continue to see favorable rent growth opportunities in CVD Philadelphia, the crescent markets of Pennsylvania and while not included in this reported metric, Austin, Texas. Additional tenant expansions that resulted in us, raising our retention rate from 63% to now annual plan of 67%.

Gerry provided an update on the backfill of Lockheed and Maryland in terms of the traveler space in Richmond we're close to finalizing an LOI with a prospect to take all of the space. Their occupancy requirement is approximately 50% in 2014 and the balance in early 2015.

So in conclusion, another solid quarter with significant achievement on the business plan. And with that I'll turn it over to Tom..

Thank you, George.

As Gerry highlighted earlier our second quarter FFO totaled 57.3 million or $0.36 per diluted share, our FFO payout ratio is 41.7% based on our current $0.15 distribution, some observations regarding the second quarter FFO results same store NOI growth for the second quarter was 3.5% GAAP and 6.7% cash both excluding net-termination fees and other income.

We had 12 consecutive positive quarters of GAAP metrics and eight for cash metrics. Our same store portfolio will also experience improved margins as our second quarter profit margin excluding termination fees raised -- increased to 60.6 as compared to 58.3 in the first quarter and 60.4 in the second quarter of 2013.

Improvement in our margins came from operating expense decrease of approximately 5.8 million from the first quarter due to the weather related operating cost of the same store portfolio and Four Points Austin moving to the JV with Austin. Termination income totaled 3.3 million, 1.1 million increase from our first quarter guidance.

G&A expense totaled 6 million which came in line with our previous guidance, $2.2 million decrease from the first quarter is primarily due to the employee severance cost and transaction cost incurred in the first quarter of 2014.

Interest expense totaled 31.5 million a decrease of 300,000 as compared to the first quarter, the decrease is primarily due to an increase in capitalized interest due to development activities. FFO contribution from our unconsolidated joint ventures totaled 5.0 million and was slightly below our $5.5 million guidance.

Our second quarter CAD totaled 28.4 million or $0.18 per diluted share and an 83.3% payout ratio. During the quarter we incurred 22.9 million of revenue maintaining capital expenditures. 22% of the second quarter revenue maintaining capital spend related to future year leasing activity with 5.1 related to early renewals from 2015 and later.

With respect to the quarter end balance sheet and financial metrics, our EBITDA ratio improved to 6.9 as a result of improved operating results and our debt to GAV was 42.8%.

We have a 100 million of floating rate debt, no balance on the 600 million unsecured line of credit and 235 million of cash with no maturities other than our 218.5 bond maturity in November later this year which is fully covered by our liquidity plan.

As Gerry mentioned, based on the second quarter results we have increased the lower end of our FFO range to 143 to 148, in addition to the business plan assumptions outlined in the supplemental package we note the following.

Core property income for the third quarter will be slightly below the second quarter results due to slightly higher seasonal operating adjustments and the no move out of Northrop Grumman. 2014 G&A for the balance of the year, the range is still 25 to 26.5 million and will be evenly spread through the rest of the year.

Interest expense should continue to range in 125 to 127 with 3Q expense approximating the second quarter. Termination fees we expect to decrease to about $1 million.

Third quarter management and leasing income should be slightly below the second quarter results due to lower leasing and development fees while other income line should also approximate second quarter results.

Joint ventures the FFO contribution from the unconsolidated joint venture should increase from our second quarter number to roughly 5.5 million for the third quarter.

We have 150 million of net sales with the exception of Four Points in Dallas land today there have been no additional sales, while we continually have properties in the market in various stages of price discovery, we continue to project generic sales with an assumed 8.5% cap rate.

As for our previously existing plan we anticipate a majority of those sales to occur in the fourth quarter. Third quarter results will benefit from the continuing annual amortization of the historical tax credit related to the post office, which will be approximately $11.9 million.

We have no planned issuance under our CEO program, no note buyback or capital markets activity and 160.4 million weighted average shares for FFO in 2014 for the third quarter.

Annual FFO payout ratio is 41.2, even with the additional capital spend this year related to 2015 and beyond leasing activity we continue to project CAD per diluted share to be in the range of $0.70 to $0.80 reflecting 40 to 50 million of revenue maintaining capital.

2014 capital, as we look at our liquidity for the balance of the year for the for the balance of the six months, total usage for the remaining six months will total $470 million comprise of 219 million for the unsecured note repayment, 75 million for the development projects primarily FMC, Encino Trace, 1900 market and the Cira Green, 51 million of aggregate dividends consisting a 48 million for the common shares, 3.5 million for the preferred shares, 25 million of projected JV investment activity primarily 4040 market, 45 million of revenue maintaining CapEx, 45 million of revenue creating CapEx and 7 million of mortgage amortization.

Primary sources for 470 million or 220 million of cash on hand, 95 million of cash flow before financing, investment and dividends and after interest 150 million of asset sales and 4 million from the repayment of a note receivable. At this point, I will turn it back over to Gerry..

Great, Tom. Thank you very much. Just one point to amend my earlier comments, I misspoke on the Encino Trace yield. As we have disclosed in our supplemental package, the free and clear yield on both of those projects is expected to be 8%.

So, to wrap-up our prepared comments and thank you George and Tom, second quarter results were very strong, consistent with our business plan. It was a fairly quiet quarter on the investment front.

We have a lot of work underway as I mentioned on the sales front and as Tom alluded to but we remain confident in the continued execution of our 2014 business and are continuing to plan ahead for 2015 and '16. So, with that we wraps up our prepared comments and we would be delighted to open up the floor for questions.

We do ask as we always do that in the interest of time you limit yourself to one question and a follow-up. Thank you..

(Operator Instructions). The first question comes from the line of Jed Reagan of Green Street..

Good morning guys. You've talked about being net seller this year and achieving significant deleveraging over time, it's actually been pretty quiet so far as far as dispositions and your development pipeline is growing and leverage metrics still remain elevated relative to the peer group.

So, just wondering if you can talk a little bit about the timeline for making bigger strides on reaching some of those leverage and debt to EBITDA goals and may be just how you hope to achieve that?.

Gerald Sweeney:.

Sure, thanks Jed. Look, I think in terms of the broader issue of capital raising, as you have alluded to and certainly as we stressed and repeated, achieving our balance sheet goals is a real driving predicate of our business plan.

I mean we do believe that creating capital capacity is one of the best ways, really one of the best strategies we can execute to both de-risk our company and provide capital to accelerate growth.

So, we have been successful thus far in selling slower growth assets and those asset sales, over the last several years have really been our most effective source of raising capital.

I think we are very encouraged by is with our markets continue to improve even in some of our more challenged markets are us reaching a point where we are almost at the stabilized occupancy levels for a number of those projects.

And with investment capital now finally really focusing on the office sector and particularly some of the non-gateway markets, we do feel we have an accelerated opportunity to continue our portfolio position, repositioning and improve our forward cash flow profile and raise capital. And we're clearly keeping all of our options open.

We do expect that we'll meet that intermediate term goal of 6.5 times EBITDA on 40% hopefully sometime in the 2015 range but clearly the track that we're on to de-lever is key for us and as we seek to take advantage of value-add or development opportunities, we clearly are evaluating all those in the construct of what we think our capital raising activities can be..

Jed Reagan - Green Street:.

And then sort of the long-term goals, '16 type of expectation or further than that?.

Gerald Sweeney:.

'16, '17 timeline, I mean one of the benefits we have is with some of these development projects coming on-board, frankly Encino Trace as early as '15, EVO generating some returns for us in '15 and certainly FMC coming on it '16, we think there will be some extremely good value-added drivers to help us accelerate and achieve our leverage goals..

Okay, thanks.

And on the student housing project that you have alluded to, seems like there is quite a bit of wood to chop there still on preleasing and just wondering if the partnership still feel comfortable with the original leasing goals or if those need to be scaled back again? And I guess specifically is there any read-through yet on graduate student demand, I know that was a key aspect of it..

Gerald Sweeney:.

Yes, look I think as we look at the project and we in this case being Harrison Street and Campus Crest and the Brandywine partnership, mission critical was the delivery of the project.

The delivery is on time, it's on budget which is quite a feat since we lost over 20 days due to weather during the winter but the budget remained in place in a $160 million level.

There is still some contingency dollars remaining and we were fortunate to have some nice buys on hard cost and some interest savings during the development timeline to be able to more than offset the acceleration cost due to the weather delays.

So I think from that standpoint we're feeling very good and again the project will be opened and tenants will start moving in really in the next couple of weeks.

In terms of the leasing, we are at 37%, a nice uptick from the last quarter and all of this leasing we need to be mindful of, is really being achieved without the prospects being able to walk through the building.

So, the Campus Crest team is doing a wonderful job of generating demand in the marketing offset without really even having to model units or the study halls or the concierge level completed until very, very recently.

But in terms of your question on mix, I think we're really pleased with the mix of students I mean it was designed primarily as graduate, I mean right now we have about 57 or so percent of the student population of executed leases are coming from Drexel University which is a good mix of graduates and undergraduates.

We have 33% are coming from Penn and they're graduate students. And 95% of those are first year grad students. So we think there is a good opportunity kind of to build that brand, we also have just shy of 10% of the population that's executed leases so far being young professionals.

Recent graduates and Brandywine and Campus Crest are collaborating very nicely and doing cross marketing to the Brandywine tenant base downtown. So we are picking up a number of young employees of our tenant base.

The other thing that's actually very good for us is the existing leasing pipeline they are represent us from five other schools in the Philadelphia area which really I think speaks well to the long term value of this location and its close proximity to both university academic centers, center city cultural centers and the transportation hub.

The prospect list remains very strong and we have about 600 prospects coming online and with the CO being achieved in the next week or so, the building being open for occupancy, people being able to come in and see the model units we really do think that things will accelerate quite nicely.

And the other point with this thing at graduate project, with the exception of Wharton at Penn which has an August 1st, start date, most of the other graduate schools start in late August and Drexel for that matter which runs on a trimester basis, there is school here for both undergraduates and graduates doesn't really start until September 22nd.

So there is plenty of time we think to accelerate the leasing progression that's been made over the last couple of months.

So, I think we're feeling very good about where the project is, certainly coming in on time on budget is very key and we still when we analyze the pro forma are still very much focused on the fact that by the third quarter of '15 we'll be in a great shape to have the project stabilized..

And as far as the near term goals of maybe getting to mitigating I think that was sort of an expectation put out there at one point, that still feel achievable or having to see how the next month goes or….

Gerald Sweeney:.

Jed, honestly I think the pipeline of the 600 plus students and the diverse to that pipeline I think gives us great comfort that we're going to make significant progress over the next call it 60 days. Whether the mid 80% was optimistic or not, we'll be able to look back at that point.

I think the team feels very strong that given the existing prospect list, the diversity of that list now that the model unit will be opened, the study halls will be opened, the building is stacked with furniture through the 27th floor, with a punch-list item on the lower floors.

So the amenity package is pretty much in place, we do think that the conversion ratio will pick up quite nicely and we are very pleased frankly with the level of exposure we're getting through Drexel University and through some other universities in close proximity to downtown..

Okay, great and just last one from me if I may.

On the Austin development it sounds like you feel comfortable moving forward on the second phase on a spec basis so just curious what kind of gave you that comfort level and on sort of what kind of preleasing you are seeing there and then do you think any of that activity could represent further poaching from your existing portfolio there?.

Gerald Sweeney:.

Good question. I think what we did is once it became known in market with that we assigned the lead tenant and that tenant was taking 75% of first building. We started to receive a lot of inquiries in the pipeline built very quickly of tenants ranging in size from 50 to 100,000 square feet but really like that location southwest Austin.

So, that type of upsurge in activity which there are a number of discussions still ongoing and these would be new tenants so not coming out of our existing portfolio.

We felt comfortable that with construction cost a bit on the rise in Austin with the sighting of these two buildings we're going to achieve some construction cost savings by proceeding on both at the same time and our expectation that some of these prospects would turn into future tenants as well as the potential expansion of the anchor tenant in building one that all went into mix that had us form a conclusion that we're better of delivering both buildings around the same time..

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

Thank you. Good morning.

So, can you guys talk a little bit about your known move outs between now and the end of '15? Has anything changed since last quarter or just what should we be looking for here?.

Gerald Sweeney:.

I mean no real changes, Jamie, from last quarter. I mean clearly the largest which occurred June 30th is Northrop Grumman. I think when you kind of look at the disclosure we've got in the supplemental and kind of my commentary of moving in that forward leasing that's already executed that is kind of evidenced on page four of the supplemental.

The speculative leasing left in the plan that's kind of in the chart on page five. We've got about 470,000 square feet of known move-outs that really get us to that 91% occupancy at the end of the year.

And then we have got a number of prospects in that 2.7 million square foot pipeline that we continue to work every day that then kind of puts us further up into our stated range of 91 to 92..

What about if we look ahead to 2015?.

Gerald Sweeney:.

'15 expirations? Yes, I mean I think some of our larger ones in '15, we have got a 130,000 square feet with Computer Science Corporation in Delaware, we do know that that's going to be a move-out, that's a full building user. We already have that building in the market for a potential disposition, could go potentially to a user.

eBay 93,000 square feet in King of Prussia. We feel good about them. We've got 56,000 square foot law firm renewing down in Delaware. Those are probably the three biggest ones kind of over that 50,000 square foot mark for next year..

Okay, and you think eBay is the renewal?.

Gerald Sweeney:.

Yes..

Okay.

And then can you guys talk about net effective rents, if you look across your markets, what are you guys seeing in terms of I guess year-over-year growth?.

Gerald Sweeney:.

Well, I mean I think as I mentioned in my comments, I mean we are clearly seeing an improvement in net effective rents in Downtown Philadelphia and in the Crescent markets, we are pushing the base rates. We are not maintaining if not improving operating expenses and because those markets are so tightly occupied we are controlling capital cost.

We are getting good, kind of annual escalations between 2.5% and 3% in those stronger markets. I think when we kind of go around the horn, I think DC net effective rents haven't really changed all that much. I think the concession packages remain relatively unchanged.

New Jersey, Richmond some of our smaller markets where we still have a few percentage points of occupancy to gain.

We continue to, have to roll down that cash rent but again I think Richmond traditionally has been a low capital market but we have had situations like we had this quarter in New Jersey where a few deals that met the occupancy need just required closer to a $4 capital investment..

Okay and then finally from me.

What are you guys seeing as the impact from this grow New Jersey plan? We have heard a lot about it in the press and the brokers? Are you seeing the pendulum shift out from Pennsylvania to New Jersey?.

Gerald Sweeney:.

Well, I think it's a powerful program the state has implemented. We will see how it actually plays out. There is a fairly short duration through 2019 I think it is and look it certainly does provide an incentive for some companies to locate to these targeted zones.

And I think whether it's good public policy or not, the New Jersey will need to debate and we think it's a good economic development tool that they have implemented. What we have typically seen is when one state announces programs like that, other states follow with similar types of program.

So, to the extent that New Jersey starts to garner a lot of economic support through this plan which I think is pretty well crafted, my expectation would be that the large companies looking to make locational decisions, will certainly use that as a lever point over whether it's in New York or Pennsylvania or Delaware or Maryland for that matter.

And then what we found is that ultimately companies tend to make the locational decision that works best for their employee base, works best for their physical and marketing platform and the public investment to achieve that tends to be not a secondary consideration but not as prime as making the culture of the company work well and the employee base happy.

So, I think it's an effective tool. I think it's still at the embryonic stage of implementation. We have seen a few things down here in the Philadelphia area where companies have moved into Camden which is one of the targeted zones.

The 76ers moved their training facility over there for certainly because of the significant tax incentives and other company that's domiciled in Burlington County has relocated their headquarters down there. So, Jamie, it's a great question, I think again it's a well-crafted program.

The breadth of its adoption by company is looking to make locational decisions I think still remains to be seen. New York has some strong incentive programs to keep and attract companies, Pennsylvania through its RCAP program and tax-free zone has a fairly compelling economic model as well.

Delaware is historically been very aggressive in response and attracting company. So, I think this program at least in the tri-state area here I think really put New Jersey back on the map relative to having effective economic development tools to get to the table and talk to companies who are looking at making locational choices..

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

It's actually Manny Korchman here with Michael.

If we can go back to EVO for a second, what do you guys sort of foresee as the going in 12 month yield from here compared to the 7.6% that you spoke about once stabilized?.

Gerald Sweeney:.

Yes, it's again, we have leasing to do but I think the current plan right now shows us holding that yield I mean for example the some leases that has been done thus far I mean there have been some very select concession packages put together in terms of either waving application fees or incorporating a percentage of monthly rental abatement.

The community fees are still being paid. So, our average effective monthly rent for what we have done thus far, is still above our effective budget at right. So, right now even with the concessions that have been given, albeit as minor as they have been, we are still running ahead of our average monthly rate.

More importantly though the competitive set that EVO is competing against for the graduate population still have rental rates in excess of ours. And they are wrapping in particularly the real high quality competition in around 34th street is running close to pull occupancy.

So, I think as we look at the pipeline of prospects, as I touched on when Jed raises his question the diversity of that prospect list in terms of the graduate, undergraduate mix, the young professionals, the incorporation of five additional schools who are having students look at it.

We are still feeling that the next 60-90 days are really critical for us to see how those numbers shake out but right now based upon the pipeline what we have done today without the building being open, I think we are still looking at that mid 7% yield rate..

Do you foresee having 90 days of sort of runway given the fact that even if in the case of Drexel you are starting school year September 22nd, I'm saying 60 days but what is that actual 30 days when schools open give you?.

Gerald Sweeney:.

Well, I think one of the positive dynamics that we have been seeing is that we're seeing an increasing number of young professionals look at this as a market rate rental unit project.

So, we think that's created some additional amendment to pipeline and with the graduate schools a lot of those students make decisions around this time of year as opposed to the undergraduates typically do standard housing.

So I think there is some runaway there, certainly I don't think we have this pipeline of total prospects again, predominate by Drexel and Penn unless there was a real pressing need for these students both graduate and undergraduate to find a place to live..

Great and then you spoke about a good pipeline at FMC, was just wondering what kind of tenants you are seeing there?.

Gerald Sweeney:.

Great question I mean we are now with 250,000 square feet to lease and essentially two year delivery time, I think what we are still focused on right now is some of the larger size tenants who are domiciled in the surrounding counties both of New Jersey, Pennsylvania and Delaware who are beginning to send signals they wanted to have a piece of their operation in downtown university city Philadelphia.

So, we are making a number of pitches to larger users, who may in fact want to relocate to FMC tower but more to the point we look at consolidating or breaking off these are these are our operations for downtown. So, we are still talking to some tenants ranging in the 100,000 to 200,000 square foot range.

We are beginning to infill that with single floor users, who are kind of in the 25,000 square foot range and at this point really finalizing all the marketing materials, having broker open houses, broker networking and making a lot of presentations to business organizations, to companies.

So, really using the balance of the summer to raise the profile of the project so people understand that it's a mid '16 delivery construction has started, here is the amenity package, here is the economic structure, here is how the tax-free zone works in and actually getting a very good response, I mean it's building again as we've talked about would be a real driver of the skyline of real brand identities, proximity depend, the science center, Drexel University, the transportation hub, it all really does resonate with a lot of these prospects and a much different dynamic then we have when we started the original Cira Center building where it was still a bit of a pioneering location.

So people were a little bit locational resistant. Now the buyers tend to be very embracing of the location and excited about evaluating FMC tower becoming home to at least part of their operations..

Your next question comes from the line of Brendan Maiorana with Wells Fargo..

George, page 5, your 2014 leasing plan square feet, is that a lease plan or an occupancy plan?.

Gerald Sweeney:.

That is an occupancy plan..

Okay. So can you help us just frame up getting -- occupancy, it seems like you're pretty well positioned to get to the midpoint of guidance, given that your leased rate is well above where your occupancy rate is. It feels like you're pretty well positioned there.

To get to the 93% to 94% in terms of the leased rate by the end of the year, can you kind of help us understand, sort of new leasing that you expect to do, maybe move-outs, early move-outs, that are expected? And I gather from the amount of expirations, 500,000 square feet, it sounds like you probably think you're going to retain about 70% of those for the balance of the year..

Gerald Sweeney:.

Yes. I think how we kind of can generate that our plan kind of commencements for call it the first three to four months of '15, based on the pipeline we have today, is really where that forward leasing will continue to come from.

I think every new lease we start to sign over the late third and during the fourth quarter, that's all going to have a 2015 commencement to it. So I think much the way we're sitting on 500,000 square feet of prelease today, we kind of expected this replenish that as we continue leasing during the course of the year.

So guessable, we got 50,000 square feet kind of in that bucket as we sit here today, couple of leases but we have some spaces that where we've got unknown move out in the third and fourth quarter, we've already leased the space for a '15 commencement but it doesn't show as preleased because the spaces aren't currently vacant today, we've got about a 100,000 square feet that kind of sits in that category.

So again, I think it's conversion of the pipeline is really kind of first and foremost as to how we get there..

Yes, that makes sense. I guess what I was trying to understand is just may be the mechanics of getting to 93% to 94% leased by the end of the year from 91.7% today.

And it seems like, if I'm just kind of looking at what you did in the first half of the year in terms of new leasing and then assuming early terminations remain comparable with where they were in the first half of the year and the back half of the year, maybe that's not a correct assumption.

It seems like there's an acceleration of new leasing that needs to happen in the back half of the year to get to the midpoint of that range, which is 180 basis points of net absorption.

Is that a fair characterization of kind of how we should we think about back-half of the year leasing?.

Gerald Sweeney:.

Yes. I guess in some ways but I also think that our run rate of early terminations and move outs, we don't have the 137,000 square foot Lockheed and the 100,000 Northrop.

We don't have kind of the same level of those large non-move outs, I mean we've got the one in Delaware that I talked about earlier, but yes, I think it's really kind of a combination the non-move out early termination number kind of not necessarily being as much as the run rate has been.

And the fact that we know we do assume that these markets continue to recover and we're able to -- continue to capture the market share of the deals..

Okay, fair enough.

And just for that year-end target, I think my understanding is that the 93% to 94% doesn't contemplate any kind of changes to the existing operating pool, right, so to the extent that you may be acquired a highly vacant asset, that would depress that number or if you sold a high vacant asset, that would increase that number that there is none of that included in that 93% to 94% target, right?.

No those targets are based on the portfolio as it is constructed today, it doesn't factor in any dispositions despite the fact that we have a lot of things in the market to sell and it doesn't assume any acquisitions coming in..

Okay, great. And just last one for clarification, you mentioned two 50,000 square foot prospects for the Northrop space, which would backfill all of that.

Can you give us a sense of if those are two prospects, maybe how many options those tenants have at your building and others in the market?.

Gerald Sweeney:.

Yes.

I mean they kind of came down I think toward short list probably 6 to 7, but they probably started with an opportunity list that was probably three times that, so look, we think that the capital plans we have projected for that building really kind of make it a differentiator in the market going forward reamenitizing it, putting in new way finding systems, lighting landscaping, lavatories.

We really think that we're going to be able to offer something that is even more of a flight to quality than kind of exists today.

So look we keep our fingers crossed with the prospects we have but we have them early and we are kind of hoping to kind of take the same success we had with the Lockheed space in Rockville and kind of generate the same positive result here in Dallas..

Your next question comes from the line of Craig Mailman, KeyBanc..

It's Jordan Sadler here with Craig. I have a quick one coming back to the leverage question, Gerry.

Is the expectation, obviously we got quite a bit out for sale but is the expectation for leverage overall to continue to decline? I know that's been sort of the message, I am just trying to think of it in the context of what's going on, on the spend side versus how much is closed year-to-date and what's on the contract year-to-date?.

Gerald Sweeney:.

Yes, Jordan, great question just to reinforce, I mean the answer is clearly yes, I mean we do expect to continue to deleveraging to move forward, I mean clearly as we have taken advantage of what we thought were very good opportunities for us like an FMC Tower or an Encino Trace or as George touched on the reinvestment of money back in to Dulles Corner or up in Rockville.

We look at that forward capital spend as an obligation we've created for ourselves to continue our deleveraging path by accelerating our asset sales. And when we looked at even the timing of when the spend for an FMC or the other projects comes on-board, a lot of that spend is occurring in '15 and '16.

So, as we certainly look at our forward sales disposition plan or joint venture undertakings that's all part of that algorithm of how we fully fund these commitment we have made, continue to invest money into our existing portfolio while we're moving along that deleveraging path.

That's why I say every quarter that meeting those deleveraging goals, those leverage targets, they are a driving predicate of our business plan, so every time we evaluate something we look at what we need to do in order to maintain that path towards lower levels of leverage and stronger coverages..

And any thoughts, I mean obviously the big piece of the spend is FMC, any incremental thoughts you can provide surrounding how to finance that going forward the joint venture potential?.

Gerald Sweeney:.

We have engaged a broker to help us vet through that equity marketplace on a joint venture side. We've had a very good response.

We've had well over 20 investors who have spent a fair amount of time on the project looking at both the overall project and the residential component and we really would expect the game plan over the next 90 days on that, Jordan is to, we touched on launch the marketing efforts for the remaining leasing but also work with a number of these institutional equity sources on whether we can achieve the right level of structure that we're looking for.

There has been no shortage at all of commercial banks have put forth construction proposals but I think before we move forward on construction financing which we know is plentiful, we know we get a very good deal from a number of our good banking relationships.

We want to see how the joint venture discussions go and whether they wind up being successful and if they are successful, they are successful on the overall project front or just on the residential front..

Hey guys, its Craig here with Jordan.

Just a follow-up to that, any thoughts on using the ATM here to help match fund some of the construction cost for some of these projects?.

Gerald Sweeney:.

Well look, certainly as I alluded to earlier, I mean when we look at the broader question of capital raising, I mean certainly joint venture sales, other methods of raising effectively price capital for the company, are always part of our consideration. .

Okay, then just one last quick one on same-store. You guys are trending ahead on cash relative to the high end of guidance.

Can you just kind of give us sense of where you think the back half trends, should we be thinking that you guys are going to be more mid to high end of that range for balance '14?.

Gerald Sweeney:.

Yes, I think we feel confident that kind of the 4 to 6 range is ultimately where we end up I think we probably see a little bit of dilution in the second half of the year, just knowing that when you look at a tenancy like Northrop Grumman, I mean that's a 100,000 square feet that six months of rental income kind of goes away from that same-store pool.

So, again I think we feel confident about the range but I don't think we'll be performing at that same kind of 6, 2 run rate that we had year-to-date..

Your next question comes from the line of Gabriel Hilmoe with ISI Group..

Thanks.

Gerry, just on the future development pipeline and kind of what's currently in planning, in your opinion, what likely gets started in the near term beyond kind of what's in process right now?.

Gerald Sweeney:.

Well, the next project really up on the queue is the development at 20s and Market Street in Philadelphia which is in the process of having the approvals protected, the partnership documents with an institutional investor finalized and third party financing put in place. So that could start as I talk about in the last call is sometime in the fall.

The other project really is its underway is the 4040 Wilson project which is a joint venture with the Shooshan Companies. We did commit to finish that garage, that work will be done and funded by the end of this year. We also have committed that we're not going to start that project without a significant prelease.

So marketing up till that continue apace there are some very good activity, nothing's been inked or advanced the point of any certainty.

So we'll continue to evaluate that and certainly in consultation with our partner if the level of preleasing is not achieved then as we've indicated before that project will just finish the garage and wait for the market to recover for a leasing prospect.

So I guess really those two items, one point that George did touch on which is worth amplifying is, there are a number of other opportunities we have within our own portfolio, where we plan on launching redevelopment efforts, again certainly not in the scale of the 20s in Market Street but $10 to $15 million capital plans like we're doing at Dulles Corner done at Rockville there's a few office parks in the South East part of Pennsylvania that we think we have an opportunity to reposition.

So other than those I think that's pretty much where we are..

Okay.

And then just maybe one for George, just on your comments on some of the recent tenant expansions, has that been specific to certain markets? Or are you seeing that in different areas of the portfolio?.

We're seeing kind of throughout the portfolio, I would say that we've seen certainly more of it, in Pennsylvania and in downtown Philadelphia, now part of that is obviously because that's such a large part of the company, but we have seen even some Northern Virginia and Maryland tenants going through the same things.

And even in -- over in New Jersey I mean we had one tenant who exercised, 18,000 square foot [indiscernible] and then also grew by an additional 15,000 square feet as part of the process.

So kind of allover I think, as markets recover, companies feel better about their own internal business plans, we're starting to see some of that expansion activity that had kind of gone away for a while during the 2012 and 2013..

Your next question comes from the line of Rich Anderson with Mizuho..

So Gerry, could you describe for me what your reaction would be if there was sort of a meaningful increase in interest rates in 2015 beyond what maybe would be expected by the market? How do you think you would react in terms of your strategy from a deleveraging standpoint?.

Gerald Sweeney:.

If there was a measureable increase in interest rates?.

Yes.

Do you think you would be fast-tracking things or do you think you would just toe the line and stick with what the original plan is in terms of timing?.

Well look I think as I mentioned in my comments and Tom touched on it, I think we continue to look currently at what to do with some of the debt we currently have on our balance sheet.

I mean we look at the ability today with treasuries being below 2.5 with the credit spreads being fairly stable on the demand drivers and I think the debt capital markets will certainly actively evaluate if there's an opportunity for us with our cash balances to certainly reduce our level of leverage and then term out some of our more intermediate term maturities so that we can reduce our weighted average cost of debt.

So look I mean, I think certainly anybody who runs any business is very mindful of what the adverse impact of rising interest rates are which is one of the reasons why even with rates being as low as they are and have been, we carry a very low level of floating rate debt.

So we like the kind of focus on trying to grow rents not control interest rate cost. So our path to delever as we've talked is immutable and as part of that we look at what's the best debt structures for us to have relative to achieving that goal..

I was thinking of rates and their impact on disposition cap rates I suppose. I looked at 2016, 2017 target for the long term. Leverage level seemed extended to me..

Yes.

Look I mean, it's a fair point on impact on cap rates I mean certainly cap rates even today is low zero still trading at pretty big spread from historical standards over the baseline treasury, so I think there is lot of speculation even if rates move up a bit there will be enough cushion to absorb short term rate moves without impacting cap rates and certainly layering into that of course is what is our rates rising as part of an economic expansion.

So, we are able to see rents growing as part of that economic expansion to more offset that. So, it is a complicated metric but I think from our perspective the best way to ensure that we're optimizing or de-risking is lower leverage lock in as long term as we can to this historically low interest rate environment and keep leasing office space..

Great. And then my follow up to George, I guess you guys are talking a lot about early leasing and tackling 2015 and 2016. But do you think there are any markets where you want to I assume there are, you want to let it ride a little bit and not leave some money on the table.

If you're having market rent increases, you don't necessarily want to lease too soon and leave some money on the table.

Can you comment and where, if you're doing that, anyplace in the portfolio?.

George Johnstone:.

I think the overall strategy has been to try to get those lease expirations extended.

I think any perceived money left on the table I'm not sure outweighs the potential risk of losing that tenant and I also think that kind of talking to the tenant now can sometimes result in a lower capital equation on extending that where we let it ride for two more years then potentially the space looks more old, more tired and then they want a little bit more money on the natural expiration..

Gerald Sweeney:.

Yes, [indiscernible] it's a big part of our operating discussions. One of the key issue that we are very happy with is, we've really been able to move these annual rent bumps into the 2 to 3% range and in many of our markets 2.5% to 3%.

So, I guess as we assess the opportunity cost, if we are able to achieve those kind of annual rent bumps, lengthen the lease terms, I mean really derisk our portfolio, it's a much better economic trade-off for us particularly given the lower capital cost than waiting for the market to bump 4%, if the market may or may not bump 4% and certainly will always have 8 to 15% annual rollover.

We can capture kind of that upside on a more risk adjusted basis but at least from my stand point I'm a very firm believer as I know the rest of our operating team is [indiscernible]. In the markets, psychology is such that tenants expect rents to rise.

It's a very good time to accelerate forward rollover risk, bring it today, they have an incentive to do with, they are more focused on controlling, there are longer term cost versus extricating a lot of capital and it makes for a very good equation for us to both stabilize the existing portfolio and enable us to be opportunistic in other areas that can create great value for us.

The Three Logan example is a great one for us in this company where the reason we are able to buy a 50% value add building was because we were 94% leased with very little near term rollover in CBD Philadelphia.

So that enables us to make a bet that turn out to be very successful over the 660 Plymouth rehab, where we bought a completely empty building in our Plymouth meeting market and have turned that into a low double digit return by rehabbing that and leasing up because our existing portfolio was very stable.

So, I don't think we leave that much on the table and my guess is what we would leave on the table is more than offset by lower capital or concession cost to get the lease extension done..

Great.

And just a quick one, on the Austin JV, what is the end game there? Are there any buy-sell rates (I think) [ph] for either parties?.

Gerald Sweeney:.

There are I mean, our partner there on a 50-50 basis DRA advisors a very good quality group that we have a great relationship with some other dealings over the years. We put five year debt financing on the portfolio at both DRA and Brandywine are aligned with the opportunity to optimize value.

So, there are buy-sells in place to accented one party doesn't necessarily see the right moment of optimization and its pretty standard fair. I mean if they want to sell, we don't want to sell we have right to buy them out, if they want it, [indiscernible] versus also very true. So, pretty simple straight forward clean structures..

Your next question comes from the line of Mitch Germain with JMP Securities..

Gerry, where is the availability in the FMC Tower?.

Gerald Sweeney:.

The availability is kind of mid bank Mitch, we have University of Pennsylvania taking the bottom four floors and FMC stacking down from the top 10 floors, so we have kind of floors five through 15 or 14 available..

Got you, got you. And your asset sales, you mentioned 80 under contract, 300 in place.

I mean geographically, maybe if you could just provide some context, kind of what markets you guys are more focused on pairing?.

Gerald Sweeney:.

Yes sure, I mean on what's under contract or close to we have one complex in South East Pennsylvania and the other project is in North Virginia..

And your next question comes from the line of Jed Reagan with Green Street..

Hey, guys. It looks like there was an asset in the Radnor market that traded recently at a pretty big number.

I'm just wondering if you looked at that opportunity and what kind of look through you think that might suggest for your portfolio and maybe just more broadly, if you're seeing cap rates move materially in your markets these days or if that's sort of holding steady?.

Gerald Sweeney:.

The asset you're referring to is in Radnor. It is not sold; it's only out for bid right now.

We are looking at it, whether we make it better or not depends on how we work through our due diligence, it's an older building but in a great location Radnor, I think the pricing expectations there would be somewhere in the $150 per square foot which we think really dovetails very nicely in terms of the value we've created here in our Radnor marketplace.

And the cap rate my guess will be somewhere in the mid 6% to 7% range but again I don't have any particular visibility and I just kind of market here say. And it's a single building not a complex; it has its own rental characteristics versus what we have here.

So I have to kind of see where pricing worked out to see how much look through there could be. I think certainly from market vacancy standpoint from a reinforcement of the expected sale price per square foot I think it really does point to the fact that Radnor has really become the preeminent market in South East Pennsylvania..

Okay, great.

And then just kind of broader cap rate trends in your market?.

Look I think we're still seeing a either stabilized cap rate or a push down for a lower cap rates, I mean it's -- I think we do look at some of these transactions and are very pleased with some of the trading ranges on some of these assets that we're trying to sell, which is why we put more things back in the marketplace.

So there clearly is a search for yield the office sector, for better for worse, worse if you're in it, better if you're not is there still an ability for investor to get a higher yield in office than they can in some of the other sectors, so that is I think accelerating the push of capital towards our sector.

The benign interest rate environment and even the anecdotal metrics on economy recovery all playing very well into, we think continued upward picks in value for a lot of our product..

Okay, great. And just last one for me, I think I heard George say that the cash releasing spreads for the year may be trending towards the lower end of guidance.

Just thinking if that's sort of an indicator of broader rent growth trends coming in lower than expectations in your core markets or if that's more just kind of one-off softness in select markets or buildings?.

Gerald Sweeney:.

Yes. Look I think the point that sometimes gets lost when you look at a macro number for Brandywine is if you take a look at the markets where we're working very hard to absorb space, they are the marketplaces that have been a bit lagging in their recovery pace. So we're still rolling off in those markets, peak rental rates from 2007, 2008 et cetera.

So we do expect a negative cash mark-to-market in those markets and I think as we continue to absorb space we see that trend continuing but we're also very encouraged by the very positive mark-to-market that we're seeing in a couple of our existing stronger markets and frankly the pace at which that we think that negative spread will disappear even in some of our challenge markets..

We have a follow-up question from the line of Brendan Maiorana, Wells Fargo..

George, probably for you, so one of the other REITs mentioned that they weren't seeing as much pickup in occupancy as they had expected in what I guess would be your other suburban markets, non-crescent markets in the PA suburbs. It looked like your leased rate went down in that area this quarter.

Are you guys seeing any softness in the non-crescent markets? I think you mentioned that you actually thought things in King of Prussia were getting a little bit better..

Yes. I mean look our pipeline, anybody who comes into the pipeline interested in Radnor, Conshohocken, even parts of Plymouth Meeting opportunities don't necessarily exist and we get them on the King of Prussia tour.

So look, we've been able to do a number of transactions out there, we've got that portfolio, kind of at 89% right now, but we've actually even seen some Radnor tenants who upon lease expiration are starting to entertain that as a lower cost alternative.

So we've got a couple of pipeline deals where some people are actually kind of looking to maybe go a little bit further out in the King of Prussia. So, look we've got a couple of troubled vacancies out there but we have got a couple of business parts that have done very well.

We went through a deal earlier this year where the company at our Maschellmac Complex who not only extended their lease for 10 years but kind of doubled their size out in King of Prussia..

Gerald Sweeney:.

[Indiscernible] You have to take a look at our portfolio and compare that to some other companies with their submarket position. I mean we are by-design not in a number of submarkets, I mean as you move further out in the Chester County, we literally have very little, like we have sold our assets in Exton.

We've continued to lighten our load in the southern Route 202 corridor. We exited Horsham a number of years ago where we've exited Fort Washington. We have very little exposure in Blue Bell where most of our focus is on Plymouth Meeting.

So, we've really embarked on a path a few years ago to make sure that our Southeast Pennsylvania exposure was really limited to four core markets, in Newtown Square, Radnor, Conshohocken, Plymouth Meeting with the add-on of King of Prussia which we knew would be a beneficiary of the timing in those marketplaces..

Okay, that's helpful.

And then just last one, I am not sure if this is Tom or Gerry or George but consistently over the past couple of years you guys have sort of been in the revenue maintaining CapEx in that sort of $70 million to $80 million range and then the revenue enhancing CapEx has been kind of roughly comparable sort of 70 to 80 and back half of the year kind of same relationship 45 million in each bucket.

As you move the portfolio to 91% to 92% occupied by the end of this year 93% to 94% leased.

Should we start to see that the revenue enhancing kind of driving the occupancy up, that bucket of CapEx go down?.

Gerald Sweeney:.

Yes..

Do you think that's something that happens in '15 or is '15 still kind of a lease up year and maybe it's a 1'6 phenomenon?.

Gerald Sweeney:.

Well, look we haven't given any visibility on '15 at this point but I think if you take a look at what we're doing from an operating standpoint and George and Tom will agree me. I mean we are really reaching out into our '15 and '16 maturity curves to try and get those rollovers addressed today.

In fact I think Tom you have mentioned, I mean over 20% of our capital cost this quarter related to tenants whose leases aren't kick-in until 2015. So, thematically we're at the company, it's all about for us getting the portfolio back to historical occupancy levels and we still have work to do there and that's what we all spend most of our time on.

As we get there, we want to focus on really derisking our forward rollover exposure because that is a major point of success in the office business.

We can move our overall retention levels back to that 75% to 85%, 80% range we were at for years that really portends a much lower level of capital investment, particularly with the portfolio like we have today, Brendon, that's much better positioned than what we had five or six years ago.

So, we do expect that we'll be able to be in a position to have a very good growth in our cash flow because of all of this investment we're making into our properties today..

There are no further questions at this time..

Great, thank you all for joining in for the call. We look forward to updating you on our business plan activities in the fall. So, enjoy the rest of the summer. Thank you..

This concludes today's Brandywine Realty Trust second quarter earnings call. You may now disconnect..