Good day and thank you for standing by. Welcome to the Brandywine Realty Trust Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

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

Michelle, thank you very much. Good morning, everyone, and thank you for participating in our fourth quarter 2021 earnings call. On today's call with me are, George Johnstone, our Executive Vice President of Operations; Dan Palazzo, Vice President and Chief Accounting Officer; Tom Wirth, Executive Vice President and Chief Financial Officer.

Prior to beginning, certain information discussed during our call may constitute forward-looking statements within the meaning of the Federal Securities Law. Although, we believe these estimates are based on -- reflected in the statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved.

For further information on facts that could impact our anticipated results, please reference our press release, as well as our most recent annual and quarterly reports that we filed with the SEC. So first and foremost, we hope that you and yours had a wonderful holiday season and are looking forward to a very successful 2022.

And in our world, certainly after some reopening delays related to the latest variants, we have stronger tenant interest in high-quality office space, as tour activity, lease negotiations and deal executions remain on a very positive trend line.

A definitive trend and one that we believe will accelerate is that tenants are requiring very high-quality workspaces and we believe this trend positions our existing portfolio and our development portfolio extremely well.

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

After that Tom, George, Dan and I are available to answer any questions you may have. So looking past -- back to 2021, we closed the year on a very strong note with many business plan objectives achieved. We exceeded our speculative revenue target by $1 million, raising guidance twice during the year.

We execute -- our executed lease volumes remained in line with last quarter and our operating portfolio leasing pipeline increased by 120,000 square feet.

For the fourth quarter we posted rental rate mark-to-market of 8.1% on a GAAP basis and 2.6% on a cash basis, with our full year mark-to-market being very strong at 16.2% on a GAAP basis and 10.3% on a cash basis. In addition, we had 116,000 square feet of positive absorption during the quarter.

Our full year 2021 cash same store numbers came in below our revised business plan, primarily due to lower parking revenue, bad debt related to one retail tenant and free rent for a backfill tenancy. Full year capital costs, however, were in line with our business plan range.

Tenant retention was 53%, which was at the top end of our full year forecast and core occupancy and lease targets were also within our forecasted range, where we ended 2021 93% leased and -- actually 93.9% leased within our core markets.

We posted fourth quarter FFO of $0.35 per share, which is in line with consensus estimates and full year 2021 FFO of $1.37 per share, which was $0.01 above consensus. For 2022, we're providing guidance with an FFO range of $1.37 to $1.45 per share for a midpoint of $1.41 per share.

Our early renewal efforts, expense control programs, forward near-term pipeline visibility and our recently executed transactions, established a clear pathway for growth. Our 2022 plan is headlined by two operating metrics that demonstrate the underlying strength of our core markets and for it's excellent growth potential.

Our cash mark-to-market range is between 8% and 10%. Our GAAP mark-to-market range is between 16% and 18%. Our GAAP same store NOI growth for both cash and GAAP is between 0% and 2% and we expect all of our regions will post positive mark-to-market results on both a cash and GAAP basis.

In looking at a moment at our cash same store NOI range of 0% to 2%, it's impacted by the timing of rollover and the subsequent backfill from leases already executed. So for example, in Philadelphia, we renewed a 120,000 square foot tenant commencing February one of '22. The free rent in that 16-year deal will last the balance of '22.

In addition, we had 110,000 square foot tenant vacate Cira Centre in 2021. We've already leased 75% of that square footage with a commencement in July. And those lease structures on those replacement tenants are 10 years in term and incorporate free rent for the balance of '22. Just those two transactions represented 3.1% cash same store impact.

We believe based on leases we already have executed and visibility into our near-term pipeline, that portfolio is well positioned to deliver much better same store growth in '23. Our spec revenue range is between $34 million and $36 million, with $25.6 million or 73% at the midpoint achieved.

That speculative revenue range represents approximately two million square feet of leasing velocity which compares to leasing velocity of 1.2 million square feet in '20 and 1.4 million in 2019. Other key highlights. Occupancy levels will remain between 91% and 93%, lease levels between 92% and 94%. We expect a retention rate between 58% and 60%.

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

Based on our 2022 leasing activity and higher development and redevelopment spend, we project our net debt to EBITDA to be in a range on a combined basis between 6.6 to 6.9 times. We view this leverage increase is purely transitional, while we are in a period of investing significant capital into construction, without recognizing any NOI.

As income recognition occurs, this leverage will decrease significantly. To amplify this point, we have segmented our EBITDA metrics between core and combined.

On page three of the SIP, if you look at that, we've included another leverage metric, that focuses just on our core portfolio by eliminating our joint venture nonrecourse debt and our active development and redevelopment spend.

We believe that our projected core leverage range between 6.0 and 6.3 provides a more accurate measurement of how we're managing our core operations, as it eliminates our more highly leveraged joint ventures and eliminates the volatility associated with the timing of spending project capital, which increases leverage and the subsequent delay in income recognition.

Over the last couple of years, we've reduced our forward rollover through 2024 to an average below 8%. Further – looking further out, our rollover exposure is below 10% annually through 2026. So value creation and earnings growth remain a top priority.

Senior earning drivers for us as we have key vacancies that many of you are familiar with that will generate between $0.07 and $0.10 a share upon lease-up. We continue to make progress on leasing up those spaces but our 2022 plan only includes approximately $0.02 per share of revenue from those vacancies, of which 20% has already been executed.

In looking at our activity levels, our overall leasing pipeline stands at 3.8 million square feet, broken down between 1.4 million square feet on our operating portfolio and 2.4 million square feet on our development projects.

The 1.4 million square feet leasing pipeline on the existing portfolio increased by 120,000 square feet during the quarter and is 14% higher than our pre-pandemic levels from the fourth quarter of 2019. The leasing pipeline on our development projects of 2.4 million square feet also increased during the quarter by 100,000 square feet.

In looking at our liquidity and dividend, we have excellent liquidity. And even with our anticipated development spend and absent any other financing sources, we anticipate having $383 million on our line of credit available by year-end 2022.

We also do anticipate renewing both our line of credit and our $250 million term loan during the first half of the year on – at similar terms to the existing instruments. The dividend is very well covered with a 54% FFO payout ratio at the midpoint.

Our CAD ratio has migrated to about 90% and above recent years, primarily due to our elevated leasing activity, which is that 2 million square feet we plan on leasing.

And in addition for 2022, we did include all JV capital spend in our CAD calculation, regards to whether those dollars are financed through good news funding at our JV level secured mortgages and that did have an impact of $0.05 a share about 5.5% of our CAD ratio.

We do anticipate that coverage improving significantly as leases commence and we recognize revenue. From a capital allocation standpoint, we made progress on many fronts. We liquidated our final property in our Allstate joint venture and recognized the gain of $3 million. We also continued selling non-core land parcels during the course of the year.

And in fact in January, we sold one parcel for $1.4 million, generating a $900,000 gain. In looking at our development opportunity set, 250 King of Prussia Road, in our Radnor sub-market is scheduled for delivery in the second quarter of 2022.

The project will be the first delivery in our Radnor Life Science Center, which consists of more than 300,000 square feet of Life Science space, in what we consider to be the region's best performing submarket. The current pipeline on that project is north of 260,000 square feet, including 86,000 square feet in lease negotiations.

405 Colorado in Downtown Austin that project is now complete and is 48.3% leased with a growing and very active pipeline. We have a leasing pipeline right now of 144,000 square feet of which 31,000 square feet are in lease negotiations and we are working through a 26,000 square foot expansion.

Our B.Labs incubator at Cira Centre it consists of 240 seats. That opened in January and is 95% leased to 12 companies. Well ahead of our plan and based on that success, we're planning to add another floor totaling approximately 27,000 square feet by year end 2022.

And we additionally have plans underway to add another 78,000 square feet of life science capability through Floor 9. Just taking a look at an update on Schuylkill Yards and Uptown ATX. In Schuylkill Yards West, our life science office residential tower is on time and on budget for Q3 2023 delivery.

We currently have an active pipeline totaling 410,000 square feet for the life science and office space component. That pipeline is up 70,000 square feet from last quarter and we do expect it to continue to grow as construction progresses.

Our $56.8 million equity commitment is fully funded and our partner's equity investment is currently being made and the first funding of our construction loan will occur in the second quarter of 2022. 3151 market, our 424,000 square foot life science building is fully designed and priced.

We have a leasing pipeline totaling about 270,000 square feet, which is up from 150,000 square feet in the third quarter and our goal remains to being able to start that project this year. At Uptown ATX, we've had a very productive 90 days at the 66-acre community which has the development capacity approaching seven million square feet.

We rebranded the project from Broadmoor to Uptown ATX recognizing it can create a new center of gravity within the city of Austin. We broke ground on Block A, which consists of 348000 square feet of office, 341 residential units and 15000 square feet of ground floor retail. As part of this we are delighted with our 50-50 venture with Canyon Partners.

That structure is similar to our 3025 Schuylkill Yards West project with Canyon providing 50% of the equity on a preferred basis. We are currently in the process of obtaining a 65% construction loan which we expect to close before the close of Q1.

As we discussed in the past these preferred structures enable Brandywine to retain a significant portion of value creation upon stabilization. Under our preferred structures once the partners in Brandywine received the accrued return, a significant value accretion comes to Brandywine after that.

So based on our stabilized underwriting that creates an incremental 400 basis points to 500 basis points lower cost of third-party equity capital than a traditional joint venture. We also anticipate the completion of that office component in 3Q 2023 and the residential component in 3Q 2024.

We have a pipeline on the office component right now about 300,000 square feet. But since announcing the project we received inquiries aggregating just shy of 1.3 million square feet. So a lot of activity on that project now that it's finally coming out of the ground.

We also had our groundbreaking for the train station that we'll be building through a 50-50 public-private partnership with CapMetro which is the regional rail authority in Austin. That station as we've outlined before, will provide Uptown ATX direct access to downtown Austin and the northern suburbs and we expect it to open for service during 2024.

We further anticipate that we will be starting the first phase of Block F which is 272 apartment units under the same format with Canyon in the second quarter of '22. One final note. While our 2022 business plan did not incorporate any dispositions or acquisitions, we do anticipate being active on the capital recycling front.

We do anticipate to continue to sell select non-core land parcels. Also with the office recovery underway and premium pricing being paid for well-leased assets, we believe we have several opportunities to harvest profits with low cap rate sales. We also anticipate sales of select properties out of our existing joint ventures.

So the dollars generated from these activities will be used to certainly fund our development pipeline, continue to reduce leverage and then certainly redeploy dollars into higher growth opportunities. With that Tom will now provide an overview of our financial results. .

Thank you, Jerry. Our fourth quarter net income totaled $4.5 million or $0.03 per diluted share and FFO totaled $60.4 million or $0.35 per diluted share and in line with consensus estimates. Some general observations on our fourth quarter results.

While fourth quarter results were in line with consensus, we had a number of moving pieces and several variances to our second quarter guidance. Portfolio operating income approximated $70 million and was in line with our third quarter guidance. And our portfolio did experience 116,000 square feet of positive absorption.

We focused -- we forecasted two land sales generating $1.3 million of gains which did not occur. These two land sales have been delayed until '22 and one sale's already closed in January generating a $900,000 gain.

Termination and other income totaled $4.2 million and was $1.7 million above our third quarter forecast, primarily due to unbudgeted onetime insurance income. G&A expense totaled $8.1 million or $1 million above our estimate. This increase is primarily due to higher employee-related costs and professional fees.

Our fourth quarter fixed charge and income ratios were 4.2 and 3.9 respectively and better than our third quarter and year-end forecast Both metrics benefited from lower than forecasted capital spend. Our fourth quarter annualized net debt to EBITDA was 6.5 and met the high end of our 6.3 to 6.5 guidance.

Regarding cash collections overall collection rate for the fourth quarter continues to be over 99% as in previous quarters and there were no significant tenant write-offs during the quarter. Portfolio changes.

We -- as we mentioned last quarter based on the completion of 3,000 Market that was added to our core portfolio during the fourth quarter and is 100% leased life science building to Spark Therapeutics.

On the financing activity, we restructured and extended our current loan encumbering our joint venture at 4040 Wilson, lowering our average borrowing cost by approximately 100 basis points, generating minimal initial proceeds but allowing for increased borrowings to complete the leasing of the vacant office space. Turning to the 2022 guidance.

At the midpoint, net income will be $0.21 per diluted share and FFO will be $1.01 per diluted share, and our range is built with some of the following assumptions. Our portfolio operating results for GAAP NOI will be about $290 million, an increase of $17 million from last year.

We have the full effect of 3000 Market and 405 Colorado totaling $5 million. 1676 will be about $4 million. The completion of our life science and redevelopment of the 250 King of Prussia Road will start to generate income and will be $2 million.

We will have increase in our residential income of about $2 million and the balance being a net increase from the same-store portfolio.

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

Total interest expense, including deferred financing costs, will increase to approximately $70 million to $71 million, that's going to be due to the higher forecasted spend on our line of credit. We're also forecasting higher interest rates as well. Capitalized interest will increase to about $7 million.

That's due to the current developments ongoing as well as some of our anticipated development starts later in 2022. And our land sales, as Jerry mentioned, we have about $4 million to $5 million of land sales anticipated. This is selling non-core land parcels, and as mentioned, one is already closed in January.

Termination and other income of $11 million, which is above 2022, again due to some onetime special items we expect to have occurring during the year transactions as I said. Net income, leasing and development fees will be between $15 million and $16 million. As Jerry mentioned, we have no property acquisitions or dispositions in our guidance.

We plan no ATM or share buyback activity at this time, and we anticipate refinancing our credit -- line of credit and $250 million term loan during the first half of 2022. Our share count will approximate 174 million diluted shares. Taking a closer look at the first quarter guidance, we're expecting portfolio income of about $72 million.

That will be sequentially higher by $1 million and that's primarily due to 3000 Market, the 116,000 square feet of absorption that occurred in the fourth quarter and that will be partially offset by several known move-outs, a majority of which has already been released later in 2022.

FFO contribution from our unconsolidated joint ventures will total $6.5 million for the first quarter. G&A for the first quarter will increase from $8.1 million to $9.5 million, and that sequential increase is consistent with prior years, and is primarily due to the timing of rec compensation expense recognition.

Our total interest expense will approximate $17.5 million, with capitalized interest of $2.5 million. And termination fees will total about $3.5 million and net management fee and development fees will also total $3.5 million. And we have land sales, besides the one we already announced, another $400,000 occurring to total $1.3 million.

Our capital plan is very straightforward and totals about $445 million. As Jerry mentioned, the CAD range of 84% to 95% is higher than normal. But when we do take a look at going out beyond this year, we do see that number coming back towards our range in 2020.

Looking at the sources and uses, $190 million of development; $131 million of common dividends; revenue maintain of about $55 million; revenue create of about $40 million; and $29 million of contributions to our joint ventures during the year.

Primary sources is going to be $190 million of cash flow after interest payments $193 million for the line of credit use, credit cash on hand of $27 million and $35 million of proceeds from land sales and in other. Based on that capital plan, our line of credit will increase about $217 million leaving $383 million available.

We also project that our net debt to EBITDA will range from 6.7 to 6.9 with the main variable being the scope of our development activities and the spend. Our net debt to GAV will approximately 40% to 41%.

In addition, we anticipate our fixed charge ratio will approximately 4.0 and our fixed -- our interest coverage will be 3.8, which represents sequential decreases but again primarily due to the capital spend we expect during the year. We've also included a new metric looking at our core net debt to EBITDA, which at the end of the year was 5.9.

And that does exclude our joint ventures and our active development pipeline.

We believe this is a better measure of how you should look at how we're monitoring our leverage on our core portfolio as we do expect over time, the development projects to come online as well as Jerry mentioning that we will be looking to sell some of our joint ventures potentially over the next year or so.

With that, I will turn it back over to Jerry..

Great. Thanks Tom. So the key takeaway is to look at our 2022 business plan, we know we're certainly still facing some headwinds as an industry on the recovery of the economy and the return to workplace environment. But I think we do view that in the context of our portfolio and operations being in very solid shape.

We think the leasing activity and the forward rollover reduction we've done over the last couple of years provides excellent visibility for forward growth. And our 2022 business plan incorporates strong mark-to-markets, managed capital spend and strong leasing activity.

And I do want to emphasize that we really do see in all of our tenant discussions, a real focus on higher quality, safety health, multimodal access. And we really do believe that -- and actually as evidenced by the increase in our pipeline just in the last couple of quarters that that trend line will continue and benefit our company.

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

Michelle?.

Thank you. [Operator Instructions] And our first question comes from Manny Korchman from Citi. Your line is open..

Hi. Good morning, everyone. Jerry and Tom, I appreciate the comments on breaking out your leverage stats into sort of core and headline. But I guess just getting to the root cause of that, you've been big developers and getting bigger and that has stressed the leverage stats.

You look at this year you're borrowing almost $200 million on the line of credit. You've done a bunch of these JVs the latest one of 50-50. And then if you do sell down the JVs or you sell some more non-core that just gets you another year of dilution.

So I guess the question is how do you sort of fix leverage more permanently other than waiting for these big developments to come online, which is going to take two or three or four years from now? Do you need to do equity? Is it a matter of maybe doing a bigger sale of maybe something more core or just bigger in general to sort of fund the tank? Thanks..

Yeah. Manny, great question and good to hear from you. No, I think it's an excellent question. We do spend a lot of time on how to optimize our capital allocation. And I think we do have a number of core land sales that will generate near-term liquidity in a non-dilutive way.

I think we also have some fairly well-leased premium-priced assets both on our balance sheet and within our joint venture structures that can raise capital that we think will be non-dilutive to current earnings, and certainly timing those sales to some of these nearer-term deliveries.

We still have to think about -- we sort of have 405, which is not generating that much income for us in 2022 but it's delivered. That will be leased up very shortly. We have 250 coming online during 2022 and the leasing activity there is very encouraging. We have a number of large leases that as outlined on the same store number.

They're already signed, but kind of in free rent periods. It will generate some additional liquidity for us. So we really do think we have a lot of near-term opportunities to generate liquidity in a non-dilutive way to kind of manage that leverage down as the course of the year and the 2023 continues.

And I think the real opportunity lies into some of those developments really coming online and performing as we know they will. So the long-term opportunity we think is very much there.

In fact, it's funny you raised the question because I do recall I think in one of your resolutions for 2022 I think it was number five really focused on optimal capital allocation including doing accretive transactions development and redevelopment and fund it on a long-term leverage-neutral basis using a range of financing tools.

And I think certainly the third-party equity markets are incredibly viable. There's no shortage of equity partners who would like to do different transactions. So that really does give us a fairly effective price of third-party equity to help finance these developments.

I think managing an active sale program of both land wholly owned and joint venture assets will enable us to move into a lower leverage model as well. I think long term and that long term could be two or three years we actually believe when these properties come online. Our leverage metrics will approach a historic low for us..

Great. And then Jerry, going back to the same store growth comment. You walked us through the plus 300 basis points from those couple of big leases. But you also made the point of 2023 growth being better. If I understand your guidance correctly, you've got round about 60% retention in the guidance and about one million square feet of expiries.

So it looks like you're going to have call it 400 – roughly 400,000 square feet of non-renewal, how is that going to weigh against the positives of these couple of big leases that you talked about becoming cash flow positive?.

Yeah. Manny, good morning, it's George. Let me try and take some of that. Part of what's not going to renew, we have successfully backfilled and evidenced by the 75% of the space here at Cira Centre that Baker Hostetler gave back.

So that will be negative retention for us, but then reabsorb space with the free rent burning off in 2022 and fully cash producing in 2023. The large renewal that we did over at the Logans again 11 months of free rent kind of burning off. So one month in 2022, 12 months in 2023. Those are kind of really the big drivers.

And then the other part of our same store that really had some continued lease-up to go is 1,676 down in Tysons. And we've got about $1 million of incremental revenue plan for that asset in 2022. And then we think the balance of the building fills up in 2023. .

Thanks, George..

Thanks, Manny..

Thank you. Our next question comes from Steve Sakwa from Evercore ISI. Your line is open..

Thanks. Good morning. Jerry, I was hoping you could maybe break down a little bit. I think you talked about two million square feet of leasing activity in 2022.

And I'm just trying to get a sense for how much of that is core portfolio? How much of that's development in the core portfolio? How much of that would you attribute to renewals? And how much would you attribute to new leasing?.

Yeah, Steve, good morning, it's George. I'll jump in here as well. So of the two million square feet 1.2 million square feet of it are new deals and about 800,000 square feet of renewals. It's all within the core portfolio. So that does not include any of our development redevelopment. It does not include 405 Colorado. It does not include 250 Radnor.

Obviously, the ground-up development it doesn't include. The square footage is about 34% coming out of our Philadelphia CBD operation, 33% out of the Pennsylvania suburbs, 20% out of Austin, and about 12% out of D.C..

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

I think you picked up roughly five points of lease percentage in the quarter and that's still sitting sub-50% today.

So what's the dynamic going on? Is it a downtown versus sort of suburban play, or why is 405, just been as sluggish as it is?.

Yeah, Steve, look it's certainly – we're hoping to make a lot of significant progress in the next couple of quarters. I don't think it's an issue of suburban versus downtown. We really just delivered the building finished the lobby, finished the sky lobby. The garage is now open so we're getting more activity through the building.

And I think as we look at it – because the pipeline really has been very strong. And as I mentioned in our comments, we have 30,000-plus square feet of leases and negotiations. We already have one tenant, who wants to expand by over 25,000 square feet and a pipeline of deals behind that.

I think 405 has been emblematic to some degree of the increased cycle time that we're seeing in a number of our marks, in terms of, tenants actually getting across the finish line and selling leases. We've seen that across our whole portfolio.

And some of these discussions with our tenants in that building have gone on for a number of months, all very positive, but no real key decisions being made. So that's kind of one factor. Two, is it's a smaller floor plate building, as you know. So it's really geared towards 10,000 to 20,000 square foot users.

If there are two floor users they're 40,000 square feet. So it's not really geared towards some of the larger tenant movements that are taking place within the Austin market, in general.

And I think one of the -- the third piece, which is kind of a contributing factor to the velocity in Austin for particularly the smaller sized tenancies, is that for whatever reason that market has the lowest level of occupancy through our whole portfolio. I mean, we're between 40% and 60% in a number of buildings around the portfolio.

In Austin's -- I think George around 15%?.

About 15%, yes. .

So a lot -- that city really hasn't come back from a workplace standpoint. So we share the disappointment with the pace of leasing there.

We have however, been able to hold effective rents, capital costs and we're very confident that in the next 60 days we'd able to get some of these key leases across the finish line and really change the income trajectory of that property's certainly moving into 2023..

Okay. If I can just ask one technical question for, Tom. Straight-line rent FAS 141. I didn't hear you provide a number for 2022.

Do you have that handy?.

Not right off the top, Steve, I have to get that to you. I'll follow up right after the call. .

Okay. Thank you..

Thanks, Steve..

Thank you. Our next question comes from Craig Mailman from KeyBanc Capital Markets. Your line is open..

Hi, good morning..

Good morning, Craig..

Jerry I just want to circle back to the commentary about the ability to kind of kick off some low cap rate sales, to fund development and kind of bring down leverage. I know in the past you've hinted at something like a JV of Cira, some of your trophy buildings.

I mean could you just give us a hint at what you're thinking about -- would these be full sales or continue to be kind of in this JV thought process?.

Yes. Great question, Craig. I think our perspective right now is, we're much more biased to full sales on existing earning assets. I think obviously given the capital requirement Craig, on some of these larger scale developments be it Uptown or ATX -- I'm sorry Uptown or Schuylkill Yards.

I think there until the capital markets conditions improve for office comp [ph] I think we are still biased to probably doing these kind of preferred structures where we essentially borrow low-cost equity, with a clean governance structure bringing third-party debt to get those projects executed.

But I think on the asset sales side, whether those assets are currently held in the JV today or wholly owned, I think the clear bias is to do a complete liquidation.

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

And you guys are -- you're trading kind of in the low 7% implied cap rate on my numbers. Your developments are kind of in that 7% to 8% maybe a little bit higher.

Where do you think -- or what do you think the kind of the public private arbitrage is on some of these buildings you want to sell? Like give us a sense of where you think your best assets or assets targeted would sell?.

Yes. As we're looking at some of the assets that we're evaluating for liquidation, some -- there's both office and residential in that targeted pool and the cap rates we're saying between kind of current yield and sales prices between -- I'd say around 250 basis points maybe even lower on a couple of the other assets.

I mean, it's been kind of intriguing is that you're really seeing premium pricing paid for long leased assets. So if there's a good weighted average lease term, good credit. There's certainly been a real push towards cap rate compression even while the off-mark's going through this recovery.

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

Okay. And then just one more quick one.

Would this include potentially resi at Uptown, or would you not want to give away any control at Uptown or Schuylkill?.

Yes. We're really focused more on the existing assets that we have. So, certainly, our perspective is on the development projects, get those completed, get the value stabilized. We think there's an awful lot of value that will accrue to the Brandywine shareholders as part of that program.

So our efforts really, Craig, are focused on kind of existing earning assets..

Great. Thank you..

Thank you..

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

Great. Thanks and good morning. Thanks for taking the questions. So you had talked about $0.07 to $0.10 a share from vacancy lease-up, but you've only got $0.02 of that in your 2022 guidance. 20% has been executed.

Can you just talk about the composition of that remaining call it I guess $0.08? And maybe talk about the specific spaces and your leasing prospects?.

Sure.

George?.

Yes, absolutely, Jamie. I think as I mentioned earlier the largest piece of that really is at 1676. It's probably about 45% of that $0.07 to $0.10. We've got 171,000 square feet still to lease down there. We've got about 100,000 square feet in our plan for 2022 with kind of later in the year commencement. So, not a full year of revenue contribution.

The next biggest pieces are at our River Place project down in Austin. We've got several vacancies down there that again not a lot in the plan for 2022, but a full contributor for 2023. And then we've got about $1 million in that kind of bucket of properties out in the Plymouth Meeting suburb. And we've got good traction on a majority of that space..

Okay.

And what are your larger remaining spaces, downtown? Are you pretty much buttoned up at this point?.

Well, downtown on the wholly owned side. It's very well, buttoned down. The opportunity for us in Philadelphia remains at Commerce Square. And we've obviously got the Macquarie space and the Reliance space that we're still dealing with. We've got a pipeline over at Commerce that is about 150,000 square feet.

And continue to see good levels of tour, but have not had many large lease executions to-date..

So is that -- you're not including that in the $0.07 to $0.10?.

That was not..

That was not. That was just more to address your question about the Philadelphia....

The numbers we cited Jamie it really were from our wholly owned portfolio. I mean we think when we look at some of our joint venture properties -- the operating joint venture properties there's certainly an opportunity to kind of move up the income stream there as well as the market continues to recover..

Okay.

But then, you don't think that's a 2022 event?.

Yeah. Look, it is. As sitting here now we're in February, I think the lease-up we have planned on a number of these properties the larger vacancies, really won't kick in until Q4, right? So their impact on 2022 numbers is minimal. And so the bigger impact would be in 2023. And we are seeing very good activity across a lot of those vacancies.

But by the time you get through lease execution, every place we do business the municipal has taken longer to approve plans. The construction market's pretty robust in a number of areas. So it's taking a little bit longer to build out spaces.

So as we kind of went through and risk assessed when we could actually deliver spaces Jamie, we were more biased towards kind of fourth quarter versus third quarter deliveries, depending upon where we thought the lease negotiation process was..

Yeah. Okay. Thank you. And then, to your initial comments about tenants want high-quality workspaces. As you think about your portfolio and I guess specifically Philadelphia downtown and suburbs, what do you put in that category? Thinking, I guess more about your suburban assets.

Do you think that all fits into the fight to quality? I know you mentioned Plymouth Meeting as a sell market, but just how are you thinking about, either CapEx needs to upgrade assets in the suburbs, or maybe their finance is?.

Yeah. Look, certainly, as we look kind of across the board in our call it Philadelphia operation we think everything that we have downtown is either really fully leased and put away for a long period of time.

And where we do have the vacancy like at Commerce, we've made a number of building upgrades through our joint venture the number of pre-built spaces improved the amenity package in the building.

So we think that that remains a very high trophy class type of property that really does have the ability Jamie with this kind of shift-in tenant appetite to really start drawing in tenants who are kind of in the B, B+ type of inventories as they think about the return to workplace programs.

I think in the suburban areas, we certainly -- our Radnor portfolio and King of Prussia portfolio we're all pretty well leased. And we've invested capital there for a number of years. We just actually wrapped up a capital renovation plan last year, at our Plymouth Meeting project.

And it was just a lobby, restroom, landscaping a parkway upgrades signage upgrades. And we've actually seen a very big uptick in activity out there. So, that kind of validates the supposition that if you invest money in the building position even better. If it's well located you'll get the tenant demand drivers.

So, as we're looking forward, there's a few properties that we plan on doing lobby renovations. Actually Cira Centre, we're actually wrapping up a lobby renovation. It's had a lot of great success particularly as we attracted all those companies for the incubator and the life science companies. So, it is a continual reinvestment model.

We need to make sure that where you are investing money you're getting a return on invested capital that justifies that investment. And if you don't that becomes a predicate for selling that asset. And that's really what drove a lot of our thought process over the last five years..

Okay. And then finally for me I know in the press release you talked about the Austin land sale gain. It sounds like that's different than what you sold in the first quarter and even what's in guidance.

What are your thoughts on how you're going to record that in earnings and even the magnitude?.

Yes, we're actually still that's all still under review right now Jamie. That's why we haven't really announced any numbers on it but that will be something we'll announce in the first quarter..

Hey Jamie just to clarify I'll take a look. That land sale was actually in Richmond Virginia that we did have. So, it wasn't a Texas sale. And then as Jerry mentioned we're still looking at how we're going to report the gains.

They are not included -- just to be clear they are not included in our land gain range that we put into the supplemental of $4 million to $5 million. That will be -- those land gains we haven't included yet. We're still assessing are those land gains for FFO purposes or not but we certainly are going to be taking we'll certainly be disclosing that..

Okay. Thank you..

Thanks Jamie..

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

Great. Thank you. I understand some of these types of discussions is going to be sensitive given open lease negotiations. But I'm just curious how pro forma rents have trended for the non-life science developments? It just feels like with the demand for quality office assets particularly in Austin there is some potential upside here in rents..

Hi Danny. And George you and I can take this. Look I think one of the things that we've been very pleasantly surprised both with the scale and with the volume of it is our ability to kind of really move rents across the board.

I mean it's been interesting for us to be able to see for really the last few years posting really good mark-to-markets keeping our capital cost below that 15% long-range target. We've had in fact closed out 2021 with really good numbers. And as you know that number can change based upon different larger term and larger size deals that we do.

But no I think I look back over the last couple of years where a lot of the expectation in the marketplace was you know rents were going to fall through the floor. There would be no demand drivers. I think in the asset class that we're in of the very high end in all of our key submarkets we've actually seen a fairly good degree of resiliency in rents.

And I'm talking on the non-life science side. In life science, we've seen an amazing escalation. But even on the office side we take a look at what we're able to do in our suburban counties. The rental rates we're negotiating on some of our Austin vacancies. What we've been able to do in CBD Philadelphia has all been surprisingly resilient.

And I think that does play into the quality narrative. We'll see how long that process continues. Now that being said I think there are certain projects we have where we've been very effective in meeting the market. So George had talked about 1676.

That's a wonderfully renovated project but in a marketplace that really does not have a lot of demand drivers. And within that situation pre-pandemic is that situation today. So there we've been aggressively marketing the space. And in some of those cases our rental rates versus original pro forma have gone down. But that's a very isolated case.

I think when we take a look across the board or on-the-ground daily engaged leasing agents one of their major responsibilities to make sure that the senior operating executives here read the market well and understand where we can push where we can.

And I think we've all been surprised leasing agents to senior executives at George's level about how strong some of those demand drivers have been in-house have really economically viable a lot of these leases have been. .

Got it. And then Jerry maybe on job rates in Philadelphia. I know we've spoken about this previously.

But historically the city has struggled to attract outside firms particularly given the tax complications but I'm curious if you're seeing or anticipating any improvement in that front?.

We are anticipating some improvement as the kind of the city returns to the workplace. It's been interesting Danny too that one of the early expectations was that you'd see more employer ship to suburban locations nationally. I think in Philadelphia looking at it from the outside that was concerned that that trend might accelerate.

We really haven't seen companies looking to relocate outside the city due to either the tax structure or any other circumstance. In fact, we've seen the opposite. We've actually seen -- we've actually moved the tenant into one Logan who came in from outside the city.

And you can never forget that attracting labor pool is very, very important to a lot of our customers. Philadelphia has done an amazing job in the last decade of really growing the residential population worker base within the city whether it's Center City or some of the adjoining neighborhoods.

So we're talking to a lot of companies who are looking at moving downtown primarily because that's where a lot of the younger workers live where they live in very close in suburbs. So I think the next year is going to be very interesting in terms of how the job creation trend in Philadelphia actually does bottom-line.

We have seen a very nice uptick in activity coming out of the life science sector. And I think that's been very exciting and we think that will be both in a relative -- from a relative standpoint a good a disproportionate growth of jobs within the city, but that's a good green shoot that we're tracking very carefully. .

Got it. Thanks very much. And then maybe just one last one. On the dispositions the potential dispositions in 2022.

Any tax consequences that may necessitate to 1031, or all the potential dispositions kind of all free of capital gain taxes or can become part of the dividend?.

Tom?.

Yes. We do look at the capital gains and whether we have a need for a special dividend. Right now some of the ones we are targeting we don't think we need to be concerned about that. As always though if there's an opportunity with a acquisition and disposition to defer the gain into a 1031, we'll certainly look at those opportunities.

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

Got it. Thanks, everyone..

Thank you, Dan..

Thank you. And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Jerry Sweeney for any closing remarks. .

Great. Only closing remark thank you for your attention and your engagement with our company, and we look forward to updating on our activities at the next earnings conference call. Thank you very much. .

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