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spk00: Ladies and gentlemen, thank you for standing by, and welcome to the Brandywine Realty Trust fourth quarter 2020 earnings call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and then one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star and then zero. I would now like to hand the conference over to your speaker today, Mr. Jerry Sweeney, President and CEO. Sir, you may begin.
spk05: Crystal, thank you very much. Good morning, everyone, and thank you for participating in our fourth quarter 2020 earnings call. On today's call with me, as usual, are George Johnstone, our Executive Vice President of Operations, Dan Palazzo, our Vice President and Chief Accounting Officer, and Tom Wirth, our Executive Vice President and Chief Financial Officer. Prior to beginning today's call, certain information discussed during the 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 be achieved. For further information on factors that could impact our anticipated results, Please reference our press release, as well as our most recent annual and quarterly reports that we filed with the SEC. Well, first and foremost, all of us at Brandywine sincerely hope that you and yours continue to be safe, healthy, and engaged. And while we remain optimistic about the accelerating vaccine deployment and the path to recovery, the pandemic still continues to disrupt all of our lives and every business. And unfortunately, the duration of the recovery cycle still remains a bit unclear. Our portfolio remains about 15 to 20 percent occupied, which is comparable to our occupancy levels as of our October call. And as noted in the SIPP, most of the jurisdictions where we have properties still have significant return-to-work restrictions in place. Additional details on our COVID-19 approach are outlined on pages one to five of our supplemental package. During our comments today, we'll briefly review fourth quarter results, discuss our 21 business plan, and provide color on our recent transactions and developments. Tom will then provide a brief review of 2020, discuss our 21 guidance, and update you on our strong liquidity position. After that, certainly Tom, Dan, George, and I are available for any questions. We close 2020 on a very strong note. Many of our revised 20 business plan objectives were achieved, despite the protracted nature of the recovery. We exceeded our speculative revenue target by $400,000, executed lease volumes, increased quarter over quarter, and our pipeline increased by 229,000 square feet. For the fourth quarter, we posted strong rental rate mark-to-market of almost 19% on a gap basis and 11% on a cash basis. For the full year 20, our mark-to-market was a very strong 17.5% on a gap basis and 9.3% on a cash basis. In addition, we had 59,000 square feet of positive absorption during the quarter, which included 33,000 square feet of tenant expansions with no tenant contractions. Our full-year 2020 same-store number did come in below our revised business plan, primarily due to the JV sales activity that we'll discuss, several COVID-related occupancy delays and parking revenues that were well below our original forecast due to the slower return to the workplace. Our tenant cash collection efforts continue to be among the best in the sector, and we have collected over 98% of fourth quarter billings, and our January collection rate continues to track very well with 98.5% of office rents collected as of yesterday. Our capital costs for 20 were better than our targeted range, due to very good success in generating short-term lease extensions with minimal capital outlay. Tenant retention came in at 52 percent, slightly above our full-year forecast, and our core occupancy and lease targets were below our ranges simply due to pandemic-related delays in targeted move-ins and lease executions and negotiations sliding into early 21. We did post FFO of 36 cents a share, which was in line with most consensus estimates. A general update on COVID-19 impact is, first, consistent with all applicable state and local CDC guidelines, we do remain in a doors-open-lights-on condition in all of our buildings. As we noted, most large employers have yet to return to the workplace for a variety of factors, primarily public policy mandates, employer liability concerns, mass transit, virtual schooling, and safety concerns. However, we're seeing more small and mid-sized companies beginning to return more employees to their various workspaces. Portfolio stability remains top of mind, and our progress on several key factors can be found on pages one to three of the SIP. We do continue to stay in touch with our tenants to understand their concerns and their transition plans. A key priority of ours has been to work with those tenants whose spaces roll in the next two years. Those efforts have resulted in 79 active tenant renewal discussions, totaling about 750,000 square feet, and to date have resulted in 62 tenants aggregating 500,000 square feet actually executing leases. These leases had an average term of 30 months with a roughly 4% cash mark to market. and 4 percent capital ratio. An important point to note is that this early renewal activity, when we exclude the large known rollouts at $2340 and the retirement of 905 Broadmoor, we've reduced our remaining 21 rollover to just 4.2 percent. So, looking at 21, we are providing 2021 earnings guidance. Frankly, not an easy call given the overall economic and pandemic picture. However, our early renewal efforts, expense control programs, near-term visibility into our forward pipeline, and the recently executed transactions we think have established a solid operating plan with a clear pathway to execution. That plan is based on a gradual return to work environment beginning in the second quarter through the balance of the year. So our approach was to be conservative, but as transparent as possible, to frame out a defined operating plan with all key metrics quantified, and present the 21 earning guidance range as a platform to build from. And with the 21 plans set, we do remain focused on revenue and earnings growth, whether that be through accelerated leasing, margin-improving cost controls, or working with institutional partners to seek investments in capital structures where we can create value. The 21 plan is really headlined by two key operating metrics that we think demonstrate excellent growth potential. Our cash mark-to-market range is between 8 and 10 percent, and our GAAP mark-to-market range is between 14 and 16 percent. For 2021, we do expect all of our regions will post positive mark-to-market results on both the cash and GAAP basis. We do have several larger blocks of space to fill, particularly at Barton Skyway, in Austin 1676 International, in Tysons, and several others. But looking forward, achieving our leasing objectives on those spaces can be significant revenue boosters, and our 21 plan only has about $1 million of revenue coming in from those larger spaces. Our GAAP same-store NOI growth of 0 to 2 percent and our cash same-store of 3 to 5 percent is primarily driven by Austin up about 8 percent, Pennsylvania suburbs close to 5 percent increase, and Philadelphia around 2 percent. Our metro D.C. region will continue to be negative while the 1676 international drive continues through its reabsorption phase. With that renovation now complete, our overall leasing activity has really accelerated. and our pipeline is up significantly to about 600,000 square feet this quarter versus around 370,000 square feet last quarter. As we noted in the press release, our same-store forecast does not include $2,340, which is fully vacant and being placed into redevelopment very similar to our 3,000-market street renovation, and also we will be retiring 905 Broadmoor permanently as part of our Broadmoor master plan development. Other key operating highlights, spec revenue will range between $18 and $22 million. We have $14.7 million achieved, or 74 percent achieved at this point. This is the first time we're providing a spec revenue range versus a dollar target, but given the lack of real forward visibility on the acceleration of leasing, we felt that it was warranted. Occupancy levels we think will be between 91 and 93 percent at year end. and with leasing percentages being between 92 and 94 percent. Capital will run about 11 percent of revenues, which is below our 2020 target range, and we are forecasting a debt-to-EBITDA being between 6.3 and 6.5 times, and Tom will certainly talk about that. Our leasing pipeline has picked up. It stands at 1.3 million square feet. including about 88,000 square feet in advanced stages of negotiations. And as I mentioned before, that pipeline is up about 230,000 square feet. Interestingly, too, knowing that physical tours have yet to fully return for a variety of pandemic-related reasons, we have launched a virtual tour platform for all of our availabilities. And to date, we're generating close to 300 tours per month with over 500,000 square feet being inspected. So we think that's an early harbinger of tenants begin to really look at their office space requirements going forward. From a liquidity standpoint, we're in great shape. We anticipate having $562 million on our line of credit available year-end. We have no unsecured bond maturities until 2023. And with the recent secured mortgage payoffs, we have a fully unencumbered, wholly owned asset base. The dividend remains extremely well covered with a 53% FFO and 68 percent CAD payout ratio. Now, looking at our investment and development opportunities, during the fourth quarter, we completed several investment transactions. We did execute a joint venture with an institutional partner on 12 properties totaling 1.1 million square feet. These properties are located in suburban Philadelphia and Rockville, Maryland. The portfolio was vetted $193 million. we retained a 20 percent ownership stake. In addition to the $121 million first mortgage financing we put in place, we also elected to provide seller financing in the form of a $20 million preferred equity position that has a 9 percent current pay. As a result of that, we did receive about $156 million of net cash proceeds. And as with all of our ventures, we will generate and attracted fee stream by retaining property and asset management, as well as leasing and construction management services. On our previous calls, we had highlighted that we had about $250 million of remaining non-core assets in our wholly owned pool. This portfolio had been our primary target and leaves us with very few assets that are not considered core holdings. This partnership, similar to others we have done, did create a different capital structure that more than doubles our return on invested equity from a mid-single-digit return to mid-teen return on our remaining invested capital and also avoids about a $20 million of direct capital investment by Brandywine. It's interesting as well, too, with this transaction, we now have over 80% of our revenue stream coming in from sub-markets that are ranked A-plus, or a double plus by Green Street's recent office market snapshot. We'd also made a preferred investment in 90% leased two-building portfolio, totaling 550,000 square feet in Austin near the airport. That preferred investment totaled $50 million, also has a 9% current pay, excellent cash coverage, and a several-year term. And this was similar to the type of transaction we did a number of years ago at Commerce Square here in Philadelphia. This investment increases our revenue contribution from Austin towards our 25 percent goal and really enabled us to take advantage of the market knowledge and position we have to create a structured, well-covered financial instrument. And also, as we announced early this morning, we are delighted that we have entered into a joint venture arrangement with a global institutional investor. to commence our Schuylkill Yards West project, which is a combination life science office and residential tower. Our partner will have a 45 percent preferred interest in the joint venture, with Brandywine holding the remaining 55 percent equity interest. The project will be built to a 7 percent blended yield. It will consist of 326 apartment units, 100,000 square feet of life science, and 100,000 square feet of innovative office, along with underground parking and 9,000 square feet of street-level retail. We do have an active pipeline totaling over 300,000 square feet for the life science and office space component of this project. And based on this level of interest, we do plan a construction start in March of 21. We are currently sourcing construction loan financing and plan to have a loan in place in the next 90 days at a target of 55 to 60 percent loan to cost. And given the front loading of the equity commitment of about $115 million, assuming a 60 percent loan to cost construction financing, the first funding of the construction loan wouldn't occur until April of 22. Our share of the equity will be about $63 million, of which about $35 million is already invested. In looking at our production assets, they all remain ready to go subject to pre-leasing. As we've noted every quarter, each of these projects can be completed within four to six quarters and cost between $40 million to $70 million. The pipeline on those production assets is around 450,000 square feet, and we are continuing actively our marketing efforts along those lines to hopefully get some pre-leasing done there as the market recovers. In looking at the two existing development projects, 405 Colorado is on track for a Q1 21 completion. We have a pipeline that has built since our last call that approaches 360,000 square feet, including 53,000 square feet in advanced discussions. To be conservative, given the pace of the recovery in the market, we have extended the stabilization until Q1 22. We've increased our cost by approximately $6 million primarily due to additional TI and leasing commissions, a bit longer absorption schedule, which has resulted in our target yield being reduced to 8 percent. Three thousand market construction is underway on this building, which will be fully occupied by Q4. The building is fully leased for 12 years and will deliver a developed yield of 9.6 percent. The commencement date did slide one quarter due to COVID-related construction delay. but we have increased our yield on the project by 110 basis points due to some design scope modifications and success on the buyout. A couple other quick comments on Schuylkill Yards and Broadmoor. We do continue our strong life science push at Schuylkill Yards. The overall master plan is about 3 million square feet could be life science space, so we can really build on the work we've done at 3000 Market, the Bulletin Building, and now Schuylkill Yards West. Plans for 3151, which is our 500,000 square foot life science dedicated building, is well underway. We do have a leasing pipeline of over 500,000 square feet for that project, and the goal would be to start that later this year, assuming a pre-lease and market conditions permit. We have started constructing to convert several floors within Sierra Center to life science use, and that program is moving along per our plan. In Broadmoor, We are advancing blocks A and F, which is a total of 350,000 square feet of office and 870 apartments. Block A has $164 million, 350,000 square foot office as part of that phase, along with 341 multifamily units at a cost of $116 million. We are heavily engaged in joint venture partnership selection process. That process is going very well. with discussions well underway with several parties, and we hope to be able to start the residential component of Block A by the third quarter of 21. Tom will now provide an overview of our financial results.
spk03: Thank you, Jerry. Our fourth quarter debt income totaled $18.9 million, or 11 cents per diluted share, and our FFO totaled $61.4 million, or 36 cents per diluted share. Some general observations regarding the fourth quarter results, they were generally in line with a couple of exceptions. Portfolio operating income totaled about $75.5 million and exceeded our $74 million previous estimate, primarily due to lower operating costs benefited by lower tenant physical occupancy. Termination and other income totaled $1.6 million or $3 million below our third quarter guidance, The results were negatively impacted by several one-time transactions that we anticipated occurring in the fourth quarter that are now anticipated to close in the first half of 2021. FFL contribution from unconsolidated joint ventures sold 6.3 million, or 1.2 million below our third quarter guidance number, primarily due to some co-working tenant write-offs, and that was slightly offset by the JV announced at the end of the year. Our cash and GAAP same-store results came in 120 basis points lower, again, due to lower parking revenue and some tenant leasing slides, all of which have commenced. Our fourth quarter fixed charge and interest coverage ratios were 3.8 and 4.1, respectively. Both metrics improved as compared to the third quarter. Our fourth quarter annualized net debt to IFIDA decreased to 6.3. At the lower end of our 6.3 to 6.5 range, the ratio has benefited from improved operating income and higher than expected year-end cash balances due to our recent fourth quarter transactions. Two additional points on cash collections, our overall collection rate, continues to be very strong, above 98 percent. Additionally, our fourth quarter deferred billings were less than $100,000. So, our core collection rate would essentially remain unchanged for those deferrals, and our write-offs in the fourth quarter on the wholly owned portfolio were minimal. For cash saved stores outlined on page one of our supplemental, we have included $4.1 million of rent deferrals and our year-to-date results. While not built, we feel this presentation will more accurately represent our current same-store metrics. And subsequently, we have collected roughly 30 percent of those deferrals. Looking at 21 guidance, At the midpoint, net income will be 37 cents per diluted share, and FFO will be $1.37 per diluted share. And that includes roughly 4 cents of dilution related to the fourth quarter transactions we announced. Our 21 range was built with the following general assumptions. Portfolio operating income, property level gap income will be roughly $285 million, or a decrease of about $30 million compared to 2021 due to the following items. $2340 quarter and the retirement of 905 Broadmoor will generate about $10 million reduction from 20 to 21. The Mid-Atlantic portfolio, JV, results in another $17 million decrease The full-year effect of Commerce Square results in a $19 million decrease. Those are partially offset by the full-year effect of one Drexel Park and Bellet building being about $4 million. The 2021 completions of 405 Colorado and 3000 Market for about $3 million and about $3 million increase in our same-store portfolio gap NOI. FFL contribution from our unconsolidated joint ventures will total $20 to $25 million. That increase is primarily due to the full-year effect of Commerce Square, as well as the transaction with the Mid-Atlantic portfolio. G&A will be between $31 and $32 million. Investments, there is no new property acquisition or sales activity in our guidance. Interest expense will decrease to approximately $67 to $68 million. That's primarily due to the payoff of our two remaining mortgages at higher interest rates. Capitalized interest will approximate $4 million as we complete the 405 Colorado building but also commence Schuylkill Yards West. Investment income will increase to $6.5 million, primarily due to the new structured finance investment at Austin, Texas. Land sales and tax provision will net to about $2 million, as we anticipate selling some non-core land parcels. Termination and other income, totaling $7.5 million, which is above the $20 million. 20 amount primarily due to one-time items that, again, were being moved from the fourth quarter of 2020 into the first half of 21. Net management leasing and development fees will be $16 million, which is just above our 2020 actual due to the full year effect of Commerce Square and the JV for the Mid-Atlantic properties. In addition, we anticipate that we will get some development fees from Schuylkill Yards West once we commence operation there with the development. No anticipated ATM or share buyback activity. Looking more closely at the first quarter, we anticipate portfolio property NOI totaling about $70 million and will be sequentially about $5.5 million lower, primarily due to 23.4 dollars. as well as the mid-Atlantic JV. FFO contribution from our unconsolidated joint ventures will be $6.5 million. G&A for the first quarter will increase from $6.3 to $8 million. The sequential increase is consistent with prior years and primarily timing of compensation expense recognition. Interest expense will approximate $16 million. Capitalized interest will be roughly $1.5 million. Termination and other income, we continue to anticipate that to be $4 million with some of those transactions moving to 21. Net management fee and development fee income will be $4.5 million with investment income being $1.6 million. We expect some land gains potentially in the first quarter of about half a million dollars. Our capital plan is very straightforward and totals $350 million. Our 2020 CAD ratio is between 75 and 81 percent. The main contributors to the lower coverage ratio is going to be the property level and the Y reductions, as well as anticipated lease up in the upcoming, with the upcoming rollovers. Using that as a guide, our uses in 2021 will be $145 million of development and redevelopment. That does include the additional cash that's going to be necessary to complete our equity contribution into Schuylkill Yards West. $130 million of common dividends, $35 million of revenue maintained, and $40 million of revenue create CapEx. The primary sources will be $185 million of cash flow after interest payment, $99 million used to the line, $46 million of using the cash on hand, and roughly $20 million in proceeds from land and other sales. Based on the capital plan outline, our line of credit balance will be roughly $500 million. We have projected that our net debt to EBITDA range is 6.3 to 6.5, with the main variable being timing and scope of our development activities. In addition, our net debt to GAV will approximate 40%. In addition, we anticipate our fixed charge ratio to be 3.7 and our interest coverage ratio to be 3.9. I will now turn the call back over to Jared. Thank you, Tom.
spk05: So a couple key takeaways. You know, our portfolio and operations are really in solid shape. We have excellent visibility into our tenant base. All signs at this point is evidenced by the numbers we presented. Our markets seem to be holding up fairly well. Our leasing pipeline continues to increase as tenants think about their workplace return. Look, safety and health, both in design and execution, are really and rapidly becoming tenants' top priorities, and we do believe that new development and our trophy class stock as well as its extensive capital maintenance programs we have in place over the years, will really benefit from that trend. The private equity and debt markets are extremely competitive, and strong operating platforms like Brandywine are gaining, I think, significant traction for project-level investments, as certainly is evidenced by our recent activity. I think our recent investment activity further improved our liquidity and created additional frameworks for growth for our shareholders. And our partnership at Schuylkill Yards West, I think, really reinforces the increasing attractiveness of the emerging life science sector in Philadelphia, and I really think does create an excellent catalyst to accelerate the overall pace of the Schuylkill Yards development. So we'll end where we started, which is that we wish you were all doing well and your families are safe. And with that, Crystal, we're delighted to open up the floor for questions. We do ask, in the interest of time, you limit yourself to one question to follow up.
spk00: Thank you. Ladies and gentlemen, if you have a question at this time, please press the star followed by the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, to ask a question, please press star and then one now. And our first question comes from Craig Mailman from KeyBank Capital Market. Your line is open.
spk07: Hey, good morning, guys.
spk02: Just, Jerry, on the joint venture, I'm wondering, and I apologize if I missed this, but could you give us a sense of maybe where you were able to price the JV versus construction costs or maybe on a stabilized yield basis? Just trying to get a sense of the pricing you were able to achieve pre-leasing on a project like that?
spk05: Craig Johnson Sure, Craig. We're targeting a 7 percent blended return on cost from that property. I say blended between its residential and life science and office. We have a number of offers in from construction lenders. We think that that will be priced somewhere off a LIBOR floor of roughly three to 350 basis points. So we think that will be a very effectively priced debt. And I think in terms of the overall pricing, I think, you know, these things are always a challenge to think your way through. But I think what we really did is start with the premise that we really believe that these projects can generate significant profit to our shareholders. We also recognize the reality of our ability to raise public equity. So, the preferred structure, I think, really enables us to retain, you know, a larger percentage of the direct ownership, which was one of our goals, and at a lower overall cost of capital than a traditional pari-passu deal. We're also able to retain a disproportionate share of the upside, and we think this transaction will pencil out very well to over two times equity multiple with a very high team's internal rate of return. So I think we're very happy with the structure. We are delighted with our partner and the status they have in terms of the real estate investment marketplace and their acumen and their belief in the ability of us to execute a successful transaction at Schuylkill Yards.
spk02: Okay, that's helpful. I know you talked about 300,000 square feet of kind of active demand. Does that include anything from Drexel and their kind of rights that they have at that asset?
spk05: Great question, Craig. That pipeline at Schuylkill Yards West does not include anything from Drexel.
spk02: Have they indicated anything on that? Because I saw the commentary from them in the press release.
spk05: Yeah, look, I think they're very excited about us moving forward on this joint effort as well, but I don't think their near-term requirements would be a receiver for Schuylkill Yards West.
spk02: Okay, and then just one quick one for Tom. I think you said 17 million of revenue coming from the JV. So was that closer to like a 9, 10 cap?
spk03: No, it was, I think, a mid-8. Sorry, mid-8 cap rate on that.
spk02: Okay. And I know I'm over my question, but can you just walk through how you get to the four-set net dilution at starting at the 8.5 cap with the kind of preferred returns? Sure.
spk03: Yeah, so the way that works, Craig, is that if you take that number, we get 80% of that NOI coming to us. So that's going to be 80% of that $17 million. We're also going to pick up debt, though, because we're going to put a piece of debt on it. So that's the dilution is those two pieces. We pick up $1.8 million. which is a 9% yield on the 20 million, and we pick up 4.5, which is the 9% on the 50. So when you add those all up, it rounds to a 4 cent number.
spk02: Gotcha. So there's no redeployment of any of the other proceeds?
spk03: No. We just took that in and put cash on the balance sheet, paid out a little bit of the line. But, no, that doesn't account for any. redeployment that would be into other assets going forward. That's just those three sort of transactions together.
spk02: Perfect. Thank you.
spk03: Thank you.
spk00: Thank you. Our next question comes from Emmanuel Porchman from Citi. Your line is open.
spk13: Hey, thanks. Good morning, everyone. Maybe we can switch to Austin for a minute. What drove the preferred investment in a couple of assets there? I'm sorry, Manny, you cut out for a second. I said, what drove the preferred investment in Austin?
spk05: Oh, I think, you know, we certainly have an objective to continue to grow our revenue contribution from Austin. You know, certainly cap rate compression due to investor demand has kind of made direct acquisitions a little bit pricey. So we certainly have – we spent a lot of time – understanding what's going on in the market at a very granular level with our local team. And an opportunity was presented to us that enabled us to help an existing owner recapitalize their existing partnership. Did so on a project that was extremely well leased with excellent cash flow coverage. And from our perspective, it enabled us to deploy some money into Austin, which is clearly one of our target markets, with a good, current, secure coupon system in a good asset that's located out close to the airport.
spk13: And then staying in Austin, 405 Colorado, I think you said you have a 360,000 square foot pipeline there, if I heard correctly. If we look at the pipeline and leases that may come from that versus the initial underwriting of the buildings, has there been much change?
spk05: The primary change, Manny, has been really on the TI side. You know, we're certainly programming, because we think there's good opportunity for us to keep our face rates in that, you know, mid-40s range. But certainly, the market softened with some of the sublease space. We thought it was conservative but pragmatic to slide in some additional TI costs. But we're actually, we are seeing an uptick in activity. just in the last 30 days. And as I think we mentioned in our comments, we do have about 50,000 square feet in kind of active negotiations. So we're, you know, with that project now being delivered, the curtain wall up, the lobby finished, the sky lobby finished, it just shows so much better, and we're getting a lot more traction coming through.
spk13: So I guess the confidence in the revised 8% yield would be high, Jerry, taking all that into account? Yes, it would be very high. Thanks, everyone.
spk06: Thank you, Manny.
spk00: Thank you. Our next question comes from Steve Sacqua from Evercore ISI. Your line is open.
spk09: Thanks. Good morning, Jerry. I was wondering if you could just share a little bit more of the underwriting for the new joint venture. I know you sort of talked, you know, about a blended seven yield. But, you know, in the press release, you talked about kind of luxury residential. So I'm just sort of curious what kind of rents you're looking for for both LifeScience and Resi and how those compare to kind of current market rents today.
spk05: Sure, Steve. On the residential side, the rent levels we're projecting to achieve are very comparable to what we're achieving here today at our AKA development at FMC Tower. The unit mix is different. We think the amenity package will outperform anything that's being planned for the city right now. I mean, a 29,000-square-feet amenity floor that will be available to both the residents as well as the office and life science users. So we feel very good about the assumptions we've built into that, including our marketing and FF&E program. On the commercial side, again, the project is really planned to be about 200,000 square feet, equally distributed between life science and innovative office. And there we're looking for rental rate levels in the mid-50s. So we feel very good about that rent level, too, given the exchange we're having with existing tenants as well as other transactions being done in the marketplace.
spk09: Okay, and then maybe follow-up question. Just as you're having all these discussions with tenants on either renewals or new tenants for existing space, just kind of help us think through sort of what the tenants are, how they're sort of programming the space, how they're thinking about space per person, obviously the work from home and hot desking, and just what trends are you seeing from existing or new tenants as they're looking at existing or new space in the portfolio.
spk05: Yeah, and we'll tag team this, George and I, Steve. I think, you know, we're seeing tenants still honestly trying to think through what they want to do. You know, to me, it's been an interesting dynamic to see how thoughts evolve at different size companies. But what we're generally seeing, and part of this is being driven by, you know, we offered free space planning services to any of our tenants that would take it so we could help them, you know, post-COVID-ize their space. And what's generally coming out of that is, you know, more square feet per employee evidenced by larger, higher-profile workstations, more partition walls, more but smaller conference rooms that are targeted to lower density, breaking up maybe one large cafeteria or kitchen area into a couple. So we actually think that the trend line that we're seeing is a reversal of the densification we've seen before. What remains to be seen is if some companies are talking about we're going to put 10%, 15% of our employees on a work-from-home schedule, whether those employees will hot-desk have a space to come into. People who are going to be on one day a week work from home or two days a week, they'll still maintain a desk. So if you're on permanent work from home, you have a desk when you come in. So I think a lot of companies are really honestly thinking through that. I think the one common denominator we are hearing, though, is a real focus on ventilation, touchless environments, high-quality landlords who can demonstrate a multiple-year program of investing capital in their buildings. so that they're state-of-the-art HVAC systems, they're well-staffed, and we're even seeing that being a receiver market for some of our development projects as well. But, George, maybe you can pick up with some more comments.
spk04: Certainly, yeah. I do think the biggest trend we're seeing really is just how people are planning to spread out and navigate through the workspace. I think more consideration being given in terms of, what direction you come in from, which way you egress out to kitchen areas, conference areas. And I do think the large conference rooms are maybe going to be a thing of the past where you're going to see just smaller rooms for fewer people and just spaced out a little bit differently. The workstations I think will get a little bit bigger. I think you'll see plexiglass. you know, as part of the design in many, the up-down desk, I think, is kind of here to stay for all of that as well.
spk09: Great. Thanks very much. Thank you, Steve.
spk00: Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open.
spk01: Thank you. Good morning, and congrats on the capital raises. I just want to get a little bit more color on the Schuylkill Yards JV. So you said it's a preferred JV. Can you just talk about what the flow is to the partner and why it was structured that way?
spk05: Yeah, I think it is a preferred structure, and our partner will receive a first call on capital to their return. on a current basis than on distribution, a first call on recovering their capital as well. And I think, James, as I was trying to outline with Craig, from us it's all about what the overall cost of capital is, and I think fundamentally being convinced that we're going to be very successful here, we felt that this was the structure that fit our profit target best, and so the structure we're very happy with, to tell you the truth.
spk01: Okay. Okay. And then I guess just taking a step back here, so you did the Mid-Atlantic JV sale. You've now gotten your first project at Schuylkill Yards JV'd. How should we think about your capital needs to get both Broadmoor and Schuylkill Yards done going forward? Has anything changed in either how much you want to raise, how much you need, what you think your percentage ownership can be in these projects based on what you've accomplished?
spk05: It's a great question, and Tom and I can tag-team it. certainly ample sources of private capital out there, particularly those looking for good operating partners. So I think we've done a fairly effective job of accessing a number of really high-quality organizations in both the Mid-Atlantic portfolio and our Schuylkill Yards West JV. You know, we do view these JVs, as we've talked before, you know, as kind of relationship-building transitional capital. I mean, The reality is we don't have the ability to self-equitize these opportunities that we think are really significantly attractive in terms of generating profit for our shareholders. But as we really think about these structures, the focus remains on, you know, what's the best cost of capital in those structures. To answer one of your points directly, I mean, as we look at Schuylkill Yards West, You know, we're retaining a 55 percent stake with a significant portion of the upside. Our remaining capital to put into that project from an equity standpoint is about $28 million. And we're certainly going to the discussions in the Austin market as well. which is our objective would be to try and hold on to as much of the notional and upside of that project as we can, just because we know that these first steps we're taking, Schuylkill Yards west of Schuylkill Yards or Block A at Broadmoor, they're the first moves in significantly large developments. And I think our ability to execute the first couple steps well in both of those developments I think can really signal some significant profitability to our shareholders, which can hopefully translate into us looking at other capital structures, even wholly owning a number of the developments going forward in future phases.
spk03: And, Jamie, it's Tom to add to that. I think that part of that's also been, as we've seen through the last six months, is that we've seen not only the capital sources be there, but that the debt markets continue to open up. So as we look at... the financing for Schuylkill Yards, for example, with the construction loan where we're looking to be between 55% and 60%. If we were looking for that, call it three, four months ago, we probably would have got – we wouldn't be expecting the pricing we think we're going to get in the next couple months. So that also helps is that we see the debt markets opening up from our lenders that help us get the attractively priced capital from them, but also a little higher up on the loan-to-cost ratio.
spk01: Okay, that's helpful. And then is there any kind of earn out on the JV or promotes or anything like that?
spk05: Oh, yeah, they all have significant promotes.
spk01: Like can you increase your stake over time?
spk05: Well, I think we can increase our stake by performing above the promote level. So the economic return would be disproportionate to our ownership stake. But your ownership stake won't change. Not as currently contemplated.
spk01: Okay. All right. Thank you.
spk05: Thank you, Jamie.
spk00: Thank you. Our next question comes from Michael Lewis from Truist. Your line is open.
spk06: Great. Thank you. My first question is about the suburban TV. And I guess it's, you know, why did you decide to sell these assets at this cap rate, you know, mid-eighths, you said? versus other options. And assuming the answer has something to do with capital needed and growth profile, why not just sell all of it? Why keep capital deployed here when you have needs elsewhere?
spk05: Yeah, Michael, I'll start off and George and Tom can weigh in. Look, we had identified this pool of assets a number of years ago as part of our overall repositioning plan for You know, some of the assets we wound up going into the joint venture with Rock Point down in northern Virginia, and this was the second piece of that. And I think that's – we really go through an evaluation, looking at the relative growth rates, return on invested capital, capital ratios, pretty quantitatively assessing every single one of our projects. Now, that quantitative assessment doesn't directly factor in the value we can generate by having a broader market position and the deal flow that creates for both the JV and for our directly owned assets. So when we go to put these portfolios on the market, we are always looking for either a sale or a JV. And when we're trying to trade out of some of these larger scale opportunities like we did with the Mid-Atlantic portfolio, You know, a lot of very smart money wants the people who have been running it, the assets, for a number of years to stay in. It de-risks the deal for them. It drives our ability to increase pricing metrics. It can create a nice promote structure for us. And more importantly, from our perspective, maintains our market network and deal flow. And also, as I pointed out in the comments, really significantly changes the the return on invested capital trajectory out of what are moderately growing assets. So, when we looked at this transaction, great partner. Maybe we can grow that with them over time. They certainly have a fair amount of capital with very smart real estate investment folks. We move an asset from, or a group of assets from, you know, on a cash flow basis, a mid-single-digit return. By changing the capital structure, we move that to, you know, a high team's overall return on our invested capital. And then as we frankly saw down in our Austin transaction, Michael, with DRA, you know, markets change, circumstances change. So being involved in these ventures and having them perform well essentially gives us a forward proxy to either sell that portfolio along with our partner in a terminal event or, through an effective and fairly balanced buy-sell mechanism, regroup some ownership stake as market conditions present themselves. And that was a little bit long, but I hope that kind of answered your question.
spk06: No, I think that's a good answer, and it leads into kind of my second question, which is, A bigger picture question for you, kind of looking back and looking forward, you know, now that your guidance is out for next year, I think it's going to be nine years in a row that your core FFO is between $1.30 and $1.42. And I don't mean to make that sound like you're spinning your wheels because I think certainly the quality of the portfolio has improved and the cash flow has improved. But, you know, maybe talk a little bit about, you know, the strategy of capital recycling and, and capital allocation, you know, both as you look back and as you look forward for the company, you know, how do you think about what your growth profile should be and could be and how to achieve it?
spk05: Yeah, happy to answer that. And that discussion we just had really on the joint venture is a key part of that strategy as well in terms of its ability to generate very good returns for us. I mean, look, we have completely repositioned the portfolio, in the last half dozen plus years and have created really significant forward development pipeline that can do, you know, between Scooby Yards and Broadmoor, a significant amount of development that is mixed use. It's office. It's life science. It's residential. And, you know, so certainly we think the company has a real opportunity to pivot into higher-growth mixed-use product types that will generate higher rates of return. The path to get back on growth is, you know, going to come down to our ability to execute some of our existing vacant space. You know, we have some key targeted vacancies, as we have disclosed and everyone knows about. You know, our ability to lease those up could generate a significant growth in FFO as those assets come online. And that's really our objective. So we're focused on, you know, tactically what do we need to do to lease up all this space, which will generate some significant growth. As I mentioned earlier, we have, you know, our rollover for the balance of 21 is down to 4.2% on a net basis. We're really working hard ahead of our 22 expirations. And we think the portfolio quality, the location of the properties, and our tactical plan, I think, will transmit into higher growth. Look, we're certainly frustrated that, you know, our FFO target for this year is below where the consensus was. We're, frankly, at one level quite pleased, though, that with the significant rollouts that we had with IBM with the retirement of that building, and the vacation by Northrop Grumman that we're able to kind of keep our FFO in the direction it's moving in. And as I said at the beginning, Michael, you know, not every company is going to give guidance. We're trying to handicap, you know, the pace of vaccine rollout, whether the AstraZeneca vaccine is going to be better than Johnson & Johnson. We're talking, you know, what the pace of recovery of mass transit is. So we really try to look at the guidance we gave this year, as a springboard to grow from. And I think we're, you know, as the economy recovers, we know we have great assets to lease. We know we've got a great leasing team on all these projects. So our hope is really to get back on a growth program now that the overall recycling needs to be done and we have great opportunities in the near term on the development side.
spk06: Yeah, that's helpful. Obviously, it's a tough environment, so it's a – It's an aggressive question to ask you about growth, as we sit here today. But thank you. Thank you.
spk00: Thank you. Our next question comes from Teo Okusanya from Mizuho. Your line is open.
spk08: Hi, yes. Good morning, everyone. And, again, also congrats on the JVs. In regards to Skokil, The 45% preferred interest that your JV partner has, just following up on Jamie's question about the cash flow, you know, the waterfall, is there a minimum return that they get first before you start to participate in the cash flows? Is that the way it works?
spk05: Yes, that's the standard preferred structure.
spk08: And can you tell us what that hurdle is?
spk05: No, I can't. All right. We can't disclose that. We'll tell you, it's a very effectively priced coupon that, again, creates a significant profit opportunity for the company. So I don't mean to be coy. We're not at liberty to frame out the total details.
spk08: No worries. And then the JV partner, do they have any kind of rights or options to participate in other pieces of Skokal at this point? or is just a one-off based on SCOCO West right now?
spk05: No, look, I think certainly given, as I mentioned earlier, we view these ventures as relationship building. I think we're delighted with our relation with this partner, and I think they have a high interest in participating at their election in future phases. And so certainly as we look at identifying partners you know, forward sources of capital, one of the key components we talk about is, you know, whether we can create a renewable capital source, if and to the extent we're looking to bring a partner into those projects. Gotcha.
spk08: Okay. That's helpful. Thank you. Thank you.
spk00: Thank you. Our next question comes from Anthony Pallone from J.P. Morgan. Your line is open.
spk10: Okay, thank you. My first question is, can you give us an update on a couple of law firms with near-term lease expirations?
spk04: Sure, George. Good morning. This is George. So really kind of the largest in the near-term queue is Deckert at Sierra Center. We are getting some of their space back during 2021. Part of that will become part of the life science incubator on the fourth floor. And then we are still in active dialogue with them on a long-term extension on the upper bank floors, which is roughly 110,000 square feet. The other law firm... that we had at CIRA has since announced that they're going to be relocating to 1735 Market Street. They were in the kind of mid-rise section of the stack there, and they had an opportunity to relocate into the upper stack over at 1735. So, one of those floors is in the lower bank, could also be part of the life science retrofit for CIRA Center. And then floors 10, 11, and 12 lay out contiguously for anywhere 80,000 square foot tenancy. And we've actually had some initial inquiries about that space already since that announcement came out. So those are really the two law firm deals in Philadelphia.
spk10: Okay, and so at the Baker Hostel or space, that won't impact 21 numbers. That's a 22 item. Is that how to think about it?
spk04: That's correct, yeah. Their lease expires on 12-31 of 21. So that's a 22 event. Okay.
spk10: And then just as I'm thinking about dividend coverage and look at your sources and uses, what's in the revenue-producing CapEx that wouldn't really be in – development, redevelopment.
spk03: Sorry, Jamie, this is Tom. On the revenue, you said about the revenue producing CapEx?
spk10: Yeah, so look at your cash flow and sort of dividend coverage. I see the revenue maintaining CapEx, and if we take that out of your cash flow, the dividend's well covered. But then you have this revenue creating CapEx I'm just wondering what's in that that just wouldn't be like development redevelopment spending.
spk03: Well, it's sort of a combination, Jamie. It's smaller redevelopment projects of buildings such that they don't fall under the bucket of where we put them on the redevelopment page. So sort of number one. And then number two, it's also where we have space that's been downed. for quite a while that is being re-let. So it's no longer within the window of revenue being maintained. It's for space that's been down over 12 months. So there's revenue TI in that number as well, but it's a combination of those two.
spk10: Okay. Thank you. Thank you, Tony.
spk00: Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open.
spk01: Great, thank you. I just wanted to follow up on the leasing pipeline. So you had mentioned 1.3 million square feet up 230,000 square feet, quarter over quarter. Can you just talk about what the composition is of that 1.3 million square feet?
spk04: Sure. Jamie, it's George. A good portion of that is down in Metro DC with 1676. And then we've got... quite a bit of activity in CBD Philadelphia as well. The 1-3 breakdown regionally, it's about 30% D.C., 35% Philadelphia, and the balance then being the P.A. suburbs and Austin.
spk01: And what about new versus renewal or development versus non-development?
spk04: Well, as always, that pipeline, when we quote it, never includes development. So that's really just kind of the core portfolio. And the breakdown new versus renewal is... Let me just find my other sheet. It's about 65% new and 35% renewal. Okay, great. And then I guess...
spk01: Just to take a step back on Austin, you know, on the one hand, sublease is growing quickly, a lot downtown, but we've seen all these corporate announcements and actually positive job growth there. I mean, what's your just big picture view on how you think that market plays out both downtown and up by the domain or Broadmoor? And, you know, just next 12, 18 months, you know, what's your expectation?
spk05: Yeah, Jamie, look, I think we are increasingly optimistic on Austin having an accelerated recovery. You know, we put a page in the SIP on, you know, stats for Austin. I think one of the things that certainly Opportunity Austin, you know, as of early January, they had 190 hot prospects. And I think what's really kind of interesting is that breakdown is pretty well diversified among industry sectors. So you have 21, like, science tenants, you know, 39 software companies, seven semiconductor. You're starting to see the beginning sign of the joint command being located there with the defense contractors, you know, seven plus requirements there. Yeah, I think as we're looking at it with some of these major announcements, including digital realty locating to Austin, their headquarters, you're seeing more and more companies, I think, get very focused on the quality of life and the cost of doing business in Austin. We have seen our pipeline increase over the last, 30 days in Austin. So I think as that city starts to reopen, Jamie, and I know you know that city well, just getting a lot of inquiries coming in about forward demand drivers for large office users. So, you know, we're in our capital raising program for Broadmoor. You know, Block A includes 350,000 square feet of office and the 341 apartments. I mean, we're actively marketing the office component And with some of these larger users emerging and hopefully getting into a decision mode in the next couple quarters, we certainly think our program at Broadmoor will be very, very attractive. CAT Metro, through their Project Connect program, is poised to do a lot of infrastructure improvements, including the rail access. We are still working with a train station there. and would expect to be able to announce something on that in the not-too-distant future. That will, again, be a distinguishing point for Broadmoor because of its rail access. So we're very optimistic on Austin. I mean, you know, cautiously optimistic until we see some of these things translate into real deals. But there's a lot of activity, and I think the trend line is extremely good for a really good long-term growth for Austin.
spk01: Would you do build a suit out there, like just straight with a tenant?
spk05: Of course, we certainly, we're keeping all of our options on the table as we go into these discussions. So certainly there's a couple of large corporations looking for, you know, half a million, million square feet looking to create campuses. I think, you know, just as we've done in the past with major corporations like Subaru and a few others, we're certainly open to, you know, build the suit, developing joint ventures with users, I mean, that's part of our business, so I think we're certainly open to those types of discussions.
spk01: Okay. All right. Thank you. Thank you, Jamie.
spk00: Thank you. Our next question comes from Daniel Ismail from Green Street Advisors. Your line is open.
spk11: Great. Thank you. I'm just curious, on $2,340, I believe last quarter you mentioned looking to market that property, and I'm curious, I guess two questions, how the reception in the markets was to that marketing, and then two, what the overall desire is out there for value-add office product these days.
spk05: Hey, Danny. We have been talking to a number of potential investors in that project. We have also been moving on a parallel path with our renovation program, and Where we are right now is our expectation is we're going to begin the execution of the renovation program. There are a number of larger tenants moving around that market, of which 2340, given its size, quality, location, and visibility, could be a very attractive receiver site. So we've made the decision to move forward the renovation program, of which we think every dollar we put in is a dollar good if we would elect to sell it. but also use that renovation period of time to actively market the project for large users. The building has a higher than normal parking ratio, has incredibly efficient floor plates, so we think it could be a distinguishing competitor out in that section of the toll road. When we were looking at folks that wanted to come in and buy it, the pricing was how we would underwrite buying an empty building. Certainly not what we would expect to realize in terms of full value. So after having vetted that, talking to a number of potential venture partners, we made the decision to kind of go down the path that we're on. And the market will present whatever opportunity is the best for us, whether it's to lease it up ourselves or to execute the renovation program. At that point, Our expectation is the market will be better then than it is today, and that should improve our ability to either sell it, joint venture, or just continue on the path of a wholly owned asset. Great. Thank you.
spk00: Thank you. And our next question comes from Bill Crow from Raymond James. Your line is open.
spk07: Yeah, thanks. Good morning, guys. I guess my first question is, I get the whole de-densification or reversal, but have you actually seen tenants take more space to make up for that?
spk05: Yeah, I mean, I think during this past quarter, I forgot the exact number of my script, but we actually had a number of square feet of tenant expansions. And I think, Bill, you know, we're really kind of focused on reaching out to all of our tenants, but, you know, right now, given where we are, there's really a bifurcation between the larger and the smaller tenants. You know, I think the smaller mid-sized companies, you know, 10 to 50 employees, you know, they're very focused on getting back to the workplace as soon as they possibly can. And they're at the leading edge of the companies we're doing space planning for or space planning is being done for them to kind of try and configure out how they think their space should work. I think the larger companies... And, George, please weigh in. I think the larger companies, they're trying to figure out what they want to do with the bulk of their employee base. I mean, do they want to have X percent on work from home, X percent in the office full time? And I think the only anecdote I can share with you is there seems to be a lot of debate among C-level executives at these large companies. What's the best path towards productivity? So I really do think that will take time. another couple quarters until there's more visibility on vaccine deployment, the vibrancy of the return and the timing of the return of these mass transit systems. That will really start to factor into what these larger employers want to do. But, George, what do you think?
spk04: Yeah, Bill, you know, for the quarter, we had just a little bit north of 33,000 square foot of expansions and 191,000 for calendar year 2020. You know, as Jerry said, we're seeing a lot of this really in kind of the kind of small to mid-sized tenancies where, you know, that 8,000 square footer on the first space plan, you know, ultimately agrees to take 11,000 square feet. You know, the 6,000 square footer ends up growing to 10. So, you know, kind of singles and doubles, you know, I think, you know, Unfortunately, we haven't really seen that many deals where it's a, you know, five-floor tenant who says, give me a sixth floor. But we think that that, you know, once the whole return to work and who's going to continue to work from home equation fully plays out, then I think you might start to see, you know, some expansion as a result of, you know, de-densifying in the larger deals, too.
spk05: And I think the other dynamic we're seeing, which I think is really important, and I think it's relevant for Brandywine as well as a number of other high-quality office companies, is there is clearly an accelerating trend towards quality. So I do believe that, you know, Class A trophy quality property will start to pick up some demand drivers out of the B or C quality buildings where employers will be very focused on communicating to their employees that they've selected a workplace environment that's truly high quality, that has great airflow, all those things that we talked about in one of the earlier questions. And I think that's one of the real green shoots, so to speak, for these companies that have very high-quality inventory.
spk07: Yeah, no, I agree with that. I guess my question was whether there's any direct linkage to – de-densification, and some of these companies have organic growth. I'm sure that we're going to take more space. Anyhow, I think that will play out over time. My next question is, you called yourself a high-quality office company, and I agree, but I'm wondering if through all the joint ventures, through going into life sciences, through additional residential investment, you're not overly complicating the story such that the value as a public company never, comes up toward the value of the assets that underlie it? I mean, is that a risk that you think about?
spk05: Well, certainly I think the creation of these joint venture structures does create some complications, which I think is why we try and always – lay out very clearly in our supplemental and our communications how everything layers in. But I actually think that, not to disagree with you, but I actually think that the ability for us, particularly in Broadmoor and Schuylkill Yards, to have a multiplicity of product within a master plan community is incredibly value accretive to our story. And Certainly, given the outlook that some folks have on the future demand drivers over on office, as you just touched on, I think us having fully approved, designed, ready-to-go, mixed-use communities like the two we're talking about, I think is a huge driver of growth for our company. And the market will dictate how that growth is best harvested. But I think certainly our ability to do residential, with life science, with office, with retail, that adds higher value to every physical space we build. And I think whether that's here at Schuylkill Yards or down at Broadmoor, I think our shareholders will benefit from that comprehensive master planning approach than if we were just to do an office building here or an office building there.
spk07: Yeah. No, and first of all, you can disagree with me, and I don't necessarily – disagree with what you just said. The market has been hesitant to award multi-sector REITs with higher multiples in the past. So that's more of a concern. But all right. Thank you. Appreciate the time. Thank you, Bill.
spk00: Thank you. Our next question comes from Emmanuel Korchman from Citi. Your line is open.
spk14: Hey, it's Michael Derman here with Manny. Good morning. Jerry, I wanted to sort of, you know, you talked a little bit about the disappointment in terms of where the FFO trajectory has been and where it is for this year. How do you sort of match that up with, you know, these preferred year investments that you're making in Austin at 9% yields, the retention of a higher coupon preferred in the joint venture? You know, all of those is propping up FFO in the near term and putting you on a treadmill that as that capital comes back, you're going to have to try to find reinvestments, and the likelihood of finding something at a nine-bagger is probably not open. So how do you sort of weigh all of those things together?
spk05: Yeah, I think it's, from our perspective, you know, first of all, the investment has to make sense. So when we looked at the investment in Austin, I think there was actually a fairly easy decision point from the standpoint of You know, cap rates in that market are sub-five. We want to grow our revenue countries from Austin, so we kind of said that the best way for us to do that in Austin is to proceed with our development program and then to try and find opportunities like we uncovered here that creates, you know, really driven by unique capital structure. And when that 9% coupon, you know, terminates in several years unless it's extended, et cetera, At that point in time, I think we'll figure out other places to put that and to redeploy that. But I also think one of the things that's top of mind for us is that given some of the larger blocks of vacancy we need to fill right now and have planned to do over the next year or so, we think that generates a lot of core FFO growth. which hopefully translates into better public market pricing and gives us the ability to keep moving down the path of growing FFO while looking at whether these structured type of preferred investments for us are good interim deployments of capital. So I think that's how we look at that. And certainly the creation of these joint ventures, as I mentioned, are really driven towards how we improve our overall return on invested capital and minimize or reduce our direct capital outlay in a certain set of properties. And we think that funnels in very well to the strategy of creating deployment capacity into either development projects or other transactions like the one you mentioned.
spk14: When you think about the JV you did on the suburban sales in Philly, why not exit those assets completely? And I recognize by not doing that, you're keeping a $20 million preferred, and that's giving you some better or less dilution. You're getting some fees, which is less dilution. But at some point, the story does become more complicated. And was there just not a buyer that was willing to buy 100% of those assets that required you to stick – $20 million in, you know, 10% of the cap structure, keeping it in and also maintaining a 20% equity stake?
spk05: No, look, as I mentioned to an earlier answer, to an earlier question, was, you know, look, some of these institutions, they are looking for, you know, operators who are really good at what they do. So, you know, there's a difference between an operating investor or a financial investor. We've seen the higher pricing come in from financial investors, And those financial investors typically are looking for folks to stay in the property, run them. We have the back office operation reporting structures in place.
spk14: So as I mentioned – But that doesn't mean they can't go find someone else, Jerry, right? I mean, like, yeah, I think the perspective of that's what they want. The question is what should Brandy One shareholders want, right? And they are going to want, you know, a complete access, maximized proceeds, and sort of just get out and focus, you know, this whole element of leaving a little bit on the table and getting the fees and a little less dilution. I guess I'm having a harder time understanding the capital allocation decisions from your perspective, right? You could go find another Philadelphia operator. You're not the only one in the marketplace. That's where I'm struggling with.
spk05: Well, and look, it's a fair point you're raising, and I would posit back to you that sometimes those financial investors, as opposed to hiring a brokerage firm or a property management firm to do leasing or whatever it might be with them, they like the fact they have an incentive partner. And in many cases, the existence of that incentive partner, like a Brandywine in this case, is can create higher pricing for us. So that's how we evaluate. I think it was very clear earlier, you know, when we go to put something on the market, we're always looking to either sell or if we can maximize proceeds by doing a JV, we do that. In fact, you know, we have sold a number of properties directly. And I don't think you can lose sight of the fact that these ventures are really transitional capital for us. You know, we have recycled in and out of a number of these that have delivered significant returns to our shareholders. So it's all about how we deploy the capital and maximize the return that we get.
spk14: Last question, just in terms of the terms of these two preferreds, are they accrued? Are they cash pay? What level are they at in terms of price per foot? So if you can just talk about the Austin one and then the retention of the JV, the preferred equity in the suburban asset sales.
spk05: Yeah, I think on the two yards west, it's as cash flow comes in as it accrues. And Tom, do you have the hint on any other? On the... Well, the preferred in Austin is a current pay.
spk03: Current pay at nine. Our investment base per square foot is fairly... Our last dollar in is... Our last dollar in is 260 a foot.
spk05: Yes, and we have, in that case, Michael, over a two-times cash flow coverage based on leases in place. The same thing for the other preferred in the Midlandic portfolio. There it is, current pay at the 9%, as well as a very, very good cash flow coverage.
spk00: Okay, thank you.
spk05: You're welcome. Thank you.
spk00: Thank you. And that does conclude our question and answer session for today's conference. I'd now like to turn the call back over to Jerry Sweeney for any closing remarks.
spk05: Great. Thank you, everyone, for joining us for the fourth quarter 2020 call, and we look forward to updating you on our next first quarter 21 call. And in the meantime, everyone, please stay safe and sound. Thank you.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
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