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spk09: 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 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 is being recorded. If you require any further assistance, please press star and then zero. I would now like to hand the conference over to your host today, Jerry Sweeney, President and CEO, please go ahead.
spk08: 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 Worth, 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 factors that could impact our anticipated results, please reference our press release, as well as our most recent annual and quarterly reports that we file 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 variant, 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 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. 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 a rental rate mark-to-market of 8.1 percent on a GAAP basis and 2.6 on a cash basis, with our full-year mark-to-market being very strong at 16.2 percent on a GAAP basis and 10.3 percent 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 35 cents per share, which is in line with consensus estimates, and full year 2021 FFO of $1.37 per share, which was a penny 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 foretell excellent growth potential. Our cash mark-to-market range is between 8 and 10 percent. Our GAAP mark-to-market range is between 16 and 18 percent. Our GAAP same-store NOI growth for both cash and GAAP is between 0 and 2 percent. And we expect all of our regions will post positive mark-to-market results on both the cash and GAAP basis. In looking at a moment at our cash same-store NOI range of 0 to 2 percent, it's impacted by the timing of rollover and the subsequent backfall from leases already executed. So, for example, in Philadelphia, we renewed 120,000-square-foot tenant commencing February 1st of 22. the free rent in that 16-year deal will last a balance of 22. In addition, we had 110,000-square-foot tenant vacate Sierra Center in 21. We've already leased 75 percent 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 2023. Our spec revenue range is between $34 and $36 million, with 25.6 million, or 73%, at the midpoint achieved. That speculative revenue range represents approximately 2 million square feet of leasing velocity, which compares to leasing velocity of 1.2 million square feet in 2020 and 1.4 in 2019. Other key highlights, occupancy levels remain between 91% and 93%, lease levels between 92% and 94%. We expect a retention rate between 58% and 60%. And capital for 2022 will run about 14 percent 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 as 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 non-recourse 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 percent. Further, looking further out, our rollover exposure is below 10 percent annually through 2026. So, value creation and earnings growth remain a top priority. Key near-earning drivers for us are we have key vacancies that many of you are familiar with that will generate between 7 and 10 cents a share upon lease-up. We continue to make progress on leasing up those spaces, but our 2022 plan only includes approximately 2 cents per share of revenue from those vacancies, of which 20 percent 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 percent 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 22. We also do anticipate renewing both our line of credit and our $250 million term loan during the first half of the year at similar terms to the existing instruments. The dividend is very well covered with a 54 percent FFO payout ratio at the midpoint. Our CAD ratio has migrated to about 90 percent 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. Regardless of whether those dollars are financed through good news funding at our JV level secured mortgages, and that did have an impact of 5 cents 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 all-state joint venture and recognized the gain of $3 million. We also continued selling non-core land parcels during the course of the year. 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 and Prussia Road, in our Radnor sub-market is scheduled for delivery in the second quarter of 22. 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 sub-market. 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 percent 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're working through a 26,000 square foot expansion. Our D-Labs incubator at Cirrus Center, it consists of 240 seats. That opened in January and is 95 percent 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 22, 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 a Q3 23 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 partners' equity investment is currently being made, and the first funding of our construction loan will occur in the second quarter of 22. 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 being able to start that project this year. At Uptown ATX, we've had a very productive 90 days at this 66-acre community, which has a development capacity approaching 7 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 348,000 square feet of office, 341 residential units, and 15,000 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 percent of the equity on a preferred basis. We are currently in the process of obtaining a 65 percent 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 receive the accrued return, a significant value accretion comes to Brandywine after that. So, based on our stabilized underwriting, that creates an incremental 400 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 3Q23 and the residential component in 3Q24. We have a pipeline on the office component right now of about 300,000 square feet. But since announcing the project, we've 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 a groundbreaking for the train station that we'll be building through a 50-50 public-private partnership with CAT Metro, 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 they're expected 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 does not incorporate any dispositions or acquisitions, we do anticipate being active on the capital recycling front. We do anticipate continuing 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 will 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 certainly redeploy dollars into higher growth opportunities. With that, Tom will now provide an overview of our financial results.
spk06: Thank you, Jerry. Our fourth quarter net income totaled $4.5 million or 3 cents per diluted share, and FFO totaled 60.4 million or 35 cents 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 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 is 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 one-time insurance income. G&A expense totaled $8.1 million, or $1 million above our estimate. This increase was 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 forecasts. 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, as we mentioned last quarter, based on the completion of 3,000 markets, 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 Wilton, 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 22 guidance, at the midpoint, net income will be 21 cents 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 3,000 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 to $29 million. And G&A will be between $34 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 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 22. And our land sales, as Jerry mentioned, we have about $4 to $5 million of land sales anticipated. This is selling non-core land parcels, and as mentioned, one's already closed in January. Termination and other income of $11 million, which is above 22, again, due to some one-time special items we expect to have occurring during the year, transactions, I said. Net income, leasing and development fees will be between $15 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 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 3,000 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 to 9.5, and that sequential increase is consistent with prior years and is primarily due to the timing of compensation expense recognition. A total interest expense will approximate 17.5, 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, 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, cash on hand of $27 million, and $35 million of proceeds from land sales and other. Based on that capital plan, our line of credit will increase by $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 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.
spk08: So the key takeaway is to kind of look at our 22 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 years provides excellent visibility for forward growth. And our 22 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 it's evidenced by the increase in our pipeline just in the last couple 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 that in the interest of time, you limit yourself to one question and a follow-up. Michelle?
spk09: Thank you. As a reminder, to ask a question, you will need to press star and then one in your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from Manny Corchman from Citi. Your line is open.
spk05: Hey, 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, you know, maybe doing a bigger sale of maybe something more core or just bigger in general to sort of fund the tank? Thanks.
spk08: 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, you know, to optimize our capital allocation, you know, 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 to some of these nearer-term deliveries. We still, if you think about it, we still really have 405, which is not generating that much income for us, and 22, but it's delivered. That will be leased up very shortly. We have 250 coming online during 22, and the leasing activity there is very encouraging. We have a number of large leases that is outlined on the same store number that are 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 23 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 raise the question because I do recall, I think, in one of your resolutions for 22, I think it was number five really focused on optimal capital allocation, including doing a creative transaction development and redevelopment and fund it on a long-term basis. leverage neutral basis using a range of financing tools. And I think, you know, certainly, you know, 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, you know, 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.
spk05: Great. And then, Jerry, going back to the same sort of growth comment, You walked us through the plus 300 basis points from those couple big leases. But you also made it to the point of 2023 growth being better. If I understand your guidance correctly, you've got around about 60% retention in the guidance and about a million square feet of expiries. So it looks like you're going to have, you know, call that 400, roughly 400,000 square feet of non-renewal. How is that going to weigh against the positives of, of these couple big leases that you talked about becoming cash, you know, cash flow positive.
spk07: Yeah, Manny, good morning. It's George. Let me try and take some of that. You know, part of what's not going to renew, we have successfully backfilled and, you know, evidenced by the 75% of the space here at CIRA Center that Baker Hostetler gave back, so that'll be negative retention for us, but then reabsorbed space with free rent burning off in 22 and fully cash producing in 23. The large renewal that we did over at the Logans, again, 11 months of free rent kind of burning off, so one month in 22, 12 months in 23. Those are kind of really the big drivers. And then, you know, the other part of our same store that really had some continued lease-up to go is 1676 down in Tysons. And we've got, you know, about a million dollars of incremental revenue planned for that asset in 22, and then we think the balance of the building fills up in 23. Great.
spk05: Thanks, all. Thanks, Manny.
spk09: Thank you. Our next question comes from Steve Sacqua from Evercore ISI. Your line is open.
spk01: Thanks. Good morning. Jerry, I was hoping you could maybe break down a little bit. I think you talked about 2 million square feet of leasing activity in 22. And I'm just trying to get a sense for how much of that is core portfolio, how much of that's development, and in the core portfolio, you know, how much of that would you attribute to renewals and how much would you attribute to new leasing?
spk07: Yeah, Steve, good morning. It's George. I'll jump in here as well. So of the 2 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 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.
spk01: Okay. And, you know, 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, you know, what's the dynamic going on? Is it a downtown versus sort of suburban play, or You know, why is 405 just been as sluggish as it is?
spk08: Yeah, Steve, it's certainly, we're hoping to make a lot of significant progress in the next couple quarters. I don't think it's an issue of suburban versus downtown. You know, we really just deliver the building, finish the lobby, finish 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. 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. You know, if they're a two-floor user, 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 third piece, which is kind of a contributing factor to the velocity in Austin for actually the smaller size tenancies, is that for whatever reason, that market has the lowest level of occupancy through our whole portfolio. I mean, you know, we're, you know, between 40% and 60% in a number of buildings around the portfolio. And Austin's, I think, George, around 15%. About 15%, yeah. So 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'll be able to get some of these key leases across the finish line and really change the income trajectory of that property, certainly moving into 23. Okay.
spk01: If I could just ask one technical question for Tom. Straight line rent, FAS 141. I didn't hear you provide a number for 22. Do you have that handy?
spk06: Not right off the top, Steve. I'll have to get that to you.
spk01: I'll follow up right after the call. Okay. Thank you.
spk06: Thanks, Steve.
spk09: Thank you. Our next question comes from Craig Mailman from KeyBank Capital Markets. Your line is open.
spk04: Hey, good morning. Morning, Craig. Jerry, I just want to circle back to the commentary about, you know, the ability to kind of take 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 Sierra, 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?
spk08: 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 at Uptown or ATX, I'm sorry, Uptown or Schuylkill Yards, I think there, you know, until the capital market conditions improve for office companies, I think we are still biased to probably doing, you know, these kind of preferred structures where we essentially borrow low-cost equity with a clean governance structure, bring in 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. You know, 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.
spk04: And you guys are, you know, you're trading kind of in the low seven implied cap rate on my numbers. um, your developments are kind of in that seven to eight, maybe a little bit higher. Um, 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.
spk08: Yeah. As we're looking at some of the assets that we're evaluating for liquidation, uh, you know, there's both office and residential in that targeted pool. And the cap rates we're seeing 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, what'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-smart's going through this recovery. So we would expect it 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.
spk04: 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?
spk08: Yeah, no, 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.
spk04: Great. Thank you.
spk08: Thank you.
spk09: Thank you. Our next question comes from James Feldman from Bank of America. Your line is open.
spk02: Great. Thanks, and good morning. Thanks for taking the question. So you had talked about 7% to 10%. 10 cents a share from vacancy lease up, but you've only got two cents of that in your 22 guidance, 20% has been executed. Can you just talk about the composition of that remaining call it, I guess, uh, eight cents and, you know, maybe talk about the specific spaces in your leasing prospects.
spk07: Sure, George. Yeah, absolutely. Jamie, good morning. Um, you know, I think as I, as I mentioned earlier, uh, the largest piece of that really is that, uh, at 1676, it's, uh, 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 22 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 22, but a full contributor for 23. And then we've got about a million dollars in that project kind of bucket of properties, uh, out in, uh, the Plymouth meeting suburb. And we've got a good traction on, uh, on a majority of that space.
spk02: Okay. And what are your larger remaining spaces downtown? Are you pretty much buttoned up at this point?
spk07: Well, downtown on the, on the wholly owned side, it's, uh, it's very well, uh, buttoned down. Uh, the opportunity for us in Philadelphia remains at commerce square and, um, You know, we've, you know, obviously got, you know, the Macquarie space and the Reliance space that we're still dealing with. We've got a pipeline over at Commerce of about 150,000 square feet and, you know, continue to see good levels of tour but have not had, you know, many large lease executions to date.
spk02: So is that, you're not including that in the 7 to 10 cents?
spk07: That was just more to address your question about the Philadelphia.
spk08: The numbers we cited, Jamie, 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.
spk02: Okay. But you don't think that's a 22 event?
spk08: Yeah, look, as we're sitting here now, we're in February. I think the The lease up we have planned on a number of these properties, particularly the larger vacancies, really won't kick in until Q4. So their impact on 22 numbers is minimal. And so the bigger impact would be in 23. 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 municipalities take 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.
spk02: Okay, thank you. And then, you know, to your initial comments about tenants wanting high-quality workspaces, as you think about your portfolio, and I guess specifically, you know, Philadelphia, downtown, and suburbs, what do you put in that category? You know, thinking, I guess, more about your suburban assets, do you think that all fits into the flight 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 they're fine as is?
spk08: Yeah, look, certainly as we look kind of across the board in our 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 for our joint venture, done a 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, you know, Jamie, with this kind of shift in tenant appetite to really start drawing in tenants who are kind of in the D, D plus type of inventory as they think about their 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 that was a consistent lobby, restroom, landscaping, cartway upgrades, signage upgrades. 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 it even better, if it's well located, you'll get the tenant demand driver. As we're looking forward, there's a few properties that we plan on doing lobby renovations. Actually, Sears Center here, we're actually wrapping up a lobby renovation that's had a lot of great success, particularly as we attracted all those companies in for the incubator and the life science companies. So it is a continual reinvestment model. You just need to make sure that where you are investing money, you're getting a return on investment 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.
spk02: Okay, and then finally for me, I know in the press release you talked about the Austin land sale gain. 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?
spk08: Yeah, 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.
spk06: James, 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 record 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 to $5 million. That will be those land gains we haven't included yet. We're still assessing, you know, are those land gains for FFO purposes or not, but we certainly are going to be taking, we'll certainly be disclosing that.
spk02: Okay, thank you.
spk03: Thanks, Jamie.
spk09: Thank you. Our next question comes from Daniel Ismail from Green Street Advisors. Your line is open.
spk03: Great. Thank you. I understand these types of discussions can 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's some potential upside here in rents.
spk08: Yeah, hi, Danny. And, George, you and I can tag 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, you know, for really the last two years, posting really good mark-to-markets, keeping our capital costs low, you know, below that 15% long-range target we've had. In fact, closed out 21 with really good numbers. And as you know, that number can change based upon, you know, different larger term and larger size . But no, I think, you know, I look back over the last couple years where, you know, 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. 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, you know, 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. Our on-the-ground daily engaged leasing agents, One of their major responsibilities is to make sure that the senior operating executives here read the market well and understand where we can push, where we can't. And I think we've all been surprised, leasing agents through senior executives at Georgia's level, about how strong some of those demand drivers have been and how really economically viable a lot of these leases have been.
spk03: Got it. And then, Jerry, maybe on job growth 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.
spk08: We are anticipating some improvement as 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 shift to suburban locations nationally. I think in Philadelphia, looking at it from the outside, there was concern 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 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. 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 disproportionate growth of jobs within the city to elect, but that's a good green shoot that we're tracking very carefully.
spk03: Got it. Thanks, Jerry. And then maybe just one last one. On the dispositions, the potential dispositions in 2022, any tax consequences that may necessitate a 1031 or all the potential dispositions kind of all free of tax? capital gain taxes or can be covered by the dividend?
spk06: 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 an 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.
spk09: Got it.
spk03: Thanks, everyone.
spk09: Thank you, Jamie. Thank you. And I am showing no further questions from our phone lines, and I'd like to turn the conference back over to Jerry Sweeney for any closing remarks.
spk08: Great. The only closing remark is 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.
spk09: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
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