Brandywine Realty Trust (BDN) Q4 2011 Earnings Report, Transcript and Summary

James Feldman – Bank of America Merrill Lynch Jordan Sadler – Keybanc Capital Markets Josh Attie – Citigroup John Guinee – Stifel Nicolaus & Company, Inc. Richard Anderson – BMO Capital Markets David B. Rodgers – RBC Capital Markets Michael Knott – Green Street Advisors Mitchell Germain – JMP Securities Young Ku – Wells Fargo Securities, LLC Anthony Paolone – J.P. Morgan

At this time I would like to welcome everyone to the Brandywine Realty Trust fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. (Operator Instructions) I would now like to turn the conference over to Mr. Gerry Sweeney, President and CEO of Brandywine Realty Trust.

Thank you all for joining in our fourth quarter year end 2011 earnings call. On today’s call with me are George Johnston, Senior Vice President of Operations, Gabe Mainardi our Vice President and Chief Accounting Officer, Howard Sipzner our Executive Vice President and Chief Financial Officer and Tom Wirth our Executive Vice President of Portfolio Management and Investments. Prior to beginning I’d like to remind everyone that certain information discussed during our call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports filed with the SEC. 2011 wrapped up on several strong notes for us. The fourth quarter represented a solid continuation in the execution of our 2011 business plan. George and Howard will discuss fourth quarter results so my opening comments will address 2011 full year activity and a look ahead to 2012 with a focus being on the three key business areas of operations, balance sheet, and investments. Looking at operations first, during 2011 we leased a record 4.5 million square feet. This surpassed 2010’s 4.2 million square feet and exceeded our original business plan projection of 3.9 million square feet. This success clearly evidences continued recovery in the levels of both leasing activity and in many of our markets the pace of absorption. During the year we saw gradually firming of fundamentals and ongoing flight to quality and wide variation of the recovery pace among our various submarkets. Our Philadelphia CBD portfolio which comprises 23% of revenues, our Pennsylvania crescent markets which comprised…

We continue to see good levels of leasing activity and a willingness by tenants to make decisions. The flight to quality continues as tenants seek quality landlords, buildings, and locations which has benefitted our portfolio. Some markets that continue to demonstrate recovery and improving metrics are Philadelphia CBD, the crescent Pennsylvania submarkets of Radnor, Conshohocken, Plymouth Meeting, and New Town Square along with Austin and Richmond where rent growth and tighter capital control are becoming the norm. Other markets remaining in a buy-in occupancy mode. In terms of the fourth quarter specifically, leasing activity was strong with 905,000 square feet of lease commencements and 1,052,000 square feet of leases executed. Lease renewals commenced totaled 290,000 square feet leading to a 56.7% retention rate for the quarter and 65.2% for the year. Continued improvement during the year on retention was attributable to the expansions and more tenants simply staying put, a good sign of our quality product and emerging market stability. New lease activity and tenant move outs were as expected resulting in 278,000 square feet of absorption and year end occupancy of 86.5% which was 20 basis points lower than our previous update due to property sales. While traffic for the quarter was flat both sequentially and year-over-year, the pipeline remains strong at 3.4 million square feet. 2.9 million square feet of new deals and 500,000 square feet of renewal deals, 762,000 square feet of deals that are in lease negotiations, with the balance all entertaining proposals. The 300,000 square foot reduction in the pipeline from our last update is attributable to the leasing of Three Logan which removed both the tenants we signed leases with and several alternative tenancies we were entertaining. Leasing capital for the quarter was $3.05 per square foot per lease year. The metric was driven…

For the fourth quarter of 2011 our FFO available to common shares in units totaled $47.4 million. This compares to $48.3 million in the third quarter of 2011 excluding the $12 million historic tax credit income item and $47.9 million in the fourth quarter of 2010. Our FFO per diluted share totaled $0.32 and matched analyst consensus for the quarter. And our payout ratio at 46.9% reflects the $0.15 dividend we paid in October, 2011. It’s a very high quality FFO figure with fourth quarter termination revenue, other income, management fees, interest income, JV income, and bond buy back cost totaling just $4.7 million gross or $3.5 million net, all below our 2011 quarterly run rate. Furthermore, our FFO per share would have been $0.34 per diluted share without the unplanned $2.2 million debt extinguishment charge. A few observations on the components of our fourth quarter 2011 performance. Cash rent of $114 million was essentially flat versus $114.8 million in Q3 2011. Straight line rent of $5.4 million was similarly flat versus $5.5 million in Q3 2011. Recovery income at $20.5 million was up $1 million sequentially versus $19.5 million in the third quarter of 2011 while our recovery ratio of 35.1% reflected typical recovery conditions. Property operating expenses of $44.3 million were up $2.3 million sequentially due to seasonal factors including year end R&M, contract snow removal, and several other items offset by lower electric utilities. Real estate taxes of $14 million were essentially flat sequentially. Our interest expense in the fourth quarter of 2011 of $31.9 million decreased $400,000 versus the third quarter as we benefitted from loan payoffs and somewhat higher floating rate balances in the fourth quarter. G&A at $6.3 million was in line with expectations and prior quarters. In the fourth quarter we had net…

To conclude our prepared remarks, we’re very pleased we accomplished our key objectives in 2011. We know we have more work to do but in looking ahead to 2012 our best growth strategy remains simply to build on our 2011 momentum and continue leasing space. Our 2012 guidance, as you heard both George and Howard touch on, reflects our belief that fundamentals will continue to improve, our product quality will continue to provide a competitive advantage, and that the other key elements of our business plan, namely our balance sheet and investment management programs continue very much on track. With that, we’d like to open the floor to questions. We would ask, as we always do, that in the interest of time you limit yourself to one question and a follow up.

(Operator Instructions) Your first question comes from James Feldman – Bank of America Merrill Lynch. James Feldman – Bank of America Merrill Lynch: I was hoping you guys could give a little more color on the different potential vacancies or occupancies that you said would kind of be swings to guidance next year. You said there was some still cooking that you’re trying to figure out before you can decide if you should raise?

We continue to work the pipeline aggressively. We do have some known vacates so obviously we are adding those known move outs to our existing vacancy. But, the tenants we still don’t have a good enough read on we’re still trying to get those tenants to renew. They’re kind of depicted on our lease expiration chart in the supplemental as well. We do have 25 tenants that we know are vacating that comprise approximately 730,000 square feet and that’s really kind of why we’re expecting occupancy levels to remain relatively flat until the later part of the year when the pipeline conversion on new deals kicks in.

About 200,000 square feet of that is in our DC marketplace and the rest spread pretty much throughout our portfolio. James Feldman – Bank of America Merrill Lynch: What about in terms of upside? How would you handicap potential leases that may come through that you’re still working on?

As George touched on in some of the specifics he put forth on the leasing pipeline, I mean we continue to remain encouraged with the number of showings we’re having through the portfolio. The number of those showings in advance to a lease proposal and then the conversion rate we’ve had once we proposal to a tenant. Our conversion rate last year was approaching 40%. Certainly with market conditions firming in a number of our key submarkets, we would expect that number could potentially move up and put the portfolio in even a better position. I guess on the ground what our leasing teams are saying is real tenant interest, definable time lines for occupancy. Our portfolio is showing very well. We’re not happy we have some of these big blocks of vacancy so we rationalize it that the vacancy we have is good vacancy. It’s a higher quality product in the submarkets and I think levels of activity we’re seeing on that space supports that rational. We’re always hoping for the upside, we plan for pragmatic absorption. We had a good year in 2011 in terms of getting almost 300,000 square feet of positive absorption. I think we do think the conversation rates we experience and the stability of the pipeline will certainly put us in a position where we can meet the business plan forecast we put forth as part of this guidance.

Your next question comes from Jordan Sadler – Keybanc Capital Markets. Jordan Sadler – Keybanc Capital Markets: I wanted to just follow up on the previous question. I’m just looking back at last year’s business plan this time and at that time you had completed or executed 54% of your speculative revenue target for the year 2011 on this same call a year ago. Now, you’re 64% of the way there so you’re actually year-over-year 10% of where you were last year and if I recall correctly last year you continued to raise the speculative revenue number throughout the year. I’m just trying to get a sense of how much of this is really conservatism versus real concerns about what you’re seeing in the market?

I think we continue to access every suite and every existing tenancy each quarter when we go through the reforecasting process. That additional visibility gives us the opportunity to increase the spec revenue target and we moved it up $1.8 million from our last call to this call. We do have some additional new leasing that we’ve projected. We’ve raised the occupancy target for the end of 2012 as well. Again, it really comes down to just working the pipeline, increasing the conversion, and quite frankly getting to a point where some of these large tenant contractions and right sizings have all kind of played themselves out.

When you look at the pipeline there’s a number of larger tenants in there that if they would select a Brandywine property could have a positive impact on what we’ve witnessed going through the last reforecast with the leasing teams. But conversely there’s a lot of other activity there that has yet to be committed. We have 64% done, that means the balance is not done yet so in that there’s an implicit risk that tenants change their mind, corporate offices make decisions to relocate or consolidate. I think every quarter when we go through that detailed reforecast our leasing teams in counsel with the folks here at the corporate office make our best educated guess on what we think we can actually deliver not just by the end of the year but certainly during the interim quarter. That’s a big revenue impact for us as well. The forecast was just completed a week and a half ago and it reflects our best estimate of what we are confident we can deliver during 2012. Jordan Sadler – Keybanc Capital Markets: I may have missed it, but can you give me just the leasing pipeline numbers?

It was 3.4 million square feet in total, 2.9 million square feet of new deals, 500,000 square feet of renewal deals, and within that pipeline 762,000 square feet in active lease negotiation.

Your next question comes from Josh Attie – Citigroup. Josh Attie – Citigroup: Gerry, you mentioned that you wouldn’t issue equity through the ATM at these levels and I think you previously issued around 12 a while ago. How are you thinking about the ATM and new equity in general as a tool to delever the balance sheet?

When we look overall at debt it’s really an assessment of overall risk and in assessing that risk we really need to look at both event risk, that is interest rate exposure maturity profile along with absolute debt levels. As we’ve talked in our calls, I mean our paramount objective remains to delever and over the next couple of years certainly in my mind, exceed our 6.5 target and ultimately get the leverage even lower. With that objective in mind, it’s wonderful if you could wave a wand and issue equity at any price and we appreciate some folks advocate that approach. I think when we look at it, as our stock is trading well below NAV and that is as we assess it both near term and certainly long term certainly given the uptick we’ve seen in occupancy and leasing metrics. So until the stock price gets to those levels we want to be very mindful of being additive to NAV long term value and our growth rates as a predicate of issuing equity. What we did during the course of this past year as Howard and I touched on was essentially execute a more sequenced and pragmatic approach to delivering. First, we keenly focused resources on leasing space to drive EBITDA growth, better coverages, higher investment values, and great progress was made in ’11 and we certainly expect the same result in ’12. Secondly, our primary tackle on debt was to eliminate near term event risk and exposure to floating rates to really solidify the financial platform and both of those were accomplished during the year. Finally, asset sales we view as probably the best tool we can use to delever right now and our approach to that was to test asset sale pricing on as broad a…

Implicit in that question is the fact that investment values will significantly lag recovery in fundamentals. We actually anticipate that they’ll be married together as joint results. But look, certainly to the extent that the sale program turns out not to have the throughput that we expect tit will, we’ll certainly evaluate other options. One of the issues we talked about are cash balances, that’s certainly an offset to existing debt balances that again provide optionality for us. We spent a lot of time thinking through our financing plan, on accessing the bond market versus the commercial bank market and a key driver in that decision was the fact that we could create a pool of debit, the term loans, that are easier for us to prepay with much lower breakage cost as we generate additional liquidity.

Your next question comes from John Guinee – Stifel Nicolaus & Company, Inc. John Guinee – Stifel Nicolaus & Company, Inc.: I have one question, it just happens to be one for each of you. First Tom, can you give us an update on Com One and Two and [Viso] arrangement? Howard, can you update us on 2011 taxable earnings per share and how that affects your dividend going forward assuming you are able to lease up space. George, could you give us a summary of any red flags on page 37 in terms of when the lease expirations are for 20 largest tenants. Then most important, I’m reading a press release today about Gerry Sweeny wanting to buy the Philadelphia Enquirer. Is that accurate?

That is not accurate. That was potentially part of the investment group that’s looking at making a bid for the Philadelphia Media Company. But my role there is very passive and certainly nothing that takes any time on my part. With your four part question it sounds as though we should be moderating this like the Republican presidential debates in that we’re focused on time here. Let me turn it over to Tom to talk to you about our Commerce Square properties.

We have still been working on the capital plan there. The buy sell does not take place for another year or two no our option. It’s a couple years out. We have a financing that’s coming due in ’13, another financing in ’15, and there’s quite a bit of capital work we’re in the middle of now so there’s no change in that buy sell arrangement from our standpoint being a couple of years away on our option. We know of no change on Thomas’ side where they have a buy sell at this point and nothing has changed there.

On taxable income for 2011 we did publish the press release a few weeks back highlighting the taxable income component. It was well below the dividend that was paid. I don’t have the exact number in front of me, there was still substantial cushion and that means we can absorb quite a bit of leasing activity in incremental earnings and EBITDA as we move forward before we’d be pressured as you put it to raise the dividend.

In terms of the expirations they’re occurring pretty much ratably over the first three quarters of 2012. Of the 730,000 square feet we’ve already back filled with new tenancies so there’s a negative impact to the retention calculation but from an occupancy perspective we have successfully back filled about 100,000 square feet of that list. John Guinee – Stifel Nicolaus & Company, Inc.: On page 37 which is your 20 largest tenants, are any of those expiring in the next one or two years?

There’s almost no exposure to that list until you get down to Intel. They’ve got a January 2013 expiration down in our Austin portfolio.

Your next question comes from Richard Anderson – BMO Capital Markets. Richard Anderson – BMO Capital Markets: My ratio is a little bit better, I have two questions for four of you. The first is on your desire to negotiate longer term leases. I’m curious the strategy there, if rents are kind of still not certainly peaking and maybe nearer a bottom than a top, why wouldn’t you want to negotiate shorter term leases and then turn them over to higher rents presumably four years from now?

It’s a great question and amply both George and my comments, that is a submarket call. We’re talking generally where we are in terms of lengthening leases. All of our leases provide 1.5% to 3% annual rental rate growth as part of the lease. So the contracted rents will increase every year by 1.5% to 3% which is a pretty good benchmark generally speaking as a proxy for general market rental rate growth. The bias towards longer term leases Rich really comes in when the upfront capital cost to achieve that tenancy is a driving predicate. For example, if we’re in one of our markets where we really do believe that rental rates are still in a trough and I’ll just reference a southern New Jersey for example where rents are at a bottom. Starting to come back up but certainly haven’t recovered to the level they have in CBD Philadelphia, Radnor, Plymouth Meeting, etc. So in a Southern New Jersey, we’re very carefully evaluating, our leasing term there along with George Sowa and George Johnstone, carefully every single lease on whether we are better off on that lease doing a shorter term deal with very little capital or terming it out but building in higher back end rental rate growth to compensate us both for the upfront capital cost but then also to make sure we’re in a position to recover full investment value when that market ultimately does recover. Richard Anderson – BMO Capital Markets: The second question is you mentioned the guidance and that you’re kind of targeting the lower end of the range because of some of the steps you’ve taken to improve the balance sheet and the rest. I guess my question is further out what I’ve heard in the past from you guys was getting progress from a fundamental perspective where we were seeing some firming but for one reason or another we’re going to have an offsetting negative factor, and for reasonable reasons I might add. But, if you’re focus is to delever the company for the next couple of years do you think we’ll always kind of be in this situation where yeah things are getting better but we’re going to kind of be at the lower end of things until we get through this deleveraging process? Or, do you think it won’t be that dilutive on a go forward basis?

Take a look where we wound up in 2011, we actually wound up at the very high end of our guidance even with a lot of the things we did during the course of the year. 2012, as we sit here in early February, we have good but still some limited visibility on where the actual market will be in terms of our portfolio by year end. We’ve set good targets in there. We’ve raised our occupancy and our leasing targets and that is a positive factor. We did do a couple of things to stabilize the financial platform, primarily the fixing of the rates and the upfront contribution from Allstate that did have a downward impact. So if you go back to Howard’s projected $0.31 to $0.33 per quarter run rate ex the historic tax credit there’s a variability in that within the range that we have out there now. Our only advisory tone to the community right now is that given where we are right now, given that we had known issues of dilution related to the financing and the JV counter balanced with the uptick we’ve seen on the operational front, we are still comfortable within that range that we gave. Whether for the next few years as we embark on the deleveraging program that the extent of that dilution is really going to be a function of where fundamentals go, where investment values go. Certainly if cap rates come in at some of the marks we expect them to come in, trading out of those assets to create financial capacity to delever and to grow the company certainly is a very measured metric that will still provide some stability to our growth rate. That puts us kind of in the range we were if you average out 2011 and ’12.

Your next question comes from David B. Rodgers – RBC Capital Markets. David B. Rodgers – RBC Capital Markets: If you could give us a little more color on the contribution of the assets into the joint venture perhaps what your view of those yields were? Then as you look forward to pulling money out of that venture, how do you see yields or discount or replacement cost trading today for that venture’s threshold for investment relative to what you were able to sell into the venture itself?

Looking at the assets we put in the venture, we gave you a profile of what those assets are. Two of those assets are in Falls Church, occupancy kind of in the mid 80s. We think that’s sort of a growth aspect of the contribution of the portfolio. There is some good activity down there. Tri-Care is moving a large part of operations across the highway. We expect some contractors to come into that areas so we expect some growth out of the portfolio coming from the Falls Church side. When we look at the Wisconsin Avenue property, one of our older properties in the portfolio but well leased close to the metro station and basically full. We don’t expect a ton of growth there but we do expect a lot of stability. So when we put the package together we thought there was a growth component as well as a stability component and obviously we executed on a fairly good debt package to leverage those assets up. As we look at DC and growing the platform which is the next part we’re looking at, DC as you know has been considered – people are thinking about it a little soft in terms of rental rate growth the government being uncertain as to what their demand is going to be over the next couple of years. I think when you look at the underwritings of what people are projecting rent growth is going to be close to flat in a lot of the areas we’re going to be looking at. As you know, we’re targeting inside the beltway markets. But, we are looking for value add components so we’re going to be looking for some vacancy. We’re going to be looking for some below market leasing that we hope to harvest, or some repositioning capital that is necessary for some buildings. We would probably be looking at buildings that are not trophy or with A, they are probably core plus buildings. We are seeing some activity where those buildings are being priced below replacement cost, not by much, and we’ll be looking to take advantage of those to reach our IRR hurdles we’ve established. David B. Rodgers – RBC Capital Markets: Maybe for George, I guess to ask the lease question a different way with known move ins and known move outs, the 300 basis point spike you have in occupancy in your forecast for the fourth quarter, how much of that is known and how much is related to the speculative revenue you have yet to achieve this year?

About half of it was known and about half of it is still speculative based on the assessment of today’s pipeline.

Your next question comes from Michael Knott – Green Street Advisors. Michael Knott – Green Street Advisors: George, just curious if you can comment on how your tenants are thinking about their space needs today? Are they more aggressive than they were before or are they still kind of attracting and thinking about space efficiency a great deal?

Well, I think tenants are all kind of going through that right sizing analysis. Fortunately for us that’s led to a few expansions. Contractions were relatively small for the quarter, only 14,000 square feet of contractions in the fourth quarter. We do kind of expect that every time a lease comes up for renewal they’re going to go through that analysis converting from typical 12x12 offices to a more open floor plate and trying to gain efficiencies that way. But, I think we’re pleased with the fact that the contractions this quarter kind of have leveled off.

Also I guess what we’re hearing from a number of those fairly larger corporations, there clearly remains a very keen focus on efficiencies. Average occupancy cost per employee, what the space utilization is per employee, and some of the corporations we’re talking to at one end of the extreme are down to open floor plans designing 6x6 cubes getting down to 100 square feet per employee, others are still closer to 200 square feet per employee. It kind of depends on the industry. But look, certainly open architecture in the new office age is becoming more the norm than the exception so items like column spacing, floor to ceiling heights, window lines are all an increasing part of how tenants evaluate new locations. Michael Knott – Green Street Advisors: Then on the balance sheet obviously, you guys have done a lot of good work there lately extending debt maturities, etc. I think you’re at about a mid sevens debt to EBITDA right now on a GAAP basis and you say you want to get to 6.5 but you want to get lower than that longer term. If we look out three to four years are you talking about going from maybe a 6.5 to your intermediate target maybe six, or under six? How should we think about sort of your longer term leverage objective?

Look, as we’ve shared in the past our longer term objective is to get that number closer to six and to kind of stabilize it there and to run the company on that basis. We know there’s a lot of wood to chop to get there but that remains from the board level through to the management team a key objective as we look at our multiple year plan. We said that 6.5 is the intermediate term target and certainly when we get to that point we’re going to be in a great position of hoping being able to grow EBITDA. Certainly our investment strategy is going to be driven with that as a paramount objective and will remain an overriding concern as we evaluate all of our investment activities. Michael Knott – Green Street Advisors: If I could just ask real quickly, did I hear you guys right that the $80 million of sales for 2012 are not identified yet?

Well, they’re not specifically identified, they are layered in as part of $200 million worth of properties, actually a little bit north of that on the market for sale today. Some of those properties are in advanced discussions and would count towards that $80 million. I think when we were saying they’re not identified yet we haven’t announced any specific transactions yet that we credit to that $80 but we’re well ahead of the curve by having a number of things in the marketplace today that are being actively marketed and reviewed by potential buyers. Michael Knott – Green Street Advisors: Just a follow up on that quickly, if we look at page 25 which I think is a new page in your supplemental and thanks for that if that’s right. How much beyond that $200 that’s in the market today if you could waive a magic wand to sort of get the portfolio where you wanted it to be, how much more than the $200 would you need to sell? And, which places in terms of geographically on page 25 would those $100 plus come from?

Certainly, as we look at the portfolio we’ve announced that our plan is to exit the California marketplace. There’s about a million square feet there. We also have made progress over the last two years in particular relative to reducing the overall exposure of the company to the New Jersey and Delaware markets too. Right now it’s a little bit less than 12% and the game plan is to continue that program over the next couple of years. Then we look at the Pennsylvania suburbs, metro DC and Richmond Virginia there’s clearly properties in those asset pools that we have identified as being non-core that we think as those properties stabilize and as the investment market recovers that we would move those into the marketplace for sale. So I guess Michele, when you look at the portfolio almost everyone of those markets that we’ve identified has some element of assets that we would be targeting for disposition over the next several years. Just as reflective as Tom outlined on the Allstate joint venture, we clearly have an announced plan to increase our revenue contribution from Metro DC, but certainly as part of that there’s a number of assets we identified as potential sale or JV properties that are already in the existing portfolio. Michael Knott – Green Street Advisors: So it sounds like it could be maybe one times multiple at least of the current $200 that’s in the market over a long time period that you would want to exit?

At least in that range, correct.

Your next question comes from Mitchell Germain – JMP Securities. Mitchell Germain – JMP Securities: Can I just get an update on Three Logan? I know you recently announced some leasing and I know you have a lot of moving pieces there, but Gerry can you give us an idea where you stand right now?

As George touched on the good news bad news when we kind of reviewed our leasing pipeline was that the pipeline went down. The good news was that it went down because we no longer have large blocks of space available in Three Logan. With the Reed Smith announcement last quarter, that really consumed the remaining large block of space. So our leasing teams, with the [inaudible] transaction locked in and Reed Smith transaction locked in and a couple of other tenants who had renewed and expanded in fairly large blocks of space, we wound up in a position where we can now go back and really hone in on those tenants whose leases expire in 2012 and that’s exactly where we are right now. Our leasing team in Center City is back negotiating lease extensions, blends and extends, etc. with a number of tenants in the Three Logan building. The success rate we’re getting is very good so we’re pleased to report that Three Logan continues very much in pace. A lot of the rollover that we’re showing in the CBD Philadelphia are still those tenants in Three Logan that have no yet signed so our guess would be certainly by our first quarter call we would be in a position to hone those numbers down to a finer degree and present a very clear picture on exactly what the rollover picture looks like for Three Logan for 2012 and ’13.

Your next question comes from Young Ku – Wells Fargo Securities, LLC Young Ku – Wells Fargo Securities, LLC: Howard, I think you kept your interest expense guidance staying at $133 to $140 for the year. You guys did a lot of capital activity and you said you’re not assuming anything additional so why is there a big variance between the two ranges?

That’s a good question and then I’ll make two observations. First, the range stayed the same because while the buy backs we did in December were positive to the interest expense the extra rate fixing we did, we kind of used that up so roughly an offset. The variability in the range reflects the possibility that we’ll still do some liability management as the year rolls on. We are incurring incremental interest at this point while we’re holding cash balances so we could at some point seek to try to net that down but for the moment we’ve left that assumption open. Young Ku – Wells Fargo Securities, LLC: As of today are you trending towards the low end of the range, or the high, or at the midpoint?

Why don’t we leave it as a range for now without trying to be too specific at this point. Young Ku – Wells Fargo Securities, LLC: One just other question, if we look at your occupancy forecast for 2012 we see a big deep in Philly CBD in Q3. What is kind of driving that down and what are some of the moving pieces to change that up to this level?

We have got a 60,000 square foot tenancy at One Logan that we know they’re going to vacate their space and then as we talked about a few moments ago on Three Logan, some of the tenants that we inherited when we bought the building that have that July 31, 2012 lease expiration, some of those are also forecasted to roll out. Those are the tenants we are currently negotiating with to try and work out some type of a blend and extend whether on a short term or on a long term basis.

Your next question comes from Anthony Paolone – J.P. Morgan. Anthony Paolone – J.P. Morgan: I just have one. It looks like there were about seven million units that converted to shares from 3Q to 4Q and I was just wondering if you can give us any color on what is going on there?

Those were the Blackstone units in connection with the Three Logan transaction where after the one year period they had the right to convert their units to shares and they did so. Anthony Paolone – J.P. Morgan: Do you have any sense or can you speak to what their intentions might be there?

We really don’t. They were motivated initially to make an investment in the company and we don’t know otherwise at this point.

Their conversion was pursuant to the terms of the original deal where they had the ability to convert from units to shares. You may recall that they were initially set up as units simply because we wanted to create a structure whereby we didn’t pay dividends on that equity issuance for a year following closing. Once they started to receive the dividends they were completely indifferent to whether they held shares or units.

Your next question comes from Michael Knott – Green Street Advisors: Just going back to your crescent markets as you call them for the Pennsylvania suburbs I was just wondering if you would care to comment on Five Tower Bridge sale that we saw recently that closed. I think we had maybe talked about that before but it looked like it fetched over $300 a foot but I just wanted to give you guys a chance to comment on that deal as it pertains to some of your better crescent markets, Conshohocken and Radnor potentially?

That transaction did announce. It was Five Tower Bridge. You may recall that was originally a partnership project for Brandywine that sold a number of years ago to an institutional owner. That institutional owner decided to sell it again. It did trade for $315 a square foot, slightly north of a 7% cap rate. Very good quality product, great location within the Conshohocken submarket. Certainly quality and locationally something that is very much akin to our properties both that we own directly in Conshohocken to certainly our Plymouth Meeting portfolio and then more to the point to our Radnor portfolio. We thought it was very good comp frankly, for the suburban office markets here in PA in terms of trading ranges. Now look, that is as you mentioned, clearly one of the higher end submarkets and a very high end property within that submarket so it would fetch a very good value and in our mind it does have a parallel to our exposure in the crescent market so we were pleased to see that property trade at that pricing level. Michael Knott – Green Street Advisors: Obviously, the prices per square foot are much different but why do you think the cap on that deal, it sounds like it was pretty tight with the properties that you recently sold at a 7.4 which were towards the lower end of your quality spectrum if I understand it correctly?

The properties we did sell were at the lower end of our quality spectrum but also rents were very low. They were in New Jersey and therefore the price per square foot was very low as well. This traded – I can’t really speak to the specific rent profile, it just escapes me right now but it was fairly stable. Rents were at or above existing market levels and I think that probably had a little bit of an impact on driving the cap rate lower in that there really wasn’t a lot of immediate upside in terms of rolling rents in the market.

At this time there are no further questions. Gentlemen do you have any closing remarks?

Only to thank everyone for participating and we look forward to providing a further update on our business plan on our first quarter call. Thank you very much.

This does conclude today’s conference call. You may now disconnect.