Good day, ladies and gentlemen and welcome to the Brandywine Realty Trust Fourth Quarter 2017 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today’s conference, Jerry Sweeney, President and CEO. You may begin.

Glenda, thank you and good morning, everyone and thank you all for participating in our fourth quarter 2017 earnings call. On today’s call, with me today are George Johnstone, our Executive Vice President of Operations; Tom Wirth, our Executive Vice President and Chief Financial Officer and Dan Palazzo, Vice President and Chief Accounting Officer. Prior to beginning, certain information discussed during our call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will 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. We’ll start with a review of our 2017 results and then move into our 2018 business plan and I’m really just going to touch on ’17 results, as our disclosures lay out a clear roadmap that demonstrate our very solid ending to 2017. From an operational standpoint, we exceeded the vast majority of our goals, namely tenant retention, cash mark-to-market leasing capital cost, average lease -- and our average lease term. In addition, we met our cash and GAAP same-store targets, the lower end on GAAP and the higher end on cash. We did come up 70 basis points short on our same-store leasing target for the year, primarily driven by the timing of leased executions by definitive prospects that have been or will be signed in Q1, 2018. We also continued on our path to grow net effective rents with 2017 having a 7% increase over a net effective rent average of 2016. On the investment front, you may recall our original disposition target was $100 million at…

Thank you, Jerry and good morning. We continue to be pleased with the pace of activity in all of our markets. As Jerry detailed in his commentary, market activity and our team's ability to source, negotiate and close deals allowed us to beat a number of our 2017 goals. These same characteristics have us off to a great start to 2018 with 75% of the plan achieved. The pipeline, excluding development properties, stands at 1.6 million square feet with over 300,000 square feet in advanced stages of negotiation. During the quarter, we generated 92 space inspections, totaling 547,000 square feet, outpacing the third quarter in both measures. In terms of our core markets and the underlying assumptions contained in our 2018 leasing plan, in CBD Philadelphia, during the fourth quarter, we renewed and expanded Comcast at Three Logan Square. Our CBD portfolio rollover exposure is now below 9% each year through 2021. As discussed on our last call, a 100,000 square foot tenant vacated 5 contiguous floors at Three Logan on January 1. Since our last call, we've executed leases on two of these floors and are under LOIs for two additional floors. The floor deals were done at an average cash mark-to-market of 10%. At Cira Center, two full contiguous floors totaling 55,000 square feet roll on June 30. Our 2018 plan still assumes these floors remain vacant for the duration of the year. We've had several tours to date and have one proposal outstanding for half of the space. Turning to the Pennsylvania suburbs, our fourth quarter activity in Radnor has increased our leasing percentage to 92.5%. The large suites vacated in 2017 continue to see good levels of activity and tours that picked up in the last two weeks. We have assumed 90,000 square feet of currently…

Thank you, George. Our fourth quarter net income totaled 73.1 million or $0.41 per diluted share and FFO totaled 53.7 million or $0.30 per diluted share. Some observations regarding the fourth quarter results, same-store rates for the fourth quarter were negative 2.3% GAAP, positive 3.3% cash, both excluding net termination other income items. We've had 20 positive quarters of cash metric, while we have negative quarterly same store growth, we achieved positive for the full year 2017. We incurred 6 million or $0.03 per share of one-time related costs, early debt extinguishment of debt, comprised of 3.9 million from the early redemption of our 2018 bonds, 800,000 of net interest expense due to having the bonds outstanding for the make-whole period and 1.3 million on our share of costs related to the prepayment bit the of mortgage is related to Austin joint venture. Due to timing, the issuance of shares through our continuous equity program generated an incremental 510 weighted average shares during the quarter. Our fourth quarter fixed charge and interest coverage ratios were 3.2 and 3.4 respectively and common shares issued in the fourth quarter sales activity reduced our net debt to ea to 6.3. Looking at first quarter of ’18, the following are just some of our general assumptions. Property NOI will be approximately 75.5, a sequential 1.5 million increase from the fourth quarter of 2017. FMC, office and residential operations will generate an incremental $2 million of GAAP NOI. One Drexel, 3000 Market in Four Tower Bridge was generating an incremental 500,000. Partially offsetting this increases is 500,000 of NOI from the fourth quarter based on asset sales and then another $500,000 will be negatively impacting our NOI for the first quarter related to demolition costs for one of our redevelopment projects. FFO contribution from our…

Tom, thank you. Thank you too, George. So to wrap up, ’17 results strong, 2018 is off to a very solid start. We remain very focused on growing earnings, growing cash flow, managing our forward leasing rollover risk which as George touched on, we have down into the single digits, maintaining and ever improving our balance sheet and creating a steady pipeline and evaluate opportunities. So with that, we’d be delighted to open up the floor for questions.

[Operator Instructions] And our first question comes from the line of John Guinee from Stifel.

Two quick questions. First, very nice call. Amazon HQ2, I really always hate to ask this, but what are the primary locations for both Philadelphia and Austin? And then second, 4040 Wilson, how much, Jerry or whoever, is the development per square foot for the office and retail and the development per unit cost for the residential.

John, I’ll take the -- I mean, look, first of all, on Amazon, it’s obviously a big topic nationally and I think from our perspective, first of all, congratulations to the cities that made the shortlist. We're really delighted that Philadelphia was on that list and followed up with Austin and DC being on that list as well. Our role in that really honestly John is to stand at the ready to assist the city in any way we can to facilitate their bid. We're very enthusiastic about that, who knows where that process goes. I think as I mentioned on the last call, it's fascinating from a real estate standpoint to see what a disruptive influence the process Amazon has used for site selection and had on our business and I think it's going to generate a lot of positive long-term value for our industry. Look, in terms of the – there is a whole range of sites, most of which are online and people can check out in terms of the shortlisted cities. Schuylkill yards is one of the developments that was submitted as part of the Philadelphia bid, so we’re -- again stand at the ready to help this city. Anyway we tend to facilitate that process as well as in Austin and DC as well. So, this is really a process being led by Amazon at the forefront or the political and specific leadership of the respective cities and our role is to support them however we can to have each of the cities put forth the best that they possibly can.

4040 Wilson development cost?

Yeah. I think on the overall development cost, we’re looking at $560 a square foot. I don’t have the breakdown in front of me, John, so we can follow up with the breakdown between the retail and the office and the residential, so I apologize for that. So we can certainly follow up with that. As we started to look at moving forward with that project, certainly saw an opportunity to secure, from a pre-lease standpoint, we had a 2020 delivery, that some market we think is -- and the location we’re in we think is a great location and will get better. And we think we're building into a stronger market with the delivery of the Boston mall, but far city is doing. There will be another 400,000 square feet of retail, new restaurants, et cetera. So we think that some market in the location of the project that we started will continue to be better and we actually did see an opportunity to introduce a bit of a mixed use tower to that market, so it’s a differentiated product with a bit of a differentiated amenity package. And we think that that will want to make a real point of difference for us as we stop the balance of the office space over the next couple of years and fill in the balance of the retail and the apartment leasing.

And then lastly real quick, will you be in Minneapolis next weekend?

[indiscernible] So we’re trying to evaluate all the different options. We will be t here where we will be having a big family party, probably the latter, because I think I enjoyed the last year with my brothers and sons and daughters and so it’s an exciting time.

And our next question comes from the line of Rich Anderson from Mizuho Securities.

So just a big picture question for you Jerry, I guess this is a recurring theme from Brandywine in terms of dispositions bringing down their earnings growth profile. As we wrote in our note last night, we understand them to be very good real estate decisions, value creation and all the rest. But I'm curious where you're at on that process because we sense I guess a sense of frustration from investors that are waiting on growth going up as opposed to down and maybe the disposition process is nearing an end, so that we won't have these things to explain in future periods. I mean just wondering how you balance the idea of good real estate decisions with the fact that you're a publicly traded REIT that where growth at the same -- growth at the quarterly basis matters to people?

Rich, fabulous. And look, it is a struggle and we talk to a number of investors that are, I don’t say, equally split, but there is clearly a recognition that there is sometimes the distinction between earnings momentum and value creating or value harvesting. So I guess as we look at it, we've sold an awful lot of properties, almost $2.5 billion over the last five years. We do believe we have about $400 million of non-core properties left. I think more thematically, as we look at the events in the last call the quarter or so, including the sale of evo, we look at that even with this sale of evo, which I’ll talk about in a second, we're still generating what we think is a top quarter pile FFO growth in the office sector. Again, our primary focus is on cash flow growth, so we're able to really generate low double digit cash flow growth. And we also think that kind of in these uncertain times, it does make sense to make sure that we're really bulletproofed on the right side of the balance sheet. And so certainly having increased financial capacity is very much at the top of our thoughts. With that general theme, we do take a look at the office, the office markets continue to be in a state of disruption across the board, whether the impact of technology, product coming online and we do recognize that the markets and submarkets are ever changing and we really need to be mindful of where we think each of those markets will be in the next five to ten years and frankly where our product will be positioned in those markets. So we always want to maintain earnings momentum and we do acknowledge that this asset churning…

And our next question comes from the line of Michael Lewis from SunTrust.

I actually was going to ask that same exact question that Rich just asked, you gave a good answer to it, but maybe I could take it one step further, which is another thing about Brandywine is it's common for you to have assets for sale, but you're very particular about getting your price and you're not afraid to take it off the market. I was wondering if you could share how much you have on the market now and then it sounds like from your comments, if you've got 400 million of non-core, do you think it's not out of line for us to be kind of assuming that you sell roughly 400 million over the next couple of years, kind of opportunistically.

I think that's a good assumption as you look out over the next couple of years and I think we’ve really done a great job of getting the portfolio back to where we wanted to be. These non-core assets were still working through some of the value creation that we think we can harvest from them, which is why we developed our plan we didn’t really lay out a target number. But right now, we really do not have a lot of the market. We always respond to reverse inquiries, which we’re seeing somewhere -- which we always get in from all three of the markets that we're in. But I do think, as we look going forward, we are going to be very focused on continuing to monetize our land holdings, which we've had great success over the last couple of years. That we are going to continue, as we’ve laid out in our full year business plan, try and reduce our exposure to some of these joint ventures and we're able to do a couple of good transactions, the latter part of ’17 with a partial sale of DRA, the swappings of the property interest with our Conshohocken venture to accept that as well as on the Allstate side, sell out of the property. It’s really a manageable thing, a strong investment market there. So I do think that, as we said on previous calls, we think a lot of the heavylifting is behind us in terms of portfolio repositioning, but I do think it’s incumbent upon us, all should be very mindful of where we think these markets are going and so always staying in close touch with capital sources in the investment market to make sure that we are in a position to respond as we see opportunities come up.

And then you mentioned the tough decision to issue the shares. I was just wondering if you think you may have more appetite to do that if the stock trades above 18 bucks, which seems to be about the consensus NAV of if maybe now that you're -- you have this clear path to the target leverage, if maybe you would have less appetite to do more equity unless the stock price of course got much higher.

Yeah. I think the primary though process that we had on this ATM issuance was to really make sure we were in great shape from meeting our balance sheet targets. I think as we look at going forward, we would be looking at any equity issuance tied to an investment opportunity that would create value for our company. So if you kind of look at it from a strategic standpoint, we view this $50 million of equity issuance that really was the last piece of the puzzle in kind of achieving that we -- in achieving our balance sheet goals. I think going forward, we’re going to be very focused on where that currency can create value for our shareholders on a going forward basis.

Thanks. And if I can ask just one more, I'm going to put the cart way before the horse here and ask when Amazon picks a market, well first, I don't know, I guess they probably pick a location within a market. Do you have any sense on how you kind of negotiate the terms of a rent and terms like that? Do you think that there's any expectation that Amazon or the government would expect you to make concessions, if for example, they pick Schuylkill Yards. I'm just curious how the process would work once we get past this initial part.

Michael, it's a good question and I don't have any real visibility. I mean honestly, our role has been in a support one to the public policy makers, both the city and the state level where we are to kind of help them develop kind of the real estate fundamentals to present the best platform for them to in turn present that Amazon. Amazon is an incredibly smart, incredibly talented company that knows what their business objectives are. So my expectation would be whatever selection they choose or selections they go for another shortlist, in fact they take, it will be an intense negotiation across the board, but our role really is one of total support and how any site, not just the Brandywine site, but any of the sites that are under consideration, have they all stayed in, I think it is a big TBD in the minds of all of the real estate arms.

And our next question comes from the line of Rob Simone from Evercore ISI.

Just a quick housekeeping question for us. Now that you guys have dealt with at least part of the Comcast lease and you talked about the move outs at the end of June. Sounds like you’re early on dealing with those. Are there any other tenants in the portfolio that you could speak to that might give you pause as potential move outs over the next call at 12 to 18 months?

Sure. It is George addressing the question. We only have four leases in the balance of 2018 over 20,000 square feet. I mentioned in my prepared remarks the 55,000 square feet at Cira. We've got a 48,000 square foot tenant down in Dulles Corner that we know is going to move out in the third quarter. The other two tenants there over 20,000 square feet are both projected to renew and we're in negotiations with them right now. And then as we look into 2019, our largest exposure is with Comcast at Two Logan and we continue to kind of just wait and evaluate what their ongoing needs are going to be. I think they continue to grow and need space and are in the building now, so we're kind of just playing that one by ear and that's a 1/1/19 event date. And then three others all kind of over 50,000 square feet, we’re in active negotiations with already and think that we’ll end up retaining or hope to retain each of those. So again, ’18, ’19 and even 2020 expirations are all kind of on the table with our leasing teams every day to try and further mitigate our rollover exposure.

And our next question comes from the line of Craig Mailman from KeyBanc Capital Markets.

George, maybe if you could, I know you guys have another piece left with Comcast. Just any update there potentially on what they're planning to do and just remind me, was any of the Comcast expansion related to the activity you're seeing for the Verizon backfills?

Yeah. So on the Three Logan piece, the expansion occurred outside of the Verizon floors. We did take one tenant who was in a Comcast expansion floor and moved them down to the Verizon, but the rest of that leasing activity in the Verizon space has come from other parts of the city. The Two Logan piece, again as I said, I think it's a little bit of a wait and see. They expanded by 65,000 square feet in Three Logan. So they need to kind of staff that up and then we'll kind of see what the next bite at the apple was.

What's left on Verizon now?

Just one floor, so 20,000 square feet.

And then Jerry, on evo, it was unclear from the press release, did Harrison Street show there interest as well?

Craig, 100% of the interest in the property was conveyed. So Harrison and Brandywine sold as well.

And then just lastly, we've hit on dispositions here a bit, but and I don’t know we talked about last quarter, but just a decision not to include any incremental at this point and it’s kind of the fatigue with you guys. Given guidance and a quarter or later, lowering guidance again, just -- the decision not to look at what you have in the market, what you really think you're going to sell this year and put that into guidance and if you have to, at the end of the year, raise guidance because you didn't hit the disposition target, kind of the decision to not go that way rather than kind of we’re seeing.

It’s a good point you raised. I think from our perspective, we're coming up really heavily weighted disposition goal in 2017. And frankly some of that was, I don’t say it was a surprise to us, it was a good progress in the market, but as was mentioned, we do lay out pretty solid price targets that we try and achieve and as we're coming out of ’17, I think our perspective was that the primary focus we have in a company is as I mentioned to keep growing our earnings, growing cash flow and we felt like a lot of the immediate market sub positioning we're targeting we had achieved. Eva was a process that we had a very solid bar that both Harrison Street and Brandywine set for and access. We frankly weren’t quite sure we would get to that level. We wound up having a very well orchestrated process that had a lot of different point of communications and we were able to identify a buyer who has the quality of being able to deliver efficiently on a transaction that size and had a really good long-term perspective which fit in well with what we’re trying to do here in cities. So we weren't really sure that transaction would come across the table we did our last earnings call.

And our next question comes from the line of Manny Korchman from Citi.

Tom, jumping back to the ATM rates for a second. So I get that you want to build up some dry powder. In your mind, is there a use for that dry powder that you're just hesitant to put into the 2018 plan, development starts to move, acquisitions didn’t move, do you have the money earmarked and you’re just not disclosing for what are you just trying to make sure that you have dry powder going into, let's call it, the end of ’18 or even into ’19 with that leverage target that you’ve set out in the past as sort of the bogey you're going for?

I think as Jerry mentioned, we did want to get to the bottom end of that range and hit the six. So – and I think that was a driving predicate, but we do have several, as we say, we have one development start we'd like to do and we will be taking on some debt – attribution leverage with 4040 Wilson. So those were two items and then we have a couple of other opportunities for development also. So I think it was -- we had some dry powder, we’ll have cash at the end of the year as I mentioned of close to $90 million. So I don't think it was a liquidity decision. I think it was more towards leverage as well as having some dry powder to make sure we hit the six. So –

And George, just thinking about Schuylkill Yards as a bigger project, how much of the demand or at least discussions you're having right now are coming from tenants that are already at FMC, especially in the context of rent abatements, is that project running off and being provided at the Schuylkill project?

Well, I think anybody looking at Schuylkill Yards a couple of years down the path, so we haven't really had any discussions with our existing tenant base for Schuylkill Yards, but we continue to get a number of inquiries from inside the city, outside the city, outside the region about that project and all of the elements that it brings to the table.

And our next question comes from the line of Jamie Feldman from Bank of America Merrill Lynch.

I was hoping you guys can just talk through your thoughts on future development projects like if we look at the land inventory on page 16, if you could handicap what next starts might be or maybe just talk to kind of the level of interest in build to suites for some of those projects?

Sure. Jamie, I’d be happy too. We continue to finalize the approval processes for our 405 Colorado project in downtown Austin. That market is doing incredibly well, Rents have continue to migrate north on both the notional and effective basis. So that is 200,000 square foot building with parking underneath it. So it’s not a large building in terms of square footage. So I mean, while we're finalizing the approvals, we're spending a lot of time pre-marketing that project and we certainly view that as something we want to start as soon as we sign up the tenant. We were also down in Austin in a process of ramping up our approvals on Broadmoor, which as you know is a multi staged build out. So we’re starting to play any process down a couple of individual buildings there that we think will be well received, but that's probably -- in terms of delivery a ’19 event. And then here in Philadelphia, I think the focus is primarily on our Metroplex project which had employment meeting, which is -- depending upon the configuration between two and 340,000 so we’re in active discussions with a number of prospects on that. We're designing an incredibly high quality building that is something unlike anything that Philadelphia suburbs has seen before. So it’s a site core configuration, very efficient for [indiscernible]. So the price point we’re trying to achieve there is the upper end of the market, but we're getting good traction on that because of I think some companies recognizing the value of that location and also the quality of the work environment that they can create there. And then on Schuylkill Yards, we continue to work with our partners, Gotham on the residential side and Longfellow on the life science side along with our Brandywine team to really think through the various components of our Phase 1 development, which we still currently contemplate will be in office on life science building, but we’re also evaluating expansion of a retail phase there as well as the incorporation of potentially some residential. And then down in DC, we were able to get the 4040 Wilson transaction moving forward and we're just in the premarketing mode for the balance of our office inventory down there.

And then I guess just your views on co-working and how you think it’s going to have a -- make a difference going forward in your markets and how you guys are reacting for the trend?

Yeah. Look, I think it’s a very viable delivery platform that addresses the needs of a number of tenants. I think it’s – we’ll be interested to see how co-working evolves from kind of the small smart entrepreneurial model to really serving as temporary office space for large corporate users. We track that -- we have some of the co-working spaces in our existing inventory. We spend a lot of time with those folks making through how we can facilitate their growth, while at the same time accommodating expansion requirements even if they're temporary by some of our more traditionally based tenants. So I think we maintain a very good relationship with the number at the co-working companies. Certainly, the platforms we have in all three of our key markets I think are attractive to them in terms of the location, the quality sponsorship, part of our inventory. And I think the next step for us is really thinking through how we can piggyback some of their ideas to meet a temporary niche that we see in some of your corporate level tax. And I think we would expect the nextgen progress on that during 2018.

Do you see meaningful growth through those types of tenants over the next year or so in your markets and in your portfolio?

I think we’ll see continued expansion, Jamie, [indiscernible] meaningful growth, but I think there is about half a million square feet of that in the overall Philadelphia market. It all seems to be doing pretty well. But there is a lot of variability between the location of those co-working spaces, one doing incredibly rocky with its allocation and other one not doing so well. So, a lot of the location attributes, amenity attributes that we typically see with our standard corporate traditional tenant are also requirements of some of these smaller startup companies as well. So I think there will be continued expansion. I don’t know if there is going to be substantial growth over the next 12 months.

Thank you. And that concludes our question-and-answer session today. I would like to turn the call back over to Jerry Sweeney for closing remarks.

Great. Well, thank you all for participating in our fourth quarter call. We look forward to updating you on our activities on our first quarter call later in the Spring. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.