Good day, ladies and gentlemen and welcome to the Brandywine Realty Trust Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Mr. Jerry Sweeney, President and CEO. Sir, your may begin.

Shelby, thank you very much. Good morning everyone and thank you all for participating in our third quarter 2018 earnings call. On today's call - today with me are George Johnstone, our Executive Vice President of Operations; Dan Palazzo, our Vice President and Chief Accounting Officer; and Tom Wirth, our Executive Vice President and Chief Financial Officer. Prior to beginning, 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 filed with the SEC. So we had a very productive, fairly now going into the fourth quarter, and as part of our third quarter earnings release and 2019 earnings guidance, we also announced two significant transactions that changed our company's growth trajectory. By way of background, over the last several years we've been on a track to improve our growth profile, control capital cost, create value driving long-term mixed-use development opportunities, and effectively manage our balance sheet. Now the consequence, we substantially limited revenue contributions from slow growth markets like New Jersey, Richmond, the fringes of the Pennsylvania Suburbs and all Toll Road properties in Northern Virginia. In the process we reduced our same-store properties, improved our capital ratios, grown cash flow and strengthened targets submarket positioning. That process has resulted in about a 24% increase in our same-store net effective rents over the last several years. We were also as part of our 2019 business plan anticipated about a 5% growth in net effective rents over 2018 levels. So…

Thank you, Jerry, and good morning. It was a busy third quarter and the 2018 business plan is virtually complete. More importantly our continued leasing momentum as 2019 business plan off to a great start. During the third quarter we generated a 114 space inspections, up 14% from last quarter. The amount of square footage inspected totaled 942,000 square feet, up 22% over last quarter. The Pennsylvania suburbs were the leader from a number of tours perspective while Philadelphia CBD saw the biggest gain in terms of square footage. The pipeline excluding development and redevelopment properties remains at 1.8 million square feet. Approximately 450,000 square feet of this pipeline is in advanced stages of lease negotiations. The fourth quarter of 2018 activity still left to achieve is minimal based on the contribution of our eight Toll Road properties into the Rockpoint joint venture, we did adjust four of our 2018 business plan metrics. Spec revenue decreased $1 million to $25.3 million. Tenant retention increased from 67% to 72%, GAAP same store NOI growth declined 75 basis points at the mid-point, and GAAP mark-to-market increased from a previous range of 8% to 10% to a range of 13% to 14%. All other metrics were performed as previously guided. Turning to our markets in the underlying assumptions contained in our 2019 business plan, for CBD Philadelphia, we're now 98% leased, having leased the last four floor at 1900 Market Street during the quarter. We have also executed an 85,000 square foot lease to backfill four of the Comcast five floors, which will be vacated December31, 2018 at Two Logan Square. This backfill lease will take occupancy in 2020. The next largest rollover in the city for 2019 is a 27,000 square foot tenancy, where the renewal now is due on or before…

Thank you, George. Our third quarter net loss totaled $43 million or $0.24 per diluted share and FFO was $63 million or $0.35 per diluted share. Some general observations regarding our third quarter results. Our third quarter net loss was generated by an impairment and was a result of an announced joint venture in Northern Virginia which generated an impairment charge of close to $57 million or $0.32 per diluted share. The impairment includes unamortized straight-line cost of over $16 million and estimated closing cost about $5 million. Our quarterly operating results meet our expectations and an incremental improvement is expected in the fourth quarter. As George outlined, we've adjusted our 2018 business metrics and anticipated sales in Northern Jersey portfolio into a joint venture and current operating trends. Our balance sheet continues to improve with a fixed charges and interest rate coverage ratios being 3 - being 5 and 3.8 respectively, a non-percent improvement on both metrics as compared to our third quarter of 2017. Our net debt to EBITDA remain constant at 6.2 depending on the timing of the announced transactions, we anticipate our loan realized ratio to be lower at year end. Property level income totaled $78.5 million which was inline with our projections. Looking to the fourth quarter with a following assumptions, property level operating income totaled about $79.5 million and will be flat compared to the third quarter - this increase annually up a little bit from the third quarter by million dollars, the increase is primarily due to improved occupancy and we expect to occur in our core portfolio. As George mentioned, we are 96% done on spec revenue, the remaining is roughly $1 million, so less than a $0.01 of FFO per share, so minimal impact on guidance. Subaru, we were recognized about…

Great. Tom and George, thanks very much. So to wrap up third quarter business plan - 2018 business plans essential completed, and the 2019 plan that we outlined we think represents a good earnings, continued cash flow growth, good balance sheet and really a steady pipeline of development or redevelopment opportunities that we hope to actually done during the course of the year. So with that, we would be delighted to open up the floor for questions. We would ask that in the interest of time, you limit yourself to one question and a follow-up. So, Shelby we can open up the line to questions now.

[Operator Instructions] Our first question comes from Jamie Feldman with Bank of America/Merrill Lynch. Your line is now open.

I was wondering if you guys could talk more about Downtown Philadelphia. We know you got Macquarie move-out coming, you've got the Standard Reliance move-out coming, just how do you guys think about the prospect to backfill those spaces and just - I know there's a differentiation between a trophy market where you guys are on a lot of your assets and the rest of the market. So just kind of big picture of how you think that market looks over the next couple of years in your prospects?

Jamie, this is George, I'll take first dive at it. I mean, look, Macquarie and Reliance are both examples of tenants who have opted to move into new space. Macquarie is 150,000 square feet net. We did go direct with one of their subtenants in 70,000 square feet beyond Macquarie's expiration. The other top eight floors are Commerce Square, I mean, you can't ask for better space and better views there. They're about 30% of our 2020 rollover in the city, about 12% of the Company. But they are expiring at a rental rate that is kind of below markets. We do see an opportunity to move rents and I think, you look to likely backfill that space will ultimately be someone who makes a similar move. Reliance is almost a year later they expire with exercising their early termination that is 12/31/2020. They are five floors in the middle bank of Two Commerce Square, markets are probably plus or minus 10% below market today. So we see a good opportunity and I think quite honestly that then gives us a nice mix of inventory when we kind of get into late 2020 early 2021 of kind of middle bank trophy space. Top of the structure space and then most likely some new development all at varying price points.

And Jamie, Jerry, just to add on to that - thanks for that George. Everyone know who is tenant period if you can keep them with that being said we have here is a combination of time and great inventory. So our leasing teams are already well on top of identifying backfills for that as George touched on Macquarie space, we’ve already put away a big piece of that with the tenancy the - the permanent tenancy of the sublet. But I think we’ve already seen really good upticks in activity. And frankly we have not had larger blocks of space on West market for a number of years that have been out of play on a couple of tenants moving along that part. So these two spaces gives us that opportunity with a positive mark-to-market. And in addition gives us that price point differentiation that we really do like. We have the low ends of 1900 product now Commerce Square, convenient being in the game with the difference price points with all of our marketing activity at Schuylkill Yards and University City.

And then after the Northern Virginia Austin trade, I mean how do you think about your portfolio positioning today any markets do you think you'd still like to be smaller or greater in going forward?

I think this was big move and I think we’re really looking forward to kind of generating the returns that we think we’ll get out of Austin. Yes, look we kept a good footprint in Dallas Toll Road but we think that market has some good long-term upside. We have indicated that overtime suburban Maryland and a couple of pockets out in the Pennsylvania suburbs will probably be a feeder properties for generating some additional capital to fund our development pipeline. But I think fundamentally we look back over the last couple years the company is operating platform is in really good shape. And we’re always going to have rollovers that impact one metric or the other. And certainly we have gone through the roll up with the numbers we are hoping for higher same-store number but yet we have these rollovers within the same-store. But we take a look at that same-store metric just opposed with the positive cash mark-to-market between two and four. The good GAAP mark-to-market in the high single digit up to 10% and keeping our capital cost within that band of 10% to 15%, we think that’s a great prescription for generating growth going forward. But I think you’ll see us always Jamie kind of fine tune the portfolio particularly to make sure that we always mindful of making the right real estate decision. And also being very mindful of the capital constraints that are there with us every day and with public market pricing.

But your guidance show 2% AFFO growth, if you look ahead forward years beyond that I mean do you think that number can rise with some of these big move-outs or you kind of stuck in this AFFO growth?

We would expect that to rise and I think when we took look at the numbers for this year, we were coming off kind of an extraordinarily strong year in 2018. We’re actually - it’s going to be north to your 11% and just and take a look at where we think some of capital deployment opportunities over the next 12 months. We thought that it was a little over weighted based upon our historical run rate. So we certainly do believe that we’re going to be able to with this portfolio get that portfolio back to the target range on our 2018 and 2021 business plan.

Yes Jamie I think as we look at the long-term growth rate for CAD which is in above our FFO we still think that trend long-term over our business cycle will be higher, continue to go up.

Do you think in 2020?

I mean 2020 it will be probably a little positive I don’t think it will be very positive but I think as we look at 2021 as we get some of the leasing done, we will be within the 5% to 7% range we’ve outlined.

Our next question will be from Manny Korchman with Citi. Your line is now open.

Jerry just as you thought about the Dallas transaction retaining 15% of it and collecting the fees and potential promotes versus weighing that versus selling it all cleaning up the structure, getting out of that markets completely, why did you choose to retain the 13%?

Yes, I think it’s a great question and here is how we thought about it. I mean fundamentally I think this was a capital allocation decision. We do like the Toll Road market long-term. We think there's some good things going on there. We also think we have an absolutely fabulous local team who is really very adapted identifying value points for us. But we really did feel like kind of bottom line moving from a lower growth market where we have a smaller platform to a higher growth market where we’re market leader made a lot of sense. And fundamentally we thought it makes the company more valuable. I mean I think being on path to increase our revenue contribution from Austin to 25% of revenues, and then in this quarter supplemental we also broke out our revenue differentiation between CBD, Philadelphia and University City. We have about 20% of our revenues coming from University City. We think that 25% coming from Austin with all the great attributes that market has 20% coming from University City which is one of the top performing urban submarkets in the country with tremendous catalyst for life science, academic and residential expansion. We thought creates a great value platform for the company. And as we looked at - trying to figure out how to bridge the long-term potential we see in the Toll Road with kind of the near-term capital allocation decision process we go through and bridging ourselves when that market recovers, I think we felt that the 15% promote provided a good upside if the market improves as we hope it will. And doing that market transition provided a well capitalized smart partner to help us work through both the capital sharing arrangement and also potentially providing a more effective return on invested capital mechanism to grow a platform in that market. It does give us the ability to really focus our wholly-owned activities in Tysons where we do think we have a great opportunity between 1676 and 1900. We know the near-term disruptor is the same-store where we think we can get a great return on incremental invested capital on both of those buildings and create some strong rental rate growth. And we also kind of kept a proxy out in Herndon market with our 2340 property which right now is fully leased but that’s a 250,000 square foot building that in fact tenant will decided to vacate, we will have a development opportunity out there as well. So if the 15% is a proxy for us to maintain some growth and better return on invested capital metric coming out of that marketplace as we still do believe it has good long-term LIBOR for all the tenancies and the continued movement of the Silver Line out to the airport.

And then in Austin can you just frame for us how that deal came together, was it something that they approached you on, did they want to sell their stakes to somebody else. Or is it something that you wanted to increase your exposure and you approach them?

Well the DRA venture was formed a number of years ago. It gave us a tremendous opportunity to acquire almost $800 million of assets we wouldn’t be able to acquire before. We did sell Manny the first tranche you may recall a bit ago, and we viewed the assets remaining in the venture as higher growth really well position assets we would like to have stayed involved in. So with the partnership approaching high as five year life cycle, I think both DRA and Brandywine thoughtfully evaluated how we can optimize market pricing for all the assets. So there were a number of discussions that involved a lot of third-parties to kind of assess independently what we thought market value would be on those assets. Certainly Brandywine known those assets as well as we do, plus the promoted structure we had built into the deal I think gave us an opportunity to completely meet up after due share obligation to DRA and deliver great returns to our shareholders.

Our next question comes from John Guinee with Stifel. Your line is now open.

Couple of questions, I guess the first one would be noticeable change in your dividend policy; can you walk through your thinking on that?

Gentleman, there's no change in our dividend policy. I think the Board will continue to evaluate that with the 2019 business plan just coming out. I think the Board will certainly continue to evaluate what to do with the dividends. I mean, I think from a coverage standpoint both from an FFO and a CAD standpoint we are very well covered. The Board continues to maintain that, we want to continue delivering increasing returns to our shareholders. So, I'm sorry if any of the comments would lead you to believe that we've changed our dividend policy. Quite the opposite, I think we're pretty excited about the level of cash flow growth we've had over the last 24 months that would provide an opportunity for the Board to evaluate the dividend as the 2019 plan has a higher level of execution. I think in Tom's comments he was just indicating that 2019 business plan did not include any ATM purchases and the acquisition or disposition activity or any increase in the dividend. This is a framework for all of the analyst models.

Correct, John. I was just implying what kind of cash flow is going to be coming out of the 2019 plan. And at this point we have - last year as you recall we did include a dividend increase, this year it was just stating that we haven't included one as a plan item.

And then follow-up a couple A and B. One is, where do you think - clearly JV capital is advantageous to issuing common equity right now. At what point in time, at what level do you think your share price needs to be where you think that issuing shares is a more attractive cost to capital than entering into these large joint ventures? And then just more of a curiosity question, it looks like you're going to be expensing leasing cost to the tune of $2.2 million into property operations, how does that work?

I guess a couple of thought, A and B, so we'll try that. Yes, I think from a share issuance standpoint, I think when the stock price earlier this year was north of $18 we were selectively using the ATM to both create some financial capacity, as well as to recharge the balance sheet. I think we're far, far away from that given the existing stock pricing. So I think from our perspective we need to be incredibly disciplined about how we can create long term growth potential by focusing on every, every dollars return on that incremental investment. So, certainly doing transactions like we have done over the years by privatizing portions of the portfolio through these JV structures to create a better return to our public equity base is a very viable alternative. I continue to be very impressed with the level of private capital that is looking to invest in real estate operations with great operator. So, as we went through the process for the Northern Virginia transaction, for example, the pricing differential between a wholly-owned sale and a venture sale was really at a point of indifference. So we felt we had the opportunity to create some great upside momentum for our Company both in the near term and long term basis by retaining an equity stake in that. As we done over the year, we sold an awful lot of real estate directly without retaining any ownership stake. So, it's really kind of a price point discussion with each asset trade and also kind of more market assessment of where we think that asset fits long term into our desire to generate some growth.

And John on the capitalization, I guess we have - the capitalization affects two areas of our income statement. So, the general rule is that if you have direct commissions whether they be external or internal, those are allowed to be capitalized but with our internal certain personnel that received both a base, a bonus and a commission as a blend. Any portion that's not a direct result of the lease such as a salary or a bonus, those will be expense going forward. That's the new rule, whereas before we were saying as long as those were below the market rate commission you could capitalize all of that. Those personnel are in two different places. So, we have some costs that are running through G&A, which is certain personnel that were in the G&A area that were being - were part of the leasing process. And then we also have people that are brokers that are our third-party management business that are going to be seeing less capitalization against that revenue. So, from that standpoint you'll see an adjustment to our operating income for the balance of it.

Our next question comes from Craig Mailman with KeyBanc Capital Markets. Your line is now open.

Just curious here how you think buyers are underwriting Amazon right now in Northern Virginia and kind of maybe give us some insight as to why the transaction to be now versus waiting for an announcement?

Great question, Craig, I mean, certainly something that we've labored over quite a bit and it's intriguing in its possibilities. We think there's certainly some more interest in that carter because of the potential of an Amazon locating there which is why I think we're happy with the auction process on the price that we got for these assets in the low 6% cap rate range, we felt that was very good. I mean I think as we evaluate our position, a couple of things. It's a good window into what might happen in that market and from our perspective to the extent that there's a big updraft in that market. We think our retained position we thought promote but more importantly our position in Tyson's Corner with the buildings we have there, the property we're retaining in Dallas Corner and potentially grow this venture with Rockpoint, provide a really good proxy for us to participate in market recovery. And I guess one of the other side of that discussion is, Amazon would clearly benefit any market they go in, just like we're saying Google benefit Austin in some of the growth thing, any kind of major tenant moves into market it's good news for everybody. The Northern Virginia the reality of the ground is a little bit more - is little more intriguing or stock, I mean, in the Western to Tyson's carter, after [Hernden] you really have about 14 million square feet of new office that can be planned as part of the Silver Line expansion, [Hernden] itself has over 2 million square foot pipeline with some more behind that they could drive that pipeline higher. And when we're assessing that marketplace's, there's no doubt that Amazon web services which is in the market now for requirement an expansion by defense contractors, forays by Apple and Google could really create some significant demand and that's frankly we all are hoping for. The counterbalance is that - to that potential demand is the size and location of the pipeline could just as easily have the impact of creating a lid on effective rank growth near term in some of these existing products. So, I think we were really trying to evaluate how to look through that window and really create the best opportunity for our Company, and we concluded that selling a portion of our Toll Road assets, retaining a stake in those assets that we’re partially selling, and retaining a portion of our Northern Virginia portfolio as wholly-owned, created a great opportunity for us to benefit if that market really does take off. But certainly over the intermediate term gave us the ability to take advantage of what we thought was a wonderful opportunity to bring in some assets wholly-owned into our Company in Austin, Texas.

So, it sounds like you're hedging yourself a little bit, which makes sense. I guess part of it I’m getting at is you guys said you like the market long-term, you're kind of bridging yourselves here for potentially some more couple more years of weakness outside of what Amazon may or may not do. But do you think we're here in five years as the Rockpoint JV kind of matures and we get another DRA situation would you guys kind of sold low and buying back high similar what you did in Austin?

Well, I think when we sold the assets in Austin, I think we got great market pricing at that point. It wasn't selling low, the markets moved dramatically. But more importantly, and it kind of duck tales onto John’s question on private equity; we always look at the best way to allocate capital and create the best growth rate. What can't be forgotten with the Austin JV was that we were able to again move from a fairly small market position in Austin and through that JV acquire a number of really high growth targeted assets that generate great rates of return to both DRA and to Brandywine during the whole period. And Brandywine then had the opportunity, as we see some opportunity to further accelerate growth in those assets by buying them in. I mean, interestingly if the assets we bought in, of the three types of assets we bought in only one was one of the originally contributed assets. The other two were new with River Place and Four Points which we've been able to demonstrate that we can create value in both of those locations by leasing up the portfolio. So, if the marketplace in five years in Northern Virginia is tremendously stronger and we can harvest a lot of money by using a bridge, financial structure, and generate great returns for our shareholders; and then we view that some of those assets in the venture that we're contributing now, have better long-term growth potential as wholly-owned, I think we certainly want to retain that flexibility.

And then just separately on your 2018 to 2021 kind of same-store outlook of 2% to 5%, you guys are 2% in 2018 and 2019. And you have some bigger move-outs again in 2020, I mean, do you think you guys need to reevaluate whether you can top the midpoint of that range?

Well, I think the benefit we have - look at the numbers in the third quarter here with us bringing new properties online. The numbers on the same-store in the third quarter as George have been articulating all year, I mean, is a great pop because we're bringing some high performing assets into the portfolio. They'll be transitioning and again in generating good growth with very low capital costs for the period from 2019 to 2021. We certainly will have some rollovers as George talked through in 2020. The reality – they're not that big in the scheme of what our overall portfolio is. And whereas - the 1676 project that they hit the same-store this year, we'll lease it up next year. It could be a tremendously strong performer in 2021. I mean one of the challenges of the same-store is it's a point in times snapshot that doesn't necessarily take into account the truth pushed through the portfolio. So, no, we look at our forward model and we think that those numbers get progressively better which is why I was kind of touching on the point, yeah, if we're generating same or good cash mark-to-market, good GAAP mark-to-market, keeping our retention rates in pretty good shape except for 2019 with the 57 with extension, that's a prescription for a good sustainable accelerated growth. And when you overlay that with the development pipeline we have, some assets will be 26 to 30 months to build. Some assets will be 12 to 18 months to build. We have a tremendous opportunity over the next few years to really start to generate some growth rates far in excess of what we've been generating over the past with the older portfolio.

And also think, Craig, as you look at the same-store grouping, this year we'll not benefit from a TR from the assets coming out of Austin because they don't hit same-store till next year. So we would hope as we look at going out in the 2020. Well, we now start to benefit from a strong mark-to-market and having close to 20% of our revenue coming from Austin, which is really not helping our same-store this year for 2019 coming up.

So, do you think by 2020 even with the move outs and everything going on that you could be at that high-end near 5% given what's rolling in and then you rolling out Northern Virginia?

No, we just announced 2019 guidance. We're not going to postulate on 2020 guidance at this point.

Our next question will be from Michael Lewis with SunTrust. Your line is now open.

I wanted to follow-up on a question about the lease accounting. I was just wondering, how much leeway you have in deciding what goes into the property OpEx and what goes into the G&A? Because we were one of the analyst that did have the adjustment in our model we put it in G&A we thought maybe companies would want to shift it there because in this example if you take that two/two out of your NOI and you cap that, you lose 1% of NAV for something that really has nothing to do with the business, so just curious about that.

As we look at that, Michael, we basically for right now just put the people – we put the expense where it was in there hit. The property, the operating expenses that we are hitting since they're running through where those people are which is in the management area, those leasing agents are at the property level such that they would curb same-store. The ground lease well which we did have as a piece also but it will go on overall NOI for the Company, yes. There will be an adjustment that would affect our cap rate, but most of those other people are sitting in our Management are and will affect same-store. But still as we will look at those people at the side but where we want to locate them for 2019 but for right now we're leaving them in the places they are. But we do have leeway to look at where they're performing and do we want move some of those people into G&A. I think we have flexibility there. I do not think that the – the new reg is telling you where it needs to be located and where your people need to be classified.

It will be interesting to see what other companies do with that. And then the second question, I just wanted to ask about EQC reportedly selling 1735, Market Street. It sounds like that could be maybe the biggest single assets held in the city. Just wanted to get your thoughts on that and if you think there's any read-through's from how that turns out to maybe values and fairly?

Well, they do have it on the market and it will be interest to see what the pricing comes in and who the bid list is. I mean, certainly we continue to see almost on a weekly basis more investors expressing interest in Philadelphia, which is something we've really hoped for, for a number of years. So, the expansion of the targeted investor list in who are evaluating high quality assets in Philadelphia, we think it's a very good thing for our inventory base. And certainly our hope is that EQC does very well on what they're trying to do as well. So, I think the dynamic and the motivation is moving in Philadelphia's favor. The read-through will be a function of kind of who buys and what they're looking for. I mean, the property is pretty well stabilized. I think it's got some minor amount of leasing to do, but I think certainly we always view that as part of the trophy class in the city. And so if the valuation range that comes in that should have some level of read through to some of our existing portfolio, at least the Commerce Square buildings on Market Street.

Our next question will be from Daniel Ismail with Green Street Advisors. Your line is now open.

Appreciate your color on the Austin-Nova swap, but can you guys give us your current thoughts on where disposition starts to make more sense into being recycled into stock buybacks versus recycled into the portfolio?

Great question and - look, share buybacks are always on our radar screen. And Management and the Board review that, we still have an authorized buyback plan in effect and we could certainly expand that as well. I think from - when we look at the deployment of capital, I think it's weird that the Northern Virginia Austin swap we felt that the growth potential and preserve - out of that point plus preserving some additional financial capacity to ensure that we could fund future developments was primary in our mind. And as we were thinking through that, we took a look at current pricing levels, incremental $100 million of share buybacks, increased our earnings between $0.03 and $0.04 a share but also increased our net debt to EBITDA by two turns and for more estimate only had about $0.16 per share in NAV. So, we use that as kind of a guiding point on what we should be doing but certainly from the Company standpoint, share buyback in this type of market pull back environment are always clearly on the radar screen.

Our next question will be from Mitchell Germain with JMP Securities. Your line is now open,

Jerry, if we're thinking about development start next year, any specific market that comes to mind?

I think we take a look at our near term development starts, I mean, we're certainly actively pre-leasing - I'm sorry, pre-marketing Mitch, four or five Colorado, Four Points in our last piece at Garza. Garza, we're completing the common area by the end of this year, tremendous momentum with the site we sold, the [indiscernible] residential and apartment side, the hotels under construction. So we think that that will be an incredibly sought after site in 150,000 square foot range. So, in Austin we think that the higher probability starts would be either four or five Garza or Four Points. We are - as I mentioned in the comments with approvals at Broadmoor in place, we are on a pell-mell pace to finalize the site planning for Phase 1, which will be an office building and probably a residential for rent project as well. So, as that process unfolds over the next couple months, the market respond on those sites will ramp up dramatically. So, Broadmoor could be in that mix for a start next year as well. Then up in the Northeast, we're very, very focused on wrapping up the design development for the two buildings at Phase 1 at Schuylkill Yards. One will be some office and residential, the other will be office and lifescience, and we're working with our development partners on those premarketing campaigns as well, and frankly seen a pretty good level of activity. I think we're very pleased with some large tenants we're talking to as well as some smaller tenants that with the completion of the public park early next year - you may have seen the press release, I mean, Spark Therapeutics has leased the entire Bulletin Building for us and that'll be staging over the next 24 months. That renovation project kicks off by the early part of 2019. We're really creating a dynamic platform to accelerate leasing activity at Schuylkill Yards. So, I think that's one of the things that I think that the entire Company is really excited about, which is, with these development opportunities, let's complete the design development, let's get the marketing pull together, let's - certainly the capital constrained marketplace, let's just make sure we stay in touch with and build new equity financing relationships. So we are in a position to really move with alacrity as we see market demanding now.

And then you have about 200 basis points drag on same-store numbers for next year. Is there anything specific that's driving the offset I mean I think you are forecasting 1% to 3% it seems like a big kind of increase considering all those different items that are out of the portfolio is there anything specific I should be considering in terms what's driving that increase?

Well I think the increase that - has such a range we have despite that drag is really. The properties that we're added to the same-store in Q3 of 2018 now being same-store properties for all of calendar year 2019. So FMC Tower, 1900 Market Street and 933 First Avenue in King of Prussia.

Our next question comes from Manny Korchman with Citi. Your line is now open.

Tom on the page in your sup I guess it's Page 8 it will be the walk floor from your Investor Day. It looks like your 2019 leverage is going to be higher than the six times, you guys were targeting or hitting in 2018. Is that a new target or is that a temporary phenomenon and if so what’s causing that?

Yes Manny, we expect to keep it low but I do think that and I have said in my remarks I think that 60 to 63 is that we do plan on as Jerry’s outlined starting in development but also spending time and money on the work at Schuylkill Yards and Broadmoor. And to the extent we with that accelerate that cause we think our capital spend to go up and therefore that net debt to EBITDA go up because those costs are going to come off the balance sheet with no corresponding income. So one at legal range there of course if we end up having a partner come in on like a Schuylkill Yards and they pay down some of our bases that could obviously benefit us because we’ve encouraged buying a land and already starting some of that infrastructure work. So we wanted a legal rage where it does pick up and I think its temporary I think as we look it up spending money on those two multiphase sites that’s going to cause to potentially going up and I guess that is it is dependent on how the development spends comes and what kind of opportunities we see on those development sites.

And Manny I’ll just add - and again the 2019 plan doesn’t anticipate on the assets sales here. We could generate some additional liquidity so we’ll have a acquisition or disposition activity built into the plan that could also serve to keep that range at the lower end. That 60 target is very important - it was also important to be transparent at this point indicating that there is that upward impact on leverage through the development process and that’s the range that we think that it flames out the best and the worst case. I mean based upon every $25 million of spend creates a 10th of return for us. So it's - but the target remains in that at that 6% level - 6 times level.

On that disposition point though would that imply that you’re going to be selling down land or other non-core non income producing properties because otherwise it doesn’t help to leverage capital market?

I think just an outright sale I think we do anticipate hopefully having some land sales coming up keeping our target between that 3% to 4% range. But then also it could be a combination of sale and then a better acquisition opportunity that generates more revenue for us could also be a player in that as well.

Our next question comes from Bill Crow with Raymond James. Your line is now open.

I think we’re all working at whole bucket full of trends that are going on right, we worked densification technology shifts as that aren’t preferences money or workforce and scarcity and labor. And you put those all into the bucket and it seems like new buildings are aging faster than ever before. And I guess the question is twofold, how young can a building be today to be considered old and what does that imply for CapEx usually think about annual inflation of the requirement to shift your buildings to today's preferences?

Look I think it depends to some degree on each building physical plan. And I think we have found is that buildings with elongated clear spans column free floor plates, higher deck to deck because of potential they kind of create more interior daylight kind of really creates the opportunity to kind of reimagine the building. I’ll give you great example, we had our 500 North Gulph Road property was a building concrete superstructure that was built in the 70s. We have kind of took that building back to superstructure new mechanicals, new window lines, new lobby, new lavatories and taken what was a real underperformer in our portfolio and created such a great physical reimagination that we had the entire building leased at a 9% plus return before it was finished. I think the trick in that algorithm is can you get a good return on incremental invested capital to justify the investment or are you better off to selling the asset. And I think we’ve done both over the years. We don’t think we get a good rate of return we’ll simply sell the asset 1676 that George worked through is another example we think that when we evaluate the market window for that lock of space the positioning of that asset physically its physical configuration today what we can do to present it a whole different physical platform. We'll get a great mark-to-market and get it close to 20% return on incremental capital. So, building vary by their design and I think as we’re looking at all the buildings that we either own or looking to building, we’re hoping to create some timeless aspect to our new developments by creating a volume of space that to some decrease becomes almost indifferent to how that tenant is actually going to use that space. But they’ve got the physical volume the tight core, the window lines - the supporting mechanical systems that actually make that building have some durability as workplace appetite change.

Should we expect to see more assets shift from private ownership to public given the requirements for capital?

We say the public ownership do you mean like.

Well just deeper pockets right, I mean if your capital and you gave the example of what you had to do to retrofit one of your buildings. You didn't have to do that 10 or 15 years ago. The cost of ownership has gone up pretty dramatically, right. So it requires deeper pockets to be an office landlord today is that fair?

Well I think certainly capital costs have gone up for sure, that is fair. Fortunately in some market rental rates have gone up to provide the appropriate compensation for that. We take a look at perspective though I mean we’ve got our capital across in that range of 10% to 15% and have a pretty good run rate on that. I mean that’s down because of the portfolio we have today. So even if we need to spend call it 40 versus 35 in TIs, if we’re getting a good increase in rents either - both at point of entry but also lengthening lease terms and good rent bumps. The math works well there but look there is to your broader question, there is a tremendous amount of private capital that is well capitalized looking for place to put their equity. The overall debt markets are still fairly favorable particularly for existing assets. So we view kind of the capital driving office valuations remaining very positive and you’ll see public companies continue to invest capital where you think it's working assets and private companies using a much different leverage model coming in and getting very high return on their invested capital for either development or repositioning assets as well.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Jerry Sweeney for any closing remarks.

Well, thank you for your help and thanks for all of you for participating in our call. We look forward to updating you on our business plan progress on our fourth quarter call early in 2019. Thanks very much.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone have a great day.