Ladies and gentlemen, thank you for standing by. And welcome to the Brandywine Realty Trust First Quarter 2020 Earnings Call. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Jerry Sweeney, President and CEO. Sir, you may begin.

Crystal, thank you very much. Good morning, everyone, and thank you for participating in our first quarter 2020 earnings call. On today's call 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 VP 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 assurances 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. This is no ordinary time, and first and foremost, all of us at Brandywine sincerely hope that you and yours are safe, healthy, and sheltering in places happily and as productively as possible. The pandemic has disrupted everything and presented a new landscape for everyone and every business. While the duration of the crisis remains unclear, we have assessed the crisis' impact on every element of our business: employee, tenant, vendor safety and security, a return to safe building operations, construction schedule delays, forward leasing pipeline and renewal activity, and of course, all the related financial implications. Additional details on these and other topics are outlined in our COVID insert found on Pages 1 to 13 of our supplemental package. Looking at the first quarter, we opened the year strong. Our first quarter results were among the best we've had in recent years. We had excellent leasing activity; rental rate mark-to-market was almost 16% on a GAAP basis and 8% on a cash basis. Same-store numbers were tracking slightly ahead of our original plan. Capital costs were at the low end of our targeted range. Our retention rate was 76%, and we posted FFO of $0.35, which was in line with consensus. Our leasing pipeline was building nicely, including some excellent forward leasing activity on several of our development projects. That strong start is of course in the rearview mirror and all somewhat irrelevant given the circumstances, and our entire focus is on the path forward. As we turn our attention to the impact of the virus, it's important to reflect on where we are and how to extrapolate the current situation to the near and intermediate-term future. So several observations from our team before we outline our '20 strategy. First, we have a 25-year track record of building strong employee culture and establishing lasting relationships with our tenants, vendors, and communities. Never has the time for having built those bridges been more important than today. So we have erred on the side of over communicating with all of our stakeholders. Second, to paraphrase a number of behavioral scientists and economists, how people behave in a pandemic is not really a great guide to how they will act or live their lives in normal times. As one person put it, we're living in the middle of a grand forced experiment, and we really don't know how that experiment is going to play out. So we have stayed in close touch with our tenants, vendors, political, and community leaders. The path forward and the pace we walk down that path is somewhat uncertain. Please note that in developing our 2020 COVID revised business plan, we've pragmatically assessed forward risk and incorporated all those assumptions into our plan. Given the current circumstances, this plan is as accurate as we can make it. Third, every crisis embodies elements of both danger and opportunity. Our clear priority has been to assess every element of risk and institute plans to effectively mitigate or anticipate its effect. We are also, however, focused forward on the opportunity set to anticipate situations where we can enhance our business plan execution, whether that be through extending lease terms or improving the pricing of our current supply chains. We're working with institutional partners to seek opportunities where market position, talent base, and capital can create growth opportunities. So in looking at the risk factors in our COVID-19 business plan, our first priority is the safety and security of all of our employees, tenants, and buildings. We are very happy to report that no Brandywine employee has contracted the virus, and consistent with applicable state and CDC guidelines, we've maintained a doors open lights on approach to all of our building operations, and maintained close communication with our tenants, vendors, and local health and municipal officials. Secondly, we focused on the stability of our economic platform with particular attention to each of the following items. Rent collections, given that these are no ordinary times and the stay-at-home orders are in effect, we did receive requests from tenants for rent deferrals. Full details of those efforts are found on Page 9 of our supplemental package. Bottom line, about 1.6% of our rent comes from retail tenants. Normal monthly billings were about $500,000. We received $150,000 in April. Twenty-nine tenants or 45% of leases have been or are in the process of documenting rent deferrals. About 2.1% of our rents come from co-working and conferencing tenants. Normal monthly billings are $675,000. During April we received $580,000. For April, we received 95% of overall rents, a 96% collection rate from our office tenants, and a 100% collection rate from our top 30 tenants. The vast majority of rent relief requests are from our retail and co-working tenants. At this point, there have been no rent abatements granted. Rent deferral situations are to be paid back to us either in 2020 or 2021, or via lease extensions. Just a point as well: our leases are clear that our tenants have a legal obligation to pay us rents. While we certainly recognize that every company wants to preserve cash, the legal obligation to pay us rent is clear. And, as we have done over our history, we'll certainly work with those companies that truly need bridges. From an insurance standpoint, it's also clear that we can't rely on our standard property policy to reimburse us for rent not paid by tenants in default of their contractual obligations. We did, however, have the foresight to procure a $5 million coverage sublimit for interruption by communicable diseases under our property policy, which we believe will be operative where we have force majeure claims, such as in cases of hard head work stoppages due to government mandates. Due to the uncertainty of the recoverability of these announced claims, we've not included any insurance proceeds in our revised business plan. We were also impacted by some construction work stoppages. The vast majority of our construction operations remained shut down, with the exception of Austin, which was shut down for a period of time, and some of our operations in MetDC. In our 2020 plan, we're assuming that construction gets back to work in the next 30 days. In fact, in Pennsylvania, our governor last night announced plans to restart the opening of our economy on May 8 and has accelerated the restart of construction, obviously compliant with safe distancing and CDC guidelines on May 1. But the impact of this temporary work stoppage in our 2020 plan is $2.3 million of GAAP NOI, and 218,000 square feet of lower occupancy, which reduces our year-end occupancy by 1.4%. We also spent a significant amount of time looking at our leasing pipeline, which stands right now at 1.3 million square feet. Our leasing team and executive directors have been in extensive and repeated touch with every prospect and tenant rep of our 1.3 million square foot pipeline. To the best we can determine as of today, we believe that about 52% of that pipeline, or 670,000 square feet, are deals that are progressing, but clearly with the shutdown the execution timing is uncertain; however, we would anticipate within the next 90 to 120 days. We have about 45% of the deals in our pipeline on hold due to the virus. Based upon the information we have, we think that 10% of those will likely progress to execution; about 70% it's just simply too early to tell, as many of our prospects are focused on their own businesses versus their office space requirements. We believe about 15% is mostly likely dead requirements because of the virus, and we expect to lose the balance of about 7% to another competitor. We also spent a great deal of time looking at our capital spend. And as Tom will walk through in more detail, we've done a thorough review of our expected spend for the balance of the year and have reduced that spend by $50 million or about 20%. More detail on that can be found on Page 11 of our supplemental package. We did make some adjustments to spec revenue as you might expect, primarily due to slower projected leasing and the impact of construction work stoppages, reducing our spec revenue target by $5 million to $26 million. Our redevelopment project at 1676 International Drive in Northern Virginia experienced both of these conditions totaling almost 60% of this slide or $2.9 million. The timing of our major tenant in that project has slid until the first part of 2021, and the additional lease-up that we had projected for the balance of 2020 has also shifted till next year. Overall, leasing delays totaled about $2.7 million of GAAP revenue, while the previously mentioned work stoppage of $2.3 million accounts for the balance. With these revisions, we have $1.1 million of revenue and 149,000 square feet to achieve our plan outlined in our press release yesterday. From a dividend coverage and liquidity standpoint, the company is in excellent shape. We're projecting to have between $400 million and $480 million available on our line of credit by the end of the year; that number depends on whether we refinance or pay off an $80 million mortgage securing one of our Philadelphia CBD properties. We only have one $10 million mortgage maturing in 2021, and no unsecured bond maturities until 2023. We generate $85 million of free cash flow after debt service and dividend payments, and that dividend is extremely well covered with a 54% FFO and a 70% CAD payout ratios. Looking at our guidance, we set our new range at $1.37 to $1.45 per share. The impact of this range on our operating metrics is detailed in both the press release and on Page 16 of our supplemental package. To do a very quick reconciliation, our previous midpoint was $1.46 per share. We did increase, and Tom will talk about during his conversation, our project reserves, which reduced that by $0.02. We did a building sale that cost us $0.01. Our office leasing slides are close to $0.02 a share; the construction slides will cost us $0.01. We anticipate losing a $0.01 through our joint ventures and expect to lose another $0.01 through lost parking revenue and the hotel component of our AKA project at the FMC tower. The share buyback, which we also announced, added $0.03 back, so our new midpoint is $1.41. With those components addressed, we would like to take a look at the development opportunity set quickly. First of all, on the development front, all four of our production assets that is Garza, Four Points 650 and 155 King of Prussia Road, are all fully approved, all work is paid for, they're fully documented, the pricing has been finalized and they're ready-to-go, subject to leasing. Each of these projects can be completed within four to six quarters and costs between $40 million to $70 million. Pre-COVID-19, we had a strong pipeline of deals that could have kicked off one or more of these projects. As we look at the crisis now, clearly starting any development is an elective decision, and will be evaluated on a case-by-case basis. As such, you'll note in our revised business plan, we have reduced our two projected 2020 starts down to one, which we achieved with the start of our 3000 Market Street project. Looking at our existing development projects at 405 Colorado, as identified in our supplemental package, we did have a disappointment post-quarter close. Our lead 70,000 square foot tenant terminated their lease pursuant to a one-time Right-to-Terminate if we did not meet an interim milestone delivery date. Based on the original construction schedule, we had a significant cushion built-in to meet that milestone. The general contractor, while still being able to complete the project on time, missed that milestone date. We will naturally have a claim against that contractor, but right now our focus is on getting the project built and leased. So that project now stands at 18% leased with 160,000 square feet to lease and will be a very exciting addition to Austin's skyline. We had a great pipeline of deals before the crisis, and we expect that pipeline to re-emerge. I've been in touch with a number of those prospects. Due to the short construction shutdown we did have in Austin, we have slid the completion date back to Q1 2021, and due to this tenant event, moved the stabilization date back to Q4 2021. On the Bulletin Building, due solely to the mandated construction work stoppage, we are moving the completion date back one quarter to Q3 2020. Given that building is fully leased, we did move the stabilization date up to Q4 of 2020, so that will be fully stabilized. 3000 Market Street, this is a renovation project within Schuylkill Yards. This 64,000 square foot building is being fully converted into a life science facility. We're very fortunate to have recently signed a lease with a life science tenant, where they will take the entire building on a 12-year lease commencing in the third quarter of 2021 and deliver a development yield of 8.5%. We are really excited. This is truly a great exclamation point to our emerging life science push in University City. Just a quick update on Broadmoor and Schuylkill Yards. On Broadmoor, we're advancing Block A, which is a combination of a 360,000 square foot office building and 340 apartments through final design and pricing. At Schuylkill Yards, we continue the design development process for a dedicated life science building, and anticipate that with the schedule we have in place, market conditions permitting, we could start in the first half of the year. On our Schuylkill Yards West project, which is our office residential tower, as you know from previous calls, that's fully approved, priced and ready-to-go, subject to finalizing our debt and equity structure. The virus had a big impact on the timing of this project start. We continue to work with our preferred QOZ equity partner, but the crisis has certainly slowed the pace of procuring financing. We do remain optimistic that we'll get that across the finish line when the situation returns to some level of normalcy. On the investment front, we sold one property during the quarter for $18 million. We also repurchased, net of dividends, $55 million of our own shares. Those shares were purchased at a 10.5% cap rate and 8% dividend yield, and an imputed value of $203 per square foot. As we assessed the trading price of our stock, this was a good investment, delivering both immediate and better returns on our targeted developments, and was paid for via the asset sale and a capital spending reduction of $50 million. To provide a reference frame, the average cap rates in our markets on asset sales since the great financial crisis have been 6.4%, and an average price per square foot of $350. Both of those metrics support this investment, and when you compare that to current replacement costs between $400 and $600, it further amplifies the validity of making that investment in our own shares. There are a tremendous number of private capital sources actively looking for high-quality investments, particularly with well-capitalized partners. We continue to have an active dialogue with several institutional investors and private equity firms. We are exploring several asset level joint ventures that would improve our return on invested capital, enhance our liquidity, and provide growth capital. While these discussions are active, constructive and ongoing, there's no certainty as to their outcome, but we continue to pursue and look forward to continued improvement in the debt markets. The last opportunity, I'd like to spend a moment on is the opportunity set embedded in the future of office market demand drivers post the virus. Whether you believe there'll be more or less demand, more square feet per employee, more work from home, the immutable constant will be that high-quality office space will be a recipient of any demand drivers. Tenants clearly want safe, secure, healthy environments. We do believe that owners of best-in-class products like Brandywine will be beneficiaries of these future demand drivers, and I'd ask you to note the building access security, HVAC, and elevator systems that we identified in our COVID supplemental package insert. We're also keeping all these potential changes in consumer preferences in mind as we finalize our development planning. Alright, Tom will now provide an overview of our financial results.

Thank you, Jerry. I wanted to start off with a review of the net income. We came in at $7.9 million or $0.04 per diluted share. FFO totaled $61.4 million or $0.35 per diluted share. Some general observations of the first quarter: operating results were generally in line with our fourth quarter guidance. Operating expenses from lower G&A expense were $1 million as compared to the forecast due to the timing of some compensation and professional fee recognition. Interest expense was lower due to the lower rates that we had forecasted and slightly higher capitalization of interest. First quarter fixed charge and interest coverage ratios were 3.7 and 4.0, respectively. Both metrics improved compared to the first quarter of 2019. Consistent with prior years, our first-quarter annualized net debt-to-EBITDA did increase, as G&A increased to 6.7. This was primarily due to higher sequential G&A, cash used for our stock repurchase, and this is partially offset by nice proceeds from the sale of our non-core asset not included in our 2020 business plan. Looking at 2020 guidance, as Jerry outlined earlier, we're reducing the midpoint of our guidance by $0.05 per share. The combined $5 million reduction in spec revenue is $0.03 per share. In light of the increased economic concerns from our tenants, we increased our forecasted reserves by $0.02 per share. We did that on a general basis, so not included in our revised same-store for now. The non-core asset sale in the first quarter, also including the JV in the fourth quarter, which we didn't adjust guidance for, is about $0.01 a share. We anticipate similar leasing slides at MAP, our JV where we're 50% owner, and some slides as well at 4040, which did open and get its CO in February of this year. In addition to that, we believe our parking and FMC operations will be negatively affected in the near term, and we're putting a tiny share for that reduction. Then the reduction to partially offset that is the buyback which is $0.03 accretive. Looking forward to the second quarter of 2020, we have the following general assumptions: portfolio level operating expenses will total about $80 million. This will be sequentially $3.3 million below the first quarter, primarily due to the $1.8 million increase in some operating expenses, its timing of R&M, $600,000 due to the loss GAAP income for the non-core asset sale that was there in the first quarter, not there in the second quarter, and $1 million due to March move out of SHI Partners Skyway, and the lower hotel revenue that we expect to happen in AKA. FFO contribution from unconsolidated joint ventures will total $2 million for the first quarter, which is down $700,000, primarily due to MAP and bringing in 4040 online which will incur some initial start-up losses. For the full year, the FFO contribution is estimated to be $9.5 million. G&A, our second quarter G&A expense will be $8.5 million, very similar to first quarter. Full year G&A expense will total about $32 million. Interest expense will be $21 million for the second quarter with 95.3% of our balance sheet debt being fixed rate. Capitalized interest will approximate $1 million, and full year interest expense is approximately $82 million. Capitalized interest will continue to approximate $3.2 million for the year as we continue building 405 Colorado. We extended our mortgage at Two Logan Square for an additional maturity date from May 1 to August 1; that mortgage payoff is about $80 million at a 3.98% rate. This loan is very well covered based on the current NOI that’s in place which has grown over time, and we’re considering an extension or a refinance of that loan. Termination and other income, we anticipate termination fee and other income to be $2.5 million for the second quarter and $11.5 million for the year. Our net management leasing and development fees, quarterly NOI will be $2 million, that will approximately $8 million for the quarter. Land sales and tax provision will net to zero. Our buyback activity as Jerry mentioned, we executed on a stock buyback in March of 2020 at excellent economic terms and an implied 8% cash dividend yield. Since the shares were purchased late in the quarter, the weighted average share count did not have any impact on our first-quarter results. In addition, the weighted average share count for the year will be reduced to about $174 million, and for the second quarter will be roughly $172 million as our weighted average share count. We have no anticipated ATM or additional share buyback activity in our plan. For investments, we have no other incremental sales activity in our plan. And, on the side, we do have the Radnor land purchase, which did occur this quarter. We still have the only building acquisition at 250 King of Prussia Road for roughly $20 million, and that will be brought later in the year and that will go into redevelopment, so no earnings increase for NOI in 2020. Capital plan as outlined, we took a hard look at our capital spend and have reduced the 2020 capital by $50 million. While we reduced our earnings, we have saved on the capital for 1676. The reduced development capital is based on only one development start and 3000 Market being our only development start, and that will have just lower the amount of prospective capital we had on the other two development starts. Based on above, our CAD range will remain at 71% to 78%, as the lower capital may be offset by deferred rent that will be repaid in 2020. Uses are outlined as on Page 12. We have $91 million of development capital that's being spent. We have common dividends of $97 million. Revenue maintain is $36 million. We have $40 million of revenue create. $6 million of mortgage amortization and loan payout if we do it is $80 million and the acquisition of King of Prussia Road. Primary sources will be cash flow after interest of $182 million, line use of $150 million, which would bring us up to the $200 million we've projected, cash on hand of $33 million, and some land sales that we still expect to happen later in the year. Based on this capital plan, we would have $200 million outstanding on our line, or $120 million if we refinance the mortgage. We project our net debt-to-EBITDA will range between 6.3x and 6.5x, a little higher than where it's been, where our range had previously been, 6.1x to 6.3x. The main reason is the leasing slides that have been talked about; a lot of those affect EBITDA in the fourth quarter. When you annualize that EBITDA, it results in a higher net debt-to-EBITDA. The lower capital spend offsets the share buybacks, so that's not affecting it. In addition, our debt, the GAV will be approximately 43%. As Jerry mentioned, we have well-covered dividends, both from FFO and AFFO metric of 54% and 70%, respectively. Additionally, we anticipate our fixed charge ratio will continue to approximate 3.7, and our interest coverage to approximate 4.1. I'll now turn the call back over to Jerry.

Tom, thank you very much. We're sorry we ran a few minutes over our normal time in our prepared comments, but that was important to frame out the thought process and the new business plan. With that, Crystal, we're happy to open up the floor for questions. As we always do, we’d ask that in the interest of time, you limit yourself to one question and follow-up. Thank you.

Thank you. Our first question comes from Jamie Feldman from Bank of America. Your line is open.

Thank you, and good morning. Thanks for all the disclosure; it was really helpful, both on the April payments and then just the addition to the supplemental. So thanks for doing that. I guess my first question is on the insurance policy. Can you talk more about how that's going to work and how much it might cover? And is it per incident per building? Or is it a blanket coverage of $5 million? Just as much color as you can provide. And do you think it's something that's common across the sector?

Jamie, thanks for those comments. Our team really has been working very hard to make sure that we're able to present a high-level of transparency in what we're thinking about. On the insurance policies, it's new territory for me as well. I think we verified that the standard property policy doesn't provide us the ability to get reimbursed. This coverage we think is somewhat unique, but I really can't speak to what other companies do. It would provide us up to $5 million of coverage in the aggregate. Since we're not sure how insurance companies will respond to this, we excluded it from any reimbursement from our numbers. We certainly think that given the provisions of that policy, where we've had a loss of revenue due to force majeure events, where we had to shut down due to the virus and regulatory directives, that loss of revenue would be at least a claimable item under the policy. When Tom and I were both talking about the work stoppage number, we have a couple of million dollars that we think would certainly be something that we would be working with the insurance companies on. But I really do think that this is a whole new area for insurance companies and how everyone responds to this, and whether state institute reimbursement legislation for insurance companies remains to be seen. We've seen that in a couple different states. But it's something that we're fortunate we had within as a rider in a supplemental policy, and certainly to the extent we think we have a great direct path to get money, we will certainly do that.

Okay. So just to be clear, it's $5 million total revenue coverage if it plays out.

That's correct.

Okay. And then can you talk more about the 405 Colorado lease break? Was there any kind of break fee? And is this typical for tenants to be able to walk for this kind of delay? Do you expect to litigate, and how do you think this will play out? Is this another thing we need to be watching across the sector?

Yes. Look, I think this is not something you need to be watching across the sector. I think this is a very unique situation. It's the only time we've ever done a transaction where a tenant had a Right-to-Terminate based on an interim milestone date. We did that due to market pressures in Austin to meet market conditions, and we assessed it. It's 405 is only a 200,000 square foot building. They were 70,000 square foot tenant. We felt as though there was a huge pipeline of demand. We know this building, architecturally and from a floor plate standpoint, should resonate very well in the marketplace. When we agreed to do that, we had plenty of cushion built into the schedule to make sure that we had a good safety margin. As things turned out, the contractor did fall behind on meeting this interim milestone. We're still on track to deliver, as I mentioned, the project on schedule. Of course, we'll have a claim. Right now, the focus is on getting the project delivered. We've reinvigorated our marketing efforts. We have a great team working on it. From our perspective, Jamie, look, it's disappointing; it's a very unique set of circumstances. We've never done another development deal where we've had any kind of termination right by a tenant based on an interim milestone date. We thought we made a good judgment going in; it certainly turned out not to be the case as things evolved. It's not anywhere near a good news story for us, particularly given the dynamics of the marketplace today. But we do feel as though the pipeline will reemerge. One of the things we were happy about was our ability to get 3000 Market Street fully leased just as we're starting renovations. From an economic standpoint, it helped buffer whatever impacts would be in 2021. For example, the trade-off between that lease tenant and in Austin at 405 and 3000 Market, the 3000 Market Street tenant will generate more than $800,000 in additional cash NOI than we would have received from the 405 project. Not a great circumstance; we disclosed as soon as we got notification on it, but rest assured, it's a very unique situation for Brandywine and I would expect throughout the rest of the real estate community as well.

Okay. Thank you.

Thank you. Our next question comes from Craig Mailman from KeyBanc Capital Markets. Your line is open.

Thanks, guys. Just one quick clarification on the 405. Did they even try to kind of retrade you on rent or anything? Or did they just walk immediately?

No. There were discussions, Craig, where we worked to provide them a number of alternatives relative to short-term extensions to address their concern and a few other things. I think they simply made the determination that it was in their interest to terminate the lease.

Got you. And then just more broadly on the leasing pipeline. That was helpful kind of going through it. Are any of those deals related to the commerce space as you guys are going back to the Macquarie Reliance? Could you just give us an update on your thoughts on timing on that now, just given what's going on?

Great question. I'll start off and George, maybe you can pick up. Look, I think we've got a great pipeline on commerce. Again, the virus has clearly had an impact on how people what people are focusing on, but I actually thought when we did our pipeline assessment Craig, from a broader standpoint, that more than half of that pipeline is still active, and we thought very positive. To be moving towards lease executions in the next, call it 90 to 120 days, we think is encouraging. Certainly, we think with some states beginning the process of reopening, particularly Pennsylvania and Austin, Texas, we feel like we're in pretty good shape to weather the initial blow. On the Macquarie space, we did sign a 38,000 square foot lease during the quarter with a life science company, which we're really excited to bring into our portfolio as an expansion tenant. That was about 25% of the space. We have that another 20% of the space in advanced lease negotiations that we feel pretty good about. We have proposals outstanding for another 10% of the space. As we sit today, we feel we're in a very good position on a little more than 50% of that space. And certainly, it's a top priority for our company, but I think we're pretty happy with the results thus far. The pipeline; we'll have to spend, obviously some time, not just on Macquarie space, but on the rest of the pipeline to ensure we can convert those to fully executed leases. But George, anything else you wanted to add on that?

Yes, sure. Thank you. The Reliance space, as you recall, comes back to us 12/31 of 2020. It's 141,000 square feet. We've got about 200,000 square feet of prospects in that pipeline that Jerry detailed in his commentary. We certainly expect conversations to pick up as things start to come back to some level of normalcy. We have plans in place for what we need to repurpose that space once we get it back from that tenant, and we feel good about the pipeline we have. It will just come down to how quickly some of those companies can make their space need decisions.

That's helpful. Maybe I can ask one more question. Jerry, as you discuss development with your joint venture partners, is there any change in pricing or how you think those partners may want to price the risk?

Yes, that's a great question, Craig. The key uncertainty regarding pricing at this time appears to be the cost of debt. From our conversations with equity partners on larger development deals, such as Schuylkill Yards or Broadmoor, we haven't detected any substantial change in sentiment. There remains a strong belief that these projects will be very successful. We are all trying to assess what the cost of debt will be, especially since those markets seem somewhat disconnected. Neither Brandywine nor our partners are willing to make pricing concessions until the underlying cost of debt becomes clearer. On a broader scale, we've been encouraged by the number of institutional partners and equity sources who have actively reached out to discuss potential venture structures for existing assets, where pricing aligns well with our expectations. We are also beginning to strategize on becoming more proactive if we encounter any dislocation in pricing. The current challenge in the investment market, whether one describes it as a cooldown or a temporary halt, hinges on the need for the debt markets to stabilize, which will ultimately affect pricing. From our perspective on rental rates, after consulting with our team members and outside market experts, we don't anticipate any significant changes. In fact, we expect some of our high-quality existing projects will attract additional demand as tenants prioritize the quality of their space. Our capacity to improve our HVAC systems with advanced filters is considerable. While not all buildings can make these upgrades, ensuring proper airflow, managing access points, and maintaining separation are all critical factors. So, to directly answer your question, we haven't observed any notable changes in pricing. However, we have experienced a significant increase in interest from private equity sources looking to engage in transactions, contingent upon the overall pricing in the debt market.

Great. Thanks, Jerry.

Thank you. Our next question comes from Jason Green from Evercore ISI. Your line is open.

Good morning. On the collections of 95%, is there any level of security deposits within that figure? Or is the 95% pure collections, similar to the normal course of business?

George, would you like to take that?

Sure. Yes. That was all cash collection. There was no application of security deposit to cover April rent.

Got it. And then in your deck, you guys talked about some capital improvements that you're making to assets to position them for reopen. Are you able to provide on a total dollar figure and then a per square foot basis kind of what that spend is?

Yes. We're actually computing that. The increased filtering is about a 50% premium to existing filters. When you layer it in, I think it's about $100,000 increase. The issue there is can your systems support the new filtering systems. If they can, it's a straightforward improvement. If they can't, it's a big retrofit. We've been fortunate that we've invested a lot of money into our HVAC equipment and mechanical systems. We're in pretty good shape on that. But Jason, that's certainly something we're going to focus on over the next couple of months. So, we don't want to give you a number, but we view it as an opportunity for us to reinforce the high quality of our assets and also lay whatever derivative concerns tenants may have about the security and health of the workplace. George, do you want to add anything else to that?

No, I think you covered most of it. The filtering is a small incremental increase, but again, I think as we assess that cost there may be some other normal projects that we're able to substitute to stay hold.

Got it. Thank you.

Thank you. Our next question comes from Emmanuel Korchman from Citi. Your line is open.

Hey, good morning, everyone. Gerard or Tom, I guess you guys touched on this a little bit, but in terms of the buyback, I was just wondering how you are thinking about using money that was probably more delayed in the CapEx spend on both the in-place expenditures and the development spend to buy back stock, which feels more like a permanent event. Aren't you just going to need to either raise that money through new equity when the time comes to build out whatever that CapEx spend was going to fund, or find other ways of finding that capital?

Well, Manny, Tom and I will tag team. A lot of the deferred capital spend relates to the sequencing of some of the spend on our development projects. Those projects, as I mentioned, are really elective at any point in time, but certainly at this point in time. We were able to save some dollars by deferring one of those starts until we get more visibility on leasing activity. Obviously, 3000 Market turned out to be a great transaction force. Certainly, by deferring early release packages, some site preparatory work; all those things cost a lot of money and we deferred those until we're actually ready to start the project. We had a number of base building projects, but they only aggregated $7 million or $8 million, and we deferred about six of those because we could defer those without creating safety issues or preventive maintenance issues. We'll take a look at that in 2021. As we looked at this, the share buyback program, number one, we think we had plenty of liquidity, and I think the numbers support that we have plenty of liquidity to focus on our near-term growth opportunities. Secondly, given the pace and tenor of our discussions with a number of institutional investors and private equity firms, we felt that at some point in the near future, again, as I mentioned in the last question about the timing of debt, we would be able to recycle some capital within the organization to provide additional liquidity to meet growth opportunities. Third, and fundamentally, we took a look at the trading metrics of our company and the cap rate and price per square foot. Objectively, we stepped back and said, at these levels, given what replacement cost is, I think I referenced in the comments. We took a look since the great financial crisis, what the trading ranges of assets have been. Even if you go back to the great financial crisis, to have cap rates for asset sales well below the trading cap rate for our stock, it gave us comfort that we could generate some incremental liquidity by doing spot asset sales and recovering that. We had a unique circumstance with the sale of the assets and the ability to defer some development spend that created the liquidity for us to go ahead and do that net $55 million share buyback program.

And what was the cap rate on the Melbourne sale, Jerry?

Oh, I'm sorry. I forget what that was. Tom, do you know?

The occupancy rate for that property was quite high, in the upper single digits. However, we have some upcoming lease expirations for that building, which is why we considered it non-core and proceeded with the sale. In my earlier remarks, I mentioned that we lost about $600,000 in income during the first quarter, suggesting a relatively high cap rate. Since there are upcoming lease expirations, it’s difficult to determine an exact cap rate, but it was in the upper single digits when adjusted for normalization.

Thanks, guys.

Thank you.

Thank you. Our next question comes from Michael Lewis from SunTrust. Your line is open.

Great, thank you. How does the IBM renewal impact the plans at Broadmoor? I know this has been a question for a while about whether they would stay or want a new building or move around. Do they still have optionality to get into a new building if one is built there? Or is there kind of uncertainty now?

Hi, Michael. As we laid out in the supplemental package, we can still build around 2.7 million square feet with the existing IBM buildings in place, number one. Number two, the programs we're moving forward with by the planning for Block A in particular, then the remaining blocks along Burnet, we can do all of those without impacting the existing IBM footprint. The renewal we did with IBM covered every one of the buildings with the exception of the 905 building, which literally sits where we would be taking our Palmway Boulevard to the back of the site. We continue to work with them on what they want to do with that building. If they would like to stay, they're on a bridge basis, I think we're fine with that, because there's other access points to the back of the site. We certainly have always indicated them the ability that if they would like to move into a consolidated, larger building like back on Block L at the back of the site towards the train line, we can do about 1.2 million square feet back there in a 30-story building. We thought it was important to get them to commit to Broadmoor for a period of time, which they've done. It required a lot of great conversations with our team and IBM on their long-term plans. The key takeaway is that our current plans for developing the Burnet side of the site are not impacted by IBM being there.

Okay, thanks. And then on the 95% recollection in April, it was good. You mentioned the co-working and retail tenants disproportionately asking for deferrals. Are there any other trends emerging in the portfolio as you're having discussions with tenants in terms of strength or weakness, whether it be by tenant industry or CBD versus suburban or large spaces versus small? Anything notable there?

George, why don't you pick up on that, please?

Sure. Michael, good morning. Look, I think in terms of trend it's been more the medium-sized to smaller tenancy within the office mix. And again, as Jerry mentioned in his commentary, everybody is managing their own cash flow. They’re trying to determine where they can shift dollars, and rent is obviously a big piece of that puzzle. As we evaluate these on a case-by-case basis, we have to have a strong belief that the tenant is viable for the long-term, and we try and get that deferment paid back within 18 to no longer than 24 months, with an extension of term at the same time. It hasn't necessarily identified itself as being particular to any one industry. It's just been more kind of the medium to smaller tenancies.

Any difference between Philly and Austin or no trend there you think?

I would say the overall volume of requests has been more heavily in Pennsylvania than in both D.C. and Austin.

Great, thank you.

Thank you. Our next question comes from Omotayo Okusanya from Mizuho. Your line is open.

Yes. Good morning. Congrats on the pre-lease at 3000 Market. Just curious if you could talk about who that tenant is? And if you can't, just kind of describe overall what kind of life science sector they may be in or their general size? I'm also curious how that makes you feel about the potential to really kick off the rest of the life science projects in Schuylkill?

Good morning. We can't disclose who the tenant is. They want to do their own announcement. They're a well-known tenant in the Philadelphia area. They are a major corporate credit in the cell and gene therapy business. They do have other residences in University City. We were delighted to bring them in and extend focus on them taking that entire building. It was a bit of an experiment for us, because we saw a tremendous growing demand for life science, particularly cell and gene therapy companies in Philadelphia. One of the challenges we faced, quite candidly, was the time to build these bigger buildings we were contemplating put us at risk of losing some of that pipeline. So we moved quickly with our development team, architects and engineers to get the viability of converting 3000 into a life science facility. Fortunately, we were able to do it in a cost-effective way. Given the project's location, at a premier corner in Schuylkill, we had an immediate upsurge of activity for it and the fact that it could be delivered within nine to 12 months. We've used that as a catalyst to continue building a pipeline. We are looking at the potential of converting a couple other floors of our existing buildings into life science, which we appear we can do in a couple of cases to capture that near-term demand. It has reinforced the validity of our position of trying to expand the life science component of Schuylkill Yards. There's been a slowdown in overall activity, but there has been no slowdown in activity in terms of life science tenants, whether they be independent or affiliated with universities or healthcare systems. That location at Schuylkill Yards is really starting to generate a more pervasive brand in those sectors. We were talking to a couple of incubator companies about setting up an incubation for life science companies at Schuylkill Yards. We view that as one of the primary catalysts to start going vertical within Schuylkill Yards. Last point on that, our Schuylkill Yards West Tower, we've made some modifications to that design to accommodate several floors of life science space within the 200,000 square foot office component, again, in response to the tremendous increase you’ve seen in demand from that sector. I hope that answers your question.

Yes, that's very helpful. But the going vertical on the rest of Schuylkill Yards, is that more focused on landing a key tenant in the building or is it more focused on getting financing?

A little bit of both. I think on Schuylkill Yards West, that's a 200,000 square foot office component I just referred to, we can do some life science there and 220 residential units. We're ready to go on that, given the size of the office component and the residential component. It's really a matter of getting the financing pool together, and we're actively working on that from both equity and debt standpoint. The other building we have programs Schuylkill Yards West, which is an 800,000 square foot life science and office product, about a third life science and two-thirds office. There, we are looking for an anchor tenant to move that forward. As outlined in the past, we are looking at a partner on both of those projects at Schuylkill Yards. And as I mentioned earlier, we’re moving forward on the planning for a life science dedicated building within Schuylkill Yards, and that planning process should be completed within the next several quarters. We'll certainly be marketing that dedicated building to some of the emerging prospects we're seeing.

Great. Thank you.

Thank you. Our next question comes from John Guinee from Stifel. Your line is open.

Great. Thank you, and thank you, team, for doing such a great job on the supplemental and being the first office name to report. Probably just little nits. First, any change on Northrop Grumman's expected move-out early 2021? And then can you give any detail on the 540,000 square foot IBM lease? And if it's somewhere in the supplement or in a previously released document, just let me know.

Hi, John. I'll take the first one, and then George, if you don't mind picking up the second one. No change on their plans, John. I think they were planning on moving into an own facility. From our perspective, we have a renovation plan in process. But we're also, as we mentioned on the last call, very much focused on whether we spin that asset out via sale or through a structured finance joint venture. We do not believe that this crisis or anything related to it will have any impact on them leaving by the end of the year. In fact, I think they've already started to move out of some of the space. George, do you want to pick up the IBM deal?

Absolutely. John, on Page 14 in the supplemental, we did lay out some of the particulars, but there are 540,000 square foot tenancy pushed out five years to March of 2027. We executed that with only a 4% leasing commission for transactional capital and 12.5% mark-to-market on a cash basis and almost 23% on a GAAP basis.

Great. Okay. And then I think you still have a lot more capacity on your share repurchase authorization. Any reason you wouldn’t do that? And if you already addressed that, let us know?

Well, we do have that capacity at the right thing. One of the key drivers behind what we did in the first quarter was to keep it leverage neutral. We were able to define sources of capital to fund it. Certainly, we're very mindful of our balance sheet metrics. As Tom touched on with the slide of income in Q4 into Q1 and Q2 of 2021, that creates a little upward pressure on our targeted range from an EBITDA standpoint. So, John, we're going to go through the algorithm of figuring out what's the best way to deploy capital and keep forward capital capacity strong to keep our balance sheet strong. We stopped at the net $55 million because we had full confidence in the coverage of that from a liquidity standpoint. To the extent, some of these potential other sales or joint ventures would proceed, which again is uncertain, we would certainly look at the current stock pricing level as a recipient of some of those proceeds.

Okay. And then regarding Schuylkill Yards, it looks like a great location for someone who rides the Amtrak all the time. How does it compare with the sturdy University City a few blocks to the west? What are the pluses and minuses?

Yes, I think the pluses are number one, it's closer to Center City. Number two, it's closer to the mass transportation nexus, i.e., the third busiest train station in the country. It has riverfront views, John. It's also very close to Drexel University and the University of Pennsylvania. The advantage as we assess it further West, beyond 38th Street where the design center is, is that they have a cluster. They have a bit of a scale there already; it's quality developments. I think it's additive to the city, and additive in terms of our plans to create a larger cluster within University City. They've had a bit of a head start on us because they've been at it for about 20 years now and have some life science companies there. I think they're doing thoughtful design and have limited mass transportation access compared to where we are. I think we have comparable amenity bases. It will be an interesting process in the next couple years as we work collectively and competitively to create a significant life science cluster in the University City section of Philadelphia.

Great, thank you.

Thank you. Our next question comes from Bill Crow from Raymond James. Your line is open.

Thank you. Good morning, Jerry. When you think about the future of office right in this post-COVID or hopefully post-COVID world, beyond the signage that I saw in your supplementary, talk about things like, do you need more elevators as you think about designing new buildings? Do you need more parking because of hesitancy to get back on mass transit? Does that support more suburban construction and urban construction? How do you think about the floor plates in the future? Do we go to more formal offices and away from this collaborative space? Just as the first office company to report, I was curious how you're thinking about that.

Yes. Good morning, Bill. It’s a great question, and we'll share with you what insights we have at this point. We've spent a lot of time on it. In fact, one of the things we did early on is that we went back to five of the top architectural firms that we do business with, including the next round of our development projects, and asked them to take a complete fresh look at what they think the post-COVID office environment would look like. We got some very interesting feedback on operations, design elements, HVAC, increasing IT infrastructure, and lighting. What it really comes down to, we actually felt pretty good coming out of, because we think our approach to developments and any acquisitions we make is about providing an envelope in which companies conduct their business and delivering very high-quality services. We have very efficient floor plates, few columns, high ceilings, lots of glass top-grade systems, and high-speed elevators. When we looked at it, a couple of things resonated. The overall comment is that no one really knows; everyone is speculating. There is certainly going to be a migration back to more square feet per employee. Now, whether that's done with larger workstations, as the markets migrated from 10-by-10 to 6-by-6, or if it goes back to 10-by-10, or there’s separation between the workstations with vanity panels. Certainly, there are going to be wider circulation patterns, and we think a bigger emphasis on directional pedestrian flow and employee flow within spaces. Some of the things we've looked at on some of our newer developments already include creating as much of a touchless environment as possible. We've always put a high-level of HVAC into our bathrooms and that puts us in good shape. But I think lobby redesigns will take place; they might be smaller, less of a gathering spot. One of the things we were happy with that came back from this study is that there is going to be a huge push for indoor-outdoor space, which is exactly how we design our buildings. Creating a lot of outdoor space that tenants can access is really significant for the ability to get access to fresh air. This is including features like operable windows. There is a lot of I think different thoughts evolving in terms of design. What we do know is that – looking at our tenants and getting great feedback, quality space with great air flow, great security, and safe environments are going to be top of mind. I think Brandywine and like a lot of the other public companies will be extremely well positioned to take advantage of that demand. There is the difference between deferred and destroyed demand, and I think we’re looking at the notion that a lot of this office requirement will be kind of deferred. Tenants will think through how they want their space to lay out. I believe we will go through a period where there will be a number of short-term extensions done, as tenants think about how they can phase their employees back to work. We've never had more reason to be great at the customer service side of our business, and anticipate and service some of the tenant needs. I hope that answered the core of your question.

Yes. No, it's a fascinating time. We'll see how it all plays out. But thanks for the information.

Thank you. Our next question comes from Daniel Ismail from Green Street Advisors. Your line is open.

Thank you. Good morning. Just a quick one from me. Jerry, you mentioned on rental rates being relatively flat in this environment. Can you clarify whether that's on a net effective basis and maybe discuss what tenant concessions are doing in this environment? With the understanding that, of course, it's pretty early in the game, any insight you can share will be helpful.

I'll provide you with real-time updates from the ongoing discussions within our leasing and marketing team. Currently, we are observing minimal impact on rental rates, with only a slight slowdown in rental rate growth expected over the next year. There has been no noticeable increase in concessions, and it's too soon to make definitive predictions. As previously mentioned, we anticipate that many tenants may transition from long-term leases to shorter-term renewals, which generally require less capital and can lead to higher net effective rents. We expect there to be some pauses in speculative office development, but fortunately, we're in markets that haven't experienced much of that. One concern we do have is how landlords of lower-quality buildings will have to adjust their rates and improve their concession packages in order to secure deals, given that these buildings may not have the same capacity as our properties or other high-quality options. We are confident that tenants will gravitate towards higher-quality buildings. The challenge when moving from an A to a trophy property, or from a B to an A, is the competitive pricing pressure that depends on what the trophy or A-quality landlord is willing to accept. We don't foresee any significant disruptions. An early indication of this was seen in the discussions we had with tenants seeking rent relief. We were encouraged to find that only a small fraction of our tenants requested any rent relief. In those discussions, we explored their planning and perceptions. Overall, we have been satisfied with the feedback we've received from the majority of tenants regarding their continued use of office space and concerns about logistics, with discussions focusing more on safety and security rather than economic issues at this stage.

That's helpful. Thank you.

And we'll take our final question for a follow-up from Jamie Feldman from Bank of America. Your line is open.

Great. Thank you. What are tenants saying along the same lines? What are tenants saying about work from home longer-term? Do they think they'll keep a larger percentage of their workforce under that arrangement or not necessarily?

Yes, Jamie, again, I'll share with you what we know, which is anecdotal, not definitive. Every tenant that we talk to, what we're hearing is they can't wait to get back to the office. There's a big difference in psychology between having the option to work from home and being forced to work from home. We view that as a real positive. The work from home dynamic has been evolving; it’s been accelerated with the rapid deployment of technology enabling large amounts of people to work from home. I do think that could have a muting effect on demand drivers going forward. But from an office landlord standpoint, with 81% of the workforce on kind of mandatory shutdowns, I think we’re seeing that people really want to get back to a collaborative face-to-face or mask-to-mask environment. A lot of tenants we talked to are looking forward to returning to the workplace.

Thank you. As you consider the air quality upgrades, are there specific ages or styles of buildings that may not be suitable for these upgrades? How should we approach this? I know you mentioned filters in your supplemental materials, but overall, air quality will be a significant focus in the future.

It will be. I think buildings that are larger that have good physical plants and chiller systems and strong HVAC and mechanical systems could be more suited. I think rooftop units pose a challenge in doing that. George, if you want to weigh in on this?

Yes. When we assess the inventory class in Philadelphia, our folks felt that probably only about 25% of the stock, most of which is ours, could accommodate some of these HVAC filter increases. That's kind of why we've been proactive about getting those installed, so we kind of have that box checked when people do come back.

Okay. And do you expect that to be like a standard, that level or not? I guess you can't if it's only 25% of the stock?

Well, I think most of the newer vintage buildings are already designed and built for that. Where it's more challenging is on older inventory, where you’d have to retrofit some of those systems.

Okay. But it’s doable. It's just expensive?

Yes.

Okay. All right. Thank you.

Yes. I think when we look at our new development projects, all of this, everything that we've collectively learned over the last couple of months, all those items are being fully factored into our development pipeline going forward, as I would expect every landlord is doing as well. Thanks for the question.

And ladies and gentlemen, that does conclude our question-and-answer session for today's conference. I'd now like to turn the call back over to Gerard Sweeney for any closing remarks.

Great. Thank you all for participating. I'm sorry we ran a little bit longer, but you would expect that in these kinds of times. We appreciate your engagement. If you have any questions on the supplemental package, please feel free to reach out to us. We'll all get through this together. We're all working together to get through it. Please stay safe and healthy, and we look forward to providing a further business plan update to you on our next quarterly call. Thank you very much.

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