Ladies and gentlemen, thank you for standing by and welcome to the Brandywine Realty Trust Third Quarter 2020 Earnings Call. At this time, all participant 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. Good morning, everyone, and thank you for joining our third quarter 2020 earnings call. With me today 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. Before we start, I want to note that some of the information discussed during this call may include forward-looking statements under Federal Securities law. While we believe the estimates in these statements are based on reasonable assumptions, we cannot guarantee that the anticipated results will be achieved. For additional information on factors that could affect our anticipated results, please refer to our press release and our most recent annual and quarterly reports filed with the SEC. First, I want to express our sincere hope that you and your families are safe, healthy, and engaged. The pandemic has disrupted our lives and created a new landscape for businesses, and its duration is still uncertain. At the time of our Q2 earnings call in July, we expected a return to the workplace after Labor Day and into the fall. However, recent developments suggest that many tenants will postpone their plans until 2021. Currently, our portfolio is about 15% occupied, but there are variations among our different operations, which we can discuss further in the Q&A. Additional details on our response to this crisis can be found in our COVID-19 insert included in the supplemental package. During this call, we will review our third quarter results and provide an update on our 2020 business plan. Tom will summarize our financial outlook and update you on our strong liquidity position. After that, Dan, George, Tom, and I will be available for any questions. In examining the quarter, we have executed effectively on all aspects of our business plan, and we are pleased to report that we have met most of our 2020 objectives. We are fully complete on our speculative revenue target. Although the number of executed leases was slightly lower compared to the previous quarter, as is typical for the summer, our overall pipeline increased by more than 330,000 square feet. For the third quarter, we achieved a strong rental rate mark-to-market of 17.1% on a GAAP basis and 9% on a cash basis. Additionally, our core portfolio generated positive absorption of 102,000 square feet, including 47,000 square feet from tenant expansions. This absorption also includes the full delivery of our 426 Lancaster Avenue redevelopment in Pennsylvania, totaling 55,000 square feet, and 112,000 square feet of occupancy from backfilling the SHI space in Austin, Texas. During the quarter, we experienced 58,000 square feet of Covid-related terminations, the largest being the Philadelphia Sports Club in our Radnor complex, totaling 42,000 square feet, along with a few smaller hospitality and medical offices. Our full-year 2020 same-store numbers are aligning with our revised business plan, primarily driven by the September 30, 2019, move-out of KPMG from 183,000 square feet and the SHI move-out on March 31, 2020. Our cash collection rates remain among the best in the sector, with over 99% of our third-quarter billings collected, and our October collection rate is also strong, with over 97% of office rents collected as of yesterday. Regarding capital, our costs were in line with our targeted range, and we have seen success in generating short-term lease extensions with minimal capital outlay. Our retention rate was 60%, slightly above our yearly target. Based on scheduled fourth-quarter lease commencements, we expect to stay within our stated occupancy range. As Tom will explain in more detail, we reported FFO of $0.35 per share, consistent with consensus estimates. Looking at our 2020 business plan, any crisis presents both risks and opportunities. Our initial step was to thoroughly assess the risks to our business, and we believe we have put plans in place to mitigate or anticipate any negative impacts. We remain focused on growth through our early lease renewal program and margin-enhancing rebidding programs. We are actively collaborating with institutional equity sources to seek investments and opportunities that will generate earnings and enhance value. Addressing the risk factors related to the pandemic, we have maintained operations per state, local, and CDC guidelines, with a focus on keeping our buildings open. Current occupancy levels range from 80% in Austin to approximately 15% in the Philadelphia CBD, 18% in the PA Suburbs, and 25% in D.C. Due to various factors, including public policy and employers’ liability concerns, most tenants, especially larger ones, expect a phased return to the office after the New Year, and we are tracking these developments. Our top priority remains portfolio stability, with a focus on rent collections and rent deferrals. We reported a total of $4.5 million in deferrals, with $4.1 million scheduled to be repaid within the next 18 months. To date, we have already collected 14% or $536,000 in these deferrals, including $100,000 in early payments. Strategic tenant outreach is another crucial focus, and we have an excellent property and leasing team maintaining close contact with tenants to understand their concerns and transition plans. This outreach has resulted in 82 active tenant renewal discussions encompassing over 920,000 square feet, with 45 tenants accounting for 300,000 square feet executing renewals. These leases have an average term of 24 months and a cash mark-to-market increase of about 2.6%. We hope that as we gain clarity on the pandemic, some of these discussions will lead to executed renewals. From a construction perspective, there is nothing new to report from last quarter. We continue to have construction activity in all of our markets without any programmed delays, and we are beginning to see a slight decrease in construction costs, except for lumber and pressure-treated wood. Our leasing pipeline stands at 1.6 million square feet, with about 400,000 square feet in advanced negotiation stages. The increase of 331,000 square feet in our overall pipeline was driven by over 444,000 square feet of tours during the quarter, which is up 115% from last quarter, indicating signs of renewal in the market. Regarding liquidity and dividends, the company is in excellent shape in terms of liquidity and capital availability. After repaying the Two Logan Square mortgage, we project about $530 million available on our line of credit by year-end. We also plan to pay off a small mortgage of $9 million in the fourth quarter. There are no maturities in 2021, and no unsecured bond maturities until 2023, with an attractive 3.75% average interest rate. Our dividend is well covered with a 56% FFO and a 76% cap ratio. With the mortgage prepayments, we expect to have an entirely unencumbered portfolio by the end of this year, with no wholly-owned secured mortgages entering 2021. On the development front, all four of our production assets—Garza and Four Points in Austin, 650 Park Avenue, and 155 in Pennsylvania—are fully improved and documented, ready to go pending pre-leasing. We are actively marketing these properties, though the process is slow as tenants are considering new construction as part of their workplace strategies. The 405 Colorado project is on schedule for completion in Q2 next year with a strong 8.5% cash-on-cash yield, and we have nearly 200,000 square feet in the pipeline for that project. The 3000 Market project, a 64,000 square foot life science conversion at Schuylkill Yards, is underway and fully leased to Spark Therapeutics with a 12-year lease starting in the latter half of 2021, also at an 8.5% development yield. For Broadmoor and Schuylkill Yards, we are advancing Block A, a mixed-use project featuring a 350,000 square foot office building and 340 apartments, which is nearing final approvals from the City of Austin. Schuylkill Yards has the potential for at least 2.8 million square feet of life science space, presenting a strong long-term opportunity to develop a scalable life science community. Our initial office and life science projects, including 3000 Market and the Bulletin Building, are transforming into a life science hub. We are currently designing a 500,000 square foot life science building at 3151 Market Street, with a leasing pipeline totaling about 580,000 square feet, aiming to start that by Q2 2021 depending on market conditions. Our Schuylkill Yards West project, featuring 326 apartments and 100,000 square feet of life science and office space, is approved and ready to go, dependent on finalizing our funding structure. We are seeing significant interest in commercial uses, which could prompt us to start this project without a pre-lease. Additionally, we are converting three floors at Cira Center for life science use, with 34,000 square feet already pre-leased and 125,000 square feet in the pipeline. Both Schuylkill Yards and Broadmoor can accommodate about 5,000 multi-family units based on current approvals and plans. On the equity financing side, we are in ongoing discussions with various institutional investors and private equity firms, exploring asset-level joint ventures and sales to enhance our return on invested capital and generate liquidity for our development pipeline. These discussions include Broadmoor, Schuylkill Yards, and our existing assets. Finally, I want to highlight that, as you know, we typically provide guidance for the next year during our third quarter earnings call. However, these are unprecedented times, and as discussed in our July call, we are not issuing guidance for 2021 at this time. While our overall rent collections remain strong, we feel it is prudent to wait until we have clearer visibility on the length of the COVID-19 pandemic and its effects on the economy and our markets. Tom will now present an overview of our financial results.

Thank you, Jerry. Our third quarter net income was $274.4 million or $1.60 per diluted share, with FFO at $60 million or $0.35 per diluted share. The results generally aligned with our second quarter guidance, with some key highlights. Core property operating income was slightly above our estimate at $74.4 million. We expected termination and other income to be below projections at $1.3 million, mainly due to the timing of certain anticipated transactions we believe will occur in the fourth quarter. Interest expense was $1.7 million lower than forecasted, primarily due to a reduction from the loan assumption recapitalization of Two Logan Square, resulting in a one-time non-cash reduction in interest expenses totaling $2 million. Our fixed charge and interest coverage ratios for the third quarter were 3.5 and 3.8, respectively, both of which improved from the second quarter, mainly due to the Commerce Square joint venture. These metrics exclude the one-time interest reduction mentioned earlier. Our annualized net debt-to-EBITDA for the third quarter decreased to 6.7, largely due to consistent EBITDA and reduced debt levels from the Commerce Square joint venture. In terms of cash collections, as Jerry mentioned, we achieved 99%. Including third quarter deferrals, our core portfolio would have been very strong at 97%. Collections for October are currently at 97%, and we anticipate one vendor payment soon to bring us up to 99%. Write-offs in the quarter were around $0.005, predominantly due to retail-related tenants. Regarding same store metrics, we included $1.1 million and $3.8 million of rent deferrals in our third quarter and year-to-date results. Although they weren't billed during the quarter, this presentation will better reflect our current metrics without the inflation from subsequent cash receipts, which are starting to be collected. Looking forward to the fourth quarter, we expect property level operating income to total about $74 million, which will be about $500,000 lower sequentially. This decrease is primarily due to the partial inclusion of Commerce Square in the third quarter. However, there will be a sequential portfolio increase that will improve NOI by $1 million. The FFO contribution from our unconsolidated joint ventures is projected at $7.5 million for the quarter, an increase of $0.3 million from the third quarter, mainly due to the full quarter inclusion of Commerce Square, offset by reduced NOI at our MAP joint venture. For the full year 2020, the estimated FFO contribution is about $20 million. G&A is expected to be around $7 million for the fourth quarter and approximately $31 million for the full year. Interest expense is expected to increase sequentially by $0.8 million compared to the third quarter, totaling $17 million for the fourth quarter, with capitalized interest at $1.1 million. For the full year, interest expense will be around $74 million. We paid off our mortgage at Two Logan in October, totaling approximately $79.8 million with an interest coupon of 3.98%. We also anticipate an early prepayment of a wholly-owned mortgage at Four Tower Bridge, which has a coupon of 4.5%. With these payoffs, we have no maturities scheduled on our wholly-owned loans until 2022 for the term loan. For termination and other income, we expect $4.5 million in the fourth quarter, up from $0.9 million in the third quarter. Quarterly NOI for net income leasing and development fees will be $2.6 million, totaling around $8.5 million for the year. There will also be $0.5 million in the fourth quarter related to land sales while our $272 million gain represents 100% for reporting purposes but we only recognized 30% for tax purposes. We have undertaken some tax planning, so we will not require a special dividend in 2020. There are no anticipated ATM or additional share buyback activities scheduled. For the investment guidance, no incremental sales activity is expected. With the anticipated acquisition of a land parcel in the fourth quarter, we only have the building acquisition at 250 King of Prussia Road for $20 million scheduled for fourth quarter acquisition and will be held for redevelopment, generating no NOI in 2020. Regarding our capital plan, we have two development and redevelopment projects in our 2020 capital plan, with no additional plans for the year. As previously outlined, our 2020 CAD will remain in a range of 71% to 76% as lower capital expenditures will offset deferred rent repayments beyond 2020. The uses for the remainder of the year amount to $185,000, consisting of $25 million for development and redevelopment, $33 million in common dividends, $8 million in revenue-maintaining capital, $10 million in revenue-creating capital, and the repayment of mortgages at Two Logan and Four Tower Bridge, as well as the acquisition of 250 King of Prussia Road. The primary sources of funding will be cash flow after interest of $45 million, utilization of the line totaling $68 million, use of our cash on hand at the end of the quarter amounting to $62 million, and $10 million from land sales. After considering the outlined capital plan, our line of credit balance will be about $68 million. We project that our net debt-to-EBITDA will remain between 6.3 and 6.5. Additionally, we estimate our net debt-to-GAV to be around 38%, down from 43% in the prior quarter, largely due to Commerce Square. We also anticipate our fixed charge ratio to approximate 3.9 for interest coverage, 4 for debt service fixed charge, and 4.1 for interest coverage. I will now turn it back over to Jerry.

Great. Thanks, Tom. So these are really not normal times as we all know. So let us close with a couple of key takeaways. First, our portfolio and operations are in solid shape with really increasing visibility into our tenants, their thought process, and what they're thinking about in terms of their return to the workplace. Secondly, with our deal pipeline continues to increase as those tenants begin to really think about their workplace return and us staying in touch with those tenants is key. Our outreach to a lot of existing or new prospects is also very much a key part of our business plan. So we're happy to see our pipeline really increase during a pandemic and during the slow months of the summer. In other observations, and we're hearing this directly from tenants both large and small, safety and health both in design and execution are rapidly becoming tenants' top priorities. And we believe that new development and our trophy-quality stock will benefit from that trend. And we're seeing the beginnings of that in the existing pipeline. Look, private equity and the debt markets have stabilized and are becoming increasingly competitive, and strong operating platforms like Brandywine are really gaining significant traction for project-level investments. And then we'll end where we started, which is that we genuinely wish all of you and your families remain safe during these interesting times. And with that, we'd be delighted to open up the floor for questions. And we ask that in the interest of time, you'll limit yourself to one question and a follow-up. Crystal?

And our first question comes from Anthony Paolone from J.P. Morgan. Your line is open.

Okay. Thanks, and good morning, everyone. Jerry, I think last quarter you had talked about rents in the market generally holding up and you hadn't seen much diminution if any at that point. Can you give a little bit of color on where that stands today as you're getting deeper into the discussions of renewals and such with your tenants?

Certainly. Good morning, Tony, hope all is well. Look, we are continuing to see fairly good stability within our portfolio, and I think the harbinger of that or the look through the glass is really through the renewal program that we have. I mean, we're not really seeing any concessions that need to be made, kind of as a part of post-pandemic concerns. We're very much focused in terms of the pipeline increasing, and the rental rates that we had in place pre-pandemic are still the ones we have in place today. Certainly, in a couple of markets, like in Austin, for example, I know there is a lot of concern about the increase in sublease space down there, we can certainly talk about that. We haven't really seen any real erosion of rent yet. Certainly, the overhang of the sublease space might create that particularly in CBD Austin where there's more than 1 million square feet of sublease space available and the announcement the other day of partially Energy's acquisition could have an impact as well. But in that case, Tony, we've been saying that on the 405 we have targeted kind of the mid-8% return on cost-free and clear there. We can reduce rents by more than 10% and still asking rents by 10% and still generate about an 8% return. But, George, why don't you amplify any things you're seeing throughout the portfolio?

Yes. I think, Tony, the real evidence has been in the 45 early renewals that we've done. Even those deals albeit short in terms of averaging 24 months of extensions still had a 2.6% increase in the cash mark-to-market. So I think even as it relates to the new deals, as Jerry alluded to, the asking rents that we have have been holding up. We haven't really seen that much pressure on that. I think tenants are a little bit more focused on what their TI dollars will get them in terms of building the space the way they want it to, ensure that they've got a proper capacity for workstation, turning radius within the space, etc.

Okay, thanks. And then my second question is maybe a two-part on life science. I think it was last quarter you had mentioned converting 56,000 square feet of Cira, and I just couldn't tell if what you laid out in your comments is an expansion of that conversion or if that was the same amount of space. And then the second part of that, just would love to get some color on the nature of the tenants that would look at a converted space like that versus perhaps wanting to go into a new build or more specific life science type building? Like, are they okay working with lawyers and accountants and stuff like that or is there a crossover with the pipeline you talked about for the Schuylkill development with the same pipeline that would go into this converted space? So any color there would be helpful.

Sure. And, Tony, you're right. I mean, in the first phase, that is why I mentioned two phases at Cira, the first phase around that 56,000 square feet that's the lower several floors. And then we are incorporating capacities due to conversion for the other floors as we need to work, see the market demand over the next couple of years. The pipeline of transactions we're saying on that really have not indicated any concern about it being called a mixed-use commercial project at all. In fact, the any concern that might be there is really being more offset by the ability of us to deliver space fairly quickly. I mean a number of these companies looking for space in the very near term, which is really one of the catalysts behind doing this conversion, doing it on an accelerated basis. And we actually do view over time that, that original building we did at Cira Center will essentially be incorporated into the whole ecosystem we're creating at Cira Center.

Okay, thank you.

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

Great. Thank you, and good morning. Can you talk more about the incremental 300,000 square feet in the leasing pipeline? Where is that located? It sounds like maybe a lot of that's at Schuylkill Yards, but just more color on where the incremental demand is?

Yes, sure. Jamie, good morning, this is George. Just so we're all clear, when we talk about the volume of the pipeline, that's always exclusive of our development and redevelopment projects. So Jerry did cover the Schuylkill Yards and 3151 Market Street pipelines in his commentary but the increase in the normal core portfolio. We had a very good quarter of touring activity, 444,000 square feet, and a lot of that really was in both Philadelphia CBD and in the Pennsylvania Suburbs where we saw the largest amount of pipeline contribution. And we're also continuing to now see with the summer coming to an end, an elevated amount of touring activity at our 1676 International building in Tysons, so they probably had about 140,000 square feet of additions to the overall pipeline.

Okay. And then in terms of...

I appreciate the clarification, George. Regarding the development pipeline, we have a strong pipeline for our Schuylkill Yards project, which is continuing to grow. This includes various anchor institutions in University City where we see opportunities for expansion. Despite some macro impacts from the pandemic, these institutions are still aiming to increase their market share and enhance their research capacities. Additionally, a range of life science companies is exploring both the Schuylkill Yards West and our 3151 project. Within Schuylkill Yards West, we have numerous life science companies as well as several law and financial service firms interested in setting up their operations there.

Okay. And the 300,000 square feet, does that include renewals or that's all incremental demand.

It's all incremental. Yes.

So in case not met it would actually increase occupancy.

Correct.

Okay. And secondly, can you just talk us through the largest vacancies in the portfolio? I know you've got Macquarie and Standard Reliance to work on. And then just thinking about the expiration schedule, you got some big loss from expirations over the next I think, 16 months or so based on your schedule?

The significant vacancies in our wholly-owned portfolio are primarily at 1676 International in Tysons, where we are beginning to see an increase in our pipeline. The Macquarie and Reliance vacancies at Commerce Square, now part of the joint venture structure, have not changed much over the past quarter. We're continuing to build several spec suites in the lower floor spaces; we have already leased part of one floor and have now completed the rest for spec suites, aiming for quicker occupancy. It's still early for Reliance regarding a solid pipeline, but we're optimistic that with the fall and after the election, activity will start to pick up. For the rollover schedule in 2021, there are four larger leases to note. We've previously discussed most, if not all. First is Northrop Grumman at 2340 Dulles; once the lease expires on December 31, 2020, we plan to consider redevelopment options or continue marketing the property for sale or potential joint venture. There have been some preliminary inquiries from brokers to assess further. The second is IBM, with 199,000 square feet at Broadmoor in Building 5, returning to us on March 31. We plan to convert that building and the land into overall development planning for Broadmoor. The third is Comcast, occupying four floors at Two Logan Square with 88,000 square feet; we've already filled one of those floors. We will terminate Comcast's lease a month early and immediately back-fill it with a replacement tenant. This lease had nearly a 30% mark-to-market on cash rents with only a 10% capital ratio on a six-year term, so we feel positive about the other three floors given the building's trophy-class status. Lastly, we have some space at Cira Center returning to us, including a full floor of 27,000 square feet, which is part of our life science conversion initiative that Jerry mentioned.

Okay, thanks. That's very helpful. So just to confirm, when does the Comcast expire?

Natural expiration is 2/28/21 and one of those four floors we will terminate a month early.

Okay. And then do you have any updates on the Dechert, Blank Rome, and Baker leases?

Yes, continuing to negotiate with all three of them. Active dialogue. No pen to paper at this point but expectation is that we should be able to retain a good portion of those tenancies. And again, those are all in our 2022 expiration timeframe.

Okay, great. Thank you.

Thank you. Our next question comes from Steve Sakwa from Evercore ISI. Your line is open.

Thanks. Good morning, Jerry.

Good morning.

Noticed that many of your assumptions didn't change obviously for the year-end 2020. I would guess the one that jumped out at me was the percent leased I guess on the core portfolio of 94% to 95%. So I'm doing the math right, that sort of implies 275,000 square feet of absorption from a leased perspective, not necessary in occupancy perspective. And I think you mentioned that you did about a 100,000 square feet of absorption in Q3. So just kind of walk us through sort of how you're going to achieve that lease percentage just given the softness in the leasing environment.

Yes, sure. Steve, this is George. Let me take the first shot at that. I believe part of the reason we feel the target range is attainable is due to the strength of the pipeline. We also have a few expirations from the fourth quarter of 2020 where we are in advanced discussions and have signed a couple of leases. Therefore, when these vacates occur in the fourth quarter, the backfill is secured. However, since these spaces are not vacant today, they do not count towards our pre-lease statistic. I think the pipeline at 1676 looks promising, and we are hopeful for a productive remainder of the fourth quarter to finalize some of these deals.

Yes. And as George mentioned and it was in our comments. I mean, a good portion of that is coming out of the pipeline activity we have, which is we have a number of tenants who are in advanced stage of negotiations as well. So when we kind of risk assess that we thought we still had a pathway to get to that number.

Great. And then maybe, Jerry, just to kind of circle down on Austin in 405 Colorado, I realize it's still maybe three quarters out from completion but maybe just talk a little bit about the 200,000 square foot pipeline; are those tenants really kind of all in the market with existing kind of upcoming aspirations? Is there anybody kind of new or expanding in the market to take that? And then, you did mention kind of the increase in sublease space. I'm just curious, the competitive nature of the sublease against new construction.

Yes Steve, that's a great question. The pipeline currently consists of about 200,000 square feet, and there are several tenants who have been engaged for the past few quarters, including a couple of law firms and several financial service firms. We are also in discussions with a few technology companies. The building at 405 is relatively small with a highly amenitized design that features a complete sky lobby floor and over two and a half parking spots on site, which is uncommon in the Austin Central Business District market. We are focused on securing leases and hope to see some of these prospects successfully transition into signed agreements in the next few quarters. The curtain wall is nearly finished, and interior work is beginning, so while we are still conducting hard hat tours, we anticipate that by December we will be welcoming people in a more finished state, which should generate additional interest. The leasing team is optimistic about the uptick in activity. Although there is some frustration regarding the slow progression of the pipeline, we are still proposing rental rates in the mid-40s range with the same level of concessions we originally planned. We don't expect significant downward pricing pressure with the current dynamics, but given the increase in sublease spaces and the disparity between sublease and new building rates, there could be some downward pressure in the future. Therefore, we are adjusting our financial model to ensure that even with a reduction in our projected rents by 10%, we can still achieve about an 8% yield. Our primary focus now is to finalize more leases, as we believe that will create momentum as the Austin market begins to recover.

Great. Thanks.

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

Hey. Good morning, everyone. Jerry, maybe just spending a little bit more time on life science. It's been a space that we've seen a lot of owners and developers talking about converting or building new space in, yourself included. So just wondering maybe specifically for Schuylkill, if you think about just the supply picture, where else might there be competitive supply that comes up in either existing or new product? And from the demand you're seeing, are those tenants that you think end up in that greater Philadelphia market or are these tenants that might have national pursuits and they're trying to figure out where they end up?

Yes, thanks, Manny. I'll do my best to answer. In Philadelphia, we see our competitors in the life sciences sector, such as the University City Science Center located about eight blocks west of the FMC Tower, and the Discovery Center in the Pennsylvania suburbs, which is a former GSK facility being updated for modern life science purposes. There's also a building on East Market Street, Calder, an older structure that is being marketed for some life science vacancies and is close to the Jefferson University Health Care System, providing potential demand drivers. Overall, I believe these are all quality competitors. However, what we offer is a superior location along with high-quality, efficient designs. Most potential tenants prefer new construction, which explains the increased interest in both our Schuylkill Yards West and 3151 project. The downside of this new construction is the delivery timeline of 24 to 36 months, while many tenants have immediate needs. Thus, one of our goals, similar to what we accomplished with 3000 Market Street, is to create some immediate space options for those life science tenants in our pipeline. We ended up leasing the entire building to Spark Therapeutics due to their urgent demand, prompting us to assess Cira from an engineering design and HVAC perspective for potential conversion costs in the lower bank. Fortunately, we allowed for much design flexibility during construction, leading to manageable costs. This allows us to offer 30,000-square-foot floor plates to tenants, with delivery anticipated by the second half of 2021, which is quite valuable. We see life sciences as a promising growth area in Philadelphia, supported not just by the major anchor institutions as in the past. There are many new entrants among our pipeline tenants. The first-mover advantage Philadelphia has gained in cell and gene therapy, along with significant investments from the University of Pennsylvania Health Care Systems and Children's Hospital of Philadelphia, coupled with increased NIH and venture capital funding, has laid a strong foundation for locations like Schuylkill Yards to develop scalable and attractive ecosystems for these companies.

Thanks, that's great color. In the past, when we've spoken to life science developers, there has been some hesitation to do mixed-use, especially with residential. Have you seen that sentiment change? Are people willing to either live in a life science building or are life science tenants willing to be in a building that's partially residential?

Yes, it really depends on the type of work the life science company is doing in the building. If it's primarily Level 1 work, it's not a major concern for the life science company. In the case of Schuylkill Yards West, there are separate lobbies for each of the different uses, which ensures a level of privacy and confidentiality in the building's design. This way, there's no issue with a resident coming into a lobby with people in lab coats or vice versa. We've specifically designed this segregation into Schuylkill Yards. The commercial space there is around 200,000 square feet, and we expect about 100,000 square feet of that to be a mix of life science and research labs, while the rest will be secured office space. Additionally, the dedicated life science building will cater to larger tenants looking for bigger floor plans and a specific life science focus.

Right. And then last one for me. Just can you talk about what you're seeing in terms of multifamily rents and demand in the Philly market?

Yes. They are performing quite well. There hasn't been significant downward pressure, especially at the higher end of the market. We recently completed our monthly market survey, and feedback from both our existing projects under construction aligns well with our pro forma assumptions. We anticipate a possible slight slowdown in rental rate growth and a minor increase in concessions. We have already factored that into our Schuylkill Yards West pro forma. However, it appears that the key demand drivers remain strong.

Thanks, Gerard.

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

Thank you. So this morning, the Philadelphia Business Journal posted a story about rising vacancy and sublease space in Center City, sharply about leasing activity. I was wondering your thoughts on a 30 year portfolio roughly is Philly suburbs, do you think some of this maybe meant from Center City to Philadelphia suburbs or do you think, where we stand right now this is just evidence of weak demand, overall weak demand of where we are right now.

Yes, hi Mike. I hope you are doing well. George and I will address this. We've looked at the sublease inventory in Philadelphia, and overall, we're quite pleased with it. The numbers are relatively low, with about 320,000 square feet of Class A CBD sublease space in the city, which hasn't changed much, the largest block being 30,000 square feet. In University City, there is less than 30,000 square feet of sublease space, and the Pennsylvania suburbs have remained around the 500,000 square foot mark, which is small considering the inventory base, and we haven't observed any significant increases in any of these three markets since the crisis began. At some level, it's clear that the office markets are experiencing a bit of a pause, which doesn’t necessarily mean dire consequences. Many people are currently focused on visitors and other factors beyond just their office space, including distance, public policy, mass transportation, and children returning to school. This is why I feel optimistic about our leasing team and regional heads. We are conversing daily with tenants, brokers, political leaders, and community leaders to gain insight into the current situation. I believe Philadelphia will demonstrate its resilience in tough times in the coming years, as we typically maintain stability when things slow down. In response to your other question, we haven't seen any significant movement from CBD to the suburbs or the other way around. But George, what do you think?

Yes, I believe most tenants and companies are considering various options but have been somewhat hesitant to make any decisions. The potential for subletting is an area where we could explore demand for some of our space. Fortunately, we have the advantage of both Center City and suburban locations, yet we haven't seen any strong interest in utilizing suburban spaces, even on a short-term basis, to increase office attendance without concerns about mass transportation or long commutes, especially considering issues like homeschooling. As we gain more clarity on the pandemic each day, I anticipate that companies will begin to make some of these decisions. Given our range of inventory locations, we have the chance to capture some of this demand, whether it's moving from the city to the suburbs or the other way around.

Thank you. My follow-up question is a broader one, and it might have already been addressed by Jerry, but I believe it's important to ask. Investors seem to be looking beyond the next few quarters and are focusing on the long-term impacts this situation might have on the market. Do you think we have a clearer understanding of long-term office demand compared to a month ago, or has that clarity diminished? I understand you mentioned increased pipeline activity and more tours, but we are still seeing low physical occupancy rates. With Labor Day behind us, we’ll have to see what happens next year. What is your perspective on the potential outcomes and how confident are we in determining whether the office market is on a certain trajectory, maybe reduced by 10% or something similar? What are your thoughts on the long-term outlook?

It's a great question and it's something we're spending a lot of time on as a team and as a Board. We remain very optimistic, and I've shared some data points since the last quarter. The longer this situation continues, the more we are hearing from our offices that they are eager to return. Regarding the low occupancy levels, public policy is significantly affecting tenant decisions. For instance, here in Philadelphia, public health guidelines require employees who can work remotely to do so, leaving employers without the go-ahead to bring staff back to the office except in essential cases. This is particularly evident in Texas, where there's a discrepancy between state and city regulations. Employer liability and mass transit are also big factors, which, together with the preference for working from home, are preventing occupancy from increasing. While there might be a cyclical decline in office demand, we believe that re-planning and re-densification will counterbalance it. One brokerage report predicted about a 10% decline in overall office demand, but anticipated a 5% recovery through re-densification. We are engaging in space planning exercises with our tenants, and they are focused on how to create workspaces that allow for better circulation. It's uncertain whether this trend will hold after vaccines are widely available, but there are signs that the long-standing trend of reducing workspace is reversing. Studies indicate that continued remote work negatively impacts productivity, and we are seeing that when company leadership returns to the office, their teams tend to follow suit. This social dynamic is important. We remain cautiously optimistic that the office market will stabilize as the pandemic subsides. We believe there will be a stronger focus on high-quality, well-maintained properties owned by well-capitalized landlords, including our public company peers. We aim to own premium space and manage it effectively, responding to tenants' needs regarding health and safety more than ever before. Companies like ours are resonating well in this environment. I hope that answers your question, and I apologize for the lengthy response.

No. That's alright. Thank you.

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

Great, thank you. Just a follow-up on your last point, Jerry. For those types of core office buildings, transaction volume it's clearly fallen off. But I'm curious in the conversations you're having, if there's been any noticeable differentiation between your markets and how the office values are changing?

Yes. Hey, Daniel, how are you? We were really pleased to achieve the venture financing at Commerce Square. We felt it resonated well with a significant value-add transaction in Philadelphia, and we received very positive responses to it, executing a solid deal. As we explore other types of venture opportunities, whether related to development projects or existing properties, we see that while private equity and institutions are increasingly returning to the real estate market, particularly in some sectors, there remains a general consensus in the office sector that most investments are on hold until we have more clarity post-pandemic. Similar to what Michael and others have asked regarding the future of office assets, until there is more clarity, the bidding pool for office properties will likely be narrower compared to other asset classes. Projects with shorter lease renewals or value-add components might attract an even smaller group of investors. However, we've observed a few trades in the office space involving long-duration credit-backed lease structures completed at very low cap rates. Many investors are focusing on credit stability in relation to bond yields, which will likely continue to apply downward pressure or provide stability in office cap rates. You might see a temporary rise in the overall cost of capital for more value-add projects, but as the market gains visibility regarding demand drivers, that gap could potentially close.

Great, thank you. And then last one for me. Going back to the leasing pipeline. I don't believe you gave details regarding the composition of the pipeline in terms of industry based? And if you've noticed any more or less activity from any specific industries outside of life science within that pipeline?

Yes. Again, the pipeline in the core portfolio but for those couple of floors over at Cira Center where we're doing the lab convert or a life science conversion. Everything else would be traditional office use. And yes, the composition of the pipeline really hasn't varied too much from kind of the existing composition of the portfolio. So we're seeing law firms, professional service and the like, so I can't say that there's any one rising or declining industry at this point.

Fair enough, great. Thanks, everyone.

Thank you.

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

Thanks. Good morning, Jerry. Out of everything you've discussed today, the most surprising thing to me was the 8% return to the office level in Austin. Considering Texas is more open than other markets and your mention of local policy issues, that rate is about half of what we see in New York City and lower than San Francisco. Is this related to tenant issues, portfolio issues, or regulatory challenges? Does this indicate a potentially more permanent impact on the Austin market or possibly other markets?

Yes, Bill, that's a great observation, and I appreciate the prompt because I should have mentioned it earlier. One reason Austin's return is so low at 8% is that IBM, a major tenant of ours in the area, is not planning to return until after the first year. If we exclude IBM and their square footage from the calculation, we're looking at a figure in the mid-teens. So, it’s not as concerning when I analyze the figures without IBM, especially since we're also seeing slow returns from other large tenants like Comcast and Lincoln Financial. These larger companies are taking longer to resume operations compared to smaller firms, and our average tenant size is less than 10,000 square feet, which means smaller businesses tend to come back more quickly. However, when examining the overall occupancy rates, large users have a significant impact. Additionally, there is a disconnect in every market regarding public policy and the guidance from health experts and political leaders about when it's safe to return to work. This is affecting the return of the workforce in major urban areas, including how transit agencies are ramping up services. Thank you for bringing up the situation in Austin, as the 8% figure does not accurately reflect our portfolio composition there.

And you wouldn't anticipate that IBM would be more inclined to make permanent changes than your typical tenant, it sounds like.

No, not at all. In fact, I think the larger tenants are the ones that are indicating they want to try and get back even faster. They are being slower to come back due to a variety of issues they're dealing with within their own employee base. Great. Thanks, Tom. So these are really not normal times as we all know. So let us close with a couple of key takeaways. First, our portfolio and operations are in solid shape with really increasing visibility into our tenants, their thought process, and what they're thinking about in terms of their return to the workplace. Secondly, with our deal pipeline continues to increase as those tenants begin to really think about their workplace return and us staying in touch with those tenants is key. Our outreach to a lot of existing or new prospects is also very much a key part of our business plan. So we're happy to see our pipeline really increase during a pandemic and during the slow months of the summer. In other observations, and we're hearing this directly from tenants both large and small, safety and health both in design and execution are rapidly becoming tenants' top priorities. And we believe that new development and our trophy-quality stock will benefit from that trend. And we're seeing the beginnings of that in the existing pipeline. Look, private equity and the debt markets have stabilized and are becoming increasingly competitive, and strong operating platforms like Brandywine are really gaining significant traction for project-level investments. And then we'll end where we started, which is that we genuinely wish all of you and your families remain safe during these interesting times. And with that, we'd be delighted to open up the floor for questions. And we ask that in the interest of time, you'll limit yourself to one question and a follow-up. Crystal?

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and you may now disconnect. Everyone have a wonderful day.