Ladies and gentlemen, thank you for standing by and welcome to the Brandywine Realty Trust First quarter 2021 Earnings Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there’ll 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, Jerry Sweeney, President and CEO. Please go ahead.

Thank you very much. Good morning, everyone, and thank you for participating in our first quarter 2021 earnings call. As per our normal process on today's call with me are George Johnstone, our Executive Vice President of Operations; Dan Palazzo, our Vice President and Chief Accounting Officer; Tom Wirth, our Executive Vice President and Chief Financial Officer. Prior to beginning, certain information discussed during our call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results please reference our press release as well as our most recent annual and quarterly reports that we filed with the SEC. First and foremost, we hope that everyone continues to be safe, healthy, engaged, and looking forward to a return to some semblance of normalcy. The pandemic continues to disrupt, but with the vaccine deployment being accelerated, we are on a path towards that normalcy. There is more optimism about the economy opening up and we're hearing that directly from many of our 1,200 tenants. Our portfolio remains about 15% to 20% occupied, and the predominance of tenants that returned thus far are small and medium-sized employers. What's interesting, though, is many restrictions imposed by governmental agencies are being gradually loosened by state and local governments, but that happened just recently here in Pennsylvania and Philadelphia, and we believe that those changes will definitely accelerate the return to the workplace. So during our prepared comments today, we’ll review our first-quarter results, discuss progress on our 2021 business plan, and update you on our recent transaction development activity. Tom will provide a detailed financial review, and subsequent to that, Dan, George, Tom, and I are available for any questions. First, I guess a general update on COVID-19’s impact. Consistent with all applicable guidelines, our buildings have remained in an open, lights-on condition. Each of our buildings has a customized return to workplace presentation that’s been distributed to our tenants, and our property teams are in active discussions with many tenants on coordinating a safe return. These discussions have enabled us to understand the tenants’ concerns and aid them in their transition plans. We have heard from about a third of our tenants directly in the last several weeks and the trend lines from those are indicating three basic milestone dates: July 1st, Labor Day, and in the fourth quarter of 2021. We’ve heard from almost 400 tenants and clearly the small and mid-sized tenants are looking to return to the workplace first before the larger tenants. As we look at our business plan, certainly from a revenue standpoint, our key priority has been to focus on tenants whose spaces roll in the next two years. Those efforts have been very successful and they've significantly reduced our rollover exposure to an average of only 6% for the period of 2021 through 2023 or 8% annual rollover for the years 2023 to 2024. We do remain focused on revenue and our earnings growth and key near-term earnings drivers for us are leasing up our key vacancies that we anticipate will be absorbed in the next 24 months. We do anticipate that those leases will generate around 10% cash and GAAP mark-to-market and could generate between $0.07 to $0.10 per share in additional earnings. We do have 405 Colorado and 3000 Market stabilizing next year and the continued performance of our early renewal program and to add to our early rollover stats. When we look at our company from 2021 through 2026, we are through the efforts of our leasing teams on the early renewals and we are below 10% annual rollover in each year through 2026. So looking at first-quarter results, we did post FFO in line with consensus. We've made very good progress on many of our 2021 business plan objectives. We achieved a 90% target on our expected revenue range midpoint and as anticipated in our business plan we did have 165,000 square feet of negative absorption during the quarter. However, we've already leased 72% of that at an average cash mark-to-market of over 19%. Rent collections continued to be among the best in our sector and we have collected over 99% of first-quarter billings. First-quarter capital costs also remain well below our historical averages and we’ve been in our 2021 business plan range as we continue to have good success in generating short-term extensions that require minimal capital outlay. Tenant retention came in at 52% and our portfolio lease percentage remains within our business plan range. First-quarter cash mark-to-market was positive 5% and our GAAP mark-to-market was a positive 8.3%, both of those results are below our full-year ranges. However, based on leases already executed with higher mark-to-markets, we will be within our business plan ranges for 2021. We also expect all of our regions will post positive mark-to-market results on both a cash and a GAAP basis. Looking at same-store, our first-quarter GAAP same-store was 0.9% negative, below our 0.2% range, and our cash same-store was 1.4% negative, below our range of 3% to 5%. Similar to the mark-to-market tenants taking occupancy later this year will enable us to achieve our 2021 business plan targets. It's also important to note that with the exception of net DC, all of our regions and operations are expected to post positive same-store results. Net DC will remain negative while 1676 International continues through its lease-up phase. But during the quarter, we did actually secure a 75,000 square foot lease with a large professional services firm for a 10-year term with 2.5% bumps, and that represents about 30% of our current vacancy. In addition to that, and maybe more importantly, our overall leasing and tour activity is accelerating and our pipeline remains about 600,000 square feet. Tom will give us more detail on the balance sheet, but we are still forecasting a debt to EBITDA multiple in the range of 6.3 times to 6.5 times depending upon the timing of some future developments for the balance of the year. We have to keep in mind that we are in the beginning phases of a transition in the return to work journey. We know everyone is looking for data points. We believe it will take three quarters or so to fully play out, and we know everyone is looking for recovery data points. We have several encouraging signs we'd like to share. Recently published reports indicate that 80% of tenants want to tour spaces virtually before committing to an in-person tour, at least at this point in the cycle. We experienced the same trend within our portfolio. So during the quarter, we had a total of 1,500 virtual tours inspecting over 725,000 square feet of space. We think that was a contributing factor that led to a 40% increase in physical tours over the fourth quarter of last year. Our overall pipeline stands at 1.2 million square feet with approximately 165,000 advanced stages of lease negotiations, and the overall pipeline did increase by over 400,000 square feet during the quarter. We are clearly seeing from the pipeline additions that the return to work movement will accelerate and the flight to quality higher quality office buildings is becoming increasingly clear. Some of liquidity analysis and dividend coverage standpoint, we have excellent liquidity. As Tom will touch on, we anticipate having just shy of $470 million in line of credit availability by the end of the year. We have no unsecured bond maturities until 2023 and a fully encumbered wholly-owned asset base. Our dividend is extraordinarily well covered with a 56% FFO and a 70% cash payout ratio; our five-year dividend growth rate has been 5.3% versus a peer average of 3.6%; and we have grown our CAD during that same five-year period at a 7.8% annual rate versus a peer average of less than 4%. And quickly looking at some investment activity, during the first quarter we made two announcements. We are very excited to have been selected by the University of Maryland as an exclusive developer for a five-acre mixed-use development located within the university's Discovery District. This project will consist of innovation research, life science, and multifamily residential units. Prior to commencing any development, we need to obtain local zoning approvals and complete the design development process. We also would target 50% pre-lease before we start the first phase. Design development is underway now; we hope to receive approvals by the second half of 2022. The first phase, again subject to the pre-leasing standard and market conditions, consists of about 250,000 square feet of space. In addition, we had another announcement that in order to meet the growing need for immediate last space delivery in University City, Philadelphia, we have partnered with the Pennsylvania Biotechnology Center to create a 50,000 square foot life science incubator that will be located at Cira Centre. The project is named B.Labs and will open in the fourth quarter of 2021. Since the announcement just a few weeks ago, we've already built a pipeline for about 35% of that space from a production assets standpoint, all of our Garza, Four Point, 650 Park, and 155 King of Prussia are all approved, priced, and ready to go subject at least to pre-leasing. We continue to see increasing demand for those types of products. You're looking at our existing development pipeline for Schuylkill Yards West - that project commenced construction on March the 1st. The project will be built with a 7% blended yield. It will consist of 326 apartment units, 100,000 square feet of life science space, 100,000 square feet of high bay innovative office, and street retail. We have a very active pipeline for this project and for both the life science and the office components. As we noted in the supplemental package and the press release, we are proceeding down the path on a construction loan financing package and expect to close that in the next 90 days at a 65% loan to cost. Given the front-loading of the equity commitment of the $100 million, we don't really expect the first construction loan draw to occur until the tail end of the first quarter of 2022. On 405 Colorado, that project has achieved substantial completion. We currently have a pipeline of just shy of 300,000 square feet of space. Activity is definitely picking up. We've had four new tours in the last week alone and are under an LOI for four users that we hope to convert to a full lease in the next 30 days. 3000 Market, our 64,000 square foot life science renovation project in Schuylkill Yards, will finish construction later this year. The building, as disclosed, is fully leased for 12 years with the lease commencing in Q4 2021 at a development yield of 9.6%. Just some further amplifications on Schuylkill Yards and an update on Broadmoor. Within Schuylkill Yards, the strong life science push continues. As we've noted, the overall master plan can accommodate 3 million square feet of life science space. Our plans for 3151 Market or a 500,000 square foot life science building is well underway; pricing is done, and design development is complete. Active marketing is underway and we have a very healthy pipeline and are in discussions with several key tenants. Our goal does remain being able to start that project assuming market conditions permit later this year. As we previously mentioned, we’re converting floors two through nine in our Series Center Building to Life Science. That's a total of about 188,000 square feet. The incubator will take about 50,000 square feet of that. We've already leased about 47,000 square feet of that to other life science tenants. So, that’s 91,000 square feet of near-term life science space delivery that we can also achieve within Series Center. On Broadmoor, we are advancing Block A in the first stage of Block F that aggregates 350,000 square feet of office and 613 apartment units at a total cost of about $360 million. As we mentioned on the previous call, we are looking for a partner on that project. We have received excellent responses from very high-quality institutions and we'll make a selection in the next week or so and then proceed through documentation and debt financing shortly thereafter. Our plan remains to start the residential component of Block A, which is 341 units at a cost of about $119 million by Q3 2021. The office start of 351,000 square feet is targeted to commence upon achieving a pre-lease and we have decent activity that we’re focused on there. So with that, Tom will now provide an overview of our financial results.

Thank you, Jerry. Our first-quarter net income totaled $6.8 million or $0.04 per diluted share, and FFO totaled $60.2 million or $0.35 per diluted share and is in line with consensus estimates. Some general observations for the first quarter, while the results were in line, we did have a number of moving pieces in several variances to up to our fourth-quarter guidance. Portfolio operating income totaled about $68.5 million and was below our fourth-quarter estimate. The main reasons for that were lower parking revenue as work guidelines restricted people coming back to work and recommended working from home. Residential was below our expectations; our operations, primarily FMC, remained soft primarily from the results of UPENN and Drexel being primarily virtual. Also, snow removal costs were above forecast. While we do get very good recovery, we did experience higher net operating costs. Termination and other income totaled $2.1 million or $1.9 million below our fourth-quarter guidance. The results were negatively impacted by one transaction that we anticipated being classified in other income but was actually recorded as a reduction to G&A expense. Land gain and tax provision totaled about $2 million or $1.5 million above our fourth-quarter guidance. We recorded a land gain associated with our contribution of our interest to the Schuylkill Yards West joint venture, and that was not forecasted. We had a forecasted land gain of $0.5 million that didn't occur and was delayed, and we now anticipate occurring in the second quarter. G&A expense totaled $6.6 million, or $1.4 million below our $8 million fourth-quarter guidance. That decrease was primarily due to the reduction in our other income guidance which I just mentioned, and that was partially offset by higher professional fees at year-end. The FFO contribution from our unconsolidated joint ventures totaled $6.3 million, slightly below our fourth-quarter guidance, and our cash and GAAP same-store yields came in below our targeted range, partially due to a tenant move-out in the suburbs, but also due to reduced parking. That tenant has been backfilled and will take occupancy later this year. Our first-quarter fixed charge and interest coverage ratios were 4.1 times and 3.8 times respectively. Both metrics remained consistent with the fourth quarter. Our first-quarter annualized net debt to EBITDA increased to 6.5 times; it is above our current 6.1 times to 6.3 times range and the increase is due to lower NOI—sequential NOI from the fourth quarter. We do expect this metric to improve with increasing NOI during the second half of the year. As for other reporting items, Jerry mentioned collections have been excellent at roughly 90%—99%; less than 100% of deferrals were in our results for the first quarter. Portfolio changes took 2,340 quarters as previously discussed with Northrop’s move out. We have placed this property into redevelopment, and we will include it on our redevelopment page in the second quarter supplement as we complete our final plans in underwriting. 905 Broadmoor, with the expiration of the IBM lease, we have taken this building out of service, and it will be demolished at a future date as part of our overall Broadmoor master plan. As a result of that, we did have Broadmoor taken out of our same-store and leasing statistics as of January 1 of this year. Looking more closely at the second-quarter guidance for this year, we anticipate the second-quarter results will be lower than the first quarter primarily due to some of the one-time items mentioned previously, as well as the move out of 905 from our leasing as it gets retired. We have some general assumptions: portfolio operating income will be about $68 million. It will be sequentially flat from the first quarter, primarily due to lower operating expenses including snow, which will be offset by the Broadmoor building being taken out of service. FFO contribution from unconsolidated joint ventures would total $5.5 million for the second quarter, a $1.3 million sequential decrease primarily due to some leasing at Commerce Square and our map joint venture G&A. Our second-quarter G&A expense will total—will increase from $6.6 million to $8.2 million. The sequential increase is primarily due to the one-time first-quarter decrease. Interest expense will approximate $16 million dollars, and capitalized interest will approximate $1.7 million. Termination fee and other income will total about $1 million for the second quarter. Net management and leasing and development fees will be about $3 million. The $700,000 decrease from the first quarter is primarily due to the timing and volume of leasing commission income. Interest in investment income will total $1.7 million, consistent with the first quarter. Land sale and tax provision will be about $1.1 million generating proceeds of about $12 million. The business plan also assumes no new property acquisition or sales activity, no anticipated ATM or share buyback activity, and no finance or refinance activity. Our capital plan remains fairly straightforward. Our CADE remains unchanged at 75% to 81% range, and we have common dividends of about $98 million, revenue-maintained capital of $30 million, and revenue-create $35 million. Based on the capital plan outlined above, our line of credit balance will be approximately $132 million, leaving a $168 million line availability. The increase on our projected line of credit is partially due to the build-out remaining from last quarter. Our increased line of credit is primarily due to the announced incubator at Cira Center. We also projected net debt to EBITDA guide will remain in a range of 6.3 to 6.5. The main variable between timing is the development activity. In addition, our debt to GAV will be in the 42% to 43% range, and we anticipate our fixed charge ratios will remain at 3.7 and our interest coverage around 4. I will turn the call back over to Jerry.

Tom, thanks. The key takeaways are our portfolio and the operational platform are in solid shape. Our team has done a wonderful job of getting excellent visibility into what our tenants are thinking and how they're reacting to the return to work timeline. We're doing everything we can to aid them in that process, including as we've mentioned on previous calls, doing a number of pro bono space planning exercises to make sure that they have the option of evaluating how they want to reconfigure their space. Our leasing pipeline does continue to increase as tenants start to reemerge from the work from home mentality. Safety and health issues, both in design and execution, are really becoming tenants’ top priorities. We're hearing that from more and more prospects. We believe that new development in our trophy-level inventory will benefit from this trend, with a good data point showing that our development projects pipeline increased by 23% during the quarter, evidencing that real focus on quality. We have some very robust growth drivers that remain on target. We have two fully approved Mixed-Use master plan sites that can double our existing inventory, diversify our revenue stream, and drive significant earnings growth. Our planned 3 million square feet of life science development can create a real catalyst to accelerate the overall pace of the development of Schuylkill Yards. We have a very attractive CAGR growth over the last five years and have created a very well-covered and attractive dividend that's poised to grow as we increase earnings. Private equity is abundant and the debt markets are incredibly competitive, evidenced by the 65% loan-to-cost of Schuylkill Yards West, and strong operating platforms like Brandywine are gaining significant traction for project-level investment, as evidenced by the strong activity we had in our Broadmoor marketing campaign. Our partnership with Schuylkill Yards West reinforces that more and more smart investors are focusing on the emerging life science market here in Philadelphia. We hope you all are doing well and that you and your families are safe. With that, we’re glad to open up the floor to questions. We do ask that in the interest of time, you limit yourself to one question and a follow-up. Thank you very much.

Thank you. Our first question comes from the line of Craig Mailman with KeyBanc Capital Markets. Your line is now open.

Hey. Good morning, guys. Jerry, just curious on the commentary around improving tours and the pipeline. Are you seeing any geographic concentrations of better shrinks or even weakness?

George and I will tag team, and Craig, I hope you're doing well. What's actually interesting is that when we look at some of the data points, our highest level of virtual tour activity by a wide margin occurred in the Philadelphia CBD. That was probably one of the markets we had and had the tightest return to work guidelines in place, but that was followed by the Pennsylvania suburbs, again evidenced by the restrictions in the Commonwealth of Pennsylvania, and then net DC came in third in terms of the overall sum of the views, and then Austin was in last place there. But George maybe you can add some color to the dispersion of the pipeline.

Yeah. Just quickly, Craig, on physical tours, it’s kind of the same dynamic. Philadelphia outpaced physical tours by 120% in the first quarter. The pipeline again is somewhat evenly dispersed. Some of that has to do with the amount of inventory that each of our regions have. We don't have as much inventory in some markets as others. Gerry mentioned that between 1676 and 2340 Dallas, that pipeline in Northern Virginia is about 600,000 square feet and CBD. Again, some of that is kind of outside of our pipeline – Commerce is technically in the joint venture, but the pipeline continues to build at Commerce. It's right now about 120,000 square feet on both the Macquarie and Reliance givebacks, and in traditional CBD again we're seeing good activity on the upcoming rollover by Comcast, Decker, and Baker.

Got it. That's helpful. And just I’m kind of curious relative to past downturns; is this a kind of normal pattern that you've seen where tours have increased quickly, and do you think just the increased availability of space broadly in some of your markets, whether it be sublease or direct, do you think there’s a lot of double counting? It seems like a lot of brokers and companies are saying that more activity is up pretty meaningfully for them. Do you think it's really an increased pool of tenants or just tenants are looking at a broader swath of space and so there's overlap in terms of what people are seeing?

Yeah. Craig, that's a great question. Again, George and I’ll tag team. I mean it's hard to say we've been through a downturn like this because we literally had the brakes on activity for almost 12 months, with the only real notable deliveries being lease negotiations that were in process. So I think when we talk to a lot of brokers in all of the markets, there's an expectation of a significant ramp-up. Companies are really now beginning to focus, I think for the first time, on a programmatic return to work timeline. So I know even down in Austin, the amount of sublease space has gone down based upon reported results. Levels of activity are certainly much stronger in the first quarter than they were in the fourth quarter, with a real acceleration month-by-month during the first quarter. We look at our pipeline to assess the pace of deal flow. It seems there are a lot of tenants in the marketplace who really fall into two categories: one, they need to get out and take a look at office space but don't have time pressure to make a decision because they’re trying to think through what their decisions might be in the next 9 to 12 months. But we're also seeing a fair amount of tenants who do need to make a decision in the near term, and we're seeing some of those timelines get increasingly compressed. But George, what else can you add?

Yeah. I think the one of the other dynamics we’re seeing is that there are a number of tenants looking at everything from existing vacancies to sublease opportunities because they're now going through the need or desire to reconfigure their space. They're taking a wider look than they traditionally would have. Obviously, different than just a financial crisis rebound, coming out of the pandemic, health and safety workstation locations and turning radius within the space have all contributed to an increased level of interest in virtual tours, physical tours, etc.

Great. Thanks for the color.

Thank you. Our next question comes from the line of Manny Korchman with Citigroup. Your line is now open.

Hey, Jerry. You mentioned the way you planned it was pro bono space planning. I don't know if that's for existing tenants or new tenants or the like. But what's coming out of those exercises or as you go through those? What interesting tidbits or lessons are you coming up with how space may change now?

Well, I think we have an in-house space planning firm and some very good relations with some outside firms. A number of months ago we moved to create tenant communication where we suggested to our tenants if any of them wanted to go through a space planning exercise that we would help them think through that through our internal resources without charging them. The results have been all across the board. The trend line has been that tenants are looking for a higher percentage of private offices, more circulation patterns, higher profile and larger workstations, and maybe multiple gathering areas instead of one central commons, and George, in terms of the numbers that we've had, we've had a couple of expansions come out of it?

Yeah. Starting this past quarter, we executed two expansions within the existing tenant base, both out in the Pennsylvania suburbs. We’ve got two others that we’ve actually advanced to lease amendments. It was just a matter of they needed to take down a little bit more square footage based on how they wanted to alter their physical space rather than just internal growth within their business.

Yeah. I think one of the other data points we're hearing—and I'm not sure if you’ve seen this through the other companies you follow—but there’s a lot of continued discussion over what percentage of employees will be on a permanent work-from-home basis. We’ve talked to a number of leaders of our 1,200 tenant base, and we've seen that thought process evolve significantly over the last 12 months. More and more companies are recognizing the value of having people together physically. Anecdotally, in conversations I’ve had with some large companies who’ve been targeting a certain percentage of employees to work from home, they're getting a lot of pushback; they’re hearing that employees would like the optionality of working from home but not being permanent work-from-home employees. That concern is creating a lot of pushback about giving up a set place in the office for them to return to. We're saying that we expect a three-quarter-plus transition as companies start to sequence people back in and consider how they will address the durability of concern regarding COVID-19's impact on the workplace.

Thanks for that. And then just on the Maryland deal, adding another sizable project to the pipeline, you've got Schuylkill Yards going on, you've got Broadmoor which you're going to lean on the partner for, and now you've committed to a new master plan development. Just how do we think about A, capital funding for all that; and B, why introduce Maryland to the mix when it hasn't been a core market for you or you don't have a standing relationship or hadn't as of yet with the University of Maryland?

Thanks, Manny. It’s a great question. From our perspective, our experience has been that working with universities is solid long-term business that can generate both value creation and see opportunities for us. Given our work with several other universities, we’ve developed a bit of a franchise in this area, and we've had numerous universities reach out to us to bid on master plan work or provide consulting services. What we’re seeing is universities and healthcare systems are often seeking outside help to add value to their real estate strategies. From Brandywine’s perspective, engaging with these organizations creates great connection points within the entire university system, from administration to faculty, to board members who are often business and civic leaders, to community groups that do business with the university. This has proven to be a valuable source of business development for us, community and tenant networking. Additionally, many of these universities are becoming incubators for companies they plan on spinning out. When we look at the University of Maryland opportunity, it is part of a larger university with very dynamic growth drivers, particularly in quantum computing. As we assess the staging of that opportunity with the rest of our pipeline, the transaction with Maryland is smaller in scale than Schuylkill Yards or Broadmoor. We have at least a year to go through the approval process before we could even contemplate starting construction. We have flexibility under our transaction with Maryland in their development subsidiary, Terrapin Development Company. We won't start that project without significant preleasing. The returns we want to target through our due diligence are the same as Schuylkill Yards and Broadmoor, running 8% for office and mid-6% for residential. As I mentioned, there is a tremendous amount of private capital focused on business with companies like Brandywine and in proven locations like university ecosystems. We've already been approached by numerous companies looking to take on that residential component as either investing partners or in its entirety. We think it's a good long-term value for us and view it as tied to an overall university system with growth potential.

And maybe one last one for me. You talked about more conversion of space to life science. Given that converted space is very much in an office building; when you say life science, do you mean that the tenant is going to be in the life science sector, and using it for office space? Do you mean life science in terms of R&D space? When you and maybe others in the states use that term life science, it can mean a whole bunch of things. So when you're talking about life science conversion, and this is different from the ground-up stuff, what do you mean when you say we’re converting the outlook, whatever it was, eight floors, four floors to life science?

I think as we contemplate it, I’ll give you a couple of specific examples within just Cira. A portion of the 47,000 square feet that's been released during the conversion is primarily office by a life science company or incubator which is 50,000 square feet and will have essentially 170 biology benches and private labs, 43 chemistry labs. It'll have a small component of co-working and about 15 private offices. That's primarily real lab space. When we talk about it generically, we're targeting that to be somewhere on a 50-50 office and lab split.

It does. Thanks, George.

Thank you. Our next question comes from the line of Emmanuel with JP Morgan. Your line is now open.

Thanks. Good morning. Jerry, you emphasized this flight to quality that seems to be unfolding. Can you give a little bit more color on what that means in terms of whether it's buildings, services, submarkets, and also whether it moves the line, so to speak, in your own portfolio that brings about more non-core assets that might have to be sold in the future?

Tony, good to hear from you. George and I will tag team this as well. When we talk about a flight to quality, it revolves around a couple of key pieces. One is what the existing building infrastructure is, relative to all the mechanical, electrical, and other factors like vertical transportation speed, level of filtration systems, and the amount of fresh air intake. From our production cycle, it’s all the items that used to be on page 47 of the 50-page RFP, which are now on pages 2 or 3. Every major company—and actually the larger the company, the more acute the level of examination—is looking into what the building can physically present from a platform standpoint. That's point one. Point two is they're really looking for the level of on-site management expertise, i.e., the building operating engineering staff and the qualifications of the property management teams. The pandemic has really shown a true bifurcation of landlord service delivery platforms, and those buildings with really high-quality on-site management fare much better in that evaluation than those that don't. The idea of having incentive, i.e., ownership-based on-site management is increasingly examined. The third point is the increase relative to the capital investment program and the preventive maintenance programs that buildings can present to prospective tenants. Tenants are very keenly focused not just on the building today but also the track record of reinvesting in physical plant to ensure the health and safety elements of the space. I don’t know, George, if you have anything else to add?

Yeah. Further adding to that, sometimes, it's just the amenity programs that you can build and provide within those buildings. Some of the trophy buildings are bigger than others, and there’s a flight to quality for all those things. The capital investment is a key part of it that Jerry touched on. We put between $6 million and $8 million of base building capital upgrades into our portfolio on an annual basis. That ranges from HVAC, elevator, restroom renovations, parking lot upgrades, lighting, and filtration change systems. It's that commitment and the service level we can provide that really drives tenants' preferences. Submarket location is impactful as well; we feel good about our Radnor portfolio as it's one of the trophy inventory sectors in the Pennsylvania suburbs. As for your second question, we have effectively moved a lot of lower-quality inventory out of our portfolio over the last several years. The last transaction we did with a joint venture evidenced a lot of that effort. We will continuously evaluate on a quarterly basis the relative performance of every building in our portfolio. We assess what we need to do to either reinvest the capital to change the NOI trajectory or to look to move them out. That will always remain part of our capital allocation strategy. We currently feel that our portfolio is positioned very well to respond to tenants’ increasing focus on quality.

Okay. Thanks for that. And just one other question is on the vacancies. I think you talked about that should drive $0.10 of earnings. Do you refresh us on how many square feet that is? What those are just the only tracks that’s $0.10, and those specific blocks?

Sure. Absolutely, Tony. We've identified it within the wholly owned portfolio. These are basically 9 suites/buildings, the largest of which is 1676 down in Tysons. So, we've got about 175,000 square feet left for lease down there. The next largest is a 40,000 square foot block in Radnor, which was formerly a fitness center. We have lease negotiations going on for backfill use there. There’s 36,000 square feet in Austin, Texas, that was formerly occupied by SA. We had a full flow block at Two Logan that we've now leased, so that's come off the table. Additionally, we have a 25,000 square foot block out in Plymouth Meeting. All-in-all, from that 400,000 square feet, we've leased about 100,000 square feet of that thus far. We only had 200,000 of that 400,000 in our 2021 business plan. We’re about halfway done with what we had in that plan; the balance of that is slated to fall into the 2022 plan, but we’re doing everything we can to secure that space and solidify the 2022 NOI.

Okay. Great. Thank you for that.

Thanks, Tony.

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

A little bit about net effective rents, and where do you think, if you think about your major markets CBD Philly, suburban Philly, Austin, how much do you think they’ve moved during the pandemic, and where are they now? Do you think they’re stabilizing? Just some more color on that key topic?

During the pandemic, I would say rents really haven't moved much at all. Some tenants looking for a little bit more of a free rent package have traded that off for the TI package. We continue to assess the entirety of the concession package, weigh that up against the lease term length, and sometimes we've seen deals where the bumps may be slower at first and larger on the back end to preserve those net effective rents. But pandemic specific, we haven't seen any deterioration in net effective rents.

So just to confirm, you're saying they’re pretty much where they were in 2019?

Yes.

Okay. And this is across every market?

I would say yes for the most part. Sometimes it’s more challenging if you’ve got either big blocks of vacancies you’re trying to move or overwhelming submarket vacancy you’re competing with. We have seen a little more competition but we assess that as the pipeline builds; we know where we need to be to close deals, and we pivot accordingly when we have to.

Yeah. Just to add to that, one of the things we’re keeping a watchful eye on is the impact of the pandemic, because it really has been driven by the escalation of construction costs. We’ve seen the price of steel, lumber, and multiple construction materials escalate quite a bit. And as we go through certain tenant pricing exercises for space, the TI cost may come in north of our targets, creating some downward pressure going forward. But it isn’t necessarily a rental concession per se due to the pandemic, it’s more a function of what we’re hoping is a transitional blip in construction pricing.

Okay. That's helpful. Thank you. And then you had talked about doing a 24-month forward view on expirations; are there any new move-outs that you guys weren't thinking about before that have popped up or that people have given you notice on?

No, there really aren't. The list has remained the same and we can continue to chip away at that. So, no new ones. The larger tenants we've spoken about with Comcast, we’ve got pipeline on two of those three floors with two and four givebacks in 2021. We’ve actively got deals to backfill all of the Baker giveback in the first quarter of 2022. So really, 2021-2022 looks pretty good. It’s really three leases over 10,000 square feet in 2021 and four leases over 50,000 square feet in 2022.

Okay. All right. Thank you.

Thanks, Jamie.

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

Thanks. Good morning. Gerry, I was just wondering if you could comment a little bit on Austin. It seems like that market has been a big beneficiary of a lot of movement, whether it’s from California. I’m surprised maybe the pipeline is a little stronger, demand is a little better there for some of the developments, or maybe four or five. What are your expectations for leasing in Austin over the next 12 to 24 months?

Sure, Steve. We think the pipeline in Austin continues to build. I think the first quarter numbers are a market-wide commentary, not just Brandywine. There has been some level of discipline with the first-quarter leasing numbers coming through Austin. Based on very recent conversations with not just our team but with other market prognosticators, there’s a big pipeline that’s building back to pre-pandemic levels. Through February, Austin created 1,800 new jobs, and there are 18 new companies in the queue who have located to Austin, along with 21 companies expanding. I mentioned we’ve seen a tremendous upsurge in activity at 405. Now that building's nearly done, and we’re getting a lot more traffic through the building. We're seeing an increase in the number of tours; hopefully, that translates into an increasing pipeline. We take a look at our Broadmoor development where there are a number of larger tenants in the market, and we’re certainly talking to many of those. There are no assurances that those deals will materialize, but we’re participating in conversations for every major deal in the marketplace. Generally, we're feeling very good about Austin. The activity at 405 should put that price in good shape as we enter 2022, particularly with the marketing launch of Broadmoor. We believe that will show real activity and generate even more interest in the office building.

Great, thanks. And the second question, maybe just going back to your construction cost comments and kind of the increase in steel and other inflation pressures. How are you sort of looking at some of the nearer-term development starts, whether it be 3151 or the developments at Broadmoor? Have you kind of precast out those projects? Based on current rents today, do those deals still pencil for you?

Yeah. How we approach that is, yes, we take these projects all the way through - for construction, so 100% CDs. We’re doing iterative pricing all the way through so we can value engineer properly. Once we get that pricing, we’re including the general contractor and the pool of subcontractors. It’s a fairly dynamic process, staying in close touch with all the various substrates and GCs on each development project. What we've seen thus far is while there’s been some upward pressure, we’ve been able to keep within the relative bands of all the projects still working. Certainly, as we price things through with these GCs, we ask them to provide a pricing metric on a notice to proceed timeframe of the next three and six months. We've also got a team that tracks all the futures markets. While steel is up over 20% on a spot basis for some commodity-level steel components, futures are down. We remain in conversation with many steel fabricators who are doing the same on precast curtain wall. So it's a continuous daily process by our construction team and development professionals staying on top of all major component parts. I think as we stand here today, we’re in pretty good shape across the board.

Great, thanks. That’s it for me.

Thank you, Steve.

Thank you. Our last question comes from the line of Daniel Ismail with Green Street Advisors. Your line is now open.

Great. Thank you. Just a quick one for me. Weighted average returns came in below recent averages. I'm curious about what's to say related to several large leases or it's kind of lower lease terms as to be expected for the rest of the year?

Yeah. This is George. Great question. It really is just based on the volume of deals and what we had in this first quarter, leading to the 3.3-year average lease term. Last year, during the start of the pandemic, we started reaching out and did a number of one-year extensions and two-year extensions where the end result of the lease commenced with its extension during the first quarter of 2021. We did a one-year extension with Dechert at Cira Center for 12 months a year ago. So we had 109,000 square feet with a 12-month term, which skewed commencements this quarter. We've also further extended those in that lease. While we reported in the first quarter of 2022, it will naturally commence. It was really just a combination of one large lease and several others that were short-term in nature due to pandemic impacts.

Okay. As you look at the rest of your pipeline and discussions with tenants, there's no conscious choice to reduce lease terms as a result of the pandemic?

Yeah. I can't say they are. It comes down to each individual tenant’s comfort level on how long they want to go, but we still see larger deals wanting that 10 to 15-year lease period. Some will want to negotiate an early termination sometime throughout that term, but that’s no different than it was pre-pandemic.

I’d just add that we take a look at our development pipeline through 10 to 15-year proposals. That's not meeting resistance at all at this point. I think it remains to be seen whether some tenants will lean more towards shorter-term deals as part of their mindset going forward. We certainly have flexibility in our business model to accommodate that. It’s all about how we maintain the same level of net effective rents. Some of our pre-built phases will offer flexible lease terms. We have a subset of the tenant universe willing to pay a premium for shorter-term leases and that premium can adequately compensate for the incremental capital. We see that with the incubator location where we’re offering anywhere from month-to-month deals up to multiple years. Proposals we have out indicate that the level of premium correlates to how short the term is, so that will be a key part of every office company's business plan going forward. We're still seeing requests from a number of large companies on the development side for corporate homes and cultural platforms. There’s no increased request for expansion or contraction rights or deviation from historical norms on the early termination process.

Okay. Thank you.

Thank you. This concludes today's question-and-answer session. I would now turn the call back to Jerry Sweeney for closing remarks.

Great. Well, look, thank you for participating in today’s call. We look forward to updating you on our business plan activity in our next quarterly call. In the meantime, please stay safe and healthy. Thank you very much.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.