Brandywine Realty Trust (BDN) 2001 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Brandywine Realty Trust fourth quarter 2001 conference call.

At this time, all participants are in the listen-only mode and later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would like to introduce your host for today's conference, Mr. Gerry Sweeney, President and CEO. Mr. Sweeney you may begin.

Thank you very much Pam. Good afternoon to everyone. Thank you very much for joining us to review our fourth quarter and 2001 year-end results and for an update on our markets and business plan.

Prior to getting started, let me read the following disclaimer statement. The information to be discussed in this earnings conference call may contain forward-looking statements within the meaning of a Private Securities Litigation Reform Act of 1995.

Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, forward-looking statements are not guaranteed the results and no assurance can be given that the expected results will be delivered. Such forward-looking statements and all other statements that are made on this earnings conference call that are not historical fact are subject to certain risk, trends and uncertainties that could cause actual results to differ materially from those expected.

Among those risks, trends and uncertainties are the risks that we have identified in our annual report on Form 10-K for the year ended December 31, 2000, a copy of which is on file at the Securities and Exchange Commission. For further information on factors that could impact us, reference is made to our additional filings with the Securities and Exchange Commission. We are subject to the reporting requirements of the Securities and Exchange Commission and undertake no responsibility to update or supplement information discussed on this conference call that subsequently becomes untrue.

That being said, today's agenda will provide, in addition to a fourth quarter review and business plan update and overview of existing and projected regional market conditions. Participating during today's call will be Tony Nichols, Sr., our Chairman, Jeff DeVuono, Senior Vice President of Operations, George Sowa, Senior Vice President of Operations, Brad Harris, Chief Accounting Officer and Dan Palazzo, our Corporate Control and Investor Relations person.

Our hope is that our discussion today will leave you with a clear understanding of conditions in our core suburban office markets and provide insight into our marketing and investment strategies. We are very pleased with both our fourth quarter and year-end 2001 results. Our FFO was 69 cents for the quarter, in line with consensus estimates. The quarterly result represents a 9.5 percent growth rate over the last year and our 269 for the year represents a 5.9-percent increase over 2000 results.

In addition, both our quarterly and annual FFO are below our targeted 65 percent payout ratio. Our cash payout ratio for the quarter for 73.3 percent, for the year was slightly less than 72 percent, in both cases, below our 80 percent target. We are also delighted with annual tenant retention rate of 77-and-a-half percent. This is above our 75 percent stretch goal that we set in December of 2000. While the fourth quarter retention was 69 percent, this decrease was anticipated based upon known tenant activity and still represents an incredibly healthy retention rate.

In these uncertain times, this operating benchmark is perhaps the best indicator of the quality of our tenant service team as well as the location and quality of our portfolio. As we'll discuss during the call, market conditions remain slow, tenant appetites and decision-making processes continue to be uncertain. There has been a pickup in leasing activity since year-end. We have had recent success with several larger tenants.

We are, however, still relentlessly pursuing our tenant service, leasing and marketing programs. We are absolutely focused on the key fundamentals that drive our business and both Jeff DeVuono and George Sowa will be providing a specific overview on our key markets.

Prior to continuing with our normal presentation, let me address the two items that we have identified as non-recurring charges for the fourth quarter.

The first charge relates to Tony Nichols, Sr., our Chairman. Tony will remain Chairman for this transitioning into a non-managerial, non-executive role within the organization. In this capacity, he will remain available to provide guidance and assistance to me, as well as to the other members of the Board of Trustees.

The charge we are taking the fourth quarter reflects the contractual obligations the company has to Tony, relative to his existing employment agreement, the outstanding founder's grants that were awarded to Tony and deemed earned in 1998 as well as the vesting of several previous stock awards. While in his new capacity, Tony will continue to provide guidance to the company, he is significantly changing his role within the organization.

As such, recording our existing financial obligations is appropriate and more importantly, recognizes the outstanding contributions Tony has made to both the development and the growth of this organization. Tony and I have had and continue to enjoy a great relationship in building this organization and I very much look forward to working Tony in his new capacity.

The second charge relates to our investment in . is the company's only external technology investment and was made several years ago when we were realizing significant revenue from our rooftop management contracts. We have received over the last several years a recovery along with an 11 percent return on the majority of our investment position. The $2.5 million write-off reflects our remaining investment balance. It is important to note that US Realtel continued its operations. Recently, successfully completed a tender offer for Cypress Communications and operates in a cash flow positive position. We strongly believe, however that, due to the significant multiple compression in the telecommunications industry, it was prudent to write this investment down. As I indicated, their operations do continue and the stock still trades over the counter.

Overall, it is also important to note that approximately $5.5 million of the non-recurring charges are non-cash in nature. With that brief overview, let me turn over to Brad Harris, our Chief Accounting Officer, who will review our financial results for the quarter.

OK, let's just review and first talk about FFO. FFO for the fourth quarter of 2001, excluding the non-recurring charges, increased to $32.6 million or 69 cents per share as compared to $30 million or 63 cents per share for the fourth quarter of 2000. As Gerry indicated, that's a nine -and-a-half-percent increase, and the 69 percent FFO that we reported for the quarter did meet first call consensus estimates.

Gerry just went through the details of the non-recurring charge we took in the fourth quarter. The total charge was $6.6 million and related to the change in the status of Tony Nichols, Sr. and a breakdown of our investment in US Realtel. FFO for the year after the non-recurring charges was 255 per share as compared to 254 per share in 2000.

Let's next address EPS. Earnings per share for the quarter, excluding non-recurring charges, was 29 cents per share, as compared to 22 cents per share in the fourth quarter of 2000. If we exclude gains on sales of real estate, in addition to the non-recurring charges, earnings per share for the quarter was 19 cents per share as compared with 16 cents per share in the fourth quarter of 2000. Earnings per share after both non-recurring charges and the gains of sale of real estate was 10 cents per share as compared to 22 cents per share in the fourth quarter of 2000.

Let's move on to cash. Cash available for distribution for the quarter totaled $28.9 million or 61 cents per share as compared to $24.3 million or 51 cents per share for the fourth quarter of 2000. This increase is primarily attributable to increased funds from operations and a decrease in capital expenditures. Our FFO and payout ratios, excluding non-recurring charges for the quarter, were 63.6 percent and 71.8 percent, which compare favorably to company targets of 65 percent and 80 percent, respectively. FFO and cap payout ratios for the fourth quarter of 2000 were 64.8 and 80 percent.

Now I'd like to address our same store growth and leasing statistics. Same store in increased by 1.2 percent on a cash basis and .9 percent on a gap basis for the quarter and increased by 2.4 percent on a cash basis and 1.6 percent on a gap basis for the year. The increase in same store cash is primarily attributable to an increase in revenues. Our same store growth for the quarter was in line with the guidance that we had been providing. Same store occupancy is 93.7 percent in the current quarter as compared with 95 percent in the fourth quarter of 2000.

As we discussed on the second and third quarter conference calls, our overall occupancy percent has decreased as a result of the asset swap with . The lease up of the portfolio continues to go well, but is still below our portfolio average. Current occupancy at the portfolio is 91.9 percent as compared with 89.5 percent in April, the date of the acquisition.

Current occupancy for the entire portfolio is 92.2 percent as compared to 93.8 percent in the fourth quarter of 2000. We did make a minor change in the way we calculated our occupancy this quarter. Like many other companies, we previously included signed leases that were to start in the near term in our calculations. Our current occupancy percentage reflects only occupied space. We believe that this change, while minimal, better predicts our future revenues and better reflects our potential for additional leasing.

Our retention rate slipped a bit to 68.9 percent for the quarter, below the anticipated from our previous quarter run rate. Our annual retention of 77.5 percent remains well ahead of our 75 percent target. During the quarter, we renewed leases with an increase in net effective rate of 5.5 percent on a cash basis and 7.6 percent on a gap basis. For new leases, net effective rent increased by six percent on a cash basis and 10 percent on a gap basis.

While these increases are lower than we saw during 2000, our net effective increases have held up well. Our retention rate is up significantly and we've been able to complete transactions with less tenant improvements and lower commissions. Approximately 88 percent of the leases signed during the quarter, with terms greater than one year, contain contractual rental rate increases and the average term of these leases was 3.7 years.

We continue to focus our leasing efforts on doing more direct deals. Of leases signed during the quarter, 61 percent were direct deals based on the number of deals and 45 percent were direct deals based on square footage. These numbers continue to be in excess of our 40 percent target.

Our return on investor capital, adjusted for non-income producing assets, was 10.4 percent for the fourth quarter of 2001 and 2000. Return on invested capital is calculated by dividing net operating income for the trailing four quarters, that is, revenue, minus property operating expenses and general administrative expenses by the average of operating properties at cost.

Next, I would like to discuss some specifics about our financial statements. First, let's look at other income. Other income is $3.7 million for the quarter as compared to $2.4 million in the fourth quarter of 2000. Typically, about 1/3 of our other income, while recurring is uncertain, such as leasing commissions, termination fees, and other settlements. This type of income can fluctuate significantly from quarter to quarter. We had more income from these sources in this quarter than we did in the same quarter of the prior year.

Next, I would like to cover indebtedness. The increase in our debt balance, as compared to December 2000, is primarily the result of a debt assumed in the asset swap with , which closed early in the second quarter. Our debt to market capitalization is 50.4 percent. The leverage ratio under our credit facility is 48 percent, which is right in line with our target of 45 to 50 percent. Our floating rate debt balance at the end of the year was $204.9 million or about 10.5 percent of total assets.

As we reported in the third quarter, we continued to focus on the balance sheet. We renewed our line of credit in the second quarter, expanding it to capacity from 450 to 500 million. We currently have swap agreements that lock in on 175 million of the credit facility borrowings through September 2002. And in October of this year, we entered into several more swap agreements that lock on the same 175 million at approximately 4.2 percent from September 2002 through 2004, which is the maturity date on our line of credit. As none of our debt matures in 2002, we have no real short-term exposure.

I'd like to spend a minute or two on accounts receivable. Current market conditions have increased everyone's exposure to credit risk. We've seen a slowdown in the collection of some tenant's accounts., which is contributed into an increase in our accounts receivable balance throughout the year. In response to that trend, as we discussed in the third quarter conference call, we developed an extensive program to coordinate the efforts of property management, legal and accounting personnel to collect these balances. We targeted a significant reduction in our accounts receivable per year end and are pleased to report that this was accomplished. Tendered accounts receivable, before any reserves for doubtful accounts were reduced by over 28 percent from the third quarter. As part of our new program, we track trends on specific accounts much more closely, provide reserves on specific accounts, in addition to our normal monthly provision.

We provided 1.6 million in additional reserves during the quarter for a total of 2.9 million for the year. Our allowance for doubtful accounts is 4.5 million at year-end, as compared to 2.4 million last year. We believe our current level of reserves adequately addresses existing credit risks. Increased credit risk will continue to be an issue for 2002. In response, we have significantly increased the budget for bad debts in our 2002 estimates over what we budgeted for 2001. Although our historical loss rate is very low, averaging about .35 percent over the past two years, we believe this strategy to increase our reserves is prudent, given current market conditions.

We will continue our new program to early identify trouble accounts and maintain our increased collection efforts. I'd like to reiterate a point that I did make on the third quarter conference call about insurance costs. The tragedy of September 11th has significantly impacted the insurance industry and there has been speculation that rates could increase by more than 100 percent. As our current insurance rates are locked through June 2002, our risk is not that great in the short-term. We did perform a sensitivity analysis on these costs and determined that a 100-percent increase in the insurance costs for the second half of 2002 would impact our FFO by about only one cent per share.

In conclusion, let's talk about 2002 just for a minute. We are re-encouraged by what we see for 2002. Our capital recycling program is off to a strong start. As reported in our press release, we have already sold several properties with an aggregate value of $41.7 million.. We have reached definitive agreements to sell additional properties with an aggregate value of $74.6 million and are in the process of acquiring several office buildings in our core market with an aggregate value of $62.2 million. Although occupancy has declined, rental rates have remained stable and while the time it takes to complete a transaction is getting longer, deals are still getting done. So, while the momentum has slowed, the fundamentals in our core markets remain strong. We anticipate FFO growth in 2002, but not with the percentage increases we have seen in prior years.

Gerry will provide some more specifics on our earning expectations for 2002 in a few minutes. With that, I'd like to turn it back over to Gerry.

Great, thank you Brad. As Brad outlined, we're very pleased with our financial results and the operating performance of our real estate portfolio. But, while past performance is of tremendous comfort, the real issue we face is mitigating risk in what is clearly going to be a slower operating environment. The key issue being tenant demand and how our suburban office markets will hold up.

As discussed in previous calls, our business is one where we're always, both in good times and bad, concerned about market risk. When the market performs strongly, there's always the risk of additional capital availability creating the specter of new construction. In this type of environment, concerns about excess construction have rapidly been replaced by concerns about tenant demand, downsizing, subleased space and protracted decision timelines. As such, we will continue our focus on leasing activity, the actions of our competitors, credit risk within our own portfolio and competitive rent levels.

Even with the continuation of the economic uncertainty and the slowdown in activity, we take confidence in both our market position and our management team. Our business plan has always been predicated on using our leading market position and sharp focus to establish a long-term competitive advantage. The keys to success in this climate are going to be extensive market knowledge, strong leasing team and our communication with both our tenant base and that are second to none. We have a tremendous databank of information on effective rent levels, sub-market absorption rates, competitive building vacancies, sub-lease exposures, all that's served to provide a tremendous arsenal for us in our tenant negotiations.

Even more important is the knowledge and quality of our marketing staff. We've made great strides over the last several years to continue to improve both the quality staff, their experience level and our training programs. All of those actions taken in the anticipation of facing exactly this type of market. So, we believe the strength of our marketing tenant and service teams will ensure that we will continue to outperform all of our markets.

While there has been, as Brad indicated, an anticipated slip in our occupancy levels, we are still outperforming by a significant margin in every sub-market in which we operate. That is due in no small part to the tremendous efforts of our leasing staffs.

As I mentioned, George and Jeff are here to provide an overview of our market and they'll be available to answer any questions you may have at the conclusion of the prepared remarks.

George.

During our last quarterly conference call, I indicated that the central and southern New Jersey markets were in a state of equilibrium, but that tenants had more leverage than at any time during the last three years.

While there has not been any material positive or adverse changes in these markets since our last call, there has not been any indication that the economy will undergo any significant force recovery at this time. Further, there is no clear indication that many companies will once again express their confidence in the economy by committing to lease large amounts of new space and/or expand their existing office requirements in the near future.

Despite this uncertainty, we remain pleased with the relative stability of our four markets. Our markets have not experienced, nor do we expect them to experience a precipitous drop in rental rates. Further, tenant concessions, such as free rent, excessive landlord funded tenant improvements or other significant rental concessions, continue to be very limited.

Gross leasing activity in 2001 for southern New Jersey totaled 1,163,000 square feet, which is slightly above the average activity for the last seven years, and within one-half of one percent of the activity for the last three years. That absorption for 2001 was 238,000 square feet, which is down from the average of slightly more than 600,000 square feet of net absorption experienced the last seven years.

Brandywine is the largest office landlord in the southern New Jersey market, with a total office inventory of 2.9 million square feet. We control nearly 60 percent of the Class A market and have over four times the inventory of our closest private or public competitor. The diversity of our region allows us to generate operating economies of scale as well as achieving economic diversity without the risk of over-dependence on a single industry or the associated costs, and, quite frankly, the associated risks of diversifying geographically. We do, however, remain pleased with continued growth of the pharmaceutical and defense industries, which are among the major employers in central and southern New Jersey, respectively.

For calendar 2001, in central and southern New Jersey, we executed 180 lease transactions, totaling 998,000 square feet. Included in these transactions were 54 leases totaling 180,000 square feet during the fourth quarter of 2001. Further, we were able to maintain our occupancy level above 93 percent, which is 300 basis points better than the 9.9 percent direct market vacancy rate and 600 basis points better than the 13.1 vacancy rate, when including sublet space.

I'm also pleased to report that as of December 31, 2001, we've already executed 257,000 square feet of lease expansion for 33 percent of renewals within our southern and central New Jersey tenants, with leases expiring during calendar year 2002. We recognize the value of tenant retention. We will continue our focus efforts of finalizing negotiations with many of the remaining tenants expiring 2002. We've also already begun to initiate discussions with selected tenants with leases expiring in 2003 and beyond..

In closing, while competition for quality tenants is very intense, our markets continue to be stable and our superior operating results validate the quality of Brandywine's property, services and personnel. I assure you that our entire staff remains fully committed to provided our existing and new tenants with an excellent working environment and to continue to achieve our corporate goals. Gerry.

Thanks, George. Does Jeff feel like talking about Pennsylvania?

Sure. Thanks, Gerry.

Once again, I'm pleased to report that Brandywine's original business platform, at regional concentration, coupled with leading market position in core sub-markets, along with a strong focus on credit, has translated into a positive results. Consistent with our long track record, Brandywine's portfolio outperformed for the year ending 2001. Everyone in the eight individual sub-markets it participates in. On both a direct and overall vacancy standard.

This outperformance ranges anywhere from 400 to basis 1,000 points on a direct vacancy basis and 300 to 1,000 on an overall vacancy basis. Overall, we outperformed the market by just under 600 basis points on a direct basis and slightly over 700 basis points from an overall standpoint.

That said, the overall direct vacancy rate has increased a full 2-and-a-half percentage points from the previous year. 10-and-a-half percent growing to 12.7. While still a relatively healthy number, when compared to other markets around the country, we clearly don't want to see this move upward. But the good news is, we don't think it will. As many of you know, one of the underlying strengths of the Philadelphia region is that it's not reliant on one specific industry or company.

First, general health. So long as the general economy stays intact, so will the greater Philadelphia area. Right now, based on our activity levels for the past year, we feel the general economy is on the verge of beginning to rebound, albeit, slowly, but surely. One of the key reasons we're beginning to feel somewhat optimistic about the economy is based on the level of activity we've seen during the past couple of quarters.

For 2001, the number of prospects that toured our vacant spaces in PA totaled 451 or approximately four per vacant space. Three per vacant space is the norm. On a quarterly basis, this breaks down as follows: 95 in the first quarter; 91 in the second; 118 in the third; and 147 in the fourth. Going forward, assuming the general economy continues to improve, we certainly hope this trend continues.

Another positive sign is that Cushman & Wakefield reported leasing activity for 2001 to be approximately 4.4 million square feet. Looking back over the past five years, with the exception of 1999, total market leasing activity has typically ranged in the 2.5 to 2.9 million square foot range. More importantly, absorption for 2001 also finished slightly above one million square feet and is consistent with the ranges achieved during the previous five years.

Rental rates, despite tenants have more space options, seem to be remaining somewhat constant overall. And, in fact, five of the eight sub-markets have actually seen asking rental rates increase slightly overall. However, we don't see that as a macro-trend continuing in the short-term. The overall vacancy numbers report an additional 1.8 million square feet of space being marketed on a sublet basis in a suburban county surrounding Philadelphia.

The three deals recently executed in the market were placed in sublet space. We continue to believe that much of this space comes from either conversion type space, for example, warehouse to office, which is falling out of favor with more traditional users or as in secondary markets or locations, is small in size or is what we consider to be phantom space, that which is encumbered by existing tenants who, when pushed, will ultimately not let it go.

Lastly, I'd like to point out that once again that the overall market, excluding Lehigh County in Delaware consisted approximately of 45 million square feet. Considering that fact, the impact of true sublet space in the market is extremely small. As we've said before, being patient and closely monitoring your tenant's true options will mitigate the impact of sublet space in the market.

Now, in regard to new construction, we would expect certain sub-markets to take some time to clear. Furthermore, we continue to believe that the discipline in the financial markets should keep the new product from coming on-line and therefore, help maintain healthy levels going forward.

As we've said before, times like this are really an opportunity, going forward we will continue to focus on implementing our business plan and on creating as much value as possible from the portfolio. We have no doubt that discipline and a clear command of the facts coupled with having some of the best inventory in the region, a clear focus on tenant services, the best leasing staff in the market and an aggressive pursuit of all leasing activity will enable us to continue to outperform our competitive environment. But more importantly, the recent management changes that Gerry mentioned will provide for us to focus even greater on the opportunities we see ahead and make for an exciting 2002.

Great. Thanks, Jeff. We continue to believe that uncertainty can create significant opportunity and can also create a competitive advantage, particularly on the tenant retention acquisition fronts. As discussed during the last call, in addition to pursuing profit opportunities, we're also very much focused on our risk management efforts. As such, I'd like to spend a few minutes discussing our business plan and how we plan on mitigating risk for the balance of 2002.

In terms of the company, when you take a look at our risk profile, I'd like to address three specific elements. First is tenant rollover risk. I think Brad did a great job in addressing our credit controls on the tenant side, so let me limit my comments simply to rollover.

During the last conference call, we indicated that for 2002, we had approximately 2.6 million square feet rolling or a little bit more than 16 percent of our portfolio. Due to the acceleration of our sale program, that amount has been reduced by over 400,000 square feet.

So, our net rollover for the year is approximately 2.2 million square feet or a little bit more than 12-and-a-half percent of our pro forma portfolio. The steps that we have taken to mitigate our remaining exposure is first, and obviously, we have been and continue to be, in some cases, in active discussions with every single tenant.

Secondly, we've been aggressively pursuing our early renewal program and results as of the end of the year remain very encouraging. Of the 2.2, we basically broke it down into several different categories. First category is leases that are actually done or we're deeming to be highly probable in terms of they are in advance stages of amendment execution. That accounts for about 55 percent of our total rollover exposure in 2002 and covers about 1.2 million square feet. So, we're very pleased with the way that number is holding and is thus consistent with what we outlined last quarter.

In the other categories, we had about 500,000 square feet, about 15 percent of the rollover risk, where tenants are sending somewhat mixed messages to us. Their desires, their intentions are not known at this point, so that remains a piece of work for us to do. We have about 600,000 square feet or about 20 percent of the tenants are not planning to renew.

So, we feel as though we're very much on top of that. The renewals executed thus far this year have a weighted average term of about four-and-a-half years and we achieved a rental rate increase of close to 10 percent on the renewals we've executed thus far this year. So, between the renewals that are locked and those that are in negotiation are highly probable, we have more than the majority of our remaining rollover covered. And while there is still work to do, great progress has been made.

So from a risk management standpoint, look at our core portfolio, we're showing well on top of our 2002 rollovers, more importantly, as George touched on, we've begun to look ahead and have initiated discussions with numerous key tenants who have rollovers occurring in the year 2003.

The second issue is the market risk associated with development. As Jeff touched on, the development picture really hasn't changed since our last call. There have been no new construction projects started, nor have there been any new projects announced which are entering the marketing phase. Essentially, the development market that we outlined before is in place at about 1.3 million square feet of total deliveries for both '01, company that came on-line at the end of the year, '02 and projected for '03, that are available and not leased.

For a market of our size, this is not an unmanageable pipeline. Rental rate levels and development projects still exceed those being asked an existing product. Most of the product being delivered in the first half of 2002 had strong pre-leasing, with strong tenants who will be fully utilizing their space.

That being said, it still remains a significant priority in our company to lease up the rest of our development pipeline. That pipeline, right now, is $107 million or 5.5 percent of our asset base. Right now, we are 49 percent pre-leased. We are seeing very good activity at 401 Plymouth.

We just recently fully leased 15 Campus Boulevard, bringing that to 100 percent. Activity at 400 Berwyn Park remains slow in the 202 corridor. 935 with the other development properties we have underway, we acquired that mid-construction through part of the swap. Delivery for that project is scheduled for the second half of '02. There is no leasing signed for that project at this point. The timing of the delivery of that project, however, should nice with our existing number one market position in King of Prussia. In that market, we have about 2.6 million square feet. So at 100,000 square, 935 is a small increase to our total market position. Also, our office rollover in King of Prussia in the third quarter is fairly minimal. So, when this project is delivered, we think the timing will work.

While we continue to see some continuing softness in some sub-markets , the balance of the market, as Jeff touched on, remains fairly stable. More importantly, from a financial standpoint, our financial projections for the year, our development projects, Spec FFO income, that is 2002 income that we're projecting from currently unleased development space is only 2.5 cents per share. The balance of our development income is based on signed leases and while we remain keenly focused on leasing up the balance of the space, we are very pleased with our progress to date.

On a more positive note, we continue to pursue a number of third party development contracts and build a suit of opportunities that will provide a continuing source of selling land, as well as expanding our market position.

The last risk factor I want to take a look at is our balance sheet management and investing strategy for the year. As Brad indicated, we have no debt maturing in 2002 and our floating rate debt exposure is approximately 10 percent of our asset base. These were key 2001 goals that were accomplished. Our targeted leverage range is between 45 and 50 percent. This is based on our credit facility calculation . At the end of the year, we were 48 percent leveraged, pursuant to that calculation. We will remain within this range during the upcoming year and our hope is that we can actually slightly delever company through an aggressive capital recycling program.

One of our key goals has, for the last several years, been to continue to create capacity through recycling capital. Some highlights of our recent activities are that for 2001, we sold $135 million of property at an average cap rate of 9.5 percent. From these sales, we generated a net gain of approximately $11 million. For 2002, we recently announced the actual impending sales of the Bucks County Flex portfolio and our Park 80 complex as well as several other small building sales. The Bucks County sale encompassed 765,000 square feet of industrial and generation flex space. The average price per square foot was $53 verses a net base of approximately $45 per foot. The nominal cap rate, based on 2002 budgeted cash NOI was about 10.5 percent. But factoring existing in place income that selling cap rate was slightly below 10 percent. The gain amount on this sale is estimated to be about $6.6 million. This project had a three percent vacancy and a 19.3 percent rollover during 2002 and a 24 percent rollover scheduled during 2003.

The Park 80 transaction, which is a pending transaction right now, represents the final step in our complete exit out of the north Jersey marketplace. This transaction consists of two buildings aggregating 487,000 square feet with a sales price slightly in excess of $74 million or $153 per square foot verses our investment basis of approximately $141 per foot. The nominal cap rate, based on full lease up, through the balance of 2002, which just of 10 percent. The inflate to cap rate was in the mid-nines. Pricing was well in line with our value estimates, so we're delighted with the way this sale has progressed. Our gain on the sale of $6.1 million. The property had approximately a five percent vacancy rate and a 17 percent rollover in both of 2002 and 2003.

From its source and use standpoint, these transactions will generate about $70 million in cash and $55 million of debt relief. In addition, we had previously discussed our withdrawal from the Long Island market. At the current time, the vast majority of our Long Island portfolio is under firm agreement or under contract or in due diligence. Our expectation is that we'll be able to fully exit the Long Island market, save one small building by the second quarter of 2002.

We anticipate that our net gain from the sale of our Long Island operations will be approximately $4.2 million with cap rates on the sale ranging between 8.5 and 10.8 percent. Purchasers are several private buyers. Exiting this market will enable us to, in conjunction with the sale of Park 80, curtail our operations both in northern New Jersey and Long Island and reduce our overall overhead rate.

Obviously, exiting these markets creates a significant reinvestment opportunity. These sales have put us in a very strong position to increase our market concentration by identifying high-quality replacement assets. We have found such a replacement asset in the Plymouth Meeting Executive Campus. This campus is a 4-building portfolio that we actually acquired this morning from a private real estate company. It is located in close proximity to our meeting house business center, 401 Plymouth and Metroplex projects in Plymouth Meeting, Pennsylvania. The acquisition of this campus essentially replaces our Flex and Industrial with first class office and gives us a dominating presence in one of our key sub-markets.

The purchase price parameters are essentially a 10 percent yield, without managing fees and a 10.2 percent yield after incorporating management fee income. The purchase price on a per square foot basis is $187 below current replacement cost for a comparable product. A comparable sale just occurred recently directly across the street from 401 Plymouth at $202 per square foot. So, we feel very good about our investment base in Plymouth Meeting Executive campus.

The rollover for this portfolio during 2002 is only five percent. The average rents in place are $25.90 per square foot verses an average asking rent of $29 per square foot in the market. The project is currently 93 percent occupied and the 53 tenants in this complex represent an excellent customer base for us to control as we move forward with our Plymouth Meeting plans.

We anticipate being able to achieve good operating economies and believe this acquisition significantly enhances our leading position of Plymouth Meeting market.

So, bottom line, we're essentially delighted with our investment activity for 2001 and 2002 year date. If you look back over a period of five quarters, we have successfully exited gracefully, and we define gracefully being with a profit, from the northern Virginia market via the swap and the northern New Jersey and Long Island marketplace through asset sales. We believe that the sum of these transactions have significantly upgraded our asset quality, further enhanced our operating economies, reduced our G&A costs and most importantly improved our end-market competitive position, all at a time when market positioning is absolutely critical.

At this point in the cycle, our strategy is simple, continue to improve the quality of our portfolio, enhance the performance of our operating units and maintain a very disciplined strategy regarding our capital raising activities. Along these lines, the press release indicated that we are embarking on several changes within our executive ranks. Jeff DeVuono, who heads up our Pennsylvania operation, will assume lead responsibility for the company's entire Delaware Valley operations.

Assisting him in this effort will be a seasoned team of Barbara Yamarick, who is the Senior Vice President of Tenant Services, Tony Nichols, Jr., Senior Vice President of Leasing, Jeff Weinstein, Vice President of Construction, and Phil Schenkel, Vice President of Operations. Their focus, as Jeff touched on, will be incredibly sharp and I'm convinced that this reorganization will better position us with our tenant community, our brokerage relationships, and enhance our position in a competitive environment.

Looking forward, we see tremendous opportunities. To ensure that we're able to capitalize on the window, George Sowa will be taking the lead in overseeing all of our sales, acquisitions, corporate services and structured finance activities. In this capacity, George will have lead responsibility for analyzing our investment alternatives, his underwriting background has been significantly enhanced by several years of running one of our largest operations. This combined background will enable him to immediately for investment decisions.

Also, as indicated in the press release, we continue to search for the right CFO. We are in advanced discussions with several candidates and anticipate making an announcement on either a new hire or an internal reorganization in the not too distant future. In the interim, the company investor relations program is running very smoothly. Financial management reporting in the company remains extremely strong and we continue to evaluate CFO candidates in light of our current solid position as well as a keen focus on controlling overhead.

As indicated in the press release, we are providing 2002 guidance of $2.72 to $2.82 per share. If you recall from our last earnings discussion, I gave a narrow range of $2.77 to $2.82. We're keeping the upside of the range at $2.82 but moving the bottom end down by five cents. Given the continued uncertainty in the economy, we feel expanding the range at this point makes sense. The range reflects growth rates from 1.1 to 4.8 percent. Our key assumptions haven't really changed since the last call.

Our FFO range essentially reflects a flat same store growth rate, primarily due to an average occupancy reduction of about 200 basis points from current levels. We really do not anticipate any other development activity, other than what's been announced. As Brad Harris indicated, we have significantly increased our accounts receivable reserves and we have remained conservative in projecting our other income by keeping it about $1 million per quarter.

The acceleration of our sales activity is creating some very minor dilution, which is contributing to the downward range expansion. Our major concern, however, remains simply the time lagging getting tenants to sign leases and getting them physically into the space. While we believe we are extremely well positioned to operate within this range, our clear guidance to analysts is to be at the lower end of the published range. We're also projecting a first quarter 2002 FFO range between 63 and 65 cents per share. The first quarter will be our slowest growth quarter with our development and significant leasing activity, kicking in the latter part of the year.

To wrap up the presentation, the key members of our team have been through several different cycles in these markets before. We are fully prepared to successfully execute our business plan. We are taking, as we have in the past, a pragmatic rational approach to running our business. No sense of overreaction at all, simply a heightened level of attention to running all aspects of our business. Key issues remain a focus on fundamentals, having tremendous knowledge of our markets, understand the impact of our exposures and executing a plan to mitigate our risk.

We thank you for participating in today's call and Pam at this time I'd like to open up the forum for any questions. Operator: Good day, ladies and gentlemen and welcome to the Brandywine Realty Trust fourth quarter 2001 conference call.

At this time, all participants are in the listen-only mode and later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would like to introduce your host for today's conference, Mr. Gerry Sweeney, President and CEO. Mr. Sweeney you may begin.

Thank you very much Pam. Good afternoon to everyone. Thank you very much for joining us to review our fourth quarter and 2001 year-end results and for an update on our markets and business plan.

Prior to getting started, let me read the following disclaimer statement. The information to be discussed in this earnings conference call may contain forward-looking statements within the meaning of a Private Securities Litigation Reform Act of 1995.

Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, forward-looking statements are not guaranteed the results and no assurance can be given that the expected results will be delivered. Such forward-looking statements and all other statements that are made on this earnings conference call that are not historical fact are subject to certain risk, trends and uncertainties that could cause actual results to differ materially from those expected.

Among those risks, trends and uncertainties are the risks that we have identified in our annual report on Form 10-K for the year ended December 31, 2000, a copy of which is on file at the Securities and Exchange Commission. For further information on factors that could impact us, reference is made to our additional filings with the Securities and Exchange Commission. We are subject to the reporting requirements of the Securities and Exchange Commission and undertake no responsibility to update or supplement information discussed on this conference call that subsequently becomes untrue.

That being said, today's agenda will provide, in addition to a fourth quarter review and business plan update and overview of existing and projected regional market conditions. Participating during today's call will be Tony Nichols, Sr., our Chairman, Jeff DeVuono, Senior Vice President of Operations, George Sowa, Senior Vice President of Operations, Brad Harris, Chief Accounting Officer and Dan Palazzo, our Corporate Control and Investor Relations person.

Our hope is that our discussion today will leave you with a clear understanding of conditions in our core suburban office markets and provide insight into our marketing and investment strategies. We are very pleased with both our fourth quarter and year-end 2001 results. Our FFO was 69 cents for the quarter, in line with consensus estimates. The quarterly result represents a 9.5 percent growth rate over the last year and our 269 for the year represents a 5.9-percent increase over 2000 results.

In addition, both our quarterly and annual FFO are below our targeted 65 percent payout ratio. Our cash payout ratio for the quarter for 73.3 percent, for the year was slightly less than 72 percent, in both cases, below our 80 percent target. We are also delighted with annual tenant retention rate of 77-and-a-half percent. This is above our 75 percent stretch goal that we set in December of 2000. While the fourth quarter retention was 69 percent, this decrease was anticipated based upon known tenant activity and still represents an incredibly healthy retention rate.

In these uncertain times, this operating benchmark is perhaps the best indicator of the quality of our tenant service team as well as the location and quality of our portfolio. As we'll discuss during the call, market conditions remain slow, tenant appetites and decision-making processes continue to be uncertain. There has been a pickup in leasing activity since year-end. We have had recent success with several larger tenants.

We are, however, still relentlessly pursuing our tenant service, leasing and marketing programs. We are absolutely focused on the key fundamentals that drive our business and both Jeff DeVuono and George Sowa will be providing a specific overview on our key markets.

Prior to continuing with our normal presentation, let me address the two items that we have identified as non-recurring charges for the fourth quarter.

The first charge relates to Tony Nichols, Sr., our Chairman. Tony will remain Chairman for this transitioning into a non-managerial, non-executive role within the organization. In this capacity, he will remain available to provide guidance and assistance to me, as well as to the other members of the Board of Trustees.

The charge we are taking the fourth quarter reflects the contractual obligations the company has to Tony, relative to his existing employment agreement, the outstanding founder's grants that were awarded to Tony and deemed earned in 1998 as well as the vesting of several previous stock awards. While in his new capacity, Tony will continue to provide guidance to the company, he is significantly changing his role within the organization.

As such, recording our existing financial obligations is appropriate and more importantly, recognizes the outstanding contributions Tony has made to both the development and the growth of this organization. Tony and I have had and continue to enjoy a great relationship in building this organization and I very much look forward to working Tony in his new capacity.

The second charge relates to our investment in . is the company's only external technology investment and was made several years ago when we were realizing significant revenue from our rooftop management contracts. We have received over the last several years a recovery along with an 11 percent return on the majority of our investment position. The $2.5 million write-off reflects our remaining investment balance. It is important to note that US Realtel continued its operations. Recently, successfully completed a tender offer for Cypress Communications and operates in a cash flow positive position. We strongly believe, however that, due to the significant multiple compression in the telecommunications industry, it was prudent to write this investment down. As I indicated, their operations do continue and the stock still trades over the counter.

Overall, it is also important to note that approximately $5.5 million of the non-recurring charges are non-cash in nature. With that brief overview, let me turn over to Brad Harris, our Chief Accounting Officer, who will review our financial results for the quarter.

OK, let's just review and first talk about FFO. FFO for the fourth quarter of 2001, excluding the non-recurring charges, increased to $32.6 million or 69 cents per share as compared to $30 million or 63 cents per share for the fourth quarter of 2000. As Gerry indicated, that's a nine -and-a-half-percent increase, and the 69 percent FFO that we reported for the quarter did meet first call consensus estimates.

Gerry just went through the details of the non-recurring charge we took in the fourth quarter. The total charge was $6.6 million and related to the change in the status of Tony Nichols, Sr. and a breakdown of our investment in US Realtel. FFO for the year after the non-recurring charges was 255 per share as compared to 254 per share in 2000.

Let's next address EPS. Earnings per share for the quarter, excluding non-recurring charges, was 29 cents per share, as compared to 22 cents per share in the fourth quarter of 2000. If we exclude gains on sales of real estate, in addition to the non-recurring charges, earnings per share for the quarter was 19 cents per share as compared with 16 cents per share in the fourth quarter of 2000. Earnings per share after both non-recurring charges and the gains of sale of real estate was 10 cents per share as compared to 22 cents per share in the fourth quarter of 2000.

Let's move on to cash. Cash available for distribution for the quarter totaled $28.9 million or 61 cents per share as compared to $24.3 million or 51 cents per share for the fourth quarter of 2000. This increase is primarily attributable to increased funds from operations and a decrease in capital expenditures. Our FFO and payout ratios, excluding non-recurring charges for the quarter, were 63.6 percent and 71.8 percent, which compare favorably to company targets of 65 percent and 80 percent, respectively. FFO and cap payout ratios for the fourth quarter of 2000 were 64.8 and 80 percent.

Now I'd like to address our same store growth and leasing statistics. Same store in increased by 1.2 percent on a cash basis and .9 percent on a gap basis for the quarter and increased by 2.4 percent on a cash basis and 1.6 percent on a gap basis for the year. The increase in same store cash is primarily attributable to an increase in revenues. Our same store growth for the quarter was in line with the guidance that we had been providing. Same store occupancy is 93.7 percent in the current quarter as compared with 95 percent in the fourth quarter of 2000.

As we discussed on the second and third quarter conference calls, our overall occupancy percent has decreased as a result of the asset swap with . The lease up of the portfolio continues to go well, but is still below our portfolio average. Current occupancy at the portfolio is 91.9 percent as compared with 89.5 percent in April, the date of the acquisition.

Current occupancy for the entire portfolio is 92.2 percent as compared to 93.8 percent in the fourth quarter of 2000. We did make a minor change in the way we calculated our occupancy this quarter. Like many other companies, we previously included signed leases that were to start in the near term in our calculations. Our current occupancy percentage reflects only occupied space. We believe that this change, while minimal, better predicts our future revenues and better reflects our potential for additional leasing.

Our retention rate slipped a bit to 68.9 percent for the quarter, below the anticipated from our previous quarter run rate. Our annual retention of 77.5 percent remains well ahead of our 75 percent target. During the quarter, we renewed leases with an increase in net effective rate of 5.5 percent on a cash basis and 7.6 percent on a gap basis. For new leases, net effective rent increased by six percent on a cash basis and 10 percent on a gap basis.

While these increases are lower than we saw during 2000, our net effective increases have held up well. Our retention rate is up significantly and we've been able to complete transactions with less tenant improvements and lower commissions. Approximately 88 percent of the leases signed during the quarter, with terms greater than one year, contain contractual rental rate increases and the average term of these leases was 3.7 years.

We continue to focus our leasing efforts on doing more direct deals. Of leases signed during the quarter, 61 percent were direct deals based on the number of deals and 45 percent were direct deals based on square footage. These numbers continue to be in excess of our 40 percent target.

Our return on investor capital, adjusted for non-income producing assets, was 10.4 percent for the fourth quarter of 2001 and 2000. Return on invested capital is calculated by dividing net operating income for the trailing four quarters, that is, revenue, minus property operating expenses and general administrative expenses by the average of operating properties at cost.

Next, I would like to discuss some specifics about our financial statements. First, let's look at other income. Other income is $3.7 million for the quarter as compared to $2.4 million in the fourth quarter of 2000. Typically, about 1/3 of our other income, while recurring is uncertain, such as leasing commissions, termination fees, and other settlements. This type of income can fluctuate significantly from quarter to quarter. We had more income from these sources in this quarter than we did in the same quarter of the prior year.

Next, I would like to cover indebtedness. The increase in our debt balance, as compared to December 2000, is primarily the result of a debt assumed in the asset swap with , which closed early in the second quarter. Our debt to market capitalization is 50.4 percent. The leverage ratio under our credit facility is 48 percent, which is right in line with our target of 45 to 50 percent. Our floating rate debt balance at the end of the year was $204.9 million or about 10.5 percent of total assets.

As we reported in the third quarter, we continued to focus on the balance sheet. We renewed our line of credit in the second quarter, expanding it to capacity from 450 to 500 million. We currently have swap agreements that lock in on 175 million of the credit facility borrowings through September 2002. And in October of this year, we entered into several more swap agreements that lock on the same 175 million at approximately 4.2 percent from September 2002 through 2004, which is the maturity date on our line of credit. As none of our debt matures in 2002, we have no real short-term exposure.

I'd like to spend a minute or two on accounts receivable. Current market conditions have increased everyone's exposure to credit risk. We've seen a slowdown in the collection of some tenant's accounts., which is contributed into an increase in our accounts receivable balance throughout the year. In response to that trend, as we discussed in the third quarter conference call, we developed an extensive program to coordinate the efforts of property management, legal and accounting personnel to collect these balances. We targeted a significant reduction in our accounts receivable per year end and are pleased to report that this was accomplished. Tendered accounts receivable, before any reserves for doubtful accounts were reduced by over 28 percent from the third quarter. As part of our new program, we track trends on specific accounts much more closely, provide reserves on specific accounts, in addition to our normal monthly provision.

We provided 1.6 million in additional reserves during the quarter for a total of 2.9 million for the year. Our allowance for doubtful accounts is 4.5 million at year-end, as compared to 2.4 million last year. We believe our current level of reserves adequately addresses existing credit risks. Increased credit risk will continue to be an issue for 2002. In response, we have significantly increased the budget for bad debts in our 2002 estimates over what we budgeted for 2001. Although our historical loss rate is very low, averaging about .35 percent over the past two years, we believe this strategy to increase our reserves is prudent, given current market conditions.

We will continue our new program to early identify trouble accounts and maintain our increased collection efforts. I'd like to reiterate a point that I did make on the third quarter conference call about insurance costs. The tragedy of September 11th has significantly impacted the insurance industry and there has been speculation that rates could increase by more than 100 percent. As our current insurance rates are locked through June 2002, our risk is not that great in the short-term. We did perform a sensitivity analysis on these costs and determined that a 100-percent increase in the insurance costs for the second half of 2002 would impact our FFO by about only one cent per share.

In conclusion, let's talk about 2002 just for a minute. We are re-encouraged by what we see for 2002. Our capital recycling program is off to a strong start. As reported in our press release, we have already sold several properties with an aggregate value of $41.7 million.. We have reached definitive agreements to sell additional properties with an aggregate value of $74.6 million and are in the process of acquiring several office buildings in our core market with an aggregate value of $62.2 million. Although occupancy has declined, rental rates have remained stable and while the time it takes to complete a transaction is getting longer, deals are still getting done. So, while the momentum has slowed, the fundamentals in our core markets remain strong. We anticipate FFO growth in 2002, but not with the percentage increases we have seen in prior years.

Gerry will provide some more specifics on our earning expectations for 2002 in a few minutes. With that, I'd like to turn it back over to Gerry.

Great, thank you Brad. As Brad outlined, we're very pleased with our financial results and the operating performance of our real estate portfolio. But, while past performance is of tremendous comfort, the real issue we face is mitigating risk in what is clearly going to be a slower operating environment. The key issue being tenant demand and how our suburban office markets will hold up.

As discussed in previous calls, our business is one where we're always, both in good times and bad, concerned about market risk. When the market performs strongly, there's always the risk of additional capital availability creating the specter of new construction. In this type of environment, concerns about excess construction have rapidly been replaced by concerns about tenant demand, downsizing, subleased space and protracted decision timelines. As such, we will continue our focus on leasing activity, the actions of our competitors, credit risk within our own portfolio and competitive rent levels.

Even with the continuation of the economic uncertainty and the slowdown in activity, we take confidence in both our market position and our management team. Our business plan has always been predicated on using our leading market position and sharp focus to establish a long-term competitive advantage. The keys to success in this climate are going to be extensive market knowledge, strong leasing team and our communication with both our tenant base and that are second to none. We have a tremendous databank of information on effective rent levels, sub-market absorption rates, competitive building vacancies, sub-lease exposures, all that's served to provide a tremendous arsenal for us in our tenant negotiations.

Even more important is the knowledge and quality of our marketing staff. We've made great strides over the last several years to continue to improve both the quality staff, their experience level and our training programs. All of those actions taken in the anticipation of facing exactly this type of market. So, we believe the strength of our marketing tenant and service teams will ensure that we will continue to outperform all of our markets.

While there has been, as Brad indicated, an anticipated slip in our occupancy levels, we are still outperforming by a significant margin in every sub-market in which we operate. That is due in no small part to the tremendous efforts of our leasing staffs.

As I mentioned, George and Jeff are here to provide an overview of our market and they'll be available to answer any questions you may have at the conclusion of the prepared remarks.

George.

During our last quarterly conference call, I indicated that the central and southern New Jersey markets were in a state of equilibrium, but that tenants had more leverage than at any time during the last three years.

While there has not been any material positive or adverse changes in these markets since our last call, there has not been any indication that the economy will undergo any significant force recovery at this time. Further, there is no clear indication that many companies will once again express their confidence in the economy by committing to lease large amounts of new space and/or expand their existing office requirements in the near future.

Despite this uncertainty, we remain pleased with the relative stability of our four markets. Our markets have not experienced, nor do we expect them to experience a precipitous drop in rental rates. Further, tenant concessions, such as free rent, excessive landlord funded tenant improvements or other significant rental concessions, continue to be very limited.

Gross leasing activity in 2001 for southern New Jersey totaled 1,163,000 square feet, which is slightly above the average activity for the last seven years, and within one-half of one percent of the activity for the last three years. That absorption for 2001 was 238,000 square feet, which is down from the average of slightly more than 600,000 square feet of net absorption experienced the last seven years.

Brandywine is the largest office landlord in the southern New Jersey market, with a total office inventory of 2.9 million square feet. We control nearly 60 percent of the Class A market and have over four times the inventory of our closest private or public competitor. The diversity of our region allows us to generate operating economies of scale as well as achieving economic diversity without the risk of over-dependence on a single industry or the associated costs, and, quite frankly, the associated risks of diversifying geographically. We do, however, remain pleased with continued growth of the pharmaceutical and defense industries, which are among the major employers in central and southern New Jersey, respectively.

For calendar 2001, in central and southern New Jersey, we executed 180 lease transactions, totaling 998,000 square feet. Included in these transactions were 54 leases totaling 180,000 square feet during the fourth quarter of 2001. Further, we were able to maintain our occupancy level above 93 percent, which is 300 basis points better than the 9.9 percent direct market vacancy rate and 600 basis points better than the 13.1 vacancy rate, when including sublet space.

I'm also pleased to report that as of December 31, 2001, we've already executed 257,000 square feet of lease expansion for 33 percent of renewals within our southern and central New Jersey tenants, with leases expiring during calendar year 2002. We recognize the value of tenant retention. We will continue our focus efforts of finalizing negotiations with many of the remaining tenants expiring 2002. We've also already begun to initiate discussions with selected tenants with leases expiring in 2003 and beyond..

In closing, while competition for quality tenants is very intense, our markets continue to be stable and our superior operating results validate the quality of Brandywine's property, services and personnel. I assure you that our entire staff remains fully committed to provided our existing and new tenants with an excellent working environment and to continue to achieve our corporate goals. Gerry.

Thanks, George. Does Jeff feel like talking about Pennsylvania?

Sure. Thanks, Gerry.

Once again, I'm pleased to report that Brandywine's original business platform, at regional concentration, coupled with leading market position in core sub-markets, along with a strong focus on credit, has translated into a positive results. Consistent with our long track record, Brandywine's portfolio outperformed for the year ending 2001. Everyone in the eight individual sub-markets it participates in. On both a direct and overall vacancy standard.

This outperformance ranges anywhere from 400 to basis 1,000 points on a direct vacancy basis and 300 to 1,000 on an overall vacancy basis. Overall, we outperformed the market by just under 600 basis points on a direct basis and slightly over 700 basis points from an overall standpoint.

That said, the overall direct vacancy rate has increased a full 2-and-a-half percentage points from the previous year. 10-and-a-half percent growing to 12.7. While still a relatively healthy number, when compared to other markets around the country, we clearly don't want to see this move upward. But the good news is, we don't think it will. As many of you know, one of the underlying strengths of the Philadelphia region is that it's not reliant on one specific industry or company.

First, general health. So long as the general economy stays intact, so will the greater Philadelphia area. Right now, based on our activity levels for the past year, we feel the general economy is on the verge of beginning to rebound, albeit, slowly, but surely. One of the key reasons we're beginning to feel somewhat optimistic about the economy is based on the level of activity we've seen during the past couple of quarters.

For 2001, the number of prospects that toured our vacant spaces in PA totaled 451 or approximately four per vacant space. Three per vacant space is the norm. On a quarterly basis, this breaks down as follows: 95 in the first quarter; 91 in the second; 118 in the third; and 147 in the fourth. Going forward, assuming the general economy continues to improve, we certainly hope this trend continues.

Another positive sign is that Cushman & Wakefield reported leasing activity for 2001 to be approximately 4.4 million square feet. Looking back over the past five years, with the exception of 1999, total market leasing activity has typically ranged in the 2.5 to 2.9 million square foot range. More importantly, absorption for 2001 also finished slightly above one million square feet and is consistent with the ranges achieved during the previous five years.

Rental rates, despite tenants have more space options, seem to be remaining somewhat constant overall. And, in fact, five of the eight sub-markets have actually seen asking rental rates increase slightly overall. However, we don't see that as a macro-trend continuing in the short-term. The overall vacancy numbers report an additional 1.8 million square feet of space being marketed on a sublet basis in a suburban county surrounding Philadelphia.

The three deals recently executed in the market were placed in sublet space. We continue to believe that much of this space comes from either conversion type space, for example, warehouse to office, which is falling out of favor with more traditional users or as in secondary markets or locations, is small in size or is what we consider to be phantom space, that which is encumbered by existing tenants who, when pushed, will ultimately not let it go.

Lastly, I'd like to point out that once again that the overall market, excluding Lehigh County in Delaware consisted approximately of 45 million square feet. Considering that fact, the impact of true sublet space in the market is extremely small. As we've said before, being patient and closely monitoring your tenant's true options will mitigate the impact of sublet space in the market.

Now, in regard to new construction, we would expect certain sub-markets to take some time to clear. Furthermore, we continue to believe that the discipline in the financial markets should keep the new product from coming on-line and therefore, help maintain healthy levels going forward.

As we've said before, times like this are really an opportunity, going forward we will continue to focus on implementing our business plan and on creating as much value as possible from the portfolio. We have no doubt that discipline and a clear command of the facts coupled with having some of the best inventory in the region, a clear focus on tenant services, the best leasing staff in the market and an aggressive pursuit of all leasing activity will enable us to continue to outperform our competitive environment. But more importantly, the recent management changes that Gerry mentioned will provide for us to focus even greater on the opportunities we see ahead and make for an exciting 2002.

Great. Thanks, Jeff. We continue to believe that uncertainty can create significant opportunity and can also create a competitive advantage, particularly on the tenant retention acquisition fronts. As discussed during the last call, in addition to pursuing profit opportunities, we're also very much focused on our risk management efforts. As such, I'd like to spend a few minutes discussing our business plan and how we plan on mitigating risk for the balance of 2002.

In terms of the company, when you take a look at our risk profile, I'd like to address three specific elements. First is tenant rollover risk. I think Brad did a great job in addressing our credit controls on the tenant side, so let me limit my comments simply to rollover.

During the last conference call, we indicated that for 2002, we had approximately 2.6 million square feet rolling or a little bit more than 16 percent of our portfolio. Due to the acceleration of our sale program, that amount has been reduced by over 400,000 square feet.

So, our net rollover for the year is approximately 2.2 million square feet or a little bit more than 12-and-a-half percent of our pro forma portfolio. The steps that we have taken to mitigate our remaining exposure is first, and obviously, we have been and continue to be, in some cases, in active discussions with every single tenant.

Secondly, we've been aggressively pursuing our early renewal program and results as of the end of the year remain very encouraging. Of the 2.2, we basically broke it down into several different categories. First category is leases that are actually done or we're deeming to be highly probable in terms of they are in advance stages of amendment execution. That accounts for about 55 percent of our total rollover exposure in 2002 and covers about 1.2 million square feet. So, we're very pleased with the way that number is holding and is thus consistent with what we outlined last quarter.

In the other categories, we had about 500,000 square feet, about 15 percent of the rollover risk, where tenants are sending somewhat mixed messages to us. Their desires, their intentions are not known at this point, so that remains a piece of work for us to do. We have about 600,000 square feet or about 20 percent of the tenants are not planning to renew.

So, we feel as though we're very much on top of that. The renewals executed thus far this year have a weighted average term of about four-and-a-half years and we achieved a rental rate increase of close to 10 percent on the renewals we've executed thus far this year. So, between the renewals that are locked and those that are in negotiation are highly probable, we have more than the majority of our remaining rollover covered. And while there is still work to do, great progress has been made.

So from a risk management standpoint, look at our core portfolio, we're showing well on top of our 2002 rollovers, more importantly, as George touched on, we've begun to look ahead and have initiated discussions with numerous key tenants who have rollovers occurring in the year 2003.

The second issue is the market risk associated with development. As Jeff touched on, the development picture really hasn't changed since our last call. There have been no new construction projects started, nor have there been any new projects announced which are entering the marketing phase. Essentially, the development market that we outlined before is in place at about 1.3 million square feet of total deliveries for both '01, company that came on-line at the end of the year, '02 and projected for '03, that are available and not leased.

For a market of our size, this is not an unmanageable pipeline. Rental rate levels and development projects still exceed those being asked an existing product. Most of the product being delivered in the first half of 2002 had strong pre-leasing, with strong tenants who will be fully utilizing their space.

That being said, it still remains a significant priority in our company to lease up the rest of our development pipeline. That pipeline, right now, is $107 million or 5.5 percent of our asset base. Right now, we are 49 percent pre-leased. We are seeing very good activity at 401 Plymouth.

We just recently fully leased 15 Campus Boulevard, bringing that to 100 percent. Activity at 400 Berwyn Park remains slow in the 202 corridor. 935 with the other development properties we have underway, we acquired that mid-construction through part of the swap. Delivery for that project is scheduled for the second half of '02. There is no leasing signed for that project at this point. The timing of the delivery of that project, however, should nice with our existing number one market position in King of Prussia. In that market, we have about 2.6 million square feet. So at 100,000 square, 935 is a small increase to our total market position. Also, our office rollover in King of Prussia in the third quarter is fairly minimal. So, when this project is delivered, we think the timing will work.

While we continue to see some continuing softness in some sub-markets , the balance of the market, as Jeff touched on, remains fairly stable. More importantly, from a financial standpoint, our financial projections for the year, our development projects, Spec FFO income, that is 2002 income that we're projecting from currently unleased development space is only 2.5 cents per share. The balance of our development income is based on signed leases and while we remain keenly focused on leasing up the balance of the space, we are very pleased with our progress to date.

On a more positive note, we continue to pursue a number of third party development contracts and build a suit of opportunities that will provide a continuing source of selling land, as well as expanding our market position.

The last risk factor I want to take a look at is our balance sheet management and investing strategy for the year. As Brad indicated, we have no debt maturing in 2002 and our floating rate debt exposure is approximately 10 percent of our asset base. These were key 2001 goals that were accomplished. Our targeted leverage range is between 45 and 50 percent. This is based on our credit facility calculation . At the end of the year, we were 48 percent leveraged, pursuant to that calculation. We will remain within this range during the upcoming year and our hope is that we can actually slightly delever company through an aggressive capital recycling program.

One of our key goals has, for the last several years, been to continue to create capacity through recycling capital. Some highlights of our recent activities are that for 2001, we sold $135 million of property at an average cap rate of 9.5 percent. From these sales, we generated a net gain of approximately $11 million. For 2002, we recently announced the actual impending sales of the Bucks County Flex portfolio and our Park 80 complex as well as several other small building sales. The Bucks County sale encompassed 765,000 square feet of industrial and generation flex space. The average price per square foot was $53 verses a net base of approximately $45 per foot. The nominal cap rate, based on 2002 budgeted cash NOI was about 10.5 percent. But factoring existing in place income that selling cap rate was slightly below 10 percent. The gain amount on this sale is estimated to be about $6.6 million. This project had a three percent vacancy and a 19.3 percent rollover during 2002 and a 24 percent rollover scheduled during 2003.

The Park 80 transaction, which is a pending transaction right now, represents the final step in our complete exit out of the north Jersey marketplace. This transaction consists of two buildings aggregating 487,000 square feet with a sales price slightly in excess of $74 million or $153 per square foot verses our investment basis of approximately $141 per foot. The nominal cap rate, based on full lease up, through the balance of 2002, which just of 10 percent. The inflate to cap rate was in the mid-nines. Pricing was well in line with our value estimates, so we're delighted with the way this sale has progressed. Our gain on the sale of $6.1 million. The property had approximately a five percent vacancy rate and a 17 percent rollover in both of 2002 and 2003.

From its source and use standpoint, these transactions will generate about $70 million in cash and $55 million of debt relief. In addition, we had previously discussed our withdrawal from the Long Island market. At the current time, the vast majority of our Long Island portfolio is under firm agreement or under contract or in due diligence. Our expectation is that we'll be able to fully exit the Long Island market, save one small building by the second quarter of 2002.

We anticipate that our net gain from the sale of our Long Island operations will be approximately $4.2 million with cap rates on the sale ranging between 8.5 and 10.8 percent. Purchasers are several private buyers. Exiting this market will enable us to, in conjunction with the sale of Park 80, curtail our operations both in northern New Jersey and Long Island and reduce our overall overhead rate.

Obviously, exiting these markets creates a significant reinvestment opportunity. These sales have put us in a very strong position to increase our market concentration by identifying high-quality replacement assets. We have found such a replacement asset in the Plymouth Meeting Executive Campus. This campus is a 4-building portfolio that we actually acquired this morning from a private real estate company. It is located in close proximity to our meeting house business center, 401 Plymouth and Metroplex projects in Plymouth Meeting, Pennsylvania. The acquisition of this campus essentially replaces our Flex and Industrial with first class office and gives us a dominating presence in one of our key sub-markets.

The purchase price parameters are essentially a 10 percent yield, without managing fees and a 10.2 percent yield after incorporating management fee income. The purchase price on a per square foot basis is $187 below current replacement cost for a comparable product. A comparable sale just occurred recently directly across the street from 401 Plymouth at $202 per square foot. So, we feel very good about our investment base in Plymouth Meeting Executive campus.

The rollover for this portfolio during 2002 is only five percent. The average rents in place are $25.90 per square foot verses an average asking rent of $29 per square foot in the market. The project is currently 93 percent occupied and the 53 tenants in this complex represent an excellent customer base for us to control as we move forward with our Plymouth Meeting plans.

We anticipate being able to achieve good operating economies and believe this acquisition significantly enhances our leading position of Plymouth Meeting market.

So, bottom line, we're essentially delighted with our investment activity for 2001 and 2002 year date. If you look back over a period of five quarters, we have successfully exited gracefully, and we define gracefully being with a profit, from the northern Virginia market via the swap and the northern New Jersey and Long Island marketplace through asset sales. We believe that the sum of these transactions have significantly upgraded our asset quality, further enhanced our operating economies, reduced our G&A costs and most importantly improved our end-market competitive position, all at a time when market positioning is absolutely critical.

At this point in the cycle, our strategy is simple, continue to improve the quality of our portfolio, enhance the performance of our operating units and maintain a very disciplined strategy regarding our capital raising activities. Along these lines, the press release indicated that we are embarking on several changes within our executive ranks. Jeff DeVuono, who heads up our Pennsylvania operation, will assume lead responsibility for the company's entire Delaware Valley operations.

Assisting him in this effort will be a seasoned team of Barbara Yamarick, who is the Senior Vice President of Tenant Services, Tony Nichols, Jr., Senior Vice President of Leasing, Jeff Weinstein, Vice President of Construction, and Phil Schenkel, Vice President of Operations. Their focus, as Jeff touched on, will be incredibly sharp and I'm convinced that this reorganization will better position us with our tenant community, our brokerage relationships, and enhance our position in a competitive environment.

Looking forward, we see tremendous opportunities. To ensure that we're able to capitalize on the window, George Sowa will be taking the lead in overseeing all of our sales, acquisitions, corporate services and structured finance activities. In this capacity, George will have lead responsibility for analyzing our investment alternatives, his underwriting background has been significantly enhanced by several years of running one of our largest operations. This combined background will enable him to immediately for investment decisions.

Also, as indicated in the press release, we continue to search for the right CFO. We are in advanced discussions with several candidates and anticipate making an announcement on either a new hire or an internal reorganization in the not too distant future. In the interim, the company investor relations program is running very smoothly. Financial management reporting in the company remains extremely strong and we continue to evaluate CFO candidates in light of our current solid position as well as a keen focus on controlling overhead.

As indicated in the press release, we are providing 2002 guidance of $2.72 to $2.82 per share. If you recall from our last earnings discussion, I gave a narrow range of $2.77 to $2.82. We're keeping the upside of the range at $2.82 but moving the bottom end down by five cents. Given the continued uncertainty in the economy, we feel expanding the range at this point makes sense. The range reflects growth rates from 1.1 to 4.8 percent. Our key assumptions haven't really changed since the last call.

Our FFO range essentially reflects a flat same store growth rate, primarily due to an average occupancy reduction of about 200 basis points from current levels. We really do not anticipate any other development activity, other than what's been announced. As Brad Harris indicated, we have significantly increased our accounts receivable reserves and we have remained conservative in projecting our other income by keeping it about $1 million per quarter.

The acceleration of our sales activity is creating some very minor dilution, which is contributing to the downward range expansion. Our major concern, however, remains simply the time lagging getting tenants to sign leases and getting them physically into the space. While we believe we are extremely well positioned to operate within this range, our clear guidance to analysts is to be at the lower end of the published range. We're also projecting a first quarter 2002 FFO range between 63 and 65 cents per share. The first quarter will be our slowest growth quarter with our development and significant leasing activity, kicking in the latter part of the year.

To wrap up the presentation, the key members of our team have been through several different cycles in these markets before. We are fully prepared to successfully execute our business plan. We are taking, as we have in the past, a pragmatic rational approach to running our business. No sense of overreaction at all, simply a heightened level of attention to running all aspects of our business. Key issues remain a focus on fundamentals, having tremendous knowledge of our markets, understand the impact of our exposures and executing a plan to mitigate our risk.

We thank you for participating in today's call and Pam at this time I'd like to open up the forum for any questions.

Thank you, Mr. Sweeney. And ladies and gentlemen at this time, if you have a question, please press the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, if you have a question, please press the number 1.

Our first question is from .

Good afternoon everybody. A couple of quick questions. Number one, Brad, I was wondering if you could reconcile other income, in terms of highlighting on the bigger numbers this quarter.

Other income for the quarter was about $3.7 million, of which about $1 million related to non-recurring charges, such as leasing commissions, termination fees and those type of things. While the nature of their uncertain, actually, is the better way to classify that.

There's about one half million dollars in interest income, third party fees are about $800,000 and probably the biggest difference in the fourth quarter relates to a property that was acquired as part of the transaction Southpoint three and that lease for that building, due to the lease structure in its term, is a capital lease. So, we have a significant amount of interest income that is now going to be recorded in our other income related to that lease. On an on-going basis, we could expect that number to be about $400,000 a quarter related to that lease.

And also in terms of the asset transactions announced yesterday of the sales and the acquisition, you think that that's accretive or dilutive?

I don't think that's accretive.

And Gerry, I'm sorry, what is the total cash proceeds that you'll pull out of the sales and the acquisitions once they're all closed?

When they're all closed, the net cash we acquired Plymouth Meeting subject to existing debt, so the net cash position after those three major events occur would be about $50 million.

OK, and lastly, on your balance sheet in the fourth quarter, line items due from affiliates is gone. Was that just rolled up under another number or is it actually a $0 balance?

The due from affiliate number primarily relates to an employee stock loan program and is just a change in presentation on the financial statements. It is netted in the equity, which is determined to be a better presentation since those loans to be work through purchased stock, they're guaranteed by the stock, so it's reclassed in its presentation. The number's still there reflected in the statements, its just presented differently.

OK, what was the balance for the fourth quarter?

About five? Yeah, 4.9.

Sweeney About 4.95 million.

OK, great, thanks a lot.

Thank you. Our next question is from .

The G&A changes that you're talking about, can you tell us approximately you're planning to save and when you intend to achieve it?

We think that the total G&A changes of the reorganization will be about almost two cents a share. 1.6 cents a share.

$1.6 million.

$1.6 million, a little more than two cents a share.

And when do you expect to start achieving that?

We will start achieving part of it in the first quarter and then some of it will phase in over the balance of the year.

OK, thanks. And capitalized interest during the quarter, do you have a number for that?

Well, it was 1.3 million during the quarter.

OK. You've got many people on staff that have been in your markets for a long period of time so what happened when markets got soft eight years ago, 10 years ago? How bad did it get is my question, sir?

Well, I mean the vacancy rates in the last real estate cycle were certainly a lot higher than the vacancy rates in this cycle, but that was primarily due to, it was just a much different dynamic relative to construction volume.

So, I think what we're doing this cycle, from a fundamental standpoint, is not too different from what we did last cycle, which is you go out there, you work harder, you focus on every single deal, you sharpen your pencil and make sure that you stay in constant communication with your tenant base. So, that piece of the dynamic has not changed, will not change.

I think some of the opportunities that we have as a company, this cycle, that we did not have last cycle, is the level of inventory that we do control. I mean certainly where you have an overlay of general uncertainty in the economy and in the minds of a lot of tenants regarding capital decisions, one of the real strengths that we've seen, I think that's reflected in our retention rate last year was we continued to provide tenants more space flexibility.

Tenants, when they're negotiating with a George Sowa or a Jeff DeVuono or their leasing staffs, they're usually sitting in a building that's surrounded by other Brandywine buildings and we can have the ability to move them, relocate them within our portfolio, I think that gives people a lot of comfort that they have a landlord that will work with them to accommodate changes in their business plan requirements. That's been a huge difference, Louis, in this marketplace from the last cycle.

OK, great, thanks. And one last small question, on your tenant listing, in the back of your reports, you show a Decision One of annualized rent coming down on page 17, but their area remaining the same, can we infer that there's been a concession granted there?

No, there's been no concession granted. I'm not sure where, what schedule.

Page 17 of your supplementary package. Decision One -- their annualized rent is down a couple hundred thousand and their square foot occupied has remained the same.

We're checking Louis.

OK, that's it for me for the moment.

OK. On Decision One, just pull it out there, I have the notes here, I'm taking a look at that. That was a lease we had assumed as part of an outside acquisition and there's been some negotiations as it relates to the management fee being charged on that property. So there is a minimal adjustment in what is expected to be collected. So, it is not a rent concession, it is a between the parties and the management.

It's a adjustment as opposed to a baseline adjustment.

Thank you.

Yes.

Their rent stays the same, but the additional rent that they would be paying would go down because there's been a reduction in the management fee relating to that property primarily due to the limited services that we provide to that property. They do a lot of the facilities management work themselves.

OK, thank you.

Thank you. Our next question is from .

Good afternoon. If I look at the third quarter package and look at the total portfolio occupancy in the office pool, looks like the occupancy drops sequentially from third quarter to fourth quarter by 270 basis points., which I'm assuming that alone accounts for close to four or five cents as shares change quarter to quarter sequentially if all the occupancy really changed toward the end of the quarter. I guess the first question is "am I looking at it on apples to apples basis, given than you've changed how you define what occupancy is and if so, how much of a difference is there." And, second, when did you really realize the impact economically of the change in occupancy sequentially during the quarter?

I take the last thing's first. The occupancy declined quarter over quarter. The major impact of that was realized late in the fourth quarter. We had a number of tenants we knew were going to rollout that rolled out in December, late November. So that's one of the reasons, Sir, why I think when you take a look at what we're projecting for the first quarter of '02, we're projecting that the 69 cents to come down to the 62 to 65-percent range.

And how about, is it correct to just pull the reported office occupancy in the third quarter of 94 percent compared to the fourth quarter of 91.3 or is there something that I need to do to the third quarter number, given that you've changed the definition of occupancy.

The numbers that we released in the supplemental package last evening, has the third quarter restated.

OK.

The restated figure is 93.8 percent as compared to I believe it was 94.3 percent as it was originally went out. So it was only a half a percentage point difference with this change in the calculation.

Very well.

What we were looking at, sir, was basically a sequential occupancy decline of about 160 basis points. Not the 270 that you were talking about.

OK. And if I look at how you are doing forecast and last quarter you thought your occupancy would be down about 200 basis points to get to your FFO forecast for the third quarter, you're still saying the occupancy is going to be down about 200 basis points, but you're down, let's call it 160, for the office group, does that mean you think that you've lost most of the occupancy to date and you think you're going to preserve what you have going forward, for the most part?

No, let me just clarify. When we talked about a 200 basis point occupancy decline being built into our '02 projections, that was done at a time and with full knowledge of what we anticipate at our year-end occupancy levels to date. So, right now, we're about 92 percent, a little bit more for that, we are expecting in our FFO projections that occupancy to decline closer to 90 percent and then begin to come up from there.

OK, that's helpful. One final question, regarding the gains on the sales. I think you were talking about book gains. After you exit Long Island, will you be out of that for an economic gain as well as a book gain?

Yes, we will.

OK, thank you.

There have been some properties, we've had a couple of losses on, but bottom line, we think we'll be in an economic gain on that whole portfolio.

Thank you.

You're welcome.

Thank you. And again ladies and gentlemen, if you have a question, please press the number one. Our next question is from .

Good afternoon gentlemen. On your calculation of net effective leasing spreads, remind me of how you're calculating it in net effective rent?

The . It takes, it basically grosses everything up. So you take the base rent and you take the equivalent reimbursement. So you compare apples to apples. So everything is grossed up.

So, what is net implying then? Are you netting out concessions? Are you netting PI's and leasing commissions, because, maybe it would be better to just not call it net then if you're just using gross rents.

PI's and leasing commissions are not in the numbers.

OK. Well, then Gerry, this question might be for you. What are your recycling activities that you're planning for '02 going forward now, beyond those that you announced today.

Well, we had originally that, just as a frame of reference Mike, our total activity for 2002 about $150 million, we're clearly running ahead of that pace. I think we've identified when you roll in the Long Island sale, that will put us slightly above the $150 million mark. Somewhere in the $670 million. We don't really anticipate any, at any real dispositions beyond that, but that being said, we actually are seeing a fairly healthy sales market. So, we are continuing to push the sales of a number of properties.

But from a business plan standpoint, haven't factored in anything beyond what we've already announced, plus really Long Island in the whole transaction and a couple other small building sales. On the acquisition front, we are pursuing a number of opportunities, we'll see how they come into fruition. A key issue for us is managing our rollover risk on any properties that we acquire, as well as what our net effective basis is going to be in the properties. So we're actually seeing a few properties that are available for sale. We see an awful lot of transactions directly from the people that are looking to sell and there's a good chance we may do some more negotiated transactions.

So, on the sales side, our original projection was about 150, we're probably going to wind up at about 170. On the acquisition front, we had talked about a combination of acquisitions and development activity of about $100 million and I think we're probably going to hold to that right now.

And what would the rest of the proceeds be used for? The net $70 million, to reduce debt?

Either reduce debt or buy back stock.

OK. Thanks.

You're welcome.

Thank you. Our next question is from Louis Forbes.

Hi. Gerry, just maybe to put the nail on the head, what do you expect to get out of Long Island, in terms of total proceeds? If you said it, I missed it.

I did not say what we're looking for in the second half. The total is roughly about $50 million.

OK, great, thank you.

$50.4 million.

OK, thank you. And in Brad's rather thorough discussion of receivables and allowances, I couldn't write as fast as he was talking but, what is the allowance at year-end against the receivables and compared to last year, and what was the additional reserves taken in the fourth quarter compared to a normal quarter?

Additional reserve in the fourth quarter was 1.6 million, as compared to about half million than our normal run rate for the quarter. So the runs additional. The year-end reserve this year was $4.5 million as compared to reserve last year of $2.4 million.

OK, thank you very much.

Thank you, and Mr. Sweeney this concludes the question-and-answer session. I'd like to turn the program back to you for any closing remarks.

Great, Pam, thank you very much. And thank you all for joining us for this earnings conference call and we look forward to the first quarter call in the spring. Thank you.

Ladies and gentlemen this concludes today's conference. Thank you for your participation and you may disconnect at this time. Have a good day. Operator: Thank you, Mr. Sweeney. And ladies and gentlemen at this time, if you have a question, please press the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, if you have a question, please press the number 1.

Our first question is from .

Good afternoon everybody. A couple of quick questions. Number one, Brad, I was wondering if you could reconcile other income, in terms of highlighting on the bigger numbers this quarter.

Other income for the quarter was about $3.7 million, of which about $1 million related to non-recurring charges, such as leasing commissions, termination fees and those type of things. While the nature of their uncertain, actually, is the better way to classify that.

There's about one half million dollars in interest income, third party fees are about $800,000 and probably the biggest difference in the fourth quarter relates to a property that was acquired as part of the transaction Southpoint three and that lease for that building, due to the lease structure in its term, is a capital lease. So, we have a significant amount of interest income that is now going to be recorded in our other income related to that lease. On an on-going basis, we could expect that number to be about $400,000 a quarter related to that lease.

And also in terms of the asset transactions announced yesterday of the sales and the acquisition, you think that that's creative or dilutive?

I don't think that's accretive.

And Gerry, I'm sorry, what is the total cash proceeds that you'll pull out of the sales and the acquisitions once they're all closed?

When they're all closed, the net cash we acquired Plymouth Meeting subject to existing debt, so the net cash position after those three major events occur would be about $50 million.

OK, and lastly, on your balance sheet in the fourth quarter, line items due from affiliates is gone. Was that just rolled up under another number or is it actually a $0 balance?

The due from affiliate number primarily relates to an employee stock loan program and is just a change in presentation on the financial statements. It is netted in the equity, which is determined to be a better presentation since those loans to be work through purchased stock, they're guaranteed by the stock, so it's reclassed in its presentation. The number's still there reflected in the statements, its just presented differently.

OK, what was the balance for the fourth quarter?

About five? Yeah, 4.9.

Sweeney About 4.95 million.

OK, great, thanks a lot.

Thank you. Our next question is from .

The G&A changes that you're talking about, can you tell us approximately you're planning to save and when you intend to achieve it?

We think that the total G&A changes of the reorganization will be about almost two cents a share. 1.6 cents a share.

$1.6 million.

$1.6 million, a little more than two cents a share.

And when do you expect to start achieving that?

We will start achieving part of it in the first quarter and then some of it will phase in over the balance of the year.

OK, thanks. And capitalized interest during the quarter, do you have a number for that?

Well, it was 1.3 million during the quarter.

OK. You've got many people on staff that have been in your markets for a long period of time so what happened when markets got soft eight years ago, 10 years ago? How bad did it get is my question, sir?

Well, I mean the vacancy rates in the last real estate cycle were certainly a lot higher than the vacancy rates in this cycle, but that was primarily due to, it was just a much different dynamic relative to construction volume.

So, I think what we're doing this cycle, from a fundamental standpoint, is not too different from what we did last cycle, which is you go out there, you work harder, you focus on every single deal, you sharpen your pencil and make sure that you stay in constant communication with your tenant base. So, that piece of the dynamic has not changed, will not change.

I think some of the opportunities that we have as a company, this cycle, that we did not have last cycle, is the level of inventory that we do control. I mean certainly where you have an overlay of general uncertainty in the economy and in the minds of a lot of tenants regarding capital decisions, one of the real strengths that we've seen, I think that's reflected in our retention rate last year was we continued to provide tenants more space flexibility.

Tenants, when they're negotiating with a George Sowa or a Jeff DeVuono or their leasing staffs, they're usually sitting in a building that's surrounded by other Brandywine buildings and we can have the ability to move them, relocate them within our portfolio, I think that gives people a lot of comfort that they have a landlord that will work with them to accommodate changes in their business plan requirements. That's been a huge difference, Louis, in this marketplace from the last cycle.

OK, great, thanks. And one last small question, on your tenant listing, in the back of your reports, you show a Decision One of annualized rent coming down on page 17, but their area remaining the same, can we infer that there's been a concession granted there?

No, there's been no concession granted. I'm not sure where, what schedule.

Page 17 of your supplementary package. Decision One -- their annualized rent is down a couple hundred thousand and their square foot occupied has remained the same.

We're checking Louis.

OK, that's it for me for the moment.

OK. On Decision One, just pull it out there, I have the notes here, I'm taking a look at that. That was a lease we had assumed as part of an outside acquisition and there's been some negotiations as it relates to the management fee being charged on that property. So there is a minimal adjustment in what is expected to be collected. So, it is not a rent concession, it is a between the parties and the management.

It's a adjustment as opposed to a baseline adjustment.

Thank you.

Yes.

Their rent stays the same, but the additional rent that they would be paying would go down because there's been a reduction in the management fee relating to that property primarily due to the limited services that we provide to that property. They do a lot of the facilities management work themselves.

OK, thank you.

Thank you. Our next question is from .

Good afternoon. If I look at the third quarter package and look at the total portfolio occupancy in the office pool, looks like the occupancy drops sequentially from third quarter to fourth quarter by 270 basis points., which I'm assuming that alone accounts for close to four or five cents as shares change quarter to quarter sequentially if all the occupancy really changed toward the end of the quarter. I guess the first question is "am I looking at it on apples to apples basis, given than you've changed how you define what occupancy is and if so, how much of a difference is there." And, second, when did you really realize the impact economically of the change in occupancy sequentially during the quarter?

I think the last thing's first. The occupancy declined quarter over quarter. The major impact of that was realized late in the fourth quarter. We had a number of tenants we knew were going to rollout that rolled out in December, late November. So that's one of the reasons, Sir, why I think when you take a look at what we're projecting for the first quarter of '02, we're projecting that the 69 cents to come down to the 62 to 65-percent range.

And how about, is it correct to just pull the reported office occupancy in the third quarter of 94 percent compared to the fourth quarter of 91.3 or is there something that I need to do to the third quarter number, given that you've changed the definition of occupancy.

The numbers that we released in the supplemental package last evening, has the third quarter restated.

OK.

The restated figure is 93.8 percent as compared to I believe it was 94.3 percent as it was originally went out. So it was only a half a percentage point difference with this change in the calculation.

Very well.

What we were looking at, sir, was basically a sequential occupancy decline of about 160 basis points. Not the 270 that you were talking about.

OK. And if I look at how you are doing forecast and last quarter you thought your occupancy would be down about 200 basis points to get to your FFO forecast for the third quarter, you're still saying the occupancy is going to be down about 200 basis points, but you're down, let's call it 160, for the office group, does that mean you think that you've lost most of the occupancy to date and you think you're going to preserve what you have going forward, for the most part?

No, let me just clarify. When we talked about a 200 basis point occupancy decline being built into our '02 projections, that was done at a time and with full knowledge of what we anticipate at our year-end occupancy levels to date. So, right now, we're about 92 percent, a little bit more for that, we are expecting in our FFO projections that occupancy to decline closer to 90 percent and then begin to come up from there.

OK, that's helpful. One final question, regarding the gains on the sales. I think you were talking about book gains. After you exit Long Island, will you be out of that for an economic gain as well as a book gain?

Yes, we will.

OK, thank you.

There have been some properties, we've had a couple of losses on, but bottom line, we think we'll be in an economic gain on that whole portfolio.

Thank you.

You're welcome.

Thank you. And again ladies and gentlemen, if you have a question, please press the number one. Our next question is from .

Good afternoon gentlemen. On your calculation of net effective leasing spreads, remind me of how you're calculating it in net effective rent?

The . It takes, it basically grosses everything up. So you take the base rent and you take the equivalent reimbursement. So you compare apples to apples. So everything is grossed up.

So, what is net implying then? Are you netting out concessions? Are you netting PI's and leasing commissions, because, maybe it would be better to just not call it net then if you're just using gross rents.

PI's and leasing commissions are not in the numbers.

OK. Well, then Gerry, this question might be for you. What are your recycling activities that you're planning for '02 going forward now, beyond those that you announced today.

Well, we had originally that, just as a frame of reference Mike, our total activity for 2002 about $150 million, we're clearly running ahead of that pace. I think we've identified when you roll in the Long Island sale, that will put us slightly above the $150 million mark. Somewhere in the $670 million. We don't really anticipate any, at any real dispositions beyond that, but that being said, we actually are seeing a fairly healthy sales market. So, we are continuing to push the sales of a number of properties.

But from a business plan standpoint, haven't factored in anything beyond what we've already announced, plus really Long Island in the whole transaction and a couple other small building sales. On the acquisition front, we are pursuing a number of opportunities, we'll see how they come into fruition. A key issue for us is managing our rollover risk on any properties that we acquire, as well as what our net effective basis is going to be in the properties. So we're actually seeing a few properties that are available for sale. We see an awful lot of transactions directly from the people that are looking to sell and there's a good chance we may do some more negotiated transactions.

So, on the sales side, our original projection was about 150, we're probably going to wind up at about 170. On the acquisition front, we had talked about a combination of acquisitions and development activity of about $100 million and I think we're probably going to hold to that right now.

And what would the rest of the proceeds be used for? The net $70 million, to reduce debt?

Either reduce debt or buy back stock.

OK. Thanks.

You're welcome.

Thank you. Our next question is from Louis Forbes.

Hi. Gerry, just maybe to put the nail on the head, what do you expect to get out of Long Island, in terms of total proceeds? If you said it, I missed it.

I did not say what we're looking for in the second half. The total is roughly about $50 million.

OK, great, thank you.

$50.4 million.

OK, thank you. And in Brad's rather thorough discussion of receivables and allowances, I couldn't write as fast as he was talking but, what is the allowance at year-end against the receivables and compared to last year, and what was the additional reserves taken in the fourth quarter compared to a normal quarter?

Additional reserve in the fourth quarter was 1.6 million, as compared to about half million than our normal run rate for the quarter. So the runs additional. The year-end reserve this year was $4.5 million as compared to reserve last year of $2.4 million.

OK, thank you very much.

Thank you, and Mr. Sweeney this concludes the question-and-answer session. I'd like to turn the program back to you for any closing remarks.

Great, Pam, thank you very much. And thank you all for joining us for this earnings conference call and we look forward to the first quarter call in the spring. Thank you.

Ladies and gentlemen this concludes today's conference. Thank you for your participation and you may disconnect at this time. Have a good day.