Brandywine Realty Trust (BDN) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Brandywine Realty Trust's third quarter conference call. [OPERATOR INSTRUCTIONS] Prior to turning the call over to Mr. Jerry Sweeney, please let me read the following disclaimer on behalf of the companies.

Certain statements made during this call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, achievements or transactions of Brandywine, Prentiss Properties and their affiliates or industry results or the benefits of the proposed merger, to be materially different from any future results, performance, achievements or transactions expressed or implied by such forward-looking statements.

Such risks, uncertainties and other factors relate to, among others, difficulties encountered in integrating the companies, approval of the transaction by the shareholders of the companies, the satisfaction of closing conditions of -- to the transaction, the companies ability to lease vacant space and to renew or relet space under expiring leases at expected levels, the potential loss of major tenants, interest rate level, the availability and terms of debt and equity financing, competition with other real estate companies for tenants and acquisitions, risks of real estate acquisitions, dispositions and developments, including costs, overruns, and construction delays, unanticipated operating costs, and the effects of general and local economic and real estate conditions.

Additional information or factors which could impact the companies and the forward-looking statements contained here-in are included in companies filings with the Securities and Exchange Commission. The companies assumes no obligations to update or supplement forward-looking statements that become untrue because of subsequent events. Additional information about the merger and where to find it. Information provided on this call does not constitute an offer of any securities for sale. In connection with the proposed transaction, Brandywine and Prentiss Properties have filed a joint property statement prospectus as part of a registration statement on Form S-4 and other documents regarding the proposed merger with the Securities and Exchange Commission.

Investors and security holders are urged to read the joint proxy statement prospectus when it becomes available, because it will contain important information about Brandywine and Prentiss Properties and the proposed merger. A definitive proxy statement prospectus will be sent to shareholders of Brandywine and Prentiss Properties, seeking their approval of the transaction. Investors and security holders may obtain a free copy of the definitive proxy statement prospectus, when available, and other documents filed by Brandywine and Prentiss Properties with the SEC at the SEC's website at www.sec.gov.

The definitive joint proxy statement prospectus and other relevant documents may also be obtained when available, free of cost, by directing a request to Brandywine Realty Trust, 401 Plymouth Road, Suite 500, Plymouth Meeting, Pennsylvania, 19462, Attention Investor Relations, telephone 610-325-5600, or Prentiss Properties Trust, 3890 West Northwest Highway, Suite 400, Dallas, Texas, 75220, Attention Investor Relations, telephone 214-654-0886. Investors and security holders are urged to read the proxy statement prospectus and other relevant material when they become available before making any voting or investment decisions with respect to the merger.

Brandywine and Prentiss Properties and respective trustees and executive officers may be deemed to be participants in the solicitation of properties from the shareholders of Brandywine and Prentiss Properties, in connection with the merger. Information about Brandywine and its trustees and executive officers and their ownership of Brandywine securities is set forth in the proxy statement for Brandywine's 2005 annual meeting for shareholders, which was filed with the SEC on April 1st of 2005. Information about Prentiss Properties and its trustees and executive officers and their ownership of Prentiss Properties securities is set forth in the proxy statement for the 2005 annual meeting of shareholders of Prentiss Properties, which was filed with the SEC on April 5th, 2005. Additional information regarding the interest of those persons may be obtained by reading the proxy statement prospectus, when it becomes available.

This communication shall not constitute an offer to sell or the solicitation of an offer to sell, or the solicitation of an offer to buy any securities nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to the registration or qualification under security laws of any such jurisdiction. No offering of securities shall be made, except by means of a prospectus meeting of the requirements of Section 10 of the Securities Act of 1933, as amended.

And now, ladies and gentlemen, I would like to turn the call over to Brandywine Realty Trust's President and CEO, Mr. Jerry Sweeney.

Ilsa, thank you very much. Good morning, everyone.Thank you for joining us for Brandywine's third quarter earnings call. Today, the agenda will provide a brief review of market conditions, review of our third quarter results, our outlook for the balance of the year, and our initial estimates for 2006. Participating with me in today's call are Chris Marr, our Senior Vice President and Chief Financial Officer, Tim Martin, our Vice President and Chief Accounting Officer, and Gabe Minority, our corporate comptroller.

Looking at the quarter, third quarter performance was consistent with our expectations and reflects the continued improvement in many of our operating metrics. Core portfolio results were solid, but also remain reflective of a continued competitive environment. Also in early October, we announced our merger with Prentiss Properties. We filed a proxy last week and are operating on the premise of a late fourth quarter 2005 or early first Quarter 2006 closing. Integration efforts are progressing very smoothly. Key executives from both companies are working on a variety of transition items, and progress is being made on all fronts. Four Prentiss regional executives have executed agreements with Brandywine, and all other components of this transaction are progressing on schedule. Also, since the announcement and in full accordance with SEC rule 425, we have posted additional information to our web site. We certainly encourage everyone to review that information to gain a better understanding of the combined company's business plan, growth opportunities, and funding strategies.

Moving back to the third quarter, when we introduced guidance last year for 2005, we mentioned at that time and had always anticipated that the third quarter would be our most challenging, due to known rollouts of several larger tenants. In looking at how we performed during the third quarter, we are pleased with the performance and several items warrant some mention. Our tenant retention rate was approximately 71%. This number, again, exceeded our internal expectations, was a bit below our historical average of five years of 77%, and we expect the retention rate in the fourth quarter to be slightly north of 70%. At the end of the quarter, the portfolio was 91.5% leased and 90.2% occupied.

Highlights were the strong performance in Richmond and our industrial portfolio. These levels are down a little bit from last quarter, due to about 200,000 square feet of leases that, again, we knew at the beginning of the year were vacating or the tenants were contracting their square footage at the end of the term. Despite that for the quarter, we did renew or expand existing leases for approximately 866,000 square feet and signed new leases for close to 157,000 square feet. Our new lease rents on a straight-line basis declined 4.4% for the quarter. That's a bit better than our forecast ,and our best quarter year-to-date. It does represent improvement over previous quarters but, again, still reflects competitive market conditions.

Rental rate growth for renewals declined less than 1.3% on a straight-line basis which, again, reflects where we thought we would wind up being. In addition, capital costs for the quarter were $1.74 per square foot, which is where we were last quarter and in line with about a year ago. While that still remains a bit above our historical average, it is important to note that about 25% of our building and tenant improvements number in our supplemental package of 9.3 million relates to discretionary capital we're spending for lobby upgrades, bathroom renovations, et cetera. As such, our CAD payout ratio is higher than we would like, but the good news is that we are leasing space and continue to incur reasonable capital costs to accomplish deals.

Activity through the portfolio continue to increase. Our conversion rate continues to improve. We had a number of inspections. There were 250 inspections during the quarter ,with about 128 deals being signed, and our general expectation is that rents will get stronger, and that's consistent with our outlook for the past several quarters. From an overall standpoint, to give you a better frame of reference, of the 25 submarkets we track by leasing agent, during 2006 we're expecting rental rates to trend up in eight of those markets, trend down in three, and remain neutral or static in the balance of those markets.

As such, the market outlook we talked about in the last quarter remains on track. We believe that, number one, demand is picking up. Two, generally average rental rates will remain flat. Three, there will be positive net absorption that will vary between submarket. Four, low levels of construction will have a tightening effect on overall vacancy, and competition for deals will continue to suppress rental rate growth on both new and renewal transactions. Our occupancy levels continue to significantly outperform the market. Areas experiencing positive absorption during the quarter were Bala-Cynwyd, Fort Washington, King of Prussia, and the mainline. Year-to-date, interestingly, the Pennsylvania suburbs have had close to 600,000 square feet of positive absorption.

I'd like to spent a few moments looking at our markets for the balance of the year and into 2006. In our northern suburbs, activity continues to increase modestly. We've had most of our inspections in Plymouth Meeting and Fort Washington, but generally overall deal traffic has increased during the year. Strongest performing submarket in the northern suburbs continues to be Plymouth Meeting, and that vacancy rate, right now, stands less than 7%. In the western suburbs, there continues to be a good deal -- amount of deal velocity. Sublease space continues to decrease.

Financial services and the pharmaceutical industries continue to fuel absorption in the region. The market still remains very competitive. However, both CB and Cushman and Wayfield have recently reported drop in vacancy rates for the entire suburban market, as well as King of Prussia. In particular, vacancy in King of Prussia is down about 300 basis points within the last year, and that submarket also had about a 50% drop in sublease space. For the third consecutive quarter, the Pennsylvania suburban marketplace posted positive net absorption and that's the first three quarter consecutive positive absorption pace in the last several years.

Moving over to New Jersey, absorption in southern New Jersey also remained positive for the second quarter in a row. Within that market, the defense industries healthcare sectors continue to anchor the market, with key players such as Lockheed Martin, Virtual Health and Cooper Hospital continues to expand. In central Jersey, we continue to have both cash and GAAP increases in red, while southern New Jersey remains positive on a GAAP basis, with very minor cash decreases. The central New Jersey market also continues to add year-to-date positive absorption, with a direct vacancy rate around 10%. In that market, Brandywine's vacancy remains around 5%, which is why we are proceeding with our start this month at Princeton Pike.

Our team in Richmond has done an excellent job this year in bringing their overall occupancy levels up to 98%. The suburban office market remains strong, and we continue to pursue a number of opportunities. Richmond is essentially in a typical recovery phase, highlighted by declining vacancy, with some build-to-suits and some spec construction getting underway. The Class A suburban office market is about 7% vacant. By comparison, Brandywine's suburban office portfolio is about 1% vacant.

Our urban region also continues to do well. Cira is all but put away. Our first major tenant had their move in this week, and all is progressing on schedule. Tenant fit out-work on a number of floors is also underway, and we have excellent activity on the few remaining square feet in the building. You'll notice in the financial results for the quarter, the lease termination for one of the tenants at Cira, which due to a business change plan they asked us to terminate their lease on one of the floors, that space, however, was immediately released at a higher rental rate to another tenant. Also within the urban division, Brandywine's successful retention of [Blank Rhome] will be one of the largest transactions in the city. And within the urban division this quarter, we completed about 260,000 feet of overall transactions.

In Delaware, we continue to monitor the effects the MBNA's acquisition by Banc of America. We believe that the true impact of that acquisition will not be felt until late 2006. MBNA is currently the largest employer in the state, with approximately 10,500 workers and occupies about four million square feet. They have announced plans to eliminate approximately 6,000 jobs post-acquisition, although it's uncertain how many of those will actually be within Delaware. The market itself continues to do very well in Delaware, and our occupancy levels continue to improve.

So generally, as we look at the market, the numbers clearly support our premise that there is a general improvement. Our deal flow is up. Market stats support our activity levels. And, as I've talked about on previous calls, tenant psychology has clearly changed, and we are also seeing more requests for proposals from large tenants.

From an operational standpoint, as we look at the balance of the year, there's several key themes. One is we'll continue to focus on aggressively leasing space. Second, as I touched on a few moments ago, we'll continue to invest in the infrastructure of our buildings. About $2.3 million in the third quarter numbers represent these discretionary capital expenditures. We also plan on moving forward in the fourth quarter with our development program and commencing construction on two, and possibly three buildings.

In looking at our earnings, we have as -- we are as we have always been, continue to be driven by an overall cautionary approach. As we indicate in our press release, we are targeting an FFO of $0.61 to $0.62 per share for the fourth quarter. Looking at 2006, we have introduced guidance that projects a growth rate between three and 6%, for a target range of 255 to 263 per share of FFO. Chris will articulate the details, but essentially we're projecting a moderate occupancy improvement, continuation of some lease termination income, the impact of Cira coming on line, and additional lease-up of Radner. As noted in the press release, these numbers represent Brandywine on a stand-alone basis. The Prentiss merger will be $0.04 to $0.06 additive to FFO in 2006.

At this point let me turn the discussion over to Chris, who'll discuss our financial results.

Thanks, Jerry. As Jerry mentioned, it was a very clean and straightforward quarter for us. I'd like to spend just a few minutes touching on a couple of specific items within the quarter and then speed to our fourth quarter and 2006 stand-alone guidance. As you all recall, our guidance for the third quarter was $0.61 at the high end. Explicit in that guidance were consistent same-store occupancies and same-store ON -- NOI, unchanged to a decline of approximately 2%. Our actual results came directly in line with the consistently articulated estimates underlying that guidance, with the exception of utility costs and other income. It's no surprise to anyone on the call that utility costs are rising rapidly, and we expect them to continue to do so. While the vast majority of our leases are plus electric, we do still incur cost on vacant space and in common areas.

In other income, as Jerry mentioned, we did have a termination fee during the quarter in our nonsame-store portfolio of $500,000. Occupancy of 90.2% and tenant retention of 70.8 were where we expected them to be this quarter. We had a few tenants we knew early in the year that in late September were either going to consolidate into their own facilities, downsize their operations or relocate to less space in another Brandywine building. GAAP rents on new leases improved from last quarter by almost 100 basis rates, and rates on renewals continued the trend of flat to slightly down. Capital continued to trend towards more normalized levels at $1.74 per square foot per lease year.

Our CAD ratio remained relatively consistent with the second quarter. As we articulated at the beginning of the year, we expected that ratio to be at or slightly north of 100%. We do continue to execute on our capital program and, as mentioned, 25% of the building capital in the quarter was invested in our assets under this previously discussed program, which included renovations of lobbies, lavatories and other upgrades to HVAC, et cetera, in our portfolio. If you look at CAD on a year-to-date basis with a more normalized level of building capital, our CAD payout ratio would have been roughly in that 100% level. The increase in straight line rent, as Jerry mentioned, was primarily attributable to the 224,000 square foot renewal of [Blank Rhome] at Two Logan. We did extend their 2008 expiration 14 years to 2022 with rent bumps, and within that lease was eight months of free rent.

Our fourth quarter guidance is 61 to 62 and assumes that the rental rate, retention, and occupancy trends in the third quarter remain consistent. We have introduced 2006 stand-alone guidance of 255 to 263. The low-end contemplates consistent average occupancy. The trends in new leases and renewal rate leases versus expiring leases continues along the lines of what we have experienced in 2005. We do expect continued rising energy costs and real estate tax rates increasing.

The higher end of the guidance assumes increased occupancies over 2005 levels, net acquisition activity, and termination fees consistent with those recognized thus far in 2005. Included in the guidance is the lease-up of Cira, such that our average 2006 occupancy is approximately 70%. The low-end of our guidance assumes Radner Financial is roughly 60% leased by the end of 2006, with an average 2006 occupancy in the 40% range. We are also assuming that, on a stand-alone basis, we would term out approximately 300 million of our current line borrowings with longer term fixed rate debt, and our assumptions are predicated on the fact that such a transaction would take place early in the first quarter of 2006.

Thanks for listening, and I will now turn the call back over to Jerry.

Thank you, Chris. Let me just take a few moments to discuss several points, and then we'll open the -- the phone up to questions. Clearly, for the balance of 2005, we will continue to pay significant attention to leasing throughout our portfolio. We are determined to continue our aggressive leasing program. As Chris mentioned, we are in an environment of some rising uncontrollable expenses like utilities and real estate taxes. However, we do have a very strong focus in the organization on managing our controllable expenses. We will continue to invest capital in our portfolio, with the objective of ensuring long-term, high-tenant retention rates and very high levels of tenant satisfaction.

Chris talked about Radner. Our objectives for Radner remain very much on track. We're certainly pleased with our success, thus far. We have excellent activity. You may remember that when we bought that portfolio we had programmed it three-year lease-up. Our pipeline remains very strong, The 555 Radner redevelopment program remains on target, with a completion date early in the fourth quarter. As I mentioned in the last call, this renovation will essentially change the entire character of that building by installation of a new curtain wall system, completely new mechanical systems, entrance, and common area. So, we're -- from a real estate market introduction standpoint, we're very, very pleased with where we stand.

For the third quarter and fourth quarter to date, we have signed transactions for approximately 100,000 square feet at Radner Financial center, and approximately 65,000 square feet at Radner Corporate. In addition, we're also looking at a pipeline of transactions for Radner Financial from new tenancies in the 300,000 square foot range, that are at various stages of discussion. So deal flow and activity continues to be strong. We're confident being able to meet or exceed our pro forma assumptions on the budget. And as Chris -- and as Chris outlined, our 2006 projections assume some of that lease-up occurs.

Looking at the investment climate, during the third quarter, the Company did acquire two office buildings, totaling 283,000 square feet for $52 million or $183 per square foot. These properties are located adjacent to one another in our Conshohocken submarket and have a combined occupancy of 78%. Initial yields were around 7%, and we're projecting a stabilized return in the 8.5% range. In general, looking at the investment marketplace, we continue to see aggressive pricing across the board. In the Philadelphia region, it -- levels that had never been breeched before have become commonplace in terms of cap rates and prices per square foot. Anecdotally, we can give you some recent examples on premium pricing of some suburban assets. One case in point is a newly constructed property in Conshohocken, developed by a local developer that is under agreement at about a 6% cap rate, for a price of about $233 per square foot. Another complex in the northern suburbs, that's about 121,000 square feet, is fully leased, just recently traded for a 7% cap rate or about $214 per square foot. One final example in another submarket in southern Delaware county had a couple buildings as a complex, again fully leased, completed several years ago, and that pricing is around $220 a square foot, which equated to a initial cap rate of 7%. We'll certainly continue to look at additional acquisition opportunities, but our expectation is that we'll focus on value-added transactions, such as the recent acquisitioning in Conshohocken, and position account money for the market recovery.

From a development standpoint, we remain on track to commence our development projects in southern and central New Jersey. In addition, our renovation project at 855 Springdale Road and 500 Office Center Drive continue to progress well. And we're also gearing up for several additional rehabs that will commence during 2006. Our land inventory, we continue to move in a very positive direction on perfecting any outstanding approvals and engineering and architectural work is proceed on a number of our developments. We also plan on starting a building at -- in suburban Richmond to be 50,000 square feet. That building will be 50% pre-leased, and we expect to commence construction shortly.

To wrap up, the third quarter was a good one for us, certainly very busy. Portfolio performance was very much in line with our expectations. We continue to take a very aggressive stance on leasing. And looking at our goals, they are fairly straightforward: Maintain well-above operating market performance; Manage our land inventory and advance approvals across the board; Continue the integration efforts on the Prentiss transaction, so we're in an excellent position to capitalize on all those additional growth opportunities once the transaction closes; and, Continue to keep our financial metrics in very strong shape.

So, we'd like to thank you very much for taking the time to listen. Ilsa, at this point, we would be happy to answer any questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question is coming from John Litt with Citigroup.

Good morning, guys. It's Jordan Sadler here with John. My first question just relates to your G&A expectations in terms of guidance.

For 2006?

Yes. Fourth quarter. Any charges related to or spending related to Prentiss in there, at all?

No. In the fourth quarter of this year, I think our expectation is relatively consistent with the third quarter actual results. The only thing that we have previewed in the release that we know about in connection with the Prentiss transaction is that, shortly before closing -- and that may be fourth quarter of this year, that may be first quarter of next -- we would in connection with redoing our credit facility write off the unamortized fees of the prior facility, and we mentioned that in the release.

As you look at 2006 from a G&A perspective on a stand-alone basis, we'd be looking at kind of that four to 5% increase in overall costs, mostly related with cost of living increases at the personnel level, et cetera. On a combined basis, I think we've -- as we've talked about, there will be some savings, and we'd be able to articulate those with a higher level of specificity after we've closed.

Sure. And lease terminations you said should be consistent with what you did in the first nine months. You did ten stints of lease terms, settlements and other. Is that what you're expecting for the full year next year?

At the high end, I think we're looking at something kind of in that range. At the low end, I think we factored in something closer to half of that amount.

As it relates to Cira and -- well, first let me back up. On development spending, what do you think total development spending will total next year, as you ramp up the two in central, southern New Jersey and the one in Richmond you talked about?

We think it's going to be somewhere in that $75 million range.

And in terms of Cira, you said -- in expectations or in your guidance, you've got about sevent -- you're assuming it's about 70% leased on average throughout.

That's correct. And that's not really an expectation, at this point. I think that's fairly accurate to say that's just the reality of how the known tenants, the 93% lease, is going to move in.

What's the range from January 1 to December? Where do you start the year versus where you end the year, occupancy-wise?

I think we start the year at Cira roughly 37% occupied, plus or minus a little bit, and then end the year at that -- right now, at that 93, 94% number.

Okay, and the --

That's on everything that's booked today.

And the overall expected yield at the end of the year, again?

At the end of the year? I mean, on stabilized basis, which would really be 2007, we're still in that GAAP-yield, right around 10% that we've been talking about.

Thank you.

Thank you. Our next question is coming from John Guinee with Legg Mason.

Hi, Jerry. Any -- are we allowed to ask merger questions?

John, the mic is yours.

Okay. Obviously, as a Philadelphia company, you've had your fingers on every single thing that went on at Brandywine. That's going to be impossible to do with an expanded platform. Can you just sort of walk through, maybe, what the investment committee looks like now, how it acts and what it's going to look like, post merger?

Sure. Our investment process right now is transactions above a certain dollar amount, threshold go to our board for review. That level right now is $60 million. Investments below that range are typically reviewed by our management team here, which consists of our acquisition professionals, the regional head, and several folks from corporate functions and myself. As we look at capital deployment in the combined Company, we've approached it from a couple different standpoints that I think will create a great result for us.

One is the addition of Tom August and Mike Prentiss to our board. We'll certainly put them in a position to provide guidance and assistance to our existing board members, as we evaluate acquisition opportunities in the existing Prentiss markets. From a management standpoint, Tom August will be -- will be a member of our investment committee, as well as Bob Weinberg, who is Prentiss 's current regional head in metro D.C. Those two gentlemen will join some of our existing Brandywine folks, as we deliberate making investments in 2006.

Thank you.

You're welcome.

That's it.

[OPERATOR INSTRUCTIONS] Our next question is coming from Chris Haley with Wachovia.

Good morning, Jerry and Chris.

Good morning.

Jerry, you mentioned leasing backlog at Radner, 100,000 to 200,000 square feet. Could you review that with me? I wasn't able to get that.

Chris, we've done for the third and fourth quarter, and that should mean the fourth quarter of year-to-date -- quarter-to-date, I guess, is the way you'd say that. We've leased about 100,000 square feet at Radner Financial and done about 65,000 square feet at Radner Corporate of essentially new deals. When we look at our pipeline of transactions that are at various stages of the queue, and they really range, Chris, from transactions that are the final stage of lease negotiations to we've been issue -- we're issued propo -- one end of the extreme is we've issue propose, the other end of the extreme is we are in final lease negotiation phases.

That pipeline of transactions is slightly north of 300,000 square feet. So that's what we really monitor in terms of what we expect to be able to deliver in terms of signed deals. So I think, as we look at both the Radner Financial Center but also Radner Corporate Center, we remain very pleased with the level of activity.

So you're saying on the four buildings in the complex, the ratios that you've disclosed -- or the metrics you've disclosed from your third quarter supplemental reflect 165,000 square feet of leasing since you've purchased?

Actually, no. Those numbers go through the third quarter.

Okay. So where are we today?

At the end of the third quarter, we have leased basically about 340,000 square feet at Radner Financial. When we first acquired Radner Financial, it was essentially zero. So I think it's only fair to look at the fact that we've done transactions of 332,000 square feet since we acquired the complex. The occupancy -- the actual physically occupied square feet of that number at 930 is about 235,000 square feet.

On those leases and the leases that you're working on, what is a typical free rent period or period between signing and oc -- signing or rent payment?

Well, some of the leases have some minor free rent, some don't, that we've worked on. The timeframe between actual signing and occupancy is really a function of how quickly the tenants get their space plans finalized. Radner Township has frankly been very, very cooperative in terms of accelerating their review process. So I know in some of our -- call it our more significant transactions, we're looked at a time lag of three months or so from the time they sign to the time they occupy.

Okay.Looking at your timetable, you expect 60% leased by the end of 2006. My recollection's that's consistent or a little bit slightly above where you were expecting to be, which is good. So the full impact we're going to get from, on a cash basis, for Radner obviously won't be until '07, and the full impact from Cira Center from a cash basis won't be until '07 as well?

That's correct.

Yes. That's completely consistent with what we've been outlining for the last several years.

And in your presentation that you did post -- or to your website talking about the merger accelerating growth, I think it was term of the title that you used, you laid out kind of a rough timetable of how the merger was going to increase the growth rate of -- the combined Company would have a faster growth rate than the existing Brandywine stand-alone entity. When I look at things on a cash basis, are you willing to make the same assertions on a cash basis, as well as a GAAP basis?

Yes. From an NOI perspective, yes.

Okay. Cash NOI?

Correct.

Absolutely.

All right. Lastly, on the straight-line rent numbers for 2006, could you give us a rough range as to what to expect?

You know what? That's such a tough thing to do because it's -- it's so dependent upon individual lease transactions. The impact of the [Blank Rohme] lease burns off over the next eight months or really the second month of '06. So if you take that out of the equation, you're back into at least a run rate and a declining run rate from where we were in the third quarter. That's such a difficult number for us to estimate, because it is so dependent upon individual lease transactions. For the most part, with the exception of something like the transaction we did at two Logan, we generally have a minimum amoun -- minimal amount of free rent in our normal transactions.

Okay. And in the markets, Jerry, you mentioned eight markets would be up on market rental rates next year or some markets, three down, and five -- was it 16 you did?

No. Actually, there were a total of 25.

I'm sorry.

And we relate that -- Fort Washington, Plymouth Meeting, Bluebell, we really go through each market individually. And we were seeing -- our numbers are indicating, our expectations are that we would be in a position of having rents trend up in eight of those 25 for '06, trend down in three, and remain neutral in the balance.

Okay. Thank you.

You're welcome, Chris.

Our next question is coming from Paul Puryear with Raymond James.

Hey, good morning.

Hi, Paul.

Jerry, in your analysis of the merger, there is a slide that talks about NOI growth for the portfolios. Could you talk about the thinking behind the BDN core portfolio growth rate? Sort of like one to 1.25%?

Yes. I think that is consistent, Paul, with what we've been projecting and in excess of what we've been delivering the last couple years. But as we take a look at the ability for us to move our rents up throughout the entire marketplace, that number's really coming from a very long track record of working in these markets, tied into the blending of our portfolio and what we see happening on the overall rental rate gross standpoint.

What kind of occupancy growth assumptions are in there?

I think in general the assumption is '05 to '06, there's a modest improvement in overall occupancies, and then there's a 50 to 100 basis point increase '06 to '07 and then another 50 to 75 basis point increase '07 to'.'.

So, a lot of it is occupancy?

Very modest acceleration of rental rates within that particular BDN core numbers of 1.15 to 1.3.

I guess the same question, Jerry, for the Prentiss markets. Just how much work have you done there? I assume this is a combined effort with the Prentiss management.

It is very much so, and it's -- really those numbers, Paul, are the result of literally space-by-space, building-by-building assumptions and prospecting that was done for each building within the -- within the markets that Brandywine will be acquiring as part of the Prentiss transaction. So we think it's very well-founded in terms of their actual historical perspective, what the rental markets are currently generating, and what we think we can do in terms of occupancy gains over the next several years. So the assumptions somewhat parallel, and the thought process parallels what we went through on the Brandywine portfolio.

I know you've addressed this before, but again, your comments on southern California as a potential market?

Yes. I mean, our perspective on southern California is, as you know from the structure of the transaction with Prudential, Brandywine will be acquiring only Prentiss 's existing joint venture position in the ABP assets in southern California. Prudential is acquiring the balance. For -- Prudential engaged Brandywine in a two-year management and leasing and construction management agreement that will provide us a positive cash flow option to evaluate future opportunities in those markets. Certainly, as we evaluate the landscape in that marketplace, we'll have the benefit of the income stream from the properties and the existing staff, in order to bet the properties properly.

One more question. The Cira Center, the tenancy there, the 93% that you've leased, what percent of that came from the Philadelphia CBD?

As we look at it in terms of job growth, Cira will have approximately 1,900 employees. We have roughly about 1,100 coming in from the existing CBD, with the balance coming in from outside the city. And of that amount coming from outside the city, a little bit more than half is coming from outside the state of Pennsylvania.

Great. Thanks.

You're welcome.

Thank you. There appear to be no further questions at this time. I'll turn the floor back over to you for any further closing remarks.

Ilsa, thank you very much and thank you all very much for participating in this call, and we look forward to updating you on the next quarter's activity.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.