Brandywine Realty Trust (BDN) 2006 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Brandywine Realty Trust second quarter earnings call. At this time all participants are in a listen only mode. 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. Prior to turning the call over to Mr. Jerry Sweeney. Please let me read the following disclaimer on behalf of the Company.

The information to be discussed on this earnings conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words anticipate, believe, estimate, expect, intend, will, should, and similar expressions as they relate to us are intended to identify forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, these statements are not guarantees of results and no insurance 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 facts are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those expected. Among these risks are the risks that we have identified in our annual report on form 10-K for the year ended December 31, 2005. A copy of which is on file with the Securities and Exchange commission. Including our ability to lease vacant space, and to renew or relet space under expiring leases at expected levels.

Competition with other real estate companies for tenants, the potential loss or bankruptcy of major tenants, interest rate levels, the availability of debt and equity financing, competition for real estate acquisition and the risk of acquisitions, dispositions and developments, including the cost of construction delays and cost overruns, unanticipated operating and capital costs, our ability to obtain adequate insurance, including coverage for terrorist acts, dependence upon certain geographic markets and general and local economic and real estate conditions including the extent and duration of adverse changes that affect the industries in which our tenants compete. For further information on factors that could impact us, please reference our additional filings with the SEC. 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. Thank you.

I would now like to introduce your host for today's conference, Mr. Jerry Sweeney, President and CEO of Brandywine Realty Trust. Mr. Sweeney may begin.

Thank you. Good morning, everyone and thank you all for joining us for Brandywine's quarterly earnings call. During the second quarter, which saw a continuation of the trend towards improving fundamentals and in the execution of our growth plan and investment strategy. During the call today we'll be providing you an overview of second quarter results, updating you on market conditions, integration activities, as well as looking ahead to our business plan execution. Participating in today's call with me are Tim Martin, our Vice President of Finance; Scott Fordham, our Chief Accounting Officer, [Gabe Minority], our Corporate Controller, Bob Wiberg, our Executive in charge of the Mid-Atlantic Region, and George Sowa, our Executive in charge of the New Jersey Regions.

Bottom -- excuse me, Bottom line, the second quarter was a very good one for the Company. We continue to make progress on both the operating and investment fronts. Some of the good news takeaways for the quarter are our occupancy rate for the quarter showed improvement in stands at 91.6% occupied at about 93.1% leased. Now to be fair, about six tenths of that occupancy increase relates to the sale of an empty building in Dallas and our taking 110,000 square foot building out of service and creating a future develop site that provides an additional 240,000 square feet of [FAR] coverage but still 100 basis points followed a gain in occupancy. So we're very pleased with that.

The retention rate for the quarter was 83%. Extremely strong. That -- that compares favorably to our historical retention run rate of 77% for the period of 2000 through 2006. In addition from a Portfolio standpoint, for the second quarter in a row we had positive absorption. During the second quarter we absorbed 254,000 square feet of space. This combined of our first quarter positive absorption creates a year to date absorption through the Company of almost 360,000 square feet. The major driver of absorption this quarter was 121,000 square foot lease deal done in our Richmond, Virginia Office.

From an activity standpoint, the portfolio during the quarter was very active in terms of the total leasing activity. It totaled about 1.1 million square feet. All of our markets are experiencing declines in vacancy rates, lower unemployment rates, fair to strong job growth -- job -- strong job growth particularly in the Metro D.C., Northern California, and Austin. And in everyone of our markets with the exception of suburban Maryland we continue to significantly outperform the overall vacancy rates in the marketplace. Breakdown of transactions during in the quarter were about 52% of the total deals were renewals, 35% new leases, and 13% were expansions and relocations within our existing portfolio. Also of the 159 deals that we did this quarter, 83 of those were about 50% of our total deals were done on a direct basis which we believe is clearly indicative of the strength of our leasing and marketing teams.

Capital costs for the quarter were down from last quarter and stand at $2.30 per square feet per please year. That breaks down to $16.50 per square foot for new leases, $8.60 for renewals, and $13 for expansions. Capital costs from a per square foot basis for the legacy portfolios were fairly close. The Legacy Brandywine's came in at $2.31 with Legacy Prentiss at $2.26. The two regions with the highest capital cost per square foot were in Pennsylvania north region as well as the Southwest region. Those regions with the lowest capital cost were the Mid-Atlantic and Northern California with the other regions revolving pretty close to the overall Company average. You'll note in our supplemental package that about 20% of our total capital costs this quarter were about $2.3 million was expended on general building improvements as part of our announced accelerated program to invest in our physical plant as market conditions improve.

With those positive takeaways, our primary operational challenge remains our rental rate performance. We continue to face the challenge that you would expect we would in a recovering market. Overall activity, space showings and our cold calling has clearly picked up and in some areas to significantly. We continue however to face pricing pressure in a variety of our markets as an illustration overall, our cash growth rate on new leases remained negative, just shy of 10%. However that -- that was by a much less margin than to our -- our first quarter results of almost 17%. So an improving trend line there.

Also during the quarter we experienced negative GAAP but growth on renewals in the PA west, the Mid-Atlantic and the Southwest regions. In our other markets, namely PA north, New Jersey, urban Virginia and California, we did in fact expense positive GAAP [rate] growth. Through the mix of deals throughout portfolio, [inaudible] large renewal within [inaudible] Austin, we did experience an overall negative GAAP growth rate on renewals of slightly less than 3%. The new leasing activity from a GAAP standpoint, we had positive mark-to-market in Virginia and Urban with a decrease in GAAP rate in the of other operations. Certainly as I always mention, these statistics are purely symptomatic of quarterly activity, and don't necessarily reflect a trend line were saying in each of our markets.

But more importantly in the quarterly recap, we are projecting continued upward pressure on rents and in almost every one of our operations. For example, we're projecting flat to down rents only in CBD Philadelphia, CBD Wilmington and our Northern Pennsylvania suburbs. All of our operations are projecting either stable or an increasing rate environments. As a consequence of this trend line, when we compare our existing in place rents versus our current asking rents, we are anticipating that our mark-to-market will move the to positive in 2007. The areas of largest positive spread are Virginia, Austin, Northern California, Urban and the Mid-Atlantic region, areas where we remain -- remain to expect continuing negative mark-to-market in '07 are southern New Jersey and the Western Philadelphia suburbs.

Looking at the Legacy portfolios, Legacy Brandywine on a mark-to-market basis appears to be slightly negative while Legacy Prentiss is showing about an 8% increase for overall portfolio mark-to-market of about 3%. We think that these estimates coupled with our positive absorption for the last couple quarters present some pretty good evidence of increasing fundamental recovery. Certainly as Tim will discuss from a financial reporting standpoint, we reported in line FFO of $0.60 per share and reaffirmed guidance for the balance of 2006.

Just several other quick [items] before -- before Tim takes over. The integration program is proceeding very much on track and according to plan. Our dedicated team continues their great work and we're currently based on number of tasks about 70% complete. We have 14 task forces that are either in full operation or at have completed their work. As I mentioned on last quarterly call, it's been a fairly pervasive undertaking by our employee base and each component business -- each component part of our business plan is being analyzed and I'm very very pleased with the -- with the progress we're making thus far. Our CFO search process is formally underway. We have retained a search firm. Preliminary interviews have commenced and that process is tracking along very nicely.

At this point, let me turn the presentation over to Tim to review our second quarter results and our expectations for the balance of the year.

Thanks, Jerry. The second quarter was very positive and clean quarter from an earnings perspective as Gerry had indicated. Our portfolio performed right in line and our expectations and our reported $0.60 FFO per share for the quarter was at the high end of our guidance range and in line with consensus estimates. When comparing the results from the second quarter to the first quarter this year let me highlight a few items of note. As you recall, the Prentiss merger closed on January 5th, so the first quarter only had results from the new portfolio for 86 days, while the second quarter had a full quarter worth of activity. So that nuance creates variances quarter-over-quarter pretty much all the way down the income statement.

Also of note, we closed our $850 million bond offering in late March, which termed out the financing related to the Prentiss merger. Given that timing we had a sequential increase in interest expense quarter-over-quarter as the second quarter had the full impact of the longer term debt. We were pleased with the March bond offering when we talked about it last quarter and with the direction interest rates and spreads have moved over the last three months were more excited that we were quick to get to the long-term financing and put that to bed.

Our same-store portfolio saw positive momentum during the quarter with around 225,000 square feet of positive absorption which was directly in line with our projections. As we discussed during last quarter's call, we -- we expected to begin to see some of the synergies of the merger start to impact the numbers in the second quarter. G&A expenses as a result, decra -- decreased by about $750,000 quarter-to-quarter. Also during the quarter we placed two assets that were part of the Prentiss transaction into discontinued operations, the first was 505 Millennium Drive, a 98,000 square foot building in Allen, Texas, which we sold in June. The second is Walnut Glen, a 464,000 square foot property in Dallas that is currently under contract and we expect to close during the third quarter. We had $2.6 million of gains on sales during the quarter and those related to the sales of two land parcels, one in the West in Philadelphia's suburbs and one in Southern New Jersey.

Another item of note related to our second quarter earnings is the impact of the demolition of 50 East Swedesford Rd. in suburban Philadelphia that Gerry mentioned a few moments ago. The treatment under generally accepted accounting principles is to run the entire remaining balance of that that building through depreciation expense given our decision to shorten the useful of life of the asset. The impact to the quarter was approximately $12 million additional depreciation expense which reduced our earnings per share by about $0.12. As the depreciation is added back to arrive at FFO, there is no impact of that to our FFO per share during the quarter.

We announced last quarter that our Board increased the amount of shares we can repurchase of our share repurchase program to 3.5 million shares. We currently view share repurchases as a viable part of our investment strategy and were active during the second quarter. We repurchased about 1.2 million shares during the quarter for a total of about $34.4 million. That averages out to be about $29.15 per share. So those are the notable items related to second quarter earnings. As I mentioned, the second quarter had a full quarter impact from the Prentiss merger and also had a full quarter impact of the permanent financing for the transaction. And as such, it provides a real nice baseline for me to walk you through how we get from there to our third quarter earnings guidance.

In our earnings release yesterday we affirmed our 2006 FFO per share guidance of $2.50 per share to $2.58 per share and introduced third quarter 2006 FFO guidance of $0.64 to $0.66 per share. I'd like to take a few moments now and walk through the major drivers in getting from a second quarter $0.60 per share to our third quarter guidance range. We expect our same-store portfolio and the acquired Prentiss portfolio to contribute a penny more to FFO in the third quarter than they had contributed in the second quarter. Of that penny per share growth, it's roughly split evenly between same-store stuff and the Prentiss portfolio. Occupancy continues to stage in at Cira Centre with occupancy climbing from 61% at the end of the second quarter, to around 75% at the end of the third quarter. Radnor Financial Center will also see positive growth quarter-over-quarter and we expect those projects on a combined basis to contribute another penny per share quarter-over-quarter. So far we're up to about $0.02 positive quarter-on-quarter, with a penny from the same store in Prentiss portfolio and another penny from Cira Centre and Radnor and the rest of their redevelopment assets.

We indicated in prior calls that our 2006 guidance contemplated termination fee and other nonrecurring income to be at similar levels on a per-share basis to levels we achieved in 2005. While year to date we've only recognized about 1.9 million in termination fee income, we do expect $0.03 to $0.04 of termination fee and other nonrecurring income in Q3. We showed a nice drop in the G&A expense, as I mentioned earlier, in the second quarter of our first quarter of about $750,000. We expect to see another sequential drop of about $500,000 going into Q3, bringing the G&A run rate down to the $7 to $7.5 million range. So that's another about a half penny. So our running total now is about $0.06 positive quarter-over-quarter.

There are a few things that go in the opposite direction. Our disposition activity that we've announced will takeaway approximately a penny per share going from Q2 to Q3. We've [appropriately] included the impact of rising short-term interest rates into our previous forecasts and have no surprises in that area. But on a quarter-to-quarter basis, rising rates certainly are going to have a negative impact. The impact of rising interest rates and less capitalized interest will take away almost another full penny, bringing our running total quarter-to-quarter to the $0.04 to $0.05 range.

So again quickly, the positive impact of same-store, Prentiss portfolio, Cira, Radnor, termination income and G$A synergies is expected to combine to have a positive impact quarter-to-quarter of around $0.06. That's offset by about $0.01 to $0.02 of negative impact driven by our disposition activity and rising short-term interest rates. Those are the major items that get you from the second quarter to our third quarter earnings guidance range. As I mentioned, our full quarter -- our full 2006 FFO guidance remains unchanged at $2.50 to $2.58, but as always, we -- we're much more comfortable at the low end of that range.

With that, I'll be happy to answer any questions at the end of the call and I'll turn it back over to Gerry.

Great Tim. Thank you very much. Let me spend a few moments before we handle questions on our business plan for the balance of '06 and looking ahead into 2007. As indicated on the last call, the key opportunities we originally identified as part of the Prentiss transaction are being harvested or implemented. Our total development projects are underway as we indicated in the supplemental package we now have 960,000 square feet under development with a total projected capital cost of $250 million, right on line with our original estimates. These developments will be high quality and certainly very nice value driven additions to our portfolio.

We continue to project average initial develop -- av -- average initial development yields in these projects between 8% and 9% with overall development yields between 9% and 10%. Execution thus far has been excellent, and these projects will begin to come on line in the latter half of 2007. While leasing activity on these projects is strong, we frankly don't expect to see any -- any significant lease signings until the second quarter of '07 when most of these buildings of approach [core and shell] completion dates.

Additionally, our rehab program remains on track. At the current time we have three properties aggregating 400,000 square feet in this program with projected returns between 8% and 10% with a total capital cost of about $43 million.

From an overall standpoint, we have a focused growth strategy in the four markets where we have strong market share. Those markets are Philadelphia, Metro D.C., California, and Austin. In those markets we have strong, well experienced teams that possess deep market knowledge, full capabilities, great contacts, and a true focus on creating value in markets where there are strong fundamentals. Will continue to be in a recycling mode in Dallas and parts of the Legacy Brandywine operations. And as we view it, our business plan is fully funded to these recycling activities. As we look at our portfolio today, about 55% of our rents are coming in from the Legacy Brandywine Philadelphia operations. About 22% from Metro D.C., 12% from the Southwest and 8% from California.

From a strategic standpoint, our three to five-year goal is to increase the overall capitalization of our Company and through that growth move towards equalizing the percentage of revenue coming in from the Philadelphia market place and Metropolitan D.C. and to significantly increase the percentage of revenues coming in from Austin and California. In today's investment climate, we anticipate that growth will be fuelled by executing several co-investment vehicles, some direct investments, our development pipeline, aggressively pursuing select land acquisitions, to create future value added opportunities in these regions. We are confident that our existing market positions, the experience of our local teams we will be able to identify a pipeline of activity and finance this growth in a way that is both accretive to both near-term earnings and long-term real-estate shareholder value.

Looking at the shorter-term horizon, our key business plan [priorities] are fairly simple and straightforward. Our top priority is, was, and continues to lease office space. I'm delighted we've had two consecutive quarters of positive absorption. From my standpoint, however, the portfolio still remains under-leased and we plan on it continuing our aggressive leasing strategies to migrate our overall portfolio occupancy towards 95%. As we look at it, as we've talked about at some of our conferences, each 1% occupancy gain in our portfolio will deliver approximately $0.055 of FFO growth. So if we can just simply move our occupancy rate of 3%, that will generate just internally about a 6% growth rate. So that is and as I mentioned remains our number one priority.

Next priority is to [continue] the good execution of development pipeline. My expectation as we're assessing the market today as we look at 2007, will be looking at development and rehab start volume in the 150 to $200 million range. We're investigating the feasibility of all of these different potential starts. And clearly the timing of those starts are conditioned upon leasing activity within our existing pipeline, continued progress on leasing our existing vacancy in our same-store, and overall market conditions.

Third priority is to continue to make our non-earning assets financially productive. The non-earning asset component of our -- of our total portfolio is about $560 million or roughly 10% of our total asset base. And that's without giving effect to the full intermediate term development pipeline or committed construction in progress. Certainly a key driver in accomplishing this goal is to bring Cira Centre online and moved Radnor expeditiously toward stabilization. Cira is clearly on track, and Tim touched on the [lay in] over the next couple of quarters. In Radnor, at the end of the first quarter we were 46% leased we're currently 60% leased. Several percentage points of that reflect the Brandywine relocation to Radnor but we still have very good absorption during the quarter. You may recall from our last -- from our last earnings discussion our expectation was to be at 60% by the end of the year.

So given the strong second quarter, the very strong pipeline of activity that we have, we were now expecting that pipeline to be -- we're now expecting Radnor to be around 67% leased by the end of the fourth quarter. Our target remains delivering 16 to $18 triple net rents. We continue to be aggressive on all of our leasing strategies across the Company, and particularly in Radnor and have identified various price points within the Radnor Financial Center to make sure that we appeal to the broadest possible audience. As an example, in our 555 Lancaster Avenue rehab, we have pushed rents north of $23 triple net per square foot and getting on a number of tenancies. We remain committed top a very strong profit opportunities on in our existing portfolio and that by garnering it existing, leasing to improve our occupancy, stabilizing our development pipeline, bringing Radnor and Cira Centre on line. We will generate significant additional revenues over the next several years.

From the investment standpoint, we plan on recycling capital to accomplish our goals. Dispositions, we remain ahead of schedule in Dallas. We have closed over $200 million thus far and as Tim mentioned in the discontinued operations discussion we expect to close another $60 million or so in August. The remainder of the Dallas Portfolio is currently being marketed and we expect bids to be fully analyzed and assessed within the next 30 days at which point we'll make a decision on an asset by asset bases. We also have about $50 million in other sales that are scheduled to close during the third quarter in the Legacy Brandywine operations and our cap rate on those dispositions is just north of 7%. Are may recall that our financial projections for the year include about 150 to $200 million of additional sales. So looking ahead, we believe we're in very good shape and certainly anticipate that for the balance of the year we'll continue to execute that plan.

From an acquisitions standpoint, the pipeline is strong. About $500 million, but it's also pricey. But nonetheless, we continue to work the deals and are focused primarily on acquisitions of properties that will truly enhance our submarket positioning. The financial forecast Tim laid out, however does not contemplate any additional acquisitions. So at this point, [Elsa], that -- that concludes our prepared comments and we would be delighted to answer questions that the -- that the listeners have .

[OPERATOR INSTRUCTIONS] Michael Bilerman, Citigroup

Hi, good morning. John Litt's on the phone with me as well. I was wondering if you could just go over the guidance of a little bit , Tim, the stuff you walked through is extraordinarily helpful. Looking at the fourth quarter, I guess to get to the low end, does the $0.03 to $0.04 of non-recurring go away and effectively replaced with another $0.02 from Cira, Radnor and same-store?

That's exactly right.

And then how you get to the top end? Were you get that extra, call it $8 million in FFO?

To get there, you have to add in things like more termination fees than we had baked into our -- our forecasts, which is always a possibility. We could -- [inaudible] we could actually have some acquisition activity and find something accretive in that -- in that area. We could continue our share repurchase program, which could -- which could add a little bit to get -- to get a little bit more. And we could also see some more synergies that we have baked into our guidance. Those are -- those are really the pieces that could get you from the lower end of the range where we are much more comfortable up into the mid to high part of the range.

And is there in that particular that actually could take you lower than the range?

There's always some thing, but certainly nothing that we're anticipating happening.

Okay. And then in terms of your -- your acquisition and disposition guidance, you're about 200 million net today, about another 100 held for sale, [inaudible] I assume excludes the rest of Dallas. If Dallas goes through, where could you end up from a disposition standpoint this year?

Well what I think we've done is, as Tim and I both mentioned, we have about 150 to $200 million of additional dispositions baked to do this year guid -- this year's guidance. We are running well ahead of what our original expectations were for the Dallas portfolio. You may recall we initially projected that about to about $200 million held in the first full calendar year of the merger. We're well ahead of that. We are looking at the existing pipeline of potential dispositions really bringing us an additional 150 to $ 200 million range for the year. And that's -- that's exactly what's baked into our guidance.

So 150 to 200 on top of 200 that you have already sold?

Correct.

And there's no acquisitions at all within -- within the guidance?

We've always been reluctant to -- to project acquisitions just due to the lack of certainty in terms of timing, what the ultimate yields will be. But we are certainly spending a lot of time looking at acquisitions. The challenge is finding the right deal at the right price. So, as we sit here today, we are certainly very comfortable not having any acquisitions baked into our guidance. That being said, there's an awful lot of brainpower [in the Company] folks on trying to find the right deals at the right pricing metric.

And then just a quick question on operations. It seemed like the reimbursement rate came down a little bit. Can you talk a little bit about that? I don't know if you found the same thing.

The percentage of tenant reimbursements?

Yes.

Yes, we had, in the first quarter, we had a lot of activities surrounding the snow removal costs and a much milder winter than what we had thought. In the second quarter, we have a lot of repairs and maintenance that were a little bit below our expectation and the fluctuation in the tenant reimbursements amount from quarter-to-quarter really is a blend on variances within that property operating expense line between categories of expenses that are recoverable from the tenants and categories of expenses that are -- that are not. So it so happened that most of our expense savings were in areas that -- that a lot of that benefited our tenants. So it did really drive the bottom line all that much but certainly creates a fluctuation on that line item.

And so effectively for the back half of it's more of an average of the first two quarters than spiking up or down one way?

Depending on what happens with the expenses, sure.

Okay, I think John has a question as well.

Yes, Gerry can you walk through the process for the Dallas Portfolio?

Sure, John. Just do I want to walk through the process of were doing?

Yes.

Yes. We -- we've actually put the properties in Dallas on the market through a third-party intermediary. And are looking to receive bids in, as I mentioned, within the next 30 days. At that point we'll take a review of what those bids are, what we think the various pricing points are and decide whether we want to proceed with selling some assets, forming a co-investment vehicle on some of the assets, or -- or -- or whatever the outcome might be. I think we are pleased with the level of activity we're seeing on this portfolio. Certainly the -- the pricing expectations that we have, I think are very much in line with -- with original underwriting. And from our standpoint, as I mentioned to your colleague, we are running at very much ahead of schedule, which I think gives us tremendous flexibility in terms of timing how we want to recycle some of this capital.

So is it all four of the Dallas buildings that you're trying to sell?

Everything that we own in Dallas was -- we are test marketing, correct.

And there's the one large one.

There's City Place -- City Place Center, which is the high-rise building and actually with the -- with the sale earlier this year of Burnett and Walnut Glen, City Place is clearly the largest single asset we have in Dallas. That as you know, or you may -- may recall has a near-term rollover next year with 7-11 vacating about 350,000 square feet or so. We've assumed that 7-11 is vacating. We -- we all knew that as part of the original underwriting. So that as a project that we are -- we are marketing both for feet advance or for the formation of a co-investment vehicle based upon the reaction from the marketplace we'll make a decision on what the market's telling us.

Are you getting partial credit for that vacant space? Does it feel like you'll get partial credit for that vacant space?

I think it's fair to say, John, that we're pretty pleased. Certainly in more than -- than talk. I think it's clearly evidenced by the sales that we've been able to accomplish in the Dallas thus far, that we've seen pretty strong pricing, compared to what I initially thought we'd see.

Do you think you'll be kind of in the $150 a foot range for your Dallas Portfolio?

No, I don't think we assumed we be that high ever. I think that Dallas were targeting in the 120 the 130 range.

And what about the rest of the Texas assets? What's the plan there?

The rest of the what?

The Texas assets.

Well the other assets we have are in Austin which, I think is a completely different market than in Dallas in terms of fundamentals, both the strong drivers on the demand side but also very strong drivers of the supply side in terms of [inaudible]. I think we actually have this very strong market position in Austin. It's doing extremely well. The properties we have under construction there are -- are on target. I think our team there has seen some very good leasing activity. So we do take a much different view of -- of cities with the tax state of Texas. I think we view Dallas as a recycler and opportunity for the Company as we said early on. And I think for right now we view Austin as a growth market for us, as I've mentioned at all of our -- on all of our calls.

And so you may retain these assets and put them into a joint venture. Is the only reason you would do that because that's the way to maximize proceeds or why would you think about -- ?

Look, it's the age-old adage. You can either sell it or you JV it, we're going to look for the pricing points, the different detailed structure of those proposals make the decision accordingly. I mean our objective is to recycle capital and do it on terms that we think are officially executed. So I don't -- I don't want to give you any guidance one way or the other. The assets we have put on the market in Dallas as well as in Legacy Brandywine operations we have sold. We have not joint ventured, we have sold. Given the strength of the investment market particularly in some of these second-tier cities in terms of investment cachet, seeing a real strong demand from the investor market. So we're going to wait and see what the market shows us in terms of pricing of structure before making a determination on what we want to do with any individual asset in Dallas.

I guess the concern is depending on how you get paid for some of this vacant space, it could be a dilutive event and is that kind of incorporated into what you're guidance?

We have factored in all of our projected activity into our guidance.

Thank you.

Okay, thanks John.

John Kim, Banc of America Securities.

Thank you, it's John Kim with Ross. Hi. Gerry, can you elaborate on your decision to relocate your Corporate Headquarters to Radnor and maybe compare the rents that you'd be achieving in Radnor versus the $23 rents that you discussed at you former headquarter space?

Yes, I think the decision we made to relo -- relocate to Radnor was, as in most cases driven by a two things. One, we were out of space. There was no more space of the building. And prospects were clamoring for the space that we were in. So I've often said to the folks I work with, I rarely unpack my bags because we're used -- used to moving evey -- every several years. So I think our length of time in Plymouth Meeting, which was about three 3 years, four years, guys? Was -- was kind of at the upper end of the range of -- of how long we stay in a place.

So we were literally out of space particularly with the Prentiss transaction, and we had some other tenants clamoring for our space. The rents in that area are 28 to $29 per square foot. And we certainly expect that to be the range in which we'll replace the space we were in, 401. Radnor, we basically did -- if you may -- the building we moved into is 555, and we occupy the lower floors in that building. You may recall that building went through a significant rehab [with] actually had under a very low rental rate income from the lower levels because of the window lines, the lobby configuration, a number of other factors. That's the space that we moved into once we've reconfigured it as part of the rehab.

So 555, the major tenant in this building is Aon Insurance, and David Rider, who heads -- heads the region where this building is and his team have done a fabulous job of generating a lot of prospects for this building. The health club, the restaurants are opening in the next 60 to 90 days. I think at that point we've created a rea amenity for the park as well as given ourselves the ability to move rents up dramatically, not just in 555, but in 130, 150, and 170.

Okay so you're moving overall into a low-cost space. Is that correct?

We've -- we've fixed it up, but it was pro-forma to be lower cost space, correct.

Okay. The land you're holding for -- or that you own for future development, is that all earmarked for office only? Or are there other potential alternative, commercial uses, for that space?

I think all of the land we hold this for office. Let me give you a couple of qualifiers. The -- we have three peers on the Delaware River in Philadelphia that are programmed for mixed use. But that's -- the ultimate use of that is -- is undetermined. That could be anything from a retail entertainment complex to -- to residential. But again, I think there's a lot of planning things still in [flux] from that site. With that exception, that's pretty much everything we own in this program for office. We have taken -- we have taken some of our land as -- as Tim touched on, and sold some pieces of our land that were zoned for office to residential builders and made, I think, some fairly significant gains.

Yes, I was going to say it seems like there wouldn't be too much demand for a new office product in suburban Philadelphia. I don't know if that's the assumption that you share as well, but will you be more aggressively pursuing different uses for some of that land?

Well, I think we have the Philadelphia land inv -- the suburban Philadelphia land inventory pretty much where we want it. We have some great parcels right along the Pennsylvania Turnpike, along the Blue Route out in Chester County. So certainly while -- while we're very prudent and very experienced in trying to ascertain what the market will accept, I do think that there is some development opportunities near-term in the suburban Philadelphia marketplace. I think we're seeing the evidence of that through the pipe -- excuse me, the pipeline of activity were seeing at Metroplex, where we started 125,000 square foot building.

So your point is correct which is you can't flood the market with a lot of development, certainly not in suburban Philadelphia. But the nuance that I think well located pieces of ground that are -- that are -- are fully entitled and entitlements are getting increasingly difficult does create a value added opportunity for us to pursue build to suit opportunities or to make good quality additions to our existing portfolio.

I had one more question and then I'll turn over to Ross. The marketable securities that you have on balance sheet, is that all the treasuries or do you own any shares of other public [rates]?

All treasuries. Those treasures of the treasuries that are held as -- of the other side of the [defeasance] that Prentiss attempted to do in 2005 that the accounting treatments required us to keep it on balance sheets. So those treasuries, the offsetting the line item in the liability section is the secured note payable line item. So they -- they roughly offset each other.

Okay, I believe Ross has some questions.

Yes. Hi Gerry, just -- just a follow up on Dallas. If I sort of extrapolate the math, if you get, let's say 125 a foot, we're talking about over 400 million of -- of proceeds. A, what does that do to you in terms of a taxable net income position relative to do you -- would you for the forced to pay a special dividend if you don't do a 10-31 on those assets a before year end?

You know, Ross, I'm going to have to -- I don't know the answer to that question on whether we need to do it -- have a taxable gain or not. We'll -- we can certainly look at it.

Is it your -- ?

We have that issue before, so I'm not sure we have the issue now. And in the fact that these properties were just purchased, I think it gives us a tremendous [inaudible] of latitude to sell those without generating any taxable gain. But again, not a tax expert.

Alright because you did use purchased accounting in the merger? Alright I just wanted to make sure. You use -- you mark those to market at -- in the merger, so there should'nt be a tap -- capital gain, is that right?

That -- that would -- that's actually the bottom line.

Okay. Okay so what is -- now let me just follow up, what's the intent on sort of redeploying the -- it's obviously a big nugget to redeploy. What are you sort of thinking at this point? Because it is pretty much right around the corner, it seems like.

But again, as I was trying to explain to John, we are well ahead of target for Dallas. We are continually in a process of test marketing a lot of properties throughout our portfolio for sale. It doesn't mean we necessarily sell them. It may mean we sell par -- a building here, a building there. But one of the things it's important for us to do from a pure business standpoint is to always keep our ears to the street on the pricing. So Dallas simply has a higher level of focus because that is one sole market that we announced we were going to be recycling as was part of the Prentiss transaction. So we're in the market right now, because I think it's a very strong investment climate. I think there's a lot of interest of those trans -- in those buildings. If, in fact, we were to decide what to do with those, I think I've been pretty pleased with the cap rates there were getting on them.

So my expectation is we could deploy a significant amount of those proceeds into other acquisition opportunities and / or redeploying money into our development pipeline or -- or stock buyback program. So we've carefully thought through what happens in a number of different scenarios. I think as we sit here today, we're fairly comfortable, very comfortable that the range that we've given on additional dispositions will fully cover us within our existing financial forecasts.

Thank you.

John Guinee, Stifel Nicolaus

Hi, Gerry. How are you? A couple of things. First, can you kind of walk through where you think you're going to be on a fad basis to the extent you can go forward? It seems like you're running at about an annualized number of $1.40 to $1.50 a share?

I think our expectation, John, is that certainly for the next couple of quarters we would expect the TI and the leasing commission levels to stay pretty much in the same level they are. The good news is is part of that it certainly seemed that this last quarter [inaudible] we're beginning to lease a lot of net new space, which will certainly generate some additional NOI for the Company. But as I said on previous calls, I don't -- I don't really see a lot of downward pressure on the TI costs or the leasing commissions.

We have a good program in place were we're really focused on on doing as many direct deals as we can. This quarter, for example, our leasing commission number was higher than our historical run rate by a pretty significant factor because of a lot couple of large longer-term leases we signed. But I think that capital cost per square foot per least year is going to stay in that, call it $2 to $2.30, at least for the next couple of quarters.

Great. Okay. Second, on your -- on your properties under development to the extent the information that's available, can you walk through other competitive developments within the these specific submarkets? For example -- example what else is going on in Oakland, California, Austin, the submarkets you're in in Austin, the Dallas Corridor, etc.?

Bob, what to handle the Dallas, and George, you can talk about New Jersey.

Sure. In the Virginia market, there is several zones of new construction and I think there different [inaudible]. And if you go through the numbers out there you'll find that about 50% of the construction going on in Northern Virginia now is really on Route 28 and west, which is through Dulles Airport and west. About a third of the new construction is occurring in Arlington and the Metro markets and the balance is really [on the toll road ] market where we are, which is about 15% of the construction. So it's by far not the bulk of it all, but nonetheless, there is more construction than there has been for a while. And currently on the toll road corridor, which is about a 50 million foot market, there's five projects under construction today and we're one of those five that are -- will deliver between now and roughly two years from now. And of that group, there's about 200,000 to be delivered in '06 to about 250,000 feet in '07. And [inaudible] the balance of about 550,000 in '08.

I think in one [side is] -- one good thing is they're all really high-quality properties. So to us none of these are going to be the real cost cutting type of adventures. They all have high rents in their proformas. They're staying in the leasing market,[inaudible]. [So I don't think anyone's going to cut rates and move]. But within that group, it's only 10% leased so far. So that [inaudible] However most of the projects is very early in it's cycle. For instance, our building, South Lake, is just in the foundation stages. At this point we haven't started [riking in] steel yet. We deliver about a year from now, so I think there's plenty of opportunity to get that preleasing number up to a more historic average of about 50% in Northern Virginia. So I think in our corridor, we'd like to see more demand.

It was a little slow year to date, but talking to tenant brokers, they see more activity coming up especially among large tenants. And we think beyond that [inaudible] project, it really benefits from an excellent location, it's really high quality environment. And our [principal tenant's -- still -- tenants in our own park, our private part of a large complex] and the big tenants in there are Northrup Grumman, [Doltech], and Perot, add most of those tenants are continuing to grow substantially so we hope to harvest some of that .

Yes and on the New Jersey side, I'll talk more specifically, when we say central New Jersey, it's really specifically the Princeton market. And it's a fairly concise market place. And currently right now within that marketplace, there's about 850,000 square feet of new construction under way in five different locations. Make the important distinction though, with our project, we have a 75,000 square foot building we have under construction now as part of an 800,000 Princeton Pike Corporate Center, which at completion will have about a 1.2 million square foot of build out, full build out at again 1.2 million square feet.. And the distinction, though, with the projects that are under construction of ours, is the fact that number one we have really the only existing tenant base from which to pull to fill an office building, were the others are really one of locations by private companies or a public company that's building on a one off basis as well.

So, again, I think that that's a primary advantage that we have over the competitors were we literally can tear up leases with -- with existing tenants and put them into new buildings for expansion purposes. And a matter of fact, that's how we achieved 100% occupancy in that park for a few years or relatively recently. The park right now is close to 92.5% occupied and we do have at some tenants that have expressed an interest in expansion. Again we just don't have the contiguous space for them to grow into. So it really would -- would -- create the capacity for expansion of our existing tenants rather than potentially lose them to competitors. Because, again one of the ways we got to the 100% was by moving people within the park and backfilling their existing space. So we're -- we're comfortable with where we are and similar to Bob, we're just in the footings and foundation stage right now. So we started relatively recently should be completed in the first quarter -- or actually second quarter of '07, early part of the second quarter of '07.

Alright, John in some -- some of the other markets, in Oakland, for example, our project which is 215,000 square feet is the only one under development in -- in the city of Oakland. There was one that was rumored to start a while ago, which was the University of California Office of Presidents. They were going to move forward on .25 million square foot build to suit. But those plans had been shelved. So as of right now, within that immediate competitive set, it's the only project under construction.

Down in Austin, which clearly is very hard to build, and particularly the southwest quadrant with all the land use restrictions, currently in the market there's about five projects, about 400,000 square feet in total. Like in every market, there is more projects rumored to be starting in '07, but we'll wait and see what happens there. But the best [inaudible] our project is moving on schedule. The team is very, very optimistic on the level of activity there seeing. And I think we feel like we're in a very good position in that Southwest market. I think -- was that everything?

Yes. Richmond was the only remainder, some don't worry about it. Thanks a lot.

Okay, John, thanks.

Chris Haley, Wachovia Securities

Good morning, Gerry and Tim. I have a couple of questions on Radnor if possible, the numbers you've quoted, Gerry, the 16 to 18, is that a gross rent less than operating expense number?

Yes. It's a net rent.

And then I would amortize somewhere between -- depending upon the lease and the terms, were between $2 and $4? That seemed a -- that seems a -- that seems a little low versus what I had -- I recollect. My memory has never been good, but, I wanted to get your thoughts were -- my recollection was that net rents were closer to 18 to 20 in that market. You know 25 to $28 and then I would back out a couple of dollars to kind of look at my -- my real rate of return to get to 10%. Which is, I think, the hurdle rate you offered for Radnor upon leaseup?

Yes, I'll make sure we're talking apples and apples here. The rent [inaudible] at the $18 rent, you have to add that $8 in expenses to that. So you're at $26 rent.

Okay.

Okay so that's kind of right in line with what we're -- we were targeting. Remember, Radnor's a blend of a couple of different projects. We had kind of what we had programmed to be the lower end product. I say lower, the lower price point product of 201 Radnor, Chester Road, and 555 Lancaster Ave. The 24 to $26 rent range. The 131-5170 building, you're right. We're in -- we were in more the $28 range. And I think we're looking at how the blend's coming out. We're still staying in that range. I mean some of the deals were doing here in 555 are in the 31 to $32 gross range. Then you back away the same number of expenses there. Were as the deal that were doing over in a 201 Radnor Chester Road, are in the 23 to $25 -- it's called $24 range. So your down to that $16 range.

So when you look at the net number that, Gerry on -- your numerator rent and your denominator for what your purchase -- your allocation for purchase was plus any improvements, where -- where do think that number shakes out, kind of in looking at '08?

I'm looking at '08. We bought the Radnor Financial Center, it was about $100 a foot on average. So when you take a look at the -- I'll use 555 for a good example, there we put -- this was a major rehab. We'll be in this project all and including TI work just -- just slightly north of $200 a foot like $205 a foot. And certainly as we look at rents moving up, we think we're in pretty good shape to meet me that hurdle rate. Because certainly the blend of rents in this project will put us in close to that 10% range. Again, when the property stabilizes that's your question?

Yes, yes, yes.

And then -- and I'm quoting to you cash rates, not GAAP rates.

Correct. Correct, right.

I mean we're building in a 2% to 3% annual escalation every one of our leases here.

Okay. And now can you do anything with regard to reducing your denominator through out lot, parcels, or do you have to increase your denominator through any other improvements? That you haven't budgeted? I mean, is there a way to -- ?

There's really no out parcels we could sell. We -- we did sell a piece of property to one of the -- one of the local banks here.

That's right.

And actually realized a very good rate of return on that. That remaining site can still accommodate about 18 to 20,000 square feet of pri -- primarily retail. I guess we look at that as a -- as a restaurant use at some point. So that -- that will actually be an -- an income component that we did not initially project.

Okay.

As part of our overall Radnor development. And I will tell you when I look at going back to 555, the rental rates and the returns were getting out of the mixed use component of this project is the restaurants and the health care is, no, certainly very additive to what I thought it would be when we started looking at the property a few years ago

Okay.

Chris, to reduce the denominator in the $2.6 million of gains on real estate that we had, coincidently, 2.2 of that was gains on the out parcel to Commercebank. The gross sales price was in the $6 million range. So it's not a lot but -- .

It all helps. Previously you guys had provided a list or kind of a prospect our proposal list out there. Would you -- would you care, or David care to comment on what, where the lists stand and do you have chunks of space to deal with or is a lot of onesies and twosies that might make the leaseup from here a little bit more difficult?

Are you talking about Radnor?

Yes.

Oh, okay, I'm sorry. The pipeline is actually stay -- stayed right around the level it's been in previous quarters, 500,000 square feet or so. We have a couple large blocks of space. Within the Radnor portfolio, primarily the 201 building. That's a larger floor plate building. We have been looking for a larger user for those two floors that would eliminate the need for us to put the [ring card in] and all that. He's got a couple of a very good prospects, but again, will see -- those prospects are not included in the numbers that we articulated to get to 67% by the end of the year.

The one set -- I'll give you an example, the 170 building which it may not have been 0% leased but was very little leased last quarter. They've done a great job of leasing up almost that entire building on a net absorption basis. The 150 building we were holding, which is actually comprised of four buildings, we actually were holding off one of the buildings and decided to break that down during the quarter so we have a good pipeline of small deals there. Here in 555, we have fifth and sixth floor, of which probably half of that is leases underway. So, Radnor is a mix of a couple of large users that come through, Chris, as you know but also a lot of the smaller deals are in the 2,000 to 5,000 square foot range.

Okay and to think big -- go back to a little bit of a bigger picture. Gerry, the mark-to-market that you said, you stated that you expected to be positive in 2007. That is where you expect the portfolio to be? The in place rents for '07 rollover versus where you think you're going to be marking rents to? Or where you think the total portfolio, no matter what lease year it is, will be relative to market?

The numbers I quoted, Chris were based on a us looking at the expiring rents in our portfolio in '07 versus what are asking rents are going to be on those properties in '07.

And that's Prentiss, plus eight, Brandywine, a little bit negative overall plus three?

Yes. The Brandywine was negative a little bit. And Prentiss was positive. So the net for the Company was, I think I mentioned about 3% or so.

Right so but that's where the market is and where you think you can move, but does that -- does that translate to in your -- in your statistics for rollover, do you -- should we expect to still see a little bit of negative roll? And then just kind of looking at when you think you actually get a real turn up on activity?

Yes, it's a great question, Chris. As were looking at it, there's a couple of component parts to that. And the first key issue is we are in the process right now of formulating our detailed financial plan for '07. We always gear up to do our '07 out look during the third quarter call. So lot of information is still being massaged and looked at. So, giving you the exact timing of when you see a positive turn, I can't give that to you yet because it's really could be symptomatic of, what the timing of each individual rollover and what that replacement tenancy or what the replacement rent is.

Got you. Alright. Thanks very much. Congratulations.

Jordan Sadler, Citigroup

Hi, guys. I just wanted to follow-up on the acquisition guidance. I know you have none in there, but I was curious in terms of the $500 million pipeline you've referenced, what the cap rates and some of the characteristics of those assets are? I assume in terms of location, they're in the core markets in Northern Virginia, Austin and or California, but what kind of cap rates and what type of assets are these?

Well, they're -- they are in fact all in markets that -- that you mentioned. So they're all core markets for us. They -- just look into the [schedule], hold on a second Jordan. Yes. The cap rates range -- first of all they're all -- they're all off, just to give you a clear idea. They are pretty well split between all the different markets with probably a bias toward the D.C. market place. The cap rates were looking are 5.5 and up. So some in the 6% range, some in the -- some in the 7% range. These are the cash caps -- cash cap rates. Not much different than you'd be seeing in a number of other locations. The market just as we're seeing pretty good activity and good pricing leverage on assets for selling, I think people who, where we're engaged in discussions of buying assets from the same dynamic.

So if you have a bias towards D. C., are you looking at stuff with some -- some leaseup risk or some opportunities?

I think so. When we look at, the criteria for acquisitions across the board, clearly we've never shown as that long discussion on Radnor, I recall illustrates. We have never been shy about taking on leaseup risks where we think we can create some good value. But so yes, leasing risk is a key issue of that in terms of the pricing metric. We're also looking for properties that truly do add to our submarket position.

So one of the ways is certainly you get more [cuff] with some of these pricing levels is knowing full well that by adding that asset -- [or group] of assets to your portfolio, you really do improve your competitive set in that submarket. For example in a market like in D.C., clearly a lot of Bob and Mike Cooper's folks and acquisitions have really been in the existing submarkets where we have position to try to identify those assets. If we bring them into our portfolio, we can in fact start to have both good upside and downside protection.

And just to clarify, the cap rates you've mentioned, 5.5 or 6%, that is a going in cap rate rather than an expected stabilized?

That would be correct.

Okay. So to the extent that you guys were actually to do acquisitions this year, would we expect dilution as opposed to the accretion? A downward bias to numbers rather than upward?

I don't think so. I have to keep part of our thought process. And we haven't been seen things that necessarily hit in that category yet.

Well I just mean in terms if you're to buy something at a 5.5 or 6%, how would you fund that?

Well you mean so we're funding it from the sales of another asset?

So you mentioned asset sales. Is it you have a $50 million slug that you expect to come at about a seven cap?

Slightly below a seven, right.

Okay so that's a negative spread versus that asset. But I assume -- so if you were to sell Dallas, lets say, City Place, should we assume that the cap rates on -- on the rest of the stuff in Dallas just on a blended basis because of the expiring 7-11 rent that that would probably be like a five type cap rate, a low cap rate which reflects the low occupancy there?

Well, I think the cap rates, and it's too early to say but were seeing on the cap rates in Dallas, but I think [thematically] just on a direct comparison basis between the Dallas and the D.C., there would be a negative spread on cap rates, i.e., what we would sell in Dallas, what we would buy D.C. So one of the attributes we have as we start to look at our investment strategy is -- is really trying to marry up different rates of returns and improve our overall position.

Another way, Jordan, to look at it, we've already baked in the dispositions into our guidance. So comparing entry cap rates on acquisitions to our exit cap rates on dispositions, it isn't really the right metric to compare it to. It's really comparing -- trying to figure out the accretion on an acquisition would be comparing the income on that acquisition versus the funding source.

Sure. Well you have some dispositions in your -- in your guidance, but not necessarily the rest of Dallas. So I'm kind of looking out a little bit into 2007. So just trying to figure how to think about it a little. But the other question I have for you is just in terms of leasing prospects maybe in Dallas for that 7-11 space, can you just touch on what things are looking like, is there any activity?

There's activity, the market has a lot of leasing activities. The team we have in Dallas, Chris [Hips], [Duane Hemley] are -- they know the mission, they're excellent at what they do. They're out beating beating the bushes. They know we don't have the space vacant and they're trying to identify great leads. So there'll be discussions on different tenancies. They've done a very, very good job of creating a high level of market awareness on that space.

In our estimation, clearly where bias, we think it's the best block of available space in that -- in that -- in that city. And we're going to wind up getting some good prospects for it. When Prentiss originally bought that asset I don't think it was a surprise that 7-11 was necessarily going to leave. They underwrote it fairly conservatively. As we bought the asset we -- we followed that -- that sound trend line, and certainly we would like to have the space leased all the time. But to the extent that there is going to be a vacancy that we know about, we think it's been well planned for and the leasing team has the full marching orders to try to generate some very good activity for it.

And lastly, Gerry just on the CFO slot, what sort of time horizon should we look for in terms of -- ?

Actually looking at third, fourth quarter. As I've said all along, though we're not in any -- we have a great team here. So we're in the interviewing process. We're looking for some very specific skill sets, and certainly expectation should be sometime later this year.

Great. Thanks.

Okay, Jordan, thanks.

Rich Anderson, BMO Capital Markets

I thought I got out of queue, but now that I'm here I guess I'll ask. I have sort of like a bigger picture, opinion of what might happen with you guys. Just tell me how off base I might be? You talk about getting bigger in southwest Austin presumably and California in equalizing Philly and D.C. But can you envision a longer-term plan here to really hone in on the D.C., Philly, Richmond corridor and ultimately exit markets that you get bigger in and get -- get more, focused in sharpshooting again in sort of the close in markets? Or do you really believe that you'll own Southwest and California for -- for the long-term and forever?

This is a good question Rich. Clearly as I mentioned in the comments, we would see -- we have a heavy pro -- domination of our income stream through Philadelphia right now. And the game plan is to kind of equalize over time and clearly it's a challenge. You can't waive your wand and do it overnight, but we think we have the right team, good financial resources, good skills to get it done. Where over time we're going to wind up pretty close to equalizing what we're getting in the Philadelphia, D.C. corridor. I happen to frankly like the Austin market place quite a bit as I do Northern California. There's some good growth opportunities for us there. There are good deep markets, certainly with pricing the way it is today it's hard to make deals straight on balance sheet and have them make a tremendous amount of sense and deploy enough capital into that metric to make a big difference in those markets. But, you know, I look at fundamentals, the demand drivers are good.

As you know, I really liked markets where it's harder, rather than easier to build and I think those markets both have it. So I think the objective is to focus on of those markets, aggregate as much share as we can. I think do it in a way that creates a lot [inaudible]. And then we'll see what happens in the future. As you all know, three to five years is a long lay in this business a lot can happen in terms of investment strategies and pricing, etc. But I think the business plan we've laid out, which is really to equalize that Philadelphia, D.C. corridor and have good areas of diversity of growth in California and in Austin are -- are very good metrics for us. When I look at the -- at the job creation trends, the rental rate forecast for those two markets, saying Austin and Northern California, I think were looking pretty positive at it.

Thanks a lot. Appreciate it.

Michael Bilerman, Citigroup.

A quick questions on the assets held for sale, that 86 million, that represents one asset?

That represents Walnut Glen, which is the one we were talking about in -- in Dallas and it also represents the remaining asset, which is a consolidated venture asset that's the Chicago market called Corporate Lakes Three.

And what's the breakdown of cost between those two?

Walnut Glen is in the six -- low 60s and Corporate Lakes is the balance.

And so effectively when you think about 400 million for the Dallas portfolio, that includes 60 million for Walnut Glen and so the balance is 340?

That's a yes. [inaudible]

Okay. And then the 150 to 200 million for the balance includes this 80 million that's held for sale?

Yes it does.

Thank you.

Thank you there appears to be no further questions at this time. I'll turn the floor back for [inaudible] closing remarks.

Thank you. And to all of you thank you very much for your interest and we look forward to providing you another update on our third earnings conference call. Thank you.

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