Good morning. My name is Felicia and I will be your conference operator today. At this time I would like to welcome everyone to the Brandywine Realty Trust Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I will now like to hand the conference over to Mr. Jerry Sweeney, President and CEO of Brandywine Realty Trust. Please go ahead, sir.

Felicia, thank you. Good morning, everyone and thank you for joining us for our third quarter 2015 earnings call. On today's call with me today are George Johnstone, our Executive Vice President of Operations; Tom Wirth, our Executive Vice President, Chief Financial Officer; and Dan Palazzo, our Vice President and Chief Accounting Officer. Prior to beginning, certain information discussed during our call may constitute forward-looking statements within the meaning of the Federal Securities Law. Although we believe estimates reflected in these statements are based on reasonable assumptions, we can't give assurances that the anticipated results will be achieved. For further information on factors that could impact or anticipate results, please reference our press release, as well as our most recent Annual and Quarterly Reports that we filed with the SEC. So as we normally do we'll start with an overview of 2015 business plan. We also have introduced 2016 guidance and we'll provide color on some key assumptions that's driving that range. And I know most of our interests are 2016 business plan so we will keep our comments on 2015 as brief as possible. From an overall standpoint, we're in outstanding shape for 2015. Across the platform our markets continue to improve, all of our operating metric benchmarks, same-store, mark-to-market occupancy, leasing, capital spend and retention will either meet or exceed the business plan objectives that we outlined on Page 5 of our supplemental package. Our disposition and leasing efforts have continued to move our portfolio to longer average least terms, larger annual rental increases, stronger growth sub-markets, higher quality newer assets and mass transit served well located properties. As you're seeing, we have increased our 2015 targeted sales volume to $400 million which is up significantly from our original business plan target of $150 million. We've made continued…

Thank you, Jerry. A very productive quarter that has led our 2015 business plan being nearly complete. The results of our continued lease up translated into strong same-store results for the quarter and the year. As Jerry mentioned, all of our 2015 business plan metrics performed better than or/as expected compared to the original business plan targets. We saw notable outperformance on GAAP and cash mark-to-market, along with higher tenant retention and a 10% improvement on spec revenue. We'll end the year at 93.1% occupied and expect to be in a range of 93.5% to 94.5% leased. Leasing activity remains robust in all of our markets, the pipeline stands at 2.6 million square feet, with 534,000 square feet in lease negotiations. In CBD Philadelphia, we're now 97% occupied and 99% leased, outpacing the market by 830 basis points. We continue to see double digit leasing spreads on a GAAP basis and near double digit on a cash basis. Capital is average $2.36 per square foot per lease year on a weighted average lease term of 9.3 years. Overall, conditions in Philadelphia continue to improve as the market saw its second consecutive quarter of positive absorption. The relocation to the city by companies from the suburbs and New Jersey is continuing. The recent markets continue to operate in a similar strong fashion or 97% leased and have executed leases with rent growth of 7% on a cash basis and 12% on a GAAP basis from leases that average seven years in length. Turning to Metro DC, we posted our second consecutive quarter of positive absorption. 92,000 square feet in total, raising occupancy to 85%. During the quarter, overall leasing activity in the market was dominated by Federal agencies. Three of the largest six leases were signed by government agencies and as…

Thank you, George. Our third quarter FFO totaled $76.9 million or $0.43 per diluted share. Some observations on the quarter same-store third quarter growth was 6% GAAP and 6.6% cash, both excluding net termination fees and other income items. We've now had 17 consecutive quarters of GAAP metrics growing and 13 quarters of cash metrics growing. We sold 13 million of non-core land for $15.8 million generating a $3 million gain which is included in FFO. We recognized our fifth and final non-cash income installment related to the historic tax credit totaling $11.9 million or $0.7 a share. Our third quarter CAD totaled $43.4 million or $0.24 per diluted share representing a 62.5% payout. During the quarter we incurred $11.8 million of revenue maintaining capital expenditures primarily due to the sequential quarterly occupancy improvements. For the quarter we also incurred $9 million of revenue creating capital expenditures and $60.4 million of redevelopment costs. As Jerry mentioned, our FFO guidance range has increased from $1.42 to $1.46. Looking at the fourth quarter run rate, property level NOI, our operating income for the fourth quarter will be slightly below the third quarter, primarily due to full quarter effect with the third quarter asset sales. They anticipated fourth quarter asset sales and offset partially by the NOI from the same-store group. G&A expense for the fourth quarter will be approximately $6.6 million and the full year will be about $28.5 million. Other income for the fourth quarter, we expect to decrease to $0.5 million. Also in the fourth quarter, the new market tax credit income, a one-time fourth quarter non-cash item related to new market tax credits on our garage at Cira South totaling $8 million or $0.04 per share. These third and fourth quarter non-cash items related to our post office and…

Thanks, Tom and thanks, George. That really wraps up our prepared remarks. I mean, look, third quarter results were strong. We think we're in outstanding shape to close out 2015 and looking ahead to 2016 is a very straightforward, simple business plan where the core themes are financial strength, cash flow and NAV growth and a continuation of solid fundamentals. So, with that, we'd be delighted to open up the floor for questions. As we always ask that, in the interests of time, if you limit yourself to one question and follow-up. Thank you.

[Operator Instructions]. And your first question comes from the line of Tony Paolone with JPMorgan.

I was wondering, on the development and redevelopment pipeline, can you help, just, add it all up for us? Because if I look at the summary pages of the two projects, but it seems like there's a lot in the land pipeline and just want to understand, like, what's likely to happen in starts and what's maybe in the offing?

Sure, Tony. We do have a couple of projects that are also beginning -- well, not beginning, but we anticipating putting money into some of the A&Es for our projects down in D.C. We plan on spending some money on a project we're doing on a retail site in New Jersey which is an amenity to our complex and we still have some work that we're spending now to finish off 1900 Market.

So when I look at page 50 in your supplemental in these active projects, like, do I think of those as being projects, particularly on the office side, where you're out pursuing leasing? Or are these just very early at this point?

These are early projects. So these are projects -- for example, we're starting to spend some money on 25N, but we're not going to really -- that's really more on A&E side and getting ready for marketing as opposed to spending a lot of money on putting shovels in the ground. The same thing with our project in NOMA. That will be dollars being spent on architecture and engineer. Really nothing going into the ground yet on that project, either.

Yes, just to add onto that Tony, it's Jerry. There are active projects as well as some of the future development sites. I mean, we're really in, kind of, the planning, engineering, architectural review on a number of these projects. So our capital spend that Tom had articulated is part of our 2016 uses, contemplates, really, a continuation of that spending as essentially front money while we bring some of these projects to the point where we can actively begin marketing them for potential users.

Okay. And then my follow-up -- on I think you'd mentioned cash mark-to-market next year of somewhere in the low single digits, I believe. And can you talk about just where the strengths and weaknesses are by market for that number?

Yes, sure, Tony, it's George. And as I mentioned, I mean, we're still seeing good mark-to-market on both a cash and a GAAP basis coming out of CVD Philadelphia and the Pennsylvania Crescent markets. I mean, really, what's impacting our number next year is Northern Virginia and a couple of lease rentals in suburban Maryland. So we're kind of operating outside the top end of our range in both Philadelphia and the Crescent markets, but the cash close to breakeven, but sometimes a rolldown is kind of keeping that range based on the volume of leases and the composition of the leasing next year at that negative 1 to positive 1 range.

Your next question comes from the line of Gabriel Hilmoe with Evercore ISI.

Jerry, just maybe following up on the last question and just on your comments on the portfolio improvement and how that's going to progress into 2016 if sales occur. I guess just looking at some of the pieces of the guidance on same-store growth and just projected leasing spreads, you just highlighted kind of where some of the absorption is going to be occurring. But when you think about the portfolio that you end up with after the sale, do you see metrics around spreads and same-store growth kind of accelerating into the back half of next year as the portfolio kind of gets reset post the dispositions?

Yes, we do. I mean, I think as George touched on Gabe, look, we've done a very good job in some of our markets that have been outperforming in terms of those metrics over the last couple of years. For example, if you take a look from 2013 to including what we're projecting for 2016 in Center City and University City Philadelphia, our average GAAP mark-to-market has been 15%. Our average tax mark-to-market has been 6%. Now, we bought that portfolio from 90% to 97%-plus occupied, so it was a 700 basis point improvement and that really has created a lot of momentum for these operating metrics across the portfolio. As we assess the 2016 business plan, a lot of the areas where we're targeting for absorption are those sub-markets, suburban Maryland, the toll road in Virginia, some of our other properties kind of outside the Crescent markets in Pennsylvania that haven't seen that high level of GAAP or cash mark-to-market. That being said, I think all of the markets we're seeing increase leasing activity. Certainly, as we look at the core markets of the Pennsylvania suburbs, we see a tremendous lack of large blocks of space available. There's a whole range of tenants who are out there of a significant sizes, they're looking for places to land or consolidate or grow into. So I think the overall fundamental trends in those markets will remain very positive. I guess we're really planning on 2016 being there. We kind of bring Northern Virginia and suburban Maryland back to portfolio average occupancy levels and the impact of doing that is a little bit of a muting on our cash and cash mark-to-market.

Okay. And then just a follow-up Tom, I think you had given an NOI projection for FMC Tower. I think you said something like $8 million to $10 million. I guess, what does that assume for occupancy, I guess, when the building delivers and what's kind of in that $8 million to $10 million number?

Yes, I think what we put in the baseline, it's Jerry, I'm sorry [indiscernible] -- I think we put in the model for 2016 at this point really reflects the existing pre-leasing status of FMC -- a few other office tenants who would be moving in in 2016 and the beginning of the marketing process for the residential units. So I think as we really assessed what number to roll into FMC, really, did you kind of mid-Q3 and Q4 in 2016 as kind of the ramp-up time at FMC and, really, 2017 is when we've always thought that FMC would really take off.

Your next question comes from the line of Michael Lewis with SunTrust.

So Tom did a really great job of laying out sources and uses in a lot of detail on guidance that I'll have to probably read the transcript to digest. But the fact that you're not assuming acquisitions or development starts or repurchase activity, is that kind of being conservative or do you think some of that stuff sneaks its way into 2016, especially the share repurchase which you'd executed on some of that 3Q?

Thanks, Michael, good question. Look, I think as we thought about what to do with 2016 guidance, we're one of the earlier companies to come out with guidance numbers for next year. It happens to be somewhat of an awkward time because we have so much in the market for sale and we're really kind of not sure of the exact visibility of when some of these events might occur. So we certainly, at a fundamental level, think that there might be some upward or downward bias to existing projections based upon the timing of when some of these sales do occur. Frankly, we do believe that now is the window in time we've been waiting for several years where there's been improvement in all of our markets -- accelerated leasing activity, tremendous investor demand that now is really the time to optimize the value in a lot of these noncore assets to the extent we can. So when we looked at acquisitions or additional development starts were share repurchases, I think what we want to do is present a very clear -- a clear, clean number to everybody that was just basically driven by the disposition volume. So to the extent that there's opportunities that we think make sense given our cost of capital to increase our share buyback program and actually we have on the table, I think that's certainly something on the table -- same thing in terms of a number of build-to-suit opportunities or user building sales that might come into play as well.

I think, so far this morning, the stock is agreeing with you that it's a good time to sell some of these assets. My follow-up, the New York Times this week had an article about favorable on REIT buybacks, but they used you as an example of a company to be careful of because you're not investment-grade rated by all of the rating agencies. And while I may not agree with the analysis there, maybe you could comment on your progress to get investment-grade rated -- how important you think that is? And if you execute your plan do you feel confident that you'll get there maybe in 2016?

Well, look, Tom and I will tag-team this. You can see, I have a very good dialog with the agencies; I think a wonderful relationship with the team at Moody's and S&P. The one agent that really doesn't have us rated as investment grade is Fitch. But I do think, generally, as we view the rating process, they're waiting for continuation of solid portfolio metrics. And, look, at Tom has touched on, we have 17 consecutive quarters of GAAP same-store growth. I mean, we're really laying the foundation work with the portfolio reaching stability; that we have a lot of visibility on operating capital costs. So we do believe that with these numbers we're posting the de-leveraging that will occur as a corporate priority and as a result of these accelerated sales as well as the lease-up of the development projects and even the redevelopment project at 1900 Market which is far exceeding expectations, we think that 2016 will be a good time to revisit the agencies and take the temperature on the next steps. I mean, Tom, what do you think?

Yes, I agree with what Jerry outlined. I think what usually happens is the agencies have been looking at our development, as an example as an item they wanted to see more clarity on. So I think as FMC gets closer to coming online as we get to see more leasing activity, they feel that was sort of an unknown to them and that should improve. And, again, Fitch does have us on a positive. Who knows if they'll move us up? And then the other thing is the leverage. I think the selling of the assets, while keeping cash flow which is what we're doing now, narrowing the gap and CAD spread should help them also, being consistently above 90% now with occupancy also helps them look to improve where we're.

Your next question comes from the line of Rich Anderson with Mizuho Securities.

So could you be able to provide an estimate on how dilutive the dispositions will be on a per-share basis when you combine both 2015 and 2016 in your 2016 guidance?

Sure, Rich, hold on. Yes, so I think taking a look at what we have for dispositions, we have about $22.5 million in dilution programmed in the first half from the sales. So when you look at -- we basically took the dispositions and assumed that they occur at the end of each quarter -- the first and second quarter. So, obviously, those can move a little bit, but that's what we did for simplicity purposes. And we used an 8% cap rate on our 16 dispositions as well as the additional $100 million of spec that we put into -- so the $100 million at an 8% generates an $8 million, roughly, $0.04 dilution. The $22 million of dilution that we have for the next year -- I'd have to do the math on that, but it would be about $22.5 million on our share count.

Okay, $22.5 million including both the late 2015 and first half 2016 dispositions?

No. The $8 million based on the additional spec and then another $22.5 million on the 450.

And then the question may be for Jerry or George. Can you just comment on Austin? Tech-heavy market, you're kind of looking to increase your exposure there in the short term maybe through development and what have you. But what do you think the long-term prognosis is in Austin if you have any concern at all about technology or just the health of the market, in general, how long that can last?

I don't know that we're overly concerned about that one sector, I mean, all of the reports on Austin from job growth, economic growth and it's coming from a multitude of industries. I think we're quickly becoming kind of the Silicon Valley of the South but, again, improving metrics, it's been rated the number two market from an overall real estate perspective, number-one for development. The tech sector jobs are increasing, but we're seeing, even within our portfolio, kind of, a broad range of tenants taking a look at space.

Yes, I just to add on to George's comments, I mean, look, we're certainly very focused through a really extraordinary local team on looking for early warning signs of any adverse impact in Austin on either the oil industry or technology. And, look, Austin has done very well for us and a number of other companies, but it's also a market that tends to run very hot and very cold. I think we mentioned on the last call, I mean, one of the assets we're looking to sell, because pricing has become very strong in Austin. We're looking to sell maybe one of our assets in Austin. So the capital recycling will take place there over the next year as well. And on the development front, I think we're going to be very cautious in terms of new development in Austin. I think we have some very good land holdings, some other things that we're looking at. But I do think that's a market that we will be looking for any significant pre-leasing before making further capital commitments as well as a real good [indiscernible] where we think that market is going. That marketplace has a tremendous level of in-migration of people, over 130 people a day, I think, move into Austin. It's heavily anchored by good medical and academic institutions, state capital. So it seems to have a level of diversity to it that provides a little bit of an insulation from the heavy reliance on the tech sector where even a corollary impact from the oil industry. But, look we've been in that market for a while now. We've seen the rents continue to move up, we've seen rents move down. So I think our approach down there is make sure we're positioned for future opportunities, make sure we mitigate that risk as we proceed with them and then constantly stay on top of what we think is happening in that marketplace.

Your next question comes from the line of Ian Weissman with Credit Suisse.

Just as a follow-up to Rich's question on Austin specifically. I think you have about a third of your portfolio in Austin rolling next year. Can you just give us an update on leasing progress?

I think the biggest impact there is really with the IBM joint venture. So, George, maybe kind of walk through that?

Right. So our IBM joint venture at Broadmoor, we have two buildings that roll in 2016. We're currently in discussions with IBM on those two buildings specifically and then also on the other five buildings that they occupy that roll in 2017. Right now we're kind of going through the proposal process on whether or not they're going to give back space or not. Our plan does assume in 2016 that they do give us back those two buildings. And then those two builds as we announced when we bought IBM out of the joint venture would go through a repositioning, redevelopment plan to reintroduce them to a multi-tenant or a new user tenant mix and would look for those buildings to come back online in 2017. But we're still hopeful that when it's all said and done that it is ultimately just renewal with IBM who is at a very below-market rental rate at this time.

And just as a follow-up, I think you mentioned in your comments that the assets that you recently sold were an essential drag on your fundamentals. I'm just curious if you can quantify what type of internal growth bump we should expect that's built into your guidance for next year as a result of these sales?

This is Tom. Our metrics, most of the sales while -- the way we really roll them out is on a speculative basis, so we've not really programmed what transactions will occur and run them through on a pro forma basis. So if we get a number of sales done, we'll certainly update the metrics for all of them. As we look at -- then we do have ranges that we put together, but, really, until we do the sales, our guidance, we really don't take a look at what those metrics are going to be because we do have quite a bit on the market and the timing could really affect how those metrics roll out in 2016.

I guess the question is if you take into account the assets that you've already closed, then, right, what type of internal growth were they going to expect to deliver in 2016 versus the range that you put out today? I'm just trying to understand how much of a drag those secondary markets were on the portfolio?

Yes, I think all of those properties or just about all of those properties, given where they were located predominantly New Jersey, some of the noncore Pennsylvania suburbs. They were all performing below our ranges, both our actual 2015 ranges and our projected 2016 ranges.

Your next question comes from the line of [indiscernible] with Stifel.

John Guinee here, stop me, Jerry, if you've mentioned or you've answered this. But if you look at your midpoint for 2014 of $1.33 ex all the tax credit, noncash tax credit stuff and take out the land, that's about $1.30 a share. And your midpoint of your guidance is also for 2015 -- or 2016, I'm sorry -- it's a $1.30 a share. So that's basically year-over-year flat FFO which seems almost too good to be true given the amount of asset sales you've got going on. How does that math work?

John, it's Tom. Really, we have growth coming from FMC coming online which I mentioned is bringing in $8 million to $10 million. I mentioned that we're going to have a reduction in debt because the sales are taking place. We're going to have about $10 million of interest savings there. And then I mentioned growth in the portfolio, NOI was going to generate, I think we have a 3% GAAP and I think it's going to generate, roughly, $17 million of GAAP NOI.

Okay and then the second question is, this is Northern Virginia. If you look at the statistics coming out of the research ops, it seems sort of flat, maybe a little bit of positive absorption. But if you talk to the leasing brokers in that market, what they'll say is the GSA downsizing and the defense contractors still giving back space results in a lot of shadow vacancy out there and you're going to still see the market maybe have vacancy go up as opposed to improve. Which side of the equation do you guys fall off on? Is the Northern Virginia market, in fact, getting better or has it still got more downside?

Well, I think it varies. I mean, I think we feel good about, kind of, our position in Northern Virginia in that we've gotten that part of our Metro D.C. region to 90% leased. Our drag really has been more in suburban Maryland. There is a tremendous backlog of GSA leases kind of waiting to get done. We've got one with the FBI in our Calverton, Maryland property that is on the docket for 2016, but most of our leasing during 2015 was more private sector, kind of, cyber security-related contractors. So I think right now and, again, it's been a very up-and-down market. We're feeling pretty good about where we're currently sitting in Northern Virginia and we've got, clearly, some continued wood to chop in Maryland.

Yes, I mean, John just to add onto that, I think we certainly target reducing our exposure to all of the off toll road properties in Northern Virginia which we think will be some markets that may not come back as fast as core on toll road. And, look and we've talked to a lot of brokers, some of our competitors. We have a great leasing team down there. I will tell you, there's always this overhang of what the GSA will do and whether it all be able to make leasing decisions quickly what they plan on doing. But I will tell you, the general feedback we're getting is that the market is primed for a continued to update a very slow recovery. Now, it's always hard to determine whether that's just hope versus expectations. But it seems like we were able to experience, as George touched on, at our Dallas Corner properties out in Herndon, really did, I think that was kind of a test case for us. If we invested money in that park, kind of, repositioned it, how we would do. And I think we were just delighted with the results. We had a couple of major rollovers in that park. We retooled the buildings, lobbies, common areas, outdoor areas, had something new to present to the broker market and the fact of the matter is that we well exceeded our absorption pace. But, more importantly, had significant improvement in rental rate achievements, kept capital costs where we thought they would be. And I think, to us that said if you have the right product and the right locations you'll fare pretty well. And against the backdrop of we think we'll be an improving market, we should do okay down there.

Your next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch.

Can you guys talk a little bit more about your leasing prospects at FMG Tower? And I guess also in the context of just -- you think about the moving pieces in the downtown Philly office market over there in a couple of years, what's your outlook and how do you think that that market fares?

Yes, happy to do it, Jamie. George and I will tag-team. I mean, look, as I touched on one of the other calls, one of the other questions, I think when we take a look at our performance over the last three years in [indiscernible] University City. As I mentioned a GAAP mark-to-market at 15% cash, 6% of our same-store growth numbers there in that portfolio has been 6.5% on a cash basis, 6% GAAP, we have, during that short period of time, we've increased our average lease term by over 40%. So as we went into 2015 and now looking at the 2016, I think we saw we had about 450,000 square feet of exposure in Center City and University City Philadelphia. So really comprise of a big block at 1900 Market and the remaining space at FMC. And, look, we'd love to be reporting that we fully leased at FMC at this point. I think as we assess the performance during the year, we've reduced that overall companywide exposure by over 50%. By executing the large lease at 1900 and the pipeline of deals for the remaining balance, that space looks very good and our pro forma returns will exceed estimates based upon higher-than-expected rental rates. When we look at FMC, that property is up to the 27th floor, current wall is up to about 18. The pipeline continues to be, roughly, about 2% of the available space. We have a number of proposals out, active discussions underway for 40% to 50% of the space. Tour velocity is increasing significantly. We really just opened up our one-acre green park to the real estate community last week and it was well attended by almost 300 brokers and we've had a continued run of hard-hat tours with both tenants, brokers,…

Yes.

But there tends to be very good activity and the point that we really do focus on is that a number of prospects that we're talking to as well as, more importantly, the activity in the marketplace, is with a lot of companies looking at moving downtown or moving a piece of their operations downtown. Because you can't forget that a lot of these cities are changing and a lot of perceptions need to be re-examined. But, you know Center City population has increased over 30% in the last decade and a half and is projected to grow another 5% over the next several years. It's had a tremendous increase in high income people moving downtown. In fact, I think the CBRE came out with a recent report on retail rents in the city and Philadelphia was in the top five leading markets in the country for increasing in retail rents. We've seen a continued pace of absorption on the residential side. So we do think, thematically, the city continues to get better. And from Brandywine's perspective, that our inventory base, our leasing team, our ability to execute quickly on deals really does give us a competitive advantage as, frankly, the numbers have shown over the last few years.

Okay and just to clarify, I think you said you've got leases for 2% of the available space. I think you meant 2 times the available space?

Two times, yes. It's my cold in Philadelphia accent. Sorry. We have prospects for over 2 times the amount of available space, thanks.

And then as we think about the CAD you've laid out for next year and where the dividend is today, can you give us any thoughts on potential for a bump heading into 2016?

Well, look, it's certainly something we revisit with the Board every year. And I think one of the gating issues with us -- increase in the dividend in the past has really been can we complete our repositioning plan and what will be Company look like after that's done? I think one of the things that we're excited about is that 2016 is the year we really start to get that to-do checked off our list and I think based upon the cash flow numbers we have, frankly, I think, Tom, the really good coverage we have from a cash flow standpoint, I think we're feeling pretty good about the prospects for the Company being in an excellent position. I know there are some concern anytime you come in below FFO ranges versus estimates. But I think what we were very pleased with is the fact that even with the top-line FFO coming down, we were actually able to increase our per-share CAD. And I think that really speaks well to the great job our operating teams have done in extending lease terms, keeping our capital really controlled over the last few years and the fact that we're finally getting through via the sales program, signing off some of these very high capital consuming properties which create for the Board a lot more visibility on a very solid run rate.

Your next question comes from the line of Michael Bilerman with Citi.

Manny Korchman here with Michael. Tom or Jerry, if we look at your leverage targets that you laid out, looking at those numbers you get back to, sort of, latter half 2014 levels. Are those -- if we think about those as goals, are those the high end of where leverage is going to go? Is that where you want to get to? And then you're going to think about longer-term leverage [indiscernible] going forward? Just help us rationalize what those targets actually represent?

Manny, I think from our perspective we look at the numbers that Tom mentioned on 2016. We view that gets us to the level of leverage plateau that we were targeting on an intermediate basis. I think the Company's path continues to be, over time, continues to further reduce that leverage through a combination of NOI growth, better debt management and overall lower levels of leverage.

Yes, Manny, I think that, yes, the leverage targets that we laid out for the end of the year where we think we'll be into the mid 6's is a good pathway depending on sales and what happens that could change a little bit as each quarter rolls out. But the key we're looking at is as we look into the next year which is FMC completely coming online and looking at some of our other joint ventures maybe getting more stabilized. We should see that path continuing into 2017. Our long-term goal is still to get into the low 6's or 6 basically. And we think that as we look into 2017 again that's a long way off in terms of having specifics. We do see the glide path continuing to go, that 6.5 will trend lower in 2017.

And if we look at the composition of the mix of assets you have targeted for sale both in what's left of 2015 and 2016, how do you come up with a, sort of, first question is how do you come up with an 8% cap rate, especially since you've executed sales below that this year? And, secondly, how are those sales going to impact -- or do they impact your same-store and other guidance items that you've given?

Well, I guess Tom and I will tag-team that as well. I think it's always hard to project where we think sales will be. I do think when we take a look at us trying to further reduce our exposure to New Jersey, Delaware, some of the off-toll road properties in northern Virginia, Richmond, you know, they tend to be marks that, based upon visibility we're seeing are, kind of markets or that kind of 8% cap rate. Again, that's plus or minus 50 to 75 basis points. But the mix of what we have in the market, I think we're comfortable at that 8% overall range. Now, we did bring that down. Historically, we've done 8.5%, Manny and I think based upon the pipeline of potential buyers as well as the mix of what we have in the market, we thought that 8% was a very reasonable assumption to focus on as we projected out 2016 guidance.

Yes, I think that's true. I think also we tended to get some good cap rates on our California assets which there's not many left of them. So it's a blend but, yes, as Jerry talked about it, probably going to be a higher cap rate than some of the things we've historically shown on a combined basis. And then on the metrics, I think what we basically look at it, Manny, on that these are speculative and that we don't really adjust our metrics and our leasing plan until they occur. So in the plan, if we sell a building that's fully leased, it may not change the plan at all. We may sell a building that's empty and that would change the plan significantly. So we have targeted a range, but we haven't changed our metrics relative to the operating results for those sales. So, hopefully, as they occur, they may be improving.

Your next question comes from the line of Brendan Maiorana with Wells Fargo.

Just a follow-up on the disposition outlook, so New Jersey, Delaware, Richmond, I think maybe you got the remainder of California in there or some assets in suburban D.C. And you've got about 650 to go over the next three quarters. How does, if at all, the IRS facility downtown Philly play into the total disposition target?

Yes, Brendan, look there have been press reports and we don't always believe what we read in the press, but we certainly -- we think that the IRS complex with the tax credit now burning off, it kind of unencumbers us to look at other options. So, certainly, one of the things we're looking at is, I'd say, a 15-year remaining government lease. On the positive side, it's a 15-year lease, no capital requirements on the countervailing side. It's a project that has a no annual rental rate increases for us. So it's fairly flat. So, look, just like anything, the question really raised is broader which is what are we prepared to sell and I think when we look at our portfolio we really do go through a process of looking. When we say optimal value points might be and certainly, the IRS campus would fit into that category where it's probably prudent to assess what the market will value that property at and whether that valuation today is something that fits into our roll plan.

Yes and I guess, Jerry, I definitely appreciate. I think it makes a lot of sense to kind of sell off these noncore assets and your increasing CAD numbers guidance for 2016 even while reducing leverage sort of proves that point out. I guess maybe part of the question is. I would think if the IRS facility did come into 2016 disposition plans, maybe you'd be ahead of the guidance from a disposition plan standpoint. Is that a possibility as we think about 2016 sales?

It's a possibility and it might accelerate some of the timing components, but, honestly, Brendan, it's really too early to project all that. I think what we've really laid out is that we have a number of properties in the market. To a great degree, we're still in price discovery on a lot of different projects. We have another queue ready to go out right after the end of the year. So I think as, certainly Tom touched on and I tried to mention is that the guidance we have now could have upward or downward bias based upon the timing of when these sales occur and certainly when those events occur, of any sizable scale, we would certainly come back to the marketplace and explain what we've done and what the impact of that transaction or those transactions would be. I know that's somewhat vague but that's, unfortunately, where I think the deal processes are right now.

Your next question comes from the line of Craig Mailman with Keybanc Capital Markets.

Just a follow-up on the disposition questions here. Could you just -- I know that you kind of put out a couple of markets that you're looking to sell property in; have some stuff in the market. But could you just give a sense of what the appetite is, so far, from investors for those types of assets?

Sure, happy to. Look, I think the fact that we've increased our dispositioning guidance has given us -- it really comes from the fact that we've seen really good activity across the board. We've sold properties to a number of users this year which has been a very successful undertaking for us. We would expect to do a few more of those. We've sold properties to local real estate investment companies who are following a more highly leveraged model and buying assets that are at good cap rates going in but, hopefully, they can get some growth out of it through the combination of leverage and market improvement. And we've sold a number of properties to institutional investors who are clearly trying to figure out how to deploy a wall of capital they have that needs to be deployed and asset-generate pretty good returns on leveraged equity. So I think our investments team has done a really good job of sequencing how we put things in the market, what sub-markets we're hitting and then assessing that as we get information back from all the markets where we have properties being marketed for sale. So, again, our average transaction size, as you know, Craig, is $20 million to $30 million, sometimes a little bit more. So we really do get a whole range of buyers that, again, range from users to institutions based upon the size of the deal that we're putting on the marketplace.

I guess, to Brendan's question about the IRS building and you guys accelerating dispo's here. On the gain side, are you guys able to maneuver that or is -- you know, if you do accelerate sales would there be any pressure on the dividend?

This is Tom, Craig. No, we will be able to maneuver around having pressure on the dividend.

Okay. And then just lastly, the stock is number [indiscernible] this year and it seems like it's a mix of capital concerns and you guys ramping the development pipeline and I know that you're not putting anything into guidance for next year, but just, I guess, some higher level thoughts on your views of getting back down to 6 times debt to EBITDA and kind of getting the balance sheet fully fortified again versus, kind of, incremental buybacks here and potential new developments eventually.

Let me try and answer that. Look, it's always hard to predict where the capital markets are going in terms of equity pricing, etcetera. So, look, we're clearly focused on doing it, taking the right steps to improve shareholder value. We do that knowing full well that the markets where our portfolio is based are not necessarily the preferred markets by the general investment community at this point. So I think we've tried to do is focus, kind of, we're making the right real estate decisions and, hopefully, having that translate into value. So as we sat down and contemplated what we wanted to do in 2016 based upon the answer to your previous question or some of the other questions on the call, we clearly think now is the moment we've been waiting for to accelerate dispositions. I know we frustrated some investors we weren't doing bulk sales two or three years ago, but the reality we've created a lot of value through the sales, through the operating plan to create a portfolio that now we think we can optimize as we put it to the marketplace. When that cash comes in right now from those sales, the marketplace is clearly signaling that de-leveraging and locking away all of our development pipeline funding with the additional possibility of share buybacks is clearly the best capital allocation. I mean, so beyond that we'll see what the market brings. If the world continues the way it has been, the world six months from now could be a lot different than it is today. So I think our major objective is, number one, make the right real estate decision on what we do with each of our assets, move on an uncompromising path towards a stronger, more liquid balance sheet and take advantage of opportunities where we see them.

Jerry, it's Jordan Tyler just following up. It's that last piece, I guess, that I'm -- I don't know, struggling with, if that's the right term or if I'm just curious about the uncompromising path toward de-levering the balance sheet. It seems while maybe the investment community would have looked forward to you selling bulk assets or bulk asset sales and de-levering the balance sheet that also pretty much as sort of a function of. I think what you told us years ago, maybe your June 2012 Investor Day I'm thinking of when we focused on sort of these leverage targets. And I feel like, in some sense, maybe the performance in your stock has been a function of the re-levering of the balance sheet and taking on of incremental risk at a time when people are concerned about leverage from a global perspective. And so I understand the timing and market timing and real estate decisions are very important, but I think capital markets, a pristine focus on, sort of or keen focus on capital markets and uncompromising focus seems really important, too. How do we get convinced that that's sort of where the Company is headed over the course of the next one to two years?

Well a very good observation. I think the 2016 business plan really kind of lays that out. Look, the balance any company will have is always looking at what the right near-term and long-term perspective is. I think we've tried to indicate, we even mentioned it very clearly when we undertook a couple of these development projects will have the impact of transitionally moving our EBITDA multiple up above our range, but we had plans in place to bring it back down. I think that's what we're doing this latter half of 2015 and into 2016.

And your next question comes from the line of Jed Reagan with Green Street Advisors.

On the 2016 development plans, I mean, are you basically saying that you're going to hit the pause button on, kind of, your future Austin and Philly and D.C. projects including 4040 Wilson and are you actually making a conscious decision to take a step back relative to some of your initial plans or do you think you could still move forward on some of these projects next year pre-leasing materializes?

Well, I think what we're doing is basically indicating that we're going to continue the pre-development spend as we've built into our plans for these different projects. Continue selling assets and then being in a position to evaluate what to do based upon what the market is telling us from a leasing standpoint. So I think even the near-term land acquisitions that we did during the year, a lot of that was focused on starts occurring in kind of 2017 and 2018. So getting ourselves ready from a development planning and a pre-leasing standpoint to get all those queued up.

Okay, so three to six months ago you were still -- if you had been setting guidance three to six months ago for development starts, probably also wouldn't have had [indiscernible] in the beginning next year. It's not like a change of your path that you were already on?

I think, Jed, what we're really focused on doing is what we've outlined today and then making sure that the Company remains in a very good position to capitalize on future growth opportunities. I mean, the market won't stop. So I think given our land holdings, given our relationships with brokers and tenants, we're always constantly in the marketplace looking for future opportunities, whether they be build-to-suits or controlling other asset bases. But I think as we view, sitting here today in October the major focus is on accomplishing the 2016 business plan. And in that plan we have factored in continued front money spending on some of these development projects.

Okay. And then I was interested that you're selling land in Austin and just curious where that land is located and why you thought it would become noncore and then also what kind of pricing you achieved there on a per [indiscernible] thought basis?

The land we sold was a parcel of ground that came along with our Four Points acquisition and it was a parcel of ground that we had programmed for residential and we sold it to a residential developer. I don't have the exact metrics in front of me, Jed, but we got a fair price for it that was above our basis, so we were happy with it.

Thank you and there are no further questions at this time. I would like to hand the conference back over to Mr. Sweeney for any closing remarks.

Felicia, thank you and thank you all for joining us for the call. We appreciate it and we look forward to keeping you updated in our business plan progress.

Thank you and this concludes today's Brandywine Realty Trust Third Quarter Earnings Conference Call. You may now disconnect.