Ladies and gentlemen thank you for standing by. And welcome to the Brandywine Realty Trust Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. It is now my pleasure to turn the conference over to Mr. Jerry Sweeney, President and CEO of Brandywine Realty Trust. Sir you may begin.

Recalp [ph], thank you very much. Good morning, everyone and thank you for participating in our fourth quarter 2016 earnings call. We certainly appreciate everyone’s patience over the last 24 hours and look forward to providing this update. On today's call with me today are George Johnstone, our Executive Vice President of Operations; Tom Wirth, our Executive Vice President, and 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 our anticipate results, please reference our press release, as well as our most recent Annual and Quarterly Reports filed with the SEC. So to start off, I think on both the investments and the operations front, we had a very strong year end close and started off 2016 with solid execution across the board. Our 2015 dispositions, the Cira Square and the Och Ziff transaction that closed yesterday have substantially completed our multiple year portfolio alignment strategy. They achieved our goals of having a stronger growth profile, reducing forward capital obligations, significantly increasing our overall liquidity, and achieving our intermediate term balance sheet of targets. All in all we believe excellent results that really do position our company as urban town center operator and developer. The sale of Cira Square will close by mid February and enable us to harvest a significant profit, generate a 20 plus percent internal rate of return, delever and create additional financial capacity. That sale as we had previously announced, it was for $354 million, about $410 per square…

Thank you, Jerry. Another busy and productive quarter. We leased over 900,000 square feet of space during the quarter, and over 4 million square feet for the year. Leasing activity remains robust in all of our markets. The pipeline, excluding development projects, stands at 2.4 million square feet, with 625,000 square feet in lease negotiations. We remain well-leased in CBD Philadelphia, outpacing the market by 710 basis points. We continue to see double-digit leasing spreads on a GAAP basis and near double-digit on a cash basis. Capital has averaged $2.31 per square foot per lease-year, on a weighted average term in excess of seven years. The greater Philadelphia region's overall outlook is encouraging. Unemployment declined in the fourth quarter to 5.4%, its lowest since 2008. Positive absorption occurred for the third consecutive quarter. And roughly 25% of the leasing activity during 2015 came from outside the market. The Crescent markets continue to operate in a similar strong fashion, where we outpace market vacancy by 400 basis points. The strength of these markets continues to shift deal flow toward King of Prussia. Overall suburban Pennsylvania absorption for the year was in excess of 500,000 square feet, its highest level since 2007. Turning to Metro DC. We posted our third consecutive quarter of positive absorption, raising occupancy to 87%. Job growth was especially strong during 2015 in Washington Metro. Over 67,000 net jobs were added, which was the region's largest gain in a decade. Regional unemployment is 4.3%. And for the third consecutive quarter, Northern Virginia, suburban Maryland and the District each recorded positive absorption. Flight to quality continues as tenants focus on efficiency, amenities and access to transportation. 2015 was a record year for Austin office market with 2.1 million square feet being absorbed, and 75% of that occurring in the…

Thank you, George. Our fourth quarter FFO totaled $69 million or $0.39 per share. Some observations for the fourth quarter were that same-store fourth-quarter rates were 5% GAAP, 4.1% cash, both excluding net termination fees and other income. We have now had 18 consecutive positive quarters for GAAP and 14 for the cash metric. G&A increased to 7.9, 1.3 above our guidance. That’s primarily due to incurred capital markets activity of over $0.5 million, and higher-than-anticipated professional and personnel costs. Termination fees were $2.2 million, $1.2 million above our projections. As projected, FFO from our unconsolidated ventures totaled $8.1 million, above our budget, was primarily due to some termination fees at Allstate. Our fourth-quarter CAD totaled $23.1 million or $0.13 per diluted share, representing a 115% payout. That number is below where we expected to be. We incurred about $30 million of revenue-maintaining capital, primarily due to some larger-than-anticipated tenants receiving their requested improvement allowances. In addition, we had $8.1 million or $0.04 a share of a one-time non-cash new-market tax credit. So for the year, our 2015 earnings included $20 million of non-cash tax credit income that will not be recognized on a go-forward basis in 2016 and beyond. For 2016, FFO -- in prior years we have taken the approach to report FFO under the NAREIT definition and highlight certain one-time capital market activities that are included in our reported FFO. In 2016, we are reporting our FFO without the costs associated with the retirement of the Cira Square and Garage mortgages, due to the material amount, approximately $0.38 per share of dilution that we believe will not result in our FFO being comparable to prior and future periods. Looking at the first quarter of 2016, we note the following. Property level operating income will be about $80…

Tom and George, thank you very much. So just to quickly wrap up, I think we're very happy with the way 2015 closed out. And 2016 plan is really off to a very accelerated and excellent start. So we think all the activities thus far have really created a strong continuation of our drive towards growing asset value. The operating platform continues to improve, is more refined and much more focused on growth. As George touched on, we have consistent forward-leasing momentum across the board in all of our markets. Our individual market out-performance continues. Our balance sheet is in incredibly good shape. With all the debt pay-downs, the pre-funding in place for our development pipeline, and looking at a large cash balance at the end of the year, with nothing drawing our line of credit, we think, really does position the company well for whatever the market presents. So with that, we'd be delighted to open up the floor for questions. As we always ask, in the interest of time, if you limit yourself to one question or thought, that would be very much appreciated. Thank you.

[Operator Instructions] Your first question comes from the line of Gabriel Hilmoe with Evercore ISI.

Jerry, just on the Och-Ziff transaction, just wondering if you can provide a little bit more color on how the venture piece came about and maybe if there was an opportunity to fully fill out that portfolio? And then just maybe what kind of a longer-term plan is for the JV going forward?

Gabe, certainly. And look, that's a great question, certainly one that we spend a lot of time thinking through. I think as we assessed it, and certainly one of our overriding themes was to harvest as much value out of our existing portfolio that we deemed to be non-core as possible, as quickly as possible. To make sure that the balance sheet and the residual owned portfolio was the best it could be heading into kind of the mid- to late-stage point in the cycle. When we took a look at our overall portfolio, including what wound up being contributed to the Och-Ziff transaction, it's a large multi-state portfolio. Good assets, but in very illiquid markets. So when you looked at it, over 85% of the transaction value was coming out of Richmond, off Toll Road in Virginia, and New Jersey -- so markets where there is a -- the opportunity to do larger transactions is fairly remote. So as we pulled together the portfolio, we’re really focused on what was the best way for us to optimize value. And of course, when you put a lot of properties together that have a lot of tenants in a multi-market condition, smart real estate investors like Och-Ziff want to have some level of continued interest by the folks that know and own and have run those properties for a number of years. So I think as we went through the algorithm, clearly a full exit would have been our preference, in order to achieve the pricing levels and the accelerated recovery of a lot of equity that we could use for other purposes, we realized that the best way to do that was to retain an ongoing interest in the portfolio. Certainly it's not as clean we would like from a…

And then just a follow-up to that. I know you have a handful of other disposed programs for the rest of this year, and obviously you have been very busy. But when we think about getting into the end of ‘16, is that kind of -- after the sales are completed, is that the portfolio that you want going forward, and we shouldn't expect much more in the way of dispositions getting into ‘17?

Again, I think it's a good question. As we looked at it, the combination of what we did in 2015 and this large transaction with Och-Ziff Real Estate, really substantially completes our repositioning strategy. So I think from here on out it’s fine-tuning, and just taking advantage of where we see spot opportunities to make money. But as we look at it, we are completely exiting from a wholly owned portfolio in Richmond, we have completely exited all of the off Toll Road properties in Northern Virginia. We have our remaining exposure in New Jersey down to, frankly, to a handful of buildings. And our Pennsylvania suburban portfolio, we still have a few more properties to move out the door, but substantially, the platform is in place. So clearly, we think that positions us pretty well going forward.

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

Sticking with the Och-Ziff transaction, can you talk more about your longer-term thoughts on the JV assets? What's your thought about an eventual exit, and how long do you think it might take?

Well, look, certainly I think from both Och-Ziff's perspective and Brandywine's, we are in this to make money and to harvest additional value. I think the financing structure that was put into place looks at this thing -- a two- to five-year hold period. The transaction is structured to provide the partnership the opportunity to do individual or smaller portfolio sales during the process as market conditions warrant. So I think as we look it, it's a three to five-year window. We think that there is some good upside in the portfolio going forward. And we think that, frankly, the math for us works well given the fact that we've harvested so much cash up front. While we retain a 50% interest in the leasehold, as we walk through -- our actual cash equity is below that. So with the combination of the flexibility that was built into the initial transaction, I think Brandywine and Och-Ziff's immediate focus on now getting value created and realized, as well as our transitional role as a manager, will create generate some additional fee income. So we view this as a bridge to an ultimate exit, as does our partner at Och-Ziff.

And then just my follow-up question. George mentioned the five tenancies comprising most of the roll -- half of the roll in ‘16 and ‘17. Can you give more color on those specific leases?

Sure. In looking at what we have remaining to accomplish in ‘16, the IBM transaction that I mentioned in Austin is roughly 200,000 square feet. We have got a tenancy in King of Prussia for 100,000 square feet that we are in negotiations with right now. We have got a GSA tenant in both suburban Maryland and in Radnor that we're in negotiations with. We have had one already move out, but we have re-let that space through a Comcast expansion at Two Logan Square in Philadelphia. And so really the only known move-out was a 57,000 square-footer by Lockheed Martin in King of Prussia. That was a $7 triple-net industrial building that the team is working on backfilling. In ’17, I mentioned the two big ones, IBM and Wells Fargo. And then beyond that, our next three largest, a tenancy at Cira Centre for roughly 90,000 square feet -- leases are out to that tenant right now. We have one known move-out in Newtown Square in the Pennsylvania suburbs for a 50,000 square-foot tenancy and then a 50,000 square-footer in Radnor that we're trading proposals with right now. So really, when you look at it, five tenancies in each year and really those are the only ones that are above that 50,000 square-foot line. So we feel good about the work we have accomplished thus far. And then of what is remaining, we feel good about where we stand in current dialogue with those tenants.

Your next question comes from the line of John Guinee with Stifel.

Can you just help us on a few basic things? If you look at your guidance, is it flat-lining or trending down a little bit? We would expect it to trend down, but give us a little help on that quarter by quarter. Second, your pro forma NOI by major regions -- CBD, suburban Philadelphia Tollway, Austin, once all these assets are sold. And then third, how does all of this affect the dividend in 2016?

John, this is Tom. I will take the first part of the question on just the guidance. As we look at the guidance, it's going to trend up as the year goes on for two reasons. One is going to be, there will be some continued lease-up, so the operating platform in the same-store group will increase as the year goes on steadily but then we will also bring on FMC. So as we go through the second half of the year, as we've mentioned, we are bringing in about $8 million to $10 million of revenue, more back-weighted to the fourth quarter than the third quarter. So there will be a continued progression of operating income on the whole portfolio and then having FMC kick in during the second half of the year with more of it weighted to the fourth quarter -- from an operations standpoint. From a G&A standpoint, it will trend down, as I mentioned. $9.1 million will then trend down as the year goes on, to $29 million, and that is mainly due to the way some of our deferred comp is recognized. And then interest expense, while it's $25 million for the quarter, will trend down closer to $90 million as the year goes on, based on the interest expense we had being paying off in this first quarter.

And John, it's George. In terms of NOI contribution, because both the IRS building and the Och-Ziff buildings were categorized as held for sale, our regional overview on Page 9 and kind of the pie chart NOI schedules on Page 12 are already post the IRS and Och-Ziff. So when you look at NOI, including our JVs -- CBD Philadelphia now at 33%, the Crescent market is at 21%, Austin at 11%. And as Tom mentioned, with FMC coming online, continued lease-up at Encino Trace, you will start to see a higher contribution level coming out of CBD and Austin.

And I think, John, the last part, in terms of the dividend, I think the numbers look solid. The Board certainly evaluates that every quarter. One of the key issues they were focused on, and appropriately so, was working through the final parts of our repositioning sales strategy, getting down to the core same-store structure and see how that would perform. And certainly with the capacity of these recent transactions to really accelerate the debt paydowns and dramatically improve both our balance sheet and our forward liquidity position as well as all the great work our operating teams do on managing forward capital costs, particularly those that are revenue-maintaining. We certainly think we have a well-covered dividend today. And my expectation is that the Board will continue to look at that every quarter. I will say, having gotten these last pieces done in the last 60 days, I think, does create a very easy exercise for them to evaluate how the company is going to look over the next couple of years, as they evaluate where our dividend growth should be.

Is there a need for a special in ‘16 because of the EPS I noticed in your guidance?

John, at this point we don't expect to do a special dividend.

Your next question comes from the line of Mitch Germain with JMP Securities.

Any change in posture from your tenants or leases taking longer to complete?

No, I think our average number of days to close is relatively unchanged from where it’s been in the past. I think we do continue to see tenants who are up for renewal coming out earlier to kind of have some discussions, but in terms of day-to-day, back-and-forth, no real change.

And George, I think you reconciled how the spec revenue increased for this year, the $4 million. Can you just go over that one more time, please?

Yes, sure. Our original spec revenue target was $27.8 million. Roughly $7.5 million of that was inside of what is now the Och-Ziff venture. And then since our last business plan update in October, we've generated an incremental $4.6 million of spec revenue. So our revised target as we sit here today is at $24.9 million.

I understand the math, but what drove that $4.6 million?

The $4.6 million -- and you kind of see it in the regional chart on Page 7 as well. But $3.5 million of that is this now assumed renewal coming out of Austin. And then we had about a $0.5 million pick-up in CBD Philadelphia, and then some incremental pick-up in the Pennsylvania suburbs.

Your next question comes from the line of Manny Korchman with Citi.

Jerry, when you went through your debt-to-EBITDA statistics earlier, can you just make sure that we understand how you're thinking about the large debt pieces being put on the Och-Ziff JV? Is that included in the ratios that you spoke about? A - Jerry Sweeney Manny, it is, yes.

And then in terms of the JV, are there any put provisions? Are there buys or sells?

Well, there is normal governance provisions there that would be opted [ph] in terms of how we make decisions, so it is a shared decision control. There's going-forward governance objectives that include buy-sells at certain points in time.

George, just given sort of the increased speculative revenues, and also selling off this portfolio, I was a little surprised that the same-store expectations for ‘16 didn't move. Is that just a shift within the range, or is there something else that's causing the same-store guidance to not change from your initial?

Two things. One, it’s a little bit of a shift inside of the range, but then the Broadmoor portfolio is not same-store. So the spec revenue pick-up coming out of Austin doesn't translate to same-store, because those properties were acquired during the course of the year in 2015.

And one more for you, George. The concessions seem to be pretty high compared to your run rate in Q4. Is that just an anomaly, or is that something we should expect going forward?

The concession, or the TI, and the mark-to-market in the fourth quarter of ‘15 was really dramatically skewed by one deal in particular. We had a 57,000 square-foot 15-year renewal with a law firm in Wilmington, Delaware, that had a little bit of a higher level of capital contribution. And because it had been such a long-standing vacancy and kind of where that market is today in terms of rental rate, had a 22% roll down in cash mark-to-market. So that deal really did skew our fourth-quarter metrics. All that being said, with the other deals that we did, we still did outperform our GAAP mark-to-market target for the year coming in higher than our previously guided 8% high end of the range.

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

Hey guys, just to follow-up on Manny's last question about the leasing costs there. If you pulled out the law firm, what would the leasing costs on a per-square-foot per-year basis look like, and what would your cash rent spreads have been?

The spread would have been flat for the quarter on those renewals. Instead of the reported negative 7%, we would have been flat. And the capital for the full year would have been $2.31 instead of the $2.42.

Right, but it's just for the quarter. So the 3.95 would have been what? And that 4.2 on a cash basis would have been what? It just seems like the last three quarters, you guys are still within your range of leasing costs, but it's kind of been ticking up a little bit each quarter. And we are seeing a commensurate increase in cash rents. So I was just curious on kind of a net-effective basis, if you're still -- if rent spreads still look as good?

They do. I don't have every one of those metrics with that one deal excluded, so I will follow-up with you on that. But yes, that really was kind of an anomaly for the quarter, was that 15-year deal with a large tenancy.

Yes, and Craig, it’s Jerry. A point to add on to that. As we look at the overall portfolio performance, there are a number of markets that we are in that are very strong, as Center City, Philadelphia, University City, Radnor, a handful of others, Austin, where we are actually seeing an ability to either compress the capital we need to offer to tenants as part of our leasing package, or getting a commensurate increase in term, or stronger annual rent bumps to compensate for those existing levels of capital. The other thing, and we talked about it on the last call, is that a lot of our absorption right now is coming out of what we view to be the markets that still remain very competitive, particularly the Washington, DC corridor. So we're really going to push there to accelerate absorption. And those concession packages, while they remain constant, the overall activity coming out of those markets tends to be a pretty fair share of our overall leasing activity. So that may be skewing those numbers a little bit above our normal run rate. But I think we are very pleased with what we are seeing in some of our markets where we have a solid platform. The markets are doing very well of having a really good trade-off on effective rents. Between being able to increase nominal rents, getting better annual rent bumps, lengthening the terms, and either holding our capital costs stable or actually reducing those, from both an absolute and dollars-per-square-foot per-year standpoint.

Just separately, pro forma -- all these transactions leverage is kind of in that low- to mid-6 times range. Just curious on your thoughts, if you're 12 months out here, you'd mentioned maybe some pre-development spending. I know you have some other projects you could start. Are you kind of committed to staying in that range or could we see that tick higher again in ‘17, if better investment opportunities rear their head?

I think we are committed to staying on the path of what we have talked about in terms of debt-to-GAV and -EBITDA. And I think as we look at our platform going forward, certainly that’s our objective, and that’s our firm commitment. We have a number of properties, you are right, in the pre-development pipeline. We want to make sure we take advantage of those. But we're also going to be delivering FMC in the next couple of quarters. And as Tom touched on, we'll have some good leasing occupancy going forward on that, as well as the residential side. So the FMC will drop off of being a drain on EBITDA, to being an additive to EBITDA, within the next couple of quarters. So that's a big enough transaction for us where we are convinced that will be a nice driver of this push to continue de-leveraging from our operating performance. And that will create some opportunity for us to look at other opportunities, if in fact they are there.

Your next question comes from the line of Jed Reagan from Green Street Advisors.

Maybe just following on to that question, can you talk a little bit about how the shadow development pipeline is looking? And are you getting any nibbles on the pre-leasing front from some of those projects?

We are. We actually have a couple of pending discussions, we have negotiations underway on a couple of projects within our system that would be essentially fully, or substantially leased at building starts, primarily in the suburban markets, on some of our development land. We continue to ferret out more and more opportunities within CBD and University City, Philadelphia. And our portfolio in Austin, which includes some land holdings, is having some good traction as well. We continue to see, Jed, this movement by companies to higher-quality, more efficient, better-located mass transportation-served products. And certainly as labor markets continue to tighten, even the numbers -- we're not there today. With unemployment being pretty much where it is, office space is now becoming once again an attractive cultural component of how companies position themselves to both their existing and new employee base. So the idea of being in a LEED-certified, high-quality, flexible, floor-plate building, I think, continues to be a good draw for a lot of companies. Not for everybody. But certainly we want to position ourselves with our existing inventory and some of our development sites to be able to capture both segments of that market.

Sure. Are any of those negotiations ones that might hit this year, and something you could kick off this year, do you think?

There might be one or two, but again, these are smaller-scale buildings. I hesitate to commit to anything that's not signed, so we'll be cautious for right now. But we have some good activity on a couple of our sites in suburban Philadelphia, that we think maybe one of those could be a start this year.

And I know you've got a pretty good slug of taxable gains from the Cira Square sale. Just wondering if we should be on the look-out for some 1031 activity to come from that? And maybe order of magnitude, what kind of sizing that could be?

Jed, it's Tom. Right now, the way we've structured for taxes, we don't expect a special dividend. If there were some sales that were smaller and had large gains, we’d consider if there was a 1031, either into a development land piece that we may look at, or even into a development spend. So there are some opportunities to maybe 1031. We do have one asset that, if we did want to sell this year, would be a 1031. But mainly, no taxable reason to have to do that.

And then just last one quickly for me, if I may. Can you talk about how the pricing for the Och-Ziff portfolio sale fared relative to your initial expectations? And how much buyer interest there was in the assets, to the extent the deal was broadly marketed? And then just quickly, if you can talk about how that 8.5% cap rate for the portfolio broke down between Northern Virginia and some of the other markets?

Sure, I'll answer it the best I can. I think when we looked at it, we were pleased with the overall pricing. I think when we break down the markets, we were pleased with the pricing in Richmond which again, Richmond included our office product and our remaining warehouse flex product down there, so I think the pricing there was very good. The Meetinghouse Business Center and Plymouth Meeting, again, that's one-story and two-story office products, so I think we were happy with how the pricing came out there. I think where we came in a bit below what we thought would have been in the off Toll Road, Northern Virginia. Pretty much in line, otherwise, in Pennsylvania and New Jersey. So we think it was a fairly priced deal in terms of where the market was. In terms of the marketing campaign, we talked to a number of different sources, and so it was a good competition for the deal. And as the deal progressed over a number of months, I think it is fair to say that there was some impact that came into play because of the tremendous volatility in the marketplace. But there still was a competitive set until we finalized our negotiations with Och-Ziff. So I think we're pretty pleased with the marketing of it, how it came about, the tension it creates to optimize what we thought was real full-value pricing. When you are doing these mid- to late-cycle deals, and there is a fraying of the debt markets and there's equity volatility, and it's a complicated structure, we kept our eye on the target, which was to reduce our concentration in those markets, to generate significant liquidity, position the company for further growth. And recognizing full well that we did not want to be in a position where we're trying to market this portfolio in pieces over the next several quarters. Because we just didn't have a lot of visibility, nor does anybody into where the markets will go. But we definitely focus on getting cash in the door today, creating a structure that works for us to create future profitability with, again, we think a smart, professional partner, with high integrity. And we move forward from there.

Did you see some buyers kind of backing out of the tent towards the end of the process, or maybe moderating their expectations?

Well, I think it's a function of where the debt markets are too. And there's no question that the CMBS debt market has had a lot of volatility with spreads gapping. So that clearly has an impact on pricing. I don't want to be specific, but there are certainly some folks who were talking to that had some concern over where the debt markets were going. Which is frankly one of the reasons why we think this deal, from both Och-Ziff and Brandywine's standpoint, is well-structured to make sure that we can continue to outperform the markets.

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

I'll be brief, I think. The mid-8% cap rate that you mentioned on Och-Ziff, does that take into account the fees you're going to earn? Or is that --

Rich, it does not. It is point-of-sale pricing, and that’s how we looked at it. We did not factor in the fee revenue going forward, which is on market-rate terms. Well frankly, I have a dedicated team focused on this portfolio, to service it and to make sure that we asset-manage it very well. So from an executive-level diversion standpoint, it will be minimum. We'll have great operating people running the portfolio for us.

Do you have a number of the incremental fee generated off of that portfolio?

About $1 million.

A year?

Yes, I'm sorry, a year.

It could be $1 million a day, who knows? And then for the 80 million remaining to sell, is that coming out of California, or where does that come from? We have one remaining property in California that we are in the throes of some negotiations with a tenant out there. When that's consummated, that property will be actively marketed. The other areas where we are targeting, disposing of our remaining assets from a marketing standpoint, in New Jersey, Delaware, they are the primary markets at this point, Rich.

Your final question comes from the line of Bill Crow with Raymond James.

Jerry, two questions. You referenced the mid- to late-cycle environment a couple of times. How does that change your thought process on development going forward?

Well, I think it changes our perspective across the board. So it clearly drives our operating teams to make sure that we create as stable a platform as possible and address our forward-rollover exposure. From a financial standpoint, it’s clearly reflected in our drive to build as strong a balance sheet with as much liquidity as possible. And from a development perspective going forward, I think as we look at it, a key driver for us is taking a look at maintaining optionality. So if you take a look at some of our existing developments, we have some specific development sites that we think are good opportunities for near or intermediate-term starts. We are going to require a very heavy level of pre-leasing there. The Knights Crossing development in Camden is a well-structured transaction with Campbell Soup, that is essentially a rolling option to take that land down. One of the things we haven't delved into on the calls yet, but the one thing that the transaction in Austin gave us at Broadmoor was a very good longer-term development opportunity at a very effective basis per land foot, that gives us the ability to market those properties. And again, that would be subject to heavy pre-leasing. So anytime that you are entering this point in the cycle, I think, our focus was to solidify the operating platform, get it to where we want it to be, make sure we have plenty of liquidity. And this immutable drive towards lower leverage and stronger coverages remains in place. And certainly looking ahead, Bill, as we evaluate development opportunities, it's going to be cautious but opportunistic. We're going to be getting involved in a multi-phased development, we're going to be looking for optionality to respond to the market, look for an advantageous cost basis, and look for very strong results from a marketing campaign, relative to pre-leasing.

The final question for me is, you talked about the debt market changes over the course of the negotiation for the Och-Ziff deal, maybe some of the other competitors dropping out. How low – not how well did the price fall but how close did you get to just saying we are better off keeping this portfolio?

Not that close. Because we felt the pricing was always within the range of being fair. Look, we always want to sell for more, people want to buy for less. So it was an artful negotiation, which I think solidified the perspective of the partners. But certainly when there's external events that come into play, like the debt markets, that certainly objectively creates the need for discussions -- and I think as we went through this process. And Bill, not just this transaction, but the other sales transactions, where there is leverage involved, that’s becoming a more increasing part of the discussion which, from our perspective, knowing that we had a fairly valued deal, only amplified our desire to get this transaction done.

Gentlemen, we do have a follow-up question from Manny Korchman with Citi.

Hey, it's Michael Bilerman. How are you, Jerry?

Hey, how are you doing, Michael?

Great. I just wanted to make sure just on the cap rates, you're quoting an 8.5%. I assume that's on the almost $400 value. So $34 million of -- is that cash NOI or GAAP NOI that the portfolio would've produced? And is it a backwards-looking NOI or a forward-looking NOI?

It is current-quarter NOI, what's in place.

And it's cash.

And it's cash, I'm sorry, yes.

And then the way to think about in terms of dilution from your perspective, 350 of cash, it's sort of, call it a mid-9s sort of cost of capital per se from an accretion-dilution standpoint. And I assume that would just be offset by the $1 million of fee income you'd get. I assume that's a profit, not the net. And then are you picking anything up from an FFO perspective, from your sort of highly leveraged stake in the leasehold?

Michael, this is Tom. We will pick of our share of the FFO. But yes, after ground lease, it's going to be after the debt service. So the FFO that we are going to pick up off it is there. It's not very significant for this year. I believe it's $0.03 or $0.04 maybe. But that's our incremental piece after all those costs, yes.

So $0.03 or $0.04, that’s actually pretty meaningful from a -- is it real cash, or is it you're picking up a --

That cap rate off of that cost base is meaningful. We've programmed a lot of capital, as you know. When we look at the cost basis of our investment basis, quite a bit of cash was put into the deal to cover capital. So there will be cash flow off the property.

And you will actually get a distribution? Or it has to stay in the -- I'm just trying to think about your FFO recognition of $0.03 to $0.04 from your leveraged leasehold position versus -- are you actually going to get a distribution out of this joint venture in terms of is it hitting FFO? AFFO?

We will get cash distributions, yes. I don't know that I would say the cash distribution equals the FFO. But it's like all of our joint ventures. Sometimes we are taking distributions above the FFO, sometimes they are below, if there is capital needs at the property level. But no, the projections off of this property group will be distributions.

Right. So effectively, you sell -- you're effectively selling at, let's call it, a 9.5 cash versus the monies that you received, the 350, and then you'll pick up $0.03 to $0.04 of accretion on your remaining levered investment?

Yes. End of Q&A

This concludes the question-and answer-session. I would now like to turn the call over to Mr. Jerry Sweeney for any closing remarks.

Great. Thank you all for joining us, and we look forward to updating you on our activities in the next quarterly conference call. Thank you.