Ladies and gentlemen, thank you for standing by and welcome to the Brandywine Realty Trust Third Quarter 2020 Earnings Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Jerry Sweeney, President and CEO. Sir, you may begin.

Crystal, thank you very much. Good morning, everyone, and thank you for participating in our third quarter 2020 earnings call. On today's call with me as always are George Johnstone, our Executive Vice President of Operations; Dan Palazzo, our Vice President and Chief Accounting Officer; and Tom Wirth, our Executive Vice President and Chief Financial 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 cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports that we file with the SEC. First and foremost, all of us at Brandywine sincerely hope that you and yours continue to be safe, healthy and engaged. The pandemic continues to disrupt all of our lives and has resulted in a new landscape for everyone and certainly every business and its duration unfortunately remains unclear. At the time of our Q2 earnings call in July, we did anticipate a return to the workplace commencing after Labor Day and into the fall. Given the recent headlines over that timeline for many of our tenants has been extended into 2021. And as we noted in our SIP our portfolio is about 15% occupied with variances between the different operations but we can certainly provide more color on that during the Q&A. Additional details on our approach to this crisis are outlined in our COVID-19 insert found on Pages 1 to 4 of the supplemental package. During these prepared comments we'll review third quarter results, an update to our 2020 business plan. Tom will then summarize…

Thank you, Jerry. Our third quarter net income totaled $274.4 million or $1.60 per diluted share and FFO totaled $60 million or $0.35 per diluted share. Some general observations regarding the third quarter results. The results were generally in line with our second quarter guidance with the following highlights. Core -- property operating income we estimated $74 million, it came in slightly above that at $74.4 million, which was a good result. Termination and other income; we expected that -- it ended up at 1.3 below projections, primarily due to the timing of certain anticipated transactions that we believe will occur in the fourth quarter. And then interest expense was also lower by $1.7 million over forecast, primarily due to the interest expense reduction from the loan assumption recapitalization of Two Logan Square, which resulted in a one-time non-cash reduction in interest expense totaling $2 million. Our third quarter fixed charge and interest coverage ratios were 3.5 and 3.8 respectively. Most met -- both metrics improved sequentially as compared to the second quarter, primarily due to the Commerce Square joint venture. Both metrics exclude the one-time interest deduction -- reduction noted above. As expected, our third quarter annualized net debt-to-EBITDA started to decrease to 6.7, was primarily due to the sequential EBITDA remaining similar to the second quarter and the reduced debt levels from the Commerce Square joint venture. Two additional reporting items. As Jerry mentioned, cash collections were 99%. Additionally, if we included third quarter deferrals, our core portfolio would have been very strong 97%. Collections for October are currently 97% however, one vendor payment anticipated to be received in the next day or so will bring us up to 95% -- 99%. Write-offs in the quarter were approximately $0.005 and primarily due to retail-related tenants. Same store, as…

Great. Thanks, Tom. So these are really not normal times as we all know. So let us close with a couple of key takeaways. First, our portfolio and operations are in solid shape with really increasing visibility into our tenants, their thought process, and what they're thinking about in terms of their return to the workplace. Secondly, with -- our deal pipeline continues to increase as those tenants begin to really think about their workplace return and us staying in touch with those tenants is key. Us outreaching to a lot of existing or new prospects is also very much a key part of our business plan. So we're happy to see our pipeline really increase during a pandemic and during the slow months of the summer. In other observations, and we're hearing this directly from tenants both large and small, safety and health both in design and execution are rapidly becoming tenants' top priorities. And we believe that new development and our trophy-quality stock will benefit from that trend. And we're seeing the beginnings of that in the existing pipeline. Look, private equity and the debt markets have stabilized and are becoming increasingly competitive and strong operating platforms like Brandywine are really gaining significant traction for project-level investments. And then we'll end where we started, which is that we really do wish all of you and your families remain safe during these interesting times. And with that, we'd be delighted to open up the floor for questions. And we ask that in the interest of time, you'll limit yourself to one question and a follow-up. Crystal?

[Operator Instructions] And our first question comes from Anthony Paolone from J.P. Morgan. Your line is open.

Okay. Thanks, and good morning, everyone. Jerry, I think last quarter you had talked about rents in the market generally holding up and you hadn't seen much diminution if any at that point. Can you give a little bit of color on where that stands today as you're getting deeper into the discussions of renewals and such with your tenants?

Certainly. Good morning, Tony, hope all is well. Look, we are continuing to see fairly good stability within our portfolio, and I think the harbinger of that or the look through the glass is really through the renewal program that we have. I mean, we're not really seeing any concessions that need to be made, kind of as a part of post-pandemic concerns. We're very much focused in terms of the pipeline increasing, the rental rates that we had in place pre-pandemic are still the ones we have in place today. Certainly, in a couple of markets, like in Austin, for example, I know there is a lot of concern about the increase in sublease space down there, we can certainly talk about that. We haven't really seen any real erosion of rent yet. Certainly, the overhang of the sublease space might create that particularly in CBD Austin where there's more than 1 million square feet of sublease space available and the announcement the other day of partially Energy's acquisition could have an impact as well. But in that case, Tony, we've been saying that on the 405 we have targeted kind of the mid-8% return on cost-free and clear there. We can reduce rents by more than 10% and still -- asking rents by 10% and still generate about an 8% return. But, George, why don't you amplify any things you're seeing throughout the portfolio?

Yes. I think, Tony, the real evidence has been in the 45 early renewals that we've done. Even those deals albeit short in terms of averaging 24 months of extensions, still had a 2.6% increase in the cash mark-to-market. So I think even as it relates to the new deals as Jerry alluded to, the asking rents that we have, have been holding up. We haven't really seen that much pressure on that. I think tenants are a little bit more focused on what their TI dollars will get them in terms of building the space the way they want it to, ensure that they've got a proper capacity for workstation, turning radius within the space, etc.

Okay, thanks. And then my second question is maybe a two-part on life science. I think it was last quarter you had mentioned converting 56,000 square feet of Cira, and I just couldn't tell if what you laid out in your comments is an expansion of that, conversion or if that was the same amount of space. And then the second part of that, just would love to get some color on the nature of the tenants that would look at a converted space like that versus perhaps, wanting to go into a new build or more specific life science type building? Like, are they okay working with lawyers and accountants and stuff like that or is there a crossover with the pipeline you talked about for the Schuylkill development with the same pipeline that would go into this converted space? So any color there would be helpful.

Sure. And, Tony, you're right. I mean, in the first phase, that is why I mentioned two phases at Cira, the first phase around that 56,000 square feet that's the lower several floors. And then we are incorporating capacities due to conversion for the other floors as we need to work, see the market demand over the next couple of years. The pipeline of transactions we're saying on that really have not indicated any concern about it being and called a mixed-use commercial project at all. In fact, the -- any concern that might be there is really being more offset by the ability of us to deliver space fairly quickly. I mean a number of these companies looking for space in the very near term, which is really one of the catalysts behind doing this conversion, doing it on an accelerated basis. And we actually do view over time that, that original building we did at Cira Center will essentially be incorporated into the whole ecosystem we're creating at Cira Center.

Okay, thank you.

Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open.

Great. Thank you, and good morning. Can you talk more about the incremental 300,000 square feet in the leasing pipeline? Where is that located? It sounds like maybe a lot of that's at Schuylkill Yards, but just more color on where the incremental demand is?

Yes, sure. Jamie, good morning, this is George. Just so we're all clear, when we talk about the volume of the pipeline that's always exclusive of our development and redevelopment projects. So Jerry did cover the Schuylkill Yards and 3151 Market Street pipelines in his commentary but the increase in the normal core portfolio. We had a very good quarter of touring activity, 444,000 square feet and a lot of that really was in both Philadelphia CBD and in the Pennsylvania Suburbs where we saw the largest amount of pipeline contribution. And we're also continuing to now see with the summer coming to an end, an elevated amount of touring activity at our 1676 International building in Tysons, so they probably had about 140,000 square feet of additions to the overall pipeline.

Okay. And then in terms of...

I guess, Jamie, on the development pipeline I think the -- Thanks, George, for that clarification for everyone. I mean, we do have a pretty good pipeline on our Schuylkill Yards project as it continues to grow. Pieces of that relate to a couple of the anchor institutions in University City. We're looking for some expansion. Despite I think some of the macro impact of the pandemic on some of those institutions are still -- they're still looking forward to increasing their market share and expanding their research capacities. And then we have a variety of life science companies who are looking at both, Schuylkill Yards West and our 3151 project and within our Schuylkill Yards West project we have several life science companies, certainly but we also have a number of law firms and financial service firms that are also looking at Schuylkill Yards West as a new location.

Okay. And the 300,000 square feet, does that include renewals or that's all incremental demand.

It's all incremental. Yes.

So in case not met it would actually increase occupancy.

Correct.

Okay. And secondly, can you just talk us through the largest vacancies in the portfolio? I know you've got Macquarie and Standard Reliance to work on. And then just thinking about the expiration schedule, you got some big loss from expirations over the next I think, 16 months or so based on your schedule?

Yes, sure. The large existing vacancies in the wholly-owned portfolio are really at 1676 International in Tysons. And as I mentioned previously, we are starting to see some increase in the pipeline there. The Macquarie and Reliance vacancies at Commerce Square, which are now within the joint venture structure, no significant change obviously during this past quarter. We continue to do several spec suite builds on some of the lower floor space. We had leased part of one floor previously and have the balance of that floor now constructed for spec suites to have some hopefully, accelerated quickening occupancy. Reliance, still a little bit early in terms of a true pipeline there but we're hopeful that as the fall progresses and post-election that we start to see some increased activity over there. The rollover schedule for 2021, really there are kind of four kind of larger ones to talk about. We've talked about most of, if not all of these in the past, but Northrop Grumman at 2340 Dulles. Our plan when that lease expires on 12/31 of 2020 is to shift it into either a redevelopment mode, continue to market the property to potentially sell and or JV it those plans are progressing. We've had some preliminary inquiry about the building from the brokerage community, and so we continue to vet that. The second largest is IBM and a 199,000 square feet at Broadmoor in Building 5 that will come back to us on March 31st, and the plan is to then convert that building and its underlying land into the overall development planning at Broadmoor. Third largest is Comcast. Four floors over at Two Logan Square 88,000 square feet. We have already back-filled one of those four floors. That was a kind of a deal that was a little bit of a quick hitter for us. They're going to take occupancy -- actually we're going to terminate Comcast a month early and immediately back-fill it with its replacement tenant. And again, where that lease expired we had close to a 30% mark-to-market on the cash rents with only a 10% capital ratio on a six-year deal. So again, I think that building being trophy-class and what tenants are looking for, we feel good about the prospects for the other three floors. And then the last one is, some of the space over at Cira Center coming back to us and one of those is a full floor in that lower stack 27,000 square feet and that is part of our life science conversion that Jerry just spoke to.

Okay, thanks. That's very helpful. So just to confirm, when does the Comcast expire?

Natural expiration is 2/28/21 and one of those four floors we will terminate a month early.

Okay. And then do you have any updates on the Dechert, Blank Rome and Baker leases?

Yes, continuing to negotiate with all three of them. Active dialog. No pen to paper at this point but expectation is that we should be able to retain a good portion of those tenancies. And again, those are all in our 2022 expiration timeframe.

Okay, great. Thank you.

Thanks, Jamie.

Thank you. Our next question comes from Steve Sakwa from Evercore ISI. Your line is open.

Thanks. Good morning. Jerry.

Good morning.

Noticed that many of your assumptions didn't change obviously for the year end 2020. I would guess the one that jumped out at me was the percent leased I guess on the core portfolio of 94% to 95%. So I'm doing the math right, that sort of implies 275,000 square feet of absorption from a leased perspective not necessary in occupancy perspective. And I think you mentioned that you did about a 100,000 square feet of absorption in Q3. So just kind of walk us through sort of how you're going to achieve that lease percentage just given the softness in the leasing environment.

Yes, sure. Steve, this is George. Let me take that -- take the first crack at that. Again, I think part of the reason we still feel that, that range is attainable is kind of the strength of the pipeline. We also have a couple of fourth quarter of '20 expirations where we're in advanced dialog and actually have a couple of leases signed, so that when those fourth quarter vacates occur, the backfill is there but because it's not vacant today, it does not hit our pre-lease statistic. So again, I think -- again the pipeline at 1676 some of that looks promising, and we're hopeful that we have a productive remainder of the fourth quarter to get some of these deals across the finish line.

Yes. And as George mentioned and it was in our comments. I mean, a good portion of that is coming out of the pipeline activity we have, which is we have a number of tenants who're in advanced stage of negotiations as well. So when we kind of risk assess that we thought we still had a pathway to get to that number.

Great. And then maybe, Jerry, just to kind of circle down on Austin in 405 Colorado, I realize it's still maybe three quarters out from completion but maybe just talk a little bit about the 200,000 square foot pipeline is -- are those tenants really kind of all in the market with existing kind of upcoming aspirations? Is there anybody kind of new or expanding in the market to take that? And then, you did mention kind of the increase in sublease space. I'm just curious, the competitive nature of the sublease against new construction.

Yes Steve, great question. And look, the pipeline, which as you said, about 200,000 square feet now has a number of tenants that have been in the pipeline for the last couple of quarters, a couple of law firms and several financial service firms. We're talking to a couple of technology companies and look, one of the things with 405 is the fairly small floorplate building, very highly amenitized with one whole sky lobby floor and over 2.5 per parking on site, which is a rarity in the Austin CBD market. So we're very focused on getting some of those leases put away or some of those prospects translate the lease execution in the next couple of quarters. The curtain wall in the building is substantially done, some of the interior finished work is starting, so while we're still doing hard hat tours, the hope would be by December, we'll be able to actually get people through in a more of kind of finished way and we think that will certainly generate some activity. So the leasing team is very encouraged by the increased level of activity that we're seeing there. Obviously, we're all frustrated with the pace of how that pipeline progresses. And I think, Steve, as we look at it, we're still -- our proposer is still out in the mid-40 range, rental rate range with the same level of concession packages that we had programmed. And I think one of the things that we don't really necessarily see that there could be downward pricing pressure what we're seeing now. But when we look ahead to the amount of sublease space and frankly the gap between sublease rates, existing building rates and the new building rates, we think there could be some downward pressure, which is why we're certainly flexing our financial model that even if we went up reducing our proforma rents by 10%, we're still able to deliver about an 8% yield. But the major upstart right now is -- from a leasing standpoint is let's get a few more of these leases signed and across the finish line we think that will build some momentum as the Austin market continues to open back up.

Great. Thanks.

Thank you.

Thank you, Steve.

And our next question comes from Manny Korchman from Citi. Your line is open.

Hey. Good morning, everyone. Jerry, maybe just spending a little bit more time on life science. It's been a space that we've seen a lot of owners and developers talking about converting or building new space in, yourself included. So just wondering maybe specifically for Schuylkill, if you think about just the supply picture, where else might there be competitive supply that comes up in either existing or new product? And from the demand you're seeing, are those tenants that you think end up in that greater Philadelphia market or are these tenants that might have national pursuits and they're trying to figure out where they end up?

Yes. Thanks, Manny. I'll answer the best I can. The -- we do view that the competitives that we have in Philadelphia for life science is -- the University City Science Center, which again is about 8 blocks west of where we are at FMC Tower. And there is also the Discovery Center in the Pennsylvania suburbs, which is a privately-owned former GSK facility that's being converted to more up-to-date life science use. There is one building in the East Market Street, Calder, an older building that they are positioning some of their vacancy to be life science, and that building is in close proximity to Jefferson University Health Care System, so they have the basis for some demand drivers there. We -- when we look at the competitive set, number one, I think they're all good and high-quality competitors. I think what we can deliver is a better location and a very good high quality and efficient design. Most of the tenants that we are talking to, Manny, to go to your, I think your second question, I think the bias is they would always rather be in new-build and I think that's why we're seeing such a great upsurge in activity on both Schuylkill Yards West and our 3151 project. The challenge on that new build is that it takes 24 to 36 months to actually deliver the space and a number of these tenants are facing near term requirements that they need to fulfill rather than wait for that. So one of our objectives as it really was with 3000 Market Street was to kind of create some near-term space deliveries that would be attractive to other -- to some of those life science tenants in our pipeline. For better or for worse, we wind up leasing…

Thanks, that's great color. In the past, when we've spoken to life science developers, there has been some hesitation to do mixed-use, especially with residential. Have you seen that sentiment change? Are people willing to either live in a life science building or are life science tenants willing to be in a building that's partially residential?

Yes, it actually depends on the composition of what that life science company is doing in the building. So if it's a lot of Level 1 work, it's not too concerning at all to the life science company, and in the case of like Schuylkill Yards West, Manny, to go to your point specifically, there the -- there's separate lobbies for all of those uses. So there is a level of privacy and confidentiality that we've built into the design of the building to make sure that there's not that concern about a resident walking into a lobby with white coats or vice or a whitecoat walking into a building with someone walking their small dog. So, the -- I think you can design some of that segregation into the building, which we've done with Schuylkill Yards and there again, the commercial component is only about 200,000 square feet and we're only really anticipating about 100,000 square feet of that to be a combination of life science/research labs. The balance we think will be a locked office space. And then certainly, a dedicated life science building we're dealing with larger tenancies there that are looking -- and larger floorplates, they're looking for a dedicated life science component.

Right. And then last one for me. Just can you talk about what you're seeing in terms of multifamily rents and demand in Philly market?

Yes. Actually, they're holding in there very well. There really has not been a lot of downward pressure, particularly at the higher end of the curve. So we've just completed our kind of monthly market survey and the feedback across both existing stock projects under construction are still very much in line with what our pro forma assumptions are. I think we're also -- we are planning down -- there could be a slight slowdown in rental rate growth and maybe a marginal increase in concessions going in. So we have already built that into our Schuylkill Yards West pro forma. But right now, it seems like the fundamental demand drivers seem to be in pretty good shape.

Thanks, Gerard.

Thanks, Manny.

Thank you. Our next question comes from Michael Lewis from Truist. Your line is open.

Thank you. So this morning, the Philadelphia Business Journal posted a story about rising vacancy and sublease space in Center City, sharply about leasing activity. I was wondering your thoughts on a 30 year portfolio roughly is Philly suburbs, do you think some of this maybe meant from Center City to Philadelphia suburbs or do you think, where we stand right now this is just evidence of weak demand, overall weak demand of where we are right now.

Yes. Hi, Mike. I hope you are doing well. The -- George and I will tackle this. Well, I think when we've looked at the sublease inventory in Philly, I think the answer to it, we're pretty pleased with it. I mean the numbers are fairly low. I mean in the city where we're talking about is CBD sublease space of in Class A about 320,000 square feet, which really hasn't moved all that much with the largest block being 30,000 square feet. University City, less than 30,000 square feet of sublease space, the Pennsylvania suburbs have stayed in and around that 500,000 square foot mark, which really given the size of the inventory base is fairly small and in none of those three markets have we really seen any big uptick since the crisis began? At one level, I think the world knows the office markets are in a bit of a pause and a pause can simply be a pause without it being an Armageddon. I mean, if you think about what's going on in the world, so many folks are focused on visitor folks and things other than just their office platform right now. They are concerned about distance and public policy, mass transportation, children getting back to school. So we are -- that's why I feel pretty optimistic that our leasing team and our regional heads, I mean they're -- we're talking to tenants, brokers, political leaders, community leaders on a daily basis to try and get as good a window into what's happening as possible. And I think frankly, Philadelphia will prove that its resiliency in challenging times as we look out over the next couple of years whereas on the upside, we either grow as fast, we tend to be fairly stable when things get slower. To get to your other question, we really haven't seen, and I'll defer to George, but we haven't seen any real significant movement, Michael, from CBD down to the suburbs or vice versa. But, George what do you say?

Yes, I think most tenants and companies are just evaluating any and all options but have been somewhat slow to pull the trigger on any. So I think the sublet prospect is one where it's -- should we test to see if there is some demand for some of our space. And -- but again, we've got kind of the best of both worlds that we've got this Center City and the suburban locations and even within our own portfolio, we've yet to really see anybody say, hey, can I do something out in the suburbs even on a short-term basis to maybe allow me to get more people into the office and not have to worry about mass transportation or other concerns they might have about longer commutes because of home schooling, etc. So, well, I think the more visibility we get on the pandemic each and every day, I think you'll start to maybe see some companies start to make some of those decisions. And again, as I said I think given our inventory locations, we've got an opportunity to kind of capture some of that whether it's city like out of the suburbs or vice versa.

Okay, thanks. And then my follow up is kind of a big picture question as well and maybe Jerry already answered it, but I'm going to ask it anyway because I think investors are less concerned about the next few quarters and the stocks are kind of pricing off of what people think the permanent impacts of this may be. So would you say -- do you think we have any more clarity on office demands long term versus a quarter ago or less because I hear you on the pipeline activity and the tours are up and we've had some pass at the time. But on the other hand, we still have the low physical occupancy. Labor Day came and went, now we'll see what happens next year. What do you think about kind of the range of outcomes and the clarity we have into whether the office business is now whatever -- to take the trajectory and now it's that trajectory minus 10% or whatever it is. How do you kind of think about the long term?

Yes, it's a great question and certainly it's something we're spending a lot of time as a team and as a Board thinking about. Look, I think we still remain very optimistic and I gave you a couple of data points probably since the last quarter. I think the longer this is going on, I think the more we are hearing consistently across our office base that they can't wait to return to the office. So to go to your -- Michael, your observation on kind of the low level of occupancy, you can never dismiss the fact that public policy at this point is paying a fairly large role in what tenants want to do. That public policy has a couple of different elements to it. One is, like for example here in Philadelphia, the city public health guidelines are that if an employee can tele-work, it's feasible for them to tele-work, they must tele-work. So employers don't really have the public policy stamp of approval to be bringing people back into the office except on a very voluntary and a very essential basis. And we're seeing that certainly with the dissonance in Texas between the state and the city governments. So that is a bit of a gating issue for people bringing their tenants back in. This question of employer liability is a big issue as well as the issue of mass transit. So I think there are other factors besides people not wanting to come back to the office, enjoying working from home that is preventing these comps from ramping up their occupancies. So that is one point and I think another point is that certainly from what we're seeing and again it's early in the stage, but we are certainly seeing that while there could be…

No. That's alright. Thank you.

Thank you. Our next question comes from Daniel Ismail from Green Street Advisors. Your line is open.

Great, thank you. Just a follow-up on your last point, Jerry. For those types of core office buildings, transaction volume it's clearly fallen off. But I'm curious in the conversations you're having, if there's been any noticeable differentiation between your markets and how the office values are changing?

Yes. Hey, Daniel, how are you doing? Look, we were really pleased to have been able to achieve the venture financing at Commerce Square. We thought that resonated very well from a -- us being in the market with a fairly large value-add transaction in Philadelphia and I think we got some very good response to it and I think we executed a very good deal. I think as we're looking at other types of venture opportunities whether it's on our development projects or on existing stock I think, while private equity and institutions are really coming back into the real estate market and in some sectors much more aggressively, in the office sector there still is a prevailing house view that most office investments are on hold until we get clarity post pandemic. So just the same question, Michael asked and a lot of other folks ask about what's going to happen with office, until there is more clarity on that I think the bidding pool for office assets will be a bit narrower than some of the other asset classes. I think projects that have shorter average-weighted term lease renewals or value-added component will face an even narrower set of investors. But I think generally on the office side, I think you've seen a couple of trades take place where there is long duration credit backed lease structures that have been done at very low cap rates. Or a lot of those investors are really looking at a credit stability situation compared to bond yields. And I think that will continue to create overall downward pressure or stability in office cap rates. And I think where you'll see a bit of an increase in overall cost of capital on kind of more value-add components temporarily. I think once the market has some visibility in terms of where the demand drivers are, that gap could close as well.

Great, thank you. And then last one for me. Going back to the leasing pipeline. I don't believe you gave details regarding the composition of the pipeline in terms of industry based? And if you've noticed any more or less activity from any specific industries outside of life science within that pipeline?

Yes. Again, the pipeline in the core portfolio but for those couple of floors over at Cira Center where we're doing the lab convert or a life science conversion. Everything else would be traditional office use. And yes, the composition of the pipeline really hasn't varied too much from kind of the existing composition of the portfolio. So we're seeing law firms, professional service and the like, so I can't say that there's any one rising or declining industry at this point.

Fair enough, great. Thanks, everyone.

Thank you.

Thank you. And our next question comes from Bill Crow from Raymond James. Your line is open.

Thanks. Good morning, Jerry. I think out of all things -- all the things you've talked about today the most surprising to me was the 8% return to the office level in Austin as -- kind of, think about Texas being more open than other markets and you referred to kind of local policy issues. That's about half the rate of New York City and lower than San Francisco. Is it a tenant issue? Is it a portfolio issue? Is it a regulatory issue? And does it suggest that maybe there will be a more permanent impact in the Austin market or maybe some other markets?

Yes. Bill, it's a great observation and thanks for the prompt because I should have mentioned it during our comments. One of the reasons Austin is so low at 8% is that IBM, who is a major tenant of ours down there is not coming back until after the first year. So if we excluded IBM and their square footage from that Austin calculation we're back into the mid-teens. So, I think the -- Austin, I think wound up being one of those cities that had opened up early then had some other -- had some surge issues, reduced or kind of retracted back some of that progress and now is on the way back. So I don't think it's -- when I looked at the numbers with -- after factoring IBM and frankly look, we're taking up some other large tenants like Comcast to Lincoln Financial. Those companies are being much slower to come back than the smaller companies and our average tenant size is less than 10,000 square feet. The smaller companies come back much faster. But when you look at macro level stacks of square footage of occupancy, the big users are big users, so they have a big impact. But look, there is dissonance in every marketplace on public policy and what the public health experts and political leaders and other folks are saying in terms of when it's safe to come back, you're seeing a different level of ramp-up of mass transit agencies that is having an impact on workforce return in these major urban areas. But thanks for raising that point on Austin, because the 8% is really -- it does not reflect the composition of our portfolio down there.

And you wouldn't anticipate that IBM would be more inclined to make permanent changes than your typical tenant, it sounds like.

No, not at all. In fact I think the larger tenants are the ones that are indicating they want to try and get back and even faster. They -- just for a variety of issues they're dealing with within their own employee base are being slower to come back.

Got you. Thank you.

Thank you, Bill.

Thank you. And that does conclude our question-and-answer session for today's conference. I'd now like to turn the call back over to Jerry Sweeney for any closing remarks.

Crystal, thank you. And thank all of you for participating in the call. Again, stay safe, stay well, stay engaged, and we look forward to updating you on our business plan on our year-end call. Thank you very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and you may now disconnect. Everyone have a wonderful day.