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Executives

Gerard Sweeney – President, Chief Executive Officer

Howard Sipzner – Executive Vice President, Chief Financial Officer

Gabe Mainardi – Vice President, Chief Accounting Officer

George Johnstone – Senior Vice President of Operations

Tom Wirth – Executive Vice President, Portfolio Management

Analysts

Brendan Maiorana – Wells Fargo

John Guinee – Stifel Nicolaus

Jordan Sadler – KeyBanc Capital Markets

Jamie Feldman – Bank of America Merrill Lynch

Jed Reagan – Green Street Advisors

George Auerbach – ISI Group

Josh Attie – Citigroup

Gabe Hilmoe – UBS

Brandywine Realty Trust (BDN) Q3 2013 Earnings Conference Call October 24, 2013 9:00 AM ET

Operator

Good morning. My name is Latangie 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 speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you.

I would now like to turn the conference over to Mr. Gerry Sweeney, President and CEO of Brandywine Realty Trust. Please go ahead, sir.

Gerard Sweeney

Latangie, thank you very much and good morning to everyone, and thank you all for participating in our third quarter earnings conference call. On today’s call with me are George Johnstone, our Senior Vice President of Operations; Gabe Mainardi, our Vice President and Chief Accounting Officer; Howard Sipzner, our Executive Vice President and Chief Financial Officer, and Tom Wirth, our Executive Vice President of Portfolio Management and Investments.

Certain information we’ll discuss during this call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurances 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 filed with the SEC.

As is our normal practice, we will start with an overview on our three key business plan components: operations, balance sheet and investments. We are also introducing 2014 guidance, so we’ll also provide some color on key assumptions, and then George, Howard and Tom will discuss our operating, financial and investment activity in more detail.

As I’m sure you’ve noted, we’ve made some changes to the content and format of our supplemental package. Our investment, operations and accounting teams all did a great job in designing what is hopefully a more meaningful and crisper synopsis of our business plan performance. We’ll certainly touch on some of those enhancements during our comments.

The third quarter was an excellent one for the company. We continued improving occupancy and preleasing levels. We were very active on the investment front with the DRA joint venture and the pending Commerce Square transaction, and our liquidity remains quite strong. Operationally all good news reflects continued recovery in our markets. Operating metrics remain strong and our full-year 2013 plan is on target, including our year-end occupancy target of 90% occupied and 92% leased, subject as we disclosed to a 70 basis point adjustment due to both the contribution of our Austin portfolio to our newly formed DRA joint venture, and the assumed acquisition of Commerce Square before the end of the year.

Cash same store growth will be between 4 and 5% and we’ll continue our trend on positive mark-to-market. During the quarter, our retention rate also improved over plan. We experienced positive absorption, positive cash and GAAP metrics on new leases, and a very strong GAAP renewal growth rate. We continue to generate strong NOI growth, reduce our forward rollover exposure, experience good leasing capital cost ability, all of which will continue to drive value appreciation and strengthen our payout ratios.

We are 99% achieved on our leasing goals with a strong flurry of activity expected between now and year-end that will ensure we meet our year-end targets. Many of these statistics are outlined on Pages 4, 5 and 6 in the supplemental package, and George will provide more detail.

In looking at our balance sheet, we are in excellent shape. We have no outstanding balance on our $600 million unsecured line of credit. We had $185.5 million of cash at the end of the quarter. With the closing of the Austin transaction last week, those cash balances were increased by $270 million, so as of yesterday we essentially had about $418 million of cash on hand. Absent further unplanned activity- and Howard will do a roll forward of that – we anticipate our year-end cash balances to be approximately $269 million. These cash balances remain invested in depository accounts with numerous banks and we are extremely liquid and in excellent shape to address our intermediate term maturities.

We continue to evaluate the optimal deployment of this cash. It is clearly available for acquisition activity, funding our development pipeline, and/or for liability management exercises. Our 2013 plan and our 2014 plan, which I’ll touch on in a few moments, do not reflect the impact of any accelerated debt pay downs or any potential acquisition with these cash balances.

As we are experiencing this year and we look ahead to 2014, occupancy gains combined with our capital recycling investment program will be major contributors in achieving our previously stated EBITDA-based leverage targets. So in summary, the balance sheet is in excellent shape, objectives remain on track, and liquidity remains incredibly strong.

Looking at investments, on the investment front we had a fairly busy quarter highlighted by the 50/50 joint venture with DRA Advisors on our wholly-owned Austin, Texas portfolio. We also entered into a 50/50 joint venture with Shooshan Companies to develop, subject to significant pre-leasing, a 20-storey office building in the Ballston submarket of Arlington, Virginia; and we have also agreed, subject to the successful merger between Thomas Properties and Parkway Properties, to acquire the remaining stake in two 41-storey office towers in downtown Philadelphia, 1 and 2 Commerce Square.

Our press release and Page 9 in our SIP provide specifics on several development projects, including 200 Radnor Chester Road, 660 Germantown Pike, evo at Cira South, which is our joint venture with Harrison Street and Campus Crest, and The Parc at Plymouth, our joint venture will Toll Brothers. All projects are progressing on schedule and on budget. Our equity in evo is 75% funded with only $4.3 million remaining, and our equity in Parc is fully funded. Both projects have construction loans in place to cover the remaining costs. Solid progress is also being made in our land management program and we are on track to achieve our overall land monetization goals as we outline in our supplemental package.

So to wrap up our look at this quarter, it was really a very good one. Our 2000 business plan is on track. We remain encouraged by the high level of leasing activity through our portfolio, the continued strengthening of our markets, the depth of our market positions, our positive NOI growth rates, positive same store, positive mark-to-market, and effectively controlling our capital costs.

As we outlined in our press release, our full-year 2013 FFO guidance we adjusted up by a penny at the bottom end of both the core and regular FFO, so we’ve moved the guidance range to $1.37 to $1.41 versus our previous range of $1.36 to $1.41, and on the core to be in a range of $1.38 to $1.42 versus our prior range of $1.37 to $1.42 per share.

But let’s look at 2014. We introduce 2014 FFO guidance with a range of $1.40 to $1.49 per share, achieving at the midpoint a 41.5% FFO payout ratio. Also assuming the midpoint of this range versus first call 2013 consensus creates an FFO growth rate of slightly more than 3.5%. Our 2014 guidance is driven by the following expectations: we expect the economy to continue it’s slow rate of recovery, evidenced by moderate GDP growth, moderate job growth, and on the real estate front a continued road to recovery in our markets. We expect tenant activity levels to remain at current levels in most of our markets. In assessing individual market performance, we see continued strengthening in Philadelphia CBD, our Pennsylvania Crescent markets, and Austin, Texas; and we believe we remain well positioned in Metro DC. While we certainly continue to focus on the pace of recovery in that market and any government dislocation, we do remain optimistic about that market’s long-term growth prospects.

For 2014, we expect year-end occupancy levels to range between 91% and 92%, and expect our leasing to be between 93% and 94% at year-end 2014. As I touched on earlier, the joint venture of our Austin portfolio has a 30 basis point adverse impact on overall occupancy levels and the acquisition of the below par occupied Commerce Square impacts our original targets by 40 basis points, though of course it presents an excellent leasing and growth opportunity for our company.

We are forecasting a retention rate of 62%. We expect strong mark-to-market on 2014 leasing activity range of between 6% and 8%. Same store numbers next year will remain strong with a GAAP range between 3% and 5% and a cash range between 4% and 6%. We do expect capital costs to be well within our running rate of 10% to 15% target.

Another key positive when we look at 2014 is our lease expirations are only 8%, which is the lowest we’ve had in many years. The business plan will continue our path to achieve our interim debt to GAV target of 40% and EBITDA multiple of 6.5 times as we work towards our longer debt to GAV target of mid-30% and below 6 times EBITDA.

If you look at our 2014 business plan, it’s important to recognize that no additional equity or debt financing is incorporated into our overall forecasts. That said, we continually monitor both markets with the objective of fuelling our growth objectives, strengthening our financial platform, taking advantage of market opportunities, and continuing our deleveraging path.

As I touched on earlier, we do anticipate having significant cash balances as we enter 2014. Our plan does not reflect externally deploying this cash. There may well be opportunities to do so in an NAV-accretive and balance sheet strengthening manner. For our 2000 business plan, however, we’ve taken the most conservative route and assumed that the cash is not deployed in any of these manners during the course of the year but rather using this cash to pay off our $244 million of debt maturities, including our $232 million bond maturity in November of 2014.

Looking at investments, 2014 will represent another successful year as we accelerate our strategy of transitioning to urban and town center portfolio concentrations. To refresh your memory, for 2013 we originally projected a $100 million target, then subsequently increased that up to $221 million of net sales activity. In our updated plan, we expect to close this year, including the share of the Austin joint venture, $342 million, and Tom will touch on some more of the acquisition activity in his comments.

During 2014, we will remain very opportunistic and continually evaluating on both the buy and the sell side growth opportunities. The investment strategy component of our business plan is always the hardest to forecast, and we have again in 2014 taken a fairly conservative view. As an underlying predicate of our plan, we are assuming that we will be $150 million net seller of real estate during 2014 with most of those sales modeled for the second half of the year.

That being said, some additional observations – our customers want highly efficient, fully amenitized, multi-modal access properties. As such, our buy, sell and build strategy is based on delivering the highest quality, most efficient, and best managed inventory in all of our markets. As Tom will discuss, we anticipate continued strength in the investment market for sales of suburban office space, so we will remain aggressive in putting properties on the market for price discovery to see if we can further accelerate our portfolio transition. We will remain focused on growth the quality and locational advantages of our portfolio. We certainly expect additional investment activity in Washington, DC, Austin, Texas, and several of our town center markets. As you know, in Washington, DC and now Austin, we have formed effective co-investment vehicles to accelerate our growth and asset concentrations in those markets.

We will be a net seller in New Jersey, Delaware, and Richmond, Virginia, as well as continuing our liquidation efforts in California. We do expect to receive additional value from our land monetization program. In particular, during 2014 several of our projects in the planning and rezoning phase should move closer to an exit or recapitalization that positions us for harvesting profits.

We have several projects in the pre-development stage, and while our 2014 does not currently project any additional development starts, that situation could change as joint venture partnerships are formed and/or additional leasing occurs. In particular, we remain focused on a mixed use project at 20th and Market Streets in Philadelphia. That project will be retail, office, residential with a 219-car garage component. We recently obtained final approvals and it’s commencement is subject to the execution of joint venture documents.

The Stock Exchange Building at 1900 Market Street in Philadelphia is expected to commence a redevelopment program sometime in the first half of ’14. You may recall that we purchased this 456,000 square foot property in December of last year. It’s currently 77% leased with a major tenant rollout expected in 2015. We do anticipate over the next couple years embarking on a $25 million renovation program to incorporate façade, entrance, lobby, and mechanical system upgrades for an overall investment base that we anticipate being around $180 per square foot.

Finally, with the commencement of evo at Chestnut Street, we accelerated the marketing campaign on our Walnut Street Tower. That tower will be about 800,000 square feet, including approximately 575,000 square feet of office with the remaining square footage being a combination of retail and market-rate residential. As you know, we previously executed a 100,000 square foot lease with the University of Pennsylvania. Our very active marketing campaign continues, and if we execute a lease with another major tenant, we could be in a position to start that project sometime during the second half of 2014 for delivery in mid-year 2016.

So the bottom line on our investment programs that we’ve taken a fairly conservative view by forecasting only $150 million of sales volume. As opportunities present themselves during the year, as they invariably will, we are in a great position to execute with minimal debt maturities, significant cash balances, full availability on our line of credit, and a demonstrated ability to effectively recycle capital into higher quality, higher value assets.

To wrap up, our 2014 business plan represents a strong continuation of our drive toward value creation. Significant improving our operating platform, forward leasing momentum along with consistently strong leasing activity gives us confidence that we will continue to generate solid NOI growth, same store performance, and positive mark-to-market.

At this point, George will provide an overview of our third quarter operational performance as well as some color on 2014. He’ll then turn it over to Howard for a review of financial reporting activity, and then Howard will turn it over to Tom for a review of the investment markets.

George Johnstone

Thank you, Gerry. We continue to see strong operational performance throughout the company. Robust levels of activity and a continued high level of conversion by our regional teams have ensured that we meet and/or beat all of our business plan targets for 2013, and sets the stage for continued outperformance in 2014. Even in northern Virginia, where macro uncertainty clouds the landscape, we remain poised to capture market share with a well positioned toll road portfolio.

During the quarter, we continued to see good levels of leasing activity. Traffic through the portfolio averaged 248,000 square feet per week and was up from our second quarter activity. During the quarter, we executed 738,000 square feet of leases, including 421,000 square feet of new and expansion leases along with 317,000 square feet of renewal leases. Lease commencements totaled 832,000 square feet during the quarter, including 448,000 square feet of new and expansion leases along with 385,000 square feet of renewals. This activity increased occupancy over the second quarter by 40 basis points to 88.3%, and we have maintained a 300 basis point spread from forward leasing to end the quarter 91.3% leased.

The required leasing for the balance of 2013 is nearly complete, but more notably is that the leasing achieved to date has yielded improved operating metrics. We have increased our speculative revenue target by $800,000 to $44.7 million and are 99% complete on that increased target.

Additional renewals and expansions have resulted in a 300 basis point increase in retention to 65%. Our GAAP leasing spreads have improved through a combination of lease term, rent bumps, and improving asking rents for the second consecutive quarter. We increased the previous range of 5% to 7% to a new range of 6% to 8%. Cash leasing spreads also improved.

Capital control remains a priority, and we’ve been able to lower our $2.25 to $2.75 per square foot per lease year range to a new range of $2.15 to $2.45. The 100 basis point tightening the top end of our same store NOI growth range is purely due to the Austin JV, which will drop these properties from the same store. These strong operating metrics have ensured that we maintain our 90% occupied and 92% lease targets for the wholly owned portfolio as of September 30.

As Gerry mentioned in his commentary, two major fourth quarter transactions will impact our reported occupancy at year-end. The contribution of our 95% occupied Austin portfolio to the DRA joint venture is 30 basis points dilutive to occupancy. In addition, the acquisition of Commerce Square is 40 basis points dilutive to occupancy. As a result, the reported occupancy for the company at year-end will be 89.3%. We are still projecting a 200 basis point spread between occupied and leased, and as a result we’ll be 91.3% leased at year-end. We’ve depicted the occupancy roll forward and the impact of these investment transactions on Page 5 of the supplemental package.

Now turning to the 2014 business plan. Gerry already addressed the major themes and associated targets, but I’ll take a moment to address occupancy. Similar to 2013, Page 6 of the supplemental package contains a roll forward of our 2014 occupancy. Based on 3.4 million square feet of lease commencements, 928,000 square feet of projected move-outs, and 444,000 square feet of early terminations, we will generate 200 basis points of absorption on the 89.3 occupied company at 12/31/13 to finish 2014 at 91.3% occupied – again, diluted 70 basis points from the previously stated 2014 occupancy target of 92% from the DRA JV and Commerce Square transactions.

To conclude, we’re delighted with our performance during the quarter and the ability to raise several of our 2013 business plan targets. This strong finish provides tremendous momentum as we head into 2014.

At this point, I’ll turn it over to Howard.

Howard Sipzner

Thank you, George, and thank you Gerry as well. For the third quarter of 2013, our core FFO totaled $63.2 million or $0.40 per diluted share and met the $0.40 analyst consensus. Core FFO payout ratio for the quarter was 37.5% on the $0.15 distribution we paid in July 2013. Core FFO provides a better sense of our FFO run rate by eliminating transactional and capital markets activity as noted in our supplemental package on Page 24. Year-to-date core 2013 FFO exceeds NAREIT FFO by $1.6 million while third quarter core and NAREIT FFO differ by $200,000. As Gerry noted, we redesigned our supplemental package this quarter based on your feedback and our desire to make it more user friendly, transparent and complete. We welcome your additional comments and feedback.

With respect to the third quarter results, I’d like to make the following observations. Third quarter FFO is high quality with termination revenue, other income, management fees, interest income, the financing obligation expense, and aggregate JV activity totaling just $7 million gross or $5.7 million net, in line with our overall 2013 expectation. Third quarter NOI margin at 60% remains at or near the highest level for this metric, all the way back to early 2009. We’ve now had nine consecutive positive quarters for the GAAP same store NOI metric and six consecutive positive quarters for the cash metric, and are on track for our 2013 targets.

Third quarter interest expense of $30.3 million was down $100,000 versus the second quarter of 2013 and down $2.3 million versus the third quarter a year ago, reflecting the accumulated beneficial impact of our ongoing capital market and liability management activities. G&A at $6.4 million was in line with expectations, and with $19.3 million of revenue-maintaining capital expenditures in the third quarter, some of which represented concentrated lease commissions for future period, we achieved $0.17 of cash available for distribution per diluted share and 88.2% payout ratio.

On the balance sheet, we ended the quarter at a debt to GAV – to gross asset value – of 40.9%, a net debt to total market capitalization of 49.8%, and a 6.8 times net debt to EBITDA ratio, and all maintain the improvements we realized from the April equity offering. These are among our best levels for these metrics going back over eight years.

We have just $100 million of floating rate debt, no outstanding balance on our $600 million unsecured revolving line of credit, $185.5 million of cash, and no maturities until $232 million that was due November 2014, and that’s now been reduced by $8 million for an October bond repurchase. We expect this maturity is fully covered by current and projected cash balances.

With respect to guidance, as Gerry noted, we’re bumping up both the NAREIT and core definitions by a penny at the bottom end, and with nine-month core FFO of $1.07, we need between a range of $0.31 to $0.35 to hit our guidance range. In addition to the business plan assumptions on Pages 5 and 7 of the supplement, please note the following: gross other income for the company remains unchanged at $20 to $25 million gross or $14 to $19 million net, and that covers a basket of other items such as termination revenue, other income, management revenue less the associated expenses if net, our interest income, JV income, and less the 3141 Fairview financing obligation expense.

G&A should be about $26 million for 2013 with Q4 a bit lower than the run rate as certain expenses were front-loaded. Interest expense can be narrowed to a range of $122 to $123 million for the full year.

We don’t expect any additional issuance under our equity programs and no additional note buyback beyond a total of $9.3 million that was completed in early October. Year-to-date, we have repurchased $21.2 million of unsecured notes in a series of open market transactions, and as noted in the press release, we’re modeling 156.2 million weighted average shares for FFO calculations in 2013.

For CAD for the full year, we are projecting it to be in a range of $0.66 to $0.70, reflecting $24 to $30 million of additional revenue-maintaining capital expenditures in the fourth quarter. As a result, our plan for the full year provides a $10 to $15 million free cash flow cushion after dividends and recurring capital expenditures.

Touching on capital for the balance of the year, we have remaining uses of $217 million picking up as of October 1, $3 million for mortgage amortization, $10 million for the unsecured note repurchase, including its premium cost, $113 million to complete acquisitions, $25 million for an undisclosed transaction, and about $69 million to complete the 1 and 2 Commerce transaction being the most notable, $27 million of revenue-maintaining CAPEX using the midpoint of the earlier range, $38 million of other CAPEX for leasing up previously vacant space and some of our developments that are ongoing, and $26 million of aggregate dividends consisting of about $24 million for common shares and $1.7 million for preferred that were already funded earlier in October.

The sources for the $217 million would be $27 million of cash flow before financings, investments and dividends, but after interest payments which are elevated in the fourth quarter, and $274 million of sales representing $271.5 million of proceeds from the Austin JV transaction that’s closed and $2.6 million from the sale of a small vacant building that is also closed. The total sources of $301 million produce $84 million of excess cash, increasing our $185 million September 30 balance to the year-end balance of $269 million that Gerry mentioned earlier.

Gerry also noted our 2014 FFO per share guidance of $1.40 to $1.49. A few highlights around those numbers – we’re modeling gross other income for 2014 at a higher level - $30 to $35 million, or $25 to $30 million net – for a basket of all these other items, and that number is boosted because with the Austin properties now in a JV, we’ll realize our income through that line item on the income statement and not through operations. 2014 G&A should come in at $25 to $26 million and will be somewhat front-loaded as certain expenses occur in the first quarter and first half of the year. Interest expense will now be in a range of $130 to $134 million, and that’s elevated from 2013 as well and covers the expected assumption of the 1 and 2 Commerce Square mortgage loans that we’ll be assuming when we close that transaction at the end of the year. We’re modeling $150 million of sales activity at an 8.5% cap rate, and with the back or year-end loading that Gerry mentioned, the lost income should be in the $3 to $4 million range for the full year.

We’re expecting no issuance under our equity program and no note buyback or capital markets activity at this point in time. For 2014, we’re modeling 160.4 million weighted average shares for the full year. Our FFO payout ratio is projected at 41.5% at the midpoint. With respect to CAD for 2014, we’re projecting it to be in a range of $0.65 to $0.75 per diluted share, reflecting $75 to $85 million of additional revenue-maintaining capital expenditures. As such, the plan will provide $15 to $20 million of free cash flow after dividends and recurring CAPEX.

For 2014, our total capital uses come out at $498 million today, and they represent the following: $13 million for mortgage amortization, $224 million for the remaining balance on the 2014 note, $80 million of revenue-maintaining capital expenditures reflecting the midpoint of the $75 to $80 million range, $78 million of other capital expenditures. We’ve modeled $70 million for all other CAPEX of leasing up either currently vacant or previously vacant or newly created vacant space all goes in that basket, and various CAPEX or investment items for some of our smaller projects. We have $103 million of aggregate dividend activity consisting of about $96 million for common shares and $7 million for our preferred shares.

The sources for the $498 million are as follows: $185 million of cash flow for the full year before financings, investments, dividends, and after interest payments; $6 million from the expected repayment of a note receivable we are currently holding; $150 million of sales activity; and to round it out, we’ll use $157 million from available cash, reducing our projected $269 million year-end 2013 balance to $112 million at year-end 2014.

That covers the guidance and the capital plan. I’ll make one last note on our accounts receivables – in that activity, credit activity and write-off activity for the third quarter of 2013 was typical, and we’re holding $16.9 million of total reserves at September 30.

With that, I’ll turn it over to Tom for some investment market comments.

Tom Wirth

Thank you, Howard. The third quarter was an active one and we already exceeded our 2013 goals. Including the Austin joint venture, we’ve already completed $342 million of dispositions, exceeding our $221 million disposition target by $121 million. That includes $175 million of non-core suburban properties at a blended cash rate of 7.8%.

Including 1 and 2 Commerce, we have bought out two joint venture partners, effectively acquiring three properties within our core markets valued at approximately $356 million. Our joint venture investment in a $194 million LEED Gold future office project in Arlington, Virginia is an efficient deployment of capital inside the Beltway. This 2013 investment activity supports our strategy to reduce our exposure to non-core suburban markets and strengthen our position in our core markets.

Looking forward to 2014, we are confident that we will continue to meet and possibly exceed our disposition targets and our investment objectives. We will remain an active seller, executing on our plan to reduce our exposure to non-core suburban office, and continue to recycle that capital into urban town center locations. Our pipeline is deep, and we will continue to execute on opportunistic acquisitions like 1900 Market and 1 and 2 Commerce, and align ourselves with high quality local operators and developers, such as the Shooshan Company who own well located assets and land in our core target markets.

During the third quarter, we entered into three transactions to further that strategy. 1 and 2 Commerce are two trophy-quality towers totaling 1.9 million square feet, located in Philadelphia CBD. Our 25% preferred ownership interest gave us the ability to quickly underwrite and acquire these properties. The transaction, which is subject to merger between Parkway and Thomas, values the properties at $331.8 million or $175 a foot. The transaction at 1 and 2 Commerce will increase our NOI contribution from the Philadelphia CBD from 24.6% to 30.4%. 1 and 2 Commerce are being acquired subject to two mortgages totaling $238 million with a weighted average face interest rate of 4.76%, which is then subject to fair market value adjustments.

The Austin joint venture with DRA closed this week. We closed on the Austin joint venture with DRA. This joint venture accomplished two goals: allowing us to take advantage of the current market conditions in the Austin market to harvest value from the current portfolio, and align ourselves with an existing partner, DRA Advisors, who shares our desire to grow the portfolio in that market. At closing, we sold 50% in our portfolio to DRA. We were able to secure $230 million of financing through three separate five-year mortgages, and Brandywine has received initial cash proceeds of $271.5 million.

We still consider Austin a core market, and while the venture initially reduced our exposure, we have established a $200 million go-forward equity platform with DRA to acquire additional office properties to further grow our market presence.

In Arlington, Virginia, we continue to execute on our strategy to increase our investments inside the Beltway by entering into a joint venture. We acquired a 50% interest in a new development project to construct a 426,900 square foot LEED Gold office building in the Ballston submarket of Arlington, Virginia. The project is ideally located within that submarket, and our partner, the Shooshan Company, is an experienced local operator who has already successfully developed 1.8 million square feet in that submarket.

We have shared control and joint decision-making responsibilities. We anticipate commencing the project upon achieving a significant level of preleasing and then obtaining a construction loan to help finance the project. Our equity investment is expected to total approximately $36 million and we believe the project will cost approximately $460 per square foot, which is well below the pricing of some recent trades in that submarket.

Looking at the investment market right now, we are seeing continued appetite for well-located assets in our core markets. We see new buyers entering into the Austin market and continue to see a large and diverse investor pool for assets inside the Beltway. We continue to see interest in many of our suburban markets with sales momentum and pricing remaining steady.

Our underwriting reflects our deep knowledge of the market realities; however, we continue to believe in the long-term fundamentals of our targeted markets and our plan remains to take advantage of those investment opportunities. We have very specific targeted investment areas and we have been disciplined in our search to increase our exposure to these targeted markets.

A continuing driver in the investment market is the access to secured debt. As a result of our joint ventures, we continue to access the secured debt markets and continue to receive attractive financing terms. We have seen continued competition in pricing mainly from the banks and some life insurance companies. For the Austin joint venture, we have fixed $90 million of our secured mortgages at approximately 3.3%. For our Chestnut Street and Plymouth Meeting projects, we have secured $154 million of construction financing at approximately 2% over LIBOR.

With that, I will turn it back over to Gerry.

Gerard Sweeney

Great, Tom. Thank you. And Howard, thank you, and George, to you as well.

We’ve gone a little bit long, so to wrap up our prepared remarks, the third quarter was on plan. We remain confident with the full-year execution of our 2013 business objectives, but just as importantly looking ahead at 2014, you can expect continued strong portfolio performance, solid balance sheet improvement, and an active evaluation of a full range of investment choices that we’ll have as our markets continue to recover.

With that, we’d be delighted to open up the floor for questions, and we ask that in the interests of time, you limit yourself to one question and a follow-up. Thank you.

Question and Answer Session

Operator

[Operator instructions]

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

Brendan Maiorana – Wells Fargo

Thanks, good morning. Gerry, if I look at your occupancy, it looks like there were a couple of changes to the operating pool, which you kind of highlighted the 70 basis point negative impact from Austin and the Commerce. It looked like maybe you guys are sold or are selling a little bit more vacancy than was the prior plan, so that is additive to the occupancy target. The broader question is you’ve got what appears to be a pretty aggressive and positive view for your 2014 outlook, and if I think about the core occupancy target for ’13, it looks like you’re coming in a little bit light of the original expectations. And then if I think about last year, it looked like you came in a little bit light and revised that down again, so what gives you the confidence that you can get that 200 basis points next year when it seems like maybe the past couple years it hasn’t worked out where the original expectations were at this time of year?

Gerard Sweeney

Yes, good question. We’ll take in two parts. George, why don’t you provide some of the background behind some of Brendan’s questions?

George Johnstone

Yes, absolutely. When we laid out our previous roll forward, I think Brendan, even as you kind of tabled it in your pre-call commentary, included in that 1.948 million of new leasing, we had made the assumption that during 2013, we would lease both the 39,000 square foot building that is held for sale at 9/30, and we also had assumed that we would lease the 50,000 square foot building that we’re still projecting to sell in the fourth quarter. So the drop-off in new leasing activity is the result of the fact that we are in fact selling those two assets.

So I think the roll forward that we now have contained on Page 5 of the supplemental demonstrates that we are going to finish at 90%, and those two building sales started out as lease conversations, shifted to sale conversations, and for all the right reasons we sold those two buildings.

The third one of note was the kind of delay in placing 660 PMEC into service. That redevelopment project is currently 80%-plus leased, but we’ve leased that building to date to a 6-per-1,000 square foot parking ratio, and in order to lease the rest of the building, we’ll be acquiring an adjacent land parcel next door to the building for an expansion of the parking lot, and that’s kind of shifted that asset into an first quarter ’14 placed in service event.

So I think we do feel that the pipeline that we have, the negotiations that are underway, we do feel confident that we’ll hit that 90% on the 125,000 square feet of new leasing left to be done in ’13, and as we look at ’14, again I think we feel very good about where the vacancy is located, the fact that we are 55% done on that spec revenue plan for next year where we were only 33% done on spec revenue this time last year. The forward leasing that’s been executed, we feel good about the ’14 plan as constructed.

Brendan Maiorana – Wells Fargo

That’s helpful color. Thanks, George. Just to follow up, the known move-outs next year, I think there is make Lockheed and then Travelers down in Richmond. Are there any other big ones that are known to come out of the pool?

George Johnstone

Yes, we’ve got the two obviously that you noted. We’ve got a contractual downsizing by Drinker at One Logan that we previously announced, and then we’ve got 50,000 square feet coming back from KMPG and Tyson’s. So all kind of known, even as we sat here a quarter ago, but have certainly baked those into the plan going forward.

I can tell you that with Lockheed in Maryland, we have continued to see an active pipeline on those two buildings. We’ve already signed a 27,000 square foot tenant in Building 2, and we’ve got prospects looking at the balance of Building 2 and the fully occupied Lockheed building in Building 1, that range from 15,000 square feet all the way up to 90,000 square feet, and we actively continue to pursue that pipeline.

Gerard Sweeney

Thanks, George. Brendan, just to wrap that up, as we look at it, it’s not an exact science, as we all know in this business. We can’t always necessary dictate exactly what the timing of lease executions are, but we really do go through a very ground-up review with all of our senior leasing agents, our managing directors, George running the corporate operations group, and take a look at our forward roll-over percentage where that is the current pipeline, leasing activity, traffic through the portfolio on a weekly basis, and really do a fairly good risk assessment of what we think the activity will be on both a quarterly and annual basis. I think we stated in our comments we really do believe that we have a high degree of confidence in the year-end ’13 and ’14 goals, and we’re working towards those objectives.

Brendan Maiorana – Wells Fargo

Okay, that’s great. Thanks for the color.

Operator

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

John Guinee – Stifel Nicolaus

Okay. Well with this new supplemental and such a thorough conference call, I guess you don’t need to have a call until this time next year?

Gerard Sweeney

Well, we try and provide good information, John, so we know you always have good, thoughtful questions, though.

John Guinee – Stifel Nicolaus

All right. So here is the—it looks to us as if you’re going to be over 30% in Center City, Philadelphia. You’re going to be close to 20% in Radnor, a little over 15% in the Virginia portion of your DC portfolio, so that’s kind of 65%. Can you kind of walk through primarily Center City, Philadelphia – what’s the bull case? You’re buying at under $200 a foot, replacement cost is clearly $400 a foot. You’ve got a lot of stuff in redevelopment, but what’s the bull case on actually getting some upward movement in rental rates in that particular market?

Gerard Sweeney

Well, I think the bull case is what’s been playing out over the last couple of years. There’s actually been upward movement of rental rates at the higher end of the inventory in the city and in University City. I mean, what you see are asset concentrations is in the high class A, trophy class inventories as we say here in the city, and a vacancy rate at that level is in the mid-single digits that’s further evidenced by a vacancy rate at the same level in University City. So certainly, we believe that acquiring properties at the investment basis that we have provides us a very significant competitive advantage in bringing tenants both into the city, which we’ve done in a number of cases, accommodating tenant expansion requirements, and having tenants frankly move up from lower quality space as they seek more highly amenitized, more efficient floor plates. I mean, we spend a lot of time in what we look at developing or acquiring in the city through the lens of floor plate efficiencies, elevator service times, restroom upgrades, et cetera, so we’re presenting a very solid and attractive economic package to our tenants.

But I think the bull case is what you’re seeing playing out over the last couple of years. We’ve been able to move up our mark-to-market, get positive same store growth coming out of that marketplace, again at the higher end of the inventory, and we certainly think that as Philadelphia continues to be the positive recipient of in-migration of residents, starts to continue to reassess it’s tax structure as they did through the AVI initiative last year, expands its culture base and makes some infrastructure investments, you really are in a case where you can become pretty excited about the prospects of Philadelphia over the next dozen years. All the right pieces are there. You’re seeing continued expansion of major institutions in the city, continued NIH funding into University City submarket, and truly have all the pieces, I think, that present a fairly positive growth climate for the city for the foreseeable future.

Again, we are hedging our bets on that by making sure that what we buy, we buy at the right price. When we buy it, we make sure we assess it, we underwrite it, we understand exactly what we need to invest in it to deliver a very good return, and that those properties are all at the very high end of the inventory set or have the capability, like the Stock Exchange Building, of being refurbished and redeveloped into something that’s fairly unique in the market that should drive the rental rates there significantly as well.

John Guinee – Stifel Nicolaus

Great, thank you.

Operator

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

Jordan Sadler – KeyBanc Capital Markets

Thanks, good morning. Looking to just get some color on the future investment opportunities. I think you’ve touched on some of them. I’m interested in the joint venture with Shooshan and what you see there, but also prospective new investment. Does it look like incremental dollars will be spent on development from here, and maybe you could talk about what’s sort of front burner as it relates to that.

Gerard Sweeney

Great question, and Tom and I can tag-team it. The joint venture with the Shooshan Company in DC, I think from our standpoint was a very effective way to join forces with one of the preeminent local development companies who has a long track record of developing high quality office mixed use space and creating a very good neighborhood. This was the last remaining development parcel. We think it gave us an opportunity to affiliate with a high integrity company, an extraordinarily strong local market franchise with great reputation for integrity and execution, and actually the buying in in that very strong submarket at construction cost or replacement cost and a projected pro forma yield that we think is significantly above an acquisition yield that we’d be paying for an older office product. So again, if you go back to our comments on the real focus is on efficiency, multi-modal access, fully amenitized programs, that project in and of itself fit all that criteria, so we thought it was a very attractive entry point, Jordan, into that market at a very good investment base and pro forma return going forward.

We will certainly collaborate with John Shooshan and his team on the appropriate timing to start that, based upon pre-leasing, so it puts us in a very strong position in terms of share control and making the right pragmatic business decisions.

Look, as we look at the office market, there is clearly a transition underway. That transition is driven by customer appetites for office space that’s a bit different than the appetites were 20 years ago. As a result, a lot of our sales activity has been ferreting out of the portfolio some assets that we thought were from a functional efficiency or locational standpoint, not really core to our growth objectives going forward; and on the other end of that spectrum, certainly as we look at some development activities, of which we have some underway and I alluded to a few other ones, we think that’s also a very viable way for us to improve our competitive position as the market continues to recover.

So we have been seeing, we do expect to see more opportunities for build to suits from tenants who are looking for very state-of-the-art, high ceiling, column-free, fully amenitized buildings that have multi-modal access. So certainly when we look at our investment plan and our buy, sell or build scenarios, we would expect that development could be a larger part of our program going forward.

Tom, do you have any other observations on that?

Tom Wirth

Jordan, just on any acquisition that we do look at, although we’re going to be a net seller, we still see a lot of activity in Austin, which is a key market for us where we have a platform to buy. We see a lot of activity in DC inside the Beltway, so we’ll continue to look at there. There also we have a platform with Allstate to buy, so we continue to see activity.

Pricing has been strong, so we’ll be looking at a lot of things and hopefully taking advantage of some disconnects on a few items.

Jordan Sadler – KeyBanc Capital Markets

What are the targeted incremental returns on development versus the buy?

Gerard Sweeney

What I think we’ve seen thus far, both with the deals we have underway—I mean, we’re looking at spreads of close to 200 basis points over acquisition yields, which seems to be a pretty attractive entry point, certainly as we’ve evaluated things down in the DC marketplace.

Jordan Sadler – KeyBanc Capital Markets

Okay. So does that put Shooshan in the 8 range?

Gerard Sweeney

In that general range, yes.

Jordan Sadler – KeyBanc Capital Markets

Okay, thank you.

Operator

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

Jamie Feldman – Bank of America Merrill Lynch

Great, thank you and good morning. I just want to think about—or hopefully you can help us think about potential upside to your guidance. So when you think about your spec leasing activity, can you talk about maybe some of the largest leases that you’re working on and what the potential upside might be, and your prospects for them?

George Johnstone

Yes, I think clearly the largest upside would probably be within the Maryland portfolio that I alluded to before. We’re getting—we’ve already gotten the 78,000 square feet back from Lockheed in Research Office 2 and have backfilled about a third of that, and then the other 137,000 square feet we get back at the end of January. So we’ve kind of got some assumed down time and then obviously an assumed construction time that really make the re-let of those buildings more of a late 2014 event. I think to the extent we can get something signed sooner than that, that would be some upside.

I think we’ve got some other pockets of space kind of within the Dulles Corner portfolio that ideally offer some upside, and then probably lastly and probably the one we feel the best about would be some of the full floor opportunities we have in CBD Philadelphia, both One and Two Logan Square.

Jamie Feldman – Bank of America Merrill Lynch

Okay, great. Thank you.

Operator

Your next question comes from the line of Michael Knott with Green Street Advisors.

Jed Reagan – Green Street Advisors

Morning guys, it’s Jed Reagan here with Michael. Can you just talk about how leasing activity has fared since the end of the quarter, and specifically are you seeing any impact on the ground yet from the government shutdown and debt ceiling drama, particularly in the DC market?

George Johnstone

I think activity has remained pretty consistent in the last 24 days. I think the government shutdown didn’t necessarily have an impact on leasing activity, but it has an impact—tours were still happening, but I think it would have a little bit of a slowdown on decision timelines once someone has maybe narrowed their focus to a particular building or buildings. Some of the job loss that has resulted from sequestration is now kind of coming to roost, and we’re seeing that in some of the defense contracting-type companies, but we’re starting to see a little bit of a pickup in some of the private sector jobs.

So our activity continues to be good down in our northern Virginia submarket, and again the mission of the team is really to make every deal, so have an effective tour, generate the appropriate proposal and cut to the chase on the lease negotiation.

Jed Reagan – Green Street Advisors

Okay, that’s helpful. Can you offer any insight on the timing of the ’14 occupancy guidance? Do you expect improvements to be weighted to any particular part of the year?

George Johnstone

I think our expectation is that it will be somewhat flat during the first half of the year with a pickup in the third and fourth quarter.

Jed Reagan – Green Street Advisors

Okay, great. And just one follow-up if I may – you mentioned the Lockheed space in Maryland. Any updates on leasing progress at the Travelers space in Richmond?

George Johnstone

Yes, we’ve got two 40,000 square foot prospects that we are currently entertaining. If you recall, that’s an 85,000 square foot give-back at the end of January. And then we’ve got some smaller tenants to kind of fill in the balance, so we’re trying to get the bigger ones done first, but we’ve got kind of a pipeline of smaller deals that we could multi-tenant some of those 30,000 square foot floor plates.

Jed Reagan – Green Street Advisors

Okay, great. Thanks so much.

Operator

Your next question comes from the line of George Auerbach with ISI Group.

George Auerbach – ISI Group

Great, thanks guys. Just wanted to maybe drill down to the 2014 guidance on the DC spec revenue. I saw that it was down about 50% from ’14 versus ’13. I was just a bit surprised, given how much of lease-up opportunity you have in that market, why the spec revenue might be lower next year than this year.

George Johnstone

Well, I think part of it is the timing of when some of that occupancy is going to occur, but remember that we did take that DC portfolio from 80% occupied at the end of ’12 to 86% occupied come the end of ’13, so 600 basis points of pickup. We do have some known rollover there that we expect tenants to vacate, and we’ve got probably close to 150,000 square feet of early terminations in ’14, most of which are coming from that DC region. So between early terminations and known move-outs and then an associated down time and construction period to re-let the space, that’s really the driver.

George Auerbach – ISI Group

Okay, thanks. Gerry, just more broadly, I know in ’12 and ’13 the focus was on filling space and gaining occupancy. Any change to what you’re telling the guys in the field in terms of pushing rate versus filling space?

Gerard Sweeney

Again George, it’s very much a market driven dynamic. I mean, we have been, as George and I go through the operating discussions on a regular basis with the team, there are certainly some markets that filled up – the CBD, what we experienced in Austin, Texas, certainly the Plymouth Meeting, Radnor, (indiscernible) markets, to some degree now even King of Prussia, Pennsylvania, we really are focusing on moving up rents, controlling capital costs, lengthening lease terms. One of the things that we always look at is lease terms. You’ll see in our 2014 business plan, we’ve been able to move our lease terms up a little bit more. So yes, there is very much a number of markets in our portfolio where we’ve really gone back on the offensive in terms of pushing rents, pushing annual rent bumps. I mean, a few years ago we were lucky to get half a percentage point of 1% rent bumps. Now we’re getting 2% to 3%-plus annual rent bumps, so very much the same.

Certainly in DC, as George touched on, the direction to our team is to mitigate forward risk and find the best tenants we can, cut the best economic deal presentable in the marketplace, structure those leases to create a lot of future NOI cash growth, and cut those deals. So there, we’re still playing very much of a hand-to-hand combat, but that does modulate by submarket.

George Auerbach – ISI Group

Great, thank you.

Operator

Your next question comes from Josh Attie with Citi.

Josh Attie – Citigroup

Thanks, good morning. Can you clarify what’s factored into the year-end occupancy target for the Travelers and Lockheed spaces? Does it assume a full re-leasing?

George Johnstone

No. That would be in the ’14 plan; but yes, we’ve got about half of the Travelers space incorporated and I think a little bit less than half of—probably about a third of the combined Lockheed space in the plan.

Josh Attie – Citigroup

As being occupied at year-end?

George Johnstone

Correct.

Josh Attie – Citigroup

But isn’t one of the Lockheed buildings a full building?

George Johnstone

It is.

Josh Attie – Citigroup

So do you think it’s—I mean, could you lease out part of the space or is it—you’re going to multi-tenant the building?

Gerard Sweeney

Oh yes, they’re multi-tenantable buildings. In fact, we’ve commenced renovation plans for both of those projects. The two buildings where we have the vacancy occurring are very well located on the 270 corridor, very efficient buildings that were designed for multi-tenant occupancy. We’ve been fortunate that they have not been on the market for a long time because they’ve been leased. With the Lockheed move-out, it actually presented a very good opportunity for us to upgrade some of that physical plant, so some of that work is underway now. A good piece of that will be done by the end of 2013. We’ll roll over with some additional work in 2014, but our marketing team is showing renderings, new floor plans, new restrooms, new lobby areas as part of their marketing campaign.

So what we like about those buildings is that they have great visibility, great parking, fundamentally very sound physical plants, well done, and also present the opportunity for us to refurbish them a bit to bring them up to kind of 2014 standards.

Josh Attie – Citigroup

Okay. Thanks. For Arlington for the development project, Arlington seems to be a pretty weak market. How serious is the current pipeline of tenants? What type of tenants are you talking to, and also what level of gross rents do you need to get the 8.5% yield you were talking about?

Gerard Sweeney

Well, the market certainly has shown some weakness with some known move-outs. That’s one of the reasons why I think we worked very closely with Shooshan to structure this as a deal that would commence construction upon a significant pre-lease. We were targeting rents kind of in the 50-plus range that will deliver those returns, which are well in line with market, and the range of tenants there range from foundations to law firms to other government agencies, and they really range in size from 20 to 200,000 square feet.

But that pipeline continues to be evaluated. We see people moving on to the pipeline. Certainly when they make decisions and what they are prepared to pay will be key evaluation points in whether we and Shooshan decide we want to go vertical.

Josh Attie – Citigroup

Okay, thanks. Just one last one for Howard – you mentioned $25 million of undisclosed transaction costs in the fourth quarter. Should we think of that as additional note purchases? Should we think of that as acquisition activity?

Gerard Sweeney

I’m sorry, Howard – I’ll take it. It’s an acquisition we have targeted that we just can’t disclose at this point. It’s in our core markets. It’s not financial; it’s asset-based. We’re not in a position to really disclose what that is at this point.

Josh Attie – Citigroup

And the $25 million is the gross price?

Gerard Sweeney

The purchase price, correct.

Josh Attie – Citigroup

Okay, thank you very much.

Operator

Your next question comes from the line of David Daniels with (indiscernible).

David Daniels

Hey, good morning. You spoke about the bull play in the Philly market. I’d love to get some more color, if you could try and quantify what kind of rent bumps you’re looking to achieve over the next five-year period, including how you feel about that bull play matures over a longer term period than we spoke about previously.

George Johnstone

Yes, I think in that market, that’s one where we have been able to try to push both asking rents and rent bumps. We’re targeting right now kind of between 2.5 and 3% bumps on all of our CBD leases.

David Daniels

And in terms of the asset values maturing?

Gerard Sweeney

I’m sorry – you’re cutting out. We’re having a hard time hearing you.

David Daniel

Sorry. You spoke about you’re purchasing assets at a sub-$200 per square foot where the replacement value is clearly above $400. How do you feel that that matures and what time period do you feel that you could be looking at?

Gerard Sweeney

Okay, I think we get it. Certainly growing rents is a key driver in driving asset value, so I think when we look back over the last few years with where rents were, with where they are today, I think we feel as though we’re on a very good path. If the numbers that George touched on continue to play out, I think you’ll see a corresponding increase in both cash flow, NOI and residual asset pricing, so we certainly would expect to see that play out over the next few years.

David Daniels

Thank you.

Operator

You have a follow-up question from the line of Brendan Maiorana with Wells Fargo.

Brendan Maiorana – Wells Fargo

Thanks. Just a couple of quick follow-ups. Tom, I think I heard you say that the Shooshan JV in Arlington cost was $460 a square foot. I thought it was kind of in the $490 to $500 square foot range, so can you comment on what the all-in expected costs of Brandywine are likely to be at the end?

Tom Wirth

Sure. I think the 460 is our thought on all-in with the land costs for that property, which will include our equity as well as theirs.

Brendan Maiorana – Wells Fargo

Okay, great. Thanks. And then Gerry, can you comment at all about what may or may not happen with Walnut Street Tower? I know you mentioned it briefly in your prepared remarks, but it sounds like there’s been some press chatter about a large tenant that’s out there that you may be speaking with, and if that hits, would you be in a position to start construction on that?

Gerard Sweeney

Well look, I really for obvious reasons have no comment on where we are. We’re actively marketing it. There are a couple of larger tenants in the market. We continue negotiations. But as I indicated, to the extent that we are able to sign another anchor tenant on economic terms that make sense, then that would certainly be a catalyst to starting that tower.

Brendan Maiorana – Wells Fargo

Would that kind of be in that sort of 50 to 60—if you were 50% to 60% pre-let, that would be enough to go vertical?

Gerard Sweeney

We would look at a minimum of 50%.

Brendan Maiorana – Wells Fargo

Okay, great. Thanks.

Operator

Our final question comes from the line of Gabe Hilmoe with UBS.

Gabe Hilmoe - UBS

Hi, thanks. I jumped on a little bit late. Just on Austin and following the closing of the JV, can you talk a little bit about the competition in that market for stabilized assets and where you’re seeing the opportunity within submarkets in terms of development versus acquisitions?

Gerard Sweeney

Sure, and Tom and I will tackle it. One of the drivers behind our Austin joint venture was that that market was getting a lot of additional investor appetite from both domestic advisors, some global investors, as well as other real estate companies. Rents have risen fairly significantly in a couple of the submarkets in that town and that brought with it the prospect of some additional construction. So we’re certainly seeing construction that was announced in downtown Austin. There is a number of projects that are rumored or will be starting in both the southwest and northwest quadrants of Austin.

Now look – the demand drivers there seem certainly sufficient to fully occupy those projects on economically reasonable terms, but we did see that as a moment in time when we were being priced out of the acquisition market and saw the prospect for new construction, that it was a wise opportunity for us to joint venture with another very smart investor who we have a long relationship with, DRA, to kind of reconstitute our wholly owned portfolio and get a capital commitment from them, as well as from us, to try and grow the portfolio over the next several years.

Austin resonates very strongly on a lot of real estate metrics – diversified economy, quality of life, low taxes, and I think from that standpoint we would expect to continue to see more companies target Austin as a receiver of investment dollars.

Gabe Hilmoe – UBS

Okay, thank you.

Operator

At this time there are no further questions. Gentlemen, do you have any closing remarks?

Gerard Sweeney

Only to thank everyone for their patience during our remarks, which incorporated both a ’13 and a ’14 look, and to thank you for your time and effort. We look forward to updating you on our year-end call. Thank you very much.

Operator

Thank you for participating in today’s conference call. You may now disconnect your lines and have a great day.

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