Jerry Sweeney - President and CEO Thomas Wirth - EVP and CFO George Johnstone - EVP of Operations Dan Palazzo - VP and CAO

Jamie Feldman - Bank of America/Merrill Lynch Manny Korchman - Citi John Guinee - Stifel Craig Mailman - KeyBanc Capital Markets Michael Lewis - SunTrust Daniel Ismail - Green Street Advisors Mitchell Germain - JMP Securities Manny Korchman - Citi Bill Crow - Raymond James

Shelby, thank you very much. Good morning everyone and thank you all for participating in our third quarter 2018 earnings call.

On today's call - today with me 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 filed with the SEC.

So we had a very productive, fairly now going into the fourth quarter, and as part of our third quarter earnings release and 2019 earnings guidance, we also announced two significant transactions that changed our company's growth trajectory. By way of background, over the last several years we've been on a track to improve our growth profile, control capital cost, create value driving long-term mixed-use development opportunities, and effectively manage our balance sheet.

Now the consequence, we substantially limited revenue contributions from slow growth markets like New Jersey, Richmond, the fringes of the Pennsylvania Suburbs and all Toll Road properties in Northern Virginia. In the process we reduced our same-store properties, improved our capital ratios, grown cash flow and strengthened targets submarket positioning.

That process has resulted in about a 24% increase in our same-store net effective rents over the last several years. We were also as part of our 2019 business plan anticipated about a 5% growth in net effective rents over 2018 levels.

So we believe that the announced Northern Virginia, Austin revenue swap builds on that track record and accomplishes the following key objectives. First, it increases our revenue contribution from Austin on a wholly-owned base from 5% to 18% of overall revenues, it transfers revenues from a somewhat with an average 2018 minus 3% cash, plus 3% GAAP mark-to-market and moves that into Austin where the mark-to-market on a cash and GAAP basis have been 10% and 16% respectively in 2018.

It also moves our tenant improvement in commission dollars from a market with a close to 20% average capital ratio to Austin where we have an average 2018 capital metric of 12%. It does reduce our DC mid-operations to 8% of total company revenues.

And I think from our perspective, the Toll Road quarter has good long-term growth potential, hence our desire to stay engaged but our wholly owned focus will really be on our Tysons corner portfolio, the development parcels, and a couple of redevelopment candidates while one of which is in Herndon. It's a market though that's characterized by slower than Austin growth rates and higher concession costs.

So our retained 15% stake in the Nova assets results in a much better return on our invested capital by creating a different capital stake in a promote structure. By way of example, through this transaction we will be increasing our return on invested capital from the low single digits to the high double digits over the next several years and over 10% including our fee revenue.

We have found that assets in these slower growth markets can deliver the best value through a non-core capital structure as evidenced by the 25% plus return we’re currently realizing on our investment of $25 million in the NAV portfolio. We did on Pages 5 and 6 of the supplemental package framed out more details of each of these transactions and we’re really are pleased to have delivered such a great rate of return to our shareholders and DRA, and we thank DRA for their great partnership.

And we're also delighted to launch our partnership with Rockpoint where our 15% stake will be our retained interests with a promote structure and we'll provide property level services. We have signaled all of you that proceeds from the asset sales will be deployed to create earnings momentum and maintain balance sheet neutrality, and we believe that the structure of these transactions are consistent with that approach.

So with that important revenue shift as a key backdrop, we're also announcing 2019 earnings, key highlights, FFO growth which is adjusted for the accounting policy changes that when some analysts estimates and Tom will talk about the FFO growth rate of 5% at the midpoint. Our CAD growth rate again adjusting for the accounting policy changes of about 2% which does interestingly bring our two year average annual growth rate on CAD to the top end of our 2018 to 2021 business plan range as outlined on Page 8 of the sup.

Cash sales to NOI growth will be a midpoint of 2% which does not include the performance of any of these DRA assets that are going out wholly-owned. Stake revenue of $31 million is already 65% achieved which is an improvement over the last year's levels at this time.

Occupancy will be between 94% and 95% by year-end with leasing levels at 100 basis points above that at 95% to 96%. We do anticipate a below average retention of 57% primarily driven by our KPMG at this state of move-out.

Our cash mark-to-market will be between 2% and 4%, GAAP mark-to-market will remain in a high single digits between 8% and 10%, and capital will run about 14% of revenues up slightly from our 12% in 2018 but 2018 was at that level primarily due to a large no capital renewal. Debt to EBITDA which Tom will touch on the range between 6.0 to 6.3 really depending upon the level of and the financing plans for development starts that we anticipate in 2019.

So the up-charge in 2019 forecast grows FFO, grows CAD, keeps the balance sheet strong, our capital ratios remain on track with strong mark-to-market. The 2% same-store midpoint is at the bottom of our long-term range, so we'll remain focused on trying to improve that during the course of the year.

We also do expect at least one development story in 2019. So with that 2019 overview, just a couple of moments on our 2018 business plan which is totally on track and all of our metrics with the exception of those requiring adjustment due to the DRA and Rockpoint transactions are on track.

Some specific data points. We ended the quarter at 93% occupied, and 95% leased.

Mark-to-market on a GAAP basis very solid 11.4% and 14.4% for the year both in access of our target range. And our mark-to-market on a cash basis was also above the upper end of our range.

Retention 75% ahead of our targeted 67% range for the year and as we anticipated and we’ve talked about on a couple of previous calls, our same-store numbers for the quarter were almost 14% on a cash basis and 3.4% on a GAAP basis and that did include the addition of some of those other assets coming in to the same-store for this quarter. Leasing capital remains well within our targeted range of 10% to 15% with a 12% hosting for the quarter.

As a result of the transactions that we anticipate closing in the fourth quarter and given the continued progress in our 2018 business plan, we did narrow our 2018 FFO guidance to a range of 1.36 to 1.40 per share. Couple of moments on development, the land bank remains within our targeted 3% to 4% of assets.

Development capacity remains about 15 million square feet with about 50% of that square footage being targeted for office, life science and related spaces with the balance being mixed use. Our Broadmoor complex in Austin and Schuylkill Yards in Philadelphia provide an outstanding opportunity for us to grow our earnings base significantly by effectively executing these multiyear master plan developments obviously as warranted by real estate and capital market conditions.

We did outline our development activities on Pages 15 to 17 of the supplemental package. Pipeline right now stands at 832,000 square feet with a total cost of $271 million of which $105 million remains unfunded.

Bottom line we’re 93% leased with an average yield a cash yield on cost of 9.2%. Couple of projects specifics, 500 North Gulph Road has turned out to be an outstanding renovation success story.

Project will be completed and stabilized by the end of this year. Cost is slightly less than $30 million will generate a projected 9.3% initial return on cost and will generate an average return just shy of 13% on a cash basis over the tenants lease term.

At Garza, which is our mixed use development in Southwest Austin, we have generated almost $31 million of land sale proceeds and recognized a $2.8 million land gain. We are underway on our 250,000 square foot build to suite for FHI.

That building will be delivered by year-end 2019 and we do anticipate earning development fees approximating $2.6 million over the next six quarters. In addition at Garza we have another land site that can do 150,000 square foot office building.

We are heavily into the design development process and based on market activity plan to be in a position to start that building by year-end 2019. Similar story at Four Points, our other development underway in Austin.

165,000 square foot building, 100% leased, we anticipate delivering that project in the first quarter of 2019 at a projected 8.5% return on cost. Similarly we have a 175,000 square foot building at Four Points and like Garza based on market conditions could be in a position to start that by year-end 2019.

Broadmoor we pretty much wrapped our 906 renovation. That project is 96% leased with an initial cash return on cost of just below 10%.

Four or five Colorado in downtown Austin is ready to go, construction pricing is just about finalized, active marketing is underway. The pipeline is excellent and building and we do plan on breaking ground there once we secure prerelease.

We're targeting 8.5% cash return on cost on an estimated budget of the $110 million. During the quarter we also completed construction of our second building for Subaru of America.

They took occupancy in that building a couple of months ago and will be purchasing the building during the fourth quarter. We expect to record a $3.5 million gain at closing.

Our total profit thus far at Knights Crossing development in Camden has been over $13 million. Design development for Schuylkill Yards, stage one is well under way.

We're valuing the final product mix and also actively exploring a range of equity financing alternatives. The objective remains as we mentioned in the last call, which is to finalize the design, identify a tenant pipeline, select equity financing partners, and then commence on the start of the first project hopefully by the end of 2019.

Master plan related work is underway and done as of last quarter Broadmoor, we're now into the site planning process for Phase 1, which will consist of office, multi-family. And if all goes well and subject to market conditions, we could be in a position to also start Phase 1 by year end 2019.

Since resting on a Broadmoor with our baseline approvals in place now for an incremental 5 million square feet with an investment base per square foot of less than $2 per buildable foot, we have tremendous embedded equity value in that land holding and are frankly quite pleased with the level of interest we're seeing from both tenants and potential partners. Before I wrap up, but couple of escalation points in the 2019 forecast.

We are expecting as I mentioned, below average retention rate of 57%, primarily driven by KPMG in the fourth quarter of 2019. The blended GAAP mark-to-market will be between 8% to 10% and cash mark-to-market between 2% and 4%, same store numbers again will be between 1% to 3% on a cash basis.

We do expect our leasing capital to be around 14% of revenues, we're not programming any further acquisition or sales activity during 2019, and as we identified in the supplemental package we do anticipate at least one development start in a range between $50 million to $110 million occurring during the course of the year. So, with that let me turn it over to George for an overview of third quarter operations and some color on our 2019 business plans.

Thank you, Jerry, and good morning. It was a busy third quarter and the 2018 business plan is virtually complete.

More importantly our continued leasing momentum as 2019 business plan off to a great start. During the third quarter we generated a 114 space inspections, up 14% from last quarter.

The amount of square footage inspected totaled 942,000 square feet, up 22% over last quarter. The Pennsylvania suburbs were the leader from a number of tours perspective while Philadelphia CBD saw the biggest gain in terms of square footage.

The pipeline excluding development and redevelopment properties remains at 1.8 million square feet. Approximately 450,000 square feet of this pipeline is in advanced stages of lease negotiations.

The fourth quarter of 2018 activity still left to achieve is minimal based on the contribution of our eight Toll Road properties into the Rockpoint joint venture, we did adjust four of our 2018 business plan metrics. Spec revenue decreased $1 million to $25.3 million.

Tenant retention increased from 67% to 72%, GAAP same store NOI growth declined 75 basis points at the mid-point, and GAAP mark-to-market increased from a previous range of 8% to 10% to a range of 13% to 14%. All other metrics were performed as previously guided.

Turning to our markets in the underlying assumptions contained in our 2019 business plan, for CBD Philadelphia, we're now 98% leased, having leased the last four floor at 1900 Market Street during the quarter. We have also executed an 85,000 square foot lease to backfill four of the Comcast five floors, which will be vacated December31, 2018 at Two Logan Square.

This backfill lease will take occupancy in 2020. The next largest rollover in the city for 2019 is a 27,000 square foot tenancy, where the renewal now is due on or before January 31 of 2019.

Our expectations are that this auction will be exercised. Mark-to-market for leases in Philadelphia will range 2% to 4% on a cash basis and 11% to 13% on a GAAP basis.

In the Pennsylvania Suburbs, we’re 93% leased with the majority of our leases going to be achieved in Radnor. We had three larger blocks of space totaling 93,000 square feet available, activity and touring levels remain encouraging.

We have proposals out for 70,000 square feet ranging from 5000 square feet to 35,000 square feet. Two-thirds of this available inventory is assumed to be leased in our 2019 plan.

Roll over exposure in the Pennsylvania Suburbs during the year is only 7% which is manageable. Only three tenancies over 20,000 square feet and each of them are currently entertaining renewal proposals.

King of Prussia's revenue contribution will increase beginning in the fourth quarter of 2018 with 500 North Gulph Road coming online. Shifting to Metro D.C., in Tysons we have one known and one potential water to move out during 2019.

AT&T will vacate 83,000 square feet next August relocating the corporate owned facilities. At 1676 International Drive, KPMG has the ability to terminate their 183,000 square foot lease effective September 30, 2019 with noticed by year-end '18.

We anticipate receiving notice shortly and our business plan assumes they will terminate early. Our comprehensive redevelopment planning continues to make progress at 1676.

This plan entails improving vehicular access to the property, upgrading existing common areas both indoor and out, and upgrading amenities within the building. Our plan has been well received by a number of brokers and prospects to be.

Increase about the building has been numerous with prospects ranging from 25,000 square feet to 175,000 square feet. Demand for product in the Tysons submarket provides a great opportunity to increase rents by 10% with a 20% return on our contemplated to incremental capital investment.

In Austin we're 96% leased and our currently renovated Broadmoor six buildings layering in the 12 assets been acquired, our Austin portfolio was 95% leased well over for 2019 is less than 4%. Rent growth in Austin continues to be robust.

We'll see leasing spreads between 13% to 15% on a cash basis and 20% to 22% on a GAAP basis. In terms of the operating metrics for our 2019 business plan, it's worth noting as previously mentioned Comcast, AT&T and KPMG move-outs account for 250 basis points of occupancy and 230 basis points of same-store cash NOI.

It’s also worth-noting that the acquired Austin properties will generate cash NOI growth between 9% and 10% for 2019. These properties are not part of the same store mix for 2019 but would have a 70 basis point impact on that metric.

And at this point, I’ll turn it over to Tom.

Thank you, George. Our third quarter net loss totaled $43 million or $0.24 per diluted share and FFO was $63 million or $0.35 per diluted share.

Some general observations regarding our third quarter results. Our third quarter net loss was generated by an impairment and was a result of an announced joint venture in Northern Virginia which generated an impairment charge of close to $57 million or $0.32 per diluted share.

The impairment includes unamortized straight-line cost of over $16 million and estimated closing cost about $5 million. Our quarterly operating results meet our expectations and an incremental improvement is expected in the fourth quarter.

As George outlined, we've adjusted our 2018 business metrics and anticipated sales in Northern Jersey portfolio into a joint venture and current operating trends. Our balance sheet continues to improve with a fixed charges and interest rate coverage ratios being 3 - being 5 and 3.8 respectively, a non-percent improvement on both metrics as compared to our third quarter of 2017.

Our net debt to EBITDA remain constant at 6.2 depending on the timing of the announced transactions, we anticipate our loan realized ratio to be lower at year end. Property level income totaled $78.5 million which was inline with our projections.

Looking to the fourth quarter with a following assumptions, property level operating income totaled about $79.5 million and will be flat compared to the third quarter - this increase annually up a little bit from the third quarter by million dollars, the increase is primarily due to improved occupancy and we expect to occur in our core portfolio. As George mentioned, we are 96% done on spec revenue, the remaining is roughly $1 million, so less than a $0.01 of FFO per share, so minimal impact on guidance.

Subaru, we were recognized about $1 million of interest income that will be from the capital lease this quarter. We do anticipate them buying the building during December of 2018.

We do not expect any income beyond 2018, the result of this transaction. FFO contribution from unconsolidated joint ventures should be about $6 million.

G&A will increase from $6 million to $6.3 million, primarily due to some timing on expenditures, our year-end number is still at $28.5 million. Interest expense will remain steady at 95.5%, with fixed rate debt being 98.6%.

We expect capitalized interest to be about $1 million for the quarter. Our termination and other will total approximately $0.5 million, and NOI from our management fee and developments will be $3.5 million with no additional activity either in ATM or buyback.

Additional financing activity, in October we do plan on closing on term loan C. We expect that loan to be recast from a seven year loan to a five year loan, with no change in maturity date or the amount of the term loan.

The loan is already swapped to a 3.7% rate, by recasting it we will increase our spread by roughly 50 basis points, resulting in interesting savings of about $1.3 million on an annual basis. Looking at our capital plan for this year, we still expect to keep our range of CAD.

Including in our uses is about $460 million, including $333 million from the Austin asset acquisition and related mortgage payoffs, with one of the mortgage payoffs occurring in early 2019 when it becomes open for prepayment. We have $65 million of capital spend, roughly $32 million of dividends, our revenue maintained is roughly going to be $15 million for the quarter, with revenue created about $10 million.

Term loan refinancing cost will be about five, mortgage amortization of two, and on the sources side we have the net proceeds we anticipate out of the Northern Virginia joint venture and related financings of about $292 million, $50 million from cash flow after interest, roughly $45 million of proceeds from Subaru and using our 75 - using cash on hand of $70 million and we will roughly have $5 million of debt at the end of the year on our line. We anticipate our net debt to EBITDA remaining in the low 6 area, and our debt-to-GAV in the high 30s.

In addition, we anticipate our fixed charge ratio remaining constant and our interest coverage remaining constant at year-end from right now. Looking at 2019 guidance, at the midpoint net income will be $0.41 per diluted share and FFO will be $1.42 per diluted share.

Based on that, some of our assumptions in that, the first one is, to outline our accounting change, we anticipate about $4.6 million reduction in earnings primarily due to the internal leasing costs that cannot be capitalized and an increase to our ground rent expense based on the straight-line guidelines. But no, we have not yet concluded on one particular ground lease at one of our joint ventures, and therefore we have not included that in guidance, and we will update you as that gets to year end probably on the fourth quarter call.

All this accounting change being about $0.03 in terms of how within guidance for consensus, I believe roughly 20%, a little less than 20% of our analysts had this in guidance, the remainder did not. So, for the most part this was not included in most of the numbers from the analyst community in terms of our consensus.

Portfolio operations GAAP NOI will increase roughly $28 million for the year. Austin acquisition will generate about $34 million, FMC should generate an incremental $5 million, One Drexel Plaza and 3000 Market generate about $3 million.

Our redevelopments to sale of 500 North Gulph Road and our development of sale point should generate about $8 million. The sale of the DC assets will reduce GAAP NOI about $21 million.

Now, we're looking at our FFO contribution from unconsolidated joint ventures. We have about $17.5 million of that this year, a $7.5 million decrease from 2018 primarily due to having a 50% interest sale in the Austin joint venture offset by our new 15% interest in the Northern Virginia asset.

And G&A we expect to be between $30 million and $31 million. The primary increase is due to the accounting change which will generate $1.6 million of additional expense due to capitalization.

On the investment, we have no set acquisitions or dispositions and we have one development start. Interest expense will increase to approximately $81 million to $82 million.

This will include about $4 million on our line of credit as we do expect to have borrowings throughout the year. Capitalized interest will be between $2 million and $3 million.

Land sales and tax provision will be a net $1.5 million positive. We expect term fees and other income to total about $5 million, which is approximately what we're running in 2018.

And net management fees will total about $11 million, which is somewhat consistent with the numbers for 2018 also. No change in our quarterly dividend and no anticipated ATM or buyback activity.

As we look at capital, it's a $360 million plan. A $120 million of development and redevelopment, common dividends of $130 million, revenue maintain of about $50 million, revenue creating of that $25 million, mortgage amortization of $7 million, and mortgage payoff for the Austin portfolio related to one mortgage that will be paid off till early 2019 of $28 million.

Primary sources are cash flow after interest payments of $230 million, and use of NOI for about $130 million throughout the year, which will bring our line balance to roughly $135 million by year-end. We anticipate that net debt EBITDA will be reduced and stay around $6 million to $6.3 million.

The main variables will be how our developments are done during the course of the year and how much money we spent on those and whether we find financing activity or JV partner equity to lower those ratios. We also believe our fixed charge and our interest card will be 3.4 and 3.7 respectively.

I'll now turn it back over to Jerry.

Great. Tom and George, thanks very much.

So to wrap up third quarter business plan - 2018 business plans essential completed, and the 2019 plan that we outlined we think represents a good earnings, continued cash flow growth, good balance sheet and really a steady pipeline of development or redevelopment opportunities that we hope to actually done during the course of the year. So with that, we would be delighted to open up the floor for questions.

We would ask that in the interest of time, you limit yourself to one question and a follow-up. So, Shelby we can open up the line to questions now.

I was wondering if you guys could talk more about Downtown Philadelphia. We know you got Macquarie move-out coming, you've got the Standard Reliance move-out coming, just how do you guys think about the prospect to backfill those spaces and just - I know there's a differentiation between a trophy market where you guys are on a lot of your assets and the rest of the market.

So just kind of big picture of how you think that market looks over the next couple of years in your prospects?

Jamie, this is George, I'll take first dive at it. I mean, look, Macquarie and Reliance are both examples of tenants who have opted to move into new space.

Macquarie is 150,000 square feet net. We did go direct with one of their subtenants in 70,000 square feet beyond Macquarie's expiration.

The other top eight floors are Commerce Square, I mean, you can't ask for better space and better views there. They're about 30% of our 2020 rollover in the city, about 12% of the Company.

But they are expiring at a rental rate that is kind of below markets. We do see an opportunity to move rents and I think, you look to likely backfill that space will ultimately be someone who makes a similar move.

Reliance is almost a year later they expire with exercising their early termination that is 12/31/2020. They are five floors in the middle bank of Two Commerce Square, markets are probably plus or minus 10% below market today.

So we see a good opportunity and I think quite honestly that then gives us a nice mix of inventory when we kind of get into late 2020 early 2021 of kind of middle bank trophy space. Top of the structure space and then most likely some new development all at varying price points.

And Jamie, Jerry, just to add on to that - thanks for that George. Everyone know who is tenant period if you can keep them with that being said we have here is a combination of time and great inventory.

So our leasing teams are already well on top of identifying backfills for that as George touched on Macquarie space, we’ve already put away a big piece of that with the tenancy the - the permanent tenancy of the sublet. But I think we’ve already seen really good upticks in activity.

And frankly we have not had larger blocks of space on West market for a number of years that have been out of play on a couple of tenants moving along that part. So these two spaces gives us that opportunity with a positive mark-to-market.

And in addition gives us that price point differentiation that we really do like. We have the low ends of 1900 product now Commerce Square, convenient being in the game with the difference price points with all of our marketing activity at Schuylkill Yards and University City.

And then after the Northern Virginia Austin trade, I mean how do you think about your portfolio positioning today any markets do you think you'd still like to be smaller or greater in going forward?

I think this was big move and I think we’re really looking forward to kind of generating the returns that we think we’ll get out of Austin. Yes, look we kept a good footprint in Dallas Toll Road but we think that market has some good long-term upside.

We have indicated that overtime suburban Maryland and a couple of pockets out in the Pennsylvania suburbs will probably be a feeder properties for generating some additional capital to fund our development pipeline. But I think fundamentally we look back over the last couple years the company is operating platform is in really good shape.

And we’re always going to have rollovers that impact one metric or the other. And certainly we have gone through the roll up with the numbers we are hoping for higher same-store number but yet we have these rollovers within the same-store.

But we take a look at that same-store metric just opposed with the positive cash mark-to-market between two and four. The good GAAP mark-to-market in the high single digit up to 10% and keeping our capital cost within that band of 10% to 15%, we think that’s a great prescription for generating growth going forward.

But I think you’ll see us always Jamie kind of fine tune the portfolio particularly to make sure that we always mindful of making the right real estate decision. And also being very mindful of the capital constraints that are there with us every day and with public market pricing.

But your guidance show 2% AFFO growth, if you look ahead forward years beyond that I mean do you think that number can rise with some of these big move-outs or you kind of stuck in this AFFO growth?

We would expect that to rise and I think when we took look at the numbers for this year, we were coming off kind of an extraordinarily strong year in 2018. We’re actually - it’s going to be north to your 11% and just and take a look at where we think some of capital deployment opportunities over the next 12 months.

We thought that it was a little over weighted based upon our historical run rate. So we certainly do believe that we’re going to be able to with this portfolio get that portfolio back to the target range on our 2018 and 2021 business plan.

Yes Jamie I think as we look at the long-term growth rate for CAD which is in above our FFO we still think that trend long-term over our business cycle will be higher, continue to go up.

Do you think in 2020?

I mean 2020 it will be probably a little positive I don’t think it will be very positive but I think as we look at 2021 as we get some of the leasing done, we will be within the 5% to 7% range we’ve outlined.

Jerry just as you thought about the Dallas transaction retaining 15% of it and collecting the fees and potential promotes versus weighing that versus selling it all cleaning up the structure, getting out of that markets completely, why did you choose to retain the 13%?

Yes, I think it’s a great question and here is how we thought about it. I mean fundamentally I think this was a capital allocation decision.

We do like the Toll Road market long-term. We think there's some good things going on there.

We also think we have an absolutely fabulous local team who is really very adapted identifying value points for us. But we really did feel like kind of bottom line moving from a lower growth market where we have a smaller platform to a higher growth market where we’re market leader made a lot of sense.

And fundamentally we thought it makes the company more valuable. I mean I think being on path to increase our revenue contribution from Austin to 25% of revenues, and then in this quarter supplemental we also broke out our revenue differentiation between CBD, Philadelphia and University City.

We have about 20% of our revenues coming from University City. We think that 25% coming from Austin with all the great attributes that market has 20% coming from University City which is one of the top performing urban submarkets in the country with tremendous catalyst for life science, academic and residential expansion.

We thought creates a great value platform for the company. And as we looked at - trying to figure out how to bridge the long-term potential we see in the Toll Road with kind of the near-term capital allocation decision process we go through and bridging ourselves when that market recovers, I think we felt that the 15% promote provided a good upside if the market improves as we hope it will.

And doing that market transition provided a well capitalized smart partner to help us work through both the capital sharing arrangement and also potentially providing a more effective return on invested capital mechanism to grow a platform in that market. It does give us the ability to really focus our wholly-owned activities in Tysons where we do think we have a great opportunity between 1676 and 1900.

We know the near-term disruptor is the same-store where we think we can get a great return on incremental invested capital on both of those buildings and create some strong rental rate growth. And we also kind of kept a proxy out in Herndon market with our 2340 property which right now is fully leased but that’s a 250,000 square foot building that in fact tenant will decided to vacate, we will have a development opportunity out there as well.

So if the 15% is a proxy for us to maintain some growth and better return on invested capital metric coming out of that marketplace as we still do believe it has good long-term LIBOR for all the tenancies and the continued movement of the Silver Line out to the airport.

And then in Austin can you just frame for us how that deal came together, was it something that they approached you on, did they want to sell their stakes to somebody else. Or is it something that you wanted to increase your exposure and you approach them?

Well the DRA venture was formed a number of years ago. It gave us a tremendous opportunity to acquire almost $800 million of assets we wouldn’t be able to acquire before.

We did sell Manny the first tranche you may recall a bit ago, and we viewed the assets remaining in the venture as higher growth really well position assets we would like to have stayed involved in. So with the partnership approaching high as five year life cycle, I think both DRA and Brandywine thoughtfully evaluated how we can optimize market pricing for all the assets.

So there were a number of discussions that involved a lot of third-parties to kind of assess independently what we thought market value would be on those assets. Certainly Brandywine known those assets as well as we do, plus the promoted structure we had built into the deal I think gave us an opportunity to completely meet up after due share obligation to DRA and deliver great returns to our shareholders.

Couple of questions, I guess the first one would be noticeable change in your dividend policy; can you walk through your thinking on that?

Gentleman, there's no change in our dividend policy. I think the Board will continue to evaluate that with the 2019 business plan just coming out.

I think the Board will certainly continue to evaluate what to do with the dividends. I mean, I think from a coverage standpoint both from an FFO and a CAD standpoint we are very well covered.

The Board continues to maintain that, we want to continue delivering increasing returns to our shareholders. So, I'm sorry if any of the comments would lead you to believe that we've changed our dividend policy.

Quite the opposite, I think we're pretty excited about the level of cash flow growth we've had over the last 24 months that would provide an opportunity for the Board to evaluate the dividend as the 2019 plan has a higher level of execution. I think in Tom's comments he was just indicating that 2019 business plan did not include any ATM purchases and the acquisition or disposition activity or any increase in the dividend.

This is a framework for all of the analyst models.

Correct, John. I was just implying what kind of cash flow is going to be coming out of the 2019 plan.

And at this point we have - last year as you recall we did include a dividend increase, this year it was just stating that we haven't included one as a plan item.

And then follow-up a couple A and B. One is, where do you think - clearly JV capital is advantageous to issuing common equity right now.

At what point in time, at what level do you think your share price needs to be where you think that issuing shares is a more attractive cost to capital than entering into these large joint ventures? And then just more of a curiosity question, it looks like you're going to be expensing leasing cost to the tune of $2.2 million into property operations, how does that work?

I guess a couple of thought, A and B, so we'll try that. Yes, I think from a share issuance standpoint, I think when the stock price earlier this year was north of $18 we were selectively using the ATM to both create some financial capacity, as well as to recharge the balance sheet.

I think we're far, far away from that given the existing stock pricing. So I think from our perspective we need to be incredibly disciplined about how we can create long term growth potential by focusing on every, every dollars return on that incremental investment.

So, certainly doing transactions like we have done over the years by privatizing portions of the portfolio through these JV structures to create a better return to our public equity base is a very viable alternative. I continue to be very impressed with the level of private capital that is looking to invest in real estate operations with great operator.

So, as we went through the process for the Northern Virginia transaction, for example, the pricing differential between a wholly-owned sale and a venture sale was really at a point of indifference. So we felt we had the opportunity to create some great upside momentum for our Company both in the near term and long term basis by retaining an equity stake in that.

As we done over the year, we sold an awful lot of real estate directly without retaining any ownership stake. So, it's really kind of a price point discussion with each asset trade and also kind of more market assessment of where we think that asset fits long term into our desire to generate some growth.

And John on the capitalization, I guess we have - the capitalization affects two areas of our income statement. So, the general rule is that if you have direct commissions whether they be external or internal, those are allowed to be capitalized but with our internal certain personnel that received both a base, a bonus and a commission as a blend.

Any portion that's not a direct result of the lease such as a salary or a bonus, those will be expense going forward. That's the new rule, whereas before we were saying as long as those were below the market rate commission you could capitalize all of that.

Those personnel are in two different places. So, we have some costs that are running through G&A, which is certain personnel that were in the G&A area that were being - were part of the leasing process.

And then we also have people that are brokers that are our third-party management business that are going to be seeing less capitalization against that revenue. So, from that standpoint you'll see an adjustment to our operating income for the balance of it.

Just curious here how you think buyers are underwriting Amazon right now in Northern Virginia and kind of maybe give us some insight as to why the transaction to be now versus waiting for an announcement?

Great question, Craig, I mean, certainly something that we've labored over quite a bit and it's intriguing in its possibilities. We think there's certainly some more interest in that carter because of the potential of an Amazon locating there which is why I think we're happy with the auction process on the price that we got for these assets in the low 6% cap rate range, we felt that was very good.

I mean I think as we evaluate our position, a couple of things. It's a good window into what might happen in that market and from our perspective to the extent that there's a big updraft in that market.

We think our retained position we thought promote but more importantly our position in Tyson's Corner with the buildings we have there, the property we're retaining in Dallas Corner and potentially grow this venture with Rockpoint, provide a really good proxy for us to participate in market recovery. And I guess one of the other side of that discussion is, Amazon would clearly benefit any market they go in, just like we're saying Google benefit Austin in some of the growth thing, any kind of major tenant moves into market it's good news for everybody.

The Northern Virginia the reality of the ground is a little bit more - is little more intriguing or stock, I mean, in the Western to Tyson's carter, after [Hernden] you really have about 14 million square feet of new office that can be planned as part of the Silver Line expansion, [Hernden] itself has over 2 million square foot pipeline with some more behind that they could drive that pipeline higher. And when we're assessing that marketplace's, there's no doubt that Amazon web services which is in the market now for requirement an expansion by defense contractors, forays by Apple and Google could really create some significant demand and that's frankly we all are hoping for.

The counterbalance is that - to that potential demand is the size and location of the pipeline could just as easily have the impact of creating a lid on effective rank growth near term in some of these existing products. So, I think we were really trying to evaluate how to look through that window and really create the best opportunity for our Company, and we concluded that selling a portion of our Toll Road assets, retaining a stake in those assets that we’re partially selling, and retaining a portion of our Northern Virginia portfolio as wholly-owned, created a great opportunity for us to benefit if that market really does take off.

But certainly over the intermediate term gave us the ability to take advantage of what we thought was a wonderful opportunity to bring in some assets wholly-owned into our Company in Austin, Texas.

So, it sounds like you're hedging yourself a little bit, which makes sense. I guess part of it I’m getting at is you guys said you like the market long-term, you're kind of bridging yourselves here for potentially some more couple more years of weakness outside of what Amazon may or may not do.

But do you think we're here in five years as the Rockpoint JV kind of matures and we get another DRA situation would you guys kind of sold low and buying back high similar what you did in Austin?

Well, I think when we sold the assets in Austin, I think we got great market pricing at that point. It wasn't selling low, the markets moved dramatically.

But more importantly, and it kind of duck tales onto John’s question on private equity; we always look at the best way to allocate capital and create the best growth rate. What can't be forgotten with the Austin JV was that we were able to again move from a fairly small market position in Austin and through that JV acquire a number of really high growth targeted assets that generate great rates of return to both DRA and to Brandywine during the whole period.

And Brandywine then had the opportunity, as we see some opportunity to further accelerate growth in those assets by buying them in. I mean, interestingly if the assets we bought in, of the three types of assets we bought in only one was one of the originally contributed assets.

The other two were new with River Place and Four Points which we've been able to demonstrate that we can create value in both of those locations by leasing up the portfolio. So, if the marketplace in five years in Northern Virginia is tremendously stronger and we can harvest a lot of money by using a bridge, financial structure, and generate great returns for our shareholders; and then we view that some of those assets in the venture that we're contributing now, have better long-term growth potential as wholly-owned, I think we certainly want to retain that flexibility.

And then just separately on your 2018 to 2021 kind of same-store outlook of 2% to 5%, you guys are 2% in 2018 and 2019. And you have some bigger move-outs again in 2020, I mean, do you think you guys need to reevaluate whether you can top the midpoint of that range?

Well, I think the benefit we have - look at the numbers in the third quarter here with us bringing new properties online. The numbers on the same-store in the third quarter as George have been articulating all year, I mean, is a great pop because we're bringing some high performing assets into the portfolio.

They'll be transitioning and again in generating good growth with very low capital costs for the period from 2019 to 2021. We certainly will have some rollovers as George talked through in 2020.

The reality – they're not that big in the scheme of what our overall portfolio is. And whereas - the 1676 project that they hit the same-store this year, we'll lease it up next year.

It could be a tremendously strong performer in 2021. I mean one of the challenges of the same-store is it's a point in times snapshot that doesn't necessarily take into account the truth pushed through the portfolio.

So, no, we look at our forward model and we think that those numbers get progressively better which is why I was kind of touching on the point, yeah, if we're generating same or good cash mark-to-market, good GAAP mark-to-market, keeping our retention rates in pretty good shape except for 2019 with the 57 with extension, that's a prescription for a good sustainable accelerated growth. And when you overlay that with the development pipeline we have, some assets will be 26 to 30 months to build.

Some assets will be 12 to 18 months to build. We have a tremendous opportunity over the next few years to really start to generate some growth rates far in excess of what we've been generating over the past with the older portfolio.

And also think, Craig, as you look at the same-store grouping, this year we'll not benefit from a TR from the assets coming out of Austin because they don't hit same-store till next year. So we would hope as we look at going out in the 2020.

Well, we now start to benefit from a strong mark-to-market and having close to 20% of our revenue coming from Austin, which is really not helping our same-store this year for 2019 coming up.

So, do you think by 2020 even with the move outs and everything going on that you could be at that high-end near 5% given what's rolling in and then you rolling out Northern Virginia?

No, we just announced 2019 guidance. We're not going to postulate on 2020 guidance at this point.

I wanted to follow-up on a question about the lease accounting. I was just wondering, how much leeway you have in deciding what goes into the property OpEx and what goes into the G&A?

Because we were one of the analyst that did have the adjustment in our model we put it in G&A we thought maybe companies would want to shift it there because in this example if you take that two/two out of your NOI and you cap that, you lose 1% of NAV for something that really has nothing to do with the business, so just curious about that.

As we look at that, Michael, we basically for right now just put the people – we put the expense where it was in there hit. The property, the operating expenses that we are hitting since they're running through where those people are which is in the management area, those leasing agents are at the property level such that they would curb same-store.

The ground lease well which we did have as a piece also but it will go on overall NOI for the Company, yes. There will be an adjustment that would affect our cap rate, but most of those other people are sitting in our Management are and will affect same-store.

But still as we will look at those people at the side but where we want to locate them for 2019 but for right now we're leaving them in the places they are. But we do have leeway to look at where they're performing and do we want move some of those people into G&A.

I think we have flexibility there. I do not think that the – the new reg is telling you where it needs to be located and where your people need to be classified.

It will be interesting to see what other companies do with that. And then the second question, I just wanted to ask about EQC reportedly selling 1735, Market Street.

It sounds like that could be maybe the biggest single assets held in the city. Just wanted to get your thoughts on that and if you think there's any read-through's from how that turns out to maybe values and fairly?

Well, they do have it on the market and it will be interest to see what the pricing comes in and who the bid list is. I mean, certainly we continue to see almost on a weekly basis more investors expressing interest in Philadelphia, which is something we've really hoped for, for a number of years.

So, the expansion of the targeted investor list in who are evaluating high quality assets in Philadelphia, we think it's a very good thing for our inventory base. And certainly our hope is that EQC does very well on what they're trying to do as well.

So, I think the dynamic and the motivation is moving in Philadelphia's favor. The read-through will be a function of kind of who buys and what they're looking for.

I mean, the property is pretty well stabilized. I think it's got some minor amount of leasing to do, but I think certainly we always view that as part of the trophy class in the city.

And so if the valuation range that comes in that should have some level of read through to some of our existing portfolio, at least the Commerce Square buildings on Market Street.

Appreciate your color on the Austin-Nova swap, but can you guys give us your current thoughts on where disposition starts to make more sense into being recycled into stock buybacks versus recycled into the portfolio?

Great question and - look, share buybacks are always on our radar screen. And Management and the Board review that, we still have an authorized buyback plan in effect and we could certainly expand that as well.

I think from - when we look at the deployment of capital, I think it's weird that the Northern Virginia Austin swap we felt that the growth potential and preserve - out of that point plus preserving some additional financial capacity to ensure that we could fund future developments was primary in our mind. And as we were thinking through that, we took a look at current pricing levels, incremental $100 million of share buybacks, increased our earnings between $0.03 and $0.04 a share but also increased our net debt to EBITDA by two turns and for more estimate only had about $0.16 per share in NAV.

So, we use that as kind of a guiding point on what we should be doing but certainly from the Company standpoint, share buyback in this type of market pull back environment are always clearly on the radar screen.

Jerry, if we're thinking about development start next year, any specific market that comes to mind?

I think we take a look at our near term development starts, I mean, we're certainly actively pre-leasing - I'm sorry, pre-marketing Mitch, four or five Colorado, Four Points in our last piece at Garza. Garza, we're completing the common area by the end of this year, tremendous momentum with the site we sold, the [indiscernible] residential and apartment side, the hotels under construction.

So we think that that will be an incredibly sought after site in 150,000 square foot range. So, in Austin we think that the higher probability starts would be either four or five Garza or Four Points.

We are - as I mentioned in the comments with approvals at Broadmoor in place, we are on a pell-mell pace to finalize the site planning for Phase 1, which will be an office building and probably a residential for rent project as well. So, as that process unfolds over the next couple months, the market respond on those sites will ramp up dramatically.

So, Broadmoor could be in that mix for a start next year as well. Then up in the Northeast, we're very, very focused on wrapping up the design development for the two buildings at Phase 1 at Schuylkill Yards.

One will be some office and residential, the other will be office and lifescience, and we're working with our development partners on those premarketing campaigns as well, and frankly seen a pretty good level of activity. I think we're very pleased with some large tenants we're talking to as well as some smaller tenants that with the completion of the public park early next year - you may have seen the press release, I mean, Spark Therapeutics has leased the entire Bulletin Building for us and that'll be staging over the next 24 months.

That renovation project kicks off by the early part of 2019. We're really creating a dynamic platform to accelerate leasing activity at Schuylkill Yards.

So, I think that's one of the things that I think that the entire Company is really excited about, which is, with these development opportunities, let's complete the design development, let's get the marketing pull together, let's - certainly the capital constrained marketplace, let's just make sure we stay in touch with and build new equity financing relationships. So we are in a position to really move with alacrity as we see market demanding now.

And then you have about 200 basis points drag on same-store numbers for next year. Is there anything specific that's driving the offset I mean I think you are forecasting 1% to 3% it seems like a big kind of increase considering all those different items that are out of the portfolio is there anything specific I should be considering in terms what's driving that increase?

Well I think the increase that - has such a range we have despite that drag is really. The properties that we're added to the same-store in Q3 of 2018 now being same-store properties for all of calendar year 2019.

So FMC Tower, 1900 Market Street and 933 First Avenue in King of Prussia.

Tom on the page in your sup I guess it's Page 8 it will be the walk floor from your Investor Day. It looks like your 2019 leverage is going to be higher than the six times, you guys were targeting or hitting in 2018.

Is that a new target or is that a temporary phenomenon and if so what’s causing that?

Yes Manny, we expect to keep it low but I do think that and I have said in my remarks I think that 60 to 63 is that we do plan on as Jerry’s outlined starting in development but also spending time and money on the work at Schuylkill Yards and Broadmoor. And to the extent we with that accelerate that cause we think our capital spend to go up and therefore that net debt to EBITDA go up because those costs are going to come off the balance sheet with no corresponding income.

So one at legal range there of course if we end up having a partner come in on like a Schuylkill Yards and they pay down some of our bases that could obviously benefit us because we’ve encouraged buying a land and already starting some of that infrastructure work. So we wanted a legal rage where it does pick up and I think its temporary I think as we look it up spending money on those two multiphase sites that’s going to cause to potentially going up and I guess that is it is dependent on how the development spends comes and what kind of opportunities we see on those development sites.

And Manny I’ll just add - and again the 2019 plan doesn’t anticipate on the assets sales here. We could generate some additional liquidity so we’ll have a acquisition or disposition activity built into the plan that could also serve to keep that range at the lower end.

That 60 target is very important - it was also important to be transparent at this point indicating that there is that upward impact on leverage through the development process and that’s the range that we think that it flames out the best and the worst case. I mean based upon every $25 million of spend creates a 10th of return for us.

So it's - but the target remains in that at that 6% level - 6 times level.

On that disposition point though would that imply that you’re going to be selling down land or other non-core non income producing properties because otherwise it doesn’t help to leverage capital market?

I think just an outright sale I think we do anticipate hopefully having some land sales coming up keeping our target between that 3% to 4% range. But then also it could be a combination of sale and then a better acquisition opportunity that generates more revenue for us could also be a player in that as well.

I think we’re all working at whole bucket full of trends that are going on right, we worked densification technology shifts as that aren’t preferences money or workforce and scarcity and labor. And you put those all into the bucket and it seems like new buildings are aging faster than ever before.

And I guess the question is twofold, how young can a building be today to be considered old and what does that imply for CapEx usually think about annual inflation of the requirement to shift your buildings to today's preferences?

Look I think it depends to some degree on each building physical plan. And I think we have found is that buildings with elongated clear spans column free floor plates, higher deck to deck because of potential they kind of create more interior daylight kind of really creates the opportunity to kind of reimagine the building.

I’ll give you great example, we had our 500 North Gulph Road property was a building concrete superstructure that was built in the 70s. We have kind of took that building back to superstructure new mechanicals, new window lines, new lobby, new lavatories and taken what was a real underperformer in our portfolio and created such a great physical reimagination that we had the entire building leased at a 9% plus return before it was finished.

I think the trick in that algorithm is can you get a good return on incremental invested capital to justify the investment or are you better off to selling the asset. And I think we’ve done both over the years.

We don’t think we get a good rate of return we’ll simply sell the asset 1676 that George worked through is another example we think that when we evaluate the market window for that lock of space the positioning of that asset physically its physical configuration today what we can do to present it a whole different physical platform. We'll get a great mark-to-market and get it close to 20% return on incremental capital.

So, building vary by their design and I think as we’re looking at all the buildings that we either own or looking to building, we’re hoping to create some timeless aspect to our new developments by creating a volume of space that to some decrease becomes almost indifferent to how that tenant is actually going to use that space. But they’ve got the physical volume the tight core, the window lines - the supporting mechanical systems that actually make that building have some durability as workplace appetite change.

Should we expect to see more assets shift from private ownership to public given the requirements for capital?

We say the public ownership do you mean like.

Well just deeper pockets right, I mean if your capital and you gave the example of what you had to do to retrofit one of your buildings. You didn't have to do that 10 or 15 years ago.

The cost of ownership has gone up pretty dramatically, right. So it requires deeper pockets to be an office landlord today is that fair?

Well I think certainly capital costs have gone up for sure, that is fair. Fortunately in some market rental rates have gone up to provide the appropriate compensation for that.

We take a look at perspective though I mean we’ve got our capital across in that range of 10% to 15% and have a pretty good run rate on that. I mean that’s down because of the portfolio we have today.

So even if we need to spend call it 40 versus 35 in TIs, if we’re getting a good increase in rents either - both at point of entry but also lengthening lease terms and good rent bumps. The math works well there but look there is to your broader question, there is a tremendous amount of private capital that is well capitalized looking for place to put their equity.

The overall debt markets are still fairly favorable particularly for existing assets. So we view kind of the capital driving office valuations remaining very positive and you’ll see public companies continue to invest capital where you think it's working assets and private companies using a much different leverage model coming in and getting very high return on their invested capital for either development or repositioning assets as well.

Well, thank you for your help and thanks for all of you for participating in our call. We look forward to updating you on our business plan progress on our fourth quarter call early in 2019.

Thanks very much.