Brandywine Realty Trust (NYSE:BDN) Q1 2023 Earnings Call Transcript April 20, 2023
Brandywine Realty Trust reports earnings inline with expectations. Reported EPS is $-0.03 EPS, expectations were $-0.03.
Operator Good day and thank you for standing by. Welcome to the Brandywine Realty Trust First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there’ll be a question-and-answer session. [Operator Instructions] Please be advised that today’s call is being recorded.I’d like to hand the call over to your speaker today, Jerry Sweeney, President and CEO. Please go ahead.Gerard Sweeney Good morning, everyone, and thank you for participating in our first quarter 2023 earnings call. On today’s call with me as usual are George Johnstone, our Executive Vice President of Operations; Dan Palazzo, our Senior 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 today may constitute forward-looking statements within the meaning of that federal securities law.
Although, we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release, as well as our most recent annual and quarterly reports that we file with the SEC.So to start off with our prepared comments, we’ll review first quarter results and progress in our 2023 business plan. Tom will then review first quarter financial results and frame out some of the key assumptions driving our 2023 guidance for the balance of the year. And after that Dan, George, Tom and I are certainly available to answer any questions. The first quarter has gotten year off to a very solid start, results are in line with our 2023 business plan.
During the quarter, we executed 357,000 square feet of leases, including 179,000 square feet of new leasing activity.For the first quarter, we posted rental rate mark-to-market of 14.9% on a GAAP basis and 4.2% on a cash basis. Our full year mark-to-market range remains 11% to 13% GAAP and 4% to 6% cash. As outlined in our 2023 operating plan, we did have 109,000 square feet of negative absorption for the quarter due to known move out an early termination activity. While quarterly GAAP same-store outperformed and cash same-store slightly underperformed our business plan ranges, we’re keeping our ranges in place based on leases executed but not yet commenced, as well as some forecasted activity.First quarter capital costs were aligned with our business plan about 8% this first quarter, which was excellent for us, tenant retention of 45% was slightly below the bottom end of our full year forecasts fully anticipated.
So we’re maintaining our existing range in our forecasted levels. Core occupancy and lease targets were in line with our business plan. Spec revenue remains $17 million to $19 million, with $12.8 million or 71% at the midpoint achieved. The speculative revenue range represents approximately 1.1 million square feet, of which 628,000 square feet is done, so we’re 57% complete on that metric.From an occupancy and leasing standpoint, our Washington, D.C. portfolio continues to underperform. Conversely, our Philadelphia CBD, University City, Pennsylvania suburbs and Austin portfolios which cover 94% of our NOI are 91% occupied and 92% leased. So fundamentally operating platform is solid with a stable outlook. We have reduced our forward rollover exposure through 2024 to an average of 6.6% and through 2026 to an average of 7.4%.
We continue to see the quality curve thesis play out as our physical tour volume has been very, very encouraging.First quarter physical tours exceeded our 2022 quarterly average by 40% and also exceeded our pre-pandemic levels by 27%, some more tenants are in the market looking for quality space, we think that portends great things for our portfolio going forward. Additionally, during the first quarter, 126,000 square feet by direct result of this flight to quality. Tenant expansions continue to outweigh tenant contractions in the quarter, and we are projecting as we had in 2022 a positive expansion to contraction ratio.Our total leasing for the quarter is up 23% from last quarter, and our pipeline stands at 3.3 million square feet. That pipeline has broken down between 1.3 million square feet on our existing portfolio, so up about 100,000 feet.
And in 2 million square feet on our development projects, which is up 200,000 square feet from last quarter. The 1.3 million square foot existing portfolio pipeline includes approximately 138,000 square feet in advanced stages of lease negotiation. Also for the quarter, the pipeline about 30% of that new deal pipeline, are prospects looking to move of the quality curve.In looking at our EBITDA, our first quarter net debt-to-EBITDA increase from the fourth quarter, but again in line with our business plan, and its occupancy increases during 2023. We anticipate this ratio will decrease to our business plan range, and as we always note and specify in our SIP. This ratio is transitionally higher due to development spend and debt attribution from our joint ventures.
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And to further amplify that point, our core EBITDA metric, which is our operating portfolio, excluding joint venture debt attribution, and development and redevelopment spend ended the quarter at 6.4 times within our targeted range.With economic uncertainty and rate volatility at top of mind, leasing and liquidity remain our key focal points, and as Tom will touch on the liquidity front. Since year end, we made significant progress raising over $315 million of proceeds. In January, as previously disclosed, we closed the 5-year $245 million secured financing collateralized by 7 wholly-owned properties. This note, while secured headstock flexible release provisions and free payment provisions after March 2025. And as we noted in our previous call, we took the secure route solely due to pricing differences between secured and unsecured market as we do plan to remain in unsecured investment grade borrower.And then during February, we executed a $70 million unsecured term loan to further bolster our liquidity.
As a result of these and other financings done late last year, our consolidated debt is 93% fixed at 5.1% rate, and we have no consolidated debt maturities until our October 2024 $350 million bond. We continue to have full availability on our $600 million unsecured line of credit and approximately $97 million of unrestricted cash on hand. And it’s noted on Page 13 in our SIP, based on development spend projections, business plan execution, after fully funding remaining development spend in dividends, all TI and leasing costs, we project that full availability on our line of credit at year end 2023.In terms of dividends for the quarter at the guidance midpoint are $0.76 annual dividend or $0.19 per quarter represented a 66% FFO payout ratio and an 81% cash payout ratio.
We had a great quarter controlling capital spend to be conservative for now we are keeping our CAD range in place. Additionally, our business plan projects $100 million to $125 million of sales activity that may generate additional gains.With liquidity needs substantially address our sale activity on target, conservative underpinnings to our coverage ratios. We kept the dividend at $0.19 cents for the first quarter. Certainly as our business plan progresses, the board will closely monitor capital market conditions, overall liquidity, sale activity progress and our payout levels as they evaluate the dividend going forward. We also from an additional liquidity enhancement plan to enter into 2 construction loans this year; one in our 100% fully leased 155 King of Prussia Road and our Life Science project in Schuylkill Yards later this year.On the joint venture front, as disclosed in the SIP, we have two non-recourse loans maturing during 2023.
We are well underway with our refinancing efforts for those loans. The first is a $200 million loan in our Commerce Square joint venture. This is a lower levered financing with over 12% current debt yield, we have received a short-term extension from the existing lender and anticipate closing the new financing during the second quarter. The second maturity occurs in August of 2023, again, non-recourse in a joint venture that we’re 50% partner in and refinancing efforts are underway there as well.In looking at our development pipeline, we currently have $1.2 billion under active development. Of that, our wholly-owned development pipeline of $302 million is 30% life science and 70% Office. This wholly-owned development portfolio is 83% leased, with the remaining funding requirement of $77 million, which is built into our 2023 capital plan.
Our joint venture development is 31% residential, 41% life science and 28% office.Brandywine has now fully funded our equity position, with $52 million of equity remaining to be funded by our partners. Furthermore, other than fully leased build-to-suit opportunities, as I mentioned on the last call future development starts are on hold, pending both more leasing to our existing joint venture pipeline, and also to the point more clarity on the cost of debt capital and cap rates. Looking ahead, though, given a mixed use nature of Master Plan communities primarily of Schuylkill Yards and Uptown ATX, as identified on Page 14 of our SIP, are expected for pipeline product mix is 21% Life Science, 36% residential, 27% office, and 16% support retail and other uses.And overtime is certainly subject to capital market conditions and tenant demand drivers, we do plan to develop about 3 million square feet of life science space.
Upon that completion, we’ll have about 7.5% of our portfolio of square footage in life science, when the existing projects are completed. And our objective is to grow our life science platform, so about 21% of our square footage.Just a quick review of our specific development projects, 2340 Dulles is 92% pre-leased, $33 million are remaining funding is in our capital plan. 250 King of Prussia Road and our Radnor Life Science Center remained 53% leased, we have $28 million of remaining funding, we have a strong pipeline of over 220,000 square feet for the remaining space, and that pipeline is 100% Life Science, and we are still projecting a stabilization date in Q1 2024.3025 JFK, our life science office residential tower is on time and on budget for delivery in the second half of this year.
We have a current active pipeline totaling 625,000 square feet on that project, which is up 153,000 square feet from last quarter. That’s obviously for the life science and office components. The project continues to see great activity as the construction progresses, superstructure now complete lobby finishes are going in. We’ve done over 134 Hard Hat tours. We also expect to start delivery the first block of residential units in the second half of this year, so all remains on schedule there as well.Our dedicated life science building at Schuylkill Yards 3151 Market. We have a pre-leasing pipeline of 423,000 square feet, again up from last quarter. That project will be delivered in the second quarter of 2024. And we have plans underway to obtain a construction loan and that 50% loan to cost range later this year.
Our Block A construction at Uptown ATX is also on time and on budget.On the office component, our leasing pipeline is 538,000 square feet. This pipeline is up from last quarter, and is noted on our last call with some larger tenants putting their requirements on hold. We’re also very much focused on smaller multi-tenant floor prospects. That approach is beginning to bear fruit as our pipeline now its five prospects in the 30,000 to 60,000 square foot range.During the quarter, we also started the next phase of our B.Labs expansion at Cira Center by beginning the conversion of our 9th floor to gradual lab space. That project will be completed in the first quarter of 2024. Total cost is $20 million. The expected yield is about 11%, and we’re already 28% pre-leased.Our 2023 business plan also includes $100 million to $125 million of property dispositions.
We’re making good progress in a challenging market earlier than expected. But we still expect the bulk of the sales activity to occur in the second half of the year. We have $200 million to $300 million of assets in the market for price discovery, as I mentioned. Right now, we have $50 million moving through contract negotiations, and about $75 million nearing the end of the bid solicitation process with several active bidders.We do continue to plan to sell non-core land parcels during the year and on our joint venture operating projects. As I noted in the discussion on EBITDA, about $470 million of debt, or 18% of our total debt levels coming from our JVs with about $420 million of that coming from our operating JVs. We have discussions underway and plan to recapitalize several of these joint ventures later in 2023 with the goal to reduce that attributed debt from operating joint ventures by $100 million, or 24%.
Dollars generated from these liquidity activities will be used to fund our remaining development pipeline, commitments to reduce leverage and redeploying to higher growth opportunities, including stock and debt buybacks on a leveraged neutral basis.At this point, Tom will now provide an overview of our financial results.Thomas Wirth Thank you, Jerry, and good morning. Our first quarter net loss totaled $5.3 million or $0.03 per share, and FFO totaled $50.8 million or $0.29 per diluted share and in line with consensus estimates. Some general observations regarding the first quarter results, while the results were in line with consensus, we have several moving pieces in several variances compared to our fourth quarter call guidance. Our termination and other income totaled $2.4 million, and was up $400 million above our fourth quarter forecast, primarily do some one-time income items.Interest expense totaled $23.7 million or $800,000 below our fourth quarter guidance and is primarily due to this higher capitalized interest.
Our management, leasing and development fees totaled $3.4 million, and was $900,000 above fourth quarter projections primarily due to lease commission income. And we forecasted land sale to generate $1.5 million of gain, one of those transaction was delayed, however, we anticipate that transaction to occur in the second quarter. And our first quarter debt service and interest coverage ratios were 2.9 and 3.1, respectively, and net debt to JV was 41.1%.Our first quarter annualized core net debt-to-EBITDA was 6.4 times within our 2023 range and our annualized combined net debt-to-EBITDA was 7.4 and 0.1 turn above our guidance range of 7 to 7.3. As far as portfolio changes, we anticipate that we will bring 405 into the core portfolio in the second quarter as it stabilizes.
And on the financing side, as Jerry outlined, we continue to make progress on the financing front.In addition to the previously announced transactions, we closed on a $70 million term loan that matures in 24 months, including an extension option, the execution of the term loan provided some additional liquidity to ensure that the $600 million line of credit remains on drawn whether development and redevelopment projects commence operations and begin to provide us incremental cash NOI. While we weren’t successful in obtaining this financing, we continue to see challenges within the financing market.In the traditional banks, we are allocating that – we see them allocating very little to new originations and the new office loan market except for certain situations such as fully elite build-to-suit properties.
We think some lenders will be in to be flexible and will provide loan extensions on performing portfolios.With the Silicon Valley Bank and Signature Bank concerns the CMBS market has been very slow. However, activity has picked up and transactions are focused on lower level loan to value office assets. Life companies have also been selective and underwriting new loans with a focus on lower loan to value and a preference for longer weighted average lease terms. Regarding our joint venture debt, we currently are working on our 2023 maturity, including an active completion of our Commerce Square loan, which will occur – we expect to close later this quarter. We are also working with our partners on the 24 maturities to possibly extend the current maturity dates with our existing lenders, while also considering some asset sales to lower leverage.For 2023 guidance, our general assumptions for the business plan is the property sales, as Jerry mentioned, scheduled to occur in the second half of the year with minimal dilution this year, no property acquisitions, no anticipated ATM or share buyback activity and the share count will approximate 174 million diluted shares.Looking more closely at the second quarter, we have the following general assumptions, our property level operating income to total about $76 million and will be $3.4 million ahead of the first quarter, primarily due to the occupancy in terms 405 Colorado, 250 King of Prussia and the balance from the portfolio.
FFO contribution from [indiscernible] joint ventures with totaled $3.3 million for the second quarter. The sequential decrease is primarily due to the forecast and higher interest expense primarily due to the anticipated refinancing at Commerce Square.G&A for the second quarter will be $9 million, slightly below the first quarter. Total interest expense will approximately $24.7 million and capitalized interest will approximate $3.5. Termination and other fee income will total $0.5 million, a $1.5 million decrease from the first quarter primarily due to several first quarter one-time items that we had highlighted on the last call.Net management fee and leasing development for the quarter will be $2.5 million. This sequential $1 million decrease is primarily due to lower leasing commission volume.
And our land sale gains and tax provision will net at $1.5 million.Looking at our capital plan, we experienced a better than forecasted cash payout ratio of 81%, primarily due to leasing capital costs being below our business plan range. While we experienced some first quarter movement that was lower our annual 2023 cap range remain at 95% to 105%. Our capital plan is very straightforward for the balance of the year. It’s comprised of $130 million of development and redevelopment, $99 million of common dividends it’s currently $22 million of revenue maintain capital, $40 million of revenue create capital and $19 million of equity contributions to our joint ventures.The primary sources will be $148 million of cash flow after interest payments, $42 million use of current cash on hand and $120 million of land and property sales.
Note that we had no cap – based on the capital plan outlined above we project having full line availability by year end. We also projected our net debt to EBITDA will be in the range of 7 to 7.3, with an increase primarily due to the incremental capital spent on development projects.Our net [ph] GAV will be in the range of 40 to 42. And our core net debt to EBITDA of 6.2 to 6.5 at the end of the year, excludes our joint ventures and our active development projects. We continue to believe this core metric that reflects the leverage of our core portfolio and eliminate some more highly leveraged joint ventures and our unstabilized development and redevelopment projects. We believe these processes are elevated on a growing development pipeline and we believe once these developments are stabilized, our leverage will decrease back towards our core leverage ratio.
We anticipate our fixed charge and interest coverage ratios will approximately 2.7 for the year, which represents of potential decrease, but that’s primarily due to higher interest rates.With that, I’ll turn it back over to Jerry.Gerard Sweeney Great. Thank you, Tom. So key takeaways our portfolio is in solid shape, clearly facing some headwinds in the office market. But with pipeline activity is up significantly and advancing through our various stages of leasing efforts at a nice pace. The portfolio is also in a very stable position within average rollovers I mentioned through 26 of only 7.4%. We continue our longstanding track record of posting strong mark-to-markets, managing our capital spend very well.And as I mentioned, some accelerating leasing velocity both in the operating portfolio and the development pipeline as well.
Since last quarter, we’ve made significant progress on our wholly-owned near-term liquidity needs, put ourselves in a very strong liquidity position with zero drawn a line of credit, and $97 million of cash on the balance sheet, and increasingly solid visibility of executing our 2023 business plan that will improve liquidity and keep our operating portfolio in a very strong footing.So, as usual, and where we started, in that we wish all of you and your families well. And at this point, Michelle, we’re delighted to open up for questions, we always ask in the interest of time you limit yourself to one question and a follow-up. Thank you.
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Question-and-Answer Session Operator Thank you. [Operator Instructions]
And our first question comes from Anthony Paolone with JPMorgan.
Your line is open.Anthony Paolone Great, thank you. I guess, Jerry, my first question relates to just looking at occupancy going forward. I mean, you gave some pretty good stats on expansions versus contractions and the growth in the pipeline. But just trying to see how you bridge that sort of situation with the sentiment that over the next one to two years or whatever it may be? Office cash flows are likely to decline quite a bit, or at least that seems to be the indication from you. The stocks are just, I think, most people’s thinking out there.Gerard Sweeney Hi, Tony. I mean, look, there’s no question that conventional thinking is that there’s going to be some significant, “Hey, was it back some days I wake up, and I think the headwinds are so strong as blowing the hair off my head.” But, no question office is going through, a shift driven by increased employee mobility, shift in space preferences, and there will be winners and losers.
So we definitely expect more selective demand drivers over the next couple of years. And we continue to believe that that tenant, focus will be on quality, driven by superstructure, presentation of building, its location, amenities. Increasingly, we’re seeing more and more that landlord quality and reputation, their ability to fund improvements and their stability in terms of long-term ownership are increasingly up the priority checklist for a lot of our tenants.So even with the secular shifts would seem to be there and the demand muting effective against the slowing economy, we still believe we’ll be in very good position to perform well. I guess, when you take a look at it, there’s a lot of information out there on the office sector, a lot of brokerage firms have good reports out there on the state of the office market.
And, I guess, as we look at it, a recent report was identifying the total office inventory in United States being about 6 billion square feet, about 15% of that being top quality garnering premium rents, about 24% of 1.3 billion, kind of being top-middle very good, and from a competitive standpoint, that 15% kind of attractive to cost conscious consumers. And then the balance they need upgrades repositioning or functionally obsolete.We believe all of our inventories in the top two tiers. So it is going to garner premium rents, where it’s good enough to compete given the location the investment we made. We also think not much is going to be built unless driven by specific demand drivers that over the cycle that will improve the competitive position of our existing inventory.
So that high quality inventory, we think, even with the secular headwinds, their competitive position gets stronger due to supply demand and balance. And I think statistically, you’re starting to see that with even some of the rent disparities between the A and the B space.But we continue to forecast good cash mark-to-market portfolio occupancy and leasing stability, we have excellent control in our capital costs. And even some of the macro statistics after national, which we’re certainly seeing in our own portfolio, there’s no rent premiums on leases greater than 7 years has doubled over the last two years from 16.4% to 35% in Class A inventory. And even the suburbs, new assets are performing better than older assets with rent rates [ph] close to 50%.So when you take a look at CBD new assets over the last couple of years, rents were up 3.6%, while in the Class A trophy class where they’re down 10% in the class date.
Newer assets in the suburbs, rents on average are about 6.8%, and down about 3% in the older quality inventory. So we do think that the office sector is going through a shift, very similar what we saw in some of the other product types, a number of years ago, an 18-foot clear warehouse was state-of-the-art, it’s no longer state-of-the-art.We certainly think that in the office sector, there’ll be some significant accelerated obsolescence, that will have the muting effect on overall demand, but also for the wealth position portfolios, put them in a higher capture rates of bringing in tenants and it seems to be statistically that tenants will continue to pay higher rents to be in a higher quality workplace. Certainly seeing a much more pronounced return to office trend across our portfolio, there’s been some national news on some of the major corporations bringing people back to work, we continue to see very minimal hoteling or hot-desking throughout the portfolio.
So there’s no question conventional thinking is that office is really back on its heels. And we’re positioning the company to deal with that dynamic.We’ve increased our marketing campaign, we’ve increased our investment some of our existing assets. I think the evidence of that is beginning to bear fruit through some of the increase that we’ve seen in our pipeline just in the last couple of months. That pipeline again is advancing through past touring into response RFPs to pay for being interchange. So we’re fully cognizant of the fact that it’s a challenging macro environment, and we have work to do. But we also think that the portfolio repositioning that we’ve done over the last dozen years, has really put the company in a very strong position to weather the storm achieve our business plan objectives, which are conservatively pulled together and use that foundational platform to spring into higher growth as market conditions improved.
I’ll George, anything add to that.George Johnstone No, I mean, great commentary, I think a couple of things, I would – we’re outperforming in just about every sub market in Philadelphia and in the Pennsylvania suburbs, in terms of our overall occupancy as compared to the market. And, even in downtown Philadelphia, including our joint venture holdings that at Commerce Square mean, we’ve got about a 6.6% vacancy factor in a market that’s between 15% and 20% depending on the brokerage research house. So, good levels of outperformance there. I do think the portfolio is situated well to accommodate the trend of people moving up the quality curve. And in terms of our own business plan, we have a path to get us to our occupancy guidance range.But keep in mind the note that Jerry mentioned in his prepared commentary, the small amount of holdings we still have in Northern Virginia and in Wilmington, Delaware are impacting our overall company occupancy by about 170 basis points.
So at 92% lease portfolio of basically Philadelphia, Pennsylvania suburbs in Austin, Texas, at 92%, I think really is the headline.Anthony Paolone Great. Thanks for all that. It’s just my other question relates more to life sciences wondering with the labs if you’re at a point where any of those tenants are converting into prospective tenants into your Schuylkill Yards developments at this point or if it’s just too early or just any other broader comments on the life science component of leasing?Gerard Sweeney Yeah, Tony, good question. We do. We think that there’s a number of tenants who are at or currently occupy space at B.Labs that remain interested in looking at 3025 and 3151. Frankly, one of the dynamics driving the conversion, the ninth floor was that some of those tenants had an immediate need for additional growth capacity.
But weren’t quite at a financial stage where they were we would underwrite them as a credit tenant new in a new building. So we’re being very careful how we do our underwriting on the life science front, as we’ve talked about on previous calls, we had an operating partnership agreement with the PA Biotech Council, which has been around for a couple of decades, as a scientific advisory board. They’re very much part and parcel of helping us success the financial viability of some of these lifestyle tenants.But I think the success of B.Labs is continued full occupancy in the high return on costs that we’re getting, certainly is emblematic of the growth track record that we see taking place as we move forward with the delivery to the building at Schuylkill Yards.Anthony Paolone Got it.
Thank you.Gerard Sweeney Thank you, Tony.Operator Thank you. And our next question comes from Nick Joseph with Citigroup. Your line is open.Nick Joseph Great, thank you very much. Jerry, you mentioned in the making progress on the dispositions, I was just wondering if you could provide some more color on the process, thus far, kind of the size and composition in the bitter pool and a pricing indications, any additional comments you had there.Gerard Sweeney Yeah, sure, Nick, how are you? Yeah, we put a number of properties in the market for discovery, which is that $200 million to $300 million range, some in Pennsylvania CBD, Philadelphia, Northern Virginia, as well as an Austin, Texas. And while we’re still getting visibility – I mean, deal pipeline, like I should say the timing of getting bids has been as we would expect, fairly protracted.
But as of right now we have one building that the buyer is an investment group and a tenant, who have that moving through contract negotiations that’s in a $50 million range. So we think that transaction will get across the finish line in the first half of the year.And then, we are evaluating bids from 3 different prospects on a suburban Philadelphia complex. That will kind of reach a conclusion on that in the next several weeks. So it seems that, somewhere around $100 million right now we feel are pretty getting to the level though the advanced, certainly $50 million is pretty advanced at this point. So that’s a pleasant surprise to us, because we weren’t really forecasting, much cap until the second half of the year. So this first foray of profits in the market, as we outlined on the last call was really just kind of test the appetite and see what’s out there.
So feedback has been slowed to come in at a number of fronts, certainly, I think we’re pretty happy with the progress we’re making so far.We have a couple of other properties in Northern Virginia, that we’re waiting for some feedback on some potential bidders, that that process is moving a bit slower in all candor, primarily driven by that market really has not performed that well anyway, then you at layer in the financing market challenges. As we would have expected a little bit slower, but at least we’re getting visibility and how to deal with that dynamic later in the year.Nick Joseph Thanks. That’s very helpful. And then maybe just on the financial market, I know you walk through kind of the lower loan to values what’s happening on the CMBS side as well.
Just keep touch on the current pricing difference that you see right now between secured and unsecured debt?Thomas Wirth Hi, Nick, this is Tom. I think for us right now, I think, the secured debt will be inside of the unsecured debt. Hard to say where that is. As I mentioned the CMBS market is being opening up, having some slowdown from the banks that were closing. But I don’t think it’s at least 100 to 200 basis points, and but you will see how we come out on pricing with some of the transactions we’re looking at right now.Gerard Sweeney Yeah, I think just add on to that, the unsecured market really is kind of the bank market and the public bond market. And I think, the unsecured bank market, while certainly more constrained than it was, I think, given relationship lending.
I think the team did a great job getting that $70 million unsecured financing across the finish line. The public bond market right now is gapped out to be much, much wider in terms of spreads versus banks. So we’ll see how that plays out over the next couple of quarters.Nick Joseph Thank you very much.Gerard Sweeney You’re welcome.Operator Thank you. Our next question comes from Michael Lewis with Truist. Your line is open.Michael Lewis Great. Thank you. Jerry, the first question that Tony asked you talk, you kind of combat at some investor perceptions. I think another investor perception is that office buildings are not financial. And you talked about the financing market a little bit, but I think your JV maturities are instructive. You mentioned you for the next 12 months.
Commerce Square sounds like it’s below LTV and close yet and done. The MAP Venture 78% occupied, Rockpoint 68% occupied, of course, Commerce Square is full. So, you mentioned kind of possible extensions, some will get refinanced.I guess my question here is kind of specific to you and then more broadly, I mean, do you think we’ll see a lot of loan extensions, you remember during the GSV [ph], everything was blend and extend? Do you think we’ll see a lot of defaults that put pressure on values? And so you have some of that in your portfolio, and I think it’s applicable to the rest of the universe. So do you have any thoughts on that?Gerard Sweeney Yeah. Hi, Michael. Great question. Look, I think, as we’re approaching all of these joint venture refinancing discussions, we’re talking to each of the lenders, who we have great relationships with about the dilemma that the portfolio is facing.
None of the dilemma the portfolio is facing as lack of performance effort by Brandywine and our operating partners, they tend to be more of a macro concern. So we can certainly articulate to those lenders exactly where every dollar wherever lease has gone over the term of their loan.And to some degree, those banks, Michael, will drive what the ultimate outcome will be whether they do a short-term extension and reset the rates. And the value proposition is supported by appraisals. That’s kind of track one, whether they wind up doing A, B note structure, providing a window of opportunity for a borrower, like our joint venture partners and Brandywine to invest additional capital and get that return is a priority for the B note, I think that will be a likely outcome in a number of situations.
I do think, and I’m not sure they’re applicable to any of our ventures. But I do think there’ll be situations where the borrower and the lender will simply agree that the best solution from the bank’s perspective to take the property back.The borrower’s may not be of the mindset to invest additional capital, given the quality of the portfolio that’s encumbered. Unless there’s an easy mechanism unless there’s clarity that the additional incremental money the borrower invests can be recovered as a priority of the over levered situation. So I think a lot of depends upon the approach that the banks take that will certainly determine what structures they work through with the borrowers.From our standpoint, we have great joint venture partners between our partners and Brandywine, we have extensive relationships.
We’ve always operated on a very forthright transparent basis. So I think all of our lenders view us as a really high quality landlord, and “Hey, if it wasn’t for the work you guys are doing the portfolio might not be performing as well as it is.” So if we think there’s a mutuality of interest between borrower and lender to reach the right economic program. But again, that has to work for both parties. So we’re going to each of these discussions is being constructive and positive and want to work through the right result. All of these mortgages, of course, as you know, Michael are non-recourse for anyone either has a negative a capital account, we’ve made plenty of property are marginal investment levels.So we’ll make the right business decision, both economic and reputational for the company.
And, to some degree, that decision, as I mentioned, can be driven by what the perspective is of the banks. But certainly, banks recognized that there’s a general credit crunch on commercial real estate, and that the issue is systemic, not specific, and how they deal with that will be within their own investment committees. But our approach is to get these loans extended, get them restructured for a capital structure that provides an opportunity for both the borrower and the lender to win. And we’ll see how that works its way through the process.Thomas Wirth Hey, Michael, this is Tom. I think, if we see interest rates kind of hit a peak, I think that some of our – talking to some of the banks, they feel, maybe if they’ve hit a peak stress level of where the rates are, at that may also, again, this is more for the loans in 2024 may give us an opportunity to see that sort of normalized, and then they have a little more clarity where they may see interest rates going and that can help in the decision making process as we talk to the lenders as well.Michael Lewis Yeah, that makes sense.
Those yield curve looks like they might start to help a little bit rather than here pretty soon. My second question is about the dividends. You last reduced the dividend in 2009, I checked your website and elsewhere, I think that’s the only time you’ve ever lowered the dividend in the company’s history. So I apologize if it makes you feel old. But we look back, I think, 30 years, we only found that one cut and I bring this up because I’ve argued that there might not be a reason to pay an 18% dividend yield for very long. But maybe I’m wrong if Brandywine is going to be known as a company that as long as the dividend is covered is going to pay it. It makes that that yield that apparently nobody thinks it’s going to stick around more attractive.And so I guess my question is, is your view that as long as the dividend is covered by cash flow, you continue to pay it?
Or do you do look at it, as you know, that high dividend yield isn’t doing you any favors? And you could retain that that capital anyway. How do you kind of think about balancing those things?Gerard Sweeney Michael, very fair question. And look, we continue to reflect on how our business plan is progressing, and how that relates to existing dividend levels, I think maybe a level set the discussion, before the impact of any of our sales, we think our taxable income is kind of in the $0.55 to $0.60 per share range. So the savings would be kind of $27 million to that low $30 million range annually. We also think some of the sales could have taxable gains maybe there’ll be – might be some taxable losses, too. So we’re waiting to get some more clarity on sales of what will sell and what gains and losses that we’ll have.We do have a strong baseline and I think, conservatively constructed operating plan for 2023.
And we may very well see some improvement in our capital ratios, as we’ve typically seen. For example, last year, our opening range was a cap tier ratio of 84% to 95%. And we round up at 84%. So even in the first quarter, we came in at 81%. So it is a challenge in strictly in this type of landscape, because I think to answer your question directly, I think the board will be the mindset so long as the dividend is covered, we want to continue paying that dividend. The variable to that which is well beyond our control is what happens in the capital market conditions. So, we want to be very disciplined and very mindful of forward liquidity and how we generate additional liquidity to both deliver the balance sheet, preserve good credit metrics, and keep the business plan moving forward.So, philosophically to answer your question is yes, but pragmatically, we’ve got to keep our eye on the bigger picture of things that we can’t necessarily control.
And I think the other way we look at it honestly is, we want to keep in mind that despite the irrationally low stock price, us and other office companies are having. The average investment face of our shareholders is in the low double digits. So the return to them at the current dividend level is in the 6% to 8% range. So even though spot pricing is much higher, it’s actually in a very reasonable range given the investment base of our shareholders who are counting on us to both have the forward focus on addressing liquidity as a financial discipline to inculcate the right results, and to generate additional external liquidity through sales to make sure that we keep the dividend fully covered.So we work for our shareholders and our office shareholders, not just Brandywine.
But all office shows have been really adversely impacted due to the macro negativity and the tone of what’s happening to office, what’s happened to credit markets, what’s happened to the economy? So I think we do and I say we, management and the board feel an obligation to continue keeping our business plan moving forward, to try and return as much value as we can to our owners during this very challenging period of time. I don’t know if that answers your question or not. But I think that’s how we kind of assess where we are.Michael Lewis No, that’s helpful. Thank you.Operator Thank you. And our next question comes from Tayo Okusanya with Credit Suisse. Your line is open.Gerard Sweeney Hello?Omotayo Okusanya Hello, can you hear me?Gerard Sweeney We can hear you.
How are you?Omotayo Okusanya Oh, perfect. Hi, how are you? So quick question just about new stuff of the longer GV development project, you guys – you talk a lot about sort of asset pipeline leasing pipelines actually look like expanding, because you just come talk about the kind of final conversion and where we can kind of expect to start to see some actual final leases for some of those assets.Gerard Sweeney You kind of have a little bit, but I think the question is kind of how we move through from the pipeline to lease execution? And, look, I think, the probability of a lease execution is a direct relation to the amount of pipeline we have. So, I think, while we are – we wish we had definitive leasing, to present back to you and our shareholders.
And we’re working on that. I’ll get that in a second. I think, generally, the team is very pleased with the increased levels of activity. Now part of that is the flight to quality construct, part of that is, I think, the tremendously talented leasing teams, we have worked on these projects in terms of generating new activity, I think part of it is also these buildings are finally getting old people can walk through them.So typically, as we’ve looked at the cycles in the past, if you don’t have a pre-lease in place by the time you start, most of the significant leasing activities occur as the building nears completion, and kind of 6 months after it’s completed. Because tenants unless it’s a pre-lease, again, they really do want to see what the lobby looks like the security desk, the turnstile, the elevator cabs, the window lines, all those things that are important to them in creating the value proposition in their minds, at least at a at a rental rate that’s higher than general market, given its new construction.So, I think, from that standpoint, the progression that we’ve seen through the pipeline in our Schuylkill Yards project has been very, very encouraging.
Again, I mentioned, 134 Hard Hat tours, the pipeline has grown significantly. So what we do is once we get a prospect and we do everything we can, including a meeting with their top C level executives dealing with their broker, providing them we have great virtual tours of all of our properties, some of our senior executives, including Tom and myself, reaching out to their top executives to get them enamored with doing a transaction becoming a member of the Brandywine family of tenants.We have very, very good in-house space planning people that can turn a space plan within a couple of days, very strong internal construction folks that can price out a plan much faster and a lot of our competition. So all the things that we can do to control the process to get them to lease the execution, I think, we’re doing everything we can.In today’s climate, tenants are just particularly the larger size tenants were talking to, are simply slower to pull the trigger on making a long-term large capital commitment for their organizations.
So to some degree, some of these companies are waiting for more visibility on how they view their business plan evolving over the next several years before they pull the trigger. So I don’t know if that answers your question. It’s a hard process because it’s not we can push a button and make a doughnut, we’ve got to get people across the finish line by giving them every element of their decision making process as quickly as we can, so they have the full range of information to make their decisions.The flip side is that, even on the life science market in Philadelphia, if you looked at that under construction or pre-development pipeline a year ago, the actual property is under construction, for delivery in 2023 and 2024 is much lower than it was when we looked at it back in 2021, and 2022.
So the universe of competitive product is lower, and the tenants in the market has remained about the same level, some of those tenants in the market put their requirements on hold, until they clear FDA approval, they get their financing lined up. So all the natural reasons they would make that decision. But for the most part that the supply demand balance on these projects seems pretty favorable to us in getting some of these prospects across the finish line and getting leases executed.Omotayo Okusanya That’s helpful. I think, just follow-up, Tom, in regards to the dividend, again, massive dividend yield today, when it comes to appears. Dive into just SAV [ph] payout close to 100%. I mean, how does one kind of think about the dividend going, but what exactly is the board wouldn’t really consider to think about what the appropriate dividend level is going forward.Thomas Wirth Yeah, I think the board will focus on a couple of very key data points.
One is how is the business plan progressing from an operating standpoint? And what visibility do we have on achieving our business plan? Number two, how is the financing and sales campaign going in terms of addressing both current and forward liquidity requirements. And then three, take a look at what their view is of overall capital market conditions, as we start to think ahead to 2024 and 2025 on financing needs. So again, one of those, the first one is fairly controllable from our management team; the second one, the proof will be in the pudding in terms of what we can deliver in terms of financing some of these joint ventures and getting some sale proceeds across the finish line; and the third is a macro question that certainly management the board will evaluate as we think about what the risk management position should be for the company.Omotayo Okusanya Thank you very much.Gerard Sweeney You’re welcome.Operator Thank you.
Our next question comes from [Dylan Brzezinski] [ph] with Green Street. Your line is open.Unidentified Analyst Good morning, guys. Thanks for taking the question. You mentioned reducing leverage as a possible use of capital, should you get some of these dispositions to the finish line? Just curious, how you guys are thinking about those leverage targets that you have in 2023 business plan, on a longer term time horizon? Is there any desire to sort of lower those?Gerard Sweeney Yeah, I think, I mean, our game plan is to get our leverage targets, our overall company leverage kind of in the range of where our core net debt to EBITDA number is in the low-60s. And certainly, as we look at it longer term, particularly some of these developments coming online, and hopefully, some recovery in the office market.
We continue to target getting below 6 times over the course of the next several years. Certainly, one of the immediate tools that we’re working on Dylan is, as I alluded to, and Tom touched on was exiting some of these joint ventures they tend to be more highly levered. So the debt attribution of over $400 million by reducing that, that added a very powerful deleveraging tool we have at our disposal, some of those joint ventures are coming to the end of their natural lifecycle with us, our ownership ranges from 15% to 50%.So we’re evaluating each and every one of those joint ventures that we have identified in the supplemental package as how they can become candidates for us to exit or reduce your ownership stake over the next several years, as a as a way for us to accelerate the de leveraging, even in a capital constrained marketplace.Unidentified Analyst That’s helpful.
Thanks. And then just staying on the dispositions. I think, last quarter, you had mentioned that you’re targeting cap rates anywhere from the highest sixes to low nines, obviously, depending on market, just given that you’re already in the market with several $100 million with the assets. Is that pricing guidance still relatively in line with expectations today?Gerard Sweeney Yeah, I think so. I mean, the one project we’re moving forward with this, the next one is the sales, the sub-7 cap rate, which is kind of where we thought it might be. The other one is kind of in the 9% range. But it’s 9% based upon kind of leases in place, not necessarily reflecting what we think might roll out of the portfolio. So, we do think that pricing levels are consistent with what our expectation was, look, I was frankly, hoping for better pricing across the board, but it’s not there today.
But the reality is, is that the pricing levels that we are getting clarity on are very much in line with what we view to be the net present value to us of holding those assets. And as long as that connection point is made between offer price, and internal NPV, I think, we view that as a tradable asset for us.Unidentified Analyst Great. Thanks for the color. I appreciate it.Gerard Sweeney Thank you.Operator Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Your line is open.Steve Sakwa Yeah, thanks. Jerry, I just wanted to know if you could provide a little more color on the Austin leasing pipeline for the office building and I’m just trying to think through like the timing of those leases, to the extent that they get executed.
And the reason I’m asking is, at some point these projects are going to deliver, you can only capitalize interest for so long before you have to start recognizing the income and maybe putting further pressure on the payout ratio or coverage ratio, which then kind of speaks to the dividend. So just trying to sort of get a sense for the timing and the size of some of these tenants, and when a lease realistically could get signed and how that might affect the yield, the timing, the CAD ratios, as we think about 2024?Gerard Sweeney Yeah, great question, Steve. Look, it’s certainly a point that we are very critically focused on, the pipeline that we’re projecting that will start to generate some revenue out of Uptown ATX in the second half of 2024.
That obviously, is going to be conditioned upon getting some of these prospects across the finish line. The project deliver on the second half of this year, so well, essentially about 12 months of capitalized interest to make sure that we insulate ourselves from that downside risk. But that will clearly be a pressure point and a point of consideration as we look at our at our revenue numbers going forward.And as you know, I mean, Austin is while it has great, great long-term growth potential. In fact, you know, even as of today, with the marketplace being slow, there’s 64 new prospects, looking at the Austin marketplace, as either a regional or headquarters relocation. There’s about 14 new tenants to the market that are over 50,000 square feet, and about seven over 100,000 square feet.
So the forward pipeline looks good. We’re just kind of all meandering our way through, what’s been a major pullback, like some of the tech companies increased in some sublease space. And our team is very, very much focused on, how we can get some of these smaller tenants across the finish line, rather than waiting for one of the larger tenants to make a decision on what they want to do. I don’t know if that answers your question totally quantitatively, but I think somatically that’s the direction we’re moving.Steve Sakwa So Jerry, I guess just maybe not to beat a dead horse here. But on the pipeline, are they mostly existing, I guess, Austin tenants that kind of have natural lease explorations and they need to make a decision? Or these more kind of new to market tenants where maybe they don’t have to make a decision, just trying to get a sense for the ability to get things over the finish line versus things to continue to get delayed.Gerard Sweeney Yeah, I mean, of those prospects I mentioned, they’re kind of 30,000 to 60,000 square feet.
They’re all existing tenants in the market with lease expiration, that kind of role is that timeline mentioned.Steve Sakwa Right. And then, I guess, just looking at the change in occupancy, I think there was definitely more weakness in kind of Radnor, Conshohocken this quarter, just sequentially, in terms of the occupancy declined at anything specific there to note and I guess potential backfill opportunities on some of those.George Johnstone Sure, sure. Steve. Good morning. Yeah, it was really more Plymouth Meeting, where we had to kind of 20,000 square foot tenants vacate. In Radnor, we did get one 12,000 square foot space back that we’ve already got two proposals issued to so the Radnor inventory is in great shape and not really have a concern when we get one back.
But and then, yeah, to your point, we had some additional move outs in Conshohocken. 18,000 square foot or was the largest. And we’ve already got pipeline looking at that space.Steve Sakwa Great. Thank you.Gerard Sweeney Thank you, Steve.Operator Thank you. There are no further questions. I’d like to turn the call back over to Jerry Sweeney for closing remarks.Gerard Sweeney Thank you all very much for participating in our earnings call. We look forward to updating you on our 2023 business plan progression on our next earnings call. Thank you very much.Operator Thank you. This concludes today’s conference call. Thank you for participating and you may now disconnect.
