Q3 2022 Brandywine Realty Trust Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Good day and welcome to the Brandywine Realty Trust third quarter 2022 earnings call. At this time, all participants are in listen only mode.
After the Speakers' presentation, there'll be a question and answer session and instructions will be given at that time.
As a reminder, this call may be recorded I would now like to turn the call over to Jerry Sweeney President and CEO you may begin.
Michelle Thank you.
Friday morning, everyone and thank you for participating in our third quarter 2022 earnings call.
On today's call with me today are.
George Johnstone, our executive Vice President of operations.
Sure.
Vice President Chief Accounting Officer, Dan Palazzo, Tom Wirth, our executive Vice President and Chief Financial Officer.
Prior to beginning certain information discussed during our call may constitute forward looking statements within the meaning of the federal Securities law. Although we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved.
For further information on factors that could impact our anticipated results. Please reference our press release as well as our most recent annual and quarterly reports that we file with the SEC.
So during today's call, Tom and I will review third quarter results provide an update on our 22 business plan and after that Dan George George and I are available for any additional questions.
Looking back at the quarter, certainly record inflation interest rate increases capital market uncertainty recessionary fears have significantly changed the operating and financing landscape.
The stability of our operating portfolio evidenced by low forward rollover protection from operating expense increases on 81% of our leases well position us on the operating margin front and we will certainly continue to focus on margin improvement.
We entered the 'twenty three budget cycle and we are pleased that our 22 operating and development plans remain on target.
The macro environment, However, certainly impacted our capital program.
While we will continue select planning and approval efforts future development starts are on hold unless they are fully pre leased and until the existing pipeline post more leasing traction.
During the quarter, we also terminated several potential acquisitions and accelerated our refinancing and interest rate management programs that Tom and I will review during the course of our conversation from an operating standpoint, we continue to experience higher physical occupancy.
60% overall with the highest 70% to 75% in the Pennsylvania suburbs.
I bring attendance as you might expect continuous and all of our markets Tuesday through Thursday being the most common in office days on those high peak days were experiencing closer to 70% to 75% attendance for most tenants.
Tenant interest in high quality work environments remains the order of the day, we see that every day in our tour levels lease negotiations and deal executions in fact, 41%, which is up from 32% last quarter of the new deals in our operating portfolio of pipeline.
Our from tenants looking to upgrade from lower quality lesser monetized buildings.
During the third quarter, we exited 513000 square feet of leases, including 300000 square feet of new leases. We also posted rental rate mark to market of 16, 5% on a GAAP basis, and six 9% on a cash basis.
Our full year Mark to market range remains 16% to 18% on a GAAP basis, and 8% to 10% on a cash basis.
Absorption for the quarter was 176000 square feet tenant retention was 90% and we ended the quarter slightly below 91% occupied and 91, 8% leased it's fair.
Further worth noting that in our Philadelphia, CBD University City, the Pennsylvania suburbs, and Austin markets, which cover 93% of our portfolio NOI were a combined 93, 8% leased and 93% occupied.
Our spec revenue range remains at 34% to $36 million range with $35 million or 100%. The midpoint achieved the speculative revenue range represents approximately one 8 million square feet of which $1 7 million or 94% is already executed.
The portfolio is stable and our forward rollover exposure through 2024 average is six 5%, which ranks US third out of 17 office rates further our annual rollover exposure through 2026 is seven 3% also ranking us third at.
17 rates and we continue efforts to reach out into the maturity curve on a daily basis.
We did post <unk> 36 per share, which was 2% above <unk> <unk> above consensus estimates we beat those estimates primarily due to the combination of improved operating results lower interest costs and a higher than anticipated gain on at $31 51 market Street formation.
So while exceeding consensus estimates for the quarter were keeping our <unk> range unchanged at $1 36 to $1 40 per share primarily due to the unstable interest rate environment and the impact of any potential sales.
Based on 2022 leasing activity and higher EBITDA or third quarter net debt to EBITDA decreased to seven two times on a combined basis and based on our development activity. We are projected to be at the upper end of our current range of six 6% to $6 nine.
At the end of the year.
Our core EBITDA metric of a range of 6% to six three focuses on operating portfolio by eliminating joint venture in active development and redevelopment projects. We continue to believe this is a more accurate measure of how we manage our core portfolio and those metrics are noted on page 31 of our Sip.
And looking at leasing activity velocity remains encouraging during the third quarter. Our total leasing pipeline is $4 8 million square feet broken down between one 5 million square feet on the operating portfolio and $3 3 million on the development project.
The one 5 million square foot existing portfolio pipeline is up 430000 square feet from last quarter with approximately 208000 square feet in advanced stages of lease negotiations also as I mentioned, 41%.
That new deal pipeline, our prospects looking to move up the quality curve.
The $3 3 million square foot leasing pipeline on the development projects increased over 300000 square feet during the quarter.
Deal conversion rate in the second quarter was 40% up from 38% last quarter and in line with pre pandemic levels from the fourth quarter of 2019.
Another good sign as tenants continue to accelerate their decision timeline. This past quarter. The median deal cycle time improved by an additional four days and is now equal to pre pandemic levels.
And looking at liquidity and dividends, we currently have $350 million availability under our $600 million line of credit with.
With our targeted development spend and absent any other financing sources, we anticipate having over $300 million of that line available at the end of 2022.
Our 76 cents per share dividend is well covered with a 53% payout ratio.
We know there is a focus on near term maturities, so Tom and I will address them. During our comments, we have a $350 million bond maturity in February of 23.
We are confident we could refinance this bond in the investment grade market and continue to explore shorter dated maturity bond options in that investment grade market. We are also actively pursuing several other more flexible financing options, including secured and unsecured property and portfolio.
Financings through the bank and other traditional invest institutional financing sources.
This $250 million bond in February is our only wholly owned balance sheet maturity until our next bond matures in October of 2024.
We do have two joint ventures with non recourse loans maturing in 2023.
Already underway with extension extension discussions and exploring other financing sources for those loans as well. The first is at $208 million loan in our Commerce square joint venture.
Very low leveraged financing with over 11% debt yield on income in place we're already in discussions with the existing lender for an extension as well as exploring other financing sources. The second majority in the joint venture framework is in August of 2003, and refinancing and discussion efforts are underway there as well.
<unk>.
From a capital allocation standpoint, we continue to assess forward capital spend. In addition, we are marketing an additional $200 million of properties for sale as part of our ongoing price discovery process.
Looking at our development opportunity set as I mentioned earlier other than fully leased build to suit opportunities. All future development starts are on hold pending more leasing on the existing pipeline and certainly more clarity on the cost of debt capital and cap rates.
Yeah.
We also terminated two potential acquisitions that we had underway since the quarter end.
When you look at our development pipeline, our remaining total Brandywine net funding obligation on all of our wholly owned and joint venture development projects is $115 million, which includes $11 million remaining to fund on our $31 51 market project and 17.
For remaining tenant improvement spend on are now 96% leased 405, Colorado as Youll note on that page in the sup.
Our equity requirements on Schuylkill yards, West and Uptown ATX block are fully funded we also announced as part of our press release, the commencement of our of our $1 55 King of Prussia Road project.
145000 square foot project is 100% leased arkoma and will serve as their North American headquarters, we anticipate the project stabilizing in the fourth quarter of 'twenty. Four we are already proceeding on a 60% loan to cost construction loan to help finance this project.
And based on that as of quarter end, we only had $18 million left to fund on this project, which again is included in our in the above $115 million total forward spend obligation.
Our 250 King of Prussia Road project in Radnor is now over 53% leased having signed 28000 square feet of leases this quarter.
Current pipeline totals 254000 square feet and again, our remaining $20 million spend on this project is included in the $115 million forward spend noted on that schedule.
And looking at.
University City are.
<unk> Labs project is doing extremely well and is leased to 15 different companies.
A number of these companies are already expressing needs for additional space.
So building on this success, we do plan to convert another floor totaling approximately 27000 square feet to meet existing incubator demand and in addition, as noted on previous calls feasibility studies remain underway to add another 78000 square feet of life science capable space through flu.
Nine including space being vacated by an existing tenants.
Looking at Schuylkill yards.
Our third 25, JFK project, which is a life science residential tower remains on time and on budget for Q3 'twenty through delivery.
We currently have an active pipeline totaling just shy of 400000 square feet, which is up 73000 square feet from last quarter. The pipeline is expected to continue as construction progresses. In fact now with the superstructure nearing completion, we have done over 100 hard hat tours for prospects.
And their representatives.
As I noted earlier, our $56 $8 million equity commitment is fully funded.
Our partner's equity investment is also fully funded in the first funding of our construction loan has commenced.
As you know from our supplemental package in Schuylkill yards, we can do about develop that another 3 million square feet of additional life science space and is another step in the execution of that plan are $31 51 market project, which is at 441000 square foot dedicated life Science building is on schedule.
And on budget that project will be completed in the second quarter of 'twenty four we on that project, we have a leasing pipeline of about 400000 square feet.
And we plan on obtaining a construction loan and a 50% loan to cost range.
Early in early in 2003 as funding of that construction loan is not required until the third quarter of next year.
Construction is also on time and on budget at block egg.
At our Uptown ATX development. In addition, as noted in our announcement during the quarter. We did close on our construction loans totaling $207 million on the office component, which is 348000 square feet. Our leasing pipeline is one 5 million square feet.
When we take a look at our development pipeline the key phrase.
With that forward pipeline as timing flexibility as evidenced by low land basis per cap.
And product diversity of the $14 2 million square feet. We can build we can do about three to 4 million square feet of total life science space and over 4000 multifamily units and our overlay approvals, particularly at Schuylkill yards Uptown ATX gives us a degree of flexibility to further adjust that mix to meet market.
Demand as evidenced of the low land basis for <unk> you will note in our statements that we did record an $8 $7 million gain on the land contribution to our joint venture.
And looking at other capital components, while R 22 business plan did not and does not specify what dollar volume of property dispositions. We have been active on this front as well as I mentioned, we have over $200 million of assets in the market for price discovery.
Got it.
We do anticipate continuing to sell select non core land parcels during 'twenty three as we did in 'twenty two.
We do have approximately $110 million of assets under firm agreements of sale that we do expect to close prior to year end.
We also further expect.
Net sales of select properties out of our existing joint ventures will occur over the next four quarters.
In dollars generated from these activities will certainly be used to reduce leverage fund our development pipeline and look for higher yielding.
Growth opportunities.
Tom will now provide an overview of our financial results.
Thank you, Sir our third quarter net income totaled $13 3 million or <unk> <unk> per diluted share and <unk> $61 8 million or <unk> 36 per diluted share two cents above consensus estimates some general observations regarding the third quarter, our third quarter results were above.
Consensus and we had several variances to our second quarter guidance of those numbers interest expense was $1 $2 million lower than forecast, primarily due to the timing of capital spend and interest rates being slightly below our forecast we have not changed our full year guidance.
Portfolio operating income totaled 72, approximately 72 million and was above our second quarter guidance of <unk> $71 million land gains were above our forecast at one 5 million due to a higher gain on the formation of <unk>.
$31 51 market Street joint venture, our third quarter debt service and interest coverage ratios were three 7% to three nine.
<unk>, which were similar to the second quarter results in line with forecasts are.
Our third quarter net debt to EBITDA was seven two and slightly above our high end of six 6% to $6 nine guidance range.
As Jerry mentioned, our 2022 guidance remained unchanged while our results were ahead of consensus we do remain cautious about interest rates.
Sequential increased interest expense totaling approximately $4 $5 million in the fourth quarter.
We believe there will be opportunities to mitigate some of our floating rate interest exposure through hedging and asset sales that will lower our floating rate line of credit balance.
Looking to the fourth quarter of 2022, we have the following general assumptions.
Pretty level operating income will approximate 72.5 and will be incrementally higher than the third quarter as we anticipate a slight net absorption increase during the fourth quarter total interest expense will increase to $22 5 million, primarily due to the anticipated higher interest rates and capitalized interest.
This will approximate $2 million or contribution of <unk> from our own consolidated joint ventures with over $5 5 million.
And our G&A for the fourth quarter will be $8 million.
Our term fee and other income we expect to approximate $3 5 million for the fourth quarter net management fees for the quarter will be $3 million and net gain on and tax provision.
Total 700000.
Refinancing and liquidity activity as we forecast our future financing needs, we are assessing our options to increase liquidity.
With regards to our bonds, the $200 million to $350 million bonds maturing in February of 'twenty. Three we believe that we can refinance in the current market with a shorter dated bonds. However, as Jerry mentioned, we are assessing several options that in combination will allow us to repay the 2023 bonds and lower the outstanding balance on our.
Our line of credit.
Those include looking at secured financings and unsecured financing in the form of a term loan and again potential asset sale. This.
This quarter and in the future, we anticipate raising between $550 million to $650 million in proceeds within the next 90 days that will be used to pay off the February bonds and reduce our outstanding balance on our floating rate line of credit.
Our fourth carrier capital plan is very straightforward and totaled 110 million or CAD payout ratio remains at 84% to 95% and that will likely be at the higher end of our range for 2022 cash rate is above our historical run rate, primarily due to the higher capital costs associated with the higher leased.
Activity in our wholly owned and JV portfolios.
We expect to spend about $45 million in development and redevelopment.
$33 million in dividends and $10 million in revenue, creating a revenue maintain each and $12 million and net equity contributions from our joint ventures.
Based on the capital plan outlined above our line of credit balance of approximately $299 million at the end of the year, leaving approximately $311 million of line availability. We also expect that our net debt to EBITDA ratio will be at the top end of our six 6% to six.
Nine guidance range with the main area will be the timing and scope of our development spend.
With regards to liquidity, we have ample capacity for alignment credit, we do expect to invest an incremental $115 million on our active development projects.
From today forward and targeted asset sales to fund those were lower that that will pay for that balance as well as lower line of credit.
We anticipate our debt service coverage ratios will approximate three five and our interest coverage ratio at three eight and our debt to EBITDA will be 40% to 41%.
We believe that our net debt to EBITDA is at an elevated ratio due primarily due to our development and redevelopment pipeline. We believe those are transitory and once these developments are stabilized our leverage will decrease to further highlight how invest for the future development is impacting our current leverage.
As outlined on our development page. We currently have $428 million invested in development projects that provide little so no 2022 earnings that $428 million investment represents a $1 two increase times increase to our leverage as of quarter end, we anticipate those project.
Generating an incremental $64 million of cash NOI over time, and we are confident in achieving the stated investment yields. Once these active projects have stabilized we forecast that our leverage will decrease back into the low six times range as mentioned above we plan to partially offset the current bill development range.
Targeted asset sales in 'twenty, two and 'twenty three.
Tells us development stabilize we have included an additional metric core net debt to EBITDA at six five at the end of the quarter, but excludes our joint ventures, and our active development projects.
I'll now turn the call back over to Gerry.
Hey, Tom Thank you.
Well to kind of wrap up our prepared comments the portfolio remains in solid shape.
No that there are.
There are concerns about that future demand drivers.
I think what we're seeing right now in our leasing pipeline is continued.
New additions by tenants looking for an upgraded their inventory at this point in the cycle, they're prepared to pay for that upgrade. So we're still posting very good operating metrics and looking forward as we move into more uncertain times I mean, certainly our average annual rollover exposure through 24 of only six five.
<unk> with the strong mark to markets predictable and manageable capital spend and accelerating leasing velocity, we think puts us in very good shape.
So as usual, we'll end, where we started and that we really do wish you and all your families well and were delighted to open up the floor for questions. Michelle We do ask in the interest of time, you limit yourself to one question and a follow up.
If you would like to ask a question. Please press star 111 moment for questions.
Our first question comes from Bryan Spillane with Evercore your.
Your line is open.
Hi, Thanks.
So you talked a bit about the leasing demand pipelines, but maybe could you just provide some more color on the demand youre seeing specifically for the spec development projects in Schuylkill yards in Uptown ATX.
Yes for both life science, and traditional office and I guess, how much activity in particular are you seeing from large potential users of these spaces.
Good morning, Brian .
I'll move south to north.
We take a look at our our pipeline and George certainly feel free to chime in.
We have our pipeline before Uptown, that's still very early in the development cycle.
<unk> is very very good we have several close to.
Full building users who are evaluating the project and discussions with them continue of course, given their size they tend to be fairly complicated.
So we're in active dialogue with them and their representatives then we have a whole range of additional tenancy range honestly from a couple of horses single floor users given the demand we're seeing right now Brian we have not yet.
Sorry to entertain user smaller than one floor, we're keeping a shadow pipeline on that but I think we want to see where some of the.
The larger tenants.
Larger tenant prospects land figure out wherever we have the availability of workforce in the building. So I think we're very happy with the level of activity, we're seeing there and the same thing further north at Schuylkill yards I mean, we have.
The superstructure 30, 25 will top out at the end of November .
The window wall system is up through six of the eight levels on the life Science side, and then we leapfrogged up to the to the residential tower.
We are having daily daily tours with prospects their brokers. So the pipeline there is very good we have.
There are a number of of multiple floor users ranging up to 70 to 80000 square feet and then we're also looking at a number of smaller users bofa lessen a floor that are in the queue as well.
Same thing on.
On $31 51, a little bit early we're just really.
Coming out of the ground breaking on that.
But the users there again range from single floor 35000 square foot users up to a couple hundred thousand square feet. The range is from.
Established life science companies companies growing out of the incubators in the region into more graduate level space as well as a good pipeline of institutional demand coming from the health healthcare and academic systems.
Got it thanks.
And you touched on additional asset sales as well could you maybe just talk about what youre seeing in the transaction market today in terms of bid ask spreads and I guess to the extent you can't complete additional dispositions what are the funding plans for development in.
How would you say that impacts your thinking around the dividend.
Yes, well I.
Think in terms of the <unk>.
Funding plan around future development, I think we framed out or try to frame out fairly clearly that the forward committed development spend we have what we have underway is $115 million. So we have plenty of capacity with our plans in place to fully fund that out.
As I mentioned, we're also given the uncertainty in the in the interest rate and cap rate climate right now.
Putting a number of projects on hold until we get more clarity on where those markets and those pricing levels will be but more importantly, where the source and uses play out.
So hopefully that answers the second part of your question in terms of the asset sales.
It's.
Not a lot of trades have occurred because youre really saying.
There is still a bit of a disconnect between.
By a between seller expectations and buyer aspiration, so to speak and the buyers are tending to.
Do their pricing models and their equity return models based upon where they see that as in the debt markets frankly had been a little more volatile of late as we all know so that created some.
Some confusion in terms of what the appropriate price levels are.
I think in general for the assets, we do have in the market. We're very pleased with the number of confidentiality agreements that folks have signed to get access to the information as well as the number of tours. So theres a high level of interest out there in terms of.
Potential buyers, we are seeing target pricing levels.
Somewhere 10% to 15% below our originally targeted levels of a couple of quarters ago, and Thats I think one of the reasons why we're not seeing a lot of things trade, but I think the level of activity that we're seeing and the quality of the buying pool is good I just think the pricing metrics are a bit unclear right now based on.
Based on where the debt pricing levels are.
Thanks Jerry.
Youre welcome.
Our next question comes from Michael Griffin with Citi. Your line is open.
Thanks, maybe following up on that disposition question do you have a sense of the targeted buyer pools for these proposed dispose and is there one capital partner that might be more attractive kind of relative to others in terms of these transactions.
Yeah, Michael I mean look they range from theirs and our bidding pool right now.
There are a number of.
Foreign investors.
We're looking.
And it runs the full gamut down too.
Tier two institutional investors syndicators, who have money.
It really depends on we have assets that are in the marketplace. It range from basically $20 million in value up to about $80 million a day. So it's a fairly wide range of asset sizes are out there.
And as I mentioned.
My answer to the earlier question I think we've been we've been pleasantly surprised with the number of people who are coming through the properties for tours.
Certainly.
The investment brokers, we've hired to represent us on a number of these trade spending as much time kind of locking down debt commitments as they are walking equity investors through because I think.
The question that comes up after the lobby looks great as like what's the debt costs going to be on the project. So we're spending a lot of time at reaching to a wide range of blending sources to make sure that we understand where that pricing level should be so we're in a good position to respond to pricing offers when they come in.
I mean, what we have under agreement will be executing those at a sub 6% cap rate.
And we feel pretty good about them getting across the finish line as I mentioned by the end of the year.
And then the remaining process, we have in the market quite candidly range from.
Assets that we deem to be non core that we're kind of testing the market.
Higher rollover stage of projects a lifecycle to ones that are more stable.
Thanks.
And then just maybe on the upcoming debt maturities and refinancing prospects do you have a sense of the potential term in <unk> and in jewelry I think you've talked about it being more shorter term debt is there any possibility of maybe terming it out for longer.
Yes, Hi, Mark.
I think that we're targeting and the refinancings were targeting are kind of in the five year range for most of it some of it may be a little shorter term than that but I think we're kind of looking at five year at this point.
Again with a bond deal being a potential we're also looking at things that even if they are five year.
<unk> instruments that we could get out of them or refinanced them earlier than than keeping them outstanding for five years. So we're trying to look at some.
Options that will that can go out that five year window, but potentially if things improve allow us to repay them earlier.
Okay. That's it for me thanks for the time.
Thank you thanks, Mike.
Our next question comes from William Crow with Raymond James Your line is open.
Great Good morning.
Couple of bigger picture questions here Jerry.
I think if you went back five years ago. The narrative was that the affiliate was kind of a crown jewel in the mid Atlantic and willing and ready to accept a lot of new Yorkers that might move out of that market.
It was being challenged.
And I think if you just look for today, there's been a perception change maybe and maybe that's kind of what I'm asking about it.
Your tenants have they had a perception change of the affiliate markets the safety of the downtown CBD area.
Anything like that that might be a drag on future demand.
Yeah, Hey, Bill good morning.
Excellent question I mean look I think Philadelphia really has benefited in.
In the last.
Half dozen plus years bring.
Bringing a lot of.
New <unk> migration into the city and entered into the close to the suburbs as well.
And I think that.
We've continued to see a number of companies move into the Philadelphia market.
That slowed of course during the pandemic, but we also were able to pick up a couple of of new tenants in our portfolio were actually new to the region during the pandemic into center City Philadelphia.
The.
<unk>.
The tone of a lot of these major cities has certainly changed.
Philadelphia is making amazing progress on an economic growth trajectory I think there is some concern about the safe and clean components that youre seeing repeat in a lot of other cities.
I think theres a lot of attention being focused on that.
It's certainly a bit of a concern by some tenants, but I think the general perception bills is viewed as transitory I think theres a lot of efforts underway both in the public and the private sector to provide for.
To provide methods to allay those concerns we are in close communication here with the regional rail authority and what they are doing certainly working with the.
With the business improvement districts in the city of Philadelphia to ensure that issues like that are in fact, transitory and will be readily addressed.
But it's certainly a topic that comes up in all candor with some discussions as people are looking at Philadelphia from the outside and I think when we get them through the door and we walk them through the vitality of the parts of the city, where we're doing business certainly great Green shoots is the potential continued.
Growth of the cell and gene therapy business in Philadelphia, and that's it that's it academically anchored.
Program.
Roche Pharmaceuticals, Bill as you May recall day, they announced they're building as it will be a $600 million.
Manufacturing and research lab directly across from our.
IRS post office building and that'll house.
A whole range of employees from all over the world. So that type of investment activity, we think portends, well, particularly for University city.
But I think we readily acknowledge and all of our tenants business discussions that they are that these major cities, including Philadelphia transition issues, they need to work their way through.
I don't know if that answers your question or not but yes.
Thats helpful.
We don't live there.
It's beneficial to hear your thoughts this second question and Thats.
It kind of be a smart <expletive> here, but.
During your prepared remarks, you talked about the positive attribute of habit.
Very few.
Lease rollovers over the next couple of years.
And I, absolutely agree with you, but my questions of course.
Exact opposite for industrial aware of shorter.
Lease durations as a premium these days.
Has there ever been a time in the last 15 years, where you would switch.
Sure.
Short term lease expirations for a lot of lease term.
Okay.
Our maturities.
It feels like we have not enjoyed that period of time.
With healthy mark to market rents.
Feels like we've been trapped in a no growth environment.
Since the financial risk through the great recession does that is that fair.
Yes Bill.
I apologize.
Keep cutting in and out so yes.
Just as a point of clarity are you asking.
Is there a time at which we think will be looking at shorter lease maturities to provide more intermediate term upside in the rental NOI.
Yes, sorry about the reception here.
The question is has there been a time over the last 15 years, when it's actually been a good thing to have near term maturities.
It feels like we've never hit that that time, where the mark to market was attractive about <unk>.
A lot of near term maturities.
Well I think as a general rule.
Dan.
We haven't really seen that.
But I do think from a submarket standpoint, there have been.
Moments of Sun, a pure Sunshine. So for example, when I take a look at our Radnor portfolio or our University city portfolio here.
Certainly doing bridge term leases has turned out to be very successful for us we've been able to move up.
Move up rental rates significantly we have not seen that in our Washington D C Northern Virginia, Maryland market.
We had moments of that in Austin, Texas.
A number of years ago, where we were doing three year leases that.
Had some good escalations built into them. So it's really for us as we look at it Bill it's really a sub market dynamic that we really try and think through so we'll take a look at what our forward rollover is by sub market take a look the existing occupancy levels and then modulate our marketing plan based on that.
One of the challenging governors, we've had quite candidly in the last.
Half dozen years has been the the escalation in construction pricing.
Because.
It really tends to be the <unk>.
Capital recovery mechanism, sometimes tends to overwhelm the desire to do the shorter term leases to get that next bump.
So, but again there have been moments of that we do as we've talked on previous we do a lot of spec suites, where we build out.
Smaller tenancies that we do leasing in that three to five year range.
Higher than normal rents to provide that tenant that flexibility and our track record has been that we actually get those tenants either renew we're getting another tenant to move in into that this condition.
So I think for us it's been very much a tactical versus strategic objective I do like the.
The lease structures, we've migrated to about 81% of our leases provide a pure inflation hedge for us our average annual escalations are in the high twos to low threes. So it provides kind of annual rental rate increases and we do take a look at our average lease terms, which we focus on every year as part of our business plan.
Alright, thank you.
Got it.
Thank you.
Our next question comes from Daniel Ismail with Green Street Advisors. Your line is open.
Great. Thank you maybe coming back to an earlier response, Jerry I believe you mentioned on the dispositions those being a sub six cap are those stabilized or is there some leasing to do there.
Yes.
One is one is fairly stabilized and the other is.
Residential project.
Got it.
For clarity I believe.
Earlier. This year you guys had placed at 1900 market on the or.
On the disposition block is it safe to assume that that is not included in that $110.
It is not Danny that is correct.
We still have that in the market.
May recall, we launched that right before memorial day, and with the some are coming in and more importantly, the volatility at that point.
We moved the bid date back we are still talking to a couple of I think high quality buyers there.
But again as that amplifies, what I was talking about earlier in terms of the.
The need to kind of lock away debt financing so.
I think we're following the approach of <unk>.
Putting a number of different types of product in the marketplace to kind of get a sense of where we think pricing will settle in.
And then kind of using the data we're getting back from that and then really comparing that to what we think the the.
The internal value fresh from a net present value standpoint is holding that asset versus trading it out and Thats I think that discipline. We will maintain as you look out over the next several quarters as we kind of see where the market clearing prices will be on some of these asset sales.
Got it and then just.
Last one for me.
I'm just curious you mentioned terminating a few acquisitions this quarter as well as announcing the build to suit developments. How are you guys viewing those opportunities in light of the share price, which is on our numbers now over 10% implied cap rates and potential share repurchases.
Yeah look certainly.
Share repurchases are on the table for US I think we want to make sure that we fully focus on locking away all the liquidity all the liquidity and addressing our near term maturities.
And certainly trying to get some additional asset sales across the table, we fully recognize the value of that and that's certainly part of our deployment tool kit as they say once we <unk>.
Once we achieve some of the near term maturity refinancing objectives I spoke about earlier.
Great. Thanks, Eric.
Okay.
To make sure that answered your question. Thank you.
Our next question comes from Steve <unk> with Evercore ISI. Your line is open.
Yes, Thanks, Good morning, Gerry and Tom I, just wanted to circle back on some of the debt stuff and I understand it's a little fluid in terms of whether youre going to go five or 10 years.
Right now the curve, obviously inverted so.
Treasuries, obviously below the five year, but how are you guys thinking about spreads I guess I'm just trying to get a better handle on where you think all in fixed rate debt cost would be today and then secondly is there anything you can tell us about the $250 million term loan that expired in October .
Well I guess.
Steve I'll answer a couple of us. So I think if you look at where the investment grade market is for bonds for example.
As where rates are it is there is an inverted yield curve and I think as we take a look at.
Bonds, either five seven or 10 year bonds.
The pricing is not very different.
It's high.
I'd say it would be high pricing for us I'd say youre talking a number in the 7% range on investment grade bonds, maybe today.
And that's considering bonds are open and.
But all of the our credit spread comes down a little bit to offset the change in the rates, but thats kind of a flat curve right now and a flat quotes we're getting when we take a look at bonds. There's not much of a difference between five and 10 and seven is in terms of net yield.
So I think that.
That's part of your second or your first.
First question. The second one I think if youre talking about the $2 50 term loan.
The term loan was extended as part of our line of credit.
The swap if you are asking about the swap we did have a swap that was on that term loan through October .
And at this point that that term loan is now going to float we have not put the swap on it at this point.
We are looking at whether we want to do alert swap with where we see the yield curve at the backend, especially to put a fixed rate on that but we have not done that at this point.
Great. Thanks.
That's it for me.
As a reminder to ask a question. Please press star one.
There are no further questions I'd like to turn the call back over to Jerry Sweeney for closing remarks.
Great well Michelle Thank you very much for help today. Thank you all for participating in our call.
Wish you a great holiday season, and we look forward to updating you on our fourth quarter results in 'twenty three business plan. After the first of the year have a great day.
This concludes the program you may now disconnect.
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Raise your hand during Q&A, you can dial star one one.
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