Brandywine Realty Trust (NYSE:BDN) Q3 2023 Earnings Conference Call October 25, 2023 9:00 AM ET
Company Participants
Jerry Sweeney – President & CEO
George Johnstone – EVP, Operations
Dan Palazzo – SVP & CAO
Tom Wirth – EVP & CFO
Conference Call Participants
Steve Sakwa – Evercore ISI
Camille Bonnel – Bank of America
Anthony Paolone – J.P. Morgan
Michael Griffin – Citi
Michael Lewis – Truist Securities
Dylan Burzinski – Green Street Advisors
Upal Rana – KeyBanc
Operator
Good day and thank you for standing by. Welcome to the Brandywine Realty Trust Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded.
I would now like to hand the conference over to your speaker today, Jerry Sweeney, President and CEO. Please go ahead.
Jerry Sweeney
Liz, thank you very much. Good morning, everyone, and thank you for participating in our third quarter 2023 earnings call.
On today’s call with me today is George Johnstone, our Executive Vice President of Operations; Dan Palazzo, 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 may constitute forward-looking statements within the meaning of the federal securities law. Although, we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release, as well as our most recent annual and quarterly reports that we filed with the SEC.
So to start off this morning, during our prepared comments as we always do, we’ll review quarterly results and provide an update on our 2023 business plan. Tom will then review third quarter financial results and frame out the remaining key assumptions that drive our 2023 guidance. After that, Tom, Dan, George and I are available for any questions.
So the third quarter saw additional progress on our 2023 business plan. Our combined leasing activity for the quarter totaled 624,000 square feet. During the quarter, we executed 351,000 square feet of leases, including 118,000 square feet of new leasing within our wholly-owned portfolio. Our joint venture portfolio achieved 273,000 square feet of lease executions, including 108,000 square feet of new leasing activity.
Also, while the third quarter mark-to-market results were below our annual targets based on executed leases, we expect our full-year mark-to-market range to be between 11% to 13% on a GAAP basis and 4% to 6% on a cash basis. As I noted in last quarter’s call, our mark-to-market will vary by region, with Philadelphia CBD, University City, and the Pennsylvania suburbs leading the way, we certainly continue to expect that given current market conditions, our mark-to-market in Austin for the balance of the year will remain negative on both a cash and GAAP basis.
As we did anticipate in our business plan, we had negative absorption this quarter, primarily related to tenants moving out in our Pennsylvania Plymouth Meeting portfolio, a tenant in Austin, Texas and a 42,000 square foot firm vacating the lower bank here at Cira Center and at Cira as I’ll touch on later, this space is part of our life science conversion within that lower bank and work is already underway.
Overall, we are 88.3% occupied and 90.4% leased based on 256,000 square feet for lease commitments. As a result of delayed occupancy on executed deals, primarily due to slower build-out approvals and frankly, the slower pace of leasing in Austin, we are reducing our year-end occupancy range from 90% to 91% down to 89% to 90%. We are however based on activity maintaining our lease percentage range of 91% to 92%.
Our core markets of Philadelphia CBD, University City, and Pennsylvania suburbs and Austin, which comprise 92% of the company’s NOI is 90% occupied and 92% leased. We did add a new page in our supplemental package Page 4, which highlights how well the majority of our portfolio occupancy is. We did highlight on that Page 8 of our wholly-owned properties comprise 50% of the company’s vacancy, number of these properties are either being marketed for sale or undergoing analysis for conversion opportunities. But those properties do affect our occupancy numbers by 450 basis points, and plans are underway to address each of these projects ranging from increased leasing outreach programs, as well as what I just mentioned sale and conversion opportunities.
Both GAAP and same-store outperformed our business plan ranges during the quarter, and we are increasing both ranges for the year. The GAAP, same-store ranges increased from 0% to 2% to 2% to 3%, primarily due to approximately 500,000 square feet of positive blend and extend leases that were done. Notably, none of these blends and extends involved a contraction by the renewing tenant. You’ll note that this activity brought down our forward rollover exposure, which I’ll touch on in a few moments.
Cash same-store is increasing from 2.5% to 4.5%, which was a previous range to 5% to 6%, primarily due to proactive cost reduction initiatives resulting in lower utility, janitorial costs, reduced real estate taxes, all net of tenant reimbursements, as well as a continued burn off of some free rent.
Third quarter capital costs were in line with our business plan range. However, based on year-to-date results and projected fourth quarter activity, we are reducing our leasing capital ratio from 11% to 13% down to 9% to 10%. So as evidenced by our positive mark-to-market results, this lower capital ratio, we will continue to generate positive net effect of rents in most of our markets.
Tenant retention for the quarter was 44%, again in line with our plan, but below the bottom end of our full-year forecast was driven primarily by those vacates I previously mentioned, but we are maintaining our existing range of 49% to 51% based on forecasted Q4 activity.
Our spec revenue range remains in the $17 million to $19 million range, about 94% done at the mid-point. We expect to be able to reach the mid-point of that range by the end of the year.
Our operating portfolio is solid with a stable outlook. We have reduced our forward rollover exposure through 2024 to an average of 6.3% and through 2026 to an average annual rate of 6.7%.
We do feel very good about our portfolio quality, our management services delivery platform and our submarket positioning. We do believe the quality curve thesis remains intact as evidenced by the overall pick up in leasing activity that we continue to see.
Additionally rather, overall tour velocity, which is really a starting point for our leasing cycle continues to improve. So just several points to amplify. The increase in physical tour volume has been very encouraging. Our third quarter physical tours exceeded second quarter tour volume by 29%, but also exceeded our trailing fourth quarter average by 69% and our tour activity level remains above pre-pandemic levels by 18%, so good traction through the entire portfolio.
On a wholly-owned basis, during the third quarter, 62,000 square feet of new leases or 53% of all new leasing activity were result of this flight to quality thesis. Tenant expansions continued to outweigh tenant contractions during the quarter and the market recovery does continue albeit at a slower pace than we would like, but our total leasing pipeline is up 20% for the second consecutive quarter and stands at 3.8 million square feet. That pipeline is broken down between 1.7 million square feet in our wholly-owned portfolio, which is up from last quarter and stability within our development project portfolio.
The 1.7 million square feet existing portfolio of pipeline includes approximately 100,000 square feet in advanced stages of lease negotiations, also 46% of our operating portfolio new deal pipeline are prospects looking to move up the quality curve that’s up from 31% last quarter.
Turning to the balance sheet. As expected, our second quarter net debt to EBITDA ratio decreased from — to 7.4 from 7.6 primarily from increased EBITDA offset by increased development and redevelopment costs. We anticipate this ratio to decrease to our business plan ranges with sales in the fourth quarter and achieving our targeted reduction in joint venture debt attribution.
As we noted in the SIP, this ratio is higher due to development spend and debt attribution from our joint ventures. If both of these items were removed from our 7.4 metric, our leverage would be a full turn lower at 6.44x. To amplify that 6.44x, our core EBITDA metric, which is our operating portfolio excluding joint venture debt attribution and development and redevelopment spend ended the quarter within our range at 6.3x.
On the liquidity front, we continue to make progress in our asset sales and financings. We have a short-term extension with the lender on our non-recourse leasehold mortgage in our MAP joint venture through December 2023 — December 1, 2023. The current outstanding balance in that loan is $181 million. The extension is providing additional time to finalize a recapitalization strategy with both the leasehold lender and the fee owner and discussions to-date have been very constructive.
In August, as we noted in the release, we completed a $50 million construction loan financing on our 155 King of Prussia Road property. That loan bears interest at 250 basis points over SOFR.
In August, we also completed the sale of our Barton — our Three Barton Skyway project in Austin, Texas, at sale price was $53.3 million, or $307 per square foot, which represented a cap rate in the high 6% range.
Other than the recently financed Commerce Square joint venture, on our other operating JVs, we have $68 million invested with $624 million of non-recourse mortgages maturing in 2024 before any extension options, $113 million of that debt is attributed to Brandywine. Our ownership stake ranges between 15% to 20%. We are working closely with all of our partners and lenders on loan extensions and recapitalization efforts and would expect to report additional progress in the coming quarters.
As Tom will touch on, our consolidated debt is 93% fixed at a 5.2% rate. We have no consolidated debt matures until our 2024, $350 million bond, which Tom will also amplify our strategy there. At quarter end, there is no outstanding balance in our $600 million unsecured line of credit and we have approximately $48 million of unrestricted cash on hand.
As noted on Page 13, in our SIP, based on remaining asset sales, development spend projections, our business plan projects that we will have full availability on our line of credit at the year-end 2023.
In September, our Board of Trustees did decrease our quarterly dividend by $4 a share from $0.19 to $0.15 a share. And while our cash flow numbers are solid and our CAD payout ratio is strong and remains well covered and we continue to forecast as I just mentioned, full availability on our line of credit, the Board felt we needed to reduce the dividend to account for both the challenges, but more importantly, simply the ongoing volatility in the equity and debt markets.
We believe this reset dividend level will serve as a solid foundation from which to grow our dividend in the future as capital market recovers and leasing continues to accelerate. This level covers our taxable income and will generate approximately an additional $28 million of free cash flow to the company. Based on the $0.60 per share annual dividend and the mid-point of our guidance, our CAD payout ratio for 2023 is projected to be 75% and our FFO payout ratio is projected to be 52%. Both of those payout ratios are very much in line with our historical averages.
To spend just a few moments on looking at our development, we have $1.2 billion under active development. On the wholly-owned pipeline of roughly $200 million that’s 95% pre-leased. The remaining funding for these wholly-owned developments is only $22 million, which is built into the capital plan that shows our line of credit being unused and that’s primarily for tenant improvement dollars related to our 2340 Dulles property in Herndon, Virginia. On a joint venture side, at full cost that pipeline is 30% residential, 32% life science and 38% office. The remaining funding on this pipeline is less than $10 million. As you may recall, last quarter we did increase some of the project cost to simply reflect the higher rate environment and in some cases, a slight delay in targeted stabilization dates.
Going forward, we may see some additional cost increases related to higher TI costs, but even with these increases, we are targeting and plan to maintain yield equivalency on all of our joint venture developments.
I guess furthermore, given the volatility in the capital markets, while we’ll continue planning on several projects other than fully leased build-to-suit opportunities, future development starts are on hold, pending, both more leasing in our existing pipeline but also more clarity on the cost of debt capital and where cap rates will be.
Looking ahead, given the mixed use nature of our Master Plan communities, our expected forward development pipeline is 27% life science, 42% residential, 22% office, and 9% support retail, entertainment and hospitality. And as we identified on Page 6, our objective is to grow that life science portfolio and platform to over 23% of our square footage as market conditions allow, and that would be built on land that we already own or control.
Just a quick review of specific projects. 2340 Dulles is 92% pre-leased. That project is moving into full operations in the very near future. 250 King of Prussia Road in our Radnor submarket is now complete. It does remain at 53% leased as it was in previous quarter; we’ve had $18 million of remaining funding. Pipeline remains very strong. That pipeline is 100% life science, and we have projected a stabilization date in Q2 2024.
The increased remaining spend on that project is really the cost to do some additional tenant leasing, but as we indicated last quarter, we anticipate higher rents will leave our current yield intact as this project moves into operation.
Pipeline activity in our development projects continue to build. We’re actually pleased with the overall and continual increase in both tours and prospect activity as a true reinforcement of the quality thesis I mentioned earlier.
We have a number of advanced discussions underway, but none quite yet across the finish line. As I mentioned last quarter, primary reasons for the delay in making — in tenants making decisions really seem to be driven at this point more by macro considerations rather than specific real estate concerns. Construction of our 3025 JFK project, our life science, office, and residential tower is on time for a Q4 2023 full delivery. We’re currently 15% leased on the commercial portion with an active pipeline that’s almost 700,000 square feet for the life science and office component. We have done over 160 tours. We did deliver the first residential units with the balance spacing over the next quarter and a half. Activity levels are very good, and we currently have 62 leases executed. We’re about 19% of the project. 57 of those leases have already taken occupancy, and the rental rates that we’re achieving are very much in line with pro forma, particularly now that the amenity floor just recently opened.
3151 market, our 441,000 square foot life science building in Schuylkill Yards again is on schedule and budget. The topping off ceremony occurred yesterday and the project’s profile in the market continues to improve. The leasing pipeline there is roughly 400,000 square feet and tour activity now that the steel is up is beginning to increase as well.
Uptown ATX Block A construction is also on time and on budget. Block A consists of 348,000 square feet of office, and 341 residential units, 15,000 square feet of ground floor retail.
On the office component, the pipeline remains strong in advance of building delivery, which will be later this year. Pipeline includes a mix of prospects ranging from 5,000 square feet to 200,000 square feet and the multifamily component of 341 units will begin phasing in during the third quarter of next year.
Moving back to University City, our next phase of B.Labs on the 9th floor of Cira Center is nearly complete that’s a 27,000 square foot expansion. This conversion of that office space to graduate lab space is now 81% pre-leased with a lease out for the remainder of the space that full conversion will be completed in Q1 2024. The total costs remain on target for $20 million with an expected yield of about 11%.
So to wrap up commentary on development activity, the key phrases on our forward pipeline is timing, flexibility, low basis per FAR, and product diversity. Of the square feet we can build only about 25% is office with the ability to do between 3 million and 4 million square feet of life science space and over 4,000 apartments and the overall, overlay approvals we have on our Master Plan developments give us the flexibility to adjust that mix further to meet market demands.
Looking at the sales activity look, there’s no question that the pricing and pace of office sales has been impacted by the challenging rate environment and the pullback by lenders in commercial real estate and certainly the negative macro tones on office. Despite this, as previously highlighted, we did sell the $53 million in Austin and based on our existing pipeline and transactions in process, we’re still maintaining our $100 million to $125 million sales target by year-end. We do have about $200 million in the market for sale.
Those properties are in our Met, D.C., and Pennsylvania suburban operations and we also have several joint venture properties in the market as well. Several of those properties are moving through the contract negotiations and may necessitate some level of short-term bridge seller financing.
In general, we continue to see a good list of bidders with the primary challenge being getting those acquisitions financed. Certainly dollars generated from all these sales and joint venture restructurings will be used to fund our remaining development pipeline commitments, further reduce leverage and redeploy into higher growth opportunities including debt and stock buybacks on a leverage neutral basis.
With that, Tom will now provide an overview of our financial results.
Tom Wirth
Thank you, Jerry, and good morning.
Our third quarter net loss totaled $21.7 million or $0.13 per share, and our results were negatively impacted by a non-cash impairment charge totaling $11.7 million, or $0.07 per share. Third quarter FFO totaled $50.6 million or $0.29 per diluted share and $0.01 above consensus estimates.
Some general observations regarding the third quarter, being above consensus, we had several moving pieces and several variances compared to our second quarter guidance. Management, leasing and development fees were up $700,000 above our reforecast, primarily due to higher leasing commission income. Interest expense was $500,000 below reforecast, primarily due to higher capitalized interest and no borrowings on our line of credit.
We forecasted two vacant land parcel sales to generate $1 million of land gains during the quarter, and they were both delayed until the fourth quarter.
Our third quarter debt service and interest coverage ratios were both 2.7 and net debt to GAV was 41.6. Our third quarter annualized core net debt to EBITDA was 6.3 and within our 2023 range and our annualized combined net debt to EBITDA was 7.4 and 1% above the high end of our 7.0 to 7.3 guidance. Any further reduction will be based on timing, size, and pricing of our fourth quarter asset sales.
Regarding portfolio changes, during the quarter, we removed two properties located in Austin totaling 225,000 square feet from our portfolio. Both properties will not be available for lease and were located in our Uptown ATX development. We anticipate adding 2340 Dulles Corner to our core portfolio during the fourth quarter as well.
On the financing activity, as Jerry outlined, we closed on a construction loan for 155 King of Prussia Road in Radnor, Pennsylvania. The loan bears interest at 250 basis points over SOFR, and we anticipate drawing on that facility during the fourth quarter as our equity is now fully funded. We remain focused on our 2024 bond maturity in October and continue to evaluate funding in both the secured and unsecured financing markets.
As you know, the traditional banks are allocating little to none to new originations on new office loans except for certain situations as fully leased build-to-suit properties. However, we will continue to explore term loans from our syndicate banks, as we did earlier this year to execute on a $70 million term loan. We are exploring some property level secured financing options as well, including another wholly-owned CMBS transaction. We anticipate our ongoing sales and joint venture liquidation strategy will also generate additional capacity.
As we discussed in the past, we prefer to remain an unsecured borrower and will continue to monitor the unsecured bond market as well. Given the above, we will seek the most efficient capital source with a bias towards the unsecured market.
Regarding our upcoming 2024 joint venture debt maturities, as Jerry mentioned, we are working with our partners on the 2024 maturities to potentially extend the current maturity dates with our existing lenders, commence marketing efforts for new lenders and make certain property level sales to lower JV leverage.
Regarding our MAP joint venture, we hope to agree to a recapitalization ahead of the current December 1, 2023 extension date. We are 50% partner in a joint venture, which owns leasehold positions in a portfolio of assets, and we are working with the lender potentially recap the joint venture with the ground owner.
Looking at 2023 guidance, we narrowed the guidance by $0.02 and maintained a mid-point of $1.16 and the range is mainly attributed to the variability of our asset sales program both in terms of volume and timing as well as our projected land sale and related gains.
On our 2023 business plan continues we have the following general assumptions is property level sales with $53.3 million complete, the balance of our guidance is expected to occur in the fourth quarter, so dilution should not be very significant. No new property acquisitions, no anticipated ATM or share buyback activity, and the share count will approximate 173.5 million shares.
Our fourth quarter guidance, looking more closely, we have the following general assumptions, property level operating income will total approximately $74 million and will be about $3 million below the 3Q range, primarily due to lower revenue from several known move-outs we discussed and incrementally higher operating expenses, primarily due to fourth quarter seasonality and higher R&M.
FFO contribution from our joint ventures will breakeven for the fourth quarter. The sequential decrease is primarily due to the residential component of Schuylkill Yards West becoming operational. And during the fourth quarter, we will recognize higher operating losses, lower capitalized interest and increased preferred equity costs. These losses will decrease over the next four to five quarters as the residential operation fully stabilizes.
In addition, our MAP FFO contribution decreased about $700,000, primarily due to higher interest expense.
Our fourth quarter G&A will remain consistent with the third quarter at $8.1 million. Our interest expense including deferred financing costs will approximate $26.5 million, and capitalized interest will approximate $3 million.
Termination and other fee income will total $6 million, which primarily consists of an anticipated one-time real estate transaction generating about $4.5 million of income. Net management, leasing and development fees will be $3 million as we forecast sequential lower third-party lease commission income after a higher third quarter level.
Land gain and tax provision will total about $1.1 million of income, representing two forecasted land sales that didn’t occur in the third quarter.
On the capital plan, we experienced better than forecasted third-party CAD payout ratio of 76%, primarily due to leasing capital costs being below our business plan range, and improved operating results. Based on a revised annual dividend of $0.60 per share, our pro forma 2023 coverage ratio is projected to be 75%.
As outlined on Page 14 of the supplemental package, our fourth quarter capital plan is very straightforward and totals $95 million. Most importantly, we continue to prioritize liquidity and still project no borrowings on our $600 million unsecured line of credit at the end of the year.
Uses during the fourth quarter are comprised of $36 million of development and redevelopment, $26 million of common dividends, $8 million of revenue maintain, $10 million of revenue create and $15 million contribution to our joint ventures.
The primary sources are going to be capital after interest payments totaling $50 million, $10 million of construction loan proceeds for 155 King of Prussia Road, and $50 million of net cash proceeds from property, land, and other sales. Based on the capital plan outlined above, we project a $15 million increase in cash during the quarter. We are also maintaining our net debt to EBITDA range of 7 to 7.3 and will be partially dependent meeting that range based on the timing of the fourth quarter sales as I mentioned previously. Also that will be impacted by any GAV recapitalization or sales during the quarter as well.
Our debt to GAV will be in the 40% to 42% range. Our core net debt to EBITDA range is 6.2 to 6.5. This range excludes our joint ventures and our active development projects. We continue to believe this core leverage metric better reflects the leverage of our core portfolio and eliminates our more highly levered joint ventures and our unstabilized development and redevelopment projects.
We believe that our leverage ratios are elevated due to our development pipeline and we believe once those developments are stabilized, our leverage will decrease back closer to this core leverage ratio. We anticipate our debt service and interest coverage ratios to approximate 2.6 by year-end, which represents a slight sequential decrease from the coverage ratios in the third quarter, primarily due to the additional development spend and higher interest rates.
I will now turn the call back over to Jerry.
Jerry Sweeney
Great, Tom. Thank you very much.
So the key takeaways are the portfolio is in solid shape with an increasing leasing pipeline. As I mentioned, we continue to be very pleased with the level of traction through every element of our portfolio. Our average annual rollover exposure through 2026 is only 6.7%. We’ve been posting and expect to continue to post fairly strong mark-to-markets. Manageable capital spend is evidenced by our — reducing our capital ratio is on our horizon as well and we do expect to have stable and accelerating leasing velocity through our development pipeline.
We have covered all of our wholly-owned near-term liquidity needs. Our plan to keep the line of credit zero and are executing a baseline business plan that as Tom touched on, improves liquidity keeps that portfolio on very solid footing with strong forward leasing prospects.
So, as usual and where we started with that, we hope you and your families are doing well and we’re delighted to open up the floor for questions, Liz. We do ask that in the interest of time, you limit yourself to one question and a follow-up. Liz?
Question-and-Answer Session
Operator
[Operator Instructions].
Our first question comes from the line of Steve Sakwa with Evercore ISI.
Steve Sakwa
Thanks. Good morning. I guess, first question, Jerry, I just want to go back on sort of the JVs and the debt that you were sort of talking about just to make sure I’m understanding, are you potentially in a process of maybe trying to hand keys back, or is this just a situation where you and your partners are trying to just get to the finish line on, I guess, loan extensions? I just couldn’t tell from the commentary kind of where you were heading with some of those assets.
Jerry Sweeney
Yes, Steve, great question. Thanks for the inquiry on the clarity. I mean, our intention is to work with our partners to extend these loans out on terms that are acceptable to both the lender and the partnership as we wait for the market conditions to improve. I think from Brandywine standpoint, we think we have a cadre of very high quality partners, very seasoned, very experienced. The loans themselves are all structured on a non-recourse basis. So we do have the opportunity that if things do not work out, we’ll certainly take a look at what’s the best answer for Brandywine.
But our plan going into each of these discussions is to make sure that we accommodate both the partnerships objectives and the lender’s objectives to the extent we can to facilitate a bridge solution that will keep these partnerships intact as the marketplace continues to recover from a leasing standpoint. But also, hopefully, the capital markets provide more stability so there’s more opportunities to refinance.
I think one of the points I was trying to amplify is that if you look at the balance sheet and the supplemental package, those JVs have $624 million of non-recourse debt on them. $113 million of that is attributable to Brandywine. And our investment base in those ventures excluding MAP, which has a negative basis, is $68 million. So I think we’re in a good position as a sponsor with our partners to go into the discussion with every single lender with the hopes of structuring a program that’s mutually satisfactory to both parties.
Steve Sakwa
Okay. And just as a quick follow-up, when you kind of look at your expirations for next year, it’s about 880,000 feet. I know you’ll provide more details on exact guidance, but are there any, I guess, large known move-outs at this point in 2024 that you could sort of highlight or share with us that might more negatively impact the retention rate next year?
Jerry Sweeney
George?
George Johnstone
Yes, Steve, good morning. It’s George. We’ve got — for 2024, we’ve only got two leases over 50,000 square feet. One of those is potentially a move-out, and we’ve already got quite a bit of increased activity looking at that space over at our Logan Square project. And then the other one, we’ve actually got an amendment out some of the square footage in that 50 will be converted to swing space, so it will bridge 2024 into 2025 and a portion of it will be extended on a long-term basis. So really only kind of two at the present time in that higher range.
Operator
Our next question comes from the line of Camille Bonnel with Bank of America.
Camille Bonnel
Hello, can you hear me?
Jerry Sweeney
Yes. Good morning, Camille.
Camille Bonnel
Good morning. Following-up on the balance sheet with further occupancy pressures and slower development leasing, to what extent are you factoring these risks when thinking about deleveraging and what other potential avenues could you consider to drive further progress on this front?
Jerry Sweeney
I guess Tom and I can tag team. I think from our perspective, the portfolio, while were the occupancy range has been reduced by 100 basis points in a range for 2023, as I mentioned, that was really due to some slower delays in occupancy. We kept our leasing percentage where it was. So we certainly think the portfolio has a good degree of stability to it. And while the elements of the development pipeline are progressing slower than we would like, the pipeline continues to get very strong.
So we do have an expectation that as we’ve even seen on the residential component 3025 where we’re running ahead of pro forma on the residential leasing side, that we will be in a good position on those development projects. So that’s more of a backdrop to frame out where we are in terms of looking at liquidity look, that remains a key objective for the company. So as we take a look at the deleveraging components, one is clearly land sales. And as we mentioned, we still remain focused on selling non-core land parcels. Some of those are going through rezoning efforts to other uses in office to kind of optimize the value of those land holdings.
Two, we will continue to push our sales program. And frankly, Camille, to the extent that we need to facilitate good sales in this kind of challenged market, we are prepared to take back some accretive short-term bridge financing to generate some near-term liquidity for the company, delever the balance sheet, and create an interest rate bridge on those purchase money mortgages for the next couple of years.
Three, we do plan to reduce our interest and/or liquidate some of our positions in these joint ventures, particularly some of the operating ones that are kind of reaching the end of their lifecycle. Again, while we don’t have a lot of dollars invested in some of them, we do pick up a fair amount of debt attribution. And to the extent that we’re in a position to reduce that debt attribution that in and of itself creates some great capital capacity. And in terms of there’s other opportunities we are exploring in terms of looking at private equity investments in some portions of our portfolio that could provide not just a near-term liquidity but also deleveraging. And I think Tom did a great job of outlining some of our other tactics in terms of resolving our 2024 bond maturity.
Tom Wirth
Yes. Camille, it’s Tom. To add to that, we do have most of our debt is fixed at 93%. And to the extent we can keep the line of credit unused that certainly limits even more our exposure to the floating rate debt. And really, as Jerry mentioned on the JVs, if you look at sort of our wholly-owned net debt to EBITDA, which we outline on Page 32, wholly-owned net debt even with the developments we are doing wholly-owned, we’re at 6.7. So I do think being able to manage our joint venture leverage will help as well in bringing that down.
Certainly the bond in 2024 will be dilutive, and depending on how we finance that will be a measure of what that does to sort of our fixed charge and leverage ratios. But we’re looking at several different ways of doing that, whether it be in the unsecured market or secured or the additional asset sales as Jerry outlined.
Camille Bonnel
Appreciate the details. As my follow-up, could we focus a bit on Plymouth Meeting given the current occupancy levels and nearly 14% of your leases are expiring through 2024? How is the leasing pipeline generally trending in that specific submarine?
Jerry Sweeney
I’m sorry, Camille. Can you repeat that? Did you mention Plymouth Meeting?
Camille Bonnel
Yes, Plymouth Meeting.
Jerry Sweeney
Okay. So in fact [ph] we look for some detail in the Plymouth Meeting.
George Johnstone
Yes. We had a 55,000 square foot tenant move out during the third quarter. That’s on two contiguous floors at 401 Plymouth Road, which is a great project for us right at the interchange of the Turnpike and the Northeast Extension. Activity levels have been good. We’ve had several tours within the space knowing that it was coming back. We’ve got one proposal outstanding right now that we’re still kind of back and forth with the prospect, but we feel good about it. The space is in relatively good condition. So I’m not sure it’ll be a heavy capital requirement, but we feel good about that project, its location and the underlying pipeline.
Jerry Sweeney
And I think just add on George comments, Camille, 401 is the top project in the market. Plymouth Meeting not that strong, not that large of a market. It combines with Blue Bell, which is a joining submarket. But the 401, as George mentioned, very high profile project at the interchange of really three interstates and the pipeline, the visibility there will be good. So if there was a building we had to get space back on, I’m saying we want space back that was probably the one that had the highest probability of near-term re-letting.
Operator
Our next question comes from the line of Anthony Paolone with J.P. Morgan.
Anthony Paolone
Thanks. Good morning. I guess first question, if I look at the development pipeline and call it yields around 7 and think about current debt costs, if this rate environment persists, do you think just as this stuff gets delivered, it could be an actual like earnings drag? Or how do you think about the levers you might have to kind of protect earnings for the company if that’s kind of a situation?
Jerry Sweeney
Yes, Tony, good question. Look, I think certainly with the increased rate of debt, it squeezes the return margins on those properties. We typically have done is we’ll build in 3-plus-percent rental rate increases into all of those leases. So the idea from our perspective is to get those projects to a stabilization point. Yet, the lease terms we’re doing there typically tend to be between 10 to 15 years, they tend to be with good credit tenants, with good collateral support. So the game plan would be as the lease — as the interest rate market still remains higher than any of us would like, execute the business plan for each of those assets, maintain yield equivalency or potentially higher yield equivalency than we have in the projections right now, and then learn or get those projects stabilized. And then really focus on kind of the refinancing or sale options as the market conditions — as market conditions clarify.
But certainly with debt costs going up to the extent that they have during the development cycle, the margin of contribution is lower than we were initially targeting when we started these projects. And we recognize that, which is why one of the reasons we’re focused on driving the net effective rents we can achieve not just on those projects, but across the entire portfolio.
Anthony Paolone
Okay. Thanks. And then just follow-up, if you look out to maybe 2024 or even perhaps 2025, you noted the limited exposure on leasing, but can you maybe address just where you think mark-to-markets may be right now, and/or perhaps if there’s any appreciable change in the capital that might be needed for that leasing?
Jerry Sweeney
Look, I think from a market — mark-to-market right now, the best evidence we give you is what we’ve been posting thus far. So we do expect to continue to see very good mark-to-markets in our CBD, University City, and particularly our Radnor submarket in Pennsylvania. I do think though, Tony, in all Canada will continue to have negative mark-to-markets coming out of Austin. That market’s in certainly a state of disequilibrium.
And as you notice from that new page we put into the supplemental, some of our bigger vacancy exposures are in three of Austin complexes. So I think there the watchword will be accelerate activity, meet the market in terms of pricing, try and keep good annual rent bumps in, and control capital to the extent that we can.
But look, one of the interesting things that we are seeing is the competitive set is actually shrinking a little bit in some of these markets. Not every landlord has the quality product we have nor the financial resources to attract tenancy. So our focus remains on leasing every square foot through the portfolio, driving net effective rents as high as we possibly can, and really taking advantage of this continuing window we see of tenants really wanting to move into higher quality projects with landlord stability. Brokers want to show space in buildings where they can get their leasing commissions. Tenants want to move into buildings where they know that they’re certainty of getting their tenant improvement dollars funded. Brandywine resonates on both of those fronts incredibly well. So we’ve increased our leasing teams and our talent at the ground level to make sure that we’re really focused on turning over every possible stone where we think there’s a leasing prospect.
Operator
Our next question comes from the line of Michael Griffin with Citi.
Michael Griffin
Great. Thanks. For the Skyway asset sale, do you have a sense of what the cap rate or buyer interest was on that property? And then, from assets you’re currently marketing similar question, where do you think you could sell these at and what’s the potential buyer pool?
Jerry Sweeney
Yes, great question, Michael. The cap rate on the Barton sale was in the high Texas and came in about $300 a foot, a little more $300 a foot. Look, I mean, the buyer pool is actually interesting right now. We have a number of properties in the marketplace. We have one or two properties waiting to go under firm agreement.
And the — on the standard office product, we’re typically seeing the small institutions, the syndicators, the wealth, capitalized, private development, redevelopment companies in the marketplace. So cap rates are kind of in the, I’ll call it in the 8% to 10% range for some of those more workmen like products.
The biggest challenge really is getting the financing in place. So we haven’t really seen as much pricing pressure as you would expect. Unless it’s really driven by, hey, I need to get financing. So I think Brandywine being in a position where we can provide some bridge financing for several years and take that financing risk off the table, I think puts us in a pretty good position. But, for example, we have a couple of properties we have on the market in Northern Virginia. We’ve had in one case, over 40 investors sign the NDA with about 10 different tours.
We have another project where we had 75 CA signed with tours occurring on almost a daily basis. So there seems to be still a fair amount of interest in buying properties. The major gating issue that I think we’re all facing is just how we can facilitate the debt side of their equity investment. And I think, really, depending upon how the interest rate climate goes and the commercial banks and life insurance companies that’ll dictate whether to get some of these sales done, we need to do some bridge financing.
Michael Griffin
Great. Thanks. And may be one on the leasing side. Can you maybe comment on sort of how concessions have been trending in your markets and kind of a sense of what tenants are out in the market right now and sort of what they’re looking for in terms of space requirements?
George Johnstone
Yes, sure. Michael, this is George. I’d be happy to take that one. I mean TIs have remained relatively constant. We’ve seen a little bit of pressure on unit costing but the overall package. And again, we look at the concession as a combination of both abatement and TI. So we have seen a little bit of a shift more towards abatement and we obviously try and limit that to just the fixed rent as opposed to the operating expense pass-throughs. Commissions have remained unchanged. And so overall net effective rents, we’ve continued to see growth, especially in Philadelphia, University City and in Radnor, more challenging given the dynamic in Austin on net effective rent growth.
Operator
Our next question comes from the line of Michael Lewis with Truist Securities.
Michael Lewis
Great. Thank you. My first question is about Jerry, you talk about the dividend cut or maybe the question is really about cash flow, right? The new dividend payment looks to me it’s about 60% of your third quarter CAD. Even at the old payment, it only would have been 76%. So your stocks traded at a 15% yield with 60% coverage just spot at 3Q. So the question is the market with a yield that high and coverage that appears comfortable, the market’s not really buying this. And so is the dividend cut — is it as simple as you save $28 million and you have good uses for that on development and delevering? Or is this an expectation that cash flow is still going down and you got ahead of this coverage getting really tight to be?
Jerry Sweeney
Hey, Michael, now let me be real clear. Our cash flow is strong. The coverage is that we’ve talked about are in very good shape. This was a deliberate review that the Board and management went through and taking a look at really the — as I touched on in my comments, really the volatility and unpredictability of the capital markets. The fundamental reality is there’s a lot of economic uncertainty out there. There’s a lot of geopolitical risk. No one’s sure where interest rates are going to go. No one’s sure what the state of the labor market is.
So I think the Board took a hard look at our forward projections and in thinking about a reset dividend wanted to set it at a level that provided bulletproof coverages for us, sent a strong signal that we recognized the volatility, the uncontrollability in those capital markets, but also set a firm foundation point where that revised dividend covered our taxable income, distribution requirements, and really set a firm foundation point for that dividend to hopefully grow as the capital market showed more sign of stability or predictability and our cash flows continued to increase.
So if anything, it was a signal that recognized the realities of the current capital markets, not a harbinger that it was concerned about where our cash flows were going. So I want to be very clear on that.
Michael Lewis
Okay. Great. And then second for me, these eight properties with high vacancy on Page 40 of supplemental 300 Delaware stands out. But is there any detail — specific detail on the plan for that asset or for anything else on that list that you think might be helpful to know in terms of addressing these properties, which are driving a large part of the vacancy in the portfolio?
Jerry Sweeney
Yes, great question. Thanks, Michael. Look, we laid out those eight properties and as you know, three of them — actually four of them really there two is really kind of properties in Austin. So I think in Austin the real focus for us is accelerating leasing. So we have a number of really talented leasing folks down there, great top executives. They’ve all gotten involved very even more so than the past in really sourcing deals. We’ve reached out to brokers for incentive programs.
And in one of those properties, frankly, that’s very, very well located. We are taking a look at whether there’s a residential conversion opportunity on a couple of those — couple of the buildings in that complex, but Austin is primarily pedal to the metal. Let’s get through this moment of disequilibrium in the marketplace as tenants return to the marketplace for space. Let’s make sure these buildings look great. They’re positioned well. They’re well-staffed, great talent at the ground level, and let’s get them leased up. So that’s really the focus there.
We take a look at a 1676 International. As you know, that building has been a great redevelopment for us. The market has not performed as well as we hoped it would, and that property along with some of our other assets in the Northern Virginia market, we view as sale candidates in the near-term.
401 Plymouth, George touched on in one of the other questions, which is we just had a tenant give us space back there that’s top of the market. The game plan there is to release that space.
Cira Center that’s on there because of the give back this quarter, but that space is all part of our converting this building from purely office to the lower nine floors being life science. So, as you can see there, we’ve even pre-leased 22,000 square feet of that space.
300 Delaware is an interesting dilemma for us. It’s a property in Downtown Wilmington. We really haven’t leased any space in that building for a number of years because the lease terms just aren’t economic. The floor plate sizes are around 15,000 square feet plus or minus. The existing zoning provides for residential and office use. So that is a building we’re looking at a potential residential conversion and a tenant move-out plan over the next several years. That would be a project either Brandywine could undertake or simply sell it based upon the conversion plan that we put in place. But that’s a project we do not anticipate investing any significant additional capital into. Was that helpful? Did I answer your question?
Michael Lewis
Yes, no, that’s helpful. I appreciate it. Thank you.
Operator
Our next question comes from the line of Dylan Burzinski with Green Street Advisors.
Dylan Burzinski
Good morning, guys. Thanks for taking the question. Just curious, you mentioned several times bridge financing or seller financing or whatever you want to call it, but just curious, what would be the LTV that you guys would be willing to offer in this sort of structure?
Jerry Sweeney
Yes. I think in that framework, anywhere kind of between 50% and 75% depending upon the project, the quality of the buyer, and our convertibility capacity to the extent the loan doesn’t perform, so. But that seems to be the pretty safe range, Dylan, somewhere in that 50% to 75% range.
Dylan Burzinski
Okay. That’s helpful. And then I guess, just touching on the expense side of things, you mentioned lower expenses in the quarter. I guess just how should we be thinking about that looking into 2024, should we expect to continue to receive relief on this front or should there we return to a more normalized environment heading into 2024?
George Johnstone
Yes, Dylan, it’s George. I mean I think probably a little bit of a continuation. We continue to aggressively appeal and challenge real estate tax assessments. So I do think we maybe have some opportunities still there. Utilities, our teams have just done a good job at kind of managing that that consumption load. And some of our negotiated contracts on forward purchase agreements have benefited the portfolio.
We’ve got a little bit of seasonality coming up for the fourth quarter, so we’ll start to get into the potential for snow removal that hasn’t existed thus far, but year-over-year, I would think there’s certainly a lot of focus on our property management teams to maintain if not reduce expenses across the Board.
Jerry Sweeney
Yes. Dylan, just to add on, I mean we’re doing the same thing on the construction side. I mean the reality is, if you think about it, overall leasing velocity is down not just in Brandywine, but in the market. A lot of general contractors are looking for work, so we’re able to kind of get better buying power given the size of our asset base here particularly in Philadelphia, to drive better GC fees, better general conditions, do some forward procurement programs. So really one of the real green shoots this year has been our ability to really maintain very strong control over our capital spend, which I think really helps drive those net effective rents up.
So I think combination of the really great work our operating teams do every day to make sure that we ever improve our margins in a challenging environment, that we expect to be a continual trend line. And certainly as the pace of overall construction slows, we think we’ll be in even a stronger position to leverage our buying power in our core markets to drive even better cost modules from our outside general contracting firms.
Operator
Our next question comes from the line of Upal Rana with KeyBanc.
Upal Rana
Hey, good morning. Thanks for taking my question.
Jerry Sweeney
Good morning.
Upal Rana
Tom, your prepared remarks on the Schuylkill Yards lease up was helpful, but could you expand further on that project? Any LOIs on the office portion you hope to get to the finish line in the near-term? And any timing on the residential lease up and if you can provide any numbers on the impact on the capitalized interest burn off, that’d be helpful. Thanks.
Tom Wirth
Yes. Well, I’ll touch based on just what I talked about.
Jerry Sweeney
Tom and I sounds very much like —
Tom Wirth
Yes. We sounded like. I guess I’ll touch on what I said in the remarks. Yes. We — as we bring the developments online, we’re going to be experiencing a lease up phase and with the multifamily that’s going to be brought in over time. But for the first year, we expect to slowly bring up the operating results for the residential that’ll be both here and when we eventually have Uptown ATX residential started.
When that happens, we’re going to have some operating losses as we bring those properties on. So that’s going to be one phase of it. Two, you begin to reduce interest capitalization as more and more of the units become available for lease. And then, number three, we have our preferred equity partner costs that also are phased in on a similar manner. So those costs over the first two, three, four quarters are going to be at a level that will hopefully decrease as we get them closer to stabilization. So that’s how I think we look at the rollout of some of the JVs, especially on the multifamily side.
As you look at the office side until we can lease the square feet, it’s a little simpler. We have — we basically have one year from substantial completion to lease up that space. So again, that’s more of a future thing. And Jerry can touch more on the pipeline and what he’s seeing there. But after the one year, then it does become an operational asset regardless of lease up. So our goal, as we’ve said is to get the leasing completed. So as we roll into that one year window and we start to look at that operational property come online, that we’ve done our best to get the revenue start, but that’ll occur again, we have a year to do that from an office standpoint. And as leases come on, we just turn on that portion of the building from an operation point of view.
Jerry Sweeney
And Upal, I’ll just add on to Tom’s good comments. I think on the pipeline, the really near-term focus is on 3025 that’s pretty much delivered at this point. We have a number of residential that won’t really deliver for the next couple of months, but the activity levels are very good. I mean, I think we’ve been very pleased with the progress on the residential. We’ve had — there’s tours taking place every day, including the weekends. The leasing team there is doing just a rock star job of getting tenants qualified and leases executed. So to mention, we’re in the low-60s in terms of leases signed, which is right in line with what we’re hoping for and rates are holding in there, we had to do some pre-construction opening, rent concessions, they’re pretty much all burning off. So we’re very much in line with our pro forma there.
I will tell you on the commercial side, we did sign the one lease with Goodwin Procter. We have picked up a whole new listing of prospects in the last quarter. Those tenants range everywhere from 10,000 square feet up through over 100,000 square feet. So very pleased with the pipeline there. Now the building is done, the lobby is done, furniture is in, park is completed, the amenity floor is done. The building really does present a very attractive showcase. So the leasing team is doing more and more tours every day. So while we don’t have anything under LOI or in lease negotiation, we have a number of proposals being exchanged and a number of substantive discussions.
Same thing on 3151, which is again not going to be delivered till later in 2024 and we just topped the steel off the other day. So it’s really hard hat tours up to just the first few levels, but the activity level there has picked up as well. The life science market is showing some signs of recovery. There’s more tenants in the marketplace. The rate environment has created dynamic where there’s not as many new projects on the horizon as there was feared to be a couple of years ago. And those tenants that we’re talking to at 3151 range in the 50,000 to 125,000 square foot range, so good size tenants. Again, proposals being exchanged, nothing signed at this point.
Uptown ATX the residential won’t really deliver till the latter half of next year, so it’s still a bit too early to tell. The business plan there looks good. Market dynamics seems solid. And on the commercial side, that market as I touched on remains slow, but we do have a number of prospects that we are doing tours and having discussions with. So hopefully that provides you a little more color than the prepared comments.
Upal Rana
Great. That was very helpful. And just one quick last one for me. What was the $11 million impairment related to?
Jerry Sweeney
We looked at our assets. Some of them are in used impairments that we take at a couple of property levels as we start to assess whether we’re going to sell those assets or not. So that is not related to Three Barton. Last quarter we did take an impairment on Three Barton ahead of that sale. This is impairment on assets that we are taking a look at as possible sale candidates.
Operator
That concludes today’s question-and-answer session. I’d like to turn the call back to Jerry Sweeney for closing remarks.
Jerry Sweeney
Great, Liz. Thank you for your help today. And thanks to all of you for participating in our third quarter earnings conference call and we look forward to updating you on our business plan progress after the first of the year. So thank you very much.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.
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