Brandywine Realty Trust - Earnings Call - Q4 2017
January 26, 2018
Transcript
Speaker 0
Good day, ladies and gentlemen, and welcome to the Brandywine Realty Trust Fourth Quarter twenty seventeen Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Jerry Sweeney, President and CEO.
You may begin.
Speaker 1
Glenda, thank you and good morning everyone and thank you all for participating in our fourth quarter twenty seventeen earnings call. On today's call with me today are George Johnston, our Executive Vice President of Operations Tom Worth, our Executive Vice President and Chief Financial Officer and Dan Palazzo, Vice President and Chief Accounting 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.
We'll start with a review of our 2017 results and then move into our 2018 business plan. And I'm really just going to touch on 2017 results as our disclosures lay out a clear roadmap that demonstrate our very solid ending to 2017. From an operational standpoint, we exceeded the vast majority of our goals, namely tenant retention, cash mark to market, leasing capital costs, average lease in our average lease term. In addition, we met our cash and GAAP same store targets, the lower end on GAAP and the higher end on cash. We did come up a 70 basis point short on our same store leasing target for the year, primarily driven by the timing of lease executions by definitive prospects that have been or will be signed in Q1 twenty eighteen.
We also continued on our path to grow net effective rents with 2017 having a 7% increase over our net effective rent average of 2016. On the investment front, you may recall our original disposition target was $100,000,000 at a forecasted 8% cap rate. We finished the year with four thirty million dollars of sales, not including the recently announced EVO transaction. Our average cap rate was about 6% on a GAAP and cash basis. The major contributors to our fourth quarter investment activity are included on Page three of our supplemental package.
On the balance sheet, we made great progress during 2017. Net debt to EBITDA closed out the year at 6.2 times versus 6.9 times at the beginning of the year. We access the public debt markets, raised $550,000,000 at an average yield of 3.9%, used those proceeds to pay off $325,000,000 of 4.95% bonds. We also paid off $100,000,000 of 6.9% coupon preferred shares during the year. We reduced our average cost of debt by 45 basis points.
We lengthened our debt maturity to seven point seven years from five point nine years at the beginning of twenty seventeen. We ended the year with a net cash balance of $2.00 $2,000,000 zero balance on our line of credit with minimal floating rate exposure through the company. We also increased our quarterly dividend from $0.16 to $0.18 per share for a 12.5% annualized increase. And then finally, to further improve our funding capacity, financial flexibility, and improve our balance sheet, we did utilize our ATM program, which has been in place since 2013 and sold $51,000,000 of stock at an average price of $18.19 per share. It's a challenging decision for us, but frankly given the sector's equity market volatility, interest rate headwinds, we opted to issue the shares to ensure continuation of our balance sheet targets and also to ensure forward funding capacity.
From an earnings standpoint, this issuance was $02 per share dilutive to twenty eighteen FFO. But at the midpoint of our guidance, we are still posting a 4.5% FFO growth rate and 11 CAD growth rate with a constant dividend coverage of 68% even after the dividend increase. From an NAV perspective, this issuance did not dilute net asset value with consensus NAV of $18 At the high end of the NAV range, it resulted in $03 per share NAV dilution. In the lower end, it was actually accretive. So since we don't really publish an NAV, only reference those as relevant data points to our investors.
Our approach on issuing those shares was to ensure that we met our balance sheet targets, preserve tremendous financial flexibility, the forward fund our development value add pipeline, and that was a decision we made in the December. So to wrap up, 2017 resulted in solid execution on the key pillars of our strategic plan, namely growing earnings, growing cash flow, prefunding our development and enhancing our balance sheet. We ended the year with solid operating performance. The success of our investment and financing activities demonstrated our discipline to continually improve our balance sheet, create a growth driven portfolio and pre fund our development activities. As indicated in our press release, we have updated our previously issued 2018 guidance range, which was previously $1.36 to $1.46 per share to $1.33 to $1.43 per share.
The revision to our midpoint is driven solely by $01 per share dilution caused by the EVO sale and the $02 per share dilution caused by the ATM issuance. Now looking at this year, our 2018 plan is off to a great start. We already have 75% of our revenue plan done with a strong pipeline of pending lease activity. We believe our operating plan is on solid footing with a bias to the upside. Our 2018 business plan objectives are clearly laid out on Page three of our supplemental package, and we also compare our 2018 targets to our four year business plan targets on page six.
So bottom line, 2018 represents a continuation of strong operating results with occupancy and leasing levels improving, positive mark to market, positive cash same store growth and capital costs remaining within our targeted range. Our current business plan does not incorporate any acquisitions nor any dispositions beyond our EVO sale. We are continuing to project one development start during the year with a dollar value ranging between 50,000,000 to $100,000,000 And as we have emphasized, we don't really plan on starting any new development without a significant pre lease and a strong pipeline of follow on deals. The only financing activity we have in our plan is a recasting of our $250,000,000 term loan, which we anticipate doing during the first half of the year. Just some other quick notable highlights.
Focus remains on cash flow growth, capital allocation and a strong balance sheet. With the EVO sale and the ATM issuance, we're now projecting achieving our six point zero times EBITDA target by 2018 and strong cash flow. Even with our 12.5% dividend increase, we anticipate maintaining a solid CAD payout ratio of 68% at the midpoint. Just in looking at our development and redevelopment pipeline, first of all, all of our development activities are clearly laid out on pages 13 through 15 of our sub. Our overall development pipeline is currently 77% pre leased and our projected remaining spend is about $168,000,000 that's been fully pre funded through our sales acceleration.
We did proceed on two smaller renovation projects, 500 North Gulf Road and 426 Lancaster Avenue with an anticipated aggregate investment base of $39,000,000 and targeted return levels of 9.5% cash on cash. As part of our Schuylkill Yards development, we did close on the acquisition of 1 Drexel Plaza, a 283,000 square foot office property for $35,000,000 that we plan to reposition over the next twelve to eighteen months. Based upon our preliminary budget of $83,000,000 which includes the acquisition price, we anticipate a target of return of 9%. We have also executed at least with a life science company for 108,000 square feet, who will begin staging their occupancy in late second quarter of twenty eighteen. We also started construction of our 165,000 square foot building at 4 Points in Austin, Texas.
That project is 100% leased to an existing tenant under a ten year lease with estimated cost of $48,000,000 We anticipate delivering that in Q1 twenty nineteen at an 8.4% projected return on cost. We also started construction on our 4040 Wilson project at 50% joint venture ownership interest. It's a mixed use development in the Boston submarket that will contain 189,000 square feet of office, 36,000 of retail and two fifty apartment units. The office and retail component is currently 46% pre leased, leaving us with a little over 100,000 square feet to lease over the next two years. Estimated cost will be $225,000,000 All of our equity is funded and the balance of cost will be handled via third party construction loan.
We anticipate substantial completion in Q1 twenty twenty with an office stabilization in Q3 twenty twenty one. We continued construction on our Subaru of America project at our Knights Crossing campus. That project is 100% leased on an eighteen year lease at a 9.5% return and incorporates 2% annual bumps. We continue to advance planning, pre development and zoning efforts on several other development sites, including 405 Colorado in Downtown Austin, Garza Ranch in Suburban Austin and our Broadmoor master plan in the Northwest part of Austin, our Metroplex project here in the Pennsylvania suburbs and Phase one at Schuylkill Yards. At this point, George will provide an overview of operating performance, including some color on our 2018 business plan and then turn it over to Tom for a review of our financial performance.
Thank you, Jerry, and good morning. We continue to
Speaker 2
be pleased with the pace of activity in all of our markets. As Jerry detailed in his commentary, market activity and our team's ability to source, negotiate and close deals allowed us to beat a number of our 2017 goals. These same characteristics have us off to a great start to 2018 with 75% of the plan achieved. The pipeline, excluding development properties, stands at 1,600,000 square feet with over 300,000 square feet in advanced stages of negotiation. During the quarter, we generated 92 space inspections totaling 547,000 square feet, outpacing the third quarter in both measures.
In terms of our core markets and the underlying assumptions contained in our 2018 leasing plan, in CBD Philadelphia, during the fourth quarter, we renewed and expanded Comcast at 3 Logan Square. Our CBD portfolio rollover exposure is now below 9% each year through 2021. As discussed on our last call, a 100,000 square foot tenant vacated five contiguous floors at 3 Logan on January 1. Since our last call, we've executed leases on two of these floors and are under LOIs for two additional floors. The four deals were done at an average cash mark to market of 10%.
At Sierra Center, two full contiguous floors totaling 55,000 square feet roll on June 30. Our 2018 plan still assumes these floors remain vacant for the duration of the year. We've had several tours to date and have one proposal outstanding for half of the space. Turning to the Pennsylvania suburbs. Our fourth quarter activity in Radnor has increased our leasing percentage to 92.5%.
The large suites vacated in 2017 continue to see good levels of activity and tours have picked up in the last two weeks. We have assumed 90,000 square feet of currently vacant space to be reabsorbed in the latter half of the year. We've done selected demo in several of the spaces and completed several common area improvements during the fourth quarter to aid in our leasing efforts. The pipeline in Radnor consists of approximately 235,000 square feet, including seven prospects over 20,000 square feet. In Northern Virginia, we're currently 91% leased and with Northrop Grumman's renewal in Dulles Corner behind us, our annual rollover in Metro DC is also below 9% for each year through 2021.
Tours in our Northern Virginia portfolio were up year over year. The pipeline of new deals is 270,000 square feet and we have approximately 100,000 square feet of new leasing in our open 2018 business plan. Market drivers in DC continue to be metro access and fully amenitized buildings. We've proactively built a number of spec suites to capture tenants seeking quick occupancy. Austin's economy is as robust as it's experienced in nearly two decades with regional unemployment at 2.7%.
Our Broadmoor 6 redevelopment remains 79% leased. A number of prospects continue to show interest and we have no doubt the remaining space will lease up quickly in the hot Northwest domain market, which is increasingly known as Austin's second downtown. The remaining portion of our DRA joint venture continues to perform well. We're 70% done on their leasing plan with both mark to market and same store NOI growth continuing to demonstrate high growth characteristics. Our business plan targets remain unchanged from our last call, but a point to elaborate on is same store NOI growth.
As a result of several large move outs occurring in the second half of twenty seventeen, coupled with the Three Logan vacate this month, our first and second quarter same store growth metric will be below our annual range. The same store portfolio will return to growth levels ranging between 35% on a GAAP basis and 2% to 4% on a cash basis in the fourth quarter as these spaces are reabsorbed. It is worth further noting that our current 83 property same store portfolio will increase in the third quarter when FMC Tower, 1900 Market Street and 933 First Avenue transition into the same store. With these additional four properties in the mix, our second half of the year same store NOI will range between 1013% on a cash basis and 4% to 5% on a GAAP basis. So to conclude, we're delighted with the achievement to date on the business plan and with the activity levels in our markets to meet the balance of our 2018 objectives.
And at this point, I'll turn it over to Tom.
Speaker 3
Thank you, George. Our fourth quarter net income totaled $73,100,000 or $0.41 per diluted share and FFO totaled $53,700,000 or $0.30 per diluted share. Some observations regarding the fourth quarter results. Same store rate for the fourth quarter were negative 2.3 GAAP, positive 3.3% cash, both excluding net termination and other income items. We've had 20 positive quarters of this cash metric, while we have negative quarterly same store growth, we achieved positive for the full year 2017.
We incurred $6,000,000 or $03 per share of onetime related costs to early debt extinguishment of debt comprised of $3,900,000 from the early redemption of our 2018 bonds, dollars 800,000 of net interest expense due to having the bonds outstanding for the make whole period and 1,300,000 for our share of costs related to the prepayment of the mortgages related to our Austin joint venture. Due to timing, the issuance of shares through our continuous equity program generated an incremental five ten weighted average shares during the quarter. Our fourth quarter fixed charge and interest coverage ratios were three point two and three point four, respectively, and common shares issued in the fourth quarter sales activity reduced our net debt to EBITDA to 6.2. Looking at the first quarter of twenty eighteen, the following are just some of our general assumptions. Property level NOI will be approximately $75,500,000 a sequential $1,500,000 increase from the fourth quarter of twenty seventeen.
FMC office and residential operations will generate an incremental $2,000,000 of GAAP NOI. One Drexel three thousand Market and four Tower Bridge will generate an incremental 500,000 Partially offsetting these increases is $500,000 of NOI from the fourth quarter based on asset sales. And then another $500,000 will be negatively impacting our NOI for the first quarter related to demolition costs for one of our redevelopment projects. FFO contribution from our unconsolidated joint ventures will total $6,000,000 and reflects the joint venture sale of EVO. G and A consistent with prior years, our first quarter G and A will be high at $9,000,000 but our annual G and A for the year will be $28,000,000 Interest expense will decrease to $20,000,000 reflecting the full quarter effect of our bond transactions in 2017 and capitalized interest will be $500,000 Termination and other income will be $500,000 and $600,000 respectively.
Net management leasing and development fees will be 2,500,000.0 and we have no incremental ATM activity in our plan. Looking at the capital plan, we project CAD will be up 11% from the midpoint of our range. The coverage is very similar to our 2017 coverage based on the CAD growth and our dividend increase. Uses for 2018 will total about $370,000,000 It's comprised of $160,000,000 of development and redevelopment, dollars 130,000,000 of common dividends, dollars 38,000,000 of revenue maintain and $35,000,000 of revenue create and $7,000,000 of mortgage amortization. The primary sources will be $215,000,000 of cash flow from operations after interest, 43,000,000 from EVO proceeds and $112,000,000 of use of cash on hand.
Based on the capital plan outlined, our projected cash balance will be approximately $90,000,000 at the end of the year. Based on equity issuance and the EVO sale, we now project our net debt to EBITDA ratio will be at six times by the end of the year and our debt to GAV will remain in the high 30% area. In addition, we anticipate our fixed charge ratio improving to 3.4% and our interest coverage improving to 3.8%. I'll turn the call back over to Jerry.
Speaker 1
Tom, thank you. Thank you too, George. So to wrap up, 2017 results strong. 2018 is off to a very solid start. We remain very focused on growing earnings, growing cash flow, managing our forward leasing rollover risk, which as George touched on, we have down into the single digits, maintaining and ever improving our balance sheet and creating a steady pipeline of value add opportunities.
So with that, we'd be delighted to open up the floor for questions. As we always do, we ask that in the interest of time, you limit yourself to one question and a follow-up. Thank you very much.
Speaker 0
Thank you. And our first question comes from the line of John Guinee from Stifel. Your line is now open.
Speaker 4
Great. Two quick questions. First, very nice call. Amazon HQ2, I really always hate to ask this, but what are the primary locations for both Philadelphia and Austin? And then second, 440 Wilson, how much, Jerry or whoever, is the development per square foot for the office and retail and the development per unit cost for the residential?
Speaker 1
John, I'll take the I mean, look, first of all, on Amazon, it's obviously a big topic nationally. And I think from our perspective, first of all, congratulations to the cities that made the shortlist. I mean, we're really delighted that Philadelphia was on that list and followed up with Austin, DC being on that list as well. Our role in that really honestly, John, is to stand at the ready to assist the city in any way we can to facilitate their bid. We're very enthusiastic about that.
Who knows where that process goes? I think as I mentioned on the last call, it's fascinating from a real estate standpoint to see what kind of what a disruptive influence the process Amazon has used for site selection has had on our business. And I think it's going to generate a lot of positive long term value for our industry. Look, in terms of the there's a whole range of sites, most of which are online that people can check out in terms of the shortlisted cities. Schuylkill Yards is one of the developments that was submitted as part of the Philadelphia bid.
So we're again, stand at the ready to help the city out any way we can to facilitate that process as well as in Austin and DC as well. So this is really a process being led by Amazon at the forefront or the political and civic leadership of the respective cities. And our role is to support them however we can to have each of the cities put forth the best that they possibly can. I'm sorry, John?
Speaker 4
$4.40 Wilson development cost.
Speaker 1
Yes, I think our overall development costs are looking at $560 a square foot. I don't have the breakdown in front of me, John, so we can follow-up between the breakdown between the retail, the office and the residential. So I apologize for that. But we can certainly follow-up with that. But as we started to look at moving forward with that project, we certainly saw an opportunity to secure worthy tenant from a pre lease standpoint who had a 2020 delivery.
That submarket we think is and location worthy, we think it's a great location that will get better. And we think we're building into a stronger market with the delivery of the Boston Quarter Mall that Forest City is doing, probably another 400,000 square feet of retail, new restaurants, outdoor dining, etcetera. So we think that submarket and location of the project that we started will continue to be better. And we actually did see an opportunity to introduce a bit of a mixed use tower to that market. So it's a differentiated product with a bit of a differentiated amenity package.
And we think that that will wind up being a real point of difference for us as we lease up the balance of the office space over the next couple of years and fill in the balance of the retail and the apartment leasing.
Speaker 4
Okay. And then lastly, real quick, will you be in Minneapolis next weekend?
Speaker 1
Football is about family in the Sweeney household. So we're trying to evaluate all the different options. Other So than be there or we'll be having a big family party. Probably the latter because I think I enjoy watching with my brothers and sons and daughters and nieces and nephews.
Speaker 2
So it's an exciting time.
Speaker 4
All right. Congrats.
Speaker 1
Thank you, John.
Speaker 0
Thank you. And our next question comes from the line of Rich Anderson from Mizuho Securities. Your line is now open.
Speaker 5
Thanks and good morning everybody. So just a big picture question for you, Jerry. I guess this is a recurring theme from Brandywine in terms of dispositions bringing down their earnings growth profile. As we wrote in our note last night, we understand them to be very good real estate decisions, value creation and all the rest. But I'm curious where you're at on that process because we sense a guess a sense of frustration from investors that are waiting on growth going up as opposed to down and maybe the disposition processes is nearing an end so that we won't have these things to explain in future periods?
I mean, just wondering how you balance the idea of good real estate decisions with the fact that you're publicly traded REIT that where growth at the same growth at the quarterly basis matters to people.
Speaker 1
Rich, fabulous question. And look, is a struggle. And we talked to a number of investors that are I don't want say equally split, but there's clearly a recognition that there sometimes is a distinction between earnings momentum and value creation or value harvesting. So I guess as we look at it, we've sold an awful lot of property, almost $2,500,000,000 over the last five years. We do believe we have about $400,000,000 of non core properties left to sell.
But I think more thematically, as we looked at the events in the last call it quarter or so including the sale of EVO, we looked at that even with this sale of EVO, which I'll talk about in a second, we're still generating what we think is the top quartile FFO growth in the office sector. Again, our primary focus is on cash flow growth, so we were able to really generate low double digit cash flow growth. And we also think that kind of in these uncertain times, it does make sense to make sure that we're really bulletproofed on the right side of the balance sheet. And so certainly having increased financial capacity is very much at the top of our thoughts. We also with that general theme, we do take a look at the office markets continue to be in a state of disruption across the board, whether the impact of technology, new product coming online.
And we do recognize that markets and submarkets are ever changing. And we really need to be mindful of where we think each of those markets will be in the next five to ten years and frankly where our product will be positioned in those markets. So we always want to maintain earnings momentum and we do acknowledge that this asset churning does create a sense of frustration by some investors. But honestly, from I think a shareholder perspective, I don't think we'd want to be in a position where we're afraid to trade off FFO for value creation and harvesting. As you know well, markets move, both capital markets and real estate markets.
So I think our approach going forward is I think we will remain opportunistic. So for example, on the sale of EVO, that was a wonderful opportunity to sell with the non core asset in a really core location for us. We had a great partner with Harrison Street there who knows this market segment very well. After some test marketing, we're able to really identify an international global investment fund based in Southeast Asia who was able to see the long term value in owning that property. So they made their first entrance into the Philadelphia investment market, which we think is a great result for our portfolio with some great read throughs.
So the two sales that we've done at Sierra Center South have both been to foreign investors, which we think really starts to validate the investment thesis in Philadelphia that we're trying to create. But then we take a look at some of the non core assets. As we look at the plan going forward, we would hope to identify asset sale opportunities with some match funding for either asset acquisitions or creating some value to our development pipeline. So that's a long winded answer. We acknowledge the concern that some investors have raised.
We did look at our landscape for 2018 that even with these sales we were still posting pretty good growth metrics. And that as we've said for the last several years, I've certainly learned the lesson, making sure that our balance sheet remains in exceedingly good shape going into whatever the cycles bring.
Speaker 3
Thank you, Rich.
Speaker 0
Thank you. And our next question comes from the line of Michael Lewis from SunTrust. Your line is now open.
Speaker 6
Thanks. I actually was going to ask that same exact question that Rich just asked. You gave a good answer to it, but maybe I could take it one step further, which is another thing about Brandywine is it's common for you to have assets for sale, but you're very particular about getting your price and you're not afraid to take it off the market. I was wondering if you could share, how much you have on the market now? And then it sounds like from your comments, if you've got $400,000,000 of non core, do you think it's not out of line for us to be kind of assuming that you sell roughly $400,000,000 over the next couple of years kind of opportunistically?
Speaker 3
Rich, the
Speaker 1
Mike, I'm sorry. I think that's a good assumption as you look at it over the next couple of years. I mean, I think we've really done a great job of getting the portfolio back to where we want it to be. These non core assets, we're still working through some of the value creation that we think we can harvest from them, which is why when we developed our plan, didn't really lay out a target number. But right now, really do not have a lot
We always respond to reverse inquiries, which we're saying somewhere which we always get in from all three of the markets that we're in. But I do think as we look going forward, we are going to be very focused continuing to monetize our land holdings, which we've had great success over the last couple of years, that we are going to continue as we've laid out in our four year business plan, try and reduce our exposure to some of these joint ventures. And we were able to do a couple of good transactions in the latter part of 2017 with a partial sale of DRA, swapping some property interest with our Concha Hocking venture to exit that, as well as on the Allstate side sell out of the property in Bethesda. It's a really advantage we think a strong investment market there. So I do think that as we said on previous calls, we think a lot of heavy lifting is behind us in terms of the portfolio repositioning.
But I do think it's incumbent upon us to always be very mindful of where we think these markets are going and to always stay in close touch with capital sources in the investment market to make sure that we are in a position to respond as we see opportunities come up.
Speaker 6
Thanks. And you mentioned the tough decision to issue the shares. I was just wondering if you think you may have more appetite to do that if the stock trades above $18 which seems to be about the consensus NAV? Or if maybe now that you have this clear path to the target leverage, if maybe you would have less appetite to do more equity unless the stock price of course got much higher?
Speaker 1
Yes, think the primary thought process we had on this ATM issuance was to really make sure we were in great shape from meeting our balance sheet targets. I think as we look at going forward, we would be looking at any equity issuance tied to an investment opportunity that would create value for our company. So if you kind of look at it from a strategic standpoint, we view this $50,000,000 of equity issuance that really was the last piece of the puzzle in achieving our balance sheet goals. I think going forward we're going be very focused on where that currency can create value for our shareholders on a going forward basis.
Speaker 6
Thanks. And if I could ask just one more. I'm going to put the cart way before the horse here and ask. When Amazon picks a market, well first I don't know, I guess they'd probably pick a location within a market. Do you have any sense on how you kind of negotiate the terms of rent and terms like that?
Do you think that there's any expectation that Amazon or the government would expect you to make concessions if, for example, they picked Schuylkill Yards? I'm just curious how the process would work once we get past this initial part.
Speaker 1
Yeah, Michael, it's a good question. And honestly, don't have any real visibility into it. Mean honestly our role has been in a support one to the public policymakers, both at the city and the state level where we are, to kind of help them develop kind of real estate fundamentals and present the best platform for them to in turn present to Amazon. Amazon is an incredibly smart, incredibly talented company that knows what their business objectives are. So my expectation would be whatever selection they choose or selections they go for another short list of that impact they take.
It'll be an intense negotiation across the board, But our role really is one of total support and how any site, not just a Brandywine site but any of the sites that are under consideration, they all fit in I think is a big TBD in the minds of all the real estate owners.
Speaker 6
Thank you.
Speaker 1
You're welcome, Alex.
Speaker 0
Thank you. And our next question comes from the line of Rob Simon from Evercore ISI. Your line is now open.
Speaker 7
Hi, guys. Good morning. Thanks for taking the question. Just a quick housekeeping question for us. Now that you guys have dealt with at least part of the Comcast lease and you talked about the move outs at the June.
It sounds like you're early on dealing with those. Are there any other tenants in the portfolio that you could speak to that might give you pause as potential move outs over the next call it twelve to eighteen months?
Speaker 2
Sure. It's George addressing the question. We've got four we only have four leases in the balance of twenty eighteen over 20,000 square feet. I mentioned in my prepared remarks the 55,000 square feet at Sierra. We've got a 48,000 square foot tenant down in Dulles Corner that we know is going to move out in the third quarter.
The other two tenants, there are over 20,000 square feet, are both projected to renew, and we're in negotiations with them right now. And then as we look into 2019, our largest exposure is with Comcast at To Logan, and we continue to kind of just wait and evaluate what their ongoing needs are going to be. I think they continue to grow and need space and are in the building now. So we're kind of just playing that one by ear and that's a oneonenineteen event date. And then three others all kind of over 50,000 square feet, we're in active negotiations with already think that we'll end up retaining or hope to retain each of those.
So again, 1839 and even 2020 expirations are all kind of on the table with our leasing teams every day to try and further mitigate our rollover exposure.
Speaker 7
Got it. That's helpful. Thanks guys. Thank you.
Speaker 0
Thank you. And our next question comes from the line of Craig Mailman from KeyBanc Capital Markets. Your line is now open.
Speaker 8
Hey guys. George, maybe if you could, I know you guys have another piece left with Comcast. Just any update there potentially on what they're planning to do? And just remind me, was any of the Comcast expansion related to the activity you're seeing for the Verizon backfills?
Speaker 2
Yes. So on the 3 Logan piece, expansion occurred outside of the Verizon floors. We did take one tenant who was in a Comcast expansion floor and move them down to the Verizon. But the rest of that leasing activity in the Verizon space has come from other parts of the city. The 2 Logan piece, again, as I said, I think it's a little bit of a wait and see.
They expanded by 65,000 square feet in 3 Logan, so they need to kind of staff that up. And then we'll kind of see what the next bite at the apple is.
Speaker 8
Okay. And then what's left on Verizon now?
Speaker 2
Just one floor, So 20,000 square feet.
Speaker 8
And then Jerry, on EVO, it was unclear from the press release. Did Harrison Street sell their interest as well?
Speaker 1
Hey, Craig. Yes, 100% of the interest in the property was conveyed. So Harrison and Brandywine sold as well.
Speaker 8
Okay. And then just lastly, I know we've hit on dispositions here a bit, but and I know we talked about last quarter, but just the decision not to include any incremental at this point and it's kind of the fatigue with you guys giving guidance and then a quarter or two later lowering guidance again. Just the decision not to look at what you have in the market, what you really think you're going to sell this year, and put that into guidance. And if you have to, at the end of the year, raise guidance because you didn't hit the disposition target, kind of the decision to not go that way rather than the 1,000 cuts here we've seen?
Speaker 1
Well, hopefully not 1,000 cuts, but it's a good point to raise. Think from our perspective, we were coming off a really heavily weighted disposition goal in 2017. And frankly some of that was I don't think it was a surprise to us because we put properties in the market. But as was mentioned earlier, I mean, do lay out pretty solid price targets that we try and achieve. And as we're coming out of 2017, I think our perspective was that the primary focus we have in the company is, as I mentioned, to kind of keep growing earnings, growing cash flow, and we felt like a lot of the immediate market sub positioning we're targeting we had achieved.
EVO was a process that we had a very solid bar that both Harrison Street and Brandywine set for an exit. We frankly weren't quite sure we would get to that level. We wound up having a very well orchestrated process that had a lot of discipline and communication to it, and we were able to identify a buyer who had the quality of being able to deliver efficiently on a transaction that size and had a really good long term perspective which fit in well with what we're trying to do here in University City. So we weren't really sure that transaction would come across the table when we did our last earnings call.
Speaker 8
Okay. Thanks, Jerry. Bye.
Speaker 9
Thanks, Frank.
Speaker 0
Thank you. And our next question comes from the line of Manny Korchman from Citi. Your line is now open.
Speaker 7
Hey, good morning, guys. Tom, just jumping back to the ATM raise for a second. So I get that you want to build up some dry powder. In your mind, is there a use for that dry powder that you're just hesitant to put into the 2018 plan? Development starts didn't move, acquisitions didn't move.
Do you have that money earmarked and you're just not disclosing for what? Or are you just trying to make sure that you have dry powder going into, let's call it, the 2018 or even into 2019 with that leverage target that you've set out in the past as sort of the bogey you're going for?
Speaker 3
Yes, Manny, I think as Gerry mentioned,
Speaker 1
we do we did want to get
Speaker 3
to the bottom end of that range and hit the 6%, and I think that was a driving predicate. But we do have several as we did say, we have one development start we'd like to do, and we will be taking on some debt attribution leverage with fortyforty Wilson. So those were two items. And then we have a couple of other opportunities for development also. So I think it was leave some dry powder.
We'll have cash at the end of the year, as I mentioned, of close to $90,000,000 So I don't think it was a liquidity decision. I think it was more towards leverage as well as having some dry powder to make sure we hit the six point zero times.
Speaker 7
And George, just thinking about Schuylkill Yards as a bigger project, how much of the demand or at least discussions you're having right now are coming from tenants that are already at FMC, especially in the context of rent abatements at that project running off and being provided at the Schuylkill project?
Speaker 1
Well, I think anybody
Speaker 2
looking at Schuylkill Yards is a couple of years down the path. So we haven't really had any discussions with our existing tenant base for Schuylkill Yards, but we continue to get a number of inquiries from inside the city, outside the city, outside the region about that project and all of the elements that it brings to the table.
Speaker 7
Great. Thanks, guys.
Speaker 1
Thank you.
Speaker 0
Thank you. And our next question comes from the line of Jamie Feldman from Bank of America Merrill Lynch. Your line is now open.
Speaker 9
Great. Thank you and good morning. I'm hoping you guys can just talk through your thoughts future development projects. Like if we look at the land inventory on Page 16, if you could handicap what next starts might be or maybe just talk through kind of the level of interest in build to suits for some of those projects?
Speaker 1
Sure. Jay, we'd be happy to. We continue to finalize the approval processes for our 405 Colorado project in Downtown Austin. That market is doing incredibly well. Rents have continued to migrate north on both a notional and effective basis.
It's about a 200,000 square foot building with parking underneath it. So it's not a large building in terms of square footage. While we're finalizing the approvals, we're spending a lot of time pre marketing that project. And we certainly view that as something we want to start as soon as we sign up a tenant. We are also down in Austin in the process of wrapping up our accruals on Broadmoor, which as you know is a multi phase build out.
So we're starting the planning process down a couple of individual buildings there that we think will be well received. But that's probably in terms of delivery in 2019 event. And then here in Philadelphia, I think the focus is primarily on our Metroplex project, which is out in Plymouth Meeting, which is depending upon the configuration between two hundred and three hundred and forty thousand square feet. So we're in active discussions with a number of prospects on that. We are designing an incredibly high quality building that is something unlike anything the Philadelphia suburbs has seen before.
So it's a side core configuration, very efficient floor plates, a lot of green space. So the price point we're trying to achieve there is at the upper end of the market, but we're getting good traction on that because of I think some companies recognizing the value of that location and also the quality of the work environment that they can create there. And then on Schuylkill Yards, we continue to work with our partners, Gotham on the residential side and Longfellow on the life science side along with our Brandywine team to really think through the various components of our Phase one development, which we still currently contemplate will be an office and life science building, but we're also evaluating expansion of a retail base there as well as the incorporation of potentially some residential. And then down in DC, we were able to get the forty-forty Wilson transaction moving forward and we're just in the pre marketing mode for the balance of our office inventory down there.
Speaker 9
Okay, that's helpful. And then I guess just your views on co working and how you think it's going to have it make a difference going forward in your markets and how you guys are reacting to the trend?
Speaker 1
Yes. Look, think it's a very viable delivery platform that addresses the needs of a number of tenants. I think it will be interesting to see how the co working evolves from kind of the small start up entrepreneurial model to really serving as temporary office space for large corporate users. We track that. We have some of the co working spaces in our existing inventory.
We spend a lot of time with those folks thinking through how we can facilitate their growth, while at the same time accommodating expansion requirements even if they're temporary by some of our more traditionally based tenants. So I think we've maintained a very good relationship with the number of with the co working companies. Certainly, the platforms we have in all three of our key markets, I think are attractive to them in terms of the location and following sponsorship and they want to be part of our inventory. And I think the next step for us is really thinking through how we can piggyback some of their ideas to meet a temporary niche that we see in some of our corporate level tenants. And I think we would expect to make some progress on that during 2018.
Speaker 9
Do you see meaningful growth over the next year or so in your markets and in your portfolio?
Speaker 1
I think we'll see continued expansion, Jamie, whether I'm not sure I would define it as meaningful growth. But I think there's about 5,000,000 square feet of that in the overall Philadelphia market. It all seems to be doing pretty well. But there's a
Speaker 7
lot of
Speaker 1
variability between the location of those co working spaces, one doing incredibly well given its location and one not doing so well. So a lot of the locational attributes, amenity attributes that we typically see with our standard corporate traditional tenant are also requirements of some of these smaller startup companies as well. So I think there'll be continued expansion. I don't know if it will be substantial growth over the next twelve months though.
Speaker 9
Okay. Thank you.
Speaker 3
Thank you.
Speaker 0
Thank you. And that concludes our question and answer session today. I would like to turn the call back over to Gerry Sweeney for closing remarks.
Speaker 1
Great. Well, thank you all for participating in our fourth quarter call. We look forward to updating you on our activities on our first quarter call later in the spring. Thank you very much.
Speaker 0
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.