Brandywine Realty Trust - Earnings Call - Q4 2018
January 31, 2019
Transcript
Speaker 0
Good day, ladies and gentlemen, and welcome to the Fourth Quarter twenty eighteen 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 be given at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, President and CEO, Mr.
Jerry Sweeney. You may begin.
Speaker 1
Dmitry, thank you very much. Good morning, everyone, and thank you for participating in our fourth quarter twenty eighteen earnings call. On today's call with me today are George Johnstone, Executive Vice President of Operations Dan Palazzo, Vice President and Chief Accounting Officer and Tom Worth, our Executive VP and Chief Financial Officer. Prior to beginning, certain information discussed during our call may constitute forward looking statements within the meanings of the federal securities law. Although we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved.
For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports that we file with the SEC. We have taken a little bit more of a streamlined approach this quarter. So our comments this morning will summarize 2018 activity, but primarily focus on our 2019 plan. After an overview, Tom will provide a synopsis of our financial results. And then Tom, George, Dan and I will be available for any questions.
We closed the year strong. We exceeded our business plan metrics on cash and GAAP mark to market, capital ratios, tenant retention and achieved many of our other targets, including ending the year at 95.5% leased. We did come up a little short in our spec revenue, primarily due to slower occupancy of leased spaces, which also resulted in our being below our year end occupancy target and our same store growth rates. On a very positive note, however, Q4 leasing activity accelerated over Q3 by seventeen percent and was up 3% over 2017 levels, building strong momentum for 2019. We also completed several previously announced transactions in Austin and Northern Virginia.
The baseline effect of this swap reduced our DC revenue contribution to 8% and increased our revenue contribution from Austin to 18%. It also moved capital and revenue dollars to a market with strong positive mark to market and a 12% capital ratio from a market with negative mark to market and a 20% capital ratio. We also continued the liquidation of our Allstate JV through selling Station Square in Silver Spring at $170,000,000 $107,000,000 value at a 6.5% cash cap rate. We also acquired Quarry Lake, a 121,000 square foot building for $39,500,000 at about a 6% cash cap rate. That asset is a perfect complement to our Northwest Austin portfolio, provides excellent mark to market upside for us in a few years and reflects our objective to continue increasing our revenue contribution from Austin to 25%.
As Tom will touch on, none of the benefits of these Austin acquisitions will flow through to our twenty nineteen same store numbers. During the fourth quarter, we reinitiated and fully expended the remaining capacity on our share repurchase plan by purchasing 2,500,000.0 shares for $32,000,000 The Board also approved a new $150,000,000 share repurchase plan, which we did use during January to purchase an additional 550,000 shares, bringing aggregate purchases to $39,000,000 at an average price of $12.76 per share. We also redeemed $7,000,000 of operating partnership units for cash. We do plan to continue to use this repurchase program opportunistically as part of our capital deployment programs. We also announced a 5.6% dividend increase supported by improved portfolio performance and strong cash flow growth.
On the development front, we closed the year with the delivery of our fully leased 500 North Gulf Road and Broadmoor 6 in Austin and the sale of our Subaru training facility. Turning to 2019, we are off to a great start. In our sub on pages ten and eleven, we did provide some additional color on the greater Philadelphia and Austin markets. Suffice it to say, both markets remain strong with good activity, building pipeline and leasing levels. We have also raised our spec revenue target by 1.6%, and our leasing pipeline stands today at 1,700,000 square feet, including 436,000 square feet in advanced stages of negotiation.
Austin continues to benefit from corporate attraction and in market expansions, most notably Apple, Google, Oracle and Samsung, as well as an emerging life science sector. Rental rates increased 6.5 in 2018, and Austin closed the year with 1,300,000 square feet of absorption. Philadelphia also closed out 2018 on a very strong note with rents up 4.4% and with over 1,100,000 square feet of tenants new to the city over the last two years, clearly reflecting continued acceleration of Philadelphia as an emerging life science and transportation centric employment hub. The city added almost 17,000 jobs during 2018, primarily driven by growth in financial services and the health care and life science fields. Looking at our plan, our spec revenue plan is 77% completed.
And other than the increase in spec revenue, all of our other operating metrics remain the same as we announced in October. Overall, our pipeline of deals is stronger and levels of activity have increased across the board, including in Radnor, where our pipeline is almost 300,000 square feet versus a targeted 2019 absorption level of about 126,000 square feet. Another item of particular note is the high level of activity that we're seeing at our sixteen seventy six International Drive project in Tysons Corner. As previously announced, we're investing $24,000,000 to completely reimagine the entire building, including lobby, amenities, restrooms, mechanical systems and a lot of outdoor space reconfiguration as well as improving access to the building from the road network. All of that work will be substantially completed by the vacation of the existing tenant at the end of the third quarter.
That will leave us with about 200,000 square feet to lease. And our current pipeline of deals already stands at well over 600,000 square feet. So we really are delighted with how well that renovation plan has been received and are very confident of creating another successful value add story. We continue to make excellent progress in our development pipeline. As was included in the press release, we are closing in on a pre lease of our 405 Colorado project in Downtown Austin, a 114,200,000 square foot office building over a five twenty car parking deck.
More importantly, we have an extremely strong pipeline of deals aggregating almost 400,000 square feet. So given that pipeline and the depth of it and our confidence in its execution, we're planning to start this project in the next forty five days. Our development leasing activities at Schuylkill Yards, Garza, 4 Points and Radnor are all progressing well. We are completing the design development process on each project and giving pre leasing achievement could be in a position to start one or two of those projects by year end 2019. Just given that size, a quick update on Schuylkill Yards.
We did update the disclosure in the SIP on Page 15. Design and pricing work continues at an excellent pace. We have seen a real upsurge in activity through our marketing campaign, and our pipeline today currently stands at over 1,500,000 square feet, including several 100,000 square feet of life science uses. Equity sourcing discussions on Schuylkill Yards also remain extremely encouraging. To refresh everyone's memory, Schuylkill Yards is in a federal qualified opportunity zone, which has generated significant interest from a variety of capital sources looking for both excellent real estate investments with federal capital gain deferral advantages.
The goal for Schuylkill Yards is to have the projects in a position to start over the next four quarters, of course, assuming favorable market and financing conditions. On Broadmoor, we're designing a 350,000 square foot office and retail site as well as a residential site that can do 300 plus units. We plan to again, subject to real estate and capital market conditions, be in a position to start either one of those or both over the next four or five quarters. From an investment standpoint, we do not have any sales or acquisitions built into our 2019 plan. We are, however, exploring the sale of some assets to harvest profit, generate additional liquidity and really accelerate our return on invested capital and cash flow growth trajectory.
As we did in 2018, we would expect that any deployment of this type to be earnings neutral or positive and would accelerate bottom line cash flow growth. So to wrap up, the 2019 business plan is in excellent shape. We're confident of meeting all of our goals. We remain very encouraged by the depth of our leasing pipeline on both our existing inventory and our growing development pipeline. Tom will now provide an overview of our financial results.
Tom?
Speaker 2
Thank you, Gerry. Our fourth quarter net income totaled $121,800,000 or $0.68 per diluted share, and our FFO totaled $64,300,000 or $0.36 per diluted share. Some general observations about 2018 results. Our balance sheet metrics continue to improve as our fourth quarter fixed charge and interest coverage ratios were 3.53.8%, respectively, a 10% improvement on both metrics as compared to the fourth quarter of twenty seventeen. Our fourth quarter net debt to EBITDA improved to 6%.
Our repurchase of 3,100,000.0 shares had no material impact on our fourth quarter earnings since the shares were purchased later in the quarter. While our year end occupancy and expected revenue were below target, the variance is primarily due to timing of tenants taking occupancy of some tenants that we anticipate remaining in holdover through 2018. That allowed us to achieve our 95.5% portfolio leasing, which represents the midpoint of our range. Looking at 2019 guidance for the first quarter and year, Property level income will total approximately $83,000,000 and will be incrementally $3,500,000 higher than our fourth quarter number. The increase is primarily due to Austin's acquisition totaling Austin's acquisition totaling about about $7,500,000 partially offset by the JV of our properties at Northern Virginia and the balance coming from the completion of our 500 North Gulf Road and 4 Points developments.
Our FFO contribution from our unconsolidated joint ventures were totaled $3,500,000 and is $2,500,000 below our fourth quarter number, primarily due to lower interest in the Nova joint venture as compared to the Austin joint venture, the sale of Station Square asset and the noncash increase to ground rent due to the new accounting standard. G and A for the first quarter will increase from 5.6% to 9.5. The incremental increase is primarily due to the timing of deferred compensation expense recognition. And consistent with prior years, our new capitalization policy will also increase G and A. Our annual G and A should still continue to come in between 30,000,000 and $31,000,000 Interest expense will increase to $20,500,000 with fixed rate interest being 98.6%.
Capitalized interest should approximate about $05,000,000 and full year interest should approximate 84,000,000 to $85,000,000 10 and other income will total 1,000,000 for the quarter. Net management leasing and development fees will be $3,000,000 for the quarter and will approximate $13,000,000 for the year. Land and tax provisions will net to a positive 2,500,000.0 and we did lose about $900,000 of income related to the Subaru National Training Center. On the share repurchase, our recent activity will lower our weighted average share count to 178.5, And the numbers don't reflect any additional buyback, but we remain opportunistic. On the financing side, Term Loan C, we closed that in December with a recast of our term loan to a new five year loan with no changes in the maturity date.
The recast of the loan allowed us to lower the interest the effective interest rate by 55 basis points. Our Northern Virginia joint venture financing, we anticipate closing that financing during the 2019 and receiving approximately $30,000,000 of net proceeds. Regarding, the change in accounting standard, we issued initial guidance. We highlighted a $0.46 or $03 charge, representing a reduction in the amount of internal leasing costs we had capitalized and an increase in our ground rent expense due to a new straight lining guidelines. We also know that we had not yet concluded on the accounting treatment of a ground lease at one of our joint ventures.
Since that date, we have determined that the ground lease expense will increase about $3,300,000 representing a noncash increase to ground rent expense and negatively impacting the income from our joint ventures. Based on our current capital plan for 2019, it includes $165,000,000 of development, 55,000,000 of revenue maintaining, dollars 40,000,000 of revenue creating spend and approximately $18,000,000 for the acquisition of the Radnor land. Our line of credit balance will be about $220,000,000 at year end. We projected our net debt to EBITDA ratio between 6.16.3%, and we'll maintain variable being scope to the development act. And that will vary based on the scope of the development activities during the year.
In addition, our net debt to JV will remain in the low 40% range. We continue to anticipate our fixed charge ratio to be around 3.4% and our interest coverage improving to 3.6% by year end 2019. I will now turn it back over to Jared.
Speaker 1
Tom, thanks. With that, we're delighted to open up the floor for any questions. And as we always do, we ask in the interest of time, you limit yourself to one question and a follow-up.
Speaker 0
And our first question comes from Manny Korchman with Citi. You may proceed.
Speaker 3
Morning, everyone.
Speaker 2
Morning, morning, We can start
Speaker 4
with $17.35 Market. You guys did not buy the assets, but I'm sure you considered it given your market share in Philadelphia. Maybe can you just share thoughts as to why you did not acquire that asset? And then also how the value at that asset translates to certain value to your infill affiliate asset?
Speaker 2
Yeah, man, I could barely hear you, but
Speaker 1
I don't relate to 1735. When we looked at that project, I think it's fairly stable with not a lot of vacancy. So from our perspective, we thought, and as events yesterday proved out, the building would trade at a very low cap rate and a very strong price per square foot. So we didn't view that we could add a lot of value to that as part of our marketing platform. And that if someone else owned that, given the stability of that really being a core asset, it really did not present a competitive downside to us.
We do think it's a direct look through to our properties from pricing standpoint. Look, I do think Equity Commonwealth and their whole team did a great job of creating core value as they took that property through its lease up phase. And as our
Speaker 3
interest in
Speaker 1
buying that building was much more higher several years ago when there's a lot of leasing to do, they did a great job of stabilizing it. I think I'm real happy to see some out of town, high quality, thoughtful investment money moving into the city and setting a high watermark for an asset on a price per pound basis as well as a very low cap rate. I think that validates our investment thesis. Our investment basis is, as you all know, in the CBD is about $220 a square foot gross. So we think this is a great benchmark for us.
We think that the price that is being bought at will create a momentum for additional rent acceleration, particularly given the fact that there's very few large blocks of space available in the market and the trophy market continues to tighten. So we think it's a good pricing benchmark for the balance of our portfolio. We think it moved from a value add to a core acquisition with the great leasing work that Equity Commonwealth did. And from our perspective, we're pretty happy with the pricing benchmark it's setting in the market. And congratulate Equity Commonwealth for a great trade and welcome the new buyers to the city of Philadelphia.
Speaker 4
Thanks, Gerry. I hope you guys can hear me better now.
Speaker 1
We can, yes.
Speaker 4
Question for you on the ground rent. Just so that we can be clear, the ground rent adjustment you made impacts the lease accounting standard, and it doesn't change the amount of ground rent. Is that correct? Are there two adjustments we need to make?
Speaker 2
No. There it's a straight it's a noncash straight line ground rent adjustment. So the cash we are gonna be paying will continue to be the same. It's just the length and calculation of that ground rent will change.
Speaker 4
Got it. Thanks, guys.
Speaker 1
Thank you, Manny.
Speaker 0
And our next question comes from Tammy Feldman with Bank of America Merrill Lynch. You may proceed.
Speaker 5
Great. Thank you. Good morning. I make just want sure it's clear. Can you talk more about the spec revenue miss for the fourth quarter and the year and just give more detail on exactly what happened?
Speaker 1
Sure, Jamie. This is George. I'll jump in on that. We had roughly 73,000 square feet of tenancy that we thought was going to take occupancy in Q4, albeit late in Q4. And the fact that some of those spaces were not substantially complete and the move in and GAAP revenue recognition didn't take place caused about $05,000,000 of slippage in our spec revenue target.
And then we had another 100,000 square feet or $100,000 of leakage from just interim commencement dates within the quarter, some that were projected to commence closer to the November, commenced later into November. And so instead of getting two full months of GAAP revenue, we ended up with a little over one. So that was really the cause of the $600,000 slide. None of that has any impact on our 2019 business plan. Since all of those tenancies were expected to commence in 2018.
They were already fully part of our 2019 business plan. And they were not previously and are not today part of our 2019 spec revenue target.
Speaker 5
Okay. That's helpful. So no leases fell out of bed and nothing's changed in
Speaker 2
terms of the pipeline coming through?
Speaker 1
No. No.
Speaker 5
Okay. All right. And then I guess turning to Austin. Can you talk more about leasing pipeline for 04/2005, the 35% tenant? And then I know you said 400,000 square feet of potential leases, but I assume those tenants are also looking at other projects.
Can you just give us a little more comfort on if you were to go spec, why you would think that would be the good move?
Speaker 1
Yes, sure, Jamie. Mean, as I mentioned, we have about 400,000 square feet. And just to be clear, when we use that number, we believe that their 400,000 square feet are really bona fide prospects that are really working the project, not just, as they say, drive bys. We think they range in size from the 25,000 to 70,000 feet. There's been a lot of activity on the building.
And I think when we're taking a look at that pipeline of deals, I think one of the catalysts for why we're announcing we're going to start that building in forty five days is given that pipeline and what we know will be the shadow pipeline of smaller deals behind that, we need to start construction of this project to meet the delivery time frames for a lot of these prospects given their existing lease structures. So we remain incredibly encouraged by our ability to kind of roll the anchor tenant we're dealing with through to a final lease execution in the next thirty to sixty days and also significantly advance a number of the additional prospects during that period of time as well. So the expectation is we'll start that project late Q1, early Q2. We'll deliver kind of year end sorry, Q1 'twenty one, which is the targeted occupancies for a number of these tenants. And we feel frankly, given the size of the building at 200,000 square feet, the fact that we've got construction pricing fully locked down, everything did, no real variability to the cost side of the equation, that our read of the market is that given the size of the tenants we're looking at, now is a good time to go.
Speaker 5
Okay. And how do you think about the competitive pipeline and just timing of deliveries versus your project?
Speaker 1
I think we're in good shape.
Speaker 2
I think
Speaker 1
we've certainly, there's a number of projects on the drawing boards in Austin that have not yet started. There's some that have started or are very close to starting. I think the floor plate size here, we think it's an incredibly strong location downtown. The fact that it provides a fair amount of on-site parking in the CBD are real competitive advantages for us.
Speaker 5
Okay. Thank you.
Speaker 1
Thanks, Jamie.
Speaker 0
And our next question comes from Michael Lewis with SunTrust. You may proceed.
Speaker 2
Thank you. Good morning, Michael.
Speaker 6
Morning. Jerry, I think when you went through the development projects I didn't hear you talk about Metroplex 2. In kind of late November, early December there were some news articles about out that you were looking for tenants that might be close to starting something there. Could you just give an update tenant interest and what's going on there?
Speaker 1
Sure, Michael. Metroplex is a project we've in Plymouth meetings, one of the core submarkets in Philadelphia. We the reason why there was a lot of press about in the last couple of months is we actually bought on an outside brokerage firm to launch a very broad based marketing campaign. So JLL, as part of their marketing arrangement, amplified some of the efforts of our in house team to really get it into the marketplace. It's a fairly large building, over 300,000 square feet.
So we feel as though we would need a significant pre lease there to roll that forward. That marketing process has launched. The building is designed. Preliminary pricing is locked down. So we know where we need to be from a rental rate standpoint to get between an 88.5% yield.
So we'll see what the market brings forth. There's a number of larger tenants starting to evaluate long term space locations in the Pennsylvania suburbs. The project sits at the busiest, the most heavily traveled intersection in the Commonwealth Of Pennsylvania, at the convergence of the Pennsylvania Turnpike, the Northeast Extension and the Blue Route. So it does provide a tremendous branding opportunity for some of these larger companies looking at it. But as we look at it right now, Michael, it's really a design building.
We feel confident we'll get something to come our way. But given its size and the capital investment, it's certainly a different scale asset than a building that we're looking at in Radnor or Garza or Four Points down in Austin, Texas. So there, we need to have a significant pre lease with a very quantifiable pipeline of deals behind it.
Speaker 6
Got you. That's helpful. And my second question, I'm going to look for a little more color on the share repurchases. When you had your last conference call, the stock was around $14.34 You talked about, you know, the impact to leverage, the impact that it could have to earnings and NAV and maybe at that point it wasn't as attractive. Obviously you got a better entry point.
Stock now has rebounded a little bit. How do you kind of assuming another pullback, do you have more kind of capacity before you start worrying about leverage? Do you think about other ways to fund that to keep it neutral? Just your general thoughts around the repurchase program.
Speaker 1
Yes. Look, it's a great question. And Tom and I will tag team this because it's always a challenging decision because we're very focused on maintaining a strong balance sheet. That's why we're very happy to close the year at six point zero times. Look, I think when we started to look at it, we were fortunate given the investment activity that we pulled together in the fourth quarter did generate some additional liquidity for us.
And I think as we saw the REIT office market continue to kind of slide down a slope and us moving down very quickly with it, It just became too attractive an opportunity. We know the assets underlying the real estate very well. It's even though if you compare the implied cap rate on the repurchase versus some of our development yields from our perspective, it's a no risk transaction. So that's why we're saying we will keep that out there and why the Board approved a larger share repurchase plan to make that a key piece of our capital deployment landscape that in the event that the market does pull back again. That may certainly change our investment strategy in other areas.
But I think certainly, any management team should be very focused on what the value is of their public currency and how that relates to intrinsic asset value. And that becomes an attractive investment for us that has to be viewed in the context of the cost of running our portfolio, the growth we can create out of our development pipeline and maintaining a strong balance sheet.
Speaker 2
All right. Thank you.
Speaker 0
And our next question comes from John Guinee with Stifel. You may proceed.
Speaker 7
Great. Thank you. Good morning, John. Good You guys have a strong development focus,
Speaker 1
a couple of big projects.
Speaker 7
I think you have a pretty low land basis in most of these positions. But at the same time, hard costs appear to be going up. Can you do, two things? One, talk about any value there may be in your land basis. And then two, talk about if you build a high quality office building at Schuylkill or at Broadmoor, what's that going to cost you all in on a per pound basis?
Speaker 1
Yes, sure, John. We do believe we have a very attractive land basis in our existing inventory. Think in the sup, I don't know the exact page, but it kind of lays out an average investment base of less than $20 a square foot. Now a lot of that, frankly, is driven by two things. One, our investment basis per square foot at Broadmoor, given the rezoning we were able to achieve at the very high density, puts our land basis below $5 a foot.
Even when we factor in kind of the infrastructure cost to create the road network, we still think the land basis we have is roughly 30% of current market value. They have a lot of embedded value there. The transaction that was pulled together with Schuylkill Yards provides Brandywine with a rolling option that with extensions can go out well over twenty five years. So we can actually match the land takedowns to the milestone schedule we have with our arrangement with the university. But we have extensions to that.
So it gives us some downside protection against being in a situation where we had to carry a lot of excess land. And then a lot of our other parcels, as you know, are one or two building sites in close proximity or in some of our existing parks that become great expansion opportunities for our tenants. So hopefully, that answers your question on the land side. Construction costs are really a challenge. I mean, we to kind of insulate ourselves from that, we're taking all of these development projects all the way through CDs and a range of pricing exercises to really lock down an owner's budget that really equates to a GMP.
So we have full knowledge of current pricing to move things forward. Look, I think it's a $4.00 5 or $570 a square foot. When we're looking at the building that Schuylkill Yards were between $600 a square foot, depending upon the design considerations, maybe a little bit higher. But we have clearly seen upward pressure on glass, both curtainwall and storefront, fenestration plans, steel is at a premium, concrete has been a real accelerator and even things like sheet rock has gone through the ceiling. So we've definitely seen a high increase in construction, which is why we're trying to really lock down all of our cost models so we know exactly what we need to ask for rents to get the required returns we have.
So it's created some real squeeze points. So I think your question is very much on point.
Speaker 7
Great. Thank you.
Speaker 5
You're welcome. And
Speaker 0
our next question comes from Daniel Ishmael with Green Street Advisors. You may proceed.
Speaker 2
Good morning, morning, Daniel. Can you give
Speaker 6
a little bit more color
Speaker 8
on the Radnor Land acquisition as well as the developments with Penn Medicine?
Speaker 1
Yes, sure. Thank you. Yes, look, first of all, I mean, Penn made the announcement back in October, and it really didn't roll through our numbers until this quarter. But I guess, first of all, we're always delighted to continue our relationship with Penn. They've been a great client.
It's an excellent transaction for us in that it grows our university business, which think is a very viable growth avenue for us. It expands our connection to life sciences, which is, again, very important, what we're seeing here on the ground in Philadelphia and Austin. And really further establishes our market domination in Radnor. Deal is really straightforward, Daniel. I mean, it's we will serve as the development manager supporting the Penn team in construction of a 250,000 square foot, dollars 200,000,000 advanced outpatient medical facility.
Penn will own and finance the project. We are simply a fee developer. It's very similar to the transaction we had with Subaru in New Jersey, where we oversaw the design development and construction processes. As part of the transaction, there were two other pieces. One is we'll also purchase later this year an adjoining site that can do a 100 room hotel and a 150,000 square foot office building.
The design development on both pieces is underway now. We're talking to a very nice pool of hotel companies on the hotel site and building a preleasing pipeline that the game plays out the design development process wrapped up by the end of this year and hopefully be able to line up a pre leased tenant to move that forward. That would be about a $65,000,000 project. And following the third part is that Penn is currently in a 220,000 square foot medical facility, essentially across the street from the new site that they're building on. We have entered into a forward agreement to buy that 220,000 square foot building for around $21,000,000 And it will either be a renovation opportunity for us or a teardown to create a new product.
We're going through that analysis now. But we would anticipate that being a closing for Brandywine in late first or early second quarter of twenty twenty. Does that frame it out?
Speaker 8
Yeah, that's helpful. Maybe switching to Austin. On the acquisition, you mentioned some under market rents on the building. Can you just frame how below market the rents are and then provide a little more color on the lease roll on the property?
Speaker 1
Yes, sure. It's a property that we bought. It's in close proximity to Broadmoor. It's part of a master planned community with outdoor trail, lakefront, I mean, a tremendously well appointed property. The short term roll, we've got about 90,000 rolling in a couple of years in 2021.
The average rents in place are just north of 20,000 in a market where the rents today are around 26,000 The rollover schedule that this building has layers in perfectly with our overall rollover to the existing Austin portfolio. So we thought it blended in very well from a risk management standpoint. And frankly, we're still in the tenant aggregation business in Austin. So it gave us access to a couple of additional tenants. We think that they may have some growth opportunities in controlling their tenancy on a building that we think has good long term value in a good location seem to make a lot of sense for us.
Speaker 2
And
Speaker 0
our next question comes from Jason Green with Evercore. If you hear yourself on mute, please unmute your line.
Speaker 3
Good morning. I just wanted to circle back on Quarry Lake and, you know, get an understanding for how you think about acquiring assets in that market versus
Speaker 2
some
Speaker 3
of the additional future development opportunities that you have in your portfolio.
Speaker 1
Yes. Look, I mean, I think the numbers are really clear that the bias we have in that market is to build versus buy. I think this was an interesting opportunity that we decided to move on. But if you take a look at our the land page in our supplemental package, it shows that we can build 6,000,000 square feet in that market. While a bulk of that is at Broadmoor, we have other great development sites at Garza and our 4 Points development.
So given where pricing for existing acquisitions is versus the spread we think we can achieve on the development side, I think the heavier emphasis on capital allocation will be on the will be to development.
Speaker 3
Got it. And then circling back to Broadmoor, you talked about planning an office and residential piece for about 300 or an office piece for about 350,000 square feet and 300 units of residential. Is there a preference to which piece comes first? And there a certain structure that you're more inclined to take with either or both of those assets?
Speaker 1
Yes, great question. I don't think there's a real preference to which one we do first. So we're running both concurrently through the design development process. I mean, clearly, on the office front, in a building that size, we would be looking for a sizable pre lease to launch it. And we're being very thoughtful in terms of kind of creating a retail pod with that building So we start to build that overall sense of place.
That's very important as we think strategically about the Broadmoor rollout. Look, the residential market is very strong. I mean, you have 130 people a day moving into Austin. That's a great location. We continue a very active dialogue with CAP Metro and public officials on creating a public private partnership for that train line, which, while at a nascent stage of its evolution, certainly, we think, has a lot of long term potential.
So I think we're running both concurrently, and we'll see what the market brings.
Speaker 2
Got it. Thank you.
Speaker 1
You're welcome.
Speaker 0
And we have a follow-up question from Manny Korchman with Citi. You may proceed.
Speaker 4
Hey, Jerry. It's Michael Bilerman.
Speaker 2
How are you?
Speaker 4
Jerry, I just wanted to ask you about potential joint venture or other asset sales, particularly as what EQC did in CBD in terms of marketing and generating additional interest. And you have done a pretty formidable job at refocusing the portfolio, cleaning up a lot of joint ventures and exiting out of a number of markets. I just wonder whether at this point whether you'd want to take advantage of some of the incremental interest in the CBD where you have significant holdings to generate that incremental capital to either fund what is becoming a very larger development platform or two, to continue to repurchase your stock on a leverage neutral basis?
Speaker 1
Michael, the simple answer is yes. I think we're very pleased with this price point on $17.35 We have a number of processes under where we're looking at how we can harvest some tremendously built in gains in our Philadelphia portfolio. And we would expect to have those thoughts get more clarity publicly in the next couple of quarters. But certainly, as we look at the platform today, not just in Philadelphia CBD, but in the Pennsylvania suburbs, we think that we're at a point, given our call for capital through the development pipeline that it's incumbent upon us to really think about how we recycle some of this embedded value to fund either development expansion into the other markets or to certainly keep the share repurchase plan on the table as well.
Speaker 4
And I guess what would be the scope of how large you'd be willing to go? I recognize there's nothing in guidance today for any sort of transaction activity. But it sounds from your comments that there are certainly things that you're contemplating. So can you give us a little bit more color about whether these would be outright sales, joint venture sales and sort of size and scope of what you're considering?
Speaker 1
Yes. I think we have roughly about 130,000,000 to $40,000,000 of assets that we've targeted kind of in the suburban areas that we're spending some time on, either from a sale or joint venture standpoint. I think pricing will determine that to some degree. And then look, given the size of the assets we have downtown and assuming a 300 to three fifty plus square foot cost, I mean, they're fairly large transactions. So I don't want give you a range downtown, but the buildings by their size and scope would generate a tremendous amount of liquidity for the company, which obviously creates some other opportunities for us in terms of how we deploy that incremental capital.
Speaker 4
But are you thinking outright sales or joint venture sales?
Speaker 1
I think are you talking about Downtown Philadelphia or
Speaker 4
Well, either. I mean, I know it's downtown, but you brought up the suburbs.
Speaker 1
You know, it's an interesting thought process to go through. Because, I mean, when we look at the transaction we did with Rockpoint, through our 15% ownership stake, we're generating a tremendous return on our invested capital through that structure because it's a different capital structure, different promote structure. The joint venture we did with DRA generated a 27% internal rate of return, that $28,000,000 promoted value. So we're not at all opposed to doing joint ventures as a lot of folks we talk to about selling assets to like us to stay in because we know the markets and the property and the tenants so well. So I want to preclude more joint venture.
I think saying that, we're very mindful of the process we've been underway on reducing our exposure to joint ventures. So when we take a look at the absolute dollars we have invested in joint ventures, that's gone down dramatically, as we've outlined in our multiple year business plan. And whereas we used to own an equal stake in the venture, we reduced those down to 15% to 20% type of ownership positions.
Speaker 4
All right. Thanks, Jerry.
Speaker 1
You're welcome. Thank you.
Speaker 0
And we have a follow-up question from Jamie Feldman with Bank of America Merrill Lynch. You may proceed. Great.
Speaker 5
I just want to get your thoughts on growing more in either life science or medical office with this new Penn Medical deal you're doing. How do you think about the potential ramp up in that business line?
Speaker 1
Well, think we have a good foot in the door from both standpoints. From, number one, the perspective that we have some great relationships with some educational and health care institutions, which provide a clear pathway into helping them grow their businesses. And then with Schuylkill Yards, for example, we have brought on a life science co developer advisor with Longfellow Partners who has tremendous technical knowledge of the life science field. We really do think that given what we think will be a rapidly growing life science market in Philadelphia, with I think the Merck announcement last year in Austin. I think Austin will wind up being a growing life science market as well.
That we view that as a good add on to our core business lines. And it's something we hope to spend more and more time on. I mean, I think CBRE came out with a report that talked about tech talent around the country. And you had Austin was number six. Washington, D.
C. Was number three. While Philadelphia ranked fairly low on that scale, we think that from what we're seeing at a ground level, there seems to be a lot of accelerated growth in that arena over the next couple of years.
Speaker 5
Okay. Do you think you need to add personnel or do anything to change your platform or marketability for that business?
Speaker 1
I think it'll be opportunity specific. Think, certainly, if we are able to grow it, we probably need to add some additional resources for sure.
Speaker 7
Okay, great. Thank you.
Speaker 2
Thanks, Jamie.
Speaker 0
And we have a follow-up question with Craig Mailman with KeyBanc Capital Markets. You may proceed.
Speaker 1
Good morning, Craig.
Speaker 0
If you have your line on mute, please unmute your line.
Speaker 1
Great.
Speaker 0
Ladies and gentlemen, this concludes our Q and A portion of today's call. I would now like to turn the call back over to your President and CEO, Mr. Terry Sweeney. You may proceed, sir.
Speaker 1
Good meet you, and all of you for participating in our call this morning. We appreciate your following the company, and we look forward to continued excellent execution of our 2019 business plan and updating you on those activities on our next earnings call. Thank you very much.
Speaker 0
Ladies and gentlemen, thank you for attending today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.