Earnings Call Transcript
Brandywine Realty Trust (BDN)
Earnings Call Transcript - BDN Q3 2023
Operator, 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. 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, President and CEO
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 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 effects 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 pickup 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, was a 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's 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 7.6 to 7.4 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 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 Three Barton Skyway project in Austin, Texas, at a sale price of $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 markets recover 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 costs 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 the 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 continues 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 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 are 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, CFO
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 the 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 a 50% partner in a joint venture, which owns leasehold positions in a portfolio of assets, and we are working with the lender potentially to recap the joint venture with the ground owner. Looking at 2023 guidance, we narrowed the guidance by $0.02 and maintained a midpoint of $1.16. 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: 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 a 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 on 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 leveraged 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, President and CEO
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?
Operator, Operator
Our first question comes from Steve Sakwa with Evercore ISI.
Steve Sakwa, Analyst
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, President and CEO
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's 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, Analyst
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?
George Johnstone, Executive Vice President of Operations
Yes, good morning. It's George. For 2024, we currently have only two leases over 50,000 square feet. One of these might be a move-out, and we've seen increased interest in that space at our Logan Square project. The other lease involves an amendment where part of the square footage will be converted to swing space, allowing it to bridge 2024 into 2025, with a portion extended on a long-term basis. So, we have just these two leases in that higher range at the moment.
Operator, Operator
Our next question comes from the line of Camille Bonnel with Bank of America.
Camille Bonnel, Analyst
Hello, can you hear me?
Jerry Sweeney, President and CEO
Yes. Good morning, Camille.
Camille Bonnel, Analyst
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, President and CEO
I guess Tom and I can tag team. I think from our perspective, the portfolio, while 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, CFO
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, Analyst
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 submarket?
Jerry Sweeney, President and CEO
I'm sorry, Camille. Can you repeat that? Did you mention Plymouth Meeting?
Camille Bonnel, Analyst
Yes, Plymouth Meeting.
Jerry Sweeney, President and CEO
Okay. So in fact, we look for some detail in the Plymouth Meeting.
George Johnstone, Executive Vice President of Operations
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 will be a heavy capital requirement, but we feel good about that project, its location and the underlying pipeline.
Jerry Sweeney, President and CEO
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'd say we want space back that was probably the one that had the highest probability of near-term re-letting.
Operator, Operator
Our next question comes from the line of Anthony Paolone with J.P. Morgan.
Anthony Paolone, Analyst
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 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, President and CEO
Yes, Tony, that’s a good question. The increase in debt rates does affect the return margins on our properties. We generally include rental rate increases of over 3 percent in our leases. Our aim is to reach a stabilization point for these projects. The lease terms are usually between 10 to 15 years with dependable tenants and strong collateral. Our strategy, as long as interest rates remain elevated, is to execute our business plan for each asset, maintain or potentially improve our yield equivalency compared to current projections, and work towards stabilizing those projects. Once stabilized, we will focus on refinancing or selling as market conditions improve. We acknowledge that rising debt costs during development have reduced our contribution margins compared to our initial targets. This is why we are prioritizing increasing the net effective rents across not only these projects but our entire portfolio.
Anthony Paolone, Analyst
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, President and CEO
I believe that the best indication we have right now can be seen in the data we've been sharing. We anticipate continuing to achieve strong mark-to-markets in our CBD, University City, and especially in the Radnor submarket in Pennsylvania. However, in Canada, we expect to see negative mark-to-markets coming out of Austin, which is currently experiencing significant market imbalances. Our recent supplemental report highlighted that some of our largest vacancy risks are associated with three complexes in Austin. In that regard, our strategy will be to accelerate activity, align our pricing with the market, ensure reasonable annual rent increases, and manage capital wisely. Interestingly, we’re observing a contraction in the competitive landscape in some areas, as not all landlords offer the same quality of product or financial stability to attract tenants. Therefore, we remain committed to leasing every available space across our portfolio, maximizing net effective rents, and capitalizing on the trend of tenants seeking higher quality properties with reliable landlords. Brokers prefer showing spaces where they can earn their commissions, while tenants are looking for buildings that guarantee their tenant improvement budgets will be met. Brandywine excels in both respects. To support this effort, we have expanded our leasing teams and enhanced our talent on the ground to ensure we pursue every potential leasing opportunity.
Operator, Operator
Our next question comes from the line of Michael Griffin with Citi.
Michael Griffin, Analyst
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, President and CEO
Yes, great question, Michael. The cap rate on the Barton sale was in the high sixes and came in about $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 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 workman-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 CAs 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, Analyst
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, Executive Vice President of Operations
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, Operator
Our next question comes from the line of Michael Lewis with Truist Securities.
Michael Lewis, Analyst
Thank you. My first question is about Jerry. You mentioned the dividend cut, and I wonder if the underlying issue is really cash flow. The new dividend payment appears to be about 60% of your third-quarter cash available for distribution. Even with the previous payment, it would have only been 76%. Your stocks are trading at a 15% yield with that 60% coverage, but the market doesn't seem to be responding positively. Is the dividend cut simply a way to save $28 million that could be better allocated towards development and reducing debt, or should we anticipate that cash flow will continue to decline, prompting you to act before the coverage becomes tight?
Jerry Sweeney, President and CEO
Our cash flow remains strong, and the coverage we discussed is in very good condition. The Board and management conducted a thorough review, considering the current volatility and unpredictability of the capital markets. There is significant economic uncertainty and geopolitical risk, making it difficult to predict the direction of interest rates and the labor market. The Board carefully examined our future projections and decided to set the revised dividend at a level that ensures strong coverage. This decision serves as a clear acknowledgment of the volatility in capital markets while establishing a stable foundation for the dividend, allowing it to grow as the capital markets stabilize and our cash flows increase. This move reflects our understanding of the current market realities and is not indicative of any concerns regarding our cash flows. I want to emphasize that point.
Michael Lewis, Analyst
Okay. Great. And then for my second question, I noticed the eight properties with high vacancy on Page 40 of the supplemental report, specifically 300 Delaware. Is there any specific information available regarding the plan for that asset or any other properties on that list that could help us understand how you plan to address these vacancies, which are significantly impacting the portfolio?
Jerry Sweeney, President and CEO
Yes, thank you for the question, Michael. We outlined those eight properties, and notably, four of them are in Austin. Our main focus in Austin is to speed up leasing. We have a talented leasing team and top executives who are actively sourcing deals. We've been reaching out to brokers with incentive programs. One of the properties is ideally located, and we are exploring the possibility of converting a couple of buildings in that complex to residential use. In Austin, our priority is to navigate the current market challenges as tenants come back looking for space. We want to ensure these buildings are appealing, well-staffed with great talent, and fully leased. Regarding 1676 International, it has been a successful redevelopment for us, though the market hasn't met our expectations, and we're considering it along with some other properties in the Northern Virginia area for potential sales in the near future. At 401 Plymouth, we recently had a tenant return some space that is at the top of the market, and our plan is to re-lease that area. The Cira Center is undergoing a transformation from a purely office space to life science facilities, and we have pre-leased 22,000 square feet of that space. 300 Delaware presents a challenge for us as it has been difficult to lease for several years due to unviable lease terms. With floor plates around 15,000 square feet, zoning allows for residential and office use, making it a candidate for potential residential conversion and tenant exit strategies in the coming years. This could be a project for Brandywine to pursue or sell based on our conversion plan. However, we don't plan to invest significant additional capital into it. Does that help answer your question?
Michael Lewis, Analyst
Yes, no, that's helpful. I appreciate it. Thank you.
Operator, Operator
Our next question comes from the line of Dylan Burzinski with Green Street Advisors.
Dylan Burzinski, Analyst
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, President and CEO
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, Analyst
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, Executive Vice President of Operations
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 may have some opportunities still there. Utilities, our teams have just done a good job at kind of managing 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, President and CEO
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, Operator
Our next question comes from the line of Upal Rana with KeyBanc.
Upal Rana, Analyst
Hey, good morning. Thanks for taking my question.
Jerry Sweeney, President and CEO
Good morning.
Tom Wirth, CFO
Yes. Well, I'll touch based on just what I talked about.
Jerry Sweeney, President and CEO
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.
Tom Wirth, CFO
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.
Upal Rana, Analyst
Great. That was very helpful. And just one quick last one for me. What was the $11 million impairment related to?
Jerry Sweeney, President and CEO
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, 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, President and CEO
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, Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.