Brandywine Realty Trust (NYSE:BDN) Q3, 2022, Earnings Call October 17, 2022 9:00 AM ET
Company Participants
Jerry Sweeney – President and Chief Executive Officer, Trustee
Tom Wirth – Executive Vice President and Chief Financial Officer
Conference Call Participants
Brian Spahn – Evercore ISI
Michael Griffin – Citi
Bill Crow – Raymond James
Danny Ismail – Green Street Advisors
Steve Sakwa – Evercore ISI
Operator
Good day. And welcome to the Brandywine Realty Trust Third Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this call may be recorded. I will now like to turn the call over Jerry Sweeney, President and CEO. You may begin.
Jerry Sweeney
Michelle, thank you. Happy Friday, good morning, everyone and thank you for participating in our third quarter 2022 earnings call. On today’s call with me today are George Johnstone, our Executive Vice President of Operations; our Vice President and Chief Accounting Officer, Dan Palazzo; Tom Wirth, our Executive Vice President and Chief Financial Officer.
Prior to beginning, certain information discussed during our call may constitute forward-looking statements within the meaning of the federal securities law. Although, we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports that we file with the SEC.
So during today’s call Tom and I will review third quarter results, provide an update on our ’22 business plan. And after that Dan, Tom, George and I are available for any additional questions. Looking back at the quarter certainly record inflation, interest rate, increases capital market uncertainty, recessionary fears have significantly changed the operating and financing landscape. The stability of our operating portfolio, evidenced by low forward rollover, protection from operating expense increases on 81% of our leases, well positioned us on the operating margin front. And we will certainly continue to focus on margin improvement as we enter the ’23 budget cycle, and we are pleased that our ’22 operating and development plans remain on target. The macroenvironment, however, certainly impacted our capital program, and while we will continue to select planning and approval efforts, future development starts are on hold unless they are fully pre-leased, and until the existing pipeline posts more leasing traction.
During the quarter, we also terminated several potential acquisitions, and accelerated refinancing and interest rate management programs that Tom and I will review during the course of our conversation. From an operating standpoint, we continue to experience higher physical occupancy now 60% overall, with a high of 70% to 75% in the Pennsylvania suburbs. Hybrid attendance, as you might expect, continues in all of our markets, Tuesday through Thursday being the most common in office days. On those high peak days, we’re experiencing closer to 70% to 75% attendance from most tenants. And interest in high quality work environments remains the order of the day. We see that every day in our tour levels, lease negotiations and deal executions. In fact, 41% which is up from 32% last quarter of the new deals in our operating portfolio pipeline are from tenants looking to upgrade from lower quality, less amenitized buildings.
During the third quarter, we exited 513,000 square feet of leases, including 300,000 square feet of new leases. We also posted rental rate mark-to-market of 16.5% on a GAAP basis, and 6.9% on a cash basis. Our full year mark-to-market range remains 16% to 18% on a GAAP basis, and 8% to 10% on a cash basis. Absorption for the quarter was 176,000 square feet. And its retention was 90%. And we ended the quarter slightly below 91% occupied and 91.8% leased. It’s further worth noting that in our Philadelphia CBD University City, the Pennsylvania suburbs and Austin markets, which covered 93% of our portfolio NOI where it combined 93.8% leased and 93% occupied. Our spec revenue range remains in that $34 million to $36 million range with $35 million or 100% to midpoint achieved. The speculative revenue range represents approximately 1.8 million square feet, of which 1.7 million or 94% is already executed. The portfolio is stable and are forward exposure through 2024. Average is 6.5% which ranks us third out of 17 office REITs. Further, our annual rollover exposure through 2026 is 7.3% also ranking US third out of 17 REITs and we continue efforts to reach out into the maturity curve on a daily basis.
We did post FFO of $0.36 per share, which was $0.02 above consensus estimate. We beat those estimates, primarily due to the combination of improved operating results, lower interest costs, and a higher than anticipated gain on the 3151 Market Street formation. So while exceeding consensus estimates for the quarter, we’re keeping our FFO rate range unchanged at 136 to 140 per share primarily due to the unstable interest rate environment and the impact of any potential sales. Based on 2022 leasing activity and higher EBITDA, our third quarter net debt to EBITDA decreased to 7.2x on a combined basis. And based on our development activity, we are projected to be at the upper end of our current range of 6.6 to 6.9 at the end of the year. Our core EBITDA metric of range of 6 to 6.3 focuses on our operating portfolio by eliminating joint venture and active development and redevelopment projects. We continue to believe this is a more accurate measure of how we manage our core portfolio. And those metrics are noted on page 31 of our SIP. And looking at leasing activity, velocity remained encouraging during the third quarter. Our total leasing pipeline is 4.8 million square feet, broken down between 1.5 million square feet on the operating portfolio, and 3.3 million on the development project. The 1.5 million square foot existing portfolio pipeline is up 430,000 square feet from last quarter with approximately 208,000 square feet in advanced stage of lease negotiations. Also, as I mentioned 41% of that new deal pipeline are prospects looking to move up the quality curve. The 3.3 million square foot leasing pipeline on a development project increased over 300,000 square feet during the quarter, deal conversion rate in the second quarter was 40%, up from 38% last quarter, and in line with pre-pandemic levels from the fourth quarter of 2019.
Another good side is tenants continue to accelerate their decision timeline. This past quarter the median deal Cycle Time improved by an additional four days and is now equal to pre-pandemic levels. And looking at liquidity and dividends. We currently have $350 million availability under our $600 million line of credit. With our targeted development spend and absent any other financing sources, we anticipate having over $300 million of that line available at the end of 2022. Our $0.76 per share dividend is well covered with a 53% payout ratio. We know there is a focus on near term maturity. So Tom and I will address them during our comments. We have a $350 million bond maturity in February of ’23. We’re confident we could refinance this bond — this investment grade market and continue to explore shorter dated maturity bond options in that investment grade market. We’re also however, actively pursuing several other more flexible financing options, including secured and unsecured property and portfolio financings through the bank and other traditional institutional and financing sources. This $350 million bond in February is our only wholly owned balance sheet maturity until our next bond matures in October of 2024.
We do have two joint ventures with non-recourse loans maturing in 2023. We are already underway with extension discussions and exploring other financing sources for those loans as well. The first is a $208 million loan on our commerce square where joint venture is a very low leverage financing with over an 11% debt yield on income in place. We are already in discussions with the existing lender for an extension, as well as exploring other financing sources. The second maturity in the joint venture framework is in August of 2003. And refinancing and discussion efforts are underway there as well. From a capital allocation standpoint, we continue to assess forward capital spend. In addition, we are marketing an additional $200 million of properties for sale as part of our ongoing price discovery process. And looking at our development opportunity set, as I mentioned earlier, other than fully leased build to suit opportunities., all future development starts are on hold, pending more leasing on the existing pipeline, and certainly more clarity on the cost of debt capital and cap rates. We also terminated two potential acquisitions that we had underway since the quarter end. When you look at our development pipeline, our remaining total Brandywine net funding obligation on all of our wholly owned and joint venture development projects is $115 million, which includes $11 million remaining defined on our 3151-market project and $17 million for remaining tenant improvements spend on are now 96% leased 405 Colorado, as you’ll note on that page and ESOP, our equity requirements on Schuylkill Yards West, and uptown ATX Block A are fully funded. We also announced as part of our press release the commencement of our 155 King of Prussia Road project. This 145,000 square foot project is 100% leased to optima and will serve as their North American headquarters. We anticipate the project stabilizing in the fourth quarter of ’24. We are already proceeding on a 60% loan to cost construction loan to help finance this project. And based on that as of quarter end we only have $18 million left to fund on this project which again is included in our — in the above $115 million total forward spend obligation. Our 250 King of Prussia Road project in Radnor is now over 53% leased, having signed 20,000 square feet of leases this quarter.
The current pipeline totals 254,000 square feet. And again, our remaining $20 million spent on this project is included in the $115 million forward spend noted on that schedule. In looking at a University City, our B Labs project is doing extremely well and is leased to 15 different companies. A number of these companies are already expressing needs for additional space. So building on this success, we do plan to convert another floor totaling approximately 27,000 square feet to meet existing incubator demand. And in addition, as noted on previous calls, feasibility studies remain underway to add another 78,000 square feet of life science capable space through floor nine, including space being vacated by an existing tenant
On looking at Schuylkill Yards, our 3025, JFK project was a life science residential tower remains on time and on budget for Q3 2023 delivering. We currently have an active pipeline, totaling just shy of 400,000 square feet, which is up 73,000 square feet from last quarter. The pipeline is expected to continue as construction progresses. In fact, now with the superstructure nearing completion, we have done over 100 hard tack tours for prospects and their representatives. As I noted earlier, our $56.8 million equity commitment is fully funded. Our partners equity investment is also fully funded, and the first funding of our construction loan has commenced. As you know from our supplemental package at Schuylkill Yards, we can do about develop those another 3 million square feet of additional life science space. And it’s another step in the execution of that plan, our 3151-market project, which is a 441,000 square foot dedicated life science building is on schedule and on budget. That project will be completed in the second quarter of 2004. On that project we have a leasing pipeline of about 400,000 square feet. And we plan on obtaining a construction loan and the 50% loan to cost range early ’23 as funding of that construction loan is not required until the third quarter of next year.
Construction is also on time and on budget by Block A, Uptown ATX development, in addition is noted in our announcement during the quarter, we did close on our construction loans totaling $207 million. On the office component, which is 348,000 square feet. Our leasing pipeline is 1.5 million square feet. When we take a look at our development pipeline, you know the key phrase is, is with that forward pipeline is timing flexibility, as evidenced by low land bases per FAR and product diversity. Of the 14.2 million square feet we can build. We can do about 3 million to 4 million square feet of total life science space, and over 4,000 multifamily units and our overlay approvals, particularly at Schuylkill Yards Uptown ATX give us a degree of flexibility to further adjust that mix to meet market demand. As evidence of the low land base as per FAR. You will note in our statements that we did record an $8.7 million land gain on the land contribution toward joint venture. And looking at other capital components, while our ’22 business plan did not and does not specify $1 volume of property dispositions. We have been active on this front as well. As I mentioned, we have over $200 million of assets in the market for price discovery. We do anticipate continuing to sell select non-core land parcels during ’23 as we did in ’22. We do have approximately $110 million of assets under firm agreements of sale that we do expect to close prior to yearend. We also further expect that sales of select property that of our existing joint ventures will occur over the next four quarters and dollars generated from these activities will certainly be used to reduce leverage, fund our development pipeline and look for higher yielding growth opportunities. Tom will now provide an overview of our financial results.
Tom Wirth
Thank you, Jerry. Our third quarter net income totaled $13.3 million or $0.08 per diluted share and FFO totaled $61.8 million or $0.36 cents per diluted share, $0.02 above consensus estimates. So general observation is regarding the third quarter, our third quarter results were above consensus and we had several variances to our second quarter guidance of those numbers. Interest expense was $1.2 million lower than forecast primarily due to the timing of capital spend, and interest rates being slightly below our forecasts. We have not changed our full year guidance. Portfolio operating income totaled approximately $72 million and was above our second quarter guidance of $71 million. Land gains were above our forecasted $1.5 million due to a higher gain on the formation of 3151 Market Street joint venture. Our third quarter debt service and interest coverage ratios were 3.7 and 3.9, respectively, which were similar to the second quarter results in line with forecast.
Our third quarter net debt-to- EBITDA was 7.2 and slightly above our high end of 6.6 to 6.9 guidance range. As Jerry mentioned, our 2022 guidance remained unchanged. While our results were ahead of consensus, we do remain cautious about interest rates, and expected sequential increased interest expense totaling approximately $4.5 dollars in the fourth quarter, believe there will be opportunities to mitigate some of our floating rate interest exposure through hedging and asset sales that will lower our floating rate line of credit balance.
Looking to the fourth quarter of 2022, we have the following general assumptions. Property level operating income will approximate 72.5 and will be incrementally higher than the third quarter as we anticipate a slight net absorption increase during the fourth quarter. Total interest expense will increase to $22.5 million, primarily due to the anticipated higher interest rates and capitalized interest will approximate $2 million. Our contribution of FFO from unconsolidated joint ventures will total $5.5 million dollars and our G&A for the fourth quarter will be $8 million. Our term fee and other income we expect to approximate $3.5 million for the fourth quarter. Net management fees for the quarter will be $3 million and net gain on and tax provision will total $700,000. Refinancing and liquidity activity, as we forecast our future financing, we are assessing our options to increase liquidity.
With regards to our bonds, the $350 million bonds maturing in February of ’23. We believe that we can refinance them in the current market with a shorter dated bond. However, as Jerry mentioned, we are assessing several options that in combination will allow us to repay the 2023 bond and lower the outstanding balance on our line of credit. Those include looking at secured financing, and unsecured financing and in the form of a term loan and against potential assets sales, both this quarter and in the future. We anticipate raising between $550 million to $650 million in proceeds within the next 90 days that will be used to pay off the February bonds and reduce our outstanding balance on our floating rate line of credit. Our fourth quarter capital plan is very straightforward and totals $110 million, our CAD payout ratio remains at 84% to 95%. And that will likely be at the higher end of our range. The 2022 CAD range is above our historical run rate primarily due to the higher capital costs associated with the higher leasing activity early on the JV portfolios. We expect to spend about $45 million in development and redevelopment. $33 million in dividends and $10 million in revenue and creating and revenue maintain each and $12 million in net equity contributions from our joint ventures.
Based on the capital plan outlined above, our line of credit balance will approxiate $289 million at the end of the year, leaving approximately $311 million of line availability. We also expected our net debt-to- EBITDA ratio will be at the top end of our 6.6 to 6.9 guidance range with the main variable be the timing and scope of our development spend. With regards to liquidity, we have ample capacity to grow our line of credit, we do expect to invest in incremental $150 million on our active development projects. From today’s forward and targeted asset sales to fund those will lower that that will pay for that balance as well as lower line of credit. We anticipate our debt service coverage ratios will approximate 3.5 and our interest coverage ratio is 3.8. And our net debt-to-EBITDA will be 40% to 41%.
We believe that our net debt-to- EBITDA is at an elevated ratio primarily due to our development and redevelopment pipeline, we believe those are transitory. And once these developments are stabilized, our leverage will decrease. To further highlight how invest in the future development is impacting our current leverage. As outlined on our development page, we currently have $428 million invested in development projects that provide little to no 2022 earnings, that $428 million investment represents a 1.2x increase to our leverage as of quarter end, we anticipate those projects generating an incremental $64 million of cash NOI over time, we are confident in achieving the stated investment yields. Once these active projects are stabilized, we forecasted our leverage will decrease back into the low 6x range. As mentioned above, we plan to partially offset the current development range with some target assets sales in ’22, and ’23. Until this development stabilized, we have included an additional metric of core net debt-to-EBITDA at 6.5 at the end of the quarter, that excludes our joint ventures and our active development projects.
I will now turn the call back over to Jerry.
Jerry Sweeney
Hey, Tom. Thank you. Well, to kind of wrap up our prepared comments, the portfolio remains in solid shape. We know that there are concerns about that future demand drivers. I think what we’re seeing right now in our leasing pipeline is continued new additions by tenants looking for an upgrade of their inventory. At this point in the cycle, they’re prepared to pay for that upgrade. So we’re still posting very good operating metrics. And looking forward as we move into more uncertain times. I mean, certainly, our average annual rollover exposure through ’24 is only 6.5% with the strong mark-to-markets predictable and manageable capital spend, and accelerating leasing velocity, we think puts us in very good shape. So as usual, we’ll end where we started, in that we really do wish you and all your family as well. And we’re delighted to open up the floor for questions. Michelle, we do ask that in the interest of time you limit yourself to one question and a follow up.
Question-and-Answer Session
Operator
[Operator Instructions]
Our first question comes from Brian Spahn with Evercore.
Brian Spahn
Hi, thanks. So you talked a bit about the leasing demand pipelines. But maybe could you just provide some more color on the demand you’re seeing specifically for the spec development projects and Schuylkill Yards and Uptown ATX for both life science and traditional office, and I guess, how much activity in particular are you seeing from large potential users of these spaces?
Jerry Sweeney
Good morning, Brian. I’ll move south to north. I think we take a look at our pipeline. And George, certainly feel free to chime in. We have our pipeline for Uptown, that’s still very early in the development cycle is very, very good. We have several close to full building users who are evaluating the project, and discussions with them continue. Of course, given their size, they tend to be fairly complicated. So we’re in active dialogue with them and their representatives, then we have a whole range of additional tenants who range honestly from a couple floors to single floor users. Given the demand we’re seeing right now, Brian, we’ve not yet started to entertain user smaller than one floor. We’re keeping a shadow pipeline on that. But I think we want to see where some of the larger tenants’ prospects land, figure out where we have the availability in what floors in the building. So I think we’re very happy with the level of activity we’re seeing there.
And the same thing for the north at Schuylkill Yards. I mean, we have the superstructure 3025 will top out at the end of November. The window wall system is up to six of the eight levels on the life science side. And then we leapfrogged up to the residential tower. We having daily active — daily tours with prospects, their brokers. So the pipeline there is very good. We have there a number of multiple floor users ranging up to 70,000 to 80,000 square feet. And then we’re also looking at a number of smaller users be they less than a floor that are in the queue as well. Same thing on 3151 is a little bit early, we’re just really coming out of the groundbreaking on that. But the users there again, range from single floor, i.e. 35,000 square foot users up to a couple 100,000 square feet, the ranges from established life science companies, companies growing out of the incubators in the region into more graduate level space, as well as a good pipeline of institutional demand coming from the healthcare and academic systems.
Brian Spahn
Got it? Thanks. And you touched on additional assets sales as well. Could you maybe just talk about what you’re seeing in the transaction market today in terms of bid ask spreads? And I guess to the extent you can’t complete additional dispositions, what are the funding plans for development? And how would you say that impacts your thinking around the dividends?
Jerry Sweeney
Yes, well, I think in terms of the funding plan around future development, I think we framed out or tried to frame out fairly clearly that the forward committed developments spend we have what we have underway is $115 million. So we have plenty of capacity, with our plans in place to fully fund that out. As I mentioned, we’re also given the uncertainty in the interest rate and cap rate climate right now, putting a number of projects on hold until we get more clarity on where those markets and those pricing levels will be. But more importantly where this worse than use is play out. So hopefully that answers the second part of your question.
In terms of the asset sales, it’s, not a lot of trades that occur, because you’re really saying that there’s still a bit of a disconnect between buy — between seller expectations, and buyer aspiration, so to speak, and the buyers are tending to do their pricing models, and their equity return models based upon where they see debt is, and the debt markets, frankly, had been a little more volatile of late, as we all know. So that creating some, some confusion in terms of what the appropriate price levels are. I think, in general, for the assets we do have in the market, we’re very pleased with the number of confidentiality agreements that folks have signed to get access to the information, as well as a number of tours. So there’s a high level of interest out there in terms of potential buyers. We are seeing target pricing levels, somewhere 10% to 15% below, originally targeted levels of a couple quarters ago. And that’s I think one of the reasons why we’re not seeing a lot of things trade. But I think the level of activity that we’re seeing, and the quality of the buying pool is good. I just think the pricing metrics are a bit unclear right now based on where the debt pricing levels are.
Operator
Our next question comes from Michael Griffin with Citi.
Michael Griffin
Thanks. Maybe following up on that disposition question. Do you have a sense of the targeted buyer pools for these proposed disposes? And is there one capital partner that might be more attractive kind of relative to others in terms of these transactions?
Jerry Sweeney
Yes, Michael, I mean, look, they range from there’s — in our bidding pool right now, there are a number of foreign investors are looking. And it runs the full gamut down to tier two institutional investors, syndicators who have money. It really depends and we have assets that are in the marketplace that range from basically $20 million in value up to about $80 million in value. So it’s a fairly wide range of asset sizes are out there. And, as I mentioned, on my answer the earlier question, I think we’ve been pleasantly surprised with the number of people who are coming through the properties for tours. Certainly the investment brokers we’ve hired to represent us in a number of these trade, they’re spending as much time kind of locking down debt commitments, as they are walking equity investors through because I think the question that comes up after the lobby looks great is like what’s the debt costs going to be on the project? So we’re spending a lot of time outreaching to a wide range of lending sources, to make sure that we understand where debt pricing level should be. So we’re in a good position to respond to pricing offers when they come in. I mean, of what we have under agreement, we’re be exiting those at a sub 6% cap rate. And we feel pretty good about them getting across the finish line, as I mentioned by the end of the year. And then the remaining properties we have in the market quite candidly range from assets that we deemed to be non-core that were kind of testing the market at that higher rollover stages of a project lifecycle. So ones that are more stable.
Michael Griffin
Thanks. And then just maybe on the upcoming debt maturities and refinancing prospects, do you have a sense of the potential term and rate for these? And Jerry, I think you’ve talked about it being more shorter-term debt, is there any possibility of maybe terming it out for longer?
Jerry Sweeney
Hey, Tom, you want to take that?
Tom Wirth
Yes. Hi, Michael. I think that the debt we’re targeting and the refinancings we’re targeting are kind of in the five-year range for most of it, some of it may be a little shorter term than that, but I think we’re kind of looking at five years at this point. Again, with a bond deal being a potential, we’re also looking at things that even if they are five years, instruments that we could get out of them or refinance them earlier than they keeping them outstanding for five years. So trying to look at some options that will, that can go out that five-year window, but potentially, if things improve, allow us to repay them earlier.
Operator
Our next question comes from William Crowe with Raymond James.
Bill Crow
Great. Good morning. A couple of bigger picture questions here, Jerry. I think if you went back five years ago, the narrative was the Philly, it was kind of crown jewel in the mid-Atlantic and willing and ready to accept a lot of New Yorkers that might move out of that market that was being challenged. And I think if you just look for today, there’s been a perception change maybe and maybe that’s kind of what I’m asking about is you tenants have they had a perception change of the Philly market to the safety of the downtown CBD area, anything like that, that might be a drag on future demand.
Jerry Sweeney
Yes. Hey, Bill. Good morning. Excellent question. I mean, look, I think Philadelphia really has benefited in the last half dozen plus years of bringing a lot of new in migration into the city and into the close to the suburbs, as well. And I think that we’ve continued to see a number of companies move into the Philadelphia market. That slowed, of course, during the pandemic, but we also were able to pick up a couple of new tenants in our portfolio that were actually new to the region during the pandemic, in the center city, Philadelphia. The tone of a lot of these major cities has certainly changed. Where Philadelphia is making amazing progress on an economic growth trajectory. I think there is some concern about the safe and clean components that you’re seeing repeated in a lot of other cities. I think there’s a lot of attention being focused on that. It’s certainly a bit of a concern by some tenants. But I think the general perception builds is viewed as transitory. I think there’s a lot of efforts underway both in the public and the private sector to provide for, to provide methods to allay those concerns. We’re in close communication here with the Regional Rail Authority and what they’re doing, certainly working with the business improvement districts in the city of Philadelphia, to ensure that issues like that are, in fact, transitory and will be readily addressed. But it’s certainly a topic that comes up in all candor, with some discussions as people are looking at Philadelphia, from the outside. And I think the when we get them through the door, and we walk them through the vitality of the parts of the city where we’re doing business, certainly great green shoots, is the potential continued growth of the cell and gene therapy business in Philadelphia. And that’s an academically anchored program. Roche Pharmaceuticals Bill, as you may recall, they announced they’re building, there will be a $600 million manufacturing research lab directly across from our IRS post office building, and that’ll house a whole range of employees from all over the world. So that type of investment activity we think of portends well, particularly for university city. But I think we readily acknowledge in all of our tenant business discussions that they’re — that these major cities including Philadelphia of transition issues they need to work their way through. I don’t know if that answered your question or not but.
Bill Crow
Yes, it’s helpful. I mean, if we don’t live there, gee, it’s beneficial to hear your thoughts. The second question, and that’s kind of be a smartass here, but twice during your prepared remarks, you talked about the positive attribute of having a very few lease rollovers over the next couple of years. And I absolutely agree with you. But my question is, of course, that’s the exact opposite from industrial where a shorter lease duration is a premium these days. Has there ever been a time in the last 15 years where you would sweat? So few short-term lease expirations for a lot of lease term lot of maturities? It just feels like we have not enjoyed that period of time with healthy mark-to-market rents. I mean, it just it feels like we’ve been trapped in a no growth environment for since the financial crisis and the Great Recession. Is that unfair?
Jerry Sweeney
Yes, Bill, I apologize. You keep cutting in and out. So just it’s point of direct, you asking is there a time at which we think we’ll be looking at shorter lease maturities to provide more intermediate term upside in the rental NOI?
Bill Crow
Yes, sorry about the reception here. The question is, has there been a time over the last 15 years when it’s actually been a good thing to have near term maturities? It just, it feels like we’ve never hit that time where the mark-to-market was attractive enough that you’d want a lot of near-term maturities?
Jerry Sweeney
Well, I think it’s a general rule. It’s been, we haven’t really seen that. But I do think from a sub market standpoint, there have been moments of pure sunshine. So for example, when I take a look at our Radnor portfolio, or our University City portfolio here, certainly doing bridge term leases has turned out to be very successful for us. We’re able to move up rental rates significantly. We have not seen that in our Washington DC, Northern Virginia Maryland market. We had moments of that in Austin, Texas. A number of years ago, we were doing three-year leases that had some good escalation build into them. So it’s really, for us as we look at it, it’s really a sub market dynamic that we really try and think through. So we’ll take a look at what our forward rollover is by submarket take a look at the existing occupancy levels, and then modulate our marketing plan based on that. One of the challenges and governors we’ve had, quite candidly in the last half dozen years has been the escalation in construction pricing. Because that really tends to be the capital recovery mechanism sometimes tends to overwhelm the desire to the shorter-term leases to get that next bump. So but again, there have been moments of that we do, as we talked on, we do a lot of spec suites, where we build out smaller tenancies that we do leasing, and that three-to-five-year range, get higher than normal rents to provide the tenant that flexibility. And our track record has been that we actually get those tenants either renew, or get another tenant to move in and this condition. So I think for us, it’s been very much a tactical versus strategic objective. I do like the lease structures, we’ve migrated to, that 81% of our leases provide a pure inflation hedge for us. Our average annual escalations are in the high twos to low threes. So it provides kind of annual rental rate increases, and then we do take a look at our average lease terms, which we focus on every year as part of our business plan.
Operator
Our next question comes from Danny Ismail with Green Street Advisors.
Danny Ismail
Great, thank you. Maybe going back to an earlier response. Jerry, I believe you mentioned on the dispositions, those being a sub six cap, are those stabilized or is there some leasing to do there?
Jerry Sweeney
One is fairly stabilized. And the other is residential project.
Danny Ismail
Got it. And for clarity, I believe earlier this year, you guys had placed that 1,900 market on disposition block, is it safe to assume that that is not included in that $110 million?
Jerry Sweeney
It is not Danny, that is correct. We would — that — we still have that in the market. You may recall, we launched that right before Memorial Day. And with the summer coming in, and more importantly, the volatility at that point we moved the bid day back, we are still talking to a couple of I think high quality buyers there. But again, that amplifies why was talking about earlier in terms of the need to kind of lock away debt financing. So I think we’re following the approach of putting a number of different types of products in the marketplace, to kind of get a sense of where we think pricing will settle in. And then kind of using the data we’re getting back from that. And then really comparing that to what we think the internal value occurs from a net present value standpoint is holding that asset versus trading it out. And that’s I think the discipline will maintain as we look out over the next several quarters as we kind of see where the market clearing prices will be on some of these asset’s sales.
Danny Ismail
Got it. And then just last one for me the, I’m just curious you mentioned terminating few acquisitions this quarter, as well as announcing the bill to suite developments. How are you guys viewing those opportunities in light of the share price, which is on our numbers now over a 10% flat cap rates and potential share repurchases.
Jerry Sweeney
Yes, look, certainly share repurchases are on the table for us. I think we want to make sure that we fully focus on walking away all the liquidity and addressing the near-term maturity. And certainly trying to get some additional assets sales across the table. We fully recognize the value of that. And that’s certainly part of our deployment toolkit as they say, once we achieved some of the near-term maturity refinancing objectives I spoke about earlier.
Danny Ismail
Great, thanks, Jerry.
Jerry Sweeney
Okay, thanks, I want to make sure that answered your question. Thank you.
Operator
Our next question comes from Steve Sakwa with Evercore ISI.
Steve Sakwa
Yes, thanks. Good morning, Jerry and Tom, I just wanted to circle back on some of the debt stuff. And I understand it’s a little fluid in terms of whether you’re going to go 5 or 10 years. Right now the curves obviously inverted. So your 10-year treasuries, obviously below the five years, but how are you guys thinking about spreads? I guess I’m just trying to get a better handle on where you think all in fixed rate debt costs would be today. And then secondly, is there anything you can tell us about the $250 million term loan that expired in October?
Tom Wirth
Hi, Steve. I’ll answer a couple of those. So I think if you look at where the investment grade market is, for bonds, for example, as where rates are it is, there is an inverted yield curve. And I think as we take a look at bonds, either five-, seven- or 10-year bonds, the pricing is not very different. It’s high, and I would say that it would be high pricing for us, I’d say you’re talking a number in the 7% range on investment grade bonds, maybe today. And that’s considering bonds are open. And but all of the, our credit spread comes down a little bit to offset the change in the rates. But that’s kind of a flat curve right now. And a flat quote we’re getting when we take a look at bonds, there’s not much of a difference between five and 10, and seven in terms of net yield. I think that’s part of your second or your first question.
The second one, I think you are you — if you’re talking about the $250 million term loan, the term loan was extended as part of a line of credit. The swap, if you’re asking about the swap, we did have a swap that was on that term loan through October. And at this point that term loan is now going to float. We have not put a swap on it at this point. We are looking at whether we want to do a long-term swap with where we see the yield curve at the back end, especially to put a fixed rate on that, but we have not done that at this point.
Operator
There are no further questions I’d like to turn the call back over to Jerry Sweeney for closing remarks.
Jerry Sweeney
Great. Well, Michelle, thank you very much for help today. Thank you all for participating in our call. We wish you a great holiday season and we look forward to updating you on our fourth quarter results in ’23 business plan after the first — of the year. Have a great day.
Operator
This concludes the program. You may now disconnect.
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