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Boston Properties Inc (BXP) Q1 2019 Earnings Call Transcript

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Boston Properties Inc  (NYSE: BXP)
Q1 2019 Earnings Call
May. 01, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Boston Properties' First Quarter 2019 Earnings Call. This call is being recorded. All audience lines are currently in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question-and-answer session.

At this time, I'd like to turn the conference over to Ms. Sara Buda, VP, Investor Relations for Boston Properties. Please go ahead.

Sara Buda -- Investor Relations

Great, thank you operator and good morning everybody and welcome to Boston Properties' first quarter 2019 earnings conference Call. The press release and supplemental packages were distributed last night, as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. If you did not receive a copy, these documents are available in the Investor Relations section of our website at bostonproperties.com. An audio webcast of this call will be available for 12 months in the Investor Relations section of our website.

At this time, we'd like to inform you that certain statements made during this conference call which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although, Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in yesterday's press release and from time to time in the company's filings with the SEC. The company does not undertake a duty to update any forward-looking statements.

I'd like to welcome Owen Thomas, Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During the question-and-answer portion of our call, Ray Ritchey, Senior Executive Vice President and our regional management teams will be available to address any questions.

And I would now like to turn the call over to Owen Thomas for his formal remarks.

Owen Thomas -- Chief Executive Officer

Okay. Thank you, Sara, and good morning everyone. We had another strong quarter of performance and are successfully executing on our strategy for continued revenue and income growth. Highlights for this quarter include, we grew our FFO per share of 15% over the first quarter of 2018, which was also $0.05 above the midpoint of our guidance for the quarter and $0.06 above the Street consensus. We raised our full year 2019 FFO per share guidance by $0.05 at the midpoint, which would result in a 11% FFO growth above 2018.

We completed 1.5 million square feet of leasing for in-service properties, which is well above our long-term quarterly average for the period and we increased the occupancy for our in-service office and retail portfolio of 150 basis points from last quarter to 92.9%. This also marks a 240 basis point increase from a year ago. Also this past month, we completed an early renewal and expansion of our lease with Bank of America at 100 Federal Street in Boston for 545,000 square feet. We obtained construction financing for the Marriott headquarters development on favorable terms. And we issued our 2018 sustainability report and we're selected as a 2019 Energy Star Partner of the Year, the highest recognition possible from the EPA for Distinguished Corporate Energy management programs.

Moving to the economy, overall economic conditions continue to be stable and overall favorable for Boston Properties. Initial US GDP growth estimates for the first quarter were 3.2%. Well, surpassing prior estimates. Job creation remained steady with 540,000 jobs created in the first quarter and unemployment continues to be low at 3.8%. The Fed has turned accommodative, as indicated, it will not raise interest rates for the foreseeable future and intends to pause quantitative tightening by year-end. As a result, the 10-year US Treasury has been steady so far this year dropping around 20 basis points to 2.5%.

This economic landscape is not exclusively rosy with GDP growth in Europe and China declining and prospects for escalating trade tensions. In our business, we are experiencing confidence and fundamentally strong leasing activity with our customers in our core markets, with the exception of the Washington DC central business district. Rents continue to escalate markedly in Boston and San Francisco, driven by strong demand and minimal new supply. Given this backdrop in the broader set of economic signals, we do not anticipate a near-term economic correction. That said, we continue to keep our aggregate debt levels low and ensure our developments are appropriately pre-leased before launch, as we know an economic turn is inevitable and difficult to precisely predict.

So as a result, we are well positioned to take advantage of ongoing economic growth and to weather a contraction with durable cash flows. The private real estate market for our assets in our core markets remain strong and liquid. In terms of the data, significant office transaction volume ended the first quarter at $17.5 billion down billion, down 31% from the fourth quarter of last year and down 21% from first quarter 2018. Though volumes are lower, anecdotally, we are finding our pursuit of new investments to be highly competitive, both for buildings and sites. Animal spirit seem alive and well as financing costs are lower than 2018 and most investors are not overly concerned about a near-term correction. Yet again, there were numerous significant asset transactions in our markets this past quarter.

Starting in the Boston Financial District, 75 State Street is under agreement to be recapitalized for $635 million, which is $755 a square foot, and a 4.4% cap rate. This is an 840,000 square feet property, it's 98% leased and it's being recapitalized with a joint venture of offshore capital and fund managers.

In New York, a 38 storey, 1.5 million square feet single-tenant office condo at 30 Hudson Yards sold for $2.2 billion or $1,500 a square foot, and a 5% stabilized cap rate. The condominium interest is 100% leased to Time Warner for 15 more years and was sold to a developer fund manager back by institutional investors.

In San Francisco, a 49% interest in 200 Howard street, better known as the Park Tower Building is under agreement to sell at an imputed value of $1.1 billion or $1,445 a square foot, and a low to mid 4% cap rate. The recently constructed building is 762,000 square feet. It's fully leased and is being sold to a developer fund manager backed by a sovereign wealth fund.

And finally, in West L.A., Wilshire Courtyard is under agreement to sell for $625 million or $627 a foot, and a cap rate of 2.5%, though that is artificially low because the asset is not stabilized. The building comprises just under 1 million feet and is 60% leased and being sold to a North American developer investor.

So moving to our capital activities. Development continues to be our primary strategy for creating value for shareholders and our pipeline of current and future developments remains robust. Our current development pipeline stands at 11 office and residential developments and redevelopments, comprising 5.3 million square feet and 2.7 billion of investment for our share. Most of the pipeline is well under way and we have 1.6 billion of total capital remaining to fund. The commercial component of this portfolio is 78% pre-leased and aggregate projected cash yields are approximately 7%.

In 2019, we expect to commence 2100 Pennsylvania Avenue, which is a 469,000 square foot Class A office building located in the central business district of Washington, DC. The building is 66% pre-leased and will be an estimated $360 million investment. We will also start the redevelopment of 325 Main Street in Kendall Center in Cambridge following the long-term lease agreement we signed with Google this past quarter. The current 115,000 square foot building will be demolished and replaced with a new 400,000 square foot office tower, the office component of which will be fully occupied by Google. As part of the agreement, Google will extend their current leases for an additional 15 years in two of our other buildings in Kendall Center comprising 450,000. As a result, we will have an over 800,000 square foot long-term relationship with Google at Kendall Center. Total project cost is $450 million plus the value of the existing building.

As part of the local zoning, we are required to develop a residential building of at least 200,000 at Kendall Center with 25% of the units reserved as affordable. The office project will commence in 2019 and the residential project is currently moving through its design approval process.

In San Jose, we are completing pre-development work for our recently completed land investment at Platform 16. We have made presentations to multiple potential large users and are in discussions with a capital partner to invest with us in the project.

On dispositions, we are targeting approximately 300 million in asset sales this year. We recently entered a binding agreement to sell One Tower Center, a 410,000 square foot office building located in East Brunswick, New Jersey for $38 million. The property is 39% leased and in a challenging location, far from the stronger demand dynamics we experienced in Princeton at Carnegie Center. So this decision is in line with our strategy of disposing select, non-core assets. Although the sale resulted in an impairment charge, there is no substantial loss of income and our companywide portfolio occupancy will increase by approximately 50 basis points.

We also put on the market this quarter 540 Madison Avenue located in Midtown Manhattan. Our 40% joint venture partners in this 284,000 square foot asset wanted to sell their interest. After reviewing expected sale outcomes with our advisor and understanding a sale of 100% interest in the property would likely yield better pricing, we decided it was in the best interest of our shareholders to sell our position as well. The marketing process is under way. And there has been substantial interest in the asset to date from prospective buyers.

Lastly, we have recently been asked by many of you about the ramifications and potential cost to the landlords of the Climate Mobilization Act passed by the New York City Council last month. The goal of the bill is to reduce city carbon emissions 40% by 2030 and 80% by 2050. Boston Properties supports greenhouse gas reduction policies, has already established its own public greenhouse gas reduction targets, and has actually reduced the greenhouse gas emissions intensity of our buildings by 39% over the last 10 years through investments in new energy-efficient systems and utilizing more sustainable energy supplies. Details of all this are available in our Annual Sustainability Report, which we released last month.

We started down this important road many years ago given the business case for investment in energy efficiency, the contribution of the built environment to global emissions, and in anticipation of local regulations such as the recently passed Climate Mobilization Act in New York that will likely continue to strengthen over time in our other core markets. Specifically related to New York, we think our portfolio already substantially meets the 2024 emission targets set by the new regulations and have plenty of time to make additional enhancements probably by acquiring more sustainable energy sources by 2030 when the second phase of emission targets take effect. Given our shared mission on climate with our communities and our leadership role in sustainability, we hope to work cooperatively with New York and our other city partners to create logical and effective legislation to accomplish reduced greenhouse gas emissions.

So, in conclusion, Boston Properties is off to a strong start in 2019. We completed another quarter of successful execution with 15% year-over-year FFO per share growth. We increased full-year guidance for 2019 to 11% year-over-year growth at the midpoint. Economic conditions remain favorable. Tenant demand remains strong. And we continue to lay the foundation for continued Company growth beyond 2019. As I look at Boston Properties today, I'm delighted with our progress. We continue to outperform our sector in terms of FFO growth with an attractive pipeline of pre-leased development, healthy same-store NOI, a new and refreshed portfolio, and modest leverage with capacity to support additional investments.

Let me turn over the call to Doug.

Doug Linde -- President

Thanks, Owen. Good morning everybody. So we are seeing the constructive macro environment that Owen described in his remarks really reflected in the actions of our customers, our tenants. When I dissect the activity that we're seeing in Boston, CBD, the Cambridge market, Suburban Boston, San Francisco, the Silicon Valley, L.A., it's really driven by the growth from the technology and the life science and media, financial services and professional services firms that make up the demand markets.

In Midtown Manhattan, we have service providers like law firms that are continuing to expand. Although the rebuilding of more efficient spaces moderated their growth somewhat and the successful financial firms are growing while the challenging results from hedge funds have created some space reductions in that market as well. In Northern Virginia, there are a number of tech titans that have identified the DC Metro employment base as a fertile area for incremental expansion, Amazon aside. And the increase in defense spending has led to expansion by those organizations that service that sector of the government or homeland security.

It's the supply that is regulating whether a market or sub-market is strong and fit, landlord-favorable or weak and tenant-friendly. In the office business, where we have long leases, our average lease length today over seven years. Spot market conditions don't immediately show up in our result. Last quarter, I described Salesforce Tower where we signed our first lease in April 2014. We achieved our fully occupied run rate in October of '19 and based on the last few deals done in inferior buildings which rents about 40% below market today.

This quarter, we signed our lease with Google to build the new 325 Main Street. We started that lease negotiation in 2017, along with the extension for 450,000 square feet that Owen described. And the cash contractual extension rent increase on that 450,000 square feet, which commences in 2025, is 27% higher. And because rents have moved so quickly, that number is 25% below today's market rent.

Let's talk about the markets, our expectations and what's going on in our portfolio. I'll begin with Boston. Over the last few quarters, you've heard me describe the extraordinary demand which Boston and Cambridge have seen along with a very limited supply pipeline. The new buildings being delivered are not 2 million square foot towers , but rather 400,000 to 500,000 square foot mid-rise buildings, may have all found either pre-leases or pre-delivery lead tenants with very little aggregate speculative space. Existing inventory is full and contiguous full floors are hard to find. In our portfolio, this has led to tenant-inspired early renewals.

Last week, we completed a 545,000 square foot, 15-year lease extension with BofA at 100 Federal Street starting in '22. The net rent is increasing by more than 37%. At 200 Clarendon Street, we have completed 45,000 square feet of early renewals and are documenting another 89,000 square feet of leases expiring in 2022 with an average increase of over 30% on a net basis. In the realm of no good deed goes unpunished, because we're going from a gross to net leases at 200 Clarendon Street, it's actually going to result, believe it or not, in a reduction in our short-term GAAP income until the new lease structures kick in in 2022.

In addition to our Google transaction in Cambridge, with no available direct space in our portfolio, we were still able to complete a 35,000 square feet of additional 2022 tenant requested extensions and here the increase is only a 100% on a net basis. You should note a large decline in our occupancy at 325 Main Street. We terminated all of the retail leases, 47,000 square feet this quarter, and we will complete the vacation of the building. Total loss of about $4 million per year on an annualized basis by the end of the second quarter, and this will impact our result in '19, '20 and '21.

Given the increased demand by life science tenants in Greater Boston, we are converting a number of buildings from straight office to office lab use in our suburban portfolio. The first such building lease we signed this quarter at 33 Hayden Avenue in Lexington. Because of previous investments by the vacating tenant, we're only investing about $35 a square foot in base building upgrades and the net rent is moving up by 86%. We intend to convert 200 West Street in Waltham to a similar facility. You will see a drop in occupancy as we vacate 50% of this building to enable the lab conversion. In this case, we're investing about $130 per square foot on the applicable square footage and we'll have a similar pickup in rent expectation. Lab rents are about $50 triple-net in the Waltham Lexington market. We expect a double-digit incremental return on the incremental investment. And as we permanently design all of our new suburban product, it is being positioned as lab-ready. 180 City Point, our next development site in Waltham is a 300,000 square feet building that fits this bill.

We did have a few leasing disappointments during the quarter involving our development assets. We had a lease out for execution canceled for the remainder of our 100 Causeway Tower when the customer was sold in an M&A transaction. And we had a life science company redesign 50,000 square feet at 20 City Point and its product had a disappointing trial and so that lease was canceled as well. We expect we will replace these tenants with higher rents and lower concessions. Rents in Boston and Cambridge and Waltham Lexington had great increases in 2018 along with the decline in concessions and we expect the same in 2019.

In New York City, we made a lot of news last quarter with our leasing transactions at 399 Park. The New York City leasing dynamics have not changed in the last 90 days. All the known deliveries in the far west side are happening. We haven't seen rent suddenly increase and we haven't seen concessions change. Our portfolio focus today is that the General Motors Building and our 97,000 square foot block of available space at 399 Park Avenue. At the moment, we have one high-rise floor available at GM, 40,000 square feet, but by the end of the first quarter of 2020 we have additional known move-outs of about 170,000 square feet. This space contributes about $13 million for 2019. Combining this 210,000 square feet with the 97,000 square feet that's available at 399 Park Avenue, this portfolio of space should ultimately contribute revenue of about $27 million as we sign leases and commence revenue in 2020 and 2021. More than 50% of the space will be leased under $105 a square foot, and the rest should demand rents in excess of $130 a square foot.

The financial markets in the latter part of '18 and the beginning of '19 were not kind to the hedge fund community, which along with private equity shops and boutique financial advisors make up a significant portion of the high-end demand in this market, rents in excess of $127 a square foot. As I've described previously, the leasing in this Manhattan sub-market is not about the incremental price or concession package. It's simply a matter of a smaller demand pool and at the moment that segment of demand is somewhat light.

Construction at Dock 72 is progressing. We expect WeWork will be opened by September 1 and we expect to open the amenity space by early October. Tenant interest is picking up and we received our first full floor proposal from a technology company last week. The Ferry (ph) should be operational in May and we will be able to begin to showcase what Dock 72 has to offer. It's a pretty great tour and you should all go over and take a look.

You should note that we have extended our stabilization projection into the third quarter of '21 and this, along with some base building cost increases, has resulted in the increase in the project budget that you see in our supplemental information. The challenging supply conditions, along with the more challenging demand pool in the Washington DC CBD market continue to pressure the spot leasing market there. We don't believe there is a 150,000 square foot law firm with an expiration prior to 2023 active in the market. The GSA has very aggressive pricing requirements, all but eliminating their ability to lease higher-quality available space. There were significant new availability and the competition is fierce for more granular near-term demand.

In the CBD, the flexible office providers continue to be a positive. That segment of the market continues to absorb medium space blocks of space and they are truly aggregating demand that we would never accommodate. While face rents on leases are stable, it's all about concessions and more importantly rent commencement dates. The good news is that we are reasonably well leased in the district with modest near-term exposure and we have sold down our position significantly over the last few years.

Almost 10% of the company NOI resonates from Northern Virginia where the demand picture is much more robust. We have known future availability in 2020 approaching 500,000 square feet with the biggest block stemming from our delivery to lighthouse (ph) in March of 2020 and the departure of tenant, whose growth we could not accommodate in 2017 and 2018.

We are in active discussions with two existing tenants that are looking to expand their 50,000 square feet installations, three new tenants looking for a minimum of 75,000 square feet each, and a number of 7,000 to 10,000 square foot users that are focused on this amenity-rich environment. While the Reston Town Center ecosystem will win the day for many of these users, there will be some interruption in income as we retenant, the space. The 2020 reduction in revenue from the known expirations is about $17 million.

Moving west, in LA, while Colorado Center is 100% leased, we are actively marketing the 140,000 square feet block that HBO will vacate on December 31, 2020 as well as our 2021 lease expirations. At the Santa Monica Business Park, we are also working about getting ahead of our late 2020 expirations. The west LA market had an active 2018 and the beginning of '19 was active as well as a number of major technology and media companies expanded their footprints in the area. Rental rates continue to rise at a moderate rate, and there are limited big block availabilities.

In San Francisco, the CEQA litigation involving Central SoMa and the new questions on how Prop M should be allocated have heightened the focus on the lack of availability in the CBD for the foreseeable future. We don't believe there's going to be a quick resolution to these issues. The vacancy rate is at its lowest level since this last cycle begin after the great financial crisis. You will be hard-pressed to find an existing 100,000 square foot block of continuous space in the market direct or sublease. The only new construction, the first in mission (ph) development has an uncertain delivery date and it won't deliver before 2023.

633 Folsom the only large addition major renovation has already been leased. There continues to be significant demand in the market with tenants like Pinterest and Salesforce committing to unentitled developments. In our portfolio, Salesforce Tower 535 Mission, 680 and 690 Folsom, and 50 Hawthorne are all 100% leased. And in Embarcadero Center, we ended the quarter at 93.2% occupied, up 200 basis points from the last quarter, and completed 235,000 square of full or multi-floor leasing. The percentage increase in rents from those floors was over 50%, with an average new starting rent of $85 a square foot gross. Similar to Boston, tenants are requesting early renewal proposals. We currently have another 175,000 square feet under negotiation that could be completed during the second quarter of '19. If a tenant wants the full floor of Embarcadero Center, it has one option prior to July of 2020.

In the Silicon Valley, we continue to release or renew space at (inaudible) research at rents in excess of $60 triple-net. This quarter, we completed a 47,000 square feet lease with a 60% roll up. And over the last two weeks we did two renewals totaling 91,000 square feet and had an average increase of 80%.

At Platform 16 as Owen described, we are enabling the site preparation for construction and we're making presentations to tenants who are looking for 400,000 square feet or more and there are a number of them.

I'm going to conclude my remarks this morning with some comments about the same property leasing stats for the quarter. You will note a big jump in transaction costs. The statistics include 1 million square feet of 10-year or longer deals in New York City and San Francisco. This includes about 90,000 square feet of pre-built suites or turnkey floors that we did. And we've been describing those over in the last few years where the improvements are in excess of $150 a square foot. Obviously, there is a trade-off with accelerated occupancy, which is never reflected in the transaction cost numbers. Saving six months of downtime on a $100 rent offsets the transaction costs of a deal by 50 bucks. And remember, we include the entire TI package and commission into our statistics when we commence revenue recognition, while the actual outlay of cash will occur over many quarters.

So in conclusion, competition for talent remains top of mind for our customers and they continue to seek premium class-A space that reflects their brand and values. 2019 is progressing as we expected and we continue to be well positioned to grow our FFO in the coming years. I'll stop here. Mike?

Mike LaBelle -- Chief Financial Officer

Great. Thanks, Doug. Good morning. As Owen described, we had a strong quarter and raised our full-year FFO guidance again, and are now projecting 11% year-over-year FFO growth at the midpoint. Before I get into the details of the quarter, I do want to start with a couple of housekeeping items. First, you will notice that we've adopted the new lease accounting standard that was required this quarter which adds right of use operating lease assets and operating lease liabilities to our balance sheet. And on our income statement, rental income, operating expense recoveries, and service fee income are now required to be reported together as lease income. For clarity, we will continue to provide the breakout of these items in our supplemental report. The requirement to include service fee income and lease revenue is creating geographic movement on our income statement, as we had previously included service fee income in our development and management services income.

This change also impacts the components of our 2019, FFO guidance assumptions. And we've relocated approximately $8 million from development and management services income into our share of same-property NOI. This shift increases our assumption for growth and our share of same-property NOI by 50 basis points in 2019 from our guidance last quarter. I apologize for the accounting minutiae, but I wanted to make sure everybody understands these changes.

Now let's get into the details for the quarter. Q1 marked another strong quarter with 15% year-over-year FFO increase driven primarily by a 10% increase in our revenues from gains and portfolio occupancy, higher replacement rents on new and renewal leasing, and incremental revenue recognition from our development deliveries. This quarter, the roll-up in rents from our second-generation leasing was 9.4% on a net basis. Our in-service portfolio occupancy improved by 150 basis points to 92.9, primarily from gains at 3.99 Park Avenue in New York City and Salesforce Tower in Embarcadero Center in San Francisco. We anticipate that occupancy will range between 92.5% and 93.5% for the year. Part of this is due to faster-than-projected lease up and part is due to the anticipated sale of One Tower Center and removing 325 Main Street in Cambridge from service for the Google redevelopment. The removal of these two properties would increase our occupancy by 60 basis points.

In the debt markets, we just closed a $255 million construction loan to provide funding for the Marriott headquarters development. The loan is priced very attractively at LIBOR plus 125 basis points and reflects the quality of the project and the long-term lease with Marriott Corporation. This property is in a joint venture, so our share of the loan is 50%.

Our active development pipeline represents $2.7 billion of new investment and remaining cost to fund are $1.3 billion net of the in-place construction financing. We expect to raise another $200 million of construction financing for our share of the Hub on Causeway office project later this year. And the remaining cost will be funded with operating cash flow retained proceeds from asset sales and our line of credit. At the end of the quarter, we had $1.5 billion available on our line of credit and cash of $360 million.

As Owen described we decided this quarter to sell One Tower Center in New Brunswick, New Jersey, and have executed purchase and sale contract. Our decision caused us to shorten our hold period for the building, resulting in an impairment on the property to its fair market value. We booked the $24 million impairment this quarter. Similar to gains or losses on sales, property impairments are part of our net income but are excluded from FFO, pursuant to Nareit definition. The sale is actually accretive to us, because at 39% occupancy the property provides minimal NOI and we will earn interest income or reduce our future borrowing with the cash from the sale.

Looking at first quarter results versus our guidance, our FFO of $1.72 per share is $0.05 per share above the midpoint of our guidance range. Approximately $0.03 per share of this was related to the timing of expenses where we came in below our budget this quarter, but we expect to incur these expenses later in 2019. So this portion will not increase our full-year FFO. The other $0.02 per share was due to portfolio performance. So you should really look at this as $0.02 of out-performance for the quarter.

The $0.02 were split between higher-than-projected service fee income and higher rental revenues from leasing space faster. This leasing was in our budgets for later in the year, so it did not result in a comparable step up in our quarterly run rate for the full year. Growth in our share of same-property NOI for the quarter was strong and up over last year by 7.7% on a GAAP basis and 9.2% on a cash basis. We project our same property NOI to show consistent growth for the remainder of the year. However, the growth rate over 2018 will slow in the back half of the year due to the comparable periods in 2018 being higher.

For the full year 2019, our current assumptions include growth in our share of same-property NOI of 5.5% to 6.34% over 2018. Net of moving $8 million of service fee income into the calculation, this represents an increase of 38 basis points at the midpoint from last quarter. On a cash basis, we assume same property cash NOI growth of 5% to 6.5% over 2018. We've also modified our assumption for development and management services income to $32 to $36 million and that reflects the reduction of $8 million for moving service fees into lease revenue. Given the more dovish outlook for interest rates in the past quarter, we've adjusted our assumption for rates that has had a positive impact on our future financing costs in 2019. This, in combination with changes in our funding timing and additional asset sales, has resulted in our lowering our assumption for net interest expense for 2019 by $5 million to $405 million to $420 million for the full year. The result of these changes are that we're increasing our guidance for 2019 FFO to a new range of $6.95 to $7.02 per share, representing an increase of $0.05 per share at the midpoint, with the increase from $0.02 per share of improved portfolio NOI and $0.03 per share of lower interest expense.

As you start to think about 2020, there are a few things to keep in mind. We continue to expect the portfolio NOI to grow from both our developments and our same property portfolio. We expect to deliver approximately $1.4 billion of our development pipeline between mid 2019 and the end of 2020. As is typical, every year, we do expect some negative impact from temporary downtime related to our lease rollover exposure. Doug described our more meaningful 2020 lease roll outs which are the GM Building and the Reston Town Center. In addition, we will have $10 million of our share of non-cash fair value lease revenue rolling off next year, with much of this at the GM Building where we will see incremental vacancy.

And finally, we expect to continue to utilize debt as the primary funding vehicle for our new developments. Although we capitalize interest on new developments, the delivery of $1.4 billion of our current pipeline will result in a reduction of our capitalized interest and consequently higher total interest expense in 2020.

So in summary, we had a good quarter with stronger than expected portfolio performance. We increased our FFO guidance for the year. We now project 2019 FFO growth of 11% at the midpoint over 2018, which is among the highest in our sector. And the demand environment remains strong based on favorable economic trends in the vast majority of our markets. And we continue to execute on the growth strategy we've outlined for the company.

That completes our remarks. Operator, I'd appreciate if you could open up the line for questions.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from the line of Nick Yulico with Scotiabank [sic].

Nick Yulico -- UBS Securities -- Analyst

Thanks. I know Doug talked a little bit about the tenant improvement spend this quarter being heightened and why that was the case. Mike, I wanted to see if you could give us maybe a feel for what a full year number would look like for TIs and leasing commissions. And then in terms of how we should think about FAD growth this year, if that would be similar to the 10% FFO growth in your guidance?

Mike LaBelle -- Chief Financial Officer

Sure, no problem. So, Q1 is obviously, as you mentioned, it was a high year for lease transaction costs. As Doug mentioned, we had some long-term leases, and we also just had a tremendous amount of absorption. Right. So we had 150 basis points of absorption to bring the portfolio up to 93% almost, which is, that kind of all drops into the quarter. So we do not expect every quarter this year to be identical to that. I mean, our occupancy projection for the year, as I mentioned, is that it's basically going to be stable if you kind of pull out the asset sales and taking the Google building out of service. So we expect occupancy to actually drop little bit in the second quarter and then come back up in the third and the fourth quarters, although the rental rate should be higher in our rollover.

So if you look at our full-year projection for what our AFFO will be and our lease transaction costs, we expect lease transaction costs to total somewhere in the $210 million to $225 million range. So a big chunk of this has already been experienced. And if you look at our rollover for the rest of the year, I mean, it's just not that big. So the amount of leasing that we have to kind of get into place to keep the occupancy is not that significant. Most of the leasing that we're doing for the quarter is really going into the future years. Right, that stuff is going into '20 and '21.

Other pieces of our AFFO to think about include our straight-line rents which are $100 million to $120 million. Our CapEx is going to be lower. So our recurring CapEx, we think, is going to be somewhere in the $75 million to $90 million range, that's about $10 million or $15 million below last year. Stock comp is around $40 million. And then other non-cash items is $20 million to $25 million. So if you kind of pull all that stuff together, you get to an AFFO that is somewhere in the $4.80 to $5 a share versus $4.43 in 2018. So that's pretty significant growth, which is kind of a combination of cash, same-store growth and lower CapEx.

Nick Yulico -- UBS Securities -- Analyst

Thank you. That's very helpful, Mike. So second question is if I think about the commentary that, Doug, you gave on on New York, it was less positive in other markets except Washington DC. So, I guess, I mean, if we think about a lot of the leasing demand right now that you are targeting, let's say, in your development portfolio which feels like it's a lot of attack (ph) when you're talking about increasingly life science, should we think about you guys maybe looking to sell even more of your new York City portfolio besides 540 Madison, perhaps assets like 399 Park, which is mostly stabilized or developments that you did this cycle?

Owen Thomas -- Chief Executive Officer

No, I wouldn't assume we're going to shrink our New York portfolio further. I mean, again, we're always open if we get approached by someone with we think an extraordinary result for shareholders, we're open minded about it. But I don't think you should assume we're going to sell down our New York portfolio further.

Nick Yulico -- UBS Securities -- Analyst

Okay. Yeah, I guess, I'm just trying to reconcile the commentary on New York which just seems like you think the market is not doing as well as some of your other markets, and so then if that's the case, you know, why still have the as big of a presence in New York.

Owen Thomas -- Chief Executive Officer

We think -- we've been saying this for years, we think New York is healthy. There is the aggregate leasing demand has been at high levels. Last year it was a multi-year record for gross leasing. So we think the market demand is healthy in New York and it's a healthy market. The issue has been supply. The Hudson Yards we have described as a secular event in the New York City real estate market and until the Hudson Yards gets fully absorbed there will be more than typical supply in New York, and that is muting our ability to push rents up. But we certainly believe in New York in the long term and intend to maintain a very significant presence there.

Doug Linde -- President

Contextually, Nick, if you think about the demand picture in New York City, and actually if you were to go look at the VC investments across the country now, there's actually more money being invested into New York City than there is in the Boston marketplace. And in that follows the Silicon Valley in San Francisco. So the tech, media, FinTech world is very alive and vibrant in New York City and is, but, as Owen said, this is a supply problem, which is sort of what my point was at the outset. In those marketplaces where there is not a supply problem, we're feeling really, really strong about our opportunity set in terms of the pushing rents. In those markets where there is a supply problem, namely New York City, modest supply problem; in Washington DC, CBD, a significant supply problem, we're not in a position where we can do that.

And net-net, we've actually reduced our exposure in New York City, not necessarily by selling assets per se but by selling interest in assets, which we did over the last, call it, four, five years ago. And then we've grown so much more in Boston and in San Francisco. Naturally, the contribution from New York City has diminished in a significant way. So I think we've positioned the portfolio in a really thoughtful way on a going-forward basis, and New York City will always be part of our portfolio. And we hope that there will be a point in time in the relative near future where the supply picture will have cut-off and the technology, the media, the FinTech businesses will have grown to a sufficient population of embedded demand that we're going to see the kind of strength that we're seeing in Boston and in San Francisco in that market as well, but it's not going to happen in 2019, '20 or '21.

Nick Yulico -- UBS Securities -- Analyst

Okay. Thank you, Doug and Owen.

Operator

Your next question comes from the line of Manny Korchman with CIPI.

Manny Korchman -- CIPI -- Analyst

Hey, good morning, everyone. Doug, you spoke a lot about early renewals and how successful you've been with that. Can you just help us with how you think about those early renewals, especially in a case like Google where you pointed out that even given the early renewal, do you think that they will end up being below sort of market at the time the renewal starts, if I understood that correctly? So how do you weigh that?

Doug Linde -- President

Yeah, they're below renewal now,

Manny Korchman -- CIPI -- Analyst

What's that?

Doug Linde -- President

They're below market now. So they will be even more below market when the renewal starts. And so, the logic we've had, Manny, is that something that I think is grounded in us for the 40 years that Boston Properties has been around, which is that we're not market-timers. We believe in leasing space to customers who want to want to lease space when they want to lease a space and we take our chances that doing long-term leases will serve us well. And that we'll have opportunities to get the incremental growth upon rollovers and at the spot market by bringing new products online at those times. And I don't think we're going to change that profile.

The most interesting thing about what I was just trying to describe was that our cash rent increases in '21 and '22 are being driven by our transactions today. And so there is going to be significant cash flow growth from the company's perspective on a going-forward basis. And it's all going to be below market, assuming the markets remain as healthy as they are today.

Owen Thomas -- Chief Executive Officer

Yeah. And also, I would just add, I think Doug's point was we don't do early renewals below market. But the markets are moving up rapidly. So when these transactions were agreed to, the market was at those levels but the market has elevated since then and examples that Doug gave were Google and Salesforce property at Salesforce Tower.

Manny Korchman -- CIPI -- Analyst

Got it. Thanks, Mike an easy one for you. The expenses that are getting delayed later into the year, can you be more specific as to when those will hit, just for modeling purposes?

Mike LaBelle -- Chief Financial Officer

The repair and maintenance stuff. I would guess will hit in the second and third quarter if I had to guess. And that is the majority of it. There was a little bit of G&A, because our healthcare cost came in a lot lower than we would expect and I anticipate that that will occur through the year. So I would guess that will be in the second and third and not fourth. But again, our lease repair and maintenance item is, it depends, when the capital goes out, right. And those are the stronger -- those are the quarters where we do most of that work because of the weather related to the locations that we are in.

Manny Korchman -- CIPI -- Analyst

And one last one for me, the 540 Madison sale, will that have any impact on how you think about acquisitions, I guess, forcing your hand to acquire something to offset that?

Owen Thomas -- Chief Executive Officer

It won't have an impact on acquisitions. I mean, we will, as we always do, if we have a gain, we'll attempt to do a like kind (ph) exchange, but we won't be more tempted to buy something, because of that. If it works out in the flow of the business that we want to do, based on the deals that we see that makes sense for shareholders, we'll do the exchange, but we're not going to go out and, quote, look for an exchange deal.

Manny Korchman -- CIPI -- Analyst

Thanks everyone.

Operator

Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Hey, good morning guys. Maybe taking the sales question from another angle. I know, Mike, you said most of the development near-term is going to be funded with debt. But as you look at kind of the pricing that they got on Park Tower and the below-market rents you have at Salesforce, I mean, is it tempting at all to maybe look to joint venture that now that you bought in the 5% interest?

Mike LaBelle -- Chief Financial Officer

No, it's not. We think the Salesforce Tower is one of the premier -- certainly one of the premier properties in our portfolio, its a premier port property in San Francisco, which is one of the strongest office markets in the country, if not the world and it's not something that we want joint venture. So we have been saying in terms of our sources of capital and we didn't -- I didn't review that this quarter, but let me just kind of go back through that. Obviously, we generate cash flow from the company after we pay dividends. So that is first and first stop for source of capital.

The second would be, as you're suggesting, asset sales and we have been selling $200 million to $400 million or so of non-core assets each year and that has been a source of funding for us. Last year was a little bit larger because of the TSA deal that we engaged in.

The third stop is debt. And as we've been talking about where we are very focused on maintaining the leverage at current levels. So the development that we've been delivering have given us increased debt capacity, which has created capital for the developments and for new investment, but there are limits to that. But we do certainly use financing to do it.

The next place we've been going is joint venture partners. So we brought in a joint venture partner on the Santa Monica Business Park investment that we made last year. I described in my remarks that we're talking to a capital partner about Platform 16. And at the bottom of the list is issuing common equity. So the other thing that we've mentioned is many of our assets, certainly the more significant ones, have a tax basis that's well below their market value. So they're not efficient from a capital raising perspective because of the special dividend requirement.

Unidentified Speaker --

And Salesforce Tower in particular have a massive gain associated with a JV of that asset that we would just have to distribute out and we wouldn't necessarily be able to retain then.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

That's helpful. And just on Platform 16 I know you guys said you're talking with the partner, but from a timing perspective, would you want to get an anchor lease before you go ahead with the joint venture or is that factor into your thinking at all?

Mike LaBelle -- Chief Financial Officer

It doesn't factor into our thinking today. When we agreed to purchase that asset, I think we recognize that bringing in a joint venture partner was part of the equation and that joint venture partner is quite aware of leasing activity and the conversations we're having. And it's not -- there's no, quote-unquote, threshold about doing a lease to do that deal. And while, I guess in theory, we could wait, get a lease and then do a joint venture at a different pricing model, we just, we felt that that was not the appropriate way to structure the capital of this particular asset.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

That makes sense. Just one more quick one for Mike. You mentioned the burn off of cap interest next year, is it just, I know you guys have lot potential and that one is on your plays, just the spending at the outset just can't keep up with what's burning off so there's no way to kind of back-fill that decline?

Mike LaBelle -- Chief Financial Officer

Yeah, I mean, we're continuing to obviously add to our development pipeline. And Owen talked about 2100 Pennsylvania Avenue and 325 Main Street, so we are continuing to add to that, but there's just a lot that is being completed if you look at our development pipeline, when you look in the supplemental, on the dates of when that stuff is coming in. So in 2020, we do not expect it to keep up. So we do expect there to be materially lower capitalized interest next year, and the nearest this year.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Great, thank you.

Operator

Your next question comes from the line of John Kim with BMO Capital Markets.

John Kim -- BMO Capital Markets -- Analyst

Thank you. In San Francisco, can you provide an update on the likelihood of Fourth and Harrison getting at the Prop M allocation this year? And also if you're interested, are you looking at the ocean wide developments given its a pretty valuable site?

Doug Linde -- President

So I'll give you a succinct answer on Fourth and Harrison, the CEQA lawsuits are ongoing. We don't anticipate the CEQA lawsuits to be resolved in calendar year 2019. And we don't know how long they will take. There's real question about how Prop M is going to be allocated, a lot of discourse and questions about that. So in our mind, it's unlikely that any of the projects will go forward that are currently part of Central SoMa in 2019.

With regards to -- there is a developer who is building for first admission (ph) . The project has got some, I think, some timing issues. Lots of people are trying to understand how they might be helpful in that situation.

John Kim -- BMO Capital Markets -- Analyst

And are you one of those parties?

Doug Linde -- President

We don't comment on things that we might or might not be doing.

John Kim -- BMO Capital Markets -- Analyst

Okay. And then, Doug, you mentioned Midtown Manhattan demand, tenant demand being light. Do you think there's going to be additional sublease space coming in the market? And you also were positive on demand from tech and media companies, but that's really more focused on Midtown South and I'm wondering if you're hearing any discussions of any of these companies moving to Midtown?

Doug Linde -- President

Yes. So I just want to, I guess I want to reiterate what I said. I said that I felt that the demand at the very high end was was lighter this quarter and last quarter than it has been. And the high-end I define as over $130 a square foot, which is, those are the people who would be going into the very expensive space. I think the market itself is actually very healthy. So if you have $85 to $100 space, I think there are lots of people that you're talking to, and there are lots of opportunities from the demand side to fill space.

John, do you want to talk about the tech demand going no in Midtown?

John Powers -- Executive Vice President, New York Region

No, I think that you have it, the demand is very good here. The issue that's holding the price is flat is the supply coming on to the market. The good news is there's a lot of people looking at this party (ph) .

John Kim -- BMO Capital Markets -- Analyst

One last question on Dock 72. Can you just discuss the increase in construction costs and the stabilization date being moved out?

Doug Linde -- President

Yes, so we've found some things that were either unforeseen conditions and when we were doing the site work and or coordination issues between the contractors and the A&E professionals that have just led to some cost increases, but more importantly, given how long it has taken us to get to stabilization of the construction, which is now clearly going to happen in September, we pushed out our lease up. And so, we're carrying the full project cost for an extended period of time. I think it's almost a year than we had previously had. I will tell you that relative 90 days ago, the tenant activity has picked up at Dock 72. And if you'd go over there, it feels like a pretty unique, interesting opportunity for tenants to lease space with fabulous outdoor spaces, with an amenity center that's going to be bar, second to none. There was an announcement yesterday about the new Wegmans that's going in and the other property that's under construction. Dock 72 is really shaping up and, unfortunately for us, it was more of a show-me as opposed to show me the plans and then we'll make a lease but actually show me what it looks like and I want to see and touch before I can really get a sense of it, and we're encouraged by what we're seeing right now.

John, any other comments on that.

John Powers -- Executive Vice President, New York Region

The ferry is starting May 24 and that's a big plus. The shuttles are all running on time and on an app, and people like it a lot. So we're getting a lot more action, but as I've said on this call a number of times, this is an asset where people, as Doug said, they're going to have to -- when WeWork moves in September and the amenities open in October, people can go over and really experience it and they can take the ferry to get there.

Mike LaBelle -- Chief Financial Officer

I think that I just want to clarify that a big piece of this increases equity carry. So it's non-cash concept. It's something we always put in our budgets, which is the carry costs that we charge ourselves for our own equity. And that obviously impacts the job as you extend out the lease-up.

John Kim -- BMO Capital Markets -- Analyst

Thank you.

Operator

Your next question comes from the line of Jamie Feldman, with Bank of America Merrill Lynch.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Great, thanks and good morning. I wanted to start with LA and Santa Monica. Can you talk more about the spaces you're getting back and what the interest pipeline looks like given we have seen a pickup in demand in some of the other kind of media focused sub-markets, Hollywood, Burbank, some of the others, just curious what your leasing prospects look like?

Doug Linde -- President

Yeah, so let me make a short, a quick comment and then I'll have Ray pick it up. So the only space that we know that we're getting back is the space that is currently occupied by HBO at Colorado Center, and they've made a decision to relocate the to Culver Crossing. And that's going to happen December 31, 2020. So everything else that we're working on in both the Santa Monica Business Park and Colorado Center is -- that's based on and doing early renewals with our existing tenants in tow (ph) , which include technology and media companies.

And we're encouraged by their interest in staying in the property and clearly they may have some other opportunities to go outside of Santa Monica, but in Santa Monica we're sort of the only game in town. Ray?

Ray Ritchey -- Senior Executive Vice President

Yeah. Thanks, Doug. So, specifically, the Colorado Center. We have had discussions with Hulu regarding their future growth. HBO was kind of in the path of that growth. So while we are sad to see HBO move on, it was strategically more important to have that block to accommodate the larger tenant. It was really interesting as while we're intense discussions with our existing tenant, other tenants in the project are already calling us up about that space and others. So that the demand in Santa Monica is just as strong as it was when we acquired the building 3.5 years ago and we see nothing in the horizon that does not have Santa Monica being the main demand driver. We are seeing some exiting into some of the other markets if only to larger blocks at lower prices. But we still are exceedingly excited about Colorado Center in Santa Monica Business Park.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

All right, thank you. And then what's your appetite to expand there? I know there are some buildings that are being marketed.

Ray Ritchey -- Senior Executive Vice President

Well, we are -- go ahead OT.

Owen Thomas -- Chief Executive Officer

I was just going to say, and I'll turn it over to Ray, our appetite remains strong. We want to grow LA into a significant region for Boston Properties just like all our other regions. However, we're going to do it in a disciplined fashion. And the way we've been describing it to ourselves and to all of you is we want to do a deal a year if that's a way to think about it.

But it has been challenging this year. There have been a number of assets that have traded at prices that we didn't want to pay. And we're also looking at a number of development sites as well. Ray?

Ray Ritchey -- Senior Executive Vice President

Yeah, well, I'll just -- listen, we came there three years ago. We're now up to 5 million square feet. Current occupancy levels are in the high 90s. We've come in second on three or four different other opportunities in LA, but we held onto our discipline and didn't overreach for those. And we are actively considering three or four more opportunities right now. So we are all in LA for sure.

And I would like to introduce Jon Lange, our LA regional manager who's also on the call. And, Jon, anything else you want to add?

Jon Lange -- Boston Properties -- Analyst

No, I would just add to it, to Owen's comment, there's been a lot of opportunities here in this past quarter, some of which has traded for pretty healthy pricing, but we're aggressive and we're seeking opportunities both the marketed and the non-marketed development and existing asset acquisitions. But we will remain disciplined with our path to growth.

Ray Ritchey -- Senior Executive Vice President

I would just like to add that while we're very excited about the acquisitions of the real estate we have in that market, we're really excited about having Jon join our team. He's only been with us over a year and has already made a tremendous difference in our presence in the LA market. And we are exceedingly grateful to have him.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Great. How would you say -- now that you've been there a while, how would you say BXP can differentiate itself in the market? What do you bring fresh to the market?

Ray Ritchey -- Senior Executive Vice President

Are you asking me or Jon?

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Whoever would like to answer.

Ray Ritchey -- Senior Executive Vice President

Okay . I would answer and Jon could comment that, I think, our outreach to the existing tenants in our portfolio, our outreach to community leaders, our ability to develop close relationships with brokers has distinguished us from the traditional development and landlord community in LA. And I think we're a little bit of a breath of fresh air to the LA market. Jon, would you care to comment on that?

Jon Lange -- Boston Properties -- Analyst

Yeah, I would reiterate all of those things. And, Jamie, and for you and a couple other folks that have recently been to Colorado Center, we're taking a very hands-on approach not just with our relationships with our customers and our tenants but with our physical improvements. So we just rolled out the new public plaza here at Colorado Center. We've got a new best-in-class food hall experience that's going to be opening here shortly. So I think we're putting in the strategic capital here that's a little more thoughtful and a little more strategic with what the tenants in today's world are demanding. So Colorado Center is a great example of that. And with rates helped and with our kind of cross-country collaboration and making sure that we are leveraging everyone's collective resources across our regions, Colorado Center quickly went to a 100% leased in about two years since acquisition. And that was before all of the capital was deployed here and you can actually feel and see the improvement. So I think that's a great success story and we're on the right path to do that and the Santa Monica Business Park as well and just take a little bit more of a hands-on approach compared to some of the other owner and operators here.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Okay, great, that's all very helpful.

Switching gears to Mike, can you, are you able to quantify some of the drags on earnings you mentioned rolling into 2020, like, assuming your share count stays the same, maybe like pennies per share or some other way to think about it?

Mike LaBelle -- Chief Financial Officer

Well, I think. Doug described some of the numbers. So I think Doug said, GM was 13 million and Reston was $17 million. So those are kind of the big moves. And we still believe we're going to be able to demonstrate growth in the same-store portfolio.

Every year we've got roll-outs, right, and we try to explain them to them what's renewing and what's rolling out. So a lot of the stuff is on the expiration table. We're in the process of renewing and we're working on those kinds of things. There are some where we know that tenants are going to leave. So these are the ones that are more sizable where we know they're going to leave to give you some sense for -- to help you, I guess, along the way. I can't tell you what our guidance is right now. It's, honestly, just too early. We still think it will be positive. We just think there's a couple of things in there that will hamper a stronger growth profile.

Doug Linde -- President

Yeah, I --

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Okay.

Doug Linde -- President

I just want to -- I'd like to give you sort of the following sort of framework, which is, if you think about our year-to-year projections, what we've described is, we are, it's not 100%, really close to a 100% occupied both Boston and in San Francisco. And there is very limited rollover in those marketplaces, and we're seeing very significant, as I described, mark-to-mark lease increases and therefore increases in either our FFO, if there is a modest amount of build out time and/or cash. Right.

We have -- our biggest exposures in 2020 which -- and the reason I brought it up is because we've been asked the questions every single time we've had a one-on-one meeting with anybody and we've done a number of NDRs (ph) over the last quarter, are the General Motors Building in the York City and the Reston Town Center market in Northern Virginia, that's the vast majority of our, quote-unquote, exposure, and I tried to articulate what that exposure was.

We believe that the power of San Francisco and the power of Boston are going to continue to overwhelm the other issues but that there is some degree of pull-down from that particular exposure because that property is currently leased today. And then we have a few other negatives in terms of the properties that we're taking out of service, including, as we described, the 325 Main Street which is pulling $4 million bucks out in 2020 and 2021. So we tried to sort of give you a good road map for how you might think about your modeling of our portfolio on the revenue side if we think about 2012 and 2021

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Okay, and those are revenue numbers, not NOI number?

Doug Linde -- President

Yeah, revenue numbers -- revenue.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

(Inaudible)?

Doug Linde -- President

Yeah.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Okay. All right. Thank you.

Operator

Your next question comes from the line of Jason Green with Evercore.

Jason Green -- Evercore -- Analyst

Good morning. Just a quick question on the Boston Market. The Boston Seaport is kind of the only major Boston sub-market you're not in currently. Is that a sub-market we can see you enter or does it not necessarily fit the profile that you guys look for in assets? We continue to look at it just like every other market as part of our core market and it's definitely part of the Boston core market. It's just a matter of finding the right opportunity. I would comment to echo what Doug has been talking about with tenant-inspired play on renewals, the Seaport is interesting. If you take one specific asset out that is caught (ph) on the edge of where things are happening, it's like a 2.3% vacancy which is incredibly low. And in that greater caught (ph) Boston Market, we're looking at everything, sub-markets in the 6% range.

So it's really interesting that each of these markets is firing on all cylinders right now. And a lot of it has to do with echoing what Doug and OT talked about was incredible discipline right now, at least for the time being, in terms of development coming on with significant pre-leasing. And that still bodes well as we look at the forecast for the next couple of years. As we look at the developable sites, all of them have significant pre-lease play on them.

Yeah. And then maybe just switching over to Reston. As the government continues to talk about housing reform and potentially some changes to Fannie Mae, is there any risk to the lease at Reston Town Center, and given the company moving into what might be viewed as relatively expensive space might not be perceived the right way?

Doug Linde -- President

You're talking about risk relative to the credit of the tenant, right?

Unidentified Speaker --

It was legal risk. There's no legal risk.

Doug Linde -- President

So we have a binding lease with the agency or the NGO or NGA. And our understanding of all the discussions that are going on in Washington DC has to do with the future of how mortgages are securitized, I believe that the bonds that have been issued by both Freddie and Fannie go well beyond the lease that we have at Reston, which is I think 12 years starting in 2022. So we are not concerned on a cash basis in terms of receiving our rent from the tenants. What happens to that organization and how that organization is ultimately changed relative to the way the private mortgage market works, I think that's anybody's guess and in 2035 it could be an issue.

Jason Green -- Evercore -- Analyst

Got it. Thank you.

Operator

And we have time for one final question and that question comes from Alexander Goldfarb with the Sandler O'Neill.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Oh, yes, hi. Thanks for taking my question. Mike, just quickly, going back to some of the items that you have mentioned for next year. You mentioned the $13 million coming out of the GM Building. The $10 million in size (ph) is that in addition to the $13 million. So an effective $23 million impact to 2020 from the GM Building coming out?

Mike LaBelle -- Chief Financial Officer

Yes, that's in addition to the $13 million, that's a non-cash trend.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Okay. And then the 540 Madison is in guidance or that's not in guidance or it closes so late in the year that it's really immaterial to this year?

Mike LaBelle -- Chief Financial Officer

The 540, Madison Avenue is not in guidance because we don't have any kind of agreement on it, it's just on the market at this point. So the only sale is the Tower center sale that we announced that is in the guidance.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Okay. And then just finally, just thinking about funding for your pipeline, you were clear that equity issuances is last in your list, but it seems like between free cash flow, the $200 million to $400 million of disposal (ph) that you guys think about and then JVing on sort of new projects, it seems like you guys have found a pretty good balance for funding developments going forward. So the big dispositions that would sort of dilute growth in the past, it seems like you guys have now gotten your funding model to a pretty good way where you don't sort of have that anymore. Is that a fair way to look at it?

Doug Linde -- President

I think that's true, Alex, our selling program that we have been going through the last five years, I mean, raising capital is a nice outcome, but the real reason is we're selling assets that are non-core to the company going forward. So we still will have some of those in future years. But I agree with what you're saying. I think that we have between our own resources and the resources of a growing list of capital partners, we are not capital constrained in terms of making new investments.

Mike LaBelle -- Chief Financial Officer

And the other thing that we focus on Alex is our leverage. So right now, our leverage is at 6.5 times. It's conservative. We don't want to be north of 7. If you look at the pipeline we have today and the pro forma, we're below 6. So there's a lot of room there for us to work, which is why we're comfortable using a good amount of debt for some of this. And then we bring in partners on some of the -- just lengthen that capability of that existing balance sheet to continue to work.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Okay. Thank you.

Doug Linde -- President

Sure.

Owen Thomas -- Chief Executive Officer

Operator, we all set? That's the end of the questions?

Operator

Yes. I will now turn the call back over to you guys for closing remark.

Doug Linde -- President

Okay, thank you very much for all of your interest in Boston Properties. That includes questions and our remarks. Thank you very much.

Operator

This concludes today's Boston Properties conference call. Thank you again for attending and have a good day.

Duration: 71 minutes

Call participants:

Sara Buda -- Investor Relations

Owen Thomas -- Chief Executive Officer

Doug Linde -- President

Mike LaBelle -- Chief Financial Officer

Nick Yulico -- UBS Securities -- Analyst

Manny Korchman -- CIPI -- Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Unidentified Speaker --

John Kim -- BMO Capital Markets -- Analyst

John Powers -- Executive Vice President, New York Region

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Ray Ritchey -- Senior Executive Vice President

Jon Lange -- Boston Properties -- Analyst

Jason Green -- Evercore -- Analyst

Alexander Goldfarb -- Sandler O'Neill -- Analyst

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