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Brandywine Realty Trust (BDN) Q2 2019 Earnings Call Transcript

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Brandywine Realty Trust (NYSE: BDN)
Q2 2019 Earnings Call
Jul 23, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Brandywine Realty Trust Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call will be recorded.

I would now like to introduce your host for today's conference, Jerry Sweeney, President and CEO. Please go ahead.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Chris, thank you. Good morning, everyone, and thank you all for participating in our second quarter 2019 earnings call. On today's call with me, as usual, are George Johnstone, our Executive Vice President of Operations; Dan Palazzo, our Vice President and Chief Accounting Officer; and Tom Wirth, our Executive Vice President and Chief Financial Officer.

Prior to beginning, certain information discussed during our call may constitute forward-looking statements within the meaning of the federal securities law. Although, we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release, as well as our most recent annual and quarterly reports that we file with the SEC.

We are in great shape, and after a brief review of our second quarter results and the 2019 business plan update, Tom will provide a synopsis of our financial results. And then after that, Tom, George, Dan and I will be available to answer any questions you may have.

The business plan is very straightforward. We continue to take advantage of strong market conditions to lease space at increasing net effect of rents by controlling capital costs, delivering positive mark-to-market rental spreads and meeting all of our business plan objectives. To respond to client and market demand and accelerate earnings growth, as we look forward to 2020 and '21, we do plan to place more land into active development. Sources of capital will include proceeds from appropriately timed asset sales and selective JVs on large development undertakings, like Schuylkill Yards. We anticipate being able to accomplish our development funding needs without earnings dilutive asset sales or exceeding our balance sheet targets.

And looking at 2019, we're 99% done on our $32 million spec revenue target ahead of last year's pace and our leasing pipeline on existing inventory is currently 1.8 million square feet, including almost 400,000 square feet in advanced stages of negotiations. You'll notice that we have increased our 2019 projected retention rate to 65%. We have also increased our GAAP mark-to-market range from 9% to 11% the previous range to a current range of 11% to 12%.

For the second quarter, we've posted positive rental rate mark-to-market of 12.1% on a GAAP basis and 8.5% cash with leasing capital remaining below our 14% target. We also posted second quarter same -- cash same store growth of 1.6%. You'll notice that year-to-date, our same store growth rate is 2.7%. We are going to maintain our original business plan range of 1% to 3%, primarily because we are keeping a large redevelopment property, that 1676 International Drive in our same store pool and that will become 30% occupied at the end of the third quarter. 1676 in and of itself negatively impacts our 2019 cash same store by approximately 120 basis points.

Now, looking at our same store outlook. Other than D.C., which now represents only 9% of our revenues and will have a negative 12% same store this year, our cash same store in other regions remains very strong. Austin, which now contributes 19% of our revenues, same store growth will range between 4% and 6%, fueled by 97% occupancy and a 12% cash mark-to-market. The Pennsylvania Suburbs, our same store growth will range between 3% and 5%, and in Philadelphia CBD in University City, that same store range will be between 1% and 3% this year. But based on our 97% lease percentage combined with the continued burn off of free rent, our 2020 Philadelphia same store will range between 5% and 7%, even with the known move out of Macquarie in the third quarter.

Based on our excellent progress to-date, you'll notice that we raised the bottom end of our FFO range to $1.40 and now we're at the top end to $1.44. And Tom will give you more detail on that in a few moments. In Radnor, our leasing percentage is down 96%, so we've had over 167,000 square feet of net absorption this year. We are projecting Radnor to be 96% occupied by the end of 2019 and on a leasing activity to achieve these levels realized a 5% cash and a 9% GAAP mark-to-market.

I guess -- and looking at our markets and as outlined briefly in the sup, we expect both the Greater Philadelphia and Austin markets to remain strong. Austin continues to benefit from corporate attraction and in-market expansions. And for the second quarter of 2019, asking rents increased 6.2% year-over-year with 1.1 million square feet of absorption in the first half of this year. Austin's 6.4% rental rate growth over the past 12 months surpasses the Bay Area, Charlotte, Atlanta and other highly favored tech markets, so the market has done very, very well in terms of driving effective rent growth. That's further evidenced by the Austin Business Cycle Index, which is based on employment and payroll indicators released by the Dallas Fed, that expanded by 7.4% in the second quarter above the long-term growth average of 6% over the last five years, which signals a continued ramp up in the Austin economy for the balance of '19 and certainly heading into 2020.

Philadelphia, with 2 million square feet of absorption over the last year, has lowered the trophy-class vacancy rate down to 5% from 5.3% at the end of 2018, placing Philadelphia among the lowest vacancy rates of the top 25 largest MSAs in the country. Philadelphia has also grown jobs at 2.1% over the last year and is experiencing strong demand for the second quarter of '19 with asking rents increasing 4.4% year-over-year. Philadelphia continues to benefit from its emerging life science sector, supported by close to $1 billion in NIH funding, which ranks third nationally behind only Boston and New York. With University City in Philadelphia receiving 42% of all NIH funds allocated to the entire state of Pennsylvania, we believe our Schuylkill Yards development is well positioned to take advantage of this funding and growth acceleration.

And looking at managing risk, we remain very focused on our forward rollover exposure. The redevelopment of 1676 International Drive in Tysons is both on time and on budget. Construction will be substantially completed by the end of September, which is when KPMG is targeted to move out. Our current pipeline exceeds 600,000 square feet and we're pleased to report that we're finalizing an LOI and moving to lease negotiations with a prospect for approximately 110,000 square feet in the lower back of the building that's targeting mid 2020 occupancy. Rent levels are in our targeted mid 40s range, representing about a 15% increase over expiring rents. This project will generate in excess of 20% plus return on incremental capital and we are still projecting a stabilization at 9% yield on fully loaded basis.

Excellent progress on both design and pre-leasing funds is also being made on our development pipeline. Our pipeline on development and redevelopment projects stands at 3.7 million square feet. And looking at some properties specifically, 405 continues on schedule and on budget. Since commencing construction, the leasing pipeline now stands at just shy of 300,000 square feet. We -- with this project will cost approximately $114 million, generating 8.5% yield on cost and we're scheduling to bring it on line by the end of 2020.

The Bulletin Building renovation work has commenced and will be completed the first half of next year. As you know, the entire office component is leased to Spark Therapeutics and will remain in the 9.3% free and clear yield on cost upon full stabilization. We did provide a brief update in itself on Schuylkill Yards and Broadmoor, but to amplify a couple of points, we officially opened our public park on June 10th. Also during June, we received final approval for the remaining portions of Schuylkill Yards, which will enable us now to proceed on the entire 5.1 million square feet of a mixed use development. So that was a great accomplishment, we're very pleased with that.

Current design efforts, as we've outlined in this sup, really focus on our West Tower, which consists of retail parking, about 200,000 square feet of office and 326 apartment units, which is being done in conjunction with our residential partner, Gotham. Work on a primarily office-based East Tower is also progressing. And notably, planning is under way on a 300,000 to 400,000 dedicated life science tower that we're doing in conjunction with our life science partner, Longfellow. Our leasing pipeline is extremely healthy, including almost 500,000 square feet of life science uses. Given our read of the residential market and partnership with Gotham, we could be in a position to go on the West Tower by year-end 2019.

Equity sourcing discussions also remain on track and we're currently evaluating several financing proposals. When we look at our financing strategy, we currently have over $80 million currently invested in Schuylkill Yards, which we believe should meet our equity requirement for our targeted 35% hold level in a development joint venture. As we've mentioned before, Schuylkill Yards is also in a state and federal Qualified Opportunity Zone. Looking at Broadmoor briefly, planning efforts and marketing is under way for 300,000 square foot office project, which will include retail and two residential sites, where planning is also well under way. We plan again, subject to real estate and capital market conditions, to be in a position to start at least one project at Broadmoor in the first half of 2020.

As you'll note on our Business Plan page, we still do not have any sales or acquisitions built into the remaining 2019 plan. We are, however, exploring some asset sales to both harvest profit, generate liquidity for other uses and to accelerate our cash flow growth trajectory. We're also evaluating several value add opportunities, as well as keeping an eye on our current share price. As we did last year, we would not expect -- we would expect that any deployment to be relatively earnings-neutral and accelerate our bottom line cash flow growth.

So to close, the '19 business plan is essentially wrapped up. We are focused very much on our 2020 business plan, which we'll share on our third quarter '19 call.

And with that, I'll turn over to Tom, who will provide an overview of our financial results.

Thomas E. Wirth -- Executive Vice President and Chief Financial Officer

Thank you, Jerry. Our second quarter net income totaled $6.2 million or $0.04 per diluted share and FFO totaled $62.2 million or $0.35 per diluted share, which met consensus estimates. In addition, we did narrow the guidance range by $0.02 per share and our midpoint remained unchanged at $1.42 per share as compared to initial and first quarter guidance.

Some general observations about the second quarter results. As outlined in our first quarter call, our second quarter estimates included $1.5 million of land gains and we estimate several second half sales will result in the full year land gains of about $3.2 million. Our second quarter fixed charge and interest coverage ratios were 3.5 and 3.8, respectively. Both metrics improved as compared to second quarter 2018. We increased several full year operating metrics in our 2019 business plan based on strong first half results. While our net debt to EBITDA did increase to 6.6 times, we do anticipate the metric coming down during the second half of the year. G&A expense was $16.4 million and higher than our projected $8 million, primarily due to the timing of expenditures. We still anticipate 2019 G&A to approximate $31 million.

Looking forward to the third quarter 2019, we have some of the following general assumptions. Portfolio operating income we expect to total about $84 million and will be incrementally about a $1.5 million higher than the second quarter. FFO contribution from our unconsolidated joint ventures will total $3 million and is $0.5 million below the second quarter, primarily due to projected lower NOI from our MAP joint venture. Our G&A expense for the third quarter will decrease from $8.4 million in the second quarter to $7 million. The incremental decrease is due to expected timing of expenses and lower stock compensation expense recognized during the second quarter and this is consistent with prior years.

Interest expense will total about $20 million with 91% of our debt being fixed. Capitalized interest will approximate $700,000 and full year interest expense will approximate $82 million to $83 million. Termination fee and other income, we anticipate the termination fees to be about $2 million for the year and other income will approximate $6.5 million. Net management leasing and development fees for the quarter will be about $2.5 million and approximate $10.5 million for the year.

We have no financing activity planned for the third quarter and most likely not for the fourth quarter, unless we start one of our joint venture or development plans. Based on our capital plan, we currently have $75 million in development to spend for the balance of the year. We also have $30 million of revenue maintained. Capital, $20 million of revenue create capital. And we've also included approximately $19 million for the acquisition of the Radnor land associated with our development with UPenn. And also including our $30 million of cash on hand, we expect our line balance to be approximately $215 million at year end.

And based on future increases to EBITDA and several potential earnings divestitures, we continue to project that our net debt EBITDA ratio will be in the higher end of our 6.0 to 6.3 range, with the main variable being timing and scope of our development activities and related capital spend. In addition, we anticipate our net -- our debt to GAV to remain in the low 40s and we anticipate our fixed charge to be around 3.6 and interest coverage to be 3.9 by the end of the year.

I'll now turn it back over to Jerry.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Great, Tom. Thank you very much. With that, we're delighted to open the floor for questions. As we always do, we ask that in interest of time, you limit yourself to one question and a follow-up. Chris?

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Manny Korchman with Citi. Your line is now open.

Manny Korchman -- Citi -- Analyst

Hey. Good morning, everyone.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Good morning, Manny.

Manny Korchman -- Citi -- Analyst

Just thinking about the conversation on equity that you had. Can you just remind us, given that this sort of positive trends in both Austin and Philly, how you think about selling off JVs in the stabilized existing portfolio rolling then into the higher yield new development projects rather than giving away sort of the higher yields you're able to get on with developments?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Sure, Manny. Tom and I will tag team that. I mean, look, we have a number of assets in the market for sale now. Not really any large assets, but deals ranging in the $20 million to $40 million range, where we think that that will be able to provide some additional liquidity to the Company as we move forward over the next couple years. And then certainly as we're looking at our -- at developing our 2020 plan, we're very much focused on looking at what assets we could sell or joint venture existing assets and the timing of those to meet our development spend targets as we're looking out over the next couple years. The -- certainly from the Company's perspective, we recognize that creating new assets at 8% to 9% yield threshold, where -- when those -- once those new assets come online, their net operating income equals cash flow for a period of time because of the upfront capital investment in tenanting the -- bringing the original tenants in the building. We're certainly very conscious of doing everything we can to make sure that we look at all other potential sources of capital, whether it's a sale or a JV, to ensure that we retain significant ownership, if not complete ownership, of the vast majority of our development projects. The one exception we have talked about is Schuylkill Yards, where those projects are long tenured and very large in scale. And as I mentioned in my comments, we are currently evaluating several joint venture financing proposals. And what I can share with you is that those proposals all incorporate significant developer promote structures that will enable us to maintain a significant economic stake. Obviously, subject to performance in those ventures that when we take a look at that -- the size of those developments through the lens of current capital market conditions, primarily our stock price, we're very cognizant of where we can generate the highest return on each capital dollar we deploy.

I don't know if that answers your question on point or not.

Manny Korchman -- Citi -- Analyst

Yeah. Thanks. And earlier in your remarks, you'd commented on your 2020 projection for Philly CBD. You said you'd give us the rest at the next earnings call, but any other markets that we should think about being either outsized, positive or negative growers next year?

George D. Johnstone -- Executive Vice President-Operations

Yeah. Manny, good morning. This is George. I mean, I think the two -- Jerry gave some information on Philadelphia. We're seeing the same -- similar dynamic in Austin. Remember the assets there that we bought out of the DRA venture become same store assets in 2020 and we'll provide additional width to that metric next year.

Manny Korchman -- Citi -- Analyst

Thanks, guys.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thank you.

Operator

Thank you. And our next question comes from the line of James Feldman with Bank of America Merrill Lynch. Your line is now open.

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

Great. Thank you. I was hoping you could talk more about just the leasing pipeline and tenant interest for both Broadmoor and Schuylkill Yards.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Sure, Jamie. Happy to. Pipeline for both projects, as I mentioned, is very healthy. For Schuylkill Yards, it ranges from tenancies in the 25,000 square foot range up to over 300,000. It's a very good mix of both in and out of market companies. I also mentioned that we're seeing a fairly significant upswing in the demand for life science tenants, so seen that pipeline continue to grow and we think that there is some additional activity coming online in the next couple quarters. Down at Broadmoor, where we have commenced marketing efforts on the projected first start of the office building of about 300,000 square feet, the pipeline there is -- consists of a couple of existing in-market tenants with large expansion requirements. Couple of those requirements are looking at the Broadmoor development from other submarkets in Austin. So we remain very encouraged, even though it's early in terms of the depth of demand there. We do think that the -- a differentiating factor for us at Broadmoor is obviously drafting off the amenity base that's in place at the domain, but also that the prospect of expanding the rail line certainly seems to be resonating across a broader pool of target audience members in Austin. I mean, some of the recent statistics came out of Austin did reinforce Austin as one of the most congested cities in the country in terms of traffic. So certainly as we look down the road, the optionality of providing mass transit access to that section of the market we think will start to get broader appeal as our marketing efforts continue to accelerate.

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

Okay. Thank you. And then how do you think about what percent you want pre-leased before you would start either one of those projects?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Well, I think in terms of the office building at Broadmoor, we've been targeting kind of between 35% and 50% pre-lease. But again, depending upon where demand goes in the Schuylkill Yards development, we're targeting, again, in that 35% to 50% range for the East Tower, which is primarily office.

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

Okay. And then can you give an update on the Commerce Square spaces and just how leasing progress is going there?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Okay. George...

George D. Johnstone -- Executive Vice President-Operations

Yeah. Jamie this is George again. Several inquiries, probably two dozen tenants have inquired about it. We've had probably 15 tours through the space. We've issued a couple of proposals ranging from 15,000 square feet, which is a full floor on that upper bank. Remember, it's six storeys in the upper bank, each floor being 15,000 square feet. Largest proposal we've issued thus far was about 45,000 square feet. Still early stages. Macquarie gives the space back next July. I think when we kind of look at where we are on 1676 and the fact that we're now close to LOI about three months before the move out, we kind of see a similar pattern when we look back at how that pipeline started down in Tysons, we're seeing similar production timelines up here in Philadelphia. The Reliance space, that's 12/31 of '21 and that obviously is just a little bit further out and we're not seeing as much activity on that space just yet.

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

Okay, great. That's helpful. Thank you.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thanks, Jamie.

Operator

Thank you. And our next question comes from the line of Craig Mailman with KeyBanc Capital Markets. Your line is now open.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Hey. Good morning, guys.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Good morning, Craig.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Just want to circle back. You guys are going to have north of $200 million out on the line by the end of the year. You guys in past years were pretty good about keeping that kind of fully available. And I know given where the equity price is, it's a little bit harder these days. But with that in mind, can you just give some sense of maybe expected timing on some JVs to kind of alleviate that and give yourselves a little liquidity and I know you guys want to balance kind of leverage and dilution?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah. We very much want to and I think we'll be successful in accomplishing both of those goals. I guess, Craig, short-term, as I mentioned, we have a couple of smaller assets that we view as slow growth and large capital consumers in the marketplace now. And I think we're getting some pretty good response on that city. The hope would be that we would be able to execute on some of those over the next couple quarters. We do have several joint venture discussions under way on assets primarily based in the Philadelphia region, which, again, we'll see how that all works its way through over the next several months. But as we're looking -- more importantly I think is we're looking forward to '20 and '21 and we're taking a look at the bulk of our development pipeline, which -- we should all recall most of those projects, Schuylkill Yards excluded, are in the $40 million to $75 million range in terms of total capital cost. Those projects will come online over seven to nine quarters. So their impact per quarter will be fairly small, given the balance sheet our size. So our investment team and the development folks are working very closely together to sync up the source and use of both development spend and asset sales and JVs to ensure that the timing of those asset sales dovetail with the expenditure of funds, so we do, as Tom alluded to earlier, keep our debt to EBITDA within our targeted range.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

That's helpful. I guess I was just trying to get out, we're taking about joint ventures for a couple of quarters. I mean, is this like a late '20 for a significant one to be signed or could it be earlier than that?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah. It could be earlier. I want -- again, we haven't ruled out '20 guidance and we're still looking forward to a couple of things happening in 2019, but I think the governing principles which you touched on are maintaining earnings momentum for us and managing our balance sheet leverage. So as we're getting visibility on the timing of some of these developments starts, I think that will drive the pace at which we'll be able to recoup liquidity from either outright sales or joint ventures.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Got you. And then just one quick one for Tom. Can you reconcile -- so you guys are kind of ahead on cash same store and I know that you're going to get the drag in the back half of the year, but you're kind of behind on GAAP. How do those two things kind of reconcile if they're going different ways? And how do you pick up the two, I mean, once on GAAP, I guess, with the drag in the back half of the year?

Thomas E. Wirth -- Executive Vice President and Chief Financial Officer

Yeah. I mean, I think -- well, the GAAP is going to be -- so I guess a couple things. I think on the GAAP side, Craig, one of the things that's happening is in the cash side is we have had some -- we expect that there's bunch of free rent burning off. So we do see cash rents going up, A, by their steps, but B, there's some roll -- some leases are having like free rent burn off. Obviously on the GAAP side, we've already factored those into our GAAP numbers. So we're just -- unless we pick up more on the leasing side and we don't see that, we see more leasing, but not affecting the back half of the year significantly enough to affect same store. So I think it's really the cash rents are moving up and the GAAPs have already been put in place. And any leasing we do going forward, the GAAP rent is going to have minimal impact this year.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Right. But I guess you need to pick up 200 basis points on GAAP. I guess one question is, is the full year kind of pool the same as kind of what you're reporting on the negative 1% for the year-to-date or are they kind of apples and oranges in terms of how we should look at the progress?

Thomas E. Wirth -- Executive Vice President and Chief Financial Officer

No, the same pool. We may update the quarterly pool. When we give that range, that is on a year-to-date basis. So as we see our lease -- as we see the occupancy going up for the balance of the year, that will certainly help the GAAP same store catch up. But the delta is pretty much due to the rents not being -- we're having the GAAP rent already hit as flat as opposed to the rent steps and the free rent burning off on the cash side, but that same store it will increase for the back half of the year as occupancy comes in.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. Great. Thank you.

Operator

Thank you.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thanks, Craig.

Operator

Thank you. And our next question comes from the line of John Guinee with Stifel. Your line is now open.

John Guinee -- Stifel -- Analyst

Great. Thank you. Nice job guys. Hey, building a little on your land inventory, Jerry, I'm looking at page 16, I'm looking at your balance sheet. I think your balance sheet shows $89 million of land. Your land inventory shows a value of about $129 million. But I think you mentioned that you've already spent $80 million on Schuylkill Yards. Is that the right way to look at it, of the $129 million of value, $80 million in Schuylkill Yards?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Hey, John. The land -- we have prepaid ground leases, which is the vast majority of the delta because as you know we -- when we took down the parcels for the East and West Tower, we prepaid those ground leases for the full 99 year term. So hopefully that reconciles you pretty closer, we can provide additional detail offline.

John Guinee -- Stifel -- Analyst

Okay. And then just talking a little bit about the East and West Tower and maybe Broadmoor also, what would be your all-in development cost per square foot and what kind of gross and net rents do you need to achieve to hit your pro formas and attract JV equity capital?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah. I mean, I think we're -- the broad numbers, we haven't published the budgets yet, I want to make sure that I caveat that with the numbers to move on. But the range per square foot will be between $600 and $650 all-in. And we're targeting rents on a triple net basis in the high 40s to mid 50s, depending upon the stack in the building.

John Guinee -- Stifel -- Analyst

That's Schuylkill Yards?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah, that's correct.

John Guinee -- Stifel -- Analyst

And with Broadmoor, the same sort of numbers or a little bit less?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Well, Broadmoor is little less. Broadmoor is -- when we factor in all the structure parking, the overbuild, etc, we're in that $450 to $500 a square foot and the rents we're targeting there are in the low 30s triple net.

John Guinee -- Stifel -- Analyst

Thank you. Great.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

You're very welcome.

Operator

Thank you. And our next question comes from the line of Steve Sakwa with Evercore ISI. Your line is now open.

Steve Sakwa -- Evercore ISI -- Analyst

Thanks. Good morning. Jerry [Speech Overlap] heard an update on just kind of the IBM situation down at Broadmoor. I know you had sort of been talking about kind of a larger consolidation and that kind of might affect sort of some of the developments you do down there. So any update there and any more comments you could provide on the residential parcel on that site?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

I'm sorry Steve, you cut out for the first part of your question.

Steve Sakwa -- Evercore ISI -- Analyst

Sorry. Can you hear me?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

I can hear you now. Yes. I'm sorry.

Steve Sakwa -- Evercore ISI -- Analyst

Okay. Sorry. I -- the question was around IBM. I know you had talked to them about potential consolidation into a new building and that might sort of change kind of the way the project ultimately laid out. I was just wondering if there was any update on IBM. And then secondly, kind of any more update on the timing of the residential parcel at Broadmoor?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Great. I'm sorry. I got -- I have you now. The -- we continue to work with IBM in a very constructive and positive way. There -- they continue to evaluate their long-term options. As you know from previous conversations, one option is consolidating into a new building. Another option is kind of renewing in their existing in-place inventory in the buildings they're in or third a combination of the two. There is no true final visibility yet other than that the conversations are accelerating and that I think everyone is encouraged with their commitment to the Broadmoor development. But as of right now, no definitive news to report. On the residential side, we are planning two different sites. One is, as we call, Block A, which would be 300,000 -- the site -- Block A would be 300,000 square feet of office along with several hundred apartment units. That planning is moving forward. Then one other separate block, which would be about 300 apartment units. We have selected a residential development partner. We have not yet resolved the financial terms of that in terms of whether they'll be simply a fee developer or an equity partner. We're battling that in the context of the entire land -- capital landscape of Brandywine. We are projecting the office start and at least one residential start in the first half of 2020.

Steve Sakwa -- Evercore ISI -- Analyst

Okay. And then just kind of a follow-up just on 405 Colorado, just sort of the incremental demand that you're seeing. I know you're about 35% leased today. Sort of what are your expectations in terms of the future lease up of that asset? And how do you expect that to sort of unfold relative to the completion date?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah. Well, we have a very good pipeline of deals, well over 0.25 million square feet, so we're -- we've got good coverage on the remaining square footage. We have very active advance discussions with several tenants. So we would certainly expect that project to be substantially fully leased by the time we open up the doors at the end of next year, given the demand that we're seeing now and our ability to continue to move rents upward from the anchor tenant lease.

Steve Sakwa -- Evercore ISI -- Analyst

Okay. Thanks very much.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thank you, Steve.

Operator

Thank you. And our next question comes from the line of Daniel Ismail with Green Street Advisors. Your line is now open.

Daniel Ismail -- Green Street Advisors -- Analyst

Great. Thanks, guys, and good morning. There's a few potential -- few reports of a couple of potential new office developments in the Philadelphia CBD. Are any of these competitive with Schuylkill Yards from a tenant demand standpoint?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah. I think in our market, we recognize that anything that would start would be competitive with anything we want to try and do as well. So certainly, there is rumors of a couple of projects starting within closing suburbs or within CBD Philadelphia. There have been a couple of life science towers that have been put forth by both public and private competitors. So we should -- we always anticipate that the landscape will be very competitive and that's why we work so hard on making sure that we present the right design, efficiency and location on economic package to the tenant marketplace.

Daniel Ismail -- Green Street Advisors -- Analyst

And -- appreciate the updated guidance on same store growth expectations in the markets. But can you give an update on where portfolio rents sit relative to market?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

I'm sorry, Danny, I didn't catch the tail end of that.

Daniel Ismail -- Green Street Advisors -- Analyst

Just an update on where current in-place portfolio rents sit relative to market rents?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Almost entirely across the board with the exception of a few suburban Pennsylvania markets, we are -- in-place rents are below market and we're also below in Northern Virginia, but our Austin portfolio is on average probably 15 percentage points below market, CBD Philly about 6%. And then in our Crescent markets, about 4.7%.

Daniel Ismail -- Green Street Advisors -- Analyst

Great. Thanks, guys.

Operator

Thank you. And we do have a follow-up question from the line of John Guinee with Stifel. Your line is now open.

John Guinee -- Stifel -- Analyst

Great. Thank you. Hey, Jerry, we had talked earlier about these persistent big move outs, which in the office building business you just can't ignore. And I think KPMG, you're going to redevelop International Drive. What other move outs do you have coming that are going to result in just selling the asset? And is there anything else that we should be aware of on your top 20 list besides KPMG and Macquarie?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

I think the near-term one, John, is we are losing a tenant out of another building in Tysons. That's our Plaza 1900 building and we do have that on the market for sale now. And we would expect to be able to get some good bids and pricing on that in the next month or so at the closing by the end of this year. We have a couple of smaller buildings out of the Pennsylvania Suburbs as well that we have not necessarily immediate rollover risk, but rollover over the next couple years, where -- I mean, frankly, as we're evaluating where the best places are to deploy capital, we're coming to the conclusion that the best thing to do with those assets is to sell those versus taking the time to retenant. Conversely, we have a property in the King of Prussia markets called 650 Park, which is a 1970s vintage building, split core, narrow footprint, bad window lines, all those things that you know and love so well that we've decided to demo that building. We've received approvals from the local township to build a brand new 100,000 square foot building. That will be state-of-the-art, very efficient floor plates, we'll be incorporating outdoor space into the building as well with a good amenity base and that building -- so that is an example of where we sat there and said instead of just selling that building, it sits on a great piece of ground that we could redensify, incur the cost to demo the building and then move forward with the design, development and the approval process sort of again introduce a new project to the market. And finally, given the success we had at 933 First Avenue, which we completed last years -- I'm sorry, two years ago, another 100,000 square foot building that we constructed that was fully leased to a tenant, a high yield and then our 500 North Golf Road redevelopment we completed last year, where we leased that whole building to CSL Behring. We decided to move forward with 650 Park. So we take -- any time we have a big rollover, we take a real hard quantitative and qualitative look at, can we generate value here and is the value we can generate worth the amount of time that we put into it and how does that return fare based on what alternative deployment of capital is. We're fortunate where we have a really strong forward development pipeline with a lot of good potential activity that certainly we're very biased toward moving dollars from lower cash flow producing assets into higher yielding new construction, lower capital going forward cost projects, like our development pipeline.

John Guinee -- Stifel -- Analyst

Great. Thank you.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thank you, John.

Operator

Thank you. And that does conclude today's question-and-answer session.

I would now like to turn the call back to Jerry Sweeney, President and CEO, for any further remarks.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Great. Thank you, everyone, for joining us for the call and we look forward to updating you on third quarter results later this year, along with introducing our guidance for 2020. Everyone, enjoy the rest of the summer, enjoy time with your families. Thank you.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thomas E. Wirth -- Executive Vice President and Chief Financial Officer

George D. Johnstone -- Executive Vice President-Operations

Manny Korchman -- Citi -- Analyst

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

Craig Mailman -- KeyBanc Capital Markets -- Analyst

John Guinee -- Stifel -- Analyst

Steve Sakwa -- Evercore ISI -- Analyst

Daniel Ismail -- Green Street Advisors -- Analyst

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