Earnings Call: Q2 2019

Jul 23, 2019

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. 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. Chris, thank you. Good morning, everyone, and thank you all for participating in our Q2 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 filed with the SEC. We are in great shape. And after a brief review of our second quarter results and a 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 effective 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 'twenty one, 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 larger 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. In looking at 2019, we are 99% done on our $32,000,000 spec revenue target, ahead of last year's pace, and our leasing pipeline on existing inventory is currently 1,800,000 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 Q2, we 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 2nd quarter 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. $16.76 in and of itself negatively impacts our 2019 cash same store by approximately 120 basis points. And 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% 6%, fueled by 97% occupancy and a 12% cash mark to market. The Pennsylvania suburbs, our same store growth will range between 3% 5%. And in Philadelphia CBD and University City, that same store range will be between 1% 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% 7%, even with the known move out of Macquarie in the Q3. Based on our excellent progress to date, you'll notice that we raised the bottom end of our FFO range to 140 and narrowed the top end to 144, 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 our leasing activity to achieve these levels, we realized a 5% cash and a 9% GAAP mark to market. I guess in looking at our markets and as outlined briefly in the sub, 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 Q2 of 2019, asking rents increased 6.2% year over year with 1,100,000 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 is doing 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 2nd quarter, above the long term growth average of 6% over the last 5 years, which signals a continued ramp up in the Austin economy for the balance of 'nineteen and certainly heading to 2020. Philadelphia, with 2,000,000 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 Q2 of 'nineteen with asking rents increasing 4.4% year over year. Philadelphia continues to benefit from its emerging life science sector, supported by close to $1,000,000,000 in NIH funding, which ranks 3rd nationally behind only Boston and New York, with University City 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. In 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 bank of the building that's targeting mid-twenty 20 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 a 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 fronts is also being made on our development pipeline. Our pipeline on development and redevelopment projects stands at 3,700,000 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. This project will cost approximately $114,000,000 generated 8.5% yield on cost, and we're scheduling to bring it online by the end of 2020. The Boulton 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 we remain in the 9.3% BrainClear yield on cost upon full stabilization. We did provide a brief update in the on Schuylkill Yards and Broadmoor, but to amplify a couple of points. We officially opened our public park on June 10. Also during June, we received final approval for the remaining portions of Schuylkill Yards, which will enable us now to proceed on the entire 5,100,000 square feet of a mixed use development. So it was a great accomplishment. We're very pleased with that. Current design efforts, as we've outlined in this up, 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, Gautam. Work on the primarily office based East Tower is also progressing. And notably, planning is underway 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 $80,000,000 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 mentioned before, Schuylkill Yards is also an estate and federal qualified opportunity zone. Looking at Broad more briefly, planning efforts and marketing is underway for a 300,000 square foot office project, which will include retail and 2 residential sites, where planning is also well underway. 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 twenty twenty. 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 expected any deployment to be relatively earnings neutral and accelerate our bottom line cash flow growth. So to close, the 2019 business plan is essentially wrapped up. We are focused very much on our 2020 business plan, which we'll share in our Q3 'nineteen call. And with that, I'll turn it over to Tom, who will provide an overview of our financial results. Thank you, Jerry. Our 2nd quarter net income totaled $6,200,000 or $0.04 per diluted share and FFO totaled $62,200,000 or $0.35 per diluted share, which meant 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 2nd quarter results. As outlined in our Q1 call, our 2nd quarter estimates included $1,500,000 of land gains, and we estimate several second half sales will result in full year land gains of about $3,200,000 Our 2nd quarter fixed charge and interest coverage ratios were 3 0.5 and 3.8 respectively, both metrics improved as compared to Q2 of 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 point six times, we do anticipate the metric coming down during the second half of the year. G and A expense was $8,400,000 and higher than our projected $8,000,000 primarily during the timing of expenditures. We still anticipate 2019 G and A to approximate $31,000,000 Looking forward to the Q3 of 2019, we have some of the following general assumptions. Portfolio operating income, we expect to total about $84,000,000 and will be incrementally about 1,000,000 and $5 higher than the Q2. FFO contribution from our unconsolidated joint ventures will total 3,000,000 dollars and is $500,000 below the 2nd quarter, primarily due to projected lower NII from our MAP joint venture. Our G and A expense for the Q3 will decrease from $8,400,000 in the 2nd quarter to $7,000,000 The incremental decrease is due to expected timing of expenses and lower stock compensation expense recognized during the Q2 and this is consistent with prior years. Interest expense will total about $20,000,000 with 91% of our debt being fixed. Capitalized interest will approximate 700,000 and full year interest expense will approximate $82,000,000 to $83,000,000 Termination fee and other income, we anticipate the termination fees to be about $2,000,000 for the year and other income will approximate 6,500,000 Net management leasing and development fees for the quarter will be about $2,500,000 and approximate $10,500,000 for the year. We had no financing activity planned for the Q3 and most likely not for the Q4 unless we start one of our joint venture or development plans. Based on our capital plan, we currently have $75,000,000 in development to spend for the balance of the year. We also have $30,000,000 of revenue maintained capital $20,000,000 of revenue create capital. And we've also included approximately $19,000,000 for the acquisition of the Radnor land associated with our development with UPenn. And also including our $30,000,000 of cash on hand, we expect our line balance be approximately $215,000,000 at year end. Based on future increases to EBITDA and several potential earnings divestitures, we continue to project that our net debt to EBITDA ratio will be at the higher end of our 6.0 to 6.3 range with the $1,000,000 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 on and interest coverage to be 3.9 by the end of the year. I'll now turn it back over to Jerry. Great, Tom. Thank you very much. With that, we're delighted to open the floor for questions. As we always do, we ask in the interest of time, you limit yourself to one question and a follow-up. Chris? Thank you. And our first question comes from the line of Manny Korchman with Citi. Your line is now open. Hey, good morning, everyone. Good morning, Manny. Just thinking about the conversation on equity that you had, can you just remind us given the sort of positive trends in both Austin and Philly, how you think about selling off JVs in the stabilized existing portfolio, rolling them into the higher yield new development projects rather than giving away sort of the higher yields that you're able to get on those developments? Sure, Manny. Tom and I'll tag team that. I mean, look, we have a number of assets in the market for sale now, not really any large assets, but the deals ranging in the $20,000,000 to $40,000,000 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 of years. And then certainly, as we're looking at developing our 20 20 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 at over the next couple of years. Certainly, from the company's perspective, we recognize that creating new assets at an 8% to 9% yield threshold where once those new assets come online, their net operating income equals cash flow for a period of time because of the upfront capital investment and tenanting the bringing the original tenants in the building. We're certainly very cognizant 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 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. Yes, thanks. And earlier in your remarks you had commented on your 2020 projection for Philly CBD. I know 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? Yes, Manny. Good morning. This is George. I mean, I think the 2 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 will provide additional lift to that metric next year. Thanks, guys. Thank you. Thank you. And our next question comes from the line of James Feldman with Bank of America Merrill Lynch. Your line is now open. Great. Thank you. I was hoping you could talk more about just the leasing pipeline and tenant interest for both Broadmoor and Schuylkill Yards. 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 we've seen that pipeline continue to grow and we think that there's some additional activity coming online in the next couple of quarters. Down at Broadmoor where we have commenced marketing efforts on the projected first start of the office building about 300,000 square feet. The pipeline there is it 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 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 that Austin is 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. 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? Well, look, I think in terms of the office building at Broadmoor, we've been targeting kind of between 35% 50% pre leased. 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. Okay. And then can you give an update on the Commerce Square spaces and just how leasing progress is going there? Hey, George. Jamie, this is George again. Several inquiries, probably 2 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 6 stories 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 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 3 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 twelvethirty one of 2021 and that obviously is just a little bit further out and we're not seeing as much activity on that space just yet. Okay, great. That's helpful. Thank you. Thanks, Jamie. Thank you. And our next question comes from the line of Craig Mailman with KeyBanc Capital Markets. Your Just want to circle back. You guys are going to have north of $200,000,000 out on the line by the end of the year. You guys in past years have been 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, could you just give some sense of maybe expected timing on some JVs to kind of alleviate that and give yourselves a little liquidity? I know you guys want to balance kind of leverage and dilution? Yes. 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 of quarters. We do have several joint venture discussions underway 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 as we're looking forward to 2020 2021, 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 $40,000,000 to $75,000,000 range in terms of total capital costs. Those projects will come online over 7 to 9 quarters. So their impact per quarter will be fairly small given a balance sheet hour 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. That's helpful. I guess I was just trying to get at, we've been talking about joint ventures for a couple of quarters. I mean, is this like a late 'twenty for a significant one to be signed or could it be earlier than that? No, it could be earlier. Again, we haven't rolled out 'twenty 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 development starts, I think that will drive the pace at which we'll be able to recoup liquidity from either outright sales or joint ventures. 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 as they're going to different ways? And how do you pick up the timing? What's on GAAP, I guess, with the drag in the back half of the year? Yes. I mean, I think, well, the GAAP is going to be so I guess a couple of things. I think on the GAAP side, Craig, one of the things that's happening is in the cash side is that we have had some we expect that there's bunch of free rent earning off. So we do see cash rents going up, A, by their steps, but b, there's some roll some leases that are having the 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 gaps have already been put in place. And any leasing we do going forward, the GAAP rent is going to have minimal impact this year. Great. 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? No. They're 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. It's flat as opposed to the rent steps and the free rent burning off the cash side. But no, on the same story, it will increase for the back half of the year as occupancy comes in. Okay, great. Thank you. Thank you. Thanks, Richard. Thank you. And our next question comes from the line of John Guinee with Stifel. Your line is now open. 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 $89,000,000 of land. Your land inventory shows a value of about $129,000,000 But I think you mentioned that you've already spent $80,000,000 on Schuylkill Yards. Is that the right way to look at it of $129,000,000 of value, dollars 80,000,000 is Schuylkill Yards? Hey, John, the land we have prepaid ground leases, which is the vast majority of the delta. Because as you know, 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 close so we can provide additional detail offline. 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? Yes, I mean, I think we're for broad numbers and we haven't published the budgets yet. So I want to make sure that I caveat that with the numbers to the bottom. But the range per square foot will be between $6 $6.50 all in. And we're targeting rents on a triple net basis in the high 40s to mid-50s depending upon the stack and the building. That's Schuylkill Yards? That's correct. And is Broadmoor the same sort of numbers or a little bit less? No, no. Broadmoor is a little bit less. Broadmoor is when we factor in all the structured parking, the overbuild, etcetera, we're in that $4.50 to $500 square foot. And the rents we're targeting there are in the low 30s triple net. Thank you. Great. You're very welcome. Thank you. And our next question comes from the line of Steve Sakwa with Evercore ISI. Your line is now open. Thanks. Good morning. Jerry, I just want to know if I 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? Yes, I'm sorry, Steve. You cut out for the first part of your question. Sorry, can you hear me? I can hear you now, yes. I'm sorry. Okay. Sorry, the question was around IBM. I know you had talked to them about a 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? Great. I'm sorry, Nat. I have you now. We continue to work with IBM in a very constructive and positive way. They continue to evaluate their long term options. As you know from previous conversations, one option is consolidating into renewing in their existing in place inventory in the buildings they're in. Or a third of combination of the 2. There's 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 2 different sites. 1 is, as we call, Block A, which would be the site Block A would be 300,000 square feet of office along with several 100 apartment units. That planning is moving forward than 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 it will be simply a fee developer or an equity partner. We're evaluating that in the context of the entire capital landscape of Brandywine. We are projecting the office start and at least one residential start in the first half of twenty twenty. 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? Yes. Well, we have a very good pipeline of deals, well over a quarter 1000000 square feet. So we've got good coverage on the remaining square footage. We have very active advanced 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. Okay. Thanks very much. Thank you, Steve. Thank you. And our next question comes from the line of Daniel Ismail with Green Street Advisors. Your line is now open. 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? Yes. 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's rumors of a couple of projects starting within the close in 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 always anticipate that the landscape will be very competitive and that's why we work so hard to make sure that we present the right design efficiency and location on economic package to the tenant marketplace. And appreciate the updated guidance on same store growth expectations for the markets, but can you give an update on where portfolio rents fit relative to market? I'm sorry, Daniel, I didn't catch the tail end of that. Just an update on where current in place portfolio rents sit relative to market rents? Really 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%. Great. Thanks, guys. Thank you. And we do have a follow-up question from the line of John Guinee with Stifel. Your line is now open. 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? I think the near term one, John, is we are losing a tenant out of another building in Tysons that's our plant in 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 in the Pennsylvania suburbs as well that we have not necessarily immediate rollover risk, but rollover over the next couple of 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 re tenant. 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 there's 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, the approval process so that we can introduce a new project to the market. And frankly, given the success we had at 933 First Avenue, which we completed last year I'm sorry, 2 years ago, another 100,000 square foot building that we constructed that was fully leased to a tenant at a high yield. And then our 500 North Gulf Road redevelopment we completed last year or leased that whole building to CSL Behring, we decided to move forward with 654. 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 fair 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 towards moving dollars from lower cash flow producing assets into higher yielding, new construction, lower capital going forward cost projects like our development pipeline. Great. Thank you. Thank you, John. 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. Great. Thank you everyone for joining us for the call and we look forward to updating you on 3rd quarter results later this year along with introducing our guidance for 2020. Everyone enjoy the rest of the summer. Enjoy your time with your families. Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. And everyone have a great day.