Good day, ladies and gentlemen, and welcome to the Q4 2018 Earnings Call. At this time, all participants are in listen only mode. Later, we will conduct a question- and- answer session, and instructions will be given at that time. If anyone requires assistance during the conference, please press * 20 on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, President and CEO, Mr. Jerry Sweeney. You may begin.
Dimitri, thank you very much. Good morning, everyone, and thank you for participating in our Q4 2018 Earnings Call. On today's call with me today are George Johnstone, Executive Vice President of Operations, Dan Palazzo, Vice President, 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 meanings 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're going to take a little bit more of a streamlined approach this quarter. Our comments this morning will summarize 2018 activity, but primarily focus on our 2019 plan. After an overview, Tom will provide a synopsis of our financial results, and then Tom, George, Dan, and I will be available for any questions. We closed the year strong. We exceeded our business plan metrics on cash and GAAP mark-to-market, capital ratios, tenant retention, and achieved many of our other targets, including ending year at 95.5% leased. We did come up a little short on our spec revenue, primarily due to slower occupancy of leased spaces, which also resulted in our being below our year-end occupancy target and our same store growth rates.
On a very positive note, however, Q4 leasing activity accelerated over Q3 by 17% and was up 3% over 2017 levels, building strong momentum for 2019. We also completed several previously announced transactions in Austin and Northern Virginia. The baseline effect of this swap reduced our D.C. revenue contribution to 8% and increased our revenue contribution from Austin to 18%. It also moved capital and revenue dollars to a market with strong positive mark-to-market and a 12% capital ratio from a market with negative mark-to-market and a 20% capital ratio. We also continued the liquidation of our Allstate JV through selling Station Square in Silver Spring at a $107 million value at a 6.5% cash cap rate. We also acquired Quarry Lake, a 121,000 sq ft building for $39.5 million at about a 6% cash cap rate.
That asset is a perfect complement to our Northwest Austin portfolio, provides excellent mark-to-market upside for us in a few years, and reflects our objective to continue increasing our revenue contributions from Austin to 25%. As Tom will touch on, none of the benefits of these Austin acquisitions will flow through to our 2019 same store numbers. During the Q1 , we reinitiated and fully expended the remaining capacity on our share repurchase plan by purchasing 2.5 million shares for $32 million. The board also approved a new $150 million share repurchase plan, which we did use during January to purchase an additional 550,000 shares, bringing aggregate purchases to $39 million at an average price of $12.76 per share. We also redeemed $7 million of operating partnership units for cash.
We do plan to continue to use this repurchase program opportunistically as part of our capital deployment programs. We also announced a 5.6% dividend increase, supported by improved portfolio performance and strong cash flow growth. On the development front, we closed the year with the delivery of our fully leased 500 North Gulph Road and Broadmoor Six in Austin and the sale of our Subaru training facility. Turning to 2019, we are off to a great start. In our Supplemental Report on pages 10 and 11 , we did provide some additional color on the Greater Philadelphia and Austin markets. Suffice it to say, both markets remain strong with good activity, building pipeline, and leasing levels.
We have also raised our spec revenue target by 1.6%, and our leasing pipeline stands today at 1.7 million sq ft, including 436,000 sq ft in advanced stages of negotiation. Austin continues to benefit from corporate attraction and in-market expansions, most notably Apple, Google, Oracle, and Samsung, as well as an emerging life science sector. Rental rates increased 6.5% in 2018, and Austin closed the year with 1.3 million sq ft of absorption. Philadelphia also closed out 2018 on a very strong note, with rents up 4.4% and with over 1.1 million sq ft of tenants new to the city over the last two years, clearly reflecting continued acceleration of Philadelphia as an emerging life science and transportation-centric employment hub.
The city added almost 17,000 jobs during 2018, primarily driven by growth in financial services and the healthcare and life science fields. Looking at our plan, our spec revenue plan is 77% completed, and other than the increase in spec revenue, all of our other operating metrics remain the same as we announced in October. Overall, our pipeline of deals is stronger, and levels of activity have increased across the board, including in Radnor, where our pipeline is almost 300,000 sq ft versus a targeted 2019 absorption level of about 126,000 sq ft. Another item of particular note is the high level of activity that we're seeing at our 1676 International Drive project in Tysons Corner.
As previously announced, we're investing $24 million to completely reimagine the entire building, including lobby, amenities, restrooms, mechanical systems, and a lot of outdoor space reconfiguration, as well as improving access to the building from the road network. All of that work will be substantially completed by the vacation of the existing tenant at the end of the Q3 . That will leave us with about 200,000 sq ft to lease, and our current pipeline of deals already stands at well over 600,000 sq ft. We really are delighted with how well that renovation plan has been received and are very confident of creating another successful value-add story.
We continue to make excellent progress in our development pipeline. As was included in the press release, we are closing in on a pre-lease of our 405 Colorado project in downtown Austin, a 114,200 sq ft office building over a 520-car parking deck. More importantly, we have an extremely strong pipeline of deals aggregating almost 400,000 sq ft. Given that pipeline and the depth of it and our confidence in its execution, we're planning to start this project in the next 45 days. Our development leasing activities at Schuylkill Yards, Garza, Four Points, and Radnor are all progressing well. We are completing the design development process on each project and given pre-leasing achievement, could be in a position to start one or two of those projects by year-end 2019.
Just giving a quick update on Schuylkill Yards. We did update the disclosure in the Supplemental Report on page 15. Design and pricing work continues at an excellent pace. We have seen a real upsurge in activity through our marketing campaign, and our pipeline today currently stands at over 1.5 million sq ft, including several hundred thousand square feet of life science uses.
Equity sourcing discussions on Schuylkill Yards also remain extremely encouraging. To refresh everyone's memory, Schuylkill Yards is in a federal Qualified Opportunity Zone, which has generated significant interest from a variety of capital sources looking for both excellent real estate investments with federal capital gain deferral advantages. The goal for Schuylkill Yards is to have the projects in a position to start over the next four quarters, of course, assuming favorable market and financing conditions. On Broadmoor, we're designing a 350,000 sq ft office and retail site, as well as a residential site that can do 300+ units. We plan to, again, subject to real estate and capital market conditions, be in a position to start either one of those or both over the next four or five quarters.
From an investment standpoint, we do not have any sales or acquisitions built into our 2019 plan. We are, however, exploring the sale of some assets to harvest profit, generate additional liquidity, and really accelerate our return on invested capital and cash flow growth trajectory. As we did in 2018, we would expect that any deployment of this type to be earnings neutral or positive and would accelerate bottom-line cash flow growth. To wrap up, the 2019 business plan is in excellent shape. We're confident of meeting all of our goals. We remain very encouraged by the depth of our leasing pipeline on both our existing inventory and our growing development pipeline. Tom will now provide an overview of our financial results. Tom?
Thank you, Jerry. Our Q4 net income totaled $121.8 million, or $0.68 per diluted share, and our FFO totaled $64.3 million, or $0.36 per diluted share. Some general observations about 2018 results. Our balance sheet metrics continue to improve, as our Q4 fixed charge and interest coverage ratios were 3, 5, and 3.8 respectively. A 10% improvement on both metrics as compared to the Q4 of 2017. Our Q4 net debt to EBITDA improved to 6.0. Our repurchase of 3.1 million shares had no material impact on our Q4 earnings since the shares were purchased later in the quarter. While our year-end occupancy and speculative revenue were below target, the variance is primarily due to the timing of tenants taking occupancy and some tenants that we anticipate remaining in holdover through 2018.
That allowed us to achieve our 95.5% portfolio leasing, which represents the midpoint of our range. Looking at 2019 guidance for the Q1 and year, property-level income will total approximately $83 million and will be incrementally $3.5 million higher than our Q4 number. The increase is primarily due to Austin's acquisition totaling about $7.5 million, partially offset by the JV of our properties at Northern Virginia, and the balance coming from the completion of our 500 North Gulph Road and Four Points developments. Our FFO contribution from our consolidated joint ventures will total $3.5 million, and is $2.5 million below our Q4 number, primarily due to lower interest in the Northern Virginia joint venture as compared to the Austin joint venture, the sale of Station Square asset, and the non-cash increase to ground rent due to the new accounting standard.
G&A for the Q1 will increase from $5.6 million to $9.5 million. The incremental increase is primarily due to the timing of deferred compensation expense recognition, and consistent with prior years, our new capitalization policy will also increase G&A. Our annual G&A should still continue to come in between $30 million and $31 million. Interest expense will increase to $20.5 million, with fixed-rate interest being 98.6%. Capitalized interest should approximate about $0.5 million , and full-year interest should approximate $84 million to $85 million. Tenant and other income will total $1 million for the quarter. Net management leasing and development fees will be $3 million for the quarter and will approximate $13 million for the year.
Land and tax provisions will net to a positive $2.5 million, and we did lose about $900,000 of income related to the Subaru National Training Center. On the share repurchase, our recent activity will lower our weighted average share count to 178.5, and the numbers don't reflect any additional buyback, but we remain opportunistic. On the financing side, Term Loan C, we closed that in December with a recast of our term loan to a new five-year loan with no changes in the maturity date. The recast of the loan allowed us to lower the effective interest rate by 55 basis points.
Our Northern Virginia joint venture financing, we anticipate closing that financing during the Q1 of 2019 and receiving approximately $30 million of net proceeds. Regarding the change in accounting standard, we issued initial guidance. We highlighted a $0.046 or $0.03 charge representing a reduction in the amount of internal leasing costs we had capitalized, and an increase in our ground rent expense due to a new straight-lining guideline.
We also noted that we had not yet concluded on the accounting treatment of a ground lease at one of our joint ventures. Since that date, we have determined that the ground lease expense will increase about $3.3 million, representing a non-cash increase to ground rent expense and negatively impacting the income from our joint ventures. Based on our current capital plan for 2019, it includes $165 million of development, $55 million of revenue maintaining, $40 million of revenue-creating spend, and approximately $18 million for the acquisition of the Radnor land. Our line of credit balance will be about $220 million at year-end. We projected our net debt-to-EBITDA ratio between 6.1 and 6.3, and we'll maintain variable B scope to the development act. That will vary based on the scope of the development activities during the year.
In addition, our net debt to JV will remain in the low 40% range. We continue to anticipate our fixed charge ratio to be around 3.4, and our interest coverage improving to 3.6 by year-end 2019. I will now turn it back over to Jerry.
Tom, thanks. With that, we're delighted to open up the floor for any questions, and as we always do, we ask in the interest of time, you limit yourself to one question and a follow-up. Dimitri?
Ladies and gentlemen, if you have any questions or comments at this time, please press the *1 key on your touchtone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press # key. Once again, if you have any questions or comments, please press *1 . One moment for questions. Our first question comes from Manny Korchman with Citi. You may proceed.
Good morning, everyone.
Good morning.
We can start with 1735 Market. I'm sure you considered it, given your market share in Philadelphia. Can you just share your thoughts as to why you did not acquire that asset, and then also how the value at that asset translates to certain value to your Philadelphia assets?
Manny, I could barely hear you, but I don't relate to 1735. When we looked at that project, I think it's fairly stable with not a lot of vacancy. From our perspective, we thought, and as events yesterday proved out, the building would trade at a very low cap rate and a very strong price per square foot. We didn't view that we could add a lot of value to that as part of our marketing platform, and that if someone else owned that, given the stability of that really being a core asset, it really did not present a competitive downside to us. We do think it's a direct look-through to our properties from a pricing standpoint.
I do think Equity Commonwealth, and their whole team, did a great job of creating core value as they took that property through its lease-up phase. As our interest in buying that building was much more higher several years ago, when there was a lot of leasing to do, they did a great job of stabilizing it. I'm real happy to see some out of town, high quality, thoughtful investment money moving into the city and setting a high watermark for an asset on a price per pound basis, as well as a very low cap rate. I think that validates our investment thesis. Our investment basis is, as you all know, and in the CBD, is about $220 a square foot gross. We think this is a great benchmark for us.
We think that the price that it's being bought at will create a momentum for additional rent acceleration, particularly given the fact that there's very few large blocks of space available in the market, and the trophy market continues to tighten. It is a good pricing benchmark for the balance of our portfolio. We think it moved from a value add to a core acquisition with the great leasing work that Equity Commonwealth did. From our perspective, we're pretty happy with the pricing benchmark it's setting in the market, and congratulate Equity Commonwealth for a great trade, and welcome the new buyers to the city of Philadelphia.
Thanks, Jerry. I hope you guys can hear me better now.
We can, yes.
I have a question for you on the ground rent. Just so that we can be clear, the ground rent adjustment you made impacts the lease accounting standard, and it doesn't change the amount of ground rent. Is that correct? Or are there two adjustments we need to make?
No, it's a non-cash, straight line ground rent adjustment. The cash we are going to be paying will continue to be the same. It's just the length and calculation of that ground rent will change.
Got it. Thanks, guys.
Thank you, Manny.
Our next question comes from Jamie Feldman with Bank of America Merrill Lynch. You may proceed.
Great, thank you. Good morning.
Good day.
I just want to make sure it's clear. Can you talk more about the spec revenue miss for the Q4 and the year, and just give more detail on exactly what happened?
Sure, Jamie. This is George. I'll jump in on that. We had roughly 73,000 sq ft of tenancy that we thought was going to take occupancy in Q4, albeit late in Q4. The fact that some of those spaces were not substantially complete, and the move-in and GAAP revenue recognition didn't take place, caused about $0.5 million Of slippage in our spec revenue target. We had another 100,000 sq ft or $100,000 of leakage from just interim commencement dates within the quarter. Some that were projected to commence closer to the beginning of November commenced later into November. Instead of getting two full months of GAAP revenue, we ended up with a little over one. That was really the cause of the $600,000 slide.
None of that has any impact on our 2019 business plan, since all of those tenancies were expected to commence in 2018. They were already fully part of our 2019 business plan, they were not previously, and are not today, part of our 2019 spec revenue target.
Okay, that's helpful. No leases fell out of bed and nothing's changed in terms of the pipeline coming in?
No.
Okay. All right. I guess, turning to Austin, can you talk more about the leasing pipeline for 405, the 35% tenant? I know you said 400,000 sq ft of potential leases, but I assume those tenants are also looking at other projects. Can you just give us a little more comfort on if you were to go spec, why you would think that would be the good move?
Sure, Jamie. As I mentioned, we have about 400,000 sq ft. Just to be clear, when we use that number, we believe that their 400,000 sq ft are really bona fide prospects, are really working the project, not just, as they say, drive-bys. We think they range in size from the 25,000 sq ft to 70,000 sq ft. There's been a lot of activity on the building. I think when we're taking a look at that pipeline of deals, I think one of the catalysts for why we're announcing we're going to start that building in 45 days is, given that pipeline and what we know will be the shadow pipeline of smaller deals behind that, we need to start construction of this project to meet the delivery time frames for a lot of these prospects, excuse me, given their existing lease structures.
We remain incredibly encouraged by our ability to kind of roll the anchor tenant we're dealing with through to a final lease execution in the next 30 to 60 days, and also significantly advance a number of the additional prospects during that period of time as well. The expectation is we'll start that project late Q1, early Q2. We'll deliver Q1 2021, which is the targeted occupancies for a number of these tenants. We feel frankly, given the size of the building at 200,000 sq ft, the fact we've got construction pricing fully locked down, everything bid, no real variability to the cost side of the equation, that our read of the market is that given the size of the tenants we're looking at, now's a good time to go.
Okay. How do you think about the competitive pipeline and just timing and deliveries versus your project?
I think we're in good shape. Certainly there's a number of projects on the drawing boards in Austin that have not yet started. There's some that have started or are very close to starting. I think the floor plate size here, we think it's an incredibly strong location downtown. The fact that it provides a fair amount of on-site parking in the CBD are real competitive advantages for us.
Okay, thank you.
Thanks, Jamie.
Our next question comes from Michael Lewis with SunTrust. You may proceed.
Thank you.
Good morning, Michael.
Morning. Jerry, I think when you went through the development projects, I didn't hear you talk about Metroplex II . In kind of late November, early December, there were some news articles about how you were looking for tenants that might be close to starting something there. Could you just give an update on tenant interest and what's going on there?
Sure, Michael. Yeah, Metroplex II is a project we've, in Plymouth Meeting, one of the core submarkets in Philadelphia. The reason why there was a lot of press about in the last couple of months is we actually brought on an outside brokerage firm to launch a very broad-based marketing campaign. JLL, as part of their marketing arrangement, amplified some of the efforts of our in-house team to really get it into the marketplace. It's a fairly large building, over 300,000 sq ft. We feel as though we would need a significant pre-lease there to roll that forward. That marketing process has launched. The building is designed. Preliminary pricing is locked down, so we know where we need to be from a rental rate standpoint to get between an 8%-8.5% yield. We'll see what the market brings forth.
There's a number of larger tenants that are starting to evaluate long-term space locations in the Pennsylvania suburbs. The project sits at the busiest, the most heavily traveled intersection in the Commonwealth of Pennsylvania, at the convergence of the Pennsylvania Turnpike, the Northeast Extension, and the Blue Route. It does provide a tremendous branding opportunity for some of these larger companies looking at it. As we look at it right now, Michael, it's really a design building. We feel confident we'll get something to come our way. Given its size and the capital investment, it's certainly a different scale asset than a building that we're looking at in Radnor or Garza or Four Points down in Austin, Texas. There we need to have a significant pre-lease with a very quantifiable pipeline of deals behind it.
Gotcha. That's helpful. My second question, I'm going to look for a little more color on the share repurchases. When you had your last conference call, the stock was around $14.34. You talked about the impact to leverage, the impact that it could have to earnings and NAV, and maybe at that point it wasn't as attractive. Obviously, you got a better entry point. Stock now has rebounded a little bit. Assuming another pullback, do you have more kind of capacity before you start worrying about leverage? Do you think about other ways to fund that, to kind of keep it neutral? Just your general thoughts around the repurchase program.
Yeah, look, it's a great question, Tom and I will tag team this because it's always a challenging decision because we're very focused on maintaining a strong balance sheet. That's why we're very happy to close the year at 6.0x . Look, I think when we started to look at it, we were fortunate given the investment activity that we pulled together in the Q4 . It did generate some additional liquidity for us. I think as we saw the REIT office market continue to kind of slide down a slope and us moving down very quickly with it just became too attractive an opportunity. We know the assets underlying the real estate very well. Even if you compare the implied cap rate on the repurchase versus some of our development yields, from our perspective, it's a no-risk transaction.
That's why we're saying we will keep that out there and why the board approved a larger share repurchase plan to make that a key piece of our capital deployment landscape, that in the event that the market does pull back again, that may certainly change our investment strategy in other areas. I think certainly, any management team should be very focused on what the value is of their public currency and how that relates to intrinsic asset value. That becomes an attractive investment for us that has to be viewed in the context of the cost of running our portfolio, the growth we can create out of our development pipeline, and maintaining a strong balance sheet.
All right. Thank you.
Our next question comes from John Guinee with Stifel. You may proceed.
Great. Thank you.
Morning, John.
Morning. You guys have a strong development focus, couple big projects. I think you have a pretty low land basis in most of these positions, but at the same time, hard costs appear to be going up. Can you do two things? One, talk about any value that may be in your land basis, and then two, talk about if you build a high-quality office building at Schuylkill or at Broadmoor, what's that gonna cost you all in on a per pound basis?
Sure, John. We do believe we have a very attractive land basis in our existing inventory. I think in the SUP, I don't know the exact page, but it kind of lays out an average investment base of less than $20 a square foot. A lot of that, frankly, is driven by two things. One, our investment basis per square foot at Broadmoor, given the rezoning we were able to achieve at the very high density, puts our land basis below $5 a foot. Even when we factor in kind of the infrastructure cost to create the road network, we still think the land basis we have is roughly 30% of current market value. We have a lot of embedded value there.
The transaction that was pulled together with Schuylkill Yards provides Brandywine with a rolling option that with extensions, can go out well over 25 years. We can actually match the land takedowns to the milestone schedule we have with our arrangement with the university, but we have extensions to that. It gives us some downside protection against being in a situation where we carry a lot of excess land. A lot of our other parcels, as you know, are one or two building sites in close proximity or in some of our existing parks that become great expansion opportunities for our tenants. Hopefully that answers your question on the land side. Construction costs are really a challenge.
To kind of insulate ourselves from that, we're taking all of these development projects all the way through CDs and a range of pricing exercises to really lock down an owner's budget that really equates to a GMP. We have full knowledge of current pricing to move things forward. Look, I think at a $405 or $570 a square foot, when we're looking at the building that Schuylkill Yards were between six and call it around $600 a square foot, depending upon the design considerations, maybe a little bit higher. We have clearly seen upward pressure on glass, both curtain wall and storefront, fenestration plans. Steel is at a premium. Concrete has been a real accelerator, and even things like sheetrock has gone through the ceiling.
We've definitely seen a high increase in construction, which is why we're trying to really lock down all of our cost models so we know exactly what we need to ask for rents to get the required returns we have. It's created some real squeeze points. I think your question's very much on point.
Great. Thank you.
You're welcome.
Our next question comes from Daniel Ismail with Green Street Advisors. You may proceed.
Great. Good morning, guys.
Hey, Daniel.
Can you give a little bit more color on the Radnor land acquisition and as well as the developments with Penn Medicine?
Yeah, sure. Thank you. Yeah, look, first of all, Penn Medicine made the announcement back in October, and it really didn't roll through our numbers until this quarter. I guess first of all, we're always delighted to continue our relationship with Penn Medicine. They've been a great client. It's an excellent transaction for us, in that it grows our university business, which we think is a very viable growth avenue for us. It expands our connection to life sciences, which is again, very important, what we're seeing here on the ground in Philadelphia and Austin, and really further establishes our market domination in Radnor. Deal is really straightforward . We will serve as the development manager supporting the Penn Medicine team, in construction of a 250,000 sq ft, $200 million advanced outpatient medical facility.
Penn Medicine will own and finance the project. We are simply a fee developer. It's very similar to the transaction we have with Subaru in New Jersey, where we oversaw the design, development, and construction processes. As part of the transaction, there were two other pieces. One is, we'll also purchase later this year an adjoining site that can do a 100-room hotel and a 150,000 sq ft office building. The design development on both pieces is underway now. We're talking to a very nice pool of hotel companies on the hotel site and building a pre-leasing pipeline that the game plan is to have the design development process wrapped up by the end of this year, and hopefully be able to line up a pre-lease tenant to move that forward. That would be about a $65 million project.
Following the third part is that Penn Medicine is currently in a 220,000 sq ft medical facility, essentially across the street from the new site that they're building on. We have entered into a forward agreement to buy that 220,000 sq ft building for around $21 million. It will either be a renovation opportunity for us or a tear down to create a new product. We're going through that analysis now, but we would anticipate that being a closing for Brandywine in late first or early Q2 of 2020. Does that frame it out?
Yeah. That's helpful. Maybe switching to Austin, on the acquisition. You mentioned some under-market rents on the building. Can you just frame how below market the rents are, then provide a little more color on the lease roll on the property?
Yeah, sure. It's a property that we bought. It's in close proximity to Broadmoor. It's part of a master-planned community with outdoor trail, lakefront, I mean, a tremendously well-appointed property. The short-term roll, we've got about 90,000 rolling in a couple of years in 2021. The average rents in place are just north of $20, in a market where the rents today are around $26. The rollover schedule that this building has layers in perfectly with our overall rollover to the existing Austin portfolio. We thought it blended in very well from a risk management standpoint.
Frankly, we're still in the tenant aggregation business in Austin, so it gave us access to a couple of additional tenants. We think that they may have some growth opportunities in controlling their tenancy, on a building that we think has good long-term value and a good location. Seemed to make a lot of sense for us.
Got it. Thanks.
Thank you.
Our next question comes from Jason Green with Evercore ISI. You may proceed. If you could, tell us when you please unmute your line.
Good morning. Just wanted to circle back on Quarry Lake and get an understanding for how you think about acquiring assets in that market versus any additional future development opportunities that you have in your portfolio.
Yeah, look, I think that the numbers are really clear that the bias we have in that market is to build versus buy. I think this was an interesting opportunity that we decided to move on. If you take a look at the land page in our supplemental package, it shows that we can build 6 million sq ft in that market. While a bulk of that is at Broadmoor, we have other great development sites, like Garza and our Four Points development. Given where pricing for existing acquisitions is versus the spread we think we can achieve on the development side, I think the heavier emphasis on capital allocation will be to development.
Got it. Circling back to Broadmoor, you talked about planning an office piece for about 350,000 sq ft and 300 units of residential. Is there a preference to which piece comes first? Is there a certain structure that you're more inclined to take with either or both of those assets?
Yeah, great question. I don't think there's a real preference to which one we do first, so we're running both concurrently through the design development process. Clearly, on the office front, in a building that size, we would be looking for a sizable pre-lease to launch it. We're being very thoughtful in terms of creating a retail pod with that building, so we start to build that overall sense of place that's very important as we think strategically about the Broadmoor rollout. Look, the residential market's very strong. You have 130 people a day moving into Austin. That's a great location. We continue a very active dialogue with Cap Metro and public officials on creating a public-private partnership for that train line, which while at a nascent stage of its evolution, certainly we think has a lot of long-term potential.
I think we're running both concurrently, and we'll see what the market brings.
Got it. Thank you.
You're welcome.
We have a follow-up question from Manny Korchman with Citi. You may proceed.
Hey, Jerry. It's Michael Bilerman. How are you?
Good.
Jerry, I just wanted to ask you about potential joint venture or other asset sales, particularly as what EQC did in the CBD in terms of marketing and generating additional interest. You have done a pretty formidable job at refocusing the portfolio, cleaning up a lot of joint ventures, and exiting out of a number of markets. I just wonder whether at this point, whether you'd want to take advantage of some of the incremental interest in the CBD, where you have significant holdings to generate that incremental capital to either fund what is becoming a very larger development platform, or two, to continue to repurchase your stock on a leverage-neutral basis.
Michael, the simple answer is yes. I think we're very pleased with this price point on 1735. We have a number of processes underway where we're looking at how we can harvest some tremendously built-in gains in our Philadelphia portfolio. We would expect to have those thoughts get more clarity publicly in the next couple of quarters. Certainly, as we look at the platform today, not just in Philadelphia CBD, but in the Pennsylvania suburbs, we think that we're at a point, given our call for capital through the development pipeline, that it's incumbent upon us to really think about how we recycle some of this embedded value to fund either development, expansion into the other markets, or to certainly keep the share repurchase plan on the table as well.
I guess, what would be the scope of how large you'd be willing to go? I recognize there's nothing in guidance today for any sort of transaction activity, it sounds from your comments that there's certainly things that you're contemplating. Can you give us a little bit more color about whether these would be outright sales, joint venture sales, and sort of size and scope of what you're considering?
Yeah. I think we have roughly about $130 million-$140 million of assets that we've targeted kind of in the suburban areas that we're spending some time on, either from a sale or a joint venture standpoint. I think pricing will determine that to some degree. Look, given the size of the assets we have downtown, and assuming a 300 sq ft to 350+ sq ft cost, I mean, they're a fairly large transaction. I don't want to give you a range downtown, the buildings by their size and scope would generate a tremendous amount of liquidity for the company, which obviously creates some other opportunities for us in terms of how we deploy that incremental capital.
Are you thinking outright sales or joint venture sales?
Are you talking about in downtown Philadelphia or?
Well, either. I brought up downtown, but you brought up the suburbs.
It's an interesting thought process to go through because, when we look at the transaction we did with Rockpoint, through our 15% ownership stake, we're generating a tremendous return on our invested capital through that structure because it's a different capital structure, different promote structure. The joint venture we did with DRA generated a 27% internal rate of return at $28 million promoted value. We're not at all opposed to doing joint ventures as a lot of the folks we talk to about selling assets to like us to stay in because we know the markets, and the property, and the tenants so well. I wouldn't preclude more joint ventures. I think saying that, we're very mindful of the process we've been underway on of reducing our exposure to joint ventures.
When we take a look at the absolute dollars we have invested in joint ventures, that's gone down dramatically as we've outlined in our multiple year business plan. Whereas we used to own an equal stake in the venture, we've reduced those down to 15%-20% type of ownership positions.
Thanks, Jerry.
You're welcome. Thank you.
We have a follow-up question from Jamie Feldman with Bank of America Merrill Lynch. You may proceed.
Great. I just want to get your thoughts on growing more in either life science or medical office, with this new Penn Medicine deal you're doing. How do you think about the potential ramp-up in that business line?
Well, I think we have a good foot in the door from both standpoints. From number 1, the perspective that we have some great relationships with some educational and healthcare institutions, which provide a clear pathway into helping them grow their businesses. Then with Schuylkill Yards, for example, we have brought on a life science co-developer advisor with Longfellow Partners who has tremendous technical knowledge of the life science field. We really do think that given what we think will be a rapidly growing life science market in Philadelphia, with I think the Merck announcement last year in Austin, I think Austin will wind up being a growing life science market as well, that we view that as a good add-on to our core business lines. It's something we hope to spend more and more time on.
I think CBRE came out with a report that talked about tech talent around the country, and Austin was number 6, Washington, D.C. was number 3, while Philadelphia ranked fairly low on that scale. We think that from what we're seeing at a ground level, there seems to be a lot of accelerated growth in that arena over the next couple of years.
Okay. Do you think you need to add personnel or do anything to change your platform or marketability for that business?
I think it will be opportunity specific. I think certainly if we are able to grow it, we probably need to add some additional resources for sure.
Okay, great. Thank you.
Thanks, Jamie.
We have a follow-up question with Craig Mailman with KeyBanc Capital Markets. You may proceed.
Morning, Craig.
If you have your line on mute, please unmute your line.
Craig?
Thank you. Ladies and gentlemen, this concludes our Q&A portion of today's call. I would now like to turn the call back over to your President and CEO, Mr. Jerry Sweeney. You may proceed, sir.
Tamesha, thank you. Thank all of you for participating in our call this morning. We appreciate your following the company, and we look forward to continued excellent execution on our 2019 business plan and to updating you on those activities on our next earnings call. Thank you very much.
Ladies and gentlemen, thank you for attending today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day