Good day. Thank you for standing by. Welcome to the Brandywine Realty Trust fourth quarter 2022 earnings call. At this time, all participants are in listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone. You will hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Gerard Sweeney, President and CEO. Please go ahead.
Catherine, thank you very much. Good morning everyone, thank you for participating in our 4th quarter 2022 earnings call. On today's call with me as usual are George Johnstone, our Executive Vice President of Operations, Dan Palazzo, our 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 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.
Well, first and foremost, we hope that you and yours had a wonderful holiday season and are looking forward to a successful 2023. During our prepared remarks this morning, we'll briefly review fourth quarter results, provide color on recent transactions, and outline our 2023 business plan. Tom will then review our 2022 results and frame out the key assumptions driving our 2023 guidance. After that, certainly Dan, George, Tom, and I are available to answer any questions. Quickly reviewing our 2022 results, we posted fourth quarter FFO of $0.32 per share in line with consensus and full year FFO of $1.38 per share, which exceeded consensus estimates by $0.01 per share. During the fourth quarter of 2022, we executed 226,000 sq ft of leases, including 142,000 sq ft of new leasing activity.
For 2022, we leased 1.8 million sq ft of space, which compares favorably to both our volumes in 2021 and 2000. More specifically, looking at 2022, our new leases that we executed during the year exceeded our 2021 new leasing activity by 11%. It was equal to pre-pandemic levels that we experienced back in the fourth quarter of 2019. We also posted rental rate mark-to-market of 21% on a GAAP basis and 12.5% on a cash basis. Our full year mark-to-market was just shy of 19% on a GAAP basis and just shy of 10% on a cash basis. Absorption for the quarter was negative by 123,000 sq ft.
Half of this negative absorption was a result of a tenant default in Austin, while the other half were known tenant move-outs, which resulted in a quarterly retention rate below our annual run rate. For the year, we did post a retention above our business plan guidance at 64%. We did end the quarter at the 89.8% occupied and 91% leased, which were below our targets. The previously mentioned tenant default accounted for about 50 basis points on each of those metrics, and occupancy was generally a little bit lower due to anticipated December move-in that slid into January and the sale of our former Tower Bridge property.
From an occupancy and leasing standpoint, our D.C. portfolio continues to underperform, and as such, it's worth noting that our Philadelphia, Pennsylvania suburbs, and Austin portfolios, which comprise about 93% of our NOI, are 91.7% occupied and 92.7% leased. Spec revenue of $35.7 million exceeded the midpoint of our $34 million-$36 million range. As we look at it, the portfolio is solid with a stable outlook. As we noted in the supplemental package, we have reduced our forward rollover exposure through 2024 to an average of 6.2% and through 2026 to an average of 7%. Physical tour volume has also been encouraging. Fourth quarter physical tours exceeded third quarter tours by 50% and was also ahead of our fourth quarter 2021 by tour volume by 12%.
For the full year 2022, our tour volume was over 1.2 million sq ft. We also continue to experience tenants taking advantage of opportunities to move up the quality curve. During 2022, over 600,000 sq ft of leasing activity was the result of this flight to quality. In addition, looking at our portfolio, tenant expansions continue to outweigh tenant contractions. As a point of reference, in 2022, expansions totaled 325,000 sq ft, while contractions totaled 132,000 sq ft, so almost a 2.5 to 1 ratio of expansions over contractions. Our leasing pipeline of 3 million sq ft is about 1.2 million on our operating portfolio and 1.8 million on our development projects.
On our operating portfolio, it includes about 184,000 sq ft in advanced stages of lease negotiations. Also, 41% of that pipeline are prospects looking to move up the quality curve. In fact, during the fourth quarter, 58% of the new leases we executed were flight to quality tenants. Looking at some financial metrics, you know, based on increased 2022 leasing activity and higher EBITDA, our fourth quarter net debt to EBITDA ratio decreased to 7.0x from the 7.2 in the third quarter. As we've discussed, this ratio was transitionally higher due to our development spend and the debt attribution from our joint venture activity.
The more meaningful metric we track is our core net debt to EBITDA, which ended the year at the midpoint of our range of 6.2x. Certainly in times of rate volatility and economic uncertainty, leasing and liquidity are our two key benchmarks. Since our last call, we have made significant progress on both the financing and capital recycling fronts by raising over $745 million of proceeds. As previously announced in December, we had completed a five-year, $350 million unsecured bond offering at a 7.5% coupon. Those proceeds were essentially to retire our February bond maturity.
In January, we did complete a five-year, $245 million secured financing with an 8.75% coupon that's collateralized by seven wholly owned properties. The note has flexible release and prepayment provisions after about two years. It's important to note, we took this secured route solely due to pricing differences between the secured and unsecured debt markets, as we do plan to remain an investment-grade unsecured borrower. During the fourth quarter, we did actually two sales generating $113 million of proceeds. The cap rates on those two sales were below 6%. The team also swapped our $250 million unsecured term loan to its June 27 maturity date at roughly 5%. The results of all these combined transactions significantly improved our liquidity.
Our consolidated debt is 96% fixed at essentially a 5% rate. We have no consolidated debt matures until our October 2024, $350 million bond. We also now have full availability on our $600 million unsecured line of credit, and approximately $30 million of unrestricted cash on hand. As we noted on page 13 in our SIP, based on our full development spend projections, our 2023 business plan execution, after fully funding our remaining development spend, all TI leasing and capital costs, we expect to have about $590 million of available capacity at year-end 2023. Based on our business plan, only $10 million of net usage during the year. Very strong liquidity position.
Turning quickly to 2023, we are providing 2023 earnings guidance with an FFO range of $1.12-$1.20 per share for midpoint of $1.16 per share. At the midpoint, the 2023 FFO projection is $0.23 per share below our 2022 FFO. The primary drivers are as follows: our 2023 NOI will exceed 2022 levels by $20 million or about $0.10 a share. Those improved operating results include contributions from 405 Colorado, 250 King of Prussia Road, and 2340 Dulles, as well as higher same store results. This NOI growth, though, is offset by $33 million or $0.19 per share due to increased interest expense on the recently completed financings.
We also have about $0.08 per share decrease in our contribution from joint ventures, primarily due to higher interest rates and initial projected losses from several development projects coming online, and not being stabilized until after 2023. We also anticipate about a $0.04 per share decline in other income, as well as a $0.02 per share decrease in projected land gains over the activity in 2022. Tom can certainly amplify those points in more detail. Our 2023 plan is headlined by two key operating metrics. Our cash mark-to-market range is between 4% and 6%, and GAAP mark-to-market is between 11% and 13%. While these ranges are lower than our 2022 levels, they certainly remain very strong and is primarily driven by the composition of our projected 2023 leasing activity.
For example, during 2022, we had much higher leasing revenue contributions from CBD, University City, and the Pennsylvania suburbs. For 2023, higher leasing volumes have shifted to Austin, Texas, given the high levels of occupancy in our core Pennsylvania and Philadelphia markets. Our mark-to-market in CBD and University City will perform above our business plan ranges, while Austin, given current market conditions and demand drivers, are anticipated to perform below those ranges. Spec revenue will be between $17 million and $19 million, with $10 million or 56% done at the midpoint. The occupancy levels will be between 90% and 91%, leasing levels between 91% and 92%. Retention rate will be between 49% and 51%.
We do anticipate same-store NOI growth will range from 0%-2% on a GAAP basis, and between 2.5% and 3.5% on a cash basis. Capital will run about 12% of revenues, which is lower than than the 2022 results. Based on increased 2023 leasing activity and the continued development and redevelopment spend, we do project our net debt to EBITDA to be in the range of 7.0-7.3, with our core leverage between 6.2 and 6.5. As the guidance at the guidance midpoint, our current dividend of $0.76 per share, represents a 66% FFO payout ratio and a 100% CAD payout ratio.
Our business plan, as we'll talk in a few moments, does project between $100 million and $125 million of sales activity that could generate additional gains. More importantly, with liquidity needs substantially addressed, this targeted sale activity, we believe, conservative underpinnings to our coverage ratios. We are keeping the dividend at current levels. Certainly, as the business plan progresses, we get more clarity on the economic outlook, the board will, as they always do, continue to monitor both our coverages and the dividend payout levels.
In addition to the financing activities that we already completed, we are actively engaged and plan to enter into a construction loan on our 155 King of Prussia Road project, which is fully leased in our 3151 Market Street project here at Schuylkill Yards, during the first half of the year. During 2023, we also have 2 joint ventures with non-recourse loans maturing. We're already well underway with the refinancing discussions for these loans as well. The first one is a $200 million loan on our Commerce Square joint venture. This is a very low levered financing with a significant current debt yield. We're currently in the market to refinance that mortgage. We currently have over 15 lenders reviewing this financing opportunity.
The second maturity is in August of 2023. Refinancing efforts with our partners are underway there as well. As I touched on, during the year, we are including a range in our business plan of between $100 million and $125 million of dispositions. We anticipate those occurring in the second half of the year. We anticipate to generate those proceeds, we'll have between $200 million and $300 million of properties in the market for price discovery. In looking at development, we currently have $1.2 billion under active development. Of that, our wholly owned development aggregates $302 million and is 30% life science and 70% office. This portfolio is 83% leased, with remaining funding requirement, as we've outlined in the SIP, of $91 million.
On the joint venture front, our development pipeline approximates $930 million, with a Brandywine share of $500 million. At full cost, this pipeline is 31% residential, 41% life science, and 28% office. Brandywine's remaining funding obligation on this entire pipeline is $4 million, with $68 million of equity remaining to be funded by our joint venture partners. As I mentioned on the last call, other than fully leased build-to-suit opportunities, our future development starts are on hold, pending more leasing on the existing joint venture pipeline and more clarity on the cost of debt capital and cap rates. Looking ahead, though, we do plan to develop about 3 million sq ft of life science space.
Upon completion of the existing properties, we will have approximately 800,000 sq ft of life science space in operation, representing about 8% of our portfolio. As we identified on page six in the SIP, our objective is to grow our life science platform to about 21% of our square footage. Just a quick review of specific projects. At 2340, our redevelopment project is now 92% leased with $45 million of remaining funding and a midyear coming online of those leases. 250 King of Prussia Road in our Radnor sub-market remains 53% leased with a strong pipeline of over 200,000 sq ft. You will note in the SIP we have increased our costs on this project as our original pro forma assumed a 50/50 office and life science split.
The pipeline is now 100% life science, which, while requiring more capital, is also generating longer-term leases at a higher return on cost. Given the extended build out of the pipeline of several key prospects for life science space, we have also slid the stabilization to Q1 of 2024. 3025 JFK, our life science residential tower, is on time and on budget for delivery in the second half of the year. We currently have an active pipeline totaling 472,000 sq ft, which is up about 75,000 sq ft from last quarter. The project continues to see more activity as construction progresses, and the superstructure is now complete. The window wall system's halfway up the building. We've done over 120 hard hat tours.
We also expect to start delivery of the first block of residential units in the second half of this year, so all remains on schedule there. 3151 Market, our 440,000 sq ft dedicated life science building is also on schedule and on budget. We have a leasing pipeline totaling over 400,000 sq ft, which again is up from Q3. As I touched on, we anticipate we will enter into a construction loan on this project in the second half of 2023. Uptown ATX Block A construction in Austin is also on time and on budget. On the office component, our leasing pipeline there is 500,000 sq ft. That pipeline is down from last quarter, primarily due to two larger users putting their requirements on hold.
Our focus up to that up to this point has really been on full building users. We're now shifting to a multi-tenant marketing program. Expect that pipeline to build as the quarter progresses. To wrap up our commentary on the development pipeline, like the key phrase in our forward pipeline is timing flexibility. We have a low land basis and product diversity. Of the 13 million sq ft that we can build, only about 25% is hard to the office, with the ability to do between 3 and 4 million sq ft of life science and over 4,000 apartments. Our overlay approvals do give us flexibility to further adjust that mix to meet market demands. Our 2023 business plan does include, as I mentioned, the 120, $100 million-$120 million of property dispositions.
We expect they'll occur in the second half of the year. While not really including many in our plan for 2023, we do anticipate continuing to sell non-core land parcels. In looking at our joint ventures, $458 million of our debt levels or about 19% of our total debt is coming from our joint ventures, with about $416 million of that coming from our operating JVs. Our 2023 plan anticipates recapitalizing several of those JVs. Our plan assumes we will reduce attributed debt from operating JVs by about $100 million or 24% by the end of the year.
Certainly, any dollars generated from these activities will be used to improve our existing strong liquidity, fund our remaining development pipeline, reduce leverage, and redeploy into higher growth opportunities, including, as liquidity permits, stock and debt buybacks on a leverage neutral basis. Tom will now provide an overview of our financial results.
Thank you, Gerard. Our fourth quarter net income totaled $29.5 million or $0.17 per diluted share, and FFO totaled $55.7 million or $0.32 per diluted share, in line with consensus estimates. Some general observations regarding the fourth quarter. While our fourth quarter results were in line with consensus, we had a number of moving pieces and several variances compared to our third quarter call guidance. The portfolio income was up by $900,000 above our third quarter guidance call, primarily due to overall portfolio performance being better throughout the portfolio. Termination of other income totaled $2.7 million. It was $800,000 below our third quarter forecast, primarily due to budgeted other income items that will occur in 2023.
Interest expense totaled $20.5 million, or $2 million below our third quarter guidance, primarily due to the higher capitalized interest and our slower capital spend, so our line of credit balance at the end of the year was below where we thought it'd be, ex the bond deal transaction. G&A expense totaled $9.1 million, or $1.1 million above our third quarter guidance. The increase was due to a $1.8 million one-time charge for the write-off of acquisition pursuit costs, partially offset by lower personnel costs. We forecasted one land sale to generate $800,000 gain in the quarter, which did not occur. We anticipate that transaction to occur in the first quarter.
Our fourth quarter debt service and interest cover ratios were 3.3 and 3.5 respectively, and net debt to GAV was slightly below 40%. Our fourth quarter annualized net debt to EBITDA was 7.0, and one tenth of a turn above the high end of our guidance, which was 6.6-6.9. As far as the portfolio changes we expect this year, we do expect that we will have four or five stabilize, and become part of our core portfolio during 2023. On the financing activity, as Gerard outlined, since our last call, we have made significant progress on our financings and capital recycling fronts.
In December 2022, we did complete the five-year $350 million unsecured bond offering at 7.55% coupon. In January, completed the five-year $245 million secured financing at 5.875%. It's collateralized by seven wholly owned properties. Those two financings raised $595 million at a blended rate of 6.7%. Prior to the secured financing, our wholly owned portfolio was completely unencumbered. We anticipate we will remain an unsecured borrower on future financings. We also swapped our $250 million unsecured term loan through its June 2027 maturity date. Our consolidated debt is now 96% fixed at just over a 5% rate.
Only our line of credit and trust preferred securities are floating rate on the balance sheet. Regarding joint venture debt, we are currently working on the 2023 maturities, including active marketing of our Commerce Square property. We also are already working on our 2024 maturities with our partners to possibly extend the current maturity dates with existing lenders. We're also considering some asset sales to lower leverage. 2023 guidance. At the midpoint, our net loss is $0.08 per share on a loss basis, and FFO will be $1.16 per diluted share. Based on the midpoint, FFO has decreased $0.22 per share. As Gerard mentioned, the primary drivers being GAAP NOI being up.
We do expect a small increase to management fees, but we do expect other income to be lower, interest income to be lower as a result of the sale of 1919 Market Street in Philadelphia in our JV. Interest expense is gonna be up $33 million. Our land gains are down $5 million. The JV FFO is down $16.8, which is primarily interest expense that we anticipate happening due to higher rates, but also some of our liability management in terms of caps and swaps that will burn off. We do also anticipate some initial losses, primarily on the opening of our residential project at Schuylkill Yards West. Our 2023 range was built on some of the following assumptions. GAAP NOI will be $304 million, an increase of $20 million.
Most of that is due to 2340 and 405 Colorado having incrementally higher NOIs as we go through the year. We expect continued leasing of our life science development at 250 King of Prussia to be about $5 million. We do expect about $3 million of net increase to the improvement on the same-store portfolio. Our FFO contribution from joint ventures will total $8 million-$10 million, and that is primarily due to lower income due to the higher interest expense. G&A expense will be $34 million-$35 million and consistent with 2022. As we talked about with total interest expense will be about $105 million.
We do forecast some use of the line of credit throughout the year. As we have the asset sales hit in the later part of the second half of the year, we do expect that to bring the line down. There will be inter-incremental interest expense during that time. Capitalized interest will increase to $12 million as we continue our development and redevelopment projects. We have $2 million-$4 million of land sales programmed for this year. We do anticipate further progress on selling non-core land parcels. Those numbers can change as we go through the year as well. Termination and other income, $5 million-$6 million, which is below 2022 due to several anticipated one-time items and normal recurring activity in 2022 that we don't see happening in 2023.
Net management fees will be between $15 million and $16 million, and we do have the property sales, as Gerard mentioned, at the second half of the year between $100 million and $125 million. There are no property acquisitions in our model. There's no ATM or share buyback activity in the model, and we anticipate a construction loan on 155 King of Prussia Road. Our share count will be approximately 174 million shares. As we look at the first quarter of the year, general assumptions are that we'll have about $73 million of property NOI. The FFO contribution from our joint ventures will total $5.5 million. G&A will increase to $9.5 million. This is normal for the first half of the year as we have sequential increases due to how our compensation expense is recognized.
Total interest expense will be $24.5 million. Termination fees should be about $2 million, and we expect land gains to be about $1.5 million. From a capital plan perspective, our plan's about $465 million. Our CAD range is, as Gerard mentioned, between 95% and 105%. The main contributor to the higher range is primarily due to lower earnings, partially offset by reduced leasing costs. Those uses are gonna be $105 million for development and redevelopment. The primary uses are gonna be for 405 Colorado, 250 King of Prussia Road, 2340 Dulles, and some work on Broadmoor infrastructure. Our common dividend is $132 million. Revenue maintained should be about $34 million.
$60 million of revenue create capital. Equity contributions to our joint ventures total. Some of that will be the development joint ventures, but we also anticipate some capital contributions to our operating joint ventures, including Commerce Square. We had $54 million to retire the balance of our bond in January. The primary sources are gonna be cash flow from operations of $175 million. The secure term loan, which did close and generated $236 million of proceeds, $18 million of our cash on hand, and about $120 million between the land sales as well as the program sales between $100 million and $125 million.
Based on that capital plan, our line of credit balance will decrease by approximately $84 million at the end of the year, leaving almost full availability. We also projected our net debt to EBITDA will range between 7.0 and 7.3, the increase is primarily due to the incremental spend on our development projects, which will have minimal income by year-end. Our net debt to GAV will be in the 40%-42% range. Our additional metric of core net debt to EBITDA will be 6.2-6.5 by the end of the year. That excludes our joint ventures and active development projects, but will include closed projects such as 405 Colorado.
We believe this core metric better reflects the leverage of our core portfolio, and eliminates our more highly leveraged joint ventures and our unstabilized development and redevelopment projects.
We believe these ratios are elevated, and due to growing development pipeline. We believe that as these developments are stabilized, our leverage will decrease back towards the core leverage ratios. We anticipate our fixed charge and interest coverage ratios will approximate 2.7x, which represents a sequential decrease in those coverage ratios, primarily due to the capital spend, but also the higher interest rates. I will now turn the call back over to Gerard.
Tom, thank you very much. Key takeaways are we believe the portfolio is in solid shape from an operations standpoint. Our average annual rollover exposure through 2026 is only 7%, with strong mark to markets, manageable capital spend, and stable and accelerating leasing velocity. Since last quarter, we have fully covered all of our wholly owned near-term liquidity needs. Refinanced our 2023 bonds. As Tom mentioned and I mentioned earlier, reduced our line of credit to zero. Presented a baseline business plan that continues to improve on liquidity while fully covering our dividend, and keeps our operating portfolio in very solid footing with strong forward growth prospects. As usual, and where we started, and that we really do wish you and your families well. With that, we'd be delighted to open up the floor for questions.
We do ask that in the interest of time, you limit yourself to one question and a follow-up. Catherine?
Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Steve Sakwa from Evercore ISI. Your line is open.
Yeah, thanks. Good morning, Gerard and Tom. I guess I just wanted to start on the operating portfolio and some of the outlooks for, you know, leased and, you know, core occupancy. I know those numbers came in at the end of the year, kind of below your original forecast, and some of those numbers are expected to be flat or even up in 22, but you've got a lower retention ratio. Just trying to sort of square up, you know, your confidence level in kind of the new leasing pipeline to kind of hit your leasing and occupancy numbers that seemed to fall short last year?
Sure, Steve. George, why don't you take that one?
Sure. Glad to, good morning. Look, on fourth quarter occupancy, we did in fact come up short. You know, the tenant default in Austin was 51 basis points. We had another 42,000 sq ft or about 330 basis points of occupancy that did occur in January, substantial completion and the actual move-in process, you know, did not occur in December. All in all, you know, we thought we'd probably be closer to 90.7, which would've been about 34,000 sq ft off of our 91% bottom end. The, you know, the outlook for 2022 is, you know, probably again close to a 90% average occupancy that is really being driven twofold.
You know, in Pennsylvania and in CBD Philadelphia, we're gonna average about a 93% occupancy level for the year. But in Austin and D.C., only an 82%. As Gerard mentioned in his commentary, that's really the some of the dynamic that is occurring with CBD at 96% occupied for the year. You know, the contribution levels that we will require and anticipate out of Austin have risen. They were roughly 16% of our square footage contribution in 2022, and are now projected to be about 32% of our square footage contribution in 2023. The, you know, the pipeline is relatively consistent with what we've seen in the past.
You know, as it relates to Austin in particular, since a lot of our focus is there, we have seen some good levels of tour activity. We do have a lease out currently on about 12,000 sq ft of that space that was defaulted and given back in December, so we're starting to see activity levels already in that building. We remain positive. We still believe in the growth characteristics of Austin. A lot of our suburban properties are somewhat insulated from the big tech companies, and we see a lot more of financial service and just professional service prospects in that pipeline.
Okay. maybe just quickly.
Go ahead.
Yep. No, thank you. I just wanted to touch quickly, Gerard, you talked about the 1.8 million sq ft on the development pipeline. I know you kind of walked through, you know, 3025, 3051. It sounded like Austin, you know, maybe was a bit slower, but can you just give us a little more color on the tenants that you're talking to, the timelines? Like, how many of these are new to Philadelphia for the life science assets, and are the, are the Austin tenants kind of new to Austin, or are they expanding tenants in Austin? I mean, obviously, that market's feeling some pressure with the tech slowdown, which you mentioned, but just, you know, can you any flavor on kind of in-house tenants or in-market tenants versus new to the market?
Sure. Happy to. Look, taking a look at the Schuylkill Yards development speed, which is really the 3025, which it's coming online later this year, then 3151, which is about one year behind. As I touched on, the pipeline is up quarter-over-quarter. The majority of the prospects are significant growth of in-market companies. We have several who are new to the Philadelphia region, but the larger square footage tenants are consolidations from other areas around the city, but also coupled with some significant expansion capabilities. That seems to be the major driver on the life science tenant base that we're talking to in Schuylkill Yards.
From an office standpoint, they're all kind of in-region companies, not all in city, but all in-region companies looking to kind of move up to higher quality, more amenitized projects. Just to touch on that for just one second before I jump to Austin, I mean, we continue to be very pleased. I know there's a lot of dissonance over what's happening in the office sector. But we do continue to be very pleased with the level of new prospect activity that we're seeing across the board of tenants looking to move from older into, call it better, higher quality, better managed, better run buildings. That's a trend line that we've seen really for the last two years. We're in an interesting position because we have a very good, high quality existing portfolio and then very good new developments.
It's actually been quite pleasantly surprising to see the velocity of new deals coming into our pipeline from in-market companies, but are looking to really upgrade their stock. At this point, even with the economic uncertainty, those tenants still seem to be willing to pay the higher quality, the higher rents, to get into those higher quality buildings. We monitor that dynamic very closely through our CRM software tools, our outreach programs, and then actually tracking the pipeline on a weekly basis. Relative to Austin, you know, we'd really been focused thus far, Steve, on, you know, trying to find a substantial full building user.
We had a number of those in the marketplace that were doing a lot of tours with us and a lot of discussions and trading of paper. As I mentioned in my comments, a couple of those got really put on hold, not dead, but put on hold. We are shifting our strategy there really from trying to find a, you know, one large tenant who would take the vast majority of the building to a couple of mid-size prospects we have, and then thinking about a multi-tenant approach. We think that will be successful. Certainly Austin's been a little bit slower to return to the workplace than some other markets. We see that trend improving a bit, but it's certainly behind our other markets.
Even then, we're seeing that a big push towards the quality components that Block A presents. Did that answer your question?
Thank you. That's it for me.
Thank you, Steve.
Thank you. Our next question comes from Michael Lewis with Truist. Your line is open.
Thank you. Steve, you mentioned the JV debt maturing this year, including Commerce Square. It sounds like there's a lot of interested lenders, even though, you know, we've obviously heard that financing can be difficult to obtain for office properties in general. So maybe can you speak to the financing environment and, you know, if you're able to share anything regarding, you know, what you might be expecting for proceeds or pricing on those loans?
Sure. Tom, want you to take that?
Sure, Michael. Hi, Tom. Yeah, on that, we are talking to a number of lending sources. I think that, Michael, on the traditional lender side, which are mainly your banks, there has been and continues to be a bit of a pullback on their appetite for new loans, new origination loans. We are looking at some of the other opportunities, whether it be maybe a securitized type loan or whether it be one of the debt funds. There are other sources other than just the traditional banks, although we have a couple of banks looking at it.
I think if they were to do it may be with a group of banks rather than one single bank taking this project due to its size. Pricing is still a TBD. I would expect pricing though to be higher than where the debt is today, and we'll see how that progresses over the next month or so. We don't really have a good handle on pricing. We're getting those quotes kind of in the near future.
Okay, great. Thanks. I read an article recently arguing that Philadelphia suburban office market might be in trouble because, you know, the flight to quality is bringing those tenants into the Center City. You already talked about flight to quality a little bit. On the other hand, you know, there's a theory more broadly that people are going into cities less. You know, perhaps offices in the suburbs are more easily commutable and better positioned post-COVID. Are, are you seeing anything in terms of demand in the suburbs versus the city, you know, that you think there's a, there's a shift that favors, you know, one strategy over the other? Obviously you're involved in both.
Yeah, Michael, great question. We really haven't seen a discernible trend line, to tell you the truth. We, you know, we were expecting to see at certain points more people. You know, either moving into the city or moving out to the suburbs. We really haven't seen that. We've only seen a couple tenants from the CBD move out to the city. Conversely, we've seen a few tenants move from, you know, outside of the city into the city. No real discernible trend line by tenant type or by tenant size. You know, we do continue to see, you know, tenants focused on quality in both places.
I think, you know, our Radnor portfolio and look, the build to suit we did, we announced on Arkema in Radnor is a great example of a company, a high-quality company, great credit, really looking to upgrade the amenity space they present to their employee base. They love the location of Radnor, served by two train lines and access to interstate highways. I think those basic location and quality predicates are in place, whether it be in the city or the suburbs. The percentage of folks returning to the office is higher in the suburbs than it is in the city. Even though in the city, you know, foot traffic is back to pre-pandemic levels during the workday, mass transportation is kind of on a very positive trend line.
It seems as though, and I know George, you have those numbers, but what kind of the occupancy, daily occupancy levels in the suburbs are higher than the city. That has not been, Michael, a driver on locational decisions as of yet.
Yeah. Just to add on, I mean, you know, in the suburbs, you know, we're seeing, you know, closer to a 70%-75%, you know, kind of back in the office. In the city it's, you know, probably on average closer to 50%. Again, you know, there's still a number of, you know, large employers, that have been, you know, even, you know, a little bit slower to kind of bring everybody back, even on a, you know, two to three day a week hybrid plan.
Got it. Thank you.
Thank you, Michael.
Thank you. Just one moment for our next question. It comes from Michael Griffin with Citi. Your line is open.
Great, thanks. Maybe we can talk on life science demand for a bit, specifically 250 King of Prussia. You noted that stabilization was pushed back a quarter. You know, this is a suburban asset, kind of further out from, you know, where U City is. You kind of think of that core life science cluster down in, down in CBB, Philly. Just how confident are you that the demand is there for a product like this? Any additional commentary you'd give there would be great.
Yeah. I'm sorry, Michael. Confident on the demand at 250?
Yes.
Yeah, no, I think we're very confident. I think, you know, the, we were trying to market that project as kind of a hybrid life science office. That's really was the predicate behind our kind of leasing assumptions and the capital costs. As I mentioned this quarter, we did raise our capital costs by about $20 million. Did increase the yield by 0.2 points to 8.2%. Because as we've been marketing that, and the building really just delivered recently, so it's in showcase condition. We have a few tenants in there now. It's really become a magnet for life science companies. We invested a lot of money into the infrastructure of that building.
It's really part of our kind of Radnor Life Science Center, which has a few buildings in it. The demand drivers there have been very strong. The demand drivers, while they've been strong, they've been a little frustratingly slow in making decisions, which is what we're kind of seeing across the board. As we look at that pipeline, it's a full bore, 100% life science. Some of the larger users we're talking to, Michael, are, you know, they just tend to take a little bit more time than we frankly would like as they go through their technical requirements and space planning requirements. Just taking a look at the existing pipeline, and when they're targeting their occupancy dates, that was one of the drivers behind, key drivers behind moving the stabilization date back.
Philadelphia has been, is pretty fortunate where there seems to be some strong life science demand drivers, particularly in University City here, in close proximity to the anchor institutions. Also some kind of hubs of life science activity in the suburbs, primarily kind of the Radnor King of Prussia corridor, as well as further north into Spring House. You have a couple of those suburban pods that have generated some very good leasing activity on the life science front. Here in the city, while it's been predominantly University City, kind of between 30 and 38th Street, in Market, there's also been very good pods of primarily manufacturing and low impact research space down in Navy Yard and a few other pods around the city as well.
Actually, we remain very encouraged with the demand drivers we’re seeing, on life science side, in both the University City and suburban locations.
Gotcha. That's definitely helpful. Then just on the tenant default in Austin, can you expand on that a bit? Are there any other tenants in your portfolio that might, you know, find themselves in a similar situation?
Sure. Yeah, I'd be glad to. Yeah, this was a, you know, 65,000 sq ft tenant at our Barton Skyway project out in the southwest corridor. We had had a kind of ongoing dispute, you know, with them over the course of 2022. They were one of our fully reserved tenants, so weren't really having a negative impact on the 2022 business plan, you know, due to the reserve. We just got to the point where we got to a stalemate and, you know, proceeded with the next course of action, which was, you know, the default and eviction. You know, we've now got the space back on the market.
As I said, we've got a little bit of a pipeline, forming and do have one lease, for about 12,000 sq ft, that we're negotiating.
I guess, are there any other tenants that you might be concerned could default in?
Yeah. Really not at this time. I mean, we not really at this time, Michael. You know, Tom and his team, along with our asset management folks, you know, kind of go through the accounts receivable on a monthly basis. We're, you know, kind of always assessing, you know, who's utilizing space versus not utilizing space. We think that, at this time, we really don't have any other risk from that perspective.
Yeah. Michael, this is Tom jumping in for a second. You know, we did. You know, as you go back even at the start of the pandemic and where people were getting, you know, help and who needed it and where we were seeing credit issues. For the most part, you know, we were fairly lucky in terms of not having a lot of defaults. Most of those where we did give relief were more in the retail area than the office area. We've been fairly, you know, fairly good on monitoring that. We've, we do monitor the tenant's credit as we go through the year. Our team does a really good job of that. It's nothing different than what we saw in the first pandemic start.
We really don't have a lot. This tenant has been on our list as by far the largest one that we've been following. You know, we really don't see any storm clouds right now, that will lead us to think there's gonna be any change in our current, you know, collection rate and tenant collections.
Yep.
No, that makes sense. Appreciate it. Thanks for the time.
Thanks, Michael.
Thank you. Our next question comes from Tayo Okusanya from Credit Suisse. Your line is open.
Yes. Good morning, everyone. I wanted to talk a little bit about just about the dividend. Given the guidance, you guys are forecasting the dividend coverage on an FAD basis of anywhere between 95% and 105%. It gets really tight. Just kind of curious how you kind of think about it going forward, again, especially given, again, your kind of sources and uses of capital in 2023.
Yeah. Hi, Tayo Okusanya. Yes. Let me address that, and Tom Wirth certainly feel free to weigh in. Look, we acknowledge that the payout ratio for 2023 will be tight, and certainly tighter than we've had in the last several years. As we're thinking about the dividend, you know, we took a hard look, and we think we've established a, you know, a strong but conservative baseline cash flow as the foundational point in our 2023 business plan. We'll obviously monitor that closely during the year. You know, as an example, we started off 2022 with a range of 95%-84%, and we wound up right at 84%. We've become very good at controlling our forward capital costs and making sure that we manage revenue and capital expenditure.
We feel as though that baseline gave us a good springboard to grow from. We also, as we look at the plan, we expect to sell, as I mentioned, between $100 million and $125 million of properties, in addition to, you know, partially liquidating or exiting a couple of joint ventures, operating joint ventures. Some of those sales may generate losses, but we also anticipate some gains that could certainly impact our taxable income. We felt with the baseline cash flow in place, the variable of potential sale gains, we felt that it might be premature to take a look at cutting the dividend. Also we, as Tom has outlined and you've seen from our announcements, look, our liquidity is in very good shape.
Looking ahead and certainly subject to change based upon economic circumstances, you know, right now we're very confident that our cash flow will continue to grow from this baseline forecast. Quantitatively, we assess that the dividend coverage, while it will be tight, should be adequately covered. Qualitatively, honestly, it's been a very challenging year for office company shareholders. The board, after getting very comfortable with the baseline cash flow numbers, wants to make sure that we really keep our focus on returning as much value as we can pragmatically and conservatively to our shareholder base. The decision was made to keep the dividend in place. Certainly the board, as they always do, will monitor that during the course of the year, make any adjustments as appropriate. That was kind of the thought process.
Hopefully that answers your question.
No, that's very helpful. Then just a follow-up on the JV debt side. Could you just give us the general sense at this point of where you think you could raise debt for a lot of the upcoming debt maturities, and if you would consider kind of putting any kind of swaps on some of the outstanding variable rate debt?
Sure. Tayo, this is Tom. I'll jump in on that. I just wanted to follow up on Gerard's comment on the dividend. You know, as we looked at our dividend this year.
You know, our dividend, because of our gains on the sales we did have, we ended up having full utilization of the dividend between operating income as well as the gains. You know, our goal has always been to kind of keep it monitored and stable rather than giving out a, you know, sort of one-time dividend or special dividends to the extent we have gains. I thought we monitored that this year and basically came in right on top of our actual dividend. We'll monitor that again as we look at the sales. We have quite a bit in the market. That may generate gains that we know will happen, and would certainly dictate whether we would keep the dividend in place for those reasons as well.
As we look at the debt on the JVs, Tayo, we are looking at probably executing on maybe a couple more swaps for the debt that's in place. There may be increases to that from where they are right now. Then on the rates, you know, we are looking a little further out. The rates seem to dip as we get into 2024. We are talking to a couple of banks about extensions to those loans. To the extent we can get those extensions, you know, most of the properties are performing well. You know, the occupancy in general is about 80% on the whole portfolio, but they're still performing pretty well, good leasing activity.
We would hope that if we can get some extensions on the debt, we may then, talk our, you know, partners about fixing the debt, you know, looking out on the curve at something that may be lower than where that curve is today.
Thank you very much.
Thank you, Tayo.
thanks, Tayo.
Thank you. Our next question comes from Camille Bonnel from Bank of America. Your line is open.
Hi. Good morning. This morning you mentioned the quantum of disposition targets this year. Can you talk to the asset types or geographies you're looking to sell? More broadly, what your expectations of when we might start to see pricing stability for office properties?
Yeah, a great question. Good morning. Yeah, right now, as we look at our sale program for 2023, actually in all three of our markets we've identified a few properties for sale. That includes Philadelphia as well as the Pennsylvania suburbs. Several properties we targeted for sale in our Washington D.C. operation, also looking at test marketing a couple of properties in the suburban areas of Austin. The, we have a number of properties in the market now. In terms of pricing, I honestly think like everybody's out there doing price discovery. You know, the sellers are trying to figure out what they think pricing will stabilize at.
Buyers are trying to figure out where debt yields will be and what kind of price they can pay. We've actually been pretty happy with the volume of confidentiality rooms that have been signed. People are reviewing the packages and checking out the share file rooms on the due diligence, as well as the number of tours. To give an example, we have one property on the marketplace where, you know, we launched it back in January. This is in the Pennsylvania suburbs. You know, we already have a 56 confidentiality agreement signed. Now, how they all translate to pricing, Camille, I really don't know at this point. That's one of the reasons why we're gonna get as many things in the market during the course of the year as we can.
We do know that, as a couple questions have come up and Tom's articulated. You know, the debt markets, while not ideal, are certainly better today than they were in the fourth quarter of last year. We are seeing, and we certainly are seeing that through our Commerce Square financing. The number of lenders looking at that is certainly been a pleasant surprise to us. Where, again, pricing and terms come out, we don't know, but certainly a lot more lenders are out there looking for high-quality office loans. We think once we get more clarity on that, we'll get more visibility on pricing.
You know, right now we're targeting, you know, cap rates from the, you know, very high sixes, low sevens up to a nine once given the quality of some of the properties we're selling. Until we actually get offers in, I really can't give you a definitive read. We've thought carefully how we wanna sequence some of these properties in the market during the course of the year. To some degree, that pace will be modulated based upon what we see happening at a macro tone level, and what we're hearing from exist or from lenders on some of these current refinancings.
I think if we see that the lending market is opening up a bit, and spreads are compressing and terms are a little more favorable, you know, we might accelerate some of those sales opportunities going to the marketplace to take advantage of that window. Did that help? Did that answer your question?
Yes, very helpful. Thank you. That's all for me.
Thank you very much.
Thank you. Our next question comes from Dylan Brzezinski with Green Street. Your line is open.
Morning, guys. Thanks for taking the question. just curious if you.
Dylan.
Kind of comment on your expectations for net effect of rent growth across the portfolio.
Sure. George, you wanna pick up on that?
Yeah, absolutely. Good morning, Dylan. Look, it varies a little bit market to market, but I think in our Philadelphia and in Pennsylvania suburban markets is probably where we see the best opportunities. When we kind of look at our CBD portfolio today, I mean, average lease is probably 5% below market today. So we do have continued opportunities as people roll to market. And depending on when those leases were last executed, we're seeing our best mark-to-market coming out of Philadelphia
Rental rate pace is outperforming the increases we've seen in construction costs and even in free rent, you know, requests. You know, I think Philadelphia, Pennsylvania suburbs are kind of on the plus side as it relates to net effective rent growth. I think in Austin, we are probably, you know, flat to slightly down when you look at, you know, both where rental rates are kind of currently and factoring in where construction pricing has gone.
Yeah, I think, Dylan, to add on to that, I mean, you know, we've been very, very happy with the kind of the mark-to-markets that we've been receiving on particularly our University City CBD and PA suburbs properties. One of the things that we really do monitor, and one of the key points we evaluate when looking at our business plan is when we take a look at our 2023 activity, leasing activity, you know, our capital ratios are actually lower than in 2023 on a projected basis than 2022. That's even given the composition of the leasing activity that we've targeted.
We continue to remain pretty charged up about the ability to drive effective rent growth in a couple of our core markets, particularly University City here, CBD, and the Pennsylvania suburbs. As George touched on, I mean, candidly, we're somewhat of a price taker in our D.C. operation and have not really had positive mark-to-markets there for a number of years. Capital costs have remained fairly static, but no decrease to that. Then Austin, look, we have, you know, some holes to fill in the Austin portfolio in 2023 and 2024, so we're very much in a very aggressive marketing posture to get those spaces leased up as soon as possible.
Those leases, again, are done on a triple net basis, so we build a bit of an inflation hedge in. Construction cost increases have moderated across the board, but are still upward biased. I mean, we're seeing big decreases in construction costs, kind of on building superstructure issues that don't really play in too much into TIs, which is basically sheetrock, electrical, carpeting, et cetera, which anything that's petroleum-based still tends to have upward bias on the pricing model. Hopefully that provided some clarity for you.
Yeah. No, that was extremely helpful. Appreciate the color there. Just touching on the Conshohocken asset, I think you mentioned it traded at a sub 6% cap rate. Is there anything that's kind of driving that cap rate lower than the high 6s to low 9s that you had mentioned in the previous question? I guess.
Yeah, look, I mean.
For the rest of your suburban portfolio.
I think for the properties that are really well located like Four Tower Bridge and our other Conshohocken properties, our Radnor properties, we certainly believe the very low end of that cap rate range I quoted is in place. I think for some of the other products, particularly in I'll call kind of the D.C. marketplace, kind of Northern Virginia, where effective rent growth has not been that great, as we just touched on. I think there, we're thinking that those properties are trading, you know, closer to the midpoint of the range I gave before. I mean, we're still seeing very good demand. Again, somewhat driven by debt costs, so I wanna caveat my answer.
Every time we talk with a potential list of buyers on a really premier asset with good weighted average lease term, good lease structures, no deferred capital, good credit tenants, we're actually seeing pretty good demand. How that all translates to pricing, Dylan, honestly we have to see how things play out during the course of the year.
Great. Thanks, guys.
Thank you.
Our next question comes from Bill Crow with Raymond James. Your line is open.
Hey, good morning, Gerard. As you talk to your joint venture partners, do you sense an increased interest in selling assets rather than financing at today's rate? Is there increased pressure? I guess the other part of that is what does it mean for future joint venture agreements?
Yeah. Bill, good question. Hey, as we look at it, you know, all these joint ventures we enter into on the operating side are really transitional financing strategies for us. In the past we've, you know, we've done a lot of joint ventures. We exit a lot of joint ventures. Some of the joint ventures we have today are frankly kind of reaching the end of their targeted useful life for both parties. You know, certainly we probably would've been more active on the JV front in the second half of 2022 if the capital markets had been more cooperative. As we're talking to all of our joint venture partners today, on the operating side, every discussion includes is now a time to sell the assets? Is now a time to sell one of the assets?
What should we think about doing in terms of recharacterizing the platform? It was really based on a lot of those discussions, Bill, that we kind of put into our prepared comments that we do expect, you know, to recapitalize, partially exit or exit a couple of those joint ventures during the course of 2023. Whether that's through a buy-sell mechanism where we sell our interest. We have a, you know, seven or eight property portfolio with one particular partner, and we sell two or three assets out of that, refinance out the balance. All those discussions are very active, and we're blessed that a lot of our joint venture partners are really smart, too. They're very smart operators. They understand the real estate business. They're pragmatic.
They understand the realities that we're facing in trying to sell and refinance properties today. All of the discussion with every partner is productive, constructively focused for and how we maximize returns to both parties. We do think the first half of 2023 will be very interesting in terms of getting some of these financings done, but more importantly, developing a, you know, a 12-36 month horizon on how we can actually recycle out of some of these operating joint ventures. Is that helpful?
Okay. Yeah, I think so. Thank you. For either you or Tom. Good morning, Tom. Just curious, one of your West Coast peers cut their dividend, implemented a share repurchase platform. I'm just curious how you're thinking about given where your stock is trading, the implied cap rate, et cetera, kind of the trade-off there between a lower dividend, but getting more active on the repurchase side.
Look, I think that's a sound strategy that company is using, and I think our approach has been let's generate some surplus liquidity through selling assets, keep the return levels to our existing shareholders where it is. As we certainly can generate excess liquidity through some asset sales as we talk about some joint venture liquidations. As I mentioned in my comments, I think both share buybacks and debt buybacks of our longer term debt are certainly on the table on a leverage neutral basis. We're very focused on continuing to grow cash flow, very focused on, as part of that, reducing our overall leverage metrics to provide more capital flexibility.
There's no question that both share and debt buybacks are on the table, and Tom and I monitor that very carefully. Really the driver there being how we view near term sources of liquidity to implement either one of those tactics.
Great. Thanks, guys.
Thank you, Bill.
Thank you. There are no further questions in the queue. I'd like to turn the call back to management for closing remarks.
Great, Catherine. Thank you very much. Everyone, thank you very much for participating in our call. We look forward to updating you on our 2023 business plan progress on our first quarter call later this year. Thank you very much.
This concludes today's conference call. Thank you for participating. You may now disconnect.