Brandywine Realty Trust (BDN) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Brandywine Realty Trust Fourth Quarter 2017 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Jerry Sweeney, President and CEO. You may begin.

Glenda, thank you, and good morning, everyone, and thank you all for participating in our fourth quarter 2017 earnings call. On today's call with me today are George Johnstone, our Executive Vice President of Operations; Tom Wirth, our Executive Vice President and Chief Financial Officer; and Dan Palazzo, Vice President, Chief Accounting 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 assurances 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'll start with a review of our 2017 results and then move into our 2018 business plan. And I'm really just going to touch on '17 results, as our disclosures lay out a clear roadmap that demonstrate our very solid ending to 2017. From an operational standpoint, we exceeded the vast majority of our goals, namely tenant retention, cash mark-to-market, leasing capital cost, average lease -- and our average lease term. In addition, we met our cash and GAAP same-store targets, the lower end on GAAP and the higher end on cash. We did come up about 70 basis points short on our same-store leasing targets for the year, primarily driven by the timing of lease executions by definitive prospects that have been or will be signed in Q1 2018. We also continued on our path to grow net-effective rents, with 2017 having a 7% increase over our net-effective rent average of 2016.

On the investment front, you may recall our original disposition target was $100 million at a forecasted 8% cap rate. We finished the year with $430 million of sales, not including the recently announced Evo transaction. Our average cap rate was about 6% on a GAAP and cash basis. The main contributors to our fourth quarter investment activity are included on Page 3 of our supplemental package.

On the balance sheet, we made great progress during 2017. Net debt to EBITDA closed out the year at 6.2x versus 6.9x at the beginning of the year. We accessed the public debt markets, raised $550 million at an average yield of 3.9%, used those proceeds to pay off $325 million of 4.95% bonds. We also paid off a $100 million of 6.9% coupon-preferred shares during the year. We reduced our average cost of debt by 45 basis points. We lengthened our debt maturity to 7.7 years from 5.9 years at the beginning of 2017. We ended the year with a net cash balance of $202 million, $0 balance on our line of credit with minimal floating-rate exposure to the company.

We also increased our quarterly dividend from $0.16 to $0.18 per share for a 12.5% annualized increase. And finally, to further improve our funding capacity, financial flexibility and improve our balance sheet, we did utilize our ATM program, which was -- has been in place since 2013, and sold $51 million of stock at an average price of $18.19 per share. It was a challenging decision for us, but frankly, given the sectors equity market volatility, interest rate headwinds, we opted to issue the shares to ensure continuation of our balance sheet targets and also to ensure forward-funding capacity.

From an earnings standpoint, this issuance was $0.02 per share diluted to 2018 FFO. But at the midpoint of our guidance, we are still posting a 4.5% FFO growth rate and 11% CAD growth rate, with a constant dividend coverage of 68% even after the dividend increase. From an NAV perspective, this issuance did not dilute net asset value with the consensus NAV of $18 at the high-end of the NAV range, but resulted in $0.03 per share NAV dilution, in a lower end that was actually accretive. So since we don't really publish an NAV I referenced those as relevant data points to our investors. So our approach on issuing those shares was to ensure that we met our balance sheet targets, preserve tremendous financial flexibility to forward fund our development value-add pipeline and that was the decision we made in the middle of December of last year.

So to wrap up, 2017 resulted in a solid execution on the key pillars of our strategic plan, namely growing earnings, growing cash flow, prefunding our development and enhancing our balance sheet. We ended the year with solid operating performance. The success of our investment and financing activities demonstrated our discipline to continually improve our balance sheet, create a growth-driven portfolio and prefund our development activities. As indicated in our press release, we have updated our previously issued 2018 guidance range, which was previously $1.36 to $1.46 per share to $1.33 to $1.43 per share. The revision to our midpoint is driven solely by $0.01 per share dilution caused by the Evo sale and the $0.02 per share dilution caused by the ATM issuance.

Now looking at this year, our 2018 plan is off to a great start. We already have 75% of our revenue plan done with a strong pipeline of pending lease activity. We believe our operating plan is on solid footing with a bias to the upside. Our 2018 business plan objectives are clearly laid out on Page 3 of our supplemental package, and we also compare our 2018 targets to our 4-year business plan targets on Page 6.

So bottom line, 2018 represents a continuation of strong operating results with occupancy and leasing levels improving, positive mark-to-market, positive cash same-store growth and capital costs remaining within our targeted range. Our current business plan does not incorporate any acquisitions nor any dispositions beyond our Evo sale. We are continuing to project one development start during the year with the dollar value ranging between $50 million to $100 million. And as we've emphasized, we don't really plan on starting any new development without a significant prelease and a strong pipeline on follow-on deals.

The only financing activity we have on our plan is a recasting of our $250 million term loan, which we anticipate doing during the first half of the year. Just some other quick notable highlights. Focus remains on cash flow growth, capital allocation and a strong balance sheet. With the Evo sale and the ATM issuance, we're now projecting achieving our 6.0x EBITDA target by 2018 and strong cash flow. Even with our 12.5% dividend increase, we anticipate maintaining a solid CAD payout ratio of 68% at the midpoint.

Just looking at our development and redevelopment pipeline. First of all, all of our development activities are clearly laid out on pages 13 through 15 of our sup. Our overall development pipeline is currently 77% preleased and our projected remaining spend is about $168 million. That's been fully prefunded through our sales acceleration. We did proceed on two smaller renovation projects, 500 North Gulph Road and 426 Lancaster Avenue, with an anticipated aggregate investment base of $39 million and targeted return levels of 9.5% cash-on-cash. As part of our Schuylkill Yards development, we did close on the acquisition of One Drexel Plaza, a 283,000 square foot office property for $35 million that we plan to reposition over the next 12 to 18 months. Based upon our preliminary budget of $83 million, which includes the acquisition price, we anticipate a targeted return of 9%. We have also executed a lease with a life science company for 108,000 square feet. We will begin staging their occupancy in late second quarter of 2018. We also started construction of our 165,000 square-foot building at Four Points in Austin, Texas. That project is 100% leased to an existing tenant, under a 10-year lease, with estimated cost of $48 million. We anticipate delivering that in Q1 '19 at an 8.4% projected return on cost. We also started construction on our 4040 Wilson project, a 50% mixed-use development -- a 50% joint venture ownership -- mixed-use development in the Ballston submarket, that will contain 189,000 square feet of office, 36,000 of retail and 250 apartment units. The office and retail component is currently 46% preleased, leaving us with a little over 100,000 square feet to lease over the next 2 years. Estimated cost will be $225 million.

All of our equity is funded and the balance of cost will be handled via third-party construction loan. We anticipate substantial completion in Q1 '20 with an office stabilization in Q3 '21.

We continued construction on our Subaru of America project at our Knights Crossing campus. That project is 100% leased on an 18-year lease at a 9.5% return and incorporates 2% annual bumps. We continue to advance planning, predevelopment and zoning efforts on several other development sites, including 405 Colorado in Downtown Austin, Garza ranch in suburban Austin and our Broadmoor master plan in the Northwest part of Austin, our Metroplex project here in the Pennsylvania suburbs and Phase 1 of Schuylkill Yards.

At this point, George will provide an overview of operating performance including some color on our '18 business plan and then turn it over to Tom, who will review our financial performance.

Thank you, Jerry, and good morning. We continue to be pleased with the pace of activity in all of our markets. As Jerry detailed in his commentary, market activity and our team's ability to source, negotiate and close deals allowed us to beat a number of our 2017 goals. These same characteristics has us -- have us off to a great start to 2018 with 75% of the plan achieved. The pipeline excluding development properties stands at 1.6 million square feet, with over 300,000 square feet in advanced stages of negotiation. During the quarter, we generated 92 space inspections totaling 547,000 square feet, outpacing the third quarter in both measures. In terms of our core markets and the underlying assumptions contained in our 2018 leasing plan, in CBD, Philadelphia, during the fourth quarter we renewed and expanded Comcast at Three Logan Square. Our CBD portfolio roll over exposure is now below 9% each year through 2021. As discussed on our last call, a 100,000 square-foot tenant vacated five contiguous floors at Three Logan on January 1. Since our last call, we've executed leases on 2 of these floors and are under LOIs for 2 additional floors. The 4 deals were done at an average cash mark-to-market of 10%. At Cira Centre, 2 full contiguous floors totaling 55,000 square feet roll on June 30. Our 2018 plan still assumes these floors remain vacant for the duration of the year. We've had several tours to date and have one proposal outstanding for half of the space.

Turning to the Pennsylvania suburbs, our fourth quarter activity in Radnor has increased our leasing percentage to 92.5%. The large suites vacated in 2017 continued to see good levels of activity and tours have picked up in the last 2 weeks. We have assumed 90,000 square feet of currently vacant space to be re-absorbed in the latter half of the year. We've done selected demo in several of the spaces and completed several common area improvements during the fourth quarter to aid in our leasing efforts. The pipeline in Radnor consists of approximately 235,000 square feet including seven prospects over 20,000 square feet.

In Northern Virginia, we are currently 91% leased, and with Northrop Grumman's renewal in Dulles Corner behind us, our annual roll over in Metro D.C. is also below 9% for each year through 2021. Tours in our Northern Virginia portfolio, were up year-over-year. The pipeline of new deals is 270,000 square feet, and we have approximately 100,000 square feet of new leasing in our open 2018 business plan. Market drivers in D.C. continue to be metro access in fully amenitized buildings. We've proactively built a number of spec suites to capture tenants seeking quick occupancy.

Austin's economy is as robust as it's experienced in nearly 2 decades with regional unemployment at 2.7%. Our Broadmoor 6 redevelopment remains 79% leased. A number of prospects continued to show interest, and we have no doubt the remaining space will lease up quickly in the hot Northwest domain market, which is increasingly known as Austin's second downtown. The remaining portion of our DRA joint venture continues to perform well. We're 70% done on their leasing plan with both mark-to-market and same-store NOI growth continuing to demonstrate high-growth characteristics.

Our business plan targets remain unchanged from our last call, but a point to elaborate on is same-store NOI growth. As a result of several large move-outs occurring in the second half of 2017 coupled with the Three Logan vacate this month, our first and second quarter same-store growth metric will be below our annual range. The same-store portfolio will return to growth levels ranging between 3% and 5% on a GAAP basis and 2% to 4% on a cash basis in the fourth quarter as these spaces are reabsorbed.

It is worth further noting that our current 83 property same-store portfolio will increase in the third quarter when FMC Tower, 1900 Market Street and 933 First Avenue transition into the same-store. With these additional 4 properties in the mix, our second half of the year same-store NOI will range between 10% and 13% on a cash basis and 4% to 5% on a GAAP basis.

So to conclude, we are delighted with the achievements to date on the business plan and with the activity levels in our markets to meet the balance of our 2018 objectives. And at this point, I'll turn it over to Tom.

Thank you, George. Our fourth quarter net income totaled $73.1 million or $0.41 per diluted share, and FFO totaled $53.7 million or $0.30 per diluted share. Some observations regarding the fourth quarter results. Same-store rates for the fourth quarter were negative 2.3% GAAP, positive 3.3% cash, both excluding net termination and other income items. We've had 20 positive quarters of this cash -- of cash metric. While we have negative quarterly same-store growth, we achieved positive for the full year 2017. We incurred $6 million or $0.03 per share of one-time related cost to early debt extinguishment of debt, comprised of $3.9 million from the early redemption of our 2018 bonds, $800,000 of net interest expense due to having the bonds outstanding for the make-whole period and $1.3 million on our share of cost related to the prepayment of the mortgages related to our Austin joint venture. Due to timing, the issuance of shares to our continuous equity program generated an incremental 510,000 weighted-average shares during the quarter. Our fourth quarter fixed charge and interest coverage ratios were 3.2 and 3.4, respectively. And common shares issuance in the fourth quarter sales activity reduced our net debt to EBITDA to 6.2x. Looking at the first quarter of '18, the following are just some of our general assumptions: property level NOI will be approximately $75.5 million, a sequential $1.5 million increase from the fourth quarter of 2017; FMC office and residential operations will generate an incremental $2 million of GAAP NOI; One Drexel, 3000 Market and Four Tower Bridge will generate an incremental $500,000; partially offsetting these increases is $500,000 of NOI for the fourth -- from the fourth quarter based on asset sales; and then another $500,000 will be negatively impacting our NOI for the first quarter related to demolition costs for one of our redevelopment projects.

FFO contribution from our unconsolidated joint ventures will total $6 million, and reflects the joint venture sale of Evo.

G&A consistent with prior years. Our first quarter G&A will be high at $9 million and our annual G&A for the year will be $28 million. Interest expense will decrease to $20 million reflecting the full quarter effect of our bond transactions in '17, and capitalized interests will be $500,000. Termination and other income will be $500,000 and $600,000, respectively. Net management leasing and development fees will be $2.5 million, and we have no incremental ATM activity in our plan.

Looking at the capital plan. We project CAD will be up 11% from the midpoint of our range. The coverage is very similar to our 2017 coverage based on the CAD growth and our dividend increase. Uses of our -- uses for 2018 will total about $370 million. It's comprised of $160 million of development and redevelopment, $130 million of common dividends, $38 million of revenue maintain and $35 million of revenue create and $7 million of mortgage amortization. The primary sources will be $215 million of cash flow from operations after interest, $43 million from Evo proceeds and $112 million of use of cash on hand. Based on the capital plan outlined, our projected cash balance will be approximately $90 million at the end of the year. Based on equity issuance and the Evo sale, we now project our net debt to EBITDA ratio will be at 6.0x by the end of the year and our debt to GAV will remain in the high 30% area. In addition, we anticipate our fixed charge ratio improving to 3.4% and our interest coverage improving to 3.8%. And I'll now turn the call back over to Jerry.

Tom, thank you. Thank you too, George. So to wrap up, '17 results strong 2018 is off to a very solid start. We remain very focused on growing earnings, growing cash flow, managing our forward leasing rollover risk, which as George touched on, we have down into the single digits, maintaining and ever-improving our balance sheet and creating a steady pipeline of value-add opportunities. So with that, we'd be delighted to open up the floor for questions. As we always do, we ask that in the interest of time, you limit yourself to 1 question and a follow-up.

(Operator Instructions) And our first question comes from the line of John Guinee from Stifel.

Two quick questions, first very nice call. Amazon HQ2, I really always hate to ask this, but what are the primary locations for both Philadelphia and Austin? And then second, 440 Wilson, how much, Jerry or whoever, is the development per square foot for the office and retail and the development per unit cost for the residential?

John, I'll take the -- I mean, look first of all, on Amazon, it's obviously a big topic nationally. And I think from our perspective, first of all, congratulations to the cities that made the short list. I mean, we're really delighted that Philadelphia was on that list and followed up with Austin, DC being on that list as well. Our role in that, really honestly, John, is to stand at the ready to assist the city in any way we can and facilitate their bid. We are very enthusiastic about that, who knows where that process goes. I think, as I mentioned on the last call, it's fascinating from a real estate standpoint to see what -- what a disruptive influence the process Amazon has used for site selection has had on our business. And I think it's going to generate a lot of positive long-term value for our industry. Look, in terms of the -- there's a whole range of sites, most of which are online that people can check out in terms of the shortlisted cities. Schuylkill Yards is one of the developments that was submitted as part of the Philadelphia bid. So we're, again, stand at the ready to help the city in any way we can to facilitate that process as well as in Austin and DC as well. So this is really a process being led by Amazon at the forefront are the political and civic leadership of the respective cities. And our role is to support them, however, we can to have each of the cities put forth the best bid they possibly can. On... I'm sorry, John.

Wilson, 440 Wilson development cost?

Yes. I think, I mean, our overall development cost, we're looking at $560 a square foot. I don't have the break down in front of me, John. So we can fall between the -- breakdown between the retail of the office and the residential, so I apologize for that. But we can certainly follow-up with that. But as we're starting to look at -- moving forward with that project, we certainly saw an opportunity to secure a worthy tenant, from a prelease standpoint we're at a 2020 delivery. That submarket we think is in a location we already think is a great location and will get better. And we think we're building into a stronger market with the delivery of the Ballston Quarter Mall that Park city is doing. Probably another 400,000 square feet of retail, new restaurants and outdoor dining, et cetera. So we think that submarket in the location of the project that we started will continue to be better. And we actually did see an opportunity to introduce a bit of a mixed-use tower to that market. So it's a differentiated product with a bit of a differentiated amenity package. And we think that, that will wind up being a real point of difference for us as we lease up the balance of the office space over the next couple of years and fill in the balance of the retail and the apartment leasing.

And our next question comes from the line of Rich Anderson from Mizuho Securities.

So just a big picture question for you, Jerry. I guess, this is a recurring theme from Brandywine in terms of dispositions, bringing down the earnings growth profile. As we wrote in our note last night, we understand them to be very good real estate decisions, value creation and all the rest. But I'm curious where you're at on that process. Because we sense a, I guess, sense of frustration from investors that are waiting on growth going up as opposed to down and maybe the disposition processes is nearing an end so that we won't have these things to explain in future periods. I mean, just wondering how you balance the idea of good real estate decisions with the fact that you're a publicly-traded REIT that -- where growth at the quarterly basis matters to people.

Rich, fabulous question. The -- and look, it is a struggle. And we talked to a number of investors that are, I would say, equally split, but there's clearly a recognition that there some time is a distinction between earnings momentum and value creation or value harvesting. So I guess, as we look at it, we've sold an awful lot of property almost $2.5 billion over the last 5 years. We do believe we have about $400 million of non-core properties left to sell. But I think more thematically, as we looked at the events in the last, call, a quarter or so including the sale of Evo, we looked at that, even with this sale of Evo, which I'll talk about in a second, we're still generating what we think is a top quartile FFO growth in the office sector. Again, our primary focus is on cash flow growth so we were able to really generate low double-digit cash flow growth. And we also think that kind of in these uncertain times, it does make sense to make sure that we're really bulletproofed on the right side of the balance sheet. And so certainly having increased financial capacity is very much in the top of our thoughts. We're also -- with that general theme, we do take a look at -- the office markets continue to be in the state of disruption across the board, whether the impact of technology, new product coming online. And we do recognize that markets and submarkets are ever-changing and we really need to be mindful of where we think each of those markets will be in the next 5 to 10 years. And frankly, where our product will be positioned in those markets. So we always want to maintain earnings momentum, and we do acknowledge that this asset churning does create a sense of frustration by some investors. But honestly, from I think that the shareholder's perspective, I don't think we'd want to be in a position where we're afraid to trade-off FFO for value creation and harvesting. As you know well markets move, capital markets and real estate markets, so I think our approach going forward is, I think, we will remain opportunistic. So for example, on the sale of Evo, and that was a wonderful opportunity to sell with the non-core asset in a really core location for us. We had a great partner with Harrison Street there, who knows this market segment very well. After some test marketing, we were able to really identify an international global investment fund based in South East Asia, who was able to see the long-term value in owning that property. So they made their first entrance into the Philadelphia investment market, which we think is a great result for our portfolio with some great read-through. So with the 2 sales that we've done at Cira Centre South have both been to foreign investors, which we think really starts to validate the investment pieces in Philadelphia that we're trying to create. But as we take a look at some of the non-core assets, I mean, as we look at the plan going forward, we would hope to identify asset sale opportunities with some match funding for either asset, acquisitions or creating some value through our development pipeline. So that's a long-winded answer, we acknowledge the concern that some investors have raised. We did look at our landscape for 2018 that even with these sales we were still posting pretty good growth metrics. And that -- as we've said for the last several years and certainly learned a lesson to make sure that our balance sheet remains in exceedingly good shape going into whatever the cycles bring.

And our next question comes from the line of Michael Lewis from SunTrust.

I actually was going to ask that same exact question that Rich just asked. You gave a good answer to it, but maybe I could take it one step further, which is, another thing about Brandywine is it's common for you to have assets for sale, but you're very particular about getting your price and you're not afraid to take it off the market. I was wondering if you could share how much you have on the market now? And then it sounds like from your comments, as you've got $400 million of non-core, do you think it's not out of line for us to be kind of assuming that you sell, roughly $400 million over the next couple of years kind of opportunistically?

Richard, the...

Mike.

Actually, Mike, I'm sorry. I think that's a good assumption to look at over the next couple of years. And I think we've really done a great job of getting the portfolio back to where we wanted to be. These non-core assets, we're still working through some of the value creation and we think we can harvest from them, which is why we developed our plan, we didn't really lay out a target number. But right now we really do not have a lot in the market. We always respond to reverse inquiries, which we're seeing somewhere -- which we always get in from all 3 of the markets that we're in. But I do think, as we look going forward, we are going to be very focused on continuing to monetize our landholdings, which we've had great success over the last couple of years, that we're going to continue as we've laid out in our full year business plan trying to reduce our exposure to some of these joint ventures, and we were able to do a couple of good transactions in the latter part of '17 with a partial sale of DRA, swapping some of the property interest with our Conshohocken venture to exit that as well as on the Allstate side, a sellout of the -- a property in Bethesda, it's a real advantage and we think a strong investment market there. So I do think that, as we said on previous calls, we think a lot of the heavy lifting is behind us in terms of the portfolio repositioning. But I do think it's incumbent upon us to always be very mindful of where we think these markets are going. And to always stay in close touch with capital sources and the investment market to make sure that we are in a position to respond as we see opportunities come up.

And then you mentioned the tough decision to issue the shares. I was just wondering if you think you may have more appetite to do that if the stock trades above $18, which seems to be the -- about the consensus NAV or if maybe now that you're, you have this clear path to the target leverage, if maybe you would have a less appetite to do more equity unless the stock price, of course, got much higher?

Yes, I think the primary thought process we had on this ATM issuance was to really make sure we were in great shape from meeting our balance sheet targets. I think as we look at going forward, we would be looking at any equity issuance tied to an investment opportunity that would create value for our company. So we kind of look at it from a strategic standpoint. We view this $50 million of equity issuance that really was the last piece of the puzzle in kind of achieving and we -- in achieving our balance sheet goals. And I think going forward, we're going to be very focused on where that currency can create value for our shareholders, on a going forward basis.

And if I could ask just one more. I'm going to put the cart way before the horse here and ask, when Amazon picks the market, well, first I don't know -- I guess, they probably pick a location within a market. Do you have any sense on how you kind of negotiate the terms of rent and terms like that? Do you think that there's any expectation that Amazon or the government would expect you to make concessions if, for example, they pick Schuylkill Yards? I'm just curious how the process would work once we get past this initial part?

Yes, Michael, it's a good question. And honestly, I don't have any real visibility and so what I mean -- I mean, honestly, our goal has been and a support one to the public policymakers, both the city and the state level where we are, to kind of help them develop kind of real estate fundamentals and present the best platform for them to in turn present to Amazon. Amazon is an incredibly smart, incredibly talented company that knows what their business objectives are. So my expectation would be whatever selection they choose or selections, they go for another short list of (inaudible) they take. It will be an intense negotiation across the board. But our goal really is one of total support and how any site, not just a Brandywine site, but any of the sites that are under consideration, having all fit-in, I think, is a big TBD in the minds of all real estate owners.

And our next question comes from the line of Rob Simon of Evercore ISI.

Just a quick housekeeping question for us. Now that you guys have dealt with at least part of the Comcast lease and you talked about the move-outs at the end of June, it sounds like you're early on dealing with those. Are there any other tenants in the portfolio that you could speak to that might give you pause as potential move-outs over the next, call it, 12 to 18 months?

Sure, and this is George addressing the question. We've got 4 -- We only have 4 leases in the balance of 2018 over 20,000 square feet. I mentioned in my prepared remarks, the 55,000 square feet at Cira. We've got a 48,000 square-foot tenant down in Dulles Corner that we know is going to move out in the third quarter. The other 2 tenants, they're over 20,000 square feet, are both projected to renew and we are in negotiations with them right now. And then as we look into 2019, our largest exposure is with Comcast at Two Logan. And we continue to kind of just wait and evaluate what their ongoing needs are going to be. I think they continue to grow and need space and are in the building now. So we're kind of just playing that one by ear. And that's a 1/1/19 event date. And then 3 others, all kind of over 50,000 square feet, we're in active negotiations with already and think that we'll end up retaining -- or hope to retain each of those. So again, '18, '19 and even 2020 expirations are all kind of on the table with our leasing teams everyday to try and further mitigate our rollover exposure.

And our next question comes from the line of Craig Mailman from KeyBanc Capital Markets.

George, maybe if you could, I know you guys have another piece left with Comcast, just any update there potentially on what they're planning to do? And just remind me, was any of the Comcast expansion related to the activity you're seeing for the Verizon backhouse?

Yes, so on the Three Logan piece, the expansion occurred outside of the Verizon floors. We did take 1 tenant who was in a Comcast expansion floor and moved them down to the Verizon. But the rest of that leasing activity in the Verizon space has come from other parts of the city. The Two Logan piece, again, as I said, I think, it's a little bit of a wait and see. They expanded by 65,000 square feet in Three Logan, so they need to kind of staff that up. And then we'll kind of see what the next bite of the apple is.

Okay. And then what's left on Verizon now?

Just 1 floor. So 20,000 square feet.

And then Jerry, on Evo, it was unclear from the press release, did Harrison Street sell their interest as well?

Craig, yes, the -- we -- 100% of the interest in the property was conveyed. So Harrison and Brandywine sold as well.

Okay. And then just lastly, I know, we've hit on disposition here a bit, but -- and I know we've talked about it last quarter, but just a decision not to include any incremental at this point and it's kind of a fatigue with you guys giving guidance in the quarter or 2 later, lowering guidance again. Just the decision not to look at what you have in the market what you really think you're going to sell this year and put that into guidance. And if you have to, at the end of the year, raise guidance because you didn't hit the disposition target, kind of the decision to not go with that way rather than the kind of 1,000 cuts here we're seeing.

Well, hopefully not 1,000 cuts, but it's a good point you've raised. It's -- I think from our perspective, we're coming off a really heavily-weighted disposition goal in 2017. And frankly, some of that was, I don't say, was a surprise because we put properties in the market, but as it was mentioned earlier, I mean, we do lay a pretty solid price targets that we try and achieve. And as we're coming out of '17, I think our perspective was that the primary focus we have in the company is, as I've mentioned, to kind of keep growing earnings, growing cash flow. And we felt like a lot of it immediate market sub-positioning we're targeting we have achieved. Evo was a process that we had -- a very solid bar of both Harrison Street and Brandywine set for an exit. We frankly weren't quite sure we would get to that level. We round up having a very well-orchestrated process. They had a lot of discipline and communication to it. And we were able to identify a buyer, who had the quality of being able to deliver efficiently on the transaction that size and had a really good long-term perspective, which fit in well with what we were trying to accomplish here in University City. So we weren't really sure that transaction would come across the table when we did our last earnings call.

And our next question comes from the line of Manny Korchman from Citi.

Tom, just circling back to the ATM raise for a second. So I get that you want to build up some dry powder. In your minds, is there a use for that dry powder that you're just hesitant to put into the 2018 plan, development starts didn't move, acquisitions didn't move. Do you have that money earmarked and you're just not disclosing it for what? Are you just trying to make sure that you have dry powder going into, let's call it, the end of '18 or even into '19, with that leverage target that you've set out in the past as sort of the bogey you're going for?

Yes, Manny, I think, as Jerry mentioned, we do -- we did want to get to the bottom end of that range and hit the 6.0 -- and I think that, that was a driving predicate. But we do have several -- as we did say, we have one development start we'd like to do. And we will be taking on some debt attribution leverage with 4040 Wilson. So those were 2 items. And then we have a couple of other opportunities for development also. So I think it was -- leave some dry powder, we'll have cash at the end of the year, as I mentioned, of close to $90 million. So I don't think it was a liquidity decision. I think it was more towards leverage as well as having some dry powder to make sure we hit the 6.0x.

And George, just thinking about Schuylkill Yards as a bigger project, how much of the demand or at least discussions you're having right now are coming from tenants that are already at FMC, especially in the context of rent abatement. Is that project running off and being provided at this local project?

Well, I think, anybody looking at Schuylkill Yards is a couple of years down the path. So we haven't really had any discussions with our existing tenant base for Schuylkill Yards, but we continue to get a number of inquiries from inside the city, outside the city, outside the region about that project and all of the elements that it brings to the table.

And our next question comes from the line of Jamie Feldman from Bank of America Merrill Lynch.

I was hoping if you guys can just talk through your thoughts on future development projects, like, if we look at the land inventory on Page 16, if you go to handicap, what next starts might be or maybe just talk through kind of the level of interest in build-to-suits for some of those projects?

Sure, Jamie, we'd be happy to. We continue to finalize the approval processes for our 405 Colorado project in Downtown Austin. That market is doing incredibly well. Rents have continued to migrate north on both the notional and effective basis. It's about a 200,000 square-foot building with parking underneath it. So it's not a large building in terms of square footage. So -- I mean, we are -- while we're finalizing the approvals, we're spending a lot of time premarketing that project. And we certainly view that as something we want to start as soon as we sign up the tenant. We were also down in Austin in the process of wrapping up our approvals on Broadmoor, which, as you know, is a multiphase build-out. So we're starting the planning process now in a couple of individual buildings there that we think will be well received, but that's probably a, in terms of delivery, a '19 event. And then here in Philadelphia, I think, the focus is primarily on our Metroplex project, out in Plymouth Meeting, which is, depending upon the configuration, between 200,000 and 340,000 square feet. So we're in active discussions with a number of prospects on that. We are designing an incredibly high-quality building that is something unlike anything that Philadelphia suburbs has seen before. So it's a side-core configuration, very efficient floor place, lot of green space. So the price point we're trying to achieve there is the upper end of the market. But we're getting good traction on that because of, I think, some companies recognizing the value of that location and also the quality of the work environment that they can create there. And then on Schuylkill Yards, we continue to work with our partners, Gotham on the residential side and Longfellow on the life science side, along with our Brandywine team, to really think through the various components of our Phase 1 development, which we still currently contemplate will be an office and life science building. But we're also evaluating expansion of a retail base there as well as the incorporation of potentially some residential. And then down in DC, we were able to get the 4040 Wilson transaction moving forward, and we're just in the premarketing mode for the balance of our office inventory down there.

Okay. That's helpful. And then I guess, just your views on co-working and how you think it's going to have a -- make a difference going forward in your market? And how you guys are reacting to the trend?

Yes, look, I think, it's a very viable delivery platform that addresses the needs of a number of tenants. I think it's -- it will be interesting to see how the co-working evolves from kind of the small sort of entrepreneurial model, to really serving as temporary office space for large corporate users. We track that. We have some of the co-working spaces in our existing inventory. We spend a lot of time with those folks making through how we can facilitate their growth, while at the same time accommodating expansion requirements even if they're temporary by some of our more traditionally-based tenants. So I think we maintain a very good relation with the number of -- with the co-working companies. Certainly, the platforms we have in all 3 of our key markets, I think, are attractive to them in terms of the location (inaudible) want to be part of our inventory. And I think the next step for us is really thinking through how we can piggyback some of their ideas to meet a temporary niche that we see in some of our corporate-level tenants. And I think we would expect to make some progress on that during 2018.

Do you see meaningful growth through those types of tenants over the next year or so in your markets and in your portfolio?

Yes, I think, we'll see continued expansion, Jamie, whether -- I'm not sure I would define as meaningful growth. But I think the -- there's about 0.5 million square feet of that in the overall Philadelphia market. It also seems to be doing pretty well. But there's a lot of variability between the locations of those co-working spaces. One doing incredibly well given its location and other one not doing so well. So a lot of the locational attributes, amenity attributes that we typically see with our standard corporate, the traditional tenant are also requirements of some of these smaller startup companies as well. So I think there will be continued expansion. I don't know if there will be substantial growth over the next 12 months though.

And that concludes our question-and-answer session today. I would like to turn the call back over to Jerry Sweeney for closing remarks.

Great. Well, thank you all for participating in our fourth quarter call. We look forward to updating you on our activities in our first quarter call later in the spring. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone have a great day.