Apr 30, 2009
Executives
Gerry Sweeney - President & CEO Howard Sipzner - EVP & CFO
Analysts
Jordan Sadler - KeyBanc Capital Markets Sheldon Grodsky - Grodsky Associates Fredrick Litchien - Green Street Advisors Dave Rodgers - RBC Capital Markets John Guinee - Stifel Nicolaus Rich Anderson - BMO Capital Markets David Shapiro - BGB Security
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Brandywine Realty Trust First Quarter Earnings Call. (Operator Instructions).
I would now like to turn the conference over to Mr. Gerry Sweeney, President and CEO of Brandywine Realty Trust.
Sir, you may begin your conference.
Gerry Sweeney
Beverly, thank you. Good morning and thank you all for joining us for our first quarter 2009 earnings call.
Participating on today's call with me are Howard Sipzner, our Executive Vice President and Chief Financial Officer; George Johnstone, our Senior Vice President of Operations; and Gabe Mainardi, our Vice President of Corporate Accounting. Before we begin, I'd like to remind everyone that certain information discussed during our call may constitute forward-looking statements within the meaning of the Federal Securities Law.
Although we believe the 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 filed with the SEC.
With that said, during the quarter our primary efforts remain focused on balance sheet management and maintaining stability on our real estate operations. And we are pleased to report progress on both funds.
In addition to reviewing our operating results, primary topic for the call, it's an update on our capital plan. As we have previously identified, our capital program for 2009 consist of three primary components.
First, secured debt financings; secondly, asset sales; and finally a third party financing program for our IRS historic renovation in garage construction project. On the secured mortgage component, our 2009 capital plan contemplated $180 million of mortgage financings.
On April 1st, we closed a $90 million financing on our two Logan property. This property was already encumbered with a $68.6 million mortgage with a face rate of 7.78%.
The replacement rate on the new mortgage was 7.57% for seven-year term, three years interest only, and the loan was provided by a life insurance company. In addition to that activity we undersigned application for mortgage on our one Logan property in Center City, Philadelphia.
That project is currently unencumbered. We anticipate a mortgage funding level of around $60 million for a seven-year term that will close late second or early third quarter.
These two financings put us at the $150 million mark. As previously stated our objective is to enter the mortgage market later in the year with one or more smaller properties that filled a $30 million remaining gap in achieving our $180 million annual goal.
Our 2009 business plan also contemplated $180 million of sales with another $160 million program for 2010. Sales in joint ventures remained one of our most cost effective sources of raising capital.
We entered the market in the first quarter with a variety of assets that we had targeted for sale as we suspected the market is challenging but surprisingly active. As such we are pleased to report that the first wave of our potential sales has been successful.
In the first quarter we closed on $10.1 million of sales, we are under agreement or in advanced contract negotiations on a $160 million of properties. Of that amount $26.5 million closed yesterday, $85 million is under from contract and $50 million in advance contract negotiations or letter of intent negotiations.
The property that closed yesterday was sold through a private buyer, the cap rate very much in line with our targets. On one of the deals under contract there is a 50% loan-to-value financing contingency, which is why we feel very comfortable in having that being achieved; there is still a potential variable on that transaction.
The remaining $50 million that we have under contract on a letter of intent are all in or will shortly be entering the due diligent space. We are expecting these transactions that closed during the second and third quarter.
We are also expecting additional offers on several other properties. On the properties we have sold or have under contract or letter of intent thus far, we will have an average weighted cap rate in line with our target at 9.5%.
But there was a high degree of variability within each specific transaction. Our bid list on each of these properties varied depending on the properties location, growth prospects, etcetera, but represented a blended institutional all cash buyers mixed with private investment groups who are seeking traditional financing between 50% and 65%.
One of the properties we do have under agreement will [necessitate] us taking back a purchase money mortgage equal to about 25% of the overall sale price. Just as importantly, in addition to the sales efforts we also have several joint venture discussions underway on large pools of assets.
And while we remain in cares with the tone and pace of these discussions besides in complexity of each of these transactions will result in potentially protracted closing timelines. All-in-all on the asset sale front, we are very pleased with our progress to-date and increasingly confident of our ability to meet or exceed our 2009 target.
The overall tone in the investment market seems to be improving but it's still a bit too early to tell, but we have seen that trend through the bidding process on a number of assets. The third component of our 2009 capital plan is the financing program for our IRS project.
As we noted in our press release we have a total remaining investment obligation in this project of $257 million. Our program for this project involves an interim financing solution through a construction many firm loan and to a longer term bondable type of financing.
Those pass are being actively pursued with excellent progress to-date. And as we have consistently commented, we anticipate an announcement during the first half of this year.
In the meantime, construction is moving forward and we had additional value engineering savings on the garage. And do at this point anticipate some construction cost savings on the main facility.
The historic new market tax credit structures are set. And those moneys will flow in on schedule.
And again we have a very high degree of confidence in executing a transaction that will eliminate our need to finance on an open-ended basis the additional investment from our line of credit, thereby preserving that capacity for upcoming maturities. Last comment on our balance sheet; while much progress is made over the last five quarters; our leverage does remain higher than we would like.
The capital plan I just outlined and we talked about in previous calls, it is designed to show a clear liquidity bridge for us through 2010 and in to 2011. We do plan on remaining a strong investment, grade credit with a high quality, well diversified portfolio.
Along these lines, that Howard will touch on; we have continued to take advantage of the discounts in the bond market as a potential de-leveraging tool we can use. And while the credit markets continue to tighten, there are still spot opportunities available.
And along these lines, last night we did launch a tender float of $100 million of our 2010 bonds at a stipulated price of 93%. Sources of capital to fund that tender will be the anticipated closings that we're already achieved or will have from sales at our mortgage financings.
So overall our 2009 capital plan as the first quarter closes out, we are very pleased with out progress and certainly look forward to making continued progress during subsequent quarters. Turning our attention now to the real estate markets, we continue to see fairly predictable activity.
The market is performing as we thought it would. Activity and absorption levels are down.
Lead time in periods to get deals done are longer and a higher percentage of deals are stalling at advanced states of negotiations as tenants continue to remain reluctant to make the capital decisions necessitated by signing new leases. Our tenants remain primarily focused on finding bridge solutions to their real estate requirements and while we are beginning to see some signs of that changing, most tenants are still pursuing shorter term-solutions.
Despite this we had a fairly active quarter with some very data points. For the quarter we had 718,000 square feet of leasing activity consisting of 118,000 square feet of new deals.
And 89000 square feet of expansions by our existing tenants and 510,000 square feet of renewals. That total leasing activity level is in line with our fourth quarter 2008 activity of 742,000 square feet and actually greater than the activity we achieved in both the second and third quarters of 2008.
Our core portfolio occupancy; excluding the four developments in lease up, it was 91.2% and 92% leased respectively. Including the developments core occupancy was 89.3% and 91.6% leased.
These numbers are down quarter-over-quarter but very much in line with our expectations and are primarily related to the 120,000 square foot lease rejection that arouse out of Circuit City's bankruptcy. On a cash basis, our same-store result posted in increase of 5.6% excluding termination fees.
Our tenant retention rate for the quarter was a strong 78%, excluding that bankruptcy and compares very fairly to our run rate of the last several quarters. Capital cost as a percentage of GAAP rents remains in the single digits, while costs picked up marginally during the previous quarter, the first quarter numbers did incorporate 200,000 square foot renewals with slightly higher capital costs.
Without those two larger deals our capital cost would have been close to the 5.5% of GAAP rents. Activity levels that is trafficked through our portfolio rose 21% quarter-over-quarter with an increase in every one of our operations, with the exception of New Jersey.
Traffic activity increased with the strongest in our Pennsylvania suburban operations, metro DC and in Austin Texas. Activity levels I mentioned declined in New Jersey and were down about 26% quarter-over-quarter Well we have not seen any big upward pressure on concession packages, particularly on the capital side, the percentage of deals we did during this first quarter that incorporates free rent, rose quarter-over-quarter from 23% in the first quarter up from 14% in the fourth quarter of '08.
We continue to make very good progress in our 2009 expirations. Of the original 3.5 million square feet that we had rolling, we have executed about 46.5% to-date and continue to make good progress on that front Our GAAP increase on lease renewals during the quarter of 11.2% was our best in five quarters.
Conversely our GAAP rent on new leases had our first decrease in five quarters. So another clear indication of the importance to all of us in keeping our existing tenant base in place.
Credit does remain a concern, as Howard will touch on. We did increase our reserve allowance.
On the last call we identified the potential for future reserve issues impacting our 2009 guidance. This quarter our FFO reflects an increase in our reserves of additional $2.9 million and Howard will touch on those, the rationale for that in a few moments.
Our leasing staff continues to ferret out direct deals and during the quarter we had 104 transactions, which represented 47% of the deals and 24% of square feet done directly by our leasing staff. Another interesting window into tenant psychology is that, of the deals that we track fully 50% of the tenants change their minds about relocating, once they enter the market looking for space.
That's clearly another indication of the dilemma in tenant space and balancing our own capital commitments and making a longer term real estate solution. So overall the economic climate while becoming more positively biased in the last 60 days, has still created a bit of an overhang issue in the minds of our tenants and frankly they are confused about what to do that makes our job that much harder, but our objective is to keep them focused on staying where they are and signing effectively priced renewal transactions.
We will of course continue to be very price-competitive in order to keep our tenants, but more importantly to attract to new tenants to our various properties. In looking at the broader marketplace year-to-date leasing activity and absorption levels are advantages to every one of our team markets.
We do have or continued to outperform market occupancy levels by between 150 to 1500 basis points. Maintaining this level of positive market out-performance will certainly be a challenge, but one that we were able to achieve during the last market downturn.
As we alluded to you on the last call on the last difficult operating final between 2001 and 2004 our portfolio, with very few exceptions, outperformed the competitive market place by a wide margin. So with that overview on the market and our capital plan, Howard will now review our first quarter financial results.
Howard?
Howard Sipzner
Thank you Jerry. We had a productive first quarter on both operations and financial activities and continued our efforts to maintain liquidity, strengthen our balance sheet and reduce leverage.
As you'll see in our press release and supplemental package, both available on our website, our reported results include a retroactive application of several new accounting pronouncements covering convertible debt, treatment of minority interest and the calculation of FFO. Please follow-up with us directly if you have any questions on any of these.
In the first quarter of 2009, funds from operations or FFO available to common shares and units totaled $50.5 million or $54.2 million without the $3.7 million impairment. FFO per diluted share in the first quarter was $0.55 or $0.60 without the impairment.
The impairment was related to an expected sale that in fact closed just yesterday, but did not qualify under the accounting rules for either help for sale or discontinued operations treatment. Excluding the $0.04 impairment, we beat the $0.57 analyst consensus by $0.03 and beat consensus by a full $0.06 if you also back out the $0.03 or $2.9 million non-cash credit reserve.
Our FFO payout ratio came in at a very strong 54.5% on the $0.30 dividend paid or a 50% without the impairment. Few observations, on the key components of our first quarter performance.
Rental revenue was flat, with a continued shift towards increasing cash rent. Straight line rent was down $4.5 million versus a year ago and down $700,000 sequentially.
Recovery income was down sequentially, reflecting a $450,000 downward CAM adjustment in the first quarter versus a $4 million 2008 fourth quarter true-up increase to CAM revenue. But was up versus a year ago, reflecting a $2.3 million downward adjustment in Q1, 2008.
These adjustments take place to match the expenses incurred with the revenues recognized. We are very comfortable with the 37% recovery rate, as a good figure going forward, subject again to fluctuations and expense timing.
Term fees, other income, interest income, gross and net management income, were all in line with expectations and recent results. JV income was impacted by a $570,000 one-time write-off of the abandoned investment in the Seven Tower Bridge land project.
Our operating expenses were negatively impacted by the incurrence of a $2.9 million non-cash reserve in the first quarter for additional bad debt allowance. Interest expense declined sequentially and year-over-year, despite lower capitalized interest, due to lower debt balances from our debt reduction program.
Interest expense includes an extra $1 million of cost related to the adoption of APB 14.1 on the convertible notes. And lastly, we realized $6.6 million of gains on $75.2 million of aggregate debt repurchases, $40.3 million on the 2009 tender, and $34.9 million in open market purchases.
On a same store basis, cash rents increased $3.3 million, while non-cash items decreased by $4.1 million, continuing our shift to more favorable cash rental income. Recoveries increased by $3.4 million and the associated expenses, increased on a same store basis by $2.3 million for the quarter same store NOI increased 0.3% on a GAAP basis and a very strong 5.6% on a cash basis.
Both excluding termination fees and other income items and notwithstanding a decline in same store occupancy. Our CAD remained robust, cash available for distribution at $0.48 per share and we are pleased to report a 62.5% CAD payout ratio for the first quarter.
The $8.5 million of revenue maintaining capital costs are the driver of this performance and reflect a continuing trend to lower CapEx expenditures. Reflecting all of these results, our EBITDA coverage ratios were solid and in line with expectations at 2.6 interest, 2.3 debt service, 2.2 fixed charges and reflect our continuing commitment to the investment grade rating.
On the guidance side, we are maintaining our FFO guidance for 2009 to be in a range of $2.04 to $2.21 excluding the impairments or $2 to $2.17 if the impairment is included, as we've seen many analysts do in the past. Key 2009 assumptions include a negative 3.5 to negative 2.5 GAAP same store NOI performance excluding termination in other revenue and minus one to flat on the cash side.
GAAP mark-to-market of 2% to 4% up and cash mark-to-market of flat to down 2%. And that's on a blended basis between renewals and new leases and we're now projecting year-end core occupancy of 91% to 92%.
We continue to see about $35 million of gross other income items, as I discussed earlier and year-to-date our figure is about $13 million in that category. So we ran a little bit high in the first quarter, attributable to the repurchase gains.
Our G&A is coming in as expected around $5 million a quarter and again we are not contemplating any new acquisition activity in our numbers in 2009. Our capital needs for the balance of the year totaled $525 million.
And I am starting that on April 1 to pick up with the quarter end figures. We see $250 million of aggregate investment activity, including a $140 billion to be spent on the post office for the IRS and the related garage.
$20 million to finish redevelopment lease ups. $35 million to finish ground up lease up, $30 million of remaining revenue maintaining CapEx and up to $25 million of new leasing CapEx.
And picking up on March 31, 275 million of debt repayment $68 million in change for the two Logan loan which of course has now been refinanced. $152 million for the 2009 node and $55 million for aggregate buy back activity, reflecting the tender we announced last evening.
To raise this $525 million, we are projecting approximately $60 million of free and clear cash flow after payment of the dividend, but before the revenue maintaining CapEx. We have about $24 million of program to store tax credit proceeds, we see a $170 million of additional asset sales recognizing we closed 26 of that yesterday.
We have 85 committed, and 50 in the near term pipeline. A $180 million of mortgage financing again reflecting $90 million that closed on April 1, $60 million committed and another 30 still to be put into in the market.
And that leave us with a balance of $91 million to be funded either of our credit facility or of the Sierra construction financing that we hope to announce in the coming month or two. We see similar interest expense reflecting lower capitalized interest as we moved away from many of our development activities, lower debt levels but higher interest expense on account of the convertible bond accounting treatment.
And that should translate to full-year figures of $1.40 to $1.50 and anywhere from $20 to $25 million or free cash flow after the dividend. In terms of the accounts receivables, we have mentioned a couple of times that we increased reserves by $2.9 million in the quarter.
This broke down to about $1.8 million attributable to straight line rent, about $0.8 million in the general receivable pool, and $0.3 million related to legal pursuits. Where that left us at 331 was with $5.6 million of reserves on operating receivables of $15.7 million, a reserve level of about 36%.
And $12.4 million of straight line reserves against a $97.4 million balance, a 13% level. We are comfortable with these levels.
We feel they reflect the credit quality of our portfolio, but in this market and economy will continue to monitor that on a month-to-month and quarter-to-quarter basis. Our debt profile remains conservative.
And moving in the right direction we brought debt to gross real estate cost down to 50.6%. We have repaid well over $500 million of debt over the past year and a half, and we have relatively low secured debt and floating rate debt giving us a lot of flexibility as we move our capital plan forward.
And lastly, we have approximately $4 billion of gross unencumbered assets to facilitate our secured borrowing and to address any of our sales activities. With that I will turn it back over to Gerry.
Gerry Sweeney
Howard, thank you very much. Okay, to wrap up a couple of last comments and we are clearly focused on executing our capital plan and ensuring the portfolio performs in line with our expectations.
We are still somewhat early in the year, the quantifiable success we have had on the mortgage financing front we think reflects a good pool of traditional lending sources being available for high quality properties with good sponsorship. While underwriting [sentence] have certainly changed the strength of that large unencumbered pool that Howard just alluded too should put us on a very good position to meet our objectives on this capital plan component for the next several years.
From a sales standpoint, we are again very pleased that we have had such good success thus far. Pricing is where we expected it to be, and given the overall theme of balance sheet strengthening and generating liquidity, these undertakings will put us in a very strong positioning going forward.
And finally as we mentioned, we are very confident of our ability to announce the third party financing program for the IRS project by mid-year 2009. Just a real quick note on a couple of our recently completed development projects.
The target occupancy for the tenant or 99% lease South Lakes Project in Northern Virginia remains August 1st and that work is progressing very much on schedule. Also during the quarter we had excellent success on our Austin project, the park at Barton Creek.
We signed 79,000 square feet of leases bringing the project to 78% leased. And this morning we signed another lease that gets that project to 88% leased.
And with some intermediate term activity behind that we should bring that project to over 90% leased in the next 30 days. So with that overview, I believe we will open up the floor to comments.
Operator
Thank you. (Operator instructions).
Your first question comes from the line of Jordan Sadler with KeyBanc Capital Markets.
Jordan Sadler - KeyBanc Capital Markets
Thanks. Gerry, just wanted to follow-up, maybe for Howard, where we are in terms of the IRS financing?
You sound like you have a high degree of confidence but you've given maybe a little bit more color on some of the other capital raising activities in here. Several months deep, has a number of banks already put their commitments for this?
Is the mini-term done and you are looking to do long-term or where are we?
Howard Sipzner
Jordan, Howard here. Good question.
We have spent the last six, eight weeks working with a handful of existing bank relationships, we've gotten good indications from them and we are working through the mechanics of putting that together in Tokuhisa group, either financing just the post office or potentially encompassing both. At the same time, based on the discussions with the banks and our own view of the market, ultimately the critical piece of financing for this project will be the long-term financing, and to the extent we can produce some type of forward commitment on that.
It both alleviates the late 2010 into 2011 needs, and also potentially sets up the banks to have a baked and take out for their relatively short-term loan. So our activity right now and over the next couple of weeks is to play out those two paths to figure out the right sequencing and either to bring them together at the same time or in a short period of time one after the other.
But activity has been strong, interest has been strong, and we are definitely seeing a decent tone in the market and decent interest for this project.
Jordan Sadler - KeyBanc Capital Markets
Can you remind us the expected yield on the project given that cost has changed a little bit and the amount of leasing done by the IRS has changed a little bit?
Howard Sipzner
If you look at the yields on a gross basis, they are in the 7.5% to 8%. And once you back out all the capital we raised on the historic tax credit, they rapidly go up to 8.5%, 9%.
That historic tax credit capital will come through the company in an income construct over the service period and it will not affect our basis, and that's the proper GAAP accounting for those transactions.
Jordan Sadler - KeyBanc Capital Markets
Can you just advertise those amounts over the life at least?
Howard Sipzner
That is correct. We would essentially look at the net receives, it's a little more complicated than that but just to simplify, we will look at the net capital raised.
And once the projects are completed and delivered, we will begin a recognition period of those under the expectation that the partner will exit the transaction at the end of a five-year period of time because it becomes economic for them to do so.
Jordan Sadler - KeyBanc Capital Markets
And then Gerry, you touched on this a little bit but can you maybe talk a little bit more about the assets sales, ones that are completed and the ones that are teed up? More specifically, where they are located?
And how the cap rates are calculated?
Gerry Sweeney
Sure. I'm happy too.
The sales that we have achieved through the announcement yesterday, we had one property in Maryland, two in Pennsylvania, the properties that are under agreement are in New Jersey and the ones under the letter of intent or in contract negotiations, again are in Pennsylvania, New Jersey. The cap rates range -- again, we're looking at a blended cap rate which is at 9.5% range, some are obviously below that, some are north of that based upon the individual specifics of each properties.
So for example, there is a variability between cap rates based on location quality, the mark-to-market rollover, and capital cost. But pricing is coming in pretty much where we thought it would be.
In some cases it's not optimal as we talked in the last call but as we look at the ability to generate capital via this avenue, it's certainly a very effective way for us to raise capital and accomplish our capital plan targets.
Jordan Sadler - KeyBanc Capital Markets
But those who are trailing cap rates or trailing cash or...
Gerry Sweeney
The cap rates would be on the 2009 budget at net operating income number. So it's not really a trailing number, its kind of in place today looking forward.
Jordan Sadler - KeyBanc Capital Markets
GAAP or cash?
Gerry Sweeney
They are cash.
Jordan Sadler - KeyBanc Capital Markets
Okay. And then quick two quick ones, any visibility on the moving date?
Gerry Sweeney
I think as I mentioned very briefly Jordan, we are expecting that to occur no later than August 1, 2009. So everything there is progressing on schedule without any hitches at all.
Jordan Sadler - KeyBanc Capital Markets
And then the reserves, Howard, I think you said $5.6 million versus a receivable which is at 36% reserve?
Howard Sipzner
That's correct.
Jordan Sadler - KeyBanc Capital Markets
Is there anything in there that you already know about? It seems like a pretty high level of reserve, I just need some color?
Howard Sipzner
About a third of it are situations where we are already pursuing legal action and we are fully reserved on those, and to extent we get recoveries. We would be able to reverse some of that.
So those are 100% reserved and the rest breaks down against certain specific tenant situations that look a little dicey. So we are going to peg the specific number on those, but more generally and the increase itself reflect just looking at the different buckets of 30 to 60, 60 to 90 so on and so forth.
And dialing up the reserve levels that we use, because we are mindful that you if got money hanging out to somebody which we try not to have, of a certain duration, it becomes that much harder in this economy to recapture it and we are tracking the experience in the portfolio when using that to learn. But to-date most of it has just been a built up of reserve with minor write offs.
Jordan Sadler – KeyBanc Markets
What was the total bad debt write off?
Howard Sipzner
The total actual write-off in the quarter was about $370,000. That was actually written off and abandoned.
Jordan Sadler – KeyBanc Markets
Thank you.
Operator
Your next question is from the line of Sheldon Grodsky with Grodsky Associates
Sheldon Grodsky - Grodsky Associates
Good morning everyone. Brandywine has a fair amount of unsecured debt as part of its picture and that is creating some of the diceyness to your liquidity this recession.
Does the company have a long-term strategy of reverting to mortgage-secured financing to cover most of its permanent needs?
Gerard Sweeney
Sheldon, Gerald Sweeney here, good question I think as the company looks at our financing landscape going forward and as I mentioned what we certainly plan an remaining in investment grade company. We are not quite ready to abandon the investment grade market at this point.
Certainly the flexibility that provides a company like ours going forward in terms of just what we were seeing on these asset sales programs is a very powerful tool for us. Certainly the dislocation in the bond market in the last six quarters and the lack of visibility on that in the intermediate term, creates some pressure on us to look at other sources of raising capital.
Fortunately a lot of the assets we have in our portfolio, have demonstrated thus far this year we have an ability to sell. We have an ability to raise capital through joint ventures and given the breadth of the existing unencumbered pool, we do have to ability to layer in select mortgages, secure mortgages to provide with those three in combination, more than ample capacity to meet our pending bond maturity.
So I think the path for the company is still investment grade. Its still focused on the unsecured debt market, but clearly given the pricing disconnect in today's environment we are moving very aggressively to raise capital from other sources to meet those pending maturities.
Sheldon Grodsky - Grodsky Associates
But you don't feel that in the long run that mortgage that would be a more desirable form of financing than unsecured debt?
Gerard Sweeney
I don't think we are prepared to make that decision at this point. I mean there is still lack of clarity on the what's going to happen in the bond market I think there are certain assets in our portfolio that given their size and tenant mix seem to be better suited to secure mortgages such as a One Logan or a Two Logan and on those types of properties you will see as do secure at mortgages as part of our program going forward.
Sheldon Grodsky - Grodsky Associates
Thank you.
Gerard Sweeney
You are welcome.
Operator
Your next question comes from the line of Fredrick Litchien with Green Street Advisors.
Fredrick Litchien - Green Street Advisors
Thank you. With your share price having more than doubled in the last month or so, what's your thoughts process in regards to equity assurance?
Gerard Sweeney
Fred, Gerry here, good question. As we view it, our capital plans is progressing on schedule, the target levels in the plan were designed to 1) be achievable, and 2) not rely on the equity of the unsecured debt markets.
And that's how we crafted the plan last quarter. We are making good progress to resolve all of our 2009 targets.
We are confident our mortgage levels be achieved. Sales are progressing very much on pace and we have a high degree of confidence on exceeding that.
And the IRS Financing we feel very positive will be accomplished. Looking beyond 2009 as we parse through our 2010 objectives, we certainly think that they are readily achievable as well.
And that being said, the execution of the plan that we have outlined, while addressing all of our intermediate term liquidity requirements, does not advance our number one goal of measurably reducing overall leverage. And to accomplish that objective, we're certainly looking at sales levels that exceed our stated targets, doing selective joint ventures on larger pools of assets to generate more liquidity for the company and reduce our overall leverage, and as the market windows permit, potentially do more debt repurchases that have the effect of deleveraging the company.
And our hope is that as these executions steps are accomplished, our equity pricing will improve even further, and we will be better positioned to evaluate and accelerate the leveraging through exploring a variety of equity options. So while we remain keenly focused on deleveraging, this exceptional plan thus far has also commits that our sequencing approach has the potential to create the best value results for our shareholders.
And with that all being said we are actively monitoring – obviously we are seeing in both the debt markets and the equity markets and are operating on a very accelerated plan to make sure that we get all of our 2009 capital plan component executed, provide a high level of visibility to the market place so this company is in a appropriate position to evaluate how we might advance our direction of reducing our overall leverage going forward.
Fredrick Litchien - Green Street Advisors
Okay. So when you look out a couple of years, what's your target leverage> What would you like to achieve and how close to it do you get from asset sales?
Gerard Sweeney
Look, I don't think that's changed off from my previous conversations. We are targeting that mid 40% range for all optimal leverage level and obviously that will be a function of - in addition to that leverage levels, its going to be a function of the portfolio of composition as well as where our debt maturity schedules are, but we've run the company historically in that mid 40% range, it's crept up as we know beyond that.
But our objective singularly is to get that level back to that mid 40% range and depending upon market conditions maybe even lower than that.
Fredrick Litchien - Green Street Advisors
Okay. Can you give us a little more color on the impairment charges?
Which property was it and what kind of implied Cap rates are we at to book that impairment charge?
Howard Sipzner
Well all we can say is that it was taken in advance of the property whose sale closed yesterday. We are still parsing through the confidentiality agreement related to that transaction to see exactly what we can and can't say.
So at that this point that's very limited to that level of disclosure.
Fredrick Litchien - Green Street Advisors
Okay. In terms of your Southern California portfolio, you did market it about a year ago.
Since then obviously I can see its come down quite a fair bit might be softening a lot. What's your plans here for Southern California and what can you do to turn around the occupancy in that portfolio?
Gerry Sweeney
Well, I think the plan for Southern California is to ultimately exit that portfolio as market conditions permit. We did and we continue to have a dialogue with a number of potential sources of capital to re-characterize our investment in that portfolio.
The market has continued to erode. We fortunately have a very small percentage of our portfolio, rents coming in from Southern California.
We have a very good on the ground local team there that's covering their overhead through property management fees and other sources of revenue. And they are doing a very effective job of doing the best they can in the phase of fairly significant headwinds in fact through our recently forecast they have actually been able to do better than they had forecast over during last year.
So they are being very aggressive on both the tenant calling, the tenant relations, the capital management, broker relations that generate as much activity as we can through that very small portfolio to make sure that it is well positioned as the investment market and the real estate market conditions firm over the next year or so.
Fredrick Litchien - Green Street Advisors
Good. Thank you.
Operator
Your next question comes from the line of Dave Rodgers with RBC Capital Markets.
Dave Rodgers - RBC Capital Markets
Hey, Gerry, what's the appetite if any out there for land acquisition and would you guys consider if that market warmed up a bit of liquidating some of that land in favor of holding some of the cash flowing assets?
Gerry Sweeney
Look there is no question we are on a number of situations we are looking at potential marketing some of our land for sale. We go through a very rigorous process on a quarterly basis to assess both plans for each asset, as well as we anticipate the ultimate reliability is from any potential sale.
But as we look at it Dave, certainly there's a number of parts that we continue to have discussions with and to the extent we could generate some liquidity through assets that are not earning any current return for us, and in some cases their appreciation capability doesn't have a lot of visibility. That is certainly something that is on our plate.
Dave Rodgers - RBC Capital Markets
Can you give us any sense of, not necessarily in dollar terms, maybe but in terms of your land bank of how much that some might entail?
Gerry Sweeney
Well I mean our land bank is valued at about $120 million. That has a very wide range of holding in it; some ranging from fairly small parcels to ones that are much bigger.
I mean certainly, that the, David, the parcels that are not necessarily part of existing products that we own, clearly are high on our priority list in terms of generating liquidity. Those are adjacent to our existing buildings and or in close proximity to products we control; we continue to look at some other options for those.
Howard Sipzner
David, when we took steps at the end of the fourth quarter, both to suspend capitalization of interest on many projects, we went through the valuation of where those assets might be sold, took a series of impairment charges at the end of Q4 and believe, we now have those positioned for sale, should we be able to go and execute those. And if some tenant should come back to us and need a piece of land, either out of expansion or otherwise, we'd evaluate that as well.
Gerry Sweeney
To disclose the loop David I mean on the first part of your question, there does not seem to be a very robust market for land sales right now so I don't want to mislead you to think that there is lot of people out looking to buy land we've got the great contacts out there and have a number of discussions under way but there is not a lot of people out there looking to buy land today.
Dave Rodgers - RBC Capital Markets
The way I think you are at least positioned to take advantage if it does with respect to this other financing for the Auckland portfolio any status change on that?
Gerry Sweeney
No in fact I mean that portfolio, you may recall that $40 million dollar pieces well secured by two properties in the first mortgage position. And the maturity data of that loan was sequenced to the overall refinancing timeline for the rest of that portfolio, so we remain in a very secured decision on that mortgage.
Dave Rodgers - RBC Capital Markets
But in terms of I guess receiving the cash, do you still feel comfortable in being taken out of that position?
Gerry Sweeney
We, certainly we do. Yeah, very high quality owner who has a very low overall level of leverage in the portfolio, both from a significant amount of equity, and the portfolio is performing at [any] course of their expectations.
We have no qualms about anticipating that money coming in.
Dave Rodgers - RBC Capital Markets
And given, that the other financing is also is the new one that you are working on currently was that netted houred in the liquidity position you kind of gave us going forward.
Howard Sipzner
If we end up doing seller financing, we would have to back that out as a capital source, and replace it either with additional sales or other sources. We would look at on a net basis.
Dave Rodgers - RBC Capital Markets
Thank you.
Operator
Your next question comes from the line of John Guinee with Stifel Nicolaus.
John Guinee - Stifel Nicolaus
Hi, John Guinee here, very nice job guys. Question I am assuming that the asset that just closed in the last couple of days was your with it with that Asset?
Gerry Sweeney
John, we are still working through some confidentiality issues there, but that could be a good guess.
John Guinee - Stifel Nicolaus
All right. Question on the when you are going out for financing Sierra are you just are you trying to finance the office building and the garage?
Or separate and distinct? And then can you talk about your expected yield on cost for the component separated?
Howard Sipzner
John, Howard, all good questions, part of what we are figuring out right now you know ultimately what we posses at the end of the day is a single lease with some incremental spaces that have been leased for a shorter period of time, and to the lenders who finance this type of cash flow stream they just want to see a fence put around that cash flow and know they are going to get paid principle on interest every month, under some amortization schedule. So they, its almost independent of which asset is producing which level of cash, and we do ultimately have to figure out the final split of the income from the lease between the garage and the box and the office building so that makes yield discussions a little bit premature at this point and I'd have to say it is as a handicap at 50-50 whether we finance just the box which is sort of the traditional poster asset or we end up financing both together and what we are hearing is the market likes the cash flow, and the construction loan market likes the fact that there might be a take out on the backend making it all fit together very nicely.
John Guinee - Stifel Nicolaus
Great second Gerry I am assuming that when you are quoting your leverage levels you are referring to gross book value?
Gerry Sweeney
Correct.
John Guinee - Stifel Nicolaus
Got you okay. Thank you very much.
Operator
Your next question comes from the line of Rich Anderson with BMO Capital Markets.
Rich Anderson - BMO Capital Markets
Thanks and good morning guys. On the $5.6 million in the reserve right now, how much of that if any is not delinquent at all?
Howard Sipzner
I think a dollar delinquent potentially if it's not paid the day it's owed otherwise we don't we have a receivable. I'm not sure what you mean by delinquent, nothing receivable.
Rich Anderson - BMO Capital Markets
I just want to sort of get to like the real risk in that $5.6 million?
Howard Sipzner
We have different buckets, current would be within the current calendar month that was about a third of the receivable, we have small amounts that stretch out over 30-60, 60-90, 90-120 and beyond. And each of those buckets has formulaically indicated reserve level.
But we haven't seen much shift between the categories but we did dial the reserve levels up a bit in this month. Just given uncertainty as to the ultimate strength of our tenants, we did have one larger bankruptcy and a couple of small bankruptcies in the first quarter, didn't have a lot of ride-off activity.
So in general, our tenants even when they have gone bankrupt have been staying current. We really have not seen any change in the pattern of the receivables; we're just looking out at the economy and sensing that we ought to be dialed up a little bit higher.
Rich Anderson - BMO Capital Markets
I'm not smart enough on this. Is it just that even if they are current, they could still be a portion of that receivable amount, I mean that reserved amount?
Howard Sipzner
Yeah, I mean the amount of receivable that would be calculated against the current bucket would be the [minimest] because there is a full expectation that 99%, 99.5% of that, whatever the level, is ultimately going to pay based on prior history.
Rich Anderson - BMO Capital Markets
How much of that is Circuit City?
Howard Sipzner
Circuit City receivable that we are carrying today was very light, maybe $80,000.
Rich Anderson - BMO Capital Markets
Okay.
Gerry Sweeney
I think Rich, when we took a look at, and George and Howard worked very closely with our field personnel. We do operator as we have talked on calls, on the primitive we are secondary credit.
And in this kind of environment, there is a concern on the general economic climate. The team goes to and takes a look at the SIC.
For every one of our tenants, we assign waitings to those. And exercise, really it might rush with an overabundance of caution on reserves.
We just don't know what could happen out there. We keep very good communication with all of our tenants.
The accounting, finance and operating team spends a tremendous amount of time triangulating data points on cubicle occupancies, reviewing financial reports, bank statements of our tenants. But in this type of climate I think, even though we haven't seen a discernible increase in our overall accounts receivable, I just think it's prudent to make sure that we continue to make sure that we are more than adequately reserved.
Just because as we saw with a Circuit City just don't expect those things coming until they actually appear in the paper.
Rich Anderson - BMO Capital Markets
Okay. What is the size of getting to the refinancing objective of $180 million this year?
What is the size of that one loan that you referenced that had a contingency to it that you were questioning whether or not it would go through or not?
Gerry Sweeney
It's about $40 million.
Rich Anderson - BMO Capital Markets
$40 million. Okay.
Just sort of shifting around here, are you still pegging your taxable net income for the year at $1.20?
Howard Sipzner
That's a good question. The current estimate suggests that I think the biggest driver will be the mix of sales that are executed and their impact on that level.
As well as certain smaller transactional activities in the margin. But we continue to operate and project the dividend on that basis till we know otherwise, probably much later in the year.
Rich Anderson - BMO Capital Markets
Okay. So it's $20 or lower may be.
Howard Sipzner
$20 based on about 91 million share counts. So, we've not changed our dividend assumption in the aggregate.
We did of course dial down the cash payment paid in April to preserve flexibility in the number of directions both as to absolute level and as to ultimate composition.
Rich Anderson - BMO Capital Markets
Okay. And finally back to the reserve question, how much additional reserves if any are contemplated in your full year guidance?
Howard Sipzner
That's a good question. It is possible as we'll go through the monthly and quarterly reviews that we will have to dial it up further based on the indicated formulas calculations and input from the field.
It's also possible even if that were to happen in say the second or even third quarter, that it could then begin to reverse itself when credit conditions improved, if they do later in the year. So we feel comfortable that our guidance accommodates a number of different scenarios around that, but we do not have at this point a hard number to give you and what we think it will be quarter-to-quarter, where on, where we will end up necessarily at year end.
Rich Anderson - BMO Capital Markets
Okay. And actually I just one more quick one.
I heard you mention the other income gross number of $35 million in that sort of in your guidance. Last quarter, I believe the range was $25 million to $35 million, you didn't mention the low end this time, I know you had a big gain this quarter.
Is there something about other income that's keeping your guidance for '09 afloat to some degree?
Howard Sipzner
It's a good question. I mean, I think having produced, that's three for three in good questions by the way.
Gerard Sweeney
All your questions are good Rich and we have to try and soften you up. They're all good.
Look I think, we already have gone through March 31st, about $13 million of aggregated other income items, fully half of that is the gain on the bonds. We did buy a fair number of the convertibles in the first quarter which tend to produce a larger gain.
We've targeted a tender on the 2010, a slightly smaller gain. We don't yet know how much of that we'll get.
Expect to do some other spot buying back as we create liquidity in the plan. But if I look at the aggregate, I'd say, having done 13, I think we're only going to do 25, given that we have management income dialed in there and other things, that's just happened almost [programmatically] would be unrealistic.
So I think anchoring around $35 million number is a good number. But taking out that range does not affect where our ultimate guidance comes in.
I think even as we produce that range in the first quarter, we're already seeing it leans towards to the higher end.
Richard Anderson - BMO Capital Markets
Okay, great. Thank you
Operator
Your next question comes from the line of David Shapiro with BGB Security.
David Shapiro - BGB Security
Hi guys. Just a question here.
Looking down the road here, a couple of years, you're facing a revolver maturity in 2012. Capital markets, at least the equity markets are now moving up or seems to be a little bit healthier at least in the near-term.
I was just wondering what revolver balance, if we were in the world right now and let's say, we were looking at the 2012 revolver coming. What revolver balance sheet think the banks would be comfortable letting you carry and then with that view how do you also view going to the equity markets now and being preemptive in using that sort to start killing your 11 and 12 public note maturities versus sort of hoping that the equity markets continue to come up and by allowing you to do that later on.
Howard Sipzner
Dave I think lot of good questions in there. I think the Gerry outlined earlier thinking about the equity markets that we still have a fair number of tactical activities to get done.
You know I think getting those done and behind us we believe will improve the Company position and take the risk from far away. You are correct that this is a multi year process and we very much have our eye on both the term loan and the revolver, as they come due ultimately in 2012.
The goal on the revolver will be to have that balance as low as possible, so we are in the strongest possible position we can be, when that negotiation begins probably late 2011 probably 2012 with a bank group, who's composition candidly is impossible to gauge at this point. We have 15 plus banks in the group and all of them are facing varying conditions in their own business cycle right now.
Some are quite strong and some are probably not as strong, so we just have to wait and see use it prudently, respect it as a source of capital, replenish it repeatedly as we have done. And be in it I think the secret to getting that done successfully is being at strong position when you need to pick up the phone.
David Shapiro - BGB Security
I mean basically as you look for your choices here raising capital essentially sort of the indication I am getting from your comments is well as lousy as the private market is right now as I think you were mentioning mid nine cap rates here for asset sales, clearly the public markets are a lot worse and that sort of why your taping asset sales here and avoiding selling stock at these prices?
Gerry Sweeney
Well yeah I think that that's so important I think the math is fairly simple I mean from our standpoint we have been and will continue to believe that one of the best sources of liquidity we can generate is through the sale of assets and we went through a fairly thoughtful process of identifying what assets you want to throw in the market for sale and I have some very good reasons for that. You know our hope is that with the tone of the market beginning to be positive and hopefully remaining positive, that we'll be able to at least accomplish and potentially exceed our capital planned goals in that regard.
And as I mentioned, we will continue to monitor what we see happening in both the debt and the equity markets to make sure that as we do embark on this as we continue to be embarked in this multiple year program, we keep the Company in the most optimal position we can.
David Shapiro - BGB Security
Okay and then long term you know you guys have been historically have been a pretty good developer than you sort of got out here with the apprentice acquisition and went into a lot of other areas that you weren't before but retrenching on that, do you really see yourselves sort of as a mid Atlantic reap primarily going forward and do you see yourself more as an operator versus a developer you know and of course I mean the financial markets are changing all the time, but what's a long term goal here at this point at Brandywine?
Gerry Sweeney
Yeah good question I mean look, certainly as we have articulated we do view ourselves in the mid Atlantic Company we have you know more than 80 some percent of our revenues coming in today from that market place. We have very strong operation in Austin Texas and that's performing well.
And we will analyze in a number of different financing strategies for that marketplaces as the market continues to affirm. We have really very small operation to this point in California having sold the bulk of our Northern California portfolio last year.
But as we look at over the next few years, we would certainly expect to have the predominance of our activities in New Jersey, Pennsylvania, Delaware, Maryland and Virginia marketplaces. And that's where our infrastructure is, that's where our submarket positions are the strongest, and that's where the bulk of our land inventory is.
And we have always viewed ourselves to be both, an operator and a developer based upon where the market conditions are. So certainly we would expect the market conditions to change.
We will be primarily an operator as we have always been with a full service operating platform. But also look to do spot value creation opportunities through our potential development pipeline based upon tenant [cries] and financing considerations.
David Shapiro - BGB Security
Very good. Thank you.
Operator
There are no further questions at this time. Mr.
Sweeney, do you have any closing remarks?
Gerry Sweeney
I don't other than just to thank everyone for participating in our first quarter call. We again are pleased with our progress during the first quarter and look forward to continued positive update as the year progresses.
Thank you very much.
Operator
This does conclude today's conference call. You may now disconnect.