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Liberty Property Trust (LPT)
Q4Â 2018 Earnings Conference Call
Feb. 05, 2019, 12:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good afternoon. My name is Vincent and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Fourth Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.
(Operator Instructions). Thank you. I'll now turn the call over to your speaker today, Ms. Jeanne Leonard. Ma'am, you may begin.
Jeanne Leonard -- Investor Relations
Thank you, Vincent. Good afternoon, everyone, thank you for tuning in today. You are going to hear prepared remarks from Chief Executive Officer, Bill Hankowsky; Chief Financial Officer, Chris Papa; and Chief Investment Officer, Mike Hagan.
This morning Liberty issued a press release detailing our results as well as our supplemental financial package and you can access these in the Investor section of Liberty's website at @libertyproperty.com.
In these documents you will find a reconciliation of non-GAAP financial measures to GAAP measures. You will also find projections for 2019 net income as well as other assumptions that we will discuss on this call.
I will remind you that some of the statements made during this call will include forward-looking statements within the meaning of the federal securities laws. Although Liberty believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that these expectations will be achieved.
As forward-looking statements, these statements involve risks, uncertainties and other factors that could cause actual results to differ materially from the expected results, risks that were detailed in the issued press release and from time-to-time in the Company's filings with the Securities and Exchange Commission. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.
Bill, would you like to begin?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Yes, thank you, Jeanne and good afternoon everyone. Our fourth quarter and full year 2018 results underscore the strength of our core business and operating platform and it reinforces the rationale of our strategic focus for the future. The recent backdrop of fourth quarter market volatility in no way impacted the realities of our business.
Leasing was strong. We leased 5.4 million square feet in the quarter, bringing total 2018 leasing activity to 22.9 million square feet. Our occupancy remained high at 96.3% on a commenced basis and 96.6% on a side basis.
Rent growth also continued to be strong at 13.1% for leases commenced in the quarter. We made significant progress in 2018 toward our strategic objective of divesting office product and reinvesting proceeds into our industrial business. We sold $795 million of office products and acquired or delivered over $1 billion of industrial assets. We expect this momentum to carry into 2019.
Before I discuss our specific business plans for the year, I want to framework thinking about the broader economic and real estate markets. The economy remains strong, as evidenced by the January job number of 304,000 new jobs last month. We believe 2019 will be another solid year like 2018 and our guidance is based on this view, but there is no question that we're in a more volatile macroeconomic environment and so we believe that cautious optimism for the year is appropriate.
Our overall view is reinforced by the sustained strength of the industrial real estate markets. The fourth quarter saw a national net absorption of 63 million square feet reducing national availability to 7%, down 10 basis points. This is our 35th consecutive quarter of positive net absorption and we saw this industrial demand continuing based on our January leasing activity.
This is the backdrop upon which we've based our 2019 business plan. We are assuming our core portfolio will have rental growth consistent with our prior years. Obviously, we are highly leased already so there is little additional occupancy gain built into our plans. We do expect leasing activity to be roughly the same as 2018 at around 20 million square feet.
The other major focus for 2019 is our capital activity. As we indicated on our third quarter call, our strategic focus is to grow our industrial business and fully exit our office business. We own about $700 million to $800 million of wholly owned office assets. Our goal is to sell all of these assets over the next 12 months to 18 months, we will invest the proceeds of these sales into our development pipeline and select industrial acquisitions in a tax efficient manner.
Our guidance for 2019 makes assumptions about how much of this activity can occur in the next four quarters. However, we intend to be opportunistic and agile. If we can do more of it sooner, we will. We're very excited about how far we've come, we see 2019 as another strong year for our refined industrial platform.
With that, let me turn it over to Chris and Mike for further details.
Chris Papa -- Executive Vice President & Chief Financial Officer
Thanks, Bill. FFO this quarter was $0.74 per share compared to $0.68 per share last year. Results were stronger than forecasted primarily due to $0.08 per share of gains relating to non depreciable assets, higher term fees and the timing of certain capital activities.
Consistent with our strategic plan to dedicate all of our future efforts to our industrial platform, we sold the development rights to our mixed-use project in the UK rather than developing the property ourselves. The significant value we created in the planning approval process for this project resulted in a gain of $23.7 million recognized during the quarter, $19.1 million net of income taxes or over $0.12 per share.
We also reevaluated our land holdings as part of our ongoing efforts to divest all of our office holdings. As a result, we recorded non-cash impairment charges of $0.04 per share on land that we're planning to sell, partially offsetting the UK gain I just mentioned. We also recorded other impairments on certain depreciable office assets that are described in our earnings release, although these did not impact FFO.
Also as anticipated, we recorded approximately $0.02 per share of severance expenses during the fourth quarter in connection with the restructuring of our business. We anticipate additional severance expenses of around $0.03 per share in 2019, which are included in our guidance.
Turning to operations, in the fourth quarter, industrial same-store NOI grew 2.2% on a GAAP basis and 3% on a cash basis, primarily due to rent growth of 13.1% on a GAAP basis and 7.1% on a cash basis. Same-store NOI performance was negatively impacted by 0.9% in the quarter relating primarily to bad debt expense. As we discussed last quarter, we have an 849,000 square foot distribution facility in Central Pennsylvania leased to Sears.
In addition, to several other anomalous bad debt expenses incurred during the quarter, we reserved real estate taxes on this property that had not been paid by Sears around the time of its bankruptcy. Turning to earnings guidance, for 2019 we forecasted FFO per share to be $2.53 to $2.65 per share or $2.59 per share at the midpoint of the range.
As I walk you through the components on range of assumptions underlying our guidance, I would generally refer to the related per share impact based on the midpoint of each range for sake of simplicity.
With respect to core operations, we are anticipating that same store NOI for our industrial portfolio will increase by 2.5% to 3.5% in 2019 on a GAAP basis and 3.75% to 4.75% on a cash basis compared to 2018. Thus we anticipate that the change in same store operations will contribute roughly $0.08 per share at the midpoint of the range.
Our industrial NOI guidance assumes that rents will grow 13% to 15% on a GAAP basis and 3% to 5% on a cash basis. We also assume that average occupancy will remain relatively consistent with 2018 in the range of 96.5% to 97.5%. Although they are current in rent through January of 2019, Sears' intentions regarding their lease in Central Pennsylvania is uncertain, because of that uncertainty we have not assumed any impact from an early move out in our same-store guidance range.
However, if Sears were to early terminate by the end of the first quarter and we were unable to release their space during 2019, this could impact same-store NOI by as much as 1%, as well as FFO per share by around $0.03 per share.
Thus, in establishing our 2009 -- 2019 FFO guidance, we conservatively assumed an April 1st move out and reduced FFO by $0.03 per share accordingly. As Bill mentioned, while it is our intention to divest our wholly owned office assets within the next 12 months to 18 months, for forecast purposes, we anticipated that sales for 2019 will be $600 million to $650 million.
This would leave us around $100 million to $150 million of wholly owned office assets remaining to sell in 2020, if not sooner. Sales proceeds will be reinvested in part in industrial acquisitions and targeted markets in a tax efficient manner using 1031 Exchanges. We anticipate acquisitions to be in the $300 million to $350 million range.
Residual sales proceeds will be reinvested into our industrial development pipeline. Development starts in 2019 are anticipated to be in the $475 million to $550 million range and deliveries are forecasted to be in the $400 million to $450 million range.
We anticipate that net investment activities from 2018 and 2019 could be roughly $0.06 per share dilutive to FFO in 2019, depending significantly on the volume and timing of such transactions. We are starting 2019 with a strong balance sheet following the fourth quarter's GBP129.5 million financing of our U.K. portfolio, and the $350 million bond offering completed in January. We have near full capacity on our $830 million revolving lines of credit, a current cash position of over $50 million and no maturities of senior notes until late 2020.
Thus with continued asset sales activity in 2019 and an ample liquidity position, our investment plan is fully funded for the rest of the year. The January bond offering will increase interest expense by around $0.03 per share in 2019, relative to the cost of alternative borrowings on our credit facility.
Third-party fee and other income is forecasted to decline $0.03 per share at the midpoint of the range, relating primarily to the completion of our Cambridge, UK development in early 2019. In addition, the $0.08 per share gain on non-depreciable assets recorded in the fourth quarter and the Comcast and Camden charges recorded earlier in the year are not forecasted in our guidance to recur (ph).
Other income and expense items, I have not previously addressed including severance and systems implementation expenses as partially offset by savings in G&A is forecast to decrease FFO by around $0.02 per share at the midpoint of the guidance range. We anticipate that G&A will decrease 1% to 2% in 2019 compared to 2018 including roughly $1 million of expense lease origination costs that are no longer capitalizable under the new lease standard.
I'd remind you that as in prior years, our non-cash stock compensation expense will be roughly $0.04 per share higher in the first quarter than the average expense in the remaining three quarters due to the accelerated vesting of grants for certain employees under the retirement provisions of our plan.
And finally for the full year of 2019, we forecast that AFFO will decrease at the midpoint of our guidance range comparable to the year-over-year change in FFO per share, due primarily to net investment activities and non-recurring other income.
With that, I'll turn it over to Mike.
Mike Hagan -- Executive Vice President & Chief Investment Officer
Thanks, Chris. Our asset recycling plan continue with a strong fourth quarter. During the quarter, we sold nine suburban office properties totaling 905,000 square feet for $219 million. This brings our year-to-date sales total to $795 million, totaling 3.4 million square feet. Of this square footage, 3,249,000 square feet was office, with over 3 million square feet of suburban office.
With the completion of these sales, we are in essence out of our suburban office portfolio. Our acquisition activity is driven by our desire to increase our exposure to high quality markets where we are under invested -- and we invested our sales proceeds in a tax efficient manner. To that end, our US acquisitions in the fourth quarter were two buildings in Southern California.
The first building is a 129,000 square foot sale leaseback transaction located in the City of Industry. This building was built in 2015 and has all the features of Class A warehouse. It is 32 foot clear with 135-foot truck courts and full circulation around the building, as well as additional parking, all features in high demand in an infill location.
The second building is a 319,000 square foot purchase of a vacant building at completion of construction from a local developer in the Inland Empire. The building was completed and we closed on it in October. We have already had multiple proposals out to lease the premises.
During the fourth quarter, we closed on a 1.1 million square foot industrial portfolio in the UK for GBP111 million at a cap rate of 5.8%, adding to our industrial presence in the UK. Subsequent to this acquisition, we've placed 10-year debt on a portfolio consisting of these assets and additional UK industrial assets at an interest rate of 2.64% and a loan amount of GBP129.5 million.
During the year, we enhanced our positions in target markets with the acquisition of a 4 million square feet in Southern California, Northern New Jersey, Dallas and the UK.
Turning to developments, during the quarter we delivered five projects totaling 1.7 million square feet. These projects were fully leased with the exception of one project in the Lehigh Valley. And we are currently working with over 2 million square feet of prospects for the remaining space in this building. We also commenced construction on six projects totaling 1.3 million square feet including two buildings in Southern California and two buildings at our highly successful Port Crossing project at the Port of Houston.
A last Port Crossing development project is scheduled in second quarter 2019 delivery is now fully leased. I want to note that this leasing is not reflected in your supplemental package, this has occurred after the end of the year. Additional leasing not shown in the December 31, package include projects coming into service in the first quarter of 2019. These projects are now 100% leased and so the 85% leased shown in your package.
Let me move to 2019 guidance. On the disposition front, our guidance for the year is $600 million to $650 million including some sales that are carry-over (ph) transactions from 2018. Subsequent to year-end, we sold our Orlando assets in January for a total of $23.4 million. As of 12/31, our wholly owned office portfolio consisted of only about 2.2 million square feet. 848,000 square feet of suburban and in January, we sold 151,000 square feet of this.
The remaining 698,000 square feet is all either under a letter of intent listed for sale or to be listed for sale shortly. We estimate the value of these assets to be in the $75 million to $100 million range.
Our urban office portfolio which includes both our DC and Philadelphia assets, totals approximately 1.4 million square feet and is valued at $625 million to $700 million. We have a firm contract on one of our DC assets and we are marketing the other. As far as our Philadelphia assets, we have had several discussions with interested buyers. Please note that our guidance for 2019 assumes that we do not complete all of these sales during the course of the year.
On the acquisition side, our guidance for the year is $300 million to $350 million. Thus far in 2019, we purchased one property in Southern California for $32 million.
With that, I will turn the call back to Bill.
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Thanks, Mike, and thanks, Chris. I appreciate that. Vincent, we're now ready to take questions.
Questions and Answers:
Operator
(Operator Instructions). Your first question comes from the line of Craig Mailman from KeyBanc. Your line is now open.
Craig Mailman -- KeyBanc -- Analyst
Thanks. Maybe just a follow-up there on the bad debt. The 90 basis points, you guys had in the quarter, could you kind of split out what was related to the Sears' tax concerns and then was -- it kind of happened elsewhere, and if there are any trends or if there was just kind of one-offs.
So then just on Sears in general, you guys have coming out in April, is there any insight into that or any reason that date was picked and if they do decide to stay, is there any kind of flow back of the bad debt you guys took this quarter?
Chris Papa -- Executive Vice President & Chief Financial Officer
So Craig, I'll address the bad debt first and then I'll let Bill chime in as well on the Sears situation. With regard to bad debt, just under 50% of the amount affecting same store during the quarter that we mentioned relates to the Sears real estate taxes that we had reserved for -- the bulk of the rest of it relates to two other tenants, different industries, no real trends to speak of both those other two resident, the two tenants are still in residence and we're continuing to work with them.
So up to this point of the year, it was pretty much a quiet year on the bad debt front, I just look at these situations as somewhat anomalous. So, I don't really see any particular trends from that.
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
And then picking up on the building and the date, so this is 849,000 square foot institutional quality asset in the Harrisburg, Central PA market, and one of the two major distribution facilities that Sears uses and is using, so it's active and occupied and functioning.
They, as you know are in bankruptcy and there has been lots of back and forth with regard to that bankruptcy. I think, in fact, I think there may be a court hearing even today on it. So they have not informed us officially and legally about what their intent is with this asset.
There's lots of second hand sort of information about will they consolidate everything into a single building, there's been some conversations with employees. So we basically made an assumption that they'd be there roughly a quarter and that's what's in sort of in our estimate and we assume that they're out for the rest of the year, as Chris said, and that's baked into that vacancy of that building for three quarters, it's roughly baked into that FFO range that Chris gave you a couple of minutes ago.
Craig Mailman -- KeyBanc -- Analyst
Okay. So can you guys discuss maybe why it was included in the FFO, but you guys kind of just flagged it as a potential in the same-store range, and then just in same store by about a 100 basis points.
Chris Papa -- Executive Vice President & Chief Financial Officer
Yeah, so what we did from a guidance standpoint with regard to same store is we have the 2.5% to 3.5% range that we gave on a GAAP basis that does not assume that Sears will be out, that assumes Sears will be there for the rest of the year. But we did separately breakout the fact that if they were to move out by April 1st, and we didn't get them released, that would be roughly 100 basis point impact for the rest of the year, for FFO purposes to be clear, we did make that assumption for FFO purposes.
So, FFO was reduced by about $0.03 a share relating to that assumed move out as of April 1.
Craig Mailman -- KeyBanc -- Analyst
Right, and I guess (ph) it's getting out wide flat why not just pulling out both be consistent?
Chris Papa -- Executive Vice President & Chief Financial Officer
Well, again, just because we're not certain as to what they're going to do, so because of the uncertainty we figured we give you more of an apples to apples comparison, and then separately break it out if, you know, it gives you the ability to just kind of look at it both ways.
Craig Mailman -- KeyBanc -- Analyst
Got you. And then just on PA more broadly, you guys brought the development in bigger developments only 47% leased, and then in 2020 you guys have a bigger expiration year in PA. Could you just kind of give an overview of where that market stands and if you have to back fill Sears with the rest of that new development. I know you guys are really well leased outside of these two, but just kind of your views on the market as we head in this year and into next year.
Chris Papa -- Executive Vice President & Chief Financial Officer
Sure. Let me do it this way. Let me do it by sub-market, because I think it is very material to the conversation. So let's start up in the Lehigh Valley where the development building as it came into service, and as Mike mentioned, yeah, it's roughly half leased and then we've got, about a couple of million square feet of prospects for the remainder.
So I'm comfortable that we'll be putting somebody in there hopefully shortly. But the Lehigh Valley generally is about 4% vacant, as you know, it's a market of about 60 million square feet, 70 million square feet, if you include Berks County, you get about 90 million square feet, Berks County which is the adjacent county is actually like 17% vacant.
So you have this where people have gone further out, more greenfield in order to find development sites, we're fortunate enough to have a good land bank in the valley. But we think -- we look at the Valley as pretty tight, so if you want to be in the Lehigh Valley and you need more than 500,000 square feet of space right now, the building we brought into service and one other space are the only two spaces in the Lehigh Valley that are available, north of 500,000 square feet.
You're also right that we have a number of expirations in 2020 and in fact, Craig, the way -- the way that I mentioned in my remarks about we'll do about 20 million square feet, we basically end up doing in any particular year, because if you look at '19, you'll notice, it's actually a low year for expirations, it's about 9 million square feet, which is like 9% and '20 as like 18% (ph), so one is very low, one is very high. We will end up just in the normal course of doing business, just in the pace of getting leasing done, we'll probably do about a third of those 2020's over the next several quarters in '19 and you can rest assure that many of those significant expirations in the Lehigh Valley are included in that work effort to actually get done in '19. With regard to Central Pennsylvania, which is where the Sears asset is, Central PA is a bigger market, it's about 200 million square feet. It's a little bit more vacant about 7%, 8% vacant.
There is a little bit more construction out there, it's about 6 million square feet under construction, and a number of them are fairly large, 1 million square foot kind of buildings that run down the corridor. The Sears building itself, as I mentioned, it's about 849,000 square feet, it's a -- it was built in 2001. It has more than a normal amount of trailer storage part (ph) which is an asset in terms of leasing it. It's rail served, which is an asset to some customers.
So we feel that you could get that building released, you should know that we in fact have engaged a broker, we have marketing material and we are actively talking to people potentially should that building become available, about whether they might have a need for it.
So that's I think the playland (ph) in PA by sub-market and how it impacts our portfolio.
Craig Mailman -- KeyBanc -- Analyst
That's helpful. And then just on Sears where are you guys relative to market?
Chris Papa -- Executive Vice President & Chief Financial Officer
I'd say we're probably a bit above market 5% to 10%, if you had to do it today, where that rent is sitting today.
Craig Mailman -- KeyBanc -- Analyst
Great, thanks guys.
Chris Papa -- Executive Vice President & Chief Financial Officer
Okay.
Operator
Next question comes from the line of Blaine Heck from Wells Fargo. Your line is now open.
Blaine Heck -- Wells Fargo -- Analyst
Thanks, good afternoon. So Bill, last quarter it seems you guys talked about $700 million to $800 million of dispositions lapsed. But I think it seems like you guys are going to keep a more moderate pace of around $250 million to $300 million a year. It does sound like you guys have a good activity on some of it, but can you just talk about that decision and then what made you seemingly more comfortable accelerating those dispositions?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
I think the most fundamental straightforward answer is when we thought to ourselves, OK we are going to exit a business line, the office business, that doing it in a more accelerated pace would make sense and get it done, and I think that is reinforced by, as Mike described some we've got some inquiries on some of it. We have some of it in the market, and so we think we can get as we have in guidance $600 million to $650 million of that done this year that would leave a tail of a $100 million, $150 million, you know, if we can get that done, we might do that this year too.
So I think it's fundamentally, if this is the plan for the company, which it is, and if it's our strategic direction, let's go at pace and get it done, and we think the environment is fair (ph) do it.
Blaine Heck -- Wells Fargo -- Analyst
All right. That's helpful. Can you guys give us the cap rates that you guys are expecting on your targeted acquisitions and dispositions in 2019?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Yeah, I think you guys can correct me if I -- we think the dispositions are about 5.5% to 6.5% and we think the acquisitions are 4% to 5%.
Blaine Heck -- Wells Fargo -- Analyst
Okay, that's helpful. And then on same-store, there was a 125 basis point differential in your GAAP versus cash same-store guidance. Is that all due to free rent burning off or is there something else going on there?
Chris Papa -- Executive Vice President & Chief Financial Officer
It is substantially relating to free rent burning off. So as different properties have come into the same-store pool, compared to 2018, you will see some free rent burn off year-over-year.
Blaine Heck -- Wells Fargo -- Analyst
So you guys have reported cash same-store NOI above GAAP same-store for the last three years. Is that all because of declining free rent year-over-year? And if so, I guess how much further do you think it can go before cash and GAAP same store start to converge?
Chris Papa -- Executive Vice President & Chief Financial Officer
Well, I mean I think it is a function of the pool, right, so as you're continuing to bring new properties online, either through development and getting those stabilized or you are acquiring properties, when you have an asset come into the pool on a year-over-year basis, any free rent you may have given on the lease up for example, on a comparative basis maybe burning off in the subsequent year.
So that's somewhat of an impact and then you just have normal burn off over time. So I think that between the two, that's been the case -- that was the case last year in 2018, I think it will continue to be the case this year in 2019.
Blaine Heck -- Wells Fargo -- Analyst
Alright. That's helpful. Thanks, guys.
Chris Papa -- Executive Vice President & Chief Financial Officer
Thank you.
Operator
Your next question comes from the line of Karin Ford from MUFG Securities. Your line is now open.
Karin Ford -- MUFG Securities -- Analyst
Hi, good afternoon. I wanted to ask about your 4Q development starts. It looked like they were all 100% spec with no pre-leasing, I don't recall seeing that from you guys recently, so was that decision market driven or was that driven by your desire to accelerate starts and how much visibility do you think you have on demand and rent levels 18 months to 24 months out?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Yeah. It was driven by just sort of the circumstance by which starts happened by market based on how we want to bring new product in. It wasn't an acceleration, it wasn't that. So in the UK it was starting a building in a sub-market where we have a site.
Two of them are acquisitions. So they are consistent with our sale of office, and then the acquisition of industrial and markets where we're under-represented. So we have bought two completed developments effectively and put them in the pipeline and now they're there for the lease-up over a 12-month period.
So that's actually sort of -- that's part of what's happening here is you're getting a blending of new starts hold on raw ground that we own as well as some development acquisitions as part of our investment strategy.
In the port area, you have two of them and that has been one of the Kimberly (ph) perhaps one of the most successful industrial developments we've done over the last several years where we acquired a large parcel in the port and have executed consistently in terms of building product, getting it leased and having it taken down.
So we actually have -- we've leased everything we've built, in fact I think one of the leases, Mike talked about in the pipeline is that wasn't done, was done subsequent to quarter end, took out last space in the port area and filled it. So this is in fact backfilling that to make that happen. And then we are bringing a multi -- classic, multi-tenant industrial building into the Pennsylvanian market.
So each of these have a logic and story and rationale behind each of them, and it's just coincidental that they're all happening this quarter and they all happen to be spec.
Karin Ford -- MUFG Securities -- Analyst
Okay, great, thanks for that color. And my second question is one of your competitors said on their call that they notched back their same-store expectations in January based on some market volatility then. Did you guys do the same and if so can you just talk about your thought process on that?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Yeah, we did not necessarily change it for a macroeconomic reason, we run up as I think many people do, but we run a fairly robust and detailed and granular budgeting process that builds up the guidance, where we go literally space by space and asset building unit by building to think about what's going to happen and what might happen, what's the timeframe, what's the rent levels, what are all those factors that flow into making a transaction.
And we do look at it top side and say, how does it feel, but what we presented today is fundamentally that roll up, it wasn't particularly adjusted because of some macroeconomic concern on our part.
Karin Ford -- MUFG Securities -- Analyst
Great. My last question is just on the Comcast Technology Center. We saw an article that said that multiple contractors have filed liens against the project and it looked like it was pushed back a quarter. Does it seem like it looks like your GC's credit there is getting worse. Does it -- do you think it's becoming less likely that Liberty is going to be able to enforce the GMAC's contract on the cost overruns there?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Well, I'm not going to comment on the last question that you asked, just because you know, obviously there's legal aspects to it. Let me talk about the liens, which and that was a story, that's right. So we're in a dispute with the contractor about the cost and the additional cost that incurred, and so it would be unexpected that there in addition to the dispute between us and the contractor there might be disputes between the general contractor and his subcontractors about the responsibility for those costs, and under Pennsylvania law, a contractor can file a mechanics lien and he doesn't have to go to court and there -- there don't have to be any determination of validity that happened subsequent, and there's achieved (ph) resolve between the general contractor and the subcontractor or there is a court proceeding.
So in most of these cases we're not privy to what's going on between the contractor and the subcontractor. These claims, however, it is an obligation of that general contractor to remove the liens and we put them on notice that they're supposed to do that, and these claims that result in the liens are within the potential claims and cost that we were made aware of and all the subcontractor is doing is basically using an enforcement method to secure their claim.
So that's kind of what's happening there. It's sort of normal construction practice when things like this happen. We continue to work with the contractor and are in lots of conversations, the building continues to be built, and complete -- on its way to completion and we do anticipate that it will be substantially complete in the second quarter.
Karin Ford -- MUFG Securities -- Analyst
And the reason for the delay, the quarter delay on completion?
Chris Papa -- Executive Vice President & Chief Financial Officer
I thought it wasn't --
Mike Hagan -- Executive Vice President & Chief Investment Officer
We did.
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Oh we did? Okay. Yeah. It's just -- it's a more accurate representation of where we'll be in terms of getting the work done.
Karin Ford -- MUFG Securities -- Analyst
Okay, thank you.
Chris Papa -- Executive Vice President & Chief Financial Officer
Thanks.
Operator
Your next question comes from the line of Alexander Goldfarb from Sandler O'Neill. Your line is now open.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Hello. Hey, good afternoon, down there. So, just following up on Karen's question. So Bill, on the mechanics lien, basically the charge that you guys took last year relating to the cost overruns, none of the mechanics liens this new -- for us new development, none of this changes your original expectation of what the cost overruns are, correct? So there's no additional exposure to Liberty.
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
That's right. We would have revised the reserve if we had thought that was required, which we did not. So no, no change.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Okay. And then on the dispositions, so one, obviously appreciate that you guys commit to still getting out of office. The land that you wrote off in the quarter, is that sort of everything like you went up and down the halls and said guys, anything bad debt related to or any impairment related to office, get it out now or is there a potential as you sell more over the next 18 months that we're going to see more impairments related to office?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Alex, we go through an evaluation each quarter of our real estate and look for any indications of whether there might be impairments. With respect to these properties particularly the three land parcels, we went through an evaluation of our just holding assumptions, and as you can imagine from a standpoint of thinking about getting out of the office business, we revised some of those holding period assumptions which led to an indicator of impairment. So we decided to write those down.
In addition, we had the two other operating properties we wrote down during the quarter, similarly relate to office buildings and again our holding period assumptions changed, so we decided to write those down and in one situation, it's actually held for sale. So you would write that down a fair value in any case. So it's really all part of the normal course, but it is based upon changing expectations as we -- our strategy has evolved.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Okay. And then once you get down with these wholly sales, you will be left with what, Comcast? And I guess I don't know if you still own the DC JV stuff, but what's remaining in addition to Comcast after you get done with this, with all of the wholly owned office that you plan to sell over the next 18 months?
Mike Hagan -- Executive Vice President & Chief Investment Officer
Yeah. So what remains is there are three JVs -- three office JVs that remain, and there is one in the UK, one in DC, and then the one in Philadelphia, which is actually four separate JVs. And we have obviously there are JV contracts that lay out the terms and conditions of those and there is a counterparty and so it is not fully Liberty's discretion to decide the time, pace or future for those JVs.
We have been in dialog with those both in the UK and in DC, we'll see how that goes, and obviously we're -- as we talked a moment or two ago, working to complete the Comcast Technology Center and then we'll see where all things go.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Okay. And then just finally, Chris, the $5.7 million hedge costs that you guys took. So I guess one, was that -- is that reflected in the cost of the debt or did you guys, is that a charge just trying because it looks like you guys tried to treasury lock when rates were heading up and then obviously they quickly reversed, so you guys made a decision to break that.
So just sort of curious how that by $5.7 million is accounted for. Is that an FFO hit or that's in the cost of the debt that you issued?
Chris Papa -- Executive Vice President & Chief Financial Officer
Sure. So we entered into these treasury locks as you pointed out back in the fourth quarter, and when we were anticipating doing a deal as you are probably aware the market got volatile by the end of the year and the IG market effectively shutdown toward year-end.
So because of that and then you had the subsequent move down of the ten year rate we want of settling those swaps by paying $5.7 million. The $5.7 million will be effectively a cost of the financing we did of the $350 million bond deal. So, you should anticipate that, that will increase the yields that we put in the press release by about 20 basis points.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Okay, so for modeling what we see in the press release that 4.4 should be like 4.6?
Chris Papa -- Executive Vice President & Chief Financial Officer
It's correct.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Okay. Thank you.
Chris Papa -- Executive Vice President & Chief Financial Officer
Thank you.
Operator
Your next question comes from the line of John Guinee from Stifel Nicolaus. Your line is now open.
John Guinee -- Stifel Nicolaus -- Analyst
Great. I was looking at your core leasing numbers and you've done a great job of keeping CapEx per square foot per year for your industrial new and releasing at -- I think under $0.50 and over the term of the lease about $2.50. Are the tenants paying any TI dollars and is this low level sustainable?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
It's a good question, John. Let me start with the second question first. So, as you know, it's a back and forth, all negotiations with tenants and there are all the variables right, term, rent, free rent, TI's, et cetera. This is a very tight market, and so our position basically is there is an appropriate amount of TI for somebody to build a well an office or workstation for their employees in the building, etcetera. And we generally don't go past that, some tenants do ask for a lot more, somewhat more or a lot more and our general position is no. If the market dynamic changed, suddenly we weren't in tight market, there was a recession or something and suddenly it was a different world, people would use all the tools that are available, but I think if your question is sort of in the -- as we project out where we have visibility, I think that visibility would tell you that we -- it should be a fairly consistent amount of TI going into '19, because we think that's the nature where this market is right now, and so I think that performance that you cited would be continuing in '19.
With regard to are the tenants paying some, the answer is, yes, in some instances. We've talked in the past that the historic image of our warehouses of racks with (inaudible) around there's still a lot of that, but a lot of these buildings a lot is done in the buildings. We have a lot of people who create the last value add proposition, they may be packaging, assembling, processing, doing something with product and that might require power, that might require more employees and therefore there is bigger facilities for those employees and often that is picked up by the customer.
John Guinee -- Stifel Nicolaus -- Analyst
Great. And then the second. Are you active in the Amazon game and what their most recent prototype is for distribution?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
I think the simple answer is, well no on that second one. We -- Amazon is our largest industrial customer, so we are obviously active with Amazon and love to have them in our facilities. I think it's great, but as we've discussed in the past, we are interested in industrial real estate that we think has long-term value, is very flexible, usable by of a wide variety of customers on a go-forward basis.
So occasionally, people have requirements that are terrific for them and make a lot of sense for them where we might have some concern as to its flexibility and usability on a go-forward basis, so we are not pursuing the multi-tenant big Amazon projects, multi-story, I'm sorry, Mike corrected me, multi-story Amazon.
John Guinee -- Stifel Nicolaus -- Analyst
Got it, thank you very much.
Operator
Your next question comes from the line of Eric Frankel from Green Street Advisors. Your line is now open.
Eric Frankel -- Green Street Advisors -- Analyst
Thank you. Chris, going to guidance for next year and same store releasing -- sorry, leasing guidance specifically. The releasing spreads looked a little bit light, could you describe what's driving those assumptions?
Chris Papa -- Executive Vice President & Chief Financial Officer
Well, I think from the releasing spreads we gave 13% to 15% on a GAAP basis, I mean that's substantially where we were this past year. I think our original guidance there was 12% to 15% if I'm remembering correctly, 3% to 5% on a cash basis is a little bit below where we are currently shaking out this year, but that's OK, we could very well see the same type of trends continue. I mean I think what we are anticipating is 2019 will be much like 2018.
Eric Frankel -- Green Street Advisors -- Analyst
Great. You know, I think rents have grown at a pretty fast pace, well assets inflation, so I'm just wondering if there is any particular market where there's a lot of leases expiring next year that's driving the number a little bit lower, that would -- given that 18 was a little bit higher than your current range, that's why (ph) I'm asking.
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Yeah, I don't -- not the way you're asking it Eric, it doesn't jump at me that way, but you're right, I mean we do roll it up, as I said earlier on the kind of the granular basis, so maybe there's a little something, but I think Chris is right on it, I mean, we would anticipate rent would roughly be performed in our portfolio, the way they did this past year.
Eric Frankel -- Green Street Advisors -- Analyst
Okay, thanks. And then just investment guidance. On development, can you maybe -- you gave a range of 6% to 7% yield that you're stepping on development starts, one, is that a GAAP yield, and two what kind of margins are you expecting on those types of developments given where cap rates are today?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Well, the one thing I want to mention on it is and which I mentioned earlier some of what's in that pipeline are acquisitions that we made in the markets where we are under-served and where we're buying development sort of in place and that mix is partially affecting the overall yields for our development pipeline.
And so a part of why these yields are where they are is -- I would tend to say mix. In terms of value proposition, I think we remain where we've been historically, which is that we're producing products that are 150 basis points, 200 basis points in terms of yields, maybe better than what you could sell them for in the markets where they're at.
Eric Frankel -- Green Street Advisors -- Analyst
And that's on a cash over cash basis, you mean those 150 basis point to 200 basis point spread?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Yeah. I'm taking (inaudible) yields going in.
Eric Frankel -- Green Street Advisors -- Analyst
Okay. And then any, I probably, I'm going (ph) -- asked back to you a couple of times over the past few quarters about this about just the reinvestment risk. Is there any thoughts on obviously you're going to get a fair amount of disposition proceeds over the next year, any thoughts on the pressure to reinvest in potentially fairly low yield?
I mean, all market you're trying to invest in is where everybody else wants to be too. And so cap rates have -- keep stretching a little bit lower, and so just wanted in terms of risk adjusted standpoint whether it makes sense to really, obviously if you want to buy land with some the sale proceeds, you can do that too, but maybe just, it has to remove (ph) (inaudible)
special dividends as necessary.
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Yeah, I mean I think we gave, we obviously gave guidance here about where we think the acquisition range is, if we can't do it, we won't do it, we're not going to just spend the money on acquisitions just to spend it. And so if we would have to do a special dividend, you do a special dividend. So there is a relationship between these obviously capital gains and 1031s, but one doesn't -- they are independent, so we want to sell this office and get it done in the next 12 months to 18 months and we're going to be on their course and get that done and then to the degree we can invest it in a thoughtful way, great, and a degree that is challenging, then we'll go alternatives, right?
Eric Frankel -- Green Street Advisors -- Analyst
Right. Okay. I'll will talk to you at some point offline about Comcast. Thank you.
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Okay, sure.
Operator
Your next question comes from the line of Manny Korchman from Citi. Your line is now open.
Emmanuel Korchman -- Citi -- Analyst
Hey, Bill if we can stick to the disposition program. Can you help us sort of, place your desire to sell (inaudible) remaining UK development portfolio or the JV-ed office assets compared to the mechanics of doing so, are you pre-empted from getting that done because you have those relationships with your JV partners or because you don't really want to get out of those assets or those businesses?
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
No, we -- there is no question -- there should be no question in an investor's mind that Liberty is on a path to be an industrial-only REIT. I think the question of the JVs and by the way, but I mean two of them are particularly large and the other obviously is anchored by extremely long leases with a credit large corporate credit, really do deal with the fact that within those agreements, our provisions that dictate how things happen between the partners and what rights the partners have, and we respect those partners, they have been terrific partners and between us and conversations with them will dictate how that all plays out over time.
But it's a function of all of that, and that all making sense for everybody that's involved.
Emmanuel Korchman -- Citi -- Analyst
Right. That's it from me. Thanks.
Operator
Your next question comes from the line of Michael Mueller from JPMorgan. Your line is now open.
Michael Mueller -- JPMorgan -- Analyst
Hi, my question was on the lease spreads, that was answered. So I'm trying to get out of the queue. I actually have one question on the severance -- a few cents of severance. Is that, should we think of that as a spread out throughout the year type of thing or a Q1 event or something like that?
Chris Papa -- Executive Vice President & Chief Financial Officer
You mean for '19?
Michael Mueller -- JPMorgan -- Analyst
Yes.
Chris Papa -- Executive Vice President & Chief Financial Officer
Yeah. I would anticipate that it comes in probably over the first three quarters.
Michael Mueller -- JPMorgan -- Analyst
Got it. Okay, that was it, then. Thank you.
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
All right, well, thanks everybody. I appreciate your joining us today and see as the conference season takes off. Thanks.
Operator
This concludes today's conference call. You may now disconnect.
Duration: 53 minutes
Call participants:
Jeanne Leonard -- Investor Relations
Bill Hankowsky -- President, Chief Executive Officer & Chairman of the Board
Chris Papa -- Executive Vice President & Chief Financial Officer
Mike Hagan -- Executive Vice President & Chief Investment Officer
Craig Mailman -- KeyBanc -- Analyst
Blaine Heck -- Wells Fargo -- Analyst
Karin Ford -- MUFG Securities -- Analyst
Alexander Goldfarb -- Sandler O'Neill -- Analyst
John Guinee -- Stifel Nicolaus -- Analyst
Eric Frankel -- Green Street Advisors -- Analyst
Emmanuel Korchman -- Citi -- Analyst
Michael Mueller -- JPMorgan -- Analyst
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