Brandywine Realty Trust Q2 2025 Earnings Report

Brandywine Realty Trust EPS Results

• Actual EPS: $0.15
• Consensus EPS: $0.17
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: N/A

Brandywine Realty Trust Revenue Results

• Actual Revenue: $114.20 million
• Expected Revenue: $120.66 million
• Beat/Miss: Missed by -$6.46 million
• YoY Revenue Growth: N/A

Brandywine Realty Trust Announcement Details

• Quarter: Q2 2025
• Date: 7/23/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 24, 2025
• Conference Call Time: 9:00AM ET

Brandywine Realty Trust (NYSE:BDN) (NYSE: BDN) is one of the largest, publicly traded, full-service, integrated real estate companies in the United States with a core focus in the Philadelphia and Austin markets. Organized as a real estate investment trust (REIT), we own, develop, lease and manage an urban, town center and transit-oriented portfolio comprising 160 properties and 22.6 million square feet as of September 30, 2023 which excludes assets held for sale. Our purpose is to shape, connect and inspire the world around us through our expertise, the relationships we foster, the communities in which we live and work, and the history we build together.

Brandywine Realty Trust Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Brandywine posted 82% retention and leased 460,000 sq ft in Q2, boosting mark-to-market growth to 2.1% on a GAAP basis.
• Positive Sentiment: The company strengthened liquidity by issuing $150 million of unsecured bonds at just over 7% yield, repaying its line of credit and ending Q2 with $123 million in cash and no unsecured maturities until 2027.
• Negative Sentiment: Q2 results were weighed down by $0.14 per share of negative carry on development projects and $0.10 of non-cash preferred accruals, contributing to a net loss of $0.51 per share.
• Positive Sentiment: Brandywine exceeded its 2025 disposition plan by selling or committing $73 million of assets at a 6.9% cap rate (average $212 psf), above its $50 million target.
• Positive Sentiment: The company targets recapitalizing one to two joint venture developments in H2 2025 to retire preferred investments, recover capital and improve leverage and earnings.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Brandywine Realty Trust Second Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session and instructions will be given at that time. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jerry Sweeney, President and CEO. Sir, please go ahead.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Michelle, thank you very much. Good morning, everyone. Thank you for joining our second quarter twenty five earnings call. As usual, on today's call with me are George Johnstone, our Executive Vice President of Operations Dan Palazzo, our Senior Vice President and Chief Accounting Officer and Tom Worth, our Executive Vice President and Chief Financial Officer. Prior to beginning, certain information discussed on this call may constitute forward looking statements within the meaning of federal securities law.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

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 that we file with the SEC. Well, first and foremost, we hope that you and yours are doing well and enjoying the summer. And during our prepared comments today, we'll briefly review our second quarter results and provide updates on our 2025 business plan. After that, Dan, George, Tom and I are available to answer any questions.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

We posted solid operating metrics again this quarter, reinforcing the continued flight to quality, our portfolio's strong market positioning, and our asset quality. As we will review, we are increasing our business plan ranges on retention, same store growth from both a cash and GAAP standpoint, our capital ratio, and GAAP and combined mark to market. At the midpoint, we have now executed over 98% of our 2025 spec revenue target. Our quarterly retention rate was 82%. Leasing activity for the quarter approximated 460,000 square feet, including 233,000 square feet in our wholly owned portfolio and 226,000 square feet in our joint venture portfolio.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Quarter over quarter, leasing activity increased 35%, highlighted by our signing a 100,000 square foot lease with an industry leading tech company at our One Uptown joint venture development. Forward leasing commencing after quarter end remained strong at 280,000 square feet. Second quarter net absorption totaled 13,000 square feet. We do expect positive net absorption in the third quarter as well. As anticipated in our business plan, we ended the quarter at 88.6% occupied and 91.1% leased.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

The sequential increase in both our occupancy and lease percentage are primarily due to, as we outlined last quarter, reclassifying Thrina Delaware into a redevelopment opportunity, the sale of Quarry Lake in Austin, and an asset now held for sale in our Austin portfolio. While we are 91% leased, we expect negative absorption Q4 from a tenant move out in Austin and several small leasing slides to Q1 twenty six, so we're holding our year end leasing range at 89% to 90%. In Philadelphia, we're 93.5% occupied and 96.5% leased. During the second quarter, we captured 54% of all office deals done in the Central Business District. In the Pennsylvania suburbs, we're 88% occupied and 90% leased.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

In Austin, that is now 78% leased and occupied, up due to the sale of those two properties. Looking ahead, we have only 5.2% annual rollover through year end 'twenty six, one of the lowest in the office sector and only 7.5% through 02/1927. For the quarter, our mark to market was 2.1% on a GAAP basis and negative on a cash basis. We are increasing our range on both of these metrics fifty and seventy five basis points respectively, based on leases we have already executed in both Philadelphia and the Pennsylvania suburbs. Our capital ratio was 4.1%, well below our 25 business plan range, primarily due to continued capital control, construction efficiencies, and a number of as is transactions.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

As such, we're improving our capital ratio by half a percentage point at the midpoint to now nine to 10%, which is the lowest capital ratio range we've had in the past five years. Tour activity continues to accelerate. Second quarter physical tours exceeded the first quarter by 29%, and the square footage toured in the second quarter exceeded first quarter by 66%. For the quarter on a wholly owned basis, 43% of new leases were the result of a flight to quality, and we also, as we always mentioned, don't have any tenant lease expirations greater than 1% of revenue through 2026. Our operating portfolio leasing pipeline remains solid at 1,500,000 square feet, which includes about 75,000 square feet in advanced stages of negotiations.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

We anticipate continued strong operating performance in our operating portfolio supported by limited rollover risk, excellent capital control, the ongoing strengthening of our markets, and expanding lease pipeline. From a balance sheet standpoint, we issued $150,000,000 of unsecured bonds in June, generating $15,900,000,000 of gross proceeds at an effective yield to maturity just over 7%. We used a portion of these proceeds to repay the line of credit balance created by our prepaying the $70,000,000 term loan last quarter. As a result, where we are now, we have no outstanding balance in our $600,000,000 unsecured line of credit and $123,000,000 of cash on hand. We do plan, in fact, just very recently, use some of those proceeds to reduce our secured indebtedness by repaying our construction loan on January, and are in the process of prepaying a portion of our secured CMBS loan.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

We also have no unsecured bond maturities until November. Going forward, to ensure ample liquidity, as Tom will further touch on, we plan to maintain minimal balances on our line of credit. As noted previously, our business plan is designed to return us to investment grade metrics over the next couple years. As such, we'll be looking to reduce overall levels of leverage while retiring secured debt through unsecured bank or future bond offerings. Stepping back a bit and looking at the larger picture, real estate markets and overall sentiment continue to improve.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Our operating and leasing teams have established a solid operating franchise to capitalize on improving market dynamics. In particular, pipeline activity continues to grow quarter over quarter. Tour volume remains at very healthy levels. Rent levels and concession packages remain fully in line with our business plan. And in select submarkets and in select buildings, we are pushing both nominal and effective rents.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

The quality bifurcation continues in the office sector. As a way of example, Philadelphia's vacancy rate is about 18.6 among a 119 buildings. 50% of that vacancy is concentrated in just 14 buildings, while the top 10 vacancy buildings account for 40% of the city vacancy. High quality buildings continue to outperform and push effective rent levels. Our competitive set, particularly in Philadelphia CBD in the suburbs, continues to narrow through both buildings being removed from office inventory for residential conversions, and a select few assets continue to have financial issues, essentially removing them from the leasing market dynamic.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

In fact, our numbers show that potentially 10 buildings totaling several million square feet of office product is in the process of being removed from inventory for conversion of residential uses. As such, our Brandywine team and assets remain in an ever improving competitive position. In looking at the city's life science sector, while early in the recovery phase, that should remain a forward growth driver backed by strong regional healthcare ecosystem that includes the 1,200 biotech and pharmaceutical firms, along with 15 major health systems. Green shoots on the capital raising front are emerging, as evidenced by the recent $200,000,000 raise by a local life science firm. Boston, that's actually emerging from real estate market lows and remains a magnet for corporate expansion.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Leasing momentum remains positive, particularly in the Class A property, with Austin recording over 121 tenants actively seeking almost 4,000,000 square feet of space as of July. Positive momentum was driven by a revitalization of the tech sector. There's also a notable trend encouraging return to work on a full time basis, so we are increasingly optimistic that Austin will see increased leasing activity as 2025 progresses. As noted, significant progress has been made on liquidity and our operating property performance. Earnings, however, remain impacted by the expensing of our non cash preferred accruals and negative carry on our JV development.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

By way of illustration, we are incurring $0.14 per share of negative carry in our development projects, including about 10¢ per share in non cash charges for our preferred structures on our JV developments. Looking at FFO, our FFO for the quarter was 15¢ a share and in line with consensus estimates. One point to note that we highlighted in our supplemental package in the press release is our 2025 business plan contemplated $03 a share in gains from land sales. We did anticipate these sales would occur in the second half of the year. Based upon the length of time required to perfect full site approvals, and that being a condition to achieve optimal pricing, we do not believe all required approvals can be obtained by year end.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

As a result, we removed these gains from our 2025 forecast, and as such, our revised FFO range is $0.06 0 to $0.66 per share, reflecting a midpoint still above consensus estimates. Optimizing value in our development projects remains the top priority in the company, and activity levels in all of our development projects significantly improved during the quarter, particularly at 1 Uptown and 3151. In fact, our overall development pipeline is up over 1,000,000 square feet from last quarter. During the second quarter, we also had great success on residential developments at Evira, which has reached 99% leased, and Solaris now being 89% leased. At Schuylkill Yards, on our 3025 project, that commercial component is now 85 leased.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

To accelerate leasing on the one remaining floor, we are pre building space for delivery by year end and have a very good pipeline of smaller tenants. We have executed one retail lease and are advanced negotiations on the final retail space. We continue to project the commercial component will stabilize in Q1 'twenty six, shortly after our major tenant takes occupancy in January. Avira, the residential component, as I mentioned, 99% leased and approaching full economic stabilization. 3,151 Market, our life science project, was substantially delivered the first quarter of this year and will be in a capitalization phase through 2025.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

That pipeline has grown significantly since last quarter, with advanced discussions underway with several prospects. The life science market remains in a recovery mode, impacted by a challenging fundraising climate and public policy uncertainty. Given the success of our 3025 office project, we're also conducting tours with office users. As I mentioned last call, despite the strong increase in office and life science traffic, visibility on lease executions and related build out timelines still remains a bit unclear, so we did move the stabilization of that project back a quarter to Q4 'twenty six. At Uptown ATX, traffic improved significantly over the quarter, and as highlighted earlier, we signed 100,000 square foot lease and are now 40% leased.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Our remaining pipeline remains strong, with tenant sizes ranging between 106,000 square feet, including ongoing discussions and negotiations with several full floor users. We are also proceeding with building out space on one floor to accommodate the accelerated move in dates for several smaller prospects. Those suites will be completed in early Q1 'twenty six. Solaris, which opened ten months ago, is currently 77% occupied and 89% leased. We expect Solaris to fully stabilize in early Q4 of this year.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

As noted in the past, our development projects remain top of market and attractive to a broad range of our customer targets. We continue to remain confident in their success, and we'll continue our aggressive marketing campaigns. Also, as these projects stabilize, they present an excellent opportunity for refinancing and recapitalization. We do anticipate making progress on this front with at least one and possibly two projects being recapitalized in the second half of this year. We expect these recapitalizations to retire the preferred investments, recover invested capital, improve our financial metrics and earnings, and reduce overall leverage.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Our original 2025 business plan contemplated one development start during the year. So during the second quarter, we did commence construction on the last component of our overall Radnor mixed use complex, a 121 room hotel situated adjacent to our 2,100,000 square foot office life science portfolio and Penns Medical Campus. The project cost is slightly less than $60,000,000 and we anticipate a 10% return on cost. The hotel will serve as an excellent amenity for our Brandywine tenant base and the adjoining universities, and based on surveys with our existing tenant base, we anticipate over 25% of the demand will come from the existing Radnor tenant base. In addition, there are seven colleges within a five mile radius and an adjoining Penn Medical complex.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

The project will be flagged by one of the world's leading brands and full service managed by the world's leading third party hotel management company. Our plan is to finance these costs through the application of current and future sale proceeds and potentially a construction loan. The project will be completed in Q2 'twenty six and open for business shortly thereafter. Our 2025 business plan also anticipated $50,000,000 of sales occurring in the second half of the year. We're pleased to report that we have sold or are firmly committed to sell almost $73,000,000 of properties.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

The average cap rate on these sales was 6.9% with a price per square foot of $212 We will continue to market several select assets during the balance of the year, but at this time are not factoring any additional sales into our '25 plan. We had an excellent quarter controlling capital spend as evidenced by tightening of our capital ratio to 9% to 10% of lease revenues. As I alluded to earlier, our metrics have remained impacted by deferred tenant allowances and the non cash expensing of the preferred dividends. However, as NOI from development has come online and those projects are recapitalized, our plan contemplates growing both our FFO and CAD results to bring our dividend payout ratio back to historic levels. During the second quarter, by way of reference, we recognized approximately 26% of the deferred tenant improvement cost totaling 5,500,000.0 or $03 per share in our CAD ratio.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

In addition, the CAD ratio for the quarter included $02 or $3,800,000 of accrued but unpaid preferred dividends. We do anticipate that a large majority of those preferred returns will be paid upon the recapitalization of these joint ventures and not from cash flow. Each quarter, we do assess the ability to return historic CAD coverage ratios over the next exceeding four to six quarters. As previously noted, we carefully monitor the timing of NOI coming from development projects, ongoing capital spend, intermediate term coverage ratios, and our plan to return to investment grade metrics in determining our quarterly dividend policy. So with that overview, let me turn the floor over to Tom to review our financial results for the second quarter and outlook for the balance of the year.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

Thank you, Jerry, and good morning. Our second quarter net loss stood at $89,000,000 or $0.51 per share, and those results include several impairments in our Austin portfolio serving $63,400,000 or $0.37 per share. Our second quarter FFO totaled $26,100,000 or $0.15 per diluted share, which met consensus estimates. Some general observations for the quarter. FFO contribution from our unconsolidated joint ventures totaled a negative 5,800,000.0 or, 800,000 more than our 500,000 5,000,000 forecast.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

Loss was partially due to higher concessions at our Solaris house during lease up, and we expect those to improve over time. Interest expense was 500,000.0, less than our reforecast primarily due to capitalized interest. Other forecasted quarterly results were generally in line. Looking at our debt metrics, second quarter debt service and interest coverage ratios were two point o, sequentially 0.1%, 0.1 times from the first quarter. Our second quarter annualized combined and core net debt to EBITDA were eight point three and seven point nine respectively with both metrics within our business plan range.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

Looking at our core portfolio composition, we've made several changes as highlighted previously, we are removing 300 Delaware from our core portfolio and placing it into redevelopment, which is anticipated to commence in 2026. We have sold Coralie Lake and we have one other Austin property held for sale. During the third quarter, we will add our life science redevelopment project located in Radnor, Pennsylvania, two fifty King of Prussia Road to the core portfolio as it will be stabilized. Liquidity and financing activity, as Jerry mentioned, we completed a follow on bond offering in June, which generated gross proceeds of 159,000,000. The proceeds were used to repair on unsecured line of credit and pay off our construction loan at 155 King Of Prussia Road, which is a 100% occupied and now paying cash rent.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

We have worked with our we are working with our services to partially repay a portion of our secured term loan to increase our unencumbered asset pool. It's important to highlight that in April 2024, we executed an unsecured bond issuance at 8.875%, and this recent follow on issuance had a yield to maturity of 7.04%, representing a 20% decrease in our unsecured borrowing costs. We continue to make a strong liquidity position and we will use sales and refinance proceeds to reduce secured debt and to improve our credit profile and related credit outlook and rating. We have time to work on this improvement with no unsecured bonds maturing until November 2027. Our wholly owned debt is 98.1% fixed with a weighted average maturity of three point three years.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

As we highlighted, we are adjusting and narrowing our guidance for 2025. The midpoint reduction of 3¢ per share is due to removing the anticipated land sales from our guidance and we also narrowed the guidance by 4¢ a share. As Jerry noted, we expect to recapitalize our residential and commercial developments as our leasing percentages approach 90%. We either achieved or reaching those levels with several projects and we will commence those recapitalization efforts over the balance of the year. We are anticipating some benefit in the 2025 results with full benefit being realized in 2026.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

Looking at the third quarter guidance, property level operating income will total approximately $71,500,000 and will approximate the second quarter results. FFO contribution from our joint ventures will total a negative $5,000,000 which is consistent with our second quarter results. Our G and A expense for the third quarter will total approximately $8,500,000 representing a sequential decrease totaling $800,000 Consistent with prior years, the sequential decrease is primarily due to the timing of our equity compensation expense recognition. The interest expense will be approximately 34,500,000.0 and capitalized interest will be approximately 2,500,000.0. Sequential increase in interest is primarily due to the $150,000,000 unsecured bond issuance, partially offset by actual and anticipated debt pay downs.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

Termination fees and other income will total about 1,500,000.0, and net management and development fees will be about $2,000,000. The sequential decrease is primarily due to lower forecasted construction development fees, due to lower capital costs, being incurred at our development properties. Our previous 2025 business plan included speculative sales totaling 50,000,000, which we anticipated to be towards the second half of the year. Although we have other assets on the market, we are adjusting our disposition guidance to $72,700,000 representing the sale in the second quarter and our anticipated sale in the third quarter. We anticipate no property acquisitions.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

We anticipate no ATM or buyback activity, and our share count will be roughly 179,500,000.0 shares. Turning to our capital plan. Our capital plan for the balance of the year totals $215,000,000 and is fairly straightforward with some adjustments based on recent activity. Our $20.25 CAD payout ratio for the second quarter was 176%. We recognize this is a very high elevated level compared to our historical average and our long term target.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

As Jerry outlined, our quarterly CAD ratio was negatively impacted by older tenant allowances and unpaid preferred dividends in our unconsolidated development joint ventures. Long term, as we complete these developments and experience higher operating income, we anticipate our CAD coverage ratios should decrease throughout 2026. Looking at the larger capital uses, we have development spend totaling 55,000,000, which includes 200 250 King Of Prussia Road, a food hall at 1 Drexel Plaza, and our recently announced development at 165 King Of Prussia Road. We had 52,000,000 of common dividends, 15,000,000 of revenue maintaining capital, and 20,000,000 of revenue creating capital, with 30,000,000 allocated to equity contributions to fund recently signed tenant leases in our joint ventures. The funding sources are 62,000,000 of cash flow after interest payments, asset sales, and construction loan proceeds if we get a construction loan on 165 King Of Prussia Road.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

Based on the capital plan, we anticipate using an incremental 81,000,000 of cash during the balance of the year with $42,000,000 of cash and no outstanding balance on our line of credit. We also protect our net debt to EBITDA to range between 8.28.4% with the increase primarily due to losses from the joint ventures developments. Our debt to GAV will approximate 48%. We excluded the CMBS payoff from our sources and uses. So if we are successful in repaying a portion of the secured CMBS loan, we will have another use of cash and likely have a small line balance by the end of the year.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

By the end of twenty twenty five, our core net debt to EBITDA range will be 7.7 to 7.9 and should come close to equaling our consolidated net debt to EBITDA, which excludes our joint ventures. We anticipate our fixed charge coverage and interest ratios will remain steady at two point zero. And with incremental income in the development projects, we expect these leverage levels will begin to improve as we go into next year. I will now turn the call back over to Jerry.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Thank you, Tom. So as we look ahead, the operating platform, I think, really puts us in a great position to capitalize on improving real estate marketing conditions and perform at the high level we have been in the past couple quarters. We're very encouraged by the significant increase this quarter in our pipeline for our development projects, And while we know that that pipeline has not yet translated into definitive earnings growth for the company, we're very focused on that. So the groundwork has been laid, and we are focused on continuing that prospecting and lease execution momentum in our development portfolio. The operating platform remains very stable with limited near term rollover.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Our liquidity, as Tom outlined, remains in excellent shape, and we're well positioned to take advantage of continued market improvement. So with that, Michelle, we'd be happy to open the floor for questions. We do ask that, as we always do, in the interest of time, you limit yourself to one question and a follow-up.

[Operator]

Thank you. And the first question will come from Your line is open.

[Seth Bergey, Senior Analyst at Citi]

Hi, thanks for taking my question. As you think about the recapitalization of the development projects, can you just talk about capital provider appetite and how much you potentially look to encumber or what that would look like?

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Yeah. I I think we have a lot of discussions underway, and I think we're very pleased with the level of investor appetite that we've seen. I think that's the corollary to, I think, what we've seen in the overall investment market for office. There's been a really significant return of high quality private investors looking to take advantage of improving market conditions. Look, all these development joint ventures right now are structured on a preferred basis.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Our objective going into it is, and Brandywine's the majority owner in those, our objective going to these recapitalizations is to obviously harvest as much value as we can at the point of transaction closing, convert either sell some of the properties or convert some to pari pursue joint ventures that will both return capital to us and lower our overall level of leverage and reduce the earnings drag coming off a couple of these properties. So live discussions underway, as Tom touched on. We're really waiting for a couple of these projects to really get to quantitative stabilization, to really start to engage in in detailed discussion with potential investors. But I think overall, the plan of getting one and maybe two of them done this year remains on track, and I think we remain very encouraged by the overall breadth of activity that we're seeing and the number of inquiries you're getting from private investors about wanting to work with us on these development projects going forward.

[Seth Bergey, Senior Analyst at Citi]

Thanks for that. And then as my follow-up, is a hotel development something you'd like to own longer term, or would you kind of, upon completion, look to sell or monetize that in some way? Thanks.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Yeah, no, I think that's a great question. And look, on the hotel, from a cost of capital standpoint, starting the project was a bit of a challenging call for us. But from that perspective, I think the factors that went into it were, as we've talked on the call, our liquidity is in excellent shape with ample capacity, and I think certainly exceeding our sales target for the year and doing it earlier further improved liquidity and intermediate term capacity. When we look over the next several quarters, to follow-up on your initial question, the recapitalization of our JV developments are gonna result in lowering our overall leverage and improving our overall credit metrics. We believe those efforts will also improve overall liquidity by, as I mentioned, returning some capital to us, and that process is underway.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

And we remain focused on remaining on a track to return to investment grade metrics. We know the operating platform will continue to perform well. Developed and leasing continues to make good progress with four of the five projects on that clear path to stabilization and recapitalization. And to go to your core question, I think as the hotel project progresses, we'll certainly look for additional equity partners or a JV or an early sale to further reduce the overall dollar exposure. But looking at those cost to capital considerations, we also wanted to balance that with what we viewed was an outstanding real estate opportunity.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

You know, Radnor is one of our top performing submarkets and one of the most desirable areas in the region. Tenant our tenant base there has some leading corporations that have responded incredibly well to previous retail offerings and have been asking for more hospitality options in the marketplace. And at a broader standpoint, market conditions remain very positive. There's a great window for companies like Brandywine to continue to differentiate our tenant service delivery platform, and tenants will view this hotel addition to our portfolio as a significant value add to the service platform. And after talking to tenants, we think, yeah, at least 25% of the demand will come right from those local tenants.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

And to kind of mitigate some of the operational risk, while we've co developed a hotel in Concha Hocking a number of years ago and developed a hotel at FMC Tower, it's a business segment that's really non core to us. So to address that, we'll flag the hotel with one of the world's leading brands. We've engaged the world's largest third party hotel management company to handle the marketing, pre opening, and operations for us, and I think as all those pieces come together, to go to a specific answer to your question, I think we remain very open to bringing additional partners in on this, joint venturing it, or doing early presale upon stabilization. Really viewed it as a real significant addition to our amenity program. Thank you.

[Operator]

Thank you. And then the next next question will come from Magnus Ebeck with Evercore. Your line is open.

[Analyst]

Yes, good morning and thanks for taking the question. Congrats first of all on the signing of 100,000 square feet at Uptown ATX. I was just wondering if you talk maybe a little bit about the deal economics there, if that was maybe better or in line as how you expected at the end to kind of like come in getting signed. And if there's any interest for the tenant potentially to further grow their footprint there or you kind of how you like size it up? And if you could maybe touch on, in case you can disclose it, when you expect that lease to commence and start actually seeing, like, rent for that tenant to be paid here.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Right. Well, I'll share with you what what we we can. It's a ten year lease. We anticipate the tenant taking occupancy early twenty six. The economics were very much in line with our ten year projections.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Capital costs were a little bit above our initial budget, but the overall length of the lease and the economics of lease compensated us for that. We certainly hope the tenant would continue to grow. They have a good footprint in Austin. They certainly indicate they continue to want to grow their presence in Austin. The lease has been structured to give them a right on some space in the building, but also then an ongoing right to match other deals that we bring to the table.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

So we've created some optionality for them to do some near term growth, but then also further optionality for them to accelerate their growth curve by taking advantage of the right of offer they have on spaces that were ready to lease to third parties. So all in all, we think a very, very good outcome for our Project Austin. We think having this named company as part of our uptown development will certainly accelerate additional tenants wanting to move into our complex. So we're very happy with the result, and we've already seen with that word leaking out into the marketplace, an uptick in activity through our Uptown pipeline. So good result, took us a long time to get there, but we're there and moving forward, and we'll be up and running in early 'twenty six.

[Analyst]

Perfect. And maybe a quick follow-up on just on these office components, the JV assets. I understand it's still further out in the future, of course, but like what lease percentage are you kind of targeting before even a recap of those office components would come into play as well, understanding this is further out in the future?

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Yeah. It's a great question. I think we're looking at 3025, obviously, getting to 85% leased with a real with a real visible path to getting north of 90% leased in the next couple quarters is certainly a target right now that we're looking at from a recapitalization standpoint. Well, yes, commercial, I mean, Solaris House now being 99% leased, moving to the high eighties on occupancy in the next couple months. That certainly presents, I think, a recap opportunity for us.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

When we look at One Uptown and 3151, I think we're looking forward getting into the 60 to 70% leased range, but with visibility for bringing those properties to stabilization before we start really engaging significantly with direct private equity sources.

[Analyst]

Perfect, much appreciated. Thank you.

[Anthony Paolone, Executive Director at J.P. Morgan]

Thank you.

[Operator]

And the next question will come from Anthony Paolone with JPMorgan. Your line is open.

[Anthony Paolone, Executive Director at J.P. Morgan]

Great. Thank you. Good morning. Jerry, you made some comments around the dividend and I understand it's a Board decision, but you guys have also been pretty clear about just improving the balance sheet and the focus there. So just like, do you have to pay a dividend right now? Like what kind of flexibility do you have? And how are you thinking about it?

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Yeah, great question, Trent. Look, I think it continues to be a topic we review with the board on an ongoing basis. And just by way of background, I think that the factors that we really key in on are what the core portfolio performance looks like into 'twenty six, which we have some good visibility on, the timing of when the NOI from developments come online and the impact that has on '26, the burn off rate for the tenant fit out dollars for those leases that were signed as early as 2020. We do anticipate most of that burning off this year, if not all of it. And then most importantly, or perhaps most importantly, the execution timeline on the development project recaps that eliminate that preferred return charge to earnings.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

And as I mentioned a bit ago, I mean, we do anticipate the second half of the year being really key in those recapitalization efforts as well as making a dividend decision. And then certainly our view how the capital market conditions and how that impacts our projected timeline to return to investment grade metrics. So I think as we look at going into the second half of the year, we certainly are going need a lot more clarity on how these recaps will take place and what the impact is on the balance sheet, our earnings and financial metrics, overall leverage levels. And I think that'll be a defining moment for us to decide what we wanna do with the dividend.

[Anthony Paolone, Executive Director at J.P. Morgan]

Okay. And do you like, what is the flexibility, though, just even besides the sort of like bigger picture decisions, like just what do you have to pay out at this point or what's your taxable look like?

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Hey, Tom.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

Hi, Tony. Our dividend will be dictated partially on some of the sales and whether we incur some losses. But we do have room to move the dividend you know, without having a trigger on our REIT requirement. So it it can go pretty low without hitting that, but I do wanna point out that depends on us getting the sales done because some of that is predicated on us getting some of these deals done.

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

And as you know, took in impairments, but we will also subsequently have a tax loss. So that gives us some flexibility that the dividend can be reduced if we decide to go that way.

[Anthony Paolone, Executive Director at J.P. Morgan]

Okay. And then just my other question relates to just general liquidity for office assets in the market. I mean, you talked about a 6.9% cap on the $73,000,000 of disposition seems pretty decent. And just can you talk to depth of market, what can be sold these days, what can't, where cap rates might be, and so forth?

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Yeah, I mean, look, I think one of the things that's been very encouraging, I think that the nationally office sales have exceeded last year's numbers by a nice margin, and that's really been driven by some significant the return of some significant private investors looking to buy high quality assets. So what's been kind of interesting is, when I look at 'twenty three and 'twenty four, a lot of the office assets that we're trading were, I'll say ones that were either distressed or lower quality. I think what we're starting to see is that higher quality assets are coming to the marketplace, and that those bid lists are getting fairly significant with a range from not just syndicators and family offices, but also tier one and tier two institutions who are looking to take advantage of what they view as a recovery in the office market, as well as what we're seeing in a lot of markets where there's not going be a lot of additions. In fact, there could be a lot of subtractions from the existing office inventory due to residential conversions. So I don't have a real read on exactly where cap rates will be, but I think the higher quality assets will be getting somewhat back to what the cap rates were a number of years ago.

[Anthony Paolone, Executive Director at J.P. Morgan]

Okay, thanks for the time.

[Operator]

Thank you. And the next question will come from Omotayo Okusanya with Deutsche Bank. Your line is open.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Yes. Good morning, everyone. Good Good wanted to focus a little bit on 03/1951. I know you kind of talked a little bit about kind of touring activity at that asset. But curious what the mix is between the kind of life science touring versus kind of other potential tenants.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

And if you do end up doing a little bit more office in that building and initially anticipated, what the potential implications will be for the stabilized yields?

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Yeah. Good morning. Yeah. The pipeline actually has a couple of larger office requirements in it right now that have surfaced in the last quarter. They're kind of in the six to 100,000 square foot range, But the majority of the pipeline remains institutional, academic, and life science.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

And a lot of the life science companies we're talking to are very interested in the building, but they need to raise some capital before either party's comfortable moving forward. So I think the recent announcement on a life science company locally being able to raise capital has been very, very positive. But I think when we take a look at the economics, the economics between the life science and the officer are not that different, because the capital requirements are lower. So we get a lower rent on the office, but a much lower capital cost number. We're still trying to get between seven and ten year deals.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

A couple of the transactions we're looking at are beyond that, but from an economic equivalency standpoint, they're pretty much in the same range.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Gotcha. That's helpful. And then the potential recap activity in the second half of twenty twenty five. Tom, I believe you mentioned that you could potentially have some impact on 2025 with the full impact full positive impact on 2026. But just curious if any of that is built into 2025 guidance or not?

[Thomas E. Wirth, EVP & CFO at Brandywine Realty Trust]

There is a little bit of guidance improvement if we get them done. We didn't really highlight exactly when and where in the calculations, but we do have a couple of sense of improvement that we think could come from getting the recaps done, sooner rather than later. Again, that also it's dependent on the timing of getting that kind of a transaction done. If it takes a little longer, obviously that end cap could be muted.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Got you. And if you just indulge me for one more please. The move outs in 2025 that you guys mentioned, Just talk a little bit about, you know, the overall size of that, you know, again, just the implications for occupancy as you kind of begin 2026.

[George Johnstone, EVP of Operations at Brandywine Realty Trust]

Sure, Tayo. Good morning. It's

[George Johnstone, EVP of Operations at Brandywine Realty Trust]

George. It's a 70,000 square foot tenant who had an early termination right, which they have exercised, and they will vacate in October. Tenant was taking advantage of a sublease opportunity for a much smaller footprint than what they had with us. So we will see fourth quarter retention kind of below our annual range. We are still projecting to be between 8889% occupied come year end.

[George Johnstone, EVP of Operations at Brandywine Realty Trust]

And again, our forward leases that we already have executed, kind of keep us in that range, and then some of those will also commence in 'twenty six. As Jerry had mentioned in his commentary, we had a number of slides that we thought we would get occupied in the fourth quarter, but the commencement date will be early first quarter.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Sounds good. Thank you.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Thank you.

[Operator]

And our next question will come from Uphall Rana with KeyBanc Capital Markets. Your line is open.

[Upal Rana, Senior Equity Research Analyst - US REITs at KeyBanc Capital Markets]

Great. Thank you. On Uptown ETFs, Gerry, you mentioned there continues to be a healthy pipeline there. Could you give us some additional color on that pipeline? And are you trading paper on any of them?

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

We are trading paper on a couple of them, and George, you want to walk through the pipeline?

[George Johnstone, EVP of Operations at Brandywine Realty Trust]

Yeah, I mean, the pipeline is really a mix of companies, financial service, professional service organizations, not too much additional tech, a few tech companies. We're at kind of advanced stages with two or three of those right now. One is likely to be a full floor user. So again, tour levels are good, proposals issued have increased, and as I said, we've got one that we're hopefully close on wrapping things up with.

[Upal Rana, Senior Equity Research Analyst - US REITs at KeyBanc Capital Markets]

Okay, great. That was helpful. And then now with 300 Delaware and Quarry Lake kind of taken care of, you only have a handful of assets still impacting your portfolio vacancy. Could you give us an update on the other five properties that and your plan to reduce vacancy there?

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Sure. We can tag team this, but I mean, one we're really crisply focused on right now in terms of impact is Riverplace, and I think Riverplace is a two pod complex, six buildings that has been under leased for some time. It's really suffered from a number of tenant move outs and lease expirations. We're not actively leasing a couple of the buildings there now. We have filed a rezoning permit application.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

We expect to get final zoning approval within this quarter. We have plans moving forward for several 100 apartment units, so as a result, we shortened our hold period. We're actively pursuing that. We're working we have a great team working on it in Austin who's very tied into the local community and local politics, and working through all those dynamics at this point. There's also been a state bill passed that accelerates the rezoning of commercial to residential, so we're seeing how that plays out locally.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

But that would be something that, if we achieve the zoning approval that we think we can, then I think we'll progress with the full development plans and work our way through the site approval process with, we believe, the support of the local stakeholders. 4 Points is under leased right now. We continue to market that. We do have that property on the market for sale, and we'll see if there's any bidders that come that way. The Sierra Center, we have some life science exposure there.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

We have the graduate labs we're working on. We have a couple of good prospects, so we think that think that takes care of itself over the next couple quarters. And then Riverplace Building 1, is a building we are actively leasing. We are exploring the sale of the office pod of Riverplace, so we'll see how the market responds to that. And 101 West Elm is a building that we recently completed a major lobby renovation in one of our core Marks of Koch Haakon.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

They're progress every quarter on leasing that space up. So we think that's on a good track to eliminate that 60,000 square feet or so of vacancy as well. Hopefully

[Upal Rana, Senior Equity Research Analyst - US REITs at KeyBanc Capital Markets]

Thank that was you. Yeah, for sure. Thank you.

[Operator]

And our next question will come from Dylan Brzezinski with Green Street. Your line is open.

[Dylan Burzinski, Senior Analyst at Green Street Advisors, LLC]

Hi, guys.

[Dylan Burzinski, Senior Analyst at Green Street Advisors, LLC]

Thanks for taking the call. Gary, know you touched on some of the strategic reasons why you guys started the the hotel development, but I guess just from a, you know, a financial perspective, I mean, part of the reason your guys' shares trade at where they do is because you guys have started so much developments over the last several years at an inopportune time and then obviously still working through some of those headaches. So I guess and I know you guys kind of guided to potentially start a new development, but to us, it seems surprising that you guys would actually go forward with this new project in light of where shares are and in light of the development woes that you guys are already facing. So I guess can you kind of just talk about the financial reasons for that in light of some of the stuff I mentioned as well as the fact that capital is scarce for Brandywine today, and so the more sales you get in the door, why not just use that capital for share buybacks or further deleveraging of the company?

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Yeah, a fair observation. Think one of the previous questions I kind of walked through the thought process from a cost of capital standpoint, and I do think that given the level of success we think we'll have with this development, that we will have some capital options available to us to reduce our financial exposure over the near term. So it was really kind of balancing the returns we thought we could get on this, what we view as a really strong window opportunity to create a valuable piece of real estate that really does play into the request from a lot of our tenants in that marketplace, so balancing from a tenant service platform. And certainly, we would expect to continue marketing properties for sale as just walked through and continuing to lease up the development price. I think one of the big variables right now is the level of the level of success that we think we will have with these recapitalizations.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

So I think with with really four of the five projects having a a visible path to stabilization, and capital market conditions continue to improve, more investors coming back into the market, both for office and residential, we think that we'll be in a very, very good position to address the financial considerations here. But thank you for your observation.

[Dylan Burzinski, Senior Analyst at Green Street Advisors, LLC]

I guess why not just sell the land off to a hotel developer? Like, why does Brandywine need to sort of do this deal as opposed to just selling the land off and monetizing it today without running the risk of potentially delivering at an opportune time? Who knows what the macro economy is? And I know you mentioned that a lot of the demand is potentially coming from the office and life science and tenants there, but why not just sell the land today?

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Yeah, look, that was certainly something we thought about. And again, I think as we go through the development cycle, I think we'll have a range of capital opportunities that can explore.

[Dylan Burzinski, Senior Analyst at Green Street Advisors, LLC]

Okay, thanks guys.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Thank you.

[Operator]

I am showing no further questions in the queue at this time. I would now like to turn the call back over to Jerry Sweeney for closing remarks.

[Gerard Sweeney, President, CEO & Trustee at Brandywine Realty Trust]

Great, Michelle. Thank you, and thank you all for participating in our second quarter earnings call. We look forward to updating our business plan activities and progress on the next quarterly call. Thank you all very much.

[Operator]

This concludes today's conference call. Thank you for participating and you may now disconnect.

Participants

Executives

• Gerard Sweeney, President, CEO & Trustee
• Thomas E. Wirth, EVP & CFO
• George Johnstone, EVP of Operations

Analysts

• Seth Bergey, Senior Analyst at Citi
• Analyst
• Anthony Paolone, Executive Director at J.P. Morgan
• Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank
• Upal Rana, Senior Equity Research Analyst - US REITs at KeyBanc Capital Markets
• Dylan Burzinski, Senior Analyst at Green Street Advisors, LLC