Earnings call transcript: Brandywine Realty Trust Q2 2025 reveals net loss

Brandywine Realty Trust reported a net loss of $89 million, or $0.51 per share, for Q2 2025, alongside a funds from operations (FFO) of $26.1 million, or $0.15 per diluted share. The company’s earnings per share (EPS) exceeded analysts’ expectations, with an actual EPS of $0.4359 compared to a forecast of -$0.1907, marking a significant surprise of -328.58%. Despite this, revenue slightly missed expectations, coming in at $114.2 million against a forecast of $114.26 million. InvestingPro data shows the company’s revenue has declined 27.62% over the last twelve months, with total revenue at $304.25 million. Following the earnings release, Brandywine’s stock fell 4.85% to $4.33, reflecting investor concerns over the company’s financial performance and future outlook. According to InvestingPro analysis, the stock is currently trading near its Fair Value, with analyst targets ranging from $3.50 to $6.00 per share. Despite challenges, the company maintains one of the highest dividend yields in the sector at 13.86% and has maintained dividend payments for 32 consecutive years.

Key Takeaways

• Brandywine Realty Trust reported a net loss of $89 million for Q2 2025.
• EPS significantly surpassed forecasts, but revenue slightly missed expectations.
• The stock price dropped 4.85% post-earnings, closing at $4.33.
• Revised 2025 FFO guidance set between $0.60 and $0.66 per share.
• High CAD payout ratio and leverage metrics are areas of concern.

Company Performance

Brandywine Realty Trust’s Q2 2025 performance was marked by a substantial net loss, attributed partly to the challenging office market conditions. Despite a strong EPS performance compared to forecasts, the company’s financial health remains under pressure with a historically high CAD payout ratio of 176% and core net debt to EBITDA expected to range between 7.7 and 7.9 by year-end. InvestingPro’s Financial Health Score indicates a WEAK overall rating, though the company maintains a healthy current ratio of 2.79, suggesting adequate liquidity to meet short-term obligations. Subscribers can access 12 additional ProTips and comprehensive financial metrics through InvestingPro’s detailed research reports. The company continues to face headwinds in the commercial real estate sector, with office market recovery still in its early stages.

Financial Highlights

• Revenue: $114.2 million, slightly below forecast.
• Net loss: $89 million, or $0.51 per share.
• FFO: $26.1 million, or $0.15 per diluted share.
• Revised 2025 FFO guidance: $0.60 to $0.66 per share.

Earnings vs. Forecast

Brandywine’s EPS of $0.4359 significantly exceeded the forecast of -$0.1907, resulting in a surprise of -328.58%. However, revenue marginally missed expectations, coming in at $114.2 million against a forecast of $114.26 million. This mixed performance highlights the company’s ongoing challenges in aligning its operational metrics with market forecasts.

Market Reaction

Following the earnings announcement, Brandywine’s stock fell 4.85%, closing at $4.33. This decline reflects investor apprehension about the company’s financial health and future prospects, particularly in light of the high CAD payout ratio and leverage concerns. The stock is trading closer to its 52-week low of $3.41, indicating a cautious market sentiment. InvestingPro data reveals the stock has delivered a 4.78% total return over the past year, despite facing significant headwinds. The company’s market capitalization stands at approximately $713 million, with an EV/EBITDA multiple of 50.19x, suggesting a premium valuation relative to peers.

Outlook & Guidance

Brandywine has revised its 2025 FFO guidance to between $0.60 and $0.66 per share. The company is targeting development project recapitalizations in the second half of 2025 and expects positive net absorption in Q3. Additionally, Brandywine anticipates improvements in leverage metrics by 2026, with no unsecured bond maturities until November 2027.

Executive Commentary

CEO Jerry Sweeney expressed optimism, stating, "We anticipate continued strong operating performance in our operating portfolio." He also noted an improvement in capital market conditions, with more investors returning to the market. CFO Tom Worth highlighted the company’s flexibility in adjusting dividends without breaching REIT requirements.

Risks and Challenges

• High CAD payout ratio: Currently at 176%, this poses a risk to financial stability.
• Leverage metrics: Core net debt to EBITDA is projected to remain high, between 7.7 and 7.9.
• Office market recovery: The sector is still in early recovery stages, affecting occupancy rates.
• Economic conditions: Broader macroeconomic factors could impact real estate demand.
• Competitive landscape: Residential conversions are narrowing the competitive set in the office market.

Q&A

During the earnings call, analysts inquired about potential joint ventures for hotel developments and the flexibility of dividend policies. The company is actively marketing underperforming assets in Austin, with positive momentum in the Uptown ATX leasing pipeline. Executives addressed these concerns, highlighting their strategic initiatives to enhance financial performance and operational efficiency.

Full transcript - Brandywine Realty Trust (BDN) Q2 2025:

Conference 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.

Jerry Sweeney, President and CEO, 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Tom Worth, Executive Vice President and Chief Financial Officer, 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Jerry Sweeney, President and CEO, 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.

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.

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

Analyst: 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?

Jerry Sweeney, President and CEO, 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.

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.

Analyst: 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.

Jerry Sweeney, President and CEO, 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.

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.

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.

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.

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

Magnus Ebeck, Analyst, Evercore: 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.

Jerry Sweeney, President and CEO, 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.

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.

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.

Magnus Ebeck, Analyst, Evercore: 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?

Jerry Sweeney, President and CEO, 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.

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.

Magnus Ebeck, Analyst, Evercore: Perfect, much appreciated. Thank you.

Anthony Paolone, Analyst, JPMorgan: Thank you.

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

Anthony Paolone, Analyst, JPMorgan: Great. Thank you.

Tom Worth, Executive Vice President and Chief Financial Officer, Brandywine Realty Trust: Good

Anthony Paolone, Analyst, JPMorgan: 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?

Jerry Sweeney, President and CEO, 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.

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, Analyst, JPMorgan: 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?

Tom Worth, Executive Vice President and Chief Financial Officer, Brandywine Realty Trust: Hey, Tom. 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.

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, Analyst, JPMorgan: 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?

Jerry Sweeney, President and CEO, 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, Analyst, JPMorgan: Okay, thanks for the time.

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

Omotayo Okusanya, Analyst, 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.

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?

Jerry Sweeney, President and CEO, 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.

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.

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, Analyst, 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?

Tom Worth, Executive Vice President and Chief Financial Officer, 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, Analyst, 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, Executive Vice President of Operations, Brandywine Realty Trust: Sure, Tayo. Good morning.

Anthony Paolone, Analyst, JPMorgan: It’s

George Johnstone, Executive Vice President of Operations, 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.

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, Analyst, Deutsche Bank: Sounds good. Thank you.

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Thank you.

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

Uphall Rana, Analyst, 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?

Jerry Sweeney, President and CEO, Brandywine Realty Trust: We are trading paper on a couple of them, and George, you want to walk through the pipeline?

George Johnstone, Executive Vice President of Operations, 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.

Uphall Rana, Analyst, 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?

Jerry Sweeney, President and CEO, 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.

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.

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.

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.

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

Uphall Rana, Analyst, KeyBanc Capital Markets: Thank that was you. Yeah, for sure. Thank you.

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

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Hi, guys.

Dylan Brzezinski, Analyst, Green Street: 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?

Jerry Sweeney, President and CEO, 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.

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 Brzezinski, Analyst, Green Street: 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?

Jerry Sweeney, President and CEO, 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. Okay, thanks guys. Thank you.

Conference 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.

Jerry Sweeney, President and CEO, 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.

Conference Operator: This concludes today’s conference call. Thank you for participating and you may now disconnect.

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