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spk10: Good day and thank you for standing by. Welcome to the Brandywine Realty Trust first quarter 2024 earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jerry Sweeney, President and CEO. Please go ahead.
spk06: Kevin, thank you very much. Good morning, everyone, and thank you for participating in our first quarter 2024 earnings call. On today's call with me are George Johnson, our Executive Vice President of Operations, Dan Palazzo, Senior Vice President, Chief Accounting Officer, Tom Wirth, our Executive Vice President and Chief Financial Officer. Prior to beginning, certain information discussed during our call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give 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 we file with the SEC. First and foremost, we thank you for participating and hope that you and yours are well and looking forward to a successful and ever-improving 2024. During our prepared comments, we'll briefly review first quarter results and the progress in our 24 business plan. Tom will then briefly review first quarter financial results and frame out the key assumptions driving our 2024 guidance. After that, Dan, George, Tom, and I are available for any questions. But prior to addressing the quarter in our 24 business plan in any detail, we did want to address the key themes that guide our thinking every day. From a business risk management standpoint, our focus is really on three key areas, liquidity, development lease-up, and portfolio stability. First, on liquidity, as we will outline in both my comments and Tom's, our recent bond issuance cleared the decks on any additional bond maturities through 2027. As such, we do anticipate maintaining minimal balances on our line of credit over the next several years to ensure continued ample liquidity for the company. On our operating joint ventures, we have several non-recourse mortgages still in negotiations. While those discussions are taking longer than we originally planned, we do anticipate constructive outcomes that will improve both our balance sheet and our revenue stream. Second, on development lease-up, We are within several quarters of having our entire development pipeline fully delivered. As I will note later, the pipeline on all projects continues to build with both number of tours and issued proposals increasing during the quarter. Each of these projects are top of their market, attracted to a broad range of customers, and we remain confident of hitting our target return on cost. We certainly recognize both the earnings drag and the balance sheet impact of carrying $260 million of non-revenue producing capital and continue our aggressive marketing efforts on every project. To the upside, upon stabilization, these projects will generate approximately $54 million of additional GAAP NOI or a 15.5% increase to our existing revenue stream, so they do remain a key growth driver for our company. Finally, looking at portfolio stability, continued strong operating metrics reflect the underlying stability of our core portfolio. While our 80% occupied Austin portfolio will face near-term challenges, fundamental growth dynamics in that market remain, and we will be a strong participant in that market's recovery. Philadelphia, which has one of the lowest vacancy rates among largest cities in the country, continues to perform well, and our 94% leasing level and occupancy level of 91% reinforced that point. Looking ahead, we have less than 6% of annual rollover through 2026. Our 2024 revenue plan is running ahead of schedule. Our mark-to-market capital ratios and same-store numbers all continue to perform at relatively strong levels as they have done over the past couple years. We fully recognize the challenges facing the commercial real estate space, and have taken and will continue to take the steps necessary to ensure strong performance on our 24-year business plan as well as achieving our longer and intermediate-term growth objectives. With that overview, the first quarter has gotten the year off to a great start. Results are in line with our 24-year business plan. A few quarterly highlights. We posted first quarter FFO of $0.24 per share in line with consensus. Our speculative revenue range of $24 to $25 million is 98% complete at the midpoint. As noted, we did resolve our 24 bond maturity, and as Tom will elaborate, recently we completed a $400 million five-year unsecured bond offering. Proceeds will pay off our outstanding bond due October 2024, repay the small amount outstanding on our line of credit, and provide additional forward liquidity. Our combined leasing activity for the quarter totaled almost 500,000 square feet. During the quarter, we executed 359,000 square feet of leases, including 101,000 square feet of new leases within our wholly-owned, stabilized portfolio. Based on recent efforts with two of our joint ventures, we have eliminated $61.6 million of debt attribution during the quarter, which contributes towards our goal of eliminating $100 million of venture debt attribution by year-end 24. And as noted on page 13 of our SIP, our 24 business plan anticipates having full availability of our line at year-end 2024. Consolidated debt is 94% fixed at a 6.1% rate. Quarterly rental rate marked to market was 16.9% on a GAAP basis and 3.3% on a cash basis. We did end the quarter 87.7% occupied and 89% leased, sequentially down from year end, but very much in line with our business plan expectations. Page four of the supplemental highlights the high occupancy of the majority of our portfolio. It does identify seven properties that do comprise over 50% of the company's vacancy. As noted on that page, these properties affect our occupancy numbers by over 400 basis points. We are implementing plans on each of the projects that we outlined on that page, ranging from accelerated lease initiatives, capital investment programs, and conversion and sale opportunities. The operating portfolio remains in very solid shape. Our forward rollover exposure through 2025 has been further reduced to less than 6%, and through 2026 is down to an average of 5.8%. And by renewing one of our largest near-term expiring tenants, we now have no tenant lease expiration greater than 1% of revenues through 2026. So our portfolio quality, service delivery platform, and sub-market positioning remain key competitive advantages. And similar to recent quarters, the quality curve thesis continues to gain strength as reflected in the overall pickup in our leasing activity. And we do continue to see encouraging signs on the leasing front as evidenced by the following metrics. Physical tours increase has been very positive. First quarter physical tours exceeded fourth quarter tours by 20%, also exceeded our trailing four quarters average by 48%, and also tour activity remains above pre-pandemic levels by over 38%. On a wholly owned basis, during the first quarter, 55% of all new leases were the result of this flight to quality. Tenant expansions continue to outweigh tenant contractions during the quarter. Our executed renewal and expansion progress has enabled us to raise our annual retention target by 600 basis points. So from 51% to 53% is a range to 57% to 59% is a new range. Our total leasing pipeline is up for the fourth consecutive quarter and stands at 4.9 million square feet. Our leasing pipeline is up 400,000 square feet last quarter and stands at 2.4 million square feet on our wholly owned portfolio. On the development projects, our pipeline is up 310,000 square feet from last quarter and stands at 2.5 million square feet. The existing portfolio pipeline also includes approximately 300,000 square feet in advanced stages of lease negotiations. Also, 38% of our operating portfolio New Deal pipeline are prospects looking to move up the quality curve. And in terms of pipeline staging, which is clearly very important, proposals outstanding are up 153,000 square feet over last quarter, So about 900,000 square feet of outstanding lease proposals. And we have leases and negotiations that are up 59,000 square feet from the last quarter as well. So very good positive trend lines on the leasing and deal conversion front. Looking at our leverage, our first quarter net debt to EBITDA was up to 7.9 times up from our fourth quarter number, primarily due to an increase in development and redevelopment costs. and as the always expected, higher first quarter G&A and lower other income. Our core EBITDA metric ended the quarter at 6.8 times and currently within our targeted range. Looking quickly at our joint ventures, as I mentioned, we did reduce our investment balance at year-end in one joint venture, and at year-end in another joint venture, our basis was reduced to the scheduled first quarter cash distribution. As such, we have now eliminated both joint ventures from our operating reporting metrics and will record no further operating results. This also eliminates the corresponding non-recourse debt, lowering our debt attribution by, as I mentioned previously, $61.6 million. And as we noted on page 37 in the SIF, we do have two other operating joint ventures with loan maturities during the first half of 24. Both of those loans are secured solely by the real estate and are non-recourse with no obligation for our partner or Brandywine to fund any additional money. That being said, we do believe the ventures present valuable opportunity as the debt and real estate markets recover, and as such, along with our partners, we continue to be engaged in productive conversation with each lender. While these discussions are progressing slower than we originally anticipated, We do expect a full resolution within the next quarter. We did, as a side note, receive a three-month extension from our lender on Sierra Square and are working with our partners to refinance that property during the extension timeframe. In terms of guidance, as Tom will elaborate further, but as a result of our bond financing occurring three months early and being $50 million above our business plan target, we forecast an additional $3 cents per share of interest expense. Based on that higher expense, we have reduced the upper end of our FFO guidance by that three cents. So our revised FFO guidance is now 90 cents to 97 cents per share, as opposed to our initial FFO range of 90 cents to a dollar per share. And based on that revised range, our 60 cent per share dividend our FFO and CAAT payout ratios were at 63 and 86% respectively. At the midpoint, our first quarter coverage ratios were better than our 2024 business plan forecast. We do still continue to expect that between 80 and $100 million of sales during the year. As I mentioned last quarter, we do expect those sales to occur in the fourth quarter with minimal dilution. And during the year, we do plan to have about 200, to $300 million of sales in the market for price discovery. We are targeting sales in the Met DC and Pennsylvania suburban marketplaces, and we'll also continue to sell non-core land parcels that we did last year. In looking at our developments, as I noted, our development leasing pipeline is 2.5 million square feet, which is up 14% from last quarter. We also saw an increase in the status of that pipeline. So as of now, we have 122,000 square feet under early lease negotiations, 900,000 square feet of proposals outstanding, and 300,000 square feet undergoing space planning. Tour velocity continues to pick up. The commercial components of 1UP10 and 3025 JFK are now delivered, and those activity levels continue to increase. However, given the length of time to complete space plans, obtain permits, and construct the space, our 24 financial plan does not include any spec revenue coming from these two projects. To accelerate revenue recognition, however, we are building two floors of spec suites in each building that will be completed by mid-year. In looking at the project specifically at 3025 JFK, On the commercial component, we remain 15 percent leased, but with an active pipeline totaling approximately 650,000 square feet. The delivery of the residential units continue. Activity levels on the residential front remain good. Tours are occurring daily, and we currently have about 43 percent of the project leased, which is a nice step up from last quarter. 3151 Market, that building is scheduled for delivery later this year, and we have a leasing pipeline that's up slightly from last quarter with 120,000 square feet in early lease negotiations. Uptown ATX Block A construction is on budget. We did slide the completion date into Q124. due to a slight delay in some perimeter infrastructure work that needed to be done and affected building accessibility. Our leasing pipeline is approximately 700,000 square feet, which includes a mix of prospects ranging from 5,000 square feet to 300,000 square feet. We did commence a floor spec suites and have a second floor under advanced stages of design. The multifamily component of that project of 341 units We'll begin phasing in during the third quarter of 24, and we do anticipate the residential component will be about 50% pre-lease by year end. Our next phase of B-Labs expansion at Sierra Center is underway and nearing completion, and we are the final stage of lease negotiation with a single tenant for the entire eighth floor. Tom will now provide an overview of financial results.
spk05: Thank you, Jerry, and good morning. Our first quarter net loss totaled $16.7 million, or $0.10 per share, and first quarter FFO totaled $41.2 million, or $0.24 per diluted share. Our FFO results met consensus, and we have some general observations regarding the first quarter of 24, highlighting two variances compared to our fourth quarter guidance. Contributions from our joint ventures was $1.2 million above our reforecast, primarily due to a one-time pickup at one of our joint venture projects. G&A totaled $11.1 million, $1.1 million above our reforecast, primarily due to higher compensation expense recognition. This quarterly variance continues to be a timing variance, and we anticipate the full year number to be relatively consistent with guidance. Our first quarter debt service and interest coverage ratios were 2.5, and net debt to GAV was 44.1. Our first quarter annualized core net debt to EBITDA was 6.9, and our annualized combined net debt was 7.9. Also, it was just above our range of 7.5 to 7.8. Portfolio and joint venture changes. While we made no changes to our core portfolio this quarter, we have removed two of our joint ventures from our reporting metrics, to reflect recent accounting treatment. The accounting treatment for those two ventures was based on the following considerations. As of 12-31, we wrote off our existing investment balance. Because of the write-off, we will not recognize any future income or loss from those joint ventures, and that debt is non-recourse. For financing activities, as Jerry highlighted earlier, we completed a $400 million bond offering that closed on April 12th. And with this issuance, we were able to eliminate a material near-term maturity risk with no subsequent bond maturities until November 2027, improve liquidity by increasing the bond issuance to $400 million from our anticipated $350 million, enforcing our goal of remaining an unsecured borrower, and the higher proceeds help support our objective to have our outstanding line of balance close to zero. We maintain a high percentage of our wholly owned portfolio to be fixed. And after this issuance, we have 96% of our debt fixed at 6.1%, with a weighted average maturity of 4.6 years. We're in the process of tendering for our 2024 bonds, and we'll know those results this coming Friday. The balance of the bonds that are not tendered will then be redeemed in the next five to six weeks. While the bond pricing was in line with our 2024 business plan, This will increase interest expense by about $5 million or $0.03 per share, primarily to account for the timing of the new bond issuance and the increase of the interest rate curve for our floating rate debt. As such, we lower the upper end of our FFO guidance by $0.03. With the bond transaction complete at this point, we are not pursuing a secured financing transaction. Regarding our 2024 joint venture debt maturities, as Jerry mentioned, we were working with our partners on the 2024 maturities to potentially extend the current dates with our existing lenders. We commenced marketing efforts with other lenders and put certain properties on the market for sale to lower JV leverage. We did extend our maturing Sierra Square mortgage 90 days through July 1st. Looking more closely at the second quarter of 2024, we had the following general assumptions. Our portfolio operating company, our portfolio level operating income will total approximately $74 million and be roughly in line with our first quarter results. Our FFO contribution from our unconsolidated joint ventures will total a negative $2 million in the second quarter. The sequential reduction is due to the one-time income pickup in the first quarter and commencing late in the quarter, our ATX residential operations. G&A for the second quarter will decrease to $9.5 million. The sequential improvement is consistent with our prior years and is primarily due to the timing of deferred compensation expense recognition. Total interest expense will approximate $33 million. Capitalized interest will be $3 million. Termination fees and other income will total roughly $2 million. Quarterly NOI from our net management, leasing, and development fees will be roughly $3 million. And we do expect interest and investment income will total approximately $1.2 million. That increase coming from the excess cash we will hold until the 24 bonds are paid. On tender, we believe we'll generate a one-time net gain, totaling roughly $800 to $1 million, buying the bonds back at something less than par. Land sales gains tax provision will be not material, and our share count will approximate 176 million diluted shares. Our capital plan is fairly straightforward and totals $580 million, and our CAD range remains at $90 to $95 million. For our capital plan, the primary uses are going to be $70 million of development and redevelopment costs, $80 million of common dividends, $35 million of revenue maintaining, $30 million of revenue creating CapEx, $25 million of contributions to our joint ventures, and the $340 million unsecured bond redemption. Primary sources for those will be $105 million of cash flow after interest, 391 net secured loan proceeds from our bond offering, land sales at the midpoint of $90 million, and $25 million of construction loan proceeds related to 155 King and Prussia Road. Based on the capital plan outline, cash on hand should increase roughly $31 million, and our line of credit is expected to end the year undrawn, leaving full availability. We also project that our net debt to EBITDA will fall within the range of 75 to 78 with an increase primarily due to incremental capital spend on development projects with minimal project income by year end. And our net debt to JAV will approximate 45%. In addition to our core net debt, our metric of net debt to EBITDA, our core net debt range is 65 to 68 for the year and excludes primarily our joint ventures as well as all of our active development projects that will be completed shortly. We believe the core leverage metric better reflects the leverage of our core portfolio and eliminates our more highly leveraged joint ventures and our unstabilized development and redevelopment projects. During 2025, our core net debt to EBITDA should begin to equal our consolidated net debt to EBITDA as our development projects reach stabilization and we continue to reduce exposure to our current joint ventures. We anticipate our fixed charge and interest coverage ratios will approximately 2.2, which represents a decrease from the first quarter, primarily due to the higher forecasted interest expense from our recent unsecured bond issuance, projected capital spend, and the stabilization of our joint ventures. I now turn the call back over to Jared. Great, Tom. Thank you very much.
spk06: So I guess the key takeaway is, you know, portfolio remains in solid shape. Very minimal annual roller exposure through 26, I think, presents a very solid foundation. You know, we anticipate having strong mark to markets, continue to manage our capital spend effectively. And we do anticipate accelerating leasing velocity in both our development and our operating portfolio. So we're executing a baseline business plan that continues to improve liquidity, as evidenced by our actions of the past 30 days. Keeps our operating portfolio in a very solid footing. recognizing the challenge in leasing space. We have a great team of people both on the leasing and the property management front that are in touch with our customers every day, and the pipeline continues to build, and a clear focus on leasing up our development projects to generate forward earnings growth. So as usual and where we started in that we wish you and your families well. And with that, we are delighted to open up the floor for questions. We ask that in the interest of time, you limit yourself to one question and a follow-up. So, Kevin, we're prepared to answer questions at this point.
spk10: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star 1-1 again. We will pause for a moment while we compile our Q&A roster.
spk09: Our first question comes from Steve Sacqua with Evercore ISI. Your line is open.
spk01: Thanks. Good morning, everyone. I guess first, Jerry, maybe could you just elaborate a little bit more on kind of the discussions you're having, particularly on the development side, both for Austin and the Schuylkill Yards projects. I'm just curious how corporates are thinking about the economy, interest rates. We've seen in other sectors there's a little bit of indecision-making and kind of pausing on leasing activity. So I'm just curious. The proposals and pipelines have been pretty high recently. but obviously you haven't converted those. And I'm just wondering kind of what the holdup is, or is it getting those projects further to completion? Is it more just the squirreliness of the economy that's keeping people at bay?
spk06: Yeah. Good morning, Steve. Good question. Thank you. Look, I think it's a combination of a lot of the factors you mentioned. I think there's no question that leasing velocity continues to accelerate in the higher quality properties of which obviously these developments are top of the market. And that's also juxtaposed against what we're seeing is a decline in our competitive set because of those other building owners having some financial difficulties and our strong financial stability is actually a magnet for bringing more traffic into our portfolio. So we feel very good about the near and intermediate term outlook for generating additional leasing prospecting through our portfolio. And our leasing teams have done an amazing job of outreach, networking, to make sure that we see every possible deal that's even whispered as taking place in all of our core markets. So I think the capture sieve is working very, very effectively. I do think to some degree in the development project, Steve, to your point, is until the projects were really done, it was really hard to generate either a sense of urgency or a sense of true excitement. And I think that's why I mentioned we're reaching the full delivery of a number of these projects now where the lobbies are completely done, the printer landscaping is done, all the amenity spaces are in their very final stages. That captures the imagination of tenants and does create a sense of motivation on their part to kind of get leases. Particularly when the pipelines tend to be as strong as they are. There is no question, however, as we talked on the last call, about the macro uncertainty really has continued to play into the extended cycle times that we're seeing, particularly the larger tenants. The smaller tenants, we seem to not really be experiencing that, but you're in the 100,000, 150,000 square foot larger tenants. Certainly, the macro climate, the lack of clarity on the economic picture, where rates are going, certainly plays into that. That being said, as we point out, we're doing a lot more space planning this quarter than we did before the end of the year. We have a number of proposals outstanding that we think will gain some traction. We do hope that In the near term, we can convert some of this pipeline to actually lease executions. Even on the spec suites we're building out, we're seeing great activity on that because that tends to be a more compressed cycle time. But I think we're happy with the level of activity we're seeing through all three of the core development projects on the commercial side, anxiously pushing every possible prospect to get leases across the finish line, and actually are very happy with the level of velocity we're seeing on our our 3025 residential component as we're kind of moving into key leasing season with the uptick in both tour activity and lease executions there.
spk01: Okay, thanks. And I just want to follow up. I don't know if you can really comment on this, but I know IBM had signed a lease to move to a competitive project in the same sub-market in Austin. And I'm just wondering, you know, given the challenges of getting financing, you know, what are the prospects or chances that and maybe the timeline of maybe that deal not happening? And I guess are there rising prospects that maybe IBM could stay in Uptown ATX?
spk06: Well, look, I obviously cannot speak to either IBM's direct intentions or the other developers' financing efforts. Certainly, there's a lot of rumors in the marketplace as to whether that deal will proceed or not. What I will say, Steve, is we continue to track that on a regular and active basis. Whether there's any change in the direction with IBM in that new location remains to be seen. There's smart people on both sides of that table. If there's a way to figure out how to get that project financed, whether IBM takes more space or they reduce the size of the building. I can't speak to specific motivations on that transaction. But from our perspective, we do remain in very close touch with IBM. They've been a longtime tenant of ours. Our local team has very rich and robust relationships with the senior leadership team. So we continue to monitor it. And if there's an opportunity, rest assured that we'll be there to take advantage of it.
spk01: Great, thanks. That's it.
spk09: One moment for our next question. Our next question comes from Anthony Filoni with JP Morgan.
spk10: Your line is open.
spk00: Yeah, thanks. Good morning. Jerry, you mentioned some pretty specific stats around the flight to quality. I think it was 55% moving up. Can you maybe just talk a bit about when you're seeing – tenants move up the quality spectrum, are they taking less space than they had before? Are they trying to keep their total rent dollars the same? Are they willing to just take on more rent, just trying to understand that behavior a bit better?
spk06: Yeah, and George and I will tag team. I think what we're saying is a continued dynamic of employers really want to bring their employees not just back, because most of them are back at this point, but kind of really position their employees in a quality workspace that helps define their brand and their culture. Very, very important to have the physical platform serve as that connective tissue between productivity, brand, and culture. So we think that's an inescapable dynamic going forward, and I think that's why you've seen such a disparity in the performance of lower quality and kind of class A properties throughout almost every market in the country. And you've seen the same dynamic on rental rate increases. You're certainly seeing higher pressure on rental rates across the board in the higher quality properties. So real growth in effective rents in a number of our markets. George, maybe you can speak to some of the things that you're saying on the leasing fund. Yeah, I think, Tony, to the specific of your question, I do think the prospects who are taking that flight are focused on getting the right footprint as kind of their primary objective. And if the rental expense for them remains the same, they're okay paying that higher per square foot to be in the better building with those better systems. So we're seeing that, you know, both downtown in our trophy set, you know, we're seeing that obviously in our Radnor portfolio, you know, where we continue to see not only new tenants coming into those buildings and markets, but we're also seeing, you know, a good number of expansions occurring at the same time. So this quarter we renewed a 40,000 square foot tenant in Radnor who at the same time expanded by an additional 12,000 square feet. So already in a high quality market at a very good rental rate for us and made the decision that they actually needed more space to get all their people back and get them back in the way they wanted them to operate their business. And just a final point on that. I mean, look, there's no question tenants are really assessing how much space they need. And we're really not seeing a lot of hot desking or office sharing or reduction in workstation sizes. I think one of the contributing factors that you see sometimes, and we've certainly seen that particularly in CBD Philadelphia, is when tenants are moving from some of the older buildings, the efficiency of the floor plates that we have are so much better than where they're moving out of that they can actually fit the same number of people with the same amount of square feet per people in kind of less, almost less space than they had before because of the efficiency of the floor plates. So look, there's no question we've seen a number of tenants, particularly law firms, contract in size. And that, you know, They don't need to size law libraries. They're changing some of their office space configuration. So there's clearly that dynamic taking place. But I do think some of the situations we've seen, it's really a function of floor plate and overall building efficiency and better control over operating expenses have been a major driver in the space they take.
spk00: Okay, great. That's a lot of good coverage. Thank you. And then just... my follow-up is maybe for Tom just kind of understand on the guidance for the year, understand interest costs, taking the top end down, just wondering again, if you can just crystallize why the, the bottom is staying where it is and also whether or not, you know, if I look at your speculative revenue, you know, it's still pretty early in the year and you guys have basically knocked it out. Like, is there any upside from there?
spk05: I'll let George handle the spec revenue, but I think on the guidance, I think we just wanted to be at least look at the range and say we want to take one side of it down and the interest expense was fairly calculable. This quarter specifically is going to have some double interest and that's really what's driving it. I mean, there may be a little, if we use the line and we do have a couple floating rate instruments, The rate curve has certainly moved out a little bit, showing less rate cuts, if any, this year. So we kind of left it alone for now, Tony, and then we'll see how the year progresses. We do have, as part of our business plan, some transactional activity, so we just wanted to leave the range where it was for now and see how it plays out going into next quarter.
spk06: Yeah, Tony, it's George again. I think on spec revenue, as we touched on, we're 98% at the midpoint, kind of 96% at the top end of the range. I think to kind of outperform that top end, a couple of opportunities for us. One would be that tenants that have expressed a likelihood to not renew ultimately decide to maybe kick the can, even if it's only for another year, so we can kind of bridge some of – you know, what was perceived to be downtime. The other thing is we've got a number of spec suites already in the portfolio. Just, you know, every region has, you know, maybe four to five existing spec suites that are basically plug and play. So all we need somebody to do is select the building and they can immediately move in and start to generate revenue for us. As opposed to, you know, normal vacancy where we're going to have to go through you know, a permitting process, a build process after we get the prospect and negotiate the lease. And, you know, already kind of being, call it May 1st, you know, the calendar is quickly closing in terms of additional revenue for 2024.
spk00: Got it. Thank you.
spk09: One moment for our next question. Our next question comes from Michael Griffin with Citi. Your line is open.
spk04: Great, thanks. I wanted to go back to Uptown ATX for a bit. I saw in the supplemental the stabilization was pushed out by a quarter. Can you maybe give some more color as to why this was the case? The property is about 350,000 square feet or so. What size tenant would you need to see take down a large chunk of space to kind of justify your thoughts around hitting those stabilized yields?
spk06: Well, as I mentioned, the pipeline now, Michael, has tenants ranging from 5,000 square feet up to several hundred thousand square feet. So certainly, the larger the tenant that signs, the quicker we can stabilize. But I think given the pipeline that we are seeing, the increase in tour velocity, the number of proposals we have issued. We do think that that's a realistic goal for us to achieve. Obviously, we'll continue to monitor that. The marketplace is clearly in disequilibrium right now between a lot of supply coming online and a real pullback in demand. I mean, this is the first quarter in a few where there's actually been positive absorption in the marketplace. But decided pick up in tour activity during the first quarter versus the third and fourth quarter of 24. So, you know, we are encouraged by the fact that a couple of large users have surfaced for that project, which we're not around at the end of the year. But look, it's going to be a challenge to get space leased in Austin, given the overall dynamics in that market. We do believe that the fundamental demand drivers are very strong there. So we're comfortable with continuing to invest money in Austin. Last year, I think there were still about 135 or so people a day that moved into Austin. The business development group is analyzing a number of more than 50 different relocations. So that is a market that is high beta, but can change very quickly. And we think our project is is top of market in terms of its presentation, efficiency, amenity package, and location. So we feel very confident that with that project now being complete, the amenity floor is done, the residential opening up soon, that that neighborhood creation that we aspire to is actually going to become a reality and that will generate some additional leasing activity.
spk04: Yeah, and then I guess the first part of our question, why was the stabilization quarter pushed out one quarter relative to last quarter.
spk06: Yeah, I think it's just our best guess at this point on how we're seeing some of these tenants sequence in. Okay. Given the amount of time to get permits done and the amount of time to build out the space. Gotcha.
spk04: That's helpful. And then maybe just on the JV properties that were restructured, I believe it was Mid-Atlantic and Rock Point. Should we think about this as handing back the keys? And I think you talked about some other potential JVs that you could see debt attribution from later this year. Should we read that as the map venture or which of those JVs should we keep an eye on?
spk06: Actually, great question. And it doesn't necessarily mean that there will not be a successful restructuring of that debt on the two ventures that we won't be recognizing operating results on going forward. Discussions are still underway. We're not sure exactly where they will go, but as we assess the situation at the end of 24, you may recall we wrote our basis in those properties down, given that No investment based by Brandywine. The fact that the mortgages are completely non-recourse. Discussions are still underway that we thought it was appropriate to not recognize those as continued operations for us. That could change to the extent that there's a recapitalization that makes sense for us. And I think in terms of the other venture you mentioned, MAP, discussions with the lender there continue. They're moving at a slower pace than we would like. But I think the same dynamics are at play there. There we have a negative investment base. We've reached a significant amount of profits over the years. But until that debt restructuring is completed, or we conclude collectively it cannot be completed, I think we would continue to recognize that as an operating concern.
spk09: Great. That's it for me. Thanks for the time. Thank you. One moment for our next question. Our next question comes from Dylan Brzezinski with Green Street. Your line is open.
spk03: Hi, guys. Thanks for taking the question. I guess just sort of going back to the questions on the development pipeline, as we think about the projected cash yields that you guys put in your supplemental I mean, given the lack of leasing volume thus far, do you guys see those at risk of going lower as you start to sign leases, or how should we be thinking about that?
spk06: Great question. Look, we assess that with every lease transaction or every proposal we put out, and I think at this point, you know, we still feel confident that those yields will hold firm. You know, we're seeing a slight uptick on potential TI costs. But right now, we're able to project that in our proposal. We'll get compensated for that and additional rental rates. But the assessment we've made is that, yes, we will achieve those yields. Certainly, we need to make sure that as we start to execute leases, we reevaluate what the level of TI is to get those transactions done. But as of right now, given the visibility we have on all the prospects that are in the pipeline for each of those three commercial properties, we feel comfortable with those yields.
spk03: And I appreciate the comment sort of on the leasing pipeline and the increases you've seen there over the last several quarters. I guess just pairing that with your comments on a lack of large lease maturities over the next few years, it sounds like you guys anticipate occupancy bottoming sometime in 2024. Is that sort of a fair characterization, or are we missing something?
spk09: I'm sorry, Dylan, you said occupancy?
spk03: Occupancy bottoming in 2020, sometime in 2024.
spk06: Yeah, apologies. Yeah, I think so. I mean, I think, you know, on a couple of different fronts, number one, Those properties that are depicted on page four, we do expect something to happen with those, and they've got, you know, a 400 basis point impact on occupancy today. But again, as noted, you know, the large move outs, you know, have fortunately been kind of put in the rear view mirror for us. You know, our largest rollover in 25 is the 55,000 square foot tenant that we're currently speaking with. about renewal, and we have nothing over 50,000 square feet in 2026. So I think it should only be a rising tide at this point, both from where the core portfolio is today and kind of ideally moving some of these conversion and or sale candidates kind of off the books.
spk10: One moment for our next question. Our next question comes from Omoteo Okasanya with Deutsche Bank. Your line is open.
spk07: Yes, good morning. Quick question about the 3151 development. I just curious about the status of getting the construction loan on that and if If it turns out that you may not be successful in getting that, what are the thoughts about future funding to complete the project?
spk05: Sure. This is Tom. I think on the 3151 financing, we had started a process to look at a financing, and the market for construction loans has been difficult. However, I think that as we've talked about, we have a very good pipeline And as we look at some of the opportunities for an initial lease, we think that that will give us room to then go get that financing done. We've talked to a number of institutions that love the project. They just need to see a little bit of leasing done. They need to see us realize the rents. As someone asked, how is the yield look? and I think then we'll be able to get a loan. We put it in at 55%. I still feel that that's a reasonable loan to cost that we can achieve. And we are starting to see a little bit of lending going on in the construction area. So we're hopeful, you know, the building will be CO'd, and we may get a lease or two done, and that will give us enough room to then get a financing done. Again, the project looks great, and the lenders that we showed it to previously – were very interested. They just think that a pre-lease will help them get it financed internally.
spk07: That's helpful. And then could you just talk a little bit about how you're thinking about the dividend at this point, just kind of given some of the capital needs versus sources of capital as well?
spk06: Yes. Look, certainly I think the board reviews that on a regular basis along with management. And we did reduce it down to $0.60 a share, so that $80 million a year in total payments. I think as we looked at the decision back then, and certainly as we view it today, one of the key variables was ensuring that we had clear runway on the loan maturity front. And I think the bond transaction did a couple things when it reinforced the fact that we can run the company with ample liquidity for the foreseeable future, keeping that line of credit close to zero. Second, it really did reinforce to all of our fixed income stakeholders on the unsecured side that Brandywine is committed to the unsecured marketplace. And our hope is as the conditions improve, as the debt market to market becomes positive versus negative, we'll be able to restore our investment grade rating, and that we wind up in a very good position both from a liquidity and a balance sheet improving standpoint. So I think one of the key issues we take a look at is, was that liquidity? Second was portfolio stability. You know, what is going to be the ongoing consumption of capital? And as we've talked with other questions on the call, we have very little rollover going for it. We think a very stable platform. And then when we look at the development pipeline, there's really very little left to fund. And even to the question on the 3151 construction loan, I mean, the vast majority of money is already invested to kind of deliver that building to core and shell condition. The additional capital required is, as we say in the business, good news capital tied to leasing activity. So I think those three elements are top of mind for the board as they think about the had a balance delivering a good quarterly return to our shareholders, despite the travails of the capital markets and its impact on our stock price, as well as what the visibility is on liquidity and alternative investment opportunities within the company.
spk07: Great.
spk10: Thank you.
spk06: Thank you. Thanks, too.
spk10: One moment for our next question. Our next question comes from you, Paul Renner with KeyBank. Your line is open.
spk08: All right, thanks for taking the question. Could you give us some color on how the lease up at 3025 JFK Resi is going, and will you anticipate for a one-up town when it comes online in 3Q?
spk06: Yeah, great question. I think we're pretty pleased with the acceleration of activity at the 3025 residential project. I mean, we're kind of doing 20... 20 units a month, which is very much in line with our plan. Effective rents are holding. And the demographic of the tenant mix we're seeing in that building is pretty much in line with what we were hoping for. So we think that that demographic will continue to view the project very favorably. And we do anticipate that by the end of this year, we'll kind of be in the 80% to 85% least range. And that's going into our financial plan. Down at Uptown ATX, those units won't really start coming online until later in the second quarter, early third quarter. The marketing plan and marketing launch has taken place. We're already starting to do hard hat tours. We have a couple of leases out for signature already. But we do anticipate, given the delivery timeline of that project, that we're know we'll be kind of in that 50 percent occupied range by the end of the year both the residential market in philadelphia as well as in austin is very competitive so we're keeping a close eye on concession packages and i mentioned up here in avira we seem to be doing very well versus our budget we'll keep a close eye on that down in austin we do think we have the quality advantage based on some of our direct competition both in philadelphia and in austin But we'll have to see how the actual traction and the lease executions go on both properties going forward.
spk08: Great. That was helpful. And, you know, going back to your renewal and your retention rate, you felt comfortable increasing that expectation. And, you know, what's really driving the comfort that you have? And do you anticipate the higher levels of renewals to get you to positive net absorption in the near term? You know, I know you mentioned you expect occupancy at the bottom at some point this year, but maybe a little timing or what do you expect on timing?
spk06: Yeah, I think, you know, our ability to move the retention range was really based on the fact that we've executed the renewals necessary to make that change. So very little speculative renewal left to kind of get to that new target. You know, it was primarily driven by a couple of leases where, you know, Early indications were that the tenant may not renew, and that's kind of how our original business plan was compiled. And then when we got clarity on the fact that they did, in fact, renew, we obviously were able to make the adjustments. So even moving that range just further solidifies, you know, our comfort that we deliver year-end occupancy within the original business plan range.
spk08: Great. Thank you. That's all for me.
spk10: And I'm not showing any further requests at this time. I'd like to turn the call back over to Jerry for any closing remarks.
spk06: Great, Kevin. Thank you. Look, thank you all again for participating in our first quarter 24 earnings call. We look forward to updating on our business plan activities on our second quarter earnings call in the summer. So have a great day and thank you again for participating.
spk10: Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.
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