Brandywine Realty Trust

Thank you for standing by and welcome to the Brandywine Realty Trust fourth quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Jerry Sweeney, President and CEO. Please go ahead, sir.

Jonathan, thank you very much. Good morning, everyone. Thank you for participating in our fourth quarter 2025 earnings call. 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 Wirth, our Executive Vice President and Chief Financial Officer. Prior to beginning, certain information discussed on the call today may constitute forward-looking statements within the meaning of the Federal Securities Law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurances 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 filed with the SEC. During our prepared comments today, Tom and I will briefly review fourth quarter results and frame out the key assumptions behind our 26 guidance. After that, Dan, George, Tom, and I are available to answer any questions. So to start moving forward from an operating portfolio management and liquidity standpoint, 2025 produced results very much in line with our business plan. We posted strong operating metrics, reinforcing the continued flight to quality among our tenant base and our strong market positioning. Our wholly owned core portfolio is 88.3% occupied and 90.4% leased. Forward leasing commencing after year-end increased 26%. to 229,000 square feet, with most taking occupancy in the next two quarters. We generated to a near $27.3 million of spec revenue, very much in line with our business plan. And we also exceeded our tenant retention target, which ended up at 64% compared to our original business plan range of 59 to 61%. Leasing activity for the year approximated 1.6 million square feet. During the quarter, We executed 415,000 square feet of leases, including 157,000 in our wholly owned portfolio and 257,000 square feet in our joint venture portfolio. Our capital ratio for the year was 9.5%, slightly better than our 25 business plan midpoint. This was the lowest capital ratio range we had in five years, primarily due to continued good capital control, our purchasing power, and a high percentage of renewals. On an annual basis, our gap mark to market was 4.2%, exceeding our business plan expectations, and on a cash basis, we were in line with our business plan. New leasing mark to market was very strong at 13% and 4% on a gap in cash basis, respectively. And then we also had some very encouraging news on the tour volume standpoint. So fourth quarter tour volume exceeded third quarter by 13%. Tours in the fourth quarter 25 exceeded fourth quarter 24 by 87%. and for the quarter on a wholly owned basis, 45% of all new leasing was a result of flight to quality. Our annual tour volume in 2025 outpaced 24 by 20% on the physical number of tours, but more importantly, 45% on a square footage basis. We experienced Increased tour levels in all of our core markets, particularly CBD, Philadelphia, and Radnor at 49% and 45% respectively on a square foot basis, a great sign of an ever-improving market. We also continue to experience good conversion rate from these tours, which is really the most important step. For 2025, 56%. of all tours converted to a proposal, and from proposal, 38% converted to an executed lease, so very much in line with our historical averages and, in fact, slightly above in some cases. A few additional comments regarding our various market dynamics. In Philadelphia, which our largest sub-market, it encompasses both CBD and University City, We're now 95% occupied and 97% leased, with only 6% of our space rolling through 2028. So a very solid operating portfolio. Our Commerce Square joint venture property is now 90% leased, bringing our combined Philadelphia holdings, both wholly owned and joint ventured, to 95%. As I noted, overactivity levels remain strong. Interesting data points. Over the last five years, Brandywine's captured 30% market share of all new leasing activities signed in Market West in University City, substantially outperforming our 15% share, market share. This trend accelerated during 2025. For the full year, 54% of all new leasing signed in these markets was at a Brandywine property. More importantly, though, since 2021, our net effective rents in these submarkets have increased almost 20%, or an annual net effective rent increase of 5.4%. This net effective rent growth is achieved through sustained controlling capital costs and continued rent growth. In the Pennsylvania suburbs, overall, we're 89.4% leased, and our Radnor submarket is 91% leased. We continue to see solid levels of pipeline prospects for the existing vacancies. Austin at 74% occupancy is creating a 400 basis point drop in overall company leasing levels, but tour volume there was up over 100% year over year, another sign of that market being on a slow path to recovery. Our operating portfolio leasing pipeline remains solid at 1.5 million square feet. which also includes about 140,000 square feet in advanced stages of negotiations. Relative to liquidity, we're in solid shape with no outstanding balance on a $600 million unsecured line of credit and $32 million of cash on hand at the end of the quarter. We also have no unsecured bonds maturing until November of 2027. And as noted previously, we plan to maintain minimal balances on our line of credit as our business plan is designed to return us to investment-grade metrics. As we'll discuss, our 26 plan will reduce overall levels of leverage. But as an interesting point, over 50% of our outstanding bonds has coupons north of 8%, providing very good refinancing opportunities over the next several years, assuming the market remains constructive. As an illustrative point, if we refinance those bonds over 8% to market rate today, our interest rate costs would decrease approximately 10 cents per share. As we look at the year-end results, our FFO for the quarter and year were both in line with consensus. And then notably, during the fourth quarter, we took our first steps towards recapitalizing our development joint ventures. In December, we redeemed our preferred partners' equity interest in both joint ventures at Schuylkill Yards. Our 3025 JFK property bought a high-quality asset onto our balance sheet with a major tenant occupant, already taken occupants in early January. The 3025 commercial component will be added to our core portfolio in the first quarter at 92% leased. Our buy-in on 3151, which aggregated about $65.7 million, was mostly funded with a $50 million C-PACE loan, which effectively replaced our higher-priced partner's equity with a lower-priced loan with prepayment flexibility. As we've noted before, the capitalization phase in this building ended at the end of 2025. Our pipeline on this project stands at approximately a million square feet. broken down to 60% office and 40% life science. Discussions with many prospects remain active and several key proposals are outstanding. Both of these buyouts temporarily increased our year-end leverage in anticipation of the 35 construction loan refinancing and our asset sales program. Notably, the fourth quarter buyout in 3025 occurred in advance of our lead tenant taking occupancy Pro forma for that revenue stream, which did commence this month, our net debt to EBITDA would improve by four-tenths of a turn and our fixed charge by two-tenths of a turn. As a result of these buyouts at Schuylkill Yards, our remaining joint venture development projects are One Uptown and Solaris in Austin. At Uptown ATX... At one uptown, we are now 55% leased, up from 40% last call. But we do have an additional 20,000 square feet, or 8% of leases out for execution, which would bring us to 63%. The pipeline remains strong, with tenant sizes ranging from 5,000 to 60,000 square feet. Solaris, as we noted, is 98% occupied and 99% leased. We are seeing significantly improved economics on lease renewals. In fact, our renewals since November 1st, it's all achieved an average, I'm sorry, 12.7% effective rent growth. Looking at one uptown, with the outstanding lease being executed and at 63%, we have three floors available. The 12th floor is subject to an extension right by our lead tenant, where we'll receive notice in July. Also, since you had great success on the seventh floor, which is 100% leased, the 10th floor is under construction for spec suites, which leaves the 11th floor at 43,000 square feet, the primary target for the larger tenant basis right now. Looking at the investment market, we continue to see a strong improvement in that market, both in terms of velocity and pricing. For example, in a project recently marketed, over 90 CAs were signed. We had 20-plus tours and a strong bid response from the buying pool. Buying pools, we're seeing, consists of high net worth family offices, operators with private capital, and the reemergence of institutional quality buyers. And as we noted previously, for 2025, we did exceed our sale target. Turning to 26. Our 2026 business plan can really be summarized as a return to earnings growth, a continuation of solid operating results, continued crisp focus on stabilizing one uptown and 3151, an accelerated sales program to both pay down debt and further refine our portfolio with corresponding balance sheet improvements. From an operating perspective, our 2026 business plan is very straightforward, highlighted by solid core portfolio performance and strong leasing activity. We are providing 26 FFO guidance with a range of 51 to 59 cents per share for a midpoint of 55 cents, and at that midpoint, Our 25 FFO represents a 5.8% growth rate over, I'm sorry, 26 FFO represents a 5.8% increase over 25 FFO. The primary drivers of this are highlighted in the FFO reconciliation, which is found on page one of our SIP, which Tom will review in more detail. Notably, our midpoint does not factor in the benefit of any of the Austin development recaps. Improvements as we looked at the year, G&A expense will be lower due to lower compensation costs and related cost control measures. Improving operations in our development joint ventures in the bite of our partners at 3025 and 3151. Wholly owned gap NOI will increase primarily from the consolidation of 3025, and we do not expect any early retirement of debt, extinguished costs of debt. Reductions include higher interest expense, primarily due to the consolidation of the 3025 construction loan, and lower capitalized interest due to the end of the capitalization period of 3151. Obviously, with the joint ventures at Schuylkill Yards disappearing, we'll have lower third-party management and development fees. But Tom will review those items and several factors in more detail. From an operating standpoint, The core portfolio will add 3025 in the first quarter and 250 Radnor in the second quarter. Spec revenue we've targeted between 17 to $18 million. While down from 25 levels, spec revenue from new lease transactions is up 39% from 25 levels. We are currently almost $13 million or 75% done at the midpoint with healthy pipelines across the board. We do project that our year-end occupancy will improve 120 basis points from 2025 levels. And based on this, we do project positive net absorption for the first time in several years as another evidence of an improving market. Gap mark to market will range between 5% and 7%, led by an 8% to 10% mark to market in CBD in the Pennsylvania suburbs. Cash mark-to-market will be between a negative 2 to 0, again, led by a positive mark-to-market in the CBD and PA suburbs. Leasing capital will be slightly above our 25 levels at a target range of 12% to 13%. Again, that's primarily due to a higher composition of new lease transactions. Same-store growth will range between a negative 1 and a positive 1 on a gap basis and 0 to 2% on a cash basis. From a capital markets perspective, we plan to repay the 3025 construction loan with lower price debt. We expect about a 200 basis point savings there. We're also evaluating as part of that a secured financing on that residential component and then adding the office portion to our unencumbered asset pool. Our business plan projects between $280 to $300 million of sales activity. We anticipate average cap rates averaging around 8%. We anticipate closing a majority of these sales during the first half of the year. We currently have approximately $100 million with buyers selected and advancing towards agreement of sales and have a number of other properties in the market across all of our submarkets. The vast majority of sale proceeds will be used to reduce debt and continue to improve liquidity and all of our credit metrics. And while that primary focus is lowering leverage as a top priority, given that our stock remains significantly undervalued, we anticipate based upon the velocity of the sales program we have underway to repurchase our shares while continuing to lower leverage. We do have availability under our existing share purchase program. Our sale target also includes executing several delayed land scales, Land sales, which we anticipate will generate gains, but are not included in our 26 guidance. Our business plan does contemplate that both one uptown and Solaris will be recapitalized during the second half of 26. We could do sooner than that, but right now the plan is based on the second half of 26. Those recaps could range from a complete sale or a paraffin suit joint venture, where Brainy Wine remains a minority stake and recovers significant capital to both lower debt attribution and improve overall liquidity. We do project a year-end core net debt to EBITDA to be between 8 to 8.4 times, and we anticipate our CAD ratio will be between 90 to 70%. with the improvement occurring during the second half of the year after we fully burn off the remaining tenant improvement costs related to leases done between 2020 and 2023. So with that, Tom will review our financial results for the fourth quarter and provide more detail on the 26 outlook.

Thank you, Jerry, and good morning. Our fourth quarter net loss was $36.9 million, or $0.21 per share. Our fourth quarter FFO totaled $14.6 million, or $0.08 per diluted share, and in line with consensus estimates. Both quarterly results were impacted by a one-time charge for the early extinguishment of a CMBS loan, totaling $12.2 million, or roughly $0.07 per share. Some general observations from the fourth quarter. Property level NOI was $70 million or $1 million below our forecast, primarily due to increased operating costs across the portfolio. FFO contribution from our unconsolidated joint ventures totaled $0.6 million, or $1.4 million better than our projection. The improvement was primarily due to the improved operations at Commerce Square, ATX office, and Solaris. G&A expense was below our re-forecast by $0.6 million, primarily due to lower compensation expense. Net interest expense was 0.7 million higher, primarily due to the inclusion of JFK's loan, 3025 JFK's loan, partially offset by higher than anticipated capitalized interest. And our other forecasted quarterly results were generally in line. Looking at our debt metrics, fourth quarter debt service and interest rate coverage ratios were 1.8, both below the third quarter levels. Our third quarter annualized combined and core net debt to EBITDA were 8.8 and 8.4 respectively. Both metrics were also above our business plan ranges. These metrics were negatively impacted by our fourth quarter preferred equity partner buyouts totaling $136 million, which retired higher priced capital but was funded by lower priced debt. As we highlighted, we anticipate 2026 sales to reduce and reducing our ownership in uptown ATX will offset these increases. Of note, our consolidation of 3025 JFK occurred before the first quarter stabilization for contractual leases, which increase our combined net debt by 0.4 turns and our fixed charge by 0.2, otherwise placing both metrics within the stated targets. We continue to maintain a solid liquidity position with $32 million of cash on hand and no outstanding balance on our unsecured line of credit as of the end of the year. Looking at 2026 guidance, regarding guidance, at the midpoint, our net loss is projected to be 62 cents per share. Our 2026 SFO at the midpoint will be 55 cents per diluted share, representing a 5.8% increase compared to last year. Operating metrics, overall portfolio operations are expected to remain very stable with property level gap NOI totaling $292 million, representing a $13 million net increase compared to 2025. This increase is comprised of the following, 3025 JFK will generate an incremental $17 million as stabilized wholly owned asset, 2025 asset sales, plus the full impact for that, as well as the fourth quarter move-outs mentioned last quarter, will total $7 million NOI decrease. Same-store results will be essentially flat. Our fourth quarter contribution from the unconsolidated joint ventures will improve from an $11 million loss in 2025 to a $1 million contribution of income in 2026. This improvement is comprised of the 3025 JFK, which is now consolidated, and in 2025 had a loss of $11 million, which is now eliminated. ATX developments with continued lease-up at one uptown and reduced rent concessions at Solaris. We expect a $9 million improvement as compared to 2025. 3151, partially offsetting these improvements, was a one-time item for 7.5 million or 4 cents a share that we took as a tax credit gain in the first quarter of 25 that will not repeat. G&A will be 36 to 37 million, which is 5.5 million below our full year 2025 results. This reduction is primarily due to a decrease in compensation expense, including incentive compensation. Total interest expense, including $5.5 million of deferred financing costs and $2 million of capitalized interest, will approximate $170 million and at the midpoint $30 million increase compared to 2025. The increase is primarily due to the capitalized interest, which will increase $10 million, primarily related to 3151 becoming operational on January 1, 2026. 3025 JFK, the consolidation of that property will increase interest expense by roughly $8 million once refinanced. 3025 bond issuances, which happened in June, also a bond issuance in October, and the related CMBS loan repayment will have an $8 million increase in 2026. And the CPACE loan, which we put on 3151, will increase interest expense by about $4 million. Termination and other income will be between $9 and $11 million compared to $6.6 and $25. The increase is primarily related to improved income from our increase in retail tenants that were put in place during 2025 and some in 26. Net management and development fees are anticipated between $6 and $7 million, a $4 million decrease, mostly due to lower development fees in 2026 as our development joint ventures stabilize. Sales activity, we are anticipating $290 million of fully owned sales activity, which waits towards the first half of the year. As Jerry touched on, our sales activity will be used to reduce debt and continue our path back to investment grade. Depending on the volume and timing of these sales, you know, we expect that we will use the shares to lower debt, which may include a buyback of outstanding bonds. Looking at financing activity, The 3025 JFK has a $178 million consolidated construction loan, which recurs in July 2026. We plan to refinance that loan by late first quarter or early second quarter. We're considering a low-rate secured loan on the residential portion of the property, totaling approximately $100 million, and using those proceeds as well as the line of credit to fully unencumber the office portion of the property. From the credit facility, our unsecured line of credit matures in June 2026, and we anticipate an extension of that facility ahead of the maturity date. The recapitalization of our joint ventures at ATX. As our joint ventures continue to lease up and improve cash flow, we anticipate recapitalizing projects on a priori-pursued common equity joint venture basis during the second half of 2026. with our ownership level decreasing to a minority stake. The recapitalization of both projects will generate cash that will be used to further reduce our wholly owned leverage. Due to the timing and changing in ownership structure being later in 2026, we have not included the benefit of any of these transactions in our FFO guidance. We anticipate no property acquisitions. Our share count will be roughly 180 million shares, While we feel incredibly positive about executing on our land sales program this year, we have not included any land gains or losses in our results. Focusing on the first quarter, property level NOI will approximately $70 million and will be fairly consistent with the fourth quarter. While we will have the full quarter impact of $2 million incrementally at 3025 JFK, this will be partially offset by seasonality throughout the balance of the portfolio. FFO contribution from our joint ventures will total a positive 0.5 million for the first quarter. Our G&A expense for the first quarter will total $12 million. That sequential increase is consistent with prior years and is primarily due to the timing of our deferred compensation expense recognition. Total interest expense will approximate $42 million, which includes about $1 million of capitalized interest. Termination and other fees will total $2.5 million, and net third-party fees will approximate $1.5 million. Turning to our capital plan, As outlined above, our 2026 capital plan has more activity than 2025 and will approximate $475 million. Our CAD payout ratio will range between 70 and 90%, and we expect incremental improvement as the year progresses and as the year continues. Looking at our larger uses, we will refinance the 3025 JFK construction loan, which totals 178 million. We'll use 125 million for buyback activity on the bond side and debt reduction. Development and spend will total 50 million, including 3151 market, 165 King of Prussia, and 325 JFK. We have 57 million in common dividends. 33 million of revenue maintaining capital, and 25 million of revenue creating capital. 10 million of equity contributions to fund tenant leases at one uptown. The sources for these ongoing, for these uses will be 110 million of cash flow after interest payments, speculative sales activity totaling 290 million at the midpoint, and 90 million of loan proceeds potentially financing the residential portion of 3025. Based on the capital plan above, we anticipate having approximately 52 million of cash on hand at the end of the year and full availability on the line of credit. We anticipate net debt to EBITDA at a range between 8.4 and 8.8, and our fixed charge ratio between 1.8 and 2.0. Implicit in these ratios is the extension of our asset sales program and the recapitalization of the ATX developments. These ratios do continue to be elevated as increased revenue comes online with the development projects, particularly 3151, which is now a wholly owned investment, which continues to generate operating losses. As these developments stabilize, our leverage will decrease, will further accelerate improvement on these metrics, and we anticipate the leverage levels will improve as the year progresses. I will now turn the call back over to Jerry.

Great time. Thank you very much. So look ahead. The operating platform enables us to capitalize on improving real estate market conditions. Earnings growth from our development pipeline has begun to translate into in to earnings growth in 26 and we expect further improvement in 27. We have we have a very achievable sales program laid out that will drive a number of factors in the organization. So the groundwork has really been laid, and we'll continue to build on the momentum from an operating, from a capital standpoint, to drive long-term value. With that, Jonathan, we are delighted to open up the floor for questions. We do ask, as we always do, in the interest of time, to lend yourself to one question and a follow-up. Jonathan?

Certainly. And our first question for today comes from the line of Seth Berge from Citi. Your question, please.

I think you mentioned in your opening remarks that, you know, just where your current, you know, your average cost of bond debt is kind of north of 6% and 50% is kind of north of 8%. And were you to refinance those kind of today, you could save 10 cents on interest expense. I guess kind of, you know, what is a hurdle where you would kind of want to look to pull forward some of those refinancing?

Good morning. I think the first cause of action we have right now is to execute on the sales program and generate additional liquidity and continue to improve the credit metrics, which we think will continue to reduce our overall cost of debt capital. And we don't really have in our business plan for 26 any kind of pull forwarding of those bonds at this point. But, look, capital market conditions are ever-evolving. We think that execution of the sale program, continued improvement on the lease up of the development projects will generate some additional NOI and liquidity, and we'll be evaluating, you know, the bond buyback program, the debt reduction program, all as part of the sales program acceleration.

Great. Thanks. And then just as a follow-up, you know, with the kind of $125 million, your market for debt or share repurchase kind of, how are you thinking about how much of that you would want to do as a share buybacks versus a debt repurchase?

Yeah, look, we didn't mention anything about $125 million share buyback. I think our major focus is, uh, sales proceeds will be used first to reduce leverage, uh, period. That's top priority. Uh, as we accelerate that program and get more clarity on maybe even some additional sales, we think we have an opportunity, opportunistic in buying backward thinker significantly undervalued shares. But I want to be very clear, our primary objective of the asset sale program is to continue on that path back to investment grade metrics. As Tom touched on, You know, we temporarily increased some of those leverage metrics by doing the buyouts of our Schuylkill Yards joint ventures. Clearly, with the major tenant and the income stream coming off 3025, that brings some of those down fairly dramatically immediately. But we do want to stay on a very crisp path to continue to improve overall balance sheet metrics. And stock buyback optionality comes into play as we achieve our other objectives. So hopefully that is clear.

Great. Thank you. Thank you. And our next question comes from the line of Anthony Pauline from J.P. Morgan. Your question, please.

Thanks. Good morning, everybody. Jerry, just following up on the dispositions and thinking about capital markets activity, When we look at your stock price and where it is, and you just mentioned you think it's pretty undervalued, as you think about what to sell, is there a part of the portfolio that you think is just being undervalued or just not being appreciated in the market? And are you trying to crystallize value with that, or are you going into the market just selling what can't be sold right now? I understand debt paydown is the priority, but just trying to understand where you're trying to go with the portfolio and what to sell.

Yeah, good morning, Tony. Great question. Yeah, look, we think the entire portfolio is being undervalued. So I think across the board universally from a public market standpoint, we think that we're significantly undervalued. Primarily due, I think, to perceived headwinds on stabilizing the remaining two development projects. But as we're looking at the sale program going forward, we took a hard look at what we forecast some of the growth rates to be. on some of our assets given changing sub-market dynamics. We took a look at what we thought the net present value to us was on holding certain assets and then kind of developed a framework for what assets do we think could, number one, be marketable in today's climate. Again, we're targeting an average cap rate around 8%. Where we have lease-up risk in some assets that we think will be protracted, and will be expensive so we can obviate some future capital spend. And then just the general portfolio realignment. As we talked before, our major focus in the Pennsylvania suburbs to get down to one or two core submarkets. Our focus in Austin is to really shift our attention primarily to the tremendous opportunity we have at Uptown ATX. And then as we mentioned publicly, one of our programs is to you know, rationally exit the D.C. marketplace. So when we looked at the overall sale program, Tony, it was a company-wide look and kind of looking through a number of quantifiable metrics, identify which properties we thought would generate the real value for us today without sacrificing growth rates going forward.

Okay, got it. Thanks. And then just my follow-up is on the life science side, you all have the incubator space. And I think part of that effort was to kind of see what was coming down the pike as tenants grow. I guess, is there anything to glean from what you're seeing in that part of the portfolio as to whether there's been any improvement in terms of life science funding for these smaller companies or the startups that over time could become bigger tenants in the portfolio or just anything? Excuse me, anything you're seeing there that might be helpful as a forward look?

Yeah, and George and I can tag team this. I mean, you know, on the life science front, we're seeing a number of green shoots. But honestly, I think the entire life science market needs to see those green shoots grow into trees. So, you know, we are seeing activity. There's been a good performance of a number of the privately held life science companies in the Philadelphia region, particularly cell and gene therapy. We're seeing a high velocity of activity at our incubator space and the graduate labs, and it signed up a couple key tenants there with a good healthy pipeline. But, George, maybe you could add some color to that as well.

Yeah, I think as Jerry mentioned, I mean, you know, the incubator, you know, the one, two, ten bench kind of companies, We have seen them expand, and that quite honestly is what helped, you know, generate the graduate lab spaces, which are 93% occupied at this point. So, we've got, you know, all of that. We have one 4,000-square-foot lab left to lease up on the eighth floor. But again, I think it's, we've seen, you know, a little bit of expansion outside of the incubator. And we're really just kind of waiting for the next, you know, kind of expansion of graduate lab tenants to then move into full-fledged lab space.

Thank you. Thank you. And our next question comes from the line of Steve Sackler from Evercore ISI. Your question, please.

Yeah, thanks. Good morning. I guess, Jerry, as it relates to the outright sales as well as the recaps of the JVs, maybe my recollection was wrong here, but I thought there was maybe a view that you would try and do some of those JV recaps and bring those assets to market kind of earlier in 26, or at least one of them. But now it sounds like those are kind of pushed to the back half of the year. I'm just trying to sort of understand a little bit the thinking of of maybe flip-flopping those? And is it just a question of getting things like Solaris more stabilized before you can bring kind of an apartment asset to market today to maximize value on that sort of transaction?

Yeah. Good morning, Steve. Look, I think our business plan contemplated those recaps occurring the second half of the year. The business plan also, as Tom mentioned, doesn't really include any earnings impact of those plans for the year. That being said, we're actively in the market, continually evaluating with a variety of investors what the right timing is to recap there. Solaris has done very well. As I mentioned, it's essentially 99% leased. I think to accelerate the leasing of that property, you may recall from our previous calls, we did embark on a fairly strong concession package given the oversupply in that market. We were successful at one point absorbing almost 40 units a month. Right now, we're heavy into the early stage of renewals. So all the renewals that we have done in the third quarter, I'm sorry, beginning in the third quarter and fourth quarter of last year and rolling thus far this year, you know, we're getting almost a 13% increase in effective rents. That's a huge impact on the NOI. So we're monitoring that to decide the best time to recap that. So that's moving along on a very nice track, and we feel very confident that that will be happening called a mid-year convention. it could occur sooner than that. On one uptown, you know, right now with what's closing on 63% leasing, the pipeline remains pretty strong, particularly on the small tenant side. That's why we're building out one of the floors as another spec suite floor. You know, we're certainly anticipating making more leasing progress there. And again, we're dovetailing those leasing efforts, Steve, with our conversation with recap partners as well. So it's not like, it's not a sequential, it's kind of a concurrent review that we're going through. So I hope that answers the question, but we would love to get those done sooner rather than later. But I think in the interest of being conservative, we didn't really factor in any of that impact into our earnings outlook for the year.

Okay, great. And maybe just to go back, again, I'm just trying to make sure I had the facts right. I think you said there was like a million square feet of pipeline, or maybe it was a million and a half. Could you just maybe provide a little more color on, you know, the overall pipeline, you know, just kind of broadly by market and you know, where are you seeing kind of the most demand in, you know, either by product type or, you know, whether it's life science, office, and in which submarkets?

Yeah, and again, George and I will tag team. You know, look, I think from, you know, what we're clearly seeing the strongest trend lines at this point are really in CBD, Philadelphia University City. I think, yeah. As I noted in the prepared comments, we've really been able to drive the sector wrench there. I think that's really a function of, you know, I think demand levels are returning to pre-COVID levels. You know, for example, in 25, we saw the highest level of new deal volume in the past five years. So certainly things seem to be accelerating. Certainly the inventory is shrinking. So there's been a number of properties that are either – in some level of financial strain or in the process of being evaluated for residential conversion. So we do expect that somewhere between 10 and 15 percent of the inventory here in the CBD will be converted to residential. State had passed a 20-year tax abatement for office to residential conversions. The city is evaluating that as well. So we think that'll spur some additional inventory decreases. We've actually been pretty pleased with the pickup and activity in Radnor, Pennsylvania, and King of Prussia. We've seen some very good activity there as well. And in terms of the, and let me just cover the development. And on the development side, 3151, look, that pipeline remains very robust. We actually have proposals outstanding to a number of tenants. It's about 60% office, 40% life science. Look, we understand that we're trying to get all those transactions across the finish line as quickly as possible. We know the project's being very well received. We're not really receiving any pushback on the proposed economics. So we remain encouraged by the level of tour activity coming through that building. And then finally, at one uptowns, Really, with the size of the tenants there, we have between 5,000 and 50,000 square feet. We feel as though we're in very good shape to meet all our leasing objectives there. But, George, in terms of overall operating portfolio?

Yeah, I think the operating portfolio, the pipeline remains fairly consistent. We're at 1.5 million square feet today. You know, last quarter we were at 1.7, and then we executed about 200,000 square feet of that 1.7. So, you know, every time we seem to execute a lease, we're generating more, as Jerry mentioned, in the pickup and overall tours. So I think, you know, the spaces all show well, getting plenty of activity. We're seeing good levels of conversion, and it really comes down to converting – the this very robust pipeline at 3151 and then at one uptown you know really uh you know with three floors to lease one of them kind of with an expansion right encumbrance uh you know we've got a pipeline that's almost 3x the available amount of square feet to have great thank you thank you steve

Thank you. And our next question comes from the line of Upal Rana from KeyBank Capital Markets. Your question, please.

Great. Thank you. Jerry, do you have an update on the IBM move out in Austin? You know, one of the footnotes in your 26 business plans states that you plan on redeveloping one existing ATX building. I just want to get some details on that.

uh yeah great question good morning uh yeah certainly you know as as uh been previously disclosed now ibm will be rolling out of their space at uh our uptown development uh in the uh starting at the end of the first quarter of next year uh uh In addition, you know, as we've mentioned before, we did receive a significant modification to our uptown approvals last year that gave us the ability to do much more increased density throughout the 66-acre park. So as part of that, in looking at the market demand drops, and certainly that northwest market remains fairly cyclical in the domain area, you know, we are looking at, again, this is a function of how the sales program goes and a few other functions, but, you know, our 26 business plan, excuse me, does contemplate, you know, as commencing redevelopment of one of the existing buildings. That building is currently vacant. It consists of about 157,000 square feet. We anticipate the renovation cost would be somewhere in the $30 million to $40 million range, and we can complete that, you know, within a three- to four-quarter period. We have done a marketing launch on that and have been very, very pleased with the results. We have got about 600,000 square feet of potential prospects there. Pricing levels would be about $20 million. to 15% below the rents required at one uptown, and we're targeting everything to a cash yield north of 8%. So, all the planning for that UPOL is underway. We're waiting for the other elements of our capital plan to really come together, but we'll continue the marketing process for those, for first that first building, then following that could be two other buildings that would probably go through the same program around the same cost of economic metrics as the first building.

Okay, great. That was helpful. And then, you know, on the dispositions, you know, you went through a few of the assets in the markets that you want to dispose some assets in. You know, I thought of those that you've identified. Are there other properties that could, you know, come up for sale that could occur this year or, you know, could be up for consideration in 27? I'm just trying to understand if the $300 million for this year is sort of it, and after that you'd feel comfortable with the core portfolio going forward?

No, look, a great question. I think the target for this year is, you know, the $280 to $300 million. But we have a number of other properties, including some land holdings, that we're queuing up for sale as investment market conditions continue to improve. So certainly with the market being what it is, we've taken a hard look at where we really do expect to be able to generate outsized growth from each of our different assets. And as I alluded to earlier, where we really think that we're going to be, you know, treading economic water in some of these properties because of changes in sub-market conditions or, frankly, changes in tenant appetites in terms of what they classify as A versus B or B+. We're certainly taking a hard look at that. So we would expect to have a level of dispositions program for uh for 2027 as well uh and have that dovetail with uh the developments fully stabilizing okay great thank you thank you and our next question comes from the line of dylan bersinski from green street your question please

Hi, guys. Good morning, and thanks for taking the question. Just sort of going back to, Jerry, your comments around wanting to use the initial capital from dispositions to delever and then anything after that going to share buybacks. Can you kind of just talk about sort of the internal conversations that you guys have and thinking about the right level of leverage to operate at before going into share buybacks and trying to take advantage of what you guys view as a very opportunistic share price?

I'm sorry, Dylan, you cut after the last part of that. I apologize. Could you repeat?

Yeah, just trying to get a sense for how you guys internally think about, you know, the deleveraging process and balancing that with share buybacks. Is there a certain leverage target in mind longer term that you guys eventually want to get to before you really start to take the share buyback into gear?

Yeah, look, I think as – We look at our strategic direction, certainly want to get our leverage metric to be fully back on the investment grade ladder, which is typically evidenced by a fixed charge coverage, you know, well north of two and a net debt to EBITDA somewhere in the low to mid sevens. So I think we do view that as we've talked about it being a multiple year plan. And that can certainly be accomplished by asset sales, as we've laid out, certainly increasing NOI. So we do have a number of, I think, good programs underway to increase absorption throughout our existing portfolio, as well as these development projects coming online and being recapitalized. You know, when we look at it strategically, those development projects coming online can bring on about $27 million of incremental NOI. That's a significant amount per share. So we look at all that from a matrix standpoint. The bias right now is to delever, but we're also very cognizant of the undervaluation of our public securities. And that's one of the reasons why we continue to look at are there other ways for us to accelerate land sales, other building sales to actually generate more than ample liquidity, maintain on the positive absorption, positive earnings growth track, and be in the mark to be able to buy back shares.

That's helpful. Thanks, Jerry. And then I guess just on the development projects outside of Austin, for the ones in University City, Philadelphia, I mean, are those potential disposition candidates as you stabilize those, or are those sort of off the disposition candidate list for the time being?

No, they're not off the sale list at all. In fact, certainly one of the things we keep in the top of our mind is on – We have an extremely well-performing residential project there. You know, our initial thinking is we're going to be evaluating a refinancing of that so we can significantly reduce the carrying cost of that debt. But certainly, a joint venture on that residential component is not entirely off the table. And then I think on 3151, as that project gets more visibility on lease-ups, certainly talking to other capital partners about that would be on the radar screen as well. That will all be dovetailed with how we're dealing with other elements of our business plan. Because as we do look at these developments, I mean, they are – Top of market, incredibly high quality, extremely well located, with significant growth driving characteristics for us. So, you know, our preference is to hold on to the really high quality stuff we have in our portfolio and to generate additional sales proceeds. Look at other things that, as I mentioned on one of the previous questions, may not be as robust in their forward growth projections, if that's helpful. Okay.

No, that's extremely helpful, Jerry. I really appreciate the time.

Thanks. Thank you. And our next question comes from the line of Michael Lewis from Truist Securities. Your question, please.

Thank you. So you talked about what you want to sell. I wanted to ask a question a little bit more pointed about the use of the proceeds, right? So the 8.5% bonds maturing in 28, is that really what we're talking about? It looks like those are trading at like a 5-6 yield, right? So If I just summarize it, you know, what kind of cap rate do you expect when you sell the assets? And then can I assume that the proceeds will be used to pay 8.5% bonds at 5.6 or 5.7?

Well, I think it's a two-part question. Tom will pick up the second part. I think when we're looking at, Michael, and good morning, when we look at the sales program, we are looking at an average cap rate of about 8% based upon the visibility we have from the marketplace today. that obviously will range from lower single digits to higher single digits based upon the asset and the sub-market location. So we feel very good about both the timing expectations we have and the value proposition we think we can generate from those sales. But Tom, maybe share some thoughts on the application of those proceeds.

Yeah. Hi, Michael. When we look at the application of the proceeds, any timing of when those sales occur, but As you know, we still have some development dollars left to spend, so we will always be trying to keep the line as close to zero as possible. But also, as we see those sales come in and the line is near zero, one of the areas we are targeting is maybe buying in some of our bonds separately. And the 28s are a good example. at a 106 or even inside of that, we can buy back some of those bonds on the open market. If we got a lot of sales done, we could also make it sort of a formal tender. But we're definitely thinking about some of the higher-priced bonds, taking them out early. It does help with near-term impact to fixed charge. So we will be focusing on the higher-priced ones. But, you know, knowing that we have maturities coming up, focusing more on the near-term 28s. as opposed to something further out.

Okay, that makes sense. And then my second question, you know, you talked about all the things you're kind of exploring, right? So the stock price is below $3. I think consensus on it is $8. So some of those things could be share buybacks if you get the leverage down. You know, has the board talked at all or thought about any kind of, you know, a recap or, you know, is there M&A interest out there? Is there, you know, consensus? This is a quite large, obviously, kind of persistent discount penalty. Is there anything else kind of under consideration or that has come across your desk?

Yeah, look, I mean, the board and management always have an open door to any type of strategic solution. I think as we evaluate where we are today and where we want to go, we do believe that one of the drivers of the discount in our public market pricing is is the leasing up of these development projects and the related impact on our balance sheet metrics. But, you know, I think when we take a harder look at the overall strategic direction, you know, the operating portfolio remains in excellent shape. We're growing occupancy with positive absorption with good capital control. You know, in several of our markets, we're getting, you know, the highest net effective rents we've ever gotten. We are absorbing more than our market share. bought 3025, a great asset onto our balance sheet. Tour volume, all those things are resonating that, you know, there's a very good pathway to NOI growth. So I think the foundational points of the operating portfolio are in very, very strong shapes. We do believe we have an opportunity to both improve the overall quality of the portfolio, simplify our holdings, and de-lever by bringing on this $290 million to midpoint of sales, and that's across all of our different markets. And I think, you know, when we take a look at the challenges we have underway, I mean, certainly there's, you know, Austin, as I mentioned, has been a 400 basis point hit to our occupancy. You know, we certainly, that portfolio has underperformed our expectations. We've sold a number of assets down there, as I mentioned to a previous question. You know, our focus really is gearing in sharply on the value we can create today. at our uptown ATX development. But we also recognize that there's an overhang right now on our two remaining developments, primarily one uptown, which now, you know, as you mentioned, 65%, and then 3151. You know, I mean, we have a great pipeline there, but we need to show the street that we can execute and get leasing done there. We did take at a higher price cost of capital, albeit through loan proceeds. But we do have, you know, half a million, half a billion dollars of assets on the balance sheet that aren't generating a lot of return right now. And we think as that leases up, we'll be in great shape. All that being said, you know, the board and management review our strategic direction every quarter. We remain in very close touch. We have a lot of discussions underway with these recap partners, asset sale programs. So, I think we never lose sight of the fact that, you know, tactics have to be part of a strategic direction. We think of all the key ingredients here to get back to investment-grade metrics, stabilize these development projects, all while we're recycling assets to generate additional liquidity, but also maintaining good operating portfolio performance.

Thank you.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Jerry Sweeney for any further remarks.

Great. Well, thank you all for participating in our call today. Look, prior to signing off, you know, some time ago we did announce that George Johnstone has elected to retire. So this will be – he'll be retiring shortly. This will be his last earnings call. So – While we have several internal celebrations planned for his remarkable career, I did just want to mention on the call, on behalf of the Board of the Employees, George, thank you for your many years of outstanding service and your many, many contributions. You will be missed, but we have very best wishes for the next step of your life's journey. So with that, Jonathan, we can sign off.

Certainly. Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.