Brandywine Realty Trust Aktie

Thank you for standing by, and welcome to the Brandywine Realty Trust Second Quarter 2026 Earnings Call. [Operator Instructions] 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 second quarter '26 earnings call. On today's call with me are 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 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 and annual and quarterly reports that we file with the SEC.

During our prepared comments today, Tom and I will briefly review second quarter results and frame out the key assumptions driving our guidance for the second half of the year. After that, Dan, Tom, and I are available to answer any questions.

To start, from an operating portfolio management and liquidity standpoint, the second quarter produced results that exceeded or were in line with our business plan. This is highlighted by our speculative revenue increasing by $1 million at our guidance midpoint. Also due to better-than-expected tenant renewals and expansion, we increased our full-year range for tenant retention. All of our other full-year operating and financial metrics remain unchanged from our original 2026 business plan. Since our last call, significant progress has been made on our capital markets activity, including asset sales and our 3025 refinancing that we'll review in a few moments.

Quarterly highlights include achieving 99% of our speculative revenue at the revised guidance midpoint. Our second quarter FFO of $0.13 per share. That was ahead of the management guidance we provided in our first quarter call and $0.01 below consensus. We are maintaining our $0.55 full-year midpoint and have narrowed our full-year FFO guidance range accordingly.

Our balance sheet strengthening program is progressing very much on target, with approximately $208 million of asset sales now complete, and the remaining under agreement with hard money deposits and scheduled to close in the third quarter. We raised our sale guidance to $305 million, which is up $15 million from our business plan. And for all sales, we have achieved pricing in line with our original guidance.

Looking more closely at second quarter operations, solid operating metrics reinforced our strong market positioning and tenants' continued preference for high-quality space. Our wholly owned portfolio is 90.6% leased and 89.1% occupied. We had 88,000 square feet of positive net absorption during the quarter. Our year-end occupancy and lease percentage will improve throughout the year as we will have positive full-year net absorption for the first time in several years as additional evidence of the ever-improving market in which we're operating.

Leasing activity for the quarter totaled 353,000 square feet, including 254,000 square feet in our wholly owned portfolio and 98,000 square feet in our joint ventures. Forward leasing commencing after quarter-end totaled 166,000 square feet, with most taking occupancy this year.

We've also achieved $18.3 million of spec revenue. That outperformance versus our original plan was primarily driven by Philadelphia CBD and our University City operations.

Tenant retention for the quarter was 85%, resulting in us raising our full-year midpoint retention to 51% to 53%. This raise is due to unbudgeted renewals and expansions, again, in Philadelphia CBD and the Pennsylvania suburbs.

Our capital ratio for the quarter was 12.9% within our '26 business plan range. And our year-to-date capital ratio remains below our '26 range, but will remain within the overall guidance that we've provided.

Our GAAP mark-to-market was 1.5%. Cash mark-to-market declined during the quarter, but we do anticipate improving results in the next 2 quarters and are maintaining our full-year guidance.

Our same-store results were a positive 0.5% on a GAAP basis and 1.9% on a cash basis, both within our current guidance ranges.

Tour volume in the second quarter remained on pace with the high volume we saw in the first quarter. We also continue to experience good tour conversion rates. For the trailing 4 quarters, 53% of our tours convert to a lease proposal. And from proposal, 41% converted to executed leases, which is above our historical average.

A few additional comments regarding market dynamics. In Philadelphia, which includes our CBD and University City portfolios, we are now 95% occupied and 97% leased, with only 7% rolling annually through 2028, and overall activity levels remain very strong.

During the quarter, we continued our CBD outperformance trend for the entire first half of '26, with 54% of all new leases signed in our CBD and University City submarkets being at a Brandywine property, significantly exceeding our market share. In addition to that, as noted on Page 4 of the SIP, we are monitoring conversion projects aggregating more than 5.1 million square feet, representing approximately 11% of Philadelphia's total office inventory. Our marketing position in Philadelphia will continue to improve as these conversion projects get executed.

In the Pennsylvania suburbs, we're 91% leased with the Radnor submarket being 93% leased. We continue to see solid levels of pipeline prospects for all of our existing vacancies. On the other hand, Austin, at 67% occupied, continues to lag the rest of the portfolio and creates more than 400 basis point drop in our overall company occupancy. Our Austin quarter-end occupancy was negatively impacted by 3.7% due to 405 Colorado, which is 100% leased, being held for sale at the end of the quarter and subsequently closed. The operating portfolio leasing pipeline is up 13% or 220,000 square feet from the first quarter and remains a solid level just shy of 2 million square feet. This pipeline includes about 456,000 square feet of deals in advanced stages of negotiation.

Turning to our balance sheet. We remain in solid shape from a liquidity standpoint. While we had a balance outstanding on our line of credit at quarter end, upon receipt of 192,000 -- $192 million of sale proceeds, we paid off that balance. As such, there is no outstanding balance on our line of credit, and we have $35 million of cash on hand.

Our paramount objective is to use the vast majority of sale proceeds to reduce company leverage and to further improve credit metrics. As such, we intend to use our cash balances and sale proceeds to further reduce debt, including repurchasing bonds starting as early as this quarter and to a much lesser extent, repurchasing shares. As such, regarding our planned share buyback program, until we make significant progress on achieving all of our leverage targets and credit metrics, we anticipate using only about 5% to 10% of our net proceeds to repurchase shares. Consistent with this approach and as noted previously, our multiple year plan is designed to return to investment-grade metrics. As such, we plan to maintain minimal balances on our line of credit and continue improving all credit metrics.

The execution of our sales program is an excellent catalyst to reduce overall leverage levels and further improve all credit metrics. As a point of note, almost 50% of our outstanding bonds have coupons north of 8.8%, providing an excellent refinancing opportunity over the next several years, assuming capital markets remain constructive.

Regarding other elements of our capital plan, during the quarter, we repaid 3025 JFK's construction loan with a $90 million 7-year secured financing on our residential component of Vera and payments from our unsecured line of credit. This transaction unencumbered the office component of the property for inclusion in our unencumbered asset pool, bringing over $13 million of GAAP income onto our balance sheet.

During the quarter, we also exercised our first 6-month extension right under our existing credit facility, moving the maturity date to year-end '26. And as we complete our '26 capital recycling program and other capital market activity, we'll continue our productive work with our bank group to recast the facility during this extension period. With the asset sale activity and the financings, we do project our year-end core net debt to EBITDA to be, as we outlined in the SIP, in a range of 8 to 8.4x.

Looking at our 2 remaining development projects, One Uptown and 3151. While we have minimal definitive results to report this quarter, activity levels have been quite significant. Our overall pipeline for these projects is up over 10% from our last quarter. More importantly, at One Uptown, we have 3 leases being finalized and 5 proposals advancing towards lease negotiations that total over 100,000 square feet.

At 3151, in addition to the pipeline continue to build, we have a multi-floor client in advanced lease negotiations. And our overall pipeline remains around 46% office and 54% life science. We also have several other prospects in active discussions and several other key proposals outstanding.

Additionally, in anticipation of the 2027 IBM expiration at Uptown ATX, we do plan to commence redevelopment at least one of the existing buildings. Since announcing this initiative, we've built a pipeline of over 1.1 million square feet with that pipeline having lease commencement dates ranging from 2027 to 2028. So the market response has been exceptional. The first building consists of 157,000 square feet, and we expect to deliver that renovated building in the fourth quarter of next year. We do expect rent levels to be 15% to 20% below rents required at One Uptown and for brand-new development, and we're targeting a cash yield north of 8%. Also, as prospective tenant requirements advance, we also have planning underway to do similar renovations to several other buildings within the complex.

Our Radnor Hotel development opened on schedule in May of 2026. This 121-room hotel is situated adjacent to our 2.1 million square foot Radnor Life Science portfolio, office portfolio in Penn Medicine's Campus. The hotel is already serving as an excellent amenity for the Brandywine tenant base, the 8 universities and colleges within a 5-mile radius and the adjoining Penn Medicine complex. For the partial year 8-month operating period from May when we opened the doors through December of '26, our pro forma projected a total of 8,500 room nights sold at a target ADR in the low $300s. To date, with less than 3 months of operations, we have already booked over 8,400 hotel room nights, achieving almost 99% of our 2026 occupancy projections while maintaining our ADR target. So these initial results are very encouraging. We'll be fully opening our 2 food and beverage offerings by Labor Day, and we expect to stabilize the project in mid-2027. And as we've noted previously, once this project is stabilized, we will aggressively seek alternative capital structures for this operation.

Looking at capital markets. As we've already highlighted, we've exceeded our initial 2026 business plan target of $280 million to $300 million of sales. We expect to close all $305 million of sales by the end of the third quarter. We do have several other properties in the market for sale as we look at our disposition pipeline moving into 2027. In general, the response from the market on assets listed for sale was very strong. There was considerable interest with a typical marketing process producing 7 to 10 qualified bids. All buyer types were engaged, including institutional investment managers, private REITs and significant interest from private capital and family offices.

Looking at our -- further elements of our capital plan, we do plan to recapitalize both One Uptown and Solaris, our residential project at Uptown ATX during the second half of 2026. We anticipate a full sale on Solaris and a pari-passu joint venture on One Uptown. These initiatives will recover significant capital, lower debt attribution while increasing liquidity.

So with that overview, Tom will now review our financial results for the second quarter and outlook for the balance of the year. Tom?

Thank you, Jerry, and good morning. Our second quarter net loss was $31.7 million or $0.18 per share. Our second quarter FFO totaled $23.6 million or $0.13 per diluted share and above our first quarter guidance and $0.01 below consensus estimates.

Some general observations for the second quarter. FFO contribution from our joint ventures was $0.3 million or $1.2 million above our forecast due to termination fee income and improving leasing. G&A expense was below our forecast by $0.2 million, primarily due to timing. Other income and term fees were $2.2 million or $0.3 million below re-forecast due to lower termination fee income. And third-party fees were $1.8 million, $0.3 million above forecast due to higher third-party leasing fees. Property level NOI, interest expense and other forecasted quarterly results were generally in line.

Looking at our debt metrics, second quarter debt service and interest coverage ratios were 1.7, both equal to our first quarter results. Our second quarter annualized combined and core net debt to EBITDA were 9.0 and 8.1, respectively. Since most of our sales and debt reduction will occur during the third quarter, our leverage metrics are similar to the first quarter. During the second half of the year, we expect these leverage levels to decrease.

Portfolio composition. During the second quarter, we removed 4 properties from our core portfolio that are being held for sale, totaling approximately 775,000 square feet. And they are roughly 91 -- a little over 91.5% occupied. To confirm, properties that are classified as held for sale are removed from our core and operating statistics. Based on the asset sold and the assets held for sale, the impact to our 2026 portfolio statistics will be immaterial. During the second quarter, we added 250 King of Prussia Road, our 168,000 square foot life science property located in the Radnor submarket to the core portfolio as property -- as the property stabilized in June.

From liquidity and financing, we continue to maintain solid liquidity with $35 million current cash on hand and no outstanding balance on our unsecured line of credit after taking into account the announced July sales activity. Related to sales activity, we have adjusted our business plan for an increase to the wholly owned disposition activity. As Jerry touched on, we have increased our sales target to $305 million with $208 million already closed and 2 properties expected to close during the third quarter. Majority of these proceeds will be used to reduce debt and continue our path back to investment grade.

With respect to our planned buyback activity on the unsecured notes, we will be focused on notes with higher coupons as that will be more -- have more of an immediate impact to reduce our coverage ratios -- to improve our coverage ratios, I'm sorry. Since these bonds trade at a premium, we will incur onetime debt extinguishment costs. However, we have not included these in our estimates of current FFO guidance. We also intend to use a portion of these proceeds, as Jerry mentioned, for sales proceeds to have an opportunistically buy back some shares.

From a financing activity, the $178 million consolidated construction loan that was scheduled to mature in July 2026 was repaid in June. We have funded the repayment with a secured loan on the residential portion of the property totaling $90 million and our unsecured line of credit to unencumber the property. The $90 million 7-year secured financing was swapped to a fixed all-in rate of 5.8%.

Regarding the credit facility, our unsecured line of credit had an initial maturity date of June 2026 with 2-, 6-month extensions through June of '27. While we complete our sales and debt reduction program, we continue to work with our bank group and anticipate completing a longer-term amendment during the initial 6-month extension period.

Looking at the recapitalizations, as our joint ventures continue to lease up and cash flows improve, we anticipate recapitalizing the final 2 preferred equity development projects into pari-passu common equity joint venture structures during the second half of the year with our ownership decreasing to a minority stake or an outright sale. We extended 2 existing loans on our ATX projects. While we still anticipate closing those transactions in the second half of the year, we felt extending the loans will allow us time to run the recapitalization process without concerns about the maturities. The recapitalization of both these projects will generate cash proceeds between $40 million and $50 million that will be used to further reduce our wholly owned leverage and will slightly -- be slightly accretive to earnings and improve leverage.

We continue to feel incrementally more positive about executing our land sales program this year, but we have not included any land proceeds, gains or losses in our results -- our forecasted results.

Focusing on the third quarter guidance, property level operating income will approximate $69.5 million and will be $3 million below the second quarter. The incremental decrease is primarily due to the assets that are held for sale that did close in July, and that will generate a $5 million reduction in NOI for the third quarter versus the second quarter. The lower NOI is partially offset by the full year impact -- by the full quarter impact of the Radnor Hotel, which commenced operations in May and will generate a $1.2 million quarter-over-quarter increase. We also have the stabilization of 250 King of Prussia Road, which stabilized in June and will have that full quarter effect in the second -- in the third quarter as well.

FFO contribution from our joint ventures will be breakeven for the third quarter. G&A expense for the third quarter will total $7.5 million. The sequential decrease is consistent with prior quarters and is primarily due to the timing of deferred compensation expense recognition. Our full year range is maintained at $36 million to $37 million.

Total interest expense, including deferred financing costs, will approximate $40 million, which includes $400,000 of capitalized interest. We have lowered our full year interest expense range by $6.5 million at the midpoint to account for the anticipated lower debt balances. As previously mentioned, in connection with potentially buying back our unsecured bonds, we may incur onetime extinguishment charges that are not currently included in our guidance.

Termination fee and other income will total $2.8 million. Net third-party fees will approximate $1.5 million; interest income, $500,000; and our fully diluted share count will be 180 million. For clarity, the above forecasted results on our core FFO range will be $0.13 to $0.15 for the current third quarter.

Turning to our capital plan. The second half of the year remains active with a total of $250 million of activity. Our second quarter CAD payout ratio was 103%. However, payout will remain within our business plan range for the balance of the year at 70% to 90%, which we expect incremental improvement in the payout ratio as FFO improves through the balance of the year.

Looking at the larger uses, we have development spend of $40 million. We also have $28 million of common dividends, $17 million of revenue maintained capital, $25 million of revenue create capital and $10 million of equity contributions to our joint ventures. The sources are going to be $55 million of cash flow from -- after interest and asset sales totaling $290 million.

Based on the capital plan, we anticipate having a small balance outstanding on our unsecured line of credit. We anticipate our net debt to EBITDA to still be in the range of 8.4 to 8.8, and our fixed charge ratio will be between 1.8 and 2.0. Implicit in these ratios is the execution of our asset sales program and the recapitalization of the ATX developments.

Until revenue becomes -- comes online from our remaining development projects, particularly 3151 Market, our leverage ratios will remain elevated. However, our asset sales recycling program is generating proceeds that will lower debt levels and improve our leverage metrics for both bonds and the credit facility. The benefit of this will be reported in the future quarters as we continue to execute on this program.

I will now turn the call back over to Jerry.

Great. Thank you, Tom. As we wrap up and look ahead, market conditions continue to firm. We're seeing, as I mentioned, a monthly increase to our overall pipeline across the board in all of our core markets. Our leasing team are doing a great job in terms of making sure we capture more than our market share of lease deals across our portfolio. And as we've outlined, 2026 is going to show earnings growth and lower leverage over 2025. And we certainly expect further improvement in growth in 2026. As Tom touched on, as we continue to stabilize and recapitalize these projects, we do believe they'll be generating significant incremental NOI in '26, '27 and '28. So the groundwork has been laid, and we'll continue building on the momentum that our teams have created to drive long-term value.

So with that, Jonathan, we're delighted to open up the floor for questions. As we always do, we ask that in the interest of time and courtesy, you limit yourself to one question and a follow-up.

And our first question for today comes from the line of Steve Sakwa from Evercore ISI.

Could you maybe just provide a little bit more color on the 3151? I think you said you had multiple floor users looking at the building. Maybe just talk maybe about the nature of the tenancy, life science versus traditional office. And have you seen any meaningful improvement on the life sciences front as capital markets activity on that front has gotten better over the last 6 to 9 months?

Yes, certainly, Stephen. How are you this morning? Yes, 3151, we actually have a multi-floor client in the advanced stage of lease negotiations right now. So we think that's moving very positively. We think that will also generate some additional momentum. As I mentioned, the portfolios is -- the pipeline is up about 10% from last quarter. I know pipeline isn't getting a deal done, but it's a harbinger of good things to come. So we're happy that the tour velocity remains very active. A lot of ongoing discussions, proposals are advancing.

In terms of the life science market, we are seeing a bit of a rebound. In fact, we were fortunate enough here at Cira Centre to host an event the other day with the Governor of the Commonwealth of Pennsylvania, Josh Shapiro, a number of other political notaries, state senators, et cetera, to announce the Commonwealth as part of the budget this year adopted $125 million Innovate 2.0 Pennsylvania, which is geared towards providing attractive financing to help life science companies grow. We think that will accelerate the growth rate and the capital structures of a number of the life science companies that are being curated both at B.Labs, other incubators in the city and certainly start to create a little more momentum for those incubator-level tenants to move to graduate spaces. And we are talking to a couple of tenants in our graduate-level space about taking more space in 3151. So the trend line is, acceleration is not occurring certainly at the pace any of us would like, but the trend line is positive. It seems to be durable, and we're certainly looking forward to getting a couple of leases across the finish line on this building.

Okay, thanks. And then just as a follow-up, I think you said that you were -- Solaris and One Uptown were basically JV/asset sale kind of in the back half of the year. Maybe just talk about the demand for Austin assets in general, particularly on the apartment side, just given that, that market's been oversupplied? And what kind of, I guess, demand did you see when you went to sell 405 Colorado?

Yes. Well, in terms of 405 Colorado, we saw great activity. And I guess, stepping back for just a second, if you look at the activities that we have at -- taking place in Austin, our primary focus, as I've talked on the calls before, is to take real advantage of the long-term value opportunity we have at Uptown. And as noted in the SIP, we achieved some excellent zoning changes in the last year or so that moved our FAR from 12 -- from 3:1 to 12:1, moved up our height limit. So certainly, a big focus of our talent and capital base is going to be directed to harvesting the value we can create at One Uptown. Based on that, with our sale program really focused on reducing leverage, we took a look at a lot of properties in our portfolio.

405 came up as a property that obviously very high quality, fully leased. We thought it was a good time to optimize some value there. We saw a very active bid list from a number of very high-quality institutions. We closed that transaction a few weeks ago. The pricing of that project at north of $700 a square foot came right in line with our assumed guidance. So even with that, the CBD market, having more than 5 million square feet of current vacancy, including space coming online and projected absorption levels between 500,000 and 1 million square feet, even with that overhang of a 5- to 6-year stabilization period, I think the leasing profile and the WALT that we had -- weighted average lease term that we had on 405 was very attractive to a lot of investors. So very pleased to get that across the table. Again, it helps us focus back on One Uptown and Uptown ATX, in general, as well as generated a lot of great liquidity for us.

Looking at Solaris, look, we had great success in absorbing space at Solaris, and we've been testing the waters with a number of investors. We think that there's a high probability we'll get a very good cap rate transaction on that project done within the next 60 to 90 days.

The in-migration is still very good. The job growth is still very good. So even though there's a temporary overbuilding of apartments, the absorption pace has been pretty significant throughout the city of Austin.

And our next question comes from the line of Seth Bergey from Citi.

It's Nick Joseph here with Seth. Just hoping to get some more commentary on the thought process behind the split between the debt repayments and the stock buybacks. Obviously, that's accretion from the buyback side, but recognize the desire to return to investment-grade metrics. So just wondering how you came up with that 5% to 10% proceeds for the buybacks.

Yes, and hey, Nick, and Tom and I will tag team this. But look, again, as I mentioned, the paramount objective is to move to investment grade, improve all of our credit metrics. The opportunity we have is that we have about $900 million of outstanding bonds that are -- have a coupon rate in the high 8s, high 8 percentage rate. So being able to minimize those interest payments by buying back a lot of bonds is a real accelerant to improving all of our credit metrics. When we take a look at the share buyback, it's really deemed to be an adjunct to maintain earnings neutrality through the impact of our sales program. So right now, we're targeting that somewhere between 5% and 10% of overall proceeds.

I did mention that we have some other projects in the market for sale. Tom alluded to some of the land sale activity we're having. So we're on a clear path to generate surplus liquidity and use that liquidity to improve our overall balance sheet metrics with a piece of that being allocated to recognize the big dislocation between what we view as asset value and where the stock price is trading. I mean, certainly, trading a range of assets at $300 million this year thus far at our targeted cap rate in the high 7s to low 8s versus where the stock is trading, say, on a cap rate basis is a clear indication that the stock price, as it sits today, is currently undervalued. That being said, major focus is to improve all the credit metrics.

I don't know, Tom, do you have anything else to add to that?

Yes. I'd just add to that, Seth. We -- at those levels of buyback, if, in fact, we do them, and it's all dependent on where markets are, is that it doesn't really impact our leverage levels significantly at all to buy back some shares relative to the leverage levels. Again, every dollar we -- going to debt is important, but we do think that it's not going to impact our leverage levels dramatically at all to have some level of buybacks that's in that single-digit area, especially when we're trying to buy back bonds that are north of 8.5% coupon yield to maturity, probably somewhere in the mid-6s, but still allows us to delever and keep earnings kind of in a neutral place.

This is Seth here, just as a follow-up. Can you just provide us some color on kind of what the demand is for kind of the IBM space that they're going to vacate and you have plans to renovate? And what kind of pre-leasing would you kind of look for to start on 904 and 906?

Yes. Certainly, look, as I mentioned, the pipeline since we announced this initiative has been very, very encouraging. I think part of that is the fact that people, I think, see the value in our Uptown development. Again, the train station coming online early next year really does achieve that ultimate goal we had of becoming the first mass transit-served mixed-use development in Austin. And CapMetro does project that to be the second busiest train station on that line. So we think that's been a real draw in bringing companies to look at Uptown ATX.

Then the ability to deliver these buildings at a pricing discount to new construction costs with floor-to-ceiling glass, completely renovated HVAC system and mechanical systems, with a really first quality presentation has been attractive to everyone. And then, of course, that overall submarket, even when you factor in sublease space, is less than 8% vacant. We felt there was a real window of opportunity.

So the first building we plan to start is about 157,000 square feet. We're hoping to get some leases done as we move through that construction process. But certainly, moving forward, other buildings would be a function of getting leases signed. We think we have some good discussions underway that will validate that thesis. And we'll see what the market presents. But the game plan, as we see it is, there's a window of opportunity here to deliver within a mixed-use community, a very good quality renovated office space that hits the price point that a lot of people are looking for. And given the amenity base we're building at Uptown as well as the mass transit accessibility, we think that's a pretty good prescription for success.

And our next question comes from the line of Upal Rana from KeyBanc.

Jerry, just on the 405 Colorado Tower disposition, what was the cap rate on that? And then also, once the $300 million of dispositions are completed this year, where would you stand on doing further dispositions from here? Just trying to get a sense of how much more there's left to do.

Yes. I think from our perspective, we're looking to do more asset sales. I think I mentioned that in our commentary. We have a number of assets in the market for sale. We haven't put a revised target in place for 2026, and we haven't put any guidance for '27. But certainly, as we take a look at each asset that we have within our portfolio, as we mentioned on the last call, we're analyzing each asset, its relative growth profile, what level of investment is required to bring those properties to stabilization and to deliver growth to the company. So we would certainly expect sales somewhere in the couple of hundred million dollar range over the next 4 to 6 quarters as we move forward with this balance sheet enhancing program.

And Upal, on 405, we did have a filing that kind of put the cap rate right around 8%, maybe a little -- just slightly above that. Cash would be a little lower than that, but that's basically the cap rate we got on that asset on a GAAP basis, right?

Okay. Great. That was helpful. And then just on the occupancy, it improved 80 basis points to 89.1% and the lease percentage also increased. So you mentioned this year will be your first positive absorption year in a while. So I'm just trying to get a sense of timing on occupancy in the back half. You've got 166,000 still to commence and you sold several assets that were -- of which 2 of them are fully leased? So I just want to get your thoughts there and as your guidance still suggests further improvement in the back half.

Yes, I think as we're talking, we will have positive absorption for the full year. As we outlined in the original business plan call, we'll have a dip in the third quarter from an absorption standpoint, then we'll tick up strong in the fourth quarter. So we're holding our year-end occupancy and lease targets.

I think, generally, though, to answer your question, I mean, I think we're very encouraged with the number of tenants coming back into the marketplace. We do think that the bias towards quality buildings, quality operators, efficient operations remains very much intact. And we think with our on-the-ground leasing and property management team, I think that's honestly one of the reasons why we're capturing so much activity versus our market share. So we think there's a real window to amplify the quality bias of our portfolio and team. And I think that's one of the reasons why that pipeline continues to build.

I mean to have our pipeline up quarter-over-quarter, it's actually been very good reinforcement of our leasing and marketing strategies. And we're not going to really rest till we get that occupancy level well above 90%. Again, if you take a look at our Pennsylvania-based assets, CBD, Philadelphia, University City and the couple of submarkets we're in in the suburbs, we're doing really well. We have a challenge in Austin, and we've got some programs in place to address that over the next several quarters. We're hopefully going to pick up some absorption there as well to bring those -- that drag on our overall occupancy and leasing stats to minimize that in future quarters.

And our next question comes from the line of Dylan Burzinski from Green Street.

Most of my questions have been answered. But I guess as you think about any sort of remaining asset sales, is that likely to be more so stabilized core-like assets or more assets with maybe some either current vacancy or looming vacancy as we look out over the next few years? Can you kind of just maybe talk about how you think about the portfolio today?

Yes, great question. It's going to be -- without being too vague, it's going to be a mix. I think we're -- again, we have to take a hard disciplined look at every single asset and go through that net present value calculation. We're constantly testing where we think values are. So for us, it's really about at what point each asset is at its optimal value point given current market conditions. So even we take a look at what we sold this year, we sold one significantly underleased property because the reality from our perspective was that the amount of capital required to bring that project to stabilization and the projected absorption time line delivered a very low return on invested capital. So from a net present value standpoint, we're able to actually, from a sales standpoint today, exceed that net present value.

So we're going through an exercise, Dylan, across the entire company. We took a look at a 405 or 500 North Gulph Road. There, the weighted average lease terms in today's market were very attractive to a whole series of investors. So we felt that was a good optimal price point for us to generate the liquidity to execute the balance sheet strategy we have underway. So I think you should be looking out for a mix of asset sales going forward. As Tom alluded, we're also taking a look at a lot of our land inventory and have a certain number of those parcels going through the sale process. And that, again, is it's a non-earning asset. Our major quest right now is to generate liquidity to improve the balance sheet and to improve our growth profile going forward.

And would you say like for the assets you brought to market, that exercise of comparing sort of capital markets bids versus where your guys' internal assessment of value is, is closer when you look at stabilized core assets? Can you kind of just give us -- I'm just trying to get a sense for like as buyers get back into the market, is there a stronger depth of appetite for maybe more value-add-oriented assets versus the core product? Just curious your thoughts there.

No, it's a great question. We actually debate that internally. I think the market is moving. It's still core money there. And I think the core money is really focused on stability, weighted average lease term, asset quality and submarket positioning and submarket dynamics, key issues. But we're also seeing an interesting return of a lot of value-add capital that is basically taking a look at the supply pipeline coming on board in the office sector, which is de minimis as all the forecasts show.

In the case of Philadelphia, just to use that as an example, 11% plus of the inventory being converted to residential, public policy moving to amplify more office to residential conversions, you can actually make a pretty good quantitative case that the office market fundamentals will improve dramatically in the next several years. So we're seeing a number of value-add buyers come in who are willing to take vacancy risk and not overpay for that today, but be much more aggressive in pricing that today than they were a year or 2 ago.

And with the debt markets being very fluid, that's also amplifying, I think, the pace of their execution. So I think it's a good time for us to be taking a look at our overall portfolio, identifying which assets will deliver great growth for us from a quality and financial standpoint and then use what we're hearing from the market dynamics as we're talking to different investors to dovetail in where we want to sell assets and at what price point is acceptable.

[Operator Instructions] Our next question comes from the line of Anthony Paolone from JPMorgan.

Just 2 quicker ones. I think, one is on the IBM buildings. What do you think your all-in spend will need to be to get those repositioned and backfilled?

Yes. I think on the first building, which is we kind of have fully priced out, I think the idea there is we'll be somewhere in the $60 million range. That includes the related infrastructure work, all the TI cost and getting all the base building improvements done.

Okay. And would that be a similar type number for the other if you kind of move it in that same direction?

Yes, Tony, I think so. I think so. I hesitate to give you a definitive answer because we're really -- we're pricing through all that right now. But my guess, that's a good order of magnitude pricing. I think the key issue for us is in addition to the cost number is where the rents will be versus new development rents and our targeted returns being north of 8%. So we're kind of looking at that -- at those metrics to really drive the cost equation as well.

Got it. And then just second one, with the JV recap anticipating, you mentioned ownership stake going down, what do you think your order of magnitude, your ending ownership stake is going to be?

Yes. I think our ideal structure, both from a liquidity harvesting, profit taking, balance sheet improvement is probably a holder of between 10% and 20%. The bias is more towards 10%. As I mentioned right now, the current thought process is while we're talking to a couple of partners on the residential project in Austin, I think the bias right now is to sell that, get more pricing as well.

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.

Jonathan, thank you. And just thank all of you for participating in our second quarter earnings call. We look forward to updating you on our business plan progress in October for our third quarter call. And in the meantime, have a wonderful summer. Thank you very much.

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

Ladies and gentlemen, thank you for standing by. Welcome to the Brandywine Realty Trust First Quarter 2026 Earnings Call. [Operator Instructions]. Please be advised that today's conference is being recorded.

I would now like to turn the conference over to Jerry Sweeney, President and CEO. Please go ahead.

Michelle, thank you very much. Good morning, everyone. Thank you for participating in our first quarter '26 earnings call. On today's call with me are 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 assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports that we file with the SEC.

During our prepared comments today, Tom and I will briefly review first quarter results and frame out the key assumptions driving our '26 guidance. After that, Dan, Tom and I are available for any questions.

So to move into our presentation, from an operating portfolio management and liquidity standpoint, the first quarter produced results very much in line with our business plan. As such, as noted in our supplemental package, all of our full year operating and financial metrics remain unchanged from our original '26 business plan. And while the first quarter was relatively quiet from a transaction announcement standpoint, was very busy from an activity perspective.

Quarterly highlights include: we've achieved 94% and of our speculative revenue target at the midpoint of our guidance. Our first quarter FFO was $0.11 a share, which was in line with consensus and management guidance. We have narrowed the full -- our full year FFO guidance while maintaining our $0.55 full year midpoint. Our portfolio recycling and debt reduction program is progressing very much on schedule with approximately $305 million of potential sales under agreement and in various stages of due diligence with pricing right in line with our guidance. We expect and we'll talk later, but we do expect the majority of these transactions to close in the second quarter.

Looking more closely at first quarter operations, solid operating metrics reinforce our strong market positioning and tenants continued flight to quality perspective. Our wholly owned core portfolio is 88.3% occupied and 89.9% leased, our year-end and occupancy and leasing percentage will improve throughout the year as we anticipate having positive net absorption for actually the first time in several years as further evidence of our improving markets.

Forward leasing commencing after year-end totaled 182,000 square feet with most taking occupancy in the next couple of quarters. We have achieved, as I noted, 94% of our spec revenue target, which is $16.4 million, which is running ahead of last year. Leasing activity for the quarter totaled 422,000 square feet including 268,000 square feet in our wholly owned portfolio and 153,000 square feet in our joint venture portfolio. The wholly owned leasing activity is our highest level since the fourth quarter of '24.

Tenant retention was around 45%, very much as expected since we know there'll be a number of known move-outs throughout the course of the year. Capital ratio is below our target at 6.4%, really driven by a low as is no capital deal within one of our portfolios but will remain -- our capital for the year will remain within our guidance range. Our GAAP mark-to-market was 4.1%. Cash mark-to-market decreased by 2.6%, both below our annual business ranges but we anticipate improving results in the next 3 quarters and as such, we're maintaining our full year guidance range. Same-store results were a positive 0.8% on a GAAP basis and 3.3% on a cash basis, both above our current guidance ranges.

Core in the first quarter of '26 exceeded the first quarter of '25 by 80%. So continued uptick in overall leasing activity. We also continue to experience a good conversion rate from these tours for the trailing 4 course, 53% of our tours converted to a proposal and from proposal 37% converted to an executed lease. Just a couple of other additional comments regarding the market dynamics.

In Philadelphia, which includes our Central Business District and University City portfolios, we're now 94% occupied and 96% leased. With only 6% rolling through year-end 2028. Our Commerce Square joint venture property is now 93% leased, bringing our overall combined Philadelphia holdings to 95% leased. So overall activity levels in our core CBD and University City markets remain very strong. And we continue to outperform our market share.

As noted on the last call, we've captured more than double our market share in each of the last 5 years, and this trend did continue in the first quarter of '26 with 41% and of all new leases signed in this market was at a Brandywine property.

In the Pennsylvania suburbs, overall, we're about 90% leased, and we continue to see solid levels of pipeline prospects for the existing vacancies. Austin is 70% occupied that continues to lag the rest of our portfolio and creates a 340 basis point drop in overall company leasing levels. tour volume, however, did increase 15% and over prior quarters. The operating portfolio leasing pipeline is up again this quarter by 200,000 square feet from last quarter and remained solid at 1.7 million square feet. That does include about 314,000 square feet in advanced stages of negotiations. It does not include the leasing pipelines we have on either 3151 or a project at One Uptown.

And we also believe our marketing position in Philadelphia will continue to improve as we monitor office to residential conversion projects. We're currently monitoring more than 5 million square feet or approximately 11% of the total office inventory in the CBD converting from office to residential or other uses. That 5 million square feet is comprised of 1.2 million square feet that has recently been converted, 1.3 million square feet in active redevelopment and 2.5 million square feet of prices have been announced or in the planning phases.

From a liquidity standpoint, we remain in solid shape with only $65 million outstanding on our balance on our line of credit and $36 million of cash on hand. As previously noted, our multiple year plan is designed to return us to investment-grade metrics. As such, and you'll hear more from Tom, we plan to maintain minimal balances on our line of credit. The execution of our sales program will reduce overall levels of leverage. And as a point of note, almost 50% of our outstanding bonds have coupons north of 8%, which we also believe provide good refinancing opportunities for us over the next several years.

In the second quarter, we will repay the 3025 JFK construction loan with a lower price 7-year financing that is approximately $100 million at a rate in the mid-5s. And that transaction once accomplished, we'll be on the securing the residential component, but unencumbering the commercial component of that property for inclusion in our unencumbered asset pool.

We're also in the process of extending our current unsecured line of credit and term loans and plan to complete those extensions in the next couple of quarters. And as outlined in the next few moments, our active portfolio recycling program will have a majority of the sale proceeds being used to further improve all of our balance sheet metrics that Tom will walk you through.

We do anticipate our CAD ratio continuing to improve during the second half of the year after we fully burn off the remaining tenant improvement costs relating to leases done between 2020 and 2023. As a reminder, on our 3151 project, we did acquire our partners' interest in the fourth quarter of '25, that did have the temporary impact of raising our leverage levels. The pipeline on that project is up 200,000 square feet from last quarter and does stand at approximately 1.2 million square feet and is roughly broken down 50% office and 50% life science.

Discussions with a number of prospects are very active with several key proposals outstanding. As a reminder, we don't have any real lease commencements or revenue generating from 3151 in our '26 business plan. At One Uptown, we're now 63% leased, which is up from last quarter. The pipeline now stands at over 230,000 square feet with tenant sizes ranging between 50,000 and 65,000 and 50,000 square feet. We do have 6 proposals outstanding, aggregating just shy of 100,000 square feet. And we continue to see the pipeline and the velocity of decision-making accelerate at our One Uptown project.

In addition, as we talked last quarterly call, in anticipation of our '27 lease expirations at the existing buildings in our uptown development, we will be commencing the redevelopment of 1 of those existing buildings. That building 902 is about 160,000 square feet. We're anticipating completing that renovation in the late second quarter or third -- or early third quarter of '27. And since our marketing launch of those projects, we have generated approximately $1.2 million of additional square feet of prospects. We do expect to deliver pricing levels below the rents required for new construction and also as some of our larger prospective tenant requirements advance, if they do, we'll also have planning underway for similar renovations for several other existing buildings.

From a capital market perspective, our business plan does project $280 million to $300 million of sales activity. We anticipate closing most of those sales within the next 60 to 90 days. We currently, as I noted earlier, have $305 million under agreement and in due diligence, and we also have several other properties in the market exploring sale access. We do plan to recapitalize both One Uptown and Solaris during the second half of '26. These recaps could provide a range from a complete sale to a [ PowerPact ] joint venture where Brandywine retains a minimal stake and recover significant capital to lower debt attribution and increased liquidity. And in fact, on Solaris Center, we're already in the marketplace, exploring some potential refinancing options.

From a broad standpoint, the vast majority of our sales proceeds will reduce debt, continue to improve liquidity and further strengthen all of our credit metrics. And also, while the clear priority is to lower leverage and return to investment-grade metrics, we do anticipate, given where our stock price is utilizing a portion of those sales to repurchase our sales, our shares while leveraging lowering our leverage levels across the board. We do have about $82 million available under our existing share repurchase program, and we anticipate the debt reduction program will commence during the second quarter, concurrent with the receipt of sale proceeds.

The response from the market on assets list of our sales have been very strong. But we have under agreement of sale. There's been considerable interest with the typical marketing process producing between 7 to 10 qualified bids. All buyer types were engaged, including institutional investment managers, other institutional investors and significant interest from private capital. So with that, time will review financial results for the first quarter of '26 and the outlook for the second quarter and the balance of the year.

Thank you, Jerry. Good morning. Our first quarter net loss was $48.9 million or $0.28 per share. Our first quarter FFO totaled $20 million or $0.11 per share, in line with our fourth quarter guidance and consensus estimates. That loss was impacted by onetime noncash charges for property impairments totaling about $11.9 million or $0.07 a share. Some general observations from the first quarter, profit NOI of $70.2 million was $800,000 above our current reforecast, due to better margins throughout the portfolio.

G&A expense was above forecast by $300,000, primarily due to compensation expense. Other income term fees were $2.2 million or $300,000 below budget, primarily due to lower income from our retail operations and third-party fees were $2.6 million or $1.1 million above forecast primarily due to higher third-party leasing fees. Other forecasted results were generally in line. Looking at our debt metrics, first quarter debt service and interest coverage ratios were $1.7 million, both below -- incrementally below our fourth quarter results. The decrease is primarily due to lower interest capitalization from 3151, which did increase interest expense.

Our first quarter annualized combined and core net debt to EBITDA were [ 9183 ], respectively, based on our free forecast -- our forecasted sales and debt reduction, these leverage levers will decrease during the balance of the year. Regarding our portfolio. during the fourth quarter, we did remove 1 property from our core portfolio that is being held for sale. That property totals 116,000 square feet.

During the second quarter, we will add 250 King of Prussia Road, our 168,000 square foot life science property located in rather submarket that will be added to our core portfolio as we anticipate stabilizing that property in June at 100% occupancy. From a liquidity standpoint, we continue to maintain a solid liquidity position with $36 million of cash and $65 million outstanding on the secured line of credit -- unsecured line of credit at quarter end.

From the sales activity, we are anticipating $290 million of wholly owned sales at the midpoint which is weighted towards the first half of the year, and those cap rates continue to price at roughly 8% on a cash and a little above that on a GAAP basis. As Jerry touched on, we now have $305 million of potential sales in various stages of due diligence and the anticipated proceeds will be used to reduce debt and continue our path towards investment grade. We also intend to use a portion of the proceeds to opportunistically buy back shares on an earnings-neutral basis.

On financing activity, the $178 million at 3025 share JFK, the $178 million consolidated construction loan matures in July of 2026. We plan to complete a secured financing on the residential portion of that property, totaling $100 million and used the proceeds from that loan and the unsecured line of credit to unencumber the office portion of that portfolio. The $100 million 7-year secured financing will be fixed at a all-in rate of roughly 5.7%.

On the credit facility, our unsecured line of credit has an initial maturity date in June of 2026, with extensions through June of 2027, and we are working with our bank group to amend and extend the facility ahead of its maturity. Capitalization of the ATX joint ventures as our joint ventures continue to lease up and cash flow improves, we anticipate recapitalizing those projects on a per -- pursue common equity joint venture basis during the second half of 2026 with our ownership decreasing to a minority stake or an outright sale.

We announced our intent to extend 2 existing loans on those ATX projects and while we still anticipate closing on those transactions in the second half of 2026, we felt extending the loans will allow us time to run the sales process without concern about the maturity dates. The capital -- recapitalization of both projects to generate between $40 million and $50 million of cash that we will use to further reduce our wholly owned leverage and will be slightly accretive to earnings and improved leverage for the balance of the year.

Due to the timing and change in ownership structure being later in 2026, we have not included any benefit of these transactions in our FFO guidance. We feel incrementally more positive about executing our land sales program this year but we have not included any land gains or losses in our results.

Focusing on the second quarter guidance. Property level operating income will total about $72.3 million, and we'll be about $1.3 million above our first quarter. The incremental improvement is primarily due to increased NOI at our CBD portfolio and the stabilization of 250 King of Prussia Road. These increases are partially offset by startup costs at the Rander hotel project, which should open during this quarter. FFO contribution from our joint ventures will be a negative $900,000 for the second quarter, the decrease primarily due to higher interest rates on some of the floating rate debt. G&A expense for the second quarter will total about $9.5 million. The sequential decrease is consistent with prior years and is primarily due to the timing of our deferred compensation recognition. Our full year range of $36 million, $37 million remains intact.

Our interest expense, including deferred financing costs will approximately $43 million, which includes about $700,000 of capitalized interest. Termination and other income will total about $2.5 million. Net third-party fees will approximate $1.5 million interest income will be about $400,000 and our diluted share count will be about $180 million. Again, these second quarter results and share count did not take into account any potential sales and share buybacks.

Turning to our capital plan. Our capital plan for the balance of the year remains active and totals about $450 million. Our first quarter 2026 cash payout was 92.7%. However, our payout will remain within our business -- however, our payout ratio for the balance of the year will remain within our 70% to 90% range. As expected -- as we expect incremental improvement in the payout ratio as FFO improves during the balance of the year.

Looking at the larger uses for the rest of the year, we will refinance 3025 JFK with the construction loan, utilized $140 million of debt and share buyback. Development spend will be about $50 million. We have $42 million of common dividends, our revenue maintain and revenue create will both be -- revenue maintain will be $25 million and revenue rate will be $25 million, with $15 million of equity contributions to primarily fund tenant leasing at One Uptown and Solaris extension.

The sources are going to be -- the sources to offset those uses are going to be $80 million of cash flow after interest payments, speculative asset sales totaling $290 million and $100 million of loan proceeds from our Vera residential project financing. Based on the capital plan, we anticipate having approximately $10 million of net outstanding on a line of credit. We anticipate net debt to EBITDA will be within the range of [ 840 to 8.8 ], and our fixed charge coverage will be around [ 18 to 20 ] in implicit these ratios is the execution of our sales program and the recapitalization of the ATX developments. These ratios will continue to be elevated until increased revenue comes online from our development projects particularly 3151, which is now a $250 million wholly owned investment, which is currently producing operating losses. As these developments stabilize, our leverage decrease will further accelerate. And as we anticipate that those leverage metrics will improve as the year progresses.

I will now turn the call back over to Jerry.

Great, Tom. Thanks very much. So as we look ahead, the operating platform enables us to capitalize on improving real estate market conditions to our plan for 2026 shows earnings growth over '25, and we expect further improvement in growth in 2027. And as we continue to occupancy levels across the board, as Tom touched on, generate results coming out of our 2 remaining office and life science development projects. We certainly expect that there'll be an incremental NOI that will be available for strengthening our balance sheet and for other uses. So the groundwork has been late, and we'll continue to build on this momentum to drive long-term value.

And with that, we are delighted to open up the floor for questions. As we always do, we ask that in the interest of time, you limit yourself to 1 question and a follow-up. So Michelle, we're happy to open the floor for questions at this point.

[Operator Instructions]. And our first question comes from Nick Joseph with Citi.

Jerry, you talked about the active transaction market and lots of buyer interest in the bidder pool there. So how does that inform additional asset sales from here beyond what's currently under contract?

Yes, a great question. I think it actually is very helpful for us because we actually by design, put a fairly broad range of product in the marketplace to kind of test we thought the investor segments or sentiments might be I think, certainly, given the velocity we saw in each of these sales and the fairly competitive final bid process as we went through to generate the pricing we were targeting. I think we certainly, as even touched on in my comments, have a number of other properties that we're thinking about -- that are in the market or sale we're going through the underwriting to see what those BOVs might be as we put those in the marketplace.

But certainly, I think the breadth of response we got ranging from Tier 1 institutional investors to large private equity funds to traditional high net worth family offices to syndicators was a hopeful result. We weren't sure with some of the properties were put in the market with the bid list would wind up being and they wound up being a lot more robust than we thought they would be. So I think with -- certainly with -- I think with the debt markets showing some signs of stability, depending upon the day of the week it is, I think that has given buyers, I think, a lot more comfort of underwriting some of the assets we put into the marketplace.

So I think it was all good news from that front. Certainly, we're very happy to be sitting here where we are with this many properties under agreement going through final due diligence and with closing scheduled for the next 60 to 90 days to kind of help us execute the debt reduction and liquidity program we put in place. So I think another good sign of the office market recovering from different capital sources.

Makes sense. And if you do lean into it more, how would you balance additional buybacks versus leverage reductions beyond what's currently contemplated?

Yes. Look, I think the primary objective as both Tom and I touched on, is to improve the credit metrics. That's by far the #1 objective. As we talked last quarter, buying at our preferred partners positions the Schuylkill Yards project temporarily raise leverage. Our #1 goal is to get those leverage levels back to what we've outlined in our business plan. And certainly, to the extent that pricing is better, we generate more sales velocity, and we see a clear path towards achieving those balance sheet metrics. I think then we certainly recognizing where the stock price is, want to deploy some capital there, as Tom mentioned, on a kind of leverage neutral earnings-neutral basis.

And our next question is going to come from Manus Ebbecke with Evercore.

Just wondering if you could expand a little bit on the interest that you're seeing for the 902 building and upturn ATX just, I guess, the interest you got so far is mainly new to market tenants or existing tenants in the market, just like help us understand maybe a little bit.

Sure, happy to walk through that. Yes. We -- as we talked last quarter, we announced to the kind of leasing marketplace that given the significant uptick in zoning capacity, we're able to achieve at One Uptown and the pending departure of a large tenant we really focused on how we could reposition several of those assets at a very attractive price point for the tenant market. That approach was very, very well received from the marketplace. So we have a couple of very large prospects we're talking to. Most of them are in market, but Several of those have significant expansion requirements.

Some of the newer tenants in the market that we're seeing, Manus, really on our -- the existing One Uptown pipeline. But the larger prospects we're talking to about the renovations of the 900 buildings are mostly in market, but coupled with significant expansion and/or consolidation opportunities. So I think we've been very happy with the response we're getting. I'd say there's a fairly high level of active -- dialogue with several of these users. Who knows where that goes, but the signals are very positive, and we've really ramped up our planning efforts to make sure that if we do, in fact, get substantive results from these prospects that we can move forward with these renovations fairly expeditiously.

Got it. That makes sense. I appreciate it. And maybe we could follow up on Philly in the life science market there. Just was curious to hear if there's any update on how you just feel about like the life science leasing, which I know has been challenging over the last year, if those tenants coming a little bit back now out again in '26 or just I was wondering how that's tied up.

Yes. No, I think we are seeing the proverbial green shoes in the life science market, capital flowing a little bit better. Of course, there's a macro overhang of regulatory risk. But definitely an uptick in tone. And the pipeline, as I mentioned, for 315, we have a couple of larger institutions that we're talking to that are real in their requirement, but slow in their execution pace. And we have a number of smaller life science companies that we continue a very active dialogue with about making 3151 their home. And then, of course, we've seen an uptick in office tenant requirements given the tightness of the Class A office market in Philadelphia. I mean certainly, when we're sitting in our Philadelphia trophy class properties at 95-plus percent leased with really a dearth of available space for the next couple of years. We've been able to pivot some of those prospects over to look at 3151. And the tone of those conversations is constructive as well. We are certainly looking forward to getting some leases executed there as Tom touched on generating revenue coming out of 3151 certainly, given the size of the pipeline we have, we see visibility on the near-term horizon, but it's a very important part of our balance sheet strengthening program as well.

And the next question will come from Dylan Burzinski with Green Street.

Just going back to sort of the dispositions, Jerry, you mentioned that it's sort of a mix of different assets. But are you able to sort of share like percentage of assets that you guys will going to sell as core versus noncore within the overall brand loan portfolio?

Yes. I think the -- we have one asset that we would consider to be core that we're selling. And the rest are -- I wouldn't say are noncore, but they're less than core. The -- look, our approach today on the sale program, as we outlined last quarter, was to put a variety of assets in the marketplace to really test the investor appetite across all different asset sizes, weighted average lease terms age, submarket positioning, et cetera. Because one of our objectives really as we get through this first phase of sales was to really start to get some insights into how we view the investor marketplace for the next 4 to 6 quarters as we look forward to our business plan execution in '27 as well. So by design, we put a wide range of properties out there and I think we've got the response on a previous question that we're hoping to achieve.

Great. That's helpful context. And then just going back to 3151 market, I see the yield remains at sort of a 7.5% yield on cost. I don't think that's changed over the last several years. Can you just talk about sort of confidence in hitting that given life science leasing costs are obviously much higher today some of its office related, but just sort of curious.

No, I think as we go through the pro forma exercise and model in some of the existing deals we have in place, we still feel confident about hitting that target. The timing of that of getting leases actually has been really one of the more challenging aspects that we faced. But we've had no real price resistance. And certainly, what we've been able to see, even with the softening of the life science market or proposals that do reflect the higher level of tenant improvement costs show that we're able to get a higher going in rental rate, lower free rent concessions and frankly, longer lease terms, which generate the effective rent targets that we're after.

[Operator Instructions]. And our next question is going to come from Upal Rana with KeyBanc Capital Markets.

Great. Jerry, you mentioned you have 6 proposals out on One Uptown that totals around 100,000 square feet. Do you have any sense on the probability of those getting done? And any potential timing that you could provide on those proposals? If those were to get done that could bring lease percentage up to over 90%. So I just want to get your thoughts there.

Yes. Well, we certainly feel optimistic and I think we're pragmatic in assessing that. So our hope is that we get at least half of those across the finish line. and do another full floor uptown. As we talked about on previous calls, we have -- our anchor tenant has a call right on one of the remaining floors that is exercisable later this year. So we're tracking that very carefully. And then on the other floor, we're also -- given the success we had on doing spec suites in that building. We're also building out another floor as well. So I think we've got all the mechanics in place supported by the pipeline to show continued occupancy gains in that property quarter-over-quarter.

Okay. Great. That was helpful. And then I appreciate the comments on the recapitalization of One Uptown and Polaris in your prepared remarks. But could you expand a little more on that and how demand has been there and anything that's shifted from what you had originally anticipated from earlier this year?

Yes, happy to. And I'll start with Solaris, the residential project. I mean there, we really achieved a significant acceleration of lease-up in light of the fact that, that apartment market demand drivers and supply imbalance was fairly weak. So our approach was to accelerate people taking occupancy. And to do that, we actually provided some significant concessions to get that done.

So the initial year 1 overall rent levels were below our target. So now we're heavily into the renewal season, and we're getting about a 16% uptick across the board on our renewals. So that has been a very positive indicator on future NOI growth. and the retention rate has been fairly positive as well. So with those data points, we've already started the process of talking to a number of high-quality institutional investors about recapitalizing that project with us. So feedback there has been very supportive. And certainly, we expect to get that recap done sometime in the third quarter. per our plan. maybe even a little bit earlier, but that's kind of the plan at this point.

One Uptown, but we continue to get a lot of activity in of institutions that want to partner that project with us. From our perspective, though, and Tom touched on this, we want to get a couple of additional leases done because that's really the value creation proposition for us. So we have no concerns at all about the ability for us to execute on the recap on either Solaris House or One Uptown given the feedback we've gotten thus far and frankly, on One Uptown, given the pipeline we have to get that project closer to the 80% to 90% lease range. Hopefully, that answers your question.

Yes, that was great.

And I show no further questions in the queue at this time. I will turn the call back to Jerry for closing remarks.

Great. Well, Michelle, thank you for your help today. And to all of you, thank you very much for participating in our first quarter call, and we look forward to providing a further update on our business plan progress during the second quarter call. Thank you very much, and have a great day.

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

Welcome to Day 2 of Citi's 2026 Global Property CEO Conference. I'm Seth Bergey with Citi Research, and we are pleased to have with us Brandywine and CEO, Jerry Sweeney. This session is for Citi clients only and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit questions.

Jerry, we will now turn it over to you to introduce your company and team, provide any opening remarks and tell the audience the top reasons an investor should buy your stock today, and then we can dive into Q&A.

Good morning, Seth. Good morning, everyone. Thanks for joining. With me today is Tom Wirth, who is our Executive Vice President and Chief Financial Officer. I think the -- to start off, I mean, I think the top reasons to own Brandywine stock today are a high-quality operating portfolio in ever-improving markets, our relative valuation and our balance sheet improvement program, which will be implemented this year as far as our balance sheet simplification goes.

I think just in terms of overview comments, look, operationally, the company is on very solid footing with room to accelerate leasing as conditions continue to improve. Our 2026 business plan anticipates our occupancy levels will be improved from '25 by about 120 basis points. We expect to have positive absorption in 2026. We continue to have a positive GAAP mark-to-market company-wide of 5% to 7% in our core markets of Philadelphia and the Pennsylvania suburbs, which is about 70% of our revenues, that mark-to-market will be between 8% and 10%. We expect to have higher same-store growth than we had last year.

And we -- from an operating standpoint, our leasing capital will stay within our target business plan range. And our spec revenue target of $17 million to $18 million is 74% done at the midpoint. And our forward leasing commencements were over close to 250,000 square feet with occupancy occurring in the first and second quarter. We are also seeing increased tour volumes. So in 2025, our tour volume was up almost 50% -- 45% on a square footage basis over 2024. And our conversion rate, which is a statistic we track carefully is 56% of our tours have turned into proposals.

And of our -- the proposal we issued, 38% turn into leases. When we take a look at Philadelphia CBD, which is our largest revenue component, generating about 48% of our overall revenues, we are 95% occupied, 97% leased. We only have 6% rolling through 2028. For the past 5 years, we have a market share of the inventory of about 15%. The last 5 years, on average, we've generated 30% of all leasing activity. But during 2025, I think it's a reflection of the continued flight to quality. 54% of all new leasing activity in Philadelphia CBD was signed at a Brandywine property.

But more importantly, over the last 5 years, we've grown net effective rents in Philadelphia CBD and University City by slightly more than 5% per year. The challenge in the portfolio are Austin. There, we've had about a 400 basis point hit to occupancy. While tour volume is up, we still have a lot of vacant space in Austin, we need to fill out. And then certainly, from a development standpoint, we had 4 development joint ventures. We bought 2 of those out in 2025. That simplified our balance sheet. But as we've indicated on our earnings call, that did increase our leverage temporarily.

And we have 2 remaining joint ventures down in our Austin developments that we plan on buying out during 2026. Those objectives will reduce our debt attribution, improve our balance sheet and reduce our overall interest carry. To finance that, we've announced a sale target of about $290 million at the midpoint. We anticipate an average cap rate of about 8%. We have about $200 million of properties in the market now and receiving bids, much more active interest in the buying pool than even last year, and we expect to be able to achieve those targets. We anticipate most of those sales will occur in the first half of the year.

Our plan is to apply those proceeds to reduce leverage and improve our net debt to EBITDA. The tactics there will be to buy back some of our higher-priced bonds as well as refinance or pay off some of our construction loans. And certainly, to the extent we can generate some excess capacity, we certainly plan on buying back some of our stock as well. We have about $80 million of authorization. And certainly, as we generate additional liquidity, we'll plan on utilizing that as well. So, Seth they are kind of the overview comments, certainly happy to answer any questions.

Yes. I guess kind of just diving a little bit into some of those comments you made, maybe starting with Philadelphia. Just you talked about kind of some of the leasing activity and the success you've had there more recently. Can you just talk a little bit about kind of how much of that demand has been maybe tenants that are new to Brandywine? Are there any particular kind of industries that you're seeing kind of outsized demand from in terms of leasing? And then as there's kind of been a flight to quality, how do you kind of think about the continued ability to push rents in that market?

Yes, look, I think a couple of dynamics are taking place in Philadelphia CBD. Overall, the vacancy rate in Philadelphia is below the national average. There has been very little new construction of office product in the last decade. Right now, we're tracking about 15% of the existing office inventory being converted into either residential or hospitality uses. That's about 7 million square feet out of a 50 million square foot market.

So we continue to see good upward pressure on rents in the higher-quality buildings. When you take a look at the overall vacancy rate in the city, it's very concentrated. 8 buildings in Philadelphia comprise over 65% of the vacancy. And a number of those buildings are targeted to be removed from inventory and move into residential uses. So we certainly continue to see, as evidenced by our track record the last couple of years, tremendous ability to continue to absorb space, grow our net effective rents and create really a dearth of availability in the higher quality inventory.

And the other thing that's interesting for us is that the flight to quality, so tenants moving from lower quality, lower-priced buildings, actually, some of their compression of space, contraction of space has really played into our own inventory because they're taking less space, able to pay higher rents. So we've had a very good track record of bringing tenants in from older buildings into particularly our Logan properties and our market street properties. So we see that trend as being pretty durable.

It's pretty broad-based, Seth. I mean we're not really seeing any particular segment drive that -- we've seen a really uptick in financial service firms. We've actually seen a number of companies move from the Philadelphia suburbs into Philadelphia, but the professional firms are still moving in a very positive direction. Just this past year, 4 AmLaw 100 firms have set a base of operation in Philadelphia, which we've captured several of those. So we actually see the dynamics in both -- there you go. Okay there, John? Maybe just the panel fell off. But we certainly see the dynamics in Philadelphia CBD and University City remaining very strong for the foreseeable future.

Great. And then maybe just following up on kind of your guidance and retention there. I think, 64% in 2025, but you're guiding to slightly lower levels in 2026. Is that kind of a shift to free up maybe larger blocks of space for tenants? Or is that kind of tied to known move-outs? And can you kind of walk us through that?

Yes. I mean we're projecting a positive net absorption this year, and that's in addition to having some tenants who are rolling out of some of our Philadelphia CBD and Austin properties. So from a tenant retention standpoint in terms of number of tenants will be about 56%, 57% from a square footage standpoint, we'll be below where we were last year.

But certainly, as the year progresses, I think as we posted the last several years, we're able to kind of move our retention rate up as the year progresses. So right now, we're in active discussion with a number of tenants about renewing who were kind of on the fence. But as we look at the baseline, we're still going to be in a positive net absorption standpoint.

And then as you kind of talk to tenants and think about tenant behavior, how are those kind of conversations going? Are tenants kind of on the whole talking about expansion space? Are they renewing their existing footprints? And then one of the topics of this conference has obviously been kind of the headline noise around AI. Is that kind of coming up with any of your tenants and conversations about their space needs at all?

I think it does come up in conversation with most of our tenants. I think the conclusion is still undetermined. I think we're seeing most of our tenants utilize some level of AI, whether it's in the medical field, the financial service field, certainly the accounting world. But we really have not seen that impact any significant space requirements at all at this point. I mean, certainly, we're seeing that a lot of -- for example, a lot of the professional service firms that have leases rolling. A lot of those leases are 10 to 15 years old.

So I think just the natural progression of technology, the old tried and true example is with law firms. They used to do big rolling files. We used to be reinforcing cores for the rolling file cabinets, big law libraries. That really is not in play anymore. But -- so the space compression is predictable. And I think we are, as I mentioned, benefiting from that by having a higher quality inventory in the marketplace.

And then just kind of how are you thinking about AI as a whole, maybe in the medium to longer term? In some markets, we've heard people think about it as creating new jobs. But then there's been headlines about overall potentially job reduction. Just how are you thinking about it as a company and the impact on office overall, maybe in the long term?

Yes. I mean I think internally, Brandywine, we're starting to utilize AI that is being developed in conjunction with some outside firms to help on our leasing front, customer traction perspective, I think there's some real opportunities there. And certainly, from a financial reporting standpoint, we're utilizing a lot of AI initiatives to help streamline our internal financial reporting techniques. And I think we're seeing a lot of our customers do that as well, kind of look internally to how they can accelerate or improve their internal processes.

And in some cases, that creates a reduction of staff in, let's call it, the legal or the financial area, but an increase in staff on the IT side. So we haven't really seen a real definitive trend line one way or the other. I know there's been some headline announcements about some of the tech companies moving back to reduce employment base. But we've not yet seen that in the markets we're in, in any great degree. In fact, we're talking about Austin a few moments ago. We've actually seen a fairly significant uptick in the space requirements for technology companies.

Great. And then maybe just on that, I think there's kind of been some investment in often with Samsung and Apple's kind of multibillion-dollar expansions into the market. How much of kind of the pipeline is tied to either those initiatives or kind of other tech uses for space?

Yes. I'm sorry, Seth, the demand drivers you're seeing in Austin?

Yes.

Yes. I mean it tends to right now really be centered on financial service firms and technology firms. And certainly, when we look at the situation today versus a year ago, there's certainly more technology firms that we're talking to for larger blocks of space.

Great. And then maybe just thinking about the IBM vacate in 2027. How are you thinking about kind of the redevelopment opportunity for that space?

Yes, certainly, IBM will be leaving kind of the mid part of '27 for most of their square footage. Stepping back for a second, at our Uptown ATX development, we were able to achieve some additional approvals last year that gave us the ability to increase density there as market demand permits, but also gave us the ability to transfer density between blocks. So we have complete master plan flexibility to both increase density and move that wherever we can on the site. The train station that we've been working on with CapMetro will be completed in the first quarter of '27. That's going to be a huge marketing tool for us.

And so those 2 factors really gave us the ability to start rethinking about how we were going to utilize some of the existing buildings on the Uptown campus. We have several buildings that we're undergoing a renovation evaluation on right now. We anticipate those renovations could start midyear this year to some degree. We already have a pipeline of about 800,000 square feet of users for that. And the objective there is to really be able to present high-end renovated inventory that is priced below existing new development.

So we're still going through that thought process right now. But as we look forward about the IBM rollover, we certainly think there'll be some additional NOI coming off of our operating portfolio with our mixed-use development in Philadelphia 3025 coming fully online. The major tenant took occupancy January of this year. We'll be able to pick up some incremental NOI off of that. We have our 250 Radnor development coming online with that tenant occupying the early part of this year. And then we certainly have a few other upticks in our NOI forecast that we think will be able to help us bridge the gap on the IBM NOI decline.

In addition to that, our 3151 project at Schuylkill Yards recently completed. We have a pipeline there north of 1 million square feet. As you know, from our business plan forecast, we did not project any revenue from that building in 2026, but we certainly do expect some revenue coming from that building in 2027. So we think the combination of those factors will help offset the gap in NOI as we renovate the existing buildings that IBM will vacate.

And then maybe just on kind of some of the recaps that you mentioned, you did 2 last year, you have 2 kind of on deck this year. I guess what's kind of the holdup in terms of waiting until maybe later this year to kind of do those recaps?

Yes. And to recap your question on recaps, we had 4 properties that we had under development. Both were in structures with investors that had a preferred return structure that enabled Brandywine to retain all the value we would create. The construct of those joint ventures was that we needed to expense against earnings, the preferred accrual. The reality is that as we did with the 2 ventures at Schuylkill Yards last year, we paid off the preferred position and the accrual from a capital event from sale proceeds, refinancings, et cetera, with really no impact on earnings.

But one of the things I think is misunderstood is that we had about $0.15 or so of earnings dilution due to the need to recognize those preferred charges against earnings. So last year, we bought out the 2 Schuylkill Yards projects. So we bought 3025 wholly on balance sheet. 3151 is on balance sheet right now. It's actually not -- as I mentioned, not generating revenue. We have 2 remaining projects in that structure, both in our Uptown ATX development. So one is residential, 341 units of residential project. That is 98% leased. We're going through the spring renewal process now. We are already evaluating and talking to investors about a recap there. And we anticipate that will happen sometime later in the second quarter, early third quarter.

And we're really waiting for there is the results from the renewal cycle to take place to generate more incremental NOI to optimize value. I think that process is well underway. One Uptown, which is our 300,000 square foot office development. We have a lease outstanding that will take us to the mid-60% leased range with a good pipeline behind that. Our target there, Seth, is to get to about 85% leased with visibility towards stabilization and then recap that project, and we put that in our business plan for the second half of 2026. So our plan is by the end of 2026, we will have bought out those 2 remaining venture partners. We will have achieved our sales target. So we'll be able to reduce our debt attribution, generate additional liquidity and improve our balance sheet.

Great. And you mentioned 3151. Kind of -- and it sounds like you don't have anything kind of in the guide for '26 from a revenue standpoint. But you mentioned the pipeline as you kind of expect maybe some contribution there from -- for 2027. What's kind of the leasing strategy at that asset?

Well, it's to get it leased. So we are -- we've got about $1.1 million pipeline on that project. It was originally designed to be a life science dedicated building. But of course, within that design construct, we have the ability to have it being office use as well. So right now, the pipeline is about 60% office and about 40% life science. We're making good progress on a number of fronts. The project has been very well received from an office standpoint. We have a number of ongoing tours and proposals outstanding.

From a life science standpoint, the project has always been very well received. I think the problem we've run into on the life science front is capital capacity on the part of a number of the tenants that we're talking to. So hopefully, we're beginning to see some green shoots there. There have been a couple of life science IPOs on Philadelphia-based companies this year. There seems to be a little bit of a break in the storm class on the venture capital side. So we're hoping as more capital flows back into particularly cell and gene therapy therapeutics that we'll be able to try and get some of those life science companies, some of whom we've been talking about for quite some time across the finish line.

And then maybe just with life science and office in that space, how are the rents you're kind of underwriting different between life science and office and maybe from a net effective standpoint because I know the TIs typically can be a little different as well.

Yes. I think we're looking at net effective rent equivalency between the life science and the office. So the face rents in the life science are higher, but certainly, the TI capital costs are much higher as well. So face rents on the office are a bit lower, but the TI costs are a lot lower. So when we go through a net effective rent calculation, they're basically equivalent. So they're still in that mid-7% return standpoint.

Great. And then with the kind of boutique hotel at 165 King of Prussia, kind of what's the plan for that? Do you want to kind of have it wholly owned? Are you going to look to monetize that and sell it to a hospitality operator? How do you think about that in kind of the context of your business plan and your focus on deleveraging?

Yes, great question. Look, I think as we started, that hotel was really driven by a lot of objectives we're getting from our customer base. That hotel sits within the middle of about 2.5 million square feet of office space in our Radnor submarket and then another 600,000 or 700,000 square feet in an adjoining submarket. So when we were going through the exercise of trying to identify for our customers, what were the amenities they really wanted, hospitality became key. So we expect to be able to generate about 25% or 30% of the demand for that project right out of our existing tenant base.

It's Marriott brand and we bought on Aimbridge, who's one of the largest operators of Marriott hotels around the world to be our manager. The project will be completed actually in the next couple of months and open for business in May. Our game plan there very simply is to get the project open, get it stabilized and then queue it up for a capital event. So we don't anticipate necessarily being a long-term owner of that project. The objective is to get it completed, get the operational throughput there, demonstrate the traction we're getting from our existing tenant base and look for a capital event sometime in '27 or '28.

Okay. Great. And then maybe going back to some of your comments around dispositions. I think you mentioned an 8% kind of cap rate. Can you talk about maybe the profile of the assets you're looking to sell? Are those primarily in Austin or those in Philadelphia? And then just talk about kind of the depth of the buyer pool and the level of interest in those assets. Is there -- is that kind of opportunistic money? Is that core money for office? Just talk about -- a little bit about the buyer pool and how that's kind of evolved?

Sure. Of the $300 million that we're targeting to sell this year, it's across all of our markets. So we have properties for sale in Austin, Northern Virginia and Pennsylvania. So really, it's portfolio-wide. And the projects are different in their gestation. So some are close to fully leased, if not fully leased with a good weighted average lease term remaining. There, we're getting high-quality institutional buyers who are core or core plus and the pricing levels we expect that there will be very good. We have a couple of under-leased properties that are in the market.

And there, the buyer pool is very deep, very strong, but the targeted levels of returns are somewhere in the high teens to low 20s. So when we look at the blended disposition pace, we're pretty confident we're going to get that 8% overall return. But the composition of the buying pool does vary by property. So where we have, again, solid long-term weighted average lease term with no rollover, positive mark-to-market. I think the buyer pool there is a different class than we're seeing on some of the properties that are under leased.

And as a predicate to that, we take a hard look at every one of our assets every year, and we identify which we think will be the assets that will generate NOI growth over the next 5 years and what the capital consumption cost is to do that. We certainly net present value that back to where we think today's values are. And if we think that we can trade out a piece of real estate and what we think the net -- equivalent net present value price will be in today's marketplace, obviate the need for the capital investment, we certainly do that. And that's a hard look we take every year. And certainly, this year, we took a harder look at that given our objectives on the balance sheet.

And then you fully kind of unencumbered the portfolio. How does that kind of flexibility influence decisions around debt reduction versus kind of share buybacks?

Well, the first objective is really is to achieve or exceed our sales target and stay within that cap rate range. We've got good visibility that we'll be able to do that. Once we generate that type of liquidity, we have a number of particularly 2 higher cost bond issuances outstanding that we certainly think will be right for a target to buy some of those bonds in. We have a couple of remaining construction loans that are a higher-priced debt that we certainly can reduce or prepay.

So I think our attack plan will be once we generate that liquidity, and Tom has done a great job laying everything out. We have the ability to attack our highest price cost of debt to try and, number one, reduce our overall leverage levels of leverage, but also to improve our overall coverages. As we meet our sales goals, we certainly think given the discounted valuation of our public equity that there'll be an allocation of those proceeds to buy back in stock. But the paramount objective is to, first of all, generate the liquidity to achieve our sales targets. And then we have a number of different tactics already laid out to make sure that we optimize the balance sheet post transaction recovery.

And then as you kind of sell some assets and pay down that higher-priced debt, where do you kind of see leverage levels kind of ultimately shaking out at? Like where would you like to be kind of on a longer-term basis?

Look, I think as we've talked on our earnings calls, we very much are focused on getting back to a full investment-grade rating. Our team stays in close touch with the rating agencies. So we have a good road map of what we need to do to get there. I think our overall perspective is to get our fixed charge back to well over 2x and get our net debt to EBITDA back to the low 7s. I think as we laid out the multiple year plan, we feel we'll be able to get to that position.

Great. And then can you just give us an update on kind of the 300 Delaware conversion to residential? And are there any other kind of assets or land that you could convert to for similar conversions?

Sure. We have a couple of projects within our existing portfolio that we're evaluating residential conversions. Two of them are going through the historic tax credit certification process, which would add some very attractive cost of capital to increase the level of returns. We're also looking at a couple of our projects down in Austin, Texas for potential residential conversion.

So I think that's -- as we start to take a look at what we think the demand drivers are in certain submarkets, alternative uses for those assets are certainly on the table. One of our objectives on those -- in those situations is to get all the design development work done, perfect the approvals. And at that point, we may or may not do that ourselves. But to get to a point we can actually sell to a residential developer or if we think that the marketplace is strong enough to do that ourselves if the capital capacity is there.

And then we got a question in from the audience. What are the main drivers of the recent weak demand for life science? How much of your existing life science tenants rely on government funding?

Rely on what?

How much of your existing life science tenants rely on government funding?

It's not as much as you would think. I mean, certainly, the NIH grants, the federal funding is really funneling through the major institutions. So Children's Hospital, University of Pennsylvania Medical System, Jefferson Healthcare System, Main Line Health, The Wistar Institute. They tend to be the primary recipients where a lot of the life science companies we're dealing with are really more privately financed and going through FDA trials. So we have a number of companies in our portfolio now that are in early to latter stage FDA evaluation. A number of them have raised capital. A number of them won't raise more capital until they actually get through the FDA trials.

So as I alluded to earlier, we're definitely seeing a bit of a recovery from the capital standpoint on life science as we term green shoots, but those green shoots need to grow into trees, and we're not quite seeing that yet. So we're staying in very close touch with our tenants. We had a number of tenants in our graduate platform that we thought would be moving into larger space. They put those expansion plans on hold until they raise additional capital. And we have a number of other companies that have kind of reduced the number of vectors they're evaluating to try and dovetail with what the capital funding base is.

So the good news is that the science that's being evaluated is actually startling. I mean it's amazing the therapies that are underway, whether it's to cure lupus, autoimmune diseases and really tremendous benefit to the public. So we hope that some of the government funding continues and certainly, the private capital sources continue to open up to take advantage of these advanced therapies.

And then just on that note, you kind of have the target of growing your exposure from 8% to kind of 25% to life science. Are you primarily doing that by some of these asset sales being more office-focused assets? And kind of what gives you the confidence given the softness in life science to kind of grow that exposure to the space?

Yes. Look, it's a great question. I think our 25% overall target is really subject to the timing of getting to that level is subject to where we see the marketplace going. And the major driver there, quite frankly, was when we pivoted a number of years ago to a more heavy life science component, our Radnor Life Science Center and Schuylkill Yards. Clearly, the absorption there has been slower than we would have liked given the overall state of the life science market. So we still have that as a target, but that's going to be totally a supplicant of where the demand drivers are.

And one of the key things as we look at it, typically, the approvals we achieved for all of our developments give us the ability to pivot between product types. So for example, at both Uptown ATX and Schuylkill Yards, we have the ability to pivot to whatever use has the best demand drivers. So certainly, as we look forward, whether we are able to maintain that 25% life science target is going to truly be a function of how we're reading the tea leaves and what those demand drivers are.

Great. And then maybe just within the last minute moving into our rapid fire. What will net effective rent growth be for office overall in 2027?

I think 2%.

And then will the office sector have more, fewer or the same number of public companies in a year from now?

I would say fewer.

Fewer. Okay. Great. Thank you so much.

Great. Thank you all very much. Appreciate you being here.

Thank you for standing by, and welcome to the Brandywine Realty Trust Fourth Quarter 2025 Earnings Conference Call.

[Operator Instructions]

As a reminder, today's program is being recorded.

And now I'd like to turn our 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 file 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 2 quarters. We generated 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 5 years, primarily due to continued good capital control, our purchasing power and a high percentage of renewals.

On an annual basis, our GAAP 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 GAAP and 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 fiscal 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, in fact, slightly above in some cases.

A few additional comments regarding our various market dynamics. In Philadelphia, which is our largest submarket, 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, overall activity levels remain strong.

Interesting data points. Over the last 5 years, Brandywine has captured 30% market share of all new leasing activities signed in Market West and University City, substantially outperforming our 15% 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 effect of rent growth was 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% occupancies, creating a 400 basis point drop in overall company leasing levels. But tour volume there was up over 100% year-over-year and the other side 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, we'll 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 $0.10 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, what a high-quality asset onto our balance sheet with a major tenant already taken occupancy in early January. The 3025 commercial component will be added to our core portfolio in the first quarter at 92% leased. Our buyout on 3151, which aggregate about $65.7 million, was mostly funded with a $50 million C-PACE loan, which effectively replaced our higher-priced partners' 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 in this project stands at approximately 1 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 on 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 0.4x and are fixed charge by 0.2x. 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 after 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 renewal since November 1, it's all achieved, on average, a 12.7% effective rent growth.

Looking at One Uptown. With the outstanding lease being executed and at 63%, we have 3 floors available. The 12th floor is subject to an extension right by our lead tenant, where we'll receive notice in July. Also, since we 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 bases 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 sales 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 $0.51 to $0.59 per share for a midpoint of $0.55. 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 1 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 recap.

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 and the buyout of our partners at 3025 and 3151, wholly-owned GAAP NOI will increase primarily from the consolidation of 3025, and we do not expect any early retirement of -- extinguished cost 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 at 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 million 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. Based on this, we do project positive net absorption for the first time in several years as another evidence of an improving market.

GAAP 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 GAAP basis and 0% to 2% on a cash basis.

From a capital markets perspective, we plan to repay the 3025 construction loan with lower priced 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 add in the office portion to our unencumbered asset pool.

Our business plan projects between $280 million 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 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 pari-passu joint venture, where Brandywine remains a minority stake and recovers significant capital to both lower debt attribution and improve overall liquidity.

We do project the year-end core net debt to EBITDA to be between 8 to 8.4x. 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 detailed '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 onetime 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 reforecast by $0.6 million, primarily due to lower compensation expense. Net interest expense was $0.7 million higher, primarily due to the inclusion of 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 increased our combined net debt by 0.4x 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 $0.62 per share. Our 2026 FFO at the midpoint will be $0.55 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 GAAP NOI totaling $292 million, representing a $30 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 I 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 onetime item for $7.5 million or $0.04 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 million 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 C-PACE loan which we put on 3151 will increase interest expense by about $4 million.

Termination and other income will be between $9 million and $11 million compared to $6.6 million in '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 million 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 wholly-owned sales activity, which weighs 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, 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 matures in July 2026. We plan to refinance that loan by late first quarter or early second quarter. We are 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. For 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.

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 pari-passu 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've 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 be 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 -- as the year continues. Looking at our larger uses. We will refinance the 3025 JFK construction loan, which totals $178 million. We will 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 3025 JFK. We have $57 million of 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 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 from 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 to 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. Tom, thank you very much. So as I 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 earnings growth in '26, and we expect further improvement in '27. 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, in the interest of time, to limit yourself to one question and a follow-up. Jonathan?

And our first question for today comes from the line of Seth Bergey from Citi.

I think you mentioned in your opening remarks that just where your current -- your average cost of bond, that 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 $0.10 on interest expense. I guess kind of what is a hurdle where you kind of want to look to pull forward some of those refinancings?

So I think the first course 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 the 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 the bond buyback program, the debt reduction program all as part of the sales program acceleration.

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

Yes. Look, we didn't mention anything about $125 million share buyback. I think our major focus is sales proceeds will be used first to reduce leverage, period. That's top priority. As we accelerate that program and get more clarity on maybe even some additional sales, we think we have an opportunity to be opportunistic in buying back, we think, our significantly undervalued shares.

But 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, 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 our overall balance sheet metrics. And stock buyback optionality comes into play as we achieve our other objectives. So hopefully, that is clear.

And our next question comes from the line of Anthony Paolone from JPMorgan.

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. Like 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 at that? Or are you going into the market just selling what can 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.

Tony, great question. Yes. 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 do, I think, the perceived headwinds on stabilizing the remaining 2 development projects. But as we're looking at the sales program going forward, we took a hard look what we forecast some of the growth rates to be on some of our assets, given changing submarket 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 the framework for what assets do we think could, number one, be marketable in today's climate. And again, we're targeting an average cap rate around 8%. Where we have lease-up risk and some assets 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 is to get down to 1 or 2 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 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 to identify which properties we thought would generate real value for us today without sacrificing growth rates going forward.

Okay. Got it. And then just my follow-up is on the life science side. You all have the incubator space and I think part of that, that effort was to kind of see what was coming down the pipe 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 start-ups that, overtime, could become bigger tenants in the portfolio? Or just anything you're seeing there that might be helpful as a forward look?

Yes. And George and I can tag team this. I mean, 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 we are seeing activity. There has been a good performance of a number of the privately held life science companies that are in Philadelphia regions, particularly cell and gene therapy. We're seeing a high velocity of activity at our incubator space and the graduate labs and has signed up a couple of key tenants with a good healthy pipeline. But George, maybe you could add some color to that as well.

Yes. I think as Jerry mentioned, I mean, the incubator, the 1, 2, 10-bench kind of companies, we have seen them expand. And that, quite honestly, is what helped generate the graduate lab spaces, which are 93% occupied at this point. So we've got all of that. We have 1 4,000-square foot lab left to lease up on the 8th floor. But again, we've seen a little bit of expansion outside of the incubator, and we're really just kind of waiting for the next kind of expansion of graduate lab tenants to then move into a full-fledged lab space.

And our next question comes from the line of Steve Sakwa from Evercore ISI.

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 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?

Yes. Steve, look, I think our business plan contemplated those recaps occur in 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, enrolling thus far this year, we're getting almost a 13% increase in effect of rent.

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, call it, a midyear convention. It could occur sooner than that.

On One Uptown, right now, it was 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. We're certainly anticipating making more leasing progress there. And again, we're dovetailing those leasing efforts, Steve, with our conversations with recap partners as well. So it's not like -- it's not as 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 1 million square feet of pipeline, or maybe it was 1.5 million. Could you just maybe provide a little more color on the overall pipeline just kind of broadly by market? And where are you seeing kind of the most demand in either by product type or whether it's life science, office and in which submarkets?

Yes. And again, George and I will tag team. Look, I think from -- where we're clearly seeing the strongest trend lines at this point are really in CBD Philadelphia and University City. I think as I noted in the prepared comments, we've really been able to drive effective rents there. I think that's really a function of -- I think demand levels are returning to pre-COVID levels. For example, in '25, we saw the highest level of new deal volume in the past 5 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% 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 will spur some additional inventory decreases. We've actually been pretty pleased with the pickup in activity in Radnor, Pennsylvania and King of Prussia. We've seen some very good activity there as well.

And in terms of the -- and George, 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 is 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 Uptown, 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.

Yes. I think the operating portfolio, the pipeline remains fairly consistent. We're at 1.5 million square feet today. Last quarter, we were at 1.7 million, and then we executed about 200,000 square feet of that 1.7 million. So every time we seem to execute a lease, we're generating more, as Jerry mentioned, in the pickup in overall tours. So I think these spaces all show well, getting plenty of activity. We're seeing good levels of conversion.

And it really comes down to converting this very robust pipeline at 3151. And then at One Uptown, really, with 3 floors to lease, one of them kind of with an expansion right encumbrance, we've got a pipeline that's almost 3x the available amount of square feet we have.

And our next question comes from the line of Upal Rana from KeyBanc Capital Markets.

Jerry, do you have an update on the IBM move-out in Austin? one of the footnotes in your '26 business plan states that you plan on redeveloping one existing ATX building. So just want to get some details on that.

Yes. Great question. Yes. Certainly, as been previously disclosed, IBM will be rolling out of their space at our Uptown development starting at the end of the first quarter of next year. In addition, 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 and looking at the market demand drops, and certainly that Northwest market remains fairly cyclical in the domain area, we are looking at -- again, this is a function of how the sales program goes and a few other functions. But our '26 business plan does contemplate us commencing redevelopment of one of the existing buildings. That building is currently vacant, 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 within a 3- to 4-quarter period.

We have done a marketing launch on that. And we've been very, very pleased with the results. We have about 600,000 square feet of potential prospects there. Pricing levels would be about 20% 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, Upal, 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, first, that first building, then following that could be 2 other buildings that would probably go through the same program around the same cost and economic metrics as the first building.

Okay. Great. That was helpful. And then on the dispositions. You went through a few of the assets in the markets that you want to dispose some assets in. I thought of those that you've identified, are there other properties that could come up for sale that could occur this year or 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 the $280 million 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 treading economic water in some of these properties because of changes in submarket 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 2027 as well and have that dovetail with the developments fully stabilizing.

And our next question comes from the line of Dylan Burzinski from Green Street.

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 then 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. I apologize. Could you repeat?

Yes. Just trying to get a sense for how you guys internally think about the deleveraging process and balancing that with share buybacks. Just is there a certain leverage target in mind longer term that you guys actually want to get to before you really start to take the share buyback in the year?

Yes. Look, I think as we look at our strategic direction, certainly we want to get a leverage metric to be fully back on the investment-grade ladder, which is typically evidenced by fixed charge coverage well north of 2 and net debt-to-EBITDA somewhere in the low to mid-7s. 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 of, I think, good programs underway to increase absorption throughout our existing portfolio as well as these development projects coming online and being recapitalized. 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 market to be able to buy back shares.

That's helpful, Jerry. And then I guess just on the development projects outside of Austin, so the ones in University City, Philadelphia. I mean, are those potential disposition candidates as you stabilize those? Or are these 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 3025. We have an extremely well-performing residential project there. 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-up, 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 doing with other elements of our business plan. Because as we do look at these developments, I mean, they're top of market, incredibly high quality, extremely well located with significant growth driving characteristics for us.

So 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.

And our next question comes from the line of Michael Lewis from Truist Securities.

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, what kind of cap rate do you expect when you sell the assets? And then can I assume that 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, Michael, at the -- 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 submarket 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.

Yes, Michael, when we look at the application of the proceeds, a, 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 0 as possible. But also as we see those sales come in, in the line is near 0, 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 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 talked about all the things you're kind of exploring, right? So the stock price is below $3. I think consensus NAV is $8. So some of those things could be share buybacks if you get the leverage down. Has the Board talked at all or thought about any kind of a recap? Or is there M&A interest out there? Because this is a quite large, obviously, kind of persistent discount to NAV. Is there anything else kind of under consideration or that has come across your desk?

Yes. Look, I mean, the Board and management always have 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 the leasing up of these development projects and the related impact of -- on our balance sheet metrics.

But I think when we take a harder look at the overall strategic direction, the operating portfolio remains in excellent shape. We're growing occupancy with positive absorption, with good capital control. In several of our markets, we're getting 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 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 delever by bringing on this $290 million, the midpoint of sales, and that's across all of our different markets. And I think when we take a look at the challenges we have underway, I mean, certainly there's Austin, as I mentioned, has been a 400 basis point hit to our occupancy. Certainly that portfolio has underperformed our expectations. We sold the number of assets down there.

As I mentioned to a previous question, our focus really is gearing in sharply on the value we can create at our Uptown ATX development. But we also recognize that there's an overhang right now on our 2 remaining developments, primarily One Uptown, which as I mentioned, is 65%. And then 3151. 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 $0.5 billion 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, 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 tactics have to be part of a strategic direction. We think we have 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.

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, 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 plans 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 in today's conference. This does conclude the program. You may now disconnect. Good day.

Thank you, Jerry.

Thank you for standing by and welcome to the Brandywine Realty Trust Third Quarter 2025 Earnings Call. [Operator Instructions] 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 third quarter '25 earnings call. As usual, on today's call with me are George Johnstone, our Executive Vice President of Operations; Dan Palazzo, our Senior Vice President and Chief Accounting Officer; and Tom 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 assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports that we file with the SEC. So during our prepared comments today, we'll briefly review third quarter results provide updates on our '25 business plan and be prepared to answer any questions you may have.

Looking at the third quarter, we posted solid operating metrics again. reinforcing the continued flat quality and our strong market positioning. As we'll review in more detail, we do anticipate performing within all of our business plan ranges. At the midpoint, we have now executed over 99% of our spec revenue target. Our quarterly tenant retention rate was 68%, and we expect to end the year at the upper end of our range. Leasing activity for the quarter approximated 343,000 square feet, including 164,000 in our wholly owned portfolio and 179,000 are joint ventures. Forward leasing commenced after quarter end remained strong at 182,000 square feet with most of those leases taking occupancy in the next 2 quarters. Third quarter net absorption totaled 21,000 square feet. And as anticipated in our business plan, we ended the quarter at 88.8% occupied and 90.4% leased. In Philadelphia, were 94% occupied and 96% leased. In the Pennsylvania suburbs, we're at 88% occupied and 89% leased with a solid pipeline of prospects for the existing vacancies. Boston remained at 77% occupied and 78% leased. We do, as we forecasted before, a large known move-out in the fourth quarter that will drop this region further into about 74% by year-end. Looking ahead, we have only 4.9% of annual rollover through '26 and one of the -- which is among the lowest in the office sector and only 7.6% through '27.

For the quarter, our mark-to-market was a negative 1.8% on a GAAP basis and a negative 4.8% on a cash basis. Both of those metrics, however, were heavily influenced by a large as is renewal in Austin that had a negative 16% GAAP and negative 18% cash, but no TIs were invested. Without that lease, the company would have been a 6.2% positive GAAP and 2.8% positive cash. By way of example, our CBD in Pennsylvania mark-to-market were positive at 6.7% and 3.1% on a GAAP and cash basis, respectively. Our capital ratio was 10.9%, slightly above our '25 business plan range, but based on leases already executed for the fourth quarter, we're maintaining our capital ratio range of 9% to 10%, and which is the lowest capital ratio range we've had in over 5 years. Tour activity through the portfolio continues to accelerate. Third quarter physical tours were in line with second quarter, but more importantly, the square footage of those tours in Q3 exceeded the second quarter by 23%. Another positive sign is that as we track our deal status, letters of intent, legal negotiations out for signature is up 170,000 square feet or 25% from Q2 levels. For the quarter, 51% of all new leases were the result of a flight to quality, and we do not have any tenant lease expirations greater than 1% of revenues through 2026.

Our operating portfolio leasing pipeline remained solid at 1.7 million square feet, which includes about 72,000 square feet in advanced stages of negotiations. To sum up, operations '25 is characterized by continued strong operating performance supported by limited rollover risk, excellent capital control the ongoing strengthening of our marketplaces and an expanding leasing pipeline. Looking at our balance sheet and liquidity, we remain in excellent shape with no outstanding balance on our $600 million line of credit and cash on hand at the end of the quarter. As previously disclosed, we recently issued $300 million of bonds due January of 2031, which generated $296 million of gross proceeds at an effective yield of [ 6.125% ]. We used $245 million of those proceeds to repay our secured CMBS loan that was due in February of '28.

At term loan payment, leaves us fully encumbered our operating portfolio, which provides much greater flexibility to lease and manage our assets and then also bought about $45 million into our unencumbered NOI pool. We have no unsecured bonds maturing until November of '27 and to ensure ample liquidity, we do plan to maintain minimal balances on our line of credit. As noted previously, our overall business plan is still designed to return us to investment grade metrics over the next several years. As such, we will continue looking to reduce overall levels of leverage. And as a point of reference on that, our average cost of bond debt is slightly north of 6%. But we do have $900 million or about 50% of our outstanding bonds with coupons north of 8%, which assuming capital markets remain constructive, provided very good refinancing opportunities for us over the next several years.

Looking at the markets. Look, from an overall standpoint, the real estate markets and overall sentiment continued to improve. That perspective is supported by the following fact patterns. Our pipeline activity continues to grow. Tour volume remains at very healthy levels. Rent levels and concession packages remain very much in line with our business plan and in select submarkets and buildings, we continue to push both nominal and effective rents. And all of our 2025 key operating goals have been achieved. The demand for high-quality, highly amenitized buildings remains a strong consumer preference. In Philadelphia CBD, as I noted on previous calls, market vacancy remains concentrated in a small number of buildings and high-quality buildings continue to outperform lower quality while pushing effective rents.

Our competitive set continues to narrow through buildings being removed from inventory for conversion and several select assets still having financial issues, which essentially removes them from the leasing market. In fact, as an update from last quarter, our numbers now show that potentially 11 buildings totaling 5.1 million square feet of office is in the process of being removed from inventory for conversion to residential uses. As a frame of reference, that's about an 11% reduction in the overall office inventory in CBD Philadelphia. As such, with no construction on the horizon, our quality assets remain in an ever improving competitive position.

The city's life science sector, while still early in the recovery phase, should remain a forward growth driver, particularly with the return of capital. that submarket is backed by strong regional health care ecosystem that includes over 1,200 biotech and pharmaceutical firms along with 15 major health care systems. Austin also remains in a recovery phase. Leasing activity continues to improve. As of last report, there are over 108 tenants actively seeking more than 3.5 million square feet with the tech sector accounting for 1.5 million square feet of that demand. So a bit of a resurgence from the tech company space demand standpoint.

Third quarter leasing activity was 1 million square feet, which was 70-plus percent higher than in Q2. So green shoots are continuing to emerge in Austin, particularly in the higher quality product. Our FFO for the quarter was $0.16 a share or $0.01 above consensus. We had 2 operating items that Tom will amplify in more detail that did impact our '25 guidance revisions. As previously announced, [indiscernible] recording in the fourth quarter, an earnings charge totaling $0.07 per share related to the early prepayment of our secured notes. In addition, we did anticipate, as outlined on previous calls, making progress on recapitalizing at least 1 and possibly 2 projects of our development joint ventures in the second half of the year. We did anticipate these recapitalizations would add around $0.04 per share to 2025 FFO.

During October, we did capitalize our 3025 JFK property is the first step in this process. We do anticipate it possibly one more later this year or very early in '26. As we talked before, the objective of these recapitalizations, which includes a full retirement of the preferred equity investments, is to bring high-quality stabilized assets onto our balance sheet, which will deliver high-quality cash flow, improve earnings, reduce overall leverage and open up additional capital options for us on those properties. Due to several factors, including the slower stabilization of several projects and slower than anticipated interest rate decreases these recaps are occurring a quarter or 2 behind schedule. As such, the full impact will not occur really until 2026. As a result of that, our revised FFO range as we outlined in our press release is $0.51 to $0.53 per share.

Optimizing value on these development projects remains a top priority. With 3025 Avira and Solaris both 99% leased and stabilized, our joint venture development pipeline is really down to One Uptown and 3151 JFK. The leasing pipeline on these projects is up 700,000 square feet from last quarter. But as you noted in the supplemental package, even with this increase, given the uncertain timing of lease executions or the time to complete tenant space plans and the corresponding build-out time lines, we have slid the stabilization dates on both of those properties.

Looking at [indiscernible] 3025, that commercial component is now 92% leased. We have a very good pipeline for the remaining space in the building. with leasing in place, the commercial component will stabilize in Q1 '26 immediately after our major tenant takes occupancy. Avira, as I noted a moment ago, is 99% leased and achieve full economic stabilization during the quarter. We're also experiencing that project a very good renewal rate with average double-digit rate increases thus far this year. 3151 was substantially delivered in the first quarter of this year and will be in the capitalization phase for the balance of '25. The pipeline on this project has increased to 1.7 million square feet broken down to 60% office prospects and 40% life science prospects. They range in size from 25,000 to 200,000 square feet.

Discussions with many of these prospects are active, tour activity remains robust and the project has been very well received. The life science market, as I noted, remains very much in a recovery mode, is impacted by a challenging fundraising climate and public policy uncertainty, although we are seeing an increased traffic coming from that sector. Despite the strong increase in both Austin Life Science traffic, as I noted, we did slide the stabilization date just to be conservative on when leases will actually commence. At Uptown ATX we're 40% leased but have another 15% of the project in the final stages of lease negotiations. The remaining pipeline remains strong with tenant sizes ranging from between 4,000 to 100,000 square feet including ongoing discussions with several full floor users.

We're also nearing completion on building out some spec space one of the floors to accommodate the accelerated move-in for several smaller prospects. Solaris, which opened about a year ago, has achieved stabilization during this quarter, so very successful in that with the renewal program well underway. As noted last quarter, our '25 business plan anticipated $50 million of asset sales. We have sold $73 million of properties at an average cap rate of 6.9% and at an average price per square foot of $212. At this time, we're obviously not measuring any more sales closings during '25, but we'll certainly identify a target as part of our 2026 guidance.

In general, though, from what we're seeing, the investment market continues to improve, both in terms of velocity and pricing. The pricing increase is notable because many asset trades are still on lower quality or underleased assets. For example, over the last 12 months, there have been about $475 million of sales in suburban Austin at prices per square foot range from $75 to $470 per square foot, an average occupancy of 67% and cap rates ranging from the low single digits to upward of 12%. Likewise, in the PA suburbs, there were $242 million of sales at cap rates that range from 7% to 11% and an average occupancy of 85%. So buyers, including institutional buyers are continuing to reemerge, so we anticipate the investment climate will continue to improve into 2026.

On the dividend, as noted, our Board decided to -- previously announced, our Board decided to lower our dividend from $0.15 per share to $0.08 per share. We believe this revised dividend is sustainable and represents a CAD payout ratio much more in line with our historical averages. To the extent we continue to experience progress on the developments and cash flow growth from our operating properties, continued low capital cost and reduced borrowing costs on increased CAD, we'll certainly reassess our dividend going forward. But the idea was to set a good solid floor, give ourselves a position to generate $50 million of internal capital that we can use for reinvestment back into our properties.

So with that, let me turn the floor over to Tom to review our financial results for the third quarter and an outlook for the balance of the year.

Thank you, Jerry, and good morning. Our third quarter net loss stood at $26.2 million or $0.15 per share. Our third quarter FFO totaled $28 million or $0.16 per diluted share and $0.01 per share above consensus estimates. Some of the general observations for the third quarter, our FFO from our unconsolidated joint ventures totaled a loss of $6 million or $1 million higher than our $5 million forecast, partially due to the delayed recapitalization activity during the quarter.

G&A expense was below our reforecast by $600,000, primarily due to timing. And other income was $600,000 above our reforecast due to various items. Other forecasted quarterly results were generally in line. Looking at our debt metrics, Third quarter debt service and interest coverage ratios were 2.0, consistent with the second quarter. Our third quarter annualized combined net debt to EBITDA was 8. 1 and 7.6, respectively. Both metrics were within or below our business plan range. From a core portfolio composition during the third quarter, we made one adjustment to our projections. We had forecasted 250 King of Prussia Road becoming a stabilized core property during the third quarter. However, to do a tenant delay in occupancy, the stabilization date has been moved back to 1Q '26.

As Jerry highlighted, we completed a successful 5-year bond issuance that closed in early October, which generated gross proceeds of $296 million. Proceeds were used to pay our $245 million secured CMBS loan, which was due in 2028. Both transactions closed in early October. It is important to highlight that in June of '25, we executed an unsecured bond tap of $150 million at 7.04% and the recent issuance represents a 13% decrease in our unsecured borrowings since that June offering. In addition, the coupon on our recent bond issuance is slightly below our pro forma 6.26% weighted average effective rate. So we feel the significant increases to our interest expense from from future refinancing should come down. We continue to maintain a strong liquidity position and use further sales and refinance proceeds to reduce unsecured debt and to improve our credit profile. We have time to work on this improvement with no unsecured bonds maturing until November '27.

Given effect to the CMBS loan prepayment at the end of the quarter, our wholly owned debt was 100% fixed with a weighted age maturity of 3.5 years. This excludes the 325 construction loan, which will now be consolidated and insurers in July of 2026. As highlighted, we adjusted and narrowed our guidance for 2025. The midpoint reduction is 10% and is comprised of $0.07 reduction from the transaction costs associated with the repayment of the $245 million CMBS loan, a reduction of $4 million -- $0.04 per share is primarily due to the delays in recapitalizing our development projects, which we expected to generate some benefit to our third and fourth quarter results. There is some negative carry from the bond issuance and the CMBS redemption, and we did have a delay in the stabilization of 250 King of Prussia.

Looking at fourth quarter guidance in connection with the October buy-up and consolidation of 325 JFK, the impact to our fourth quarter results will be an increased GAAP NOI of $1.9 million, an increased interest expense of $2.9 million through the consolidation of the construction loan and $2.7 million improvement on -- in our loss from unconsolidated joint ventures and a reduction in interest income of about $600,000 to our reduced cash on hand balances. While that is muted to our fourth quarter, the opportunity to buy out our higher-priced capital partner ahead of a final stabilization gives us flexibility entering 2026. The $8 million of annualized NOI for the fourth quarter will increase to over $20 million in the first quarter and grow from there. With the property now wholly owned, we have the flexibility to refinance the above-market debt with lower-priced unsecured, secured or agency debt, and we assess -- as we also could assess the opportunity to find a common equity partner and potentially reduce our equity stake.

Property level -- okay, turning to the rest of the fourth quarter. Property level operating income will total about $71 million and will be similar to the last quarter. Results with 3025 being included in the fourth quarter, but lower NOI, primarily due to a known move out in Austin as well as the pushback of [ 250 ]. Our FFO contribution from our joint ventures will total a negative $2 million, which is sequentially lower in the third quarter, primarily due to the fourth quarter consolidation of 3025 higher at both Solaris and Avira and partially offset by a higher loss of 3151. G&A expense for the quarter will total about $8 million representing a full year expense of $42.6 million and within our 2025 business plan range, our interest expense will approximate [ $38.5 million ], sorry, and the capitalized interest will be about $2.5 million, sequential increase in the interest expense is primarily due to the consolidation of 3025, lower projected capitalized interest and the negative carry impact of the $300 million of unsecured bonds, offset by the $245 million of CMBS loan repayment. Termination fees and other income will total about $2 million. And net management and development fees will also be about $2.5 million. We anticipate no property disposition activity for the balance of the year. We anticipate no ATM or buyback activity, and our share count will be roughly 179.5 million shares.

Turning to our capital plan. Our capital plan for the balance of the year totals $388 million and is fairly straightforward, but with some adjustments based on the recent capital markets activity. Our 2025 FFO payout ratio for the third quarter was 93.8%. And then looking at the larger uses, the repayment of the CMBS loan is $245 million we used just over $70 million to acquire the preferred equity interest at 3025. Our development spend will total $24 million, which includes 165 and 250 King of Prussia Road our food hall at One Drexel Pros is also in those numbers, and we have $14 million of common dividends, $8 million of revenue maintaining capital and $12 million of revenue-creating capital. The funding sources are the $300 million unsecured bond issuance, $25 million of cash flow after interest payments and $5 million of a proposed and expected King of Prussia construction loan for our hotel.

Based on the capital plan, we're anticipating an incremental $58 million of our cash being used and balance end of the year of roughly $17 million with no outstanding balance on our $600 million unsecured line of credit. While our 2025 business plan net debt-to-EBITDA range is between 8.2 and 8.4 due to the consolidation of 3025 JFK, we project this will temporarily increase to 8.8x at the end of the fourth quarter. However, and that is the 8.8x is generated by the consolidation of 3025 or about 0.4 of a turn. However, when 3025 JFK income stabilizes in 2026. That ratio will decrease by 0.3 turn or for only a net increase of 0.1 increase.

Our net debt to GAV will approximately 48%. Our net debt to EBITDA will also be impacted temporarily by the same EBITDA adjustments we just made for 3025. We anticipate our fixed charge and interest coverage ratio to be negatively impacted by the financing activity and the consolidation of 3025 and will reduce our fixed charge to about [ 1.8 ] with incremental income from the development projects, we anticipate that leverage will then begin to improve as we get into 2026.

I will now turn the call back over to Jerry.

Thanks, Tom, thank you very much. Well, to wrap up, the operating platform remains in very solid shape, very limited role over the next couple of years. We're growing effective rents in many of the submarkets accelerated some of our leasing programs to make sure that we are doing everything we can to take advantage of both the recovering market and the reduction in our competitive base. We continue to have as a priority focus for the company, stabilizing all these development projects. And while we have great success thus far, we have work to do. and that pipeline has not completely translated to quarterly earnings growth yet. But as Tom outlined, even using 3025 as an example, there is a tremendous levels of NOI coming into the balance sheet and P&L over the next year or so. So the groundwork has been late, and we're building on the continued momentum to drive long-term growth. The operating platform, as I noted, remained stable with very limited rollover and our liquidity is in excellent shape and we're well positioned to take advantage of continued market improvement.

So Jonathan, with that, we're delighted to open up the floor to questions. As we always do, we ask in the interest of time, you limit yourself to one question and a follow-up.

[Operator Instructions] And our first question for today comes from the line of Seth Bergey from Citi.

This is Lauren on behalf of Seth. Could you go over in more detail how we should think about the timing and process of the recapitalizations?

Sure. Be happy to. In fact, it's a great question because I know the recapitalizations and the timing of them is a big impact. So let me spend a few moments to answer your question. And by way of quick background, those preferred structures were put in place is bridge capital for us that would preserve all the upside of these properties accruing to Brandy One. They were fixed payment structures with cost of capital from the high single digits to the teens. The financial reporting treatment of those structures was that we needed to recognize as a current period expense, the accrued but not paid in cash return on that capital. And those structures were always designed to have the accrued unpaid return paid out of a capital event, which is exactly what just happened on 3025.

And as we look at the development pipeline, yes, as I think you all know because many of you have visited the properties, they're all very high quality, extremely well positioned assets in 2 mixed-use master planned communities. Two are now stabilized with 3025 so includes both Avira and [indiscernible] component that took about 24 months from completion to stabilize. Solaris has stabilized. We delivered that in the late third, early fourth quarter of '24, and that stabilized about a year later. So good progress on that.

The pipeline on 3151 in Uptown is big enough where we have a clear path to stabilization, albeit with some uncertainty regarding the timing of when those leases will actually kick in place. But while the approach for each of the ones may vary a bit, the goal is to bring on as much NOI as possible onto our P&L and/or recover significant capital. And as we look at the different options, as Tom touched on a little bit, they can -- those recaps can be financed with noncore asset sales, lower cost financings, [indiscernible] ventures on some assets. So we have a fairly wide range of options on each one. But to spend a moment looking at each one, let me walk through.

So 3025, we recapped at our highest cost of capital partner there. The -- or -- by the expensing of those preferred returns, we were going to incur in 2026, just shy of $10 million of preferred charges were about $0.04 a share. So that buy it eliminates that drag on earnings. And then the capital options we have are very robust. I mean the rate on the current construction loan is just shy of 8%. So if we did an unsecured financing to take out that construction loan, we can save close to 200 basis points or about $4 million in interest. And if we actually do an agency level financing, on the residential piece, that overall cost of debt could be even lower.

We also are looking at exploring a power pursuit joint venture. We could recover some capital and then obviously always considering whether we sell the residential component or not. So 3025 now with that buyer behind us, take away highest cost of capital in the rearview mirror, full control by Brandywine with the debt coming due, we think we have some positive refinancing outcomes at a very straightforward level. Solaris is stabilized, but cash flow in the NOI is still recovering. As we noted on previous calls, we -- to accelerate the lease-up in that market, we did give concessions burning off, and we did give concessions to get that original lease-up achieved at the rate that we did.

Right now, the capital markets aren't giving full credit to concession level rents. So we're now in the first wave of our renewals and very pleased with that progress. Our renewal rate on that project is 64%. We're getting about an 8% increase in rates. We had -- we're giving out no or very limited concessions on renewals and very limited concessions on new leases. Our '26 -- based on the expensing of that preferred, in '26, we have about $4 million or about $0.02 a share of charges on that. So the approach on that project is we're already exploring a recap, that could be a sale or a joint venture on the existing asset. The current debt is just shy of 7% today. So again, agency debt on that would be somewhere in the very high 4s or low 5s. And our target really is in the first half of '26 to kind of achieve that recap once the concessions burn off on the lease schedule on renewals, and the marketplace recognizes the net effective rents that we're generating on an ongoing basis.

For One Uptown clearly some leasing work to do there. We have about 75,000 square feet under advanced lease negotiations that would take that project to 55% to 60% and a really good pipeline behind it. Right now, we're projecting. If we do nothing with that a $0.025 per share preferred expense charge in '26. And our approach there is get a little more leasing done to more visibility. We are already talking to several potential partners about a [indiscernible] recap. We have our lead tenant there has an expansion right in midyear that we'll see the exercise or not. So One Uptown is most likely a late first half, early second half recap event.

Looking at 3151, that's our second highest cost of capital. And we're obviously dealing with the chance of getting that property leased up. The product has been very well received based on the pipeline by a number of select investors and several debt sources. So as the second highest cost of capital in our development ventures, we have about $8 million in expense charges on that property in 2026, just from the preferred. So with the process we have underway, we think that Hartner Buy it is a near-term event that could be financed through other sales or much lower cost financings. We own that property, without any debt on it. So our hope is that 3151 across the finish line, no later than the first quarter of '26. So hopefully, that road map is helpful.

And our next question comes from the line of Manus [indiscernible] from Evercore ISI.

Just wondering if you could touch on a little bit more on Uptown ATX side. It was obviously good to hear that the pipeline as often, you have some lease in the later-stage negotiation past. Could you maybe clarify like out of the total leasing prospects that you see at the asset, how much is for spec suites versus like full for you our users, what type of tenants those are, if those are real net growth in the market or just kind of like relocation tenants? And then, on the second one, just like on the broader scope of the development land out there. what should we maybe expect in terms of starts in '26 item? Obviously, like another commercial part is more kind of further out as we are leasing up the block first. But maybe I know there's contemplation for additional residential or hotel projects. So kind of maybe give us an in terms of time, I know what to expect in '26 there as well.

Okay. Great question. And a couple of overview comments as you look at Austin. Look, I mean, Austin clearly has a disequilibrium, particularly in the CBD marketplace. I mentioned the number of tenants in the market looking and the increase in third quarter leasing activity. And about 85% of that leasing activity market is being captured by Class A buildings. But when you drill down to the Uptown Domain submarket which is really our competitive set right now since 405 Colorado Downtown is fully leased. That's about 3.7 million square feet. That submarket is about 96.3% occupied. You've got about 68,000 square feet of sublease space in 2 domain buildings in 2 blocks of 35,000 square feet or so, which is dramatically from a year. One tenant indeed, did put 100,000 square feet on the market for sublease in one of the domain tower buildings. So you've got about 168,000 square feet of sublease space in that submarket. So that's about 7% vacancy. The -- so a fairly tight market.

Also, the train station, which we noted in the supplemental package did, in fact, start construction. That has spurred a lot of additional interest because now it's delivered in the first half of '27, Cat and Metro through this -- these are their numbers, not a project this to be the second busiest train station along that red line. A real people mover that dramatically improves labor pool accessibility. So we think that's a nice catalyst to get some additional activity. And the other factor is that we have a number of tenants who are in our pipeline who were down [indiscernible] to a market-wide searches, and we're really amplifying the fact through our team that there's a $23 cost difference between being down pound or being at uptown. Most of that is $5 still in rent, $10 still in expenses. So it's a very solid economic decision. So with that background, and sorry for all that detail, but I want to set the table for why we're still very optimistic about One Uptown success. We have a number of tenants in the pipeline. We have a number, frankly, there are kind of in-market relocations are kind of in the 4,000 to 10,000 square foot range that are kind of spec suite tenants' prospects. And then we have a couple of tenants in the in the 80,000 to 100,000 square foot range, there are multiple floor tenants that have toured the property, and we're in discussions with them. And then we have one full floor tenant that is at least under negotiation at this point. I think, George, any other color you want to add to that?

Yes, I think, we've got, like Jerry said, the one -- we have one floor dedicated to spec suites, and we've got either leases in late stages of negotiation and other pipeline prospects for that floor and then a lease out for another full floor user. And then, of course, we have the underlying expansion rights with NVIDIA who signed last quarter. So again, I think we feel good about the pipeline, the composition of it, the spec suites have been well received. If the market continues to shift in the spec suite direction. We've kind of done that now with 2 floors and are prepared to shift quickly as needed.

Thanks, George. And -- and then to answer the second part of your question, look, we're major folks at Uptown make no mistake is least one of them and recap both projects. So that's #1 absolute top-shelf priority. Recognize, I think, the value we have long term at our uptown development. We have a number of discussions underway with large users who would be interested in doing build-to-suits at that location. They are still early stage and are not detracting from our core mission of getting One Uptown leased. We are also, as we've noted in the SIP, moving forward with the planning of Block B to the objective there to be submitting site plan -- for site plan approval at the end of the fourth quarter this year, with hopefully getting approvals in late '26.

Block B consists of a multifamily property rental a large retail base and a hospitality component, i.e., a hotel and obviously, parking. We are working with a retail and hospitality partner as we think through the design components of that. And our -- as those plans get finalized and priced we will be looking for the right capital answer to facilitate that project moving forward. Obviously, with the partners we have involved, they have capital resources. Brandywine has significant embedded value in the land that, that project will sit on. So we think that's a very viable option for us in terms of our equity contribution with land value. So -- we're looking at a number of other, as I mentioned, build-to-suits, but again, very low priority compared to mission-critical of recapping these development projects and One Uptown leased, but certainly happy to provide any color on that as the quarters go by.

[Operator Instructions] Our next question comes from the line of Dylan Burzinski from Green Street.

Maybe just first one on -- can you explain why you all decided to issue the unsecured notes and then take out the CMBS debt. My recollection is correct. I thought the CMBS debt didn't -- wasn't too pricey in terms of the rates. So just sort of curious your guys' thoughts on how you guys approach that.

Dylan, this is Tom. I think the way we approach this is that we've been looking at the CMBS loan and thought about actually prepaying a couple of assets and bringing them out as unsecured for a couple of reasons: one for leasing, one potentially do something with them on the capital market side. So we were already thinking about it. When the rates came in as much as they did, and the differential in rate was only a quarter -- 25 basis points, basically, we thought let's unencumber the assets. It helps our EUA, helps all of our unleveraged ratios. And we thought that was the good execution. We knew there was the charge $10 million of cash that went out the door with that. But I also thought it was also a good way to reset our rates with the debt capital markets. So the 7.04% we had done -- the 7.04% cap we did in June was at a very high premium. I think it was close to 107% of face. And I think that really was hurtful in us getting that rate any lower. I think doing something at par bringing our rate down into the lowest kind of help reset that bar. Since it was issued, it's been trading fairly well right around par. So we thought that was also a consideration as well.

Maybe just a broader one. I know there's a few assets on the market in downtown Philadelphia. I'm not sure if you guys are sort of interested in buying assets. But I guess, just as you guys think about your cost of capital today, just sort of long-term plans as it relates to how you think you can close the disconnect between where shares trade versus where an NAV estimate might be especially ours. And maybe you can sort of tie in just longer-term leverage targets and that it might be helpful.

Yes, Dylan, Jerry. Thanks for the question. Yes, look, I think the -- we think we have a couple of really good ingredients they start to turn that perception around fairly quickly. And that is the leasing up of the development projects and proving out their value proposition. And then recapitalizing kind of, i.e. changing the capital stack of those projects, it really does remove the earnings overhang. I mean, if you really take a look at -- if you took the existing preferred structures without being touched, I mean there is a significant impact to earnings because of the financial reporting treatment we have on those. So simply by clearing up those recaps, getting control of those assets and then pursuing better cost of capital outcomes for those I think, really winds up putting us in a great position with -- as I look at '26 and the '27. So I think that's going to be a very key ingredient for us.

Look, the operating portfolio continues to perform very well. We have some -- as with any portfolio, there are some soft spots. But I think we're very encouraged with what's happening in each of the different submarkets we're in. that really give us some significant ability to continue to drive effective rents across the board. We do have some assets that we have on the market, and we will put on the market in that we feel are not great growers for us and actually adversely impact some of our growth objectives going forward. And as we have done in the past, we look at those assets from a net present standpoint and determine at what point in time we should sell those. So I think the major issue we're focused on right now is proving out the value thesis for these development projects. I think it's generally recognized in the private markets. that the land holdings and the approvals we have in place at Uptown and at Schuylkill Yards are incredibly valuable long-term value generators.

Our challenge, given our public cost of capital is to determine from a market timing standpoint, when we should move forward with the next phase. But more importantly, how we finance those, I think the objective we had going into this round of development was we did the preferred structures which had an incrementally higher cost of capital, but left all the residual value to Brandywine. I think as we look forward at some of the future development starts, assessing different capital structures that I think will be very important because the pen ultimate objective is for us to get back to investment grade. We think we have a clear path to do that. We look at the numbers going forward. And one of the impediments for us getting to investment grade has really been the impact on our fixed charge coverage. And the reality of our charge coverage has been impacted because our debt costs have almost doubled in the last 4 years. That's why, as I even noted in the comments, when I look at the existing bond pricing, as Tom touched on our bonds or pricing are trading pretty well. We have 2 bonds outstanding, $900 million at rates north of 8%. So we think the refinancing opportunity is there as the time is right, bring a lot of those financial and operating metrics back into a very good position.

So I think the takeaway point, we got some near-term hurdles in terms of getting these development projects at leased. We've got to prove out to the marketplace, so we can effectively recap these properties and create long-term value. continued driving the operating results of the company as well as we have for the next few years into an ever-improving market and then really focus on how we overall reduce leverage to hopefully improve our overall cost of public capital.

And our next question comes from the line of Upal Rana from KeyBanc.

Could you provide some detail on the Board's decision to reduce the dividend? How should we be thinking about timing of the cash flow ramping up in '26 in order to maintain a cat payout ratio that's a little more sustainable?

Yes. Look, I think as we took a look at and recommended to the Board a couple of things. One is, as I've outlined before, the Board really looked at what the operating cash flow was what our refinancing requirements were, when we would expect the development projects to ramp up and what capital is really required for the recaps. And when they took a look at all of that, and we looked at the '25, '26 and '27 landscape. The theory was after we have done some preliminary work on recapping some of the joint ventures, it became very clear that the cost of the cost of outside capital was a lot more than our internally generated capital. And that the opportunity for the company to save $50 million of cash flow at a time when as I mentioned, with Dylan, our public cost of capital is prohibitive. It typically seem to make a lot of sense. The -- as we looked at the numbers, where we reduced the dividend to, we feel, as I mentioned in my script, is very sustainable.

We do believe that as we start to bring more NOI onto the P&L we have an opportunity to grow that dividend. And then most importantly, as a last point, we talk to a lot of shareholders. We have some their opinion on how they view the capital landscape, how they viewed the challenge the office sector faces. And I think a lot of our shareholders are very supportive of the dividend reduction as a pragmatic conservation of capital. So all those factors went into the Board's decision. We had a good discussion and validated that the level that we cut it to is certainly, we think, a floor from which we can grow. And hopefully, as the market conditions improve, the debt markets get more constructive, we can generate more liquidity, that will be in a position to go back to raising that dividend.

Okay. Great. That was helpful. And then do you have any update on the strategy to deal with the IBM move-out in Austin coming in [ '27 ].

We actually do. Look, IBM is going to be vacating -- IBM is going to be vacating spaces between the ended -- well, really beginning of the second quarter and through the third quarter of '27. The impact on '27 after factoring what we think will be expense savings because that lease we're getting reimbursed for expenses, many of which are variable. So we think it will be about $12 million hole we need to fill. We're going to add a couple of different paths. One is when we take a look at the existing leasing in place in our development projects, excluding 3151, we think the year-over-year growth in that income stream will more than amply cover that '27 loss of revenue. But more importantly, we are spending time looking at the at renovating the 902, 904, 906 buildings at Uptown, was about 500,000 square feet. We have plans underway. Our base in those buildings is very attractive. We are in the throes of pricing those renovation programs through, including thinking through the additional infrastructure that's required.

And as it stands right now, I think we're in a very good position to deliver completely renovated buildings. Frankly, as you may recall, they have great superstructures. It's really we need to do facade, new mechanical systems, that we'll be able to deliver these state-of-the-art newly renovated buildings at a significant pricing discount to existing office rents that we think can really accelerate the absorption there. So one of our hopes if the plan progresses on schedule, is that we'll be able to deliver the first level of renovation in early '27 kind of dovetailing with one of the IBM vacations.

And one of the reasons we're able to do that, you may recall, is we were very successful in getting some additional approvals from the city of Austin to increase the density at Uptown from 3.1 FAR to 12.1 FAR and increased the height limits on the buildings from 180 to 491 feet. We also have the ability to transfer density between blocks. So by renovating those buildings which are lower rise, we're not compromising any future growth density by doing that. And I mean the maximum density under our zoning is well, well beyond what we're currently planning to build. But having that flexibility to respond to changing market conditions, particularly given that train station and the growth of residential neighborhoods in that marketplace, we think is a very valuable commodity. So game plan is, I think we can bridge the gap with just incremental income coming through the NOI from these new development projects, again, including 3151 and the renovations coming online will help to all deliver better NOI for us looking at '28, '29. Hopefully that answers your question?

Yes, that was great.

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.

Jonathan, thank you very much. And thank you all very much for participating in our third quarter earnings call. Our next call for fourth quarter and guidance will be in early February, and we look forward to talking to you at that time. So thank you very much.

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