Brandywine Realty Trust Q2 2026 Earnings Call - Raised $305M Sales Target; Philadelphia Leasing Outpaces Market Amid Austin Drag

Operator: Thank you for standing by, and welcome to the Brandywine Realty Trust second quarter 2026 earnings call. At this time, all participants are in listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during the session, you’ll need to press star one one on your telephone. If your question has been answered and you’d like to remove yourself from the queue, simply press star one one again. As a reminder, today’s program is being recorded. Now I’d like to introduce your host for today’s program, Jerry Sweeney, President and CEO. Please go ahead, sir.

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Jonathan, thank you very much. Good morning, everyone. Thank you for participating in our second quarter 2026 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 our guidance midpoint. Also, due to better than expected tenant renewals and expansions, 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 on 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’s 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. 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 sq ft 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 sq ft, including 254,000 sq ft in our wholly owned portfolio and 98,000 sq ft in our joint ventures. Forward leasing commencing after quarter-end totaled 166,000 sq ft, with most taking occupancy this year. We have 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%-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 2026 business plan range. Our year-to-date capital ratio remains below our 2026 range, but will remain within the overall guidance that we’ve provided. Our GAAP mark-to-market was 1.5%. Cash market mark-to-market declined during the quarter. But we do anticipate improving results in the next two 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 four 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 2026, 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 four of the SIP, we are monitoring conversion projects aggregating more than 5.1 million sq ft, 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 a 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 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.

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. 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%-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. 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 Avira 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 six-month extension right under our existing credit facility, moving the maturity date to year-end 2026. As we complete our 2026 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 8-8.4 times. Looking at our two 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 three leases being finalized and five proposals advancing towards lease negotiations that total over 100,000 square feet. At 3151, in addition to the pipeline continuing 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 redeveloping at least one of the existing buildings. Since announcing this initiative, we’ve built a pipeline of over 1.1 million sq ft, with that pipeline having lease commencement dates ranging from 2027-2028. The market response has been exceptional. The first building consists of 157,000 sq ft, and we expect to deliver that renovated building in the fourth quarter of next year. We do expect rent levels to be 15%-20% below rents required at One Uptown and for brand-new development, and we’re targeting a cash yield north of 8%. 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 sq ft 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 eight 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 2026, 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. These initial results are very encouraging. We’ll be fully opening our two food and beverage offerings by Labor Day, and we expect to stabilize the project in mid-2027.

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-$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 the typical marketing process producing 7-10 qualified bids. All buyer types were engaged, including institutional investment managers, private REITs, and significant interest from private capital and family offices.

Looking at further elements of our capital plan, we do plan to recapitalize both One Uptown and Solaris, our residential project, 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. With that overview, Tom will now review our financial results for the second quarter and outlook for the balance of the year. Tom?

Tom Wirth, Executive Vice President and Chief Financial Officer, Brandywine Realty Trust: 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, above our first quarter guidance and $0.01 below consensus estimates. The 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 reforecast due to lower termination fee income. 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 forecasts according to 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 EBITDA were 9.0 and 8.1 respectively. 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 four properties from our core portfolio that are being held for sale, totaling approximately 775,000 sq ft, they are roughly a little over 91.5% occupied. To confirm, properties that are classified as held for sale are removed from our core end 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 sq ft life science property located in the Radnor submarket. The core portfolio 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 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 two 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 have more of an immediate impact to improve our coverage ratios. These bonds trade at a premium, we will incur one-time 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 financings 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 seven-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 two six-month extensions through June of 2027. 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 six-month extension period. Looking at the recapitalizations. As our joint ventures continue to lease up and cash flows improve, we anticipate recapitalizing the final two 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 two 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 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 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 third quarter as well. FFO contribution from our joint ventures will be break even 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 one-time 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. Second half of the year remains active with a total of $250 million of activity. Our second quarter CAD payout ratio was 103%.

Payout will remain within our business plan range for the balance of the year at 70%-90%, which we expect incremental improvement in the payout ratio as FFO improves for 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 creative 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 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 comes online from our remaining development projects, particularly 3151 Market, our leverage ratios will remain elevated. 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.

Jerry Sweeney, President and CEO, Brandywine Realty Trust: 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. As we’ve outlined, 2026 is going to show earnings growth and lower leverage over 2025. We certainly expect further improvement in growth into 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 2026, 2027, and 2028. The groundwork’s been laid, and we’ll continue building on the momentum that our teams have created to drive long-term value. 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 follow-up.

Operator: Certainly. Thank you. Our first question for today comes from the line of Steve Sakwa from Evercore ISI. Your question, please.

Steve Sakwa, Analyst, Evercore ISI: Yeah, thanks. Good morning, Jerry and Tom. 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. Have you seen any meaningful improvement on the life sciences front as capital markets activity on that front has gotten better over the last six to nine months?

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Yeah. Certainly, Steven. How are you this morning? Yeah, 3151, we actually have a multi-floor client in advanced stage of lease negotiations right now. We think that’s moving very positively. We think that will also generate some additional momentum. As I mentioned, 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. 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 in PA 2.0, 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. We are talking to a couple of tenants in our graduate-level spaces about taking more space in 3151.

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. We’re certainly looking forward to getting a couple of leases across the finish line on this building.

Steve Sakwa, Analyst, Evercore ISI: Okay, thanks. Just as a follow-up, I think you said that 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. What kind of demand did you see when you went to sell 405 Colorado?

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Well, in terms of 405 Colorado, we saw great activity. I guess stepping back for just a second, if you look at the activities that we have taken 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. As noted in the SIP, we achieved some excellent zoning changes in the last year or so that moved our FAR from 3 to 1 to 12 per 1, moved up our height limit. 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’s 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, north of $700 a sq ft, came right in line with our assumed guidance. Even with the CBD market having more than 5 million sq ft of current vacancy, including space coming online and projected absorption levels between 500,000 and 1 million sq ft, even with that overhang of the 5-6-year stabilization period, I think the leasing profile and the weighted average lease term that we had on 405 was very attractive to a lot of investors. Very pleased to get that across the table.

It helps us focus back on one Uptown, and Uptown ATX in general, as well as generating 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 to get a very good cap rate transaction on that project done within the next 60-90 days.

Tom Wirth, Executive Vice President and Chief Financial Officer, Brandywine Realty Trust: Thank you.

Jerry Sweeney, President and CEO, Brandywine Realty Trust: The migration is still very good. The job growth is still very good. Even though there’s a temporary overbuilding of apartments, the absorption pace has been pretty significant, throughout the city of Austin.

Steve Sakwa, Analyst, Evercore ISI: Great. That’s it for me. Thanks.

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Thanks, Steve.

Operator: Thank you. Our next question comes from the line of Seth Bergey from Citi. Your question, please.

Nick Joseph, Analyst, Citi: Thanks. 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. Just wondering how you came up with that 5%-10% proceeds for the buybacks.

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Yeah. Hey, Nick, Tom and I will tag-team this. 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 we have about $900 million of outstanding bonds that have a coupon rate in the high eights, high eight percentage rate. 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. Right now, we’re targeting that somewhere between 5%-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.

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 sevens to low eights 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. Tom, do you have anything else to add to that?

Tom Wirth, Executive Vice President and Chief Financial Officer, Brandywine Realty Trust: I’d just add to that, Seth. 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 go into 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-sixes. Still allows us to de-lever and keep earnings kind of in a neutral place.

Seth Bergey, Analyst, Citi: 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?

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Good morning, Seth. Certainly, look, as I mentioned, the pipeline since we announced this initiative has been 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 it becoming the first mass transit-served mixed-use development in Austin. CapMetro does project that to be the second busiest train station on that line. We think that’s been a real draw in bringing companies to look at Uptown ATX. The ability to deliver these buildings at a pricing discount, the 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.

Of course, that overall sub-market, even when you factor in sublease space, is less than 8% vacant. We felt there was a real window of opportunity. The first building we plan to start is about 157,000 sq ft. We’re hoping to get some leases done as we move through that construction process, but certainly moving forward, other buildings are going to be a function of getting leases signed. We think we have some good discussions underway that will validate that thesis. We’ll see what the market presents. 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.

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.

Nick Joseph, Analyst, Citi: Great. Thanks.

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

Operator: Thank you. Our next question comes from the line of Upal Rana from KeyBank. Your question please.

Upal Rana, Analyst, KeyBank: Great. Thank you. Jerry, on the 405 Colorado Tower disposition, what was the cap rate on that? Also, once the $300 million of dispositions are completed this year, where would you stand on doing further dispositions from here? Trying to get a sense of how much more there’s left to do.

Jerry Sweeney, President and CEO, Brandywine Realty Trust: 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, we haven’t put out any guidance for 2027. 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. We would certainly expect sales somewhere in the $200 million range over the next 4-6 quarters as we move forward with this balance sheet enhancing program.

Tom Wirth, Executive Vice President and Chief Financial Officer, Brandywine Realty Trust: Upal, on 405, we did have a filing that kind of put the cap rate right around 8%, maybe a little slightly above that. Cash will be a little lower than that’s basically the cap rate we got on that asset.

Jerry Sweeney, President and CEO, Brandywine Realty Trust: On a cap basis, right.

Upal Rana, Analyst, KeyBank: Okay, great. That was helpful. Just on the occupancy, it improved 80 basis points to 89.1%, and the lease percentage also increased. You mentioned this year will be your first positive net absorption year in a while. I’m just trying to get a sense of timing on occupants in the back half. You’ve got 166,000 still to commence, and you sold several assets, which two of them are fully leased. Just want to get your thoughts there and does your guidance still suggests further improvement in the back half?

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Yeah, I think 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 pick up strong in the fourth quarter. We’re holding our year-end occupancy and lease targets. I think, generally, though, to answer your question, 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. 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.

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. To have our pipeline up quarter-over-quarter has actually been very good reinforcement of our leasing and marketing strategies. 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 that drag on our overall occupancy and leasing stats to minimize that in future quarters.

Upal Rana, Analyst, KeyBank: Okay, great. That was helpful. Thank you.

Operator: Thank you. Our next question comes from the line of Dylan Burzinski from Green Street. Your question please.

Dylan Burzinski, Analyst, Green Street: Hey, guys. Most of my questions have been answered, 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?

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Great question. Good morning. Without being too vague, it’s going to be a mix. Again, we take a hard discipline look at every single asset and go through that net present value calculation. We’re constantly testing where we think values are. For us, it’s really about at what point each asset is at its optimal value point given current market conditions. Even when you take a look at what we sold this year, we sold one significantly under leased property because the reality from our perspective was that the amount of capital required to bring that project to stabilization and the projected absorption timeline delivered a very low return on invested capital. From a net present value standpoint, we’re able actually from the sales standpoint today exceed that net present value. We’re going through the 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. We thought that was a good optimal price point for us to generate the liquidity to execute the balance sheet strategy we have underway. I think you should be looking out for a mix of asset sales going forward. As Tom alluded, we are 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 is 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.

Dylan Burzinski, Analyst, Green Street: Would you say for the assets you’ve brought to market, that exercise of comparing sort of the capital markets bids versus where your guys’ internal assessment of value is closer when you look at stabilized core assets? Can you kind of just give us I am just trying to get a sense for, 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.

Jerry Sweeney, President and CEO, Brandywine Realty Trust: No, hey, it’s a great question, and 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 sub-market positioning and sub-market dynamics, key issues. But we are 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.

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 two ago. And with the debt markets being very fluid, that is also amplifying, I think, the pace of their execution. 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’s acceptable.

Dylan Burzinski, Analyst, Green Street: Great, Jerry. Thanks for that thoughtful explanation. Appreciate it. Have a good one.

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Thanks, Dylan. Yep.

Operator: Thank you. As a reminder, if you have a question at this time, please press star one on your telephone. Our next question comes from the line of Anthony Paolone from JPMorgan. Your question, please.

Anthony Paolone, Analyst, JPMorgan: Yeah. Thanks. Just two 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?

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Yeah, I think on the first building, which is what we kind of 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.

Anthony Paolone, Analyst, JPMorgan: Okay. Would that be a similar type number for the other if you kind of move it in that same direction, or?

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Yeah, Tony, I think so. I hesitate to give you a definitive answer because we’re pricing through all that right now. My guess, that’s a good order of magnitude pricing. I think the key issue for us, in addition to the cost number, is where the rents will be versus new development rents and our targeted returns being north of 8%. We’re kind of looking at those metrics to really drive the cost equation as well.

Anthony Paolone, Analyst, JPMorgan: Got it. Just second one, with the JV recap anticipate, and you mentioned ownership stake going down. What do you think order of magnitude your ending ownership stake’s going to be?

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Yeah, I think our ideal structure, both from a liquidity harvesting, profit-taking, balance sheet improvement, is to probably be a holder of between 10% and 20%, the bias 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 for us.

Anthony Paolone, Analyst, JPMorgan: Got it. Thank you.

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

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

Jerry Sweeney, President and CEO, Brandywine Realty Trust: Jonathan, thank you. 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. In the meantime, have a wonderful summer. Thank you very much.

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