Brandywine Realty Trust Q2 FY2025 earnings call

• Brandywine posted solid operating metrics, reinforcing flight to quality and portfolio strength.
• Executed over 98% of 2025 spec revenue target. Quarterly retention rate was 82%.
• Leasing activity in Q2 was 460,000 square feet, with a 35% quarter-over-quarter increase.
• Philadelphia CBD captured 54% of office deals in Q2.
• Development projects saw progress: One Uptown and 3151 had increased activity, Avira residential was 99% leased, Solaris was 89% leased, Schuylkill Yards' commercial component was 85% leased.
• Sold or committed to sell almost $73 million of properties with an average cap rate of 6.9%.
• Capital ratio improved to 9% to 10% of lease revenues.

Brandywine Realty Trust's segment performance includes various geographic areas. In Philadelphia, occupancy is 93.5% and leasing is 96.5%. In the Pennsylvania suburbs, occupancy is 88% and leasing is 90%. Austin's occupancy and leasing stands at 78%. For the second quarter, leasing activity totaled approximately 460,000 square feet, with 233,000 square feet in the wholly-owned portfolio and 226,000 square feet in the joint venture portfolio. Quarter-over-quarter, leasing activity increased 35%, highlighted by a 100,000 square foot lease at the One Uptown joint venture development. Forward leasing commencing after quarter-end remains strong at 280,000 square feet. Second quarter net absorption was 13,000 square feet, with positive net absorption expected in Q3 but negative absorption in Q4 due to tenant move-outs in Austin and leasing slides. The quarter ended with 88.6% occupied and 91.1% leased.

• Revised FFO range to $0.60 to $0.66 per share, removing anticipated land sales from guidance.
• Plan to recapitalize development projects as leasing percentages approach 90%.
• Third quarter property-level operating income is expected to be approximately $71.5 million. FFO contribution from joint ventures is expected to be a negative $5 million. G&A expense for Q3 is approximately $8.5 million.
• Disposition guidance adjusted to $72.7 million, with no property acquisitions or ATM/buyback activity planned.

• Negative absorption in Q4 due to a tenant move-out in Austin and leasing slides.
• Life science market recovery impacted by challenging fundraising climate and public policy uncertainty.
• Uncertainty in lease executions and build-out timelines for development projects.
• Capital raising challenges for development joint ventures.

Q: Seth Bergey on recapitalization of development projects and hotel ownership A: Gerard H. Sweeney mentioned there are discussions underway regarding recapitalization of development projects, with significant investor appetite seen. On the hotel development, he stated that while considering additional partners or sales, the hotel is seen as a value-add to the tenant service platform.

Q: Manus Ebbecke on office JV lease percentages and hotel development A: Gerard H. Sweeney discussed that for office JV components, targets like 3025 aiming for 85% leased with a path to north of 90% leased for recapitalization. Regarding the hotel, he mentioned it's seen as a real estate opportunity with potential for additional partners or sales post-stabilization Q: Anthony Paolone on dividend flexibility and market depth A: Gerard H. Sweeney said dividend decisions are reviewed with the Board, considering core portfolio performance, NOI from developments, tenant fit-out burn-off, and recapitalization timelines. Thomas E. Wirth added that the dividend has flexibility without hitting REIT requirements, dependent on sales and tax losses Q: Omotayo Okusanya on 3151 touring mix and recap impact A: Gerard H. Sweeney said the 3151 pipeline has a mix of life science, institutional, academic, and some office prospects. Thomas E. Wirth mentioned there could be a little guidance improvement from recap activity if done sooner Q: Upal Rana on Uptown ATX pipeline and Austin properties A: Gerard H. Sweeney and George D. Johnstone talked about the Uptown ATX pipeline being a mix of companies with advanced stages in negotiations. Regarding Austin properties, they discussed efforts on River Place, Four Points, Cira Centre, and 101 West Elm Q: Dylan Burzinski on hotel development financial reasons A: Gerard H. Sweeney stated that the hotel development is seen as a value-add with strong tenant demand and potential capital options to reduce financial exposure, balancing returns and tenant service platform needs