Brandywine Realty Trust Price & Performance (BDN)

On today's call with me as usual are George Johnstone, our Executive Vice President of Operations Dan Palazzo, our Senior Vice President and Chief Accounting Officer and Tom Worth, our Executive Vice President and Chief Financial Officer. Prior to beginning, certain information we'll discuss on the call today may constitute forward looking statements within the meanings 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. Well, first and foremost, we hope that you and yours are doing well. To the extent that we can, we are closely monitoring the the rapidly evolving macro environment including the impact of tariffs, interest rates, credit spreads, and other public policy issues as we move forward with executing our two twenty five business plan. During our prepared remarks today, we'll briefly update you on first quarter results, and provide an update on our 2,000 business plan. After that, Dan, George, Tom, and I are available to answer any questions.

So moving into the presentation, our first quarter FFO was $0.14 per share, You'll hear more on that from Tom in a few moments. We posted solid operating metrics again this quarter. Reinforcing our portfolio's high quality and strong market positioning. At the mid point, we have now executed 92% of our 25 spec revenue target. Our quarterly retention rate was 55%, Our leasing activity for the quarter approximated 340,000 square feet, including 235,000 square feet in our wholly owned portfolio 105,000 square feet in our joint ventures. While this quarterly activity was below our fourth quarter run rate, our operating portfolio pipeline continues to increase. And along those lines, we're pleased to report that we have 306,000 square feet of forward leasing activity that will commence after the first quarter end. This is the highest level of forward leasing velocity we've had in over eleven This forward leasing helps mitigate our first quarter negative absorption, The predominance of that negative absorption was the result of early terminations and two tenant defaults. 77% of that activity occurred in our Austin, Met DC, and New Jersey Delaware markets. We have already released 55,000 square feet of those move outs, all with 2,025 commencement dates.

As anticipated in our business plan, we did end the quarter at 6.6% occupied and 89.2% leased. In Philadelphia, we are 93% occupied and 96% leased. In the Pennsylvania suburbs, we are 88% occupied. And 90% leased and in Austin, where a number of early terminations impacted our overall numbers that is now 75% occupied. But given the overall strong performance in the majority of our portfolio, we are maintaining our year end occupancy and leasing guidance. Looking ahead, we have only 4.4% of annual rollover through 2026, remaining one of the lowest in the office sector. For the quarter, our mark to market was 8.9% on a GAAP basis, and 2.3% on a cash basis, both are above our business plan expectations. Our capital ratio was 12.2% slightly above our 25 business plan range, but as expected for the first quarter. First quarter physical tours were well in line with our fourth quarter volume and exceeded first quarter twenty four by 4%. Also, on a wholly owned basis, 60% of all new leasing activity was the result of of the flight to quality that I'll talk about in a few moments. We also do not have any tenant lease expirations greater than 1% of revenue, through 02/1926.

Our operating portfolio leasing pipeline remained very strong, and includes about 159,000 square feet of leases in advanced stages of negotiations. So the takeaway on operations is it remains very stable, solid operating performance with very limited rollover risk for several years, good capital control, improving markets, and an expanding leasing pipeline. So all in all, very consistent with our 'twenty five business plan forecast. From a liquidity standpoint, we did elect to prepay our $70,000,000 unsecured term loan and have $65,000,000 outstanding on our $600,000,000 unsecured line of credit. We have no unsecured bond maturities until twenty twenty seven November of that year. Going forward, as we talk about every quarter, to ensure ample liquidity, our business plan is predicated upon maintaining minimal balances on our line of credit over the next several years. If stepping back and looking at the big picture, our real estate markets and overall sentiment continue to improve. We are seeing that every day in our tour activity. Our operating and leasing teams have established a solid operating foundation to capitalize on these improving office market dynamics. In particular, our pipeline activity continues to grow, Tour volume remains at a very healthy level. Rent levels and concession packages remain in line with our business plan and in select submarkets and buildings, are pushing both nominal and effective rents.

Demand for high quality, highly amenitized product evidencing the flight to quality trend remains a defining characteristic of both the overall sector and our portfolio. The market continues to see a quality bifurcation. For example, using one of the brokerage firm's numbers, Philadelphia has an 18% vacancy rate among a 19 buildings. 50% of that vacancy is concentrated in just 14 buildings, while the 10 emptiest buildings account for 40% of the city's vacancy. So the high quality buildings are not only outperforming, but also pushing effective rents and the competitive set continues to narrow. Overall, Brandywine is 96.2% leased Philadelphia CBD portfolio, and during the first quarter, we captured 64% of all deals done in the Central Business District. The city's life science sector, while certainly still in the recovery phase, continues to be a forward growth driver backed by a strong regional health care ecosystem that includes almost 1,200 biotech and pharmaceutical firms along with 15 major health care systems. Austin, which is still early in the recovery cycle, continues to be a magnet for corporate expansion, driven by both a friendly business environment and robust job growth. Leasing momentum remains positive, with Austin recording over 112 tenants actively seeking more than 3,700,000 square feet of space as of April.

That's a 33% increase in demand over the fourth quarter of twenty four. Positive momentum is being driven by what we're seeing, a revitalization of the tech sector, There's also a notable trend encouraging return to work on a full time basis. So we remain optimistic that Austin will see increased leasing activity as 2025 progresses. We do anticipate tenants continue to have a clear preference for premium office environments, and Brandywine as demonstrated through our leasing results. Is well positioned to continue capturing demand in both Philadelphia Austin, and our other smaller submarkets. As we discussed during our fourth quarter call, 2025 is a transitional earnings year for us. We've made significant progress on portfolio stability, However, our earnings remain impacted by the expensing of our preferred [indiscernible] and interest expense charges relating to our two residential projects at 3025 JFK and one Uptown. Stabilizing these development projects remains the top priority for the organization. And during the quarter, we had great success in our residential developments and expanded the pipeline in deal status of our remaining commercial projects. Looking at each project, at Schuylkill Yards, our thirty twenty five office component is 80% leased leaving us with just over one floor to lease, We had a good pipeline that advanced during the quarter on that remaining office space.

And have advanced negotiations underway on the two remaining retail spaces. We do anticipate the commercial component will stabilize in the first quarter of 'twenty six. Avira, our residential tower, continues to perform on pro form a and is currently 96% leased. We are also experiencing a a very healthy renewal rate at an average rent increase in the double digits. We expect that Vera will stabilize in the second quarter of this year, so this quarter. Thirty one point five one, our life science project was substantially delivered this quarter. Some physical work does remain particularly on particularly on the streetscape. And this project will be in a capitalization phase through 02/2025. The pipeline now stands at over 500,000 square feet. With advanced discussions underway with several prospects. The life science market remains in a recovery mode, impacted by a challenging fundraising climate and public policy uncertainty. But given our success at the 03/2025 project, we're also conducting tours of this project with office users Based upon the pipeline we're seeing and the stage of that pipeline, we do anticipate this project will stabilize in Q3 'twenty six. At Uptown ATX, the pipeline for office component now stands just shy of 400,000 square feet, with tenant sizes ranging between six and a 50,000 square feet.

Given the status of this pipeline, after accounting for tenant build out periods, we do expect this project to stabilize in q two twenty six. As we projected last quarter. Uptown Residential, Known As Solaris House, opened six months ago in September, We're currently 56% leased and we expect Solaris to stabilize early Q4 twenty five. As noted in the past, our development projects remain top of market and are attracted to a broad range of our customer targets. We remain confident in their success, and we continue to aggressively market each of those projects. To the upside, upon stabilization, these projects will generate about $41,000,000 of annualized NOI increase to our first quarter income so they do remain a key driver for the company. Also, as these projects stabilize, they present an excellent refinancing and recapitalization opportunity for us. In looking at the dividend, as we noted on the year end call, we rolled out 25 guidance. For 25, the FFO and CAD payout ratios will be above our historical averages, and, frankly, above our preferred levels. However, as our developments grow occupancy, we anticipate bringing our FFO and CAD results through '26 and bringing that dividend payout ratios back to historical levels without reducing the current $0.60 per share dividend.

It's also important to note as we highlight on page three of supplemental package, our 2025 recurring capital spend is projected to be impacted by approximately $21,000,000 or $0.12 per share of deferred tenant improvement allowances for leases that were signed prior to 2023. During the first quarter, we recognized approximately 50% of those forecasted costs totaling $10,500,000 or $0.6 per share that is included in our CAD ratio. In addition, the CAD ratio for the quarter includes just shy of $4,000,000 of accrued but unpaid preferred returns to our partners, were about 2¢ a share. We anticipate that the majority of those preferred returns will be paid upon a recapitalization of the joint ventures, not from cash flow. So in support note, without those new nonrecurring costs, our CAD payout ratio would have approximated 29,800,000.0 resulting in an 88% payout ratio much more in line with our historical standards. I also would like to note on the capital side, that our nine to eleven percent twenty five projected capital ratio range is one of the lowest we've had in the past five years, so we're keeping a tight control over capital spending as we aggressively move to lease up our development projects.

So with that, let me turn the floor over to Tom to review our financial results and provide an outlook for the balance of the year. Thank you, Jerry, and good morning. Our first quarter net loss stood at $27,400,000 or $0.16 per share our first quarter FFO totaled 24,700,000.0 or $0.14 per diluted share. Each quarter, we provide future quarter guidance on certain significant revenue expense line items, And based on our fourth quarter guidance, our results were $01 above that guidance but were $02 below first quarter consensus. The difference is primarily due to a couple of estimates straight lining some expense line items, which did not impact the full year but did in impact the quarter. Some general observations for the first quarter, FFO contribution from our unconsolidated joint ventures totaled 900,000, or 1,900,000.0 above our $1,000,000 reforecasted loss. This is primarily due to income received at Solaris that's one time in nature. Certain interest, interest expense was 1,000,000 less than our forecast primarily due to capitalized interest. And, all the other forecasted, quarterly results were in line. Looking at our debt metrics first quarter, debt service and interest coverage ratios were two point one. Unchanged from the fourth quarter.

And our first quarter and annualized combined core net debt to EBITDA were 7.77.9% respectively, with both metrics at or below our range. Our combined leverage was better than our core leverage primarily due to the forecasted one time cash income that was generated from our unconsolidated joint ventures. Was no other changes to the portfolio or joint ventures. As we finalize our partial conversion plans and as outlined on Page four of our supplemental, We anticipate removing 300 Delaware, from our core portfolio within the next two quarters and placing it into redevelopment. During the quarter, we repaid our $70,000,000 on unsecured term loan on the extended maturity date with proceeds from the unsecured line of credit and cash on hand. We have, as Jerry mentioned, we have no other, unsecured bonds maturing until November 2027. And our wholly owned debt is 95.4% fixed with a weighted average maturity of three point five years. Looking at our second quarter guidance, property level operating income will total approximately $70,000,000 and will be slightly above our first quarter based on lower seasonal operating expenses. FFO contribution from our joint ventures will total a negative $5,000,000 for the second quarter. This represents a sequential decrease of approximately $6,000,000 primarily due to the one time forecasted non recurring income that we received in the first quarter.

G and A for the second quarter will total about 9,500,000.0 representing a sequential decrease. Totaling $8,000,000 and consistent with prior years. The sequestral decrease is primarily due to the timing of our equity compensation expense recognition. Total interest expense will approximate $34,000,000 and capitalized interest will be about 2,500,000.0 Termination and other income will total about 1,500,000.0. And net management fee and development will be 2,500,000.0 Our full year business plan does include speculative sales activity totaling million dollars which is anticipated to be weighted towards the second half of the year. We project these sales to occur later in 2025 and to create minimal dilution. However, the earnings impact may be higher if timing is accelerated. We anticipate no property acquisitions. We anticipate no use of the eight ATM or ATI BAT.

Buyback activity, and we believe our share count will be roughly 179,000,000 shares. As Jerry noted, we will look to reap recapitalize our developments as they approach stabilization. And recap the commercial developments as leases are executed and our lease percentages approach 80 to 90%. We are reaching those levels on several projects, and we will commence these recapitalization of efforts over the balance of the year. Turning to our capital plan. Our capital plan for the balance of this year totals a hundred and 80,000,000 and is straightforward as our wholly owned development, redevelopment projects are fully constructed with lease up capital remaining to be spent on our commercial projects. Our twenty twenty five payout ratio for the first quarter was 169.4%, recognize this is very elevated, and as Jerry outlined, our quarterly CAD was negatively impacted by older tenant allowance allowances and accrued but unpaid preferred dividends on our unconsolidated joint venture. Longer term, as we complete the recently the recent development cycle and experience higher net operating income, our CAD ratio should decrease significantly throughout 2026. Looking at the larger capital uses for the balance of the year, we have development spend totaling 35,000,000 which includes 155 King Of Prussia Road, 250 King Of Prussia Road, and we recently and the recently announced food hall at 1 Drexel Praza.

We have $80,000,000 of common dividends. $20,000,000 of revenue maintained capital, $20,000,000 of revenue create capital, and 20,000,000 of equity contributions to fund the recently signed tenant leases our joint venture developments. The funding sources are $95,000,000 of cash flow after interest payments, 55,000,000 of speculative asset and land sales, and 5 and 5,000,000 in construction loan proceeds from 155 King of Prussia. Based on the capital plan above, we anticipate using an incremental $25,000,000 of net cash during the balance of the year with a $61,000,000 outstanding balance on our $600,000,000 line of credit. We also projected our net debt to EBITDA will range between eight point two percent and eight point four without the recap without any recapitalization of our of our joint ventures, with the, increased primarily due to the, losses that were occurring on those joint ventures, currently. Our debt to GAV will approximately 48%, By the end of the year, our core net debt to EBITDA range will be 7.7 to seven point nine, and should equal our consolidated net debt to EBITDA, which does exclude joint ventures. We anticipate fixed charge ratio and interest coverage ratios will be roughly two point o, which will represent a one tenth sequential decrease from this quarter.

Again, due to the joint venture losses. With incremental income from the development projects, we anticipate the leverage will continue to improve as the year goes on. I will now turn the call back over to Jared. Thank you, Tom. So as you look ahead, the the operating platform and the quality of our developments will allow us to continue capitalizing on improving real estate market conditions. While earnings growth from the development pipeline is not yet fully visible, the groundwork has been laid and we are poised to continue to build on the momentum and drive long term value out of those properties. The operating platform remains very stable, very limited near term rollover. Liquidity, as Tom outlined, is in excellent shape. And we're well positioned to take advantage of continued improvement in both the the tenant and the financing markets. With that, we're delighted to open the floor for questions. As we always do, we ask that in the interest of time, you limit yourself to one question and a follow-up.

Thank you. Our first question comes from Anthony Paolone with JPMorgan. Your line is open.

Thank you. Good morning.

Was wondering Jerry, if you could start with maybe the pipeline. You touched on it a little bit particularly as it relates to Austin, but maybe give us a little bit more color around where it's coming from, whether the discussions are you know, for expansions, moves, [indiscernible] Yeah, Tony, thank you. Good morning. Yeah, certainly, look, we've definitely seen a continuation of the trend we outlined in the last call, which is increased tour activity through the building. And we're definitely seeing a a more increased interest through some technology tenants. So when we take a look at the at the existing pipeline that we have, it's a good mix of technology companies, financial service companies, actually a couple emerging life science companies, that are really focused on kind of moving into to new quality space that we've delivered. So the pipeline, as I mentioned, ranges from, you know, a low of 6,000 square feet or filling up the spec suites that we put to pull together to some of the larger tenants that we're in advanced discussions with.

Okay. And then just more broadly, can you give us any just more real time anecdotes about how decision making is coming along as the macro backdrop unfolds here and whether or not anybody is hitting pause or if it's business as usual, just any incremental and more real time would be helpful?

Yeah, look, certainly the level of macro on uncertainty is not helping the decision making process. I I can't say, and George, maybe you can weigh in, but don't think we've really seen any of the larger prospects that we're talking to. Across the company, both in existing properties and the development properties, paused because of the macro overlay, but that could certainly change. I mean, it every day, it seems we're in a new in a in a new news cycle. But decision making from our standpoint, as we've reinforced the last several quarters, does remain slower than we would like. But I can't say that the events of, let's say, the last quarter have really done anything to protract what we already view as a protracted decision making cycle anyway. Tariff situation, I think, is creating some uncertainty. In the minds of our contractors. And certainly, we go through the pricing process for TI work, That actually the the threat of those tariffs is actually an sell an accelerant to getting pricing finalized. You know, we're in a very fortunate position where the development projects that we have underway they were all done based on guaranteed maximum price contract.

As you see from the supplemental package, all of our capital is spent with the exception of TI dollars. So we're very keenly focused on having that risk behind us, but also as we go through the space planning and bidding process, making sure we continue to deal with very high quality contractors who have great supply chains, and making sure that we accelerate the planning process to the extent we can to lock into pricing before the the concern about the increased tariff prices takes place. But George, any other color? Yeah, think two other things, Tony.

I do think that while you know, the the tenant is taking, you know, the amount of time the tenant's taking to make decisions, but but Brandywine, with our internal leasing teams, our internal construction and design teams and legal teams we're turning our side of the transaction much quicker than some of our competitors. And also with an highly unencumbered pool of assets, we're not going having to go back to lenders for additional decision making. And then I think, as Jerry mentioned in his script, we probably have seen a little bit of an elongated decision making timeline when it comes to some of the life science companies. But but not necessarily on the office companies.

Okay.

Thank you for all that.

Thanks, Tony.

Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Your line is open.

Yes, thanks. Good morning. Jerry, maybe you could just help bucket the pipeline the leasing pipeline kind of between the operating portfolio then maybe go through Uptown ATX? And I guess at this point thirtytwenty five, just so we have kind of a good framework [indiscernible] know, what's going on there. Yeah. Well, look, think certainly on operating portfolio side, the pipeline remains kinda between one point seven and one point eight million square feet. With good tour velocity. So look, I think it's evidenced by us being 96% leased in CBD Philadelphia, us doing north of 60% of the deals. We've got a very, very good pipeline there. We have a we have a couple couple holes in our Radnor portfolio. That in our Radnor corporate center. That we're very keen on getting filled, and we're we're developing a nice pipeline. And that pipeline is really up nicely in the last quarter. You know, our major our major holes in the operating portfolio really are down in Austin, Texas. Where we've had a couple of tenants that moved out during the quarter with, I guess, a bankruptcy and an early termination. And there, the pipeline is better, Steve, than it was last quarter, but still we're working hard to continue to build that pipeline.

We've redoubled our efforts down there. We're doing a lot more more prospect outreach, They've made some improvements to the properties to really position them well. So I think on the operating front, you know, I think the trend line is very positive. Even in Austin, we're seeing more and more companies focused on coming back to the office with more frequency. So their space needs are being more defined. Know, here in the Philadelphia region, we're definitely have seen people migrate to to a full four or five day work So I think we're getting clarity on that. On the development pipeline, you know, we have the one remaining floor. You mentioned 30, 25. We have one remaining floor and and and two retail spaces. You know, the retail spaces were trading paper. With two high quality prospects that we think will be a very good value added driver for Schuylkill Yards neighborhood. And we have a number of prospects we're talking to. One full floor user take that with the the one remaining floor, but then also a number of of smaller firms where we would break that floor down into multiple users. I think that I touched on with Tony on on on Austin, definitely seen a big uptick in tour activity.

We continue to talk to several technology companies about larger space requirements. Those discussions are moving at a pace that's slower than we would like, but certainly a constructive and engaged dialogue. We've actually seen a couple of finance service firms enter the fray. They're looking for you know, 50,000 plus kinda square foot requirements. And then a number of of of retail tenants we're talking to also as far as that building goes. Just to round out the horn, at 3151, that is a building that was a special purpose for life science, We have a pipeline there of over 500,000 square feet. The largest users, about a hundred thousand square feet is is a highly a high credit prospect. But I think as George touched on, think the concern over NIH funding the slowdown in venture capital investment in life sciences clearly have an impact on the timing of when some of those life science companies make decisions. And as a result, or as a consequence of that, as we talked last quarter, we've begun to show 3,151 to a number of Office users as well. So we have a few of those potential Office users in our pipeline, There have been through the building for tours.

And we'll see how that process continues to dovetail with what we're doing with the institutional users and the life science companies.

Great. Thanks for that color, Jerry. And then maybe just switch 300 Delaware, sounds like pulling that asset out of the pool will certainly aid kind of the year end occupancy staff. Could you maybe talk about the economics of that office to resi conversion? How do you think about the incremental capital that you'll need to spend? And I guess you're going to lose some NOI perhaps coming off that building. Like how do you think about the stabilized yield when that process is completed?

Yeah, I mean, look, and this has been a almost a four quarter review process. To assess what we think the effect of rents in that market could be, or could not only what they are, but what they could be. And excuse me, and then we went through the detailed pricing conversion analysis That building is eligible for some federal federal financing. That helps augment the yield on that project. So we have a lot of work underway on that property. The the NOI that we're losing, Steve, is actually very minimal. I mean, the the property has been under leased for a number of years. We essentially made the the the fundamental decision a few years ago. That we were not gonna invest additional capital in that building for leasing activity. Because we felt that we weren't going to get good effective rents. And our capital is better deployed elsewhere. And that was really the catalyst to start reviewing what the long term viability of that project would be. When we take a look at going through the design, going through the remaining part of design development review, which will take really through the balance of this year, to get our full MEP HVAC, all of our design development work completed.

Work through the final approval processes, This would be a potential activity for us in the the middle to latter part of 2026. The yield right now, the yield on that is assuming that we can achieve the federal subsidy. Be somewhere in the 7.5% range. So our goal really on this and a couple of the other conversion opportunities that we're looking at is to is to to get through the approval process, dovetail that with the design development process we're going through, develop the financial model, and then decide if this is something that we want to either do ourselves or market as a as a turnkey development project to another firm. So but the important point I wanna amplify is we made the decision that it made no economic sense given where rent levels and capital costs are in that market. For us to continue leasing that building on purely an office basis. I hope that provides enough color for you.

Yeah, that's great.

Thanks, Jerry. You're welcome, sir.

Thank you. Our next question comes from Seth Berge with Citi. Your line is open.

Hi.

You've discussed $15,000,000 of dispositions with the possibility of more to come through the year. How has the macro environment changed what you're seeing out there in the market in terms of the buyer pool composition, pricing and financing availability.

Yeah. Seth, good morning. Yeah. Look, actually, think that that is an emerging bright spot. We'll see how it all plays out, but we we have targeted a midpoint of about $50,000,000 of sales this year. We currently have put in several of our properties in Austin, Texas in the suburban markets on the on the market for sale. We are in the process of of going through that that underwriting and bidding process by a number of buyers, a good pool, of potential bidders on those properties. So I think we would expect that more visibility in the next quarter or so on how that process would work its way through. But I think we'd take a look at the at the the overall investment market Yeah. I think I think last year, and going back to 'twenty three, you really had a marketplace that was dominated by small private equity firms, family offices, I think we saw happen in '24 was kind of the reemergence of institutional quality buyers. So for example, in '23, institutional buyers were less than 16%. Of the office buying pool. They closed out '24, about 40% And just based upon the level of activity that we're seeing in the market generally, that institutional appetite seems to be reemerging for office space.

Private firms, high net worth family officers still there as well. And then we're all seeing more and more private operators team up with private equity. To pull together programs to to basically reimagine properties that we wanna sell or to think we think the return metrics don't work for us, but they may work for someone else in a in a more highly levered model. So we're continuing to see that as a as a buyer pool as well. Right now, the mix of of of folks looking at the assets we have on the market is a blend of institutional operator and private equity.

Thanks.

You're welcome.

Thank you. Our next question comes from Michael Lewis with Truist Securities. Your line is open.

Great, thank you. You talked about recapitalizing the development project. The multifamily ones are pretty close to stabilization now. Could you maybe talk a little bit about the capital provider appetite and how that marries with your strategy in terms of you know, what you might encumber you know, amounts, cost of capital, anything to talk about on any of that? Yeah, good morning, Michael. Think specific formulas are still evolving. I think the major folks right now is making sure we get everything stabilized, but certainly, the buying pool and the appetite for the residential properties is has a higher level of visibility and depth in the office products right now. So we're looking at everything ranging from parsing the full value of those assets for sale to doing another type of of of power pursuit type of joint venture. We reduced our equity stake and hang on to a promote structure. Actually looking at whether we combine some of these assets in a pool and create a a a better value driven proposition for us by taking that collective approach. So we're really at the early stages of finalizing exactly what those algorithms will be. We do know is that those preferred structures we have in place we are targeting to reduce our exposure in at least one, possibly two of those this year, and the balance in 2026.

Okay, maybe that's a segue into my second question is more strategic. Brandywine often trades at a discount to NAV. Sometimes that discount is deep. That's like a lot of office REIT. Right now, I just pulled up on consensus, any of the Brandywine to 60% discount NAV. So, it almost got there in 2023. It traded at a discount this wide in 2020 at the onset of COVID. And in 02/2008, 02/2009 the GFC. So this is a historic [indiscernible] So my question is, you know, is there anything that you do differently or kind of creatively? You know, I was trying to think of of ideas as well. You do anything differently here? Maybe that means monetizing assets or I don't know. Right? It's sort of an open ended question about at this point in time, with this deeper discount to NAV, does that change your thought process or give you any ideas? Well, we're always thinking about ideas. So we we're always trying to think about what the right next step for the company is. And I think the as we as we as we take a look at that and we think about the the upcoming years, know some of the real key value drivers are delivering our our development pipeline.

Which as I mentioned, will deliver $41,000,000 of additional NOI, to the company. So that is something that's within our grasp, within our targeted business plan. And we feel very confident getting that executed within the several quarters as we outlined in the supplemental package. We think that will go a long way towards towards generating higher FFO growth for us and returning our payout ratios to historical norms. Two, we also understand very clearly what the dynamics are in each of our markets. And when I take a look at the forward supply pipeline, of office product, and look at the dearth of new additions coming into the sector over the next four to five years, I think that really positions our portfolio incredibly well. I think we're seeing the early signs of that, particularly here in CBD Philadelphia and some of our core suburban markets. Where our ability to move effective rents and our ability to control capital costs is really becoming a a very key part of our business plan execution. I do believe our competitors that will continue to narrow at least in the intermediate term which provides a tremendous opportunity for us to continue driving driving NOI.

And I think driving that NOI will open up the door for us to evaluate more significant tactical moves we can make in terms of different pieces of the portfolio. We have, as you know, two significant development in front of us with Schuylkill Yards and Uptown ATX. The market's clearly not there. For for additional development, but the approvals are done. Planning is done. Infrastructure investments are being made. We recently were received, as we outlined in the SIP, a significant up zoning potential for uptown ATX. And I certainly think as we start to take a look at what that development pipeline looks like, Michael, it's really much more mixed use. I think the original business plan was more off it was originally a a higher concentration of office. Think we're gonna follow the market demand drivers, and I think our approvals in both of those major pods give us complete flexibility in terms of project type, transferring density between different sites, and those approvals are hard to achieve. Once they're achieved, they create a lot of value. So whether we start to take a look at spinning off parcels in those properties or in those developments, doing ground lease structures, trying to figure out a way to more effectively finance those properties to deliver value to our shareholders given our high cost of equity capital in the public marketplace.

I think all those things are very much on the radar screen. And are very much top of mind to management and the board as we go through our our strategic review process every quarter.

Great, thank you. Thank you. Our next question comes from Upal Rana with KeyBanc Capital Markets. Your line is open. Good morning. This is Gabby on for Upl. So building off a previous question on decision making, compared to the beginning of the year, our potential tenants asked asking for more concessions or maybe looking at smaller spaces versus when they initially started looking?

Good morning. No real change since being in the ERN in Georgia. Have you seen anything? But no. I think, you know, the size of the space, you know, of our tenants are are maintaining their space when they're up for renewal. I think some of the new tenants that we're gaining are sometimes downsizing from the space that that they're vacating in someone else's portfolio, but I think that plays into the flight to quality theme of you know, they'll move up in flight maybe at a higher rental rate and save a little bit because there are 1,000 square feet or two shorter. But overall, I think concessions haven't changed dramatically Capital, as Jerry indicated, we're doing a good job in controlling capital ratios and etcetera.

Great, thank you. And then I've a follow-up. Could you just talk about the GSA as a tenant We see their annualized rent is primarily related to parking and OpEx So could you provide any additional detail here, given they're one of your top tenants?

I'll provide as much clarity as I can. We have a joint venture with two private equity firms on what we call Sierra Square, which is 840,000 square foot It's the historic renovation of the post office building that sits adjacent to Thirtieth Street Station here in Philadelphia. That lease with the GSA is up at at the end of two thousand thirty. It right now, it houses the Internal Revenue Service, as a sole occupant.

The with the federal government mandate to bring workers back to the workplace. We're running about 80% occupancy there. And we remain in a very active dialogue with both the GSA and the client agency IRS. About what they're going forward plans are.

So as part of that lease, to go to your question, they do lease a number of parking spaces from us. In a separate entity, which is called our Sierra Garage. And they are fully utilizing all their spaces as of this point. So we have a number of years to work through that process with them on their renewal. It is a building's a designated federal facility. I think the service agencies are happy to be there. But, of course, we don't control the macro environment or what will happen with these different client agencies based upon administrative actions.

Great, thank you. I appreciate the time.

Thank you.

Thank you. Our next question comes from Dylan Brzezinski with Green Street. Your line is open.

Good morning, guys.

Most of my questions have been asked.

By now. But I guess just one I think it was a couple of weeks ago, we saw an announcement that Spark Therapeutics was laying off a a significant portion of its workforce.

I know that you're guys' second largest tenant, so just curious if there's any sort of termination rights or ability for them to to vacate that space at all. No. They well, they they, they did have that answer in member Spark is owned by by Roche Pharmaceuticals, so we have an extraordinarily strong credit on that lease, and I I think this is the next phase of them going through the digestion of that acquisition. Roche and Spark are still moving ahead on their cell and gene therapy research and manufacturing center. Is located adjacent to one of our properties. So that investment level continues. But the average weighted average remaining lease term we have with them is ninety two months. So they have no early rights to terminate, They have a lease that's coming due in a couple of our buildings here in University City at the end of next year. So we'll take a look at some of those.

Great. Appreciate that. Thanks, guys.

Thank you, Dylan.

Thank you. That's all the time we have for questions. I'd to turn the call back over to Jerry Sweeney for closing remarks.

Great, Michelle, thank you very much, and thank you all for participating in our first quarter twenty five earnings call. We look forward to being able to provide an update for you on our second on our second quarter call later in the quarter. Thank you very much.

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone have a great day.