Brandywine Realty Trust Reit Q4 2025 Earnings Call Transcript

Brandywine Realty Trust Reit (NYSE: BDN) Q4 2025 Earnings Call dated Feb. 04, 2026

Presentation

Operator

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

Please go ahead, Sir.

Gerry Sweeney — CEO

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 Worth, 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 two quarters. We generated during the year $27.3 million of spec revenue, very much in line with our business plan and we also exceeded our tenant retention target which ended up at 64% compared to our original business plan range of 59 to 61%. Leasing activity for the year approximated 1.6 million square feet. During the quarter, we executed 415,000 square feet of leases, including 157,000 in our wholly owned portfolio and 257,000 square feet in our joint venture portfolio.

Our capital ratio for the year was 9.5%, slightly better than our 25 business plan midpoint. This was the lowest capital ratio range we had in five years, primarily due to continued good capital control, our purchasing power and a high percentage of renewals. On an annual basis, our 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 stat. 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 average, in fact slightly above in some cases. A few additional comments regarding our various market dynamics in Philadelphia, which our largest submarket 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 venture, to 95%.

As I noted, overall activity levels remain strong. Interesting data points. Over the last five years, Brandywine’s captured 30% market share of all new leasing activity signed in market. Weston University City substantially outperforming our 15% share market share. This trend accelerated during 2025. For the full year, 54% of all new leasing signed in these markets was at a Brandywine property. More Importantly though, since 2021, our net effective rents in these submarkets have increased almost 20% or an annual net effective rent increase of 5.4%. This net effective rent growth is achieved through sustained controlling capital costs and continued rent growth in the Pennsylvania suburbs.

Overall, we’re 89.4% leased and our Radner submarket is 91% leased. We continue to see solid levels of pipeline prospects for the existing vacancies. Austin at 74% occupancy is creating a 400 basis point drop in overall company leasing levels, but tour volume there was up over 100% year over year, another sign of that market being on a slow path to recovery. Our operating portfolio leasing pipeline remains solid at 1.5 million square feet, which also includes about 140,000 square feet in advanced stages of negotiations relative to liquidity. We’re in solid shape with no outstanding balance on a $600 million unsecured line of credit and $32 million of cash on hand at the end of the quarter.

We also have no unsecured bonds maturing until November of 2027 and as noted previously, we plan to maintain minimal balances on our line of credit as our business plan is designed to return us to investment grade metrics. As we’ll discuss, our 26 plan will reduce overall levels of leverage, but as an interesting point, over 50% of our outstanding bonds has coupons north of 8% providing very good refinancing opportunities over the next several years assuming the market remains constructive. As an illustrative point, if we refinance those bonds over 8% to market rate today, our interest rate costs would decrease approximately $0.10 per share.

As you look at the year end results, our FFO for the quarter and year were both in line with consensus and then notably during the fourth quarter we took our first steps towards recapitalizing our development joint ventures. In December we redeemed our preferred partners equity interest in both joint ventures. At Schuylkill Yards, our 3025 JFK property bought a high quality asset onto our balance sheet with the major tenant already taken occupants in early January, the 3025 commercial component will be added to our core portfolio in the first quarter at 92% leased. Our buy it on 3151 which aggregated about $65.7 million was mostly funded with a $50 million CPACE 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 a million square feet broken down to 60% office and 40% life science. Discussions with many prospects remain active and several key proposals are outstanding. Both of these buyouts temporarily increased our year end leverage in anticipation of the 35 construction loan refinancing and our asset sales program. Notably, the fourth quarter buyout in 3025 occurred in advance of our lead tenant taking occupancy pro forma. For that revenue stream, which did commence this month, our net debt to EBITDA would improve by 4/10 of a turn and our fixed charge by 2/10 of a turn.

As a result of these buyouts at Schuylkill Yards, our remaining joint venture development projects are One Uptown and Solaris in Austin. At Uptown ATX at One Uptown, we are now 55% leased, up from 40% last call. But we do have an additional 20,000 square feet or 8% of leases out for execution, which would bring us to 63%. The pipeline remains strong with tenant sizes ranging from 5,000 to 60,000 square feet. Solaris, as we noted, is 98% occupied and 99% leased. We are seeing significantly improved economics on lease renewals. In fact, our renewal since November 1st all achieved an average, I’m sorry, 12.7% effective rent growth.

Looking at 1 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 you had great success on the seventh floor, which is 100% leased, the 10th floor is under construction for spec suites, which leaves the 11th floor at 43,000 square feet, the primary target for the larger tenant basis. Right now, looking at the investment market, we continue to see a strong improvement in that market, both in terms of velocity and pricing.

For example, in a project recently marketed, over 90 CAs were signed. We had 20 plus tours and a strong bid response from the buying pool. Buying pools we’re seeing consists of high net worth, family offices, operators with private capital, and the reemergence of institutional quality buyers. And as we noted previously, for 2025 we did exceed our sale target. Turning to 26. Our 2026 business plan can really be summarized as a return to earnings growth, a continuation of solid operating results, continued crisp focus on stabilizing 1 uptown and 3151, and accelerated sales program to both pay down debt and further refine our portfolio with corresponding balance sheet improvements.

From an operating perspective, our 2026 business plan is very straightforward, highlighted by solid core portfolio performance and strong leasing activity. We are providing 26 FFO guidance with a range of 51 to $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 percent increase over 25 FFO. The primary drivers of this are highlighted in the FFO reconciliation, which is found on page one of our sipp, 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 and A expense will be lower due to lower compensation costs and related cost control measures, improving operations in our development joint ventures and the buy it 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. Extinguished costs of debt reductions include higher interest expense primarily due to the consolidation of the 3025 construction loan and lower capitalized interest due to the end of the capitalization period of 3151. Obviously, with the joint ventures at Schuylkill Yards disappearing, we’ll have lower third party management and development fees, but Tom will review those items in several factors in more detail.

From an operating standpoint, the core Portfolio will add 3025 in the first quarter and 250 Radner in the second quarter. Spec revenue we’ve targeted between 17 to $18 million while down from 25 levels. Spec revenue from new lease transactions is up 39% from 25 levels. We are currently almost $13 million or 75% done at the midpoint with healthy pipelines across the board. We do project that our year end Occupancy will improve 120 basis points from 2025 levels and based on this we do project positive net absorption for the first time in several years as another evidence of an improving market gap.

Mark to market will range between 5 and 7% led by an 8 to 10% mark to market in CBD in the Pennsylvania suburbs, cash mark to market will be between a negative 2 to 0, again led by a positive mark to market. In the CBD and PA suburbs, leasing capital will be slightly above our 25 levels at a target range of 12 to 13%. Again, that’s primarily due to a higher composition of new lease transactions. Same store growth will range between a negative one and a positive one 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 price debt. We expect about a 200 basis point savings there. We’re also evaluating as Part of that is secured financing on that residential component and then adding the office portion to our unencumbered asset pool. Our business plan projects between 280 to $300 million of sales activity. We anticipate average cap rates around 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 landscales 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 2H26.

We could do sooner than that, but right now the plan is based on 2H26. Those recaps could range from a complete sale or a Parifasu joint venture where Brandywine remains a minority stake and recovers significant capital to both lower debt attribution and improve overall liquidity. We do project a year end core net debt to EBITDA to be between 8 to 8.4 times and we anticipate our CAD ratio will between 90 to 70% with the improvement occurring during the second half of the year after we fully burn off the remaining tenant improvement costs related to leases done between 2020 and 2023.

So with that, Tom will review our financial results for the fourth quarter and provide more detail on the 26 outlook.

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

Thank you Jerry and good morning. Our fourth quarter net loss was $36.9 million or $0.21 per share. Our fourth quarter FFO totaled 14.6 million or $0.08 per diluted share and in line with consensus estimates, both quarterly results were impacted by a one time charge for the early extinguishment of a CMBS loan totaling 12.2 million or roughly $0.07 per share. Some general observations from the fourth quarter property level NOI was 70 million or 1 million below our forecast primarily due to increased operating costs across the portfolio FFO contribution from our unconsolidated joint ventures totaled 0.6 million or 1.4 million better than our projected.

The improvement was primarily due to the improved operations at Commerce Square, ATX Office and Solaris G and 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 JFK’s loan 3025 JFK’s loan partially offset by higher than anticipated capitalized interest and our other forecasted quarterly results were generally in line. Looking at our debt metrics, fourth quarter debt service and interest rate coverage ratios were 1.8 both below the third quarter levels. Our third quarter annualized combined and core net debt to EBITDA were 8.8 and 8.4 respectively.

Both metrics were also above our business plan ranges. These metrics were negatively impacted by our fourth quarter preferred equity partner buyouts totaling $136 million which retired higher priced capital but was funded by lower priced debt. As we Highlighted, we anticipate 2026 sales to reduce and reducing our ownership in Uptown ATX will offset these increases. Of Note, our consolidation of 3025 JFK occurred before the first quarter stabilization for contractual leases which increase our combined net debt by 0.4 turns and our fixed charge by 0.2 otherwise placing both metrics within the stated targets. We continue to maintain a solid liquidity position with $32 million of cash on hand and no outstanding balance on our unsecured line of credit as of the end of the year.

Looking at 2026 guidance regarding guidance at the midpoint, our net loss is projected to be $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 $13 million net increase compared to 2025. This increase is comprised of the 3025 JFK will generate an incremental $17 million as stabilized wholly owned asset 2025 asset sales plus the full impact for that as well as the fourth quarter move outs mentioned last quarter will total $7 million NOI decrease.

Same store results will be essentially flat. Our fourth quarter contribution from the unconsolidated joint ventures will improve from an $11 million loss in 2025 to a $1 million contribution of income in 2026. This improvement is comprised of the 3025 JFK, which is now consolidated and in 2025 had a loss of $11 million which is now eliminated. ATX Developments with continued lease up at 1 uptown and reduced rent concessions at SOL, we expect a $9 million improvement as compared to 2025 3151. Partially offsetting these improvements was a one time item for 7.5 million or 4 cents a share that we took as a tax credit gain in 1Q25 that will not repeat.

GNA will be 36 to 37 million which is a is 5.5 million below our full year 2025 results. This reduction is primarily due 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 the June also bond issuance in October and the related CMBS loan repayment will have an $8 million increase in 2026 and the CPACE loan which we put on 3151 will increase interest expense by about $4 million. Termination and other income will be between 9 and 11 million compared to 6.6 and 25. The increase is primarily related to improved income from our increase in retail tenants that were put in place during 2025 and some in 26. Net management and development fees are anticipated between 6 and 7 million, a $4 million decrease mostly due to lower development fees in 2026.

As our development joint ventures stabilize sales activity, we are anticipating $290 million of wholly owned sales activity which weights 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’re considering a low rate secured loan on the residential portion of the property totaling approximately $100 million and using those proceeds as well as the line of credit to fully unencumber the office portion of the property from the credit facility. Our unsecured line of credit matures in June 2026 and we anticipate an extension of that facility ahead of the maturity date. 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 peripassu common equity joint venture basis during the second half of 2026 with our ownership level decreasing to a minority stake.

Recapitalization of both projects will generate cash that will be used to further reduce our wholly owned leverage. Due to the timing and changing in ownership structure being later in 2026, we have not included the benefit of any of these transactions in our FFO guidance. We anticipate no properties acquisitions or our share count will be roughly 180 million shares. While we feel incredibly positive about executing on our land sales program this year, we have not included any land gains or losses in our results. Focusing on the first quarter property level, NOI will approximately $70 million and will be fairly consistent with the fourth quarter.

While we will have the full quarter impact of $2 million incrementally at 3025 JFK, this will be partially offset by seasonality throughout the balance of the portfolio. FFO contribution from our joint ventures will total a positive 0.5 million for the first quarter. Our G&A expense for the first quarter will total $12 million. That sequential increase is consistent with prior years and is primarily due to the timing of our deferred compensation expense recognition. Total interest expense will approximate 42 million, which includes about a million dollars 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 325 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 ongoing for these uses will be $110 million of cash flow after interest payments, speculative sales activity totaling $290 million at the midpoint and $90 million of loan proceeds 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 18.8% 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 owned investment which continues to generate operating losses. As these developments stabilize, our leverage will decrease. We’ll 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.

Gerry Sweeney — CEO

Great Tom, thank you very much. So as you 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.

Question & Answers

Seth Berge

Jonathan.

Operator

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

Gerry Sweeney — CEO

Your question please.

Seth Berge

For taking my question. I think you mentioned in your opening remarks that just where your current.

Anthony Paulin — Analyst, JPMorgan

Your.

Seth Berge

Average cost of bond debt is kind of north of 6% and 50% is kind of north of 8% and were you to refinance those kind of today you could save 10 cents on interest expense. I guess kind of what is a hurdle of where you would kind of want to look to pull forward some of those Refinancing.

Gerry Sweeney — CEO

Well, I think the first. Good morning. I think the first cause of action we have right now is to exit 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 I don’t, we don’t really have in our business plan for 26 any kind of pull forwarding of those bonds at this point. But look, capital market conditions are ever evolving. We think that execution of the sale program, continued improvement on the lease up of the development projects will generate some additional noi and liquidity and we’ll be evaluating the bond buyback program, the debt reduction program, all as part of the sales program acceleration.

Seth Berge

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

Anthony Paulin — Analyst, JPMorgan

As share buybacks versus debt repurchase?

Gerry Sweeney — CEO

Yeah, 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 option to be opportunistic in buying back what we think are 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 in the income stream coming off 3025, that brings some of those down fairly dramatically immediately. But we do want to stay on a very crisp path to continue to improve overall balance sheet metrics and stock buyback optionality comes into play as we achieve our other objectives. So hopefully that is clear.

Seth Berge

Great, thank you.

Operator

Thank you. And our next question comes from the line of Anthony Paulin from JPMorgan. Your question please.

Anthony Paulin — Analyst, JPMorgan

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

Gerry Sweeney — CEO

Good morning, Tony, great question. Look, we think the entire portfolio is being undervalued. So I think across the board, universally, from a public market standpoint, we think that we’re significantly undervalued, primarily due, I think, the perceived headwinds on stabilizing the remaining two development projects. But as we’re looking at the sale program going forward, we took a hard look at the what we forecast some of the growth rates to be on some of our assets given changing sub market dynamics. We took a look at what we thought the net present value to us was on holding certain assets and then kind of developed a framework for what assets do we think could, number one, be marketable in today’s climate? Again, we’re targeting an average cap rate around 8% where we have lease up risk in some assets that we think will be protracted and will be expensive so we can obviate some future capital spend.

And then just the general portfolio realignment. As we talked before, our major focus in the Pennsylvania suburbs to get down to one or two core submarkets, our focus in Austin is to really shift our attention primarily to the tremendous opportunity we have at uptown atx. And then as we mentioned publicly, one of our programs is to rationally exit the D.C. marketplace. So when we looked at the overall sale program, Tony, it was a company wide look and kind of looking through a number of quantifiable metrics, identify which properties we thought would generate real value for us today without sacrificing growth rates going forward.

Anthony Paulin — Analyst, JPMorgan

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

Gerry Sweeney — CEO

Yeah, and George and I can tag you. I mean, you know, on the life science front, we’re seeing, we’re seeing a number of green shoots, but honestly, I think the entire life science market needs to see those green shoots grow into trees. So, you know, we are seeing activity. There’s been a good performance of a number of the privately held life science companies in the Philadelphia 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 key tenants here with a good healthy pipeline.

But George, maybe you could add some color to that as well.

George

Yeah, 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, you know, generate the graduate lab spaces which are 93% occupied at this point. So we’ve got, you know, all of that. We have one 4,000 square foot lab left to lease up on the eighth floor. But again, I think it’s, we’ve seen, you know, a little bit of expansion outside of the incubator and we’re really just kind of waiting for the next kind of expansion of graduate lab tenants to then move into full fledged lab space.

Anthony Paulin — Analyst, JPMorgan

Thank you.

Operator

Thank you. And our next question comes from the line of Steve Sacwa from Evercore isi. Your question please.

Steve Sacwa — Analyst, Evercore Isi

Yeah, thanks. Good morning. I guess Jerry, as it relates to the outright sales as well as the recaps of the JVs. You know, maybe my recollection was wrong.

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

Here, but I thought there was a.

Steve Sacwa — Analyst, Evercore Isi

You know, 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 sounds like those are kind of pushed to the back half of the year. I 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?

Gerry Sweeney — CEO

Yeah. Good morning, 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, if you. 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 effective rents. That’s a huge impact on the noi. So we’re monitoring that to decide the best time to recap that. So that’s moving along on a very nice track and we feel very confident that that will be happening. Called a mid year convention.

It could occur sooner than that on one uptown right now with what’s closing on 63% leasing, the pipeline remains pretty strong, particularly on the small tenant size. That’s why we’re building out one of the floors as another spec suite. You know, 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 a sequential. It’s kind of a concurrent review that we’re going through. So I hope that answers the question, but we would love to get those done sooner rather than later.

But I think in the interest of being conservative, we didn’t really factor in any of that impact into our earnings outlook for the year.

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

Okay, great.

Steve Sacwa — Analyst, Evercore Isi

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

Gerry Sweeney — CEO

Yeah, and again, George and I will tag team. You know, look, I think from, you know, we’re clearly seeing the strongest trend lines at this point are really in cbd, Philadelphia, 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, you know, 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 five years. So certainly things seem to be accelerating. Certainly the inventory is shrinking.

So there’s been a number of properties that are either in some level of financial strain or in the process of being evaluated for residential conversion. So we do expect that, you know, 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’ll 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. George, let me just cover the development. And on the development side, 3,151. Look, that pipeline remains very robust. We actually have proposals outstanding to a number of tenants. It’s about 60% office, 40% life science. Look, we understand that we’re trying to get all those transactions across the finish line as quickly as possible. We know the project’s being very well received. We’re not really receiving any pushback on the proposed economics. So we remain encouraged by the level of tour activity coming through that building. And then finally, at one uptown, really, with the size of the tenants there, we have between 5 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.

George

Yeah, I think, you know, the operating portfolio, you know, the pipeline remains fairly consistent.

Gerry Sweeney — CEO

You know, we’re.

George

We’re at 1.5 million square feet today. You know, last quarter we were at 1.7, and then we executed about 200,000 square feet of that one. 7. So, you know, every time we seem to execute a lease, we’re generating more, as Jerry mentioned in the pickup in overall tours. So I think the 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 1 uptown, really with three floors to lease one of them kind of with an expansion.

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

Right.

George

Encumbrance, we’ve got a pipeline that’s almost 3x the available amount of square feet to have.

Gerry Sweeney — CEO

Great.

Steve Sacwa — Analyst, Evercore Isi

Thank you.

Gerry Sweeney — CEO

Thank you, Steve.

Operator

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

Gerry Sweeney — CEO

Great, thank you.

Upal Rana

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

Gerry Sweeney — CEO

Yeah, great question. Good morning. 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, in looking at the market, demand drops and certainly that northwest market remains fairly tight, particularly 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, excuse me, does contemplate, you know, as commencing redevelopment of one of the existing buildings. That building is currently vacant, consists about 157,000 square feet. We anticipate the renovation cost would be somewhere in the 30 to 40 million dollars range and we can complete that, you know, within a three to four quarter period. We have done some marketing launch on that and 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 is underway. We’re waiting for the other elements of our capital plan to really come together, but we’ll continue the marketing process for those. For first that first building, then following that could be two other buildings that would probably go through the same program around the same cost and economic metrics as the first building.

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

Okay, great, that was helpful.

Upal Rana

And then on the dispositions, you went through a few of the assets in the markets that you want to dispose some assets in. Outside 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 or after that you’d feel comfortable with the core portfolio going forward.

Gerry Sweeney — CEO

No, look, great question. I think the target for this year is the 280 to 300 million dollars. But we have a number of other properties, including some landholdings 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 sub market conditions or frankly change in, in tenant appetites in terms of what they classify as A versus B or B plus.

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.

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

Okay, great. Thank you.

Operator

Thank you. And our next question comes from the line of Dylan Burzinski from Green Street. Your question please.

Dylan Burzinski — Analyst, Green Street

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

Gerry Sweeney — CEO

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

Dylan Burzinski — Analyst, Green Street

Yeah, 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 eventually want to get to before you really start to kick the share buyback into gear?

Gerry Sweeney — CEO

Look, I think as we look at our strategic direction, certainly we want to get our leverage metric to be fully back on the investment grade ladder, which is typically evidenced by fixed charge coverage well north of two and a net debt to EBITDA somewhere in the low to mid sevens. So I think we do view that, as we’ve talked about it being a multiple year plan and that can certainly be accomplished by asset sales as we’ve laid out, certainly increasing noi. So we do have a number of, I think, good programs underway to increase absorption throughout our existing portfolio as well as these development projects coming online and being recapitalized.

As 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?

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

That’s helpful.

Dylan Burzinski — Analyst, Green Street

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

Gerry Sweeney — CEO

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 are 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.

Dylan Burzinski — Analyst, Green Street

No, that’s extremely helpful, Jerry. Really appreciate the time.

Anthony Paulin — Analyst, JPMorgan

Thanks.

Operator

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

Michael Lewis — Analyst, Truist Securities

Thank you.

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

So you talked about what you want to sell.

Michael Lewis — Analyst, Truist Securities

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 traded at like a 5, 6 yield. Right. So if I just summarize it, what.

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

Kind of cap rate do you expect.

Michael Lewis — Analyst, Truist Securities

When you sell the assets? And then can I assume that the proceeds will be used to pay 8.5% bonds at 5, 6 or 5, 7. Well, I think two part question. Tom will pick up the second part. I think when we’re looking at Michael and good morning. When we look at the sales program, we are looking at an average cap rate of about 8% based upon the visibility we have from the marketplace place today. That obviously will range from lower single digits to higher single digits based upon the asset and the sub market location. So we feel very good about both the timing expectations we have and the value proposition we think we can generate from those sales.

But Tom, maybe share some thoughts on the application of those proceeds.

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

Yeah. Hi Michael. When we look at the application, 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 zero as possible. But also as we see those sales come in, in the line is near zero. One of the areas we are targeting is maybe buying in some of our bonds separately. And the 28s are a good example at a 106 or even inside of that, we can buy back some of those bonds on the open market if we got a lot of sales done.

We could also make it sort of a formal tender. But we’re definitely thinking about some of the higher priced bonds taking them out early. It does help with near term impact to fixed charge. So we will, 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.

Michael Lewis — Analyst, Truist Securities

You know, you talked about all the things you’re kind of exploring, right? So the stock price is below $3. I think consensus Navy is $8.

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

So some of those things could be.

Michael Lewis — Analyst, Truist Securities

Share buybacks if you get the leverage down.

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

You know, has the board talked at.

Michael Lewis — Analyst, Truist Securities

All or thought about any kind of a, you know, a recap or, you know, is there m and a interest out there?

Thomas E. Wirth — Executive Vice President, Chief Financial Officer

Is there?

Gerry Sweeney — CEO

You know, 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? Yeah, look, I mean the board and management always have open door to any type of strategic solution. I think is we evaluate where we are today and where we want to go. We do believe that the, you know, one of the drivers of the discount in our public market pricing is the leasing up of these development projects and the related impact 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 effect rents we’ve ever gotten. We are absorbing more than Our market share bought 3,025 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 at the midpoint of sales and that’s across all of our different markets.

And I think we take a look at the challenges we have underway. I mean certainly there’s, you know, Austin, as I mentioned, has been a 400 basis point hit to our occupancy. We certainly that portfolio has underperformed our expectations. We’ve sold a 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 two remaining developments, primarily one uptown, which now mentioned 65% and then 3,151. You know, I mean we have a great pipeline there, but we need to show the street that we can execute and get leasing done there.

We did take at a higher price cost of capital, albeit through a loan proceeds. But we do have, you know, half a billion dollars of assets on the balance sheet that aren’t generating a lot of return right now. And we think as that leases up, we’ll be in great shape. All that being said, you know, the board and management review our strategic direction every quarter. We remain in very close touch. We have a lot of discussions underway with these recap partners asset sale programs. So I think we never lose sight of the fact that tactics have to be part of a strategic direction.

We think of all the key ingredients here to get back to investment grade metrics, stabilize these development projects, all while we’re recycling assets to generate additional liquidity, but also maintaining good operating portfolio performance.

Michael Lewis — Analyst, Truist Securities

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 Gerry Sweeney for any further remarks.

Gerry Sweeney — CEO

Great. Well, thank you all for participating in our call today. Look, prior to signing off, you know, some time ago we did announce that George Johnstone has elected to retire. So this will be. He’ll be retiring shortly. This will be his last earnings call. So the. Well, we have several internal celebrations planned to 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.

Operator

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