Brandywine Realty Trust (NYSE:BDN) said its third-quarter results met management guidance as the office landlord accelerated asset sales and debt repayments, improving liquidity and lowering its leverage outlook for year-end.
President and CEO Jerry Sweeney said the company increased its 2026 sales guidance to $681 million, including the $240 million sale of 3151 Market Street in Philadelphia and the sale of its partnership interest in Solaris House, a residential project in Austin, Texas. The 3151 Market sale equated to $544 per square foot and eliminated nearly $80 million of future capital spending, Sweeney said.
The company said it has fully achieved and funded its sales target and raised its speculative revenue target by $1 million to $19.5 million, nearly 12% above its initial 2026 business plan.
Debt Reduction and Liquidity
Brandywine repaid $390 million of debt during the quarter, representing more than 13% of its combined outstanding debt and exceeding its initial 2026 debt-reduction target by $218 million. The paydowns included loans secured by 3151 Market Street and Solaris House.
The company lowered its year-end net debt-to-EBITDA target range to 7.8x to 8.0x, from a prior midpoint range of 8.4x to 8.8x. Its annualized combined net debt-to-EBITDA ratio was 7.6x in the third quarter, compared with a quarterly run rate of 9.0x in the second quarter.
Chief Financial Officer Tom Wirth said the debt reduction produced $24 million of annual interest expense savings on a wholly owned basis. During the quarter, Brandywine purchased $140 million of unsecured bonds, including $50 million of 2028 bonds and $90 million of 2029 bonds, reducing annual interest expense by $12.5 million. The company incurred approximately $9.2 million of debt extinguishment costs associated with the bond purchases.
Brandywine also prepaid a $57.3 million C-PACE loan collateralized by 3151 Market Street, resulting in a $6.2 million loss on early debt extinguishment.
At quarter-end, the company had $137 million outstanding on its line of credit, but repaid that balance in early October after receiving sale proceeds. It subsequently reported $175 million of cash and no balance outstanding on the unsecured line. Wirth said Brandywine expects to use another $100 million of cash to reduce debt during the fourth quarter.
Sweeney said debt reduction remains the company’s central capital-allocation priority, while share repurchases are expected to account for only 5% to 10% of net proceeds until Brandywine makes further progress toward investment-grade credit metrics.
Third-Quarter Results and Outlook
Brandywine reported a third-quarter net loss of $22.3 million, or $0.13 per share. The company said FFO totaled $24.6 million, or $0.14 per diluted share, in line with management guidance and consensus estimates. It maintained its full-year FFO midpoint of $0.55 per share while narrowing its full-year guidance range.
Property net operating income was $68.5 million, about $1.1 million below the company’s forecast because of lower retail and residential income. Wirth said Brandywine expects improvement in those areas in the fourth quarter. General and administrative expense exceeded the reforecast by $500,000, primarily because of compensation expense, while third-party leasing fees were $500,000 above forecast.
For the fourth quarter, the company expects property-level income of roughly $68 million, with sold properties reducing quarterly NOI by about $2 million. That decline is expected to be partly offset by improvements at the Radnor Hotel and 3025 JFK, which are each projected to contribute approximately $800,000 of sequential NOI improvement.
Brandywine expects fourth-quarter core FFO of $0.16 to $0.18 per share. It lowered its full-year interest-expense range by $3 million at the midpoint to reflect lower debt balances.
Leasing Activity and Portfolio Performance
The company’s wholly owned portfolio was 90.5% leased and 89% occupied at quarter-end. Net absorption was slightly negative by approximately 7,000 square feet, though Sweeney said Brandywine expects occupancy and leasing levels to improve by year-end and expects positive net absorption for the first time in several years.
Quarterly leasing activity totaled 558,000 square feet, including 372,000 square feet in the wholly owned portfolio. Leasing at One Uptown in Austin totaled approximately 114,000 square feet since the prior earnings call, bringing the development to 97% leased.
- Tenant retention was 50%, prompting Brandywine to raise its full-year midpoint retention target to 54%.
- GAAP mark-to-market was 10.8%, while cash mark-to-market was 5.7%.
- Same-store results were down 0.6% on a GAAP basis and up 1.7% on a cash basis.
- The operating portfolio leasing pipeline remained at 2 million square feet, including about 300,000 square feet in advanced negotiations.
Sweeney said Philadelphia was 95% occupied and 96% leased, while Pennsylvania suburbs were 93% leased. Austin remained the weakest market in the portfolio at 66% occupancy, reducing overall company occupancy by about 400 basis points.
Austin Plans and 2027 Asset Sales
Brandywine expects One Uptown to stabilize in the third quarter of 2027, slightly behind schedule because of tenant build-out timing but at a somewhat higher projected yield. The company plans to explore a recapitalization of the project in the first quarter of 2027, which it expects could provide about $25 million of net proceeds and reduce debt attribution by approximately $50 million.
The company is also preparing for the 2027 expiration of an IBM lease that represents roughly $11 million of net NOI. Sweeney said Brandywine has a 1.5 million-square-foot pipeline of prospects for redevelopment of the IBM buildings, with potential lease commencements between late 2027 and 2030. The first potential renovation would involve a 157,000-square-foot building, contingent on preleasing, with delivery targeted for year-end 2027.
In Austin’s River Place area, the company is evaluating whether to convert one office pod to residential use, citing changes in local submarket conditions and state legislation intended to accelerate office-to-residential conversions.
Looking ahead, Sweeney said Brandywine anticipates approximately $200 million or more of additional asset sales in 2027, potentially including properties in core and non-core markets as well as land parcels. He said the company will weigh future dispositions against market conditions, property income lost through sales, debt costs and the potential benefits of using proceeds to further reduce leverage.
About Brandywine Realty Trust (NYSE:BDN)
Brandywine Realty Trust is a self-administered and self-managed real estate investment trust that owns, develops, leases and manages office, mixed-use and other commercial properties. The company focuses on well-located properties in urban, town-center and suburban settings, offering workspace, retail, residential and hospitality components within selected developments.
Brandywine’s principal concentration is the Philadelphia region, including Philadelphia and surrounding communities in Pennsylvania and New Jersey.
