Brandywine Realty Trust Q4 FY2025 Earnings Call

Thank you for standing by, and welcome to the Brandywine Realty Trust Fourth Quarter 2025 Earnings Conference Call. As a reminder, today's program is being recorded. And now I'd like to turn our host for today's program, Jerry Sweeney, President and CEO. Please go ahead, sir.

Thank you very much. Good morning, everyone. Thank you for participating in our Fourth Quarter 2025 Earnings Call. Joining me today are George Johnstone, our Executive Vice President of Operations; Dan Palazzo, our Senior Vice President and Chief Accounting Officer; and Tom Wirth, our Executive Vice President and Chief Financial Officer. Before we begin, please note that some of the information discussed today may include forward-looking statements. While we believe that our estimates are based on reasonable assumptions, we cannot guarantee that the anticipated results will be achieved. For more information on factors that could impact our results, please refer to our press release and our most recent annual and quarterly reports filed with the SEC. During our prepared remarks, Tom and I will briefly discuss fourth quarter results and outline the key assumptions for our '26 guidance. After that, Dan, George, Tom, and I will be available for questions. To start, from an operational and liquidity standpoint, 2025 aligned closely with our business plan, showcasing strong operating metrics that emphasize our solid market positioning and the ongoing preference for quality among our tenants. Our core portfolio is 88.3% occupied and 90.4% leased. We saw a notable increase in forward leasing commencing after year-end, up 26% to 229,000 square feet, with the majority set to occupy within the next two quarters. We generated nearly $27.3 million in speculative revenue, consistent with our business plan, and exceeded our tenant retention target at 64%, surpassing our initial goal of 59% to 61%. For the year, we approximated 1.6 million square feet of leasing activity. In the last quarter alone, we executed 415,000 square feet of leases, consisting of 157,000 square feet 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 above our '25 business plan midpoint and reflecting solid capital control, effective purchasing power, and a high percentage of lease renewals. On an annual basis, our GAAP mark-to-market was 4.2%, exceeding business plan expectations. Cash basis performance was consistent with our business plan. New leasing mark-to-market was strong at 13% for GAAP and 4% for cash. Additionally, we observed encouraging growth in tour volume, with fourth quarter tours surpassing those of the third quarter by 13% and exceeding those from fourth quarter '24 by 87%. Remarkably, 45% of new leasing was attributed to the flight to quality. Our annual tour volume increased by 20% on the fiscal tours number and 45% on a square footage basis compared to '24. We noticed higher tour levels across all core markets, particularly in CBD, Philadelphia, and Radnor, with notable increases in square footage. The conversion rate of tours has remained robust, historically aligned, with 56% converting to proposals and 38% of those proposals converting to executed leases. Moving to market specifics, in Philadelphia, comprising both CBD and University City, we're achieving outstanding occupancy rates at 95% occupied and 97% leased, with only 6% of our space rolling through 2028. Additionally, our Commerce Square joint venture property is now 90% leased, contributing to a combined Philadelphia total of 95%. Overall activity levels are strong, with Brandywine capturing 30% of the new leasing market share in Market West and University City over the past five years, significantly surpassing our historical market share of 15%. In 2025, 54% of all new leases in these areas were at Brandywine properties, with our net effective rents increasing nearly 20% since 2021. In the Pennsylvania suburbs, we are 89.4% leased, with our Radnor submarket at 91% leased. There's a solid pipeline of prospects for existing vacancies. Conversely, Austin is currently at 74% occupancy, influencing the company's overall leasing levels. Nevertheless, tour volume in Austin was up over 100% year-over-year. Our overall leasing pipeline stands strong at 1.5 million square feet, including about 140,000 square feet in advanced negotiations. On the liquidity front, we are in strong shape with no outstanding balance on our $600 million unsecured line of credit and $32 million in cash as of quarter-end. We have no unsecured bonds maturing until November 2027, and we aim to maintain minimal balances on our line of credit as part of our plan to return to investment-grade metrics. We plan to reduce overall leverage and refinance bonds with high coupons, and if we refinance those above 8% to today's market rates, we could potentially lower our interest cost by about $0.10 per share. In terms of year-end results, our FFO for both the quarter and the year aligned with consensus expectations. Notably, in the fourth quarter, we commenced steps toward recapitalizing our development joint ventures by redeeming our preferred equity interest in both ventures at Schuylkill Yards. Our 3025 JFK property is a high-quality asset, and a major tenant has already occupied the space. This property is set to join our core portfolio in the first quarter at 92% leased. Our buyout at 3151, totaling around $65.7 million, was primarily funded through a $50 million C-PACE loan, effectively replacing higher-cost equity with a more flexible loan. Looking at our project pipeline, we have approximately 1 million square feet being developed, with a mix of 60% office and 40% life sciences. Active discussions with multiple prospects continue, and several key proposals are outstanding. The buyouts at Schuylkill Yards have temporarily increased our year-end leverage in anticipation of construction loan refinancing and asset sales. Pro forma for the revenue stream starting this month, our net debt to EBITDA would improve by 0.4x, and our fixed charge coverage would improve by 0.2x. Remaining joint venture projects include One Uptown and Solaris in Austin. Uptown ATX is now 55% leased, up from 40% in the last call, with further potential leases in progress. Solaris stands at 98% occupied and 99% leased, with improved renewal economics, averaging a 12.7% effective rent growth since November 1. Regarding One Uptown, with one outstanding lease, we have further floors available. Our investment market shows strong improvement in velocity and pricing, with recent marketing efforts yielding significant interest. Looking ahead to '26, our business plan emphasizes a return to earnings growth, solid operational performance, and further focus on stabilizing key properties. We expect 2026 FFO guidance to be between $0.51 and $0.59 per share, representing a 5.8% increase over '25. Key drivers will be outlined in the FFO reconciliation. In conclusions for operations, we expect solid core portfolio performance and strong leasing activity for 2026. We anticipate targeted spec revenue of $17 million to $18 million, up from '25 levels and with healthy leasing momentum. We forecast a 120 basis point improvement in year-end occupancy from 2025 levels, indicating positive net absorption and a healthy market trend. Our leasing capital is projected to exceed '25 levels due to increased new lease activity. We plan to repay the 3025 construction loan with lower-cost debt, passing along significant savings. Our sales target for 2026 is set between $280 million and $300 million, with anticipated cap rates around 8%. We currently have buyers advancing toward agreement on $100 million in sales, with the primary focus on lowering leverage while exploring share repurchases due to our stock's undervaluation. Additionally, we plan to recapitalize One Uptown and Solaris in the second half of '26. We project year-end core net debt to EBITDA to be between 8 to 8.4x. Our CAD ratio will range between 90% to 70%, with improvements expected in the second half of the year as we complete remaining tenant improvement costs. Now, Tom will review our financial results for the fourth quarter and provide a more detailed outlook for '26.

Thank you, Jerry, and good morning. Our fourth quarter net loss was $36.9 million or $0.21 per share. Our fourth quarter funds from operations (FFO) totaled $14.6 million or $0.08 per diluted share, aligning with consensus estimates. Both quarterly results were affected by a one-time charge for the early extinguishment of a CMBS loan, totaling $12.2 million or about $0.07 per share. In terms of general observations for the fourth quarter, property-level net operating income (NOI) was $70 million, which is $1 million below our forecast, mainly due to increased operating costs across the portfolio. The contribution from our unconsolidated joint ventures was $0.6 million, exceeding our forecast by $1.4 million, primarily due to improved operations at Commerce Square, ATX Office, and Solaris. General and administrative expenses were $0.6 million below our reforecast due to lower compensation expenses. Net interest expense increased by $0.7 million, mainly because of the inclusion of the 3025 JFK loan, though this was partially offset by higher-than-expected capitalized interest. Other forecasted quarterly results generally met expectations. Looking at our debt metrics, our fourth quarter debt service and interest rate coverage ratios were 1.8, both below the levels from the third quarter. The annualized combined and core net debt to EBITDA ratios for the third quarter were 8.8 and 8.4, respectively, both exceeding our business plan ranges. These metrics were negatively impacted by $136 million in preferred equity partner buyouts in the fourth quarter. As noted, we expect 2026 sales to reduce our ownership in Uptown ATX, which will help offset these increases. Notably, our consolidation of 3025 JFK occurred before the first quarter stabilization for contractual leases, which increased our combined net debt by 0.4 times and our fixed charge by 0.2, otherwise keeping both metrics within target. We maintain a strong liquidity position with $32 million in cash and no outstanding balance on our unsecured line of credit at the end of the year. Regarding our 2026 guidance, we project a net loss at the midpoint of $0.62 per share. Our 2026 FFO is forecasted at $0.55 per diluted share, representing a 5.8% increase from last year. Overall, we expect portfolio operations to remain stable with property-level GAAP NOI totaling $292 million, a $30 million increase compared to 2025. This increase is driven by 3025 JFK generating an additional $17 million as a stabilized wholly-owned asset, while asset sales in 2025, together with fourth quarter move-outs, will lead to a $7 million decrease in NOI. Same-store results are expected to remain roughly flat. Our fourth quarter contribution from unconsolidated joint ventures is projected to improve from an $11 million loss in 2025 to a $1 million income contribution in 2026 due to the consolidation of 3025 JFK, which previously had a loss. Developments at ATX are expected to yield a $9 million improvement compared to 2025, while 3151 will partially offset this with a one-time $7.5 million or $0.04 per share tax credit gain recorded in the first quarter of '25 that will not recur. G&A expenses are anticipated to be between $36 million and $37 million, which is $5.5 million lower than our total for 2025, mainly due to reduced compensation expenses, including those related to incentives. Total interest expenses, including $5.5 million of deferred financing costs and $2 million of capitalized interest, are projected to be around $170 million, marking a midpoint increase of $30 million compared to 2025 due to capitalized interest rising by $10 million as 3151 becomes operational. The consolidation of 3025 JFK is expected to increase interest expense by roughly $8 million once refinanced, and bond issuances in June and October, along with the related CMBS loan repayment, will contribute an $8 million increase in 2026. The C-PACE loan on 3151 is also anticipated to raise interest expenses by about $4 million. Termination and other income are projected to be between $9 million and $11 million, up from $6.6 million in '25, primarily due to improved income from new retail tenants. Net management and development fees are expected to range between $6 million and $7 million, reflecting a $4 million decrease mainly due to lower development fees in 2026 as our joint ventures stabilize. We anticipate $290 million in wholly-owned sales activity, mostly in the first half of the year, which will be used to reduce debt and work towards regaining an investment grade rating. Depending on the timing of these sales, we may utilize shares to lower debt, potentially including a buyback of outstanding bonds. In terms of financing, the 3025 JFK construction loan totals $178 million and matures in July 2026. We plan to refinance that loan by late first or early second quarter. We are considering a low-rate secured loan for the residential portion of the property amounting to about $100 million to help unencumber the office portion. Our unsecured line of credit matures in June 2026, and we expect to extend this facility before its maturity. Regarding recapitalization of our joint ventures at ATX, as they continue to lease up and enhance cash flow, we aim to recapitalize projects during the second half of 2026 on a pari-passu common equity joint venture basis, reducing our ownership to a minority stake. This recapitalization will generate cash to help further reduce our wholly-owned leverage. Due to the timing and change in ownership structure in 2026, we have not included the benefits of these transactions in our FFO guidance. We do not anticipate any property acquisitions. Our share count will be around 180 million shares. While we expect strong performance in our land sales program this year, we have not factored in any potential land gains or losses. For the first quarter, property-level NOI is expected to be approximately $70 million, consistent with the fourth quarter. Although we will fully benefit from $2 million at 3025 JFK, it will be somewhat offset by seasonality impacts across the rest of the portfolio. The FFO contribution from our joint ventures should reach $0.5 million in the first quarter. G&A expenses are projected at $12 million for the first quarter, with the sequential increase consistent with prior years primarily related to the timing of deferred compensation expense recognition. Total interest expenses are expected to be around $42 million, which includes about $1 million in capitalized interest. Termination and other fees are projected at $2.5 million, and net third-party fees will be approximately $1.5 million. As outlined, our 2026 capital plan will see more activity than 2025, totaling about $475 million. We expect our cash available for distribution payout ratio to range from 70% to 90%, with improvement occurring as the year progresses. Our larger uses of capital will include refinancing the 3025 JFK construction loan for $178 million, using $125 million for bond buybacks and debt reduction, and $50 million for development expenditures at 3151 Market, 165 King of Prussia, and 3025 JFK. We have allocated $57 million for common dividends, $33 million for revenue maintaining capital, and $25 million for revenue creating capital, plus $10 million for tenant leases at One Uptown. The sources for these activities will be approximately $110 million in cash flow after interest payments, speculative sales totaling $290 million, and $90 million of loan proceeds possibly from financing the residential portion of 3025. Based on this capital plan, we anticipate having around $52 million in cash at year-end and full availability on our line of credit. We expect net debt to EBITDA to range between 8.4 and 8.8 and our fixed charge ratio between 1.8 and 2.0. These ratios incorporate our extended asset sales program and the recapitalization of ATX developments. They remain elevated until increased revenue from development projects like 3151 is realized, though as these projects stabilize, we expect our leverage to decrease and these metrics to improve. I will now hand the call back to Jerry.

Great. Tom, thank you very much. So as I 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 do in the interest of time, to limit yourself to one question and a follow-up. Jonathan?

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

You mentioned in your opening remarks that your average cost of bond is above 6% and that 50% is above 8%. If you were to refinance those today, you could save $0.10 on interest expense. What is the hurdle for you to consider pulling forward some of those refinancings?

So I think the first course of action we have right now is to execute 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 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 the 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.

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

Yes. 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 opportunity to be opportunistic in buying back, we think, our 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 and 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 our overall balance sheet metrics. And stock buyback optionality comes into play as we achieve our other objectives. So hopefully, that is clear.

And our next question comes from the line of Anthony Paolone from JPMorgan.

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. Like 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 be sold right now? I understand debt paydown is the priority, but just trying to understand where you're trying to go with the portfolio and what to sell.

Tony, great question. Yes. 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, to perceived headwinds on stabilizing the remaining 2 development projects. But as we're looking at the sales program going forward, we took a hard look at what we forecast some of the growth rates to be on some of our assets, given changing submarket 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 the framework for what assets do we think could, number one, be marketable in today's climate. And again, we're targeting an average cap rate around 8%. Where we have lease-up risk and some assets 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 is to get down to 1 or 2 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 to identify which properties we thought would generate real value for us today without sacrificing growth rates going forward.

Okay. Got it. 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 pipe as tenants grow. I guess, is there anything to glean from what you're seeing in that part of the portfolio as to 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 you're seeing there that might be helpful as a forward look?

Yes. And George and I can tag team this. I mean, on the life science front, 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 we are seeing activity. There has been a good performance of a number of the privately held life science companies that are in Philadelphia regions, particularly cell and gene therapy. We're seeing a high velocity of activity at our incubator space and the graduate labs and have signed up a couple of key tenants with a good healthy pipeline. But George, maybe you could add some color to that as well.

Yes. 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 generate the graduate lab spaces, which are 93% occupied at this point. So we've got all of that. We have 1 4,000-square foot lab left to lease up on the 8th floor. But again, we've seen 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 a full-fledged lab space.

And our next question comes from the line of Steve Sakwa from Evercore ISI.

I guess, Jerry, as it relates to the outright sales as well as the recaps of the JVs, maybe my recollection was wrong here, but I thought there was 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 it sounds like those are kind of pushed to the back half of the year. I'm 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?

Yes, Steve, our business plan anticipated that those recaps would take place in the second half of the year. Additionally, as Tom noted, we did not factor in any earnings impact from those plans for this year. However, we are actively exploring the market and assessing the right timing for the recap with various investors. Solaris has performed exceptionally well, nearly 99% leased. To boost leasing for that property, we implemented a strong concession package due to the market oversupply. This strategy worked well, allowing us to absorb almost 40 units a month at one point. Currently, we are in the initial stages of renewals. For all renewals completed in the third quarter and the beginning of the fourth quarter last year, and those we’ve processed this year, we are seeing nearly a 13% increase in effective rent, which significantly impacts the NOI. We are monitoring this to determine the best timing for the recap. Progress is encouraging, and we are confident it could happen around midyear, or even sooner. At One Uptown, we are currently at 63% leasing, and the pipeline remains strong, particularly with small tenants. We are also building out one floor as a speculative suite. We expect to make further leasing progress there and are synchronizing these efforts with discussions with recap partners. It’s a concurrent evaluation rather than sequential. We are eager to complete those recaps sooner rather than later, but to be cautious, we did not include any impact from that in our earnings outlook for the year.

Okay. Great. 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 1 million square feet of pipeline, or maybe it was 1.5 million. 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 in either by product type or whether it's life science, office, and in which submarkets?

Yes. George and I will share the insights. Currently, the strongest trends are in CBD Philadelphia and University City. As mentioned in the prepared comments, we’ve effectively increased rents in those areas. This improvement is driven by a return in demand levels to pre-COVID figures. For instance, in 2025, we experienced the highest volume of new deals in the past five years, indicating an acceleration in activity. The available inventory is decreasing, with several properties either facing financial difficulties or being assessed for possible residential conversion. We anticipate that about 10% to 15% of the inventory in the CBD will transition to residential use. The state has approved a 20-year tax abatement for these conversions, and the city is also considering this, which we believe will further reduce inventory. We are pleased with the increased activity in Radnor, Pennsylvania, and King of Prussia. As for development, the project at 3151 has a strong pipeline, with proposals out to several tenants, comprising about 60% office and 40% life science. We are working diligently to finalize these transactions and have received positive feedback regarding the proposed economics. The level of tours for this building remains encouraging. Finally, at One Uptown, with tenant spaces ranging from 5,000 to 50,000 square feet, we are confident in meeting our leasing goals.

Yes. I think the operating portfolio, the pipeline remains fairly consistent. We're at 1.5 million square feet today. Last quarter, we were at 1.7 million, and then we executed about 200,000 square feet of that 1.7 million. So every time we seem to execute a lease, we're generating more, as Jerry mentioned, in the pickup in overall tours. So I think these 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 One Uptown, really, with 3 floors to lease, one of them kind of with an expansion right encumbrance, we've got a pipeline that's almost 3x the available amount of square feet we have.

And our next question comes from the line of Upal Rana from KeyBanc Capital Markets.

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

Yes, that's a great question. As previously disclosed, IBM will be vacating their space at our Uptown development starting at the end of the first quarter next year. We also received a significant modification to our Uptown approvals last year, allowing us to increase density throughout the 66-acre park. Given the cyclical nature of the Northwest market and considering current market demand, our 2026 business plan includes plans to commence redevelopment of one existing building, which is currently vacant and totals about 157,000 square feet. We anticipate renovation costs will be in the range of $30 million to $40 million, and we expect to complete the project within a 3 to 4 quarters timeframe. Our marketing launch has been successful, with approximately 600,000 square feet of potential prospects. The pricing will be around 15% to 20% below the rents at One Uptown, and we are aiming for a cash yield of over 8%. Planning for this is in progress, and we are waiting for other parts of our capital plan to align. We will continue the marketing process for this building first, followed by potentially redeveloping two other buildings with similar costs and economic metrics.

Okay. Great. That was helpful. And then on the dispositions. You went through a few of the assets in the markets that you want to dispose some assets in. I thought 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, and after that, you'd feel comfortable with the core portfolio going forward.

No. Look, a great question. I think the target for this year is the $280 million to $300 million. But we have a number of other properties, including some land holdings 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 submarket conditions or, frankly, changes in tenant appetites in terms of what they classify as A versus B or B+. 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.

And our next question comes from the line of Dylan Burzinski from Green Street.

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 then 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?

I'm sorry. Dylan, you cut off after the last part. I apologize. Could you repeat?

Yes. 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 actually want to get to before you really start to take the share buyback in the year?

Yes. Look, I think as we look at our strategic direction, certainly we want to get a leverage metric to be fully back on the investment-grade ladder, which is typically evidenced by fixed charge coverage well north of 2 and net debt-to-EBITDA somewhere in the low to mid-7s. 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 good programs underway to increase absorption throughout our existing portfolio as well as these development projects coming online and being recapitalized. When 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.

That's helpful, Jerry. And then I guess just on the development projects outside of Austin, so the ones in University City, Philadelphia. I mean, are those potential disposition candidates as you stabilize those? Or are these sort of off the disposition candidate list for the time being?

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're 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 helps.

And our next question comes from the line of Michael Lewis from Truist Securities.

So you talked about what you want to sell. 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 trading at like a 5.6% yield, right? So if I just summarize it, what kind of cap rate do you expect when you sell the assets? And then can I assume that proceeds will be used to pay 8.5% bonds at 5.6% or 5.7%?

I believe it's a two-part question. Tom will address the second part. When we examine the sales program, we anticipate an average cap rate of around 8% based on the current market visibility. This can range from lower to higher single digits depending on the specific asset and submarket location. We are confident about our timing expectations and the value we can create from these sales. Tom, please share your thoughts on how we will utilize those proceeds.

Yes, Michael, when we look at the application of 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 0 as possible. But also as we see those sales come in, in the line is near 0, 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 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, you talked about all the things you're kind of exploring, right? So the stock price is below $3. I think consensus NAV is $8. So some of those things could be share buybacks if you get the leverage down. Has the Board talked at all or thought about any kind of a recap? Or is there M&A interest out there? 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?

Yes. The Board and management keep an open door for any strategic solutions. As we assess our current position and future goals, we believe that one reason for the discount in our public market pricing is the leasing progress of our development projects and its impact on our balance sheet metrics. However, upon closer examination of our strategic direction, our operating portfolio is performing very well. We're seeing growth in occupancy with positive absorption and effective capital management. In several markets, we're achieving our highest net effective rents ever, and we're capturing more than our market share. We added a great asset, 3025, to our balance sheet, and the tour volume indicates a favorable trajectory for NOI growth. The fundamentals of the operating portfolio are strong. We see an opportunity to enhance the overall quality of the portfolio, simplify our holdings, and reduce leverage by bringing in this $290 million midpoint of sales across all our markets. Regarding ongoing challenges, Austin has been a significant hit to our occupancy, and that portfolio has not met our expectations. We've sold several assets there and are concentrating on creating value at our Uptown ATX development. We acknowledge the current overhang on our remaining developments, particularly One Uptown at 65%, and 3151. Although we have a solid pipeline, we need to demonstrate to the market that we can successfully lease those spaces. We did take on a higher cost of capital through loan proceeds, and we have $0.5 billion in assets on our balance sheet that are not producing significant returns at the moment. As those lease up, we expect to be in a good position. The Board and management review our strategic direction quarterly and maintain close communication. We're engaged in discussions with recap partners and asset sale programs. We recognize the importance of tactics in our strategic approach and believe we have the necessary elements to return to investment-grade metrics while stabilizing these development projects, recycling assets for additional liquidity, and continuing strong performance in our operating portfolio.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Jerry Sweeney for any further remarks.

Thank you all for joining our call today. Before we conclude, I want to mention that George Johnstone has chosen to retire shortly, and this will be his last earnings call. We have several internal celebrations planned to honor his impressive career, but I wanted to take a moment to express, on behalf of the Board and employees, our gratitude for your many years of exceptional service and contributions. You will be missed, and we wish you all the best in the next chapter of your life. With that, Jonathan, we can wrap up.

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

Thank you, Jerry.