Earnings Call Transcript - BDN Q1 2024

Operator, Operator

Good day and thank you for standing by. Welcome to the Brandywine Realty Trust First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jerry Sweeney, President and CEO. Please go ahead.

Jerry Sweeney, President and CEO

Thank you, Kevin. Good morning, everyone, and thank you for joining our first quarter 2024 earnings call. I'm here with 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, I want to remind you that some of the information we discuss today may include forward-looking statements as defined by federal securities laws. While we believe that our estimates are based on reasonable assumptions, we cannot guarantee that the anticipated results will materialize. For more information about potential factors that could influence our expected results, please refer to our press release and our latest annual and quarterly reports filed with the SEC. We appreciate your participation and hope you are all doing well as we look forward to a successful 2024. In our prepared remarks, we will provide a brief overview of our first quarter results and the progress we are making on our 2024 business plan. Tom will then provide a summary of our financial results for the quarter and outline the key assumptions behind our 2024 guidance. After that, Dan, George, Tom, and I will be available for any questions. Before discussing the quarter and our 2024 business plan in depth, we want to touch on the main themes that guide our daily operations. From a risk management perspective, we concentrate on three key areas: liquidity, development lease-up, and portfolio stability. Firstly, concerning liquidity, we will explain in my and Tom's remarks that our recent bond issuance has taken care of additional bond maturities through 2027. We expect to keep minimal balances on our line of credit over the next few years to maintain sufficient liquidity. Regarding our operating joint ventures, several non-recourse mortgages are still being negotiated. Though these discussions are taking longer than anticipated, we expect positive outcomes that will enhance both our balance sheet and revenue stream. Next, on development lease-up, we are just a few quarters away from delivering our entire development pipeline, which continues to expand with an increase in both tours and proposals during the quarter. Each project is at the forefront of its market, appealing to a wide range of customers, and we are confident we will achieve our target returns on cost. We understand the earnings drag and balance sheet implications of carrying $260 million in non-revenue-producing capital and are actively marketing every project. However, once stabilized, these developments are projected to generate approximately $54 million in additional NOI, which would represent a 15.5% boost to our current revenue stream, making them essential to our growth. Thirdly, regarding portfolio stability, strong operating metrics underscore the resilience of our core holdings. While our Austin portfolio is currently facing challenges due to 80% occupancy, the fundamental growth trends in that market remain strong, and we are poised to benefit from its recovery. In Philadelphia, one of the largest cities with the lowest vacancy rates, we continue to perform well, reflected in our 94% leasing level and a 91% occupancy level. Looking forward, less than 6% of our annual leases will roll over through 2026. Our 2024 revenue plan is ahead of schedule, and our capital ratios and same-store figures continue to show robust performance, consistent with trends from the past two years. We acknowledge the ongoing challenges in commercial real estate and are committed to ensuring strong performance on our 2024 business plan as well as achieving our long-term growth goals. To summarize, the first quarter has set the tone for a successful year. Our results align with our 2024 business plan. In the first quarter, we reported FFO of $0.24 per share, meeting consensus expectations. Our speculative revenue forecast of $24 million to $25 million is nearly complete. We resolved our 2024 bond maturity earlier and noted Tom's details on our recent $400 million five-year unsecured bond offering, which will help pay off outstanding bonds, reduce a small amount on our line of credit, and provide future liquidity. Our total leasing activity reached almost 500,000 square feet, with 359,000 square feet of leases executed in the quarter, including 101,000 square feet of new leases within our stabilized portfolio. During the quarter, we eliminated $61.6 million in joint venture debt, contributing to our goal of reducing $100 million in venture debt by the end of 2024. Also, our plan anticipates that we will have full availability of our line of credit by year-end 2024. Consolidated debt is 94% fixed at a 6.1% rate. The quarterly rental rate mark-to-market was reported at 16.9% on a GAAP basis and 3.3% on a cash basis. At the end of the quarter, we had an occupancy of 87.7% and were 89% leased, a slight decrease from year-end, but consistent with our business plan projections. Our high occupancy levels, with seven properties contributing over 50% to our vacancy rate affecting our overall numbers by more than 400 basis points, are under remediation with various strategies including aggressive leasing initiatives, capital investments, and potential conversions. Our operating portfolio is in solid shape with rollover exposure now reduced to less than 6% through 2025 and an average of 5.8% through 2026. Renewing a significant tenant has ensured that no lease expiration exceeds 1% of revenue through 2026, which highlights our portfolio quality and competitive advantages. Leasing activity remains encouraging, evidenced by increased physical tours, exceeding fourth-quarter tours by 20% and outperforming our annual average by 48%. This past quarter, 55% of new leases stemmed from a flight to quality, and we have improved our annual retention target. Our total leasing pipeline is now at 4.9 million square feet and has increased over the past four quarters, with our joint venture pipelines also showing positive trends. In terms of our leverage, first-quarter net debt to EBITDA rose to 7.9 times, largely due to increased development costs and expected first-quarter G&A expenses with lower other income. Our core EBITDA metric ended the quarter at 6.8 times, remaining within our target range. For our joint ventures, we have reduced our investment balances and have removed them from our operating reporting metrics, which has also reduced our debt attribution by $61.6 million. We also have two other operating joint ventures with loans maturing in the first half of 2024, secured solely by real estate and non-recourse. Despite slower progress in negotiations than anticipated, we expect resolution in the coming quarter. Additionally, we received a three-month extension from our lender on Cira Square and are coordinating with partners for refinancing during this period. Regarding guidance, due to our bond financing being executed three months ahead of schedule and exceeding our business plan target, we anticipate an added $0.03 per share in interest expense. Consequently, our upper FFO guidance has been adjusted down by the same amount, now set at $0.90 to $0.97 per share. Our dividend stands at $0.60 per share, with FFO and CAD payout ratios at 63% and 86%, respectively. At the midpoint, our first-quarter coverage ratios outperformed our business plan forecasts, and we anticipate $80 million to $100 million in sales this year, likely occurring in the fourth quarter with minimal dilution. This year, we plan to list around $200 million to $300 million in properties for price discovery, focusing on the metro D.C. and Pennsylvania suburban markets, while also divesting non-core land parcels as we did last year. On the development front, our pipeline has reached 2.5 million square feet, up 14% from last quarter, with notable developments in leasing negotiations and outstanding proposals. Though the commercial components of One Uptown and 3025 JFK have been delivered, our 2024 financial plan does not project speculative revenue from these projects yet due to the time required for permits and construction. Nevertheless, we are expediting revenue recognition by building spec suites in both developments to be completed mid-year. For the 3025 JFK project, we remain 15% leased, with an active pipeline of 650,000 square feet. The residential units are progressing well with tours occurring regularly, and we have seen an increase in leasing activity. 3151 Market is set to deliver later this year, and we have a leasing pipeline modestly up from last quarter. Uptown ATX Block A construction is on budget, although completion has shifted to Q1 2024 due to some necessary infrastructure work. With our leasing pipeline projected at approximately 700,000 square feet, we are working on spec suites while the multi-family component will start phasing in during the third quarter of 2024. Finally, the B.Labs expansion at Cira Center is also nearing completion, and we are in the final stages of negotiations with a tenant interested in leasing the entire eighth floor.

Tom Wirth, Executive Vice President and CFO

Thank you, Jerry, and good morning. In the first quarter, we reported a net loss of $16.7 million, equating to $0.10 per share, while our funds from operations (FFO) came in at $41.2 million, or $0.24 per diluted share. Our FFO results aligned with consensus expectations, and we noticed some overall trends in the first quarter of 2024, particularly two differences from our fourth quarter guidance. Contributions from our joint ventures exceeded our re-forecast by $1.2 million, largely due to a one-time gain at one of our projects. General and administrative expenses totaled $11.1 million, which is $1.1 million over our re-forecast, mainly because of increased compensation expenses. This variance is expected to be temporary, and we believe the full-year figures will remain consistent with our guidance. Our debt service and interest coverage ratios for the first quarter were 2.5, and the net debt to gross asset value stood at 44.1. The annualized core net debt to EBITDA was 6.9, while the annualized combined net debt was 7.9, slightly above our target range of 7.5 to 7.8. In terms of portfolio changes, we made no updates to our core portfolio this quarter, but we have removed two joint ventures from our reporting metrics due to recent accounting updates. As of December 31, we wrote off our existing investment in these two ventures, so we won’t recognize any future income or loss from them, and the associated debt is non-recourse. We successfully completed a $400 million bond offering that closed on April 12. This issuance helped eliminate significant short-term maturity risks, with no bond maturities due until November 2027. We also improved liquidity by increasing our bond issuance from an anticipated $350 million to $400 million, which supports our aim of remaining an unsecured borrower and helped maintain a close-to-zero outstanding line balance. Currently, 96% of our debt is fixed at a rate of 6.1%, with an average maturity of 4.6 years. We are in the process of tendering for our 2024 bonds, with results expected this coming Friday. Any bonds not tendered will be redeemed within the next five to six weeks. While bond pricing met our business plan for 2024, the interest expense rose by about $5 million or $0.03 per share due to the timing of the new bond issuance and the rising interest rate curve for our floating rate debt. Consequently, we adjusted the upper end of our FFO guidance down by $0.03. Currently, we are not looking into secured financing transactions. Regarding the 2024 joint venture debt maturities, we're collaborating with our partners to possibly extend the current maturity dates with our existing lenders. We also begun marketing efforts with new lenders and have put some properties up for sale to reduce our joint venture leverage. We managed to extend our maturing Cira Square mortgage by 90 days to July 1. For the second quarter of 2024, we expect our portfolio operating income to be around $74 million, in line with our first-quarter performance. We anticipate a negative $2 million FFO contribution from our unconsolidated joint ventures in the second quarter, a decrease attributed to a one-time income boost in the first quarter. As we begin our ATX residential operations late in the quarter, G&A expenses are projected to decrease to $9.5 million, reflecting a typical seasonal improvement due to the timing of deferred compensation recognition. We estimate total interest expenses to be around $33 million, with capitalized interest at $3 million. Termination fees and other income are expected to be about $2 million, while our quarterly NOI from management, leasing, and development fees should be approximately $3 million. Additionally, we anticipate interest and investment income to total around $1.2 million, which reflects the cash we will hold until the 2024 bonds are settled. We believe that through the tender, we might achieve a one-time net gain estimated at roughly $802 million by repurchasing the bonds below par. The land sales gains tax provision is not expected to be material, and we project a share count of about 176 million diluted shares. Our capital plan is focused and amounts to $580 million, with a CAD range of $90 million to $95 million. Key uses in this capital plan include $70 million for development and redevelopment costs, $80 million for common dividends, $35 million for revenue maintenance, $30 million for revenue-generating capital expenditures, $25 million for contributions to joint ventures, and $340 million for unsecured bond redemption. The main funding sources will include $105 million in cash flow after interest, $391 million in net secured loan proceeds from our bond offering, land sales at an average of $90 million, and $25 million from construction loan proceeds related to 155 King of Prussia Road. Given this capital plan, we expect cash on hand to increase by about $31 million, and our line of credit is projected to remain untapped throughout the year, ensuring full availability. We forecast that our net debt to EBITDA will stay within the 7.5 to 7.8 range due to increased capital spending on development projects, with minimal project income by the end of the year, and expect our net debt to GAV to be around 45%. In addition to our core net debt metric, we estimate our core net debt to EBITDA range to be between 6.5 and 6.8 for the year, excluding our joint ventures and active development projects nearing completion. This core leverage metric provides a clearer view of our core portfolio's leverage, excluding the more highly leveraged joint ventures and un-stabilized projects. By 2025, we anticipate our core net debt to EBITDA will start to align with our consolidated net debt to EBITDA as our development projects stabilize and we continue lessening our exposure to current joint ventures. Our fixed charge and interest coverage ratios are expected to be around 2.2, a decrease from the first quarter, mainly due to increased projected interest expenses from our recent unsecured bond issuance, anticipated capital expenditures, and the stabilization of our joint ventures.

Jerry Sweeney, President and CEO

Thank you, Tom. The main takeaways are that our portfolio remains strong with very little rollover exposure until 2026, providing a solid foundation. We expect strong mark-to-markets, will continue to manage our capital spending effectively, and anticipate an increase in leasing activity in both our development and operating portfolios. We are implementing a solid business plan that enhances liquidity, as demonstrated by our recent actions, and maintains the strength of our operating portfolio. Acknowledging the challenges in leasing space, we have an excellent team in leasing and property management that engages with our customers daily, and our pipeline is growing, focusing clearly on leasing our development projects to drive future earnings growth. As always, we wish you and your families well, and now we’re happy to take your questions. We ask that you limit yourself to one question and a follow-up. Kevin, we are ready for your questions.

Operator, Operator

Our first question comes from Steve Sakwa with Evercore ISI. Your line is open.

Steve Sakwa, Analyst

Thanks. Good morning, everyone. I guess first, Jerry, maybe could you just elaborate a little bit more on the discussions you're having, particularly on the development side, both for Austin and the Schuylkill yards projects. I'm just curious how corporates are thinking about the economy, interest rates, we've seen in other sectors. There's a little bit of indecision making and kind of pausing on leasing activity. So I'm just curious the proposals and pipelines have been pretty high, but obviously you haven't converted those. And I'm just wondering kind of what the holdup is. Or is it getting those projects further to completion? Is it more just the uncertainty of the economy that's keeping people at bay?

Jerry Sweeney, President and CEO

Yes. Good morning, Steve. Good question. Thank you. Look, I think it's a combination of a lot of the factors you mentioned. I think there's no question that leasing velocity continues to accelerate in the higher quality properties of which obviously these developments are top of the market. And that's also juxtaposed against what we're seeing is a decline in our competitive set because of those other building owners having some financial difficulties. Our strong financial stability is actually a magnet for bringing more traffic into our portfolio. So we feel very good about the near and intermediate term outlook for generating additional leasing prospecting through our portfolio. And our leasing teams have done an amazing job of outreach, networking to make sure that we see every possible deal that's even whispered is taking place in all of our core markets. So I think the capture, Steve, is working very, very effectively. I do think to some degree in the development project, Steve, to your point is, until the projects were really done, it was hard to generate either a sense of urgency or a sense of true excitement. I think that's why I mentioned we're reaching the full delivery of a number of these projects now, where the lobbies are completely done, the primary landscaping is done, and all the amenities spaces are in their very final stages. That captures the imagination of tenants and creates a sense of motivation on their part to lease, especially when the pipelines tend to be as strong as they are. There is no question, however, as we talked on the last call about the macro uncertainty, really has continued to play into the extended cycle times that we're seeing, particularly the larger tenants. The smaller tenants, we seem to not really experience that, but you're in the 100,000 square feet, 150,000 square foot larger tenant. Certainly, the macro climate, the lack of clarity on the economic picture where rates are going certainly plays into that. That being said, as we point out, we're doing a lot more space planning this quarter than we did before the end of the year. We have a number of proposals outstanding that we think will gain traction. So we do hope that in the near term we can convert some of this pipeline to actual lease executions. Even on the spec suites we're building out, we're seeing great activity on that. That tends to be a more compressed cycle time. But I think we're happy with the level of activity we're seeing through all three of the core development projects on the commercial side, anxiously pushing every possible prospect to get leases across the finish line, and actually are very happy with the level of velocity we're seeing on our 3025 residential component as we're kind of moving into key leasing season with the uptick in both tour activity and lease execution there.

Steve Sakwa, Analyst

Okay, thanks. And just one follow-up. I don't know if you can really comment on this, but I know IBM had signed a lease to move to a competitive project in the same submarket in Austin. And I'm just wondering, given the challenges of getting financing, what are the prospects or chances that, and maybe the timeline of maybe that deal not happening? And I guess, are there rising prospects that maybe IBM could stay in Uptown ATX?

Jerry Sweeney, President and CEO

I can't comment on IBM's intentions or the financing efforts of other developers. There are many rumors about whether that deal will go through. What I can say is that we are monitoring the situation regularly. It remains to be seen if there are any changes in IBM's plans regarding that new location. There are knowledgeable people involved from both sides, and if there's a solution for financing the project, whether that means IBM taking more space or downsizing the building, I can't specify their motivations. However, we maintain close communication with IBM, who has been a long-time tenant. Our local team has strong relationships with their leadership, and we will keep an eye on the situation. If an opportunity arises, we will certainly be ready to seize it.

Operator, Operator

One moment for our next question. Our next question comes from Anthony Paolone with JPMorgan. Your line is open.

Anthony Paolone, Analyst

Yes, thanks. Good morning. Jerry, you mentioned some pretty specific stats around the flight to quality. I think it was 55% moving up. Can you maybe just talk a bit about when you're seeing tenants move up the quality spectrum, are they taking less space than they had before? Are they trying to keep their total rent dollars the same? Like, or are they willing to just take on more rent? Just trying to understand that behavior a bit better.

Tom Wirth, Executive Vice President and CFO

Yes. Hi, Tony. George and I'll tag team. I think what we're seeing is a continued dynamic of employers really want to bring their employees not just back, because most of them are back at this point, but kind of really position their employees in a quality workspace that helps define their brand and their culture. Very, very important to have the physical platform serve as that connective tissue between productivity, brand, and culture. So we think that's an inescapable dynamic going forward. And I think that's why you've seen such a disparity in the performance of lower quality and kind of class A properties throughout almost every market in the country. You've seen the same dynamic on rental rate increases, and you're certainly seeing higher pressure on rental rates across the board in the higher quality properties. So real growth and effective rents in a number of our markets. George, maybe you can speak to some of the things that you're seeing on the leasing front.

George Johnstone, Executive Vice President of Operations

Yes, I think, Tony, to the specifics of your question, I mean, I do think that the prospects who are taking that flight are focused on getting the right footprint as their primary objective. And if the rental expense for them remains the same, they're okay paying that higher per square foot to be in the better building with those better systems. We're seeing that both downtown in our trophy set, and we're seeing that obviously in our Radnor portfolio, where we continue to see not only new tenants coming into those buildings and markets but we're also seeing a good number of expansions occurring at the same time. So this quarter, we renewed a 40,000 square foot tenant in Radnor, who at the same time expanded by an additional 12,000 square feet. So already in a high-quality market at a very good rental rate for us, they made the decision they actually needed more space to get all their people back and get them back in the way they wanted them to operate their business.

Tom Wirth, Executive Vice President and CFO

And just a final point on that, Tony. There's no doubt tenants are really evaluating how much space they require, and we aren't witnessing much hot desking or office sharing or reduction in workstation sizes. A factor contributing to this, particularly in CBD Philadelphia, is that when tenants move from some of the older buildings, the efficiency of our floor plates is significantly better than what they are leaving. This allows them to accommodate the same number of employees with the same amount of square footage per person in an even smaller space due to the efficiency of the floor plate. We've observed that several tenants, especially law firms, are downsizing; they no longer need to maintain large law libraries and are reorganizing their office space. This dynamic is certainly at play. However, I believe some of the situations we've encountered are really a result of floor plate and overall building efficiency, and better control over operating expenses has been a significant influence on the space they occupy.

Anthony Paolone, Analyst

Okay, great. That's a lot of good color. Thank you. And then just my follow-up is maybe for Tom, just kind of understand on the guidance for the year, understand interest costs taking the top end down. Just wondering again if you can just crystallize why the bottom is staying where it is, and also whether or not, if you look at your speculative revenue, it's still pretty early in the year, and you guys have basically knocked it out, like, is there any upside from there?

Tom Wirth, Executive Vice President and CFO

Well, I'll let George handle the spec revenue, but I think on the guidance, I think we just wanted to take one side of it down and said we want to take the interest expense, which was fairly calculable. This quarter specifically is going to have some double interest. And that's really what's driving it. I mean, there may be a little if we use the line, and we do have a couple floating rate instruments; the rate curve has certainly moved out a little bit, showing less rate cuts, if any, this year. So we kind of left it alone for now, Tony. And then we'll see how the year progresses. We do have as part of our business plan some transactional activity, so we just wanted to leave the range where it was for now and see how it plays out going into the next quarter.

George Johnstone, Executive Vice President of Operations

Tony, it's George again. I think on spec revenue, as we touched on, we're 98% at the midpoint, kind of 96% at the top end of the range. I think to outperform that top end, a couple of opportunities for us. One would be that tenants that have expressed a likelihood to not renew ultimately decide to maybe kick the can, even if it's only for another year, so we can kind of bridge some of what was perceived to be downtime. The other thing is we've got a number of spec suites already in the portfolio. Just every region has maybe four to five existing spec suites that are basically plug-and-play. So all we need somebody to do is select the building and they can immediately move in and start to generate revenue for us. As opposed to normal vacancy where we're going to have to go through a permitting process, a build process, after we get the prospect and negotiate the lease, and we're kind of considering that we're already in May. The calendar is quickly closing in terms of additional revenue for 2024.

Operator, Operator

One moment for our next question. Our next question comes from Michael Griffin with Citi. Your line is open.

Michael Griffin, Analyst

Great, thanks. I wanted to go back to Uptown ATX for a bit. I saw in the supplemental, the stabilization was pushed out by a quarter. Can you maybe give some more color as to why this was the case? And the property is about 350,000 square feet or so. What size tenant would you need to see take down a large chunk of space to kind of justify your thoughts around hitting those stabilized yields?

Jerry Sweeney, President and CEO

As I mentioned, the pipeline currently includes tenants ranging from 5,000 square feet to several hundred thousand square feet. Larger tenants can help us stabilize more quickly. Given the current pipeline, the increase in the number of tours, and the proposals we’ve sent out, we believe achieving our goals is realistic. We will keep monitoring the situation. The market is experiencing an imbalance with a lot of supply coming in and a significant drop in demand. This is the first quarter in some time that has shown positive absorption, along with increased tour activity compared to the third and fourth quarters of 2024. We're encouraged that some large users have emerged for our project, which were not present at the end of last year. However, securing leased space in Austin will be challenging due to the dynamics of the market. We are confident in the underlying demand drivers in that area and are willing to continue investing there. Last year, approximately 135 people moved to Austin daily. Our business development team is examining over 50 different relocations. Austin is a volatile market that can shift rapidly, and we believe our project stands out in terms of presentation, efficiency, amenities, and location. With the project completed and the amenity floor finished, along with residential openings soon, we are optimistic that our vision for the neighborhood will materialize, leading to increased leasing activity.

Michael Griffin, Analyst

Yes. And then I guess the first part of my question, why was the stabilization quarter pushed out one quarter relative to last quarter?

Jerry Sweeney, President and CEO

Yes, I think it's just our best guess at this point on how we're seeing some of these tenants' sequence in, given the amount of time to get permits done and the amount of time to build out the space.

Michael Griffin, Analyst

Got you. That's helpful. Regarding the joint venture properties that were restructured, specifically Mid-Atlantic and Rockpoint, should we view this as handing back the keys? You mentioned the possibility of additional joint ventures that could lead to debt attribution later this year. Should we interpret that as related to the MAP venture, or which of the JVs should we focus on?

Jerry Sweeney, President and CEO

Yes, that's a great question. It doesn't necessarily mean there won't be a successful restructuring of the debt for the two ventures where we won't be recognizing operating results going forward. Discussions are still ongoing, and we aren't sure where they will lead. By the end of 2024, as you might remember, we wrote down our investment in those properties. Considering there's no investment base by Brandywine and that the mortgages are completely non-recourse, we felt it was appropriate not to recognize those as ongoing operations for us; however, that could change if a recapitalization makes sense for us. Regarding the other venture you mentioned, MAP, discussions with the lender are still underway, though they are progressing more slowly than we would like. The same dynamics apply there, where we have a negative investment base but have generated significant profits over the years. Until the debt restructuring is finalized, or we mutually conclude that it cannot be completed, we will continue to see it as an operating concern.

Michael Griffin, Analyst

Great. That's good for me. Thanks for the time.

Jerry Sweeney, President and CEO

Thank you.

Operator, Operator

One moment for our next question. Our next question comes from Dylan Burzinski with Green Street. Your line is open.

Dylan Burzinski, Analyst

Hi, guys. Thanks for taking the question. I guess just sort of going back to the questions on the development pipeline as we think about the projected cash yields that you guys put in your supplemental. Given the lack of leasing volume thus far, do you guys see those at risk of going lower as you start to sign leases, or how should we be thinking about that?

Jerry Sweeney, President and CEO

Great question. Look, we assess that with every lease transaction or every proposal we put out, and I think at this point we still feel confident that those yields will hold firm. We're seeing a slight uptick on potential TI costs, but right now we're able to project out in our proposal that we'll get compensated for that additional rental rates. The assessment we've made is that, yes, we will achieve those yields. Certainly, we need to make sure that as we start to execute leases, we reevaluate what the level of TI is to get those transactions done. But as of right now, given the visibility we have on all the prospects that are in the pipeline for each of those three commercial properties, we feel comfortable with those yields.

Dylan Burzinski, Analyst

And I appreciate the comment sort of, on the leasing pipeline and the increases you've seen there over the last several quarters. I guess just pairing that with your comments on a lack of large lease maturities over the next few years, it sounds like you guys anticipate occupancy bottoming sometime in 2024. Is that sort of a fair characterization, or are we missing something?

Tom Wirth, Executive Vice President and CFO

I'm sorry, Dylan, you said occupancy?

Dylan Burzinski, Analyst

Occupancy bottoming in 2020, sometime in 2024.

Tom Wirth, Executive Vice President and CFO

Yes, I think so. I mean, I think on a couple of different fronts. Number one, those properties that are depicted on page 4, we do expect something to happen with those, and they've got a 400-basis point impact on occupancy today. But again, as noted, the large move-outs have fortunately been kind of put in the rear-view mirror for us. Our largest rollover in '25 is the 55,000 square foot tenant that we're currently speaking with about renewal. We have nothing over 50,000 square feet in 2026. I think it should only be a rising tide at this point, both from where the core portfolio is today and kind of ideally moving some of these conversion and/or sale candidates kind of off the books.

Operator, Operator

One moment for our next question. Our next question comes from Omotayo Okusanya with Deutsche Bank. Your line is open.

Omotayo Okusanya, Analyst

Yes, good morning. Quick question about the 3151 development. I was just curious about the status of getting the construction loan on that, and if it turns out that you may not be successful in getting that, what are kind of the thoughts about future funding to complete the project?

Tom Wirth, Executive Vice President and CFO

Sure. This is Tom. I think on the 3151 financing, we had started a process to look at financing, and the market for construction loans has been difficult. However, as we talked about, we have a very good pipeline, and as we look at some of the opportunities for an initial lease, we think that that will give us room to then go get that financing done. We talked to a number of institutions that love the project. They just need to see a little bit of leasing done. They need to see us realize the rents. As someone asks how the yield looks? I think then we'll be able to get a loan. We put it in at 55%. I still feel that that's a reasonable loan to cost that we can achieve. We are starting to see a little bit of lending going on in the construction area. We’re hopeful the building will be CO-ed and we may get a lease or two done, and that'll give us enough room to then get financing done. The project looks great, and the lenders that we showed it to previously were very interested. They just think that the prelease will help them get it financed internally.

Omotayo Okusanya, Analyst

That's helpful. And then could you just talk a little bit about how you are thinking about the dividend at this point, just kind of given some of the capital needs versus sources of capital as well?

Tom Wirth, Executive Vice President and CFO

Yes. Look, certainly, I think the board reviews that on a regular basis along with management, and we did reduce it down to $0.60 per share, so that $80 million a year in total payments. I think as we looked at the decision back then, and as we view it today, one of the key variables was ensuring that we had clear runway on the loan maturity front. The bond transaction did a couple of things that reinforced the fact that we can run the company with ample liquidity for the foreseeable future, keeping that line of credit close to zero. Second, it reinforced to all of our fixed income stakeholders on the unsecured side that Brandywine is committed to the unsecured marketplace. Our hope is as the conditions improve, as the debt mark-to-market becomes positive versus negative, we'll be able to restore our investment-grade rating, and that we wind up in a very good position, both from a liquidity and a balance sheet improving standpoint. One of the key issues we take a look at is liquidity, second was portfolio stability, and what is going to be the ongoing consumption of capital? As we've talked with other questions on the call, we have very little rollover going forward, and we think a very stable platform. When we look at the development pipeline, there's really very little left to fund. Even to the question on the 3151 construction loan, the vast majority of money is already invested to kind of deliver that build into core and shell condition. The additional capital required is, as we say in the business, good news capital tied to leasing activity. Those three elements are top of mind for the board as they think about how to balance delivering a good quarterly return to our shareholders despite the travails of the capital markets and its impact on our stock price, as well as what the visibility is on liquidity and alternative investment opportunities within the company.

Omotayo Okusanya, Analyst

Great. Thank you.

Tom Wirth, Executive Vice President and CFO

Thank you.

Jerry Sweeney, President and CEO

Thanks, Omotayo.

Operator, Operator

One moment for our next question. Our next question comes from Upal Rana with KeyBanc. Your line is open.

Upal Rana, Analyst

All right. Thanks for taking the question. Could you give us some color on how the lease-up at 3025 JFK Resi is going, and what you anticipate for One Uptown when it comes online in 3Q?

Jerry Sweeney, President and CEO

Yes, great question. I think we're pretty pleased with the acceleration of activity at the 3025 residential project. I mean, we're kind of doing 20 units a month, which is very much aligned with our plan; effective rents are holding and the demographic of the tenant mix we're seeing that building is pretty much aligned with what we were hoping for. We think that demographic will continue to view the project very favorably. We do anticipate that by the end of this year we'll kind of be in the 80% to 85% lease range. That's going to our financial plan. Down at Uptown ATX, those units won't really start coming online until later in the second quarter, early third quarter. The marketing plan and marketing launch have taken place. We're already starting to do hard hat tours, and we have a couple of leases out for signature already. But we do anticipate, given the delivery, excuse me, delivery timeline of that project, that will be kind of in that 50% occupied range by the end of the year. Both the residential market in Philadelphia and in Austin are very competitive, so we're keeping a close eye on concession packages. I mentioned here in Avira, we seem to be doing very well versus our budget. We'll keep a close eye on that down in Austin. We do think we have the quality advantage based on some of our direct competition both in Philadelphia and in Austin. But we'll have to see how the actual traction and lease executions go on both properties going forward.

Upal Rana, Analyst

Great, that was helpful. And then going back to your renewals and your retention rate, you felt comfortable increasing that expectation. What's really driving the comfort that you have? And do you anticipate the higher levels of renewals to get you to positive net absorption in the near-term? I know you mentioned you expect occupancy to bottom at some point this year, but maybe a little timing or when do you expect on timing?

Jerry Sweeney, President and CEO

Yes, I think our ability to move the retention range was really based on the fact that we've executed the renewals necessary to make that change. So very little speculative renewal left to kind of get to that new target. It was primarily driven by a couple of leases where early indications were that the tenant may not renew, and that's kind of how our original business plan was compiled. When we got clarity on the fact that they did in fact renew, we obviously were able to make the adjustment. Moving that range just further solidifies our comfort that we deliver year-end occupancy within the original business plan range.

Upal Rana, Analyst

Great. Thank you. That's all for me.

Jerry Sweeney, President and CEO

Thank you.

Operator, Operator

And I'm not showing any further questions at this time. I'd like to turn the call back over to Jerry for any closing remarks.

Jerry Sweeney, President and CEO

Great. Kevin, thank you. Look, thank you all again for participating in our first quarter '24 earnings call. We look forward to updating you on our business plan activities on our second-quarter earnings call in the summer. So have a great day, and thank you again for participating.

Operator, Operator

Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.