Executive Summary / Key Takeaways

• Brandywine Realty Trust is undergoing a critical transitional period, strategically recapitalizing its development joint ventures and divesting non-core assets to reduce leverage and enhance long-term earnings, with full impact expected in 2026.
• Despite macroeconomic headwinds and a challenging office market, BDN's core portfolio demonstrates resilience, benefiting from a "flight to quality" trend and a narrowing competitive set in its key Philadelphia and Austin markets.
• The company's strategic focus on urban, transit-oriented, and amenity-rich properties, coupled with a pivot towards life science and mixed-use developments, underpins its competitive positioning and future growth drivers.
• Recent financial maneuvers, including a $300 million bond issuance and the acquisition of 3025 JFK, aim to improve liquidity and financial flexibility, though the dividend was adjusted to $0.08 per share to conserve capital and align with sustainable payout ratios.
• Key risks include protracted tenant decision-making, the capital-intensive nature of development, and the need to successfully execute recapitalizations to mitigate the drag from preferred equity costs and high-interest debt.

A Foundation for Future Growth: Brandywine's Strategic Evolution

Brandywine Realty Trust ($BDN) operates as a self-administered and self-managed real estate investment trust, primarily engaged in the acquisition, development, ownership, and management of office and mixed-use properties across Philadelphia, PA, Austin, TX, Metropolitan Washington, D.C., Southern New Jersey, and Wilmington, DE. The company's strategic journey, marked by both growth and adaptation, has positioned it at a pivotal juncture, focusing on enhancing its portfolio quality and financial resilience amidst a dynamic real estate environment. Its history includes significant portfolio management, such as the sale of a Philadelphia property in March 2017, with installment proceeds still contributing to its financials in 2025.

The period of 2023-2024 presented considerable challenges, including multiple credit rating downgrades from Moody's and S&P, which increased borrowing costs. Despite these headwinds, 2024 was operationally robust, with BDN exceeding its speculative revenue target by 8% and achieving a 63% tenant retention rate. The company also made substantial progress on strategic goals, completing over $300 million in dispositions and reducing joint venture attribution by $229 million. These actions underscore a clear commitment to portfolio optimization and balance sheet strengthening.

BDN's competitive positioning is rooted in its strategic emphasis on urban, town center, and transit-oriented properties. This focus provides a distinct advantage by offering enhanced accessibility and a rich amenity base, which are increasingly critical for attracting and retaining tenants in today's market. The company's properties compete primarily on location, total occupancy costs, services, amenities, and design. BDN's competitive set, particularly in Philadelphia CBD and the Pennsylvania suburbs, is narrowing as older buildings are converted to residential uses or face financial distress, effectively removing them from the office inventory. In Philadelphia CBD, for example, potentially 11 buildings totaling 5.1 million square feet are being converted, representing an 11% reduction in the overall office inventory. This trend, coupled with minimal new construction, places BDN's quality assets in an increasingly favorable competitive position.

BDN's approach to property development and management leverages modern amenities, smart building concepts, and specialized market segment focus, such as life science, to create highly desirable, efficient, and future-proof spaces. This strategic differentiation is evident in its "flight to quality" trend, where 51% of new leases in Q3 2025 were driven by tenants seeking higher-quality environments. The company's engagement with the life science sector, particularly through projects like 3151 Market Street in Schuylkill Yards, represents a specialized offering that caters to a growing, albeit recovering, market backed by a strong regional healthcare ecosystem. While BDN does not detail proprietary "technology" in the traditional sense, its strategic deployment of capital into modern, amenity-rich, and well-located developments, capable of accommodating diverse tenant needs from traditional office to specialized life science, serves as a crucial differentiator. This strategic foresight aims to enhance tenant appeal, drive higher occupancy rates, and secure recurring revenue streams, ultimately contributing to stronger margins and growth.

Financial Performance and Operational Resilience

Brandywine's financial performance in 2025 reflects a "transitional earnings year," characterized by an "earnings trough" due to the accounting treatment of its development joint ventures. For the nine months ended September 30, 2025, the company reported a net loss of $141.99 million, compared to a net loss of $151.87 million for the same period in 2024. Total revenue for the nine months ended September 30, 2025, was $363.50 million, a decrease from $383.61 million in the prior year. This decline was primarily driven by asset sales, including five office properties in Plymouth Meeting, PA, and One and Two Barton Skyway in Austin, TX, partially offset by contributions from recently completed properties like 155 King of Prussia Road.

Despite the overall revenue decrease, BDN's core operating metrics show resilience. The Same Store Property Portfolio's operating margins decreased slightly to 63.30% in Q3 2025 and 63.20% for 9M 2025, from 64.60% and 64.20% respectively in 2024. However, operating expense recovery rates for the Same Store Property Portfolio improved, reaching 54.40% in Q3 2025 and 53.90% for 9M 2025. The company's leases are largely structured as base year or triple net, with approximately 97% including annual rent escalations, mitigating the impact of inflation on earnings.

The mark-to-market for Q3 2025 was -1.8% on a GAAP basis and -4.8% on a cash basis, heavily influenced by a large as-is renewal in Austin. Without this specific lease, the company would have reported positive mark-to-market figures. The capital ratio for Q3 2025 was 10.9%, slightly above the 2025 business plan range, but management aims to maintain a 9% to 10% range for the full year, representing the lowest in over five years. This reflects strong capital control and construction efficiencies.

Liquidity remains a key focus. As of September 30, 2025, BDN held $75.5 million in cash and cash equivalents and had $600 million available under its Unsecured Credit Facility.

A significant strategic move in October 2025 was the issuance of $300 million in 6.12% Guaranteed Notes due 2031, with $245 million of the proceeds used to repay a secured CMBS loan. This action unencumbered the operating portfolio, adding $45 million to the unencumbered NOI pool, and provides greater flexibility for leasing and asset management. BDN has no unsecured bond maturities until November 2027, providing a window to further optimize its debt structure.

Development Pipeline and Strategic Initiatives

BDN's development pipeline is central to its long-term growth narrative. The company is actively managing several key projects:

• 3025 JFK Boulevard (Schuylkill Yards): The commercial component is 92% leased and is expected to stabilize in Q1 2026. The residential component, Avira, achieved full economic stabilization in Q3 2025 and is 99% leased, demonstrating strong performance with double-digit rent increases on renewals. In October 2025, BDN acquired its partner's preferred equity interest in this venture for $70.5 million, consolidating it as a wholly-owned asset and assuming a $178 million construction loan. This move eliminates a significant earnings drag from preferred charges and provides flexibility for refinancing at lower rates.
• 3151 Market Street (Schuylkill Yards): This life science project was substantially delivered in Q1 2025 and is in a capitalization phase through the remainder of 2025. The leasing pipeline has grown to 1.7 million square feet, with 60% office and 40% life science prospects. However, the stabilization date has been conservatively pushed back to Q4 2026 due to the challenging fundraising climate and public policy uncertainty impacting the life science market.
• One Uptown ATX (Austin): This office component is 40% leased, with an additional 15% in final lease negotiations. The pipeline remains strong, and spec space is being built out to accommodate accelerated move-ins. Stabilization is anticipated in Q2 2026. The residential component, Solaris House, achieved stabilization in Q3 2025, with a 64% renewal rate and 8% rate increases.
• 165 King of Prussia Road (Radnor): A 121-room hotel development commenced in Q2 2025, adjacent to BDN's 2.1 million square foot office/life science portfolio. With a project cost under $60 million and an anticipated 10% return on cost, this hotel will serve as a key amenity for tenants and the surrounding medical campus, with completion expected in Q2 2026.

These development projects are projected to generate approximately $41 million of annualized NOI increase upon stabilization, serving as a key driver for the company's future income stream. The recapitalization of these ventures is a top priority, aimed at retiring preferred investments, recovering invested capital, improving financial metrics, and reducing overall leverage.

Competitive Landscape and Strategic Positioning

BDN operates in a highly competitive real estate market, vying with major REITs such as Boston Properties (BXP), Vornado Realty Trust (VNO), SL Green Realty Corp. (SLG), and Kilroy Realty Corporation (KRC). While these competitors often boast larger scale and established brands in gateway cities, BDN carves out its niche through a focused strategy on urban, transit-oriented, and community-integrated developments.

Compared to Boston Properties, BDN's transit-oriented properties in shared markets like Washington, D.C., may offer greater accessibility, potentially leading to stronger tenant retention. BDN's emphasis on community-focused developments also differentiates it from BXP's often larger-scale, premium office towers. Against Vornado Realty Trust, BDN's more flexible leasing options in its diverse markets could prove more adaptable to evolving tenant needs than VNO's dense urban hubs. However, BDN may lag VNO in revenue growth and financial health, as VNO's iconic properties often yield stronger margins.

In comparison to SL Green Realty Corp., BDN's broader geographic footprint across Philadelphia, Austin, and Washington, D.C., provides diversified market positioning and resilience against localized downturns. While SLG excels in tech-enabled urban office transformations, BDN's strength lies in its regional expertise and community-oriented developments. Kilroy Realty Corporation, with its West Coast and tech-driven focus, presents a different competitive dynamic. BDN's East Coast and Texas-centric strategy offers better diversification, though it may lag KRC in attracting innovation-driven tech tenants.

BDN's competitive advantages are its deep localized market knowledge, particularly in Philadelphia and Austin, and its ability to execute complex mixed-use developments that integrate office, residential, and retail components. The "flight to quality" trend significantly benefits BDN, as its modern, amenity-rich properties attract tenants seeking premium environments. The narrowing competitive set in Philadelphia, driven by office-to-residential conversions, further strengthens BDN's market position. The company's strategic pivot towards life sciences and its engagement with the CapMetro project in Austin, which is expected to significantly improve labor pool accessibility, are further examples of how BDN leverages market trends to enhance its competitive standing.

Outlook, Guidance, and Risks

Brandywine's management characterizes 2025 as a "transitional earnings year" or "earnings trough," with a revised FFO guidance range of $0.51 to $0.53 per share. This outlook is primarily impacted by the expensing of preferred coupon payments and interest charges related to its residential projects, 3025 JFK and One Uptown, as well as delays in recapitalizing development projects. The full positive impact of these recapitalizations is not expected until 2026.

Despite these near-term earnings pressures, the company anticipates stable operating performance, with the current portfolio expected to generate positive rental rate increases for the remainder of fiscal 2025. Occupancy levels are projected to be incrementally higher, between 88% and 89%, with lease levels between 89% and 90%. Same-store NOI growth is expected to range from 1% to 3% on a cash basis and negative 1% to positive 1% on a GAAP basis. The company's capital ratio is projected to be between 9% and 10% for 2025, the lowest in over five years, reflecting disciplined capital control.

Key risks include tenant rollover, with approximately 1.40% of total square footage scheduled to expire in the remainder of 2025. Tenant credit risk and development risks, such as construction delays and financing challenges, also remain pertinent. The 3151 Market Street Venture, for instance, has not yet secured third-party financing, obligating BDN to fund construction costs. Macroeconomic conditions, including inflation and high interest rates, continue to pose risks to net income and cash flows. Credit rating downgrades could further limit access to debt markets and increase borrowing costs.

In Q3 2025, the Board lowered the quarterly dividend from $0.15 to $0.08 per share. Management believes this revised dividend is sustainable and aligns with historical CAD payout ratios, aiming to generate $50 million of internal capital for reinvestment. They anticipate that as development projects stabilize and are recapitalized, FFO and CAD will grow through 2026, enabling payout ratios to return to historical levels without further dividend reductions.

Conclusion

Brandywine Realty Trust is navigating a complex, yet potentially transformative, period. The company's strategic focus on high-quality, transit-oriented, and amenity-rich properties, coupled with its targeted investments in life science and mixed-use developments, positions it to capitalize on the ongoing "flight to quality" in the office sector and the narrowing competitive landscape in its core markets. While 2025 is projected as an earnings trough due to the accounting impact of its development joint ventures, BDN's aggressive recapitalization efforts, particularly the recent acquisition of 3025 JFK, are designed to unlock significant future NOI and reduce leverage, with substantial benefits anticipated in 2026.

The company's commitment to strengthening its balance sheet, as evidenced by recent debt issuances and repayments, alongside a disciplined approach to capital expenditures, underscores a clear path towards achieving investment-grade metrics. Investors should closely monitor the successful execution of development project recapitalizations and the continued lease-up of its pipeline, as these are critical to realizing the full value of BDN's strategic initiatives and driving long-term shareholder returns. The revised dividend policy, while a near-term adjustment, reflects a prudent capital conservation strategy aimed at fostering sustainable growth and financial stability in the years ahead.